Gymboree
GYMBOREE CORP (Form: 10-Q, Received: 03/14/2017 16:15:54)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended January 28, 2017

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  ☒    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

 

☒  (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  ☒

As of March 14, 2017, 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 Income (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

     32  

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     44  

Item 4.

  

Controls and Procedures

     44  

Part II—OTHER INFORMATION

     45  

Item 1.

  

Legal Proceedings

     45  

Item 1A.

  

Risk Factors

     45  

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     46  

Item 3.

  

Defaults Upon Senior Securities

     46  

Item 4.

  

Mine Safety Disclosures

     46  

Item 5.

  

Other Information

     46  

Item 6.

  

Exhibits

     46  
  

Signatures

     47  

 

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Table of Contents

Part I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

 

    13 Weeks Ended     26 Weeks Ended  
    January 28, 2017     January 30, 2016     January 28, 2017     January 30, 2016  

Net sales:

       

Retail

  $ 352,898     $ 376,230     $ 629,208     $ 665,883  

Retail franchise

    3,936       5,170       7,453       11,037  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

    356,834       381,400       636,661       676,920  

Cost of goods sold, including buying and occupancy expenses

    (240,423     (232,576     (413,245     (413,189
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    116,411       148,824       223,416       263,731  

Selling, general and administrative expenses

    (106,210     (122,393     (211,364     (227,420

Goodwill and intangible asset impairment

    (368,069     —         (368,069     —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (357,868     26,431       (356,017     36,311  

Interest expense

    (19,433     (21,377     (39,365     (43,283

Gain on extinguishment of debt

    —         41,522       —         41,522  

Other income (expense), net

    81       (459     216       (608
 

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before taxes

    (377,220     46,117       (395,166     33,942  

Income tax benefit (expense)

    52,285       (184     59,339       (1,019
 

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations, net of tax

    (324,935     45,933       (335,827     32,923  

Income from discontinued operations, net of tax

    —         2,829       —         6,187  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (324,935     48,762       (335,827     39,110  

Net loss attributable to noncontrolling interest

    —         677       —         301  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to The Gymboree Corporation

  $ (324,935   $ 49,439     $ (335,827   $ 39,411  
 

 

 

   

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

    13 Weeks Ended     26 Weeks Ended  
    January 28, 2017     January 30, 2016     January 28, 2017     January 30, 2016  

Net (loss) income

  $ (324,935   $ 48,762     $ (335,827   $ 39,110  
 

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income:

       

Foreign currency translation adjustments

    (68     (1,914     (442     (2,156

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

    (1,569     1,029       (475     1,639  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive loss

    (1,637     (885     (917     (517
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

    (326,572     47,877       (336,744     38,593  

Comprehensive loss attributable to noncontrolling interest

    —         1,158       —         979  
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to The Gymboree Corporation

  $ (326,572   $ 49,035     $ (336,744   $ 39,572  
 

 

 

   

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

                                                                          
     January 28, 2017     July 30, 2016     January 30, 2016  

ASSETS

      

Current assets:

      

Cash and cash equivalents

   $ 22,119     $ 12,636     $ 9,774  

Restricted cash

     24,018       33,505       —    

Accounts receivable, net of allowance of $380, $270 and $331

     14,899       12,290       21,107  

Merchandise inventories

     210,895       232,959       202,832  

Prepaid income taxes

     2,062       2,046       2,196  

Prepaid expenses

     5,510       4,917       6,336  

Current assets of discontinued operations

     —         —         18,210  
  

 

 

   

 

 

   

 

 

 

Total current assets

     279,503       298,353       260,455  

Property and equipment, net

     134,038       143,751       155,550  

Goodwill

     123,140       357,041       356,348  

Other intangible assets, net

     164,874       300,073       303,608  

Restricted cash

     49,015       73,566       —    

Other assets

     4,928       5,728       6,170  

Other assets of discontinued operations

     —         —         58,345  
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 755,498     $ 1,178,512     $ 1,140,476  
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

      

Current liabilities:

      

Accounts payable

   $ 117,352     $ 134,498     $ 107,866  

Accrued and other current liabilities

     80,740       111,909       90,281  

Line of credit borrowings

     54,000       42,000       19,000  

Current portion of long-term debt, net

     53,111       5,527       —    

Current obligation under capital lease

     —         —         605  

Current liabilities of discontinued operations

     —         —         13,300  
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     305,203       293,934       231,052  
  

 

 

   

 

 

   

 

 

 

Long-term liabilities:

      

Long-term debt, net

     925,928       970,902       1,040,506  

Long-term sale-leaseback financing liability, net

     25,426       25,508       25,578  

Long-term obligation under capital lease

     —         —         2,245  

Lease incentives and other liabilities

     41,252       44,167       49,355  

Unrecognized tax benefits

     6,397       6,475       5,075  

Deferred income taxes

     60,440       110,799       124,243  

Long-term liabilities of discontinued operations

     —         —         310  
  

 

 

   

 

 

   

 

 

 

Total liabilities

     1,364,646       1,451,785       1,478,364  
  

 

 

   

 

 

   

 

 

 

Commitments and contingencies

      

Stockholders’ deficit:

      

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

     527,871       527,002       525,759  

Accumulated deficit

     (1,128,678     (792,851     (863,539

Accumulated other comprehensive loss

     (8,341     (7,424     (10,822
  

 

 

   

 

 

   

 

 

 

Total stockholders’ deficit

     (609,148     (273,273     (348,602

Noncontrolling interest

     —         —         10,714  
  

 

 

   

 

 

   

 

 

 

Total deficit

     (609,148     (273,273     (337,888
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ deficit

   $ 755,498     $ 1,178,512     $ 1,140,476  
  

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     26 Weeks Ended  
     January 28, 2017     January 30, 2016  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net (loss) income

   $ (335,827   $ 39,110  

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

    

Goodwill and intangible asset impairment

     368,069       —    

Depreciation and amortization

     18,698       20,459  

Gain on extinguishment of debt

     —         (41,522

Inventory write-down

     12,999       448  

Amortization of deferred financing costs and accretion of original issue discount

     4,623       4,164  

Non-cash interest expense

     2,210       2,168  

Loss on disposal/impairment of assets

     2,931       3,720  

Deferred income taxes

     (53,673     (1,204

Share-based compensation expense

     869       1,515  

Other

     (266     549  

Change in assets and liabilities:

    

Accounts receivable

     (2,614     (604

Merchandise inventories

     9,314       35,314  

Prepaid income taxes

     (16     425  

Prepaid expenses and other assets

     (230     12,935  

Accounts payable

     (17,145     (14,764

Accrued and other current liabilities

     (30,785     9,509  

Lease incentives and other liabilities

     (2,291     (1,116
  

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (23,134     71,106  
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Capital expenditures

     (12,139     (13,907

Decrease in restricted cash

     34,038       8,157  

Increase in related party loan receivable

     —         (1,741

Other

     —         161  
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     21,899       (7,330
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from ABL facility

     319,000       187,000  

Payments on ABL facility

     (307,000     (238,000

Payments on ABL term loan

     (1,250     —    

Repurchase of notes

     —         (15,325

Payments for deferred financing costs

     —         (1,452

Payments on capital lease and sale-leaseback financing liability

     (109     (374
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     10,641       (68,151
  

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

     77       (958
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     9,483       (5,333

CASH AND CASH EQUIVALENTS:

    

Beginning of period

     12,636       23,497  
  

 

 

   

 

 

 

End of period

     22,119       18,164  

Less - cash and cash equivalents of discontinued operations, end of period

     —         (8,390
  

 

 

   

 

 

 

Cash and cash equivalents of continuing operations, end of period

   $ 22,119     $ 9,774  
  

 

 

   

 

 

 

OTHER CASH FLOW INFORMATION:

    

Cash paid for income taxes, net

   $ 9,614     $ 1,478  

Cash paid for interest

   $ 32,662     $ 37,701  

See notes to condensed consolidated financial statements.

 

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THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The unaudited interim condensed consolidated financial statements, which include The Gymboree Corporation (the “Company,” “we” or “us”) and our 100%-owned subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. For periods presented prior to the sale of the Gymboree Play & Music business on July 15, 2016, the condensed consolidated financial statements also include Gymboree (China) Commercial and Trading Co. Ltd. (“Gymboree China”) and Gymboree (Tianjin) Educational Informational Consultation Co. Ltd. (“Gymboree Tianjin”) (collectively, the variable interest entity or “VIEs”) (see Note 4). 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 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Transition Report on Form 10-K for the 26 weeks ended July 30, 2016 filed with the Securities and Exchange Commission on October 28, 2016.

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 (see Note 7 to the condensed consolidated financial statements for goodwill and intangible asset impairment). The results of operations for the 13 weeks (“second quarter of fiscal 2017”) and 26 weeks ended January 28, 2017 are not necessarily indicative of the operating results that may be expected for the 52-week period ending July 29, 2017 (“fiscal 2017”) or any future period.

