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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 29, 2000
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: 0-19526
GOODY'S FAMILY CLOTHING, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-0793974
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
400 GOODY'S LANE, KNOXVILLE, TENNESSEE 37922
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (865) 966-2000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of April 13, 2000: approximately $133,628,000
Number of shares of Common Stock outstanding as of April 13, 2000:
32,476,380
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference
into the following parts of this Form 10-K: Certain information required in Part
III of this Form 10-K shall be incorporated from the Company's Proxy Statement
for its 2000 Annual Meeting of Shareholders currently scheduled to be held on
June 21, 2000.
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Unless the context otherwise indicates, all references in this Form 10-K to
the "Company" or "Goody's" refer to Goody's Family Clothing, Inc., a Tennessee
corporation, and its subsidiaries. The Company's fiscal year ends on the
Saturday nearest the last day of January. The terms "fiscal 2002," "fiscal
2001," "fiscal 2000," "fiscal 1999," "fiscal 1998," "fiscal 1997," "fiscal
1996," and "fiscal 1995" refer to the Company's fiscal years ending or ended on
February 1, 2003 (52 weeks), February 2, 2002 (52 weeks), February 3, 2001 (53
weeks), January 29, 2000 (52 weeks), January 30, 1999 (52 weeks), January 31,
1998 (52 weeks), February 1, 1997 (52 weeks), and February 3, 1996 (53 weeks),
respectively.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements made by or on behalf of the Company. Management
has endeavored in its communications and in this Form 10-K to highlight the
trends and factors that might have an impact on the Company and the industry in
which it competes. Any "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which generally can be identified
by the use of forward-looking terminology such as "may," "will," "expect,"
"estimate," "anticipate," "believe," "target," "plan," "project," or "continue"
or the negatives thereof or other variations thereon or similar terminology, are
made on the basis of management's plans and current analysis of the Company, its
business and the industry as a whole. These statements appear in a number of
places in this Form 10-K and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) weather conditions; (ii) the timely availability of
merchandise in sufficient quantities to satisfy customer demand; (iii) customer
demand and trends in the apparel and retail industry and to the acceptance of
merchandise acquired for sale by the Company; (iv) the effectiveness of
advertising and promotional events; (v) the impact of competitors' pricing and
store expansion; (vi) the ability to enter into acceptable leases for new store
locations; (vii) the timing, magnitude and costs of opening new stores; (viii)
individual store performance, including new stores; (ix) employee relations; (x)
the general economic conditions within the Company's markets; (xi) the Company's
financing plans; (xii) trends affecting the Company's financial condition or
results of operations; (xiii) the success of the new credit card program; (xiv)
the impact of the stores' new presentation strategy; (xv) the ability to achieve
improvements in efficiency in merchandise distribution through the second
distribution center, without material start-up problems; and (xvi) the Company's
ability to successfully execute its business plans and strategies. Readers are
cautioned that any such forward-looking statement is not a guarantee of future
performance and involves risks and uncertainties, and that actual results may
differ materially from those projected in the forward-looking statement as a
result of various factors. The Company does not undertake to publicly update or
revise its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will not be
realized.
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PART I
ITEM 1. BUSINESS
GENERAL
Goody's is a retailer of moderately-priced family apparel operating 287
stores in 17 southeastern and midwestern states as of January 29, 2000. The
Company primarily locates its stores in small to midsize markets that have
demographic characteristics consistent with its targeted customer. All of
Goody's stores are leased and are generally located in strip shopping centers,
averaging approximately 27,500 gross square feet. The Company manages its core
functions, such as purchasing, pricing, marketing and advertising, distribution,
real estate, finance, and information systems from its centrally located
corporate office and distribution center in Knoxville, Tennessee.
The Company's objective is to be a leading retailer of apparel for the
entire family in each of the markets it serves. In keeping with this objective,
Goody's offers its customers a broad selection of current-season, nationally
recognized brands for brand-conscious shoppers, as well as exclusive brands for
those shoppers seeking quality apparel at value prices.
COMPETITIVE STRATEGY
The Company's operating strategies continually evolve to keep pace with the
competitive demands of an ever-changing retail environment. However, the central
elements of the Company's core business strategy remain essentially the same and
include the following:
- Appeal to Value-Conscious Customers. Goody's appeals to value-conscious
customers by offering current-season, trend-right, nationally recognized
and exclusive brand merchandise at value prices.
- Offer a Broad Range of Merchandise for the Entire Family. The Company
provides a wide selection of merchandise designed to address the casual
apparel needs of the entire family. The Company believes that providing
one-stop shopping for customers in convenient, accessible locations gives
it an advantage over many of its competitors. Current initiatives
underway to improve this strategy include the offering of a complete shoe
line for the entire family; the enhancement and expansion of the
children's, petite and plus size departments; and the strengthening of
the intimate apparel department with the addition of more nationally
recognized brands.
- Emphasize Current-Season, Nationally Recognized Brands. The Company is
committed to maintaining a strong line-up of nationally recognized brands
including Adidas, Alfred Dunner, Arrow, Bugle Boy, Byer, Casey & Max,
Dockers, L.E.I., Lee, Leslie Fay, Levi's, Miss Erika, My Michelle,
Natural Issue, Nike, Paco, Reebok, Requirements, Sag Harbor, Union Bay,
and Villager by Liz Claiborne among others.
- Strategically Use Private Label Programs. The Company's private label
programs utilize exclusive brands, which offer shoppers quality products
at exceptional value and generate higher gross margins for the Company.
The Company's exclusive brands include Chandler Hill, Intimate Classics,
Montana Blues Jean Company, and Mountain Lake for women; Bobby G by Ivy
Crew, International Trading Company, Ivy Crew, OCI and Old College Inn
for men; and GoodKidz for children among others.
- Focus on Small to Midsize Markets. The Company generally locates stores
in small to midsize markets that have demographic characteristics
consistent with its targeted value-conscious customer. Having developed a
flexible store format depending on demographics, the Company generally
opens stores ranging in size from 20,000 to 35,000 gross square feet.
While the Company operates in selected larger metropolitan markets,
smaller market areas offer significant strategic advantages, including
increased opportunities for expansion, lower rent and occupancy costs,
and fewer competitors.
- Provide Strong Marketing and Advertising. The Company believes that
communicating frequently with customers is key to maintaining traffic
flow in its stores and creating loyalty within its customer base. The
Company advertises in local newspapers at least once each week. The
Company reinforces its print message with television and/or radio
campaigns running during portions of approximately 30 weeks each year.
Goody's advertising and marketing message aims to define the store as a
headquarters for key categories of value priced merchandise and emphasize
the store as a destination for casual family apparel.
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- Shopper-Friendly Store Environment. The Company endeavors to provide
easy-to-read in-store signage, clear and understandable pricing, easy to
shop aisleways, functional and space-efficient fixturing, efficient
check-out counters, and easy to locate customer service areas to enhance
the customer's shopping experience.
EXPANSION STRATEGY
The Company's current expansion strategy is to grow its store base by
approximately 10% each year in small to midsize markets. During fiscal 2000, the
Company plans to open a total of approximately 30 new stores, relocate or
remodel approximately 17 stores and close two stores. As opportunities present
themselves, the Company may expand into suburban growth areas of larger
metropolitan markets opening several stores simultaneously. The Company believes
that opportunities exist to expand its presence within current markets and into
new states such as Louisiana and other midwestern states.
In making its decision to open a new store, the Company typically
evaluates, among other factors, market demographics, competition, location,
consumer traffic, rent and occupancy costs, advertising and other expenses
associated with the opening and operation of a new store. Goody's has
historically supported new store growth from internally generated funds.
In February 2000, the Company purchased approximately 30 acres of land in
Russellville, Arkansas where it plans to build a new 234,000-square-foot
distribution center. This facility is expected to open in fiscal 2001 and is
designed to serve more than 200 stores.
The Company would consider a complementary acquisition opportunity should
it arise, although the Company has no understandings, arrangements or agreements
with respect to any such opportunity.
The following table provides information regarding the number of stores in
operation, new stores opened, stores closed and stores relocated or remodeled
during the years indicated:
FISCAL YEAR
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1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Stores open, beginning of year............................ 257 223 203 184 171
New stores opened during the year......................... 32 36 24 20 13
Stores closed during the year............................. (2) (2) (4) (1) --
--- --- --- --- ---
Stores open, end of year.................................. 287 257 223 203 184
=== === === === ===
Stores relocated or remodeled during the year............. 20 10 16 8 7
=== === === === ===
MERCHANDISING STRATEGY
The Company's merchandising strategy has been developed to appeal to
value-conscious customers by offering a broad selection of current-season,
trend-right, nationally recognized and exclusive brand merchandise at value
prices. The Company continually develops and refines its merchandising strategy
to meet the tastes and lifestyles of its customers. The Company competes with
(i) department stores by offering nationally recognized brand name quality
apparel at value prices, (ii) specialty stores by offering apparel for the
entire family, (iii) off-price apparel stores by offering a wide selection of
current-season merchandise at competitive prices and (iv) discount stores by
offering better nationally recognized brand name merchandise generally
unavailable to discount retailers. While nationally recognized brand name
merchandise remains the cornerstone of its merchandising strategy, the Company
continues to invest in the development of exclusive brands, which offer
customers quality merchandise at value prices. The Company's exclusive brand
sales accounted for approximately 19% and 21% of total sales for fiscal 1999 and
1998, respectively.
A typical Goody's store has six divisions that include women's (juniors,
misses, intimate apparel, swimwear and outerwear), denim, men's (sportswear,
activewear, young men's and men's furnishings), children's (infants and
toddlers, boys and girls), accessories (jewelry, handbags, belts and gift items)
and shoes. Goody's carries approximately 11,500 different styles of merchandise,
all of which are electronically tracked (many by color and size) in order to
provide timely and accurate selling data to Company management.
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MERCHANDISING DIVISIONS
Women's. The broadest merchandise selection offered by the Company is in
the women's division, which contributed 41.7% of total sales in fiscal 1999.
Goody's women's division emphasizes casual and career fashions and includes
juniors, misses, petite, plus size, intimate apparel, swimwear, and outerwear.
Juniors' merchandise lines include nationally recognized brand names such as
Adidas, Byer, L.E.I., Lee, Levi's, My Michelle, Nike, Reebok, Union Bay and
Wrapper. Misses' merchandise lines include popular brand names such as Alfred
Dunner, Cathy Daniels, Lee, Leslie Fay, Levi's, Miss Erika, Requirements, Sag
Harbor, Stephanie K by Koret, Victoria Jones and Villager by Liz Claiborne as
well as the Company's exclusive brand, Mountain Lake. Fashion dresses are also
an important part of Goody's overall women's product lines and feature popular
brand names such as Dorby, Jessica Howard, Leslie Fay, My Michelle, Positive
Attitude, Sag Harbor, Scarlett, and Sweet Jessie. Nationally recognized brand
name undergarments offered by the women's division include products from
Bestform, Felina Lingerie, Hanes and Maidenform. Swimwear features labels such
as Beach Native, Body I.D., Malibu Dream Girl, and Sassafras. Outerwear product
lines include the Braetan and Herman Kay brand name labels and the Company's
exclusive brand Mountain Lake.
Denim. The denim merchandise division is important to the Company's
merchandising concept and contributed 23.8% of total sales in fiscal 1999. The
Company believes that its broad selection and competitive pricing of basic denim
merchandise appeals to value-conscious families and generates customer traffic
for other higher margin merchandise. The Company utilizes automatic
replenishment programs using electronic data interchange ("EDI") with its major
denim suppliers to optimize in-stock positions for popular styles and sizes and
improve inventory turnover. Nationally recognized brand names that are carried
in the denim division include L.E.I., Lee, Levi's, Paco and Union Bay. The
Company's exclusive brands for denim are Montana Blues Jean Company for women
and OCI for men.
Men's. The men's division contributed 19.4% of total sales in fiscal 1999
and consists of sportswear, activewear, young men's and men's furnishings
departments. The men's division features nationally recognized brand name
merchandise and includes Adidas, Arrow, Bugle Boy, Dockers, Lee, Levi's, Natural
Issue, Nike, Reebok, and Russell. The Company's exclusive brands for men are
Bobby G by Ivy Crew, International Trading Company, Ivy Crew, OCI and Old
College Inn.
Children's. The children's division contributed 6.7% of total sales in
fiscal 1999 offering durable apparel for children of all ages. Nationally
recognized brands for children offered by the children's division include
Adidas, Byer, Cradle Togs, Dockers, Kids Headquarters, L.E.I., Lee, Levi's, My
Michelle, Nike, Paco, and Union Bay. The Company's exclusive brands for children
include GoodKidz, Ivy Crew, Montana Blues Jean Company, OCI and Old College Inn.
Accessories. The accessories division, which includes items such as
fashion and costume jewelry, handbags, belts, wallets, hair accessories,
sunglasses for women, picture frames, stationery and gift items, contributed
6.0% of total sales in fiscal 1999. Featured nationally recognized brands in the
accessories division include Burnes of Boston, Carryland, Jackson, Jantzen and
Rosetti.
