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 1, 2015

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 14, 2015, the registrant had 1,000 shares of common stock outstanding, par value $0.001 per share, all of which are owned by Giraffe Holding, Inc., the registrant’s indirect parent holding company, and are not publicly traded.

 

*

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

 

 

 


Table of Contents

THE GYMBOREE CORPORATION

TABLE OF CONTENTS

 

Part I—FINANCIAL INFORMATION

  

Item 1.

   Financial Statements      3   
   Condensed Consolidated Statements of Operations      3   
   Condensed Consolidated Statements of Comprehensive Loss      4   
   Condensed Consolidated Balance Sheets      5   
   Condensed Consolidated Statements of Cash Flows      6   
   Notes to Condensed Consolidated Financial Statements      7   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      33   

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk      40   

Item 4.

   Controls and Procedures      41   

Part II—OTHER INFORMATION

     41   

Item 1.

   Legal Proceedings      41   

Item 1A.

   Risk Factors      41   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      41   

Item 3.

   Defaults Upon Senior Securities      41   

Item 4.

   Mine Safety Disclosures      42   

Item 5.

   Other Information      42   

Item 6.

   Exhibits      42   
   Signatures      43   

 

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Table of Contents

Part I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

 

                                                                                                                                                       
     13 Weeks Ended      26 Weeks Ended  
         August 1, 2015              August 2, 2014              August 1, 2015              August 2, 2014      

Net sales:

           

Retail

     $ 256,991            $ 253,376            $ 518,723            $ 512,500      

Gymboree Play & Music

     11,667            7,319            20,315            14,151      

Retail Franchise

     4,807            3,608            10,496            9,662      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net sales

     273,465            264,303            549,534            536,313      

Cost of goods sold, including buying and occupancy expenses

     (172,805)           (167,939)           (343,517)           (331,591)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     100,660            96,364            206,017            204,722      

Selling, general and administrative expenses

     (103,366)           (107,140)           (208,076)           (209,430)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating loss

     (2,706)           (10,776)           (2,059)           (4,708)     

Interest income

     23            68            42            115      

Interest expense

     (21,631)           (20,455)           (42,707)           (40,829)     

Other income (expense), net

     142            (134)           32            (502)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (24,172)           (31,297)           (44,692)           (45,924)     

Income tax expense

     (1,222)           (1,556)           (3,182)           (1,932)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

     (25,394)           (32,853)           (47,874)           (47,856)     

Net (income) loss attributable to noncontrolling interest

     (1,168)           1,700            (1,713)           3,272      
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to The Gymboree Corporation

     $ (26,562)           $ (31,153)           $ (49,587)           $ (44,584)     
  

 

 

    

 

 

    

 

 

    

 

 

 

See notes to condensed consolidated financial statements.

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

                                                                                                                                       
     13 Weeks Ended      26 Weeks Ended  
         August 1, 2015              August 2, 2014              August 1, 2015              August 2, 2014      

Net loss

     $ (25,394)           $ (32,853)           $ (47,874)           $ (47,856)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive (loss) income:

           

Foreign currency translation adjustments, net of tax

     (1,617)           247            (661)           (150)     

Unrealized net gain (loss) on cash flow hedges, net of tax expense of $351, $0, $549, and $0

     702            (8)           963            14      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive (loss) income

     (915)           239            302            (136)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive loss

     (26,309)           (32,614)           (47,572)           (47,992)     

Comprehensive (income) loss attributable to noncontrolling interest

     (1,155)           1,530            (1,767)           3,577      
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive loss attributable to The Gymboree Corporation

     $ (27,464)           $ (31,084)           $ (49,339)           $ (44,415)     
  

 

 

    

 

 

    

 

 

    

 

 

 

See notes to condensed consolidated financial statements.

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

                                                                                   
     August 1,
2015
     January 31,
2015
     August 2,
2014
 

ASSETS

        

Current assets:

        

Cash and cash equivalents

     $ 23,497            $ 18,520            $ 24,879      

Accounts receivable, net of allowance of $2,314, $1,939 and $1,655

     24,684            25,248            21,129      

Merchandise inventories

     243,037            198,337            223,694      

Prepaid income taxes

     2,596            2,599            3,076      

Prepaid expenses

     19,399            6,821            19,684      

Deferred income taxes

     9,124            6,824            8,172      
  

 

 

    

 

 

    

 

 

 

Total current assets

     322,337            258,349            300,634      
  

 

 

    

 

 

    

 

 

 

Property and equipment:

        

Land and buildings

     22,428            22,428            22,428      

Leasehold improvements

     200,002            198,098            201,985      

Furniture, fixtures and equipment

     125,617            123,943            120,568      
  

 

 

    

 

 

    

 

 

 

Total property and equipment

     348,047            344,469            344,981      

Less accumulated depreciation and amortization

     (177,442)           (162,038)           (148,314)     
  

 

 

    

 

 

    

 

 

 

Net property and equipment

     170,605            182,431            196,667      
  

 

 

    

 

 

    

 

 

 

Goodwill

     373,446            373,834            758,777      

Other intangible assets, net

     342,157            343,552            558,210      

Deferred financing costs

     23,145            25,622            29,091      

Restricted cash

     8,157            -                -          

Other assets

     3,867            4,155            9,835      
  

 

 

    

 

 

    

 

 

 

Total assets

     $ 1,243,714            $ 1,187,943            $ 1,853,214      
  

 

 

    

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

        

Current liabilities:

        

Accounts payable

     $ 123,995            $ 87,032            $ 112,638      

Accrued liabilities

     95,079            94,805            86,231      

Line of credit borrowings

     70,000            33,000            64,000      

Current obligation under capital lease

     578            552            527      
  

 

 

    

 

 

    

 

 

 

Total current liabilities

     289,652            215,389            263,396      
  

 

 

    

 

 

    

 

 

 

Long-term liabilities:

        

Long-term debt

     1,114,207            1,114,048            1,113,893      

Long-term sale-leaseback financing liability

     26,516            -                -          

Long-term obligation under capital lease

     2,555            2,850            3,133      

Lease incentives and other liabilities

     51,770            53,677            52,664      

Unrecognized tax benefits

     5,123            5,048            6,475      

Deferred income taxes

     131,887            129,196            209,220      
  

 

 

    

 

 

    

 

 

 

Total liabilities

     1,621,710            1,520,208            1,648,781      
  

 

 

    

 

 

    

 

 

 

Commitments and contingencies

        

Stockholders’ (deficit) equity:

        

Common stock, including additional paid-in capital ($0.001 par value:

        

1,000 shares authorized, issued and outstanding)

     524,244            522,403            520,201      

Accumulated deficit

     (902,950)           (853,363)           (323,842)     

Accumulated other comprehensive loss

     (10,983)           (11,231)           (4,711)     
  

 

 

    

 

 

    

 

 

 

Total stockholders’ (deficit) equity

     (389,689)           (342,191)           191,648      

Noncontrolling interest

     11,693            9,926            12,785      
  

 

 

    

 

 

    

 

 

 

Total (deficit) equity

     (377,996)           (332,265)           204,433      
  

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ (deficit) equity

     $ 1,243,714            $ 1,187,943            $ 1,853,214      
  

 

 

    

 

 

    

 

 

 

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 1, 2015      August 2, 2014  

CASH FLOWS FROM OPERATING ACTIVITIES:

  

Net loss

     $ (47,874)           $ (47,856)     

Adjustments to reconcile net loss to net cash used in operating activities:

     

Depreciation and amortization

     20,896            22,534      

Amortization of deferred financing costs and accretion of original issue discount

     3,758            3,515      

Interest rate cap contracts - adjustment to market

     1,693            932      

(Gain) loss on disposal/impairment of assets

     (93)           3,883      

Deferred income taxes

     294            36      

Share-based compensation expense

     1,852            2,269      

Other

     (549)           21      

Change in assets and liabilities:

     

Accounts receivable

     637            739      

Merchandise inventories

     (45,037)           (48,576)     

Prepaid income taxes

     (24)           (1,095)     

Prepaid expenses and other assets

     (12,831)           (174)     

Accounts payable

     37,001            10,673      

Accrued liabilities

     (792)           (12,822)     

Lease incentives and other liabilities

     (897)           3,472      
  

 

 

    

 

 

 

Net cash used in operating activities

     (41,966)           (62,449)     
  

 

 

    

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

     

Capital expenditures

     (7,506)           (16,523)     

Increase in restricted cash

     (10,863)           -          

Decrease in restricted cash

     2,706            -          

Proceeds from sale of assets

     353            -          

Other

     40            (66)     
  

 

 

    

 

 

 

Net cash used in investing activities

     (15,270)           (16,589)     
  

 

 

    

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

     

Proceeds from ABL facility

     283,000            218,000      

Payments on ABL facility

     (246,000)           (154,000)     

Proceeds from sale-leaseback financing liability

     26,750            -          

Payments for deferred financing costs

     (1,122)           -          

Payments on capital lease and sale-leaseback financing liability

     (312)           (246)     

Dividend payment to parent

     (11)           -          

Capital contribution received by noncontrolling interest

     -                992      
  

 

 

    

 

 

 

Net cash provided by financing activities

     62,305            64,746      
  

 

 

    

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

     (92)           (258)     
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     4,977            (14,550)     

CASH AND CASH EQUIVALENTS:

     

Beginning of period

     18,520            39,429      
  

 

 

    

 

 

 

End of period

     $ 23,497            $ 24,879      
  

 

 

    

 

 

 

OTHER CASH FLOW INFORMATION:

     

Cash (received) paid for income taxes, net

     $ (1,676)           $ 2,770      

Cash paid for interest

     $ 37,174            $ 36,112      

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 January 31, 2015 filed with the Securities and Exchange Commission on May 1, 2015.

