UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 1, 1999
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 0-19526
Goody's Family Clothing, Inc.
(Exact name of registrant as specified in its charter)
Tennessee 62-0793974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
400 Goody's Lane, Knoxville, Tennessee 37922
(Address of principal executive offices) (Zip Code)
(423) 966-2000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value, 33,334,680 shares outstanding
as of May 14, 1999.
<PAGE>
Goody's Family Clothing, Inc.
Index to Form 10-Q
May 1, 1999
Part I - Financial Information:
---------------------
Item 1 - Financial Statements
Consolidated Statements of Operations.......................... 3
Consolidated Balance Sheets.................................... 4
Consolidated Statements of Cash Flows.......................... 5
Notes to Consolidated Financial Statements.................... 6 - 7
Independent Accountants' Review Report......................... 8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations................................... 9-12
Item 3 - Quantitative and Qualitative Disclosures about Market Risk. 12
Part II - Other Information.............................................. 13
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. (a) Exhibits
Item 6. (b) Reports on Form 8-K
Signatures............................................................... 14
<PAGE>
PART 1 - FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
Item 1 - Financial Statements
Goody's Family Clothing, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
---------------------------------------
Thirteen Weeks Ended
---------------------------------------
May 1, 1999 May 2, 1998
------------------- -----------------
(unaudited) (unaudited)
<S> <C> <C>
Sales $259,931 $226,714
Cost of sales and occupancy expenses 185,730 158,794
----------------- -----------------
Gross profit 74,201 67,920
Selling, general and administrative expenses 62,154 55,904
----------------- -----------------
Earnings from operations 12,047 12,016
Interest expense 53 94
Investment income 578 536
----------------- -----------------
Earnings before income taxes 12,572 12,458
Provision for income taxes 4,689 4,690
----------------- -----------------
Net earnings $7,883 $7,768
================= =================
Earnings per common share
Basic $0.24 $0.23
================= =================
Diluted $0.23 $0.22
================= =================
Weighted average common shares outstanding
Basic 33,333 33,164
================= =================
Diluted 33,918 34,618
================= =================
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Independent
Accountants' Review Report.
<PAGE>
Goody's Family Clothing, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
May 1, 1999 January 30, 1999 May 2, 1998
-------------- ---------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $63,281 $89,292 $47,941
Inventories 196,601 165,687 184,609
Accounts receivable and other current assets 20,612 14,195 19,670
-------------- ------------- --------------
Total current assets 280,494 269,174 252,220
Property and equipment, net 111,466 104,789 98,350
Other assets 3,339 3,210 3,032
-------------- ------------- --------------
Total assets $395,299 $377,173 $353,602
============== ============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $118,014 $122,776 $121,401
Accrued expenses 53,939 43,190 42,402
Income taxes payable 4,494 321 4,366
Current portion of long-term debt 289 289 263
-------------- ------------- --------------
Total current liabilities 176,736 166,576 168,432
Long-term debt 318 318 608
Other long-term liabilities 3,809 3,782 3,151
Deferred income taxes 11,055 11,020 10,362
-------------- ------------- --------------
Total liabilities 191,918 181,696 182,553
-------------- ------------- --------------
Commitments and Contingencies
Shareholders' Equity
Preferred stock, par value $1.00 per share; Authorized - 2,000,000 shares;
issued and outstanding - none
Class B Common stock, no par value;
Authorized - 50,000,000 shares; issued and outstanding - none
Common stock, no par value;
Authorized - 50,000,000 shares;
Issued and outstanding - 33,333,480, 33,330,780
and 32,972,980 shares, respectively 28,120 28,102 26,430
Paid-in capital 9,452 9,449 6,612
Retained earnings 165,809 157,926 138,007
-------------- ------------- --------------
Total shareholders' equity 203,381 195,477 171,049
-------------- ------------- --------------
Total liabilities and shareholders' equity $395,299 $377,173 $353,602
============== ============= ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Independent
Accountants' Review Report.
