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 February 3, 1996
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 non-affiliates of the
Registrant as of March 31, 1996:
Common Stock, $.01 par value: $45,147,869
On March 31, 1996 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 27, 1996, which will be filed
pursuant to Regulation 14A, are incorporated by reference into Part
III of this Form 10-K.
<PAGE>
PART I
Item 1. BUSINESS
GENERAL
Gottschalks Inc. is a regional department and specialty
store chain based in Fresno, California, currently consisting of
thirty-five "Gottschalks" department stores and twenty-five
"Village East" specialty stores located primarily in non-major
metropolitan cities throughout California, and in Oregon,
Washington and Nevada (1). Gottschalks and Village East sales
totaled $401.0 million in fiscal 1995, of which Gottschalks sales
represented 97.4% and Village East sales represented 2.6% of total
sales.
Gottschalks department stores typically offer a wide range
of brand-name and private-label merchandise, including women's,
men's, junior's and children's apparel; cosmetics and accessories;
shoes and jewelry; home furnishings including, china, housewares,
electronics and appliances; and other consumer goods. Village East
specialty stores offer apparel for larger women. Gottschalks
stores are generally anchor tenants of regional shopping malls,
with Village East specialty stores generally located in the
regional malls in which a Gottschalks department store is located.
The Company's stores carry primarily moderately priced brand-name
merchandise, including Estee Lauder, Lancome, Liz Claiborne, Carole
Little, Evan Picone, Calvin Klein, Ralph Lauren, Guess, Levi
Strauss and Sony. The Company seeks to complement the brand-name
merchandise with private-label merchandise and 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.
Gottschalks Inc. also includes the accounts of its wholly-owned
subsidiary, Gottschalks Credit Receivables Corporation
("GCRC") and Gottschalks Credit Card Master Trust ("GCC Trust"),
(collectively, the "Company"), which were formed in 1994 in
connection with a receivables securitization program. (See Part II,
Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital
Resources".)
Gottschalks and its predecessor, E. Gottschalk & Co., have
operated continuously for over 91 years since it was founded by
Emil Gottschalk in 1904. Since the Company first offered its stock
to the public in 1986, it has added twenty-six of its thirty-five
Gottschalks stores, opened twenty of its twenty-five Village East
specialty stores and constructed its distribution center. (1)
Gottschalks is currently the largest independent department store
chain based in California.
_______________________
(1) As of April 1996.
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, cosmetics and
accessories, home furnishings and other merchandise in an extensive
range of styles, sizes and colors for all members of the family and
home.
The following table sets forth for the periods indicated a
summary of the Company's total sales by division, expressed as a
percent of net sales:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
Softlines:
<S> <C> <C> <C> <C>
Cosmetics & Accessories 17.2% 16.6% 16.5% 16.2% 15.7%
Women's Clothing (1)... 15.5 16.1 16.5 17.1 17.3
Mens' Clothing........ 14.3 13.9 13.6 13.2 12.8
Women's Dresses, Coats
& Lingerie......... 7.8 7.9 7.8 8.6 8.7
Junior's Clothing.... 6.0 6.3 7.0 7.2 7.1
Shoes & Other Leased
Departments........ 7.4 7.1 7.4 7.1 6.6
Children's Clothing.. 4.9 4.9 4.9 4.1 4.3
Village East......... 2.6 2.6 2.7 2.8 2.6
Total Softlines 75.7 75.4 76.4 76.3 75.1
Hardlines:
Housewares, Luggage &
Stationary......... 11.0 10.9 10.7 11.0 12.3
Domestics............ 8.1 8.1 7.1 6.7 9.0
Electronics & Furniture 5.2 5.6 5.8 6.0 3.6
Total Hardlines 24.3 24.6 23.6 23.7 24.9
Total Sales 100.0% 100.0% 100.0% 100.0% 100.0%
_____________________
</TABLE>
(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.
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, 2 Vice President/General Merchandise Managers, 9
Divisional Merchandise Managers, 48 buyers and 31 assistant buyers.
Management believes the 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 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. Management seeks to continuously refine
its merchandise mix with the goal of increasing sales of higher
gross margin items and increasing inventory turnover. 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 as
a means to more efficiently monitor and execute its merchandising
plan. (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. The mix of merchandise in a particular store may also vary
depending on the size
of the facility. 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. The Company's promotional strategy includes seasonal
promotions, promotions directed at selected items and frequent
storewide sales events to highlight brand-name merchandise and
promotional prices. The Company also 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.
The Company has increased its use of direct marketing
techniques to access niche markets by sending mailings to its
credit card-holders and, through its computer database, generating
specific lists of customers who may be most responsive to specific
promotional mailings. In fiscal 1995, the Company also implemented
a telemarketing program which through the use of an advanced call
management system and the Company's existing credit department
personnel, the Company is able to auto-dial potential customers
within a selected market area and deliver a personalized message
regarding current promotions and events. 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 fiscal 1995,
the Company purchased approximately 4.7% 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 fiscal 1995 were
Estee Lauder, Inc., Levi Strauss & Co., Liz Claiborne, Inc.,
Cosmair, Inc. (Lancome), Calvin Klein Cosmetics, Sony Corporation
of America, Koret of California, All-That-Jazz, Lee Company and
Graff Californiawear. Purchases from those vendors accounted for
approximately 19.0% of the Company's total purchases in fiscal
1995. Management believes that alternative sources of supply are
available for each category of merchandise it purchases.
Geographic Strategy. The Company's geographic strategy is
to locate its stores in diverse, growing, non-major metropolitan
areas. Gottschalks stores are often located in agricultural areas
and cater to mature customers with above average levels of
disposable income. Gottschalks strives to be the "hometown store"
in each of the communities it serves. Management believes the
Company has a competitive advantage in offering brand-name
merchandise and a high level of service to customers in secondary
markets in the western United States.
Store Expansion and Remodeling. 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
and fewer competitors offering such merchandise. The Company has
also continued to prudently invest in the renovation and
refixturing of its existing store locations in order to maintain
and improve market share in those market areas. The Company
sometimes receives reimbursement for certain of its new store construction
costs and costs associated with the renovation and
refixturing of existing store locations from mall owners and vendors.
The following table presents selected data regarding the
Company's expansion for the fiscal years indicated:
<TABLE>
<CAPTION>
Stores open at
<S> <C> <C> <C> <C> <C>
year-end: 1995 1994 1993 1992 1991(3)
Gottschalks 34(1) 29 27 25 23
Village East 26(2) 24 23 22 21
TOTAL 60 53 50 47 44
Gross store
square footage
(in thousands) 2,984 2,425 2,202 2,093 1,904
</TABLE>
(1) The Company opened one additional Gottschalks store in March 1996,
increasing the number of Gottschalks stores open to 35 as of the date
of this report.
(2) The Company incorporated one Village East store into a larger
department store in April 1996 in connection with entering into a new lease
(See Note 12 to the Consolidated Financial Statements)
(3) 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 fiscal 1995, the Company has constructed or acquired
twenty-six of its thirty-four Gottschalks department stores,
including four junior satellite stores of less than 30,000 square
feet each. During this period the Company also opened twenty of its
twenty-six Village East specialty stores. Gross store square
footage added during this period was approximately 2.2 million
square feet, resulting in approximately 3.0 million total Company
gross square feet.
The Company opened five new Gottschalks stores in California
in fiscal 1995, including new stores in Auburn, San Bernardino,
Visalia (a larger replacement store for a pre-existing store at
that location), Watsonville and Tracy. The Company also opened its
first store in Nevada in fiscal 1995, located in Carson City. In
early fiscal 1996, the Company opened its second Gottschalks store
in Nevada, in Reno, and relocated its existing stores in the
Modesto Vintage Faire Mall (Modesto, California) and Fashion Fair
Mall (Fresno, California), to larger anchor space in those malls
which were previously occupied by a major competitor of the Company.
(See Note 12 to the Consolidated Financial
Statements). The Company's operations outside California now
include two stores in Nevada and one store in each of Oregon and
Washington.
The Company generally seeks prime locations in regional
malls as sites for new department stores. Although the majority of
the Company's department stores are larger than 50,000 gross square
feet, during the past several years, the Company has, where the
opportunities have been attractive, established four junior
satellite stores each with less than 30,000 gross square feet. The
Company also seeks to open a Village East specialty store in each
mall where a Gottschalks department store is located, except when
the Company finds it more profitable to establish a Village East
department within the Gottschalks store, rather than as a separate
specialty shop. 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. The Company attempts to build customer
loyalty by providing a high level of service and by having well-stocked
stores. Product seminars and other training programs are
frequently conducted in the Company's stores so that sales
personnel will be able to provide useful product information to
customers. In addition to providing high levels of personal sales
assistance, the Company seeks to offer to its customers a
conveniently located and attractive shopping environment. 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 introduced
larger mens sizes to certain store locations in fiscal 1995. The
Company generally seeks to locate its stores in regional shopping
malls which are centrally located to access a broad customer base.
Thirty of the Company's thirty-five 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, and to telephone
customers about promotional sales and 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 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 quickly respond to
changing 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
implementation of such technology, systems and procedures.
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 461,000 active credit
accounts as of March 31, 1996 as compared to 438,000 as of March
31, 1995, an increase of 5.3%. Service charge revenues associated
with the Company's customer credit cards were $10.9 million, $8.9
million, $8.1 million, $8.6 million and $9.0 million in fiscal
1995, 1994, 1993, 1992 and 1991, respectively.
The Company installed a new credit management software
system in fiscal 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.
The Company completed an upgrade to this system in fiscal 1995,
which among other things, has enhanced the Company's ability to
access target markets with more sophisticated direct marketing
techniques. This system, combined with a new credit scoring system
installed in fiscal 1993, enables the Company to process thousands
of credit applications daily at a rate of approximately three
minutes per application. In fiscal 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. As described more fully in "Business--
Merchandising and Promotion Strategy", the Company is also able
to utilize the advanced call management system for telemarketing
activities.
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 fiscal 1993, the Company implemented an "Instant Credit"
program, through which successful credit applicants receive a 10%
discount on the first days' purchases made with the Company's
credit card; a "55-Plus" charge account program, initiated in
fiscal 1993, which offers additional merchandise and service
discounts to customers 55 years of age and older; and "Gold Card"
and "55-Plus Gold Card" programs, initiated in fiscal 1994, 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. In fiscal 1995, the Company launched a
credit card reactivation program in an attempt to recapture credit
card-holders who have not utilized their credit card for a
specified period of time. In addition to increasing service charge
income, management believes holders of the Company's credit card
typically buy more merchandise from the Company than other
customers.
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 currently 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 currently assessed at a rate of $5 per late payment
occurrence. The Company is presently evaluating an increase to the
APR and late charge fee in fiscal 1996.
Information Systems. The Company has continued to invest
prudently 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 fiscal 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 fiscal 1994 which management believes has improved the
Company's POS price verification capabilities, resulting in fewer
POS errors and enhanced customer service. Coupled with enhanced
physical inventory procedures and improved security systems in the
Company's stores, these systems have resulted in the reduction of
the Company's inventory shrinkage to 1.3% of net sales in fiscal
1995, from 1.4%, 2.1%, 2.3% and 2.5% in fiscal 1994, 1993 1992 and
1991, respectively.
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. In fiscal 1995, management implemented a new
merchandise management and allocation ("MMS") system, which
enhances the Company's ability to allocate merchandise to stores
more efficiently and make prompt reordering and pricing decisions.
The new MMS system also provides 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 have automated certain merchandise purchasing
processes. In fiscal 1995, the Company also 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 arrives 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. The Company, along with numerous other
major department store retailers and vendors, is also actively
involved in developing a program to standardize hangers for apparel
merchandise (the "VIC's" program). Merchandise purchased from
vendors participating in the VICS program arrives at the
distribution center already on hangers and ready for immediate
distribution to 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 fiscal 1994 which has enhanced the Company's
ability to manage payroll-related costs; (ii) a new advertising
management software system in fiscal 1995 which has enhanced
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 installed in fiscal
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 7.4%, 7.1%, 7.4%, 7.1% and 6.6% in fiscal 1995, 1994,
1993, 1992 and 1991, respectively. Gross margin applicable to the
leased departments was 14.4%, 14.1%, 13.8%, 14.4% and 14.6% in
fiscal 1995, 1994, 1993, 1992 and 1991, respectively.
Competition. The retail department store and specialty
apparel and home furnishings businesses are highly competitive. The
Company's stores compete with national, regional, and local chain
department 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 trend towards
consolidation of competitors within the retail industry has also
intensified competition. The Company competes primarily on the
basis of current merchandise availability, customer service, price
and store location and the availability of services including
credit and product delivery.
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. The Company's
membership in Frederick Atkins also provides it with increased
buying power in the marketplace. Management also believes that its
knowledge of its primary market areas, developed over more than 91
years of continuous operations, and its focus on those markets as
its primary areas of operations, give the Company 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 February 3, 1996, the Company had 5,181
employees, of whom 1,349 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 store
locations in the western United States 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 six of its
thirty-five 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 $6.29, $6.38, $6.54, $6.09 and $6.00 per gross square
foot in lease expense in fiscal 1995, 1994, 1993, 1992 and 1991,
respectively, not including common area maintenance and other
allocated expenses. In certain cases, the Company has been able to
add gross square feet to certain existing store locations under
favorable rental conditions.
Thirty of the Company's thirty-five Gottschalks stores and
all but two of its twenty-five Village East stores are located in
regional shopping malls. (1) 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.
_______________
(1) As of April 1996.
<TABLE>
<CAPTION>
The following table contains specific information about each
of the Company's stores open as of the end of fiscal 1995:
Expiration
Gross(1) Selling Date of
Square Square Date Current
Feet Feet Opened Lease Renewal Options
GOTTSCHALKS
<S> <C> <C> <C> <C> <C>
Antioch............. 80,000 64,036 1989 N/A (2) N/A
Aptos............... 11,200 9,362 1988 2004 None
Auburn.............. 40,000 37,245 1995 2005 1 five yr. opt.
Bakersfield:
East Hills........ 74,900 73,069 1988 2009 6 five yr. opt.
Valley Plaza...... 69,000 57,195 1987 1997(3) None
Capitola............105,000 89,352 1990 2015(5) 4 five yr. opt.
Carson City, Nevada. 58,000 51,848 1995 2005 2 five year opt.
Chico............... 85,000 75,934 1988 2017 3 ten yr. opt.
Clovis..............101,400 93,521 1988 2018 None
Eureka.............. 96,900 70,090 1989 N/A (2) N/A
Fresno:
Fashion Fair...... 76,700 67,860 1970 2001(7) None
Fig Garden........ 36,000 32,774 1983 2005 None
Manchester........175,600 127,243 1979 2009 1 ten yr. opt.
Hanford............. 98,800 75,382 1993 N/A (2) N/A
Klamath Falls,
Oregon............ 65,400 53,446 1992 2007 2 ten yr. opt.
Merced.............. 60,000 51,628 1983 2013 None
Modesto:
Vintage Faire..... 89,600 67,086 1977 2008(7) 4 five yr. opt.
Century Center.... 62,300 58,285 1984 2013 1 ten yr. opt.
and
1 four yr. opt.
Oakhurst............ 25,600 21,894 1994 2005 4 five yr. opt.
and
1 six yr. opt.
Palmdale............114,900 93,029 1990 N/A (2) N/A
Palm Springs........ 68,100 57,194 1991 2011 4 five yr. opt.
Sacramento..........194,400 138,797 1994 2014 5 five yr. opt.
San Bernardino......204,000 147,061 1995 2017 4 five yr. opt.
San Luis Obispo..... 99,300 91,155 1986 N/A (2) N/A
Santa Maria.........114,000 99,262 1976 2006 4 five yr. opt.
Scotts Valley....... 11,200 9,740 1988 2001 2 five yr. opt.
Stockton............ 90,800 74,952 1987 2009 6 five yr. opt.
Tacoma, Washington..119,300 94,054 1992 2012 4 five yr. opt.
Tracy...............113,000 88,168 1995 2015 4 five yr. opt.
Visalia.............150,000 133,930 1995 2014 3 five yr. opt.
Watsonville......... 75,000 63,449 1995 2006 4 five yr. opt.
Woodland............ 55,300 52,913 1987 2017 2 ten yr. opt.
Yuba City........... 80,000 61,944 1989 N/A(2) N/A
Redding............. 7,800 5,000 1993 60 days(4) None
Total Gottschalks
Square Footage..2,908,500 2,387,898
VILLAGE EAST
<S> <C> <C> <C> <C> <C>
Antioch............. 2,100 1,472 1989 1999 None
Bakersfield:
East Hills........ 3,350 2,847 1988 1998 None
Valley Plaza...... 3,700 3,550 1991 2002 None
Capitola............ 2,360 2,006 1991 1999 None
Carson City, Nevada. 3,400 2,800 1995 2005 None
Chico............... 2,300 1,920 1988 2000 None
Clovis.............. 2,300 1,955 1988 1998 None
Eureka.............. 2,820 2,397 1989 2004 None
Fresno:
Fashion Fair...... 1,750 1,487 1970 1996(6) None
Fig Garden........ 2,800 2,521 1986 1999 None
Manchester........ 5,950 5,375 1981 2010 None
Hanford............. 2,800 2,480 1993 2008 None
Merced.............. 3,350 2,847 1976 2001 None
Modesto:
Vintage Faire..... 2,900 2,720 1977 1995(6) None
Century Center.... 2,730 2,320 1986 2005 None
Palmdale............ 2,716 2,309 1990 2000 None
Palm Springs........ 2,480 2,108 1991 2001 None
Sacramento.......... 2,700 2,470 1994 2004 None
San Luis Obispo..... 2,500 1,472 1987 2011 None
Santa Maria......... 3,000 2,720 1976 2001 None
Stockton............ 1,799 1,530 1989 1998 None
Tacoma.............. 4,000 3,220 1992 2012 None
Tracy............... 3,428 2,914 1995 2006 None
Visalia............. 3,400 2,880 1975 1999 None
Woodland............ 2,022 1,719 1987 1999 None
Yuba City........... 3,200 3,045 1990 2000 None
Total Village East
Square Footage....75,855 65,084
Total Square
Footage........2,984,355 2,452,982
</TABLE>
__________________________
(1) Reflects total store square footage, including office
space, storage, service and other support space that is non
dedicated to direct merchandise sales.
(2) These stores are Company owned and have been pledged as
security for various debt obligations of the Company. (See
Note 3 of the Consolidated Financial Statements.)
(3) 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.
(4) This lease is automatically renewed every 60 days. Either
party can terminate the lease upon 60 days' notice.
(5) See Note 6 to the Consolidated Financial Statements
regarding the sale and leaseback of the Company's
department store in Capitola, California.
(6) The Company has notified the respective landlords that it
will not exercise its option to renew these leases. In
connection with entering into new leases for larger department stores
in the malls in which these stores are located, the Company
has incorporated Village East into the larger store format
as a separate department. (See Note 12 to the Consolidated
Financial Statements.)
(7) See Note 12 to the Consolidated Financial Statements for
additional information related to these leases.
Item 3. LEGAL PROCEEDINGS
The Company is party to a lawsuit filed in 1992 by F&N Acquisition
Corporation ("F&N") under which F&N originally claimed 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 (F&N Acquisition Corp.
v. Gottschalks Inc., Case No. A92-08501). In addition, F&N claimed
unspecified damages for its rejection of the next best offer to
purchase the assignment of the lease. In 1992, F&N received 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 judgement was reversed
in 1994, however, and remanded to the United States District Court
for the Western District of Washington for further proceedings.
Management's estimate of amounts that may ultimately be payable to
F&N were previously accrued in fiscal 1992. In connection with the
F&N lawsuit, an additional complaint was filed against the Company
by Sabey Corporation ("Sabey"), the owner of the mall in which the
Frederick and Nelson store was located. (Sabey Corporation v.
Gottschalks Inc., Case No. C94-842Z). The F&N and Sabey lawsuits
were combined in May 1995 and the lawsuits are currently scheduled
for trial in July 1996. (F&N Acquisition Corp. and Sabey
Corporation v. Gottschalks Inc., Case No. C95-186Z).
An amendment to the original breach of contract claim contained in
the F&N lawsuit was filed on January 29, 1996 alleging, among other
things, that the Company breached the contract by deliberately
delaying its performance. In addition to breach by intentional
delay and impossibility, the plaintiffs have also claimed fraud and
negligent misrepresentations by executives of the Company.
Management is continuing to vigorously defend the lawsuits and does
not believe that any additional costs that may ultimately be
incurred in connection with the lawsuits, as combined, will be
material to the operating results 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 ("NYSE") Composite
Tape under the symbol "GOT" during the periods indicated:
<TABLE>
<CAPTION>
1995 1994
Fiscal Quarters High Low High Low
<S> <C> <C> <C> <C>
1st Quarter......... 7 7/8 6 3/4 12 7/8 8 3/8
2nd Quarter......... 7 3/8 6 1/2 12 8 1/2
3rd Quarter......... 8 3/8 6 1/2 9 3/4 7 1/4
4th Quarter......... 7 4 3/4 8 3/8 6 5/8
</TABLE>
On March 31, 1996, the Company had 1,089 stockholders of
record, some of which were brokerage firms or other nominees
holding shares for multiple stockholders. The sales price of the
Company's common stock as reported by the NYSE on March 31, 1996
was $6.50 per share.
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 agreement with
Fleet Capital Corporation ("Fleet" - formerly Shawmut Capital
Corporation) prohibits 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 February
3, 1996, January 28, 1995, January 29, 1994, January 30, 1993 and
February 1, 1992 are referred to herein as 1995, 1994, 1993, 1992
and 1991, respectively. All fiscal years noted include 52 weeks,
except for fiscal 1995 which includes 53 weeks. Although the Company's
results of operations for fiscal 1995 were not materially impacted
by results applicable to the 53rd week, fiscal 1995 cash flows were
impacted. (See Item 7, "Liquidity and Capital Resources".)
The selected financial data below should be read in
conjunction with Part II, 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.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS:
1995 1994 1993 1992 1991
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales(1)........... $401,041 $363,603 $342,417 $331,133 $314,633
Service charges and
other income......... 11,663 9,659 8,938 9,458 10,830
412,704 373,262 351,355 340,591 325,463
Costs and expenses:
Cost of sales(2)..... 278,827 247,423 233,715 226,319 210,435
Selling, general and
administrative
expenses(3)........ 123,100 103,571 103,675 105,044 96,144
Depreciation and
amortization(4).... 8,092 5,860 5,877 6,408 5,503
Interest expense..... 11,296 10,238 8,524 6,965 6,793
Unusual items(5)..... 3,833 3,427 7,852
421,315 370,925 355,218 352,588 318,875
Income (loss) before
income tax expense
(benefit)............ (8,611) 2,337 (3,863) (11,997) 6,588
Income tax expense
(benefit)............ (2,972) 821 (1,190) (4,006) 2,528
Net income (loss)...... $ (5,639) $ 1,516 $ (2,673) $(7,991) $ 4,060
Net income (loss)
per common share..... $ (.54) $ .15 $ (.26) $ (.77) $ .41
Weighted average number
of common shares
outstanding.......... 10,416 10,413 10,377 10,410 9,798
SELECTED OPERATING DATA: 1995 1994 1993 1992 1991
Sales growth:
Total store sales(6)..... 10.3% 6.2% 3.4% 5.2% 9.5%
Comparable store sales .. (3.1%) 3.3% 1.3% (1.0%) 3.5%
Average net sales per
square foot of selling
space (7):
Gottschalks......... $181 $196 $198 $209 $210
Village East........ 161 164 176 218 231
Gross margin percent:
Owned sales......... 31.8% 33.3% 33.2% 32.7% 34.4%
Leased sales........ 14.4% 14.1% 13.8% 14.4% 14.6%
Credit sales as a %
of total sales........ 45.3% 43.5% 38.8% 38.5% 41.0%
__________________
</TABLE>
(1) Includes net sales from leased departments of $29.8
million, $26.0 million, $25.3 million, $23.4 million and
$20.8 million in fiscal 1995, 1994, 1993, 1992 and 1991,
respectively. See Part I, Item 1, "Business--Leased
Departments."
(2) Includes cost of sales attributable to leased departments
of $25.5 million, $22.3 million, $21.8 million, $20.1
million and $17.8 million in fiscal 1995, 1994, 1993, 1992
and 1991, respectively.
(3) Includes provision for credit losses of $2.5 million, $2.1
million, $2.2 million, $2.5 million and $3.0 million in
fiscal 1995, 1994, 1993, 1992 and 1991, respectively.
(4) Includes the amortization of new store pre-opening costs of
$2.5 million, $438,000, $429,000, $1.0 million and $823,000
in fiscal 1995, 1994, 1993, 1992 and 1991, respectively.
(5) See Note 10 to the Consolidated Financial Statements.
(6) See Part I, Item I, "Business--Store Expansion and
Remodeling", for table of number of stores open at each
fiscal year-end.
(7) Average net sales per square foot of selling space
represents net sales for the period divided by the number
of square feet of selling space in use during the period.
Average net sales per square foot is computed only for
those stores in operation for at least twelve months.
"Selling space" has been determined according to standards
set by the National Retail Federation.
___________________________
<TABLE>
<CAPTION>
SELECTED BALANCE SHEET DATA:
1995 1994 1993 1992 1991
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Receivables, net........$ 27,467(1) $ 27,311(1) $ 21,460(1) $ 59,508 $ 62,831
Merchandise
inventories............ 87,507 80,678(2) 60,465 58,777 62,821
Property and
equipment, net......... 89,250(3) 93,809 96,396 95,933 91,114
Total assets............ 239,041 233,353 248,330 239,910 242,072
Working capital......... 42,904 37,900 32,147(4) 16,827(4) 64,715
Long-term obligations,
less current portion... 34,872 33,672 31,493(4) 14,992 51,290
Stockholders' equity.... 77,917 83,577 82,118 84,529 92,720
SELECTED FINANCIAL DATA:
Capital expenditures,
net of reimbursements..$ 12,773 $ 4,539 $ 5,456 $ 12,078 $ 13,023
Current ratio........... 1.45:1 1.43:1 1.30:1 1.15:1 1.89:1
Inventory turnover
ratio(5) .............. 2.7 2.9 2.9 2.9 2.9
Days credit sales
in receivables......... 135.1(6) 155.4(6) 169.3(6) 169.8 177.4
</TABLE>
(1) These amounts do not include $40.0 million of the Company's
customer credit card receivables sold in March 1994 in
connection with a receivables securitization program. Such
receivables were classified as held for securitization and
sale at the end of fiscal 1994.(See Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources.")
(2) The increase in merchandise inventories from fiscal 1993 to
fiscal 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 fiscal 1995. In
addition, to a lesser extent, this increase is attributable to
opportunistic purchases of merchandise
shortly before year- end in fiscal 1994. The Company
typically receives extended payment terms for such purchases.
(3) The decrease in property and equipment from fiscal 1994 to
fiscal 1995 is primarily due to the sale and leaseback of the
Company's department store in Capitola, California in fiscal
1995. (See Part II, Item 7, "Management's Discussion and Analysis
of Financial Condition and Results
of Operations -- Liquidity and Capital Resources".) This decrease
was partially offset by capital expenditures, net of
reimbursements received, related to new stores opened during the year.
(4) Working capital increased $15.3 million and long-term
obligations increased $16.5 million from fiscal 1992 to 1993
primarily due to the classification of certain debt as long-term in
fiscal 1993 that had been classified as current in
fiscal 1992.
