UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
_ X _ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended October 28, 1995 or
--------------------
_____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ____________________ to ____________________
Commission file number 0-14577
---------------
Gantos, Inc.
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-1414122
- ----------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3260 Patterson S.E., Grand Rapids, Michigan 49512
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (616) 949-7000
--------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ___ X ___ No _________
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ___ X ___ No _________
Number of shares of common stock outstanding at December 4, 1995: 7,552,211
-----------
<PAGE>
GANTOS, INC.
Page
Number
PART I. FINANCIAL INFORMATION
Statements of Income (Loss) 3
Balance Sheets 4
Statements of Cash Flows 5
Notes to Financial Statements 6-8
Management's Discussion and Analysis of
Results of Operations and Financial Condition 9-12
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K 13
Signatures 14
Page 2 of 14 pages.
<PAGE>
<TABLE>
<CAPTION>
GANTOS, INC.
STATEMENTS OF INCOME (LOSS)
(Amounts in thousands, except per share and store data)
13 Weeks Ended 39 Weeks Ended
----------------------- ------------------------
Oct. 28, Oct. 29, Oct. 28, Oct. 29,
1995 1994 1995 1994
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales $42,068 $43,549 $136,733 $139,136
Cost of sales (including buying,
distribution and occupancy costs) (33,448) (35,310) (108,820) (114,968)
--------- --------- --------- ---------
Gross income 8,620 8,239 27,913 24,168
Selling, general and administrative
expense (9,037) (9,666) (29,014) (28,808)
Finance charge and other revenue 1,037 1,113 3,178 3,634
--------- --------- --------- ---------
Operating income (loss) 620 (314) 2,077 (1,006)
Interest expense (493) (32) (1,221) (91)
--------- --------- --------- ---------
Income (loss) before reorganization
items and income taxes 127 (346) 856 (1,097)
Reorganization items:
Professional fees - (755) (530) (2,031)
Interest earned on accumulating cash
resulting from Chapter 11 proceedings - 439 251 1,268
--------- --------- --------- ---------
Net reorganization items - (316) (279) (763)
--------- --------- --------- ---------
Income (loss) before income taxes 127 (662) 577 (1,860)
Income taxes - - - -
--------- --------- --------- ---------
Net income (loss) $ 127 $ (662) $ 577 $(1,860)
====== ====== ====== =======
Net income (loss) per share $ 0.02 $(0.25) $ 0.09 $(0.70)
====== ====== ====== ======
Outstanding shares 7,600,288 2,664,763 7,600,288 2,664,763
========= ========= ========= =========
Weighted average shares outstanding 7,600,288 2,664,763 6,503,505 2,664,763
========= ========= ========= =========
Stores open at end of period 113 114 113 114
=== === === ===
<FN>
See accompanying notes to financial statements.
</TABLE>
Page 3 of 14 pages.
<PAGE>
<TABLE>
<CAPTION>
GANTOS, INC.
BALANCE SHEETS
(Amounts in thousands, except share data)
ASSETS Oct. 28, January 28, Oct. 29,
1995 1995 1994
-------- ---------- --------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,790 $26,545 $27,969
Accounts receivable -
Less allowance for doubtful accounts
of $537, $600, and $654, at October
28, 1995, January 28, 1995 and
October 29, 1994, respectively 22,975 25,165 25,226
Merchandise inventories 31,350 22,544 34,401
Prepaid expenses and other 2,760 3,347 3,503
------- ------- --------
Total current assets 58,875 77,601 91,099
------- ------- --------
Property and equipment, at cost:
Leasehold improvements 28,572 28,390 27,590
Furniture and fixtures 33,904 30,261 30,132
Other 944 2,176 1,566
------- ------- --------
Total property and equipment 63,420 60,827 59,288
Less - Accumulated depreciation
and amortization (44,962) (42,445) (41,033)
------- ------- --------
Net property and equipment 18,458 18,382 18,255
------- ------- --------
Total assets $77,333 $95,983 $109,354
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $17,987 $ 8,474 $ 17,177
Accrued expenses and other 11,201 12,737 10,903
Current provision for facilities closings 3,810 2,610 -
------- ------- --------
Total current liabilities 32,998 23,821 28,080
------- ------- --------
Long-term debt 18,540 5,192 39
------- ------- --------
Long-term provision for facilities closings - 2,040 4,544
------- ------- --------
Liabilities subject to compromise 400 59,749 75,956
------- ------- --------
Shareholders' equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized; none issued
Common stock, $.01 par value, 20,000,000
shares authorized; 7,600,000 issued
and outstanding at October 28, 1995,
2,665,000 issued and outstanding at
January 28, 1995, and 5,329,000 issued
and outstanding at October 29, 1994 76 27 53
Additional paid-in capital 40,377 20,789 20,763
Accumulated deficit (15,058) (15,635) (20,081)
------- ------- --------
Total shareholders' equity 25,395 5,181 735
------- ------- --------
Commitments -
------- ------- --------
Total liabilities and shareholders' equity $77,333 $95,983 $109,354
======= ======= ========
<FN>
See accompanying notes to financial statements.
</TABLE>
Page 4 of 14 pages.
<PAGE>
<TABLE>
<CAPTION>
GANTOS, INC.
