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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
<TABLE>
<C> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER: 0-19526
GOODY'S FAMILY CLOTHING, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TENNESSEE 62-0793974
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
400 GOODY'S LANE, KNOXVILLE, TENNESSEE 37922
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (423) 966-2000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of April 16, 1999: approximately $187,779,000.
Number of shares of Common Stock outstanding as of April 16, 1999:
33,333,480.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report to Shareholders of Goody's Family
Clothing, Inc. and subsidiaries are incorporated by reference in Part I and Part
II of this Annual Report on Form 10-K. Portions of the Company's definitive
Proxy Statement for its Annual Meeting of Shareholders to be held on June 16,
1999 are incorporated by reference into Part III of this Annual Report on Form
10-K. Unless the context otherwise indicates, all references in this Annual
Report on Form 10-K to the "Company" or "Goody's" refer to Goody's Family
Clothing, Inc., a Tennessee corporation, and its subsidiaries. The Company's
fiscal year ends on the Saturday nearest the last day of January. The terms
"fiscal 2001," "fiscal 2000," "fiscal 1999," "fiscal 1998," "fiscal 1997,"
"fiscal 1996," "fiscal 1995" and "fiscal 1994" refer to the Company's fiscal
years ending or ended on February 2, 2002 (52 weeks), February 3, 2001 (53
weeks), January 29, 2000 (52 weeks), January 30, 1999 (52 weeks), January 31,
1998 (52 weeks), February 1, 1997 (52 weeks), February 3, 1996 (53 weeks) and
January 28, 1995 (52 weeks), respectively.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements made by or on behalf of the Company. Management
has endeavored in its communications, in its 1998 Annual Report to Shareholders
and in this Annual Report on Form 10-K to highlight the trends and factors that
might have an impact on the Company and the industry in which the Company
competes. Any "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which generally can be identified by the use
of forward-looking terminology such as "may," "will," "expect," "estimate,"
"anticipate," "believe," "target," "plan," "project" or "continue" or the
negatives thereof or other variations thereon or similar terminology, are made
on the basis of management's plans and current analysis of the Company, its
business and the industry as a whole. These statements appear in a number of
places in this Annual Report on Form 10-K and include statements regarding the
intent, belief or current expectations of the Company, its directors or its
officers with respect to, among other things: (i) weather conditions; (ii) the
timely availability of 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 and (xiii) the Company's business and growth strategies. Readers are
cautioned that any such forward-looking statement is not a guarantee of future
performance and involves risks and uncertainties, and that actual results may
differ materially from those projected in the forward-looking statement as a
result of various factors. The Company does not undertake to publicly update or
revise its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will not be
realized.
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Authentic GFC, Chandler Hill, Chandler Hill Sport, "G" (stylized G with
arch design), GFC, GFC Trading Co., GoodKidz, Goody's Family Clothing, Goody's
Feels Like You, Goody's Low Price!! Department Store Styles Department Store
Brands, Mountain Lake High Quality Apparel With A Feel Good Fit, OCI -- Quality
Clothing, Old College Inn, and Take A Good Look are registered trademarks of the
Company. The Company has applied for registration of the following trademarks:
Bobby G by Ivy Crew, Electro Sport, International Trading Company, Intimate
Classics, Ivy Crew, Low Prices Never Looked So Good, Montana Blues Jean Company,
and OCI. The following trademarks and tradenames used in this Annual Report on
Form 10-K are owned by (and in certain cases registered to) third parties:
Adidas, Alfred Dunner, Arrow, Bestform, Body I.D., Braetan, Bugle Boy, Burnes of
Boston, Byer, Capezio, Carryland, Cathy Daniels, Converse, Cradle Togs, Danny
and Nicole, Dockers, Esprit, Hanes, Herman Kay, Jackson, Jantzen, Jessica
Howard, Keds, Kids Headquarters, Knights of the Round Table, L.A. Gear, L.E.I.,
LaBlanca/Sassafras, Lee, Leslie Fay, Levi's, Maidenform, Manhattan Beach, Mickey
& Co., My Michelle, Nike, Paco, Palmetto, Positive Attitude, Reebok,
Requirements, Rosetti, Russell, Sag Harbor, Scarlett, Stephanie K by Koret,
Supreme, Union Bay, Victoria Jones, Villager, Winlet, Winnie the Pooh and
Wrapper.
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PART I
ITEM 1. BUSINESS
GENERAL
Incorporated in January 1954, Goody's is a retailer of moderately-priced
apparel for women, men and children, operating 257 stores in 16 Southeastern and
Midwestern states as of January 30, 1999. The Company continually develops and
refines its merchandising strategy to meet the tastes and lifestyles of its
customer base. The Company primarily locates its stores in small to midsize
markets that have demographic characteristics consistent with its targeted
value-conscious customer. Its stores, all of which are leased and which are
generally located in strip shopping centers, average approximately 27,300 gross
square feet. The Company manages its core functions, including purchasing,
pricing, marketing and advertising, distribution, finance and information
systems, from its centrally located corporate office and distribution center in
Knoxville, Tennessee.
The Company's objective is to be a leading retailer of brand name apparel
in each of the markets it serves by providing its customers with a broad
selection of current-season, quality branded apparel at value prices. Key brands
offered by the Company include Adidas, Alfred Dunner, Bugle Boy, Dockers, Lee,
Leslie Fay, Levi's, Nike, Reebok, Requirements, Sag Harbor and Villager among
many others. These well-known labels, combined with the Company's private label
collections, Chandler Hill, Electro Sport, GFC Trading Co., Intimate Classics,
Montana Blues Jean Company, Mountain Lake and Mountain Lake Casuals for women;
Bobby G by Ivy Crew, International Trading Company, Ivy Crew, OCI -- Quality
Clothing and Old College Inn for men and GoodKidz for children, enable the
Company to compete effectively with other retailers operating in its markets.
The Company continues to experience significant growth in the number of its
stores as well as in its sales. During the period from fiscal 1994 through
fiscal 1998, the number of stores increased from 171 to 257 and sales increased
from $613.7 million to $1.091 billion. During fiscal 1995, the Company began to
implement important strategic initiatives related to merchandise assortment,
inventory levels and customer focus. The Company believes that its financial
results began significantly improving in the third quarter of fiscal 1996 as a
result of the successful implementation of these strategic initiatives. With the
successes realized in fiscal 1996, 1997 and the first half of fiscal 1998, the
Company was aggressive with its second half of fiscal 1998 sales plan and
associated inventory purchases. However, the unusually warm weather in the
Company's markets during the second half of fiscal 1998 caused a substantial
shortfall in sales for the fall/winter season resulting in a comparable store
sales decrease of 4.4% for the third and fourth quarters of fiscal 1998 compared
to the same period in the prior year. In fiscal 1998, as compared to fiscal
1997, sales increased 12.3% from $971.9 million to $1.091 billion (including a
comparable store sales increase of 0.5%), net earnings decreased 16.8% from
$33.3 million to $27.7 million and earnings per share decreased 18.2% from $0.99
per share to $0.81 per share. Given the difficulties encountered in the second
half of fiscal 1998, the Company has refined certain of its business and
merchandising strategies which are included in its discussion below under
"Competitive Strategy."
COMPETITIVE STRATEGY
Central elements of the Company's competitive strategy include the
following:
- Appeal to Value-Conscious Customers. Goody's appeals to value-conscious
customers by offering quality brand name merchandise at prices targeted
to be 10% to 30% lower than those of traditional department stores.
- Offer a Broad Range of Merchandise for the Entire Family. Unlike
specialty stores, the Company provides a wide selection of merchandise
designed to address the apparel needs of women, men and children. The
Company believes that providing one-stop apparel shopping for its
customers in convenient, accessible locations gives it an advantage over
many of its competitors. The Company plans to expand this concept by
bringing in-house the leased shoe operation during the first quarter of
fiscal 2000 and offering a broader assortment of footwear for the entire
family. See "Merchandising Divisions -- Shoes."
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- Emphasize Current-Season, First-Quality Brands. The Company's stores
offer brands that are not generally available to mass market and off-price
retailers. These brands include Levi's, Lee, Sag Harbor, Bugle Boy and
Nike, among others. Unlike off-price retailers, Goody's offers
current-season, first-quality merchandise.
- Strategically Use Private Label Merchandise. While the Company is
committed to maintaining a strong line-up of nationally recognized brand
name merchandise, private label programs offer important strategic
advantages. These programs offer shoppers designer looks and quality at
value prices, generate higher gross margins and allow the Company to
maintain consistent in-stock positions on basic merchandise. The Company
plans to slow, in the near term, its future growth of private label
programs in an effort to maximize margins.
- Focus on Small to Midsize Markets. The Company generally locates stores
in small to midsize markets that have demographic characteristics
consistent with its targeted value-conscious customer. Having developed a
flexible store format depending on local demographics, the Company
generally opens stores that range in size from 20,000 to 35,000 gross
square feet. While the Company operates in selected metropolitan markets,
smaller market areas offer significant strategic advantages, including
increased opportunities for expansion, lower rent and occupancy costs and
fewer competitors. The Company's new store growth rate is planned at
approximately 12% per year over the next several years.
