UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 3, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(D)OF THE SECURITIES EXCHANGE ACT
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 (I.R.S. Employer
incorporation or organization) Identification No.)
7 River Park Place East, Fresno, California 93720
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code
(209) 434-8000
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 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
The number of shares of the Registrant's common stock
outstanding as of August 31, 1996 was 10,472,915.
<PAGE>
INDEX
GOTTSCHALKS INC. AND SUBSIDIARIES
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed consolidated balance sheets -
August 3, 1996 and February 3, 1996 2
Consolidated statements of operations -
thirteen weeks and twenty-six weeks ended
August 3, 1996 and July 29, 1995 3
Condensed consolidated statements of cash flows -
twenty-six weeks ended August 3, 1996 and
July 29, 1995 4
Notes to condensed consolidated financial
statements -thirteen and twenty-six weeks ended
August 3, 1996 and July 29, 1995 5 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to Vote of
Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item I. GOTTSCHALKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Note 1)
(In thousands of dollars)
August 3, 1996 February 3, 1996
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 4,613 $ 5,113
Cash held by GCC Trust 1,245 2,280
Receivables - net (Note 2) 19,663 33,243
Merchandise inventories 99,876 87,507
Other 11,146 10,915
Total current assets 136,543 139,058
PROPERTY AND EQUIPMENT 124,282 129,549
Less accumulated depreciation and
amortization 37, 236 40,299
87,046 89,250
OTHER LONG-TERM ASSETS 10,360 10,733
$233,949 $239,041
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving lines of credit $ 44,621 $ 45,164
Trade accounts payable 29,662 27,394
Accrued expenses and other
liabilities 15,713 18,759
Short-term obligation
(paid September 1996 - Note 4) 2,743 2,743
Current portion of long-term
obligations 1,868 2,094
Total current liabilities 94,607 96,154
LONG-TERM OBLIGATIONS
(less current portion):
Notes and bonds payable (Note 4) 26,061 25,654
Capitalized lease obligations (Note 5) 5,523 9,218
31,584 34,872
DEFERRED INCOME 19,866 20,265
DEFERRED LEASE PAYMENTS
AND OTHER 11,694 9,833
STOCKHOLDERS' EQUITY 76,198 77,917
$233,949 $239,041
</TABLE>
See notes to condensed consolidated financial statements.
GOTTSCHALKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED - Note 1)
(In thousands of dollars, except share data)
Thirteen Weeks Twenty-Six Weeks
Ended Ended
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
[S] [C] [C] [C] [C]
Net sales $ 95,675 $91,884 $181,235 $169,818
Service charges & other income 3,277 2,726 7,106 5,767
98,952 94,610 188,341 175,585
COSTS & EXPENSES:
Cost of sales 65,283 64,394 124,013 119,775
Selling, general & administrative
expenses 30,370 28,974 58,373 55,176
Depreciation & amortization 1,786 1,947 3,691 3,806
Interest expense 2,758 2,450 5,608 5,083
100,197 97,765 191,685 183,840
LOSS BEFORE INCOME TAX BENEFIT (1,245) (3,155) (3,344) (8,255)
Income tax benefit (460) (1,200) (1,237) (3,138)
NET LOSS $ (785) $(1,955) $ (2,107) $ (5,117)
Net loss per common share $ (.07) $ (.19) $ (.20) $ (.49)
Weighted average number of
common shares outstanding 10,473 10,416 10,450 10,416
[/TABLE]
See notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
GOTTSCHALKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED - NOTE 1)
(In thousands of dollars)
Twenty-Six Weeks
Ended
August 3, July 29,
1996 1995
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (2,107) $ (5,117)
Adjustments:
Depreciation and amortization 3,042 2,931
Deferred income taxes 1,556 (3,053)
Deferred income and other (176) 576
Changes in operating assets and
liabilities:
Receivables 13,580 8,188
Merchandise inventories (12,369) (10,490)
Trade accounts payable and
accrued expenses (776) (13,324)
Other current and long-term
assets and liabilities (775) 1,231
Net cash provided by (used in)
operating activities 1,975 (19,058)
INVESTING ACTIVITIES:
Purchases of property and equipment,
net of reimbursements received (3,870) (5,315)
Proceeds from sale/leaseback
arrangements and other 1,981 11,643
Net cash (used in) provided
by investing activities (1,889) 6,328
FINANCING ACTIVITIES:
Proceeds from revolving lines of
credit 224,376 240,003
Principal payments on revolving lines
of credit (224,919) (216,754)
Proceeds from long-term obligations 1,289
Principal payments on long-term
obligations (1,076) (11,014)
Bank overdraft and other 1,033 (546)
Net cash (used in) provided by
financing activities (586) 12,978
INCREASE (DECREASE) IN CASH (500) 248
CASH AT BEGINNING OF YEAR 5,113 3,156
CASH AT END OF PERIOD $ 4,613 $ 3,404
</TABLE>
See notes to condensed consolidated financial statements.
GOTTSCHALKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Thirteen and Twenty-Six Weeks Ended August 3, 1996 and
July 29, 1995
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance
with generally accepted accounting principles for
interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting
principles for complete financial statements. In the
opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a
fair presentation have been included. Operating
results for the thirteen and twenty-six week periods
ended August 3, 1996 are not necessarily indicative of
the results that may be expected for the year ending
February 1, 1997, due to the seasonal nature of the
Company's business and its LIFO inventory valuation
adjustment ("LIFO adjustment"), currently recorded only
at the end of each fiscal year (Note 3). These
financial statements should be read in conjunction with
the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K
for the year ended February 3, 1996 (the "1995 Annual
Report on Form 10-K").