STATEMENTS OF CASH FLOWS
(Thousands)
39 Weeks Ended
----------------------------
Oct. 28, Oct. 29,
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 577 $(1,860)
------- -------
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Reorganization items 279 763
Cash used for store closings (459) (93)
Depreciation and amortization 4,630 4,698
Restricted stock compensation expense 128 -
Changes in assets and liabilities:
Accounts receivable 2,101 4,529
Merchandise inventories (8,806) (11,324)
Prepaid expenses and other (175) 370
Accounts payable 9,512 12,675
Accrued expenses and other (184) 585
Income taxes - 1,647
------- -------
Total adjustments 7,026 13,850
------- -------
Net cash provided by operating
activities before reorganization items 7,603 11,990
------- -------
Adjustments to reconcile reorganization items
to cash used by reorganization items
Net change to liabilities subject
to compromise (64,541) (26,583)
Non-cash change to liabilities
subject to compromise 33,067 (90)
------- -------
Net cash payments on liabilities
subject to compromise (31,474) (26,673)
Reorganization items (279) (763)
Change in accrued interest receivable 88 (210)
Change in accrued bankruptcy expenses (1,352) (273)
------- -------
Net cash used by reorganization items (33,017) (27,919)
------- -------
Net cash used by operating activities (25,414) (15,929)
------- -------
Cash flows from investing activities:
Capital expenditures (4,724) (2,107)
Sales of capital assets - 206
------- -------
Net cash used by investing activities (4,724) (1,901)
------- -------
Cash flows from financing activities:
Principal payments under capital lease
obligations and other long-term debt (25) (110)
Net borrowings under revolving credit
notes payable and other short term debt 6,011 -
Other (603) (87)
------- -------
Net cash provided (used) by financing activities 5,383 (197)
------- -------
Net decrease in cash (24,755) (18,027)
Cash at beginning of period 26,545 45,996
------- -------
Cash at end of period $ 1,790 $27,969
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized) $1,080 $ 94
Income taxes $ 50 $ 22
<FN>
See accompanying notes to financial statements.
</TABLE>
Page 5 of 14 pages.<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS
1. On November 12, 1993 (the "Petition Date"), Gantos, Inc. and Gantos
Stores, Inc. (collectively referred to as "Debtor" or "Company") filed
petitions under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Western District of Michigan (the "Bankruptcy
Court"). The Company managed its affairs and operated its business under
Chapter 11 as a debtor-in-possession while a plan of reorganization was
formulated.
Through a reorganization under Chapter 11, management restructured the
operations and capitalization of the Company in order to strengthen the
Company's financial position and operating performance.
On January 19, 1995, the Company filed the Second Amended Joint Plan of
Reorganization of Gantos, Inc. and Gantos Stores, Inc. (as amended March
7, 1995, the "POR"). On March 7, 1995, the Bankruptcy Court confirmed the
POR which became effective March 31, 1995.
Pursuant to the POR, during the first quarter of 1995, the former Gantos,
Inc. merged into the Company (formerly known as Gantos Stores, Inc.),
which changed its name to Gantos, Inc. Pursuant to the merger and the
POR, shareholders of Gantos, Inc. before the merger are entitled to
receive one common share in the Company for every two common shares
previously held. All share and per share data in the financial statements
and the notes reflect this stock distribution for all periods presented.
Also, pursuant to the POR, during the first three quarters of 1995, the
Company used $28,774,000 of its cash, borrowed approximately $2,700,000
from its new lenders, issued approximately $12,396,000 in original
principal amount of six-year notes payable, bearing interest at 12.75% a
year, and issued or committed to issue approximately $20,484,000 in
Common Shares (valued for this purpose at $4.16 a share), in payment of
approximately $58,648,000 of its liabilities subject to compromise,
$5,192,000 in long-term debt and $514,000 of accrued expenses, including
the settlement costs of the purported class action lawsuit. Additional
cash may be paid and additional common shares may be issued when the
remaining liabilities subject to compromise are settled.
The interim financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. Nevertheless, it is recommended that these
financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995.
The accompanying interim financial statements reflect all adjustments
which are, in the opinion of management, necessary to a fair statement of
the results of the interim periods presented and necessary to present
fairly the financial position as of October 28, 1995, January 28, 1995,
and October 29, 1994, and the results of operations for the thirteen and
thirty-nine weeks ended, and cash flows for the thirty-nine weeks ended,
October 28, 1995 and October 29, 1994. All adjustments are of a normal
and recurring nature.
Page 6 of 14 pages.
<PAGE>
The results of operations for the thirty-nine week periods ended October
28, 1995 and October 29, 1994 are not necessarily indicative of the
results to be expected for the full year due to the seasonal nature of
the business.
2. Inventories are stated at the lower of cost or market. A physical
inventory to determine actual cost of merchandise sold is taken at least
two times per year.
3. Net income (loss) per share is computed using the weighted average number
of common shares outstanding during each period. The estimated weighted
average number of common shares outstanding was approximately 7,600,000
and 2,665,000 for the thirteen weeks ended October 28, 1995 and October
29, 1994, respectively, and 6,500,000 and 2,665,000 for the thirty-nine
weeks ended October 28, 1995 and October 29, 1994, respectively.
4. During the first nine months of 1995, the Company closed two stores and
charged the costs associated with the closings against the Provision for
Facilities Closings. During the second quarter of 1995, the Company
opened one new store.
5. On March 10, 1995, the Company entered into a three-year borrowing
agreement with NatWest Bank N.A. and LaSalle National Bank (the "NatWest
Facility") expiring March 31, 1998. The NatWest Facility provides the
Company with revolving credit loans and letters of credit up to $40
million, subject to a borrowing base formula and lender reserves (as
defined in the agreement). Undrawn and unreimbursed letters of credit
under the facility may not exceed $4 million in face amount. The NatWest
Facility was used to partially fund the cash payments required under the
POR and is expected to be used to provide for the Company's working
capital requirements.
Loans under the NatWest Facility bear interest at NatWest's prime rate
plus 1-1/4%, or, at the Company's option, the reserve adjusted LIBOR rate
plus 2-1/2%. The interest is payable in arrears on the last business day
of each month for prime rate loans and on the last day of the applicable
one, two, three or six-month interest period or at the end of three
months, whichever is sooner, for the reserve adjusted LIBOR rate loans.
