UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 2000
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 Identification No.)
incorporation or organization)
7 River Park Place East, Fresno, California 93720
-----------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (559) 434-4800
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
-----
The number of shares of the Registrant's common stock outstanding
as of November 30,2000 was 12,621,406.
INDEX
GOTTSCHALKS INC. AND SUBSIDIARY
Page No.
PART I. FINANCIAL INFORMATION ------------
------------------------------
Item 1. Financial Statements (Unaudited):
Condensed consolidated balance sheets -
October 28, 2000, January 29, 2000
and October 30, 1999 3
Condensed consolidated statements of operations -
thirteen and thirty-nine weeks ended
October 28, 2000 and October 30, 1999 4
Condensed consolidated statements of cash flows -
thirty-nine weeks ended October 28, 2000 and
October 30, 1999 5
Notes to condensed consolidated financial statements -
thirty-nine weeks ended October 28, 2000 and
October 30, 1999 6 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-24
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 24
PART II. OTHER INFORMATION
---------------------------
Item 2. Changes in Securities and Use of Proceeds 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
----------
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item I. GOTTSCHALKS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (Note 1)
(In thousands of dollars)
----------------------------------------------------------------------------
October 28, January 29, October 30,
2000 2000 1999
----------- ----------- -----------
(Unaudited) (Unaudited)
ASSETS
------
CURRENT ASSETS:
<S> <C> <C> <C>
Cash $ 3,595 $ 1,901 $ 2,462
Retained interest in
receivables sold 23,080 29,138 18,216
Receivables - net 6,390 7,597 4,897
Merchandise inventories 245,542 130,028 182,174
Other 13,261 9,666 8,676
------- ------- -------
Total current assets 291,868 178,330 216,425
PROPERTY AND EQUIPMENT, NET 139,223 120,393 119,565
OTHER LONG-TERM ASSETS 25,288 15,281 17,559
------- ------- -------
$456,379 $314,004 $353,549
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Trade accounts payable and
other current liabilities $119,888 $ 63,653 $ 79,632
Revolving line of credit 39,841 5,479 28,840
Current portion of long-term
obligations 6,549 4,479 4,620
------- ------- -------
Total current liabilities 166,278 73,611 113,092
LONG-TERM OBLIGATIONS (less current portion):
Line of credit 100,000 50,000 60,000
Notes and mortgage loans
payable 29,320 25,123 25,847
Capitalized lease obligations 5,172 5,551 5,227
------- ------- -------
134,492 80,674 91,074
DEFERRED INCOME & OTHER 27,323 28,520 25,866
SUBORDINATED NOTE PAYABLE
TO AFFILIATE 21,218 20,961 20,875
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY 107,068 110,238 102,642
------- ------- -------
$456,379 $314,004 $353,549
======= ======= =======
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
GOTTSCHALKS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED - Note 1)
(In thousands of dollars, except per share data)
-----------------------------------------------------------------------------
Thirteen Weeks Thirty-Nine Weeks
Ended Ended
------------------------ ------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales $153,214 $122,873 $403,620 $352,695
Net credit revenues 1,867 2,046 6,166 6,209
Net leased department
revenues 816 651 2,308 2,959
------- ------- ------- -------
Total revenues 155,897 125,570 412,094 361,863
Costs and expenses:
Cost of sales 96,266 78,860 261,239 230,072
Selling, general and
administrative expenses 52,266 40,848 133,867 119,012
Depreciation and
amortization 3,147 2,408 8,333 6,992
New store pre-opening
expenses 4,941 331 5,918 331
------- ------- ------- -------
Total costs and expenses 156,620 122,447 409,357 356,407
------- ------- ------- -------
Operating income (loss) (723) 3,123 2,737 5,456
Other (income) expense:
Interest expense 3,733 2,847 9,249 7,975
Miscellaneous income (370) (339) (1,053) (1,102)
------- ------- ------- -------
3,363 2,508 8,196 6,873
------- ------- ------- -------
Income (loss) before income tax
expense (benefit) (4,086) 615 (5,459) (1,417)
Income tax expense (benefit) (1,614) 257 (2,157) (591)
------- ------- ------- -------
Net income (loss) $ (2,472) $ 358 $ (3,302) $ (826)
======= ======= ======= =======
Net income (loss) per common share -
basic and diluted $ (0.20) $ 0.03 $ (0.26) $ (0.07)
======= ======= ======= =======
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
GOTTSCHALKS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED - Note 1)
(In thousands of dollars)
----------------------------------------------------------------------------
Thirty-Nine Weeks
Ended
--------------------------
October 28, October 30,
2000 1999
---------- ----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $( 3,302) $( 826)
Adjustments:
Depreciation and amortization 8,333 6,992
Provision for credit losses 2,500 2,173
Other adjustments, net (1,017) (2,257)
Changes in operating assets and liabilities:
Receivables (1,217) (677)
Merchandise inventories (114,926) (58,399)
Other current and long-term assets (3,727) 2,736
Trade accounts payable 50,116 12,061
Other current and long-term liabilities (3,109) (9,257)
-------- --------
Net cash used in operating activities (66,349) (47,454)
INVESTING ACTIVITIES:
Available-for-sale securities:
Maturities (208,746) (210,268)
Purchases 214,804 220,059
Lamonts acquisition (19,460)
Capital expenditures (18,171) (13,263)
Other 146 146
-------- --------
Net cash used in investing activities (31,427) (3,326)
FINANCING ACTIVITIES:
Net proceeds under revolving line of credit 84,362 28,567
Proceeds from issuance of 1999-1
Series certificate 53,000
Principal payments on 1994-1 and 1996-1
Series certificates (30,900)
Principal payments on long-term obligations (4,251) (3,354)
Proceeds from long-term obligations 10,000 500
Changes in cash management liability and other 9,359 3,736
------- --------
Net cash provided by financing activities 99,470 51,549
------- --------
INCREASE IN CASH 1,694 769
CASH AT BEGINNING OF PERIOD 1,901 1,693
------- -------
CASH AT END OF PERIOD $ 3,595 $ 2,462
======= =======
See notes to condensed consolidated financial statements.