The condensed consolidated balance sheet at February 3,
1996 has been derived from the audited consolidated
financial statements at that date.
2.RECEIVABLES SECURITIZATION PROGRAM
As described more fully in the Company's 1995 Annual
Report on Form 10-K, the Company automatically sells
all of its accounts receivable arising under its
private label customer credit cards to a wholly-owned
subsidiary, Gottschalks Credit Receivables Corporation
("GCRC"), and certain of those receivables are
subsequently conveyed to a trust, Gottschalks Credit
Card Master Trust ("GCC Trust"), to be used as
collateral for securities previously issued to
investors. The Company services and administers the
receivables in return for a monthly servicing fee. The
Company has issued the following certificates under the
receivables securitization program:
Fixed Base Certificates. In 1994, fractional
undivided ownership interests in certain of the
receivables were sold through the issuance of $40.0
million principal amount 7.35% Fixed Base Class A-1
Credit Card Certificates ("Fixed Base Certificates") to
third-party investors. Interest on the Fixed Base
Certificates is earned by the certificateholders on a
monthly basis and the outstanding principal balance is
to be repaid in equal monthly installments commencing
September 1998 through September 1999, through the
application of credit card receivable principal
collections during that period. The 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.
Variable Base Certificate. In 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 a revolving line of credit financing arrangement
with that bank (Note 4). The issuance of the Variable
Base Certificate was accounted for as a financing
transaction and, accordingly, receivables underlying
the Variable Base Certificate, totaling $8.9 million
and $17.9 million at August 3, 1996 and February 3,
1996, respectively, are included in receivables
reported in the accompanying financial statements.
Receivables reported in the accompanying financial
statements also include $7.3 million and $8.0 million
of receivables as of August 3, 1996 and February 3,
1996, respectively, representing GCRC's retained
interest in receivables sold in connection with the
issuance of the Fixed Base Certificates and
receivables, accrued finance charges and vendor claims
that did not meet certain eligibility requirements of
the program totaling $3.4 million and $7.3 million as
of August 3, 1996 and February 3, 1996, respectively.
3. 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 value. The Company includes in its
valuation of inventories certain indirect merchandise
purchasing, handling and storage costs in conformity
with uniform capitalization rules. 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. A valuation of
inventory under the LIFO method is presently made
only at the end of each year based on actual inventory
levels and costs at that time. Since these factors are
subject to variability beyond the control of
management, interim results of operations are subject
to the final year-end LIFO inventory valuation
adjustment.
4. DEBT OBLIGATIONS
Revolving Lines of Credit. The Company's primary
revolving line of credit arrangement is with Fleet
Capital Corporation ("Fleet") and provides for
borrowings of up to $66.0 million, limited to a
restrictive borrowing base equal to 60% of eligible
merchandise inventories (50% during the months of
January 1997 through March 1997). Interest on
outstanding borrowings under the line of credit is
currently charged at a rate of LIBOR plus 3.75% (9.2%
at August 3, 1996). The maximum amount available for
borrowings under the line of credit was $50.0 million
as of August 3, 1996, of which $37.1 million was
outstanding as of that date. The original expiration
date of the facility was March 29, 1997. On September
5, 1996, the Fleet agreement was amended to extend the
expiration of the facility to September 29, 1997, with
no prepayment penalty. In addition, based on the
Company's improved operating results for the first half
of fiscal 1996, certain covenants contained in the
arrangement applicable to the second half of fiscal
1996 and fiscal 1997 were made less restrictive.
The Company also has a revolving line of credit
arrangement with Bank Hapoalim (Note 2) which
provides for additional borrowings of up to $15.0
million through March 1997. Borrowings under the line
of credit are limited to a percentage of the
outstanding principal balance of receivables underlying
the Variable Base Certificate and therefore, the
Company's borrowing capacity under the line of credit
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 plus 1.0% (6.5% at
August 3, 1996). At August 3, 1996, $7.5 million, which
was the maximum amount available for borrowings as of
that date, was outstanding under the line of credit
with Bank Hapoalim.
Long-Term Borrowings. The Company has four
fifteen-year mortgage loans with Midland Commercial
Funding ("Midland") with outstanding balances totaling
$19.8 million at August 3, 1996. The Midland loans, due
October and November 2010, bear interest at rates
ranging from 9.23% to 9.39%. The Company also has the
following other long-term loan facilities: (i) a loan
payable with Heller Financial, Inc. ("Heller"), due
January 2002, which bears interest at a rate of 10.45%
and had an outstanding loan balance of $5.2 million at
August 3, 1996; (ii) a five-year 10.0% note payable to
Federated Department Stores, Inc. ("Federated"), due
March 2001, with an outstanding balance of $1.2 million
at August 3, 1996; and (iii) other long-term
obligations with outstanding balances totaling $1.2
million at August 3, 1996.
Short-Term Obligation. The Company repaid the
short-term loan with Wells Fargo Bank, N. A., with an
outstanding balance of $2.7 million at August 3, 1996,
on its maturity date of September 5, 1996.
As described more fully in the Company's 1995 Annual
Report on Form 10-K, certain of the Company's debt
agreements contain various restrictive covenants. The
Company was in compliance with all such restrictive
covenants as of August 3, 1996.
