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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended April 30, 2016

OR

 

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

For the transition period from                      to                     

Commission file number 000-21250

 

 

THE GYMBOREE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		94-2615258
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

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

(415) 278-7000

(Registrant’s telephone number, including area code)

 

 

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

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

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

 

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

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

As of June 13, 2016, 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.

 

 

 

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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			39
Item 4.		Controls and Procedures			40
Part II—OTHER INFORMATION					41
Item 1.		Legal Proceedings			41
Item 1A.		Risk Factors			41
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			41
Item 3.		Defaults Upon Senior Securities			41
Item 4.		Mine Safety Disclosures			41
Item 5.		Other Information			41
Item 6.		Exhibits			41
		Signatures			42

 

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Part I—FINANCIAL INFORMATION

 

Item 1.

Financial Statements

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

 

		13 Weeks Ended
		April 30, 2016				May 2, 2015
Net sales:
Retail		$	271,276			$	261,732
Gymboree Play & Music			10,094				8,648
Retail Franchise			3,671				5,689
Total net sales			285,041				276,069
Cost of goods sold, including buying and occupancy expenses			(168,585	)			(170,712	)
Gross profit			116,456				105,357
Selling, general and administrative expenses			(114,032	)			(104,710	)
Operating income			2,424				647
Interest income			105				19
Interest expense			(19,807	)			(21,076	)
Gain on extinguishment of debt			48,804				—
Other income (expense), net			112				(110	)
Income (loss) before income taxes			31,638				(20,520	)
Income tax expense			(697	)			(1,960	)
Net income (loss)			30,941				(22,480	)
Net loss (income) attributable to noncontrolling interest			1,905				(545	)
Net income (loss) attributable to The Gymboree Corporation		$	32,846			$	(23,025	)

See notes to condensed consolidated financial statements.

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

		13 Weeks Ended
		April 30, 2016				May 2, 2015
Net income (loss)		$	30,941			$	(22,480	)
Other comprehensive income:
Foreign currency translation adjustments, net of tax			1,635				956
Unrealized net gain on cash flow hedges, net of tax			630				261
Total other comprehensive income			2,265				1,217
Comprehensive income (loss)			33,206				(21,263	)
Comprehensive loss (income) attributable to noncontrolling interest			1,741				(612	)
Comprehensive income (loss) attributable to The Gymboree Corporation		$	34,947			$	(21,875	)

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)

 

		April 30, 2016				January 30, 2016				May 2, 2015
ASSETS
Current assets:
Cash and cash equivalents		$	62,168			$	18,164			$	22,363
Accounts receivable, net of allowance of $2,368, $2,043 and $2,304			20,833				26,696				25,515
Merchandise inventories			198,618				206,642				208,908
Prepaid income taxes			2,493				2,196				2,759
Prepaid expenses			5,862				6,757				18,561
Deferred income taxes			—				—				7,263
Total current assets			289,974				260,455				285,369
Property and equipment:
Land and buildings			22,428				22,428				22,428
Leasehold improvements			197,077				199,520				199,869
Furniture, fixtures and equipment			131,567				130,571				125,481
Total property and equipment			351,072				352,519				347,778
Less accumulated depreciation and amortization			(200,132	)			(194,041	)			(171,378	)
Net property and equipment			150,940				158,478				176,400
Goodwill			373,845				372,737				374,308
Other intangible assets, net			340,510				341,011				342,816
Other assets			7,331				7,795				6,089
Total assets		$	1,162,600			$	1,140,476			$	1,184,982
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable		$	94,162			$	109,193			$	105,426
Accrued and other current liabilities			121,598				102,254				106,669
Line of credit borrowings			43,000				19,000				42,000
Current portion of ABL term loan			2,500				—				—
Current obligation under capital lease			—				605				565
Total current liabilities			261,260				231,052				254,660
Long-term liabilities:
Long-term debt, net			1,010,709				1,040,506				1,092,549
Long-term sale-leaseback financing liability, net			25,545				25,578				—
Long-term obligation under capital lease			—				2,245				2,704
Lease incentives and other liabilities			45,593				49,664				52,858
Unrecognized tax benefits			5,111				5,075				5,151
Deferred income taxes			123,567				124,244				129,865
Total liabilities			1,471,785				1,478,364				1,537,787
Commitments and contingencies
Stockholders’ deficit:
Common stock, including additional paid-in capital ($0.001 par value:
1,000 shares authorized, issued and outstanding)			526,381				525,759				523,124
Accumulated deficit			(830,693	)			(863,539	)			(876,388	)
Accumulated other comprehensive loss			(8,721	)			(10,822	)			(10,081	)
Total stockholders’ deficit			(313,033	)			(348,602	)			(363,345	)
Noncontrolling interest			3,848				10,714				10,540
Total deficit			(309,185	)			(337,888	)			(352,805	)
Total liabilities and stockholders’ deficit		$	1,162,600			$	1,140,476			$	1,184,982

See notes to condensed consolidated financial statements.

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

		13 Weeks Ended
		April 30, 2016				May 2, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	30,941			$	(22,480	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Gain on extinguishment of debt			(48,804	)			—
Depreciation and amortization			10,151				10,700
Amortization of deferred financing costs and accretion of original issue discount			1,890				1,886
Interest rate cap contracts - adjustment to market			1,183				778
Loss (gain) on disposal/impairment of assets			648				(539	)
Gain on write-off of assets and liabilities due to contract termination			(2,561	)			—
Deferred income taxes			(613	)			264
Share-based compensation expense			622				720
Other			345				(198	)
Change in assets and liabilities:
Accounts receivable			4,242				(168	)
Merchandise inventories			7,805				(10,958	)
Prepaid income taxes			(296	)			(154	)
Prepaid expenses and other assets			628				(11,739	)
Accounts payable			(15,067	)			18,375
Accrued and other current liabilities			12,096				11,350
Lease incentives and other liabilities			(958	)			(476	)
Net cash provided by (used in) operating activities			2,252				(2,639	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(3,591	)			(3,140	)
Proceeds from sale of assets			—				353
Receipt of related party loan receivable			1,741				—
Other			1				8
Net cash used in investing activities			(1,849	)			(2,779	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from ABL facility			152,000				130,000
Payments on ABL facility			(128,000	)			(121,000	)
Proceeds from ABL term loan			50,000				—
Payments for deferred financing costs			(3,804	)			—
Repurchase of notes			(26,198	)			—
Payments on capital lease and sale-leaseback financing liability			(47	)			(133	)
Dividend payment by VIE to its parent			(512	)			—
Net cash provided by financing activities			43,439				8,867
Effect of exchange rate fluctuations on cash and cash equivalents			162				394
Net increase in cash and cash equivalents			44,004				3,843
CASH AND CASH EQUIVALENTS:
Beginning of period			18,164				18,520
End of period		$	62,168			$	22,363
OTHER CASH FLOW INFORMATION:
Cash paid (received) for income taxes, net		$	1,480			$	(3,664	)
Cash paid for interest		$	12,873			$	10,390

See notes to condensed consolidated financial statements.

 

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THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.	Basis of Presentation

The unaudited interim condensed consolidated financial statements, which include The Gymboree Corporation (the “Company,” “we” or “us”) and our 100%-owned subsidiaries, as well as Gymboree (China) Commercial and Trading Co. Ltd. (“Gymboree China”) and Gymboree (Tianjin) Educational Information Consultation Co. Ltd. (“Gymboree Tianjin”) (collectively, the “VIEs”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended January 30, 2016 filed with the Securities and Exchange Commission on April 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. The results of operations for the 13 weeks ended April 30, 2016 (“first quarter of fiscal 2016”) are not necessarily indicative of the operating results that may be expected for the 52-week period ending January 28, 2017 (“fiscal 2016”) or any future period.

Certain reclassifications have been made to the condensed consolidated balance sheets as of January 30, 2016 and May 2, 2015 as a result of our adoption of the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs effective during the first quarter of fiscal 2016 (see Note 2).

 

2.	Recently Issued Accounting Standards

In March 2016, the FASB issued ASU No. 2016-09, Compensation-stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows, among others. This ASU will be applied prospectively and is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. We have not yet determined the impact of the new standard on our condensed consolidated financial statements.

In February 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. Under the new guidance, lessor accounting is largely unchanged and lessees will no longer be provided with a source of off-balance sheet financing. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Although we have not yet determined the impact of the new standard, we believe this ASU will have a significant impact on our condensed consolidated financial statements due to the substantial number of leases that we have.

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

In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the

 

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balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance in Update 2015-03 does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. In August 2015, the FASB issued ASU No. 2015-15, Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which adds SEC paragraphs about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. Accordingly, the SEC staff would not object to the deferral and presentation of debt issuance costs related to line-of-credit arrangements as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The amendments do not affect the current guidance on the recognition and measurement of debt issuance costs. Effective during the first quarter of fiscal 2016, we adopted ASU 2015-03 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 in the accompanying condensed consolidated balance sheets. The unamortized debt issuance costs associated with our line of credit under our ABL Revolving Credit Facility are included in other assets in the accompanying condensed consolidated balance sheets. The unamortized debt issuance costs associated with our long-term debt and long-term sale-leaseback financing liability, which amounted to $16.3 million and $21.6 million as of January 30, 2016 and May 2, 2015, respectively, were reclassified from being a component of our total assets to a reduction of our long-term debt and long-term sale-leaseback financing liability in the accompanying condensed consolidated balance sheets and in Notes 16, 17, and 18. Below is a summary of the changes made in the accompanying condensed consolidated balance sheets as of January 30, 2016 and May 2, 2015 due to the reclassification of the unamortized debt issuance costs (in thousands):

 

		January 30, 2016												May 2, 2015
		As Reported				Reclassification				As Restated				As Reported				Reclassification				As Restated
ASSETS:
Deferred financing costs		$	19,019			$	(19,019	)		$	—			$	23,984			$	(23,984	)		$	—
Other assets		$	5,044			$	2,751			$	7,795			$	3,683			$	2,406			$	6,089
Total assets		$	1,156,744			$	(16,268	)		$	1,140,476			$	1,206,560			$	(21,578	)		$	1,184,982
LIABILITIES AND STOCKHOLDERS’ DEFICIT:
Long-term debt, net		$	1,055,945			$	(15,439	)		$	1,040,506			$	1,114,127			$	(21,578	)		$	1,092,549
Long-term sale-leaseback financing liability, net		$	26,407			$	(829	)		$	25,578			$	—			$	—			$	—
Total liabilities		$	1,494,632			$	(16,268	)		$	1,478,364			$	1,559,365			$	(21,578	)		$	1,537,787
Total liabilities and stockholders’ deficit		$	1,156,744			$	(16,268	)		$	1,140,476			$	1,206,560			$	(21,578	)		$	1,184,982

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). Effective during the first quarter of fiscal 2016, we adopted this ASU and determined that it had no impact on our condensed consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, to provide guidance on principles and definitions to reduce diversity in the timing and content of disclosures when evaluating whether there is substantial doubt about an organization’s ability to continue as a going concern. This ASU is effective in the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter, with early adoption permitted.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. generally accepted accounting principles and International Financial Reporting Standards. This ASU is effective for fiscal years and interim periods within those years, beginning after December 15, 2016, and is to be applied either retrospectively to each prior reporting period presented or with the cumulative effect recognized at the date of initial adoption as an adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets). In April 2015, the FASB proposed a deferral of this ASU’s effective date by one year, to December 15, 2017. The proposed deferral allows early adoption at the original effective date. We have not yet determined the impact of the new standard on our condensed consolidated financial statements.

