Source: http://ir.gymboree.com/node/13481/html
Timestamp: 2019-04-18 22:39:27+00:00

Document:
As of December 9, 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.
The unaudited interim condensed consolidated financial statements, which include The Gymboree Corporation (the Company, we or us) and our 100%-owned subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. For periods presented prior to the sale of the Gymboree Play & Music business on July 15, 2016, the condensed consolidated financial statements also include Gymboree (China) Commercial and Trading Co. Ltd. (Gymboree China) and Gymboree (Tianjin) Educational Informational Consultation Co. Ltd. (Gymboree Tianjin) (collectively, the variable interest entities or VIEs) (see Note 3). Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Transition Report on Form 10-K for the 26 weeks ended July 30, 2016 filed with the Securities and Exchange Commission on October 28, 2016.
The accompanying condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present fairly our financial position, results of operations, comprehensive income (loss) and cash flows for the periods presented. The results of operations for the 13 weeks ended October 29, 2016 (first quarter of fiscal 2017) are not necessarily indicative of the operating results that may be expected for the 52-week period ending July 29, 2017 (fiscal 2017) or any future period.
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Under this ASU, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease term. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Although we have not yet determined the impact of the new standard, 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 August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, to provide guidance on principles and definitions to reduce diversity in the timing and content of disclosures when evaluating whether there is substantial doubt about an organizations ability to continue as a going concern. This ASU is effective in the annual period ending after December 15, 2016, with early adoption permitted. We have not yet determined the impact of the new standard on our condensed consolidated financial statements.
ASU No. 2014-09, Revenue from Contracts with Customers clarifies the principles of recognizing revenue and creates common revenue recognition guidance between U.S. generally accepted accounting principles and International Financial Reporting Standards. The effective date of ASU 2014-09 is for fiscal years and interim periods within those years beginning after December 15, 2017. We have not yet determined the impact of the new standard on our condensed consolidated financial statements.
On July 15, 2016, we closed a transaction to sell all of the equity and certain intellectual property attributable to Gymboree Play Programs, Inc. (Play & Music or GPPI), the Companys global Play & Music business, to Zeavion Holding Pte. Ltd. (Zeavion). Upon closing, the Company received consideration of $128.1 million, approximately $109.9 million of which is restricted under the Term Loan to reduce the Term Loan, fund capital expenditures or pay income taxes associated with the gain on the sale of GPPI. During the 13 weeks ended October 29, 2016, the Company used $10.7 million of restricted cash to fund capital expenditures and pay income taxes associated with the gain on sale of GPPI. As of October 29, 2016, the remaining balance of the restricted cash attributable to the sale of GPPI was $96.3 million.
Concurrent with the July 15, 2016 sale of GPPI, our VIEs, Gymboree Tianjin (master franchisee of Gymboree Play & Music in China) and Gymboree China (operator of Gymboree retail stores in China), indirectly controlled by Gymboree Holding, Ltd. and investment funds sponsored by Bain Capital, were also sold to Zeavion.
In accordance with ASC 205-20, Presentation - Discontinued Operations, the sale of our global Play & Music business (including GPPI and Gymboree Tianjin) was determined to represent a strategic shift to the Companys business and therefore, the financial results of GPPI and Gymboree Tianjin as of and for the 13 weeks ended October 31, 2015 have been reported as discontinued operations in the accompanying condensed consolidated financial statements. Due to its insignificance to our consolidated financial statements, Gymboree China has not been reported as discontinued operations. However, pursuant to ASC 810-10, Consolidation, we have deconsolidated Gymboree Chinas financial results as of July 15, 2016, the date of sale as we are no longer the primary beneficiary.
Gymboree Play & Music was previously reported under the Gymboree Play & Music reportable segment while Gymboree Tianjin and Gymboree China were previously reported under the VIE reportable segment in our segment footnote disclosure.