The accompanying condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present fairly our financial position, results of operations, comprehensive income (loss) and cash flows for the periods presented. The results of operations for the 13 weeks (“second quarter of fiscal 2015”) and 26 weeks ended August 1, 2015 are not necessarily indicative of the operating results that may be expected for the 52-week period ending January 30, 2016 (“fiscal 2015”) or any future period.

2. Recently Issued Accounting Standards

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which requires all inventory to be measured at the lower of cost and net realizable value, except for inventory that is accounted for using the last-in, first-out (LIFO) or the retail inventory method which will be measured under existing accounting standards. This ASU would be applied prospectively and is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. We have not yet determined the impact of the new standard on our condensed consolidated financial statements.

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

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

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. generally accepted accounting principles and International Financial Reporting Standards. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers-Deferral of Effective Date, which defers the effective date of ASU 2014-09 by one year, for fiscal years and interim periods within those years, beginning after December 15, 2017. The deferral allows early adoption at the original effective date. We have not yet determined the impact of the new standard on our condensed consolidated financial statements.

3. Fair Value Measurements

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

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

 

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

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

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present our assets and liabilities measured at fair value on a recurring basis as of August 1, 2015, January 31, 2015 and August 2, 2014, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands). There were no transfers into or out of Level 1 and Level 2 during the 26 weeks ended August 1, 2015 and August 2, 2014, or during the year ended January 31, 2015.

 

                                                                                                                                                                   
     August 1, 2015  
     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
     Total Fair Value  

Assets

           

Interest rate caps

     $ -               $ 1             $ -               $ 1       

Forward foreign exchange contracts

     -               59             -               59       
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     $ -               $ 60             $ -               $ 60       
  

 

 

    

 

 

    

 

 

    

 

 

 
     January 31, 2015  
     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
     Total Fair Value  

Assets

           

Interest rate caps

     $ -               $ 17             $ -               $ 17       

Forward foreign exchange contracts

     -               96             -               96       
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     $ -               $ 113             $ -               $ 113       
  

 

 

    

 

 

    

 

 

    

 

 

 
     August 2, 2014  
     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
     Total Fair Value  

Assets

           

Money market funds

     $ 850             $ -               $ -               $ 850       

Interest rate caps

     -               42             -               42       

Forward foreign exchange contracts

     -               3             -               3       
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     $ 850             $ 45             $ -               $ 895       
  

 

 

    

 

 

    

 

 

    

 

 

 

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

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

 

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Although we have determined the majority of the inputs used to value our interest rate caps fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of August 1, 2015, January 31, 2015 and August 2, 2014, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate cap positions and determined the credit valuation adjustment was not significant to the overall valuation. As a result, we classified our interest rate caps derivative valuations in Level 2 of the fair value hierarchy.

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

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

 

    August 1, 2015     January 31, 2015     August 2, 2014  
        Carrying Amount               Fair Value               Carrying Amount                 Fair Value                 Carrying Amount                 Fair Value          

Term loan

    $ 768,207          $ 565,828          $ 768,048          $ 530,680          $ 767,893          $ 634,509     

Notes

    346,000          121,100          346,000          128,020          346,000          207,600     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    $ 1,114,207          $ 686,928          $ 1,114,048          $ 658,700          $ 1,113,893          $ 842,109     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

We had no other financial assets or liabilities measured at fair value as of August 1, 2015, January 31, 2015 and August 2, 2014.

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

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

During the 13 and 26 weeks ended August 1, 2015, we did not identify any impairment indicators for under-performing stores. During the 13 and 26 weeks ended August 2, 2014, we recorded an impairment charge of $3.2 million 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 historical operating results and its experience and knowledge of the retail market in which each store operates. These impairment charges are included in SG&A expenses in the accompanying condensed consolidated statements of operations.

 

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4. Goodwill and Intangible Assets and Liabilities

Goodwill

Goodwill allocated to our reportable segments as of August 1, 2015, January 31, 2015 and August 2, 2014 is as follows (in thousands):

 

           Retail Stores            Gymboree Play           International Retail              
     Segment             & Music Segment             Franchise Segment                      Total                   

Balance as of August 1, 2015

           

Goodwill

     $ 887,241            $ 16,389            $ 23,636            $ 927,266      

Accumulated impairment losses

     (547,285)           -                -                (547,285)     

Effect of exchange rate fluctuations

     (6,535)           -                -                (6,535)     
  

 

 

    

 

 

    

 

 

    

 

 

 
     $ 333,421            $ 16,389            $ 23,636            $ 373,446     
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance as of January 31, 2015

           

Goodwill

     $ 887,241            $ 16,389            $ 23,636            $ 927,266      

Accumulated impairment losses

     (547,285)           -                -                (547,285)     

Effect of exchange rate fluctuations

     (6,147)           -                -                (6,147)     
  

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

 

Balance as of August 2, 2014

           

Goodwill

     $ 887,241            $ 16,389            $ 23,636            $ 927,266      

Accumulated impairment losses

     (168,489)           -                -                (168,489)     
  

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

 

Goodwill Impairment

During the 13 and 26 weeks ended August 1, 2015 and August 2, 2014, we did not any identify impairment indicators for goodwill. During the third quarter of fiscal 2014, we recognized goodwill impairment in the Gymboree Retail, Gymboree Outlet, and Crazy 8 reporting units, components of our retail stores reporting segment, of approximately $252.3 million, $67.2 million and $59.3 million, respectively.

Intangible Assets and Liabilities

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

 

                                                                                                                           
     August 1, 2015  
         Gross Carrying    
Amount
     Accumulated
    Amortization    
         Accumulated    
Impairment
         Net Amount      

Intangible assets not subject to amortization:

           

Trade names

     $ 567,012            $ -              $ (229,600)           $ 337,412      
  

 

 

    

 

 

    

 

 

    

 

 

 

Intangible assets subject to amortization:

           

Customer relationships

     770            (770)           -                -          

Below market leases

     4,828            (3,498)           -                1,330      

Co-branded credit card agreement

     4,000            (2,882)           -                1,118      

Franchise agreements and reacquired franchise rights

     6,625            (4,328)           -                2,297      
  

 

 

    

 

 

    

 

 

    

 

 

 
     16,223            (11,478)           -                4,745      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other intangible assets

     $ 583,235            $ (11,478)         $ (229,600)           $ 342,157      
  

 

 

    

 

 

    

 

 

    

 

 

 

Intangible liabilities subject to amortization:

           

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

     $ (11,051)           $ 7,252          $ -                $ (3,799)     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     January 31, 2015  
     Gross Carrying
Amount
     Accumulated
Amortization
     Accumulated
Impairment
     Net Amount  

Intangible assets not subject to amortization:

           

Trade names

     $ 567,012            $ -                 $ (229,600)           $ 337,412      
  

 

 

    

 

 

    

 

 

    

 

 

 

Intangible assets subject to amortization:

           

Customer relationships

     770            (605)           -                 165      

Below market leases

     5,274            (3,486)           -                 1,788      

Co-branded credit card agreement

     4,000            (2,573)           -                 1,427      

Franchise agreements and reacquired franchise rights

     6,625            (3,865)           -                 2,760      
  

 

 

    

 

 

    

 

 

    

 

 

 
     16,669            (10,529)           -                 6,140      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other intangible assets

     $ 583,681            $ (10,529)           $ (229,600)           $ 343,552      
  

 

 

    

 

 

    

 

 

    

 

 

 

Intangible liabilities subject to amortization:

           

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

     $ (11,400)           $ 6,795            $ -                 $ (4,605)     
  

 

 

    

 

 

    

 

 

    

 

 

 
     August 2, 2014  
     Gross Carrying
Amount
     Accumulated
Amortization
     Accumulated
Impairment
     Net Amount  

Intangible assets not subject to amortization:

           

Trade names

     $ 567,494            $ -                 $ (17,000)           $ 550,494      
  

 

 

    

 

 

    

 

 

    

 

 

 

Intangible assets subject to amortization:

           

Customer relationships

     37,551            (37,119)           -                 432      

Below market leases

     7,055            (4,728)           -                 2,327      

Co-branded credit card agreement

     4,000            (2,266)           -                 1,734      

Franchise agreements and reacquired franchise rights

     6,632            (3,409)           -                 3,223      
  

 

 

    

 

 

    

 

 

    

 

 

 
     55,238            (47,522)           -                 7,716      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other intangible assets

     $ 622,732            $ (47,522)         $ (17,000)         $ 558,210      
  

 

 

    

 

 

    

 

 

    

 

 

 

Intangible liabilities subject to amortization:

           

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

     $ (16,631)           $ 11,012            $ -                 $ (5,619)     
  

 

 

    

 

 

    

 

 

    

 

 

 

The decrease in the gross carrying amount of below market leases and above market leases from January 31, 2015 to August 1, 2015 reflects the write-off of certain fully amortized intangibles.

The decrease in the gross carrying amount of customer relationships, below market leases, franchise agreements and reacquired franchise rights, and above market leases from August 2, 2014 to January 31, 2015, reflects the write-off of certain fully amortized intangibles.

Indefinite-Lived Intangible Assets Impairment

During the 13 and 26 weeks ended August 1, 2015 and August 2, 2014, we did not identify impairment indicators for indefinite-lived intangible assets. During the third quarter of fiscal 2014, we recognized a $212.6 million impairment charge related to trade names of our retail stores segment.