<PAGE>
Goody's Family Clothing, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
----------------------------------------
Thirteen Weeks Ended
----------------------------------------
May 1, 1999 May 2, 1998
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash Flows from Operating Activities
Net earnings $7,883 $7,768
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 3,782 3,191
Net loss on asset disposals and write-down 75 320
Changes in assets and liabilities:
Inventories (30,914) (32,942)
Accounts payable 12,353 8,902
Income taxes 4,410 (6,281)
Other assets & liabilities 1,431 (4,143)
----------------- ------------------
Cash used in operating activities (980) (23,185)
----------------- -----------------
Cash Flows from Investing Activities
Acquisitions of property and equipment (10,534) (4,419)
Proceeds from sale of property and equipment - 26
----------------- -----------------
Cash used in investing activities (10,534) (4,393)
----------------- -----------------
Cash Flows from Financing Activities
Exercise of stock options 21 3,141
Changes in cash management accounts (14,518) 8,204
------------------ -----------------
Cash (used in) provided by financing activities (14,497) 11,345
------------------ -----------------
Net decrease in cash and cash equivalents (26,011) (16,233)
Cash and cash equivalents, beginning of period 89,292 64,174
----------------- -----------------
Cash and cash equivalents, end of period $63,281 $47,941
================= =================
Supplemental Disclosures:
Income tax payments $130 $8,608
Interest payments 38 72
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Independent
Accountants' Review Report.
<PAGE>
Goody's Family Clothing, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of presentation
The accompanying condensed consolidated financial statements of Goody's Family
Clothing, Inc. and subsidiaries (the "Company") are unaudited and have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Although certain information normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted, the Company believes that the disclosures are
adequate to make the information presented not misleading. In the opinion of the
Company's management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting primarily of normal and
recurring adjustments, necessary for a fair presentation of the Company's
financial position, results of operations and cash flows for the interim periods
presented. Due to the seasonal nature of the Company's business, the results of
operations for the interim periods are not necessarily indicative of the results
that may be achieved for the entire year. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes thereto contained in the Company's 1998 Annual Report
on Form 10-K for its fiscal year ended January 30, 1999.
(2) Credit arrangements
The Company has a credit agreement 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 an aggregate of $130,000,000 and
which expires in May 2001. The Company is committed to pay (i) interest on the
cash borrowings at a fluctuating base rate or LIBOR plus an applicable margin,
(ii) letter of credit fees based on the number of days a letter of credit is
outstanding times an applicable fee and (iii) an annual commitment fee payable
quarterly in advance. The terms of this credit agreement require, among other
things, maintenance of minimum levels of shareholders' equity, compliance with
certain financial ratios and Mr. Robert M. Goodfriend remaining as Chairman of
the Board or Chief Executive Officer of the Company, and place restrictions on
additional indebtedness, asset disposals, investments and capital expenditures.
(3) Earnings per common share
Basic earnings per common share is computed by dividing net earnings by the
weighted average number of common shares outstanding. Diluted earnings per
common share is computed by dividing net earnings by the weighted average number
of common shares outstanding and potentially dilutive common shares. Weighted
average diluted shares outstanding differs from weighted average basic shares
outstanding solely from the effect of stock options.
In July 1998, the Company effected a two-for-one stock split. All previously
reported earnings per share and related data have been restated to reflect such
stock split.
(4) Recent accounting pronouncements
Accounting for costs of computer software
At the beginning of the first quarter of fiscal 1999, the Company adopted
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP No. 98-1") which requires that
certain costs incurred to develop or obtain software for internal use be
capitalized. The effect of the adoption of SOP No. 98-1 on the Company's
financial position or results of operations was not material.
Accounting for derivative instruments and hedging activities
In June 1998, the American Institute of Certified Public Accountants issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, which is
currently effective beginning with the Company's fiscal year 2000 (however, the
Financial Accounting Standards Board is considering a one year delay of this
effective date), requires that an entity recognize all derivatives as either
assets or liabilities in its statement of financial position and measure those
instruments at fair value. The Company has not yet completed its analysis of the
effect of SFAS No. 133 on its financial statements.
