<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
<TABLE>
<S> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996)
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
COMMISSION FILE NUMBER: 0-19526
GOODY'S FAMILY CLOTHING, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TENNESSEE 62-0793974
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
400 GOODY'S LANE, KNOXVILLE, TENNESSEE 37922
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (423) 966-2000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No []
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X].
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of April 21, 1997: approximately $160,430,000.
Number of shares of Common Stock outstanding as of April 21, 1997:
16,190,882.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Annual Report to Shareholders of Goody's Family
Clothing, Inc. and subsidiaries ("Goody's" or the "Company") are incorporated by
reference in Part I and Part II of this Report. Portions of the Company's
definitive Proxy Statement for its Annual Meeting of Shareholders to be held on
June 18, 1997, are incorporated by reference into Part III of this Report.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Management has endeavored in its communications, in its Annual Report, 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 the Company competes. Any
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, 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 forward-looking statements are
subject to risks and uncertainties including, but not limited to, customer
demand and trends in the apparel and retail industry and the acceptance of
merchandise acquired for sale by the Company, tariffs, quotas, trademark use,
political stability, the effectiveness of planned advertising and promotional
events, the impact of competitors' pricing, the Company's ability to enter into
leases for new store locations, individual store performance, adverse weather
conditions, employee relations, and the general economic conditions within the
Company's markets. The above factors in some cases have affected, and in the
future could affect, the Company's financial performance and could cause actual
results for fiscal 1997 and beyond to differ materially from those expressed or
implied in such forward-looking statements. 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
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PART I
ITEM 1. BUSINESS
GENERAL
Incorporated in the state of Tennessee in January 1954 and headquartered in
Knoxville, Tennessee, Goody's Family Clothing, Inc. and subsidiaries are
principally engaged in the retailing of moderately priced apparel for women, men
and children. As of February 1, 1997, the Company operated 203 retail stores in
14 southeastern and midwestern states. During the five fiscal years ended
February 1, 1997, the number of stores operated by the Company grew from 106 to
203 and sales increased from $455.3 million to $819.1 million. The Company
believes that its growth is driven by its merchandising strategy and its ability
to successfully penetrate new markets. The Company's fiscal year ends on the
Saturday nearest the last day of January. The terms "fiscal 1997," "fiscal 1996"
and "fiscal 1995" refer to the Company's fiscal years ending or ended on January
31, 1998 (52 weeks), February 1, 1997 (52 weeks) and February 3, 1996 (53
weeks), respectively.
MERCHANDISING STRATEGY
The Company's merchandising strategy has been developed to appeal to
value-conscious, quality-oriented customers. The Company offers its merchandise
at prices targeted to be 10% to 30% below those of traditional department
stores. The Company competes (i) with department stores by offering quality,
brand name apparel at value prices, (ii) with specialty stores by offering
apparel for the entire family, (iii) with off-price apparel stores by offering a
wide selection of current-season merchandise at competitive prices, and (iv)
with discount stores by offering better quality, brand name merchandise
generally unavailable to discount retailers. The Company does not purchase
factory seconds, close-out, out-of-season or irregular merchandise. The Company
believes that its broad selection of current-season, brand name merchandise,
combined with its private label merchandise, is a key competitive advantage. The
Company continues to invest in the development of its private label brands,
which offer customers designer looks and quality at value prices.
Generally within each store, specific departments are well signed and
direct aisleways lead to major departments. Visual merchandising and store
presentation are enhanced by fixtures that showcase merchandise in an open,
accessible and customer-friendly shopping environment. Sale items featured in
the Company's advertising campaigns are highlighted in the stores with
easy-to-read signs that help customers quickly locate items of interest. The
overall merchandise presentation is reorganized four times a year to emphasize
the fashion products for the upcoming season.
A typical store is divided into six divisions that include women's
(juniors, misses, intimate apparel, swimwear, and outerwear), denim, men's
(sportswear, activewear, young men's, and men's furnishings), children's
(infants and toddlers, boys and girls), accessories, and in 137 stores, shoes.
Goody's carries approximately 10,700 different styles of merchandise, many of
which are tracked by color and size in order to provide accurate selling data
for the Company's merchants and management.
MERCHANDISING DIVISIONS
Women's -- The broadest merchandise selection offered by the Company is in
the women's division, which contributed approximately 41% of total sales in
fiscal 1996. Goody's improved its profitability in the women's division in
fiscal 1996 by emphasizing career fashions, casual weekend wear, plus-size
merchandise in the misses department, and cross-over fashions targeted at
customers whose tastes fall between those of the traditional junior and misses
customers.
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Women's merchandise categories include juniors, misses, intimate apparel,
swimwear, and outerwear. Juniors' merchandise lines include brand names such as
Adidas, Byer, California Concepts, Lee, Levi's, My Michelle, Nike, Reebok, Union
Bay, and Wrapper. Misses merchandise lines include popular brand names such as
Alfred Dunner, Cathy Daniels, Counterparts, Fundamental Things, Lee, Leslie Fay,
Levi's, Requirements, and Sag Harbor, as well as Goody's private label brand,
Chandler Hill. Fashion dresses are also an important part of Goody's overall
women's product lines and feature popular brand names such as Dawn Joy, Jessica
Howard, Leslie Fay, Plaza South, Positive Attitude, and Scarlett. Brand name
undergarments include products from Hanes, Lovable, Maidenform, Olga, and
Warner's. Swimwear features labels such as Body I.D., LaBlanca/Sassafras, Ocean
Pacific, and Speedo. Outerwear product lines include the Braetan, Herman Kay,
and Winlet brand name labels and Chandler Hill and GFC Trading Co., the
Company's private label brands for casual and rugged outerwear.
Denim -- The denim merchandise division is important to the Company's
merchandising concept and contributed approximately 25% of total sales in fiscal
1996. The Company believes that its broad selection and competitive pricing of
denim merchandise appeals to value-conscious families and generates customer
traffic for other higher margin merchandise. The Company utilizes Quick Response
programs with its major denim suppliers to alleviate out-of-stock positions for
popular styles and sizes and improve inventory turnover. Primary brand names
that are carried in the denim division include Bugle Boy, Lee, Levi's, and Union
Bay. The Company's private label brands for denim are Montana Blues Jean Company
for women and Authentic GFC for men.
Men's -- The men's division contributed approximately 20% of total sales in
fiscal 1996 and consists of sportswear, activewear, young men's, and men's
furnishings departments. The men's division utilizes a shop concept that
features various brand name merchandise targeted at certain lifestyles. These
concepts eliminate the need to market similar apparel to a variety of age groups
and allow, for example, denim buyers to shop one area of the store regardless of
their age. Customers reacted favorably to the Company's introduction of men's
blazers and dress slacks in fiscal 1996, and this program is expected to be
expanded in fiscal 1997. Featured brand names in the men's division include
Adidas, Arrow, Bugle Boy, Dockers, Drummer Boy, Fila, Lee, Levi's, Nike, Reebok,
and Russell. The Company's private label brands for men are Authentic GFC, GFC
and Ivy Crew.
Children's -- The children's division contributed approximately 7% of the
Company's total sales in fiscal 1996 by offering popular and durable apparel for
children of all ages. Primary brand names carried for children include Adidas,
California Concepts, Cradle Togs, Dockers, Lee, Levi's, Mickey & Co., My
Michelle, Nike, Reebok, Trends, Union Bay, and Winnie the Pooh. The Company's
private label brand for children is Good Kidz.
Accessories -- The accessories division, which includes items such as
fashion and costume jewelry, handbags, belts, wallets, hair accessories,
sunglasses for women, picture frames, gourmet foods, stationery, and gift
baskets, contributed approximately 3% of total sales in fiscal 1996. Featured
brand names include Burnes of Boston, Capezio, Jantzen, and Rosetti.
Shoes -- The shoe division contributed approximately 3% of total sales in
fiscal 1996. The shoe departments are located in 137 of the Company's stores and
are operated by a third party under an exclusive operating license agreement. In
fiscal 1996, all of the 20 new stores opened by the Company included shoe
departments. The Company also added shoe departments to three stores existing
prior to fiscal 1996. The shoe departments offer brand names such as Adidas,
Converse, Esprit, Keds, and L.A. Gear. During fiscal 1997, the Company plans to
include shoe departments in all of the new stores to be opened during fiscal
1997 and in 24 existing stores.
Tuxedo rentals and service fees -- The Company's revenue from tuxedo
rentals and service fees charged on layaways contributed less than 1% of total
sales in each of the last three fiscal years.
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The following table shows the Company's total sales, by division, for the
last three fiscal years (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995 FISCAL 1994
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Women's...................... $335,923 41.0% $286,097 41.1% $261,485 42.6%
Denim........................ 202,263 24.7% 175,754 25.2% 151,245 24.7%
Men's........................ 165,438 20.2% 144,081 20.7% 128,477 20.9%
Children's................... 59,705 7.3% 49,229 7.1% 40,148 6.5%
Accessories.................. 24,972 3.0% 17,666 2.5% 15,444 2.5%
Shoes (Leased department).... 26,827 3.3% 21,087 3.0% 14,435 2.4%
Tuxedo Rentals and Service
Fees....................... 3,928 0.5% 2,954 0.4% 2,430 0.4%
-------- ----- -------- ----- -------- -----
$819,056 100.0% $696,868 100.0% $613,664 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
PURCHASING
The Company's merchandise purchasing function is centralized at its
corporate headquarters. The Company buys its merchandise from approximately 730
vendors and does not have long-term or exclusive contracts with any particular
manufacturer or vendor. During fiscal 1996, the Company's purchases from Levi
Strauss & Co., its largest vendor, represented approximately 20% of its total
purchases. No more than 5% of total purchases were attributable to any one of
the Company's other vendors. The Company intends to maintain strong,
partner-type relationships with its vendors. A significant portion of the
Company's merchandise is pre-packed and pre-ticketed by the vendors for each
store, reducing the cost, and increasing the speed, of delivering merchandise to
the Company's stores.
Merchandise associated with the Company's private label brands is largely
imported. The Company employs its own designers and product development teams
who work closely with its merchants to track seasonal fashion trends, analyze
customer feedback and determine accurate order quantities. The Company controls
its private label merchandise from the initial concept to the final sale to the
consumer and monitors product quality, freight costs and other expenses in an
effort to maximize gross margins on such merchandise.
PLANNING AND ALLOCATION
Goody's planning and allocation department works closely with the Company's
merchants, distribution center and store operations personnel to establish an
appropriate flow of merchandise on a store-by-store basis. This flow of
merchandise reflects customer preferences in each market and thereby reduces the
cost of transferring merchandise among various stores. The Company also utilizes
Quick Response systems with approximately 50 vendors, which allows for more
efficient replenishment of specific items of merchandise in particular sizes and
colors to minimize out-of-stock positions of basic merchandise and improve
inventory turnover. The Company expects to continue to invest in Quick Response
programs with new and existing vendors and increase the number of participating
vendors in fiscal 1997.
MARKETING AND ADVERTISING
The Company's marketing and advertising functions are centralized at its
corporate headquarters. The marketing and promotional strategy is designed to
reinforce Goody's image as a value-priced, family apparel retailer and is set
during the annual planning and budgeting process. The Company uses frequent
full-color tabloid advertising to portray the depth and selection of its
merchandise while in-store merchandise presentation is coordinated with
advertising to maximize promotional opportunities. The Company believes that its
advertisements, which emphasize low prices and broad selections for the entire
family, have enabled the Company to communicate a unique look that reinforces
Goody's niche in the marketplace.
5
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Using a multi-media approach, Goody's develops and prepares its own
advertising materials for newspapers and internally creates radio and television
spots. The media department researches each market to develop profiles of
shoppers in order to effectively plan the Company's advertising. While the exact
allocation of advertising dollars differs from market to market, the Company
generally allocates approximately 68% of its advertising budget to print media,
17% to television and 15% to radio. Several of the Company's key vendors share
in the costs of mutually beneficial advertising campaigns through cooperative
advertising programs.
PRICING
The Company's pricing strategy is designed to provide value to its
customers by offering merchandise at prices targeted to be 10% to 30% below
those of traditional department stores. Denim, which is a consumer draw, is
priced very competitively and is generally positioned to increase traffic
throughout the store. All pricing decisions are made at the Company's corporate
headquarters. In order to remain competitive and to enhance its sales promotion
efforts, Goody's frequently monitors its competitors' prices. In addition, the
Company's management information systems provide daily and weekly sales and
gross margin reports that track sales and gross margins by stock keeping unit
(SKU) and provide management with the flexibility to adjust prices as necessary.
CUSTOMER SERVICE
Goody's customer service training program, Customer First, was designed to
help store associates develop a customer-friendly mind-set where
customers -- not tasks -- come first in the stores. This initiative begins with
pre-employment screenings that measure job applicants' initial customer service
skills and is supported by ongoing training programs and incentives for
associates who demonstrate outstanding customer service performance. The Company
is also making operational enhancements to improve customers' overall shopping
experience in its stores. To allow store associates more time to assist
customers, an electronic system was implemented during 1996 to reduce the time
required to manage price changes. The Company's generous merchandise return and
exchange policies were developed to ensure positive interactions between store
associates and customers. Additionally, the Company continues to invest in new
cash register technologies to simplify the customer checkout process and is
currently testing customer conveniences such as strollers, wheelchairs and
oversized shopping bags in new stores. To monitor the success of these new
Customer First programs, Goody's is encouraging customer feedback with newly
designed in-store survey cards.
STORE OPERATIONS
Management of store operations is the responsibility of the Executive Vice
President -- Stores, who is assisted by the Vice President -- Store Operations,
three Regional Vice Presidents -- Sales, 23 district managers, and individual
store managers. Each district manager oversees seven to 11 stores, and up to
nine district managers report to each Regional Vice President -- Sales.
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. Friday and Saturday; and 12:00
p.m. to 6:00 p.m. on Sunday. These hours are extended during various holiday and
peak selling seasons. Each store has a manager and between one and three
assistant managers, depending upon the size of the store. Other positions of
responsibility within a store include four to five department managers, a head
cashier and a stockroom manager. The sales staff ranges from 12 in smaller size
stores to 25 in average size stores to 70 in larger size stores. The majority of
the sales staff are employed on a full-time basis, although part-time workers
are hired during peak selling seasons.
CENTRALIZED DISTRIBUTION
The Company expects that its 344,000 square foot distribution center
located in Knoxville, Tennessee, can accommodate merchandise distribution to
approximately 350 stores. The distribution center is equipped with automated
merchandise handling equipment that facilitates efficient distribution of
merchandise to the stores and provides for efficient cross docking of pre-packed
merchandise by store. In order to improve quality control, all incoming
merchandise is received at the distribution center to allow inspection before
being delivered to the stores.
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Merchandise is typically processed through the distribution center and
forwarded to individual stores within 48 hours. Furthermore, because the
distribution center is located on both a main north-south and a main east-west
interstate highway, management can negotiate favorable shipping terms with its
vendors for merchandise delivered to its distribution center.
The Company has also developed an effective computerized system for
tracking merchandise from the time it leaves its distribution center until it
arrives at the stores to ensure that shipments are delivered in an accurate and
timely manner. In delivering merchandise to the stores, the Company utilizes a
third party contract carrier. On return trips to the distribution center, the
carrier delivers the merchandise transferred between stores, as well as some
merchandise picked up from vendors located en route.