- Provide Strong Marketing and Advertising. The Company believes that
communicating frequently with customers is key to maintaining traffic flow
in its stores and creating keen awareness among shoppers. The Company
advertises in newspapers at least once each week, 52 weeks a year. The
Company reinforces its print message with television and/or radio
campaigns running during portions of approximately 28 to 33 weeks each
year.
EXPANSION STRATEGY
The Company's expansion strategy is to grow its store base by approximately
12% per year over the next several years in small to midsize markets. As
opportunities present themselves, the Company will expand into suburban growth
areas of metropolitan markets opening several stores simultaneously. The Company
believes that opportunities exist to expand its presence within current markets
and new markets such as Louisiana, Oklahoma and other Midwestern states. The
Company's current plans for fiscal 1999 are to open a total of approximately 30
to 35 new stores and relocate or remodel approximately 24 stores.
The Company would also consider a complementary acquisition opportunity
should it arise, although the Company has no understandings, arrangements or
agreements with respect to any such opportunity.
In making its decision to open a new store, the Company typically
evaluates, among other factors, market demographics, competition, location,
consumer traffic, rent and occupancy costs, advertising and other expenses
associated with the opening and operation of a new store.
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The following table provides information regarding the number of stores in
operation, new stores opened, stores closed and stores relocated or remodeled
during the periods indicated:
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<CAPTION>
FISCAL YEAR
--------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Stores open, beginning of year............................ 223 203 184 171 146
New stores opened during the year......................... 36 24 20 13 25
Stores closed during the year............................. (2) (4) (1) -- --
--- --- --- --- ---
Stores open, end of year.................................. 257 223 203 184 171
=== === === === ===
Stores relocated or remodeled during the year............. 10 16 8 7 7
=== === === === ===
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MERCHANDISING STRATEGY
The Company's merchandising strategy has been developed to appeal to
value-conscious, quality-oriented customers. The Company offers its merchandise
at prices targeted to be 10% to 30% lower than those of traditional department
stores. The Company competes (i) with department stores by offering quality,
brand name apparel at value prices, (ii) with specialty stores by offering
apparel for the entire family, (iii) with off-price apparel stores by offering a
wide selection of current-season merchandise at competitive prices and (iv) with
discount stores by offering better brand name merchandise generally unavailable
to discount retailers. The Company believes that its broad selection of
current-season, first-quality, brand name merchandise, combined with its private
label merchandise, provides a key competitive advantage. While nationally
recognized brand name merchandise remains the cornerstone of its merchandising
strategy, the Company continues to invest in the development of its private
label brands, which offer customers quality basic and designer look apparel at
value prices. Private label merchandise sales accounted for approximately 20%
and 21% of the Company's total sales for fiscal 1998 and 1997, respectively.
Generally within each store, specific departments are well signed and have
direct aisleways leading to major departments. Visual merchandising and store
presentation are enhanced by fixtures that showcase merchandise in an open,
accessible and customer-friendly shopping environment. Sale items featured in
the Company's advertising campaigns are highlighted in the stores with
easy-to-read signs that help customers quickly locate items of interest. The
overall merchandise presentation is reorganized four times a year to emphasize
the fashion products for the upcoming season.
A typical store has six divisions that include women's (juniors, misses,
intimate apparel, swimwear and outerwear), denim, men's (sportswear, activewear,
young men's and men's furnishings), children's (infants and toddlers, boys and
girls), accessories (jewelry, handbags, belts and gift items) and shoes. Goody's
carries approximately 11,500 different styles of merchandise, all of which are
electronically tracked in order to provide timely and accurate selling data to
the Company.
MERCHANDISING DIVISIONS
Women's. The broadest merchandise selection offered by the Company is in
the women's division, which contributed 41.5% of total sales in fiscal 1998.
Goody's women's division emphasizes career fashions, casual weekend wear, petite
and plus-size merchandise.
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Women's merchandise categories include juniors, misses, petite, plus size,
intimate apparel, swimwear and outerwear. Juniors' merchandise lines include
brand names such as Adidas, Byer, L.E.I., Lee, Levi's, My Michelle, Nike,
Palmetto, Reebok, Union Bay and Wrapper. Misses' merchandise lines include
popular brand names such as Alfred Dunner, Cathy Daniels, Lee, Leslie Fay,
Levi's, Requirements, Sag Harbor, Stephanie K by Koret, Victoria Jones and
Villager as well as the Company's private label brand, Mountain Lake. Fashion
dresses are also an important part of Goody's overall women's product lines and
feature popular brand names such as Danny and Nicole, Jessica Howard, Leslie
Fay, Positive Attitude and Scarlett. Brand name undergarments include products
from Bestform, Hanes and Maidenform. Swimwear features labels such as Body I.D.,
LaBlanca/Sassafras and Manhattan Beach and the Company's private label brand,
International Trading Company. Outerwear product lines include the Braetan,
Herman Kay and Winlet brand name labels and Mountain Lake and GFC Trading Co.,
the Company's private label brands.
Denim. The denim merchandise division is important to the Company's
merchandising concept and contributed 22.9% of total sales in fiscal 1998. The
Company believes that its broad selection and competitive pricing of basic denim
merchandise appeals to value-conscious families and generates customer traffic
for other higher margin merchandise. The Company utilizes automatic
replenishment programs using electronic data interchange ("EDI") with its major
denim suppliers to alleviate out-of-stock positions for popular styles and sizes
and improve inventory turnover. Primary brand names that are carried in the
denim division include Bugle Boy, Lee, Levi's, Paco and Union Bay. The Company's
private label brands for denim are Montana Blues Jean Company for women and
Authentic GFC for men.
Men's. The men's division contributed 20.2% of total sales in fiscal 1998
and consists of sportswear, activewear, young men's and men's furnishings
departments. The men's division utilizes a shop concept that features various
brand name merchandise targeted at certain lifestyles. Featured brand names in
the men's division include Adidas, Arrow, Bugle Boy, Dockers, Knights of the
Round Table, Lee, Levi's, Nike, Reebok, Russell and Supreme. The Company's
private label brands for men are Bobby G by Ivy Crew, International Trading
Company, Ivy Crew, OCI -- Quality Clothing and Old College Inn.
Children's. The children's division contributed 6.4% of total sales in
fiscal 1998 by offering popular and durable apparel for children of all ages.
Primary brand names carried for children include Adidas, Byer, Cradle Togs,
Dockers, Kids Headquarters, Lee, Levi's, Mickey & Co., My Michelle, Nike, Paco,
Union Bay and Winnie the Pooh. The Company's private label brand for children is
GoodKidz.
Accessories. The accessories division, which includes items such as
fashion and costume jewelry, handbags, belts, wallets, hair accessories,
sunglasses for women, picture frames, gourmet foods, stationery and gift items
contributed 4.7% of total sales in fiscal 1998. Featured brand names include
Burnes of Boston, Capezio, Carryland, Jackson, Jantzen and Rosetti.
Shoes. The shoe division contributed 3.7% of total sales in fiscal 1998.
Shoe departments are located in 220 of the Company's stores and are operated by
a third party under an exclusive operating license agreement which expires on
January 29, 2000, which the Company does not plan to renew. As a refinement in
the Company's strategic plan, the Company intends to internally operate the shoe
departments beginning in the first quarter of fiscal 2000, which is expected to
have a positive impact on its sales growth and pretax earnings, but could have a
negative impact on its pretax earnings rate. It is expected that a certain
portion of the shoes sold in these departments will be processed by a third
party before being distributed to the Company's stores through the distribution
center in Knoxville, Tennessee. In fiscal 1998, 33 of the 36 new stores opened
by the Company included shoe department. Additionally, the Company added shoe
departments to two stores existing prior to fiscal 1998. The shoe departments
offer brand names such as Adidas, Converse, Esprit, Keds, L.A. Gear and Nike.
The Company plans to include shoe departments in all stores to be opened in
fiscal 1999.
Tuxedo rentals and service fees. The Company's revenue from tuxedo rentals
and service fees charged on layaways contributed less than 1% of total sales in
each of the last three fiscal years.
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The following table shows a breakdown of the Company's total sales for the
periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
-------------------- ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Women's..................... $ 453,087 41.5% $408,739 42.1% $335,923 41.0%
Denim....................... 250,348 22.9 222,572 22.9 202,263 24.7
Men's....................... 220,587 20.2 195,156 20.1 165,438 20.2
Children's.................. 70,325 6.4 64,885 6.7 59,705 7.3
Accessories................. 50,973 4.7 42,467 4.4 24,972 3.0
Shoes....................... 39,885 3.7 33,378 3.4 26,827 3.3
Tuxedos rentals and service
fees...................... 5,879 0.6 4,726 0.4 3,928 0.5
---------- ----- -------- ----- -------- -----
$1,091,084 100.0% $971,923 100.0% $819,056 100.0%
========== ===== ======== ===== ======== =====
</TABLE>
PURCHASING
The Company's merchandise purchasing function is centralized at its
corporate headquarters. The Company buys its merchandise from approximately 600
to 700 vendors and does not have long-term or exclusive contracts with any
manufacturer or vendor. During fiscal 1998, the Company's purchases from Levi
Strauss & Co., its largest vendor, represented approximately 20% of its total
purchases. No more than 6% of total purchases were attributable to any one of
the Company's other vendors. The Company intends to maintain strong,
partner-type relationships with its vendors. A portion of the Company's
merchandise is prepacked and preticketed by the vendors for each store, reducing
the cost and processing time in the distribution center.
