10-Q/A 1 gc911664.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A

(Mark One)
x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

	For the quarterly period ended October 30, 2004

OR

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

	For the transition period from _____________________to __________________________

Commission file number 000-21250

THE GYMBOREE CORPORATION
(Exact name of registrant as specified in its charter)

Delaware	94-2615258
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

500 Howard Street, San Francisco, California	94105
(Address of principal executive offices)	(Zip code)

(415) 278-7000
(Registrant’s telephone number, including area code)

700 Airport Boulevard, Suite 200, Burlingame, California 94010-1912
(Former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x

No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x

No o

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

This amendment on Form 10-Q/A amends the Registrant’s Quarterly Report on Form 10-Q for the period ended October 30, 2004, as filed by the Registrant on December 8, 2004 (“Original Filing”), and is being filed to reflect the restatement of the Registrant’s condensed consolidated financial statements (the “restatement”). This restatement reflects (i) adjustments to conform the Registrant’s lease accounting to the Generally Accepted Accounting Principles expressed by the Office of the Chief Accountant of the Securities and Exchange Commission in a letter dated February 7, 2005, as described in Note 11 to the condensed consolidated financial statements, and (ii) reclassification of certain auction rate securities from cash and cash equivalents to marketable securities, as described in Note 11 to the condensed consolidated financial statements. Amendments to the Registrant’s Quarterly Reports on Form 10-Q for the periods ended May 1, 2004 and July 31, 2004, are being filed concurrently.

The following Items in Part I of the Original Filing have been amended as a result of the restatement: Item 1 – Financial Statements; Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations; and Item 4 – Controls and Procedures. In addition, pursuant to the rules of the SEC, Item 6 of Part II has been amended to contain the letter re: unaudited interim financial information from our independent registered public accounting firm and currently-dated certifications from our Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The letter from the independent registered public accounting firm and certifications of our Chief Executive Officer and Chief Financial Officer are attached to this Form 10-Q/A as Exhibits 15, 31.1, 31.2, 32.1 and 32.2, respectively.

For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing in its entirety. Except as otherwise expressly stated, the information in this Form 10-Q/A is as of December 8, 2004, the date on which the Original Filing was made and this Form 10-Q/A does not purport to provide an update or discussion of any developments subsequent to the Original Filing.

TABLE OF CONTENTS

			Page Number

Part I	Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets (as restated)	4
		Condensed Consolidated Statements of Income (as restated)	5
		Condensed Consolidated Statements of Cash Flows (as restated)	6
		Notes to Condensed Consolidated Financial Statements	7
		Report of Independent Registered Public Accounting Firm	15

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23

	Item 4.	Controls and Procedures	24

Part II	Other Information

	Item 1.	Legal Proceedings	25

	Item 6.	Exhibits	25

Signatures			26

Exhibit Index			27

Part I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

	October 30, 2004			January 31, 2004			November 1, 2003

	(Restated) (Note 11)			(Restated) (Note 11)			(Restated) (Note 11)
Assets
Current Assets
Cash and cash equivalents	$	24,608		$	21,553		$	18,463
Marketable securities		40,000			68,000			38,000
Accounts receivable		20,332			12,468			8,507
Merchandise inventories		91,706			70,674			80,372
Prepaid expenses		3,295			2,865			8,319
Deferred taxes		311			1,144			2,030
Current assets of discontinued operations		4,428			8,690			8,501

Total current assets		184,680			185,394			164,192

Property and Equipment
Land and buildings		10,375			10,375			10,371
Leasehold improvements		141,648			105,185			103,141
Furniture, fixtures and equipment		150,144			133,364			127,977

		302,167			248,924			241,489
Less accumulated depreciation and amortization		(156,070	)		(140,026	)		(134,544	)

		146,097			108,898			106,945
Deferred Taxes		11,251			6,855			7,307
Lease Rights and Other Assets		1,526			1,253			712

Total Assets	$	343,554		$	302,400		$	279,156

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	38,245		$	33,318		$	34,195
Income tax payable		—			7,839			5,207
Accrued liabilities		43,391			24,563			25,047
Current liabilities of discontinued operations		5,631			3,604			3,285

Total current liabilities		87,267			69,324			67,734

Long-Term Liabilities
Deferred rent and other liabilities		39,943			32,862			26,945

Total Liabilities		127,210			102,186			94,679

Stockholders’ Equity
Common stock, including excess paid-in capital ($.001 par value: 100,000,000 shares authorized, 30,830,374, 30,203,149 and 29,801,652 shares issued and outstanding at October 30, 2004, January 31, 2004 and November 1, 2003, respectively)		64,752			58,460			54,335
Retained earnings		151,727			142,271			131,093
Accumulated other comprehensive loss		(135	)		(517	)		(951	)

Total stockholders’ equity		216,344			200,214			184,477

Total Liabilities and Stockholders’ Equity	$	343,554		$	302,400		$	279,156

See notes to condensed consolidated financial statements.

THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

	13 Weeks Ended						39 Weeks Ended

	October 30, 2004			November 1, 2003			October 30, 2004			November 1, 2003

	(Restated) (Note 11)			(Restated) (Note 11)			(Restated) (Note 11)			(Restated) (Note 11)
Net sales:
Retail	$	152,619		$	140,864		$	410,466		$	373,635
Play & Music and Other		2,989			2,894			8,241			9,002

Total net sales		155,608			143,758			418,707			382,637
Cost of goods sold, including buying and occupancy expenses		(93,944	)		(83,572	)		(253,457	)		(226,099	)

Gross profit		61,664			60,186			165,250			156,538
Selling, general and administrative expenses		(54,306	)		(46,730	)		(151,984	)		(133,181	)

Operating income		7,358			13,456			13,266			23,357
Other income, net		69			19			451			354

Income from continuing operations before income taxes		7,427			13,475			13,717			23,711
Income tax benefit (expense)		122			(5,121	)		(2,174	)		(9,011	)

