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 August 3, 2013

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 September 16, 2013, the registrant had 1,000 shares of common stock outstanding, par value $0.001 per share, all of which are owned by Giraffe Holding, Inc., the registrant’s indirect parent holding company, and are not publicly traded.

 

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

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Part I—FINANCIAL INFORMATION

  

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      31   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      32   

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk      37   

Item 4.

   Controls and Procedures      37   

Part II—OTHER INFORMATION

  

Item 1.

   Legal Proceedings      38   

Item 1A.

   Risk Factors      38   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      38   

Item 3.

   Defaults Upon Senior Securities      38   

Item 4.

   Mine Safety Disclosures      38   

Item 5.

   Other Information      38   

Item 6.

   Exhibits      39   
   Signatures      40   

 

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Table of Contents

Part I—FINANCIAL INFORMATION

Item 1. Financial Statements

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

     August 3,
2013
    February 2,
2013
    July 28,
2012
 

ASSETS

      

Current assets:

      

Cash and cash equivalents

   $ 26,831      $ 33,328      $ 54,555   

Accounts receivable

     26,916        27,542        25,173   

Merchandise inventories

     214,981        197,935        220,209   

Prepaid income taxes

     4,037        2,903        5,295   

Prepaid expenses

     18,081        17,341        4,498   

Deferred income taxes

     36,378        31,383        41,328   
  

 

 

   

 

 

   

 

 

 

Total current assets

     327,224        310,432        351,058   
  

 

 

   

 

 

   

 

 

 

Property and equipment:

      

Land and buildings

     22,428        22,428        22,428   

Leasehold improvements

     188,301        174,616        159,770   

Furniture, fixtures and equipment

     106,215        99,120        90,061   
  

 

 

   

 

 

   

 

 

 
     316,944        296,164        272,259   

Less accumulated depreciation and amortization

     (110,484     (90,839     (69,624
  

 

 

   

 

 

   

 

 

 

Net property and equipment

     206,460        205,325        202,635   

Goodwill

     898,983        898,966        899,097   

Other intangible assets

     577,782        580,641        589,943   

Deferred financing costs

     36,819        40,040        44,695   

Other assets

     8,293        7,809        5,006   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 2,055,561      $ 2,043,213      $ 2,092,434   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

Current liabilities:

      

Accounts payable

   $ 100,794      $ 90,133      $ 84,964   

Accrued liabilities

     93,947        90,443        89,906   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     194,741        180,576        174,870   
  

 

 

   

 

 

   

 

 

 

Long-term liabilities:

      

Long-term debt

     1,138,595        1,138,455        1,192,312   

Lease incentives and other deferred liabilities

     45,529        40,104        34,045   

Unrecognized tax benefits

     8,894        7,848        7,407   

Deferred income taxes

     229,548        234,593        239,985   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     1,617,307        1,601,576        1,648,619   
  

 

 

   

 

 

   

 

 

 

Commitments and contingencies (see Notes 6, 7 and 14)

      

Stockholders’ equity:

      

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

     522,461        519,687        521,615   

Accumulated deficit

     (88,117     (76,231     (76,661

Accumulated other comprehensive loss

     (4,888     (5,914     (5,783
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     429,456        437,542        439,171   

Noncontrolling interest

     8,798        4,095        4,644   
  

 

 

   

 

 

   

 

 

 

Total equity

     438,254        441,637        443,815   
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,055,561      $ 2,043,213      $ 2,092,434   
  

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

 

     13 Weeks Ended     26 Weeks Ended  
     August 3, 2013     July 28, 2012     August 3, 2013     July 28, 2012  

Net sales:

        

Retail

   $ 278,944      $ 259,114      $ 559,821      $ 547,230   

Gymboree Play & Music

     6,260        5,799        12,588        11,591   

Retail Franchise

     5,712        3,839        11,290        7,682   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

     290,916        268,752        583,699        566,503   

Cost of goods sold, including buying and occupancy expenses

     (183,830     (179,564     (355,640     (355,491
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     107,086        89,188        228,059        211,012   

Selling, general and administrative expenses

     (102,023     (95,595     (206,152     (187,334
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     5,063        (6,407     21,907        23,678   

Interest income

     61        45        102        104   

Interest expense

     (20,467     (21,193     (40,869     (42,851

Loss on extinguishment of debt

     —          —          —          (1,237

Other income (expense), net

     (111     (24     (102     (90
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (15,454     (27,579     (18,962     (20,396

Income tax benefit

     6,129        13,513        6,789        10,500   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (9,325     (14,066     (12,173     (9,896

Net (income) loss attributable to noncontrolling interest

     (25     798        287        1,624   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to The Gymboree Corporation

   $ (9,350   $ (13,268   $ (11,886   $ (8,272
  

 

 

   

 

 

   

 

 

   

 

 

 

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     26 Weeks Ended  
     August 3, 2013     July 28, 2012     August 3, 2013     July 28, 2012  

Net loss

   $ (9,325   $ (14,066   $ (12,173   $ (9,896
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income, net of tax:

        

Foreign currency translation adjustments

     (402     (30     (423     (59

Unrealized net gain (loss) on cash flow hedges, net of tax benefit of $435, $232, $500 and $263

     1,615        (336     1,506        99   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     1,213        (366     1,083        40   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

     (8,112     (14,432     (11,090     (9,856

Comprehensive (income) loss attributable to noncontrolling interest

     (43     842        230        1,656   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to The Gymboree Corporation

   $ (8,155   $ (13,590   $ (10,860   $ (8,200
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     26 Weeks Ended  
     August 3, 2013     July 28, 2012  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net loss

   $ (12,173   $ (9,896

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Loss on extinguishment of debt

     —          1,237   

Depreciation and amortization

     23,684        28,923   

Amortization of deferred financing costs and accretion of original issue discount

     3,362        3,471   

Interest rate cap contracts - adjustment to market

     432        114   

Loss on disposal/impairment of assets

     1,949        1,264   

Deferred income taxes

     (9,498     (10,880

Share-based compensation expense

     2,974        2,917   

Other

     —          1,430   

Change in assets and liabilities:

    

Accounts receivable

     645        (312

Merchandise inventories

     (16,803     (10,084

Prepaid income taxes

     (1,166     (1,557

Prepaid expenses and other assets

     (1,083     933   

Accounts payable

     10,661        5,944   

Accrued liabilities

     (456     (9,680

Lease incentives and other deferred liabilities

     8,062        6,612   
  

 

 

   

 

 

 

Net cash provided by operating activities

     10,590        10,436   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Capital expenditures

     (23,228     (18,516

Other

     (162     (231
  

 

 

   

 

 

 

Net cash used in investing activities

     (23,390     (18,747
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Payments on Term Loan

     —          (17,698

Payments of deferred financing costs

     —          (1,347

Investment by affiliate of Parent

     —          2,400   

Dividend payment to Parent

     (201     —     

Capital contribution received by noncontrolling interest

     6,506        1,595   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     6,305        (15,050
  

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

     (2     6   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (6,497     (23,355

CASH AND CASH EQUIVALENTS:

    

Beginning of period

     33,328        77,910   
  

 

 

   

 

 

 

End of period

   $ 26,831      $ 54,555   
  

 

 

   

 

 

 

OTHER CASH FLOW INFORMATION:

    

Cash paid for income taxes, net of refunds received

   $ 1,926      $ 2,747   

Cash paid for interest

   $ 37,255      $ 40,277   

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 our 100%-owned subsidiaries, as well as Gymboree (China) Commercial and Trading Co. Ltd. (“Gymboree China”) and Gymboree (Tianjin) Educational Information Consultation Co. Ltd. (“Gymboree Tianjin”) (collectively, the “VIEs”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended February 2, 2013 filed with the Securities and Exchange Commission on May 2, 2013.

The accompanying condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position, results of operations, comprehensive income (loss) and cash flows for the periods presented. The results of operations for the 13 and 26 weeks ended August 3, 2013 are not necessarily indicative of the operating results that may be expected for the 52-week period ending February 1, 2014 (“fiscal 2013”) or any future period.

2. Recently Issued Accounting Standards

In July 2013, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The guidance is effective prospectively for fiscal years and interim reporting periods within those years, beginning after December 15, 2013. We are currently evaluating the impact of this guidance on our consolidated financial statements.

In February 2013, the FASB issued guidance to finalize the reporting of amounts reclassified out of accumulated other comprehensive income. This new standard requires the registrant to disclose either in a single note, or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. The guidance is effective for annual reporting periods and interim periods within those years beginning after December 15, 2012. We adopted this guidance in the first quarter of fiscal 2013 as presented in Note 12. This change did not have a material impact on our consolidated financial statements.

3. Goodwill and Intangible Assets and Liabilities

Goodwill

During the 13 and 26 week periods ended August 3, 2013 and July 28, 2012, we did not identify any impairment indicators for goodwill or other indefinite-lived intangible assets.

