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 October 31, 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 December 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

     42   
Item 4.  

Controls and Procedures

     42   
Part II—OTHER INFORMATION      43   
Item 1.  

Legal Proceedings

     43   
Item 1A.    

Risk Factors

     43   
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

     43   
Item 3.  

Defaults Upon Senior Securities

     43   
Item 4.  

Mine Safety Disclosures

     43   
Item 5.  

Other Information

     43   
Item 6.      

Exhibits

     43   
 

Signatures

     45   

 

2


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     39 Weeks Ended  
    October 31, 2015       November 1, 2014       October 31, 2015       November 1, 2014    

Net sales:

       

Retail

   $ 289,653          $ 304,265          $ 808,376          $ 816,765      

Gymboree Play & Music

    9,921           7,744           30,236           21,895      

Retail Franchise

    5,867           4,810           16,363           14,472      
 

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

    305,441           316,819           854,975           853,132      

Cost of goods sold, including buying and occupancy expenses

    (182,660)          (190,898)          (526,177)          (522,489)     
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    122,781           125,921           328,798           330,643      

Selling, general and administrative expenses

    (108,566)          (113,679)          (316,642)          (323,109)     

Goodwill and intangible asset impairment

    -              (591,396)          -              (591,396)     
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    14,215           (579,154)          12,156           (583,862)     

Interest income

    38           42           80           157      

Interest expense

    (21,906)          (20,768)          (64,613)          (61,597)     

Other expense, net

    (170)          (19)          (138)          (521)     
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (7,823)          (599,899)          (52,515)          (645,823)     

Income tax (expense) benefit

    (1,829)          77,505           (5,011)          75,573      
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (9,652)          (522,394)          (57,526)          (570,250)     

Net (income) loss attributable to noncontrolling interest

    (376)          319           (2,089)          3,591     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to The Gymboree Corporation

   $ (10,028)         $ (522,075)         $ (59,615)         $ (566,659)     
 

 

 

   

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

3


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

    13 Weeks Ended   39 Weeks Ended
     October 31, 2015     November 1, 2014     October 31, 2015     November 1, 2014 

Net loss

    $ (9,652     $ (522,394     $ (57,526     $ (570,250
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

       

Foreign currency translation adjustments, net of tax

    (242     (4,940     (903     (5,090

Unrealized net gain on cash flow hedges, net of tax expense of $359, $127, $908, and $127

              610                  522             1,573                  536   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

    368        (4,418     670        (4,554
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

    (9,284     (526,812     (56,856     (574,804

Comprehensive (income) loss attributable to noncontrolling interest

    (179     193        (1,946     3,770   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss attributable to The Gymboree Corporation

    $ (9,463     $ (526,619     $ (58,802     $ (571,034
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

4


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

        October 31,  
2015  
        January 31,  
2015  
        November 1,  
2014
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 24,277          $ 18,520          $ 20,828      

Accounts receivable, net of allowance of $2,199, $1,939 and $2,174

    22,487           25,248           23,377      

Merchandise inventories

    265,409           198,337           259,266      

Prepaid income taxes

    2,577           2,599           2,715      

Prepaid expenses

    7,402           6,821           21,090      

Deferred income taxes

    7,053           6,824           9,182      
 

 

 

   

 

 

   

 

 

 

Total current assets

    329,205           258,349           336,458      
 

 

 

   

 

 

   

 

 

 

Property and equipment:

     

Land and buildings

    22,428           22,428           22,428      

Leasehold improvements

    201,478           198,098           200,948      

Furniture, fixtures and equipment

    129,994           123,943           122,427      
 

 

 

   

 

 

   

 

 

 

Total property and equipment

    353,900           344,469           345,803      

Less accumulated depreciation and amortization

    (187,240)          (162,038)          (154,628)     
 

 

 

   

 

 

   

 

 

 

Net property and equipment

    166,660           182,431           191,175      
 

 

 

   

 

 

   

 

 

 

Goodwill

    373,408           373,834           375,345      

Other intangible assets, net

    341,585           343,552           344,829      

Deferred financing costs

    22,489           25,622           27,338      

Restricted cash

    4,535           -              -         

Other assets

    4,117           4,155           8,866      
 

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,241,999          $ 1,187,943          $ 1,284,011      
 

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

     

Current liabilities:

     

Accounts payable

   $ 132,523          $ 87,032          $ 146,066      

Accrued liabilities

    115,286           94,805           108,334      

Line of credit borrowings

    50,000           33,000           42,000      

Current obligation under capital lease

    591           552           539      
 

 

 

   

 

 

   

 

 

 

Total current liabilities

    298,400           215,389           296,939      
 

 

 

   

 

 

   

 

 

 

Long-term liabilities:

     

Long-term debt

    1,114,288           1,114,048           1,113,970      

Long-term sale-leaseback financing liability

    26,462           -              -         

Long-term obligation under capital lease

    2,402           2,850           2,993      

Lease incentives and other liabilities

    50,992           53,677           54,129      

Unrecognized tax benefits

    6,114           5,048           6,186      

Deferred income taxes

    129,808           129,196           131,137      
 

 

 

   

 

 

   

 

 

 

Total liabilities

    1,628,466           1,520,208           1,605,354      
 

 

 

   

 

 

   

 

 

 

Commitments and contingencies

     

Stockholders’ deficit:

     

Common stock, including additional paid-in capital ($0.001 par value:
1,000 shares authorized, issued and outstanding)

    525,057           522,403           521,237      

Accumulated deficit

    (912,978)          (853,363)          (845,917)     

Accumulated other comprehensive loss

    (10,418)          (11,231)          (9,255)     
 

 

 

   

 

 

   

 

 

 

Total stockholders’ deficit

    (398,339)          (342,191)          (333,935)     

Noncontrolling interest

    11,872           9,926           12,592      
 

 

 

   

 

 

   

 

 

 

Total deficit

    (386,467)          (332,265)          (321,343)     
 

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ deficit

   $ 1,241,999          $ 1,187,943          $ 1,284,011      
 

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

5


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

    39 Weeks Ended  
        October 31,    
2015
        November 1,    
2014
 

CASH FLOWS FROM OPERATING ACTIVITIES:

   

Net loss

   $ (57,526)         $ (570,250)     

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

   

Goodwill and intangible asset impairment

    -              591,396      

Depreciation and amortization

    30,868           33,469      

Amortization of deferred financing costs and accretion of original issue discount

    5,948           5,345      

Interest rate cap contracts - adjustment to market

    2,737           1,441      

Loss on disposal/impairment of assets

    438           6,089      

Deferred income taxes

    260           (79,214)     

Share-based compensation expense

    2,665           3,389      

Other

    (907)          (106)     

Change in assets and liabilities:

   

Accounts receivable

    4,476           (1,507)     

Merchandise inventories

    (67,669)          (84,093)     

Prepaid income taxes

    8           (744)     

Prepaid expenses and other assets

    (377)          630      

Accounts payable

    45,516           44,115      

Accrued liabilities

    17,529           8,237      

Lease incentives and other liabilities

    (304)          5,304      
 

 

 

   

 

 

 

Net cash used in operating activities

    (16,338)          (36,499)     
 

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

   

Capital expenditures

    (12,576)          (24,372)     

Increase in restricted cash

    (10,863)          -         

Decrease in restricted cash

    6,328           -         

Increase in related party loan receivable

    (1,741)          -         

Proceeds from sale of assets

    353           -         

Other

    33           (45)     
 

 

 

   

 

 

 

Net cash used in investing activities

    (18,466)          (24,417)     
 

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

   

Proceeds from ABL facility

    390,000           300,000      

Payments on ABL facility

    (373,000)          (258,000)     

Proceeds from sale-leaseback financing liability

    26,750           -         

Payments on capital lease and sale-leaseback financing liability

    (497)          (373)     

Payments for deferred financing costs

    (2,574)          -         

Dividend payment to parent

    (11)          (84)     

Capital contribution received by noncontrolling interest

    -              992      
 

 

 

   

 

 

 

Net cash provided by financing activities

    40,668           42,535      
 

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

    (107)          (220)     
 

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

    5,757           (18,601)     

CASH AND CASH EQUIVALENTS:

   

Beginning of period

    18,520           39,429      
 

 

 

   

 

 

 

End of period

   $ 24,277          $ 20,828      
 

 

 

   

 

 

 

OTHER CASH FLOW INFORMATION:

   

Cash (received) paid for income taxes, net

   $ (1,031)         $ 3,677      

Cash paid for interest

   $ 48,371          $ 46,862      

See notes to condensed consolidated financial statements.

