Form 10-Q
Table of Contents

 

 

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 April 28, 2012

OR

 

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

For the transition period from              to             

Commission file number 000-21250

 

 

THE GYMBOREE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   94-2615258

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

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

(415) 278-7000

(Registrant’s telephone number, including area code)

 

 

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

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

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

 

Large accelerated filer   ¨    Accelerated Filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

As of June 11, 2012, 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.

 

* The Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, but is not required to file such reports under such sections.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Part I - FINANCIAL INFORMATION

     3   

Item 1. FINANCIAL STATEMENTS

     3   

CONDENSED CONSOLIDATED BALANCE SHEETS

     3   

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

     4   

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

     5   

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

     6   

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     7   

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     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

     38   

Item 5. OTHER INFORMATION

     38   

Item 6. EXHIBITS

     39   

SIGNATURES

     40   

Exhibit Index

     41   

 

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Table of Contents

Part I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

     April 28,
2012
    January 28,
2012
    April 30,
2011
 

Assets

      

Current Assets:

      

Cash and cash equivalents

   $ 88,268      $ 77,910      $ 48,153   

Accounts receivable, net of allowance of $58, $114 and $189

     25,264        27,277        16,527   

Merchandise inventories

     185,691        210,212        163,666   

Prepaid income taxes

     3,220        3,736        16,549   

Prepaid expenses

     3,573        5,532        5,082   

Deferred income taxes

     30,800        36,115        35,776   
  

 

 

   

 

 

   

 

 

 

Total current assets

     336,816        360,782        285,753   
  

 

 

   

 

 

   

 

 

 

Property and Equipment:

      

Land and buildings

     22,428        22,428        22,397   

Leasehold improvements

     153,374        146,497        131,242   

Furniture, fixtures and equipment

     86,052        82,606        73,858   
  

 

 

   

 

 

   

 

 

 
     261,854        251,531        227,497   

Less accumulated depreciation and amortization

     (59,435     (49,379     (16,909
  

 

 

   

 

 

   

 

 

 
     202,419        202,152        210,588   

Goodwill

     899,097        899,097        927,397   

Other Intangible Assets

     594,574        599,195        613,396   

Deferred Financing Costs

     46,220        47,915        52,840   

Other Assets

     5,504        4,646        13,059   
  

 

 

   

 

 

   

 

 

 

Total Assets

   $ 2,084,630      $ 2,113,787      $ 2,103,033   
  

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

      

Current Liabilities:

      

Accounts payable

   $ 48,954      $ 79,027      $ 36,201   

Accrued liabilities

     91,772        94,178        80,275   

Current portion of long-term debt

     15,648        17,698        8,200   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     156,374        190,903        124,676   
  

 

 

   

 

 

   

 

 

 

Long-Term Liabilities:

      

Long-term debt

     1,192,241        1,192,171        1,207,613   

Lease incentives and other deferred liabilities

     31,082        28,681        21,666   

Unrecognized tax benefits

     8,172        7,898        7,955   

Deferred income taxes

     242,244        245,495        251,077   
  

 

 

   

 

 

   

 

 

 

Total Liabilities

     1,630,113        1,665,148        1,612,987   
  

 

 

   

 

 

   

 

 

 

Commitments and Contingencies

     —          —          —     

Stockholders’ Equity:

      

Common stock, including additional paid-in capital ($.001 par value: 1,000 shares authorized, issued and outstanding)

     520,105        519,589        524,884   

Accumulated deficit

     (63,394     (68,389     (33,485

Accumulated other comprehensive loss

     (5,430     (5,825     (1,353
  

 

 

   

 

 

   

 

 

 

Total Stockholders’ Equity

     451,281        445,375        490,046   

Noncontrolling interest

     3,236        3,264        —     
  

 

 

   

 

 

   

 

 

 

Total Equity

     454,517        448,639        490,046   
  

 

 

   

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 2,084,630      $ 2,113,787      $ 2,103,033   
  

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

 

     13 Weeks Ended  
     April 28, 2012     April 30, 2011  

Net sales:

    

Retail

   $ 288,116      $ 265,882   

Gymboree Play & Music

     5,792        2,925   

Retail Franchise

     3,843        1,449   
  

 

 

   

 

 

 

Total net sales

     297,751        270,256   

Cost of goods sold, including buying and occupancy expenses

     (175,927     (159,396
  

 

 

   

 

 

 

Gross profit

     121,824        110,860   

Selling, general and administrative expenses

     (91,739     (84,566
  

 

 

   

 

 

 

Operating income

     30,085        26,294   

Interest income

     59        53   

Interest expense

     (21,658     (24,003

Loss on extinguishment of debt

     (1,237     (19,563

Other (expense) income, net

     (66     30   
  

 

 

   

 

 

 

Income (loss) before income taxes

     7,183        (17,189

Income tax (expense) benefit

     (3,013     6,749   
  

 

 

   

 

 

 

Net income (loss)

     4,170        (10,440

Net loss attributable to noncontrolling interest

     826        —     
  

 

 

   

 

 

 

Net income (loss) attributable to The Gymboree Corporation

   $ 4,996      $ (10,440
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

     13 Weeks Ended  
     April 28, 2012     April 30, 2011  

Net income (loss)

   $ 4,170      $ (10,440
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax:

    

Foreign currency translation adjustments

     (29     533   

Unrealized net gain (loss) on cash flow hedges, net of tax of $31 and $—

     435        (2,124
  

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     406        (1,591
  

 

 

   

 

 

 

Comprehensive income (loss)

     4,576        (12,031

Comprehensive loss attributable to noncontrolling interest

     814        —     
  

 

 

   

 

 

 

Comprehensive income (loss) attributable to The Gymboree Corporation

   $ 5,390      $ (12,031
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     13 Weeks Ended  
     April 28, 2012     April 30, 2011  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income (loss)

   $ 4,170      $ (10,440

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Write-off of deferred financing costs and original issue discount

     1,237        15,860   

Depreciation and amortization

     14,248        14,245   

Amortization of deferred financing costs and accretion of original issue discount

     1,802        1,702   

Interest rate cap contracts—adjustment to market

     53        —     

Loss on disposal/impairment of assets

     62        768   

Provision (benefit) for deferred income taxes

     2,098        (6,952

Share-based compensation expense

     1,407        1,402   

Other non-cash expense

     786        —     

Change in assets and liabilities:

    

Accounts receivable

     (380     (2,853

Merchandise inventories

     24,046        20,764   

Prepaid expenses and other assets

     1,902        (244

Income taxes payable/prepaid income taxes

     525        (398

Accounts payable

     (30,078     (18,302

Accrued liabilities

     (5,378     (861

Lease incentives and other deferred liabilities

     3,476        4,267   
  

 

 

   

 

 

 

Net cash provided by operating activities

     19,976        18,958   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Capital expenditures

     (8,625     (7,891

Acquisition of business, net of cash acquired

     —          (1,352

Other

     (176     (61
  

 

 

   

 

 

 

Net cash used in investing activities

     (8,801     (9,304
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from Term Loan

     —          820,000   

Payments on Term Loan

     (2,050     (822,050

Proceeds from ABL facility

     —          20,656   

Payments on ABL facility

     —          (20,656

Deferred financing costs

     (1,274     (6,529

Investment by Parent

     —          14,865   

Investment by affiliate of Parent

     2,400        —     
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (924     6,286   
  

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash

     107        89   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     10,358        16,029   

CASH AND CASH EQUIVALENTS:

    

Beginning of period

     77,910        32,124   
  

 

 

   

 

 

 

End of period

   $ 88,268      $ 48,153   
  

 

 

   

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

    

Capital expenditures incurred, but not yet paid

   $ 5,495      $ 5,058   

Deferred financing costs incurred, but not yet paid

   $ —        $ 139   

Non-cash capital contribution to noncontrolling interest

   $ 786      $ —     

OTHER CASH FLOW INFORMATION:

    

Cash paid for income taxes, net of refunds received

   $ 889      $ 586   

Cash paid for interest

   $ 11,045      $ 11,336   

See notes to condensed consolidated financial statements.

 

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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 its 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 “Joint Venture” or “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 28, 2012 filed with the Securities and Exchange Commission on April 26, 2012.

