10-Q

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 July 30, 2011

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  x    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 12, 2011, 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 parent holding company, and are not publicly traded.

TABLE OF CONTENTS

Part I - FINANCIAL INFORMATION	3
Item 1. FINANCIAL STATEMENTS	3
CONDENSED CONSOLIDATED BALANCE SHEETS	3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS	4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	25
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	26
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	33
Item 4. CONTROLS AND PROCEDURES	34
Part II – OTHER INFORMATION	35
Item 1. LEGAL PROCEEDINGS	35
Item 1A. RISK FACTORS	35
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	35
Item 3. DEFAULTS UPON SENIOR SECURITIES	35
Item 4. (REMOVED AND RESERVED)	35
Item 5. OTHER INFORMATION	35
Item 6. EXHIBITS	36
SIGNATURES	37
Exhibit Index	38

2

Part I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	Successor						Predecessor
	July 30, 2011			January 29, 2011			July 31, 2010
Assets
Current Assets
Cash and cash equivalents	$	54,762		$	32,124		$	132,416
Accounts receivable, net of allowance of $163, $- and $481		19,342			13,669			19,070
Merchandise inventories		215,866			184,268			145,501
Prepaid income taxes		15,467			16,116			20,733
Prepaid expenses		5,440			4,856			5,013
Deferred income taxes		47,238			6,697			14,482
Total current assets		358,115			257,730			337,215
Property and Equipment
Land and buildings		26,790			26,782			25,761
Leasehold improvements		131,150			120,768			232,993
Furniture, fixtures and equipment		76,125			71,286			200,841
		234,065			218,836			459,595
Less accumulated depreciation and amortization		(26,164	)		(6,345	)		(241,776	)
		207,901			212,491			217,819
Deferred Income Taxes		—			—			16,630
Goodwill		934,639			934,639			239
Other Intangible Assets		597,409			606,210			1,330
Deferred Financing Costs		51,237			61,983			—
Other Assets		9,939			15,072			3,284
Total Assets	$	2,159,240		$	2,088,125		$	576,517
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	72,397		$	54,494		$	43,381
Accrued liabilities		74,581			81,100			74,063
Line of credit		40,000			—			—
Current portion of long-term debt		8,200			8,200			—
Total current liabilities		195,178			143,794			117,444
Long-Term Liabilities
Long-term debt		1,205,631			1,207,791			—
Lease incentives and other deferred liabilities		24,444			18,352			73,301
Unrecognized tax benefits		8,397			7,779			5,588
Deferred income taxes		244,115			224,598			—
Total Liabilities		1,677,765			1,602,314			196,333
Commitments and Contingencies		—			—			—
Stockholders’ Equity
Successor Company - Common stock, including additional paid-in capital ($.001 par value: 1,000 shares authorized, issued, and outstanding at July 30, 2011 and January 29, 2011)		526,354			508,617			—
Predecessor Company - Common stock, including additional paid-in capital ($.001 par value: 100,000,000 shares authorized; 27,340,361 shares issued and outstanding at July 31, 2010)		—			—			194,764
Retained earnings (deficit)		(40,416	)		(23,044	)		184,839
Accumulated other comprehensive income (loss)		(4,463	)		238			581
Total stockholders’ equity		481,475			485,811			380,184
Total Liabilities and Stockholders’ Equity	$	2,159,240		$	2,088,125		$	576,517

See notes to condensed consolidated financial statements.

3

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

	Successor			Predecessor			Successor			Predecessor
	13 Weeks Ended July 30, 2011			13 Weeks Ended July 31, 2010			26 Weeks Ended July 30, 2011			26 Weeks Ended July 31, 2010
Net sales:
Retail	$	253,407		$	219,293		$	519,290		$	469,284
Play & Music and Other		5,629			3,456			10,003			6,290
Total net sales		259,036			222,749			529,293			475,574
Cost of goods sold, including buying and occupancy expenses		(167,004	)		(125,853	)		(326,400	)		(248,504	)
Gross profit		92,032			96,896			202,893			227,070
Selling, general and administrative expenses		(88,881	)		(77,897	)		(173,448	)		(159,412	)
Operating income		3,151			18,999			29,445			67,658
Interest income		34			109			87			200
Interest expense		(21,927	)		(65	)		(45,930	)		(155	)
Loss on extinguishment of debt		—			—			(19,563	)		—
Other (expense) income, net		(80	)		59			(51	)		87
(Loss) income before income taxes		(18,822	)		19,102			(36,012	)		67,790
Income tax benefit (expense)		11,891			(6,848	)		18,640			(26,350	)
Net (loss) income	$	(6,931	)	$	12,254		$	(17,372	)	$	41,440

See notes to condensed consolidated financial statements.

4

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Successor			Predecessor
	26 Weeks Ended July 30, 2011			26 Weeks Ended July 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(17,372	)	$	41,440
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Write-off of deferred financing costs and original issue discount		15,860			—
Depreciation and amortization		28,617			19,544
Amortization of deferred financing costs and accretion of original issue discount		3,370			—
Loss on disposal/impairment of assets		2,260			759
(Benefit) provision for deferred income taxes		(19,913	)		725
Excess tax benefits from exercise and vesting of share-based awards		—			(3,834	)
Tax benefit from exercise of stock options and vesting of restricted stock awards and units		—			3,864
Share-based compensation expense		2,872			8,538
Change in assets and liabilities:
Accounts receivable		(5,667	)		(9,156	)
Merchandise inventories		(31,467	)		(24,445	)
Prepaid expenses and other assets		(606	)		216
Prepaid income taxes		(198	)		(26,034	)
Accounts payable		17,890			(3,140	)
Accrued liabilities		(7,148	)		9,521
Lease incentives and other deferred liabilities		8,184			2,672
Net cash (used in) provided by operating activities		(3,318	)		20,670
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(16,784	)		(26,530	)
Acquisition of business, net of cash acquired		(1,352	)		—
Other		(213	)		—
Net cash used in investing activities		(18,349	)		(26,530	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Term Loan		820,000			—
Payments on Term Loan		(824,100	)		—
Proceeds from ABL facility		60,656			—
Payments on ABL facility		(20,656	)		—
Deferred financing costs		(6,665	)		—
Investment by Parent		14,865			—
Exercise of stock options		—			997
Repurchases of common stock		—			(124,492	)
Excess tax benefits from exercise and vesting of share-based awards		—			3,834
Net cash provided by (used in) financing activities		44,100			(119,661	)
Effect of exchange rate fluctuations on cash		205			265
Net increase (decrease) in cash and cash equivalents		22,638			(125,256	)
CASH AND CASH EQUIVALENTS:
Beginning of period		32,124			257,672
End of period	$	54,762		$	132,416
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures incurred, but not yet paid	$	5,800		$	9,100
OTHER CASH FLOW INFORMATION:
Cash paid for income taxes	$	1,068		$	48,041
Cash paid for interest	$	41,434		$	47

See notes to condensed consolidated financial statements.

5

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

On October 11, 2010, The Gymboree Corporation, a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Giraffe Holding, Inc., a Delaware corporation (“Parent”), and Giraffe Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent (“Acquisition Sub”), whereby Acquisition Sub merged with and into the Company in accordance with the “short-form” merger provisions available under Delaware law (the “Merger”). The Company is continuing as the surviving corporation and 100%-owned indirect subsidiary of the Parent. Investment funds sponsored by Bain Capital Partners, LLC (“Bain”) own a controlling interest in the Parent. The Merger was consummated on November 23, 2010 (“Transaction Date”). The accompanying condensed consolidated balance sheets, statements of operations and cash flows and the notes to the condensed consolidated financial statements are presented for the Predecessor and Successor periods, which relate to the periods preceding and succeeding the Transaction Date, respectively.

The unaudited interim condensed consolidated financial statements, which include The Gymboree Corporation and its subsidiaries, all of which are 100% owned, 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 the Company’s Registration Statement on Form S-4 filed on May 16, 2011.

The accompanying interim condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. All such adjustments are of a normal and recurring nature, except for a $10.7 million adjustment to cost of goods sold resulting from an increase in the net book value of inventory as a result of purchase accounting and the loss on extinguishment of debt disclosed in Note 6. Both of these adjustments were recorded in the first quarter of fiscal 2011.

The results of operations for the 13 and 26 weeks ended July 30, 2011 are not necessarily indicative of the operating results that may be expected for the fiscal year ending January 28, 2012 (“fiscal 2011”) or any future period.

Classification Error

The Company corrected the classification of approximately $10 million in building costs from leasehold improvements to land and buildings to properly present such amounts in the condensed consolidated balance sheet as of July 31, 2010. The Company’s net property and equipment balance as of July 31, 2010 did not change from the amount previously reported.

6

Reclassifications

Goodwill and other intangible assets, previously reported in other assets as of July 31, 2010, have been separately disclosed to conform to the current year presentation.

2. Recently Issued Accounting Standards

In January 2010, the FASB issued guidance which amends and clarifies existing guidance related to fair value measurements and disclosures. This guidance requires new disclosures for (1) transfers in and out of Level 1 and Level 2 and reasons for such transfers; and (2) the separate presentation of purchases, sales, issuances and settlement in the Level 3 reconciliation. It also clarifies guidance around disaggregation and disclosures of inputs and valuation techniques for Level 2 and Level 3 fair value measurements. The Company adopted this guidance as of January 31, 2010, except for the new disclosures in the Level 3 reconciliation, which were adopted during the first quarter of fiscal 2011. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

3. Investment by Parent

On or about January 31, 2011, Giraffe Holding, Inc. entered into subscription agreements with certain members of the Company’s management team. Under the subscription agreements, such members of the management team purchased an aggregate of 1,580,769 Class A Shares and 175,641 Class L Shares of Holding. The aggregate cash consideration paid for the shares was $7.9 million. This amount was indirectly contributed to the Company by Giraffe Holding, Inc.

In February 2011, investment funds sponsored by Bain purchased an aggregate of 419,231 Class A Shares and 46,581 Class L Shares of Holding for $2.1 million. In addition, an unrelated party purchased an aggregate of 1,000,000 Class A Shares and 111,111 Class L Shares of Holding for $5.0 million. These amounts were indirectly contributed to the Company by Giraffe Holding, Inc.

7

4. Intangible Assets and Liabilities

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

	July 30, 2011 (Successor)
	Gross Carrying Amount			Accumulated Amortization			Net Amount
Intangible Assets Not Subject to Amortization:
Goodwill	$	934,639		$	—		$	934,639
Trade names	$	560,291		$	—		$	560,291
Intangible Assets Subject to Amortization:
Customer relationships		36,400			(10,786	)		25,614
Below market leases		7,064			(948	)		6,116
Co-branded credit card agreement		4,000			(420	)		3,580
Franchise agreements		1,900			(92	)		1,808
		49,364			(12,246	)		37,118
Total intangible assets	$	609,655		$	(12,246	)	$	597,409
Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease Incentives and Other Deferred Liabilities)	$	(16,644	)	$	2,411		$	(14,233	)
	January 29, 2011 (Successor)
	Gross Carrying Amount			Accumulated Amortization			Net Amount
Intangible Assets Not Subject to Amortization:
Goodwill	$	934,639		$	—		$	934,639
Trade names	$	560,127		$	—		$	560,127
Intangible Assets Subject to Amortization:
Customer relationships		36,400			(2,874	)		33,526
Below market leases		7,049			(255	)		6,794
Co-branded credit card agreement		4,000			(112	)		3,888
Franchise agreements		1,900			(25	)		1,875
		49,349			(3,266	)		46,083
Total intangible assets	$	609,476		$	(3,266	)	$	606,210
Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease Incentives and Other Deferred Liabilities)	$	(16,623	)	$	642		$	(15,981	)

As of July 31, 2010, the Company had intangible assets of approximately $1.3 million and goodwill of approximately $0.2 million, both of which were assigned a fair value of zero in purchase accounting.

8

During the 13 and 26 weeks ended July 30, 2011, the Company recorded amortization income of approximately $0.5 million and $1.0 million, respectively, in cost of goods sold (“COGS”) and amortization expense of approximately $4.1 million and $8.3 million, respectively, in selling, general and administrative expenses (“SG&A”). The Company estimates that amortization expense (income) related to intangible assets and liabilities will be as follows for the remainder of fiscal 2011 and each of the next five fiscal years (in thousands):

Fiscal	Below Market Leases		Above Market Leases			Other Intangibles		Total
2011 (remaining 26 weeks)	$	688	$	(1,704	)	$	8,289	$	7,273
2012		1,376		(3,253	)		16,577		14,700
2013		1,162		(2,651	)		2,626		1,137
2014		1,066		(2,071	)		751		(254	)
2015		843		(1,612	)		751		(18	)
2016		487		(1,463	)		751		(225	)

5. Line of Credit

In connection with the Merger discussed in Note 1, the Company entered into a senior secured asset-based revolving credit facility (“ABL”) which 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 July 30, 2011, availability under the ABL was approximately $75.8 million. The ABL provides the Company with the right to request up to $75 million of additional commitments under this facility, subject to the satisfaction of certain conditions, provided that the aggregate amount of additional commitments incurred under both the ABL and the senior secured term loan facility described in Note 6 may not exceed $200 million in the aggregate. Principal amounts outstanding under the ABL are due and payable in full in November 2015. In addition to paying interest on outstanding principal under the ABL, the Company is required to pay a commitment fee on unutilized commitments thereunder, which was 0.625% per annum as of July 30,2011. The ABL contains financial and other covenants that, among other things, restrict the Company’s ability to incur additional indebtedness and pay dividends. As of July 30,2011, the Company was in compliance with these covenants. As of July 30, 2011, there were $40 million of borrowings and $89.3 million of commercial and standby letters of credit outstanding under the ABL. The Company and its 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Company’s obligations under the ABL (see Note 14).