Our assets and liabilities measured at fair value on a recurring basis include money market funds (Level 1) and forward foreign exchange contracts (Level 2). The fair value of money market funds was $96.6 million and $110.3 million as of October 29, 2016 and July 30, 2016, respectively. We had no money market funds as of October 31, 2015. The fair value of the forward foreign exchange contracts was $69,000 (asset), $123,000 (liability), and $27,000 (liability) as of October 29, 2016, July 30, 2016, and October 31, 2015, respectively.
The carrying value of cash, receivables, line of credit borrowings, and payables approximate their estimated fair values due to the short maturities of these instruments.
During the 13 weeks ended October 29, 2016 and October 31, 2015, we recorded property and equipment impairment charges of $0.5 million and $0.2 million, respectively, related to assets of under-performing stores. The fair market value of these non-financial assets was determined using the income approach and Level 3 inputs, which required management to make significant estimates about future cash flows. Management estimates the amount and timing of future cash flows based on historical operating results and its experience and knowledge of the retail market in which each store operates. These impairment charges are included in selling, general and administrative (SG&A) expenses in the accompanying condensed consolidated statements of operations.
As of October 29, 2016, we did not identify impairment indicators for goodwill. In determining whether an indicator of impairment is present, we qualitatively assessed the valuation of our retail segment reporting units (Gymboree Retail, Gymboree Outlet, and Janie and Jack) and International Retail Franchise reporting unit. This qualitative assessment resulted in a determination that it was more likely than not the fair value of our reporting units exceeded their carrying amount as of October 29, 2016. If the results of our operations through the remainder of fiscal year 2017 or our forecast of future operating performance declines, there is a potential for goodwill impairment related to our Gymboree Retail reporting unit.
In addition, other significant adverse changes to our business environment or future revenues or cash flows could cause us to record additional impairment charges in future periods, which could be material. Our annual goodwill impairment test is performed at the end of our fourth fiscal period (fiscal November).
As of July 30, 2016, we performed the first step of the two-step goodwill impairment test for the Gymboree Retail, Gymboree Outlet and International Retail Franchise reporting units due to a triggering event resulting from the softening of the retail environment and performance that did not meet expectations. We concluded that goodwill impairment was not required for any of our reporting units as the fair value of each of our reporting units exceeded its carrying value by more than 40%. As of July 30, 2016, the fair value of the Gymboree Retail, Gymboree Outlet and International Retail Franchise reporting units were $594.0 million, $147.0 million and $45.0 million, respectively, which exceeded the carrying values of $414.0 million, $102.4 million and $26.2 million, respectively. There was no triggering event for the Janie and Jack reporting unit as of July 30, 2016. As of November 28, 2015, the fair value of the Janie and Jack reporting unit was $274.0 million, which exceeded its carrying value of $77.2 million.
As of October 29, 2016, we did not identify impairment indicators for indefinite-lived intangible assets (the Gymboree, Janie and Jack and Crazy 8 trade names). In determining whether an indicator of impairment is present, we qualitatively assessed whether it was more likely than not the fair value of our indefinite-lived intangible assets exceeded their carrying amount as of October 29, 2016. If the results of our operations through the remainder of fiscal year 2017 or our forecast of future operating performance declines, there is a potential for indefinite-lived intangible asset impairment.
In addition, other significant adverse changes to our business environment or future revenue or cash flows could cause us to record additional impairment charges in future periods, which could be material. Our annual indefinite-lived intangible asset impairment test is performed at the end of our fourth fiscal period (fiscal November).
As of July 30, 2016, we tested certain indefinite-lived intangible assets for impairment, specifically the Gymboree and Crazy 8 trade names, due to a triggering event resulting from the softening of the retail environment and performance that did not meet expectations. As of July 30, 2016, the estimated fair values of the Gymboree trade names were $262.1 million, which exceeded the carrying values of $240.5 million. As of July 30, 2016, the estimated fair value and carrying value of the Crazy 8 trade name was $15.9 million. As of November 28, 2015, the fair value of the Janie and Jack trade name was $61.6 million, which exceeded its carrying value of $42.2 million.