 

6


Table of Contents

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 (“third quarter of fiscal 2015”) and 39 weeks ended October 31, 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 November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires deferred tax assets and liabilities, as well as any related valuation allowance, be classified as non-current on the balance sheet. As a result, each jurisdiction will only have one net non-current deferred tax asset or liability. This ASU does not change the existing requirement that only permits offsetting within a jurisdiction. This ASU may be applied on either a prospective or retrospective basis and is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted.

In July 2015, the FASB issued 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.

 

7


Table of Contents

3. Fair Value Measurements

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

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

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

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

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present our assets and liabilities measured at fair value on a recurring basis as of October 31, 2015, January 31, 2015 and November 1, 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 39 weeks ended October 31, 2015 and November 1, 2014, or during the year ended January 31, 2015.

 

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

Liabilities

       

Forward foreign exchange contracts

   $ -           $ 27         $ -           $ 27     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ -           $ 27         $ -           $ 27     
 

 

 

   

 

 

   

 

 

   

 

 

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

Assets

       

Interest rate caps

   $ -           $ 17         $ -           $ 17     

Forward foreign exchange contracts

    -            96          -            96     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ -           $ 113         $ -           $ 113     
 

 

 

   

 

 

   

 

 

   

 

 

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

Assets

       

Interest rate caps

   $ -           $ 41         $ -           $ 41     

Forward foreign exchange contracts

    -            134          -            134     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ -           $ 175         $ -           $ 175     
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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

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

Although we have determined the majority of the inputs used to value our interest rate caps fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of October 31, 2015, January 31, 2015 and November 1, 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):

 

    October 31, 2015     January 31, 2015     November 1, 2014  
       Carrying Amount           Fair Value          Carrying Amount          Fair Value          Carrying Amount          Fair Value     

Term loan

   $ 768,288         $ 503,762         $ 768,048         $ 530,680         $ 767,970         $ 488,380     

Notes

    346,000          114,180          346,000          128,020          346,000          110,720     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,114,288         $ 617,942         $ 1,114,048         $ 658,700         $ 1,113,970         $ 599,100     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

We had no other financial assets or liabilities measured at fair value as of October 31, 2015, January 31, 2015 and November 1, 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 weeks and 39 weeks ended October 31, 2015, we did not identify impairment indicators for goodwill or for our indefinite-lived intangible assets. During the 13 weeks and 39 weeks ended November 1, 2014, we recognized 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, and $212.6 million of impairment related to our indefinite-lived intangible assets (see Note 4).

During the 13 weeks and 39 weeks ended October 31, 2015, we recorded impairment charges of $0.2 million related to assets for under-performing stores. During the 13 weeks and 39 weeks ended November 1, 2014, we recorded impairment charges of $2.0 million and $5.2 million related to assets for under-performing stores, respectively. 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 October 31, 2015, January 31, 2015 and November 1, 2014 is as follows (in thousands):

 

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

Balance as of October 31, 2015

       

Goodwill

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

Accumulated impairment losses

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

Effect of exchange rate fluctuations

    (6,573)          -               -               (6,573)     
 

 

 

   

 

 

   

 

 

   

 

 

 
   $ 333,383         $ 16,389          $ 23,636          $ 373,408      
 

 

 

   

 

 

   

 

 

   

 

 

 

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 November 1, 2014

       

Goodwill

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

Accumulated impairment losses

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

Effect of exchange rate fluctuations

    (4,636)          -               -               (4,636)     
 

 

 

   

 

 

   

 

 

   

 

 

 
   $ 335,320          $             16,389          $             23,636          $            375,345      
 

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill Impairment

During the 13 weeks and 39 weeks ended October 31, 2015, we did not identify impairment indicators for goodwill. Operating income increased to $12.2 million during the 39 weeks ended October 31, 2015 compared to operating loss of $583.9 million during the same period last year or compared to operating income of $7.5 million excluding the goodwill and intangible assets impairment charges of $591.4 million during the same period last year. In determining whether an indicator of impairment is present, we qualitatively assessed the valuation of our retail segment reporting units. This qualitative assessment resulted in a determination that it was more likely than not the fair value of our retail segment reporting units exceeded their carrying amount at October 31, 2015. If the results of our operations through the remainder of fiscal year 2015 or our forecast of future operating performance declines, there is a potential for goodwill and indefinite-lived intangible asset impairment related to our Gymboree Retail reporting unit.

In addition, other significant adverse changes to our business environment or future cash flows could cause us to record additional impairment charges in future periods, which could be material. Our annual goodwill and indefinite-lived intangible asset impairment tests are performed at the end of our tenth fiscal period (fiscal November), and as described above we monitor whether interim goodwill and indefinite-lived intangible asset tests are necessary.

During the 13 weeks and 39 weeks ended November 1, 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 (see Note 3).

We performed our annual goodwill impairment test during the fourth quarter of fiscal 2014 and determined that the fair value of the Gymboree Retail, Gymboree Outlet, Janie and Jack, Crazy 8, Play & Music, and International Retail Franchise reporting units were $499.0 million, $130.0 million, $225.0 million, $110.0 million, $51.0 million, and $51.0 million, respectively, which exceeded the carrying values of $474.9 million, $113.8 million, $81.5 million, $96.1 million, $40.8 million, and $27.7 million, respectively.

 

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Intangible Assets and Liabilities

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

 

    October 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:

       

Below market leases

    4,828           (3,685)          -               1,143      

Co-branded credit card agreement

    4,000           (3,035)          -               965      

Franchise agreements and reacquired franchise rights

    6,625           (4,560)          -               2,065      
 

 

 

   

 

 

   

 

 

   

 

 

 
    15,453           (11,280)          -               4,173      
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other intangible assets

   $ 582,465          $ (11,280)         $ (229,600)          $ 341,585      
 

 

 

   

 

 

   

 

 

   

 

 

 

Intangible Liabilities Subject to Amortization:

       

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

   $ (11,033)         $ 7,619          $ -              $ (3,414)     
 

 

 

   

 

 

   

 

 

   

 

 

 
    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)     
 

 

 

   

 

 

   

 

 

   

 

 

 
    November 1, 2014  
    Gross Carrying
Amount
    Accumulated
Amortization
    Accumulated
Impairment
    Net Amount  

Intangible Assets Not Subject to Amortization:

       

Trade names

   $ 567,494          $ -              $ (229,600)         $ 337,894      
 

 

 

   

 

 

   

 

 

   

 

 

 

Intangible Assets Subject to Amortization:

       

Customer relationships

    37,551           (37,248)          -               303      

Below market leases

    7,055           (4,995)          -               2,060      

Co-branded credit card agreement

    4,000           (2,419)          -               1,581      

Franchise agreements and reacquired franchise rights

    6,632           (3,641)          -               2,991      
 

 

 

   

 

 

   

 

 

   

 

 

 
    55,238           (48,303)          -               6,935      
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other intangible assets

   $ 622,732          $ (48,303)         $ (229,600)         $ 344,829      
 

 

 

   

 

 

   

 

 

   

 

 

 

Intangible Liabilities Subject to Amortization:

       

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

   $ (16,631)         $ 11,517          $ -              $ (5,114)     
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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The decrease in the gross carrying amount of customer relationships, below market leases, franchise agreements and reacquired franchise rights, and above market leases for the periods January 31, 2015 to October 31, 2015 and November 1, 2014 to January 31, 2015 reflects the write-off of certain fully amortized intangibles.

Indefinite-Lived Intangible Assets Impairment

During the 13 weeks and 39 weeks ended October 31, 2015, we did not identify impairment indicators for indefinite-lived intangible assets. During the 13 weeks and 39 weeks ended November 1, 2014, we recognized a $212.6 million impairment charge related to trade names of our retail stores segment.