STORE LOCATIONS
The Company locates stores predominantly in secondary markets with
demographic characteristics consistent with its targeted value-conscious
customer. During fiscal 1996, the Company added an eighth store in Birmingham,
Alabama, as part of its expansion into its first large metropolitan market. By
using the same real estate strategy used in Birmingham -- i.e., locating stores
on the perimeter of a large city -- the Company entered metropolitan Atlanta,
Georgia, with the opening of six stores, and Charlotte, North Carolina, with the
opening of three stores during fiscal 1996. Goody's primarily leases store space
in strip centers, where costs are generally lower than mall locations. The
smallest of the Company's stores has 7,600 square feet and the largest store has
52,600 square feet; the average store size is 27,100 square feet. The number and
location of Goody's stores is incorporated by reference to the map on pages 10
and 11 of the 1996 Annual Report to Shareholders under the caption "Real
Estate."
All of the Company's stores are leased, rather than owned, which has
enabled the Company to grow without incurring indebtedness associated with
acquiring and owning real estate. Management believes that the flexibility of
leasing its stores provides substantial benefits and avoids the inherent risks
of owning real estate. The Company believes that it has established itself as an
anchor tenant due to its operating performance, the size of its stores, its
advertising contributions in local markets, its financial position, and its
history of generally meeting its lease commitments on a timely basis.
EXPANSION STRATEGY
The Company's expansion strategy is to continue to open new stores in
markets located within 800 miles of its distribution center in Knoxville,
Tennessee. Management believes that opportunities exist to expand the Company's
presence within its current markets. In making its decision to open a new store,
the Company typically evaluates, among other factors, market demographics,
competition, location, consumer traffic, rent and occupancy costs, advertising
and other expenses associated with the opening and operation of a new store. The
following table provides information regarding the number of stores in
operation, new stores opened, stores closed, and stores relocated or remodeled
during the last five fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Stores open, beginning of year............................ 184 171 146 125 106
New stores opened during the year......................... 20 13 25 23 19
Stores closed during the year............................. (1) (0) (0) (2) (0)
--- --- --- --- ---
Stores open, end of year.................................. 203 184 171 146 125
=== === === === ===
Stores relocated or remodeled during the year............. 8 7 7 2 3
=== === === === ===
</TABLE>
ASSOCIATES
As of February 1, 1997, the Company had approximately 6,100 full and
part-time associates. Store managers and supervisory associates are compensated
on a salaried basis and are eligible to receive additional compensation based on
the Company's profitability as well as meeting certain objective goals at their
respective stores such as sales growth, control of expenses and inventory
shrinkage. All other store associates are compensated on an hourly basis. All of
the Company's associates are non-union employees, with the exception of the
associates employed at its distribution center in Knoxville, Tennessee, who are
represented by the Union of Needletrades, Industrial and Textile Employees. The
Company's incentive bonus program for certain key corporate associates is
7
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based on achieving certain profitability goals and could potentially provide a
significant portion of the associates' total annual compensation.
The Company also grants stock options to certain key corporate and store
associates. These options are designed to align associates' interests with those
of the Company's shareholders and allow the Company to provide long-term
incentives to its associates.
During fiscal 1996, Goody's introduced an Employee Payroll Investment Plan
that allows eligible associates an opportunity to purchase the Company's common
stock at fair market value through regular payroll deductions.
The Company also maintains a profit sharing plan for all full-time
associates who are eligible to participate under the plan. The plan provides for
discretionary contributions by the Company that are approved by its Board of
Directors. The Company's contributions related to this plan for fiscal 1996,
1995 and 1994 were $525,000, $350,000 and $300,000, respectively.
SEASONALITY AND INFLATION
The Company's business is seasonal by nature. The Christmas season
(beginning the Sunday before Thanksgiving and ending on the first Saturday after
Christmas), the back-to-school season (beginning approximately the first week of
August and continuing through the first week of September) and the Easter season
(beginning approximately two weeks before Easter Sunday and ending on the
Saturday preceding Easter) collectively accounted for approximately 35.5% of the
Company's annual sales, based on the last three fiscal years. In general, sales
volume varies directly with customer traffic, which is heaviest during the third
and fourth quarters of a fiscal year.
The Company does not believe inflation has had a material effect on the
results of its operations during the past three fiscal years. However, there can
be no assurance that the Company's business will not be affected by inflation in
the future.
COMPETITION
The retail apparel business is highly competitive, with price, selection,
fashion, quality, location, store environment and service being the principal
competitive factors. Management believes that the Company is well positioned to
compete on the basis of each of these factors. The Company competes primarily
with department stores, specialty stores, off-price apparel stores, and discount
stores. Many competitors are large national chains with substantially greater
financial and other resources than those available to the Company; there is no
assurance that the Company will continue to be able to compete successfully with
any of them in the future.
TRADEMARKS
The United States Patent and Trademark Office (the "USPTO") has issued the
Company federal registrations for the following trademarks: Chandler Hill, GFC,
GFC Trading Co., and Goody's Family Clothing. The Company has also filed
applications with the USPTO seeking federal registrations for the following
trademarks: Authentic GFC, Bobby G, Fireside Flannels, GFC Sport, Good Kidz, Ivy
Crew, Montana Blues Jean Company, Mountain Lake, and Old College Inn. The
Company's private label programs represented approximately 15% of the Company's
fiscal 1996 sales.
Some of the Company's trademarks have been opposed. In April 1994, the
Company filed an application with the USPTO to register the trademark Ivy Crew.
In March 1995, one party filed a notice of opposition to the registration, while
another party has proposed a settlement with the Company in respect of its use
of this trademark and has not filed an opposition to the registration. In August
1996, the Company filed an application with the USPTO to register the trademark
Old College Inn; in April 1997, the Company received a cease and desist letter
from a third party claiming prior rights to the trademark Old College Inn. The
Company filed a trademark application with the USPTO for the trademark Montana
Blues Jean Company; such application has been refused and suspended by the USPTO
pending action on previously filed trademark applications by others. Although
the Company has received a federal registration to the trademark GFC and GFC
Trading Co., a third party and the Company are involved in a lawsuit regarding
the third party's alleged common law trademark rights to the trademark GFC. The
Company vigorously opposes any claims against its trademarks, where appropriate.
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CORPORATE REALIGNMENT
During fiscal 1996, Goody's Family Clothing, Inc. (the "Parent") realigned
certain of its operations by incorporating SYDOOG, Inc. ("SYDOOG") and GOFAMCLO,
Inc. ("GOFAMCLO") in the state of Delaware, and Trebor of TN, Inc. ("Trebor") in
the state of Tennessee as its directly wholly-owned subsidiaries. In addition,
GOODY'S MS, L.P. ("MSLP") and GOODY'S IN, L.P. ("INLP") were formed as limited
partnerships in the state of Tennessee. Trebor owns the general partnership
interests and GOFAMCLO owns the limited partnership interests in MSLP and INLP,
respectively.
As a result of the realignment, the Parent transferred certain of its
ownership interests and operating activities to MSLP, including (i) the
distribution center properties and the related receiving, processing, and
storing of inventories and the subsequent distribution thereof to the Company's
stores and (ii) the control and ownership interests in certain retail operations
in specified markets. The Parent also transferred the control and ownership
interests in certain other retail operations in specified markets to INLP. The
Parent sold and assigned all rights, title, and interest in the Goody's Family
Clothing trademark and registration to SYDOOG, which were in turn licensed to
the Parent, MSLP and INLP.
There were no write-offs or expenses associated with this realignment other
than professional fees and certain immaterial administrative expenses.
ITEM 2. PROPERTIES
The Company currently leases all of its stores. Lease terms generally
contain renewal options and provide for a fixed minimum rent, an additional rent
based on a percent of sales above a minimum sales level and a pro-rata share of
the taxes, insurance and common area maintenance costs.
The table below reflects (i) the number of leases that will expire in each
indicated fiscal year if the Company does not exercise any of its renewal
options and (ii) the number of leases that will expire in each indicated fiscal
year if the Company exercises all of its renewal options. The table does not
reflect four leases having month-to-month terms, but does include nine leases
executed as of February 1, 1997, for stores to be opened in fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF LEASES EXPIRING EACH NUMBER OF LEASES EXPIRING
YEAR IF NO RENEWALS EACH YEAR IF ALL RENEWALS
EXERCISED EXERCISED
------------------------------ -------------------------
<S> <C> <C>
1997................................. 21 6
1998................................. 28 3
1999................................. 23 5
2000................................. 13 0
2001................................. 12 2
2002 and thereafter.................. 111 192
</TABLE>
The Company owns its corporate headquarters and distribution center located
at 400 Goody's Lane, Knoxville, Tennessee. The distribution center is a one
story, 344,000 square foot facility with 43 loading docks and a mezzanine that
has an additional 14,000 square feet currently used as office space. The
corporate headquarters building is adjacent to the distribution center and
comprises approximately 140,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
Due to the nature of the Company's business, it is from time to time a
party to certain legal proceedings arising in the ordinary course of its
business. The Company is not currently a party to any legal proceeding that, in
the judgment of management, would have a material adverse effect on its
operations or financial condition, if adversely determined.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the
information on page 32 of the Registrant's 1996 Annual Report to Shareholders
under the captions "Common Stock Information" and "Dividend Policy."
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to the
information on page 15 of the Registrant's 1996 Annual Report to Shareholders
under the caption "Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to the
information on pages 16-19 of the Registrant's 1996 Annual Report to
Shareholders under the caption "Management's Discussion and Analysis."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to the
information on pages 21-31 of the Registrant's 1996 Annual Report to
Shareholders and in the tables for fiscal 1996 and fiscal 1995 on page 20 under
the caption "Selected Quarterly Data."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
10
<PAGE> 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
information under the captions "Election of Directors -- Director, Director
Nominee and Executive Officer Information" and "Election of Directors -- Section
16(a) Beneficial Ownership Reporting Compliance" in the Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on June 18, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
information under the caption "Executive Compensation and Other Information" in
the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be
held on June 18, 1997, but does not include the information under the captions
"Compensation Committee Report" and "Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
information under the caption "Voting Rights and Principal Shareholders" in the
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
on June 18, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
information under the caption "Certain Transactions" in the Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on June 18, 1997.
11
<PAGE> 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. Financial Statements
The Registrant's 1996 Annual Report to Shareholders, a copy of which
appears as Exhibit 13 to this Annual Report on Form 10-K, contains the following
financial statements and the Registrant's independent auditors' report thereon,
which are incorporated herein by reference.
- Independent Auditors' Report.
- Consolidated Statements of Operations for each of the three fiscal years
in the period ended February 1, 1997.
- Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996.
- Consolidated Statements of Cash Flows for each of the three fiscal years
in the period ended February 1, 1997.
- Consolidated Statements of Shareholders' Equity for each of the three
fiscal years in the period ended February 1, 1997.
- Notes to Consolidated Financial Statements for the three fiscal years in
the period ended February 1, 1997.
2. Financial Statement Schedules
All financial statement schedules are omitted as the required information
is inapplicable.
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER REF. DESCRIPTION
- ------- ---- -----------
<C> <C> <C> <S>
3.1 a -- Amended and Restated Charter of the Registrant
3.2 b -- Amended and Restated Bylaws of the Registrant
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Charter and Amended and Restated Bylaws of the
Registrant defining rights of holders of Common Stock of the
Registrant
10.1 c -- Goody's Family Clothing, Inc. Profit Sharing Plan
10.2 d -- Goody's Family Clothing, Inc. 1991 Stock Incentive Plan
10.4 e -- Goody's Family Clothing, Inc. 1993 Stock Option Plan
10.5 f -- Goody's Family Clothing, Inc. Discounted Stock Option Plan
for Directors, as amended
10.12 g -- Employment letter from the Registrant to Carmen Monaco
10.13 h -- Employment letter from the Registrant to Edward R. Carlin
10.16 i -- Employment agreement between the Registrant and Carmen
Monaco
10.18 j -- Settlement agreement dated January 5, 1995
10.20 k -- Employment and executive incentive agreements between the
Registrant and Edward R. Carlin
10.21 k -- Employment and executive incentive agreements between the
Registrant and Harry M. Call
10.22 k -- Employment and executive incentive agreements between the
Registrant and David R. Mullins
10.28 k -- Executive incentive agreement between the Registrant and
Bobby Whaley
10.29 k -- Benefit Protection Trust Agreement
10.30 l -- Employment agreement between the Registrant and Marcus H.
Smith, Jr.
10.31 l -- Employment agreement between the Registrant and Thomas R.
Kelly, Jr.
10.32 l -- Credit agreement between the Registrant, Lenders as
identified therein and First Tennessee Bank National
Association as Administrative Agent
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
EXHIBIT
NUMBER REF. DESCRIPTION
- ------- ---- -----------
<C> <C> <C> <S>
10.33 m -- Master transport agreement between the Registrant and Star
Transportation, Inc. dated July 10, 1995
10.34 n -- Goody's Family Clothing, Inc. Employee Payroll Investment
Plan
10.35 o -- Employment letter from the Registrant to Jay D. Scussel
10.36 o -- Indemnification agreement between the Registrant and Robert
M. Goodfriend
10.37 o -- Indemnification agreement between the Registrant and Harry
M. Call
10.38 o -- Indemnification agreement between the Registrant and James
L. Clayton
10.39 o -- Indemnification agreement between the Registrant and Samuel
J. Furrow
10.40 o -- Indemnification agreement between the Registrant and Robert
F. Koppel
10.41 o -- Indemnification agreement between the Registrant and Cheryl
L. Turnbull
10.42 p -- Amended Credit Agreement between the Registrant, Lenders as
identified therein and First Tennessee Bank National
Association as Administrative Agent
10.43 q -- Amended and Restated Credit Agreement dated October 31, 1996
between the Registrant, GOODY'S MS, L.P., and GOODY'S IN,
L.P. as borrowers, SYDOOG, Inc., Trebor of TN, Inc. and
GOFAMCLO, Inc. as guarantors, Lenders as identified therein
and First Tennessee National Bank Association as
Administrative Agent
10.44 -- Indemnification agreement between the Registrant and Irwin
L. Lowenstein
11 -- Statement re computation of per share earnings
13 -- Registrant's 1996 Annual Report to Shareholders (only those
portions specifically incorporated by reference into this
Report are to be deemed "filed" with the Securities and
Exchange Commission)
21 -- Subsidiaries of the Registrant
23 -- Independent Auditors' Consent
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
a 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).
b 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).
c Incorporated herein by reference to exhibit of the same number in
Registrant's Registration Statement on Form S-1 (Registration No. 33-42738)
originally filed on September 13, 1991.
d Incorporated herein by reference to exhibit of the same number in
Registrant's Annual Report on Form 10-K for the year ended January 30, 1993
(File No. 019526).
e Incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Shareholders held on June 24, 1993.
f Incorporated herein by reference to exhibit 4.1 in Registrant's Registration
Statement on Form S-8 (Registration No. 333-09595) filed on August 5, 1996.
g Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended October 24,
1992 (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 July 30,
1994 (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 29,
1994 (File No. 019526).
13
<PAGE> 14
j Incorporated herein by reference to exhibit 10.1 in Registrant's Current
Report on Form 8-K dated January 5, 1995 (File No. 019526).
k Incorporated herein by reference to exhibit of the same number in
Registrant's Annual Report on Form 10-K for the year ended January 28, 1995
(File No. 019526).
l Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended April 29,
1995 (File No. 019526).
m 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).
n 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.
o Incorporated herein by reference to exhibit of the same number in
Registrant's Annual Report on Form 10-K for the year ended February 3, 1996
(File No. 019526).
p Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended May 4, 1996
(File No. 019526).
q Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended November 2,
1996 (File No. 019526).