The accompanying interim condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. All such adjustments are of a normal and recurring nature, except the loss on extinguishment of debt further described in Notes 4 and 5, recorded in the first quarter of fiscal 2012 and the first quarter of fiscal 2011, respectively, and a $10.7 million adjustment to cost of goods sold resulting from an increase in the net book value of inventory as a result of purchase accounting related to the Merger (as defined below) recorded in the first quarter of fiscal 2011.

The results of operations for the 13 weeks ended April 28, 2012 are not necessarily indicative of the operating results that may be expected for the 53 week period ending February 2, 2013 (“fiscal 2012”) or any future period.

Reclassifications

Retail Franchise net sales, previously reported in Other net sales for the 13 weeks ended April 30, 2011, have been separately disclosed to conform to the current year presentation.

Correction of Other Classifications

In the accompanying condensed consolidated balance sheet as of April 30, 2011, we reclassified approximately $4.4 million of leasehold improvement costs previously reported within “land and buildings” to be reported within “leasehold improvements” to properly classify such costs. Our net property and equipment balance as of April 30, 2011 did not change as a result of such reclassifications.

Correction of Merger Purchase Price Allocation

 

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In the accompanying condensed consolidated balance sheet as of April 30, 2011, we made adjustments to goodwill and to certain of our other intangible assets and deferred tax liabilities as a result of correcting the final purchase price allocation related to the acquisition (the “Merger” and, together with the related transactions, collectively, the “Transaction”) of the Company by certain investment funds sponsored by Bain Capital Partners, LLC (“Bain Capital”), on November 23, 2010 (the “Transaction Date”). Amounts previously reported as of April 30, 2011 have been restated to reflect these adjustments, as summarized in the following table (in thousands):

 

     As of April 30, 2011  
     Balance as
Previously
Reported
    Adjustments     Corrected
Balance
 

Goodwill

   $ 934,639      $ (7,242   $ 927,397   
  

 

 

   

 

 

   

 

 

 

Trade names

   $ 560,188      $ 6,900      $ 567,088   

Franchise agreements

     1,841        4,700        6,541   

Customer relationships, below market leases, and co-branded credit card agreement

     39,767        —          39,767   
  

 

 

   

 

 

   

 

 

 

Other Intangible Assets

   $ 601,796      $ 11,600      $ 613,396   
  

 

 

   

 

 

   

 

 

 

Total Assets

   $ 2,098,675      $ 4,358      $ 2,103,033   
  

 

 

   

 

 

   

 

 

 

Long-term deferred income tax liability

   $ (246,719   $ (4,358   $ (251,077
  

 

 

   

 

 

   

 

 

 

Total Liabilities

   $ (1,608,629   $ (4,358   $ (1,612,987
  

 

 

   

 

 

   

 

 

 

 

2. Recently Issued Accounting Standards

In May 2011, the FASB issued guidance to amend the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, this guidance requires entities to disclose the categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. We adopted this guidance as of January 29, 2012. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

In June 2011, the FASB issued guidance to amend the presentation of comprehensive income. This new guidance requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We early adopted this guidance effective for our fiscal year ended January 28, 2012, as permitted under the standard, and applied it retrospectively to the first quarter ended April 30, 2011 as required to present the total of comprehensive income, the components of net income, and the components of other comprehensive income in two separate consecutive statements.

 

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In September 2011, the FASB issued guidance to amend the testing of goodwill for impairment. This new guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This guidance was effective January 29, 2012.

In December 2011, the FASB issued guidance to amend the disclosure requirements regarding the offsetting of assets and liabilities related to financial and derivative instruments. This new guidance requires an entity to disclose quantitative information in a tabular format to allow users of their financial statements to evaluate the effect or potential effect on the entity’s financial position of netting arrangements. This new guidance will be effective for us as of February 3, 2013. We are currently evaluating the impact of this guidance on our financial statement presentation of our derivative and financial instruments.

 

3. Goodwill and Intangible Assets and Liabilities

Intangible Assets and Liabilities:

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

 

     April 28, 2012  
     Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Amount
 

Intangible Assets Not Subject to Amortization:

  

Trade names

   $ 567,348        $ 567,348   
  

 

 

     

 

 

 

Intangible Assets Subject to Amortization:

      

Customer relationships

     36,400      $ (22,656     13,744   

Below market leases

     7,055        (1,977     5,078   

Co-branded credit card agreement

     4,000        (881     3,119   

Franchise agreements

     6,600        (1,315     5,285   
  

 

 

   

 

 

   

 

 

 
     54,055        (26,829     27,226   
  

 

 

   

 

 

   

 

 

 

Total other intangible assets

   $ 621,403      $ (26,829   $ 594,574   
  

 

 

   

 

 

   

 

 

 

Intangible Liabilities Subject to Amortization:

      

Above market leases (included in Lease Incentives and Other Deferred Liabilities)

   $ (16,631   $ 5,002      $ (11,629
  

 

 

   

 

 

   

 

 

 

 

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     January 28, 2012  
     Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Amount
 

Intangible Assets Not Subject to Amortization:

  

Trade names

   $ 567,288        $ 567,288   
  

 

 

     

 

 

 

Intangible Assets Subject to Amortization:

      

Customer relationships

     36,400      $ (18,699     17,701   

Below market leases

     7,055        (1,637     5,418   

Co-branded credit card agreement

     4,000        (727     3,273   

Franchise agreements

     6,600        (1,085     5,515   
  

 

 

   

 

 

   

 

 

 
     54,055        (22,148     31,907   
  

 

 

   

 

 

   

 

 

 

Total other intangible assets

   $ 621,343      $ (22,148   $ 599,195   
  

 

 

   

 

 

   

 

 

 

Intangible Liabilities Subject to Amortization:

      

Above market leases (included in Lease Incentives and Other Deferred Liabilities)

   $ (16,631   $ 4,114      $ (12,517
  

 

 

   

 

 

   

 

 

 
     April 30, 2011  
     Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Amount
 

Intangible Assets Not Subject to Amortization:

  

Trade names

   $ 567,088        $ 567,088   
  

 

 

     

 

 

 

Intangible Assets Subject to Amortization:

      

Customer relationships

     36,400      $ (6,830     29,570   

Below market leases

     7,049        (586     6,463   

Co-branded credit card agreement

     4,000        (266     3,734   

Franchise agreements

     6,600        (59     6,541   
  

 

 

   

 

 

   

 

 

 
     54,049        (7,741     46,308   
  

 

 

   

 

 

   

 

 

 

Total other intangible assets

   $ 621,137      $ (7,741   $ 613,396   
  

 

 

   

 

 

   

 

 

 

Intangible Liabilities Subject to Amortization:

      

Above market leases (included in Lease Incentives and Other Deferred Liabilities)

   $ (16,623   $ 1,535      $ (15,088
  

 

 

   

 

 

   

 

 

 

During the first quarter of fiscal 2012 and fiscal 2011, we recorded net amortization income of approximately $0.5 million in cost of goods sold (“COGS”) and amortization expense of

 

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approximately $4.3 million and $4.1 million, respectively, in selling, general and administrative expenses (“SG&A”). We estimate that amortization expense (income) related to intangible assets and liabilities will be as follows for the remainder of fiscal 2012 and each of the next five fiscal years (in thousands):

 

Fiscal    Below Market
Leases
     Above Market
Leases
    Other
Intangibles
     Total  

2012 (remaining 40 weeks)

   $ 1,032       $ (2,388   $ 13,020       $ 11,664   

2013

     1,162         (2,651     3,409         1,920   

2014

     1,066         (2,071     1,534         529   

2015

     843         (1,612     1,534         765   

2016

     485         (1,460     1,393         418   

2017

     345         (1,048     332         (371

Goodwill:

In the fourth quarter of fiscal 2011, due to higher average unit costs resulting from higher commodity prices (primarily cotton) and a higher level of markdown selling, we concluded that there was goodwill impairment in the Gymboree Outlet reporting unit. Although this analysis has not been completed due to its complexity, based on the work we performed to date, we recorded a preliminary estimate of impairment for goodwill of $28.3 million in the fourth quarter of fiscal 2011. The impairment charge is subject to finalization of fair values, which we expect to complete during the remainder of fiscal 2012. We believe that the preliminary estimate of impairment is reasonable and represents our best estimate of the impairment charge to be incurred; however, it is possible that material adjustments to the preliminary estimate may be required as the analysis is finalized.