Shoes. Prior to August 1999, the Company's shoe departments were operated
by a third party under an exclusive operating license agreement, which was
terminated after the operator filed for Chapter 11 bankruptcy protection on June
14, 1999. Net rental income from such leased departments is included in the
caption "Other" in the table below.
In August 1999, the Company began operating its own shoe departments which
contributed 1.6% of total sales for fiscal 1999. At the end of fiscal 1999, 275
stores had shoe departments and the Company expects that all new and relocated
stores in fiscal 2000 will have shoe departments. The shoe departments offer
nationally recognized brands such as Adidas, American Eagle, Bongo, Dockers,
Eastland, Keds, Mootsie's Tootsies, New Balance, Nike, Reebok, Skechers and
Villager by Liz Claiborne.
Other. Includes revenue from tuxedo rentals, service fees and leased
departments' net rental income which in the aggregate contributed 0.8% of total
sales in fiscal 1999. The Company ceased all leased department operations in
fiscal 1999. Net rental income from leased departments was $3,372,000,
$6,622,000 and $5,341,000 in fiscal 1999, 1998 and 1997, respectively.
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The following table shows a breakdown of the Company's total sales for the
periods indicated (dollars in thousands):
FISCAL 1999 FISCAL 1998* FISCAL 1997*
-------------------- -------------------- ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- -------- -------
Women's.................... $ 492,076 41.7% $ 452,962 42.9% $408,653 43.3%
Denim...................... 280,789 23.8 253,806 24.0 226,774 24.0
Men's...................... 228,953 19.4 220,525 20.9 195,183 20.7
Children's................. 79,617 6.7 66,778 6.3 60,711 6.4
Accessories................ 70,477 6.0 50,958 4.8 42,324 4.5
Shoes...................... 19,101 1.6 -- -- -- --
Other...................... 9,917 0.8 11,986 1.1 10,066 1.1
---------- ----- ---------- ----- -------- -----
$1,180,930 100.0% $1,057,015 100.0% $943,711 100.0%
========== ===== ========== ===== ======== =====
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* Restated to accrue for sales returns and adopt a change in accounting
methodology related to leased departments in response to the Securities and
Exchange Commission's Staff Accounting Bulletin No. 101 "Revenue Recognition
in Financial Statements" ("SAB No. 101"). See Note 1 in the Notes to
Consolidated Financial Statements.
STORE VISUAL PRESENTATION
Generally within each store, specific departments are well signed and have
direct aisleways leading to major departments. Visual merchandising and store
presentation is enhanced by fixtures that showcase merchandise in an accessible
and customer-friendly shopping environment. Sale items featured in the Company's
advertising campaigns are highlighted in the stores with easy-to-read signs that
allow customers to quickly locate items of interest. The overall merchandise
presentation is organized to highlight selected fashion products as the seasons
progress. The store visual merchandising department, in collaboration with the
merchandising staff, communicates with the stores frequently through a program
called "Front & Forward," which coordinates visual presentation efforts with
featured items contained in advertisements or items being promoted in-store. As
part of a refixturing plan for fiscal 2000, existing stores will be reformatted
with new fixtures designed to increase the aisle space throughout the store.
This refixturing plan will utilize space efficient techniques that have a
nominal impact on overall units of merchandise in the store.
PURCHASING
The Company buys merchandise from approximately 600 vendors and does not
have long-term or exclusive contracts with any manufacturer or vendor. During
fiscal 1999, the Company's purchases from Levi Strauss & Co., its largest
vendor, represented approximately 16.1% of total purchases. No more than 4.4% of
total purchases were attributable to any one of the Company's other vendors. The
Company maintains strong relationships with its vendors. A growing portion of
the Company's merchandise is prepackaged and preticketed by the vendors for each
store, reducing the cost and processing time in the distribution center. During
the fourth quarter of fiscal 1999, Goody's introduced a vendor compliance
program whereby vendors were given specific guidelines related to packaging,
labeling, ticketing, shipping, and the timeliness of deliveries. This program is
designed to reduce Goody's operating costs and improve the timing and accuracy
of deliveries, with financial penalties assessed against vendors that do not
comply with the guidelines.
Merchandise associated with the Company's exclusive brands is largely
imported. The Company employs its own designers and product development teams
who work closely with the merchandising staff to track seasonal fashion trends,
analyze customer feedback and determine appropriate order quantities. The
Company controls its exclusive brands from the initial concept to the final sale
to the consumer and monitors product quality, freight costs and other expenses
in an effort to maximize gross margins on such merchandise.
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PLANNING AND ALLOCATION
The Company's planning and allocation department works closely with the
merchandising staff, distribution center and store operations personnel to
establish an appropriate flow of merchandise for each of the Company's stores.
This flow of merchandise reflects customer preferences in each market in an
effort to reduce the cost of transferring merchandise among its various stores.
The Company also utilizes automatic replenishment programs using EDI with 89
vendors, which accounted for approximately 32% of total sales in fiscal 1999.
This allows for more efficient replenishment of specific items of merchandise in
particular styles, sizes and colors to optimize in-stock positions of basic
merchandise and improve inventory turnover. The Company continues to invest in
automatic replenishment programs using EDI for existing and new vendors.
CENTRALIZED DISTRIBUTION
The Company has a 344,000-square-foot distribution center, located in
Knoxville, Tennessee, which is equipped with automated merchandise handling
equipment that facilitates efficient distribution of merchandise to the
Company's stores and provides for efficient cross docking of prepackaged and
preticketed merchandise by store. In order to control quality, all incoming
merchandise is received at the distribution center to allow for inspection
before being delivered to the stores. As noted above under the caption
"Purchasing," Goody's implemented a vendor compliance program in the fourth
quarter of fiscal 1999 that is designed to improve vendor deliveries and reduce
distribution costs.
Merchandise for individual stores is typically processed through the
distribution center within 48 hours of its receipt from vendors. Furthermore,
because the distribution center is located adjacent to main north/south and
east/west interstate highways, the Company can negotiate favorable shipping
terms with its vendors for merchandise delivered to its distribution center.
The Company has also developed an effective computerized system for
tracking merchandise from the time it arrives at its distribution center until
it is delivered to the stores to ensure that shipments are delivered in an
accurate and timely manner. The Company utilizes a third party contract carrier
to deliver merchandise to its stores.
Based upon the Company's current growth plans, the Knoxville distribution
center, which has the capacity to distribute merchandise to approximately 325
stores, can service its stores through fiscal 2000.
In February 2000, the Company purchased approximately 30 acres of land in
Russellville, Arkansas, where it plans to build a new 234,000-square-foot
distribution center. This facility is expected to open in fiscal 2001 and is
designed to serve more than 200 stores.
As noted above under the caption "Merchandising Divisions -- Shoes," in
August 1999 the Company began operating its own shoe departments. Goody's has
and will continue to process shoes that are purchased prepackaged by store
through its own distribution center. Beginning in February 2000, the Company
began using a third-party processor to "pick-and-pack" shoes by color and size
for each of the Company's stores.
MARKETING AND ADVERTISING
The Company's marketing and promotional strategy is designed to reinforce
its image as a destination store for trend-right casual apparel at value prices
for the entire family. The Company believes that its advertisements, which
emphasize nationally recognized brand name apparel, low prices and broad
selections for the entire family, have enabled it to communicate a distinct
identity that reinforces its niche in the marketplace.
Using a multi-media approach, Goody's develops and prepares its own
advertising for newspapers, television and radio. The Company's media department
researches certain markets to develop profiles of shoppers in order to
effectively plan its advertising. The Company frequently uses full-color
advertising to portray the depth and selection of its merchandise. In-store
merchandise presentation is coordinated with such advertising to maximize
promotional opportunities. While the exact allocation of the advertising budget
differs from market to market, the Company generally allocates approximately 70%
of its advertising budget to print media and the remainder to television, radio
and other promotional activities. Several of the Company's key vendors share in
the costs of mutually beneficial advertising campaigns through cooperative
advertising programs.
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In October 1999, the Company introduced the GOODY'S private label credit
card through an arrangement with Alliance Data Systems and World Financial
Network National Bank. Under this arrangement, the Company pays sales
transaction fees, but is not responsible for assessing customer credit-
worthiness and does not assume the risk associated with extending credit. Net
sales per transaction on the GOODY'S credit card are substantially higher than
those of other credit cards accepted. The GOODY'S private label credit card has
a built-in loyalty program, which is intended to increase the frequency and
volume of customers' purchases. The Company plans to directly advertise and
market to its credit card customers.
PRICING
The Company's pricing strategy is designed to provide value to its
customers by offering merchandise at value prices generally below the prices of
traditional department and specialty stores. In order to remain competitive and
enhance its sales promotion efforts, Goody's frequently monitors its
competitors' prices. In addition, the Company's management information systems
provide daily and weekly sales and gross margin reports that, among other
things, track sales and gross margins by stock keeping unit and provide
management with the flexibility to adjust prices as appropriate.
CUSTOMER SERVICE
Goody's goal is to provide shoppers with a positive shopping experience
every time they visit its stores. The Company reviews and analyzes customers'
calls, e-mails and letters, receives feedback from store management and conducts
quantitative and qualitative studies to monitor customer expectations. As a
result of these efforts, the Company introduced its new customer service program
called "GREAT," an acronym that stands for "Greet every customer, Room to shop,
Exciting store presentation, Attention to detail, and Thank every customer."
Goody's store associates play the most important role in the success of the
GREAT program.
STORE OPERATIONS
Management of store operations is the responsibility of the Executive Vice
President -- Stores, who is assisted by a Vice President -- Store Operations, a
Vice President -- Store Development, a Vice President -- Visual Presentation, a
Vice President -- Loss Prevention, three Regional Vice Presidents -- Sales, 25
District Managers, a Director of Customer Service, and a Director of Staffing
and Training. Each District Manager oversees approximately 12 stores.
Each store has a manager and between one and three assistant managers,
depending upon the size of the store. Other positions of responsibility within a
store include four to five department managers, a head cashier and a stockroom
manager. The majority of the sales staff is employed on a full-time basis,
although part-time workers are hired during peak selling seasons. The Company's
stores are generally open from 9:00 a.m. to 9:00 p.m. Monday through Thursday;
from 9:00 a.m. to 10:00 p.m. on Friday and Saturday; and from 12:00 p.m. to 6:00
p.m. on Sunday. These hours are extended during various holiday and peak selling
seasons.
STORE LOCATIONS
The Company locates its stores predominantly in small to midsize markets in
the Southeast and Midwest that typically have a population of fewer than 100,000
and demographic characteristics consistent with its targeted value-conscious
customer. However, since 1994, the Company has opened multiple locations within
selected larger metropolitan markets. Goody's typically enters these larger
metropolitan markets by opening several stores simultaneously, enhancing the
Company's image and awareness throughout the market while leveraging advertising
costs, which are generally higher than in small to midsize markets. Goody's
leases store space primarily in strip centers, where costs are generally lower
than mall locations. The smallest of the Company's stores has 7,600 gross square
feet and the largest store has 52,600 gross square feet; the average store size
is approximately 27,500 gross square feet. The Company's store locations can be
found by visiting its Web site at www.goodysonline.com.
All of the Company's store locations are leased, which has enabled it to
grow without incurring indebtedness associated with acquiring and owning real
estate. The Company believes that the flexibility of leasing its stores provides
substantial benefits and avoids the inherent risks of owning real estate. The
Company believes that it has established itself as an anchor tenant due to its
operating performance, the size of its stores, its advertising contributions in
local markets, its financial position and its history of meeting its lease
commitments on a timely basis.
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INFORMATION SYSTEMS
The Company continually upgrades its core business systems with current
technology in an effort to enhance financial and other business controls. The
Company maintains fully integrated point-of-sale, inventory and merchandise
systems. The Company's information systems provide management, buyers, planners
and distributors with comprehensive data that allows them to identify emerging
sales trends and, accordingly, manage inventories. The data provided by
information systems include unit and dollar planning; purchase order management;
open order reporting; open-to-buy; receiving; distribution; EDI; basic stock
replenishment; inventory and price management. Daily and weekly sales reports
are used by management to enhance the timeliness and effectiveness of purchasing
and markdown decisions. Merchandise purchases are based on planned sales and
inventories and are frequently revised to reflect changing sales trends. The
Company's point-of-sale systems are supported by a back-office in-store computer
system. The in-store systems feature bar coded ticket scanning, automatic price
look-up, dial-out credit and check authorization and daily transmittal of
detailed sales data from stores to the corporate office.
In late fiscal 1999, the Company completed the remediation and testing of
its various computer systems to ensure compliance with the Year 2000 issue. The
Company experienced no disruptions in its mission critical systems and believes
that those systems have successfully processed the Year 2000 date change.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its internal computer systems or the products or services
supplied by third parties. The Company will continue to monitor its mission
critical computer applications and those of the third parties throughout the
year 2000 to ensure that latent Year 2000 matters that may arise are addressed
promptly. At the date of this filing, no significant impact has been noted.