 

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

 

                                                                                                                                       
     13 Weeks Ended      26 Weeks Ended  
     August 1, 2015      August 2, 2014      August 1, 2015      August 2, 2014  

Cost of goods sold - Amortization income

     $ 215            $ 233            $ 348            $ 480      
  

 

 

    

 

 

    

 

 

    

 

 

 

Selling, general and administrative expenses - Amortization expense

     $ (469)           $ (522)           $ (937)           $ (1,081)     
  

 

 

    

 

 

    

 

 

    

 

 

 

5. Line of Credit

We have a senior secured asset-based revolving credit facility (“ABL”) that provides financing of up to $225 million, subject to a borrowing base. Availability under the ABL is subject to the assets of the Company, any subsidiary co-borrowers and any subsidiary guarantors that are available to collateralize the borrowings thereunder, and is reduced by the level of outstanding letters of credit. Line of credit borrowings outstanding under the ABL as of August 1, 2015, January 31, 2015 and August 2, 2014 were $70.0 million, $33.0 million and $64.0 million, respectively. Amounts available under the ABL are reduced by letter of credit utilization totaling $30.4 million as of August 1, 2015. Undrawn availability under the ABL, after being reduced by outstanding borrowings and letter of credit utilization, was $95.7 million as of August 1, 2015. Average borrowings for the 13 and 26 weeks ended August 1, 2015 under the ABL amounted to $58.1 million and $56.1 million, respectively. Average borrowings under the ABL for the fiscal year ended January 31, 2015 amounted to $32.0 million. Average borrowings for the 13 and 26 weeks ended August 2, 2014 under the ABL amounted to $28.5 million and $19.1 million, respectively. Principal amounts outstanding under the ABL are due and payable in full in March 2017.

Borrowings under the ABL bear interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the highest of (1) the prime rate of Bank of America, N.A., (2) the federal funds effective rate plus 0.50%, and (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%, or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs (“Adjusted LIBOR”), in each case plus an applicable margin. As of August 1, 2015, the interest rate was 5.5% on $5.3 million of line of credit borrowings outstanding and 4.0% on $64.7 million of line of credit borrowings outstanding under the ABL. In addition to paying interest on outstanding principal under the ABL, we are required to pay a commitment fee on unutilized commitments thereunder, which is 0.375% per annum under the amended ABL. The ABL provides us the right to request up to $125 million of additional commitments under this facility (or, if less, the amount permitted under the Term Loan described in Note 6), subject to the satisfaction of certain conditions.

If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the ABL exceeds the lesser of (a) the commitment amount and (b) the borrowing base, we will be required to repay outstanding loans and/or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount. The ABL Facility contains financial and other covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. The ABL Facility also contains a financial covenant that is tested when availability under the facility falls below a specified threshold. As of August 1, 2015, we were not required to test compliance with this covenant. The obligations under the ABL are secured, subject to certain exceptions, by substantially all of our assets. Our 100%-owned domestic subsidiaries have fully and unconditionally guaranteed our obligations under the ABL (see Note 16).

6. Long-Term Debt

Long-term debt consists of (in thousands):

 

     August 1, 2015      January 31, 2015      August 2, 2014  

Term loan due February 2018, Adjusted LIBOR (with a floor of 1.5%) plus 3.5%, net of discount of $895, $1,054 and $1,210

     $ 768,207            $ 768,048            $ 767,893      

Senior notes due December 2018, 9.125%

     346,000            346,000            346,000      
  

 

 

    

 

 

    

 

 

 

Total

     $           1,114,207            $           1,114,048            $           1,113,893      
  

 

 

    

 

 

    

 

 

 

Term Loan

We have an agreement with several lenders for an $820 million senior secured Term Loan, with a maturity date of February 2018. The Term Loan allows us to request additional tranches of term loans in an aggregate amount not to exceed $200 million, subject to the satisfaction of certain conditions, provided such amount will be subject to reduction by the amount of any additional commitments incurred under the ABL described in Note 5. The interest rate for borrowings under the Term Loan is, at our option, a base rate plus an additional marginal rate of 2.5% or the Adjusted LIBOR rate (with a 1.5% floor) plus an additional rate of 3.5%. As of August 1, 2015, the interest rate under our Term Loan was 5%.

 

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

The obligations under the Term Loan are secured, subject to certain exceptions, by substantially all of our assets and those of our 100%-owned domestic subsidiaries. Our 100%-owned domestic subsidiaries also have fully and unconditionally guaranteed the Company’s obligations under the Term Loan (see Note 16).

Notes

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

 

                   

 Year                         

           Percentage            
 

 2014

       104.563%     
 

 2015

       102.281%     
 

 2016 and thereafter

       100.000%     

The Notes are unsecured senior obligations of The Gymboree Corporation. The Company’s 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Company’s obligations under the Notes (see Note 16). The guarantees of the Notes are joint and several and will terminate upon the following circumstances: (A) the sale, exchange, disposition or transfer (by merger or otherwise) of (x) the capital stock of the guarantor providing the applicable guarantee, if after such sale, exchange, disposition or transfer such guarantor is no longer a subsidiary of The Gymboree Corporation, or (y) all or substantially all of the assets of such guarantor, (B) the release or discharge of the guarantee by such guarantor of the other indebtedness which resulted in the creation of the subsidiary guarantee by such guarantor under the Indenture, (C) the designation of such guarantor as an “unrestricted subsidiary” under the Indenture or (D) the legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture, in each such case specified in clauses (A) through (D) above in accordance with the requirements therefore set forth in the Indenture.

Future minimum principal payments on long-term debt, excluding accretion of original issue discount (“OID”) of $0.9 million as of August 1, 2015, are as follows (in thousands):

 

 Fiscal years              

     Principal Payments        

 2015

     $ -           

 2016

     -           

 2017

     6,502       

 2018

     1,108,600       
  

 

 

   

     Total

     $ 1,115,102       
  

 

 

   

Interest Expense on Long-Term Debt and ABL

Total interest expense reported on the condensed consolidated statements of operations includes interest expense on long-term debt and borrowings under the ABL of $21.1 million and $20.5 million for the 13 weeks ended August 1, 2015 and August 2, 2014, respectively. Interest expense was $42.1 million and $40.8 million for the 26 weeks ended August 1, 2015 and August 2, 2014, respectively. Amortization of deferred financing costs and accretion of OID are also included in interest expense.

 

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Deferred Financing Costs and OID

Deferred financing costs allocated to the Term Loan and Notes are amortized over the term of the related financing agreements using the effective interest method. Deferred financing costs allocated to the ABL are amortized on a straight-line basis over 6.4 years. Deferred financing costs allocated to the sale-leaseback financing liability are amortized on a straight-line basis over 10 years (see Note 7). The weighted-average remaining amortization period is approximately 2.8 years as of August 1, 2015. Amortization of deferred financing costs is recorded in interest expense and was $1.8 million and $1.7 million for the 13 weeks ended August 1, 2015 and August 2, 2014, respectively. Amortization of deferred financing costs was $3.6 million and $3.4 million for the 26 weeks ended August 1, 2015 and August 2, 2014, respectively. Accretion of OID, which was not material for the 13 and 26 weeks ended August 1, 2015 and August 2, 2014, is also recorded in interest expense.

7. Sale-leaseback of Dixon Distribution Center

On May 5, 2015, the Company entered into an agreement to sell its distribution center in Dixon, California for gross proceeds of $26.8 million, less closing costs of $0.9 million, or net proceeds of $25.9 million and entered into a leaseback of the property from the purchaser for a period of 15 years. Approximately $10.9 million of the net proceeds were restricted to fund capital expenditures or reduce the Company’s liability under the Term loan. Approximately $2.7 million of these restricted funds were used to fund capital expenditures during the 13 weeks ended August 1, 2015. As of August 1, 2015, the Company had a restricted cash balance remaining of $8.2 million, which is presented as long-term restricted cash on the condensed consolidated balance sheets.

Under the terms of the lease agreement, the Company is required to maintain a $3.5 million unconditional irrevocable letter of credit that reduces our line-of-credit borrowing base for a period up to 10 years. Due to the Company’s continuing involvement through the irrevocable letter of credit, the Company has accounted for the sale-leaseback as a financing liability. Payments made by the Company are allocated between interest expense and a reduction to the sale-leaseback financing liability. In the period that there is no longer continuing involvement by the Company, the distribution center and the sale-leaseback financing liability will be removed from our condensed consolidated balance sheets, resulting in a gain on the sale of the distribution center, with a portion of the gain deferred and amortized over the remaining lease term.

During the 13 and 26 weeks ended August 1, 2015, payments made by the Company related to the sale-leaseback financing liability totaled $0.4 million, which was primarily allocated to interest expense.