5. LEASE ARRANGEMENTS
In March 1996, the Company finalized an agreement with
Broadway Stores, Inc. ("Broadway"), a wholly-owned
subsidiary of Federated, and the landlord, whereby the
Company vacated its present location in the Modesto,
California Vintage Faire Mall and sub-leased the
Broadway's former store in that mall for the remaining
twelve years of the Broadway lease. Under a separate
arrangement with Broadway and the landlord, the
Company also vacated its original location in the
Fresno, California Fashion Fair Mall and reopened a
store in that mall under a new 20-year lease in the
former Broadway store location. The Company recognized
a gain of $311,000 in the second quarter of 1996
($1,134,000 in the first half of 1996) upon the
termination of the original leases, which were
accounted for as capital leases by the Company,
representing the difference between the capital lease
obligations and the net book value of the related
assets recorded under the capital leases. Such amounts
are included in service charges and other income. As
described more fully in the Company's 1995 Annual
Report on Form 10-K, the Company received a $4.0
million lease incentive in the first quarter of 1995 in
connection with one of its fiscal 1995 new store
openings. The $4.0 million has been deferred for
financial reporting purposes and is being amortized
over the 10-year minimum lease period of the lease.
6. CONTINGENCIES
As described more fully in the Company's 1995 Annual
Report on Form 10-K, the Company was party to a lawsuit
filed in 1992 by F&N Acquisition Corporation ("F&N")
under which, among other things, 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. The Company was also party to a
related lawsuit filed by Sabey Corporation ("Sabey"),
the owner of the mall in which the Frederick and Nelson
store was located.
On July 16, 1996, the Company reached agreements with
F&N and Sabey to settle the lawsuits. The combined
total of the settlements (paid in July 1996), including
legal fees and related costs, was not materially
different from the Company's previously recorded
reserve.
GOTTSCHALKS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Following is management's discussion and analysis of
significant factors which have affected the Company's
financial position and its results of operations for
the periods presented in the accompanying condensed
consolidated financial statements.
Thirteen Weeks Ended August 3, 1996 Compared To
Thirteen Weeks Ended July 29, 1995
Results of Operations
The following table sets forth for the periods
indicated certain items from the Company's Consolidated
Statements of Operations as a percent of net sales:
<TABLE>
<CAPTION>
Second Quarter
1996 1995
<S> <C> <C>
Net sales 100.0% 100.0%
Service charges & other income 3.4 3.0
103.4 103.0
Costs and Expenses:
Cost of sales 68.2 70.1
Selling, general &
administrative expenses 31.7 31.5
Depreciation & amortization 1.9 2.1
Interest expense 2.9 2.7
104.7 106.4
LOSS BEFORE INCOME TAX BENEFIT (1.3) (3.4)
Income tax benefit (0.5) (1.3)
NET LOSS (0.8)% (2.1)%
</TABLE>
Net Sales
Net sales increased by $3.8 million to $95.7 million in
the second quarter of 1996 as compared to $91.9 million
in the second quarter of 1995, a 4.1% increase. The
increase in total store sales reflects additional sales
volume generated by the opening of three new
Gottschalks stores and three larger replacement stores
for pre-existing locations since the same period of the
prior year. New stores opened during the period include
two stores in California, located in Watsonville
(August 1995) and Tracy (October 1995), and one new
store in Reno, Nevada (March 1996). The larger
replacement stores were opened in Visalia (August
1995), Modesto (March 1996) and Fresno (April 1996),
California. The Company currently has no plans for
further expansion during the remainder of fiscal 1996.
Comparable store sales decreased by 1.0% in the second
quarter of 1996 as compared to the second quarter of
1995. As described more fully below, management
believes that certain strategies implemented to improve
the Company's gross margin resulted in lower comparable
store sales during the period.
Service Charges and Other Income
Service charges and other income increased by $600,000
to $3.3 million in the second quarter of 1996 as
compared to $2.7 million in the second quarter of 1995,
an increase of 22.2%. As a percent of net sales,
service charges and other income increased to 3.4% in
the second quarter of 1996 as compared to 3.0% in the
second quarter of 1995.
Service charges associated with the Company's customer
credit cards remained unchanged at $2.6 million in the
second quarters of 1996 and 1995. Credit sales as a
percent of total sales decreased to 44.5% in the second
quarter of 1996 as compared to 44.9% in the second
quarter of 1995.
Other income, which includes the amortization of
deferred income and other miscellaneous income and
expense items, increased by $600,000 to $700,000 in the
second quarter of 1996 as compared to $100,000 in the
second quarter of 1995. This increase is primarily
attributable to: (i) a pre-tax gain of $311,000
resulting from the termination of a lease; and (ii) the
amortization of a lease incentive received in
connection with one of the Company's fiscal 1995 new
store openings. (See Note 5 to the Condensed
Consolidated Financial Statements.)
Cost of Sales
Cost of sales increased by $900,000 to $65.3 million in
the second quarter of 1996 as compared to $64.4 million
in the second quarter of 1995, an increase of 1.4%. The
Company's gross margin percent increased to 31.8% in
the second quarter of 1996 as compared to 29.9% in the
second quarter of 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
(uniform capitalization). Excluding the effect of such
costs, the Company's gross margin percent increased to
36.9% in the second quarter of 1996 as compared to
35.8% in the second quarter of 1995. This increase in
gross margin percent is primarily due to increased
sales of higher gross margin spring and summer apparel
merchandise, a higher initial inventory mark-on
percentage (through favorable vendor pricing), and a
reduction of seasonal clearance and storewide sale
event markdowns as compared to the same period of the
prior year. Management believes that part of its
strategy to improve gross margins, which includes
reducing markdowns by focusing promotional activity
toward specific items and reducing storewide sales
events, may have resulted in lower comparable store
sales for the Company. The Company's gross margin
percent in the second quarter of 1995 was negatively
impacted by increased markdowns taken in an attempt to
increase sales of slow-moving spring and summer apparel
resulting, in part, from unusually cold and rainy
weather conditions during the period. Increased
markdowns also resulted from promotional activity
related to new store openings and storewide sale
events, in addition to a revision to the Company's
women's apparel merchandising strategy during the
period.