Merchandise associated with the Company's private label brands is largely
imported. The Company employs its own designers and product development teams
who work closely with its merchants to track seasonal fashion trends, analyze
customer feedback and determine accurate order quantities. The Company controls
its private label merchandise from the initial concept to the final sale to the
consumer and monitors product quality, freight costs and other expenses in an
effort to maximize gross margins on such merchandise.
PLANNING AND ALLOCATION
The Company's planning and allocation department works closely with its
merchants, distribution center and store operations personnel to establish an
appropriate flow of merchandise on a store-by-store basis. This flow of
merchandise reflects customer preferences in each market in an effort to reduce
the cost of transferring merchandise among its various stores. The Company also
utilizes automatic replenishment programs using "Electronic Data Interchange"
("EDI") with 83 vendors, which accounted for approximately 27% of total sales in
fiscal 1998 and allows for more efficient replenishment of specific items of
merchandise in particular styles, sizes and colors to minimize out-of-stock
positions of basic merchandise and improve inventory turnover. The Company
continues to invest in its automatic replenishment programs using EDI for
existing and new vendors.
CENTRALIZED DISTRIBUTION
The Company has a 344,000-square-foot distribution center, located in
Knoxville, Tennessee, which is equipped with automated merchandise handling
equipment that facilitates efficient distribution of merchandise to the
Company's stores and provides for efficient cross docking of prepacked and
preticketed merchandise by store. In order to control quality, all incoming
merchandise is received at the distribution center to allow for inspection
before being delivered to the stores. As stated earlier, the Company intends to
internally operate the shoe departments beginning with the first quarter of
fiscal 2000. As a result, it is expected that a certain portion of the shoes
sold in these departments will be processed by a third party before being
distributed to the Company's stores through the distribution center in
Knoxville, Tennessee.
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Merchandise for individual stores is typically processed through the
distribution center within 48 hours of its receipt from vendors. Furthermore,
because the distribution center is located adjacent to main north-south and
east-west interstate highways, the Company can negotiate favorable shipping
terms with its vendors for merchandise delivered to its distribution center.
The Company has also developed an effective computerized system for
tracking merchandise from the time it arrives at its distribution center until
it is delivered to the stores to ensure that shipments are delivered in an
accurate and timely manner. In delivering merchandise to the stores, the Company
utilizes a third party contract carrier.
It is expected that the Knoxville distribution center will be sufficient to
distribute merchandise to approximately 350 stores. Based upon the Company's
current growth plans, it is estimated that the Knoxville distribution center can
service its stores through fiscal 2000. The Company is currently evaluating
various distribution alternatives to service the chain beginning in fiscal 2001.
The Company's preliminary plans call for a second distribution center with the
site yet to be determined.
MARKETING AND ADVERTISING
The Company's marketing and advertising functions are centralized at its
corporate headquarters. The Company's marketing and promotional strategy is
designed to reinforce its image as a value-priced, family apparel retailer. The
Company believes that its advertisements, which emphasize brand name apparel,
low prices and broad selections for the entire family, have enabled the Company
to communicate a distinct identity that reinforces its niche in the marketplace.
Using a multi-media approach, Goody's develops and prepares its own
advertising for newspapers, television and radio spots. The Company's media
department researches certain markets to develop profiles of shoppers in order
to effectively plan the Company's advertising. The Company frequently uses
full-color advertising to portray the depth and selection of its merchandise.
In-store merchandise presentation is coordinated with such advertising to
maximize promotional opportunities. While the exact allocation of advertising
dollars differs from market to market, the Company generally allocates
approximately 70% to 75% of its advertising budget to print media and the
remainder to television, radio and other promotional activities. Several of the
Company's key vendors share in the costs of mutually beneficial advertising
campaigns through cooperative advertising programs.
PRICING
The Company's pricing strategy is designed to provide value to its
customers by offering merchandise at prices targeted to be 10% to 30% below
those of traditional department stores. Basic denim, which is a consumer draw,
is priced very competitively and is generally positioned to increase traffic
throughout the store. All pricing decisions are made at the Company's corporate
headquarters. In order to remain competitive and enhance its sales promotion
efforts, Goody's frequently monitors its competitors' prices. In addition, the
Company's management information systems provide daily and weekly sales and
gross margin reports that, among other things, track sales and gross margins by
stock keeping unit ("SKU") and provide management with the flexibility to adjust
prices as appropriate.
CUSTOMER SERVICE
The Company's customer service program, Customer First, was designed to
educate and train store associates how to develop a customer-friendly mind-set
where customers -- not tasks -- come first in the stores. This initiative begins
with pre-employment screenings that measure job applicants' initial customer
service skills and is supported by ongoing training programs and incentives for
associates who demonstrate outstanding customer service performance. The Company
has also initiated operational programs to improve customers' overall shopping
experiences in its stores. The Company's merchandise return and exchange
policies were developed to ensure positive interactions between store associates
and customers. To monitor the success of Customer First programs, Goody's
encourages customer feedback with in-store survey cards.
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STORE OPERATIONS
Management of store operations is the responsibility of the Executive Vice
President -- Stores, who is assisted by a Vice President -- Store Operations, a
Vice President -- Store Development, three Regional Vice Presidents -- Sales,
three Regional Managers and 30 District Managers. Each District Manager oversees
6 to 11 stores.
Each store has a manager and between one and three assistant managers,
depending upon the size of the store. Other positions of responsibility within a
store include four to five department managers, a head cashier and a stockroom
manager. The number of sales staff ranges from 12 in smaller stores to 25 in
average stores to 70 in larger stores. The majority of the sales staff are
employed on a full-time basis, although part-time workers are hired during peak
selling seasons. The Company's stores are generally open from 9:00 a.m. to 9:00
p.m. Monday through Thursday; from 9:00 a.m. to 10:00 p.m. on Friday and
Saturday; and from 12:00 p.m. to 6:00 p.m. on Sunday. These hours are extended
during various holiday and peak selling seasons.
STORE LOCATIONS
The Company locates stores predominantly in small to midsize markets in the
Southeast and Midwest that typically have populations of 100,000 or fewer and
demographic characteristics consistent with its targeted value-conscious
customer. However, since 1994, the Company has opened multiple locations within
selected metropolitan markets. Goody's typically enters these metropolitan
markets by opening several stores simultaneously, which increases the Company's
image and awareness throughout the market while leveraging advertising costs
which are generally higher than small to midsize markets. Goody's primarily
leases store space in strip centers, where costs are generally lower than mall
locations. The smallest of the Company's stores has 7,600 gross square feet and
the largest store has approximately 52,600 gross square feet; the average store
size is approximately 27,300 gross square feet.
All of the Company's store locations are leased, which has enabled the
Company to grow without incurring indebtedness associated with acquiring and
owning real estate. The Company believes that the flexibility of leasing its
stores provides substantial benefits and avoids the inherent risks of owning
real estate. The Company believes that it has established itself as an anchor
tenant due to its operating performance, the size of its stores, its advertising
contributions in local markets, its financial position and its history of
meeting its lease commitments on a timely basis.
INFORMATION SYSTEMS
The Company maintains fully integrated point-of-sale inventory and
merchandise systems. The Company's information systems provide management,
buyers, planners and distributors with comprehensive data that helps them
identify emerging sales trends and, accordingly, manage inventories. The data
provided by information systems include unit and dollar planning; purchase order
management; open order reporting; open-to-buy; receiving; distribution; EDI;
basic stock replenishment and transfer, inventory and price management. Daily
and weekly sales reports are used by management to enhance the timeliness and
effectiveness of purchasing and markdown decisions. Merchandise purchases are
based on planned sales and inventories and are frequently revised to reflect
changing sales trends. The Company's stores have point-of-sale systems that are
supported by a back-office in-store computer system. The in-store systems
feature bar coded ticket scanning, automatic price look-up, dial-out credit and
check authorization and nightly transmittal of detailed sales data from stores
to the corporate office.
As part of the Company's strategic plan initiated in fiscal 1995, several
of the Company's core business systems have been replaced or are in the process
of being replaced. In fiscal 1996 and 1997, the Company implemented new
financial systems and made various enhancements to its store and other core
business systems. During fiscal 1998, the Company commenced development of new
merchandising and distribution systems to replace or enhance its existing
merchandising and distribution systems. This project is anticipated to be
completed in fiscal 2000.
9
<PAGE> 10
TRADEMARKS
The United States Patent and Trademark Office (the "USPTO") has issued to
the Company federal registrations for the following trademarks: Authentic GFC,
Chandler Hill, Chandler Hill Sport, "G" (stylized G with arch design), GFC, GFC
Trading Co., GoodKidz, Goody's Family Clothing, Goody's Feels Like You, Goody's
Low Price!! Department Store Styles Department Store Brands, Mountain Lake High
Quality Apparel With A Feel Good Fit, OCI -- Quality Clothing, Old College Inn,
and Take A Good Look. The Company has also filed applications with the USPTO
seeking federal registrations for the following trademarks: Bobby G by Ivy Crew,
Electro Sport, International Trading Company, Intimate Classics, Ivy Crew, Low
Prices Never Looked So Good, Montana Blues Jean Company, and OCI.
