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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For The Fiscal Year Ended January 28, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from to
Commission File Number 1-09100
Gottschalks Inc.
(Exact name of Registrant as specified in its charter)
Delaware 77-0159791
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7 River Park Place East, Fresno, CA 93720
(Address of principal executive offices) (Zip code)
Registrant's telephone no., including area code: (209) 434-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
Common Stock, $.01 par value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 X
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 31, 1995:
Common Stock, $.01 par value: $47,471,000
On March 31, 1995 the Registrant had outstanding 10,416,520 shares of Common
Stock.
Documents Incorporated By Reference: Portions of the Registrant's definitive
proxy statement with respect to its Annual Stockholders' Meeting scheduled to be
held on June 22, 1995, which will be filed pursuant to Regulation 14A, are
incorporated by reference into Part III of this Form 10-K.
PART I
Item 1. BUSINESS
GENERAL
Gottschalks Inc. and its subsidiaries (collectively, the "Company")
consists of Gottschalks Inc., its wholly-owned subsidiary, Gottschalks Credit
Receivables Corporation ("GCRC") and Gottschalks Credit Card Master Trust ("GCC
Trust"). Gottschalks Inc. is a regional department and specialty store chain
based in Fresno, California, consisting of thirty-two "Gottschalks" department
stores and twenty-four "Village East" specialty stores (1). The Company's stores
are located primarily in non-major metropolitan cities throughout California,
and in Oregon, Washington and Nevada. As described more fully in Part II,
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources", GCRC and GCC Trust were
formed in 1994 in connection with a receivables securitization program.
Gottschalks department stores typically offer brand-name fashion apparel,
shoes and accessories for men, women and children, cosmetics, jewelry, china,
housewares, home appliances and furnishings, electronics and other goods. The
Company's Village East specialty stores offer apparel for larger women. The
Company's stores carry primarily moderately priced brand-name merchandise,
complemented with a mix of higher and budget priced merchandise. The Company
services all of its stores, including its store locations outside California,
from a 420,000 square foot distribution facility centrally located in Madera,
California. The Company's business activities have been directed for over 90
years by continuous family management since it was founded by Emil Gottschalk in
1904.
________________________
(1) As of April 1995.
Merchandising and Promotion Strategy. The Company's merchandising
strategy is directed at offering and promoting nationally advertised brand-name
merchandise recognized by its customers for style and value. The Company's
inventory emphasizes a broad range of brand-names including Estee Lauder,
Lancome, Liz Claiborne, Carole Little, Evan Picone, Calvin Klein, Ralph Lauren,
Guess, Levi Strauss and Sony. The Company's stores also carry private-label
merchandise purchased through Frederick Atkins, Inc., ("Frederick Atkins"), a
national association of major retailers which provides its members with group
purchasing opportunities. The Company offers a wide selection of fashion apparel
and other merchandise in an extensive range of styles, sizes and colors for all
members of the family.
The following table sets forth for the periods indicated a summary of the
Company's sales by division, expressed as a percent of net sales:
1990 1991 1992 1993 1994
Cosmetics & Accessories... 15.4% 15.7% 16.2% 16.5% 16.6%
Women's Clothing (1)...... 18.3 17.3 17.1 16.5 16.1
Mens' Clothing............ 12.4 12.8 13.2 13.6 13.9
Housewares, Luggage &
Stationary.............. 12.4 12.3 11.0 10.7 10.9
Domestics................. 8.5 9.0 6.7 7.1 8.1
Women's Dresses, Coats
& Lingerie.............. 8.5 8.7 8.6 7.8 7.9
Shoes & Other Leased
Departments............. 6.9 6.6 7.1 7.4 7.1
Junior's Clothing......... 7.1 7.1 7.2 7.0 6.3
Electronics & Furniture... 3.8 3.6 6.0 5.8 5.6
Children's Clothing....... 4.2 4.3 4.1 4.9 4.9
Village East.............. 2.5 2.6 2.8 2.7 2.6
100.0% 100.0% 100.0% 100.0% 100.0%
_____________________
(1) Net sales includes sales applicable to the Company's Petites West specialty
stores which were discontinued in 1991. Such sales totalled 0.6% of net sales in
1991 and 1.4% of net sales in 1990.
The Company's merchandising activities are conducted from
its corporate offices in Fresno, California by its buying division
consisting of an Executive Vice President/General Merchandise
Manager, 3 general merchandise managers, 9 divisional merchandise
managers, 48 buyers and 35 assistant buyers. Management believes
the continuity and experience of its buying division, combined with
the Company's long and continuous presence in its primary market
areas, enhances its ability to evaluate and respond quickly to
emerging fashion trends and changing consumer preferences in its
market areas. In addition to providing the Company with group
purchasing opportunities, the Company's membership in Frederick
Atkins also provides its buying division with current information
about marketing and emerging fashion trends.
The Company's overall merchandising strategy includes the
development of monthly, seasonal and annual merchandising plans for
each division, department and store. Management monitors sales and
gross margin performance and inventory levels against the plan on
a daily basis. The merchandising plan is designed to be flexible in
order to allow the Company to respond quickly to changing consumer
preferences and opportunities presented by individual item
performance in the stores. The Company's buying division and store
management meet frequently to ensure the Company's merchandising
program is executed efficiently at the store level. Management has
devoted considerable resources towards enhancing the Company's
merchandise-related information systems. (See Part I, Item I,
"Business--Information Systems.")
Each of the Company's stores carry substantially the same
merchandise, but in different mixes according to individual market
demands. Management believes that well-stocked stores and frequent
promotional sales contribute significantly to sales volume. In
connection with its efforts to increase sales per selling square
foot and improve gross margins, the Company has continued to
reallocate selling floor space to higher profit margin items and
narrow and focus its merchandise assortments. In 1993, the Company
closed its clearance center as part of its cost-savings program and
now liquidates slow-moving merchandise through its existing stores.
The Company commits considerable resources to advertising,
using a combination of media types which it believes to be most
efficient and effective by market area, including newspapers,
television, radio, direct mail and catalogs. The Company is a major
purchaser of television advertising time in its primary market
areas. In addition to seasonal promotions, the Company uses
frequent storewide sales events to highlight brand-name merchandise
and promotional prices. The Company also uses direct marketing
techniques to access niche markets by sending mailings to its
credit card holders and, through its computer data base, generating
specific lists of customers who may be most responsive to specific
promotional mailings. In addition, the Company conducts a variety
of special events including fashion shows, bridal shows and
wardrobing seminars in its stores and in the communities in which
they are located to convey fashion trends to its customers. The
Company receives reimbursement for certain of its promotional
activities from certain of its vendors. Management has continued to
focus on enhancing its information systems in order to increase the
effectiveness of its promotion strategy. (See Part I, Item I,
"Business--Credit Policy" and "Business--Information Systems.")
The Company's stores experience seasonal sales and earnings
patterns typical of the retail industry. Peak sales occur during
the Christmas, back-to-school, and Easter seasons. The Company
generally increases its inventory levels and sales staff for these
seasons. See Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--
Seasonality."
Purchase of Merchandise. The Company's membership in
Frederick Atkins, a national association of major retailers,
provides it with group purchasing opportunities. In 1994, the
Company purchased approximately 4.5% of its merchandise from
Frederick Atkins. The Company also purchases merchandise from
numerous other suppliers. Excluding purchases from Frederick
Atkins, the Company's ten largest suppliers in 1994 were Estee
Lauder, Inc., Levi Strauss & Co., Liz Claiborne, Inc., Cosmair,
Inc., Sony Corporation of America, Lee Company, Saint Tropez West,
Zenith Distributing Corporation, Calvin Klein Cosmetics and All-
That-Jazz. Purchases from those vendors accounted for approximately
20.2% of the Company's total purchases in 1994. Management believes
that alternative sources of supply are available for each category
of merchandise it purchases.
Store Expansion and Remodeling. The Company's store
expansion policy is to achieve consistent, well-controlled long-
term growth. The Company has historically avoided expansion into
major metropolitan areas, preferring instead to concentrate on
secondary cities where management believes there is a strong demand
for nationally advertised brand-name merchandise. The Company has
also continued to invest in the renovation and refixturing of its
existing store locations in order to maintain and improve market
share in those market areas.
The following table presents selected data regarding the
Company's expansion for the fiscal years indicated:
Stores open at
year-end (1): 1990 1991 1992 1993 1994
Gottschalks 22 23 25 27 29
Village East 18 21 22 23 24
TOTAL 40 44 47 50 53
Gross store
square
footage 1,827,500 1,904,200 2,092,900 2,202,300 2,425,000
(1) The number of stores does not include the Company's clearance center (opened
- -1988, closed - 1993) or the Company's former Petites West specialty store chain
(closed - 1991).
______________________
Since the Company's initial public offering in 1986 and through 1994, the
Company has constructed or acquired twenty-one of its twenty-nine Gottschalks
department stores, including four junior satellite stores of less than 30,000
square feet each. During this period the Company also opened eighteen of its
twenty-four Village East specialty stores. Gross store square footage added
during this period was approximately 1.8 million square feet, resulting in over
2.4 million total Company gross square feet.
In 1994, the Company opened its twenty-eighth and twenty-ninth
Gottschalks stores in Oakhurst and Sacramento, California, and its twenty-fourth
Village East specialty store in Sacramento, California. The Company opened three
new Gottschalks stores in early 1995 in Auburn and San Bernardino, California
and in Carson City, Nevada. The Company also intends to open one additional new
Gottschalks store in Tracy, California, and one new Gottschalks store in
Visalia, California, as a replacement for an existing store in that location, by
the end of 1995. The Company is continuing efforts to expand its operations into
other states in the Western United States. In 1992, the Company opened its
first Gottschalks stores outside California in Tacoma, Washington and Klamath
Falls, Oregon, and in March 1995, opened a new Gottschalks store in Carson
City, Nevada. The Company is considering additional department store locations
outside California for 1996 store openings.
The Company generally seeks prime locations in regional malls as sites
for new department stores. The Company also seeks to open a Village East
specialty store in each mall where a Gottschalks department store is located. In
selecting new store locations, the Company considers the demographic
characteristics of the surrounding area, the lease terms and other factors. The
Company does not typically own its properties, although management would
consider doing so if ownership were financially attractive. The Company has been
able to minimize capital requirements associated with new store openings during
the past
several years through the negotiation of significant contributions from mall
owners or developers of certain of the projects for tenant improvements,
construction costs and fixtures and equipment. Such contributions have enhanced
the Company's ability to enter into attractive market areas that are consistent
with the Company's long-term expansion plans.
Customer Service. In addition to merchandising and promoting brand-name
merchandise, the Company seeks to offer to its customers a conveniently located
and attractive shopping environment along with high levels of personal sales
assistance not typically associated with major department stores. In Gottschalks
stores, merchandise is displayed and arranged by department, with well-known
designer and brand-names prominently displayed. Departments open onto main
aisles, and numerous visual displays are used to maximize the exposure of
merchandise to customer traffic. Village East specialty stores promote the
image
of style and fashion for larger women. Gottschalks stores also offer a wide
assortment of merchandise for petites and are introducing larger mens sizes to
certain store locations in 1995. The Company generally seeks to locate its
stores
in regional shopping malls which are centrally located to access a broad
customer
base. Twenty-seven of the Company's thirty-two Gottschalks stores, and all but
two of its Village East specialty stores, are located in regional shopping
malls.
The Company's policy is to employ sufficient sales personnel to provide
its customers with prompt, personal service. Sales personnel are encouraged to
keep notebooks of customers' names, clothing sizes, birthdays, and major
purchases, to telephone customers about promotional sales and to send thank-you
notes and other greetings to their customers during their normal working hours.
Management believes that this type of personal attention builds customer
loyalty.
The Company stresses the training of its sales personnel and offers various
financial incentives based on sales performance. The Company also offers
opportunities for promotions and management training and leadership classes.
Under its liberal return and exchange policy, the Company will accept, without
question, a return or exchange of any merchandise that its stores stock. When
appropriate, the Company returns the merchandise to its supplier.
Distribution of Merchandise. The Company's distribution facility,
designed and equipped to meet the Company's long-term distribution needs,
enhances its ability to respond to customers' preferences. Completed in 1989,
the
Company receives all of its merchandise at its 420,000 square foot distribution
center in Madera, California. Currently, merchandise arriving at the
distribution
center is inspected, recorded by computer into inventory and tagged with a bar-
coded price label. The Company generally does not warehouse apparel merchandise,
but distributes it to stores promptly. The distribution center is centrally
located to serve all of the Company's store locations, including its store
locations outside California. Daily distribution enables the Company to respond
quickly to fashion and market trends and ensure merchandise displays and store
stockrooms are well stocked.
As described more fully in Part I, Item I, "Business--Information
Systems", management has continued to focus on reducing merchandise purchasing,
handling and distribution costs, primarily through the adoption of new
technology
and new systems and procedures. Management also expects benefits to be realized
in payroll, through the reduction of traditionally labor-intensive tasks, and
other overhead costs of the Company as a result of the new technology and
systems
and procedures currently being implemented.
Credit Policy. The Company issues its own credit card, which management
believes enhances the Company's ability to generate and retain market acceptance
and increase sales. As described more fully in Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," the Company sold certain of its customer
credit
card receivables in March 1994 in connection with an asset-backed securitization
program. The Company has continued to service and administer the receivables
pursuant to the securitization program. The Company had 438,000 active credit
accounts as of March 31, 1995 as compared to 319,000 as of March 31, 1994.
Service charge revenues associated with the Company's customer credit cards were
$8.9 million, $8.1 million, $8.6 million, $9.0 million, and $8.0 million in
1994,
1993, 1992, 1991 and 1990, respectively.
The Company installed a new credit management software system in 1992
which improved all aspects of the Company's credit authorization, collection and
billing process, in addition to enhancing the Company's ability to provide
customer service. Combined with a new credit scoring system installed in 1993,
the Company can process thousands of credit applications daily at a rate of
approximately three minutes per application. In 1994, the Company also installed
a new automated advanced call management system which has enhanced the Company's
ability to manage the process of collecting delinquent customer accounts. The
Company expects to complete the installation of an upgrade to its existing
credit
management system by mid-1995, which among other things, will enhance the
Company's ability to access target markets with more sophisticated direct
marketing techniques.
The credit system upgrades have allowed management to implement new
credit-related programs which have resulted in enhanced customer service and
increased service charge revenues. In 1993, the Company implemented an "Instant
Credit" program, through which credit application rates have more than doubled
since its inception. The Company also initiated a "55-Plus" charge account
program in 1993, which offers additional merchandise and service discounts to
customers 55 years of age and older. In 1994, the Company initiated a "Gold
Card" and "55-Plus Gold Card" program for customers who have a net minimum
spending history on their charge accounts of $1,000 per year. Gold Card and 55-
Plus Gold Card holders receive special services at a discount and receive an
annual rebate certificate which can be applied towards future purchases of
merchandise.