After March 31, 1996, the agreement provides for a potential decrease in
interest rates depending on the financial performance of the Company (as
described in the NatWest Facility).
The NatWest Facility carries commitment fees of .5% of the difference
between $40 million and the average amount outstanding under the facility
(including the face amount of letters of credit) and 1.75% of the face
amount of outstanding letters of credit. This facility is secured by
substantially all of the Company's assets. As of December 4, 1995, the
Company had $6.9 million in borrowings and $374,000 in letters of credit
outstanding under this facility.
The NatWest Facility contains, among other things, covenants with respect
to (i) additional indebtedness, (ii) investments, (iii) capital
expenditures, (iv) minimum net worth, (v) fixed charge coverage ratios,
(vi) earnings before interest, taxes, depreciation and amortization,
(vii) interest coverage ratios, (viii) inventory turnover ratios and (ix)
prohibitions on paying cash dividends.
6. As described in Note 1, the Company issued to some unsecured creditors
approximately $12.4 million in original principal amount of six-year
notes bearing interest at 12.75% (the "New Notes") pursuant to the POR.
The New Notes were issued pursuant to an Indenture, dated as of March 1,
1995, between the Company and Shawmut Bank Connecticut, National
Association
Page 7 of 14 pages.
<PAGE>
(the "Indenture"). Pursuant to the Indenture, the New Notes are payable
in 16 quarterly installments of approximately $775,000 beginning July 1,
1997 and ending April 1, 2001. The New Notes are also subject to
prepayment within 50 days after the end of each fiscal year of the
Company in an amount equal to the Company's "Excess Cash Flow". Excess
Cash Flow is 50% of the Company's "Free Cash Flow" in excess of $1.4
million in 1995, $3.5 million in 1996, $3.4 million in 1997, $2.4 million
in 1998, and $4.3 million in 1999. Free Cash Flow is the Company's net
income before extraordinary items, plus depreciation expense, minus
specified capital expenditures and principal payments made with respect
to indebtedness for borrowed money (other than the quarterly payments
with respect to the New Notes and payments under the NatWest Facility).
If Excess Cash Flow payments are not at least $2.25 million by March 31,
1997, the Company must pay the shortfall. The Company must also prepay
the New Notes with the proceeds of specified asset and securities sales.
The New Notes are secured by a $5,000,000 life insurance policy on the
life of L. Douglas Gantos until the New Notes are transferred to a third
party. The New Notes secured by the policy must be prepaid with any
proceeds from the life insurance policy. The New Notes bear interest at
12.75% beginning April 1, 1995, and such interest is payable quarterly
beginning July 1, 1995. The indenture contains, among other things,
covenants with respect to (i) additional indebtedness, (ii) capital
expenditures, (iii) minimum net worth, (iv) earnings before interest,
taxes, depreciation and amortization, (v) interest coverage ratios, and
(vi) prohibitions on paying dividends.
7. The Company believes that the POR has resulted in an ownership change
under Section 382 of the Internal Revenue Code. Section 382 contains
rules that limit the ability of a company to offset pre-ownership change
net operating losses and credit carryovers against post-ownership change
taxable income. Section 382(l)(5) allows certain companies to avoid the
Section 382 limitation. However, under Section 382(l)(5) the net
operating loss carryover as of the reorganization date is reduced by the
interest expense deductible in the current and three prior years on debt
that is converted to stock and by 50% of the excess of the amount of debt
converted to stock under the POR over the fair market value of the stock.
The Company expects to elect Section 382(l)(5) treatment effective as of
March 31, 1995. As a result of this election, the Company expects to
reduce net operating loss carryforwards by approximately $1.1 million.
Page 8 of 14 pages.
<PAGE>
GANTOS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Thirteen and Thirty-nine Weeks Ended October 28, 1995 Compared to Thirteen and
Thirty-nine Weeks Ended October 29, 1994.
The following table indicates the percentage relationships to net sales of
various revenue and expense items for the thirteen and thirty-nine week
periods ended October 28, 1995 and October 29, 1994.
<TABLE>
<CAPTION>
As a percent of net As a percent of net
sales for the thirteen sales for the thirty-
weeks ended nine weeks ended
---------------------- ---------------------
Oct. 28, Oct. 29, Oct. 28, Oct. 29,
1995 1994 1995 1994
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales (including buying,
distribution and occupancy costs) (79.5) (81.1) (79.6) (82.6)
----- ----- ----- -----
Gross income 20.5 18.9 20.4 17.4
Selling, general and
administrative expense (21.5) (22.2) (21.2) (20.7)
Finance charge and other revenue 2.5 2.6 2.3 2.6
----- ----- ----- -----
Operating income (loss) 1.5 (0.7) 1.5 (0.7)
Interest expense (1.2) (0.1) (0.9) (0.1)
----- ----- ----- -----
Income (loss) before reorganization
items and income taxes 0.3 (0.8) 0.6 (0.8)
Reorganization items:
Professional fees - (1.7) (0.4) (1.4)
Interest earned on accumulating
cash from Chapter 11 proceedings - 1.0 0.2 0.9
----- ----- ----- -----
Net reorganization items - (0.7) (0.2) (0.5)
----- ----- ----- -----
Income (loss) before income taxes 0.3 (1.5) 0.4 (1.3)
Income taxes - - - -
----- ----- ----- -----
Net income (loss) 0.3% (1.5)% 0.4% (1.3)%
===== ===== ===== =====
</TABLE>
Page 9 of 14 pages.