TRADEMARKS
The United States Patent and Trademark Office (the "USPTO") has issued
federal registrations to the Company for the following trademarks: Authentic
GFC, Chandler Hill, Chandler Hill Sport, "G"(stylized G with arch design), GFC,
GFC Trading Co., GoodKidz, Goody's Family Clothing, Feels Like You, Goody's Low
Price!! Department Store Styles Department Store Brands, Intimate Classics,
Mountain Lake High Quality Apparel With A Feel Good Fit, OCI -- Quality
Clothing, Old College Inn, and Take A Good Look. The Company has also filed
applications with the USPTO seeking federal registrations for the following
trademarks: Bobby G by Ivy Crew, Goody's, Ivy Crew, Low Prices Never Looked So
Good, MBJC, MBJC SPORT, Montana Blues Jean Company, Mountain Lake, Mountain Lake
Casuals, Mountain Lake Jean Co., OCI, Old College Inn Jean Company, Old College
Inn Loungewear and Old College Inn Sport. The following trademarks and
tradenames used in this Form 10-K are owned by (and in certain cases registered
to) third parties: Adidas, Alfred Dunner, American Eagle, Arrow, Beach Native,
Bestform, Body I.D., Bongo, Braetan, Bugle Boy, Burnes of Boston, Byer,
Carryland, Casey & Max, Cathy Daniels, Cradle Togs, Dockers, Dorby, Eastland,
Felina Lingerie, Hanes, Herman Kay, Jackson, Jantzen, Jessica Howard, Keds, Kids
Headquarters, L.E.I. New Balance, Sassafras, Lee, Leslie Fay, Levi's,
Maidenform, Malibu Dream Girl, Miss Erika, Mootsie's Tootsies, My Michelle,
Natural Issue, Nike, Paco, Positive Attitude, Reebok, Requirements, Rosetti,
Russell, Sag Harbor, Scarlett, Skechers, Stephanie K by Koret, Sweet Jessie,
Union Bay, Victoria Jones, Villager by Liz Claiborne, and Wrapper.
In April 1994, the Company filed an application with the USPTO to register
the trademark Ivy Crew. Two parties have filed separate notices of opposition to
the registration. The Company believes that it has meritorious defenses to these
oppositions, but does not anticipate a determination by the USPTO on any of the
oppositions until the first half of fiscal 2001.
The Company filed a trademark application with the USPTO on March 27, 1995,
as supplemented on March 28, 1995, to register the trademark Montana Blues Jean
Company. Such application has been refused and suspended by the USPTO pending
action on previously filed trademark applications by others; however, to date,
no third party has pursued a claim that would prohibit or attempt to prohibit
the Company from using such trademark.
9
10
The Company received a federal registration to the trademarks GFC Trading
Co., GFC and Authentic GFC on January 23, 1996, August 20, 1996 and July 20,
1997, respectively. In September 1996, the Company filed an action in federal
court in the Eastern District of Tennessee seeking a declaratory judgment
against a third party who had alleged common law trademark rights to the
trademark GFC. In February 1997, such party commenced a separate action against
the Company in federal court in the Southern District of New York seeking
injunctive relief and unspecified monetary damages. In February 1998, the New
York court issued an order transferring this case to the Eastern District of
Tennessee. The Company believes that it has meritorious defenses to the claims
against it.
There can be no assurance that the Company will prevail in any of these
disputes or that the USPTO will register the trademarks for which the Company
has applied. An unfavorable outcome in any one or more of these matters could
require the Company to abandon the applicable trademark, which could adversely
affect the Company's sales. It is also possible that damages could be awarded
against the Company.
ASSOCIATES
As of January 29, 2000, the Company had approximately 10,100 active full
and part-time associates. Store managers and assistant store managers are
compensated on a salaried basis and are eligible to receive additional
compensation based on the Company's profitability as well as meeting certain
objective goals at their respective stores including sales growth, control of
expenses and inventory shrinkage. All other store associates are compensated on
an hourly basis. The Company's incentive bonus program for certain key corporate
associates is based on achieving certain profitability goals and could
potentially provide a significant portion of the associates' total annual
compensation. All of the Company's associates are non-union employees, with the
exception of the associates employed at its distribution center in Knoxville,
Tennessee, who are represented by the Union of Needletrades, Industrial and
Textile Employees.
The Company also grants stock options to certain key corporate and store
associates. These options are designed to align associates' interests with those
of the Company's shareholders and allow the Company to provide long-term
incentives to its associates.
The Company maintained a profit sharing plan through December 1997 for
full-time associates. This plan provided for discretionary contributions by the
Company which were approved by its Board of Directors. The Company's
contributions to the profit sharing plan were $750,000 for fiscal 1997.
In January 1998, the Company adopted the Goody's Family Clothing, Inc.
401(k) Retirement Plan (the "401(k) Plan") with a salary deferral feature for
all eligible associates. All the assets of the profit sharing plan were
transferred to the 401(k) Plan upon its termination in December 1997. Under the
terms of the 401(k) Plan, eligible associates may contribute between 3% and 15%
of their annual compensation on a pretax basis (with certain limitations imposed
by the Internal Revenue Service) to the 401(k) Plan. The Company provides
matching contributions to the 401(k) Plan, which are discretionary, vest over an
associate's service period and are based upon a percent of the associates'
elected contributions. These matching contributions amounted to $827,000,
$826,000 and $35,000 for fiscal 1999, 1998 and 1997, respectively.
In July 1999, the Company adopted the Goody's Family Clothing, Inc.
Executive Deferral Plan (the "EDP Plan") with a salary deferral feature for all
eligible associates. Under the terms of the EDP Plan, eligible associates may
contribute between 3% and 20% of their annual compensation on a pretax basis
(with certain limitations imposed by the Internal Revenue Service) to the EDP
Plan. The Company provides matching contributions to the EDP Plan, which are
discretionary, vest over an associate's service period and are based upon a
percent of the associates' elected contributions. These matching contributions
were $85,000 in fiscal 1999. Included in "Other assets" in the Company's
consolidated balance sheet at January 29, 2000 are investments of the EDP plan
held in a rabbi trust aggregating $399,000, and as such, the Company is
restricted from the use of such investments for operating purposes.
The Company provides an Employee Payroll Investment Plan that allows
eligible associates to purchase the Company's common stock (the "Common Stock")
at fair market value through regular payroll deductions.
10
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SEASONALITY AND INFLATION
The Company's business is seasonal by nature. The Christmas season
(beginning the Sunday before Thanksgiving and ending on the first Saturday after
Christmas), the back-to-school season (beginning approximately the first week of
August and continuing through the first week of September) and the Easter season
(beginning approximately two weeks before Easter Sunday and ending on the
Saturday preceding Easter) collectively accounted for approximately 33.2% of the
Company's annual sales based on the Company's last three fiscal years ended
January 29, 2000. In general, sales volume varies directly with customer
traffic, which is heaviest during the fourth quarter of a fiscal year. Because
of the seasonality of the Company's business, results for any quarter are not
necessarily indicative of the results that may be achieved for the full year.
Inflation can affect the costs incurred by the Company in the purchase of
its merchandise, the leasing of its stores and certain components of its
selling, general and administrative expenses. The Company believes that during
the last three fiscal years ended January 29, 2000, inflation has not had a
material adverse effect on the Company's business, although there can be no
assurance that inflation will not have a material adverse effect on the Company
in the future.
COMPETITION
The retail apparel business is highly competitive, with price, selection,
fashion, quality, location, store environment, and service being the principal
competitive factors. The Company believes that it is well positioned to compete
on the basis of each of these factors. The Company competes primarily with
department stores, specialty stores, off-price apparel stores and discount
stores. Many competitors are large national chains with substantially greater
financial and other resources than those available to the Company; there is no
assurance that the Company will continue to be able to compete successfully with
any of them in the future.
ITEM 2. PROPERTIES
The Company owns the following properties:
(a) its corporate headquarters comprising approximately 140,000 square feet
and located at 400 Goody's Lane, Knoxville, Tennessee; and
(b) its Knoxville distribution center located adjacent to its corporate
headquarters. The distribution center is a one-story,
344,000-square-foot facility with 43 loading docks and a mezzanine
level that has an additional 17,500 square feet currently used as
office space. As stated under "Business -- Centralized Distribution,"
the Knoxville distribution center has the capacity to distribute
merchandise to a maximum of approximately 325 stores.
In February 2000, the Company purchased approximately 30 acres of land in
Russellville, Arkansas, where it plans to build a new 234,000-square-foot
distribution center. This facility is expected to open in fiscal 2001 and is
designed to serve more than 200 stores.
The Company currently leases all of its stores. Lease terms generally
contain renewal options and provide for a fixed minimum rent, additional rent
based on a percent of sales in excess of stipulated amounts, real estate taxes,
insurance and common area maintenance costs. In addition, the Company also
leases two warehouses in Athens, Tennessee for staging and processing inventory,
and for storing certain store fixtures; and a warehouse in Knoxville, Tennessee
for record retention storage.
11
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The following table reflects (i) the number of leases that will expire in
each indicated fiscal year if the Company does not exercise any of its renewal
options and (ii) the number of leases that will expire in each indicated fiscal
year if the Company exercises all of its renewal options at January 29, 2000.
The table does not reflect 15 leases having month-to-month terms, but does
include 19 leases executed as of January 29, 2000 for stores to be opened or
relocated in fiscal 2000.
NUMBER OF LEASES NUMBER OF LEASES
EXPIRING EACH YEAR IF EXPIRING EACH YEAR IF
NO RENEWALS ALL RENEWALS
FISCAL YEAR EXERCISED EXERCISED
----------- --------------------- ---------------------
2000..................................................... 20 5
2001..................................................... 17 3
2002..................................................... 31 9
2003..................................................... 19 5
2004..................................................... 30 7
2005 and thereafter...................................... 174 262
ITEM 3. LEGAL PROCEEDINGS
In February 1999, a lawsuit was filed in the United States District Court
for the Middle District of Georgia and was served on the Company and Robert M.
Goodfriend, its Chairman and Chief Executive Officer, by 20 named plaintiffs,
generally alleging that the Company discriminated against a class of African-
American employees at its retail stores through the use of discriminatory
selection and compensation procedures and by maintaining unequal terms and
conditions of employment. The plaintiffs further allege that the Company
maintained a racially hostile working environment. The plaintiffs' claims are
being brought under Title VII of the Civil Rights Act of 1964, as amended, and
under the Civil Rights Act of 1866. The plaintiffs are seeking to have this
action certified as a class action. By way of damages, the plaintiffs are
seeking, among other things, injunctive relief (including restructuring of the
Company's selection and compensation procedures) as well as back pay, an award
of attorneys' fees and costs, and other monetary relief. The Company disputes
these claims and intends to defend this matter vigorously. It is too early to
estimate the effect, if any, the above lawsuit may have on the Company's
financial position or results of operations.
In addition, the Company is a party to various other legal proceedings
arising in the ordinary course of its business. While the costs and other
effects of pending proceedings could have a material adverse effect on the
Company's business, financial condition and operating results, management
currently believes that the ultimate outcome of all pending legal proceedings
(other than the matter noted in the paragraph above), individually and in the
aggregate, should not have a material adverse effect on the Company's financial
position and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed and traded on The Nasdaq Stock Market
(National Market) under the symbol GDYS. The following table sets forth the
range of high and low sale prices for the Company's Common Stock for the periods
indicated.
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
FISCAL 1999
High.............................. $14.63 $12.00 $10.50 $10.06
Low............................... 7.88 8.94 7.88 4.56
FISCAL 1998
High.............................. $26.81 $29.00 $28.00 $13.00
Low............................... 16.88 21.44 7.63 8.25
The Company has never declared, nor has it paid, any cash dividends on its
Common Stock. The Company currently intends to retain its earnings to finance
future growth and, therefore, does not anticipate paying any cash dividends on
its Common Stock in the foreseeable future.
At April 13, 2000, there were 535 shareholders of record and approximately
8,200 persons or entities who held Common Stock in nominee name. On April 13,
2000, the closing price of the Common Stock was $6.97.