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6. Long-Term Debt

Long-term debt consists of (in thousands):

	Successor
	July 30, 2011			January 29, 2011
Senior secured term loan facility, net of discount of $2,069 and $4,010	$	813,831		$	815,991
9.125% senior subordinated notes		400,000			400,000
Subtotal		1,213,831			1,215,991
Less current portion		(8,200	)		(8,200	)
Long-term debt - less current portion	$	1,205,631		$	1,207,791

In connection with the Merger discussed in Note 1, the Company entered into an agreement with several lenders to establish an $820 million senior secured term loan facility (“Term Loan”). The Term Loan allows the Company 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 5. The interest rate for borrowings under the Term Loan is, at the option of the Company, a base rate plus an additional marginal rate of 3.0% or the Adjusted LIBOR rate (with a 1.5% floor) plus an additional rate of 3.5% (reduced from 4.0% as a result of the refinancing discussed below). The Term Loan requires the Company to make quarterly payments each equal to 0.25% of the original $820 million principal amount of the Term Loan made on the closing date plus accrued and unpaid interest thereon, with the balance due in February 2018. The Term Loan also has mandatory and voluntary pre-payment provisions, including a requirement that the Company prepay the Term Loan with a certain percentage of its annual excess cash flow beginning with the excess cash flow for fiscal 2011. 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 during the 13 and 26 weeks ended July 30, 2011. In February 2011, the Company refinanced the Term Loan through an amendment and restatement of its existing credit agreement, to lower the interest rate, remove certain financial covenants and extend the maturity date from November 2017 to February 2018. In the first quarter of fiscal 2011, the Company recorded a loss on extinguishment of debt of approximately $19.6 million as a result of the refinancing, which included the write-off of approximately $15.9 million in deferred financing costs and OID related to the original Term Loan. The obligations under the Term Loan are secured, subject to certain exceptions, by substantially all of the Company’s assets and those of its 100%-owned domestic subsidiaries. The Company and its 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Company’s obligations under the Term Loan (see Note 14).

In connection with the Merger discussed in Note 1, the Company issued $400 million aggregate principal amount of 9.125% senior subordinated notes (the “Notes”) due in December 2018. Interest on the Notes is payable semi-annually beginning June 1, 2011. If the Company or its subsidiaries sell certain assets, the Company generally must either invest the net cash proceeds from such sale in its 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, the Company 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, the Company will not be entitled to redeem the Notes at its option prior to December 1, 2014. The Notes are unsecured senior obligations of the Company. The Company and its 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Company’s obligations under the Notes (see Note 14).

10

Interest expense was $21.9 million and $45.9 million for the 13 and 26 weeks ended July 30, 2011, respectively, including $1.7 million and $3.4 million, respectively, of amortization of deferred financing costs and accretion of OID.

7. Fair Value Measurements

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

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

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

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

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present the Company’s assets and liabilities measured at fair value on a recurring basis as of July 30, 2011 and January 29, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall.

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	July 30, 2011 (Successor)
	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
Interest rate caps	$	—	$	6,667	$	—	$	6,667
Liabilities
Forward foreign exchange contracts	$	—	$	91	$	—	$	91
	January 29, 2011 (Successor)
	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
Interest rate caps	$	—	$	11,863	$	—	$	11,863
Liabilities
Forward foreign exchange contracts	$	—	$	33	$	—	$	33

The fair value of the Company’s 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, the Company has considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its 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 itself and its counterparties. However, as of July 30, 2011 and January 29, 2011, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its interest rate cap positions and determined that the credit valuation adjustment was not significant to the overall valuation. As a result, the Company classified its interest rate caps derivative valuations in Level 2 of the fair value hierarchy.

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The fair value of the Company’s 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. The Company had no other financial assets or liabilities measured at fair value as of July 30, 2011 and January 29, 2011. The Company had no significant financial assets or liabilities measured at fair value as of July 31, 2010.

The carrying value of cash and cash equivalents, receivables, payables and line of credit balances approximates their estimated fair values due to the short maturities of these instruments. The Company estimates the fair value of its long-term debt using interest rates currently available to the Company for issuance of notes payable and long-term debt (including current maturities). These interest rates are considered Level 2 inputs. The estimated fair value of long-term debt is as follows (in thousands):

	Successor
	July 30, 2011				January 29, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term loan	$	813,831	$	792,737	$	815,991	$	831,275
Notes		400,000		386,000		400,000		420,500
	$	1,213,831	$	1,178,737	$	1,215,991	$	1,251,775

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

The Company measures certain non-financial assets and liabilities, including long-lived assets, at fair value on a non-recurring basis. During the 13 and 26 weeks ended July 30, 2011, the Company recorded charges related to the impairment of assets at under-performing stores, which reduced the carrying amount of the applicable long-lived assets from $1.3 million and $2.0 million, respectively, to their fair value of zero. During the 13 and 26 weeks ended July 31, 2010, the Company recorded charges related to the impairment of assets at under-performing stores, which reduced the carrying amount of the applicable long-lived assets from $0.2 million to their fair value of zero.

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

8. Derivative Instruments

The Company enters into forward foreign exchange contracts with respect to certain purchases in United States dollars of inventory to be sold in the Company’s retail stores in Canada. The purpose of these contracts is to protect the Company’s 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 related to these forward foreign exchange contracts will be reclassified to cost of goods sold over a three-month period. The Company also enters into forward foreign exchange contracts with respect to short-term intercompany balances between U.S. and Canadian entities. The purpose of these contracts is to protect the Company from fluctuations in the exchange rate for Canadian and United States dollars upon the settlement of such balances. These contracts are not designated as hedges. Consequently, changes in the fair value of these contracts are included in other income.

13

The Company has four interest rate caps to hedge against rising interest rates associated with the Company’s Term Loan (see Note 6) above the strike rate of the cap through December 23, 2016, the maturity date of the caps. All four caps were designated on the date of execution as cash flow hedges. In December 2010, the Company paid approximately $12.1 million to enter into these caps. This premium, and any related amounts reported in accumulated other comprehensive income, will be amortized to interest expense through December 23, 2016, as interest payments are made on the underlying Term Loan. The Company estimates that approximately $0.2 million will be reclassified from accumulated other comprehensive income 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 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.

The Company had the following outstanding derivatives designated as cash flow hedges (in thousands):

	Successor								Predecessor
	July 30, 2011				January 29, 2011				July 31, 2010
	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		—	$	—
Foreign exchange derivatives
Forward foreign exchange contracts		6		6,173		6		4,505		6		5,021
Total		10	$	706,173		10	$	704,505		6	$	5,021

In addition to the cash flow hedges above, as of July 30, 2011, the Company had one forward foreign exchange contract with a notional amount of $2.0 million that was not designated as a hedge. The table below presents the fair value of all of the Company’s derivative financial instruments as well as their classification on the condensed consolidated balance sheets (in thousands).

14

	Successor
	July 30, 2011				January 29, 2011
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Interest rate derivatives
Balance Sheet Location		Other Assets				Other Assets
Purchased Caps	$	6,667			$	11,863
Foreign exchange derivatives
Balance Sheet Location				Accrued liabilities				Accrued liabilities
Forward foreign exchange contracts			$	91			$	33
Total	$	6,667	$	91	$	11,863	$	33

The Company had no significant derivative financial instruments as of July 31, 2010.

The tables below present the effect of all of the Company’s derivative financial instruments on the condensed consolidated statements of operations. No amounts were reclassified from accumulated other comprehensive income into earnings as a result of forecasted transactions that failed to occur or as a result of hedge ineffectiveness (in thousands).

	13 weeks ended July 30, 2011 (Successor)
	Amount of Loss Recognized in OCI on Derivative (Effective Portion)			Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate derivatives
Purchased Caps	$	(3,169	)	Interest expense	$	—
Foreign exchange derivatives
Forward foreign exchange contracts		(189	)	Cost of goods sold		(71	)
Total	$	(3,358	)		$	(71	)

15

	26 weeks ended July 30, 2011 (Successor)
	Amount of Loss Recognized in OCI on Derivative (Effective Portion)			Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate derivatives
Purchased Caps	$	(5,194	)	Interest expense	$	—
Foreign exchange derivatives
Forward foreign exchange contracts		(253	)	Cost of goods sold		(170	)
Total	$	(5,447	)		$	(170	)

The amount of gain or loss recognized in other comprehensive income (“OCI”) and reclassified from accumulated OCI into income was not significant for the 13 and 26 weeks ended July 31, 2010.

9. Share-based Compensation

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

	Successor		Predecessor		Successor		Predecessor
	13 Weeks Ended July 30, 2011		13 Weeks Ended July 31, 2010		26 Weeks Ended July 30, 2011		26 Weeks Ended July 31, 2010
Stock options	$	1,469	$	—	$	2,872	$	3
Restricted stock awards and units		—		3,977		—		8,535
Total	$	1,469	$	3,977	$	2,872	$	8,538

10. Comprehensive Income (Loss)

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

	Successor			Predecessor			Successor			Predecessor
	13 Weeks Ended July 30, 2011			13 Weeks Ended July 31, 2010			26 Weeks Ended July 30, 2011			26 Weeks Ended July 31, 2010
Net (loss) income	$	(6,931	)	$	12,254		$	(17,372	)	$	41,440
Foreign currency translation		19			(131	)		552			431
Changes in fair market value of cash flow hedges, net of tax		(3,129	)		(12	)		(5,253	)		(193	)
Total comprehensive (loss) income, net of tax	$	(10,041	)	$	12,111		$	(22,073	)	$	41,678

16

11. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) consists of the following (in thousands):

	Successor						Predecessor
	July 30, 2011			January 29, 2011			July 31, 2010
Foreign currency translation	$	998		$	446		$	704
Unrealized net loss on cash flow hedges, net of tax		(5,461	)		(208	)		(123	)
Total accumulated other comprehensive (loss) income	$	(4,463	)	$	238		$	581

12. Segments

The Company has two reportable segments: retail stores and Gymboree Play & Music. These segments were identified based on differences in products and services. The retail stores segment includes four operating segments (brands) which sell high-quality apparel for children: Gymboree (including an online store), Gymboree Outlet, Janie and Jack (including an online store), and Crazy 8 (including an online store). These four operating segments have been aggregated into one reportable segment because, in the Company’s judgment, these operating segments have similar historical economic characteristics and/or are expected to have similar economic characteristics and similar long-term financial performance in the future. Gross margin is the principal measure the Company considers in determining whether the economic characteristics are similar. In addition, each operating segment has similar products, production processes and type or class of customer. The Company believes that disaggregating its operating segments would not provide material additional information. Corporate overhead (costs related to the Company’s distribution center and shared corporate services) is included in the retail stores segment. Other operating segments that do not meet the criteria of reportable segments are aggregated below. The Other segment primarily relates to the Company’s international retail franchise business.

The following tables provide the summary financial data of each reportable segment (in thousands):

	13 Weeks Ended July 30, 2011 (Successor)								13 Weeks Ended July 31, 2010 (Predecessor)
	Retail Stores		Play & Music		Other		Total		Retail Stores		Play & Music		Other		Total
Net sales	$	253,407	$	3,349	$	2,280	$	259,036	$	219,293	$	3,252	$	204	$	222,749
Operating income		610		1,519		1,022		3,151		17,370		1,561		68		18,999
Total assets		2,150,529		6,763		1,948		2,159,240		571,593		4,657		267		576,517

	26 Weeks Ended July 30, 2011 (Successor)								26 Weeks Ended July 31, 2010 (Predecessor)
	Retail Stores		Play & Music		Other		Total		Retail Stores		Play & Music		Other		Total
Net sales	$	519,290	$	6,274	$	3,729	$	529,293	$	469,284	$	6,086	$	204	$	475,574
Operating income		25,146		2,585		1,714		29,445		65,104		2,489		65		67,658
Total assets		2,150,529		6,763		1,948		2,159,240		571,593		4,657		267		576,517

Interest expense, depreciation and amortization expense and capital expenditures have not been separately disclosed above as the amounts primarily relate to the retail segment. There are no intersegment revenues.