The Company's interim gross margin percent may not be
indicative of its gross margin percent for a full year,
due to the seasonal nature of the Company's business
and its LIFO inventory valuation adjustment ("LIFO
adjustment"), currently recorded only at the end of
each fiscal year. Management believes the Company's
fiscal 1996 LIFO adjustment will not materially effect
its fiscal 1996 results of operations.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased
by $1.4 million to $30.4 million in the second quarter
of 1996 as compared to $29.0 million in the second
quarter of 1995, an increase of 4.8%. As a percent of
net sales, selling, general and administrative expenses
increased to 31.7% in the second quarter of 1996 as
compared to 31.5% in the second quarter of 1995.
Excluding the effect of certain costs reclassified to
cost of sales under uniform capitalization rules,
selling, general and administrative costs as a percent
of net sales remained unchanged at 36.7% in the second
quarters of 1996 and 1995. Management has continued to
implement Company-wide expense control measures to
control operating expenses.
Depreciation and Amortization
Depreciation and amortization expense, which includes
the amortization of new store pre-opening costs,
decreased by $100,000 to $1.8 million in the second
quarter of 1996 as compared to $1.9 million in the
second quarter of 1995, a decrease of 5.3%. As a
percent of net sales, depreciation and amortization
expense decreased to 1.9% in the second quarter of 1996
as compared to 2.1% in the second quarter of 1995.
This decrease resulted from lower amortization of new
store pre-opening costs as compared to the same period
of the prior year, due to fewer new store openings,
partially offset by higher depreciation expense related
to capital expenditures for new stores.
Certain costs associated with the opening of new stores
are deferred and amortized generally on a straight-line
basis not to exceed a twelve month period. 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, which includes the amortization of
deferred financing costs, increased by $300,000 to $2.8
million in the second quarter of 1996 as compared to
$2.5 million in the second quarter of 1995, an increase
of 12.0%. As a percent of net sales, interest expense
increased to 2.9% in the second quarter of 1996 as
compared to 2.7% in the second quarter of 1995. The
dollar increase in interest expense is primarily due to
additional long-term financing arrangements, including
the Midland mortgage loans, entered into since the same
period of the prior year. Interest expense associated
with line of credit borrowings remained unchanged in
the second quarters of 1996 and 1995. The
weighted-average interest rate associated with line of
credit borrowings also remained unchanged at 8.7% in
the second quarters of 1996 and 1995, despite an
increase to the interest rate charged on outstanding
borrowings under the Company's primary line of credit
arrangement with Fleet Capital Corporation ("Fleet") to
LIBOR plus 3.75% in the second quarter of 1996 as
compared to LIBOR plus 2.8% in the second quarter of
1995, due to a reduction in LIBOR and lower average
outstanding line of credit borrowings during the
period, combined with a higher percentage of those
borrowings advanced under the more cost-effective line
of credit with Bank Hapoalim than in the prior year.
(See Note 4 to the Condensed Consolidated Financial
Statements and "Liquidity and Capital Resources").
Income Taxes
The interim effective tax credit of (37.0%) for the
second quarter of 1996 and (38.0%) for the second
quarter of 1995 relates to net losses incurred during
those periods and represents the Company's best
estimate of the annual effective tax rate for those
fiscal years.
Net Loss
The Company reduced its net loss by $1.2 million to a
net loss of $785,000 in the second quarter of fiscal
1996 as compared to a net loss of $2.0 million in the
second quarter of fiscal 1995. On a per share basis,
the net loss was reduced by $.12 per share to a net
loss of ($.07) per share in the second quarter of 1996
as compared to a net loss of ($.19) per share in the
second quarter of 1995.
Twenty-Six Weeks Ended August 3, 1996 Compared To
Twenty-Six Weeks Ended July 29, 1995
Results of Operations
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>
First Half
1996 1995
<S> <C> <C>
Net sales 100.0% 100.0%
Service charges & other income 3.9 3.4
103.9 103.4
Costs and Expenses:
Cost of sales 68.4 70.5
Selling, general & administrative
expenses 32.2 32.5
Depreciation & amortization 2.0 2.3
Interest expense 3.1 3.0
105.7 108.3
LOSS BEFORE INCOME TAX BENEFIT (1.8) (4.9)
Income tax benefit (0.6) (1.9)
NET LOSS (1.2)% (3.0)%
</TABLE>
Net Sales
Net sales increased by $11.4 million to $181.2 million
in the first half of 1996 as compared to $169.8 million
the first half of 1995, an increase of 6.7%. This
increase reflects an increase in comparable store sales
of 1.2%, combined with additional sales volume
generated by six new Gottschalks stores and three
larger replacement stores for pre-existing locations
not open for the entire first half of the prior year.