<PAGE>
Goody's Family Clothing, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - continued
(Unaudited)
(5) Contingencies
In February 1999, two lawsuits were served on the Company. The first lawsuit was
filed by nine individual plaintiffs at one of the Company's retail stores, who
generally allege discrimination with respect to employment opportunities,
including, among other things, discrimination through their constructive
discharge, failure to be promoted and failure to be paid wages equal to white
employees. The second lawsuit was filed by 20 named plaintiffs, who generally
allege that the Company discriminated against a class of African-American
employees at its retail stores through the use of discriminatory selection and
compensation procedures, and by maintaining unequal terms and conditions of
employment and that the Company maintained a racially hostile working
environment. The plaintiffs in the second lawsuit also named Robert M.
Goodfriend, the Company's Chairman and Chief Executive Officer, as a defendant,
and are seeking to have this action certified as a class action. By way of
damages, the plaintiffs in these actions are seeking, among other things,
injunctive relief, back pay and other monetary relief. The Company disputes
these claims and intends to defend these matters vigorously. It is too early to
estimate the effect, if any, these two lawsuits may have on the Company's
financial position or results of operations.
The Company is a party to certain other legal proceedings arising in the
ordinary course of its business. Management currently believes that the ultimate
outcome of these other proceedings, individually and in the aggregate, will not
have a material adverse effect on the Company's financial position or results of
operations.
(6) Reclassifications
Certain reclassifications have been made to the financial statements of prior
periods to conform to the current period presentation.
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
Goody's Family Clothing, Inc.
Knoxville, Tennessee
We have reviewed the accompanying condensed consolidated balance sheets of
Goody's Family Clothing, Inc. and subsidiaries as of May 1, 1999 and May 2, 1998
and the related consolidated statements of operations and cash flows for the
thirteen-weeks then ended. These financial statements are the responsibility of
the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Goody's Family Clothing, Inc. and
subsidiaries as of January 30, 1999 and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated March 17, 1999, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of January 30, 1999 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
May 18, 1999
<PAGE>
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
This Quarterly Report contains certain forward-looking statements which are
based upon current expectations, plans and estimates and involve material risks
and uncertainties including, but not limited to, (i) weather conditions; (ii)
the timely availability of branded and private label merchandise in sufficient
quantities to satisfy customer demand; (iii) customer demand and trends in the
apparel and retail industry and to the acceptance of merchandise acquired for
sale by the Company; (iv) the effectiveness of advertising and promotional
events; (v) the impact of competitors' pricing and store expansion; (vi) the
ability to enter into leases for new store locations; (vii) the timing,
magnitude and costs of opening new stores; (viii) individual store performance,
including new stores; (ix) employee relations; (x) the general economic
conditions within the Company's markets; (xi) the Company's financing plans;
(xii) trends affecting the Company's financial condition or results of
operations, (xiii) the Company's business and growth strategies and (xiv) the
effect of the Year 2000 issue on the Company and third parties who provide goods
and services to the Company. Any "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which generally can be identified
by the use of forward-looking terminology such as "may," "will," "expect,"
"estimate," "anticipate," "believe," "target," "plan," "project" or "continue"
or the negatives thereof or other variations thereon or similar terminology, are
made on the basis of management's plans and current analysis of the Company, its
business and the industry as a whole. Readers are cautioned that any such
forward-looking statement is not a guarantee of future performance and involves
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statement as a result of various factors.
The Company does not undertake to publicly update or revise its forward-looking
statements even if experience or future changes make it clear that any projected
results expressed or implied therein will not be realized. Additional
information on risk factors that could potentially affect the Company's
financial results may be found in the Company's public filings with the
Securities and Exchange Commission. Certain of such filings may be accessed
through the Securities and Exchange Commission's web site, http://www.sec.gov.