</TABLE>
GOTTSCHALKS INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Thirty-Nine Weeks Ended October 28, 2000 and October 30, 1999
-----------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Gottschalks Inc. is a regional department
store chain based in Fresno, California. The
Company currently operates 79 full-line
department stores located in seven western
states, with 39 stores in California, 21 in
Washington, seven in Alaska, five in Idaho,
four in Oregon, two in Nevada and one in Utah.
The Company also operates 17 specialty apparel
stores which carry a limited selection of
merchandise. As described more fully in Note
2, the Company completed the largest
acquisition in its operating history on July
24, 2000, acquiring 34 store leases, related
store fixtures and equipment and one store
building from Lamonts Apparel, Inc.
("Lamonts"), a bankrupt apparel store chain
previously operating 38 stores throughout the
Pacific Northwest and Alaska. The Company's
department stores typically offer a wide range
of better to moderate brand-name and private-
label merchandise for the entire family,
including men's, women's, junior's and
children's apparel, cosmetics, shoes and
accessories, and also a wide array of home
furnishings, including domestics, china,
housewares, small electrics, as well as
furniture and mattresses in certain locations.
The Company operates in one reportable
operating segment.
The accompanying unaudited condensed
consolidated financial statements include the
accounts of Gottschalks Inc. and its wholly-
owned subsidiary, Gottschalks Credit
Receivables Corporation ("GCRC") (see Note 3).
Such financial statements have been prepared
in accordance with accounting principles
generally accepted in the United States of
America for interim financial information and
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 primarily of normal recurring
accruals) considered necessary for a fair
presentation have been included. Operating
results for the thirty-nine week period ended
October 28, 2000 are not necessarily
indicative of the results that may be expected
for the fiscal year ending February 3, 2001
(fiscal 2000) due to the seasonal nature of
the Company's business, the acquisition of 34
store leases from Lamonts (Note 2) and its
LIFO inventory valuation adjustment ("LIFO
adjustment"), currently recorded only at the
end of each fiscal year (Note 4). These
financial statements should be read in
conjunction with the Company's Annual Report
on Form 10-K for the fiscal year ended January
29, 2000 (the "1999 Annual Report on Form 10-
K").
Effective the end of fiscal 1999, the Company
implemented the provisions of Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition
in Financial Statements," which requires that
leased department sales no longer be combined
with owned sales for financial reporting
purposes. The Company, like most retailers,
previously combined sales from leased
departments with owned sales, with the related
costs combined with cost of sales. All prior
year amounts have been reclassified to conform
with the required presentation. In addition,
certain other amounts in the accompanying
financial statements for the fiscal 1999
interim period have been reclassified to
conform with the current years' presentation.
The condensed consolidated balance sheet at
January 29, 2000 has been derived from the
audited consolidated financial statements at
that date.
2. ACQUISITION OF STORES FROM LAMONTS
On April 24, 2000, the Company entered into a
definitive asset purchase agreement (the
"Agreement") with Lamonts. The Agreement, as
subsequently amended, provided for the Company
to acquire 37 of Lamonts' 38 store leases,
related store fixtures and equipment, and one
store building for a cash purchase price of
$20.1 million. Concurrent with the closing of
the transaction on July 24, 2000, the Company
sold one of the store leases for $2.5 million,
and subsequently terminated two other store
leases, resulting in a net cash purchase price
of $17.6 million for 34 store leases, related
store fixtures and equipment and one store
building. The Company did not acquire any of
Lamonts' merchandise inventory, customer
credit card receivables or other corporate
assets in the transaction, nor did the Company
assume any material liabilities, other than
the 34 store leases. The 34 stores are located
in five Western states, with 19 stores in
Washington, seven in Alaska, five in Idaho,
two in Oregon and one in Utah. The newly
acquired stores were converted to the
Gottschalks' banner, re-merchandised and
reopened in stages beginning in late August,
with all stores completely open by September
7, 2000.
The $17.6 million net cash purchase price for
the assets was partially financed with
proceeds from a $10.0 million note payable
(Note 6), with the remainder provided from
existing financial resources. Direct
transaction costs include investment banking,
legal and accounting fees and other costs. The
acquisition (hereinafter referred to as the
"Lamonts acquisition") was accounted for under
the purchase method of accounting and,
accordingly, the results of operations of the
acquired stores are included in the Company's
financial statements from the acquisition date
of July 24, 2000.
The financial statements reflect the
preliminary allocation of the purchase price
to the acquired assets on the basis of their
estimated fair values as of the date of the
acquisition. The final purchase price
allocation is subject to the completion of an
independent appraisal of the acquired leases
and the finalization of estimates of certain
direct transaction costs. The preliminary
allocation of the purchase price is summarized
below (in thousands of dollars):
Fair value of note payable $10,000
Cash 7,580
Direct transaction costs 1,880
------
Total purchase price $19,460
======
Favorable lease rights $ 9,857
Property and equipment 9,000
Goodwill 603
------
Total purchase price $19,460
======
3. RECEIVABLES SECURITIZATION PROGRAM
As described more fully in the Company's 1999
Annual Report on Form 10-K, the Company's
receivables securitization program provides a
source of working capital and long-term
financing that is generally more cost-
effective to the Company than traditional debt
financing. Under the program, the Company
sells all of its accounts receivable arising
under its private label credit cards to its
wholly-owned subsidiary, GCRC, and those
receivables that meet certain eligibility
requirements of the program are simultaneously
conveyed to Gottschalks Credit Card Master
Trust ("GCC Trust"), to be used as collateral
for securities issued through private
placements to investors. GCC Trust is a
qualified special purpose entity and is not
consolidated in the Company's financial
statements under SFAS No. 125. Accordingly,
the transfer of receivables to GCC Trust are
accounted for as sales for financial reporting
purposes and such transferred receivables are
removed from the Company's balance sheet.
On March 1, 1999, GCC Trust issued a $53.0
million principal amount 7.66% Fixed Base
Class A-1 Credit Card Certificate (the "1999-1
Series"). The holder of the 1999-1 Series
certificate earns interest on a monthly basis
at a fixed interest rate of 7.66%, and the
outstanding principal balance of the
certificate, which is treated as off-balance
sheet for financial reporting purposes, is to
be repaid in twelve equal monthly installments
commencing September 2003 and continuing
through August 2004.