17

The Company attributes revenues to individual countries based on selling location. The following tables provide the summary financial data for the Company’s international locations (in thousands):

	13 Weeks Ended July 30, 2011 (Successor)						13 Weeks Ended July 31, 2010 (Predecessor)
	Canada		Australia		Total International		Canada		Australia		Total International
Net sales	$	11,039	$	524	$	11,563	$	9,192	$	221	$	9,413
Long-lived assets		9,771		772		10,543		5,362		819		6,181

	26 Weeks Ended July 30, 2011 (Successor)						26 Weeks Ended July 31, 2010 (Predecessor)
	Canada		Australia		Total International		Canada		Australia		Total International
Net sales	$	19,936	$	1,012	$	20,948	$	17,761	$	251	$	18,012
Long-lived assets		9,771		772		10,543		5,362		819		6,181

13. Common Stock Repurchases

In November 2009 and June 2010, the Board of Directors authorized the Company to utilize up to $40 million and $100 million, respectively, of its cash reserves to purchase shares of the Company’s outstanding common stock under two share repurchase programs. During the 13 weeks ended July 31, 2010, the Company purchased 2,364,783 shares at a cost of $103.4 million, or approximately $43.73 per share. During the 26 weeks ended July 31, 2010, the Company purchased 2,613,375 shares at a cost of $113.6 million or approximately $43.49 per share. The Company completed both share repurchase programs during the 13 weeks ended July 31, 2010.

14. Condensed Guarantor Data

In connection with the Merger discussed in Note 1, the Company issued $400 million aggregate principal amount of 9.125% Notes (see Note 6) under an indenture dated November 23, 2010. 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. Intercompany transactions are eliminated. The financial information presented reflects the Company’s preliminary allocation of goodwill to the guarantor and non-guarantor subsidiaries. The allocation of goodwill may change upon completion of the final valuation of the guarantor and non-guarantor subsidiaries.

18

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(in thousands)

	July 30, 2011 (Successor)
	The Gymboree Corporation		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	46,223	$	4,151	$	4,388	$	—		$	54,762
Accounts receivable, net of allowance		482		18,571		289		—			19,342
Merchandise inventories		—		212,231		3,540		95			215,866
Prepaid income taxes		16,016		—		550		(1,099	)		15,467
Prepaid expenses		2,591		2,849		—		—			5,440
Intercompany receivable		—		348,926		—		(348,926	)		—
Deferred income taxes		35,385		11,809		44		—			47,238
Total current assets		100,697		598,537		8,811		(349,930	)		358,115
Property and Equipment, net		20,055		180,023		7,823		—			207,901
Deferred Income Taxes		12,983		—		877		(13,860	)		—
Goodwill		—		934,639		—		—			934,639
Other Intangible Assets		3,604		593,577		228		—			597,409
Deferred Financing Costs		51,237		—		—		—			51,237
Other Assets		6,667		860		2,412		—			9,939
Investment in subsidiaries		1,917,796		—		—		(1,917,796	)		—
Total Assets	$	2,113,039	$	2,307,636	$	20,151	$	(2,281,586	)	$	2,159,240
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	4,473	$	67,627	$	297	$	—		$	72,397
Accrued liabilities		27,006		46,103		1,472		—			74,581
Income tax payable		—		1,099		—		(1,099	)		—
Current portion of long-term debt		8,200		—		—		—			8,200
Line of credit		40,000		—		—		—			40,000
Intercompany payable		341,309		—		7,132		(348,441	)		—
Total current liabilities		420,988		114,829		8,901		(349,540	)		195,178
Long-Term Liabilities:
Long-term debt		1,205,631		—		—		—			1,205,631
Lease incentives and other liabilities		4,945		23,730		4,166		—			32,841
Deferred income taxes		—		257,975		—		(13,860	)		244,115
Total Liabilities		1,631,564		396,534		13,067		(363,400	)		1,677,765
Commitments and Contingencies		—		—		—		—			—
Stockholders’ Equity		481,475		1,911,102		7,084		(1,918,186	)		481,475
Total Liabilities and Stockholders’ Equity	$	2,113,039	$	2,307,636	$	20,151	$	(2,281,586	)	$	2,159,240

19

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(in thousands)

	January 29, 2011 (Successor)
	The Gymboree Corporation		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	19,157	$	6,530	$	6,437	$	—		$	32,124
Accounts receivable, net of allowance		620		12,960		89		—			13,669
Merchandise inventories		—		181,544		2,955		(231	)		184,268
Prepaid income taxes		15,404		—		712		—			16,116
Prepaid expenses		3,149		1,658		49		—			4,856
Intercompany receivable		—		333,845		—		(333,845	)		—
Deferred income taxes		—		7,805		28		(1,136	)		6,697
Total current assets		38,330		544,342		10,270		(335,212	)		257,730
Property and Equipment, net		21,411		184,203		6,877		—			212,491
Deferred Income Taxes		37,573		—		828		(38,401	)		—
Goodwill		934,639		—		—		—			934,639
Other Intangible Assets		3,888		602,081		241		—			606,210
Deferred Financing Costs		61,983		—		—		—			61,983
Other Assets		11,867		802		2,403		—			15,072
Investment in subsidiaries		962,297		—		—		(962,297	)		—
Total Assets	$	2,071,988	$	1,331,428	$	20,619	$	(1,335,910	)	$	2,088,125
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	4,235	$	50,040	$	219	$	—		$	54,494
Accrued liabilities		36,197		43,538		1,365		—			81,100
Deferred income taxes		1,136		—		—		(1,136	)		—
Intercompany payable		323,911		—		9,846		(333,757	)		—
Current portion of long-term debt		8,200		—		—		—			8,200
Total current liabilities		373,679		93,578		11,430		(334,893	)		143,794
Long-Term Liabilities:
Long-term debt		1,207,791		—		—		—			1,207,791
Lease incentives and other liabilities		4,707		17,990		3,434		—			26,131
Deferred income taxes		—		262,999		—		(38,401	)		224,598
Total Liabilities		1,586,177		374,567		14,864		(373,294	)		1,602,314
Commitments and Contingencies		—		—		—		—			—
Stockholders’ Equity		485,811		956,861		5,755		(962,616	)		485,811
Total Liabilities and Stockholders’ Equity	$	2,071,988	$	1,331,428	$	20,619	$	(1,335,910	)	$	2,088,125

20

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(in thousands)

	July 31, 2010 (Predecessor)
	The Gymboree Corporation		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	121,382	$	5,742	$	5,292	$	—		$	132,416
Accounts receivable, net of allowance		490		18,329		251		—			19,070
Merchandise inventories		—		142,741		3,000		(240	)		145,501
Prepaid income taxes		19,762		—		971		—			20,733
Prepaid expenses		2,868		2,133		12		—			5,013
Intercompany receivable		—		267,335		—		(267,335	)		—
Deferred income taxes		—		17,527		476		(3,521	)		14,482
Total current assets		144,502		453,807		10,002		(271,096	)		337,215
Property and Equipment, net		23,244		187,928		6,647		—			217,819
Deferred Income Taxes		17,504		140		—		(1,014	)		16,630
Other Assets		4		1,924		2,925		—			4,853
Investment in subsidiaries		512,906		—		—		(512,906	)		—
Total Assets	$	698,160	$	643,799	$	19,574	$	(785,016	)	$	576,517
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	2,322		40,948		111		—		$	43,381
Accrued liabilities		28,297		43,513		2,253		—			74,063
Deferred income taxes		3,521		—		—		(3,521	)		—
Intercompany payable		259,494		—		7,754		(267,248	)		—
Total current liabilities		293,634		84,461		10,118		(270,769	)		117,444
Long-Term Liabilities:
Lease incentives and other liabilities		24,342		51,740		3,821		(1,014	)		78,889
Total Liabilities		317,976		136,201		13,939		(271,783	)		196,333
Commitments and Contingencies		—		—		—		—			—
Stockholders’ Equity		380,184		507,598		5,635		(513,233	)		380,184
Total Liabilities and Stockholders’ Equity	$	698,160	$	643,799	$	19,574	$	(785,016	)	$	576,517

21

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE 13 WEEKS ENDED JULY 30, 2011 (SUCCESSOR)

(in thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	321		$	246,592		$	12,252		$	(5,758	)	$	253,407
Play & Music and Other		—			5,629			—			—			5,629
Intercompany revenue		9,045			222			—			(9,267	)		—
Total net sales		9,366			252,443			12,252			(15,025	)		259,036
Cost of goods sold, including buying and occupancy expenses		(1,323	)		(164,187	)		(7,641	)		6,147			(167,004	)
Gross profit		8,043			88,256			4,611			(8,878	)		92,032
Selling, general and administrative expenses		(12,348	)		(81,973	)		(3,378	)		8,818			(88,881	)
Operating (loss) income		(4,305	)		6,283			1,233			(60	)		3,151
Interest income		10			—			24			—			34
Interest expense		(21,927	)		—			—			—			(21,927	)
Other expense, net		(80	)		—			—			—			(80	)
(Loss) income before income taxes and equity in earnings of affiliates		(26,302	)		6,283			1,257			(60	)		(18,822	)
Income tax benefit (expense)		15,644			(3,285	)		(468	)		—			11,891
Equity in earnings of affiliates, net of tax		3,727			—			—			(3,727	)		—
Net (loss) income	$	(6,931	)	$	2,998		$	789		$	(3,787	)	$	(6,931	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF INCOME

FOR THE 13 WEEKS ENDED JULY 31, 2010 (PREDECESSOR)

(in thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	1,877		$	212,204		$	10,052		$	(4,840	)	$	219,293
Play & Music and Other		—			3,456			—			—			3,456
Intercompany revenue		11,502			172			—			(11,674	)		—
Total net sales		13,379			215,832			10,052			(16,514	)		222,749
Cost of goods sold, including buying and occupancy expenses		(983	)		(123,207	)		(6,469	)		4,806			(125,853	)
Gross profit		12,396			92,625			3,583			(11,708	)		96,896
Selling, general and administrative expenses		(15,423	)		(71,199	)		(2,972	)		11,697			(77,897	)
Operating (loss) income		(3,027	)		21,426			611			(11	)		18,999
Interest income		96			—			13			—			109
Interest expense		(65	)		—			—			—			(65	)
Other income		27			—			32			—			59
(Loss) income before income taxes and equity in earnings of affiliates		(2,969	)		21,426			656			(11	)		19,102
Income tax benefit (expense)		2,480			(9,020	)		(308	)		—			(6,848	)
Equity in earnings of affiliates, net of tax		12,743			—			—			(12,743	)		—
Net income	$	12,254		$	12,406		$	348		$	(12,754	)	$	12,254

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE 26 WEEKS ENDED JULY 30, 2011 (SUCCESSOR)

(in thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	613		$	506,658		$	22,307		$	(10,288	)	$	519,290
Play & Music and Other		—			10,003			—			—			10,003
Intercompany revenue		20,360			457			—			(20,817	)		—
Total net sales		20,973			517,118			22,307			(31,105	)		529,293
Cost of goods sold, including buying and occupancy expenses		(2,646	)		(320,128	)		(14,287	)		10,661			(326,400	)
Gross profit		18,327			196,990			8,020			(20,444	)		202,893
Selling, general and administrative expenses		(24,034	)		(163,380	)		(6,425	)		20,391			(173,448	)
Operating (loss) income		(5,707	)		33,610			1,595			(53	)		29,445
Interest income		10			26			51			—			87
Interest expense		(45,930	)		—			—			—			(45,930	)
Loss on extinguishment of debt		(19,563	)		—			—			—			(19,563	)
Other expense, net		(44	)		—			(7	)		—			(51	)
(Loss) income before income taxes and equity in earnings of affiliates		(71,234	)		33,636			1,639			(53	)		(36,012	)
Income tax benefit (expense)		33,305			(14,034	)		(631	)		—			18,640
Equity in earnings of affiliates, net of tax		20,557			—						(20,557	)		—
Net (loss) income	$	(17,372	)	$	19,602		$	1,008		$	(20,610	)	$	(17,372	)

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF INCOME

FOR THE 26 WEEKS ENDED JULY 31, 2010 (PREDECESSOR)

(in thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	3,752		$	455,368		$	19,290		$	(9,126	)	$	469,284
Play & Music and Other		—			6,290			—			—			6,290
Intercompany revenue		26,189			403			—			(26,592	)		—
Total net sales		29,941			462,061			19,290			(35,718	)		475,574
Cost of goods sold, including buying and occupancy expenses		(1,965	)		(243,914	)		(11,623	)		8,998			(248,504	)
Gross profit		27,976			218,147			7,667			(26,720	)		227,070
Selling, general and administrative expenses		(34,567	)		(145,454	)		(6,030	)		26,639			(159,412	)
Operating (loss) income		(6,591	)		72,693			1,637			(81	)		67,658
Interest income		179			—			21			—			200
Interest expense		(155	)		—			—			—			(155	)
Other income		59			—			28			—			87
(Loss) income before income taxes and equity in earnings of affiliates		(6,508	)		72,693			1,686			(81	)		67,790
Income tax benefit (expense)		4,603			(29,632	)		(1,321	)		—			(26,350	)
Equity in earnings of affiliates, net of tax		43,345			—			—			(43,345	)		—
Net income	$	41,440		$	43,061		$	365		$	(43,426	)	$	41,440