The credit authorization process is centralized at the Company's
corporate headquarters in Fresno, California. Credit is extended to applicants
based on a scoring model. The Company's credit extension policy is nearly
identical for instant and non-instant credit applicants. Applicants who meet
pre-
determined criteria based on prior credit history, occupation, number of months
at current address, income level and geographic location are automatically
assigned an account number and awarded a credit limit ranging from $300 to
$2,000. Credit limits may be periodically revised. The Company's credit system
also provides full on-line positive authorization lookup capabilities at the
point-of-sale. Within seconds, each charge, credit and payment transaction is
approved or referred to the Company's credit department for further review.
Sales
associates speed-dial the credit department for an approval when a transaction
has been referred by the system.
The Company offers credit to customers under several payment plans: the
"Option Plan", under which the Company bills customers monthly for charges
without a minimum purchase requirement, the "Time-Pay Plan", under which
customers may make monthly payments for purchases of home furnishings, major
appliances and other qualified items of more than $100, and the "Club Plan",
under which customers may make monthly payments for purchases of fine china,
silver, crystal and collectibles of more than $100. The Company also
periodically offers special promotions to its credit card holders through which
customers are given the opportunity to obtain discounts on merchandise purchases
or purchase merchandise under special deferred billing and deferred interest
plans. Finance charges are assessed on unpaid balances at a rate of 19.8% APR
in all states, except Washington, which is assessed at a rate of 18.0% APR. A
late charge fee on delinquent charge accounts is assessed at a rate of $5 per
late payment occurrence.
Information Systems. The Company has continued to invest in technology
and systems improvements in its efforts to improve customer service and reduce
inventory-related costs and operating costs. The Company's information systems
include the latest IBM mainframe technology with capacity sufficient to meet the
Company's long-term expansion plans. In addition to the mainframe computer, the
Company runs multiple platforms with applications on mid-range, local area
network and departmental levels. All of the Company's major information systems
are computerized, including its merchandise, inventory, credit, payroll and
financial reporting systems. The Company has installed approximately 2,000
computer terminals throughout its stores, corporate offices and distribution
center. Every store processes each sales transaction through point-of-sale (POS)
terminals that connect on-line with the Company's mainframe computer located at
its corporate offices in Fresno, California. This system provides detailed
reports on a real-time basis of current sales, gross margin and inventory levels
by store, department, vendor, class, style, color, and size.
Management has continued to focus on the enhancement of its merchandise-
related systems in its efforts to control merchandise cost and shrinkage. In
1993, the Company implemented an automatic markdown system which has assisted in
the more timely and accurate processing of markdowns and reduced inventory
shortage resulting from paperwork errors. A price management system was
installed
in 1994 which management believes has improved the Company's POS price
verification capabilities, resulting in fewer POS errors and enhanced customer
service.
Management has also focused on controlling costs related to the purchase,
handling and distribution of merchandise, traditionally labor-intensive tasks,
through the improvement of its merchandise-related information systems and the
adoption of new technology. Management expects to implement a new merchandise
management and allocation ("MMS") system in 1995, which is expected to enhance
the Company's ability to allocate merchandise to stores more efficiently and
make
prompt reordering and pricing decisions. The new MMS system is also expected to
provide enhanced merchandise-related information used by the Company's buying
division in its analysis of market trends and specific item performance in
stores. The Company has also continued its efforts to implement a variety of
programs with its vendors, including an automatic replenishment inventory system
for certain basic merchandise and an electronic data interchange ("EDI") system
providing for on-line purchase order and charge-back entry. Such systems will
automate certain merchandise purchasing processes. In early 1995, the Company
completed the development of systems that will enable it to implement the use of
universal product codes ("UPC") with vendors that also have developed the
technology. Merchandise purchased from vendors that have UPC capabilities will
arrive at the Company's distribution center already tagged with a bar-coded
price
label that can be translated by the Company's inventory systems, thus ready for
immediate distribution to the stores.
Management expects to realize benefits in payroll and other selling,
general and administrative costs as a result of implementing the previously
described systems. Other systems implemented by the Company in its efforts to
control its selling, general and administrative costs include the following: (i)
a new payroll system in 1994 which is expected to enhance the Company's ability
to manage payroll-related costs, (ii) a new advertising management software
system in early 1995 which is expected to enhance management's ability to
measure
individual item sales performance derived from a particular advertisement, and
(iii) an upgrade to the Company's existing credit management system, expected to
be installed by mid-1995 (see Part I, Item I "Business--Credit Policy").
Leased Departments. The Company currently leases the fine jewelry, shoe
and maternity wear departments, custom drapery, certain of its restaurants and
the beauty salons in its Gottschalks department stores. The independent
operators
supply their own merchandise, sales personnel and advertising and pay the
Company
a percentage of gross sales as rent. Management believes that while the cost of
sales attributable to leased department sales is generally higher than other
departments, the relative contribution of leased department sales to earnings is
comparable to that of the Company's other departments because the lessee assumes
substantially all operating expenses of the department. This allows the Company
to reduce its level of selling, advertising and other general and administrative
expenses associated with leased department sales. Leased department sales as a
percent of total sales were 7.1%, 7.4%, 7.1%, 6.6% and 6.9% in 1994, 1993, 1992,
1991 and 1990, respectively. Gross margin applicable to the leased departments
was 14.1%, 13.8%, 14.4%, 14.6% and 14.5% in 1994, 1993, 1992, 1991 and 1990,
respectively.
Competition. The retail department store and specialty apparel
businesses are highly competitive. The Company's stores compete with national,
regional, and local chain department stores and specialty stores, some of which
are considerably larger than the Company and have substantially greater
financial
and other resources. Competition has intensified in recent years as new
competitors, including discount retailers and outlet malls, have entered the
Company's primary market areas. The Company competes primarily on the basis of
current merchandise availability, customer service, price and store location.
The
Company's larger national and regional competitors have the ability to purchase
larger quantities of merchandise at lower prices. Management believes its buying
practices partially counteract this competitive pressure. Such practices
include:
(i) the ability to accept smaller or odd-sized orders of merchandise from
vendors
than its larger competitors may be able to accept, (ii) the ability to structure
its merchandise mix to more closely reflect the different regional, local and
ethnic needs of its customers and (iii) the ability to react quickly and make
opportunistic purchases of individual items. Management also believes that its
knowledge of its primary market areas, developed over more than 90 years of
continuous family management, and its focus on those markets as its primary
areas
of operations, give it an advantage that its competitors cannot readily
duplicate. Many of the Company's competitors are national chains whose
operations
are not focused specifically on non-major metropolitan cities in the Western
United States. One aspect of the Company's strategy is to differentiate itself
as a home-town, locally-oriented store versus its more nationally focused
competitors.
Employees. As of January 28, 1995, the Company had 5,377 employees, of
whom 1,168 were employed part-time (working less than 20 hours a week on a
regular basis). The Company hires additional temporary employees and increases
the hours of part-time employees during seasonal peak selling periods. None of
the Company's employees are covered by a collective bargaining agreement.
Management considers its employee relations to be good.
To attract and retain qualified employees, the Company offers a 25%
discount on most merchandise purchases, participation in a 401(k) Retirement
Savings Plan to which the Company may make an annual discretionary contribution,
vacation, sick and holiday pay benefits as well as health care, accident, death,
disability, dental and vision insurance at a nominal cost to the employee and
eligible beneficiaries and dependents. The Company also has a performance-based
incentive pay program for certain of its officers and key employees and has
stock
option plans that provide for the grant of stock options to certain officers and
key employees of the Company.
Executive Officers of the Registrant. Information relating to the
Company's executive officers is included in Part III, Item 10 of this report and
is incorporated herein by reference.
Item 2. PROPERTIES
Corporate Offices and Distribution Center. The Company's corporate
headquarters are located in an office building in Northeast Fresno, California,
constructed in 1991 by a limited partnership of which the Company is the sole
limited partner holding a 36% share of the partnership. The Company leases
89,000
square feet of the 176,000 square foot building under a twenty year lease
expiring in the year 2011. The Company has two consecutive ten year renewal
options and receives favorable lease terms under the lease. (See Note 1 to the
Consolidated Financial Statements). The Company believes that its current office
space is adequate to meet its long-term office space requirements.
The Company's distribution center, completed in 1989, was constructed and
equipped to meet the Company's long-term merchandise distribution needs. The
420,000 square foot distribution facility is strategically located in Madera,
California to service economically the Company's existing Western United States
store locations and its projected future market areas. The Company leases the
distribution facility from an unrelated party under a 20 year lease expiring in
the year 2009, and has six consecutive five-year renewal options.
Store Leases and Locations. The Company owns seven of its thirty-two
Gottschalks stores and leases its remaining Gottschalks and Village East stores
from unrelated parties. The store leases generally require the Company to pay
either a fixed rent, rent based on a percentage of sales, or rent based on a
percentage of sales above a specified minimum rent amount. Certain of the
Company's leases also provide for rent abatements and scheduled rent increases
over the lease terms. The Company is generally responsible for a pro-rata share
of promotion, common area maintenance, property tax and insurance expenses under
its store leases. On a comparative store basis, the Company incurred an average
of $6.92, $6.80, $6.09, $6.00 and $5.87 per gross square foot in lease expense
in 1994, 1993, 1992, 1991 and 1990, respectively, not including common area
maintenance and other allocated expenses.
Twenty-seven Gottschalks and all but two of the Village East stores, are
located in regional shopping malls. While there is no assurance that the
Company
will be able to negotiate further extensions of any particular lease, management
believes that satisfactory extensions or suitable alternative store locations
will be available.
The following table contains specific information about each
of the Company's stores open as of the end of 1994:
Expiration
Gross Selling Date of
Square Square Date Current
Feet Feet Opened Lease Renewal Options
GOTTSCHALKS
Antioch............. 80,000 64,100 1989 N/A (1) N/A
Aptos............... 11,200 10,200 1988 2004 None
Bakersfield:
East Hills........ 74,900 63,300 1988 2009 6 five yr. opt.
Valley Plaza...... 69,000 51,800 1987 1997(2) None
Capitola............105,000 89,700 1990 N/A (1) N/A
Chico............... 85,000 77,200 1988 2017 3 ten yr. opt.
Clovis..............101,400 94,500 1988 2018 None
Eureka.............. 96,900 69,300 1989 N/A (1) N/A
Fresno:
Fashion Fair...... 76,700 67,900 1970 2001 None
Fig Garden........ 36,000 33,400 1983 2005 None
Manchester........175,600 143,400 1979 2009 1 ten yr. opt.
Hanford............. 98,800 75,400 1993 N/A (1) N/A
Klamath Falls....... 65,400 51,100 1992 2007 2 ten yr. opt.
Merced.............. 60,000 51,900 1983 2013 None
Modesto:
Vintage Faire..... 89,600 67,100 1977 2008 4 five yr. opt.
Century Center.... 62,300 59,300 1984 2013 1 ten yr. opt.
and
1 four yr. opt.
Oakhurst............ 25,600 21,600 1994 2005 4 five yr. opt.
and
1 six yr. opt.
Palmdale............114,900 93,100 1990 N/A (1) N/A
Palm Springs........ 68,100 55,100 1991 2011 4 five yr. opt.
Sacramento..........194,400 144,900 1994 2014 5 five yr. opt.
San Luis Obispo..... 99,300 78,700 1986 N/A (1) N/A
Santa Maria.........114,000 97,900 1976 2006 4 five yr. opt.
Scotts Valley....... 11,200 9,700 1988 2001 2 five yr. opt.
Stockton............ 90,800 79,000 1987 2009 6 five yr. opt.
Tacoma..............119,300 92,700 1992 2012 4 five yr. opt.
Visalia............. 88,800 72,000 1964 2003 1 twelve yr. opt.
and
2 twenty yr. opt.
Woodland............ 55,300 47,000 1987 2017 2 ten yr. opt.
Yuba City........... 80,000 61,900 1989 N/A(1) N/A
Redding............. 7,800 5,000 1993 60 days(3) None
Total Gottschalks
Square Footage..2,357,300 1,928,200
Expiration
Gross Selling Date of
Square Square Date Current
Feet Feet Opened Lease Renewal Options
VILLAGE EAST
Antioch............. 2,100 1,475 1989 N/A (1) N/A
Bakersfield:
East Hills........ 2,500 2,100 1988 1998 None
Valley Plaza...... 3,700 3,600 1991 2002 None
Capitola............ 2,400 2,360 1991 1999 None
Chico............... 2,300 2,285 1988 2000 None
Clovis.............. 2,300 2,250 1988 1998 None
Eureka.............. 2,800 2,800 1989 2004 None
Fresno:
Fashion Fair...... 1,600 1,500 1970 1996 None
Fig Garden........ 2,800 2,585 1986 1999 None
Manchester........ 6,000 5,375 1981 2010 None
Hanford............. 2,800 2,480 1993 2008 None
Merced.............. 3,100 2,800 1976 2001 None
Modesto:
Vintage Faire..... 2,900 2,720 1977 1995(2) None
Century Center.... 2,500 2,500 1986 2005 None
Palmdale............ 2,800 2,300 1990 2000 None
Palm Springs........ 2,500 2,025 1991 2001 None
Sacramento.......... 2,700 2,470 1994 2004 None
San Luis Obispo..... 2,500 2,265 1987 2011 None
Santa Maria......... 3,000 2,720 1976 2001 None
Stockton............ 1,800 1,300 1989 1998 None
Tacoma.............. 4,000 3,220 1992 2012 None
Visalia............. 3,400 2,880 1975 1999 None
Woodland............ 2,000 2,000 1987 1999 None
Yuba City........... 3,200 3,045 1990 2000 None
Total Village East
Square Footage....67,700 61,055
Total Square
Footage........2,425,000 1,989,255
__________________________
(1) Company owned.
(2) Management believes it will be able to renegotiate leases expiring in
the near-term. Such negotiations may involve revisions to certain
provisions currently contained in those leases. Management does not
expect any such revisions to materially affect the operating results
of the Company.
(3) This lease is automatically renewed every 60 days. Either party can
terminate the lease upon 60 days' notice.
Item 3. LEGAL PROCEEDINGS
As described more fully in the Company's Annual Report on Form 10-K for
the year ended January 29, 1994 and the Company's various Quarterly Reports on
Form 10-Q for the year ended January 28, 1995, the Company has been party to
three civil lawsuits related to an income tax deduction (the "Income Tax
Deduction") on the Company's 1985 federal tax return and the reports and
registration statements filed by the Company with the Securities and Exchange
Commission (the "SEC"). On August 26, 1994, the Company announced it had reached
an agreement to settle all aspects of those lawsuits and included in the
Company's 1994 results of operations is a provision for $3.5 million
representing
the cost of the settlement and related legal fees and other costs. The
derivative
action pending in the Superior Court of California, County of Fresno (Ponder v.
Ernst & Young; filed May 11, 1993), and the class action pending in the United
States District Court for the Northern District of California, (Annoni v.
Gottschalks; filed July 15, 1993) were dismissed on October 21, 1994 and
November
4, 1994, respectively. On February 1, 1995, the Superior Court of California,
County of Fresno, issued a final judgement and order of dismissal for approval
of the settlement of the class action set forth before the Court on October 21,
1994, (Ponder v. Gottschalks; filed April 30, 1993). In accordance with the
terms
of the settlement agreement, the Company funded $3.0 million into an irrevocable
trust on February 1, 1995. The net proceeds of the settlement will be paid to
the
plaintiffs based on the Plan of Allocation, filed by the Company before the
Court
on January 17, 1995.