We performed our annual impairment test of indefinite-lived intangible assets (trade names) during the fourth quarter of fiscal 2014 and determined that the estimated fair values of Gymboree Retail, Gymboree Outlet, Janie and Jack, Crazy 8 and Play & Music were $231.3 million, $40.0 million, $57.4 million, $18.8 million and $42.3 million, respectively, which exceeded the carrying values of $202.2 million, $38.3 million, $42.2 million, $18.5 million and $36.2 million, respectively

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

 

    13 Weeks Ended     39 Weeks Ended  
        October 31, 2015           November 1, 2014         October 31, 2015         November 1, 2014    

Cost of goods sold - Amortization income

   $ 198        $ 237        $ 546        $ 724    
 

 

 

   

 

 

   

 

 

   

 

 

 

Selling, general and administrative expenses - Amortization expense

   $ (385)       $ (514)       $ (1,322)       $ (1,595)   
 

 

 

   

 

 

   

 

 

   

 

 

 

5. Line of Credit

In September 2015, we amended our senior secured asset-based revolving credit facility (“ABL”) to extend the maturity date of the ABL revolving commitments from March 2017 to the earlier of (i) September 24, 2020 and (ii) the date that is 60 days before the scheduled final maturity date of any tranche of the Term Loan (which matures in February 2018) or Notes (which mature in December 2018), unless such tranches are cumulatively equal to or less than $25.0 million in the aggregate and a reserve against the borrowing base is imposed equal to the amount of such tranches. In addition, subject to the terms of the amended ABL, the Company may at a future date incur ABL Term Loans in an amount not to exceed $75 million, subject to a borrowing base.

The ABL, as amended, provides financing of up to $225 million in a revolving line of credit and up to $75 million in Term Loans, which are both subject to a borrowing base. Line of credit 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 October 31, 2015, January 31, 2015 and November 1, 2014 were $50.0 million, $33.0 million and $42.0 million, respectively. The line of credit available under the ABL is reduced by letter of credit utilization totaling $32.7 million as of October 31, 2015. Undrawn line of credit availability under the ABL, after being reduced by outstanding borrowings and letter of credit utilization, was $142.3 million as of October 31, 2015. Average line of credit borrowings for the 13 weeks and 39 weeks ended October 31, 2015 under the ABL amounted to $76.0 million and $62.7 million, respectively. Average line of credit borrowings under the ABL for the fiscal year ended January 31, 2015 amounted to $32.0 million. Average line of credit borrowings for the 13 weeks and 39 weeks ended November 1, 2014 under the ABL amounted to $48.5 million and $28.9 million, respectively. Principal amounts outstanding under the line of credit are due and payable in full on the earlier of (i) September 24, 2020 and (ii) the date that is 60 days before the scheduled final maturity date of any tranche of the Term Loan or Notes, unless such tranches are cumulatively equal to or less than $25.0 million in the aggregate and a reserve against the borrowing base is imposed equal to the amount of such tranches.

Line of credit 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 October 31, 2015, the interest rate was 3.4% on $6.0 million of line of credit borrowings outstanding, 1.9% on $35.0 million of line of credit borrowings outstanding, and 4.0% on $9.0 million of line of credit borrowings outstanding under the ABL. In addition to paying interest on outstanding principal under the ABL, we are required to pay a commitment fee on unutilized commitments thereunder, which is 0.375% per annum under the amended ABL. The ABL, as amended, provides us the right to request additional commitments for an amount not to exceed $125 million minus the initial aggregate principal amount of the ABL Term Loans, if any, (or, if less, the amount permitted under the Term Loan and the Notes described in Note 6) subject to the satisfaction of certain conditions.

 

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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 collateralized 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 October 31, 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):

 

     October 31, 2015       January 31, 2015        November 1, 2014    

Term loan due February 2018, Adjusted LIBOR (with a floor of 1.5%) plus 3.5%, net of discount of $814, $1,054 and $1,133

   $ 768,288         $ 768,048         $ 767,970     

Senior notes due December 2018, 9.125%

    346,000          346,000          346,000     
 

 

 

   

 

 

   

 

 

 

Total

   $ 1,114,288         $ 1,114,048         $ 1,113,970     
 

 

 

   

 

 

   

 

 

 

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 October 31, 2015, the interest rate under our Term Loan was 5%.

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

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

 

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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 $0.8 million as of October 31, 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 $21.4 million and $20.6 million for the 13 weeks ended October 31, 2015 and November 1, 2014, respectively. Interest expense was $63.5 million and $61.2 million for the 39 weeks ended October 31, 2015 and November 1, 2014, respectively. Amortization of deferred financing costs and accretion of OID are also included in interest expense.

Deferred Financing Costs

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, as amended in September 2015, are amortized on a straight-line basis over the expected term of the amended ABL of 2.3 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 of the Term Loan, Notes, and ABL is approximately 2.5 years as of October 31, 2015. Amortization of deferred financing costs is recorded in interest expense and was $1.9 million and $1.7 million for the 13 weeks ended October 31, 2015 and November 1, 2014, respectively. Amortization of deferred financing costs was $5.5 million and $5.1 million for the 39 weeks ended October 31, 2015 and November 1, 2014, respectively.

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 under the Term Loan to fund capital expenditures or reduce the Term Loan. Approximately $6.3 million of these restricted funds were used to fund capital expenditures during the 39 weeks ended October 31, 2015. As of October 31, 2015, the Company had a restricted cash balance remaining of $4.5 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 weeks and 39 weeks ended October 31, 2015, payments made by the Company related to the sale-leaseback financing liability totaled $0.5 million and $0.9 million, respectively, out of which, $0.4 million and $0.8 million were allocated to interest expense during the 13 weeks and 39 weeks ended October 31, 2015.

As of October 31, 2015, future payments on the sale-leaseback financing liability, excluding renewals, are as follows (in thousands):

 

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Fiscal years

   Payments       

Remainder of 2015

    $ 446         

2016

     1,800         

2017

     1,822         

2018

     1,845         

2019

     1,868         

2020

     1,891         

Thereafter

     31,367         
  

 

 

    

Total payments

     41,039         

Less amount representing interest

     (14,377)        
  

 

 

    

Total sale-leaseback financing liability

     26,662         

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

     (200)        
  

 

 

    

Long-term portion of sale-leaseback financing liability

    $         26,462         
  

 

 

    

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 October 31, 2015 and November 1, 2014, we reclassified approximately $1.0 million and $0.5 million, respectively, from accumulated other comprehensive loss to interest expense. During the 39 weeks ended October 31, 2015 and November 1, 2014, we reclassified approximately $2.7 million and $1.4 million, respectively, from accumulated other comprehensive loss to interest expense. We estimate approximately $5.0 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):

 

     October 31, 2015      January 31, 2015      November 1, 2014  
     Number of
  Instruments  
      Notional 
(USD)
      Number of 
Instruments
    Notional 
(USD)
     Number of
 Instruments 
      Notional 
(USD)
 

Interest rate derivatives

                 

Purchased interest rate caps

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

Foreign exchange derivatives

                 

Forward foreign exchange contracts

     3                 4,468        6      4,633           3                 4,682     
  

 

 

    

 

 

    

 

  

 

 

    

 

 

    

 

 

 

Total

     7                $     704,468        10     $     704,633           7                $     704,682     
  

 

 

    

 

 

    

 

  

 

 

    

 

 

    

 

 

 

 

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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).

 

    October 31, 2015     January 31, 2015     November 1, 2014  
    Derivative
Liabilities
    Derivative
Assets
    Derivative
Assets
 

Other Assets

     

Purchased interest rate caps

   $ -         $ 17         $ 41     

Forward foreign exchange contracts

    -          96          134     
 

 

 

   

 

 

   

 

 

 

Total

   $ -         $ 113         $ 175     
 

 

 

   

 

 

   

 

 

 

Accrued Liabilities

     

Forward foreign exchange contracts

   $ 27         $ -         $ -     
 

 

 

   

 

 

   

 

 

 

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).