Income from continuing operations, net of income tax		7,549			8,354			11,543			14,700
Loss from discontinued operations, net of income tax		(3,377	)		(78	)		(3,315	)		(218	)

Income before cumulative effect of change in accounting principle		4,172			8,276			8,228			14,482
Cumulative effect of change in accounting principle, net of income tax		—			—			1,228			—

Net income	$	4,172		$	8,276		$	9,456		$	14,482

Basic per share amounts:
Income from continuing operations, net of income tax	$	0.25		$	0.28		$	0.38		$	0.50
Loss from discontinued operations, net of income tax		(0.11	)		—			(0.11	)		(0.01	)
Cumulative effect of change in accounting
principle, net of income tax		—			—			0.04			—

Net income	$	0.14		$	0.28		$	0.31		$	0.49

Diluted per share amounts:
Income from continuing operations, net of income tax	$	0.24		$	0.27		$	0.37		$	0.48
Loss from discontinued operations, net of income tax		(0.11	)		—			(0.11	)		(0.01	)
Cumulative effect of change in accounting principle, net of income tax		—			—			0.04			—

Net income	$	0.13		$	0.27		$	0.30		$	0.47

Weighted average shares outstanding:
Basic		30,801			29,687			30,657			29,518
Diluted		31,346			30,837			31,355			30,764

See notes to condensed consolidated financial statements.

THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	39 Weeks Ended

	October 30, 2004			November 1, 2003

	(Restated) (Note 11)			(Restated) (Note 11)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,456		$	14,482
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations, net of income tax		3,315			218
Cumulative effect of change in accounting principle, net of income tax		(1,228	)		—
Depreciation and amortization		20,368			19,097
Deferred income tax benefit		(3,563	)		(250	)
Loss on disposal of property and equipment		451			201
Tax benefit from exercise of stock options		2,856			770
Change in assets and liabilities:
Accounts receivable		(6,546	)		(1,188	)
Merchandise inventories		(22,533	)		(20,553	)
Prepaid expenses and other assets		(818	)		(163	)
Accounts payable		4,832			7,074
Income tax payable		(9,639	)		(7,586	)
Accrued liabilities		18,891			2,003
Deferred and other liabilities		8,344			1,572

Net cash provided by continuing operations		24,186			15,677
Net cash provided by discontinued operations		5,626			1,970

Net cash provided by operating activities		29,812			17,647

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of marketable securities		574,455			340,850
Purchases of marketable securities		(546,455	)		(338,850	)
Capital expenditures		(58,040	)		(24,586	)
Proceeds from sale of assets and other		141			600

Net cash used in investing activities		(29,899	)		(21,986	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock		3,436			3,495

Net cash provided by financing activities		3,436			3,495

Effect of exchange rate fluctuations on cash		(294	)		(1,321	)

Net Increase (Decrease) in Cash and Cash Equivalents		3,055			(2,165	)
CASH AND CASH EQUIVALENTS:
Beginning of Period		21,553			20,628

End of Period	$	24,608		$	18,463

NON-CASH INVESTING ACTIVITIES:
Capital expenditures incurred, but not yet paid	$	4,495		$	3,395

See notes to condensed consolidated financial statements.

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.	Basis of Presentation
	The unaudited interim condensed consolidated financial statements, which include The Gymboree Corporation and its subsidiaries, all of which are wholly owned (“the Company”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 29, 2005.

	The accompanying interim condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the results of operations, the financial position and cash flows for the periods presented. All such adjustments are of a normal and recurring nature.

	The results of operations for the thirty-nine weeks ended October 30, 2004 are not necessarily indicative of the operating results that may be expected for the fiscal year ending January 29, 2005 (“fiscal 2004”).

2.	Change in Accounting Principle
	Effective February 1, 2004, the Company elected to change its accounting method for inventory valuation from the retail method to the lower of cost or market method, determined on a weighted average basis (the “cost method”). The Company believes the cost method is a preferable method for matching the cost of merchandise with the revenues generated. The cumulative effect of this accounting change, which was recorded in the first quarter of fiscal 2004, was income of $1.2 million, or $0.04 per diluted share, net of income taxes. It is not possible to determine the effect of this change on any other previously reported fiscal periods or on fiscal 2004.

3.	Discontinued Operations
	On August 16, 2004, the Board of Directors authorized the Company to proceed with the closure of its United Kingdom and Ireland operations (22 stores and one distribution center), as a result of their continued poor financial performance. As of October 30, 2004, substantially all such operations had ceased, as virtually all of the inventories were sold and the distribution center and 5 of the 22 stores were closed (4 United Kingdom stores and 1 Ireland store). The remaining 17 stores were closed during the first two weeks of November. The results of the United Kingdom and Ireland operations have been presented as discontinued operations in the accompanying financial statements for all periods presented.

	Net sales and net loss from discontinued operations, which were comprised primarily of asset write-offs of $1.7 million, severance of $0.7 million, and lease disposition costs of $1.4 million, were as follows:

	13 Weeks Ended						39 Weeks Ended

	October 30, 2004			November 1, 2003			October 30, 2004			November 1, 2003

	(In thousands)
Net retail sales	$	9,651		$	7,283		$	22,979		$	20,951

Loss from discontinued operations	$	(5,317	)	$	(126	)	$	(5,219	)	$	(351	)
Income tax benefit		1,940			48			1,904			133

Loss from discontinued operations, net of income taxes	$	(3,377	)	$	(78	)	$	(3,315	)	$	(218	)

The liability for lease disposition costs was as follows:

		13 Weeks Ended October 30, 2004

Lease termination expense	$	1,411
Amounts paid		(212	)

Liability at October 30, 2004	$	1,199

	The Company estimates that the loss from discontinued operations (comprised primarily of asset write-offs and lease disposition costs) will approximate $7.6 million, net of income tax benefit, in fiscal 2004.