The Company is a defendant in a lawsuit filed in October 1992 by F&N
Acquisition Corporation ("F&N") in the United States Bankruptcy Court for the
Western District of Washington (F&N Acquisition Corp. v. Gottschalks, Inc., Case
No. A92-08501). F&N is seeking damages arising out of the Company's alleged
breach of an oral agreement at a bankruptcy auction to purchase an assignment of
a lease of a former Frederick & Nelson store located in Spokane, Washington. In
addition, F&N is seeking an unspecified sum for its rejection of the next best
offer at the bankruptcy auction. In 1992, F&N obtained a partial summary
judgment against the Company under which the Company was ordered to pay F&N
damages of approximately $3.0 million plus accrued interest from the date of the
judgment. The partial summary judgment was reversed on November 21, 1994 and the
matter was remanded to the Bankruptcy Court for further proceedings.
Management's estimate of amounts that may be ultimately payable to F&N were
included in the provision for unusual items in the 1993 and 1992 consolidated
statements of operations.
In connection with the above-referenced lawsuit filed against the Company
by F&N, an additional complaint was filed in June 1994 in the United States
District Court for the Western District of Washington by Sabey Corporation
("Sabey"), the owner of the mall in which the Frederick & Nelson store was
located (Sabey Corporation v. Gottschalks, Inc., Case No. C94-842Z). The
plaintiff is seeking damages as a third-party beneficiary of the bid the Company
made to F&N at the bankruptcy auction, claiming damages suffered by the mall due
to the Company's failure to purchase and assume the Frederick & Nelson store
lease. In April 1994, an agreement was signed by all parties to the F&N and
Sabey
lawsuits providing for the consolidation of the two cases. It is anticipated
that the Court will enter a ruling confirming the consolidation of these cases
in the near-term. Management believes that the ultimate outcome of these cases,
as consolidated, will not have a material adverse effect upon the financial
condition or results of operations of the Company.
In July 1994, UML Financial Corporation and M.J.M. and Associates, Inc.
filed a lawsuit against the Company in the California Superior Court for the
County of Fresno (UML Financial Corporation and M.J.M. and Associates, Inc. v.
Gottschalks, Inc., et al., Case No. 514020 7). The complaint was amended in
August 1994 to add three officers of the Company, Joseph W. Levy, Alan A.
Weinstein and Warren Williams, as defendants. The plaintiffs claim that the
Company failed to fulfill an alleged obligation to consummate certain sale-
leaseback financings involving six of the Company's retail stores and
unspecified
equipment. The most recent version of the complaint alleges breach of contract,
fraud and deceit and promissory estoppel. The plaintiffs are seeking specific
performance as well as monetary damages. Plaintiffs claim damages in excess of
$10 million. The Company is vigorously defending this case and management does
not believe that the ultimate outcome of this case will have a material adverse
effect upon the financial condition or results of operations of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matter was submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year covered in this report.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's stock is listed for trading on both the New York Stock
Exchange and the Pacific Stock Exchange. The following table sets forth the
high
and low sales prices per share of common stock as reported on the New York Stock
Exchange Composite Tape under the symbol "GOT" during the periods indicated:
1994 1993
Fiscal Quarters High Low High Low
1st Quarter......... 12 7/8 8 3/8 9 3/4 7 1/8
2nd Quarter......... 12 8 1/2 9 6 1/8
3rd Quarter......... 9 3/4 7 1/4 9 6 1/2
4th Quarter......... 8 3/8 6 5/8 10 3/8 7 1/2
On March 31, 1995, the Company had 1,169 stockholders of record, some of
which were brokerage firms or other nominees holding shares for multiple
stockholders.
The Company has not paid a cash dividend since its initial public
offering in 1986. The Board of Directors has no present intention to pay cash
dividends in the foreseeable future, and will determine whether to declare cash
dividends in the future depending on the Company's earnings, financial condition
and capital requirements. In addition, the Company's credit agreements with
Shawmut Capital Corporation ("Shawmut" - formerly Barclays Business Credit,
Inc.)
and Wells Fargo Bank, N.A., ("Wells Fargo") prohibit the Company from paying
cash
dividends.
Item 6. SELECTED FINANCIAL DATA
The Company reports on a 52/53 week fiscal year ending on the Saturday
nearest to January 31. The fiscal years ended January 28, 1995, January 29,
1994, January 30, 1993, February 1, 1992 and February 2, 1991 are referred to
herein as 1994, 1993, 1992, 1991 and 1990, respectively. All fiscal years noted
include 52 weeks.
The selected financial data below should be read in conjunction with Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Consolidated Financial Statements of the Company and
related
notes included elsewhere herein.
SELECTED BALANCE SHEET DATA:
(In thousands of dollars) 1994 1993 1992 1991 1990
Receivables, net...... $ 27,311 $21,460(1) $ 59,508 $ 62,831 $60,661
Merchandise
inventories.......... 80,678(2)60,465 58,777 62,821 51,547
Property and
equipment, net....... 93,809 96,396 95,933 91,114 83,435
Total assets.......... 233,353 248,330 239,910 242,072 207,556
Working capital....... 37,900 32,147(3) 16,827 64,715 34,975
Long-term obligations,
less current portion. 33,672 31,493(3) 14,992 51,290 42,627
Stockholders' equity.. 83,577 82,118 84,529 92,720 55,975
SELECTED FINANCIAL RATIOS:
Current ratio......... 1.43:1 1.30:1 1.15:1 1.89:1 1.41:1
Inventory turnover
ratio.............. 2.9(4) 2.9 2.9 2.9 3.1
Days credit sales
in receivables...... 155.4(5) 169.3(5) 169.8 177.4 178.2
(1) As described more fully in Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and Note 2 to the Consolidated Financial Statements,
these amounts do not include $40.0 million of the Company's customer
credit card receivables sold in March 1994 in connection with an asset-
backed securitization program. Such receivables were classified as held
for securitization and sale at January 29, 1994.
(2) The increase in merchandise inventories from 1993 to 1994 is primarily
attributable to additional inventory required for the new stores opened
in 1994 and inventory on hand at year-end for new stores opened in early
1995. In addition, to a lesser extent, this increase is attributable to
opportunistic purchases of merchandise shortly before year- end in 1994.
The Company typically receives extended payment terms for such purchases.
(3) Working capital increased $15.3 million and long-term obligations
increased $16.5 million from 1992 to 1993 primarily due to the
classification of certain debt as long-term in 1993 that had been
classified as current in 1992.
(4) The inventory turnover ratio in 1994 excludes inventory received at year-
end and held for stores opened in early 1995.
(5) Days credit sales in receivables include $40.0 million of receivables
sold in 1994 and held for securitization and sale as of January 29,
1994. The Company has continued to service and administer the receivables
pursuant to the securitization program.
RESULTS OF OPERATIONS:
(In thousands,
except share data) 1994 1993 1992 1991 1990
Net sales(1)........... $363,603 $342,417 $331,133 $314,633 $287,455
Service charges and
other income......... 9,659 8,938 9,458 10,830 10,374
373,262 351,355 340,591 325,463 297,829
Costs and expenses:
Cost of sales(2)..... 247,423 233,715 226,319 210,435 189,330
Selling, general and
administrative
expenses(3)........ 103,571 103,675 105,044 96,144 84,916
Depreciation and
amortization....... 5,860 5,877 6,408 5,503 5,266
Interest expense..... 10,238 8,524 6,965 6,793 9,306
Unusual items(4)..... 3,833 3,427 7,852
370,925 355,218 352,588 318,875 288,818
Income (loss) before
income tax expense
(benefit)............ 2,337 (3,863) (11,997) 6,588 9,011
Income tax expense
(benefit)............ 821 (1,190) (4,006) 2,528 3,398
Net income (loss)...... $ 1,516 $ (2,673) $ (7,991) $ 4,060 $ 5,613
Net income (loss) per
common share......... $ .15 $ (.26) $ (.77) $ .41 $ .70
Weighted average number
of common shares
outstanding.......... 10,413 10,377 10,410 9,798 8,040
SELECTED OPERATING DATA:
1994 1993 1992 1991 1990
Total store
sales growth (5)..... 6.2% 3.4% 5.2% 9.5% 21.4%
Comparable store
sales growth......... 3.3% 1.3% (1.0%) 3.5% 11.1%
Average net sales
per square foot
of selling space (6):
Gottschalks......... $210 $213 $209 $210 $208
Village East........ 214 216 218 231 217
(1) Includes net sales from leased departments of $26.0 million, $25.3
million, $23.4 million, $20.8 million and $19.7 million in 1994, 1993,
1992, 1991 and 1990, respectively. See Part I, Item 1, "Business--Leased
Departments."
(2) Includes cost of sales attributable to leased departments of $22.3
million, $21.8 million, $20.1 million, $17.8 million and $16.9 million in
1994, 1993, 1992, 1991 and 1990, respectively.
(3) Includes provision for credit losses of $2.1 million, $2.2 million, $2.5
million, $3.0 million and $1.9 million in 1994, 1993, 1992, 1991 and 1990,
respectively.
(4) See Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 3 to the Consolidated
Financial Statements.
(5) See Part I, Item I, "Business--Store Expansion and Remodeling", for table
of number of stores open at each fiscal year-end.
(6) Average net sales per square foot of selling space represents net sales
for the period divided by the number of square feet of selling space in
use during the period. Average net sales per square foot is computed only
for those stores in operation for at least twelve months. "Selling space"
has been determined according to standards set by the National Retail
Federation.
___________________________
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Net income increased to $1.5 million in 1994 as compared to net
losses of $2.7 million in 1993 and $8.0 million in 1992. Prior to unusual items
and income taxes, income from operations increased to $6.2 million in 1994 as
compared to losses from operations of $436,000 in 1993 and $4.1 million in 1992.
The improved operating results of the Company in 1994 as compared to 1993 and
1992 is primarily the result of the implementation of a long-term business
strategy in 1993 which has focused on increasing total and comparative store
sales through the controlled expansion of the Company, more strongly defined
merchandising and customer-service programs and increased promotional activity;
enhancing service charges and other revenues through the development of new
credit-related programs; improving gross margins and controlling inventory-
related costs, and reducing general and administrative costs by reviewing all
aspects of the Company's operations. Within the context of this strategy, the
Company has strived to achieve these goals without sacrificing its traditionally
high-level of customer service. The Company's results of operations in 1994 and
1993 as compared to 1992 were also favorably impacted by improved economic
conditions in many of the Company's market areas during those periods.
The following table sets forth for the periods indicated certain
items from the Company's Consolidated Statements of Operations, expressed as a
percent of net sales:
1994 1993 1992
Net sales........................ 100.0% 100.0% 100.0%
Service charges and other
income......................... 2.6 2.6 2.9
102.6 102.6 102.9
Costs and expenses:
Cost of sales................. 68.0 68.2 68.4
Selling, general and
administrative expenses..... 28.5 30.3 31.7
Depreciation and
amortization................ 1.6 1.7 1.9
Interest expense.............. 2.8 2.5 2.1
Unusual items................. 1.1 1.0 2.4
102.0 103.7 106.5
Income (loss) before income tax
expense (benefit)............. 0.6 (1.1) (3.6)
Income tax expense (benefit)..... 0.2 (0.3) (1.2)
Net income (loss)................ 0.4% (0.8)% (2.4)%
Net Sales
Net sales increased 6.2% in 1994, 3.4% in 1993 and 5.2% in 1992.
Comparable store sales increased 3.3% in 1994 and 1.3% in 1993 and decreased
1.0%
in 1992. Comparable store sales in 1994 and 1993 were favorably impacted by
strong retail activity and improved economic conditions in many of the Company's
market areas during those periods. Comparable store sales in 1992 were
negatively
impacted by recessionary economic conditions during the period. Net sales in
1994, 1993 and 1992 also reflect increased sales volume generated from two new
Gottschalks stores and one new Village East store opened in each of those years.
The Company opened three new Gottschalks stores in early 1995 and intends to
open
two additional new stores, including one new store replacing an existing store
location, by the end of 1995.
Service Charges and Other Income
Service charges and other income increased 8.1% in 1994 and
decreased
5.5% in 1993 and 12.7% in 1992. Service charges associated with the Company's
customer credit cards increased 9.9% in 1994 as compared to decreases of 5.8% in
1993 and 4.4% in 1992. The increase in service charges in 1994 is attributable
to an increase in credit sales as a percent of total sales, resulting primarily
from the success of new credit-related programs initiated by the Company in 1994
and 1993, including the Instant Credit, 55-Plus, Gold Card and 55-Plus Gold Card
programs, in addition to an increase in the number of customer credit card
accounts resulting from new stores openings in 1994, 1993 and 1992. Credit sales
as a percent of total sales increased to 43.5% in 1994 as compared to 38.8% in
1993 and 38.5% in 1992. The increase in service charges is also attributable to
the implementation of a late charge fee on delinquent customer credit card
accounts in 1994.
Other income, consisting primarily of the amortization of
deferred
income, was $755,000 in 1994, $838,000 in 1993 and $880,000 in 1992. Other
significant items included in other income include the following: (1) a loss of
$305,000 recognized by the Company in 1994 in connection with the receivables
securitization program, (see "Liquidity and Capital Resources" and Note 2 to the
Consolidated Financial Statements), and (2) equity in the income of the
Company's
investment in a limited partnership of $160,000 in 1994 as compared to losses
recognized on the investment of $228,000 in 1993 and $224,000 in 1992 (see Note
1 to the Consolidated Financial Statements.)
Cost of Sales
Cost of sales increased 5.9% in 1994, 3.3% in 1993 and 7.5% in
1992.
The Company's gross margin percent increased to 32.0% in 1994 as compared to
31.8% in 1993 and 31.6% in 1992. The increase in the gross margin percent in
1994
resulted from increased sales volume and a reduction of inventory shrinkage to
1.4% as a percent of net sales in 1994 as compared to 2.1% in 1993 and 2.3% in
1992, primarily from improved inventory-related controls. The improved gross
margin in 1994 also reflects a favorable year-end LIFO inventory valuation
adjustment ("LIFO adjustment") resulting from moderate price deflation in
certain
of the Company's LIFO inventory pools in 1994 as compared to moderate price
inflation in certain LIFO inventory pools in 1993 and 1992. The Company also
experienced fluctuations in inventory levels and the relationship between the
cost of its merchandise inventories and its selling prices in 1994, 1993 and
1992
which magnified the LIFO adjustment in each of those years. The LIFO adjustment
resulted in a decrease to cost of sales of $3.2 million in 1994 after increasing
cost of sales by $969,000 in 1993 and $1.5 million in 1992. Excluding the effect
of the LIFO adjustment, the Company's gross margin percent was 31.1% in 1994,
32.0% in 1993 and 32.1% in 1992. (See Note 1 to the Consolidated Financial
Statements.)
