Gymboree (GYMB) 10-Q 2013 Q2 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 August 3, 2013

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 September 16, 2013, 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.

* In order to comply with reporting covenants governing the terms of its indebtedness, the Registrant files periodic and current reports with the SEC, but is not required by law to file reports under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended.

TABLE OF CONTENTS

Part I—FINANCIAL INFORMATION
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	31
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37
Part II—OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
	Signatures	40

2

Part I—FINANCIAL INFORMATION

Item 1. Financial Statements

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

	August 3, 2013			February 2, 2013			July 28, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	26,831		$	33,328		$	54,555
Accounts receivable		26,916			27,542			25,173
Merchandise inventories		214,981			197,935			220,209
Prepaid income taxes		4,037			2,903			5,295
Prepaid expenses		18,081			17,341			4,498
Deferred income taxes		36,378			31,383			41,328
Total current assets		327,224			310,432			351,058
Property and equipment:
Land and buildings		22,428			22,428			22,428
Leasehold improvements		188,301			174,616			159,770
Furniture, fixtures and equipment		106,215			99,120			90,061
		316,944			296,164			272,259
Less accumulated depreciation and amortization		(110,484	)		(90,839	)		(69,624	)
Net property and equipment		206,460			205,325			202,635
Goodwill		898,983			898,966			899,097
Other intangible assets		577,782			580,641			589,943
Deferred financing costs		36,819			40,040			44,695
Other assets		8,293			7,809			5,006
Total assets	$	2,055,561		$	2,043,213		$	2,092,434
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	100,794		$	90,133		$	84,964
Accrued liabilities		93,947			90,443			89,906
Total current liabilities		194,741			180,576			174,870
Long-term liabilities:
Long-term debt		1,138,595			1,138,455			1,192,312
Lease incentives and other deferred liabilities		45,529			40,104			34,045
Unrecognized tax benefits		8,894			7,848			7,407
Deferred income taxes		229,548			234,593			239,985
Total liabilities		1,617,307			1,601,576			1,648,619
Commitments and contingencies (see Notes 6, 7 and 14)
Stockholders’ equity:
Common stock, including additional paid-in capital ($.001 par value: 1,000 shares authorized, issued and outstanding)		522,461			519,687			521,615
Accumulated deficit		(88,117	)		(76,231	)		(76,661	)
Accumulated other comprehensive loss		(4,888	)		(5,914	)		(5,783	)
Total stockholders’ equity		429,456			437,542			439,171
Noncontrolling interest		8,798			4,095			4,644
Total equity		438,254			441,637			443,815
Total liabilities and stockholders’ equity	$	2,055,561		$	2,043,213		$	2,092,434

See notes to condensed consolidated financial statements.

3

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

	13 Weeks Ended						26 Weeks Ended
	August 3, 2013			July 28, 2012			August 3, 2013			July 28, 2012
Net sales:
Retail	$	278,944		$	259,114		$	559,821		$	547,230
Gymboree Play & Music		6,260			5,799			12,588			11,591
Retail Franchise		5,712			3,839			11,290			7,682
Total net sales		290,916			268,752			583,699			566,503
Cost of goods sold, including buying and occupancy expenses		(183,830	)		(179,564	)		(355,640	)		(355,491	)
Gross profit		107,086			89,188			228,059			211,012
Selling, general and administrative expenses		(102,023	)		(95,595	)		(206,152	)		(187,334	)
Operating income (loss)		5,063			(6,407	)		21,907			23,678
Interest income		61			45			102			104
Interest expense		(20,467	)		(21,193	)		(40,869	)		(42,851	)
Loss on extinguishment of debt		—			—			—			(1,237	)
Other income (expense), net		(111	)		(24	)		(102	)		(90	)
Loss before income taxes		(15,454	)		(27,579	)		(18,962	)		(20,396	)
Income tax benefit		6,129			13,513			6,789			10,500
Net loss		(9,325	)		(14,066	)		(12,173	)		(9,896	)
Net (income) loss attributable to noncontrolling interest		(25	)		798			287			1,624
Net loss attributable to The Gymboree Corporation	$	(9,350	)	$	(13,268	)	$	(11,886	)	$	(8,272	)

See notes to condensed consolidated financial statements.

4

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	13 Weeks Ended						26 Weeks Ended
	August 3, 2013			July 28, 2012			August 3, 2013			July 28, 2012
Net loss	$	(9,325	)	$	(14,066	)	$	(12,173	)	$	(9,896	)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		(402	)		(30	)		(423	)		(59	)
Unrealized net gain (loss) on cash flow hedges, net of tax benefit of $435, $232, $500 and $263		1,615			(336	)		1,506			99
Total other comprehensive income (loss), net of tax		1,213			(366	)		1,083			40
Comprehensive loss		(8,112	)		(14,432	)		(11,090	)		(9,856	)
Comprehensive (income) loss attributable to noncontrolling interest		(43	)		842			230			1,656
Comprehensive loss attributable to The Gymboree Corporation	$	(8,155	)	$	(13,590	)	$	(10,860	)	$	(8,200	)

See notes to condensed consolidated financial statements.

5

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	26 Weeks Ended
	August 3, 2013			July 28, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(12,173	)	$	(9,896	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss on extinguishment of debt		—			1,237
Depreciation and amortization		23,684			28,923
Amortization of deferred financing costs and accretion of original issue discount		3,362			3,471
Interest rate cap contracts - adjustment to market		432			114
Loss on disposal/impairment of assets		1,949			1,264
Deferred income taxes		(9,498	)		(10,880	)
Share-based compensation expense		2,974			2,917
Other		—			1,430
Change in assets and liabilities:
Accounts receivable		645			(312	)
Merchandise inventories		(16,803	)		(10,084	)
Prepaid income taxes		(1,166	)		(1,557	)
Prepaid expenses and other assets		(1,083	)		933
Accounts payable		10,661			5,944
Accrued liabilities		(456	)		(9,680	)
Lease incentives and other deferred liabilities		8,062			6,612
Net cash provided by operating activities		10,590			10,436
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(23,228	)		(18,516	)
Other		(162	)		(231	)
Net cash used in investing activities		(23,390	)		(18,747	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Term Loan		—			(17,698	)
Payments of deferred financing costs		—			(1,347	)
Investment by affiliate of Parent		—			2,400
Dividend payment to Parent		(201	)		—
Capital contribution received by noncontrolling interest		6,506			1,595
Net cash provided by (used in) financing activities		6,305			(15,050	)
Effect of exchange rate fluctuations on cash and cash equivalents		(2	)		6
Net decrease in cash and cash equivalents		(6,497	)		(23,355	)
CASH AND CASH EQUIVALENTS:
Beginning of period		33,328			77,910
End of period	$	26,831		$	54,555
OTHER CASH FLOW INFORMATION:
Cash paid for income taxes, net of refunds received	$	1,926		$	2,747
Cash paid for interest	$	37,255		$	40,277

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 our 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 “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 February 2, 2013 filed with the Securities and Exchange Commission on May 2, 2013.

The accompanying condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position, results of operations, comprehensive income (loss) and cash flows for the periods presented. The results of operations for the 13 and 26 weeks ended August 3, 2013 are not necessarily indicative of the operating results that may be expected for the 52-week period ending February 1, 2014 (“fiscal 2013”) or any future period.

2. Recently Issued Accounting Standards

In July 2013, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The guidance is effective prospectively for fiscal years and interim reporting periods within those years, beginning after December 15, 2013. We are currently evaluating the impact of this guidance on our consolidated financial statements.

In February 2013, the FASB issued guidance to finalize the reporting of amounts reclassified out of accumulated other comprehensive income. This new standard requires the registrant to disclose either in a single note, or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. The guidance is effective for annual reporting periods and interim periods within those years beginning after December 15, 2012. We adopted this guidance in the first quarter of fiscal 2013 as presented in Note 12. This change did not have a material impact on our consolidated financial statements.

3. Goodwill and Intangible Assets and Liabilities

Goodwill

During the 13 and 26 week periods ended August 3, 2013 and July 28, 2012, we did not identify any impairment indicators for goodwill or other indefinite-lived intangible assets.

7

Intangible Assets and Liabilities

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

	August 3, 2013
	Gross Carrying Amount			Accumulated Amortization			Net Amount
Intangible Assets Not Subject to Amortization:
Trade names	$	567,861					$	567,861
Intangible Assets Subject to Amortization:
Customer relationships		36,400		$	(36,400	)		—
Below market leases		7,055			(3,620	)		3,435
Co-branded credit card agreement		4,000			(1,650	)		2,350
Franchise agreements		6,600			(2,464	)		4,136
		54,055			(44,134	)		9,921
Total other intangible assets	$	621,916		$	(44,134	)	$	577,782
Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease incentives and other deferred liabilities)	$	(16,626	)	$	8,725		$	(7,901	)
	February 2, 2013
	Gross Carrying Amount			Accumulated Amortization			Net Amount
Intangible Assets Not Subject to Amortization:
Trade names	$	567,494					$	567,494
Intangible Assets Subject to Amortization:
Customer relationships		36,400		$	(34,525	)		1,875
Below market leases		7,055			(3,037	)		4,018
Co-branded credit card agreement		4,000			(1,342	)		2,658
Franchise agreements		6,600			(2,004	)		4,596
		54,055			(40,908	)		13,147
Total other intangible assets	$	621,549		$	(40,908	)	$	580,641
Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease incentives and other deferred liabilities)	$	(16,631	)	$	7,382		$	(9,249	)

8

	July 28, 2012
	Gross Carrying Amount			Accumulated Amortization			Net Amount
Intangible Assets Not Subject to Amortization:
Trade names	$	567,405					$	567,405
Intangible Assets Subject to Amortization:
Customer relationships		36,400		$	(26,612	)		9,788
Below market leases		7,052			(2,322	)		4,730
Co-branded credit card agreement		4,000			(1,035	)		2,965
Franchise agreements		6,600			(1,545	)		5,055
		54,052			(31,514	)		22,538
Total other intangible assets	$	621,457		$	(31,514	)	$	589,943
Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease incentives and other deferred liabilities)	$	(16,627	)	$	5,834		$	(10,793	)

During the 13 week periods ended August 3, 2013 and July 28, 2012, we recorded net amortization income of approximately $0.4 million and $0.5 million, respectively, in cost of goods sold (“COGS”). During the 26 week periods ended August 3, 2013 and July 28, 2012, we recorded net amortization income of approximately $0.8 million and $1.0 million, respectively, in COGS.