<PAGE>
Net sales for the thirteen weeks ended October 28, 1995 were approximately
$42.1 million, a decrease of approximately $1.5 million, compared to net sales
of approximately $43.5 million in the same period of the prior fiscal year.
Net sales for stores in operation throughout both periods decreased 3.0%, or
$1.3 million, for the third quarter of 1995 compared to the same period in
1994. The 3.0% decrease in comparable store sales is comprised of a 0.4%
decrease in unit sales, a 2.7% decrease in average sales dollars per unit, and
an increase of 0.1% due to a change in merchandise mix. The remaining decrease
in net sales is the result of a $600,000 decrease in sales at stores closed
since July 30, 1994, partially offset by a $400,000 increase in sales in the
two new stores opened since July 30, 1994.
Net sales for the thirty-nine weeks ended October 28, 1995 were approximately
$136.7 million, a decrease of approximately $2.4 million, compared to net
sales of approximately $139.1 million in the same period of the prior fiscal
year. Net sales for stores in operation throughout both periods decreased
0.5%, or $660,000, for the first three quarters of 1995 compared to the same
period in 1994. The 0.5% decrease in comparable store sales for the first
three quarters is comprised of a 6.2% decrease in average sales dollars per
unit, a 0.3% decrease due to a change in merchandise mix and a 6.0% increase
in unit sales. The remaining decrease in net sales is the result of a $2.7
million decrease in sales at stores closed since January 29, 1994, partially
offset by an increase of approximately $900,000 in sales for new stores opened
since January 29, 1994. The Company expects the difficult retail environment
to continue into the fourth quarter.
For the thirty-nine weeks ended October 28, 1995, the increase in unit sales
and decrease in average sales dollars are primarily the result of the
Company's increased unit sales in moderate price classifications, partially
offset by lower markdown expenses as a percentage of sales. During the first
three quarters of 1995, the Company closed two stores and opened one new
store. The Company does not anticipate anymore store openings or closings
during the remainder of fiscal 1995.
Cost of sales, as a percent of net sales, decreased to 79.5% in the thirteen
weeks ended October 28, 1995, compared to 81.1% in the same period in the
prior fiscal year. Cost of sales, as a percent of net sales, decreased to
79.6% in the thirty-nine weeks ended October 28, 1995, compared to 82.6% in
the same period in the prior fiscal year.
The decrease in cost of sales for the thirty-nine weeks ended October 28,
1995, is primarily due to lower net markdowns taken in 1995 compared to 1994,
lower net merchandise costs incurred, a substantial decrease in store,
distribution and occupancy costs (primarily lower store rent expense and
maintenance and dues expense), as a result of favorable lease negotiations
with store landlords and reduced shrinkage expense compared to a year ago.
The decrease in cost of sales for the third quarter is primarily the result of
lower net markdowns taken in 1995 compared to 1994 and increased vendor
allowances offset by increased net merchandise costs and an increase in buying
distribution and occupancy costs.
Selling, general and administrative expense for the thirteen weeks ended
October 28, 1995 decreased approximately $0.6 million, compared to the same
period in the prior fiscal year. The decrease is primarily due to reductions
in both computer outsourcing fees and corporate rent. As a percent of net
sales, SG&A expense decreased from 22.2% to 21.5% for the thirteen weeks ended
Page 10 of 14 pages.
<PAGE>
October 28, 1995. SG&A expense for the thirty-nine weeks ended October 28,
1995 increased approximately $0.2 million compared to the same period in the
prior fiscal year. The increase is primarily due to higher payroll cost
related to increases in performance based compensation, and an increase in
employee benefits. The increase is somewhat offset by a reduction in corporate
rent realized for one month of the first quarter and the entire second and
third quarters during 1995 due to the new corporate headquarters lease and
reduced computer outsourcing fees. In addition, as a percent of net sales,
SG&A expense increased from 20.7% to 21.2% for the thirty-nine weeks ended
October 28, 1995.
Finance charge and other revenue decreased $0.1 million and $0.5 million in
the thirteen and thirty-nine weeks ended October 28, 1995, respectively,
compared to the same periods in the prior fiscal year. The decreases in both
the thirteen and thirty-nine weeks ended October 28, 1995 were primarily due
to a decrease in finance charge income as a result of lower average Gantos
credit card receivable balances outstanding in the first nine months of 1995
compared to the first nine months of 1994. The decrease in the receivable
balances is primarily the result of faster payments by customers. Gantos
charge card sales as a percentage of net sales were 32% of all purchases
for both the thirty-nine week periods ended October 28, 1995 and October 29,
1994.
Interest expense for the thirteen and thirty-nine weeks ended October 28,
1995, increased approximately $0.5 million and $1.1 million, respectively,
compared to the same periods in the prior fiscal year. The increase is the
result of the Company's emergence from Chapter 11 effective March 31, 1995. As
part of the Plan of Reorganization, the Company entered into a new revolving
credit agreement with NatWest Bank and issued $12.4 million in notes under an
indenture agreement. For a description of the NatWest Facility and of the
notes issued under the indenture, see Notes 5 and 6 of Notes to Financial
Statements in Item 1 of this Report, which description is incorporated by
reference in this Item 2. Both the revolving credit agreement and notes
accrued interest for one month during the first quarter of 1995 and throughout
the entire second and third quarters of 1995. In the prior year, during the
Chapter 11 proceedings, the Company was not required to pay interest on its
unsecured or undersecured pre-petition debts.
The Company anticipates a substantial decrease in interest income on cash
balances for the remainder of 1995 as a result of payments made to
creditors as part of the POR. This amount is shown separately in the
reorganization section of the Statements of Income (Loss). Professional fees
incurred as a result of the Chapter 11 filing are also shown separately in
the reorganization section of the Statement of Income (Loss). The Company
expects a decrease in professional fees during the remainder of 1995 due to
its emergence from Chapter 11.
