© One-Eyed Capitalist (www.oneeyedcapitalist.blogspot.

com) All Rights Reserved 10/11/2010

LBO analysis

Circularity On Exit year 5.0

Transaction date 30-Jan-11 Exit EV / LTM EBITDA 8.0x
Offer price $65.40 Entry TV / LTM EBITDA 8.3x
Debt capacity (Debt / EBITDA) 6.0x
Refinance leases No
Payout special dividend No IRR 23%

Return senstivity

Exit EV / LTM EBITDA

23% 6.0x 6.5x 7.0x 7.5x 8.0x 8.5x 9.0x 9.5x 10.0x
3.0x 8.5% 10.1% 11.6% 13.0% 14.4% 15.7% 17.0% 18.2% 19.3%
(Debt / LTM
EBITDA)
capacity

4.0x 8.9% 10.9% 12.8% 14.5% 16.1% 17.6% 19.1% 20.5% 21.8%
Debt

5.0x 9.6% 12.1% 14.5% 16.6% 18.6% 20.5% 22.3% 23.9% 25.5%
6.0x 10.8% 14.4% 17.6% 20.5% 23.1% 25.5% 27.8% 29.9% 31.8%
7.0x 14.3% 20.5% 25.6% 30.0% 33.8% 37.3% 40.4% 43.3% 46.0%

Transaction details

Equity price 1,805.7 New debt 1,298.4

Refinanced leases – Acquired cash 132.4
Fees 44.5 Equity 419.4
Total uses 1,850.2 Total sources 1,850.2

Income statement

Projected results for year ending Jan. 20,

LTM 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue 1,044.2 1,045.3 1,076.7 1,109.0 1,142.3 1,176.5 1,211.8 1,248.2 1,285.6 1,324.2 1,363.9
% growth 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
COGS 540.0 543.6 559.9 576.7 594.0 611.8 630.2 649.1 668.5 688.6 709.2
% of sales 52% 52% 52% 52% 52% 52% 52% 52% 52% 52%
Gross profit 504.2 501.8 516.8 532.3 548.3 564.7 581.7 599.1 617.1 635.6 654.7
% margin 48% 48% 48% 48% 48% 48% 48% 48% 48% 48%
SG&A 326.5 334.5 344.5 354.9 365.5 376.5 387.8 399.4 411.4 423.7 436.5
% of sales 32% 32% 32% 32% 32% 32% 32% 32% 32% 32%
EBIT 177.7 167.3 172.3 177.4 182.8 188.2 193.9 199.7 205.7 211.9 218.2
D&A 38.7 41.8 43.1 44.4 45.7 47.1 48.5 49.9 51.4 53.0 54.6
% of sales 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%
EBITDA 216.4 209.1 215.3 221.8 228.5 235.3 242.4 249.6 257.1 264.8 272.8
% margin 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%
Interest expense 91.2 83.8 75.7 66.5 56.4 45.1 32.7 19.1 8.4
Profit before taxes 209.1 124.2 138.0 152.8 168.8 186.0 204.5 224.4 245.8 264.4
Income taxes 20.9 12.4 13.8 15.3 16.9 18.6 20.4 22.4 24.6 26.4
Effective tax rate 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%
Net income 188.2 111.8 124.2 137.5 151.9 167.4 184.0 202.0 221.2 238.0

© One-Eyed Capitalist (www.oneeyedcapitalist.blogspot.com) All Rights Reserved by Roland Sudhof 10/11/2010

Cash flow statement

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Net income 188.2 111.8 124.2 137.5 151.9 167.4 184.0 202.0 221.2 238.0
D&A 41.8 43.1 44.4 45.7 47.1 48.5 49.9 51.4 53.0 54.6
Change in OWC (0.9) (1.0) (1.0) (1.0) (1.1) (1.1) (1.1) (1.2) (1.2)
OWC % of sales 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
Operating cash flow 153.9 167.6 182.2 197.9 214.8 232.9 252.3 273.0 291.3

Capex (52.3) (53.8) (55.5) (57.1) (58.8) (60.6) (62.4) (64.3) (66.2) (68.2)
% of sales 5% 5% 5% 5% 5% 5% 5% 5% 5% 5%
Investing cash flow (53.8) (55.5) (57.1) (58.8) (60.6) (62.4) (64.3) (66.2) (68.2)