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ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
-------------- -------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SALES PER GROSS SQUARE FOOT)
INCOME STATEMENT DATA
Sales(2)......................... $1,180,930 $1,057,015 $943,711 $796,116 $679,059
Cost of sales and occupancy
expenses(2).................... 868,145 769,720 678,554 586,744 508,342
---------- ---------- -------- -------- --------
Gross profit..................... 312,785 287,295 265,157 209,372 170,717
Selling, general and
administrative expenses........ 283,986 244,833 213,060 182,628 154,901
---------- ---------- -------- -------- --------
Earnings from operations......... 28,799 42,462 52,097 26,744 15,816
Interest expense................. 209 535 542 762 608
Investment income................ 2,970 2,231 1,831 1,460 1,319
---------- ---------- -------- -------- --------
Earnings before income taxes..... 31,560 44,158 53,386 27,442 16,527
Provision for income taxes....... 11,835 16,471 20,100 10,291 6,063
---------- ---------- -------- -------- --------
Net earnings..................... $ 19,725 $ 27,687 $ 33,286 $ 17,151 $ 10,464
========== ========== ======== ======== ========
Earnings per common share:
Basic.......................... $ 0.59 $ 0.84 $ 1.02 $ 0.53 $ 0.32
========== ========== ======== ======== ========
Diluted........................ $ 0.59 $ 0.81 $ 0.99 $ 0.53 $ 0.32
========== ========== ======== ======== ========
Weighted average common shares
outstanding (in thousands):
Basic.......................... 33,193 33,155 32,548 32,264 32,246
========== ========== ======== ======== ========
Diluted........................ 33,628 34,267 33,674 32,568 32,568
========== ========== ======== ======== ========
SELECTED OPERATING DATA
Stores open (at year end)........ 287 257 223 203 184
Gross store square footage (in
thousands, at year end)........ 7,904 7,026 6,071 5,498 4,913
Comparable store sales increase
(decrease)(3).................. (2.1)% 0.5% 8.2% 6.9% 1.3%
Sales per gross square foot(4)... $ 160 $ 160 $ 160 $ 151 $ 146
Average sales per store(5)....... 4,302 4,363 4,363 3,965 3,818
Capital expenditures............. 31,293 22,855 21,231 16,070 10,632
Depreciation and amortization.... 16,624 13,861 11,571 10,595 9,141
BALANCE SHEET DATA (AT YEAR END)
Working capital.................. $ 104,213 $ 102,598 $ 73,553 $ 44,016 $ 27,786
Total assets..................... 423,293 377,173 328,316 254,347 208,443
Long-term debt................... -- 318 608 871 1,110
Shareholders' equity............. 211,006 195,477 160,057 123,576 105,875
- ---------------
(1) Consists of 53 weeks.
(2) "Sales" and "Cost of sales and occupancy expenses" for fiscal years 1995
through 1998 have been restated to accrue for sales returns and adopt a
change in accounting methodology related to leased departments in response
to SAB No. 101. These changes had no impact on annual gross profit or net
earnings for any of these years. See Note 1 in the Notes to Consolidated
Financial Statements.
(3) Comparable store sales for fiscal 1996 and thereafter are based on stores
which operated throughout the fiscal year (including relocated, remodeled
and expanded stores) and which were in operation for the entire previous
fiscal year (computed on comparable 52-week periods). Prior to fiscal 1996,
new stores were included in such calculation beginning the first full month
following the anniversary of their opening. The changes in accounting
referred to in note 2 above had no effect on the calculation of comparable
store sales for the years presented.
(4) Sales per gross square foot is calculated by dividing (i) sales from stores
which operated throughout the fiscal year (including relocated, remodeled
and expanded stores) and which were in operation for the entire previous
fiscal year (computed on comparable 52-week periods) by (ii) the gross
square footage related to those stores.
(5) Average sales per store is calculated by dividing (i) total sales during
such fiscal year less sales attributable to new stores opened and stores
closed during the fiscal year by (ii) the number of stores open at the end
of the fiscal year less new stores opened during the fiscal year.
14
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
REPORT OF MANAGEMENT
Management is responsible for the integrity and objectivity of all
financial information presented in this Form 10-K. The consolidated financial
statements included herein have been prepared in accordance with generally
accepted accounting principles and include, where necessary, certain amounts
based on the best estimates and judgments of management.
In fulfilling its responsibility for the reliability of financial
information, management has developed and maintains accounting systems and
procedures appropriately supported by internal accounting controls. Such
controls include the selection and training of qualified personnel, an
organizational structure providing for appropriate division of responsibility,
communication of approved accounting, control and business practices and a
program of internal audit. Although no system of internal accounting controls
can ensure that all errors or irregularities have been eliminated, management
believes that the controls in place provide reasonable assurance, at reasonable
cost, that assets are safeguarded against loss from unauthorized use or
disposition, that transactions are executed in accordance with management's
authorization and that the financial records are reliable for preparing
financial statements. The consolidated financial statements of the Company have
been audited by Deloitte & Touche LLP, the Company's independent auditors. Their
report is based on their audits conducted in accordance with generally accepted
auditing standards.
The Audit Committee of the Board of Directors, consisting solely of outside
directors, serves in an oversight role to assure the integrity and objectivity
of the Company's financial reporting process. The Audit Committee is responsible
for recommending to the Board of Directors the selection of independent
auditors. It also meets periodically with management and the independent and
internal auditors to assure that they are carrying out their responsibilities.
The independent and internal auditors have full and free access to the Audit
Committee and meet with it periodically with and without management's presence.
CHANGES IN ACCOUNTING METHODOLOGY
"Sales" and "Cost of sales and occupancy expenses" for fiscal 1998 (and all
quarters of that year) and fiscal 1997 have been restated to accrue for sales
returns and adopt a change in accounting methodology related to leased
departments in response to SAB No. 101. These changes in accounting had no
impact on annual gross profit or net earnings for those fiscal years, but did
impact the statements of operations for each quarter of fiscal 1998. See Notes 1
and 11 in the Notes to Consolidated Financial Statements.
15
16
RESULTS OF OPERATIONS -- FOURTH QUARTER FISCAL 1999 COMPARED WITH FOURTH QUARTER
FISCAL 1998
The following table sets forth the Company's unaudited results of
operations for the quarters indicated (in thousands, except per share amounts):
FOURTH QUARTER FOURTH QUARTER
1999 1998
---------------- ----------------
Sales............................................. $390,927 100.0% $354,299 100.0%
Cost of sales and occupancy expenses.............. 307,508 78.7 270,013 76.2
-------- ----- -------- -----
Gross profit...................................... 83,419 21.3 84,286 23.8
Selling, general and administrative expenses...... 83,004 21.2 71,683 20.2
-------- ----- -------- -----
Earnings from operations.......................... 415 0.1 12,603 3.6
Interest expense.................................. 52 0.0 255 0.0
Investment income................................. 1,007 0.2 826 0.2
-------- ----- -------- -----
Earnings before income taxes...................... 1,370 0.3 13,174 3.8
Provision for income taxes........................ 512 0.1 4,805 1.4
-------- ----- -------- -----
Net earnings...................................... $ 858 0.2% $ 8,369 2.4%
======== ===== ======== =====
Earnings per common share
Basic........................................... $ 0.03 $ 0.25
======== ========
Diluted......................................... $ 0.03 $ 0.25
======== ========
Weighted average common shares outstanding
Basic........................................... 32,951 33,331
======== ========
Diluted......................................... 33,082 33,895
======== ========
Overview. In the fourth quarter of fiscal 1999, the Company opened eight
new stores, relocated two stores, remodeled one store and closed one store,
bringing the total number of stores in operation at January 29, 2000 to 287,
compared with 257 at January 30, 1999. In the fourth quarter of fiscal 1998, 11
new stores were opened and two stores were relocated. Net earnings were
$858,000, or 0.2% of sales, in the fourth quarter of fiscal 1999 compared with
$8,369,000, or 2.4% of sales, in the fourth quarter of fiscal 1998.
Sales. Sales for the fourth quarter of fiscal 1999 were $390,927,000, a
10.3% increase over the $354,299,000 for the fourth quarter of fiscal 1998. This
increase of $36,628,000 consisted of sales from new and transition stores.
Comparable store sales for the fourth quarter of fiscal 1999 decreased 1.8%
compared with the corresponding period of the previous fiscal year. The Company
believes the decline in comparable store sales in the fourth quarter of fiscal
1999 was due, in part, to the inability to identify certain emerging fashion
trends on a timely basis and to deep discounting required to sell excess
inventory.
Gross profit. Gross profit for the fourth quarter of fiscal 1999 was
$83,419,000, or 21.3% of sales, an $867,000 decrease compared with the
$84,286,000, or 23.8% of sales, in gross profit generated for the fourth quarter
of the previous fiscal year. The 2.5% decrease in gross profit, as a percent of
sales, in the fourth quarter of fiscal 1999 compared with the fourth quarter of
fiscal 1998 consisted primarily of (i) a 2.3% increase in cost of sales
resulting from aggressive promotional pricing required to liquidate poor
performing categories of merchandise and (ii) a 0.2% increase in occupancy costs
which were not leveraged due to a shortfall in comparable store sales and higher
occupancy costs for new and relocated stores.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the fourth quarter of fiscal 1999 were $83,004,000,
or 21.2% of sales, an increase of $11,321,000 from $71,683,000, or 20.2% of
sales, for the fourth quarter of fiscal 1998. The 1.0% increase in selling,
general and administrative expenses, as a percent of sales, in the fourth
quarter of fiscal 1999 compared with the fourth quarter of fiscal 1998 resulted
primarily from increases of (i) 0.9% in store payroll costs primarily from the
staffing of internally operated shoe departments, (ii) 0.7% in bonuses, and
(iii) 0.4% in all other selling, general and administrative expenses. These
increases were offset by a decrease of (i) 0.6% in professional fees, (ii) 0.3%
in employees' health benefit expenses and (iii) 0.1% in the charge for the
impairment of certain poorly performing stores' property and equipment.
16
17
Interest expense. Interest expense for the fourth quarter of fiscal 1999
decreased by $203,000 compared with the fourth quarter of fiscal 1998. This net
decrease primarily consists of a $193,000 decrease in the interest expense on
borrowings under the credit agreement during the fourth quarter of fiscal 1999
compared with the fourth quarter of fiscal 1998.
Investment income. Investment income for the fourth quarter of fiscal 1999
increased by $181,000 compared with the fourth quarter of fiscal 1998 consisting
of $134,000 from an increase in invested funds during the fourth quarter of
fiscal 1999 and $47,000 from the investment of assets of the EDP Plan.
Income taxes. The provision for income taxes for the fourth quarter of
fiscal 1999 was $512,000, for an effective tax rate of 37.4% of earnings before
income taxes, compared with $4,805,000, for an effective tax rate of 36.5% of
earnings before income taxes, for the fourth quarter of fiscal 1998.
RESULTS OF OPERATIONS -- FISCAL 1999, 1998 AND 1997
The following table sets forth the Company's results of operations as a
percent of sales for the fiscal years indicated:
FISCAL YEAR
---------------------
1999 1998 1997
----- ----- -----
Sales....................................................... 100.0% 100.0% 100.0%
Cost of sales and occupancy expenses........................ 73.5 72.8 71.9
----- ----- -----
Gross profit................................................ 26.5 27.2 28.1
Selling, general and administrative expenses................ 24.0 23.2 22.6
----- ----- -----
Earnings from operations.................................... 2.5 4.0 5.5
Interest expense............................................ 0.0 0.0 0.1
Investment income........................................... 0.2 0.2 0.2
----- ----- -----
Earnings before income taxes................................ 2.7 4.2 5.6
Provision for income taxes.................................. 1.0 1.6 2.1
----- ----- -----
Net earnings...................................... 1.7% 2.6% 3.5%
===== ===== =====
Fiscal 1999 Compared with Fiscal 1998
Overview. In fiscal 1999, the Company opened 32 new stores, relocated 15
stores, remodeled five stores and closed two stores, bringing the total number
of stores in operation at January 29, 2000 to 287 compared with 257 at January
30, 1999. In fiscal 1998, 36 new stores were opened, seven stores were
relocated, three stores were remodeled and two stores were closed. Net earnings
were $19,725,000, or 1.7% of sales, in fiscal 1999, compared with net earnings
of $27,687,000, or 2.6% of sales, in fiscal 1998.
Sales. Sales for fiscal 1999 were $1,180,930,000, an 11.7% increase over
the $1,057,015,000 for fiscal 1998. This increase of $123,915,000 consisted of
sales from new and transition stores. Comparable store sales for fiscal 1999
decreased 2.1% compared with fiscal 1998. The Company believes the decrease in
comparable store sales trends was due, in part, to the difficulty in balancing
its strategies of margin expansion and inventory reduction as well as the
inability to identify certain emerging fashion trends on a timely basis, and in
addition, during the fourth quarter of fiscal 1999, the deep discounting
required to sell excess inventory.
Gross profit. Gross profit for fiscal 1999 was $312,785,000, or 26.5% of
sales, a $25,490,000 increase over the $287,295,000, or 27.2% of sales, in gross
profit generated for the previous fiscal year. The 0.7% decrease in gross
profit, as a percent of sales, resulted primarily from (i) a 0.4% increase in
cost of sales resulting from the implementation of an aggressive merchandise
promotional strategy during fiscal 1999 and (ii) a 0.3% increase in occupancy
costs which were not leveraged due to the shortfall in comparable store sales
and higher occupancy costs for new and relocated stores.
Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1999 were $283,986,000, or 24.0% of sales, an
increase of $39,153,000 from $244,833,000, or 23.2% of sales, for fiscal 1998.
The 0.8% increase in selling, general and administrative expenses, as a percent
of sales, in fiscal
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18
1999 compared with fiscal 1998 resulted primarily from an increase of (i) 0.7%
in store payroll costs primarily from the staffing of the new internally
operated shoe departments, (ii) 0.1% in all advertising and promotional expenses
and (iii) 0.4% in all other selling, general and administrative expenses. These
increases were offset by a decrease of (i) 0.3% in professional fees as a result
of a provision recorded in fiscal 1998 relating to the defense of the purported
class action suit alleging racial discrimination and (ii) 0.1% in employees'
health benefit expenses.
Interest expense. Interest expense for fiscal 1999 decreased by $326,000
compared with fiscal 1998 primarily consisting of a decrease of (i) $192,000 in
interest paid under the credit agreement as a result of lower borrowings during
fiscal 1999 and (ii) $134,000 in other interest expenses.