(B) FORMS 8-K:
None
14
<PAGE> 15
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
April 30, 1997
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.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
By: /s/ ROBERT M. GOODFRIEND Chairman of the Board and Chief April 30, 1997
----------------------------------------------- Executive Officer
Robert M. Goodfriend
By: /s/ HARRY M. CALL Director, President and Chief April 30,1997
----------------------------------------------- Operating Officer
Harry M. Call
By: /s/ EDWARD R. CARLIN Executive Vice President, Chief April 30, 1997
----------------------------------------------- Financial Officer and
Edward R. Carlin Secretary (Principal Financial
Officer)
By: /s/ DAVID G. PEEK Corporate Controller and Chief April 30, 1997
----------------------------------------------- Accounting Officer (Principal
David G. Peek Accounting Officer)
By: /s/ IRWIN L. LOWENSTEIN Director April 30, 1997
-----------------------------------------------
Irwin L. Lowenstein
By: /s/ SAMUEL J. FURROW Director April 30, 1997
-----------------------------------------------
Samuel J. Furrow
By: /s/ ROBERT F. KOPPEL Director April 30, 1997
-----------------------------------------------
Robert F. Koppel
By: /s/ CHERYL L. TURNBULL Director April 30, 1997
-----------------------------------------------
Cheryl L. Turnbull
</TABLE>
15
<PAGE> 1
EXHIBIT 10.44
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT ("Agreement") is made and entered into as of
the 19th day of June, 1996, by and between GOODY'S FAMILY CLOTHING, INC., a
Tennessee corporation (the "Corporation"), and IRWIN L. LOWENSTEIN
("Indemnitee").
WITNESSETH:
WHEREAS, the Indemnitee is a director or officer of the Corporation; and
WHEREAS, the Charter and Bylaws of the Corporation authorize the
indemnification of directors and officers of the Corporation; and
WHEREAS, the parties believe it appropriate to further memorialize and
reaffirm the Corporation's obligation to indemnify the Indemnitee as authorized
by the Charter and Bylaws of the Corporation;
NOW, THEREFORE, for and in consideration of the mutual agreements herein
contained, and other good and valuable consideration, the receipt and legal
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Agreement to Indemnify.
(a) Obligation to Indemnify; Standards for Indemnification. Subject
to Section 3 hereof, the Corporation shall indemnify Indemnitee against any
liability, including the obligation to pay judgments, settlements,
penalties, fines (including any excise tax assessed with respect to an
employee benefit plan) and reasonable expenses (including counsel fees)
actually and reasonably incurred by the Indemnitee in connection with any
threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative and whether formal or
informal ("Proceeding") in which the Indemnitee was or is or is threatened
to be made a party because Indemnitee is or was a director or officer of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee, or agent of another foreign
or domestic corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise if (i) Indemnitee acted in good faith;
(ii) Indemnitee reasonably believed that, in the case of conduct in his
Official Capacity (as such term is defined in Section 48-18-501(5) of the
Tennessee Code Annotated (the "Code") with the Corporation, his conduct was
in the best interests of the Corporation, or that, in all other cases, his
conduct was at least not opposed to the best interests of the Corporation;
and (iii) with respect to any criminal Proceeding, Indemnitee had no
reasonable cause to believe his conduct was unlawful. The termination of
any Proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, is not, of itself, determinative that
Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Corporation (as applicable), and, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was
unlawful.
(b) Court Ordered Indemnification. Notwithstanding any provision
herein to the contrary, Indemnitee may apply for indemnification to the
court conducting a Proceeding or another court of competent jurisdiction
and the court may order indemnification if it determines that (i) the
Indemnitee is entitled to mandatory indemnification under Section 48-18-503
of the Code in which case the court shall also order the Corporation to pay
Indemnitee's reasonable expenses to obtain court-ordered indemnification;
or (ii) the Indemnitee is fairly and reasonably entitled to indemnification
in view of all the relevant circumstances, whether or not he met the
standard of conduct set forth in Section 1 above or applicable Tennessee
law or was adjudged liable in a Proceeding by or in the right of the
Corporation or in a Proceeding on the basis that personal benefit was
improperly received by the Indemnitee, but if Indemnitee was adjudged so
liable his indemnification shall be limited to reasonable expenses
incurred.
(c) Exclusions. Unless ordered by a court under the circumstances
described in Section 1(b) above, the Corporation shall not be liable under
this Agreement to make any payment to Indemnitee (i) in connection with a
Proceeding by or in the right of the Corporation in which the Indemnitee
was adjudged liable to the Corporation; (ii) in connection with any
Proceeding charging improper personal benefit to the
<PAGE> 2
Indemnitee, whether or not involving action in his Official Capacity, in
which he was adjudged liable on the basis that personal benefit was
improperly received by him; (iii) for which payment is actually made to the
Indemnitee under a valid and collectible insurance policy, except in
respect of any excess beyond the amount of payment under such insurance;
(vi) for which payment is actually made to the Indemnitee by the
Corporation other than pursuant to this Agreement, except in respect of any
excess beyond the amount of such payment; (v) for an accounting of profits
made from the purchase or sale by the Indemnitee of securities of the
Corporation within the meaning of Section 16(b) of the Securities Exchange
Act of 1934, as amended, or similar provisions of any state statutory law;
or (vi) to the extent prohibited under Section 48-18-509 of the Code or
other applicable provisions of Tennessee law.
2. Indemnification Against Expenses of Successful Party. Notwithstanding
the other provisions of this Agreement, if Indemnitee has been wholly
successful, on the merits or otherwise, in the defense of any Proceeding to
which he was a party because he is or was a director or officer of the
Corporation, the Corporation shall indemnify the Indemnitee against all
reasonable expenses (including counsel fees) actually and reasonably incurred by
the Indemnitee in connection therewith.
3. Determination of Right of Indemnification. Any indemnification under
Sections 1(a) above (unless ordered by a court) shall be made by the Corporation
only following receipt of a written request by the Indemnitee and only as
authorized in the specific case upon a determination that indemnification of the
Indemnitee is permissible in the circumstances because Indemnitee has met the
applicable standard of conduct set forth in Section 1(a). Such determination
shall be made within thirty (30) days from the date the written request of the
Indemnitee is received by the Corporation by (i) a majority vote of a quorum of
the board of directors consisting of directors who are not at the time parties
to such Proceeding; (ii) if such a quorum cannot be obtained, by majority vote
of a committee duly designated by the board of directors (in which designation
directors who are parties may participate) consisting solely of two (2) or more
directors not at the time parties to the Proceeding; (iii) by the shareholders
(but shares owned by or voted under the control of directors who are at the time
parties to the Proceeding may not be voted in the determination); or (iv) by
independent special legal counsel. Such independent special legal counsel shall
be selected by (i) the majority vote of a quorum of the board of directors
consisting of directors who are not at the time parties to the Proceeding; (ii)
if such a quorum cannot be obtained, by majority vote of a committee duly
designated by the board of directors (in which designation directors who are
parties to the Proceeding may participate) consisting solely of two (2) or more
directors not at the time parties to the Proceeding; (iii) if a quorum of
directors not party to the Proceeding cannot be obtained and a committee
consisting solely of two (2) or more directors not at the time parties to the
Proceeding cannot be designated to select independent special legal counsel,
then such independent special legal counsel may be selected by majority vote of
the full board of directors (in which selection directors who are parties may
participate). The term "independent special legal counsel" as used herein, means
a law firm, an attorney, or a member of a law firm, that is experienced in
matters of corporate law and neither currently is, nor in the past five (5)
years has been, retained to represent (i) either the Corporation or Indemnitee
in any matter material to either party, or (ii) any other party to a Proceeding
giving rise to a claim for indemnification hereunder. The term "independent
special legal counsel" shall not include any person who, under the applicable
standards of professional conduct prevailing at the time of the representation,
would have a conflict of interest in representing either the Corporation or
Indemnitee in an action to determine Indemnitee's rights under the provisions of
the Corporation's Bylaws or any agreement upon which Indemnitee relies to
establish Indemnitee's right to indemnification or advancement of expenses.
Authorization of indemnification and evaluation as to reasonableness of expenses
shall be made in the same manner as the determination that indemnification is
permissible, except that if the determination that indemnification is
permissible is made by independent special legal counsel, authorization and
evaluation as to reasonableness of expenses shall be made by those entitled to
select such counsel.
4. Advances of Expenses. Except as limited herein, reasonable expenses
(including counsel fees) incurred by the Indemnitee in defending any Proceeding
shall be paid by the Corporation upon written request of the Indemnitee in
advance of the final disposition of such Proceeding if (i) the Corporation has
received a written affirmation by the Indemnitee of his good faith belief that
he has met the applicable standard of conduct set forth in Section 1(a) of this
Agreement; (ii) the Corporation has received an undertaking by or on behalf of
the
<PAGE> 3
Indemnitee, in substantially the form attached hereto as Annex I, to repay such
amount in the event that it is ultimately determined that Indemnitee is not
entitled to indemnification as authorized herein; and (iii) a determination is
made that the facts then known to the person or persons making the determination
would not preclude indemnification under Section 1 of this Agreement and the
applicable Tennessee law. Such determination and the authorization of payments
under this Section 4 shall be made in the same manner as the determination of
the right of indemnification and the authorization of payment of expenses set
forth in Section 3 of this Agreement.
5. Procedure for Making Demand. (a) Payments for any indemnification to
which the Indemnitee is entitled pursuant to Section 1 hereof shall be made by
the Corporation no later than fifteen (15) days after the determination required
by Section 3 is made that the Indemnitee has met the standard of conduct
required by Section 1(a).
(b) Payment of expenses determined by the court conducting the Proceeding
or another court of competent jurisdiction to be proper in view of all the
relevant circumstances as described in Section 1(b) shall be made by the
Corporation within fifteen (15) days following the date of the order of a court
from which no appeal can be taken or from which no appeal is timely taken.
(c) Payments of expenses to which the Indemnitee is entitled pursuant to
Section 2 hereof shall be made by the Corporation no later than forty-five (45)
days after receipt by the Corporation of the written request for payment from
the Indemnitee.
(d) Advancement of expenses to the extent provided by Section 4 hereof
shall be made by the Corporation no later than thirty (30) days after receipt by
the Corporation of (i) the written request for payment; (ii) the written
affirmation of good faith; and (iii) the written undertaking referred to in
Section 4 hereof; provided, however, that no advancement of such expenses shall
be made if a determination is made that the facts then known to the person or
persons making the determination preclude indemnification under Section 1 of
this Agreement or the applicable provision of the Code.
(e) The right to indemnification or advances hereunder shall be enforceable
by Indemnitee in any court of competent jurisdiction if the board of directors
(or any committee thereof), the shareholders or independent special legal
counsel improperly denies the claim, in whole or in part, or if indemnification
or advancement of expenses is not made within the time specified herein.
Indemnitee's expenses incurred in connection with successfully establishing
Indemnitee's right to indemnification or advancement of expenses, in whole or in
part, in any such Proceeding shall also be indemnified by the Corporation.
6. Subrogation. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee. The Indemnitee shall execute all papers
required and shall do any act or thing that may be necessary to secure such
rights, including the execution of such documents necessary to enable the
Corporation effectively to bring suit to enforce such rights.
7. Insurance. The Corporation shall use its best efforts to maintain
insurance on behalf of the Indemnitee against any expenses incurred in any
Proceeding and any liabilities asserted against him and incurred by him in his
capacity as a director or officer of the Corporation, or arising out of his
status as such.
8. Effect of Changes in Law or Corporate Documents. No change in the
Charter or the Bylaws of the Corporation or the Code subsequent to the date
first above written shall have the effect of limiting or eliminating the
indemnification available under this Agreement as to any act, omission or
capacity for which this Agreement provides indemnification at the time of such
act, omission or capacity. If any change after the date of this Agreement in any
applicable law, statute or rule expands the power of the Corporation to
indemnify the Indemnitee, such change shall be within the purview of the
Indemnitee's rights and the Corporation's obligations under this Agreement. If
any change in applicable law, statute or rule narrows the right of the
Corporation to indemnify the Indemnitee, such change, except to the extent
otherwise required by law, statute or rule to be applied to this Agreement,
shall have no effect on this Agreement or the parties' rights or obligations
hereunder.
9. Definition of "Corporation". For purposes of this Agreement, references
to "the Corporation" shall include, in addition to the resulting or surviving
corporation, any constituent corporation (including any
<PAGE> 4
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees or agents, so that any person who
is or was a director of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
shall stand in the same position under this Agreement with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
10. Successors. This Agreement establishes contract rights which shall be
binding upon, and shall inure to the benefit of, the successors, assigns, heirs,
and legal representatives of the parties hereto.
11. Contract Rights Not Exclusive. The contract rights conferred by this
Agreement shall be in addition to, but not exclusive of, any other right which
Indemnitee may have or may hereafter acquire under any statute, the Charter or
Bylaws of the Corporation, any agreement by the vote of shareholders or
disinterested directors of the Corporation, or otherwise. The rights granted in
this Agreement supersede any similar right granted under any previous agreement
between the Corporation and Indemnitee with respect to the subject matter
hereof.
12. Indemnitee's Obligations. Indemnitee shall promptly advise the
Corporation in writing of the institution of any Proceeding which is or may be
subject to this Agreement and keep the Corporation generally informed of, and
consult with the Corporation with respect to, the status of any such Proceeding.
Notices to the Corporation shall be directed to Goody's Family Clothing, Inc.,
400 Goody's Lane, Knoxville, Tennessee 37922, Attn.: Chairman of the Board of
Directors (or such other address as the Corporation shall designate in writing
to Indemnitee), and shall be given by personal delivery or by mailing the same
in the United States mail, postage prepaid, certified mail or registered mail
with return receipt requested. In addition, Indemnitee shall give the
Corporation such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power.
13. Severability. Should any provision of this Agreement, or any clause
thereof, be held to be invalid, illegal, or unenforceable, in whole or in part,
the remaining provisions and clauses of this Agreement shall remain fully
enforceable and binding on the parties. To the extent permitted by law, the
parties hereto waive any provision of law which renders any such provision
prohibited or unenforceable in any respect.
14. Modification and Waiver. No supplement, modification, or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
15. Choice of Law. The validity, interpretation, performance, and
enforcement of this Agreement shall be governed by the laws of the State of
Tennessee.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
GOODY'S FAMILY CLOTHING, INC.
By: /s/ HARRY M. CALL
-----------------------------------
Title: President
--------------------------------
INDEMNITEE
/s/ IRWIN L. LOWENSTEIN
--------------------------------------
Irwin L. Lowenstein
<PAGE> 1
EXHIBIT 11
GOODY'S FAMILY CLOTHING, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net earnings for the year........................... $17,151,000 $10,464,000 $ 6,872,000
----------- ----------- -----------
Weighted average common shares outstanding.......... 16,132,000 16,123,000 16,097,000
Common equivalent shares for outstanding stock
options........................................... 377,000 --* --*
----------- ----------- -----------
Weighted average common and common equivalent shares
outstanding....................................... 16,509,000 16,123,000 16,097,000
----------- ----------- -----------
Earnings per common share........................... $ 1.04 $ 0.65 $ 0.43
=========== =========== ===========
</TABLE>
- ---------------
* Common equivalent shares were not materially dilutive in fiscal 1995 and 1994
and therefore are not included in the earnings per share computations.
