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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
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[X]
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended January 29, 2005 |
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OR |
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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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)
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Tennessee
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62-0793974 |
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer
Identification No.) |
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400 Goody’s Lane, Knoxville,Tennessee
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37922 |
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(Address of principal executive offices)
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(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 þ No o
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. o
Indicate by check mark whether the
registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange
Act). Yes þ No o
The aggregate market value of the Common
Stock held by non-affiliates of the registrant, based on the
closing price of the Common Stock on The NASDAQ National Market
on July 31, 2004, the last business day of the
registrant’s most recently completed second fiscal quarter,
was $172,730,499. For purposes of this response, the registrant
has assumed that its directors, executive officers, and
beneficial owners of 5% or more of its Common Stock are the
affiliates of the registrant.
Number of shares of Common Stock
outstanding as of March 31, 2005: 32,936,519
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 2005 Annual Meeting
of Shareholders currently scheduled to be held on June 15,
2005.
TABLE OF CONTENTS
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 2010,” “fiscal
2009,” “fiscal 2008,” “fiscal 2007,”
“fiscal 2006,” “fiscal 2005,” “fiscal
2004,” “fiscal 2003,” “fiscal 2002,”
“fiscal 2001,” and “fiscal 2000,” refer to
the Company’s fiscal years ending or ended on
January 29, 2011 (52 weeks), January 30, 2010
(52 weeks), January 31, 2009 (52 weeks),
February 2, 2008 (52 weeks), February 3, 2007
(53 weeks), January 28, 2006 (52 weeks),
January 29, 2005 (52 weeks), January 31, 2004
(52 weeks), February 1, 2003 (52 weeks),
February 2, 2002 (52 weeks), and February 3, 2001
(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 (the “Exchange Act”),
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:
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(i) |
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customer demand and trends in the apparel and retail industry
and to the acceptance of the Company’s merchandise
offerings; |
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(ii) |
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the ability to reverse the negative trend in comparable-store
sales; |
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(iii) |
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weather conditions; |
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(iv) |
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the effectiveness of advertising and promotional events; |
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(v) |
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the effectiveness of merchandising, advertising, pricing, and
operational strategies; |
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(vi) |
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the ability to achieve business plan targets; |
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(vii) |
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the timely availability of branded and private-label merchandise
in sufficient quantities to satisfy customer demand; |
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(viii) |
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the ability to achieve business plans for the Duck Head line,
which call for continued growth; |
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(ix) |
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the impact of competitors’ pricing and store expansion; |
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(x) |
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individual store performance, including new stores; |
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(xi) |
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the ability to enter into leases for new store locations; |
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(xii) |
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the timing, magnitude and costs of opening new stores; |
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(xiii) |
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growth of the Company’s store base; |
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(xiv) |
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relations with vendors, factors and employees; |
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(xv) |
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the general economic conditions within the Company’s
markets; |
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(xvi) |
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global political unrest, including terrorism and war; |
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(xvii) |
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the continued availability of adequate credit support from
vendors and factors; |
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the Company’s compliance with loan covenants and the
availability of sufficient eligible collateral for borrowing; |
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(xix) |
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the unanticipated needs for additional capital expenditures; |
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(xx) |
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trends affecting the Company’s financial position, results
of operations or cash flows; |
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(xxi) |
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the success of the Company’s information technology systems; |
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(xxii) |
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the seasonality of the Company’s business; |
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(xxiii) |
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the ability to control shrinkage; |
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(xxiv) |
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the success of the Company’s e-commerce initiative; and |
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(xxv) |
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the outcome of pending litigation. |
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. Also see “Certain Factors That
May Affect Future Results.” 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.
2
PART I
General
Goody’s is a retailer of moderately priced family apparel
with 357 stores in 20 states as of January 29, 2005.
The Company primarily locates its stores in small to midsized
markets in the Southeast, Midwest and Southwest regions of the
United States that have demographic characteristics consistent
with its targeted customer. All of Goody’s stores are
leased, average approximately 27,700 gross square feet, and
are generally located in strip shopping centers. The Company
manages its core functions, such as purchasing, pricing,
marketing and advertising, distribution, planning and
allocation, real estate, finance, and information systems, from
its centrally located corporate office in Knoxville, Tennessee.
The Company has two distribution centers, one each in Knoxville,
Tennessee, and Russellville, Arkansas.
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 a broad
selection of current-season, nationally recognized brands for
brand-conscious shoppers, as well as exclusive brands for those
shoppers who seek quality apparel at value prices.
The address of the Company’s web site is
www.goodysonline.com. The Company makes available, free
of charge, through its web site, its annual report on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after it
electronically files such material with, or furnishes it to, the
United States Securities and Exchange Commission (the
“SEC”). Such filings may be accessed through the
Company’s web site, www.goodysonline.com, then
choose “SEC Filings.”
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:
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Appeal to Value-Conscious Customers. Goody’s tries
to appeal to value-conscious customers by offering
current-season, trend-right, nationally recognized and
exclusive-brand merchandise at value prices. |
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Offer a Broad Range of Merchandise for the Entire Family.
The Company provides a wide selection of merchandise designed to
satisfy the casual and career apparel needs of the entire
family. The Company believes that providing one-stop shopping
for customers in convenient and accessible locations gives it an
advantage over many of its competitors. |
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Emphasize Current-Season, Nationally Recognized Brands.
The Company is committed to maintaining a strong line-up of
nationally recognized brands including: Adidas, Alfred
Dunner, Anxiety, Arden Fragrances (that include Calvin
Klein, Nautica, Obsession, Paul Sebastian, and White
Diamonds), Avia, Baby Togs, Baltex, Beach Native, Briggs, Burnes
of Boston, Calico Sport, Carter’s, Cathy Daniels,
Connected, Connie, Deer Stags, Diba East, Dockers, Dorby, Erika,
GBX, Giorgio Brutini, Grasshoppers, Hanes, JNCO, Keds, Lee,
L.E.I., Levi’s, Life Stride, Manhattan Beachwear, Mootsies
Tootsies, Mudd, Munsingwear, My Michelle, New Balance, Nike,
Norton McNaughton, On Que, Playtex, Reebok, Requirements,
Riveria, Rosetti, Sag Harbor, Self Esteem, Skechers,
U.S. Polo, Union Bay, and Zana-DI, among others. |
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Strategically Use Private-Label Programs. The
Company’s private-label programs utilize exclusive brands
that are designed to offer shoppers quality products at
exceptional value and generate higher gross margins. The
Company’s exclusive brands currently include: Duck Head,
Goodclothes and Mountain Lake for women; Duck
Head, Ivy Crew, OCI and RMG Chairman’s Collection
for men; Baby Crew, Duck Head, and Good Kidz
for children; and Duck Head Jeans Company (DHJC) for
the entire family. |
3
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Focus on Small to Midsized Markets. The Company generally
locates its stores in small to midsized markets that have
demographic characteristics consistent with its targeted
value-conscious customer. While the Company operates in selected
larger metropolitan markets, smaller market areas offer certain
strategic advantages, including increased opportunities for
expansion, lower rent and occupancy costs, lower advertising
costs, and fewer competitors. |
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Provide Strong Marketing and Advertising. The Company
believes that communicating frequently with customers is the key
to maintaining traffic flow in its stores and creating loyalty
within its customer base. The Company’s marketing and
advertising messages aim to brand Goody’s as a destination
store for key categories of first-quality, value-priced family
apparel. Goody’s advertises predominantly in local
newspapers and reinforces its print message with television
and/or radio campaigns aired on a consistent basis to support
strategically timed promotional events and maintain top-of-mind
awareness. |
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Shopper-Friendly Store Environment. The Company endeavors
to provide easy-to-read in-store signage, clear and
understandable pricing, wide and easy-to-shop aisles, 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 opened 24 stores, relocated or remodeled 13
existing stores and closed 2 stores during fiscal 2004.
During fiscal 2005, the Company expects to increase its new
store openings to approximately 35 stores and relocate or
remodel approximately 15 existing stores. The majority of
the fiscal 2005 planned new stores are expected to be located in
small to midsized markets ranging from 20,000 to
50,000 square feet, with an average square footage of
approximately 26,100 square feet. The Company expects to
resume its historical strategy of increasing its store base by
approximately 10% each year primarily in small to midsized
markets.
In making its decision to open a new store, the Company
typically evaluates, among other factors, market demographics,
competition, location, customer traffic, rent and occupancy
costs, advertising, and other expenses associated with the
opening and operating of a new store. Goody’s has
historically supported new store growth from internally
generated funds.
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:
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Fiscal Year | |
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2004 | |
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2003 | |
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2002 | |
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2001 | |
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2000 | |
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Stores open, beginning of year
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335 |
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328 |
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332 |
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317 |
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287 |
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New stores opened during the year
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24 |
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10 |
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2 |
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18 |
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32 |
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Stores closed during the year
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(2 |
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(3 |
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(6 |
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(3 |
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(2 |
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Stores open, end of year
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357 |
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335 |
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328 |
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332 |
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317 |
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Stores relocated or remodeled during the year
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13 |
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14 |
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7 |
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12 |
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13 |
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The Company’s 328 stores open at the end of fiscal 2002
included 1 store in Charlottesville, Virginia, that temporarily
closed due to smoke damage on January 15, 2003, and
reopened on March 6, 2003.
Merchandising Strategy
The Company’s merchandising strategy has been developed to
appeal to its 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 in
an attempt to satisfy the preferences of its target 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
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 its exclusive brands and private-label
merchandise that offers customers quality merchandise at value
prices. The Company’s private-label sales accounted for
approximately 32%, 27% and 28% of total sales in fiscal 2004,
2003 and 2002, respectively. In addition, the Company introduced
two new exclusive brands in early fiscal 2005 — Pierre
Cardin for women and Hawaiian Tropic apparel for men and women.
4
The Company opened its e-commerce store through its website on
February 25, 2005, on a limited basis and grand opened its
e-commerce site on March 8, 2005. The Company is offering
selected, popular merchandise on this site as an alternative to
customers who want to shop in the comfort of their home. The
Company accepts credit cards, checks and gift cards as forms of
tender for on-line purchases. Order fulfillment is accomplished
through six of its store locations strategically placed in
certain geographic areas within its current store base.
The Company purchased the Duck Head trademarks and four related
licenses from TSI Brands Inc., and its parent corporation,
Tropical Sportswear Int’l Corporation, during fiscal 2003
for $4,000,000 plus related costs. The Company believes this is
an important trademark, given its rich history and recognition
in the Southeast region of the United States. The Company
introduced exclusive sportswear merchandise bearing the Duck
Head trademarks in the men’s, misses and children’s
divisions in March 2004. In the summer of 2004, the
junior’s division was added to the Duck Head sportswear
line and the Duck Head Jeans Company denim line was introduced
for the whole family. Duck Head merchandise sales exceeded
$97 million in fiscal 2004 and are targeted to reach
$135 million in fiscal 2005 with the growth of the
sportswear merchandise, as well as additions of accessories and
gift items and having a full year of selling sportswear and
denim lines. Brand marketing in 2005 for Duck Head will continue
to include separate television advertisements, highlights in
newspaper inserts and a dedicated informational website
describing the extensive selection in the Duck Head line. The
Company will also support the Duck Head brand with in-store
signage and promotional activities.
A typical Goody’s store has five divisions that include
women’s (junior’s, misses, petite, plus size, intimate
apparel, swimwear, outerwear, and accessories), men’s
(sportswear, activewear, young men’s, and men’s
furnishings), children’s (infants and toddlers, boys and
girls), shoes (women’s, men’s, children, and
athletic), and other (tuxedo rentals and service fees). The
Company’s stores carry an average of approximately 15,600
different styles of merchandise that are electronically tracked
(including by color and size, where appropriate) in order to
provide timely and accurate selling data to management.
Merchandising Divisions
Women’s. The most comprehensive merchandise
selection offered by the Company is in the women’s
division, which contributed 62.0% of total sales in fiscal 2004.
The women’s division emphasizes casual and career fashions,
denim, dresses, and accessories and includes misses,
junior’s, petite and plus sizes, intimate apparel,
swimwear, outerwear and accessories. Misses’ merchandise
lines include popular brand names such as Adidas, Alfred
Dunner, Briggs, Cathy Daniels, Dockers, Erika, Lee, Levi’s,
Nike, Norton McNaughton, On Que, Requirements, and Sag
Harbor, as well as the Company’s current exclusive
brands, Duck Head, Duck Head Jeans Company (DHJC),
Goodclothes, and Mountain Lake. Juniors’
merchandise lines include nationally recognized brand names such
as Anxiety, L.E.I., Levi’s, Mudd, My Michelle, Self
Esteem, and Union Bay. Fashion dresses are also an
important part of Goody’s overall women’s product
lines and feature popular brand names such as Connected,
Dorby, My Michelle, and Sag Harbor. Nationally
recognized, brand-name intimate apparel offered by the
women’s division includes products from Hanes and
Playtex. Swimwear features labels such as Beach
Native, Baltex, L.E.I., Manhattan Beachwear, and
Mudd. Nationally recognized brands featured in
accessories include Arden Fragrances (that include
Calvin Klein, Nautica, Obsession, Paul Sebastian, and
White Diamonds), Burnes of Boston, L.E.I., Mudd, Playtex,
Riveria, and Rosetti.
Men’s. The men’s division contributed 21.2% of
total sales in fiscal 2004 and consists of sportswear,
activewear, denim, young men’s, and men’s furnishings
departments. The men’s division features nationally
recognized, brand-name merchandise and includes Adidas,
Dockers, JNCO, Lee, Levi’s, Munsingwear, Nike,
U.S. Polo, and Union Bay. The Company’s
current exclusive brands for men are Duck Head, DHJC, Ivy
Crew, OCI and RMG Chairman’s Collection.
5
Children’s. The children’s division contributed
10.3% of total sales in fiscal 2004 and offers durable apparel
for children of all ages including infants and toddlers, and
boys and girls. Nationally recognized brands for children
offered by the children’s division include Adidas, Baby
Togs, Carter’s, Lee, L.E.I., Levi’s, Mudd, My
Michelle, Nike, U.S. Polo, Union Bay, and
Zana-DI. The Company’s current exclusive brands for
children are Baby Crew, Duck Head, DHJC, Good Kidz, and
OCI.
Shoes. The Company operates its own shoe departments,
which contributed 5.8% of total sales in fiscal 2004. At the end
of fiscal 2004, 355 stores had shoe departments; and the Company
expects that all new and relocated stores in fiscal 2005 will
have shoe departments. The shoe departments offer nationally
recognized brands such as Adidas, Avia, Calico Sport, Connie,
Deer Stags, Diba East, Dockers, GBX, Giorgio Brutini,
Grasshoppers, Keds, L.E.I., Life Stride, Mootsies Tootsies,
Mudd, New Balance, Nike, Reebok, Self Esteem, Skechers, and
U.S. Polo.
Other. Includes revenue from tuxedo rentals and service
fees, royalties from license fees and gift certificate, gift
card and in-store credit forfeitures that, in the aggregate,
contributed 0.7% of total sales in fiscal 2004.
The following table shows a breakdown of the Company’s
total sales for the periods indicated (dollars in thousands):
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Fiscal 2004 (52 weeks) | |
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Fiscal 2003 (52 weeks) | |
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Fiscal 2002 (52 weeks) | |
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Amount | |
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Percent | |
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Amount | |
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Percent | |
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Amount | |
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Percent | |
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Women’s
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$ |
784,994 |
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62.0 |
% |
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$ |
754,480 |
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61.5 |
% |
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$ |
723,523 |
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60.7 |
% |
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Men’s
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268,599 |
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21.2 |
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260,024 |
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21.2 |
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256,321 |
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21.5 |
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Children’s
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131,223 |
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10.3 |
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133,258 |
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10.9 |
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135,056 |
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11.3 |
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Shoes
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73,535 |
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5.8 |
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71,817 |
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5.8 |
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70,796 |
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5.9 |
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Other
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8,642 |
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0.7 |
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7,453 |
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0.6 |
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7,709 |
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0.6 |
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$ |
1,266,993 |
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100.0 |
% |
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$ |
1,227,032 |
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100.0 |
% |
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$ |
1,193,405 |
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100.0 |
% |
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Store Visual Presentation
Generally within each Goody’s store, specific departments
have prominent signage with aisles leading directly to major
departments. Visual merchandising and store presentation are
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 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 visual merchandising department, in collaboration
with the merchandising staff, communicates with the stores
frequently through its “Front & Forward”
program, a series of guidebooks designed to help store
Associates coordinate visual presentation efforts with featured
items contained in advertisements or items being promoted
in-store. The Company continually endeavors to update its stores
and improve their “shopability.”
Purchasing
The Company buys merchandise from approximately 650 vendors
worldwide. During fiscal 2004, the Company’s receipts from
Levi Strauss & Co., its largest vendor,
represented approximately 9.0% of total receipts. No more than
3.5% of total receipts were attributable to any one of the
Company’s other vendors during fiscal 2004. However, the
Kellwood Company and Jones Apparel Group, Inc. own
13 and 12 of the Company’s vendors, respectively, which
represented approximately 8.5% and 4.5% of total receipts for
fiscal 2004, respectively. The Company believes it maintains
strong relationships with its vendors. A large portion of the
Company’s merchandise is prepackaged and preticketed by the
vendors for each store, allowing the merchandise to be
cross-docked, thereby reducing the cost and processing time at
its distribution centers.
Merchandise associated with the Company’s private-label
merchandise is largely imported. The Company employs its own
designers and product development teams that work closely with
the merchandising staff to track seasonal fashion trends,
analyze customer feedback and determine appropriate order
quantities. The Company controls its private-label merchandise
from initial concept to its introduction in its stores and
monitors product quality, freight costs and other expenses in an
effort to maximize gross margins on such merchandise.
6
Planning and Allocation
The Company’s planning and allocation department works
closely with merchandising, distribution and store operations
personnel to establish an appropriate flow of merchandise for
each of the Company’s stores. This flow of merchandise is
intended to reflect customer preferences in each market. The
Company utilizes electronic data interchange (“EDI”)
with 312 vendors, wherein the Company and vendors exchange
documents electronically; additionally the vendor will pack
orders by store and ticket the merchandise at the color and size
levels. Sales from EDI vendors accounted for approximately 69%
of total sales in fiscal 2004. The Company also utilizes
automatic replenishment programs or internally referred to as
“quick response” (“QR”), with 122 of the 312
EDI vendors, which allow for more efficient replenishment of
specific items of merchandise in particular styles, sizes and
colors to optimize in-stock positions of basic merchandise.
Goody’s provides QR vendors with selling data for their
products and reorders are automatically produced when compared
to predetermined models. Sales from QR vendors represented
approximately 36% of total sales in fiscal 2004. The Company
continues to support and encourage the use of QR and EDI for its
vendors.
Centralized Distribution
The Company has two distribution centers: a 344,000-square-foot
distribution center, located in Knoxville, Tennessee, and a
235,000-square-foot distribution center, located in
Russellville, Arkansas. The two distribution centers have the
combined capacity to serve approximately 525 stores. Both
distribution centers are 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. Incoming merchandise is received at the
distribution centers where it is randomly inspected for quality
control at the Company’s discretion.
Merchandise for individual stores is typically processed through
the distribution centers within 48 hours of its receipt
from vendors. Furthermore, because the distribution centers are
located adjacent to main interstate highways, the Company
believes it has been able to negotiate favorable shipping terms
with common carriers.
The Company also has developed an effective computerized system
for tracking merchandise from the time it arrives at its
distribution centers 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.
Marketing and Advertising
The Company’s marketing and advertising strategies are
designed to reinforce its image as a destination store for
trend-right casual and career apparel at value prices for the
entire family. The Company believes that its advertisements,
which emphasize a wide selection of nationally recognized,
brand-name apparel at value prices for the entire family, have
enabled it to communicate a distinct identity that reinforces
its brand in the marketplace.
Using a multi-media approach in fiscal 2004, Goody’s
utilized outside agencies for print and broadcast media buying.
In addition, outside resources were used in conjunction with the
internal marketing/advertising staff for creative input in both
print and broadcast media. In 2005, the Company intends to
schedule television and radio advertisements to air consistently
in support of promotional events and to maintain top-of-mind
awareness. The Company uses print and television advertising to
communicate the depth and selection of its merchandise as well
as its value proposition. The www.goodysonline.com
website provides an additional communication vehicle to
demonstrate selection and value. In-store merchandise
presentation is coordinated with such advertising to maximize
promotional opportunities. While the exact allocation of
advertising expenditures differs from market to market, the
Company allocated approximately 54% of its fiscal 2004
advertising expenditures to print media, 36% to television and
radio with the remainder for other promotional activities.
Several of the Company’s key vendors share in the costs of
mutually beneficial advertising campaigns through cooperative
advertising programs.
The Company offers 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. During fiscal 2004,
average net sales per transaction on the GOODY’s
private-label credit card were higher than the average of all
other credit cards accepted. The GOODY’s private-label
credit card includes a loyalty program that is intended to
increase the frequency and volume of customer purchases. The
Company advertises and markets directly to its credit card
customers.
7
The Company also offers its customers a GOODY’s gift card.
The GOODY’s gift card is designed to simplify the gift
transaction for the customer and enhance the
“Goody’s” brand image. This card is always
available at the point-of-sale and through its website. At
certain times of the year such as the Christmas selling season,
it is aggressively marketed to increase gift card sales.
