GYMBOREE CORP - FORM 10-Q

GYMBOREE CORP - FORM 10-Q - June 12, 2015

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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 May 2, 2015

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

For the transition period from to

Commission file number 000-21250

THE GYMBOREE CORPORATION

(Exact name of registrant as specified in its charter)


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

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

(415) 278-7000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No ¨*

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

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

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

As of June 12, 2015, the registrant had 1,000 shares of common stock outstanding, par value $0.001 per share, all of which are owned by Giraffe Holding, Inc., the registrant’s indirect parent holding company, and are not publicly traded.

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

THE GYMBOREE CORPORATION

TABLE OF CONTENTS


Part I—FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Loss	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
	Report of Independent Registered Public Accounting Firm	29
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	36

Part II—OTHER INFORMATION		37

Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	37
	Signatures	38

Part I—FINANCIAL INFORMATION

Item 1.

Financial Statements

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)


	13 Weeks Ended
	May 2, 2015			May 3, 2014
Net sales:
Retail	$	261,732		$	259,124
Gymboree Play & Music		8,648			6,832
Retail Franchise		5,689			6,054

Total net sales		276,069			272,010
Cost of goods sold, including buying and occupancy expenses		(170,712	)		(163,652	)

Gross profit		105,357			108,358
Selling, general and administrative expenses		(104,710	)		(102,290	)

Operating income		647			6,068
Interest income		19			47
Interest expense		(21,076	)		(20,374	)
Other expense, net		(110	)		(368	)

Loss before income taxes		(20,520	)		(14,627	)
Income tax expense		(1,960	)		(376	)

Net loss		(22,480	)		(15,003	)
Net (income) loss attributable to noncontrolling interest		(545	)		1,572

Net loss attributable to The Gymboree Corporation	$	(23,025	)	$	(13,431	)

See notes to condensed consolidated financial statements.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)


	13 Weeks Ended
	May 2, 2015			May 3, 2014
Net loss	$	(22,480	)	$	(15,003	)

Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax		956			(397	)
Unrealized net gain on cash flow hedges, net of tax expense of $198 and $0		261			22

Total other comprehensive income (loss)		1,217			(375	)

Comprehensive loss		(21,263	)		(15,378	)
Comprehensive (income) loss attributable to noncontrolling interest		(612	)		2,047

Comprehensive loss attributable to The Gymboree Corporation	$	(21,875	)	$	(13,331	)

See notes to condensed consolidated financial statements.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


	May 2,			January 31,			May 3,
	2015			2015			2014
ASSETS
Current assets:
Cash and cash equivalents	$	22,363		$	18,520		$	24,773
Accounts receivable, net of allowance of $2,304, $1,939 and $1,228		25,515			25,248			22,394
Merchandise inventories		208,908			198,337			170,411
Prepaid income taxes		2,759			2,599			2,986
Prepaid expenses		18,561			6,821			18,623
Deferred income taxes		7,263			6,824			14,236

Total current assets		285,369			258,349			253,423

Property and equipment:
Land and buildings		22,428			22,428			22,428
Leasehold improvements		199,869			198,098			201,067
Furniture, fixtures and equipment		125,481			123,943			119,115

Total property and equipment		347,778			344,469			342,610
Less accumulated depreciation and amortization		(171,378	)		(162,038	)		(139,134	)

Net property and equipment		176,400			182,431			203,476

Goodwill		374,308			373,834			758,777
Other intangible assets, net		342,816			343,552			559,003
Deferred financing costs		23,984			25,622			30,754
Other assets		3,683			4,155			10,288

Total assets	$	1,206,560		$	1,187,943		$	1,815,721

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	105,426		$	87,032		$	73,345
Accrued liabilities		106,669			94,805			107,648
Line of credit borrowings		42,000			33,000			10,000
Current obligation under capital lease		565			552			515

Total current liabilities		254,660			215,389			191,508
Long-term liabilities:
Long-term debt		1,114,127			1,114,048			1,113,817
Long-term obligation under capital lease		2,704			2,850			3,269
Lease incentives and other liabilities		52,858			53,677			50,534
Unrecognized tax benefits		5,151			5,048			6,304
Deferred income taxes		129,865			129,196			215,232

Total liabilities		1,559,365			1,520,208			1,580,664

Commitments and contingencies
Stockholders’ (deficit) equity:
Common stock, including additional paid-in capital ($0.001 par value: 1,000 shares authorized, issued and outstanding)		523,124			522,403			519,207
Accumulated deficit		(876,388	)		(853,363	)		(292,689	)
Accumulated other comprehensive loss		(10,081	)		(11,231	)		(4,780	)

Total stockholders’ (deficit) equity		(363,345	)		(342,191	)		221,738
Noncontrolling interest		10,540			9,926			13,319

Total (deficit) equity		(352,805	)		(332,265	)		235,057

Total liabilities and stockholders’ (deficit) equity	$	1,206,560		$	1,187,943		$	1,815,721

See notes to condensed consolidated financial statements.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	13 Weeks Ended
	May 2, 2015			May 3, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(22,480	)	$	(15,003	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		10,700			11,178
Amortization of deferred financing costs and accretion of original issue discount		1,886			1,776
Interest rate cap contracts—adjustment to market		778			461
(Gain) loss on disposal/impairment of assets		(539	)		359
Deferred income taxes		264			(33	)
Share-based compensation expense		720			1,276
Other		(198	)		18
Change in assets and liabilities:
Accounts receivable		(168	)		(553	)
Merchandise inventories		(10,958	)		4,776
Prepaid income taxes		(154	)		(1,013	)
Prepaid expenses and other assets		(11,739	)		1,087
Accounts payable		18,375			(28,602	)
Accrued liabilities		11,350			8,897
Lease incentives and other liabilities		(476	)		693

Net cash used in operating activities		(2,639	)		(14,683	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(3,140	)		(9,353	)
Proceeds from sale of assets		353			—
Other		8			(56	)

Net cash used in investing activities		(2,779	)		(9,409	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from ABL facility		130,000			78,000
Payments on ABL facility		(121,000	)		(68,000	)
Payments on capital lease		(133	)		(121	)

Net cash provided by financing activities		8,867			9,879

Effect of exchange rate fluctuations on cash and cash equivalents		394			(443	)

Net increase (decrease) in cash and cash equivalents		3,843			(14,656	)
CASH AND CASH EQUIVALENTS:
Beginning of period		18,520			39,429

End of period	$	22,363		$	24,773

OTHER CASH FLOW INFORMATION:
Cash (received) paid for income taxes, net	$	(3,664	)	$	1,380
Cash paid for interest	$	10,390		$	10,104

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 (the “Company,” “we” or “us”) and our 100%-owned subsidiaries, as well as Gymboree (China) Commercial and Trading Co. Ltd. (“Gymboree China”) and Gymboree (Tianjin) Educational Information Consultation Co. Ltd. (“Gymboree Tianjin”) (collectively, the “VIEs”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended January 31, 2015 filed with the Securities and Exchange Commission on May 1, 2015.

The accompanying condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present fairly our financial position, results of operations, comprehensive income (loss) and cash flows for the periods presented. The results of operations for the 13 weeks ended May 2, 2015 (“first quarter of fiscal 2015”) are not necessarily indicative of the operating results that may be expected for the 52-week period ending January 30, 2016 (“fiscal 2015”) or any future period.

2. Recently Issued Accounting Standards

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments do not affect the current guidance on the recognition and measurement of debt issuance costs. This ASU would be applied retrospectively to all prior periods and is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. This ASU will require the Company to reclassify deferred financing costs, currently presented as assets on the condensed consolidated balance sheets, and net those costs with long-term debt. This ASU will have no effect on the Company’s condensed consolidated statements of operations or its liquidity.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The amendments are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. We have not yet determined the impact of the new standard on our condensed consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, to provide guidance on principles and definitions to reduce diversity in the timing and content of disclosures when evaluating whether there is substantial doubt about an organization’s ability to continue as a going concern. This ASU is effective in the annual period ending after December 15, 2016, with early adoption permitted. We have not yet determined the impact of the new standard on our condensed consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. generally accepted accounting principles and International Financial Reporting Standards. This ASU is effective for fiscal years and interim periods within those years, beginning after December 15, 2016, and is to be applied either retrospectively to each prior reporting period presented or with the cumulative effect recognized at the date of initial adoption as an adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets). In April 2015, the FASB proposed a deferral of this ASU’s effective date by one year, to December 15, 2017. The proposed deferral allows early adoption at the original effective date. We have not yet determined the impact of the new standard on our condensed consolidated financial statements.

3. Fair Value Measurements

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

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

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

Level 3 – Inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. Valuation techniques could include the use of discounted cash flow models and similar techniques.

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present our assets and liabilities measured at fair value on a recurring basis as of May 2, 2015, January 31, 2015 and May 3, 2014, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands). There were no transfers into or out of Level 1 and Level 2 during the 13 weeks ended May 2, 2015 and May 3, 2014, or for the year ended January 31, 2015.


	May 2, 2015
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Interest rate caps	$	—	$	9	$	—	$	9

Total	$	—	$	9	$	—	$	9

Liabilities
Forward foreign exchange contracts	$	—	$	55	$	—	$	55

Total	$	—	$	55	$	—	$	55


	January 31, 2015
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Interest rate caps	$	—	$	17	$	—	$	17
Forward foreign exchange contracts		—		96		—		96

Total	$	—	$	113	$	—	$	113


	May 3, 2014
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Money market funds	$	900	$	—	$	—	$	900
Interest rate caps		—		433		—		433
Forward foreign exchange contracts		—		100		—		100

Total	$	900	$	533	$	—	$	1,433

Our cash equivalents, which are primarily placed in money market funds, are valued at their original purchase prices plus interest that has accrued at the stated rate.