Our senior secured asset-based revolving credit facility (ABL Revolving Facility) matures on the earlier of (i) September 24, 2020 and (ii) the date that is 60 days before the scheduled final maturity date of any tranche of the Term Loan (which is currently due to mature in February 2018) or the Notes (which are currently due to mature in December 2018), unless such indebtedness is cumulatively equal to or less than $25.0 million in the aggregate and a reserve against the borrowing base is imposed equal to the amount of such indebtedness. The ABL revolving commitment will therefore mature in December 2017 unless the Term Loan and the Notes (other than an aggregate amount of Term Loans and Notes that is equal to or less than $25.0 million) are refinanced with indebtedness having a final maturity date later than February 2018.
utilization and outstanding balance of ABL Term Loan, was $114.2 million as of October 29, 2016, subject to a minimum amount of Combined Availability and Availability as defined below. Our undrawn line of credit availability, net of the minimum amount of combined availability and availability, was approximately $92.0 million as of October 29, 2016.
Line of credit borrowings under the ABL Revolving Facility bear interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the highest of (1) the prime rate of Bank of America, N.A., (2) the federal funds effective rate plus 0.50%, and (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%, or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs (Adjusted LIBOR), in each case plus an applicable margin. As of October 29, 2016, the weighted average interest rate on our line of credit borrowings outstanding under the ABL Revolving Facility was 2.8%. In addition to paying interest on outstanding line of credit borrowings under the ABL Revolving Facility, we are required to pay a commitment fee on unutilized commitments thereunder, which is between 0.250% and 0.375% per annum.
The ABL Facility contains covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. It requires the Company and its restricted subsidiaries to maintain a minimum amount of Combined Availability and Availability for as long as the ABL Term Loan remains outstanding. Combined Availability is an amount equal to (a) the ABL Term Loan borrowing base minus (b) the sum of the aggregate outstanding principal amount under the ABL Facility (including the ABL Term Loan, revolving line of credit borrowings and letter of credit utilization. Availability is equal to the lesser of (A) (I) the revolving credit ceiling (which as of October 29, 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 (A) the applicable revolving line of credit borrowing base and (B) the revolving credit ceiling. 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 October 29, 2016, we were not required to test compliance with this covenant. Failure to maintain the minimum levels of Combined Availability and Availability required by this covenant would result in an event of default under the ABL Facility.
In addition, the ABL Facility provides that if the lesser of (i) Combined Availability and (ii) Availability falls below the greater of (x) $22.5 million and (y) 12.5% of the lesser of (A) the applicable revolving line of credit borrowing base and (B) the revolving credit ceiling (the Cash Dominion Threshold) for 5 consecutive business days, the agent for the ABL lenders may, subject to certain exceptions, take control of the Companys bank accounts and apply the funds therein to pay down the Companys obligations under the ABL Facility. The Company would regain control of its bank accounts (a Cash Dominion Cure) once the lesser of (i) Combined Availability and (ii) Availability had exceeded the Cash Dominion Threshold for 30 consecutive days, provided that the ABL Facility permits no more than three Cash Dominion Cures in any rolling 365-day period.
The obligations under the ABL Facility are secured, subject to certain exceptions, by substantially all of our assets. Our 100%-owned domestic subsidiaries have fully and unconditionally guaranteed our obligations under the ABL Facility (see Note 14).
On April 22, 2016, we entered into an agreement that provides for a senior secured term loan (the ABL Term Loan and together with the ABL Revolving Facility, the ABL Facility) of $50.0 million, subject to a borrowing base, the proceeds of which may be used to finance the acquisition of working capital assets, including the purchase of inventory and equipment, in each case in the ordinary course of business, to finance capital expenditures, to finance permitted acquisitions and for general corporate purposes, including repurchases of the Notes. The maturity date of the ABL Term Loan is the same as the maturity date of the ABL Revolving Facility. The ABL Term Loan totaled $49.4 million as of October 29, 2016.
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 October 29, 2016, the interest rate under our ABL Term Loan was 11.1%.
The ABL Term Loan requires us to make quarterly payments equal to $0.6 million, with the balance due on the maturity of the ABL Term Loan, which is the same as the maturity date of the ABL revolving commitment.
