Gymboree (GYMB) 10-Q 2012 Q1 Quarterly report

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 28, 2012

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 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)

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  ¨    No  ¨*

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated Filer	¨
Non-accelerated filer	x  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of June 11, 2012, the registrant had 1,000 shares of common stock outstanding, par value $0.001 per share, all of which are owned by Giraffe Holding, Inc., the registrant’s indirect parent holding company, and are not publicly traded.

* The Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, but is not required to file such reports under such sections.

TABLE OF CONTENTS

Part I - FINANCIAL INFORMATION	3
Item 1. FINANCIAL STATEMENTS	3
CONDENSED CONSOLIDATED BALANCE SHEETS	3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS	4
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)	5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	29
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35
Item 4. CONTROLS AND PROCEDURES	36
Part II – OTHER INFORMATION	37
Item 1. LEGAL PROCEEDINGS	37
Item 1A. RISK FACTORS	37
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	37
Item 3. DEFAULTS UPON SENIOR SECURITIES	37
Item 4. MINE SAFETY DISCLOSURES	38
Item 5. OTHER INFORMATION	38
Item 6. EXHIBITS	39
SIGNATURES	40
Exhibit Index	41

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Part I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

		April 28, 2012			January 28, 2012			April 30, 2011
Assets
Current Assets:
Cash and cash equivalents		$	88,268		$	77,910		$	48,153
Accounts receivable, net of allowance of $58, $114 and $189			25,264			27,277			16,527
Merchandise inventories			185,691			210,212			163,666
Prepaid income taxes			3,220			3,736			16,549
Prepaid expenses			3,573			5,532			5,082
Deferred income taxes			30,800			36,115			35,776
Total current assets			336,816			360,782			285,753
Property and Equipment:
Land and buildings			22,428			22,428			22,397
Leasehold improvements			153,374			146,497			131,242
Furniture, fixtures and equipment			86,052			82,606			73,858
			261,854			251,531			227,497
Less accumulated depreciation and amortization			(59,435	)		(49,379	)		(16,909	)
			202,419			202,152			210,588
Goodwill			899,097			899,097			927,397
Other Intangible Assets			594,574			599,195			613,396
Deferred Financing Costs			46,220			47,915			52,840
Other Assets			5,504			4,646			13,059
Total Assets		$	2,084,630		$	2,113,787		$	2,103,033
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable		$	48,954		$	79,027		$	36,201
Accrued liabilities			91,772			94,178			80,275
Current portion of long-term debt			15,648			17,698			8,200
Total current liabilities			156,374			190,903			124,676
Long-Term Liabilities:
Long-term debt			1,192,241			1,192,171			1,207,613
Lease incentives and other deferred liabilities	��		31,082			28,681			21,666
Unrecognized tax benefits			8,172			7,898			7,955
Deferred income taxes			242,244			245,495			251,077
Total Liabilities			1,630,113			1,665,148			1,612,987
Commitments and Contingencies			—			—			—
Stockholders’ Equity:
Common stock, including additional paid-in capital ($.001 par value: 1,000 shares authorized, issued and outstanding)			520,105			519,589			524,884
Accumulated deficit			(63,394	)		(68,389	)		(33,485	)
Accumulated other comprehensive loss			(5,430	)		(5,825	)		(1,353	)
Total Stockholders’ Equity			451,281			445,375			490,046
Noncontrolling interest			3,236			3,264			—
Total Equity			454,517			448,639			490,046
Total Liabilities and Stockholders’ Equity		$	2,084,630		$	2,113,787		$	2,103,033

See notes to condensed consolidated financial statements.

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

	13 Weeks Ended
	April 28, 2012			April 30, 2011
Net sales:
Retail	$	288,116		$	265,882
Gymboree Play & Music		5,792			2,925
Retail Franchise		3,843			1,449
Total net sales		297,751			270,256
Cost of goods sold, including buying and occupancy expenses		(175,927	)		(159,396	)
Gross profit		121,824			110,860
Selling, general and administrative expenses		(91,739	)		(84,566	)
Operating income		30,085			26,294
Interest income		59			53
Interest expense		(21,658	)		(24,003	)
Loss on extinguishment of debt		(1,237	)		(19,563	)
Other (expense) income, net		(66	)		30
Income (loss) before income taxes		7,183			(17,189	)
Income tax (expense) benefit		(3,013	)		6,749
Net income (loss)		4,170			(10,440	)
Net loss attributable to noncontrolling interest		826			—
Net income (loss) attributable to The Gymboree Corporation	$	4,996		$	(10,440	)

See notes to condensed consolidated financial statements.

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	13 Weeks Ended
	April 28, 2012			April 30, 2011
Net income (loss)	$	4,170		$	(10,440	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(29	)		533
Unrealized net gain (loss) on cash flow hedges, net of tax of $31 and $—		435			(2,124	)
Total other comprehensive income (loss), net of tax		406			(1,591	)
Comprehensive income (loss)		4,576			(12,031	)
Comprehensive loss attributable to noncontrolling interest		814			—
Comprehensive income (loss) attributable to The Gymboree Corporation	$	5,390		$	(12,031	)

See notes to condensed consolidated financial statements

5

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	13 Weeks Ended
	April 28, 2012			April 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	4,170		$	(10,440	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Write-off of deferred financing costs and original issue discount		1,237			15,860
Depreciation and amortization		14,248			14,245
Amortization of deferred financing costs and accretion of original issue discount		1,802			1,702
Interest rate cap contracts—adjustment to market		53			—
Loss on disposal/impairment of assets		62			768
Provision (benefit) for deferred income taxes		2,098			(6,952	)
Share-based compensation expense		1,407			1,402
Other non-cash expense		786			—
Change in assets and liabilities:
Accounts receivable		(380	)		(2,853	)
Merchandise inventories		24,046			20,764
Prepaid expenses and other assets		1,902			(244	)
Income taxes payable/prepaid income taxes		525			(398	)
Accounts payable		(30,078	)		(18,302	)
Accrued liabilities		(5,378	)		(861	)
Lease incentives and other deferred liabilities		3,476			4,267
Net cash provided by operating activities		19,976			18,958
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(8,625	)		(7,891	)
Acquisition of business, net of cash acquired		—			(1,352	)
Other		(176	)		(61	)
Net cash used in investing activities		(8,801	)		(9,304	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Term Loan		—			820,000
Payments on Term Loan		(2,050	)		(822,050	)
Proceeds from ABL facility		—			20,656
Payments on ABL facility		—			(20,656	)
Deferred financing costs		(1,274	)		(6,529	)
Investment by Parent		—			14,865
Investment by affiliate of Parent		2,400			—
Net cash (used in) provided by financing activities		(924	)		6,286
Effect of exchange rate fluctuations on cash		107			89
Net increase in cash and cash equivalents		10,358			16,029
CASH AND CASH EQUIVALENTS:
Beginning of period		77,910			32,124
End of period	$	88,268		$	48,153
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures incurred, but not yet paid	$	5,495		$	5,058
Deferred financing costs incurred, but not yet paid	$	—		$	139
Non-cash capital contribution to noncontrolling interest	$	786		$	—
OTHER CASH FLOW INFORMATION:
Cash paid for income taxes, net of refunds received	$	889		$	586
Cash paid for interest	$	11,045		$	11,336

See notes to condensed consolidated financial statements.

6

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The unaudited interim condensed consolidated financial statements, which include The Gymboree Corporation (the “Company,” “we” or “us”) and its 100%-owned subsidiaries, as well as Gymboree (China) Commercial and Trading Co. Ltd. (“Gymboree China”) and Gymboree (Tianjin) Educational Information Consultation Co. Ltd. (“Gymboree Tianjin”) (collectively, the “Joint Venture” or “VIEs”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. 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 fiscal year ended January 28, 2012 filed with the Securities and Exchange Commission on April 26, 2012.

The accompanying interim condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. All such adjustments are of a normal and recurring nature, except the loss on extinguishment of debt further described in Notes 4 and 5, recorded in the first quarter of fiscal 2012 and the first quarter of fiscal 2011, respectively, and a $10.7 million adjustment to cost of goods sold resulting from an increase in the net book value of inventory as a result of purchase accounting related to the Merger (as defined below) recorded in the first quarter of fiscal 2011.

The results of operations for the 13 weeks ended April 28, 2012 are not necessarily indicative of the operating results that may be expected for the 53 week period ending February 2, 2013 (“fiscal 2012”) or any future period.