The Company did not record a provision for taxes during the first nine months
of 1995 due to the availability of net operating loss carryforwards. The
Company did not record a benefit for income taxes in the first nine months of
1994 due to uncertainties concerning its ability to use its net operating loss
carryforwards.
These factors resulted in a net income of approximately $127,000, or $0.02 per
share, for the thirteen weeks ended October 28, 1995, compared to a net loss
of approximately $662,000, or $0.25 per share, in the same period of the prior
year. The Company reported net income for the thirty-nine weeks ended October
28, 1995 of approximately $577,000, or $0.09 per share, compared to a net loss
of $1.9 million, or $0.70 per share, in the same period of the prior year.
Page 11 of 14 pages.
<PAGE>
Liquidity and Capital Resources
Net cash provided by operating activities before reorganization items was
approximately $7.6 million for the thirty-nine weeks ended October 28, 1995,
compared to approximately $12.0 million for the thirty-nine weeks ended
October 29, 1994. The decrease in cash flow from operating activities before
reorganization items is primarily due to a smaller increase in accounts
payable due to a smaller increase in inventories and more timely payment in
fiscal 1995, a larger decrease in receivables in 1994 as a result of more
store closings in 1993 and early 1994 than in the first nine months of 1995,
the collection of a $1.7 million tax refund in 1994 while no refund has been
collected in 1995, and a decrease in accrued expenses in 1995 compared to an
increase in 1994 as a result of timing of payments. These decreases are offset
somewhat by an increase in net income of approximately $2.4 million, and a
smaller increase in inventories in 1995, compared to 1994. Cash used for store
closings in the first nine months of 1995 was $459,000.
Net cash used by reorganization items in the first nine months of 1995 was
approximately $33.0 million which represents approximately $31.5 million for
net cash payments on liabilities subject to compromise and approximately $1.5
million for net cash payments on reorganization items. Pursuant to the POR,
during the first nine months of 1995, the Company used $28,774,000 of its
cash, borrowed approximately $2,700,000 from its new lenders, issued
approximately $12,396,000 in original principal amount of six-year notes
payable, bearing interest at 12.75% a year, and issued or committed to issue
approximately $20,484,000 in Common Shares (valued for this purpose at $4.16 a
share), in payment of approximately $58,648,000 of its liabilities subject to
compromise, $5,192,000 in long-term debt and $514,000 of accrued expenses,
including the settlement costs of the purported class action lawsuit.
Additional cash may be paid and additional common shares may be issued when
the remaining liabilities subject to compromise are settled.
Net cash provided by financing activities in the first nine months of 1995 was
approximately $5.4 million compared to net cash used of $197,000 in the prior
year. The increase is due to $6.0 million in net borrowings by the Company
under its revolving credit facility, partially offset by the payment of loan
arrangement fees paid upon execution of the NatWest revolving credit
agreement.
The Company has a revolving credit agreement with NatWest Bank N.A. and
LaSalle National Bank with a maximum commitment of $40 million, subject to a
borrowing base formula and lender reserves. As of December 4, 1995, the
Company had $6.9 million in borrowings and $374,000 in letters of credit
outstanding under this facility.
The Company expects its cash flow from operations and borrowings under the
NatWest facility to be sufficient to meet its capital expenditure, working
capital and other liquidity needs during the remainder of 1995. Capital
expenditures for 1995 are estimated to be $7.2 million. These amounts are
being used primarily to remodel and refixture 10 to 20 stores and to pay the
balance of purchases related to the new register and information control
system. The Company also opened one new store in 1995.
Page 12 of 14 pages.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Notice of Option to Renew Lease Agreement between
Gantos, Inc. and VRB Corporation dated October 30,
1995.
10.2 Amended Credit Card Agreement
27. Financial Data Schedule
(b) No reports on Form 8-K were filed by the Registrant during the
quarter for which this report is filed.
Page 13 of 14 pages.
<PAGE>
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.
Date: December 11, 1995
GANTOS, INC.
----------------------------------
(Registrant)
By: /S/ J. E. BUNKA
----------------------------------
J. E. BUNKA
ITS VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
(DULY AUTHORIZED OFFICER AND
PRINCIPAL FINANCIAL OFFICER)
Page 14 of 14 pages.
<PAGE>
EXHIBIT INDEX
Document Number and Description
10.1 Notice of Option to Renew Lease Agreement between Gantos, Inc.
and VRB Corporation dated October 30, 1995.
10.2 Amended Credit Card Agreement
27. Financial Data Schedule
[ GANTOS Letterhead ]
October 30, 1995
Mr. Larry Voight
VRB CORPORATION
One Detroit Center
500 Woodward Avenue
3rd Floor
Detroit, MI 48275-3204
Re: Gantos, Inc. - Notice of Option to Renew
Dear Landlord:
Pursuant to paragraph 2.3 of the Lease dated April 1, 1995, between
VRB Corp. as Landlord and Gantos, Inc. as Tenant for the premises located
at 3260 Patterson SE, Grand Rapids, Michigan, Tenant has the right to
exercise an option to renew the term of the Lease for an additional six (6)
month period.
This shall serve as formal notice that Tenant hereby elects to
exercise said option to renew the term for the additional six (6) month
period. Therefore, the term of the Lease will be extended through July 31,
1996.
In the event you have any questions or comments, please contact
Kenneth Green at this office.
Very truly yours,
GANTOS, INC.