New stores opened during the period include four stores
in California, located in Auburn (February 1995), San
Bernardino (April 1995), Watsonville (August 1995) and
Tracy (October 1995), and two stores in Nevada, located
in Carson City (March 1995) and Reno (March 1996). The
larger replacement stores were opened in Visalia
(August 1995), Modesto (March 1996) and Fresno (April
1996), California.
Service Charges and Other Income
Service charges and other income increased by $1.3
million to $7.1 million in the first half of 1996 as
compared to $5.8 million the first half of 1995, an
increase of 22.4%. As a percent of net sales, service
charges and other income increased to 3.9% in the first
half of 1996 as compared to 3.4% in the first half of
1995.
Service charges associated with the Company's customer
credit cards decreased by $100,000 to $5.2 million in
the first half of 1996 as compared to $5.3 million the
first half of 1995, a decrease of 1.9%. This decrease
is primarily due to the more timely payment of
outstanding balances by customers, an increase in
deferred billing promotions and a decrease in credit
sales as a percent of total sales to 44.6% in the first
half of 1996 as compared to 44.8% in the first half of
1995.
Other income, which includes the amortization of
deferred income and other miscellaneous income and
expense items, increased to $1.9 million in the first
half of 1996 as compared to $500,000 in the first half
of 1995, an increase of $1.4 million. This increase is
primarily attributable to: (i) a pre-tax gain of $1.1
million resulting from the termination of two leases;
and (ii) the amortization of a lease incentive received
in connection with one of the Company's fiscal 1995 new
store openings. (See Note 5 to the Condensed
Consolidated Financial Statements.)
Cost of Sales
Cost of sales increased by $4.2 million to $124.0
million in the first half of 1996 as compared to $119.8
million the first half of 1995, an increase of 3.5%.
The Company's gross margin percent increased to 31.6%
in the first half of 1996 as compared to 29.5% in the
first half of 1995. Excluding the effect of costs
reclassified to cost of sales under uniform
capitalization rules, the gross margin percent
increased to 36.4% in the second quarter of 1996 as
compared to 34.9% in the second quarter of 1995. This
increase in gross margin percent is primarily due to
increased sales of higher gross margin spring and
summer apparel merchandise, a higher initial inventory
mark-on percentage (through favorable vendor pricing),
and a reduction of seasonal clearance and storewide
sale event markdowns as compared to the same period of
the prior year. The Company's gross margin percent in
the first half of 1995 was negatively impacted by
increased markdowns taken in an attempt to increase
sales of slow-moving spring and summer apparel
resulting, in part, from unusually cold and rainy
weather conditions during the period. Increased
markdowns also resulted from promotional activity
related to new store openings and storewide sale
events, in addition to a revision in the Company's
women's apparel merchandising strategy during the
period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased
by $3.2 million to $58.4 million in the first half of
1996 as compared to $55.2 million in the first half of
1995, an increase of 5.8%. As a percent of net sales,
selling, general and administrative expenses decreased
to 32.2% in the first half of 1996 as compared to 32.5%
in the first half of 1995. Excluding the effect of
certain costs reclassified to cost of sales under
uniform capitalization rules, selling, general and
administrative costs as a percent of net sales
decreased to 37.3% in the first half of 1996 as
compared to 38.1% in the first half of 1995. This
decrease as a percent of net sales is due to the
increase in sales volume, combined with the continued
implementation of a Company-wide expense control
program to reduce operating expenses.
Depreciation and Amortization
Depreciation and amortization expense decreased by
$100,000 to $3.7 million in the first half of 1996 as
compared to $3.8 million in the first half of 1995, a
decrease of 2.6%. As a percent of net sales,
depreciation and amortization expense decreased to 2.0%
in the first half of 1996 as compared to 2.3% in the
first half of 1995. This decrease resulted from lower
amortization of new store pre-opening costs as
compared to the same period of the prior year, due to
fewer new store openings, partially offset by higher
depreciation expense related to capital expenditures
for new stores.
Interest Expense
Interest expense increased by $500,000 to $5.6 million
in the first half of 1996 as compared to $5.1 million
in the first half of 1995, an increase of 9.8%. As a
percent of net sales, interest expense increased to
3.1% in the first half of 1996 as compared to 3.0% in
the first half of 1995. The dollar increase in interest
expense is primarily due to additional long-term
financing arrangements, including the Midland mortgage
loans, entered into since the same period of the prior
year, in addition to higher interest associated with
line of credit borrowings during the period. The
increase in line of credit interest during the period
was due to higher average outstanding borrowings under
the Company's various lines of credit ($43.5 million in
the first half of 1996 as compared to $39.9 million in
the first half of 1995), primarily to fund increased
inventory requirements associated with the new stores
opened since the same period of the prior year. This
increase was partially offset by a decrease in the
weighted-average interest rate applicable to line of
credit borrowings (8.6% in the first half of fiscal
1996 as compared to 8.7% in the first half of fiscal
1995), which occurred despite an increase in the
interest rate charged on outstanding borrowings under
the Fleet facility (LIBOR plus 3.75% in the first half
of 1996 as compared to LIBOR plus 2.8% in the first
half of 1995), as a result of a reduction in LIBOR
during the period, combined with a higher percentage of
those borrowings advanced under the more cost-effective
line of credit with Bank Hapoalim than in the prior
year. (See Note 4 to the Condensed Consolidated
Financial Statements and "Liquidity and Capital
Resources.")
Income Taxes
The interim effective tax credit of (37.0%) for the
first half of 1996 as compared to (38.0%) for the first
half of 1995 relates to net losses incurred during
those periods and represents the Company's best
estimate of the annual effective tax rate for those
fiscal years.