Reclassifications

Retail Franchise net sales, previously reported in Other net sales for the 13 weeks ended April 30, 2011, have been separately disclosed to conform to the current year presentation.

Correction of Other Classifications

In the accompanying condensed consolidated balance sheet as of April 30, 2011, we reclassified approximately $4.4 million of leasehold improvement costs previously reported within “land and buildings” to be reported within “leasehold improvements” to properly classify such costs. Our net property and equipment balance as of April 30, 2011 did not change as a result of such reclassifications.

Correction of Merger Purchase Price Allocation

7

In the accompanying condensed consolidated balance sheet as of April 30, 2011, we made adjustments to goodwill and to certain of our other intangible assets and deferred tax liabilities as a result of correcting the final purchase price allocation related to the acquisition (the “Merger” and, together with the related transactions, collectively, the “Transaction”) of the Company by certain investment funds sponsored by Bain Capital Partners, LLC (“Bain Capital”), on November 23, 2010 (the “Transaction Date”). Amounts previously reported as of April 30, 2011 have been restated to reflect these adjustments, as summarized in the following table (in thousands):

	As of April 30, 2011
	Balance as Previously Reported			Adjustments			Corrected Balance
Goodwill	$	934,639		$	(7,242	)	$	927,397
Trade names	$	560,188		$	6,900		$	567,088
Franchise agreements		1,841			4,700			6,541
Customer relationships, below market leases, and co-branded credit card agreement		39,767			—			39,767
Other Intangible Assets	$	601,796		$	11,600		$	613,396
Total Assets	$	2,098,675		$	4,358		$	2,103,033
Long-term deferred income tax liability	$	(246,719	)	$	(4,358	)	$	(251,077	)
Total Liabilities	$	(1,608,629	)	$	(4,358	)	$	(1,612,987	)

2. Recently Issued Accounting Standards

In May 2011, the FASB issued guidance to amend the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, this guidance requires entities to disclose the categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. We adopted this guidance as of January 29, 2012. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

In June 2011, the FASB issued guidance to amend the presentation of comprehensive income. This new guidance requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We early adopted this guidance effective for our fiscal year ended January 28, 2012, as permitted under the standard, and applied it retrospectively to the first quarter ended April 30, 2011 as required to present the total of comprehensive income, the components of net income, and the components of other comprehensive income in two separate consecutive statements.

8

In September 2011, the FASB issued guidance to amend the testing of goodwill for impairment. This new guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This guidance was effective January 29, 2012.

In December 2011, the FASB issued guidance to amend the disclosure requirements regarding the offsetting of assets and liabilities related to financial and derivative instruments. This new guidance requires an entity to disclose quantitative information in a tabular format to allow users of their financial statements to evaluate the effect or potential effect on the entity’s financial position of netting arrangements. This new guidance will be effective for us as of February 3, 2013. We are currently evaluating the impact of this guidance on our financial statement presentation of our derivative and financial instruments.

3. Goodwill and Intangible Assets and Liabilities

Intangible Assets and Liabilities:

Intangible assets and liabilities consist of the following (in thousands):

	April 28, 2012
	Gross Carrying Amount			Accumulated Amortization			Net Amount
Intangible Assets Not Subject to Amortization:
Trade names	$	567,348					$	567,348
Intangible Assets Subject to Amortization:
Customer relationships		36,400		$	(22,656	)		13,744
Below market leases		7,055			(1,977	)		5,078
Co-branded credit card agreement		4,000			(881	)		3,119
Franchise agreements		6,600			(1,315	)		5,285
		54,055			(26,829	)		27,226
Total other intangible assets	$	621,403		$	(26,829	)	$	594,574
Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease Incentives and Other Deferred Liabilities)	$	(16,631	)	$	5,002		$	(11,629	)

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	January 28, 2012
	Gross Carrying Amount			Accumulated Amortization			Net Amount
Intangible Assets Not Subject to Amortization:
Trade names	$	567,288					$	567,288
Intangible Assets Subject to Amortization:
Customer relationships		36,400		$	(18,699	)		17,701
Below market leases		7,055			(1,637	)		5,418
Co-branded credit card agreement		4,000			(727	)		3,273
Franchise agreements		6,600			(1,085	)		5,515
		54,055			(22,148	)		31,907
Total other intangible assets	$	621,343		$	(22,148	)	$	599,195
Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease Incentives and Other Deferred Liabilities)	$	(16,631	)	$	4,114		$	(12,517	)
	April 30, 2011
	Gross Carrying Amount			Accumulated Amortization			Net Amount
Intangible Assets Not Subject to Amortization:
Trade names	$	567,088					$	567,088
Intangible Assets Subject to Amortization:
Customer relationships		36,400		$	(6,830	)		29,570
Below market leases		7,049			(586	)		6,463
Co-branded credit card agreement		4,000			(266	)		3,734
Franchise agreements		6,600			(59	)		6,541
		54,049			(7,741	)		46,308
Total other intangible assets	$	621,137		$	(7,741	)	$	613,396
Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease Incentives and Other Deferred Liabilities)	$	(16,623	)	$	1,535		$	(15,088	)

During the first quarter of fiscal 2012 and fiscal 2011, we recorded net amortization income of approximately $0.5 million in cost of goods sold (“COGS”) and amortization expense of

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approximately $4.3 million and $4.1 million, respectively, in selling, general and administrative expenses (“SG&A”). We estimate that amortization expense (income) related to intangible assets and liabilities will be as follows for the remainder of fiscal 2012 and each of the next five fiscal years (in thousands):

Fiscal	Below Market Leases		Above Market Leases			Other Intangibles		Total
2012 (remaining 40 weeks)	$	1,032	$	(2,388	)	$	13,020	$	11,664
2013		1,162		(2,651	)		3,409		1,920
2014		1,066		(2,071	)		1,534		529
2015		843		(1,612	)		1,534		765
2016		485		(1,460	)		1,393		418
2017		345		(1,048	)		332		(371	)

Goodwill:

In the fourth quarter of fiscal 2011, due to higher average unit costs resulting from higher commodity prices (primarily cotton) and a higher level of markdown selling, we concluded that there was goodwill impairment in the Gymboree Outlet reporting unit. Although this analysis has not been completed due to its complexity, based on the work we performed to date, we recorded a preliminary estimate of impairment for goodwill of $28.3 million in the fourth quarter of fiscal 2011. The impairment charge is subject to finalization of fair values, which we expect to complete during the remainder of fiscal 2012. We believe that the preliminary estimate of impairment is reasonable and represents our best estimate of the impairment charge to be incurred; however, it is possible that material adjustments to the preliminary estimate may be required as the analysis is finalized.

4. Line of Credit

As part of the Transaction, we entered into a senior secured asset-based revolving credit facility, which was amended and restated in March 2012 to, among other things, lower the interest rate and extend the maturity date (as so amended and restated, the “ABL”). As a result of this amendment and restatement, we recorded a loss on extinguishment of debt of $1.2 million in the first quarter of fiscal 2012. The ABL provides senior secured financing of up to $225 million, subject to a borrowing base. Availability under the ABL is subject to the assets of the Company, any subsidiary co-borrowers and any subsidiary guarantors that are available to collateralize the borrowings thereunder, and is reduced by the level of outstanding letters of credit. As of April 28, 2012, availability under the ABL was approximately $172.5 million. The ABL provides us with the right to request up to $125 million of additional commitments under this facility (or, if less, the amount permitted under the Term Loan described in Note 5), subject to the satisfaction of certain conditions. Principal amounts outstanding under the ABL are due and payable in full in March 2017. Borrowings under the ABL bear interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the highest of (1) the prime rate of Bank of America, N.A., (2) the federal funds effective rate plus 0.50% and (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such

11

borrowing adjusted for certain additional costs (“Adjusted LIBOR”), in each case plus an applicable margin. In addition to paying interest on outstanding principal under the ABL, we are required to pay a commitment fee on unutilized commitments thereunder of 0.375% per annum. If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the ABL exceeds the lesser of (a) the commitment amount and (b) the borrowing base, we will be required to repay outstanding loans and/or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount. The ABL contains financial and other covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. As of April 28, 2012, we were in compliance with these covenants. As of April 28, 2012, there was $28.0 million of commercial and standby letters of credit outstanding and no borrowings outstanding. The obligations under the ABL are secured, subject to certain exceptions, by substantially all of our assets. We and our 100%-owned domestic subsidiaries have fully and unconditionally guaranteed our obligations under the ABL.