 

    13 Weeks Ended October 31, 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

   $ (1)        Interest expense    $ (1,044)     

Forward foreign exchange contracts

    (22)        Cost of goods sold     52      
 

 

 

     

 

 

 

Total

   $ (23)           $ (992)     
 

 

 

     

 

 

 
    13 Weeks Ended November 1, 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

   $ (1)        Interest expense    $ (509)     

Forward foreign exchange contracts

    181         Cost of goods sold     40      
 

 

 

     

 

 

 

Total

   $ 180            $ (469)     
 

 

 

     

 

 

 
    39 Weeks Ended October 31, 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

   $ (17)        Interest expense    $ (2,737)     

Forward foreign exchange contracts

    (34)        Cost of goods sold     205      
 

 

 

     

 

 

 

Total

   $ (51)           $ (2,532)     
 

 

 

     

 

 

 

 

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Table of Contents
    39 Weeks Ended November 1, 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

   $ (558)        Interest expense    $ (1,441)     

Forward foreign exchange contracts

    109         Cost of goods sold     329      
 

 

 

     

 

 

 

Total

   $ (449)           $ (1,112)     
 

 

 

     

 

 

 

9. Share-Based Compensation

Share-based compensation expense included as a component of selling, general and administrative (“SG&A”) expenses was $0.8 million and $1.1 million during the 13 weeks ended October 31, 2015 and November 1, 2014, respectively. Share-based compensation expense was $2.7 million and $3.4 million during the 39 weeks ended October 31, 2015 and November 1, 2014, respectively. We include an estimate of forfeitures in determining share-based compensation expense.

The share-based compensation expense during the 39 weeks ended October 31, 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 October 31, 2015, there was approximately $1.0 million of unrecognized incremental compensation expense related to the modification that will be recognized over a period of 4.0 years.

10. Income Taxes

As of October 31, 2015, January 31, 2015 and November 1, 2014, unrecognized tax benefits were $7.4 million, $5.6 million and $6.9 million, respectively. We believe it is reasonably possible that the total amount of unrecognized tax benefits of $7.4 million as of October 31, 2015 will decrease by as much as $0.3 million during the next twelve months due to the resolution of certain tax contingencies and lapses of applicable statutes of limitations.

As of October 31, 2015, January 31, 2015 and November 1, 2014, the total valuation allowance against deferred tax assets was $79.3 million, $58.6 million and $52.4 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, Australian, and Korean 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.

 

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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):

 

                                                                                                        
     October 31, 2015       January 31, 2015      November 1, 2014  

Foreign currency translation

   $ (7,803)         $ (7,043)         $ (4,288)     

Accumulated changes in fair value of derivative financial instruments, net of tax benefit of $3,074, $3,982 and $3,855

    (2,615)          (4,188)          (4,967)     
 

 

 

   

 

 

   

 

 

 

Total accumulated other comprehensive loss

   $ (10,418)         $ (11,231)         $ (9,255)     
 

 

 

   

 

 

   

 

 

 

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

                                                                                                  
    13 Weeks Ended October 31, 2015  
    Derivatives     Foreign Currency     Total Accumulated
Comprehensive (Loss)
Income Including
Noncontrolling Interest
 

Beginning balance

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

 

 

   

 

 

   

 

 

 

Other comprehensive loss recognized before reclassifications

    (23)          (242)          (265)     

Amounts reclassified from accumulated other comprehensive loss to earnings

    992           -               992      

Tax expense

    (359)          -               (359)     
 

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

    610           (242)          368      
 

 

 

   

 

 

   

 

 

 

Other comprehensive loss attributable to noncontrolling interest

    -               197           197      
 

 

 

   

 

 

   

 

 

 

Ending balance

   $ (2,615)         $ (7,803)         $ (10,418)     
 

 

 

   

 

 

   

 

 

 
    13 Weeks Ended November 1, 2014  
    Derivatives     Foreign Currency     Total Accumulated
Comprehensive (Loss)
Income Including
Noncontrolling Interest
 

Beginning balance

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

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) recognized before reclassifications

    180           (4,940)          (4,760)     

Amounts reclassified from accumulated other comprehensive loss to earnings

    469           -               469      

Tax expense

    (127)          -               (127)     
 

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

    522           (4,940)          (4,418)     
 

 

 

   

 

 

   

 

 

 

Other comprehensive income attributable to noncontrolling interest

    -              (126)          (126)     
 

 

 

   

 

 

   

 

 

 

Ending balance

   $ (4,967)         $ (4,288)         $ (9,255)     
 

 

 

   

 

 

   

 

 

 
    39 Weeks Ended October 31, 2015  
    Derivatives     Foreign Currency     Total Accumulated
Comprehensive (Loss)
Income Including
Noncontrolling Interest
 

Beginning balance

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

 

 

   

 

 

   

 

 

 

Other comprehensive loss recognized before reclassifications

    (51)          (903)          (954)     

Amounts reclassified from accumulated other comprehensive loss to earnings

    2,532           -              2,532      

Tax expense

    (908)          -              (908)     
 

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

    1,573           (903)          670      
 

 

 

   

 

 

   

 

 

 

Other comprehensive loss attributable to noncontrolling interest

    -              143           143      
 

 

 

   

 

 

   

 

 

 

Ending balance

   $ (2,615)         $ (7,803)         $ (10,418)     
 

 

 

   

 

 

   

 

 

 

 

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Table of Contents
    39 Weeks Ended November 1, 2014  
      Derivatives       Foreign
      Currency      
    Total Accumulated
Comprehensive (Loss)
Income Including
 Noncontrolling Interest  
 

Beginning balance

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

 

 

   

 

 

   

 

 

 

Other comprehensive loss recognized before reclassifications

    (449)          (5,090)          (5,539)     

Amounts reclassified from accumulated other comprehensive loss to earnings

    1,112           -               1,112      

Tax expense

    (127)          -               (127)     
 

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

    536           (5,090)          (4,554)     
 

 

 

   

 

 

   

 

 

 

Other comprehensive loss attributable to noncontrolling interest

    -               179           179      
 

 

 

   

 

 

   

 

 

 

Ending balance

   $ (4,967)         $ (4,288)         $ (9,255)     
 

 

 

   

 

 

   

 

 

 

13. Related Party Transactions

Related Party Transactions –Excluding VIEs

We incurred approximately $0.5 million and $0.7 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 October 31, 2015 and November 1, 2014, respectively. We incurred approximately $2.3 million in management fees and reimbursement of out-of-pocket expenses from Bain Capital during the 39 weeks ended October 31, 2015 and November 1, 2014, respectively. As of October 31, 2015, January 31, 2015 and November 1, 2014, we had payable balances outstanding of $1.4 million, $0.2 million and $0.2 million, respectively, to Bain Capital.

We incurred approximately $0.4 million and $0.5 million in expenses related to services purchased from LogicSource, a company owned by funds associated with Bain Capital, during the 13 weeks ended October 31, 2015 and November 1, 2014, respectively. We incurred approximately $1.2 million and $1.4 million in expenses related to services purchased from LogicSource during the 39 weeks ended October 31, 2015 and November 1, 2014, respectively. As of October 31, 2015, January 31, 2015 and November 1, 2014, we had a payable balance of $0.2 million, $0.3 million and $0.2 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 weeks and 39 weeks ended October 31, 2014.

As of October 31, 2015, January 31, 2015 and November 1, 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

In September 2015, Gymboree Tianjin entered into an unsecured entrusted loan agreement with Lionbridge Financing Leasing (China) Co., Ltd. (“Lionbridge”), an indirect majority-owned company of Bain Capital Lionbridge Cayman Ltd., and Shanghai Pudong Development Bank (“SPD Bank”) for $1.7 million, whereby Lionbridge was the borrower and SPD Bank was the trustee. The loan bears interest at 10% per annum and matures in March 2016. The loan receivable is included in accounts receivable in the condensed consolidated balance sheet as of October 31, 2015.

Our VIEs incurred $0.1 in management fees from Bain Capital Advisors (China) Ltd. during the 13 weeks ended October 31, 2015 and November 1, 2014. Our VIEs incurred $0.4 million in management fees from Bain Capital Advisors (China) Ltd. during the 39 weeks ended October 31, 2015 and November 1, 2014. As of October 31, 2015, January 31, 2015 and November 1, 2014, our VIEs had a balance of $0.1 million, $0.1 million and $0 million payable to Bain Capital Advisors (China) Ltd, respectively.

As of October 31, 2015, January 31, 2015 and November 1, 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 October 31, 2015, January 31, 2015 and November 1, 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.

 

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Table of Contents

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. Corporate overhead (costs related to our distribution centers and shared corporate services) is included in the retail stores segment.