 

3.	Fair Value Measurements

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

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

 

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

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

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present our assets and liabilities measured at fair value on a recurring basis as of April 30, 2016, January 30, 2016 and May 2, 2015, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands). There were no transfers into or out of Level 1 and Level 2 during the 13 weeks ended April 30, 2016 and May 2, 2015, or for the year ended January 30, 2016.

 

		April 30, 2016
		Quoted Prices in Active Markets for Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
		(Level 1)				(Level 2)				(Level 3)				Total Fair Value
Assets
Money market funds		$	38,560			$	—			$	—			$	38,560
Total		$	38,560			$	—			$	—			$	38,560
Liabilities
Forward foreign exchange contracts		$	—			$	391			$	—			$	391
Total		$	—			$	391			$	—			$	391
		January 30, 2016
		Quoted Prices in Active Markets for Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
		(Level 1)				(Level 2)				(Level 3)				Total Fair Value
Liabilities
Forward foreign exchange contracts		$	—			$	145			$	—			$	145
Total		$	—			$	145			$	—			$	145
		May 2, 2015
		Quoted Prices in Active Markets for Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
		(Level 1)				(Level 2)				(Level 3)				Total Fair Value
Assets
Interest rate caps		$	—			$	9			$	—			$	9
Total		$	—			$	9			$	—			$	9
Liabilities
Forward foreign exchange contracts		$	—			$	55			$	—			$	55
Total		$	—			$	55			$	—			$	55

 

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

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

Although we have determined the majority of the inputs used to value our interest rate caps fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of April 30, 2016, January 30, 2016 and May 2, 2015, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate cap positions and determined that the credit valuation adjustment was not significant to the overall valuation. As a result, we classified our interest rate caps derivative valuations in Level 2 of the fair value hierarchy.

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

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

 

		April 30, 2016								January 30, 2016								May 2, 2015
		Carrying Amount				Fair Value				Carrying Amount				Fair Value				Carrying Amount				Fair Value
Term loan		$	769,102			$	592,209			$	769,102			$	399,933			$	769,102			$	611,436
Notes			210,620				104,257				287,575				71,894				346,000				166,080
ABL term loan			50,000				50,000				—				—				—				—
Less unamortized discount and deferred financing costs			(16,513	)			—				(16,171	)			—				(22,553	)			—
Total		$	1,013,209			$	746,466			$	1,040,506			$	471,827			$	1,092,549			$	777,516

We had no other financial assets or liabilities measured at fair value as of April 30, 2016, January 30, 2016 and May 2, 2015.

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

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

During the 13 weeks ended April 30, 2016 and May 2, 2015, we did not identify impairment indicators for goodwill and indefinite-lived intangible assets (trade names). During fiscal 2015, we determined that there was no goodwill impairment for all of our reporting units and there was no impairment on our indefinite-lived intangible assets (trade names) (see Note 4).

During the 13 weeks ended April 30, 2016, we recorded property and equipment impairment charges of $0.3 million related to the closure of Gymboree China retail locations. These impairment charges are included in selling, general and administrative (SG&A) expenses in the accompanying condensed consolidated statements of operations.

 

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4.	Goodwill and Intangible Assets and Liabilities

Goodwill

Goodwill allocated to our reportable segments as of April 30, 2016, January 30, 2016 and May 2, 2015 is as follows (in thousands):

 

		Retail Stores Segment				Gymboree Play & Music Segment				International Retail Franchise Segment				Total
Balance as of April 30, 2016
Goodwill		$	887,241			$	16,389			$	23,636			$	927,266
Accumulated impairment losses			(547,285	)			—				—				(547,285	)
Effect of exchange rate fluctuations			(6,136	)			—				—				(6,136	)
		$	333,820			$	16,389			$	23,636			$	373,845
Balance as of January 30, 2016
Goodwill		$	887,241			$	16,389			$	23,636			$	927,266
Accumulated impairment losses			(547,285	)			—				—				(547,285	)
Effect of exchange rate fluctuations			(7,244	)			—				—				(7,244	)
		$	332,712			$	16,389			$	23,636			$	372,737
Balance as of May 2, 2015
Goodwill		$	887,241			$	16,389			$	23,636			$	927,266
Accumulated impairment losses			(547,285	)			—				—				(547,285	)
Effect of exchange rate fluctuations			(5,673	)			—				—				(5,673	)
		$	334,283			$	16,389			$	23,636			$	374,308

Goodwill Impairment

During the first quarter of fiscal 2016 and 2015, we did not identify impairment indicators for goodwill. During fiscal 2015, we determined that there was no goodwill impairment for all of our reporting units and there was no impairment on our indefinite-lived intangible assets (trade names).

Intangible Assets and Liabilities

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

 

		April 30, 2016
		Gross Carrying Amount				Accumulated Amortization				Accumulated Impairment				Net Amount
Intangible Assets Not Subject to Amortization:
Trade names		$	567,012			$	—			$	(229,600	)		$	337,412
Intangible Assets Subject to Amortization:
Below market leases			3,435				(2,596	)			—				839
Co-branded credit card agreement			4,000				(3,342	)			—				658
Franchise agreements and reacquired franchise rights			6,625				(5,024	)			—				1,601
			14,060				(10,962	)			—				3,098
Total other intangible assets		$	581,072			$	(10,962	)		$	(229,600	)		$	340,510
Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease incentives and other liabilities)		$	(10,461	)		$	7,789			$	—			$	(2,672	)

 

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		April 30, 2016
		Gross Carrying Amount				Accumulated Amortization				Accumulated Impairment				Net Amount
Intangible Assets Not Subject to Amortization:
Trade names		$	567,012			$	—			$	(229,600	)		$	337,412
Intangible Assets Subject to Amortization:
Below market leases			3,435				(2,480	)			—				955
Co-branded credit card agreement			4,000				(3,189	)			—				811
Franchise agreements and reacquired franchise rights			6,625				(4,792	)			—				1,833
			14,060				(10,461	)			—				3,599
Total other intangible assets		$	581,072			$	(10,461	)		$	(229,600	)		$	341,011
Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease incentives and other liabilities)		$	(10,461	)		$	7,435			$	—			$	(3,026	)
		May 2, 2015
		Gross Carrying Amount				Accumulated Amortization				Accumulated Impairment				Net Amount
Intangible Assets Not Subject to Amortization:
Trade names		$	567,012			$	—			$	(229,600	)		$	337,412
Intangible Assets Subject to Amortization:
Customer relationships			770				(688	)			—				82
Below market leases			4,839				(3,319	)			—				1,520
Co-branded credit card agreement			4,000				(2,727	)			—				1,273
Franchise agreements and reacquired franchise rights			6,625				(4,096	)			—				2,529
			16,234				(10,830	)			—				5,404
Total other intangible assets		$	583,246			$	(10,830	)		$	(229,600	)		$	342,816
Intangible Liabilities Subject to Amortization:
Above market leases (included in Lease incentives and other liabilities)		$	(11,400	)		$	7,196			$	—			$	(4,204	)

The decrease in the gross carrying amount of customer relationships, below market leases, franchise agreements and reacquired franchise rights, and above market leases for the period May 2, 2015 to January 30, 2016 reflects the write off of certain fully amortized intangibles.

Indefinite-Lived Intangible Assets Impairment

During the first quarter of fiscal 2016 and 2015, we did not identify impairment indicators for indefinite-lived intangible assets. During fiscal 2015, we determined that there was no impairment charge related to trade names of our retail stores segment.

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

 

		13 Weeks Ended April 30, 2016				13 Weeks Ended May 2, 2015
Cost of goods sold - Amortization income		$	238			$	133
Selling, general and administrative expenses - Amortization expense		$	(385	)		$	(468	)

 

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5.	Line of Credit

In September 2015, we entered into the first amendment (the “First Amendment”) to our senior secured asset-based revolving credit facility (“ABL Revolving Facility”) to extend the maturity date of the ABL revolving commitments from March 2017 to the earlier of (i) September 24, 2020 and (ii) the date that is 60 days before the scheduled final maturity date of any tranche of the Term Loan (which 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.

In April 2016, we entered into a second amendment to the ABL Revolving Facility (the ABL Revolving Facility, as so amended, the “ABL Facility” or the “Second Amendment”). The Second Amendment provides for a senior secured term loan (the “ABL Term Loan”) of $50.0 million, subject to a borrowing base (see Note 6).

The ABL Facility provides for financing of up to $225 million in a revolving line of credit. Line of credit availability under the ABL 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. Line of credit borrowings outstanding under the ABL Facility as of April 30, 2016, January 30, 2016 and May 2, 2015 were $43.0 million, $19.0 million and $42.0 million, respectively. The line of credit available under the ABL Facility is reduced by letter of credit utilization totaling $30.8 million as of April 30, 2016. Undrawn line of credit availability under the ABL Facility, after being reduced by outstanding line of credit borrowings, letter of credit utilization and $50 million of ABL Term Loan (see Note 6), was $90.7 million as of April 30, 2016. Average line of credit borrowings during the 13 weeks ended April 30, 2016 and May 2, 2015 under the ABL Facility amounted to $49.7 million and $54.1 million, respectively. Average line of credit borrowings during fiscal 2015 amounted to $51.9 million.

Line of credit borrowings under the ABL 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 April 30, 2016, the weighted average interest rate on our line of credit borrowings outstanding under the ABL Facility was 3.9%. In addition to paying interest on outstanding line of credit borrowings under the ABL Facility, we are required to pay a commitment fee on unutilized commitments thereunder, which is between 0.250% and 0.375% per annum under the ABL Facility.

The ABL Facility contains covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. 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 (see Note 6). As of April 30, 2016, we were not required to test compliance with this covenant. 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 18).