Net Loss
The Company reduced its net loss by $3.0 million to a
net loss of $2.1 million in the first half of 1996 as
compared to a net loss of $5.1 million in the first
half of 1995. On a per share basis, the net loss was
reduced by $.29 per share to a net loss of ($.20) per
share in the first half of 1996 as compared to a net
loss of ($.49) per share in the first half of 1995.
Liquidity and Capital Resources
As described more fully in the Company's 1995 Annual
Report on Form 10-K and Notes 2 and 4 to the
accompanying financial statements, the Company's
working capital requirements are currently met through
a combination of cash, borrowings under its revolving
lines of credit and its securitization program. The
Company's liquidity position has been enhanced by
improved operating results and a reduction of capital
and other discretionary expenditures during the first
half of 1996.
The statements in this section contain forward-looking
statements. Numerous factors could cause actual results
to differ materially from the forward looking
statements described. See the section entitled
"Proposed Course of Action" in Part II, Item 7,
"Liquidity and Capital Resources" of the Company's 1995
Annual Report on Form 10-K for a description of factors
which could cause actual results to differ from the
from the forward looking statements contained herein.
Management believes the Company has adequate cash and
borrowing capacity under its various revolving lines of
credit to meet its liquidity needs.
The Company's primary revolving line of credit
arrangement is with Fleet Capital Corporation ("Fleet")
and provides for borrowings of up to $66.0 million,
limited to a restrictive borrowing base equal to 60% of
eligible merchandise inventory (50% of eligible
inventory during the months of January 1997 through
March 1997). Interest under the Fleet line of credit is
currently charged at a rate equal to LIBOR plus 3.75%
(9.2% at August 3, 1996). The maximum amount available
for borrowings under the line of credit was $50.0
million at August 3, 1996, of which $37.1 million was
outstanding as of that date. The original expiration
date of the facility was March 29, 1997. On September
5, 1996, the Fleet agreement was amended to extend the
expiration of the facility to September 29, 1997, with
no pre-payment penalty. In addition, based on the
Company's improved operating results for the first half
of fiscal 1996, certain covenants contained in the
arrangement applicable to the second half of fiscal
1996 and fiscal 1997 were made less restrictive.
Management requested the extension of the agreement in
order to provide ample time to renegotiate a new
long-term working capital facility for the Company.
The Company also has a revolving line of credit with
Bank Hapoalim which provides for additional borrowings
of up to $15.0 million, limited to a restrictive
borrowing base, through March 1997. Interest on
outstanding borrowings under the line of credit is
charged at a rate equal to LIBOR plus 1.0%, (6.5% at
August 3, 1996). At August 3, 1996, $7.5 million, which
was the maximum amount available for borrowings as of
that date, was outstanding under the line of credit
with Bank Hapoalim. Management is in process of
renegotiating its line of credit agreement with Bank
Hapoalim, and has requested a renewal to the line of
credit through March 1999, with an increase to the
borrowing capacity under the line of up to a maximum of
$25.0 million, limited to a restrictive borrowing base.
Management expects the interest rate under the new
arrangement to remain at LIBOR plus 1.0%, and believes
the agreement will be finalized during the third
quarter of 1996.
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.
The Company's other short-term and long-term borrowing
arrangements are described more fully in Note 4 to the
accompanying Condensed Consolidated Financial
Statements. The Company repaid the short-term loan to
Wells Fargo Bank, N. A. on its maturity date of
September 5, 1996. The short-term loan, with an
outstanding balance of $2.7 million as of August 3,
1996, was collateralized by the Company's department
store located in San Luis Obispo, California. The
Company is in process of refinancing the property under
a long-term mortgage with Heller Financial, Inc. (
Heller"). Proceeds from the arrangement, expected to be
finalized in the third quarter of 1996, will be
approximately $6.0 million, with $3.0 million to be
funded upon its closing and the remaining $3.0 million
to be funded in approximately six months. The mortgage
is expected to be a seven-year arrangement, bearing
interest at a rate of approximately 10.0%. However,
there can be no assurance that the mortgage will be
finalized, or that its finalization will not be
delayed, subject to a variety of conditions precedent
or other factors.
The Company was in compliance with all restrictive
covenants contained in its various financing
arrangements as of August 3, 1996.
Net cash provided by operating activities was $2.0
million in the first half of 1996 as compared to net
cash used by operating activities of $19.0 million in
the first half of 1995, an increase of $21.0 million.
In addition to improved operating results, significant
items which enhanced cash provided by operating
activities in the first half of fiscal 1996 include:
(i) the payment of approximately $7.6 million of
operating expenses related to fiscal 1996 during the
53rd week of fiscal 1995 as a result of the calendar
shift in fiscal 1995; (ii) the receipt of $2.8 million
in the first quarter of 1996 in connection with the
filing of certain amended income tax returns; and (iii)
a decrease in customer credit card receivables. The
decrease in credit card receivables is primarily
seasonal in nature, in that receivables are typically
at their highest level following the Christmas selling
season and decline thereafter as customers repay their
account balances. Cash provided by these activities was
partially offset by cash used to fund the seasonal
increase in inventory levels and to settle pending
litigation (see Note 6 to the Condensed Consolidated
Financial Statements). To a lesser extent, the increase
in merchandise inventories also resulted from the
receipt of certain fall season merchandise earlier than
the prior year in return for favorable pricing terms.