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
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 customer calls, e-mails and
letters, receives feedback from store management, and conducts
quantitative and qualitative studies to monitor customer
expectations. To support its efforts, the Company utilizes a
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 — Loss Prevention, 3 Vice
Presidents — Sales, and currently 31 District Managers.
Each store is managed by a team consisting of a Manager and up
to two Assistant Managers, depending on the size of the store.
Stores are typically staffed by Sales Associates, Department
Heads, Cashiers, and Stockroom Associates. All Associates are
responsible for interacting with customers, developing and
maintaining creative visual merchandise presentation and
ensuring a positive shopping experience for each customer. The
store staff consists of a combination of full- and part-time
Associates; temporary Associates are hired for 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 11:00 a.m. to 7:00 p.m. on Sunday. These hours
are extended during various holidays and peak selling seasons.
Store Locations
The Company typically locates its stores in small to midsized
markets in the Southeast, Midwest and Southwest regions of the
United States that have populations of fewer than 100,000 and
demographic characteristics consistent with its targeted
value-conscious customer. However, the Company does have
approximately 6% of its stores located in metropolitan markets
with sales accounting for approximately 6% of the Company’s
total sales in fiscal 2004. 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 27,700 gross square feet. The Company’s
store locations may be found by visiting its web site at
www.goodysonline.com.
All of the Company’s store locations are leased. The
Company believes the flexibility of leasing its stores provides
substantial benefits and avoids the inherent risks of owning
real estate. The Company believes it has established itself as
an anchor tenant due to its sales volume, the size of its
stores, its advertising contributions in local markets, its
financial position, and its history of meeting lease commitments
on a timely basis.
8
Information Systems
The Company frequently upgrades its core business systems with
current technology, when and where possible, in an effort to
enhance financial and other business controls. The Company
maintains fully integrated point-of-sale (“POS”),
inventory and merchandise systems. The Company’s
information systems provide management, buyers, planners, and
distributors with comprehensive data that allow them to identify
emerging sales trends and, accordingly, manage inventories. The
data provided by information systems include: merchandise
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 POS systems are supported by an
in-store computer system. The in-store systems feature bar-coded
ticket scanning, automatic price look-up, credit and check
authorization utilizing a satellite network, and daily
transmittal of detailed sales data from stores to the corporate
office. The Company completed installation of new POS terminals
and back-office systems in all stores during fiscal 2004 that
began in fiscal 2003.
Trademarks and Licenses
The United States Patent and Trademark Office (the
“USPTO”) has issued federal registrations to the
Company for the following trademarks: Accessory Crossing,
Baby Duck Head, Bobby G by Ivy Crew, Chandler Hill Sport, DHX,
DHX Sport, Duck Head (word mark), Duck Head (various
design marks), Duck Head Expedition 1865, Duck Head Tailored
Classics, Duck Head Tour, Expedition 1865, Feels Like You,
“G” (stylized G with arch design), Goodclothes
(word and design), Good Kidz, Goody’s (store
services), Goody’s (credit card services),
Goody’s Family Clothing, Goody’s Family Clothing
(word and design), Goody’s Low Price!! Department
Store Styles Department Store Brands (word and design),
International Trading Company (word and design),
Intimate Classics, Ivy Crew, Low Prices Never Looked So Good,
MBJC, Montana Blues Jean Company, Mountain Lake, Mountain Lake
Casuals, Mountain Lake High Quality Apparel With A Feel Good
Fit, Mountain Lake Jean Company, OCI, OCI (stylized), Old
College Inn, Old College Inn Jean Company, Old College Inn
Loungewear, Old College Inn Sport, RGM, Sterling Reflections,
Take A Good Look (word and design), Y.E.S. Your Everyday
Savings, and Your Everyday Y.E.S. Savings Brands Value
Quality. The Company has also filed applications with the
USPTO seeking federal registrations for the following
trademarks: Comfort Stretch, “D” (design),
DHJC, DHJCO, DH Jeans Co., DHX Dry, Dressing You For Life,
Duck Head (word and design for toiletries and fragrances),
Duck Head Baby, Duck Head Jeans Co., Duck Head Sport, Duck
Tail, Ducktek, Duck Tucks, GoodGirls, Goodsport, Good Sports,
Goody’s — It’s All About You, Little Duck
Head, Montana Blues, Now That Looks Great On You, RMG, Take A
Good Look (block letters), The Best Towel On The Beach,
We Know Denim, and www.goodysonline.com.
In May 2003, the Company purchased from TSI Brands, Inc. and
Tropical Sportswear Int’l Corporation (jointly
“TSI”) all of TSI’s rights, title and interest in
and to (i) the trademark Duck Head and related trademarks
(jointly, “Duck Head”) and (ii) four
(4) license agreements (collectively, the
“License(s)”) granting limited use of the Duck Head
trademark to four (4) licensees. The Company holds the
USPTO registrations to the Duck Head trademarks. The Company
holds or has applied for the Duck Head trademark registration in
certain foreign countries. The Licenses generally grant
exclusive use of the Duck Head name on certain merchandise and
accessories, including shoes, optical eyewear and sunglasses,
belts, and neckwear in the United States of America and certain
men’s merchandise outside the United States of America. One
of the Licenses grants a third-party licensee the exclusive use
of the Duck Head name in Japan for certain categories of
merchandise. The License for belts and neckwear expired in June
2004. In exchange for each License, the Company receives certain
royalty payments and advertising commitments from each licensee.
The following trademarks and trade names used in this
Form 10-K are owned by (and in certain cases registered to)
third-parties: Adidas, Alfred Dunner, Anxiety, Arden
Fragrances (that include Calvin Klein, Nautica,
Obsession, Paul Sebastian, and White Diamonds),
Avia, Baby Togs, Baltex, Beach Native, Briggs, Burnes of
Boston, Calico Sport, Carter’s, Cathy Daniels, Connected,
Connie, Deer Stags, Diba East, Dockers, Dorby, Erika, GBX,
Giorgio Brutini, Grasshoppers, Hanes, JNCO, Keds, Lee, L.E.I.,
Levi’s, Life Stride, Manhattan Beachwear, Mootsies
Tootsies, Mudd, Munsingwear, My Michelle, New Balance, Nike,
Norton McNaughton, On Que, Playtex, Reebok, Requirements,
Riveria, Rosetti, Sag Harbor, Self Esteem, Skechers,
U.S. Polo, Union Bay, and Zana-DI.
9
Associates
As of April 2, 2005, the Company employed approximately
10,000 active full- and part-time Associates. The majority of
the Company’s Associates work in stores serving customers.
The stores are managed by a professional group of Store Managers
and Assistant Store Managers, who are compensated on a salaried
basis. Additionally, Store Managers are eligible to receive
incentive compensation based on the Company’s profitability
as well as attainment of other objective performance goals
relative to their respective stores. All other store Associates
are compensated on an hourly basis. Periodically, store
Associates may win a cash or gift award as a result of
participation in a store-level promotional contest or event.
The Company has an incentive bonus program for key Corporate
Associates (the Short-Term Incentive Plan), which requires the
attainment of 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 those at its
distribution center in Knoxville, Tennessee, who are represented
by the Union of Needletrades, Industrial and Textile Employees.
From time to time, the Company grants stock options to certain
key Associates. These options are designed to align these key
Associates’ interests with those of the Company’s
shareholders while allowing the Company to improve retention
through long-term incentives.
The Company maintains the Goody’s Family Clothing, Inc.
401(k) Retirement Plan (the “401(k) Plan”) with a
salary deferral feature for all eligible Associates. 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 that are determined by the
Company on a discretionary basis at the start of each 401(k)
Plan year and committed to for the plan year, vest over an
Associate’s service period and are based upon a percent of
an Associate’s elected contributions. These matching
contributions, net of plan forfeitures, amounted to $794,000,
$699,000 and $813,000 for fiscal 2004, 2003 and 2002,
respectively.
In 2004, the Company evaluated its healthcare program. On
March 1, 2005, as a result of this extensive review, the
Company implemented a revised program to encourage and support a
focus on health as well as support a cost containment strategy.
In addition to healthcare, the Company presents to eligible
Associates the opportunity to participate in dental, life and
disability programs and contributes to the cost of these
programs.
The Company also has 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.
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 the third week of July and continuing through the
first week of September) and the Easter season (beginning two
weeks before Easter Sunday and ending on the Saturday preceding
Easter) collectively accounted for approximately 36.3% of the
Company’s annual sales based on the Company’s last
three fiscal years ended January 29, 2005. 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 fiscal 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, 2005, 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, store location, store environment,
and customer service being the principal competitive factors.
The Company believes that it is 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 be able to compete successfully with any of
them in the future.
10
Certain Factors That May Affect Future Results
The following important factors, among others, could cause the
Company’s future operating results to differ materially
from those indicated by forward-looking statements made in this
Form 10-K and presented elsewhere by management from time
to time.
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Recent Decreases in Comparable Store Sales |
The Company has had declines in comparable store sales for the
last three fiscal quarters ended January 29, 2005. The
Company is evaluating and addressing the reasons for the
decreases and there can be no assurance that this trend will
reverse or that the Company can successfully execute its
business plans and strategies.
Despite these decreases in comparable store sales, the Company
does not have a plan to exit a significant number of stores.
However, should the negative trend continue, circumstances could
require the Company to close a significant number of stores at
material costs. Such store closures, as well as other effects
from a continuation in the negative trend, could have a material
adverse effect on the Company.
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Highly Competitive Nature of the Retail Apparel Industry |
Goody’s faces intense competition not only for customers,
but also for access to quality merchandise and suitable store
locations, from traditional department stores, specialty
retailers, off-price retail chains, and discount stores. Many of
these competitors are larger and have significantly greater
financial, marketing and other resources when compared to the
Company. In addition, many department stores have become more
promotional and have reduced their selling price points, and
certain finer department stores have opened outlet stores that
offer off-price merchandise in competition with the Company.
Further, in view of the Company’s strategy of offering
current-season, trend-right, nationally recognized, and
exclusive-brand merchandise at value prices, aggressive
department store pricing could adversely affect the
Company’s margins. The effect of intense competition could
require the Company to reduce prices on merchandise for sale or
increase spending on marketing and advertising, any of which
could have a material adverse effect on the Company.
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Marketing and Advertising |
The Company believes that communicating frequently with its
customers is the key to maintaining traffic flow in its stores
and creating loyalty within its customer base. The Company
continues to evaluate new merchandising, advertising and pricing
strategies that continually evolve in an effort to increase
customer traffic and stimulate sales. There can be no assurance
that the Company’s strategies will be effective.
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New Store Opening Growth Rate |
The Company’s revenue growth historically has been
dependent, in part, upon an expansion policy of growing its
store base by approximately 10% each year. During fiscal 2004,
the Company opened 24 stores, for a 7% store base growth rate.
During fiscal 2005, the Company expects to increase its new
store openings to approximately 35 stores, for an approximate
10% store base growth rate.
The inability of the Company to resume its historical levels of
new store growth may have a material adverse effect on its
long-term growth. There can be no assurance that the Company
will meet its business plan for fiscal 2005, thereby allowing it
to resume its historical level of new store openings.
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Dependence on Weather Conditions |
The Company’s sales are extremely vulnerable to weather
conditions. For example, unusually warm weather in the fall or
snow and ice during the winter can adversely affect its sales of
fall/winter merchandise and unusually cold weather during the
spring can adversely affect its sales of spring/summer
merchandise.
11
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Merchandising and Fashion Sensitivity |
The Company’s success is largely dependent upon its ability
to gauge the fashion tastes of its customers and to provide
merchandise in sufficient quantities to satisfy customer demand
in a timely manner. The Company’s failure to anticipate,
identify or react appropriately to changes in fashion trends or
plan receipts to match customer demand could have a material
adverse effect on its financial results. Misjudgments or
unanticipated changes in fashion trends as well as economic
conditions could lead to excess inventories and higher
markdowns, and repeated fashion misjudgments could have a
material adverse effect on the Company’s image with
customers.
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Dependence on Private-Label Merchandise |
Sales from the Company’s private-label merchandise
represented approximately 32% of the Company’s total sales
in fiscal 2004. Because of the longer lead times required to
manufacture private-label merchandise, and the lack of recourse
the Company might otherwise have with branded merchandise
vendors, failure to anticipate, identify and react appropriately
to changes in fashion trends with its private-label merchandise
could have an adverse effect on the Company. In addition, the
Company has devoted substantial resources to the development and
marketing of the exclusive Duck Head private label (with sales
exceeding $97 million in fiscal 2004), as well as other
private-label and exclusive brands, and there can be no
assurance that these initiatives will continue to be successful.
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Reliance on Key Merchandise Vendors and Private-Label
Contract Manufacturers |
The Company does not own or operate any manufacturing
facilities. The success of the Company’s business is
largely dependent upon its ability to purchase current-season,
brand-name and private-label apparel at competitive prices in
adequate quantities and with timely deliveries. The inability or
unwillingness of key vendors to increase their sales to the
Company to keep pace with the Company’s growth, or the loss
of one or more key vendors for any reason, could have a material
adverse effect on the Company. During fiscal 2004, the
Company’s largest vendor, Levi Strauss & Co.,
accounted for approximately 9.0% of total receipts. In
addition, the Kellwood Company and Jones Apparel
Group, Inc. own 13 and 12 of the Company’s vendors,
respectively, which represented approximately 8.5% and 4.5% of
total receipts for fiscal 2004, respectively. There can be no
assurance that the Company will be able to acquire brand-name
merchandise in sufficient quantities and on favorable terms in
the future, if at all.
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Foreign Merchandise Sourcing |
The Company’s private-label programs are largely supported
by products directly purchased from vendors located abroad. In
addition, the Company believes that a substantial portion of its
merchandise purchased from domestic vendors are manufactured
abroad. These arrangements are subject to the risks of relying
on products manufactured abroad, including import duties and
quotas imposed by bilateral textile agreements, certain of which
were phased out as of December 2004, loss of “most favored
nation” trading status, currency fluctuations, work
stoppages, economic uncertainties including inflation, the
imposition of additional regulations relating to imports, the
imposition of additional duties, taxes and other charges on
imports, foreign government regulations, lack of compliance by
foreign manufacturers with U.S. consumer protection laws
(for which, in respect of its private-label merchandise, the
Company may be responsible as the importer of record) and
intellectual property laws, political unrest including terrorism
and war, and trade restrictions, including U.S. retaliation
against unfair foreign practices. While the Company believes it
could find alternative sources of supply for its private-label
programs, an interruption or delay in supply from these foreign
sources or the imposition of additional duties, taxes or other
charges on these imports could have a material adverse effect on
the Company, unless and until alternative supply arrangements
are secured. Moreover, products from alternative sources may be
of lesser quality or more expensive than those currently
purchased by the Company.
The Company maintains systems, programs and controls over its
merchandise inventories to mitigate possible risks associated
with shrinkage. These risks include losses primarily from:
(i) customer and employee theft; (ii) merchandise
transferred between the distribution centers and stores;
(iii) store to store transfers; (iv) concealed
shortages from vendors; and (v) merchandise returned to
vendors. The Company conducts a complete physical inventory
count near the end of each fiscal year in order to determine the
Company’s actual shrinkage results. For interim financial
reporting purposes, the Company provides a reserve for shrinkage
based principally upon its historical shrinkage experience. The
amount of actual shrinkage could vary significantly from
shrinkage reserves recorded in its interim financial statements
throughout the year and, accordingly, could have a material
effect (either positive or negative) on the Company’s
financial position, results of operations or cash flows for that
year and the fourth quarter of such year.
12
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Reliance on Information Systems |
Since the Company’s information systems are important to
its success, it frequently upgrades its core information and
in-store systems with current technology, when and where
possible, in an effort to enhance financial and other
operational controls. The Company also has implemented certain
information systems disaster recovery plans to mitigate the risk
of business interruptions related to information technology
disasters. There can be no assurance that information technology
systems will not become obsolete or fail, or that the execution
of the Company’s information systems disaster recovery
plans will be successful.
The Company’s borrowings under its credit facility are
limited by collateral formulas, based principally upon the
Company’s eligible inventories. If availability (as
calculated pursuant to the credit facility) falls below
$25,000,000, the Company would be required, for a period of
time, to comply with a financial covenant requiring it to
maintain minimum levels of tangible net worth based on formulas.
The credit facility also contains certain discretionary
provisions that enable the lender to reduce availability. There
can be no assurance as to the continued sufficiency of eligible
collateral to enable borrowings by the Company under its credit
facility, or that the Company will be able to comply with
covenants under its credit facility, or that the lender will not
otherwise limit borrowings by the Company under the credit
facility.
The Company depends in part on credit (including acceptable
credit terms) provided by its vendors and factors, and there can
be no assurance as to their continued support. The Company
believes that credit decisions made by vendors and factors are
influenced by their perception of the Company’s credit
rating. This perception is shaped by information reported in the
industry and financial press and elsewhere as to the
Company’s financial strength and operating performance.
Accordingly, negative perceptions as to the Company’s
financial strength or operating performance could have a
negative impact on the Company’s liquidity.
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 the third week of July and continuing through the
first week of September) and the Easter season (beginning two
weeks before Easter Sunday and ending on the Saturday preceding
Easter) collectively accounted for approximately 36.3% of the
Company’s annual sales based on the Company’s last
three fiscal years ended January 29, 2005. 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 fiscal year.
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Fluctuation in Operating Results |
The Company’s results of operations have fluctuated in the
past, and are expected to fluctuate in the future, as a result
of a variety of factors, including weather conditions, the
timing of store openings and related advertising and preopening
expenses, store closings and related write-offs, price increases
by suppliers (such as fuel costs, health benefit costs,
utilities, and taxes), actions by competitors, the
competitiveness of the retail apparel environment, general
economic conditions, and global political unrest.
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Reliance on Key Personnel |
The Company believes that its future success will depend
significantly on the efforts and abilities of its senior
executives, in particular, Robert M. Goodfriend, Chairman of the
Board of Directors and Chief Executive Officer. The loss of the
services of Mr. Goodfriend, or other members of the
Company’s senior management, could have a material adverse
effect on the Company. The Company has employment agreements
with its senior executives, other than Mr. Goodfriend. The
employment agreements provide, among other things, for severance
payments and for the payments of between 12 and 18 months
salary upon the occurrence of a change in control of the Company
(as defined in the agreements).
13
The Company believes that its future success will also largely
depend upon its ability to attract and retain qualified
employees. Competition for such personnel is intense and there
can be no assurance that the Company will continue to be
successful in attracting and retaining such personnel.
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Expansion and Management of Growth |
The Company’s future operating results could be affected by
its ability to identify suitable markets and sites for new
stores, negotiate leases with acceptable terms and maintain
adequate working capital. To serve its store growth, the Company
must be able to achieve and maintain efficiency through the
operation of its 2 distribution centers, one each in Knoxville,
Tennessee, and Russellville, Arkansas, that currently service
233 and 126 of the Company’s stores, respectively. In
addition, the Company must be able to continue to hire, train
and retain competent managers and store personnel. There can be
no assurance that the Company will be able to expand its market
presence in its existing markets or successfully enter new or
contiguous markets by opening new stores or that any such
expansion will not adversely affect the Company. Further, if the
Company’s management is unable to manage its growth
effectively or closes a material number of stores, the Company
could be materially and adversely affected.
The Company finalized the opening of its e-commerce initiative
through a website on March 8, 2005. There can be no
assurance that this initiative will be financially successful or
that it will be an effective channel of sales and distribution
of the Company’s selected merchandise offerings.
|
|
|
Application of Critical Accounting Policies |
Critical accounting policies are those that management believes
are both most important to the portrayal of the Company’s
financial condition, operations and cash flows, and require
management’s most difficult, subjective or complex
judgments, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain. Judgments
and uncertainties affecting the application of those policies
may result in materially different amounts being reported under
different conditions or using different assumptions.
The Company considers inventory valuation, insurance reserves,
contingencies, impairment of long-lived assets, and taxes to be
most critical in understanding the judgments that are involved
in preparing its consolidated financial statements. See
discussion in “Item 7, Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.”
The Company is involved in certain legal proceedings. The
ultimate outcome of such pending legal proceedings may have a
material adverse effect on the Company’s financial
position, results of operations or cash flows. See
“Item 3. — Legal Proceedings.”
The Company owns the following properties:
|
|
| |
(a) its corporate headquarters consisting of approximately
140,000 square feet and located at 400 Goody’s Lane,
Knoxville, Tennessee; |
| |
| |
(b) its Knoxville, Tennessee, distribution center located
adjacent to its corporate headquarters consisting of 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. The Knoxville distribution
center has the capacity to distribute merchandise to a maximum
of approximately 325 stores; and |
| |
| |
(c) its Russellville, Arkansas, distribution center
consisting of a one-story, 235,000-square-foot facility with 40
loading docks. This facility has been designed to serve more
than 200 stores. |
14
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. The Company also leases two
warehouses in Athens, Tennessee, one of which is used primarily
for staging and processing inventory for new stores, and one for
storing certain store fixtures. In addition, the Company leases
a warehouse in Knoxville, Tennessee, for record storage.