 

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6.	Long-Term Debt

Long-term debt consists of (in thousands):

 

		April 30, 2016				January 30, 2016				May 2, 2015
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 discount			(6,973	)			(7,873	)			(10,497	)
Less unamortized deferred financing costs			(649	)			(732	)			(975	)
Term loan, net of unamortized discount and deferred financing costs			761,480				760,497				757,630
Senior notes due December 2018, 9.125%
Principal amount			210,620				287,575				346,000
Less unamortized deferred financing costs			(5,143	)			(7,566	)			(11,081	)
Senior notes, net of unamortized deferred financing costs			205,477				280,009				334,919
ABL term loan due December 2017, LIBOR plus 10.25%
Principal amount			50,000				—				—
Less unamortized deferred financing costs			(3,748	)			—				—
ABL term loan, net of unamortized deferred financing costs			46,252				—				—
Total long-term debt, net of unamortized discount and deferred financing costs			1,013,209				1,040,506				1,092,549
Less current portion of ABL Term Loan			(2,500	)			—				—
Long-term portion of long-term debt, net of unamortized discount and deferred financing costs		$	1,010,709			$	1,040,506			$	1,092,549

Term Loan

We have an agreement with several lenders for an $820 million senior secured Term Loan, with a maturity date of February 2018. The Term Loan allows us to request additional tranches of term loans in an aggregate amount not to exceed $200 million, subject to the satisfaction of certain conditions, provided such amount will be subject to reduction by the amount of any additional commitments incurred under the ABL Facility. 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 April 30, 2016, the interest rate under our Term Loan was 5%.

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

The obligations under the Term Loan are secured, subject to certain exceptions, by substantially all of our assets and those of our 100%-owned domestic subsidiaries. Our 100%-owned domestic subsidiaries also have fully and unconditionally guaranteed the Company’s obligations under the Term Loan (see Note 18).

Notes

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

 

Year		Percentage
2015			102.281	%
2016 and thereafter			100.000	%

 

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The Notes are unsecured senior obligations of The Gymboree Corporation. The Company’s 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Company’s obligations under the Notes (see Note 18). 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.

During fiscal 2015, we repurchased Notes with an aggregate principal amount of $58.4 million for $15.3 million in cash through open market transactions. We recorded a $41.5 million gain on extinguishment of debt, net of a $1.6 million charge related to the write-off of deferred financing costs associated with the extinguished debt.

During the 13 weeks ended April 30, 2016, we repurchased Notes with an aggregate principal amount of $77.0 million for $26.2 million in cash through privately negotiated transactions. We recorded a $48.8 million gain on extinguishment of debt, net of a $2.0 million charge related to the write-off of deferred financing costs associated with the extinguished debt.

On April 26, 2016, the Company announced a cash tender offer (the “Tender Offer”) to purchase the maximum aggregate principal amount of its outstanding Notes that it can purchase for $40.0 million, excluding accrued interest. The Tender Offer expired on May 23, 2016. During the second quarter of fiscal 2016, the Company repurchased $39.6 million aggregate principal amount of Notes for $20.6 million through the Tender Offer and will recognize $18.0 million of gain on extinguishment of debt, net of a $1.0 million charge related to the write-off of deferred financing costs associated with the extinguished debt.

ABL Term Loan

The ABL Term Loan of $50.0 million may be used to repurchase Notes, to finance the acquisition of working capital assets, for capital expenditures and permitted acquisitions and for other general corporate purposes.

The Second Amendment provides that 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 April 30, 2016, the interest rate under our ABL Term Loan was 10.9%.

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 (see Note 5).

The Second Amendment also provides for a new availability covenant, which 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 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 April 30, 2016 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 new 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 (1) the applicable revolving line of credit borrowing base and (2) the revolving credit ceiling. The Second Amendment also provided the agent for the ABL Term Loan and the ABL Term Loan lenders with certain consent rights to amendments relating to, among other terms and provisions, the borrowing bases, the availability covenant and certain negative covenants. All other material affirmative and negative covenants and events of default under the ABL Facility remained substantially unchanged following the Second Amendment.

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 18).

 

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Future minimum principal payments on long-term debt, excluding amortization of deferred financing costs of $15.9 million and accretion of original issue discount (“OID”) of $0.6 million and as of April 30, 2016, are as follows (in thousands):

 

Fiscal years		Principal Payments
Remainder of 2016		$	1,875
2017			54,627
2018			973,220
Total		$	1,029,722

 

7.	Sale-leaseback of Dixon Distribution Center

On May 5, 2015, the Company entered into an agreement to sell its distribution center in Dixon, California for gross proceeds of $26.8 million, less closing costs of $0.9 million, or net proceeds of $25.9 million, and entered into a leaseback of the property from the purchaser for a period of 15 years. Approximately $10.9 million of the net proceeds were restricted under the Term Loan to fund capital expenditures or reduce the Term Loan. The total amount of restricted funds was used to fund capital expenditures during fiscal 2015.

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. In the period that there is no longer continuing involvement by the Company, the distribution center and the sale-leaseback financing liability will be removed from our condensed consolidated balance sheets, resulting in a gain on the sale of the distribution center, with a portion of the gain deferred and amortized over the remaining lease term.

Payments made by the Company related to the sale-leaseback financing liability during the 13 weeks ended April 30, 2016 totaled $0.4 million, which was primarily allocated to interest expense.

As of April 30, 2016, future payments on the sale-leaseback financing liability, excluding renewals, are as follows (in thousands):

 

Fiscal years		Payments
Remainder of 2016		$	1,354
2017			1,822
2018			1,845
2019			1,868
2020			1,891
2021			1,915
Thereafter			29,452
Total payments			40,147
Less amount representing interest			(13,578	)
Less unamortized deferred financing costs			(807	)
Total sale-leaseback financing liability, net of unamortized deferred financing costs			25,762
Less current portion of sale-leaseback financing liability included in accrued liabilities			(217	)
Long-term portion of sale-leaseback financing liability, net of unamortized deferred financing costs		$	25,545

As of April 30, 2016 and January 30, 2016, the net carrying value of the Dixon distribution center assets that are included in property and equipment on our condensed consolidated balance sheets amounted to $18.7 million and $18.9 million, respectively.

 

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8.	Derivative Financial Instruments

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

In December 2010, we paid approximately $12.1 million to enter into interest rate caps to hedge against rising interest rates associated with the $700 million principal of our Term Loan (see Note 6) above the strike rate of the cap through December 23, 2016, the maturity date of the caps. The interest rate caps were designated on the date of execution as cash-flow hedges. The premium, and any related amounts reported in accumulated other comprehensive loss, are being amortized to interest expense through December 23, 2016, as interest payments are made on the underlying Term Loan. During the 13 weeks ended April 30, 2016 and May 2, 2015, respectively, we reclassified approximately $1.2 million and $0.8 million, respectively, from accumulated other comprehensive loss to interest expense. We estimate approximately $3.5 million will be reclassified from accumulated other comprehensive loss to interest expense through the maturity date of the caps in the fourth quarter of fiscal 2016.

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

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

 

		April 30, 2016						January 30, 2016						May 2, 2015
		Number of Instruments		Notional (USD)				Number of Instruments		Notional (USD)				Number of Instruments		Notional (USD)
Interest rate derivatives
Purchased interest rate caps		4		$	700,000			4		$	700,000			4		$	700,000
Foreign exchange derivatives
Forward foreign exchange contracts		3			2,694			6			5,492			3			2,343
Total		7		$	702,694			10		$	705,492			7		$	702,343

There were no forward foreign exchange contracts that were not designated as hedges as of April 30, 2016, January 30, 2016, and May 2, 2015.

The table below presents the fair value of all of our derivative financial instruments as well as their classification on the condensed consolidated balance sheets (in thousands) (see Note 3).

 

		April 30, 2016				January 30, 2016				May 2, 2015
		Derivative Liabilities				Derivative Liabilities				Derivative Assets				Derivative Liabilities
Other Assets
Purchased interest rate caps		$	—			$	—			$	9			$	—
Total		$	—			$	—			$	9			$	—
Accrued Liabilities
Forward foreign exchange contracts		$	391			$	145			$	—			$	55
Total		$	391			$	145			$	—			$	55

 

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The tables below present the effect of all of our derivative financial instruments on the condensed consolidated statements of operations and comprehensive income (loss) (in thousands). No amounts were reclassified from accumulated other comprehensive loss (OCI) into earnings as a result of forecasted transactions that failed to occur or as a result of hedge ineffectiveness (see Note 13).

 

		13 Weeks Ended April 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		$	(1,183	)
Forward foreign exchange contracts			(491	)		Cost of goods sold			62
Total		$	(491	)				$	(1,121	)

 

		13 Weeks Ended May 2, 2015
		Gains / (Losses) Recognized in OCI on Derivative (Effective Portion)				Location of Gains (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)		Gains / (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate caps		$	(8	)		Interest expense		$	(778	)
Forward foreign exchange contracts			(146	)		Cost of goods sold			165
Total		$	(154	)				$	(613	)

 

9.

Leases

We outsourced the fulfillment of www.gymboree.com online customer orders to a third-party fulfillment center. On February 25, 2016, the Company entered into an agreement to terminate its operating services agreement with the third party fulfillment center. The Company recognized a loss on contract termination of approximately $5.7 million during the 13 weeks ended April 30, 2016, which is included as a component of SG&A expenses in the accompanying condensed consolidated statements of operations. The loss on contract termination consists of the $8.3 million in an early termination fee, offset by a $2.6 million gain on the write-off of assets and liabilities associated with the operating services agreement during the 13 weeks ended April 30, 2016. The early termination fee liability, which amounted to $8.3 million as of April 30, 2016, is payable in two equal installments in May 2016 and August 2016 and is included in Accrued and other current liabilities in the accompanying condensed consolidated balance sheets.

During the first quarter of 2016, Gymboree China’s management made a decision to close 25 of its retail locations. Gymboree China recognized $1.3 million of expense related to the store closures, which is comprised of lease contract termination costs totaling $0.9 million and $0.4 million of other exit costs during the 13 weeks ended April 30, 2016. These costs are included as a component of SG&A expenses in the accompanying condensed consolidated statements of operations.

 

10.	Share-Based Compensation

Share-based compensation expense included as a component of SG&A expenses was $0.6 million and $0.7 million during the 13 weeks ended April 30, 2016 and May 2, 2015, respectively. We include an estimate of forfeitures in determining share-based compensation expense.

 

11.	Income Taxes

As of April 30, 2016, January 30, 2016 and May 2, 2015, unrecognized tax benefits were $6.3 million, $6.4 million and $6.8 million, respectively. We believe it is reasonably possible that the total amount of unrecognized tax benefits of $6.3 million as of April 30, 2016 will decrease by as much as $0.8 million during the next twelve months due to the resolution of certain tax contingencies and lapses of applicable statutes of limitation.

As of April 30, 2016, January 30, 2016 and May 2, 2015, the total valuation allowance against deferred tax assets was $49.9 million, $63.2 million and $67.3 million, respectively. We establish a valuation allowance when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. We consider all available positive and negative evidence in evaluating whether a valuation allowance is required, including prior earnings history, actual earnings over the previous 12 quarters on a cumulative basis, carryback and carryforward periods, and tax planning strategies that could potentially enhance the likelihood of realization of a deferred tax asset. We continue to have a valuation allowance against all net deferred tax assets in U.S. federal, unitary state, and Australian jurisdictions, excluding indefinite-lived deferred tax assets and liabilities, and against the tax benefit on losses from our VIEs. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

 

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12.	Commitments and Contingencies

Commitments

There have been no significant changes to our contractual obligations and commercial commitments as disclosed in our Annual Report on Form 10-K as of January 30, 2016 (see Notes 6, 7, 11 and 14), other than those which occur in the normal course of business (see Note 5 and 6).