 

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Intangible Assets and Liabilities

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

 

     August 3, 2013  
     Gross Carrying
Amount
    Accumulated
Amortization
    Net Amount  

Intangible Assets Not Subject to Amortization:

      

Trade names

   $ 567,861        $ 567,861   
  

 

 

     

 

 

 

Intangible Assets Subject to Amortization:

      

Customer relationships

     36,400      $ (36,400     —     

Below market leases

     7,055        (3,620     3,435   

Co-branded credit card agreement

     4,000        (1,650     2,350   

Franchise agreements

     6,600        (2,464     4,136   
  

 

 

   

 

 

   

 

 

 
     54,055        (44,134     9,921   
  

 

 

   

 

 

   

 

 

 

Total other intangible assets

   $ 621,916      $ (44,134   $ 577,782   
  

 

 

   

 

 

   

 

 

 

Intangible Liabilities Subject to Amortization:

      

Above market leases (included in Lease incentives and other deferred liabilities)

   $ (16,626   $ 8,725      $ (7,901
  

 

 

   

 

 

   

 

 

 
     February 2, 2013  
     Gross Carrying
Amount
    Accumulated
Amortization
    Net Amount  

Intangible Assets Not Subject to Amortization:

      

Trade names

   $ 567,494        $ 567,494   
  

 

 

     

 

 

 

Intangible Assets Subject to Amortization:

      

Customer relationships

     36,400      $ (34,525     1,875   

Below market leases

     7,055        (3,037     4,018   

Co-branded credit card agreement

     4,000        (1,342     2,658   

Franchise agreements

     6,600        (2,004     4,596   
  

 

 

   

 

 

   

 

 

 
     54,055        (40,908     13,147   
  

 

 

   

 

 

   

 

 

 

Total other intangible assets

   $ 621,549      $ (40,908   $ 580,641   
  

 

 

   

 

 

   

 

 

 

Intangible Liabilities Subject to Amortization:

      

Above market leases (included in Lease incentives and other deferred liabilities)

   $ (16,631   $ 7,382      $ (9,249
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     July 28, 2012  
     Gross Carrying
Amount
    Accumulated
Amortization
    Net Amount  

Intangible Assets Not Subject to Amortization:

      

Trade names

   $ 567,405        $ 567,405   
  

 

 

     

 

 

 

Intangible Assets Subject to Amortization:

      

Customer relationships

     36,400      $ (26,612     9,788   

Below market leases

     7,052        (2,322     4,730   

Co-branded credit card agreement

     4,000        (1,035     2,965   

Franchise agreements

     6,600        (1,545     5,055   
  

 

 

   

 

 

   

 

 

 
     54,052        (31,514     22,538   
  

 

 

   

 

 

   

 

 

 

Total other intangible assets

   $ 621,457      $ (31,514   $ 589,943   
  

 

 

   

 

 

   

 

 

 

Intangible Liabilities Subject to Amortization:

      

Above market leases (included in Lease incentives and other deferred liabilities)

   $ (16,627   $ 5,834      $ (10,793
  

 

 

   

 

 

   

 

 

 

During the 13 week periods ended August 3, 2013 and July 28, 2012, we recorded net amortization income of approximately $0.4 million and $0.5 million, respectively, in cost of goods sold (“COGS”). During the 26 week periods ended August 3, 2013 and July 28, 2012, we recorded net amortization income of approximately $0.8 million and $1.0 million, respectively, in COGS.

During the 13 week periods ended August 3, 2013 and July 28, 2012, we recorded amortization expense of approximately $0.4 million and $4.4 million, respectively, in selling, general and administrative expenses (“SG&A”). During the 26 week periods ended August 3, 2013 and July 28, 2012, we recorded amortization expense of approximately $2.6 million and $8.7 million, respectively, in SG&A.

We estimate that amortization expense (income) related to intangible assets and liabilities will be as follows for the remainder of fiscal 2013 and each of the next five fiscal years (in thousands):

 

Fiscal    Below Market
Leases
     Above Market
Leases
    Other
Intangibles
     Total  

2013 (remaining 26 weeks)

   $ 575       $ (1,260   $ 767       $ 82   

2014

     1,059         (2,023     1,534         570   

2015

     835         (1,579     1,534         790   

2016

     483         (1,428     1,393         448   

2017

     342         (1,016     332         (342

2018 and remaining

     141         (595     926         472   

4. Derivative Financial 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 income (loss) related to these forward foreign exchange contracts will be reclassified to cost of goods sold over an approximately three-month period. We also enter into forward foreign exchange contracts with respect to short-term intercompany balances between U.S. and foreign entities in Canada and Australia. The purpose of these contracts is to protect us from fluctuations in the exchange rates upon the settlement of such balances. These contracts are not designated as hedges. Consequently, changes in the fair value of these contracts are included in other income.

We use interest rate caps to hedge against rising interest rates associated with our Term Loan (see Note 7) above the strike rate of the cap through December 23, 2016, the maturity date of the caps. The interest rate caps were designated on the date of execution as cash-flow hedges. In December 2010, we paid approximately $12.1 million to enter into these interest rate caps. This premium, and any related amounts reported in accumulated other comprehensive loss, are being amortized to interest expense through December 23, 2016, as interest payments are made on the underlying Term Loan. During the 13 week period ended August 3, 2013 and July 28,

 

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2012, we reclassified approximately $0.2 million and $0.1 million respectively, from accumulated other comprehensive loss to interest expense. During the 26 week period ended August 3, 2013 and July 28, 2012, we reclassified approximately $0.4 million and $0.1 million respectively, from accumulated other comprehensive loss to interest expense. We estimate that approximately $1.6 million will be reclassified from accumulated other comprehensive loss to interest expense within the next 12 months.

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

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

 

     August 3, 2013      February 2, 2013      July 28, 2012  
     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

     6         7,165         6         6,377         6         7,684   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     10       $ 707,165         10       $ 706,377         10       $ 707,684   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

In addition to the cash flow hedges above, as of August 3, 2013 and February 2, 2013, the Company had one forward foreign exchange contract with a notional amount of $0.3 million and $1.0 million, respectively, which was not designated as a hedge. As of July 28, 2012, all forward foreign exchange contracts were 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).

 

     August 3, 2013      February 2, 2013      July 28, 2012  
     Derivative
Assets
     Derivative
Liabilities
     Derivative
Assets
     Derivative
Liabilities
     Derivative
Assets
     Derivative
Liabilities
 

Other Assets

                 

Purchased Interest Rate Caps

   $ 1,187       $ —         $ 964       $ —         $ 1,087       $ —     

Forward foreign exchange contracts

     223         —           —           —           —           —     

Accrued Liabilities

                 

Forward foreign exchange contracts

     —           —           —           18         —           14   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,410       $ —         $ 964       $ 18       $ 1,087       $ 14   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The tables below present the effect of all of our derivative financial instruments on the condensed consolidated statements of operations and comprehensive income (loss) for the 13 and 26 weeks ended August 3, 2013 and July 28, 2012 (in thousands). No amounts were reclassified from accumulated other comprehensive loss into income as a result of forecasted transactions that failed to occur or as a result of hedge ineffectiveness for either period.

 

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     13 Weeks Ended August 3, 2013  
     Gains / (Losses)
Recognized in OCI on
Derivative (Effective

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

Portion)
   Gains / (Losses)
Reclassified from
Accumulated OCI into
Income (Effective

Portion)
 

Interest rate caps

   $ 679      Interest expense    $ (249

Forward foreign exchange contracts

     312      Cost of goods sold      60   
  

 

 

      

 

 

 

Total

   $ 991         $ (189
  

 

 

      

 

 

 
     13 Weeks Ended July 28, 2012  
     Gains / (Losses)
Recognized in OCI on
Derivative (Effective
Portion)
    Location of Gains
(Losses) Reclassified from
Accumulated OCI into
Income (Effective
Portion)
   Gains / (Losses)
Reclassified from
Accumulated OCI into
Income (Effective
Portion)
 

Interest rate caps

   $ (958   Interest expense    $ (61

Forward foreign exchange contracts

     335      Cost of goods sold      6   
  

 

 

      

 

 

 

Total

   $ (623      $ (55
  

 

 

      

 

 

 
     26 Weeks Ended August 3, 2013  
     Gains / (Losses)
Recognized in OCI on
Derivative (Effective
Portion)
    Location of Gains
(Losses) Reclassified from
Accumulated OCI into
Income (Effective
Portion)
   Gains / (Losses)
Reclassified from
Accumulated OCI into
Income (Effective
Portion)
 

Interest rate caps

   $ 223      Interest expense    $ (432

Forward foreign exchange contracts

     404      Cost of goods sold      53   
  

 

 

      

 

 

 

Total

   $ 627         $ (379
  

 

 

      

 

 

 
     26 Weeks Ended July 28, 2012  
     Gains / (Losses)
Recognized in OCI on
Derivative (Effective
Portion)
    Location of Gains
(Losses) Reclassified from
Accumulated OCI into
Income (Effective
Portion)
   Gains / (Losses)
Reclassified from
Accumulated OCI into
Income (Effective
Portion)
 

Interest rate caps

   $ (274   Interest expense    $ (114

Forward foreign exchange contracts

     84      Cost of goods sold      88   
  

 

 

      

 

 

 

Total

   $ (190      $ (26
  

 

 

      

 

 

 

 

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In the tables above, the amounts of gain (loss) recognized in OCI for the effective portion of our interest rate caps and forward foreign exchange contracts for the 13 weeks ended July 28, 2012 have been corrected from the previously disclosed amounts of ($897) and $88, respectively. These corrections had no impact on the accompanying condensed consolidated balance sheet or statements of operations and comprehensive income (loss).

The amounts of gain (loss) recognized in OCI for the effective portion of our interest rate caps and forward foreign exchange contracts for the 26 weeks ended July 28, 2012 have been corrected from the previously disclosed amounts of ($160) and $71, respectively. These corrections had no impact on the accompanying condensed consolidated balance sheet or statements of operations and comprehensive income (loss).

5. Fair Value Measurements

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

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

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

Level 3 – 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. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present our assets and liabilities measured at fair value on a recurring basis as of August 3, 2013, February 2, 2013 and July 28, 2012, aggregated by the level in the fair value hierarchy within which those measurements fall. There were no transfers into or out of Level 1 and Level 2 during the 13 and 26 weeks ended August 3, 2013 and July 28, 2012, or for the year ended February 2, 2013.

 

     August 3, 2013  
     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

   $ 7,253       $ —         $ —         $ 7,253   

Interest rate caps

     —           1,187         —           1,187   

Forward foreign exchange contracts

     —           223         —           223   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,253       $ 1,410       $ —         $ 8,663   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     February 2, 2013  
     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

   $ 17,297       $ —         $ —         $ 17,297   

Interest rate caps

     —           964         —           964   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 17,297       $ 964       $ —         $ 18,261   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Forward foreign exchange contracts

   $ —         $ 18       $ —         $ 18   
  

 

 

    

 

 

    

 

 

    

 

 

 
     July 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

   $ 29,176       $ —         $ —         $ 29,176   

Interest rate caps

     —           1,087         —           1,087   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 29,176       $ 1,087       $ —         $ 30,263   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Forward foreign exchange contracts

   $ —         $ 14       $ —         $ 14   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

The fair value of our interest rate caps was determined using the market standard methodology of 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 us and our counterparties. However, as of August 3, 2013, February 2, 2013, and July 28, 2012, 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 August 3, 2013, February 2, 2013 and July 28, 2012.