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

	13 Weeks Ended						39 Weeks Ended

	October 30, 2004			November 1, 2003			October 30, 2004			November 1, 2003

	(In thousands, except per share data)
Net income, as reported	$	4,172		$	8,276		$	9,456		$	14,482
Deduct: Total stock-based employee compensation expense determined under fair value based method, for awards granted or settled, net of related tax effects		(1,618	)		(836	)		(4,865	)		(2,461	)

Pro forma net income	$	2,554		$	7,440		$	4,591		$	12,021

Basic income per share
As reported	$	0.14		$	0.28		$	0.31		$	0.49
Pro forma		0.08			0.25			0.15			0.41
Diluted income per share
As reported	$	0.13		$	0.27		$	0.30		$	0.47
Pro forma		0.08			0.24			0.15			0.39

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

	Periods ended

	October 30, 2004			November 1, 2003

Expected dividend rate		0	%		0	%
Expected volatility		47.9	%		45.3	%
Risk-free interest rate		2.6	%		2.6	%
Expected lives (years)		4.0			4.0

Net Income Per Share

Basic net income per share is calculated by dividing net income for the period by the weighted average common shares outstanding for that period. Diluted net income per share includes the effects of dilutive instruments, such as stock options, and uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted average number of shares outstanding. The following summarizes the incremental shares from these potentially dilutive securities, calculated using the treasury stock method.


	13 Weeks Ended				39 Weeks Ended

	October 30, 2004		November 1, 2003		October 30, 2004		November 1, 2003

	(In thousands)
Weighted average number of shares - basic		30,801		29,687		30,657		29,518
Add: effect of dilutive securities		545		1,150		698		1,246

Weighted average number of shares - diluted		31,346		30,837		31,355		30,764

	Anti-dilutive options to purchase 3,225,671 and 1,995,934 shares of common stock for the 13 weeks ended October 30, 2004 and November 1, 2003, respectively, and 2,919,005 and 1,730,262 shares of common stock for the 39 weeks ended October 30, 2004 and November 1, 2003, respectively, were excluded from the above computations of weighted average shares.

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

	13 Weeks Ended				39 Weeks Ended

	October 30, 2004		November 1, 2003		October 30, 2004		November 1, 2003

	(In thousands)
Net income	$	4,172	$	8,276	$	9,456	$	14,482
Other comprehensive income (loss)		139		301		382		(183	)

Total comprehensive income	$	4,311	$	8,577	$	9,838	$	14,299

7.	Segments
	The Company operates two reportable segments, retail stores and Play & Music. Corporate overhead and income taxes are included in the retail stores segment. The following table provides the summary financial data of each reportable segment, excluding discontinued operations (in thousands).

	13 Weeks Ended October 30, 2004						39 Weeks Ended October 30, 2004

	Retail Stores		Play & Music and Other		Total		Retail Stores		Play & Music and Other		Total

Net sales	$	152,619	$	2,989	$	155,608	$	410,466	$	8,241	$	418,707
Depreciation and amortization		6,964		108		7,072		20,019		349		20,368
Operating income		7,123		235		7,358		12,225		1,041		13,266
Total assets		333,379		5,747		339,126		333,379		5,747		339,126
Capital expenditures		29,433		122		29,555		57,839		201		58,040

	13 Weeks Ended November 1, 2003						39 Weeks Ended November 1, 2003

	Retail Stores		Play & Music and Other		Total		Retail Stores		Play & Music and Other		Total

Net sales	$	140,864	$	2,894	$	143,758	$	373,635	$	9,002	$	382,637
Depreciation and amortization		6,193		138		6,331		18,717		380		19,097
Operating income		13,019		437		13,456		22,176		1,181		23,357
Total assets		264,615		6,040		270,655		264,615		6,040		270,655
Capital expenditures		12,756		34		12,790		24,472		114		24,586

	Net sales from our Canadian operations amounted to $6.5 million and $6.6 million for the 13 weeks ended October 30, 2004 and November 1, 2003, respectively, and $16.8 million and $15.7 million for the 39 weeks ended October 30, 2004 and November 1, 2003, respectively. Long-lived assets held by our Canadian operations amounted to $3.2 million and $2.9 million as of October 30, 2004 and November 1, 2003, respectively.

8.	Co-Branded Credit Card

	In late 2003, the Company entered into co-branded credit card agreements (the “Agreements”) with a third-party bank (the “Bank”) and Visa U.S.A. Inc. for the issuance of a Visa credit card bearing the Gymboree brand and administration of an associated incentive program for cardholders. The program, which was launched in April 2004, offers incentives to cardholders, including a 5% discount on in-store purchases using the Gymboree Visa card and annual rewards in the form of a Gymboree gift card equal to 1% of total non-Gymboree purchases. The Bank is the sole owner of the accounts issued under the program and will absorb all losses associated with non-payment by the cardholder and any fraudulent usage of the accounts by third parties. The Company is responsible for redeeming the incentives, including the issuance of any gift cards. The Bank pays fees to the Company based on the number of credit card accounts opened and card usage and makes certain guaranteed minimum annual payments. Visa U.S.A. Inc. also pays fees to the Company based on card usage. Cardholder incentives are funded from the fees paid by the Bank to the Company. The Company recognizes revenues related to these Agreements as follows:

•

New account fees will be recognized as other revenues on a straight-line basis over the estimated life of the credit card relationship, currently estimated to be 3 years.

	•	Credit card usage fees will be recognized as other revenues as actual usage occurs.

	•	Minimum guaranteed annual payments which exceed amounts earned based on the number of accounts opened and card usage, will be recognized as other revenues on a straight-line basis over the estimated life of the credit card relationship, currently estimated to be 3 years.

	•	Annual rewards earned will be recorded as gift card liabilities and recognized as retail revenues when the gift cards are redeemed.

