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 July 31, 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, 33,199,180 shares outstanding as of
August 28, 1999.
<PAGE>
Goody's Family Clothing, Inc.
Index to Form 10-Q
July 31, 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 - 15
Item 3 - Quantitative and Qualitative Disclosures about Market Risk. 15
Part II - Other Information............................................ 16 - 17
-----------------
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............................................................... 18
<PAGE>
PART 1 - FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Item 1 - Consolidated Financial Statements
Goody's Family Clothing, Inc. and Subsidiaries
Consolidated Statements of Operations - Unaudited
(In thousands, except per share amounts)
<TABLE>
Thirteen Twenty-six
Weeks Ended Weeks Ended
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Sales $ 277,260 $ 249,489 $ 537,191$ 476,203
Cost of sales and occupancy expenses 195,790 178,345 381,520 337,139
------------ ------------ ------- ------------
Gross profit 81,470 71,144 155,671 139,064
Selling, general and administrative
expenses 66,545 57,632 128,699 113,536
------------ ------------ ------------ ------------
Earnings from operations 14,925 13,512 26,972 25,528
Interest expense 53 87 106 181
Investment income 699 462 1,277 998
------------ ------------ ------------ ------------
Earnings before income taxes 15,571 13,887 28,143 26,345
Provision for income taxes 5,864 5,229 10,553 9,919
------------ ------------ ------------ ------------
Net earnings $ 9,707 $ 8,658 $ 17,590 $ 16,426
============ ============ ============ ============
Earnings per common share
Basic $ 0.29 $ 0.26 $ 0.53 $ 0.49
============ ============ ============ ============
Diluted $ 0.29 $ 0.25 $ 0.52 $ 0.47
============ ============ ============ ============
Weighted average common
shares outstanding
Basic 33,318 33,538 33,325 33,384
============ ============ ============ ============
Diluted 33,900 34,989 33,909 34,836
============ ============ ============ ============
</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>
July 31, January 30, August 1,
1999 1999 1998
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 70,858 $ 89,292 $ 41,872
Inventories 209,666 165,687 201,295
Accounts receivable and other current assets 14,897 14,195 23,178
------------ ------------ ------------
Total current assets 295,421 269,174 266,345
Property and equipment, net 113,343 104,789 100,446
Other assets 3,647 3,210 3,037
------------ ------------ ------------
Total assets $ 412,411 $ 377,173 $ 369,828
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 133,885 $ 122,776 $ 126,420
Accrued expenses 49,043 43,190 44,341
Income taxes payable 1,764 321 -
Current portion of long-term debt 289 289 263
------------ ------------ ------------
Total current liabilities 184,981 166,576 171,024
Long-term debt 318 318 608
Other long-term liabilities 3,790 3,782 3,381
Deferred income taxes 11,223 11,020 10,368
------------ ------------ ------------
Total liabilities 200,312 181,696 185,381
------------ ------------ ------------
Commitments and Contingencies
Shareholders' Equity
Preferred stock, $1.00 par value;
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 - 33,245,480; 33,330,780
and 33,326,130 shares, respectively 27,104 28,102 28,034
Paid-in capital 9,479 9,449 9,748
Retained earnings 175,516 157,926 146,665
------------ ------------ ------------
Total shareholders' equity 212,099 195,477 184,447
------------ ------------ ------------
Total liabilities and shareholders' equity $ 412,411 $ 377,173 $ 369,828
============ ============ ============
</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 - Unaudited
(In thousands)
<TABLE>
Twenty-six Weeks Ended
July 31, August 1,
1999 1998
--------- ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net earnings $ 17,590 $ 16,426
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,819 6,587
Net loss on asset disposals and write-down 289 649
Changes in assets and liabilities:
Inventories (43,979) (49,628)
Accounts payable 26,794 17,862
Income taxes 2,569 (12,754)
Other assets and liabilities 4,965 (3,035)
------------- -------------
Cash provided by (used in) operating activities 16,047 (23,893)
----------- -------------
Cash Flows from Investing Activities
Acquisitions of property and equipment (16,690) (10,242)
Proceeds from sale of property and equipment 28 28
------------- ------------
Cash used in investing activities (16,662) (10,214)
-------------- -------------
Cash Flows from Financing Activities
Exercise of stock options 103 7,964
Purchase of Common Stock (1,071) -
Changes in cash management accounts (16,851) 3,841
-------------- ------------
Cash (used in) provided by financing activities (17,819) 11,805
------------ ------------
Cash and cash equivalents
Net decrease for the period (18,434) (22,302)
Cash and cash equivalents, beginning of period 89,292 64,174
-------------- -----------
Cash and cash equivalents, end of period $ 70,858 $ 41,872
============= ============
Supplemental Disclosures
Income tax payments $ 7,866 $ 17,205
Interest payments 75 133
</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.
(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, as amended,
is effective beginning with the Company's fiscal year 2001 and 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 a lawsuit was filed against the Company 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. One plaintiff in
this first lawsuit has agreed in principle, subject to the execution of
definitive agreements, to accept nominal consideration from the Company in
exchange for a release, five plaintiffs have filed or agreed to file motions to
dismiss with prejudice and the remaining three plaintiffs remain in this action.
Also in February 1999, a 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 this second action are seeking, among other
things, injunctive relief, back pay and other monetary relief.
In addition, the Company has been named as the sole defendant in three
separate actions, two of which were served in May 1999 and one was served in
August 1999. Each of these actions is brought by former employees who allege
that the Company retaliated against them for opposing unlawful discrimination.
Each of the plaintiffs seek monetary damages, including lost pay and benefits,
mental and emotional suffering and punitive damages.
The Company disputes the claims in these lawsuits and intends to defend the
the unresolved claims vigorously. It is too early to estimate the effect, if
any, these 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.