On November 16, 2000, GCC Trust also issued a
Variable Base Class A-1 Credit Card
Certificate (the "2000-1 Series") in a
principal amount of up to $24.0 million. The
2000-1 Series certificate was issued under an
initial 364-day commitment period (expiring
October 31, 2001), and is renewable for
subsequent periods of 364-days each, at the
option of GCC Trust and the certificate
holder, through July 31, 2003. The outstanding
principal balance of the certificate, which is
also treated as off-balance sheet for
financial reporting purposes, is to be repaid
in six equal monthly installments commencing
in the moth following the end of the
commitment period. In the event the commitment
period is renewed through July 31, 2003, the
principal is to be repaid in twelve equal
monthly installments commencing September
2003. The holder of the 2000-1 Series earns
interest on a monthly basis at a variable rate
equal to one-month LIBOR plus 1.5%. The 2000-1
Series was issued to provide financing for
receivables in the Company's portfolio in
excess of amounts required to support the 1999-
1 Series, including additional receivables
expected to be generated by the 37 new stores
opened during the second half of fiscal 2000.
The balance of such receivables is subject to
seasonal fluctuations, and the Company expects
that the outstanding balance of certificates
issued under the 2000-1 Series will be highest
during the Christmas selling season, when the
Company's customer credit card balances are at
their highest levels, and will decline in the
following months as customers repay
outstanding balances from their Christmas
season purchases.
Monthly cash flows generated by the Company's
receivables portfolio, consisting of
principal, interest and service fee
collections, are first used to pay certain
costs of the program, which include the
payment of monthly interest to the investors,
and are then available to fund additional
purchases of newly generated receivables from
the Company. The Company is required, among
other things, to continue to satisfy certain
portfolio performance standards under the
program. The portfolio's performance has
substantially exceeded such standards since
the issuance date. Subject to certain
conditions, the Company may expand the program
to meet future receivables growth.
4. 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 inventory the
capitalization of certain indirect costs
related to the purchasing, handling and
storage of merchandise. Current cost, which
approximates replacement cost, under the first-
in, first-out (FIFO) method was equal to the
LIFO value of inventories at January 29, 2000.
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. Management does not currently
anticipate that the fiscal 2000 LIFO
adjustment will materially affect fiscal 2000
operating results.
<TABLE>
<CAPTION>
5. TRADE ACCOUNTS PAYABLE AND OTHER CURRENT
LIABILTIIES
Trade accounts payable and other current
liabilities consist of the following:
October 28, January 29, October 30,
(In thousands of dollars) 2000 2000 1999
----------------------------------------------------------------------------
<S> <C> <C> <C>
Trade accounts payable $ 65,733 $15,617 $35,238
Cash management liability 19,386 10,027 15,912
Accrued expenses 13,215 9,958 7,129
Accrued payroll and related
liabilities 8,404 6,861 5,989
Taxes, other than income taxes 8,294 11,141 7,466
Deferred income taxes 4,677 4,677 4,470
Federal and state income taxes payable 179 5,372 3,428
------- ------ ------
$119,888 $63,653 $79,632
======= ====== ======
</TABLE>
6. DEBT
The Company has a $180.0 million revolving
line of credit facility with Congress
Financial Corporation ("Congress") through
March 30, 2002. Borrowings under the facility
are limited to 75% of eligible merchandise
inventories, and at the Company's option, such
borrowings may be increased to 80% of eligible
inventories during the period of November 1
through December 31 of each year to provide
for increased seasonal inventory requirements.
Interest under the facility is charged at a
rate of approximately one-month LIBOR plus
1.875% (8.61% at October 28, 2000), with no
interest charged on the unused portion of the
line of credit. The maximum amount available
for borrowings under the line of credit was
$170.9 million as of October 28, 2000, of
which $139.8 million was outstanding as of
that date. Outstanding borrowings under the
facility which are not expected to be repaid
within one year of the respective balance
sheet dates, totaling $100.0 million, $50.0
million and $60.0 million as of October 28,
2000, January 29, 2000 and October 30, 1999,
respectively, are classified as long-term in
the accompanying financial statements. The
agreement contains one financial covenant,
pertaining to the maintenance of a minimum
adjusted net worth, as defined in the
agreement, with which the Company was in
compliance as of October 28, 2000.
The Company issued a $10.0 million note
payable to a third party lender on July 24,
2000, using the proceeds to finance a portion
of the purchase price for the Lamonts
acquisition (Note 2). The note is payable in
thirty-six monthly principal installments of
$278,000 each, bears interest at a variable
rate equal to LIBOR plus 3.0%, and is
collateralized by fixtures and equipment in
the newly acquired stores and by the equity in
two previously owned stores already subject to
mortgage loans with the same lender. The
Company's other long-term borrowing
arrangements are described more fully in its
1999 Annual Report on Form 10-K.
7. WEIGHTED AVERAGE NUMBER OF SHARES
<TABLE>
<CAPTION>
Third Quarter Three Quarters
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
(Share data in thousands)
<S> <C> <C> <C> <C>
Weighted average number of shares - basic 12,621 12,575 12,607 12,575
Incremental shares from assumed issuance of
stock options (treasury stock method) --- 69 --- ---
------ ------ ------ ------
Weighted average number of shares - diluted 12,621 12,644 12,607 12,575
====== ====== ====== ======
</TABLE>
Options with an exercise price greater than
the average market price of the Company's
common stock during the period, or outstanding
in a period in which the Company reports a net
loss, are excluded from the computation of the
weighted average number of shares on a diluted
basis, as such options are anti-dilutive.
8. COMMITMENTS AND CONTINGENCIES
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
are not expected to have a material adverse
effect on the Company's financial position or
results of its operations.
In addition to the 34 stores acquired from
Lamonts, the Company opened one new department
store in the third quarter of 2000 and two
additional department stores in the fourth
quarter of fiscal 2000. The estimated
remaining cost to complete the fiscal 2000
planned expenditures for those locations
totaled $2.9 million as of October 28, 2000,
and such costs are expected to be financed
from existing financial resources.