5. Long-Term Debt

Long-term debt consists of (in thousands):

	April 28, 2012			January 28, 2012			April 30, 2011
Senior secured term loan facility, net of discount of $1,861, $1,931 and $2,137	$	807,889		$	809,869		$	815,813
9.125% senior notes		400,000			400,000			400,000
Subtotal		1,207,889			1,209,869			1,215,813
Less current portion		(15,648	)		(17,698	)		(8,200	)
Long-term debt—less current portion	$	1,192,241		$	1,192,171		$	1,207,613

As part of the Transaction, we entered into an agreement with several lenders to establish an $820 million senior secured term loan facility (“Term Loan”). The Term Loan allows us to request additional tranches of term loans in an aggregate amount not to exceed $200 million, subject to the satisfaction of certain conditions, provided that such amount will be subject to reduction by the amount of any additional commitments incurred under the ABL described in Note 4. The interest rate for borrowings under the Term Loan is, at our option, a base rate plus an additional marginal rate of 2.5% or the Adjusted LIBOR rate (with a 1.5% floor) plus an additional rate of 3.5%. The Term Loan requires us to make quarterly payments each equal to 0.25% of the original $820 million principal amount of the Term Loan made on the closing date plus accrued and unpaid interest thereon, with the balance due in February 2018. The Term Loan also has mandatory and voluntary pre-payment provisions, including a requirement that we prepay the Term Loan with a certain percentage of our annual excess cash flow. We prepaid $15.6 million of the Term Loan with a portion of our excess cash flow for fiscal 2011 in our second fiscal quarter of fiscal 2012. We may (but are not required to) apply a portion of this prepayment toward our quarterly amortization payments payable under the Term Loan in fiscal 2012. The Term Loan is presented net of the related original issue discount (“OID”), which was $4.1 million on the Transaction Date. Accretion of OID is included in interest expense and was not material for the first quarter of fiscal 2012 or 2011. In February 2011, we refinanced the

12

Term Loan through an amendment and restatement of our existing credit agreement to lower the interest rate, remove certain financial covenants and extend the maturity date from November 2017 to February 2018. In the first quarter of fiscal 2011, we recorded a loss on extinguishment of debt of approximately $19.6 million as a result of the refinancing, which included the write-off of approximately $14.1 million in deferred financing costs and $1.8 million of OID related to the original Term Loan. The obligations under the Term Loan are secured, subject to certain exceptions, by substantially all of our assets and those of our 100%-owned domestic subsidiaries. The Company and our 100%-owned domestic subsidiaries also have fully and unconditionally guaranteed the Company’s obligations under the Term Loan.

As part of the Transaction, we issued $400 million aggregate principal amount of 9.125% senior notes (the “Notes”) due in December 2018. Interest on the Notes is payable semi-annually. If the Company or our subsidiaries sell certain assets, we generally must either invest the net cash proceeds from such sale in our business within a certain period of time, use the proceeds to prepay senior secured debt or make an offer to purchase a principal amount of the Notes equal to the excess net cash proceeds at a redemption price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest. Upon a change in control, we may also be required to make an offer to purchase all of the Notes at a redemption price equal to 101% of the principal amount of the Notes redeemed plus accrued and unpaid interest. The Notes also contain optional redemption provisions, but subject to certain exceptions, we will not be entitled to redeem the Notes at our option prior to December 1, 2014. The Notes are unsecured senior obligations of the Company. The Company and our 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Company’s obligations under the Notes (see Note 11).

Interest expense was $21.7 million and $24.0 million for the 13 weeks ended April 28, 2012 and April 30, 2011, respectively, including $1.8 million and $1.7 million, respectively, of amortization of deferred financing costs and accretion of OID.

6. Fair Value Measurements

The accounting guidance for fair value measurements prioritizes the inputs used in measuring fair value into the following hierarchy:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3—Unobservable inputs for the asset or liability, which reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the

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significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present the Company’s assets and liabilities measured at fair value on a recurring basis as of April 28, 2012, January 28, 2012, and April 30, 2011 aggregated by the level in the fair value hierarchy within which those measurements fall. There were no purchases, sales, issuances, or settlements related to recurring Level 3 measurements during the thirteen weeks ended April 28, 2012 or April 30, 2011. There were no transfers into or out of Level 1 and Level 2 during the thirteen weeks ended April 28, 2012 or April 30, 2011.

	April 28, 2012
	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
	(in thousands)
Assets
Money market funds	$	68,599	$	—	$	—	$	68,599
Interest rate caps		—		2,045		—		2,045
Total	$	68,599	$	2,045	$	—	$	70,644
Liabilities
Forward foreign exchange contracts	$	—	$	330	$	—	$	330
	January 28, 2012
	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
	(in thousands)
Assets
Money market funds	$	57,365	$	—	$	—	$	57,365
Interest rate caps		—		1,361		—		1,361
Total	$	57,365	$	1,361	$	—	$	58,726
Liabilities
Forward foreign exchange contracts	$	—	$	13	$	—	$	13

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	April 30, 2011
	Quoted Prices in Active Markets for Identical Assets  and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
	(in thousands)
Assets
Money market funds	$	39,027	$	—	$	—	$	39,027
Interest rate caps		—		9,838		—		9,838
Total	$	39,027	$	9,838	$	—	$	48,865
Liabilities
Forward foreign exchange contracts	$	—	$	238	$	—	$	238

Our cash equivalents, which are primarily placed in money market funds, are valued at their original purchase prices plus interest that has accrued at the stated rate. The carrying value of these funds is considered to approximate fair value due to the short maturity of these instruments.

The fair value of our interest rate caps was determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) were based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, were incorporated in the fair values to account for potential nonperformance risk. In adjusting the fair value of these contracts for the effect of nonperformance risk, we have considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees.

Although we have determined that the majority of the inputs used to value our interest rate caps fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by our counterparties. However, as of April 28, 2012, January 28, 2012, and April 30, 2011, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate cap positions and determined that the credit valuation adjustment was not significant to the overall valuation. As a result, we classified our interest rate caps derivative valuations in Level 2 of the fair value hierarchy.

The fair value of our forward foreign exchange contracts was determined using the market approach and Level 2 inputs. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. We had no other financial assets or liabilities measured at fair value as of April 28, 2012, January 28, 2012 and April 30, 2011.

The carrying value of cash and cash equivalents, receivables, payables and line of credit balances approximates their estimated fair values due to the short maturities of these instruments. We estimate the fair value of our long-term debt using interest rates currently available to us for issuance of notes payable and long-term debt (including current maturities). These interest rates

15

are considered Level 2 inputs. The estimated fair value of long-term debt is as follows (in thousands):

	April 28, 2012				January 28, 2012				April 30, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term loan	$	807,889	$	775,703	$	809,869	$	721,609	$	815,813	$	818,441
Notes		400,000		376,000		400,000		358,000		400,000		402,160
	$	1,207,889	$	1,151,703	$	1,209,869	$	1,079,609	$	1,215,813	$	1,220,601

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We measure certain non-financial assets and liabilities, including long-lived assets, at fair value on a non-recurring basis. During the 13 weeks ended April 30, 2011, we recorded charges related to the impairment of assets at under-performing stores, which reduced the carrying amount of the applicable long-lived assets from $0.7 million to their fair value of zero. We recorded no impairment charges related to assets at under-performing stores during the 13 weeks ended April 28, 2012.

The fair market value of these non-financial assets was determined using the income approach and Level 3 inputs, which required management to make significant estimates about future cash flows. Management estimates the amount and timing of future cash flows based on its experience and knowledge of the retail market in which each store operates. These impairment charges are included in SG&A expenses in the accompanying condensed consolidated statements of operations.

In the fourth quarter of fiscal 2011, we recorded a preliminary estimate of goodwill impairment of $28.3 million that is subject to finalization (see Note 3).

7. Derivative Instruments

We enter into forward foreign exchange contracts with respect to certain purchases in United States dollars of inventory to be sold in our retail stores in Canada. The purpose of these contracts is to protect our margins on the eventual sale of the inventory from fluctuations in the exchange rate for Canadian and United States dollars. The term of these forward exchange contracts is generally less than one year. These contracts are treated as cash-flow hedges. Amounts reported in accumulated other comprehensive loss related to these forward foreign exchange contracts will be reclassified to cost of goods sold over a three-month period. We also enter into forward foreign exchange contracts with respect to short-term intercompany balances between U.S. and Canadian entities. The purpose of these contracts is to protect us from fluctuations in the exchange rate for Canadian and United States dollars upon the settlement of such balances. These contracts are not designated as hedges. Consequently, changes in the fair value of these contracts are included in other income.