>
<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 July 31, 1999 and August 1,
1998 and the related consolidated statements of operations and cash flows for
the thirteen and twenty-six week periods 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
August 17, 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, shoe 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 Company's ability to
properly staff the new shoe departments on a timely basis; (xi) the general
economic conditions within the Company's markets; (xii) the Company's financing
plans; (xiii) trends affecting the Company's financial condition or results of
operations; (xiv) the Company's business and growth strategies and (xv) 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>
Thirteen Twenty-six
Weeks Ended Weeks Ended
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales and occupancy expenses 70.6 71.5 71.0 70.8
----- ----- ----- -----
Gross profit 29.4 28.5 29.0 29.2
Selling, general and administrative expenses 24.0 23.1 24.0 23.8
----- ----- ----- -----
Earnings from operations 5.4 5.4 5.0 5.4
Interest expense - - - 0.1
Investment income 0.2 0.2 0.3 0.2
----- ----- ----- -----
Earnings before income taxes 5.6 5.6 5.3 5.5
Provision for income taxes 2.1 2.1 2.0 2.1
----- ----- ----- -----
Net earnings 3.5% 3.5% 3.3% 3.4%
===== ===== ===== =====
</TABLE>
Thirteen Weeks Ended July 31, 1999 Compared with Thirteen Weeks Ended August 1,
1998
Overview - During the second quarter of fiscal 1999, the Company opened two new
stores, relocated five stores and remodeled two stores, bringing the total
number of stores in operation at July 31, 1999 to 269, compared with 233 at
August 1, 1998. During the corresponding period of the previous fiscal year, the
Company opened five new stores, relocated three stores, remodeled one store and
closed one store. Net earnings for the second quarter of fiscal 1999 were
$9,707,000, or 3.5% of sales, compared with $8,658,000, or 3.5% of sales, for
the second quarter of fiscal 1998.
Sales - Sales for the second quarter of fiscal 1999 were $277,260,000, an 11.1%
increase over the $249,489,000 in sales for the second quarter of fiscal 1998.
This increase of $27,771,000 consisted of additional sales from new and
transition stores of $35,713,000, which was offset by a 3.4% decrease, or
$7,942,000, in comparable store sales. Management of the Company believes that
this negative trend in sales was due, in part, to the difficulty in balancing
the Company's strategies of margin expansion and inventory reduction and to the
Company's failure to identify certain emerging fashion trends on a timely basis.
Shoe Corporation of America, Inc. ("SCOA"), under a license agreement with the
Company, operated shoe departments in most of the Company's stores and the
resulting shoe sales are included in the Company's reported sales. On June 14,
1999, SCOA filed for bankruptcy protection under Chapter 11 in the United States
Bankruptcy Court for the Southern District of Ohio. As a result of SCOA's
financial difficulties, the Company's licensed shoe department sales for the
second quarter ended July 31, 1999, declined approximately 28% in total and
approximately 41% on a comparable store basis from the same period in the prior
year, which negatively affected the Company's overall comparable store sales for
the second quarter of 1999 by approximately 1.5%. Pursuant to the terms of an
agreement, SCOA removed its shoe inventory from the Company's stores during the
first week of August 1999 and subsequently, the Company began stocking its own
shoe departments. In August 1999, the Company recorded net sales of
approximately $50,000 from the licensed shoe departments and approximately
$855,000 from its own shoe departments compared with approximately $3.2 million
from the licensed shoe departments in August 1998. If all shoe sales are
excluded from August 1999, the Company's overall comparable store sales would
have decreased approximately 6.9% from August 1998. It is not anticipated that
the Company will achieve an appropriate shoe inventory mix until February 2000,
the date when the SCOA agreement was originally set to expire.
Gross Profit - Gross profit for the second quarter of fiscal 1999 was
$81,470,000, or 29.4% of sales, a $10,326,000 increase over the $71,144,000 in
gross profit, or 28.5% of sales, generated for the second quarter of the
previous fiscal year. The 0.9% increase in gross profit, as a percent of sales,
in the second quarter of fiscal 1999 compared with the second quarter of fiscal
1998 resulted from a decrease in cost of sales of 1.3% which was offset by a
0.4% increase in occupancy costs. The decrease in cost of sales was primarily
the result of (i) better inventory management and control, (ii) a shift from
basic denim to fashion denim products that carry higher margins, (iii) an
increase in basic denim margins and (iv) a decrease in the licensed shoe
departments sales which carry lower margins. The increase in occupancy costs
primarily resulted from higher rents associated with new and relocated stores
and a decrease in comparable store sales as discussed above.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for the second quarter of fiscal 1999 were $66,545,000,
or 24.0% of sales, an increase of $8,913,000 from $57,632,000, or 23.1% of
sales, for the second quarter of fiscal 1998. The 0.9% increase in selling,
general and administrative expenses, as a percent of sales, for the second
quarter of fiscal 1999 compared with the second quarter of fiscal 1998 resulted
from (i) a 0.2% increase in advertising and promotional expenses, (ii) a 0.5%
increase in store payroll expenses, (iii) a 0.3% increase in maintenance and
repairs expenses, and (iv) a 0.4% increase in other selling, general and
administrative expenses which were partially offset by a 0.5% decrease in bonus
expenses related to the Company's Short-Term Incentive Plan and other bonus
plans.
Interest Expense - Interest expense for the second quarter of fiscal 1999
decreased by $34,000 compared with the second 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 second quarter of fiscal 1999
increased by $237,000 compared with the second 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 second quarter of fiscal
1999 was $5,864,000, an effective tax rate of 37.7% of earnings before income
taxes, compared with $5,229,000, an effective tax rate of 37.7% of earnings
before income taxes, for the second quarter of the previous fiscal year. The
increase from a 37.3% effective tax rate recorded in the first quarter of fiscal
1999 to a 37.7% effective tax rate recorded in the second quarter of fiscal 1999
resulted from state tax law changes.
Twenty-Six Weeks Ended July 31, 1999 Compared with Twenty-Six Weeks Ended August
1, 1998
Overview - During the twenty-six weeks ended July 31, 1999, the Company opened
12 new stores, relocated 12 stores and remodeled four stores, bringing the total
number of stores in operation at July 31, 1999 to 269, compared with 233 at
August 1, 1998. During the corresponding period of the previous fiscal year, the
Company opened 12 new stores, relocated four stores, remodeled two stores and
closed two stores. Net earnings for the twenty-six weeks ended July 31, 1999
were $17,590,000, or 3.3% as a percent of sales, compared with $16,426,000, or
3.4% as a percent of sales, for the twenty-six weeks ended August 1, 1998.
Sales - Sales for the twenty-six weeks ended July 31, 1999 were $537,191,000, a
12.8% increase over the $476,203,000 in sales for the corresponding period of
the previous fiscal year. This increase of $60,988,000 consisted of additional
sales from new and transition stores of $66,610,000 which was offset by a 1.2%
decrease, or $5,622,000, in comparable store sales. The licensed shoe department
sales for the twenty-six weeks ended July 31, 1999 declined approximately 10% in
total and approximately 24% on a comparable store basis from such sales for the
corresponding period of the previous fiscal year, which negatively affected the
overall Company's comparable store sales for the twenty-six weeks ended July 31,
1999 by approximately 1%.