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, for the periods ended (in thousands):

 

		April 30, 2016				January 30, 2016				May 2, 2015
Foreign currency translation		$	(7,765	)		$	(9,236	)		$	(6,154	)
Accumulated changes in fair value of derivative financial instruments, net of tax			(956	)			(1,586	)			(3,927	)
Total accumulated other comprehensive loss		$	(8,721	)		$	(10,822	)		$	(10,081	)

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

 

		13 Weeks Ended April 30, 2016
		Derivatives				Foreign Currency				Total Accumulated Comprehensive (Loss) Income Including Noncontrolling Interest
Beginning balance		$	(1,586	)		$	(9,236	)		$	(10,822	)
Other comprehensive (loss) income recognized before reclassifications			(491	)			1,635				1,144
Amounts reclassified from accumulated other comprehensive loss to earnings			1,121				—				1,121
Tax expense			—				—				—
Net current-period other comprehensive income			630				1,635				2,265
Other comprehensive income attributable to noncontrolling interest			—				(164	)			(164	)
Ending balance		$	(956	)		$	(7,765	)		$	(8,721	)

 

		Year Ended January 30, 2016
		Derivatives				Foreign Currency				Total Accumulated Comprehensive (Loss) Income Including Noncontrolling Interest
Beginning balance		$	(4,188	)		$	(7,043	)		$	(11,231	)
Other comprehensive loss recognized before reclassifications			(17	)			(2,817	)			(2,834	)
Amounts reclassified from accumulated other comprehensive loss to earnings			3,570				—				3,570
Tax expense			(951	)			—				(951	)
Net current-period other comprehensive income (loss)			2,602				(2,817	)			(215	)
Other comprehensive loss attributable to noncontrolling interest			—				624				624
Ending balance		$	(1,586	)		$	(9,236	)		$	(10,822	)

 

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		13 Weeks Ended May 2, 2015
		Derivatives				Foreign Currency				Total Accumulated Comprehensive (Loss) Income Including Noncontrolling Interest
Beginning balance		$	(4,188	)		$	(7,043	)		$	(11,231	)
Other comprehensive (loss) income recognized before reclassifications			(154	)			956				802
Amounts reclassified from accumulated other comprehensive loss to earnings			613				—				613
Tax expense			(198	)			—				(198	)
Net current-period other comprehensive income			261				956				1,217
Other comprehensive income attributable to noncontrolling interest			—				(67	)			(67	)
Ending balance		$	(3,927	)		$	(6,154	)		$	(10,081	)

 

14.

Dividends

During the 13 weeks ended April 30, 2016, Gymboree Tianjin declared cash dividends to its unconsolidated direct parent, Gymboree Hong Kong Limited, totaling $5.1 million. Gymboree Tianjin paid $0.5 million of the total amount declared in April 2016 and recognized $4.6 million dividends payable as of April 30, 2016, which is included in accrued and other current liabilities in the accompanying condensed consolidated balance sheets. The dividend was subsequently paid in May 2016.

 

15.	Related Party Transactions

Related Party Transactions –Excluding VIEs

We incurred approximately $0.8 million and $0.9 million in management fees and reimbursement of out-of-pocket expenses from Bain Capital Private Equity, LP (formerly Bain Capital Partners LLC) (“Bain Capital”) during the 13 weeks ended April 30, 2016 and May 2, 2015, respectively. As of April 30, 2016, January 30, 2016 and May 2, 2015, we had a payable balance of $1.0 million, $0.2 million and $1.1 million, respectively, to Bain Capital.

We incurred approximately $0.5 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 April 30, 2016 and May 2, 2015, respectively. As of April 30, 2016, January 30, 2016 and May 2, 2015, we had a payable balance of $0.1 million to LogicSource.

As of April 30, 2016 and May 2, 2015, we had a receivable balance of $0.4 million and $0.2 million, respectively, from our indirect parent, Giraffe Holding, Inc., related mainly to taxes.

Related Party Transactions –VIEs

In September 2015, Gymboree Tianjin entered into an unsecured entrusted loan agreement with Lionbridge Financing Leasing (China) Co., Ltd. (“Lionbridge”), an indirect majority-owned company of Bain Capital Lionbridge Cayman Ltd., and Shanghai Pudong Development Bank (“SPD Bank”) for $1.7 million, whereby Lionbridge was the borrower and SPD Bank was the trustee. The loan had an interest of 10% per annum. The principal amount and interest were received when the agreement matured in the first quarter of fiscal 2016. The loan receivable balance was included in accounts receivable on the condensed consolidated balance sheet as of January 30, 2016.

During 2015, Gymboree Tianjin sold $0.2 million of equipment to Lionbridge who subsequently leased the equipment to Gymboree Tianjin’s Play & Music franchisees. As a result of these transactions, Gymboree Tianjin had a $0.2 million receivable due from Lionbridge as of year-end which is included in the consolidated balance sheet as of January 30, 2016. The receivable was collected during the first quarter of fiscal 2016 and there are no amounts due as of April 30, 2016.

Our VIEs incurred $0.1 million in management fees from Bain Capital Advisors (China) Ltd. for each of the 13 weeks ended April 30, 2016 and May 2, 2015 and had a payable of $0.2 million payable as of May 2, 2015.

As of April 30, 2016, January 30, 2016 and May 2, 2015, our VIEs had a balance of $1.1 million payable to their indirect parent, Gymboree Investment Holding GP, Ltd., related to funds used to pay operating costs of the VIEs.

 

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As of April 30, 2016, January 30, 2016 and May 2, 2015, our VIEs had a payable balance of $0.4 million due to Gymboree Hong Kong Limited, the unconsolidated direct parent of the VIEs, related to funds used to pay operating costs of the VIEs. The Company is part of a related party group that controls Gymboree Hong Kong Limited.

 

16.	Segment Information

We have four reportable segments: retail stores (including online stores), Gymboree Play & Music, International Retail Franchise (“Retail Franchise”), and one reportable segment related to the activities of our consolidated VIEs. These reportable segments were identified based on how our business is managed and evaluated by our chief operating decision maker, who is the Chief Executive Officer. The retail stores segment includes four operating segments (brands), which sell high-quality apparel for children: Gymboree Retail (including an online store), Gymboree Outlet, Janie and Jack (including an online store), and Crazy 8 (including an online store). These four operating segments have been aggregated into one reportable segment because these operating segments have similar historical economic characteristics and/or are expected to have similar economic characteristics and similar long-term financial performance in the future. Gross profit is the principal measure we consider in determining whether the economic characteristics are similar. In addition, each 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.

Below is a summary of net sales and gross profit of each reportable segment for the periods ended (in thousands):

 

		13 Weeks Ended April 30, 2016
		Retail Stores				Gymboree Play & Music				International Retail Franchise				VIEs				Intersegment Elimination				Total
Net sales		$	269,069			$	4,518			$	3,844			$	10,347			$	(2,737	)		$	285,041
Gross Profit		$	107,561			$	3,064			$	2,232			$	5,324			$	(1,725	)		$	116,456

 

		13 Weeks Ended May 2, 2015
		Retail Stores				Gymboree Play & Music				International Retail Franchise				VIEs				Intersegment Elimination				Total
Net sales		$	259,924			$	4,357			$	5,857			$	8,611			$	(2,680	)		$	276,069
Gross Profit		$	94,575			$	2,774			$	3,227			$	6,384			$	(1,603	)		$	105,357

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

 

		Gymboree (1)				Janie and Jack				Crazy 8				Total Before VIE				VIE				Total
13 weeks ended April 30, 2016		$	170,070			$	34,985			$	64,014			$	269,069			$	2,207			$	271,276
13 weeks ended May 2, 2015		$	160,121			$	33,573			$	66,230			$	259,924			$	1,808			$	261,732

 

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

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

 

		Intersegment Revenues
		Retail Stores				Gymboree Play & Music				International Retail Franchise				VIEs				Total
13 weeks ended April 30, 2016		$	—			$	2,564			$	173			$	—			$	2,737
13 weeks ended May 2, 2015		$	—			$	2,512			$	168			$	—			$	2,680

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

 

		Total Assets
		Retail Stores				Gymboree Play & Music				International Retail Franchise				VIEs				Intersegment Elimination				Total
April 30, 2016		$	1,051,758			$	60,236			$	26,867			$	26,294			$	(2,555	)		$	1,162,600
January 30, 2016		$	1,027,622			$	59,701			$	28,791			$	25,795			$	(1,433	)		$	1,140,476
May 2, 2015		$	1,074,311			$	59,916			$	30,024			$	22,865			$	(2,134	)		$	1,184,982

We attribute retail store revenues to individual countries based on the selling location. Gymboree Play & Music sales and Gymboree International Retail Franchise sales are attributable to the U.S. geographic segment. VIE sales are attributable to the international geographic segment.

 

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

 

		13 Weeks Ended April 30, 2016				13 Weeks Ended May 2, 2015
United States		$	265,711			$	258,582
International			19,330				17,487
Total		$	285,041			$	276,069

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

 

		April 30, 2016				January 30, 2016				May 2, 2015
United States		$	142,740			$	150,037			$	166,121
International			8,200				8,441				10,279
Total		$	150,940			$	158,478			$	176,400

 

17.	Variable Interest Entities

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

 

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The following tables reflect the impact of the VIEs on the condensed consolidated statements of operations for the 13 weeks ended April 30, 2016 and May 2, 2015 and the condensed consolidated balance sheets as of April 30, 2016, January 30, 2016 and May 2, 2015 (in thousands):

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(In thousands)

 

		13 Weeks Ended April 30, 2016
		Balance Before Consolidation of VIEs				VIEs				Eliminations				As Reported
Net sales		$	277,431			$	10,347			$	(2,737	)		$	285,041
Cost of goods sold, including buying and occupancy expenses			(164,574	)			(5,023	)			1,012				(168,585	)
Selling, general and administrative expenses			(109,145	)			(6,546	)			1,659				(114,032	)
Operating income (loss)			3,712				(1,222	)			(66	)			2,424
Other non operating income (expense)			28,880				334				—				29,214
Income (loss) before income taxes			32,592				(888	)			(66	)			31,638
Income tax benefit (expense)			320				(1,017	)			—				(697	)
Net income (loss)			32,912				(1,905	)			(66	)			30,941
Net loss attributable to noncontrolling interest			—				1,905				—				1,905
Net income attributable to The Gymboree Corporation		$	32,912			$	—			$	(66	)		$	32,846

 