 

4. Line of Credit

As part of the Transaction, we entered into a senior secured asset-based revolving credit facility, which was amended and restated in March 2012 to, among other things, lower the interest rate and extend the maturity date (as so amended and restated, the “ABL”). As a result of this amendment and restatement, we recorded a loss on extinguishment of debt of $1.2 million in the first quarter of fiscal 2012. The ABL provides senior secured financing of up to $225 million, subject to a borrowing base. Availability under the ABL is subject to the assets of the Company, any subsidiary co-borrowers and any subsidiary guarantors that are available to collateralize the borrowings thereunder, and is reduced by the level of outstanding letters of credit. As of April 28, 2012, availability under the ABL was approximately $172.5 million. The ABL provides us with 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 5), subject to the satisfaction of certain conditions. Principal amounts outstanding under the ABL are due and payable in full in March 2017. Borrowings under the ABL bear interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the highest of (1) the prime rate of Bank of America, N.A., (2) the federal funds effective rate plus 0.50% and (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such

 

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borrowing adjusted for certain additional costs (“Adjusted LIBOR”), in each case plus an applicable margin. In addition to paying interest on outstanding principal under the ABL, we are required to pay a commitment fee on unutilized commitments thereunder of 0.375% per annum. If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the ABL exceeds the lesser of (a) the commitment amount and (b) the borrowing base, we will be required to repay outstanding loans and/or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount. The ABL contains financial and other covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. As of April 28, 2012, we were in compliance with these covenants. As of April 28, 2012, there was $28.0 million of commercial and standby letters of credit outstanding and no borrowings outstanding. The obligations under the ABL are secured, subject to certain exceptions, by substantially all of our assets. We and our 100%-owned domestic subsidiaries have fully and unconditionally guaranteed our obligations under the ABL.

 

5. Long-Term Debt

Long-term debt consists of (in thousands):

 

     April 28, 2012     January 28, 2012     April 30, 2011  

Senior secured term loan facility, net of discount of $1,861, $1,931 and $2,137

   $ 807,889      $ 809,869      $ 815,813   

9.125% senior notes

     400,000        400,000        400,000   
  

 

 

   

 

 

   

 

 

 

Subtotal

     1,207,889        1,209,869        1,215,813   

Less current portion

     (15,648     (17,698     (8,200
  

 

 

   

 

 

   

 

 

 

Long-term debt—less current portion

   $ 1,192,241      $ 1,192,171      $ 1,207,613   
  

 

 

   

 

 

   

 

 

 

As part of the Transaction, we entered into an agreement with several lenders to establish an $820 million senior secured term loan facility (“Term Loan”). The Term Loan allows us to request additional tranches of term loans in an aggregate amount not to exceed $200 million, subject to the satisfaction of certain conditions, provided that such amount will be subject to reduction by the amount of any additional commitments incurred under the ABL described in Note 4. 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%. 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 prepaid $15.6 million of the Term Loan with a portion of our excess cash flow for fiscal 2011 in our second fiscal quarter of fiscal 2012. We may (but are not required to) apply a portion of this prepayment toward our quarterly amortization payments payable under the Term Loan in fiscal 2012. The Term Loan is presented net of the related original issue discount (“OID”), which was $4.1 million on the Transaction Date. Accretion of OID is included in interest expense and was not material for the first quarter of fiscal 2012 or 2011. In February 2011, we refinanced the

 

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Term Loan through an amendment and restatement of our existing credit agreement to lower the interest rate, remove certain financial covenants and extend the maturity date from November 2017 to February 2018. In the first quarter of fiscal 2011, we recorded a loss on extinguishment of debt of approximately $19.6 million as a result of the refinancing, which included the write-off of approximately $14.1 million in deferred financing costs and $1.8 million of OID related to the original Term Loan. The obligations under the Term Loan are secured, subject to certain exceptions, by substantially all of our assets and those of our 100%-owned domestic subsidiaries. The Company and our 100%-owned domestic subsidiaries also have fully and unconditionally guaranteed the Company’s obligations under the Term Loan.

As part of the Transaction, we issued $400 million aggregate principal amount of 9.125% senior notes (the “Notes”) due in December 2018. Interest on the Notes is payable semi-annually. If the Company or our subsidiaries sell certain assets, we generally must either invest the net cash proceeds from such sale in our business within a certain period of time, use the proceeds to prepay senior secured debt or make an offer to purchase a principal amount of the Notes equal to the excess net cash proceeds at a redemption price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest. Upon a change in control, we may also be required to make an offer to purchase all of the Notes at a redemption price equal to 101% of the principal amount of the Notes redeemed plus accrued and unpaid interest. The Notes also contain optional redemption provisions, but subject to certain exceptions, we will not be entitled to redeem the Notes at our option prior to December 1, 2014. The Notes are unsecured senior obligations of the Company. The Company and our 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Company’s obligations under the Notes (see Note 11).

Interest expense was $21.7 million and $24.0 million for the 13 weeks ended April 28, 2012 and April 30, 2011, respectively, including $1.8 million and $1.7 million, respectively, of amortization of deferred financing costs and accretion of OID.

 

6. Fair Value Measurements

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

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

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

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

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the

 

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significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present the Company’s assets and liabilities measured at fair value on a recurring basis as of April 28, 2012, January 28, 2012, and April 30, 2011 aggregated by the level in the fair value hierarchy within which those measurements fall. There were no purchases, sales, issuances, or settlements related to recurring Level 3 measurements during the thirteen weeks ended April 28, 2012 or April 30, 2011. There were no transfers into or out of Level 1 and Level 2 during the thirteen weeks ended April 28, 2012 or April 30, 2011.

 

     April 28, 2012  
     Quoted Prices in
Active Markets for
Identical Assets and
Liabilities (Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total Fair Value  
     (in thousands)  

Assets

           

Money market funds

   $ 68,599       $ —         $ —         $ 68,599   

Interest rate caps

     —           2,045         —           2,045   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 68,599       $ 2,045       $ —         $ 70,644   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Forward foreign exchange contracts

   $ —         $ 330       $ —         $ 330   
  

 

 

    

 

 

    

 

 

    

 

 

 
     January 28, 2012  
     Quoted Prices in
Active Markets for
Identical Assets and
Liabilities

(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total Fair Value  
     (in thousands)  

Assets

           

Money market funds

   $ 57,365       $ —         $ —         $ 57,365   

Interest rate caps

     —           1,361         —           1,361   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 57,365       $ 1,361       $ —         $ 58,726   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Forward foreign exchange contracts

   $ —         $ 13       $ —         $ 13   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     April 30, 2011  
     Quoted Prices in
Active Markets for
Identical Assets  and
Liabilities

(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total Fair Value  
     (in thousands)  

Assets

           

Money market funds

   $ 39,027       $ —         $ —         $ 39,027   

Interest rate caps

     —           9,838         —           9,838   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 39,027       $ 9,838       $ —         $ 48,865   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Forward foreign exchange contracts

   $ —         $ 238       $ —         $ 238   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 carrying value of these funds is considered to approximate fair value due to the short maturity of these instruments.

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

Although we have determined that the majority of the inputs used to value our interest rate caps fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by our counterparties. However, as of April 28, 2012, January 28, 2012, and April 30, 2011, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate cap positions and determined that the credit valuation adjustment was not significant to the overall valuation. As a result, we classified our interest rate caps derivative valuations in Level 2 of the fair value hierarchy.

The fair value of our forward foreign exchange contracts was determined using the market approach and Level 2 inputs. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. We had no other financial assets or liabilities measured at fair value as of April 28, 2012, January 28, 2012 and April 30, 2011.

The carrying value of cash and cash equivalents, receivables, payables and line of credit balances approximates their estimated fair values due to the short maturities of these instruments. We estimate the fair value of our long-term debt using interest rates currently available to us for issuance of notes payable and long-term debt (including current maturities). These interest rates

 

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are considered Level 2 inputs. The estimated fair value of long-term debt is as follows (in thousands):

 

     April 28, 2012      January 28, 2012      April 30, 2011  
     Carrying Amount      Fair Value      Carrying Amount      Fair Value      Carrying Amount      Fair Value  

Term loan

   $ 807,889       $ 775,703       $ 809,869       $ 721,609       $ 815,813       $ 818,441   

Notes

     400,000         376,000         400,000         358,000         400,000         402,160   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,207,889       $ 1,151,703       $ 1,209,869       $ 1,079,609       $ 1,215,813       $ 1,220,601   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

We measure certain non-financial assets and liabilities, including long-lived assets, at fair value on a non-recurring basis. During the 13 weeks ended April 30, 2011, we recorded charges related to the impairment of assets at under-performing stores, which reduced the carrying amount of the applicable long-lived assets from $0.7 million to their fair value of zero. We recorded no impairment charges related to assets at under-performing stores during the 13 weeks ended April 28, 2012.