The following table reflects at January 29, 2005, the
number of store leases that will expire in each indicated fiscal
year if the Company: (i) does not exercise any of its
renewal options and (ii) exercises all of its renewal
options. This table does not reflect 15 store leases having
month-to-month lease terms, but does include 12 leases executed
as of January 29, 2005, for stores to be opened or
relocated in fiscal 2005, as well as 3 leases for closed stores.
| |
|
|
|
|
|
|
|
|
| |
|
Number of | |
|
Number of | |
| |
|
Store Leases | |
|
Store Leases | |
| |
|
Expiring Each | |
|
Expiring Each | |
| |
|
Year If | |
|
Year If | |
| |
|
No Renewals | |
|
All Renewals | |
| Fiscal Year |
|
Exercised | |
|
Exercised | |
| |
|
| |
|
| |
|
2005
|
|
|
22 |
|
|
|
11 |
|
|
2006
|
|
|
42 |
|
|
|
12 |
|
|
2007
|
|
|
42 |
|
|
|
1 |
|
|
2008
|
|
|
36 |
|
|
|
5 |
|
|
2009
|
|
|
57 |
|
|
|
13 |
|
|
2010 and thereafter
|
|
|
158 |
|
|
|
315 |
|
|
|
| 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 of the
Board 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 alleged that the Company maintained a
racially hostile working environment.
On February 28, 2003, a proposed Consent Decree was filed
with the District Court for its preliminary approval. The
proposed Consent Decree sets forth the proposed settlement of
the class action race discrimination lawsuit. Ultimately, class
action certification was sought in the lawsuit only with respect
to alleged discrimination in promotion to management positions
and the proposed Consent Decree is limited to such claims.
Generally, the proposed settlement provides for a payment by the
Company in the aggregate amount of $3.2 million to the
class members (including the named plaintiffs) and their
counsel, as well as the Company’s implementation of certain
policies, practices and procedures regarding, among other
things, training of employees. The Company’s employer
liability insurance underwriter has funded $3.1 million of
such payment to a third-party administrator. The proposed
Consent Decree explicitly provides that it is not an admission
of liability by the Company and the Company continues to deny
all of the allegations. On April 30, 2003, the District
Court granted preliminary approval of the proposed Consent
Decree, and a hearing was held on June 30, 2003, regarding
the adequacy and fairness of the proposed settlement. On
March 3, 2004, the United States District Court for the
Middle District of Georgia issued an Order granting final
approval of the Consent Decree. On or about February 23,
2004, a purported class member filed an appeal with the
U.S. Court of Appeals for the Eleventh Circuit (the
“Eleventh Circuit”), alleging, among other things,
misconduct on the part of the District Court and the
plaintiff’s/appellant’s counsel; the Eleventh Circuit
dismissed this appeal on March 5, 2004. On or about
March 12, 2004, a Motion to set aside the dismissal was
filed with the Eleventh Circuit. On May 28, 2004, the
Eleventh Circuit dismissed all appeals regarding this matter. In
August 2004, a purported class member filed a Petition for a
Writ of Certiorari with the United States Supreme Court
regarding the Eleventh Circuit’s dismissal of all appeals
on this matter; on January 20, 2005, the United States
Supreme Court denied the Petition for a Writ of Certiorari.
Pursuant to the terms of the March 3, 2004 Order, the
District Court will maintain jurisdiction of this matter until
July 2006 to monitor the parties’ compliance with the
Consent Decree.
15
In addition, the Company is a party to various other legal
proceedings arising in the ordinary course of its business. The
Company has various insurance policies in place in the event of
unfavorable outcomes from such proceedings. The insurance
companies’ level of, and willingness to, support their
coverage could vary depending upon the circumstances of each
particular case. As such, there can be no assurance as to the
level of support available from insurance policies. The Company
does not currently believe that the ultimate outcome of all such
pending legal proceedings, individually and in the aggregate,
would have a material adverse effect on the Company’s
financial position, results of operations or cash flows.
|
|
| ITEM 4. |
Submission of Matters to a Vote of Security Holders |
None.
PART II
|
|
| ITEM 5. |
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
The 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 Common
Stock for the periods indicated.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First Quarter | |
|
Second Quarter | |
|
Third Quarter | |
|
Fourth Quarter | |
| |
|
| |
|
| |
|
| |
|
| |
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
$ |
14.80 |
|
|
$ |
13.14 |
|
|
$ |
9.18 |
|
|
$ |
10.20 |
|
| |
Low
|
|
|
8.00 |
|
|
|
8.11 |
|
|
|
7.35 |
|
|
|
7.85 |
|
|
Fiscal 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
$ |
5.09 |
|
|
$ |
9.25 |
|
|
$ |
10.86 |
|
|
$ |
10.86 |
|
| |
Low
|
|
|
3.05 |
|
|
|
4.90 |
|
|
|
7.37 |
|
|
|
8.06 |
|
In June 2003, the Company announced that its Board of Directors
declared a quarterly cash dividend of $0.02 per common
share. This was the first quarterly cash dividend declared by
the Company since becoming a public company in 1991. In June
2004, the Company increased its quarterly dividend to
$0.03 per common share. The Company’s cash payments
for dividends totaled $3,289,000 and $1,308,000 for fiscal 2004
and 2003, respectively. The Company anticipates paying regular,
quarterly cash dividends in the future, subject to the
Company’s earnings, financial condition, capital
requirements, general economic and business conditions, and
other factors deemed relevant by the Board of Directors. The
Company’s credit facility was amended to permit such
dividends within certain prescribed limitations, as described
more fully in Note 5 in the Notes to Consolidated Financial
Statements.
At March 31, 2005, there were 426 shareholders of
record and approximately 5,900 persons or entities that held
Common Stock in nominee name. On March 31, 2005, the
closing price of the Common Stock was $9.02.
In June 1999, the Board of Directors authorized the Company to
spend up to $20 million to repurchase Common Stock. Through
January 29, 2005, the Company had repurchased an aggregate
of 1,342,400 shares for $9.3 million. The Company made
purchases of 224,100 shares totaling $1,847,000 during
fiscal 2004.
16
|
|
| ITEM 6. |
Selected Financial Data |
The following selected financial data are derived from the
consolidated financial statements of Goody’s Family
Clothing, Inc. (the “Company”). The data set forth
below should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” the section “Certain Factors That May
Affect Future Results” in this Form 10-K and the
Company’s consolidated financial statements and notes
thereto.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000(1) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
(8) | |
|
(8) | |
|
(8) | |
|
(8) | |
| |
|
(Dollars in thousands, except per share amounts and | |
| |
|
sales per gross square foot) | |
|
Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
1,266,993 |
|
|
$ |
1,227,032 |
|
|
$ |
1,193,405 |
|
|
$ |
1,192,546 |
|
|
$ |
1,250,604 |
|
|
Cost of sales and occupancy expenses
|
|
|
891,433 |
|
|
|
867,850 |
|
|
|
852,083 |
|
|
|
893,698 |
|
|
|
911,726 |
(2) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
375,560 |
|
|
|
359,182 |
|
|
|
341,322 |
|
|
|
298,848 |
|
|
|
338,878 |
|
|
Selling, general and administrative expenses
|
|
|
351,540 |
|
|
|
331,749 |
|
|
|
329,584 |
|
|
|
330,544 |
|
|
|
320,207 |
|
|
Restructuring
charge(3)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,335 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations
|
|
|
24,020 |
|
|
|
27,433 |
|
|
|
11,738 |
|
|
|
(33,031 |
) |
|
|
18,671 |
|
|
Investment income
|
|
|
1,058 |
|
|
|
716 |
|
|
|
624 |
|
|
|
806 |
|
|
|
2,482 |
|
|
Interest expense
|
|
|
134 |
|
|
|
17 |
|
|
|
24 |
|
|
|
249 |
|
|
|
126 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
24,944 |
|
|
|
28,132 |
|
|
|
12,338 |
|
|
|
(32,474 |
) |
|
|
21,027 |
|
|
Provision (benefit) for income taxes
|
|
|
9,291 |
|
|
|
10,410 |
|
|
|
4,629 |
|
|
|
(12,180 |
) |
|
|
7,881 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$ |
15,653 |
|
|
$ |
17,722 |
|
|
$ |
7,709 |
|
|
$ |
(20,294 |
) |
|
$ |
13,146 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.48 |
|
|
$ |
0.54 |
|
|
$ |
0.24 |
|
|
$ |
(0.63 |
) |
|
$ |
0.40 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
0.46 |
|
|
$ |
0.53 |
|
|
$ |
0.23 |
|
|
$ |
(0.63 |
) |
|
$ |
0.40 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$ |
0.11 |
|
|
$ |
0.06 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
32,897 |
|
|
|
32,675 |
|
|
|
32,525 |
|
|
|
32,441 |
|
|
|
32,527 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
|
33,755 |
|
|
|
33,395 |
|
|
|
33,021 |
|
|
|
32,441 |
|
|
|
32,639 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Operating Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores open (at year end)
|
|
|
357 |
|
|
|
335 |
|
|
|
328 |
|
|
|
332 |
|
|
|
317 |
|
|
Gross store square footage (in thousands, at year end)
|
|
|
9,878 |
|
|
|
9,325 |
|
|
|
9,147 |
|
|
|
9,256 |
|
|
|
8,694 |
|
|
Comparable store sales (decrease)
increase(4)
|
|
|
(0.3 |
)% |
|
|
1.6 |
% |
|
|
(1.2 |
)% |
|
|
(8.5 |
)% |
|
|
(4.8) |
% |
|
Sales per gross square
foot(5)
|
|
$ |
131 |
|
|
$ |
133 |
|
|
$ |
133 |
|
|
$ |
136 |
|
|
$ |
152 |
|
|
Average sales per
store(6)
|
|
|
3,655 |
|
|
|
3,721 |
|
|
|
3,653 |
|
|
|
3,670 |
|
|
|
4,148 |
|
|
Capital expenditures
|
|
|
41,560 |
|
|
|
25,366 |
|
|
|
9,262 |
|
|
|
22,234 |
|
|
|
53,418 |
|
|
Depreciation and amortization
|
|
|
24,495 |
|
|
|
23,095 |
|
|
|
23,978 |
|
|
|
25,326 |
|
|
|
21,250 |
|
|
Balance Sheet Data (at year end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$ |
144,091 |
|
|
$ |
135,272 |
|
|
$ |
112,509 |
|
|
$ |
85,121 |
|
|
$ |
93,388 |
|
|
Total assets
|
|
|
503,400 |
|
|
|
455,937 |
|
|
|
421,387 |
|
|
|
403,016 |
|
|
|
444,631 |
|
|
Long-term
obligations(7)
|
|
|
36,407 |
|
|
|
29,329 |
|
|
|
27,029 |
|
|
|
28,735 |
|
|
|
30,557 |
|
|
Shareholders’ equity
|
|
|
238,901 |
|
|
|
226,944 |
|
|
|
209,247 |
|
|
|
200,697 |
|
|
|
220,231 |
|
|
|
| (1) |
Consists of 53 weeks — all other years presented
consist of 52 weeks. |
| (2) |
Beginning January 30, 2000, the first day of fiscal 2000,
the Company changed its policy to recognize the sale and the
related gross profit from layaways upon delivery of the
merchandise to the customer. The cumulative effect of this
change at January 30, 2000, was $331,000 ($207,000 after
tax) and is included in cost of sales and occupancy expense in
fiscal 2000. |
| (3) |
The restructuring charge consisted primarily of severance
related activities associated with a planned reduction in work
force and professional fees associated with the reduction
program. |
17
|
|
| (4) |
Comparable store sales are based on stores that operated
throughout the fiscal year (including relocated, remodeled and
expanded stores) and that were in operation for the entire
previous fiscal year (computed on comparable 52-week periods). |
| (5) |
Sales per gross square foot is calculated by dividing:
(i) aggregate sales from stores that operated throughout
the fiscal year (including relocated, remodeled and expanded
stores) and that were in operation for the entire previous
fiscal year (computed on comparable 52-week periods); by
(ii) the aggregate gross square footage related to those
stores. |
| (6) |
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. |
| (7) |
Long-term obligations consist primarily of deferred income
taxes, accrued workers compensation and liabilities associated
with the straight line treatment of rent payments. |
| (8) |
As restated. See Note 2 in the Notes to Consolidated
Financial Statements. |
|
|
| ITEM 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
The accompanying Management’s Discussion and Analysis of
Financial Condition and Results of Operations gives effect to
the restatement discussed in Note 2 in the Notes to
consolidated financial statements.
Executive Summary
Goody’s is a retailer of moderately priced family apparel,
with its stores located in small to midsized markets in the
Southeast, Midwest and Southwest regions of the United States
that have demographic characteristics consistent with its
targeted customer. 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 a broad selection of current-season, nationally
recognized brands for brand-conscious shoppers, as well as
exclusive brands for those shoppers who seek quality apparel at
value prices. All of Goody’s stores are leased, average
approximately 27,700 gross square feet, and are generally
located in strip shopping centers. The Company manages its core
functions, such as purchasing, pricing, marketing and
advertising, distribution, planning and allocation, real estate,
finance, and information systems, from its centrally located
corporate office in Knoxville, Tennessee. The Company has two
distribution centers, one each in Knoxville, Tennessee and
Russellville, Arkansas.
The Company’s operating results were below plan in fiscal
2004, however, the Company accomplished some very important
tasks in fiscal 2004 that favorably positioned the Company for
fiscal 2005. These accomplishments include:
|
|
|
| |
• |
The successful buildup of a new store opening team
infrastructure, opening 24 new stores in fiscal 2004 and
positioned to open 35 new stores and to relocate or remodel up
to 15 existing stores in fiscal 2005; |
| |
| |
• |
The launch of the exclusive Duck Head brand in March 2004, which
exceeded expectations by reporting sales in excess of
$97.0 million for fiscal 2004; |
| |
| |
• |
A significant increase in merchandise profit margins as a result
of: selling more private-label merchandise at higher margins as
compared with last year, improved cost negotiations on
merchandise purchases, and by making selected retail price
adjustments for certain under-valued items; |
| |
| |
• |
The successful implementation of state-of-the-art point-of-sale
equipment in all stores that will continue to provide benefits
to the Company for years to come; and |
| |
| |
• |
The strengthening of the management team, including a new
President and Chief Merchandising Officer. |
18
For fiscal 2005, the Company currently expects to open
approximately 35 new stores, relocate or remodel approximately
15 of its existing stores and close at least 5 existing stores.
Additionally, the Company’s business plan for fiscal 2005
calls for: (i) comparable store sales to increase in the
low-single digits for the full fiscal year; (ii) a gross
profit rate of approximately 30.0%; (iii) an increase in
selling, general and administrative expense dollars, with the
expense rate, as a percent of sales, similar to last year
(before calculating and accruing performance bonuses, which were
not accrued in 2004 due to the Company not achieving performance
targets); (iv) an effective income tax rate of
approximately 41.0%; (v) capital expenditures of
approximately $62.0 million ($22 million is allocated
to new and existing stores, $15 million for leasehold
improvements funded by tenant allowances, $14 million
allocated to the purchase of new aircraft, with the remainder
allocated to general corporate purposes); and
(vi) depreciation and amortization of approximately
$27.3 million.
As a result of the cold and wet weather throughout its markets
during the first two months of the first quarter of fiscal 2005,
which included part of the Easter selling period in fiscal 2005,
the Company is experiencing sluggish sales and has been more
promotional in an effort to stimulate sales. The Company also
believes the tight economy, exacerbated by soaring gas prices,
will negatively impact the first quarter results. As a result,
the Company now expects financial results for the first quarter
of fiscal 2005 to be significantly below the record earnings of
$0.24 per diluted share reported for the first quarter of fiscal
2004.
As previously mentioned, the Company acquired the Duck Head
trademarks and four related licenses during fiscal 2003. The
Company has a sales target for Duck Head products in fiscal 2005
of approximately $135 million and license fee revenue of
approximately $800,000.
The Company also introduced in early fiscal 2005, two exclusive
brands, Pierre Cardin for women and Hawaiian Tropic apparel for
men and women. The current sales target in fiscal 2005 is
$30 million and $6 million, for Pierre Cardin and
Hawaiian Tropic apparel, respectively.
Actual results may vary from the business plan and an adverse
outcome from the risks and uncertainties described in the
section above captioned, “Certain Factors That May Affect
Future Results,” could have a material adverse effect on
the Company’s fiscal 2005 business plan.
Critical Accounting Policies
The consolidated financial statements are prepared in accordance
with generally accepted accounting principles that require the
Company to make estimates and assumptions. The SEC requires
disclosure of “critical accounting policies,” which
are defined as those policies that require application of
management’s most difficult, subjective or complex
judgments that are inherently uncertain and may change in
subsequent periods.
The Company believes that of its significant accounting policies
(see Note 1 in the Notes to Consolidated Financial
Statements), the following may involve a higher degree of
judgment and complexity. Actual results may ultimately differ
from these estimates.
Inventory valuation. The Company’s inventories are
stated at the lower of weighted-average cost or market. The
Company computes the weighted-average cost utilizing specific
identification at the stock-keeping unit level multiplied by the
weighted-average cost for such stock-keeping unit.
In most cases, the expected sales value (i.e., market value) of
the Company’s inventory is higher than its cost. However,
as the Company progresses through a selling season, certain
merchandise may be currently, or in the future, marked to sell
or ultimately sold below the cost for that item. As a result,
there is a high degree of judgment and complexity in determining
the market value of such inventories. For inventories on hand at
any given fiscal quarter end, the Company estimates the future
selling price of its merchandise, given its current selling
price and its planned promotional activities, and provides a
reserve for the difference between cost and the expected selling
price for all items expected to be sold below cost.
The Company conducts a chain wide physical inventory count near
the end of each fiscal year and adjusts the Company’s
records to reflect the actual inventory counts. For interim
financial reporting quarters, the Company provides a reserve for
shrinkage based principally on historical shrinkage experience.
19
Contingencies. The Company evaluates contingencies in
accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 5, “Accounting for
Contingencies.” Accordingly, when a material loss
contingency exists, the Company accrues an estimated loss when
the likelihood that the future event or events will confirm the
loss or the incurrence of a liability is probable and the amount
of loss can be reasonably estimated. If no accrual is made for a
material loss contingency because both of the above conditions
are not met, or if an exposure to loss exists materially in
excess of an accrual that is made, disclosure regarding the
contingency is made when there is at least a reasonable
possibility that a loss or additional loss may be incurred. A
description of certain legal proceedings involving the Company
can be found in Part I, Item 3, “Legal
Proceedings” and in Note 11 in the Notes to
Consolidated Financial Statements.
Impairment of long-lived assets. Each fiscal quarter the
Company reviews all of its operations for indications of
impairment in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived
Assets.” Primarily, such indications consist of stores with
deteriorating operating results and stores under watch for
possible closure or relocation. Impairment review for the
corporate office, distribution centers and any other assets
would be considered if overall Company operations deteriorated,
or were expected to deteriorate, over a sustained period of
time. Should this occur, the Company would consider whether the
office, distribution centers and any other assets are impaired.
Where impairment indicators are present, related store
long-lived assets are measured under the Company’s
accounting policy for impairment. 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). The lowest
level at which future cash flows can be identified is at the
individual store level. The individual store’s estimated
future cash flows are based on the Company’s estimated
future results given perceived local market conditions, the
local economy and historical results. If the individual
store’s estimated future cash flows used in this analysis
are less than the carrying amount of the asset, impairment is
indicated. The impairment loss would then be recorded and is
generally measured as the excess of the carrying amount of the
asset over the asset’s estimated fair value (generally
based upon future discounted cash flows). In addition, a
decision to close a store, prior to the expiration of its
underlying lease, generally results in increased depreciation
and amortization over the remaining revised useful life of
property and equipment, an impairment charge, or both.
Insurance. The Company is self-insured for workers’
compensation, employee 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 loss development factors based on standard
insurance industry actuarial assumptions and the Company’s
historical claims experience. These development factors utilize
historical data to project the future development of incurred
losses. Loss estimates are adjusted based upon actual claims
settlements and reported claims.
Income taxes. Income taxes are calculated in accordance
with SFAS No. 109, “Accounting for Income Taxes,”
which requires the use of the liability method. Deferred tax
assets and liabilities are recognized based on the difference
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Inherent
in the measurement of deferred balances are certain judgments
and interpretations of enacted tax law and published guidance
with respect to applicability to the Company’s operations.
Significant examples of this concept include capitalization
policies for various costs, income and expense recognition and
inventory valuation methods. No valuation allowance has been
provided for deferred tax assets because management believes the
full amount of the net deferred tax assets will be realized in
the future. The effective tax rate utilized by the Company
reflects management’s judgment of the expected tax
liabilities within the various taxing jurisdictions.
20
Results of Operations — Fourth Quarter Fiscal 2004
(13 weeks) Compared with Fourth Quarter Fiscal 2003
(13 weeks)
The following table sets forth the Company’s unaudited
results of operations for the quarters indicated (in thousands,
except per share amounts).