9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as
deferred and amended by SFAS No. 137 and 138,
respectively, requires an entity to recognize
all derivatives as either assets or
liabilities in the statement of financial
position and measure those instruments at fair
value. The statements also require that
changes in the derivatives fair value be
recognized in earnings unless specific hedge
accounting criteria are met. The Company does
not expect that the adoption of this
statement, effective beginning fiscal 2001,
will have a material impact on the Company's
financial position or the results of its
operations.
SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and
Extinguishments of Liabilities," was issued in
September 2000 and supersedes SFAS No. 125.
SFAS No. 140 is effective for transfers and
servicing of financial assets and
extinguishments of liabilities occurring after
March 31, 2001, with certain disclosure
requirements effective for fiscal years ending
after December 15, 2000. The adoption of SFAS
No. 140 is not expected to materially affect
the Company's financial position or the
results of its operations.
Emerging Issues Task Force ("EITF") Issue 00-
10, "Accounting for Shipping and Handling Fees
and Costs," was recently issued and is
effective for fiscal 2000. Issue 00-10
requires that all amounts billed to a customer
in a sale transaction for shipping and
handling, including customer delivery charges,
be classified as revenue, and that all prior
periods presented be reclassified to conform
with the required presentation. Issue 00-10
also requires that the classification of
related costs be disclosed as an accounting
policy. The Company currently includes
shipping and handling revenues and costs in
its selling, general and administrative
expenses. The adoption of Issue 00-10 will
have no impact on the Company's financial
results and relates only to financial
statement classification and disclosure.
GOTTSCHALKS INC. AND SUBSIDIARY
Item 2. 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. The
Company's operating results, like those of
most retailers, are subject to seasonal
influences, with the major portion of sales,
gross margin and operating results realized
during the fourth quarter of each fiscal year.
In addition, as described more fully in Note 2
to the accompanying financial statements, the
Company completed the largest acquisition in
its operating history on July 24, 2000,
acquiring 34 store leases, related store
fixtures and equipment, and one store building
from Lamonts. This business seasonality and
the acquisition of the 34 store leases may
result in performance for the thirteen and
thirty-nine week periods ended October 28,
2000 (hereinafter referred to as the "third
quarter" and "first three quarters" of fiscal
2000) which is not necessarily indicative of
performance for the remainder of the year.
Effective as of the end of fiscal 1999, the
Company implemented the provisions of SAB No.
101, which requires that leased department
sales no longer be combined with owned sales
for financial reporting purposes. The
Company, like most retailers, previously
combined sales from leased departments with
owned sales, with the related costs combined
with cost of sales. All prior year amounts
have been reclassified to conform with the
required presentation.
<TABLE>
<CAPTION>
Results of Operations
---------------------
The following table sets forth the Company's Consolidated Statements of
Operations as a percent of net sales:
Third Quarter Three Quarters
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Net credit revenues 1.2 1.7 1.5 1.8
Net leased department revenues 0.5 0.5 0.6 0.8
----- ----- ----- -----
Total revenues 101.7 102.2 102.1 102.6
Costs and expenses:
Cost of sales 62.8 64.2 64.7 65.2
Selling, general and
administrative expenses 34.1 33.2 33.2 33.7
Depreciation and amortization 2.1 2.0 2.1 2.0
New store pre-opening costs 3.2 0.3 1.4 0.1
----- ----- ----- -----
Total costs and expenses 102.2 99.7 101.4 101.0
----- ----- ----- -----
Operating income (loss) (0.5) 2.5 0.7 1.6
Other (income) expense:
Interest expense 2.4 2.3 2.3 2.3
Miscellaneous income (0.2) (0.3) (0.3) (0.3)
----- ----- ----- -----
2.2 2.0 2.0 2.0
----- ----- ----- -----
Income (loss) before income
tax expense (benefit (2.7) 0.5 (1.3) (0.4)
Income tax expense (benefit) (1.1) 0.2 (0.5) (0.2)
----- ----- ----- -----
Net income (loss) (1.6)% 0.3% (0.8)% (0.2)%
===== ===== ===== =====
</TABLE>
Third Quarter of Fiscal 2000 Compared to Third Quarter of Fiscal 1999
----------------------------------------------------------------------
Net Sales
---------
Net sales increased by approximately $30.3
million to $153.2 million in the third quarter
of fiscal 2000 as compared to $122.9 million
in the third quarter of fiscal 1999, an
increase of 24.7%. This increase is primarily
due to additional sales volume generated by
the 35 stores opened in the third quarter of
2000, and by two new stores opened in Danville
and Davis, California, in October and November
1999, respectively. The increase is also due
to a 2.8% increase in comparable store sales
as compared to the same period of the prior
year.
The Company operated 77 department stores and
17 specialty apparel stores as of the end of
the third quarter of fiscal 2000, successfully
opening 35 stores in the third quarter of
fiscal 2000, including the 34 stores acquired
from Lamonts on July 24, 2000, which were
reopened during the period from August 26
through September 7, 2000 and one new store in
Grants Pass, Oregon, opened on August 23,
2000. The Company opened its 78th and 79th
department stores in Walla Walla, Washington
and Redding, California, on November 8 and 10,
2000, respectively. The new store in Redding
is a replacement for a pre-existing specialty
store in that location, which was closed
during the third quarter of fiscal 2000.
Net Credit Revenues
-------------------
Net credit revenues related to the Company's
credit card receivables portfolio decreased by
$179,000, or 8.7%, in the third quarter of
fiscal 2000 as compared to the third quarter
of fiscal 1999. As a percent of net sales, net
credit revenues were 1.2% of net sales in the
third quarter of fiscal 2000 as compared to
1.7% in the third quarter of fiscal 1999. Net
credit revenues consist of the following:
<TABLE>
<CAPTION>
Third Quarter
(In thousands of dollars) 2000 1999
--------------------------------------------------------------------
<S> <C> <C>
Service charge revenues $3,792 $3,728
Interest expense on securitized
receivables (1,015) (1,015)
Charge-offs on receivables sold and
provision for credit losses on
receivables ineligible for sale (889) (653)
Loss on sale of receivables (21) (14)
----- -----
$1,867 $2,046
===== =====
</TABLE>
Service charge revenues increased by $64,000,
or 1.7%, in the third quarter of fiscal 2000
as compared to the third quarter of fiscal
1999, but as a percentage of net sales
decreased to 2.5% as compared to 3.0% in the
same period of the prior year. The dollar
increase is primarily due to an increase in
the volume of late charge fees collected on
delinquent credit card balances as compared to
the same period of the prior year. The
decrease as a percentage of net sales is
primarily due to lower average outstanding
balances on newly originated customer credit
card accounts in the 35 stores opened during
the third quarter of fiscal 2000, which
generated lower service charge revenues as
compared to those from established accounts.