During the 13 week periods ended August 3, 2013 and July 28, 2012, we recorded amortization expense of approximately $0.4 million and $4.4 million, respectively, in selling, general and administrative expenses (“SG&A”). During the 26 week periods ended August 3, 2013 and July 28, 2012, we recorded amortization expense of approximately $2.6 million and $8.7 million, respectively, in SG&A.

We estimate that amortization expense (income) related to intangible assets and liabilities will be as follows for the remainder of fiscal 2013 and each of the next five fiscal years (in thousands):

Fiscal	Below Market Leases		Above Market Leases			Other Intangibles		Total
2013 (remaining 26 weeks)	$	575	$	(1,260	)	$	767	$	82
2014		1,059		(2,023	)		1,534		570
2015		835		(1,579	)		1,534		790
2016		483		(1,428	)		1,393		448
2017		342		(1,016	)		332		(342	)
2018 and remaining		141		(595	)		926		472

4. Derivative Financial 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 income (loss) related to these forward foreign exchange contracts will be reclassified to cost of goods sold over an approximately three-month period. We also enter into forward foreign exchange contracts with respect to short-term intercompany balances between U.S. and foreign entities in Canada and Australia. The purpose of these contracts is to protect us from fluctuations in the exchange rates 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 use interest rate caps to hedge against rising interest rates associated with our Term Loan (see Note 7) above the strike rate of the cap through December 23, 2016, the maturity date of the caps. The interest rate 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 interest rate caps. This premium, 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. During the 13 week period ended August 3, 2013 and July 28,

9

2012, we reclassified approximately $0.2 million and $0.1 million respectively, from accumulated other comprehensive loss to interest expense. During the 26 week period ended August 3, 2013 and July 28, 2012, we reclassified approximately $0.4 million and $0.1 million respectively, from accumulated other comprehensive loss to interest expense. We estimate that approximately $1.6 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 income (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):

	August 3, 2013				February 2, 2013				July 28, 2012
	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		6		7,165		6		6,377		6		7,684
Total		10	$	707,165		10	$	706,377		10	$	707,684

In addition to the cash flow hedges above, as of August 3, 2013 and February 2, 2013, the Company had one forward foreign exchange contract with a notional amount of $0.3 million and $1.0 million, respectively, which was not designated as a hedge. As of July 28, 2012, all forward foreign exchange contracts were 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).

	August 3, 2013				February 2, 2013				July 28, 2012
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Other Assets
Purchased Interest Rate Caps	$	1,187	$	—	$	964	$	—	$	1,087	$	—
Forward foreign exchange contracts		223		—		—		—		—		—
Accrued Liabilities
Forward foreign exchange contracts		—		—		—		18		—		14
Total	$	1,410	$	—	$	964	$	18	$	1,087	$	14

The tables below present the effect of all of our derivative financial instruments on the condensed consolidated statements of operations and comprehensive income (loss) for the 13 and 26 weeks ended August 3, 2013 and July 28, 2012 (in thousands). No amounts were reclassified from accumulated other comprehensive loss into income as a result of forecasted transactions that failed to occur or as a result of hedge ineffectiveness for either period.

10

	13 Weeks Ended August 3, 2013
	Gains / (Losses) Recognized in OCI on Derivative (Effective Portion)			Location of Gains (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)	Gains / (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate caps	$	679		Interest expense	$	(249	)
Forward foreign exchange contracts		312		Cost of goods sold		60
Total	$	991			$	(189	)
	13 Weeks Ended July 28, 2012
	Gains / (Losses) Recognized in OCI on Derivative (Effective Portion)			Location of Gains (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)	Gains / (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate caps	$	(958	)	Interest expense	$	(61	)
Forward foreign exchange contracts		335		Cost of goods sold		6
Total	$	(623	)		$	(55	)
	26 Weeks Ended August 3, 2013
	Gains / (Losses) Recognized in OCI on Derivative (Effective Portion)			Location of Gains (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)	Gains / (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate caps	$	223		Interest expense	$	(432	)
Forward foreign exchange contracts		404		Cost of goods sold		53
Total	$	627			$	(379	)
	26 Weeks Ended July 28, 2012
	Gains / (Losses) Recognized in OCI on Derivative (Effective Portion)			Location of Gains (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)	Gains / (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate caps	$	(274	)	Interest expense	$	(114	)
Forward foreign exchange contracts		84		Cost of goods sold		88
Total	$	(190	)		$	(26	)

11

In the tables above, the amounts of gain (loss) recognized in OCI for the effective portion of our interest rate caps and forward foreign exchange contracts for the 13 weeks ended July 28, 2012 have been corrected from the previously disclosed amounts of ($897) and $88, respectively. These corrections had no impact on the accompanying condensed consolidated balance sheet or statements of operations and comprehensive income (loss).

The amounts of gain (loss) recognized in OCI for the effective portion of our interest rate caps and forward foreign exchange contracts for the 26 weeks ended July 28, 2012 have been corrected from the previously disclosed amounts of ($160) and $71, respectively. These corrections had no impact on the accompanying condensed consolidated balance sheet or statements of operations and comprehensive income (loss).

5. Fair Value Measurements

We record our money market funds, forward foreign exchange contracts and interest rate caps at fair value. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. Accounting guidance prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

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

Level 2 – Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data.

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. Our assessment of the 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 our assets and liabilities measured at fair value on a recurring basis as of August 3, 2013, February 2, 2013 and July 28, 2012, aggregated by the level in the fair value hierarchy within which those measurements fall. There were no transfers into or out of Level 1 and Level 2 during the 13 and 26 weeks ended August 3, 2013 and July 28, 2012, or for the year ended February 2, 2013.

	August 3, 2013
	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	$	7,253	$	—	$	—	$	7,253
Interest rate caps		—		1,187		—		1,187
Forward foreign exchange contracts		—		223		—		223
Total	$	7,253	$	1,410	$	—	$	8,663

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	February 2, 2013
	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	$	17,297	$	—	$	—	$	17,297
Interest rate caps		—		964		—		964
Total	$	17,297	$	964	$	—	$	18,261
Liabilities
Forward foreign exchange contracts	$	—	$	18	$	—	$	18
	July 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	$	29,176	$	—	$	—	$	29,176
Interest rate caps		—		1,087		—		1,087
Total	$	29,176	$	1,087	$	—	$	30,263
Liabilities
Forward foreign exchange contracts	$	—	$	14	$	—	$	14

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 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 us and our counterparties. However, as of August 3, 2013, February 2, 2013, and July 28, 2012, 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 August 3, 2013, February 2, 2013 and July 28, 2012.

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The carrying value of cash and cash equivalents, receivables and payables balances approximate their estimated fair values due to the short maturities of these instruments. We estimate the fair value of our long-term debt using current market yields of similar debt. These current market yields are considered Level 2 inputs. The estimated fair value of long-term debt is as follows (in thousands):

	August 3, 2013				February 2, 2013				July 28, 2012
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term loan	$	767,595	$	746,029	$	767,455	$	749,874	$	792,312	$	756,658
Notes		371,000		358,943		371,000		348,740		400,000		373,000
	$	1,138,595	$	1,104,972	$	1,138,455	$	1,098,614	$	1,192,312	$	1,129,658

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

Our non-financial instruments, which primarily consist of goodwill, other intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), non-financial instruments are assessed for impairment and, if applicable, written-down to and recorded at fair value, considering external market participant assumptions.

During the 13 and 26 weeks ended August 3, 2013 and July 28, 2012, we recorded an impairment charge of $1.0 million and $0.9 million, respectively, related to assets for under-performing stores. 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 selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.

6. Line of Credit

We have 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, we recorded a loss on extinguishment of debt of $1.2 million during the first quarter of fiscal 2012 for the write-off of deferred financing costs related to the ABL. 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 August 3, 2013, there was $39.9 million of commercial and standby letters of credit outstanding and no borrowing outstanding. As of August 3, 2013, availability under the ABL was approximately $139.4 million. There were no borrowings during the 13 and 26 week periods ended August 3, 2013 and July 28, 2012.

The ABL provides us 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 7), 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 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, which is 0.375% per annum under the amended ABL, and was 0.5% per annum prior to March 2012.

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 August 3, 2013, we were in compliance with these covenants. 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.

