TheTable 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). Contents

TheTable 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. Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~October 29~~January 28, ~~2016~~2017

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

For the transition period from to

Commission file number 000-21250

THE GYMBOREE CORPORATION

(Exact name of registrant as specified in its charter)


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

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

(415) 278-7000

(Registrant’s telephone number, including area code)

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

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

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

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

As of ~~December~~March 914, ~~2016~~2017, the registrant had 1,000 shares of common stock outstanding, par value $0.001 per share, all of which are owned by Giraffe Holding, Inc., the registrant’s indirect parent holding company, and are not publicly traded.

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

THE GYMBOREE CORPORATION

TABLE OF CONTENTS

Part I—FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Loss	4
	Condensed Consolidated 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	2732
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3444
Item 4.	Controls and Procedures	3544
Part II—OTHER INFORMATION		3645
Item 1.	Legal Proceedings	3645
Item 1A.	Risk Factors	3645
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3646
Item 3.	Defaults Upon Senior Securities	3646
Item 4.	Mine Safety Disclosures	3646
Item 5.	Other Information	3646
Item 6.	Exhibits	3646
	Signatures	3747

Part I—FINANCIAL INFORMATION

Item 1.

Financial Statements

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

	13 Weeks Ended						26 Weeks Ended
	October 29, 2016			October 31, 2015
	January 28, 2017			January 30, 2016			January 28, 2017			January 30, 2016
Net sales:
Retail	$	~~276~~352,~~310~~898		$	~~289~~376,~~653~~230		$	629,208		$	665,883
Retail Franchise		3,517			5,867
Retail franchise		3,936			5,170			7,453			11,037
Total net sales		~~279~~356,~~827~~834			~~295~~381,~~520~~400			636,661			676,920
Cost of goods sold, including buying and occupancy expenses		(~~172~~240,~~822)~~423	)		(~~180~~232,~~613)~~576	)		(413,245	)		(413,189	)
Gross profit		~~107~~116,~~005~~411			~~114~~148,~~907~~824			223,416			263,731
Selling, general and administrative expenses		(~~105~~106,~~154)~~210	)		(~~105~~122,~~027)~~393	)		(211,364	)		(227,420	)
Operating income		1,851			9,880
Goodwill and intangible asset impairment		(368,069	)		—			(368,069	)		—
Interest expense		(19,932)			(21,906)
Operating (loss) income		(357,868	)		26,431			(356,017	)		36,311
Other income (expense), net		135			(149)
Interest expense		(19,433	)		(21,377	)		(39,365	)		(43,283	)
Loss from continuing operations before taxes		(17,946)			(12,175)
Gain on extinguishment of debt		—			41,522			—			41,522
Income tax benefit (expense)		7,054			(835)
Other income (expense), net		81			(459	)		216			(608	)
Loss from continuing operations, net of tax		(10,892)			(13,010)
(Loss) income from continuing operations before taxes		(377,220	)		46,117			(395,166	)		33,942
Income from discontinued operations, net of tax		-			3,358
Income tax benefit (expense)		52,285			(184	)		59,339			(1,019	)
Net loss		(10,892)			(9,652)
(Loss) income from continuing operations, net of tax		(324,935	)		45,933			(335,827	)		32,923
Net income attributable to noncontrolling interest		-			(376)
Income from discontinued operations, net of tax		—			2,829			—			6,187
Net loss attributable to The Gymboree Corporation	$	(10,892)		$	(10,028)
Net (loss) income		(324,935	)		48,762			(335,827	)		39,110
Net loss attributable to noncontrolling interest		—			677			—			301
Net (loss) income attributable to The Gymboree Corporation	$	(324,935	)	$	49,439		$	(335,827	)	$	39,411

See notes to condensed consolidated financial statements.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	13 Weeks Ended						26 Weeks Ended
	October 29, 2016			October 31, 2015
	January 28, 2017			January 30, 2016			January 28, 2017			January 30, 2016
Net loss	$	(10,892)		$	(9,652)
Net (loss) income	$	(324,935	)	$	48,762		$	(335,827	)	$	39,110
Other comprehensive loss (income):
Other comprehensive (loss) income:
Foreign currency translation adjustments, net of tax		(374)			(242)
Foreign currency translation adjustments		(68	)		(1,914	)		(442	)		(2,156	)
Unrealized net gain on cash flow hedges, net of tax		1,094			610
Unrealized net (loss) gain on cash flow hedges, net of tax		(1,569	)		1,029			(475	)		1,639
Total other comprehensive income, net of tax		720			368
Total other comprehensive loss		(1,637	)		(885	)		(917	)		(517	)
Comprehensive loss		(10,172)			(9,284)
Comprehensive (loss) income		(326,572	)		47,877			(336,744	)		38,593
Comprehensive income attributable to noncontrolling interest		-			(179)
Comprehensive loss attributable to noncontrolling interest		—			1,158			—			979
Comprehensive loss attributable to The Gymboree Corporation	$	(10,172)		$	(9,463)
Comprehensive (loss) income attributable to The Gymboree Corporation	$	(326,572	)	$	49,035		$	(336,744	)	$	39,572

See notes to condensed consolidated financial statements.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

	October 29,			July 30,			October 31,
	January 28, 2017			July 30, 2016			January 30, 2016
	2016			2016			2015
ASSETS
Current assets:
Cash and cash equivalents	$	922,~~720~~119		$	12,636		$	179,~~260~~774
Restricted cash		2724,~~524~~018			33,505			-—
Accounts receivable, net of allowance of $0, $270 and $100		15,138			12,290			16,782
Accounts receivable, net of allowance of $380, $270 and $331		14,899			12,290			21,107
Merchandise inventories		~~263~~210,~~127~~895			232,959			~~261~~202,~~550~~832
Prepaid income taxes		2,062			2,046			2,~~577~~196
Prepaid expenses		5,~~784~~510			4,917			6,~~546~~336
Deferred income taxes		-			-			5,941
Current assets of discontinued operations		—			—			18,210
Current assets of discontinued operations		-			-			18,549
Total current assets		279,503			298,353			260,455
Total current assets		323,355			298,353			329,205
Property and equipment, net		134,038			143,751			155,550
Property and equipment, net		139,316			143,751			163,694
Goodwill		123,140			357,041			356,348
Goodwill		356,781			357,041			357,019
Other intangible assets, net		164,874			300,073			303,608
Other intangible assets, net		299,603			300,073			304,146
Restricted cash		49,015			73,566			—
Restricted cash		68,804			73,566			4,535
Other assets		4,928			5,728			6,170
Other assets		5,263			5,728			6,611
Other assets of discontinued operations		—			—			58,345
Other assets of discontinued operations		-			-			57,409
Total assets	$	755,498		$	1,178,512		$	1,140,476
Total assets	$	1,193,122		$	1,178,512		$	1,222,619
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	~~130~~117,~~575~~352		$	134,498		$	~~131~~107,~~020~~866
Accrued and other current liabilities		~~102~~80,~~346~~740			111,909			~~105~~90,~~106~~281
Line of credit borrowings		8054,000			42,000			5019,000
Current portion of long-term debt		7,577			5,527			-
Current portion of long-term debt, net		53,111			5,527			—
Current obligation under capital lease		-—			-—			~~591~~605
Current liabilities of discontinued operations		-—			-—			1113,~~683~~300
Total current liabilities		~~320~~305,~~498~~203			293,934			~~298~~231,~~400~~052
Long-term liabilities:
Long-term debt, net		~~970~~925,~~154~~928			970,902			1,~~095~~040,~~760~~506
Long-term sale-leaseback financing liability, net		25,~~467~~426			25,508			25,~~610~~578
Long-term obligation under capital lease		-—			-—			2,~~402~~245
Lease incentives and other liabilities		4241,~~869~~252			44,167			5049,~~664~~355
Unrecognized tax benefits		6,~~408~~397			6,475			65,~~114~~075
Deferred income taxes		~~110~~60,~~795~~440			110,799			~~129~~124,~~383~~243
Long-term liabilities of discontinued operations		-—			-—			~~753~~310
Total liabilities		1,~~476~~364,~~191~~646			1,451,785			1,~~609~~478,~~086~~364
Commitments and contingencies
Stockholders’ deficit:
Common stock, including additional paid-in capital ($0.001 par value:
Common stock, including additional paid-in capital ($0.001 par value: 1,000 shares authorized, issued and outstanding)		527,871			527,002			525,759
1,000 shares authorized, issued and outstanding)		527,378			527,002			525,057
Accumulated deficit		(1,128,678	)		(792,851	)		(863,539	)
Accumulated deficit		(803,743)			(792,851)			(912,978)
Accumulated other comprehensive loss		(8,341	)		(7,424	)		(10,822	)
Accumulated other comprehensive loss		(6,704)			(7,424)			(10,418)
Total stockholders’ deficit		(609,148	)		(273,273	)		(348,602	)
Total stockholders’ deficit		(283,069)			(273,273)			(398,339)
Noncontrolling interest		—			—			10,714
Noncontrolling interest		-			-			11,872
Total deficit		(609,148	)		(273,273	)		(337,888	)
Total deficit		(283,069)			(273,273)			(386,467)
Total liabilities and stockholders’ deficit	$	755,498		$	1,178,512		$	1,140,476
Total liabilities and stockholders’ deficit	$	1,193,122		$	1,178,512		$	1,222,619

See notes to condensed consolidated financial statements.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	13 Weeks Ended
	26 Weeks Ended
	October 29, 2016			October 31, 2015
	January 28, 2017			January 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(10,892)		$	(9,652)
Net (loss) income	$	(335,827	)	$	39,110
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		9,394			9,972
Goodwill and intangible asset impairment		368,069			—
Amortization of deferred financing costs and accretion of original issue discount		2,309			2,190
Depreciation and amortization		18,698			20,459
Interest rate cap contracts - adjustment to market		753			1,044
Gain on extinguishment of debt		—			(41,522	)
Loss on disposal/impairment of assets		643			531
Inventory write-down		12,999			448
Deferred income taxes		(137)			(34)
Amortization of deferred financing costs and accretion of original issue discount		4,623			4,164
Share-based compensation expense		376			813
Non-cash interest expense		2,210			2,168
Other		-			(358)
Loss on disposal/impairment of assets		2,931			3,720
Deferred income taxes		(53,673	)		(1,204	)
Share-based compensation expense		869			1,515
Other		(266	)		549
Change in assets and liabilities:
Accounts receivable		(2,~~869)~~614	)		~~3,839~~(604	)
Merchandise inventories		~~(29~~9,~~950)~~314			~~(22~~35,~~632)~~314
Prepaid income taxes		(16)	)		32425
Prepaid expenses and other assets		(~~643)~~230	)		12,~~454~~935
Accounts payable		(317,~~919)~~145	)		8(14,~~515~~764	)
Accrued and other current liabilities		(930,~~661)~~785	)		189,~~321~~509
Lease incentives and other liabilities		(~~914)~~2,291	)		~~593~~(1,116	)
Net cash (used in) provided by operating activities		(4523,~~526)~~134	)		2571,~~628~~106
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(512,~~495)~~139	)		(513,~~070)~~907	)
Decrease in restricted cash		1034,~~743~~038			38,~~622~~157
Increase in related party loan receivable		-—			(1,741)	)
Other		-—			~~(7)~~161
Net cash provided by (used in) investing activities		521,~~248~~899			(37,~~196)~~330	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from ABL facility		~~169~~319,000			~~107~~187,000
Payments on ABL facility		(~~131~~307,000)	)		(~~127~~238,000)	)
Payments on ABL term loan		(~~625)~~1,250	)		-—
Payments for deferred financing costs		-			(1,452)
Repurchase of notes		—			(15,325	)
Payments on capital lease and sale-leaseback financing liability		(54)			(185)
Payments for deferred financing costs		—			(1,452	)
Net cash provided by (used in) financing activities		37,321			(21,637)
Payments on capital lease and sale-leaseback financing liability		(109	)		(374	)
Effect of exchange rate fluctuations on cash and cash equivalents		41			(15)
Net cash provided by (used in) financing activities		10,641			(68,151	)
Net (decrease) increase in cash and cash equivalents		(2,916)			780
Effect of exchange rate fluctuations on cash and cash equivalents		77			(958	)
Cash and cash equivalents, beginning of period		12,636			23,497
Net increase (decrease) in cash and cash equivalents		9,483			(5,333	)
Cash and cash equivalents, end of period		9,720			24,277
CASH AND CASH EQUIVALENTS:
Less - cash and cash equivalents of discontinued operations, end of period		-			7,017
Beginning of period		12,636			23,497
Cash and cash equivalents of continuing operations, end of period	$	9,720		$	17,260
End of period		22,119			18,164
Less - cash and cash equivalents of discontinued operations, end of period		—			(8,390	)
Cash and cash equivalents of continuing operations, end of period	$	22,119		$	9,774
OTHER CASH FLOW INFORMATION:
Cash paid for income taxes, net	$	59,~~922~~614		$	~~645~~1,478
Cash paid for interest	$	1232,~~441~~662		$	1137,~~197~~701

See notes to condensed consolidated financial statements.

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The unaudited interim condensed consolidated financial statements, which include The Gymboree Corporation (the “Company,” “we” or “us”) and our 100%-owned subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. For periods presented prior to the sale of the Gymboree Play & Music business on July 15, 2016, the condensed consolidated financial statements also include Gymboree (China) Commercial and Trading Co. Ltd. (“Gymboree China”) and Gymboree (Tianjin) Educational Informational Consultation Co. Ltd. (“Gymboree Tianjin”) (collectively, the variable interest ~~entities~~entity or “VIEs”) (see Note 34). Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Transition Report on Form 10-K for the 26 weeks ended July 30, 2016 filed with the Securities and Exchange Commission on October 28, 2016.

The accompanying condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present fairly our financial position, results of operations, comprehensive income (loss) and cash flows for the periods presented (see Note 7 to the condensed consolidated financial statements for goodwill and intangible asset impairment). The results of operations for the 13 weeks ~~ended October 29, 2016~~ (“~~first~~second quarter of fiscal 2017”) and 26 weeks ended January 28, 2017 are not necessarily indicative of the operating results that may be expected for the 52-week period ending July 29, 2017 (“fiscal 2017”) or any future period.

2. ~~Recently~~Going ~~Issued~~Concern Uncertainty ~~Accounting Standards~~

InThe ~~February~~Company ~~2016,~~had ~~the~~a ~~Financial~~loss ~~Accounting~~from ~~Standards~~continuing ~~Board~~operations ~~(“FASB”)~~of ~~issued Accounting Standards Update (“ASU”) No~~$324.9 ~~2016-02,~~million ~~Leases~~and ~~(Topic 842)~~$335.8 million ~~Under this ASU, lessees will be required to recognize~~ during the ~~following~~13 ~~for~~weeks ~~all~~and ~~leases~~26 ~~(with~~weeks ~~the~~ended ~~exception of short-term leases) at the commencement date: (i)~~January a28, ~~lease liability~~2017, ~~which~~respectively. isAccumulated ~~a lessee’s~~deficit ~~obligation~~increased to ~~make lease payments arising from a lease, measured on a discounted basis; and (ii)~~$1.1 abillion ~~right-~~as of~~-use~~ ~~asset~~January 28, ~~which~~2017. isThe ~~an asset that represents the lessee~~Company’s ~~right~~net tocash ~~use,~~used orin ~~control~~operating ~~the~~activities ~~use~~was ~~of,~~$23.1 amillion ~~specified~~during ~~asset for~~ the ~~lease~~26 ~~term.~~weeks ~~This ASU is effective for fiscal years beginning after December~~ended January 1528, ~~2018, including interim periods within those fiscal years~~2017. ~~Early~~As ~~adoption is permitted. Although we have not yet determined the impact~~ of ~~the~~January 28, ~~new standard~~2017, ~~we believe~~cash ~~this~~and ~~ASU~~cash ~~will~~equivalents ~~have~~was a$22.1 million ~~significant~~and ~~impact~~restricted oncash ~~our~~was ~~condensed consolidated financial statements due to the substantial number of leases that we have~~$73.0 million.

~~Effective~~As ~~during the first quarter~~ of ~~fiscal 2016~~January 28, ~~we adopted ASU No. 2015-03~~2017, ~~Interest-Imputation of Interest (Subtopic 835-30): Simplifying~~ the ~~Presentation~~Company ofhad ~~Debt Issuance Costs and applied~~ the ~~provisions~~following ~~retrospectively~~indebtedness tototaling ~~all prior periods~~$1.043 billion Asin aprincipal ~~result of this adoption, the unamortized debt issuance costs associated with our long-term debt and long-term~~amounts ~~sale-leaseback financing liability are presented as an offset against the long-term debt and long-term sale-leaseback financing liability~~outstanding, ~~while the unamortized debt issuance costs associated with our line~~ of ~~credit~~which ~~under our ABL Revolving Facility are included in other assets in the accompanying condensed consolidated balance sheets~~$871.9 million ~~Below~~ is adue ~~summary~~within of12 ~~the~~months ~~changes~~from ~~made~~March 14, in2017 (the ~~accompanying~~date ~~condensed~~of ~~consolidated~~filing ~~balance~~this ~~sheets as of October~~Form ~~31,~~10-Q) ~~2015~~ (insee ~~thousands~~Note 8):

	October 31, 2015
	As Reported		Reclassification		As Restated
ASSETS:
Deferred financing costs	$	22,489	$	(22,489)	$	-
Total assets	$	1,241,999	$	(19,380)	$	1,222,619
LIABILITIES AND STOCKHOLDERS’ DEFICIT:
Long-term debt, net	$	1,114,288	$	(18,528)	$	1,095,760
Long-term sale-leaseback financing liability, net	$	26,462	$	(852)	$	25,610
Total liabilities	$	1,628,466	$	(19,380)	$	1,609,086
Total liabilities and stockholders’ deficit	$	1,241,999	$	(19,380)	$	1,222,619

•

Current liabilities

In• ~~August 2014, the FASB issued ASU No~~$54. ~~2014-15,~~0 ~~Presentation~~million of ~~Financial Statements—Going~~borrowings ~~Concern~~from ~~(Subtopic~~ABL ~~205-40):~~line ~~Disclosure~~ of ~~Uncertainties~~credit ~~about an Entity’s Ability to Continue as a Going Concern~~facility, todue ~~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.~~ 2017

•

$48.8 million of ABL Term loan, due in December 2017

•

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

•

Long-term liabilities

•

$762.6 million of Term loan, due in February 2018

•

$171.0 million of Senior Notes, due in December 2018

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

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

~~ASU~~As ~~No. 2014-09~~a result, ~~Revenue~~the ~~from~~Company ~~Contracts~~is ~~with~~in ~~Customers~~discussions ~~clarifies~~with ~~the principles~~a number of ~~recognizing~~lenders ~~revenue~~ and bondholders ~~creates~~to ~~common~~attempt ~~revenue~~to ~~recognition~~comprehensively ~~guidance~~restructure ~~between~~or ~~U.S.~~refinance ~~generally~~our ~~accepted~~outstanding ~~accounting~~debt ~~principles and International Financial Reporting Standards~~obligations. ~~The~~While ~~effective~~the ~~date~~Company ofhas ~~ASU~~retained ~~2014-09~~advisors isto ~~for~~assist ~~fiscal~~it ~~years~~with ~~and interim~~this ~~periods~~process, ~~within~~no ~~those~~agreements ~~years~~with ~~beginning~~lenders ~~after~~and ~~December 15,~~bondholders ~~2017. We~~ have ~~not~~been ~~yet~~made ~~determined~~and ~~the~~such discussions ~~impact~~may ofnot ~~the~~lead ~~new~~to ~~standard~~a ~~on our condensed consolidated financial statements~~transaction.