		13 Weeks Ended May 2, 2015
		Balance Before Consolidation of VIEs				VIEs				Eliminations				As Reported
Net sales		$	270,138			$	8,611			$	(2,680	)		$	276,069
Cost of goods sold, including buying and occupancy expenses			(169,562	)			(2,227	)			1,077				(170,712	)
Selling, general and administrative expenses			(100,988	)			(5,173	)			1,451				(104,710	)
Operating (loss) income			(412	)			1,211				(152	)			647
Other non-operating expense			(21,157	)			(10	)			—				(21,167	)
(Loss) income before income taxes			(21,569	)			1,201				(152	)			(20,520	)
Income tax expense			(1,304	)			(656	)			—				(1,960	)
Net (loss) income			(22,873	)			545				(152	)			(22,480	)
Net income attributable to noncontrolling interest			—				(545	)			—				(545	)
Net loss attributable to The Gymboree Corporation		$	(22,873	)		$	—			$	(152	)		$	(23,025	)

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

 

		April 30, 2016
		Balance Before Consolidation of VIEs				VIEs				Eliminations				As Reported
Cash and cash equivalents		$	49,637			$	12,531			$	—			$	62,168
Other current assets			220,553				9,808				(2,555	)			227,806
Total current assets			270,190				22,339				(2,555	)			289,974
Non-current assets			868,671				3,955				—				872,626
Total assets		$	1,138,861			$	26,294			$	(2,555	)		$	1,162,600
Current liabilities		$	241,347			$	22,135			$	(2,222	)		$	261,260
Non-current liabilities			1,210,214				311				—				1,210,525
Total liabilities			1,451,561				22,446				(2,222	)			1,471,785
Total stockholders’ deficit			(312,700	)			—				(333	)			(313,033	)
Noncontrolling interest			—				3,848				—				3,848
Total liabilities and stockholders’ deficit		$	1,138,861			$	26,294			$	(2,555	)		$	1,162,600

 

		January 30, 2016
		Balance Before Consolidation of VIEs				VIEs				Eliminations				As Reported
Cash and cash equivalents		$	8,541			$	9,623			$	—			$	18,164
Other current assets			232,502				11,222				(1,433	)			242,291
Total current assets			241,043				20,845				(1,433	)			260,455
Non-current assets			875,071				4,950				—				880,021
Total assets		$	1,116,114			$	25,795			$	(1,433	)		$	1,140,476
Current liabilities		$	217,596			$	14,618			$	(1,162	)		$	231,052
Non-current liabilities			1,246,849				463				—				1,247,312
Total liabilities			1,464,445				15,081				(1,162	)			1,478,364
Total stockholders’ deficit			(348,331	)			—				(271	)			(348,602	)
Noncontrolling interest			—				10,714				—				10,714
Total liabilities and stockholders’ deficit		$	1,116,114			$	25,795			$	(1,433	)		$	1,140,476

 

		May 2, 2015
		Balance Before Consolidation of VIEs				VIEs				Eliminations				As Reported
Cash and cash equivalents		$	12,513			$	9,850			$	—			$	22,363
Other current assets			257,220				7,920				(2,134	)			263,006
Total current assets			269,733				17,770				(2,134	)			285,369
Non-current assets			894,518				5,095				—				899,613
Total assets		$	1,164,251			$	22,865			$	(2,134	)		$	1,184,982
Current liabilities		$	244,625			$	11,840			$	(1,805	)		$	254,660
Non-current liabilities			1,282,642				485				—				1,283,127
Total liabilities			1,527,267				12,325				(1,805	)			1,537,787
Total stockholders’ deficit			(363,016	)			—				(329	)			(363,345	)
Noncontrolling interest			—				10,540				—				10,540
Total liabilities and stockholders’ deficit		$	1,164,251			$	22,865			$	(2,134	)		$	1,184,982

 

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18.	Condensed Guarantor Data

The Company’s 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Notes, subject to the customary automatic release provisions described above (see Note 6). The following condensed consolidating financial information presents the results of operations, comprehensive income (loss), financial position and cash flows of The Gymboree Corporation and the guarantor and non-guarantor subsidiaries. The VIEs 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 APRIL 30, 2016

(In thousands)

 

		The Gymboree Corporation				Guarantor Subsidiaries				Non-guarantor Subsidiaries				Eliminations				Consolidated
Net sales:
Retail		$	696			$	264,815			$	11,813			$	(6,048	)		$	271,276
Gymboree Play & Music			—				1,954				8,140				—				10,094
Retail Franchise			—				3,671				—				—				3,671
Intercompany revenue			13,919				8,365				1,011				(23,295	)			—
Total net sales			14,615				278,805				20,964				(29,343	)			285,041
Cost of goods sold, including buying and occupancy expenses			(1,765	)			(161,700	)			(12,086	)			6,966				(168,585	)
Gross profit			12,850				117,105				8,878				(22,377	)			116,456
Selling, general and administrative expenses			(21,331	)			(105,089	)			(9,845	)			22,233				(114,032	)
Operating (loss) income			(8,481	)			12,016				(967	)			(144	)			2,424
Interest income			—				1				104				—				105
Interest expense			(19,389	)			(418	)			—				—				(19,807	)
Gain on extinguishment of debt			48,804				—				—				—				48,804
Other income (expense), net			73				(193	)			232				—				112
Income (loss) before income taxes			21,007				11,406				(631	)			(144	)			31,638
Income tax benefit (expense)			8,369				(7,971	)			(1,095	)			—				(697	)
Equity in earnings of affiliates, net of tax			3,470				—				—				(3,470	)			—
Net income (loss)			32,846				3,435				(1,726	)			(3,614	)			30,941
Net loss attributable to noncontrolling interest			—				—				1,905				—				1,905
Net income attributable to The Gymboree Corporation		$	32,846			$	3,435			$	179			$	(3,614	)		$	32,846

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED MAY 2, 2015

(In thousands)

 

		The Gymboree Corporation				Guarantor Subsidiaries				Non-guarantor Subsidiaries				Eliminations				Consolidated
Net sales:
Retail		$	405			$	256,083			$	11,220			$	(5,976	)		$	261,732
Gymboree Play & Music			—				1,845				6,803				—				8,648
Retail Franchise			—				5,689				—				—				5,689
Intercompany revenue			15,325				2,981				—				(18,306	)			—
Total net sales			15,730				266,598				18,023				(24,282	)			276,069
Cost of goods sold, including buying and occupancy expenses			(2,157	)			(165,573	)			(9,935	)			6,953				(170,712	)
Gross profit			13,573				101,025				8,088				(17,329	)			105,357
Selling, general and administrative expenses			(15,535	)			(97,266	)			(9,003	)			17,094				(104,710	)
Operating (loss) income			(1,962	)			3,759				(915	)			(235	)			647
Interest income			—				3				16				—				19
Interest expense			(21,000	)			(76	)			—				—				(21,076	)
Other expense, net			(8	)			(76	)			(26	)			—				(110	)
(Loss) income before income taxes			(22,970	)			3,610				(925	)			(235	)			(20,520	)
Income tax benefit (expense)			4,754				(5,745	)			(969	)			—				(1,960	)
Equity in earnings of affiliates, net of tax			(4,809	)			—				—				4,809				—
Net loss			(23,025	)			(2,135	)			(1,894	)			4,574				(22,480	)
Net loss attributable to noncontrolling interest			—				—				(545	)			—				(545	)
Net loss attributable to The Gymboree Corporation		$	(23,025	)		$	(2,135	)		$	(2,439	)		$	4,574			$	(23,025	)

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 13 WEEKS ENDED APRIL 30, 2016

(In thousands)

 

		The Gymboree Corporation				Guarantor Subsidiaries				Non-guarantor Subsidiaries				Eliminations				Consolidated
Net income (loss)		$	32,846			$	3,435			$	(1,726	)		$	(3,614	)		$	30,941
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			1,471				—				1,636				(1,472	)			1,635
Unrealized net gain (loss) on cash flow hedges, net of tax			630				—				(552	)			552				630
Total other comprehensive income, net of tax			2,101				—				1,084				(920	)			2,265
Comprehensive income (loss)			34,947				3,435				(642	)			(4,534	)			33,206
Comprehensive loss attributable to noncontrolling interest			—								1,741				—				1,741
Comprehensive income attributable to The Gymboree Corporation		$	34,947			$	3,435			$	1,099			$	(4,534	)		$	34,947

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 13 WEEKS ENDED MAY 2, 2015

(In thousands)

 

		The Gymboree Corporation				Guarantor Subsidiaries				Non-guarantor Subsidiaries				Eliminations				Consolidated
Net loss		$	(23,025	)		$	(2,135	)		$	(1,894	)		$	4,574			$	(22,480	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			889				—				950				(883	)			956
Unrealized net gain (loss) on cash flow hedges, net of tax			261				—				(311	)			311				261
Total other comprehensive income, net of tax			1,150				—				639				(572	)			1,217
Comprehensive loss			(21,875	)			(2,135	)			(1,255	)			4,002				(21,263	)
Comprehensive income attributable to noncontrolling interest			—				—				(612	)			—				(612	)
Comprehensive loss attributable to The Gymboree Corporation		$	(21,875	)		$	(2,135	)		$	(1,867	)		$	4,002			$	(21,875	)

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

 

		April 30, 2016
		The Gymboree				Guarantor				Non-guarantor
		Corporation				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	39,730			$	5,328			$	17,110			$	—			$	62,168
Accounts receivable, net of allowance			1,784				15,590				3,459				—				20,833
Merchandise inventories			—				190,386				8,978				(746	)			198,618
Prepaid income taxes			1,511				804				178				—				2,493
Prepaid expenses			2,885				1,180				1,797				—				5,862
Intercompany receivable			2,017				695,837				—				(697,854	)			—
Total current assets			47,927				909,125				31,522				(698,600	)			289,974
Property and equipment, net			15,723				126,538				8,679				—				150,940
Goodwill			—				363,207				10,638				—				373,845
Other intangible assets, net			—				340,470				40				—				340,510
Other assets			2,392				1,663				3,896				(620	)			7,331
Investment in subsidiaries			1,415,164				—				—				(1,415,164	)			—
Total assets		$	1,481,206			$	1,741,003			$	54,775			$	(2,114,384	)		$	1,162,600
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable		$	5,435			$	87,906			$	821			$	—			$	94,162
Accrued and other current liabilities			29,196				71,466				20,936				—				121,598
Line of credit borrowings			43,000				—				—				—				43,000
Current portion of long-term debt			2,500				—				—				—				2,500
Current obligation under capital lease			—				—				—				—				—
Intercompany payable			691,292				—				7,308				(698,600	)			—
Total current liabilities			771,423				159,372				29,065				(698,600	)			261,260
Long-term liabilities:
Long-term debt, net of current portion			1,010,565				144				—				—				1,010,709
Long-term sale-leaseback financing liability, net			—				25,545				—				—				25,545
Long-term obligation under capital lease			—				—				—				—				—
Lease incentives and other liabilities			2,908				43,298				4,498				—				50,704
Deferred income taxes			9,343				114,844				—				(620	)			123,567
Total liabilities			1,794,239				343,203				33,563				(699,220	)			1,471,785
Total stockholders’ (deficit) equity			(313,033	)			1,397,800				17,364				(1,415,164	)			(313,033	)
Noncontrolling interest			—				—				3,848				—				3,848
Total liabilities and stockholders’ (deficit) equity		$	1,481,206			$	1,741,003			$	54,775			$	(2,114,384	)		$	1,162,600