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fourth Quarter | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
|
|
|
|
(Restated) | |
|
Sales
|
|
$ |
384,688 |
|
|
|
100.0 |
% |
|
$ |
369,204 |
|
|
|
100.0 |
% |
|
Cost of sales and occupancy expenses
|
|
|
275,307 |
|
|
|
71.5 |
|
|
|
266,131 |
|
|
|
72.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
109,381 |
|
|
|
28.5 |
|
|
|
103,073 |
|
|
|
27.9 |
|
|
Selling, general and administrative expenses
|
|
|
98,411 |
|
|
|
25.6 |
|
|
|
92,172 |
|
|
|
25.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
|
10,970 |
|
|
|
2.9 |
|
|
|
10,901 |
|
|
|
2.9 |
|
|
Investment income
|
|
|
376 |
|
|
|
0.1 |
|
|
|
209 |
|
|
|
0.1 |
|
|
Interest expense
|
|
|
1 |
|
|
|
0.0 |
|
|
|
15 |
|
|
|
0.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
11,345 |
|
|
|
3.0 |
|
|
|
11,095 |
|
|
|
3.0 |
|
|
Provision for income taxes
|
|
|
4,225 |
|
|
|
1.1 |
|
|
|
4,106 |
|
|
|
1.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
7,120 |
|
|
|
1.9 |
% |
|
$ |
6,989 |
|
|
|
1.9 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.22 |
|
|
|
|
|
|
$ |
0.21 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
0.21 |
|
|
|
|
|
|
$ |
0.21 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$ |
0.03 |
|
|
|
|
|
|
$ |
0.02 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
32,820 |
|
|
|
|
|
|
|
32,831 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
|
33,579 |
|
|
|
|
|
|
|
33,719 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Overview. In the fourth quarter of fiscal 2004, the
Company opened seven new stores, relocated three stores and
closed two stores bringing the total number of stores in
operation at January 29, 2005 to 357 compared with 335 at
January 31, 2004. In the fourth quarter of fiscal 2003, the
Company opened three new stores, and relocated one store. Net
earnings were $7,120,000, or 1.9% of sales, in the fourth
quarter of fiscal 2004 compared with $6,989,000, or 1.9% of
sales, in the fourth quarter of fiscal 2003.
Sales. Sales for the fourth quarter of fiscal 2004 were
$384,688,000, a 4.2% increase from the $369,204,000 for the
fourth quarter of fiscal 2003. This increase of $15,484,000
primarily consisted of: (i) a $18,390,000 net increase
in sales from new, transition and closed stores that are not
included in comparable store sales; offset by (ii) a
$1,278,000 decrease in comparable store sales; and (iii) a
$1,591,000 decrease in gift certificate, gift card and in-store
credit forfeitures. In fiscal 2004, the Company did not sustain
benefits achieved in the fourth quarter of 2003 related to the
forfeiture of gift certificates, gift cards and in-store
credits. Comparable store sales for the fourth quarter of fiscal
2004 decreased 0.4% compared with the corresponding period of
the previous fiscal year. The Company believes the decrease in
comparable store sales for the fourth quarter of fiscal 2004
was, in part, due to periods of unseasonably warm weather in
November 2004, and snow and ice storms during key selling
periods in December 2004 and January 2005.
Gross profit. Gross profit for the fourth quarter of
fiscal 2004 was $109,381,000, or 28.5% of sales, a $6,308,000
increase compared with the $103,073,000 or 27.9% of sales, in
gross profit generated for the fourth quarter of fiscal 2003.
The 0.6% increase in the gross profit rate, as a percent of
sales, in the fourth quarter of fiscal 2004 compared with the
fourth quarter of fiscal 2003 consisted primarily of: (i) a
1.5% improvement in merchandise margins; offset by (ii) a
0.4% reduction in gift certificate, gift card and in-store
credit forfeitures; (iii) a 0.3% increase in shrinkage
expense; and (iv) a 0.2% increase in occupancy costs that
were not leveraged as a percentage of sales. The improvement in
merchandise margins was partially attributable to increased
private-label sales, which produced higher gross margins,
overall, than the Company’s branded merchandise offerings.
Shrinkage results for both fiscal years included a favorable
adjustment in each fourth quarter when compared with the
respective first three quarters of such fiscal year’s
estimated interim shrinkage provision.
21
The favorable adjustment was $523,000 and $1,199,000 for the
fourth quarter of fiscal 2004 and 2003, respectively. The
Company’s gross margins may not be comparable to those of
other retailers, since some retailers include the costs related
to their distribution network in cost of sales. Other retailers
exclude these distribution costs from gross margin, including
them, as the Company does, in a line item such as selling,
general and administrative expenses. Furthermore, the Company
includes occupancy costs in cost of sales, while other retailers
may include them in a line item such as selling, general and
administrative expenses. Occupancy costs were $21,625,000 and
$19,897,000 for the fourth quarter of fiscal 2004 and 2003,
respectively.
Selling, general and administrative (“SG&A”)
expenses. SG&A expenses for the fourth quarter of fiscal
2004 were $98,411,000, or 25.6% of sales, a $6,239,000 increase
from the $92,172,000, or 25.0% of sales, for the fourth quarter
of fiscal 2003. The 0.6% increase in SG&A expenses, as a
percent of sales, in the fourth quarter of fiscal 2004 compared
with the fourth quarter of fiscal 2003 resulted primarily from:
(i) a 0.3% increase in the provision for health care costs;
(ii) a 0.3% increase in advertising expense; (iii) a
0.2% increase in trucking expense primarily related to rate
increases, including fuel surcharges; offset by a decrease of
(iv) 0.2% in net payroll expense, consisting of a 0.4%
increase in salaries, net of a 0.6% decrease for performance
bonuses accrued in the fourth quarter of 2003. SG&A expenses
include direct store expenses such as payroll and supplies, all
costs associated with the Company’s distribution centers,
advertising, corporate overhead, but exclude store occupancy
costs. The Company’s SG&A expenses may not be
comparable to those of other retailers, since some retailers
include the costs related to their distribution network in cost
of sales and others exclude them from gross margin, including
them as the Company does in a line item such as SG&A.
Distribution expenses were $5,382,000 and $5,396,000 for the
fourth quarter of fiscal 2004 and 2003, respectively.
Income taxes. The provision for income taxes for the
fourth quarter of fiscal 2004 was $4,225,000, for an effective
tax rate of 37.25% of earnings before income taxes, compared
with a provision for income taxes of $4,106,000, for an
effective tax rate of 37.00% of earnings before income taxes,
for the fourth quarter of fiscal 2003.
Results of Operations — Fiscal 2004, 2003 and 2002
(Each 52 weeks)
The following table sets forth the Company’s results of
operations as a percent of sales for the fiscal years indicated:
| |
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|
|
|
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|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of sales and occupancy expenses
|
|
|
70.4 |
|
|
|
70.7 |
|
|
|
71.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
29.6 |
|
|
|
29.3 |
|
|
|
28.6 |
|
|
Selling, general and administrative expenses
|
|
|
27.7 |
|
|
|
27.1 |
|
|
|
27.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
|
1.9 |
|
|
|
2.2 |
|
|
|
1.0 |
|
|
Investment income
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
— |
|
|
Interest expense
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
2.0 |
|
|
|
2.3 |
|
|
|
1.0 |
|
|
Provision for income taxes
|
|
|
0.8 |
|
|
|
0.9 |
|
|
|
0.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
1.2 |
% |
|
|
1.4 |
% |
|
|
0.6 |
% |
| |
|
|
|
|
|
|
|
|
|
Fiscal 2004 Compared with Fiscal 2003
Overview. In fiscal 2004, the Company opened 24 new
stores, relocated 5 stores, remodeled 8 stores, and closed 2
stores, bringing the total number of stores at January 29,
2005, to 357 compared with 335 at January 31, 2004. In
fiscal 2003, 10 new stores were opened, 3 stores were relocated,
11 stores were remodeled, and 3 stores were closed. The Company
had net earnings of $15,653,000, or 1.2% of sales, in fiscal
2004, compared with net earnings of $17,722,000, or 1.4% of
sales, in fiscal 2003.
22
Sales. Sales for fiscal 2004 were $1,266,993,000, a 3.3%
increase from the $1,227,032,000 for fiscal 2003. This increase
of $39,961,000 consisted of: (i) a $44,647,000 increase in
sales from new, transition and closed stores that are not
included in comparable store sales; (ii) a $363,000
increase in royalties from license fees; offset by (iii) a
$3,495,000 decrease in comparable store sales; and (iv) a
$1,554,000 decrease in gift certificate, gift card and in-store
credit forfeitures. Comparable store sales for fiscal 2004
decreased 0.3% compared with fiscal 2003. In fiscal 2004, the
Company did not sustain benefits achieved in fiscal 2003 related
to the forfeiture of gift certificates, gift cards and in-store
credits. The Company believes the decrease in comparable store
sales for the year was, in part, due to periods of unseasonably
warm weather in November 2004, snow and ice storms during key
selling periods in December 2004 and January 2005, and the
impact of three major hurricanes in September 2004.
Gross profit. Gross profit for fiscal 2004 was
$375,560,000, or 29.6% of sales, a $16,378,000 increase from the
$359,182,000, or 29.3% of sales, in gross profit generated for
fiscal 2003. The 0.3% increase in the gross profit rate, as a
percent of sales, in fiscal 2004 compared with fiscal 2003
consisted primarily of: (i) a 0.6% improvement in
merchandise margins, offset by; (ii) a 0.1% reduction from
gift certificate, gift card and in-store credit forfeitures;
(iii) a 0.1% increase in shrinkage expense; and (iv) a
0.1% increase in occupancy expenses. The improvement in
merchandise margins was partially attributable to increased
private-label sales, which produced higher gross margins,
overall, than the Company’s branded merchandise offerings.
Occupancy costs, which are included in cost of sales, were
$83,677,000 and $80,130,000 for fiscal 2004 and 2003,
respectively.
Selling, general and administrative expenses. SG&A
expenses for fiscal 2004 were $351,540,000, or 27.7% of sales,
an increase of $19,791,000 from $331,749,000 for fiscal 2003, or
27.1% of sales. The 0.6% increase in SG&A expenses, as a
percent of sales, in fiscal 2004 compared with fiscal 2003
resulted primarily from: (i) a 0.3% increase in the
provision for health care costs; (ii) a 0.2% increase in
advertising expense; (iii) a 0.1% increase in trucking
expense primarily related to rate increases, including fuel
surcharges; (iv) a 0.1% increase in professional fees,
primarily related to compliance with Section 404 of the
Sarbanes-Oxley Act of 2002; (v) a 0.2% increase in all
other net SG&A expenses; offset by (vi) a 0.2% decrease
in legal fees; and (vii) a 0.1% decrease in net payroll
expense, consisting of a 0.4% increase in salaries, net of a
0.5% decrease for performance bonuses accrued in fiscal 2003. As
discussed in the Annual Report on Form 10-K for fiscal
2003, the Company’s health benefit costs for fiscal 2004
were expected to be higher than fiscal 2003 due to plan design
changes made in fiscal 2003. However, the Company responded to
the more than expected increased costs in fiscal 2004 by
redesigning its health benefit programs for fiscal 2005. It is
anticipated that health care costs in fiscal 2005, as a
percentage of sales, will benefit from changes in the
Company’s group health care plans effective March 1,
2005. Distribution expenses, which are included in SG&A,
were $22,415,000 and $20,984,000 for fiscal 2004 and 2003,
respectively.
Income taxes. The provision for income taxes for fiscal
2004 was $9,291,000, for an effective tax rate of 37.25% of
earnings before income taxes, compared with a provision of
$10,410,000, for an effective tax rate of 37.00% of earnings
before income taxes, for fiscal 2003. The effective tax rate of
37.25% for fiscal 2004 includes a reduction of $1,037,000
related to the revaluation of deferred tax assets and
liabilities. Without this reduction, the Company’s
effective tax rate for fiscal 2004 would have been 41.4%. The
41.4% effective tax rate was due primarily to a shift in the
composition of earnings among various entities of the Company,
changes in state tax laws and certain disallowed deductions. In
fiscal 2005, the Company plans to restructure its business
operations wherein it anticipates the effective tax rate for
fiscal 2005 to be approximately 41.0%, wherein 1.5% of this rate
results from certain disallowed deductions.
Fiscal 2003 Compared with Fiscal 2002
Overview. In fiscal 2003, the Company opened 10 new
stores, relocated 3 stores, remodeled 11 stores, and closed 3
stores, bringing the total number of stores at January 31,
2004, to 335 compared with 328 at February 1, 2003. In
fiscal 2002, 2 new stores were opened, 2 stores were relocated,
5 stores were remodeled, and 6 stores were closed. The Company
had net earnings of $17,722,000, or 1.4% of sales, in fiscal
2003, compared with net earnings of $7,709,000, or 0.6% of
sales, in fiscal 2002. Fiscal 2003 versus fiscal 2002 includes
licensing revenues and gross profit thereon arising from the
Company’s acquisition of the Duck Head trademarks and four
related licenses during fiscal 2003.
23
Sales. Sales for fiscal 2003 were $1,227,032,000, a 2.8%
increase from the $1,193,405,000 for fiscal 2002. This increase
of $33,627,000 consisted of: (i) a $10,956,000 increase in
sales from new, transition and closed stores that are not
included in comparable store sales; (ii) a $19,226,000
increase in comparable store sales; (iii) $2,740,000 from
gift certificate, gift card and in-store credit forfeitures; and
(iv) $705,000 in royalties from license fees. The revenue
of $2,740,000 related to gift certificate, gift card and
in-store credit forfeitures resulted from the reduction in a
reserve and the expected forfeiture rate determined from
historical forfeiture trends. The majority of benefits realized
in fiscal 2003 related to gift certificate, gift card and
in-store credit forfeitures were not sustained in fiscal 2004.
Comparable store sales for fiscal 2003 increased 1.6% compared
with fiscal 2002. The Company believes it achieved a comparable
store sales increase for the year, in part, from customer
acceptance of its merchandise offerings and an improved overall
retail environment.
Gross profit. Gross profit for fiscal 2003 was
$359,182,000, or 29.3% of sales, a $17,860,000 increase from the
$341,322,000, or 28.6% of sales, in gross profit generated for
fiscal 2002. The 0.7% increase in the gross profit rate, as a
percent of sales, in fiscal 2003 compared with fiscal 2002
consisted primarily of: (i) a 0.7% improvement in
merchandise margins; (ii) a 0.2% contribution from gift
certificate, gift card and in-store credit forfeitures; and
(iii) a 0.1% contribution from royalties from license fees;
offset by (iv) a 0.3% increase in shrinkage expense. The
Company believes the 0.7% improvement in merchandise margins was
the result of customer acceptance of its merchandise offerings
and a reduction in the level of merchandise sold at clearance
prices. The 0.3% increase in shrinkage expense was the result of
the comparison to favorable shrinkage results from fiscal 2002.
The Company’s shrinkage expense for fiscal 2003
approximated its five year average. Occupancy costs, which are
included in cost of sales, were $80,130,000 and $78,422,000 for
fiscal 2003 and 2002, respectively.
Selling, general and administrative expenses. SG&A
expenses for fiscal 2003 were $331,749,000, or 27.1% of sales,
an increase of $2,165,000 from $329,584,000 for fiscal 2002, or
27.6% of sales. The 0.5% decrease in SG&A expenses, as a
percent of sales, in fiscal 2003 compared with fiscal 2002
resulted primarily from: (i) a 0.3% reduction in impairment
charges for property and equipment relating to under-performing
stores incurred during fiscal 2002; (ii) a 0.3% reduction
in the provision for health care costs, primarily due to the
effect of plan design changes and operational efficiencies,
including changes in plan administrator; (iii) a 0.1%
decrease in depreciation expense; and (iv) a 0.1% decrease
in all other net SG&A expenses; offset by an increase of
(v) 0.2% in net payroll expense related to the accrual of
bonuses; and (vi) a 0.1% increase in advertising expense.
Distribution expenses, which are included in SG&A, were
$20,984,000 and $21,383,000 for fiscal 2003 and 2002,
respectively.
Income taxes. The provision for income taxes for fiscal
2003 was $10,410,000, for an effective tax rate of 37.0% of
earnings before income taxes, compared with a provision of
$4,629,000, for an effective tax rate of 37.5% of earnings
before income taxes, for fiscal 2002.
Liquidity and Capital Resources
The Company’s primary sources of liquidity are cash flows
from operations, including credit terms from vendors and
factors, and borrowings under its credit facility. The
Company’s working capital was $144,091,000 at
January 29, 2005, compared with $135,272,000 at
January 31, 2004.
The $8,819,000 increase in working capital from January 31,
2004 to January 29, 2005, resulted primarily from:
(i) $15,653,000 in earnings; (ii) $1,168,000 from the
issuance of common stock through the exercise of stock options;
(iii) increases in long-term liabilities of $7,705,000;
offset by (iv) a $11,292,000 net change in property
and equipment; (v) dividends paid of $3,289,000; and
(vi) repurchases of common stock of $1,847,000.
In May 2001, the Company entered into a five-year, $130,000,000
syndicated revolving loan and security agreement (the
“credit facility”) that provides for cash borrowings
for general corporate purposes, including a $95,000,000
sub-facility for the issuance of letters of credit (and has been
amended periodically). The credit facility was amended effective
June 18, 2003, primarily to allow the payment of cash
dividends within certain prescribed limitations. Borrowings
under this credit facility are limited by collateral formulas,
based principally upon the Company’s eligible inventories.
The credit facility is secured primarily by the Company’s
inventories, receivables, and cash and cash equivalents, which
at January 29, 2005, aggregated $288,873,000. Of this
amount, approximately $167,259,000 represented the borrowing
base, which excludes cash and most of cash equivalents and only
gives credit for specified percentages of inventory and
receivables. The amount available to draw under the credit
facility at January 29, 2005, was approximately
$90,214,000. If availability
24
(as calculated pursuant to the credit facility) falls below
$25,000,000, the Company would be required, for a period of
time, to comply with a financial covenant requiring it to
maintain minimum levels of tangible net worth based on formulas.
The credit facility also contains certain discretionary
provisions that enable the lender to reduce availability. The
credit facility bears interest at LIBOR plus an applicable
margin or the prime rate.
There were no cash borrowings during fiscal 2004 or fiscal 2003.
Letters of credit outstanding averaged $37,989,000 during fiscal
2004 compared with $38,316,000 during fiscal 2003, with the
highest balance of $44,632,000 in August 2004 compared with
$49,682,000 in December 2003. The Company had letters of credit
outstanding of $39,735,000 and $43,269,000 at January 29,
2005 and January 31, 2004, respectively. Of these letters
outstanding, $23,122,000 and $28,908,000 at January 29,
2005 and January 31, 2004, respectively, represented
merchandise that had not yet been shipped to the Company and
therefore had not yet been reflected in accounts payable. The
Company renegotiated its business arrangement with its primary
import agent in the fourth quarter of fiscal 2004, and therein
eliminated the need for letters of credit with such agent. As a
result, the Company expects its need for letters of credit in
fiscal 2005 to be substantially less than historical amounts.
The table below sets forth the Company’s commercial
commitments related to real estate leases for its stores, data
processing and equipment leases, outstanding purchase
commitments for merchandise and non-merchandise, and letters of
credit:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Fiscal Year (in thousands) | |
| |
|
| |
| |
|
Total | |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
Thereafter | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Operating Leases
|
|
$ |
432,976 |
|
|
$ |
71,902 |
|
|
$ |
67,329 |
|
|
$ |
60,613 |
|
|
$ |
53,131 |
|
|
$ |
43,861 |
|
|
$ |
136,140 |
|
|
Purchase Orders
|
|
|
223,051 |
|
|
|
223,051 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Merchandise
Commitments(1)
|
|
|
106,975 |
|
|
|
23,270 |
|
|
|
42,205 |
|
|
|
31,000 |
|
|
|
10,500 |
|
|
|
— |
|
|
|
— |
|
|
Non-Merchandise Commitments
|
|
|
799 |
|
|
|
795 |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Letters of
Credit(2)
|
|
|
34,573 |
|
|
|
34,573 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Standby Letters of Credit for
Insurance(3)
|
|
|
5,162 |
|
|
|
5,162 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
| (1) |
These merchandise commitments represent contractual obligations
between the Company and certain vendors for purchases of
exclusive brand merchandise that are not included in the
purchase order amounts. |
| |
| (2) |
These letters of credit support the importing of private-label
merchandise. The Company renegotiated its business arrangement
with its primary import agent in the fourth quarter of fiscal
2004, and therein eliminated the need for letters of credit for
such agent. As a result, the Company expects its need for
letters of credit in fiscal 2005 to be substantially less than
historical amounts. |
| |
| (3) |
These standby letters of credit serve as collateral for the
Company’s self-insured workers compensation insurance. |
In June 1999, the Board of Directors authorized the Company to
spend up to $20.0 million to repurchase Common Stock.
Through January 29, 2005, the Company had repurchased an
aggregate of 1,342,400 shares for $9.3 million. The
Company made purchases of 224,100 shares totaling
$1,847,000 during fiscal 2004. The Company has authorization to
repurchase $10.7 million of Common Stock as of
January 29, 2005.
On January 27, 2005, the Company’s Board of Directors
declared a quarterly cash dividend of $0.03 per share to
shareholders of record on March 1, 2005, payable on
March 15, 2005. On March 16, 2005, the Company’s
Board of Directors declared a quarterly cash dividend of
$0.03 per share to shareholders of record on June 1,
2005, payable on June 15, 2005. The Company anticipates
paying regular, quarterly cash dividends in the future, subject
to the Company’s earnings, financial condition, capital
requirements, general economic and business conditions, and
other factors deemed relevant by the Board of Directors. The
Company’s credit facility was amended effective
June 18, 2003, to permit such dividends within certain
prescribed limitations.