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

~~On July 15, 2016, we closed a transaction to sell all of the equity and certain intellectual property attributable to Gymboree Play Programs, Inc~~3. ~~(“Play &~~Recently ~~Music”~~Issued ~~or “GPPI”), the Company’s global Play & Music business, to Zeavion Holding Pte. Ltd. (“Zeavion”). Upon closing, the Company received consideration of~~Accounting ~~$128.1~~Standards 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~~In ~~with~~January 2017, the ~~July 15~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No: 2017-04, ~~2016~~Intangibles ~~sale~~– ofGoodwill ~~GPPI~~and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. Under this ASU, ~~our~~step 2 ~~VIEs~~of the goodwill impairment test will be removed. The same one-step impairment test will be applied to goodwill at all reporting units, ~~Gymboree~~but ~~Tianjin~~an ~~(master~~impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting ~~franchisee~~unit’s offair ~~Gymboree~~value. ~~Play &~~In ~~Music~~addition, inincome ~~China)~~tax ~~and~~effects ~~Gymboree~~from ~~China~~any ~~(operator~~tax ofdeductible ~~Gymboree~~goodwill ~~retail~~shall ~~stores~~also be considered in ~~China)~~measuring goodwill impairment loss, ~~indirectly~~if ~~controlled~~applicable. byThis ~~Gymboree~~ASU ~~Holding~~is effective for fiscal years beginning after December 15, ~~Ltd~~2019, including interim periods within those fiscal years. ~~and~~Early ~~investment~~adoption ~~funds~~is ~~sponsored~~permitted byfor ~~Bain~~interim ~~Capital~~or annual goodwill impairment tests performed on testing dates after January 1, ~~were~~2017. ~~also~~We ~~sold~~have tonot ~~Zeavion~~yet determined the impact of the new standard on our condensed consolidated financial statements.

In ~~accordance~~November ~~with ASC 205-20~~2016, ~~Presentation~~the -FASB ~~Discontinued~~issued ~~Operations~~ASU 2016-18, ~~the~~Statement ~~sale~~ of ~~our~~Cash ~~global~~Flows ~~Play & Music business~~ (~~including~~Topic ~~GPPI~~230): ~~and~~Restricted ~~Gymboree~~Cash. ~~Tianjin)~~This ~~was~~ASU ~~determined~~requires torestricted ~~represent~~cash aand ~~strategic~~restricted ~~shift~~cash equivalents to ~~the~~be ~~Company’s~~included ~~business~~with cash and ~~therefore,~~cash ~~the~~equivalents ~~financial~~when ~~results~~reconciling ofthe ~~GPPI~~total beginning and ~~Gymboree~~ending ~~Tianjin~~amounts ason the statement of ~~and~~cash ~~for~~flows. ~~the~~This 13ASU ~~weeks~~also ~~ended~~requires ~~October 31,~~reporting ~~2015~~of ~~have been~~cash ~~reported~~and asrestricted ~~discontinued~~cash ~~operations~~separately inon the ~~accompanying~~balance ~~condensed~~sheet ~~consolidated~~to ~~financial~~reconcile ~~statements.~~those ~~Due~~amounts to ~~its~~the ~~insignificance~~statement toof ~~our~~cash ~~consolidated~~flows. ~~financial~~This ~~statements,~~ASU ~~Gymboree~~is ~~China~~effective ~~has~~for ~~not~~fiscal years ~~been~~beginning ~~reported~~after asDecember 15, ~~discontinued operations. However~~2017, ~~pursuant~~ toincluding ~~ASC~~interim ~~810-10,~~periods ~~Consolidation,~~within wethose ~~have~~fiscal ~~deconsolidated~~years. ~~Gymboree~~Early ~~China’s~~adoption ~~financial~~is ~~results~~permitted. asWe ofdo ~~July 15,~~not ~~2016,~~believe the ~~date~~adoption of ~~sale~~this asASU wewill ~~are~~have noa ~~longer~~significant ~~the~~impact ~~primary~~to ~~beneficiary~~our condensed consolidated financial statements.

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

Below is the composition of income from discontinued operations during the 13 weeks ended October 31, 2015 (in thousands):

Net sales	$	9,921
Cost of goods sold, including occupancy expenses		(2,047)
Selling, general and administrative expenses		(3,539)
Other expense, net		17
Income from discontinued operations, before tax		4,352
Income tax expense		(994)
Income from discontinued operations, net of tax		3,358
Income from discontinued operations attributable to noncontrolling interest		(1,833)
Income from discontinued operations attributable to The Gymboree Corporation	$	1,525

Income from discontinued operations, before tax during the 13 weeks ended October 31, 2015 consists of (in thousands):

Income from discontinued operations attributable to The Gymboree Corporation, before tax	$	1,641
Income from discontinued operations attributable to noncontrolling interest, before tax		2,711
Total income from discontinued operations, before tax	$	4,352

Effective during the first quarter of fiscal 2016, we adopted ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs and applied the provisions retrospectively to all prior periods. As a result of this adoption, the unamortized debt issuance costs associated with our long-term debt and long-term sale-leaseback financing liability are presented as an offset against the long-term debt and long-term sale-leaseback financing liability, while the unamortized debt issuance costs associated with our line of credit under our ABL Revolving Facility are included in other assets in the accompanying condensed consolidated balance sheets. Below is a summary of the changes ~~assets~~made ~~and~~in ~~liabilities~~the ofaccompanying ~~discontinued~~condensed ~~operations~~consolidated balance sheets as of ~~October~~ January 3130, ~~2015~~2016 (in thousands):

ASSETS:
	As Reported		Reclassification			Other Assets ofDiscontinuedOperations			As Restated
Cash and cash equivalents	$	7,017
ASSETS:
Accounts receivable, net		5,705
Deferred financing costs	$	19,019	$	(19,019	)	$	—		$	—
Merchandise inventories		3,859
Other assets	$	5,044	$	2,751		$	(1,625	)	$	6,170
Other current assets		1,968
Total assets	$	1,156,744	$	(16,268	)	$	—		$	1,140,476
Total current assets of discontinued operations		18,549
LIABILITIES AND STOCKHOLDERS’ DEFICIT:
Net property and equipment		2,966
Long-term debt, net	$	1,055,945	$	(15,439	)	$	—		$	1,040,506
Goodwill		16,389
Long-term sale-leaseback financing liability, net	$	26,407	$	(829	)	$	—		$	25,578
Other intangible assets, net		37,439
Total liabilities	$	1,494,632	$	(16,268	)	$	—		$	1,478,364
Other assets		615
Total liabilities and stockholders’ deficit	$	1,156,744	$	(16,268	)	$	—		$	1,140,476
Total other assets of discontinued operations		57,409
Total assets of discontinued operations	$	75,958
LIABILITIES:
Accounts payable and accrued liabilities	$	11,683
Other long-term liabilities		753
Total liabilities of discontinued operations	$	12,436

~~Below~~In isAugust a2014, ~~summary~~the FASB issued ASU No. 2014-15, Presentation of ~~cash~~Financial ~~flows~~Statements ~~from~~– ~~operating~~Going ~~and~~Concern ~~investing~~(Subtopic ~~activities~~205-40): ~~attributable~~Disclosure of Uncertainties about an Entity’s Ability to ~~continuing~~ Continue as a Going Concern, to provide guidance on principles and definitions ~~discontinued~~to ~~operations~~reduce ~~during~~diversity in the 13timing ~~weeks~~and ~~ended~~content ~~October~~of disclosures when evaluating whether there is substantial doubt about an organization’s ability to continue as a going concern. This ASU is effective for our annual fiscal year ending July 3129, ~~2015~~2017. As of January 28, 2017, management concluded that there is substantial doubt about the Company’s ability to continue as a going concern (insee ~~thousands~~Note 2):.

CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities of continuing operations	$	21,481
Net cash provided by operating activities of discontinued operations		4,147
Net cash provided by operating activities	$	25,628
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities of continuing operations	$	(1,242)
Net cash used in investing activities of discontinued operations		(1,954)
Net cash used in investing activities	$	(3,196)

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

4. ~~Fair~~Discontinued ~~Value~~Operations ~~Measurements~~

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

~~Our~~Concurrent ~~assets~~with ~~and~~the ~~liabilities~~July 15, ~~measured~~2016 atsale ~~fair~~of ~~value~~GPPI, onour aVIEs, ~~recurring~~Gymboree ~~basis~~Tianjin ~~include money market funds~~ (~~Level~~master 1)franchisee ~~and~~of ~~forward~~Gymboree Play & ~~foreign~~Music ~~exchange~~in ~~contracts (Level 2~~China). ~~The fair value of money market funds was $96.6 million~~ and ~~$110.3~~Gymboree ~~million~~China as(operator of ~~October 29,~~Gymboree ~~2016~~retail ~~and~~stores ~~July 30,~~in ~~2016~~China), ~~respectively.~~indirectly Wecontrolled ~~had~~by noGymboree ~~money market funds as of October 31~~Holding, ~~2015~~Ltd. ~~The fair value of the forward foreign exchange contracts was $69,000 (asset), $123,000 (liability),~~ and ~~$27,000~~investment ~~(liability)~~funds assponsored ofby ~~October 29,~~Bain ~~2016~~Capital, ~~July 30,~~ ~~2016,~~were ~~and~~also ~~October 31,~~sold ~~2015,~~to ~~respectively~~Zeavion.

~~The~~In ~~carrying~~accordance ~~value~~with ofASC ~~cash~~205-20, ~~receivables~~Presentation - Discontinued Operations, ~~line~~the sale of ~~credit~~our ~~borrowings~~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 ~~payables~~Gymboree Tianjin ~~approximate~~as ~~their~~of ~~estimated~~and ~~fair~~for ~~values~~the ~~due~~13 weeks and 26 weeks ended January 30, 2016 have been reported as discontinued operations in the accompanying condensed consolidated financial statements. Due to its insignificance to our consolidated financial statements, Gymboree China has not been reported as discontinued operations. However, pursuant to ~~the~~ASC ~~short~~810-10, ~~maturities~~Consolidation, we have deconsolidated Gymboree China’s financial results as of ~~these~~July 15, 2016, ~~instruments~~the date of sale, as we are no longer the primary beneficiary.

WeGymboree ~~estimate~~Play & ~~the~~Music ~~fair~~was ~~value~~previously reported ofunder ~~our~~the ~~long-term~~Gymboree ~~debt~~Play & ~~using~~Music ~~current~~reportable ~~market yields.~~segment ~~These~~while ~~current~~Gymboree ~~market~~Tianjin ~~yields~~and ~~are~~Gymboree ~~considered~~China ~~Level~~were 2previously ~~inputs.~~reported ~~The~~under ~~estimated~~the ~~fair~~VIE ~~value~~reportable ofsegment ~~long-term~~in ~~debt~~our issegment asfootnote ~~follows~~disclosure. ~~(in thousands):~~

	October 29, 2016				July 30, 2016				October 31, 2015
	Carrying				Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value		Amount		Fair Value
Term loan	$	769,102	$	484,534	$	769,102	$	592,209	$	769,102	$	503,762
Notes		171,006		85,503		171,006		68,402		346,000		114,180
ABL term loan		49,375		49,375		50,000		50,000		-		-
Less unamortized discount and deferred financing costs		(11,752)		-		(13,679)		-		(19,342)		-
Total	$	977,731	$	619,412	$	976,429	$	710,611	$	1,095,760	$	617,942

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


	13 Weeks Ended January 30, 2016			26 Weeks Ended January 30, 2016
Net sales	$	10,976		$	20,897
Cost of goods sold, including occupancy expenses		(2,356	)		(4,403	)
Selling, general and administrative expenses		(5,214	)		(8,753	)
Other expense, net		(60	)		(43	)

Income from discontinued operations, before tax		3,346			7,698
Income tax expense		(517	)		(1,511	)

Income from discontinued operations, net of tax		2,829			6,187
Income from discontinued operations attributable to noncontrolling interest		(1,023	)		(2,856	)

Income from discontinued operations attributable to The Gymboree Corporation	$	1,806		$	3,331

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


	13 Weeks Ended January 30, 2016		26 Weeks Ended January 30, 2016
Income from discontinued operations attributable to The Gymboree Corporation, before tax	$	1,892	$	3,533
Income from discontinued operations attributable to noncontrolling interest, before tax		1,454		4,165

Total income from discontinued operations, before tax	$	3,346	$	7,698

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


ASSETS:
Cash and cash equivalents	$	8,390
Accounts receivable, net		5,589
Merchandise inventories		3,810
Other current assets		421

Total current assets of discontinued operations		18,210

Property and equipment, net		2,928
Goodwill		16,389
Other intangible assets, net		37,403
Other assets		1,625

Total other assets of discontinued operations		58,345

Total assets of discontinued operations	$	76,555


LIABILITIES:
Accounts payable and accrued liabilities	$	13,300
Other long-term liabilities		310

Total liabilities of discontinued operations	$	13,610

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


CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities of continuing operations	$	61,780
Net cash provided by operating activities of discontinued operations		9,326

Net cash provided by operating activities	$	71,106


CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities of continuing operations	$	(5,067	)
Net cash used in investing activities of discontinued operations		(2,263	)

Net cash used in investing activities	$	(7,330	)

5. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

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

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


	January 28, 2017					July 30, 2016					January 30, 2016
	Carrying Amount			Fair Value		Carrying Amount			Fair Value		Carrying Amount			Fair Value
Term loan	$	769,102		$	396,088	$	769,102		$	592,209	$	769,102		$	399,933
Notes		171,006			58,997		171,006			68,402		287,575			71,894
ABL term loan		48,750			48,750		50,000			50,000		—			—
Line of credit borrowings		54,000			54,000		42,000			42,000		19,000			19,000
Less unamortized discount and deferred financing costs		(9,819	)		—		(13,679	)		—		(16,171	)		—

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

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

~~During~~Our ~~the~~non-financial 13assets, ~~weeks~~which ~~ended~~primarily ~~October 29,~~consist ~~2016~~of ~~and October 31~~goodwill, ~~2015,~~other weintangible ~~recorded~~assets, merchandise ~~property~~inventories and ~~equipment~~property ~~impairment charges of $0.5 million~~ and ~~$0.2 million~~equipment, ~~respectively,~~are ~~related~~not required to ~~assets~~be ofmeasured ~~under-performing~~at ~~stores. The~~ fair ~~market~~ value ofon ~~these~~a ~~non-financial~~recurring ~~assets~~basis ~~was~~and ~~determined~~are ~~using~~reported ~~the~~at ~~income~~carrying ~~approach~~value. ~~and Level 3 inputs~~However, ~~which~~on ~~required~~a ~~management~~periodic tobasis ~~make significant~~whenever ~~estimates~~events ~~about~~or ~~future~~changes ~~cash~~in ~~flows.~~circumstances ~~Management~~indicate ~~estimates~~their carrying ~~the~~value ~~amount~~may ~~and~~not ~~timing~~be offully ~~future~~recoverable, ~~cash~~and ~~flows~~at ~~based~~least onannually ~~historical~~for ~~operating~~goodwill ~~results~~ and ~~its~~indefinite-lived ~~experience~~intangible ~~and~~assets, ~~knowledge~~non-financial ofassets ~~the~~are ~~retail~~assessed ~~market~~for inimpairment ~~which~~and, ~~each~~if ~~store~~applicable, ~~operates.~~written-down ~~These~~to ~~impairment~~and ~~charges~~recorded ~~are~~at ~~included~~fair ~~in selling~~value, ~~general~~considering ~~and~~external ~~administrative~~market ~~(“SG&A”)~~participant ~~expenses in the accompanying condensed consolidated statements of operations~~assumptions.

5During the 13 weeks and 26 weeks ended January 28, 2017, we recorded $233.8 ~~Goodwill~~million ~~and~~of ~~Intangible~~goodwill ~~Assets~~impairment in the Gymboree Retail reporting unit and ~~Liabilities~~$134.3 million of impairment on our indefinite-lived intangible assets (trade names) based upon Level 3 inputs (see Note 7).

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

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

6. Merchandise Inventories

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

7. Goodwill and Other Intangible Assets

Goodwill

Goodwill allocated to our ~~reportable~~reporting ~~segments~~units as of ~~October~~January 2928, ~~2016~~2017, July 30, 2016 and ~~October~~January 3130, ~~2015~~2016 is as follows (in thousands):

	Retail Stores			International Retail
	GymboreeRetail			GymboreeOutlet		Janie andJack		Total RetailStoresSegment			InternationalRetailFranchiseSegment		Total
	Segment			Franchise Segment		Total
Balance, January 30, 2016	$	233,208		$	65,363	$	34,141	$	332,712		$	23,636	$	356,348
Balance as of October 29, 2016
Adjustments during the 26 weeks ended July 30, 2016:
Goodwill	$	887,241		$	23,636	$	910,877
Goodwill impairment loss		—			—		—		—			—		—
Accumulated impairment losses		(547,285)			-		(547,285)
Effect of exchange rate fluctuations		693			—		—		693			—		693
Effect of exchange rate fluctuations		(6,811)			-		(6,811)
Balance, July 30, 2016		233,901			65,363		34,141		333,405			23,636		357,041
	$	333,145		$	23,636	$	356,781
Adjustments during the 26 weeks ended January 28, 2017:
Balance as of July 30, 2016
Goodwill impairment loss		(233,769	)		—		—		(233,769	)		—		(233,769	)
Goodwill	$	887,241		$	23,636	$	910,877
Effect of exchange rate fluctuations		(132	)		—		—		(132	)		—		(132	)
Accumulated impairment losses		(547,285)			-		(547,285)
Balance, January 28, 2017	$	—		$	65,363	$	34,141	$	99,504		$	23,636	$	123,140
Effect of exchange rate fluctuations		(6,551)			-		(6,551)
	$	333,405		$	23,636	$	357,041
Balance as of October 31, 2015
Goodwill	$	887,241		$	23,636	$	910,877
Accumulated impairment losses		(547,285)			-		(547,285)
Effect of exchange rate fluctuations		(6,573)			-		(6,573)
	$	333,383		$	23,636	$	357,019

Goodwill Impairment

AsGoodwill ofis ~~October 29,~~allocated ~~2016,~~to weour ~~did~~reporting ~~not identify impairment indicators for goodwill. In determining whether an indicator of impairment is present~~units, wewhich ~~qualitatively~~are ~~assessed~~ the ~~valuation~~same ofas our ~~retail~~operating ~~segment~~segments: ~~reporting~~Gymboree ~~units~~Retail (~~Gymboree~~including ~~Retail~~an online store), Gymboree Outlet, ~~and~~ Janie and Jack (including an online store), and International Retail Franchise ~~reporting unit~~. ~~This~~We ~~qualitative~~evaluate ~~assessment~~goodwill ~~resulted~~for inimpairment ~~a determination~~on ~~that~~an itannual ~~was~~basis ~~more~~at ~~likely than not~~ the ~~fair~~end ~~value~~ of our ~~reporting~~fourth ~~units~~fiscal ~~exceeded~~period ~~their~~(fiscal ~~carrying~~November) ~~amount~~each ~~as of October 29, 2016. If the results of our operations through the remainder of fiscal~~ year ~~2017~~and orat ~~our forecast of future~~an ~~operating~~interim ~~performance declines~~date, ~~there~~if isindicators aof ~~potential for goodwill~~ impairment ~~related to our Gymboree Retail reporting unit~~exist.