2. Going Concern Uncertainty

The Company had a loss from continuing operations of $324.9 million and $335.8 million during the 13 weeks and 26 weeks ended January 28, 2017, respectively. Accumulated deficit increased to $1.1 billion as of January 28, 2017. The Company’s net cash used in operating activities was $23.1 million during the 26 weeks ended January 28, 2017. As of January 28, 2017, cash and cash equivalents was $22.1 million and restricted cash was $73.0 million.

As of January 28, 2017, the Company had the following indebtedness totaling $1.043 billion in principal amounts outstanding, of which $871.9 million is due within 12 months from March 14, 2017 (the date of filing this Form 10-Q) (see Note 8):

 

   

Current liabilities

 

    $54.0 million of borrowings from ABL line of credit facility, due in December 2017
    $48.8 million of ABL Term loan, due in December 2017
   

$6.5 million of Term loan, due in March, June, September, and December 2017

 

   

Long-term liabilities

 

    $762.6 million of Term loan, due in February 2018
    $171.0 million of Senior Notes, due in December 2018

Cash and cash equivalents and forecasted cash flows from operations are not sufficient to meet such obligations that will mature over the next 12 months from March 14, 2017. In addition, future borrowings may not be available or may not be sufficient to enable the Company to pay its indebtedness or to fund its working capital needs over the next 12 months.

The Company must refinance all or a portion of its indebtedness in order to sustain its liquidity requirements. If the Company is unable to refinance its indebtedness, or obtain funds necessary to meet required repayments of its indebtedness, or if it otherwise fails to comply with the various covenants in the instruments governing its indebtedness, the Company would be in default under the terms of the agreements governing such indebtedness. In addition, if the Company’s independent registered public accounting firm includes a qualification or exception regarding the Company’s ability to continue as a going concern in its audit report and opinion regarding the Company’s annual consolidated financial statements, an event of default would be triggered.

 

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As a result, the Company is in discussions with a number of lenders and bondholders to attempt to comprehensively restructure or refinance our outstanding debt obligations. While the Company has retained advisors to assist it with this process, no agreements with lenders and bondholders have been made and such discussions may not lead to a transaction.

The accompanying condensed consolidated financial statements as of and for the six months ended January 28, 2017 have been prepared assuming that the Company will continue as a going concern. There is significant uncertainty regarding the Company’s ability to repay its debt obligations that are due in December 2017 and February 2018. Such conditions raise substantial doubt as to the Company’s ability to continue as a going concern. Management’s plans concerning these matters are discussed above. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this going concern uncertainty.

3. Recently Issued Accounting Standards

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No: 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. Under this ASU, step 2 of the goodwill impairment test will be removed. The same one-step impairment test will be applied to goodwill at all reporting units, but an impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. In addition, income tax effects from any tax deductible goodwill shall also be considered in measuring goodwill impairment loss, if applicable. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We have not yet determined the impact of the new standard on our condensed consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the total beginning and ending amounts on the statement of cash flows. This ASU also requires reporting of cash and restricted cash separately on the balance sheet to reconcile those amounts to the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We do not believe the adoption of this ASU will have a significant impact to our condensed consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under this ASU, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Although we have not yet determined the impact of the new standard due to the substantial number of leases that we have, we believe this ASU will increase assets and liabilities by the same material amount on our condensed consolidated balance sheet.

 

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Effective during the first quarter of fiscal 2016, we adopted ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs and applied the provisions retrospectively to all prior periods. As a result of this adoption, the unamortized debt issuance costs associated with our long-term debt and long-term sale-leaseback financing liability are presented as an offset against the long-term debt and long-term sale-leaseback financing liability, while the unamortized debt issuance costs associated with our line of credit under our ABL Revolving Facility are included in other assets in the accompanying condensed consolidated balance sheets. Below is a summary of the changes made in the accompanying condensed consolidated balance sheets as of January 30, 2016 (in thousands):

 

     As Reported      Reclassification      Other Assets of
Discontinued
Operations
     As Restated  

ASSETS:

           

Deferred financing costs

   $ 19,019      $ (19,019    $ —        $ —    

Other assets

   $ 5,044      $ 2,751      $ (1,625    $ 6,170  

Total assets

   $ 1,156,744      $ (16,268    $ —        $ 1,140,476  

LIABILITIES AND STOCKHOLDERS’ DEFICIT:

           

Long-term debt, net

   $ 1,055,945      $ (15,439    $ —        $ 1,040,506  

Long-term sale-leaseback financing liability, net

   $ 26,407      $ (829    $ —        $ 25,578  

Total liabilities

   $ 1,494,632      $ (16,268    $ —        $ 1,478,364  

Total liabilities and stockholders’ deficit

   $ 1,156,744      $ (16,268    $ —        $ 1,140,476  

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 for our annual fiscal year ending July 29, 2017. As of January 28, 2017, management concluded that there is substantial doubt about the Company’s ability to continue as a going concern (see Note 2).

ASU No. 2014-09, Revenue from Contracts with Customers, clarifies the principles of recognizing revenue and creates common revenue recognition guidance between U.S. generally accepted accounting principles and International Financial Reporting Standards. The effective date of ASU 2014-09 is for fiscal years and interim periods within those years beginning after December 15, 2017. We have not yet determined the impact of the new standard on our condensed consolidated financial statements.

4. Discontinued Operations

On July 15, 2016, we closed a transaction to sell all of the equity and certain intellectual property attributable to Gymboree Play Programs, Inc. (“Play & Music” or “GPPI”), the Company’s global Play & Music business, to Zeavion Holding Pte. Ltd. (“Zeavion”). Upon closing, the Company received consideration of $128.1 million, approximately $109.9 million of which was restricted under the Term Loan to (i) reduce the Term Loan; or (ii) fund the acquisition, maintenance, development, construction, improvement, upgrade or repair of assets deemed to be useful in the business; or (iii) pay income taxes associated with the gain on the sale of GPPI. During the 26 weeks ended January 28, 2017, the Company used $34.0 million of restricted cash to fund allowable expenditures under the Term Loan and pay income taxes associated with the gain on sale of GPPI. As of January 28, 2017, the remaining balance of the restricted cash attributable to the sale of GPPI was $73.0 million.

Concurrent with the July 15, 2016 sale of GPPI, our VIEs, Gymboree Tianjin (master franchisee of Gymboree Play & Music in China) and Gymboree China (operator of Gymboree retail stores in China), indirectly controlled by Gymboree Holding, Ltd. and investment funds sponsored by Bain Capital, were also sold to Zeavion.

In accordance with ASC 205-20, Presentation - Discontinued Operations , the sale of our global Play & Music business (including GPPI and Gymboree Tianjin) was determined to represent a strategic shift to the Company’s business and therefore, the financial results of GPPI and Gymboree Tianjin as of and for the 13 weeks and 26 weeks ended January 30, 2016 have been reported as discontinued operations in the accompanying condensed consolidated financial statements. Due to its insignificance to our consolidated financial statements, Gymboree China has not been reported as discontinued operations. However, pursuant to ASC 810-10, Consolidation, we have deconsolidated Gymboree China’s financial results as of July 15, 2016, the date of sale, as we are no longer the primary beneficiary.

Gymboree Play & Music was previously reported under the Gymboree Play & Music reportable segment while Gymboree Tianjin and Gymboree China were previously reported under the VIE reportable segment in our segment footnote disclosure.

 

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Below is the composition of income from discontinued operations during the 13 weeks and 26 weeks ended January 30, 2016 (in thousands):

 

    13 Weeks Ended
January 30, 2016
    26 Weeks Ended
January 30, 2016
 

Net sales

  $ 10,976     $ 20,897  

Cost of goods sold, including occupancy expenses

    (2,356     (4,403

Selling, general and administrative expenses

    (5,214     (8,753

Other expense, net

    (60     (43
 

 

 

   

 

 

 

Income from discontinued operations, before tax

    3,346       7,698  

Income tax expense

    (517     (1,511
 

 

 

   

 

 

 

Income from discontinued operations, net of tax

    2,829       6,187  

Income from discontinued operations attributable to noncontrolling interest

    (1,023     (2,856
 

 

 

   

 

 

 

Income from discontinued operations attributable to The Gymboree Corporation

  $ 1,806     $ 3,331  
 

 

 

   

 

 

 

Income from discontinued operations, before tax during the 13 weeks and 26 weeks ended January 30, 2016 consists of (in thousands):

 

    13 Weeks Ended
January 30, 2016
    26 Weeks Ended
January 30, 2016
 

Income from discontinued operations attributable to The Gymboree Corporation, before tax

  $ 1,892     $ 3,533  

Income from discontinued operations attributable to noncontrolling interest, before tax

    1,454       4,165  
 

 

 

   

 

 

 

Total income from discontinued operations, before tax

  $ 3,346     $ 7,698  
 

 

 

   

 

 

 