In April 1994, the Company filed an application with the USPTO to register
the trademark Ivy Crew. Two parties have filed separate notices of opposition to
the registration. The Company believes that it has meritorious defenses to these
oppositions, but does not anticipate a determination by the USPTO on any of the
oppositions until the second half of fiscal 1999.
The Company filed a trademark application with the USPTO on March 27, 1995,
as supplemented on March 28, 1995, to register the trademark Montana Blues Jean
Company. Such application has been refused and suspended by the USPTO pending
action on previously filed trademark applications by others; however, to date,
no third party has pursued a claim that would prohibit or attempt to prohibit
the Company from using such trademark.
The Company received a federal registration to the trademarks GFC Trading
Co., GFC and Authentic GFC on January 23, 1996, August 20, 1996 and July 20,
1997, respectively. In September 1996, the Company filed an action in federal
court in the Eastern District of Tennessee seeking a declaratory judgment
against a third party who had alleged common law trademark rights to the
trademark GFC. In February 1997, such party commenced a separate action against
the Company in federal court in the Southern District of New York seeking
injunctive relief and unspecified monetary damages. In February 1998, the New
York court issued an order transferring this case to the Eastern District of
Tennessee. The Company believes that it has meritorious defenses to the claims
against it.
There can be no assurance that the Company will prevail in any of these
disputes or that the USPTO will register the trademarks for which the Company
has applied. An unfavorable outcome in any one or more of these matters could
require the Company to abandon the applicable trademark, which could adversely
affect the Company's sales. It is also possible that damages could be awarded
against the Company.
ASSOCIATES
As of January 30, 1999, the Company had approximately 8,250 active full and
part-time associates. Store managers and assistant store managers are
compensated on a salaried basis and are eligible to receive additional
compensation based on the Company's profitability as well as meeting certain
objective goals at their respective stores such as sales growth, control of
expenses and inventory shrinkage. All other store associates are compensated on
an hourly basis. All of the Company's associates are non-union employees, with
the exception of the associates employed at its distribution center in
Knoxville, Tennessee, who are represented by the Union of Needletrades,
Industrial and Textile Employees. The Company's incentive bonus program for
certain key corporate associates is based on achieving certain profitability
goals and could potentially provide a significant portion of the associates'
total annual compensation.
The Company also grants stock options to certain key corporate and store
associates. These options are designed to align associates' interests with those
of the Company's shareholders and allow the Company to provide long-term
incentives to its associates.
The Company maintained a profit sharing plan through December 1997 for
full-time associates. This plan provided for discretionary contributions by the
Company which were approved by its Board of Directors. The Company's
contributions to the profit sharing plan were $750,000 and $525,000 for fiscal
1997 and 1996, respectively.
10
<PAGE> 11
In January 1998, the Company adopted the Goody's Family Clothing, Inc.
401(k) Retirement Plan (the "401(k) Plan") with a salary deferral feature for
all eligible associates. All the assets of the profit sharing plan were
transferred to the 401(k) Plan. Under the terms of the 401(k) Plan, eligible
associates may contribute between 3% and 15% of their annual compensation on a
pretax basis (with certain limitations imposed by the Internal Revenue Service)
to the 401(k) Plan. The Company provides matching contributions to the 401(k)
Plan, which are discretionary, vest over time and are based upon a percent of
the associates' elected contributions. These matching contributions amounted to
$826,000 and $35,000 for fiscal 1998 and 1997, respectively.
The Company also has an Employee Payroll Investment Plan that allows
eligible associates to purchase the Company's common stock at fair market value
through regular payroll deductions.
SEASONALITY AND INFLATION
The Company's business is seasonal by nature. The Christmas season
(beginning the Sunday before Thanksgiving and ending on the first Saturday after
Christmas), the back-to-school season (beginning 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 adversely 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.
COMPETITION
The retail apparel business is highly competitive, with price, selection,
fashion, quality, location, store environment and service being the principal
competitive factors. The Company believes that it is well positioned to compete
on the basis of each of these factors. The Company competes primarily with
department stores, specialty stores, off-price apparel stores and discount
stores. Many competitors are large national chains with substantially greater
financial and other resources than those available to the Company; there is no
assurance that the Company will continue to be able to compete successfully with
any of them in the future.
ITEM 2. PROPERTIES
The Company owns its corporate headquarters and distribution center located
at 400 Goody's Lane, Knoxville, Tennessee. The distribution center is a
one-story, 344,000-square-foot facility with 43 loading docks and a mezzanine
level that has an additional 17,500 square feet currently used as office space.
As stated under "Business -- Centralized Distribution", it is expected that the
Knoxville distribution center will be sufficient to distribute merchandise to
approximately 350 stores. Accordingly, based upon the Company's current growth
plans, it is estimated that the Knoxville distribution center can service its
stores through fiscal 2000. The Company is currently evaluating various
distribution alternatives to service the chain beginning in fiscal 2001. The
Company's preliminary plans call for a second distribution center with the site
yet to be determined.
11
<PAGE> 12
The corporate headquarters building is adjacent to the distribution center
and comprises approximately 140,000 square feet. The Company also leases two
warehouses in Athens, Tennessee for staging and processing inventory and for
storing certain store fixtures.
The Company currently leases all of its stores. Lease terms generally
contain renewal options and provide for a fixed minimum rent, an additional rent
based on a percent of sales in excess of stipulated amounts and a share of
taxes, insurance and common area maintenance costs.
As of January 30, 1999 the following table reflects (i) the number of
leases that will expire in each indicated fiscal year if the Company does not
exercise any of its renewal options and (ii) the number of leases that will
expire in each indicated fiscal year if the Company exercises all of its renewal
options. The table does not reflect ten leases having month-to-month terms, but
does include 25 leases executed as of January 30, 1999 for stores to be opened
or relocated in fiscal 1999 as well as one store which closed during fiscal 1998
for which rent is payable until May 1999.
<TABLE>
<CAPTION>
NUMBER OF LEASES NUMBER OF LEASES
EXPIRING EACH YEAR IF EXPIRING EACH YEAR IF
NO RENEWALS ALL RENEWALS
FISCAL YEAR EXERCISED EXERCISED
- ----------- --------------------- ---------------------
<S> <C> <C>
1999..................................................... 43 19
2000..................................................... 15 1
2001..................................................... 12 1
2002..................................................... 24 5
2003..................................................... 17 3
2004 and thereafter...................................... 162 244
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
On February 18, 1999, a lawsuit was served on the Company by nine
individual plaintiffs, generally alleging discrimination with respect to
employment opportunities at one of the Company's retail stores. The plaintiffs'
allegations include, 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 are being brought under the
Civil Rights Act of 1866. By way of damages, the plaintiffs are seeking, among
other things, injunctive relief (including reinstatement), back pay, front pay,
compensatory damages and punitive damages. The Company disputes these claims and
intends to defend this matter vigorously.
On February 25, 1999, a lawsuit was served on the Company and Robert M.
Goodfriend, its Chairman and Chief Executive Officer, by 20 named plaintiffs,
generally alleging that the Company discriminated against a class of
African-American employees at its retail stores through the use of
discriminatory selection and compensation procedures and by maintaining unequal
terms and conditions of employment. The plaintiffs further allege that the
Company maintained a racially hostile working environment. The plaintiffs'
claims are being brought under Title VII of the Civil Rights Act of 1964, as
amended, and under the Civil Rights Act of 1866. The plaintiffs are seeking to
have this action certified as a class action. By way of damages, the plaintiffs
are seeking, among other things, injunctive relief (including restructuring of
the Company's selection and compensation procedures) as well as back pay, an
award of attorneys' fees and costs, and other monetary relief. The Company
disputes these claims and intends to defend this matter vigorously.
It is too early to estimate the effect, if any, the above 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the
information on page 33 of the Registrant's 1998 Annual Report under the captions
"Common stock information" and "Dividend policy."
ITEM 6. SELECTED FINANCIAL DATA
The information required by this is incorporated by reference to the
information on page 31 of the Registrant's 1998 Annual Report under the caption
"Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to the
information on pages 15-20 of the Registrant's 1998 Annual Report under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material investments or risks in market risk sensitive
instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to the
information on pages 21-30 of the Registrant's 1998 Annual Report and in the
tables for fiscal 1998 and fiscal 1997 on page 20 under the caption "Selected
Quarterly Data."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
information under the captions "Election of Directors -- Director, Director
Nominee and Executive Officer Information" and "Election of Directors -- Section
16(a) Beneficial Ownership Reporting Compliance" in the Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on June 16, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
information under the caption "Executive Compensation and Other Information" in
the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be
held on June 16, 1999, but does not include the information under the captions
"Compensation Committee Report" and "Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
information under the caption "Voting Rights and Principal Shareholders" in the
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
on June 16, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
information under the caption "Certain Transactions" in the Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on June 16, 1999.
13
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
The Registrant's 1998 Annual Report, a copy of which appears as Exhibit 13
to this Annual Report on Form 10-K, contains the following financial statements
and the Registrant's independent auditors' report thereon, which are
incorporated herein by reference.
- Independent Auditors' Report.