InThe ~~addition,~~goodwill ~~other~~impairment ~~significant~~analysis ~~adverse~~for ~~changes~~the toreporting ~~our~~units ~~business~~was ~~environment~~based oron our ~~future~~projection of revenues, orgross margin, operating costs and cash flows ~~could~~considering ~~cause~~historical usand estimated future results, general economic and market conditions, as well as the impact of planned business and operational strategies. We based our fair value estimates on assumptions we believed to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from those estimates. The valuations employed present value techniques to measure fair ~~record~~value ~~additional~~and ~~impairment~~considered ~~charges~~market factors and reporting unit specific developments. We primarily used an income approach to value these reporting units. The discount rates used in ~~future~~the ~~periods,~~income ~~which~~approach ~~could~~ranged befrom ~~material~~8.5% ~~Our~~to ~~annual~~17.0%. ~~goodwill~~We ~~impairment~~also ~~test~~considered isa ~~performed~~market approach. atAssumptions used in the ~~end~~market approach include valuation multiples based on analysis of ~~our~~multiples ~~fourth~~for ~~fiscal~~comparable ~~period~~public ~~(fiscal~~companies. ~~November)~~Finally, specific weights were applied to the components of each approach to estimate the total implied fair value. These weights are estimates by management and are developed based on the specific characteristics, risks and uncertainties of each reporting unit.

AsWe ~~of July 30, 2016, we~~ performed ~~the~~our ~~first~~annual ~~step of the two-step~~ goodwill impairment test ~~for~~as ~~the~~of ~~Gymboree Retail~~November 26, ~~Gymboree~~ ~~Outlet~~2016. ~~and~~The ~~International~~Company ~~Retail~~started ~~Franchise~~experiencing ~~reporting~~more ~~units~~difficult traffic ~~due~~and toconversion atrends ~~triggering~~beginning ~~event~~in ~~resulting from~~ the ~~softening~~second quarter of ~~the~~fiscal ~~retail environment and performance that did not meet expectations~~2017. WeThe ~~concluded~~sustained ~~that~~difficult ~~goodwill~~performance ~~impairment~~ was not ~~required~~ ~~for~~anticipated ~~any~~in ofprevious ~~our~~projections ~~reporting~~that ~~units~~assumed asan ~~the~~improvement ~~fair~~in ~~value~~traffic ofand ~~each~~conversion ~~of our reporting units exceeded its carrying value by more than 40%~~trends. As ofa ~~July 30~~result, ~~2016,~~ the ~~fair value of the Gymboree Retail, Gymboree Outlet and International Retail~~Company ~~Franchise~~revised ~~reporting~~its ~~units~~long ~~were~~term ~~$594.0~~assumptions ~~million,~~to ~~$147.0~~reflect ~~million~~lower ~~and~~than ~~$45.0~~previously ~~million,~~projected ~~respectively,~~revenue ~~which exceeded the carrying values of $414.0 million, $102.4 million~~ and ~~$26.2~~margin ~~million,~~growth ~~respectively.~~trends ~~There~~primarily ~~was~~in noits ~~triggering~~Gymboree ~~event for the Janie~~ and ~~Jack reporting~~Crazy ~~unit~~8 ~~as of July 30, 2016~~brands. AsOur ofupdated ~~November 28,~~operating ~~2015,~~forecasts ~~the~~were ~~fair~~significantly ~~value~~lower ofthan ~~the~~those ~~Janie~~used ~~and~~in ~~Jack~~previous ~~reporting~~goodwill impairment ~~unit~~assessments ~~was~~due ~~$274.0~~to: ~~million, which exceeded its carrying value of $77.2 million.~~

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

•

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

•

revised growth assumptions based on estimates of future operations;

•

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

•

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

•

liquidity issues that will hamper new store openings; and

•

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

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

~~Intangible~~We ~~assets~~determined ~~and~~there ~~liabilities~~was goodwill ~~consist~~impairment in the Gymboree Retail reporting unit of $233.8 million, which was recorded during the ~~following~~13 ~~(in~~weeks ~~thousands):~~and 26 weeks ended January 28, 2017.

	October 29, 2016
	Gross Carrying		Accumulated		Accumulated
	Amount		Amortization		Impairment			Net Amount
Intangible Assets Not Subject to Amortization - Trade names	$	530,800	$	-	$	(232,200	)	$	298,600
Intangible Assets Subject to Amortization		12,135		(11,132)		-			1,003
Total other intangible assets	$	542,935	$	(11,132)	$	(232,200)		$	299,603
Intangible Liabilities Subject to Amortization - Above market leases (included in Lease incentives and other liabilities)	$	(10,240)	$	8,262	$	-		$	(1,978)
	July 30, 2016
	Gross Carrying		Accumulated		Accumulated
	Amount		Amortization		Impairment			Net Amount
Intangible Assets Not Subject to Amortization - Trade names	$	530,800	$	-	$	(232,200)		$	298,600
Intangible Assets Subject to Amortization		12,135		(10,662)		-			1,473
Total other intangible assets	$	542,935	$	(10,662)	$	(232,200)		$	300,073
Intangible Liabilities Subject to Amortization - Above market leases (included in Lease incentives and other liabilities)	$	(10,229)	$	7,905	$	-		$	(2,324)
	October 31, 2015
	Gross Carrying		Accumulated		Accumulated
	Amount		Amortization		Impairment			Net Amount
Intangible Assets Not Subject to Amortization - Trade names	$	530,800	$	-	$	(229,600)		$	301,200
Intangible Assets Subject to Amortization		13,528		(10,582)		-			2,946
Total other intangible assets	$	544,328	$	(10,582)	$	(229,600)		$	304,146
Intangible Liabilities Subject to Amortization - Above market leases (included in Lease incentives and other liabilities)	$	(11,033)	$	7,619	$	-		$	(3,414)

Other Intangible Assets

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


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

Balance, January 30, 2016	$	202,200		$	38,300		$	42,200	$	18,500		$	301,200		$	2,408		$	303,608
Adjustments during the 26 weeks ended July 30, 2016:
Intangible asset impairment loss		—			—			—		(2,600	)		(2,600	)		—			(2,600	)
Amortization expense		—			—			—		—			—			(935	)		(935	)

Balance, July 30, 2016		202,200			38,300			42,200		15,900			298,600			1,473			300,073
Adjustments during the 26 weeks ended January 28, 2017:
Intangible asset impairment loss		(105,500	)		(14,600	)		—		(14,200	)		(134,300	)		—			(134,300	)
Amortization expense		—			—			—		—			—			(899	)		(899	)

Balance, January 28, 2017	$	96,700		$	23,700		$	42,200	$	1,700		$	164,300		$	574		$	164,874

Indefinite-Lived Intangible Assets Impairment

AsWe ofevaluate ~~October 29, 2016, we did not identify impairment indicators for~~ indefinite-lived intangible assets ~~(the~~for ~~Gymboree, Janie~~impairment ~~and~~on ~~Jack and Crazy 8 trade names). In determining whether~~ an ~~indicator~~annual ofbasis ~~impairment~~at ~~is present, we qualitatively assessed whether it was more likely than not~~ the ~~fair~~end ~~value~~ of our ~~indefinite-lived~~fourth ~~intangible~~fiscal ~~assets~~period ~~exceeded their carrying~~(fiscal ~~amount~~November) aseach ~~of October 29, 2016. If the results of our operations through the remainder of fiscal~~ year ~~2017~~and orat ~~our~~an ~~forecast~~interim ~~of future operating performance declines~~date, ~~there~~if isindicators aof ~~potential for indefinite-lived intangible asset~~ impairment exist.

InWe ~~addition,~~performed ~~other~~our ~~significant~~annual ~~adverse~~impairment ~~changes~~test toof indefinite-lived ~~our~~intangible ~~business~~assets ~~environment~~as orof ~~future~~November 26, ~~revenue~~2016. orOur ~~cash~~updated ~~flows~~operating ~~could~~forecasts ~~cause~~were ussignificantly ~~to record~~lower ~~additional~~than ~~impairment~~those ~~charges~~used in ~~future~~previous ~~periods,~~impairment ~~which~~assessments ~~could~~due beto ~~material.~~the ~~Our~~same ~~annual~~factors ~~indefinite-lived~~described ~~intangible~~in ~~asset~~our annual goodwill impairment test above. isOur ~~performed~~annual atimpairment test indicated that the ~~end~~fair values of our ~~fourth~~trade ~~fiscal~~names ~~period~~were ~~(fiscal~~below ~~November)~~their carrying values and, as a result, we recorded a $134.3 million impairment charge during the 13 weeks ended January 28, 2017 related to trade names of our Retail Stores segment.

As13 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.

~~Net~~8. Line ~~amortization~~of ~~income~~Credit ~~(expense)~~and isLong-term ~~presented~~Debt ~~below for the periods ended (in thousands):~~

	13 Weeks Ended
	October 29, 2016		October 31, 2015
Amortization income included in cost of goods sold	$	226	$	198
Amortization expense included in selling, general and administrative expenses	$	(350)	$	(385)

6. Line of Credit and Long-term Debt

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

	October 29,			July 30,			October 31,
	January 28,2017			July 30,2016			January 30,2016
	2016			2016			2015
Line of credit borrowings	$	54,000		$	42,000		$	19,000
Line of credit borrowings	$	80,000		$	42,000		$	50,000
Long-term debt -
ABL term loan due December 2017, LIBOR plus 10.25%
Principal amount	$	4948,~~375~~750		$	50,000		$	-—
Less unamortized deferred financing costs		(2,~~691)~~141	)		(3,228)	)		-—
ABL term loan, net of unamortized deferred financing costs		46,~~684~~609			46,772			-—
Term loan due February 2018, Adjusted LIBOR (with a floor of 1.5%) plus 3.5%
Principal amount		769,102			769,102			769,102
Less unamortized deferred financing costs		(54,~~137)~~200	)		(6,062)	)		(87,~~760)~~873	)
Less unamortized discount		(~~477)~~390	)		(563)	)		(~~814)~~732	)
Term loan, net of unamortized discount and deferred financing costs		~~763~~764,~~488~~512			762,477			~~759~~760,~~528~~497
Senior notes due December 2018, 9.125%
Principal amount		171,006			171,006			~~346~~287,~~000~~575
Less unamortized deferred financing costs		(3,~~447)~~088	)		(3,826)	)		(97,~~768)~~566	)
Senior notes, net of unamortized deferred financing costs		167,~~559~~918			167,180			~~336~~280,~~232~~009
Total long-term debt, net of unamortized discount and deferred financing costs		~~977~~979,~~731~~039			976,429			1,~~095~~040,~~760~~506
Less current portion of long-term debt		(7,577)			(5,527)			-
Less current portion of long-term debt, net of unamortized deferred financing cost		(53,111	)		(5,527	)		—
Long-term portion of long-term debt, net of unamortized discount and deferred financing costs	$	~~970~~925,~~154~~928		$	970,902		$	1,~~095~~040,~~760~~506
Total line of credit borrowings and long-term debt, net of unamortized discount and deferred financing costs	$	1,~~057~~033,~~731~~039		$	1,018,429		$	1,~~145~~059,~~760~~506

Line of Credit

Our senior secured asset-based revolving credit facility (“ABL Revolving Facility”) matures on the earlier of (i) September 24, 2020 and (ii) the date that is 60 days before the scheduled final maturity date of any tranche of the Term Loan (which is currently due to mature in February 2018) or the Notes (which are currently due to mature in December 2018), unless such indebtedness is cumulatively equal to or less than $25.0 million in the aggregate and a reserve against the borrowing base is imposed equal to the amount of such indebtedness. The ABL revolving commitment will therefore mature in December 2017 unless the Term Loan and the Notes (other than an aggregate amount of Term Loans and Notes that is equal to or less than $25.0 million) are refinanced with indebtedness having a final maturity date later than February 2018.

The ABL Revolving Facility provides for financing of up to $225 million in a revolving line of credit. Line of credit availability under the ABL Revolving Facility is subject to a borrowing base consisting of certain assets of the Company, any subsidiary co-borrowers and any subsidiary guarantors that are available to collateralize the borrowings thereunder, and is reduced by the level of outstanding letters of credit and the outstanding amount of the ABL Term Loan. The line of credit available under the ABL Revolving Facility was reduced by letter of credit utilization totaling $3034.8 6 million as of ~~October~~ January 2928, ~~2016~~2017. Undrawn line of credit availability under the ABL Revolving Facility, after being reduced by outstanding line of credit borrowings, letter of credit utilization and outstanding balance of ABL Term Loan, was $90.7 million as of January 28, 2017, subject to a minimum amount of “Combined Availability” and “Availability” as defined below. Our undrawn line of credit availability, net of the minimum amount of combined availability and availability, was $67.9 million as of January 28, 2017.

12Line of credit borrowings under the ABL Revolving Facility bear interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the highest of (1) the prime rate of Bank of America, N.A., (2) the federal funds effective rate plus 0.50%, and (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%, or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs (“Adjusted LIBOR”), in each case plus an applicable margin. As of January 28, 2017, the weighted average interest rate on our line of credit borrowings outstanding under the ABL Revolving Facility was 3.7%. In addition to paying interest on outstanding line of credit borrowings under the ABL Revolving Facility, we are required to pay a commitment fee on unutilized commitments thereunder, which is between 0.250% and 0.375% per annum.

~~utilization~~The ~~and~~ABL ~~outstanding~~Facility ~~balance~~contains ofcovenants ~~ABL~~that, ~~Term~~among ~~Loan~~other things, ~~was~~restrict ~~$114~~our ability to incur additional indebtedness and pay dividends.2 ~~million~~It asrequires ofthe ~~October 29,~~Company ~~2016,~~and ~~subject~~its restricted subsidiaries to maintain a minimum amount of “Combined Availability” and “Availability” for as ~~defined~~long ~~below~~as the ABL Term Loan remains outstanding. ~~Our~~“Combined ~~undrawn~~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 ~~availability~~borrowings and letter of credit utilization. “Availability” is equal to the lesser of (A) (I) the revolving credit ceiling (which as of January 28, ~~net~~2017 was $225.0 million) minus (II) the aggregate principal amount outstanding under the revolving line of credit and letter of credit utilization and (B) (I) the ~~minimum~~revolving line of credit borrowing base minus (II) the aggregate principal amount outstanding under the revolving line of credit ~~combined~~and letter of credit utilization. Under the availability covenant, the Company and ~~availability~~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, ~~was~~and ~~approximately~~(ii) Availability in excess of the greater of (x) $9217.05 million and (y) 10% of the lesser of (A) the applicable revolving line of credit borrowing base and (B) the revolving credit ceiling. Failure to maintain the minimum levels of Combined Availability and Availability required by this covenant would result in an event of default under the ABL Facility. The ABL Facility also contains a financial covenant (i.e., minimum consolidated fixed charge coverage ratio), but such financial covenant is not required to be tested as long as the Company’s ABL Term Loan remains outstanding. As of ~~October~~January 2928, ~~2016~~2017, we were not required to test compliance with this covenant.

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 1416).

ABL Term Loan

On April 22, 2016, we entered into an agreement that provides for a senior secured term loan (the “ABL Term Loan” and together with the ABL Revolving Facility, the “ABL Facility”) of $50.0 million, subject to a borrowing base, the proceeds of which may be used to finance the acquisition of working capital assets, including the purchase of inventory and equipment, in each case in the ordinary course of business, to finance capital expenditures, to finance permitted acquisitions and for general corporate purposes, including repurchases of the Notes. The maturity date of the ABL Term Loan is the same as the maturity date of the ABL Revolving Facility. The principal balance of the ABL Term Loan ~~totaled~~ was $4948.4 8 million as of ~~October~~ January 2928, ~~2016~~2017.

The ABL Term Loan bears interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a 90-day LIBOR contract rate as determined by the agent for the ABL Term Loan monthly on the first day of each calendar month, plus 10.25% per annum, or, in certain circumstances, at the prime rate, plus 9.25% per annum. Interest is payable monthly. As of ~~October~~January 2928, ~~2016~~2017, the interest rate under our ABL Term Loan was 11.12%.

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 1416).

Term Loan

We have an agreement with several lenders for an $820 million senior secured Term Loan, with a maturity date of February 2018. The interest rate for borrowings under the Term Loan is, at our option, a base rate plus an additional marginal rate of 2.5% or the Adjusted LIBOR rate (with a 1.5% floor) plus an additional rate of 3.5%. As of ~~October~~January 2928, ~~2016~~2017, the interest rate under our Term Loan was 5.0%.

~~The~~15 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 Term Loan requires us to make quarterly payments equal to 0.25% of the original $820 million principal amount of the Term Loan made on the closing date plus accrued and unpaid interest thereon, with the balance due in February 2018. The Term Loan also has mandatory and voluntary pre-payment provisions, including a requirement that we prepay the Term Loan with a certain percentage of our annual excess cash flow. We calculated our excess cash flow for the 26-week transition period ended July 30, 2016 and concluded that we are not required to make any excess cash flow payments on the Term Loan during fiscal 2017. Voluntary prepayments and the excess cash flow prepayments made in prior fiscal years were applied toward our remaining quarterly amortization payments payable under the Term Loan through fiscal 2017. Our next quarterly payment payable under the Term Loan is due in the third quarter of fiscal 2017.

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

Senior Notes

In fiscal 2010, we issued $400 million aggregate principal amount of 9.125% Senior Notes due in December 2018 (the “Notes”). Interest on the Notes is payable semi-annually. If the Company or our subsidiaries sell certain assets, we generally must either invest the net cash proceeds from such sale in our business within a certain period of time, use the proceeds to prepay senior secured debt (see Note 34), or make an offer to purchase a principal amount of the Notes equal to the excess net cash proceeds at a redemption price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest.

Upon a change in control, we may also be required to make an offer to purchase all of the Notes at a redemption price equal to 101% of the principal amount of the Notes redeemed plus accrued and unpaid interest. We may redeem the Notes, in whole or in part, upon at least 30 days prior notice, at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest thereon to the applicable redemption date

The Notes are unsecured senior obligations of The Gymboree Corporation. The Company’s 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Company’s obligations under the Notes (see Note 1416). The guarantees of the Notes are joint and several and will terminate upon the following circumstances: (A) the sale, exchange, disposition or transfer (by merger or otherwise) of (x) the capital stock of the guarantor providing the applicable guarantee, if after such sale, exchange, disposition or transfer such guarantor is no longer a subsidiary of The Gymboree Corporation, or (y) all or substantially all of the assets of such guarantor, (B) the release or discharge of the guarantee by such guarantor of the other indebtedness which resulted in the creation of the subsidiary guarantee by such guarantor under the Indenture, (C) the designation of such guarantor as an “unrestricted subsidiary” under the Indenture or (D) the legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture, in each such case specified in clauses (A) through (D) above in accordance with the requirements therefore set forth in the Indenture.