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 26 WEEKS ENDED JULY 30, 2011 (SUCCESSOR)

(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	$	(53,542	)	$	48,466		$	1,758		$	—	$	(3,318	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,633	)		(14,209	)		(942	)		—		(16,784	)
Acquisition of business, net of cash acquired		(1,352	)		—			—			—		(1,352	)
Other		(17	)		(196	)		—			—		(213	)
Net cash used in investing activities		(3,002	)		(14,405	)		(942	)		—		(18,349	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in intercompany payables		39,510			(36,440	)		(3,070	)		—		—
Proceeds from Term Loan		820,000			—			—			—		820,000
Payments on Term Loan		(824,100	)		—			—			—		(824,100	)
Proceeds from ABL facility		60,656			—			—			—		60,656
Payments on ABL faciliity		(20,656	)		—			—			—		(20,656	)
Deferred financing costs		(6,665	)		—			—			—		(6,665	)
Investment by parent		14,865			—			—			—		14,865
Net cash provided by (used in) financing activities		83,610			(36,440	)		(3,070	)		—		44,100
Net increase (decrease) in cash and cash equivalents		27,066			(2,379	)		(2,254	)		—		22,433
Effect of exchange rate fluctuations on cash		—			—			205			—		205
CASH AND CASH EQUIVALENTS:
Beginning of Period		19,157			6,530			6,437			—		32,124
End of Period	$	46,223		$	4,151		$	4,388		$	—	$	54,762

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE 26 WEEKS ENDED JULY 31, 2010 (PREDECESSOR)

(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	$	(10,366	)	$	30,554		$	482		$	—		$	20,670
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(2,029	)		(23,635	)		(866	)		—			(26,530	)
Investment in subsidiaries		(1,981	)		—			—			1,981			—
Net cash used in investing activities		(4,010	)		(23,635	)		(866	)		1,981			(26,530	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		11,035			(6,241	)		(4,794	)		—			—
Investment by parent		—			—			1,981			(1,981	)		—
Exercise of stock options		997			—			—			—			997
Excess tax benefits from exercise and vesting of share-based awards		2,692			1,142			—			—			3,834
Repurchases of common stock		(124,492	)		—			—			—			(124,492	)
Net cash used in financing activities		(109,768	)		(5,099	)		(2,813	)		(1,981	)		(119,661	)
Effect of exchange rate fluctuations on cash		—			—			265			—			265
Net (decrease) increase in cash and cash equivalents		(124,144	)		1,820			(2,932	)		—			(125,256	)
CASH AND CASH EQUIVALENTS:
Beginning of Period		245,526			3,922			8,224			—			257,672
End of Period	$	121,382		$	5,742		$	5,292		$	—		$	132,416

The Gymboree Corporation 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 Gymboree Corporation. In addition, The Gymboree Corporation pays expenses on behalf of its guarantor and non-guarantor subsidiaries on a regular basis. These types of transactions have been accounted for as intercompany transfers within financing activities.

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

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of

The Gymboree Corporation

We have reviewed the accompanying condensed consolidated balance sheets of The Gymboree Corporation and subsidiaries (the “Company”) as of July 30, 2011 (Successor) and July 31, 2010 (Predecessor), and the related condensed consolidated statements of operations for the thirteen and twenty-six week periods then ended, and of cash flows for the twenty-six week periods ended July 30, 2011 and July 31, 2010. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

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

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Gymboree Corporation and subsidiaries as of January 29, 2011 (Successor), and the related consolidated statements of operations, stockholders’ equity, and cash flows for the period from November 23, 2010 to January 29, 2011 (Successor) and for the period from January 30, 2010 to November 22, 2010 (Predecessor) and in our report dated April 28, 2011 (May 13, 2011 as to Note 19), 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 January 29, 2011 (Successor), 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 12, 2011

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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; 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 the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2011, filed with the Securities and Exchange Commission on June 29, 2011. We encourage you to read these risk factors disclosures carefully. We caution investors not to place substantial reliance on the forward-looking statements contained in this quarterly report. These statements, like all statements in this quarterly report, speak only as of the date of this quarterly report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments, except as otherwise required by law.

General

The Gymboree Corporation (“we,” “us,” “our,” “Gymboree” and “Company”) is one of the largest children’s apparel specialty retailers in North America, offering collections of high-quality apparel and accessories. As of July 30, 2011, the Company operated a total of 1,111 retail stores, including 1,067 stores in the United States (594 Gymboree stores, 150 Gymboree Outlet stores, 125 Janie and Jack shops and 198 Crazy 8 stores), 39 Gymboree stores in Canada, 2 Gymboree stores in Australia, 1 Gymboree store in Puerto Rico and 2 Gymboree Outlet stores in Puerto Rico, as well as 3 online stores at www.gymboree.com, www.janieandjack.com and www.crazy8.com. The Company also offers directed parent-child developmental play programs at 700 franchised and Company-operated centers in the United States and 36 other countries. In addition, as of July 30, 2011, a franchisee operated 10 Gymboree stores in the Middle East.

During the second quarter of fiscal 2011, the Company opened 20 Crazy 8 stores, 3 Gymboree stores, 1 Gymboree Outlet store and 3 Janie and Jack shops. The Company also relocated, remodeled or expanded 5 Gymboree stores and 1 Gymboree Outlet store, and closed 1 Gymboree store, 1 Crazy 8 store and 1 Janie and Jack shop.

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During the remainder of fiscal 2011, the Company plans to open approximately 47 new stores consisting mostly of Crazy 8 stores. In addition, a franchisee plans to open approximately 8 stores in the Middle East.

Effect of the Merger

On October 11, 2010, The Gymboree Corporation entered into an Agreement and Plan of Merger with Giraffe Holding, Inc. (“Parent”), and Giraffe Acquisition Corporation, a wholly owned subsidiary of Parent (“Acquisition Sub”), whereby Acquisition Sub merged with and into the Company in accordance with the “short-form” merger provisions available under Delaware law (the “Merger”). The application of purchase accounting as a result of the Merger required the adjustment of the Company’s assets and liabilities to their fair value, which resulted in an increase in amortization expense related to intangible assets acquired as a result of the Merger. Also, as a result of the Merger, the Company’s borrowings and interest expense significantly increased. The excess of purchase price over the estimated fair value of the Company’s net assets and identified intangible assets was allocated to goodwill. The Company’s indefinite-lived intangible assets and goodwill are subject to periodic tests for impairment. During the 26 weeks ended July 30, 2011, the Company recorded a non-recurring charge of $10.7 million to cost of goods sold resulting from an increase in the net book value of inventory as a result of purchase accounting. The section titled “Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (Non-GAAP Measure)” included elsewhere in this quarterly report shows other purchase accounting adjustments that affected the 13 and 26 weeks ended July 30, 2011, as well as a reconciliation of such measures to net income (loss).

Results of Operations

13 weeks ended July 30, 2011, compared to 13 weeks ended July 31, 2010

Net Sales

Net retail sales for the second quarter of fiscal 2011 increased to $253.4 million from $219.3 million in the same period last year, an increase of $34.1 million, or 15.5%. Comparable store sales for the second quarter of fiscal 2011 increased 8% compared to the same period in the prior year. The increase in net retail sales was also due to net store and square footage growth of 92 stores and approximately 207,000 square feet, respectively. There were 1,111 stores open at the end of the second quarter of fiscal 2011 compared to 1,019 as of the end of the same period last year.

Gymboree Play & Music and Other net sales for the second quarter of fiscal 2011 increased to $5.6 million from $3.5 million in the same period last year. This increase was primarily related to the Company’s international retail franchise business, which was launched in August 2010. As of July 30, 2011, a franchisee operated 10 Gymboree stores in the Middle East.

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Gross Profit

Gross profit for the second quarter of fiscal 2011 decreased to $92.0 million from $96.9 million in the same period last year. As a percentage of net sales, gross profit for the second quarter of fiscal 2011 decreased 8 percentage points to 35.5% from 43.5% in the same period last year. This decrease was primarily due to a higher level of markdown selling and higher average unit costs, as well as $3.4 million in purchase accounting adjustments. The section titled “Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (Non-GAAP Measure)” included elsewhere in this quarterly report shows the purchase accounting adjustments that affected gross profit.

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 $88.9 million in the second quarter of fiscal 2011, including $5.3 million in purchase accounting adjustments, from $77.9 million in the same period last year. As a percentage of net sales, SG&A expenses decreased to 34.3% for the second quarter of fiscal 2011 compared to 35.0% in the same period last year. This decrease was primarily due to lower share-based and incentive compensation, as well as lower store compensation, and was partially offset by higher amortization expense and professional fees related to the Merger, as well as an increase in impairment charges related to under-performing stores. The section titled “Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (Non-GAAP Measure)” included elsewhere in this quarterly report shows the purchase accounting adjustments that affected SG&A.

Interest Expense

Interest expense increased to $21.9 million in the second quarter of fiscal 2011 from $0.1 million in the same period last year, primarily due to interest on the Company’s $820 million senior secured term loan (“Term Loan”) and $225 million senior secured asset-based revolving credit facility (“ABL” or “ABL Facility” and, together with the Term Loan, the “Senior Credit Facilities”) entered into, and 9.125% senior subordinated notes (the “Notes”) issued, in connection with the Merger, as well as amortization of the related deferred financing costs and accretion of the original issue discount on the Term Loan.

Income Taxes

The Company’s effective tax rate for the second quarter of fiscal 2011 and 2010 was 63.2% and 35.8%, respectively. The effective tax rate increased in fiscal 2011 due to tax consequences associated with the Merger. The actual fiscal 2011 effective tax rate will ultimately depend on several variables, including the mix of earnings between domestic and international operations, the Company’s overall level of earnings in fiscal 2011, and the potential resolution of tax contingencies.

28

26 weeks ended July 30, 2011, compared to 26 weeks ended July 31, 2010

Net Sales

Net retail sales for the 26 weeks ended July 30, 2011 increased to $519.3 million from $469.3 million in the same period last year, an increase of $50.0 million, or 10.7%. Comparable store sales for the 26 weeks ended July 30, 2011 increased 4% compared to the same period in the prior year. The increase in net retail sales was due in part to net store and square footage growth of 92 stores and approximately 207,000 square feet, respectively. There were 1,111 stores open at the end of the second quarter of fiscal 2011 compared to 1,019 as of the end of the same period last year.

Gymboree Play & Music and Other net sales for the 26 weeks ended July 30, 2011 increased to $10.0 million from $6.3 million in the same period last year. This increase was primarily related to the Company’s international retail franchise business, which was launched in August 2010. As of July 30, 2011, a franchisee operated 10 Gymboree stores in the Middle East.

Gross Profit

Gross profit for the 26 weeks ended July 30, 2011 decreased to $202.9 million from $227.1 million in the same period last year. As a percentage of net sales, gross profit for the 26 weeks ended July 30, 2011 decreased 9.4 percentage points to 38.3% from 47.7% in the same period last year. This decrease was due to a higher level of markdown selling and higher average unit costs, as well as $17.5 million in purchase accounting adjustments, including a $10.7 million increase in cost of goods sold resulting from an increase in the net book value of inventory. The section titled “Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (Non-GAAP Measure)” included elsewhere in this quarterly report provides additional detail for the $17.5 million in adjustments noted above.

Selling, General and Administrative Expenses

SG&A expenses increased to $173.4 million for the 26 weeks ended July 30, 2011, including $11.4 million in purchase accounting adjustments, from $159.4 million in the same period last year. As a percentage of net sales, SG&A expenses decreased to 32.8% for the 26 weeks ended July 30, 2011 compared to 33.5% in the same period last year. This decrease was primarily due to lower incentive compensation and share-based compensation, and was partially offset by higher amortization expense and professional fees related to the Merger, as well as an increase in impairment charges related to under-performing stores. The section titled “Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (Non-GAAP Measure)” included elsewhere in this quarterly report shows the purchase accounting adjustments that affected SG&A.

Interest Expense

Interest expense increased to $45.9 million for the 26 weeks ended July 30, 2011 from $0.2 million in the same period last year, primarily due to interest on the Company’s Senior Credit Facilities entered into, and Notes issued, in connection with the Merger, as well as amortization of the related deferred financing costs and accretion of the original issue discount on the Term Loan.

29

Loss on Extinguishment of Debt

Loss on extinguishment of debt was approximately $19.6 million for the 26 weeks ended July 30, 2011 and was due to the refinancing of the Term Loan. In February 2011, the Company refinanced the Term Loan through an amendment and restatement of its existing credit agreement, to lower the interest rate, remove certain financial covenants and extend the maturity date from November 2017 to February 2018.

Income Taxes

The Company’s effective tax rate for the 26 weeks ended July 30, 2011 and July 31, 2010 was 51.8% and 38.9%, respectively. The effective tax rate increased in fiscal 2011 due to tax consequences associated with the Merger. The actual fiscal 2011 effective tax rate will ultimately depend on several variables, including the mix of earnings between domestic and international operations, the Company’s overall level of earnings in fiscal 2011, and the potential resolution of tax contingencies.