Investment income. Investment income for fiscal 1999 increased by $739,000
compared with fiscal 1998 consisting of $692,000 from an increase in invested
funds during fiscal 1999 and $47,000 from the investment of assets of the EDP
Plan.
Income taxes. The provision for income taxes for fiscal 1999 was
$11,835,000, for an effective tax rate of 37.5% of earnings before income taxes,
compared with $16,471,000, for an effective tax rate of 37.3% of earnings before
income taxes, for fiscal 1998. The increase in the effective tax rate was
primarily due to a change in certain state tax statues that increased the
Company's income tax liability to those states.
Fiscal 1998 Compared with Fiscal 1997
Overview. In fiscal 1998, the Company opened 36 new stores, relocated
seven stores, remodeled three stores and closed two stores, bringing the total
number of stores in operation at January 30, 1999 to 257 compared with 223 at
January 31, 1998. In fiscal 1997, 24 new stores were opened, nine stores were
relocated, seven stores were remodeled and four stores were closed. Net earnings
were $27,687,000, or 2.6% of sales, in fiscal 1998, compared with net earnings
of $33,286,000, or 3.5% of sales, in fiscal 1997.
Sales. Sales for fiscal 1998 were $1,057,015,000, a 12.0% increase over
the $943,711,000 for fiscal 1997. This increase of $113,304,000 consisted
primarily of sales from new and transition stores and a 0.5% increase in
comparable store sales from the corresponding period of the previous fiscal
year. Comparable store sales for the first two quarters of fiscal 1998 produced
a 6.9% increase over the prior year, while the last two quarters of fiscal 1998
resulted in a 4.4% comparable store sales decrease. The unusually warm weather
experienced in the Company's markets from September through the first half of
December 1998, followed by ice and snow storms two days prior to Christmas,
significantly impaired the Company's ability to sell winter merchandise during
that period.
Gross profit. Gross profit for fiscal 1998 was $287,295,000, or 27.2% of
sales, a $22,138,000 increase over the $265,157,000, or 28.1% of sales, in gross
profit generated for the previous fiscal year. The 0.9% decrease in gross
profit, as a percent of sales, resulted primarily from (i) a 0.8% decrease in
gross margins resulting from the implementation of an aggressive merchandise
pricing and promotional strategy during the fourth quarter of fiscal 1998 and
(ii) a 0.1% increase in occupancy costs which were not leveraged due to the
shortfall in comparable store sales during the last two quarters of fiscal 1998.
Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1998 were $244,833,000, or 23.2% of sales, an
increase of $31,773,000 from $213,060,000, or 22.6% of sales, for fiscal 1997.
The 0.6% increase in selling, general and administrative expenses, as a percent
of sales, in fiscal 1998 compared with fiscal 1997 resulted primarily from an
increase of (i) 0.4% in advertising and promotional expenses, (ii) 0.2% in
professional fees, (iii) 0.1% from a charge for the impairment of certain poorly
performing stores' property and equipment and (iv) 0.3% in all other selling,
general and administrative expenses. These increases were offset by a 0.4%
decrease in the bonus expenses related to the Company's Short-Term Incentive
Plan and other bonus plans for fiscal 1998 compared with the previous fiscal
year.
Interest expense. Interest expense for fiscal 1998 decreased by $7,000
compared with fiscal 1997.
Investment income. Investment income for fiscal 1998 increased by $400,000
compared with fiscal 1997 primarily as a result of an increase in invested funds
during fiscal 1998.
Income taxes. The provision for income taxes for fiscal 1998 was
$16,471,000, for an effective tax rate of 37.3% of earnings before income taxes,
compared with $20,100,000, for an effective tax rate of 37.7% of earnings before
income taxes, for fiscal 1997. The decrease in the effective tax rate was
primarily due to an increase in tax-exempt investment income.
18
19
LIQUIDITY AND CAPITAL RESOURCES
Financial position
The Company's primary sources of liquidity are cash flows from operations,
including credit terms from vendors, and borrowings under its credit agreement
(see below). The Company's working capital was $104,213,000 at January 29, 2000
compared with $102,598,000 at January 30, 1999 and $73,553,000 at January 31,
1998.
At January 29, 2000, the Company had an unsecured revolving line of credit
expiring in May 2001, which provides for cash borrowings for general corporate
purposes as well as for the issuance of letters of credit of up to an aggregate
of $130,000,000. The terms of this credit agreement require, among other things,
maintenance of minimum levels of shareholders' equity, compliance with certain
financial ratios and Mr. Robert M. Goodfriend remaining as Chairman of the Board
or Chief Executive Officer of the Company, and place restrictions on additional
indebtedness, asset disposals, investments and capital expenditures. At January
29, 2000, the Company had no cash borrowings and $58,491,000 outstanding for
letters of credit compared with no cash borrowings and $49,454,000 outstanding
for letters of credit at January 30, 1999. Cash borrowings averaged $10,000
during fiscal 1999 compared with $3,515,000 during fiscal 1998, with the highest
balance of $2,000,000 in March 1999 compared with $40,000,000 in both November
and December 1998. Letters of credit outstanding averaged $55,153,000 during
fiscal 1999 compared with $65,895,000 during fiscal 1998. The highest balance of
letters of credit outstanding was $76,941,000 during fiscal 1999 (in September
1999) compared with $84,090,000 during fiscal 1998 (in September 1998). The
weighted average interest rates on cash borrowings in fiscal 1999, 1998 and 1997
were 5.2%, 5.6% and 6.4%, respectively.
Cash flows
Operating activities provided cash of $33,588,000 in fiscal 1999 compared
with $27,319,000 in fiscal 1998 and $35,096,000 in fiscal 1997. Cash used in
operating activities in fiscal 1999, 1998 and 1997 was primarily for increased
inventory of $17,207,000, $14,020,000 and $44,172,000, respectively, resulting
primarily from (i) additional inventory for new stores, and (ii) for fiscal
1997, the Company's decision to take early receipt of spring 1998 imported
merchandise. Accounts payable provided cash of $12,528,000, $4,514,000 and
$24,038,000 in fiscal 1999, 1998 and 1997, respectively. Other assets and
liabilities used cash amounting to $2,758,000 in fiscal 1999 compared with cash
provided of $3,235,000 and $10,416,000 in fiscal 1998 and 1997, respectively.
Depreciation and amortization expenses were $16,624,000, $13,861,000 and
$11,571,000 in fiscal 1999, 1998 and 1997, respectively.
Cash flows from investing activities reflected a $31,139,000, $22,794,000
and $21,219,000 net use of cash for fiscal 1999, 1998 and 1997, respectively.
Cash was used primarily to fund capital expenditures for new, relocated and
remodeled stores as well as for upgrading information technology and for general
corporate purposes.
Cash provided by financing activities for fiscal 1999, 1998 and 1997 was
$5,558,000, $20,593,000 and $6,981,000, respectively. Cash management programs
maintained by the Company provided cash of $10,043,000, $13,242,000 and
$4,050,000 during fiscal 1999, 1998 and 1997, respectively. During fiscal 1999,
the Company used $4,507,000 to repurchase 586,300 shares of Common Stock. The
Company received $237,000, $2,886,000 and $1,708,000 in cash and realized a tax
benefit of $74,000, $4,728,000 and $1,462,000 from the issuance of Common Stock
on the exercise of stock options in fiscal 1999, 1998 and 1997, respectively.
During the third quarter of fiscal 1999, the Company entered into a
split-dollar life insurance agreement, whereby the Company agreed to pay the
premiums for certain second-to-die policies insuring the lives of Mr. and Mrs.
Goodfriend, which policies are owned by a trust for the benefit of the
Goodfriend's children. During fiscal 1999, the Company paid premiums of
$4,195,000 on such policies and will be required to pay future premiums
currently projected to be approximately $4.2 million, $2.4 million and $1.3
million in fiscal 2000, 2001 and 2002, respectively. The Company has certain
rights under this agreement, including the right to terminate these policies at
any time prior to the occurrence of certain "restricting events." See Note 9 in
the Notes to Consolidated Financial Statements.
19
20
Outlook
The Company plans to open approximately 30 new stores, relocate or remodel
approximately 17 stores and close two stores during fiscal 2000. Capital
expenditures are expected to be approximately $55,000,000 in fiscal 2000
primarily for (i) opening new stores, (ii) relocating and upgrading existing
stores, (iii) construction of a new distribution center, (iv) enhancements at
the existing distribution center, (v) the purchase and upgrade of computer
systems and equipment and (vi) for general corporate purposes.
In June 1999, the Company's Board of Directors authorized the Company to
spend up to $20 million to repurchase Common Stock. Through January 29, 2000,
the Company has repurchased shares for an aggregate of $4.5 million. The Company
plans to continue repurchasing shares of Common Stock, from time to time, in the
open market or in privately negotiated transactions, depending on price,
prevailing market conditions and other factors.
The Company's primary needs for capital resources are for the purchase of
store inventories, capital expenditures and for normal operating purposes.
Management believes that its existing working capital, together with cash flows
from operations, including credit terms from vendors, and the borrowings
available under the credit agreement will be sufficient to meet the Company's
operating and capital expenditure requirements. However, an adverse outcome of
pending litigation could negatively affect working capital (see "ITEM 3. Legal
Proceedings").
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material investments or risks in market risk sensitive
instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements listed under the heading
"(a)(1) Consolidated Financial Statements" of Item 14 hereof, which financial
statements are incorporated herein by reference in response to this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
information under the captions "Election of Directors -- Director, Director
Nominee and Executive Officer Information" and "Election of Directors -- Section
16(a) Beneficial Ownership Reporting Compliance" in the Registrant's Proxy
Statement for the 2000 Annual Meeting of Shareholders currently scheduled to be
held on June 21, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
information under the caption "Executive Compensation and Other Information" in
the Registrant's Proxy Statement for the 2000 Annual Meeting of Shareholders
currently scheduled to be held on June 21, 2000, but does not include the
information under the captions "Compensation Committee Report" and "Performance
Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
information under the caption "Voting Rights and Principal Shareholders" in the
Registrant's Proxy Statement for the 2000 Annual Meeting of Shareholders
currently scheduled to be held on June 21, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
information under the caption "Certain Transactions" in the Registrant's Proxy
Statement for the 2000 Annual Meeting of Shareholders currently scheduled to be
held on June 21, 2000.
21
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a)(1) Consolidated Financial Statements
The following consolidated financial statements of Goody's and the
Independent Auditors' Report thereon are included in Item 8 above:
- Independent Auditors' Report.
- Consolidated Statements of Operations for each of the three fiscal years
in the period ended January 29, 2000.
- Consolidated Balance Sheets as of January 29, 2000 and January 30, 1999.
- Consolidated Statements of Cash Flows for each of the three fiscal years
in the period ended January 29, 2000.
- Consolidated Statements of Shareholders' Equity for each of the three
fiscal years in the period ended January 29, 2000.
- Notes to Consolidated Financial Statements for each of the three fiscal
years in the period ended January 29, 2000.
(a)(2) Financial Statement Schedules
All financial statement schedules are omitted as the required information
is inapplicable.
(a)(3) Exhibits
The following Exhibits are incorporated herein by reference or are filed
with this report as indicated below.
EXHIBIT LIST
EXHIBIT
NO. REF. DESCRIPTION
- ------- ---- -----------
1.1 a -- Form of Underwriting Agreement
3.1 b -- Amended and Restated Charter of the Registrant
3.2 c -- Amended and Restated Bylaws of the Registrant
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Charter and Amended and Restated Bylaws of the
Registrant defining rights of holders of Common Stock of the
Registrant
10.1 d -- Goody's Family Clothing, Inc. Profit Sharing Plan*
10.2 e -- Goody's Family Clothing, Inc. 1991 Stock Incentive Plan*
10.4 f -- Goody's Family Clothing, Inc. 1993 Stock Option Plan*
10.5 g -- Goody's Family Clothing, Inc. Discounted Stock Option Plan
for Directors, as amended*
10.18 h -- Settlement agreement dated January 5, 1995
10.29 i -- Benefit Protection Trust Agreement*
10.30 j -- Employment agreement between the Registrant and Marcus H.
Smith, Jr.*
10.31 j -- Employment agreement between the Registrant and Thomas R.