	As of October 30, 2004 and as of January 31, 2004, the Company has received $6.0 million in advance payments under these Agreements. During the 13 weeks and 39 weeks ended October 30, 2004, the Company recognized approximately $195,000 and $280,000 in new account and credit card usage fees, respectively, which are included in Play & Music and Other net sales in the respective condensed consolidated statements of income. As of October 30, 2004, $4.5 million in advance payments and $0.1 million in gift card liabilities are included in accrued liabilities and deferred revenue of $1.1 million is included in other long-term liabilities, in the condensed consolidated balance sheet.

9.	New Corporate Office Lease
	In March 2004, the Company signed a lease agreement (the “Lease”) for a new corporate office building in San Francisco, California. The Lease, which expires on April 14, 2018, requires base rent payments of approximately $4.7 million annually, subject to market value adjustments after 11 years. The Lease requires the Company to provide a $2.4 million standby letter of credit, which the Company may elect to reduce on each anniversary of the Lease commencement. As part of the Lease, the Company’s new landlord assumed the Company’s lease obligations for its Burlingame, California headquarters through the 2006 expiration of such lease. On November 15, 2004, the Company moved into its new corporate headquarters in San Francisco and ceased use of the Burlingame headquarters. As a result, the Company will record a non-cash charge, before income tax, of approximately $4.0 to $4.5 million in the fourth quarter of fiscal 2004. At the same time, the same amount will be recorded as a deferred lease incentive from the new landlord, which will be amortized over the life of the Lease as a reduction of rent expense in accordance with generally accepted accounting principles. The Company remains the guarantor on lease agreements for the Burlingame, California offices through the 2006 expiration date.

10.	Income Tax Benefit
Income from continuing operations in the current quarter included an income tax benefit of $3.4 million or $0.11 per diluted share due to the reversal of a tax reserve, which was largely attributable to the favorable resolution of a Canadian income tax audit.

11.

Restatement of Previously Issued Condensed Consolidated Financial Statements

On February 7, 2005, the Office of the Chief Accountant of the Securities and Exchange Commission (“SEC”) issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain operating lease accounting issues and their application under accounting principles generally accepted in the United States of America (“GAAP”). The Company’s management subsequently initiated a review of its lease-related accounting practices and determined that, like many other retailers, the period over which it recognized rent expense and amortized tenant allowances was not in accordance with Financial Accounting Standards Board (“FASB”) Technical Bulletin 85-3, “Accounting for Operating Leases with Scheduled Rent Increases,” (“FTB No. 85-3”) and Technical Bulletin No. 88-1 “Issues Relating to Accounting for Leases” (“FTB No. 88-1”). As a result, the Company’s condensed consolidated financial statements as of and for the thirteen and thirty-nine week periods ended October 30, 2004 and November 1, 2003, have been restated from the amounts previously reported.

Under the requirements of FTB No. 85-3, rent expense should be recognized on a straight-line basis over the term of the lease, including any rent holiday period. In prior periods, the Company determined that the term of the lease begins on the rent commencement date of the lease, which generally coincides with the store opening date, instead of at the time the Company takes physical possession of the property to start construction of leasehold improvements. This had the effect of excluding the construction period of the stores from the calculation of the period over which rent is expensed. The Company now considers possession to occur on the date it enters the space and begins construction build-out.

With respect to lease incentives such as tenant allowances received from the landlord to cover construction costs incurred, FTB No. 88-1 states that lease incentives should be treated by the Company as a reduction of rental expense and amortized on a straight-line basis over the term of the lease in accordance with FTB No. 85-3. The Company’s policy related to lease incentives had been to record such incentives as deferred liabilities and amortize them as a reduction to rent expense over the term of the lease which generally coincides with the store opening date, instead of at the time the Company takes physical possession of the property to start construction of leasehold improvements. This had the effect of excluding the construction period of the stores from the calculation of the period over which lease incentives are amortized.

For all periods presented herein, the Company determined that investments in auction rate securities should have been classified as marketable securities and not as cash and cash equivalents. As a result, securities that have stated maturities beyond three months, but are priced and traded as short-term investments due to the liquidity provided through the interest rate reset mechanism approximately every 30 days, are now shown as marketable securities. The purchase and sale of marketable securities previously presented as cash and cash equivalents have been reclassified to investing activities in the Condensed Consolidated Statements of Cash Flows.

The following tables present a summary of the effects of this restatement and reclassification on the Company’s Condensed Consolidated Balance Sheets as of October 30, 2004 and November 1, 2003, Condensed Consolidated Statements of Income for the thirteen and thirty-nine weeks ended October 30, 2004 and November 1, 2003, and Condensed Consolidated Statements of Cash Flows for the thirteen and thirty-nine weeks ended October 30, 2004 and November 1, 2003 (in thousands, except per share data):

	As of October 30, 2004			As of November 1, 2003

Cash and cash equivalents
As reported	$	64,608		$	56,463
Adjustment		(40,000	)		(38,000	)
As restated		24,608			18,463
Marketable securities
As reported		—			—
Adjustment		40,000			38,000
As restated		40,000			38,000
Accounts receivable
As reported		19,215			7,542
Adjustment		1,117			965
As restated		20,332			8,507
Current assets of discontinued operations
As reported		4,373			6,908
Adjustment		55			1,593
As restated		4,428			8,501
Lease Rights, Deferred Taxes and Other Assets
As reported		10,059			5,779
Adjustment		2,718			2,240
As restated		12,777			8,019
Total assets
As reported		339,646			275,818
Adjustment		3,908			3,338
As restated		343,554			279,156
Current liabilities of discontinued operations
As reported		5,127			2,554
Adjustment		504			731
As restated		5,631			3,285
Deferred rent and other liabilities
As reported		30,412			20,814
Adjustment		9,531			6,131
As restated		39,943			26,945
Retained earnings
As reported		157,809			134,617
Adjustment		(6,082	)		(3,524	)
As restated		151,727			131,093
Accumulated other comprehensive income
As reported		(71	)		(951	)
Adjustment		(64	)		—
As restated		(135	)		(951	)
Total stockholders’ equity
As reported		222,490			188,001
Adjustment		(6,146	)		(3,524	)
As restated		216,344			184,477