<PAGE> 1
EXHIBIT 13
GOODY'S
FAMILY CLOTHING(R)
take a good look
GOODY'S
FAMILY CLOTHING(R)
1996 ANNUAL REPORT
<PAGE> 2
Company Profile
Goody's Family Clothing, Inc., headquartered in Knoxville, Tennessee,
is a retailer of moderately priced apparel for women, men and
children. As of February 1, 1997, the Company operated 203 stores in
Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Kentucky,
Mississippi, North Carolina, Ohio, South Carolina, Tennessee,
Virginia and West Virginia.
<TABLE>
<CAPTION>
Contents
<S> <C>
Financial Highlights 2
A Letter to Our Shareholders 3
Merchandising 5
Marketing and Advertising 9
Real Estate 10
Store Operations 12
Financial Review 15
Shareholder and Investor Information 32
Board of Directors and Officers 33
</TABLE>
take a good look. . . .
Goody's
Family Clothing (R)
<PAGE> 3
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHORTS SWEATER DENIM SHIRT SHIRT BOXERS BOOTS HAND- DENIM SHIRTS JEANS SHIRTS BOOTS SHIRTS
VEST SHORT BAGS JUMPER
SHOES SHIRTS BELTS JEANS BREIFS SHIRTS SOCKS JEANS PICTURE SHIRT PANTS SHOES SHIRTS PANTIES
FRAMES
HANDBAGS JEANS COAT SHOES SHIRTS JEANS SHIRTS COAT SHOES KIDS BELTS SHIRTS JEANS SHIRTS
OVERALLS
SHORTS SWEATER DENIM SHIRT SHIRT BOXERS BOOTS HANDBAGS DENIM SHIRTS JEANS SHIRTS BOOTS SHIRTS
VEST SHORT JUMPERS
SHOES SHIRTS BELTS JEANS BREIFS SHIRTS SOCKS JEANS PICTURE SHIRT PANTS SHOES SHIRTS PANTIES
FRAMES
HANDBAGS JEANS COAT SHOES SHIRTS JEANS SHIRTS COAT SHOES KIDS BELTS SHIRTS JEANS SHIRTS
OVERALLS
SHORTS SWEATER DENIM SHIRT SHIRT BOXERS BOOTS HANDBAGS DENIM SHIRTS JEANS SHIRTS BOOTS SHIRTS
VEST SHORT JUMPERS
SHOES SHIRTS BELTS JEANS BREIFS SHIRTS SOCKS JEANS PICTURE SHIRT PANTS SHOES SHIRTS PANTIES
FRAMES
HANDBAGS JEANS COAT SHOES SHIRTS JEANS SHIRTS COAT SHOES KIDS BELTS SHIRTS JEANS SHIRTS
OVERALLS
SHORTS SWEATER DENIM SHIRT SHIRT BOXERS BOOTS HANDBAGS DENIM SHIRTS JEANS SHIRTS BOOTS SHIRTS
VEST SHORT JUMPERS
SHOES SHIRTS BELTS JEANS BREIFS SHIRTS SOCKS JEANS PICTURE SHIRT PANTS SHOES SHIRTS PANTIES
FRAMES
HANDBAGS JEANS COAT SHOES SHIRTS JEANS SHIRTS COAT SHOES KIDS BELTS SHIRTS JEANS SHIRTS
OVERALLS
SHORTS SWEATER DENIM SHIRT SHIRT BOXERS BOOTS HANDBAGS DENIM SHIRTS JEANS SHIRTS BOOTS SHIRTS
VEST SHORT JUMPERS
SHOES SHIRTS BELTS JEANS BREIFS SHIRTS SOCKS JEANS PICTURE SHIRT PANTS SHOES SHIRTS PANTIES
FRAMES
</TABLE>
<PAGE> 4
Financial Highlights
(Dollars in thousands, except per share amounts)
G
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2
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------
1996 1995 1994
<S> <C> <C> <C>
Sales $819,056 $696,868 $613,664
Gross profit 209,372 170,717 154,807
Earnings before income taxes 27,442 16,527 10,772
Net earnings 17,151 10,464 6,872
Earnings per common share 1.04 0.65 0.43
- -------------------------------------------------------------------------------
Stores open at year end 203 184 171
</TABLE>
<TABLE>
<CAPTION>
Sales Earnings per Common Share
(dollars in millions)
1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$455.3 $505.0 $613.7 $696.9 $819.1 $1.00 $0.86 $0.43 $0.65 $1.04
</TABLE>
<TABLE>
<CAPTION>
Shareholders' Equity Number of Stores
(dollars in millions)
1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$76.8 $88.4 $95.4 $105.9 $123.6 125 146 171 184 203
</TABLE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Management has endeavored in its communications, in its Form 10-K, and
in this Annual Report to highlight the trends and factors that might have an
impact on the Company and the industry in which the Company competes. Any
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, 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 forward-looking statements are
subject to risks and uncertainties including, but not limited to, customer
demand and trends in the apparel and retail industry and the acceptance of
merchandise acquired for sale by the Company, tariffs, quotas, trademark use,
political stability, the effectiveness of planned advertising and promotional
events, the impact of competitors' pricing, the Company's ability to enter into
leases for new store locations, individual store performance, adverse weather
conditions, employee relations, and the general economic conditions within the
Company's markets. The above factors in some cases have affected, and in the
future could affect, the Company's financial performance and could cause actual
results for fiscal 1997 and beyond to differ materially from those expressed or
implied in such forward-looking statements, including statements with respect
to comparable store sales growth, expansion in gross store square footage, new
store openings and relocations or remodels, and planned capital expenditures
referred to under the caption "A Letter to Our Shareholders." 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.
<PAGE> 5
PANTS
G
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BOB GOODFRIEND
AND HARRY CALL
A Letter to Our Shareholders
We are extremely pleased with our results for 1996. They represent a
major turnaround for Goody's and a successful first step in our strategy to
improve the long-term profitabilty of our Company. We experienced record sales
of $819.1 million compared with $696.9 million in 1995, and net earnings of
$17.2 million, or $1.04 per share, compared with $10.5 million, or $0.65 per
share, in 1995. Bolstering our performance for the year were outstanding
third and fourth quarters during which our comparable store sales increased
13.4 and 14.1 percent, respectively, from the same periods in 1995, bringing
our comparable store sales increase to 6.9 percent for the year.
The changes we have made to our merchandising strategies, including
improved merchandise selection and quality and careful inventory management,
have enhanced Goody's position in our markets. We ended 1996 with gross margin
improvement of more than 100 basis points and with well positioned inventories
entering 1997. In 1996 capital expenditures were $16.1 million with
approximately $13.4 million allocated for new store growth, store relocations
and remodels; $1.3 million for organization-wide technology enhancements; and
the remainder being used for general corporate purposes. These expenditures were
funded by internally generated cash. In fact, we ended the year with virtually
no long-term debt.
Many factors contributed to our increased sales and net earnings last
year: we opened 20 new stores, including a successful six-store entry into
metropolitan Atlanta, Georgia, and a three-store expansion into Charlotte,
North Carolina; we relocated seven stores and remodeled one; we enhanced
technology throughout the Company to improve the speed and efficiency of
operational and customer related transactions; and we unveiled a new store look
featuring a warm updated fixturing package that will be utilized in all
new and relocated stores. Using the new package, we plan to fully refixture 22
existing stores and partially refixture another 118 existing stores this year.
We expect to grow our business at a healthy pace. Our business plan
for fiscal 1997 calls for comparable store sales growth of 5 percent
take a good look
<PAGE> 6
A Letter to Our Shareholders (continued)
G
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4
SHIRTS
and an expansion in our gross store square footage base of at least 10 percent.
Goody's management is committed to increasing profitability, not only for 1997,
but well into the future. Our three-step strategy for accomplishing this goal
includes: - Increasing our sales through comparable store sales growth and new
store expansion. -Improving our merchandise margins by reducing our dependence
on denim while simultaneously increasing the growth rate of other higher margin
departments, building our private label programs as a percent of total sales
and carefully managing our inventories. -Aggressively managing our expenses and
gaining expense leverage with planned sales growth.
Capital expenditures for 1997 are planned at $23 million, the bulk of
which is allocated for opening a minimum of 20 new stores and the relocation
and remodeling of eight stores, as well as for refixturing existing stores. The
remainder will be used for merchandising technology upgrades, distribution
center improvements and general corporate purposes. During the past 18 months
we have carefully evaluated and developed strategic plans for key segments of
our business, including Merchandising, Marketing and Advertising, Real Estate,
and Store Operations, all of which will be supported by enhancements in our
management information systems. These four areas, which are profiled in more
detail in the following pages, operate under the leadership of a proven team of
professionals, and each performs with a definite direction and a common vision.
Today we operate with more confidence than at any other time in our
Company's history. We understand our customers and their expectations. The
management team that produced our record results for 1996 is focused,
dedicated and committed to making Goody's Family Clothing one of the most
outstanding apparel retail performers today. And most important, we believe we
have developed a sensible strategy for sustaining long-term profitable growth
and increasing the value of Goody's for our shareholders. It is these things
that we hope will make you want to Take a Good Look at Goody's Family Clothing.
We think you will like what you see.
Sincerely,
Signature Signature
Robert M. Goodfriend Harry M. Call
Chairman of the Board and President and
Chief Executive Officer Chief Operating Officer
March 19, 1997
<PAGE> 7
G
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LEVIS LOGO
NIKE LOGO
ALFRED DUNNER LOGO
SAG HARBOR LOGO
Bugle Boy Logo
LESLIE FAY LOGO
LEE LOGO
Merchandising
SHIRT
Levi's. Nike. Alfred Dunner. Sag Harbor. Leslie Fay. Plaza South.
Lee. At Goody's Family Clothing, great quality brand names like these are the
foundation and mainstay of our business. We know our customer. She wants
selection and value. She needs the convenience of one-stop shopping for her
entire family. We're committed to bringing her all of this and more at prices
targeted to be 10 to 30 percent lower than those of traditional department
stores--every day.
Under the direction of Thomas R. Kelly, Jr., Executive Vice President
and General Merchandise Manager, we made great strides in all areas of
merchandising last year. We believe that customers who stopped shopping at
Goody's during 1993 and 1994 due to disappointing merchandise selections
returned as we revamped our women's division to include more fashion and basic
career apparel and strengthened our men's and children's divisions with better
brands and outstanding private label merchandise.
A key part of our merchandising strategy for the last half of 1996 and
continuing into the spring of 1997 was to increase our inventories by adding
basic bottoms in all of our departments and by investing in new products such
as accessories and gifts, men's blazers, dress pants, dress shirts, and ties.
Goody's record sales and earnings results for 1996 suggest this approach was
worthwhile. As part of our efforts to continually offer better brands to our
customers, last year we successfully tested Dockers, one of the most popular
pants programs in the country, in nine Birmingham area stores. This spring we
will add Dockers merchandise in the men's, women's and boys' departments in 115
of our stores, and we plan to include this important addition in all new store
openings in 1997. By early 1998 the Dockers roll-out should be complete
chainwide.
National brands and high-quality private label apparel aren't the only
features generating renewed interest among our customers. Exciting visual
presentation formats and updated fixturing established last year are allowing
us to showcase our merchandise in a more open, accessible and customer-friendly
shopping environment.
Year after year we strive to distinguish ourselves from our
competition by offering shoppers a comprehensive selection of their favorite
brand name apparel with an emphasis on quality, value and price. Last year we
gained critical market share and further defined our niche in the industry
take a good look
<PAGE> 8
G
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6
IN-STORE
DENIM DEPT.
IN-STORE
NIKE DEPT.
Merchandising (continued)
PANTS
using this approach. Our stores offer brands that are not generally available
to mass-market retailers and, unlike specialty stores, we offer apparel for
the entire family. Moreover, we believe we provide a unique combination of
brand name and private label merchandise at a price and value level
generally unattainable by traditional department stores.
Women's wear, the largest segment of our business, accounted for
approximately 41 percent of the Company's total sales in 1996. By reemphasizing
fashion and basic career apparel, and also offering a broad selection of
sportswear, we've established ourselves as one of the Southeast's leading
providers of moderately priced women's apparel.
Denim, the cornerstone of our Company's merchandising strategy,
represented approximately 25 percent of total sales last year across the
women's, men's and children's merchandising divisions. An expansive denim
selection with competitively priced brand names such as Levi's, Lee, Bugle Boy
and Union Bay serves as an important draw for middle-income consumers and
generates traffic for other higher margin merchandise in our stores.
The men's division, one of our most developed businesses, also
features a solid line-up of brand name apparel combined with growing private
label collections. In 1996 the men's division contributed approximately 20
percent of the Company's total sales volume.
One of the most improved areas of our business is the children's
division. Popular activewear lines, dominant denim brand names, sturdy private
label basics, and an enhanced dress selection have positioned this division as
the fourth largest producer in the Company, contributing approximately 7
percent of total sales.
For more than 40 years we at Goody's have made customers our first
priority. Our goal has been--and will continue to be--providing shoppers with
the best value for their money. Consistently serving our customers with the
right combination of brand name and private label merchandise will remain key to
fulfilling our mission to be the dominant retailer of moderately priced family
apparel in the southeastern United States.
<PAGE> 9
G
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7
IN-STORE
IVY CREW DEPT.
IN-STORE
MONTANA BLUES DEPT.
Merchandising (Product Development)
SHIRTS
In 1993 we launched our first private label collection, Ivy Crew for
men, a brand that has become so well received by Goody's customers that today
it represents more than 30 percent of sales in our men's division. The success
of the Ivy Crew collection has since led to the birth of a full-scale product
development department whose mission is to create collections of high-quality
private label basic and fashion apparel for women, men and children.
Designing our own private label brands gives us the advantage of
maintaining a consistent in-stock position on basic items. Our goal in
producing each new private label line is to provide our customers with designer
looks and quality at Goody's value prices.
In mid 1995, John Okvath, a veteran sourcing agent, was hired as Vice
President for Product Development to spearhead new development efforts and
oversee the growth of our existing private label programs. Prior to coming to
Goody's, Okvath spent years living and working in the Orient, establishing
valuable relationships with manufacturers. Throughout 1996 we invested heavily
in personnel, adding managers to source product and ensure the quality of our
private label programs, and systems to support this growth. We will continue
building on these two areas throughout 1997.
The conception of Goody's private label apparel begins with careful
research. Merchants monitor fashion trends in the marketplace and the buying
patterns of our customers to create a mix of private label fashions that
complements the brand name goods on our sales floor and satisfies the needs of
our customers. Each new product designed at Goody's is manufactured and
delivered to our stores only after it has been tested and has met our strict
specifications for size, fabric weight, stitching, and color stability. In fact,
Goody's private label merchandise is designed and produced to meet or exceed
the quality of apparel offered in specialty and department stores.