Results of Operations
The following table sets forth unaudited results of operations as a percent of
sales for the periods indicated:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
May 1, 1999 May 2, 1998
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales and occupancy expenses 71.5 70.0
---- ----
Gross profit 28.5 30.0
Selling, general and administrative expenses 23.9 24.7
---- ----
Earnings from operations 4.6 5.3
Interest expense - -
Investment income 0.2 0.2
---- ---
Earnings before income taxes 4.8 5.5
Provision for income taxes 1.8 2.1
--- ---
Net earnings 3.0% 3.4%
=== ===
</TABLE>
Overview During the first quarter of fiscal 1999, the Company opened ten new
stores, relocated seven stores and remodeled two stores, bringing the total
number of stores in operation at quarter end to 267, compared with 229 at the
end of the first quarter of fiscal 1998. In the corresponding period of the
previous fiscal year, seven new stores were opened, one store was relocated, one
store was remodeled and one store was closed. Net earnings for the first quarter
of fiscal 1999 were $7,883,000, or 3.0% of sales, compared with $7,768,000, or
3.4% of sales, for the first quarter of fiscal 1998.
Sales Sales for the first quarter of fiscal 1999 were $259,931,000, a 14.7%
increase over the $226,714,000 for the first quarter of fiscal 1998. This
increase of $33,217,000 consisted of (i) a 1.1% increase in comparable store
sales of $2,320,000 from the corresponding period of the previous fiscal year
and (ii) additional sales from new and transition stores of $30,897,000.
Gross profit Gross profit for the first quarter of fiscal 1999 was $74,201,000,
or 28.5% of sales, a $6,281,000 increase over the $67,920,000, or 30.0% of
sales, in gross profit for the first quarter of the previous fiscal year. The
1.5% decrease in gross profit, as a percent of sales, resulted primarily from
(i) a 1.2% increase in cost of sales related to the sale of clearance
merchandise at lower margins, some additional promotional activity in March 1999
and from a less profitable sales mix of spring and summer merchandise and (ii) a
0.3% increase in occupancy costs primarily related to higher rents associated
with new and relocated stores.
Selling, general and administrative expenses Selling, general and administrative
expenses for the first quarter of fiscal 1999 were $62,154,000, or 23.9% of
sales, an increase of $6,250,000 from $55,904,000, or 24.7% of sales, for the
first quarter of the previous fiscal year. Selling, general and administrative
expenses decreased by 0.8%, as a percent of sales, for the first quarter of
fiscal 1999 compared with the first quarter of the previous fiscal year and is
comprised of (i) a 0.5% decrease in bonus expenses related to the Company's
Short-Term Incentive Plan and other bonus plans and (ii) a 0.3% decrease in
other selling, general and administrative expenses.
Interest expense Interest expense for the first quarter of fiscal 1999 decreased
by $41,000 compared with the first quarter of the previous fiscal year as a
result of decreases in various interest expenses incurred during the period.
Investment income Investment income for the first quarter of fiscal 1999
increased by $42,000 compared with the first quarter of the previous fiscal year
primarily as a result of an increase in invested funds during the period.
Income taxes The provision for income taxes for the first quarter of fiscal 1999
was $4,689,000, for an effective tax rate of 37.3% of earnings before income
taxes, compared with $4,690,000, for an effective tax rate of 37.7% of earnings
before income taxes, for the first quarter of the previous fiscal year. The
decrease in the effective tax rate is primarily due to a decrease in effective
state income tax rates.
Liquidity and Capital Resources
Financial position The Company's primary sources of liquidity are cash
flows from operations, including credit terms from vendors, and borrowings under
its credit agreement. At May 1, 1999, the Company's working capital was
$103,758,000 compared with $83,788,000 at May 2, 1998. At the end of the first
quarter of fiscal 1999 compared with the first quarter of the previous fiscal
year, (i) cash, cash equivalents and investment securities increased by
$15,340,000, (ii) net property and equipment increased by $13,116,000, (iii)
inventories increased by $11,992,000 due to an increase in the number of stores
and (iv) accounts payable decreased by $3,387,000. Trade payables, as a percent
of inventories, were 60.0% at May 1, 1999 compared with 65.8% at May 2, 1998.