25
From time to time the Company enters into certain types of
agreements that contingently require the Company to indemnify
parties against third-party claims. Generally, these agreements
relate to: (i) agreements with vendors and suppliers, under
which the Company may provide customary indemnification to its
vendors and suppliers in respect of actions they take at the
Company’s request or otherwise on its behalf; (ii) an
agreement with a private-label vendor to indemnify it against
trademark and copyright infringement claims concerning
merchandise it manufactures on behalf of the Company;
(iii) real estate leases, under which the Company may agree
to indemnify the landlords for claims arising from the
Company’s use of the property; and (iv) agreements
with the Company’s officers, directors and employees, under
which the Company may agree to indemnify such persons for
liabilities arising out of their relationship with the Company.
The Company’s Charter and By-laws also provide for the
indemnification of the Company’s directors, officers,
employees and agents to the fullest extent permitted by the
Tennessee Business Corporation Act. The Company has Directors
and Officers Liability Insurance, which, subject to the
policy’s conditions, provides coverage for indemnification
amounts payable by the Company with respect to its directors and
officers up to specified limits and subject to certain
deductibles.
The nature and terms of these types of indemnities vary. The
events or circumstances that would require the Company to
perform under these indemnities are transaction and circumstance
specific. Generally, a maximum obligation is not explicitly
stated. Because the obligated amounts of these types of
agreements often are not explicitly stated, the overall maximum
amount of the obligations cannot be reasonably estimated.
Historically, the Company has not incurred significant costs
related to performance under these types of indemnities. No
liabilities have been recorded for these obligations on the
Company’s balance sheet as of January 29, 2005.
The Company did not have any material off-balance sheet
arrangements as of January 29, 2005 or January 31,
2004.
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 anticipated cash flows from
operations, including credit terms from vendors and factors, and
the borrowings available under its credit facility will be
sufficient to meet the Company’s operating and capital
expenditure requirements. However, an adverse outcome from the
risks and uncertainties described in the section above
captioned, “Certain Factors That May Affect Future
Results,” could have a material adverse effect on working
capital or results of operations.
Operating activities provided cash of $39,180,000, $50,978,000
and $53,002,000 in fiscal 2004, 2003 and 2002, respectively, and
included the following effects:
|
|
|
| |
• |
Cash used for inventories in fiscal 2004, 2003 and 2002 was
$31,911,000, $18,703,000 and $52,000, respectively. Inventories
increased from fiscal 2003 to fiscal 2004, in part, to support
the increased number of stores as well as the rollout of a new
line in cosmetics and home stores. |
| |
| |
• |
Cash provided by accounts payable — trade was
$16,705,000 and $13,513,000 in fiscal 2004 and 2003,
respectively, as a result of higher inventory levels. Cash used
for accounts payable — trade in fiscal 2002 of
$9,165,000 was a result of a lower accounts payable to inventory
ratio for fiscal 2002. |
Cash flows used in investing activities reflected a $36,631,000,
$28,103,000 and $7,303,000 net use of cash for fiscal 2004,
2003 and 2002, respectively. Cash was used primarily to fund
capital expenditures for new, relocated and remodeled existing
stores, as well as for upgrading information technology, and for
general corporate purposes. The Company expects capital
expenditures to be approximately $62,000,000 ($22,000,000 is
allocated to new and existing stores, $15,000,000 for leasehold
improvements funded by tenant allowances, $14,000,000 allocated
to the purchase of new aircraft, with the remainder allocated to
general corporate purposes) in fiscal 2005. The Company
purchased the Duck Head trademarks and four related licenses
from TSI Brands Inc., and its parent corporation, Tropical
Sportswear Int’l Corporation during fiscal 2003 and total
acquisition costs were $4,103,000.
Cash flows used in financing activities reflected a net use of
cash of $3,968,000 in fiscal 2004, versus providing net cash of
$128,000 and $525,000 in fiscal 2003 and 2002, respectively. In
June 2003, the Company announced that its Board of Directors
declared a quarterly cash dividend of $0.02 per common
share. This was the first quarterly cash dividend declared by
the Company since becoming a public company in 1991. In June
2004, the Company increased its quarterly dividend to
$0.03 per common share. The Company’s cash payments
for dividends totaled $3,289,000 and $1,308,000 for fiscal 2004
and 2003, respectively. Proceeds from the issuance of common
stock resulting from the exercise of stock options were
$1,168,000, $1,436,000 and $525,000 for fiscal 2004, 2003 and
2002, respectively. The Company repurchased $1,847,000 of its
common stock during the third quarter of fiscal 2004.
26
|
|
|
New Accounting Pronouncements |
The Financial Accounting Standards Board (the “FASB”)
Interpretation No. 46 (“FIN No. 46R”),
“Consolidation of Variable Interest Entities,” was
issued in December 2003. This interpretation addresses when a
company should include in its financial statements the assets,
liabilities and activities of another entity. FIN No. 46R
replaces FIN No. 46, which was issued in January 2003.
FIN 46R provides an interpretation of Accounting Research
Bulletin No. 51, “Consolidation of Financial
Statements,” which addresses consolidation by business
enterprises of variable interest entities where equity investors
do not bear the residual economic risks and rewards. The
adoption of this interpretation did not have an impact on the
Company’s consolidated financial statements as the Company
does not have VIEs.
In December 2004, the FASB issued Statement No. 123
(revised 2004), “Share-Based Payment”
(“SFAS No. 123(R)”). This statement
established standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or
services. The major revision in this statement from the original
statement is that companies will now be required to recognize
compensation expense in its financial statements, typically over
the vesting period. This statement allows companies to apply
this standard on a modified prospective method. Under this
method, a company will be required to record compensation
expense for all awards or grants after the date it adopts this
standard and it will be required to record compensation expense
for previous awards as they continue to vest. The effective date
of this statement is as of the beginning of the first fiscal
year beginning after June 15, 2005. If the Company had been
required to adopt this statement for the fiscal year ended
January 29, 2005, it would have recognized approximately
$1,555,000 in compensation expense, or $976,000, net of related
tax effects. The Company expects that the adoption of this
statement in fiscal 2006 will have a material effect on its
consolidated statement of operations for fiscal 2006.
In November 2004, the FASB issued Statement No. 151,
“Inventory Costs” (“SFAS 151”).
SFAS 151 states that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current period charges.
The provisions of SFAS 151 will be effective for inventory
costs incurred during fiscal years beginning after June 15,
2005. The adoption of SFAS 151 is not expected to have a
material effect on the Company’s financial position or
results of operations.
In December 2004, the FASB issued Statement No. 153,
“Exchanges of Nonmonetary Assets” (an amendment of APB
Opinion No. 29) (“SFAS 153”). SFAS 153
eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29,
“Accounting for Nonmonetary Transactions,” and
replaces it with an exception for exchanges that do not have
commercial substance if future cash flows of the entity are
expected to change significantly as a result of the exchange.
SFAS 153 is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005.
The adoption of SFAS 153 is not expected to have a material
effect on the Company’s financial position or results of
operations.
In December 2004, the FASB issued FASB Staff Position
No. 109-1 (“FSP No. 109-1”). FSP 109-1
provides guidance on the application of FASB Statement
No. 109, “Accounting for Income Taxes”,
(“SFAS No. 109”), to the provision within
the American Jobs Creation Act of 2004 (“the Act”)
that provides a tax deduction on qualified production
activities. In accordance with FSP No. 109-1, a qualified
production activity deduction should be accounted for as a
special deduction in accordance with SFAS No. 109. The
effective date for FSP No. 109-1 was December 2004. The
adoption of FSP No. 109-1 did not have a material effect on
the Company’s financial position or results of operations.
In December 2004, the FASB issued FASB Staff Position
No. 109-2 (“FSP No. 109-2”). FSP 109-2
provides guidance on the application of FASB Statement
No. 109, “Accounting for Income Taxes”,
(“SFAS No. 109”) to the provision within the
American Jobs Creation Act of 2004 (“the Act”) that
provides for a one-time special tax deduction of 85% of certain
foreign earnings that are repatriated (as defined in the Act).
FSP No. 109-2 allows a Company time beyond the financial
reporting period of enactment to evaluate the effect of the Act
on its plan for reinvestment or repatriation of foreign earnings
for purposes of applying SFAS No. 109. The effective
date for FSP No. 109-2 was December 2004. The adoption of
FSP No. 109-2 did not have a material impact on the
Company’s financial position or results of operations.
27
|
|
| 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” and
“(a)(2) Financial Statement Schedule” of Item 15
hereof, which financial statements and schedule 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.
|
|
| ITEM 9A. |
Controls and Procedures |
As of the end of the period covered by this Form 10-K, the
Company carried out an evaluation, under the supervision and
with the participation of the Company’s management,
including the Company’s Chief Executive Officer, along with
the Company’s Chief Financial Officer and Chief Accounting
Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15. Based upon that evaluation, the
Company’s Chief Executive Officer, along with the
Company’s Chief Financial Officer and Chief Accounting
Officer, concluded that the Company’s disclosure controls
and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company’s
periodic SEC filings.
There were no changes in the Company’s internal controls
over financial reporting during the year ended January 29,
2005 that have materially affected, or are reasonably likely to
materially affect its internal controls over financial reporting.
In coming to the conclusion that the Company’s internal
control over financial reporting was effective as of
January 29, 2005, management considered, among other
things, the control deficiencies related to the accounting
treatment of rent holidays, normal tenant improvements,
construction costs, and sale-leaseback transactions in its
consolidated financial statements, which resulted in a
restatement of the Company’s previously issued consolidated
financial statements, as disclosed in Note 2 in the Notes
to Consolidated Financial Statements. After reviewing and
analyzing the Securities and Exchange Commission’s Staff
Accounting Bulletin (“SAB”) No. 99,
“Materiality,” Accounting Principles Board Opinion
No. 20, “Accounting Changes,” and Public Company
Accounting Oversight Board Auditing Standard No. 2,
“An Audit of Internal Control over Financial Reporting
Performed in Conjunction with an Audit of Financial
Statements,” and taking into consideration that the
restatement adjustments did not materially impact the
Company’s net earnings, diluted earnings per common share,
total cash flows, total assets, or shareholders’ equity,
management concluded that the control deficiencies that resulted
in this restatement of the previously issued consolidated
financial statements was not a material weakness. Following the
identification of these control deficiencies, management has
corrected its process for evaluating accounting for rent
holidays, normal tenant improvements, construction costs, and
sale-leaseback transactions by a more thorough review of
Financial Accounting Standards Board Technical Bulletin
No. 85-3, “Accounting for Operating Leases with
Scheduled Rent Increases,” Emerging Issues Task Force Issue
No. 97-10, “The Effect of Lessee Involvement in Asset
Construction,” and Statement of Financial Accounting
Standards No. 98, “Accounting for Leases.”
Management will continue to monitor developments in generally
accepted accounting principles and changes in the Company’s
business to reduce the risk of classification errors in the
consolidated financial statements.
Management’s Report on Internal Control over Financial
Reporting
The Company’s management is responsible for establishing
and maintaining adequate internal control over financial
reporting (as defined in Rules 13a-15(f) under the
Securities Exchange Act of 1934, as amended). The Company’s
management assessed the effectiveness of its internal control
over financial reporting as of January 29, 2005. In making
this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in Internal Control — Integrated
Framework. Management has concluded that, as of
January 29, 2005, its internal control over financial
reporting is effective based on these criteria.
28
Management’s assessment of the effectiveness of internal
control over financial reporting as of January 29, 2005,
has been audited by Deloitte & Touche LLP, the
independent registered public accounting firm who also audited
the Company’s consolidated financial statements, and their
opinion of management’s assessment is stated in their
report, which is included herein.
The Company’s management, including its Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer
does not expect that its disclosure controls and procedures or
its internal control over financial reporting will prevent all
error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within
Goody’s Family Clothing, Inc. have been detected.
April 15, 2005
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Goody’s Family Clothing, Inc.
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control Over
Financial Reporting, that Goody’s Family Clothing, Inc. and
subsidiaries (the “Company”) maintained effective
internal control over financial reporting as of January 29,
2005, based on criteria established in Internal
Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on management’s assessment and an opinion on the
effectiveness of the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, management’s assessment that the Company
maintained effective internal control over financial reporting
as of January 29, 2005, is fairly stated, in all material
respects, based on the criteria established in Internal
Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of January 29, 2005, based on the criteria
established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended January 29, 2005 of
the Company and our report dated April 15, 2005 expressed
an unqualified opinion on those financial statements and
financial statement schedule.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 15, 2005
30
PART III
|
|
| ITEM 9B. |
Other Information |
None.
|
|
| ITEM 10. |
Directors and Executive Officers of the Registrant |
The information required by this item is incorporated by
reference to information under the captions “Item 1.
Election of Directors — Biographies of Director
Nominees, Directors and Executive Officers,” and
“Item 1. Election of Directors —
Section 16(a) Beneficial Ownership Reporting
Compliance,” in the Registrant’s Proxy Statement for
the 2005 Annual Meeting of Shareholders currently scheduled to
be held on June 15, 2005.
|
|
| ITEM 11. |
Executive Compensation |
The information required by this item is incorporated by
reference to information under the caption “Item 1.
Election of Directors — Executive Compensation and
Other Information,” in the Registrant’s Proxy
Statement for the 2005 Annual Meeting of Shareholders currently
scheduled to be held on June 15, 2005.
|
|
| ITEM 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The information required by this item is incorporated by
reference to information under the caption “Item 1.
Election of Directors — Share Ownership,” in the
Registrant’s Proxy Statement for the 2005 Annual Meeting of
Shareholders currently scheduled to be held on June 15,
2005.
|
|
| ITEM 13. |
Certain Relationships and Related Transactions |
The information required by this item is incorporated by
reference to information under the caption “Item 1.
Election of Directors — Certain Transactions with
Directors and Officers,” in the Registrant’s Proxy
Statement for the 2005 Annual Meeting of Shareholders currently
scheduled to be held on June 15, 2005.
|
|
| ITEM 14. |
Principal Accounting Fees and Services |
The information required by this item is incorporated by
reference to information under the caption “Auditors,”
in the Registrant’s Proxy Statement for the 2005 Annual
Meeting of Shareholders currently scheduled to be held on
June 15, 2005.
31
PART IV
|
|
| ITEM 15. |
Exhibits and Financial Statement Schedules |
(a)(1) Consolidated Financial Statements
The following consolidated financial statements of Goody’s
and the Report of Independent Registered Public Accounting Firm
thereon are included in Item 8 above:
|
|
|
| |
• |
Report of Independent Registered Public Accounting Firm. |
| |
| |
• |
Consolidated Statements of Operations for each of the three
fiscal years in the period ended January 29, 2005. |
| |
| |
• |
Consolidated Balance Sheets as of January 29, 2005 and
January 31, 2004. |
| |
| |
• |
Consolidated Statements of Cash Flows for each of the three
fiscal years in the period ended January 29, 2005. |
| |
| |
• |
Consolidated Statements of Shareholders’ Equity for each of
the three fiscal years in the period ended January 29, 2005. |
| |
| |
• |
Notes to Consolidated Financial Statements for each of the three
fiscal years in the period ended January 29, 2005. |
(a)(2) Financial Statement Schedule
32
(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 |
| |
|
|
|
|
|
|
| |
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 |
| |
10.34 |
|
|
|
d |
|
|
— |
|
Goody’s Family Clothing, Inc. Employee Payroll Investment
Plan* |
| |
10.36 |
|
|
|
e |
|
|
— |
|
Indemnification agreement between the Registrant and Robert M.
Goodfriend* |
| |
10.39 |
|
|
|
e |
|
|
— |
|
Indemnification agreement between the Registrant and Samuel J.
Furrow* |
| |
10.40 |
|
|
|
e |
|
|
— |
|
Indemnification agreement between the Registrant and Robert F.
Koppel* |
| |
10.41 |
|
|
|
e |
|
|
— |
|
Indemnification agreement between the Registrant and Cheryl L.
Turnbull* |
| |
10.44 |
|
|
|
f |
|
|
— |
|
Indemnification agreement between the Registrant and Irwin L.
Lowenstein* |
| |
10.50 |
|
|
|
g |
|
|
— |
|
Amendment to the Goody’s Family Clothing, Inc. Employee
Payroll Investment Plan* |
| |
10.53 |
|
|
|
h |
|
|
— |
|
Employment agreement between the Registrant and Edward R. Carlin
dated May 20, 1998* |
| |
10.55 |
|
|
|
h |
|
|
— |
|
Employment agreement between the Registrant and David R. Mullins
dated May 20, 1998* |
| |
10.56 |
|
|
|
i |
|
|
— |
|
Employment agreement between the Registrant and Bruce E.
Halverson dated May 20, 1998* |
| |
10.59 |
|
|
|
i |
|
|
— |
|
Employment agreement between the Registrant and Jay D. Scussel
dated May 20, 1998* |
| |
10.61 |
|
|
|
i |
|
|
— |
|
Employment agreement between the Registrant and Bobby Whaley
dated May 20, 1998* |
| |
10.72 |
|
|
|
l |
|
|
— |
|
Split-Dollar Life Insurance Agreement between the Registrant,
Robert and Wendy Goodfriend Irrevocable Trust, and Robert M.
Goodfriend* |
| |
10.79 |
|
|
|
n |
|
|
— |
|
Goody’s Family Clothing, Inc. Amended and Restated 1991
Stock Incentive Plan* |
| |
10.80 |
|
|
|
n |
|
|
— |
|
Goody’s Family Clothing, Inc. Amended and Restated 1993
Stock Option Plan* |
| |
10.81 |
|
|
|
n |
|
|
— |
|
Goody’s Family Clothing, Inc. Amended and Restated 1997
Stock Option Plan* |
| |
10.82 |
|
|
|
n |
|
|
— |
|
Goody’s Family Clothing, Inc. Amended and Restated
Discounted Stock Option Plan for Directors* |
| |
10.83 |
|
|
|
n |
|
|
— |
|
Employment agreement between the Registrant and John A. Payne
dated July 18, 2000* |
| |
10.85 |
|
|
|
o |
|
|
— |
|
Employment agreement between the Registrant and Max W. Jones
dated July 31, 2000* |
| |
10.86 |
|
|
|
o |
|
|
— |
|
Fourth Amendment Agreement dated September 30, 2000 between
the Registrant, Goody’s MS, L.P. and Goody’s IN, L.P.,
GFCTX, L.P., GFCTN, L.P., GFCGA, L.P. and GFCFS, LLC, TREBOR of
TN, Inc., SYDOOG, Inc. and GOFAMCLO, Inc. and the Lenders as
identified therein and First Tennessee Bank National Association
as Administrative Agent |
| |
10.88 |
|
|
|
p |
|
|
— |
|
Employment agreement between the Registrant and David G. Peek
dated February 5, 2001* |
| |
10.90 |
|
|
|
q |
|
|
— |
|
Loan and Security Agreement dated as of May 31, 2001 among
Goody’s Family Clothing, Inc., Sydoog, Inc., Trebor of TN,
Inc., GOFAMCLO, Inc., GFCFS, LLC, Goody’s MS, L.P.,
Goody’s IN, L.P., GFCTX, L.P., GFCTN, L.P., and GFCGA, L.P.
and the financial institutions party hereto from time to time,
The CIT Group/Business Credit, Inc., and GMAC Commercial Credit
LLC |
| |
10.91 |
|
|
|
r |
|
|
— |
|
First Amendment To Loan and Security Agreement, effective as of
August 29, 2001, by and among Goody’s Family Clothing,
Inc. and the other borrowers, the financial institutions party
to the Loan Agreement from time to time, and The CIT
Group/Business Credit Inc. |
| |
10.93 |
|
|
|
r |
|
|
— |
|
Dedicated Service Agreement between the Registrant and Landair
Transport, Inc. dated April 22, 2002 |
| |
10.96 |
|
|
|
t |
|
|
— |
|
Employment agreement between the Registrant and Hazel A. Moxim
dated January 29, 2003* |
| |
10.97 |
|
|
|
t |
|
|
— |
|
Employment agreement between the Registrant and Robert S.
Gobrecht dated January 29, 2003* |
33
| |
|
|
|
|
|
|
|
|
|
|
| Exhibit | |
|
|
|
|
|
|
| No. | |
|
Ref. | |
|
|
|
Description |
| | |
|
| |
|
|
|
|
| |
10.99 |
|
|
|
u |
|
|
— |
|
Second Amendment To Loan and Security Agreement effective as of
June 18, 2003, by and among Goody’s Family Clothing,
Inc. and the other borrowers, the financial institutions party
to the Loan Agreement from time to time, and The CIT
Group/Business Credit, Inc. |
| |
10.100 |
|
|
|
v |
|
|
— |
|
Employment agreement between the Registrant and Regis J.