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

In the fourth quarter of fiscal 2011, we recorded a preliminary estimate of goodwill impairment of $28.3 million that is subject to finalization (see Note 3).

 

7. Derivative Instruments

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

We have four interest rate caps to hedge against rising interest rates associated with our Term Loan (see Note 6) above the strike rate of the cap through December 23, 2016, the maturity date of the caps. All four caps were designated on the date of execution as cash-flow hedges. In December 2010, we paid approximately $12.1 million to enter into these caps. This premium,

 

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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. We estimate that approximately $0.4 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 loss and is subsequently recognized in earnings when the hedged exposure is recognized in earnings. Gains or losses on the derivative representing either hedge components excluded from the assessment of effectiveness or hedge ineffectiveness are recognized in earnings.

We had the following outstanding derivatives designated as cash-flow hedges (in thousands):

 

     April 28, 2012      January 28, 2012      April 30, 2011  
     Number of
Instruments
   Notional
(USD)
     Number of
Instruments
   Notional
(USD)
     Number of
Instruments
   Notional
(USD)
 

Interest rate derivatives

                 

Purchased Caps

   4    $ 700,000       4    $ 700,000       4    $ 700,000   

Foreign exchange derivatives

                 

Forward foreign exchange contracts

   9      11,632       12      14,154       3      2,483   
  

 

  

 

 

    

 

  

 

 

    

 

  

 

 

 

Total

   13    $ 711,632       16    $ 714,154       7    $ 702,483   
  

 

  

 

 

    

 

  

 

 

    

 

  

 

 

 

In addition to the cash-flow hedges above, as of April 28, 2012 and April 30, 2011, we had one forward foreign exchange contract with a notional amount of $2.4 million and $2.9 million, respectively, that was not designated as a hedge. The table below presents the fair value of all of our derivative financial instruments as well as their classification on the condensed consolidated balance sheets (in thousands).

 

     April 28, 2012      January 28, 2012      April 30, 2011  
     Derivative
Assets
     Derivative
Liabilities
     Derivative
Assets
     Derivative
Liabilities
     Derivative
Assets
     Derivative
Liabilities
 

Interest rate derivatives

                 

Balance Sheet Location

     Other Assets            Other Assets            Other Assets      

Purchased Caps

   $ 2,045          $ 1,361          $ 9,838      

Foreign exchange derivatives

                 

Balance Sheet Location

       

 

Accrued

liabilities

 

  

       

 

Accrued

liabilities

 

  

       

 

Accrued

liabilities

 

  

Forward foreign exchange contracts

      $ 330          $ 13          $ 238   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,045       $ 330       $ 1,361       $ 13       $ 9,838       $ 238   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The tables below present the effect of all of our derivative financial instruments on the condensed consolidated statements of operations (in thousands). No amounts were reclassified

 

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from accumulated other comprehensive loss into earnings as a result of forecasted transactions that failed to occur or as a result of hedge ineffectiveness.

 

     13 weeks ended April 28, 2012  
     Amount of Loss
Recognized in OCI on
Derivative
(Effective  Portion)
    Location of Gain (Loss)
Reclassified from
Accumulated OCI into
Income

(Effective Portion)
   Amount of Gain /
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)
 

Interest rate derivatives

       

Purchased Caps

   $ (9,931   Interest expense    $ (53

Foreign exchange derivatives

       

Forward foreign exchange contracts

     (160   Cost of goods sold      83   
  

 

 

      

 

 

 

Total

   $ (10,091      $ 30   
  

 

 

      

 

 

 

 

     13 weeks ended April 30, 2011  
     Amount of Loss
Recognized in OCI on
Derivative

(Effective Portion)
    Location of Loss
Reclassified from
Accumulated OCI into
Income

(Effective Portion)
   Amount of Loss
Reclassified from
Accumulated OCI
into Income
(Effective Portion)
 

Interest rate derivatives

       

Purchased Caps

   $ (2,025   Interest expense    $ —     

Foreign exchange derivatives

       

Forward foreign exchange contracts

     (223   Cost of goods sold      (101
  

 

 

      

 

 

 

Total

   $ (2,248      $ (101
  

 

 

      

 

 

 

 

8. Share-based Compensation

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

 

     13 Weeks Ended
April 28, 2012
     13 Weeks Ended
April 30, 2011
 

Stock options

   $ 1,407       $ 1,402   
  

 

 

    

 

 

 

Total

   $ 1,407       $ 1,402   
  

 

 

    

 

 

 

 

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9. Variable Interest Entity

Gymboree China, Gymboree Tianjin and the Company are indirectly controlled by Gymboree Holding, Ltd. and investment funds sponsored by Bain Capital, Gymboree China and Gymboree Tianjin have been determined to be variable interest entities, and we (as well as our 100%-owned subsidiaries) are a member of a related party group that controls the VIEs and absorbs the economics of the VIEs. Based on our relationship with the VIEs, we determined that we are most closely associated with the VIEs, and therefore, consolidate them as the primary beneficiary. However, as we have a 0% ownership interest in the VIEs, 100% of the results of operations of the VIEs are recorded as noncontrolling interest. The assets of the VIEs cannot be used by us. The liabilities of the VIEs are comprised mainly of short-term accrued expenses, and its creditors have no recourse to our general credit or assets.

The following tables reflect the impact of the VIEs on the condensed consolidated balance sheets as of April 28, 2012 and January 28, 2012 and the condensed consolidated statement of operations for the 13 weeks ended April 28, 2012 (in thousands):

Condensed Consolidating Balance Sheets

 

     April 28, 2012  
     Balance Before
Consolidation
of VIEs
     VIEs      Eliminations     As
Reported
 

Current assets

   $ 327,746       $ 11,536       $ (2,466   $ 336,816   

Non-current assets

     1,746,957         857         —          1,747,814   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 2,074,703       $ 12,393       $ (2,466   $ 2,084,630   
  

 

 

    

 

 

    

 

 

   

 

 

 

Current liabilities

   $ 149,593       $ 9,098       $ (2,317   $ 156,374   

Non-current liabilities

     1,473,680         59         —          1,473,739   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,623,273         9,157         (2,317     1,630,113   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     451,430         —           (149     451,281   

Noncontrolling interest

     —           3,236         —          3,236   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,074,703       $ 12,393       $ (2,466   $ 2,084,630   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents
     January 28, 2012  
     Balance Before
Consolidation
of VIEs
     VIEs      Eliminations     As
Reported
 

Current assets

   $ 355,073       $ 6,692       $ (983   $ 360,782   

Non-current assets

     1,752,303         702         —          1,753,005   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 2,107,376       $ 7,394       $ (983   $ 2,113,787   
  

 

 

    

 

 

    

 

 

   

 

 

 

Current liabilities

   $ 187,812       $ 4,074       $ (983   $ 190,903   

Non-current liabilities

     1,474,189         56         —          1,474,245   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,662,001         4,130         (983     1,665,148   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     445,375         —           —          445,375   

Noncontrolling interest

     —           3,264         —          3,264   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,107,376       $ 7,394       $ (983   $ 2,113,787   
  

 

 

    

 

 

    

 

 

   

 

 

 

Condensed Consolidating Statement of Operations

 

     For the 13 weeks ended April 28, 2012  
     Balance Before
Consolidation
of VIEs
    VIEs     Eliminations     As
Reported
 

Net sales

   $ 297,931      $ 2,143      $ (2,323   $ 297,751   

Cost of goods sold

     (176,049     (242     364        (175,927

Operating expenses

     (90,894     (2,655     1,810        (91,739
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     30,988        (754     (149     30,085   

Other non-operating expense

     (22,889     (13     —          (22,902
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     8,099        (767     (149     7,183   

Income tax expense

     (2,954     (59     —          (3,013
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     5,145        (826     (149     4,170   

Net loss attributable to noncontrolling interest

     —          826        —          826   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to The Gymboree Corporation

   $ 5,145      $ —        $ (149   $ 4,996   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

10. Segments

We have four reportable segments: retail stores, Gymboree Play & Music, retail franchise, and one reportable segment related to the activities of our consolidated VIEs. These reportable segments were identified based on how our business is managed and evaluated. The retail stores segment includes four operating segments (brands) which sell high-quality apparel for children: Gymboree (including an online store), Gymboree Outlet, Janie and Jack (including an online store), and Crazy 8 (including an online store). These four operating segments have been aggregated into one reportable segment because, in our judgment, these operating segments have similar historical economic characteristics and/or are expected to have similar economic characteristics and similar long-term financial performance in the future. Gross margin is the principal measure we consider in determining whether the economic characteristics are similar. In addition, each operating segment has similar products, production processes and type or class of customer. We believe that disaggregating our operating segments would not provide material

 

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additional information. Corporate overhead (costs related to our distribution center and shared corporate services) is included in the retail stores segment. Amounts previously reported have been reclassified to conform to the addition of the retail franchise reportable segment to the current year presentation. Additionally, we completed the allocation of goodwill and certain other intangible assets to our reporting units and segments during the fourth quarter of fiscal 2011, and have restated the segment disclosures below as of April 30, 2011, resulting in the allocation of $16.4 million and $23.6 million of goodwill, and $36.2 million and $4.7 million of certain other intangible assets, to our Gymboree Play & Music and retail franchise reportable segments, respectively, and in the allocation of $39.8 million of goodwill to our Canada and Australia geographical segments.