/s/ L. Douglas Gantos
L. Douglas Gantos
President and Chief Executive Officer
LDG/sra
Via Facsimile, Airborne Express, and Certified Mail
3260 Patterson Southeast
Post Office Box 875
Grand Rapids, Michigan
49588
Phone (616) 949-7000
Telecopier (616) 949-5884
[ Cover Panel Art ]
CREDIT APPLICATION
Apply Today
And Receive
10% off
Your First Purchase
[ Gantos Logo Art --
Sample Gantos Charge Card ]
- ---------------------------------------------
/ /
/ GANTOS /
/ /
/ 004 063 246 /
/ /
/ WENDY ALLEN /
/ /
- ---------------------------------------------
Subject to credit approval
<PAGE>
CREDIT APPLICATION
ACCOUNT TYPE / / INDIVIDUAL / / JOINT
TELL US ABOUT YOURSELF
NAME
__________________________________________
HOME ADDRESS
__________________________________________
CITY STATE ZIP
__________________________________________
HOW LONG AT ADDRESS YEARS MONTHS
__________________________________________
HOME TELEPHONE
__________________________________________
OWN HOME / / RENT / / OTHER / /
SOCIAL SECURITY NO.
__________________________________________
DATE OF BIRTH
__________________________________________
PREVIOUS ADDRESS
(if less than a year)
__________________________________________
CITY STATE ZIP
__________________________________________
YOUR JOB
EMPLOYER
__________________________________________
BUSINESS TELEPHONE
__________________________________________
ANNUAL INCOME
(You need not disclose / / UP TO $22,999
alimony, child support / / $23,000 TO $33,999
or separate maintenance / / $34,000 TO $63,999
income unless you wish / / $64,000 plus
us to consider it)
YOUR BANK
/ / CHECKING / / SAVINGS
BANK NAME
__________________________________________
AUTHORIZED BUYERS
__________________________________________
<PAGE>
CO-APPLICANT INFORMATION
NAME
__________________________________________
HOME ADDRESS
__________________________________________
CITY STATE ZIP
__________________________________________
HOME TELEPHONE
__________________________________________
SOCIAL SECURITY NO.
__________________________________________
RELATIONSHIP
__________________________________________
EMPLOYER
__________________________________________
BUSINESS TELEPHONE
__________________________________________
ANNUAL INCOME
(You need not disclose / / UP TO $22,999
alimony, child support / / $23,000 TO $33,999
or separate maintenance / / $34,000 TO $63,999
income unless you wish / / $64,000 plus
us to consider it)
To find out about changes to the information in this application, write us at:
Gantos Stores, Inc., 3260 Patterson S.E., P.O. Box 875, Grand Rapids, MI
49588.
STATE LAW REQUIRES US TO GIVE YOU THE FOLLOWING NOTICES.
CALIFORNIA RESIDENTS: The applicant, if married, may apply for a separate
account. After credit approval each applicant shall have the right to use this
Account to the extent of any creditor and each applicant may be liable for all
amounts of credit extended under this Account to any joint applicant. OHIO
RESIDENTS: THE OHIO LAWS AGAINST DISCRIMINATION REQUIRE THAT ALL CREDITORS
MAKE CREDIT EQUALLY AVAILABLE TO ALL CREDIT WORTHY CUSTOMERS, AND THAT CREDIT
REPORTING AGENCIES MAINTAIN SEPARATE CREDIT HISTORIES ON EACH INDIVIDUAL UPON
REQUEST. THE OHIO CIVIL RIGHTS COMMISSION ADMINISTERS COMPLIANCE WITH LAW.
WISCONSIN RESIDENTS: Marital Notice -- No provision of a marital property
agreement, unilateral statement under Sec. 766.59 Wis. Stats., or court decree
under Sec. 766.70 Wis. Stats. will adversely affect our rights unless we are
furnished a copy of the agreement, statement or decree, or have actual
knowledge of its terms BEFORE credit is granted or the account is opened.
Pursuant to Wisconsin law, we are required to ask married applicants to supply
the following information:
__________________________________________
Spouse's Name
__________________________________________
Spouse's Address
<PAGE>
STORE USE ONLY
STORE NO. RINGING NO. ACCOUNT NO. LIMIT
- -------------------------------------------------
- -------------------------------------------------
ID CHECKED BY DRIVER'S LICENSE NO.
- -------------------------------------------------
- -------------------------------------------------
CO-APPLICANT'S DRIVER'S LICENSE NO.
- -------------------------------------------------
- -------------------------------------------------
I have read and agree to be bound by the
Retail Installment Credit Agreement
to the right of this application.
I acknowledge that I have received a copy of the
Retail Installment Credit Agreement.
__________________________________________
APPLICANT'S SIGNATURE DATE
__________________________________________
CO-APPLICANT'S SIGNATURE DATE
<PAGE>
GANTOS RETAIL INSTALLMENT CREDIT AGREEMENT
The words "you" and "your" refer to any person who signs this Retail
Installment Credit Agreement or who is authorized to use this Gantos Charge
Account; "we," "us," and "our" refer to Gantos Stores, Inc., 3260 Patterson
S.E., P.O. Box 875, Grand Rapids, MI 49588. You agree to the following
regarding all purchases made on your Gantos Charge Account by you or by
anyone authorized by you to use the Account:
1. COST OF CREDIT. There is no Finance Charge in any monthly billing period in
which there is no balance at the beginning of the billing period (the
"Previous Balance" shown on your bill) or in which payments and credits made
within 28 days after the billing date equal or exceed the balance at the
beginning of the billing period. If we do not receive the full amount due
within 28 days after the billing date shown on your monthly statement, you
agree to pay the cash price of all purchases and a Finance Charge determined
as follows:
- --------------------------------------------------------------
ANNUAL
State Periodic Rate PERCENTAGE RATE
- --------------------------------------------------------------
CA, CO, CT, DC, KY, IL, IN, MD,
NH, NJ, NY, OH, OR, RI, TN, VA 1.75% 21.00%
- --------------------------------------------------------------
KS, MA, MN,
NC, PA, WI 1.50% 18.00%
- --------------------------------------------------------------
IA 1.65% 19.80%
- --------------------------------------------------------------
MI 1.70% 20.40%
- --------------------------------------------------------------
MO 1.67% 20.04%
- --------------------------------------------------------------
A minimum FINANCE CHARGE of $.50 will be imposed each month in which the
Finance Charge determined by application of the periodic rate would be less
than $.50, except there is no minimum FINANCE CHARGE in District of Columbia,
Maryland and North Carolina.