Hebbeler dated January 28, 2004* |
| |
10.101 |
|
|
|
v |
|
|
— |
|
Third Amendment To Loan and Security Agreement effective as of
December 31, 2003, by and among Goody’s Family
Clothing, Inc. and the other borrowers, the financial
institutions party to the Loan Agreement from time to time, and
The CIT Group/Business Credit, Inc. |
| |
10.102 |
|
|
|
w |
|
|
— |
|
Employment agreement between the Registrant and Carmen Monaco
dated February 9, 2004* |
| |
10.103 |
|
|
|
x |
|
|
— |
|
Employment agreement between the Registrant and Devin Keil dated
July 12, 2004* |
| |
10.104 |
|
|
|
|
|
|
— |
|
Employment agreement between the Registrant and Frederick J.
Mershad, effective January 3, 2005* |
| |
21 |
|
|
|
|
|
|
— |
|
Subsidiaries of the Registrant |
| |
23 |
|
|
|
|
|
|
— |
|
Consent of Independent Registered Public Accounting Firm |
| |
31.1 |
|
|
|
|
|
|
— |
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
| |
31.2 |
|
|
|
|
|
|
— |
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
| |
31.3 |
|
|
|
|
|
|
— |
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
| |
32.1 |
|
|
|
|
|
|
— |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
| |
32.2 |
|
|
|
|
|
|
— |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
| |
32.3 |
|
|
|
|
|
|
— |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
|
|
| * |
The indicated exhibit is a management contract or compensatory
plan or arrangement. |
| 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 4 in
Registrant’s Registration Statement on Form S-8
(Registration No. 333-00052) originally filed on
January 4, 1996. |
| e |
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). |
| f |
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). |
| g |
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). |
| h |
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). |
| i |
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). |
| j |
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). |
| 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 31, 1999 (File No. 019526). |
| l |
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). |
| m |
Incorporated herein by reference to exhibit of the same number
in Registrant’s Annual Report on Form 10-K for the
year ended January 29, 2000 (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 July 29, 2000 (File No. 019526). |
| o |
Incorporated herein by reference to exhibit of the same number
in Registrant’s Quarterly Report on Form 10-Q for the
quarter ended October 28, 2000 (File No. 019526). |
| p |
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, 2001 (File No. 019526). |
| q |
Incorporated herein by reference to exhibit of the same number
in Registrant’s Annual Report on Form 8-K/ A dated
July 3, 2001 (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 August 3, 2002 (File No. 019526). |
34
|
|
| s |
Incorporated herein by reference to exhibit of the same number
in Registrant’s Quarterly Report on Form 10-Q for the
quarter ended November 2, 2002 (File No. 019526). |
| t |
Incorporated herein by reference to exhibit of the same number
in Registrant’s Annual Report on Form 10-K for the
year ended February 2, 2002 (File No. 019526). |
| u |
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, 2003 (File No. 019526). |
| v |
Incorporated herein by reference to exhibit of the same number
in Registrant’s Annual Report on Form 10-K for the
year ended January 31, 2004 (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 May 1, 2004 (File No. 019526). |
| x |
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, 2004 (File No. 019526). |
35
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 15, 2005
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
Robert
M. Goodfriend |
|
Chairman of the Board and Chief Executive Officer
|
|
April 15, 2005 |
| |
|
By: |
|
/s/ EDWARD R. CARLIN
Edward
R. Carlin |
|
Executive Vice President, Chief Financial Officer and Secretary
(Principal Financial Officer)
|
|
April 15, 2005 |
| |
|
By: |
|
/s/ DAVID G. PEEK
David
G. Peek |
|
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
April 15, 2005 |
| |
|
By: |
|
/s/ SAMUEL J. FURROW
Samuel
J. Furrow |
|
Director
|
|
April 15, 2005 |
| |
|
By: |
|
/s/ ROBERT F. KOPPEL
Robert
F. Koppel |
|
Director
|
|
April 15, 2005 |
| |
|
By: |
|
/s/ IRWIN L. LOWENSTEIN
Irwin
L. Lowenstein |
|
Director
|
|
April 15, 2005 |
| |
|
By: |
|
/s/ CHERYL L. TURNBULL
Cheryl
L. Turnbull |
|
Director
|
|
April 15, 2005 |
36
GOODY’S FAMILY CLOTHING, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
Report of Independent Registered Public Accounting
Firm — Financial Statements
|
|
|
F-2 |
|
|
Consolidated Statements of Operations for each of the three
fiscal years in the period ended January 29, 2005
|
|
|
F-3 |
|
|
Consolidated Balance Sheets as of January 29, 2005 and
January 31, 2004
|
|
|
F-4 |
|
|
Consolidated Statements of Cash Flows for each of the three
fiscal years in the period ended January 29, 2005
|
|
|
F-5 |
|
|
Consolidated Statements of Shareholders’ Equity for each of
the three fiscal years in the period ended January 29, 2005
|
|
|
F-6 |
|
|
Notes to Consolidated Financial Statements for each of the three
fiscal years in the period ended January 29, 2005
|
|
|
F-7 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 (“the
Company”) as of January 29, 2005 and January 31,
2004, 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, 2005. Our
audits also included the financial statement schedule listed in
the Index at Item 15. These financial statements and
financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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 and
financial statement schedule present fairly, in all material
respects, the financial position of Goody’s Family
Clothing, Inc. and subsidiaries as of January 29, 2005 and
January 31, 2004, and the results of their operations and
their cash flows for each of the three fiscal years in the
period ended January 29, 2005, in conformity with
accounting principles generally accepted in the United States of
America.
As discussed in Note 2, the accompanying balance sheets as
of January 31, 2004 and the related consolidated statements
of operations, shareholders’ equity, and cash flows for
each of the two fiscal years in the period ended
January 31, 2004 have been restated.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Company’s internal control over
financial reporting as of January 29, 2005, based on the
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated April 15, 2005
expressed an unqualified opinion on management’s assessment
of the effectiveness of the Company’s internal control over
financial reporting and an unqualified opinion on the
effectiveness of the Company’s internal control over
financial reporting.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 15, 2005
F-2
GOODY’S FAMILY CLOTHING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
|
|
2003 | |
|
2002 | |
| |
|
|
|
(As restated, | |
|
(As restated, | |
| |
|
2004 | |
|
see Note 2) | |
|
see Note 2) | |
| |
|
| |
|
| |
|
| |
| |
|
(52 weeks) | |
|
(52 weeks) | |
|
(52 weeks) | |
| |
|
(In thousands, except per share amounts) | |
|
Sales
|
|
$ |
1,266,993 |
|
|
$ |
1,227,032 |
|
|
$ |
1,193,405 |
|
|
Cost of sales and occupancy expenses
|
|
|
891,433 |
|
|
|
867,850 |
|
|
|
852,083 |
|
| |
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
375,560 |
|
|
|
359,182 |
|
|
|
341,322 |
|
|
Selling, general and administrative expenses
|
|
|
351,540 |
|
|
|
331,749 |
|
|
|
329,584 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
|
24,020 |
|
|
|
27,433 |
|
|
|
11,738 |
|
|
Investment income
|
|
|
1,058 |
|
|
|
716 |
|
|
|
624 |
|
|
Interest expense
|
|
|
134 |
|
|
|
17 |
|
|
|
24 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
24,944 |
|
|
|
28,132 |
|
|
|
12,338 |
|
|
Provision for income taxes
|
|
|
9,291 |
|
|
|
10,410 |
|
|
|
4,629 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Net earnings
|
|
$ |
15,653 |
|
|
$ |
17,722 |
|
|
$ |
7,709 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.48 |
|
|
$ |
0.54 |
|
|
$ |
0.24 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
0.46 |
|
|
$ |
0.53 |
|
|
$ |
0.23 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$ |
0.11 |
|
|
$ |
0.06 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
32,897 |
|
|
|
32,675 |
|
|
|
32,525 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
|
33,755 |
|
|
|
33,395 |
|
|
|
33,021 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-3
GOODY’S FAMILY CLOTHING, INC.
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
January 31, | |
| |
|
|
|
2004 | |
| |
|
January 29, | |
|
(As restated, | |
| |
|
2005 | |
|
see Note 2) | |
| |
|
| |
|
| |
| |
|
(Dollars in thousands) | |
|
ASSETS |
|
Current Assets
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
121,614 |
|
|
$ |
123,033 |
|
| |
Inventories
|
|
|
230,637 |
|
|
|
198,726 |
|
| |
Accounts receivable and other current assets
|
|
|
19,932 |
|
|
|
13,177 |
|
| |
|
|
|
|
|
|
| |
|
|
Total current assets
|
|
|
372,183 |
|
|
|
334,936 |
|
|
Property and equipment, net
|
|
|
126,229 |
|
|
|
115,564 |
|
|
Other assets
|
|
|
4,988 |
|
|
|
5,437 |
|
| |
|
|
|
|
|
|
| |
|
|
Total assets
|
|
$ |
503,400 |
|
|
$ |
455,937 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
Current Liabilities
|
|
|
|
|
|
|
|
|
| |
Accounts payable — trade
|
|
$ |
136,116 |
|
|
$ |
119,411 |
|
| |
Accounts payable — other
|
|
|
17,716 |
|
|
|
11,999 |
|
| |
Accrued expenses
|
|
|
46,413 |
|
|
|
46,361 |
|
| |
Current deferred income taxes
|
|
|
27,847 |
|
|
|
21,893 |
|
| |
|
|
|
|
|
|
| |
|
|
Total current liabilities
|
|
|
228,092 |
|
|
|
199,664 |
|
| |
Other long-term liabilities
|
|
|
26,032 |
|
|
|
18,263 |
|
| |
Deferred income taxes
|
|
|
10,375 |
|
|
|
11,066 |
|
| |
|
|
|
|
|
|
| |
|
|
Total liabilities
|
|
|
264,499 |
|
|
|
228,993 |
|
| |
|
|
|
|
|
|
|
Commitments and Contingencies (Notes 9 and 11)
|
|
|
|
|
|
|
|
|
|
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 — 32,842,019 and 32,841,706 shares,
respectively
|
|
|
34,619 |
|
|
|
34,697 |
|
|
Retained earnings
|
|
|
204,282 |
|
|
|
192,247 |
|
| |
|
|
|
|
|
|
| |
|
|
Total shareholders’ equity
|
|
|
238,901 |
|
|
|
226,944 |
|
| |
|
|
|
|
|
|
| |
|
|
Total liabilities and shareholders’ equity
|
|
$ |
503,400 |
|
|
$ |
455,937 |
|
| |
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-4
GOODY’S FAMILY CLOTHING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
|
|
2003 | |
|
2002 | |
| |
|
|
|
(As restated, | |
|
(As restated, | |
| |
|
2004 | |
|
see Note 2) | |
|
see Note 2) | |
| |
|
| |
|
| |
|
| |
| |
|
(52 weeks) | |
|
(52 weeks) | |
|
(52 weeks) | |
| |
|
(In thousands) | |
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net earnings
|
|
$ |
15,653 |
|
|
$ |
17,722 |
|
|
$ |
7,709 |
|
| |
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and amortization
|
|
|
24,495 |
|
|
|
23,095 |
|
|
|
23,978 |
|
| |
|
Net loss on asset sales, disposals and write-downs
|
|
|
1,068 |
|
|
|
409 |
|
|
|
4,034 |
|
| |
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Inventories
|
|
|
(31,911 |
) |
|
|
(18,703 |
) |
|
|
(52 |
) |
| |
|
|
Accounts payable — trade
|
|
|
16,705 |
|
|
|
13,513 |
|
|
|
(9,165 |
) |
| |
|
|
Accounts payable — other
|
|
|
5,717 |
|
|
|
(12,322 |
) |
|
|
5,273 |
|
| |
|
|
Other assets, liabilities and income tax accounts
|
|
|
7,453 |
|
|
|
27,264 |
|
|
|
21,225 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by operating activities
|
|
|
39,180 |
|
|
|
50,978 |
|
|
|
53,002 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Acquisitions of property and equipment
|
|
|
(37,480 |
) |
|
|
(24,316 |
) |
|
|
(7,662 |
) |
| |
Acquisition of intangible assets
|
|
|
— |
|
|
|
(4,103 |
) |
|
|
— |
|
| |
Proceeds from sale of property and equipment
|
|
|
849 |
|
|
|
316 |
|
|
|
359 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used in investing activities
|
|
|
(36,631 |
) |
|
|
(28,103 |
) |
|
|
(7,303 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Dividends paid to shareholders
|
|
|
(3,289 |
) |
|
|
(1,308 |
) |
|
|
— |
|
| |
Proceeds from exercise of stock options
|
|
|
1,168 |
|
|
|
1,436 |
|
|
|
525 |
|
| |
Shares repurchased and retired
|
|
|
(1,847 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(3,968 |
) |
|
|
128 |
|
|
|
525 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1,419 |
) |
|
|
23,003 |
|
|
|
46,224 |
|
|
Cash and cash equivalents, beginning of year
|
|
|
123,033 |
|
|
|
100,030 |
|
|
|
53,806 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$ |
121,614 |
|
|
$ |
123,033 |
|
|
$ |
100,030 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income tax payments (refunds)
|
|
$ |
7,170 |
|
|
$ |
1,372 |
|
|
$ |
(11,764 |
) |
| |
Interest payments
|
|
|
2 |
|
|
|
4 |
|
|
|
18 |
|
| |
Sale/leaseback of property and equipment
|
|
|
4,080 |
|
|
|
1,050 |
|
|
|
1,600 |
|
See accompanying notes to consolidated financial statements
F-5
GOODY’S FAMILY CLOTHING, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock | |
|
|
|
|
| |
|
| |
|
Retained | |
|
|
| |
|
Shares | |
|
Amount | |
|
Earnings | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Balance February 2, 2002 (as previously reported)
|
|
|
32,451 |
|
|
$ |
31,914 |
|
|
$ |
170,802 |
|
|
$ |
202,716 |
|
|
Cumulative adjustment (see Note 2)
|
|
|
— |
|
|
|
— |
|
|
|
(2,019 |
) |
|
|
(2,019 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance February 2, 2002 (as restated, see Note 2)
|
|
|
32,451 |
|
|
$ |
31,914 |
|
|
$ |
168,783 |
|
|
$ |
200,697 |
|
|
Net earnings (as restated, see Note 2)
|
|
|
— |
|
|
|
— |
|
|
|
7,709 |
|
|
|
7,709 |
|
|
Exercise of stock options
|
|
|
105 |
|
|
|
714 |
|
|
|
— |
|
|
|
714 |
|
|
Other
|
|
|
— |
|
|
|
127 |
|
|
|
— |
|
|
|
127 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance February 1, 2003 (as restated, see Note 2)
|
|
|
32,556 |
|
|
$ |
32,755 |
|
|
$ |
176,492 |
|
|
$ |
209,247 |
|
|
Net earnings (as restated, see Note 2)
|
|
|
— |
|
|
|
— |
|
|
|
17,722 |
|
|
|
17,722 |
|
|
Exercise of stock options
|
|
|
286 |
|
|
|
1,942 |
|
|
|
— |
|
|
|
1,942 |
|
|
Cash dividends declared
|
|
|
— |
|
|
|
— |
|
|
|
(1,967 |
) |
|
|
(1,967 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 31, 2004 (as restated, see Note 2)
|
|
|
32,842 |
|
|
$ |
34,697 |
|
|
$ |
192,247 |
|
|
$ |
226,944 |
|
|
Net earnings
|
|
|
— |
|
|
|
— |
|
|
|
15,653 |
|
|
|
15,653 |
|
|
Exercise of stock options
|
|
|
224 |
|
|
|
1,769 |
|
|
|
— |
|
|
|
1,769 |
|
|
Shares repurchased
|
|
|
(224 |
) |
|
|
(1,847 |
) |
|
|
— |
|
|
|
(1,847 |
) |
|
Cash dividends declared
|
|
|
— |
|
|
|
— |
|
|
|
(3,618 |
) |
|
|
(3,618 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 29, 2005
|
|
|
32,842 |
|
|
$ |
34,619 |
|
|
$ |
204,282 |
|
|
$ |
238,901 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-6
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended January 29, 2005, January 31, 2004 and
February 1, 2003
|
|
| 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 with 357 stores in 20 states (all under one
business segment) as of January 29, 2005.
Fiscal year end. The Company’s fiscal year ends on
the Saturday nearest the last day of January. Fiscal 2004, 2003
and 2002 refer to the Company’s fiscal years ended
January 29, 2005 (52 weeks), January 31, 2004
(52 weeks) and February 1, 2003 (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 accounting principles generally accepted in
the United States of America 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 an original maturity of less
than three months. The costs of these investments approximate
their fair market value.
Inventories. Inventories are stated at the lower of
weighted-average cost or market. Weighted-average cost is
computed utilizing specific identification at the stock-keeping
unit level multiplied by the weighted-average cost for such
stock-keeping unit.
Lower of cost or market (“LCM”) reserves are
maintained for inventory that may be sold below cost. In
determining this reserve, the Company estimates the future
selling price of its merchandise, given its current selling
price and its planned promotional activities, and provides a
reserve for the difference between cost and the expected selling
price for all items expected to be sold below cost.
The Company conducts a chain wide physical inventory count near
the end of each fiscal year and adjusts the Company’s
records to reflect the actual inventory counts. For interim
financial reporting quarters, the Company provides a reserve for
shrinkage based principally on historical shrinkage experience.
Property and equipment. Property and equipment is 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. Each fiscal quarter the
Company reviews all of its operations for indications of
impairment in accordance with Statement of Financial Accounting
Standards No. 144 (“SFAS 144”),
“Accounting for the Impairment or Disposal of Long-Lived
Assets.” Primarily, such indications consist of stores with
deteriorating operating results and stores under watch for
possible closure or relocation. Impairment review for the
corporate office, distribution centers and any other assets
would be considered if overall Company operations deteriorated,
or were expected to deteriorate, over a sustained period of
time. Should this occur, the Company would consider whether the
office, distribution centers and any other assets are impaired.
Where impairment indicators are present, related store
long-lived assets are measured under the Company’s
accounting policy for impairment. 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). The lowest
level at which future cash flows can be identified is at the
individual store level. The individual store’s estimated
future cash flows are based on the Company’s estimated
future results given perceived local market conditions, the
local economy and historical results. If the
F-7
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
individual store’s estimated future cash flows used in this
analysis are less than the carrying amount of the asset,
impairment is indicated. The impairment loss would then be
recorded and is generally measured as the excess of the carrying
amount of the asset over the asset’s estimated fair value
(generally based upon future discounted cash flows). In
addition, a decision to close a store, prior to the expiration
of its underlying lease, generally results in increased
depreciation and amortization over the remaining revised useful
life of property and equipment, an impairment charge, or both.
Revenue recognition. The Company recognizes revenue from
the sale of merchandise at the time merchandise is sold and the
customer takes delivery. At each period end, an estimate of
sales returns is recorded. Royalties from license fees are
recognized as revenue in the period they are earned. Revenue
recognized from gift certificate, gift card and in-store credit
forfeitures is based upon an expected forfeiture rate determined
from historical trends.
Vendor allowances. The Company receives allowances from
its vendors from a variety of programs and arrangements,
including margin assistance programs and co-operative
advertising and fixturing programs. Margin assistance
reimbursements are credited to cost of goods sold during the
period in which the related product was sold. Co-operative
advertising allowances are reported as a reduction of
advertising expense in the period in which the advertising
occurs.
Cost of Goods Sold. In addition to the product cost of
merchandise sold, the Company includes inbound freight to its
distribution centers, shrinkage expense, lower of cost or market
inventory expense, transaction fees related to private-label
credit cards, and occupancy costs in its cost of goods sold.
Selling, General & Administrative Expenses.
Corporate and store salaries, advertising, purchasing,
distribution costs (including receiving, inspection,
warehousing, freight expense related to shipments from
distribution centers to stores and intra-store transfers),
depreciation, and other general expenses are included in
selling, general and administrative expenses. Distribution
expenses were $22,415,000, $20,984,000 and $21,383,000 for
fiscal 2004, 2003 and 2002, respectively.
Advertising. For annual financial reporting purposes, the
Company expenses all advertising expenditures as incurred. For
interim financial reporting purposes, the Company expenses
advertising expenditures in the period when the advertisement
first runs. Advertising expenses, net of vendor reimbursements,
were $77,309,000, $72,533,000 and $69,477,000 for fiscal 2004,
2003 and 2002, respectively.
Store opening costs. New and relocated store opening
costs are charged directly to expense when incurred.
Store closing costs. Through December 31, 2002, in
accordance with Emerging Issues Task Force Issue No. 94-3
(“EITF 94-3”), “Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring),” when the Company decided 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 obligations, were charged to expense.
Effective January 1, 2003, upon adoption of Statement of
Financial Accounting Standards No. 146, “Accounting
for Costs Associated with Exit and Disposal Activities,”
these estimated unrecoverable costs are charged to expense upon
store closure.
The Company believes that a store is a component under
SFAS 144. Therefore, a store closure would result in the
reporting of a discontinued operation unless the operations and
cash flows from the closed store could be absorbed in some part
by surrounding Company store(s) within the same market area or
if the store’s results were immaterial for disclosure.
Management evaluates certain factors in determining whether a
closed store’s operations could be absorbed by a
surrounding store(s); the primary factor considered is the
distance to the next closest Goody’s store. The Company
does not believe any of the stores closed during the three
fiscal years presented, when considered either individually or
in the aggregate, met the conditions for disclosure as
discontinued operations.
Operating Leases. The Company leases all of its store
locations and certain storage facilities under operating leases.