Future minimum principal payments on long-term debt

Future minimum principal payments on long-term debt, excluding amortization of deferred financing costs of $119.3 4 million ~~and~~ and accretion of original issue discount (“OID”) of $0.5 4 million as of ~~October~~January 2928, ~~2016~~2017, are as follows (in thousands):

Fiscal years ending	~~Fiscal years ending~~PrincipalPayments		~~Principal Payments~~
July 29, 2017	~~July 29, 2017~~$	4,277	$	~~4,902~~
	July 28, 2018			813,575
August 4, 2018		813,575
	July 27, 2019			171,006
August 3, 2019		171,006
Total	~~Total~~$	988,858	$	~~989,483~~

79. Sale-Leaseback of Dixon Distribution Center

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

Under the terms of the lease agreement, the Company is required to maintain a $3.5 million unconditional irrevocable letter of credit that reduces our line-of-credit borrowing base for a period of up to 10 years. Due to the Company’s continuing involvement through the irrevocable letter of credit, the Company has accounted for the sale-leaseback as a financing liability. Payments made by the Company are allocated between interest expense and a reduction to the sale-leaseback financing liability.

~~Payments~~16 (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, future payments on the sale-leaseback financing liability, excluding renewals, are as follows (in thousands):

Fiscal years	Payments
Remainder of 2017	$	1,360
2018		1,834
2019		1,856
2020		1,880
2021		1,903
2022		1,927
Thereafter		28,485
Total payments		39,245
Less amount representing interest		(12,780)
Less unamortized deferred financing costs		(762)
Total sale-leaseback financing liability, net of unamortized deferred financing costs		25,703
Less current portion of sale-leaseback financing liability included in accrued liabilities		(236)
Long-term portion of sale-leaseback financing liability, net of unamortized deferred financing costs	$	25,467

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.

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

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


Fiscal years ending	Payments
July 29, 2017	$	908
August 4, 2018		1,834
August 3, 2019		1,856
August 1, 2020		1,880
July 31, 2021		1,903
July 30, 2022		1,927
Thereafter		28,485

Total payments		38,793
Less amount representing interest		(12,384	)
Less unamortized deferred financing costs		(739	)

Total sale-leaseback financing liability, net of unamortized deferred financing costs		25,670
Less current portion of sale-leaseback financing liability included in accrued and other current liabilities		(244	)

Long-term portion of sale-leaseback financing liability, net of unamortized deferred financing costs	$	25,426

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

10. Derivative Financial Instruments

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

October 29, 2016

July 30, 2016

October 31, 2015

January 28, 2017

July 30, 2016

January 30, 2016

Number of

Notional

Number of

Notional

Number of

Notional

Number ofInstruments

Notional (USD)

Number ofInstruments

Notional(USD)

Number ofInstruments

Notional(USD)

Instruments

(USD)

Instruments

(USD)

Instruments

(USD)

Interest rate derivatives

Purchased interest rate caps

4—

~~700,000~~—

700,000

Foreign exchange derivatives

Forward foreign exchange contracts

2—

~~3,571~~—

8,666

45,~~468~~492

Total

6—

~~703,571~~—

708,666

710

~~704~~705,~~468~~492

The interest rate caps ~~mature~~matured onin December ~~23,~~ 2016. ~~The~~There were no outstanding forward foreign ~~exchange~~ exchange contracts ~~mature~~designated inas ~~less~~cash ~~than~~flow ~~one~~hedges ~~year~~as of January 28, 2017.

InThe ~~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~~January 3128, ~~2015~~2017 and January 30, 2016.

~~The~~17 ~~tables below present the effect of all of our derivative financial instruments on the condensed consolidated statements of operations and comprehensive loss (in thousands).~~

13 Weeks Ended October 29, 2016

Location of Gains

Gains / (Losses)

(Losses) Reclassified

Reclassified from

Recognized in OCI on

from Accumulated

Accumulated OCI into

Derivative (Effective

OCI into Income

Income (Effective

Portion)

(Effective Portion)

Portion)

Interest rate caps

Interest expense

(1,369)

Forward foreign exchange contracts

114

Cost of goods sold

(227)

Total

114

(1,596)

13 Weeks Ended October 31, 2015

Location of Gains

Gains / (Losses)

(Losses) Reclassified

Reclassified from

Recognized in OCI on

from Accumulated

Accumulated OCI into

Derivative (Effective

OCI into Income

Income (Effective

Portion)

(Effective Portion)

Portion)

Interest rate caps

(1)

Interest expense

(1,044)

Forward foreign exchange contracts

(22)

Cost of goods sold

Total

(23)

(992)

9. Income Taxes

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.

~~10. Commitments~~The tables below present the pre-tax effect of all of our derivative financial instruments on the condensed consolidated statements of operations and ~~Contingencies~~comprehensive income (loss) (in thousands).


	13 Weeks Ended January 28, 2017

	Gains / (Losses) Recognized in OCI on Derivative (Effective Portion)			Location of Gains (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)	Gains / (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate caps	$	—		Interest expense	$	(841	)
Forward foreign exchange contracts		(1	)	Cost of goods sold		(5	)

Total	$	(1	)		$	(846	)


	13 Weeks Ended January 30, 2016
	Gains / (Losses) Recognized in OCI on Derivative (Effective Portion)		Location of Gains (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)	Gains / (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate caps	$	—	Interest expense	$	(1,124	)
Forward foreign exchange contracts		34	Cost of goods sold		86

Total	$	34		$	(1,038	)


	26 Weeks Ended January 28, 2017

	Gains / (Losses) Recognized in OCI on Derivative (Effective Portion)		Location of Gains (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)	Gains / (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate caps	$	—	Interest expense	$	(2,210	)
Forward foreign exchange contracts		113	Cost of goods sold		(232	)

Total	$	113		$	(2,442	)


	26 Weeks Ended January 30, 2016
	Gains / (Losses) Recognized in OCI on Derivative (Effective Portion)			Location of Gains (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)	Gains / (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate caps	$	(1	)	Interest expense	$	(2,168	)
Forward foreign exchange contracts		12		Cost of goods sold		138

Total	$	11			$	(2,030	)

11. Income Taxes

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

As of January 28, 2017, July 30, 2016, and January 30, 2016, deferred income tax liabilities, net were $60.4 million, $110.8 million, and $124.2 million, respectively. As of January 28, 2017, July 30, 2016, and January 30, 2016, deferred income tax assets, net were $2.5 million, $2.2 million, and $2.9 million, respectively, which are included in other assets. As of January 28, 2017, July 30, 2016, and January 30, 2016, the total valuation allowance against deferred tax assets was $33.9 million, $30.6 million, and $63.2 million, respectively. We establish a valuation allowance when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. We consider all available positive and negative evidence in evaluating whether a valuation allowance is required, including prior earnings history, actual earnings over the previous 12 quarters on a

cumulative basis, carryback and carryforward periods, and tax planning strategies that could potentially enhance the likelihood of realization of a deferred tax asset. We continue to have a valuation allowance against all net deferred tax assets in U.S. federal, unitary state, and Australian jurisdictions, excluding indefinite-lived deferred tax assets and liabilities. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

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

12. Commitments and Contingencies

Commitments

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

On December 1, 2016, the Company entered into a sublease agreement for approximately 80,000 square feet of office space in San Francisco, California. The Company expects to use the subleased premises as its new corporate headquarters. The sublease is expected to commence on or before April 1, 2017 and will expire on July 15, 2022, subject to the Company’s option to extend the sublease until July 15, 2025, if it meets certain performance criteria. The total minimum base rent during the lease term, excluding the extension period of 3 years, is approximately $20.0 million. In addition, the Company ~~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.

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.

1113. Accumulated Other Comprehensive Loss

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

	October 29, 2016			July 30, 2016			October 31, 2015
	January 28, 2017			July 30, 2016			January 30, 2016
Foreign currency translation	$	(8,~~377)~~445	)	$	(8,003)	)	$	(79,~~803)~~236	)
Accumulated changes in fair value of derivative financial instruments, net of tax		~~1,673~~104			579			(21,~~615)~~586	)
Total accumulated other comprehensive loss	$	(68,~~704)~~341	)	$	(7,424)	)	$	(10,~~418)~~822	)

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

	13 Weeks Ended October 29, 2016
	13 Weeks Ended January 28, 2017
							Total Accumulated
	Foreign Currency			Derivatives			Total AccumulatedComprehensive (Loss)Income
	Foreign						Comprehensive (Loss)
Beginning balance	$	(8,377	)	$	1,673		$	(6,704	)
	Currency			Derivatives			Income
Other comprehensive loss recognized before reclassifications		(68	)		(1	)		(69	)
Beginning balance	$	(8,003)		$	579		$	(7,424)
Amounts reclassified from accumulated other comprehensive (loss) income to earnings		—			846			846
Other comprehensive (loss) income recognized before reclassifications		(374)			114			(260)
Tax benefit		—			(2,414	)		(2,414	)
Amounts reclassified from accumulated other comprehensive loss to earnings		-			1,596			1,596
Net current-period other comprehensive loss		(68	)		(1,569	)		(1,637	)
Tax expense		-			(616)			(616)
Ending balance	$	(8,445	)	$	104		$	(8,341	)
Net current-period other comprehensive (loss) income		(374)			1,094			720
Ending balance	$	(8,377)		$	1,673		$	(6,704)

1719

	26 Weeks Ended July 30, 2016
	13 Weeks Ended January 30, 2016
							Total Accumulated
	Foreign Currency			Derivatives			Total AccumulatedComprehensive (Loss)Income IncludingNoncontrolling Interest
	Foreign						Comprehensive (Loss)
Beginning balance	$	(7,803	)	$	(2,615	)	$	(10,418	)
	Currency			Derivatives			Income
Other comprehensive (loss) income recognized before reclassifications		(1,914	)		34			(1,880	)
Beginning balance	$	(9,236)		$	(1,586)		$	(10,822)
Amounts reclassified from accumulated other comprehensive loss to earnings		—			1,038			1,038
Other comprehensive income (loss) recognized before reclassifications		1,233			(525)			708
Tax benefit		—			(43	)		(43	)
Amounts reclassified from accumulated other comprehensive loss to earnings		-			2,690			2,690
Net current-period other comprehensive (loss) income		(1,914	)		1,029			(885	)
Tax expense		-			-			-
Other comprehensive loss attributable to noncontrolling interest		481			—			481
Net current-period other comprehensive income		1,233			2,165			3,398
Ending balance	$	(9,236	)	$	(1,586	)	$	(10,822	)
Ending balance	$	(8,003)		$	579		$	(7,424)
	13 Weeks Ended October 31, 2015
							Total Accumulated
							Comprehensive (Loss)
	Foreign						Income Including
	Currency			Derivatives			Noncontrolling Interest
Beginning balance	$	(7,758)		$	(3,225)		$	(10,983)
Other comprehensive loss recognized before reclassifications		(242)			(23)			(265)
Amounts reclassified from accumulated other comprehensive loss to earnings		-			992			992
Tax expense		-			(359)			(359)
Net current-period other comprehensive (loss) income		(242)			610			368
Other comprehensive loss attributable to noncontrolling interest		197			-			197
Ending balance	$	(7,803)		$	(2,615)		$	(10,418)

12. Related Party Transactions


	26 Weeks Ended January 28, 2017
	Foreign Currency			Derivatives			Total Accumulated Comprehensive (Loss) Income
Beginning balance	$	(8,003	)	$	579		$	(7,424	)

Other comprehensive (loss) income recognized before reclassifications		(442	)		113			(329	)
Amounts reclassified from accumulated other comprehensive (loss) income to earnings		—			2,442			2,442
Tax benefit		—			(3,030	)		(3,030	)

Net current-period other comprehensive loss		(442	)		(475	)		(917	)

Ending balance	$	(8,445	)	$	104		$	(8,341	)

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).


	26 Weeks Ended January 30, 2016
	Foreign Currency			Derivatives			Total Accumulated Comprehensive (Loss) Income Including Noncontrolling Interest
Beginning balance	$	(7,758	)	$	(3,225	)	$	(10,983	)

Other comprehensive (loss) income recognized before reclassifications		(2,156	)		11			(2,145	)
Amounts reclassified from accumulated other comprehensive loss to earnings		—			2,030			2,030
Tax benefit		—			(402	)		(402	)

Net current-period other comprehensive (loss) income		(2,156	)		1,639			(517	)

Other comprehensive loss attributable to noncontrolling interest		678			—			678

Ending balance	$	(9,236	)	$	(1,586	)	$	(10,822	)

~~We incurred approximately $0~~14.~~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,~~Related ~~2016~~Party ~~and~~Transactions 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.

AsWe incurred approximately $0.7 million and $0.8 million in management fees and reimbursement of ~~October~~out-of-pocket expenses to Bain Capital Private Equity, LP (“Bain Capital”) during the 13 weeks ended January 2928, 2017 and January 30, 2016, respectively. We incurred approximately $1.5 million and $1.3 million in management fees and reimbursement of out-of-pocket expenses to Bain Capital during the 26 weeks ended January 28, 2017 and January 30, 2016, respectively. As of January 28, 2017, July 30, 2016 and ~~October~~January 3130, ~~2015~~2016, we had a ~~receivable~~payable balance of $01.4 million, $01.4 6 million and $0.3 2 million, respectively, ~~from~~to Bain ~~our~~Capital. ~~indirect~~Management ~~parent~~fees payable to Bain Capital as of January 28, ~~Giraffe~~2017 ~~Holding~~and July 30, ~~Inc~~2016 include approximately $1.,3 million ~~which~~fees ~~relates~~arising ~~primarily~~from tothe ~~income~~sale ~~taxes~~of ~~and~~Gymboree ~~withholding~~Play & ~~taxes~~Music on July 15, 2016 (see Note 4).

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

As20 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).

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

~~determining~~As ~~whether~~of ~~the~~January 28, ~~economic~~2017 ~~characteristics~~and ~~are~~July 30, ~~similar. In addition~~2016, ~~each~~we ~~retail~~had ~~store~~a ~~segment~~receivable ~~has~~balance of ~~similar~~$0.4 million ~~products,~~from ~~production~~our ~~processes~~indirect ~~and~~parent, ~~type~~Giraffe ~~and~~Holding, ~~class of customer~~Inc., ~~Corporate~~which ~~overhead (costs~~relates ~~related~~primarily to ~~our~~income ~~distribution~~taxes ~~centers~~ and ~~shared~~withholding ~~corporate~~taxes. ~~services)~~We ishad ~~included~~no inreceivable ~~the~~from ~~retail~~Giraffe ~~stores~~Holding, ~~segment~~Inc. as of January 30, 2016.

15. Segment Information

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

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

	13 Weeks Ended October 29, 2016
	13 Weeks Ended January 28, 2017
	Retail		International Retail		Intersegment
	Retail Stores		International RetailFranchise		Total
	Stores		Franchise		Elimination		Total
Net sales	$	352,898	$	3,936	$	356,834
Net sales	$	276,310	$	3,517	$	-	$	279,827
Gross Profit	$	114,418	$	1,993	$	116,411
Gross Profit	$	105,320	$	1,685	$	-	$	107,005
	13 Weeks Ended October 31, 2015
	Retail		International Retail				Intersegment
	Stores		Franchise		VIE		Elimination		Total
Net sales	$	287,848	$	6,029	$	1,805	$	(162)	$	295,520
Gross Profit	$	111,605	$	3,189	$	275	$	(162)	$	114,907


	13 Weeks Ended January 30, 2016
	Retail Stores		International Retail Franchise		VIE		Intersegment Elimination			Total
Net sales	$	374,112	$	5,349	$	2,118	$	(179	)	$	381,400
Gross Profit	$	145,068	$	3,018	$	917	$	(179	)	$	148,824


	26 Weeks Ended January 28, 2017
	Retail Stores		International Retail Franchise		Total
Net sales	$	629,208	$	7,453	$	636,661
Gross Profit	$	219,798	$	3,618	$	223,416


	26 Weeks Ended January 30, 2016
	Retail Stores		International Retail Franchise		VIE		Intersegment Elimination			Total
Net sales	$	661,960	$	11,378	$	3,923	$	(341	)	$	676,920
Gross Profit	$	256,672	$	6,207	$	1,193	$	(341	)	$	263,731

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

							Total
	Gymboree (1)		Janie and Jack		Crazy 8		TotalBefore VIE		VIE		Total
	Gymboree (1)		Janie and Jack		Crazy 8		Before VIE		VIE		Total
13 weeks ended January 28, 2017	$	227,635	$	44,934	$	80,329	$	352,898	$	—	$	352,898
13 weeks ended October 29, 2016	$	176,471	$	35,018	$	64,821	$	276,310	$	-	$	276,310
13 weeks ended January 30, 2016	$	244,237	$	44,444	$	85,431	$	374,112	$	2,118	$	376,230
13 weeks ended October 31, 2015	$	186,423	$	33,600	$	67,825	$	287,848	$	1,805	$	289,653
26 weeks ended January 28, 2017	$	404,106	$	79,952	$	145,150	$	629,208	$	—	$	629,208
26 weeks ended January 30, 2016	$	430,660	$	78,044	$	153,256	$	661,960	$	3,923	$	665,883

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

~~Interest~~21 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		International Retail
	Stores		Franchise		VIE		Total
13 weeks ended October 29, 2016	$	-	$	-	$	-	$	-
13 weeks ended October 31, 2015	$	-	$	162	$	-	$	162

Interest expense, depreciation and amortization expense and capital expenditures have not been separately disclosed above as the amounts primarily relate to the retail segment. Intersegment revenues for the International Retail Franchise segment were $0.2 million and $0.3 million during the 13 weeks and 26 weeks ended January 30, 2016, respectively.