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

 

     13 Weeks Ended April 28, 2012  
     Retail
Stores
     Gymboree
Play & Music
     Retail
Franchise
     VIE     Intersegment
Elimination
    Total  

Net sales

   $ 288,029       $ 6,050       $ 3,852       $ 2,143      $ (2,323   $ 297,751   

Operating income (loss)

     27,619         1,920         1,449         (754     (149     30,085   

Total assets

     1,982,794         63,324         28,585         12,393        (2,466     2,084,630   

 

     13 Weeks Ended April 30, 2011  
     Retail
Stores
     Gymboree
Play & Music
     Retail
Franchise
     Total  

Net sales

   $ 265,882       $ 2,925       $ 1,449       $ 270,256   

Operating income

     24,536         1,066         692         26,294   

Total assets

     2,014,844         58,712         29,477         2,103,033   

Interest expense, depreciation and amortization expense and capital expenditures have not been separately disclosed above as the amounts primarily relate to the retail segment. The Gymboree Play & Music and VIE reportable segments recorded $0.5 million and $1.8 million, respectively, in intersegment revenues for the 13 weeks ended April 28, 2012. There were no other material intersegment revenues.

We attribute retail store revenues to individual countries based on selling location. For Gymboree Play & Music and retail franchise, all sales were attributed to the United States. The following tables provide the summary financial data of each geographical segment (in thousands):

 

     13 Weeks Ended April 28, 2012  
     Canada      Australia      China      Total International  

Net sales

   $ 9,879       $ 600       $ 342       $ 10,821   

Long-lived assets

     44,932         6,408         857         52,197   

 

     13 Weeks Ended April 30, 2011  
     Canada      Australia      Total International  

Net sales

   $ 8,897       $ 490       $ 9,387   

Long-lived assets

     40,754         6,084         46,838   

 

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Table of Contents
11. Condensed Guarantor Data

The Company and its 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Notes. The following condensed consolidating financial information presents the financial position, results of operations and cash flows of The Gymboree Corporation and the guarantor and non-guarantor subsidiaries. The VIEs financial results are included in the non-guarantor subsidiaries. As of April 30, 2011, all of our goodwill and $3.7 million of certain other intangible assets had been allocated to The Gymboree Corporation for the purposes of our guarantor and non-guarantor subsidiaries disclosure. During the fourth quarter of fiscal 2011, we completed the allocation of goodwill and certain other intangible assets to our guarantor and non-guarantor subsidiaries, which resulted in $887.6 million and $39.8 million of goodwill being allocated to guarantor and non-guarantor subsidiaries, respectively and $3.7 million of other intangible assets being allocated to our guarantor subsidiaries. These adjustments have been reflected in the tables below for prior periods. Intercompany transactions are eliminated.

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

 

     April 28, 2012  
     The Gymboree
Corporation
     Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
     Eliminations     Consolidated  
ASSETS              

Current Assets:

             

Cash and cash equivalents

   $ 69,338       $ 6,823       $ 12,107       $ —        $ 88,268   

Accounts receivable, net of allowance

     2,321         19,201         3,742         —          25,264   

Merchandise inventories

     —           180,637         5,086         (32     185,691   

Prepaid income taxes

     2,753         5         462         —          3,220   

Prepaid expenses

     2,627         648         298         —          3,573   

Deferred income taxes

     19,011         12,126         —           (337     30,800   

Intercompany receivable

     —           426,432         —           (426,432     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     96,050         645,872         21,695         (426,801     336,816   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Property and Equipment, net

     18,092         175,638         8,689         —          202,419   

Deferred Income Taxes

     13,170         —           1,791         (14,961     —     

Goodwill

     —           859,297         39,800         —          899,097   

Other Intangible Assets

     —           594,387         187         —          594,574   

Deferred Financing Costs

     46,220         —           —           —          46,220   

Other Assets

     2,047         815         2,642         —          5,504   

Investment in Subsidiaries

     1,947,033         —           —           (1,947,033     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Assets

   $ 2,122,612       $ 2,276,009       $ 74,804       $ (2,388,795   $ 2,084,630   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY              

Current Liabilities:

             

Accounts payable

   $ 5,119       $ 42,657       $ 1,178       $ —        $ 48,954   

Accrued liabilities

     39,120         45,653         6,999         —          91,772   

Current portion of long-term debt

     15,648         —           —           —          15,648   

Deferred income taxes

     —           —           337         (337     —     

Intercompany payable

     415,143         —           10,717         (425,860     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     475,030         88,310         19,231         (426,197     156,374   

Long-Term Liabilities:

             

Long-term debt

     1,192,241         —           —           —          1,192,241   

Lease incentives and other liabilities

     4,060         30,095         5,099         —          39,254   

Deferred income taxes

     —           257,205         —           (14,961     242,244   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Liabilities

     1,671,331         375,610         24,330         (441,158     1,630,113   

Commitments and Contingencies

     —           —           —           —          —     

Total Stockholders’ Equity

     451,281         1,900,399         47,238         (1,947,637     451,281   

Noncontrolling interest

     —           —           3,236         —          3,236   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Equity

     451,281         1,900,399         50,474         (1,947,637     454,517   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 2,122,612       $ 2,276,009       $ 74,804       $ (2,388,795   $ 2,084,630   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

 

     As of January 28, 2012  
     The Gymboree
Corporation
     Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
     Eliminations     Consolidated  
ASSETS              

Current Assets:

             

Cash and cash equivalents

   $ 58,910       $ 6,387       $ 12,613       $ —        $ 77,910   

Accounts receivable, net of allowance

     4,676         20,886         1,715         —          27,277   

Merchandise inventories

     —           206,661         3,389         162        210,212   

Prepaid income taxes

     3,605         263         —           (132     3,736   

Prepaid expenses

     3,689         1,538         305         —          5,532   

Deferred income taxes

     22,163         14,426         —           (474     36,115   

Intercompany receivable

     —           413,415         —           (413,415     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     93,043         663,576         18,022         (413,859     360,782   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Property and Equipment, net

     18,794         174,573         8,785         —          202,152   

Deferred Income Taxes

     12,623         —           1,784         (14,407     —     

Goodwill

     —           859,297         39,800         —          899,097   

Other Intangible Assets

     —           599,000         195         —          599,195   

Deferred Financing Costs

     47,915         —           —           —          47,915   

Other Assets

     1,361         813         2,472         —          4,646   

Investment in subsidiaries

     1,927,724         —           —           (1,927,724     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Assets

   $ 2,101,460       $ 2,297,259       $ 71,058       $ (2,355,990   $ 2,113,787   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY              

Current Liabilities:

             

Accounts payable

   $ 6,412       $ 71,510       $ 1,105       $ —        $ 79,027   

Accrued liabilities

     32,892         57,432         3,854         —          94,178   

Income tax payable

     —           —           132         (132     —     

Current portion of long-term debt

     17,698         —           —           —          17,698   

Deferred income taxes

     —           —           474         (474     —     

Intercompany payable

     402,815         —           10,116         (412,931     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     459,817         128,942         15,681         (413,537     190,903   

Long-Term Liabilities:

             