	13 Weeks Ended October 30, 2004

	As Reported			Adjustment			As Restated

Cost of goods sold, including buying and occupancy expenses	$	92,799		$	1,145		$	93,944
Income tax benefit (expense)		338			(216	)		122
Income (loss) from discontinued operations		(3,419	)		42			(3,377	)
Net income (loss)		5,491			(1,319	)		4,172
Net income (loss) per share:
Basic	$	0.18		$	(0.04	)	$	0.14
Diluted	$	0.18		$	(0.05	)	$	0.13

	39 Weeks Ended October 30, 2004

	As Reported			Adjustment			As Restated

Cost of goods sold, including buying and occupancy expenses	$	250,387		$	3,070		$	253,457
Income tax benefit (expense)		(2,661	)		487			(2,174	)
Income (loss) from discontinued operations		(3,350	)		35			(3,315	)
Net income (loss)		12,004			(2,548	)		9,456
Net income (loss) per share:
Basic	$	0.39		$	(0.08	)	$	0.31
Diluted	$	0.38		$	(0.08	)	$	0.30

	13 Weeks Ended November 1, 2003

	As Reported			Adjustment			As Restated

Cost of goods sold, including buying and occupancy expenses	$	83,355		$	217		$	83,572
Income tax benefit (expense)		(5,203	)		82			(5,121
Income (loss) from discontinued operations		(174	)		96			(78	)
Net income (loss)		8,315			(39	)		8,276
Net income (loss) per share:
Basic	$	0.28		$	—		$	0.28
Diluted	$	0.27		$	—		$	0.27

	39 Weeks Ended November 1, 2003

	As Reported			Adjustment			As Restated

Cost of goods sold, including buying and occupancy expenses	$	225,808		$	291		$	226,099
Income tax benefit (expense)		(9,121	)		110			(9,011	)
Income (loss) from discontinued operations		(364	)		146			(218	)
Net income (loss)		14,517			(35	)		14,482
Net income (loss) per share:
Basic	$	0.49		$	—		$	0.49
Diluted	$	0.47		$	—		$	0.47


	39 Weeks Ended October 30, 2004

	As Reported			Adjustment		As Restated

Net cash used in investing activities	$	(57,899	)	$	28,000	$	(29,899	)

	39 Weeks Ended November 1, 2003

	As Reported			Adjustment		As Restated

Net cash used in investing activities	$	(23,986	)	$	2,000	$	(21,986	)

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 October 30, 2004 and November 1, 2003, and the related condensed consolidated statements of income for the thirteen and thirty-nine week periods then ended, and cash flows for the thirty-nine week periods then ended. These condensed consolidated 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 to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with 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 financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the condensed consolidated financial statements, effective February 1, 2004, the Company changed its accounting method for inventory valuation from the retail method to the lower of cost or market method, determined on a weighted average basis.

As discussed in Note 11 to the condensed consolidated financial statements, the condensed consolidated financial statements have been restated.

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 as of January 31, 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated April 22, 2005, we expressed an unqualified opinion on those consolidated financial statements (and included an explanatory paragraph relating to the restatement). In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 31, 2004, 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

December 8, 2004 (April 22, 2005 as to the effects of the restatement discussed in Note 11)

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking statements

You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report. The discussion in this report contains forward-looking statements that involve risks and uncertainties, including statements regarding planned capital expenditures, planned store openings, expansions and renovations, systems infrastructure development, future cash generated from operations, future cash needs and the wind down of our United Kingdom and Ireland operations. Inaccurate assumptions and known and unknown risks and uncertainties can affect the accuracy of forward-looking statements, and our actual results could differ materially from results that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, customer reactions to new merchandise, concepts and marketing activity, gross margin achievement, our ability to manage inventory levels appropriately, general economic conditions, success in meeting delivery targets, competitive market conditions, trade restrictions, unexpected complications with the wind down of our United Kingdom and Ireland operations, instability in countries where our merchandise is manufactured and the other factors described in this document. When used in this document, the words “believes,” “expects,” “estimates,” “anticipates” and similar expressions are intended to identify certain of these forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on information available as of the date of this report. We do not intend to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report, in our Annual Report on Form 10-K and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.

Restatement of Financial Statements

See Note 11 in the notes to the condensed consolidated financial statements of this Report for a summary of the effects of these changes on the Company’s Condensed Consolidated Balance Sheets as of October 30, 2004 and November 1, 2003, Condensed Consolidated Statements of Income for the thirteen and thirty-nine weeks ended October 30, 2004 and November 1, 2003, and Condensed Consolidated Statements of Cash Flows for the thirteen and thirty-nine weeks ended October 30, 2004 and November 1, 2003.

General

The Gymboree Corporation is a specialty retailer operating stores selling high quality apparel and accessories for women and children under the GYMBOREE®, JANIE AND JACK®, and JANEVILLE™ brands, as well as play programs for children under the GYMBOREE PLAY & MUSIC™ brand. As of October 30, 2004, the Company conducted its business through four divisions: Gymboree, Janie and Jack, Janeville and Gymboree Play & Music. As of October 30, 2004, we had 643 stores, including 615 stores in the United States (including all 51 Janie and Jack shops and all 12 Janeville stores) and 28 stores in Canada. The Company also operates two on-line stores at www.gymboree.com and www.janieandjack.com.

Our plan for the remainder of fiscal 2004 is to continue to grow our domestic store base for Gymboree, Janie and Jack and Janeville, bringing the total number of store openings for fiscal 2004 to approximately 24, 23 and 14 new stores, respectively.

On August 16, 2004, the Board of Directors authorized the Company to proceed with the closure of its United Kingdom and Ireland operations (22 stores and one distribution center), as a result of their continued poor financial performance. As of October 30, 2004, substantially all such operations had ceased, as virtually all of the inventories were sold and the distribution center and 5 of the 22 stores were closed (4 United Kingdom stores and 1 Ireland store). The remaining 17 stores were closed during the first two weeks of November. The results of the United Kingdom and Ireland operations have been presented as discontinued operations in the accompanying financial statements for all periods presented.