We have four interest rate caps to hedge against rising interest rates associated with our Term Loan (see Note 6) above the strike rate of the cap through December 23, 2016, the maturity date of the caps. All four caps were designated on the date of execution as cash-flow hedges. In December 2010, we paid approximately $12.1 million to enter into these caps. This premium,

16

and any related amounts reported in accumulated other comprehensive loss, are being amortized to interest expense through December 23, 2016, as interest payments are made on the underlying Term Loan. We estimate that approximately $0.4 million will be reclassified from accumulated other comprehensive loss to interest expense within the next 12 months.

For a derivative instrument designated as a cash-flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive loss and is subsequently recognized in earnings when the hedged exposure is recognized in earnings. Gains or losses on the derivative representing either hedge components excluded from the assessment of effectiveness or hedge ineffectiveness are recognized in earnings.

We had the following outstanding derivatives designated as cash-flow hedges (in thousands):

	April 28, 2012			January 28, 2012			April 30, 2011
	Number of Instruments	Notional (USD)		Number of Instruments	Notional (USD)		Number of Instruments	Notional (USD)
Interest rate derivatives
Purchased Caps	4	$	700,000	4	$	700,000	4	$	700,000
Foreign exchange derivatives
Forward foreign exchange contracts	9		11,632	12		14,154	3		2,483
Total	13	$	711,632	16	$	714,154	7	$	702,483

In addition to the cash-flow hedges above, as of April 28, 2012 and April 30, 2011, we had one forward foreign exchange contract with a notional amount of $2.4 million and $2.9 million, respectively, that was not designated as a hedge. The table below presents the fair value of all of our derivative financial instruments as well as their classification on the condensed consolidated balance sheets (in thousands).

	April 28, 2012				January 28, 2012				April 30, 2011
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Interest rate derivatives
Balance Sheet Location		Other Assets				Other Assets				Other Assets
Purchased Caps	$	2,045			$	1,361			$	9,838
Foreign exchange derivatives
Balance Sheet Location				Accrued liabilities				Accrued liabilities				Accrued liabilities
Forward foreign exchange contracts			$	330			$	13			$	238
Total	$	2,045	$	330	$	1,361	$	13	$	9,838	$	238

The tables below present the effect of all of our derivative financial instruments on the condensed consolidated statements of operations (in thousands). No amounts were reclassified

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from accumulated other comprehensive loss into earnings as a result of forecasted transactions that failed to occur or as a result of hedge ineffectiveness.

	13 weeks ended April 28, 2012
	Amount of Loss Recognized in OCI on Derivative (Effective  Portion)			Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain / (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate derivatives
Purchased Caps	$	(9,931	)	Interest expense	$	(53	)
Foreign exchange derivatives
Forward foreign exchange contracts		(160	)	Cost of goods sold		83
Total	$	(10,091	)		$	30

	13 weeks ended April 30, 2011
	Amount of Loss Recognized in OCI on Derivative (Effective Portion)			Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate derivatives
Purchased Caps	$	(2,025	)	Interest expense	$	—
Foreign exchange derivatives
Forward foreign exchange contracts		(223	)	Cost of goods sold		(101	)
Total	$	(2,248	)		$	(101	)

8. Share-based Compensation

Share-based compensation expense is included as a component of selling, general and administrative expenses and consisted of the following (in thousands):

	13 Weeks Ended April 28, 2012		13 Weeks Ended April 30, 2011
Stock options	$	1,407	$	1,402
Total	$	1,407	$	1,402

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9. Variable Interest Entity

Gymboree China, Gymboree Tianjin and the Company are indirectly controlled by Gymboree Holding, Ltd. and investment funds sponsored by Bain Capital, Gymboree China and Gymboree Tianjin have been determined to be variable interest entities, and we (as well as our 100%-owned subsidiaries) are a member of a related party group that controls the VIEs and absorbs the economics of the VIEs. Based on our relationship with the VIEs, we determined that we are most closely associated with the VIEs, and therefore, consolidate them as the primary beneficiary. However, as we have a 0% ownership interest in the VIEs, 100% of the results of operations of the VIEs are recorded as noncontrolling interest. The assets of the VIEs cannot be used by us. The liabilities of the VIEs are comprised mainly of short-term accrued expenses, and its creditors have no recourse to our general credit or assets.

The following tables reflect the impact of the VIEs on the condensed consolidated balance sheets as of April 28, 2012 and January 28, 2012 and the condensed consolidated statement of operations for the 13 weeks ended April 28, 2012 (in thousands):

Condensed Consolidating Balance Sheets

	April 28, 2012
	Balance Before Consolidation of VIEs		VIEs		Eliminations			As Reported
Current assets	$	327,746	$	11,536	$	(2,466	)	$	336,816
Non-current assets		1,746,957		857		—			1,747,814
Total assets	$	2,074,703	$	12,393	$	(2,466	)	$	2,084,630
Current liabilities	$	149,593	$	9,098	$	(2,317	)	$	156,374
Non-current liabilities		1,473,680		59		—			1,473,739
Total liabilities		1,623,273		9,157		(2,317	)		1,630,113
Total stockholders’ equity		451,430		—		(149	)		451,281
Noncontrolling interest		—		3,236		—			3,236
Total liabilities and stockholders’ equity	$	2,074,703	$	12,393	$	(2,466	)	$	2,084,630

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	January 28, 2012
	Balance Before Consolidation of VIEs		VIEs		Eliminations			As Reported
Current assets	$	355,073	$	6,692	$	(983	)	$	360,782
Non-current assets		1,752,303		702		—			1,753,005
Total assets	$	2,107,376	$	7,394	$	(983	)	$	2,113,787
Current liabilities	$	187,812	$	4,074	$	(983	)	$	190,903
Non-current liabilities		1,474,189		56		—			1,474,245
Total liabilities		1,662,001		4,130		(983	)		1,665,148
Total stockholders’ equity		445,375		—		—			445,375
Noncontrolling interest		—		3,264		—			3,264
Total liabilities and stockholders’ equity	$	2,107,376	$	7,394	$	(983	)	$	2,113,787

Condensed Consolidating Statement of Operations

	For the 13 weeks ended April 28, 2012
	Balance Before Consolidation of VIEs			VIEs			Eliminations			As Reported
Net sales	$	297,931		$	2,143		$	(2,323	)	$	297,751
Cost of goods sold		(176,049	)		(242	)		364			(175,927	)
Operating expenses		(90,894	)		(2,655	)		1,810			(91,739	)
Operating income (loss)		30,988			(754	)		(149	)		30,085
Other non-operating expense		(22,889	)		(13	)		—			(22,902	)
Income (loss) before income taxes		8,099			(767	)		(149	)		7,183
Income tax expense		(2,954	)		(59	)		—			(3,013	)
Net income (loss)		5,145			(826	)		(149	)		4,170
Net loss attributable to noncontrolling interest		—			826			—			826
Net income attributable to The Gymboree Corporation	$	5,145		$	—		$	(149	)	$	4,996

10. Segments

We have four reportable segments: retail stores, Gymboree Play & Music, retail franchise, and one reportable segment related to the activities of our consolidated VIEs. These reportable segments were identified based on how our business is managed and evaluated. The retail stores segment includes four operating segments (brands) which sell high-quality apparel for children: Gymboree (including an online store), Gymboree Outlet, Janie and Jack (including an online store), and Crazy 8 (including an online store). These four operating segments have been aggregated into one reportable segment because, in our judgment, these operating segments have similar historical economic characteristics and/or are expected to have similar economic characteristics and similar long-term financial performance in the future. Gross margin is the principal measure we consider in determining whether the economic characteristics are similar. In addition, each operating segment has similar products, production processes and type or class of customer. We believe that disaggregating our operating segments would not provide material

20

additional information. Corporate overhead (costs related to our distribution center and shared corporate services) is included in the retail stores segment. Amounts previously reported have been reclassified to conform to the addition of the retail franchise reportable segment to the current year presentation. Additionally, we completed the allocation of goodwill and certain other intangible assets to our reporting units and segments during the fourth quarter of fiscal 2011, and have restated the segment disclosures below as of April 30, 2011, resulting in the allocation of $16.4 million and $23.6 million of goodwill, and $36.2 million and $4.7 million of certain other intangible assets, to our Gymboree Play & Music and retail franchise reportable segments, respectively, and in the allocation of $39.8 million of goodwill to our Canada and Australia geographical segments.