Seasonality

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

Financial Condition

Liquidity and Capital Resources

Cash and cash equivalents were $54.8 million at July 30, 2011, an increase of $22.6 million from January 29, 2011. Working capital as of July 30, 2011 was $162.9 million compared to $113.9 million as of January 29, 2011.

Net cash used in operating activities for the 26 weeks ended July 30, 2011 was $3.3 million compared to $20.7 million provided by operating activities in the same period last year. This change was primarily due to a decrease in operating income.

Net cash used in investing activities for the 26 weeks ended July 30, 2011 was $18.3 million compared to $26.5 million in the same period last year, and consisted primarily of capital expenditures related to the opening of new stores, relocation, remodeling or expansion of existing stores, information technology improvements, and investment in the Company’s distribution center. The decrease in capital expenditures was primarily due to a decrease in new store construction. The Company opened 52 new stores during the 26 weeks ended July 30, 2011 compared to 69 new stores during the same period last year.

30

Net cash provided by financing activities for the 26 weeks ended July 30, 2011 was $44.1 million, compared to net cash used in financing activities of $119.7 million in the same period last year. Net cash provided by financing activities for the 26 weeks ended July 30, 2011 was primarily related to borrowings totaling $40 million under the ABL Facility. Net cash used in financing activities during the 26 weeks ended July 31, 2010 was primarily related to share repurchases.

The Company has an $820 million Term Loan and a $225 million ABL Facility. As of July 30, 2011, $815.9 million was outstanding under the Term Loan and $40 million was outstanding under the ABL Facility. There was approximately $75.8 million of undrawn availability under the ABL at July 30, 2011. Amounts available under the ABL are subject to customary borrowing base limitations and are reduced by letter of credit utilization. The Term Loan and ABL also allow an aggregate of $200 million in uncommitted incremental facilities, the availability of which is subject to our meeting certain conditions. No incremental facilities are currently in effect. The Term Loan and ABL contain covenants that, among other things, restrict the Company’s ability to incur additional indebtedness and pay dividends. The ABL also contains financial covenants. As of July 30, 2011, the Company was in compliance with these covenants.

We anticipate that cash and cash equivalents generated by operations, the remaining funds available under our Term Loan and ABL, and existing cash and equivalents will be sufficient to meet working capital requirements, service our debt and finance capital expenditures over the next twelve months.

There have been no material changes outside the ordinary course of business to the Company’s contractual obligations since January 29, 2011, as disclosed in the Company’s Registration Statement on Form S-4 filed on May 16, 2011.

Critical Accounting Policies and Estimates

There have been no material changes to the Company’s critical accounting policies and estimates affecting the application of those policies since the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2011 filed on June 29, 2011.

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

In the table below, the Company presents 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. The Company presents Adjusted EBITDA in this quarterly report because it considers it an important supplemental measure of performance used by management and believes 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 the Company’s Senior Credit Facilities. The Company believes 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 the Company does not expect to continue in the future and to provide additional information with respect to the Company’s ability to meet its future debt service and to comply with various covenants in documents governing its indebtedness. However, Adjusted EBITDA is not a presentation made in accordance with GAAP, and the Company’s 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 the Company’s results as reported under GAAP. For example, Adjusted EBITDA:

• does not reflect the Company’s cash expenditures, or future requirements, for capital expenditures or contractual commitments;

• does not reflect changes in, or cash requirements for, the Company’s working capital needs;

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

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

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

32

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

	Successor			Predecessor			Successor			Predecessor
	13 Weeks Ended July 30, 2011			13 Weeks Ended July 31, 2010			26 Weeks Ended July 30, 2011			26 Weeks Ended July 31, 2010
				(in thousands)
Net (loss) income	$	(6,931	)	$	12,254		$	(17,372	)	$	41,440
Interest expense		21,927			65			45,930			155
Interest income		(34	)		(109	)		(87	)		(200	)
Income tax (benefit) expense		(11,891	)		6,848			(18,640	)		26,350
Depreciation and amortization (a)		14,372			9,958			28,617			19,544
Non-cash share-based compensation expense		1,469			3,977			2,872			8,538
Loss on disposal/impairment on assets		1,492			326			2,260			759
Loss on extinguishment of debt		—			—			19,563			—
Acquisition-related adjustments (b)		5,085			—			21,691			—
Adjusted EBITDA	$	25,489		$	33,319		$	84,834		$	96,586
(a) Includes the following purchase accounting adjustments (in thousands):
Amortization of intangible assets (impacts SG&A)	$	4,145		$	—		$	8,289		$	—
Amortization of below and above market leases (impacts COGS)		(508	)		—			(1,021	)		—
	$	3,637		$	—		$	7,268		$	—
(b) Includes the following adjustments (in thousands):
Adjustment to cost of goods sold from an increase in the net book value of inventory as a result of purchase accounting (impacts COGS)	$	—		$	—		$	10,731		$	—
Additional rent expense recognized due to the elimination of deferred rent and construction allowances in purchase accounting (impacts COGS)		2,415			—			4,837			—
Legal, accounting and other costs incurred as a result of the Merger (impacts SG&A)		1,194			—			3,160			—
Decrease in net sales due to the elimination of deferred revenue related to the Company’s co-branded credit card program in purchase accounting (impacts net sales)		1,476			—			2,963			—
	$	5,085		$	—		$	21,691		$	—

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

The Company enters into forward foreign exchange contracts with respect to certain purchases in United States dollars of inventory to be sold in the Company’s retail stores in Canada. The purpose of these contracts is to protect the Company’s 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. The Company also enters into forward foreign exchange contracts with respect to short-term intercompany balances between U.S. and Canadian entities. The purpose of these contracts is to protect the Company from fluctuations in the exchange rate for Canadian and United States dollars upon the settlement of such balances.

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

	Notional Amount		Fair Value Loss			Weighted- Average Rate
	(in thousands, except weighted-average rate data)
July 30, 2011	$	8,250	$	(91	)	$	1.04
January 29, 2011	$	4,505	$	(33	)	$	1.00
July 31, 2010	$	5,021	$	(107	)	$	0.97

33

Interest Rate Risk

The Company is subject to interest rate risk in connection with its long-term debt. The Company’s principal interest rate risk relates to the outstanding Term Loan. The Company had $815.9 million outstanding under its Term Loan as of July 30, 2011, bearing interest at variable rates. A 0.125% increase in the floating rates applicable to the indebtedness outstanding under the Term Loan would have increased annual interest expense by approximately $1.0 million. The Term Loan and the ABL also allow an aggregate of $200 million in uncommitted incremental facilities, bearing interest at variable rates. No incremental facilities are currently in effect.

In December 2010, the Company purchased four interest rate caps to hedge against rising interest rates associated with the Company’s 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 July 30, 2011 and January 29, 2011, accumulated other comprehensive income included approximately $5.4 million and $0.2 million, respectively, in unrealized losses related to the interest rate caps.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and the Chief 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) of 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 their evaluation, the Chief Executive Officer and the Chief 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 disclosed by the Company in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In addition, the Company’s Chief Executive Officer and the Chief Financial Officer concluded as of the end of the period covered by this report that the Company’s disclosure controls and procedures are also effective to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the second quarter of fiscal 2011, 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 has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

34

Part II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

Item 1A. RISK FACTORS

There have been no material changes to the risk factors discussed in Part II, “Item 1A, Risk Factors,” in the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2011, filed on June 29, 2011.

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

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. (REMOVED AND RESERVED)

Item 5. OTHER INFORMATION

Not applicable.

35

Item 6. EXHIBITS

31.1	Certification of Matthew K. McCauley Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Jeffrey P. Harris Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Matthew K. McCauley Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Jeffrey P. Harris 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 July 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

36

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 12, 2011	By:	/s/ Jeffrey P. Harris
Date		Jeffrey P. Harris
		Chief Financial Officer

37

Exhibit Index

Exhibit Number	Description
31.1	Certification of Matthew K. McCauley Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Jeffrey P. Harris Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Matthew K. McCauley Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Jeffrey P. Harris 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 July 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

38

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Matthew K. McCauley, certify that:

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

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

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

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

September 12, 2011	By:	/s/ Matthew K. McCauley
Date		Matthew K. McCauley
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jeffrey P. Harris, certify that:

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

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

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

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

September 12, 2011	By:	/s/ Jeffrey P. Harris
Date		Jeffrey P. Harris Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Gymboree Corporation (the “Company”) on Form 10-Q for the period ended July 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, Matthew K. McCauley, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

September 12, 2011	By: /s/ Matthew K. McCauley
Date		Matthew K. McCauley Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Gymboree Corporation (the “Company”) on Form 10-Q for the period ended July 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, Jeffrey P. Harris, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

September 12, 2011	By: /s/ Jeffrey P. Harris
Date		Jeffrey P. Harris Chief Financial Officer

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data	Jul. 30, 2011	Jan. 29, 2011	Jul. 31, 2010 Predecessor
Accounts receivable, allowance	$ 163	$ 0	$ 481
Common stock, par value	$ 0.001	$ 0.001	$ 0.001
Common stock, shares authorized	1,000	1,000	100,000,000
Common stock, shares issued	1,000	1,000	27,340,361
Common stock, shares outstanding	1,000	1,000	27,340,361

XML



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands	3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended
	Jul. 30, 2011	Jul. 30, 2011	Jul. 31, 2010 Predecessor	Jul. 31, 2010 Predecessor	Jul. 31, 2010 Predecessor Retail	Jul. 31, 2010 Predecessor Retail	Jul. 31, 2010 Predecessor Play & Music and Other	Jul. 31, 2010 Predecessor Play & Music and Other	Jul. 30, 2011 Retail	Jul. 30, 2011 Retail	Jul. 30, 2011 Play & Music and Other	Jul. 30, 2011 Play & Music and Other
Net sales
Net Sales	$ 259,036	$ 529,293	$ 222,749	$ 475,574	$ 219,293	$ 469,284	$ 3,456	$ 6,290	$ 253,407	$ 519,290	$ 5,629	$ 10,003
Cost of goods sold, including buying and occupancy expenses	(167,004)	(326,400)	(125,853)	(248,504)
Gross profit	92,032	202,893	96,896	227,070
Selling, general and administrative expenses	(88,881)	(173,448)	(77,897)	(159,412)
Operating income	3,151	29,445	18,999	67,658
Interest income	34	87	109	200
Interest expense	(21,927)	(45,930)	(65)	(155)
Loss on extinguishment of debt		(19,563)
Other (expense) income, net	(80)	(51)	59	87
(Loss) income before income taxes	(18,822)	(36,012)	19,102	67,790
Income tax benefit (expense)	11,891	18,640	(6,848)	(26,350)
Net (loss) income	$ (6,931)	$ (17,372)	$ 12,254	$ 41,440

XML



Document and Entity Information	6 Months Ended
	Jul. 30, 2011	Sep. 12, 2011
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jul. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Entity Registrant Name	GYMBOREE CORP
Entity Central Index Key	0000786110
Current Fiscal Year End Date	--01-28
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		1,000

XML



Fair Value Measurements

6 Months Ended

Jul. 30, 2011

Fair Value Measurements

7. Fair Value Measurements

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

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

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

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

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present the Company’s assets and liabilities measured at fair value on a recurring basis as of July 30, 2011 and January 29, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall.

	July 30, 2011 (Successor)
	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
Interest rate caps	$	—	$	6,667	$	—	$	6,667
Liabilities
Forward foreign exchange contracts	$	—	$	91	$	—	$	91
	January 29, 2011 (Successor)
	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
Interest rate caps	$	—	$	11,863	$	—	$	11,863
Liabilities
Forward foreign exchange contracts	$	—	$	33	$	—	$	33

The fair value of the Company’s 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, the Company has considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its 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 itself and its counterparties. However, as of July 30, 2011 and January 29, 2011, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its interest rate cap positions and determined that the credit valuation adjustment was not significant to the overall valuation. As a result, the Company classified its interest rate caps derivative valuations in Level 2 of the fair value hierarchy.

The fair value of the Company’s 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. The Company had no other financial assets or liabilities measured at fair value as of July 30, 2011 and January 29, 2011. The Company had no significant financial assets or liabilities measured at fair value as of July 31, 2010.

The carrying value of cash and cash equivalents, receivables, payables and line of credit balances approximates their estimated fair values due to the short maturities of these instruments. The Company estimates the fair value of its long-term debt using interest rates currently available to the Company for issuance of notes payable and long-term debt (including current maturities). These interest rates are considered Level 2 inputs. The estimated fair value of long-term debt is as follows (in thousands):

	Successor
	July 30, 2011				January 29, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term loan	$	813,831	$	792,737	$	815,991	$	831,275
Notes		400,000		386,000		400,000		420,500
	$	1,213,831	$	1,178,737	$	1,215,991	$	1,251,775

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

The Company measures certain non-financial assets and liabilities, including long-lived assets, at fair value on a non-recurring basis. During the 13 and 26 weeks ended July 30, 2011, the Company recorded charges related to the impairment of assets at under-performing stores, which reduced the carrying amount of the applicable long-lived assets from $1.3 million and $2.0 million, respectively, to their fair value of zero. During the 13 and 26 weeks ended July 31, 2010, the Company recorded charges related to the impairment of assets at under-performing stores, which reduced the carrying amount of the applicable long-lived assets from $0.2 million to their fair value of zero.