Gross Profit - Gross profit for the twenty-six weeks ended July 31, 1999
was $155,671,000, or 29.0% of sales, a $16,607,000 increase over the
$139,064,000 in gross profit, or 29.2% of sales, generated for the corresponding
period of the previous fiscal year. The 0.2% decrease in gross profit, as a
percent of sales, for the twenty-six weeks ended July 31, 1999 compared with the
twenty-six weeks ended August 1, 1998 resulted from a decrease in cost of sales
of 0.1% which was offset by a 0.3% increase in occupancy costs. The decrease in
cost of sales was primarily the result of better inventory management and
control. The increase in occupancy costs primarily resulted from higher rents
associated with new and relocated stores and a decrease in comparable store
sales as discussed above.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for the twenty-six weeks ended July 31, 1999 were
$128,699,000, or 24.0% of sales, an increase of $15,163,000 from $113,536,000,
or 23.8% of sales, for the corresponding period of the previous fiscal year. The
0.2% increase in selling, general and administrative expenses, as a percent of
sales, for the twenty-six weeks ended July 31, 1999 compared with the twenty-six
weeks ended August 1, 1998 resulted from (i) a 0.1% increase in advertising and
promotional expenses (ii) a 0.4% increase in store payroll expenses and (iii) a
0.2% increase in maintenance and repairs expenses which were partially offset by
a 0.5% decrease in bonus expenses related to the Company's Short-Term Incentive
Plan and other bonus plans.
Interest Expense - Interest expense for the twenty-six weeks ended July 31, 1999
decreased by $75,000 compared with the corresponding period of the previous
fiscal year as a result of decreases in various interest expenses incurred
during the period.
Investment Income - Investment income for the twenty-six weeks ended July 31,
1999 increased by $279,000 compared with the corresponding period 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 twenty-six weeks
ended July 31, 1999 was $10,553,000, an effective tax rate of 37.5% of earnings
before income taxes, compared with $9,919,000, an effective tax rate of 37.7% of
earnings before income taxes, for the corresponding period of the previous
fiscal year. The Company expects the effective tax rate for the third and fourth
quarter and fiscal year 1999 to be 37.5%.
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 July 31, 1999, the Company's working capital was
$110,440,000 compared with $95,321,000 at August 1, 1998. At the end of the
second quarter of fiscal 1999, compared with the second quarter of the previous
fiscal year, (i) cash and cash equivalents increased by $28,986,000, (ii) net
property and equipment increased by $12,897,000, (iii) inventories increased by
$8,371,000 and (iv) accounts payable increased by $7,465,000. The net increase
in inventories was primarily due to inventories for new stores offset by a lower
inventories on a store by store basis for existing stores. Trade payables as a
percent of inventories increased to 63.9% at July 31, 1999 as compared with
62.8% at August 1, 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 July 31, 1999, the Company had no cash borrowings and $54,187,000 was
outstanding for letters of credit compared with no cash borrowings and
$68,840,000 outstanding for letters of credit at August 1, 1998. Cash borrowings
averaged $19,000 (with the highest balance of $2,000,000 in March 1999) during
the twenty-six weeks ended July 31, 1999 compared with no cash borrowings during
the twenty-six weeks ended August 1, 1998. Letters of credit outstanding
averaged $47,128,000 during the twenty-six weeks ended July 31, 1999 compared
with $66,988,000 during the twenty-six weeks ended August 1, 1998. The highest
balance of letters of credit outstanding during the twenty-six weeks ended July
31, 1999 was $58,464,000 (in July 1999) compared with $80,142,000 (in May 1998)
during the twenty-six weeks ended August 1, 1998.
Cash Flows - Operating activities provided cash of $16,047,000 in the twenty-six
weeks ended July 31, 1999 compared with cash used of $23,810,000 in the
corresponding period of the previous fiscal year. Cash used for increases in
inventory during the twenty-six weeks ended July 31, 1999 and August 1, 1998 was
$43,979,000 and $49,628,000, respectively. Accounts payable provided cash of
$26,794,000 and $17,862,000 in the twenty-six weeks ended July 31, 1999 and
August 1, 1998, respectively. Depreciation and amortization expenses were
$7,819,000 and $6,587,000 for the twenty-six weeks ended July 31, 1999 and
August 1, 1998, respectively.
Cash flows from investing activities reflected a $16,662,000 and $10,214,000 net
use of cash for the twenty-six weeks ended July 31, 1999 and August 1, 1998,
respectively. 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 twenty-six weeks ended July 31,
1999 was $17,819,000 compared with cash provided of $11,722,000 for the
corresponding period of the previous fiscal year. The Company's cash management
program used cash of $16,851,000 in the twenty-six weeks ended July 31, 1999
compared with cash provided of $3,841,000 for the corresponding period of the
previous fiscal year. During the twenty-six weeks ended July 31, 1999, the
Company received $73,000 in cash and realized a tax benefit of $30,000, compared
with $2,937,000 in cash and a tax benefit of $4,944,000 during the corresponding
period of the previous year from the issuance of common stock upon the exercise
of stock options. In June 1999, the Company's Board of Directors authorized the
Company to spend up to $20 million to repurchase shares of its common stock. As
a result, the Company repurchased 100,000 shares of its common stock during the
second quarter of fiscal 1999 for approximately $1,071,000.
Outlook - The Company plans to open approximately 32 new stores and
relocate or remodel approximately 21 stores and close one store during fiscal
1999. During the third quarter to date, the Company opened three new stores and
relocated one store. Management estimates that capital expenditures of
approximately $23,300,000 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 also plans to repurchase shares of its
common stock from time to time in the open market or in privately negotiated
transactions, depending upon price, prevailing market conditions and other
factors.
The Company's primary needs for capital resources are for the purchase of store
inventories, capital expenditures and for normal operating purposes. Based on
the Company's current growth plans, it is estimated that the existing Knoxville
distribution center can service its stores through fiscal 2000. In order to meet
the merchandise distribution requirements beginning in fiscal 2001, the Company
is contemplating acquiring or building a new distribution facility at a cost of
approximately $20 million which will be operational some time during fiscal
2001. 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 a lawsuit was filed against the Company 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. One plaintiff in
this first lawsuit has agreed in principle, subject to the execution of
definitive agreements, to accept nominal consideration from the Company in
exchange for a release, five plaintiffs have filed or agreed to file motions to
dismiss with prejudice and the remaining three plaintiffs remain in this action.
Also in February 1999, a 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 this second action are seeking, among other
things, injunctive relief, back pay and other monetary relief.
In addition, the Company has been named as the sole defendant in three
separate actions, two of which were served in May 1999 and one was served in
August 1999. Each of these actions is brought by former employees who allege
that the Company retaliated against them for opposing unlawful discrimination.
Each of the plaintiffs seek monetary damages, including lost pay and benefits,
mental and emotional suffering and punitive damages.