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

	Total Assets
	Retail		International Retail				Intersegment			Discontinued
	RetailStores		International RetailFranchise		VIE		IntersegmentElimination			DiscontinuedOperations		Total
	Stores		Franchise		VIE		Elimination			Operations		Total
January 28, 2017	$	728,915	$	26,583	$	—	$	—		$	—	$	755,498
October 29, 2016	$	1,167,556	$	25,566	$	-	$	-		$	-	$	1,193,122
July 30, 2016	$	1,151,745	$	26,767	$	—	$	—		$	—	$	1,178,512
July 30, 2016	$	1,151,745	$	26,767	$	-	$	-		$	-	$	1,178,512
January 30, 2016	$	1,027,622	$	28,791	$	8,068	$	(560	)	$	76,555	$	1,140,476
October 31, 2015	$	1,111,219	$	27,710	$	8,608	$	(876)		$	75,958	$	1,222,619

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.~~

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

	13 Weeks Ended				26 Weeks Ended
	October 29, 2016		October 31, 2015
	January 28, 2017		January 30, 2016		January 28, 2017		January 30, 2016
United States	$	~~267~~341,~~372~~803	$	~~281~~363,~~377~~825	$	609,175	$	645,202
International		1215,~~455~~031		1417,~~143~~575		27,486		31,718
Total	$	279,827	$	295,520
	$	356,834	$	381,400	$	636,661	$	676,920

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

	October 29, 2016		July 30, 2016		October 31, 2015
	January 28, 2017		July 30, 2016		January 30, 2016
United States	$	~~134~~129,~~142~~102	$	138,384	$	~~156~~149,~~731~~515
International		54,~~174~~936		5,367		6,~~963~~035
Total	$	139,316	$	143,751	$	163,694
	$	134,038	$	143,751	$	155,550

~~14. Condensed~~22 ~~Guarantor Data~~

16. Condensed Guarantor Data

The Company’s 100%-owned domestic subsidiaries have fully and unconditionally guaranteed the Notes, subject to the customary automatic release provisions described above (see Note 8). The following condensed consolidating financial information presents the results of operations, comprehensive income (loss), financial position and cash flows of The Gymboree Corporation and the guarantor and non-guarantor subsidiaries. The VIE financial results are included in those of the non-guarantor subsidiaries. Intercompany transactions are eliminated.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED ~~OCTOBER 29~~JANUARY 28, ~~2016~~2017

(In thousands)

	The Gymboree			Guarantor			Non-guarantor
	The GymboreeCorporation			GuarantorSubsidiaries			Non-guarantorSubsidiaries			Eliminations			Consolidated
	Corporation			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	~~699~~794		$	~~269~~346,~~885~~107		$	1215,~~965~~891		$	(79,~~239)~~894	)	$	~~276~~352,~~310~~898
Retail Franchise		-—			3,~~517~~936			-—			-—			3,~~517~~936
Intercompany revenue		1612,~~368~~152			79,~~354~~175			~~135~~(1,272	)		(2320,~~857)~~055	)		-—
Total net sales		1712,~~067~~946			~~280~~359,~~756~~218			1314,~~100~~619			(3129,~~096)~~949	)		~~279~~356,~~827~~834
Cost of goods sold, including buying and occupancy expenses		(1,~~687)~~670	)		(~~169~~237,~~318)~~582	)		(911,~~027)~~260	)		710,~~210~~089			(~~172~~240,~~822)~~423	)
Gross profit		1511,~~380~~276			~~111~~121,~~438~~636			43,~~073~~359			(2319,~~886)~~860	)		~~107~~116,~~005~~411
Selling, general and administrative expenses		(2320,~~152)~~978	)		(~~102~~101,~~123)~~614	)		(3,~~751)~~693	)		2320,~~872~~075			(~~105~~106,~~154)~~210	)
Operating (loss) income		(7,772)			9,315			322			(14)			1,851
Goodwill and intangible asset impairment		—			(357,978	)		(10,091	)		—			(368,069	)
Interest expense		(19,490)			(416)			(26)			-			(19,932)
Operating loss		(9,702	)		(337,956	)		(10,425	)		215			(357,868	)
Other income, net		81			45			9			-			135
Interest expense		(19,018	)		(415	)		—			—			(19,433	)
(Loss) income before income taxes		(27,181)			8,944			305			(14)			(17,946)
Other income (expense), net		97			(16	)		—			—			81
Income tax benefit (expense)		11,027			(3,614)			(359)			-			7,054
Loss before income taxes		(28,623	)		(338,387	)		(10,425	)		215			(377,220	)
Equity in earnings of affiliates, net of tax		5,262			-			-			(5,262)			-
Income tax benefit (expense)		5,591			46,812			(118	)		—			52,285
Net (loss) income	$	(10,892)		$	5,330		$	(54)		$	(5,276)		$	(10,892)
Equity in earnings of affiliates, net of tax		(301,903	)		—			—			301,903			—
Net loss	$	(324,935	)	$	(291,575	)	$	(10,543	)	$	302,118		$	(324,935	)

2023

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 13 WEEKS ENDED ~~OCTOBER 31~~JANUARY 30, ~~2015~~2016

(In thousands)

	The Gymboree			Guarantor			Non-guarantor
	The GymboreeCorporation			GuarantorSubsidiaries			Non-guarantorSubsidiaries			Eliminations			Consolidated
	Corporation			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	~~375~~1,371		$	~~283~~364,~~017~~681		$	1418,~~723~~422		$	(8,~~462)~~244	)	$	~~289~~376,~~653~~230
Retail Franchise		-—			5,~~867~~170			-—			-—			5,~~867~~170
Intercompany revenue		1619,~~238~~333			7(2,~~529~~820	)		~~559~~(1,062	)		(2415,~~326)~~451	)		-—
Total net sales		1620,~~613~~704			~~296~~367,~~413~~031			1517,~~282~~360			(3223,~~788)~~695	)		~~295~~381,~~520~~400
Cost of goods sold, including buying and occupancy expenses		(2,~~156)~~398	)		(~~175~~226,~~953)~~671	)		(1011,~~868)~~779	)		8,~~364~~272			(~~180~~232,~~613)~~576	)
Gross profit		1418,~~457~~306			~~120~~140,~~460~~360			45,~~414~~581			(2415,~~424)~~423	)		~~114~~148,~~907~~824
Selling, general and administrative expenses		(2215,~~809)~~975	)		(~~101~~115,~~017)~~647	)		(56,~~572)~~274	)		2415,~~371~~503			(~~105~~122,~~027)~~393	)
Operating (loss) income		(8,352)			19,443			(1,158)			(53)			9,880
Operating income (loss)		2,331			24,713			(693	)		80			26,431
Interest expense		(2120,~~417)~~891	)		(~~489)~~486	)		-—			-—			(21,~~906)~~377	)
Other (expense) income, net		(185)			(1)			37			-			(149)
Gain on extinguishment of debt		41,522			—			—			—			41,522
(Loss) income from continuing operations before taxes		(29,954)			18,953			(1,121)			(53)			(12,175)
Other (expense) income, net		(240	)		109			(328	)		—			(459	)
Income tax benefit (expense)		7,208			(8,017)			(26)			-			(835)
Income (loss) from continuing operations before taxes		22,722			24,336			(1,021	)		80			46,117
Equity in earnings of affiliates, net of tax		12,004			-			-			(12,004)			-
Income tax benefit (expense)		9,639			(9,511	)		(312	)		—			(184	)
(Loss) income from continuing operations, net of tax		(10,742)			10,936			(1,147)			(12,057)			(13,010)
Equity in earnings of affiliates, net of tax		16,895			—			—			(16,895	)		—
Income from discontinued operations, net of tax		714			811			1,833			-			3,358
Income (loss) from continuing operations, net of tax		49,256			14,825			(1,333	)		(16,815	)		45,933
Net (loss) income		(10,028)			11,747			686			(12,057)			(9,652)
Income from discontinued operations, net of tax		183			1,623			1,023			—			2,829
Net income attributable to noncontrolling interest		-			-			(376)			-			(376)
Net income (loss)		49,439			16,448			(310	)		(16,815	)		48,762
Net (loss) income attributable to The Gymboree Corporation	$	(10,028)		$	11,747		$	310		$	(12,057)		$	(10,028)
Net loss attributable to noncontrolling interest		—			—			677			—			677
Net income (loss) attributable to The Gymboree Corporation	$	49,439		$	16,448		$	367		$	(16,815	)	$	49,439

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 26 WEEKS ENDED JANUARY 28, 2017

(In thousands)


	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	1,493			615,992			28,856			(17,133	)	$	629,208
Retail Franchise		—			7,453			—			—			7,453
Intercompany revenue		28,520			16,529			(1,137	)		(43,912	)		—

Total net sales		30,013			639,974			27,719			(61,045	)		636,661
Cost of goods sold, including buying and occupancy expenses		(3,357	)		(406,900	)		(20,287	)		17,299			(413,245	)

Gross profit		26,656			233,074			7,432			(43,746	)		223,416
Selling, general and administrative expenses		(44,130	)		(203,737	)		(7,444	)		43,947			(211,364	)
Goodwill and intangible asset impairment		—			(357,978	)		(10,091	)		—			(368,069	)

Operating loss		(17,474	)		(328,641	)		(10,103	)		201			(356,017	)
Interest expense		(38,508	)		(831	)		(26	)		—			(39,365	)
Other income, net		178			29			9			—			216

Loss before income taxes		(55,804	)		(329,443	)		(10,120	)		201			(395,166	)
Income tax benefit (expense)		16,618			43,198			(477	)		—			59,339
Equity in earnings of affiliates, net of tax		(296,641	)		—			—			296,641			—

Net loss	$	(335,827	)	$	(286,245	)	$	(10,597	)	$	296,842		$	(335,827	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE 26 WEEKS ENDED JANUARY 30, 2016

(In thousands)


	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Retail	$	1,746		$	647,698		$	33,145		$	(16,706	)	$	665,883
Retail Franchise		—			11,037			—			—			11,037
Intercompany revenue		35,571			4,709			(503	)		(39,777	)		—

Total net sales		37,317			663,444			32,642			(56,483	)		676,920
Cost of goods sold, including buying and occupancy expenses		(4,554	)		(402,624	)		(22,647	)		16,636			(413,189	)

Gross profit		32,763			260,820			9,995			(39,847	)		263,731
Selling, general and administrative expenses		(38,784	)		(216,664	)		(11,846	)		39,874			(227,420	)

Operating (loss) income		(6,021	)		44,156			(1,851	)		27			36,311
Interest expense		(42,308	)		(975	)		—			—			(43,283	)
Gain on extinguishment of debt		41,522			—			—			—			41,522
Other (expense) income, net		(425	)		108			(291	)		—			(608	)

(Loss) income before income taxes		(7,232	)		43,289			(2,142	)		27			33,942
Income tax benefit (expense)		16,847			(17,528	)		(338	)					(1,019	)
Equity in earnings of affiliates, net of tax		28,899			—			—			(28,899	)		—

Income (loss) from continuing operations, net of tax		38,514			25,761			(2,480	)		(28,872	)		32,923
Income from discontinued operations, net of tax		897			2,434			2,856						6,187

Net income (loss)		39,411			28,195			376			(28,872	)		39,110
Net loss attributable to noncontrolling interest		—			—			301			—			301

Net income attributable to The Gymboree Corporation	$	39,411		$	28,195		$	677		$	(28,872	)	$	39,411

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 13 WEEKS ENDED ~~OCTOBER 29~~JANUARY 28, ~~2016~~2017

(In thousands)

	The Gymboree			Guarantor			Non-guarantor
	The GymboreeCorporation			GuarantorSubsidiaries			Non-guarantorSubsidiaries			Eliminations			Consolidated
	Corporation			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net loss	$	(324,935	)	$	(291,575	)	$	(10,543	)	$	302,118		$	(324,935	)
Net (loss) income	$	(10,892)		$	5,330		$	(54)		$	(5,276)		$	(10,892)
Other comprehensive (loss) income:
Other comprehensive income (loss):
Foreign currency translation adjustments		(68	)		—			205			(205	)		(68	)
Foreign currency translation adjustments, net of tax		(374)			-			(368)			368			(374)
Unrealized net (loss) gain on cash flow hedges, net of tax		(1,569	)		—			5			(5	)		(1,569	)
Unrealized net gain on cash flow hedges, net of tax		1,094			-			341			(341)			1,094
Total other comprehensive (loss) income		(1,637	)		—			210			(210	)		(1,637	)
Total other comprehensive income (loss), net of tax		720			-			(27)			27			720
Comprehensive loss	$	(326,572	)	$	(291,575	)	$	(10,333	)	$	301,908		$	(326,572	)
Comprehensive (loss) income	$	(10,172)		$	5,330		$	(81)		$	(5,249)		$	(10,172)

21THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 13 WEEKS ENDED JANUARY 30, 2016

(In thousands)


	The Gymboree Corporation			Guarantor Subsidiaries		Non-guarantor Subsidiaries			Eliminations			Consolidated

Net income (loss)	$	49,439		$	16,448	$	(310	)	$	(16,815	)	$	48,762

Other comprehensive loss:
Foreign currency translation adjustments		(1,434	)		—		(1,930	)		1,450			(1,914	)
Unrealized net gain (loss) on cash flow hedges, net of tax		1,030			—		(52	)		51			1,029

Total other comprehensive loss		(404	)		—		(1,982	)		1,501			(885	)

Comprehensive income (loss)		49,035			16,448		(2,292	)		(15,314	)		47,877
Comprehensive loss attributable to noncontrolling interest		—			—		1,158			—			1,158

Comprehensive income (loss) attributable to The Gymboree Corporation	$	49,035		$	16,448	$	(1,134	)	$	(15,314	)	$	49,035

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 26 WEEKS ENDED JANUARY 28, 2017

(In thousands)


	The Gymboree Corporation			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated

Net loss	$	(335,827	)	$	(286,245	)	$	(10,597	)	$	296,842		$	(335,827	)

Other comprehensive (loss) income:
Foreign currency translation adjustments		(442	)		—			(165	)		165			(442	)
Unrealized net (loss) gain on cash flow hedges, net of tax		(475	)		—			346			(346	)		(475	)

Total other comprehensive (loss) income		(917	)		—			181			(181	)		(917	)

Comprehensive loss	$	(336,744	)	$	(286,245	)	$	(10,416	)	$	296,661		$	(336,744	)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE 1326 WEEKS ENDED ~~OCTOBER 31~~JANUARY 30, ~~2015~~2016

(In thousands)

	The Gymboree			Guarantor		Non-guarantor
	The GymboreeCorporation			GuarantorSubsidiaries		Non-guarantorSubsidiaries			Eliminations			Consolidated
	Corporation			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Net income	$	39,411		$	28,195	$	376		$	(28,872	)	$	39,110
Net (loss) income	$	(10,028)		$	11,747	$	686		$	(12,057)		$	(9,652)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax		(44)			-		(232)			34			(242)
Foreign currency translation adjustments		(1,478	)		—		(2,162	)		1,484			(2,156	)
Unrealized net gain (loss) on cash flow hedges, net of tax		~~609~~1,639			-—		(~~72)~~124	)		73124			~~610~~1,639
Total other comprehensive income (loss), net of tax		565			-		(304)			107			368
Total other comprehensive income (loss),		161			—		(2,286	)		1,608			(517	)
Comprehensive (loss) income		(9,463)			11,747		382			(11,950)			(9,284)
Comprehensive income (loss)		39,572			28,195		(1,910	)		(27,264	)		38,593
Comprehensive income attributable to noncontrolling interest		-			-		(179)			-			(179)
Comprehensive loss attributable to noncontrolling interest		—			—		979			—			979
Comprehensive (loss) income attributable to The Gymboree Corporation	$	(9,463)		$	11,747	$	203		$	(11,950)		$	(9,463)
Comprehensive income (loss) attributable to The Gymboree Corporation	$	39,572		$	28,195	$	(931	)	$	(27,264	)	$	39,572

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

	October 29, 2016
	January 28, 2017
	The Gymboree			Guarantor		Non-guarantor
	The GymboreeCorporation			GuarantorSubsidiaries		Non-guarantorSubsidiaries		Eliminations			Consolidated
ASSETS	~~Corporation~~			~~Subsidiaries~~		~~Subsidiaries~~		~~Eliminations~~			~~Consolidated~~
Current assets:
Cash and cash equivalents	$	115,~~007~~223		$	42,~~980~~618	$	34,~~733~~278	$	-—		$	922,~~720~~119
Restricted cash		2724,~~524~~018			-—		-—		-—			2724,~~524~~018
Accounts receivable, net of allowance		12,~~668~~549			1211,~~085~~648		~~1,385~~702		-—			1514,~~138~~899
Merchandise inventories		-—			~~259~~206,~~150~~409		4,~~414~~973		(~~437)~~487	)		~~263~~210,~~127~~895
Prepaid income taxes		1,333			588		141		-—			2,062
Prepaid expenses		3,~~859~~612			1,~~915~~893		105		-—			5,~~784~~510
Intercompany receivable		~~890~~—			~~664~~704,~~599~~995		-1,710		(~~665~~706,~~489)~~705	)		-—
Total current assets		3646,~~281~~735			~~943~~928,~~317~~151		911,~~683~~809		(~~665~~707,~~926)~~192	)		~~323~~279,~~355~~503
Property and equipment, net		1415,~~409~~993			~~119~~112,~~302~~705		5,~~605~~340		-—			~~139~~134,~~316~~038
Goodwill		-—			~~346~~123,~~818~~140		~~9,963~~0		-—			~~356~~123,~~781~~140
Other intangible assets, net		-—			~~299~~164,~~579~~854		2420		-—			~~299~~164,~~603~~874
Restricted cash		6849,~~804~~015			-—		-—		-—			6849,~~804~~015
Other assets		1,~~706~~314			1,~~191~~122		2,~~662~~820		(~~296)~~328	)		54,~~263~~928
Investment in subsidiaries		1,~~378~~074,~~604~~389			-—		-—		(1,~~378~~074,~~604)~~389	)		-—
Total assets	$	1,~~499~~187,~~804~~446		$	1,~~710~~329,~~207~~972	$	2719,~~937~~989	$	(21,~~044~~781,~~826)~~909	)	$	1755,~~193,122~~498
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	58,~~466~~396		$	~~124~~108,~~922~~638	$	~~187~~318	$	-—		$	~~130~~117,~~575~~352
Accrued and other current liabilities		37,171			63,940		1,235		-			102,346
Accrued liabilities and other current liabilities		27,694			52,396		650		—			80,740
Line of credit borrowings		8054,000			-—		-—		-—			8054,000
Current portion of long-term debt		7,577			-		-		-			7,577
Current portion of long-term debt, net		53,111			—		—		—			53,111
Intercompany payable		~~660~~699,~~884~~503			-—		57,~~042~~689		(~~665~~707,~~926)~~192	)		-—
Total current liabilities		~~791~~842,~~098~~704			~~188~~161,~~862~~034		68,~~464~~657		(~~665~~707,~~926)~~192	)		~~320~~305,~~498~~203
Long-term liabilities:
Long-term debt, net		~~970~~925,~~154~~928			-—		-—		-—			~~970~~925,~~154~~928
Long-term sale-leaseback financing liability, net		-—			25,~~467~~426		-—		-—			25,~~467~~426
Lease incentives and other liabilities		54,~~015~~624			3938,~~780~~344		4,~~482~~681		-—			4947,~~277~~649
Deferred income taxes		1623,~~606~~338			9437,~~485~~430		-—		(~~296)~~328	)		~~110~~60,~~795~~440
Total liabilities		1,~~782~~796,~~873~~594			~~348~~262,~~594~~234		1013,~~946~~338		(~~666~~707,~~222)~~520	)		1,~~476~~364,~~191~~646
Total stockholders’ (deficit) equity		(~~283~~609,~~069)~~148	)		1,~~361~~067,~~613~~738		166,~~991~~651		(1,~~378~~074,~~604)~~389	)		(~~283~~609,~~069)~~148	)
Total liabilities and stockholders’ (deficit) equity	$	1,~~499~~187,~~804~~446		$	1,~~710~~329,~~207~~972	$	2719,~~937~~989	$	(21,~~044~~781,~~826)~~909	)	$	1755,~~193,122~~498