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

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Segments

6 Months Ended

Jul. 30, 2011

Segments

12. Segments

The Company has two reportable segments: retail stores and Gymboree Play & Music. These segments were identified based on differences in products and services. The retail stores segment includes four operating segments (brands) which sell high-quality apparel for children: Gymboree (including an online store), Gymboree Outlet, Janie and Jack (including an online store), and Crazy 8 (including an online store). These four operating segments have been aggregated into one reportable segment because, in the Company’s judgment, these operating segments have similar historical economic characteristics and/or are expected to have similar economic characteristics and similar long-term financial performance in the future. Gross margin is the principal measure the Company considers in determining whether the economic characteristics are similar. In addition, each operating segment has similar products, production processes and type or class of customer. The Company believes that disaggregating its operating segments would not provide material additional information. Corporate overhead (costs related to the Company’s distribution center and shared corporate services) is included in the retail stores segment. Other operating segments that do not meet the criteria of reportable segments are aggregated below. The Other segment primarily relates to the Company’s international retail franchise business.

The following tables provide the summary financial data of each reportable segment (in thousands):

	13 Weeks Ended July 30, 2011 (Successor)								13 Weeks Ended July 31, 2010 (Predecessor)
	Retail Stores		Play & Music		Other		Total		Retail Stores		Play & Music		Other		Total
Net sales	$	253,407	$	3,349	$	2,280	$	259,036	$	219,293	$	3,252	$	204	$	222,749
Operating income		610		1,519		1,022		3,151		17,370		1,561		68		18,999
Total assets		2,150,529		6,763		1,948		2,159,240		571,593		4,657		267		576,517

	26 Weeks Ended July 30, 2011 (Successor)								26 Weeks Ended July 31, 2010 (Predecessor)
	Retail Stores		Play & Music		Other		Total		Retail Stores		Play & Music		Other		Total
Net sales	$	519,290	$	6,274	$	3,729	$	529,293	$	469,284	$	6,086	$	204	$	475,574
Operating income		25,146		2,585		1,714		29,445		65,104		2,489		65		67,658
Total assets		2,150,529		6,763		1,948		2,159,240		571,593		4,657		267		576,517

Interest expense, depreciation and amortization expense and capital expenditures have not been separately disclosed above as the amounts primarily relate to the retail segment. There are no intersegment revenues.

The Company attributes revenues to individual countries based on selling location. The following tables provide the summary financial data for the Company’s international locations (in thousands):

	13 Weeks Ended July 30, 2011 (Successor)						13 Weeks Ended July 31, 2010 (Predecessor)
	Canada		Australia		Total International		Canada		Australia		Total International
Net sales	$	11,039	$	524	$	11,563	$	9,192	$	221	$	9,413
Long-lived assets		9,771		772		10,543		5,362		819		6,181

	26 Weeks Ended July 30, 2011 (Successor)						26 Weeks Ended July 31, 2010 (Predecessor)
	Canada		Australia		Total International		Canada		Australia		Total International
Net sales	$	19,936	$	1,012	$	20,948	$	17,761	$	251	$	18,012
Long-lived assets		9,771		772		10,543		5,362		819		6,181

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Investment by Parent

6 Months Ended

Jul. 30, 2011

Investment by Parent

3. Investment by Parent

On or about January 31, 2011, Giraffe Holding, Inc. entered into subscription agreements with certain members of the Company’s management team. Under the subscription agreements, such members of the management team purchased an aggregate of 1,580,769 Class A Shares and 175,641 Class L Shares of Holding. The aggregate cash consideration paid for the shares was $7.9 million. This amount was indirectly contributed to the Company by Giraffe Holding, Inc.

In February 2011, investment funds sponsored by Bain purchased an aggregate of 419,231 Class A Shares and 46,581 Class L Shares of Holding for $2.1 million. In addition, an unrelated party purchased an aggregate of 1,000,000 Class A Shares and 111,111 Class L Shares of Holding for $5.0 million. These amounts were indirectly contributed to the Company by Giraffe Holding, Inc.

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Share-based Compensation

6 Months Ended

Jul. 30, 2011

Share-based Compensation

9. Share-based Compensation

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

	Successor		Predecessor		Successor		Predecessor
	13 Weeks Ended July 30, 2011		13 Weeks Ended July 31, 2010		26 Weeks Ended July 30, 2011		26 Weeks Ended July 31, 2010
Stock options	$	1,469	$	—	$	2,872	$	3
Restricted stock awards and units		—		3,977		—		8,535
Total	$	1,469	$	3,977	$	2,872	$	8,538

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Condensed Guarantor Data

6 Months Ended

Jul. 30, 2011

Condensed Guarantor Data

14. Condensed Guarantor Data

In connection with the Merger discussed in Note 1, the Company issued $400 million aggregate principal amount of 9.125% Notes (see Note 6) under an indenture dated November 23, 2010. 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. Intercompany transactions are eliminated. The financial information presented reflects the Company’s preliminary allocation of goodwill to the guarantor and non-guarantor subsidiaries. The allocation of goodwill may change upon completion of the final valuation of the guarantor and non-guarantor subsidiaries.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(in thousands)

	July 30, 2011 (Successor)
	The Gymboree Corporation		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	46,223	$	4,151	$	4,388	$	—		$	54,762
Accounts receivable, net of allowance		482		18,571		289		—			19,342
Merchandise inventories		—		212,231		3,540		95			215,866
Prepaid income taxes		16,016		—		550		(1,099	)		15,467
Prepaid expenses		2,591		2,849		—		—			5,440
Intercompany receivable		—		348,926		—		(348,926	)		—
Deferred income taxes		35,385		11,809		44		—			47,238
Total current assets		100,697		598,537		8,811		(349,930	)		358,115
Property and Equipment, net		20,055		180,023		7,823		—			207,901
Deferred Income Taxes		12,983		—		877		(13,860	)		—
Goodwill		—		934,639		—		—			934,639
Other Intangible Assets		3,604		593,577		228		—			597,409
Deferred Financing Costs		51,237		—		—		—			51,237
Other Assets		6,667		860		2,412		—			9,939
Investment in subsidiaries		1,917,796		—		—		(1,917,796	)		—
Total Assets	$	2,113,039	$	2,307,636	$	20,151	$	(2,281,586	)	$	2,159,240
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	4,473	$	67,627	$	297	$	—		$	72,397
Accrued liabilities		27,006		46,103		1,472		—			74,581
Income tax payable		—		1,099		—		(1,099	)		—
Current portion of long-term debt		8,200		—		—		—			8,200
Line of credit		40,000		—		—		—			40,000
Intercompany payable		341,309		—		7,132		(348,441	)		—
Total current liabilities		420,988		114,829		8,901		(349,540	)		195,178
Long-Term Liabilities:
Long-term debt		1,205,631		—		—		—			1,205,631
Lease incentives and other liabilities		4,945		23,730		4,166		—			32,841
Deferred income taxes		—		257,975		—		(13,860	)		244,115
Total Liabilities		1,631,564		396,534		13,067		(363,400	)		1,677,765
Commitments and Contingencies		—		—		—		—			—
Stockholders’ Equity		481,475		1,911,102		7,084		(1,918,186	)		481,475
Total Liabilities and Stockholders’ Equity	$	2,113,039	$	2,307,636	$	20,151	$	(2,281,586	)	$	2,159,240

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(in thousands)

	January 29, 2011 (Successor)
	The Gymboree Corporation		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	19,157	$	6,530	$	6,437	$	—		$	32,124
Accounts receivable, net of allowance		620		12,960		89		—			13,669
Merchandise inventories		—		181,544		2,955		(231	)		184,268
Prepaid income taxes		15,404		—		712		—			16,116
Prepaid expenses		3,149		1,658		49		—			4,856
Intercompany receivable		—		333,845		—		(333,845	)		—
Deferred income taxes		—		7,805		28		(1,136	)		6,697
Total current assets		38,330		544,342		10,270		(335,212	)		257,730
Property and Equipment, net		21,411		184,203		6,877		—			212,491
Deferred Income Taxes		37,573		—		828		(38,401	)		—
Goodwill		934,639		—		—		—			934,639
Other Intangible Assets		3,888		602,081		241		—			606,210
Deferred Financing Costs		61,983		—		—		—			61,983
Other Assets		11,867		802		2,403		—			15,072
Investment in subsidiaries		962,297		—		—		(962,297	)		—
Total Assets	$	2,071,988	$	1,331,428	$	20,619	$	(1,335,910	)	$	2,088,125
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	4,235	$	50,040	$	219	$	—		$	54,494
Accrued liabilities		36,197		43,538		1,365		—			81,100
Deferred income taxes		1,136		—		—		(1,136	)		—
Intercompany payable		323,911		—		9,846		(333,757	)		—
Current portion of long-term debt		8,200		—		—		—			8,200
Total current liabilities		373,679		93,578		11,430		(334,893	)		143,794
Long-Term Liabilities:
Long-term debt		1,207,791		—		—		—			1,207,791
Lease incentives and other liabilities		4,707		17,990		3,434		—			26,131
Deferred income taxes		—		262,999		—		(38,401	)		224,598
Total Liabilities		1,586,177		374,567		14,864		(373,294	)		1,602,314
Commitments and Contingencies		—		—		—		—			—
Stockholders’ Equity		485,811		956,861		5,755		(962,616	)		485,811
Total Liabilities and Stockholders’ Equity	$	2,071,988	$	1,331,428	$	20,619	$	(1,335,910	)	$	2,088,125

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(in thousands)

	July 31, 2010 (Predecessor)
	The Gymboree Corporation		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	121,382	$	5,742	$	5,292	$	—		$	132,416
Accounts receivable, net of allowance		490		18,329		251		—			19,070
Merchandise inventories		—		142,741		3,000		(240	)		145,501
Prepaid income taxes		19,762		—		971		—			20,733
Prepaid expenses		2,868		2,133		12		—			5,013
Intercompany receivable		—		267,335		—		(267,335	)		—
Deferred income taxes		—		17,527		476		(3,521	)		14,482
Total current assets		144,502		453,807		10,002		(271,096	)		337,215
Property and Equipment, net		23,244		187,928		6,647		—			217,819
Deferred Income Taxes		17,504		140		—		(1,014	)		16,630
Other Assets		4		1,924		2,925		—			4,853
Investment in subsidiaries		512,906		—		—		(512,906	)		—
Total Assets	$	698,160	$	643,799	$	19,574	$	(785,016	)	$	576,517
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	2,322		40,948		111		—		$	43,381
Accrued liabilities		28,297		43,513		2,253		—			74,063
Deferred income taxes		3,521		—		—		(3,521	)		—
Intercompany payable		259,494		—		7,754		(267,248	)		—
Total current liabilities		293,634		84,461		10,118		(270,769	)		117,444
Long-Term Liabilities:
Lease incentives and other liabilities		24,342		51,740		3,821		(1,014	)		78,889
Total Liabilities		317,976		136,201		13,939		(271,783	)		196,333
Commitments and Contingencies		—		—		—		—			—
Stockholders’ Equity		380,184		507,598		5,635		(513,233	)		380,184
Total Liabilities and Stockholders’ Equity	$	698,160	$	643,799	$	19,574	$	(785,016	)	$	576,517

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE 13 WEEKS ENDED JULY 30, 2011 (SUCCESSOR)

(in thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	321		$	246,592		$	12,252		$	(5,758	)	$	253,407
Play & Music and Other		—			5,629			—			—			5,629
Intercompany revenue		9,045			222			—			(9,267	)		—
Total net sales		9,366			252,443			12,252			(15,025	)		259,036
Cost of goods sold, including buying and occupancy expenses		(1,323	)		(164,187	)		(7,641	)		6,147			(167,004	)
Gross profit		8,043			88,256			4,611			(8,878	)		92,032
Selling, general and administrative expenses		(12,348	)		(81,973	)		(3,378	)		8,818			(88,881	)
Operating (loss) income		(4,305	)		6,283			1,233			(60	)		3,151
Interest income		10			—			24			—			34
Interest expense		(21,927	)		—			—			—			(21,927	)
Other expense, net		(80	)		—			—			—			(80	)
(Loss) income before income taxes and equity in earnings of affiliates		(26,302	)		6,283			1,257			(60	)		(18,822	)
Income tax benefit (expense)		15,644			(3,285	)		(468	)		—			11,891
Equity in earnings of affiliates, net of tax		3,727			—			—			(3,727	)		—
Net (loss) income	$	(6,931	)	$	2,998		$	789		$	(3,787	)	$	(6,931	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF INCOME