Below is a summary of the assets and liabilities of discontinued operations as of January 30, 2016 (in thousands):

 

                            

ASSETS:

  

Cash and cash equivalents

   $ 8,390  

Accounts receivable, net

     5,589  

Merchandise inventories

     3,810  

Other current assets

     421  
  

 

 

 

Total current assets of discontinued operations

     18,210  
  

 

 

 

Property and equipment, net

     2,928  

Goodwill

     16,389  

Other intangible assets, net

     37,403  

Other assets

     1,625  
  

 

 

 

Total other assets of discontinued operations

     58,345  
  

 

 

 

Total assets of discontinued operations

   $ 76,555  
  

 

 

 

LIABILITIES:

  

Accounts payable and accrued liabilities

   $ 13,300  

Other long-term liabilities

     310  
  

 

 

 

Total liabilities of discontinued operations

   $ 13,610  
  

 

 

 

Below is a summary of cash flows from operating and investing activities attributable to continuing and discontinued operations during the 26 weeks ended January 30, 2016 (in thousands):

 

                            

CASH FLOWS FROM OPERATING ACTIVITIES:

  

Net cash provided by operating activities of continuing operations

   $ 61,780  

Net cash provided by operating activities of discontinued operations

     9,326  
  

 

 

 

Net cash provided by operating activities

   $ 71,106  
  

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

  

Net cash used in investing activities of continuing operations

   $ (5,067

Net cash used in investing activities of discontinued operations

     (2,263
  

 

 

 

Net cash used in investing activities

   $ (7,330
  

 

 

 

 

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5. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Our assets and liabilities measured at fair value on a recurring basis include money market funds (Level 1) and forward foreign exchange contracts (Level 2). The fair value of money market funds was $73.2 million and $110.3 million as of January 28, 2017 and July 30, 2016, respectively. We had no money market funds as of January 30, 2016. The fair value of the forward foreign exchange contracts was $123,000 (liability) and $145,000 (liability) as of July 30, 2016 and January 30, 2016, respectively. There were no outstanding forward foreign exchange contracts as of January 28, 2017.

The carrying value of cash, receivables and payables approximate their estimated fair value due to the short maturities of these instruments.

We estimate the fair value of our line of credit borrowings and long-term debt using current market yields. These current market yields are considered Level 2 inputs. The estimated fair value of the line of credit borrowings and long-term debt is as follows (in thousands):

 

     January 28, 2017      July 30, 2016      January 30, 2016  
     Carrying Amount     Fair Value      Carrying Amount     Fair Value      Carrying Amount     Fair Value  

Term loan

   $ 769,102     $ 396,088      $ 769,102     $ 592,209      $ 769,102     $ 399,933  

Notes

     171,006       58,997        171,006       68,402        287,575       71,894  

ABL term loan

     48,750       48,750        50,000       50,000        —         —    

Line of credit borrowings

     54,000       54,000        42,000       42,000        19,000       19,000  

Less unamortized discount and deferred financing costs

     (9,819     —          (13,679     —          (16,171     —    
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 1,033,039     $ 557,835      $ 1,018,429     $ 752,611      $ 1,059,506     $ 490,827  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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

Our non-financial assets, which primarily consist of goodwill, other intangible assets, merchandise inventories 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 26 weeks ended January 28, 2017, we recorded $233.8 million of goodwill impairment in the Gymboree Retail reporting unit and $134.3 million of impairment on our indefinite-lived intangible assets (trade names) based upon Level 3 inputs (see Note 7).

During the 13 weeks and 26 weeks ended January 28, 2017, we recorded $11.6 million and $13.0 million, respectively, of inventory charges related to excess inventories, primarily related to Gymboree and Crazy 8 brands based upon Level 3 inputs (see Note 6).

During the 13 weeks and 26 weeks ended January 28, 2017, we recorded property and equipment impairment charges of $1.5 million and $2.0 million, respectively, related to assets of under-performing stores. During the 13 weeks and 26 weeks ended January 30, 2016, we recorded property and equipment impairment charges of $0.7 million and $0.7 million, respectively, related to assets of under-performing stores. The fair market value of these non-financial assets was determined using the income approach and Level 3 inputs, which required management to make significant estimates about future cash flows. Management estimates the amount and timing of future cash flows based on historical operating results and its experience and knowledge of the retail market in which each store operates. These impairment charges are included in selling, general and administrative (“SG&A”) expenses in the accompanying condensed consolidated statements of operations.

6. Merchandise Inventories

Merchandise inventories are recorded at the lower of cost or market (“LCM”), with cost determined on a weighted-average basis. We review our inventory levels to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes). The Company recorded $11.6 million and $13.0 million of inventory charges related to excess inventories during the 13 weeks and 26 weeks ended January 28, 2017, respectively, primarily related to Gymboree and Crazy 8 brands. The Company recorded $0.4 million of inventory charges related to excess inventories during the 13 weeks and 26 weeks ended January 30, 2016. The inventory charges recorded during the 13 weeks and 26 weeks ended January 28, 2017 were primarily attributable to a build-up of inventory resulting from weak operating performance in those brands.

 

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7. Goodwill and Other Intangible Assets

Goodwill

Goodwill allocated to our reporting units as of January 28, 2017, July 30, 2016 and January 30, 2016 is as follows (in thousands):

 

     Gymboree
Retail
    Gymboree
Outlet
     Janie and
Jack
     Total Retail
Stores
Segment
    International
Retail
Franchise
Segment
     Total  

Balance, January 30, 2016

   $ 233,208     $ 65,363      $ 34,141      $ 332,712     $ 23,636      $ 356,348  

Adjustments during the 26 weeks ended July 30, 2016:

               

Goodwill impairment loss

     —         —          —          —         —          —    

Effect of exchange rate fluctuations

     693       —          —          693       —          693  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Balance, July 30, 2016

     233,901       65,363        34,141        333,405       23,636        357,041  

Adjustments during the 26 weeks ended January 28, 2017:

               

Goodwill impairment loss

     (233,769     —          —          (233,769     —          (233,769

Effect of exchange rate fluctuations

     (132     —          —          (132     —          (132
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Balance, January 28, 2017

   $ —       $ 65,363      $ 34,141      $ 99,504     $ 23,636      $ 123,140  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Goodwill Impairment

Goodwill is allocated to our reporting units, which are the same as our operating segments: Gymboree Retail (including an online store), Gymboree Outlet, Janie and Jack (including an online store), and International Retail Franchise. We evaluate goodwill for impairment on an annual basis at the end of our fourth fiscal period (fiscal November) each year and at an interim date, if indicators of impairment exist.

The goodwill impairment analysis for the reporting units was based on our projection of revenues, gross margin, operating costs and cash flows considering historical and estimated future results, general economic and market conditions, as well as the impact of planned business and operational strategies. We based our fair value estimates on assumptions we believed to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from those estimates. The valuations employed present value techniques to measure fair value and considered market factors and reporting unit specific developments. We primarily used an income approach to value these reporting units. The discount rates used in the income approach ranged from 8.5% to 17.0%. We also considered a market approach. Assumptions used in the market approach include valuation multiples based on analysis of multiples for comparable public companies. Finally, specific weights were applied to the components of each approach to estimate the total implied fair value. These weights are estimates by management and are developed based on the specific characteristics, risks and uncertainties of each reporting unit.

We performed our annual goodwill impairment test as of November 26, 2016. The Company started experiencing more difficult traffic and conversion trends beginning in the second quarter of fiscal 2017. The sustained difficult performance was not anticipated in previous projections that assumed an improvement in traffic and conversion trends. As a result, the Company revised its long term assumptions to reflect lower than previously projected revenue and margin growth trends primarily in its Gymboree and Crazy 8 brands. Our updated operating forecasts were significantly lower than those used in previous goodwill impairment assessments due to:

 

   

continued weak performance that the Company experienced during the 13 weeks ended January 28, 2017; comparable stores sales declined 5% in such periods, including a 6% decline in our Gymboree brand;

 

   

difficult traffic trends in retail malls and an increase in promotional activities;

 

   

revised growth assumptions based on estimates of future operations;

 

   

lower than expected 2016 holiday sales which led to inventory write-downs of $11.6 million during the 13 weeks ended January 28, 2017;

 

   

going concern uncertainty due to significant debt obligations that become due over the next 12 months;

 

   

liquidity issues that will hamper new store openings; and

 

   

softening of the retail environment that began in the fall of 2016 and has continued into 2017.

 

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The first step of the two-step goodwill impairment test determined that the fair value of the Gymboree Retail reporting unit was below its carrying value. Therefore, we performed step two of the goodwill impairment test to measure the goodwill impairment loss. Under step two, the fair values of tangible and intangible assets and liabilities of the Gymboree Retail reporting unit were estimated for the purpose of deriving an estimate of the implied fair value of goodwill. The implied fair value of each reporting unit’s goodwill was then compared to its carrying value to determine the amount of goodwill impairment.