Net cash used in operating activities in the first half
of 1995 reflected increased inventory requirements
associated with new stores, higher costs associated
with the opening of those new stores during the period,
a decrease in certain accrued expenses (including sales
tax), and the payment of $3.0 million to settle
stockholder litigation (see the Company's 1995 Annual
Report on Form 10-K). Such uses of cash were partially
offset by the receipt of $4.0 million in connection
with entering into a new lease during the period.
Net cash used in investing activities was $1.9 million
in the first quarter of 1996 as compared to net cash
provided by investing activities of $6.3 million in the
first half of 1995, an increase of $8.2 million. Net
cash (used in) provided by investing activities in the
first half of 1996 and 1995 consisted primarily of
capital expenditures for tenant improvements,
construction costs and furniture, fixtures and
equipment associated with new and certain existing
store locations, net of amounts received as
reimbursements for certain of those expenditures and
proceeds from various sale and leaseback arrangements.
The Company received $1.9 million in connection with
the sale and leaseback of certain fixtures and
equipment in the first half of 1996, and received $11.6
million in connection with the sale and leaseback of
the Company's department store in Capitola in the first
half of 1995.
Net cash used in financing activities was $586,000 in
the first half of 1996 as compared to net cash provided
by financing activities of $13.0 million in the first
half of 1995, a decrease of $13.6 million. Total
advances under the Company's various lines of credit,
net of repayments, were lower in the first half of 1996
as compared to the first half of 1995 as a result of
improved operating results, the payment of
approximately $7.6 million of fiscal 1996 operating
expenses during the 53rd week of fiscal 1995, the
receipt of $2.8 million from the filing of certain
amended income tax returns and from a reduction of
capital and other expenditures related to new store
openings.
The Company's 1996 expansion program included the
opening of one new 125,000 square foot department store
in Reno, Nevada in March 1996 and the relocation of two
existing stores in California into larger stores in the
Modesto Vintage Faire Mall (an increase from 89,600
square feet to 163,500 square feet - March 1996) and
the Fresno Fashion Fair Mall (an increase from 76,700
square feet to 160,000 square feet - April 1996.) The
Company currently has no further plans for expansion in
fiscal 1996.
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 of operations and cash
flows 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As described more fully in the Company's 1995 Annual
Report on Form 10-K, the Company was party to a lawsuit
filed in 1992 by F&N Acquisition Corporation ("F&N")
under which, among other things, 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. The Company was also party to a
related lawsuit filed by Sabey Corporation ("Sabey"),
the owner of the mall in which the Frederick and Nelson
store was located. The lawsuits were combined in 1995
in the United States District Court for the Western
District of Washington (F&N Acquisition Corp. and Sabey
Corporation v. Gottschalks Inc., Case No. C95-186Z).
On July 11, 1996, the Company entered into an Agreement
and General Release with F&N (Case No. C95-186Z). The
Company also entered into a Settlement Agreement and
Release with Sabey on July 12, 1996, (Case No.
C95-186Z). Pursuant to these Settlement Agreements, the
Plaintiffs agreed to dismiss all claims against
Gottschalks. The combined total of the settlements
(paid in July 1996), including legal fees and related
costs, was not materially different from the Company's
previously recorded reserve.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
On June 27, 1996, the Company held its 1996 Annual
Meeting of Stockholders at which the Company submitted
to a vote of its stockholders the election of the
following nine nominees for director. Each of the nine
nominees were elected. The following represents a
tabulation of the votes cast for each of the nine
nominees:
Nominee for Director Votes For Votes Withheld
Joseph W. Levy 8,905,755 74,205
Gerald H. Blum 8,902,645 77,315
Bret W. Levy 8,903,700 76,260
Sharon Levy 8,907,345 72,615
Joseph J. Penbera 8,913,175 66,785
Frederick R. Ruiz 8,908,450 71,510
O. James Woodward III 8,913,425 66,535
Max Gutmann 8,908,425 71,535
Stephen J. Furst 8,912,865 67,095
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed pursuant
to the requirements of Item 601 of
Regulation S-K:
Exhibit No. Description
10.49 Eleventh Amendment to Loan and
Security Agreement dated September 5,
1996, by and between Gottschalks Inc.
and Fleet Capital Corporation.
27 Financial Data Schedule.
(b) The Company did not file Current Reports on
Form 8-K during the thirteen week period ended
August 3, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
Gottschalks Inc.
(Registrant)
September 17, 1996
\s\ Joseph W. Levy
(Joseph W. Levy, Chairman
and Chief Executive Officer)
September 17, 1996
\s\ Alan A. Weinstein
(Alan A. Weinstein,
Senior Vice President and
Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE IS BEING FILED IN ACCORDANCE WITH REGULATION
S-T AND INCLUDES UNAUDITED SELECTED FINANCIAL DATA FROM THE COMPANY'S
QUARTERLY REPORT ON FORM 10-Q FOR THE SECOND QUARTER ENDED
AUGUST 3, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> AUG-03-1996
<CASH> 4,613
<SECURITIES> 0
<RECEIVABLES> 20,824
<ALLOWANCES> 1,161
<INVENTORY> 99,876
<CURRENT-ASSETS> 136,543
<PP&E> 124,282
<DEPRECIATION> 37,236
<TOTAL-ASSETS> 233,949
<CURRENT-LIABILITIES> 94,607
<BONDS> 31,584
0
0
<COMMON> 105
<OTHER-SE> 76,093
<TOTAL-LIABILITY-AND-EQUITY> 233,949
<SALES> 181,235
<TOTAL-REVENUES> 188,341
<CGS> 124,013
<TOTAL-COSTS> 124,013
<OTHER-EXPENSES> 3,691
<LOSS-PROVISION> 1,397
<INTEREST-EXPENSE> 5,608
<INCOME-PRETAX> (3,344)
<INCOME-TAX> (1,237)
<INCOME-CONTINUING> (2,107)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,107)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
ELEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS ELEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
("Eleventh Amendment") is entered into as of September
5, 1996 by and between Fleet Capital Corporation, a
Rhode Island corporation, as successor by merger to
Fleet Capital Corporation, a Connecticut corporation
formerly known as Shawmut Capital 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 are parties to 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, (viii) that certain Eighth
Amendment to Loan and Security Agreement dated as of
October 17, 1995, (ix) that certain Ninth Amendment to
Loan and Security Agreement dated as of January 26,
1996, and (x) that certain Tenth Amendment to Loan and
Security Agreement dated as of March 7, 1996, pursuant
to which Lender is providing 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.