FOR THE 13 WEEKS ENDED JULY 31, 2010 (PREDECESSOR)

(in thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	1,877		$	212,204		$	10,052		$	(4,840	)	$	219,293
Play & Music and Other		—			3,456			—			—			3,456
Intercompany revenue		11,502			172			—			(11,674	)		—
Total net sales		13,379			215,832			10,052			(16,514	)		222,749
Cost of goods sold, including buying and occupancy expenses		(983	)		(123,207	)		(6,469	)		4,806			(125,853	)
Gross profit		12,396			92,625			3,583			(11,708	)		96,896
Selling, general and administrative expenses		(15,423	)		(71,199	)		(2,972	)		11,697			(77,897	)
Operating (loss) income		(3,027	)		21,426			611			(11	)		18,999
Interest income		96			—			13			—			109
Interest expense		(65	)		—			—			—			(65	)
Other income		27			—			32			—			59
(Loss) income before income taxes and equity in earnings of affiliates		(2,969	)		21,426			656			(11	)		19,102
Income tax benefit (expense)		2,480			(9,020	)		(308	)		—			(6,848	)
Equity in earnings of affiliates, net of tax		12,743			—			—			(12,743	)		—
Net income	$	12,254		$	12,406		$	348		$	(12,754	)	$	12,254

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE 26 WEEKS ENDED JULY 30, 2011 (SUCCESSOR)

(in thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	613		$	506,658		$	22,307		$	(10,288	)	$	519,290
Play & Music and Other		—			10,003			—			—			10,003
Intercompany revenue		20,360			457			—			(20,817	)		—
Total net sales		20,973			517,118			22,307			(31,105	)		529,293
Cost of goods sold, including buying and occupancy expenses		(2,646	)		(320,128	)		(14,287	)		10,661			(326,400	)
Gross profit		18,327			196,990			8,020			(20,444	)		202,893
Selling, general and administrative expenses		(24,034	)		(163,380	)		(6,425	)		20,391			(173,448	)
Operating (loss) income		(5,707	)		33,610			1,595			(53	)		29,445
Interest income		10			26			51			—			87
Interest expense		(45,930	)		—			—			—			(45,930	)
Loss on extinguishment of debt		(19,563	)		—			—			—			(19,563	)
Other expense, net		(44	)		—			(7	)		—			(51	)
(Loss) income before income taxes and equity in earnings of affiliates		(71,234	)		33,636			1,639			(53	)		(36,012	)
Income tax benefit (expense)		33,305			(14,034	)		(631	)		—			18,640
Equity in earnings of affiliates, net of tax		20,557			—						(20,557	)		—
Net (loss) income	$	(17,372	)	$	19,602		$	1,008		$	(20,610	)	$	(17,372	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF INCOME

FOR THE 26 WEEKS ENDED JULY 31, 2010 (PREDECESSOR)

(in thousands)

	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	3,752		$	455,368		$	19,290		$	(9,126	)	$	469,284
Play & Music and Other		—			6,290			—			—			6,290
Intercompany revenue		26,189			403			—			(26,592	)		—
Total net sales		29,941			462,061			19,290			(35,718	)		475,574
Cost of goods sold, including buying and occupancy expenses		(1,965	)		(243,914	)		(11,623	)		8,998			(248,504	)
Gross profit		27,976			218,147			7,667			(26,720	)		227,070
Selling, general and administrative expenses		(34,567	)		(145,454	)		(6,030	)		26,639			(159,412	)
Operating (loss) income		(6,591	)		72,693			1,637			(81	)		67,658
Interest income		179			—			21			—			200
Interest expense		(155	)		—			—			—			(155	)
Other income		59			—			28			—			87
(Loss) income before income taxes and equity in earnings of affiliates		(6,508	)		72,693			1,686			(81	)		67,790
Income tax benefit (expense)		4,603			(29,632	)		(1,321	)		—			(26,350	)
Equity in earnings of affiliates, net of tax		43,345			—			—			(43,345	)		—
Net income	$	41,440		$	43,061		$	365		$	(43,426	)	$	41,440

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 26 WEEKS ENDED JULY 30, 2011 (SUCCESSOR)

(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	$	(53,542	)	$	48,466		$	1,758		$	—	$	(3,318	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,633	)		(14,209	)		(942	)		—		(16,784	)
Acquisition of business, net of cash acquired		(1,352	)		—			—			—		(1,352	)
Other		(17	)		(196	)		—			—		(213	)
Net cash used in investing activities		(3,002	)		(14,405	)		(942	)		—		(18,349	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in intercompany payables		39,510			(36,440	)		(3,070	)		—		—
Proceeds from Term Loan		820,000			—			—			—		820,000
Payments on Term Loan		(824,100	)		—			—			—		(824,100	)
Proceeds from ABL facility		60,656			—			—			—		60,656
Payments on ABL faciliity		(20,656	)		—			—			—		(20,656	)
Deferred financing costs		(6,665	)		—			—			—		(6,665	)
Investment by parent		14,865			—			—			—		14,865
Net cash provided by (used in) financing activities		83,610			(36,440	)		(3,070	)		—		44,100
Net increase (decrease) in cash and cash equivalents		27,066			(2,379	)		(2,254	)		—		22,433
Effect of exchange rate fluctuations on cash		—			—			205			—		205
CASH AND CASH EQUIVALENTS:
Beginning of Period		19,157			6,530			6,437			—		32,124
End of Period	$	46,223		$	4,151		$	4,388		$	—	$	54,762

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE 26 WEEKS ENDED JULY 31, 2010 (PREDECESSOR)

(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	$	(10,366	)	$	30,554		$	482		$	—		$	20,670
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(2,029	)		(23,635	)		(866	)		—			(26,530	)
Investment in subsidiaries		(1,981	)		—			—			1,981			—
Net cash used in investing activities		(4,010	)		(23,635	)		(866	)		1,981			(26,530	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		11,035			(6,241	)		(4,794	)		—			—
Investment by parent		—			—			1,981			(1,981	)		—
Exercise of stock options		997			—			—			—			997
Excess tax benefits from exercise and vesting of share-based awards		2,692			1,142			—			—			3,834
Repurchases of common stock		(124,492	)		—			—			—			(124,492	)
Net cash used in financing activities		(109,768	)		(5,099	)		(2,813	)		(1,981	)		(119,661	)
Effect of exchange rate fluctuations on cash		—			—			265			—			265
Net (decrease) increase in cash and cash equivalents		(124,144	)		1,820			(2,932	)		—			(125,256	)
CASH AND CASH EQUIVALENTS:
Beginning of Period		245,526			3,922			8,224			—			257,672
End of Period	$	121,382		$	5,742		$	5,292		$	—		$	132,416

The Gymboree Corporation 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 Gymboree Corporation. In addition, The Gymboree Corporation pays expenses on behalf of its guarantor and non-guarantor subsidiaries on a regular basis. These types of transactions have been accounted for as intercompany transfers within financing activities.

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

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Comprehensive Income (Loss)

6 Months Ended

Jul. 30, 2011

Comprehensive Income (Loss)

10. Comprehensive Income (Loss)

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

	Successor			Predecessor			Successor			Predecessor
	13 Weeks Ended July 30, 2011			13 Weeks Ended July 31, 2010			26 Weeks Ended July 30, 2011			26 Weeks Ended July 31, 2010
Net (loss) income	$	(6,931	)	$	12,254		$	(17,372	)	$	41,440
Foreign currency translation		19			(131	)		552			431
Changes in fair market value of cash flow hedges, net of tax		(3,129	)		(12	)		(5,253	)		(193	)
Total comprehensive (loss) income, net of tax	$	(10,041	)	$	12,111		$	(22,073	)	$	41,678

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Derivative Instruments

6 Months Ended

Jul. 30, 2011

Derivative Instruments

8. Derivative Instruments

The Company enters into forward foreign exchange contracts with respect to certain purchases in United States dollars of inventory to be sold in the Company’s retail stores in Canada. The purpose of these contracts is to protect the Company’s 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 related to these forward foreign exchange contracts will be reclassified to cost of goods sold over a three-month period. The Company also enters into forward foreign exchange contracts with respect to short-term intercompany balances between U.S. and Canadian entities. The purpose of these contracts is to protect the Company from fluctuations in the exchange rate for Canadian and United States dollars upon the settlement of such balances. These contracts are not designated as hedges. Consequently, changes in the fair value of these contracts are included in other income.

The Company has four interest rate caps to hedge against rising interest rates associated with the Company’s Term Loan (see Note 6) above the strike rate of the cap through December 23, 2016, the maturity date of the caps. All four caps were designated on the date of execution as cash flow hedges. In December 2010, the Company paid approximately $12.1 million to enter into these caps. This premium, and any related amounts reported in accumulated other comprehensive income, will be amortized to interest expense through December 23, 2016, as interest payments are made on the underlying Term Loan. The Company estimates that approximately $0.2 million will be reclassified from accumulated other comprehensive income 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 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.

The Company had the following outstanding derivatives designated as cash flow hedges (in thousands):

	Successor								Predecessor
	July 30, 2011				January 29, 2011				July 31, 2010
	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		—	$	—
Foreign exchange derivatives
Forward foreign exchange contracts		6		6,173		6		4,505		6		5,021
Total		10	$	706,173		10	$	704,505		6	$	5,021

In addition to the cash flow hedges above, as of July 30, 2011, the Company had one forward foreign exchange contract with a notional amount of $2.0 million that was not designated as a hedge. The table below presents the fair value of all of the Company’s derivative financial instruments as well as their classification on the condensed consolidated balance sheets (in thousands).

	Successor
	July 30, 2011				January 29, 2011
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Interest rate derivatives
Balance Sheet Location		Other Assets				Other Assets
Purchased Caps	$	6,667			$	11,863
Foreign exchange derivatives
Balance Sheet Location				Accrued liabilities				Accrued liabilities
Forward foreign exchange contracts			$	91			$	33
Total	$	6,667	$	91	$	11,863	$	33

The Company had no significant derivative financial instruments as of July 31, 2010.

The tables below present the effect of all of the Company’s derivative financial instruments on the condensed consolidated statements of operations. No amounts were reclassified from accumulated other comprehensive income into earnings as a result of forecasted transactions that failed to occur or as a result of hedge ineffectiveness (in thousands).

	13 weeks ended July 30, 2011 (Successor)
	Amount of Loss Recognized in OCI on Derivative (Effective Portion)			Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate derivatives
Purchased Caps	$	(3,169	)	Interest expense	$	—
Foreign exchange derivatives
Forward foreign exchange contracts		(189	)	Cost of goods sold		(71	)
Total	$	(3,358	)		$	(71	)

	26 weeks ended July 30, 2011 (Successor)
	Amount of Loss Recognized in OCI on Derivative (Effective Portion)			Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate derivatives
Purchased Caps	$	(5,194	)	Interest expense	$	—
Foreign exchange derivatives
Forward foreign exchange contracts		(253	)	Cost of goods sold		(170	)
Total	$	(5,447	)		$	(170	)

The amount of gain or loss recognized in other comprehensive income (“OCI”) and reclassified from accumulated OCI into income was not significant for the 13 and 26 weeks ended July 31, 2010.

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Basis of Presentation

6 Months Ended

Jul. 30, 2011

Basis of Presentation

1. Basis of Presentation

On October 11, 2010, The Gymboree Corporation, a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Giraffe Holding, Inc., a Delaware corporation (“Parent”), and Giraffe Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent (“Acquisition Sub”), whereby Acquisition Sub merged with and into the Company in accordance with the “short-form” merger provisions available under Delaware law (the “Merger”). The Company is continuing as the surviving corporation and 100%-owned indirect subsidiary of the Parent. Investment funds sponsored by Bain Capital Partners, LLC (“Bain”) own a controlling interest in the Parent. The Merger was consummated on November 23, 2010 (“Transaction Date”). The accompanying condensed consolidated balance sheets, statements of operations and cash flows and the notes to the condensed consolidated financial statements are presented for the Predecessor and Successor periods, which relate to the periods preceding and succeeding the Transaction Date, respectively.

The unaudited interim condensed consolidated financial statements, which include The Gymboree Corporation and its subsidiaries, all of which are 100% owned, 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 the Company’s Registration Statement on Form S-4 filed on May 16, 2011.

The accompanying interim condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. All such adjustments are of a normal and recurring nature, except for a $10.7 million adjustment to cost of goods sold resulting from an increase in the net book value of inventory as a result of purchase accounting and the loss on extinguishment of debt disclosed in Note 6. Both of these adjustments were recorded in the first quarter of fiscal 2011.

The results of operations for the 13 and 26 weeks ended July 30, 2011 are not necessarily indicative of the operating results that may be expected for the fiscal year ending January 28, 2012 (“fiscal 2011”) or any future period.

Classification Error

The Company corrected the classification of approximately $10 million in building costs from leasehold improvements to land and buildings to properly present such amounts in the condensed consolidated balance sheet as of July 31, 2010. The Company’s net property and equipment balance as of July 31, 2010 did not change from the amount previously reported.