The following table provides the summary financial data of each reportable segment (in thousands):

	13 Weeks Ended April 28, 2012
	Retail Stores		Gymboree Play & Music		Retail Franchise		VIE			Intersegment Elimination			Total
Net sales	$	288,029	$	6,050	$	3,852	$	2,143		$	(2,323	)	$	297,751
Operating income (loss)		27,619		1,920		1,449		(754	)		(149	)		30,085
Total assets		1,982,794		63,324		28,585		12,393			(2,466	)		2,084,630

	13 Weeks Ended April 30, 2011
	Retail Stores		Gymboree Play & Music		Retail Franchise		Total
Net sales	$	265,882	$	2,925	$	1,449	$	270,256
Operating income		24,536		1,066		692		26,294
Total assets		2,014,844		58,712		29,477		2,103,033

Interest expense, depreciation and amortization expense and capital expenditures have not been separately disclosed above as the amounts primarily relate to the retail segment. The Gymboree Play & Music and VIE reportable segments recorded $0.5 million and $1.8 million, respectively, in intersegment revenues for the 13 weeks ended April 28, 2012. There were no other material intersegment revenues.

We attribute retail store revenues to individual countries based on selling location. For Gymboree Play & Music and retail franchise, all sales were attributed to the United States. The following tables provide the summary financial data of each geographical segment (in thousands):

	13 Weeks Ended April 28, 2012
	Canada		Australia		China		Total International
Net sales	$	9,879	$	600	$	342	$	10,821
Long-lived assets		44,932		6,408		857		52,197

	13 Weeks Ended April 30, 2011
	Canada		Australia		Total International
Net sales	$	8,897	$	490	$	9,387
Long-lived assets		40,754		6,084		46,838

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11. Condensed Guarantor Data

The Company and its 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Notes. The following condensed consolidating financial information presents the financial position, results of operations and cash flows of The Gymboree Corporation and the guarantor and non-guarantor subsidiaries. The VIEs financial results are included in the non-guarantor subsidiaries. As of April 30, 2011, all of our goodwill and $3.7 million of certain other intangible assets had been allocated to The Gymboree Corporation for the purposes of our guarantor and non-guarantor subsidiaries disclosure. During the fourth quarter of fiscal 2011, we completed the allocation of goodwill and certain other intangible assets to our guarantor and non-guarantor subsidiaries, which resulted in $887.6 million and $39.8 million of goodwill being allocated to guarantor and non-guarantor subsidiaries, respectively and $3.7 million of other intangible assets being allocated to our guarantor subsidiaries. These adjustments have been reflected in the tables below for prior periods. Intercompany transactions are eliminated.

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

	April 28, 2012
	The Gymboree Corporation		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	69,338	$	6,823	$	12,107	$	—		$	88,268
Accounts receivable, net of allowance		2,321		19,201		3,742		—			25,264
Merchandise inventories		—		180,637		5,086		(32	)		185,691
Prepaid income taxes		2,753		5		462		—			3,220
Prepaid expenses		2,627		648		298		—			3,573
Deferred income taxes		19,011		12,126		—		(337	)		30,800
Intercompany receivable		—		426,432		—		(426,432	)		—
Total current assets		96,050		645,872		21,695		(426,801	)		336,816
Property and Equipment, net		18,092		175,638		8,689		—			202,419
Deferred Income Taxes		13,170		—		1,791		(14,961	)		—
Goodwill		—		859,297		39,800		—			899,097
Other Intangible Assets		—		594,387		187		—			594,574
Deferred Financing Costs		46,220		—		—		—			46,220
Other Assets		2,047		815		2,642		—			5,504
Investment in Subsidiaries		1,947,033		—		—		(1,947,033	)		—
Total Assets	$	2,122,612	$	2,276,009	$	74,804	$	(2,388,795	)	$	2,084,630
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	5,119	$	42,657	$	1,178	$	—		$	48,954
Accrued liabilities		39,120		45,653		6,999		—			91,772
Current portion of long-term debt		15,648		—		—		—			15,648
Deferred income taxes		—		—		337		(337	)		—
Intercompany payable		415,143		—		10,717		(425,860	)		—
Total current liabilities		475,030		88,310		19,231		(426,197	)		156,374
Long-Term Liabilities:
Long-term debt		1,192,241		—		—		—			1,192,241
Lease incentives and other liabilities		4,060		30,095		5,099		—			39,254
Deferred income taxes		—		257,205		—		(14,961	)		242,244
Total Liabilities		1,671,331		375,610		24,330		(441,158	)		1,630,113
Commitments and Contingencies		—		—		—		—			—
Total Stockholders’ Equity		451,281		1,900,399		47,238		(1,947,637	)		451,281
Noncontrolling interest		—		—		3,236		—			3,236
Total Equity		451,281		1,900,399		50,474		(1,947,637	)		454,517
Total Liabilities and Stockholders’ Equity	$	2,122,612	$	2,276,009	$	74,804	$	(2,388,795	)	$	2,084,630

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

	As of January 28, 2012
	The Gymboree Corporation		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	58,910	$	6,387	$	12,613	$	—		$	77,910
Accounts receivable, net of allowance		4,676		20,886		1,715		—			27,277
Merchandise inventories		—		206,661		3,389		162			210,212
Prepaid income taxes		3,605		263		—		(132	)		3,736
Prepaid expenses		3,689		1,538		305		—			5,532
Deferred income taxes		22,163		14,426		—		(474	)		36,115
Intercompany receivable		—		413,415		—		(413,415	)		—
Total current assets		93,043		663,576		18,022		(413,859	)		360,782
Property and Equipment, net		18,794		174,573		8,785		—			202,152
Deferred Income Taxes		12,623		—		1,784		(14,407	)		—
Goodwill		—		859,297		39,800		—			899,097
Other Intangible Assets		—		599,000		195		—			599,195
Deferred Financing Costs		47,915		—		—		—			47,915
Other Assets		1,361		813		2,472		—			4,646
Investment in subsidiaries		1,927,724		—		—		(1,927,724	)		—
Total Assets	$	2,101,460	$	2,297,259	$	71,058	$	(2,355,990	)	$	2,113,787
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	6,412	$	71,510	$	1,105	$	—		$	79,027
Accrued liabilities		32,892		57,432		3,854		—			94,178
Income tax payable		—		—		132		(132	)		—
Current portion of long-term debt		17,698		—		—		—			17,698
Deferred income taxes		—		—		474		(474	)		—
Intercompany payable		402,815		—		10,116		(412,931	)		—
Total current liabilities		459,817		128,942		15,681		(413,537	)		190,903
Long-Term Liabilities:
Long-term debt		1,192,171		—		—		—			1,192,171
Lease incentives and other liabilities		4,097		27,743		4,739		—			36,579
Deferred income taxes		—		259,902		—		(14,407	)		245,495
Total Liabilities		1,656,085		416,587		20,420		(427,944	)		1,665,148
Commitments and Contingencies		—		—		—		—			—
Total Stockholders’ Equity		445,375		1,880,672		47,374		(1,928,046	)		445,375
Noncontrolling interest		—		—		3,264		—			3,264
Total Equity		445,375		1,880,672		50,638		(1,928,046	)		448,639
Total Liabilities and Stockholders’ Equity	$	2,101,460	$	2,297,259	$	71,058	$	(2,355,990	)	$	2,113,787