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 lessor 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 March 8 through December 31, 1996, and the period
from April 1 through September 29, 1997, 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
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 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 Rhode
Island corporation.
2.4 Section 2.3(A)(i) of the Loan Agreement is
deleted in its entirety and the following is
substituted therefor:
(i) Borrower may give Lender notice of its
intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the
proposed borrowing date, no later than 10:30 a.m.,
Pacific Time, on the proposed borrowing date; provided,
however, that no such request may be made at a time
when there exists a Default or an Event of Default. As
an accommodation to Borrower, Lender may permit
telephonic requests for loans and electronic
transmittal of instructions, authorizations, agreements
or reports to Lender by Borrower. Unless Borrower
specifically directs Lender in writing not to accept or
act upon telephonic or electronic communications from
Borrower, Lender shall have no liability to Borrower
for any loss or damage suffered by Borrower as a result
of Lender's honoring of any requests, execution of any
instructions, authorizations or agreements or reliance
on any reports communicated to it telephonically or
electronically and purporting to have been sent to
Lender to Borrower, and Lender shall have no duty to
verify the origin of any such communication or the
authority of the person sending it.
2.5 Section 3.2 of the Loan Agreement is deleted
in its entirety and the following is substituted
therefor:
3.2 Term of Agreement. Subject to Lender's
right to cease making Revolving Loans to Borrower at
any time upon or after the occurrence of a Default or
an Event of Default, this Agreement shall be in effect
for the period from the date hereof through and
including September 29, 1997 (the "Original Term"), and
this Agreement shall automatically renew itself for
one-year terms thereafter (the "Renewal Terms"), unless
terminated as provided in Section 3.3.
2.6 Section 3.3 (A) of the Loan Agreement is
deleted in its entirety and the following is
substituted therefor:
(A) Upon at least ninety (90) days prior
written notice to Lender, Borrower may, at its option,
terminate this Agreement; provided, that no such
termination shall be effective until Borrower has paid
all of the Obligations in immediately available
funds, and all Letters of Credit and LC Guaranties
issued by Lender or its Affiliates hereunder have
expired or otherwise been satisfied. At the effective
date of such termination (the "Prepayment Date"),
Borrower shall pay to Lender, in addition to all of
the then outstanding principal, accrued interest and
other charges owing under the terms of this Agreement
and any of the other Loan Documents, as liquidated
damages for the loss of the bargain and not as a
penalty, the prepayment premium for amounts outstanding
on the Revolving Loans by paying to Lender on the
Prepayment Date the following amounts:
If Prepayment is Made
Between the Following
Dates, Inclusive: The Premium Shall Be:
(i) March 31, 1996 and one-quarter of one
March 30, 1997 percent (0.25%)of the
Maximum Commitment
(ii) March 31, 1997 and zero percent (0.00%) of
September 29, 1997 the Maximum Commitment
(iii) September 30, 1997 one-quarter of one
and thereafter percent (0.25%)
of the maximum
Commitment
If termination occurs on the last day of the
Original Term or on the last day of any Renewal Term,
no prepayment shall be payable.
2.7 Section 8.3(D)(i) of the Loan Agreement is
hereby deleted in its entirety and the following is
substituted therefor:
(i) Maintain at all times not less than the
following Consolidated Adjusted Net Earnings from
Operations for the corresponding periods set forth
below:
<TABLE>
<CAPTION>
Fiscal Period Amount
<S> <C>
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 and <$3,000,000>
each Fiscal Period
thereafter
</TABLE>
2.8 Section 8.3 (D)(ii) of the Loan Agreement is
hereby deleted in its entirety and the following is
substituted therefor:
(ii) Maintain at all times, on a fiscal
quarter-to-date basis, not less than the following
Consolidated corresponding fiscal quarters set forth
below:
<TABLE>
<CAPTION>
Fiscal Period Amount
<S> <C>
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 $5,000,000
of Fiscal year
ending January 1997
Each fiscal quarter <$2,000,000>
thereafter
</TABLE>
3. 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.
4. Incorporation into the Loan Agreement. The
terms and conditions of this Eleventh 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 Eleventh
Amendment and any other provision of the Loan
Agreement, the terms and provisions of this Eleventh
Amendment shall govern and control. Except to the
extent specifically amended or superseded by the terms
of this Eleventh 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 Eleventh 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 Eleventh 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.
5. 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 Eleventh Amendment
or the Loan Agreement.
6. Counterparts. This Eleventh 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 Eleventh 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