We determined there was goodwill impairment in the Gymboree Retail reporting unit of $233.8 million, which was recorded during the 13 weeks and 26 weeks ended January 28, 2017.

Other Intangible Assets

Other intangible assets consist of the following (in thousands):

 

     Intangible Assets Not Subject to Amortization - Trade Names              
     Gymboree     Gymboree
Outlet
    Janie and
Jack
     Crazy 8     Total     Intangible
Assets Subject
to Amortization
    Total Other
Intangible
Assets
 

Balance, January 30, 2016

   $ 202,200     $ 38,300     $ 42,200      $ 18,500     $ 301,200     $ 2,408     $ 303,608  

Adjustments during the 26 weeks ended July 30, 2016:

               

Intangible asset impairment loss

     —                      (2,600     (2,600     —         (2,600

Amortization expense

     —                      —         —         (935     (935
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, July 30, 2016

     202,200       38,300       42,200        15,900       298,600       1,473       300,073  

Adjustments during the 26 weeks ended January 28, 2017:

               

Intangible asset impairment loss

     (105,500     (14,600            (14,200     (134,300     —         (134,300

Amortization expense

     —                      —         —         (899     (899
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 28, 2017

   $ 96,700     $ 23,700     $ 42,200      $ 1,700     $ 164,300     $ 574     $ 164,874  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Indefinite-Lived Intangible Assets Impairment

We evaluate indefinite-lived intangible assets for impairment on an annual basis at the end of our fourth fiscal period (fiscal November) each year and at an interim date, if indicators of impairment exist.

We performed our annual impairment test of indefinite-lived intangible assets as of November 26, 2016. Our updated operating forecasts were significantly lower than those used in previous impairment assessments due to the same factors described in our annual goodwill impairment test above. Our annual impairment test indicated that the fair values of our trade names were below their carrying values and, as a result, we recorded a $134.3 million impairment charge during the 13 weeks ended January 28, 2017 related to trade names of our Retail Stores segment.

 

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8. Line of Credit and Long-term Debt

Line of credit borrowings and long-term debt consist of (in thousands):

 

     January 28,
2017
    July 30,
2016
    January 30,
2016
 

Line of credit borrowings

   $ 54,000     $ 42,000     $ 19,000  
  

 

 

   

 

 

   

 

 

 

Long-term debt -

      

ABL term loan due December 2017, LIBOR plus 10.25%

      

Principal amount

   $ 48,750     $ 50,000     $ —    

Less unamortized deferred financing costs

     (2,141     (3,228     —    
  

 

 

   

 

 

   

 

 

 

ABL term loan, net of unamortized deferred financing costs

     46,609       46,772       —    
  

 

 

   

 

 

   

 

 

 

Term loan due February 2018, Adjusted LIBOR (with a floor of 1.5%) plus 3.5%

      

Principal amount

     769,102       769,102       769,102  

Less unamortized deferred financing costs

     (4,200     (6,062     (7,873

Less unamortized discount

     (390     (563     (732
  

 

 

   

 

 

   

 

 

 

Term loan, net of unamortized discount and deferred financing costs

     764,512       762,477       760,497  
  

 

 

   

 

 

   

 

 

 

Senior notes due December 2018, 9.125%

      

Principal amount

     171,006       171,006       287,575  

Less unamortized deferred financing costs

     (3,088     (3,826     (7,566
  

 

 

   

 

 

   

 

 

 

Senior notes, net of unamortized deferred financing costs

     167,918       167,180       280,009  
  

 

 

   

 

 

   

 

 

 

Total long-term debt, net of unamortized discount and deferred financing costs

     979,039       976,429       1,040,506  

Less current portion of long-term debt, net of unamortized deferred financing cost

     (53,111     (5,527     —    
  

 

 

   

 

 

   

 

 

 

Long-term portion of long-term debt, net of unamortized discount and deferred financing costs

   $ 925,928     $ 970,902     $ 1,040,506  
  

 

 

   

 

 

   

 

 

 

Total line of credit borrowings and long-term debt, net of unamortized discount and deferred financing costs

   $ 1,033,039     $ 1,018,429     $ 1,059,506  
  

 

 

   

 

 

   

 

 

 

Line of Credit

Our senior secured asset-based revolving credit facility (“ABL Revolving Facility”) matures 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 (which is currently due to mature in February 2018) or the Notes (which are currently due to mature in December 2018), unless such indebtedness is 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 indebtedness. The ABL revolving commitment will therefore mature in December 2017 unless the Term Loan and the Notes (other than an aggregate amount of Term Loans and Notes that is equal to or less than $25.0 million) are refinanced with indebtedness having a final maturity date later than February 2018.

The ABL Revolving Facility provides for financing of up to $225 million in a revolving line of credit. Line of credit availability under the ABL Revolving Facility is subject to a borrowing base consisting of certain 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 and the outstanding amount of the ABL Term Loan. The line of credit available under the ABL Revolving Facility was reduced by letter of credit utilization totaling $34.6 million as of January 28, 2017. Undrawn line of credit availability under the ABL Revolving Facility, after being reduced by outstanding line of credit borrowings, letter of credit utilization and outstanding balance of ABL Term Loan, was $90.7 million as of January 28, 2017, subject to a minimum amount of “Combined Availability” and “Availability” as defined below. Our undrawn line of credit availability, net of the minimum amount of combined availability and availability, was $67.9 million as of January 28, 2017.

Line of credit borrowings under the ABL Revolving Facility 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 January 28, 2017, the weighted average interest rate on our line of credit borrowings outstanding under the ABL Revolving Facility was 3.7%. In addition to paying interest on outstanding line of credit borrowings under the ABL Revolving Facility, we are required to pay a commitment fee on unutilized commitments thereunder, which is between 0.250% and 0.375% per annum.

 

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Table of Contents

The ABL Facility contains covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. It requires the Company and its restricted subsidiaries to maintain a minimum amount of “Combined Availability” and “Availability” for as long as the ABL Term Loan remains outstanding. “Combined Availability” is an amount equal to (a) the ABL Term Loan borrowing base minus (b) the sum of the aggregate outstanding principal amount under the ABL Facility (including the ABL Term Loan, revolving line of credit borrowings and letter of credit utilization. “Availability” is equal to the lesser of (A) (I) the revolving credit ceiling (which as of January 28, 2017 was $225.0 million) minus (II) the aggregate principal amount outstanding under the revolving line of credit and letter of credit utilization and (B) (I) the revolving line of credit borrowing base minus (II) the aggregate principal amount outstanding under the revolving line of credit and letter of credit utilization. Under the availability covenant, the Company and its restricted subsidiaries must maintain (i) Combined Availability in excess of the greater of (x) $17.5 million and (y) 10% of the ABL Term Loan borrowing base, and (ii) Availability in excess of the greater of (x) $17.5 million and (y) 10% of the lesser of (A) the applicable revolving line of credit borrowing base and (B) the revolving credit ceiling. Failure to maintain the minimum levels of Combined Availability and Availability required by this covenant would result in an event of default under the ABL Facility. The ABL Facility also contains a financial covenant (i.e., minimum consolidated fixed charge coverage ratio), but such financial covenant is not required to be tested as long as the Company’s ABL Term Loan remains outstanding. As of January 28, 2017, we were not required to test compliance with this covenant.

In addition, the ABL Facility provides that if the lesser of (i) Combined Availability and (ii) Availability falls below the greater of (x) $22.5 million and (y) 12.5% of the lesser of (A) the applicable revolving line of credit borrowing base and (B) the revolving credit ceiling (the “Cash Dominion Threshold”) for 5 consecutive business days, the agent for the ABL lenders may, subject to certain exceptions, take control of the Company’s bank accounts and apply the funds therein to pay down the Company’s obligations under the ABL Facility. The Company would regain control of its bank accounts (a “Cash Dominion Cure”) once the lesser of (i) Combined Availability and (ii) Availability had exceeded the Cash Dominion Threshold for 30 consecutive days, provided that the ABL Facility permits no more than three Cash Dominion Cures in any rolling 365-day period.

The obligations under the ABL Facility 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 Facility (see Note 16).

ABL Term Loan

On April 22, 2016, we entered into an agreement that provides for a senior secured term loan (the “ABL Term Loan” and together with the ABL Revolving Facility, the “ABL Facility”) of $50.0 million, subject to a borrowing base, the proceeds of which may be used to finance the acquisition of working capital assets, including the purchase of inventory and equipment, in each case in the ordinary course of business, to finance capital expenditures, to finance permitted acquisitions and for general corporate purposes, including repurchases of the Notes. The maturity date of the ABL Term Loan is the same as the maturity date of the ABL Revolving Facility. The principal balance of the ABL Term Loan was $48.8 million as of January 28, 2017.

The ABL Term Loan bears interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a 90-day LIBOR contract rate as determined by the agent for the ABL Term Loan monthly on the first day of each calendar month, plus 10.25% per annum, or, in certain circumstances, at the prime rate, plus 9.25% per annum. Interest is payable monthly. As of January 28, 2017, the interest rate under our ABL Term Loan was 11.2%.