Long-term debt

     1,192,171         —           —           —          1,192,171   

Lease incentives and other liabilities

     4,097         27,743         4,739         —          36,579   

Deferred income taxes

     —           259,902         —           (14,407     245,495   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Liabilities

     1,656,085         416,587         20,420         (427,944     1,665,148   

Commitments and Contingencies

     —           —           —           —          —     

Total Stockholders’ Equity

     445,375         1,880,672         47,374         (1,928,046     445,375   

Noncontrolling interest

     —           —           3,264         —          3,264   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Equity

     445,375         1,880,672         50,638         (1,928,046     448,639   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 2,101,460       $ 2,297,259       $ 71,058       $ (2,355,990   $ 2,113,787   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

24


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

 

     As of April 30, 2011  
      The Gymboree
Corporation
     Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
     Eliminations     Consolidated  
ASSETS              

Current Assets:

             

Cash and cash equivalents

   $ 39,931       $ 2,992       $ 5,230       $ —        $ 48,153   

Accounts receivable, net of allowance

     483         15,950         94         —          16,527   

Merchandise inventories

     —           160,630         2,882         154        163,666   

Prepaid income taxes

     16,020         —           529         —          16,549   

Prepaid expenses

     3,464         1,570         48         —          5,082   

Deferred income taxes

     23,923         11,809         44         —          35,776   

Intercompany receivable

     —           352,239         —           (352,239     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     83,821         545,190         8,827         (352,085     285,753   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Property and Equipment, net

     20,578         182,846         7,164         —          210,588   

Deferred Income Taxes

     12,925         —           843         (13,768     —     

Goodwill

     —           887,597         39,800         —          927,397   

Other Intangible Assets

     —           613,154         242         —          613,396   

Deferred Financing Costs

     52,840         —           —           —          52,840   

Other Assets

     9,843         804         2,412         —          13,059   

Investment in subsidiaries

     1,917,915         —           —           (1,917,915     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Assets

   $ 2,097,922       $ 2,229,591       $ 59,288       $ (2,283,768   $ 2,103,033   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY              

Current Liabilities:

             

Accounts payable

   $ 4,717       $ 31,340       $ 144       $ —        $ 36,201   

Accrued liabilities

     38,539         40,501         1,235         —          80,275   

Current portion of long-term debt

     8,200         —           —           —          8,200   

Intercompany payable

     344,089         —           7,666         (351,755     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     395,545         71,841         9,045         (351,755     124,676   

Long-Term Liabilities:

             

Long-term debt

     1,207,613         —           —           —          1,207,613   

Lease incentives and other liabilities

     4,717         21,224         3,680         —          29,621   

Deferred income taxes

     —           264,845         —           (13,768     251,077   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Liabilities

     1,607,875         357,910         12,725         (365,523     1,612,987   

Commitments and Contingencies

     —           —           —           —          —     

Stockholders’ Equity

     490,047         1,871,681         46,563         (1,918,245     490,046   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 2,097,922       $ 2,229,591       $ 59,288       $ (2,283,768   $ 2,103,033   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED APRIL 28, 2012

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales:

          

Retail

   $ 393      $ 282,257      $ 11,704      $ (6,238   $ 288,116   

Gymboree Play & Music

     —          5,537        255        —          5,792   

Retail Franchise

     —          3,843        —          —          3,843   

Intercompany revenue

     11,795        770        1,801        (14,366     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

     12,188        292,407        13,760        (20,604     297,751   

Cost of goods sold, including buying and occupancy expenses

     (1,333     (172,575     (7,960     5,941        (175,927
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     10,855        119,832        5,800        (14,663     121,824   

Selling, general and administrative expenses

     (12,518     (87,566     (6,113     14,458        (91,739
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (1,663     32,266        (313     (205     30,085   

Interest income

     31        —          28        —          59   

Interest expense

     (21,658     —          —          —          (21,658

Loss on extinguishment of debt

     (1,237     —          —          —          (1,237

Other expense, net

     (19     —          (47     —          (66
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (24,546     32,266        (332     (205     7,183   

Income tax benefit (expense)

     10,189        (12,540     (662     —          (3,013
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (14,357     19,726        (994     (205     4,170   

Net loss attributable to noncontrolling interest

     —          —          826        —          826   

Equity in earnings of affiliates, net of tax

     19,353        —          —          (19,353     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to The Gymboree Corporation

   $ 4,996      $ 19,726      $ (168   $ (19,558   $ 4,996   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED APRIL 30, 2011

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales:

          

Retail

   $ 293      $ 260,067      $ 10,054      $ (4,532   $ 265,882   

Gymboree Play & Music

     —          2,925        —          —          2,925   

Retail Franchise

     —          1,449        —          —          1,449   

Intercompany revenue

     11,315        234        —          (11,549     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

     11,608        264,675        10,054        (16,081     270,256   

Cost of goods sold, including buying and occupancy expenses

     (1,323     (155,941     (6,647     4,515        (159,396
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     10,285        108,734        3,407        (11,566     110,860   

Selling, general and administrative expenses

     (11,532     (81,560     (3,047     11,573        (84,566
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (1,247     27,174        360        7        26,294   

Interest income

     —          26        27        —          53   

Interest expense

     (24,003     —          —          —          (24,003

Loss on extinguishment of debt

     (19,563     —          —          —          (19,563

Other income (expense), net

     37        —          (7     —          30   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (44,776     27,200        380        7        (17,189

Income tax benefit (expense)

     17,661        (10,750     (162     —          6,749   

Equity in earnings of affiliates, net of tax

     16,675        —          —          (16,675     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (10,440   $ 16,450      $ 218      $ (16,668   $ (10,440
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 13 WEEKS ENDED APRIL 28, 2012

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

CASH FLOWS FROM OPERATING ACTIVITIES:

          

Net cash (used in) provided by operating activities

   $ (426   $ 21,242      $ (840   $ —        $ 19,976   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Capital expenditures

     (460     (7,730     (435     —          (8,625

Investment in subsidiaries

     (180     —          —          180        —     

Other

     —          (59     (117     —          (176
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (640     (7,789     (552     180        (8,801
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Intercompany transfers

     12,418        (13,017     599        —          —     

Payments on Term Loan

     (2,050     —          —          —          (2,050

Deferred financing costs

     (1,274     —          —          —          (1,274

Investment by Parent

     —          —          180        (180     —     

Investment by affiliate of Parent

     2,400        —          —          —          2,400   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     11,494        (13,017     779        (180     (924
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash

     —          —          107        —          107   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     10,428        436        (506     —          10,358   

CASH AND CASH EQUIVALENTS:

          

Beginning of Period

     58,910        6,387        12,613        —          77,910   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of Period

   $ 69,338      $ 6,823      $ 12,107      $ —        $ 88,268   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 13 WEEKS ENDED APRIL 30, 2011

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations      Consolidated  

CASH FLOWS FROM OPERATING ACTIVITIES:

           

Net cash provided by operating activities

   $ 15,776      $ 2,392      $ 790      $ —         $ 18,958   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

           

Capital expenditures

     (769     (6,861     (261     —           (7,891

Acquisition of business, net of cash acquired

     (1,352     —          —          —           (1,352

Other

     —          (61     —          —           (61
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in investing activities

     (2,121     (6,922     (261     —           (9,304
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

           

Intercompany transfers

     833        992        (1,825     —           —     

Proceeds from Term Loan

     820,000        —          —          —           820,000   

Payments on Term Loan

     (822,050     —          —          —           (822,050

Proceeds from ABL facility

     20,656        —          —          —           20,656   

Payments on ABL facility

     (20,656     —          —          —           (20,656

Deferred financing costs

     (6,529     —          —          —           (6,529

Investment by Parent

     14,865        —          —          —           14,865   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     7,119        992        (1,825     —           6,286   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Effect of exchange rate fluctuations on cash

     —          —          89        —           89   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     20,774        (3,538     (1,207     —           16,029   

CASH AND CASH EQUIVALENTS:

           

Beginning of Period

     19,157        6,530        6,437        —           32,124   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

End of Period

   $ 39,931      $ 2,992      $ 5,230      $ —         $ 48,153   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

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

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

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of

The Gymboree Corporation

We have reviewed the accompanying condensed consolidated balance sheets of The Gymboree Corporation and subsidiaries (the “Company”) as of April 28, 2012 and April 30, 2011, and the related condensed consolidated statements of operations, comprehensive income (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 standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Gymboree Corporation and subsidiaries as of January 28, 2012, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the fiscal year then ended (not presented herein); and in our report dated April 26, 2012, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to a change in the Company’s method of presenting comprehensive income for the year ended January 28, 2012, due to the adoption of Financial Accounting Standards Board Accounting Update No. 2011-05, Presentation of Comprehensive Income. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 28, 2012, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

As discussed in Note 2 to the condensed consolidated interim financial statements, the Company changed its method of presenting comprehensive income during the fiscal year ended January 28, 2012, due to the adoption of Financial Accounting Standards Board Accounting Update No. 2011-05, Presentation of Comprehensive Income. The change in presentation has been applied retrospectively to the quarter ended April 30, 2011.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

June 11, 2012

 

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking statements

This quarterly report contains forward-looking statements. You can identify forward-looking statements because they contain words such as “believe,” “expect,” “may,” “will,” “should,” “could,” “seek,” “intend,” “plan,” “estimate,” or “anticipate” or similar expressions that concern our strategy, plans or intentions. All statements we make relating to: future sales, costs and expenses and gross profit percentages; the continuation of historical trends; our ability to operate our business under our capital and operating structure; and the sufficiency of our cash balances and cash generated from operating and financing activities for future liquidity and capital resource needs are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we had expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.