(5) The inventory turnover ratio excludes
inventory received at year-end and held for stores opened early
in the subsequent fiscal year.
(6) Days credit sales in receivables include $40.0 million of
receivables sold in fiscal 1994 and held for
securitization and sale as of the end of fiscal 1993. The Company
has continued to service and administer the receivables
pursuant to the securitization program.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The fiscal 1995 retail environment presented the
Company with many challenges. As described more fully below, the
Company's fiscal 1995 comparable store sales and gross margin were
negatively impacted primarily by external factors influencing the
Company's operating environment. Such external factors included
unusual variances in weather conditions during the spring and fall
selling seasons and intense pricing competition initiated by two
financially troubled retailers in certain of the Company's market
areas. In order to compete in such an environment, the Company
increased its promotional activity, resulting in higher markdowns
and a lower gross margin. The Company's fiscal 1995 results of
operations were also negatively impacted by the amortization of
new store pre-opening costs associated with the
opening of two new stores in fiscal 1994 and six new stores (including one
larger replacement for a pre-existing store) in fiscal 1995. The
Company also incurred higher selling, general and administrative
and interest costs as a percent of net sales in connection with
those new stores. These factors were partially offset by increased
service charge income as a percent of net sales.
While management believes the impact of such external
factors is temporary and will not continue throughout fiscal 1996,
the Company is implementing revised operational strategies which
include cost reduction and revenue enhancement plans. Management
believes the implementation of such plans will assist the Company
in achieving its goal of profitable operations.
Management also expects the Company's fiscal 1996 results of
operations to benefit by the acquisition of Broadway Stores, Inc.
("Broadway"), one of the Company's primary competitors, by
Federated Department Stores, Inc. ("Federated") and the temporary
and permanent closure of certain Broadway locations in connection
with that acquisition. (See "Liquidity and Capital Resources".)
The Company recorded a net loss of $5.6 million in
fiscal 1995 as compared to a net income of $1.5 million in fiscal
1994. The Company's fiscal 1994 results of operations were
favorably impacted by the year-end LIFO inventory valuation
adjustment and other non-recurring adjustments to certain other
reserves, partially offset by a provision for unusual items. The
Company recorded a net loss of $2.7 million in fiscal 1993.
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:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net sales........................ 100.0% 100.0% 100.0%
Service charges and other income. 2.9 2.6 2.6
102.9 102.6 102.6
Costs and expenses:
Cost of sales................. 69.5 68.0 68.2
Selling, general and
administrative expenses..... 30.7 28.5 30.3
Depreciation and amortization. 2.0 1.6 1.7
Interest expense.............. 2.8 2.8 2.5
Unusual items................. 1.1 1.0
105.0 102.0 103.7
Income (loss) before income tax
expense (benefit)............. (2.1) 0.6 (1.1)
Income tax expense (benefit)..... (0.7) 0.2 (0.3)
Net income (loss)................ (1.4)% 0.4% (0.8)%
</TABLE>
Fiscal 1995 Compared to Fiscal 1994
Net Sales
Net sales increased $37.4 million to $401.0 million in
fiscal 1995 as compared to $363.6 million in fiscal 1994, an
increase of 10.3%. This increase reflects additional sales volume
generated by the opening of six new Gottschalks stores during
fiscal 1995 and two new Gottschalks stores not open for the entire
year in fiscal 1994. New stores opened in California during
fiscal 1995 include: Auburn (February 1995), San Bernardino (April
1995), a larger replacement for a pre-existing store in Visalia
(August 1995), Watsonville (August 1995) and Tracy (October 1995).
The Company also opened its first store in Nevada during the year
in Carson City (March 1995). New stores opened in fiscal 1994
include Oakhurst (October 1994) and Sacramento, California
(November 1994).
Comparable store sales decreased 3.1% in fiscal 1995
as compared to fiscal 1994. This decrease is due, in part, to
unusual variances in weather conditions in many of the Company's
market areas during the year. Spring and summer apparel sales were
weak due to unusually cold and rainy weather conditions early in
the spring season, and unseasonably warm weather in the fall and
winter seasons resulted in sluggish fall and winter apparel and
seasonal home merchandise sales. Temporary pricing competition
initiated by two financially troubled retailers operating in
certain of the Company's market areas also negatively impacted
sales at the Company's stores in those areas.
Management is continuing efforts to increase sales
volume through the controlled expansion of the Company and is
attempting to improve market share in its existing markets through
the development of new sales and customer-service related programs.
New stores opening in fiscal 1996 included a new Gottschalks store
in Reno, Nevada in March 1996 and two larger replacement stores for
pre-existing stores in Modesto and Fresno, California, in March and
April, 1996, respectively. Management also expects sales volume to
increase in fiscal 1996 as the result of the acquisition of
Broadway Stores, Inc., one of the Company's major competitors, by
Federated Department Stores, Inc. (See "Liquidity and Capital
Resources".)
Service Charges and Other Income
Service charges and other income increased $2.0 million
to $11.7 million in fiscal 1995 as compared to $9.7 million in
fiscal 1994, an increase of 20.6%. As a percent of net sales,
service charges and other income increased to 2.9% in fiscal 1995
as compared to 2.6% in fiscal 1994.
Service charges associated with the Company's customer
credit cards increased $2.0 million to $10.9 million in fiscal 1995
as compared to $8.9 million in fiscal 1994. This increase is
primarily due to an increase in the late charge fee assessed on
delinquent customer accounts, effective January 1995, which
resulted in increasing late charge fees by $1.2 million in fiscal
1995 as compared to fiscal 1994. Credit sales as a percent of total
sales have also continued to improve, increasing to 45.3% in fiscal
1995 as compared to 43.5% in fiscal 1994, primarily due to the
ongoing success of credit-related programs first implemented by the
Company in fiscal 1994 and 1993, in addition to increased marketing
efforts aimed at the Company's customer credit cardholders and
credit solicitation activities resulting in a higher percentage of
new credit card accounts opened in connection with new store
openings. (See Part I, Item I, "Business -- Credit Policy").
Other income, which includes the amortization of
deferred income and other miscellaneous income and expense items,
was $726,000 in fiscal 1995 as compared to $755,000 in fiscal 1994.
Cost of Sales
Cost of sales increased $31.4 million to $278.8 million
in fiscal 1995 as compared to $247.4 million in fiscal 1994, an
increase of 12.7%. The Company's gross margin percent decreased to
30.5% in fiscal 1995 as compared to 32.0% in fiscal 1994. This
decrease in gross margin percent relates primarily to an increase
in markdowns as a percent of net sales due to (i) heavy discounting
of men's, women's and junior apparel necessitated by unusually cold
and rainy weather conditions in the spring and summer selling
seasons and unseasonably warm weather conditions during the fall
and winter selling seasons; (ii) temporary competitive pressures
caused by pricing policies of two financially troubled retailers
in certain of the Company's market areas during the period; (iii)
the clearance of certain merchandise in connection with a
modification of the Company's women's apparel merchandising
strategy; and (iv) promotional activity related to new store
openings during the period. The Company's inventory shrinkage was
1.3% of net sales in fiscal 1995 as compared to 1.4% in fiscal
1994.
The Company's 1994 gross margin percent was favorably
impacted by the year-end LIFO inventory valuation adjustment, which
resulted in an increase in gross margin of $3.2 million. The
Company's LIFO inventory reserve for financial reporting purposes
was eliminated as a result of the fiscal 1994 adjustment and no
similar benefit was recognized as a result of the Company's fiscal
1995 LIFO adjustment. (See Note 1 to the Consolidated Financial
Statements). Excluding the effect of the LIFO adjustment, the
Company's gross margin percent was 31.1% in fiscal 1994. To a
lesser extent, the Company's fiscal 1994 gross margin percent was
also favorably impacted by a reduction of inventory shrinkage to
1.4% of net sales in fiscal 1994 as compared to 2.1% in fiscal
1993, primarily due to improved inventory-related controls.
Management believes the Company's gross margin will continue
to be pressured in fiscal 1996 by both intense competition and
pricing pressures from other department and specialty stores,
discount retailers and outlet malls, and as a result of changing
consumer spending patterns. Management is continuing efforts to
implement a variety of strategies designed to counteract these
pressures, including tight controls over inventory levels, shifting
inventories into more profitable lines of business based on current
trends, the negotiation of additional guaranteed gross margin
arrangements with vendors, and the implementation of enhanced
information systems and new technology as a means to reduce
inventory related costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased
$19.5 million to $123.1 million in fiscal 1995 as compared to
$103.6 million in fiscal 1994, an increase of 18.8%. As a percent
of net sales, selling, general and administrative expenses
increased to 30.7% in fiscal 1995 as compared to 28.5% in fiscal
1994. This increase as a percent of net sales is primarily due to
lower than expected sales volume, in addition to higher payroll,
advertising and other selling, general and administrative costs
associated with certain of the Company's new stores opened during
the year. Certain store operating costs as a percent of net sales
are generally higher for new stores and decline as the stores
mature over a two to three year period. The Company has also
experienced an increase in building and equipment rental expense
as a result of the sale and leaseback financing of the Capitola
store in fiscal 1995 and enhanced POS terminal and information
systems equipment leased during the year. The impact of such
increases has been partially offset by reductions in depreciation
and amortization as a result of such sales. (See "Liquidity and
Capital Resources").
In fiscal 1994, the Company realized the benefit of
reductions to required workers' compensation claim reserves
resulting from favorable experience adjustments and revisions to
applicable workers' compensation laws. Excluding the effect of such
experience adjustments, selling, general and administrative
expenses were 29.1% of net sales in fiscal 1994. The Company
revised its workers' compensation program in early fiscal 1995 and
no significant favorable or unfavorable experienced adjustments
were recognized in fiscal 1995 or are expected in the future.
Depreciation and Amortization
Depreciation and amortization, which includes the
amortization of new store pre-opening costs, increased $2.2 million
to $8.1 million in fiscal 1995 as compared to $5.9 million in
fiscal 1994, an increase of 37.3%. This increase is primarily due
to the amortization of new store pre-opening costs which increased
by $2.1 million to $2.5 million in fiscal 1995 as compared to
$438,000 in fiscal 1994, as a result of completing and opening two
new stores in fiscal 1994 and six new stores (including one
replacement store) in fiscal 1995. Excluding the amortization of
new store pre-opening costs, depreciation and amortization as a
percent of net sales decreased to 1.4% in fiscal 1995 as compared
to 1.5% in fiscal 1994. This decrease is primarily due to lower
depreciation expense resulting from the sale and leaseback of the
Company's department store in Capitola, California in fiscal 1995 and
its mainframe computer in fiscal 1994, partially offset by
additional depreciation expense resulting from capital
expenditures, net of reimbursements received for certain of those
expenditures, for new stores opened during the year. (See
"Liquidity and Capital Resources"). Management expects the
amortization of new store pre-opening costs to be lower in fiscal
1996 as compared to fiscal 1995 due to fewer planned new store
openings.
Interest Expense
Interest expense increased $1.1 million to $11.3 million in
fiscal 1995 as compared to $10.2 million in fiscal 1994, an
increase of 10.8%. Due to the increased sales volume, interest
expense as a percent of net sales remained unchanged at 2.8% in
fiscal 1995 and 1994. The dollar increase in interest expense
resulted from an increase in the weighted-average interest rate
charged on outstanding borrowings under the Company's various lines
of credit (8.75% in fiscal 1995 as compared to 7.13% in fiscal
1994); higher average outstanding borrowings under those lines of
credit to fund increased inventory purchases associated with new
stores and operating losses during the year; and additional
interest expense associated with the Midland mortgage loans (October
1995), Heller note payable (December 1994) and Fixed Base
Certificates (March 1994). These increases were partially offset
by lower interest on long-term borrowings as a result of the
application of proceeds from the Midland mortgage financing and the
Capitola sale and leaseback arrangement. (See "Liquidity and
Capital Resources.")
Provision for Unusual Items
The provision for unusual items in fiscal 1994, totaling
$3.8 million, includes a provision of $3.5 million representing
costs incurred in connection with an agreement reached to settle
the stockholder litigation previously pending against the Company
and related legal fees and other costs. The Company paid all
amounts due in connection with the settlement agreement in February
1995. No additional costs in excess of such amounts previously
accrued have been incurred by the Company. (See Note 10 to the
Consolidated Financial Statements.)
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 benefit was (34.5%) in
fiscal 1995 as compared to an effective tax rate of 35.1% in fiscal
1994. (See Note 7 to the Consolidated Financial Statements.)
Fiscal 1994 Compared to Fiscal 1993
Net Sales
Net sales increased $21.2 million to $363.6 million in
fiscal 1994 as compared to $342.4 million in fiscal 1993, an
increase of 6.2%. This increase reflects additional sales volume
generated by the opening of two new Gottschalks stores during the
year in Oakhurst (a junior satellite store -- October 1994) and
Sacramento, California (November 1994), and two new Gottschalks
stores in Hanford (March 1993) and Redding, California (a junior
satellite store -- November 1993), not open for the entire year
in fiscal 1993. Comparable store sales increased by 3.3% in fiscal
1994 as compared to fiscal 1993, primarily due to strong
promotional activity and improved economic conditions in many of
the Company's market areas during the period.
Service Charges and Other Income
Service charges and other income increased approximately
$800,000 to $9.7 million in fiscal 1994 as compared to $8.9 million
in fiscal 1993, an increase of 9.0%. As a percent of net sales,
service charges and other income remained unchanged at 2.6% in
fiscal 1994 and 1993.
Service charges associated with the Company's customer
credit cards increased $800,000 to $8.9 million in fiscal 1994 as
compared to $8.1 million in 1993, an increase of 9.9%. This
increase is primarily due to an increase in credit sales as a
percent of total sales (43.5% in fiscal 1994 as compared to 38.8%
in fiscal 1993), resulting from the success of new credit-related
programs first initiated by the Company in fiscal 1994 and 1993,
in addition to credit solicitation activities resulting in a higher
percentage of customer credit card accounts opened in connection
with new store openings in fiscal 1994 and 1993. (See Part I, Item
I, "Business -- Credit Policy").
Other income was $755,000 in fiscal 1994 as compared to
$838,000 in fiscal 1993, a decrease of $83,000. Significant items
included in other income included a one-time 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 equity in the income of the Company's investment in a limited
partnership of $160,000 in 1994 as compared to a $228,000 loss
recognized on the investment in 1993 (see Note 1 to the
Consolidated Financial Statements.)
Cost of Sales
Cost of sales increased $13.7 million to $247.4 million in
fiscal 1994 as compared to $233.7 million in fiscal 1993, an
increase of 5.9%. The Company's gross margin percent increased to
32.0% in fiscal 1994 as compared to 31.8% in fiscal 1993. The
Company's fiscal 1994 gross margin percent includes a favorable
year-end LIFO inventory valuation adjustment, resulting in an
increase in gross margin of $3.2 million, as compared to a
reduction to gross margin resulting from the fiscal 1993 LIFO
adjustment of $969,000. To a lesser extent, the improved gross
margin also resulted from a reduction of inventory shrinkage to
1.4% as a percent of net sales in fiscal 1994 as compared to 2.1%
in fiscal 1993, primarily from improved inventory-related controls.
Excluding the effect of the LIFO adjustment, the Company's gross
margin percent was 31.1% in fiscal 1994 as compared to 32.0% in
fiscal 1993.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased
approximately $100,000 to $103.6 million in fiscal 1994 as compared
to $103.7 million in fiscal 1993, a decrease of .10%. As a percent
of net sales, selling, general and administrative expenses
decreased to 28.5% in fiscal 1994 as compared to 30.3% in fiscal
1993. This decrease as a percent of net sales resulted from the
increase in sales volume and a reduction of certain operating
expenses as a result of expense control measures implemented
throughout the Company. 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 1994, however recognized
increases to such reserves in fiscal 1993. Excluding the effect of
such experience adjustments, selling, general and administrative
expenses as a percent of net sales were 29.1% in 1994 as compared
to 30.7% in 1993.
Depreciation and Amortization
Depreciation and amortization was unchanged at $5.9 million
in fiscal 1994 and 1993. As a percent of net sales, depreciation
and amortization decreased to 1.6% in fiscal 1994 as compared to
1.7% in fiscal 1993. This decrease as a percent of net sales
resulted primarily from the increase in sales volume. The
amortization of new store pre-opening costs was $438,000 in fiscal
1994 as compared to $429,000 in fiscal 1993.
Interest Expense
Interest expense increased $1.7 million to $10.2 million in
fiscal 1995 as compared to $8.5 million in fiscal 1994, an increase
of 20.0%. As a percent of net sales, interest expense increased to
2.8% in fiscal 1994 as compared to 2.5% in fiscal 1993. These
increases resulted from an increase in the weighted-average
interest rate charged on outstanding borrowings under the Company's
various lines of credit (7.13% in 1994 as compared to 6.5% in
1993); higher average outstanding borrowings under those lines of
credit to fund increased inventory purchases associated with new
stores; and additional interest expense associated with the Heller
note payable (December 1994) and Fixed Base Certificates (March
1994). (See "Liquidity and Capital Resources.")
Provision for Unusual Items
As described more fully in the Company's 1994 Annual Report
on Form 10-K and Note 10 to the Consolidated Financial Statements,
the provision for unusual items in fiscal 1994, totaling $3.8
million, includes a provision of $3.5 million representing costs
incurred in connection with an agreement reached to settle the
stockholder litigation previously pending against the Company and
related legal fees and other costs.
The provision for unusual items in fiscal 1993, totaling
$3.4 million, includes interest expense, legal and accounting fees
and other costs incurred primarily in connection with the
settlement of all pending federal civil matters related to an
income tax deduction taken on the Company's 1985 federal tax return
and the previously described stockholder litigation.
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 fiscal
1994 as compared to a benefit of (30.8%) in fiscal 1993. (See Note
7 to the Consolidated Financial Statements.)
Liquidity and Capital Resources
Overview of Current Liquidity Position. The fiscal 1995
retail environment presented the Company with many challenges. The
Company's operating losses and capital requirements associated with
the opening of new stores strained the Company's working capital
facilities and reduced the Company's liquidity. As described more
fully below, the Company has limited internal sources of liquidity
due to the fact that operating uses of cash have exceeded cash
generated by operations, requiring the Company to turn to external
sources for a portion of its liquidity requirements. Sources of
external liquidity are also limited due to the fact that : (i) all
but one of the Company-owned stores have either been mortgaged or
sold and leased back to the Company, leaving the Company with
limited capacity for future secured borrowing; and (ii) borrowing
capacity under the Company's primary revolving line of credit
arrangement with Fleet Capital Corporation ("Fleet") depends on the
Company's ability to comply with restrictive covenants in the
applicable agreement. The Company had difficulties meeting certain
of such covenants in fiscal 1995. Fleet has cooperated with the
Company in revising such covenants and, when necessary, has granted
waivers or agreed to forebear such violations. In addition, for
fiscal 1996, Fleet has tied the covenants to the Company's 1996
financial plan (the "1996 Plan"). As of the date of this report,
the Company's actual results of operations for the first two months
of fiscal 1996 exceeded the 1996 Plan and the Company was in
compliance with all applicable restrictive covenants. The following
more completely summarizes the Company's present liquidity position
and provides factors for evaluating the Company's liquidity
prospects.
Liquidity Needs. The Company's primary needs for liquidity
are to provide working capital, to meet its debt service
requirements and to fund costs associated with the acquisition and
construction of new stores and the renovation of existing stores.
In fiscal 1995 the Company also required additional funds for the
payment of $3.0 million in connection with previously settled
stockholder litigation. (See Note 10 to the Consolidated Financial
Statements.) The Company's working capital increased by 13.2% in
fiscal 1995, primarily as a result of increases in inventory and
prepayments to vendors in connection with new store openings. The
Company, unable to fully fund this increase from operating cash
flow, funded the increase with debt. The increased inventory is
pledged as collateral under the line of credit with Fleet.
Note: See "Proposed Course of Action" and the factors
listed therein which may affect the forward-looking statements
contained in this paragraph. The Company anticipates its cash flow
requirements for fiscal 1996 to be lower than in fiscal
1995, primarily due to fewer new store openings. The Company
currently anticipates additional capital expenditures in fiscal
1996 of $4.0 million and increased inventory requirements and other
costs of $5.2 million in connection with its fiscal 1996 new store
openings, or $14.6 million less than such amounts incurred in
connection with fiscal 1995 new store openings. The Company will
also continue to require funds to meet its debt service payments,
including a $2.7 million short-term note payable to Wells Fargo
Bank, N. A., due in September 1996. While management currently
expects to repay such loan with proceeds from a proposed sale and
leaseback arrangement of the Company's department store in San Luis
Obispo, California, in the event the proposed transaction is not
finalized or its finalization is delayed, management believes the
Company will have adequate cash flow available under alternative
sources to repay the loan upon its scheduled maturity. (See
"Mortgage and Sale-Leaseback Financings" below). In addition, as
described more fully in Part I, Item III, "Legal Proceedings", the
F&N litigation presently pending against the Company is scheduled
for trial in July 1996. While the Company previously recorded a
reserve for a loss that may result from an unfavorable judgement
or settlement of that litigation, a cash payment in connection with
such a judgement or settlement could take place in fiscal 1996.
Management believes such amounts have been adequately provided for
in the Company's fiscal 1996 plan.
Liquidity Sources. In recent years, the Company's working
capital requirements have been met through a combination of long-term and
short-term debt financing, cash flows provided pursuant
to its receivables securitization program, mortgage financings and
sale-leasebacks of its owned department stores. The Company's
current sources of liquidity, however, are more limited. It is
anticipated that the Company's current liquidity will come
primarily from cash, its revolving lines of credit and its
securitization program. As described below, other sources of
liquidity which were used by the Company in recent years are not
likely to provide the Company with significant working capital
funds. As a result, the Company's ability to take advantage of
growth opportunities will be limited.
Mortgage and Sale-Leaseback Financings. The Company
finalized certain mortgage loans and a sale-leaseback financing of
its properties in fiscal 1995. (See Notes 3 and 6 to the
Consolidated Financial Statements.) Proceeds from such transactions
were used primarily to repay pre-existing loans and to reduce
outstanding borrowings under the Company's line of credit with
Fleet. Management is currently negotiating for the sale and
leaseback of its department store located in San Luis Obispo,
California. Management expects the arrangement to be finalized in
the second quarter of fiscal 1996 and intends to use the $6.9
million expected proceeds from the arrangement to repay the $2.7
million short-term obligation to Wells Fargo, due September 5,
1996, with the remaining $4.2 million available for working capital
purposes. However, there can be no assurance that the arrangement
will be finalized, or that its finalization will not be delayed,
subject to a variety of conditions precedent or other factors.
Assuming such sale-leaseback is completed, all of the Company's
land and buildings will either have been sold or pledged as
collateral for mortgage loans and the Company will have no
additional land or buildings that could be used to raise additional
working capital.
Cash Flows From Securitization Program. The Company's
receivables securitization program provides the Company with an
additional source of working capital financing that is generally
more cost effective than traditional debt financing. (See "Other
Recent Sources of Liquidity" and Note 2 to the Consolidated
Financial Statements"). Management is presently negotiating with
the Bank Hapoalim for the expansion and extension of the previously
issued Variable Base Certificate and related line of credit, and
expects to finalize such negotiations in fiscal 1996. Based on the
present level of receivables and historical trends, management
believes there will be adequate collateral to expand the Variable
Base Certificate by $10.0 million in late fiscal 1996, which would
result in total availability under the line of credit with Bank
Hapoalim of $25.0 million. However, there can be no assurance that
a sufficient level of receivables will be generated or that
Bank Hapoalim will enter into such an expansion or extension.
Revolving Lines of Credit. The Company's primary revolving
line of credit arrangement is with Fleet
and provides for borrowings of up to $66.0 million
through March 1997. Such borrowings are limited to a restrictive
borrowing base equal to 60% of eligible merchandise inventories
during the months of March 1996 through December 1996 (50% during
all other months). Interest under the Fleet line of credit is
charged at a rate equal to LIBOR plus 2.8% through August 9, 1995
and LIBOR plus 3.4% thereafter (9.0% at February 3, 1996). In
addition, as described more fully in Note 3 to the Consolidated
Financial Statements, the arrangement with Fleet contains various
restrictive covenants. Thus, while the maximum amount available for
borrowings under the line of credit was $66.0 million at February
3, 1996, and only $30.2 million was outstanding as of that date,
the Company's ability to continue to borrow under the Fleet
facility depends upon its ability to meet the financial covenants
and the restrictive borrowing base.
The arrangement with Fleet was amended several times during
fiscal 1995 and one additional time in early fiscal 1996, primarily
to increase the Company's borrowing capacity under the arrangement
and to revise certain restrictive covenants that the Company would
have otherwise breached. Increases to the borrowing capacity under
the arrangement were requested by the Company in order to fund
additional inventory purchases and capital requirements that were
incurred in connection with opportunities to open new stores that
were presented to the Company after the fiscal 1995 borrowing
capacity had been established. The Company also required increases
to its borrowing capacity to provide funds to cover operating
losses during the period. Certain of the restrictive covenants
under the arrangement were originally established by Fleet based
on the Company's fiscal 1995 financial plan. The Company revised
its fiscal 1995 plan several times during the year to reflect its
current level of operations and the impact of the new stores added
after its original fiscal 1995 plan had been finalized.
Accordingly, Fleet amended the agreement several times during the
year, and in connection with such amendments, increased the
interest rate charged under the arrangement and charged the Company
additional loan and administrative fees.
Notwithstanding the amendments, the Company was in violation
of four of the covenants applicable to the Fleet arrangement as of
February 3, 1996. (See Note 3 to the Consolidated Financial
Statements). Fleet agreed to forebear such violations as of that
date and to further amend certain of the restrictive covenants for
fiscal 1996. Certain of the restrictive covenants applicable to the
arrangement for fiscal 1996 have been established by Fleet based
on the Company's fiscal 1996 financial plan. (See "Proposed Course
of Action"). Accordingly, the Company's ability to maintain
compliance with such covenants is contingent upon its ability to
meet its 1996 Plan.
The Company believes that it will be able to maintain
compliance with the restrictive covenants in the Fleet arrangement.
However, if the Company is unable to comply or to obtain waivers
or amendments to the agreement in the future, Fleet will have the
ability to deem all outstanding borrowings under the arrangement
as immediately due and payable prior to its maturity on March 30,
1997. Management believes alternative financing sources may be
available to the Company, however, any delay in obtaining such
alternative financing would have a material adverse effect on the
Company.
Proposed Course of Action.
The statements in this section "Proposed Course of Action" and in
the section "Liquidity Needs" above contain forward-looking
statements. Numerous factors could cause actual results to differ
materially from the forward looking statements described. Many of
such factors are beyond the Company's control. Such factors
include, but are not limited to, (i) the Company's ability to
improve performance of existing stores, reduce operating costs,
enhance service charges and other revenues and improve cash flows,
each as described below; (ii) potential negative customer response
to the proposed changes summarized below; (iii) the actual costs
incurred in opening new stores; (iv) the variability of the
Company's results in any period due to the seasonal nature of the
business, the timing and level of the Company's sales and
promotions, the timing of new store openings, the weather and
fashion trends; (v) the overall health of the economy in the
Company's markets, such as levels of employment, consumer
confidence and income and the effect of any downturn in the
California economy or in the specific regions in which the Company
operates; (vi) promotional and pricing programs of competitors;
(vii) the ability of the Company to complete the sale-leaseback of
its San Luis Obispo store; and (viii) the outcome of any Company
litigation.