 

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

 

     August 3, 2013      February 2, 2013      July 28, 2012  
     Carrying Amount      Fair Value      Carrying Amount      Fair Value      Carrying Amount      Fair Value  

Term loan

   $ 767,595       $ 746,029       $ 767,455       $ 749,874       $ 792,312       $ 756,658   

Notes

     371,000         358,943         371,000         348,740         400,000         373,000   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,138,595       $ 1,104,972       $ 1,138,455       $ 1,098,614       $ 1,192,312       $ 1,129,658   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

Our non-financial instruments, which primarily consist of goodwill, other intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), non-financial instruments are assessed for impairment and, if applicable, written-down to and recorded at fair value, considering external market participant assumptions.

During the 13 and 26 weeks ended August 3, 2013 and July 28, 2012, we recorded an impairment charge of $1.0 million and $0.9 million, respectively, related to assets for under-performing stores. 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 selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.

6. Line of Credit

We have 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, we recorded a loss on extinguishment of debt of $1.2 million during the first quarter of fiscal 2012 for the write-off of deferred financing costs related to the ABL. 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 August 3, 2013, there was $39.9 million of commercial and standby letters of credit outstanding and no borrowing outstanding. As of August 3, 2013, availability under the ABL was approximately $139.4 million. There were no borrowings during the 13 and 26 week periods ended August 3, 2013 and July 28, 2012.

The ABL provides us the right to request up to $125 million of additional commitments under this facility (or, if less, the amount permitted under the Term Loan described in Note 7), 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 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, which is 0.375% per annum under the amended ABL, and was 0.5% per annum prior to March 2012.

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 August 3, 2013, we were in compliance with these covenants. 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.

 

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Table of Contents

7. Long-Term Debt

Long-term debt consists of (in thousands):

 

     August 3, 2013      February 2, 2013      July 28, 2012  

Senior secured term loan facility, net of discount of $1,507, $1,647 and $1,791

   $ 767,595       $ 767,455       $ 792,312   

9.125% senior notes

     371,000         371,000         400,000   
  

 

 

    

 

 

    

 

 

 

Long-term debt

   $ 1,138,595       $ 1,138,455       $ 1,192,312   
  

 

 

    

 

 

    

 

 

 

We have an agreement with several lenders for an $820 million senior secured Term Loan, with a maturity date of February 2018. The Term Loan allows us to request additional tranches of term loans in an aggregate amount not to exceed $200 million, subject to the satisfaction of certain conditions, provided that such amount will be subject to reduction by the amount of any additional commitments incurred under the ABL described in Note 6. The interest rate for borrowings under the Term Loan is, at our option, a base rate plus an additional marginal rate of 2.5% or the Adjusted LIBOR rate (with a 1.5% floor) plus an additional rate of 3.5%. As of August 3, 2013, the interest rate under our Term Loan was 5%.

The Term Loan requires us to make quarterly payments equal to 0.25% of the original $820 million principal amount of the Term Loan made on the closing date plus accrued and unpaid interest thereon, with the balance due in February 2018. The Term Loan also has mandatory and voluntary pre-payment provisions, including a requirement that we prepay the Term Loan with a certain percentage of our annual excess cash flow.

We calculated our excess cash flow using fiscal 2012 operating results and concluded that we are not required to make any excess cash flow payments on the Term Loan during the first quarter of fiscal 2013. During fiscal 2012, we made one quarterly amortization payment of $2.1 million, prepaid $15.6 million of our Term Loan with our excess cash flow, and made a voluntary prepayment of $25.0 million. The excess cash flow payment made during fiscal 2012 was calculated based on fiscal 2011 operating results. We applied the voluntary prepayment and the excess cash flow prepayment toward our remaining quarterly amortization payments payable under the Term Loan in fiscal 2012 and applied the remainder of such prepayments toward our quarterly amortization payments payable under the Term Loan in fiscal 2013 through fiscal 2017. Future minimum principal payments on long-term debt excluding original issuance discount of $1.5 million as of August 3, 2013 are, as follows (in thousands):

 

Fiscal years

  

2013

   $ —     

2014

     —     

2015

     —     

2016

     —     

2017

     6,502   

Thereafter

     1,133,600   
  

 

 

 

Total

   $ 1,140,102   
  

 

 

 

The Term Loan is presented net of the related original issue discount (“OID”). Accretion of OID is included in interest expense and was not material for the 13 and 26 weeks ended August 3, 2013 or July 28, 2012. 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.

In fiscal 2010, we issued $400 million aggregate principal amount of 9.125% senior notes due in December 2018 (the “Notes”). Interest on the Notes is payable semi-annually. If the Company or our subsidiaries sell certain assets, we generally must either invest the net cash proceeds from such sale in our business within a certain period of time, use the proceeds to prepay senior secured debt, or make an offer to purchase a principal amount of the Notes equal to the excess net cash proceeds at a redemption price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest. Upon a change in control, we may also be required to make an offer to purchase all of the Notes at a redemption price equal to 101% of the principal amount of the Notes redeemed plus accrued and unpaid interest. 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 17). During the fourth quarter of fiscal 2012, we repurchased Notes with an aggregate principal amount of $29 million for $26.6 million in cash in privately negotiated transactions. We recorded a $2.4 million gain on extinguishment of debt and a $1.4 million charge related to the write-off of deferred financing costs associated with the extinguished debt.

 

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Table of Contents

Interest expense was $20.5 million and $40.9 million for the 13 and 26 weeks ended August 3, 2013, including $1.7 million and $3.4 million, respectively, of amortization of deferred financing costs and accretion of OID. For the 13 and 26 weeks ended July 28, 2012, interest expense was $21.2 million and $42.9 million, respectively, including $1.7 million and $3.5 million, respectively, of amortization of deferred financing costs and accretion of OID.

8. Lease Incentives and Other Deferred Liabilities

Lease incentives and other deferred liabilities consist of the following (in thousands):

 

     August 3, 2013      February 2, 2013      July 28, 2012  

Above market leases

   $ 7,901       $ 9,249       $ 10,793   

Deferred rent

     13,433         11,269         8,704   

Lease allowances

     22,655         18,059         12,970   

Other

     1,540         1,527         1,578   
  

 

 

    

 

 

    

 

 

 

Total

   $ 45,529       $ 40,104       $ 34,045   
  

 

 

    

 

 

    

 

 

 

9. Share-Based Compensation

Share-based compensation expense is included as a component of selling, general and administrative expenses. Share-based compensation expense for the 13 and 26 weeks ended August 3, 2013 and July 28, 2012 consisted of the following (in thousands):

 

     13 Weeks Ended      26 Weeks Ended  
     August 3, 2013      July 28, 2012      August 3, 2013      July 28, 2012  

Share-based compensation expense

     1,477       $ 1,510       $ 2,974       $ 2,917   
  

 

 

    

 

 

    

 

 

    

 

 

 

10. Dividend Payment to Parent

In the first quarter of fiscal 2013, we distributed $0.2 million in the form of a dividend to Parent. No such dividend was distributed in second quarter of fiscal 2013 or in the same periods of fiscal 2012.

11. Income Taxes

We believe that it is reasonably possible that the total amount of unrecognized tax benefits of $10.1 million as of August 3, 2013 will decrease by as much as $3.6 million during the next twelve months due to the resolution of certain tax contingencies and lapses of applicable statutes of limitations.

12. Accumulated Other Comprehensive Loss

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

 

     August 3, 2013     February 2, 2013     July 28, 2012  

Foreign currency translation

   $ 328      $ 808      $ 697   

Accumulated changes in fair value of derivative financial instruments, net of tax benefit of $4,483, $3,982 and $4,178

     (5,216     (6,722     (6,480
  

 

 

   

 

 

   

 

 

 

Total accumulated other comprehensive loss

   $ (4,888   $ (5,914   $ (5,783
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Changes in accumulated OCI balance by component are shown below (in thousands):

 

     13 Weeks Ended August 3, 2013  
     Derivatives     Foreign Currency     Total Comprehensive
(Loss) Income Including
Noncontrolling Interest
 

Beginning balance

   $ (6,831   $ 748      $ (6,083
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) recognized before reclassifications

     991        (402     589   

Amounts reclassified from accumulated other comprehensive loss to earnings

     189        —          189   

Tax benefit

     435        —          435   
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     1,615        (402     1,213   
  

 

 

   

 

 

   

 

 

 

Other comprehensive income attributable to noncontrolling interest

     —          (18     (18
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ (5,216   $ 328      $ (4,888
  

 

 

   

 

 

   

 

 

 
     13 Weeks Ended July 28, 2012  
     Derivatives     Foreign Currency     Total Comprehensive
(Loss) Income Including
Noncontrolling Interest
 

Beginning balance

   $ (6,144   $ 714      $ (5,430
  

 

 

   

 

 

   

 

 

 

Other comprehensive loss before reclassifications

     (623     (30     (653

Amounts reclassified from accumulated other comprehensive loss to earnings

     55        —          55   

Tax benefit

     232        —          232   
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive loss

     (336     (30     (366
  

 

 

   

 

 

   

 

 

 

Other comprehensive loss attributable to noncontrolling interest

     —          13        13   
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ (6,480   $ 697      $ (5,783
  

 

 

   

 

 

   

 

 

 
     26 Weeks Ended August 3, 2013  
     Derivatives     Foreign Currency     Total Comprehensive
(Loss) Income Including
Noncontrolling Interest
 

Beginning balance

   $ (6,722   $ 808      $ (5,914
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) recognized before reclassifications

     627        (423     204   

Amounts reclassified from accumulated other comprehensive loss to earnings

     379        —          379   

Tax benefit

     500        —          500   
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     1,506        (423     1,083   
  

 

 

   

 

 

   

 

 

 

Other comprehensive income attributable to noncontrolling interest

     —          (57     (57
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ (5,216   $ 328      $ (4,888
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     26 Weeks Ended July 28, 2012  
     Derivatives     Foreign Currency     Total Comprehensive
(Loss) Income Including
Noncontrolling Interest
 

Beginning balance

   $ (6,579   $ 754      $ (5,825
  

 

 

   

 

 

   

 

 

 

Other comprehensive loss before reclassifications

     (190     (59     (249

Amounts reclassified from accumulated other comprehensive loss to earnings

     26        —          26   

Tax benefit

     263        —          263   
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     99        (59     40   
  

 

 

   

 

 

   

 

 

 

Other comprehensive loss attributable to noncontrolling interest

     —          2        2   
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ (6,480   $ 697      $ (5,783
  

 

 

   

 

 

   

 

 

 

13. Related Party Transactions

During the 13 and 26 week periods ended August 3, 2013, we sold inventory to a company controlled by Bain Capital for $7.2 million and $8.0 million, respectively, and purchased services from another company controlled by Bain Capital for $0.6 million and $1.2 million, respectively.