Dividends – – – – – – – – – –
Payout ratio 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Cash flow available to paydown debt 100.1 112.1 125.1 139.1 154.2 170.5 188.0 206.8 223.2

Debt schedule

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Leases 73.2 75.4 77.6 80.0 82.4 84.8 87.4 90.0 92.7 95.5
% of sales 7% 7% 7% 7% 7% 7% 7% 7% 7% 7%
Lease interest 3.7 3.8 3.9 4.0 4.1 4.2 4.4 4.5 4.6 4.8
% rate 5% 5% 5% 5% 5% 5% 5% 5% 5% 5%

Cash flow to paydown debt 100.1 112.1 125.1 139.1 154.2 170.5 188.0 206.8 223.2

Beginning balance 1,298.4 1,198.3 1,086.2 961.1 822.0 667.8 497.4 309.4 102.6
Debt repayment 100.1 112.1 125.1 139.1 154.2 170.5 188.0 206.8 102.6
Ending balance 1,298.4 1,198.3 1,086.2 961.1 822.0 667.8 497.4 309.4 102.6 –
Interest on LBO debt 87.4 80.0 71.7 62.4 52.1 40.8 28.2 14.4 3.6
% rate 7% 7% 7% 7% 7% 7% 7% 7% 7% 7%

Total interest expense 91.2 83.8 75.7 66.5 56.4 45.1 32.7 19.1 8.4

Cash balance 0 – – – – – – – – 120.6

Return analysis

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Equity investment (419.4)
Dividends – – – – – – – – –
Exit EV – – – – 1,938.9 – – – –
Exit debt – – – – 752.6 – – – –
Cash flow to sponsor (419.4) – – – – 1,186.3 – – – –

Exit equity value 449.0 610.5 786.6 978.1 1,186.3 1,412.4 1,657.7 1,923.5 2,086.8
Cash return 1.1x 1.5x 1.9x 2.3x 2.8x 3.4x 4.0x 4.6x 5.0x

© One-Eyed Capitalist (www.oneeyedcapitalist.blogspot.com) All Rights Reserved 10/11/2010

 Year ending January 30,
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LTM 5 yr average / CAGR
Income statement
Revenue growth 13% 8% 6% 3% 14% 17% 16% 9% 1% 3% 11%
EBIT growth (123%) 331% 13% (60%) 228% 99% 23% 14% 10% 9% 75%
EBITDA growth (366%) 92% 9% (35%) 88% 63% 20% 14% 10% 8% 39%
Net income growth (112%) 374% 18% (67%) 292% 79% 33% 16% 9% 7% 86%
Operating leverage (9.7x) 40.4x 2.3x (21.0x) 16.1x 5.9x 1.4x 1.6x 7.3x 3.0x 6.5x
Gross margin 33% 36% 42% 41% 39% 43% 49% 48% 48% 47% 45%
EBITDA margin (3%) 6% 11% 12% 7% 12% 17% 18% 18% 20% 14%
COGS % of revenue 67% 64% 58% 59% 61% 57% 51% 52% 52% 53% 55%
SG&A % of revenue 41% 35% 35% 34% 36% 35% 35% 34% 33% 31% 35%
Effective tax rate (5%) 1% 3% 3% (0%) 3% 5% 6% 6% 6% 4%

Balance sheet
Operating working assets 95.6 85.6 80.9 90.1 125.9 125.5 137.1 155.9 153.4 150.8 204.8 4%
Operating working liabilities -67.6 -44.7 -64.8 -68.4 -88.2 -101.2 -132.1 -131.2 -113.8 -121.2 -117.5 4%
Net operating working capital 28 40.9 16.1 21.7 37.7 24.3 5 24.7 39.6 29.6 87.3 4%
OWC % of sales 6% 8% 3% 4% 6% 4% 1% 3% 4% 3% 8% 3%
Leases % of sales 6% 5% 4% 5% 8% 7% 6% 6% 7% 8% 8% 7%

Cash flow statement

Capex 11.8 18.7 25.9 34 68.4 29.6 38.7 68.8 56.2 39.6 46.9 6%
Capex % of sales 3% 4% 5% 6% 12% 4% 5% 7% 6% 4% 4% 5%
Depreciation % of sales 5% 5% 5% 5% 5% 4% 4% 3% 3% 4% 4% 4%