The Company's 1996 Plan is aimed, among other things, at
improving the Company's liquidity position. The 1996 Plan projects
that the Company will have adequate cash and availability under its
various revolving lines of credit to meet its liquidity needs
through the end of fiscal 1996. The 1996 Plan incorporates a
variety of strategies developed in connection with a recent
operational and strategic review. Such strategies are aimed at
increasing the Company's sales and gross margins, reducing its
operating expenses and enhancing its service charges and other
revenues. Management believes the Company's outlook for fiscal 1996
will largely be dependant upon the Company's ability to achieve the
operating results and level of cash flows projected in that plan.
As of the date of this report, certain of the operational and
stretegic assumptions incorporated in the 1996 Plan, described more
fully below, have already been implemented.
Improved performance of existing stores - Management
believes the Company's performance can be improved by changing its
approach with respect to under-performing stores. Management has
identified two of its department stores that are currently
performing below desired levels and is pursuing a strategy to
modify the operations of those locations in an attempt to minimize
their adverse affect on the Company's overall operating results.
Unfortunately, the opportunities to close these locations are
limited due to certain provisions contained in the related lease
agreements.
Reduce operating costs - In connection with its efforts to
reduce operating costs, the Company benchmarked its operating costs
against certain of its peer group and competitors' operations and
has identified areas in which the Company could potentially reduce
its operating costs without adversely affecting customer service
and sales levels. The primary source of operating cost reductions
are expected to occur in the following areas: (i) personell
reductions through the reduction of selling, buying, and
administrative staff, the restructuring of job assignments and the
elimination of duplicative functions and functions no longer
essential to the core operations of the Company; (ii) the
outsourcing of certain functions where cost benefits and
efficiencies can be attained; (iii) the renegotiation of certain
contracts and agreements; and (iv) the elimination or reduction of
certain discretionary expenses.
Enhance service charges and other revenues - The Company
intends to implement an increase to the finance charge rate
assessed on outstanding customer credit card account balances and
to increase the late charges assessed on delinquent customer
accounts, consistent with rates charged by certain competitors',
by mid-fiscal 1996. (See Part I, Item I," Business -- Credit
Policy").
Improve cash flow - The Company's fiscal 1995 expansion
program included the opening of six new department stores. (See
Part I, Item I, "Business -- Store Expansion and Remodeling"). As
of the date of this report, the Company has opened the one new
store in Reno, Nevada, and the two replacement stores in Fresno and
Modesto, California, contemplated in the Company's 1996 Plan. With
the exception of expenditures related to those new stores, the
Company currently does not anticipate any further new store
openings in fiscal 1996. Additionally, the Company intends to limit
major capital expenditures, maintain tight controls over inventory
levels and substantially reduce other discretionary expenditures
in order to provide increased cash flows for operations. The
Company's cash flow was enhanced during the first quarter of fiscal
1996 by the receipt of $2.8 million in connection with the filing
of certain amended income tax returns.
Management believes the Company's ability to meet its 1996
plan is further enhanced by the acquisition of one of its primary
competitors. Federated Department Stores, Inc. ("Federated")
acquired Broadway Stores, Inc. ("Broadway"), in late fiscal 1995.
Broadway operated eleven stores under Broadway and Weinstocks
nameplates in approximately one-third of the Company's market
areas. Federated has announced that it will permanently close four
of those locations during the first quarter of fiscal 1996 and will
temporarily close three of those locations for remodeling, with
those stores expected to reopen in the third or fourth quarters of
fiscal 1996 under a Macys or Bullocks nameplate. The remaining four
locations were reopened by Federated immediately under a Macys or
Bullocks nameplate. Management believes that while Broadway stores
carried substantially the same merchandise and competed for the
same customer as the Company, Macys/Bullocks department stores
generally carry higher priced merchandise and compete with the
Company to a lesser degree. The Company's stores in the locations
in which Broadway stores are to be permanently or temporarily
closed comprised 34.9% of the Company's fiscal 1995 sales.
Management expects this percentage to increase in fiscal 1996 as
a result of the temporary and permanent store closures.
Other Recent Sources of Liquidity.
Mortgage and Sale-Leaseback Financings. The
Company obtained additional working capital funds in fiscal 1995
through mortgage loans and a sale-leaseback. On October 4, 1995,
the Company finalized three fifteen-year mortgage loans with
Midland Commercial Funding ("Midland"), and on October 10, 1995
finalized a fourth such mortgage loan. The mortgage loans,
collectively the "Midland loans", are collateralized by the land,
buildings and leasehold improvements of four of the Company's
department stores located in Eureka, Antioch, Yuba City and
Palmdale, California. The $20.0 million total proceeds from the
arrangements were used to repay the $9.8 million remaining
outstanding balance of a pre-existing long-term loan with Wells
Fargo, with the remaining $10.2 million used to reduce outstanding
borrowings under the Fleet line of credit and pay certain costs
associated with the transaction. Monthly principal payments on the
mortgage loans are based on twenty-five year amortization schedules
and interest is payable at fixed rates ranging from 9.23% to 9.39%.
The outstanding balance of the Midland loans was $20.0 million at
February 3, 1996.
On June 27, 1995, the Company finalized the sale and
leaseback of the land, building and leasehold improvements
comprising its department store located in Capitola, California.
Proceeds from the arrangement, totaling $11.6 million, were used
to reduce the outstanding balance of the previously described Wells
Fargo long-term note payable by $8.0 million, with the remaining
$3.6 million used to reduce outstanding borrowings under the Fleet
line of credit.
Bank and Other Financings. In addition to the
Fleet facility, the Company also has a revolving line of credit
with Bank Hapoalim that provides for additional borrowings of up
to $15.0 million through March 1997, limited to a restrictive
borrowing base. Interest on outstanding borrowings under the line
of credit is charged at a rate equal to LIBOR plus 1.0% (6.625% at
February 3, 1996). At February 3, 1996, the maximum amount
available for borrowings of $15.0 million was outstanding under the
line of credit with Bank Hapoalim.
The Company also has a long-term financing arrangement with
Heller Financial, Inc. ("Heller"), due January 1, 2002, which bears
interest at a rate of 10.45% and had an outstanding loan balance
of $5.7 million at February 3, 1996. The note with Heller also
contains various restrictive loan covenants. The Company was in
violation of one of those covenants at February 3, 1996. The
Company has obtained a waiver from the lender for the violation as
of that date and the agreement has been amended to avoid expected
future violations. Management believes the Company will be able to
maintain compliance with the applicable covenants, as amended,
throughout fiscal 1996. Accordingly, the related debt is classified
as long-term pursuant to its original terms in the accompanying
financial statements.
The Company's 8.55% Commercial Revenue Bonds were paid upon
their maturity on December 1, 1995 with proceeds from a short-term
note payable to Wells Fargo in the amount of $2.7 million. The note
payable, originally due March 5, 1995, (extended to September 5,
1996), is collateralized by the Company's department store in San
Luis Obispo, California, and bears interest at a rate of 1/4% above
the prime rate of interest through March 5, 1996, increasing to 1
and 1/2% above the prime rate through June 5, 1996 and 2% above the
prime rate of interest, thereafter.
During 1995, the Company also received a total of $1.3
million in connection with two of its fiscal 1995 store openings
for the purpose of financing fixture and equipment expenditures at
those locations. The $1.3 million is to be repaid over ten-year
maturity periods at interest rates ranging from 5.0% to 10.0%. The
outstanding balance of such loans at February 3, 1996 was $1.2
million.
Securitization Program. As described more fully
in Note 3 to the Consolidated Financial Statements, the Company
issued $40.0 million principal amount 7.35% Fixed Base Class A-1
Credit Card Certificates ("Fixed Base Certificates") to third-party
investors in March 1994 under a receivables securitization program.
Interest, earned by the certificateholders on a monthly basis, is
paid through finance charges collected under the program. The
outstanding principal balance of the certificates 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 issuance of the Fixed
Base Certificates was accounted for as a sale for financial
reporting purposes. Accordingly, the $40.0 million of receivables
underlying those certificates and the corresponding obligations are
excluded from the accompanying financial statements. 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.
In September 1994, a Variable Base Class A-2 Credit Card
Certificate ("Variable Base Certificate") in the principal amount
of up to $15.0 million was also issued to Bank Hapoalim as
collateral for the previously described revolving line of credit
financing arrangement with that bank. In addition to the Fixed and
Variable Base Certificate, additional series of certificates may
be issued as a source of additional working capital financing to
the Company. Management is presently contemplating the issuance of
an additional variable base certificate in late fiscal 1996,
however, there can be no assurance that such an issuance will
occur.
Subsequent Events. On March 29, 1996, the Company finalized
an agreement with Broadway Stores, Inc. ("Broadway"), a wholly-owned
subsidiary of Federated Department Stores, Inc.
("Federated"), and Way Modesto Properties, Corp., the landlord,
whereby the Company vacated its present location in the Modesto,
California Vintage Faire Mall and sub-leased Broadway's former
store in that mall for the remaining twelve years, including
renewal periods, of the lease. Pursuant to a letter of intent dated
April 16, 1996, the Company also vacated its present location in
the Fresno Fashion Fair Mall and reopened a new store in that mall
in the former Broadway store location. Management expects to
finalize a twenty-year lease for Fashion Fair location in the near-term.
Lease terms under both of the arrangements are comparable to
other leases of the Company. In connection with the arrangements,
the Company purchased certain of the existing fixtures and
equipment at the Modesto location from Federated for $1.3 million,
and Federated financed the purchase price with a five-year note
payable bearing interest at a rate of 10.0%. The Company expects
Federated to finance the purchase of additional fixtures and
equipment under similar terms in connection with the finalization
of the Fashion Fair arrangement.
Additional Cash Flow and Working Capital Analysis.
Working capital increased to $42.9 million in fiscal 1995
as compared to $37.9 million in fiscal 1994 and $32.1 million in
fiscal 1993. The Company's ratio of current assets to current
liabilities continued to improve, increasing to 1.45:1 at February
3, 1996, as compared to 1.43:1 at January 28, 1995 and 1.30:1 at
January 29, 1994.
Cash flows from operating activities consist primarily of
net income (loss) adjusted for certain non-cash income and expense
items, including, but not limited to, depreciation and
amortization, the provision for uncollectible accounts and changes
in deferred taxes. Net cash used in operating activities was $18.9
million in fiscal 1995. Excluding the payment of certain recurring
expenses related to fiscal 1996 that occured in fiscal 1995 due to
the 53rd week, net cash used in operating activities was $11.3
million in fiscal 1995 as compared to $1.5 million in fiscal 1994,
an increase of $9.8 million. This increase is primarily
attributable to increased inventory requirements associated with
six new stores (including one larger replacement store) opened
since the prior year, less $4.0 million received as incentive to
open one of those new stores (see Note 5 to the Consolidated
Financial Statements) and an increase in amounts due from vendors
and prepayments for certain merchandise. As described more fully
in Note 10 to the Consolidated Financial Statements, net cash used
in operating activities in fiscal 1995 also includes the payment
of $3.0 million into an irrevocable trust in accordance with the
settlement of the previously described stockholder litigation and
amounts paid in connection the settlement of previously outstanding
state income tax matters.
Net cash used in operating activities in fiscal 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 fiscal 1994 is also
attributable to the receipt of opportunistic purchases of
merchandise shortly before year-end. As described more fully in
Note 10 to the Consolidated Financial Statements, net cash used in
and provided by operating activities in fiscal 1994 and 1993 also
reflects amounts paid in connection with the government's
investigation and related stockholder litigation.
Net cash used in investing activities was $1.1 million in
fiscal 1995 as compared to $2.5 million in fiscal 1994, a decrease
of $1.4 million. Net cash used in investing activities in fiscal
1995 includes expenditures for tenant improvements, construction
costs and furniture, fixtures and equipment associated with new and
certain existing store locations, less reimbursements received for
certain of those expenditures and proceeds from the previously
described Capitola store sale and leaseback arrangement. Net cash
used in investing activities in 1994 and 1993 consisted primarily
of expenditures for two new stores opened during each of those
years.
Net cash provided by financing activities was $21.9 million
in fiscal 1995 as compared to $6.0 million in fiscal 1994, an
increase of $15.9 million. Net cash provided by financing
activities in fiscal 1995 consisted primarily of proceeds from the
Company's revolving lines of credit, net of repayments made on its
various credit facilities during the year. The $20.0 million
provided by the Midland financing was fully applied against
previously outstanding obligations. The sale and leaseback
arrangement finalized in fiscal 1995 resulted in an increase to
working capital of $3.6 million. Net cash provided by financing
activities in fiscal 1994 included borrowings under the Company's
lines of credit and was partially offset by the application of the
$40.0 million proceeds received through the issuance of the Fixed
Base Certificates, which was used to repay all outstanding
borrowings under 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 consisted primarily of proceeds from
the Company's revolving line of credit and other long-term
borrowings.
Inflation
Although inflation has not been a material factor to the
Company's operations during the past several years, the Company
does experience some increases in the cost of certain of its
merchandise, salaries, employee benefits and other general and
administrative costs. The Company is generally able to offset these
increase 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 Company's results may also vary from
quarter to quarter as a result of, among other things, the timing
and level of the Company's sales promotions, weather, fashion
trends and the overall health of the economy in the Company's
market areas. Working capital requirements also fluctuate during
the year, increasing substantially prior to the Christmas selling
season when the Company must carry significantly higher inventory
levels.
The following table sets forth unaudited quarterly results
of operations for fiscal 1995 and 1994 (in thousands, except per
share data). (See Note 13 to the Consolidated Financial
Statements.)
<TABLE>
<CAPTION>
1995
Quarter ended April 29 July 29 October 28 February 3
<S> <C> <C> <C> <C>
Net sales $77,934 $91,884 $86,066 $145,157
Gross profit 22,553 27,490 27,432 44,739
Income (loss) before
income tax expense
(benefit) (5,100) (3,155) (5,101) 4,745
Net income (loss) (3,162) (1,955) (3,164) 2,642
Income (loss) per
common share (.30) (.19) (.30) .25
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
_________________________________
</TABLE>
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 27, 1996, to be filed pursuant
to Regulation 14A.
The following table lists the executive officers of the
Company:
Name Age(1) Position
Joseph W. Levy 64 Chairman and Chief
Executive Officer
Stephen J. Furst 53 President, Chief Operating
Officer and Director
Gary L. Gladding 56 Executive Vice President/
General Merchandise
Manager
Alan A. Weinstein 51 Senior Vice President and
Chief Financial Officer
Michael J. Schmidt 54 Senior Vice President/
Director of Stores
__________________________
(1) As of March 31, 1996
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 91 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. From October 1983 through
February 1985, he was Manager of the Gottschalks Fashion Fair
store. Prior to joining the Company, he was General Manager of the
Liberty House store in Fresno from January 1981 to October 1983,
and before 1981, 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 27, 1996, 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 27, 1996, 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 27, 1996, to be filed pursuant to Regulation 14A.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, 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 -- February 3, 1996 and January
28, 1995
Consolidated statements of operations -- Fiscal years ended
February 3, 1996, January 28, 1995 and January 29, 1994
Consolidated statements of stockholders' equity -- Fiscal
years ended February 3, 1996, January 28, 1995 and January
29, 1994
Consolidated statements of cash flows -- Fiscal years ended
February 3, 1996, January 28, 1995 and January 29, 1994
Notes to consolidated financial statements - Three years
ended February 3, 1996
Independent auditors' report
(a)(2) The following financial statement schedule of Gottschalks
Inc. and Subsidiaries is included in Item 14(d):
Schedule II -- 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.
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 1986 Employee Incentive Stock Option Plan with form of
stock option agreement thereunder.(3)(4)
10.3 1986 Employee Nonqualified Stock Option Plan with form of
stock option agreement thereunder.(3)(4)
10.4 Gottschalks Inc. Stock Purchase Plan.(3)(4)
10.5 Wage Continuation Agreement dated November 24, 1980 by and
between E. Gottschalk & Co., Inc. and Joseph W. Levy.
(3)(4)
10.6 Employment Agreement dated June 1, 1987 by and between E.
Gottschalk & Co., Inc. and Michael J. Schmidt.(1)(4)
10.7 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)
10.8 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)
10.9 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)
10.10 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)
10.11 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)
10.12 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)
10.13 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)
10.14 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)
10.15 Receivables Purchase Agreement dated as of March 30, 1994
by and between Gottschalks Credit Receivables Corporation
and Gottschalks Inc.(6)
10.16 Pooling and Servicing Agreement dated as of March 30, 1994
by and among Gottschalks Credit Receivables Corporation,
Gottschalks Inc. and Bankers Trust Company. (6)
10.17 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)
10.18 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)
10.19 Loan and Security Agreement dated March 30, 1994 by and
between Barclays Business Credit, Inc. and Gottschalks
Inc.(6)
10.20 Intercreditor Agreement dated March 30, 1994 by and among
Gottschalks Inc., Barclays Business Credit, Inc. and Wells
Fargo Bank, National Association.(6)
10.21 Assignment and Acceptance by and between Wells Fargo Bank,
National Association and Barclays Business Credit, Inc.(6)
10.22 First Amendment to Loan and Security Agreement dated
May 12, 1994; Second Amendment to Loan and Security Ag reement 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.) (15)
10.23 1994 Amended and Restated Credit Agreement dated as of
March 30, 1994 by and between Gottschalks Inc. and Wells
Fargo Bank, National Association.(6)
10.24 Second Amended and Restated Security Agreement dated as
of August 26, 1993 by and between Gottschalks Inc. and Wells Fargo
Bank, National Association.(10)
10.25 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)
10.26 Waiver Agreement dated November 23, 1994, by and among
Gottschalks Credit Receivables Corporation, Gottschalks
Inc. and Bankers Trust Company.(7)
10.27 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)
10.28 New Term Loan Maturity Date Extension dated November 15, 1994,
by and between Gottschalks Inc. and Wells Fargo Bank, N.A.(7)
10.29 Waiver Agreement dated October 21, 1994, by and between
Gottschalks Inc. and Wells Fargo Bank, N.A.(7)
10.30 Consulting Agreement dated June 1, 1994 by and between
Gottschalks Inc. and Gerald H. Blum.(4)(8)
10.31 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)
10.32 1994 Key Employee Incentive Stock Option Plan.(4)(9)
10.33 1994 Director Nonqualified Stock Option Plan.(4)(9)
10.34 1994 Executive Bonus Plan.(4)
10.35 Promissory Note and Security Agreement dated December 16,
1994 by and between Gottschalks Inc. and Heller Financial,
Inc.(11)
10.36 Waiver Agreement dated May 12, 1995, by and between
Gottschalks Inc. and Shawmut Capital Credit Corporation.
(12)
10.37 Amendment dated July 3, 1995 to 1994 Amended and Restated
Credit Agreement dated as of March 30, 1994, as amended, by
and between Gottschalks Inc. and Wells Fargo Bank, N.A.(13)
10.38 Sixth Amendment to Loan and Security Agreement dated July
31, 1995, by and between Gottschalks Inc. and Shawmut
Capital Corporation.(14)
10.39 Seventh Amendment to Loan and Security Agreement dated
August 9, 1995, by and between Gottschalks Inc. and Shawmut
Capital Corporation.(14)
10.40 Agreement of Sale dated June 27, 1995, by and between
Gottschalks Inc. and Jack Baskin relating to the sale and
leaseback of the Capitola, California property.(14)
10.41 Lease and Agreement dated June 27, 1995, by and between
Jack Baskin and Gottschalks Inc. relating to the sale and
leaseback of the Capitola, California property.(14)
10.42 Eighth Amendment to Loan and Security Agreement dated
October 11, 1995 by and between Gottschalks Inc. and Fleet
Capital Corporation.(15)
10.43 Promissory Notes and Security Agreements dated October 4,
1995 and October 10, 1995 by and between Gottschalks Inc.
and Midland Commercial Funding.(15)
10.44 Forbearance Agreement dated December 11, 1995, by and
between Gottschalks Inc. and Fleet Capital Corporation.(15)
10.45 Promissory Note and Deed of Trust with Assignment of
Rents dated November 20, 1995 by and between Gottschalks Inc. and Wells
Fargo Bank, N. A.
10.46 Note Extension and Modification Agreement dated March 12,
1996, by and between Gottschalks Inc. and Wells Fargo Bank,
N. A.
10.47 Ninth and Tenth Amendments to Loan and Security Agreement
dated January 26, 1996 and March 7, 1996, respectively, by and between
Gottschalks Inc. and Fleet Capital Corporation.
10.48 Waiver Agreement dated April 22, 1996 by and between
Gottschalks Inc. and Heller Financial, Inc.
21. Subsidiaries of the Registrant. (11)
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.
(11) Filed as an exhibit to the Annual Report on Form 10-K for
the year ended January 28, 1995 (File No. 1-09100), and
incorporated herein by reference.
(12) Filed as an exhibit to the Quarterly Report on Form 10-Q
for the quarter ended April 29, 1995 (File No. 1-09100),
and incorporated herein by reference.
(13) Filed as an exhibit to the Current Report on Form 8-K dated
June 27, 1995 (File No. 1-09100), and incorporated herein
by reference.
(14) Filed as an exhibit to the Quarterly Report on Form 10-Q
for the quarter ended July 29, 1995 (File No. 1-09100), and
incorporated herein by reference.
(15) Filed as an exhibit to the Quarterly Report on Form 10-Q
for the quarter ended October 28, 1995 (File No. 1-09100),
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 fiscal 1995.
(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 SCHEDULE
YEAR ENDED FEBRUARY 3, 1996
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 February 3, 1996 and
January 28, 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the
three years in the period ended February 3, 1996. 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 consolidated financial statements present
fairly, in all material respects, the financial position of
Gottschalks Inc. and Subsidiaries as of February 3, 1996 and
January 28, 1995, and the results of their operations and their
cash flows for each of the three years in the period ended February
3, 1996, 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 29, 1996 (April 16, 1996 as to Note 12)
GOTTSCHALKS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
February 3, January 28,
ASSETS 1996 1995
CURRENT ASSETS:
<S> <C> <C>
Cash $ 5,113 $ 3,156
Cash held by GCC Trust 2,280 2,365
Receivables:
Trade accounts, less allowances of
$1,262 in 1995 and $1,297 in 1994 (Note 2) 27,467 27,311
Vendor claims, less allowances of $90
in 1995 and $98 in 1994 5,776 3,125
33,243 30,436
Merchandise inventories 87,507 80,678
Refundable income taxes and
deferred tax assets (Note 7) 1,437 1,565
Other 9,478 8,501
Total current assets 139,058 126,701
PROPERTY AND EQUIPMENT (Notes 4 and 6):
Land and land improvements 16,064 19,178
Buildings and leasehold improvements 43,696 50,223
Furniture, fixtures and equipment 53,443 44,981
Buildings and equipment under capital leases 14,398 14,399
Construction in progress 1,948 845
129,549 129,626
Less accumulated depreciation and amortization 40,299 35,817
89,250 93,809
OTHER ASSETS:
Goodwill, less accumulated amortization
of $1,030 in 1995 and $913 in 1994 1,369 1,485
Other 9,364 11,358
10,733 12,843
$239,041 $233,353
</TABLE>
See notes to consolidated financial statements.
GOTTSCHALKS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
February 3, January 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
CURRENT LIABILITIES:
<S> <C> <C>
Revolving lines of credit (Note 3) $ 45,164 $ 17,844
Bank overdraft 5,096 9,853
Trade accounts payable 22,298 25,179
Accrued expenses 10,633 16,417
Taxes, other than income taxes 2,346 7,487
Accrued payroll and related liabilities 5,112 5,267
Current portion of
long-term obligations (Notes 3 and 4) 2,094 5,154
Short-term obligations (Note 3) 2,743 1,600
Deferred income taxes (Note 7) 668 _______
Total current liabilities 96,154 88,801
LONG-TERM OBLIGATIONS, less current portion
(Notes 3 and 4):
Notes, mortgages and bonds payable 25,654 23,721
Capitalized lease obligations 9,218 9,951
34,872 33,672
DEFERRED INCOME (Note 5) 20,265 16,366
DEFERRED LEASE PAYMENTS AND OTHER (Note 4) 5,902 5,032
DEFERRED INCOME TAXES (Note 7) 3,931 5,905
COMMITMENTS AND CONTINGENCIES (Notes 2, 4, 11 and 12)
STOCKHOLDERS' EQUITY (Notes 3 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 issued
Common stock 104 104
Additional paid-in capital 55,945 56,112
Retained earnings 21,870 27,509
77,919 83,725
Less common stock in treasury at cost,
338 and 22,000 shares (2) (148)
77,917 83,577
$239,041 $233,353
</TABLE>
See notes to consolidated financial statements.
GOTTSCHALKS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except per share data)
1995 1994 1993
<S> <C> <C> <C>
Net sales $401,041 $363,603 $342,417
Service charges and other income 11,663 9,659 8,938
412,704 373,262 351,355
Costs and expenses:
Cost of sales 278,827 247,423 233,715
Selling, general and
administrative expenses
(Notes 4, 6 and 9) 123,100 103,571 103,675
Depreciation and amortization 8,092 5,860 5,877
Interest expense (Note 3) 11,296 10,238 8,524
Provision for unusual items (Note 10) 3,833 3,427
421,315 370,925 355,218
Income (loss) before income tax
expense (benefit) (8,611) 2,337 (3,863)
Income tax expense (benefit)(Note 7) (2,972) 821 (1,190)
Net income (loss) $ (5,639) $ 1,516 $ (2,673)
Net income (loss) per common share $ (.54) $ .15 $ (.26)
</TABLE>
See notes to consolidated financial statements.
GOTTSCHALKS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands of dollars, except share data)
Common Stock Additional
Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
BALANCE,
<C> <C> <C> <C> <C> <C> <C>
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
Net loss (5,639) (5,639)
Net compensation benefit
related to stock option plan (170) (170)
Purchase of 12,500 shares
of treasury stock (94) (94)
Contribution of 34,164
shares of treasury stock
to Retirement Savings Plan 3 240 243
BALANCE,
FEBRUARY 3, 1996 10,416,520 $104 $55,945 $21,870 $ (2) $77,917
</TABLE>
See notes to consolidated financial statements.
GOTTSCHALKS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
1995 1994 1993
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ (5,639) $ 1,516 $ (2,673)
Adjustments:
Depreciation and amortization 8,096 5,849 5,876
Deferred income taxes (1,296) 876 (236)
Deferred lease payments and other 870 734 619
Deferred income (609) (493) (556)
Net compensation (benefit)expense
related to stock option plan (170) 24 (43)
Provision for credit losses 2,754 2,052 2,164
LIFO (benefit) provision (3,202) 969
Equity in the (income) loss of
limited partnership (64) (160) 228
Net (gain) loss from sale of assets (344) 7 37
Loss on securitization and sale of
receivables (Note 2) 305
Stockholder litigation settlement (Note 10)(3,000)
Lease incentive (Note 5) 4,000
Changes in operating assets and liabilities:
Receivables (excluding receivables
sold - Note 2) (5,261) (6,952) (5,248)
Merchandise inventories (6,215) (16,384) (2,030)
Other current and long-term assets (1,711) (35) (3,666)
Other current and long-term liabilities(10,304) 14,326 1,944
Net cash used in operating activities (18,893) (1,537) (2,615)
INVESTING ACTIVITIES:
Purchases of property and equipment,
net of reimbursements received (12,773) (4,539) (5,456)
Proceeds from sale/leaseback arrangements
and other property and equipment sales 11,606 1,881 13
Distribution from limited partnership 86 153
Net cash used in investing activities (1,081) (2,505) (5,443)
FINANCING ACTIVITIES:
Proceeds from revolving lines of credit 533,433 357,238 113,638
Principal payments on revolving lines of
credit (506,113) (389,094) (119,038)
Proceeds from short-term and
long-term obligations 23,993 12,650 15,253
Principal payments on short-term and
long-term obligations (24,710) (16,668) (3,465)
Proceeds from securitization and sale of
receivables (Note 2) 40,000
Changes in bank overdraft (4,757) 4,228 1,774
Changes in cash held by GCC Trust 85 (2,365)
Issuance of common stock pursuant to
stock option plan 94 10
Shares purchased and retired (98) (7)
Net cash provided by financing activities 21,931 5,985 8,165
INCREASE IN CASH 1,957 1,943 107
CASH AT BEGINNING OF YEAR 3,156 1,213 1,106
CASH AT END OF YEAR $ 5,113 $ 3,156 $ 1,213
</TABLE>
See notes to consolidated financial statements.
GOTTSCHALKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING
POLICIES
Gottschalks Inc. is a regional department and specialty
store chain based in Fresno, California, currently
consisting of thirty-four "Gottschalks" department stores and
twenty-five "Village East" specialty stores located primarily in non-major
metropolitan cities throughout California, and in Oregon, Washington and
Nevada. Gottschalks department stores typically offer a wide range of
brand-name and private-label merchandise, including women's, men's,
junior's and children's apparel, cosmetics, home furnishings and other
consumer goods. Village East specialty stores offer apparel for larger
women.
Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and ass umptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
periods. Such estimates
and assumptions are subject to inherent uncertainties which may
result in actual results differing from reported amounts.
Consolidation - The accompanying financial statements
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), (collectively, the "Company"). All
significant intercompany transactions and balances have been
eliminated in consolidation.
Fiscal Year - The Company's fiscal year ends on the
Saturday nearest January 31. Fiscal years 1995, 1994 and
1993 ended on February 3, 1996, January 28, 1995 and
January 29, 1994, respectively. Fiscal year 1995 contained
53 weeks and fiscal years 1994 and 1993 each contained 52
weeks. The Company's fiscal 1995 results of operations were
not materially affected by results applicable to the 53rd
week.
Cash Held by GCC Trust - Cash held by GCC Trust relates to
the receivable securitization program (Note 2) and
includes $2,035,000 and $2,120,000 at February 3, 1996
and January 28, 1995, respectively, designated under the
prepayment option to reduce outstanding borrowings under
the line of credit collateralized by the Variable Base
Certificate subsequent to year end in each of those years.
Cash held by GCC Trust also includes $245,000 at February
3, 1996 and January 28, 1995 for the payment of monthly
interest to the Fixed Base Certificate holders.
Bank Overdraft - Under the Company's cash management
program, checks issued by the Company and not yet presented
for payment frequently result in overdraft balances for
accounting purposes. Such amounts represent interest-free,
short-term borrowings to the Company.
Receivables - Receivables, excluding receivables sold as of
February 3, 1996 and January 28, 1995, 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 card
receivables were $10,937,000 in 1995, $8,904,000 in
1994 and $8,100,000 in 1993.
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 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 February 3, 1996 and January 28, 1995.
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 $652,000 at February 3,
1996 and $724,000 at January 28, 1995 are included in other
current assets. The amortization of new store pre-opening
costs, totaling $2,524,000, $438,000 and $429,000 in 1995,
1994 and 1993, is included in depreciation and amortization
in the accompanying statements of operations.
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. Reimbursements
received for certain capital expenditures are reported as
reductions to the original cost of the related assets.
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
accompanying statements of operations.
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
February 3, 1996 and January 28, 1995, the investment was
$1,207,000 and $1,164,000, respectively, and prepaid rent,
net of accumulated amortization, was $2,507,000 and
$2,756,000, respectively. Such amounts are included in
other long-term assets. The Company's equity in the income
(loss) of the partnership, totaling $64,000 in 1995,
$160,000 in 1994 and ($228,000) in 1993, is 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. The Company periodically
analyzes the value of net assets acquired to determine whether
any impairment in the value of such
assets has occurred. The primary indicators of
recoverability used by the Company are current or
forecasted profitability of the related acquired assets as
compared to their carrying values.
Deferred Income - Deferred income consists primarily of
donated land, cash received as incentive to construct new
stores and cash received as an incentive to enter into a
new lease arrangement. Land contributed to the Company is
included in land and recorded at appraised fair market
values. Except as described at Note 5, donated land and
cash received as incentive to construct new stores is
recorded as deferred income and amortized to operations
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.
Leased Department Sales - Net sales include leased
department sales of $29,766,000, $25,985,000 and
$25,324,000 in 1995, 1994 and 1993, respectively. Cost of
sales include related costs of $25,494,000, $22,326,000 and
$21,825,000 in 1995, 1994 and 1993, 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 10,416,520, 10,413,339
and 10,377,201 in 1995, 1994 and 1993, respectively. The
effect of common stock equivalents under the stock option
plans were antidilutive in 1995, 1994 and 1993, and
therefore not included.
Non-Cash Transactions - The Company entered into a capital
lease obligation of $683,000 in 1994 for leased equipment.
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 cash held by GCC
Trust 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
or variable interest rates underlying those instruments.
The following methods and assumptions were used to estimate
the fair value for each remaining class of financial
instruments:
Long-term Obligations - The fair values of the Company's long-term
obligations are estimated using discounted cash flow analysis, based on
the Company's current incremental borrowing rates
for similar types of borrowing arrangements. The
aggregate estimated fair value of such obligations
with an aggregate carrying value of $27,015,000 at
February 3, 1996 is $28,186,000.
Off-Balance Sheet Financial Instruments - The
Company's off-balance sheet financial
instruments consist primarily of the Fixed Base
Certificates (Note 2). The aggregate estimated fair
value of the Fixed Base Certificates, based on
similar issues of certificates at current rates for
the same remaining maturities, with an aggregate value of
$40,000,000 at February 3, 1996 is
$38,606,000.
Recently Issued Accounting Standards - Statement of Financial
Accounting Standard ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of"
was recently issued and is effective for fiscal
years beginning after December 15, 1995. The adoption
of the standard is not expected to materially impact
the Company's financial position or its results of
operations. SFAS No. 123, "Accounting for Stock Based
Compensation" is also effective for fiscal years
beginning after December 15, 1995. As permitted by
the statement, the Company intends to continue to
measure compensation cost for its stock option plans
in accordance with Accounting Principals Board
Opinion No. 25, "Accounting for Stock Issued to Employees."
Reclassifications - Certain amounts in the accompanying
1994 and 1993 consolidated financial statements have been
reclassified to conform with the 1995 presentation.
2. SECURITIZATION AND SALE OF RECEIVABLES
The Company entered into a five-and-a-half-year receivables
securitization program on March 30, 1994. In
connection with the program, all of the Company's
accounts receivable arising under its private label
customer credit cards as of March 30, 1994, in addition to
all newly-generated receivables during the period
subsequent to March 30, 1994 and through August 31, 1998,
together with rights to all collections and recoveries on
such receivables, were sold, without recourse, to a wholly-owned
subsidiary, Gottschalks Credit Receivables
Corporation ("GCRC") and certain of those receivables were
subsequently conveyed to a trust, Gottschalks Credit Card
Master Trust ("GCC Trust"), to be used as collateral for
securities issued to investors. The Company has continued
to service and administer the receivables in return for a
monthly servicing fee.
On March 30, 1994, GCC Trust sold, at par value, fractional
undivided ownership interests in certain of the receivables
held as of that date 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. Interest, earned by the certificate holders on
a monthly basis, is paid with a portion of finance charges
collected during the period. The outstanding principal
balance of the certificates is to be repaid in equal
monthly installments commencing September 15, 1998 and
through September 15, 1999, through the application of the
principal portion of credit card collections during that
period. The issuance of the Fixed Base Certificates has
been accounted for as a sale for financial reporting
purposes. Accordingly, the $40,000,000 of receivables
underlying the Fixed Base Certificates and the
corresponding debt obligations have been excluded from
amounts reported in the accompanying financial statements.
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 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 1994 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.
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
to Bank Hapoalim. The Variable Base Certificate,
representing a fractional undivided ownership interest in
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 3). The Variable Base Certificate contains
a prepayment option which enables the Company, at any time
within three days notice, to prepay the full amount, or a
portion of outstanding borrowings under the line of credit
collateralized by the Variable Base Certificate.
Accordingly, the issuance of the Variable Base Certificate
was accounted for as a financing in the accompanying
financial statements and the receivables underlying the
Variable Base Certificate, totaling $17,857,000 at February
3, 1996 and January 28, 1995, are included in receivables
reported in the accompanying financial statements.
Receivables reported in the accompanying financial
statements also include GCRC's retained interest in
receivables sold on March 30, 1994, represented by a
Subordinated Certificate and an Exchangeable Certificate
issued to GCRC by GCC Trust on that date. The outstanding
principal balance of such certificates totaled $8,035,000
as of February 3, 1996 and $7,888,000 as of January 28,
1995. Receivables also include accrued finance charges on
all receivables, including receivables sold, and
receivables that did not meet certain eligibility
requirements of the program, totaling $2,837,000 at
February 3, 1996 and $2,863,000 at January 28, 1995.
Under the program, the Company is required, among other things,
to maintain certain portfolio performance standards which include the
maintenance of a minimum portfolio yield, maximum levels of delinquencies
and write-offs of customer credit card receivables and minimum levels of
credit card collection rates. As of February 3, 1996, the Company was
in compliance with all applicable requirements of the program. 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 February 3, 1996, no such issuance has
occurred.
3. DEBT OBLIGATIONS:
Revolving Lines of Credit -
The Company's primary revolving line of credit arrangement
is with Fleet Capital Corporation ("Fleet" - formerly
Shawmut Capital Corporation) and provides for
borrowings of up to $66,000,000 through March 30, 1997.
Such borrowings are limited to a restrictive borrowing
base equal to 60% of eligible merchandise inventories
during the months of March 1996 through December 1996 (50%
in all other months). During fiscal 1995, interest on
outstanding borrowings was charged at a rate of LIBOR, as
determined by the bank, plus 2.8% through August 9, 1995
and LIBOR plus 3.4% thereafter (9.0% at February 3, 1996).
The maximum amount available for borrowings under the line
of credit was $66,000,000 at February 3, 1996, of which
$30,200,000 was outstanding as of that date.
The Company's arrangement with Fleet contains 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 arrangement provides for the maintenance
of minimum adjusted earnings from operations and
interest earned ratios and minimum inventory and payables
turnover rates.
The arrangement with Fleet was amended numerous times
during fiscal 1995 and one additional time in early
fiscal 1996, primarily to increase the Company's
borrowing capacity under the arrangement and to revise
certain restrictive covenants that would have otherwise
breached. Increases to the borrowing capacity under the
arrangement were requested by the Company in order to fund
additional inventory purchases and capital requirements
that were incurred in connection with opportunities to open
new stores that were presented to the Company after the
fiscal 1995 borrowing capacity had been established. The
Company also required increases to its borrowing capacity
to provide funds to cover operating losses during the
period. Certain of the restrictive covenants under the
arrangement were originally established by Fleet based on the
Company's fiscal 1995 financial plan. The Company
revised its fiscal 1995 plan several times during the
year to reflect its current level of operations and the
impact of the new stores added after its original
fiscal 1995 plan had been finalized. Accordingly, Fleet
amended the agreement several times during the year and in
connection with such amendments, increased the interest
rate charged under the arrangement and charged the Company
additional loan and administrative fees.
Notwithstanding the amendments, the Company was in
violation of four of the covenants applicable to the
Fleet arrangement as of February 3, 1996, including
the maintenance of minimum monthly and annual adjusted
earnings from operations levels, the minimum interest
earned ratio and the minimum debt coverage ratio. Fleet
agreed to forebear such violations as of that date and to
further amend certain of the restrictive covenants for
fiscal 1996. Certain of the restrictive covenants
applicable to the arrangement for fiscal 1996 have been
established by Fleet based on the Company's fiscal 1996 financial
plan (the "1996 Plan"). The 1996 Plan includes various initiatives
aimed at improving the Company's operating results. Accomplishing
these objectives is subject to a number of risks and uncertainties,
including management's ability to execute the 1996 Plan, the accuracy
of various assumptions contained in the 1996 Plan, and the impact
of external factors including economic conditions in the regions in
which the Company operates, competitive pressures and changing
consumer preferences.
The Company believes that it will be able to maintain compliance
with the restrictive covenants in the Fleet arrangement and that
the Company will have sufficient liquidity throughout 1996. However,
if the Company is
unable to comply or to obtain waivers or amendments to
the agreement in the future, Fleet will have the
ability to deem all outstanding borrowings under the
arrangement as immediately due and payable prior to its
maturity on March 30, 1997. Management believes alternative
financing sources may be available to the Company, however,
any delay in obtaining such alternative financing would
have a material adverse effect on the Company.
The Company also has a revolving line of credit arrangement
with Bank Hapoalim (Note 2) which provides for additional
borrowings of up to $15,000,000 through March 30, 1997.
Borrowings are limited to a percentage of the outstanding
principal balance of receivables underlying the Variable
Base Certificate and therefore, the Company's borrowing
capacity under the line of credit with Bank Hapoalim is
subject to 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% (6.625% at February 3,
1996). At February 3, 1996, the maximum amount available
for borrowings of $15,000,000 was outstanding under the
line of credit with Bank Hapoalim.
Short-Term and Long-Term Obligations -
<TABLE>
<CAPTION>
Notes, mortgages and bonds payable consist of the
following:
February 3, January 28,
(In thousands of dollars) 1996 1995
<S> <C> <C>
Mortgage loans payable to financial
institution, payable in monthly
principal installments of $173
including interest at 9.23% and
9.39%, principal due and
payable October 1, 2010 and
November 1, 2010; collateralized
by certain real property, assets
and certain property and equipment $19,953
Note payable to bank, payable in
monthly installments of $193
including interest at 10 3/4%,
principal due and payable
June 30, 1996 (paid in October 1995);
collateralized by certain real
property, assets and certain
property and equipment $18,200
Mortgage loan payable to financial
institution, payable in monthly
principal installments of $79 plus
interest at 10.45%, principal due
and payable January 1, 2002;
collateralized by certain real
property, assets and certain property
and equipment 5,700 6,650
Commercial Revenue Bonds, payable
in monthly installments of $57
including interest at 8.55%,
paid December 1, 1995;
collateralized by land and
building 3,055
Fixture loans and other 1,362 278
27,015 28,183
Less current portion 1,361 4,462
$25,654 $23,721
</TABLE>
The note payable to Wells Fargo Bank, N. A., ("Wells
Fargo") with an outstanding balance of $18,200,000 at
January 28, 1995, was repaid in fiscal 1995, prior to
its maturity, with a portion of proceeds from the sale
and leaseback arrangement entered into in June 1995 (Note
6) and the mortgage loans finalized in October 1995, in
addition to scheduled principal reductions during the
period.
In October 1995 the Company entered into four fifteen-year mortgage
loans with Midland Commercial Funding
("Midland"). The $20,000,000 total proceeds from the
arrangements were used to repay the $9,800,000 remaining
balance of the previously described note payable to Wells
Fargo, with the remaining proceeds used to reduce
outstanding borrowings under the Fleet line of credit and
pay certain costs associated with the transaction.
The Company repaid the Commercial Revenue Bonds upon their
maturity on December 1, 1995 with proceeds from a
short-term loan extended by Wells Fargo. The short-term
loan, with an outstanding balance of $2,743,000 at
February 3, 1996, was originally due March 5, 1996
(extended to September 5, 1996), bears interest at a rate
of 1/4% above the prime rate of interest through March 5,
1996, (increasing to 1 and 1/2% above the prime rate of
interest through June 5, 1996 and to 2% above the prime
rate of interest, thereafter), and is collateralized by one
of the Company's department store locations. The short-term
loan with an outstanding balance of $1,600,000 at January
28, 1995 represented a bridge loan financing provided by
Wells Fargo and was repaid in full, prior to its due date,
in March 1995.
The Company received a total of $1,250,000 in connection
with two of its fiscal 1995 store openings for the purpose
of financing fixture and equipment expenditures at those
locations. The loans, with outstanding balances
totaling $1,215,000 at February 3, 1996, are to be
repaid over ten-year maturity periods and bear interest
at rates ranging from 5.0% to 10.0% over that period.
The scheduled annual principal maturities on all notes
payable and mortgage loans are $1,361,000, $1,241,000,
$1,300,000, $1,373,000 and $1,408,000 for 1996
through 2000, respectively. Debt issuance costs related to the
Company's various financing arrangements are included in other current and
long-term assets and are 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 $1,995,000 at February 3, 1996 and $1,757,000 at January
28, 1995.
Interest paid, net of amounts capitalized, was $10,927,000,
$8,608,000 and $9,197,000 in 1995, 1994 and 1993,
respectively. Capitalized interest expense was $278,000,
$68,000, $46,000 in 1995, 1994 and 1993, respectively. The
weighted-average interest rate charged on the Company's various
revolving line of credit arrangements was 8.75% in 1995, 7.13% in 1994
and 6.5% in 1993.
One of the Company's long-term financing arrangements also
includes various restrictive covenants. The Company
was in violation of one of those covenants at February
3, 1996 pertaining to the maintenance of a minimum
ratio of EBITDA (net income before interest, taxes,
depreciation and amortization) to interest expense. The
Company has obtained a waiver from the lender for the
violation as of that date and the applicable agreement has
been amended to avoid expected future violations.
Management believes the Company will be able to maintain
compliance with the applicable covenants, as amended,
throughout fiscal 1996. Accordingly, the related debt is
classified as long-term pursuant to its original terms in
the accompanying financial statements.
4. 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 totaled $5,584,000
at February 3, 1996 and $4,688,000 at January 28, 1995.
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 February 3, 1996:
<TABLE>
<CAPTION>
Capital Leases Operating
(In thousands of dollars) Buildings Equipment Leases
<C> <C> <C> <C>
1996 $ 1,430 $273 $ 14,166
1997 1,430 204 13,770
1998 1,430 12,357
1999 1,430 13,042
2000 1,430 11,633
Thereafter 10,862 127,051
Total minimum
lease payments 18,012 477 $192,019
Amount representing
interest (8,486) ( 52)
Present value of
minimum lease
payments 9,526 425
Less current portion (502) (231)
$ 9,024 $194
Rental expense consists of the following:
(In thousands of dollars) 1995 1994 1993
Operating leases:
Buildings:
Minimum rentals $ 9,796 $ 7,804 $ 7,472
Contingent rentals 1,969 1,142 1,118
Fixtures and equipment 4,679 3,177 2,893
16,444 12,123 11,483
Contingent rentals on
capital leases 346 605 581
$16,790 $12,728 $12,064
</TABLE>
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 February 3, 1996.
5. LEASE INCENTIVE
The Company received $4,000,000 in 1995 as an incentive
to enter into a lease in connection with one of the fiscal
1995 new store openings. The arrangement provides that in the
event gross sales at that location are below a minimum
specified amount as of the end of the fifth year of the
lease, either the Company or the lessor may elect to
terminate the lease at that time. The Company has a further
right to terminate the lease after the tenth year of the lease
if gross sales are below a minimum specified amount. If
either party elected to terminate the lease at the end of the
fifth year, the Company would be required to repay the
$4,000,000 to the lessor. The $4,000,000 received has been
deferred for financial reporting
purposes. The Company commenced amortizing the lease
incentive on a straight-line basis over the ten-year minimum
lease period upon reaching the minimum specified sales amount
in the first year of the lease. Management believes the
likelihood the lease will be terminated by either party after
the fifth year of the lease is remote.
6. SALE AND LEASEBACK ARRANGEMENT
On June 27, 1995, the Company sold the land, building and
leasehold improvements comprising its department store in
Capitola, California and subsequently leased the
department store back under a twenty-year lease with four
five-year renewal options. The lease has been accounted for
as an operating lease for financial reporting purposes. The
$11,600,000 proceeds received from the sale were used to
reduce the outstanding balance of the Company's long-term
note payable to Wells Fargo by $8,000,000 (Note 3), with the remaining
$3,600,000 used to reduce outstanding
borrowings under the Company's line of credit arrangement with
Fleet and pay certain costs associated with the transaction.
The gain associated with the sale, totaling $508,000, has
been deferred for financial reporting purposes and is being amortized
on a straight-line basis over the twenty-year
lease term.
7. INCOME TAXES
<TABLE>
<CAPTION>
The components of income tax expense (benefit) are as follows:
(In thousands of dollars) 1995 1994 1993
Current:
<S> <C> <C> <C>
Federal $(1,678) $ (19) $ (955)
State 2 (36) 1
(1,676) (55) (954)
Deferred:
Federal (857) 555 (130)
State (439) 321 (106)
(1,296) 876 (236)
$(2,972) $ 821 $(1,190)
</TABLE>
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:
<TABLE>
<CAPTION>
(In thousands of dollars) 1995 1994 1993
Net operating loss
<S> <C> <C> <C>
carryforwards $ (516) $ 572 $(2,532)
Accrued litigation costs 1,269 (766) (984)
General business credit
carryforwards 222 (748) (439)
LIFO inventory reserve (44) 792 195
Accounting for leases (246) 378 207
Store pre-opening costs (31) 300 (92)
Deferred income (1,517) 200 635
Depreciation (81) 179 683
Workers' compensation (463) 104 788
State income taxes 123 (88) 474
Accrued employee benefits (87) 347
Alternative minimum tax
credit carryforwards 56 (30) 660
Other items, net (68) 70 (178)
$(1,296) $ 876 $ (236)
</TABLE>
The principal components of deferred tax assets and liabilities
(in thousands of dollars) are as follows:
<TABLE>
<CAPTION>
February 3, January 28,
1996 1995
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
Current:
Accrued litigation
<S> <C> <C> <C> <C>
costs $ 1,461 $ 2,730
Vacation and health
claims 588 880
Credit losses 546 562
Accrued employee
benefits 260 260
State income taxes 174 296
LIFO inventory reserve $ (2,548) $ (2,592)
Workers' compensation 235 (228)
Supplies inventory (1,044) (872)
Other items, net 562 (902) 291 (1,317)
3,826 (4,494) 5,019 (5,009)
Long-Term:
Net operating loss
carryforwards 4,327 3,811
General business
credits 1,768 1,989
Alternative minimum
tax 597 654
Depreciation expense (8,074) (8,155)
Accounting for leases 811 (3,481) 558 (3,473)
Deferred income 2,122 (1,550) (1,335)
Installment sales (186) (521)
Other items, net 726 (991) 665 (98)
10,351 (14,282) 7,677 (13,582)
$14,177 $(18,776) $12,696 $(18,591)
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory rate (35.0%) 35.0% (35.0)%
Nondeductible penalties .3 3.7
Adjustments to previously
filed amended returns 7.3
Amortization of goodwill .5 1.7 1.0
Targeted jobs tax credit .5 (12.5)
State income taxes,
net of federal income
tax benefit (2.7) 7.3 (2.0)
Other items, net 1.9 (3.7) 1.5
Effective rate (34.5)% 35.1% (30.8)%
</TABLE>
The Company received income tax refunds, net of payments,
of $1,522,000 and $1,670,000 in 1995 and 1994. Income tax
refunds receivable were $1,437,000 at February 3, 1996 and
$1,555,000 at January 28, 1995. At February 3, 1996, the
Company has net operating loss carryforwards of $9,992,000
which expire in the years 2009 and 2010, and general
business credits of $897,000 which expire in the years 2006
through 2011. The Company also has alternative minimum tax
credits of $465,000 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
The Company's stock option plans consist of the following:
The 1986 Plans:
The 1986 Employee Incentive Stock Option 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 1986 ISO Plan were to have
been exercised within five years of the date of the grant.
As of February 3, 1996, all unexercised options under the
1986 ISO Plan have expired.
The 1986 Employee Nonqualified Stock Option Plan (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 (benefit) related to this plan of
($170,000), $24,000 and ($43,000) in 1995, 1994 and 1993,
respectively. The benefits relate to the reversal of
previously recognized compensation expense upon the
forfeiture or expiration of unexercised options.
The 1994 Plans:
The 1994 Key Employee Incentive Stock Option 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 Stock Option Plan (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:
<TABLE>
<CAPTION>
1986 1986
1986 Plans: Nonqualified Plan ISO Plan
Shares Option Price Shares Option Price
Outstanding at
<S> <C> <C> <C> <C> <C> <C>
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
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
Cancelled (119,500) $14.00 (40,246) $10.73
Outstanding at
February 3, 1996 40,000 $ 9.88 ---
Balances as of
February 3, 1996:
Exercisable 30,000 $ 9.88 ---
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
Granted 28,000 $ 6.63
Cancelled (32,000) $ 9.88
Outstanding at
February 3, 1996 440,000 $6.63 to $10.87 20,000 $ 9.75
Balances as of
February 3, 1996:
Exercisable 103,000 $9.88 to $10.87 5,000 $ 9.75
Available for
Future Grants 60,000 30,000
</TABLE>
9. 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 currently elect to
have up to 15% 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 $500,000, $250,000 and
$271,000 in expense representing the Company's annual
discretionary contribution to the Plan in 1995, 1994 and
1993, respectively.
A Voluntary Employee Beneficiary Association (VEBA) trust
has been established by the Company for the purpose of
funding employee vacation benefits.
10. PROVISION FOR UNUSUAL ITEMS
As described more fully in the Company's 1994 Annual Report
on Form 10-K, the Company was the subject of a government
investigation related to an employee benefit plan
deduction (the "Income Tax Deduction") on its 1985 federal
income tax return. 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 income tax
return was disallowed. Such deduction was, however, allowed
in subsequent years. In connection with the agreement, the
Company paid a federal income tax deficiency, interest and
penalties totaling $2,282,000 in 1994. The State of
California also disallowed the Income Tax Deduction on the
Company's 1985 state income tax return, however did allow the
deduction in subsequent years. The Company paid a total of
$452,000 to the State of California in 1995 in settlement of the
state income tax deficiency, interest and penalties arising
out of such Income Tax Deduction. The estimated tax deficiencies
and penalties paid by the Company related to these matters were
substantially accrued by the Company in fiscal 1992. The
Company did, however, incur additional interest, legal and
accounting fees and other costs related to these matters and
such amounts are included in the provision for unusual items
in the accompanying 1994 and 1993 statements of operations.
The Company was also party to three civil stockholder lawsuits
related to the Income Tax Deduction and
other matters. The Company reached an agreement to settle
all aspects of those lawsuits in August 1994, and included in
unusual items in the Company's 1994 results of operations
is a provision for $3,500,000, representing the cost to settle
the lawsuits and related legal fees and other costs. 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 provision for unusual items included in the Company's
consolidated statements of operations, totaling $3,833,000
in 1994 and $3,427,000 in 1993, represents total costs,
including legal and accounting fees and other costs, incurred
with respect to the previously described matters. No costs in
excess of previously accrued amounts have been incurred by
the Company in 1995.
11. COMMITMENTS AND CONTINGENCIES
The Company is party to a lawsuit filed in 1992 by F&N
Acquisition Corporation ("F&N") under which F&N originally
claimed 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
claimed unspecified damages for its rejection of the next
best offer to purchase the assignment of the lease. In
1992, F&N received 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 judgement was reversed in 1994,
however, and remanded to the United States District Court
for the Western District of Washington for further
proceedings. Management's estimate of amounts that may
ultimately be payable to F&N were previously accrued in
fiscal 1992. An amendment to the original breach of
contract claim contained in the F&N lawsuit was filed on
January 29, 1996 alleging, among other things, that the
Company breached the contract by deliberately delaying
its performance. In addition to breach by intentional
delay and impossibility, the plaintiffs have claimed fraud
and negligent misrepresentations by executives of the
Company.