2. METHOD OF COMPUTING FINANCE CHARGES. We figure the Finance Charge on your
account by applying the above-stated periodic rate to the "average daily
balance" of your Account, which we get by taking the beginning balance of your
Account each day, adding any new purchases (except we do not add in current
purchases in Massachusetts and Minnesota), and subtracting any payments or
credits and unpaid Finance Charge. This gives us the daily balance. Then, we
add up all the daily balances for the billing cycle and divide the total by
the number of days in the billing cycle. This gives us the "average daily
balance."
3. MINIMUM PAYMENT. If the New Balance is up to $200, you agree to make
a minimum payment each month of at least $20 (balances of $20 or less are
payable in full). When the New Balance exceeds $200, your minimum payment will
be 10% of the New Balance. THE BUYER MAY AT ANY TIME PAY HIS TOTAL
INDEBTEDNESS.
4. LATE PAYMENT FEE. If you live in CA, CO, CT,DC, IL, IN, KS, MA, MD, MI, MN,
MO, NC, NH, NJ, NY, OH, OR, PA, RI, TN, VA or WI, and your minimum monthly
payment is not received by us within 10 days after it is due (15 days in MA
and RI; 30 days in NC; 31 days in PA), we may impose a Late Payment Fee.
The Late Payment Fee will be $5.00 in all states mentioned above except as
follows: the lesser of $5.00 or 10% of the outstanding balance in MA; the
lesser of 5% of the amount past due or $5.00 in CT, NH and TN; and the lesser
of 5% of the amount past due or $3.00 in OH. We will add any Late Payment Fee
to the balance due on your Account. INDIANA RESIDENTS: THE AMOUNT OF THE $5.00
LATE PAYMENT FEE IS SUBJECT TO CHANGE AS PROVIDED IN THE INDIANA CODE SECTION
24-4.5-1-106.
<PAGE>
5. RETURNED CHECK CHARGE. If any check sent to us in payment on your Account
is returned to us unpaid by the bank, we may charge you a processing charge of
$15 to cover our collection costs,or such lesser amount as may be authorized
by law, and you agree that we may add such charge to the balance due on your
Account. This charge is not imposed in MA, ME or PA.
6. OTHER FEES. There is no annual fee or other charges imposed for the
availability, issuance or renewal of the Gantos credit card.
7. DEFAULT/COLLECTION COSTS. If you fail to pay any minimum payment when due,
subject to any right you may have under applicable state law to receive notice
of and to cure your default, we may declare your entire balance due and
payable (except in WI you will not be in default unless you fail to make a
minimum payment on two occasions within a 12-month period). If the Account is
referred to an attorney who is not our salaried employee, you agree to pay, in
addition to the full amount owed and any court costs, attorney's fees of up to
20% of the total amount due, but only to the extent permitted by applicable
state law.
8. CANCELING OR LIMITING YOUR CREDIT. We have the right at any time to limit
or terminate your use of this Account without giving you notice in
advance. Upon our request, you will return to us any Gantos credit card.
9. CHANGING THIS AGREEMENT. We have the right to change this Agreement at
anytime by giving you advance notice of the intended change, or as otherwise
allowed by law. To the extent permitted by law, any change may at our option
be applied to any balance then outstanding and to any future transactions. If
you do not agree to the change, you may end this Agreement, or you may end it
for any other reason, but if you do, you agree to return any Gantos credit
card and pay the total balance due under the terms of this Agreement.
10. CREDIT INVESTIGATION. We may request a consumer report from consumer
reporting agencies in considering your application and for the purpose of an
update, renewal or extension of credit. Upon your request we will inform you
of the name and address of each consumer reporting agency from which we
obtained a consumer report relating to you. You authorize us to verify your
employment, credit references and other information concerning your
creditworthiness. We may report your performance under this Agreement to
credit bureaus and others who may properly receive such information.
11. DISPUTED AMOUNTS. All written communications concerning disputed
amounts,including any check or other payment instrument in an amount less than
the full amount due that you send to us marked "paid in full," you tender with
other conditions or limitations, or you otherwise tender as full satisfaction
of a disputed amount, must be sent to us at the address for billing inquiries
shown on the billing statement.
NOTICE: See reverse side for important information.
[ Gantos Logotype & Tear-Out Temporary Charge Card -- Front ]
---------------------------------------------
/ /
/ GANTOS /
/ Account No. Exp. Date: /
/ _________________________________ /
/ Name: /
/ _________________________________ /
/ /
---------------------------------------------
<PAGE>
12. TELEPHONE MONITORING. In order to assure that you receive the best
possible customer service, and that our Associates are complying with our
policies and all applicable laws in their contacts with you, on occasion a
second Associate may listen to customer calls.
13. USE OF ACCOUNT INFORMATION. From time to time we make information, such as
your name and address, available to others who may in turn solicit you for
quality products or services. You have the right to tell us that you do not
want us to make this type of information about you available to others. To do
so, you may call us toll-free at 1-800-522-1136, and we will honor your
request.