As of August 1, 2015, future payments on the sale-leaseback financing liability, excluding renewals, are as follows (in thousands):

 

 Fiscal years

         Payments             

 Remainder of 2015

     $ 891         

 2016

     1,800         

 2017

     1,822         

 2018

     1,845         

 2019

     1,868         

 2020

     1,891         

 Thereafter

     31,367         
  

 

 

    

 Total payments

     41,484         

Less amount representing interest

     (14,777)        
  

 

 

    

 Total sale-leaseback financing liability

     26,707         

Less current portion of sale-leaseback financing liability - included in accrued liabilities

     (191)        
  

 

 

    

 Long-term portion of sale-leaseback financing liability

     $ 26,516         
  

 

 

    

 

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8. Derivative Financial Instruments

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

In December 2010, we paid approximately $12.1 million to enter into interest rate caps to hedge against rising interest rates associated with the $700 million principal of our Term Loan (see Note 6) above the strike rate of the cap through December 23, 2016, the maturity date of the caps. The interest rate caps were designated on the date of execution as cash-flow hedges. The premium, and any related amounts reported in accumulated other comprehensive loss, are being amortized to interest expense through December 23, 2016, as interest payments are made on the underlying Term Loan. During the 13 weeks ended August 1, 2015 and August 2, 2014, we reclassified approximately $0.9 million and $0.5 million, respectively, from accumulated other comprehensive loss to interest expense. During the 26 weeks ended August 1, 2015 and August 2, 2014, we reclassified approximately $1.7 million and $0.9 million, respectively, from accumulated other comprehensive loss to interest expense. We estimate approximately $4.7 million will be reclassified from accumulated other comprehensive loss to interest expense within the next 12 months.

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

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

 

                                                                                                                                                                       
     August 1, 2015      January 31, 2015      August 2, 2014  
     Number of
  Instruments  
   Notional
(USD)
     Number of
Instruments
   Notional
(USD)
     Number of
Instruments
   Notional
(USD)
 

Interest rate derivatives

                 

Purchased interest rate caps

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

Foreign exchange derivatives

                 

Forward foreign exchange contracts

   4      5,444         6      4,633         6      7,994     
  

 

  

 

 

    

 

  

 

 

    

 

  

 

 

 

Total

   8      $ 705,444         10      $ 704,633         10      $ 707,994     
  

 

  

 

 

    

 

  

 

 

    

 

  

 

 

 

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) (see Note 3).

 

                                                                                                                                   
             August 1, 2015             January 31, 2015             August 2, 2014      
      Derivative
Assets
    Derivative
Assets
    Derivative
Assets
 
 

Other assets

     
 

 Purchased interest rate caps

    $ 1          $ 17          $ 42     
 

 Forward foreign exchange contracts

    59          96          3     
   

 

 

   

 

 

   

 

 

 
 

Total

    $ 60          $ 113          $ 45     
   

 

 

   

 

 

   

 

 

 

The tables below present the effect of all of our derivative financial instruments on the condensed consolidated statements of operations and comprehensive loss (in thousands). No amounts were reclassified from accumulated other comprehensive loss (OCI) into earnings as a result of forecasted transactions that failed to occur or as a result of hedge ineffectiveness (see Note 12).

 

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Table of Contents
                                                                                                                                         
     13 Weeks Ended August 1, 2015  
     Gains / (Losses)
Recognized in OCI on
Derivative (Effective
Portion)
     Location of Gains
(Losses) Reclassified
  from Accumulated OCI  
into Income (Effective
Portion)
   Gains / (Losses)
Reclassified from
Accumulated OCI into
Income (Effective
Portion)
 

Interest rate caps

     $ (8)          Interest expense      $ (915)     

Forward foreign exchange contracts

     134           Cost of goods sold      (12)     
  

 

 

       

 

 

 

Total

     $ 126               $ (927)     
  

 

 

       

 

 

 
     13 Weeks Ended August 2, 2014  
     Gains / (Losses)
Recognized in OCI on
Derivative (Effective
Portion)
     Location of Gains
(Losses) Reclassified

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

Interest rate caps

     $ (391)          Interest expense      $ (471)     

Forward foreign exchange contracts

     (23)          Cost of goods sold      65      
  

 

 

       

 

 

 

Total

     $ (414)              $ (406)     
  

 

 

       

 

 

 
     26 Weeks Ended August 1, 2015  
     Gains / (Losses)
Recognized in OCI on
Derivative (Effective
Portion)
     Location of Gains
(Losses) Reclassified

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

Interest rate caps

     $ (16)          Interest expense      $ (1,693)     

Forward foreign exchange contracts

     (12)          Cost of goods sold      153      
  

 

 

       

 

 

 

Total

     $ (28)              $ (1,540)     
  

 

 

       

 

 

 
     26 Weeks Ended August 2, 2014  
     Gains / (Losses)
Recognized in OCI on
Derivative (Effective
Portion)
     Location of Gains
(Losses) Reclassified

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

Interest rate caps

     $ (557)          Interest expense      $ (932)     

Forward foreign exchange contracts

     (74)          Cost of goods sold      287      
  

 

 

       

 

 

 

Total

     $ (631)              $ (645)     
  

 

 

       

 

 

 

9. Share-Based Compensation

Share-based compensation expense included as a component of selling, general and administrative (“SG&A”) expenses was $1.2 million and $1.0 million during the 13 weeks ended August 1, 2015 and August 2, 2014, respectively. Share-based compensation expense was $1.9 million and $2.3 million during the 26 weeks ended August 1, 2015 and August 2, 2014, respectively. We include an estimate of forfeitures in determining share-based compensation expense.

The share-based compensation expense during the 13 weeks and 26 weeks ended August 1, 2015 includes $0.2 million of incremental share-based compensation expense related to a modification of employee stock options. The terms of the modification include a change in exercise price for certain employees with stock options that were outstanding as of May 27, 2015. As of August 1, 2015, there was approximately $1.0 million of unrecognized incremental compensation expense related to the modification that will be recognized over a period of 4.2 years.

 

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Table of Contents

10. Income Taxes

As of August 1, 2015, January 31, 2015 and August 2, 2014, unrecognized tax benefits were $6.9 million, $5.6 million and $6.8 million, respectively. We believe it is reasonably possible that the total amount of unrecognized tax benefits of $6.9 million as of August 1, 2015 will decrease by as much as $0.4 million during the next twelve months due to the resolution of certain tax contingencies and lapses of applicable statutes of limitations.

As of August 1, 2015, January 31, 2015 and August 2, 2014, the total valuation allowance against deferred tax assets was $76.9 million, $58.6 million and $48.6 million, respectively. We establish a valuation allowance when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. We consider all available positive and negative evidence in evaluating whether a valuation allowance is required, including prior earnings history, actual earnings over the previous 12 quarters on a cumulative basis, carryback and carryforward periods, and tax planning strategies that could potentially enhance the likelihood of realization of a deferred tax asset. We continue to have a valuation allowance against all net deferred tax assets in U.S. federal, unitary U.S. state and Australian jurisdictions, excluding indefinite-lived deferred tax assets and liabilities, and against the tax benefit on losses from our VIEs. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

11. Commitments and Contingencies

Commitments

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

Contingencies

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

12. Accumulated Other Comprehensive Loss

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

 

                                                                                                  
     August 1, 2015          January 31, 2015        August 2, 2014  

Foreign currency translation

     $ (7,758)           $ (7,043)           $ 778      

Accumulated changes in fair value of derivative financial instruments, net of tax benefit of $3,433, $3,982 and $3,982

     (3,225)           (4,188)           (5,489)     
  

 

 

    

 

 

    

 

 

 

Total accumulated other comprehensive loss

     $ (10,983)           $ (11,231)           $ (4,711)     
  

 

 

    

 

 

    

 

 

 

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

 

     13 Weeks Ended August 1, 2015  
         Derivatives            Foreign Currency        Total Accumulated
Comprehensive (Loss)
Income Including
    Noncontrolling Interest    
 

Beginning balance

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

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss) recognized before reclassifications

     126            (1,617)           (1,491)     

Amounts reclassified from accumulated other comprehensive loss to earnings

     927            -               927      

Tax expense

     (351)           -               (351)     
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive income (loss)

     702            (1,617)           (915)     
  

 

 

    

 

 

    

 

 

 

Other comprehensive income attributable to noncontrolling interest

     -               13            13      
  

 

 

    

 

 

    

 

 

 

Ending balance

     $ (3,225)         $ (7,758)         $ (10,983)     
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     13 Weeks Ended August 2, 2014  
         Derivatives          Foreign
Currency
     Total Accumulated
Comprehensive (Loss)
Income Including
  Noncontrolling Interest    
 

Beginning balance

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

 

 

    

 

 

    

 

 

 

Other comprehensive (loss) income recognized before reclassifications

     (414)           247            (167)     

Amounts reclassified from accumulated other comprehensive (loss) income to earnings

     406            -               406      
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive (loss) income

     (8)           247            239      
  

 

 

    

 

 

    

 

 

 

Other comprehensive loss attributable to noncontrolling interest

     -               (170)           (170)     
  

 

 

    

 

 

    

 

 

 

Ending balance

     $ (5,489)           $ 778            $ (4,711)     
  

 

 

    

 

 

    

 

 

 
     26 Weeks Ended August 1, 2015  
     Derivatives        Foreign Currency        Total Accumulated
Comprehensive (Loss)
Income Including
  Noncontrolling Interest  
 

Beginning balance

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

 

 

    

 

 

    

 

 

 

Other comprehensive (loss) income recognized before reclassifications

     (28)           (661)           (689)     

Amounts reclassified from accumulated other comprehensive loss to earnings

     1,540            -               1,540      

Tax expense

     (549)           -               (549)     
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive income (loss)

     963            (661)           302      
  

 

 

    

 

 

    

 

 

 

Other comprehensive income attributable to noncontrolling interest

     -               (54)           (54)     
  

 

 

    

 

 

    

 

 

 

Ending balance

     $ (3,225)           $ (7,758)           $ (10,983)     
  

 

 

    

 

 

    

 

 

 
     26 Weeks Ended August 2, 2014  
     Derivatives      Foreign
Currency
     Total Accumulated
Comprehensive (Loss)
Income Including
  Noncontrolling Interest  
 

Beginning balance

     $ (5,503)           $ 623            $ (4,880)     
  

 

 

    

 

 

    

 

 

 

Other comprehensive (loss) income recognized before reclassifications

     (631)           (150)           (781)     

Amounts reclassified from accumulated other comprehensive (loss) income to earnings

     645            -               645      
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive income (loss)

     14            (150)           (136)     
  

 

 

    

 

 

    

 

 

 

Other comprehensive income attributable to noncontrolling interest

     -               305            305      
  

 

 

    

 

 

    

 

 

 

Ending balance

     $ (5,489)           $ 778            $ (4,711)     
  

 

 

    

 

 

    

 

 

 

13. Related Party Transactions

Related Party Transactions –Excluding VIEs

We incurred approximately $0.9 million in management fees and reimbursement of out-of-pocket expenses from Bain Capital Partners LLC (“Bain Capital”) during each of the 13 weeks ended August 1, 2015 and August 2, 2014, respectively. We incurred approximately $1.8 million and $1.6 million in management fees and reimbursement of out-of-pocket expenses from Bain Capital during the 26 weeks ended August 1, 2015 and August 2, 2014, respectively. As of August 1, 2015, January 31, 2015 and August 2, 2014, we had a payable balance of $1.1 million, $0.2 million and $0.3 million, respectively, to Bain Capital.