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

 

		January 30, 2016
		The Gymboree				Guarantor				Non-guarantor
		Corporation				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	982			$	3,001			$	14,181			$	—			$	18,164
Accounts receivable, net of allowance			1,073				21,149				4,474				—				26,696
Merchandise inventories			—				197,655				9,587				(600	)			206,642
Prepaid income taxes			1,511				516				169				—				2,196
Prepaid expenses			3,359				2,800				598				—				6,757
Intercompany receivable			—				673,936				1,376				(675,312	)			—
Total current assets			6,925				899,057				30,385				(675,912	)			260,455
Property and equipment, net			13,518				136,020				8,940				—				158,478
Goodwill			—				363,207				9,530				—				372,737
Other intangible assets, net			—				340,968				43				—				341,011
Other assets			2,899				1,200				4,107				(411	)			7,795
Investment in subsidiaries			1,410,631				—				—				(1,410,631	)			—
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			$	97,665			$	1,463			$	—			$	109,193
Accrued and other current liabilities			27,941				60,863				13,450				—				102,254
Line of credit borrowings			19,000				—				—				—				19,000
Current obligation under capital lease			—				605				—				—				605
Intercompany payable			668,968				—				6,944				(675,912	)			—
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				46,117				4,167				—				54,739
Deferred income taxes			11,640				113,015				—				(411	)			124,244
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

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

 

		May 2, 2015
		The Gymboree				Guarantor				Non-guarantor
		Corporation				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	1,564			$	4,557			$	16,242			$	—			$	22,363
Accounts receivable, net of allowance			892				21,996				2,627				—				25,515
Merchandise inventories			—				201,010				8,642				(744	)			208,908
Prepaid income taxes			1,860				427				472				—				2,759
Prepaid expenses			2,468				14,727				1,366				—				18,561
Deferred income taxes			—				15,992				804				(9,533	)			7,263
Intercompany receivable			5,035				596,966				—				(602,001	)			—
Total current assets			11,819				855,675				30,153				(612,278	)			285,369
Property and equipment, net			11,965				153,567				10,868				—				176,400
Goodwill			—				362,021				12,287				—				374,308
Other intangible assets, net			—				342,662				154				—				342,816
Other assets			7,799				1,254				3,856				(6,820	)			6,089
Investment in subsidiaries			1,404,444				—				—				(1,404,444	)			—
Total assets		$	1,436,027			$	1,715,179			$	57,318			$	(2,023,542	)		$	1,184,982
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable		$	19,712			$	84,613			$	1,101			$	—			$	105,426
Accrued and other current liabilities			32,954				62,429				11,163				123				106,669
Deferred income taxes			9,656				—				—				(9,656	)			—
Line of credit borrowings			42,000				—				—				—				42,000
Current obligation under capital lease			—				565				—				—				565
Intercompany payable			597,708				—				5,037				(602,745	)			—
Total current liabilities			702,030				147,607				17,301				(612,278	)			254,660
Long-term liabilities:
Long-term debt, net			1,092,549				—				—				—				1,092,549
Long-term obligation under capital lease, net			—				2,704				—				—				2,704
Lease incentives and other liabilities			4,793				48,485				4,731				—				58,009
Deferred income taxes			—				136,668				17				(6,820	)			129,865
Total liabilities			1,799,372				335,464				22,049				(619,098	)			1,537,787
Total stockholders’ (deficit) equity			(363,345	)			1,379,715				24,729				(1,404,444	)			(363,345	)
Noncontrolling interest			—				—				10,540				—				10,540
Total liabilities and stockholders’ (deficit) equity		$	1,436,027			$	1,715,179			$	57,318			$	(2,023,542	)		$	1,184,982

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 13 WEEKS ENDED APRIL 30, 2016

(In thousands)

 

		The Gymboree				Guarantor				Non-guarantor
		Corporation				Subsidiaries				Subsidiaries				Eliminations				Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities		$	(29,661	)		$	32,193			$	(280	)		$	—			$	2,252
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(1,633	)			(2,087	)			129				—				(3,591	)
Receipt of related party loan receivable			—				—				1,741				—				1,741
Intercompany transfers			(2,017	)			(27,733	)			1,376				28,374				—
Other			—				1				—				—				1
Net cash (used in) provided by investing activities			(3,650	)			(29,819	)			3,246				28,374				(1,849	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers			28,061				—				313				(28,374	)			—
Proceeds from ABL facility			152,000				—				—				—				152,000
Payments on ABL facility			(128,000	)			—				—				—				(128,000	)
Proceeds from ABL term loan			50,000				—				—				—				50,000
Payments for deferred financing costs			(3,804	)			—				—				—				(3,804	)
Repurchase of notes			(26,198	)			—				—				—				(26,198	)
Payments on capital lease and sale-leaseback financing liability			—				(47	)			—				—				(47	)
Dividend payment by VIE to its parent			—				—				(512	)			—				(512	)
Net cash provided by (used in) financing activities			72,059				(47	)			(199	)			(28,374	)			43,439
Effect of exchange rate fluctuations on cash and cash equivalents			—				—				162				—				162
Net increase in cash and cash equivalents			38,748				2,327				2,929				—				44,004
CASH AND CASH EQUIVALENTS:
Beginning of Period			982				3,001				14,181				—				18,164
End of Period		$	39,730			$	5,328			$	17,110			$	—			$	62,168

 

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 13 WEEKS ENDED MAY 2, 2015

(In thousands)

 

		The Gymboree				Guarantor				Non-guarantor
		Corporation				Subsidiaries				Subsidiaries				Eliminations				Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities		$	(1,611	)		$	(784	)		$	(244	)		$	—			$	(2,639	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(291	)			(2,052	)			(797	)			—				(3,140	)
Proceeds from sale of assets			—				—				353				—				353
Intercompany transfers			(1,565	)			5,047				720				(4,202	)			—
Other			—				(3	)			11				—				8
Net cash (used in) provided by investing activities			(1,856	)			2,992				287				(4,202	)			(2,779	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers			(5,658	)			(720	)			2,176				4,202				—
Proceeds from ABL facility			130,000				—				—				—				130,000
Payments on ABL facility			(121,000	)			—				—				—				(121,000	)
Payments on capital lease			—				(133	)			—				—				(133	)
Net cash provided by (used in) financing activities			3,342				(853	)			2,176				4,202				8,867
Effect of exchange rate fluctuations on cash and cash equivalents			—				—				394				—				394
Net (decrease) increase in cash and cash equivalents			(125	)			1,355				2,613				—				3,843
CASH AND CASH EQUIVALENTS:
Beginning of Period			1,689				3,202				13,629				—				18,520
End of Period		$	1,564			$	4,557			$	16,242			$	—			$	22,363

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

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

 

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

Forward-Looking Statements

This quarterly report contains forward-looking statements. You can identify forward-looking statements because they contain words such as “believe,” “expect,” “may,” “will,” “should,” “could,” “seek,” “intend,” “plan,” “estimate,” or “anticipate” or similar expressions. All statements we make relating to: future sales, costs and expenses and gross profit percentages; the continuation of historical trends; planned store openings and closings, including franchise partner store openings; estimated capital expenditures for fiscal 2016; our ability to operate our business under our capital and operating structure; and the sufficiency of our cash balances and cash generated from operating and financing activities for future liquidity and capital resource needs are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we had expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.

Important factors that could cause actual results to differ materially from our expectations (“cautionary statements”) are disclosed under “Item 1A, Risk Factors,” in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016, filed with the Securities and Exchange Commission on April 28, 2016 (the “Fiscal 2015 Annual 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 April 30, 2016, we operated a total of 1,303 retail stores, as follows:

 

		United States				Canada				Puerto Rico				Total
Gymboree® stores			543				48				1				592
Gymboree Outlet stores			174				—				1				175
Janie and Jack® shops (including Janie and Jack outlets)			148				—				1				149
Crazy 8® stores (including Crazy 8 outlets)			387				—				—				387
			1,252				48				3				1,303

In addition, as of April 30, 2016, we operated online stores at www.gymboree.com, www.janieandjack.com, and www.crazy8.com. Overseas franchisees and Gymboree China operated 63 retail stores, as follows:

 

		Overseas Franchisees (1)				Gymboree China				Total
Gymboree® stores			53				6				59
Janie and Jack® shops			1				—				1
Crazy 8® stores			3				—				3
			57				6				63

 

(1)	Overseas franchisees operated retail stores in the Middle East, South Korea and Latin America.

In the first quarter of 2016, Gymboree China’s management made the decision to close 25 of its retail locations. During the first quarter of fiscal 2016, 21 retail locations were closed and 4 retail locations are targeted to be closed in the second quarter of fiscal 2016.

We also offer directed parent-child developmental play programs under the Gymboree Play & Music brand at 732 franchised and Company-operated centers in the United States and 43 other countries.

 

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First Quarter 2016 Highlights

Total net sales increased to $285.0 million for the first quarter of fiscal 2016 from $276.1 million in the first quarter of fiscal 2015, an increase of 3.2%, driven primarily by an increase in retail sales of $9.6 million, led by our Gymboree brand, and increased in sales in the Gymboree Play & Music business of $1.5 million, partially offset by a decrease in our retail franchise sales of $2.0 million.

Comparable store sales (including online sales) increased 4% compared to the first quarter of fiscal 2015. Below is the comparable store sales (including online sales) by brand for the periods ended:

 

		13 Weeks Ended April 30, 2016		13 Weeks Ended May 2, 2015
Gymboree		6%		-2%
Janie and Jack		5%		5%
Crazy 8		-2%		4%
Total comparable store sales (including online sales)		4%		0%

Our Adjusted EBITDA increased to $24.5 million for the 13 weeks ended April 30, 2016 from $15.6 million in the same prior year period, an increase of $8.9 million or 57.0%, primarily due to a 4% comparable store sales increase and gross profit expansion. Our results in the first quarter of 2015 were negatively impacted by the west coast port slowdown.

The following table summarizes store openings and closures by brand and country for the 13 weeks ended April 30, 2016. Note that (i) all Crazy 8 stores are in the United States and (ii) retail stores operated by overseas franchisees and the VIE-operated Gymboree retail stores in China are excluded.

 

		Store Count as of January 30, 2016				Store Openings				Store Closures				Store Count as of April 30, 2016
Gymboree US			546				1				(4	)			543
Gymboree Canada			48				—				—				48
Gymboree Puerto Rico			1				—				—				1
Total Gymboree			595				1				(4	)			592
Gymboree Outlet			174				—				—				174
Gymboree Outlet Puerto Rico			1				—				—				1
Total Gymboree Outlet			175				—				—				175
Janie and Jack (including Janie and Jack outlets)			148				—				—				148
Janie and Jack Puerto Rico			1				—				—				1
Total Janie and Jack			149				—				—				149
Crazy 8 (including Crazy 8 outlets)			387				—				—				387
Total			1,306				1				(4	)			1,303

We plan to open approximately 6 new stores in fiscal 2016 (which include 1 new store opened during the 13 weeks ended April 30, 2016) and close approximately 20 to 30 stores (which include 4 stores closed during the 13 weeks ended April 30, 2016), primarily in our Crazy 8 and Gymboree brands. We expect our international franchise partners to open approximately 1 to 5 franchise stores in fiscal 2016.