The obligations under the ABL Term Loan are secured, subject to certain exceptions, by substantially all of our assets and those of our 100%-owned domestic subsidiaries. Our 100%-owned domestic subsidiaries also have fully and unconditionally guaranteed the Companys obligations under the ABL Term Loan (see Note 14).
We have an agreement with several lenders for an $820 million senior secured Term Loan, with a maturity date of February 2018. The interest rate for borrowings under the Term Loan is, at our option, a base rate plus an additional marginal rate of 2.5% or the Adjusted LIBOR rate (with a 1.5% floor) plus an additional rate of 3.5%. As of October 29, 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 for the 26-week transition period ended July 30, 2016 and concluded we are not required to make any excess cash flow payments on the Term Loan during fiscal 2017. Voluntary prepayments and the excess cash flow prepayments made in prior fiscal years were applied toward our remaining quarterly amortization payments payable under the Term Loan through fiscal 2017. Our next quarterly payment payable under the Term Loan is due in the third quarter of fiscal 2017.
The obligations under the Term Loan are secured, subject to certain exceptions, by substantially all of our assets and those of our 100%-owned domestic subsidiaries. Our 100%-owned domestic subsidiaries also have fully and unconditionally guaranteed the Companys obligations under the Term Loan (see Note 14).
In fiscal 2010, we issued $400 million aggregate principal amount of 9.125% Senior Notes due in December 2018 (the Notes). Interest on the Notes is payable semi-annually. If the Company or our subsidiaries sell certain assets, we generally must either invest the net cash proceeds from such sale in our business within a certain period of time, use the proceeds to prepay senior secured debt (see Note 3), 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.
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 14). 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.
On May 5, 2015, the Company sold its distribution center in Dixon, California for net proceeds of $25.9 million, and entered into a leaseback of the property from the purchaser for a period of 15 years.
Under the terms of the lease agreement, the Company is required to maintain a $3.5 million unconditional irrevocable letter of credit that reduces our line-of-credit borrowing base for a period of up to 10 years. Due to the Companys continuing involvement through the irrevocable letter of credit, the Company has accounted for the sale-leaseback as a financing liability. Payments made by the Company are allocated between interest expense and a reduction to the sale-leaseback financing liability.
Payments (including interest) made by the Company related to the sale-leaseback financing liability during the 13 weeks ended October 29, 2016 and October 31, 2015 totaled $0.5 million and $0.5 million, respectively. The interest portion of the payments was $0.4 and $0.4 million during the 13 weeks ended October 29, 2016 and October 31, 2015, respectively.
As of October 29, 2016, the net carrying value of the Dixon distribution center included in property and equipment on our condensed consolidated balance sheets amounted to $18.4 million.
The interest rate caps mature on December 23, 2016. The forward foreign exchange contracts mature in less than one year.
In addition to the cash flow hedges above, the Company had one forward foreign exchange contract with a notional amount of $3.5 million and $1.5 million as of October 29, 2016 and July 30, 2016, respectively, that was not designated as a hedge. There were no forward foreign exchange contracts that were not designated as hedges as of October 31, 2015.
The tables below present the effect of all of our derivative financial instruments on the condensed consolidated statements of operations and comprehensive loss (in thousands).
As of October 29, 2016, July 30, 2016, and October 31, 2015, unrecognized tax benefits were $6.1 million, $6.3 million and $7.4 million, respectively. We believe it is reasonably possible that the total amount of unrecognized tax benefits of $6.1 million as of October 29, 2016 will decrease by as much as $0.8 million during the next 12 months due to the resolution of certain tax contingencies and lapses of applicable statutes of limitation.
As of October 29, 2016, July 30, 2016, and October 31, 2015, the total valuation allowance against deferred tax assets was $30.2 million, $30.6 million, and $79.3 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. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.
There have been no significant changes to our contractual obligations and commercial commitments as disclosed in our Transition Report on Form 10-K as of July 30, 2016 (see Notes 7, 11 and 14), other than those which occur in the normal course of business, except as follows.