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

Although we have determined the majority of the inputs used to value our interest rate caps fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of May 2, 2015, January 31, 2015 and May 3, 2014, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate cap positions and determined the credit valuation adjustment was not significant to the overall valuation. As a result, we classified our interest rate caps derivative valuations in Level 2 of the fair value hierarchy.

The fair value of our forward foreign exchange contracts was determined using the market approach and Level 2 inputs. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities.

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


	May 2, 2015				January 31, 2015				May 3, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term loan	$	768,127	$	611,436	$	768,048	$	530,680	$	767,817	$	619,127
Notes		346,000		166,080		346,000		128,020		346,000		221,440

Total	$	1,114,127	$	777,516	$	1,114,048	$	658,700	$	1,113,817	$	840,567

We had no other financial assets or liabilities measured at fair value as of May 2, 2015, January 31, 2015 and May 3, 2014.

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

Our non-financial assets, which primarily consist of goodwill, other intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis whenever events or changes in circumstances indicate their carrying value may not be fully recoverable, and at least annually for goodwill and indefinite-lived intangible assets, non-financial assets are assessed for impairment and, if applicable, written-down to and recorded at fair value, considering external market participant assumptions. We recorded no impairment charges during the first quarter of fiscal 2015 and 2014.

4. Goodwill and Intangible Assets and Liabilities

Goodwill

Goodwill allocated to our reportable segments as of May 2, 2015, January 31, 2015 and May 3, 2014 is as follows (in thousands):


	Retail Stores Segment			Gymboree Play & Music Segment		International Retail Franchise Segment		Total
Balance as of May 2, 2015
Goodwill	$	887,241		$	16,389	$	23,636	$	927,266
Accumulated impairment losses		(547,285	)		—		—		(547,285	)
Effect of exchange rate fluctuations		(5,673	)		—		—		(5,673	)

	$	334,283		$	16,389	$	23,636	$	374,308

Balance as of January 31, 2015
Goodwill	$	887,241		$	16,389	$	23,636	$	927,266
Accumulated impairment losses		(547,285	)		—		—		(547,285	)
Effect of exchange rate fluctuations		(6,147	)		—		—		(6,147	)

	$	333,809		$	16,389	$	23,636	$	373,834

Balance as of May 3, 2014
Goodwill	$	887,241		$	16,389	$	23,636	$	927,266
Accumulated impairment losses		(168,489	)		—		—		(168,489	)

	$	718,752		$	16,389	$	23,636	$	758,777

Goodwill Impairment

During the first quarter of fiscal 2015 and 2014, we did not identify impairment indicators for goodwill. During fiscal 2014, we recognized goodwill impairment in the Gymboree Retail, Gymboree Outlet, and Crazy 8 reporting units, components of our retail stores reporting segment, of approximately $252.3 million, $67.2 million and $59.3 million, respectively.

Intangible Assets and Liabilities

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


	May 2, 2015
	Gross Carrying Amount			Accumulated Amortization			Accumulated Impairment			Net Amount
Intangible Assets Not Subject to Amortization:
Trade names	$	567,012		$	—		$	(229,600	)	$	337,412

Intangible Assets Subject to Amortization:
Customer relationships		770			(688	)		—			82
Below market leases		4,839			(3,319	)		—			1,520
Co-branded credit card agreement		4,000			(2,727	)		—			1,273
Franchise agreements and reacquired franchise rights		6,625			(4,096	)		—			2,529

		16,234			(10,830	)		—			5,404

Total other intangible assets	$	583,246		$	(10,830	)	$	(229,600	)	$	342,816

Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease incentives and other liabilities)	$	(11,400	)	$	7,196		$	—		$	(4,204	)

The decrease in the gross carrying amount of below market leases from January 31, 2015 to May 2, 2015 reflects the write off of certain fully amortized intangible assets.


	January 31, 2015
	Gross Carrying Amount			Accumulated Amortization			Accumulated Impairment			Net Amount
Intangible Assets Not Subject to Amortization:
Trade names	$	567,012		$	—		$	(229,600	)	$	337,412

Intangible Assets Subject to Amortization:
Customer relationships		770			(605	)		—			165
Below market leases		5,274			(3,486	)		—			1,788
Co-branded credit card agreement		4,000			(2,573	)		—			1,427
Franchise agreements and reacquired franchise rights		6,625			(3,865	)		—			2,760

		16,669			(10,529	)		—			6,140

Total other intangible assets	$	583,681		$	(10,529	)	$	(229,600	)	$	343,552

Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease incentives and other liabilities)	$	(11,400	)	$	6,795		$	—		$	(4,605	)

The decrease in the gross carrying amount of customer relationships, below market leases, franchise agreements and reacquired franchise rights, and above market leases from May 3, 2014 to January 31, 2015, reflects the write off of certain fully amortized intangibles.


	May 3, 2014
	Gross Carrying Amount			Accumulated Amortization			Accumulated Impairment			Net Amount
Intangible Assets Not Subject to Amortization:
Trade names	$	567,494		$	—		$	(17,000	)	$	550,494

Intangible Assets Subject to Amortization:
Customer relationships		37,551			(36,975	)		—			576
Below market leases		7,055			(4,457	)		—			2,598
Co-branded credit card agreement		4,000			(2,112	)		—			1,888
Franchise agreements and reacquired franchise rights		6,632			(3,185	)		—			3,447

		55,238			(46,729	)		—			8,509

Total other intangible assets	$	622,732		$	(46,729	)	$	(17,000	)	$	559,003

Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease incentives and other liabilities)	$	(16,631	)	$	10,508		$	—		$	(6,123	)

Indefinite-Lived Intangible Assets Impairment

During the first quarter of fiscal 2015 and 2014, we did not identify impairment indicators for indefinite-lived intangible assets. During fiscal 2014, we recognized a $212.6 million impairment charge related to trade names of our retail stores segment.

Net amortization income (expense) is presented below for the periods ended (in thousands):


	13 Weeks Ended May 2, 2015			13 Weeks Ended May 3, 2014
Cost of goods sold—Amortization income	$	133		$	247

Selling, general and administrative expenses—Amortization expense	$	(468	)	$	(535	)

5. Line of Credit

We have a senior secured asset-based revolving credit facility (“ABL”) that provides 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. Line of credit borrowings outstanding under the ABL as of May 2, 2015, January 31, 2015 and May 3, 2014 were $42.0 million, $33.0 million and $10.0 million, respectively. Amounts available under the ABL are reduced by letter of credit utilization totaling $38.1 million as of May 2, 2015. Undrawn availability under the ABL, after being reduced by outstanding borrowings and letter of credit utilization, was $90.8 million as of May 2, 2015. Average borrowings under the ABL for the 13 weeks ended May 2, 2015 and May 3, 2014 amounted to $54.1 million and $9.7 million, respectively. Average borrowings under the ABL for the year ended January 31, 2015 amounted to $32.0 million. Principal amounts outstanding under the ABL are due and payable in full in March 2017.

Borrowings under the ABL bear interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the highest of (1) the prime rate of Bank of America, N.A., (2) the federal funds effective rate plus 0.50%, and (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%, or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs (“Adjusted LIBOR”), in each case plus an applicable margin. As of May 2, 2015, the interest rate was 5.5% on the first $12.0 million of line of credit borrowings outstanding under the ABL and 4.0% on the remaining $30.0 million of line of credit borrowings outstanding under the ABL. In addition to paying interest on outstanding principal under the ABL, we are required to pay a commitment fee on unutilized commitments thereunder, which is 0.375% per annum under the amended ABL. The ABL provides us the right to request up to $125 million of additional commitments under this facility (or, if less, the amount permitted under the Term Loan described in Note 6), subject to the satisfaction of certain conditions.

If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the ABL exceeds the lesser of (a) the commitment amount and (b) the borrowing base, we will be required to repay outstanding loans and/or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount. The ABL Facility contains financial and other covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. The ABL Facility also contains a financial covenant that is tested when availability under the facility falls below a specified threshold. As of May 2, 2015, we were not required to test compliance with this covenant. The obligations under the ABL are secured, subject to certain exceptions, by substantially all of our assets. Our 100%-owned domestic subsidiaries have fully and unconditionally guaranteed our obligations under the ABL.

6. Long-Term Debt

Long-term debt consists of (in thousands):


	May 2, 2015		January 31, 2015		May 3, 2014
Term loan due February 2018, Adjusted LIBOR (with a floor of 1.5%) plus 3.5%, net of discount of $975, $1,054 and $1,285	$	768,127	$	768,048	$	767,817
Senior notes due December 2018, 9.125%		346,000		346,000		346,000

Long-term debt	$	1,114,127	$	1,114,048	$	1,113,817

Term Loan

We have an agreement with several lenders for an $820 million senior secured Term Loan, with a maturity date of February 2018. The Term Loan allows us to request additional tranches of term loans in an aggregate amount not to exceed $200 million, subject to the satisfaction of certain conditions, provided 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 our option, a base rate plus an additional marginal rate of 2.5% or the Adjusted LIBOR rate (with a 1.5% floor) plus an additional rate of 3.5%. As of May 2, 2015, the interest rate under our Term Loan was 5%.

The Term Loan requires us to make quarterly payments equal to 0.25% of the original $820 million principal amount of the Term Loan made on the closing date plus accrued and unpaid interest thereon, with the balance due in February 2018. The Term Loan also has mandatory and voluntary pre-payment provisions, including a requirement that we prepay the Term Loan with a certain percentage of our annual excess cash flow. We calculated our excess cash flow using fiscal 2014 operating results and concluded we are not required to make any excess cash flow payments on the Term Loan during fiscal 2015. Excess cash flow payments on the Term Loan for fiscal 2016 will be calculated with our fiscal 2015 annual operating results. Voluntary prepayments and the excess cash flow prepayments made in prior fiscal years were applied toward our remaining quarterly amortization payments payable under the Term Loan through fiscal 2016. Our next quarterly payment payable under the Term Loan is due in the first quarter of fiscal 2017.