Management believes that the retail industry will continue to
experience intense competition and pricing pressures throughout the 1990's,
particularly as a result of changing consumer preferences, increased merchandise
costs and increased competition from other department and specialty stores,
discount retailers and outlet malls. Management has implemented a variety of
strategies to counteract the ongoing competitive pressures on its gross margin,
and is attempting to increase sales through the controlled expansion of the
Company, improve market share in the Company's existing market areas through the
development of new sales and customer-service related programs, increase
inventory turnover and reduce inventory-related costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percent of net sales
decreased to 28.5% in 1994 as compared to 30.3% in 1993 and 31.7% in 1992. This
decrease as a percent of net sales in 1994 and 1993 as compared to 1992 resulted
from increased sales volume and the continued focus on expense control measures
throughout the Company. The decrease as a percent of net sales in 1994 was
partially offset by higher payroll and related costs and increased advertising
and other promotional costs. The decrease as a percent of net sales in 1993 as
compared to 1992 also resulted from a reduction in payroll and related costs
through the restructuring of the Company's sales, buying and support staff and
salary reductions implemented during the year. The benefits of the 1993
restructuring program were fully realized by mid-1994. In 1994 and 1993, the
Company also realized the benefit of reductions to required workers'
compensation
claim reserves resulting from favorable experience adjustments and revisions to
applicable workers' compensation laws. In 1992, the Company increased workers'
compensation claim reserves as a result of poor actual claim loss experience.
Excluding the effect of such experience adjustments, selling, general and
administrative expenses as a percent of net sales were 29.1% in 1994, 30.7% in
1993 and 31.2% in 1992. The Company revised its workers' compensation program in
early 1995 and does not expect future significant favorable or unfavorable
workers' compensation experience adjustments.
As a result of programs initiated in 1994 and 1993, and the Company's
ongoing efforts to control expenses, management anticipates it will be able to
continue to reduce operating expenses as a percent of net sales in the
long-term.
Management also expects to achieve further reductions in its operating expenses
as a percent of net sales by spreading its overhead costs over an increasing
selling base resulting from its ongoing store expansion program.
Depreciation and Amortization
Depreciation and amortization as a percent of net sales decreased to 1.6%
in 1994 as compared to 1.7% in 1993 and 1.9% in 1992. The decrease as a percent
of net sales in 1994 and 1993 resulted primarily from increased sales volume and
a decrease in the amortization of store pre-opening costs related to the
Company's new stores. The Company expects to realize an increase in depreciation
expense and the amortization of store pre-opening costs in 1995 as a result of
completing and opening the two new stores in 1994 and the planned store openings
for 1995.
Interest Expense
Interest expense as a percent of net sales increased to 2.8% in 1994 as
compared to 2.5% in 1993 and 2.1% in 1992. These increases as a percent of net
sales relate to an increase in the weighted-average interest rate charged on
outstanding borrowings under the Company's revolving lines of credit to 7.1% in
1994 as compared to 6.5% in 1993 and 5.8% in 1992 and additional amortization of
loan fees applicable to certain of the Company's financing arrangements entered
into in 1994 and 1993. The increase in 1994 also relates to additional interest
expense associated with the Fixed Base Certificates and additional amortization
of the excess servicing asset recorded in connection with the receivables
securitization program (see Note 2 to the Consolidated Financial Statements). As
described more fully in "Liquidity and Capital Resources", the Company is
continuing its efforts to reduce interest expense as a percent of net sales by
replacing certain of its current borrowing arrangements with other sources of
lower cost borrowings.
Provision for Unusual Items
As described more fully in Note 3 to the Consolidated Financial
Statements and Part I, Item 3, "Legal Proceedings", the provision for unusual
items totalling $3.8 million in 1994, $3.4 million in 1993 and $7.9 million in
1992, consists of fines and penalties paid in connection with the Company's
settlement of federal criminal charges related to an income tax deduction on the
Company's 1985 federal tax return and certain of the Company's financial
reporting practices; a tax deficiency, interest and penalties paid to the
Internal Revenue Service in connection with the civil aspect of the government's
investigation of such deduction and the cost of the settlement of the related
stockholder litigation. In addition, the provision for unusual items in 1993
and
1992 includes management's estimate of amounts that may ultimately be payable in
connection with unrelated pending litigation against the Company arising out of
an agreement to purchase an assignment of a lease of a former Frederick and
Nelson store location in Spokane, Washington. The provision for unusual items
in 1994, 1993 and 1992 also includes legal and accounting fees and other costs
related to these matters.
Management does not anticipate that any additional costs that may be
incurred in connection with these matters will be material to the operating
results of the Company.
Income Taxes
The Company accounts for income taxes in accordance with Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
Company's
effective tax rate was 35.1% in 1994 as compared to credits of (30.8%) in 1993
and (33.4%) in 1992. (See Note 7 to the Consolidated Financial Statements.)
Liquidity and Capital Resources
The Company's primary needs for liquidity are to provide for working
capital and debt service requirements and to fund costs associated with the
acquisition, renovation and construction of new and existing stores. The
Company's working capital requirements are met through a combination of cash
flows generated from operations, funds provided through a receivables
securitization agreement and borrowings on the Company's revolving lines of
credit. The Company generally seeks to fund costs associated with the
acquisition, renovation and construction of new and existing stores with cash
generated from operations and lower cost long-term borrowings. Debt service
requirements on the Company's various short-term and long-term borrowing
arrangements are generally provided for by cash generated from operations. The
Company's improved operating results and financial condition in 1994 has
enhanced
the Company's liquidity.
Net cash used in operating activities was $1.5 million in 1994 as
compared to $2.6 million in 1993. Net cash provided by operating activities was
$2.0 million in 1992. Net cash used in operating activities in 1994 and 1993
related primarily to increases in merchandise inventories and receivables
associated with new stores opened during and shortly after year-end in each of
those years. To a lesser extent, the increase in merchandise inventory in 1994
is also attributable to the receipt of opportunistic purchases of merchandise
shortly before year-end. As described more fully in Note 3 to the Consolidated
Financial Statements, net cash used in and provided by operating activities in
1994, 1993 and 1992 also reflects amounts paid in connection with the
government's investigation and related stockholder litigation.
Net cash used in investing activities was $2.5 million in 1994, $5.4
million in 1993 and $10.7 million in 1992. Net cash used in investing
activities
in 1994, 1993 and 1992 relates primarily to expenditures for tenant
improvements,
construction costs and furniture, fixtures and equipment associated with new
stores and certain existing store locations. Net cash used in investing
activities in 1994, 1993 and 1992 also reflects expenditures for information
systems improvements and additional enhancements to the Company's POS and
computer processing capabilities. In 1994, the Company entered into a sale and
leaseback arrangement for certain computer equipment and software and received
proceeds of $1.5 million from the arrangement. The Company also sold certain
land
not being used in operations in 1994 and received proceeds of $400,000 from the
sale. In 1992, the Company entered into a sale and leaseback arrangement for
certain furniture and fixtures and received proceeds of $1.4 million from the
arrangement.
Net cash provided by financing activities was $6.0 million in 1994, $8.2
million in 1993 and $6.5 million in 1992. Net cash provided by financing
activities in 1994 consisted primarily of $40.0 million proceeds received
through
the initial securitization and sale of certain of the Company's receivables.
Such
proceeds were used to repay all outstanding borrowings on a pre-existing line of
credit and long-term borrowing arrangement and to pay certain costs associated
with the transaction. The Company also received $6.7 million in 1994 through the
mortgage of the property and equipment located at its department store in
Hanford, California. Net cash provided by financing activities in 1993 and 1992
consisted primarily of proceeds from the Company's revolving line of credit and
other long-term borrowings.
The Company's ratio of current assets to current liabilities continued
to improve, increasing to 1.43:1 at January 28, 1995 as compared to 1.30:1 at
January 29, 1994 and 1.15:1 at January 30, 1993.
As described more fully in Note 2 to the Consolidated Financial
Statements, the Company entered into an asset-backed securitization program on
March 30, 1994. Under the program, all accounts receivable arising under the
Company's private label customer credit cards, together with rights to all
collections and recoveries on such receivables, are automatically sold, without
recourse, to a wholly-owned subsidiary, Gottschalks Credit Receivables
Corporation ("GCRC") and certain of those receivables are subsequently conveyed
to a trust, Gottschalks Credit Card Master Trust ("GCC Trust"). On March 30,
1994, GCC Trust issued $40.0 million principal amount 7.35% Fixed Base Class A-1
Credit Card Certificates ("Fixed Base Certificates") to third-party investors.
On March 30, 1994, GCC Trust also issued a Subordinated Certificate and an
Exchangeable Certificate to GCRC, representing GCRC's retained interest in the
receivables as of that date. Interest on the Fixed Base Certificates is payable
on a monthly basis and the outstanding principal balance is to be repaid in
equal
monthly installments commencing September 1998 through September 1999, through
the application of credit card principal collections during that period.
The Company used the $40.0 million proceeds from the initial
securitization and sale of the receivables to repay all outstanding borrowings
under a pre-existing line of credit and long-term credit facility and to pay
certain costs related to the securitization transaction. The Company recognized
a loss of $305,000 in connection with the initial transaction. Under the terms
of the program, the Company sold additional newly-generated receivables to GCRC
subsequent to March 30, 1994 and through January 28, 1995, and certain of those
receivables were subsequently conveyed to GCC Trust. Aggregate proceeds from
such
sales, totalling $146.0 million, were used for working capital purposes by the
Company.
On September 16, 1994, GCC Trust also issued a Variable Base Class A-2
Credit Card Certificate ("Variable Base Certificate") in the principal amount of
up to $15.0 million from GCC Trust to Bank Hapoalim. As described more fully
below and in Note 2 to the Consolidated Financial Statements, the Variable Base
Certificate, representing certain receivables held by GCC Trust, excluding
receivables underlying the Fixed Base Certificates and GCRC's retained interest,
was issued as collateral for a revolving line of credit financing arrangement
with Bank Hapoalim. In addition to the Fixed and Variable Base Certificate, GCRC
may, upon the satisfaction of certain conditions, offer additional series of
certificates to be issued by GCC Trust. As of January 28, 1995, no such issuance
has occurred and management does not contemplate such an issuance in the near-
term.
The Company has two revolving line of credit arrangements that provide
additional working capital financing of up to $65.0 million through March 1997.
The Company's primary revolving line of credit arrangement, providing for
borrowings of up to $35.0 million as of January 28, 1995, is with Shawmut
Capital
Corporation ("Shawmut" - formerly Barclays Business Credit, Inc). On March 31,
1995, Shawmut increased the amount available for borrowings under the line of
credit to $50.0 million through March 1997, with 40% of the available line of
credit provided for by Wells Fargo Bank, N.A., ("Wells Fargo") through a
participation agreement. This new line of credit arrangement (collectively the
"Shawmut line of credit") also provides for an increase in the amount available
for borrowings to $60.0 million during the months of November and December of
each year for seasonal inventory purchases. Borrowings under the Shawmut line of
credit are limited to a restrictive borrowing base, which was in excess of $35.0
million at January 28, 1995. Interest on outstanding borrowings is to be paid
monthly at a rate equal to LIBOR, as determined by Shawmut, plus 3.0% (9.1% at
January 28, 1995) through March 31, 1995, and LIBOR plus 2.8% thereafter. At
January 28, 1995, $2.8 million was outstanding under the line of credit
arrangement with Shawmut.
The arrangement with Shawmut originally required the Company to reduce
outstanding indebtedness on the line of credit by $5.0 million on June 30, 1994
(extended to April 30, 1995). The Company repaid this amount, prior to its due
date, in March 1995. The Shawmut arrangement also required the Company to repay
all outstanding borrowings on the line of credit for thirty consecutive days
during the period of December 1 to January 31 of each year. This requirement
was
shortened to seven consecutive days for fiscal 1994 and the Company met this
requirement in January 1995. The line of credit arrangement with Shawmut, as
amended on March 31, 1995, no longer contains such an annual repayment
provision.
The Company's revolving line of credit arrangement with Bank Hapoalim
provides for additional borrowings of up to $15.0 million through March 1997.
Borrowings under the line of credit are limited to a percentage of the
outstanding principal balance of receivables underlying the Variable Base
Certificate and therefore, are subject to any seasonal variations that may
affect
the outstanding principal balance of such receivables. Interest on outstanding
borrowings on the line of credit is charged at a rate of LIBOR, as determined by
the bank, plus 1.0%, not to exceed a maximum of 12.0% (6.8% at January 28,
1995).
At January 28, 1995, $15.0 million was outstanding under the line of credit with
Bank Hapoalim.
The Company also has a short-term and a long-term loan facility with
Wells Fargo. The short-term loan, originally due June 30, 1994 (extended to
April
30, 1995), bears interest at a rate of 10 3/4% and had an outstanding balance of
$1.6 million at January 28, 1995. The Company repaid the outstanding balance of
the short-term obligation to Wells Fargo, prior to its maturity, in March 1995.
The long-term loan, due June 1996, bears interest at a rate of 10 3/4% and had
an outstanding balance of $18.2 million at January 28, 1995. Management expects
to either refinance this obligation over a longer maturity period or replace it
with another long-term financing arrangement in the near-term.
The Company has continued its efforts to secure long-term financing to
fund its store expansion program. In December 1994, the Company entered into a
seven-year financing arrangement with Heller Financial, Inc. ("Heller")
providing
for the mortgage of the real property, furniture, fixtures and equipment located
at the Company's department store in Hanford, California. Interest on the
mortgage loan is charged at a rate of 10.45%. Proceeds from the arrangement,
amounting to $6.7 million, were used to repay a portion of the short-term
obligation with Wells Fargo, reduce outstanding borrowings on the Shawmut line
of credit and pay certain costs associated with the financing arrangement.
Certain of the Company's debt agreements contain various restrictive
covenants including, but not limited to: restrictions on the payment of cash
dividends, limitations of certain annual capital expenditures, maintenance of
minimum quick, working capital, tangible net worth, total debt to tangible net
worth and coverage ratios. In addition, the agreements require the maintenance
of minimum adjusted earnings from operations and interest earned ratios and
minimum inventory and payables turnover rates. Certain of the covenants
applicable to the Shawmut line of credit were revised during 1994 and in March
1995 in connection with the finalization of the new Shawmut line of credit
arrangement. Such revisions were primarily to provide for additional capital
expenditures and inventory purchases required for the new stores opened in 1994
and new stores scheduled to be opened in 1995. Wells Fargo agreed to waive its
rights with respect to violations of certain of the covenants applicable to its
long-term loan facility arising out of the additional capital expenditures and
inventory purchases through January 28, 1995, and revised the covenants in
connection with the finalization of the new Shawmut line of credit arrangement.
Accordingly, the Company classified the note payable to Wells Fargo with an
outstanding balance of $18.2 million at January 28, 1995 as long-term in the
accompanying financial statements. As of January 28, 1995, the Company was in
compliance with, or had received waivers for violations of, all applicable
restrictive loan covenants under its various debt agreements.
The Company continued to expand in 1994, adding one new 194,400 square
foot department store and a specialty store in Sacramento, California and one
new
25,600 square foot junior satellite department store in Oakhurst, California.
The Company's expansion program for 1995 includes a new 40,000 square foot
department store in Auburn, California, a new 204,000 square foot department
store in San Bernardino, California and a new 58,000 square foot department
store
in Carson City, Nevada, which were opened in early 1995. The Company also
expects
to open a new 113,000 square foot department store in Tracy, California, and a
new 150,000 square foot department store in Visalia, California, as a
replacement
to an existing store at that location by the end of 1995. The estimated cost to
open the new stores, net of amounts to be contributed by mall owners or
developers of certain of the projects, is $3.4 million. Such costs are expected
to be provided for from cash generated from operations or additional long-term
financings. The Company continually investigates potential sites for new stores,
and capital expenditure plans may change as opportunities for new stores
develop.