Most lease agreements contain rent holidays, rent escalation
clauses, and contingent rent provisions based on predetermined
sales levels. The Company generally records minimum rental
expenses on a straight-line basis from the time the Company
takes possession of the leased space for initial setup purposes
to
F-8
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the last day of the initial lease term. Minimum rental payments
include the aggregate of all rental payments scheduled to be
made to the landlord over the initial term of the lease,
excluding contingent rents based on sales.
Certain leases contain contingent rent provisions, which are
determined as a percentage of gross sales in excess of specified
levels. The Company records a rent liability in “Accrued
expenses” on the consolidated balance sheets and the
corresponding rent expense on the consolidated income statements
when specified levels have been achieved or when management
determines that achieving the specified levels during the fiscal
year is probable.
Occasionally, the Company will enter into lease agreements that
require it to complete certain normal tenant improvements of the
leased space. The Company capitalizes expenditures made for
normal tenant improvements in “property and equipment,
net,” on its consolidated balance sheets and depreciates
the assets over the lesser of the useful lives of the assets or
the related lease terms. The receipt of tenant improvement
allowances are recorded as “other long-term
liabilities,” and the liability is amortized as a reduction
of occupancy expense in the “cost of sales and occupancy
expenses” on its consolidated statements of operations.
Furthermore, based on guidance provided by Emerging Issues Task
Force Issue No. 97-10, “The Effect of Lessee
Involvement in Asset Construction,” the Company is
sometimes deemed to be the owner of the construction project
during the construction period. Lease costs, including holiday
rent during the construction period, are capitalized as part of
the construction project. At the end of the construction phase
of the project, the Company determines if the lease agreement
with the landlord qualifies under the provisions of Statement of
Financial Accounting Standards No. 98, “Accounting for
Leases,” for sale-leaseback accounting treatment. If the
Company determines that sale-leaseback treatment is appropriate,
then the Company records a sale of the property to the landlord.
If sale-leaseback accounting treatment does not apply, then the
assets remain in “property and equipment, net,” and
are depreciated over the term of the lease, while the proceeds
from the landlord are recorded in “other long-term
liabilities,” and amortized over the term of the lease.
For rent holidays, the Company records a deferred rent liability
in “Accrued expenses” and “Other long-term
liabilities” on the consolidated balance sheets and
amortizes the deferred rent on a straight-line basis over the
term of the lease as reductions to rent expense on the
consolidated statements of operations in “Cost of sales and
occupancy expenses.”
Insurance. The Company is self-insured for workers’
compensation, employee 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 loss development factors provided by standard
insurance industry actuarial assumptions and the Company’s
historical claims experience. Loss estimates are adjusted based
upon actual claim settlements and reported claims.
Income taxes. The Company determines its income tax
provision based on a combination of applicable federal and state
tax rates. 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 on enacted tax laws and statutory tax rates
applicable to the future years that the differences are expected
to affect taxable income.
Earnings per common share. Basic earnings per common
share are computed by dividing net earnings by the
weighted-average number of common shares outstanding during the
period. Diluted earnings per common share are 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 and
amounted to 858,000, 720,000 and 496,000 shares for fiscal
2004, 2003 and 2002, respectively. Stock options to
purchase 986,000, 932,000 and 930,000 shares of the
Company’s common stock (“Common Stock”) in fiscal
2004, 2003 and 2002, respectively, were excluded from the
computation of weighted-average diluted shares outstanding
because they would have been antidilutive.
Stock-Based Compensation. At January 29, 2005, the
Company had four stock option plans that are described more
fully in Note 7. The Company accounts for those plans under
the recognition and measurement principles of APB Opinion
No. 25, “Accounting for Stock Issued to
Employees,” and related Interpretations. No stock-based
employee compensation cost is reflected in net income, as all
options granted
F-9
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant.
However, expense is recorded in connection with stock options
issued under the Directors’ Plan to non-employee directors
and this expense has been immaterial. The following table
illustrates the effect on net earnings and earnings per common
share if the Company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards
No. 148 (“SFAS 148”), “Accounting for
Stock-Based Compensation — Transaction and
Disclosure — an Amendment of FASB Statement
No. 123,” to stock-based employee compensation (in
thousands, except per share amounts):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net earnings, as reported
|
|
$ |
15,653 |
|
|
$ |
17,722 |
|
|
$ |
7,709 |
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value based-method for all awards, net of
related tax effects
|
|
|
(976 |
) |
|
|
(703 |
) |
|
|
(1,341 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings
|
|
$ |
14,677 |
|
|
$ |
17,019 |
|
|
$ |
6,368 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic — as reported
|
|
$ |
0.48 |
|
|
$ |
0.54 |
|
|
$ |
0.24 |
|
| |
Basic — pro forma
|
|
|
0.45 |
|
|
|
0.52 |
|
|
|
0.20 |
|
| |
Diluted — as reported
|
|
|
0.46 |
|
|
|
0.53 |
|
|
|
0.23 |
|
| |
Diluted — pro forma
|
|
|
0.43 |
|
|
|
0.51 |
|
|
|
0.19 |
|
The fair value of the options granted under the Company’s
various stock option plans during fiscal 2004, 2003 and 2002 was
estimated on their date of grant using the Black-Scholes single
option-pricing model with the following assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Dividend yield
|
|
|
1.2 |
% |
|
|
1.0 |
% |
|
|
0.0 |
% |
|
Expected volatility
|
|
|
68 |
% |
|
|
70 |
% |
|
|
71 |
% |
|
Risk free interest rates
|
|
|
3.9 |
% |
|
|
3.8 |
% |
|
|
3.6 |
% |
|
Weighted-average expected lives, in years
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
Weighted-average fair value of options granted
|
|
$ |
6.18 |
|
|
$ |
4.79 |
|
|
$ |
3.66 |
|
Contingencies. As discussed in Note 11 to these
consolidated financial statements, the Company is involved in
various legal proceedings and contingencies. The Company has
recorded liabilities for these matters in accordance with
Statement of Financial Accounting Standards No. 5,
“Accounting for Contingencies”
(“SFAS 5”). SFAS 5 requires the Company to
accrue an estimated loss when the likelihood that the future
event or events will confirm the loss or the incurrence of a
liability is probable and the amount of loss can be reasonably
estimated. The actual resolution of these contingencies may
differ from the Company’s estimates. If a contingency is
settled for an amount greater than the estimate, a future charge
to income would result. Likewise, if a contingency is settled
for an amount that is less than the estimate, a future credit to
income would result.
New Accounting Pronouncements. The Financial Accounting
Standards Board (the “FASB”) Interpretation
No. 46 (“FIN No. 46R”), “Consolidation
of Variable Interest Entities,” was issued in December
2003. This interpretation addresses when a company should
include in its financial statements the assets, liabilities and
activities of another entity. FIN No. 46R replaces FIN
No. 46, which was issued in January 2003. FIN 46R
provides an interpretation of Accounting Research Bulletin
No. 51 “Consolidation of Financial Statements,”
which addresses consolidation by business enterprises of
variable interest entities where equity investors do not bear
the residual economic risks and rewards. The adoption of this
interpretation did not have an impact on the Company’s
consolidated financial statements as the Company does not have
VIEs.
In December 2004, the FASB issued Statement No. 123
(revised 2004), “Share-Based Payment,”
(“SFAS No. 123(R)”). This statement
established standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or
services. The major revision in this statement from the
F-10
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
original statement is that companies will now be required to
recognize compensation expense in its financial statements,
typically over the vesting period. This statement allows that
companies to apply this standard on a modified prospective
method. Under this method, a company will be required to record
compensation expense for all awards or grants after the date it
adopts this standard and it will be required to record
compensation expense for previous awards as they continue to
vest. The effective date of this statement is as of the
beginning of the first fiscal year beginning after June 15,
2005. If the Company had been required to adopt this statement
for the fiscal year ended January 29, 2005, it would have
recognized approximately $1,555,000 in compensation expense, or
$976,000, net of related tax effects. The Company expects that
the adoption of this statement in fiscal 2006 will have a
material effect on its statement of operations for fiscal 2006.
In November 2004, the FASB issued Statement No. 151,
“Inventory Costs” (“SFAS 151”).
SFAS 151 states that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current period charges.
The provisions of SFAS 151 will be effective for inventory
costs incurred during fiscal years beginning after June 15,
2005. The adoption of SFAS 151 is not expected to have a
material effect on the Company’s financial position or
results of operations.
In December 2004, the FASB issued Statement No. 153
(“SFAS 153”), “Exchanges of Nonmonetary
Assets” (amendment of APB Opinion No. 29).
SFAS 153 eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive
assets in paragraph 21(b) of APB Opinion No. 29,
“Accounting for Nonmonetary Transactions,” and
replaces it with an exception for exchanges that do not have
commercial substance if future cash flows of the entity are
expected to change significantly as a result of the exchange.
SFAS 153 is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005.
The adoption of SFAS 153 is not expected to have a material
effect on the Company’s financial position or results of
operations.
In December 2004, the FASB issued Staff Position No. 109-1
(“FSP No. 109-1”). FSP 109-1 provides guidance on
the application of Statement No. 109, “Accounting for
Income Taxes,” (“SFAS No. 109”), to the
provision within the American Jobs Creation Act of 2004
(“the Act”) that provides a tax deduction on qualified
production activities. In accordance with FSP No. 109-1, a
qualified production activity deduction should be accounted for
as a special deduction in accordance with
SFAS No. 109. The effective date for FSP
No. 109-1 was December 2004. The adoption of FSP
No. 109-1 did not have a material effect on the
Company’s financial position or results of operations.
In December 2004, the FASB issued Staff Position No. 109-2
(“FSP No. 109-2”). FSP 109-2 provides guidance on
the application of Statement No. 109, “Accounting for
Income Taxes,” (“SFAS No. 109”) to the
provision within the American Jobs Creation Act of 2004
(“the Act”) that provides for a one time special tax
deduction of 85% of certain foreign earnings that are
repatriated (as defined in the Act). FSP No. 109-2 allows a
Company time beyond the financial reporting period of enactment
to evaluate the effect of the Act on its plan for reinvestment
or repatriation of foreign earnings for purposes of applying
SFAS No. 109. The effective date for FSP
No. 109-2 was December 2004. The adoption of FSP
No. 109-2 did not have a material impact on the
Company’s financial position or results of operations.
Reclassifications. Certain reclassifications have been
made to the consolidated financial statements of prior years to
conform to the current year’s presentation.
Subsequent to the issuance of the Company’s financial
statements for the year ended January 31, 2004, Company
management initiated a review of its lease accounting principles
and determined that its previous method of accounting for rent
holidays, tenant improvement allowances and construction costs
was not in accordance with generally accepted accounting
principles. As a result, the Company has restated its
consolidated balance sheet for the fiscal year ended
January 31, 2004, and its consolidated statements of
operations and cash flows for the fiscal years ended
January 31, 2004 and February 1, 2003. The impact of
this error on prior periods not presented is shown as an
adjustment to beginning retained earnings as of February 2,
2002 of $2,019,000.
Historically, the Company recorded rent expense in connection
with rent holiday periods on a straight-line basis over the
lease term commencing with the opening date for its new and
relocated store locations.
F-11
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Management re-evaluated FASB Technical
Bulletin No. 85-3, “Accounting for Operating
Leases with Scheduled Rent Increases,” and determined that
for calculating rent expense, the holiday period begins on the
date the Company takes possession of the leased space, which for
the Company is generally three weeks prior to a store opening
date.
Furthermore, the Company historically recorded tenant
improvement allowances as a reduction of capital expenditures in
property and equipment. The Company now capitalizes expenditures
made for normal tenant improvements in “property and
equipment, net,” on its consolidated balance sheets and
depreciates the assets over the lease term. The receipt of
tenant improvement allowances are now recorded as “other
long-term liabilities,” and the liability is amortized as a
reduction of occupancy expense in “cost of sales and
occupancy expenses” on its consolidated statements of
operations. Finally, tenant improvement allowances have been
reclassified in the consolidated statements of cash flows by
increasing “acquisitions of property and equipment” in
cash used in investing activities and increasing “other
assets, liabilities and income tax accounts” in cash
provided by operating activities.
Finally, management re-evaluated Emerging Issues Task Force
Issue No. 97-10, “The Effect of Lessee Involvement in
Asset Construction,” as it relates to ownership of the
construction project and determined that the Company is
sometimes deemed to be the owner of the construction project
during the construction period. In addition, management
re-evaluated Statement of Financial Accounting Standards
No. 98, “Accounting for Leases,” for
sale-leaseback accounting treatment of construction projects and
determined that when sale-leaseback accounting treatment is
appropriate, the Company records a sale of the property to the
landlord. If sale-leaseback accounting treatment does not apply,
then the assets remain in “property and equipment,
net,” and are depreciated over the term of the lease, while
the proceeds from the landlord are recorded in “other
long-term liabilities,” and amortized over the term of the
lease.
The following is a summary of the effects of the restatement on
the Company’s consolidated financial statements (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Consolidated Statements of Operations | |
| |
|
| |
| |
|
As Previously | |
|
|
| |
|
Reported | |
|
Adjustments | |
|
As Restated | |
| |
|
| |
|
| |
|
| |
|
Fiscal year ended January 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of sales and occupancy expenses
|
|
$ |
869,382 |
|
|
$ |
(1,532 |
) |
|
$ |
867,850 |
|
| |
Gross profit
|
|
|
357,650 |
|
|
|
1,532 |
|
|
|
359,182 |
|
| |
Selling, general and administrative expenses
|
|
|
330,316 |
|
|
|
1,433 |
|
|
|
331,749 |
|
| |
Earnings from operations
|
|
|
27,334 |
|
|
|
99 |
|
|
|
27,433 |
|
| |
Earnings before income taxes
|
|
|
28,033 |
|
|
|
99 |
|
|
|
28,132 |
|
| |
Provision for income taxes
|
|
|
10,372 |
|
|
|
38 |
|
|
|
10,410 |
|
| |
Net earnings
|
|
|
17,661 |
|
|
|
61 |
|
|
|
17,722 |
|
|
Fiscal year ended February 1, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of sales and occupancy expenses
|
|
|
853,583 |
|
|
|
(1,500 |
) |
|
|
852,083 |
|
| |
Gross profit
|
|
|
339,822 |
|
|
|
1,500 |
|
|
|
341,322 |
|
| |
Selling, general and administrative expenses
|
|
|
328,301 |
|
|
|
1,283 |
|
|
|
329,584 |
|
| |
Earnings from operations
|
|
|
11,521 |
|
|
|
217 |
|
|
|
11,738 |
|
| |
Earnings before income taxes
|
|
|
12,121 |
|
|
|
217 |
|
|
|
12,338 |
|
| |
Provision for income taxes
|
|
|
4,545 |
|
|
|
84 |
|
|
|
4,629 |
|
| |
Net earnings
|
|
|
7,576 |
|
|
|
133 |
|
|
|
7,709 |
|
F-12
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Consolidated Balance Sheet | |
| |
|
| |
| |
|
As Previously | |
|
|
| |
|
Reported | |
|
Adjustments | |
|
As Restated | |
| |
|
| |
|
| |
|
| |
|
As of January 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Property and equipment, net
|
|
$ |
106,968 |
|
|
$ |
8,596 |
|
|
$ |
115,564 |
|
| |
Total assets
|
|
|
447,341 |
|
|
|
8,596 |
|
|
|
455,937 |
|
| |
Accrued expenses
|
|
|
46,095 |
|
|
|
266 |
|
|
|
46,361 |
|
| |
Current deferred income taxes
|
|
|
21,909 |
|
|
|
(16 |
) |
|
|
21,893 |
|
| |
Total current liabilities
|
|
|
199,414 |
|
|
|
250 |
|
|
|
199,664 |
|
| |
Other long-term liabilities
|
|
|
6,945 |
|
|
|
11,318 |
|
|
|
18,263 |
|
| |
Deferred income taxes
|
|
|
12,212 |
|
|
|
(1,146 |
) |
|
|
11,066 |
|
| |
Total liabilities
|
|
|
218,571 |
|
|
|
10,422 |
|
|
|
228,993 |
|
| |
Retained earnings
|
|
|
194,073 |
|
|
|
(1,826 |
) |
|
|
192,247 |
|
| |
Total shareholders’ equity
|
|
|
228,770 |
|
|
|
(1,826 |
) |
|
|
226,944 |
|
| |
Total liabilities and shareholders’ equity
|
|
|
447,341 |
|
|
|
8,596 |
|
|
|
455,937 |
|
|
|
| 3. |
Property and equipment |
Property and equipment consisted of the following (in thousands):
| |
|
|
|
|
|
|
|
|
|
| |
|
January 29, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
Land
|
|
$ |
3,807 |
|
|
$ |
3,807 |
|
|
Buildings
|
|
|
35,762 |
|
|
|
35,695 |
|
|
Leasehold improvements
|
|
|
64,957 |
|
|
|
53,709 |
|
|
Furniture and equipment
|
|
|
203,443 |
|
|
|
183,836 |
|
| |
|
|
|
|
|
|
| |
|
|
307,969 |
|
|
|
277,047 |
|
|
Less accumulated depreciation and amortization
|
|
|
181,740 |
|
|
|
161,483 |
|
| |
|
|
|
|
|
|
| |
Property and equipment, net
|
|
$ |
126,229 |
|
|
$ |
115,564 |
|
| |
|
|
|
|
|
|
The Company reviews all of its operations for indications of
impairment in accordance with its accounting policy as discussed
in Note 1. Primarily, such indications consist of stores
with deteriorating operating results and stores under watch for
possible closure or relocation. Impairment charges were incurred
for 19, 12 and 26 stores, during fiscal 2004, 2003 and
2002, respectively. These charges related to property and
equipment and were included in selling, general and
administrative expenses and totaled $1,058,000, $420,000 and
$4,312,000 in fiscal 2004, 2003 and 2002, respectively. To
determine the impaired assets fair values, the Company used the
future estimated store cash flows discounted at a risk
commensurate rate of 11% for fiscal years 2004, 2003, and 2002.
Depreciation expense was $24,270,000, $22,882,000 and
$23,765,000 for fiscal 2004, 2003 and 2002, respectively.
The Company purchased the Duck Head trademarks and four related
licenses from TSI Brands Inc., and its parent corporation,
Tropical Sportswear Int’l Corporation, during fiscal 2003
and total acquisition costs were $4,103,000. In accordance with
FASB Statement No. 142, “Goodwill and Other Intangible
Assets,” the Company performed a valuation of the
trademarks and determined that the asset has an indefinite life
and no impairment charge was necessary for the year ended
January 29, 2005. Intangible assets are included within
other assets in the accompanying consolidated balance sheets.
In May 2001, the Company entered into a five-year $130,000,000
syndicated revolving loan and security agreement (the
“credit facility”) that provides for cash borrowings
for general corporate purposes, including a $95,000,000
sub-facility for the issuance of letters of credit. Borrowings
under this credit facility are limited by collateral formulas,
based principally upon the Company’s eligible inventories.
The credit facility is secured primarily by the Company’s
inventories, receivables and cash and cash equivalents, which at
January 29, 2005, aggregated $288,873,000. Of this amount,
approximately $167,259,000 represented the borrowing base, which
F-13
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
excludes cash and most of cash equivalents and only gives credit
for specified percentages of inventory and receivables. The
amount available to draw under the credit facility at
January 29, 2005, was approximately $90,214,000. If
availability (as calculated pursuant to the credit facility)
falls below $25,000,000, the Company would be required, for a
period of time, to comply with a financial covenant requiring it
to maintain minimum levels of tangible net worth based on
formulas. The credit facility also contains certain
discretionary provisions that enable the lender to reduce
availability. The credit facility bears interest at LIBOR plus
an applicable margin or the prime rate. The credit facility was
amended effective June 18, 2003, primarily to allow the
payment of cash dividends within certain prescribed limitations.
There were no cash borrowings during fiscal 2004 or fiscal 2003.
Letters of credit outstanding averaged $37,989,000 during fiscal
2004 compared with $38,316,000 during fiscal 2003, with the
highest balance of $44,632,000 in August 2004 compared with
$49,682,000 in December 2003. The Company had letters of credit
outstanding of $39,735,000 and $43,269,000 at January 29,
2005 and January 31, 2004, respectively. Of these letters
outstanding, $23,122,000 and $28,908,000 at January 29,
2005 and January 31, 2004, respectively, represented
merchandise that had not yet been shipped to the Company and
therefore had not yet been reflected in accounts payable.