The Company disputes the claims in these lawsuits and intends to defend the
the unresolved claims vigorously. It is too early to estimate the effect, if
any, these 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 July 31, 1999, substantially 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 July 31, 1999, the costs incurred by the Company for Year 2000 issues
amounted to approximately $995,000 for external and existing internal resources
that were expensed as incurred. The Company's remaining costs for Year 2000
issues are estimated at $585,000, which primarily consist of (i) $246,000 for
the purchase of software and hardware and (ii) $339,000 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
In February 1999 a lawsuit was filed against the Company 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 plaintiffs'
claims were brought under the Civil Rights Act of 1866. One plaintiff in this
first lawsuit has agreed in principle, subject to the execution of definitive
agreements, to accept nominal consideration from the Company in exchange for a
release, five plaintiffs have filed or agreed to file motions to dismiss with
prejudice and the remaining three plaintiffs remain in this action.
Also in February 1999, a 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' claims were brought under Title VII
of the Civil Rights Act of 1964, as amended, and under the Civil Rights Act of
1866. 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 this second action are seeking, among other things, injunctive
relief, back pay and other monetary relief.
In addition, the Company has been named as the sole defendant in three separate
actions arising under Title VII of the Civil Rights Act of 1964, and 42 U.S.C.
Section 1981, two of which were served in May 1999 and one was served in August
1999. Each of these actions is brought by former employees who allege that the
Company retaliated against them for opposing unlawful discrimination. Each of
the plaintiffs seek monetary damages, including lost pay and benefits, mental
and emotional suffering and punitive damages.
The Company disputes the claims in these lawsuits and intends to defend the
the unresolved claims vigorously. It is too early to estimate the effect, if
any, these 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.
Item 2. - Changes in Securities - None
Item 3. - Defaults Upon Senior Securities - None
Item 4. - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders (the "Meeting") on June 16,
1999 at which the election of directors was submitted to a vote of shareholders.
At the Meeting, the following persons were elected as directors of the Company
for three year terms expiring at the 2002 Annual Meeting of Shareholders:
Irwin L. Lowenstein - 30,859,475 shares of common stock were voted in favor of
his election; 81,951 shares of common stock were withheld and 2,392,054 shares
of common stock were not voted.
Cheryl L. Turnbull - 30,858,925 shares of common stock were voted in favor of
her election; 82,501 shares of common stock were withheld; and 2,392,054 shares
of common stock were not voted.
The other directors of the Company include Harry M. Call and Samuel J. Furrow,
whose terms expire at the 2000 Annual Meeting of Shareholders and Robert M.
Goodfriend and Robert F. Koppel, whose terms expire at the 2001 Annual Meeting
of Shareholders.
Item 5. - Other Information - None
Item 6. - Exhibits and Reports on Form 8-K
a) Exhibits -
10.71 Goody's Family Clothing, Inc. Executive Deferral Plan
11 Statement re: Computation of Per Share Earnings
15 Accountants' Awareness Letter
27 Financial Data Schedule
b) Reports on Form 8-K - None
<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: September 9, 1999 /s/ Robert M. Goodfriend
------------------------ ----------------------------
Robert M. Goodfriend
Chairman of the Board and
Chief Executive Officer
Date: September 9, 1999 /s/ Harry M. Call
------------------------ ------------------------------
Harry M. Call
Director, President and
Chief Operating Officer
Date: September 9, 1999 /s/ Edward R. Carlin
------------------------------------------------------------
Edward R. Carlin
Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financial Officer)
Date: September 9, 1999 /s/ David G. Peek
-----------------------------------------------------------
David G. Peek
Vice President, Corporate
Controller and
Chief Accounting Officer
(Principal Accounting Officer)
<PAGE>
Exhibit - 10.71
GOODY'S FAMILY CLOTHING, INC.
EXECUTIVE DEFERRAL PLAN
Effective Date of Plan: July 1, 1999
<PAGE>
GOODY'S FAMILY CLOTHING, INC.
EXECUTIVE DEFERRAL PLAN
Table of Contents
Article Page
Preamble 1
1 Definitions 1
2 Participation in the Plan 4
3 Accounts Under the Plan 5
4 Accrual of Benefits 5
5 Vesting 7
6 Distributions to Participants 8
7 Amendment or Termination of the Plan 11
8 Plan Administration 12
9 Miscellaneous 14
<PAGE>
Preamble
The Goody's Family Clothing, Inc. (the "Company") hereby establishes
the Goody's Family Clothing, Inc. Executive Deferral Plan (the "Plan"),
effective as of the date specified herein. The Company intends to establish and
maintain the plan as an unfunded retirement plan for a select group of
management or highly compensated employees.
The purpose of the Plan is to permit designated executives of the
Company to accumulate additional retirement income through a nonqualified
deferred compensation plan that enables them to make Elective Deferrals in
excess of those permitted under the Goody's Family Clothing, Inc. 401(k)
Retirement Plan and to receive matching contributions that are precluded by the
provisions of that plan or by applicable law. This plan is an excess benefit
plan within the meaning of Section 3(36) of ERISA and is unfunded.
ARTICLE 1
Definitions
As used in this Plan, the following capitalized words and phrases have
the meanings indicated, unless the context requires a different meaning:
1.1 "Account" means amounts credited to a Participant under the Plan or
the aggregate of all of a Participant's accounts. The Plan includes the
following types of Account:
(a) Salary Reduction Accrual Account; and
(b) Matching Contribution Accrual Account.
1.2 "Allocation Date" means the last day of any Plan Year.
1.3 "Beneficiary" means the person or persons designated by a
Participant, or otherwise entitled, to receive any amount credited to his
Account that remains undistributed at his death.
1.4 "Board of Directors" or "Board" means the board of directors of the
Company.
1.5 "Code" means the Internal Revenue Code of 1986 as amended.
1.6 "Committee" means the committee appointed in accordance with
Section 8.1 to administer the Plan.
1.7 "Company" means Goody's Family Clothing, Inc., a Tennessee
corporation, and any subsidiaries, affiliates or any successor thereto.
1.8 "Compensation" means the aggregate compensation paid to a
Participant by the Company for a Plan Year, including salary, overtime pay,
commissions, bonuses and all other items that constitute wages within the
meaning of section 3401(a) of the Code or are required to be reported under
section 6041(d), 6051(a)(3) or 6052 of the Code. Compensation also includes
Salary Reduction Accruals under this Plan and any Elective Deferrals under
cash-or-deferred arrangements or cafeteria plans that are not includible in
gross income by reason of section 125 or 402(a)(8) of the Code but does not
include any other amounts contributed pursuant to, or received under, this Plan
or any other plan of deferred compensation. Compensation excludes all stock
option transactions, relocation reimbursements, and automobile allowances.