Results of Operations

Thirteen weeks ended October 30, 2004 compared to thirteen weeks ended November 1, 2003

Net Sales from Continuing Operations

Net retail sales in the thirteen weeks ended October 30, 2004 increased to $152.6 million from $140.9 million in the same period last year, an increase of $11.7 million or 8.3%. Comparable store sales increased 2% or $3.5 million over the same period last year. This increase was primarily due to an increase in the average transaction value. Strong product performance in our baby boy, kid girl, and baby girl departments was slightly offset by weakness in our accessories and kid boy departments. Non-comparable store sales increased $9.5 million due to net store and square footage growth of 55 stores and 130,000 square feet, respectively. The increase was also due to a $304,000 increase in shipping income related to our web business. These increases were offset by a decrease of $505,000 in sales to off-price retailers as a result of our seasonal clearance strategy whereby markdown merchandise is primarily sold at our retail stores, as well as an increase of $1.0 million in sales returns and Gymbucks promotional discounts. The number of stores open at the end of the quarter was 643 compared to 588 at the end of the same period last year (excluding stores in the United Kingdom and Ireland).

Play & Music and Other net sales in the third quarter of fiscal 2004 increased to $3.0 million from $2.9 million in the same period last year, an increase of $0.1 million or 3.4%. The increase was primarily due to revenues associated with our Gymboree Visa Card program, partially offset by lower sales from our Play & Music business due to the sale and closure of 8 corporate owned sites as part of our ongoing restructuring of that division.

Gross Profit

Gross profit for the third quarter of fiscal 2004 increased to $61.7 million from $60.2 million in the same period last year. As a percentage of net sales, gross profit decreased 2.3 percentage points to 39.6% in the third quarter of fiscal 2004 from 41.9% in the same period last year. The decrease in our gross profit margin was primarily due to increased product costs resulting from further investments in product quality, novelty items, and fashion embellishments. Due to cautious consumer sentiment and a highly promotional competitive environment, average retail sales per unit sold did not increase enough to offset these higher costs, which resulted in lower product margins. In addition, buying costs and store occupancy costs increased as a percentage of sales due in part to the deleveraging impact of our new concepts, Janie and Jack and Janeville. Gross profit in fiscal 2004 was calculated using the cost method compared to the retail method in fiscal 2003. The impact of this change cannot be determined.

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 $54.3 million in the third quarter of fiscal 2004 from $46.7 million in the same period last year. As a percentage of net sales, SG&A expenses increased 2.4 percentage points to 34.9% in the third quarter of fiscal 2004 from 32.5% in the same period last year. The increase in SG&A was largely attributable to higher store expenses related to increases in our store base. In addition, SG&A for the quarter was impacted by marketing expenses related to the Gymboree re-branding campaign, consulting expenses related to the implementation of our new merchandising system, and professional fees related to Sarbanes-Oxley compliance.

Other Income, Net

Other income increased to $69,000 in the third quarter of fiscal 2004 from $19,000 in the same period last year primarily due to foreign exchange gains. These gains resulted from foreign currency fluctuations on inter-company transactions between our United States operations and foreign subsidiaries. The amount of foreign exchange gains or losses is dependent on both monthly currency fluctuations and balances held in those associated currencies. These gains included an increase of $26,000 in interest income due to higher cash and cash equivalent balances on a quarter-over-quarter basis.

Income Taxes

During the third quarter of fiscal 2004, we recorded an income tax benefit of $0.3 million due to the reversal of a $3.4 million tax reserve, which was largely attributable to the favorable resolution of a Canadian income tax audit. Without the effect of this tax benefit, our effective tax rate for the quarter would have been 36.0%. Our effective tax rate for the third quarter of fiscal 2003 was 38.0%.

Discontinued Operations

The loss reported for the discontinued United Kingdom and Ireland operations includes operating results, as well as charges related to asset write-offs, severance, and lease disposition costs in the third quarter of fiscal 2004.

Thirty-nine weeks ended October 30, 2004 compared to thirty-nine weeks ended November 1, 2003

Net Sales from Continuing Operations

Net retail sales for the thirty-nine weeks ended October 30, 2004 increased to $410.5 million from $373.6 million in the same period last year, an increase of $36.9 million or 9.9%. Comparable store sales increased 4% or $16.5 million over the same 39-week period last year. This increase was primarily due to an increase in the number of transactions, as well as an increase in average transaction value, driven by higher average retail sales per unit sold. Non-comparable store sales increased $23.2 million due to net store and square footage growth of 55 stores and 130,000 square feet, respectively. The increase was also due to a $673,000 increase in shipping income related to our web business. These increases were offset by a decrease of $2.6 million in sales to off-price retailers as a result of our seasonal clearance strategy whereby markdown merchandise is primarily sold at our retail stores, as well as an increase of $1.0 million in sales returns and Gymbucks promotional discounts.

Play & Music and Other net sales for the thirty-nine weeks ended October 30, 2004 decreased to $8.2 million from $9.0 million in the same period last year, a decrease of $0.8 million or 8.9%. The decrease was primarily due to lower Play & Music sales resulting from the sale and closure of a total of 15 corporate owned sites as part of our ongoing restructuring of the Play & Music business.

Gross Profit

Gross profit for the thirty-nine weeks ended October 30, 2004 increased to $165.3 million from $156.5 million in the same period last year, an increase of $8.8 million. As a percentage of net sales, gross profit decreased 1.4 percentage points to 39.5% in the thirty-nine weeks ended October 30, 2004 from 40.9% in the same period last year. Although product margins were pressured by higher product costs and a promotional competitive environment in the third quarter of fiscal 2004, product margins for the thirty-nine weeks ended October 30, 2004 were higher than the prior year due largely to the impact of markdown optimization, whereby markdowns are targeted to maximize SKU level sales and margins. This effect was offset by increased buying costs related to our new concepts, Janie and Jack and Janeville, as well as higher occupancy costs as a percentage of net sales. Gross profit in fiscal 2004 was calculated using the cost method compared to the retail method in fiscal 2003. The impact of this change cannot be determined.