The ABL Term Loan requires us to make quarterly payments equal to $0.6 million, with the balance due on the maturity of the ABL Term Loan, which is the same as the maturity date of the ABL revolving commitment.

The obligations under the ABL 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 ABL Term Loan (see Note 16).

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 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 January 28, 2017, the interest rate under our Term Loan was 5.0%.

 

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Table of Contents

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 for the 26-week transition period ended July 30, 2016 and concluded that we are not required to make any excess cash flow payments on the Term Loan during fiscal 2017. 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 2017. Our next quarterly payment payable under the Term Loan is due in the third 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).

Senior 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 (see Note 4), 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 a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest thereon to the applicable redemption date

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

Future minimum principal payments on long-term debt, excluding amortization of deferred financing costs of $9.4 million and accretion of original issue discount (“OID”) of $0.4 million as of January 28, 2017, are as follows (in thousands):

 

                            

Fiscal years ending

   Principal
Payments
 

July 29, 2017

   $ 4,277  

August 4, 2018

     813,575  

August 3, 2019

     171,006  
  

 

 

 

Total

   $ 988,858  
  

 

 

 

9. Sale-Leaseback of Dixon Distribution Center

On May 5, 2015, the Company sold its distribution center in Dixon, California for net proceeds of $25.9 million, and entered into a leaseback of the property from the purchaser for a period of 15 years.

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 of 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.

 

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Payments (including interest) made by the Company related to the sale-leaseback financing liability during the 26 weeks ended January 28, 2017 and January 30, 2016 totaled $0.9 million and $0.9 million, respectively. The interest portion of the payments was $0.8 and $0.8 million during the 26 weeks ended January 28, 2017 and January 30, 2016, respectively.

As of January 28, 2017, future payments on the sale-leaseback financing liability, excluding renewals, are as follows (in thousands):

 

                            

Fiscal years ending

   Payments  

July 29, 2017

   $ 908  

August 4, 2018

     1,834  

August 3, 2019

     1,856  

August 1, 2020

     1,880  

July 31, 2021

     1,903  

July 30, 2022

     1,927  

Thereafter

     28,485  
  

 

 

 

Total payments

     38,793  

Less amount representing interest

     (12,384

Less unamortized deferred financing costs

     (739
  

 

 

 

Total sale-leaseback financing liability, net of unamortized deferred financing costs

     25,670  

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

     (244
  

 

 

 

Long-term portion of sale-leaseback financing liability, net of unamortized deferred financing costs

   $ 25,426  
  

 

 

 

As of January 28, 2017, the net carrying value of the Dixon distribution center included in property and equipment on our condensed consolidated balance sheets amounted to $18.2 million.

10. Derivative Financial Instruments

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

 

                                                                                                                                               
    January 28, 2017     July 30, 2016     January 30, 2016  
    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  

Foreign exchange derivatives

           

Forward foreign exchange contracts

    —         —         5       8,666         6       5,492  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    —       $ —         9     $ 708,666       10     $ 705,492  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The interest rate caps matured in December 2016. There were no outstanding forward foreign exchange contracts designated as cash flow hedges as of January 28, 2017.

The Company had one forward foreign exchange contract with a notional amount of $1.5 million as of July 30, 2016 that was not designated as a hedge. There were no forward foreign exchange contracts that were not designated as hedges as of January 28, 2017 and January 30, 2016.

 

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The tables below present the pre-tax effect of all of our derivative financial instruments on the condensed consolidated statements of operations and comprehensive income (loss) (in thousands).

 

     13 Weeks Ended January 28, 2017  
     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

   $ —        Interest expense    $ (841

Forward foreign exchange contracts

     (1    Cost of goods sold      (5
  

 

 

       

 

 

 

Total

   $ (1       $ (846
  

 

 

       

 

 

 

 

     13 Weeks Ended January 30, 2016  
     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

   $ —        Interest expense    $ (1,124

Forward foreign exchange contracts

     34      Cost of goods sold      86  
  

 

 

       

 

 

 

Total

   $ 34         $ (1,038
  

 

 

       

 

 

 

 

     26 Weeks Ended January 28, 2017  
     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

   $ —        Interest expense    $ (2,210

Forward foreign exchange contracts

     113      Cost of goods sold      (232
  

 

 

       

 

 

 

Total

   $ 113         $ (2,442
  

 

 

       

 

 

 

 

     26 Weeks Ended January 30, 2016  
     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    $ (2,168

Forward foreign exchange contracts

     12      Cost of goods sold      138  
  

 

 

       

 

 

 

Total

   $ 11         $ (2,030
  

 

 

       

 

 

 

11. Income Taxes

As of January 28, 2017, July 30, 2016, and January 30, 2016, unrecognized tax benefits were $6.1 million, $6.3 million and $6.4 million, respectively. We believe it is reasonably possible that the total amount of unrecognized tax benefits of $6.1 million as of January 28, 2017 will decrease by as much as $0.9 million during the next 12 months due to the resolution of certain tax contingencies and lapses of applicable statutes of limitation.

As of January 28, 2017, July 30, 2016, and January 30, 2016, deferred income tax liabilities, net were $60.4 million, $110.8 million, and $124.2 million, respectively. As of January 28, 2017, July 30, 2016, and January 30, 2016, deferred income tax assets, net were $2.5 million, $2.2 million, and $2.9 million, respectively, which are included in other assets. As of January 28, 2017, July 30, 2016, and January 30, 2016, the total valuation allowance against deferred tax assets was $33.9 million, $30.6 million, and $63.2 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

 

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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 state, and Australian jurisdictions, excluding indefinite-lived deferred tax assets and liabilities. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

During the 13 weeks and 26 weeks ended January 28, 2017, the tax effects in accumulated other comprehensive income (“OCI”), which related to unrealized losses attributable to the interest rate caps, totaling $2.4 million and $3.0 million, respectively, were reclassified from accumulated OCI and recorded to income tax benefit, primarily as a result of the maturity of the interest rate caps in December 2016.

12. Commitments and Contingencies

Commitments

There have been no significant changes to our contractual obligations and commercial commitments as disclosed in our Transition Report on Form 10-K as of July 30, 2016 (see Notes 7, 11 and 14), other than those which occur in the normal course of business, except as described below.

On December 1, 2016, the Company entered into a sublease agreement for approximately 80,000 square feet of office space in San Francisco, California. The Company expects to use the subleased premises as its new corporate headquarters. The sublease is expected to commence on or before April 1, 2017 and will expire on July 15, 2022, subject to the Company’s option to extend the sublease until July 15, 2025, if it meets certain performance criteria. The total minimum base rent during the lease term, excluding the extension period of 3 years, is approximately $20.0 million. In addition, the Company delivered a security deposit to the sublessor in the form of two letters of credit aggregating $5.7 million to guarantee payment of the Company’s rent obligations and to cover payment for any damages in the event a termination fee is triggered pursuant to the sublease agreement.

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.

13. 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):

 

                                                                                      
     January 28, 2017     July 30, 2016     January 30, 2016  

Foreign currency translation

   $ (8,445   $ (8,003   $ (9,236

Accumulated changes in fair value of derivative financial instruments, net of tax

     104       579       (1,586
  

 

 

   

 

 

   

 

 

 

Total accumulated other comprehensive loss

   $ (8,341   $ (7,424   $ (10,822
  

 

 

   

 

 

   

 

 

 

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

 

                                                                                                                       
     13 Weeks Ended January 28, 2017  
     Foreign Currency     Derivatives     Total Accumulated
Comprehensive (Loss)
Income
 

Beginning balance

   $ (8,377   $ 1,673     $ (6,704
  

 

 

   

 

 

   

 

 

 

Other comprehensive loss recognized before reclassifications

     (68     (1     (69

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

     —         846       846  

Tax benefit

     —         (2,414     (2,414
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive loss

     (68     (1,569     (1,637
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ (8,445   $ 104     $ (8,341
  

 

 

   

 

 

   

 

 

 

 

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     13 Weeks Ended January 30, 2016  
     Foreign Currency     Derivatives     Total Accumulated
Comprehensive (Loss)
Income Including
Noncontrolling Interest
 

Beginning balance

   $ (7,803   $ (2,615   $ (10,418
  

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income recognized before reclassifications

     (1,914     34       (1,880

Amounts reclassified from accumulated other comprehensive loss to earnings

     —         1,038       1,038  

Tax benefit

     —         (43     (43
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive (loss) income

     (1,914     1,029       (885
  

 

 

   

 

 

   

 

 

 

Other comprehensive loss attributable to noncontrolling interest

     481       —         481  
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ (9,236   $ (1,586   $ (10,822
  

 

 

   

 

 

   

 

 

 

 