 

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Table of Contents

We incurred approximately $0.2 million and $0.3 million in expenses related to services purchased from LogicSource, a company owned by funds associated with Bain Capital, during the 13 weeks ended August 1, 2015 and August 2, 2014, respectively. We incurred approximately $0.8 million and $0.9 million in expenses related to services purchased from LogicSource during the 26 weeks ended August 1, 2015 and August 2, 2014, respectively. As of August 1, 2015, January 31, 2015 and August 2, 2014, we had a payable balance of $0.1 million, $0.3 million and $0.1 million, respectively, to LogicSource.

During the 13 weeks ended May 3, 2015, we sold inventory totaling $1.3 million to Burlington Stores, Inc. (“Burlington”), a company owned by funds associated with Bain Capital through March 31, 2015. The funds associated with Bain Capital sold their common shares of Burlington on March 31, 2015. As of April 1, 2015, Burlington was no longer a related party of the Company. We did not sell inventory to Burlington during the 13 and 26 weeks ended August 2, 2014.

As of August 1, 2015, January 31, 2015 and August 2, 2014, we had a receivable balance of $0.3 million, $0.2 million and $0 million, respectively, from our indirect parent, Giraffe Holding, Inc., related to income taxes.

Related Party Transactions –VIEs

Our VIEs incurred $0.2 million and $0.1 million in management fees from Bain Capital Advisors (China) Ltd. during the 13 weeks ended August 1, 2015 and August 2, 2014, respectively. Our VIEs incurred $0.3 million and $0.2 million in management fees from Bain Capital Advisors (China) Ltd. during the 26 weeks ended August 1, 2015 and August 2, 2014, respectively. As of August 1, 2015, January 31, 2015 and August 2, 2014, our VIEs had a balance of $0.2 million, $0.1 million and $0.1 million payable to Bain Capital Advisors (China) Ltd, respectively.

As of August 1, 2015, January 31, 2015 and August 2, 2014, our VIEs had a balance of $1.1 million payable to their indirect parent, Gymboree Investment Holding GP, Ltd., related to funds used to pay operating costs of the VIEs.

As of August 1, 2015, January 31, 2015 and August 2, 2014, our VIEs had a payable balance of $0.4 million due to Gymboree Hong Kong Limited, the unconsolidated direct parent of the VIEs, related to funds used to pay operating costs of the VIEs. The Company is part of a related party group that controls Gymboree Hong Kong Limited.

14. Segment Information

We have four reportable segments: retail stores (including online stores), Gymboree Play & Music, International Retail Franchise (“Retail Franchise”), and one reportable segment related to the activities of our consolidated VIEs. These reportable segments were identified based on how our business is managed and evaluated by our chief operating decision maker, who is the Chief Executive Officer. The retail stores segment includes four operating segments (brands), which sell high-quality apparel for children: Gymboree Retail (including an online store), Gymboree Outlet, Janie and Jack (including an online store), and Crazy 8 (including an online store). These four operating segments have been aggregated into one reportable segment because these operating segments have similar historical economic characteristics and/or are expected to have similar economic characteristics and similar long-term financial performance in the future. Gross profit is the principal measure we consider in determining whether the economic characteristics are similar. In addition, each operating segment has similar products, production processes and type and class of customer. We believe disaggregating our operating segments would not provide material additional information. Corporate overhead (costs related to our distribution centers and shared corporate services) is included in the retail stores segment.

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

 

                                                                                                                                                                       
    13 Weeks Ended August 1, 2015  
    Retail
Stores
    Gymboree
Play & Music
    International Retail
Franchise
    VIEs     Intersegment
Elimination
    Total  

Net sales

    $ 255,309          $ 4,623          $ 4,963          $ 11,081          $ (2,511)          $ 273,465     

Gross Profit

    $ 88,078          $ 3,323          $ 2,814          $ 8,250          $ (1,805)          $ 100,660     
    13 Weeks Ended August 2, 2014  
    Retail
Stores
    Gymboree
Play & Music
    International Retail
Franchise
    VIEs     Intersegment
Elimination
    Total  

Net sales

    $ 251,793          $ 3,842          $ 3,757          $ 6,246          $ (1,335)          $ 264,303     

Gross Profit

    $ 88,233          $ 2,742          $ 2,158          $ 4,235          $ (1,004)          $ 96,364     
    26 Weeks Ended August 1, 2015  
    Retail
Stores
    Gymboree
Play & Music
    International Retail
Franchise
    VIEs     Intersegment
Elimination
    Total  

Net sales

    $ 515,233          $ 8,980          $ 10,820          $ 19,692          $ (5,191)          $ 549,534     

Gross Profit

    $ 182,653          $ 6,097          $ 6,041          $ 14,634          $ (3,408)          $ 206,017     

 

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Table of Contents
                                                                                                                                                                       
    26 Weeks Ended August 2, 2014  
    Retail
Stores
    Gymboree
Play & Music
    International Retail
Franchise
    VIEs     Intersegment
Elimination
    Total  

Net sales

    $ 509,721          $ 8,891          $ 9,924          $ 11,650          $ (3,873)          $ 536,313     

Gross Profit

    $ 187,525          $ 6,784          $ 5,530          $ 8,337          $ (3,454)          $ 204,722     
    Total Assets  
    Retail
Stores
    Gymboree
Play & Music
    International Retail
Franchise
    VIEs     Intersegment
Elimination
    Total  

August 1, 2015

    $ 1,132,090          $ 59,444          $ 29,884          $ 24,536          $ (2,240)          $ 1,243,714     

January 31, 2015

    $ 1,078,973          $ 60,190          $ 28,886          $ 21,449          $ (1,555)          $ 1,187,943     

August 2, 2014

    $ 1,746,181          $ 59,327          $ 28,210          $ 20,836          $ (1,340)          $ 1,853,214     

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

 

     Intersegment Revenues  
     Retail      Gymboree      International Retail                
           Stores              Play & Music        Franchise              VIEs                      Total          

13 Weeks Ended August 1, 2015

     $ -             $ 2,355           $ 156           $ -             $ 2,511     

13 Weeks Ended August 2, 2014

     $ -             $ 1,186           $ 149           $ -             $ 1,335     

26 Weeks Ended August 1, 2015

     $ -             $ 4,867           $ 324           $ -             $ 5,191     

26 Weeks Ended August 2, 2014

     $ -             $ 3,611           $ 262           $ -             $ 3,873     

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

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

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

 

                                                                                                   
     13 Weeks Ended     26 Weeks Ended  
           August 1, 2015                 August 2, 2014                 August 1, 2015                 August 2, 2014        

United States

    $ 251,730         $ 247,242         $ 510,312         $ 504,570     

International

     21,735          17,061          39,222          31,743     
  

 

 

   

 

 

   

 

 

   

 

 

 
    $ 273,465         $ 264,303         $ 549,534         $ 536,313     
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

          August 1, 2015                 January 31, 2015                 August 2, 2014            

United States

   $ 160,853         $ 172,378         $ 185,841       

International

    9,752          10,053          10,826       
 

 

 

   

 

 

   

 

 

   
   $ 170,605         $ 182,431         $ 196,667       
 

 

 

   

 

 

   

 

 

   

 

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15. Variable Interest Entities

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

The following tables reflect the impact of the VIEs on the condensed consolidated statements of operations for the 13 and 26 weeks ended August 1, 2015 and August 2, 2014 and the condensed consolidated balance sheets as of August 1, 2015, January 31, 2015 and August 2, 2014 (in thousands):

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED AUGUST 1, 2015

(In thousands)

 

           Balance Before      
Consolidation

of VIEs
               VIEs                  Eliminations            As
        Reported        
 

Net sales

    $ 264,895          $ 11,081          $ (2,511)         $ 273,465     

Cost of goods sold, including buying and occupancy expenses

     (170,680)          (2,831)          706           (172,805)    

Selling, general and administrative expenses

     (98,709)          (6,490)          1,833           (103,366)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating (loss) income

     (4,494)          1,760           28           (2,706)    

Other non-operating (expense) income

     (21,482)          16           -                 (21,466)    
  

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) income before income taxes

     (25,976)          1,776           28           (24,172)    

Income tax expense

     (614)          (608)          -                 (1,222)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income

     (26,590)          1,168           28           (25,394)    