In connection with the F&N lawsuit, an additional complaint
was filed against the Company by Sabey Corporation
("Sabey"), the owner of the mall in which the Frederick and
Nelson store was located and the F&N and Sabey lawsuits were
combined in May 1995. The F&N and Sabey lawsuits are currently
scheduled for trial in July 1996. Management is continuing to
vigorously defend the lawsuits and does not believe that any
additional costs that may be incurred in connection with the
lawsuits, as combined, will be material to the operating
results of the Company.
In addition to the matters described above, 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.
The Company arranges for the issue of letters of credit in
the ordinary course of business pursuant to certain factor and
vendor contracts. As of February 3, 1996, the Company had
outstanding letters of credit amounting to $4,200,000.
Management believes the likelihood of non-performance under
such contracts is remote.
The Company opened one new department store and two new
department stores as replacements to existing stores in
early fiscal 1996. (See Note 12). The estimated cost to open the
new stores, net of amounts to be contributed by mall owners or
other third parties, is $3,978,000.
12. SUBSEQUENT EVENTS
On March 29, 1996, the Company finalized an agreement with
Broadway Stores, Inc. ("Broadway"), a wholly-owned
subsidiary of Federated Department Stores, Inc. ("Federated"),
and the landlord, whereby the Company vacated its present
location in the Modesto, California Vintage Faire Mall and
sub-leased Broadway's former store in that mall for the remaining
twelve years, including renewal periods, of the lease.
Pursuant to a letter of intent with Broadway and the landlord
dated April 16, 1996, the Company also vacated its present
location in the Fresno Fashion Fair Mall and reopened a new
store in that mall in the former Broadway store location.
Management expects to finalize a twenty-year lease for the
Fashion Fair location in the near-term. Lease terms under
both of the arrangements are comparable to other leases of the
Company.
In connection with the arrangements, the Company purchased
certain of the existing fixtures and equipment at the
Modesto location from Federated for $1.3 million, and
Federated financed the purchase price with a five-year note
payable bearing interest at a rate of 10.0%. The Company
expects Federated to finance the purchase of additional
fixtures and equipment under similar terms in connection with
the finalization of the Fashion Fair arrangement. Upon the
finalization of the arrangements, the Company expects the
aggregate estimated fair values of the assets acquired to
be less than the aggregate purchase price, and that the
resulting goodwill will be amortized over the minimum lease
periods of the respective leases.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly
results of operations for 1995 and 1994 (in thousands,
except per share data):
<TABLE>
<CAPTION>
1995
Quarter Ended April 29 July 29 October 28 February 3
<S> <C> <C> <C> <C>
Net sales $77,934 $91,884 $86,066 $145,157
Gross profit 22,553 27,490 27,432 44,739
Income (loss)
before income
tax expense
(benefit) (5,100) (3,155) (5,101) 4,745
Net income (loss) (3,162) (1,955) (3,164) 2,642
Net income (loss)
per common share (.30) (.19) (.30) .25
</TABLE>
<TABLE>
<CAPTION>
1994
Quarter Ended April 30 July 30 October 29 January 28
<S> <C> <C> <C> <C>
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
</TABLE>
The Company's quarterly results of operations for the three
month period ended February 3, 1996 includes an adjustment
to the inventory shrinkage reserve resulting in an increase
to the gross margin of $634,000.
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 reduction to previously established workers'
compensation reserves of $588,000.
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
GOTTSCHALKS INC. AND SUBSIDIARIES
_________________________________________________________________________
COL. A COL. B COL. C COL. D COL. E COL. F
ADDITIONS
Balance at Charged to Charged to Balance at
Beginning Costs and Other Accounts Deductions End of
DESCRIPTION of Period Expenses Describe Describe Period
<S> <C> <C> <C> <C>
Year ended February 3, 1996:
Deducted from asset
accounts:
Allowance for doubtful
accounts $1,297,231 $2,462,504 (1) $2,497,752(2) $1,261,983
Allowance for vendor
claims
receivable... $ 98,000 $ (8,000)(4) $ 90,000
Allowance for notes
receivable....$ 150,000 $ 132,767 (3) $ 282,767
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)(4) $ 98,000
Allowance for notes
receivable....$ 50,000 $ 100,000 (3) $ 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)(4) $ 300,000
Allowance for notes
receivable....$ 50,000 $ 50,000
</TABLE>
Notes:
(1) Provision for loss on credit sales.
(2) Uncollectible accounts written off, net of recoveries.
(3) Provision for uncollectible portion of note receivable.
(4) 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: May 3, 1996 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) May 3, 1996
Joseph W. Levy
Vice Chairman of
s/Gerald H. Blum the Board May 3, 1996
Gerald H. Blum
President, Chief
s/Stephen J. Furst Operating Officer May 3, 1996
Stephen J. Furst and Director
Senior Vice President
and Chief Financial
s/Alan A. Weinstein Officer (principal May 3, 1996
Alan A. Weinstein financial and
accounting officer)
s/O. James Woodward III Director May 3, 1996
O. James Woodward III
s/Bret W. Levy Director May 3, 1996
Bret W. Levy
s/Sharon Levy Director May 3, 1996
Sharon Levy
s/Joseph J. Penbera Director May 3, 1996
Joseph J. Penbera
s/Fred Ruiz Director May 3, 1996
Fred Ruiz
s/Max Gutmann Director May 3, 1996
Max Gutmann
GOTTSCHALKS INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting
An annual meeting of the stockholders, for the election of
directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the
meeting, shall be held each year at such place on such date, and
at such time as the Board of Directors shall each year fix.
Section 2. Special Meetings
Special meetings of the stockholders, for any purpose or
purposes prescribed in the notice of the meeting, may be called by
the Board of directors or the chief executive officer and shall be
held at such place, on such date, and at such time as they or he
shall fix.
Section 3. Notice of Meetings
Written notice of the place, date, and time of all meetings
of the stockholders shall be given, not less than then nor more
than sixty days before the date on which the meeting is to be held,
to each stockholder entitled to vote at such meeting, except as
otherwise provided herein or required by law )meaning, here and
hereinafter, as required from time to time by the General
Corporation Law of the State of Delaware or the Certificate of
Incorporation).
When a meeting is adjourned to another place, date or time,
written notice need not be given of the adjourned meeting if the
place, date, and time thereof are announced at the meeting at which
the adjournment is taken; provided, however, that if the date for
which the meeting was originally noticed, or if a new record date
is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity
herewith. At nay adjourned meeting, any business may be transacted
which might have been transacted at the original meeting.
At any meeting of stockholders, only such business shall be
conducted as shall have been brought before the meeting (a) by or
at the direction of the Board, (b) in accordance with Rule 14a-8
under the Securities Exchange Act of 1934, or (c) by a stockholder
of record entitled to vote at such meeting who complies with the
notice procedures set forth in this paragraph. For business to be
properly brought before a meeting by a stockholder, the stockholder
shall have given timely notice thereof in writing to the Secretary
of the Corporation. To be timely, such notice shall be delivered
to or mailed and received at the principal executive office of the
Corporation not less than thirty (30) days nor more than ninety
(90) days prior to the meeting; provided, however, that in the
event that less than forty (40) days' notice of the date of the
meeting is given by the Corporation, notice by the stockholder to
be timely must be so received not later than the close of business
on the tenth day following the day on which such notice of the date
of the meeting was mailed or otherwise given. Such stockholder's
notice to the Secretary of the Corporation shall set forth as to
each matter the stockholder proposes to bring before the meeting
(a) a brief description of the business desired to be brought
before the meeting, and in the event that such business includes
a proposal to amend either the Certificate of Incorporation or the
Bylaws of the Corporation, the language of the proposed amendment,
(b) the name and address of the stockholder proposing such
business, (c) the class and number of shares of stock of the
Corporation which are owned by such stockholder and (d) any
material personal interest of such stockholder in such business.
If notice has not been given pursuant to this paragraph, the
chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that the proposed business was not properly
brought before the meeting, and such business may not be transacted
at the meeting. The foregoing provisions of this paragraph do not
relieve any stockholder of any obligation to comply with all
applicable requirements of the Securities Exchange Act of 1934 and
rules and regulations promulgated thereunder.
At any meeting of stockholders, a person may be a candidate
for election to the Board only if such person is nominated (a) by
or at the direction of the Board, (b) by any nominating committee
or person appointed by the Board or (c) by a stockholder of record
entitled to vote at such meeting who complies with the notice
procedures set forth in this paragraph. To properly nominate a
candidate to be a director, a stockholder shall give timely notice
of such nomination in writing to the Secretary of the Corporation.
To be timely, such notice shall be delivered to or mailed and
received at the principal executive office of the Corporation not
less than thirty (30) days nor more than ninety (90) days prior to
the meeting; provided, however, that in the event that less than
forty (40) days' notice of the date of the meeting is given by the
Corporation, notice of such nomination to be timely must be so
received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting
was mailed or otherwise given. Such stockholder's notice to the
Secretary of the Corporation shall set forth (a) as to each person
whom the stockholder proposes to nominate (i) the name, age,
business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class
and number of shares of stock of the Corporation which are owned
by the person and (iv) any other information relating to the person
that would be required to be disclosed in a solicitation of proxies
for election of directors pursuant to Rule 14a under the Securities
Exchange Act of 1934; and (b) as to the stockholder giving the
notice (i) the name and address of such stockholder and (ii) the
class and number of shares of stock of the Corporation owned by
such stockholder. The Corporation may require such other
information to be furnished respecting any proposed nominee as may
be reasonably necessary to determine the eligibility of such
proposed nominee to serve as a director of the Corporation. No
person shall be eligible for election by the stockholders as a
director at any meeting unless nominated in accordance with this
paragraph.
Section 4. Quorum
At any meeting of the stockholders, the holders of a majority
of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all
purpose, unless or except to the extent that the presence of a
larger number may be required by law.
If a quorum shall fail to attend any meeting, the chairman
of the meeting or the holders of a majority of the shares of the
stock entitled to vote who are present, in person or by proxy, may
adjourn the meeting to another place, date, or time.
If a notice of any adjourned special meeting of stockholders
is sent to all stockholders entitled to vote thereat, stating that
it will be held with those present constituting a quorum, then
except as otherwise required by law, those present at such
adjourned meeting shall constitute a quorum, and all matters shall
be determined by a majority of the votes cast at such meeting.
Section 5. Organization
Such person as the Board of Directors may have designated or,
in the absence of such a person, the highest ranking officer of the
corporation who is present shall call to order any meeting of the
stockholders and act a s chairman of the meeting. In the absence
of the Secretary of the corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business
The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including
such regulation of the manner of voting and the conduct of
discussion as seen to him in order.
Section 7. Proxies and Voting
At any meeting of the stockholders, every stockholder
entitled to vote any vote in person or by proxy authorized by an
instrument filed in accordance with the procedure established for
the meeting.
Each stockholder shall have one vote for every share of stock
entitled to vote which is registered in his name on the record date
for the meeting, except as otherwise provided herein or required
by law.
All voting, except on the election of directors and where
otherwise required by law, may be by a voice vote; provided,
however, that upon demand therefor by a stockholder entitled to
vote or his proxy, a stock vote shall be taken. Every stock vote
shall be taken by ballots, each of which shall state the name of
the stockholder or proxy voting and such other information as may
be required under the procedure established for the meeting. Every
vote taken by ballots shall be counted by an inspector or
inspectors appointed by the chairman of meeting.
All elections shall be determined by a plurality of the votes
cast, and except as otherwise required by law, all other matters
shall be determined by a majority of the votes of the Shares
present in person or represented by proxy and entitled to vote on
the subject matter.
Section 8. Stock List
A complete list of stockholders entitled to vote atn any
meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and
the numbe of shares registered in his name, shall be open to the
examination of any such stockholder, for any purpose germane to the
meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the
city where the meeting is to b eheld, which place shall be
specified in the notice of the neeting, or if not so specified, at
the place where the meeting is to be held. The stock list shall
also be kept at the palce of the meeting during the shole time
threr of and shall be open to the examination of any such
stockholder who is present. This list shall presuptively dtermine
the identity of the sotckholders entitled to vote at the meeting
and the number of shares held by each of them.
ARTICLE II - BOARD OF DIRECTORS
Section 1. Number and Term of Office
The number of directors who shall constitute the whole board
shall be such number not less than five nor more than eleven aa the
Board of Directors shall a the time have designated. Each director
shall be elected for a term of one year and until his successor is
elected and qualified, except as otherwise proveded herein or
required by law.
Whenever the authorized number of directors is increased
between annual meetings of the stockholders, a majority of the
directors then in office shall have the power to elect such new
directors for the balance of a term and until their successors are
elected and qualified. Any decrease in the authorized number of
directors shall not become effective until the expiration of the
term of the directors then in office unless, at the time of such
decrease, there shall be bacancies on the board which ar ebeing
eliminated by the decrease.
Section 2. Vacancies
If the office of any director becomes vacant by reason of
death, resignation, disqualification, removal or other cause, a
majority of the directors remaing in office, althouch less than a
quorum, amy elect a successor for the unexpired term and until his
successor is elected and qualified.
Section 3. Regular Meetings
Regular meetings of the Board of Directors shall be held at
such place or places, on such date or dates, and at such time or
times as shall have been established by the Board of Directors and
publicized among all directors. A notice of each regular meeting
shall not be required.
Section 4. Special Meetings
Special meetings of the Board of Directors may be Called by
one-third of the directors then in office or by the chief executive
officer and shall be held at such place, on such date, and at such
time as they or he shall fix. Notice of the place date, and time
of each such special meeting shall be given each director by whom
it is not waived by mailing written notice not less than three days
before the meeting or by telegraphing the same no less than
eighteen hours before the meeting. Unless otherwise indicated in
the notice thereof, any and all business may b transacted at a
special meeting.
Section 5. Quorum
At any meeting of the Board of Directors, one-third of the
total number of the whole board, but not less than two, shall
constitute a quorum for all purposes. If a quorum shall fail to
attend any meeting, a majority of those present may adjourn the
meeting to another place, date, or time, without further notice or
waiver thereof.
Section 6. Participation in Meetings by Conference Telephone
Members of the Board of Directors, or of any committee
thereof, may participate in a meeting of such board or committee
by means of conference telephone or similar communications to here
each other. Such participation shall constitute presence in person
at such meeting.
Section 7. Conduct of Business
At any meeting of the Board of Directors, business shall be
transacted in such order and manner as the board may from time to
time determine, and all matters shall be determined by the vote of
a majority of the directors present, except as otherwise provided
herein or required by law. Action may b taken by the Board of
Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes
of proceedings of the Board of Directors.
Section 8. Powers
The board of Directors may, except as otherwise required by
law, exercise all such powers and do all such acts and things as
may be exercised or done by the corporation, including, without
limiting the generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance
with law;
(2) To purchase or otherwise acquire any property, rights
or privileges on such terms as it shall determine;
(3) To authorized the creation, making an issuance, in such
form as it may determine, of written obligations of every kind,
negotiable or non-negotiable, secured or unsecured, and to do all
things necessary in connection therewith;
(4) To remove any officer of the corporation with or
without cause, and from time to time to devolve the powers and
duties of nay officer upon any other person for the time being;
(5) To confer upon any officer of the corporation the power
to appoint, remove and suspend subordinate officers and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers
and agents of the corporation and its subsidiaries as it may
determine;
(7) To adopt from time to time such insurance, retirement,
and other benefit plans for directors, officers and agents of the
corporation and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not
inconsistent with these bylaws, for the management of the
corporation's business and affairs.
Section 9. Compensation of Directors
Directors, as such, may receive, pursuant to resolution of
the board of Directors, fixed fees and other compensation for their
services a s directors, including, without limitation, their
services as members of committees of the directors.
ARTICEL III - COMMITTEES
Section 1. Committees of the Board of Directors
The Board of directors, by a vote of a majority of the whole
board, may from time to time designate committees fo the board,
with such lwfully delegable powers and duties as it therby confers,
to serve at the pleaseure of the board and shall, for thos e
committees and ny other sprovide for herein, elect a director or
directors to serv as the member or members, designating, if i
desires, other directors a salternative members who may rplace any
absent or disqualified member at any meeting of the committee. Any
committee so designated may exercise the power and authority of the
Board of Directors to declare a dividend or to authorize the
issuance of stock if the resolution which designates the committee
or a supplemental resolution of the Board of Directors shall so
provide. In the absence or disqualification of any member of any
committee and any alternate member in his place, the member or
members of the committee present at the meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may be unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or
disqualified member.
Section 2. Conduct of Business
Each committee may determine the procedural rules for meeting
and conducting its business and shall act in accordance therewith,
except as otherwise provided herein or required by law. Adequate
provision shall be made for notice to members of all meetings; one-third
of the member shall constitute a quorum unless the committee
shall consist of one or two members, in which event one member
shall constitute a quorum; and all matters shall be determined by
a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes
of the proceedings of such committee.
ARTICLE IV - OFFICERS
Section 1. Generally
The officers of the corporation shall consist of a chief
executive officer, a president, a secretary, a chief financial
officer, and such other subordinate officers including one or more
vice-presidents as may from time to time be appointed by the Board
of Directors. The Board of Directors may also choose to elect a
chairman of the board of directors from among its own members. The
Board of Directors shall elect officers of the corporation at its
first meeting after every annual meeting of stockholders. Each
officer shall hold his office until his successor is elected and
qualified or until his earlier resignation or removal. Any vacancy
occurring in any office of the corporation by death, resignation,
removal or otherwise, shall be filled by the Board of Directors.
Any number of offices may be held by the same person.
Section 2. Chairman of the Board of Directors
The chairman of the board of directors, if such an officer
be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as
may be from time to time assigned to him by the Board of Directors
or prescribed by these bylaws. He shall have power to sign all
stock certificates, contracts and other instruments of the
corporation which are authorized.
Section 3. Chief Executive Officer
The chief executive officer shall be the chief executive
officer of the corporation. Subject to the provisions of these
bylaws and to the direction of the Board of Directors, he shall
have responsibility for the general management and control of the
affairs and business of the corporation and shall perform ll duties
and have all powers which are commonly incident to the office of
chief executive or which are delegated to him by the Board of
Directors. He shall have power to sign all contracts and other
instruments of the corporation which are authorized. He shall have
general supervision and direction of all of the other officers and
agents of the corporation.
Section 4. President
The president shall be the chief operating officer of the
corporation. Subject to the direction of the Board of Directors
and the chief executive officer, the president shall have general
supervision, direction, and control of the business. He shall have
power to sign all stock certificates, contracts and other
instruments of the corporation which are authorized. In the
absence or disability of the chief executive officer, he shall
perform the duties and exercise the powers of the chief executive
officer.
Section 5. Vice Presidents
Each vice president, if appointed by the Board of Directors,
shall perform such duties as the Board of Directors shall
prescribe. In the absence or disability of the President, the vice
president who has served in such capacity for the longest time
shall perform the duties and exercise the powers of the President.
Section 6. Chief Financial Officer
The chief financial officer shall have the custody of all
monies and securities of the corporation and shall keep regular
books of account. He shall make such disbursements of the funds
of the corporation as are proper and shall render from time to time
an account of all such transactions and of the financial condition
of the corporation.
Section 7. Secretary
The secretary shall issue all authorized notices for, and
keep a record of the proceedings of, all meetings of the
stockholders and the Board of Directors. He shall have charge of
the corporate books.
Section 8. Delegation of Authority
The Board of Directors may from time to time delegate the
powers or duties of any officer to any other officers or agents,
notwithstanding any provision hereof.
Section 9. Removal
Any officer of the corporation may be removed at any time,
with or without cause, by the Board of Directors.
Section 10. Action with Respect to Securities of Other Corporations
Unless otherwise directed by the Board of Directors, the
chief executive officer shall have power to vote and otherwise act
on behalf of the corporation, in person or by proxy, at any meeting
of stockholders of or with respect to any action of stockholders
of any other corporation in which this corporation may hold
securities and otherwise to exercise any and all rights and powers
which this corporation may possess by reason of its ownership of
securities in such other corporation.
ARTICLE V - INDEMNIFICATION OF
DIRECTORS, OFFICERS AND OTHERS
Section 1. Right to Indemnification
Each director or officer of the Corporation who was or is a
party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative
or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation
or is or was servicing at the request of the corporation as a
director, officer, employee or agent of another corporation or of
a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis
of such proceeding is alleged action in an official capacity or in
any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation
to the fullest extent permitted by the laws of Delaware, as the
same exist or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law
permitted the corporation to provide prior to such amendment),
against all costs, charges, expenses, liabilities and losses
(including attorneys' fees, judgments, fines, ERISA excise taxes
or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person
who has ceased to be a director or officer and shall inure to the
benefit of his or her heirs, executors and administrators;
provided, however, that except as provided in the second paragraph
of this Section, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part
thereof) was initiated or authorized by one or more members of the
Board. The right to indemnification conferred in this Section 1
shall be a contract right and shall include the right to be paid
by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however,
that if the Delaware General Corporation Law so requires, the
payment of such expenses incurred by a director or officer in his
or her capacity as a director of officer (and not in any other
capacity in which service was or is rendered by such person while
a director or officer, including, without limitation, service to
an employee benefit plan) in advance of the final disposition of
a proceeding shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined
that such director or officer is not entitled to be indemnified
under this Section or otherwise.
Section 2. Non Exclusivity of Rights
The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final
disposition conferred in this Article shall not be exclusive of any
other right which any person may have or hereafter acquire under
any statute, provision of the certificate of incorporation, bylaw,
agreement, vote of stockholders or disinterested directors or
otherwise. Each person who is or becomes a director or officer of
the Corporation shall be deemed to have served or to have continued
to serve in such capacity in reliance upon the indemnity provided
in this Article.
Section 3. Insurance
The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the
Corporation or other corporation, partnership, joint venture, trust
or other enterprise against any such expense, liability or loss,
whether or not the corporation would have the power to indemnify
such person against such expense, liability or loss under the
General Corporation Law of Delaware.
Section 4. Expenses as a Witness
To the extent that any director, officer, employee or agent
of the Corporation is by reason of such position, or a position
with another entity at the request of the Corporation, a witness
in any action, suit or proceeding, he or she shall be indemnified
against all costs and expenses actually and reasonably incurred by
him or here or on his or her behalf in connection therewith.
Section 5. Indemnity Agreements
The Corporation may enter into indemnity agreements with the
persons who are members of its board of directors from time to
time, and with such officers, employees, and agents of the
Corporation and with such officers, directors, employees and agents
of subsidiaries as the board may designate, such indemnity
agreements to provide in substance that the Corporation will
indemnify such persons as contemplated by this Article, and to
include any other substantive or procedural provisions regarding
indemnification as are not inconsistent with the General
Corporation Law of Delaware. The provisions of such indemnity
agreements shall prevail to the extent that they limit or condition
or differ from the provisions of this Article.
Section 6. Definition of Corporation
For purposes of this Article V reference to "the Corporation"
includes all constituent corporations absorbed in a consolidation
or merger as well as the resulting or surviving corporation so that
any person who is or was a director or officer of such a
constituent corporation shall stand in the same position under the
provisions of this Section with respect to the resulting or
surviving corporation in the same capacity.
ARTICLE VI - STOCK
Section 1. Certificates of Stock
Each stockholder shall be entitled to a certificate signed
by, or in the name of the corporation by the chairman of the board
of directors, or the president or a vice-president, and by the
secretary or an assistant secretary, or the treasurer or an
assistant treasurer, certifying the number of shares owned by him.
Any of or all of the signatures on the certificate may be
facsimile.
Section 2. Transfers of Stock
Transfers of stock shall be made only upon the transfer books
of the corporation kept at an office of the corporation or by
transfer agents designated to transfer shares of the stock of the
corporation. Except where a certificate is issued in accordance
with Section 4 of Article VI of these bylaws, an outstanding
certificate for the number of shares involved shall be surrendered
for cancellation before a new certificate is issued therefor.
Section 3. Record Date
The Board of Directors may fix a record date, which shall not
be more than sixty nor less than ten days before the date of any
meeting of stockholders, nor more than sixty days prior to the time
for the other action hereinafter described, as of which there shall
be determined the stockholders who are entitled: to notice of or
to vote at any meeting of stockholders or any adjournment thereof;
to express consent to corporate action in writing without a
meeting; to receive payment of any dividend or other distribution
or allotment of any rights; or to exercise any rights with respect
to any change, conversion or exchange of stock or with respect to
any other lawful action.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any
certificate of stock, another may be issued in its place pursuant
to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning
the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations
The issue, transfer, conversion and registration of
certificates of stock shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VII - NOTICES
Section 1. Notices
Whenever notice is required to be given to any stockholder,
director, officer, or agent, such requirement shall not be
construed to mean personal notice. Such notice may in every
instance be effectively given by depositing a writing in a post
office or letter box, in a postpaid, sealed wrapper, or by
dispatching a prepaid telegram, addressed to such stockholder,
director, officer, or agent at his or her address as the same
appears on the books of the corporation. The time when such notice
is dispatched shall be the time of the giving of the notice.
Section 2. Waivers
A written waiver of any notice, signed by a stockholder,
director, officer, or agent, whether before or after the time of
the event for which notice is to be given, shall be deemed
equivalent to the notice required to be given to such stockholder,
director, officer, or agent. Neither the business nor the purpose
of any meeting need be specified in such a waiver.
ARTICLE VIII - MISCELLANEOUS
Section 1. Facsimile Signatures
In addition to the provisions for the use of facsimile
signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the corporation
may be used whenever and as authorized by the Board of Directors
or a committee thereof.
Section 2. Corporate Seal
The Board of Directors may provide a suitable seal,
containing the name of the corporation, which seal shall be in the
charge of the secretary. If and when so directed by the Board of
Directors or a committee thereof, duplicates of the seal may be
kept and used by the treasurer or by the assistant secretary or
assistant treasurer.
Section 3. Reliance upon Books, Reports and Records
Each director, each member of any committee designated by the
Board of Directors, and each officer of the corporation shall, in
the performance of his duties. be fully protected in relying in
good faith upon the books of account or other records of the
corporation, including reports made to the corporation by any of
its officers, by an independent certified public accountant, or by
an appraiser selected with reasonable care.
Section 4. Fiscal Year
The fiscal year of the corporation shall be as fixed by the
Board of Directors.
Section 5. Time Periods
In applying any provision of these bylaws which requires that
an act be done or not done a specified number of days prior to an
event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of
the doing of the act shall be excluded and the day of the event
shall be included.
Section 6. Offices
The Board of Directors shall fix the location of the
principal executive office of the corporation at any place within
or outside the State of Delaware. The Board of Directors may at
any time establish branch or subordinate offices at any place or
places where the corporation is qualified to do business.
ARTICLE IX - AMENDMENTS
Section 1. Amendments
These Bylaws may be amended or repealed by the Board of
Directors or by the stockholders at any meeting which has been duly
called and for which proper notice has been given, provided that
notice of the proposed amendment to these Bylaws has been properly
given in accordance with the other provisions of these bylaws, as
amended.