The Company has a credit agreement 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 an aggregate of $130,000,000 and
which expires in May 2001. The Company is committed to pay (i) interest on the
cash borrowings at a fluctuating base rate or LIBOR plus an applicable margin,
(ii) letter of credit fees based on the number of days a letter of credit is
outstanding times an applicable fee and (iii) an annual commitment fee payable
quarterly in advance. The terms of this credit agreement require, among other
things, maintenance of minimum levels of shareholders' equity, compliance with
certain financial ratios and Mr. Robert M. Goodfriend remaining as Chairman of
the Board or Chief Executive Officer of the Company, and place restrictions on
additional indebtedness, asset disposals, investments and capital expenditures.
At May 1, 1999, the Company had no cash borrowings and $43,055,000 was
outstanding for letters of credit compared with no cash borrowings and
$68,941,000 outstanding for letters of credit at May 2, 1998. Cash borrowings
averaged $38,000 (with the highest balance of $2,000,000 in March 1999) in the
first quarter of fiscal 1999 compared with no cash borrowings for the first
quarter of fiscal 1998. Letters of credit outstanding averaged $44,695,000
during the first quarter of fiscal 1999 compared with $58,744,000 during the
first quarter of fiscal 1998. The highest balance of letters of credit
outstanding during the first quarter of fiscal 1999 and 1998 was $49,454,000 (in
February 1999) and $72,857,000 (in April 1998), respectively.
Cash flows Operating activities used cash of $980,000 in the first quarter of
fiscal 1999 compared with $23,185,000 in the first quarter of the previous
fiscal year. Cash used in operating activities during the first quarter of
fiscal 1999 for seasonal inventory increases was $30,914,000 compared with
$32,942,000 for the first quarter of the previous fiscal year. Accounts payable
provided cash of $12,353,000 in the first quarter of fiscal 1999 compared with
$8,902,000 for the first quarter of the previous fiscal year. Other assets and
liabilities provided cash of $1,431,000 compared with cash used of $4,143,000
for the first quarter of the previous fiscal year. Depreciation and amortization
amounted to $3,782,000 in the first quarter of fiscal 1999 compared with
$3,191,000 for the first quarter of the previous fiscal year.
Cash flows from investing activities for the first quarter of fiscal 1999
reflected a net use of cash amounting to $10,534,000 compared with $4,393,000
for the first quarter of the previous fiscal year. Cash was used primarily to
fund capital expenditures for new, relocated and remodeled stores and for
general corporate purposes.
Cash used by financing activities for the first quarter of fiscal 1999 was
$14,497,000 compared with cash provided of $11,345,000 for the first quarter of
the previous fiscal year. The Company's cash management program used cash of
$14,518,000 in the first quarter of fiscal 1999 compared with cash provided of
$8,204,000 for the first quarter of the previous fiscal year. The Company
received $18,000 in cash and realized a tax benefit of $3,000 in the first
quarter of fiscal 1999 compared with $1,250,000 in cash and a tax benefit of
$1,891,000 for the first quarter of the previous fiscal year from the issuance
of common stock on exercise of stock options.
Outlook The Company plans to open approximately 30 to 35 new stores and relocate
or remodel approximately 24 stores and close one store during fiscal 1999.
During the second quarter to date, the Company opened two new stores. Management
estimates that capital expenditures of approximately $29,500,000 will be
required for (i) opening new stores, (ii) upgrading existing stores, (iii)
distribution center enhancements, (iv) computer systems and equipment and (v)
for general corporate purposes during the remainder of fiscal 1999.
The Company's primary needs for capital resources are for the purchase of store
inventories, capital expenditures and for normal operating purposes. Management
believes that its existing working capital, together with cash flows from
operations, including credit terms from vendors, and the borrowings available
under the credit agreement will be sufficient to meet the Company's operating
and capital expenditure requirements.
In February 1999, two lawsuits were served on the Company. The first lawsuit was
filed by nine individual plaintiffs at one of the Company's retail stores, who
generally allege discrimination with respect to employment opportunities,
including, among other things, discrimination through their constructive
discharge, failure to be promoted and failure to be paid wages equal to white
employees. The second lawsuit was filed by 20 named plaintiffs, who generally
allege that the Company discriminated against a class of African-American
employees at its retail stores through the use of discriminatory selection and
compensation procedures, and by maintaining unequal terms and conditions of
employment and that the Company maintained a racially hostile working
environment. The plaintiffs in the second lawsuit also named Robert M.