Service charge revenues generated by those new
customer accounts are expected to increase
beginning in the fourth quarter of fiscal 2000
as the customers' average outstanding account
balances begin to increase.
Interest expense on securitized receivables
remained unchanged at approximately $1.0
million in the third quarters of both fiscal
2000 and 1999. Charge-offs on receivables sold
and the provision for credit losses on
receivables ineligible for sale increased by
$236,000, or 36.1%, in the third quarter of
fiscal 2000 as compared to the third quarter
of fiscal 1999. As a percentage of sales, such
credit losses increased to 0.6% of net sales
as compared to 0.5% in the third quarter of
fiscal 1999. The loss on the sale of
receivables during the third quarter of fiscal
2000 was not materially different from the
third quarter of fiscal 1999.
Net Leased Department Revenues
------------------------------
Net rental income generated by the Company's
various leased departments increased by
$165,000, or 25.3%, to $816,000 in the third
quarter of fiscal 2000 as compared to
approximately $651,000 in the third quarter of
fiscal 1999. This increase is primarily due to
additional revenues generated by the leased
shoe departments in the 34 recently acquired
stores. As of October 28, 2000, the Company
leased the operation of the shoe departments
in 34 of its 79 stores to an independent
lessee, and expects to continue to lease those
departments through July 2002, at which time
the operation of those departments is expected
to be assumed by the Company.
As required by SAB No. 101, leased department
sales are presented net of the related costs
for financial reporting purposes. Sales
generated in the Company's leased departments,
consisting primarily of the shoe departments
in 34 of its stores, its fine jewelry
departments and its beauty salons, increased
by $1.2 million, or 28.2%, to $5.7 million in
the third quarter of fiscal 2000 as compared
to $4.5 million in the third quarter of fiscal
1999.
Cost of Sales
-------------
Cost of sales, which includes costs associated
with the buying, handling and distribution of
merchandise, increased by approximately $17.4
million to $96.3 million in the third quarter
of fiscal 2000 as compared to $78.9 million in
the third quarter of fiscal 1999, an increase
of 22.1%. The Company's gross margin
percentage increased to 37.2% in the third
quarter of fiscal 2000 as compared to 35.8% in
the third quarter of 1999. The increase in the
gross margin percentage is primarily due to
benefits from purchase discounts on the
initial inventories for the recently acquired
stores, a reduction in purchasing and buying
costs as a percentage of sales as a result of
synergies achieved through the acquisition,
and lower markdowns as a percentage of sales
as compared to the same period of the prior
year.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses
increased by approximately $11.5 million to
$52.3 million in the third quarter of fiscal
2000 as compared to $40.8 million in the third
quarter of fiscal 1999, an increase of 28.0%.
As a percent of net sales, selling, general
and administrative expenses increased to 34.1%
in the third quarter of fiscal 2000 as
compared to 33.2% in the third quarter of
fiscal 1999. This increase is primarily due to
the 35 new stores opened during the third
quarter of 2000, which are currently being
operated with a higher advertising and payroll
expense structure than the Company's existing
stores in order to achieve a market presence.
Such expenditures are expected to decrease as
a percentage of sales as the new stores
mature.
Depreciation and Amortization
-----------------------------
Depreciation and amortization expense, which
includes the amortization of intangibles
(goodwill and favorable lease rights),
increased by approximately $700,000 to $3.1
million in the third quarter of fiscal 2000 as
compared to $2.4 million in the third quarter
of fiscal 1999, an increase of 30.7%. As a
percent of net sales, depreciation and
amortization expense increased to 2.1% in the
third quarter of fiscal 2000 as compared to
2.0% in the third quarter of 1999. As a
result of the Lamonts acquisition, the
amortization of intangibles increased by
$131,000 in the third quarter of 2000 as
compared to the same period of the prior year.
Excluding the amortization of intangibles,
depreciation and amortization expense
increased by $569,000 as compared to the same
period of the prior year, and as a percent of
net sales, remained unchanged at 1.9% in the
third quarters of fiscal 2000 and 1999. The
dollar increase is primarily due to additional
depreciation expense related to assets
acquired from Lamonts, and for capital
expenditures for new stores and for the
renovation of certain existing stores.
New Store Pre-Opening Costs
---------------------------
New store pre-opening costs, which are
expensed as incurred, typically include costs
such as payroll and fringe benefits for store
associates, store rents, pre-opening
advertising, credit solicitation and other
costs incurred prior to the opening of a
store. The Company recognized a total of $4.9
million of new store pre-opening costs in the
third quarter of fiscal 2000, including $4.7
million incurred in connection with the
reopening of the 34 stores acquired from
Lamonts and $200,000 in connection with the
new stores opened in Grants Pass, Oregon,
Walla Walla, Washington and Redding,
California on August 23, November 8 and
November 10, 2000, respectively. New store
pre-opening costs of $331,000 were incurred in
the third quarter of 1999 in connection with
the new store openings in Davis and Danville,
California.
Interest Expense
-----------------
Interest expense, which includes the
amortization of deferred financing costs,
increased by approximately $900,000 to $3.7
million in the third quarter of fiscal 2000 as
compared to $2.8 million in the third quarter
of fiscal 1999, an increase of 31.1%. As a
percent of net sales, interest expense
increased to 2.4% in the third quarter of
fiscal 2000 as compared to 2.3% in the third
quarter of 1999. These increases are primarily
due to higher average outstanding borrowings
on the Company's working capital facility and
an increase in the weighted-average interest
rate applicable to the facility (8.6% in the
third quarter of fiscal 2000 as compared to
7.4% in the third quarter of fiscal 1999)
resulting from higher LIBOR and prime interest
rates in effect as compared to the same period
of the prior year. The increase is also due to
the issuance of the $10.0 million note payable
in connection with the Lamonts acquisition
(see Note 2 to the accompanying financial
statements).