1.9 "Disability" means a mental or physical condition that, in the
opinion of a licensed physician approved by the Committee, renders a Participant
permanently incapable of satisfactorily performing his usual duties for the
Company or the duties of such other position as the Company may make available
to him for which he is qualified by reason of training, education or experience.
1.10 "Distributable Amount" means the portion of a Participant's Salary
Reduction Accruals for a particular Plan Year eligible for either distribution
in cash or deferral under the Qualified Plan in accordance with Section 6.1.
1.11 "Early Retirement Date" means the later of (a) a Participant's
fifty-fifth (55th) birthday or (b) his completion of ten (10) Years of Service.
1.12 "Effective Date" means July 1,1999, the date on which this Plan
went into effect.
1.13 "Eligible Employee" means: 1. all officers, directors, buyers, and
district/regional managers of the Company with annual compensation excluding
bonus, that was paid in the year prior to the year of deferral, in excess of the
amount defined in IRC Section 414(q) for a highly compensated employee; or 2.
all officers, directors, buyers, and district/regional managers of the Company
with annual compensation including bonus, that was paid in the year prior to the
year of deferral, totaling in excess of the amount defined in IRC Section 414(q)
for a highly compensated employee plus $10,000.
1.14 "Entry Date" means the Effective Date and each January 1st, April
1st, July 1st or October 1st thereafter.
1.15 "Matching Contribution Accrual" means an amount credited to a
Participant's Account in accordance with Section 4.1.2.
1.16 "Matching Contribution Accrual Account" means the account
established to record Matching Contribution Accruals on a Participant's behalf.
1.17 "Normal Retirement Date" means the later of (a) a Participant's
sixty-fifth (65th) birthday or (b) his completion of five (5) Years of Service.
1.18 "Participant" means any Eligible Employee who satisfies the
conditions for participation in the Plan set forth in Section 2.1.
1.19 "Plan" means the Goody's Family Clothing, Inc. Executive Deferral
Plan, as set forth herein and as from time to time amended.
1.20 "Plan Year" means the accounting year of the Plan, which ends on
December 31st.
1.21 "Qualified Plan" means the Goody's Family Clothing, Inc. 401(k)
Retirement Plan, as from time to time amended.
1.22 "Salary Reduction Accrual" means an amount credited to the Salary
Reduction Accrual Account pursuant to a Salary Reduction Agreement.
1.23 "Salary Reduction Accrual Account" means the account established
to record Salary Reduction Accruals authorized by Participants under the terms
of this Plan.
1.24 "Salary Reduction Agreement" means an agreement between a
Participant and the Company, under which the Participant agrees to a reduction
in his Compensation and the Company agrees to credit him with Salary Reduction
Accruals under this Plan.
1.25 "Termination of Employment" means a Participant's or former
Participant's separation from the service of the Company (including all
affiliates of the Company) by reason of his resignation, retirement, discharge
or death.
1.26 "Trust" or "Trust Fund" means any trust established to hold
amounts set aside by the Company in accordance with Section 4.4.
1.27 "Trustee" means the committee appointed by the Board of Directors
and any additional or successor trustee of the Trust Fund.
1.28 "Valuation Date" means any Allocation Date and any other date as
of which the value of Participants' Accounts is determined.
1.29 "Years of Service" means the total number of years for which a
Participant has received credit toward vesting under the Qualified Plan.
1.30 Rules of construction
1.30.1 Governing law. The construction and operation of this Plan and
Trust are governed by the laws of Tennessee.
1.30.2 Undefined terms. Unless the context clearly requires another
meaning, any term not specifically defined in this Plan is used in the sense
given to it by the Qualified Plan.
1.30.3 Headings. The headings of Articles, Sections and Subsections are
for reference only and are not to be utilized in construing the Plan.
1.30.4 Gender. Unless clearly inappropriate, all pronouns of whatever
gender refer indifferently to persons or objects of any gender.
1.30.5 Singular and plural. Unless clearly inappropriate, singular
terms refer also to the plural number and vice versa.
1.30.6 Severability. If any provision of this Plan is held illegal or
invalid for any reason, the remaining provisions are to remain in full force and
effect and to be construed and enforced in accordance with the purposes of the
Plan as if the illegal or invalid provision did not exist.
ARTICLE 2
Participation in the Plan
2.1 Commencement of participation. An employee of the Company becomes a
Participant on the earliest Entry Date on which he satisfies all of the
following conditions:
(a) he is an Eligible Employee;
(b) he is eligible to make elective deferrals to the Qualified
Plan; and
(c) he has executed a valid Salary Reduction Agreement that is
still in effect.
2.2 Cessation of participation. If a Participant ceases to satisfy any
of the conditions set forth in Section 2.1, his participation in this Plan
terminates immediately, except that his Account will continue to be held for his
benefit and will be distributed to him in accordance with the provisions of
Article 5. He may resume participation as of any Entry Date on which he again
satisfies the conditions of Section 2.1.
ARTICLE 3
Accounts Under the Plan
3.1 Establishment of Accounts. The accounts specified in this Section
3.1 are established under the Plan to record the liability of the Company to
Participants. All Accounts may be maintained on the books of the Company, and
the Company is under no obligation to segregate any assets to provide for these
liabilities. Should the Company elect to segregate assets into a trust fund
pursuant to Section 4.4 of the Plan, the accounts specified in this Section 3.1
may be maintained on the books of such fund.
3.1.1 Salary Reduction Accrual Accounts. A Salary Reduction Accrual
Account is maintained for each Participant for the purpose of recording the
current value of his Salary Reduction Accruals.
3.1.2 Matching Contribution Accrual Accounts. A Matching Contribution
Accrual Account is maintained for each Participant for the purpose of recording
the value of Matching Contribution Accruals credited on his behalf in accordance
with Section 4.1.2.
3.2 Valuation of Accounts
3.2.1 Timing of valuation. All Accounts are valued as of each
Allocation Date and as of any other Valuation Date fixed by the Committee.
3.3 Method of valuing Accounts. The value of an Account as of any
Valuation Date is equal to the sum
of -
(a) the fair market value of the Account's interest in the Trust Fund, plus
(b) any benefits accrued under Article 4 with respect to which
the Company has not made contributions to the Trust Fund, with interest
thereon at the rate established by the Committee in accordance with
Section 4.6.
ARTICLE 4
Accrual of Benefits
4.1 Types of contribution. For any Plan Year, Participants may accrue
benefits under each of the provisions of this Section 4.1.
4.1.1 Salary Reduction Accruals. Salary Reduction Accruals are credited
to each Participant to the extent specified in his Salary Reduction Agreement in
effect for the Plan Year.