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

	As of April 30, 2011
	The Gymboree Corporation		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	39,931	$	2,992	$	5,230	$	—		$	48,153
Accounts receivable, net of allowance		483		15,950		94		—			16,527
Merchandise inventories		—		160,630		2,882		154			163,666
Prepaid income taxes		16,020		—		529		—			16,549
Prepaid expenses		3,464		1,570		48		—			5,082
Deferred income taxes		23,923		11,809		44		—			35,776
Intercompany receivable		—		352,239		—		(352,239	)		—
Total current assets		83,821		545,190		8,827		(352,085	)		285,753
Property and Equipment, net		20,578		182,846		7,164		—			210,588
Deferred Income Taxes		12,925		—		843		(13,768	)		—
Goodwill		—		887,597		39,800		—			927,397
Other Intangible Assets		—		613,154		242		—			613,396
Deferred Financing Costs		52,840		—		—		—			52,840
Other Assets		9,843		804		2,412		—			13,059
Investment in subsidiaries		1,917,915		—		—		(1,917,915	)		—
Total Assets	$	2,097,922	$	2,229,591	$	59,288	$	(2,283,768	)	$	2,103,033
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	4,717	$	31,340	$	144	$	—		$	36,201
Accrued liabilities		38,539		40,501		1,235		—			80,275
Current portion of long-term debt		8,200		—		—		—			8,200
Intercompany payable		344,089		—		7,666		(351,755	)		—
Total current liabilities		395,545		71,841		9,045		(351,755	)		124,676
Long-Term Liabilities:
Long-term debt		1,207,613		—		—		—			1,207,613
Lease incentives and other liabilities		4,717		21,224		3,680		—			29,621
Deferred income taxes		—		264,845		—		(13,768	)		251,077
Total Liabilities		1,607,875		357,910		12,725		(365,523	)		1,612,987
Commitments and Contingencies		—		—		—		—			—
Stockholders’ Equity		490,047		1,871,681		46,563		(1,918,245	)		490,046
Total Liabilities and Stockholders’ Equity	$	2,097,922	$	2,229,591	$	59,288	$	(2,283,768	)	$	2,103,033

25

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED APRIL 28, 2012

(In thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	393		$	282,257		$	11,704		$	(6,238	)	$	288,116
Gymboree Play & Music		—			5,537			255			—			5,792
Retail Franchise		—			3,843			—			—			3,843
Intercompany revenue		11,795			770			1,801			(14,366	)		—
Total net sales		12,188			292,407			13,760			(20,604	)		297,751
Cost of goods sold, including buying and occupancy expenses		(1,333	)		(172,575	)		(7,960	)		5,941			(175,927	)
Gross profit		10,855			119,832			5,800			(14,663	)		121,824
Selling, general and administrative expenses		(12,518	)		(87,566	)		(6,113	)		14,458			(91,739	)
Operating (loss) income		(1,663	)		32,266			(313	)		(205	)		30,085
Interest income		31			—			28			—			59
Interest expense		(21,658	)		—			—			—			(21,658	)
Loss on extinguishment of debt		(1,237	)		—			—			—			(1,237	)
Other expense, net		(19	)		—			(47	)		—			(66	)
(Loss) income before income taxes		(24,546	)		32,266			(332	)		(205	)		7,183
Income tax benefit (expense)		10,189			(12,540	)		(662	)		—			(3,013	)
Net (loss) income		(14,357	)		19,726			(994	)		(205	)		4,170
Net loss attributable to noncontrolling interest		—			—			826			—			826
Equity in earnings of affiliates, net of tax		19,353			—			—			(19,353	)		—
Net income (loss) attributable to The Gymboree Corporation	$	4,996		$	19,726		$	(168	)	$	(19,558	)	$	4,996

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED APRIL 30, 2011

(In thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	293		$	260,067		$	10,054		$	(4,532	)	$	265,882
Gymboree Play & Music		—			2,925			—			—			2,925
Retail Franchise		—			1,449			—			—			1,449
Intercompany revenue		11,315			234			—			(11,549	)		—
Total net sales		11,608			264,675			10,054			(16,081	)		270,256
Cost of goods sold, including buying and occupancy expenses		(1,323	)		(155,941	)		(6,647	)		4,515			(159,396	)
Gross profit		10,285			108,734			3,407			(11,566	)		110,860
Selling, general and administrative expenses		(11,532	)		(81,560	)		(3,047	)		11,573			(84,566	)
Operating (loss) income		(1,247	)		27,174			360			7			26,294
Interest income		—			26			27			—			53
Interest expense		(24,003	)		—			—			—			(24,003	)
Loss on extinguishment of debt		(19,563	)		—			—			—			(19,563	)
Other income (expense), net		37			—			(7	)		—			30
(Loss) income before income taxes		(44,776	)		27,200			380			7			(17,189	)
Income tax benefit (expense)		17,661			(10,750	)		(162	)		—			6,749
Equity in earnings of affiliates, net of tax		16,675			—			—			(16,675	)		—
Net (loss) income	$	(10,440	)	$	16,450		$	218		$	(16,668	)	$	(10,440	)

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 13 WEEKS ENDED APRIL 28, 2012

(In thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities	$	(426	)	$	21,242		$	(840	)	$	—		$	19,976
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(460	)		(7,730	)		(435	)		—			(8,625	)
Investment in subsidiaries		(180	)		—			—			180			—
Other		—			(59	)		(117	)		—			(176	)
Net cash used in investing activities		(640	)		(7,789	)		(552	)		180			(8,801	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		12,418			(13,017	)		599			—			—
Payments on Term Loan		(2,050	)		—			—			—			(2,050	)
Deferred financing costs		(1,274	)		—			—			—			(1,274	)
Investment by Parent		—			—			180			(180	)		—
Investment by affiliate of Parent		2,400			—			—			—			2,400
Net cash provided by (used in) financing activities		11,494			(13,017	)		779			(180	)		(924	)
Effect of exchange rate fluctuations on cash		—			—			107			—			107
Net increase (decrease) in cash and cash equivalents		10,428			436			(506	)		—			10,358
CASH AND CASH EQUIVALENTS:
Beginning of Period		58,910			6,387			12,613			—			77,910
End of Period	$	69,338		$	6,823		$	12,107		$	—		$	88,268

27

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 13 WEEKS ENDED APRIL 30, 2011

(In thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities	$	15,776		$	2,392		$	790		$	—	$	18,958
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(769	)		(6,861	)		(261	)		—		(7,891	)
Acquisition of business, net of cash acquired		(1,352	)		—			—			—		(1,352	)
Other		—			(61	)		—			—		(61	)
Net cash used in investing activities		(2,121	)		(6,922	)		(261	)		—		(9,304	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		833			992			(1,825	)		—		—
Proceeds from Term Loan		820,000			—			—			—		820,000
Payments on Term Loan		(822,050	)		—			—			—		(822,050	)
Proceeds from ABL facility		20,656			—			—			—		20,656
Payments on ABL facility		(20,656	)		—			—			—		(20,656	)
Deferred financing costs		(6,529	)		—			—			—		(6,529	)
Investment by Parent		14,865			—			—			—		14,865
Net cash provided by (used in) financing activities		7,119			992			(1,825	)		—		6,286
Effect of exchange rate fluctuations on cash		—			—			89			—		89
Net increase (decrease) in cash and cash equivalents		20,774			(3,538	)		(1,207	)		—		16,029
CASH AND CASH EQUIVALENTS:
Beginning of Period		19,157			6,530			6,437			—		32,124
End of Period	$	39,931		$	2,992		$	5,230		$	—	$	48,153

The Company and its guarantor subsidiaries participate in a cash pooling program. As part of this program, cash balances are generally swept on a daily basis between the guarantor subsidiary bank accounts and those of the Company. In addition, the Company pays expenses on behalf of its guarantor and non-guarantor subsidiaries on a regular basis. These types of transactions have been accounted for as intercompany transfers within financing activities.

The Company’s transactions include interest, tax payments and intercompany sales transactions related to administrative costs incurred by the Company, which are billed to guarantor and non-guarantor subsidiaries on a cost plus basis. All intercompany transactions are presumed to be settled in cash and therefore are included in operating activities. Non-operating cash flow changes have been classified as financing activities.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The 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 April 28, 2012 and April 30, 2011, and the related condensed consolidated statements of operations, comprehensive income (loss), and cash flows for the thirteen week periods then ended. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), 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 interim 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 standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Gymboree Corporation and subsidiaries as of January 28, 2012, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the fiscal year then ended (not presented herein); and in our report dated April 26, 2012, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to a change in the Company’s method of presenting comprehensive income for the year ended January 28, 2012, due to the adoption of Financial Accounting Standards Board Accounting Update No. 2011-05,Presentation of Comprehensive Income. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 28, 2012, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

As discussed in Note 2 to the condensed consolidated interim financial statements, the Company changed its method of presenting comprehensive income during the fiscal year ended January 28, 2012, due to the adoption of Financial Accounting Standards Board Accounting Update No. 2011-05,Presentation of Comprehensive Income. The change in presentation has been applied retrospectively to the quarter ended April 30, 2011.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

June 11, 2012

29

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking statements

This quarterly report contains forward-looking statements. You can identify forward-looking statements because they contain words such as “believe,” “expect,” “may,” “will,” “should,” “could,” “seek,” “intend,” “plan,” “estimate,” or “anticipate” or similar expressions that concern our strategy, plans or intentions. All statements we make relating to: future sales, costs and expenses and gross profit percentages; the continuation of historical trends; our ability to operate our business under our capital and operating structure; and the sufficiency of our cash balances and cash generated from operating and financing activities for future liquidity and capital resource needs are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we had expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.