Interest expense related to securitized
receivables is reflected as a reduction of net
credit revenues and is not included in
interest expense for financial reporting
purposes.
Miscellaneous Income
---------------------
Miscellaneous income, which includes the
amortization of deferred income and other
miscellaneous income and expense amounts,
increased by $31,000 to $370,000 in the third
quarter of fiscal 2000 as compared to $339,000
in the third quarter of fiscal 1999. As a
percent of net sales, miscellaneous income
decreased to 0.2% of net sales in the third
quarter of fiscal 2000 as compared to 0.3% in
the third quarter of fiscal 1999.
Income Taxes
-------------
The Company's interim effective tax credit of
(39.5%) in the third quarter of fiscal 2000
and effective tax rate of 41.7% in the third
quarter of fiscal 1999 relate to the net
income (loss) incurred in those periods and
represent the Company's best estimates of the
annual effective tax rates for those fiscal
years.
Net Income (Loss)
-----------------
As a result of the foregoing, the Company
reported a net loss of approximately ($2.5
million), or ($0.20) per share (basic and
diluted) in the third quarter of fiscal 2000.
The net loss for the period includes $4.7
million pre-tax ($2.8 million after-tax) of
non-recurring costs incurred in connection
with the reopening of the 34 stores acquired
from Lamonts. Excluding such costs, net income
was essentially unchanged at $371,000, or
$0.03 per share, in the third quarter of
fiscal 2000 as compared to $358,000, or $0.03
per share, in the third quarter of fiscal
1999.
First Three Quarters of Fiscal 2000 Compared
to First Three Quarters of Fiscal 1999
--------------------------------------------------
Net Sales
---------
Net sales increased by approximately $50.9
million to $403.6 million in the first three
quarters of fiscal 2000 as compared to $352.7
million in the first three quarters of fiscal
1999, an increase of 14.4%. This increase is
primarily due to additional sales volume
generated by the 35 stores opened in the third
quarter of 2000, and by two new stores opened
in Danville and Davis, California, in October
and November 1999, respectively. The increase
is also due to a 5.6% increase in comparable
store sales as compared to the same period of
the prior year.
Net Credit Revenues
-------------------
Net credit revenues related to the Company's
credit card receivables portfolio decreased by
$43,000, or 0.7%, in the first three quarters
of fiscal 2000 as compared to the first three
quarters of fiscal 1999. As a percent of net
sales, net credit revenues were 1.5% of net
sales in the first three quarters of fiscal
2000 as compared to 1.8% in the first three
quarters of fiscal 1999. Net credit revenues
consist of the following:
<TABLE>
<CAPTION>
First Three Quarters
(In thousands of dollars) 2000 1999
-------------------------------------------------------------------------
<S> <C> <C>
Service charge revenues $11,635 $11,319
Interest expense on securitized
receivables (3,047) (3,054)
Charge-offs on receivables sold
and provision for credit losses
on receivables ineligible for sale (2,500) (2,173)
Gain on sale of receivables 78 117
------ ------
$ 6,166 $ 6,209
====== ======
</TABLE>
Service charge revenues increased by $316,000,
or 2.8%, in the first three quarters of fiscal
2000 as compared to the first three quarters
of fiscal 1999, but as a percent of net sales,
decreased to 2.9% as compared to 3.2% in the
same period of the prior year. The dollar
increase is primarily due to a change in the
method of assessing service charges to an
average-daily balance method effective April
1999 (previously assessed based on the balance
as of the end of a billing period) and an
increase in the volume of late charge fees
collected on delinquent credit card balances
as compared to the same period of the prior
year. The decrease as a percentage of net
sales is primarily due to lower average
outstanding balances on newly originated
customer credit card accounts in the 35 stores
opened during the third quarter of fiscal
2000, and such accounts are currently
generating lower service charge revenues as
compared to those produced by established
accounts. Service charge revenues generated by
those new customer accounts are expected to
increase beginning in the fourth quarter of
fiscal 2000 as the customers' average
outstanding account balances begin to
increase.
Interest expense on securitized receivables
remained unchanged at approximately $3.0
million in the first three quarters of both
fiscal 2000 and 1999. Charge-offs on
receivables sold and the provision for credit
losses on receivables ineligible for sale
increased by $327,000, or 15.0%, in the first
three quarters of fiscal 2000 as compared to
the first three quarters of fiscal 1999. As a
percent of sales, such losses remained
unchanged at 0.6% in the first three quarters
of fiscal 2000 and 1999. The gain on the sale
of receivables during the first three quarters
of fiscal 2000 was not materially different
from the first three quarters of fiscal 1999.
Net Leased Department Revenues
------------------------------
Net rental income generated by the Company's
various leased departments decreased by
approximately $700,000, or 22.0%, to $2.3
million in the first three quarters of fiscal
2000 as compared to $3.0 million in the first
three quarters of fiscal 1999. This decrease
is primarily due to lower revenues resulting
from the termination of the shoe department
leases in 28 Gottschalks locations effective
August 1, 1999, partially offset by additional
revenues generated by the leased shoe
departments in the 34 recently acquired
stores.
As a result of terminating the shoe department
leases in the 28 remaining Gottschalks
locations effective August 1, 1999, sales
generated in the Company's leased departments
decreased by $4.2 million, or 20.9%, to $16.1
million in the first three quarters of fiscal
2000 as compared to $20.3 million in the first
three quarters of fiscal 1999. Shoe department
sales generated in those 28 Gottschalks
locations after August 1, 1999 are included in
total sales for financial reporting purposes.
Cost of Sales
--------------
Cost of sales, which includes costs associated
with the buying, handling and distribution of
merchandise, increased by approximately $31.1
million to $261.2 million in the first three
quarters of fiscal 2000 as compared to $230.1
million in the first three quarters of fiscal
1999, an increase of 13.5%. The Company's
gross margin percentage increased to 35.3% in
the first three quarters of fiscal 2000 as
compared to 34.8% in the first three quarters
of fiscal 1999. The increase in the gross
margin percentage is primarily due to benefits
from purchase discounts on the initial
inventories for the recently acquired stores,
a reduction in purchasing and buying costs as
a percentage of sales as a result of synergies
achieved through the acquisition, and lower
markdowns as a percentage of sales as compared
to the same period of the prior year.