Management believes the previously described financing arrangements,
combined with cash flows expected to be generated from operations, provides the
Company with adequate funds for its short-term and long-term needs. Management
believes its relations with banks and other credit sources are good. As part of
the Company's long-term business strategy, management is continuing to evaluate
additional alternative financing sources on an ongoing basis.
Inflation
The Company, as a result of inflation, experiences increases in the cost
of certain of its merchandise, salaries, employee benefits and other general and
administrative costs. As these costs have increased, the Company has generally
been able to offset these increases by adjusting its selling prices or modifying
its operations. The Company's ability to adjust selling prices is limited by
competitive pressures in its market areas.
The Company accounts for its merchandise inventories on the retail method
using last-in, first-out (LIFO) cost using the department store price indexes
published by the Bureau of Labor Statistics. Under this method, the cost of
products sold reported in the financial statements approximates current costs
and
thus reduces the impact of inflation in reported income due to increasing
costs.
Seasonality
The Company's business, like that of most retailers, is subject to
seasonal influences, with the major portion of net sales, gross profit and
operating results realized during the last half of each fiscal year, which
includes the back-to-school and Christmas selling seasons.
The following table sets forth unaudited quarterly results of operations
for the years ended 1994 and 1993 (in thousands, except per share data). The
Company's quarterly results of operations for 1993 reflects certain
reclassifications to conform with 1994 presentation. (See Note 10 to the
Consolidated Financial Statements.)
1994
Quarter ended April 30 July 30 October 29 January 28
Net sales $70,221 $80,515 $78,835 $134,032
Gross profit 22,185 24,929 26,687 42,379
Income (loss) before
income tax expense
(benefit) (3,778) (5,807) (859) 12,781
Net income (loss) (2,343) (3,983) (568) 8,410
Income (loss) per
common share (.22) (.38) (.05) .81
1993
Quarter ended May 1 July 31 October 30 January 29
Net sales $65,833 $76,223 $75,747 $124,614
Gross profit 20,781 23,586 24,785 39,550
Income (loss) before
income tax expense
(benefit) (5,724) (3,857) (2,807) 8,525
Net income (loss) (3,606) (2,430) (1,768) 5,131
Income (loss) per
common share (.35) (.23) (.17) .49
_________________________________
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is set forth under Part IV, Item 14,
included elsewhere herein.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by Item 10 of Form 10-K, other than the
following information required by Paragraph (b) of Item 401 of Regulation S-K,
is incorporated by reference from the Company's definitive proxy statement with
respect to the Annual Stockholders' Meeting scheduled to be held on June 22,
1995, to be filed pursuant to Regulation 14A.
The following table lists the executive officers of the Company:
Name Age(1) Position
Joseph W. Levy 63 Chairman and Chief
Executive Officer
Stephen J. Furst 52 President, Chief Operating
Officer and Director
Gary L. Gladding 55 Executive Vice President/
General Merchandise Manager
Alan A. Weinstein 50 Senior Vice President and
Chief Financial Officer
Michael J. Schmidt 53 Senior Vice President/
Director of Stores
__________________________
(1) As of March 31, 1995
Joseph W. Levy became Chairman and Chief Executive Officer of the
Company's predecessor and former subsidiary, E. Gottschalk & Co., Inc. ("E.
Gottschalk") in April 1982 and of the Company in March 1986. Mr. Levy was
Executive Vice President from 1972 to April 1982 and first joined E. Gottschalk
in 1956. He also serves on the Board of Directors of the National Retail
Federation and Community Hospitals of Central California and the Executive
Committee of Frederick Atkins, Inc. Mr. Levy was formerly Chairman of the
California Transportation Commission and has served on numerous other state and
local commissions and public service agencies.
Steven J. Furst became Executive Vice President and Chief Operating
Officer of the Company in July 1993 and President in November 1993. Mr. Furst
was also elected a director of the Company in March 1994. He is the first non-
family member to serve as the Company's President in its over 90 year history.
From 1963 to 1993, he served in a variety of capacities with Hess's Department
Store based in Allentown, Pennsylvania, including Chief Operating Officer and
President. He also serves on the Board of Directors of the National Retail
Federation and the Fresno Metropolitan Museum.
Gary L. Gladding has been Executive Vice President of the Company since
May 1987, and joined E. Gottschalk as Vice President/General Merchandise Manager
in February 1983. From 1980 to February 1983, he was Vice President and General
Merchandise Manager for Lazarus Department Stores, a division of Federated
Department Stores, Inc., and he previously held merchandising manager positions
with the May Department Stores Co.
Alan A. Weinstein became Senior Vice President and Chief Financial
Officer of the Company in June 1993. Prior to joining the Company, Mr.
Weinstein, a Certified Public Accountant, was the Chief Financial Officer for
The
Wet Seal, Inc. based in Irvine, California for three years. From 1987 to 1989
he was Vice President and Chief Financial Officer of Wildlife Enterprises, Inc.
Aside from his position with The Wet Seal, he has served general and specialty
retailers in California, New York and Texas for over twenty-five years.
Michael J. Schmidt became Senior Vice President/Director of Stores of E.
Gottschalk in February 1985. Mr. Schmidt had been Manager of the Gottschalks
Fashion Fair store since October 1983, and was General Manager of the Liberty
House store in Fresno from January 1981 to October 1983. Before 1981, he held
management positions with Allied Corporation and R.H. Macy & Co., Inc.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Company's definitive proxy statement with respect to the Annual
Stockholders'
Meeting scheduled to be held on June 22, 1995, to be filed pursuant to
Regulation
14A.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference from
the Company's definitive proxy statement with respect to the Annual
Stockholders'
Meeting scheduled to be held on June 22, 1995, to be filed pursuant to
Regulation
14A.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the Company's definitive proxy statement with respect to the Annual
Stockholders'
Meeting scheduled to be held on June 22, 1995, to be filed pursuant to
Regulation
14A.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a)(1) The following consolidated financial statements of Gottschalks
Inc. and
Subsidiaries are included in Item 8:
Consolidated balance sheets -- January 28, 1995 and January 29, 1994
Consolidated statements of operations -- Fiscal years ended January 28,
1995, January 29, 1994 and January 30, 1993
Consolidated statements of stockholders' equity -- Fiscal years ended
January 28, 1995, January 29, 1994 and January 30, 1993
Consolidated statements of cash flows -- Fiscal years ended January 28,
1995, January 29, 1994 and January 30, 1993
Notes to consolidated financial statements - Three years ended January
28, 1995
Independent auditors' report
(a)(2) The following financial statement schedule of Gottschalks Inc.
and
Subsidiaries is included in Item 14(d):
Schedule VIII -- Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are included in
the consolidated financial statements, are not required under the related
instructions or are inapplicable, and therefore have been omitted.
(a)(3) The following exhibits are required by Item 601 of the
Regulation S-K and Item 14(c):
Exhibit
No. Description
3.1 Certificate of Incorporation of the Registrant, as amended. (1)
3.2 By-Laws of the Registrant, as amended. (2)
10.1 Agreement of Limited Partnership dated March 16, 1990, by and between
River Park Properties I and Gottschalks Inc. relating to the Company's
corporate headquarters. (2)
10.2 Loan Agreement dated December 1, 1985 by and between E. Gottschalk & Co.,
Inc. and City of San Luis Obispo relating to $5,500,000 City of San Luis
Obispo Commercial Revenue Bonds. (2)
10.3 Employment Agreement dated February 1, 1986 by and between the Registrant
and Joseph W. Levy. (3)(4)
10.4 Employment Agreement dated April 1, 1986 by and between E. Gottschalk &
Co., Inc. and Gary L. Gladding. (3)(4)
10.5 1986 Employee Incentive Stock Option Plan with form of stock option
agreement thereunder. (3)(4)
10.6 1986 Employee Nonqualified Stock Option Plan with form of stock option
agreement thereunder. (3)(4)
10.7 Gottschalks Inc. Stock Purchase Plan. (3)(4)
10.8 Wage Continuation Agreement dated November 24, 1980 by and between E.
Gottschalk & Co., Inc., and Gerald H. Blum. (3) (4)
10.9 Wage Continuation Agreement dated November 24, 1980 by and between E.
Gottschalk & Co., Inc. and Joseph W. Levy. (3)(4)
10.10 Employment Agreement dated June 1, 1987 by and between E. Gottschalk &
Co., Inc. and Michael J. Schmidt. (1) (4)
10.11 Participation Agreement dated as of December 1, 1988 among Gottschalks
Inc., General Foods Credit Investors No. 2 Corporation and Manufacturers
Hanover Trust Company of California relating to the sale-leaseback of the
Stockton and Bakersfield Gottschalks department stores and the Madera
distribution facility. (1)
10.12 Lease Agreement dated December 1, 1988 by and between Manufacturers
Hanover Trust Company of California and Gottschalks Inc. relating to the
sale-leaseback of department stores in Stockton and Bakersfield,
California and the Madera distribution facility. (1)
10.13 Ground Lease dated December 1, 1988 by and between Gottschalks Inc., and
Manufacturers Hanover Trust Company of California relating to the sale-
leaseback of the Bakersfield department store. (1)
10.14 Memorandum of Lease and Lease Supplement dated July 1, 1989 by and
between Manufactures Hanover Trust Company of California and Gottschalks
Inc. relating to the sale-leaseback of the Stockton department store. (1)
10.15 Ground Lease dated August 17, 1989 by and between Gottschalks Inc. and
Manufacturers Hanover Trust Company of California relating to the sale-
leaseback of the Madera distribution facility. (1)
10.16 Lease Supplement dated as of August 17, 1989 by and between Manufacturers
Hanover Trust Company of California and Gottschalks Inc. relating to the
sale-leaseback of the Madera distribution facility. (1)
10.17 Tax Indemnification Agreement dated as of August 1, 1989 by and between
Gottschalks Inc. and General Foods Credit Investors No. 2 Corporation
relating to the sale-leaseback of the Stockton and Bakersfield department
stores and the Madera distribution facility. (1)
10.18 Lease Agreement dated as of March 16, 1990 by and between Gottschalks
Inc. and River Park Properties I relating to the Company's corporate
headquarters. (5)
10.19 Receivables Purchase Agreement dated as of March 30, 1994 by and between
Gottschalks Credit Receivables Corporation and Gottschalks Inc. (6)
10.20 Pooling and Servicing Agreement dated as of March 30, 1994 by and among
Gottschalks Credit Receivables Corporation, Gottschalks Inc. and Bankers
Trust Company. (6)
10.21 Amendment No. 1 to Pooling and Servicing Agreement dated as of September
16, 1994 by and among Gottschalks Credit Receivables Corporation,
Gottschalks Inc. and Bankers Trust Company. (7)
10.22 Amended and Restated Series 1994-1 Supplement to Pooling and Servicing
Agreement dated as of September 16, 1994, by and among Gottschalks Credit
Receivables Corporation, Gottschalks Inc. and Bankers Trust Company. (7)
10.23 Loan and Security Agreement dated March 30, 1994 by and between Barclays
Business Credit, Inc. and Gottschalks Inc. (6)
10.24 Intercreditor Agreement dated March 30, 1994 by and among Gottschalks
Inc., Barclays Business Credit, Inc. and Wells Fargo Bank, National
Association. (6)
10.25 Assignment and Acceptance by and between Wells Fargo Bank, National
Association and Barclays Business Credit, Inc. (6)
10.26 First Amendment to Loan and Security Agreement dated May 12, 1994; Second
Amendment to Loan and Security Agreement dated October 12, 1994 (7) and
Third amendment to Loan and Security Agreement dated December 30, 1994 by
and between Gottschalks Inc. and Barclays Business Credit, Inc. and
Fourth Amendment to Loan and Security Agreement dated March 22, 1995
and Fifth Amendment to Loan and Security Agreement dated March 31,
1995, by and between Gottschalks Inc. and Shawmut Capital Corporation
(formerly Barclays Business Credit, Inc.)
10.27 1994 Amended and Restated Credit Agreement dated as of March 30, 1994 by
and between Gottschalks Inc. and Wells Fargo Bank, National Association.
(6)
10.28 Second Amended and Restated Security Agreement dated as of August 26,
1993 by and between Gottschalks Inc. and Wells Fargo Bank, National
Association. (10)
10.29 First Amendment to Second Amended and Restated Security Agreement dated
as of March 30, 1994 by and between Gottschalks Inc. and Wells Fargo
Bank, National Association. (6)
10.30 Waiver Agreement dated November 23, 1994, by and among Gottschalks Credit
Receivables Corporation, Gottschalks Inc. and Bankers Trust Company. (7)
10.31 First Amendment to 1994 Amended and Restated Credit Agreement dated
August 26, 1994, by and between Gottschalks Inc. and Wells Fargo Bank,
N.A. (7)
10.32 New Term Loan Maturity Date Extension dated November 15,1994, by and
between Gottschalks Inc. and Wells Fargo Bank, N.A. (7)
10.33 Waiver Agreement dated October 21, 1994, by and between Gottschalks Inc.
and Wells Fargo Bank, N.A. (7)
10.34 Consulting Agreement dated June 1, 1994 by and between Gottschalks Inc.
and Gerald H. Blum. (4)(8)
10.35 Form of Severance Agreement dated March 31, 1995 by and between
Gottschalks Inc. and the following senior executives of the Company:
Joseph W. Levy, Stephen J. Furst, Gary L. Gladding, Michael J. Schmidt
and Alan A. Weinstein. (4)
10.36 1994 Key Employee Incentive Stock Option Plan. (4)(9)
10.37 1994 Director Nonqualified Stock Option Plan. (4)(9)
10.38 1994 Executive Bonus Plan. (4)
10.39 Promissory Note and Security Agreement dated December 16, 1994 by and
between Gottschalks Inc. and Heller Financial, Inc.
21. Subsidiaries of the Registrant.
23. Consent of Deloitte & Touche, LLP.
27. Financial Data Schedule.
_______________________
(1) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
January 29, 1994 (File No. 1-09100), and incorporated herein by
reference.
(2) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
February 2, 1991 (File No. 1-09100), and incorporated herein by
reference.
(3) Filed as an exhibit to Registration Statement on Form S-1, (File No. 33-
3949), and incorporated herein by reference.
(4) Management contract, compensatory plan or arrangement.
(5) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
February 1, 1992 (File No. 1-09100), and incorporated herein by
reference.
(6) Filed as an exhibit to the Current Report on Form 8-K dated March 30,
1994 (File No. 1-09100), and incorporated herein by reference.
(7) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended October 29, 1994 (File No. 1-09100), and incorporated herein by
reference.
(8) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended April 30, 1994 (File No. 1-09100), and incorporated herein by
reference.
(9) Filed as exhibits to Registration Statements on Form S-8, (Files #33-
54783 and #33-54789), and incorporated herein by reference.
(10) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter
ended July 31, 1993 (File No. 1-9100) wherein it bore the same exhibit
number, and incorporated herein by reference.