Net retail sales of the retail stores segment and the VIE were as follows for the periods ended (in thousands):

 

    Net Retail Sales  
                      Total               
    Gymboree (1)     Janie and Jack     Crazy 8     Before VIE     VIE     Total  

13 Weeks Ended October 31, 2015

   $ 186,423       $ 33,600       $ 67,825       $ 287,848       $ 1,805       $ 289,653   

13 Weeks Ended November 1, 2014

   $ 202,558       $ 32,242       $ 68,366       $ 303,166       $ 1,099       $ 304,265   

39 Weeks Ended October 31, 2015

   $ 508,390       $ 101,251       $ 193,440       $ 803,081       $ 5,295       $ 808,376   

39 Weeks Ended November 1, 2014

   $ 531,152       $ 93,144       $     188,591       $ 812,887       $ 3,878       $     816,765   

 

(1) 

This includes the net retail sales for Gymboree Retail and Gymboree Outlet operating segments.

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

 

    13 Weeks Ended October 31, 2015  
        Retail         Gymboree       International Retail               Intersegment          
    Stores       Play & Music       Franchise     VIEs     Elimination     Total  

Net sales

   $ 287,848       $ 4,018       $ 6,029       $ 9,917       $ (2,371)       $ 305,441   

Gross Profit

   $ 111,606       $ 2,824       $ 3,189       $ 6,830       $ (1,668)       $ 122,781   
    13 Weeks Ended November 1, 2014  
    Retail     Gymboree     International Retail           Intersegment        
    Stores     Play & Music     Franchise     VIEs     Elimination     Total  

Net sales

   $ 303,166       $ 4,178       $ 4,914       $ 6,055       $ (1,494)       $ 316,819   

Gross Profit

   $ 116,807       $ 2,878       $ 2,844       $ 4,494       $ (1,102)       $ 125,921   
    39 Weeks Ended October 31, 2015  
    Retail     Gymboree     International Retail           Intersegment        
    Stores     Play & Music     Franchise     VIEs     Elimination     Total  

Net sales

   $ 803,081       $ 12,998       $ 16,849       $ 29,609       $ (7,562)       $ 854,975   

Gross Profit

   $ 294,259       $ 8,921       $ 9,230       $ 21,464       $ (5,076)       $ 328,798   
    39 Weeks Ended November 1, 2014  
    Retail     Gymboree     International Retail           Intersegment        
    Stores     Play & Music     Franchise     VIEs     Elimination     Total  

Net sales

   $ 812,887       $      13,069       $      14,838       $      17,705       $     (5,367)       $       853,132   

Gross Profit

   $      304,332       $ 9,662       $ 8,374       $ 12,831       $ (4,556)       $ 330,643   
    Total Assets  
    Retail     Gymboree     International Retail           Intersegment        
    Stores     Play & Music     Franchise     VIEs     Elimination     Total  

October 31, 2015

   $ 1,130,599       $ 59,817       $ 27,710       $ 25,834       $ (1,961)       $ 1,241,999   

January 31, 2015

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

November 1, 2014

   $ 1,175,445       $ 59,655       $ 28,252       $ 21,981       $ (1,322)       $ 1,284,011   

 

 

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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
      Stores      
    Gymboree
  Play & Music  
        International Retail    
Franchise
          VIEs                 Total        

13 Weeks Ended October 31, 2015

    $  -            $ 2,209          $ 162          $  -            $ 2,371     

13 Weeks Ended November 1, 2014

    $ -            $ 1,390          $ 104          $ -            $ 1,494     

39 Weeks Ended October 31, 2015

    $ -            $ 7,076          $ 486          $ -            $ 7,562     

39 Weeks Ended November 1, 2014

    $ -            $ 5,001          $ 366          $ -            $ 5,367     

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     39 Weeks Ended  
      October 31, 2015         November 1, 2014           October 1, 2015           November 1, 2014    

United States

   $ 283,186         $ 296,839         $ 793,498         $ 801,409     

International

    22,255          19,980          61,477          51,723     
 

 

 

   

 

 

   

 

 

   

 

 

 
   $ 305,441         $ 316,819         $ 854,975         $ 853,132     
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  

        October 31, 2015             January 31, 2015             November 1, 2014            

United States

   $ 157,288         $ 172,378         $ 179,982       

International

    9,372          10,053          11,193       
 

 

 

   

 

 

   

 

 

   
   $ 166,660         $ 182,431         $ 191,175       
 

 

 

   

 

 

   

 

 

   

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 weeks and 39 weeks ended October 31, 2015 and November 1, 2014 and the condensed consolidated balance sheets as of October 31, 2015, January 31, 2015 and November 1, 2014 (in thousands):

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED OCTOBER 31, 2015

(In thousands)

 

          Balance Before      
Consolidation

of VIEs
          VIEs                 Eliminations               As    
      Reported    
 

Net sales

   $ 297,895          $             9,917          $ (2,371)         $ 305,441      

Cost of goods sold, including buying and occupancy expenses

    (180,276)          (3,087)          703           (182,660)     

Selling, general and administrative expenses

    (104,633)          (5,627)          1,694           (108,566)     
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    12,986           1,203           26           14,215      

Other non-operating (expense) income

    (22,089)          51           -              (22,038)     
 

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

    (9,103)          1,254           26           (7,823)     

Income tax expense

    (951)          (878)          -              (1,829)     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (10,054)          376           26           (9,652)     

Net income attributable to noncontrolling interest

    -              (376)          -              (376)     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to The Gymboree Corporation

   $ (10,054)         $ -             $ 26          $ (10,028)     
 

 

 

   

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED NOVEMBER 1, 2014

(In thousands)

 

          Balance Before      
Consolidation

of VIEs
          VIEs                 Eliminations               As    
      Reported    
 

Net sales

   $ 312,258          $             6,055          $ (1,494)         $ 316,819      

Cost of goods sold, including buying and occupancy expenses

    (189,729)          (1,561)          392           (190,898)     

Selling, general and administrative expenses

    (701,854)          (4,322)          1,101           (705,075)     
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (579,325)          172           (1)          (579,154)     

Other non-operating (expense) income

    (20,772)          27           -              (20,745)     
 

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

    (600,097)          199           (1)          (599,899)     

Income tax benefit (expense)

    78,023           (518)          -              77,505      
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (522,074)          (319)          (1)          (522,394)     

Net loss attributable to noncontrolling interest

    -              319           -              319      
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to The Gymboree Corporation

   $ (522,074)         $ -             $ (1)         $ (522,075)     
 

 

 

   

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 39 WEEKS ENDED OCTOBER 31, 2015

(In thousands)

 

          Balance Before      
Consolidation

of VIEs
            VIEs                 Eliminations               As    
      Reported    
 

Net sales

   $ 832,928          $             29,609          $ (7,562)         $ 854,975      

Cost of goods sold, including buying and occupancy expenses

    (520,518)          (8,145)          2,486           (526,177)     

Selling, general and administrative expenses

    (304,330)          (17,290)          4,978           (316,642)     
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    8,080           4,174           (98)          12,156      

Other non-operating (expense) income

    (64,728)          57             (64,671)     
 

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

    (56,648)          4,231           (98)          (52,515)     

Income tax expense

    (2,869)          (2,142)            (5,011)     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (59,517)          2,089           (98)          (57,526)     

Net income attributable to noncontrolling interest

    -              (2,089)            (2,089)     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to The Gymboree Corporation

   $ (59,517)         $ -             $ (98)         $ (59,615)     
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 39 WEEKS ENDED NOVEMBER 1, 2014

(In thousands)

 

           Balance Before  
      Consolidation  

       of VIEs  
             VIEs                Eliminations              As  
      Reported  
 

Net sales

    $ 840,794           $           17,705           $ (5,367)          $ 853,132      

Cost of goods sold, including buying and occupancy expenses

     (518,426)           (4,874)           811            (522,489)     

Selling, general and administrative expenses

     (903,695)           (15,356)           4,546            (914,505)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating loss

     (581,327)           (2,525)           (10)           (583,862)     

Other non-operating expense

     (61,955)           (6)           -               (61,961)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (643,282)           (2,531)           (10)           (645,823)     

Income tax benefit (expense)

     76,633            (1,060)           -               75,573      
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

     (566,649)           (3,591)           (10)           (570,250)     

Net loss attributable to noncontrolling interest

     -               3,591            -               3,591      
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to The Gymboree Corporation