Net income attributable to noncontrolling interest

     -                 (1,168)          -                 (1,168)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to The Gymboree Corporation

    $ (26,590)         $ -                $ 28          $ (26,562)    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED AUGUST 2, 2014

(In thousands)

 

           Balance Before  
Consolidation

of VIEs
               VIEs                    Eliminations          As
        Reported        
 

Net sales

    $ 259,392          $ 6,246          $ (1,335)         $ 264,303     

Cost of goods sold, including buying and occupancy expenses

     (166,259)          (2,011)          331           (167,939)    

Selling, general and administrative expenses

     (102,881)          (5,241)          982           (107,140)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating loss

     (9,748)              (1,006)          (22)          (10,776)    

Other non-operating (expense) income

     (20,592)          71           -               (20,521)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (30,340)          (935)          (22)          (31,297)    

Income tax expense

     (791)          (765)          -               (1,556)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

     (31,131)          (1,700)          (22)          (32,853)    

Net loss attributable to noncontrolling interest

     -               1,700           -               1,700     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to The Gymboree Corporation

    $ (31,131)         $ -                $ (22)         $ (31,153)    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 26 WEEKS ENDED AUGUST 1, 2015

(In thousands)

 

  

  

  

  

     Balance Before
Consolidation

of VIEs
               VIEs              Eliminations      As
Reported
 

Net sales

    $ 535,033          $ 19,692          $ (5,191)         $ 549,534     

Cost of goods sold, including buying and occupancy expenses

     (340,242)          (5,058)          1,783           (343,517)    

Selling, general and administrative expenses

     (199,697)          (11,663)          3,284           (208,076)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating (loss) income

     (4,906)          2,971           (124)          (2,059)    

Other non-operating (expense) income

     (42,639)          6           -               (42,633)    
  

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) income before income taxes

     (47,545)          2,977           (124)          (44,692)    

Income tax expense

     (1,918)          (1,264)          -               (3,182)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income

     (49,463)          1,713           (124)          (47,874)    

Net income attributable to noncontrolling interest

     -               (1,713)          -               (1,713)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to The Gymboree Corporation

    $ (49,463)         $ -                $ (124)         $ (49,587)    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 26 WEEKS ENDED AUGUST 2, 2014

(In thousands)

 

  

  

  

  

     Balance Before
Consolidation

of VIEs
               VIEs              Eliminations      As
Reported
 

Net sales

    $ 528,536          $ 11,650          $ (3,873)         $ 536,313     

Cost of goods sold, including buying and occupancy expenses

     (328,697)          (3,313)          419           (331,591)    

Selling, general and administrative expenses

     (201,841)          (11,034)          3,445           (209,430)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating loss

     (2,002)          (2,697)          (9)          (4,708)    

Other non-operating expense

     (41,183)          (33)          -               (41,216)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (43,185)          (2,730)          (9)          (45,924)    

Income tax expense

     (1,390)          (542)          -               (1,932)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

     (44,575)          (3,272)          (9)          (47,856)    

Net loss attributable to noncontrolling interest

     -               3,272           -               3,272     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to The Gymboree Corporation

    $ (44,575)         $ -              $ (9)         $ (44,584)    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF AUGUST 1, 2015

(In thousands)

 

           Balance Before      
Consolidation

of VIEs
               VIEs                    Eliminations          As
        Reported        
 

Cash and cash equivalents

    $ 13,200          $ 10,297          $ -              $ 23,497     

Other current assets

     291,608           9,472           (2,240)          298,840     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     304,808           19,769           (2,240)          322,337     

Non-current assets

     916,610           4,767           -               921,377     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

    $ 1,221,418          $ 24,536          $ (2,240)         $ 1,243,714     
  

 

 

    

 

 

    

 

 

    

 

 

 

Current liabilities

    $ 279,221          $ 12,373          $ (1,942)         $ 289,652     

Non-current liabilities

     1,331,588           470           -               1,332,058     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     1,610,809           12,843           (1,942)          1,621,710     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stockholders’ deficit

     (389,391)          -               (298)          (389,689)    

Noncontrolling interest

     -               11,693           -               11,693     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ deficit

    $ 1,221,418          $ 24,536          $ (2,240)         $ 1,243,714     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF JANUARY 31, 2015

(In thousands)

 

  

  

  

  

     Balance Before
Consolidation

of VIEs
               VIEs              Eliminations      As
Reported
 

Cash and cash equivalents

    $ 8,559          $ 9,961          $ -              $ 18,520     

Other current assets

     235,123           6,261           (1,555)          239,829     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     243,682           16,222           (1,555)          258,349     

Non-current assets

     924,367           5,227           -              929,594     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

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

 

 

    

 

 

    

 

 

    

 

 

 

Current liabilities

    $ 205,674          $ 11,088          $ (1,373)         $ 215,389     

Non-current liabilities

     1,304,384           435           -               1,304,819     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

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

 

 

    

 

 

    

 

 

    

 

 

 

Total stockholders’ deficit

     (342,009)          -                (182)          (342,191)    

Noncontrolling interest

     -               9,926           -               9,926     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ deficit

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

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF AUGUST 2, 2014

(In thousands)

 

           Balance Before      
Consolidation

of VIEs
               VIEs                Eliminations          As
        Reported        
 

Cash and cash equivalents

    $ 14,195          $ 10,684          $ -              $ 24,879     

Other current assets

     272,212           4,883           (1,340)          275,755     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     286,407           15,567           (1,340)          300,634     

Non-current assets

     1,547,311           5,269           -               1,552,580     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,833,718          $ 20,836          $ (1,340)         $ 1,853,214     
  

 

 

    

 

 

    

 

 

    

 

 

 

Current liabilities

    $ 256,936          $ 7,652          $ (1,192)         $ 263,396     

Non-current liabilities

     1,384,986           399           -               1,385,385     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     1,641,922           8,051           (1,192)          1,648,781     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stockholders’ equity

     191,796           -                 (148)          191,648     

Noncontrolling interest

     -               12,785           -               12,785     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ equity

    $ 1,833,718          $ 20,836          $ (1,340)         $ 1,853,214     
  

 

 

    

 

 

    

 

 

    

 

 

 

16. Condensed Guarantor Data

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

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

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED AUGUST 1, 2015

(In thousands)

 

         The Gymboree          Guarantor          Non-guarantor                    
     Corporation          Subsidiaries          Subsidiaries          Eliminations              Consolidated      

Net sales:

              

Retail

    $ 1,328          $ 248,342          $ 13,058          $ (5,737)         $ 256,991     

Gymboree Play & Music

     -               2,266           9,401           -                11,667     

Retail Franchise

     -               4,807           -               -                4,807     

Intercompany revenue

     14,173           24,664           3,666           (42,503)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total net sales

     15,501           280,079           26,125           (48,240)          273,465     

Cost of goods sold, including buying and occupancy expenses

     (2,156)          (165,484)          (11,668)          6,503           (172,805)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     13,345           114,595           14,457           (41,737)          100,660     

Selling, general and administrative expenses

     (37,926)          (97,252)          (10,031)          41,843           (103,366)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating (loss) income

     (24,581)          17,343           4,426           106           (2,706)    

Interest income

     2           4           17           -               23     

Interest expense

     (21,156)          (475)          -               -               (21,631)    

Other income, net

     9           127           6           -               142     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) income before income taxes

     (45,726)          16,999           4,449           106           (24,172)    

Income tax benefit (expense)

     2,251           (2,666)          (807)          -               (1,222)    

Equity in earnings of affiliates, net of tax

     16,913           -               -               (16,913)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income

     (26,562)          14,333           3,642           (16,807)          (25,394)    

Net income attributable to noncontrolling interest

     -               -               (1,168)          -               (1,168)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income attributable to The Gymboree Corporation

    $ (26,562)         $ 14,333          $ 2,474          $ (16,807)         $ (26,562)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED AUGUST 2, 2014

(In thousands)

 

  

  

  

  

     The Gymboree      Guarantor      Non-guarantor                
     Corporation      Subsidiaries      Subsidiaries      Eliminations      Consolidated  

Net sales:

              

Retail

    $ 351          $ 246,064          $ 12,961          $ (6,000)        $ 253,376     

Gymboree Play & Music

     -               2,657           4,662           -               7,319     

Retail Franchise

     -               3,608           -               -               3,608     

Intercompany revenue

     14,136           1,571           -               (15,707)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total net sales

     14,487           253,900           17,623           (21,707)          264,303     

Cost of goods sold, including buying and occupancy expenses

     (1,650)          (162,176)          (10,419)          6,306           (167,939)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     12,837           91,724           7,204           (15,401)          96,364     

Selling, general and administrative expenses

     (14,650)          (98,560)          (9,306)          15,376           (107,140)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating loss

     (1,813)          (6,836)          (2,102)          (25)          (10,776)    

Interest income

     -               3           65           -               68     

Interest expense

     (20,370)          (85)          -               -               (20,455)    

Other (expense) income, net

     (138)          -               4           -               (134)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (22,321)          (6,918)          (2,033)          (25)          (31,297)    

Income tax benefit (expense)

     811           (1,353)          (1,014)          -               (1,556)    

Equity in earnings of affiliates, net of tax

     (9,643)          -               -               9,643           -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

     (31,153)          (8,271)          (3,047)          9,618           (32,853)    

Net loss attributable to noncontrolling interest

     -               -               1,700           -               1,700     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to The Gymboree Corporation

    $ (31,153)         $ (8,271)         $ (1,347)         $ 9,618          $ (31,153)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 26 WEEKS ENDED AUGUST 1, 2015