Seasonality

Our business is impacted by the timing of certain holidays and key retail shopping periods in the apparel and retail industries, which generally result in higher sales during the second half of the fiscal year and lower sales during the first half of the fiscal year. Consequently, the results for any fiscal quarter are not necessarily indicative of results for the full year.

 

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Results of Operations

13 weeks ended April 30, 2016 compared to 13 weeks ended May 2, 2015

Condensed consolidated statements of operations data as a percentage of total net sales during the 13 weeks ended April 30, 2016 and May 2, 2015 were as follows (amounts in thousands):

 

		13 Weeks Ended April 30, 2016								13 Weeks Ended May 2, 2015
		Amount				% of Total Net Sales				Amount				% of Total Net Sales
Net sales:
Retail		$	271,276				95.2	%		$	261,732				94.8	%
Gymboree Play & Music			10,094				3.5	%			8,648				3.1	%
Retail Franchise			3,671				1.3	%			5,689				2.1	%
Total net sales			285,041				100.0	%			276,069				100.0	%
Cost of goods sold, including buying and occupancy expenses			(168,585	)			(59.1	)%			(170,712	)			(61.8	)%
Gross profit			116,456				40.9	%			105,357				38.2	%
Selling, general and administrative expenses			(114,032	)			(40.0	)%			(104,710	)			(37.9	)%
Operating income			2,424				0.9	%			647				0.2	%
Interest income			105				—				19				—
Interest expense			(19,807	)			(6.9	)%			(21,076	)			(7.6	)%
Gain on extinguishment of debt			48,804				17.1	%			—				—
Other income (expense), net			112				—				(110	)			—
Income (loss) before income taxes			31,638				11.1	%			(20,520	)			(7.4	)%
Income tax expense			(697	)			(0.2	)%			(1,960	)			(0.7	)%
Net income (loss)			30,941				10.9	%			(22,480	)			(8.1	)%
Net loss (income) attributable to noncontrolling interest			1,905				0.7	%			(545	)			(0.2	)%
Net income (loss) attributable to The Gymboree Corporation		$	32,846				11.5	%		$	(23,025	)			(8.3	)%

Net Sales

Total net sales for the first quarter of fiscal 2016 increased to $285.0 million from $276.1 million in the first quarter of fiscal 2015, an increase of $8.9 million or 3.2%.

Net retail sales for the first quarter of fiscal 2016 increased to $271.3 million from $261.7 million in the first quarter of fiscal 2015, an increase of $9.6 million, or 3.6%, primarily due to an increase in comparable store sales (including online sales) of 4%. Comparable store sales (excluding online sales) increased by 5% for the first quarter of fiscal 2016 compared to the same prior year period. The 4% increase in comparable store sales was led by our Gymboree brand followed by our Janie and Jack brand. While the first quarter of fiscal 2015 was negatively impacted by the west coast port slowdown, these sales were recovered in the first quarter of 2016. We believe that the improvement in sales of our Gymboree and Janie and Jack brands from the first quarter of fiscal 2015 to the first quarter of fiscal 2016 was driven primarily by improved product acceptance and better inventory management. Total net stores decreased to 1,303 as of April 30, 2016 from 1,322 as of May 2, 2015. Total square footage was approximately 2.7 million square feet as of April 30, 2016 and May 2, 2015.

Gymboree Play & Music net sales for the first quarter of fiscal 2016 increased to $10.1 million from $8.6 million in the same prior year period, an increase of $1.5 million or 16.7%, primarily due to growth in the number of Gymboree Tianjin franchisee sites to 267 as of the end of the first quarter of fiscal 2016 from 232 at the same prior year period, combined with stronger performance of existing Gymboree Tianjin sites.

Retail franchise net sales for the first quarter of fiscal 2016 decreased to $3.7 million from $5.7 million in the same prior year period, a decrease of $2.0 million or 35.5%, primarily due to lower sales to our franchisee in the Middle East region. As of the first quarter of fiscal 2016, our overseas franchisees operated 63 stores compared to 85 stores as of the end of the same period last year.

Gross Profit

Gross profit for the first quarter of fiscal 2016 increased to $116.5 million from $105.4 million in the same prior year period, primarily driven by gross profit expansion. Gross profit for the first quarter of fiscal 2015 was negatively impacted by the west coast port slowdown. As a percentage of net sales, gross profit for the first quarter of fiscal 2016 increased by 270 basis points to 40.9% from 38.2% in the same prior year period. The 270 basis point increase was driven primarily by lower cost of goods sold (“COGS”) as a percentage of sales due to the mix of merchandise inventories sold, lower buying and occupancy costs as a percentage

 

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of sales. Gross profit for the first quarter of fiscal 2015 was lower due to the impact of the west coast port slowdown. As we record certain distribution costs as a component of selling, general and administrative expenses (“SG&A”) and do not include such costs in COGS, our COGS and gross profit may not be comparable to those of other companies. Our distribution costs recorded in SG&A expenses represent primarily outbound shipping and handling expenses to our stores, and amounted to $15.9 million and $10.4 million during the first quarter of fiscal 2016 and 2015, respectively. Distribution costs for the first quarter of fiscal 2016 increased primarily due to a $5.7 million net expense related to the termination of an operating service agreement with a third party fulfillment center.

Selling, General and Administrative Expenses

SG&A principally consists of non-occupancy store expenses, corporate overhead, and certain distribution expenses. SG&A increased to $114.0 million for the first quarter of fiscal 2015 compared to $104.7 million in the same prior year period. As a percentage of net sales, SG&A expenses increased 210 basis points to 40.0% for the first quarter of fiscal 2016 from 37.9% in the same prior year period primarily due to a $5.7 million net expense related to the termination of an operating service agreement with a third party fulfillment center (see Note 9 to the condensed consolidated financial statements included elsewhere in this quarterly report), $1.3 million of exit costs associated with the closure of retail locations in China, and incremental marketing expenses.

Interest Expense

Interest expense decreased to $19.8 million during the first quarter of fiscal 2016 compared to $21.1 million in the same prior year period. The net decrease of $1.3 million was primarily related to the decrease in our Notes due to repurchases during the first quarter of fiscal 2016 and the fourth quarter of fiscal 2015, offset by amortization of our interest rate caps and an increase in ABL borrowings.

Gain on Extinguishment of Debt

During the first quarter of fiscal 2016, we repurchased Notes (see Note 6 to the condensed consolidated financial statements included elsewhere in this quarterly report) with an aggregate principal amount of $77.0 million for $26.2 million in cash through privately negotiated transactions. We recorded a $48.8 million gain on extinguishment of debt, net of a $2.0 million charge related to the write-off of deferred financing costs associated with the extinguished debt. We did not repurchase any Notes in the same prior year period.

Income Taxes

The effective tax rate for the first quarter of fiscal 2016 and 2015 was 2.2% (expense) and -9.6% (expense), respectively. The change in effective tax rate was due to differences in forecasted earnings between years, increased earnings from our VIEs, releases of unrecognized tax benefits and recognition of benefits from indefinite-lived assets (trade names).

We consider all available positive and negative evidence in evaluating whether a valuation allowance is required, including prior earnings history, actual earnings over the previous 12 quarters on a cumulative basis, carryback and carryforward periods, and tax planning strategies that could potentially enhance the likelihood of realization of a deferred tax asset. As a result of weighing the available objective evidence as of April 30, 2016, January 30, 2016 and May 2, 2015, our valuation allowance against deferred tax assets was $49.9 million, $63.2 million and $67.3 million, respectively. The valuation allowance as of April 30, 2016 represents a valuation allowance against all net deferred tax assets in U.S. federal, unitary U.S. state and Australian jurisdictions, excluding indefinite-lived deferred tax assets and liabilities, and against the tax benefit on losses from our VIEs. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

Financial Condition

Liquidity and Capital Resources

Overview

We finance our business with existing cash, cash from operations and the funds available under our Senior Credit Facilities, which were comprised of an $820 million secured term loan agreement (“Term Loan”), a $225 million asset-backed revolving credit facility (“ABL Facility”), and $50 million ABL Term loan (see Notes 5 and 6 to the condensed consolidated financial statements included elsewhere in this quarterly report). We had cash and cash equivalents of $62.2 million, $18.2 million, and $22.4 million as of April 30, 2016, January 30, 2016 and May 2, 2015, respectively (including amounts held by the VIEs). Cash and cash equivalents as of April 30, 2016 include $38.6 million of proceeds from the $50 million ABL Term Loan. Cash and cash equivalents held by the VIEs, of which we are the primary beneficiary, and the results of which we have consolidated into our financial statements, were $12.5 million, $9.6 million, and $9.9 million as of April 30, 2016, January 30, 2016 and May 2, 2015, respectively (see Note 17 to the condensed consolidated financial statements included elsewhere in this quarterly report). The assets of the VIEs can only be used by the VIEs. Net working capital as of April 30, 2016, January 30, 2016 and May 2, 2015 totaled $28.7 million, $29.4 million and $30.7 million, respectively (including $0.2 million, $6.2 million and $5.9 million, respectively, from our VIEs).

 

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

We believe that cash generated by operations, the remaining funds available under our Senior Credit Facilities and existing cash and cash equivalents will be sufficient to meet working capital requirements, service our debt, and finance capital expenditures over the next twelve months. However, if we face unanticipated cash needs such as the funding of a capital investment, or if our suppliers request one or more letters of credit, our existing cash and cash equivalents and available borrowings may be insufficient. In addition, we cannot assure that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the Senior Credit Facilities in amounts sufficient to enable us to repay our indebtedness when due, including the Notes, or to fund other liquidity needs. We also regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure. We are continuing to actively pursue various financing alternatives, including refinancing and/or repurchasing our outstanding Notes, divestitures of certain of our assets and operations, as well as other opportunities to improve our capital structure. If opportunities are favorable, we may consummate one or more of these initiatives and the amounts involved may be material.

Cash flows provided by (used in) operating activities

Net cash provided by operating activities during the first quarter of fiscal 2016 was $2.3 million compared to net cash used in operating activities of $2.6 million in the same prior year period.

The change in cash flows from operating activities during the first quarter of fiscal 2016 was primarily due to gross profit expansion, the timing of purchases of merchandise inventories, and the timing of payment of accounts payable and accrued liabilities.

Cash flows used in investing activities

Net cash used in investing activities during the first quarter of fiscal 2016 was $1.8 million compared to $2.8 million in the same prior year period.

The net change during the first quarter of fiscal 2016 was primarily due to the receipt of a related party loan receivable of $1.7 million (see Note 15 to the condensed consolidated financial statements included elsewhere in this quarterly report), partially offset by higher capital expenditures, which increased by $0.5 million to $3.6 million compared to $3.1 million in the same prior year period.