Kelly, Jr.*
10.32 j -- Credit agreement between the Registrant, Lenders as
identified therein and First Tennessee Bank National
Association as Administrative Agent
10.33 k -- Master transport agreement between the Registrant and Star
Transportation, Inc. dated July 10, 1995
10.34 l -- Goody's Family Clothing, Inc. Employee Payroll Investment
Plan*
10.35 m -- Employment letter from the Registrant to Jay D. Scussel*
10.36 m -- Indemnification agreement between the Registrant and Robert
M. Goodfriend*
10.37 m -- Indemnification agreement between the Registrant and Harry
M. Call*
10.38 m -- Indemnification agreement between the Registrant and James
L. Clayton*
10.39 m -- Indemnification agreement between the Registrant and Samuel
J. Furrow*
10.40 m -- Indemnification agreement between the Registrant and Robert
F. Koppel*
10.41 m -- Indemnification agreement between the Registrant and Cheryl
L. Turnbull*
10.42 n -- Amended Credit Agreement between the Registrant, Lenders as
identified therein and
10.44 o -- Indemnification agreement between the Registrant and Irwin
L. Lowenstein*
22
23
EXHIBIT
NO. REF. DESCRIPTION
- ------- ---- -----------
10.45 p -- Amended Agreement dated May 16, 1997 between the Registrant,
GOODY'S MS, LP, and GOODY'S IN, LP as borrowers, TREBOR of
TN, Inc., SYDOOG, Inc. and GOFAMCLO, Inc. as guarantors,
Lenders as identified therein and First Tennessee National
Bank Association as Administrative Agent
10.46 q -- Deferred Compensation Agreement between the Registrant and
Robert M. Goodfriend*
10.47 q -- Employment letter from the Registrant to Stanley B. Latacha*
10.48 a -- Agreement dated August 25, 1997 among the Registrant, Robert
M. Goodfriend, Harry M. Call and Edward R. Carlin
10.50 r -- Amendment to the Goody's Family Clothing, Inc. Employee
Payroll Investment Plan*
10.51 s -- Third Amendment Agreement dated May 26, 1998 between the
Registrant, GOODY'S MS, LP, GOODY'S IN, LP, GFCTX, LP,
GFCTN, LP, GFCGA, LP and GFCFS, Inc. as borrowers, TREBOR of
TN, Inc., SYDOOG, Inc. and GOFAMCLO, Inc. as guarantors,
Lenders as identified therein and First Tennessee National
Bank Association as Administrative Agent
10.52 s -- Employment agreement between the Registrant and Harry M.
Call dated May 20, 1998.*
10.53 s -- Employment agreement between the Registrant and Edward R.
Carlin dated May 20, 1998.*
10.54 s -- Employment agreement between the Registrant and Thomas R.
Kelly, Jr. dated May 20, 1998.*
10.55 s -- Employment agreement between the Registrant and David R.
Mullins dated May 20, 1998.*
10.56 t -- Employment agreement between the Registrant and Bruce E.
Halverson dated May 20, 1998.*
10.57 t -- Employment agreement between the Registrant and Stanley B.
Latacha dated May 20, 1998.*
10.58 t -- Employment agreement between the Registrant and John J.
Okvath, III dated May 20, 1998.*
10.59 t -- Employment agreement between the Registrant and Jay D.
Scussel dated May 20, 1998.*
10.60 t -- Employment agreement between the Registrant and Marcus H.
Smith, Jr. dated May 20, 1998.*
10.61 t -- Employment agreement between the Registrant and Bobby Whaley
dated May 20, 1998.*
10.62 t -- Severance agreement between the Registrant and Regis J.
Hebbeler dated May 20, 1998.*
10.63 t -- Severance agreement between the Registrant and Hazel Ann
Moxim dated May 20, 1998.*
10.64 t -- Severance agreement between the Registrant and David G. Peek
dated May 20, 1998.*
10.65 u -- Assumption and Consent Agreement dated December 16, 1998
between the Registrant, GOODY'S MS, L.P., GOODY'S IN, LP,
GFCTX, LP, GFCTN, LP and GFCGA, LP as borrowers, TREBOR of
TN, Inc., SYDOOG, Inc. and GOFAMCLO, Inc. as guarantors,
GFCFS, LLC and First Tennessee National Bank Association as
Administrative Agent for the Lenders
10.66 u -- Employment agreement between the Registrant and Keith J.
Reichelderfer dated January 31, 1999.*
10.67 u -- Amendment to Goody's Family Clothing, Inc. 1991 Stock
Incentive Plan effective May 13, 1998*
10.68 u -- Amendment to Goody's Family Clothing, Inc. 1993 Stock Option
Plan effective May 13, 1998*
10.69 u -- Amendment to Goody's Family Clothing, Inc. 1997 Stock Option
Plan effective May 13, 1998*
10.70 u -- Master Transportation and Deconsolidation Agreement between
the Registrant and Star Transportation, Inc. dated January
1, 1999
10.71 v -- Goody's Family Clothing, Inc. Executive Deferral Plan*
10.72 w -- Split-Dollar Life Insurance Agreement between the
Registrant, Robert and Wendy Goodfriend Irrevocable Trust,
and Robert M. Goodfriend.*
10.73 -- Employment Agreement between the Registrant and Lana Cain
Krauter dated January 10, 2000*
10.74 -- Severance Agreement between the Registrant and John G. Wise
dated February 14, 2000*
10.75 -- Severance Agreement between the Registrant and Michael R.
Bryant dated March 14, 2000*
10.76 -- Severance Agreement between the Registrant and Michael D.
Burgard dated March 14, 2000*
21 -- Subsidiaries of the Registrant
23 -- Consent of Deloitte & Touche LLP
27 -- Financial Data Schedule for the fiscal year ended January
29, 2000 (for SEC use only)
- ---------------
* The indicated exhibit is a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this Annual Report on Form
10-K:
a Incorporated herein by reference to exhibit of the same number in Registrant's
Registration Statement on Form S-3 (Registration No. 333-32409) filed on
August 18, 1997 and amended on August 25, 1997 and September 3, 1997.
b Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 29, 1995 (File No.
019526).
c Incorporated herein by reference exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended January 28, 1995 (File No.
019526).
d Incorporated herein by reference to exhibit of the same number in Registrant's
Registration Statement on Form S-1 (Registration No. 33-42738) originally
filed on September 13, 1991.
e Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended January 30, 1993 (File No.
019526).
f Incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Shareholders held on June 24, 1993.
23
24
g Incorporated herein by reference to exhibit 4.1 in Registrant's Registration
Statement on Form S-8 (Registration No. 333-09595) filed on August 5, 1996.
h Incorporated herein by reference to exhibit 10.1 in Registrant's Current
Report on Form 8-K dated January 5, 1995 (File No. 019526).
i Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended January 28, 1995 (File No.
019526).
j Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended April 29, 1995 (File No.
019526).
k Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 29, 1995 (File No.
019526).
l Incorporated herein by reference to exhibit 4 in Registrant's Registration
Statement on Form S-8 (Registration No. 333-00052) originally filed on January
4, 1996.
m Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended February 3, 1996 (File No.
019526).
n Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended May 4, 1996 (File No.
019526).
o Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended February 1, 1997 (File No.
019526).
p Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended May 3, 1997 (File No.
019526).
q Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 2, 1997 (File No.
019526).
r Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended November 1, 1997 (File No.
019526).
s Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 1, 1998 (File No.
019526).
t Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 31, 1998 (File No.
019526).
u Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended January 30, 1999 (File No.
019526).
v Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1999 (File No.
019526).
w Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 30, 1999 (File No.
019526).
(b) Forms 8-K:
On March 2, 2000, the Company filed a Current Report on Form 8-K to report
the adoption of certain changes in accounting methodology related to sales
returns, leased departments and layaways in response to SAB No. 101.
24
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GOODY'S FAMILY CLOTHING, INC.
By: /s/ ROBERT M. GOODFRIEND
------------------------------------
Robert M. Goodfriend
Chairman of the Board and
Chief Executive Officer
Dated: April 21, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
By: /s/ ROBERT M. GOODFRIEND Chairman of the Board and Chief April 21, 2000
------------------------------------------------ Executive Officer
Robert M. Goodfriend
By: /s/ HARRY M. CALL Director, President and Chief April 21, 2000
------------------------------------------------ Operating Officer
Harry M. Call
By: /s/ EDWARD R. CARLIN Executive Vice President, Chief April 21, 2000
------------------------------------------------ Financial Officer and
Edward R. Carlin Secretary (Principal Financial
Officer)
By: /s/ DAVID G. PEEK Vice President, Corporate April 21, 2000
------------------------------------------------ Controller and Chief
David G. Peek Accounting Officer (Principal
Accounting Officer)
By: /s/ SAMUEL J. FURROW Director April 21, 2000
------------------------------------------------
Samuel J. Furrow
By: /s/ ROBERT F. KOPPEL Director April 21, 2000
------------------------------------------------
Robert F. Koppel
By: /s/ IRWIN L. LOWENSTEIN Director April 21, 2000
------------------------------------------------
Irwin L. Lowenstein
By: /s/ CHERYL L. TURNBULL Director April 21, 2000
------------------------------------------------
Cheryl L. Turnbull
25
26
GOODY'S FAMILY CLOTHING, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report................................ F-2
Consolidated Statements of Operations for each of the three
fiscal years in the period ended January 29, 2000......... F-3
Consolidated Balance Sheets as of January 29, 2000 and
January 30, 1999.......................................... F-4
Consolidated Statements of Cash Flows for each of the three
fiscal years in the period ended January 29, 2000......... F-5
Consolidated Statements of Shareholders' Equity for each of
the three fiscal years in the period ended January 29,
2000...................................................... F-6
Notes to Consolidated Financial Statements for each of the
three fiscal years in the period ended January 29, 2000... F-7
F-1
27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Goody's Family Clothing, Inc.
We have audited the accompanying consolidated balance sheets of Goody's
Family Clothing, Inc. and subsidiaries as of January 29, 2000 and January 30,
1999 and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three fiscal years in the period ended
January 29, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Goody's Family Clothing, Inc.
and subsidiaries as of January 29, 2000 and January 30, 1999 and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 29, 2000 in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 14, 2000
F-2
28
GOODY'S FAMILY CLOTHING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR
----------------------------------------
1999 1998 1997
------------ ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Sales....................................................... $1,180,930 $1,057,015 $943,711
Cost of sales and occupancy expenses........................ 868,145 769,720 678,554
---------- ---------- --------
Gross profit................................................ 312,785 287,295 265,157
Selling, general and administrative expenses................ 283,986 244,833 213,060
---------- ---------- --------
Earnings from operations.................................... 28,799 42,462 52,097
Interest expense............................................ 209 535 542
Investment income........................................... 2,970 2,231 1,831
---------- ---------- --------
Earnings before income taxes................................ 31,560 44,158 53,386
Provision for income taxes.................................. 11,835 16,471 20,100
---------- ---------- --------
Net earnings...................................... $ 19,725 $ 27,687 $ 33,286
========== ========== ========
Earnings per common share:
Basic..................................................... $ 0.59 $ 0.84 $ 1.02
========== ========== ========
Diluted................................................... $ 0.59 $ 0.81 $ 0.99
========== ========== ========
Weighted average common shares outstanding:
Basic..................................................... 33,193 33,155 32,548
========== ========== ========
Diluted................................................... 33,628 34,267 33,674
========== ========== ========
See accompanying notes to consolidated financial statements
F-3
29
GOODY'S FAMILY CLOTHING, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
(DOLLARS IN THOUSANDS)
ASSETS
Current Assets
Cash and cash equivalents................................. $ 97,299 $ 89,292
Inventories............................................... 182,894 165,687
Accounts receivable and other current assets.............. 20,352 14,195
-------- --------
Total current assets.............................. 300,545 269,174
Property and equipment, net................................. 116,892 104,789
Other assets................................................ 5,856 3,210
-------- --------
Total assets...................................... $423,293 $377,173
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable.......................................... $143,685 $122,776
Accrued expenses.......................................... 52,329 43,190
Income taxes payable...................................... -- 321
Current portion of long-term debt......................... 318 289
-------- --------
Total current liabilities......................... 196,332 166,576
Long-term debt.............................................. -- 318
Other long-term liabilities................................. 4,345 3,782
Deferred income taxes....................................... 11,610 11,020
-------- --------
Total liabilities................................. 212,287 181,696
-------- --------
Commitments and Contingencies
Shareholders' Equity
Preferred stock, par value $1 per share;
Authorized -- 2,000,000 shares; Issued and
outstanding -- none
Class B Common stock, no par value;
Authorized -- 50,000,000 shares; Issued and
outstanding -- none
Common stock, no par value;
Authorized -- 50,000,000 shares;
Issued and outstanding -- 32,799,380 and 33,330,780
shares, respectively.................................. 23,832 28,102
Paid-in capital........................................... 9,523 9,449
Retained earnings......................................... 177,651 157,926
-------- --------
Total shareholders' equity........................ 211,006 195,477
-------- --------
Total liabilities and shareholders' equity........ $423,293 $377,173
======== ========
See accompanying notes to consolidated financial statements
F-4
30
GOODY'S FAMILY CLOTHING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR
---------------------------------
1999 1998 1997
-------- ----------- --------
(IN THOUSANDS)
Cash Flows from Operating Activities:
Net earnings.............................................. $ 19,725 $ 27,687 $ 33,286
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization.......................... 16,624 13,861 11,571
Net loss on asset disposals and write-down............. 2,412 1,612 1,135
Changes in assets and liabilities:
Inventories.......................................... (17,207) (14,020) (44,172)
Accounts payable..................................... 12,528 4,514 24,038
Income taxes......................................... 2,264 (9,570) (1,178)
Other assets and liabilities......................... (2,758) 3,235 10,416
-------- -------- --------
Cash provided by operating activities............. 33,588 27,319 35,096
-------- -------- --------
Cash Flows from Investing Activities:
Acquisitions of property and equipment.................... (31,293) (22,855) (21,231)
Proceeds from sale of property and equipment.............. 154 61 12
-------- -------- --------
Cash used in investing activities................. (31,139) (22,794) (21,219)
-------- -------- --------
Cash Flows from Financing Activities:
Repayment of long-term debt............................... (289) (263) (239)
Exercise of stock options................................. 311 7,614 3,170
Shares repurchased and retired............................ (4,507) -- --
Changes in cash management accounts....................... 10,043 13,242 4,050
-------- -------- --------
Cash provided by financing activities............. 5,558 20,593 6,981
-------- -------- --------
Net increase in cash and cash equivalents................... 8,007 25,118 20,858
Cash and cash equivalents, beginning of year................ 89,292 64,174 43,316
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 97,299 $ 89,292 $ 64,174
======== ======== ========
Supplemental Disclosures:
Income tax payments....................................... $ 15,423 $ 22,085 $ 20,336
Interest payments......................................... 210 531 534
See accompanying notes to consolidated financial statements
F-5
31
GOODY'S FAMILY CLOTHING, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK
---------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------- ------- -------- --------
(IN THOUSANDS)
Balance February 1, 1997......................... 32,330 $23,364 $3,259 $ 96,953 $123,576
Net earnings..................................... -- -- -- 33,286 33,286
Exercise of stock options........................ 374 1,733 1,462 -- 3,195
------ ------- ------ -------- --------
Balance January 31, 1998......................... 32,704 25,097 4,721 130,239 160,057
Net earnings..................................... -- -- -- 27,687 27,687
Exercise of stock options........................ 627 3,005 4,728 -- 7,733
------ ------- ------ -------- --------
Balance January 30, 1999......................... 33,331 28,102 9,449 157,926 195,477
Net earnings..................................... -- -- -- 19,725 19,725
Shares repurchased and retired................... (586) (4,507) -- -- (4,507)
Exercise of stock options........................ 54 237 74 -- 311
------ ------- ------ -------- --------
Balance January 29, 2000......................... 32,799 $23,832 $9,523 $177,651 $211,006
====== ======= ====== ======== ========
See accompanying notes to consolidated financial statements
F-6
32
GOODY'S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 29, 2000, JANUARY 30, 1999 AND JANUARY 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business. Headquartered in Knoxville, Tennessee, Goody's
Family Clothing, Inc. and subsidiaries (the "Company") is a retailer of
moderately-priced family apparel operating 287 stores in 17 states (all under
one business segment) as of January 29, 2000.