Important factors that could cause actual results to differ materially from our expectations (“cautionary statements”) are disclosed under “Item 1A, Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012, filed with the Securities and Exchange Commission on April 26, 2012 (the “Fiscal 2011 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, except as otherwise required by law.

General

The Gymboree Corporation (“we,” “us,” “our,” “Gymboree” and “Company”) is one of the largest children’s apparel specialty retailers in North America, offering collections of high-quality apparel and accessories. As of April 28, 2012, we operated a total of 1,166 retail stores, including 1,119 stores in the United States (586 Gymboree® stores, 152 Gymboree Outlet stores, 125 Janie and Jack® shops and 256 Crazy 8® stores), 41 Gymboree stores in Canada, 3 Gymboree stores in Australia, 1 Gymboree store in Puerto Rico and 2 Gymboree Outlet stores in Puerto Rico, as well as 3 online stores at www.gymboree.com, www.janieandjack.com and www.crazy8.com. The Company also offers directed parent-child developmental play programs at 716 franchised and Company-operated Gymboree Play & Music® centers in the United States and 39 other countries. In addition, as of April 28, 2012, third-party overseas partners operated 28 Gymboree retail stores in the Middle East and South Korea, and Gymboree (China) Commercial and Trading Co. Ltd. (“Gymboree China”) and Gymboree (Tianjin) Educational Information Consultation Co. Ltd. (“Gymboree Tianjin”) (collectively, the “Joint Venture” or “VIEs”) operated two Gymboree retail stores in China.

 

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Table of Contents

During the first quarter of fiscal 2012, we opened 24 stores, of which 22 were Crazy 8 stores. During the remainder of fiscal 2012, we plan to open approximately 81 new stores consisting mostly of Crazy 8 stores.

Results of Operations

13 weeks ended April 28, 2012, compared to 13 weeks ended April 30, 2011

Net Sales

Net retail sales for the first quarter of fiscal 2012 increased to $288.1 million from $265.9 million in the same period last year, an increase of $22.2 million, or 8.3%. Comparable store sales for the first quarter of fiscal 2012 increased 1% compared to the same period in the prior year. The increase in net retail sales was also due to net store and square footage growth of 79 stores and approximately 183,000 square feet, respectively. There were 1,166 stores open at April 28, 2012 compared to 1,087 at April 30, 2011.

Gymboree Play & Music net sales for the first quarter of fiscal 2012 increased to $5.8 million from $2.9 million in the same period last year, an increase of $2.9 million or 100%. This increase was primarily due to the termination of our agreement with a Gymboree Play & Music master franchisee in China in the third quarter of fiscal 2011. Upon this termination, we assumed the role of master franchisor, resulting in the recording of an additional $2.6 million in revenue for the first quarter of fiscal 2012 from the unit franchisees. We previously recorded revenue net of the fee paid to the previous master franchisor for servicing the unit franchisees.

Retail franchise net sales for the first quarter of fiscal 2012 increased to $3.8 million from $1.4 million in the same period last year. As of April 28, 2012, our third-party overseas partners operated 28 Gymboree stores, compared to seven stores as of the end of the same period last year.

Gross Profit

Gross profit for the first quarter of fiscal 2012 increased to $121.8 million from $110.9 million in the same period last year. However, the first quarter of fiscal 2011 included a $10.7 million adjustment to cost of goods sold from an increase in the net book value of inventory as a result of purchase accounting. If this adjustment was excluded, gross profit as a percentage of sales for the first quarter of 2012, when compared to the same period last year, decreased due to higher average unit costs resulting from higher commodity prices (primarily cotton).

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses, which principally consist of non-occupancy store expenses, corporate overhead, and distribution expenses, increased to $91.7 million in the first quarter of fiscal 2012 compared to $84.6 million in the same period last year. As a percentage of net sales, SG&A expenses decreased to 30.8% for the first quarter of fiscal 2012 compared to 31.3% in the same period last year. This decrease was primarily due to the following (all as a percentage of sales): lower depreciation and amortization costs; lower

 

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impairment charges related to underperforming stores; and lower bank card fees partially offset by increased expenses related to the Joint Venture.

Interest Expense

Interest expense decreased to $21.7 million in the first quarter of fiscal 2012 compared to $24 million in the same period last year. The decrease of $2.3 million is primarily related to fees paid in connection with the refinancing of our $820 million senior secured term loan facility (“Term Loan”) in the first quarter of fiscal 2011.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $1.2 million for the first quarter of fiscal 2012 compared to $19.6 million in the same period last year. In March 2012, we amended and restated our senior secured asset-based revolving credit facility (as so amended and restated, “ABL” or “ABL Facility” and, together with the Term Loan, collectively, the “Senior Credit Facilities”) to, among other things, lower the interest rate and extend the maturity date. The loss recorded in the first quarter of 2011 was due to the refinancing of our Term Loan in February 2011.

Income Taxes

The effective tax rate for the first quarter of fiscal 2012 and 2011 was 41.9% and 39.3%, respectively. The actual fiscal 2012 effective tax rate will ultimately depend on several variables, including the mix of earnings between domestic and international operations, our overall level of earnings in fiscal 2012, and the potential resolution of tax contingencies. Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. Although timing of the resolution and/or closure of audits is not certain, we do not believe it is reasonably possible that our unrecognized tax benefits would materially change in the next 12 months.

Seasonality

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

Financial Condition

Liquidity and Capital Resources

Cash and cash equivalents were $88.3 million at April 28, 2012 an increase of $10.4 million from January 28, 2012. As of April 28, 2012 and January 28, 2012, cash and cash equivalents include $6.5 million and $4.9 million, respectively, held by the two entities that make up the Joint Venture, which we have determined to be variable interest entities of which we are the primary beneficiary, and the results of which we have consolidated into our financial statements (see Note 9 to the condensed consolidated financial statements included elsewhere in this

 

32


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quarterly report). The assets of the VIEs cannot be used by us. Working capital as of April 28, 2012 was $180.4 million compared to $169.9 million as of January 28, 2012.

Net cash provided by operating activities for the 13 weeks ended April 28, 2012 was $20.0 million, which is relatively flat compared to $19.0 million in the same period last year.

Net cash used in investing activities for the 13 weeks ended April 28, 2012 was $8.8 million compared to $9.3 million in the same period last year, and consisted primarily of capital expenditures related to the opening of new stores, information technology improvements, and investments in our distribution center.

Net cash used in financing activities for the 13 weeks ended April 28, 2012 was $0.9 million, compared to net cash provided by financing activities of $6.3 million in the same period last year. Net cash used in financing activities for the 13 weeks ended April 28, 2012 was primarily related to a quarterly principal payment of $2.1 million on our Term Loan as well as costs paid to refinance our ABL, partially offset by a capital contribution from an affiliate of our indirect parent company, Giraffe Holding, Inc. (“Parent”). Net cash provided by financing activities during the 13 weeks ended April 30, 2011 was primarily related to capital contributions made by Parent to us of $14.9 million partially offset by $6.6 million in costs paid in connection with the February 2011 refinancing of our Term Loan and $2.1 million in quarterly principal payments on our Term Loan. We anticipate cash used in financing activities during the remainder of fiscal 2012 to include a $15.6 million prepayment on our Term Loan due to fiscal 2011 excess cash flow (see Note 5 to the condensed consolidated financial statements included elsewhere in this quarterly report).