(In thousands)

 

         The Gymboree          Guarantor      Non-guarantor                
     Corporation          Subsidiaries              Subsidiaries              Eliminations              Consolidated      

Net sales:

              

Retail

    $ 1,733           504,425           24,278           (11,713)         $ 518,723     

Gymboree Play & Music

     -               4,111           16,204           -               20,315     

Retail Franchise

     -               10,496           -               -               10,496     

Intercompany revenue

     29,498           27,645           3,666           (60,809)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total net sales

     31,231           546,677           44,148           (72,522)          549,534     

Cost of goods sold, including buying and occupancy expenses

     (4,313)          (331,057)          (21,603)          13,456           (343,517)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     26,918           215,620           22,545           (59,066)          206,017     

Selling, general and administrative expenses

     (53,461)          (194,518)          (19,034)          58,937           (208,076)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating (loss) income

     (26,543)          21,102           3,511           (129)          (2,059)    

Interest income

     2           7           33           -               42     

Interest expense

     (42,156)          (551)          -               -               (42,707)    

Other income (expense), net

     1           51           (20)          -               32     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) income before income taxes

     (68,696)          20,609           3,524           (129)          (44,692)    

Income tax benefit (expense)

     7,005           (8,411)          (1,776)          -               (3,182)    

Equity in earnings of affiliates, net of tax

     12,104           -               -               (12,104)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income

     (49,587)          12,198           1,748           (12,233)          (47,874)    

Net income attributable to noncontrolling interest

     -               -               (1,713)          -               (1,713)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income attributable to The Gymboree Corporation

    $ (49,587)         $ 12,198          $ 35          $ (12,233)         $ (49,587)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 26 WEEKS ENDED AUGUST 2, 2014

(In thousands)

 

  

  

  

  

   The Gymboree      Guarantor      Non-guarantor                
     Corporation      Subsidiaries      Subsidiaries      Eliminations      Consolidated  

Net sales:

              

Retail

    $ 631        $ 498,661          $ 23,904          $ (10,696)         $ 512,500     

Gymboree Play & Music

     -               5,281           8,870           -               14,151     

Retail Franchise

     -               9,662           -               -               9,662     

Intercompany revenue

     28,383           4,382           -               (32,765)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total net sales

     29,014           517,986           32,774           (43,461)          536,313     

Cost of goods sold, including buying and occupancy expenses

     (2,902)          (320,832)          (18,925)          11,068           (331,591)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     26,112           197,154           13,849           (32,393)          204,722     

Selling, general and administrative expenses

     (30,047)          (192,653)          (19,111)          32,381           (209,430)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating (loss) income

     (3,935)          4,501           (5,262)          (12)          (4,708)    

Interest income

     1           47           108           (41)          115     

Interest expense

     (40,656)          (173)           (41)          41           (40,829)    

Other expense, net

     (432)          -               (70)          -               (502)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) income before income taxes

     (45,022)          4,375           (5,265)          (12)          (45,924)    

Income tax benefit (expense)

     7,371           (8,266)          (1,037)          -               (1,932)    

Equity in earnings of affiliates, net of tax

     (6,933)          -               -               6,933           -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

     (44,584)          (3,891)          (6,302)          6,921           (47,856)    

Net loss attributable to noncontrolling interest

     -               -               3,272           -               3,272     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to The Gymboree Corporation

    $ (44,584)         $ (3,891)         $ (3,030)         $ 6,921          $ (44,584)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

26


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS

FOR THE 13 WEEKS ENDED AUGUST 1, 2015

(In thousands)

 

         The Gymboree          Guarantor          Non-guarantor                    
     Corporation            Subsidiaries            Subsidiaries          Eliminations               Consolidated       

Net loss

    $ (26,562)         $ 14,333          $ 3,642          $ (16,807)         $ (25,394)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive (loss) income, net of tax:

              

Foreign currency translation adjustments

     (1,604)          -               (1,622)          1,609           (1,617)    

Unrealized net gain on cash flow hedges, net of tax expense of $351

     702           -               146           (146)          702     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive loss, net of tax

     (902)          -               (1,476)          1,463           (915)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive (loss) income

     (27,464)          14,333           2,166           (15,344)          (26,309)    

Comprehensive income attributable to noncontrolling interest

     -               -               (1,155)          -               (1,155)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive (loss) income attributable to The Gymboree Corporation

    $ (27,464)         $ 14,333          $ 1,011          $ (15,344)         $ (27,464)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS

FOR THE 13 WEEKS ENDED AUGUST 2, 2014

(In thousands)

 

  

  

  

  

     The Gymboree      Guarantor      Non-guarantor                
     Corporation      Subsidiaries      Subsidiaries      Eliminations      Consolidated  

Net loss

    $ (31,153)         $ (8,271)         $ (3,047)         $ 9,618          $ (32,853)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss), net of tax:

              

Foreign currency translation adjustments

     77           -               249           (79)          247     

Unrealized net loss on cash flow hedges, net of tax

     (8)          -               (87)          87           (8)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income, net of tax

     69           -               162           8           239     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive loss

     (31,084)          (8,271)          (2,885)          9,626           (32,614)    

Comprehensive loss attributable to noncontrolling interest

     -               -               1,530           -               1,530     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive loss attributable to The Gymboree Corporation

    $ (31,084)         $ (8,271)         $ (1,355)         $ 9,626          $ (31,084)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS

FOR THE 26 WEEKS ENDED AUGUST 1, 2015

(In thousands)

 

  

  

  

  

     The Gymboree      Guarantor      Non-guarantor                
     Corporation      Subsidiaries      Subsidiaries      Eliminations      Consolidated  

Net loss

    $ (49,587)         $ 12,198          $ 1,748          $ (12,233)         $ (47,874)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss), net of tax:

              

Foreign currency translation adjustments

     (715)          -               (672)          726           (661)    

Unrealized net gain (loss) on cash flow hedges, net of tax expense of $549

     963           -               (165)          165           963     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income (loss), net of tax

     248           -               (837)          891           302     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive (loss) income

     (49,339)          12,198           911           (11,342)          (47,572)    

Comprehensive income attributable to noncontrolling interest

     -               -               (1,767)          -               (1,767)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive (loss) income attributable to The Gymboree Corporation

    $ (49,339)         $ 12,198          $ (856)         $ (11,342)         $ (49,339)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS

FOR THE 26 WEEKS ENDED AUGUST 2, 2014

 

  

  

  

     The Gymboree      Guarantor      Non-guarantor                
     Corporation      Subsidiaries      Subsidiaries      Eliminations      Consolidated  

Net loss

    $ (44,584)         $ (3,891)         $ (6,302)         $ 6,921          $ (47,856)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss), net of tax:

              

Foreign currency translation adjustments

     155           -               (120)          (185)          (150)    

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

     14           -               (361)          361           14     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income (loss), net of tax

     169           -               (481)          176           (136)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive loss

     (44,415)          (3,891)          (6,783)          7,097           (47,992)    

Comprehensive loss attributable to noncontrolling interest

     -               -               3,577           -               3,577     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive loss attributable to The Gymboree Corporation

    $ (44,415)         $ (3,891)         $ (3,206)         $ 7,097          $ (44,415)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

27


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF AUGUST 1, 2015

(In thousands)

 

                                                                                                                                      
     August 1, 2015  
     The Gymboree
Corporation
     Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
     Eliminations      Consolidated  

ASSETS

              

Current assets:

              

Cash and cash equivalents

    $ 2,180          $ 3,649          $ 17,668          $ -              $ 23,497     

Accounts receivable, net of allowance

     526           21,748           2,410           -               24,684     

Merchandise inventories

     -               234,644           9,028           (635)          243,037     

Prepaid income taxes

     1,659           315           622           -               2,596     

Prepaid expenses

     3,858           14,294           1,247           -               19,399     

Deferred income taxes

     -               15,886           647           (7,409)          9,124     

Intercompany receivable

     2,726           592,201           73           (595,000)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     10,949           882,737           31,695           (603,044)          322,337     

Property and equipment, net

     12,103           148,194           10,308           -               170,605     

Goodwill

     -               362,022           11,424           -               373,446     

Other intangible assets, net

     -               342,098           59           -               342,157     

Deferred financing costs

     22,277           868           -               -               23,145     

Restricted cash

     8,157           -               -               -               8,157     

Other assets

     1           1,349           3,942           (1,425)          3,867     

Investment in subsidiaries

     1,392,227           -               -               (1,392,227)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

    $ 1,445,714          $ 1,737,268          $ 57,428          $ (1,996,696)         $ 1,243,714     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

  

        

Current liabilities:

              

Accounts payable

    $ 19,965           102,556          $ 1,474          $ -              $ 123,995     

Accrued liabilities

     23,352           60,412           11,184           131           95,079     

Current deferred income taxes

     7,506           -               34           (7,540)          -         

Line of credit borrowings

     70,000           -               -               -               70,000     

Current obligation under capital lease

     -               578           -               -               578     

Intercompany payable

     592,835           74           2,726           (595,635)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current liabilities

     713,658           163,620           15,418           (603,044)          289,652     

Long-term liabilities:

              

Long-term debt

     1,114,207           -               -               -               1,114,207     

Long-term sale-leaseback financing liability

     -               26,516           -               -               26,516     

Long-term obligation under capital lease

     -               2,555           -               -               2,555     

Lease incentives and other liabilities

     4,791           47,544           4,558           -               56,893     

Long-term deferred income taxes

     2,747           130,549           16           (1,425)          131,887     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     1,835,403           370,784           19,992           (604,469)          1,621,710     