Fiscal year-end. The Company's fiscal year ends on the Saturday nearest
the last day of January. Fiscal 1999, 1998 and 1997 refer to the Company's
fiscal years ended January 29, 2000 (52 weeks), January 30, 1999 (52 weeks) and
January 31, 1998 (52 weeks), respectively.
Principles of consolidation. The consolidated financial statements include
the accounts of Goody's Family Clothing, Inc. and its subsidiaries, all of which
are wholly-owned. All material intercompany balances and transactions have been
eliminated.
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents. Cash equivalents consist of highly liquid
investments, such as money market accounts, deposit accounts, government backed
securities and overnight repurchase agreements, each with a maturity of less
than three months. The cost of these investments approximate their fair market
value.
Amounts due banks upon the clearance of certain checks under the Company's
cash management programs are included in both "Accounts payable" and "Accrued
expenses" at January 29, 2000 and January 31, 1999 and aggregated $41,832,000
and $31,789,000, respectively.
Inventories. Inventories are stated at the lower of weighted average cost
or market.
Property and equipment. Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed by using the
straight-line method over the estimated useful lives of the assets, which are 40
years for buildings and up to 10 years for other assets. Leasehold improvements
are amortized by the straight-line method over the lesser of the useful lives of
the improvements or the related lease terms. Maintenance and repair costs are
charged directly to expense as incurred. Major renewals or replacements that
substantially extend the useful life of an asset are capitalized and
depreciated.
Impairment of long-lived assets. The Company continually evaluates its
investment in long-lived assets used in operations at the individual store
level, which is the lowest level at which individual cash flows can be
identified. When evaluating assets for potential impairment, the Company first
compares the carrying value of the asset to the asset's estimated future cash
flows (undiscounted and without interest charges). If the estimated future cash
flows used in this analysis are less than the carrying amount of the asset, an
impairment loss calculation is prepared. The impairment loss calculation
compares the carrying amount of the asset to the asset's estimated future
discounted cash flows. If the carrying amount exceeds the asset's estimated
future discounted cash flows, an impairment loss is recorded.
Store opening and closing costs. New and relocated store opening costs are
charged directly to expense when incurred. When the Company decides to close or
relocate a store, the estimated unrecoverable costs to be incurred upon or after
the store closing, principally consisting of the remaining lease obligation, are
charged to expense.
Insurance. The Company is self-insured for workers' compensation,
employees' health benefits and general liability up to a predetermined
"stop-loss" amount. Third party insurance coverage is maintained for claims that
exceed the predetermined "stop-loss" amount. The Company's self-insurance
accruals are calculated using either standard insurance industry actuarial
assumptions or the Company's historical claims experience.
F-7
33
GOODY'S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes. Deferred income taxes are recognized for the tax
consequences of temporary differences between the tax and financial reporting
basis of the Company's assets and liabilities based upon enacted tax laws and
statutory tax rates applicable to the future years in which the differences are
expected to affect taxable income.
Revenue recognition. The Company generally recognizes revenue from the
sale of merchandise at the time merchandise is sold and delivery is taken by the
customer. Service revenue is recognized at the time the service is provided.
During the fourth quarter of fiscal 1999, the Company retroactively
restated its statements of operations to accrue for sales returns and adopt a
change in accounting methodology related to leased departments' in response to
the Securities and Exchange Commission's Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB No. 101") as follows:
- Historically, the Company recognized sales returns upon return of the
related merchandise by the customer. Under its new methodology, the
Company provides for an estimate of sales returns in the period of
initial sale.
- The Company historically included the sales ($18,081,000, $40,400,000 and
$33,379,000 for fiscal 1999, 1998 and 1997, respectively) and cost of
sales of its leased departments with the sales and cost of sales of its
wholly-owned departments. Instead, the Company includes the net rental
income (sales less cost of sales) of its leased departments in its
reported sales. Leased departments' net rental income amounted to
$3,372,000, $6,622,000 and $5,341,000 for fiscal 1999, 1998 and 1997,
respectively.
These changes had no impact on the Company's annual net earnings for fiscal 1998
and 1997. However, these changes did impact the Company's statements of
operations for each quarter of fiscal 1998 and for each of the first three
quarters of fiscal 1999 (see Note 11).
The Company historically has recorded the sales and related gross profit
from layaways upon receipt of the initial layaway deposit from its customers.
Beginning January 30, 2000 (the first day of the first quarter of fiscal 2000),
the Company will recognize the sale and the related gross profit from layaways
upon delivery of the merchandise to the customer. The cumulative effect of this
change (net of income taxes) is expected to reduce diluted earnings per share by
approximately $0.01 in the first quarter of fiscal 2000. The Company believes
that this new accounting methodology related to layaways will have no
significant impact on the results of its operations (excluding the cumulative
effect of this change) in fiscal 2000 and future years.
Advertising. The Company expenses all advertising expenditures as
incurred. Advertising expenses, net of vendor reimbursements, were $54,101,000,
$46,723,000 and $38,179,000 for fiscal 1999, 1998 and 1997, respectively.
Earnings per common share. Basic earnings per common share is computed by
dividing net earnings by the weighted average number of common shares
outstanding. Diluted earnings per common share is computed by dividing net
earnings by the weighted average number of common shares outstanding and
potentially dilutive common shares. Weighted average diluted shares outstanding
differs from weighted average basic shares outstanding solely from the effect of
dilutive stock options under the treasury stock method of 435,000, 1,112,000 and
1,126,000 for fiscal 1999, 1998 and 1997, respectively. Stock options to
purchase 2,516,642, 1,203,177 and 48,322 shares of the Company's common stock in
fiscal 1999, 1998 and 1997, respectively, were excluded from the computation of
weighted average diluted shares outstanding because they would have been
antidilutive.
Comprehensive income. The Company is required to disclose within the basic
financial statements items of comprehensive income, such as foreign currency
transactions and unrealized gains and losses on available-for-sale securities.
Since the Company has no items which qualify as comprehensive income, there is
no difference between comprehensive income and net earnings for any fiscal year
presented.
F-8
34
GOODY'S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Recent accounting pronouncements. During fiscal 1999, the Company adopted
American Institute of Certified Public Accountants' Statement of Position No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This statement defines which costs incurred to develop or
purchase internal-use software should be capitalized and which costs should be
expensed. The adoption of this statement did not have a material effect on the
Company's consolidated financial statements.
In June 1999, the American Institute of Certified Public Accountants issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, which, as
amended, is effective for the Company in fiscal 2001. This standard requires
that an entity recognize all derivatives as either assets or liabilities in its
statement of financial position and measure those instruments at fair value. The
Company has not yet completed its analysis of the effect of SFAS No. 133 on its
financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
Land........................................................ $ 3,532 $ 3,512
Buildings................................................... 26,966 26,522
Leasehold improvements...................................... 24,617 22,179
Furniture and equipment..................................... 136,806 116,868
-------- --------
191,921 169,081
Less accumulated depreciation and amortization.............. 75,029 64,292
-------- --------
Property and equipment, net....................... $116,892 $104,789
======== ========
Impairment charges for store property and equipment were $414,000 and $733,000
in fiscal 1999 and 1998, respectively.
3. CREDIT ARRANGEMENTS
The Company has a credit agreement for an unsecured revolving line of
credit expiring in May 2001, which provides for cash borrowings for general
corporate purposes as well as for the issuance of letters of credit of up to an
aggregate of $130,000,000. The Company is committed to pay (i) interest on the
cash borrowings at a fluctuating base rate or LIBOR plus an applicable margin,
(ii) letter of credit fees based on the number of days a letter of credit is
outstanding times an applicable fee and (iii) an annual commitment fee payable
quarterly in advance. The terms of this credit agreement require, among other
things, maintenance of minimum levels of shareholders' equity, compliance with
certain financial ratios and Mr. Robert M. Goodfriend remaining as Chairman of
the Board or Chief Executive Officer of the Company, and place restrictions on
additional indebtedness, asset disposals, investments and capital expenditures.
At January 29, 2000 and January 31, 1999, the Company had no cash
borrowings under this credit agreement and letters of credit issued and
outstanding amounted to $58,491,000 and $49,454,000, respectively. Cash
borrowings under the Company's line of credit averaged $10,000, $3,515,000 and
$2,374,000 during fiscal 1999, 1998 and 1997, respectively. The highest balances
of cash borrowings were $2,000,000 in March 1999, $40,000,000 in November and
December 1998 and $25,000,000 in October and November 1997. The weighted average
interest rates on cash borrowings in fiscal 1999, 1998 and 1997 were 5.2%, 5.6%
and 6.4%, respectively.
F-9
35
GOODY'S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
Long-term debt represents a promissory note payable to the Company's
founder and former chairman, M.D. Goodfriend, and his wife, who are the parents
of the Company's current Chairman of the Board and Chief Executive Officer. The
debt is unsecured, bears interest at 10% annually and matures in January 2001.
Interest paid on this debt was $61,000, $87,000 and $111,000 during fiscal 1999,
1998 and 1997, respectively.
5. INCOME TAXES
The provision for income taxes for the years indicated consisted of the
following (in thousands):
FISCAL YEAR
---------------------------
1999 1998 1997
------- ------- -------
Current
Federal................................................. $ 8,259 $15,219 $18,833
State................................................... 778 1,262 2,163
------- ------- -------
Total current................................... 9,037 16,481 20,996
------- ------- -------
Deferred
Federal................................................. 2,647 32 (726)
State................................................... 151 (42) (170)
------- ------- -------
Total deferred.................................. 2,798 (10) (896)
------- ------- -------
Provision for income taxes...................... $11,835 $16,471 $20,100
======= ======= =======
The provision for income taxes differed from the amounts computed by
applying the federal statutory rate to earnings before income taxes as follows
(in thousands):
FISCAL YEAR
---------------------------
1999 1998 1997
------- ------- -------
Tax expense at statutory rate............................. $11,047 $15,456 $18,685
State taxes, net of federal benefit....................... 876 1,086 1,319
Effect of tax-exempt income............................... (333) (206) (97)
Effect of other items..................................... 245 135 193
------- ------- -------
Provision for income taxes...................... $11,835 $16,471 $20,100
======= ======= =======
The tax effects of temporary differences were as follows (in thousands):
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
Current asset
Inventory carrying cost................................... $ 1,438 $ 3,733
Net operating loss carryforward........................... 400 364
Accrued expenses and other................................ 5,593 5,329
------- -------
Current deferred tax asset........................ $ 7,431 $ 9,426
======= =======
Deferred liability
Depreciation.............................................. $11,974 $11,465
Other..................................................... (364) (445)
------- -------
Long-term deferred tax liability.................. $11,610 $11,020
======= =======
The Company has net operating loss carryforwards for state income tax
purposes aggregating $12,368,000 at January 29, 2000, which expire in fiscal
2013 and 2014. Current deferred tax assets are included in "Accounts receivable
and other current assets."