14. Commitments and Contingencies

During the first quarter of fiscal 2013 we entered into an agreement to purchase equipment and services from a third party vendor for approximately $8.8 million per year commencing in the third quarter of fiscal 2013 and ending in the second quarter of fiscal 2019.

There have been no other significant changes to our contractual obligations and commercial commitments as disclosed in our Annual Report on Form 10-K as of February 2, 2013, other than those which occur in the normal course of business.

Contingencies

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

15. Segment Information

We have four reportable segments: retail stores, Gymboree Play & Music, International 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 Retail (including an online store), Gymboree Outlet, Janie and Jack (including an online store), and Crazy 8 (including an online store). These four operating segments have been aggregated into one reportable segment because these operating segments have similar historical economic characteristics and/or are expected to have similar economic characteristics and similar long-term financial performance in the future. Gross 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 additional information. Corporate overhead (costs related to our distribution center and shared corporate services) is included in the retail stores segment.

 

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Table of Contents

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

 

     13 Weeks Ended August 3, 2013  
     Retail
Stores
    Gymboree
Play & Music
     International Retail
Franchise
     VIEs     Intersegment
Elimination
    Total  

Net sales

   $ 277,649      $ 3,654       $ 5,842       $ 4,998      $ (1,227   $ 290,916   

Operating income (loss)

     1,058        1,438         2,825         (273     15        5,063   

Total assets

     1,950,885        60,377         30,363         15,877        (1,941     2,055,561   
     13 Weeks Ended July 28, 2012  
     Retail
Stores
    Gymboree
Play & Music
     International Retail
Franchise
     VIEs     Intersegment
Elimination
    Total  

Net sales

   $ 258,473      $ 5,152       $ 3,866       $ 3,056      $ (1,795   $ 268,752   

Operating (loss) income

     (8,615     1,715         1,570         (1,111     34        (6,407

Total assets

     1,992,120        60,812         29,430         12,672        (2,600     2,092,434   
     26 Weeks Ended August 3, 2013  
     Retail
Stores
    Gymboree
Play & Music
     Retail
Franchise
     VIEs     Intersegment
Elimination
    Total  

Net sales

   $ 557,453      $ 7,645       $ 11,527       $ 9,632      $ (2,558   $ 583,699   

Operating income (loss)

     13,871        3,448         5,069         (515     34        21,907   

Total assets

     1,950,885        60,377         30,363         15,877        (1,941     2,055,561   
     26 Weeks Ended July 28, 2012  
     Retail
Stores
    Gymboree
Play & Music
     Retail
Franchise
     VIEs     Intersegment
Elimination
    Total  

Net sales

   $ 546,502      $ 11,202       $ 7,718       $ 5,199      $ (4,118   $ 566,503   

Operating income (loss)

     19,004        3,635         3,019         (1,865     (115     23,678   

Total assets

     1,992,120        60,812         29,430         12,672        (2,600     2,092,434   

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 International Retail Franchise segments recorded intersegment revenues of $1.1 million and $0.1 million, respectively, for the 13 weeks ended August 3, 2013 and $2.3 million and $0.3 million, respectively, for the 26 weeks ended August 3, 2013. The Gymboree Play & Music and VIE segments recorded intersegment revenues of $0.1 million and $1.7 million, respectively, for the 13 weeks ended July 28, 2012 and $0.6 million and $3.5 million, respectively, for the 26 weeks ended July 28, 2012. There were no other material intersegment revenues.

We attribute retail store revenues to individual countries based on selling location. Effective in the third quarter of fiscal 2012, geographical segments, previously disclosed by country, were included in either the United States or international geographical segment to conform to the current period presentation. For Gymboree International Retail Franchise, all sales were attributed to the United States geographic segment.

Prior to November 2012, Gymboree Play & Music sales were all attributable to the U.S. geographic segment. Effective November 2012, as a result of a modification to the Master Service Agreement with Gymboree Tianjin, China Play & Music franchisee sales are attributable to the international geographic segment and all other Gymboree Play & Music sales are attributable to the U.S. geographic segment.

Long-lived assets include net property and equipment, goodwill, other intangibles, deferred financing costs and other assets. The following tables provide the summary financial data of each of our two geographical segments, United States and international (in thousands):

 

     13 Weeks Ended  
     August 3, 2013      July 28, 2012  
     United States      International      United States      International  

Net sales

   $ 273,664       $ 17,252       $ 254,673       $ 14,079   

Long-lived assets

     1,673,700         54,637         1,688,561         52,815   
     26 Weeks Ended  
     August 3, 2013      July 28, 2012  
     United States      International      United States      International  

Net sales

   $ 550,893       $ 32,806       $ 541,603       $ 24,900   

Long-lived assets

     1,673,700         54,637         1,688,561         52,815   

 

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Table of Contents

16. Variable Interest Entities

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 their 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 August 3, 2013, February 2, 2013 and July 28, 2012 and the condensed consolidated statements of operations for the 13 and 26 weeks ended August 3, 2013 and July 28, 2012 (in thousands):

Condensed Consolidating Balance Sheets

 

     August 3, 2013  
     Balance Before
Consolidation

of VIEs
     VIEs      Eliminations     As
Reported
 

Cash and cash equivalents

   $ 20,677       $ 6,154       $ —        $ 26,831   

Other current assets

     295,780         6,554         (1,941     300,393   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     316,457         12,708         (1,941     327,224   

Non-current assets

     1,725,168         3,169         —          1,728,337   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 2,041,625       $ 15,877       $ (1,941   $ 2,055,561   
  

 

 

    

 

 

    

 

 

   

 

 

 

Current liabilities

   $ 189,637       $ 6,850       $ (1,746   $ 194,741   

Non-current liabilities

     1,422,337         229         —          1,422,566   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,611,974         7,079         (1,746     1,617,307   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     429,651         —           (195     429,456   

Noncontrolling interest

     —           8,798         —          8,798   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,041,625       $ 15,877       $ (1,941   $ 2,055,561   
  

 

 

    

 

 

    

 

 

   

 

 

 
     February 2, 2013  
     Balance Before
Consolidation
of VIEs
     VIEs      Eliminations     As
Reported
 

Cash and cash equivalents

   $ 27,223       $ 6,105       $ —        $ 33,328   

Other current assets

     276,121         5,448         (4,465     277,104   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     303,344         11,553         (4,465     310,432   

Non-current assets

     1,730,865         1,916         —          1,732,781   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 2,034,209       $ 13,469       $ (4,465   $ 2,043,213   
  

 

 

    

 

 

    

 

 

   

 

 

 

Current liabilities

   $ 175,555       $ 9,244       $ (4,223   $ 180,576   

Non-current liabilities

     1,420,870         130         —          1,421,000   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,596,425         9,374         (4,223     1,601,576   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     437,784         —           (242     437,542   

Noncontrolling interest

     —           4,095         —          4,095   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,034,209       $ 13,469       $ (4,465   $ 2,043,213   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

20


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

Cash and cash equivalents

   $ 46,973       $ 7,582       $ —        $ 54,555   

Other current assets

     295,091         4,012         (2,600     296,503   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     342,064         11,594         (2,600     351,058   

Non-current assets

     1,740,298         1,078         —          1,741,376   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 2,082,362       $ 12,672       $ (2,600   $ 2,092,434   
  

 

 

    

 

 

    

 

 

   

 

 

 

Current liabilities

   $ 169,413       $ 7,950       $ (2,493   $ 174,870   

Non-current liabilities

     1,473,671         78         —          1,473,749   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,643,084         8,028         (2,493     1,648,619   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     439,278         —           (107     439,171   

Noncontrolling interest

     —           4,644         —          4,644   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,082,362       $ 12,672       $ (2,600   $ 2,092,434   
  

 

 

    

 

 

    

 

 

   

 

 

 

Condensed Consolidating Statements of Operations

 

     For the 13 Weeks Ended August 3, 2013  
     Balance Before
Consolidation
of VIEs
    VIEs     Eliminations     As
Reported
 

Net sales

   $ 287,145      $ 4,998      $ (1,227   $ 290,916   

Cost of goods sold

     (182,693     (1,341     204        (183,830

Operating expenses

     (99,131     (3,930     1,038        (102,023
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     5,321        (273     15        5,063   

Other non-operating (expense) income

     (20,540     23        —          (20,517
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (15,219     (250     15        (15,454

Income tax benefit

     5,854        275        —          6,129   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (9,365     25        15        (9,325

Net income attributable to noncontrolling interest

     —          (25     —          (25
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to The Gymboree Corporation

   $ (9,365   $ —        $ 15      $ (9,350
  

 

 

   

 

 

   

 

 

   

 

 

 
     For the 13 Weeks Ended July 28, 2012  
     Balance Before
Consolidation
of VIEs
    VIEs     Eliminations     As
Reported
 