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7. Long-Term Debt

Long-term debt consists of (in thousands):

	August 3, 2013		February 2, 2013		July 28, 2012
Senior secured term loan facility, net of discount of $1,507, $1,647 and $1,791	$	767,595	$	767,455	$	792,312
9.125% senior notes		371,000		371,000		400,000
Long-term debt	$	1,138,595	$	1,138,455	$	1,192,312

We have an agreement with several lenders for an $820 million senior secured Term Loan, with a maturity date of February 2018. 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 6. 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%. As of August 3, 2013, the interest rate under our Term Loan was 5%.

The Term Loan requires us to make quarterly payments 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 calculated our excess cash flow using fiscal 2012 operating results and concluded that we are not required to make any excess cash flow payments on the Term Loan during the first quarter of fiscal 2013. During fiscal 2012, we made one quarterly amortization payment of $2.1 million, prepaid $15.6 million of our Term Loan with our excess cash flow, and made a voluntary prepayment of $25.0 million. The excess cash flow payment made during fiscal 2012 was calculated based on fiscal 2011 operating results. We applied the voluntary prepayment and the excess cash flow prepayment toward our remaining quarterly amortization payments payable under the Term Loan in fiscal 2012 and applied the remainder of such prepayments toward our quarterly amortization payments payable under the Term Loan in fiscal 2013 through fiscal 2017. Future minimum principal payments on long-term debt excluding original issuance discount of $1.5 million as of August 3, 2013 are, as follows (in thousands):

Fiscal years
2013	$	—
2014		—
2015		—
2016		—
2017		6,502
Thereafter		1,133,600
Total	$	1,140,102

The Term Loan is presented net of the related original issue discount (“OID”). Accretion of OID is included in interest expense and was not material for the 13 and 26 weeks ended August 3, 2013 or July 28, 2012. 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.

In fiscal 2010, we issued $400 million aggregate principal amount of 9.125% senior notes due in December 2018 (the “Notes”). 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 17). During the fourth quarter of fiscal 2012, we repurchased Notes with an aggregate principal amount of $29 million for $26.6 million in cash in privately negotiated transactions. We recorded a $2.4 million gain on extinguishment of debt and a $1.4 million charge related to the write-off of deferred financing costs associated with the extinguished debt.

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Interest expense was $20.5 million and $40.9 million for the 13 and 26 weeks ended August 3, 2013, including $1.7 million and $3.4 million, respectively, of amortization of deferred financing costs and accretion of OID. For the 13 and 26 weeks ended July 28, 2012, interest expense was $21.2 million and $42.9 million, respectively, including $1.7 million and $3.5 million, respectively, of amortization of deferred financing costs and accretion of OID.

8. Lease Incentives and Other Deferred Liabilities

Lease incentives and other deferred liabilities consist of the following (in thousands):

	August 3, 2013		February 2, 2013		July 28, 2012
Above market leases	$	7,901	$	9,249	$	10,793
Deferred rent		13,433		11,269		8,704
Lease allowances		22,655		18,059		12,970
Other		1,540		1,527		1,578
Total	$	45,529	$	40,104	$	34,045

9. Share-Based Compensation

Share-based compensation expense is included as a component of selling, general and administrative expenses. Share-based compensation expense for the 13 and 26 weeks ended August 3, 2013 and July 28, 2012 consisted of the following (in thousands):

	13 Weeks Ended				26 Weeks Ended
	August 3, 2013		July 28, 2012		August 3, 2013		July 28, 2012
Share-based compensation expense		1,477	$	1,510	$	2,974	$	2,917

10. Dividend Payment to Parent

In the first quarter of fiscal 2013, we distributed $0.2 million in the form of a dividend to Parent. No such dividend was distributed in second quarter of fiscal 2013 or in the same periods of fiscal 2012.

11. Income Taxes

We believe that it is reasonably possible that the total amount of unrecognized tax benefits of $10.1 million as of August 3, 2013 will decrease by as much as $3.6 million during the next twelve months due to the resolution of certain tax contingencies and lapses of applicable statutes of limitations.

12. Accumulated Other Comprehensive Loss

The following table shows the components of accumulated other comprehensive income (loss) (“OCI”), net of tax (in thousands):

	August 3, 2013			February 2, 2013			July 28, 2012
Foreign currency translation	$	328		$	808		$	697
Accumulated changes in fair value of derivative financial instruments, net of tax benefit of $4,483, $3,982 and $4,178		(5,216	)		(6,722	)		(6,480	)
Total accumulated other comprehensive loss	$	(4,888	)	$	(5,914	)	$	(5,783	)

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Changes in accumulated OCI balance by component are shown below (in thousands):

	13 Weeks Ended August 3, 2013
	Derivatives			Foreign Currency			Total Comprehensive (Loss) Income Including Noncontrolling Interest
Beginning balance	$	(6,831	)	$	748		$	(6,083	)
Other comprehensive income (loss) recognized before reclassifications		991			(402	)		589
Amounts reclassified from accumulated other comprehensive loss to earnings		189			—			189
Tax benefit		435			—			435
Net current-period other comprehensive income (loss)		1,615			(402	)		1,213
Other comprehensive income attributable to noncontrolling interest		—			(18	)		(18	)
Ending balance	$	(5,216	)	$	328		$	(4,888	)
	13 Weeks Ended July 28, 2012
	Derivatives			Foreign Currency			Total Comprehensive (Loss) Income Including Noncontrolling Interest
Beginning balance	$	(6,144	)	$	714		$	(5,430	)
Other comprehensive loss before reclassifications		(623	)		(30	)		(653	)
Amounts reclassified from accumulated other comprehensive loss to earnings		55			—			55
Tax benefit		232			—			232
Net current-period other comprehensive loss		(336	)		(30	)		(366	)
Other comprehensive loss attributable to noncontrolling interest		—			13			13
Ending balance	$	(6,480	)	$	697		$	(5,783	)
	26 Weeks Ended August 3, 2013
	Derivatives			Foreign Currency			Total Comprehensive (Loss) Income Including Noncontrolling Interest
Beginning balance	$	(6,722	)	$	808		$	(5,914	)
Other comprehensive income (loss) recognized before reclassifications		627			(423	)		204
Amounts reclassified from accumulated other comprehensive loss to earnings		379			—			379
Tax benefit		500			—			500
Net current-period other comprehensive income (loss)		1,506			(423	)		1,083
Other comprehensive income attributable to noncontrolling interest		—			(57	)		(57	)
Ending balance	$	(5,216	)	$	328		$	(4,888	)

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	26 Weeks Ended July 28, 2012
	Derivatives			Foreign Currency			Total Comprehensive (Loss) Income Including Noncontrolling Interest
Beginning balance	$	(6,579	)	$	754		$	(5,825	)
Other comprehensive loss before reclassifications		(190	)		(59	)		(249	)
Amounts reclassified from accumulated other comprehensive loss to earnings		26			—			26
Tax benefit		263			—			263
Net current-period other comprehensive income (loss)		99			(59	)		40
Other comprehensive loss attributable to noncontrolling interest		—			2			2
Ending balance	$	(6,480	)	$	697		$	(5,783	)

13. Related Party Transactions

During the 13 and 26 week periods ended August 3, 2013, we sold inventory to a company controlled by Bain Capital for $7.2 million and $8.0 million, respectively, and purchased services from another company controlled by Bain Capital for $0.6 million and $1.2 million, respectively.

14. Commitments and Contingencies

During the first quarter of fiscal 2013 we entered into an agreement to purchase equipment and services from a third party vendor for approximately $8.8 million per year commencing in the third quarter of fiscal 2013 and ending in the second quarter of fiscal 2019.

There have been no other significant changes to our contractual obligations and commercial commitments as disclosed in our Annual Report on Form 10-K as of February 2, 2013, other than those which occur in the normal course of business.

Contingencies

From time to time, we are subject to various legal actions arising in the ordinary course of our business. Many of these legal actions raise complex factual and legal issues, which are subject to uncertainties. We cannot predict with reasonable assurance the outcome of these legal actions brought against us. Accordingly, any settlements or resolutions in these legal actions may occur and affect our net income in the quarter of such settlement or resolution. However, we do not believe that the outcome of any legal actions would have a material effect on our condensed consolidated financial statements taken as a whole.

15. Segment Information

We have four reportable segments: retail stores, Gymboree Play & Music, International 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 Retail (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 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 additional information. Corporate overhead (costs related to our distribution center and shared corporate services) is included in the retail stores segment.

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

	13 Weeks Ended August 3, 2013
	Retail Stores			Gymboree Play & Music		��	International Retail Franchise		VIEs			Intersegment Elimination			Total
Net sales	$	277,649		$	3,654		$	5,842	$	4,998		$	(1,227	)	$	290,916
Operating income (loss)		1,058			1,438			2,825		(273	)		15			5,063
Total assets		1,950,885			60,377			30,363		15,877			(1,941	)		2,055,561
	13 Weeks Ended July 28, 2012
	Retail Stores			Gymboree Play & Music			International Retail Franchise		VIEs			Intersegment Elimination			Total
Net sales	$	258,473		$	5,152		$	3,866	$	3,056		$	(1,795	)	$	268,752
Operating (loss) income		(8,615	)		1,715			1,570		(1,111	)		34			(6,407	)
Total assets		1,992,120			60,812			29,430		12,672			(2,600	)		2,092,434
	26 Weeks Ended August 3, 2013
	Retail Stores			Gymboree Play & Music			Retail Franchise		VIEs			Intersegment Elimination			Total
Net sales	$	557,453		$	7,645		$	11,527	$	9,632		$	(2,558	)	$	583,699
Operating income (loss)		13,871			3,448			5,069		(515	)		34			21,907
Total assets		1,950,885			60,377			30,363		15,877			(1,941	)		2,055,561
	26 Weeks Ended July 28, 2012
	Retail Stores			Gymboree Play & Music			Retail Franchise		VIEs			Intersegment Elimination			Total
Net sales	$	546,502		$	11,202		$	7,718	$	5,199		$	(4,118	)	$	566,503
Operating income (loss)		19,004			3,635			3,019		(1,865	)		(115	)		23,678
Total assets		1,992,120			60,812			29,430		12,672			(2,600	)		2,092,434

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 International Retail Franchise segments recorded intersegment revenues of $1.1 million and $0.1 million, respectively, for the 13 weeks ended August 3, 2013 and $2.3 million and $0.3 million, respectively, for the 26 weeks ended August 3, 2013. The Gymboree Play & Music and VIE segments recorded intersegment revenues of $0.1 million and $1.7 million, respectively, for the 13 weeks ended July 28, 2012 and $0.6 million and $3.5 million, respectively, for the 26 weeks ended July 28, 2012. There were no other material intersegment revenues.