The obligations under the Term Loan are secured, subject to certain exceptions, by substantially all of our assets and those of our 100%-owned domestic subsidiaries. Our 100%-owned domestic subsidiaries also have fully and unconditionally guaranteed the Company’s obligations under the Term Loan.

Notes

In fiscal 2010, we issued $400 million aggregate principal amount of 9.125% senior notes due in December 2018 (the “Notes”). Interest on the Notes is payable semi-annually. If the Company or our subsidiaries sell certain assets, we generally must either invest the net cash proceeds from such sale in our business within a certain period of time, use the proceeds to prepay senior secured debt, or make an offer to purchase a principal amount of the Notes equal to the excess net cash proceeds at a redemption price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest. Upon a change in control, we may also be required to make an offer to purchase all of the Notes at a redemption price equal to 101% of the principal amount of the Notes redeemed plus accrued and unpaid interest. We may redeem the Notes, in whole or in part, upon at least 30 days prior notice, at the redemption prices (expressed as percentages of principal amount of the Notes to be redeemed) set forth below, plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on December 1 of each of the years indicated below:


Year	Percentage
2014		104.563	%
2015		102.281	%
2016 and thereafter		100.000	%

The Notes are unsecured senior obligations of The Gymboree Corporation. The Company’s 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Company’s obligations under the Notes (see Note 15). The guarantees of the Notes are joint and several and will terminate upon the following circumstances: (A) the sale, exchange, disposition or transfer (by merger or otherwise) of (x) the capital stock of the guarantor providing the applicable guarantee, if after such sale, exchange, disposition or transfer such guarantor is no longer a subsidiary of The Gymboree Corporation, or (y) all or substantially all of the assets of such guarantor, (B) the release or discharge of the guarantee by such guarantor of the other indebtedness which resulted in the creation of the subsidiary guarantee by such guarantor under the Indenture, (C) the designation of such guarantor as an “unrestricted subsidiary” under the Indenture or (D) the legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture, in each such case specified in clauses (A) through (D) above in accordance with the requirements therefore set forth in the Indenture.

Future minimum principal payments on long-term debt, excluding accretion of original issue discount (“OID”) of $1.0 million as of May 2, 2015, are as follows (in thousands):


Fiscal years	Principal Payments
2015	$	—
2016		—
2017		6,502
2018		1,108,600

Total	$	1,115,102

Interest Expense on Long-Term Debt and ABL

Total interest expense reported in the condensed consolidated statements of operations includes interest expense on long-term debt and borrowings under the ABL of $21.0 million and $20.4 million for the 13 weeks ended May 2, 2015 and May 3, 2014, respectively. Amortization of deferred financing costs and accretion of OID are also included in interest expense.

Deferred Financing Costs and OID

Deferred financing costs allocated to the Term Loan and Notes are amortized over the term of the related financing agreements using the effective interest method. Deferred financing costs allocated to the ABL are amortized on a straight-line basis over 6.4 years. The weighted-average remaining amortization period is approximately 3.0 years as of May 2, 2015. Amortization of deferred financing costs is recorded in interest expense and was $1.8 million and $1.7 million during the 13 weeks ended May 2, 2015 and May 3, 2014, respectively. Accretion of OID, which was not material for both the 13 weeks ended May 2, 2015 and May 3, 2014, is also recorded in interest expense.

7. Derivative Financial Instruments

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

In December 2010, we paid approximately $12.1 million to enter into interest rate caps to hedge against rising interest rates associated with the $700 million principal of our Term Loan (see Note 6) above the strike rate of the cap through December 23, 2016, the maturity date of the caps. The interest rate caps were designated on the date of execution as cash-flow hedges. The premium, and any related amounts reported in accumulated other comprehensive loss, are being amortized to interest expense through December 23, 2016, as interest payments are made on the underlying Term Loan. During the 13 weeks ended May 2, 2015 and May 3, 2014, respectively, we reclassified approximately $0.8 million and $0.5 million, respectively, from accumulated other comprehensive loss to interest expense. We estimate approximately $4.3 million will be reclassified from accumulated other comprehensive loss to interest expense within the next 12 months.

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

We had the following outstanding derivatives designated as cash flow hedges (U.S. dollars in thousands):


	May 2, 2015				January 31, 2015				May 3, 2014
	Number of Instruments		Notional (USD)		Number of Instruments		Notional (USD)		Number of Instruments		Notional (USD)
Interest rate derivatives
Purchased interest rate caps		4	$	700,000		4	$	700,000		4	$	700,000
Foreign exchange derivatives
Forward foreign exchange contracts		3		2,343		6		4,633		3		3,065

Total		7	$	702,343		10	$	704,633		7	$	703,065

In addition to the cash flow hedges described above, the Company was party to one forward foreign exchange contract with a notional amount of $12.2 million that was not designated as a hedge as of May 3, 2014. The Company was not a party to any forward foreign exchange contracts that were not designated as hedges as of May 2, 2015 and January 31, 2015.

The table below presents the fair value of all of our derivative financial instruments as well as their classification on the consolidated balance sheets (in thousands) (see Note 3).


	May 2, 2015				January 31, 2015		May 3, 2014
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Assets
Other Assets
Purchased interest rate caps	$	9	$	—	$	17	$	433
Forward foreign exchange contracts		—		—		96		100

Total	$	9	$	—	$	113	$	533

Accrued Liabilities
Forward foreign exchange contracts	$	—	$	55	$	—	$	—

Total	$	—	$	55	$	—	$	—

The tables below present the effect of all of our derivative financial instruments on the condensed consolidated statements of operations and comprehensive loss (in thousands). No amounts were reclassified from accumulated other comprehensive loss (OCI) into earnings as a result of forecasted transactions that failed to occur or as a result of hedge ineffectiveness (see Note 11).


	13 Weeks Ended May 2, 2015
	Gains / (Losses) Recognized in OCI on Derivative (Effective Portion)			Location of Gains (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)	Gains / (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate caps	$	(8	)	Interest expense	$	(778	)
Forward foreign exchange contracts		(146	)	Cost of goods sold		165

Total	$	(154	)		$	(613	)


	13 Weeks Ended May 3, 2014
	Gains / (Losses) Recognized in OCI on Derivative (Effective Portion)			Location of Gains (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)	Gains / (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate caps	$	(166	)	Interest expense	$	(461	)
Forward foreign exchange contracts		(51	)	Cost of goods sold		222

Total	$	(217	)		$	(239	)

8. Share-Based Compensation

Share-based compensation expense included as a component of selling, general and administrative (SG&A) expenses was $0.7 million and $1.3 million during the 13 weeks ended May 2, 2015 and May 3, 2014, respectively. We include an estimate of forfeitures in determining share-based compensation expense.

9. Income Taxes

As of May 2, 2015, January 31, 2015 and May 3, 2014, unrecognized tax benefits were $6.8 million, $5.6 million and $6.6 million, respectively. We believe it is reasonably possible that the total amount of unrecognized tax benefits of $6.8 million as of May 2, 2015 will decrease by as much as $0.7 million during the next twelve months due to the resolution of certain tax contingencies and lapses of applicable statutes of limitations.

As of May 2, 2015, January 31, 2015 and May 3, 2014, the total valuation allowance against deferred tax assets was $67.3 million, $58.6 million and $35.5 million, respectively. We establish a valuation allowance when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. We consider all available positive and negative evidence in evaluating whether a valuation allowance is required, including prior earnings history, actual earnings over the previous 12 quarters on a cumulative basis, carryback and carryforward periods, and tax planning strategies that could potentially enhance the likelihood of realization of a deferred tax asset. We continue to have a valuation allowance against all net deferred tax assets in U.S. federal, unitary U.S. state and Australian jurisdictions, excluding indefinite-lived deferred tax assets and liabilities, and against the tax benefit on losses from our VIEs. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

10. Commitments and Contingencies

Commitments

There have been no significant changes to our contractual obligations and commercial commitments as disclosed in our Annual Report on Form 10-K as of January 31, 2015 (see Notes 6, 7, 10 and 13), other than those which occur in the normal course of business (see Note 16).

Contingencies

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

11. Accumulated Other Comprehensive Loss

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


	May 2, 2015			January 31, 2015			May 3, 2014
Foreign currency translation	$	(6,154	)	$	(7,043	)	$	701
Accumulated changes in fair value of derivative financial instruments, net of tax benefit of $3,784, $3,982 and $3,982		(3,927	)		(4,188	)		(5,481	)

Total accumulated other comprehensive loss	$	(10,081	)	$	(11,231	)	$	(4,780	)

Changes in accumulated OCI balance by component were as follows as of and for the periods ended (in thousands):


	13 Weeks Ended May 2, 2015
	Derivatives			Foreign Currency			Total Accumulated Comprehensive (Loss) Income Including Noncontrolling Interest
Beginning balance	$	(4,188	)	$	(7,043	)	$	(11,231	)

Other comprehensive (loss) income recognized before reclassifications		(154	)		956			802
Amounts reclassified from accumulated other comprehensive loss to earnings		613			—			613
Tax expense		(198	)		—			(198	)

Net current-period other comprehensive income		261			956			1,217

Other comprehensive income attributable to noncontrolling interest		—			(67	)		(67	)

Ending balance	$	(3,927	)	$	(6,154	)	$	(10,081	)


	Year Ended January 31, 2015
	Derivatives			Foreign Currency			Total Accumulated Comprehensive (Loss) Income Including Noncontrolling Interest
Beginning balance	$	(5,503	)	$	623		$	(4,880	)

Other comprehensive loss recognized before reclassifications		(292	)		(8,108	)		(8,400	)
Amounts reclassified from accumulated other comprehensive loss to earnings		1,607			—			1,607

Net current-period other comprehensive income (loss)		1,315			(8,108	)		(6,793	)

Other comprehensive loss attributable to noncontrolling interest		—			442			442

Ending balance	$	(4,188	)	$	(7,043	)	$	(11,231	)


	13 Weeks Ended May 3, 2014
	Derivatives			Foreign Currency			Total Accumulated Comprehensive (Loss) Income Including Noncontrolling Interest
Beginning balance	$	(5,503	)	$	623		$	(4,880	)

Other comprehensive loss recognized before reclassifications		(217	)		(397	)		(614	)
Amounts reclassified from accumulated other comprehensive loss to earnings		239			—			239

Net current-period other comprehensive income (loss)		22			(397	)		(375	)

Other comprehensive loss attributable to noncontrolling interest		—			475			475

Ending balance	$	(5,481	)	$	701		$	(4,780	)

12. Related Party Transactions

Related Party Transactions –Excluding VIEs

We incurred approximately $0.9 million and $0.8 million in management fees and reimbursement of out-of-pocket expenses from Bain Capital Partners LLC (“Bain Capital”) during the 13 weeks ended May 2, 2015 and May 3, 2014, respectively. As of May 2, 2015, January 31, 2015 and May 3, 2014, we had a payable balance of $1.1 million, $0.2 million and $0.1 million, respectively, to Bain Capital.