Total stockholders’ (deficit) equity

     (389,689)          1,366,484           25,743           (1,392,227)          (389,689)    

Noncontrolling interest

     -               -               11,693           -               11,693     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ (deficit) equity

    $ 1,445,714          $ 1,737,268          $ 57,428          $ (1,996,696)         $ 1,243,714     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

28


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF JANUARY 31, 2015

(In thousands)

 

                                                                                                                                      
     January 31, 2015  
     The Gymboree
Corporation
     Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
     Eliminations      Consolidated  

ASSETS

              

Current assets:

              

Cash and cash equivalents

    $ 1,689          $ 3,202          $ 13,629          $ -              $ 18,520     

Accounts receivable, net of allowance

     938           18,339           5,971           -               25,248     

Merchandise inventories

     -               192,142           6,711           (516)          198,337     

Prepaid income taxes

     1,860           306           433           -               2,599     

Prepaid expenses

     3,388           2,833           600           -               6,821     

Deferred income taxes

     -               15,586           793           (9,555)          6,824     

Intercompany receivable

     3,470           608,994           720           (613,184)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     11,345           841,402           28,857           (623,255)          258,349     

Property and equipment, net

     12,306           159,699           10,426           -               182,431     

Goodwill

     -               362,021           11,813           -               373,834     

Other intangible assets, net

     -               343,312           240           -               343,552     

Deferred financing costs

     25,622           -               -               -               25,622     

Other assets

     7,798           1,669           4,020           (9,332)          4,155     

Investment in subsidiaries

     1,408,447           -               -               (1,408,447)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

  

        

Current liabilities:

              

Accounts payable

    $ 9,798          $ 76,557          $ 677          $ -              $ 87,032     

Accrued liabilities

     26,943           57,757           10,031           74           94,805     

Deferred income taxes

     9,504           -               125           (9,629)          -         

Line of credit borrowings

     33,000           -               -               -               33,000     

Current obligation under capital lease

     -               552           -               -               552     

Intercompany payable

     609,510           720           3,470           (613,700)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current liabilities

     688,755           135,586           14,303           (623,255)          215,389     

Long-term liabilities:

              

Long-term debt

     1,114,048           -               -               -               1,114,048     

Long-term obligation under capital lease

     -               2,850           -               -               2,850     

Lease incentives and other liabilities

     4,906           49,306           4,513           -               58,725     

Deferred income taxes

     -               138,511           17           (9,332)          129,196     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     1,807,709           326,253           18,833           (632,587)          1,520,208     

Total stockholders’ (deficit) equity

     (342,191)          1,381,850           26,597           (1,408,447)          (342,191)    

Noncontrolling interest

     -               -               9,926           -               9,926     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ (deficit) equity

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

29


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF AUGUST 2, 2014

(In thousands)

 

                                                                                                                                      
     August 2, 2014  
     The Gymboree
Corporation
     Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
     Eliminations      Consolidated  

ASSETS

              

Current assets:

              

Cash and cash equivalents

    $ 1,961          $ 6,670          $ 16,248          $ -              $ 24,879     

Accounts receivable, net of allowance

     472           18,770           1,887           -               21,129     

Merchandise inventories

     -               218,586           5,604           (496)          223,694     

Prepaid income taxes

     2,348           318           410           -               3,076     

Prepaid expenses

     2,924           15,410           1,350           -               19,684     

Deferred income taxes

     -               13,458           520           (5,806)          8,172     

Intercompany receivable

     -               537,455           -               (537,455)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     7,705           810,667           26,019           (543,757)          300,634     

Property and equipment, net

     12,388           173,198           11,081           -               196,667     

Goodwill

     -               721,844           36,933           -               758,777     

Other intangible assets, net

     -               557,679           531           -               558,210     

Deferred financing costs

     29,091           -               -               -               29,091     

Other assets

     14,780           1,969           9,908           (16,822)          9,835     

Investment in subsidiaries

     1,878,992           -               -               (1,878,992)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

    $ 1,942,956          $ 2,265,357          $ 84,472          $ (2,439,571)         $ 1,853,214     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

  

        

Current liabilities:

              

Accounts payable

    $ 8,880          $ 103,240          $ 518          $ -              $ 112,638     

Accrued liabilities

     23,526           55,650           7,055           -               86,231     

Deferred income taxes

     5,690           -               116           (5,806)          -         

Line of credit borrowings

     64,000           -               -               -               64,000     

Current obligation under capital lease

     -               527           -               -               527     

Intercompany payable

     531,101           -               6,850           (537,951)          -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current liabilities

     633,197           159,417           14,539           (543,757)          263,396     

Long-term liabilities:

              

Long-term debt

     1,113,893           -               -               -               1,113,893     

Long-term obligation under capital lease

     -               3,133           -               -               3,133     

Lease incentives and other liabilities

     4,218           49,541           5,380           -               59,139     

Deferred income taxes

     -               226,042           -               (16,822)          209,220     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     1,751,308           438,133           19,919           (560,579)          1,648,781     

Total stockholders’ equity

     191,648           1,827,224           51,768           (1,878,992)          191,648     

Noncontrolling interest

     -               -               12,785           -               12,785     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ equity

    $ 1,942,956          $ 2,265,357          $ 84,472          $ (2,439,571)         $ 1,853,214     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 26 WEEKS ENDED AUGUST 1, 2015

(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

    $ (50,679)         $ 5,471          $ 4,942          $ (1,700)         $ (41,966)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

              

Capital expenditures

     (1,428)          (4,504)          (1,574)          -               (7,506)    

Increase in restricted cash

     (10,863)          -               -               -               (10,863)    

Decrease in restricted cash

     2,706           -               -               -               2,706     

Proceeds from sale of assets

     -               -               353           -               353     

Capital distribution from subsidiary

     25,863           -               -               (25,863)          -         

Intercompany transfers

     744           2,378           647           (3,769)          -         

Other

     -               (4)          44           -               40     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net cash used in investing activities

     17,022           (2,130)          (530)          (29,632)          (15,270)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

              

Intercompany transfers

     (2,841)          (647)          (281)          3,769           -         

Proceeds from ABL facility

     283,000           -               -               -               283,000     

Payments on ABL facility

     (246,000)          -               -               -               (246,000)    

Proceeds from sale-leaseback financing liability

     -               26,750           -               -               26,750     

Payments for deferred financing costs

     -               (1,122)          -               -               (1,122)    

Payments on capital lease and sale-leaseback financing liability

     -               (312)          -               -               (312)    

Dividend to The Gymboree Corporation

     -               (27,563)          -               27,563           -         

Dividend payment to parent

     (11)          -               -               -               (11)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     34,148           (2,894)          (281)          31,332           62,305     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

     -               -               (92)          -               (92)    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net increase in cash and cash equivalents

     491           447           4,039           -               4,977     

CASH AND CASH EQUIVALENTS:

              

Beginning of Period

     1,689           3,202           13,629           -               18,520     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

End of Period

    $ 2,180          $ 3,649          $ 17,668          $ -              $ 23,497     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 26 WEEKS ENDED AUGUST 2, 2014

(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

    $ (61,495)          $ 4,446           $ (5,400)          $ -               $ (62,449)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

         

Capital expenditures

    (1,203)          (12,362)          (2,958)          -               (16,523)     

Proceeds from sale of shares

    3,207           -               -               (3,207)          -          

Intercompany transfers

    -               10,193           -               (10,193)          -          

Other

    -               (20)          (46)          -               (66)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    2,004           (2,189)          (3,004)          (13,400)          (16,589)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

         

Intercompany transfers

    (18,027)          -               7,834           10,193           -          

Proceeds from ABL facility

    218,000           -               -               -               218,000      

Payments on ABL facility

    (154,000)          -               -               -               (154,000)     

Payments on capital lease

    -               (246)          -               -               (246)     

Repurchase of shares

    -               -               (3,207)          3,207           -          

Capital contribution received by noncontrolling interest

    -               -               992           -               992      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    45,973           (246)          5,619           13,400           64,746      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

    -               -               (258)          -               (258)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

    (13,518)          2,011           (3,043)          -               (14,550)     

CASH AND CASH EQUIVALENTS:

         

Beginning of Period

    15,479           4,659           19,291           -               39,429      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of Period

    $ 1,961           $ 6,670           $ 16,248           $ -               $ 24,879      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

 

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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. All statements we make relating to: future sales, costs and expenses and gross profit percentages; the continuation of historical trends; planned store openings and closings, including franchise partner store openings; estimated capital expenditures for fiscal 2015; our ability to operate our business under our capital and operating structure; and the sufficiency of our cash balances and cash generated from operating and financing activities for future liquidity and capital resource needs are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we had expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.

Important factors that could cause actual results to differ materially from our expectations (“cautionary statements”) are disclosed under “Item 1A, Risk Factors,” in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015, filed with the Securities and Exchange Commission on May 1, 2015 (the “Fiscal 2014 Annual Report”). We encourage you to read these risk factors disclosures carefully. We caution investors not to place substantial reliance on the forward-looking statements contained in this quarterly report. These statements, like all statements in this quarterly report, speak only as of the date of this quarterly report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.

Overview

We are one of the largest children’s apparel specialty retailers in North America, offering collections of high-quality apparel and accessories. As of August 1, 2015, we operated a total of 1,317 retail stores, as follows:

 

      United States           Canada             Australia           Puerto Rico               Total          

Gymboree® stores

    550          48          5          1          604     

Gymboree Outlet stores

    171          -              -              1