    $ (566,649)          $ -              $ (10)          $ (566,659)     
  

 

 

    

 

 

    

 

 

    

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF OCTOBER 31, 2015

(In thousands)

 

           Balance Before  
      Consolidation  
       of VIEs  
           VIEs                Eliminations              As  
      Reported  
 

Cash and cash equivalents

    $ 16,187           $ 8,090           $ -              $ 24,277      

Other current assets

     293,776                      13,113            (1,961)           304,928      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     309,963            21,203            (1,961)           329,205      

Non-current assets

     908,163            4,631            -               912,794      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

    $ 1,218,126           $ 25,834           $ (1,961)          $ 1,241,999      
  

 

 

    

 

 

    

 

 

    

 

 

 

Current liabilities

    $ 286,632           $ 13,451           $ (1,683)          $ 298,400      

Non-current liabilities

     1,329,555            511            -               1,330,066      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     1,616,187            13,962            (1,683)           1,628,466      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stockholders’ deficit

     (398,061)           -               (278)           (398,339)     

Noncontrolling interest

     -               11,872            -               11,872      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ deficit

    $ 1,218,126           $ 25,834           $ (1,961)          $ 1,241,999      
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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      
  

 

 

    

 

 

    

 

 

    

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF NOVEMBER 1, 2014

(In thousands)

 

           Balance Before  
      Consolidation  
       of VIEs  
                 VIEs                Eliminations              As  
        Reported  
 

Cash and cash equivalents

    $ 10,653           $ 10,175           $ -              $ 20,828      

Other current assets

     310,491            6,461            (1,322)           315,630      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     321,144            16,636            (1,322)           336,458      

Non-current assets

     942,208            5,345            -               947,553      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

    $ 1,263,352           $ 21,981           $ (1,322)          $ 1,284,011      
  

 

 

    

 

 

    

 

 

    

 

 

 

Current liabilities

    $ 289,155           $ 8,959           $ (1,175)          $ 296,939      

Non-current liabilities

     1,307,985            430            -               1,308,415      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     1,597,140            9,389            (1,175)           1,605,354      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stockholders’ deficit

     (333,788)           -               (147)           (333,935)     

Noncontrolling interest

     -                         12,592            -               12,592      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ deficit

    $ 1,263,352           $     21,981           $ (1,322)          $ 1,284,011      
  

 

 

    

 

 

    

 

 

    

 

 

 

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. During the third quarter of fiscal 2014, our guarantor subsidiaries distributed $3.0 million in the form of a dividend to The Gymboree Corporation.

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED OCTOBER 31, 2015

(In thousands)

 

      The Gymboree  
Corporation
    Guarantor
  Subsidiaries  
      Non-guarantor  
Subsidiaries
      Eliminations         Consolidated    

Net sales:

         

Retail

   $ 375          $         283,017          $     14,723          $ (8,462)         $ 289,653      

Gymboree Play & Music

    -              1,809           8,112           -              9,921      

Retail Franchise

    -              5,867           -              -              5,867      

Intercompany revenue

    16,238           9,738           559           (26,535)          -         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

    16,613           300,431           23,394           (34,997)          305,441      

Cost of goods sold, including buying and occupancy expenses

    (2,156)          (177,148)          (12,425)          9,069           (182,660)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    14,457           123,283           10,969           (25,928)              122,781      

Selling, general and administrative expenses

    (22,809)          (102,199)          (9,433)              25,875           (108,566)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (8,352)          21,084           1,536           (53)          14,215      

Interest income

    2           -              36           -              38      

Interest expense

    (21,417)          (489)          -           -              (21,906)     

Other (expense) income, net

    (187)          (1)          18           -              (170)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

    (29,954)          20,594           1,590           (53)          (7,823)     

Income tax benefit (expense)

    7,922           (8,847)          (904)          -              (1,829)     

Equity in earnings of affiliates, net of tax

    12,004           -              -              (12,004)          -         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (10,028)          11,747           686           (12,057)          (9,652)     

Net income attributable to noncontrolling interest

    -              -              (376)          -              (376)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to The Gymboree Corporation

   $ (10,028)         $ 11,747          $ 310          $ (12,057)         $ (10,028)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED NOVEMBER 1, 2014

(In thousands)

 

      The Gymboree  
Corporation
    Guarantor
  Subsidiaries  
      Non-guarantor  
Subsidiaries
      Eliminations         Consolidated    

Net sales:

         

Retail

   $ 647          $         296,195          $ 15,461          $ (8,038)         $ 304,265      

Gymboree Play & Music

    -              2,786           4,958           -              7,744      

Retail Franchise

    -              4,810           -              -              4,810      

Intercompany revenue

    18,249           1,800           -              (20,049)          -         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

    18,896           305,591           20,419           (28,087)          316,819      

Cost of goods sold, including buying and occupancy expenses

    (2,258)          (185,288)          (11,736)          8,384           (190,898)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    16,638           120,303           8,683           (19,703)          125,921      

Selling, general and administrative expenses

    (17,956)          (106,741)          (8,657)          19,675           (113,679)     

Goodwill and intangible asset impairment

    -              (572,422)          (18,974)          -              (591,396)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

    (1,318)          (558,860)          (18,948)          (28)          (579,154)     

Interest income

    -              7           39           (4)          42      

Interest expense

    (20,568)          (200)          (4)          4           (20,768)     

Other (expense) income, net

    (48)          31           (2)          -              (19)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (21,934)          (559,022)          (18,915)          (28)          (599,899)     

Income tax benefit (expense)

    8,306           70,407           (1,208)          -              77,505      

Equity in earnings of affiliates, net of tax

    (508,447)          -              -              508,447           -         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (522,075)          (488,615)          (20,123)          508,419           (522,394)     

Net loss attributable to noncontrolling interest

    -              -              319           -              319      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to The Gymboree Corporation

   $ (522,075)         $ (488,615)         $ (19,804)         $ 508,419          $ (522,075)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 39 WEEKS ENDED OCTOBER 31, 2015

(In thousands)

 

       The Gymboree  
Corporation
     Guarantor
  Subsidiaries  
       Non-guarantor  
Subsidiaries
       Eliminations          Consolidated    

Net sales:

              

Retail

    $ 2,108           $ 787,442           $ 39,001           $ (20,175)           $ 808,376      

Gymboree Play & Music

     -               5,920            24,316            -               30,236      

Retail Franchise

     -               16,363            -               -               16,363      

Intercompany revenue

     45,736            37,383            4,225            (87,344)            -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total net sales

     47,844            847,108            67,542            (107,519)            854,975      

Cost of goods sold, including buying and occupancy expenses

     (6,469)           (508,205)           (34,028)           22,525            (526,177)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     41,375            338,903            33,514            (84,994)            328,798      

Selling, general and administrative expenses

     (76,270)           (296,717)           (28,467)           84,812            (316,642)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating (loss) income

     (34,895)           42,186           5,047           (182)           12,156      

Interest income

     4            7            69            -               80      

Interest expense

     (63,573)           (1,040)           -               -               (64,613)     

Other (expense) income, net

     (186)           50           (2)           -               (138)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) income before income taxes

     (98,650)           41,203           5,114           (182)           (52,515)     

Income tax benefit (expense)

     14,927           (17,258)           (2,680)           -               (5,011)     

Equity in earnings of affiliates, net of tax

     24,108            -               -               (24,108)           -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income

     (59,615)           23,945            2,434            (24,290)           (57,526)     

Net income attributable to noncontrolling interest

     -               -               (2,089)            -               (2,089)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income attributable to The Gymboree Corporation

    $ (59,615)          $ 23,945           $ 345           $ (24,290)          $ (59,615)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 39 WEEKS ENDED NOVEMBER 1, 2014

(In thousands)

 

       The Gymboree  
Corporation
     Guarantor
  Subsidiaries  
       Non-guarantor  
Subsidiaries
       Eliminations          Consolidated    

Net sales:

              

Retail

    $ 1,278           $ 794,856           $ 39,365           $ (18,734)          $ 816,765      

Gymboree Play & Music

     -               8,067            13,828            -               21,895      

Retail Franchise

     -               14,472            -               -               14,472      

Intercompany revenue

     46,632            6,182            -               (52,814)            -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total net sales

     47,910            823,577            53,193            (71,548)           853,132      