- Consolidated Statements of Operations for each of the three fiscal years
in the period ended January 30, 1999.
- Consolidated Balance Sheets as of January 30, 1999 and January 31, 1998.
- Consolidated Statements of Cash Flows for each of the three fiscal years
in the period ended January 30, 1999.
- Consolidated Statements of Shareholders' Equity for each of the three
fiscal years in the period ended January 30, 1999.
- Notes to Consolidated Financial Statements for each of the three fiscal
years in the period ended January 30, 1999.
2. Financial Statement Schedules
All financial statement schedules are omitted as the required information
is inapplicable.
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER REF. DESCRIPTION
- ------- ---- -----------
<C> <C> <C> <S>
1.1 a -- Form of Underwriting Agreement
3.1 b -- Amended and Restated Charter of the Registrant
3.2 c -- Amended and Restated Bylaws of the Registrant
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Charter and Amended and Restated Bylaws of the
Registrant defining rights of holders of Common Stock of the
Registrant
10.1 d -- Goody's Family Clothing, Inc. Profit Sharing Plan*
10.2 e -- Goody's Family Clothing, Inc. 1991 Stock Incentive Plan*
10.4 f -- Goody's Family Clothing, Inc. 1993 Stock Option Plan*
10.5 g -- Goody's Family Clothing, Inc. Discounted Stock Option Plan
for Directors, as amended*
10.18 h -- Settlement agreement dated January 5, 1995
10.29 i -- Benefit Protection Trust Agreement*
10.30 j -- Employment agreement between the Registrant and Marcus H.
Smith, Jr.*
10.31 j -- Employment agreement between the Registrant and Thomas R.
Kelly, Jr.*
10.32 j -- Credit agreement between the Registrant, Lenders as
identified therein and First Tennessee Bank National
Association as Administrative Agent
10.33 k -- Master transport agreement between the Registrant and Star
Transportation, Inc. dated July 10, 1995
10.34 l -- Goody's Family Clothing, Inc. Employee Payroll Investment
Plan*
10.35 m -- Employment letter from the Registrant to Jay D. Scussel*
10.36 m -- Indemnification agreement between the Registrant and Robert
M. Goodfriend*
10.37 m -- Indemnification agreement between the Registrant and Harry
M. Call*
10.38 m -- Indemnification agreement between the Registrant and James
L. Clayton*
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NUMBER REF. DESCRIPTION
- ------- ---- -----------
<C> <C> <C> <S>
10.39 m -- Indemnification agreement between the Registrant and Samuel
J. Furrow*
10.40 m -- Indemnification agreement between the Registrant and Robert
F. Koppel*
10.41 m -- Indemnification agreement between the Registrant and Cheryl
L. Turnbull*
10.42 n -- Amended Credit Agreement between the Registrant, Lenders as
identified therein and First Tennessee Bank National
Association as Administrative Agent
10.44 o -- Indemnification agreement between the Registrant and Irwin
L. Lowenstein*
10.45 p -- Amended Agreement dated May 16, 1997 between the Registrant,
GOODY'S MS, L.P., and GOODY'S IN, L.P. as borrowers, TREBOR
of TN, Inc., SYDOOG, Inc. and GOFAMCLO, Inc. as guarantors,
Lenders as identified therein and First Tennessee National
Bank Association as Administrative Agent
10.46 q -- Deferred Compensation Agreement between the Registrant and
Robert M. Goodfriend*
10.47 q -- Employment letter from the Registrant to Stanley B. Latacha*
10.48 a -- Agreement dated August 25, 1997 among the Registrant, Robert
M. Goodfriend, Harry M. Call and Edward R. Carlin
10.50 r -- Amendment to the Goody's Family Clothing, Inc. Employee
Payroll Investment Plan*
10.51 s -- Third Amendment Agreement dated May 26, 1998 between the
Registrant, GOODY'S MS, L.P., GOODY'S IN, L.P. GFCTX, L.P.,
GFCTN, L.P., GFCGA, L.P. and GFCFS Inc. as borrowers, TREBOR
of TN, Inc., SYDOOG, Inc. and GOFAMCLO, Inc. as guarantors,
Lenders as identified therein and First Tennessee National
Bank Association as Administrative Agent
10.52 s -- Employment agreement between the Registrant and Harry M.
Call dated May 20, 1998.*
10.53 s -- Employment agreement between the Registrant and Edward R.
Carlin dated May 20, 1998.*
10.54 s -- Employment agreement between the Registrant and Thomas R.
Kelly, Jr. dated May 20, 1998.*
10.55 s -- Employment agreement between the Registrant and David R.
Mullins dated May 20, 1998.*
10.56 t -- Employment agreement between the Registrant and Bruce E.
Halverson dated May 20, 1998.*
10.57 t -- Employment agreement between the Registrant and Stanley B.
Latacha dated May 20, 1998.*
10.58 t -- Employment agreement between the Registrant and John J.
Okvath, III dated May 20, 1998.*
10.59 t -- Employment agreement between the Registrant and Jay D.
Scussel dated May 20, 1998.*
10.60 t -- Employment agreement between the Registrant and Marcus H.
Smith, Jr. dated May 20, 1998.*
10.61 t -- Employment agreement between the Registrant and Bobby Whaley
dated May 20, 1998.*
10.62 t -- Severance agreement between the Registrant and Regis J.
Hebbeler dated May 20, 1998.*
10.63 t -- Severance agreement between the Registrant and Hazel Ann
Moxim dated May 20, 1998.*
10.64 t -- Severance agreement between the Registrant and David G. Peek
dated May 20, 1998.*
10.65 -- Assumption and Consent Agreement dated December 16, 1998
between the Registrant, GOODY'S MS, L.P., GOODY'S IN, L.P.
GFCTX, L.P., GFCTN, L.P. and GFCGA, L.P. Inc. as borrowers,
TREBOR of TN, Inc., SYDOOG, Inc. and GOFAMCLO, Inc. as
guarantors, GFCFS, LLC and First Tennessee National Bank
Association as Administrative Agent for the Lenders
10.66 -- Employment agreement between the Registrant and Keith J.
Reichelderfer dated January 31, 1999.*
10.67 -- Amendment to Goody's Family Clothing, Inc. 1991 Stock
Incentive Plan effective May 13, 1998*
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT
NUMBER REF. DESCRIPTION
- ------- ---- -----------
<C> <C> <C> <S>
10.68 -- Amendment to Goody's Family Clothing, Inc. 1993 Stock Option
Plan effective May 13, 1998*
10.69 -- Amendment to Goody's Family Clothing, Inc. 1997 Stock Option
Plan effective May 13, 1998*
10.70 -- Master Transportation and Deconsolidation Agreement between
the Registrant and Star Transportation, Inc. dated January
1, 1999
11 -- Statement re computation of per share earnings
13 -- Registrant's 1998 Annual Report (only those portions
specifically incorporated by reference into this Report are
to be deemed "filed" with the Securities and Exchange
Commission)
21 -- Subsidiaries of the Registrant
23 -- Consent of Deloitte & Touche LLP
27 -- Financial Data Schedule for the fiscal year ended January
30, 1999 (for SEC use only)
</TABLE>
- ---------------
* The indicated exhibit is a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this Annual Report on Form
10-K
a Incorporated herein by reference to exhibit of the same number in Registrant's
Registration Statement on Form S-3 (Registration No. 333-32409) filed on
August 18, 1997 and amended on August 25, 1997 and September 3, 1997.
b Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 29, 1995 (File No.
019526).
c Incorporated herein by reference exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended January 28, 1995 (File No.
019526).
d Incorporated herein by reference to exhibit of the same number in Registrant's
Registration Statement on Form S-1 (Registration No. 33-42738) originally
filed on September 13, 1991.
e Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended January 30, 1993 (File No.
019526).
f Incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Shareholders held on June 24, 1993.
g Incorporated herein by reference to exhibit 4.1 in Registrant's Registration
Statement on Form S-8 (Registration No. 333-09595) filed on August 5, 1996.
h Incorporated herein by reference to exhibit 10.1 in Registrant's Current
Report on Form 8-K dated January 5, 1995 (File No. 019526).
i Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended January 28, 1995 (File No.
019526).
j Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended April 29, 1995 (File No.
019526).
k Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 29, 1995 (File No.
019526).
l Incorporated herein by reference to exhibit 4 in Registrant's Registration
Statement on Form S-8 (Registration No. 333-00052) originally filed on January
4, 1996.
m Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended February 3, 1996 (File No.
019526).
n Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended May 4, 1996 (File No.
019526).
o Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended February 1, 1997 (File No.
019526).
p Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended May 3, 1997 (File No.
019526).
q Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 2, 1997 (File No.
019526).
16
<PAGE> 17
r Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended November 1, 1997 (File No.
019526).
s Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 1, 1998 (File No.
019526).
t Incorporated herein by reference to exhibit of the same number in Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 31, 1998 (File No.
019526).
(b) Forms 8-K:
None
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GOODY'S FAMILY CLOTHING, INC.