2227

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

	July 30, 2016
	The Gymboree			Guarantor		Non-guarantor
	The GymboreeCorporation			GuarantorSubsidiaries		Non-guarantorSubsidiaries		Eliminations			Consolidated
ASSETS	~~Corporation~~			~~Subsidiaries~~		~~Subsidiaries~~		~~Eliminations~~			~~Consolidated~~
Current assets:
Cash and cash equivalents	$	4,952		$	4,607	$	3,077	$	-—		$	12,636
Restricted cash		33,505			-—		-—		-—			33,505
Accounts receivable, net of allowance		1,486			10,009		795		-—			12,290
Merchandise inventories		-—			229,118		4,258		(417)	)		232,959
Prepaid income taxes		1,332			578		136		-—			2,046
Prepaid expenses		3,409			1,508		-—		-—			4,917
Intercompany receivable		1,311			687,735		-—		(689,046)	)		-—
Total current assets		45,995			933,555		8,266		(689,463)	)		298,353
Property and equipment, net		15,783			122,147		5,821		-—			143,751
Goodwill		-—			346,818		10,223		-—			357,041
Other intangible assets, net		-—			300,043		30		-—			300,073
Restricted cash		73,566			-—		-—		-—			73,566
Other assets		2,043			1,474		2,682		(471)	)		5,728
Investment in subsidiaries		1,373,355			-—		-—		(1,373,355)	)		-—
Total assets	$	1,510,742		$	1,704,037	$	27,022	$	(2,063,289)	)	$	1,178,512
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	8,255		$	126,103	$	140	$	-—		$	134,498
Accrued and other current liabilities		50,370			60,121		1,418		-—			111,909
Line of credit borrowings		42,000			-—		-—		-—			42,000
Current portion of ABL term loan		5,527			-—		-—		-—			5,527
Intercompany payable		685,536			-—		3,927		(689,463)	)		-—
Total current liabilities		791,688			186,224		5,485		(689,463)	)		293,934
Long-term liabilities:
Long-term debt, net		970,902			-—		-—		-—			970,902
Long-term sale-leaseback financing liability, net		-—			25,508		-—		-—			25,508
Lease incentives and other liabilities		5,227			40,951		4,464		-—			50,642
Deferred income taxes		16,198			95,072		-—		(471)	)		110,799
Total liabilities		1,784,015			347,755		9,949		(689,934)	)		1,451,785
Total stockholders’ (deficit) equity		(273,273)	)		1,356,282		17,073		(1,373,355)	)		(273,273)	)
Total liabilities and stockholders’ (deficit) equity	$	1,510,742		$	1,704,037	$	27,022	$	(2,063,289)	)	$	1,178,512

2328

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

	October 31, 2015
	January 30, 2016
	The Gymboree			Guarantor		Non-guarantor
	The GymboreeCorporation			GuarantorSubsidiaries		Non-guarantorSubsidiaries		Eliminations			Consolidated
ASSETS	~~Corporation~~			~~Subsidiaries~~		~~Subsidiaries~~		~~Eliminations~~			~~Consolidated~~
Current assets:
Cash and cash equivalents	$	~~1,091~~982		$	42,~~119~~998	$	125,~~050~~794	$	-—		$	179,~~260~~774
Accounts receivable, net of allowance		~~493~~1,073			1519,~~614~~042		~~675~~992		-—			1621,~~782~~107
Merchandise inventories		-—			~~253~~195,~~689~~860		87,~~279~~300		(~~418)~~328	)		~~261~~202,~~550~~832
Prepaid income taxes		1,~~514~~511			~~821~~516		~~242~~169		-—			2,~~577~~196
Prepaid expenses		3,~~838~~359			2,~~250~~702		~~458~~275		-—			6,~~546~~336
Deferred income taxes		-			14,250		160		(8,469)			5,941
Intercompany receivable		—			635,684		1,376		(637,060	)		—
Intercompany receivable		-			596,089		1,051		(597,140)			-
Current assets of discontinued operations		—			42,255		14,479		(38,524	)		18,210
Current assets of discontinued operations		-			41,955		14,730		(38,136)			18,549
Total current assets		6,925			899,057		30,385		(675,912	)		260,455
Total current assets		6,936			928,787		37,645		(644,163)			329,205
Property and equipment, net		13,518			135,498		6,534		—			155,550
Property and equipment, net		13,408			142,801		7,485		-			163,694
Goodwill		—			346,818		9,530		—			356,348
Goodwill		-			346,818		10,201		-			357,019
Other intangible assets, net		—			303,571		37		—			303,608
Other intangible assets, net		-			304,102		44		-			304,146
Other assets		2,899			683		2,999		(411	)		6,170
Restricted cash		4,535			-		-		-			4,535
Investment in subsidiaries		1,410,631			—		—		(1,410,631	)		—
Other assets		3,261			1,196		3,400		(1,246)			6,611
Other assets of discontinued operations		—			54,825		3,520		—			58,345
Investment in subsidiaries		1,404,175			-		-		(1,404,175)			-
Total assets	$	1,433,973		$	1,740,452	$	53,005	$	(2,086,954	)	$	1,140,476
Other assets of discontinued operations		-			54,634		2,775		-			57,409
LIABILITIES AND STOCKHOLDERS’(DEFICIT) EQUITY
Total assets	$	1,432,315		$	1,778,338	$	61,550	$	(2,049,584)		$	1,222,619
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	710,~~097~~065		$	~~122~~97,~~470~~144	$	~~1,453~~657	$	-—		$	~~131~~107,~~020~~866
Accrued and other current liabilities		3327,~~102~~941			6859,~~592~~276		3,~~202~~064		~~210~~—			~~105~~90,~~106~~281
Deferred income taxes		8,679			-		-		(8,679)			-
Line of credit borrowings		19,000			—		—		—			19,000
Line of credit borrowings		50,000			-		-		-			50,000
Current obligation under capital lease		—			605		—		—			605
Current obligation under capital lease		-			591		-		-			591
Intercompany payable		668,968			—		5,969		(674,937	)		—
Intercompany payable		628,692			-		5,641		(634,333)			-
Current liabilities of discontinued operations		—			2,108		12,167		(975	)		13,300
Current liabilities of discontinued operations		-			2,815		10,229		(1,361)			11,683
Total current liabilities		725,974			159,133		21,857		(675,912	)		231,052
Total current liabilities		727,570			194,468		20,525		(644,163)			298,400
Long-term liabilities:
Long-term debt, net		1,~~095~~040,~~760~~506			-—		-—		-—			1,~~095~~040,~~760~~506
Long-term sale-leaseback financing liability		-			25,610		-		-			25,610
Long-term sale-leaseback financing liability, net		—			25,578		—		—			25,578
Long-term obligation under capital lease, net		-			2,402		-		-			2,402
Long-term obligation under capital lease		—			2,245		—		—			2,245
Lease incentives and other liabilities		54,~~549~~455			4746,~~169~~105		43,~~060~~870		-—			5654,~~778~~430
Deferred income taxes		111,~~775~~640			~~128~~113,~~833~~014		21—		(~~1,246)~~411	)		~~129~~124,~~383~~243
Other long-term liabilities of discontinued operations		-—			~~438~~13		~~315~~297		-—			~~753~~310
Total liabilities		1,~~830~~782,~~654~~575			~~398~~346,~~920~~088		2426,~~921~~024		(~~645~~676,~~409)~~323	)		1,~~609~~478,~~086~~364
Total stockholders’ (deficit) equity		(~~398~~348,~~339)~~602	)		1,~~379~~394,~~418~~364		2416,~~757~~267		(1,~~404~~410,~~175)~~631	)		(~~398~~348,~~339)~~602	)
Noncontrolling interest		-—			-—		1110,~~872~~714		-—			1110,~~872~~714
Total liabilities and stockholders’ (deficit) equity	$	1,~~432~~433,~~315~~973		$	1,~~778~~740,~~338~~452	$	6153,~~550~~005	$	(2,~~049~~086,~~584)~~954	)	$	1,~~222~~140,~~619~~476

2429

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 1326 WEEKS ENDED ~~OCTOBER 29~~JANUARY 28, ~~2016~~2017

(In thousands)

	The Gymboree			Guarantor			Non-guarantor
	The GymboreeCorporation			GuarantorSubsidiaries			Non-guarantorSubsidiaries			Eliminations			Consolidated
	Corporation			Subsidiaries			Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities	$	(31,652)		$	(13,563)		$	(311)		$	-		$	(45,526)
Net cash (used in) provided by operating activities	$	(59,338	)	$	38,953		$	(449	)	$	(2,300	)	$	(23,134	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(~~496)~~3,912	)		(47,~~882)~~852	)		(~~117)~~375	)		-—			(512,~~495)~~139	)
Decrease in restricted cash		1034,~~743~~038			-—			-—			-—			1034,~~743~~038
Intercompany transfers		~~421~~1,310			18(30,~~872~~681	)		-(1,710	)		~~(19~~31,~~293)~~081			-—
Net cash provided by (used in) investing activities		1031,~~668~~436			13(38,~~990~~533	)		(~~117)~~2,085	)		~~(19~~31,~~293)~~081			521,~~248~~899
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		~~(20~~27,~~336)~~423			-—			13,~~043~~658			19(31,~~293~~081	)		-—
Proceeds from ABL facility		~~169~~319,000			-—			-—			-—			~~169~~319,000
Payments on ABL facility		(~~131~~307,000)	)		-—			-—			-—			(~~131~~307,000)	)
Payments on ABL term loan		(~~625)~~1,250	)		-—			-—			-—			(~~625)~~1,250	)
Payments on capital lease and sale-leaseback financing liability		-—			(~~54)~~109	)		-—			-—			(~~54)~~109	)
Net cash provided by (used in) financing activities		17,039			(54)			1,043			19,293			37,321
Dividend to The Gymboree Corporation		—			(2,300	)					2,300
Effect of exchange rate fluctuations on cash and cash equivalents		-			-			41			-			41
Net cash provided by (used in) financing activities		38,173			(2,409	)		3,658			(28,781	)		10,641
Net (decrease) increase in cash and cash equivalents		(3,945)			373			656			-			(2,916)
Effect of exchange rate fluctuations on cash and cash equivalents		—			—			77			—			77
Net increase (decrease) in cash and cash equivalents		10,271			(1,989	)		1,201			—			9,483
CASH AND CASH EQUIVALENTS:
Beginning of Period		4,952			4,607			3,077			-			12,636
Beginning of period		4,952			4,607			3,077			—			12,636
End of Period	$	1,007		$	4,980		$	3,733		$	-		$	9,720
End of period	$	15,223		$	2,618		$	4,278		$	—		$	22,119

2530

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE 1326 WEEKS ENDED ~~OCTOBER 31~~JANUARY 30, ~~2015~~2016

(In thousands)

	The Gymboree			Guarantor			Non-guarantor
	The GymboreeCorporation			GuarantorSubsidiaries			Non-guarantorSubsidiaries			Eliminations			Consolidated
	Corporation			Subsidiaries			Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities	$	(2841,~~711)~~633	)	$	54110,~~028~~002		$	~~311~~4,237		$	-(1,500	)	$	2571,~~628~~106
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(14,~~502)~~433	)		(28,~~957)~~399	)		(~~611)~~1,075	)		-—			(513,~~070)~~907	)
Decrease in restricted cash		38,~~622~~157			-—			-—			-—			38,~~622~~157
Increase in related party loan receivable		-			-			(1,741)			-			(1,741)
Capital distribution from subsidiary		7,358			—			—			(7,358	)		—
Intercompany transfers		2,726			(50,614)			(978)			48,866			-
Increase in related party loan receivable		—			—			(1,741	)		—			(1,741	)
Other		-			5			(12)			-			(7)
Intercompany transfers		2,726			(100,537	)		(1,304	)		99,115			—
Net cash provided by (used in) investing activities		4,846			(53,566)			(3,342)			48,866			(3,196)
Other		—			6			155			—			161
Net cash provided by (used) in investing activities		13,808			(108,930	)		(3,965	)		91,757			(7,330	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		4494,~~455~~631			(73)	)		4,~~484~~557			(4899,~~866)~~115	)		-—
Proceeds from ABL facility		~~107~~187,000			-—			-—			-—			~~107~~187,000
Payments on ABL facility		(~~127~~238,000)	)		-—			-—			-—			(~~127~~238,000)	)
Payments for deferred financing costs		(1,679)			227			-			-			(1,452)
Repurchase of notes		(15,325	)		—			—			—			(15,325	)
Payments on capital lease and sale-leaseback financing liability		-—			(~~185)~~374	)		-—			-—			(~~185)~~374	)
Net cash provided by (used in) financing activities		22,776			(31)			4,484			(48,866)			(21,637)
Payments for deferred financing costs		(1,679	)		227			—			—			(1,452	)
Effect of exchange rate fluctuations on cash and cash equivalents		-			-			(15)			-			(15)
Dividend to The Gymboree Corporation		—			(1,500	)		—			1,500			—
Net (decrease) increase in cash and cash equivalents		(1,089)			431			1,438			-			780
Capital distribution to The Gymboree Corporation		—			—			(7,358	)		7,358			—
Net cash provided by (used in) financing activities		26,627			(1,720	)		(2,801	)		(90,257	)		(68,151	)
Effect of exchange rate fluctuations on cash and cash equivalents		—			—			(958	)		—			(958	)
Net decrease in cash and cash equivalents		(1,198	)		(648	)		(3,487	)		—			(5,333	)
CASH AND CASH EQUIVALENTS:
Cash and cash equivalent, beginning of period		2,180			3,649			17,668			-—			23,497
Cash and cash equivalent, end of period		~~1,091~~982			43,~~080~~001			1914,~~106~~181			-—			2418,~~277~~164
Less - cash and cash equivalents of discontinued operations, end of period		-—			(~~39)~~3	)		7(8,~~056~~387	)		-—			7(8,~~017~~390	)
Cash and cash equivalents of continuing operations, end of period	$	~~1,091~~982		$	42,~~119~~998		$	125,~~050~~794		$	-—		$	179,~~260~~774

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

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

2631

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

Forward-Looking Statements

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

Important factors that could cause actual results to differ materially from our expectations (“cautionary statements”) are disclosed under “Item 1A, Risk Factors,” in this Form 10-Q and in our Transition Report on Form 10-K for the 26 weeks ended July 30, 2016, filed with the Securities and Exchange Commission on October 28, 2016 (the “Fiscal 2016 Transition Report”). We encourage you to read these risk factor disclosures carefully. We caution investors not to place substantial reliance on the forward-looking statements contained in this quarterly report. These statements, like all statements in this quarterly report, speak only as of the date of this quarterly report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.

Overview

We are one of the largest children’s apparel specialty retailers in North America, offering collections of high-quality apparel and accessories. As of ~~October~~January 2928, ~~2016~~2017, we operated a total of 1,~~300~~291 retail stores, as follows:

	United States		Canada		Puerto Rico		Total
Gymboree® stores		~~541~~536		49		1		~~591~~586
Gymboree Outlet stores		173		-—		1		174
Janie and Jack® shops (including Janie and Jack outlets)		~~149~~148		-—		1		~~150~~149
Crazy 8® stores (including Crazy 8 outlets)		~~385~~382		-—		-—		~~385~~382
		1,248		49		3		1,300
		1,239		49		3		1,291

AsThe offollowing ~~October 29,~~table ~~2016,~~summarizes westore ~~also~~openings ~~operated~~and closures ~~online~~by ~~stores~~brand atand ~~www.gymboree.com, www.janieandjack.com~~country ~~and~~during ~~www~~the 26 weeks ended January 28, 2017.~~crazy8.com.~~ ~~Overseas~~Note ~~franchisees~~that ~~operated~~(i) all 53Crazy ~~retail~~8 stores are in the ~~Middle~~United ~~East,~~States ~~South Korea~~ and ~~Latin~~(ii) retail ~~America~~stores asoperated ~~follows~~by asoverseas offranchisees ~~October 29,~~are ~~2016:~~excluded.

	Number of
	Store Count as ofJuly 30, 2016		StoreOpenings		StoreClosures			Store Count as ofJanuary 28, 2017
	Franchised Stores
Gymboree US		541		—		(5	)		536
Gymboree® stores		48
Gymboree Canada		48		1		—			49
Janie and Jack® shops		2
Gymboree Puerto Rico		1		—		—			1
Crazy 8® stores		3
Total Gymboree		590		1		(5	)		586
		53
Gymboree Outlet		174		—		(1	)		173
Gymboree Outlet Puerto Rico		1		—		—			1
Total Gymboree Outlet		175		—		(1	)		174
Janie and Jack (including Janie and Jack outlets)		148		1		(1	)		148
Janie and Jack Puerto Rico		1		—		—			1
Total Janie and Jack		149		1		(1	)		149
Crazy 8 (including Crazy 8 outlets)		385		—		(3	)		382
Total		1,299		2		(10	)		1,291

On32 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.

~~First~~As ~~Quarter~~of January 28, 2017, ~~Highlights~~we also operated online stores at www.gymboree.com, www.janieandjack.com and www.crazy8.com. Overseas franchisees operated 53 retail stores in the Middle East, South Korea, Australia and Latin America as follows as of January 28, 2017:

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.


	Number of Franchised Stores
Gymboree® stores		48
Janie and Jack® shops		2
Crazy 8® stores		3

		53

~~Comparable~~On ~~store~~July 15, ~~sales~~2016, ~~(including~~we ~~online~~sold ~~sales) for~~ the 13Gymboree ~~weeks ended October~~Play ~~29,~~& ~~2016~~Music ~~decreased~~business ~~5% compared~~ to ~~the~~Zeavion 13Holding Pte. ~~weeks~~Ltd. ~~ended October 31, 2015~~(“Zeavion”). AConcurrent ~~new~~with ~~store~~the issale ~~included~~of inGymboree ~~the~~Play & ~~comparable~~Music, ~~store~~Gymboree ~~sales~~Investment ~~calculation~~Holdings ~~after~~L.P. itsold ~~has~~Gymboree ~~been~~(Tianjin) ~~opened~~Educational ~~for~~Information aConsultation ~~full~~Co. ~~14 fiscal months~~Ltd. A(“Gymboree ~~store~~Tianjin”) ~~that~~and isGymboree ~~relocated or expanded by~~(China) ~~more~~Commercial ~~than~~and ~~15%~~Trading ~~square~~Co. ~~feet~~Ltd. is(“Gymboree ~~excluded~~China”), ~~from~~master ~~the~~franchisee ~~comparable~~of ~~store~~Gymboree ~~sales~~Play & ~~calculation~~Music and ~~becomes~~operator aof ~~comparable~~Gymboree ~~store~~retail ~~after~~stores itin ~~has~~China, ~~been~~respectively, ~~opened~~to ~~for~~Zeavion. aGymboree ~~full~~China’s 14retail ~~fiscal~~locations ~~months~~were ~~from~~closed ~~the~~prior ~~final~~to being ~~relocation~~sold orto ~~the completion of the expansion~~Zeavion. ~~Below are the comparable store sales (including online sales) by brand for the 13 weeks ended October 29, 2016 and October 31, 2015:~~

	13 Weeks Ended
	October 29, 2016			October 31, 2015
Gymboree		-6	%		-6	%
Janie and Jack		4	%		4	%
Crazy 8		-4	%		1	%
Total comparable store sales (including online sales)		-5	%		-3	%

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 and 26 weeks ended January 30, 2016 are presented as discontinued operations (see Note 4 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.