Since the inception of our private label programs, we have developed
strategic relationships with global manufacturers. Dealing directly with
these manufacturers gives us greater control over the quality of the
merchandise we offer our customers and enables us to efficiently adjust our
inventories in response to changing consumer needs.
take a good look
<PAGE> 10
G
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8
IVY CREW LOGO
MONTANA BLUES LOGO
BOBBY G LOGO
MOUNTAIN LAKE LOGO
GFC TRADING COMPANY LOGO
BOBBY G SHIRTS
Merchandising (Product Development, continued)
SHIRT
Today our stores offer distinctive private label lines that we expect
will represent approximately 18 percent of our total 1997 sales volume: Ivy
Crew, a classic look for men that includes three separate collections-
sportswear, career wear and furnishings; Authentic GFC and GFC Trading Co.,
basic casual apparel for young men and boys; Bobby G by Ivy Crew, an upscale
golf-inspired sportswear collection for men that consists of trousers, shorts,
knit shirts and sweater vests; Chandler Hill, a collection of classic career
separates offered in the misses department; Montana Blues Jean Company,
sportswear for juniors and girls, featuring denim, twill and corduroy bottoms
with coordinating tops, vests, jackets and sweaters; Good Kidz, basic commodity
merchandise for children; and beginning this fall, Mountain Lake, a classic
sportswear collection for women.
The importance of product development to the long-range success of our
company is clear: private label programs help us remain in-stock with
high-quality clothing at a great value to our customers and to our Company.
These programs have had a positive impact on the Company's merchandise margins
and will be critical to our ongoing efforts to improve the overall
profitability of Goody's.
Though we remain committed to maintaining a strong line-up of
nationally recognized brand name merchandise, private label products play an
increasingly important role in helping us maintain a good competitive position
against other retailers operating in our markets. We intend to aggressively
build our private label business as our exclusive brands continue to gain
recognition and acceptance by our customers. We plan for this dynamic part of
Goody's business to account for up to 25 percent of our total sales volume
by the end of 1999.
<PAGE> 11
G
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WOMAN IN CASUAL
CLOTHING
MAN IN HENLEY
WOMAN IN SHORT
SLEEVE SWEATER
Marketing and Advertising
PANTS
We believe that communicating frequently with our customers is key
to sustaining traffic flow in Goody's stores and creating top-of-the-mind
awareness among shoppers. Our award-winning marketing and advertising campaign,
Goody's Feels Like You, was launched in early 1995 with a positioning awareness
message that emphasizes the Company's price-value strategy.
Goody's advertising is represented in the newspaper-in preprinted tab
or run of press formats- at least once each week, 52 weeks a year. We
reinforce our print message with radio and television spots that run
approximately 36 weeks a year.
Our advertising team has established a long-term campaign strategy
that supports the Company's overall objectives to gain market share and
increase profitability. A key part of that strategy is to fuel comparable store
sales growth by increasing advertising's impact on a store-by-store basis.
Another important element of our strategy is the message itself. The
Goody's Feels Like You campaign has evolved to a new level, one that encourages
shoppers to take another look at Goody's and how our merchandise and stores are
adapting to meet the needs of today's consumers. On May 1, 1997, we will unveil
the Take a Good Look campaign with four important objectives in mind: to give
shoppers a reason to visit Goody's again, still emphasizing the price-value
message; to sell the importance of the shopping experience in addition to the
ongoing price-value message, focusing on clean, neat stores, outstanding
customer service, and ease of shopping; to establish and reinforce Goody's
position in the marketplace in relation to our competitors with the slogan
Department Store Brands, Department Store Styles, Goody's Low Prices; and to
differentiate the Company from our competition by focusing on the human side of
Goody's, highlighting our community service initiatives.
Advertising played a major role in our success in 1996, particularly
during our multi-store entries into metropolitan Atlanta, Georgia, and
Charlotte, North Carolina. We believe that aggressive marketing and
advertising will help us achieve the ambitious goals we have set for long-term
growth and profitability.
take a good look
<PAGE> 12
G
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10
MAP OF GOODY'S LOCATIONS
Real Estate
SHIRTS
As one of the fastest growing retailers in the Southeast, we have
carved a special place for ourselves in the retail industry: serving the middle
American consumer with quality family apparel at value prices. Choosing the
right locations for our stores is key to our success.
The real estate team at Goody's considers a host of factors before
choosing a new store site. In particular, the Company seeks primary retail
locations in selected markets. Other significant location criteria include:
-Market trade areas with minimum populations of 50,000 people, or
metropolitan
<PAGE> 13
G
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Real Estate (continued)
SHIRT
markets where we can establish multiple stores.
- -Communities with a solid middle-income customer base. - Regional and community
strip shopping centers (though selected malls are considered) anchored by
strong, high-traffic retailers. - Available space for a 20,000 to 35,000 square
foot store.
In 1997 we plan to open a minimum of 20 new stores including our first in
the state of Missouri. By the end of the year we expect to be operating in
more than 6,000,000 square feet of retail space in 15 states.
EXISTING STORES
NEW STORES
PROPOSED STORES
As of February 1, 1997, the Company operated 203 stores in 14 states.
<TABLE>
<S> <C> <C> <C> <C> <C>
ALABAMA (25) - Augusta (2) - Seymour NORTH - Zanesville - LaFollette
- - Alexander City - Bainbridge - Shelbyville CAROLINA (30) - Lebanon
- - Athens - Blue Ridge - Vincennes - Albemarle SOUTH CAROLINA (11) - McMinnville
- - Bessemer - Brunswick - Asheville (2) - Aiken - Martin
- - Birmingham (7) - Carrollton KENTUCKY (18) - Boone - North Augusta - Maryville
- - Cullman - Cartersville - Bowling Green - Burlington - Camden - Morristown
- - Dothan - Centerville - Danville - Charlotte (3) - Conway - Murfreesboro
- - Florence - Cordele - Elizabethtown - Greenville - Florence - Newport
- - Fort Payne - Covington - Frankfort - Henderson - Greenville (2) - Oak Ridge
- - Gadsden - Dalton - Glasgow - Hickory - Greenwood - Rockwood
- - Huntsville - Dublin - Hazard - High Point - Myrtle Beach - Rogersville
- - Jasper - Douglasville - Henderson - Kinston - Spartanburg (2) - Sevierville
- - Opelika - Gainesville - London - Laurinburg - Springfield
- - Scottsboro - Griffin - Mt. Sterling - Lexington TENNESSEE (41) - Sweetwater
- - Selma - Hinesville - Madisonville - Morganton - Athens - Tullahoma
- - Sylacauga - LaFayette - Maysville - Mt. Airy - Chattanooga (3) - Union City
- - Talladega - La Grange - Middlesboro - Murphy - Clarksville
- - Troy - Milledgeville - Morehead - Roanoke Rapids - Cleveland VIRGINIA (10)
- - Tuscaloosa (2) - Newnan - Paducah - Rocky Mount - Clinton - Bristol
- Rome - Pikeville - Sanford - Columbia - Christiansburg
ARKANSAS (1) - Statesboro - Richmond - Shelby - Cookeville - Charlottesville
- - Jonesboro - Swainesboro - Shelbyville - Southern Pines - Crossville - Lynchburg
- Tifton - Somerset - Spindale - Dayton - Martinsville
FLORIDA (7) - Valdosta - Statesville - Dickson - Norton
- - Ft.Walton Beach - Waycross MISSISSIPPI (8) - Sylva - Dyersburg - Roanoke (2)
- - Gainesville (2) - Columbus - Waynesville - Farragut - Staunton
- - Lake City ILLINOIS (1) - Corinth - Wilson - Franklin - Wytheville
- - Palatka - Carbondale - Hattiesburg - Wilkesboro - Gallatin
- - Panama City - Meridian - Wilmington - Greeneville WEST
- - Tallahassee INDIANA (8) - Oxford - Jackson VIRGINIA (3)
- Bedford - Pascagoula OHIO (5) - Johnson City - Beckley
GEORGIA (35) - Jasper - Tupelo - Athens - Kimball - Logan
- - Albany - New Castle - Vicksburg - Chillicothe - Kingsport - Parkersburg
- - Athens - Princeton - New Boston - Knoxville (4)
- - Atlanta (7) - Richmond - Steubenville
</TABLE>
take a good look
<PAGE> 14
G
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Store Operations
PANTS
At Goody's, providing a friendly, satisfying shopping experience for our
customers is our first priority. We recognize that our customers have more
shopping choices today than ever before. That's why a focus of our store
management group has been to streamline all functions of store operations-from
the way we design and fixture our stores to the way we train our associates and
even the process by which we check customers out. Why? Because we want to be
the southeastern customer's first choice for moderately priced family apparel.
It's that simple.
During 1996 we introduced a fixturing program in all of our new stores
that optimizes the use of space by utilizing flex tables, nesting tables, and
enhancement panels to achieve a cleaner, more visually appealing merchandise
presentation. This year we plan to partially or fully refixture a total of 140
stores.
We expect associate training programs developed in 1995 and 1996 to be
expanded chainwide this year with the goal of increasing associate's customer
service skills, as well as reinforcing new merchandise presentation standards,
loss prevention strategies, and operational procedures. We're also offering
additional training opportunities in the areas of time management and
communication to our store managers.
ATLANTA STORE FRONT
<PAGE> 15
Authentic GFC
G
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Store Operations (continued)
SHIRTS
We believe this investment in our associates will deliver added benefits for
our customers and for Goody's.
Operational streamlining should also have a positive impact on our
customers' overall shopping experience at Goody's. Last year we implemented an
electronic system that allows us to better manage the price change process from
the corporate office rather than manually at the store level. This allows our
store associates to spend more time and effort serving customers rather than
performing operational tasks. Also, we plan to implement an automated labor
management system this October that will allow us to schedule associates in our
stores when and where we need them. Two important benefits of this program will
be improved customer service and a potential reduction in payroll costs. But
one of the most important improvements we'll make in the area of customer
service is to reduce the amount of time it takes customers to check out of our
stores. This fall, we plan to incorporate redesigned checkout stations in all
new stores and will begin adding them to existing stores. These redesigned
stations, along with planned upgrades in our credit card and check processing
technology, should save our customers valuable time.
Our customers are the driving force behind who we are as a Company. We
listen to what they have to say and we try to respond. The store operations
group is committed to making Goody's the undisputed leader in serving today's
southeastern consumer with just the right combination of value, selection and
service.
A GFC DEPT.
take a good look
- --------------------------------------------------------------------------------
Two Women
Lifestyle Photo
<PAGE> 16
]
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts and sales per gross square
foot)
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------
1996 1995 (1) 1994 1993 1992(1)
------------------------------------------------------------
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C>
Sales $819,056 $696,868 $613,664 $504,964 $455,330
Cost of sales and occupancy expenses 609,684 526,151 458,857 374,559 332,727
------------------------------------------------------------
Gross profit 209,372 170,717 154,807 130,405 122,603
Selling, general and
administrative expenses 182,628 154,901 136,612 110,906 98,118
Unusual items (2) -- -- 6,143 -- --
------------------------------------------------------------
Earnings from operations 26,744 15,816 12,052 19,499 24,485
Interest expense 762 608 1,163 1,488 980
Investment income (loss) 1,460 1,319 (117) 3,189 1,919
------------------------------------------------------------
Earnings before income taxes 27,442 16,527 10,772 21,200 25,424
Provision for income taxes 10,291 6,063 3,900 7,385 9,210
------------------------------------------------------------
Net earnings $ 17,151 $ 10,464 $ 6,872 $ 13,815 $ 16,214
============================================================
Earnings per common share (3) $ 1.04 $ 0.65 $ 0.43 $ 0.86 $ 1.00
============================================================
Weighted average common
shares outstanding (in thousands) (3) 16,509 16,123 16,097 16,130 16,202
============================================================
SELECTED OPERATING DATA
(at year end)
Stores open 203 184 171 146 125
Comparable store sales
increase (decrease) (4) 6.9% 1.3% 3.4% (1.2)% 9.4%
Sales per gross square foot (5) $ 156 $ 150 $ 150 $ 148 $ 156
Average sales per store (6) $ 4,090 $ 3,922 $ 3,741 $ 3,766 $ 3,906
Gross store square footage (in thousands) 5,498 4,913 4,505 3,695 3,205
Capital expenditures $ 16,070 $ 10,632 $ 39,388 $ 15,077 $ 11,043
Depreciation and amortization $ 10,595 $ 9,141 $ 6,185 $ 5,594 $ 5,409
BALANCE SHEET DATA
Working capital $ 44,016 $ 27,786 $ 16,707 $ 40,204 $ 33,883
Total assets 254,347 208,443 185,744 163,803 156,329
Long-term debt 871 1,110 1,327 1,525 1,704
Shareholders' equity 123,576 105,875 95,365 88,370 76,785
</TABLE>
1 Consists of 53 weeks.
2 Refer to Note 11 to Consolidated Financial Statements.
3 Weighted average common shares outstanding for fiscal 1996 includes common
equivalent shares to account for the dilutive effect of stock options.
Common equivalent shares were not materially dilutive in prior years and
therefore are not included in the earnings per share computations for such
years.
4 Comparable store sales for fiscal 1996 are based on stores which operated
throughout fiscal 1996 (including relocated, remodeled and expanded
stores) and which were in operation for the entire previous fiscal year
(computed on comparable 52-week periods). Prior to fiscal 1996, new stores
were included in such calculation beginning the first full month following
the anniversary of their opening.
5 Sales per gross square foot is calculated by dividing (i) sales on a
52-week basis from stores which operated throughout the fiscal year
(including relocated, remodeled and expanded stores) and which were in
operation for the entire previous fiscal year, by (ii) the gross square
footage related to those stores.
6 Average sales per store for each fiscal year 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.
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<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS - FOURTH QUARTER FISCAL 1996 COMPARED WITH FOURTH QUARTER
FISCAL 1995
The following table sets forth the Company's unaudited results of operations
for the periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Fourth Quarter 1996 Fourth Quarter 1995
(13 weeks) (14 weeks)
--------------------------------------------
<S> <C> <C> <C> <C>
Sales $273,499 100.0% $228,702 100.0%
Cost of sales and occupancy expenses 204,192 74.7 175,071 76.5
--------------------------------------------
Gross profit 69,307 25.3 53,631 23.5
Selling, general and administrative expenses 53,318 19.5 45,714 20.0
--------------------------------------------
Earnings from operations 15,989 5.8 7,917 3.5
Interest expense 249 0.1 167 0.1
Investment income 524 0.2 389 0.2
--------------------------------------------
Earnings before income taxes 16,264 5.9 8,139 3.6
Provision for income taxes 6,043 2.2 2,917 1.3
--------------------------------------------
Net earnings $ 10,221 3.7% $ 5,222 2.3%
============================================
Earnings per common share (1) $ 0.62 $ 0.32
======== ========
Weighted average common shares outstanding (1) 16,570 16,125
======== ========
</TABLE>
(1) Weighted average common shares outstanding for the fourth quarter of fiscal
1996 includes common equivalent shares to account for the dilutive effect of
stock options. Common equivalent shares were not materially dilutive in the
fourth quarter of fiscal 1995 and therefore are not included in the earnings per
share computations for such quarter.
OVERVIEW In the fourth quarter of fiscal 1996, the Company opened six new
stores and relocated two stores, bringing the total number of stores in
operation at February 1, 1997 to 203, compared with 184 at February 3, 1996. In
the fourth quarter of fiscal 1995, six new stores were opened. Net earnings
were $10,221,000, or 3.7% of sales, in the fourth quarter of fiscal 1996,
compared with $5,222,000, or 2.3% of sales, in the fourth quarter of fiscal
1995.