We incurred approximately $0.6 million and $0.6 million in expenses related to services purchased from LogicSource, a company owned by funds associated with Bain Capital, during the 13 weeks ended May 2, 2015 and May 3, 2014, respectively. As of May 2, 2015, January 31, 2015 and May 3, 2014, we had a payable balance of $0.1 million, $0.3 million and $0.2 million, respectively, to LogicSource.

During the 13 weeks ended May 2, 2015 we sold inventory totaling $1.3 million to Burlington Stores, Inc. (“Burlington”), a company owned by funds associated with Bain Capital. We did not sell inventory to Burlington during the 13 weeks ended May 3, 2014. As of May 2, 2015, January 31, 2015 and May 3, 2014, we had no receivable balance from Burlington. The funds associated with Bain Capital sold their common shares of Burlington on March 31, 2015. As of April 1, 2015, Burlington was no longer a related party of the Company.

As of May 2, 2015, January 31, 2015 and May 3, 2014, we had a receivable balance of $0.2 million, $0.2 million and $0.8 million, respectively, from our indirect parent, Giraffe Holding, Inc., related to income taxes.

Related Party Transactions –VIEs

Our VIEs incurred $0.1 million and $0.1 million in management fees from Bain Capital Advisors (China) Ltd. during the 13 weeks ended May 2, 2015 and May 3, 2014, respectively. As of May 2, 2015, January 31, 2015 and May 3, 2014, our VIEs had a balance of $0.2 million, $0.1 million and $0.1 million payable to Bain Capital Advisors (China) Ltd, respectively.

As of May 2, 2015, January 31, 2015 and May 3, 2014, our VIEs had a balance of $1.1 million payable to their indirect parent, Gymboree Investment Holding GP, Ltd., related to funds used to pay operating costs of the VIEs.

As of May 2, 2015, January 31, 2015 and May 3, 2014, our VIEs had a payable balance of $0.4 million due to Gymboree Hong Kong Limited, the unconsolidated direct parent of the VIEs, related to funds used to pay operating costs of the VIEs. The Company is part of a related party group that controls Gymboree Hong Kong Limited.

13. Segment Information

We have four reportable segments: retail stores (including online stores), Gymboree Play & Music, International Retail Franchise (“Retail Franchise”), and one reportable segment related to the activities of our consolidated VIEs. These reportable segments were identified based on how our business is managed and evaluated by our chief operating decision maker, who is the Chief Executive Officer. The retail stores segment includes four operating segments (brands), which sell high-quality apparel for children: Gymboree Retail (including an online store), Gymboree Outlet, Janie and Jack (including an online store), and Crazy 8 (including an online store). These four operating segments have been aggregated into one reportable segment because these operating segments have similar historical economic characteristics and/or are expected to have similar economic characteristics and similar long-term financial performance in the future.

Gross profit is the principal measure we consider in determining whether the economic characteristics are similar. In addition, each operating segment has similar products, production processes and type and class of customer. We believe disaggregating our operating segments would not provide material additional information. Corporate overhead (costs related to our distribution centers and shared corporate services) is included in the retail stores segment.

Summary financial data of each reportable segment were as follows as of and for the periods ended (in thousands):


	13 Weeks Ended May 2, 2015
	Retail		Gymboree		International Retail				Intersegment
	Stores		Play & Music		Franchise		VIEs		Elimination			Total
Net sales	$	259,924	$	4,357	$	5,857	$	8,611	$	(2,680	)	$	276,069
Gross Profit	$	94,575	$	2,774	$	3,227	$	6,384	$	(1,603	)	$	105,357

	13 Weeks Ended May 3, 2014
	Retail		Gymboree		International Retail				Intersegment
	Stores		Play & Music		Franchise		VIEs		Elimination			Total
Net sales	$	257,928	$	5,049	$	6,167	$	5,404	$	(2,538	)	$	272,010
Gross Profit	$	99,292	$	4,042	$	3,372	$	4,102	$	(2,450	)	$	108,358

	Total Assets
	Retail		Gymboree		International Retail				Intersegment
	Stores		Play & Music		Franchise		VIEs		Elimination			Total
May 2, 2015	$	1,095,889	$	59,916	$	30,024	$	22,865	$	(2,134	)	$	1,206,560
January 31, 2015	$	1,078,973	$	60,190	$	28,886	$	21,449	$	(1,555	)	$	1,187,943
May 3, 2014	$	1,705,817	$	60,229	$	30,102	$	21,804	$	(2,231	)	$	1,815,721

Interest expense, depreciation and amortization expense and capital expenditures have not been separately disclosed above as the amounts primarily relate to the retail segment. Intersegment revenues for each reportable segment were as follows for the periods ended (in thousands):


	Intersegment Revenues
	Retail		Gymboree		International Retail
	Stores		Play & Music		Franchise		VIEs		Total
13 Weeks Ended May 2, 2015	$	—	$	2,512	$	168	$	—	$	2,680
13 Weeks Ended May 3, 2014	$	—	$	2,425	$	113	$	—	$	2,538

We attribute retail store revenues to individual countries based on the selling location. For Gymboree International Retail Franchise, all sales were attributed to the U.S. geographic area.

China Play & Music sales are attributable to the international geographic segment and all other Gymboree Play & Music sales are attributable to the U.S. geographic area.

Net sales of our two geographical areas, United States and international, were as follows for the periods ended (in thousands):


	13 Weeks Ended May 2, 2015		13 Weeks Ended May 3, 2014
United States	$	258,582	$	257,328
International		17,487		14,682

	$	276,069	$	272,010

Property and equipment, net, of our two geographical areas were as follows as of the periods ended (in thousands):


	May 2, 2015		January 31, 2015		May 3, 2014
United States	$	166,121	$	172,378	$	193,459
International		10,279		10,053		10,017

	$	176,400	$	182,431	$	203,476

14. Variable Interest Entities

Gymboree retail stores are operated in China by Gymboree China, while Gymboree Tianjin is Gymboree Play & Music’s master franchisee in China. Gymboree China, Gymboree Tianjin and the Company are indirectly controlled by Gymboree Holding, Ltd. and investment funds sponsored by Bain Capital. Gymboree China and Gymboree Tianjin have been determined to be variable interest entities, and we (as well as our 100%-owned subsidiaries) are a member of a related party group that controls the VIEs and absorbs the economics of the VIEs. Based on our relationship with the VIEs, we determined we are most closely associated with the VIEs, and therefore, consolidate them as the primary beneficiary. However, as we have a 0% ownership interest in the VIEs, 100% of the results of operations of the VIEs are recorded as noncontrolling interest. The assets of the VIEs can only be used by the VIEs. The liabilities of the VIEs are comprised mainly of short-term accrued expenses, and their creditors have no recourse to our general credit or assets.

The following tables reflect the impact of the VIEs on the condensed consolidated statements of operations for the 13 weeks ended May 2, 2015 and May 3, 2014 and the condensed consolidated balance sheets as of May 2, 2015, January 31, 2015 and May 3, 2014 (in thousands):

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(In thousands)


	13 Weeks Ended May 2, 2015
	Balance Before Consolidation of VIEs			VIEs			Eliminations			As Reported
Net sales	$	270,138		$	8,611		$	(2,680	)	$	276,069
Cost of goods sold, including buying and occupancy expenses		(169,562	)		(2,227	)		1,077			(170,712	)
Selling, general and administrative expenses		(100,988	)		(5,173	)		1,451			(104,710	)

Operating (loss) income		(412	)		1,211			(152	)		647
Other non operating expense		(21,157	)		(10	)		—			(21,167	)

(Loss) income before income taxes		(21,569	)		1,201			(152	)		(20,520	)
Income tax expense		(1,304	)		(656	)		—			(1,960	)

Net (loss) income		(22,873	)		545			(152	)		(22,480	)
Net income attributable to noncontrolling interest		—			(545	)		—			(545	)

Net loss attributable to The Gymboree Corporation	$	(22,873	)	$	—		$	(152	)	$	(23,025	)


	13 Weeks Ended May 3, 2014
	Balance Before Consolidation of VIEs			VIEs			Eliminations			As Reported
Net sales	$	269,144		$	5,404		$	(2,538	)	$	272,010
Cost of goods sold, including buying and occupancy expenses		(162,438	)		(1,302	)		88			(163,652	)
Selling, general and administrative expenses		(98,960	)		(5,793	)		2,463			(102,290	)

Operating income (loss)		7,746			(1,691	)		13			6,068
Other non-operating expense		(20,591	)		(104	)		—			(20,695	)

Loss before income taxes		(12,845	)		(1,795	)		13			(14,627	)
Income tax (expense) benefit		(599	)		223			—			(376	)