Cost of goods sold, including buying and occupancy expenses

     (5,160)           (506,120)           (30,661)           19,452            (522,489)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     42,750            317,457            22,532            (52,096)           330,643      

Selling, general and administrative expenses

     (48,003)           (299,394)           (27,768)           52,056            (323,109)     

Goodwill and intangible asset impairment

     -               (572,422)           (18,974)           -               (591,396)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating loss

     (5,253)           (554,359)           (24,210)           (40)           (583,862)     

Interest income

     1            54            147            (45)           157      

Interest expense

     (61,224)           (373)           (45)           45            (61,597)     

Other (expense) income, net

     (480)           31            (72)           -               (521)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (66,956)           (554,647)           (24,180)           (40)           (645,823)     

Income tax benefit (expense)

     15,677            62,141            (2,245)           -               75,573      

Equity in earnings of affiliates, net of tax

     (515,380)           -               -               515,380            -         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

     (566,659)           (492,506)           (26,425)           515,340            (570,250)     

Net loss attributable to noncontrolling interest

     -               -               3,591            -               3,591      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to The Gymboree Corporation

    $ (566,659)          $ (492,506)          $ (22,834)          $ 515,340           $ (566,659)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

26


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS

FOR THE 13 WEEKS ENDED OCTOBER 31, 2015

(In thousands)

 

      The Gymboree  
Corporation
    Guarantor
  Subsidiaries  
      Non-guarantor  
Subsidiaries
        Eliminations             Consolidated      

Net (loss) income

   $ (10,028)         $ 11,747          $ 686          $ (12,057)         $ (9,652)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax:

    -              -              -              -           

Foreign currency translation adjustments

    (44)          -              (232)          34           (242)     

Unrealized net gain (loss) on cash flow hedges, net of tax expense of $359

    609           -              (72)          73           610      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

    565           -              (304)          107           368      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

    (9,463)          11,747           382           (11,950)          (9,284)     

Comprehensive income attributable to noncontrolling interest

    -              -              (179)          -              (179)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to The Gymboree Corporation

   $ (9,463)         $ 11,747          $ 203          $ (11,950)         $ (9,463)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS

FOR THE 13 WEEKS ENDED NOVEMBER 1, 2014

(In thousands)

 

      The Gymboree  
Corporation
    Guarantor
  Subsidiaries  
      Non-guarantor  
Subsidiaries
        Eliminations             Consolidated      

Net loss

   $ (522,075)         $ (488,615)         $ (20,123)         $ 508,419          $ (522,394)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income, net of tax:

         

Foreign currency translation adjustments

    (5,066)          -              (4,945)          5,071           (4,940)     

Unrealized net gain on cash flow hedges, net of tax expense of $127

    522           -              142           (142)          522      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

    (4,544)          -              (4,803)          4,929           (4,418)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

    (526,619)          (488,615)          (24,926)          513,348           (526,812)     

Comprehensive loss attributable to noncontrolling interest

    -              -              193           -              193      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to The Gymboree Corporation

   $ (526,619)         $ (488,615)         $ (24,733)         $ 513,348          $ (526,619)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS

FOR THE 39 WEEKS ENDED OCTOBER 31, 2015

(In thousands)

 

      The Gymboree  
Corporation
    Guarantor
  Subsidiaries  
      Non-guarantor  
Subsidiaries
      Eliminations         Consolidated    

Net loss (income)

   $ (59,615)         $ 23,945          $ 2,434          $ (24,290)         $ (57,526)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax:

         

Foreign currency translation adjustments

    (759)          -              (904)          760           (903)     

Unrealized net gain (loss) on cash flow hedges, net of tax expense of $908

    1,572           -              (237)          238           1,573      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

    813           -              (1,141)          998           670      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

    (58,802)          23,945           1,293           (23,292)          (56,856)     

Comprehensive income attributable to noncontrolling interest

    -              -              (1,946)          -              (1,946)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to The Gymboree Corporation

   $ (58,802)         $ 23,945          $ (653)         $ (23,292)         $ (58,802)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS

FOR THE 39 WEEKS ENDED NOVEMBER 1, 2014

(In thousands)

 

      The Gymboree  
Corporation
    Guarantor
  Subsidiaries  
      Non-guarantor  
Subsidiaries
      Eliminations         Consolidated    

Net loss

   $ (566,659)         $ (492,506)         $ (26,425)         $ 515,340          $ (570,250)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income, net of tax:

         

Foreign currency translation adjustments

    (4,911)          -              (5,065)          4,886           (5,090)     

Unrealized net gain (loss) on cash flow hedges, net of tax expense of $127

    536           -              (219)           219           536      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

    (4,375)           -              (5,284)         5,105           (4,554)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

    (571,034)          (492,506)          (31,709)          520,445           (574,804)     

Comprehensive loss attributable to noncontrolling interest

    -              -              3,770           -              3,770      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to The Gymboree Corporation

   $ (571,034)         $ (492,506)         $ (27,939)         $ 520,445          $ (571,034)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF OCTOBER 31, 2015

(In thousands)

 

     The Gymboree      Guarantor      Non-guarantor               
    Corporation       Subsidiaries         Subsidiaries          Eliminations           Consolidated     
ASSETS          

Current assets:

         

Cash and cash equivalents

    $ 1,091          $ 4,080          $ 19,106          $ -              $ 24,277     

Accounts receivable, net of allowance

    493          17,540          4,454          -              22,487     

Merchandise inventories

    -              255,001          11,105          (697)         265,409     

Prepaid income taxes

    1,514          821          242          -              2,577     

Prepaid expenses

    3,838          2,557          1,007          -              7,402     

Deferred income taxes

    -              14,842          680          (8,469)         7,053     

Intercompany receivable

    -              633,946          1,051          (634,997)         -         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    6,936          928,787          37,645          (644,163)         329,205     

Property and equipment, net

    13,408          143,358          9,894          -              166,660     

Goodwill

    -              363,207          10,201          -              373,408     

Other intangible assets, net

    -              341,533          52          -              341,585     

Deferred financing costs

    21,789          700          -              -              22,489     

Restricted cash

    4,535          -              -              -              4,535     

Other assets

    -          1,605          3,758          (1,246)         4,117     

Investment in subsidiaries

    1,404,175          -              -              (1,404,175)         -         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    $ 1,450,843          $ 1,779,190          $ 61,550          $ (2,049,584)         $ 1,241,999     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

  

Current liabilities:

         

Accounts payable

    $ 7,097          $ 123,238          $ 2,188          $ -              $ 132,523     

Accrued liabilities

    33,102          70,639          11,335          210          115,286     

Current deferred income taxes

    8,679          -              -              (8,679)         -         

Line of credit borrowings

    50,000          -              -              -              50,000     

Current obligation under capital lease

    -              591          -              -              591     

Intercompany payable

    628,692          -              7,002          (635,694)         -         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    727,570          194,468          20,525          (644,163)         298,400     

Long-term liabilities:

         

Long-term debt

    1,114,288          -              -              -              1,114,288     

Long-term sale-leaseback financing liability

    -              26,462          -              -              26,462     

Long-term obligation under capital lease

    -              2,402          -              -              2,402     

Lease incentives and other liabilities

    5,549          47,182          4,375          -              57,106     

Long-term deferred income taxes

    1,775          129,258          21          (1,246)         129,808     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    1,849,182          399,772          24,921          (645,409)         1,628,466     

Total stockholders’ (deficit) equity

    (398,339)         1,379,418          24,757          (1,404,175)         (398,339)    

Noncontrolling interest

    -              -              11,872          -              11,872     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ (deficit) equity

    $ 1,450,843          $ 1,779,190          $ 61,550          $ (2,049,584)         $ 1,241,999     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF JANUARY 31, 2015

(In thousands)

 

      The Gymboree       Guarantor       Non-guarantor                
    Corporation       Subsidiaries         Subsidiaries          Eliminations           Consolidated     
ASSETS          

Current assets:

         

Cash and cash equivalents

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

Accounts receivable, net of allowance

    938          18,339          5,971          -              25,248     

Merchandise inventories

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

Prepaid income taxes

    1,860            306          433          -              2,599     

Prepaid expenses

    3,388          2,833          600          -              6,821     

Deferred income taxes

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

Intercompany receivable

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

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

Property and equipment, net

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

Goodwill

    -              362,021          11,813          -              373,834     

Other intangible assets, net

    -              343,312          240          -              343,552     

Deferred financing costs

    25,622          -              -              -              25,622     

Other assets

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

Investment in subsidiaries

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

  