Important factors that could cause actual results to differ materially from our expectations (“cautionary statements”) are disclosed under “Item 1A, Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012, filed with the Securities and Exchange Commission on April 26, 2012 (the “Fiscal 2011 Annual Report”). We encourage you to read these risk factors disclosures carefully. We caution investors not to place substantial reliance on the forward-looking statements contained in this quarterly report. These statements, like all statements in this quarterly report, speak only as of the date of this quarterly report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments, except as otherwise required by law.

General

The Gymboree Corporation (“we,” “us,” “our,” “Gymboree” and “Company”) is one of the largest children’s apparel specialty retailers in North America, offering collections of high-quality apparel and accessories. As of April 28, 2012, we operated a total of 1,166 retail stores, including 1,119 stores in the United States (586 Gymboree^® stores, 152 Gymboree Outlet stores, 125 Janie and Jack^® shops and 256 Crazy 8^® stores), 41 Gymboree stores in Canada, 3 Gymboree stores in Australia, 1 Gymboree store in Puerto Rico and 2 Gymboree Outlet stores in Puerto Rico, as well as 3 online stores atwww.gymboree.com,www.janieandjack.com andwww.crazy8.com. The Company also offers directed parent-child developmental play programs at 716 franchised and Company-operated Gymboree Play & Music^® centers in the United States and 39 other countries. In addition, as of April 28, 2012, third-party overseas partners operated 28 Gymboree retail stores in the Middle East and South Korea, and Gymboree (China) Commercial and Trading Co. Ltd. (“Gymboree China”) and Gymboree (Tianjin) Educational Information Consultation Co. Ltd. (“Gymboree Tianjin”) (collectively, the “Joint Venture” or “VIEs”) operated two Gymboree retail stores in China.

30

During the first quarter of fiscal 2012, we opened 24 stores, of which 22 were Crazy 8 stores. During the remainder of fiscal 2012, we plan to open approximately 81 new stores consisting mostly of Crazy 8 stores.

Results of Operations

13 weeks ended April 28, 2012, compared to 13 weeks ended April 30, 2011

Net Sales

Net retail sales for the first quarter of fiscal 2012 increased to $288.1 million from $265.9 million in the same period last year, an increase of $22.2 million, or 8.3%. Comparable store sales for the first quarter of fiscal 2012 increased 1% compared to the same period in the prior year. The increase in net retail sales was also due to net store and square footage growth of 79 stores and approximately 183,000 square feet, respectively. There were 1,166 stores open at April 28, 2012 compared to 1,087 at April 30, 2011.

Gymboree Play & Music net sales for the first quarter of fiscal 2012 increased to $5.8 million from $2.9 million in the same period last year, an increase of $2.9 million or 100%. This increase was primarily due to the termination of our agreement with a Gymboree Play & Music master franchisee in China in the third quarter of fiscal 2011. Upon this termination, we assumed the role of master franchisor, resulting in the recording of an additional $2.6 million in revenue for the first quarter of fiscal 2012 from the unit franchisees. We previously recorded revenue net of the fee paid to the previous master franchisor for servicing the unit franchisees.

Retail franchise net sales for the first quarter of fiscal 2012 increased to $3.8 million from $1.4 million in the same period last year. As of April 28, 2012, our third-party overseas partners operated 28 Gymboree stores, compared to seven stores as of the end of the same period last year.

Gross Profit

Gross profit for the first quarter of fiscal 2012 increased to $121.8 million from $110.9 million in the same period last year. However, the first quarter of fiscal 2011 included a $10.7 million adjustment to cost of goods sold from an increase in the net book value of inventory as a result of purchase accounting. If this adjustment was excluded, gross profit as a percentage of sales for the first quarter of 2012, when compared to the same period last year, decreased due to higher average unit costs resulting from higher commodity prices (primarily cotton).

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses, which principally consist of non-occupancy store expenses, corporate overhead, and distribution expenses, increased to $91.7 million in the first quarter of fiscal 2012 compared to $84.6 million in the same period last year. As a percentage of net sales, SG&A expenses decreased to 30.8% for the first quarter of fiscal 2012 compared to 31.3% in the same period last year. This decrease was primarily due to the following (all as a percentage of sales): lower depreciation and amortization costs; lower

31

impairment charges related to underperforming stores; and lower bank card fees partially offset by increased expenses related to the Joint Venture.

Interest Expense

Interest expense decreased to $21.7 million in the first quarter of fiscal 2012 compared to $24 million in the same period last year. The decrease of $2.3 million is primarily related to fees paid in connection with the refinancing of our $820 million senior secured term loan facility (“Term Loan”) in the first quarter of fiscal 2011.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $1.2 million for the first quarter of fiscal 2012 compared to $19.6 million in the same period last year. In March 2012, we amended and restated our senior secured asset-based revolving credit facility (as so amended and restated, “ABL” or “ABL Facility” and, together with the Term Loan, collectively, the “Senior Credit Facilities”) to, among other things, lower the interest rate and extend the maturity date. The loss recorded in the first quarter of 2011 was due to the refinancing of our Term Loan in February 2011.

Income Taxes

The effective tax rate for the first quarter of fiscal 2012 and 2011 was 41.9% and 39.3%, respectively. The actual fiscal 2012 effective tax rate will ultimately depend on several variables, including the mix of earnings between domestic and international operations, our overall level of earnings in fiscal 2012, and the potential resolution of tax contingencies. Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. Although timing of the resolution and/or closure of audits is not certain, we do not believe it is reasonably possible that our unrecognized tax benefits would materially change in the next 12 months.

Seasonality

The Company’s business is impacted by the general seasonal trends characteristic of the apparel and retail industries. Sales from retail operations in the past several years have been highest during the third and fourth fiscal quarters, somewhat lower during the first fiscal quarter, and lowest during the second fiscal quarter. Consequently, the results for any fiscal quarter are not necessarily indicative of results for the full year. These historical quarterly trends may not continue in the future.

Financial Condition

Liquidity and Capital Resources

Cash and cash equivalents were $88.3 million at April 28, 2012 an increase of $10.4 million from January 28, 2012. As of April 28, 2012 and January 28, 2012, cash and cash equivalents include $6.5 million and $4.9 million, respectively, held by the two entities that make up the Joint Venture, which we have determined to be variable interest entities of which we are the primary beneficiary, and the results of which we have consolidated into our financial statements (see Note 9 to the condensed consolidated financial statements included elsewhere in this

32

quarterly report). The assets of the VIEs cannot be used by us. Working capital as of April 28, 2012 was $180.4 million compared to $169.9 million as of January 28, 2012.

Net cash provided by operating activities for the 13 weeks ended April 28, 2012 was $20.0 million, which is relatively flat compared to $19.0 million in the same period last year.

Net cash used in investing activities for the 13 weeks ended April 28, 2012 was $8.8 million compared to $9.3 million in the same period last year, and consisted primarily of capital expenditures related to the opening of new stores, information technology improvements, and investments in our distribution center.

Net cash used in financing activities for the 13 weeks ended April 28, 2012 was $0.9 million, compared to net cash provided by financing activities of $6.3 million in the same period last year. Net cash used in financing activities for the 13 weeks ended April 28, 2012 was primarily related to a quarterly principal payment of $2.1 million on our Term Loan as well as costs paid to refinance our ABL, partially offset by a capital contribution from an affiliate of our indirect parent company, Giraffe Holding, Inc. (“Parent”). Net cash provided by financing activities during the 13 weeks ended April 30, 2011 was primarily related to capital contributions made by Parent to us of $14.9 million partially offset by $6.6 million in costs paid in connection with the February 2011 refinancing of our Term Loan and $2.1 million in quarterly principal payments on our Term Loan. We anticipate cash used in financing activities during the remainder of fiscal 2012 to include a $15.6 million prepayment on our Term Loan due to fiscal 2011 excess cash flow (see Note 5 to the condensed consolidated financial statements included elsewhere in this quarterly report).