On December 1, 2016, the Company entered into a sublease agreement for approximately 80,000 square feet of office space in San Francisco, California. The Company expects to use the subleased premises as its new corporate headquarters. The sublease is expected to commence on or before April 1, 2017 and will expire on July 15, 2022, subject to the Companys option to extend the sublease until July 15, 2025, if it meets certain performance criteria. The total minimum base rent during the lease term, excluding the extension period of 3 years, is approximately $20.0 million. In addition, the Company has delivered a security deposit to the sublessor in the form of two letters of credit aggregating $5.7 million to guarantee payment of the Companys rent obligations and to cover payment for any damages in the event a termination fee is triggered pursuant to the sublease agreement.
We incurred approximately $0.8 million and $0.5 million in management fees and reimbursement of out-of-pocket expenses to Bain Capital Private Equity, LP (Bain Capital) during the 13 weeks ended October 29, 2016 and October 31, 2015, respectively. As of October 29, 2016, July 30, 2016 and October 31, 2015, we had a payable balance of $1.7 million, $1.6 million and $1.4 million, respectively, to Bain Capital. Management fees payable to Bain Capital as of October 29, 2016 and July 30, 2016 include approximately $1.3 million fees arising from the sale of Gymboree Play & Music on July 15, 2016 (see Note 3).
We incurred approximately $0.3 million and $0.4 million in expenses related to services purchased from LogicSource, a company owned by funds associated with Bain Capital, during the 13 weeks ended October 29, 2016 and October 31, 2015, respectively. As of October 29, 2016 and October 31, 2015, we had a payable balance of $0.1 million and $0.2 million, respectively, to LogicSource. We had no payable to LogicSource as of July 30, 2016.
As of October 29, 2016, July 30, 2016 and October 31, 2015, we had a receivable balance of $0.4 million, $0.4 million and $0.3 million, respectively, from our indirect parent, Giraffe Holding, Inc., which relates primarily to income taxes and withholding taxes.
As of October 29, 2016, our reportable segments include (1) retail stores (including online stores) and (2) International Retail Franchise (Retail Franchise). On July 15, 2016, the Company sold its Gymboree Play & Music segment and Gymboree Investment Holdings L.P. sold Gymboree Tianjin and Gymboree China, which were previously included under VIEs in our segment disclosure. The results of Gymboree Play & Music and Gymboree Tianjin are presented as discontinued operations during the 13 weeks ended October 31, 2015, while Gymboree China was deconsolidated as of July 15, 2016, the date of sale (see Note 3).
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.
(1) This includes the net retail sales for Gymboree Retail and Gymboree Outlet operating segments.
We attribute retail store revenues to individual countries based on the selling location. All sales for International Retail Franchise are attributable to the U.S. geographic segment. VIE sales are attributable to the international geographic segment.
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 VIE financial results are included in those of the non-guarantor subsidiaries. Intercompany transactions are eliminated.
This quarterly report contains forward-looking statements. You can identify forward-looking statements because they contain words such as believe, expect, may, will, should, could, seek, intend, plan, estimate, or anticipate or similar expressions. All statements we make relating to: future sales, costs and expenses and gross profit percentages; the continuation of historical trends; our ability to operate our business under our capital and operating structure; and the sufficiency of our cash balances and cash generated from operating and financing activities for future liquidity and capital resource needs are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we had expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.
Important factors that could cause actual results to differ materially from our expectations (cautionary statements) are disclosed under Item 1A, Risk Factors, in this Form 10-Q and in our Transition Report on Form 10-K for the 26 weeks ended July 30, 2016, filed with the Securities and Exchange Commission on October 28, 2016 (the Fiscal 2016 Transition Report). We encourage you to read these risk factor disclosures carefully. We caution investors not to place substantial reliance on the forward-looking statements contained in this quarterly report. These statements, like all statements in this quarterly report, speak only as of the date of this quarterly report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.