Net loss		(13,444	)		(1,572	)		13			(15,003	)
Net loss attributable to noncontrolling interest		—			1,572			—			1,572

Net loss attributable to The Gymboree Corporation	$	(13,444	)	$	—		$	13		$	(13,431	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)


	May 2, 2015
	Balance Before Consolidation of VIEs			VIEs		Eliminations			As Reported
Cash and cash equivalents	$	12,513		$	9,850	$	—		$	22,363
Other current assets		257,220			7,920		(2,134	)		263,006

Total current assets		269,733			17,770		(2,134	)		285,369
Non-current assets		916,096			5,095		—			921,191

Total assets	$	1,185,829		$	22,865	$	(2,134	)	$	1,206,560


Current liabilities	$	244,625		$	11,840	$	(1,805	)	$	254,660
Non-current liabilities		1,304,220			485		—			1,304,705

Total liabilities		1,548,845			12,325		(1,805	)		1,559,365

Total stockholders’ deficit		(363,016	)		—		(329	)		(363,345	)
Noncontrolling interest		—			10,540		—			10,540

Total liabilities and stockholders’ deficit	$	1,185,829		$	22,865	$	(2,134	)	$	1,206,560


	January 31, 2015
	Balance Before Consolidation of VIEs			VIEs		Eliminations			As Reported
Cash and cash equivalents	$	8,559		$	9,961	$	—		$	18,520
Other current assets		235,123			6,261		(1,555	)		239,829

Total current assets		243,682			16,222		(1,555	)		258,349
Non-current assets		924,367			5,227		—			929,594

Total assets	$	1,168,049		$	21,449	$	(1,555	)	$	1,187,943


Current liabilities	$	205,674		$	11,088	$	(1,373	)	$	215,389
Non-current liabilities		1,304,384			435		—			1,304,819

Total liabilities		1,510,058			11,523		(1,373	)		1,520,208

Total stockholders’ deficit		(342,009	)		—		(182	)		(342,191	)
Noncontrolling interest		—			9,926		—			9,926

Total liabilities and stockholders’ deficit	$	1,168,049		$	21,449	$	(1,555	)	$	1,187,943


	May 3, 2014
	Balance Before
	Consolidation							As
	of VIEs		VIEs		Eliminations			Reported
Cash and cash equivalents	$	13,073	$	11,700	$	—		$	24,773
Other current assets		225,247		5,634		(2,231	)		228,650

Total current assets		238,320		17,334		(2,231	)		253,423
Non-current assets		1,557,828		4,470		—			1,562,298

Total assets	$	1,796,148	$	21,804	$	(2,231	)	$	1,815,721


Current liabilities	$	185,467	$	8,131	$	(2,090	)	$	191,508
Non-current liabilities		1,388,802		354		—			1,389,156

Total liabilities		1,574,269		8,485		(2,090	)		1,580,664

Total stockholders’ equity		221,879		—		(141	)		221,738
Noncontrolling interest		—		13,319		—			13,319

Total liabilities and stockholders’ equity	$	1,796,148	$	21,804	$	(2,231	)	$	1,815,721

15. Condensed Guarantor Data

The Company’s 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Notes, subject to the customary automatic release provisions described above (see Note 6). The following condensed consolidating financial information presents the results of operations, comprehensive income (loss), financial position and cash flows of The Gymboree Corporation and the guarantor and non-guarantor subsidiaries. The VIEs financial results are included in those of the non-guarantor subsidiaries. Intercompany transactions are eliminated.

During the first quarter of fiscal 2014, our Canadian subsidiary, which is part of the non-guarantor subsidiaries, issued common shares to The Gymboree Corporation valued at $18.5 million. No cash was exchanged since we immediately net settled $15.3 million and $3.2 million of intercompany liabilities payable to The Gymboree Corporation related to business operations and to our Advance Pricing Agreement between the United States and Canadian tax authorities, respectively. The $18.5 million is a non-cash investing and financing activity for purposes of condensed consolidating statements of cash flows.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED MAY 2, 2015

(In thousands)


	The Gymboree			Guarantor			Non-guarantor
	Corporation			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	405		$	256,083		$	11,220		$	(5,976	)	$	261,732
Gymboree Play & Music		—			1,845			6,803			—			8,648
Retail Franchise		—			5,689			—			—			5,689
Intercompany revenue		15,325			2,981			—			(18,306	)		—

Total net sales		15,730			266,598			18,023			(24,282	)		276,069
Cost of goods sold, including buying and occupancy expenses		(2,157	)		(165,573	)		(9,935	)		6,953			(170,712	)

Gross profit		13,573			101,025			8,088			(17,329	)		105,357
Selling, general and administrative expenses		(15,535	)		(97,266	)		(9,003	)		17,094			(104,710	)

Operating (loss) income		(1,962	)		3,759			(915	)		(235	)		647
Interest income		—			3			16			—			19
Interest expense		(21,000	)		(76	)		—			—			(21,076	)
Other expense, net		(8	)		(76	)		(26	)		—			(110	)

(Loss) income before income taxes		(22,970	)		3,610			(925	)		(235	)		(20,520	)
Income tax benefit (expense)		4,754			(5,745	)		(969	)		—			(1,960	)
Equity in earnings of affiliates, net of tax		(4,809	)		—			—			4,809			—

Net loss		(23,025	)		(2,135	)		(1,894	)		4,574			(22,480	)
Net income attributable to noncontrolling interest		—			—			(545	)		—			(545	)

Net loss attributable to The Gymboree Corporation	$	(23,025	)	$	(2,135	)	$	(2,439	)	$	4,574		$	(23,025	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED MAY 3, 2014

(In thousands)


	The Gymboree			Guarantor			Non-guarantor
	Corporation			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	280		$	252,597		$	10,943		$	(4,696	)	$	259,124
Gymboree Play & Music		—			2,624			4,208			—			6,832
Retail Franchise		—			6,054			—			—			6,054
Intercompany revenue		14,247			2,811			—			(17,058	)		—

Total net sales		14,527			264,086			15,151			(21,754	)		272,010
Cost of goods sold, including buying and occupancy expenses		(1,252	)		(158,656	)		(8,506	)		4,762			(163,652	)

Gross profit		13,275			105,430			6,645			(16,992	)		108,358
Selling, general and administrative expenses		(15,397	)		(94,093	)		(9,805	)		17,005			(102,290	)

Operating (loss) income		(2,122	)		11,337			(3,160	)		13			6,068
Interest income		1			44			43			(41	)		47
Interest expense		(20,286	)		(88	)		(41	)		41			(20,374	)
Other income (expense), net		(294	)		—			(74	)		—			(368	)

(Loss) income before income taxes		(22,701	)		11,293			(3,232	)		13			(14,627	)
Income tax benefit (expense)		6,560			(6,913	)		(23	)		—			(376	)
Equity in earnings of affiliates, net of tax		2,710			—			—			(2,710	)		—

Net (loss) income		(13,431	)		4,380			(3,255	)		(2,697	)		(15,003	)
Net loss attributable to noncontrolling interest		—			—			1,572			—			1,572

Net (loss) income attributable to The Gymboree Corporation	$	(13,431	)	$	4,380		$	(1,683	)	$	(2,697	)	$	(13,431	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS

FOR THE 13 WEEKS ENDED MAY 2, 2015

(In thousands)


	The Gymboree			Guarantor			Non-guarantor
	Corporation			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net loss	$	(23,025	)	$	(2,135	)	$	(1,894	)	$	4,574		$	(22,480	)

Other comprehensive income, net of tax:
Foreign currency translation adjustments		889			—			950			(883	)		956
Unrealized net gain (loss) on cash flow hedges, net of tax expense of $198		261			—			(311	)		311			261

Total other comprehensive income, net of tax		1,150			—			639			(572	)		1,217

Comprehensive loss		(21,875	)		(2,135	)		(1,255	)		4,002			(21,263	)
Comprehensive income attributable to noncontrolling interest		—			—			(612	)		—			(612	)

Comprehensive loss attributable to The Gymboree Corporation	$	(21,875	)	$	(2,135	)	$	(1,867	)	$	4,002		$	(21,875	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 13 WEEKS ENDED MAY 3, 2014

(In thousands)


	The Gymboree			Guarantor		Non-guarantor
	Corporation			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Net (loss) income	$	(13,431	)	$	4,380	$	(3,255	)	$	(2,697	)	$	(15,003	)

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		78			—		(369	)		(106	)		(397	)
Unrealized net gain (loss) on cash flow hedges, net of tax		22			—		(274	)		274			22

Total other comprehensive income (loss), net of tax		100			—		(643	)		168			(375	)

Comprehensive (loss) income		(13,331	)		4,380		(3,898	)		(2,529	)		(15,378	)
Comprehensive loss attributable to noncontrolling interest		—			—		2,047			—			2,047

Comprehensive (loss) income attributable to The Gymboree Corporation	$	(13,331	)	$	4,380	$	(1,851	)	$	(2,529	)	$	(13,331	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)


	May 2, 2015
	The Gymboree			Guarantor		Non-guarantor
	Corporation			Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	1,564		$	4,557	$	16,242	$	—		$	22,363
Accounts receivable, net of allowance		892			21,996		2,627		—			25,515
Merchandise inventories		—			201,010		8,642		(744	)		208,908
Prepaid income taxes		1,860			427		472		—			2,759
Prepaid expenses		2,468			14,727		1,366		—			18,561
Deferred income taxes		—			15,992		804		(9,533	)		7,263
Intercompany receivable		5,035			596,966		—		(602,001	)		—

Total current assets		11,819			855,675		30,153		(612,278	)		285,369
Property and equipment, net		11,965			153,567		10,868		—			176,400
Goodwill		—			362,021		12,287		—			374,308
Other intangible assets, net		—			342,662		154		—			342,816
Deferred financing costs		23,984			—		—		—			23,984
Other assets		5,393			1,254		3,856		(6,820	)		3,683
Investment in subsidiaries		1,404,444			—		—		(1,404,444	)		—