* * * *
<PAGE>
CERTIFICATE OF SECRETARY
I hereby certify that I am the duly elected and acting
Secretary of GOTTSCHALKS INC., a Delaware corporation, and that the
foregoing Bylaws are the full, true and correct Bylaws of said
corporation as amended to date.
IN WITNESS WHEREOF, I have hereunto subscribed my name on
this 20th day of November, 1995.
s:/Alan A. Weinstein
Secretary
WELLS FARGO BANK PROMISSORY
NOTE
$2,743,109.72 Fresno,
California
November 20, 1995
FOR VALUE RECEIVED, the undersigned GOTTSCHALKS, INC.
("Borrower") promises to pay to the order of WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank") at its office at Fresno RCBO, 1206
Van Ness Avenue, Fresno, CA. 93721, or at such other place as the
holder hereof may designate, in lawful money of the United States
of America and in immediately available funds, the principal sum
of $2,743,109.72, with interest thereon as set forth herein.
INTEREST:
(a) Interest. The outstanding principal balance of this
Note shall bear interest at a rate per annum computed on the basis
of a 360-day year, actual days elapsed). .25000% above the Prime
Rate in effect from time to time. The "Prime Rate" is a base rate
that Bank from time to time establishes and which serves as the
basis upon which effective rates of interest are calculated for
those loans making reference thereto. Each change in the rate of
interest hereunder shall become effective on the date each Prime
Rate change is announced within Bank.
(b) Payment of Interest. Interest accrued on this Note
shall be payable on the 5th day of each month, commencing January
5, 1996.
(c) Default Interest. From and after the maturity date of
this Note, or such earlier date as all principal owing hereunder
becomes due and payable by acceleration or otherwise, the
outstanding principal balance of this Note shall bear interest
until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the
rate of interest from time to time applicable to this Note.
(d) Collection of Payments. Borrower authorizes Bank to
collect all interest and fees due hereunder by charging Borrower's
demand deposit account number 4192-049534 with Bank, or any other
demand deposit account maintained by any Borrower with Bank, for
the full amount thereof. Should there be insufficient funds in any
such demand deposit account to pay all such sums when due, the full
amount of such deficiency shall be immediately due and payable by
Borrower.
REPAYMENT AND PREPAYMENT:
(a) Repayment. The outstanding principal balance of this
Note shall be due and payable in full on March 5, 1996.
(b) Application of Payments. Each payment made on this
Note shall be credited first, to any interest then due and second,
to the outstanding principal balance hereof.
(c) Prepayment. Borrower may prepay principal on this Note
at any time, in any amount and without penalty.
EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an
"Event of Default" under this Note:
1. The failure to pay any principal, interest, fees or
other charges when due hereunder or under any contract, instrument
or document executed in connection with this Note.
2. The filing of a petition by or against any Borrower,
any guarantor of this Note or any general partner or joint venturer
in any Borrower which is a partnership or a joint venture (with
each such guarantor, general partner and/or joint venturer referred
to herein as a "Third Party Obligor") under any provisions of the
Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or
other law relating to bankruptcy, insolvency, reorganization or
other relief for debtors; the appointment of a receiver, trustee,
custodian or liquidator of or for any part of the assets or
property of any Borrower or Third Party Obligor; any Borrower or
Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts
as they become due; or any attachment or like levy on any property
of any Borrower or Third Party Obligor.
3. The death or incapacity of any individual Borrower or
Third Party Obligor, or the dissolution or liquidation of any
Borrower or Third Party Obligor which is a corporation,
partnership, joint venture or other type of entity.
4. Any default in the payment or performance of any
obligation, or any defined event of default, under any provisions
of any contract, instrument or document pursuant to which any
Borrower or Third Party Obligor has incurred any obligation for
borrowed money, any purchase obligation, or any other liability of
any kind to any person or entity, including the holder.
5. Any financial statement provided by any Borrower or
Third party Obligor to Bank proves false.
6. Any sale or transfer of all or a substantial or
material part of the assets of any Borrower or Third Party Obligor
other than in the ordinary course of its business.
7. Any violation or breach of any provision of, or any
defined event of default under, any addendum to this Note or any
loan agreement, guaranty, security agreement, deed of trust or
other document executed in connection with or security this Note.
MISCELLANEOUS:
(a) Remedies. Upon the sale, transfer, hypothecation,
assignment or other encumbrance, whether voluntary, involuntary or
by operation of law, of all or any interest in the property
described in any deed of trust securing this Note, or upon the
occurrence of any Event of Default, the holder of this Note, at the
holder's option, may declare all sums of principal and interest
outstanding hereunder to be immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which
are expressly waived by each Borrower, and the obligation, if any,
of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the
holder immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated
costs of the holder's in-house counsel), incurred by the holder in
connection with the enforcement of the holder's rights and/or the
collection of any amounts which become due to the holder under this
Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for
declaratory relief, and including any of the foregoing incurred in
connection with any bankruptcy proceeding relating to any Borrower.
(b) Obligations Joint and Several. Should more than one
person or entity sign this Note as a Borrower, the obligations of
each such Borrower shall be joint and several.
(c) Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of California,
except to the extent Bank has greater rights or remedies under
Federal law, whether as a national bank or otherwise, in which case
such choice of California law shall not be deemed to deprive Bank
of any such rights and remedies as may be available under Federal
law.
IN WITNESS WHEREOF, the undersigned has executed this Note
as of the date first written above.
GOTTSCHALKS, INC.
By: s:\Alan A. Weinstein
Title: Senior Vice President/CFO
<PAGE>
Recording Requested By,
And when recorded return to:
WELLS FARGO BANK,
NATIONAL ASSOCIATION
1206 Van Ness Avenue
Fresno, CA. 93721
Attention: Note Department
Loan No.:_____________
DEED OF TRUST
With Assignment of Rents
THIS DEED OF TRUST is entered into as of November 20, 1995,
by and among GOTTSCHALKS, INC., A DELAWARE CORPORATION ("Trustor"),
AMERICAN SECURITIES COMPANY, a corporation ("Trustee"), and WELLS
FARGO BANK, NATIONAL ASSOCIATION ("Beneficiary").
ARTICLE I. GRANT IN TRUST
1.01 Grant. For the purposes and upon the terms and
conditions in this Deed of Trust irrevocably grants, conveys and
assigns to Trustee, in trust for the benefit of Beneficiary, with
power of sale and right of entry and possession, Trustor's interest
in all that real property located in the County of SAN LUIS OBISPO,
State of California, described ion Exhibit A attached hereto,
together with all appurtenances, easements, rights and rights of
way appurtenant or related thereto, all buildings, other
improvements and fixtures now or hereafter located thereon, all
interest or estate with Trustor now has or may hereafter acquire
in the property described above, and all additional and accretions
thereto ("Subject Property"). The listing of specific rights or
property shall not be interpreted as a limit of general terms.
1.02 Address. The address of the Subject Property (if
known) is: 313 MADONNA ROAD, SAN LUIS OBISPO, CA 93403. Neither
the failure to designate an address nor any inaccuracy in the
address designated shall affect the validity or priority of the
lien of this Deed of Trust on the Subject Property as described on
Exhibit A. In the event of any conflict between the provisions of
Exhibit A and said address, Exhibit A shall control.
ARTICLE II. OBLIGATIONS SECURED
2.01 Obligations Secured. Trustor makes this grant and
assignment for the purpose of securing the following obligations
(each, a "Secured Obligation" and collectively, the "Secured
Obligations"):
(a) payment to Beneficiary of all sums at any time owing
and performance of all other obligations arising under or in
connection with that certain promissory note ("Note") dated as of
November 20, 1995, in the principal amount of $2,743,109.72,
executed by GOTTSCHALKS, INC. and payable to Beneficiary or its
order, together with the payment and performance of any other
indebtedness or obligations incurred in connection with the credit
accommodation evidenced by the Note, whether or not specifically
referenced therein; and
(b) payment and performance of all obligations of Trustor
under this Deed of Trust, together with all advances, payments or
other expenditures made by Beneficiary or Trustee as or for the
payment or performance of any such obligations of Trustor, and
(c) payment and performance of all obligations, if any, and
the contracts under which they arise, which any rider attached to
and recorded with this Deed of Trust recites are secured hereby;
and
(d) payment and performance of all future advances and
other obligations that the then record owner of the Subject
Property may agree to pay and/or perform (whether as principal,
surely or guarantor) for the benefit of Beneficiary, when any such,
advance or obligation is evidenced by a writing which recites that
it is secured by this Deed of Trust, and
(e) all modifications, extensions and renewals of any of
the Secured Obligations (including without limitation, (i)
modifications, extensions or renewals at a different rate of
interest, or (ii) deferrals or accelerations of the required
principal payment dates or interest payment dates or both, in whole
or in part), however evidenced, whether or not any such
modification, extension or renewal is evidenced by a new or
additional promissory note or notes.
2.02 Obligations. The term "obligations" is used herein
in its most comprehensive sense and includes any and all advances,
debts, obligations and liabilities heretofore, now or hereafter
made, incurred or created, whether voluntary or involuntary and
however arising, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, joint or
several, including without limitation, all principal, interest,
charges, including prepayment charges and late charges, and loan
fees at any time accruing or assessed on any Secured Obligation.
2.03 Incorporation. All terms of the Secured Obligations
are incorporated herein by this reference. All persons who may
have or acquire an interest in the Subject Property are hereby
deemed to have notice (a) of the terms of the Secured Obligations
and (b) that, if provided therein, (i) the Note or any other
Secured Obligation may permit borrowing, repayment and reborrowing,
and (ii) the rate of interest on one or more of the Secured
Obligations may vary from time to time.
ARTICLE III. ASSIGNMENT OF RENTS
3.01 Assignment. For the purposes and upon the terms and
conditions set forth herein, Trustor irrevocably assigns to
Beneficiary all of Trustor's right, title and interest in, to and
under all leases, licenses, rental agreements and other agreements
of any kind relating to the use or occupancy of any of the Subject
Property, whether existing as of the date hereof or any time
hereafter entered into, together with all guarantees of and
security for any tenant's or lessee's performance thereunder, and
all amendments, extensions, renewals and modifications thereto
(each, a "Lease" and collectively, the "Leases"), together with any
and all other rents, issues and profits of the Subject Property
(collectively, "Rents"). This Assignment shall not impose upon
Beneficiary any duty to produce Rents, from the Subject Property,
nor cause Beneficiary to be (a) a "mortgagee in possession" for any
purpose, (b) responsible for performing any of the obligations of
the lessor or landlord under any Lease, or (c) responsible for any
waste committed by any person or entity at any time in possession
of the Subject Property or any part thereof, or for any dangerous
or defective condition of the Subject Property, or for any
negligence in the management, upkeep, repair control of the Subject
Property. This is an absolute assignment, not an assignment for
security only, and Beneficiary's right to Rents is not contingent
upon and may be exercised without possession of the Subject
Property. Trustor agrees to execute and deliver to Beneficiary,
within five (5) days of Beneficiary's written request, such
additional documents as Beneficiary or Trustee may reasonably
request to further evidence the assignment to Beneficiary of any
and all Leases and Rents.
3.02 Protection of Security. To protect the security of
this Assignment, Trustor agrees:
(a) At Trustor's sole cost and expense: (i) to perform each
obligations to be performed by the lessor or landlord under each
Lease and to enforce or secure the performance of each obligation
to be performed by the lessee or tenant under each Lease; (ii) not
to modify any Lease in any material respect, nor accept surrender
under or terminate the term of any Lease; (iii) not to anticipate
the Rents under any Lease; and (iv) not to waive or release any
lessee or tenant of or from any Lease obligations. Trustor assigns
to Beneficiary all of Trustor's right and power to modify the terms
of any Lease, to accept a surrender under or terminate the term of,
or anticipate the Rents under any Lease; and to waive or release
any lessee or tenant of or from any Lease obligations, and any
attempt on the part of Trustor to exercise any such rights or
powers without Beneficiary's prior written consent shall be a
breach of the terms hereof.
(b) At Trustor's sole cost and expense, to defend any
action in any manner connected with any Lease or the obligations
thereunder, and to pay all costs of Beneficiary or Trustee,
including reasonable attorneys' fees, in any such action relating
to a Lease in which Beneficiary or Trustee may appear.
(c) That, should Trustor fail to do any act required to be
done by Trustor under a Lease, then Beneficiary or Trustee, but
without obligation to do so and without notice to Trustor and
without releasing Trustor from any obligation hereunder, may make
or do the same in such manner and to such extent as Beneficiary or
Trustee deems necessary to protect the security hereof, and, in
exercising such powers, Beneficiary or Trustee may employ attorneys
and other agents, and Trustor shall pay necessary costs and
reasonable attorneys' fees incurred by Beneficiary or Trustee, or
their agents, in the exercise of the powers granted herein.
Trustor shall give prompt notice to Beneficiary of any default by
any lessee or tenant under any Lease, and of any notice of default
on the part of Trustor under any Lease received from a lessee or
tenant thereunder, together with an accurate and complete copy
thereof.
(d) To pay to Beneficiary immediately upon demand all sums
expended under the authority hereof, including reasonable
attorneys' fees, together with interest thereon at the highest rate
per annum payable under any Secured Obligation, and the same may,
at Beneficiary's option, be added to any Secured Obligation and
shall be secured hereby.
3.03 License. Beneficiary confers upon Trustor a license
("License") to collect and retain the Rents as, but not before,
they come due and payable, until the occurrence of any Default.
Upon the occurrence of any Default, the License shall be
automatically revoked, and Beneficiary or Trustee may, at
Beneficiary's option and without notice, either in person or by
agent, with or without bringing any action, or by a receiver to be
appointed by a court: (a) enter, take possession of, manage and
operate the Subject Property or any part thereof; (b) make, cancel,
enforce or modify any Lease; (c) obtain and evict tenants, fix or
modify Rents, and do any acts which Beneficiary or Trustee deems
proper to protect the security hereof; and (d) either with or
without taking possession of the Subject Property, in its own name,
sue for or otherwise collect and receive all Rents, including those
past due and unpaid, and apply the same in accordance with
provisions of Section 5.04 hereof. The entering and taking
possession of the Subject Property, the collection of Rents and the
application thereof as aforesaid, shall not cure or waive any
Default, nor waive, modify or affect any notice of default
hereunder, nor invalidate any act done pursuant to such notice.
The License shall not grant to Beneficiary or Trustee the right to
possession, except as provided in this Deed of Trust.
ARTICLE IV. RIGHTS AND DUTIES OF THE PARTIES
4.01 Title. Trustor warrants that, except as otherwise
disclosed to Beneficiary prior to the date hereof in a writing
which refers to this warranty, Trustor lawfully possesses and holds
fee simple title to or a leasehold interest in the Subject Property
without limitation on the right to encumber and assign, as herein
provided, and that this Deed of Trust is a valid lien on the
Subject Property and all of Trustor's interest therein.
4.02 Taxes and Assessments. Trustor shall pay prior to
delinquency all taxes, assessments, levies and charges imposed (a)
by any public or quasi-public authority or utility company which
are or which may become a lien upon or cause a loss in value of the
Subject Property or any interest therein, or (b) by any public
authority upon Beneficiary by reason of its interest in any Secured
Obligation or in the Subject Property, or by reason of any payment
made to Beneficiary pursuant to any Secured Obligation; but Trustor
shall have no obligation to pay any income taxes of Beneficiary.
4.03 Performance of Secured Obligations. Trustor shall
promptly pay and perform each Secured Obligation when due.
4.04 Liens, Encumbrances and Charges. Trustor shall
immediately discharge any lien not approved by Beneficiary in
writing that has or may attain priority over this Deed of Trust.
Except as otherwise provided in any Secured Obligation or other
agreement with Beneficiary, Trustor shall pay when due all
obligations secured by or reducible to liens and encumbrances which
shall now or hereafter encumber the Subject Property, whether
senior or subordinate hereto, including without limitation, any
mechanics' liens.
4.05 Insurance. Trustor shall insure the Subject Property
against loss or damage by fire and such other risks as Beneficiary
shall from time to time require. Trustor shall carry public
liability insurance, flood insurance as required by applicable law
and such other insurance as Beneficiary may reasonably require,
including without limitation, business interruption insurance or
loss of rental value insurance. Trustor shall maintain all
required insurance at Trustor's expense, under policies insured by
companies and in form and substance satisfactory to Beneficiary.
Neither Beneficiary nor Trustee, by reason of accepting, rejecting,
approving or obtaining insurance shall incur any liability for: (a)
the existence, nonexistence, form or legal sufficiency thereof; (b)
the solvency of any insurer; or (c) the payment of losses. All
policies and certificates of insurance shall name Beneficiary as
loss payee, and shall provide that the insurance cannot be
terminated as to Beneficiary except upon a minimum of ten (10)
days' prior written notice to Beneficiary. Immediately upon any
request by Beneficiary, Trustor shall deliver to Beneficiary the
original of all such policies or certificates, with receipts
evidencing annual prepayment of the premiums.
4.06 Security Account. Beneficiary may require, at its
option, but subject to applicable law and to any specific limits
on exercise of that option contained herein, that Trustor pay to
Beneficiary each month an additional sum estimated by Beneficiary
to be equal to the annual amount of (a) taxes, bonds, assessments,
levies and charges described in Section 4.02 hereof, and (b)
premiums for fire and other hazard and mortgage insurance next due,
divided by, in each instance, the number of months to lapse before
one month before said annual amount will become due. Such payments
of additional sums by Trustor to Beneficiary shall be held in a
security account, and Trustor hereby grants, and transfers to
Beneficiary a security interest in all sums to held in said
security account, and all proceeds thereof, to secure the payment
and performance of each Secured Obligation. All sums so paid shall
not bear interest except to the extent and in the amount required
by law. Beneficiary shall apply said sums to the payment of, or
at the sole option of Beneficiary, release said sums to Trustor for
application to and payment of, such taxes, bonds, assessments,
levies, charges and insurance premiums. Upon the occurrence of any
Default, Beneficiary at its sole option may apply all or any part
of said sums to any Secured Obligation. To cure any Default,
Trustor shall restore all sums so applied, as well as correct any
Default not corrected by the application thereof. The relationship
where Beneficiary shall be deemed a trustee, special depository or
other fiduciary acting for the benefit of Trustor. The existence
of said security account shall not limit Beneficiary's rights under
any other provision of this Deed of Trust or the total amount to
be paid therefrom for any year, or may continue to hold the excess
and reduce proportionately the required monthly deposits for the
next year.
4.07 Damages; Insurance and Condemnation Proceeds.
(a) (i) All awards of damages and all other compensation
payable directly or indirectly by reason of a condemnation or
proposed condemnation for public or private use affecting the
Subject Property: (ii) all other claims and awards for damages to
or decrease in value of the Subject Property; (iii) all proceeds
of any insurance policies payable by reason of loss sustained to
the Subject Property; and (iv) all interest which may accrue on any
of the foregoing, are all absolutely and irrevocably assigned to
and shall be paid to Beneficiary. At the absolute discretion of
Beneficiary, whether or not its security is or may be impaired, but
subject to applicable law if any, and without regard to any
requirement contained in Section 4.08(c) hereof, Beneficiary may
apply all or any of the proceeds it receives to any order, and
release all or any part of the proceeds to Trustor upon any
conditions Beneficiary may impose. Beneficiary may commence,
appear in, defend or prosecute any assigned claim or action, and
may adjust, compromise, settle and collect all claims and awards
assigned to Beneficiary, but shall not be responsible for any
failure to collect any claim or award, regardless of the cause of
the failure.
(b) At its sole option Beneficiary may permit insurance or
condemnation proceeds held by Beneficiary to be used for repair or
restoration but may impose any conditions on such use as
Beneficiary deems necessary.
4.08 Maintenance and Preservation of Subject Property.
Subject to the provisions of any Secured Obligation, Trustor
covenants:
(a) to keep the Subject Property in good condition and
repair;
(b) except with Beneficiary's prior written consent, not
to remove or demolish the Subject Property; not to alter, restore
or add to the Subject Property; and not to initiate or acquiesce
in any change in any zoning or other land classification which
affects the Subject Property;
(c) to restore promptly and in good workmanlike manner any
portion of the Subject Property which may be damaged or destroyed,
unless Beneficiary requires all of the insurance proceeds by used
to reduce the Secured Obligations as provided in Section 4.07
hereof;
(d) to comply with and not to suffer violation of any or
all of the following which govern acts or conditions on, or
otherwise affect, the Subject Property: (i) laws, ordinances,
regulations, standards and judicial and administrative rules and
orders; (ii) covenants, conditions, restrictions and equitable
servitudes, whether public or private; and (iii) requirements of
insurance companies and any bureau or agency which establishes
standards of insurability;
(e) not to commit or permit waste of the Subject Property;
and
(f) to do all other acts which from the character or use
of the Subject Property may be reasonably necessary to maintain and
preserve its value.
4.09 Hazardous Substances; Environmental Provisions.
Trustor represents and warrants to Beneficiary that, except as
disclosed to and acknowledged by Beneficiary in writing prior to
the date hereof: (a) during the period of Trustor's ownership or
possession of the Subject Property, there has been no use,
generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or hazardous substance
(as said terms are defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the
Superfund Amendments and Reauthorization Act of 1986, any other
applicable state or Federal environmental laws, and any rules or
regulations adopted pursuant to any of the foregoing) by any person
from, on, under or about the Subject Property; and (b) Trustor has
no knowledge of, nor any reason to believe that there has been, (i)
any use, generation, manufacture, storage, treatment, disposal,
release or threatened release of any hazardous waste or hazardous
substance by any prior owners or occupants of the Subject Property,
or (ii) any actual or threatened litigation or claims of any kind
by any person relating to such matters. Trustor agrees to
indemnify and hold Beneficiary harmless from and against any and
all claims, losses, liabilities, damages, penalties and expenses
of any kind or character, including reasonable attorneys' fees,
which Beneficiary may directly or indirectly sustain or suffer as
a result of any breach of this Section 4.09 or as a consequence of
any use, generation, manufacture, storage, treatment, disposal,
release or threatened release occurring prior to Trustor's
ownership of any interest in the Subject Property, whether or not
the same was or should have been known to Trustor. This obligation
to indemnify shall survive the payment of the Secured Obligations
and the satisfaction of this Deed of Trust, and shall not be
affected by Beneficiary's acquisition of any interest in the
Subject Property, whether by foreclosure or otherwise.
Trustor and Beneficiary agree that this Section 4.09 intended
as Beneficiary's written request for information (and Trustor's
response) concerning the environmental condition of the Subject
Property as required by California Code of Civil Procedure 726.5,
and that each representation and warranty contained in this Section
4.09 (together with any indemnity applicable to a breach of any
such representation and warranty) with respect to the environmental
condition of the Subject Property is intended by Trustor and
Beneficiary to be an "environmental provision" for purposes of
California Code of Civil Procedure 736.
4.10 Protection of Security. Trustor shall, at Trustor's
sole expense: (a) protect, preserve and defend the Subject Property
and Trustor's title and right to possession of the Subject Property
against all adverse claims; (b) if Trustor's interest in the
Subject Property is a leasehold interest or estate, pay and perform
in a timely manner all obligations to be paid and/or performed by
the lessee or tenant under the lease or other agreement creating
such leasehold interest or estate; and (c) protect, preserve, and
defend the security of this Deed of Trust against all adverse
claims. Trustor shall give Beneficiary and Trustee prompt notice
in writing of the assertion of any claim, the filing of any action
or proceeding, or the occurrence of any damage, condemnation offer
or other action relating to or affecting the Subject Property and,
if Trustor's interest in the Subject Property is a leasehold
interest or estate, of any notice of default or demand for
performance under the lease or other agreement pursuant to which
such leasehold interest or estate was created or exists.
4.11 Acceptance of Trust; Powers and Duties of Trustee.
Trustee accepts this trust when this Deed of Trust is executed.
From time to time, upon written request of Beneficiary and
presentation of this Deed of Trust for endorsement, and without
affecting the personal liability of any person for payment of any
indebtedness or performance of any of the Secured Obligations,
Trustee may, without obligation to do so and without liability
therefor and without notice: (a) reconvey all or any part of the
Subject Property; (b) consent to the making of any map of the
Subject Property; and (c) join in any grant of easement thereon,
any declaration of covenants and restrictions, any extension
agreement or any agreement subordinating the lien or charge of this
Deed of Trust. Trustee or Beneficiary may from time to time apply
to any court of competent jurisdiction for aid and direction in the
execution of the trusts and the enforcement of the rights and
remedies available under this Deed of Trust, and may obtain orders
or remedies. Trustee has no obligation to notify any party of any
pending sale or any action or proceeding (including, but not
limited to, actions in which Trustor, Beneficiary or Trustee shall
be a party) unless held or commenced and maintained by Trustee
under this Deed of Trust. Trustee shall not be obligated to
perform any act required of it under this Deed of Trust unless the
performance of the act is requested in writing and Trustee is
reasonably indemnified against all losses, costs, liabilities and
expenses in connection therewith.
4.12 Compensation; Exculpation; Indemnification.
(a) Trustor shall pay all Trustee's fees and reimburse
Trustee for all expenses in the administration of this trust,
including reasonable attorneys' fees. Trustor shall pay
Beneficiary reasonable compensation for services rendered
concerning this Deed of Trust, including without limitation, the
providing of any statement of amounts owing under any Secured
Obligation. Beneficiary shall not directly or indirectly be liable
to Trustor or any other person as a consequence of: (i) the
exercise of any of the rights, remedies or powers granted to
Beneficiary in this Deed of Trust; (ii) the failure or refusal of
Beneficiary to perform or discharge any obligation or liability of
Trustor under any Lease or other agreement related to the Subject
Property or under this Deed of Trust; or (iii) any loss sustained
by Trustor or any third party as a result of Beneficiary's failure
to lease the Subject Property after any Default or from any other
act or omission of Beneficiary in managing the Subject Property
after any Default unless such loss is caused by the willful
misconduct or gross negligence of Beneficiary; and no such
liability shall be asserted or enforced against Beneficiary, and
all such liability is hereby expressly waived and released by
Trustor.
(b) Trustor shall indemnify Trustee and Beneficiary
against, and hold them harmless from, any and all losses, damages,
liabilities, claims, causes of action, judgments, court costs,
attorneys' fees and other legal expenses, costs of evidence of
title, costs of evidence of value, and other expenses which either
may suffer or incur: (i) by reason of this Deed of Trust; (ii) by
reason of the execution of this trust or the performance of any act
required or permitted hereunder or by law; (iii) as a result of any
failure of Trustor to perform Trustor's obligations; or (iv) by
reason of any alleged obligation or undertaking of Beneficiary to
perform or discharge any of the representations, warranties,
conditions, covenants or other obligations contained in any other
document related to the Subject Property, including without
limitation, the payment of any taxes, assessments, rents or other
lease obligations, liens, encumbrances or other obligation of
Trustor under this Deed of Trust. Trustor's duty to indemnify
Trustee and Beneficiary shall survive the payment, discharge or
cancellation of the Secured Obligations and the release or
reconveyance, in whole or in part, of this Deed of Trust.
(c) Trustor shall pay all indebtedness arising under this
Section 4.12 immediately upon demand by Trustee or Beneficiary,
together with interest thereof from the date such indebtedness
arises at the highest rate per annum payable under any Secured
Obligation. Beneficiary may, at its option, add such indebtedness
to any Secured Obligation.