By: /s/ ROBERT M. GOODFRIEND
------------------------------------
Robert M. Goodfriend
Chairman of the Board and
Chief Executive Officer
Dated: April 27, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
By: /s/ ROBERT M. GOODFRIEND Chairman of the Board and Chief April 27, 1999
------------------------------------------------ Executive Officer
Robert M. Goodfriend
By: /s/ HARRY M. CALL Director, President and Chief April 27, 1999
------------------------------------------------ Operating Officer
Harry M. Call
By: /s/ EDWARD R. CARLIN Executive Vice President, Chief April 27, 1999
------------------------------------------------ Financial Officer and
Edward R. Carlin Secretary (Principal Financial
Officer)
By: /s/ DAVID G. PEEK Vice President, Corporate April 27, 1999
------------------------------------------------ Controller and Chief
David G. Peek Accounting Officer (Principal
Accounting Officer)
By: /s/ SAMUEL J. FURROW Director April 27, 1999
------------------------------------------------
Samuel J. Furrow
By: /s/ ROBERT F. KOPPEL Director April 27, 1999
------------------------------------------------
Robert F. Koppel
By: /s/ IRWIN L. LOWENSTEIN Director April 27, 1999
------------------------------------------------
Irwin L. Lowenstein
By: /s/ CHERYL L. TURNBULL Director April 27, 1999
------------------------------------------------
Cheryl L. Turnbull
</TABLE>
18
<PAGE> 19
Goodys Family Clothing logo
<PAGE> 1
EXHIBIT - 10.65
ASSUMPTION AND CONSENT AGREEMENT
THIS ASSUMPTION AND CONSENT AGREEMENT ("Agreement") is entered into as
of the _16th__ day of December, 1998 by and between GOODY'S FAMILY CLOTHING,
INC., a Tennessee corporation, GOODY'S MS, L.P., a Tennessee limited
partnership, GOODY'S IN, L.P., a Tennessee limited partnership, GFCTX, L.P., a
Tennessee limited partnership, GFCTN, L.P., a Tennessee limited partnership,
GFCGA, L.P., a Tennessee limited partnership, (the "Borrowers"), TREBOR of TN,
INC., a Tennessee corporation, SYDOOG, INC., a Delaware corporation, GOFAMCLO,
INC., a Delaware corporation (collectively, the "Guarantors"), GFCFS, LLC, a
Delaware limited liability company ("GFCFS, LLC"), and FIRST TENNESSEE BANK
NATIONAL ASSOCIATION, a national banking association with offices in Knoxville,
Tennessee, as administrative agent under the hereinafter defined Credit
Agreement (the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement dated May 25, 1995
between Goody's Family Clothing, Inc. ("GFC"), the Administrative Agent, and the
Lenders named therein, as amended and restated by that certain Amended and
Restated Credit Agreement dated as of October 31, 1996 between GFC, GOODY'S MS,
L.P., GOODY'S IN, L.P., the Guarantors, the Administrative Agent, and the
Lenders named therein, and as further amended by that certain Amendment
Agreement dated May 16, 1997 between GFC, GOODY'S MS, L.P., GOODY'S IN, L.P.,
the Guarantors, the Administrative Agent and the Lenders named therein, that
certain Second Amendment Agreement dated September 23, 1997 between GFC, GOODY'S
MS, L.P., GOODY'S IN, L.P., GFCTX, L.P., the Guarantors, the Administrative
Agent and the Lenders named therein, and that certain Third Amendment Agreement
dated May 26, 1998 between GFC, GOODY'S MS, L.P., GOODY'S IN, L.P., GFCTX, L.P.,
GFCTN, L.P., GFCGA, L.P., and GFC FS, Inc., the Guarantors, the Administrative
Agent and the Lenders named therein (collectively, the "Credit Agreement"), the
Lenders have committed to make loans to the Borrowers in the principal amount of
$130,000,000 (the "Loans") pursuant to the terms and provisions thereof;
WHEREAS, pursuant to the Credit Agreement, the Borrowers have delivered
a Third Amended and Restated Promissory Note dated May 26, 1998 to each Lender
(collectively, the "Notes") in the amount of such Lender's Commitment (as
defined in the Credit Agreement);
WHEREAS, GFC FS, Inc. has merged with and into GFCFS, LLC and GFCFS,
LLC wishes to assume the obligations of GFC FS, Inc. under the Credit Agreement
and Notes;
WHEREAS, all terms capitalized herein and not otherwise defined shall
have the meanings ascribed to them in the Credit Agreement;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Assumption of Obligations. GFCFS, LLC hereby assumes and
agrees to perform and/or pay all of GFC FS, Inc.'s liabilities, debts, duties
and obligations under the Credit Agreement and Notes.
2. Consent by Administrative Agent. The Administrative Agent, on
behalf of and with the consent of the Lenders, hereby consents to the merger of
GFC FS, Inc. into GFCFS, LLC and to the assumption by GFCFS, LLC of GFC FS,
Inc.'s liabilities and obligations under the Credit Agreement and the Notes.
3. Representations and Warranties. GFCFS, LLC hereby represents
and warrants as follows:
(a) GFCFS, LLC is a limited liability company duly
organized, validly existing and in good standing under the laws of the
State of Delaware; and GFCFS, LLC has the power to own and operate its
properties, to carry on its business as now conducted and to enter into
and to perform its obligations under this Agreement.
(b) The execution and delivery of this Agreement are
within the powers of GFCFS, LLC and have been duly authorized by all
necessary action properly taken, have received all necessary
governmental approvals, if any were required, and do not and will not
contravene or conflict with any provision of law, any applicable
judgment, ordinance, regulation or order of any court or governmental
agency, the operating agreement of GFCFS, LLC, or any agreements
binding upon GFCFS, LLC or its properties. The persons executing this
Agreement are duly authorized to act on behalf of GFCFS, LLC.
(c) This Agreement is the legal, valid and binding
obligation of GFCFS, LLC, enforceable in accordance with its terms,
subject to bankruptcy and similar creditor right's laws and principles
of judicial discretion and equity.
(d) There are no actions, suits or proceedings pending,
or, to the knowledge of GFCFS, LLC, threatened, against or affecting
GFCFS, LLC involving the validity or enforceability of this Agreement
or the assumption of the obligations and liabilities of GFC FS, Inc.
under the Credit Agreement and Notes, at law or in equity, or before
any governmental or administrative agency.
4. Agreement of Borrowers and Guarantors. The Borrowers and
Guarantors acknowledge that the assumption by GFCFS, LLC of the liabilities of
GFC FS, Inc. pursuant to this Agreement does not release the obligations of the
Borrowers and Guarantors under the Credit Agreement or Notes.
5. Continuing Effect of Documents. Except as expressly modified
by or provided for in this Agreement, the terms and provisions of the Credit
Agreement and all other documents relating to the Loans shall remain in full
force and effect as originally executed.
<PAGE> 3
6. Completeness and Modification. This Agreement constitutes the
entire agreement between the parties hereto as to the transactions contemplated
hereby and supersedes all prior discussions, understandings or agreements
between the parties hereto.
7. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the parties hereto and their respective successors and assigns.
8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
BORROWERS:
GOODY'S FAMILY CLOTHING, INC.
By: /s/ Harry M. Call
---------------------------------------
Title: President and COO
------------------------------------
GOODY'S MS, L.P.
By: TREBOR of TN, Inc., General Partner
By: /s/ Harry M. Call
---------------------------------------
Title: President and COO
------------------------------------
GOODY'S IN, L.P.
By: TREBOR of TN, Inc., General Partner
By: /s/ Harry M. Call
---------------------------------------
Title: President and COO
------------------------------------
<PAGE> 4
GFCTX, L.P.
By: TREBOR of TN, Inc., General Partner
By: /s/ Harry M. Call
---------------------------------------
Title: President and COO
------------------------------------
GFCTN, L.P.
By: TREBOR of TN, Inc., General Partner
By: /s/ Harry M. Call
---------------------------------------
Title: President and COO
------------------------------------
GFCGA, L.P.
By: TREBOR of TN, Inc., General Partner
By: /s/ Harry M. Call
---------------------------------------
Title: President and COO
------------------------------------
GUARANTORS:
SYDOOG, INC., a Delaware corporation
By: /s/ Francis B. Jacobs
---------------------------------------
Title: President
------------------------------------
GOFAMCLO, INC., a Delaware corporation
By: /s/ Francis B. Jacobs
---------------------------------------
Title: President
------------------------------------
<PAGE> 5
TREBOR OF TN, INC., a Tennessee corporation
By: /s/ Harry M. Call
---------------------------------------
Title: President and COO
------------------------------------
GFCFS, LLC
GFCFS, LLC
By: /s/ Harry M. Call
---------------------------------------
Title: President and COO
------------------------------------
ADMINISTRATIVE AGENT
FIRST TENNESSEE BANK NATIONAL ASSOCIATION,
as Administrative Agent
By: /s/ James H. Atchley
---------------------------------------
Title: Senior Vice President
------------------------------------
<PAGE> 1
EXHIBIT - 10.66
EMPLOYMENT AGREEMENT
BETWEEN
GOODY'S FAMILY CLOTHING, INC.