F-10
36
GOODY'S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCK OPTIONS
The Company currently has four stock option plans: the Goody's Family
Clothing, Inc. 1991 Stock Incentive Plan (the "1991 Plan"), the Goody's Family
Clothing, Inc. 1993 Stock Option Plan (the "1993 Plan"), the Goody's Family
Clothing, Inc. 1997 Stock Option Plan (the "1997 Plan") and the Discounted Stock
Option Plan for Directors (the "Directors' Plan").
The 1991 Plan, 1993 Plan and 1997 Plan provide for the grant of
nonqualified and incentive stock options to key associates and directors and
formula options to non-associate directors. The Compensation Committee of the
Board of Directors determines the exercise price (not to be less than the fair
market value of the Company's common stock (the "Common Stock") for incentive
options or formula options on the date of grant) and the vesting and exercise
periods. The options typically vest in equal installments over five years from
the date of grant and are generally exercisable up to 10 years from the date of
grant. The Company is authorized to issue an aggregate of 5,650,000 shares of
Common Stock under the 1991 Plan, 1993 Plan and 1997 Plan.
Under the Directors' Plan, non-associate directors may elect to receive
options to purchase Common Stock at an exercise price equal to 50% of the fair
market value of the Common Stock on the date of grant in lieu of cash for their
director fees. These options vest one year from the date of grant and are
exercisable up to 20 years from the date of grant. The expense recorded in
connection with stock options issued under this plan has been immaterial. The
Company is authorized to issue an aggregate of 300,000 shares of Common Stock
under the Directors' Plan.
A summary of the stock option activity and the related weighted average
exercise prices for all the option plans is as follows:
SHARES AVAILABLE OUTSTANDING WEIGHTED AVERAGE
FOR GRANT OPTIONS EXERCISE PRICE
---------------- ----------- ----------------
As of February 1, 1997........................ 436,650 3,183,570 $ 5.53
Reserved.................................... 2,000,000 -- --
Granted..................................... (1,079,530) 1,079,530 11.58
Exercised................................... -- (374,052) 4.57
Forfeited................................... 214,044 (214,044) 5.90
---------- ---------
As of January 31, 1998........................ 1,571,164 3,675,004 7.39
Granted..................................... (609,192) 609,192 21.13
Exercised................................... -- (627,064) 4.60
Forfeited................................... 94,338 (94,338) 12.44
---------- ---------
As of January 30, 1999........................ 1,056,310 3,562,794 10.09
Granted..................................... (539,970) 539,970 6.91
Exercised................................... -- (53,900) 4.40
Forfeited................................... 159,550 (159,550) 12.62
---------- ---------
As of January 29, 2000........................ 675,890 3,889,314 9.62
========== =========
The following table summarizes information about stock options outstanding
at January 29, 2000:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
------------------------------------------ ---------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
RANGE OF EXERCISE PRICES JANUARY 29, 2000 LIFE (YEARS) PRICE JANUARY 29, 2000 PRICE
- ------------------------ ---------------- ------------ -------- ---------------- --------
$ 2.41 to $ 5.69.................... 1,462,414 6.6 $ 4.68 908,944 $ 4.56
6.00 to 10.88.................... 1,170,606 7.3 8.88 834,816 8.55
11.19 to 16.00.................... 764,294 7.6 12.15 109,494 12.98
17.07 to 22.00.................... 395,500 8.1 21.31 77,200 21.25
24.00 to 27.50.................... 96,500 8.4 25.68 11,800 26.07
--------- ---------
3,889,314 1,942,254
========= =========
F-11
37
GOODY'S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to adopt the disclosure-only
provisions of SFAS No. 123 and to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
its related interpretations. Accordingly, no compensation cost has been
recognized for the stock options granted under the various stock option plans to
associates. If compensation cost for the Company's stock option plans had been
determined based on the fair value on the date of grant for awards in fiscal
1999, 1998 and 1997 consistent with the provisions of SFAS No. 123, the
Company's net earnings and earnings per common share would have been reduced to
the pro forma amounts indicated below:
FISCAL 1999 FISCAL 1998 FISCAL 1997
----------------------- ----------------------- -----------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
Net earnings (in thousands)....... $19,725 $18,316 $27,687 $26,012 $33,286 $32,211
Earnings per common share:
Basic........................... 0.59 0.55 0.84 0.78 1.02 0.99
Diluted......................... 0.59 0.54 0.81 0.76 0.99 0.96
The fair value of the options granted under the Company's various stock
option plans during fiscal 1999, 1998 and 1997 was estimated on their date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions: no dividend yield; expected volatility of 55%, 63% and 56%,
respectively; risk free interest rates of 6.0%, 5.5% and 6.5%, respectively; and
expected lives of 4, 7 and 7 years, respectively. The weighted average fair
value of options granted was $3.47, $14.28 and $14.78 for fiscal 1999, 1998 and
1997, respectively.
7. BENEFIT PLANS
The Company maintained a profit sharing plan through December 1997 for
full-time associates. This plan provided for discretionary contributions by the
Company which were approved by its Board of Directors. The Company's
contributions to the profit sharing plan were $750,000 for fiscal 1997.
In January 1998, the Company adopted the Goody's Family Clothing, Inc.
401(k) Retirement Plan (the "401(k) Plan") with a salary deferral feature for
all eligible associates. All the assets of the profit sharing plan were
transferred to the 401(k) Plan upon its termination in December 1997. Under the
terms of the 401(k) Plan, eligible associates may contribute between 3% and 15%
of their annual compensation on a pretax basis (with certain limitations imposed
by the Internal Revenue Service) to the 401(k) Plan. The Company provides
matching contributions to the 401(k) Plan, which are discretionary, vest over an
associate's service period and are based upon a percent of the associates'
elected contributions. These matching contributions amounted to $827,000,
$826,000 and $35,000 for fiscal 1999, 1998 and 1997, respectively.
In July 1999, the Company adopted the Goody's Family Clothing, Inc.
Executive Deferral Plan (the "EDP Plan") with a salary deferral feature for all
eligible associates. Under the terms of the EDP Plan, eligible associates may
contribute between 3% and 20% of their annual compensation on a pretax basis
(with certain limitations imposed by the Internal Revenue Service) to the EDP
Plan. The Company provides matching contributions to the EDP Plan, which are
discretionary, vest over an associate's service period and are based upon a
percent of the associates' elected contributions. These matching contributions
amounted to $85,000 in fiscal 1999. Included in "Other assets" at January 29,
2000 are investments (which are classified as "trading securities" for financial
reporting purposes) of the EDP Plan held in a rabbi trust aggregating $399,000,
and as such, the Company is restricted from the use of such investments for
operating purposes.
The Company provides an Employee Payroll Investment Plan that allows
eligible associates to purchase its Common Stock at fair market value through
regular payroll deductions.
F-12
38
GOODY'S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASE OBLIGATIONS
The Company leases its stores under operating leases, the majority of which
expire at various times during the next 10 years. The Company can, at its
option, renew most of these leases at rents which are fixed based at their then
current fair rental value. Payments under store leases consist of a fixed
minimum rent, additional rent based on a percent of sales in excess of
stipulated amounts ("percentage rent") and real estate taxes, insurance and
common area maintenance costs. The Company also leases certain data processing
and store systems equipment.
The future minimum rental payments under operating leases having initial or
remaining non-cancelable lease terms in excess of one year at January 29, 2000
are as follows (in thousands):
FISCAL YEAR
- -----------
2000........................................................ $ 56,726
2001........................................................ 55,134
2002........................................................ 51,680
2003........................................................ 49,254
2004........................................................ 44,455
Thereafter.................................................. 193,138
--------
Total............................................. $450,387
========
Total rental expense for operating leases for fiscal 1999, 1998 and 1997
were $63,281,000, $53,173,000 and $47,234,000, respectively, including
percentage rent of $350,000, $545,000 and $632,000, respectively.
9. RELATED PARTY TRANSACTIONS
The Company has entered into various related party transactions with Mr.
Robert M. Goodfriend (the Company's Chairman of the Board and Chief Executive
Officer and beneficial owner of approximately 41.6% of the Common Stock) as
described below.
Since 1987, the Company has, by agreement (the "Initial Agreement"), paid
premiums on certain split-dollar life insurance policies covering the life of
Mr. Goodfriend. During each of fiscal 1999, 1998 and 1997, the Company paid
premiums of $54,000 in accordance with the Initial Agreement. The Company
terminated the policies under this Initial Agreement in January 2000, and
received the cash surrender value of these policies aggregating $2,144,000 in
February 2000. The receivable for such proceeds is included in "Accounts
receivable and other current assets" at January 29, 2000.
During fiscal 1999, the Company entered into a new split-dollar life
insurance agreement (the "New Agreement") and therein agreed to pay the premiums
for certain second-to-die policies insuring the lives of Mr. and Mrs.
Goodfriend. These policies are owned by a trust for the benefit of the
Goodfriend's children (the "Trust"). The Company, however, has certain rights
including the right to terminate these policies at any time prior to the
occurrence of the following "restricting events" (i) a change of control (as
defined in the New Agreement), (ii) the termination of Mr. Goodfriend's
employment by the Company, or (iii) unless certain conditions are met, the death
of Mr. Goodfriend. The Company will be reimbursed for all premiums paid by it
upon the policies' termination (subject to deficiencies in the cash surrender
value from the early termination of the policies prior to a restricting event).
The New Agreement generally provides that one-half of the new coverage would
terminate should Mr. Goodfriend decrease his Company ownership below 20%. The
Trust has the right, but not the obligation, to purchase the policies from the
Company at any time for a purchase price equal to the cumulative premiums paid
by the Company on the policies; should the policies be purchased, all of the
Company's future obligations would cease.
The Company paid premiums aggregating $4,195,000 in fiscal 1999 on the
policies covered by the New Agreement. The cash surrender value of all policies
covered by the New Agreement at January 29, 2000 and the Initial Agreement at
January 30, 1999 aggregated $3,823,000 and $2,092,000, respectively; such
amounts are included in "Other assets."
F-13
39
GOODY'S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company paid rent and taxes amounting to $310,000, $374,000 and
$442,000 for fiscal 1999, 1998 and 1997, respectively, for a store leased from
another trust benefiting Mr. Goodfriend's children. Future commitments at
January 29, 2000 under this related party lease are $2,636,000.
10. CONTINGENCIES
In February 1999, a lawsuit was filed in the United States District Court
for the Middle District of Georgia and was served on the Company and Robert M.
Goodfriend, its Chairman and Chief Executive Officer, by 20 named plaintiffs,
generally alleging that the Company discriminated against a class of African-
American employees at its retail stores through the use of discriminatory
selection and compensation procedures and by maintaining unequal terms and
conditions of employment. The plaintiffs further allege that the Company
maintained a racially hostile working environment. The plaintiffs' claims are
being brought under Title VII of the Civil Rights Act of 1964, as amended, and
under the Civil Rights Act of 1866. The plaintiffs are seeking to have this
action certified as a class action. By way of damages, the plaintiffs are
seeking, among other things, injunctive relief (including restructuring of the
Company's selection and compensation procedures) as well as back pay, an award
of attorneys' fees and costs, and other monetary relief. The Company disputes
these claims and intends to defend this matter vigorously. It is too early to
estimate the effect, if any, the above lawsuit may have on the Company's
financial position or results of operations.
In addition, the Company is a party to various other legal proceedings
arising in the ordinary course of its business. While the costs and other
effects of pending proceedings could have a material adverse effect on the
Company's business, financial condition and operating results, management
currently believes that the ultimate outcome of all pending legal proceedings
(other than the matter noted in the paragraph above), individually and in the
aggregate, should not have a material adverse effect on the Company's financial
position and results of operations.
11. SELECTED QUARTERLY DATA (UNAUDITED)
Following is a summary of unaudited results of operations for the
respective fiscal quarters (in thousands, except per share amounts):
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
FISCAL 1999
Sales............................. $250,749 $271,462 $267,792 $390,927
Gross profit...................... 73,471 81,737 74,158 83,419
Net earnings...................... 7,425 9,873 1,569 858
Earnings per common share:
Basic.......................... 0.22 0.30 0.05 0.03
Diluted........................ 0.22 0.29 0.05 0.03
FISCAL 1998
Sales............................. $218,588 $241,397 $242,731 $354,299
Gross profit...................... 67,349 71,307 64,353 84,286
Net earnings...................... 7,412 8,759 3,147 8,369
Earnings per common share:
Basic.......................... 0.22 0.26 0.09 0.25
Diluted........................ 0.21 0.25 0.09 0.25
As more fully discussed in Note 1, the above data for the first three
quarters of fiscal 1999 and all quarters of fiscal 1998 have been restated to
accrue for sales returns and adopt a change in accounting methodology related to
leased departments in response to SAB No. 101.
On March 2, 2000, the Company filed a Current Report on Form 8-K to
disclose the retroactive effects of these changes on its statements of
operations for each of the four quarters of fiscal 1998 and the first three
quarters of fiscal 1999. The full text of this filing may be accessed through
the Securities and Exchange Commission's web site at http://www.sec.gov.
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