Selling, General and Administrative Expenses
---------------------------------------------
Selling, general and administrative expenses
increased by approximately $14.9 million to
$133.9 million in the first three quarters of
fiscal 2000 as compared to $119.0 million in
the first three quarters of fiscal 1999, an
increase of 12.5%. As a percent of net sales,
selling, general and administrative expenses
decreased to 33.2% in the first three quarters
of fiscal 2000 as compared to 33.7% in the
first three quarters of fiscal 1999. This
decrease as a percent of net sales was largely
realized during the first half of fiscal 2000
as a result of leveraging the Company's fixed
costs and corporate overhead against a higher
sales base. This decrease was partially offset
in the third quarter by higher payroll and
advertising costs as a percentage of sales in
the newly acquired stores.
Depreciation and Amortization
-----------------------------
Depreciation and amortization expense, which
includes the amortization of intangibles
(goodwill and favorable lease rights),
increased by approximately $1.3 million to
$8.3 million in the first three quarters of
fiscal 2000 as compared to $7.0 million in the
first three quarters of fiscal 1999, an
increase of 19.2%. As a percent of net sales,
depreciation and amortization expense
increased to 2.1% in the first three quarters
of fiscal 2000 as compared to 2.0% in the
first three quarters of fiscal 1999. The
amortization of intangibles increased by
$131,000 in the first third quarters of 2000
as compared to the same period of the prior
year as a result of the Lamonts acquisition.
Excluding the amortization of intangibles,
depreciation and amortization expense
increased by approximately $1.2 million as
compared to the same period as the prior year,
and as a percent of net sales, remained
unchanged at 1.9% in the third quarters of
fiscal 2000 and 1999. The dollar increase is
primarily due to additional depreciation
expense related to assets acquired from
Lamonts, and for capital expenditures for new
stores and for the renovation of certain
existing stores.
New Store Pre-Opening Costs
---------------------------
The Company recognized a total of $5.9 million
of new store pre-opening costs in the first
three quarters of fiscal 2000, including $5.7
million incurred in connection with the
reopening of the 34 stores acquired from
Lamonts and $200,000 in connection with the
new stores opened in Grants Pass, Oregon,
Walla Walla, Washington and Redding,
California on August 23, November 8, and
November 10, 2000, respectively. New store pre-
opening costs of $331,000 were incurred in the
first three quarters of 1999 in connection
with the new store openings in Davis and
Danville, California.
Interest Expense
----------------
Interest expense, which includes the
amortization of deferred financing costs,
increased by approximately $1.2 million to
$9.2 million in the first three quarters of
fiscal 2000 as compared to $8.0 million in the
first three quarters of fiscal 1999, an
increase of 16.0%. As a percent of net sales,
interest expense remained unchanged at 2.3% in
the first three quarters of both fiscal 2000
and 1999. The dollar increase is primarily due
to higher average outstanding borrowings on
the Company's working capital facility and an
increase in the weighted-average interest rate
applicable to the facility (8.3% in the first
three quarters of fiscal 2000 as compared to
7.2% in the first three quarters of fiscal
1999) resulting from higher LIBOR and prime
interest rates in effect as compared to the
same period of the prior year. The increase is
also due to the issuance of the $10.0 million
note payable in connection with the Lamonts
acquisition (see Note 2 to the accompanying
financial statements).
Miscellaneous Income
--------------------
Miscellaneous income, which includes the
amortization of deferred income and other
miscellaneous income and expense amounts,
remained unchanged at approximately $1.1
million in the first three quarters of fiscal
2000 as compared to the first three quarters
of fiscal 1999. As a percent of net sales
however, miscellaneous income also remained
unchanged at 0.3% of net sales in the first
three quarters of both 2000 and 1999.
Income Taxes
------------
The Company's interim effective tax credits of
(39.5%) and (41.7%) in the first three
quarters of fiscal 2000 and 1999,
respectively, relate to net losses incurred in
those periods and represent the Company's best
estimates of the annual effective tax rates
for those fiscal years.
Net Loss
--------
As a result of the foregoing, the Company
reported a net loss of approximately ($3.3
million), or ($0.26) per share (basic and
diluted) in the first three quarters of fiscal
2000. The net loss for the period includes
$5.7 million pre-tax ($3.4 million after-tax)
of non-recurring costs incurred in connection
with the reopening of the 34 stores acquired
from Lamonts. Excluding such costs, net income
increased by $958,000, or $0.08 per share, to
net income of $132,000, or $0.01 per share, in
the first three quarters of fiscal 2000 as
compared to a net loss of ($826,000), or
($0.07) per share, in the first three quarters
of fiscal 1999.
Liquidity and Capital Resources
-------------------------------
Sources of Liquidity.
As described more fully in the Company's 1999
Annual Report on Form 10-K and Notes 3 and 6
to the accompanying financial statements, the
Company's working capital requirements are
currently met through a combination of cash
provided by operations, short-term trade
credit, and by borrowings under its revolving
line of credit and sales of proprietary credit
card accounts under its receivables
securitization program. The Company's
liquidity position, like that of most
retailers, is affected by seasonal influences,
with the greatest portion of cash from
operations generated in the fourth quarter of
each fiscal year.
Revolving Line of Credit.
The Company has a $180.0 million revolving
line of credit facility with Congress through
March 30, 2002. The total amount available for
borrowings under the facility is limited to
75% of eligible merchandise inventories, and
at the Company's option, such borrowings may
be increased to 80% of eligible inventories
during the period of November 1 through
December 31 of each year to provide for
increased seasonal inventory requirements.
Interest under the facility is charged at a
rate of approximately LIBOR plus 1.875% (8.61%
at October 28, 2000), and no interest charged
on the unused portion of the line of credit.
As of October 28, 2000, the Company had excess
availability of $31.1 million on the facility
and was in compliance with the single
financial loan covenant applicable to the
facility.
Receivables Securitization Program.