AND
KEITH J. REICHELDERFER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Definitions..............................................................................................1
2. Employment...............................................................................................3
3. Term.....................................................................................................3
4. Position and Duties; Business Time.......................................................................3
5. Compensation.............................................................................................3
6. Termination of Employment................................................................................5
7. Obligations of the Company Upon Termination..............................................................6
8. Change of Control........................................................................................8
9. Non-exclusivity of Rights................................................................................8
10. Full Settlement..........................................................................................8
11. Arbitration of Disputes..................................................................................8
12. Confidential Information and Nonsolicitation.............................................................9
13. Successors...............................................................................................9
14. Miscellaneous...........................................................................................10
</TABLE>
<PAGE> 3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, by and between GOODY'S FAMILY CLOTHING,
INC., a Tennessee corporation (the "Company"), and KEITH J. REICHELDERFER (the
"Executive"), shall be effective as of the 31st day of January, 1999.
RECITALS:
A. The Executive has for some time served as Vice President and
General Merchandise Manager for Women's of the Company. Effective January 31,
1999, the Company has promoted the Executive to the position of Senior Vice
President and General Merchandise Manager for Women's of the Company.
B. The Company wishes to assure the continued service of the
Executive. The Company desires to recognize the Executive's commitment to the
Company and to confirm the right of the Executive to certain employment,
compensation and severance benefits. To attain that end, the Company and the
Executive wish to enter into this Employment Agreement (the "Agreement").
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the Company and the
Executive do hereby agree as follows:
1. Definitions.
(a) "Accrued Obligations" shall mean (i) the Executive's
Base Salary through the Date of Termination, (ii) any amounts deferred by the
Executive and not yet paid by the Company pursuant to a valid election to defer
the receipt of all or a portion of such payments made in accordance with any
plan of deferred compensation sponsored by the Company and any earned but unpaid
vacation pay for the current year, (iii) any amounts or benefits owing to the
Executive or to the Executive's beneficiaries under the then applicable employee
benefit plans or policies of the Company and (iv) any amounts owing to the
Executive for reimbursement of expenses properly incurred by the Executive
through the Date of Termination and which are reimbursable in accordance with
the reimbursement policy of the Company described in Section 5(f).
(b) "Base Salary" shall have the meaning set forth in
Section 5(a).
(c) "Board" shall mean the Board of Directors of the
Company.
(d) "Cause" shall mean that the Executive has, in the
judgment of a majority of the Board (i) committed a felony, or committed an act
of fraud, embezzlement or theft in connection with his duties with the Company
or in the course of his employment with the Company; (ii) willfully caused
damage to property of the Company; (iii) been convicted of a criminal offense
(either a misdemeanor involving acts of dishonesty, theft or moral turpitude, or
a felony); or (iv) engaged in a willful and material breach of his obligations
under Section 4 of this Agreement which breach (under this clause iv) has been
communicated to the Executive with specificity by written notice, and which has
not been cured to the reasonable satisfaction of the Board within a reasonable
period of time, which shall not be less than ten (10) days, nor more than thirty
(30) days, following receipt of such written notice by the Executive. The Board
shall provide the Executive with an opportunity to meet with the Board in order
to provide the Executive an opportunity to refute or explain acts or omissions
referred to in such written notice. For the purpose of this Section, no act or
omission shall be considered willful unless done or omitted to be done in bad
faith and without reasonable belief that such act or omission was done in the
best interest of the Company.
(e) A "Change of Control" of the Company shall mean and
shall be deemed to have occurred if (i) any person or group (within the meaning
of Rule 13d-3 of the rules and regulations promulgated under the Securities
Exchange Act of 1934, as amended (the "1934 Act Rules")), other than Robert M.
Goodfriend, members of his immediate family, his affiliates, trusts or private
foundations established by or on his behalf, and the heirs,
<PAGE> 4
executors or administrators of Robert M. Goodfriend, shall acquire in one or a
series of transactions, whether through sale of stock or merger, more than 50%
of the outstanding voting securities of the Company or any successor entity of
the Company, (ii) all or substantially all of the Company's assets are sold or
(iii) the shareholders of the Company approve a complete liquidation or
dissolution of the Company.
(f) "Change of Control Date" shall mean (i) the closing
date on which a Change of Control shall have occurred, (ii) in the case of a
sale of all or substantially all of the Company's assets, the closing date on
which a Change of Control shall have occurred after shareholder approval is
obtained, or (iii) in the case of complete liquidation or dissolution of the
Company, the date on which shareholder approval is obtained.
(g) "Date of Termination" shall have the meaning set
forth in Section 6(e).
(h) "Disability" shall mean disability whereby the
Executive is unable to render the services provided for by this Agreement by
reason of illness, injury or incapacity (whether physical, mental, emotional or
psychological) for a period of either (i) ninety (90) consecutive days or (ii)
one hundred eighty (180) days in any consecutive three hundred sixty-five (365)
day period.
(i) "Incentive Bonus" shall have the meaning as set forth
in Section 5(c).
(j) "Incentive Plan" shall have the meaning as set forth
in Section 5(c).
(k) "Notice of Termination" shall have the meaning as set
forth in Section 6(d).
(l) "Qualified Plan" shall mean any retirement plan
maintained by the Company which is intended to meet the requirements of the
Internal Revenue Code of 1986, as amended.
(m) "Subsidiary" shall mean any majority-owned subsidiary
of the Company.
(n) "Supplemental Payment Date" shall have the same
meaning as set forth in Section 7(c).
2. Employment. The Company has employed the Executive
and the Executive has agreed to continue to be employed by the Company in such
capacities and upon such conditions as are hereinafter set forth. The Executive
was promoted to the position of Senior Vice President and General Merchandise
Manager for Women's of the Company since January 31, 1999.
3. Term. The Executive shall be considered an at-will
employee and his employment may be terminated by either party subject to the
obligations of the parties upon such termination as set forth in this Agreement.
4. Position and Duties; Business Time.
(a) Position and Duties. The Executive shall continue his
service as Senior Vice President and General Merchandise Manager for Women's
(which includes the Juniors Division and the Misses Division) of the Company or
another position which shall be either of comparable rank or a promotion and
shall continue to have such responsibilities and duties as assigned to him by
the Chief Executive Officer of the Company, the Chief Operating Officer of the
Company or the Board from time to time.
(b) Business Time. The Executive agrees to devote his
full business time to the business and affairs of the Company and to use his
best efforts to perform faithfully and efficiently the responsibilities assigned
to him hereunder, to the extent necessary to discharge such responsibilities,
except for:
2
<PAGE> 5
(i) time spent in managing his personal,
financial and legal affairs and serving on corporate, civic or charitable boards
or committees, in each case only if and to the extent not substantially
interfering with the performance of such responsibilities, and
(ii) periods of vacation to which he is entitled,
periods of illness and other absences beyond his control.
It is expressly understood and agreed that the continued service by the
Executive on any boards and committees on which he is serving or with which he
is otherwise associated immediately preceding the date hereof, or his service on
any other boards and committees shall not be deemed to interfere with the
performance of the Executive's services to the Company; provided, that in the
case of boards or committees on which the Executive is not currently serving,
the Executive provides written notice of his intention to serve and the Board
thereafter approves such service (other than non-compensatory positions with
local boards or committees e.g. charitable, chamber of commerce or homeowner
associations which shall not require approval).
5. Compensation. The Executive shall be entitled to the
following compensation and benefits for as long as the Executive remains an
employee of the Company:
(a) Base Salary. The Executive shall receive a base
salary (the "Base Salary"), payable in equal bi-weekly installments (or such
other installments as are provided by the Company for employees generally) at an
annual rate of $200,000.00. The Executive will be eligible for a merit pay
increase in Base Salary up to a maximum of $220,000, effective January 30, 2000,
subject to Board approval; thereafter, the Executive's eligibility for merit pay
increases shall be effective, if approved by the Board, on the first day of each
fiscal year of the Company. The Company shall review the Base Salary
periodically and in light of such review may, in its sole discretion, increase
(but not decrease) the Base Salary taking into account any change in the
Executive's responsibilities, increases in compensation of other executives with
comparable responsibilities, performance of the Executive and other pertinent
factors, and such adjusted Base Salary shall then constitute the "Base Salary"
for purposes of this Agreement. In addition, during the fourth (4th) fiscal
quarter of fiscal year 2000, the Company shall review the Executive's Base
Salary and other benefits and perquisites described in this Section 5 for the
purpose of evaluating the Executive's total compensation and adjusting such
total compensation (but in no event shall the Base Salary be decreased), taking
into account the Executive's responsibilities and the Executive's total
compensation as compared to the total compensation of the other Senior Vice
Presidents of the Company.
(b) Base Salary Bonus. For fiscal year 1999 and fiscal
year 2000, the Executive shall be eligible to receive a bonus equal to ten
percent (10%) of the Executive's Base Salary for fiscal year 1999 and fiscal
year 2000 (the "Bonus"). The Bonus for fiscal year 1999 and fiscal year 2000
shall be based and calculated on the Executive's Base Salary as of the first
week of fiscal year 1999 and fiscal year 2000, respectively. The Company shall
pay the Executive the Bonus as follows: (i) for fiscal year 1999, on March 31,
2000; and (ii) for fiscal year 2000, on March 30, 2001. The Executive is not
entitled to receive the Bonus or any portion thereof for fiscal year 1999 or
fiscal year 2000 if he is not employed by the Company on March 31, 2000 or March
30, 2001, respectively.