We attribute retail store revenues to individual countries based on selling location. Effective in the third quarter of fiscal 2012, geographical segments, previously disclosed by country, were included in either the United States or international geographical segment to conform to the current period presentation. For Gymboree International Retail Franchise, all sales were attributed to the United States geographic segment.

Prior to November 2012, Gymboree Play & Music sales were all attributable to the U.S. geographic segment. Effective November 2012, as a result of a modification to the Master Service Agreement with Gymboree Tianjin, China Play & Music franchisee sales are attributable to the international geographic segment and all other Gymboree Play & Music sales are attributable to the U.S. geographic segment.

Long-lived assets include net property and equipment, goodwill, other intangibles, deferred financing costs and other assets. The following tables provide the summary financial data of each of our two geographical segments, United States and international (in thousands):

	13 Weeks Ended
	August 3, 2013				July 28, 2012
	United States		International		United States		International
Net sales	$	273,664	$	17,252	$	254,673	$	14,079
Long-lived assets		1,673,700		54,637		1,688,561		52,815
	26 Weeks Ended
	August 3, 2013				July 28, 2012
	United States		International		United States		International
Net sales	$	550,893	$	32,806	$	541,603	$	24,900
Long-lived assets		1,673,700		54,637		1,688,561		52,815

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16. Variable Interest Entities

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 their 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 August 3, 2013, February 2, 2013 and July 28, 2012 and the condensed consolidated statements of operations for the 13 and 26 weeks ended August 3, 2013 and July 28, 2012 (in thousands):

Condensed Consolidating Balance Sheets

	August 3, 2013
	Balance Before Consolidation of VIEs		VIEs		Eliminations			As Reported
Cash and cash equivalents	$	20,677	$	6,154	$	—		$	26,831
Other current assets		295,780		6,554		(1,941	)		300,393
Total current assets		316,457		12,708		(1,941	)		327,224
Non-current assets		1,725,168		3,169		—			1,728,337
Total assets	$	2,041,625	$	15,877	$	(1,941	)	$	2,055,561
Current liabilities	$	189,637	$	6,850	$	(1,746	)	$	194,741
Non-current liabilities		1,422,337		229		—			1,422,566
Total liabilities		1,611,974		7,079		(1,746	)		1,617,307
Total stockholders’ equity		429,651		—		(195	)		429,456
Noncontrolling interest		—		8,798		—			8,798
Total liabilities and stockholders’ equity	$	2,041,625	$	15,877	$	(1,941	)	$	2,055,561
	February 2, 2013
	Balance Before Consolidation of VIEs		VIEs		Eliminations			As Reported
Cash and cash equivalents	$	27,223	$	6,105	$	—		$	33,328
Other current assets		276,121		5,448		(4,465	)		277,104
Total current assets		303,344		11,553		(4,465	)		310,432
Non-current assets		1,730,865		1,916		—			1,732,781
Total assets	$	2,034,209	$	13,469	$	(4,465	)	$	2,043,213
Current liabilities	$	175,555	$	9,244	$	(4,223	)	$	180,576
Non-current liabilities		1,420,870		130		—			1,421,000
Total liabilities		1,596,425		9,374		(4,223	)		1,601,576
Total stockholders’ equity		437,784		—		(242	)		437,542
Noncontrolling interest		—		4,095		—			4,095
Total liabilities and stockholders’ equity	$	2,034,209	$	13,469	$	(4,465	)	$	2,043,213

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	July 28, 2012
	Balance Before Consolidation of VIEs		VIEs		Eliminations			As Reported
Cash and cash equivalents	$	46,973	$	7,582	$	—		$	54,555
Other current assets		295,091		4,012		(2,600	)		296,503
Total current assets		342,064		11,594		(2,600	)		351,058
Non-current assets		1,740,298		1,078		—			1,741,376
Total assets	$	2,082,362	$	12,672	$	(2,600	)	$	2,092,434
Current liabilities	$	169,413	$	7,950	$	(2,493	)	$	174,870
Non-current liabilities		1,473,671		78		—			1,473,749
Total liabilities		1,643,084		8,028		(2,493	)		1,648,619
Total stockholders’ equity		439,278		—		(107	)		439,171
Noncontrolling interest		—		4,644		—			4,644
Total liabilities and stockholders’ equity	$	2,082,362	$	12,672	$	(2,600	)	$	2,092,434

Condensed Consolidating Statements of Operations

	For the 13 Weeks Ended August 3, 2013
	Balance Before Consolidation of VIEs			VIEs			Eliminations			As Reported
Net sales	$	287,145		$	4,998		$	(1,227	)	$	290,916
Cost of goods sold		(182,693	)		(1,341	)		204			(183,830	)
Operating expenses		(99,131	)		(3,930	)		1,038			(102,023	)
Operating income (loss)		5,321			(273	)		15			5,063
Other non-operating (expense) income		(20,540	)		23			—			(20,517	)
Loss before income taxes		(15,219	)		(250	)		15			(15,454	)
Income tax benefit		5,854			275			—			6,129
Net (loss) income		(9,365	)		25			15			(9,325	)
Net income attributable to noncontrolling interest		—			(25	)		—			(25	)
Net loss attributable to The Gymboree Corporation	$	(9,365	)	$	—		$	15		$	(9,350	)
	For the 13 Weeks Ended July 28, 2012
	Balance Before Consolidation of VIEs			VIEs			Eliminations			As Reported
Net sales	$	267,491		$	3,056		$	(1,795	)	$	268,752
Cost of goods sold		(178,513	)		(1,202	)		151			(179,564	)
Operating expenses		(94,308	)		(2,965	)		1,678			(95,595	)
Operating loss		(5,330	)		(1,111	)		34			(6,407	)
Other non-operating (expense) income		(21,201	)		29			—			(21,172	)
Loss before income taxes		(26,531	)		(1,082	)		34			(27,579	)
Income tax benefit		13,229			284			—			13,513
Net loss		(13,302	)		(798	)		34			(14,066	)
Net loss attributable to noncontrolling interest		—			798			—			798
Net loss attributable to The Gymboree Corporation	$	(13,302	)	$	—		$	34		$	(13,268	)

21

	For the 26 weeks Ended August 3, 2013
	Balance Before Consolidation of VIEs			VIEs			Eliminations			As Reported
Net sales	$	576,625			9,632			(2,558	)	$	583,699
Cost of goods sold		(353,475	)		(2,571	)		406			(355,640	)
Operating expenses		(200,762	)		(7,576	)		2,186			(206,152	)
Operating income (loss)		22,388			(515	)		34			21,907
Other non-operating (expense) income		(41,023	)		154			—			(40,869	)
Loss before income taxes		(18,635	)		(361	)		34			(18,962	)
Income tax benefit		6,715			74			—			6,789
Net loss		(11,920	)		(287	)		34			(12,173	)
Net loss attributable to noncontrolling interest		—			287			—			287
Net loss attributable to The Gymboree Corporation	$	(11,920	)	$	—		$	34		$	(11,886	)
	For the 26 weeks Ended July 28, 2012
	Balance Before Consolidation of VIEs			VIEs			Eliminations			As Reported
Net sales	$	565,422			5,199			(4,118	)	$	566,503
Cost of goods sold		(354,562	)		(1,444	)		515			(355,491	)
Operating expenses		(185,202	)		(5,620	)		3,488			(187,334	)
Operating income (loss)		25,658			(1,865	)		(115	)		23,678
Other non-operating (expense) income		(44,090	)		16			—			(44,074	)
Loss before income taxes		(18,432	)		(1,849	)		(115	)		(20,396	)
Income tax benefit		10,275			225			—			10,500
Net loss		(8,157	)		(1,624	)		(115	)		(9,896	)
Net loss attributable to noncontrolling interest		—			1,624			—			1,624
Net loss attributable to The Gymboree Corporation	$	(8,157	)	$	—		$	(115	)	$	(8,272	)

22

17. 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 those of the non-guarantor subsidiaries.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