                                                                                                                                               
     26 Weeks Ended January 28, 2017  
     Foreign Currency     Derivatives     Total Accumulated
Comprehensive (Loss)
Income
 

Beginning balance

   $ (8,003   $ 579     $ (7,424
  

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income recognized before reclassifications

     (442     113       (329

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

     —         2,442       2,442  

Tax benefit

     —         (3,030     (3,030
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive loss

     (442     (475     (917
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ (8,445   $ 104     $ (8,341
  

 

 

   

 

 

   

 

 

 

 

                                                                                                                                               
     26 Weeks Ended January 30, 2016  
     Foreign Currency     Derivatives     Total Accumulated
Comprehensive (Loss)
Income Including
Noncontrolling Interest
 

Beginning balance

   $ (7,758   $ (3,225   $ (10,983
  

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income recognized before reclassifications

     (2,156     11       (2,145

Amounts reclassified from accumulated other comprehensive loss to earnings

     —         2,030       2,030  

Tax benefit

     —         (402     (402
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive (loss) income

     (2,156     1,639       (517
  

 

 

   

 

 

   

 

 

 

Other comprehensive loss attributable to noncontrolling interest

     678       —         678  
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ (9,236   $ (1,586   $ (10,822
  

 

 

   

 

 

   

 

 

 

14. Related Party Transactions

We incurred approximately $0.7 million and $0.8 million in management fees and reimbursement of out-of-pocket expenses to Bain Capital Private Equity, LP (“Bain Capital”) during the 13 weeks ended January 28, 2017 and January 30, 2016, respectively. We incurred approximately $1.5 million and $1.3 million in management fees and reimbursement of out-of-pocket expenses to Bain Capital during the 26 weeks ended January 28, 2017 and January 30, 2016, respectively. As of January 28, 2017, July 30, 2016 and January 30, 2016, we had a payable balance of $1.4 million, $1.6 million and $0.2 million, respectively, to Bain Capital. Management fees payable to Bain Capital as of January 28, 2017 and July 30, 2016 include approximately $1.3 million fees arising from the sale of Gymboree Play & Music on July 15, 2016 (see Note 4).

We incurred approximately $0.4 million and $0.6 million in expenses related to services purchased from LogicSource, a company owned by funds associated with Bain Capital, during the 13 weeks ended January 28, 2017 and January 30, 2016, respectively. We incurred approximately $0.5 million and $1.0 million in expenses related to services purchased from LogicSource, during the 26 weeks ended January 28, 2017 and January 30, 2016, respectively. As of January 28, 2017 and July 30, 2016, we had no payable to LogicSource. As of January 30, 2016, we had a payable balance of $0.1 million to LogicSource.

 

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As of January 28, 2017 and July 30, 2016, we had a receivable balance of $0.4 million from our indirect parent, Giraffe Holding, Inc., which relates primarily to income taxes and withholding taxes. We had no receivable from Giraffe Holding, Inc. as of January 30, 2016.

15. Segment Information

As of January 28, 2017, our reportable segments include (1) retail stores (including online stores) and (2) International Retail Franchise (“Retail Franchise”). On July 15, 2016, the Company sold its Gymboree Play & Music segment and Gymboree Investment Holdings L.P. sold Gymboree Tianjin and Gymboree China, which were previously included under “VIEs” in our segment disclosure. The results of Gymboree Play & Music and Gymboree Tianjin are presented as discontinued operations during the 13 weeks and 26 weeks ended January 30, 2016, while Gymboree China was deconsolidated as of July 15, 2016, the date of sale (see Note 4).

Our 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 retail store 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 sales and gross profit of each reportable segment were as follows for the periods ended (in thousands):

 

                                                                                                                                      
     13 Weeks Ended January 28, 2017                
     Retail Stores      International Retail
Franchise
     Total            

Net sales

   $ 352,898      $ 3,936      $ 356,834        

Gross Profit

   $ 114,418      $ 1,993      $ 116,411        

 

                                                                                                                                      
     13 Weeks Ended January 30, 2016  
     Retail Stores      International
Retail
Franchise
     VIE      Intersegment
Elimination
    Total  

Net sales

   $ 374,112      $ 5,349      $ 2,118      $ (179   $ 381,400  

Gross Profit

   $ 145,068      $ 3,018      $ 917      $ (179   $ 148,824  

 

                                                                                                                                      
     26 Weeks Ended January 28, 2017                
     Retail Stores      International Retail
Franchise
     Total                

Net sales

   $ 629,208      $ 7,453      $ 636,661        

Gross Profit

   $ 219,798      $ 3,618      $ 223,416        

 

                                                                                                                                      
     26 Weeks Ended January 30, 2016  
     Retail Stores      International
Retail
Franchise
     VIE      Intersegment
Elimination
    Total  

Net sales

   $ 661,960      $ 11,378      $ 3,923      $ (341   $ 676,920  

Gross Profit

   $ 256,672      $ 6,207      $ 1,193      $ (341   $ 263,731  

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

 

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

13 weeks ended January 28, 2017

   $ 227,635      $ 44,934      $ 80,329      $ 352,898      $ —        $ 352,898  

13 weeks ended January 30, 2016

   $ 244,237      $ 44,444      $ 85,431      $ 374,112      $ 2,118      $ 376,230  

26 weeks ended January 28, 2017

   $ 404,106      $ 79,952      $ 145,150      $ 629,208      $ —        $ 629,208  

26 weeks ended January 30, 2016

   $ 430,660      $ 78,044      $ 153,256      $ 661,960      $ 3,923      $ 665,883  

 

(1)

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

 

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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 the International Retail Franchise segment were $0.2 million and $0.3 million during the 13 weeks and 26 weeks ended January 30, 2016, respectively.

Below is a summary of total assets of each reportable segment as of the periods ended (in thousands):

 

                                                                                                                                                                 
     Total Assets  
     Retail
Stores
     International Retail
Franchise
     VIE      Intersegment
Elimination
    Discontinued
Operations
     Total  

January 28, 2017

   $ 728,915      $ 26,583      $ —        $ —       $ —        $ 755,498  

July 30, 2016

   $ 1,151,745      $ 26,767      $ —        $ —       $ —        $ 1,178,512  

January 30, 2016

   $ 1,027,622      $ 28,791      $ 8,068      $ (560   $ 76,555      $ 1,140,476  

We attribute retail store revenues to individual countries based on the selling location. All sales for International Retail Franchise are attributable to the U.S. geographic segment.

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

 

     13 Weeks Ended      26 Weeks Ended  
     January 28, 2017      January 30, 2016      January 28, 2017      January 30, 2016  

United States

   $ 341,803      $ 363,825      $ 609,175      $ 645,202  

International

     15,031        17,575        27,486        31,718  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 356,834      $ 381,400      $ 636,661      $ 676,920  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

                                                                                      
     January 28, 2017      July 30, 2016      January 30, 2016  

United States

   $ 129,102      $ 138,384      $ 149,515  

International

     4,936        5,367        6,035  
  

 

 

    

 

 

    

 

 

 
   $ 134,038      $ 143,751      $ 155,550  
  

 

 

    

 

 

    

 

 

 

 

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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 8). 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 VIE financial results are included in those of the non-guarantor subsidiaries. Intercompany transactions are eliminated.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED JANUARY 28, 2017

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales:

          

Retail

   $ 794     $ 346,107     $ 15,891     $ (9,894   $ 352,898  

Retail Franchise

     —         3,936       —         —         3,936  

Intercompany revenue

     12,152       9,175       (1,272     (20,055     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

     12,946       359,218       14,619       (29,949     356,834  

Cost of goods sold, including buying and occupancy expenses

     (1,670     (237,582     (11,260     10,089       (240,423
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     11,276       121,636       3,359       (19,860     116,411  

Selling, general and administrative expenses

     (20,978     (101,614     (3,693     20,075       (106,210

Goodwill and intangible asset impairment

     —         (357,978     (10,091     —         (368,069
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (9,702     (337,956     (10,425     215       (357,868

Interest expense

     (19,018     (415     —         —         (19,433

Other income (expense), net

     97       (16     —         —         81  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (28,623     (338,387     (10,425     215       (377,220

Income tax benefit (expense)

     5,591       46,812       (118     —         52,285  

Equity in earnings of affiliates, net of tax

     (301,903     —         —         301,903       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (324,935   $ (291,575   $ (10,543   $ 302,118     $ (324,935
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED JANUARY 30, 2016

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales:

          

Retail

   $ 1,371     $ 364,681     $ 18,422     $ (8,244   $ 376,230  

Retail Franchise

     —         5,170       —         —         5,170  

Intercompany revenue

     19,333       (2,820     (1,062     (15,451     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

     20,704       367,031       17,360       (23,695     381,400  

Cost of goods sold, including buying and occupancy expenses

     (2,398     (226,671     (11,779     8,272       (232,576
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     18,306       140,360       5,581       (15,423     148,824  

Selling, general and administrative expenses

     (15,975     (115,647     (6,274     15,503       (122,393
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     2,331       24,713       (693     80       26,431  