Goodfriend, the Company's Chairman and Chief Executive Officer, as a defendant,
and are seeking to have this action certified as a class action. By way of
damages, the plaintiffs in these actions are seeking, among other things,
injunctive relief, back pay and other monetary relief. The Company disputes
these claims and intends to defend these matters vigorously. It is too early to
estimate the effect, if any, these two lawsuits may have on the Company's
financial position or results of operations.
The Company is a party to certain other legal proceedings arising in the
ordinary course of its business. Management currently believes that the ultimate
outcome of these other proceedings, individually and in the aggregate, will not
have a material adverse effect on the Company's financial position or results of
operations.
Impact of the Year 2000 Issue
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in similar
normal business activities.
The state of readiness
During fiscal 1998, the Company established an oversight committee, consisting
of individuals from each of its functional areas, to review all of the Company's
computer systems and programs, as well as the computer systems of the third
parties upon whose data or functionality the Company relies in any material
respect, and to assess their ability to process transactions in the year 2000.
This committee meets regularly to review the progress of the Company's Year 2000
compliance issues. At May 1, 1999, all internal systems have been modified to be
Year 2000 compliant. Throughout the remainder of fiscal 1999 the Company plans
to continue testing and monitoring its internal systems for Year 2000
compliance. In addition, the oversight committee will continue to meet
throughout the remainder of fiscal 1999 and into the year 2000 to review the
progress of the Company's Year 2000 efforts and to address any problems
encountered with third parties.
In addition, the Company has contacted its significant suppliers and other
service providers to determine the extent to which the Company is vulnerable to
those third parties' failure to remediate their own Year 2000 issues. Although
most suppliers have responded that they expect to be in substantial compliance,
there can be no guarantee that the computer systems of these third parties on
which the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company. The
Company is not yet in a position to assess any third party's compliance efforts
with the Year 2000 issue or the impact on the Company, if any, of the failure of
one or more third party's Year 2000 compliance efforts.
Costs to address Year 2000 issues
Through May 1, 1999, the costs incurred by the Company for Year 2000 issues
amounted to approximately $881,000 for external and existing internal resources
that were expensed as incurred. The Company's remaining costs for Year 2000
issues are estimated at $699,000, which primarily consist of (i) $283,000 for
the purchase of software and hardware and (ii) $416,000 representing external
and existing internal resources that will be expensed as incurred.
Risks of Year 2000 issues
The risks associated with failing to remediate the Year 2000 issues include,
among other things, temporary disruptions in (i) store operations, (ii)
ordering, receiving and distributing merchandise, (iii) services provided by
banks such as credit card processing and authorization, (iv) communication
services, (v) city and government services and (vi) utility services as well as
other vital and necessary operations.
Contingency plans
The oversight committee is currently in the process of developing a contingency
plan for each area within the organization that could be affected by the Year
2000 issue. Although management currently anticipates minimal business
disruption, the failure of either the Company or one of its major business
partners to remediate the Year 2000 issue could have a materially adverse impact
on the Company's business, operations and financial condition.
Seasonality and inflation The Company's business is seasonal by nature. The
Christmas season (beginning the Sunday before Thanksgiving and ending on the
first Saturday after Christmas), the back-to-school season (beginning
approximately the first week of August and continuing through the first week of
September) and the Easter season (beginning approximately two weeks before
Easter Sunday and ending on the Saturday preceding Easter) collectively
accounted for approximately 33.7% of the Company's annual sales based on the
Company's last three fiscal years ended January 30, 1999. In general, sales
volume varies directly with customer traffic, which is heaviest during the third
and fourth quarters of a fiscal year. Because of the seasonality of the
Company's business, results for any quarter are not necessarily indicative of
the results that may be achieved for the full year.