Net sales

   $ 267,491      $ 3,056      $ (1,795   $ 268,752   

Cost of goods sold

     (178,513     (1,202     151        (179,564

Operating expenses

     (94,308     (2,965     1,678        (95,595
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (5,330     (1,111     34        (6,407

Other non-operating (expense) income

     (21,201     29        —          (21,172
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (26,531     (1,082     34        (27,579

Income tax benefit

     13,229        284        —          13,513   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (13,302     (798     34        (14,066

Net loss attributable to noncontrolling interest

     —          798        —          798   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to The Gymboree Corporation

   $ (13,302   $ —        $ 34      $ (13,268
  

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents
     For the 26 weeks Ended August 3, 2013  
     Balance Before
Consolidation
of VIEs
    VIEs     Eliminations     As
Reported
 

Net sales

   $ 576,625        9,632        (2,558   $ 583,699   

Cost of goods sold

     (353,475     (2,571     406        (355,640

Operating expenses

     (200,762     (7,576     2,186        (206,152
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     22,388        (515     34        21,907   

Other non-operating (expense) income

     (41,023     154        —          (40,869
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (18,635     (361     34        (18,962

Income tax benefit

     6,715        74        —          6,789   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (11,920     (287     34        (12,173

Net loss attributable to noncontrolling interest

     —          287        —          287   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to The Gymboree Corporation

   $ (11,920   $ —        $ 34      $ (11,886
  

 

 

   

 

 

   

 

 

   

 

 

 
     For the 26 weeks Ended July 28, 2012  
     Balance Before
Consolidation
of VIEs
    VIEs     Eliminations     As
Reported
 

Net sales

   $ 565,422        5,199        (4,118   $ 566,503   

Cost of goods sold

     (354,562     (1,444     515        (355,491

Operating expenses

     (185,202     (5,620     3,488        (187,334
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     25,658        (1,865     (115     23,678   

Other non-operating (expense) income

     (44,090     16        —          (44,074
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (18,432     (1,849     (115     (20,396

Income tax benefit

     10,275        225        —          10,500   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (8,157     (1,624     (115     (9,896

Net loss attributable to noncontrolling interest

     —          1,624        —          1,624   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to The Gymboree Corporation

   $ (8,157   $ —        $ (115   $ (8,272
  

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

17. 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 those of the non-guarantor subsidiaries.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

 

     As of August 3, 2013  
     The Gymboree
Corporation
     Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
     Eliminations     Consolidated  
ASSETS              

Current Assets:

             

Cash and cash equivalents

   $ 8,774       $ 5,757       $ 12,300       $ —        $ 26,831   

Accounts receivable, net of allowance

     406         24,267         2,243         —          26,916   

Merchandise inventories

     —           208,703         6,273         5        214,981   

Prepaid income taxes

     2,347         471         1,219         —          4,037   

Prepaid expenses

     2,994         13,572         1,515         —          18,081   

Deferred income taxes

     19,277         16,284         817         —          36,378   

Intercompany receivable

     —           490,096         —           (490,096     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     33,798         759,150         24,367         (490,091     327,224   

Property and Equipment, net

     13,895         182,859         9,706         —          206,460   

Goodwill

     —           859,165         39,818         —          898,983   

Other Intangible Assets

     —           577,282         500         —          577,782   

Deferred Financing Costs

     36,819         —           —           —          36,819   

Other Assets

     17,946         2,047         5,732         (17,432     8,293   

Investment in Subsidiaries

     1,987,315         —           —           (1,987,315     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Assets

   $ 2,089,773       $ 2,380,503       $ 80,123       $ (2,494,838   $ 2,055,561   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY              

Current Liabilities:

             

Accounts payable

   $ 8,563       $ 91,335       $ 896       $ —        $ 100,794   

Accrued liabilities

     29,870         57,936         6,141         —          93,947   

Intercompany payable

     478,737         —           11,354         (490,091     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     517,170         149,271         18,391         (490,091     194,741   

Long-Term Liabilities:

             

Long-term debt

     1,138,595         —           —           —          1,138,595   

Lease incentives and other liabilities

     4,552         43,812         6,059         —          54,423   

Deferred income taxes

     —           246,980         —           (17,432     229,548   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Liabilities

     1,660,317         440,063         24,450         (507,523     1,617,307   

Total stockholders’ equity

     429,456         1,940,440         46,875         (1,987,315     429,456   

Noncontrolling interest

     —           —           8,798         —          8,798   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,089,773       $ 2,380,503       $ 80,123       $ (2,494,838   $ 2,055,561   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

23


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

 

     As of February 2, 2013  
     The Gymboree
Corporation
     Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
     Eliminations     Consolidated  
ASSETS              

Current Assets:

             

Cash and cash equivalents

   $ 18,431       $ 3,128       $ 11,769       $ —        $ 33,328   

Accounts receivable, net of allowance

     1,280         23,679         2,583         —          27,542   

Merchandise inventories

     —           193,003         4,907         25        197,935   

Prepaid income taxes

     1,821         682         400         —          2,903   

Prepaid expenses

     3,142         12,909         1,290         —          17,341   

Deferred income taxes

     15,488         16,528         —           (633     31,383   

Intercompany receivable

     —           468,919         —           (468,919     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     40,162         718,848         20,949         (469,527     310,432   

Property and Equipment, net

     15,679         180,021         9,625         —          205,325   

Goodwill

     —           859,166         39,800         —          898,966   

Other Intangible Assets

     —           580,492         149         —          580,641   

Deferred Financing Costs

     40,040         —           —           —          40,040   

Other Assets

     15,409         2,061         7,067         (16,728     7,809   

Investment in subsidiaries

     1,976,277         —           —           (1,976,277     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Assets

   $ 2,087,567       $ 2,340,588       $ 77,590       $ (2,462,532   $ 2,043,213   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY              

Current Liabilities:

             

Accounts payable

   $ 14,269       $ 74,589       $ 1,275       $ —        $ 90,133   

Accrued liabilities

     35,991         48,446         6,006         —          90,443   

Deferred income taxes

     —           —           633         (633     —     

Intercompany payable

     456,934         —           11,960         (468,894     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     507,194         123,035         19,874         (469,527     180,576   

Long-Term Liabilities:

             

Long-term debt

     1,138,455         —           —           —          1,138,455   

Lease incentives and other liabilities

     4,376         38,693         4,883         —          47,952   

Deferred income taxes

     —           250,427         894         (16,728     234,593   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Liabilities

     1,650,025         412,155         25,651         (486,255     1,601,576   

Total stockholders’ equity

     437,542         1,928,433         47,844         (1,976,277     437,542   

Noncontrolling interest

     —           —           4,095         —          4,095   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,087,567       $ 2,340,588       $ 77,590       $ (2,462,532   $ 2,043,213   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

24


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

 

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

Current Assets:

             

Cash and cash equivalents

   $ 29,930       $ 9,563       $ 15,062       $ —        $ 54,555   

Accounts receivable, net of allowance

     1,508         21,491         2,174         —          25,173   

Merchandise inventories

     —           215,794         4,310         105        220,209   

Prepaid income taxes

     3,727         679         889         —          5,295   

Prepaid expenses

     2,936         1,236         326         —          4,498   

Deferred income taxes

     29,180         12,320         —           (172     41,328   

Intercompany receivable

     —           425,880         —           (425,880     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     67,281         686,963         22,761         (425,947     351,058   

Property and Equipment, net

     17,249         176,594         8,792         —          202,635   

Goodwill

     —           859,297         39,800         —          899,097   

Other Intangible Assets

     —           589,772         171         —          589,943   

Deferred Financing Costs

     44,695         —           —           —          44,695   

Other Assets

     13,536         812         4,950         (14,292     5,006   

Investment in Subsidiaries

     1,941,856         —           —           (1,941,856     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Assets

   $ 2,084,617       $ 2,313,438       $ 76,474       $ (2,382,095   $ 2,092,434   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY              

Current Liabilities:

             

Accounts payable

   $ 3,796       $ 80,570       $ 598       $ —        $ 84,964   

Accrued liabilities

     29,796         53,515         6,595         —          89,906   

Deferred income taxes

     —           —           169         (169     —     

Intercompany payable

     415,545         —           9,763         (425,308     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     449,137         134,085         17,125         (425,477     174,870   

Long-Term Liabilities:

             

Long-term debt

     1,192,312         —           —           —          1,192,312   

Lease incentives and other liabilities

     3,997         33,025         4,430         —          41,452   

Deferred income taxes

     —           254,277         —           (14,292     239,985   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Liabilities

     1,645,446         421,387         21,555         (439,769     1,648,619   

Total Stockholders’ Equity

     439,171         1,892,051         50,275         (1,942,326     439,171   

Noncontrolling interest

     —           —           4,644         —          4,644   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Equity

     439,171         1,892,051         54,919         (1,942,326     443,815   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 2,084,617       $ 2,313,438       $ 76,474       $ (2,382,095   $ 2,092,434   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

25


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED AUGUST 3, 2013

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales:

          

Retail

   $ 471      $ 270,242      $ 15,401      $ (7,170   $ 278,944   

Gymboree Play & Music

     —          2,557        3,703        —          6,260   

Retail Franchise

     —          5,712        —          —          5,712   

Intercompany revenue

     14,937        1,448        —          (16,385     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

     15,408        279,959        19,104        (23,555     290,916   

Cost of goods sold, including buying and occupancy expenses

     (1,434     (178,427     (10,535     6,566        (183,830
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     13,974        101,532        8,569        (16,989     107,086   

Selling, general and administrative expenses

     (16,002     (94,098     (8,897     16,974        (102,023
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (2,028     7,434        (328     (15     5,063   

Interest income

     27        12        23        (1     61   

Interest expense

     (20,467     —          (1     1        (20,467

Other (expense) income, net

     (119     (1     9        —          (111
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (22,587     7,445        (297     (15     (15,454

Income tax benefit (expense)