Interest expense

     (20,891     (486     —         —         (21,377

Gain on extinguishment of debt

     41,522       —         —         —         41,522  

Other (expense) income, net

     (240     109       (328     —         (459
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before taxes

     22,722       24,336       (1,021     80       46,117  

Income tax benefit (expense)

     9,639       (9,511     (312     —         (184

Equity in earnings of affiliates, net of tax

     16,895       —         —         (16,895     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

     49,256       14,825       (1,333     (16,815     45,933  

Income from discontinued operations, net of tax

     183       1,623       1,023       —         2,829  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     49,439       16,448       (310     (16,815     48,762  

Net loss attributable to noncontrolling interest

     —         —         677       —         677  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to The Gymboree Corporation

   $ 49,439     $ 16,448     $ 367     $ (16,815   $ 49,439  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 26 WEEKS ENDED JANUARY 28, 2017

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales:

          

Retail

   $ 1,493       615,992       28,856       (17,133   $ 629,208  

Retail Franchise

     —         7,453       —         —         7,453  

Intercompany revenue

     28,520       16,529       (1,137     (43,912     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

     30,013       639,974       27,719       (61,045     636,661  

Cost of goods sold, including buying and occupancy expenses

     (3,357     (406,900     (20,287     17,299       (413,245
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     26,656       233,074       7,432       (43,746     223,416  

Selling, general and administrative expenses

     (44,130     (203,737     (7,444     43,947       (211,364

Goodwill and intangible asset impairment

     —         (357,978     (10,091     —         (368,069
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (17,474     (328,641     (10,103     201       (356,017

Interest expense

     (38,508     (831     (26     —         (39,365

Other income, net

     178       29       9       —         216  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (55,804     (329,443     (10,120     201       (395,166

Income tax benefit (expense)

     16,618       43,198       (477     —         59,339  

Equity in earnings of affiliates, net of tax

     (296,641     —         —         296,641       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (335,827   $ (286,245   $ (10,597   $ 296,842     $ (335,827
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 26 WEEKS ENDED JANUARY 30, 2016

(In thousands)

 

    The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales:

         

Retail

  $ 1,746     $ 647,698     $ 33,145     $ (16,706   $ 665,883  

Retail Franchise

    —         11,037       —         —         11,037  

Intercompany revenue

    35,571       4,709       (503     (39,777     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

    37,317       663,444       32,642       (56,483     676,920  

Cost of goods sold, including buying and occupancy expenses

    (4,554     (402,624     (22,647     16,636       (413,189
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    32,763       260,820       9,995       (39,847     263,731  

Selling, general and administrative expenses

    (38,784     (216,664     (11,846     39,874       (227,420
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (6,021     44,156       (1,851     27       36,311  

Interest expense

    (42,308     (975     —         —         (43,283

Gain on extinguishment of debt

    41,522       —         —         —         41,522  

Other (expense) income, net

    (425     108       (291     —         (608
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

    (7,232     43,289       (2,142     27       33,942  

Income tax benefit (expense)

    16,847       (17,528     (338       (1,019

Equity in earnings of affiliates, net of tax

    28,899       —         —         (28,899     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

    38,514       25,761       (2,480     (28,872     32,923  

Income from discontinued operations, net of tax

    897       2,434       2,856         6,187  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    39,411       28,195       376       (28,872     39,110  

Net loss attributable to noncontrolling interest

    —         —         301       —         301  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to The Gymboree Corporation

  $ 39,411     $ 28,195     $ 677     $ (28,872   $ 39,411  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 13 WEEKS ENDED JANUARY 28, 2017

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net loss

   $ (324,935   $ (291,575   $ (10,543   $ 302,118     $ (324,935
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income:

          

Foreign currency translation adjustments

     (68     —         205       (205     (68

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

     (1,569     —         5       (5     (1,569
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive (loss) income

     (1,637     —         210       (210     (1,637
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (326,572   $ (291,575   $ (10,333   $ 301,908     $ (326,572
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 13 WEEKS ENDED JANUARY 30, 2016

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income (loss)

   $ 49,439     $ 16,448      $ (310   $ (16,815   $ 48,762  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive loss:

           

Foreign currency translation adjustments

     (1,434     —          (1,930     1,450       (1,914

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

     1,030       —          (52     51       1,029  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive loss

     (404     —          (1,982     1,501       (885
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     49,035       16,448        (2,292     (15,314     47,877  

Comprehensive loss attributable to noncontrolling interest

     —         —          1,158       —         1,158  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to The Gymboree Corporation

   $ 49,035     $ 16,448      $ (1,134   $ (15,314   $ 49,035  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 26 WEEKS ENDED JANUARY 28, 2017

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net loss

   $ (335,827   $ (286,245   $ (10,597   $ 296,842     $ (335,827
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income:

          

Foreign currency translation adjustments

     (442     —         (165     165       (442

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

     (475     —         346       (346     (475
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive (loss) income

     (917     —         181       (181     (917
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (336,744   $ (286,245   $ (10,416   $ 296,661     $ (336,744
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 26 WEEKS ENDED JANUARY 30, 2016

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income

   $ 39,411     $ 28,195      $ 376     $ (28,872   $ 39,110  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

           

Foreign currency translation adjustments

     (1,478     —          (2,162     1,484       (2,156

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

     1,639       —          (124     124       1,639  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss),

     161       —          (2,286     1,608       (517
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     39,572       28,195        (1,910     (27,264     38,593  

Comprehensive loss attributable to noncontrolling interest

     —         —          979       —         979  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to The Gymboree Corporation

   $ 39,572     $ 28,195      $ (931   $ (27,264   $ 39,572  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

 

     January 28, 2017  
     The Gymboree
Corporation
    Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
     Eliminations     Consolidated  

ASSETS

            

Current assets:

            

Cash and cash equivalents

   $ 15,223     $ 2,618      $ 4,278      $ —       $ 22,119  

Restricted cash

     24,018       —          —          —         24,018  

Accounts receivable, net of allowance

     2,549       11,648        702        —         14,899  

Merchandise inventories

     —         206,409        4,973        (487     210,895  

Prepaid income taxes

     1,333       588        141        —         2,062  

Prepaid expenses

     3,612       1,893        5        —         5,510  

Intercompany receivable

     —         704,995        1,710        (706,705     —    
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     46,735       928,151        11,809        (707,192     279,503  

Property and equipment, net

     15,993       112,705        5,340        —         134,038  

Goodwill

     —         123,140        0        —         123,140  

Other intangible assets, net

     —         164,854        20        —         164,874  

Restricted cash

     49,015       —          —          —         49,015  

Other assets

     1,314       1,122        2,820        (328     4,928  

Investment in subsidiaries

     1,074,389       —          —          (1,074,389     —    
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,187,446     $ 1,329,972      $ 19,989      $ (1,781,909   $ 755,498  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

            

Current liabilities:

            

Accounts payable

   $ 8,396     $ 108,638      $ 318      $ —       $ 117,352  

Accrued liabilities and other current liabilities

     27,694       52,396        650        —         80,740  

Line of credit borrowings

     54,000       —          —          —         54,000  

Current portion of long-term debt, net

     53,111       —          —          —         53,111  

Intercompany payable

     699,503       —          7,689        (707,192     —    
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     842,704       161,034        8,657        (707,192     305,203  

Long-term liabilities:

            

Long-term debt, net

     925,928       —          —          —         925,928  

Long-term sale-leaseback financing liability, net

     —         25,426        —          —         25,426  

Lease incentives and other liabilities

     4,624       38,344        4,681        —         47,649  

Deferred income taxes

     23,338       37,430        —          (328     60,440  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,796,594       262,234        13,338        (707,520     1,364,646  

Total stockholders’ (deficit) equity

     (609,148     1,067,738        6,651        (1,074,389     (609,148
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ (deficit) equity

   $ 1,187,446     $ 1,329,972      $ 19,989      $ (1,781,909   $ 755,498  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

27


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

 

     July 30, 2016  
     The Gymboree
Corporation
    Guarantor
Subsidiaries
     Non-guarantor
Subsidiaries
     Eliminations     Consolidated  

ASSETS

            

Current assets:

            

Cash and cash equivalents

   $ 4,952     $ 4,607      $ 3,077      $ —       $ 12,636  

Restricted cash

     33,505       —          —          —         33,505  

Accounts receivable, net of allowance

     1,486       10,009        795        —         12,290  

Merchandise inventories

     —         229,118        4,258        (417     232,959  

Prepaid income taxes

     1,332       578        136        —         2,046  

Prepaid expenses

     3,409       1,508        —          —         4,917  

Intercompany receivable

     1,311       687,735        —          (689,046     —    
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     45,995       933,555        8,266        (689,463     298,353  