4.1.2 Accrual of Matching Contributions. The amount of such Matching
Contributions made on behalf of Salary Reduction Agreements shall be such
amount, if any, equal to that percentage of each Participant's Salary Reduction
Agreement which the Committee, in its sole discretion, determines from year to
year.
4.2 Timing of accruals. Salary Reduction Accruals are deemed to accrue
on the date on which the Participant would otherwise have received the
Compensation that he elected to defer. Matching Contribution Accruals are deemed
to accrue on the date of the Salary Reduction Accruals to which they relate. A
Participant whose Termination of Employment occurred before the date on which
any amount described in Section 4.1 would otherwise have accrued is not entitled
to that accrual, unless his Termination of Employment was due to death,
Disability or retirement at or after his Early Retirement Date or Normal
Retirement Date.
4.3 Salary Reduction Agreements
4.3.1 Authorization of Salary Reduction Accruals. By executing a Salary
Reduction Agreement with respect to a Plan Year, a Participant may elect to have
Salary Reduction Accruals credited under the Plan on his behalf. The current
salary and bonus of a Participant who executes a Salary Reduction Agreement are
reduced by the amount specified in his election, and an equal amount is accrued
under the Plan in accordance with Section 4.1.1. An employee who first becomes
an Eligible Employee within a Plan Year may execute a Salary Reduction Agreement
to become effective upon the next Entry Date into the Plan. An agreement may
specify whether the reduction is applied as a percentage amount to regular
salary, to bonuses, or to both. Salary Reduction Contributions may not be made
with respect to Compensation other than salary and bonuses. A Salary Reduction
Agreement becomes irrevocable as of the latest date on which it could be made
for a Plan Year.
4.3.2 Timing of Salary Reduction Agreements. A Salary Reduction
Agreement with respect to any Plan Year after this Plan's initial year must be
executed no later than the last day of the preceding Plan Year. A Salary
Reduction Agreement for the initial Plan Year must be executed before the
Effective Date. No Salary Reduction Agreement may be amended or revoked after
the last day on which it could have been executed, except that an agreement is
automatically revoked if the Participant who executed it ceases to be eligible
to participate in the Plan.
4.3.3 Limitations on Salary Reduction Accruals. The amount deferred by
a Participant in accordance with Section 4.3.1 for any Plan Year may not exceed
the lesser of twenty-five percent (25%) of his Compensation of that year or
$30,000, less his salary reduction contributions under the Qualified Plan.
4.3.4 Election to defer Distributable Amount. A Participant's Salary
Reduction Agreement must also state whether any Distributable Amount for the
Plan Year will be (a) deferred under the Qualified Plan or (b) distributed to
him in cash.
4.4 Contributions to Trust Fund. The Company may, but is not required
to, establish a Trust Fund and make contributions to it corresponding to any or
all amounts accrued under Section 4.1. These contributions are credited with
income, expense, gains and losses in accordance with the investment experience
of the Trust Fund. The Committee may direct the Trustee to establish investment
funds within the Trust Fund and to permit Participants to direct the allocation
of their Account balances among these funds in accordance with rules prescribed
by the Committee. The Committee may alter the available funds or the procedures
for allocating Account balances among them at any time.
4.5 Status of the Trust Fund. Notwithstanding any other provision of
this Plan, all assets of the Trust Fund remain the property of the Company and
are subject to the claims of its creditors. No Participant has any priority
claim on Trust assets or any security interest or other right in or to them
superior to the rights of general creditors of the Company.
4.6 Interest on benefit accruals. Any benefit accruals under the Plan
with respect to which the Company does not make contributions to the Trust Fund
in accordance with Section 4.4 are credited with interest. Interest is credited
during each Plan Year at a rate equal to the average interest rate on
thirty-year United States Treasury bonds for the calendar month preceeding the
first day of the Plan Year. Interest accrues from the date of accrual specified
in Section 4.2 through the date on which the Company makes a corresponding
contribution to the Trust Fund or the benefit is distributed to the Participant
or his Beneficiary. No interest will be credited on any benefit accrual
attributable to an Account to the extent the Company makes a corresponding
deposit to the Trust Fund with respect to such benefit accrual prior to the 15th
business day of the month following the month in which the benefit accrual would
otherwise have been payable to the participant in cash.
4.7 Nonalienability. A Participant's rights under this Plan may not be
voluntarily or involuntarily assigned or alienated. If a Participant attempts to
assign his rights or enters into bankruptcy proceedings, his right to receive
payments personally under the Plan will terminate, and the Committee may apply
them in such manner as will, in its judgement, serve the best interests of the
Participant.
ARTICLE 5
Vesting
5.1 Definition of "vesting". A Participant's interest in his Accounts
is "vested" when it is not subject to forfeiture for any reason. The nonvested
portion of an Account is forfeited upon Termination of Employment for any reason
other than death, Disability or retirement on or after Early or Normal
Retirement Date.
5.2 Vesting requirements
5.2.1 When a Participant's interest becomes vested. A Participant's
interest in his Salary Reduction Accrual Account is fully (100%) vested at all
times. The percentage of his interest in his Matching Contribution Accrual
Account that is vested is based upon his number of Years of Service. The vesting
schedule is contained in Section 5.2.2. If any of the events specified in
Section 5.2.3 occurs, the Participant's interest in his Matching Contribution
Accrual Account is fully (100%) vested regardless of his number of Years of
Service.
5.2.2 Vesting schedule. Each Participant has, on any date before his
termination, Early Retirement, Normal Retirement, death or Disability, a vested
interest in his Matching Contribution Accrual Account based on his number of
Years of Service, in accordance with the following schedule:
Years of Vesting Service Vested Percentage
1 0%
2 20%
3 40%
4 60%
5 80%
6 100%
5.2.3 Full vesting upon Early Retirement, Normal Retirement, death or
Disability. Regardless of his number of Years of Service, a Participant's
interest in his Matching Contribution Accrual Account becomes fully (100%)
vested upon (a) his Early Retirement Date, Normal Retirement Date or date of
death, if his Termination of Employment has not previously occurred or (b) the
Committee's determination that he is unable to continue to perform his regular
duties on account of Disability.
ARTICLE 6
Distributions to Participants
6.1 Distribution or Transfer of Salary Reduction Accruals
6.1.1 Calculation of Distributable Amount. As soon as practicable after
the end of each Plan Year, the Committee will determine each Participant's
Distributable Amount, which equals the lesser of:
(a) the excess, if any, of:
(i) the Elective Deferrals that he could have made under the
Qualified Plan without causing Elective Deferrals and matching
contributions under the Qualified Plan to exceed the
limitations of section 401(k)(3), section 402(g), or section
401(m)(2) of the Code, over
(ii) any Elective Deferrals he actually contributed directly to the
Qualified Plan,
or (b) except for any Participant for whom Item 6.1.1(a)(i), above
would be limited by the Section 402(g) limitation for the year,
his Salary Reduction Accruals for the Plan Year.