Selling, General and Administrative Expenses

SG&A expenses increased to $152.0 million in the thirty-nine weeks ended October 30, 2004 from $133.2 million in the same period last year. As a percentage of net sales, SG&A expenses increased 1.5 percentage points to 36.3% in the thirty-nine weeks ended October 30, 2004 from 34.8% in the same period last year. The increase in SG&A was attributable to both higher store costs resulting from increases in our store base, and higher corporate expenses largely related to increased marketing, compensation, and benefits expenses. Marketing expenses increased as a result of more extensive in-store marketing campaigns for Gymboree, as well as the Gymboree re-branding campaign. Compensation increased primarily due to the increased headcount needed to support our new concepts, Janie and Jack and Janeville. Benefits increased due to increased headcount, higher medical insurance premiums and expanded employee benefits.

Other Income, Net

Other income increased to $451,000 in the thirty-nine weeks ended October 30, 2004 from $354,000 in the same period last year primarily due to interest income, partially offset by foreign exchange losses. Interest income increased by $273,000 due to higher cash and cash equivalent balances compared to the same period last year. Foreign exchange losses resulted from foreign currency fluctuations on inter-company transactions between our United States operations and foreign subsidiaries. The amount of foreign exchange gains or losses is dependent on both monthly currency fluctuations and balances held in those associated currencies.

Income Taxes

During the thirty-nine weeks ended October 30, 2004, our effective tax rate for continuing operations was reduced from 36.5% to 15.9% due to the reversal of a $3.4 million tax reserve, which was largely attributable to the favorable resolution of a Canadian income tax audit. Without the effect of this one-time tax benefit, our effective tax rate for the 39 weeks ended October 30, 2004 would have been 36.2%. Our effective tax rate for the 39 weeks ended November 1, 2003 was 38.0%.

Discontinued Operations

The loss reported for the discontinued United Kingdom and Ireland operations includes operating results, as well as charges related to asset write-offs, severance, and lease disposition costs.

Seasonality

Our business is impacted by the general seasonal trends characteristic of the apparel and retail industries. Sales from retail operations have historically been highest during the fourth fiscal quarter, somewhat lower during the first and third fiscal quarters and lowest during the second fiscal quarter. Consequently, the results for any fiscal quarter are not necessarily indicative of results for the full year.

Financial Condition

Liquidity and Capital Resources

Net cash provided by operating activities for the thirty-nine weeks ended October 30, 2004 was $29.8 million compared to $17.6 million in the same period last year. This increase was primarily due to changes in working capital items and cash provided by discontinued operations.

Net cash used in investing activities for the thirty-nine weeks ended October 30, 2004 was $29.9 million and consisted primarily of capital expenditures for the opening of 50 new stores, relocation and/or expansion of 16 existing stores, expenditures related to store openings and relocations currently in progress, and information technology improvements, as well as a net increase of $28.0 million in marketable securities. The Company estimates that capital expenditures will be approximately $50 to $55 million during fiscal 2004, net of allowances of approximately $16.0 million, and will primarily be used to relocate 16 Gymboree stores, re-brand 200 existing Gymboree stores, open 24 new Gymboree stores, 23 new Janie and Jack shops and 14 new Janeville stores (approximately $30 million for all stores), build-out our new corporate headquarters (approximately $9 million), continue our systems infrastructure replacement (approximately $9 million), and further invest in our web and distribution infrastructure (approximately $4 million).

Net cash provided by financing activities for the thirty-nine weeks ended October 30, 2004 totaled $3.4 million compared to $3.5 million in the same period last year. This decrease was due to a decrease in proceeds from stock option exercises.

Because of the seasonal nature of our business, our cash needs vary throughout the year. Cash and cash equivalents were $24.6 million at October 30, 2004, an increase of $3.0 million from January 31, 2004. Working capital as of October 30, 2004 was $97.4 million compared to $116.1 million as of January 31, 2004.

The Company has an unsecured revolving credit facility for borrowings of up to $70 million (increased from $60 million in August 2004). This credit facility has a three-year term expiring in August 2006, and may be used for working capital and capital expenditure needs, as well as the issuance of documentary and standby letters of credit. This credit facility requires the Company to meet financial covenants on a quarterly basis and limits annual capital expenditures. During the quarter ended October 30, 2004, the Company’s capital expenditures exceeded the annual limit for fiscal 2004 due to the amount of capital expenditures for the Company’s new offices and the Company announced plans to close its European operations. The bank subsequently provided the Company with a waiver and amendment to the credit facility to increase the capital expenditures limit for fiscal 2004 and to allow for the closure and winddown of the United Kingdom and Ireland operations. As of October 30, 2004, $48.5 million of documentary and standby letters of credit were outstanding under this facility. The increase in documentary and standby letters of credit outstanding is primarily due to the increased merchandise requirements related to our new concepts, Janie and Jack and Janeville.

In late 2003, the Company entered into co-branded credit card agreements (the “Agreements”) with a third-party bank (the “Bank”) and Visa U.S.A. Inc. for the issuance of a Visa credit card bearing the Gymboree brand and administration of an associated incentive program for cardholders. The program, which was launched in April 2004, offers incentives to cardholders, including a 5% discount on in-store purchases using the Gymboree Visa card and annual rewards in the form of a Gymboree gift card equal to 1% of total non-Gymboree purchases. The Bank is the sole owner of the accounts issued under the program and will absorb all losses associated with non-payment by the cardholder and any fraudulent usage of the accounts by third parties. The Company is responsible for redeeming the incentives, including the issuance of any gift cards. The Bank pays fees to the Company based on the number of credit card accounts opened and card usage and makes certain guaranteed minimum annual payments. Visa U.S.A. Inc. also pays fees to the Company based on card usage. Cardholder incentives are funded from the fees paid by the Bank to the Company. The Company recognizes revenues related to these Agreements as follows:

	•	New account fees will be recognized as other revenues on a straight-line basis over the estimated life of the credit card relationship, currently estimated to be 3 years.
	•	Credit card usage fees will be recognized as other revenues as actual usage occurs.
	•	Minimum guaranteed annual payments which exceed amounts earned based on the number of accounts opened and card usage, will be recognized as other revenues on a straight-line basis over the estimated life of the credit card relationship, currently estimated to be 3 years.
	•	Annual rewards earned will be recorded as gift card liabilities and recognized as retail revenues when the gift cards are redeemed.