_____________________
(b) Reports on Form 8-K--The Company did not file any Reports on
Form 8-K during the fourth quarter of 1994.
(c) Exhibits--The response to this portion of Item 14 is
submitted as a separate section of this report.
(d) Financial Statement Schedule--The response to this portion
of Item 14 is submitted as a separate section of this report.
ANNUAL REPORT ON FORM 10-K
ITEM 8, 14(a)(1) and (2), (c) and (d)
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED JANUARY 28, 1995
GOTTSCHALKS INC. AND SUBSIDIARIES
FRESNO, CALIFORNIA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Gottschalks Inc.
Fresno, California
We have audited the accompanying consolidated balance sheets of Gottschalks Inc.
and Subsidiaries as of January 28, 1995 and January 29, 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended January 28, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our
audits.
We conducted our audits in accordance with generally accepted auditing
standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Gottschalks Inc. and Subsidiaries as of
January 28, 1995 and January 29, 1994, and the results of its operations and its
cash flows for each of the three years in the period ended January 28, 1995, in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE, LLP
s/Deloitte & Touche,LLP
Fresno, California
February 28, 1995 (March 31, 1995
as to Note 4)
GOTTSCHALKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
January 28, January 29,
ASSETS 1995 1994
CURRENT ASSETS:
Cash $ 3,156 $ 1,213
Restricted cash 2,365
Receivables held for
securitization and sale (Note 2) 40,000
Receivables:
Trade accounts, less allowances of
$1,297 in 1994 and $1,248 in 1993
(Note 2) 27,311 21,460
Vendor claims, less allowances of
$98 in 1994 and $300 in 1993 3,125 3,976
30,436 25,436
Merchandise inventories 80,678 60,465
Refundable income taxes and
deferred tax assets (Note 7) 1,565 4,212
Other 8,501 8,361
Total current assets 126,701 139,687
PROPERTY AND EQUIPMENT (Note 5):
Land and land improvements 19,178 19,578
Buildings and leasehold improvements 50,223 48,743
Furniture, fixtures and equipment 44,981 44,581
Buildings and equipment under
capital leases 14,399 15,513
Construction in progress 845 420
129,626 128,835
Less accumulated depreciation
and amortization 35,817 32,439
93,809 96,396
OTHER ASSETS:
Notes receivable 2,347 2,847
Goodwill, less accumulated amortization
of $913 in 1994 and $796 in 1993 1,485 1,602
Other 9,011 7,798
12,843 12,247
$233,353 $248,330
See notes to consolidated financial statements.
GOTTSCHALKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
January 28, January 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
CURRENT LIABILITIES:
Revolving lines of credit (Note 4) $ 17,844 $ 49,700
Bank overdraft 9,853 5,625
Trade accounts payable 25,179 13,226
Accrued expenses 16,417 14,713
Taxes, other than income taxes 7,487 6,995
Accrued payroll and related liabilities 5,267 5,013
Short-term obligation (Note 4) 1,600
Current portion of long-term obligations
(Notes 4 and 5) 5,154 12,268
Total current liabilities 88,801 107,540
LONG-TERM OBLIGATIONS (less current portion)
(Notes 4 and 5):
Notes, mortgage and bonds payable 23,721 21,508
Capitalized lease obligations 9,951 9,985
33,672 31,493
DEFERRED INCOME TAXES (Note 7) 5,905 6,022
DEFERRED LEASE PAYMENTS AND OTHER (Note 5) 5,032 4,298
DEFERRED INCOME 16,366 16,859
COMMITMENTS AND CONTINGENCIES (Notes 3,5 and 9)
STOCKHOLDERS' EQUITY (Notes 4 and 8):
Preferred stock, par value of $.10 per
share; 2,000,000 shares authorized;
none issued
Common stock, par value of $.01 per
share; 30,000,000 shares authorized;
10,416,520 and 10,411,332 issued 104 104
Additional paid-in capital 56,112 56,021
Retained earnings 27,509 25,993
83,725 82,118
Less common stock in treasury,
22,000 shares at cost in 1994 (148)
83,577 82,118
$233,353 $248,330
See notes to consolidated financial statements.
GOTTSCHALKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except per share data)
1994 1993 1992
Net sales $363,603 $342,417 $331,133
Service charges and other income 9,659 8,938 9,458
373,262 351,355 340,591
Costs and expenses (Notes 5 and 6):
Cost of sales 247,423 233,715 226,319
Selling, general and
administrative expenses 103,571 103,675 105,044
Depreciation and amortization 5,860 5,877 6,408
Interest expense (Note 4) 10,238 8,524 6,965
Provision for unusual items (Note 3) 3,833 3,427 7,852
370,925 355,218 352,588
Income (loss) before income tax
expense (benefit) 2,337 (3,863) (11,997)
Income tax expense (benefit)(Note 7) 821 (1,190) (4,006)
Net income (loss) $ 1,516 $ (2,673) $ (7,991)
Net income (loss) per common share $ .15 $ (.26) $ (.77)
See notes to consolidated financial statements.
GOTTSCHALKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands of dollars, except share data)
Additional
Common Stock Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
BALANCE,
FEBRUARY 1, 1992 10,407,527 $104 $55,959 $36,657 $92,720
Net loss (7,991) (7,991)
Shares issued under
stock option plan 4,000 29 29
Shares purchased and
retired (770) (8) (8)
Compensation expense
related
to stock option plan 118 118
Purchase of 35,000 shares
of treasury stock $ (339) (339)
BALANCE,
JANUARY 30, 1993 10,410,757 104 56,098 28,666 (339) 84,529
Net loss (2,673) (2,673)
Shares issued under
stock option plan 1,500 10 10
Shares purchased and
retired (925) (7) (7)
Net compensation benefit
related to stock option plan (43) (43)
Purchase of 20,000 shares
of treasury stock (166) (166)
Contribution of 55,000
shares of treasury stock
to Retirement Savings Plan (37) 505 468
BALANCE,
JANUARY 29, 1994 10,411,332 104 56,021 25,993 0 82,118
Net income 1,516 1,516
Shares issued under
stock option plan 13,500 94 94
Shares purchased
and retired (8,312) (98) (98)
Net compensation expense
related to stock option plan 24 24
Purchase of 43,976 shares
of treasury stock (303) (303)
Contribution of 21,976
shares of treasury stock
to Retirement Savings Plan 71 155 226
BALANCE,
JANUARY 28, 1995 10,416,520 $104 $56,112 $27,509 $ (148) $83,577
See notes to consolidated financial statements.
GOTTSCHALKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
1994 1993 1992
OPERATING ACTIVITIES:
Net income (loss) $ 1,516 $ (2,673) $ (7,991)
Adjustments:
Depreciation and amortization 5,849 5,876 6,372
Deferred income taxes 876 (236) (2,810)
Deferred lease payments and other 734 619 372
Deferred income (493) (556) (494)
Net compensation expense (credit)
related to stock option plan 24 (43) 118
Provision for credit losses 2,052 2,164 2,557
LIFO (benefit) provision (3,202) 969 1,509
Equity in the (income) losses of
limited partnership (160) 228 224
Net loss from sale of assets 7 37 7
Loss on securitization and sale of
receivables (Note 2) 305
Changes in operating assets and
liabilities:
Receivables (excluding receivables
sold - Note 2) (6,952) (5,248) (484)
Merchandise inventories (16,384) (2,030) 3,165
Other current and
long-term assets (35) (3,666) (1,882)
Other current and
long-term liabilities 14,326 1,944 1,305
Net cash provided by (used in)
operating activities (1,537) (2,615) 1,968
INVESTING ACTIVITIES:
Purchases of property and
equipment (4,539) (5,456) (12,078)
Proceeds from sale/leaseback
arrangements and other
property and equipment sales 1,881 13 1,359
Distribution from limited
partnership 153
Net cash used in
investing activities (2,505) (5,443) (10,719)
FINANCING ACTIVITIES:
Change in restricted cash (2,365)
Changes in bank overdraft 4,228 1,774 3,851
Proceeds from securitization
and sale of receivables (Note 2) 40,000
Proceeds from revolving lines of
credit, short-term and long-term
obligations 369,888 113,741 124,578
Principal payments on revolving
lines of credit, short-term and
long-term obligations (405,762) (107,353) (121,930)
Issuance of common stock pursuant
to stock option plan 94 10 29
Shares purchased and retired (98) (7) (8)
Net cash provided by
financing activities 5,985 8,165 6,520
INCREASE (DECREASE) IN CASH 1,943 107 (2,231)
CASH AT BEGINNING OF YEAR 1,213 1,106 3,337
CASH AT END OF YEAR $ 3,156 $ 1,213 $ 1,106
See notes to consolidated financial statements.
GOTTSCHALKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The consolidated financial statements of Gottschalks Inc.
and Subsidiaries (the "Company") include the accounts of Gottschalks
Inc., its wholly-owned subsidiary, Gottschalks Credit Receivables
Corporation ("GCRC" - Note 2), and Gottschalks Credit Card Master Trust
("GCC Trust" - Note 2). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Fiscal Year - The Company's fiscal year ends on the Saturday nearest
January 31. Fiscal years 1994, 1993 and 1992 ended on January 28, 1995,
January 29, 1994 and January 30, 1993, respectively. Each of the three
years contained 52 weeks.
Restricted Cash - Restricted cash at January 28, 1995 relates to the
receivables securitization program (Note 2) and consists of $2,120,000
designated under the prepayment option to reduce outstanding borrowings
on the Variable Base Certificate subsequent to January 28, 1995 and
$245,000 for the payment of monthly interest to the holders of Fixed Base
Certificates. There was no restricted cash at January 29, 1994.
Receivables Held for Securitization and Sale - Certain of the Company's
customer credit card receivables were securitized and sold on March 30,
1994 (Note 2). Such receivables were classified as held for
securitization and sale at January 29, 1994 and reported at the lower of
aggregate cost or market value.
Receivables - Receivables, excluding receivables sold as of January 28,
1995 and receivables held for securitization and sale as of January 29,
1994, consist primarily of customer credit card receivables and represent
the Company's retained interest in receivables sold in connection with
the receivables securitization program, receivables underlying the
Variable Base Certificate and certain other receivables (Note 2). Such
amounts include revolving charge accounts with terms which, in some
cases, provide for payments exceeding one year. In accordance with usual
industry practice such receivables are included in current assets.
Service charge revenues associated with the Company's customer credit
cards were $8,904,000, $8,100,000 and $8,578,000 in 1994, 1993 and 1992,
respectively.
The Company maintains reserves for possible credit losses based on the
expected collectibility of all receivables, including receivables sold,
and such losses have consistently been within management's expectations.
Concentrations of Credit Risk - The Company has thirty-two department
stores and twenty-four specialty stores with locations throughout
California and in Washington, Oregon and Nevada. The Company extends
credit to individual customers based on their credit worthiness and
generally requires no collateral from such customers. Concentrations of
credit risk with respect to the Company's credit card receivables are
limited due to the large number of customers comprising the Company's
customer base.
Merchandise Inventories - Inventories, which consist of merchandise held
for resale, are valued by the retail method and are stated at last-in,
first-out (LIFO) cost, which is not in excess of market. Current cost,
which approximates replacement cost, under the first-in, first-out (FIFO)
method was equal to the LIFO value of inventories at January 28, 1995 and
exceeded the LIFO value of inventories by $3,202,000 at January 29, 1994.
The Company includes in inventory the capitalization of certain indirect
purchasing, merchandise handling and inventory storage costs to better
match sales with these related costs.
Store Pre-Opening Costs - Store pre-opening costs represent certain
expenditures incurred prior to the opening of new stores that are
deferred and amortized generally on a straight-line basis not to exceed
a twelve month period commencing with the store opening. Store pre-
opening costs, net of accumulated amortization, of $724,000 at January
28, 1995 and $31,000 at January 29, 1994 are included in other current
assets.
Property and Equipment - Property and equipment is stated on the basis
of cost or appraised value as to certain contributed land. Depreciation
and amortization is computed by the straight-line method for financial
reporting purposes over the estimated useful lives of the assets, which
range from 20 to 40 years for buildings, land improvements and leasehold
improvements and 3 to 15 years for furniture, fixtures and equipment.
Amortization of buildings and equipment under capital leases is computed
by the straight-line method over the life of the lease and is combined
with depreciation in the consolidated statements of operations.
Notes Receivable - Notes receivable consist primarily of amounts due from
the sale of land and buildings by the Company. The notes are
collateralized by a first or second priority interest in the property
sold, bear interest at rates ranging from 9.0% to 12.0% and have maturity
dates ranging from October 1995 through June 1999.
Investment in Limited Partnership - The Company is the limited partner
in a partnership that was formed for the purpose of acquiring the land
and constructing and maintaining the building in which the Company's
corporate headquarters are located. The Company made an initial capital
contribution of $5,000,000 to acquire a 36% ownership interest in the
partnership and receives favorable rental terms for the space occupied
in the building. Of the initial $5,000,000 capital contribution,
$1,413,000 was allocated to the investment in limited partnership based
on the estimated fair market value of the land and building and the
remaining $3,587,000 was allocated to prepaid rent and is being amortized
to rent expense over the 20 year lease term.
The Company accounts for its investment in the limited partnership on the
equity method of accounting. As of January 28, 1995 and January 29,
1994, the investment was $968,000 and $961,000, respectively, and prepaid
rent, net of accumulated amortization, was $2,756,000 and $3,005,000,
respectively. Such amounts are included in other long-term assets. The
Company's equity in the income of the partnership was $160,000 in 1994.
The Company's equity in the losses of the partnership was $228,000 in
1993 and $224,000 in 1992. Such amounts are included in service charges
and other income.
Goodwill - The excess of acquisition costs over the fair value of the net
assets acquired is amortized on a straight-line basis over 20 years.
Deferred Income - Deferred income consists primarily of donated land and
cash received as incentive to construct new stores. Land contributed to
the Company is included in land and recorded at appraised fair market
values. Contributed land and cash is recorded as deferred income and
amortized to income over the average depreciable life of the related
fixed assets built on the land with respect to locations that are owned
by the Company, and over the terms of the related building leases with
respect to locations that are leased by the Company, ranging from 32 to
70 years. No contributions of land or cash were received in 1994.
Contributed land with an appraised fair market value of $1,015,000 was
received in 1993.
Leased Department Sales - Net sales include leased department sales of
$25,985,000, $25,324,000 and $23,424,000 in 1994, 1993 and 1992,
respectively. Cost of sales include related costs of $22,326,000,
$21,825,000 and $20,061,000 in 1994, 1993 and 1992, respectively.
Income Taxes - The Company accounts for income taxes under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." SFAS No. 109 generally requires
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the differences between
the financial statement and tax basis of assets and liabilities and net
operating loss and tax credit carryforwards, using enacted tax rates in
effect when the differences are expected to reverse.
Net Income (Loss) Per Common Share - Net income (loss) per common share
is computed based on the weighted average number of common shares and
common stock equivalents outstanding (if dilutive) which were 10,413,339,
10,377,201 and 10,410,162 in 1994, 1993 and 1992, respectively. The
effect of common stock equivalents under the stock option plans were
antidilutive in 1994, 1993 and 1992, and therefore not included.