Total assets	$	1,457,605		$	1,715,179	$	57,318	$	(2,023,542	)	$	1,206,560


LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	19,712		$	84,613	$	1,101	$	—		$	105,426
Accrued liabilities		32,954			62,429		11,163		123			106,669
Deferred income taxes		9,656			—		—		(9,656	)		—
Line of credit borrowings		42,000			—		—		—			42,000
Current obligation under capital lease		—			565		—		—			565
Intercompany payable		597,708			—		5,037		(602,745	)		—

Total current liabilities		702,030			147,607		17,301		(612,278	)		254,660
Long-term liabilities:
Long-term debt		1,114,127			—		—		—			1,114,127
Long-term obligation under capital lease		—			2,704		—		—			2,704
Lease incentives and other liabilities		4,793			48,485		4,731		—			58,009
Deferred income taxes		—			136,668		17		(6,820	)		129,865

Total liabilities		1,820,950			335,464		22,049		(619,098	)		1,559,365
Total stockholders’ (deficit) equity		(363,345	)		1,379,715		24,729		(1,404,444	)		(363,345	)
Noncontrolling interest		—			—		10,540		—			10,540

Total liabilities and stockholders’ (deficit) equity	$	1,457,605		$	1,715,179	$	57,318	$	(2,023,542	)	$	1,206,560

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)


	January 31, 2015
	The Gymboree			Guarantor		Non-guarantor
	Corporation			Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	1,689		$	3,202	$	13,629	$	—		$	18,520
Accounts receivable, net of allowance		938			18,339		5,971		—			25,248
Merchandise inventories		—			192,142		6,711		(516	)		198,337
Prepaid income taxes		1,860			306		433		—			2,599
Prepaid expenses		3,388			2,833		600		—			6,821
Deferred income taxes		—			15,586		793		(9,555	)		6,824
Intercompany receivable		3,470			608,994		720		(613,184	)		—

Total current assets		11,345			841,402		28,857		(623,255	)		258,349
Property and equipment, net		12,306			159,699		10,426		—			182,431
Goodwill		—			362,021		11,813		—			373,834
Other intangible assets, net		—			343,312		240		—			343,552
Deferred financing costs		25,622			—		—		—			25,622
Other assets		7,798			1,669		4,020		(9,332	)		4,155
Investment in subsidiaries		1,408,447			—		—		(1,408,447	)		—

Total assets	$	1,465,518		$	1,708,103	$	55,356	$	(2,041,034	)	$	1,187,943


LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	9,798		$	76,557	$	677	$	—		$	87,032
Accrued liabilities		26,943			57,757		10,031		74			94,805
Deferred income taxes		9,504			—		125		(9,629	)		—
Line of credit borrowings		33,000			—		—		—			33,000
Current obligation under capital lease		—			552		—		—			552
Intercompany payable		609,510			720		3,470		(613,700	)		—

Total current liabilities		688,755			135,586		14,303		(623,255	)		215,389
Long-term liabilities:
Long-term debt		1,114,048			—		—		—			1,114,048
Long-term obligation under capital lease		—			2,850		—		—			2,850
Lease incentives and other liabilities		4,906			49,306		4,513		—			58,725
Deferred income taxes		—			138,511		17		(9,332	)		129,196

Total liabilities		1,807,709			326,253		18,833		(632,587	)		1,520,208
Total stockholders’ (deficit) equity		(342,191	)		1,381,850		26,597		(1,408,447	)		(342,191	)
Noncontrolling interest		—			—		9,926		—			9,926

Total liabilities and stockholders’ (deficit) equity	$	1,465,518		$	1,708,103	$	55,356	$	(2,041,034	)	$	1,187,943

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)


	May 3, 2014
	The Gymboree		Guarantor		Non-guarantor
	Corporation		Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	1,978	$	5,507	$	17,288	$	—		$	24,773
Accounts receivable, net of allowance		1,285		19,238		1,871		—			22,394
Merchandise inventories		—		164,920		5,960		(469	)		170,411
Prepaid income taxes		1,936		395		655		—			2,986
Prepaid expenses		3,396		13,953		1,274		—			18,623
Deferred income taxes		378		13,255		724		(121	)		14,236
Intercompany receivable		—		565,262		—		(565,262	)		—

Total current assets		8,973		782,530		27,772		(565,852	)		253,423
Property and equipment, net		12,526		180,663		10,287		—			203,476
Goodwill		—		721,844		36,933		—			758,777
Other intangible assets, net		—		558,320		683		—			559,003
Deferred financing costs		30,754		—		—		—			30,754
Other assets		12,677		1,961		9,908		(14,258	)		10,288
Investment in subsidiaries		1,891,827		—		—		(1,891,827	)		—

Total assets	$	1,956,757	$	2,245,318	$	85,583	$	(2,471,937	)	$	1,815,721


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,366	$	65,976	$	1,003	$	—		$	73,345
Accrued liabilities		38,439		62,400		6,809		—			107,648
Deferred income taxes		—		—		121		(121	)		—
Line of credit borrowings		10,000		—		—		—			10,000
Current obligation under capital lease		—		515		—		—			515
Intercompany payable		562,899		—		2,832		(565,731	)		—

Total current liabilities		617,704		128,891		10,765		(565,852	)		191,508
Long-term liabilities:
Long-term debt		1,113,817		—		—		—			1,113,817
Long-term obligation under capital lease		—		3,269		—		—			3,269
Lease incentives and other liabilities		3,498		48,174		5,166		—			56,838
Deferred income taxes		—		229,490		—		(14,258	)		215,232

Total liabilities		1,735,019		409,824		15,931		(580,110	)		1,580,664
Total stockholders’ equity		221,738		1,835,494		56,333		(1,891,827	)		221,738
Noncontrolling interest		—		—		13,319		—			13,319

Total liabilities and stockholders’ equity	$	1,956,757	$	2,245,318	$	85,583	$	(2,471,937	)	$	1,815,721

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 13 WEEKS ENDED MAY 2, 2015

(In thousands)


	The Gymboree			Guarantor			Non-guarantor
	Corporation			Subsidiaries			Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities	$	(1,611	)	$	(784	)	$	(244	)	$	—		$	(2,639	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(291	)		(2,052	)		(797	)		—			(3,140	)
Proceeds from sale of assets		—			—			353			—			353
Intercompany transfers		(1,565	)		5,047			720			(4,202	)		—
Other		—			(3	)		11			—			8

Net cash (used in) provided by investing activities		(1,856	)		2,992			287			(4,202	)		(2,779	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		(5,658	)		(720	)		2,176			4,202			—
Proceeds from ABL facility		130,000			—			—			—			130,000
Payments on ABL facility		(121,000	)		—			—			—			(121,000	)
Payments on capital lease		—			(133	)		—			—			(133	)

Net cash provided by (used in) financing activities		3,342			(853	)		2,176			4,202			8,867

Effect of exchange rate fluctuations on cash and cash equivalents		—			—			394			—			394

Net (decrease) increase in cash and cash equivalents		(125	)		1,355			2,613			—			3,843
CASH AND CASH EQUIVALENTS:
Beginning of Period		1,689			3,202			13,629			—			18,520

End of Period	$	1,564		$	4,557		$	16,242		$	—		$	22,363

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 13 WEEKS ENDED MAY 3, 2014

(In thousands)


	The Gymboree			Guarantor			Non-guarantor
	Corporation			Subsidiaries			Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities	$	(32,373	)	$	21,239		$	(3,549	)	$	—		$	(14,683	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(511	)		(6,935	)		(1,907	)		—			(9,353	)
Intercompany transfers		—			(13,335	)		—			13,335			—
Other		—			—			(56	)		—			(56	)

Net cash used in investing activities		(511	)		(20,270	)		(1,963	)		13,335			(9,409	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		9,383			—			3,952			(13,335	)		—
Proceeds from ABL facility		78,000			—			—			—			78,000
Payments on ABL facility		(68,000	)		—			—			—			(68,000	)
Payments on capital lease		—			(121	)		—			—			(121	)

Net cash provided by (used in) financing activities		19,383			(121	)		3,952			(13,335	)		9,879

Effect of exchange rate fluctuations on cash and cash equivalents		—			—			(443	)		—			(443	)

Net (decrease) increase in cash and cash equivalents		(13,501	)		848			(2,003	)		—			(14,656	)
CASH AND CASH EQUIVALENTS:
Beginning of Period		15,479			4,659			19,291			—			39,429

End of Period	$	1,978		$	5,507		$	17,288		$	—		$	24,773

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

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

16. Subsequent Events

On May 5, 2015, the Company entered into an agreement to sell and lease-back its distribution center located in Dixon, California. The Company received net proceeds of $25.9 million and entered into a 15-year lease agreement. The Company is required to use $10.9 million of the proceeds to fund capital expenditures and intends to use the remaining balance for working capital purposes.

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 May 2, 2015 and May 3, 2014, and the related condensed consolidated statements of operations, comprehensive loss and cash flows for the thirteen week periods then ended. These interim financial statements are the responsibility of the Company’s management.

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

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Gymboree Corporation and subsidiaries as of January 31, 2015, and the related consolidated statements of operations, comprehensive loss, stockholders’ (deficit) equity, and cash flows for the fiscal year then ended (not presented herein); and in our report dated April 30, 2015, 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 31, 2015 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

June 12, 2015

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. All statements we make relating to: future sales, costs and expenses and gross profit percentages; the continuation of historical trends; planned store openings and closings, including franchise partner store openings; estimated capital expenditures for fiscal 2015; 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 this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015, filed with the Securities and Exchange Commission on May 1, 2015 (the “Fiscal 2014 Annual Report”). We encourage you to read these risk factors disclosures carefully. We caution investors not to place substantial reliance on the forward-looking statements contained in this quarterly report. These statements, like all statements in this quarterly report, speak only as of the date of this quarterly report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.