     12,680        (6,785     234        —          6,129   

Equity in earnings of affiliates, net of tax

     557        —          —          (557     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (9,350     660        (63     (572     (9,325

Net income attributable to noncontrolling interest

     —          —          (25     —          (25
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to The Gymboree Corporation

   $ (9,350   $ 660      $ (88   $ (572   $ (9,350
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED JULY 28, 2012

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales:

          

Retail

   $ 435      $ 251,094      $ 14,762      $ (7,177   $ 259,114   

Gymboree Play & Music

     —          5,041        758        —          5,799   

Retail Franchise

     —          3,839        —          —          3,839   

Intercompany revenue

     11,898        545        1,658        (14,101     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

     12,333        260,519        17,178        (21,278     268,752   

Cost of goods sold, including buying and occupancy expenses

     (1,335     (173,570     (11,076     6,417        (179,564
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     10,998        86,949        6,102        (14,861     89,188   

Selling, general and administrative expenses

     (13,133     (92,088     (5,349     14,975        (95,595
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (2,135     (5,139     753        114        (6,407

Interest income

     22        —          23        —          45   

Interest expense

     (21,193     —          —          —          (21,193

Other (expense) income, net

     (32     —          8        —          (24
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (23,338     (5,139     784        114        (27,579

Income tax benefit (expense)

     15,444        (3,209     1,278        —          13,513   

Equity in loss of affiliates, net of tax

     (5,374     —          —          5,374        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (13,268     (8,348     2,062        5,488        (14,066

Net loss attributable to noncontrolling interest

     —          —          798        —          798   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to The Gymboree Corporation

   $ (13,268   $ (8,348   $ 2,860      $ 5,488      $ (13,268
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 26 WEEKS ENDED AUGUST 3, 2013

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales:

          

Retail

   $ 922      $ 544,023      $ 28,365      $ (13,489   $ 559,821   

Gymboree Play & Music

     —          5,324        7,264        —          12,588   

Retail Franchise

     —          11,290        —          —          11,290   

Intercompany revenue

     33,017        3,102        —          (36,119     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

     33,939        563,739        35,629        (49,608     583,699   

Cost of goods sold, including buying and occupancy expenses

     (2,954     (345,164     (19,452     11,930        (355,640
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     30,985        218,575        16,177        (37,678     228,059   

Selling, general and administrative expenses

     (34,978     (191,748     (17,060     37,634        (206,152
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (3,993     26,827        (883     (44     21,907   

Interest income

     33        23        47        (1     102   

Interest expense

     (40,869     —          (1     1        (40,869

Other (expense) income, net

     (224     (1     123        —          (102
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (45,053     26,849        (714     (44     (18,962

Income tax benefit (expense)

     22,078        (14,841     (448     —          6,789   

Equity in earnings of affiliates, net of tax

     11,089        —          —          (11,089     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (11,886     12,008        (1,162     (11,133     (12,173

Net loss attributable to noncontrolling interest

     —          —          287        —          287   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to The Gymboree Corporation

   $ (11,886   $ 12,008      $ (875   $ (11,133   $ (11,886
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 26 WEEKS ENDED JULY 28, 2012

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales:

          

Retail

   $ 828      $ 533,352      $ 26,465      $ (13,415   $ 547,230   

Gymboree Play & Music

     —          10,579        1,012        —          11,591   

Retail Franchise

     —          7,682        —          —          7,682   

Intercompany revenue

     23,693        1,315        3,459        (28,467     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

     24,521        552,928        30,936        (41,882     566,503   

Cost of goods sold, including buying and occupancy expenses

     (2,669     (346,144     (19,036     12,358        (355,491
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     21,852        206,784        11,900        (29,524     211,012   

Selling, general and administrative expenses

     (25,650     (179,656     (11,461     29,433        (187,334
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (3,798     27,128        439        (91     23,678   

Interest income

     53        —          51        —          104   

Interest expense

     (42,851     —          —          —          (42,851

Loss on extinguishment of debt

     (1,237     —          —          —          (1,237

Other expense, net

     (51     (1     (38     —          (90
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (47,884     27,127        452        (91     (20,396

Income tax benefit (expense)

     25,633        (15,749     616        —          10,500   

Equity in earnings of affiliates, net of tax

     13,979        —          —          (13,979     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (8,272     11,378        1,068        (14,070     (9,896

Net loss attributable to noncontrolling interest

     —          —          1,624        —          1,624   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to The Gymboree Corporation

   $ (8,272   $ 11,378      $ 2,692      $ (14,070   $ (8,272
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 13 WEEKS ENDED AUGUST 3, 2013

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net (loss) income

   $ (9,350   $ 660       $ (63   $ (572   $ (9,325
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income, net of tax:

           

Foreign currency translation adjustments

     (420        (406     424        (402

Unrealized net gain on cash flow hedges, net of tax benefit of $435

     1,615           345        (345     1,615   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     1,195        —           (61     79        1,213   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

     (8,155     660         (124     (493     (8,112

Comprehensive income attributable to noncontrolling interest

          (43     —          (43
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to The Gymboree Corporation

   $ (8,155   $ 660       $ (167   $ (493   $ (8,155
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 13 WEEKS ENDED JULY 28, 2012

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations      Consolidated  

Net (loss) income

   $ (13,268   $ (8,348   $ 2,062      $ 5,488       $ (14,066
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive (loss) income, net of tax:

           

Foreign currency translation adjustments

     —          —          (30     —           (30

Unrealized net (loss) gain on cash flow hedges, net of tax benefit of $232

     (550     —          214        —           (336
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total other comprehensive (loss) income, net of tax

     (550     —          184        —           (366
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive (loss) income

     (13,818     (8,348     2,246        5,488         (14,432

Comprehensive loss attributable to noncontrolling interest

     —          —          842        —           842   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive (loss) income attributable to The Gymboree Corporation

   $ (13,818   $ (8,348   $ 3,088      $ 5,488       $ (13,590
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

28


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 26 WEEKS ENDED AUGUST 3, 2013

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net (loss) income

   $ (11,886   $ 12,008       $ (1,162   $ (11,133   $ (12,173
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income, net of tax:

           

Foreign currency translation adjustments

     (480        (445     502        (423

Unrealized net gain on cash flow hedges, net of tax benefit of $500

     1,506           408        (408     1,506   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     1,026        —           (37     94        1,083   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

     (10,860     12,008         (1,199     (11,039     (11,090

Comprehensive loss attributable to noncontrolling interest

     —             230        —          230   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to The Gymboree Corporation

   $ (10,860   $ 12,008       $ (969   $ (11,039   $ (10,860
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 26 WEEKS ENDED JULY 28, 2012

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net (loss) income

   $ (8,272   $ 11,378       $ 1,068      $ (14,070   $ (9,896
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income, net of tax:

           

Foreign currency translation adjustments

     —          —           (59     —          (59

Unrealized net gain on cash flow hedges, net of tax benefit of $263

     64        —           35        —          99   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     64        —           (24     —          40   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

     (8,208     11,378         1,044        (14,070     (9,856

Comprehensive loss attributable to noncontrolling interest

     —          —           1,656        —          1,656   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to The Gymboree Corporation

   $ (8,208   $ 11,378       $ 2,700      $ (14,070   $ (8,200
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 26 WEEKS ENDED AUGUST 3, 2013

(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

   $ (47,077   $ 61,010      $ (3,343   $ —         $ 10,590   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

           

Capital expenditures

     (1,048     (20,449     (1,731     —           (23,228

Other

     —          11        (173     —           (162
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in investing activities

     (1,048     (20,438     (1,904     —           (23,390
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

           

Intercompany transfers

     38,669        (37,944     (725     —           —     

Dividend payment to parent

     (201     —          —          —           (201

Capital contribution received by noncontrolling interest

     —          —          6,506        —           6,506   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     38,468        (37,944     5,781        —           6,305   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

     —          1        (3     —           (2
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net (decrease) increase in cash and cash equivalents

     (9,657     2,629        531        —           (6,497

CASH AND CASH EQUIVALENTS:

           

Beginning of Period

     18,431        3,128        11,769        —           33,328   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

End of Period

   $ 8,774      $ 5,757      $ 12,300      $ —         $ 26,831   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 26 WEEKS ENDED JULY 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

   $ (23,768   $ 32,186      $ 2,018      $ —        $ 10,436   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Capital expenditures

     (1,207     (16,428     (881     —          (18,516

Investment in subsidiaries

     (180     —          —          180        —     

Other

     —          (116     (115     —          (231
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (1,387     (16,544     (996     180        (18,747
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Intercompany transfers

     12,820        (12,466     (354     —          —     

Payments on Term Loan

     (17,698     —          —          —          (17,698

Payments of deferred financing costs

     (1,347     —          —          —          (1,347

Investment by Parent

     —          —          180        (180     —     

Investment by affiliate of Parent

     2,400        —              2,400   

Capital contribution received by noncontrolling interest

     —          —          1,595        —          1,595   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (3,825     (12,466     1,421        (180     (15,050
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

     —          —          6        —          6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (28,980     3,176        2,449        —          (23,355

CASH AND CASH EQUIVALENTS:

          

Beginning of Period

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of Period

   $ 29,930      $ 9,563      $ 15,062      $ —        $ 54,555   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Company and its guarantor subsidiaries participate in a cash pooling program. As part of this program, cash balances are generally swept on a daily basis between the guarantor subsidiary bank accounts and those of the Company. In addition, we pay expenses on behalf of our guarantor and non-guarantor subsidiaries on a regular basis. These types of transactions have been accounted for as intercompany transfers within 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 August 3, 2013 and July 28, 2012, and the related condensed consolidated statements of operations and comprehensive income (loss) for the thirteen and twenty-six week periods then ended, and of cash flows for the twenty-six week periods then ended. These interim financial statements are the responsibility of the Company’s management.