SALES Sales for the fourth quarter of fiscal 1996 (13 weeks) were $273,499,000,
a 19.6% increase over the $228,702,000 for the fourth quarter of fiscal 1995 (14
weeks). This increase of $44,797,000 consisted of (i) a 14.1% increase in
comparable store sales of $21,028,000 from the corresponding 13-week period of
the previous fiscal year, (ii) additional sales from new and transition stores
of $29,974,000, which were offset by (iii) $6,205,000 from the additional last
week of sales included in the 14-week fourth quarter of fiscal 1995. Significant
factors which contributed to the increase in comparable store sales included
(i) favorable customer reaction to certain brand name and private label
merchandise, (ii) a strategic build-up of inventory in an effort to be
"in-stock" for most basic items everyday and (iii) strong promotions which
emphasized the "price-value" relationship of the Company's merchandise and a
reinforced customer awareness of Goody's presence in the markets served.
GROSS PROFIT Gross profit for the fourth quarter of fiscal 1996 was
$69,307,000, or 25.3% of sales, a $15,676,000 increase over the $53,631,000,
or 23.5% of sales, in gross profit generated for the fourth quarter of the
previous fiscal year. The 1.8% increase in gross profit, as a percent of
sales, in the fourth quarter of fiscal 1996 compared with the fourth quarter of
fiscal 1995 resulted primarily from customer acceptance of certain key
merchandise items during the Christmas holiday season and favorable customer
reaction to the Company's private label merchandise that positively impacted
gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses for the fourth quarter of fiscal 1996 were $53,318,000,
or 19.5% of sales, an increase of $7,604,000 from $45,714,000, or 20.0% of
sales, for the fourth quarter of fiscal 1995. The 0.5% decrease in selling,
general and administrative expenses, as a percent of sales, in the fourth
quarter of fiscal 1996 compared with the fourth quarter of fiscal 1995 resulted
primarily from a decrease in advertising and promotional expenses. Selling,
general and administrative expenses for the fourth quarter of fiscal 1996
included a charge of $741,000 resulting from the impairment of certain stores'
property and equipment pursuant to the provisions of Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121").
INTEREST EXPENSE Interest expense for the fourth quarter of fiscal 1996
increased by $82,000 compared with the fourth quarter of fiscal 1995 primarily
from an increase in borrowings for normal operating purposes.
INVESTMENT INCOME Investment income for the fourth quarter of fiscal 1996
increased by $135,000 compared with the fourth quarter of fiscal 1995 primarily
from an increase in invested funds.
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<PAGE> 18
RESULTS OF OPERATIONS - FISCAL 1996, 1995 AND 1994
The following table sets forth the Company's audited results of operations as a
percent of sales for the fiscal years indicated:
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------------
1996 1995 1994
(52 Weeks) (53 Weeks) (52 Weeks)
-------------------------------------------------------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales and occupancy expenses 74.4 75.5 74.8
-------------------------------------------------------
Gross profit 25.6 24.5 25.2
Selling, general and administrative expenses 22.3 22.2 22.2
Unusual items -- -- 1.0
-------------------------------------------------------
Earnings from operations 3.3 2.3 2.0
Interest expense 0.1 0.1 0.2
Investment income 0.2 0.2 --
-------------------------------------------------------
Earnings before income taxes 3.4 2.4 1.8
Provision for income taxes 1.3 0.9 0.7
-------------------------------------------------------
Net earnings 2.1% 1.5% 1.1%
=======================================================
</TABLE>
FISCAL 1996 COMPARED WITH FISCAL 1995
OVERVIEW In fiscal 1996, the Company opened 20 new stores, relocated seven
stores, remodeled one store and closed one store. This brought the total number
of stores in operation at February 1, 1997 to 203, compared with 184 at
February 3, 1996. In fiscal 1995, 13 new stores were opened, six stores were
relocated and one store was remodeled. Net earnings were $17,151,000, or 2.1%
of sales, in fiscal 1996, compared with net earnings of $10,464,000, or 1.5% of
sales, in fiscal 1995.
SALES Sales for fiscal 1996 (52 weeks) were $819,056,000, a 17.5% increase over
the $696,868,000 for fiscal 1995 (53 weeks). This increase of $122,188,000
consisted of (i) a 6.9% increase in comparable store sales of $42,780,000 from
the corresponding 52-week period of the previous fiscal year, (ii) additional
sales from new and transition stores of $85,613,000, which were offset by (iii)
$6,205,000 from the additional last week of sales included in the 53-week
fiscal 1995. Significant factors which contributed to the increase in
comparable store sales included (i) favorable customer reaction to certain
brand name and private label merchandise, (ii) a strategic build-up of
inventory, implemented during the second quarter of fiscal 1996, in an effort
to be "in-stock" for most basic items everyday and (iii) strong promotions
which emphasized the "price-value" relationship of the Company's merchandise
and a reinforced customer awareness of Goody's presence in the markets served.
GROSS PROFIT Gross profit for fiscal 1996 was $209,372,000, or 25.6% of sales,
a $38,655,000 increase over the $170,717,000, or 24.5% of sales, in gross
profit generated for the previous fiscal year. The 1.1% increase in gross
profit, as a percent of sales, resulted primarily from changes in the Company's
merchandising strategies, including improved merchandise selection and quality,
and inventory management. Customer acceptance of the Company's private label
merchandise during fiscal 1996 positively impacted gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses for fiscal 1996 were $182,628,000, or 22.3% of sales,
an increase of $27,727,000 from $154,901,000, or 22.2% of sales, for fiscal
1995. The 0.1% increase in selling, general and administrative expenses, as a
percent of sales, in fiscal 1996 compared with fiscal 1995 resulted primarily
from increases in payroll expenses. Selling, general and administrative
expenses for fiscal 1996 included a provision of $691,000 in connection with
the early termination of a lease of one of the Company's stores which closed in
August 1996 and $741,000 for the impairment of certain stores' property and
equipment pursuant to the provisions of SFAS No. 121.
INTEREST EXPENSE Interest expense for fiscal 1996 increased by $154,000
compared with fiscal 1995 primarily from an increase in borrowings for normal
operating purposes.
INVESTMENT INCOME Investment income for fiscal 1996 increased by $141,000
compared with fiscal 1995 primarily from an increase in invested funds.
INCOME TAXES The provision for income taxes for fiscal 1996 was $10,291,000,
for an effective tax rate of 37.5% of earnings before income taxes, compared
with $6,063,000, for an effective tax rate of 36.7% of earnings before income
taxes, for fiscal 1995. The increase in the effective tax rate was primarily due
to a decrease in tax-exempt investment income and the expiration of the
Targeted Jobs Tax Credit program in June 1995, which were offset by a decrease
in the effective state income tax rates.
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<PAGE> 19
Management's Discussion and Analysis (continued)
FISCAL 1995 COMPARED WITH FISCAL 1994
OVERVIEW In fiscal 1995, the Company opened 13 new stores, relocated six stores
and remodeled one store. This brought the total number of stores in operation
at February 3, 1996 to 184, compared with 171 at January 28, 1995. In fiscal
1994, 25 new stores were opened, five stores were relocated and two stores were
remodeled. Net earnings were $10,464,000, or 1.5% of sales, in fiscal 1995,
compared with net earnings of $6,872,000, or 1.1% of sales, in fiscal 1994.
SALES Sales for fiscal 1995 (53 weeks) were $696,868,000, a 13.6% increase over
the $613,664,000 for fiscal 1994 (52 weeks). This increase of $83,204,000
consisted of (i) a 1.3% increase in comparable store sales of $7,850,000 from
the corresponding 52-week period of the previous fiscal year, (ii) additional
sales from new and transition stores of $69,149,000 and (iii) $6,205,000 from
the additional last week of sales included in the 53-week fiscal 1995 compared
with the 52-week fiscal 1994.
GROSS PROFIT Gross profit for fiscal 1995 was $170,717,000, or 24.5% of sales,
a $15,910,000 increase over the $154,807,000, or 25.2% of sales, in gross
profit generated for the previous fiscal year. The 0.7% decrease in gross
profit, as a percent of sales, consisted of (i) an increase in cost of sales of
0.5% which resulted from markdowns taken to liquidate slow-moving items that
did not fit the Company's new merchandising strategy implemented in January
1995 and maintaining promotional pricing as a result of the competitive and
difficult apparel retail environment, particularly in the fourth quarter, and
(ii) an increase in occupancy costs of 0.2% resulting from higher lease costs
as well as additional costs of approximately $783,000 for stores relocated
during fiscal 1995 and those planned for relocation in fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses for fiscal 1995 were $154,901,000, or 22.2% of sales,
an increase of $18,289,000 from $136,612,000, or 22.2% of sales, for fiscal
1994. Although selling, general and administrative expenses did not change as a
percent of sales compared with the previous fiscal year, (i) advertising
expenses increased by 0.3%, (ii) depreciation and amortization expenses
increased by 0.3%, (iii) payroll expenses decreased by 0.5% and (iv) other
selling, general and administrative expenses decreased by 0.1% in fiscal 1995
compared with fiscal 1994.
UNUSUAL ITEMS Results of operations for fiscal 1994 included unusual charges of
$6,143,000 consisting of (i) approximately $1,900,000 for the Company's portion
of the August 1995 settlement of a certain class action securities litigation
against the Company, (ii) approximately $3,119,000 primarily related to
severance payments associated with certain restructuring and cost reduction
measures and (iii) approximately $1,124,000 for legal fees and other costs
related to the settlement of certain disputes between the Company and its
Chairman of the Board and Chief Executive Officer, Robert M. Goodfriend.
INTEREST EXPENSE Interest expense for fiscal 1995 decreased by $555,000
compared with fiscal 1994. This decrease is primarily attributable to reduced
borrowings during fiscal 1995.
INVESTMENT INCOME Investment income for fiscal 1995 was $1,319,000 compared
with an investment loss of $117,000 for fiscal 1994. Included in the above
amount for fiscal 1995 was $997,000 related to income earned from
government-backed and investment grade securities and other interest income.
During fiscal 1994, the Company's investment loss consisted primarily of
$1,596,000 in losses associated with the sale of investment securities, offset
by $1,444,000 of interest and dividend income earned from investment
activities.
INCOME TAXES The provision for income taxes for fiscal 1995 was $6,063,000, for
an effective tax rate of 36.7% of earnings before income taxes, compared with
$3,900,000, for an effective tax rate of 36.2% of earnings before income taxes,
for fiscal 1994. The increase in the effective tax rate is primarily due to an
increase in the effective state income tax rates and a decrease in tax-exempt
investment income.
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<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL POSITION The Company's primary sources of liquidity are cash flows
from operations, including credit terms from vendors, and borrowings under its
credit facility (see below). At February 1, 1997, the Company's working capital
was $44,016,000 compared with $27,786,000 at February 3, 1996, and $16,707,000
at January 28, 1995.
In May 1996, the Company renewed its credit facility with a consortium of banks
for an unsecured revolving line of credit which provides for cash borrowings
for general corporate purposes as well as for the issuance of letters of credit
of up to $100,000,000. This facility extends through May 1998. The terms of
this credit facility require, among other things, maintenance of minimum levels
of shareholders' equity and compliance with certain financial ratios and place
restrictions on additional indebtedness, asset disposals, investments and
capital expenditures. In addition, the Company is prohibited from paying
dividends. At February 1, 1997, the Company had no cash borrowings under this
credit facility and $28,005,000 was in use for outstanding letters of credit.
Cash borrowings averaged $5,206,000 during fiscal 1996 compared with $3,481,000
during fiscal 1995, with the highest balance of $37,000,000 in November 1996
compared with $18,000,000 in October 1995. Letters of credit outstanding
averaged $29,189,000 during fiscal 1996 compared with $18,425,000 during fiscal
1995, with the highest balance of $39,929,000 in August 1996 compared with
$30,713,000 in May 1995. The weighted average interest rates on cash borrowings
in fiscal 1996, 1995 and 1994 were 6.5%, 7.1% and 5.2%, respectively.
CASH FLOWS Operating activities provided cash of $22,493,000 in fiscal 1996
compared with $22,607,000 in fiscal 1995 and $45,277,000 in fiscal 1994. Cash
used in operating activities in fiscal 1996 was primarily for increased
inventory of $29,228,000 resulting from (i) additional new stores and (ii) the
strategic build-up of basic inventory items in all the stores. Cash used in
operating activities for inventory increases in fiscal 1995 and 1994 of
$13,859,000 and $6,208,000, respectively, related primarily to inventory for
new stores. Accounts payable provided cash of $7,081,000, $18,928,000 and
$5,119,000 in fiscal 1996, 1995 and 1994, respectively. Other assets and
liabilities provided cash of $9,739,000 and $4,580,000 in fiscal 1996 and 1994,
respectively, and used cash of $1,651,000 in fiscal 1995.
Cash used in investing activities for fiscal 1996, 1995 and 1994 was
primarily to fund capital expenditures of $16,070,000, $10,632,000 and
$39,388,000, respectively. Capital expenditures were primarily for new,
relocated and remodeled stores and included the expansion of the corporate
headquarters and distribution center in fiscal 1994 and 1995, respectively.
Cash provided by financing activities for fiscal 1996 was $3,636,000 compared
with cash used of $2,516,000 for fiscal 1995 and $1,198,000 for fiscal 1994.
During fiscal 1996, the Company received advances and made repayments under the
credit facility amounting to $60,000,000 with no amounts owed at year end.
Net payment on notes payable amounted to $10,000,000 in fiscal 1995 compared
with net advances received amounting to $800,000 in fiscal 1994. The cash
management program used by the Company provided $3,506,000 and $7,642,000 in
cash during fiscal 1996 and 1995, respectively, and used cash of $1,913,000 in
fiscal 1994. The Company received $347,000, $201,000 and $94,000 from the
issuance of common stock on the exercise of stock options in fiscal 1996, 1995
and 1994, respectively.
OUTLOOK The Company plans to open a minimum of 20 new stores, relocate or
remodel eight stores and close two stores during fiscal 1997. Management
estimates that capital expenditures of approximately $23,000,000 will be
required in fiscal 1997 to open new stores, upgrade existing stores, purchase
computer systems and equipment and for other capital resource needs.
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 cash flows from operations, including credit terms from vendors,
and the borrowings available under its credit facility will be sufficient to
meet the Company's operating and capital expenditure requirements.
SEASONALITY AND INFLATION
The Company's business is seasonal by nature. The Christmas season (beginning
the Sunday before Thanksgiving and ending on the first Saturday after
Christmas), the back-to-school season (beginning approximately the first week
of August and continuing through the first week of September) and the Easter
season (beginning approximately two weeks before Easter Sunday and ending on
the Saturday preceding Easter) collectively accounted for approximately 35.5%
of the Company's annual sales for the Company's last three fiscal years. In
general, sales volume varies directly with customer traffic, which is heaviest
during the third and fourth quarters of a fiscal year.
The Company does not believe inflation has had a material effect on the results
of its operations during the past three fiscal years. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
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<PAGE> 21
SELECTED QUARTERLY DATA (UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter (1)
Fiscal 1996 --------------------------------------------------------------------------
- -----------
<S> <C> <C> <C> <C>
Sales $150,766 $183,411 $211,380 $273,499
Gross profit 42,645 45,237 52,183 69,307
Net earnings 2,204 1,362 3,364 10,221
Earnings per common share (2) 0.14 0.08 0.21 0.62
Fiscal 1995
-----------
Sales $144,932 $155,130 $168,104 $228,702
Gross profit 38,538 36,644 41,904 53,631
Net earnings 2,266 917 2,059 5,222
Earnings per common share 0.14 0.06 0.13 0.32
</TABLE>
(1) Consists of 14 weeks in fiscal 1995; all other quarters consist of 13
weeks.