We have an $820 million Term Loan and a $225 million ABL Facility. As of April 28, 2012, $809.8 million was outstanding under the Term Loan and no amounts were outstanding under the ABL Facility. There was approximately $172.5 million of undrawn availability under the ABL at April 28, 2012. Amounts available under the ABL are subject to customary borrowing base limitations and are reduced by letter of credit utilization. The Term Loan and ABL also allow an aggregate of $200 million in uncommitted incremental facilities, the availability of which is subject to our meeting certain conditions. No incremental facilities are currently in effect. The Term Loan and ABL contain covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. The ABL also contains financial covenants. As of April 28, 2012, the Company was in compliance with these covenants.

We anticipate that cash and cash equivalents generated by operations, the remaining funds available under our Term Loan and ABL, and existing cash and cash equivalents will be sufficient to meet working capital requirements, service our debt and finance capital expenditures over the next twelve months. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in amounts sufficient to enable us to repay or refinance our indebtedness, including the Term Loan, the ABL and the Notes, or to fund other liquidity needs. See “Item 1A. Risk Factors—Risks Related to Our Indebtedness and Certain Other Obligations,” in our Fiscal 2011 Annual Report.

33

There have been no material changes outside the ordinary course of business to our contractual obligations since January 28, 2012, as disclosed in our Fiscal 2011 Annual Report.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates affecting the application of those policies since our Fiscal 2011 Annual Report.

Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (Non-GAAP Measure)

In the table below, we present Adjusted EBITDA (which is defined as net income (loss) before interest expense, interest income, income tax expense/benefit, and depreciation and amortization (EBITDA) adjusted for the other items described below), which is considered a non-GAAP financial measure. We present Adjusted EBITDA in this quarterly report because we consider it an important supplemental measure of performance used by management and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the retail industry. Adjusted EBITDA is calculated in substantially the same manner as “EBITDA” under the indenture governing the Notes and “Consolidated EBITDA” under the agreement governing our Senior Credit Facilities. We believe that the inclusion of supplementary adjustments applied to EBITDA in presenting Adjusted EBITDA is appropriate to provide additional information to investors about certain non-cash items and unusual or non-recurring items that we do not expect to continue in the future and to provide additional information with respect to our ability to meet our future debt service and to comply with various covenants in documents governing our indebtedness. However, Adjusted EBITDA is not a presentation made in accordance with GAAP, and our computation of Adjusted EBITDA may vary from others in the retail industry. Adjusted EBITDA should not be considered an alternative to operating income or net income (loss), as a measure of operating performance or cash flow, or as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA:

• does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

• does not reflect changes in, or cash requirements for, our working capital needs;

• does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on our debt;

• excludes income tax payments that represent a reduction in cash available to us; and

• does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of ongoing operations.

The following table is a reconciliation of net income (loss) to Adjusted EBITDA for the periods indicated:

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	13 Weeks Ended April 28, 2012			13 Weeks Ended April 30, 2011
	(In thousands)
Net income (loss) attributable to The Gymboree Corporation	$	4,996		$	(10,440	)
Reconciling items (a):
Interest expense		21,658			24,003
Interest income		(48	)		(53	)
Income tax expense (benefit)		2,954			(6,749	)
Depreciation and amortization (b)		14,162			14,245
Non-cash share-based compensation expense		1,407			1,402
Loss on disposal/impairment on assets		62			768
Loss on extinguishment of debt		1,237			19,563
Acquisition-related adjustments (c)		4,398			16,606
Adjusted EBITDA	$	50,826		$	59,345

(a) Exlude amounts related to noncontrolling interest, which are already excluded from net income (loss) attributable to The Gymboree Corporation

(b) Includes the following (in thousands):

Amortization of intangible assets (impacts SG&A)	$	4,340		$	4,144
Amortization of below and above market leases (impacts COGS)		(548	)		(513	)
	$	3,792		$	3,631

(c) Includes the following (in thousands):

Adjustment to cost of goods sold from an increase in the net book value of inventory as a result of purchase accounting (impacts COGS)	$	-	$	10,731
Additional rent expense recognized due to the elimination of deferred rent and construction allowances in purchase accounting (impacts COGS)		2,324		2,422
Legal, accounting and sponsor fees, as well as other costs incurred as a result of the Merger (impacts SG&A)		872		1,966
Decrease in net sales due to the elimination of deferred revenue related to the Company's co-branded credit card program in purchase accounting (impacts net sales)		1,202		1,487
	$	4,398	$	16,606

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

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We enter into forward foreign exchange contracts with respect to certain purchases in United States dollars of inventory to be sold in our retail stores in Canada. The purpose of these contracts is to protect our margins on the eventual sale of the inventory from fluctuations in the exchange rate for Canadian and United States dollars. The term of the forward exchange contracts is generally less than one year. We also enter into forward foreign exchange contracts with respect to short-term intercompany balances between U.S. and Canadian entities. The purpose of these contracts is to protect us from fluctuations in the exchange rate for Canadian and United States dollars upon the settlement of such balances.

The table below summarizes the notional amounts and fair values of our forward foreign exchange contracts in U.S. dollars.

	Notional Amount		Fair Value Loss			Weighted- Average Rate
	(in thousands, except weighted-average rate data)
April 28, 2012	$	14,016	$	(330	)	$	1.02
January 28, 2012	$	14,154	$	(13	)	$	0.99
April 30, 2011	$	5,370	$	(238	)	$	1.06

Interest Rate Risk

We are subject to interest rate risk in connection with our long-term debt. Our principal interest rate risk relates to the outstanding Term Loan. We had $809.8 million outstanding under our Term Loan as of April 28, 2012, bearing interest at variable rates. A 0.125% increase in the floating rates applicable to the indebtedness outstanding under the Term Loan would have increased annual interest expense by approximately $1.0 million. The Term Loan and the ABL also allow an aggregate of $200 million in uncommitted incremental facilities, bearing interest at variable rates. No incremental facilities are currently in effect.

In December 2010, we purchased four interest rate caps to hedge against rising interest rates associated with our Term Loan above the 5% strike rate of the caps through December 23, 2016, the maturity date of the caps. The notional amount of these caps is $700 million. As of April 28, 2012, January 28, 2012, and April 30, 2011 accumulated other comprehensive loss included approximately $9.9 million, $10.7 million, and $2.2 million respectively, in unrealized losses related to the interest rate caps.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures,

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including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on the Company’s evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In addition, the Company’s Chief Executive Officer and Principal Financial Officer concluded as of the end of the period covered by this report that the Company’s disclosure controls and procedures are also effective to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the first quarter of the Company’s fiscal 2012, there was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The Company is subject to various legal proceedings and claims arising in the ordinary course of business. Our management does not expect that the results of any of these legal proceedings, either individually or in the aggregate, would have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A. RISK FACTORS

Not applicable.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

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Item 6. EXHIBITS

10.1	Amended and Restated Credit Agreement, dated as of March 30, 2012, by and among The Gymboree Corporation, the other borrowers from time to time party thereto, Giraffe Intermediate B, Inc., the other facility guarantors from time to time party thereto, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent and collateral agent for such lenders.(1)
31.1	Certification of Matthew K. McCauley Pursuant to §302 of the Sarbanes- Oxley Act of 2002.
31.2	Certification of Lynda G. Gustafson Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Matthew K. McCauley Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Lynda G. Gustafson Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from The Gymboree Corporation’s Quarterly Report on Form 10-Q for the quarter ended April 28, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) (iv) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

(1) Incorporated by reference to the corresponding exhibit to The Gymboree Corporation’s Current Report on Form 8-K filed with the SEC on April 5, 2012.

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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)
June 11, 2012	By:     /s/ Matthew K. McCauley
Date		Matthew K. McCauley Chief Executive Officer; Director

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Exhibit Index

Exhibit Number	Description
10.1	Amended and Restated Credit Agreement, dated as of March 30, 2012, by and among The Gymboree Corporation, the other borrowers from time to time party thereto, Giraffe Intermediate B, Inc., the other facility guarantors from time to time party thereto, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent and collateral agent for such lenders.(1)
31.1	Certification of Matthew K. McCauley Pursuant to §302 of the Sarbanes- Oxley Act of 2002.
31.2	Certification of Lynda G. Gustafson Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Matthew K. McCauley Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Lynda G. Gustafson Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from The Gymboree Corporation’s Quarterly Report on Form 10-Q for the quarter ended April 28, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) (iv) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

(1) Incorporated by reference to the corresponding exhibit to The Gymboree Corporation’s Current Report on Form 8-K filed with the SEC on April 5, 2012.

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