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

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Gymboree Corporation and subsidiaries as of February 2, 2013, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the fiscal year then ended (not presented herein); and in our report dated May 2, 2013, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 2, 2013 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

September 16, 2013

 

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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; planned store openings; 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 February 2, 2013, filed with the Securities and Exchange Commission on May 2, 2013 (the “Fiscal 2012 Annual Report”). We encourage you to read these risk factors disclosures carefully. We caution investors not to place substantial reliance on the forward-looking statements contained in this quarterly report. These statements, like all statements in this quarterly report, speak only as of the date of this quarterly report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.

Overview

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 August 3, 2013, we operated a total of 1,302 retail stores, as follows: 632 Gymboree® stores (including 582 in the United States, 43 in Canada, 1 in Puerto Rico and 6 in Australia), 163 Gymboree Outlet stores (161 in the United States and 2 in Puerto Rico), 135 Janie and Jack® shops, and 372 Crazy 8® stores in the United States, as well as 3 online stores at www.gymboree.com, www.janieandjack.com and www.crazy8.com. We also offer directed parent-child developmental play programs at 710 franchised and Company-operated Gymboree Play & Music® centers in the United States and 41 other countries. In addition, as of August 3, 2013, third-party overseas partners operated 62 Gymboree stores in the Middle East, South Korea, and China, including 15 Gymboree retail stores operated by Gymboree (China) Commercial and Trading Co. Ltd. (“Gymboree China”). Gymboree China and Gymboree (Tianjin) Educational Information Consultation Co. Ltd. (“Gymboree Tianjin”) are collectively referred to as the “VIEs.” Gymboree Tianjin provides various services on Gymboree Play & Music’s behalf to Gymboree Play & Music’s franchisees in China.

During the second quarter of fiscal 2013, we opened 26 new stores, of which 20 were Crazy 8 stores. In fiscal 2013, we plan to open approximately 85 stores consisting mostly of Crazy 8 stores.

Seasonality

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

Results of Operations

13 weeks ended August 3, 2013, compared to 13 weeks ended July 28, 2012

Net Sales

Net retail sales for the second quarter of fiscal 2013 increased to $278.9 million from $259.1 million in the same period last year, an increase of $19.8 million or 7.7%. Comparable store sales (including online sales) decreased by 3% in the second quarter of fiscal 2013 compared to the same period in the prior year. Comparable store sales (excluding online sales) decreased by 7% in the second quarter of fiscal 2013 compared to the same period in the prior year. Total net stores increased from 1,191 as of the second quarter of fiscal 2012 to 1,302 as of the second quarter of fiscal 2013. Total square footage increased from approximately 2.4 million square feet to approximately 2.7 million square feet from the second quarter of fiscal 2012 to the second quarter of fiscal 2013.

Gymboree Play & Music net sales for the second quarter of fiscal 2013 increased to $6.3 million from $5.8 million in the same period last year, an increase of $0.5 million or 7.9%. This increase was primarily due to increased product sales.

 

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Retail franchise net sales for the second quarter of fiscal 2013 increased to $5.7 million from $3.8 million in the same period last year, an increase of $1.9 million or 48.8% As of August 3, 2013, our third-party overseas partners operated 62 Gymboree stores in other countries, compared to 33 stores as of the end of the same period last year.

Gross Profit

Gross profit for the second quarter of fiscal 2013 increased to $107.1 million from $89.2 million in the same period last year. As a percentage of net sales, gross profit for the second quarter of fiscal 2013 increased 3.6 percentage points to 36.8% from 33.2% in the same period last year. The increase in gross profit as a percentage of net sales was primarily due to lower commodity prices (primarily cotton). As we record certain distribution channel costs as a component of selling, general and administrative expenses (“SG&A”) and do not include such costs in cost of goods sold, our cost of goods sold and gross profit may not be comparable to those of other companies. Our distribution channel costs recorded in SG&A expenses represent primarily outbound shipping and handling expenses to our stores.

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 $102.0 million in the second quarter of fiscal 2013 compared to $95.6 million in the same period last year. As a percentage of net sales, SG&A expenses decreased 0.5 percentage points to 35.1% for the second quarter of fiscal 2013 from 35.6% in the same period last year primarily due to lower amortization expense of Acquisition-related intangibles, partially offset by a deleveraging of expenses on lower comparable store sales.

Interest Expense

Interest expense decreased to $20.5 million in the second quarter of fiscal 2013 compared to $21.2 million in the same period last year. The decrease of $0.7 million is primarily related to the repayment of $42.7 million of our Term Loan and a repurchase of an aggregate principal amount of $29 million of our Notes during fiscal 2012 in privately negotiated transactions.

Income Taxes

The effective tax rate for the second quarter of fiscal 2013 and 2012 was 39.7% and 49.0%, respectively. The effective tax rate was lower in the second quarter of fiscal 2013 due to the impact of transactions that occurred in the second quarter of fiscal 2012 that are not applicable to the second quarter of fiscal 2013, and the recording of a valuation allowance against the deferred tax asset related to California Enterprise Zone credits as a result of a law enacted in the second quarter of fiscal 2013. The actual fiscal 2013 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 2013, 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.

26 weeks ended August 3, 2013, compared to 26 weeks ended July 28, 2012

Net Sales

Net retail sales for the 26 weeks ended August 3, 2013 increased to $559.8 million from $547.2 million in the same period last year, an increase of $12.6 million or 2.3%. Comparable store sales (including online sales) decreased by 4% in the 26 weeks ended August 3, 2013 compared to the same period in the prior year. Comparable store sales (excluding online sales) decreased by 7% in the 26 weeks ended August 3, 2013 compared to the same period in the prior year. Total net stores increased from 1,191 as of the second quarter of fiscal 2012 to 1,302 as of the second quarter of fiscal 2013. Total square footage increased from approximately 2.4 million square feet to approximately 2.7 million square feet from the second quarter of fiscal 2012 to the second quarter of fiscal 2013.

Gymboree Play & Music net sales for the 26 weeks ended August 3, 2013 increased to $12.6 million from $11.6 million in the same period last year, an increase of $1.0 million or 8.6%. This increase was primarily due to increased product sales.

Retail franchise net sales for the 26 weeks ended August 3, 2013 increased to $11.3 million from $7.7 million in the same period last year, an increase of $3.6 million or 47.0%. As of August 3, 2013, our third-party overseas partners operated 62 Gymboree stores in other countries, compared to 33 stores as of the end of the same period last year.

Gross Profit

Gross profit for the 26 weeks ended August 3, 2013 increased to $228.1 million from $211.0 million in the same period last year. As a percentage of net sales, gross profit for the 26 weeks ended August 3, 2013 increased 1.9 percentage points to 39.1% from 37.2% in the same period last year. The increase in gross profit as a percentage of net sales was primarily due to lower commodity

 

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prices (primarily cotton). As we record certain distribution channel costs as a component of selling, general and administrative expenses (“SG&A”) and do not include such costs in cost of goods sold, our cost of goods sold and gross profit may not be comparable to those of other companies. Our distribution channel costs recorded in SG&A expenses represent primarily outbound shipping and handling expenses to our stores.

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 $206.2 million for the 26 weeks ended August 3, 2013 compared to $187.3 million in the same period last year. As a percentage of net sales, SG&A expenses increased 2.2 percentage points to 35.3% for the 26 weeks ended August 3, 2013 from 33.1% in the same period last year primarily due to a deleveraging of expenses on lower comparable store sales, partially offset by lower amortization expense of Acquisition-related intangibles.

Interest Expense

Interest expense decreased to $40.9 million for the 26 weeks ended August 3, 2013 compared to $42.9 million in the same period last year. The decrease of $2.0 million is primarily related to the repayment of $42.7 million of our Term Loan and a repurchase of an aggregate principal amount of $29 million of our Notes during fiscal 2012 in privately negotiated transactions.

Income Taxes

The effective tax rate for the 26 weeks ended August 3, 2013 and July 28, 2012 was 35.8% and 51.5%, respectively. The effective tax rate was lower in the 26 weeks ended August 3, 2013 due to the impact of transactions that occurred as of the second quarter of fiscal 2012 that are not applicable as of the second quarter of fiscal 2013, and the recording of a valuation allowance against the deferred tax asset related to California Enterprise Zone tax credits as a result of a law enacted in the second quarter of fiscal 2013. The actual fiscal 2013 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 2013, 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.

Financial Condition

Liquidity and Capital Resources

Cash and cash equivalents were $26.8 million at August 3, 2013, representing a decrease of $6.5 million from February 2, 2013. As of August 3, 2013 and February 2, 2013, cash and cash equivalents include $6.2 million and $6.1 million, respectively, held by the two entities that make up the VIEs, 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 16 to the condensed consolidated financial statements included elsewhere in this quarterly report). The assets of the VIEs cannot be used by us. Working capital as of August 3, 2013 was $132.5 million compared to $129.9 million as of February 2, 2013.

Cash flows provided by operating activities

Net cash provided by operating activities for the 26 weeks ended August 3, 2013 and July 28, 2012 was $10.6 million and $10.4 million, respectively. The increase in cash provided by operating activities was primarily due to changes in income and working capital.

Cash flows used in investing activities

Net cash used in investing activities for the 26 weeks ended August 3, 2013 was $23.4 million compared to $18.7 million in the same period last year, related primarily to the opening of new stores, relocation, remodeling and/or expansion of existing stores and information technology improvements.

Cash flows provided by (used in) financing activities

Net cash provided by financing activities for the 26 weeks ended August 3, 2013 was $6.3 million, compared to net cash used in financing activities of $15.1 million in the same period last year. Net cash provided by financing activities for the 26 weeks ended August 3, 2013, is primarily due to a capital contribution of $6.5 million to the VIEs made by their immediate corporate parent, partially offset by $0.2 million cash dividend on our common stock paid to Parent, which was used by Parent to repurchase shares of its stock. Net cash used in financing activities for the 26 weeks ended July 28, 2012, is primarily due to the prepayment of $15.6 million of the Term Loan, quarterly principal payment of $2.1 million on our Term Loan and costs paid to refinance our ABL, partially offset by a capital contribution from an affiliate of our indirect parent company, Giraffe Holding, Inc. (“Parent”).