(2) Weighted average common shares outstanding for the fourth quarter of
fiscal 1996 includes common equivalent shares to account for the dilutive
effect of stock options. Common equivalent shares were not materially
dilutive in prior periods and therefore are not included in the earnings
per share computations for such periods.
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<PAGE> 22
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the integrity and objectivity of all financial
information presented in this Annual Report. The consolidated financial
statements included herein have been prepared in accordance with generally
accepted accounting principles and include, where necessary, the best estimates
and judgments of management.
In fulfilling its responsibility for the reliability of financial information,
management has developed and maintains accounting systems and procedures
appropriately supported by internal accounting controls. Such controls include
the selection and training of qualified personnel, an organizational structure
providing for appropriate division of responsibility, communication of
approved accounting, control and business practices and a program of internal
audit. Although no system of internal accounting controls can ensure that all
errors or irregularities have been eliminated, management believes that the
controls in place provide reasonable assurance, at reasonable cost, that assets
are safeguarded against loss from unauthorized use or disposition, that
transactions are executed in accordance with management's authorization, and
that the financial records are reliable for preparing financial statements. The
consolidated financial statements of the Company have been audited by Deloitte
& Touche LLP, the Company's independent auditors. Their report, which appears
below, is based on their audits conducted in accordance with generally accepted
auditing standards.
The Audit Committee of the Board of Directors, consisting solely of outside
directors, serves in an oversight role to assure the integrity and objectivity
of the Company's financial reporting process. The Audit Committee is
responsible for recommending to the Board of Directors the selection of
independent auditors. It also meets periodically with management and the
independent and internal auditors to assure that they are carrying out their
responsibilities. The independent and internal auditors have full and free
access to the Audit Committee and meet with it periodically with and without
management's presence.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Goody's Family Clothing, Inc.
We have audited the accompanying consolidated balance sheets of Goody's Family
Clothing, Inc. and subsidiaries as of February 1, 1997 and February 3, 1996,
and the related consolidated statements of operations, shareholders' equity,
and cash flows for each of the three fiscal years in the period ended February
1, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements present fairly, in all material
respects, the consolidated financial position of Goody's Family Clothing, Inc.
and subsidiaries as of February 1, 1997 and February 3, 1996, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended February 1, 1997 in conformity with
generally accepted accounting principles.
Atlanta, Georgia
March 19, 1997
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<PAGE> 23
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------
1996 1995 1994
------------------------------------
<S> <C> <C> <C>
Sales $819,056 $696,868 $613,664
Cost of sales and occupancy expenses 609,684 526,151 458,857
------------------------------------
Gross profit 209,372 170,717 154,807
Selling, general and administrative expenses 182,628 154,901 136,612
Unusual items -- -- 6,143
------------------------------------
Earnings from operations 26,744 15,816 12,052
Interest expense 762 608 1,163
Investment income (loss) 1,460 1,319 (117)
------------------------------------
Earnings before income taxes 27,442 16,527 10,772
Provision for income taxes 10,291 6,063 3,900
------------------------------------
Net earnings $ 17,151 $ 10,464 $ 6,872
====================================
Earnings per common share $ 1.04 $ 0.65 $ 0.43
====================================
Weighted average common shares outstanding 16,509 16,123 16,097
====================================
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 24
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
-------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 43,316 $ 32,987
Investments 1,453 1,386
Inventories 107,495 78,267
Accounts receivable and other current assets 9,689 6,617
-------------------------
Total current assets 161,953 119,257
Property and equipment, net 88,955 85,715
Other assets 3,439 3,471
-------------------------
Total assets $254,347 $208,443
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 75,900 $ 68,238
Accrued expenses 34,841 21,345
Income taxes payable 6,957 1,671
Current portion of long-term debt 239 217
-------------------------
Total current liabilities 117,937 91,471
Long-term debt 871 1,110
Other long-term liabilities 2,578 2,239
Deferred income taxes 9,385 7,748
-------------------------
Total liabilities 130,771 102,568
-------------------------
Commitments and Contingencies
Shareholders' Equity
Preferred stock, par value $1 per share;
Authorized - 2,000,000 shares; issued and outstanding- none
Class B Common stock, no par value;
Authorized - 50,000,000 shares; issued and outstanding- none
Common stock, no par value;
Authorized - 50,000,000 shares;
Issued -16,364,832 and 16,325,212 shares, respectively
Outstanding -16,164,832 and 16,125,212 shares, respectively 26,466 26,040
Paid-in capital 3,259 3,135
Retained earnings 96,953 79,802
Treasury stock, at cost - 200,000 shares (3,102) (3,102)
-------------------------
Total shareholders' equity 123,576 105,875
-------------------------
Total liabilities and shareholders' equity $254,347 $208,443
=========================
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------
1996 1995 1994
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net earnings $ 17,151 $ 10,464 $ 6,872
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 10,595 9,141 6,185
Net loss (gain) on asset disposals and write-down 1,965 (22) 191
Net loss on sale of investments -- -- 1,596
Changes in assets and liabilities:
Investments (67) (104) 25,323
Inventories (29,228) (13,859) (6,208)
Accounts payable 7,081 18,928 5,119
Income tax accounts 5,257 (290) 1,619
Other assets and liabilities 9,739 (1,651) 4,580
-------------------------------
Cash provided by operating activities 22,493 22,607 45,277
-------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment (16,070) (10,632) (39,388)
Proceeds from sale of property and equipment 270 397 333
-------------------------------
Cash used in investing activities (15,800) (10,235) (39,055)
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances (payments) on notes payable -- (10,000) 800
Repayment of long-term debt (217) (198) (179)
Issuance of common stock 347 201 94
Redemption of preferred stock purchase rights -- (161) --
Changes in cash management accounts 3,506 7,642 (1,913)
-------------------------------
Cash provided by (used in) financing activities 3,636 (2,516) (1,198)
-------------------------------
Net increase in cash and cash equivalents 10,329 9,856 5,024
Cash and cash equivalents, beginning of year 32,987 23,131 18,107
-------------------------------
Cash and cash equivalents, end of year $ 43,316 $ 32,987 $ 23,131
===============================
Supplemental Disclosures
Interest payments $ 745 $ 665 $ 1,174
Income tax payments, net of refunds received 5,294 7,062 2,310
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 26
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Paid-in Retained Treasury Stock
Shares Amount Capital Earnings Shares Amount Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 29, 1994 16,291 $25,712 $3,296 $62,466 (200) $(3,104) $ 88,370
Net earnings -- -- -- 6,872 -- 6,872
Exercise of stock options 11 123 -- -- 123
Cancellation of treasury stock -- (2) -- -- -- 2 --
------------------------------------------------------------------------
BALANCE, JANUARY 28,1995 16,302 25,833 3,296 69,338 (200) (3,102) 95,365
Net earnings -- -- -- 10,464 -- -- 10,464
Exercise of stock options 23 207 -- -- -- 207
Redemption of preferred stock
purchase rights -- -- (161) -- -- -- (161)
------------------------------------------------------------------------
BALANCE, FEBRUARY 3, 1996 16,325 26,040 3,135 79,802 (200) (3,102) 105,875
Net earnings -- -- -- 17,151 -- 17,151
Exercise of stock options 40 426 124 -- -- 550
------------------------------------------------------------------------
BALANCE, FEBRUARY 1, 1997 16,365 $26,466 $3,259 $96,953 (200) $(3,102) $123,576
========================================================================
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 27
Notes to Consolidated Financial Statements
Years ended February 1, 1997, February 3, 1996 and January 28, 1995
1 Summary of Significant Accounting Policies
At February 1, 1997, Goody's Family Clothing, Inc. and subsidiaries (the
"Company") was principally engaged in the retailing of moderately priced
apparel for women, men and children in 203 retail stores located in 14 states.
Its significant accounting policies are as follows:
FISCAL YEAR-END The Company's fiscal year ends on the Saturday nearest the last
day of January. Fiscal 1996, 1995 and 1994 refer to the Company's fiscal years
ended February 1, 1997 (52 weeks), February 3, 1996 (53 weeks) and January 28,
1995 (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 significant intercompany balances and transactions have
been eliminated.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS Cash equivalents consist of highly liquid
investments, such as money market accounts, deposit accounts, government backed
securities, and overnight repurchase agreements, each with a maturity of less
than three months. The cost of these investments approximate their fair market
value.
Amounts due banks upon the clearance of certain checks under the Company's cash
management program have been included in both accounts payable and accrued
expenses. At February 1, 1997 and February 3, 1996, the total of such amounts
were $14,497,000 and $10,991,000, respectively.
INVESTMENTS Investments are held by a bank, as trustee, to fund certain
potential future severance payments in respect of which no liability exists at
February 1, 1997. The Company is restricted from using these funds for its
operating activities until April 1998.
INVENTORIES Inventories are stated at the lower of moving weighted average cost
or market.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed by using
the straight-line method over the estimated useful lives of the assets, which
are 40 years for buildings and up to 10 years for other assets. Leasehold
improvements are amortized by the straight-line method over the lesser of the
useful lives of the improvements or the initial terms of the related leases.
STORE OPENING AND CLOSING COSTS Non-capital expenditures for new or relocated
stores are expensed as incurred. The net book value of leasehold improvements
and abandoned fixtures as well as any future rents payable for stores, for
which a decision has been made to close or relocate the stores, are charged
against current earnings.
INCOME TAXES Deferred income taxes are recognized for the tax consequences of
temporary differences between the tax and financial reporting basis of the
Company's assets and liabilities based upon enacted tax laws and statutory tax
rates applicable to the future years in which the differences are expected to
affect taxable income.
SALES Sales include approximately $26,827,000, $21,087,000 and $14,435,000 of
leased shoe department sales for fiscal 1996, 1995 and 1994, respectively.
EARNINGS PER COMMON SHARE Weighted average common shares outstanding for fiscal
1996 includes common equivalent shares to account for the dilutive effect of
stock options. Common equivalent shares were not materially dilutive in prior
years and therefore are not included in the earnings per share computations for
such years.
NEW ACCOUNTING PRONOUNCEMENT In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128"). This Statement establishes new standards
for computing and presenting earnings per share information. SFAS No.
128 simplifies the computation of earnings per share currently required by
Accounting Principles Board Opinion No. 15, "Earnings per Share" and its
related interpretations. The new Statement replaces the presentation of
"primary" (and when required "fully diluted") earnings per share with "basic"
and "diluted" earnings per share. This new Statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. The Company's computation of
basic and diluted earnings per share under SFAS No. 128 for fiscal 1996, 1995
and 1994 was not materially different from earnings per share previously
reported for those years.
RECLASSIFICATIONS Certain reclassifications have been made to the financial
statements of prior periods to conform to the current period presentation.
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<PAGE> 28
2 Property and equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
------------------------
<S> <C> <C>
Land $ 3,512 $ 3,512
Buildings 25,631 25,277
Leasehold improvements 17,720 18,380
Furniture and equipment 79,647 68,520
Transportation equipment 5,762 5,597
------------------------
Total property and equipment 132,272 121,286
Less accumulated depreciation and amortization 43,317 35,571
------------------------
Net property and equipment $ 88,955 $ 85,715
========================
</TABLE>
The Company continually evaluates its investment in long-lived assets
(principally property and equipment) used in operations on an individual store
basis. During the fourth quarter of 1996, the Company determined that, based
upon recent operating results and updated operating projections, the property
and equipment at certain stores was impaired. As a result, the Company recorded
a pre-tax charge in fiscal 1996 of approximately $741,000, or $0.03 per share,
in order to write-down the carrying value of the property and equipment to their
estimated fair value pursuant to the provisions of SFAS No.121. No impairment
charge was necessary for fiscal 1995 based upon the results of similar analysis
performed.
3 Credit arrangements
In May 1996, the Company renewed its credit facility with a consortium of banks
for an unsecured revolving line of credit which provides for cash borrowings
for general corporate purposes as well as for the issuance of letters of credit
of up to $100,000,000. This facility extends through May 1998. The Company is
committed to pay (i) interest on the cash borrowings at a fluctuating base rate
or LIBOR plus an applicable margin, as defined, (ii) letter of credit fees
based on the number of days a letter of credit is outstanding times the
applicable fee and (iii) an annual commitment fee payable quarterly in advance.
The terms of this credit facility require, among other things, maintenance of
minimum levels of shareholders' equity and compliance with certain financial
ratios and place restrictions on additional indebtedness, asset disposals,
investments and capital expenditures. In addition, the Company is prohibited
from paying dividends.
At February 1, 1997 and February 3, 1996, the Company had no cash borrowings
under this credit facility and letters of credit issued and outstanding
amounted to $28,005,000 and $10,816,000, respectively. The weighted average
interest rates on cash borrowings in fiscal 1996, 1995 and 1994 were 6.5%,
7.1% and 5.2%, respectively. Cash borrowings under the Company's line of
credit averaged $5,206,000, $3,481,000 and $14,640,000 during fiscal 1996,
1995 and 1994, respectively. The highest balances of cash borrowings
were $37,000,000 in November 1996, $18,000,000 in October 1995 and $41,883,000
in November 1994.
4 Long-term debt
Long-term debt represents a promissory note payable to the Company's founder and
former chairman, M.D. Goodfriend, and his wife, who are the parents of the
Company's current Chairman of the Board and Chief Executive Officer. The debt is
unsecured and is payable in annual installments of $350,000, including interest
at 10%, through January 26, 2001. Interest paid on this debt was $133,000,
$152,000 and $170,000 during fiscal 1996, 1995 and 1994, respectively. Based on
borrowing rates currently available to the Company for bank loans with similar
terms and maturities, the fair value of such long-term debt was not
significantly different than its carrying amount.
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<PAGE> 29
Notes to Consolidated Financial Statements (continued)
5 Income taxes
The provision for income taxes for the years indicated consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
Current
Federal $ 9,173 $3,626 $2,696
State 1,280 705 1,080
------------------------------
Total current 10,453 4,331 3,776
------------------------------
Deferred
Federal (84) 1,451 105
State (78) 281 19
------------------------------
Total deferred (162) 1,732 124
------------------------------
Provision for income taxes $10,291 $6,063 $3,900
==============================
</TABLE>
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):
<TABLE>
<S> <C> <C> <C>
Tax expense at statutory rate $ 9,605 $5,783 $3,670
State taxes, net of federal benefit 745 726 458
Effect of tax-exempt income (89) (125) (216)
Effect of other items 30 (321) (12)
------------------------------
Provision for income taxes $10,291 $6,063 $3,900
===============================
</TABLE>
The tax effects of temporary differences were as follows (in thousands):
<TABLE>
<CAPTION>
Assets (Liabilities)
------------------------
February 1, February 3,
1997 1996
-----------------------
<S> <C> <C>
Current
Inventory carrying cost $ 887 $ 392
Net operating loss carryforward 171 173
Capital loss carryforward 108 ---
Accrued expenses and other 2,512 1,314
------------------
Current deferred tax asset $3,678 $1,879
==================
Deferred
Depreciation $9,934 $9,029
Capital loss carryforward --- (549)
Net operating loss carryforward --- (173)
Other (549) (559)
------------------
Long-term deferred tax liability $9,385 $7,748
==================
</TABLE>
At February 1, 1997, the Company had net operating loss carryforwards of
$434,000 which expire in varying amounts through 2007 and capital loss
carryforwards of $318,000 which expire in varying amounts through 2000.