Non-Cash Transactions - The Company entered into a capital lease
obligation of $683,000 in 1994 for leased equipment. The Company received
a donation of land with an appraised fair market value of $1,015,000 in
1993 as incentive to construct a new store.
Fair Value of Financial Instruments - Financial Accounting Standards
(SFAS) No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of the estimated fair value of financial instruments.
The carrying value of the Company's cash (including restricted cash and
bank overdraft), receivables, trade payables and other accrued expenses,
revolving lines of credit, short-term borrowings and stand-by letters of
credit approximate their estimated fair values because of the short
maturities of those instruments. The fair value of the Company's notes
receivable are based on discounted cash flows. The fair value of the
Company's notes, mortgage loan and bonds payable is estimated using
discounted cash flow analysis, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
The estimated fair value of the Company's notes receivable with an
aggregate carrying value of $2,347,000 at January 28, 1995 is $1,789,000.
The estimated fair value of the Company's notes, mortgage loan and bonds
payable with an aggregate carrying value of $28,183,000 at January 28,
1995 is $28,434,000.
Reclassifications - Certain amounts in the accompanying 1993 and 1992
consolidated financial statements have been reclassified to conform with
the 1994 presentation.
2. SECURITIZATION AND SALE OF RECEIVABLES
The Company entered into an asset-backed securitization program on March
30, 1994. Under the program, all accounts receivable arising under the
Company's private label customer credit cards, together with rights to
all collections and recoveries on such receivables, are automatically
sold, without recourse, to a wholly-owned subsidiary, Gottschalks Credit
Receivables Corporation ("GCRC") and certain of those receivables are
subsequently conveyed to a trust, Gottschalks Credit Card Master Trust
("GCC Trust"). The Company services and administers the receivables in
return for a monthly servicing fee.
On March 30, 1994, GCC Trust sold, at par value, undivided ownership
interests in certain of the receivables through the issuance of
$40,000,000 principal amount 7.35% Fixed Base Class A-1 Credit Card
Certificates ("Fixed Base Certificates") to third-party investors. On
March 30, 1994, GCC Trust also issued a Subordinated Certificate in the
amount of $7,620,000, and an Exchangeable Certificate in the amount of
$4,640,000 to GCRC, representing GCRC's retained interest in the
receivables as of that date. The outstanding principal balance of the
Subordinated Certificate and the Exchangeable Certificate, totalling
$7,619,000 and $269,000 at January 28, 1995, respectively, fluctuates
depending on the level of the underlying receivables. Interest on the
Fixed Base Certificates is payable on a monthly basis and the outstanding
principal balance is to be repaid in equal monthly installments
commencing September 1998 through September 1999, through the application
of credit card receivable principal collections during that period.
The Company used the $40,000,000 proceeds from the initial securitization
and sale of the receivables to repay all outstanding borrowings under a
pre-existing line of credit and long-term credit facility (Note 4) and
to pay certain costs related to the securitization transaction. Such
proceeds are reported as cash flows from financing activities during the
year ended January 28, 1995 in the accompanying statement of cash flows.
The Company recognized a loss of $305,000 in connection with the initial
securitization and sale of these receivables, representing transaction
costs in excess of the excess servicing retained by the Company related
to the Fixed Base Certificates. The excess servicing asset related to the
Fixed Base Certificates is amortized over the life of the related
transaction.
Under the terms of the program, the Company sold additional newly-
generated receivables to GCRC subsequent to March 30, 1994 and through
January 28, 1995, and certain of those receivables were subsequently
conveyed to GCC Trust. Aggregate proceeds from such sales, totalling
$146,000,000, were used to fund the working capital requirements of the
Company and are reported, net of repayments received, as cash flows from
operating activities during the year ended January 28, 1995 in the
accompanying statement of cash flows.
On September 16, 1994, GCC Trust also issued a Variable Base Class A-2
Credit Card Certificate ("Variable Base Certificate") in the principal
amount of up to $15,000,000 from GCC Trust to Bank Hapoalim. The Variable
Base Certificate, representing certain receivables held by GCC Trust,
excluding receivables underlying the Fixed Base Certificates and GCRC's
retained interest, was issued as collateral for a revolving line of
credit financing arrangement with Bank Hapoalim (Note 4). Receivables
underlying the Variable Base Certificate totalled $17,857,000 at January
28, 1995. The Company has a prepayment option which enables it, at any
time within three days notice, to prepay the Variable Base Certificate.
Accordingly, the issuance of the Variable Base Certificate was accounted
for as a financing in the accompanying financial statements.
In addition to the Fixed and Variable Base Certificates, GCRC may, upon
the satisfaction of certain conditions, offer additional series of
certificates to be issued by GCC Trust. As of January 28, 1995, no such
issuance has occurred.
3. PROVISION FOR UNUSUAL ITEMS
The Company was the subject of a government investigation related to an
employee benefit plan deduction (the "Income Tax Deduction") of
$3,674,000 on its 1985 federal tax return and certain of its financial
reporting practices. In July 1992, the Company pled guilty to certain
criminal charges and paid fines totalling $1,500,000 to settle all
federal criminal charges relating to the Income Tax Deduction and certain
reports and registration statements filed by the Company with the
Securities and Exchange Commission. In April 1994, the Company reached
an agreement with the Commissioner of the Internal Revenue to settle all
pending federal civil matters related to the Income Tax Deduction.
Pursuant to the terms of the agreement, the Income Tax Deduction on the
Company's 1985 federal tax return was disallowed. Such deduction was,
however, allowed in subsequent years. In connection with the agreement,
the Company paid a tax deficiency, interest and penalties totalling
$2,282,000. The previously described amounts are included in the 1993 and
1992 consolidated statements of operations.
The Company was party to three civil stockholder lawsuits related to the
Income Tax Deduction and the Company's financial reporting practices and
guilty pleas. In August 1994, the Company reached an agreement to settle
all aspects of those lawsuits. The Company received final judicial
approval of the terms of the settlement on February 1, 1995, and pursuant
to the terms of the settlement, the Company funded $3,000,000 into an
irrevocable trust on that date. The cost of the stockholder lawsuit
settlement is included in the provision for unusual items in the 1994
consolidated statement of operations.
The Company is also party to an unrelated lawsuit filed in 1992 against
the Company by F&N Acquisition Corporation ("F&N") under which F&N seeks
damages arising out of the Company's alleged breach of an oral agreement
to purchase an assignment of a lease of a former Frederick and Nelson
store location in Spokane, Washington. In addition, F&N is seeking an
unspecified sum for its rejection of the next best offer to purchase the
assignment of the lease. In 1992, F&N obtained a partial summary
judgement against the Company under which the Company was ordered to pay
F&N damages of $3,000,000 plus accrued interest from the date of the
judgement. The partial summary judgement was reversed on November 21,
1994 and the matter was remanded to the Bankruptcy Court for further
proceedings. Management's estimate of amounts that may be ultimately
payable to F&N are included in the provision for unusual items in the
1993 and 1992 consolidated statements of operations. The Company is
continuing to pursue the matter vigorously.
Unusual items included in the Company's consolidated statements of
operations of $3,833,000 in 1994, $3,427,000 in 1993 and $7,852,000 in
1992, respectively, represents total costs, including legal and
accounting fees and other costs, incurred with respect to the previously
described matters. Management does not anticipate that any additional
costs related to these matters that may be incurred will be material to
the operating results of the Company.
4. DEBT
The Company has two revolving line of credit arrangements providing for
total borrowings of up to $65,000,000 through March 1997. The Company's
primary revolving line of credit arrangement, providing for borrowings
of up to $35,000,000 as of January 28, 1995, is with Shawmut Capital
Corporation ("Shawmut" - formerly Barclays Business Credit, Inc). On
March 31, 1995, Shawmut increased the amount available for borrowings
under the line of credit to $50,000,000 through March 1997, with 40% of
the available line of credit provided for by Wells Fargo Bank, N.A.,
("Wells Fargo") through a participation agreement. This new line of
credit arrangement (collectively the "Shawmut line of credit") also
provides for an increase in the amount available for borrowings to
$60,000,000 during the months of November and December of each year for
seasonal inventory purchases. Borrowings under the Shawmut line of credit
are limited to a restrictive borrowing base, which was in excess of
$35,000,000 at January 28, 1995. Interest on outstanding borrowings is
to be paid monthly at a rate equal to LIBOR, as determined by Shawmut,
plus 3.0% (9.1% at January 28, 1995) through March 31, 1995, and LIBOR
plus 2.8% thereafter. At January 28, 1995, $2,844,000 was outstanding
under the line of credit arrangement with Shawmut.
The arrangement with Shawmut originally required the Company to reduce
outstanding indebtedness on the line of credit by $5.0 million on June
30, 1994 (extended to April 30, 1995). The Company repaid this amount,
prior to its due date, in March 1995. The Shawmut arrangement also
required the Company to repay all outstanding borrowings on the line of
credit for thirty consecutive days during the period of December 1 to
January 31 of each year. This requirement was shortened to seven
consecutive days for fiscal 1994 and the Company met this requirement in
January 1995. The line of credit arrangement with Shawmut, as amended on
March 31, 1995, no longer contains such an annual repayment provision.
The Company's revolving line of credit arrangement with Bank Hapoalim
(Note 2) provides for additional borrowings of up to $15,000,000 through
March 1997. Borrowings under the line of credit are limited to a
percentage of the outstanding principal balance of receivables underlying
the Variable Base Certificate and therefore, are subject to any seasonal
variations that may affect the outstanding principal balance of such
receivables. Interest on outstanding borrowings on the line of credit is
charged at a rate of LIBOR, as determined by the bank, plus 1.0%, not to
exceed a maximum of 12.0% (6.8% at January 28, 1995). At January 28,
1995, $15,000,000 was outstanding under the line of credit with Bank
Hapoalim.
The weighted-average interest rate charged on the Company's various
revolving line of credit arrangements was 7.1% in 1994, 6.5% in 1993 and
5.8% in 1992.
The Company also has a short-term loan facility with Wells Fargo with an
outstanding balance of $1,600,000 at January 28, 1995. The short-term
loan, originally due June 30, 1994, was extended to April 30, 1995, and
bears interest at a rate of 10 3/4%. The Company repaid the outstanding
balance of the short-term obligation to Wells Fargo, prior to its
maturity, in March 1995.
Notes, mortgage and bonds payable consist of the following:
January 28, January 29,
(In thousands of dollars) 1995 1994
Note payable to bank, payable in
monthly installments of $193
including interest at a rate
10 3/4%, principal due and payable
June 30, 1996; collateralized
by certain real property,
assets and certain property
and equipment $18,200 $18,644
Mortgage loan payable to financial
institution, payable in monthly
principal installments of $79
plus interest at a rate of 10.45%,
principal due and payable January 1,
2002; collateralized by certain
real property, assets and certain
property and equipment 6,650
Notes payable to financial
institution, repaid in March 1994 10,633
Commercial Revenue Bonds, payable
in monthly installments of $57
including interest at 8.55%,
principal due December 1, 1995;
collateralized by land and
building 3,055 3,443
Other 278 439
28,183 33,159
Less current portion 4,462 11,651
$23,721 $21,508
In December 1994, the Company entered into a mortgage loan financing
arrangement with Heller Financial, Inc. ("Heller"), collateralized by the
real property, furniture, fixtures and equipment located at the Company's
department store in Hanford, California. Proceeds from the arrangement,
amounting to $6,650,000, were used to repay a portion of the short-term
obligation with Wells Fargo, reduce outstanding borrowings on the Shawmut
line of credit and pay certain costs associated with the financing
arrangement.
The notes payable to financial institution with an outstanding balance
of $10,633,000 at January 29, 1994, were paid off by the Company in March
1994 with proceeds from the previously described securitization and sale
of certain of the Company's customer credit card receivables (Note 2).
The Commercial Revenue Bonds refer to City of San Luis Obispo Commercial
Revenue Bonds, (E. Gottschalks & Co., Inc. Project) 1985 Series issued
by the City of San Luis Obispo on December 1, 1985. The Company entered
into a loan agreement with the City whereby the proceeds of the Bonds
were used to finance the construction of the San Luis Obispo store.
The scheduled annual principal maturities on all notes, mortgage loan and
bonds payable are $4,462,000, $18,971,000, $950,000, $950,000 and
$950,000 for 1995 through 1999, respectively.
Debt issuance costs related to the Company's various financing
arrangements are included in other current and long-term assets and
deferred and charged to operations as additional interest expense on a
straight-line basis over the life of the related indebtedness. Deferred
debt issuance costs, net of accumulated amortization, amounted to
$1,757,000 at January 28, 1995 and $1,441,000 at January 29, 1994.
Interest paid, net of amounts capitalized, was $8,608,000, $9,197,000
and $6,151,000 in 1994, 1993 and 1992, respectively. Capitalized interest
expense was $68,000, $46,000 and $97,000 in 1994, 1993 and 1992,
respectively.
Certain of the Company's debt agreements contain various restrictive
covenants including, but not limited to: restrictions on the payment of
cash dividends, limitations of certain annual capital expenditures,
maintenance of minimum quick, working capital, tangible net worth, total
debt to tangible net worth and coverage ratios. In addition, certain of
the agreements require the maintenance of minimum adjusted earnings from
operations and interest earned ratios and minimum inventory and payables
turnover rates. Certain of the covenants applicable to the Shawmut line
of credit were revised during 1994 and in March 1995 in connection with
the finalization of the new Shawmut line of credit arrangement. Such
revisions were primarily to provide for additional capital expenditures
and inventory purchases required for the new stores opened in 1994 and
scheduled to be opened in 1995. Wells Fargo agreed to waive its rights
with respect to violations of certain of the covenants applicable to its
long-term loan facility arising out of the additional capital
expenditures and inventory purchases through January 28, 1995, and
revised the covenants in connection with the finalization of the new
Shawmut line of credit arrangement. Accordingly, the Company classified
the note payable to Wells Fargo with an outstanding balance of
$18,200,000 at January 28, 1995 as long-term in the accompanying
financial statements. As of January 28, 1995, the Company was in
compliance with, or had received waivers for violations of, all
applicable restrictive loan covenants under its various debt agreements.
5. LEASES
The Company leases certain retail department stores under capital leases
that expire in various years through 2020. The Company also leases
certain retail department stores, specialty stores, land, furniture,
fixtures and equipment under noncancellable operating leases that expire
in various years through 2027. Certain of the leases provide for the
payment of additional contingent rentals based on a percentage of sales
in excess of specified minimum levels, require the payment of property
taxes, insurance and maintenance costs and have renewal options for one
or more periods ranging from five to twenty years.
Certain of the Company's leases also provide for rent abatements and
scheduled rent increases during the lease terms. The Company recognizes
rental expense for such leases on a straight-line basis over the lease
term and records the difference between expense charged to operations and
amounts payable under the leases as deferred lease payments. Deferred
lease payments were $4,688,000 at January 28, 1995 and $4,157,000 at
January 29, 1994.