On July 15, 2016, we sold the Gymboree Play & Music business to Zeavion Holding Pte. Ltd. (Zeavion). Concurrent with the sale of Gymboree Play & Music, Gymboree Investment Holdings L.P. sold Gymboree (Tianjin) Educational Information Consultation Co. Ltd. (Gymboree Tianjin) and Gymboree (China) Commercial and Trading Co. Ltd. (Gymboree China), master franchisee of Gymboree Play & Music and operator of Gymboree retail stores in China, respectively, to Zeavion. Gymboree Chinas retail locations were closed prior to being sold to Zeavion.
The sale of Gymboree Play & Music and Gymboree Tianjin was determined to represent a strategic shift to the Companys business, and therefore, their financial results during the 13 weeks ended October 31, 2015 are presented as discontinued operations (see Note 3 to the condensed consolidated financial statements included elsewhere in this quarterly report). Gymboree China was deconsolidated as of July 15, 2016, the date of sale.
Total net sales decreased to $279.8 million during the 13 weeks ended October 29, 2016 from $295.5 million during the 13 weeks ended October 31, 2015, a decrease of 5.3% driven primarily by a decrease in retail sales of $13.4 million, primarily attributable to our Gymboree brand, and a decrease in our retail franchise sales of $2.4 million, primarily due to lower sales to our franchisee in the Middle East region.
Our loss from continuing operations, net of tax, decreased to $10.9 million during the 13 weeks ended October 29, 2016 from $13.0 million during the 13 weeks ended October 31, 2015. Our Adjusted EBITDA from continuing operations (see Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) (Non-GAAP Measure) below) decreased to $17.8 million during the 13 weeks ended October 29, 2016 from $26.5 million during the 13 weeks ended October 31, 2015, a decrease of $8.7 million or 32.7%, primarily due to a 5% decrease in comparable store sales.
The following table summarizes store openings and closures by brand and country during the 13 weeks ended October 29, 2016. Note that (i) all Crazy 8 stores are in the United States and (ii) retail stores operated by overseas franchisees are excluded.
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 first half of the fiscal year and lower sales during the second half of the fiscal year. Consequently, the results for any fiscal quarter are not necessarily indicative of results for the full year.
Condensed consolidated statements of operations data as a percentage of total net sales during the 13 weeks ended October 29, 2016 and October 31, 2015 are presented below (amounts in thousands). The condensed consolidated statement of operations during the 13 weeks ended October 31, 2015 was revised to present the results of Gymboree Play & Music and Gymboree Tianjin as discontinued operations.
Total net sales during the 13 weeks ended October 29, 2016 decreased to $279.8 million from $295.5 million during the 13 weeks ended October 31, 2015, a decrease of $15.7 million or 5.3%.
Net retail sales during the 13 weeks ended October 29, 2016 decreased to $276.3 million from $289.7 million during the 13 weeks ended October 31, 2015, a decrease of $13.4 million, or 4.6%, primarily due to a decrease in comparable store sales (including online sales) of 5% and net store closures. Comparable store sales (excluding online sales) decreased by 6% during the 13 weeks ended October 29, 2016 compared to the 13 weeks ended October 31, 2015. The 5% decrease in comparable store sales (including online sales) was primarily attributable to our Gymboree brand followed by our Crazy 8 brand, offset by an increase in comparable stores sales by our Janie and Jack brand. We believe that the decrease in sales of our Gymboree and Crazy 8 brands was driven primarily by softer traffic trends. We believe that the increase in sales of our Janie and Jack brand was driven primarily by stronger web performance. Total net stores decreased to 1,300 as of October 29, 2016 from 1,315 as of October 31, 2015. Total square footage was approximately 2.7 million square feet as of October 29, 2016 and October 31, 2015.
Retail franchise net sales during the 13 weeks ended October 29, 2016 decreased to $3.5 million from $5.9 million during the 13 weeks ended October 31, 2015, a decrease of $2.4 million or 40.1%, primarily due to lower sales to our franchisee in the Middle East region. As of October 29, 2016, our overseas franchisees operated 53 stores compared to 90 stores (including 32 in China) as of October 31, 2015.