The provision for income taxes for the years indicated consisted
of the following (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
— |
|
|
$ |
(2,275 |
) |
|
$ |
(2,615 |
) |
| |
State
|
|
|
598 |
|
|
|
(1,082 |
) |
|
|
(44 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total current
|
|
|
598 |
|
|
|
(3,357 |
) |
|
|
(2,659 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
|
7,416 |
|
|
|
11,635 |
|
|
|
6,476 |
|
| |
State
|
|
|
1,277 |
|
|
|
2,132 |
|
|
|
812 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total deferred
|
|
|
8,693 |
|
|
|
13,767 |
|
|
|
7,288 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Provision for income taxes
|
|
$ |
9,291 |
|
|
$ |
10,410 |
|
|
$ |
4,629 |
|
| |
|
|
|
|
|
|
|
|
|
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 | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Tax expense at statutory rate
|
|
$ |
8,730 |
|
|
$ |
9,812 |
|
|
$ |
4,242 |
|
|
State taxes, net of federal benefit
|
|
|
1,219 |
|
|
|
98 |
|
|
|
478 |
|
|
Effect of revaluation of deferred taxes
|
|
|
(1,037 |
) |
|
|
— |
|
|
|
— |
|
|
Effect of other items
|
|
|
379 |
|
|
|
500 |
|
|
|
(91 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Provision for income taxes
|
|
$ |
9,291 |
|
|
$ |
10,410 |
|
|
$ |
4,629 |
|
| |
|
|
|
|
|
|
|
|
|
F-14
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The tax effects of temporary differences were as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
| |
|
January 29, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
Current (liability) asset
|
|
|
|
|
|
|
|
|
| |
Inventory carrying cost
|
|
$ |
(36,147 |
) |
|
$ |
(27,681 |
) |
| |
Net operating loss carryforward and tax credit carryforwards
|
|
|
3,755 |
|
|
|
3,992 |
|
| |
Accrued expenses and other
|
|
|
4,545 |
|
|
|
1,796 |
|
| |
|
|
|
|
|
|
| |
|
Current deferred tax liability
|
|
$ |
(27,847 |
) |
|
$ |
(21,893 |
) |
| |
|
|
|
|
|
|
|
Deferred (liability) asset
|
|
|
|
|
|
|
|
|
| |
Depreciation
|
|
$ |
(15,819 |
) |
|
$ |
(13,474 |
) |
| |
Net operating loss carryforward
|
|
|
2,506 |
|
|
|
3,003 |
|
| |
Other
|
|
|
2,938 |
|
|
|
(595 |
) |
| |
|
|
|
|
|
|
| |
|
Long-term deferred tax liability
|
|
$ |
(10,375 |
) |
|
$ |
(11,066 |
) |
| |
|
|
|
|
|
|
The increase in the current deferred tax liability from
January 31, 2004 to January 29, 2005, is related
primarily to the inventory valuation under the retail method.
The Company has net operating loss carryforwards for federal
income tax purposes of $7,919,000 at January 29, 2005, with
expirations ranging from fiscal 2023 through fiscal 2025. The
Company also has net operating loss carryforwards for state
income tax purposes aggregating $64,024,000 at January 29,
2005, with expirations ranging from fiscal 2005 through fiscal
2025.
F-15
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company has options outstanding under four stock option
plans: the Goody’s Family Clothing, Inc. Amended and
Restated 1991 Stock Incentive Plan (the “1991 Plan”),
the Goody’s Family Clothing, Inc. Amended and Restated 1993
Stock Option Plan (the “1993 Plan”), the Goody’s
Family Clothing, Inc. Amended and Restated 1997 Stock Option
Plan (the “1997 Plan”) and the Amended and Restated
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 employees and
directors and formula options to non-employee directors. The
Compensation Committee of the Board of Directors determines the
exercise price (not to be less than the fair market value of the
Common Stock for incentive options or formula options on the
date of grant (based upon the closing sales price of the Common
Stock for the business day immediately preceding 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 3,500,000 shares of Common Stock under the
1997 Plan. The 1991 Plan and the 1993 Plan each terminated in
September 2001 and April 2003, respectively, and as such, the
Company is no longer entitled to issue options thereunder.
However, at January 29, 2005, an aggregate of
1,381,962 options remain outstanding under the 1991 Plan
and the 1993 Plan.
Under the Directors’ Plan, non-employee 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 (based upon the closing sales price of the Common
Stock for the business day immediately preceding the date of
grant) in lieu of cash for their director fees. These options
vest 1 year from the date of grant and are exercisable up to
20 years from the date of grant. The annual expense
recorded in connection with stock options issued under this plan
has been immaterial. The Company is authorized to issue an
aggregate of 500,000 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 2, 2002
|
|
|
509,540 |
|
|
|
3,656,954 |
|
|
$ |
7.15 |
|
| |
New shares authorized
|
|
|
1,700,000 |
|
|
|
— |
|
|
|
— |
|
| |
Granted
|
|
|
(391,158 |
) |
|
|
391,158 |
|
|
|
4.99 |
|
| |
Exercised
|
|
|
— |
|
|
|
(104,403 |
) |
|
|
5.03 |
|
| |
Forfeited and expired
|
|
|
132,300 |
|
|
|
(183,510 |
) |
|
|
9.30 |
|
| |
|
|
|
|
|
|
|
|
|
|
As of February 1, 2003
|
|
|
1,950,682 |
|
|
|
3,760,199 |
|
|
|
6.88 |
|
| |
Granted
|
|
|
(444,820 |
) |
|
|
444,820 |
|
|
|
7.60 |
|
| |
Exercised
|
|
|
— |
|
|
|
(286,173 |
) |
|
|
9.38 |
|
| |
Forfeited and expired
|
|
|
382,200 |
|
|
|
(416,650 |
) |
|
|
5.16 |
|
| |
|
|
|
|
|
|
|
|
|
|
As of January 31, 2004
|
|
|
1,888,062 |
|
|
|
3,502,196 |
|
|
|
7.32 |
|
| |
Granted
|
|
|
(869,780 |
) |
|
|
869,780 |
|
|
|
9.83 |
|
| |
Exercised
|
|
|
— |
|
|
|
(224,413 |
) |
|
|
5.20 |
|
| |
Forfeited and expired
|
|
|
170,500 |
|
|
|
(192,750 |
) |
|
|
10.31 |
|
| |
|
|
|
|
|
|
|
|
|
|
As of January 29, 2005
|
|
|
1,188,782 |
|
|
|
3,954,813 |
|
|
|
7.85 |
|
| |
|
|
|
|
|
|
|
|
|
F-16
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes information about stock options
outstanding at January 29, 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
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, 2005 | |
|
Life (Years) | |
|
Price | |
|
January 29, 2005 | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$ 2.06 to $ 3.90
|
|
|
1,104,716 |
|
|
|
4.4 |
|
|
$ |
3.65 |
|
|
|
951,116 |
|
|
$ |
3.65 |
|
|
$ 4.03 to $ 5.35
|
|
|
791,174 |
|
|
|
5.7 |
|
|
|
4.58 |
|
|
|
632,474 |
|
|
|
4.56 |
|
|
$ 5.38 to $ 8.83
|
|
|
821,729 |
|
|
|
7.9 |
|
|
|
7.65 |
|
|
|
263,462 |
|
|
|
6.63 |
|
|
$ 8.88 to $12.53
|
|
|
794,194 |
|
|
|
7.9 |
|
|
|
10.42 |
|
|
|
216,344 |
|
|
|
10.17 |
|
|
$12.56 to $27.50
|
|
|
443,000 |
|
|
|
3.1 |
|
|
|
19.90 |
|
|
|
441,000 |
|
|
|
19.93 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
3,954,813 |
|
|
|
|
|
|
|
|
|
|
|
2,504,396 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company maintains the Goody’s Family Clothing, Inc.
401(k) Retirement Plan (the “401(k) Plan”) with a
salary deferral feature for all eligible Associates. 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 that are determined by the
Company on a discretionary basis at the start of each 401(k)
Plan year and committed to for the plan year, vest over an
Associate’s service period and are based upon a percent of
an Associate’s elected contributions. These matching
contributions, net of plan forfeitures, amounted to $794,000,
$699,000 and $813,000 for fiscal 2004, 2003 and 2002,
respectively.
The Company also has an Employee Payroll Investment Plan that
allows eligible Associates to purchase its Common Stock at fair
market value through regular payroll deductions. The Company
facilitates the purchase of Common Stock after each payroll
period and the related shares are held personally by each
participant.
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 that 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, 2005, are as follows (in thousands):
| |
|
|
|
|
|
| Fiscal Year |
|
|
| |
|
|
|
2005
|
|
$ |
71,902 |
|
|
2006
|
|
|
67,329 |
|
|
2007
|
|
|
60,613 |
|
|
2008
|
|
|
53,131 |
|
|
2009
|
|
|
43,861 |
|
|
Thereafter
|
|
|
136,140 |
|
| |
|
|
|
| |
Total
|
|
$ |
432,976 |
|
| |
|
|
|
F-17
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Total rental expense, including common area maintenance, for
operating leases for fiscal 2004, 2003 and 2002 was $85,944,000,
$83,281,000 and $81,951,000, respectively, including percentage
rent of $154,000, $88,000 and $103,000, respectively.
The table below sets forth the Company’s commercial
commitments related to outstanding purchase commitments for
merchandise and non-merchandise and letters of credit:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Fiscal Year (in thousands) | |
| |
|
| |
| |
|
Total | |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Purchase Orders
|
|
$ |
223,051 |
|
|
$ |
223,051 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Merchandise Commitments
|
|
|
106,975 |
|
|
|
23,270 |
|
|
|
42,205 |
|
|
|
31,000 |
|
|
|
10,500 |
|
|
Non-Merchandise Commitments
|
|
|
799 |
|
|
|
795 |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
Letters of Credit
|
|
|
34,573 |
|
|
|
34,573 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Standby Letters of Credit for Insurance
|
|
|
5,162 |
|
|
|
5,162 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
From time to time, the Company enters into certain types of
agreements that contingently require the Company to indemnify
parties against third-party claims. Generally, these agreements
relate to: (i) agreements with vendors and suppliers, under
which the Company may provide customary indemnification to its
vendors and suppliers in respect of actions they take at the
Company’s request or otherwise on its behalf; (ii) an
agreement with a private-label vendor to indemnify it against
trademark and copyright infringement claims concerning
merchandise it manufactures on behalf of the Company;
(iii) real estate leases, under which the Company may agree
to indemnify the landlords for claims arising from the
Company’s use of the property; and (iv) agreements
with the Company’s officers, directors and employees, under
which the Company may agree to indemnify such persons for
liabilities arising out of their relationship with the Company.
The Company’s Charter and By-laws also provide for the
indemnification of the Company’s directors, officers,
employees and agents to the fullest extent permitted by the
Tennessee Business Corporation Act. The Company has Directors
and Officers Liability Insurance, which, subject to the
policy’s conditions, provides coverage for indemnification
amounts payable by the Company with respect to its directors and
officers up to specified limits and subject to certain
deductibles.
The nature and terms of these types of indemnities vary. The
events or circumstances that would require the Company to
perform under these indemnities are transaction and circumstance
specific. Generally, a maximum obligation is not explicitly
stated. Because the obligated amounts of these types of
agreements often are not explicitly stated, the overall maximum
amount of the obligations cannot be reasonably estimated.
Historically, the Company has not incurred significant costs
related to performance under these types of indemnities. No
material liabilities have been recorded for these obligations on
the Company’s consolidated balance sheets as of
January 29, 2005 and January 31, 2004.
|
|
| 10. |
Related-party transactions |
The Company has entered into the following related-party
transactions with respect to Robert M. Goodfriend (the
Company’s Chairman of the Board and Chief Executive Officer
and beneficial owner of approximately 41% of the Company’s
common stock):
During fiscal 1999, the Company entered into a split-dollar life
insurance agreement (the “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
Goodfriends’ children (the “Trust”). The Trust
had 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. In December 2003, the Trust exercised
its rights to purchase the policies from the Company for an
aggregate cash payment to the Company of $8,390,000.
The Company paid rent and taxes amounting to $312,000, $314,000
and $312,000 for fiscal 2004, 2003 and 2002, respectively, for a
store leased from another trust benefiting
Mr. Goodfriend’s children. Future commitments at
January 29, 2005, under this related party lease are
$1,090,000.
F-18
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Mr. Robert F. Koppel, a director of the Company, is the
President of the East Tennessee Children’s Hospital (the
“Hospital”) of which Mr. Goodfriend is a
director. The Company facilitates contributions by its employees
to the Hospital through a payroll deduction plan and matches
employee contributions to the Hospital on a 100% basis. The
Company also makes additional contributions (in cash or in kind)
to the Hospital. The total amount of contributions paid by the
Company (including employee contributions) to the Hospital in
fiscal 2004, 2003 and 2002 were $465,000, $466,000 and $514,000,
respectively.
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 of the
Board 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 alleged that the Company maintained a
racially hostile working environment.
On February 28, 2003, a proposed Consent Decree was filed
with the District Court for its preliminary approval. The
proposed Consent Decree sets forth the proposed settlement of
the class action race discrimination lawsuit. Ultimately, class
action certification was sought in the lawsuit only with respect
to alleged discrimination in promotion to management positions
and the proposed Consent Decree is limited to such claims.
Generally, the proposed settlement provides for a payment by the
Company in the aggregate amount of $3.2 million to the
class members (including the named plaintiffs) and their
counsel, as well as the Company’s implementation of certain
policies, practices and procedures regarding, among other
things, training of employees. The Company’s employer
liability insurance underwriter has funded $3.1 million of
such payment to a third-party administrator. The proposed
Consent Decree explicitly provides that it is not an admission
of liability by the Company and the Company continues to deny
all of the allegations. On April 30, 2003, the District
Court granted preliminary approval of the proposed Consent
Decree, and a hearing was held on June 30, 2003, regarding
the adequacy and fairness of the proposed settlement. On
March 3, 2004, the United States District Court for the
Middle District of Georgia issued an Order granting final
approval of the Consent Decree. On or about February 23,
2004, a purported class member filed an appeal with the
U.S. Court of Appeals for the Eleventh Circuit (the
“Eleventh Circuit”), alleging, among other things,
misconduct on the part of the District Court and the
plaintiff’s/appellant’s counsel; the Eleventh Circuit
dismissed this appeal on March 5, 2004. On or about
March 12, 2004, a Motion to set aside the dismissal was
filed with the Eleventh Circuit. On May 28, 2004, the
Eleventh Circuit dismissed all appeals regarding this matter. In
August 2004, a purported class member filed a Petition for a
Writ of Certiorari with the United States Supreme Court
regarding the Eleventh Circuit’s dismissal of all appeals
on this matter; on January 20, 2005, the United States
Supreme Court denied the Petition for a Writ of Certiorari.
Pursuant to the terms of the March 3, 2004, Order, the
District Court will maintain jurisdiction of this matter until
July 2006 to monitor the parities’ compliance with the
Consent Decree.
|
|
|
Hilfiger Matter, Sun Matter and Related Insurance Matters |
In July 2000, Tommy Hilfiger Licensing, Inc.
(“Hilfiger”) commenced an action against the Company
in the United States District Court for the Northern District of
Georgia, alleging, among other things, counterfeiting and
trademark infringement (the “Hilfiger Matter”). A
bench trial for the Hilfiger Matter concluded on March 13,
2003, and on May 9, 2003, the Court rendered its decision,
awarding damages to Hilfiger in the amount of approximately
$11.0 million, plus reasonable attorney’s fees and
costs.
In June 2002, Hilfiger brought an action against Sun Apparel,
Inc. (“Sun”), a Goody’s denim supplier, alleging
trademark infringement arising out of Sun’s manufacture of
the allegedly infringing labels that gave rise to
Hilfiger’s trademark infringement claims against
Goody’s (the “Sun Matter”). Goody’s had
agreed to pay for the defense of the Sun Matter because of
certain indemnification obligations it had to Sun.
At the time the Hilfiger Matter commenced, the Company’s
primary liability insurer indicated that it would reimburse
Goody’s for its legal fees and expenses. In February 2003,
after several unsuccessful attempts
F-19
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
to obtain such reimbursement, Goody’s filed an insurance
coverage action against the insurers. Following the commencement
of such action, the primary insurer agreed to reimburse
Goody’s for a substantial portion of its past and future
legal expenses. However, the insurance carriers reserved their
rights regarding their obligations to indemnify Goody’s
against damages resulting from the Hilfiger claims and the Sun
Matter and the carriers asserted certain defenses against their
indemnity obligations. On May 13, 2003, Fireman’s
Fund Insurance Company (“Fireman’s Fund”),
the excess layer (umbrella insurance) carrier, commenced an
action against Goody’s in the Chancery Court for Knox
County, Tennessee, seeking a declaratory judgment against
Goody’s declaring that it has no duty to indemnify
Goody’s in the Hilfiger Matter (the Goody’s suit
against the insurers and the Fireman’s Fund suit against
the Company are collectively referred to herein as the
“Insurance Matters”).
In June 2003, the Company reached a settlement agreement with
Hilfiger, resolving all outstanding issues arising out of the
Hilfiger Matter. Under the settlement, the Company agreed to
make an $11.0 million cash payment to Hilfiger. The
settlement amount also encompassed the settlement of the Sun
Matter. In June 2003, the Company also reached an agreement in
principle with its insurance carriers regarding the Insurance
Matters and a definitive settlement agreement with its insurance
carriers was executed in July 2003.
In addition, the Company is a party to various other legal
proceedings arising in the ordinary course of its business. The
Company has various insurance policies in place in the event of
unfavorable outcomes from such proceedings. The insurance
companies’ level of, and willingness to, support their
coverage could vary depending upon the circumstances of each
particular case. As such, there can be no assurance as to the
level of support available from insurance policies. The Company
does not currently believe that the ultimate outcome of all such
pending legal proceedings, individually and in the aggregate,
would have a material adverse effect on the Company’s
financial position, results of operations or cash flows.
In January 2005, the Company closed two of its stores and
recorded $862,000 in rent expense related to the future lease
commitments through the end of the respective lease terms in
accordance with SFAS 146.
In December 2002, the Company made a decision to close one of
its stores and recorded $550,000 in rent expense related to the
future lease commitments through the end of the lease term in
accordance with EITF Issue 94-3.
F-20
GOODY’S FAMILY CLOTHING, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| 13. |
Selected Quarterly Data (Unaudited) |
The following is a summary of unaudited results of operations
for quarters in fiscal 2003 and fiscal 2004 (in thousands,
except per share amounts):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First Quarter | |
|
Second Quarter | |
|
Third Quarter | |
|
Fourth Quarter | |
| |
|
| |
|
| |
|
| |
|
| |
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sales
|
|
$ |
302,878 |
|
|
$ |
294,632 |
|
|
$ |
284,794 |
|
|
$ |
384,688 |
|
| |
Gross profit — as previously reported
|
|
|
92,955 |
|
|
|
87,963 |
|
|
|
83,819 |
|
|
|
— |
|
| |
Gross profit — as restated, see Note 2
|
|
|
93,403 |
|
|
|
88,458 |
|
|
|
84,318 |
|
|
|
109,381 |
|
| |
Net earnings (loss) — as previously reported
|
|
|
8,063 |
|
|
|
1,256 |
|
|
|
(804 |
) |
|
|
— |
|
| |
Net earnings (loss) — as restated, see Note 2
|
|
|
8,071 |
|
|
|
1,278 |
|
|
|
(816 |
) |
|
|
7,120 |
|
| |
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic
|
|
|
0.25 |
|
|
|
0.04 |
|
|
|
(0.02 |
) |
|
|
0.22 |
|
| |
|
Diluted
|
|
|
0.24 |
|
|
|
0.04 |
|
|
|
(0.02 |
) |
|
|
0.21 |
|
|
Fiscal 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sales
|
|
$ |
283,012 |
|
|
$ |
294,039 |
|
|
$ |
280,777 |
|
|
$ |
369,204 |
|
| |
Gross profit — as previously reported
|
|
|
85,816 |
|
|
|
85,943 |
|
|
|
83,268 |
|
|
|
102,623 |
|
| |
Gross profit — as restated, see Note 2
|
|
|
86,140 |
|
|
|
86,319 |
|
|
|
83,649 |
|
|
|
103,073 |
|
| |
Net earnings — as previously reported
|
|
|
1,863 |
|
|
|
7,110 |
|
|
|
1,712 |
|
|
|
6,975 |
|
| |
Net earnings — as restated, see Note 2
|
|
|
1,865 |
|
|
|
7,144 |
|
|
|
1,724 |
|
|
|
6,989 |
|
| |
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic
|
|
|
0.06 |
|
|
|
0.22 |
|
|
|
0.05 |
|
|
|
0.21 |
|
| |
|
Diluted
|
|
|
0.06 |
|
|
|
0.21 |
|
|
|
0.05 |
|
|
|
0.21 |
|
F-21
SCHEDULE II
GOODY’S FAMILY CLOTHING, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR FISCAL YEARS ENDED JANUARY 29, 2005,
JANUARY 31, 2004 AND FEBRUARY 1, 2003
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Balance at | |
|
Charged to | |
|
|
|
Balance | |
| Fiscal | |
|
|
|
Beginning | |
|
Costs and | |
|
|
|
at End | |
| Year | |
|
|
|
of Year | |
|
Expenses | |
|
Deductions* | |
|
of Year | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
2004 |
|
|
Lower of Cost or Market Reserve, Inventory |
|
$ |
17,700 |
|
|
$ |
36,329 |
|
|
$ |
36,729 |
|
|
$ |
17,300 |
|
| |
2003 |
|
|
Lower of Cost or Market Reserve, Inventory |
|
|
16,650 |
|
|
|
37,718 |
|
|
|
36,668 |
|
|
|
17,700 |
|
| |
2002 |
|
|
Lower of Cost or Market Reserve, Inventory |
|
|
19,600 |
|
|
|
41,466 |
|
|
|
44,416 |
|
|
|
16,650 |
|
|
|
| * |
Principally charges for which reserves were provided. |
F-22