Item 6.1.1(a)(i) above will be calculated on a percentage basis for all
Participants. For Participants electing to have their distributable amount
distributed directly to them in the form of cash, the percentage so calculated
will be as follows:
Formula 1: P = ((MA * NH) - DR) / (NP+1),
in which P equals the percentage to be calculated, MA equals the maximum Actual
Deferral Percentage of all participants in the Qualified Plan, as defined in the
Qualified Plan Document, who qualify as "highly compensated employees" for the
year, NH equals the total number of participants in the Qualified Plan who are
highly compensated employees for the year, DR equals the sum of the ratios of
elective contributions to the Qualified Plan to compensation, determined for
each individual who is a highly compensated employee for the year but who is not
a Participant in the Plan, and NP equals the number of Participants in the Plan
who have elected to transfer their distributable amount to the Qualified Plan.
For Participants electing to have their distributable amount transferred to the
Qualified Plan, the percentage so calculated will be as follows:
Formula 2: P2 = ((MA * NH) - DR) / NP
in which P2 equals the percentage to be calculated, MA equals the maximum Actual
Deferral Percentage of all participants in the Qualified Plan who qualify as
"highly compensated employees" for the year, NH equals the total number of
participants in the Qualified Plan who are highly compensated employees for the
year, DR equals the sum of the ratios of elective contributions to the Qualified
Plan to compensation, determined for each individual who is a highly compensated
employee for the year but who is not a Participant in the Plan, and NP equals
the number of Participants in the Plan who have elected to transfer their
distributable amount to the Qualified Plan.
6.1.2 Distribution or transfer of Distributable Amount. No later than
two and one-half (2 1/2) months after the end of each Plan Year, each
Participant's Salary Reduction Accrual Account will be reduced by his
Distributable Amount plus accrued earnings (or loss) thereon, and the Company
will transfer an amount equal to the Distributable Amount to the Qualified Plan
as Elective Deferrals together with the related earnings, except to the extent
that he has elected, in his Salary Reduction Agreement for the Plan Year, to
have Distributable Amounts distributed to himself in the form of cash.
6.1.3 Effect of deferral of Distributable Amount on Matching
Contribution Accrual Accounts. If a Participant's Distributable Amount is
contributed to the Qualified Plan as an elective deferral, his Matching
Contribution Accrual Account will be reduced by an amount equal to the matching
contributions made on his behalf under the Qualified Plan on account of the
deferred Distributable Amount.
6.1.4 Effect of distribution of Distributable Amount to Employee on
Matching Contribution Accrual Accounts. If a Participant's Distributable Amount
is distributed to the Participant within two and one-half (2 1/2) months after
the end of the Plan Year and is not deferred into the Qualified Plan pursuant to
section 6.1.3 above, his Matching Contribution Accrual Account will be reduced
by an amount equal to the matching contribution amount that would have been made
on his behalf under this Plan on account of the Distributable Amount. This
Matching Contribution Accrual Amount will be forfeited by the Participant.
6.1.5 Initial Year Distributable Amount. This Plan is effective as of the
Effective Date specified in Section 1.11 of the Plan, and will have an initial
Plan Year of less than twelve months. Calculation of the Distributable Amount
for this initial Plan Year, and subsequent distribution of such distributable
amount either directly to a Participant or into the Qualified Plan, is
contingent upon the receipt by the Company of a favorable private letter ruling
from the Internal Revenue Service prior to March 15, 2000.
6.2 Manner of distribution. All distributions (other than Distributable
Amounts governed by Section 6.1) to a Participant or Beneficiary will be in the
form of a single lump-sum payment.
6.3 Type of property to be distributed. All distributions from the Plan
to Participants and Beneficiaries are made in cash, unless the Committee
determines that other property should be distributed.
6.4 Manner of distribution to minors or incompetents. If at any time
any distributee is, in the judgment of the Committee, legally, physically or
mentally incapable of receiving any distribution due to him, the distribution
will be made to the guardian or legal representative of the distributee, or, if
none exists, to any other person or institution that, in the Committee's
judgment, will apply the distribution in the best interests of the intended
distributee.
6.5 Election of Beneficiary
6.5.1 Designation or change of Beneficiary by Participant. When an
Eligible Employee qualifies for participation in the Plan, the Committee will
send him a Beneficiary designation form, on which he may designate one or more
Beneficiaries and successor Beneficiaries. A Participant may change his
Beneficiary designation at any time by filing the prescribed form with the
Committee. The consent of the Participant's current Beneficiary is not required
for a change of Beneficiary and no Beneficiary has any rights under this Plan
except as are provided by its terms. The rights of a Beneficiary who predeceases
the Participant who designated him shall immediately terminate, unless the
Participant has specified otherwise.
6.5.2 Beneficiary if no election is made. Unless a different
Beneficiary has been elected in accordance with Section 6.4.1, the Beneficiary
of any Participant who is lawfully married on the date of his death is his
surviving spouse. The Beneficiary of any other Participant who dies without
having designated a Beneficiary is his estate.
6.6 Date of Distribution. Distribution of the benefits accrued under
the Plan shall occur upon the earliest of: (i) a participant's Termination of
Employment for any purpose, (ii) a Participant's death or Disability, and (iii)
the termination of the Plan.
ARTICLE 7
Amendment or Termination of the Plan
7.1 Company's right to amend Plan. The Board of Directors may, at any
time and from time to time, amend, in whole or in part, any of the provisions of
this Plan or may terminate it as a whole or with respect to any Participant or
group of Participants. Any such amendment is binding upon all Participants and
their Beneficiaries, the Trustee, the Committee and all other parties in
interest.
7.2 When amendments take effect. A resolution amending or terminating
the Plan becomes effective as of the date specified therein.
7.3 Restriction on retroactive amendments. No amendment may be made
that retroactively deprives a Participant of any benefit accrued before the date
of the amendment.
ARTICLE 8
Plan Administration
8.1 The Administrative Committee. The Plan is administered by a
Committee consisting of one or more persons appointed by the Board of Directors.
The Board may remove any member of the Committee at any time, with or without
cause, and may fill any vacancy. If a vacancy occurs, the remaining member or
members of the Committee have full authority to act. The Board is responsible
for transmitting to the Trustee the names and authorized signatures of the
members of the Committee and, as changes take place in membership, the names and
signatures of new members. Any member of the Committee may resign by delivering
his written resignation to the Board, the Trustee and the Committee. Any such
resignation becomes effective upon its receipt by the Board or on such other
date as is agreed to by the Board and the resigning member. The Committee acts
by a majority of its members at the time in office and may take action either by
vote at a meeting or by consent in writing without a meeting. The Committee may
adopt such rules and appoint such subcommittees as it deems desirable for the
conduct of its affairs and the administration of the Plan.