Credit statistics
Debt / EBITDA (4.9x) 1.0x 0.3x 0.4x 1.0x 0.6x 0.3x 0.4x 0.4x 0.4x 0.4x 0.4x
Back-up calculations

Share dilution at offer price

No. of options Exercise price Dilutive effect

3,279.0 3.1 3,123.6
10,000.0 5.8 9,120.8
9,100.0 8.1 7,975.7
187,405.0 12.3 152,130.5
121,697.0 16.5 91,012.2
7,259.0 23.9 4,605.1
Cumulative effect (mm) 0.3
No. of shares outstanding 27.3
Total dilutive shares outstanding (mm) 27.6

Transaction fee calculation

Debt issued 1,298.4

Debt fee 2%
Debt issuance fees 26.0
Transaction value 1,850.2
M&A fee (%) 1%
M&A fees 18.5

Total fees 44.5

Gymboree Corporation(GYMB)
10-Yr Balance Sheet

Assets $Mil
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 latest Qtr
Cash and Equiv 5.3 8.4 60.6 89.6 30.6 32 27.5 33.3 140.5 257.7 132.4
Short-Term Investments 0 0 0 0 30 115 129.3 0 0 0 0
Accts Rec 7.7 7.7 7.5 11.5 20.1 12 13 12.6 18.7 9.9 19.1
Inventory 78.1 63.6 62.6 73 97.2 100.5 104.3 119.5 115 121.1 145.5
Other Current Assets 9.8 14.3 10.8 5.6 8.6 13 19.8 23.8 19.7 19.8 40.2
Total Current Assets 100.9 94 141.5 179.7 186.5 272.5 293.9 189.2 293.9 408.5 337.2
Net PP&E 117.7 108.1 106.5 112.7 150.8 146.1 150.3 185.4 204.2 205.5 217.8
Intangibles 0 0 0 0 0 0 1.4 1.6 1.2 1.4 0
Other Long-Term Assets 25.8 17.6 7.2 6.4 14.4 6.2 8.7 21 21.3 20.8 21.5
Total Assets 244.4 219.7 255.2 298.8 351.7 424.8 454.3 397.2 520.6 636.2 576.5

Liabilities and Stockholders' Equity $Mil

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 latest Qtr
Accts Payable 31.2 20.3 27.2 33.4 39.2 45.2 55.9 52.9 44.4 46.5 43.4
Short-Term Debt 16.9 0.7 0 0 0 0 0 0 0 0 0
Taxes Payable 0 0 0 0 0 0 0 0 0.1 5.4 0
Accrued Liabilities 19.5 23.7 37.6 35 41.8 55.3 66.3 70.3 69.3 69.3 74.1
Other Short-Term Liabilities 0 0 7.2 0.7 9.9 8 0 0
Total Current Liabilities 67.6 44.7 64.8 68.4 88.2 101.2 132.1 131.2 113.8 121.2 117.5
Long-Term Debt 16.4 8.8 0 0 0 0 0 0 0 0 0
Other Long-Term Liabilities (leases) 26.3 23.7 21 26.6 46.1 48.5 46.3 57.7 72.5 76.2 78.9
Total Liabilities 110.3 77.2 85.8 95 134.3 149.7 178.4 188.9 186.3 197.4 196.4
Total Equity 134.1 142.4 169.4 203.8 217.4 275.1 275.7 208.3 334.3 438.8 380.2
Total Liabilities & Equity 244.4 219.6 255.2 298.8 351.7 424.8 454.1 397.2 520.6 636.2 576.6
Gymboree Corporation(GYMB)
10-Yr Cash Flows

Cash Flows From Operating Activities $Mil

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LTM
Net Income -36.9 4.6 21.8 25.7 8.6 33.7 60.3 80.3 93.5 101.9 109.4
Depr & Amort 24.1 24.1 26.3 27.2 27.8 29.4 28.8 31.2 34.9 37.3 38.7
Deferred Taxes -17.8 3.7 12.6 1.1 -8.7 6.7 -9.6 -9.8 0 2.7 0
Other -26 6.9 24.2 3.9 6.9 27.5 42.2 6.2 26.7 34.7 5.2
Cash from Operations -56.6 39.3 84.9 57.9 34.6 97.3 121.7 107.9 155 176.6 153.2