Gross profit during the 13 weeks ended October 29, 2016 decreased to $107.0 million from $114.9 million during the 13 weeks ended October 31, 2015, primarily driven by a decrease in comparable store sales. As a percentage of net sales, gross profit during the 13 weeks ended October 29, 2016 decreased by 70 basis points to 38.2% from 38.9% during the 13 weeks ended October 31, 2015. The 70 basis point decrease was driven primarily by higher cost of goods sold (COGS) as a percentage of sales due to the mix of inventory sold, combined with higher buying and occupancy costs as a percentage of sales. 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 $10.8 million and $11.3 million during the 13 weeks ended October 29, 2016 and October 31, 2015, respectively.
SG&A principally consists of non-occupancy store expenses, corporate overhead, and certain distribution expenses. SG&A increased to $105.2 million during the 13 weeks ended October 29, 2016 compared to $105.0 million during the 13 weeks ended October 31, 2015. As a percentage of net sales, SG&A expenses increased 210 basis points to 37.6% for the 13 weeks ended October 29, 2016 from 35.5% during the 13 weeks ended October 31, 2015 primarily due to a deleveraging of expenses on lower sales, partially offset by lower marketing expenses as a percentage of sales.
Interest expense decreased to $19.9 million during the 13 weeks ended October 29, 2016 compared to $21.9 million for the 13 weeks ended October 31, 2015. The net decrease of $2.0 million was primarily related to the decrease in our Notes due to repurchases during the first half of fiscal 2016 and the fourth quarter of fiscal 2015, offset by amortization of our interest rate caps and an increase in ABL borrowings.
The effective tax rate during the 13 weeks ended October 29, 2016 and October 31, 2015 2015 was 39.3% (benefit) and 6.9% (expense), respectively. The change in effective tax rate resulted from our ability to benefit the current quarters loss against the income tax payable established in fiscal 2016.
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 Note 6 to the condensed consolidated financial statements included elsewhere in this quarterly report). We had cash and cash equivalents of $9.7 million, $12.6 million, and $17.3 million as of October 29, 2016, July 30, 2016 and October 31, 2015, respectively.
Net working capital as of October 29, 2016, July 30, 2016, October 31, 2015 totaled $2.9 million, $4.4 million and $30.8 million, respectively. Net working capital as of October 29, 2016 includes $27.5 million of restricted cash which is expected to be used to pay estimated income taxes associated with the gain on the sale of the Gymboree Play & Music business included in accrued and other current liabilities. Our operations are seasonal in nature, with sales from retail operations peaking during the quarter ending in January, primarily during the holiday season in November and December.
Approximately $109.9 million of the net proceeds received from the July 15, 2016 sale of Gymboree Play & Music are restricted to reduce the Term Loan, fund capital expenditures or investments in other assets with respect to which the Term Loan lenders would have a first priority security interest or pay income taxes associated with the gain on the sale of GPPI (see Note 3 to the condensed consolidated financial statements included elsewhere in this quarterly report). During the 13 weeks ended October 29, 2016, the Company used $10.7 million of restricted cash to fund capital expenditures and pay income taxes associated with the gain of GPPI. As of October 29, 2016, the Company had a restricted cash balance remaining of $96.3 million.
We and our subsidiaries, 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.
$171.0 million of Senior Notes due in December 2018), 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 Senior Notes, incurring additional indebtedness, 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.
Net cash used in operating activities during the 13 weeks ended October 29, 2016 was $45.5 million compared to net cash provided by operating activities of $25.6 million during the 13 weeks ended October 31, 2015.
The change in cash flows from operating activities during the 13 weeks ended October 29, 2016 was primarily due to a $7.3 million decrease in merchandise inventories due to timing of purchases, and a $13.1 million decrease in prepaid expenses and other assets and a $40.4 million decrease in accounts payable, accrued and other current liabilities due to timing of payments.
Net cash provided by investing activities during the 13 weeks ended October 29, 2016 was $5.2 million compared to net cash used in investing activities of $3.2 million during the 13 weeks ended October 31, 2015.