We estimate capital expenditures for fiscal 2016 will be approximately $30 to $35 million. We expect capital expenditures to be used primarily for our systems infrastructure, lease required remodels of existing stores and, to a lesser extent, new store growth.

Cash flows provided by financing activities

Net cash provided by financing activities during the first quarter of fiscal 2016 was $43.4 million compared to $8.9 million in the same prior year period. The increase was due primarily to a $50.0 million ABL Term Loan that we obtained (see Note 6 to the condensed consolidated financial statements included elsewhere in this quarterly report), partially offset by payments for deferred financing costs of $3.8 million, and an increase in our line of credit borrowings from our ABL Facility of $24.0 million. The increase was offset by a repurchase of our Notes with an aggregate principal amount of $77.0 million for $26.2 million in cash through privately negotiated transactions (see Note 6 to the condensed consolidated financial statements included elsewhere in this quarterly report).

Credit Facilities

ABL Facility

In September 2015, we entered into the first amendment (the “First Amendment”) to our senior secured asset-based revolving credit facility (“ABL Revolving Facility”) to extend the maturity date of the ABL revolving commitments from March 2017 to the earlier of (i) September 24, 2020 and (ii) the date that is 60 days before the scheduled final maturity date of any tranche of the Term Loan (which 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.

In April 2016, we entered into a second amendment to the ABL Revolving Facility (the ABL Revolving Facility, as so amended, the “ABL Facility” or the “Second Amendment”). The Second Amendment provides for a senior secured term loan (the “ABL Term Loan”) of $50.0 million, subject to a borrowing base.

 

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The ABL Facility provides for financing of up to $225 million in a revolving line of credit. Line of credit availability under the ABL 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. As of April 30, 2016, line of credit borrowings outstanding under the ABL Facility were $43.0 million and letter of credit utilization was $30.8 million. Undrawn line of credit availability under the ABL Facility, after being reduced by outstanding line of credit borrowings, letter of credit utilization and $50 million of ABL Term Loan, was $90.7 million as of April 30, 2016. Average line of credit borrowings during the 13 weeks ended April 30, 2016 under the ABL Facility amounted to $49.7 million. We anticipate utilizing our line of credit under the ABL Facility throughout the course of fiscal 2016 to support seasonal working capital needs and expect to have borrowings outstanding at year-end.

Line of credit borrowings under the ABL 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 April 30, 2016, the weighted average interest rate on our line of credit borrowings outstanding under the ABL Facility was 3.9%. In addition to paying interest on outstanding line of credit borrowings under the ABL Facility, we are required to pay a commitment fee on unutilized commitments thereunder, which is between 0.250% and 0.375% per annum under the ABL Facility.

The ABL Facility contains covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. 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 April 30, 2016, we were not required to test compliance with this financial covenant.

ABL Term Loan

The ABL Term Loan of $50.0 million may be used to repurchase Notes, to finance the acquisition of working capital assets, for capital expenditures and permitted acquisitions and for other general corporate purposes.

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 April 30, 2016, the interest rate under our ABL Term Loan was 10.9%.

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 line of credit commitment.

The Second Amendment also provides for a new availability covenant, which 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 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 April 30, 2016 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 new 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 (1) the applicable revolving line of credit borrowing base and (2) the revolving credit ceiling. The Second Amendment also provided the agent for the ABL Term Loan and the ABL Term Loan lenders with certain consent rights to amendments relating to, among other terms and provisions, the borrowing bases, the availability covenant and certain negative covenants. All other material affirmative and negative covenants and events of default under the ABL Facility remained substantially unchanged following the Second Amendment.

 

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Term Loan

We also have an agreement with several lenders for an $820 million senior secured Term Loan, with a maturity date of February 2018. As of April 30, 2016, $769.1 million was outstanding under the Term Loan. The Term Loan allows us to request additional tranches of term loans in an aggregate amount not to exceed $200 million, subject to the satisfaction of certain conditions, provided such amount will be subject to reduction by the amount of any additional commitments incurred under the ABL Facility. The interest rate for borrowings under the Term Loan is, at the Company’s 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 April 30, 2016, the interest rate under our Term Loan was 5%.

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

The Term Loan contains covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends.

Notes

In fiscal 2010, we issued $400 million aggregate principal amount of 9.125% Notes due in December 2018. Interest on the Notes is payable semi-annually. As of April 30, 2016, the Notes payable balance outstanding was $210.6 million.

On April 26, 2016, the Company announced a cash tender offer (the “Tender Offer”) to purchase the maximum aggregate principal amount of its outstanding Notes that it can purchase for $40.0 million, excluding accrued interest. The Tender Offer expired on May 23, 2016. During the second quarter of fiscal 2016, the Company repurchased $39.6 million aggregate principal amount of Notes for $20.6 million through the Tender Offer and will recognize $18.0 million of gain on extinguishment of debt, net of a $1.0 million charge related to the write-off of deferred financing costs associated with the extinguished debt.

Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates affecting the application of those policies since our Fiscal 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 28, 2016.

Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (Non-GAAP Measure)

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

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The following table provides a reconciliation of net loss attributable to The Gymboree Corporation to Adjusted EBITDA for the periods indicated (in thousands):

 

		13 Weeks Ended April 30, 2016				13 Weeks Ended May 2, 2015
Net income (loss) attributable to The Gymboree Corporation		$	32,846			$	(23,025	)
Reconciling items (a):
Interest expense			19,807				21,076
Interest income			(3	)			(7	)
Income tax (benefit) expense			(320	)			1,305
Depreciation and amortization (b)			9,983				10,295
Non-cash share-based compensation expense			622				720
Loss on disposal/impairment on assets			370				133
Loss on contract termination (c)			5,689				—
Gain on extinguishment of debt			(48,804	)			—
Acquisition-related adjustments (d)			3,542				3,234
Other (e)			762				1,866
Adjusted EBITDA		$	24,494			$	15,597
(a)     Excludes amounts related to noncontrolling interest, which are already excluded from net income (loss) attributable to The Gymboree Corporation.
(b)     Includes the following:
Amortization of intangible assets (impacts SG&A)		$	384			$	384
Amortization of below and above market leases (impacts COGS)			(239	)			(133	)
		$	145			$	251
(c)     Incurred as a result of termination of a contract with a third-party fulfillment center for www.gymboree.com.
(d)     Includes the following:
Additional rent expense recognized due to the elimination of deferred rent and construction allowances in purchase accounting (impacts COGS)		$	1,784			$	1,886
Sponsor fees, legal and accounting, as well as other costs incurred as a result of the Acquisition or refinancing (impacts SG&A)			1,758				1,348
		$	3,542			$	3,234
Acquisition-related adjustments remove the impact of purchase accounting, as a result of the November 23, 2010 Merger (refer to Item 1A. Risk Factors of the annual report on Form 10-K for fiscal 2015).
(e)     Other is comprised of restructuring and non-recurring charges.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

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

 

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The table below summarizes the notional amounts and fair values of our forward foreign exchange contracts in U.S. dollars (in thousands except weighted-average rate data):

 

		Notional Amount				Fair Value Gain (Loss)				Weighted- Average Rate
April 30, 2016		$	2,694			$	(391	)		$	0.80
January 30, 2016		$	5,492			$	(145	)		$	0.71
May 2, 2015		$	2,343			$	(55	)		$	0.82

Interest Rate Risk

We are subject to interest rate risk in connection with our long-term debt. Our principal interest rate risk relates to the Term Loan outstanding under the Senior Credit Facilities. As of April 30, 2016, we had $769.1 million outstanding under our Senior Credit Facilities, bearing interest at variable rates. The interest rate for borrowings under the Term Loan is, at our option, a base rate plus an additional marginal rate of 2.5% or the Adjusted LIBOR rate (with a 1.5% floor) plus an additional rate of 3.5%. As of April 30, 2016, the interest rate under our Term Loan was 5.0%. A 0.125% increase in the Adjusted LIBOR rate, above the 1.5% floor, would have increased annual interest expense by approximately $1.0 million, assuming $769.1 million of indebtedness thereunder was outstanding for the whole year. The Term Loan allows us to request additional tranches of term loans in an aggregate amount not to exceed $200 million, subject to the satisfaction of certain conditions, provided that such amount will be subject to reduction by the amount of any additional commitments incurred under the ABL Facility (see Notes 5 and 6 to the condensed consolidated financial statements included elsewhere in this quarterly report). No incremental facilities are currently in effect.

In December 2010, we purchased four interest rate caps to hedge against rising interest rates associated with our senior secured term loan above the 5% strike rate of the caps through December 23, 2016, the maturity date of the caps. The notional amount of these caps is $700 million.

As of April 30, 2016, January 30, 2016 and May 2, 2015, accumulated other comprehensive loss (before income tax) included approximately $4.0 million, $4.6 million and $7.7 million, respectively, in unrealized losses related to the interest rate caps and forward foreign exchange contracts.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. Based on the Company’s evaluation, the Chief Executive Officer and the Chief Financial Officer concluded the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In addition, the Company’s Chief Executive Officer and the Chief Financial Officer concluded as of the end of the period covered by this report that the Company’s disclosure controls and procedures are also effective to ensure information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the Company’s first quarter of fiscal 2016, there was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Part II—OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

Item 1A. RISK FACTORS

There have been no material changes during the period covered by this Quarterly Report on Form 10-Q to the risk factors disclosed in Part I, Item 1A, of our 2015 Annual Report on Form 10-K.

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

Not applicable

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

Item 4. MINE SAFETY DISCLOSURES

None

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS

 

Exhibit Number		Description
10.1		Second Amendment to Amended and Restated Credit Agreement, dated April 22, 2016, among The Gymboree Corporation, Giraffe Intermediate B, Inc., the other Borrowers party thereto, the other Facility Guarantors party thereto, the Lenders party thereto, Bank of America N.A., as administrative and collateral agent, and Pathlight Capital LLC, as ABL term loan agent.
31.1		Certification of Mark Breitbard Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Andrew North Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Mark Breitbard Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Andrew North Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
101		The following materials from The Gymboree Corporation’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements.

 

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SIGNATURES

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

 

				THE GYMBOREE CORPORATION
June 13, 2016				By:		/s/    Mark Breitbard
(Date)						Mark Breitbard
						Chief Executive Officer
						(Principal Executive Officer)

 

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Exhibit Index

 

Exhibit Number		Description
10.1		Second Amendment to Amended and Restated Credit Agreement, dated April 22, 2016, among The Gymboree Corporation, Giraffe Intermediate B, Inc., the other Borrowers party thereto, the other Facility Guarantors party thereto, the Lenders party thereto, Bank of America N.A., as administrative and collateral agent, and Pathlight Capital LLC, as ABL term loan agent.
31.1		Certification of Mark Breitbard Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Andrew North Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Mark Breitbard Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Andrew North Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
101		The following materials from The Gymboree Corporation’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements.

 

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