Future minimum lease payments by year and in the aggregate, under capital
leases and noncancellable operating leases with initial or remaining
terms of one year or more consist of the following at January 28, 1995:
Capital Leases Operating
(In thousands of dollars) Buildings Equipment Leases
1995 $ 1,430 $303 $ 10,342
1996 1,430 273 10,293
1997 1,430 204 9,505
1998 1,430 9,294
1999 1,430 10,714
Thereafter 12,292 105,046
Total minimum
lease payments 19,442 780 $155,194
Amount representing
interest (9,457) (122)
Present value of
minimum lease
payments 9,985 658
Less current portion (459) (233)
$ 9,526 $425
Rental expense consists of the following:
(In thousands of dollars) 1994 1993 1992
Operating leases:
Buildings:
Minimum rentals $ 7,804 $ 7,472 $ 7,182
Contingent rentals 1,142 1,118 1,154
Fixtures and equipment 3,177 2,893 2,613
12,123 11,483 10,949
Contingent rentals on
capital leases 605 581 743
$12,728 $12,064 $11,692
One of the Company's lease agreements contains a restrictive covenant
pertaining to the debt to tangible net worth ratio with which the Company
was in compliance at January 28, 1995.
6. EMPLOYEE BENEFIT PLANS
The Company has a Retirement Savings Plan (Plan) which qualifies as an
employee retirement plan under Section 401(k) of the Internal Revenue
Code. Full-time employees meeting certain requirements are eligible to
participate in the Plan. Under the Plan, employees may elect to have up
to 10% of their annual eligible compensation, subject to certain
limitations, deferred and deposited with a qualified trustee. The
Company, at the discretion of the Board of Directors, may elect to make
an annual discretionary contribution to the Plan of up to 2% of each
participant's annual eligible compensation, subject to certain
limitations. Participants are immediately vested in their voluntary
contributions to the Plan and are 100% vested (25% per year) in the
Company's matching contribution to the Plan after four years of
continuous service. The Company recognized $250,000, $271,000 and
$471,000 in expense representing the Company's annual discretionary
contribution to the Plan in 1994, 1993 and 1992.
A Voluntary Employee Beneficiary Association (VEBA) trust has been
established by the Company for the purpose of funding employee vacation
benefits. The Company paid such benefits on behalf of the VEBA in 1993
and 1992 and did not fund the VEBA during those years. The Company
resumed funding the VEBA in 1994.
7. INCOME TAXES
The components of income tax expense (benefit) are as follows:
(In thousands of dollars) 1994 1993 1992
Current:
Federal $ (19) $ (955) $(1,198)
State (36) 1 2
(55) (954) (1,196)
Deferred:
Federal 555 (130) (2,105)
State 321 (106) (705)
876 (236) (2,810)
$ 821 $(1,190) $(4,006)
The principal sources of temporary differences and the related tax effect
of each which increase (reduce) deferred taxes in determining the
provision (benefit) for income taxes are as follows:
(In thousands of dollars) 1994 1993 1992
Net operating loss
carryforwards $ 572 $(2,532) $(1,752)
Accrued litigation costs (766) (984) (980)
General business credit
carryforwards (748) (439) (310)
LIFO inventory reserve 792 195 (54)
Accounting for leases 378 207 688
Store pre-opening costs 300 (92) 8
Deferred income 200 635 147
Depreciation 179 683 922
Workers' compensation 104 788 (664)
State income taxes (88) 474 (90)
Accrued employee benefits (87) 347 (158)
Alternative minimum tax
credit carryforwards (30) 660 122
Other items, net 70 (178) (689)
$ 876 $ (236) $(2,810)
The principal components of deferred tax assets and liabilities (in
thousands of dollars) are as follows:
January 28, January 29,
1995 1994
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
Current:
Accrued litigation
costs $ 2,730 $ 1,964
Vacation and health
claims 880 872
Credit losses 562 532
Accrued employee
benefits 260 173
State income taxes 296 208
LIFO inventory reserve $ (2,592) $ (1,800)
Workers' compensation (228) (124)
Supplies inventory (872) (874)
Other items, net 291 (1,317) 1,023 (973)
5,019 (5,009) 4,772 (3,771)
Long-Term:
Net operating loss
carryforwards 3,811 4,383
General business
credits 1,989 1,241
Alternative minimum
tax 654 624
Depreciation expense (8,155) (7,975)
Accounting for leases 558 (3,473) 463 (3,265)
Deferred income (1,335) (1,135)
Installment sales (521) (607)
Other items, net 665 (98) 485 (236)
7,677 (13,582) 7,196 (13,218)
$12,696 $(18,591) $11,968 $(16,989)
Income tax expense (benefit) varies from the amount computed by applying
the statutory federal income tax rate to the income (loss) before income
taxes. The reasons for this difference are as follows:
1994 1993 1992
Statutory rate 35.0% (35.0)% (34.0)%
Nondeductible penalties 3.7 6.9
Refunds for amended returns (5.7)
Adjustments to previously
filed amended returns 7.3
Amortization of goodwill 1.7 1.0 .3
Targeted jobs tax credit (12.5)
State income taxes, net of
federal income tax benefit 7.3 ( 2.0) ( 3.4)
Other items, net ( 3.7) 1.5 2.5
Effective rate 35.1% (30.8)% (33.4)%
The Company received income tax refunds, net of payments, of $1,670,000
and $921,000 in 1994 and 1993. Income tax refunds receivable were
$1,555,000 at January 28, 1995 and $3,211,000 at January 29, 1994. At
January 28, 1995, the Company has net operating loss carryforwards of
$9,207,000 which expire in the years 2008 and 2009, and general business
credits of $1,300,000 which expire in the years 2005 through 2010. The
Company also has alternative minimum tax credits of $521,000 which may be
used for an indefinite period. These carryforwards are available to offset
future taxable income and are expected to be fully utilized.
8. STOCK OPTION PLANS
In 1986, the Company adopted an Employee Incentive Stock Option Plan (the
"1986 ISO Plan") and an Employee Nonqualified Stock Option Plan (the "1986
Nonqualified Plan").
The 1986 ISO Plan provided for the grant of options to three key officers
of the Company to purchase up to 160,000 shares of the Company's common
stock at a price equal to 100% or 110% of the market value of the common
stock on the date of grant. All options under the ISO Plan must be
exercised within five years of the date of grant.
The 1986 Nonqualified Plan provided for the grant of options to purchase
up to 510,000 shares of the Company's common stock to certain officers and
key employees of the Company. Options granted under this plan generally
become exercisable at a rate of 25% per year beginning on or one year
after the grant date. The options are exercisable on a cumulative basis
and expire no later than four or five years from the date of grant. The
Company recognized compensation expense related to this plan, net of
credits resulting from the forfeiture of certain of the options, of
$24,000 in 1994 and $118,000 in 1992. The Company recognized a net credit
to compensation expense related to this plan of $43,000 in 1993.
On March 18, 1994, the Company adopted the 1994 Key Employee Incentive
Stock Option Plan (the "1994 ISO Plan") and the 1994 Director Nonqualified
Stock Option Plan (the "1994 Director Nonqualified Plan").
The 1994 ISO Plan provides for the grant of options to purchase up to
500,000 shares of the Company's common stock to certain officers and key
employees of the Company. Options granted under this plan may not be
granted at less than 100% of the fair market value of such shares on the
date the option is granted and become exercisable at a rate of 25% per
year beginning one year after the date of the grant. The options are
exercisable on a cumulative basis and expire no later than ten years after
the date of the grant.
The 1994 Director Nonqualified Plan provides for the grant of options to
purchase up to 50,000 shares of the Company's common stock to the non-
employee, non-affiliated directors of the Company. Options granted under
this plan shall be granted at the fair market value of such shares on the
date the option is granted and become exercisable at a rate of 25% per
year beginning one year after the date of the grant. The options are
exercisable on a cumulative basis and expire no later than ten years after
the date of the grant.
A summary of stock option activity related to the Company's stock
option plans follows:
1986 1986
1986 Plans: Nonqualified Plan ISO Plan
Shares Option Price Shares Option Price
Outstanding at
February 1, 1992 216,500 $4.00 to $14.00 81,800 $10.73 to $15.54
Granted 25,000 $ 7.00
Exercised (4,000) $4.00 to $14.00
Cancelled (31,000) $7.00 to $14.00 (15,810) $12.65
Outstanding at
January 30, 1993 206,500 $7.00 to $14.00 65,990 $10.73 to $15.54
Granted 40,000 $ 9.88
Exercised (1,500) $ 7.00
Cancelled (55,000) $7.00 to $14.00 (25,744) $15.54
Outstanding at
January 29, 1994 190,000 $7.00 to $14.00 40,246 $10.73
Granted
Exercised (13,500) $ 7.00
Cancelled (17,000) $7.00 to $14.00
Outstanding at
January 28, 1995 159,500 $9.88 and $14.00 40,246 $10.73
Balances as of
January 28, 1995:
Exercisable 139,500 $9.88 and $14.00 40,246 $10.73
Available for
Future Grants --- ---
1994 1994
1994 Plans: ISO Plan Director Nonqualified Plan
Shares Option Price Shares Option Price
Outstanding at
January 29, 1994 --- ---
Granted 449,000 $9.88 to $10.87 20,000 $ 9.75
Cancelled (5,000)
Outstanding at
January 28, 1995 444,000 $9.88 to $10.87 20,000 $ 9.75
Balances as of
January 28, 1995:
Exercisable --- $9.88 to $10.87 --- $ 9.75
Available for
Future Grants 56,000 30,000
9. COMMITMENTS AND CONTINGENCIES
In connection with the previously described lawsuit filed against the
Company by F&N (Note 3), an additional complaint was filed against the
Company by Sabey Corporation ("Sabey"), the owner of the mall in which the
Frederick & Nelson store was located. The complaint seeks damages suffered
by the mall due to the Company's failure to purchase and assume the
Frederick & Nelson store lease. In April 1994, an agreement was signed by
all parties involved in the F&N (Note 3) and Sabey lawsuits providing for
the consolidation of the cases. Management believes the ultimate outcome
of these cases, as consolidated, will not have a material adverse effect
on the financial condition or results of operation of the Company.
The Company arranges for the issue of letters of credit in the ordinary
course of business pursuant to the terms of certain vendor contracts. As
of January 28, 1995, the Company had outstanding letters of credit
amounting to $4,945,000. Management believes the likelihood of non-
performance under such contracts is remote.
The Company opened three new stores in early 1995, and expects to open two
additional stores in fiscal 1995. The estimated cost to open the new
stores, net of amounts to be contributed by mall owners or developers of
certain of the projects, is approximately $3,400,000.
In addition to these matters and the matters discussed in Note 3 to the
consolidated financial statements, the Company is party to legal
proceedings and claims which arise during the ordinary course of business.
In the opinion of management, the ultimate outcome of such litigation and
claims will not have a material adverse effect on the Company's financial
position or results of its operations.
10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's unaudited quarterly results of operations for 1993 reflects
certain reclassifications to conform with 1994 presentation. The
following is a summary of the unaudited quarterly results of operations
for 1994 and 1993 (in thousands, except per share data):
1994
Quarter Ended April 30 July 30 October 29 January 28
Net sales $70,221 $80,515 $78,835 $134,032
Gross profit 22,185 24,929 26,687 42,379
Income (loss)
before income
tax expense
(benefit) (3,778) (5,807) (859) 12,781
Net income (loss) (2,343) (3,983) (568) 8,410
Net income (loss)
per common share (.22) (.38) (.05) .81
1993
Quarter Ended May 1 July 31 October 30 January 29
Net sales $65,833 $76,223 $75,747 $124,614
Gross profit 20,781 23,586 24,785 39,550
Income (loss)
before income
tax expense
(benefit) (5,724) (3,857) (2,807) 8,525
Net income (loss) (3,606) (2,430) (1,768) 5,131
Net income (loss)
per common share (.35) (.23) (.17) .49
The Company's quarterly results of operations for the three month period
ended January 28, 1995 includes the following significant adjustments:
(1) LIFO inventory reserve adjustment resulting in an increase to the
gross margin of $3,202,000, (2) inventory shrinkage reserve adjustment
resulting in an increase to the gross margin of $914,000 and (3) a
decrease to workers' compensation reserves of $588,000.
The Company's quarterly results of operations for the three month period
ended January 29, 1994 includes the following significant adjustments: (1)
LIFO inventory reserve adjustment resulting in a reduction to the gross
margin of $969,000, (2) a charge to unusual items (Note 3) of $671,000 and
(3) a decrease to workers' compensation and health insurance reserves of
$869,000.
**********
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
GOTTSCHALKS INC. AND SUBSIDIARIES
_____________________________________________________________________________
COL. A COL. B COL. C COL. D COL. E COL. F
_____________________________________________________________________________
Description
ADDITIONS
Balance at Charged to Charged to Balance at
Beginning Costs and Other Accounts Deductions End of
of Period Expenses Describe Describe Period
Year ended January 28, 1995:
Deducted from asset
accounts:
Allowance
for doubtful
accounts. $1,248,421 $2,054,562 (1) $2,005,752(2) $1,297,231
Allowance
for vendor
claims
receivable $ 300,000 $ (202,000)(5) $ 98,000
Allowance
for notes
receivable.$ 50,000 $ 100,000 (4) $ 150,000
Year ended January 29, 1994:
Deducted from asset
accounts:
Allowance
for doubtful
accounts. $1,233,231 $2,188,626 (1) $2,173,436(2) $1,248,421
Allowance
for vendor
claims
receivable.$ 325,000 $ (25,000)(5) $ 300,000
Allowance
for notes
receivable.$ 50,000 $ 50,000
Year ended January 30, 1993:
Deducted from asset
accounts:
Allowance
for doubtful
accounts.. $1,300,000 $2,459,334 (1) $2,526,103(2) $1,233,231
Allowance
for vendor
claims
receivable $ 276,746 $ 48,254 (3) $ 325,000
Allowance
for notes
receivable.$ 0 $ 50,000 (4) $ 50,000
Notes:
(1) Provision for loss on credit sales.
(2) Uncollectible accounts written off, net of recoveries.
(3) Provision for uncollectible vendor claims receivable.
(4) Provision for uncollectible portion of note receivable.
(5) Reduction in provision for uncollectible vendor claims receivable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: April 27, 1995 GOTTSCHALKS INC.
By: s/Joseph W. Levy
Joseph W. Levy
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant
and in the capacities and on the dates indicated.
Signature Title Date
Chairman and Chief
Executive Officer
(principal executive
s/Joseph W. Levy officer) April 27, 1995
Joseph W. Levy
Vice Chairman of
s/Gerald H. Blum the Board April 27, 1995
Gerald H. Blum
President, Chief
s/Stephen J. Furst Operating Officer April 27, 1995
Stephen J. Furst and Director
Senior Vice President
and Chief Financial
s/Alan A. Weinstein Officer (principal April 27, 1995
Alan A. Weinstein financial and
accounting officer)
s/O. James Woodward III Director April 27, 1995
O. James Woodward III
s/Bret W. Levy Director April 27, 1995
Bret W. Levy
s/Sharon Levy Director April 27, 1995
Sharon Levy
s/Joseph J. Penbera Director April 27, 1995
Joseph J. Penbera
s/Fred Ruiz Director April 27, 1995
Fred Ruiz
s/Max Gutmann Director April 27, 1995
Max Gutmann