 

Current liabilities:

         

Accounts payable

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

Accrued liabilities

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

Deferred income taxes

    9,504          -              125          (9,629)         -         

Line of credit borrowings

    33,000          -              -              -              33,000     

Current obligation under capital lease

    -              552          -              -              552     

Intercompany payable

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

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

Long-term liabilities:

         

Long-term debt

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

Long-term obligation under capital lease

    -              2,850          -              -              2,850     

Lease incentives and other liabilities

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

Deferred income taxes

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

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

Total stockholders’ (deficit) equity

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

Noncontrolling interest

    -              -              9,926          -              9,926     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ (deficit) equity

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

AS OF NOVEMBER 1, 2014

(In thousands)

 

      The Gymboree       Guarantor       Non-guarantor                
    Corporation       Subsidiaries         Subsidiaries          Eliminations           Consolidated     
ASSETS          

Current assets:

         

Cash and cash equivalents

    $ 2,195          $ 3,236          $ 15,397          $ -              $ 20,828     

Accounts receivable, net of allowance

    687          20,693          1,997          -              23,377     

Merchandise inventories

    -              252,102          7,684          (520)         259,266     

Prepaid income taxes

    2,029          486          200          -              2,715     

Prepaid expenses

    4,461          15,164          1,465          -              21,090     

Deferred income taxes

    -              13,745          645          (5,208)         9,182     

Intercompany receivable

    -              542,194          -              (542,194)         -         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    9,372          847,620          27,388          (547,922)         336,458     

Property and equipment, net

    12,063          167,676          11,436          -              191,175     

Goodwill

    -              362,022          13,323          -              375,345     

Other intangible assets, net

    -              344,436          393          -              344,829     

Deferred financing costs

    27,338          -              -              -              27,338     

Other assets

    6,992          1,673          9,140          (8,939)         8,866     

Investment in subsidiaries

    1,362,644          -              -              (1,362,644)         -         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    $ 1,418,409          $ 1,723,427          $ 61,680          $ (1,919,505)         $ 1,284,011     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

  

Current liabilities:

         

Accounts payable

    $ 17,823          $ 126,192          $ 2,051          $ -              $ 146,066     

Accrued liabilities

    32,221          67,963          8,086          64          108,334     

Deferred income taxes

    5,150          -              123          (5,273)         -         

Line of credit borrowings

    42,000          -              -              -              42,000     

Current obligation under capital lease

    -              539          -              -              539     

Intercompany payable

    536,282          -              6,431          (542,713)         -         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    633,476          194,694          16,691          (547,922)         296,939     

Long-term liabilities:

         

Long-term debt

    1,113,970          -              -              -              1,113,970     

Long-term obligation under capital lease

    -              2,993          -              -              2,993     

Lease incentives and other liabilities

    4,898        50,056          5,361         -              60,315     

Deferred income taxes

    -              140,076          -              (8,939)         131,137     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    1,752,344          387,819          22,052          (556,861)         1,605,354     

Total stockholders’ (deficit) equity

    (333,935)         1,335,608          27,036          (1,362,644)         (333,935)    

Noncontrolling interest

    -              -              12,592          -              12,592     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ (deficit) equity

    $ 1,418,409          $ 1,723,427          $ 61,680          $ (1,919,505)         $ 1,284,011     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 39 WEEKS ENDED OCTOBER 31, 2015

(In thousands)

 

      The Gymboree       Guarantor       Non-guarantor                
    Corporation       Subsidiaries         Subsidiaries          Eliminations           Consolidated     

CASH FLOWS FROM OPERATING ACTIVITIES:

  

     

Net cash (used in) provided by operating activities

    $ (79,390)         $ 59,499          $ 5,253          $ (1,700)         $ (16,338)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

  

     

Capital expenditures

    (2,930)         (7,461)         (2,185)         -              (12,576)    

Increase in restricted cash

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

Decrease in restricted cash

    6,328          -              -              -              6,328     

Capital distribution from subsidiary

    25,863          -              -              (25,863)         -         

Increase in related party loan receivable

    -              -              (1,741)         -              (1,741)    

Proceeds from sale of assets

    -              -              353          -              353     

Intercompany transfers

    3,470          (48,236)         (331)         45,097          -         

Other

    -              1          32          -              33     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

    21,868          (55,696)         (3,872)         19,234          (18,466)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

  

     

Intercompany transfers

    41,614          (720)         4,203          (45,097)         -         

Proceeds from ABL facility

    390,000          -              -              -              390,000     

Payments on ABL facility

    (373,000)         -              -              -              (373,000)    

Proceeds from sale-leaseback financing liability

    -              26,750          -              -              26,750     

Payments on capital lease and sale-leaseback financing liability

    -              (497)         -              -              (497)    

Payments for deferred financing costs

    (1,679)         (895)         -              -              (2,574)    

Dividend to The Gymboree Corporation

    -              (27,563)         -              27,563          -         

Dividend payment to parent

    (11)         -              -              -              (11)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    56,924          (2,925)         4,203          (17,534)         40,668     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

    -              -              (107)         -              (107)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

    (598)         878          5,477          -              5,757     

CASH AND CASH EQUIVALENTS:

  

     

Beginning of Period

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of Period

    $ 1,091          $ 4,080          $ 19,106          $ -              $ 24,277     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 39 WEEKS ENDED NOVEMBER 1, 2014

(In thousands)

 

      The Gymboree       Guarantor       Non-guarantor                
    Corporation       Subsidiaries         Subsidiaries          Eliminations           Consolidated     

CASH FLOWS FROM OPERATING ACTIVITIES:

  

     

Net cash (used in) provided by operating activities

    $ (58,088)         $ 29,216          $ (4,627)         $ (3,000)         $ (36,499)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

  

     

Capital expenditures

    (2,403)         (17,798)         (4,171)         -              (24,372)    

Proceeds from sale of shares

    3,207          -              -              (3,207)         -         

Intercompany transfers

    -              (9,490)         -              9,490          -         

Other

    -              22          (67)         -              (45)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

    804          (27,266)         (4,238)         6,283          (24,417)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

  

     

Intercompany transfers

    2,084          -              7,406          (9,490)         -         

Proceeds from ABL facility

    300,000          -              -              -              300,000     

Payments on ABL facility

    (258,000)         -              -              -              (258,000)    

Payments on capital lease

    -              (373)         -              -              (373)    

Dividend to The Gymboree Corporation

    -              (3,000)         -              3,000          -         

Dividend payment to Parent

    (84)         -              -              -              (84)    

Repurchase of shares

    -              -              (3,207)         3,207          -         

Capital contribution received by noncontrolling interest

    -              -              992          -              992     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    44,000          (3,373)         5,191          (3,283)         42,535     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

    -              -              (220)         -              (220)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash and cash equivalents

    (13,284)         (1,423)         (3,894)         -              (18,601)    

CASH AND CASH EQUIVALENTS:

  

     

Beginning of Period

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of Period

    $ 2,195          $ 3,236          $ 15,397          $ -            $ 20,828     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 October 31, 2015, we operated a total of 1,315 retail stores, as follows:

 

                                                                                                   
     United States      Canada      Puerto Rico      Total  

Gymboree® stores

     549           48           1           598     

Gymboree Outlet stores

     174           -               1           175     

Janie and Jack® shops (including Janie and Jack outlets)

     151           -               1           152     

Crazy 8® stores (including Crazy 8 outlets)

     390           -               -               390     
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,264           48           3           1,315     
  

 

 

    

 

 

    

 

 

    

 

 

 

In addition, as of October 31, 2015, we operated online stores at www.gymboree.com, www.janieandjack.com, and www.crazy8.com. Overseas franchisees and Gymboree China operated 90 retail stores, as follows:

 

                                                                                                   
     Overseas
Franchisees (1)
     Gymboree
China
     Total       

Gymboree® stores

     53           32           85        

Janie and Jack® shops

     1           -               1        

Crazy 8® stores

     4           -               4        
  

 

 

    

 

 

    

 

 

    
     58           32           90        
  </