 

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We have an $820 million Term Loan and a $225 million ABL Facility. As of August 3, 2013, $769.1 million was outstanding under the Term Loan and no amounts were outstanding under the ABL Facility. Amounts available under the ABL Facility are subject to customary borrowing base limitations and are reduced by letter of credit utilization. No amounts were outstanding and there was approximately $139.4 million of undrawn availability under the ABL Facility as of August 3, 2013. The Term Loan and ABL Facility 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 Facility contain covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. The ABL Facility also contains financial covenants. As of August 3, 2013, we were in compliance with these covenants.

Subject to certain limitations imposed on business combinations under the agreements governing our indebtedness, we may from time to time, consider strategic acquisitions as an alternative means of growth, which may be funded with cash on hand or require us to incur additional indebtedness.

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

We believe that cash generated by operations, the remaining funds available under our senior credit facilities (collectively, the “Senior Credit Facilities”) and existing cash and cash equivalents will be sufficient to meet working capital requirements, service our debt and finance capital expenditures over the next twelve months. However, if we face unanticipated cash needs such as the funding of a future acquisition or other capital investment, our existing cash and cash equivalents and net cash provided by operating activities may be insufficient. In addition we cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the Senior Credit Facilities in amounts sufficient to enable us to repay our indebtedness when due, including the Notes, or to fund other liquidity needs. See “Item 1A. Risk Factors—Risks Related to Our Indebtedness and Certain Other Obligations” in our Fiscal 2012 Annual Report. We also regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure. If opportunities are favorable, we may refinance our existing debt or issue additional securities.

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 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 2, 2013.

Non-GAAP Measures

Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”)

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.

 

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

 

     13 Weeks Ended     26 Weeks Ended  
     August 3, 2013     July 28, 2012     August 3, 2013     July 28, 2012  
           (In thousands)        

Net loss attributable to The Gymboree Corporation

   $ (9,350   $ (13,268   $ (11,886   $ (8,272

Reconciling items (a):

        

Interest expense

     20,467        21,193        40,869        42,851   

Interest income

     (47     (36     (73     (84

Income tax benefit

     (5,854     (13,229     (6,715     (10,275

Depreciation and amortization (b)

     10,662        14,578        23,282        28,740   

Non-cash share-based compensation expense

     1,477        1,510        2,974        2,917   

Loss on disposal/impairment on assets

     1,571        1,202        1,871        1,264   

Loss on extinguishment of debt

     —          —          —          1,237   

Other (c)

     1,974        —          2,463        —     

Acquisition-related adjustments (d)

     3,899        4,481        7,992        8,879   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 24,799      $ 16,431      $ 60,777      $ 67,257   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

(b)    Includes the following (in thousands):

        

       

Amortization of intangible assets (impacts SG&A)

   $ 384      $ 4,340      $ 2,642      $ 8,680   

Amortization of below and above market leases

        

(impacts COGS)

     (376     (487     (762     (1,035
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 8      $ 3,853      $ 1,880      $ 7,645   
  

 

 

   

 

 

   

 

 

   

 

 

 

(c)    Other is comprised of a non-recurring change in reserves, restructuring charges, and executive-related hiring expenses.

(d)    Includes the following (in thousands):

       

       

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

   $ 2,226      $ 2,308      $ 4,458      $ 4,632   

Sponsor fees, legal and accounting, as well as other costs incurred as a result of the Acquisition or refinancing (impacts SG&A)

     975        976        2,095        1,848   

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)

     698        1,197        1,439        2,399   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 3,899      $ 4,481      $ 7,992      $ 8,879   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

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

August 3, 2013

   $ 7,440       $ 223        0.97   

February 2, 2013

   $ 7,419       $ (18     1.00   

July 28, 2012

   $ 7,684       $ (14     0.99   

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 $769.1 million outstanding under our Term Loan as of August 3, 2013, bearing interest at variable rates. The interest rate for borrowings under the Term Loan is, at our option, a base rate plus an additional marginal rate of 2.5% or the Adjusted LIBOR rate (with a 1.5% floor) plus an additional rate of 3.5%. As of August 3, 2013, the interest rate under our Term Loan was 5%. A 0.125% increase in the Adjusted LIBOR rate, above the 1.5% floor, would have increased annual interest expense by approximately $1.0 million, assuming $769.1 million of indebtedness thereunder was outstanding for the whole year. The Term Loan 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 August 3, 2013, February 2, 2013, and July 28, 2012, accumulated other comprehensive loss included approximately $10.1 million, $10.7 million, and $10.8 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 Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on the Company’s evaluation, the Principal 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 Principal Executive Officer and Principal Financial Officer concluded as of the end of the period covered by this report that the Company’s disclosure controls and procedures are also effective to ensure 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 Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the second quarter of the Company’s fiscal 2013, 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.

 

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Part II—OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

Item 1A. RISK FACTORS

There have been no material changes during the period covered by this Quarterly Report on Form 10-Q to the risk factors disclosed in Part I, Item 1A, of our 2012 Annual Report on Form 10-K.

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

Not applicable

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

Item 4. MINE SAFETY DISCLOSURES

None

Item 5. Other Information

Compensatory Arrangements of Certain Officers

On September 12, 2013, the Compensation Committee (the “Committee”) of the Board of Directors of The Gymboree Corporation (the “Company”) adopted The Gymboree Corporation 2013 China Phantom Equity Incentive Plan (the “Plan”). The Plan was established to advance the interests of the Company by providing for the grant of Units (as defined below) to certain key employees, directors, consultants and advisors of the Company and its subsidiaries, as selected by the administrator of the Plan.

Units awarded under the Plan (the “Units”) represent a hypothetical equity interest in Gymboree Hong Kong Limited (“Gymboree China”). The Company is a member of a related party group that controls Gymboree China. Each award gives the holder of the award the conditional right to receive, in accordance with the terms of the Plan and the award, a specified interest in the value of the “Pool.” For this purpose, the “Pool” means an amount of cash equal to 10% of the amount by which the sum of the amount of cash and the fair market value of marketable securities, in each case, received by Bain Fund X, L.P. and its permitted transferees in respect of shares of common stock of Gymboree China they beneficially own exceeds a number equal to $12 million plus the amount of any additional equity investment, whether direct or indirect, by the Bain Fund X, L.P. and its permitted transferees in Gymboree China. Awards for a maximum of 1,000,000 Units may be issued under the Plan.

Under a form of award adopted under the Plan on September 12, 2013, each award will conditionally vest as to 20% of the Units subject to the award on each of the first five anniversaries of the date specified by the Plan administrator, subject to continued employment or service with the Company through the applicable anniversary.

Under a form of award adopted under the Plan on September 12, 2013, each award will only vest and become payable if a “Payment Event” (as defined in the Plan) occurs at a time when the award is outstanding. Upon the occurrence of a Payment Event, the Company is obligated to make a payment in cash to the holder of the award equal to the product of (i) the value of the Pool and (ii) (A) the number of conditionally vested Units that were outstanding under the participant’s award immediately prior to the Payment Event divided by (B) 1,000,000. All Units subject to the award will conditionally vest in full upon the occurrence of a “Sale” (as defined in the Plan). If the Payment Event is not a Sale, any portion of an award that is not then conditionally vested will remain eligible to conditionally vest in accordance with its original conditional vesting schedule. With respect to Units that conditionally vest after the occurrence of a Payment Event, if any, on the date such Units conditionally vest, the Company will make a payment in cash to the holder of the award equal to product of (i) the value of the Pool and (ii) (A) the number of Units that conditionally vested on such date divided by (B) 1,000,000.

 

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On September 12, 2013, the Committee, which currently serves as the Plan administrator, made the following grants of awards under the Plan, each of which has a conditional vesting commencement date of December 23, 2011, to the following of the Company’s named executive officers:

 

Name

   Number of Units
Subject to Award
 

Mark Breitbard, CEO

     172,085   

Evan Price, CFO

     50,765   

Joelle Maher, COO

     50,765   

Kip M. Garcia, President

     106,864   

Lynda G. Gustafson, VP Corporate Controller

     13,087   

The foregoing description is qualified in its entirety by reference to the provisions of The Gymboree Corporation 2013 China Phantom Equity Incentive Plan and the Form of Award Agreement under The Gymboree Corporation 2013 Gymboree China Phantom Equity Incentive Plan, copies of which are attached as Exhibits 10.2 and 10.3 hereto, respectively, and are incorporated herein by reference.

Item 6. Exhibits

 

  10.1    Offer Letter, dated as of June 18, 2013, by and between The Gymboree Corporation and Joelle Maher. (1)
  10.2    The Gymboree Corporation 2013 China Phantom Equity Incentive Plan.
  10.3    Form of Award Agreement under the Gymboree Corporation 2013 Gymboree China Phantom Equity Incentive Plan.
  31.1    Certification of Mark Breitbard Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
  31.2    Certification of Evan Price Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
  32.1    Certification of Mark Breitbard Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
  32.2    Certification of Evan Price 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 August 3, 2013, 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.

 

(1) Incorporated by reference to Exhibit 10.1 to The Gymboree Corporation’s Current Report on Form 8-K filed with the SEC on June 19, 2013.

 

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SIGNATURES

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

 

    THE GYMBOREE CORPORATION
    (Registrant)
September 16, 2013     By:  

/s/ Mark Breitbard

Date       Mark Breitbard
      Chief Executive Officer

 

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Exhibit Index

 

Exhibit

Number

  

Description

  10.1    Offer Letter, dated as of June 18, 2013, by and between The Gymboree Corporation and Joelle Maher. (1)
  10.2    The Gymboree Corporation 2013 China Phantom Equity Incentive Plan.
  10.3    Form of Award Agreement under The Gymboree Corporation 2013 Gymboree China Phantom Equity Incentive Plan.
  31.1    Certification of Mark Breitbard Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
  31.2    Certification of Evan Price Pursuant to §302 of the Sarbanes-Oxley Act of 2002.