8.2 Powers of the Committee. In carrying out its duties with respect to
the general administration of the Plan, the Committee has, in addition to any
other powers conferred by the Plan or by law, the following powers:
(a) to determine all questions relating to eligibility to
participate in the Plan;
(b) to compute and certify to the Trustee the amount and kind
of distributions payable to Participants and their Beneficiaries;
(c) to maintain all records necessary for the administration
of the Plan that are not maintained by the Company or the Trustee;
(d) to interpret the provisions of the Plan and to make and
publish such rules for the administration of the Plan as are not
inconsistent with the terms thereof;
(e) to establish and modify the method of accounting for the
Plan or the Trust;
(f) to employ counsel, accountants and other consultants to
aid in exercising its powers and carrying out its duties hereunder; and
(g) to perform any other acts necessary and proper for the
administration of the Plan, except those that are to be performed by
the Trustee.
8.3 Indemnification
8.3.1 Indemnification of members of the Committee by the Company. The
Company agrees to indemnify and hold harmless each member of the Committee
against any and all expenses and liabilities arising out of his action or
failure to act in such capacity, excepting only expenses and liabilities arising
out of his own willful misconduct. This right of indemnification is in addition
to any other rights to which any member of the Committee may be entitled.
8.3.2 Liabilities for which members of the Committee are indemnified.
Liabilities and expenses against which a member of the Committee is indemnified
hereunder include, without limitation, the amount of any settlement or judgment,
costs, counsel fees and related charges reasonably incurred in connection with a
claim asserted or a proceeding brought against him or the settlement thereof.
8.3.3 Company's right to settle claims. The Company may, at its own
expense, settle any claim asserted or proceeding brought against any member of
the Committee when such settlement appears to be in the best interests of the
Company.
8.4 Claims procedure. If a dispute arises between the Committee and a
Participant or Beneficiary over the amount of benefits payable under the Plan,
the Participant or Beneficiary may file a claim for benefits by notifying the
Committee in writing of his claim. The Committee will review and adjudicate the
claim. If the claimant and the Committee are unable to reach a mutually
satisfactory resolution of the dispute, it will be submitted to arbitration
under the rules of the American Arbitration Association. Each Participant
agrees, by the execution of a Salary Reduction Agreement, that arbitration will
be the sole means of resolving disputes arising under the Plan and waives, on
behalf of himself and his Beneficiary, any right to litigate any such dispute in
a court of law.
8.5 Expenses of the Committee. The members of the Committee shall serve
without compensation for services as such. All expenses of the Committee are
paid by the Company.
8.6 Expenses of the Plan. The expenses of administering the Plan shall
be paid by the Company.
ARTICLE 9
Miscellaneous
9.1 Plan not a contract of employment. The adoption and maintenance of
the Plan does not constitute a contract between the Company and any Participant
and is not a consideration for the employment of any person. Nothing herein
contained gives any Participant the right to be retained in the employ of the
Company or derogates from the right of the Company to discharge any Participant
at any time without regard to the effect of such discharge upon his rights as a
Participant in the Plan.
9.2 No rights under Plan except as set forth herein. Nothing in this
Plan, express or implied, is intended, or shall be construed, to confer upon or
give to any person, firm, association, or corporation, other than the parties
hereto and their successors in interest, any right, remedy, or claim under or by
reason of this Plan or any covenant, condition, or stipulation hereof, and all
covenants, conditions and stipulations in this Plan, by or on behalf of any
party, are for the sole and exclusive benefit of the parties hereto.
9.3 Plan operations contingent on favorable Private Letter Ruling. The
coordination feature of this Plan with the Goody's Qualified Plan, as described
in Section 6.1, is contingent on the Company obtaining a favorable Private
Letter Ruling from the Internal Revenue Service. If a favorable ruling is not
received, the provisions in Section 6.1 will not apply and Distributable Amounts
will be distributed only in accordance with Section 6.2.
IN WITNESS WHEREOF, Goody's Family Clothing, Inc. has caused these
presents to be executed by its duly authorized officer and its corporate seal to
be hereunto affixed by authority of its Board of Directors this ______ day of
________________.
GOODY'S FAMILY CLOTHING, INC.
[Corporate Seal]
By _______________________________
<PAGE>
<PAGE>
EXHIBIT 11
GOODY'S FAMILY CLOTHING, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
Thirteen Twenty-six
Weeks Ended Weeks Ended
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net earnings for the period $ 9,707,000 $ 8,658,000 $ 17,590,000 $ 16,426,000
========== ========== ============= ============
Weighted average common shares
outstanding - Basic 33,318,000 33,538,000 33,325,000 33,384,000
Common equivalent shares for outstanding stock
options 582,000 1,451,000 584,000 1,452,000
------------------------------------------------------------
Weighted average common shares
outstanding - Diluted 33,900,000 34,989,000 33,909,000 34,836,000
============================================================
Earnings per common share
Basic $ 0.29 $ 0.26 $ 0.53 $ 0.49
============================================================
Diluted $ 0.29 $ 0.25 $ 0.52 $ 0.47
============================================================
</TABLE>
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 consolidated
financial information of Goody's Family Clothing, Inc. and subsidiaries for the
periods ended July 31, 1999 and August 1, 1998 as indicated in our report dated
August 17, 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 July 31, 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
Statements 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 September 9, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
GOODY'S FAMILY CLOTHING, INC.
FINANCIAL DATA SCHEDULE
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JULY 31, 1999 AND THE RELATED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWENTY-SIX WEEKS ENDED ON
JULY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000879123
<NAME> Goody's Family Clothing, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> Jul-31-1999
<CASH> 70,858
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 209,666
<CURRENT-ASSETS> 295,421
<PP&E> 184,520
<DEPRECIATION> 71,177
<TOTAL-ASSETS> 412,411
<CURRENT-LIABILITIES> 184,981
<BONDS> 318
0
0
<COMMON> 27,104
<OTHER-SE> 184,995
<TOTAL-LIABILITY-AND-EQUITY> 212,099
<SALES> 537,191
<TOTAL-REVENUES> 537,191
<CGS> 381,520
<TOTAL-COSTS> 128,699
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106
<INCOME-PRETAX> 28,143
<INCOME-TAX> 10,553
<INCOME-CONTINUING> 17,590
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,590
<EPS-BASIC> 0.53
<EPS-DILUTED> 0.52
</TABLE>