We have an $820 million Term Loan and a $225 million ABL Facility. As of April 28, 2012, $809.8 million was outstanding under the Term Loan and no amounts were outstanding under the ABL Facility. There was approximately $172.5 million of undrawn availability under the ABL at April 28, 2012. Amounts available under the ABL are subject to customary borrowing base limitations and are reduced by letter of credit utilization. The Term Loan and ABL also allow an aggregate of $200 million in uncommitted incremental facilities, the availability of which is subject to our meeting certain conditions. No incremental facilities are currently in effect. The Term Loan and ABL contain covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. The ABL also contains financial covenants. As of April 28, 2012, the Company was in compliance with these covenants.

We anticipate that cash and cash equivalents generated by operations, the remaining funds available under our Term Loan and ABL, and existing cash and cash equivalents will be sufficient to meet working capital requirements, service our debt and finance capital expenditures over the next twelve months. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in amounts sufficient to enable us to repay or refinance our indebtedness, including the Term Loan, the ABL and the Notes, or to fund other liquidity needs. See “Item 1A. Risk Factors—Risks Related to Our Indebtedness and Certain Other Obligations,” in our Fiscal 2011 Annual Report.

 

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There have been no material changes outside the ordinary course of business to our contractual obligations since January 28, 2012, as disclosed in our Fiscal 2011 Annual Report.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates affecting the application of those policies since our Fiscal 2011 Annual Report.

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

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

 

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Table of Contents
     13 Weeks Ended
April 28, 2012
    13 Weeks Ended
April 30, 2011
 
     (In thousands)  

Net income (loss) attributable to The Gymboree Corporation

   $ 4,996      $ (10,440

Reconciling items (a):

    

Interest expense

     21,658        24,003   

Interest income

     (48     (53

Income tax expense (benefit)

     2,954        (6,749

Depreciation and amortization (b)

     14,162        14,245   

Non-cash share-based compensation expense

     1,407        1,402   

Loss on disposal/impairment on assets

     62        768   

Loss on extinguishment of debt

     1,237        19,563   

Acquisition-related adjustments (c)

     4,398        16,606   
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 50,826      $ 59,345   
  

 

 

   

 

 

 

 

(a) Exlude amounts related to noncontrolling interest, which are already excluded from net income (loss) attributable to The Gymboree Corporation
(b) Includes the following (in thousands):

 

Amortization of intangible assets (impacts SG&A)

   $  4,340      $  4,144   

Amortization of below and above market leases (impacts COGS)

     (548     (513
  

 

 

   

 

 

 
   $ 3,792      $ 3,631   
  

 

 

   

 

 

 

 

(c) Includes the following (in thousands):

 

Adjustment to cost of goods sold from an increase in the net book value of inventory as a result of purchase accounting (impacts COGS)

   $ -       $  10,731   

Additional rent expense recognized due to the elimination of deferred rent and construction allowances in purchase accounting (impacts COGS)

     2,324         2,422   

Legal, accounting and sponsor fees, as well as other costs incurred as a result of the Merger (impacts SG&A)

     872         1,966   

Decrease in net sales due to the elimination of deferred revenue related to the Company's co-branded credit card program in purchase accounting (impacts net sales)

     1,202         1,487   
  

 

 

    

 

 

 
   $ 4,398       $ 16,606   
  

 

 

    

 

 

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

 

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

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

 

     Notional
Amount
     Fair Value
Loss
    Weighted-
Average Rate
 
     (in thousands, except weighted-average rate data)  

April 28, 2012

   $ 14,016       $ (330   $ 1.02   

January 28, 2012

   $ 14,154       $ (13   $ 0.99   

April 30, 2011

   $ 5,370       $ (238   $ 1.06   

Interest Rate Risk

We are subject to interest rate risk in connection with our long-term debt. Our principal interest rate risk relates to the outstanding Term Loan. We had $809.8 million outstanding under our Term Loan as of April 28, 2012, bearing interest at variable rates. A 0.125% increase in the floating rates applicable to the indebtedness outstanding under the Term Loan would have increased annual interest expense by approximately $1.0 million. The Term Loan and the ABL also allow an aggregate of $200 million in uncommitted incremental facilities, bearing interest at variable rates. No incremental facilities are currently in effect.

In December 2010, we purchased four interest rate caps to hedge against rising interest rates associated with our Term Loan above the 5% strike rate of the caps through December 23, 2016, the maturity date of the caps. The notional amount of these caps is $700 million. As of April 28, 2012, January 28, 2012, and April 30, 2011 accumulated other comprehensive loss included approximately $9.9 million, $10.7 million, and $2.2 million respectively, in unrealized losses related to the interest rate caps.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Chief 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,

 

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including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on the Company’s evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In addition, the Company’s Chief Executive Officer and Principal Financial Officer concluded as of the end of the period covered by this report that the Company’s disclosure controls and procedures are also effective to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the first quarter of the Company’s fiscal 2012, 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 adverse effect on our financial position, results of operations or cash flows.

Item 1A. RISK FACTORS

Not applicable.

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

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

 

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Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

 

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Table of Contents

Item 6. EXHIBITS

 

10.1    Amended and Restated Credit Agreement, dated as of March 30, 2012, by and among The Gymboree Corporation, the other borrowers from time to time party thereto, Giraffe Intermediate B, Inc., the other facility guarantors from time to time party thereto, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent and collateral agent for such lenders.(1)
31.1    Certification of Matthew K. McCauley Pursuant to §302 of the Sarbanes- Oxley Act of 2002.
31.2    Certification of Lynda G. Gustafson Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification of Matthew K. McCauley Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of Lynda G. Gustafson 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 April 28, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) (iv) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

 

(1) Incorporated by reference to the corresponding exhibit to The Gymboree Corporation’s Current Report on Form 8-K filed with the SEC on April 5, 2012.

 

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Table of Contents

SIGNATURES

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

 

 

    THE GYMBOREE CORPORATION
    (Registrant)

June 11, 2012

   

By:     /s/ Matthew K. McCauley

Date      

Matthew K. McCauley

Chief Executive Officer; Director

 

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Table of Contents

Exhibit Index

 

Exhibit
Number

  

Description

10.1    Amended and Restated Credit Agreement, dated as of March 30, 2012, by and among The Gymboree Corporation, the other borrowers from time to time party thereto, Giraffe Intermediate B, Inc., the other facility guarantors from time to time party thereto, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent and collateral agent for such lenders.(1)
31.1    Certification of Matthew K. McCauley Pursuant to §302 of the Sarbanes- Oxley Act of 2002.
31.2    Certification of Lynda G. Gustafson Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification of Matthew K. McCauley Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of Lynda G. Gustafson 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 April 28, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) (iv) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

 

(1) Incorporated by reference to the corresponding exhibit to The Gymboree Corporation’s Current Report on Form 8-K filed with the SEC on April 5, 2012.

 

41

Section 302 CEO Certification

Exhibit 31.1

CERTIFICATION

I, Matthew K. McCauley, certify that:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

June 11, 2012

     

By:     /s/ Matthew K. McCauley

Date      

Matthew K. McCauley

Chief Executive Officer; Director

(Principal Executive Officer)

Section 302 CFO Certification

Exhibit 31.2

CERTIFICATION

I, Lynda G. Gustafson, certify that:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

June 11, 2012

   

By:     /s/ Lynda G. Gustafson

Date    

Lynda G. Gustafson

Vice President, Corporate Controller

(Principal Accounting Officer and Principal

Financial Officer)

Section 906 CEO Certification

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Gymboree Corporation (the “Company”) on Form 10-Q for the period ended April 28, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, Matthew K. McCauley, Chief Executive Officer and Director of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

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

 

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

 

June 11, 2012

   

By:     /s/ Matthew K. McCauley

Date    

Matthew K. McCauley

Chief Executive Officer; Director

(Principal Executive Officer)

Section 906 CFO Certification

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Gymboree Corporation (the “Company”) on Form 10-Q for the period ended April 28, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, Lynda G. Gustafson, Vice President, Corporate Controller of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

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

 

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

 

June 11, 2012

     

By:     /s/ Lynda G. Gustafson

Date

     

Lynda G. Gustafson

Vice President, Corporate Controller

(Principal Accounting Officer and Principal

Financial Officer)