	As of August 3, 2013
	The Gymboree Corporation		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	8,774	$	5,757	$	12,300	$	—		$	26,831
Accounts receivable, net of allowance		406		24,267		2,243		—			26,916
Merchandise inventories		—		208,703		6,273		5			214,981
Prepaid income taxes		2,347		471		1,219		—			4,037
Prepaid expenses		2,994		13,572		1,515		—			18,081
Deferred income taxes		19,277		16,284		817		—			36,378
Intercompany receivable		—		490,096		—		(490,096	)		—
Total current assets		33,798		759,150		24,367		(490,091	)		327,224
Property and Equipment, net		13,895		182,859		9,706		—			206,460
Goodwill		—		859,165		39,818		—			898,983
Other Intangible Assets		—		577,282		500		—			577,782
Deferred Financing Costs		36,819		—		—		—			36,819
Other Assets		17,946		2,047		5,732		(17,432	)		8,293
Investment in Subsidiaries		1,987,315		—		—		(1,987,315	)		—
Total Assets	$	2,089,773	$	2,380,503	$	80,123	$	(2,494,838	)	$	2,055,561
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	8,563	$	91,335	$	896	$	—		$	100,794
Accrued liabilities		29,870		57,936		6,141		—			93,947
Intercompany payable		478,737		—		11,354		(490,091	)		—
Total current liabilities		517,170		149,271		18,391		(490,091	)		194,741
Long-Term Liabilities:
Long-term debt		1,138,595		—		—		—			1,138,595
Lease incentives and other liabilities		4,552		43,812		6,059		—			54,423
Deferred income taxes		—		246,980		—		(17,432	)		229,548
Total Liabilities		1,660,317		440,063		24,450		(507,523	)		1,617,307
Total stockholders’ equity		429,456		1,940,440		46,875		(1,987,315	)		429,456
Noncontrolling interest		—		—		8,798		—			8,798
Total liabilities and stockholders’ equity	$	2,089,773	$	2,380,503	$	80,123	$	(2,494,838	)	$	2,055,561

23

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

	As of February 2, 2013
	The Gymboree Corporation		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	18,431	$	3,128	$	11,769	$	—		$	33,328
Accounts receivable, net of allowance		1,280		23,679		2,583		—			27,542
Merchandise inventories		—		193,003		4,907		25			197,935
Prepaid income taxes		1,821		682		400		—			2,903
Prepaid expenses		3,142		12,909		1,290		—			17,341
Deferred income taxes		15,488		16,528		—		(633	)		31,383
Intercompany receivable		—		468,919		—		(468,919	)		—
Total current assets		40,162		718,848		20,949		(469,527	)		310,432
Property and Equipment, net		15,679		180,021		9,625		—			205,325
Goodwill		—		859,166		39,800		—			898,966
Other Intangible Assets		—		580,492		149		—			580,641
Deferred Financing Costs		40,040		—		—		—			40,040
Other Assets		15,409		2,061		7,067		(16,728	)		7,809
Investment in subsidiaries		1,976,277		—		—		(1,976,277	)		—
Total Assets	$	2,087,567	$	2,340,588	$	77,590	$	(2,462,532	)	$	2,043,213
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	14,269	$	74,589	$	1,275	$	—		$	90,133
Accrued liabilities		35,991		48,446		6,006		—			90,443
Deferred income taxes		—		—		633		(633	)		—
Intercompany payable		456,934		—		11,960		(468,894	)		—
Total current liabilities		507,194		123,035		19,874		(469,527	)		180,576
Long-Term Liabilities:
Long-term debt		1,138,455		—		—		—			1,138,455
Lease incentives and other liabilities		4,376		38,693		4,883		—			47,952
Deferred income taxes		—		250,427		894		(16,728	)		234,593
Total Liabilities		1,650,025		412,155		25,651		(486,255	)		1,601,576
Total stockholders’ equity		437,542		1,928,433		47,844		(1,976,277	)		437,542
Noncontrolling interest		—		—		4,095		—			4,095
Total liabilities and stockholders’ equity	$	2,087,567	$	2,340,588	$	77,590	$	(2,462,532	)	$	2,043,213

24

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

	July 28, 2012
	The Gymboree Corporation		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	29,930	$	9,563	$	15,062	$	—		$	54,555
Accounts receivable, net of allowance		1,508		21,491		2,174		—			25,173
Merchandise inventories		—		215,794		4,310		105			220,209
Prepaid income taxes		3,727		679		889		—			5,295
Prepaid expenses		2,936		1,236		326		—			4,498
Deferred income taxes		29,180		12,320		—		(172	)		41,328
Intercompany receivable		—		425,880		—		(425,880	)		—
Total current assets		67,281		686,963		22,761		(425,947	)		351,058
Property and Equipment, net		17,249		176,594		8,792		—			202,635
Goodwill		—		859,297		39,800		—			899,097
Other Intangible Assets		—		589,772		171		—			589,943
Deferred Financing Costs		44,695		—		—		—			44,695
Other Assets		13,536		812		4,950		(14,292	)		5,006
Investment in Subsidiaries		1,941,856		—		—		(1,941,856	)		—
Total Assets	$	2,084,617	$	2,313,438	$	76,474	$	(2,382,095	)	$	2,092,434
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	3,796	$	80,570	$	598	$	—		$	84,964
Accrued liabilities		29,796		53,515		6,595		—			89,906
Deferred income taxes		—		—		169		(169	)		—
Intercompany payable		415,545		—		9,763		(425,308	)		—
Total current liabilities		449,137		134,085		17,125		(425,477	)		174,870
Long-Term Liabilities:
Long-term debt		1,192,312		—		—		—			1,192,312
Lease incentives and other liabilities		3,997		33,025		4,430		—			41,452
Deferred income taxes		—		254,277		—		(14,292	)		239,985
Total Liabilities		1,645,446		421,387		21,555		(439,769	)		1,648,619
Total Stockholders’ Equity		439,171		1,892,051		50,275		(1,942,326	)		439,171
Noncontrolling interest		—		—		4,644		—			4,644
Total Equity		439,171		1,892,051		54,919		(1,942,326	)		443,815
Total Liabilities and Stockholders’ Equity	$	2,084,617	$	2,313,438	$	76,474	$	(2,382,095	)	$	2,092,434

25

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED AUGUST 3, 2013

(In thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	471		$	270,242		$	15,401		$	(7,170	)	$	278,944
Gymboree Play & Music		—			2,557			3,703			—			6,260
Retail Franchise		—			5,712			—			—			5,712
Intercompany revenue		14,937			1,448			—			(16,385	)		—
Total net sales		15,408			279,959			19,104			(23,555	)		290,916
Cost of goods sold, including buying and occupancy expenses		(1,434	)		(178,427	)		(10,535	)		6,566			(183,830	)
Gross profit		13,974			101,532			8,569			(16,989	)		107,086
Selling, general and administrative expenses		(16,002	)		(94,098	)		(8,897	)		16,974			(102,023	)
Operating (loss) income		(2,028	)		7,434			(328	)		(15	)		5,063
Interest income		27			12			23			(1	)		61
Interest expense		(20,467	)		—			(1	)		1			(20,467	)
Other (expense) income, net		(119	)		(1	)		9			—			(111	)
(Loss) income before income taxes		(22,587	)		7,445			(297	)		(15	)		(15,454	)
Income tax benefit (expense)		12,680			(6,785	)		234			—			6,129
Equity in earnings of affiliates, net of tax		557			—			—			(557	)		—
Net (loss) income		(9,350	)		660			(63	)		(572	)		(9,325	)
Net income attributable to noncontrolling interest		—			—			(25	)		—			(25	)
Net (loss) income attributable to The Gymboree Corporation	$	(9,350	)	$	660		$	(88	)	$	(572	)	$	(9,350	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED JULY 28, 2012

(In thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	435		$	251,094		$	14,762		$	(7,177	)	$	259,114
Gymboree Play & Music		—			5,041			758			—			5,799
Retail Franchise		—			3,839			—			—			3,839
Intercompany revenue		11,898			545			1,658			(14,101	)		—
Total net sales		12,333			260,519			17,178			(21,278	)		268,752
Cost of goods sold, including buying and occupancy expenses		(1,335	)		(173,570	)		(11,076	)		6,417			(179,564	)
Gross profit		10,998			86,949			6,102			(14,861	)		89,188
Selling, general and administrative expenses		(13,133	)		(92,088	)		(5,349	)		14,975			(95,595	)
Operating (loss) income		(2,135	)		(5,139	)		753			114			(6,407	)
Interest income		22			—			23			—			45
Interest expense		(21,193	)		—			—			—			(21,193	)
Other (expense) income, net		(32	)		—			8			—			(24	)
(Loss) income before income taxes		(23,338	)		(5,139	)		784			114			(27,579	)
Income tax benefit (expense)		15,444			(3,209	)		1,278			—			13,513
Equity in loss of affiliates, net of tax		(5,374	)		—			—			5,374			—
Net (loss) income		(13,268	)		(8,348	)		2,062			5,488			(14,066	)
Net loss attributable to noncontrolling interest		—			—			798			—			798
Net (loss) income attributable to The Gymboree Corporation	$	(13,268	)	$	(8,348	)	$	2,860		$	5,488		$	(13,268	)

26

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 26 WEEKS ENDED AUGUST 3, 2013