4.13 Substitution of Trustees. From time to time, by a
writing signed and acknowledged by Beneficiary and recorded in the
Office of the Recorder of the County in which the Subject Property
is situated, Beneficiary may appoint another trustee to act in the
place and stead of Trustee or any successor. Such writing shall
set forth the date, book and page of its recordation and any other
information required by law. The recordation of such instrument
of substitution shall discharge Trustee herein named substitution
shall discharge Trustee herein named and shall appoint the new
trustee as the trustee hereunder with the same effect as if
originally named Trustee herein. A writing recorded pursuant to
the provisions of this Section 4.13 shall be conclusive proof of
the proper substitution of such new Trustee.
4.14 Due on Sale or Encumbrance. Except as permitted by the
provision of any Secured Obligation or applicable law, if the
Subject Property or any interest therein shall be sold,
transferred, mortgaged, assigned, encumbered or leased, whether
voluntarily, involuntarily or by operation of law (each of which
actions and events is called a "Transfer"), without any
Beneficiary's prior written consent, then Beneficiary may, at its
sole option, declare all Secured Obligations immediately due and
payable in full. Trustor shall notify in writing of each Transfer
within ten (10) business days of the date thereof.
4.15 Releases, Extensions, Modification and Additional
Security. Without notice to or the consent, approval or agreement
of any persons or entities having any interest any time in the
Subject Property or in any manner obligated under any Secured
Obligation ("Interested Parties"), Beneficiary may, from time to
time, release any of the Interest Parties from liability for the
payment of any Secured Obligation, take any action or make any
agreement extending the maturity or otherwise altering the terms
or increasing the amount of any Secured Obligation, accept
additional security, and enforce, waive, subordinate or release all
or a portion of the Subject Property or any other security for any
Secured Obligation. None of the foregoing actions shall release
or reduce the personal liability of any of the Interested Parties,
nor release or impair the priority of the lien of this Deed of
Trust upon the Subject Property.
4.16 Reconveyance. Upon Beneficiary's written request, and
upon surrender of this Deed of Trust and every note or other
instrument setting forth any Secured Obligations to Trustee for
cancellation, Trustee shall reconvey, without warranty, the Subject
Property or that portion thereof then covered hereby. The recitals
of any matters or facts in any reconveyance executed hereunder
shall be conclusive proof of the truthfulness thereof. To the
extent permitted by law, the reconveyance may describe the grantee
as "the person or persons legally entitle thereto." Neither
Beneficiary nor Trustee shall have any duty to determine the rights
of persons claiming to be rightful grantees of any reconveyance.
When the Subject Property has been fully reconveyed, the last such
reconveyance shall operate as a reassignment of all future Rents
to the person or persons legally entitle thereto. Upon
Beneficiary's demand, Trustor shall pay all costs and expenses
incurred by Beneficiary in connection with any reconveyance.
4.17 Subrogation. Beneficiary shall be subrogated to the
lien of all encumbrances, whether released of record or not, paid
in whole or in part by Beneficiary pursuant to this Deed of Trust
or by the proceeds of any Secured Obligation.
4.18 Trustor Different From Obligor ("Third Party Trustor").
As used in this Section 4.18, the term "Obligor" shall mean each
person or entity which is obligated in any manner under any of the
Secured Obligations; and the term "Third Party Trustor" shall mean
(1) each person or entity which is included in the definition of
Trustor herein and which is not an Obligor under all of the Secured
Obligations, and (2) each person or entity which is included in the
definition of Trustor herein if there is any Obligor which is not
included in said definition of Trustor.
(a) Representations and Warranties. Each Third Party
Trustor represents and warrants to Beneficiary that: (i) this Deed
of Trust is executed at an Obligor's request; (ii) this Deed of
Trust complies with all agreements between each Third Party Trustor
and any Obligor regarding such Third Party Trustor's execution
hereof; (iii) Beneficiary has made no representation to any Third
Party Trustor as to the creditworthiness of any Obligor; and (iv)
each Third party Trustor has established adequate means of
obtaining from each Obligor on a continuing basis financial and
other information pertaining to such Obligor's financial condition.
Each Third party Trustor agrees to keep adequately informed from
such means of any facts, events or circumstances which might in any
way affect such Third Party Trustor's risks hereunder. Each Third
Party Trustor agrees to keep adequately informed from such means
of any facts, events or circumstances which might in any way affect
such Third Party Trustor' risks hereunder. Each Third Party
Trustor further agrees that Beneficiary shall have no obligation
to disclose to any Third Party Trustor any information or material
about any Obligor which is acquired by Beneficiary in any manner.
The liability of each Third Party Trustor hereunder shall be
reinstated and revived, and the rights of Beneficiary shall
continue if and to the extent that for any reason any amount at any
time paid on account of any Secured Obligation is rescinded or must
otherwise be restored by Beneficiary, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise, all as
though such amount had not been paid. The determination as to
whether any amount so paid must be rescinded or restored shall be
made by Beneficiary in its sole discretion; provided however, that
if Beneficiary chooses to contest any such matter at the request
of any Third Party Trustor, each Third Party Trustor agrees to
indemnify and hold Beneficiary harmless from and against all costs
and expenses, including reasonable attorneys' fees, expended or
incurred by Beneficiary in connection therewith, including without
limitation, in any litigation with respect thereto.
(b) Waivers.
(i) Each Third Party Trustor waives any right to require
Beneficiary to: (A) proceed against any Obligor or any other
person; (B) proceed against or exhaust any security held form any
Obligor or any other person; (C) give notice of the terms, time and
place of any public or private sale of personal property security
held from any Obligor or any other person, or otherwise comply with
any other provisions of Section 9504 of the California Uniform
Commercial Code; (D) pursue any other remedy in Beneficiary's
power; or (E) make any presentments or demands for performance, or
give any notices of nonperformance, protests, notices of protest
or notices of dishonor in connection with any obligations or
evidences of indebtedness held by Beneficiary as security for or
which constitute in whole or in part any Secured Obligation, or in
connection with the creation of new or additional obligations.
(ii) Each Third Party Trustor waives, any defense to its
obligations hereunder based upon or arising by reason of: (A) any
disability or other defense of any Obligor or any other person; (B)
the cessation or limitation from any cause whatsoever, other than
payment in full, of any Secured Obligation; (C) any lack of
authority of any officer, director, partner, agent or any other
person acting or purporting to act on behalf of any Obligor which
is a corporation, partnership, or other type of entity, or any
defect in the formation of any such Obligor; (D) the application
by any Obligor of the proceeds of any Secured Obligation for
purposes other than the purposes represented by any Obligor to, or
intended or understood by, Beneficiary or any Third Party Trustor;
(E) any act or omission by Beneficiary which directly or indirectly
results in or aids the discharge of any Obligor or any portion of
any Secured Obligation by operation of law or otherwise, or which
in any way impairs or suspends any rights or remedies of
Beneficiary against thereof, including without limitation, the
failure to obtain or maintain perfection or recordation of any
interest in any such security, the release of any such security
without substitution, and/or the failure to preserve the value of,
or to comply with applicable law in disposing of, any such security
or any modification of any Secured Obligation, in any form
whatsoever, including without limitation the renewal, extension,
acceleration or other change in time for payment of, or other
change in the terms of such Secured Obligation or any portion
thereof, including increase or decrease of the rate of interest
thereon. Until all Secured Obligations shall have been paid in
full, no Third Party Trustor shall have any right of subrogation.
Each Third Party Trustor waives all wrights and defenses it may
have arising out of (1) any respect to any security for any portion
of any Obligor's obligations, destroys such Third Party Trustor's
rights of subrogation or such Third Party Trustor's rights to
proceed against any Obligor for reimbursement, or (2) any loss of
rights any Third Party Trustor may suffer by reason of any rights,
powers or remedies of any Obligor in connection with any anti-deficiency
laws or any other laws limiting, qualifying or
discharging any Obligor's obligations, whether by operation of
Sections 726 or 580d of the Code of Civil Procedure as from time
to time amended, or otherwise. Until all Secured Obligations shall
have been paid in full, each Third Party Trustor further waives any
right to enforce any remedy with Beneficiary now has or may
hereafter have against any Obligor or any other person, and waives
any benefit, or any right to participate in, any security now or
hereafter held by Beneficiary.
(iii) If any of said waivers is determined to be contrary to
any applicable law or public policy, such waiver shall be effective
to the extent permitted by law.
ARTICLE V. DEFAULT PROVISIONS
5.01 Default. The occurrence of any of the following shall
constitute a "Default" under this Deed of Trust; (a) Trustor shall
observe or fail to perform any obligation or agreement contained
herein; (b) any representation or warranty of Trustor herein shall
prove to be incorrect, false or misleading in any material respect
when made; or (c) any default in the payment or performance of any
obligation, or any defined event of default, under any provisions
of the Note or any other document executed in connection with, or
with respect to, any Secured Obligation.
5.02 Rights and Remedies. Upon the occurrence of any
Default, and at any time thereafter, Beneficiary and Trustee shall
have all the following rights and remedies:
(a) With or without notice, to declare all Secured
Obligations immediately due and payable in full;
(b) With or without notice, and without releasing Trustor
from any Secured Obligation, and without becoming a mortgagee in
possession, to cure any Default of Trustor and, in connection
therewith, to enter upon the Subject Property and to do such acts
and things as Beneficiary or Trustee deems necessary or desirable
to protect the security of this Deed of Trust, including without
limitation, to appear in and defend any action or proceeding
purporting to affect the security of this Deed of Trust or the
rights or powers of Beneficiary or Trustee hereunder; to pay,
purchase, contest or compromise any encumbrance, charge, lien or
claim of lien which, in the judgment of either Beneficiary or
Trustee, is senior in priority to this Deed of Trust, the judgment
of Beneficiary or Trustee being conclusive as between the parties
hereto; to obtain, and to pay any premiums or charges with respect
to any insurance required to be carried hereunder; and to employ
counsel, accountants, contractors and other appropriate persons to
assist them;
(c) To commence and maintain an action or actions in any
court of competent jurisdiction to foreclose this Deed of Trust as
a mortgage or to obtain specific enforcement of the covenants of
Trustor under this Deed of Trust, and Trustor agrees that such
covenants shall be specifically enforceable by injunction or any
other appropriate equitable remedy and that for the purposes of any
suit brought under this subsection, Trustor waives the defense of
laches and any applicable statute of limitations;
(d) To apply to a court of competent jurisdiction for and
obtain appointment of a receiver of the Subject Property as a
matter of strict right and without regard to: (i) the adequacy of
the security for the repayment of the Secured Obligations; (ii) the
existence of a declaration that the Secured Obligations are
immediately due and payable; or (iii) the filing of a notice of
default; and Trustor consents to such appointment;
(e) To take and possess all documents, books, records,
papers and accounts of Trustor or the then owner of the Subject
Property; to make or modify Leases of, and other agreements with
respect to, the Subject Property upon such terms and conditions as
Beneficiary deems proper and to make repairs, alterations and
improvements to the Subject Property deemed necessary, in Trustee's
or Beneficiary's judgment, to protect or enhance the security
hereof;
(f) To execute a written notice of such Default and of its
election to cause the Subject Property to be sold to satisfy the
Secured Obligations. Trustee shall give and record such notice as
the law then requires as a condition precedent to a trustee's sale.
When the minimum period of time required by law after such notice
has elapsed, Trustee, without notice to or demand upon Trustor,
except as otherwise required by law, shall sell the Subject
Property at the time and place of sale fixed by it in the notice
of sale, at one or several sales, either as a whole or in separate
parcels and in such manner and order, all as Beneficiary in its
sole discretion may determine, at public auction to the highest
bidder for cash, in lawful money of the United States, payable at
the time of sale (the Secured Obligations being the equivalent of
cash for purposes of said sale). Neither Trustor nor any other
person or entity shall have the right to direct the order in which
the Subject Property is sold. Subject to requirements and limits
imposed by law, Trustee may postpone any sale of the Subject
Property by public announcement at such time and place of sale, and
from time to time may postpone such sale by public announcement at
the time and place fixed by the preceding postponement. Trustee
shall deliver to the purchaser at such sale a deed conveying the
Subject Property or portion thereof so sold, but without any
covenant or warranty, express or implied. The recitals in said
deed of any matters or facts shall be conclusive proof of the
truthfulness thereof. Any person, including Trustee, Trustor or
Beneficiary, may purchase at such sale;
(g) To resort to and realize upon the security hereunder
and any other security now or later held by Beneficiary
concurrently or successively and in one or several consolidated or
independent judicial actions or lawfully taken non-judicial
proceedings, or both, and to apply the proceeds received to payment
of the Secured Obligations, all in such order and manner as Trustee
and Beneficiary, or either of them, shall determine in their sole
discretion.
5.03 Application of Foreclosure Sale Proceeds. After
deducting all costs, fees and expenses of Trustee, and of this
trust, including costs of evidence of title and attorney's fees in
connection with a sale, Trustee shall apply all proceeds of any
foreclosure sale first, to payment of all Secured Obligations
(including without limitation, all sums expended by Beneficiary
under the terms hereof and not then repaid, with accrued interest
at the highest rate per annum payable under any Secured
Obligation), in such order and amounts as Beneficiary in its sole
discretion shall determine; and the remainder, if any, to the
person or persons legally entitled thereto.
5.04 Application of Other Sums. All Rents or other sums
received by Beneficiary hereunder, less all costs and expenses
incurred by Beneficiary or any receiver, including reasonable
attorneys' fees, shall be applied to payment of the Secured
Obligations in such order as Beneficiary shall determine in its
sole discretion (but Beneficiary shall have no liability for funds
not actually received by Beneficiary).
5.05 No Cure or Waiver. Neither Beneficiary's Trustee's or
any receiver's entry upon and taking possession of the Subject
Property, nor any collection of Rents, insurance proceeds,
condemnation proceeds or damages, other security or proceeds of
other security, or other sums, nor the application of any collected
sum of any Secured Obligation, nor the exercise of any other right
or remedy by Beneficiary, Trustee or any receiver shall impair the
status of the security of this Deed of Trust, or cure or waive any
breach, Default or notice of default under this Deed of Trust, or
nullify the effect of any notice of default or sale (unless all
Secured Obligations and any other sums then due hereunder have been
paid in full, and Trustor has cured all other Defaults), or
prejudice Beneficiary or Trustee in the exercise of any right or
remedy, or be construed as an affirmation by Beneficiary of any
tenancy, lease or option or a subordination of the lien of this
Deed of Trust.
5.06 Payment of Costs, Expenses and Attorneys' Fees.
Trustor agrees to pay to Beneficiary immediately upon demand the
full amount of all payments, advances, charges, costs and expenses,
including court costs and reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Beneficiary's
in-house counsel, whether or not incurred or expended in litigation),
expended or incurred by Trustee or Beneficiary pursuant to
subsections (a) through (g) inclusive of Section 5.02 hereof, with
interest from the date of expenditure until such sums have been
paid at the highest rate per annum payable under any Secured
Obligation. Beneficiary shall be entitled to bid, at any sale of
the Subject Property held pursuant to Section 5.02 (f) hereof or
pursuant to any judicial foreclosure of this Deed of Trust, the
amount of all of the foregoing, including interest thereon, in
addition to the amount of the other Secured Obligations, as a
credit bid, the equivalent of cash.
5.07 Power to File Notices and Cure Defaults. Trustor
hereby irrevocably appoints Beneficiary and its successors and
assigns as Trustor's true attorney-in-fact to perform any of the
following powers, which agency is coupled with an interest, (a) to
execute and/or record any notices of completion, cessation of labor
or any other notices that Beneficiary deems appropriate to protect
Beneficiary's interest, and (b) upon the occurrence of any event,
act or omission which with the giving of notice or the passage of
time, or both, would constitute a Default, to perform any
obligation of Trustor hereunder; provided that: (i) Beneficiary,
as such attorney-in-fact, shall only be accountable for such funds
as are actually received by Beneficiary; and (ii) Beneficiary shall
not be liable to Trustor or any other person or entity for any
failure to act under this section.
5.08 Remedies Cumulative. All rights and remedies of
Beneficiary and Trustee hereunder are cumulative and are in
addition to all rights and remedies provided by law or in any other
agreements between Trustor and Beneficiary.
ARTICLE VI. MISCELLANEOUS PROVISIONS
6.01 Merger. No merger shall occur as a result of
Beneficiary's acquiring any other estate in, or any other lien on,
the Subject Property unless Beneficiary specifically consents to
a merger in writing.
6.02 Recourse to Separate Property. Any married person who
executes this Deed of Trust as a Trustor and who is obligated under
any Secured Obligation agrees that any money judgment which
Beneficiary or Trustee obtains pursuant to the terms of this Deed
of Trust or any other obligation of that married person secured by
this Deed of Trust may be collected by execution upon that person's
separate property, and any community property of which that person
is a manager.
6.03 Disclosure of Information. Beneficiary reserves the
right to sell, assign, transfer, negotiate or grant participation
in all or any part of, or any interest in, Beneficiary's rights and
benefits under the Note, any and all other Secured Obligations and
this Deed of Trust. In connection therewith, Beneficiary may
disclose all documents and information which Beneficiary now has
or hereafter acquires relating to the Subject Property, all or any
of the Secured Obligations and/or Trustor and, as applicable, any
partners or joint venturers of Trustor, whether furnished by any
Trustor or otherwise.
6.04 Rules of Construction. (a) When the identify of the
parties or other circumstances make it appropriate, the masculine
gender includes the feminine or neuter or both, and the singular
number includes the plural; (b) the term "Subject Property" means
all and any part and any interest in the Subject Property; (c) if
any term of this Deed of Trust shall be invalid or unenforceable,
the remainder of this Deed of Trust shall not be affected thereby,
and each term of this Deed of Trust shall be valid and enforceable
to the fullest extent permitted by law; (d) all Section headings
herein are for convenience of reference only, are not a part of
this Deed of Trust, and shall be disregarded in the interpretation
of any portion of this Deed of Trust; and (e) if more than one
person or entity has executed this Deed of Trust as "Trustor", the
obligations of all such Trustees hereunder shall be joint and
several.
6.05 Successors; Assigns. This Deed of Trust shall be
binding upon and inure to the benefit of the heirs, executors,
administrators, legal representatives, successors and assigns of
the parties hereto; provided however, that this Section does not
waive the provisions of Section 4.14 hereof.
6.06 Statement of Obligation. Upon demand by Beneficiary,
Trustor shall pay Beneficiary a fee not to exceed $60.00 or such
other maximum as may be imposed by law for furnishing any Statement
of Obligation as provided by Section 2943 of the California Civil
Code.
6.07 Execution of Documents. Trustor agrees, upon demand
by Beneficiary or Trustee, to execute any and all documents and
instruments required to effectuate the provisions hereof.
6.08 Right of Inspection. Beneficiary or its agents or
employees may enter onto the Subject Property at any reasonable
time for the purpose of inspecting the Subject Property and
ascertaining Trustor's compliance with the terms hereof.
6.09 Incorporation. All terms of Exhibit A and each other
exhibit and/or rider attached hereto and recorded herewith, are
hereby incorporated into this Deed of Trust by this reference.
6.10 Address: Requests for Notice. Notice to Beneficiary
shall be sent to Beneficiary addressed to:
WELLS FARGO BANK, NATIONAL ASSOCIATION
1206 Van Ness Avenue
Fresno CA 93721
Attention: Note Department, MAC #______
Loan Number _________________
or at such other place as Beneficiary from time to time may
designate. Any Trustor whose address is set forth below hereby
requests that a copy of any notice of default and notice of sale
be mailed to such Trustor at that address. Failure to insert an
address shall constitute a designation of Trustor's last known
address as the address for any such notice. Trustee's address is
AMERICAN SECURITIES COMPANY, c/o CORPORATE SECRETARY, MAC #0202-121,
464 California Street, San Francisco CA 94163.
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust
as of the date first set forth above.
TRUSTOR PLEASE NOTE: IN THE EVENT OF YOUR DEFAULT, CALIFORNIA
PROCEDURE PERMITS THE TRUSTEE TO SELL THE SUBJECT PROPERTY AT A
SALE HELD WITHOUT SUPERVISION BY ANY COURT AFTER EXPIRATION OF A
PERIOD PRESCRIBED BY LAW (SEE SECTION 5.02(f) HEREOF). UNLESS YOU
PROVIDE AN ADDRESS FOR THE GIVING OF NOTICE, YOU MAY NOT BE
ENTITLED TO OTHER NOTICE OF THE COMMENCEMENT OF SALE PROCEEDINGS.
BY EXECUTION OF THIS DEED OF TRUST, YOU CONSENT TO SUCH PROCEDURE.
IF YOU HAVE ANY QUESTIONS CONCERNING IT, YOU SHOULD CONSULT YOUR
LEGAL ADVISOR. BENEFICIARY URGES YOU TO GIVE IT PROMPT NOTICE OF
ANY CHANGE IN YOUR ADDRESS SO THAT YOU MAY RECEIVE PROMPTLY ANY
NOTICE GIVEN PURSUANT TO THIS DEED OF TRUST.
Trustor(s)
GOTTSCHALKS INC.
By: s:\ Alan A. Weinstein
SVP/CFO
EXHIBIT A
(Description of Property)
Exhibit A to Deed of Trust executed by GOTTSCHALKS INC., A DELAWARE
CORPORATION, as "Trustor," to AMERICAN SECURITIES COMPANY, as
"Trustee," for the benefit of WELLS FARGO BANK, NATIONAL
ASSOCIATION, as "Beneficiary," dated as of November 20, 1995.
Description of Property
Lot 6 of Tract No. 1258, in the City of San Luis Obispo, int he
County of San Luis Obispo, State of California, according to map
recorded August 27, 1986 in Book 13, Page 46 of Maps, in the office
of the County Recorder of said County.
<PAGE>
DOCUMENT SIGNED AND NOTARIZED ON NOVEMBER 30, 1995.
<PAGE>
WELLS FARGO BANK CORPORATE RESOLUTION: BORROWING
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION
RESOLVED: That this corporation, GOTTSCHALKS INC. proposes
to obtain credit from time to time, or has obtained credit from
Wells Fargo Bank, National Association ("Bank").
BE IT FURTHER RESOLVED, that any one of the following
officers:______________ together with any one of the following
officers: NONE of this corporation be and they are
hereby authorized and empowered for and on behalf of and in the
name of this corporation and as its corporate act and deed:
(a) To borrower money from Bank and to assume any
liabilities of any other person or entity to Bank, in such form and
on such terms and conditions as shall be agreed upon by those
authorized above and Bank, and to sign and deliver such promissory
notes and other evidences of indebtedness for money borrowed or
advanced and/or for indebtedness assumed as Bank shall require;
such promissory notes or other evidences of indebtedness may
provide that advances by requested by telephone communication and
by any officer, employee or agent of this corporation so long as
the advances are deposited into any deposit account of this
corporation with Bank; this corporation shall be bound to Bank by,
and Bank may rely upon, any communication or act, including
telephone communications, purporting to be done by any officer,
employee or agent of this corporation provided that Bank believes,
in good faith, that the same is done by such person.
(b) To contract for the issuance by Bank of letters of
credit, to discount with Bank notes, acceptances and evidences of
indebtedness payable to or due this corporation, to endorse the
same and execute such contracts and instruments for repayment
thereof to Bank as Bank shall require, and to enter into foreign
exchange transactions with or through Bank.
(c) To mortgage, encumber, pledge, convey, grant, assign
or otherwise transfer all or any part of this corporation's real
or personal Property for the purpose of securing the payment of any
of the promissory notes, contracts, instruments and other evidences
of indebtedness authorized hereby, and to execute and deliver to
Bank such deeds of trust, mortgages, pledge agreements and/or other
security agreements as Bank shall require.
(d) To perform all acts and to execute and deliver all
documents described above and all other contracts and instruments
which Bank deems necessary or convenient to accomplish the purposes
of this resolution and/or to perfect or continue the rights,
remedies and security interest to be given to Bank hereunder,
including without limitation, any modifications, renewals and/or
extensions of any of this corporation's obligations to Bank,
however evidenced; provided that the aggregate principal amount of
all sums borrowed and credits established pursuant to this
resolution shall not at any time exceed the sum of $31,000,000.00
outstanding and unpaid.
Loans made pursuant to a special resolution and loans made
by offices of Bank other then the office to which this resolution
is delivered shall be in addition to foregoing limitation.
BE IT FURTHER RESOLVED, that the authorize hereby conferred
is in addition to that conferred by any other resolution heretofore
or hereafter delivered to Bank and shall continue in full force and
effect until Bank shall have received notice in writing, certified
by the Secretary of this corporation, of the revocation hereof by
a resolution duly adopted by the Board of Directors of this
corporation. Any such revocation shall be effective only as to
credit which is extended or committed by Bank, or actions which are
taken by this corporation pursuant to the resolutions contained
herein, subsequent to Bank's receipt of such notice. The authority
hereby conferred shall be deemed retroactive, and any and all acts
authorized herein which were performed prior to the passage of this
resolution are hereby approved and ratified.
CERTIFICATION
I, Alan A. Weinstein, Secretary of GOTTSCHALKS INC., a
corporation created and existing under the laws of the State of
DELAWARE, do hereby certify and declare that the foregoing is a
full, true and correct copy of the resolutions duly passed and
adopted by the Board of Directors of said corporation, by written
consent of all Directors of said corporation or at a meeting of
said Board duly and regularly called, noticed and held on November
15, 1995, at which meeting a quorum of the Board of Directors was
present and voted in favor of said resolutions; that said
resolutions are now in full force and effect; that there is no
provision in the Articles of Incorporation or Bylaws of said
corporation, or any shareholder agreement, limiting the power of
the Board of Directors of said corporation to pass the foregoing
resolutions and that such resolutions are in conformity with the
provisions of such Articles of Incorporation and Bylaws; and that
no approval by the shareholders of, or of the outstanding shares
of, said corporation is required with respect to the matters which
are the subject of the foregoing resolutions.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed
the corporate seal of said corporation as of November 20, 1995.
s:\ Alan A. Weinstein
Secretary
WELLS FARGO BANK CERTIFICATE OF INCUMBENCY
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION
The undersigned, Alan A. Weinstein, Secretary of GOTTSCHALKS
INC., a corporation created and existing under the laws of the
State of Delaware, hereby certifies to Wells Fargo Bank, National
Association ("Bank") that the following named persons are those
duly elected officers of this corporation specified in the
Corporate Resolution attached hereto and that the signatures
opposite their names are their true signatures:
Title Name Signature
Senior Vice President/ Alan A. Weinstein s:\Alan A. Weinstein
The undersigned further certifies that should any of the
above named officers change, or should the signature requirements
of said Corporate Resolution change, this corporation shall provide
Bank immediately with a new Certificate of Incumbency. Bank is
hereby authorized to rely on this Certificate until a new
Certificate certified by the Secretary of this corporation is
received by Bank.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed
the corporate seal of said corporation as of November 20, 1995.
s:\Alan A. Weinstein
Secretary
Recording Requested by,
And After Recording, Return to:
WELLS FARGO BANK,
NATIONAL ASSOCIATION
Commercial Finance Division
9000 Flair Drive
El Monte, CA. 91731
Attn: Michael Baranowski
FIRST MODIFICATION OF DEED OF TRUST
This First Modification of Deed of Trust (this
"Modification") is entered into as of March 6, 1996, by and between
GOTTSCHALKS INC. ("Trustor"), and WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Beneficiary").
RECITALS
This Modification is entered into upon the basis of the
following facts and understandings of the parties:
A. This Modification pertains to that certain Deed of
Trust dated as of November 20, 1995, executed by Trustor to
American Securities Company, as Trustee, in favor of Beneficiary,
and recorded on December 5, 1995, as Document No. 1995-056390 of
the Official Records of the County of San Luis Obispo, State of
California ("Deed of Trust").