6 Capital stock
In October 1994, the Company amended its Charter to create a new series of
Preferred Stock (issuable from existing authorized preferred stock), par value
$1 per share, designated as Series A Junior Participating Preferred Stock,
adopted a Share Purchase Rights Plan (the "Rights Plan") and declared a
dividend of one right (a "Right") for each outstanding share of Common Stock of
the Company. The Rights were redeemed in June 1995 for $161,000.
In August 1995, the Company amended its Charter to authorize 50,000,000 shares
of a new class of Common Stock designated as "Class B Common Stock," none of
which is issued and outstanding. The Amended and Restated Charter further
empowered the Board of Directors to issue the Preferred Stock and the Class B
Common Stock in one or more series without further shareholder approval (unless
required in a specific case by applicable law, regulation, or stock exchange or
Nasdaq rule) and to determine (i) the designations and the powers, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of each series of Class B Common
Stock, including, without limitation, the dividend rate, voting rights,
conversion rights, redemption price and liquidation preference and (ii) the
number of shares constituting such series.
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<PAGE> 30
7 Stock options
The Company currently has three stock option plans: the Goody's Family
Clothing, Inc. 1991 Stock Incentive Plan (the "1991 Plan"), the Goody's
Family Clothing, Inc. 1993 Stock Option Plan (the "1993 Plan") and the
Discounted Stock Option Plan for Directors (the "Directors Plan").
The 1991 Plan and 1993 Plan provide for the grant of nonqualified and incentive
stock options to key associates and formula options to non-associate directors.
The Compensation Committee of the Board of Directors determines the exercise
price (not to be less than fair market value of the Company's common stock (the
"Common Stock") for incentive options or formula options) on the date of grant,
the vesting and exercise periods. The options generally vest in equal
installments over five years from the date of grant and are generally
exercisable up to 1O years from the date of grant. The Company is authorized to
issue 1,825,000 shares of Common Stock under the 1991 Plan and 1993 Plan.
Under the Directors Plan, non-associate directors may elect to receive options
to purchase Common Stock at an exercise price equal to 50% of the fair market
value of the Common Stock on the date of grant in lieu of cash for their
director fees. These options vest one year from the date of grant and are
exercisable up to 20 years from the date of grant. The expense recorded in
connection with stock options issued under this plan has been immaterial. The
Company is authorized to issue 150,000 shares of Common Stock under the
Directors Plan.
A summary of the stock option activity and the related weighted average
exercise prices for the various plans is as follows:
<TABLE>
<CAPTION>
Weighted Average
Reserved Shares Outstanding Options Exercise Price
----------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 29, 1994 1,033,048 751,382 $14.11
Granted (311,237) 311,237 13.29
Exercised -- (11,000) 8.50
Forfeited 46,948 (46,948) 11.40
------------------------------------------------
Outstanding at January 28, 1995 768,759 1,004,671 13.32
Granted (781,466) 781,466 9.56
Exercised -- (23,700) 8.50
Forfeited 615,250 (615,250) 15.99
------------------------------------------------
Outstanding at February 3, 1996 602,543 1,147,187 9.43
Reserved 100,000
Granted (564,698) 564,698 13.97
Exercised -- (39,620) 8.80
Forfeited 80,480 (80,480) 9.28
------------------------------------------------
Outstanding at February 1, 1997 218,325 1,591,785 $11.06
================================================
</TABLE>
The following table summarizes information about stock options outstanding at
February 1, 1997:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------------------------------------ -------------------------------------
Weighted-
Average Weighted- Weighted-
Options Remaining Average Options Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at February 1, 1997 Life (Years) Price at February 1, 1997 Price
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.82 to $ 5.69 32,584 19.0 $ 5.20 14,060 $ 5.69
7.38 to 11.00 982,751 7.5 8.86 463,251 8.57
11.25 to 15.00 250,950 8.2 12.18 83,150 12.21
17.44 325,500 5.0 17.44 320,000 17.44
--------- -------
1,591,785 880,461
========= =======
</TABLE>
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<PAGE> 31
Notes to Consolidated Financial Statements (continued)
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to adopt the disclosure-only
provisions of SFAS No. 123 and to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
its related interpretations. Accordingly, no compensation cost has been
recognized for the stock options granted under the various stock option plans.
Had compensation cost for the Company's stock option plans been determined
based on the fair value on the date of grant for awards in fiscal 1996 and 1995
consistent with the provisions of SFAS No. 123, the Company's net earnings and
earnings per common share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
-------------------------------- -------------------------
As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net earnings (in thousands) $17,151 $15,157 $10,464 $9,678
Earnings per common share 1.04 0.92 0.65 0.60
</TABLE>
The fair value of the options granted under the Company's various stock option
plans during fiscal 1996 and 1995 was estimated on their date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: no dividend yield; expected volatility of 49% and 47%,
respectively; risk free interest rates of 6.4% and 6.8%, respectively; and
expected lives of 4.7 and 7.0 years, respectively.
8 Profit sharing plan
The Company maintains a profit sharing plan for all full-time associates who
are eligible to participate under the plan. The plan provides for discretionary
contributions by the Company that are approved its Board of Directors. The
Company's contributions related to this plan for fiscal 1996, 1995 and 1994
were $525,000, $350,000 and $300,000, respectively.
9 Lease obligations
The Company leases its stores under operating leases, the majority of which
expire at various times during the next 10 years. The Company can, at its
option, renew most of these leases at rents which are fixed based at their then
current fair rental value. Payments under store leases consist of a fixed
minimum rent, additional rent based on a percent of sales in excess of
stipulated amounts and a share of taxes, insurance and common area maintenance
costs. The Company also leases certain data processing, transportation and
other equipment.
The future minimum rental payments under operating leases having initial or
remaining non-cancelable lease terms in excess of one year at February 1, 1997,
are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1997 $ 37,105
1998 33,177
1999 28,038
2000 24,936
2001 23,269
Thereafter 93,695
--------
Total $240,220
========
</TABLE>
Rent expense for fiscal 1996, 1995 and 1994 was $37,965,000, $33,394,000 and
$27,925,000, respectively, including percentage rent of $451,000, $481,000 and
$473,000, respectively.
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<PAGE> 32
10 Related party transactions
The Company has entered into various related party transactions with Robert M.
Goodfriend (the Company's Chairman of the Board and Chief Executive Officer
and beneficial owner of approximately 56% of the Common Stock) as described
below.
The Company paid premiums of $54,000, $54,000 and $201,000 in fiscal 1996, 1995
and 1994, respectively, for split-dollar life insurance policies insuring the
life of Mr. Goodfriend. The beneficiary of these policies is a trust
established for Mr. Goodfriend's children. The trust has assigned to the
Company an interest in the cash value of the life insurance policies to the
extent of cumulative premiums paid by the Company. Included in "Other Assets"
at February 1, 1997 and February 3, 1996, are $2,041,000 and $1,987,000,
respectively, related to these policies.
The Company paid rent and taxes amounting to $442,000, $443,000 and $438,000
for fiscal 1996, 1995 and 1994, respectively, for a store leased from another
trust benefiting Mr. Goodfriend's children. Future commitments at February 1,
1997, under this related party lease are approximately $764,000.
The Company paid $6,000 in fiscal 1995 and $176,000 in fiscal 1994 for the use
of Mr. Goodfriend's property, contiguous to the corporate headquarters and
distribution center, as a retention basin. The Company purchased this property
from Mr. Goodfriend at its fair market value, as determined by a third party
appraiser, of approximately $519,000 in March 1995.
The Company paid $15,000 in fiscal 1995 and $38,000 in fiscal 1994 for the use
of Mr. Goodfriend's property, adjacent to the corporate complex, as a staging
area in connection with the expansion of the Company's corporate headquarters
and distribution center.
During fiscal 1994, the Company sold its former distribution center located in
Athens, Tennessee, to a local bank, of which Mr. Goodfriend is a director and
shareholder, at its fair market value, as determined by a third party
appraiser, of $520,000 and realized a gain of $20,000. The Company subsequently
leased this property for a period of three years and paid rent amounting to
$40,000, $40,000 and $3,000 for fiscal 1996, 1995 and 1994, respectively.
11 Unusual items
Results of operations for fiscal 1994 included unusual charges of $6,143,000
consisting of (i) approximately $1,900,000 for the Company's portion of the
August 1995 settlement of a certain class action securities litigation against
the Company, (ii) approximately $3,119,000 primarily related to severance
payments associated with certain restructuring and cost reduction measures and
(iii) approximately $1,124,000 for legal fees and other costs related to the
settlement of certain disputes between the Company and its Chairman of the
Board and Chief Executive Officer, Robert M. Goodfriend.
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<PAGE> 33
Shareholder and Investor Information
COMMON STOCK INFORMATION
The Company's Common Stock is listed and traded on The Nasdaq Stock Market
(National Market) under the symbol GDYS. At April 21, 1997, there were 481
shareholders of record and approximately 3,500 persons or entities who held
Common Stock in nominee name. On April 21, 1997, the closing price of the
Common Stock was $22.50.
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
-----------------------------------------------------------------------------------
Fiscal 1996
<S> <C> <C> <C> <C>
High $9.38 $11.00 $14.88 $20.81
Low 6.75 7.13 8.75 13.25
Fiscal 1995
High $9.50 $13.00 $14.75 $11.75
Low 8.19 8.25 9.38 7.25
</TABLE>
DIVIDEND POLICY
The Company has not paid cash dividends during the last three fiscal years.
The Company currently intends to retain all net earnings for the development of
its business and does not anticipate paying dividends in the foreseeable
future. The payment of future dividends, if any, will depend upon the
profitability, financial condition, cash requirements, future prospects and
other factors deemed relevant by the Board of Directors. Currently, under the
Company's credit facility (See Note 3 to Notes to Consolidated Financial
Statements), the Company is prohibited from paying dividends.
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 10:00 a.m. on
Wednesday, June 18, 1997, at the Company's headquarters in Knoxville,
Tennessee. Detailed information about the meeting is contained in the Notice of
Annual Meeting and Proxy Statement sent with a copy of this Annual Report to
each shareholder of record as of April 28, 1997.
CORPORATE HEADQUARTERS
Goody's Family Clothing, Inc.
400 Goody's Lane
Knoxville, Tennessee 37922
Tel: (423) 966-2000
Fax: (423) 671-4318
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Atlanta, Georgia
GENERAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
New York, New York
TRANSFER AGENT AND REGISTRAR
Communications concerning shareholder records, the transfer of shares, lost
certificates or change of address should be directed to:
Wachovia Bank of North Carolina, N.A.
Post Office Box 3001
Winston-Salem, North Carolina 27102
Tel: (910) 770-5822
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
February 1, 1997, as filed with the Securities and Exchange Commission, may be
obtained, without charge, upon written request to Edward R. Carlin, Executive
Vice President, Chief Financial Officer and Secretary, Goody's Family Clothing,
Inc., 400 Goody's Lane, Knoxville, Tennessee 37922.
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32
<PAGE> 34
<TABLE>
<CAPTION>
BOARD OF DIRECTORS AND OFFICERS
BOARD OF DIRECTORS EXECUTIVE AND OTHER OFFICERS
<S> <C> <C>
ROBERT M. GOODFRIEND(3) ROBERT M. GOODFRIEND HAZEL A. MOXIM
Chairman of the Board and Chairman of the Board and Vice President
Chief Executive Officer Chief Executive Officer Human Resources
Goody's Family Clothing, Inc.
HARRY M. CALL JOHN J. OKVATH, III
HARRY M. CALL President and Chief Operating Officer Vice President
President and Chief Operating Officer Product Development
Goody's Family Clothing, Inc. EDWARD R. CARLIN
Executive Vice President DAVID G. PEEK
SAMUEL J. FURROW (2,3*) Chief Financial Officer and Secretary Corporate Controller and
Chairman Chief Accounting Officer
Furrow Auction Company THOMAS R. KELLY, JR.
Furrow-Justice Machinery Corporation Executive Vice President JAY D. SCUSSEL
Owner General Merchandise Manager Vice President
Knoxville Motor Company Management Information Systems
DAVID R. MULLINS
ROBERT F. KOPPEL(1,2*) Executive Vice President-Stores MIKE H. TEEPLE
President Vice President
East Tennessee Children's Hospital MARCUS H. SMITH, JR. Sales - Southern Region
Senior Vice President
IRWIN L. LOWENSTEIN(1,3) Real Estate BOB WHALEY
Chief Executive Officer Vice President
Rhodes Furniture JOHN W. BOLES Distribution, Transportation
Vice President and Logistics
CHERYL L. TURNBULL(1*,2) Sales - Northern Region
Vice President DONALD R. WHITTED
Bank One Capital Corporation BRUCE E. HALVERSON Vice President
Vice President Sales - Central Region
Planning and Allocation
LYNN R. YOUNGS
REGIS J. HEBBELER Vice President
Vice President, General Counsel Store Operations
and Assistant Secretary
</TABLE>
<TABLE>
<CAPTION>
COMMITTEES OF THE BOARD OF DIRECTORS
<S> <C>
1 Compensation Committee
2 Audit Committee
3 Nominating Committee
* Chairperson
</TABLE>
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<PAGE> 1
EXHIBIT - 21
GOODY'S FAMILY CLOTHING, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF INCORPORATION
NAME OF SUBSIDIARY PARENT OR GENERAL PARTNER OF SUBSIDIARY OR ORGANIZATION
- ------------------ --------------------------------------- ----------------------
<S> <C> <C>
SYDOOG, Inc......................... Goody's Family Clothing, Inc........... Delaware
GOFAMCLO, Inc....................... Goody's Family Clothing, Inc........... Delaware
Trebor of TN, Inc................... Goody's Family Clothing, Inc........... Tennessee
GOODY'S MS, L.P..................... Trebor of TN, Inc...................... Tennessee
GOODY'S IN, L.P..................... Trebor of TN, Inc...................... Tennessee
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-51210, 33-68520, 333-00052, and 333-09595 of Goody's Family Clothing, Inc. on
Form S-8 of our report dated March 19, 1997, incorporated by reference in the
Annual Report on Form 10-K of Goody's Family Clothing, Inc. for the year ended
February 1, 1997.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 30, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS AT FEBRUARY 1, 1997 AND THE RELATED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE FIFTY-TWO WEEKS ENDED ON FEBRUARY 1, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 43,316
<SECURITIES> 1,453
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 107,495
<CURRENT-ASSETS> 161,953
<PP&E> 132,272
<DEPRECIATION> 43,317
<TOTAL-ASSETS> 254,347
<CURRENT-LIABILITIES> 117,937
<BONDS> 871
0
0
<COMMON> 26,466
<OTHER-SE> 97,110
<TOTAL-LIABILITY-AND-EQUITY> 254,347
<SALES> 819,056
<TOTAL-REVENUES> 819,056
<CGS> 609,684
<TOTAL-COSTS> 182,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 762
<INCOME-PRETAX> 27,442
<INCOME-TAX> 10,291
<INCOME-CONTINUING> 17,151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,151
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
</TABLE>