(In thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	922		$	544,023		$	28,365		$	(13,489	)	$	559,821
Gymboree Play & Music		—			5,324			7,264			—			12,588
Retail Franchise		—			11,290			—			—			11,290
Intercompany revenue		33,017			3,102			—			(36,119	)		—
Total net sales		33,939			563,739			35,629			(49,608	)		583,699
Cost of goods sold, including buying and occupancy expenses		(2,954	)		(345,164	)		(19,452	)		11,930			(355,640	)
Gross profit		30,985			218,575			16,177			(37,678	)		228,059
Selling, general and administrative expenses		(34,978	)		(191,748	)		(17,060	)		37,634			(206,152	)
Operating (loss) income		(3,993	)		26,827			(883	)		(44	)		21,907
Interest income		33			23			47			(1	)		102
Interest expense		(40,869	)		—			(1	)		1			(40,869	)
Other (expense) income, net		(224	)		(1	)		123			—			(102	)
(Loss) income before income taxes		(45,053	)		26,849			(714	)		(44	)		(18,962	)
Income tax benefit (expense)		22,078			(14,841	)		(448	)		—			6,789
Equity in earnings of affiliates, net of tax		11,089			—			—			(11,089	)		—
Net (loss) income		(11,886	)		12,008			(1,162	)		(11,133	)		(12,173	)
Net loss attributable to noncontrolling interest		—			—			287			—			287
Net (loss) income attributable to The Gymboree Corporation	$	(11,886	)	$	12,008		$	(875	)	$	(11,133	)	$	(11,886	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 26 WEEKS ENDED JULY 28, 2012

(In thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	828		$	533,352		$	26,465		$	(13,415	)	$	547,230
Gymboree Play & Music		—			10,579			1,012			—			11,591
Retail Franchise		—			7,682			—			—			7,682
Intercompany revenue		23,693			1,315			3,459			(28,467	)		—
Total net sales		24,521			552,928			30,936			(41,882	)		566,503
Cost of goods sold, including buying and occupancy expenses		(2,669	)		(346,144	)		(19,036	)		12,358			(355,491	)
Gross profit		21,852			206,784			11,900			(29,524	)		211,012
Selling, general and administrative expenses		(25,650	)		(179,656	)		(11,461	)		29,433			(187,334	)
Operating (loss) income		(3,798	)		27,128			439			(91	)		23,678
Interest income		53			—			51			—			104
Interest expense		(42,851	)		—			—			—			(42,851	)
Loss on extinguishment of debt		(1,237	)		—			—			—			(1,237	)
Other expense, net		(51	)		(1	)		(38	)		—			(90	)
(Loss) income before income taxes		(47,884	)		27,127			452			(91	)		(20,396	)
Income tax benefit (expense)		25,633			(15,749	)		616			—			10,500
Equity in earnings of affiliates, net of tax		13,979			—			—			(13,979	)		—
Net (loss) income		(8,272	)		11,378			1,068			(14,070	)		(9,896	)
Net loss attributable to noncontrolling interest		—			—			1,624			—			1,624
Net (loss) income attributable to The Gymboree Corporation	$	(8,272	)	$	11,378		$	2,692		$	(14,070	)	$	(8,272	)

27

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 13 WEEKS ENDED AUGUST 3, 2013

(In thousands)

	The Gymboree Corporation			Guarantor Subsidiaries		Non-guarantor Subsidiaries			Eliminations			Consolidated
Net (loss) income	$	(9,350	)	$	660	$	(63	)	$	(572	)	$	(9,325	)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		(420	)				(406	)		424			(402	)
Unrealized net gain on cash flow hedges, net of tax benefit of $435		1,615					345			(345	)		1,615
Total other comprehensive income (loss), net of tax		1,195			—		(61	)		79			1,213
Comprehensive (loss) income		(8,155	)		660		(124	)		(493	)		(8,112	)
Comprehensive income attributable to noncontrolling interest							(43	)		—			(43	)
Comprehensive (loss) income attributable to The Gymboree Corporation	$	(8,155	)	$	660	$	(167	)	$	(493	)	$	(8,155	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 13 WEEKS ENDED JULY 28, 2012

(In thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations		Consolidated
Net (loss) income	$	(13,268	)	$	(8,348	)	$	2,062		$	5,488	$	(14,066	)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		—			—			(30	)		—		(30	)
Unrealized net (loss) gain on cash flow hedges, net of tax benefit of $232		(550	)		—			214			—		(336	)
Total other comprehensive (loss) income, net of tax		(550	)		—			184			—		(366	)
Comprehensive (loss) income		(13,818	)		(8,348	)		2,246			5,488		(14,432	)
Comprehensive loss attributable to noncontrolling interest		—			—			842			—		842
Comprehensive (loss) income attributable to The Gymboree Corporation	$	(13,818	)	$	(8,348	)	$	3,088		$	5,488	$	(13,590	)

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 26 WEEKS ENDED AUGUST 3, 2013

(In thousands)

	The Gymboree Corporation			Guarantor Subsidiaries		Non-guarantor Subsidiaries			Eliminations			Consolidated
Net (loss) income	$	(11,886	)	$	12,008	$	(1,162	)	$	(11,133	)	$	(12,173	)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		(480	)				(445	)		502			(423	)
Unrealized net gain on cash flow hedges, net of tax benefit of $500		1,506					408			(408	)		1,506
Total other comprehensive income (loss), net of tax		1,026			—		(37	)		94			1,083
Comprehensive (loss) income		(10,860	)		12,008		(1,199	)		(11,039	)		(11,090	)
Comprehensive loss attributable to noncontrolling interest		—					230			—			230
Comprehensive (loss) income attributable to The Gymboree Corporation	$	(10,860	)	$	12,008	$	(969	)	$	(11,039	)	$	(10,860	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 26 WEEKS ENDED JULY 28, 2012

(In thousands)

	The Gymboree Corporation			Guarantor Subsidiaries		Non-guarantor Subsidiaries			Eliminations			Consolidated
Net (loss) income	$	(8,272	)	$	11,378	$	1,068		$	(14,070	)	$	(9,896	)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		—			—		(59	)		—			(59	)
Unrealized net gain on cash flow hedges, net of tax benefit of $263		64			—		35			—			99
Total other comprehensive income (loss), net of tax		64			—		(24	)		—			40
Comprehensive (loss) income		(8,208	)		11,378		1,044			(14,070	)		(9,856	)
Comprehensive loss attributable to noncontrolling interest		—			—		1,656			—			1,656
Comprehensive (loss) income attributable to The Gymboree Corporation	$	(8,208	)	$	11,378	$	2,700		$	(14,070	)	$	(8,200	)

29

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 26 WEEKS ENDED AUGUST 3, 2013

(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	$	(47,077	)	$	61,010		$	(3,343	)	$	—	$	10,590
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,048	)		(20,449	)		(1,731	)		—		(23,228	)
Other		—			11			(173	)		—		(162	)
Net cash used in investing activities		(1,048	)		(20,438	)		(1,904	)		—		(23,390	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		38,669			(37,944	)		(725	)		—		—
Dividend payment to parent		(201	)		—			—			—		(201	)
Capital contribution received by noncontrolling interest		—			—			6,506			—		6,506
Net cash provided by (used in) financing activities		38,468			(37,944	)		5,781			—		6,305
Effect of exchange rate fluctuations on cash and cash equivalents		—			1			(3	)		—		(2	)
Net (decrease) increase in cash and cash equivalents		(9,657	)		2,629			531			—		(6,497	)
CASH AND CASH EQUIVALENTS:
Beginning of Period		18,431			3,128			11,769			—		33,328
End of Period	$	8,774		$	5,757		$	12,300		$	—	$	26,831

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 26 WEEKS ENDED JULY 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	$	(23,768	)	$	32,186		$	2,018		$	—		$	10,436
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,207	)		(16,428	)		(881	)		—			(18,516	)
Investment in subsidiaries		(180	)		—			—			180			—
Other		—			(116	)		(115	)		—			(231	)
Net cash used in investing activities		(1,387	)		(16,544	)		(996	)		180			(18,747	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		12,820			(12,466	)		(354	)		—			—
Payments on Term Loan		(17,698	)		—			—			—			(17,698	)
Payments of deferred financing costs		(1,347	)		—			—			—			(1,347	)
Investment by Parent		—			—			180			(180	)		—
Investment by affiliate of Parent		2,400			—									2,400
Capital contribution received by noncontrolling interest		—			—			1,595			—			1,595
Net cash (used in) provided by financing activities		(3,825	)		(12,466	)		1,421			(180	)		(15,050	)
Effect of exchange rate fluctuations on cash and cash equivalents		—			—			6			—			6
Net (decrease) increase in cash and cash equivalents		(28,980	)		3,176			2,449			—			(23,355	)
CASH AND CASH EQUIVALENTS:
Beginning of Period		58,910			6,387			12,613			—			77,910
End of Period	$	29,930		$	9,563		$	15,062		$	—		$	54,555

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, we pay expenses on behalf of our 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.

30

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 August 3, 2013 and July 28, 2012, and the related condensed consolidated statements of operations and comprehensive income (loss) for the thirteen and twenty-six week periods then ended, and of cash flows for the twenty-six 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 the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Gymboree Corporation and subsidiaries as of February 2, 2013, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the fiscal year then ended (not presented herein); and in our report dated May 2, 2013, 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 2, 2013 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

September 16, 2013

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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; planned store openings; 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 February 2, 2013, filed with the Securities and Exchange Commission on May 2, 2013 (the “Fiscal 2012 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.