B. The obligations secured by the Deed of Trust have been
modified, and Trustor and Beneficiary have agreed to modify the
Deed of Trust to accurately reflect the obligations secured
thereby.
NOW, THEREFORE, the parties hereto agree as follows:
1. The promissory note dated as of November 20, 1995,
executed by Trustor and payable to Beneficiary or its order, in the
principal amount of $2,743,109.72, which is described in Section
2.01(a) of, and is secured, by the Deed of Trust, has been modified
by extending the maturity date and increasing the rate of interest
applicable thereto.
2. The real property and the whole thereof described in
the Deed of Trust shall remain subject to the lien, charge or
encumbrance of the Deed of Trust and nothing herein contained or
done pursuant hereto shall affect or be construed to affect the
liens, charges or encumbrances of the Deed of Trust, or the
priority thereof over other liens, charges or encumbrances, or to
release or affect the liability of any party or parties who may now
or hereafter be liable under or on account of said promissory notes
and/or the Deed of Trust.
3. All terms and conditions of the Deed of Trust not
expressly modified herein remain in full force and effect, without
waiver or amendment. This Modification and the Deed of Trust shall
be read together, as one document.
IN WITNESS WHEREOF, the parties hereto have caused this
Modification to be executed as of the day and year first above
written.
BENEFICIARY: TRUSTOR:
WELLS FARGO BANK GOTTSCHALKS INC.
By: By: s:\Alan A. Weinstein
Title: Title: SVP/CFO
(ATTACH NOTARY ACKNOWLEDGMENTS)
NOTE EXTENSION AND MODIFICATION AGREEMENT
This Extension Agreement is made and entered into as of March
5, 1996 by and between WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank") and GOTTSCHALKS, INC. ("Borrower").
RECITALS
WHEREAS, Borrower has executed a promissory note dated
November 20, 1995 in the original principal amount of $2,743,109.72
(the "Note") in favor of Bank, which Note is secured pursuant to
a Deed of Trust with Assignment of Rents dated November 20, 1995
recorded as Doc. No. 1995-056390 in the Official Records of San
Luis Obispo County (the "Deed");
WHEREAS, Borrower has requested that Bank extend the maturity
date of the Note to September 5, 1996; and
WHEREAS, Bank has so agreed subject to the terms and
conditions that follow:
1. The maturity date of the Note is hereby extended to
September 5, 1996.
2. From the date hereof to and including June 5, 1996, the
Note shall bear interest at a fluctuating rate per annum equal to
one and one-half percent (1.50%) above the Prime Rate in effect
from time to time.
3. From June 6, 1996, the Note shall bear interest at a
fluctuating rate per annum equal to two percent (2.00%) above the
Prime Rate in effect from time to time.
4. Borrower shall pay to Bank non-refundable extension
fees in the following amounts on the following dates:
Date Fee
March 6, 1996 0.5% of the
outstanding
principal
balance on March
6, 1996
June 6, 1996 0.5% of the
outstanding
principal
balance on June
6, 1996
5. Borrower shall, at its expense and concurrently with
execution hereof, execute a first Modification of Deed of Trust
and cause to be issued and delivered to Bank a modification
indorsement insuring the priority of the Deed.
6. Except as so extended and modified, the Note remains
in full force and effect and remains secured by the Deed.
GOTTSCHALKS INC. WELLS FARGO BANK,
NATIONAL
ASSOCIATION
By: s:/ Alan A. Weinstein By:
Title: Senior V.P./CFO Title:_____________________
NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Ninth
Amendment") is entered into as of January 26, 1996 by and between
Fleet Capital Corporation, formerly known as Shawmut Capital
Corporation, a Connecticut corporation, as successor-in-interest
to Barclays Business Credit, Inc., a Connecticut corporation
("Lender"), and Gottschalks Inc., a Delaware corporation
("Borrower"), with reference to the following facts:
RECITALS
A. Lender and Borrower entered into that certain Loan and
Security Agreement dated as of March 30, 1994, as amended by (i)
that certain First Amendment to Loan and Security Agreement dated
as of May 12, 1994, (ii) that certain Second Amendment to Loan and
Security Agreement dated as of October 12, 1994, (iii) that certain
Third Amendment to Loan and Security Agreement dated as of December
30, 1994, (iv) that certain Fourth Amendment to Loan and Security
Agreement dated as of March 22, 1995, (v) that certain Fifth
Amendment to Loan and Security Agreement dated as of March 31,
1995, (vi) that certain Sixth Amendment to Loan and Security
Agreement dated as of July 31, 1995, (vii) that certain Seventh
Amendment to Loan and Security Agreement dated as of August 9,
1995, and (viii) that certain Eighth Amendment to Loan and Security
Agreement dated as of October 17, 1995, pursuant to which Lender
agreed to provide certain financial accommodations to Borrower on
the terms and conditions set forth therein (said Loan and Security
Agreement, as from time to time in effect, together with all
exhibits and schedules thereto, is hereinafter referred to as the
"Loan Agreement").
B. Lender and Borrower desire to amend certain aspects of
their financing arrangements under the Loan Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and
the agreements contained herein, Lender and Borrower hereby agree
as follows:
1. Use of Terms Defined in the Loan Agreement. All
capitalized terms that are defined in the Loan Agreement and that
are used without definition herein shall have the respective
meanings given to them in the Loan Agreement.
2. Amendments to the Loan Agreement.
2.1 The definition of "Bank" set forth in Section 1.1
of the Loan Agreement is deleted in its entirety and the following
is substituted therefor:
Bank - Fleet National Bank of Connecticut.
2.2 The definition of "Borrowing Base" set forth in
Section 1.1 of the Loan Agreement is deleted in its entirety and
the following is substituted therefor:
Borrowing Base - as at any date of determination
thereof, an amount equal to:
(i) the lesser of:
(A) the Maximum Commitment minus the
face amount of any LC Guaranty or Letter of
Credit issued by lender or any of its Affiliates
outstanding at such date; or
(B) (I) at any time during the period from
April 1, 1996 through December 31, 1996, the
lesser of (x) sixty percent (60%) or (y) the
Inventory Valuation Percentage at such time,
calculated on a first-in, fist-out basis (at the
lower of cost or market), minus the face amount
of any LC Guaranty or Letter of Credit issued by
Lender or any of its Affiliates outstanding at
such date, and (II) at any other time, fifty
percent (50%) of the value of Eligible Inventory
at such date, calculated on a first-in, first-out basis
(at the lower of cost or market),
minus the face amount of any LC Guaranty or
Letter of Credit issued by Lender or any of its
Affiliates outstanding at such date;
MINUS
(ii) any amounts which Lender may pay pursuant
to any of the Loan Documents for the account of
Borrower which remain outstanding.
2.3 A new definition of "Contract Year" is added to
Section 1.1 of the Loan Agreement, as follows:
Contract Year - the yearly period beginning on
March 31 of any year and ending on March 30 of the following year.
2.4 A new definition of "Inventory Valuation
Percentage" is added to Section 1.1 of the Loan Agreement, as
follows:
Inventory Valuation Percentage - at any time, the
percentage determined by Lender's special retail consultant to
approximate the orderly liquidation value of Borrower's Eligible
Inventory.
2.5 The definition of "Lender" set forth in Section
1.1 of the Loan Agreement is deleted in its entirety and the
following is substituted therefor:
Lender - Fleet Capital Corporation, a
Connecticut corporation.
2.6 The definition of "Payable Turnover Rate" set
forth in Section 1.1 of the Loan Agreement is deleted in its
entirety and the following is substituted therefor:
2.7 A new Section 2.1(D) is added to the Loan
Agreement, as follows:
(D) Without limiting the generality of the last
sentence of Section 2.1(A), Borrower acknowledges that
Lender will establish a specific reserve with respect
to Borrower's potential liability in connection with
the 1992 lawsuit filed against Borrower by F&N
Acquisition Corp. (the "F&N Litigation"), which
reserve (the "F&N Litigation Reserve") shall start at
$700,000 on February 4, 1996 and shall increase by
$700,000 on the first day of each of March, April, May
and June 1996. Lender shall maintain the F&N
Litigation Reserve until the earlier of (i) Lender's
disbursement of Revolving Loans (which may include
some or all of the amount covered by the F&N
Litigation Reserve) requested by Borrower to fully
satisfy all obligations and liabilities of Borrower in
connection with the F&N Litigation, or (ii) Borrower's
otherwise satisfying Lender that no actual or
potential obligations or liabilities of Borrower in
connection with the F&N Litigation continue to exist.
2.8 The first sentence of Section 3.1(A) of the Loan
Agreement is deleted in its entirety and the following is
substituted therefor:
Interest shall accrue on the principal amount of the
Revolving Loans outstanding at the end of each day at
a fluctuating rate per annum equal to three and three-quarters
percent (3.75%) above the LIBOR Rate.
2.9 A new Section 3.1(J) is added to the Loan
Agreement, as follows:
(J) Facility Fee. As additional consideration
for Lender's entering into the Ninth Amendment to this
Agreement and Lender's costs and risks of continuing
to make funds available and administering the
transactions contemplated by this Agreement, Borrower
shall pay to Lender an annual facility fee of $100,000
for each Contract Year commencing on or after March
31, 1996 while this Agreement is in effect. The
annual facility fee for each Contract Year shall be
deemed fully-earned and non-refundable on the first
day of such Contract Year, but shall be due and
payable by Borrower in four installments of $25,000
each on March 31, June 30, September 30 and December
31 of such Contract Year. Any unpaid installments of
the annual facility fee shall be immediately due and
payable upon any termination of this Agreement for any
reason.
2.10 Section 4.7 of the Loan Agreement is hereby
deleted in its entirety and the following is substituted therefor:
4.7 Audits and Appraisals. Lender or its
designee may conduct a maximum of four (4) audits per
year, and Arthur Andersen & Co. or such other special
retail consultant selected by Lender may conduct up to
two (2) inventory appraisals per year, unless an Event
of Default has occurred and is continuing, in which
event the number of audits and appraisals conducted
will be in Lender's reasonable discretion. Borrower
will reimburse Lender for all out-of-pocket expenses
incurred by Lender in connection with such audits and
appraisals upon Lender's demand therefor.
2.11 A new sentence is added at the end of Section 6.2
of the Loan Agreement, as follows:
Notwithstanding the foregoing, if the amount of unused
borrowing availability under the Revolving Loans is at
any time less than $5,000,000, Borrower will at all
times thereafter deliver a Borrowing Base Certificate
to Lender on a daily basis, which Borrowing Base
Certificate shall include an update of all Inventory
on a daily basis; provided, that if the average amount
of unused borrowing availability under the Revolving
Loans, measured on a monthly basis, equals or exceeds
$5,000,000 for a subsequent period of three
consecutive months, then Borrower may resume providing
a Borrowing Base Certificate on a weekly basis as
originally provided, unless and until the amount of
unused borrowing availability under the Revolving
Loans is again less than $5,000,000.
2.12 A new sentence is added at the end of Section
8.2(L) of the Loan Agreement, as follows:
Notwithstanding the foregoing, from and after February
3, 1996, Borrower shall not open any new stores or
undertake any store Expansions without the prior
written consent of Lender, except for the following:
(x) the opening of a new store in Reno, Nevada; and
(y) provided that Borrower receives a minimum of
$3,000,000 in total additional third-party debt or
equity financing to finance such relocations and that
Borrower extends a maximum of $500,000 per relocation
for additional fixtures and remodeling costs, the
relocations of the existing Modesto, California and
Fashion Fair (Fresno, California) stores within the
malls in which they are currently located.
2.13 Section 8.3(D) of the Loan Agreement is hereby
deleted in its entirety and the following is substituted therefor:
(D) Minimum Earnings.
(i) Maintain at all times not less than the
following Consolidated Adjusted Net Earnings from Operations for
the corresponding periods set forth below:
Fiscal Period Amount
January 1996 <$3,000,000>
February 1996 <$2,400,000>
March 1996 <$950,000>
April 1996 <$900,000>
May 1996 <$325,000>
June 1996 <$225,000>
July 1996 <$1,200,000>
August 1996 <$1,200,000>
September 1996 <$50,000>
October 1996 <$500,000>
November 1996 $250,000
December 1996 $8,100,000
January 1997 <$2,150,000>
February 1997 <$2,400,000>
March 1997 <$950,000>
(ii) Maintain at all times, on a fiscal quarter-to-date basis,
not less than the following Consolidated corresponding
fiscal quarters set forth below:
Fiscal Quarter Amount
First fiscal quarter <$4,250,000>
of Fiscal Year ending
January 1997
Second fiscal quarter <$1,750,000>
of Fiscal Year ending
January 1997
Third fiscal quarter <$1,750,000>
of Fiscal Year ending
January 1997
Fourth fiscal quarter $6,200,000
of Fiscal Year ending
January 1997
Each fiscal quarter <$2,000,000>
thereafter
(iii) Maintain at all times not less than the following
Consolidated Adjusted Net Earnings from Operations for the period
of twelve (12) consecutive Fiscal Periods including and ending with
the corresponding Fiscal Periods set forth below:
Fiscal Period Amount
January 1996 <$7,200,000>
February 1996 <$6,900,000>
March 1996 <$6,700,000>
April 1996 <$6,900,000>
May 1996 <$6,300,000>
June 1996 <$6,200,000>
July 1996 <$6,450,000>
August 1996 <$6,100,000>
September 1996 <$5,550,000>
October 1996 <$4,700,000>
November 1996 <$3,450,000>
December 1996 <$450,000>
January 1997 <$325,000>
Each Fiscal Period $0.00
thereafter
2.14 Section 8.3(F) of the Loan Agreement is hereby
deleted in its entirety and the following is substituted therefor:
(F) Senior Debt Coverage Ratio. Maintain at
all times a Senior Debt Coverage Ratio of not less than the
following amounts as of the end of the corresponding Fiscal Periods
set forth below:
Fiscal Period Amount
February 1996 0.40 to 1.0
March 1996 0.40 to 1.0
April 1996 0.40 to 1.0
May 1996 0.55 to 1.0
June 1996 0.55 to 1.0
July 1996 0.55 to 1.0
August 1996 0.55 to 1.0
September 1996 0.70 to 1.0
October 1996 0.70 to 1.0
November 1996 1.00 to 1.0
December 1996 1.50 to 1.0
January 1997 1.50 to 1.0
Each Fiscal Period 1.00
to 1.0
thereafter
2.15 Section 8.3 (G) of the Loan Agreement is hereby
deleted in its entirety and the following is substituted therefor.
(G) Times Interest Earned Ratio. Maintain at
all times a Times Interest Earned Ratio of not less
than the following amounts as of the end of the
corresponding Fiscal Periods set forth below:
Fiscal Period Amount
February 1996 0.10 to 1.0
March 1996 0.10 to 1.0
April 1996 0.10 to 1.0
May 1996 0.27 to 1.0
June 1996 0.27 to 1.0
July 1996 0.27 to 1.0
August 1996 0.35 to 1.0
September 1996 0.40 to 1.0
October 1996 0.50 to 1.0
November 1996 0.65 to 1.0
December 1996 0.90 to 1.0
January 1997 1.00 to 1.0
Each Fiscal Period 1.00 to 1.0
thereafter
2.16 Section 8.3(I) of the Loan Agreement is hereby
deleted in its entirety and the following is substituted therefor:
(I) Payables Turnover Rate. Maintain at all
times a Payables Turnover Rate of not less than the
following number of days as of the end of the
corresponding Fiscal Periods set forth below:
Fiscal Period Number of Days
February 1996 59
March 1996 51
April 1996 55
May 1996 42
June 1996 40
July 1996 49
August 1996 58
September 1996 72
October 1996 81
November 1996 53
December 1996 20
January 1997 66
February 1997 59
March 1997 51
2.17 The third sentence of Section 11.17 of the Loan
Agreement is hereby deleted in its entirety and the following is
substituted therefor:
AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED,
AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR
PRINCIPAL PLACE OF BUSINESS OF BORROWER OR LENDER,
BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR
COURTS OF LOS ANGELES COUNTY, CALIFORNIA, OR, AT
LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR
THE CENTRAL DISTRICT OF CALIFORNIA, SHALL EACH HAVE
NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER
PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING
OUT OF OR RELATED TO THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS.
3. Conditions to Effectiveness. This Ninth Amendment
shall not become effective unless and until each of the following
conditions precedent have been satisfied:
3.1 Lender's special retail consultant shall have
completed and delivered to Lender a new
appraisal of Borrower's Inventory, the results
of which appraisal are satisfactory to Lender;
and
3.2 Lender and Wells shall have each executed a
Second Amendment to Participation Agreement with
respect to Wells' participation in the Revolving
Loans made by Lender.
4. Continuing Representations of Borrower. Borrower
hereby represents and warrants to Lender that as of the date hereof
all representations and warranties contained in the Loan Agreement
are true, complete and correct, and no Default or Event of Default
has occurred and is continuing.
5. Incorporation into the Loan Agreement. The terms and
conditions of this Ninth Amendment shall be incorporated by
reference in the Loan Agreement as though set forth in full
therein. In the event of any inconsistency between the provisions
of this Ninth Amendment shall govern and control. Except to the
extent specifically amended or superseded by the terms of this
Ninth Amendment, all of the provisions of the Loan Agreement shall
remain in full force and effect to the extent in effect on the date
hereof. Except to the extent, if any, specifically dealt with
herein, this Ninth Amendment does not constitute an amendment or
waiver Default, Event of Default, or other default by Borrower
thereunder. The Loan Agreement, as modified by this Ninth
Amendment, together with the other Loan Documents, constitutes the
complete agreement among the parties and supersedes any prior
written or oral agreements, writings, communications or
understandings of the parties with respect to the subject matter
thereof.
6. Section Headings. The headings of the Sections hereof
are for convenience only, are without substantive meaning, and
shall not be used in interpreting any provision of this Ninth
Amendment or the Loan Agreement.
7. Counterparts. This Ninth Amendment may be executed
in counterparts, each of which shall be deemed to be an original
but all of which shall be one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed
this Ninth Amendment to Loan and Security Agreement as of the day
and year first written above.
("Lender")
FLEET CAPITAL CORPORATION
By: s:/Alisa Frederick
Vice President
("Borrower")
GOTTSCHALKS INC.
By: s:/Alan A. Weinstein
Senior Vice President and
Chief Financial Officer
TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Tenth
Amendment") is entered into as of March 7, 1996 by and between
Fleet Capital Corporation, formerly known as Shawmut Capital
Corporation, a Connecticut corporation, as successor-in-interest
to Barclays Business Credit, Inc., a Connecticut corporation
("Lender"), and Gottschalks Inc., a Delaware corporation
("Borrower"), with reference to the following facts:
RECITALS
A. Lender and Borrower entered into that certain Loan and
Security Agreement dated as of March 30, 1994, as amended by (i)
that certain First Amendment to Loan and Security Agreement dated
as of May 12, 1994, (ii) that certain Second Amendment to Loan and
Security Agreement dated as of October 12, 1994, (iii) that certain
Third Amendment to Loan and Security Agreement dated as of December
30, 1994, (iv) that certain Fourth Amendment to Loan and Security
Agreement dated as of March 22, 1995, (v) that certain Fifth
Amendment to Loan and Security Agreement dated as of March 31,
1995, (vi) that certain Sixth Amendment to Loan and Security
Agreement to Loan and Security Agreement dated as of August 9,
1995, (viii) that certain Eighth Amendment to Loan and Security
Agreement dated as of October 17, 1995, and (ix) that certain Ninth
Amendment to Loan and Security Agreement dated as of January 26,
1996, pursuant to which Lender agreed to provide certain financial
accommodations to Borrower on the terms and conditions set forth
therein (said Loan and Security Agreement, as from time to time in
effect, together with all exhibits and schedules thereto, is
hereinafter referred to as the "Loan Agreement").
B. Lender and Borrower desire to amend certain aspects of
their financing arrangements under the Loan Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and
the agreements contained herein, Lender and Borrower hereby agree
as follows:
1. Use of Terms Defined in the Loan Agreement. All
capitalized terms that are defined in the Loan Agreement and that
are used without definition herein shall have the respective
meanings given to them in the Loan Agreement.
2. Amendments to the Loan Agreement.
2.1 The definition of "Borrowing Base" set forth in
Section 1.1 of the Loan Agreement is deleted in its entirety and
the following is substituted therefor:
Borrowing Base - as at any date of determination
thereof, an amount equal to:
(i) the lesser of:
(A) the Maximum Commitment minus the fact
amount of any LC Guaranty or Letter of Credit issued
by Lender or any of its Affiliates outstanding at such
date; or
(B) (I) at any time during the period from
March 8 through December 31, 1996, the lesser of (x)
sixty percent (60%) or (y) the Inventory Valuation
Percentage at such time, of the value of Eligible
Inventory at such date, calculated on a first-in,
first-out basis (at the lower of cost or market),
minus the face amount of any LC Guaranty or Letter of
Credit issued by Lender or any of its Affiliates
outstanding at such date, and (II) at any other time,
fifty percent (50%) of the value of Eligible Inventory
at such date, calculated on a firs-in, first-out basis
(at the lower of cost or market), minus the face
amount of any LC Guaranty or Letter of Credit issued
by Lender or any of its Affiliates outstanding at such
date;
MINUS
(ii) any amounts which Lender may pay pursuant to any
of the Loan Documents for the account of Borrower which
remain outstanding.
3. Conditions to Effectiveness. This Tenth Amendment
shall not become effective unless and until each of the following
conditions precedent have been satisfied:
3.1 Borrower shall have paid to Lender a fee of
$10,000 in consideration of Lender's entering into
this Tenth Amendment; and
3.2 Wells shall have executed and delivered to
Lender a Participant's Consent Under Participation
Agreement with respect to this Tenth Amendment.
4. Continuing Representations of Borrower. Borrower
hereby represents and warrants to Lender that as of the date hereof
all representations and warranties continued in the Loan Agreement
are true, complete and correct, and no Default or Event of Default
has occurred and is continuing.
5. Incorporation into the Loan Agreement. The terms and
conditions of this Tenth Amendment shall be incorporated by
reference in the Loan Agreement as though set forth in full
therein. In the event of any inconsistency between the provisions
of this Tenth Amendment and any other provision of the Loan
Agreement, the terms and provisions of this Tenth Amendment shall
govern and control. Except to the extent specifically amended or
superseded by the terms of this Tenth Amendment, all of the
provisions of the Loan Agreement shall remain in full force and
effect to the extent in effect on the date hereof. Except to the
extent, if any, specifically dealt with herein, this Tenth
Amendment does not constitute an amendment or waiver by Lender of
any provision of the Loan Agreement, or of any Default, Event of
Default, or other default by Borrower thereunder. The Loan
Agreement, as modified by this Tenth Amendment, together with the
other Loan Documents, constitutes the complete agreement among the
parties and supersedes any prior written or oral agreements,
writings, communications or understandings of the parties with
respect to the subject matter thereof.
6. Section Headings. The headings of the Sections hereof
are for convenience only, are without substantive meaning, and
shall not be used in interpreting any provision of this Tenth
Amendment or the Loan Agreement.
7. Counterparts. This Tenth Amendment may be executed in
counterparts, each of which shall be deemed to be an original but
all of which shall be one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Tenth Amendment to Loan and Security Agreement as of the day and
year first written above.
("Lender")
FLEET CAPITAL CORPORATION
By: s/Alisa Frederick
Vice President
("Borrower")
GOTTSCHALKS INC.
By: s/Alan A. Weinstein
Senior Vice
President
Chief Financial
Officer
April 22, 1996
Mr. Alan Weinstein
Senior Vice President
Chief Financial Officer
Gottschalks Inc.
7 River Park Place East
Fresno, CA. 93729
RE: Fiscal 1995 Covenant Default and Waiver
Dear Alan:
As of January 31, 1996, Gottschalks Inc. ("Gottschalks") was in
default of the Loan and Security Agreement, (the "Agreement"),
dated December 16, 1994 between Gottschalks, as Borrower, and
Heller Financial, Inc., as Lender ("Heller").
The default exists as a result of Gottschalks not being in
compliance with the covenant contained under section 4(aa) which
states "If at the end of any fiscal year quarter of Debtor,
Debtor's net income before interest, taxes, depreciation and
amortization ("EBITDA") for the preceding four (4) fiscal year
quarters (including the quarter just ended) is less than one and
one-half (1.5) times as much as all of Debtor's interest expense
incurred during the same four (4) fiscal year quarters
("Interest Expense"), all as determined in accordance with GAAP
(i.e., the ratio of EBITDA to Interest Expense in any four (4)
fiscal year quarters may not be less than 1.5:1)".
Based on the preliminary year end financial information provided
by Gottschalks to Heller the year end calculation of this
covenant resulted in a coverage of 1.01 times.
Per your request, and based on our review of Gottschalks
preliminary year end financial information and projections for
fiscal year 1996 (year ending 1/31/97), and the nature and
extent of the defaults, Heller, as Lender, hereby waives
compliance under the Agreement as it pertains to sections 4(aa).
This waiver is effective as of the fiscal year ended January 31,
1996. Heller's waiver of this covenant pertains only to the
violation as of the fiscal year ended 1/31/96 and is not
intended to be a waiver of any future defaults under the
Agreement, nor is it a waiver of any other defaults which may
currently exist. To our knowledge no other defaults presently
exist.
Per your request to modify the covenant contained in 4(aa) of
the Loan and Security Agreement for the first, second and third
quarters of fiscal 1996 Heller is agreeable to adjusting these
covenants to .75 for the first quarter, .85 for the second
quarter and 1.0 times for the third quarter per your letter
request dated January 26, 1996. The modification of these
covenants is subject to receipt of the year end audit for
January 31, 1996 and no material change in the audited numbers
from the preliminary year end numbers already provided.
As a further condition of Heller agreeing to waive the year end
default and modification of the covenant for the first three
quarters of fiscal 1996, Heller will require that Gottschalks
pay a Waiver and Modification Fee of $5,700.00 which represents
0.1% of the outstanding loan balance of $5,699,999.96 as January
31, 1996. You will be invoiced for this amount accordingly.
If you have any questions please feel free to give me a call.
Sincerely,
HELLER FINANCIAL INC.
s:/John Watson
Assistant Vice President
cc: Terry McMullen, Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE IS BEING FILED IN ACCORDANCE WITH REGULATION S-T AND
INCLUDES UNAUDITED SELECTED FINANCIAL DATA FROM THE COMPANY'S 10-K REPORT FOR
THE YEAR ENDED FEBRUARY 3, 1996.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-3-1996
<PERIOD-END> FEB-3-1996
<CASH> 5,113
<SECURITIES> 0
<RECEIVABLES> 34,595
<ALLOWANCES> 1,352
<INVENTORY> 87,507
<CURRENT-ASSETS> 139,058
<PP&E> 129,549
<DEPRECIATION> 40,299
<TOTAL-ASSETS> 239,041
<CURRENT-LIABILITIES> 96,154
<BONDS> 34,872
0
0
<COMMON> 104
<OTHER-SE> 77,813
<TOTAL-LIABILITY-AND-EQUITY> 239,041
<SALES> 401,041
<TOTAL-REVENUES> 412,704
<CGS> 278,827
<TOTAL-COSTS> 278,827
<OTHER-EXPENSES> 8,091
<LOSS-PROVISION> 3,030
<INTEREST-EXPENSE> 11,296
<INCOME-PRETAX> (8,611)
<INCOME-TAX> (2,972)
<INCOME-CONTINUING> (5,639)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,639)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