Cash Flows From Investing Activities $Mil

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LTM
Cap Ex -11.8 -18.7 -25.9 -34 -68.4 -29.6 -38.7 -68.8 -56.2 -39.6 -46.9
Purchase of Business 0 0 0 0 0 0 0 0 0 0 0
Other 0 3.2 0.1 0.7 38.2 -84.9 -14.1 129.3 0.1 0 93.7
Cash from Investing -11.8 -15.5 -25.8 -33.4 -30.2 -114.5 -52.9 60.5 -56.1 -39.6 -46.9

Cash Flows From Financing Activities $Mil

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LTM
Net Issuance of Stock 11.6 3.2 3.7 5.7 5 18.8 -81.7 -167.7 3.7 -25.3 -144.9
Net Issuance of Debt 0 0 0 0 0 0 0 0 0 0 0
Dividends 0 0 0 0 0 0 0 0 0 0 0
Other 21.8 -23.8 -9.5 0 0 0 8.5 3.3 6 3.8 -5.3
Cash from Financing 33.4 -20.6 -5.8 5.7 5 18.8 -73.2 -164.4 9.7 -21.5 -139.7
Currency Adj 0 0 -1 -1.3 -0.3 -0.2 -0.2 1.8 -1.5 1.7 1
Change in Cash -35 3.1 52.2 28.9 9.1 1.4 -4.5 5.8 108.6 115.5 -34.1

Free Cash Flow $Mil

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LTM
Cash from Operations -56.6 39.3 84.9 57.9 34.6 97.3 121.7 107.9 155 176.6 153.2
Cap Ex -11.8 -18.7 -25.9 -34 -68.4 -29.6 -38.7 -68.8 -56.2 -39.6 -46.9
Free Cash Flow -68.4 20.6 58.9 23.9 -33.8 67.7 83 39.1 98.8 137 106.4
Gymboree Corporation(GYMB)
10-Yr Income Statement

Revenue (from 2001 to 2010) $Mil

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LTM
Revenue 448.6 505.4 546.8 578 594.5 678.5 791.6 920.8 1,000.70 1,014.90 1,044.20
COGS 299.9 322.5 316.9 343.2 362.4 386.1 407.2 478 524.5 535 540
Gross Profit 148.7 182.9 229.9 234.8 232.1 292.4 384.4 442.8 476.2 479.9 504.2

Operating Expenses $Mil

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LTM
SG&A 185 174.6 194.1 194.2 215.8 239 278.3 312.6 327.9 316.3 326.5
Other 22 -2.8 0 0 0 0 0 0 0 0
Operating Income -58.3 11.1 35.8 40.6 16.3 53.4 106.1 130.2 148.3 163.6 177.7
EBIT -36.3 8.3 35.8 40.6 16.3 53.4 106.1 130.2 148.3 163.6 177.7
EBITDA -12.2 32.4 62.1 67.8 44.1 82.8 134.9 161.4 183.2 200.9 216.4

Other Income and Expense $Mil

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LTM
Net Int Inc & Other 0.4 -0.8 -0.3 0.5 0.6 1.8 6.6 3.2 -0.4 1.1 0.2
Earnings Before Taxes -60 7.5 35.5 41.1 16.9 55.2 112.8 133.4 149.6 164.7 178.4
Income Taxes -23.1 2.9 13.7 15.4 -0.1 22.3 41.7 53.1 56.2 62.8 69
Earnings After Taxes -36.9 4.6 21.8 25.7 17.1 32.9 71.2 80.3 93.5 101.9 109.4
Acctg Changes 0 0 0 0 1.2 0 0 0 0 0 0
Disc Operations 0 0 0 0 -9.6 0.8 -10.9 0 0 0 0
Ext Items 0 0 0 0 0 0 0 0 0 0 0
Net Income -36.9 4.6 21.8 25.7 8.6 33.7 60.3 80.3 93.5 101.9 109.4

Diluted EPS, Cont Ops$ -1.38 0.16 0.71 0.83 0.54 1.02 2.15 2.67 3.21 3.41 3.7
Diluted EPS$ -1.38 0.16 0.71 0.83 0.27 1.04 1.82 2.67 3.21 3.41 3.7
Shares 27 29 31 31 31 32 33 30 29 30 29