14. CHANGE OF ADDRESS AND APPLICABLE LAW. You agree to notify us promptly in
writing if you move. Until we receive written notice of your new address, we
will continue to send periodic statements and other notices to the address you
gave on the application for this Account. You understand and expressly agree
that the law of the State of Michigan will govern this Agreement, except that
the law of your state of residence will govern this Agreement if you live in a
state where a Gantos retail outlet is located.
NOTICE TO MARYLAND RESIDENTS: THIS ACCOUNT IS GOVERNED BY SUBTITLE 9, TITLE 12
OF THE MARYLAND COMMERCIAL LAW ARTICLE.
NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS
AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR
SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY
HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.
NOTICE TO THE BUYER:
1. DO NOT SIGN THIS CREDIT AGREEMENT BEFORE YOU READ IT OR IF IT CONTAINS ANY
BLANK SPACE.
2. YOU ARE ENTITLED TO A COMPLETELY FILLED-IN COPY OF THIS CREDIT AGREEMENT.
3. YOU MAY AT ANY TIME PAY THE TOTAL BALANCE OUTSTANDING UNDER THIS AGREEMENT.
4. FINANCE CHARGES WILL BE MADE IN AMOUNTS AND AT RATES NOT IN EXCESS OF
THOSE PERMITTED BY LAW.
5. ADDITIONAL NOTICE FOR MASS. RESIDENTS: YOU MAY CANCEL A PURCHASE UNDER THIS
AGREEMENT IF IT HAS BEEN SIGNED BY A PARTY THERETO AT A PLACE OTHER THAN THE
ADDRESS OF THE SELLER WHICH MAY BE HIS MAIN OFFICE OR BRANCH THEREOF;
PROVIDED, YOU NOTIFY THE SELLER IN WRITING AT HIS MAIN OFFICE OR BRANCH,
BY ORDINARY MAIL POSTED, BY TELEGRAM SENT OR BY DELIVERY, NOT LATER THAN
MIDNIGHT OF THE THIRD BUSINESS DAY FOLLOWING A PURCHASE UNDER THIS AGREEMENT.
[ Gantos Logotype & Tear-Out Temporary Charge Card -- Back ]
---------------------------------------------
/ /
/ GANTOS /
/ /
/ P.O. Box 875, Grand Rapids, MI 49588 /
/ /
/ Temporary Charge Card Valid Only with /
/ Customer Identification /
---------------------------------------------
<PAGE>
YOUR BILLING RIGHTS
Keep this notice for future use.
This notice contains important information about your rights and our
responsibilities under the Fair Credit Billing Act.
NOTIFY US IN CASE OF ERRORS OR QUESTIONS ABOUT YOUR BILL
If you think your bill is wrong, or if you need more information about a
transaction on your bill, write us at Gantos Stores, Inc., 3260 Patterson
S.E., P.O. Box 875, Grand Rapids, MI 49588. Attn: Credit Manager.
Write to us as soon as possible. We must hear from you no later than 60 days
after we sent you the first bill on which the error or problem appeared. You
can telephone us, but doing so will not preserve your rights.
In your letter, give us the following information:
* Your name and account number.
* The dollar amount of the suspected error.
* Describe the error and explain, if you can, why you believe there is an
error.
If you need more information, describe the item you are not sure about.
YOUR RIGHTS AND OUR RESPONSIBILITIES
AFTER WE RECEIVE YOUR WRITTEN NOTICE
We must acknowledge your letter within 30 days, unless we have corrected the
error by then. Within 90 days, we must either correct the error or explain why
we believe the bill was correct. After we receive your letter, we cannot try
to collect any amount you question, or report you as delinquent. We can
continue to bill you for the amount in question, including finance charges,
and we can apply any unpaid amount against your credit limit. You do not have
to pay any questioned amount while we are investigating, but you are still
obligated to pay the parts of your bill that are not in question.
If we find that we made a mistake on your bill, you will not have to pay any
finance charges related to any questioned amount. If we did not make a
mistake, you may have to pay finance charges, and you will have to make up
any missed payments on the questioned amount. In either case, we will send
you a statement of the amount you owe and the date that it is due.
If you fail to pay the amount that we think you owe, we may report you
as delinquent. However, if our explanation does not satisfy you and you
write to us within ten days telling us that you still refuse to pay, we must
tell anyone we report you to that you have a question about your bill. And, we
must tell you the name of anyone we reported you to. We must tell anyone we
report you to that the matter has been settled between us when it finally is.
If we don't follow these rules, we can't collect the first $50 of the
questioned amount, even if your bill was correct.
SPECIAL RULE FOR CREDIT CARD PURCHASES
If you have a problem with the quality of property or services that you
purchased with a credit card and you have tried in good faith to correct the
problem with us, you may have the right not to pay the remaining amount due on
the property or services.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM STATEMENTS OF INCOME (LOSS) AND BALANCE
SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> OCT-28-1995
<CASH> $ 1,790
<SECURITIES> 0
<RECEIVABLES> 23,512
<ALLOWANCES> 537
<INVENTORY> 31,350
<CURRENT-ASSETS> 58,875
<PP&E> 63,420
<DEPRECIATION> 44,962
<TOTAL-ASSETS> 77,333
<CURRENT-LIABILITIES> 32,998
<BONDS> 18,540
<COMMON> 76
0
0
<OTHER-SE> 25,319
<TOTAL-LIABILITY-AND-EQUITY> 77,333
<SALES> 136,733
<TOTAL-REVENUES> 136,733
<CGS> 108,820
<TOTAL-COSTS> 108,820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,221
<INCOME-PRETAX> 577
<INCOME-TAX> 0
<INCOME-CONTINUING> 577
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 577
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