Overview

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 August 3, 2013, we operated a total of 1,302 retail stores, as follows: 632 Gymboree^® stores (including 582 in the United States, 43 in Canada, 1 in Puerto Rico and 6 in Australia), 163 Gymboree Outlet stores (161 in the United States and 2 in Puerto Rico), 135 Janie and Jack^® shops, and 372 Crazy 8^® stores in the United States, as well as 3 online stores atwww.gymboree.com,www.janieandjack.com andwww.crazy8.com. We also offer directed parent-child developmental play programs at 710 franchised and Company-operated Gymboree Play & Music^® centers in the United States and 41 other countries. In addition, as of August 3, 2013, third-party overseas partners operated 62 Gymboree stores in the Middle East, South Korea, and China, including 15 Gymboree retail stores operated by Gymboree (China) Commercial and Trading Co. Ltd. (“Gymboree China”). Gymboree China and Gymboree (Tianjin) Educational Information Consultation Co. Ltd. (“Gymboree Tianjin”) are collectively referred to as the “VIEs.” Gymboree Tianjin provides various services on Gymboree Play & Music’s behalf to Gymboree Play & Music’s franchisees in China.

During the second quarter of fiscal 2013, we opened 26 new stores, of which 20 were Crazy 8 stores. In fiscal 2013, we plan to open approximately 85 stores consisting mostly of Crazy 8 stores.

Seasonality

Our 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.

Results of Operations

13 weeks ended August 3, 2013, compared to 13 weeks ended July 28, 2012

Net Sales

Net retail sales for the second quarter of fiscal 2013 increased to $278.9 million from $259.1 million in the same period last year, an increase of $19.8 million or 7.7%. Comparable store sales (including online sales) decreased by 3% in the second quarter of fiscal 2013 compared to the same period in the prior year. Comparable store sales (excluding online sales) decreased by 7% in the second quarter of fiscal 2013 compared to the same period in the prior year. Total net stores increased from 1,191 as of the second quarter of fiscal 2012 to 1,302 as of the second quarter of fiscal 2013. Total square footage increased from approximately 2.4 million square feet to approximately 2.7 million square feet from the second quarter of fiscal 2012 to the second quarter of fiscal 2013.

Gymboree Play & Music net sales for the second quarter of fiscal 2013 increased to $6.3 million from $5.8 million in the same period last year, an increase of $0.5 million or 7.9%. This increase was primarily due to increased product sales.

32

Retail franchise net sales for the second quarter of fiscal 2013 increased to $5.7 million from $3.8 million in the same period last year, an increase of $1.9 million or 48.8% As of August 3, 2013, our third-party overseas partners operated 62 Gymboree stores in other countries, compared to 33 stores as of the end of the same period last year.

Gross Profit

Gross profit for the second quarter of fiscal 2013 increased to $107.1 million from $89.2 million in the same period last year. As a percentage of net sales, gross profit for the second quarter of fiscal 2013 increased 3.6 percentage points to 36.8% from 33.2% in the same period last year. The increase in gross profit as a percentage of net sales was primarily due to lower commodity prices (primarily cotton). As we record certain distribution channel costs as a component of selling, general and administrative expenses (“SG&A”) and do not include such costs in cost of goods sold, our cost of goods sold and gross profit may not be comparable to those of other companies. Our distribution channel costs recorded in SG&A expenses represent primarily outbound shipping and handling expenses to our stores.

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 $102.0 million in the second quarter of fiscal 2013 compared to $95.6 million in the same period last year. As a percentage of net sales, SG&A expenses decreased 0.5 percentage points to 35.1% for the second quarter of fiscal 2013 from 35.6% in the same period last year primarily due to lower amortization expense of Acquisition-related intangibles, partially offset by a deleveraging of expenses on lower comparable store sales.

Interest Expense

Interest expense decreased to $20.5 million in the second quarter of fiscal 2013 compared to $21.2 million in the same period last year. The decrease of $0.7 million is primarily related to the repayment of $42.7 million of our Term Loan and a repurchase of an aggregate principal amount of $29 million of our Notes during fiscal 2012 in privately negotiated transactions.

Income Taxes

The effective tax rate for the second quarter of fiscal 2013 and 2012 was 39.7% and 49.0%, respectively. The effective tax rate was lower in the second quarter of fiscal 2013 due to the impact of transactions that occurred in the second quarter of fiscal 2012 that are not applicable to the second quarter of fiscal 2013, and the recording of a valuation allowance against the deferred tax asset related to California Enterprise Zone credits as a result of a law enacted in the second quarter of fiscal 2013. The actual fiscal 2013 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 2013, 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.

26 weeks ended August 3, 2013, compared to 26 weeks ended July 28, 2012

Net Sales

Net retail sales for the 26 weeks ended August 3, 2013 increased to $559.8 million from $547.2 million in the same period last year, an increase of $12.6 million or 2.3%. Comparable store sales (including online sales) decreased by 4% in the 26 weeks ended August 3, 2013 compared to the same period in the prior year. Comparable store sales (excluding online sales) decreased by 7% in the 26 weeks ended August 3, 2013 compared to the same period in the prior year. Total net stores increased from 1,191 as of the second quarter of fiscal 2012 to 1,302 as of the second quarter of fiscal 2013. Total square footage increased from approximately 2.4 million square feet to approximately 2.7 million square feet from the second quarter of fiscal 2012 to the second quarter of fiscal 2013.

Gymboree Play & Music net sales for the 26 weeks ended August 3, 2013 increased to $12.6 million from $11.6 million in the same period last year, an increase of $1.0 million or 8.6%. This increase was primarily due to increased product sales.

Retail franchise net sales for the 26 weeks ended August 3, 2013 increased to $11.3 million from $7.7 million in the same period last year, an increase of $3.6 million or 47.0%. As of August 3, 2013, our third-party overseas partners operated 62 Gymboree stores in other countries, compared to 33 stores as of the end of the same period last year.

Gross Profit

Gross profit for the 26 weeks ended August 3, 2013 increased to $228.1 million from $211.0 million in the same period last year. As a percentage of net sales, gross profit for the 26 weeks ended August 3, 2013 increased 1.9 percentage points to 39.1% from 37.2% in the same period last year. The increase in gross profit as a percentage of net sales was primarily due to lower commodity

33

prices (primarily cotton). As we record certain distribution channel costs as a component of selling, general and administrative expenses (“SG&A”) and do not include such costs in cost of goods sold, our cost of goods sold and gross profit may not be comparable to those of other companies. Our distribution channel costs recorded in SG&A expenses represent primarily outbound shipping and handling expenses to our stores.

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 $206.2 million for the 26 weeks ended August 3, 2013 compared to $187.3 million in the same period last year. As a percentage of net sales, SG&A expenses increased 2.2 percentage points to 35.3% for the 26 weeks ended August 3, 2013 from 33.1% in the same period last year primarily due to a deleveraging of expenses on lower comparable store sales, partially offset by lower amortization expense of Acquisition-related intangibles.

Interest Expense

Interest expense decreased to $40.9 million for the 26 weeks ended August 3, 2013 compared to $42.9 million in the same period last year. The decrease of $2.0 million is primarily related to the repayment of $42.7 million of our Term Loan and a repurchase of an aggregate principal amount of $29 million of our Notes during fiscal 2012 in privately negotiated transactions.

Income Taxes

The effective tax rate for the 26 weeks ended August 3, 2013 and July 28, 2012 was 35.8% and 51.5%, respectively. The effective tax rate was lower in the 26 weeks ended August 3, 2013 due to the impact of transactions that occurred as of the second quarter of fiscal 2012 that are not applicable as of the second quarter of fiscal 2013, and the recording of a valuation allowance against the deferred tax asset related to California Enterprise Zone tax credits as a result of a law enacted in the second quarter of fiscal 2013. The actual fiscal 2013 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 2013, 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.

Financial Condition

Liquidity and Capital Resources

Cash and cash equivalents were $26.8 million at August 3, 2013, representing a decrease of $6.5 million from February 2, 2013. As of August 3, 2013 and February 2, 2013, cash and cash equivalents include $6.2 million and $6.1 million, respectively, held by the two entities that make up the VIEs, 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 16 to the condensed consolidated financial statements included elsewhere in this quarterly report). The assets of the VIEs cannot be used by us. Working capital as of August 3, 2013 was $132.5 million compared to $129.9 million as of February 2, 2013.

Cash flows provided by operating activities

Net cash provided by operating activities for the 26 weeks ended August 3, 2013 and July 28, 2012 was $10.6 million and $10.4 million, respectively. The increase in cash provided by operating activities was primarily due to changes in income and working capital.

Cash flows used in investing activities

Net cash used in investing activities for the 26 weeks ended August 3, 2013 was $23.4 million compared to $18.7 million in the same period last year, related primarily to the opening of new stores, relocation, remodeling and/or expansion of existing stores and information technology improvements.

Cash flows provided by (used in) financing activities

Net cash provided by financing activities for the 26 weeks ended August 3, 2013 was $6.3 million, compared to net cash used in financing activities of $15.1 million in the same period last year. Net cash provided by financing activities for the 26 weeks ended August 3, 2013, is primarily due to a capital contribution of $6.5 million to the VIEs made by their immediate corporate parent, partially offset by $0.2 million cash dividend on our common stock paid to Parent, which was used by Parent to repurchase shares of its stock. Net cash used in financing activities for the 26 weeks ended July 28, 2012, is primarily due to the prepayment of $15.6 million of the Term Loan, quarterly principal payment of $2.1 million on our Term Loan and costs paid to refinance our ABL, partially offset by a capital contribution from an affiliate of our indirect parent company, Giraffe Holding, Inc. (“Parent”).