As of October 30, 2004 and as of January 31, 2004, the Company has received $6.0 million in advance payments under these Agreements. During the 13 weeks and 39 weeks ended October 30, 2004, the Company recognized approximately $195,000 and $280,000 in new account and credit card usage fees, respectively, which are included in Play & Music and Other net sales in the respective condensed consolidated statements of income. As of October 30, 2004, $4.5 million in advance payments and $0.1 million in gift card liabilities are included in accrued liabilities and deferred revenue of $1.1 million is included in other long-term liabilities, in the condensed consolidated balance sheet.

In March 2004, the Company signed a lease agreement (the “Lease”) for a new corporate office building in San Francisco, California. The Lease, which expires on April 14, 2018, requires base rent payments of approximately $4.7 million annually, subject to market value adjustments after 11 years. The Lease requires the Company to provide a $2.4 million standby letter of credit, which the Company may elect to reduce on each anniversary of the Lease commencement. As part of the Lease, the Company’s new landlord assumed the Company’s lease obligations for its Burlingame, California headquarters through the 2006 expiration of such lease. On November 15, 2004, the Company moved into its new corporate headquarters in San Francisco and ceased use of the Burlingame headquarters. As a result, the Company will record a non-cash charge, before income tax, of approximately $4.0 to $4.5 million in the fourth quarter of fiscal 2004. At the same time, the same amount will be recorded as a deferred lease incentive from the new landlord, which will be amortized over the life of the Lease as a reduction of rent expense. The Company remains the guarantor on lease agreements for the Burlingame, California offices through the 2006 expiration date.

There have been no material changes to the Company’s contractual obligations since its Annual Report on Form 10-K for the year ended January 31, 2004, except for the lease obligations related to the Company’s new corporate offices described above.

The Company is liable on lease agreements for 3 Play & Music sites sold to franchisees. However, the Company does not believe that payment by the Company of its maximum potential amount of future payments under the Play & Music lease agreements would have a material current or future effect on its liquidity or capital resources.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company enters into forward foreign exchange contracts to hedge certain inter-company loans and inventory purchases. The term of the forward exchange contracts is generally less than one year. The purpose of our foreign currency hedging activities is to protect us from the risk that the eventual dollar net cash inflow resulting from the repayment of certain inter-company loans from our foreign subsidiaries and dollar margins resulting from inventory purchases will be adversely affected by changes in exchange rates.

The tables below summarize by major currency the notional amounts and fair values of our forward foreign exchange contracts in U.S. dollars as of October 30, 2004 and November 1, 2003.

	October 30, 2004

	Notional Amount		Fair Value Gain/(Loss)			Weighted Average Rate

	(in thousands, except weighted average rate data)
British pounds sterling	$	1,358	$	(19	)	$	1.83
Canadian dollars		5,070		(262	)		0.82
Euro		1,238		(41	)		1.28

Total	$	7,666	$	(322	)

	November 1, 2003

	Notional Amount		Fair Value Loss			Weighted Average Rate

	(in thousands, except weighted average rate data)
British pounds sterling	$	6,842	$	(325	)	$	1.68
Canadian dollars		6,775		(462	)		0.75
Euro		685		2			1.16

Total	$	14,302	$	(785	)

Item 4.

CONTROLS AND PROCEDURES

We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Operating Officer and 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) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Due to the facts and circumstances surrounding the correction in the Company’s lease accounting practices described in Note 11 of our Condensed Consolidated Financial Statements, the Chief Executive Officer and the Chief Operating Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this report in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s reports filed or submitted under the Exchange Act.

We also maintain a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). No changes in our internal control over financial reporting occurred during the quarter ended October 30, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The Company is subject to various legal proceedings and claims arising in the ordinary course of business. Our management does not expect that the results in 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 flow.

Item 6.		EXHIBITS

10.58		2004 Equity Incentive Plan
10.59		Form of Stock Option Grant for 2004 Equity Incentive Plan
10.60		Waiver and First Amendment to Credit Agreement
10.61		Terms of Compensation Arrangement for Blair Lambert Effective January 18, 2005
15		Letter re: Unaudited Interim Financial Information
31.1		Certification of Lisa M. Harper Pursuant to §302 of the Sarbanes- Oxley Act of 2002.
31.2		Certification of Blair W. Lambert Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Lisa M. Harper Pursuant to 18 U.S.C.§1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Blair W. Lambert Pursuant to 18 U.S.C.§1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

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)

Date April 22, 2005	By:	/s/ BLAIR W. LAMBERT

		Blair W. Lambert
		Chief Operating Officer and Chief Financial Officer

Exhibit Index

Exhibit Number		Description

10.58		2004 Equity Incentive Plan
10.59		Form of Stock Option Grant for 2004 Equity Incentive Plan
10.60		Waiver and First Amendment to Credit Agreement
10.62		Terms of Compensation Arrangement for Blair Lambert Effective January 18, 2005
15		Letter re: Unaudited Interim Financial Information
31.1		Certification of Lisa M. Harper Pursuant to §302 of the Sarbanes- Oxley Act of 2002.
31.2		Certification of Blair W. Lambert Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Lisa M. Harper Pursuant to 18 U.S.C.§1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Blair W. Lambert Pursuant to 18 U.S.C.§1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.