Inflation can affect the costs incurred by the Company in the purchase of its
merchandise, the leasing of its stores and certain components of its selling,
general and administrative expenses. During the last three fiscal years ended
January 30, 1999, inflation has not materially affected the Company's business,
although there can be no assurance that inflation will not have a material
adverse effect on the Company in the future.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
The Company has no material investments or risks in market risk sensitive
instruments.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings - None
- ----------------------------
Item 2. - Changes in Securities and Use of Proceeds - None
- ------------------------------- ---------------------
Item 3. - Defaults Upon Senior Securities - None
Item 4. - Submission of Matters to a Vote of Security Holders - None
- ------------------------------------ --------------------------
Item 5. - Other Information - None
Item 6. - Exhibits and Reports on Form 8-K
a) Exhibits -
11 - Statement re: Computation of Per Share Earnings
15 - Accountants' Awareness Letter
27 - Financial Data Schedule
b) Reports on Form 8-K -
On February 19, 1999, the Company filed a report on Form 8-K with
respect to its issuance on February 16, 1999 of a press release which
stated, in part, that a complaint on behalf of a purported class has
been filed in federal court in Albany, Georgia alleging racial
discrimination. Such issuance was reported under Item 5 - Other Event.
<PAGE>
GOODY'S FAMILY CLOTHING, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GOODY'S FAMILY CLOTHING, INC.
(Registrant)
Date: May 25, 1999 /s/ Robert M. Goodfriend
------------------------ ---------------------------
Robert M. Goodfriend
Chairman of the Board and
Chief Executive Officer
Date: May 25, 1999 /s/ Harry M. Call
------------------------ ---------------------------
Harry M. Call
Director, President and
Chief Operating Officer
Date: May 25, 1999 /s/ Edward R. Carlin
------------------------ ---------------------------
Edward R. Carlin
Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financial
Officer)
Date: May 25, 1999 /s/ David G. Peek
------------------------ ---------------------------
David G. Peek
Vice President, Corporate
Controller and Chief
Accounting Officer
(Principal Accounting
Officer)
<PAGE>
EXHIBIT 11
GOODY'S FAMILY CLOTHING, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
-----------------------------------
Thirteen Weeks Ended
-----------------------------------
May 1, 1999 May 2, 1998
------------------ ----------------
(unaudited) (unaudited)
<S> <C> <C>
Net earnings $ 7,883,000 $ 7,768,000
=============== ==============
Weighted average common shares
outstanding - Basic (a) 33,333,000 33,164,000
Common shares represented by stock options
outstanding under the treasury stock method 585,000 1,454,000
Weighted average common shares
---------- ----------
outstanding - Diluted (a) 33,918,000 34,618,000
========== ==========
Earnings per common share (a)
Basic $ 0.24 $ 0.23
============== ===========
Diluted $ 0.23 $ 0.22
============== ===========
</TABLE>
(a) In July 1998, the Company effected a two-for-one stock split. All previously
reported earnings per share and related data have been restated to reflect such
stock split.
<PAGE>
Exhibit 15
Goody's Family Clothing, Inc.
Knoxville, Tennessee
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Goody's Family Clothing, Inc. for the periods ended May 1, 1999
and May 2, 1998, as indicated in our report dated May 18, 1999; because we did
not perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended May 1, 1999, is incorporated
by reference in Registration Statements Nos. 333-32357, 33-51210, 33-68520,
333-00052 and 333-09595 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
May 25, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS AT MAY 1, 1999 AND THE RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE THIRTEEN-WEEK PERIOD ENDED ON MAY 1, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000879123
<NAME> Goody's Family Clothing, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> Jan-31-1999
<PERIOD-END> May-01-1999
<CASH> 63,281
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 196,601
<CURRENT-ASSETS> 280,494
<PP&E> 178,835
<DEPRECIATION> 67,369
<TOTAL-ASSETS> 395,299
<CURRENT-LIABILITIES> 176,736
<BONDS> 318
0
0
<COMMON> 28,120
<OTHER-SE> 175,261
<TOTAL-LIABILITY-AND-EQUITY> 395,299
<SALES> 259,931
<TOTAL-REVENUES> 259,931
<CGS> 185,730
<TOTAL-COSTS> 62,154
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 12,572
<INCOME-TAX> 4,689
<INCOME-CONTINUING> 7,883
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,883
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.23
</TABLE>