The net change during the 13 weeks ended October 29, 2016 was primarily due to a decrease in restricted cash by $10.7 million, offset by capital expenditures which increased to $5.5 million compared to $5.1 million during the 13 weeks ended October 31, 2015.
Net cash provided by financing activities during the 13 weeks ended October 29, 2016 was $37.3 million compared to net cash used in financing activities of $21.6 million during the 13 weeks ended October 31, 2015.
The net change during the 13 weeks ended October 29, 2016 was primarily due to increase in line of credit borrowings.
The ABL Revolving Facility provides for financing of up to $225 million in a revolving line of credit. Line of credit availability under the ABL Revolving Facility is subject to a borrowing base consisting of certain assets of the Company, any subsidiary co-borrowers and any subsidiary guarantors that are available to collateralize the borrowings thereunder, and is reduced by the level of outstanding letters of credit and the outstanding amount of the ABL Term Loan. The line of credit available under the ABL Revolving Facility was reduced by letter of credit utilization totaling $30.8 million as of October 29, 2016. Undrawn line of credit availability under the ABL Revolving Facility, after being reduced by outstanding line of credit borrowings, letter of credit utilization and outstanding balance of ABL Term Loan, was $114.2 million as of October 29, 2016, subject to a minimum amount of combined availability and availability. Our undrawn line of credit availability, net of the minimum amount of combined availability and availability, was approximately $92.0 million as of October 29, 2016. We anticipate utilizing our line of credit under the ABL Revolving Facility throughout the course of fiscal 2017 to support seasonal working capital needs.
The ABL Facility contains covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. It requires the Company and its restricted subsidiaries to maintain a minimum amount of Combined Availability and Availability for as long as the ABL Term Loan remains outstanding. Combined Availability is 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 October 29, 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 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 October 29, 2016, we were not required to test compliance with this covenant. 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. Apart from the new availability covenant and the change to the financial covenant described above, the other material affirmative and negative covenants and events of default under the ABL Facility were substantially unchanged by the Second Amendment. Failure to maintain the minimum levels of Combined Availability and Availability required by this covenant would result in an event of default under the ABL Facility.
The 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.
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.
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 October 29, 2016, $769.1 million was outstanding under the Term Loan. 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 October 29, 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 the 26-week transition period ended July 30, 2016 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 2017. Our next quarterly payment payable under the Term Loan is due in the third quarter of fiscal 2017.
The obligations under the Term Loan are secured, subject to certain exceptions, by substantially all of our assets and those of our 100%-owned domestic subsidiaries. Our 100%-owned domestic subsidiaries also have fully and unconditionally guaranteed the Companys obligations under the Term Loan.
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 October 29, 2016, the Notes payable balance outstanding was $171.0 million (see Note 6 to the condensed consolidated financial statements included elsewhere in this quarterly report).
There have been no material changes to our critical accounting policies and estimates affecting the application of those policies since our Fiscal 2016 Transition Report on Form 10-K filed with the Securities and Exchange Commission on October 28, 2016.
(a) Excludes amounts related to noncontrolling interest, which are already excluded from net loss from continuing operations attributable to The Gymboree Corporation.
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 Transition Report on Form 10-K for the 26 weeks ended July 30, 2016).
(d) Other is comprised of restructuring and non-recurring charges.
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.
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 October 29, 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 October 29, 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 Note 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 October 29, 2016, July 30, 2016 and October 31, 2015, accumulated other comprehensive loss (before income tax) included approximately $0.7 million, $2.5 million and $5.7 million, respectively, in unrealized losses related to the interest rate caps and forward foreign exchange contracts.
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.
During the Companys first quarter of fiscal 2017, 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.
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.
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 2016 Transition Report on Form 10-K filed with the Securities and Exchange Commission on October 28, 2016.
Certification of Mark Breitbard Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
Certification of Andrew North Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
Certification of Mark Breitbard Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
Certification of Andrew North Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
The following materials from The Gymboree Corporations Quarterly Report on Form 10-Q for the 13 weeks ended October 29, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Loss, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements.
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

References: §302
 §302
 §1350
 §906
 §1350
 §906