Property and equipment, net

     15,783       122,147        5,821        —         143,751  

Goodwill

     —         346,818        10,223        —         357,041  

Other intangible assets, net

     —         300,043        30        —         300,073  

Restricted cash

     73,566       —          —          —         73,566  

Other assets

     2,043       1,474        2,682        (471     5,728  

Investment in subsidiaries

     1,373,355       —          —          (1,373,355     —    
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,510,742     $ 1,704,037      $ 27,022      $ (2,063,289   $ 1,178,512  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

            

Current liabilities:

            

Accounts payable

   $ 8,255     $ 126,103      $ 140      $ —       $ 134,498  

Accrued and other current liabilities

     50,370       60,121        1,418        —         111,909  

Line of credit borrowings

     42,000       —          —          —         42,000  

Current portion of ABL term loan

     5,527       —          —          —         5,527  

Intercompany payable

     685,536       —          3,927        (689,463     —    
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     791,688       186,224        5,485        (689,463     293,934  

Long-term liabilities:

            

Long-term debt, net

     970,902       —          —          —         970,902  

Long-term sale-leaseback financing liability, net

     —         25,508        —          —         25,508  

Lease incentives and other liabilities

     5,227       40,951        4,464        —         50,642  

Deferred income taxes

     16,198       95,072        —          (471     110,799  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,784,015       347,755        9,949        (689,934     1,451,785  

Total stockholders’ (deficit) equity

     (273,273     1,356,282        17,073        (1,373,355     (273,273
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ (deficit) equity

   $ 1,510,742     $ 1,704,037      $ 27,022      $ (2,063,289   $ 1,178,512  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

28


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

 

    January 30, 2016  
    The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

ASSETS

         

Current assets:

         

Cash and cash equivalents

  $ 982     $ 2,998     $ 5,794     $ —       $ 9,774  

Accounts receivable, net of allowance

    1,073       19,042       992       —         21,107  

Merchandise inventories

    —         195,860       7,300       (328     202,832  

Prepaid income taxes

    1,511       516       169       —         2,196  

Prepaid expenses

    3,359       2,702       275       —         6,336  

Intercompany receivable

    —         635,684       1,376       (637,060     —    

Current assets of discontinued operations

    —         42,255       14,479       (38,524     18,210  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    6,925       899,057       30,385       (675,912     260,455  

Property and equipment, net

    13,518       135,498       6,534       —         155,550  

Goodwill

    —         346,818       9,530       —         356,348  

Other intangible assets, net

    —         303,571       37       —         303,608  

Other assets

    2,899       683       2,999       (411     6,170  

Investment in subsidiaries

    1,410,631       —         —         (1,410,631     —    

Other assets of discontinued operations

    —         54,825       3,520       —         58,345  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 1,433,973     $ 1,740,452     $ 53,005     $ (2,086,954   $ 1,140,476  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’
(DEFICIT) EQUITY

         

Current liabilities:

         

Accounts payable

  $ 10,065     $ 97,144     $ 657     $ —       $ 107,866  

Accrued and other current liabilities

    27,941       59,276       3,064       —         90,281  

Line of credit borrowings

    19,000       —         —         —         19,000  

Current obligation under capital lease

    —         605       —         —         605  

Intercompany payable

    668,968       —         5,969       (674,937     —    

Current liabilities of discontinued operations

    —         2,108       12,167       (975     13,300  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    725,974       159,133       21,857       (675,912     231,052  

Long-term liabilities:

         

Long-term debt, net

    1,040,506       —         —         —         1,040,506  

Long-term sale-leaseback financing liability, net

    —         25,578       —         —         25,578  

Long-term obligation under capital lease

    —         2,245       —         —         2,245  

Lease incentives and other liabilities

    4,455       46,105       3,870       —         54,430  

Deferred income taxes

    11,640       113,014       —         (411     124,243  

Other long-term liabilities of discontinued operations

    —         13       297       —         310  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    1,782,575       346,088       26,024       (676,323     1,478,364  

Total stockholders’ (deficit) equity

    (348,602     1,394,364       16,267       (1,410,631     (348,602

Noncontrolling interest

    —         —         10,714       —         10,714  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ (deficit) equity

  $ 1,433,973     $ 1,740,452     $ 53,005     $ (2,086,954   $ 1,140,476  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 26 WEEKS ENDED JANUARY 28, 2017

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

CASH FLOWS FROM OPERATING ACTIVITIES:

          

Net cash (used in) provided by operating activities

   $ (59,338   $ 38,953     $ (449   $ (2,300   $ (23,134
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Capital expenditures

     (3,912     (7,852     (375     —         (12,139

Decrease in restricted cash

     34,038       —         —         —         34,038  

Intercompany transfers

     1,310       (30,681     (1,710     31,081       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     31,436       (38,533     (2,085     31,081       21,899  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Intercompany transfers

     27,423       —         3,658       (31,081     —    

Proceeds from ABL facility

     319,000       —         —         —         319,000  

Payments on ABL facility

     (307,000     —         —         —         (307,000

Payments on ABL term loan

     (1,250     —         —         —         (1,250

Payments on capital lease and sale-leaseback financing liability

     —         (109     —         —         (109

Dividend to The Gymboree Corporation

     —         (2,300       2,300    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     38,173       (2,409     3,658       (28,781     10,641  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

     —         —         77       —         77  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     10,271       (1,989     1,201       —         9,483  

CASH AND CASH EQUIVALENTS:

          

Beginning of period

     4,952       4,607       3,077       —         12,636  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 15,223     $ 2,618     $ 4,278     $ —       $ 22,119  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 26 WEEKS ENDED JANUARY 30, 2016

(In thousands)

 

     The Gymboree
Corporation
    Guarantor
Subsidiaries
    Non-guarantor
Subsidiaries
    Eliminations     Consolidated  

CASH FLOWS FROM OPERATING ACTIVITIES:

          

Net cash (used in) provided by operating activities

   $ (41,633   $ 110,002     $ 4,237     $ (1,500   $ 71,106  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Capital expenditures

     (4,433     (8,399     (1,075     —         (13,907

Decrease in restricted cash

     8,157       —         —         —         8,157  

Capital distribution from subsidiary

     7,358       —         —         (7,358     —    

Increase in related party loan receivable

     —         —         (1,741     —         (1,741

Intercompany transfers

     2,726       (100,537     (1,304     99,115       —    

Other

     —         6       155       —         161  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used) in investing activities

     13,808       (108,930     (3,965     91,757       (7,330
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Intercompany transfers

     94,631       (73     4,557       (99,115     —    

Proceeds from ABL facility

     187,000       —         —         —         187,000  

Payments on ABL facility

     (238,000     —         —         —         (238,000

Repurchase of notes

     (15,325     —         —         —         (15,325

Payments on capital lease and sale-leaseback financing liability

     —         (374     —         —         (374

Payments for deferred financing costs

     (1,679     227       —         —         (1,452

Dividend to The Gymboree Corporation

     —         (1,500     —         1,500       —    

Capital distribution to The Gymboree Corporation

     —         —         (7,358     7,358       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     26,627       (1,720     (2,801     (90,257     (68,151
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

     —         —         (958     —         (958
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (1,198     (648     (3,487     —         (5,333

CASH AND CASH EQUIVALENTS:

          

Cash and cash equivalent, beginning of period

     2,180       3,649       17,668       —         23,497  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalent, end of period

     982       3,001       14,181       —         18,164  

Less - cash and cash equivalents of discontinued operations, end of period

     —         (3     (8,387     —         (8,390
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents of continuing operations, end of period

   $ 982     $ 2,998     $ 5,794     $ —       $ 9,774  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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.

 

31


Table of Contents

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; 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 Transition Report on Form 10-K for the 26 weeks ended July 30, 2016, filed with the Securities and Exchange Commission on October 28, 2016 (the “Fiscal 2016 Transition Report”). We encourage you to read these risk factor 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 January 28, 2017, we operated a total of 1,291 retail stores, as follows:

 

                                                                                                                   
     United States      Canada      Puerto Rico      Total  

Gymboree® stores

     536        49        1        586  

Gymboree Outlet stores

     173        —          1        174  

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

     148        —          1        149  

Crazy 8® stores (including Crazy 8 outlets)

     382        —          —          382  
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,239        49        3        1,291  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes store openings and closures by brand and country during the 26 weeks ended January 28, 2017. Note that (i) all Crazy 8 stores are in the United States and (ii) retail stores operated by overseas franchisees are excluded.

 

                                                                                                                   
     Store Count as of
July 30, 2016
     Store
Openings
     Store
Closures
    Store Count as of
January 28, 2017
 

Gymboree US

     541        —          (5     536  

Gymboree Canada

     48        1        —         49  

Gymboree Puerto Rico

     1        —          —         1  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total Gymboree

     590        1        (5     586  
  

 

 

    

 

 

    

 

 

   

 

 

 

Gymboree Outlet

     174        —          (1     173  

Gymboree Outlet Puerto Rico

     1        —          —         1  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total Gymboree Outlet

     175        —          (1     174