Overview

We are one of the largest children’s apparel specialty retailers in North America, offering collections of high-quality apparel and accessories. As of May 2, 2015, we operated a total of 1,322 retail stores, as follows:


	United States		Canada		Australia		Puerto Rico		Total
Gymboree^® stores		553		48		5		1		607
Gymboree Outlet stores		169		—		—		1		170
Janie and Jack^® shops (including Janie and Jack outlets)		149		—		—		1		150
Crazy 8^® stores (including Crazy 8 outlets)		395		—		—		—		395

		1,266		48		5		3		1,322

In addition, as of May 2, 2015, we operated online stores at www.gymboree.com, www.janieandjack.com, and www.crazy8.com. Overseas franchisees and Gymboree China operated 85 retail stores, as follows:


	Overseas Franchisees ⁽¹⁾		Gymboree China		Total
Gymboree^® stores		56		24		80
Janie and Jack^® shops		1		—		1
Crazy 8^® stores		4		—		4

		61		24		85

⁽¹⁾	Overseas franchisees operated retail stores in the Middle East, South Korea and Latin America.

We also offer directed parent-child developmental play programs under the Gymboree Play & Music brand at 704 franchised and Company-operated centers in the United States and 41 other countries.

First Quarter 2015 Highlights

Total net sales for the first quarter of fiscal 2015 increased to $276.1 million from $272.0 million in the first quarter of fiscal 2014, an increase of $4.1 million or 1.5%. This increase was driven primarily by growth in Gymboree Tianjin and Gymboree China (collectively, the “VIEs”), as well as $1.6 million in off-price channel sales. We believe the west coast port slowdown negatively impacted net retail sales in the quarter.

Our Adjusted EBITDA decreased to $15.6 million during the 13 weeks ended May 2, 2015 from $22.0 million during the same period last year, a decrease of $6.4 million or 29.2%, primarily due to the impact of the west coast port slowdown, investments in marketing and increased incentive compensation.

The following table summarizes store openings and closures by brand and country for the 13 weeks ended May 2, 2015. Note that (i) all Janie and Jack and Crazy 8 stores are in the United States, and (ii) retail stores operated by overseas franchisees and the VIE-operated Gymboree retail stores in China are excluded.


	Store Count as of		Store		Store			Store Count as of
	January 31, 2015		Openings		Closures			May 2, 2015
Gymboree US		554		—		(1	)		553
Gymboree Canada		48		—		—			48
Gymboree Australia		5		—		—			5
Gymboree Puerto Rico		1		—		—			1

Total Gymboree		608		—		(1	)		607

Gymboree Outlet		168		1		—			169
Gymboree Outlet Puerto Rico		1		—		—			1

Total Gymboree Outlet		169		1		—			170

Janie and Jack (including Janie and Jack outlets)		147		2		—			149
Janie and Jack Puerto Rico		—		1		—			1
Crazy 8 (including Crazy 8 outlets)		402		—		(7	)		395

Total		1,326		4		(8	)		1,322

We plan to open approximately 12 new stores in fiscal 2015, primarily in our Janie and Jack and Gymboree Outlet brands, and close approximately 30 to 40 stores, primarily in our Crazy 8 and Gymboree brands. We expect our international franchise partners to open approximately 15 to 20 franchise stores in fiscal 2015.

Seasonality

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

Results of Operations

Condensed consolidated statements of operations data as a percentage of total net sales for each period were as follows (amounts in thousands):


	13 Weeks Ended May 2, 2015						13 Weeks Ended May 3, 2014
	Amount			% of Total Net Sales			Amount			% of Total Net Sales
Net sales:
Retail	$	261,732			94.8	%	$	259,124			95.3	%
Gymboree Play & Music		8,648			3.1	%		6,832			2.5	%
Retail Franchise		5,689			2.1	%		6,054			2.2	%

Total net sales		276,069			100.0	%		272,010			100.0	%
Cost of goods sold, including buying and occupancy expenses		(170,712	)		(61.8	)%		(163,652	)		(60.2	)%

Gross profit		105,357			38.2	%		108,358			39.8	%
Selling, general and administrative expenses		(104,710	)		(37.9	)%		(102,290	)		(37.6	)%

Operating income		647			0.2	%		6,068			2.2	%
Interest income		19			—			47			—
Interest expense		(21,076	)		(7.6	)%		(20,374	)		(7.5	)%
Other expense, net		(110	)		—			(368	)		(0.1	)

Loss before income taxes		(20,520	)		(7.4	)%		(14,627	)		(5.4	)%
Income tax expense		(1,960	)		(0.7	)%		(376	)		(0.1	)%

Net loss		(22,480	)		(8.1	)%		(15,003	)		(5.5	)%
Net (income) loss attributable to noncontrolling interest		(545	)		(0.2	)%		1,572			0.6	%

Net loss attributable to The Gymboree Corporation	$	(23,025	)		(8.3	)%	$	(13,431	)		(4.9	)%

13 weeks ended May 2, 2015 compared to 13 weeks ended May 3, 2014

Net Sales

Total net sales for the first quarter of fiscal 2015 increased to $276.1 million from $272.0 million in the first quarter of fiscal 2014, an increase of $4.1 million or 1.5%.

Net retail sales for the first quarter of fiscal 2015 increased to $261.7 million from $259.1 million in the first quarter of fiscal 2014, an increase of $2.6 million, or 1.0%. This increase was driven primarily by $1.6 million of off-price channel sales and growth in Gymboree China. Comparable store sales (including online sales) were flat during the first quarter of fiscal 2015 compared to the same period in the prior year. Comparable store sales (excluding online sales) increased by 2.0% during the first quarter of fiscal 2015 compared to the same period in the prior year. Online sales decreased due to lower international sales during the first quarter of fiscal 2015 compared to the same period in the prior year. Total net stores decreased to 1,322 as of May 2, 2015 from 1,337 as of May 3, 2014. Total square footage decreased to approximately 2.7 million square feet as of the first quarter of fiscal 2015 from approximately 2.8 million square feet as of the first quarter of fiscal 2014.

Gymboree Play & Music net sales for the first quarter of fiscal 2015 increased to $8.6 million from $6.8 million in the same period last year, an increase of $1.8 million or 26.6%, primarily due to growth in Gymboree Tianjin.

Retail franchise net sales for the first quarter of fiscal 2015 decreased to $5.7 million from $6.1 million in the same period last year, a decrease of $0.4 million or 6.0%, primarily due to lower sales to our franchisee in the Middle East region. As of the first quarter of fiscal 2015, our overseas franchisees operated 85 stores compared to 74 stores as of the end of the same period last year.

Gross Profit

Gross profit for the first quarter of fiscal 2015 decreased to $105.4 million from $108.4 million in the first quarter of fiscal 2014. As a percentage of net sales, gross profit for the first quarter of fiscal 2015 decreased by 160 basis points to 38.2% from 39.8% in the same period last year primarily due to the impact of the west coast port slowdown, which included late product deliveries and incremental air freight, and to a lesser extent deleveraging of buying and occupancy expenses. As we record certain distribution costs as a component of selling, general and administrative expenses (“SG&A”) and do not include such costs in cost of goods sold (“COGS”), our COGS and gross profit may not be comparable to those of other companies. Our distribution costs recorded in SG&A expenses represent primarily outbound shipping and handling expenses to our stores, and amounted to $10.4 million and $10.0 million during the first quarter of fiscal 2015 and 2014, respectively.

Selling, General and Administrative Expenses

SG&A principally consists of non-occupancy store expenses, corporate overhead, and certain distribution expenses. SG&A increased to $104.7 million for the first quarter of fiscal 2015 compared to $102.3 million in the same period last year. As a percentage of net sales, SG&A expenses increased 30 basis points to 37.9% for the first quarter of fiscal 2015 from 37.6% in the same period last year primarily due to incremental marketing expenses and an increase in incentive compensation, which is accrued ratably throughout the year based on achieving annual performance targets.

Interest Expense

Interest expense increased to $21.1 million during the first quarter of fiscal 2015 compared to $20.4 million during the first quarter of fiscal 2014. The increase of $0.7 million was primarily related to our interest rate caps and an increase in ABL borrowings.

Income Taxes

The effective tax rate for the first quarter of fiscal 2015 and 2014 was -9.6% (expense) and -2.6% (expense), respectively. The change in effective tax rates was due to differences in forecasted earnings between years and accrual of additional unrecognized tax benefits.

We consider all available positive and negative evidence in evaluating whether a valuation allowance is required, including prior earnings history, actual earnings over the previous 12 quarters on a cumulative basis, carryback and carryforward periods, and tax planning strategies that could potentially enhance the likelihood of realization of a deferred tax asset. As a result of weighing the available objective evidence as of May 2, 2015, January 31, 2015 and May 3, 2014, our valuation allowance against deferred tax assets was $67.3 million, $58.6 million and $35.5 million, respectively. The valuation allowance as of May 2, 2015 represents a valuation allowance against all net deferred tax assets in U.S. federal, unitary U.S. state and Australian jurisdictions, excluding indefinite-lived deferred tax assets and liabilities, and against the tax benefit on losses from our VIEs. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

Financial Condition

Liquidity and Capital Resources

Overview

We finance our business with existing cash, cash from operations and the funds available under our Senior Credit Facilities. We had cash and cash equivalents of $22.4 million, $18.5 million and $24.8 million as of May 2, 2015, January 31, 2015 and May 3, 2014, respectively (including amounts held by the VIEs). Cash and cash equivalents held by the VIEs, of which we are the primary beneficiary, and the results of which we have consolidated into our financial statements, were $9.9 million, $10.0 million and $11.7 million as of May 2, 2015, January 31, 2015 and May 3, 2014, respectively (see Note 14 to the condensed consolidated financial statements included elsewhere in this quarterly report). The assets of the VIEs can only be used by the VIEs. Net working capital as of May 2, 2015, January 31, 2015 and May 3, 2014 totaled $30.7 million, $43.0 million and $61.9 million, respectively (including $5.9 million, $5.1 million and $9.2 million, respectively, from our VIEs).