34

We have an $820 million Term Loan and a $225 million ABL Facility. As of August 3, 2013, $769.1 million was outstanding under the Term Loan and no amounts were outstanding under the ABL Facility. Amounts available under the ABL Facility are subject to customary borrowing base limitations and are reduced by letter of credit utilization. No amounts were outstanding and there was approximately $139.4 million of undrawn availability under the ABL Facility as of August 3, 2013. The Term Loan and ABL Facility 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 Facility contain covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. The ABL Facility also contains financial covenants. As of August 3, 2013, we were in compliance with these covenants.

Subject to certain limitations imposed on business combinations under the agreements governing our indebtedness, we may from time to time, consider strategic acquisitions as an alternative means of growth, which may be funded with cash on hand or require us to incur additional indebtedness.

We and our subsidiaries, the VIEs, and our affiliates may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

We believe that cash generated by operations, the remaining funds available under our senior credit facilities (collectively, the “Senior Credit Facilities”) 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. However, if we face unanticipated cash needs such as the funding of a future acquisition or other capital investment, our existing cash and cash equivalents and net cash provided by operating activities may be insufficient. In addition we cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the Senior Credit Facilities in amounts sufficient to enable us to repay our indebtedness when due, including 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 2012 Annual Report. We also regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure. If opportunities are favorable, we may refinance our existing debt or issue additional securities.

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 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 2, 2013.

Non-GAAP Measures

Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”)

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.

35

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

	13 Weeks Ended						26 Weeks Ended
	August 3, 2013			July 28, 2012			August 3, 2013			July 28, 2012
				(In thousands)
Net loss attributable to The Gymboree Corporation	$	(9,350	)	$	(13,268	)	$	(11,886	)	$	(8,272	)
Reconciling items (a):
Interest expense		20,467			21,193			40,869			42,851
Interest income		(47	)		(36	)		(73	)		(84	)
Income tax benefit		(5,854	)		(13,229	)		(6,715	)		(10,275	)
Depreciation and amortization (b)		10,662			14,578			23,282			28,740
Non-cash share-based compensation expense		1,477			1,510			2,974			2,917
Loss on disposal/impairment on assets		1,571			1,202			1,871			1,264
Loss on extinguishment of debt		—			—			—			1,237
Other (c)		1,974			—			2,463			—
Acquisition-related adjustments (d)		3,899			4,481			7,992			8,879
Adjusted EBITDA	$	24,799		$	16,431		$	60,777		$	67,257
(a)    Excludes amounts related to noncontrolling interest, which are already excluded from net loss attributable to The Gymboree Corporation. (b)    Includes the following (in thousands):
Amortization of intangible assets (impacts SG&A)	$	384		$	4,340		$	2,642		$	8,680
Amortization of below and above market leases
(impacts COGS)		(376	)		(487	)		(762	)		(1,035	)
	$	8		$	3,853		$	1,880		$	7,645
(c)    Other is comprised of a non-recurring change in reserves, restructuring charges, and executive-related hiring expenses. (d)    Includes the following (in thousands):
Additional rent expense recognized due to the elimination of deferred rent and construction allowances in purchase accounting (impacts COGS)	$	2,226		$	2,308		$	4,458		$	4,632
Sponsor fees, legal and accounting, as well as other costs incurred as a result of the Acquisition or refinancing (impacts SG&A)		975			976			2,095			1,848
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)		698			1,197			1,439			2,399
	$	3,899		$	4,481		$	7,992		$	8,879

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

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. Our U.S. entity also enters into forward foreign exchange contracts with respect to short-term intercompany balances between our Canadian, Australian and U.S. entities. The purpose of these contracts is to protect us from fluctuations in the exchange rate for Canadian, Australian 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 Gain (Loss)			Weighted- Average Rate
	(in thousands, except weighted-average rate data)
August 3, 2013	$	7,440	$	223			0.97
February 2, 2013	$	7,419	$	(18	)		1.00
July 28, 2012	$	7,684	$	(14	)		0.99

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 $769.1 million outstanding under our Term Loan as of August 3, 2013, bearing interest at variable rates. 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%. As of August 3, 2013, the interest rate under our Term Loan was 5%. A 0.125% increase in the Adjusted LIBOR rate, above the 1.5% floor, would have increased annual interest expense by approximately $1.0 million, assuming $769.1 million of indebtedness thereunder was outstanding for the whole year. 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 August 3, 2013, February 2, 2013, and July 28, 2012, accumulated other comprehensive loss included approximately $10.1 million, $10.7 million, and $10.8 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 Principal 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, 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 Principal 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 Principal 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 Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the second quarter of the Company’s fiscal 2013, 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.

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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 effect on our financial position, results of operations or cash flows.

Item 1A. RISK FACTORS

There have been no material changes during the period covered by this Quarterly Report on Form 10-Q to the risk factors disclosed in Part I, Item 1A, of our 2012 Annual Report on Form 10-K.

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

Not applicable

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

Item 4. MINE SAFETY DISCLOSURES

None

Item 5. Other Information

Compensatory Arrangements of Certain Officers

On September 12, 2013, the Compensation Committee (the “Committee”) of the Board of Directors of The Gymboree Corporation (the “Company”) adopted The Gymboree Corporation 2013 China Phantom Equity Incentive Plan (the “Plan”). The Plan was established to advance the interests of the Company by providing for the grant of Units (as defined below) to certain key employees, directors, consultants and advisors of the Company and its subsidiaries, as selected by the administrator of the Plan.

Units awarded under the Plan (the “Units”) represent a hypothetical equity interest in Gymboree Hong Kong Limited (“Gymboree China”). The Company is a member of a related party group that controls Gymboree China. Each award gives the holder of the award the conditional right to receive, in accordance with the terms of the Plan and the award, a specified interest in the value of the “Pool.” For this purpose, the “Pool” means an amount of cash equal to 10% of the amount by which the sum of the amount of cash and the fair market value of marketable securities, in each case, received by Bain Fund X, L.P. and its permitted transferees in respect of shares of common stock of Gymboree China they beneficially own exceeds a number equal to $12 million plus the amount of any additional equity investment, whether direct or indirect, by the Bain Fund X, L.P. and its permitted transferees in Gymboree China. Awards for a maximum of 1,000,000 Units may be issued under the Plan.

Under a form of award adopted under the Plan on September 12, 2013, each award will conditionally vest as to 20% of the Units subject to the award on each of the first five anniversaries of the date specified by the Plan administrator, subject to continued employment or service with the Company through the applicable anniversary.

Under a form of award adopted under the Plan on September 12, 2013, each award will only vest and become payable if a “Payment Event” (as defined in the Plan) occurs at a time when the award is outstanding. Upon the occurrence of a Payment Event, the Company is obligated to make a payment in cash to the holder of the award equal to the product of (i) the value of the Pool and (ii) (A) the number of conditionally vested Units that were outstanding under the participant’s award immediately prior to the Payment Event divided by (B) 1,000,000. All Units subject to the award will conditionally vest in full upon the occurrence of a “Sale” (as defined in the Plan). If the Payment Event is not a Sale, any portion of an award that is not then conditionally vested will remain eligible to conditionally vest in accordance with its original conditional vesting schedule. With respect to Units that conditionally vest after the occurrence of a Payment Event, if any, on the date such Units conditionally vest, the Company will make a payment in cash to the holder of the award equal to product of (i) the value of the Pool and (ii) (A) the number of Units that conditionally vested on such date divided by (B) 1,000,000.

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On September 12, 2013, the Committee, which currently serves as the Plan administrator, made the following grants of awards under the Plan, each of which has a conditional vesting commencement date of December 23, 2011, to the following of the Company’s named executive officers:

Name	Number of Units Subject to Award
Mark Breitbard,CEO		172,085
Evan Price,CFO		50,765
Joelle Maher,COO		50,765
Kip M. Garcia,President		106,864
Lynda G. Gustafson,VP Corporate Controller		13,087

The foregoing description is qualified in its entirety by reference to the provisions of The Gymboree Corporation 2013 China Phantom Equity Incentive Plan and the Form of Award Agreement under The Gymboree Corporation 2013 Gymboree China Phantom Equity Incentive Plan, copies of which are attached as Exhibits 10.2 and 10.3 hereto, respectively, and are incorporated herein by reference.

Item 6. Exhibits

10.1	Offer Letter, dated as of June 18, 2013, by and between The Gymboree Corporation and Joelle Maher. (1)
10.2	The Gymboree Corporation 2013 China Phantom Equity Incentive Plan.
10.3	Form of Award Agreement under the Gymboree Corporation 2013 Gymboree China Phantom Equity Incentive Plan.
31.1	Certification of Mark Breitbard Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Evan Price Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Mark Breitbard Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Evan Price 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 August 3, 2013, 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.

(1) Incorporated by reference to Exhibit 10.1 to The Gymboree Corporation’s Current Report on Form 8-K filed with the SEC on June 19, 2013.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE GYMBOREE CORPORATION
	(Registrant)
September 16, 2013	By:	/s/ Mark Breitbard
Date		Mark Breitbard
		Chief Executive Officer

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Exhibit Index

Exhibit Number	Description
10.1	Offer Letter, dated as of June 18, 2013, by and between The Gymboree Corporation and Joelle Maher. (1)
10.2	The Gymboree Corporation 2013 China Phantom Equity Incentive Plan.
10.3	Form of Award Agreement under The Gymboree Corporation 2013 Gymboree China Phantom Equity Incentive Plan.
31.1	Certification of Mark Breitbard Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Evan Price Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Mark Breitbard Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Evan Price 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 August 3, 2013, 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.

(1) Incorporated by reference to Exhibit 10.1 to The Gymboree Corporation’s Current Report on Form 8-K filed with the SEC on June 19, 2013.

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