Reclassifications

Goodwill and other intangible assets, previously reported in other assets as of July 31, 2010, have been separately disclosed to conform to the current year presentation.

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Intangible Assets and Liabilities

6 Months Ended

Jul. 30, 2011

Intangible Assets and Liabilities

4. Intangible Assets and Liabilities

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

	July 30, 2011 (Successor)
	Gross Carrying Amount			Accumulated Amortization			Net Amount
Intangible Assets Not Subject to Amortization:
Goodwill	$	934,639		$	—		$	934,639
Trade names	$	560,291		$	—		$	560,291
Intangible Assets Subject to Amortization:
Customer relationships		36,400			(10,786	)		25,614
Below market leases		7,064			(948	)		6,116
Co-branded credit card agreement		4,000			(420	)		3,580
Franchise agreements		1,900			(92	)		1,808
		49,364			(12,246	)		37,118
Total intangible assets	$	609,655		$	(12,246	)	$	597,409
Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease Incentives and Other Deferred Liabilities)	$	(16,644	)	$	2,411		$	(14,233	)
	January 29, 2011 (Successor)
	Gross Carrying Amount			Accumulated Amortization			Net Amount
Intangible Assets Not Subject to Amortization:
Goodwill	$	934,639		$	—		$	934,639
Trade names	$	560,127		$	—		$	560,127
Intangible Assets Subject to Amortization:
Customer relationships		36,400			(2,874	)		33,526
Below market leases		7,049			(255	)		6,794
Co-branded credit card agreement		4,000			(112	)		3,888
Franchise agreements		1,900			(25	)		1,875
		49,349			(3,266	)		46,083
Total intangible assets	$	609,476		$	(3,266	)	$	606,210
Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease Incentives and Other Deferred Liabilities)	$	(16,623	)	$	642		$	(15,981	)

As of July 31, 2010, the Company had intangible assets of approximately $1.3 million and goodwill of approximately $0.2 million, both of which were assigned a fair value of zero in purchase accounting.

During the 13 and 26 weeks ended July 30, 2011, the Company recorded amortization income of approximately $0.5 million and $1.0 million, respectively, in cost of goods sold (“COGS”) and amortization expense of approximately $4.1 million and $8.3 million, respectively, in selling, general and administrative expenses (“SG&A”). The Company estimates that amortization expense (income) related to intangible assets and liabilities will be as follows for the remainder of fiscal 2011 and each of the next five fiscal years (in thousands):

Fiscal	Below Market Leases		Above Market Leases			Other Intangibles		Total
2011 (remaining 26 weeks)	$	688	$	(1,704	)	$	8,289	$	7,273
2012		1,376		(3,253	)		16,577		14,700
2013		1,162		(2,651	)		2,626		1,137
2014		1,066		(2,071	)		751		(254	)
2015		843		(1,612	)		751		(18	)
2016		487		(1,463	)		751		(225	)

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Line of Credit

6 Months Ended

Jul. 30, 2011

Line of Credit

5. Line of Credit

In connection with the Merger discussed in Note 1, the Company entered into a senior secured asset-based revolving credit facility (“ABL”) which 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 July 30, 2011, availability under the ABL was approximately $75.8 million. The ABL provides the Company with the right to request up to $75 million of additional commitments under this facility, subject to the satisfaction of certain conditions, provided that the aggregate amount of additional commitments incurred under both the ABL and the senior secured term loan facility described in Note 6 may not exceed $200 million in the aggregate. Principal amounts outstanding under the ABL are due and payable in full in November 2015. In addition to paying interest on outstanding principal under the ABL, the Company is required to pay a commitment fee on unutilized commitments thereunder, which was 0.625% per annum as of July 30,2011. The ABL contains financial and other covenants that, among other things, restrict the Company’s ability to incur additional indebtedness and pay dividends. As of July 30,2011, the Company was in compliance with these covenants. As of July 30, 2011, there were $40 million of borrowings and $89.3 million of commercial and standby letters of credit outstanding under the ABL. The Company and its 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Company’s obligations under the ABL (see Note 14).

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Common Stock Repurchases

6 Months Ended

Jul. 30, 2011

Common Stock Repurchases

13. Common Stock Repurchases

In November 2009 and June 2010, the Board of Directors authorized the Company to utilize up to $40 million and $100 million, respectively, of its cash reserves to purchase shares of the Company’s outstanding common stock under two share repurchase programs. During the 13 weeks ended July 31, 2010, the Company purchased 2,364,783 shares at a cost of $103.4 million, or approximately $43.73 per share. During the 26 weeks ended July 31, 2010, the Company purchased 2,613,375 shares at a cost of $113.6 million or approximately $43.49 per share. The Company completed both share repurchase programs during the 13 weeks ended July 31, 2010.

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Long-Term Debt

6 Months Ended

Jul. 30, 2011

Long-Term Debt

6. Long-Term Debt

Long-term debt consists of (in thousands):

	Successor
	July 30, 2011			January 29, 2011
Senior secured term loan facility, net of discount of $2,069 and $4,010	$	813,831		$	815,991
9.125% senior subordinated notes		400,000			400,000
Subtotal		1,213,831			1,215,991
Less current portion		(8,200	)		(8,200	)
Long-term debt - less current portion	$	1,205,631		$	1,207,791

In connection with the Merger discussed in Note 1, the Company entered into an agreement with several lenders to establish an $820 million senior secured term loan facility (“Term Loan”). The Term Loan allows the Company 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 5. The interest rate for borrowings under the Term Loan is, at the option of the Company, a base rate plus an additional marginal rate of 3.0% or the Adjusted LIBOR rate (with a 1.5% floor) plus an additional rate of 3.5% (reduced from 4.0% as a result of the refinancing discussed below). The Term Loan requires the Company to make quarterly payments each equal to 0.25% of the original $820 million principal amount of the Term Loan made on the closing date plus accrued and unpaid interest thereon, with the balance due in February 2018. The Term Loan also has mandatory and voluntary pre-payment provisions, including a requirement that the Company prepay the Term Loan with a certain percentage of its annual excess cash flow beginning with the excess cash flow for fiscal 2011. 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 during the 13 and 26 weeks ended July 30, 2011. In February 2011, the Company refinanced the Term Loan through an amendment and restatement of its existing credit agreement, to lower the interest rate, remove certain financial covenants and extend the maturity date from November 2017 to February 2018. In the first quarter of fiscal 2011, the Company recorded a loss on extinguishment of debt of approximately $19.6 million as a result of the refinancing, which included the write-off of approximately $15.9 million in deferred financing costs and OID related to the original Term Loan. The obligations under the Term Loan are secured, subject to certain exceptions, by substantially all of the Company’s assets and those of its 100%-owned domestic subsidiaries. The Company and its 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Company’s obligations under the Term Loan (see Note 14).

In connection with the Merger discussed in Note 1, the Company issued $400 million aggregate principal amount of 9.125% senior subordinated notes (the “Notes”) due in December 2018. Interest on the Notes is payable semi-annually beginning June 1, 2011. If the Company or its subsidiaries sell certain assets, the Company generally must either invest the net cash proceeds from such sale in its 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, the Company 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, the Company will not be entitled to redeem the Notes at its option prior to December 1, 2014. The Notes are unsecured senior obligations of the Company. The Company and its 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Company’s obligations under the Notes (see Note 14).

Interest expense was $21.9 million and $45.9 million for the 13 and 26 weeks ended July 30, 2011, respectively, including $1.7 million and $3.4 million, respectively, of amortization of deferred financing costs and accretion of OID.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	6 Months Ended
	Jul. 30, 2011	Jul. 31, 2010 Predecessor
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$ (17,372)	$ 41,440
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Write-off of deferred financing costs and original issue discount	15,860
Depreciation and amortization	28,617	19,544
Amortization of deferred financing costs and accretion of original issue discount	3,370
Loss on disposal/impairment of assets	2,260	759
(Benefit) provision for deferred income taxes	(19,913)	725
Excess tax benefits from exercise and vesting of share-based awards		(3,834)
Tax benefit from exercise of stock options and vesting of restricted stock awards and units		3,864
Share-based compensation expense	2,872	8,538
Change in assets and liabilities:
Accounts receivable	(5,667)	(9,156)
Merchandise inventories	(31,467)	(24,445)
Prepaid expenses and other assets	(606)	216
Prepaid income taxes	(198)	(26,034)
Accounts payable	17,890	(3,140)
Accrued liabilities	(7,148)	9,521
Lease incentives and other deferred liabilities	8,184	2,672
Net cash (used in) provided by operating activities	(3,318)	20,670
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(16,784)	(26,530)
Acquisition of business, net of cash acquired	(1,352)
Other	(213)
Net cash used in investing activities	(18,349)	(26,530)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Term Loan	820,000
Payments on Term Loan	(824,100)
Proceeds from ABL facility	60,656
Payments on ABL facility	(20,656)
Deferred financing costs	(6,665)
Investment by Parent	14,865
Exercise of stock options		997
Repurchases of common stock		(124,492)
Excess tax benefits from exercise and vesting of share-based awards		3,834
Net cash provided by (used in) financing activities	44,100	(119,661)
Effect of exchange rate fluctuations on cash	205	265
Net increase (decrease) in cash and cash equivalents	22,638	(125,256)
CASH AND CASH EQUIVALENTS:
Beginning of period	32,124	257,672
End of period	54,762	132,416
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures incurred, but not yet paid	5,800	9,100
OTHER CASH FLOW INFORMATION:
Cash paid for income taxes	1,068	48,041
Cash paid for interest	$ 41,434	$ 47

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Recently Issued Accounting Standards

6 Months Ended

Jul. 30, 2011

Recently Issued Accounting Standards

2. Recently Issued Accounting Standards

In January 2010, the FASB issued guidance which amends and clarifies existing guidance related to fair value measurements and disclosures. This guidance requires new disclosures for (1) transfers in and out of Level 1 and Level 2 and reasons for such transfers; and (2) the separate presentation of purchases, sales, issuances and settlement in the Level 3 reconciliation. It also clarifies guidance around disaggregation and disclosures of inputs and valuation techniques for Level 2 and Level 3 fair value measurements. The Company adopted this guidance as of January 31, 2010, except for the new disclosures in the Level 3 reconciliation, which were adopted during the first quarter of fiscal 2011. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

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Accumulated Other Comprehensive Income (Loss)

6 Months Ended

Jul. 30, 2011

Accumulated Other Comprehensive Income (Loss)

11. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) consists of the following (in thousands):

	Successor						Predecessor
	July 30, 2011			January 29, 2011			July 31, 2010
Foreign currency translation	$	998		$	446		$	704
Unrealized net loss on cash flow hedges, net of tax		(5,461	)		(208	)		(123	)
Total accumulated other comprehensive (loss) income	$	(4,463	)	$	238		$	581

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	Jul. 30, 2011	Jan. 29, 2011	Jul. 31, 2010 Predecessor
Current Assets
Cash and cash equivalents	$ 54,762	$ 32,124	$ 132,416
Accounts receivable, net of allowance of $163, $- and $481	19,342	13,669	19,070
Merchandise inventories	215,866	184,268	145,501
Prepaid income taxes	15,467	16,116	20,733
Prepaid expenses	5,440	4,856	5,013
Deferred income taxes	47,238	6,697	14,482
Total current assets	358,115	257,730	337,215
Property and Equipment
Land and buildings	26,790	26,782	25,761
Leasehold improvements	131,150	120,768	232,993
Furniture, fixtures and equipment	76,125	71,286	200,841
Property, Plant and Equipment, Gross, Total	234,065	218,836	459,595
Less accumulated depreciation and amortization	(26,164)	(6,345)	(241,776)
Property, Plant and Equipment, Net, Total	207,901	212,491	217,819
Deferred Income Taxes			16,630
Goodwill	934,639	934,639	239
Other Intangible Assets	597,409	606,210	1,330
Deferred Financing Costs	51,237	61,983
Other Assets	9,939	15,072	3,284
Total Assets	2,159,240	2,088,125	576,517
Current Liabilities
Accounts payable	72,397	54,494	43,381
Accrued liabilities	74,581	81,100	74,063
Line of credit	40,000
Current portion of long-term debt	8,200	8,200
Total current liabilities	195,178	143,794	117,444
Long-Term Liabilities
Long-term debt	1,205,631	1,207,791
Lease incentives and other deferred liabilities	24,444	18,352	73,301
Unrecognized tax benefits	8,397	7,779	5,588
Deferred income taxes	244,115	224,598
Total Liabilities	1,677,765	1,602,314	196,333
Commitments and Contingencies
Stockholders' Equity
Common stock, including additional paid-in capital	526,354	508,617	194,764
Retained earnings (deficit)	(40,416)	(23,044)	184,839
Accumulated other comprehensive income (loss)	(4,463)	238	581
Total stockholders' equity	481,475	485,811	380,184
Total Liabilities and Stockholders' Equity	$ 2,159,240	$ 2,088,125	$ 576,517