~~Our~~Second ~~loss from continuing operations, net of tax, decreased to $10.9 million during the 13~~Quarter 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~~Fiscal ~~million~~2017 orHighlights ~~32.7%, primarily due to a 5% decrease in comparable store sales.~~

~~The~~Total ~~following~~net ~~table~~sales ~~summarizes~~decreased ~~store~~to ~~openings~~$356.8 million ~~and~~during ~~closures~~the by13 ~~brand~~weeks ~~and~~ended ~~country~~January 28, 2017 from $381.4 million during the 13 weeks ended ~~October~~January 2930, 2016, a decrease of 6.4% ~~Note~~driven ~~that~~primarily ~~(i)~~by a decline in retail sales of $23.3 ~~all~~million attributable to our Gymboree and Crazy 8 ~~stores~~brands ~~are~~and a decrease in ~~the~~our ~~United~~retail franchise ~~States~~sales ~~and~~of ~~(ii)~~$1.3 ~~retail~~million ~~stores~~resulting ~~operated~~from bylower ~~overseas~~sales ~~franchisees~~to ~~are~~our ~~excluded~~franchisee in the Middle East region.

	Store Count as of		Store		Store		Store Count as of
	July 30, 2016		Openings		Closures		October 29, 2016
Gymboree US		541		-		-		541
Gymboree Canada		48		1		-		49
Gymboree Puerto Rico		1		-		-		1
Total Gymboree		590		1		-		591
Gymboree Outlet		174		-		(1)		173
Gymboree Outlet Puerto Rico		1		-		-		1
Total Gymboree Outlet		175		-		(1)		174
Janie and Jack (including Janie and Jack outlets)		148		1		-		149
Janie and Jack Puerto Rico		1		-		-		1
Total Janie and Jack		149		1		-		150
Crazy 8 (including Crazy 8 outlets)		385		-		-		385
Total		1,299		2		(1)		1,300

Comparable store sales (including online sales) during the 13 weeks ended January 28, 2017 decreased 5% compared to the 13 weeks ended January 30, 2016. A new store is included in the comparable store sales calculation after it has been opened for a full 14 fiscal months. A store that is relocated or expanded by more than 15% in terms of total square footage is excluded from the comparable store sales calculation and becomes a comparable store after it has been opened for a full 14 fiscal months from the final relocation or the completion of the expansion. Below are the comparable store sales (including online sales) by brand for the 13 weeks ended January 28, 2017 and January 30, 2016:


	13 Weeks Ended
	January 28, 2017			January 30, 2016
Gymboree		-6	%		6	%
Janie and Jack		1	%		11	%
Crazy 8		-6	%		1	%
Total comparable store sales (including online sales)		-5	%		5	%

Gross profit during the 13 weeks ended January 28, 2017 decreased to $116.4 million from $148.8 million during the 13 weeks ended January 30, 2016, primarily driven by a decrease in comparable store sales attributable to our Gymboree and Crazy 8 brands, an $11.6 million charge related to excess inventories, incremental distribution costs totaling $2.4 million related to expedited shipping costs during the holiday period, and an increase in promotional (markdown) activities.

During the 13 weeks ended January 28, 2017, we had an operating loss of $357.9 million compared to operating income of $26.4 million during the 13 weeks ended January 30, 2016. The decline was primarily due to goodwill and intangible asset impairment of $368.1 million during the 13 weeks ended January 28, 2017. Our Adjusted EBITDA from continuing operations (see Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) (Non-GAAP Measure) below) decreased to $26.2 million during the 13 weeks ended January 28, 2017 from $45.5 million during the 13 weeks ended January 30, 2016, a decrease of $19.3 million or 42.4%, primarily due to a 5% decrease in comparable store sales attributable to our Gymboree and Crazy 8 brands, an $11.6 million charge related to excess inventories, incremental distribution costs totaling $2.4 million related to expedited shipping costs during the holiday period, and an increase in promotional (markdown) activities.

First Half of Fiscal 2017 Highlights

Total net sales decreased to $636.7 million during the 26 weeks ended January 28, 2017 from $676.9 million during the 26 weeks ended January 30, 2016, a decrease of 5.9% driven primarily by a decline in retail sales of $36.7 million attributable to our Gymboree and Crazy 8 brands and a decrease in our retail franchise sales of $3.5 million resulting from lower sales to our franchisee in the Middle East region.

Comparable store sales (including online sales) for the 26 weeks ended January 28, 2017 decreased 5% compared to the 26 weeks ended January 30, 2016. Below are the comparable store sales (including online sales) by brand for the 26 weeks ended January 28, 2017 and January 30, 2016:


	26 Weeks Ended
	January 28, 2017			January 30, 2016
Gymboree		-6	%		0	%
Janie and Jack		2	%		7	%
Crazy 8		-5	%		1	%
Total comparable store sales (including online sales)		-5	%		1	%

Gross profit during the 26 weeks ended January 28, 2017 decreased to $223.4 million from $263.7 million during the 26 weeks ended January 30, 2016, primarily driven by a decrease in comparable store sales attributable to our Gymboree and Crazy 8 brands, a $13.0 million charge related to excess inventories, incremental distribution costs totaling $2.4 million related to expedited shipping costs during the holiday period, and an increase in promotional (markdown) activities.

During the 26 weeks ended January 28, 2017, we had an operating loss of $356.0 million compared to operating income of $36.3 million during the 26 weeks ended January 30, 2016. The decline was primarily due to goodwill and intangible asset impairment of $368.1 million during the 26 weeks ended January 28, 2017. Our Adjusted EBITDA decreased to $44.0 million from $72.0 million during the 26 weeks ended January 30, 2016, a decrease of $28.0 million or 38.8%, primarily due to a 5% decrease in comparable store sales attributable to our Gymboree and Crazy 8 brands, a $13.0 million charge related to excess inventories, incremental distribution costs totaling $2.4 million related to expedited shipping costs during the holiday period, and an increase in promotional (markdown) activities.

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 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.

2834

Results of Operations

13 weeks ended ~~October 29~~January 28, ~~2016~~2017 compared to 13 weeks ended ~~October 31~~January 30, ~~2015~~2016

Condensed consolidated statements of operations data as a percentage of total net sales during the 13 weeks ended ~~October~~January 2928, ~~2016~~2017 and ~~October~~January 3130, ~~2015~~2016 are presented below (amounts in thousands). The condensed consolidated statement of operations during the 13 weeks ended ~~October~~January 3130, ~~2015~~2016 was revised to present the results of Gymboree Play & Music and Gymboree Tianjin as discontinued operations.

	13 Weeks Ended
	October 29, 2016					October 31, 2015
	January 28, 2017					January 30, 2016
				% of Total					% of Total
	Amount			% of TotalNet Sales		Amount			% of TotalNet Sales
	Amount			Net Sales		Amount			Net Sales
Net sales:
Retail	$	~~276~~352,~~310~~898			98.7 9%	$	~~289~~376,~~653~~230			98.0 6%
Retail Franchise		3,517			1.3 %		5,867			2.0 %
Retail franchise		3,936			1.1%		5,170			1.4%
Total net sales		~~279~~356,~~827~~834			100.0 %		~~295~~381,~~520~~400			100.0 %
Cost of goods sold, including buying and occupancy expenses		(~~172~~240,~~822)~~423	)		(6167.84) %		(~~180~~232,~~613)~~576	)		(61.10) %
Gross profit		~~107~~116,~~005~~411			3832.2 6%		~~114~~148,~~907~~824			3839.9 0%
Selling, general and administrative expenses		(~~105~~106,~~154)~~210	)		(3729.68) %		(~~105~~122,~~027)~~393	)		(3532.51) %
Operating income		1,851			0.7 %		9,880			3.3 %
Goodwill and intangible asset impairment		(368,069	)		(103.1)%		—			—
Interest expense		(19,932)			(7.1) %		(21,906)			(7.4) %
Operating (loss) income		(357,868	)		(100.3)%		26,431			6.9%
Other income (expense), net		135			-		(149)			(0.1) %
Interest expense		(19,433	)		(5.4)%		(21,377	)		(5.6)%
Loss from continuing operations before taxes		(17,946)			(6.4) %		(12,175)			(4.1) %
Gain on extinguishment of debt		—			—		41,522			10.9%
Income tax benefit (expense)		7,054			2.5 %		(835)			(0.3) %
Other income (expense), net		81			—		(459	)		(0.1)%
Loss from continuing operations, net of tax		(10,892)			(3.9) %		(13,010)			(4.4) %
(Loss) income from continuing operations before taxes		(377,220	)		(105.7)%		46,117			12.1%
Income from discontinued operations, net of tax		-			-		3,358			1.1 %
Income tax benefit (expense)		52,285			14.7%		(184	)		—
Net loss		(10,892)			(3.9) %		(9,652)			(3.3) %
(Loss) income from continuing operations, net of tax		(324,935	)		(91.1)%		45,933			12.0%
Net income attributable to noncontrolling interest		-			-		(376)			(0.1) %
Income from discontinued operations, net of tax		—			—		2,829			0.7%
Net loss attributable to The Gymboree Corporation	$	(10,892)			(3.9) %	$	(10,028)			(3.4) %
Net (loss) income		(324,935	)		(91.1)%		48,762			12.8%
Net loss attributable to noncontrolling interest		—			—		677			0.2%
Net (loss) income attributable to The Gymboree Corporation	$	(324,935	)		(91.1)%	$	49,439			13.0%

Net Sales

~~Total~~Net ~~net~~retail sales during the 13 weeks ended ~~October~~January 2928, ~~2016~~2017 decreased to $~~279~~352.8 9 million from $~~295~~376.5 2 million during the 13 weeks ended ~~October~~January 3130, ~~2015~~2016, a decrease of $1523.7 3 million, or 6.2%, primarily due to a decrease in comparable store sales (including online sales) of 5% and net store closures.3 The 5% decrease in comparable store sales (including online sales) was primarily attributable to our Gymboree brand and our Crazy 8 brand, offset by a slight increase in comparable stores sales by our Janie and Jack brand. The decrease in sales of our Gymboree and Crazy 8 brands was driven primarily by difficult traffic trends and an increase in our promotional (markdown) activities for those brands. The increase in sales of our Janie and Jack brand was driven primarily by stronger web performance. Comparable store sales (excluding online sales) decreased by 7% during the 13 weeks ended January 28, 2017 compared to the 13 weeks ended January 30, 2016. Total net stores decreased to 1,291 as of January 28, 2017 from 1,306 as of January 30, 2016. Total square footage was approximately 2.7 million square feet as of January 28, 2017 and January 30, 2016.

~~Net~~Retail franchise ~~retail~~net sales during the 13 weeks ended ~~October~~ January 2928, ~~2016~~2017 decreased to $~~276.~~3 .9 million from $~~289~~5.7 2 million during the 13 weeks ended ~~October~~January 3130, ~~2015~~2016, a decrease of $131.4 3 million, or 423.69%, primarily due to alower ~~decrease in comparable store~~ sales ~~(including~~to ~~online sales) of 5% and net~~our ~~store~~franchisee ~~closures.~~in ~~Comparable store sales (excluding online sales) decreased by 6% during~~ the 13Middle ~~weeks~~East ~~ended~~region. ~~October 29,~~As ~~2016~~of ~~compared to the 13 weeks ended October~~January 3128, ~~2015. The 5% decrease in comparable store sales (including online sales) was primarily attributable to our Gymboree brand followed by our Crazy 8 brand~~2017, ~~offset by an increase in comparable stores sales by~~ our ~~Janie~~overseas ~~and~~franchisees ~~Jack~~operated ~~brand.~~53 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~~compared to ~~1,300~~84 asstores of(including ~~October 29,~~27 ~~2016~~in ~~from~~China) ~~1,315~~ as of ~~October~~January 3130, ~~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

Gross profit during the 13 weeks ended ~~October~~January 2928, ~~2016~~2017 decreased to $~~107~~116.0 4 million from $~~114~~148.9 8 million during the 13 weeks ended ~~October~~January 3130, ~~2015~~2016, primarily driven by a decrease in comparable store sales. As a percentage of net sales, gross profit during the 13 weeks ended ~~October~~January 2928, ~~2016~~2017 decreased by 70640 basis points to 3832.26% from 3839.90% during the 13 weeks ended ~~October~~January 3130, ~~2015~~2016. The 70640 basis point decrease was driven primarily by ~~higher~~a ~~cost~~decrease ofin ~~goods~~comparable ~~sold~~store ~~(“COGS”) as a percentage of~~ sales ~~due~~attributable to ~~the~~our ~~mix~~Gymboree ~~of inventory sold, combined with higher buying~~ and ~~occupancy~~Crazy ~~costs~~8 asbrands, ~~a percentage~~an ~~of sales~~$11.6 million Ascharge werelated ~~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~~excess ofinventories, ~~other~~incremental ~~companies. Our~~ distribution costs ~~recorded~~totaling in$2.4 million ~~SG&A~~related ~~expenses~~to ~~represent~~expedited ~~primarily outbound~~ shipping ~~and~~costs ~~handling~~during ~~expenses~~the toholiday ~~our stores~~period, and ~~amounted~~an toincrease ~~$10.8~~in ~~million~~promotional ~~and~~(markdown) ~~$11~~activities.3 ~~million during the 13 weeks ended October 29, 2016 and October 31, 2015, respectively.~~

29As 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 $12.3 million and $12.9 million during the 13 weeks ended January 28, 2017 and January 30, 2016, respectively.

Selling, General and Administrative Expenses

SG&A principally consists of non-occupancy store expenses, corporate overhead, and certain distribution expenses. SG&A ~~increased~~ decreased to $~~105~~106.2 million during the 13 weeks ended ~~October~~January 2928, ~~2016~~2017 compared to $~~105~~122.0 4 million during the 13 weeks ended ~~October~~January 3130, ~~2015~~2016. As a percentage of net sales, SG&A ~~expenses~~during the ~~increased~~13 ~~210~~weeks ~~basis~~ended ~~points~~January 28, to2017 ~~37.6%~~decreased ~~for~~by ~~the~~230 ~~13 weeks~~basis ~~ended~~points ~~October~~ to 29,.8% ~~2016~~ from 3532.51% during the 13 weeks ended ~~October~~January 3130, ~~2015~~2016. ~~primarily~~The ~~due~~230 tobasis apoint ~~deleveraging~~decrease ofwas ~~expenses~~driven onprimarily ~~lower sales, partially offset~~ by lower marketing ~~expenses~~costs, asstore aexpenses ~~percentage~~and ~~of sales~~incentive compensation.

Goodwill and Intangible Asset Impairment

We performed our annual goodwill impairment test as of November 26, 2016. The Company started experiencing more difficult traffic and conversion trends beginning in the second quarter of fiscal 2017. The sustained difficult performance was not anticipated in previous projections that assumed an improvement in traffic and conversion trends. As a result, the Company revised its long term assumptions to reflect lower than previously projected revenue and margin growth trends primarily in its Gymboree and Crazy 8 brands (see Note 7 to the condensed consolidated financial statements included elsewhere in this quarterly report).

The first step of the two-step goodwill impairment test determined that the fair value of the Gymboree Retail reporting unit was below its carrying value. Therefore, we performed step two of the goodwill impairment test to measure the goodwill impairment loss. As a result, we recorded goodwill impairment loss of $233.8 million during the 13 weeks ended January 28, 2017 related to the Gymboree Retail reporting unit. In addition, we recorded an impairment charge of $134.3 million related to trade names in our retail stores segment. Since these are non-cash impairment charges, they do not have any direct impact on the Company’s liquidity or debt covenants.

Interest Expense

Interest expense decreased to $19.9 4 million during the 13 weeks ended ~~October~~January 2928, ~~2016~~2017 compared to $21.94 million ~~for~~ during the 13 weeks ended ~~October~~January 3130, ~~2015~~2016. 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, which expired in December 2016, and an increase in ABL borrowings.

Income Taxes

The $52.3 million income tax benefit during the 13 weeks ended January 28, 2017 was primarily a result of the operating loss including trade name impairment, but excluding goodwill impairment (which is not deductible for tax purposes). The effective tax rate during the 13 weeks ended ~~October~~January 2928, ~~2016~~2017 and ~~October~~January 3130, ~~2015~~2016 ~~2015~~ was 3913.39% (benefit) and 6 0.94% (expense), respectively. The change in effective tax rate resulted from ~~our~~goodwill ~~ability~~impairment, tobenefiting ~~benefit~~ the current quarter’s loss, ~~against~~decreasing a deferred tax liability for trade name impairment and eliminating the ~~income~~disproportionate tax ~~payable~~effects previously ~~established~~included in ~~fiscal~~accumulated ~~2016~~OCI.

26 weeks ended January 28, 2017 compared to 26 weeks ended January 30, 2016

Condensed consolidated statements of operations data as a percentage of total net sales during the 26 weeks ended January 28, 2017 and January 30, 2016 are presented below (amounts in thousands). The condensed consolidated statement of operations during the 26 weeks ended January 30, 2016 was revised to present the results of Gymboree Play & Music and Gymboree Tianjin as discontinued operations.


	26 Weeks Ended
	January 28, 2017					January 30, 2016
	Amount			% of Total Net Sales		Amount			% of Total Net Sales
Net sales:
Retail	$	629,208			98.8%	$	665,883			98.4%
Retail franchise		7,453			1.2%		11,037			1.6%

Total net sales		636,661			100.0%		676,920			100.0%
Cost of goods sold, including buying and occupancy expenses		(413,245	)		(64.9)%		(413,189	)		(61.0)%

Gross profit		223,416			35.1%		263,731			39.0%
Selling, general and administrative expenses		(211,364	)		(33.2)%		(227,420	)		(33.6)%
Goodwill and intangible asset impairment		(368,069	)		(57.8)%		—			—

Operating (loss) income		(356,017	)		(55.9)%		36,311			5.4%
Interest expense		(39,365	)		(6.2)%		(43,283	)		(6.4)%
Gain on extinguishment of debt		—			—		41,522			6.1%
Other income (expense), net		216			—		(608	)		(0.1)%

(Loss) income from continuing operations before taxes		(395,166	)		(62.1)%		33,942			5.0%
Income tax benefit (expense)		59,339			9.3%		(1,019	)		(0.2)%

(Loss) income from continuing operations, net of tax		(335,827	)		(52.7)%		32,923			4.9%
Income from discontinued operations, net of tax		—			—		6,187			0.9%

Net (loss) income		(335,827	)		(52.7)%		39,110			5.8%
Net loss attributable to noncontrolling interest		—			—		301			—

Net (loss) income attributable to The Gymboree Corporation	$	(335,827	)		(52.7)%	$	39,411			5.8%

Net Sales

Net retail sales during the 26 weeks ended January 28, 2017 decreased to $629.2 million from $665.9 million during the 26 weeks ended January 30, 2016, a decrease of $36.7 million, or 5.5%, 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 26 weeks ended January 28, 2017 compared to the 26 weeks ended January 30, 2016. The 5% decrease in comparable store sales (including online sales) was primarily attributable to our Gymboree brand and our Crazy 8 brand, offset by an increase in comparable stores sales by our Janie and Jack brand. The decrease in sales of our Gymboree and Crazy 8 brands was driven primarily by difficult traffic trends. The increase in sales of our Janie and Jack brand was driven primarily by stronger web performance. Comparable store sales (excluding online sales) decreased by 6% during the 26 weeks ended January 28, 2017 compared to the 26 weeks ended January 30, 2016. Total net stores decreased to 1,291 as of January 28, 2017 from 1,306 as of January 30, 2016. Total square footage was approximately 2.7 million square feet as of January 28, 2017 and January 30, 2016.

Retail franchise net sales during the 26 weeks ended January 28, 2017 decreased to $7.5 million from $11.0 million during the 26 weeks ended January 30, 2016, a decrease of $3.5 million or 32.5%, primarily due to lower sales to our franchisee in the Middle East region. As of January 28, 2017, our overseas franchisees operated 53 stores compared to 84 stores (including 27 in China) as of January 30, 2016.