The Company's receivables securitization
program provides an additional source of
working capital and long-term financing that
is generally more cost-effective to the
Company than traditional debt financing. GCC
Trust may issue fixed and variable rate
securities under the program. In March 1999, a
$53.0 million principal amount 7.66% Fixed
Base Class A-1 Credit Card Certificate (the
"1999-1 Series") was issued. The holder of the
1999-1 Series certificate earns interest at a
fixed interest rate of 7.66%, and the
outstanding principal balance of the
certificate is to be repaid in twelve equal
monthly installments commencing September 2003
and continuing through August 2004.
On November 16, 2000, a Variable Base Class A-
1 Credit Card Certificate (the "2000-1
Series") was issued in a principal amount of
up to $24.0 million. The 2000-1 Series
certificate was issued for an initial 364-day
commitment period (expiring October 31, 2001),
and may be renewed for subsequent periods of
364-days each at the option of GCC Trust and
the certificateholder, through July 31, 2003.
The outstanding principal balance of the
certificate, which is also treated as off-
balance sheet for financial reporting
purposes, is to be repaid in six equal monthly
installments commencing in the moth following
the end of the commitment period. In the event
the commitment period is renewed through July
31, 2003, the principal is to be repaid in
twelve equal monthly installments commencing
September 2003. The holder of the 2000-1
Series earns interest on a monthly basis at a
variable rate equal to LIBOR plus 1.5%. The
2000-1 Series was issued to provide financing
for receivables in the Company's portfolio in
excess of amounts required to support the 1999-
1 Series, including receivables expected to be
generated by the 37 new stores opened during
the second half of fiscal 2000. The balance of
such receivables is subject to seasonal
fluctuations, and the Company expects that the
outstanding balance of certificates issued
under the 2000-1 Series will be highest during
the Christmas selling season, when the
Company's customer credit card balances are at
their highest levels, and will decline in the
following months as customers repay
outstanding balances from their Christmas
season purchases.
Monthly cash flows generated by the Company's
credit card portfolio, consisting of principal
and interest collections, are first used to
pay certain costs of the program, which
include interest payable to the investor, and
are then available to fund the purchase of
newly generated receivables from the Company.
Uses of Liquidity.
Lamonts Acquisition.
As described more fully in Note 2 to the
accompanying financial statements, on July 24,
2000, the Company acquired 34 former Lamonts
store leases, related store fixtures and
equipment, and a store building for a net
purchase price of $17.6 million in cash. The
purchase price for the assets was financed
through the issuance of a $10.0 million three-
year note payable to a third party lender,
with the remainder provided from existing
financial resources.
The Company experienced a significant increase
in merchandise inventory levels as of the end
of the third quarter of fiscal 2000 as
compared to the prior year, primarily in
connection with the initial stocking of the
newly acquired stores. Such purchases were
largely financed with short-term trade credit.
Capital Expenditures.
Capital expenditures in the first three
quarters of fiscal 2000, totaling $18.2
million, were primarily related to the
renovation and refixturing of certain existing
locations, tenant improvements and fixtures
for the 37 new stores opened in the second
half of fiscal 2000 and information systems
enhancements. The estimated remaining cost to
complete the fiscal 2000 planned expenditures
totaled $2.9 million as of October 28, 2000,
and such costs are expected to be financed
from existing financial resources.
Management believes the previously described
sources of liquidity will be sufficient to
provide for the Company's working capital,
capital expenditure and debt service
requirements throughout fiscal 2000.
Management also believes it has sufficient
sources of liquidity for its long-term growth
plans at moderate levels. The Company may
engage in other financing activities if it is
deemed to be advantageous.
Safe Harbor Statement.
Certain statements contained in this Quarterly
Report on Form 10-Q are forward-looking
statements within the meaning of Section 27A
of the Securities Exchange Act of 1933 and
Section 21E of the Securities Exchange Act of
1934 and the Company intends that such forward-
looking statements be subject to the safe
harbors created thereby. These forward-
looking statements include the plans and
objectives of management for future operations
and the future economic performance of the
Company that involve risks and uncertainties.
Such forward-looking statements may be
identified by words including, but not limited
to: "will", "believes", "anticipates",
"intends", "seeks", "may", "expects", and
"estimates", or similar terms, variations of such
terms or the negative of such terms.
The forward-looking statements are qualified
by important factors that could cause results
to differ materially from those identified in
such forward-looking statements, including,
without limitation, the following: (i) the
ability of the Company to gauge fashion trends
and preferences of its customers; (ii) the
level of demand for the merchandise offered by
the Company; (iii) the ability of the Company
to locate and obtain favorable store sites,
negotiate acceptable lease terms, and hire and
train employees; (iv) the ability of
management to manage the planned expansion and
to successfully integrate the stores acquired
from Lamonts; (v) the continued ability to
obtain adequate credit from factors and
vendors and the timely availability of branded
and other merchandise; (vi) the effect of
economic conditions, both nationally and in
the Company's specific market areas; (vii) the
effect of severe weather or natural disasters;
and (viii) the effect of competitive pressures
from other retailers. Results actually
achieved thus may differ materially from
expected results in these statements as a
result of the foregoing factors or other
factors affecting the Company.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
As described more fully in Part II, Item 7A of
the Company's 1999 Annual Report on Form 10-K,
the Company is exposed to market risks in the
normal course of business due to changes in
interest rates on short-term borrowings under
its revolving line of credit, its $10.0
million acquisition facility and outstanding
amounts issued under the 2000-1 Series. Based
on current market conditions, management does
not believe there has been a material change
in the Company's exposure to interest rate
risks as described in that report.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF
PROCEEDS
There were no sales of unregistered securities
by the Company during the thirteen week period
ended October 28, 2000.
The Company's credit agreement with Congress
prohibits the Company from paying dividends
without prior written consent from that
lender.
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
----------- -----------
27 Financial Data Schedule
(b) The Company did not file a Current Report
on Form 8-K during the thirteen week period
ended October 28, 2000.
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)
December 12, 2000 \s\ James R. Famalette
------------------ --------------------------------------
(James R. Famalette, President
and Chief Executive Officer)
December 12, 2000 \s\ Michael S. Geele
----------------- --------------------------------------
(Michael S. Geele, Senior Vice
President and Chief Financial Officer)