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

We believe that cash generated by operations, the remaining funds available under our Senior Credit Facilities and existing cash and cash equivalents will be sufficient to meet working capital requirements, service our debt, and finance capital expenditures over the next twelve months. However, if we face unanticipated cash needs such as the funding of a capital investment, or if our suppliers request one or more letters of credit, our existing cash and cash equivalents and available borrowings may be insufficient. In addition, we cannot assure that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the Senior Credit Facilities in amounts sufficient to enable us to repay our indebtedness when due, including the Notes, or to fund other liquidity needs. We also regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure. If opportunities are favorable, we may refinance our existing debt or issue additional securities.

Transactions Affecting Our Liquidity

Cash flows used in operating activities

Net cash used in operating activities during the first quarter of fiscal 2015 was $2.6 million compared to $14.7 million in the same period last year. The change in cash used in operating activities during the first quarter of fiscal 2015 was primarily due to an increase in accounts payable, merchandise inventories and timing of rent payments. The increase in merchandise inventories was primarily due to investments in inventory, as well as the impact of the west coast port slowdown.

Cash flows used in investing activities

Net cash used in investing activities during the first quarter of fiscal 2015 was $2.8 million compared to $9.4 million in the same period last year and was primarily due to capital expenditures, which decreased to $3.1 million during the first quarter of fiscal 2015 compared to $9.4 million during the first quarter of fiscal 2014 due to fewer store openings.

We estimate capital expenditures for fiscal 2015 will be approximately $25 million to $30 million. We expect the capital expenditures to be used primarily for our systems infrastructure, lease required remodels of existing stores and, to a lesser extent, new store growth.

Cash flows provided by financing activities

Net cash provided by financing activities during the first quarter of fiscal 2015 was $8.9 million compared to $9.9 million in the same period last year. This decrease was primarily due to a decrease in net borrowings from our ABL facility.

Credit Facilities

Our senior credit facilities are comprised of an $820 million Term Loan and a $225 million ABL Facility (collectively, the “Senior Credit Facilities). As of May 2, 2015, $769.1 million was outstanding under the Term Loan and $42.0 million was outstanding under the ABL. The interest rate for borrowings under the Term Loan is, at the Company’s option, a base rate plus an additional marginal rate of 2.5% or the Adjusted LIBOR rate (with a 1.5% floor) plus an additional rate of 3.5%. Interest payments on the Company’s Notes are made semi-annually at a rate of 9.125% of the principal amount outstanding. Amounts available under the ABL are subject to customary borrowing base limitations, and are reduced by letter of credit utilization totaling $38.1 million as of May 2, 2015. Undrawn availability under the ABL Facility, after being reduced by letter of credit utilization and outstanding borrowings, was $90.8 million as of May 2, 2015. The Term Loan allows us to request additional tranches of term loans in an aggregate amount not to exceed $200 million, subject to the satisfaction of certain conditions, provided that such amount will be subject to reduction by the amount of any additional commitments incurred under the ABL (see Note 5 to the condensed consolidated financial statements included elsewhere in this quarterly report). The ABL provides us the right to request up to $125 million of additional commitments under this facility (or, if less, the amount permitted under the Term Loan (see Note 6 to the condensed consolidated financial statements included elsewhere in this quarterly report), subject to the satisfaction of certain conditions. No incremental facilities are currently in effect. The Term Loan and ABL Facility contain covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. The ABL Facility also contains a financial covenant that is tested when availability under the facility falls below a specified threshold. As of May 2, 2015, we were not required to test compliance with this covenant. Average borrowings for the 13 weeks ended May 2, 2015 under the ABL amounted to $54.1 million. The Company anticipates utilizing its ABL Facility throughout the course of the year to support seasonal working capital needs and expects to have borrowings outstanding at year-end.

The Term Loan requires us to make quarterly payments each equal to 0.25% of the original $820 million principal amount of the Term Loan made on the closing date plus accrued and unpaid interest thereon, with the balance due in February 2018. The Term Loan also has mandatory and voluntary pre-payment provisions, including a requirement that we prepay the Term Loan with a certain percentage of our annual excess cash flow. We calculated our excess cash flow using fiscal 2014 operating results and concluded that we are not required to make any excess cash flow payments on the Term Loan during fiscal 2015. Our next quarterly payment payable under the Term Loan is due in the first quarter of fiscal 2017.

Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates affecting the application of those policies since our Fiscal 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 1, 2015.

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

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

•

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

•

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

•

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

•

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

•

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

The following table provides a reconciliation of net loss attributable to The Gymboree Corporation to Adjusted EBITDA for the periods indicated (in thousands):


	13 Weeks Ended May 2, 2015			13 Weeks Ended May 3, 2014
Net loss attributable to The Gymboree Corporation	$	(23,025	)	$	(13,431	)
Reconciling items ^(a):
Interest expense		21,076			20,374
Interest income		(7	)		(52	)
Income tax expense		1,305			599
Depreciation and amortization ^(b)		10,295			10,786
Non-cash share-based compensation expense		720			1,276
Loss on disposal/impairment on assets		133			330
Acquisition-related adjustments ^(c)		3,234			2,944
Other ^(d)		1,866			(795	)

Adjusted EBITDA	$	15,597		$	22,031

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

^(b)	Includes the following:


Amortization of intangible assets (impacts SG&A)	$	384		$	384
Amortization of below and above market leases (impacts COGS)		(133	)		(247	)

	$	251		$	137

^(c)	Includes the following:


Additional rent expense recognized due to the elimination of deferred rent and construction allowances in purchase accounting (impacts COGS)	$	1,886	$	2,068
Sponsor fees, legal and accounting, as well as other costs incurred as a result of the Acquisition or refinancing (impacts SG&A)		1,348		876

	$	3,234	$	2,944

^(d)	Other is comprised of restructuring charges in the first quarter of fiscal 2015 and 2014 and a non-recurring change in reserves in the first quarter of fiscal 2014.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

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

The table below summarizes the notional amounts and fair values of our forward foreign exchange contracts in U.S. dollars (in thousands except weighted-average rate data):


	Notional Amount		Fair Value Gain (Loss)			Weighted- Average Rate
May 2, 2015	$	2,343	$	(55	)	$	0.82
January 31, 2015	$	4,633	$	96		$	0.79
May 3, 2014	$	15,275	$	100		$	0.91

Interest Rate Risk

We are subject to interest rate risk in connection with our long-term debt. Our principal interest rate risk relates to the Term Loan outstanding under the Senior Credit Facilities. As of May 2, 2015, we had $769.1 million outstanding under our Senior Credit Facilities, bearing interest at variable rates. The interest rate for borrowings under the Term Loan is, at our option, a base rate plus an additional marginal rate of 2.5% or the Adjusted LIBOR rate (with a 1.5% floor) plus an additional rate of 3.5%. As of May 2, 2015, the interest rate under our Term Loan was 5.0%. A 0.125% increase in the Adjusted LIBOR rate, above the 1.5% floor, would have increased annual interest expense by approximately $1.0 million, assuming $769.1 million of indebtedness thereunder was outstanding for the whole year. The Term Loan allows us to request additional tranches of term loans in an aggregate amount not to exceed $200 million, subject to the satisfaction of certain conditions, provided that such amount will be subject to reduction by the amount of any additional commitments incurred under the ABL (see Notes 5 and 6 to the condensed consolidated financial statements included elsewhere in this quarterly report). No incremental facilities are currently in effect.

In December 2010, we purchased four interest rate caps to hedge against rising interest rates associated with our senior secured 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 May 2, 2015, January 31, 2015 and May 3, 2014, accumulated other comprehensive loss included approximately $7.7 million, $8.2 million and $9.5 million, respectively, in unrealized losses related to the interest rate caps and forward foreign exchange contracts.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. Based on the Company’s evaluation, the Principal Executive Officer and Principal Financial Officer concluded the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In addition, the Company’s Principal Executive Officer and Principal Financial Officer concluded as of the end of the period covered by this report that the Company’s disclosure controls and procedures are also effective to ensure information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including the Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the Company’s first quarter of fiscal 2015, there was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II—OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

Item 1A. RISK FACTORS

There have been no material changes during the period covered by this Quarterly Report on Form 10-Q to the risk factors disclosed in Part I, Item 1A, of our 2014 Annual Report on Form 10-K.

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

Not applicable

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

Item 4. MINE SAFETY DISCLOSURES

None

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS


Exhibit Number		Description

10.1		Giraffe Holding, Inc. 2010 Equity Incentive Plan.

10.2		Form of Non-statutory Stock Option Agreement under the Giraffe Holding, Inc. 2010 Equity Incentive Plan.

31.1		Certification of Mark Breitbard Pursuant to §302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Andrew North Pursuant to §302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Mark Breitbard Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Andrew North 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 May 2, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Loss, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements.

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

June 12, 2015	By:	/s/ Mark Breitbard
(Date)		Mark Breitbard
		Chief Executive Officer
		(Principal Executive Officer)

Exhibit Index


Exhibit Number		Description

10.1		Giraffe Holding, Inc. 2010 Equity Incentive Plan.

10.2		Form of Non-statutory Stock Option Agreement under the Giraffe Holding, Inc. 2010 Equity Incentive Plan.

31.1		Certification of Mark Breitbard Pursuant to §302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Andrew North Pursuant to §302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Mark Breitbard Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Andrew North 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 May 2, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Loss, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements.

Large accelerated filer

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Non-accelerated filer

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Smaller reporting company