Gross Profit

Gross profit during the 26 weeks ended January 28, 2017 decreased to $223.4 million from $263.7 million during the 26 weeks ended January 30, 2016, primarily driven by a decrease in comparable store sales. As a percentage of net sales, gross profit during the 26 weeks ended January 28, 2017 decreased by 390 basis points to 35.1% from 39.0% during the 26 weeks ended January 30, 2016. The 390 basis point decrease was driven primarily by decrease in comparable store sales attributable to our Gymboree and Crazy 8 brands, a $13.0 million charge related to excess inventories, incremental distribution costs totaling $2.4 million related to expedited shipping costs during the holiday period, and an increase in promotional (markdown) activities.

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 $23.1 million and $24.2 million during the 26 weeks ended January 28, 2017 and January 30, 2016, respectively.

Selling, General and Administrative Expenses

SG&A principally consists of non-occupancy store expenses, corporate overhead, and certain distribution expenses. SG&A decreased to $211.4 million during the 26 weeks ended January 28, 2017 compared to $227.4 million during the 26 weeks ended January 30, 2016. As a percentage of net sales, SG&A during the 26 weeks ended January 28, 2017 decreased by 40 basis points to 33.2% from 33.6% during the 26 weeks ended January 30, 2016. The 40 basis point decrease was driven primarily by lower marketing costs, store expenses and incentive compensation.

Goodwill and Intangible Asset Impairment

See discussion on goodwill and intangible asset impairment in the “Results of Operations – 13 weeks ended January 28, 2017 compared to 13 weeks ended January 30, 2016.”

Interest Expense

Interest expense decreased to $39.4 million during the 26 weeks ended January 28, 2017 compared to $43.3 million during the 26 weeks ended January 30, 2016. The net decrease of $3.9 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.

Income Taxes

The $59.3 million income tax benefit during the 26 weeks ended January 28, 2017 was primarily a result of the operating loss including trade name impairment, but excluding goodwill impairment (which is not deductible for tax purposes). The effective tax rate during the 26 weeks ended January 28, 2017 and January 30, 2016 was 15.0% (benefit) and 3.0% (expense), respectively. The change in effective tax rate resulted from goodwill impairment, benefiting the year-to-date’s losses, decreasing a deferred tax liability for trade name impairment and eliminating the disproportionate tax effects previously included in accumulated OCI.

Financial Condition

Liquidity and Capital Resources

Overview

We ~~finance~~had ~~our business with existing~~ cash, ~~cash from operations~~ and ~~the~~cash ~~funds~~equivalents ~~available under our Senior Credit Facilities, which were comprised~~ of an $~~820~~ 22.1 million ~~secured term loan agreement (“Term Loan”), a $225 million asset-backed revolving credit facility (“ABL Facility”),~~ and ~~$50~~restricted ~~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 $973.7 0 million, ~~$12.6 million, and $17.3 million~~ as of ~~October~~January 2928, ~~2016, July 30, 2016 and October 31, 2015, respectively~~2017.

~~Net~~The Company’s net working capital was $(25.7) million as of ~~October~~January 2928, ~~2016, July 30,~~2017. ~~2016, October 31,~~The ~~2015~~decrease ~~totaled~~in ~~$2.9~~net ~~million,~~working ~~$4.4~~capital ~~million~~as ~~and~~of ~~$30.8 million~~January 28, ~~respectively.~~2017 ~~Net~~compared to the net working capital as of ~~October~~July 2930, 2016 ~~includes~~was ~~$27.5~~primarily ~~million~~attributed to the reclassification of ~~restricted~~our ~~cash~~ABL ~~which~~Term isLoan ~~expected~~of $48.8 million in principal amount to becurrent ~~used~~liabilities due to ~~pay~~its approaching ~~estimated~~maturity ~~income~~(matures ~~taxes~~in ~~associated~~December ~~with~~2018), ~~the~~partially ~~gain~~offset onby the ~~sale~~timing of ~~the~~purchases ~~Gymboree Play &~~of ~~Music~~inventories ~~business~~and ~~included~~payments inof accounts payable, accrued and other current liabilities. ~~Our~~In ~~operations~~addition, ~~are~~our ~~seasonal~~net inworking capital is impacted by the seasonal nature of our operations, 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~~were restricted to (i) reduce the Term Loan,; ~~fund capital expenditures~~ or ~~investments~~(ii) fund inthe ~~other~~acquisition, ~~assets~~maintenance, ~~with~~development, ~~respect~~construction, toimprovement, ~~which~~upgrade ~~the~~or ~~Term~~repair ~~Loan~~assets ~~lenders~~useful ~~would~~in ~~have~~the abusiness; ~~first priority security interest~~ or (iii) pay income taxes associated with the ~~gain~~ gain on the sale of GPPI (see Note 34 to the condensed consolidated financial statements included elsewhere in this quarterly report). During the 1326 weeks ended ~~October~~January 2928, ~~2016~~2017, the Company used $1034.7 0 million of restricted cash to fund ~~capital~~ allowable expenditures under the Term Loan, and pay income taxes associated with the gain on sale of GPPI. As of ~~October~~January 2928, ~~2016~~2017, the Company had a remaining restricted cash balance ~~remaining~~ of $9673.3 0 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.

WeAs ~~believe~~of ~~that~~January 28, ~~cash generated by operations~~2017, the ~~remaining~~ ~~funds~~Company ~~available~~had ~~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 following ~~next~~indebtedness 12totaling ~~months~~$1.043 billion ~~However,~~in ifprincipal ~~we face~~amounts ~~unanticipated cash needs such as the funding of a capital investment~~outstanding, ~~or if our suppliers request one or more letters~~ of ~~credit,~~which ~~our existing cash and cash equivalents and available borrowings may be insufficient~~$871.9 million Inis ~~addition,~~due wewithin do12 ~~not~~months ~~expect our business will generate sufficient cash flow~~ from ~~operations~~March 14, ~~and~~2017 ~~future borrowings may not be available to us under~~ (the ~~Senior~~date ~~Credit Facilities in amounts sufficient to enable us to repay our indebtedness when due (including $49.4 million~~ of ~~ABL Term~~filing ~~Loan~~this ~~due in December 2017, $769.1 million of Term Loan due in February 2018, and~~ Form 10-Q):

30• Current liabilities

•

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

•

$48.8 million of ABL Term loan, due in December 2017

•

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

~~$171.0~~• ~~million~~Long-term 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. liabilities

•

$762.6 million of Term loan, due in February 2018

•

$171.0 million of Senior Notes, due in December 2018

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

Cash flows (used in) provided by operating activities

~~Net~~Cash flows from operating activities decreased by $94.2 million from net cash ~~used~~provided inby operating activities of $71.1 million during the 1326 weeks ended ~~October 29~~January 30, 2016 ~~was $45.5 million compared~~ to net cash ~~provided~~ byused in operating activities of $2523.6 1 million during the 1326 weeks ended ~~October 31~~January 28, ~~2015~~2017.

~~The~~Cash ~~change in cash~~ flows from operating activities decreased during the 1326 weeks ended ~~October~~January 2928, 2017 compared to the 26 weeks ended January 30, 2016 ~~was~~partially because of a decrease in income before income taxes. Excluding the impact of goodwill and intangible asset impairment, depreciation and amortization and other non-cash charges, our income before income taxes decreased by $8.8 million primarily ~~due~~because toof a $7decline in gross profit driven by comparable sales decline and inventory charges.3 Cash flows from operating activities also decreased because of a $26.0 million decrease in merchandise inventories due to the timing of purchases. In addition, ~~and~~cash flows from operating activities decreased because of a $13.1 2 million decrease in prepaid expenses and other assets and a $4042.4 7 million decrease in accounts payable, accrued and other current liabilities due to timing of payments.

Cash flows provided by (used in) investing activities

Net cash provided by investing activities during the 1326 weeks ended ~~October~~January 2928, ~~2016~~2017 was $521.2 9 million compared to net cash used in investing activities of $37.2 3 million during the 1326 weeks ended ~~October~~January 3130, ~~2015~~2016.

The net change in cash flows from investing activities during the 1326 weeks ended ~~October~~January 2928, 2017 compared to the 26 weeks ended January 30, 2016 was primarily due to aan ~~decrease~~increase in transfer of restricted cash byto ~~$10.7 million,~~unrestricted ~~offset~~cash by ~~capital expenditures which increased to~~ $525.5 9 million ~~compared~~and toa $5.1 .8 million ~~during~~decrease ~~the~~in 13capital ~~weeks ended October 31, 2015~~expenditures.

Cash flows provided by (used in) financing activities

Net cash provided by financing activities during the 1326 weeks ended ~~October~~January 2928, ~~2016~~2017 was $3710.3 6 million compared to ~~net~~ net cash used in financing activities of $2168.6 2 million during the 1326 weeks ended ~~October~~January 3130, ~~2015~~2016.

The net change in cash flows from financing activities during the 1326 weeks ended ~~October~~January 2928, 2017 compared to the 26 weeks ended January 30, 2016 was primarily due to a $63.0 million net increase in line of credit borrowings. In addition, net cash used in financing activities during the 26 weeks ended January 30, 2016 include a $15.3 million repurchase of notes. There were no repurchases of notes during the 26 weeks ended January 28, 2017.

Credit Facilities

~~ABL~~Line ~~Facility~~of Credit

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 $3034.8 6 million as of ~~October~~ January 2928, ~~2016~~2017. Undrawn line of credit availability under the ABL Revolving Facility, after being reduced by outstanding line of credit borrowings, letter of credit utilization and outstanding balance of ABL Term Loan, was $~~114~~90.2 7 million as of ~~October~~January 2928, ~~2016~~2017, 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~~ $9267.0 9 million as of ~~October~~ January 2928, ~~2016~~2017. We anticipate utilizing our line of credit under the ABL Revolving Facility throughout the course of fiscal 2017 to support seasonal working capital needs.

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~~January 2928, ~~2016~~2017, the weighted average interest rate on our line of credit borrowings outstanding under the ABL Revolving Facility was 23.87%. 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.

31The ABL Facility contains covenants that, among other things, restrict our ability to incur additional indebtedness and pay dividends. It requires the Company and its restricted subsidiaries to maintain a minimum amount of “Combined Availability” and “Availability” for as long as the ABL Term Loan remains outstanding. “Combined Availability” is an amount equal to (a) the ABL Term Loan borrowing base minus (b) the sum of the aggregate outstanding principal amount under the ABL Facility (including the ABL Term Loan, revolving line of credit borrowings and letter of credit utilization). “Availability” is equal to the lesser of (A) (I) the revolving credit ceiling (which as of January 28, 2017 was $225.0 million) minus (II) the aggregate principal amount outstanding under the revolving line of credit and letter of credit utilization and (B) (I) the revolving line of credit borrowing base minus (II) the aggregate principal amount outstanding under the revolving line of credit and letter of credit utilization. Under the availability covenant, the Company and its restricted subsidiaries must maintain (i) Combined Availability in excess of the greater of (x) $17.5 million and (y) 10% of the ABL Term Loan borrowing base; and (ii) Availability in excess of the greater of (X) $17.5 million and (Y) 10% of the lesser of (1) the applicable revolving line of credit borrowing base and (2) the revolving credit ceiling. Failure to maintain the minimum levels of Combined Availability and Availability required by this covenant would result in an event of default under the ABL Facility. The ABL Facility also contains a financial covenant (i.e., minimum consolidated fixed charge coverage ratio), but such financial covenant is not required to be tested as long as the Company’s ABL Term Loan remains outstanding. As of January 28, 2017, we were not required to test compliance with this covenant. 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.

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.

ABL Term Loan

On April 22, 2016, we entered into an agreement that provides for a senior secured term loan (the “ABL ~~Term~~ Term Loan” and together with the ABL Revolving Facility, the “ABL Facility”) of $50.0 million, subject to a borrowing base, the proceeds of which may be used to finance the acquisition of working capital assets, including the purchase of inventory and equipment, in each case in the ordinary course of business, to finance capital expenditures, to finance permitted acquisitions and for general corporate purposes, including repurchases of the Notes. The maturity date of the ABL Term Loan is the same as the maturity date of the ABL Revolving Facility. The principal balance of the ABL Term Loan ~~totaled~~was $4948.4 8 million as of ~~October~~January 2928, ~~2016~~2017.

The ABL Term Loan bears interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a 90-day LIBOR contract rate as determined by the agent for the ABL Term Loan monthly on the first day of each calendar month, plus 10.25% per annum, or, in certain circumstances, at the prime rate, plus 9.25% ~~per~~ per annum. Interest is payable monthly. As of ~~October~~January 2928, ~~2016~~2017, the interest rate under our ABL Term Loan was 11.12%.

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~~January 2928, ~~2016~~2017, $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~~January 2928, ~~2016~~2017, the interest rate under our Term Loan was 5.0%.

The Term Loan requires us to make quarterly payments equal to 0.25% of the original $820 million principal amount of the ~~Term~~ 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 that we are not required to make any excess cash flow payments on the Term Loan during fiscal ~~2016~~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.

Senior 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 ~~October~~January 2928, ~~2016~~2017, the Notes payable balance outstanding was $171.0 million ~~(see Note 6 to the condensed consolidated financial statements included elsewhere in this quarterly report)~~.

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 2016 Transition Report on Form 10-K filed with the Securities and Exchange Commission on October 28, 2016.

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

In the table below, we present Adjusted EBITDA (which is defined as net (loss) income 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, such as goodwill and intangible asset impairment.

3342

The following table provides a reconciliation of net (loss) ~~from~~income ~~continuing~~from continuing operations to Adjusted EBITDA from continuing operations for the periods indicated (in thousands):

	13 Weeks Ended						26 Weeks Ended
	October 29, 2016			October 31, 2015
	January 28, 2017			January 30, 2016			January 28, 2017			January 30, 2016
Net loss from continuing operations	$	(10,892)		$	(13,010)
Net (loss) income from continuing operations	$	(324,935	)	$	45,933		$	(335,827	)	$	32,923
Net loss from continuing operations attributable to noncontrolling interest		-—			1,~~430~~600			—			3,030
Net loss from continuing operations attributable to The Gymboree Corporation		(10,892)			(11,580)
Net (loss) income from continuing operations attributable to The Gymboree Corporation		(324,935	)		47,533			(335,827	)		35,953
Reconciling items (a):
Interest expense		19,~~932~~433			21,~~906~~377			39,365			43,283
Interest income		(~~72)~~122	)		(6)10	)		(194	)		(16	)
Income tax (benefit) expense		(752,~~054)~~285	)		~~835~~118			(59,339	)		953
Depreciation and amortization (b)		9,~~394~~304			910,~~792~~151			18,698			19,943
Non-cash share-based compensation expense		~~376~~493			~~813~~701			869			1,515
Loss on disposal/impairment on assets		~~643~~2,288			~~330~~2,834			2,931			3,164
Acquisition-related adjustments (c)		3,424			2,563
Gain on extinguishment of debt		—			(41,522	)		—			(41,522	)
Other (d)		2,071			1,826
Goodwill and intangible asset impairment		368,069			—			368,069			—
Adjusted EBITDA from continuing operations	$	17,822		$	26,479
Acquisition-related adjustments (c)		2,913			3,417			6,337			5,980
(a) Excludes amounts related to noncontrolling interest, which are already excluded from net loss from continuing operations attributable to The Gymboree Corporation.
Other (d)		1,051			922			3,122			2,747
(b) Includes the following:
Adjusted EBITDA from continuing operations	$	26,209		$	45,521		$	44,031		$	72,000
Amortization of intangible assets (impacts SG&A)	$	350		$	384
(a) Excludes amounts related to noncontrolling interest, which are already excluded from net (loss) income from continuing operations attributable to The Gymboree Corporation.
Amortization of below and above market leases (impacts COGS)		(226)			(198)
(b) Includes the following:
	$	124		$	186
Amortization of intangible assets (impacts SG&A)	$	208		$	384		$	558		$	768
(c) Includes the following:
Amortization of below and above market leases (impacts COGS)		(124	)		(199	)		(350	)		(397	)
Additional rent expense recognized due to the elimination of deferred rent and construction allowances in purchase accounting (impacts COGS)	$	1,747		$	1,879
	$	84		$	185		$	208		$	371
Sponsor fees, legal and accounting, as well as other costs incurred as a result of the Acquisition or refinancing (impacts SG&A)		1,677			684
(c) Includes the following:
	$	3,424		$	2,563
Additional rent expense recognized due to the elimination of deferred rent and construction allowances in purchase accounting (impacts COGS)	$	1,737		$	1,871		$	3,484		$	3,750
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).
Sponsor fees, legal and accounting, as well as other costs incurred as a result of the Acquisition or refinancing (impacts SG&A)		1,176			1,546			2,853			2,230
(d) Other is comprised of restructuring and non-recurring charges.
	$	2,913		$	3,417		$	6,337		$	5,980
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.

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.

34The 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
January 28, 2017	$	—	$	—		$	—
July 30, 2016	$	10,209	$	(123	)	$	0.77
January 30, 2016	$	5,492	$	(145	)	$	0.71

~~The~~Interest ~~table~~Rate ~~below~~Risk ~~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		Fair Value			Weighted-
	Amount		Gain (Loss)			Average Rate
October 29, 2016	$	7,054	$	69		$	0.75
July 30, 2016	$	10,209	$	(123	)	$	0.77
October 31, 2015	$	4,468	$	(27	)	$	0.76

~~Interest~~In ~~Rate~~December ~~Risk~~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. The interest rate caps matured in December 2016.

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.

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~~second 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.

3544

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 2016 Transition Report on Form 10-K filed with the Securities and Exchange Commission on October 28, 2016, except as described below.

Liquidity Risk / Going Concern Uncertainty

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

•

Current liabilities

•

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

•

$48.8 million of ABL Term loan, due in December 2017

•

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

•

Long-term liabilities

•

$762.6 million of Term loan, due in February 2018

•

$171.0 million of Senior Notes, due in December 2018

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

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

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		Sublease Agreement by and between the Company, as sublessee, and Bare Escentuals Beauty, Inc., as sublessor (1)
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 1326 weeks ended ~~October~~January 2928, ~~2016~~2017, 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.

36(1) Incorporated by reference to Exhibit 10.1 to The Gymboree Corporation’s current Report on Form 8-K filed with the SEC on December 8, 2016.

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	~~THE GYMBOREE CORPORATION~~
December 9, 2016		By:	/s/ Mark Breitbard
March 14, 2017	By:	/s/ Mark Breitbard
(Date)		Mark Breitbard	~~Mark Breitbard~~
		Chief Executive Officer	~~Chief Executive Officer~~
		(Principal Executive Officer)	~~(Principal Executive Officer)~~

3747

Exhibit Index

Exhibit Number		Description
10.1		Sublease Agreement by and between the Company, as sublessee, and Bare Escentuals Beauty, Inc., as sublessor (1)
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 1326 weeks ended ~~October~~January 2928, ~~2016~~2017, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive ~~Loss~~Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements.

38(1) Incorporated by reference to Exhibit 10.1 to The Gymboree Corporation’s current Report on Form 8-K filed with the SEC on December 8, 2016.

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