(c) Short Term Incentive Plan Bonus. The Company has
established a "Short Term Incentive Plan" (the "Incentive Plan") under which the
Executive shall be eligible to participate for each fiscal year he holds the
position stated in Section 2 and shall be eligible to receive an annual
incentive target bonus of not less than 40% of Base Salary based on performance
and other specific objectives adopted by the Compensation Committee of the Board
(the "Incentive Bonus").
(d) Incentive and Savings Plans; Retirement and Death
Benefit Programs. The Executive shall be entitled to participate in all
incentive and savings plans and programs, including stock option plans and other
equity-based compensation plans, and in all employee retirement, executive
retirement and executive death benefit plans on a basis no less favorable than
that basis generally available to executives of the Company holding comparable
positions or having comparable responsibilities.
3
<PAGE> 6
(e) Other Benefit Plans. The Executive, his spouse and
their eligible dependents (as defined in, and to the extent permitted by, the
applicable plan), as the case may be, shall be entitled to participate in or be
covered under all medical, dental, group disability, group life, severance,
accidental death and travel accident insurance plans and programs of the Company
to the extent such plans and programs are generally available to executives of
the Company holding comparable positions or having comparable responsibilities.
(f) Other Perquisites. The Executive shall also be
entitled to:
(i) prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the policies and
procedures of the Company;
(ii) three (3) weeks paid vacation, such paid
vacation time to be increased (but not decreased) in accordance with Company
policy;
(iii) an automobile at least comparable to the
model currently furnished by the Company shall be provided by the Company with
expenses to be paid in accordance with the Company's policies and procedures
with respect thereto; and
(iv) an office or offices suitable for an
executive officer with secretarial and other assistance as shall reasonably be
required by the Executive.
(g) Grant of Stock Options. On the effective date of this
Agreement, the Company has granted to the Executive stock options (the
"Options") to purchase 10,000 shares of the common stock of the Company. Such
Options shall vest in twenty percent (20%) increments over five (5) years from
the effective date of the grant and shall have an exercise price of $10.78 per
share and be subject to such other terms and conditions as contained in the
Company's standard option agreement.
(h) Grant of Performance-Based Stock Options. The
Executive shall be eligible to receive a grant of stock options to purchase
shares of the common stock of the Company for each of fiscal years 1999 and
2000. In order to receive such grant for fiscal year 1999 or fiscal year 2000,
the following conditions must occur: (i) the Company must adopt and the
Compensation Committee of the Board must approve an Incentive Plan and an
Incentive Bonus; (ii) the Executive must meet the eligibility requirements set
forth in the Incentive Plan; and (iii) the Company must achieve certain minimum
financial and performance objectives as set forth in the Incentive Plan. If all
of the conditions described in the immediately preceding sentence are met, then
Executive shall be granted stock option awards (the "Performance Options") to
purchase shares of the common stock of the Company, such grants of the
Performance Options to be based on the following percentages of target bonus
earned (as established by the Incentive Plan) for fiscal year 1999 and fiscal
year 2000:
<TABLE>
<CAPTION>
PERCENTAGE OF PERFORMANCE-BASED
------------- -----------------
TARGET BONUS EARNED OPTIONS AWARDED
------------------- ---------------
<S> <C>
33% 5,000
100% 10,000
150% 15,000
</TABLE>
The Performance Options for fiscal year 1999 and fiscal year
2000 shall be awarded to the Executive on the first business day following
distribution of the Incentive Bonus. The Performance Options
4
<PAGE> 7
shall vest in twenty percent (20%) increments over five (5) years from the
effective date of the grant and have an exercise price equal to the closing
sales price of the Company's common stock on The NASDAQ National Market on the
last day of trading prior to the effective date of the grant and be subject to
such other terms and conditions as contained in the Company's standard option
agreement.
6. Termination of Employment.
(a) Disability; Death. The Company may terminate the
Executive's employment after having established the Executive's Disability, by
giving to the Executive written notice of its intention to terminate his
employment, and his employment with the Company shall terminate effective on the
thirtieth (30th) day after receipt of such notice if the Executive shall fail to
return to full-time performance of his duties within thirty (30) days after such
receipt. If the Executive dies during the term of this Agreement, his employment
hereunder shall be deemed to cease as of the date of his death.
(b) Voluntary Termination by the Executive.
Notwithstanding anything in this Agreement to the contrary, the Executive may,
upon not less than thirty (30) days' written notice to the Company, voluntarily
terminate employment for any reason (including retirement under the terms of the
Company's retirement plan as in effect from time to time).
(c) Termination by the Company. The Company at any time
may terminate the Executive's employment for Cause or without Cause.
(d) Notice of Termination. Any termination by the Company
for Cause or by the Executive shall be communicated by a written Notice of
Termination to the other party hereto given in accordance with Section 14(c).
For purposes of this Agreement, a "Notice of Termination" means a written notice
given in the case of a termination for Cause which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated, and
(iii) if the termination date is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than thirty (30)
days after the receipt of such notice).
(e) Date of Termination. For the purpose of this
Agreement, the term "Date of Termination" means (i) in the case of a termination
for which a Notice of Termination is required, the date of receipt of such
Notice of Termination or, if later, the date specified therein, as the case may
be, and (ii) in all other cases, the actual date on which the Executive's
employment terminates.
7. Obligations of the Company Upon Termination. Upon
termination of the Executive's employment with the Company, the Company shall
have the following obligations:
(a) Death, Disability and Retirement. If the Executive's
employment is terminated by reason of the Executive's death, Disability, or
retirement on or after the attainment of age sixty-five (65), the Company shall
have no further obligations to the Executive's legal representatives under this
Agreement other than payment of the Accrued Obligations. If the Executive's
employment is terminated by reason of the Executive's death or Disability, the
Company shall have the additional obligation, subject to the terms of the
Incentive Plan and further provided that the Executive has been employed by the
Company for the first six (6) months of the then applicable fiscal year, to pay
a cash amount equal to a portion of the Incentive Bonus, the product of a
fraction, the numerator of which is the number of days elapsed since the date
the Incentive Plan began for the applicable fiscal year through the date of the
Disability or the date of death of the Executive, and the denominator of which
is the total number of days of the applicable fiscal year for such Incentive
Plan. Unless otherwise directed by the Executive (or, in the case of the
Incentive Plan or a Qualified Plan, as may be required by such Incentive Plan or
Qualified Plan) all Accrued Obligations shall be paid to the Executive, his
beneficiaries or his estate, as applicable, in a lump sum in cash within thirty
(30) days of the Date of
5
<PAGE> 8
Termination. In the event of the termination of the Executive by reason of
retirement on or after the attainment of age sixty-five (65), death or
Disability, he and/or his named beneficiaries, as the case may be, shall be
entitled to the benefits available through the Company sponsored plans and
programs designated for such category of termination on Schedule A. With regard
to the termination of the Executive's employment by reason of retirement on or
after the attainment of age sixty-five (65) or Disability, the Company shall pay
the premiums (to the same extent paid prior to the termination of employment)
for the continued participation of the Executive for a period of six (6) months
after the Date of Termination in any individual life insurance policy on the
same terms as the Executive and the Company were participating prior to the Date
of Termination. Further, with regard to the termination of the Executive's
employment by reason of the Executive's death, retirement on or after the
attainment of age sixty-five (65) or Disability, the Company shall, for a period
of six (6) months after the Executive's Date of Termination, pay the entire
COBRA premium under any Company medical and dental program that the Executive
(and his spouse and eligible dependents) was participating in prior to the
termination of employment. The Company's premium obligations in the preceding
two sentences shall exclude normal employee contributions paid by the Executive
prior to the Date of Termination. In addition to the foregoing, in the event of
termination of the Executive's employment by reason of the death or Disability
of the Executive, all unvested stock options held by the Executive shall become
fully vested, effective on the Date of Termination, and shall thereafter be
exercisable in accordance with the provisions of the applicable Option Plan
(including, without limitation, Sections 5 and 6 thereof) and Option Agreement.
(b) Termination by the Company for Cause and Voluntary
Termination by the Executive. If the Executive's employment shall be terminated
for Cause or voluntarily terminated by the Executive, the Company shall pay the
Executive the Accrued Obligations. The Executive shall be paid all such Accrued
Obligations in a lump sum in cash within thirty (30) days of the Date of
Termination and the Company shall have no further obligations to the Executive
under this Agreement, unless otherwise required by a Qualified Plan or specified
pursuant to a valid election to defer the receipt of all or a portion of such
payments made in accordance with any plan of deferred compensation sponsored by
the Company.
(c) Other Termination of Employment. If the Company
terminates the Executive's employment other than for Cause, death or Disability,
the Company shall pay and provide to the Executive the following:
(i) Severance Payment. The Company shall pay to
the Executive in a lump sum in cash or certified check within fifteen (15) days
after the Date of Termination a severance payment equal to the sum of the
following amounts (other than amounts payable from the Incentive Plan or
Qualified Plans, non-qualified retirement plans and deferred compensation plans,
which amounts shall be paid in accordance with the terms of such plans):
(A) all Accrued Obligations;
(B) a cash amount equal to six (6)
months of the Executive's Base Salary at the rate in effect as of the date when
the Notice of Termination was given;
(C) subject to the terms of the
Incentive Plan and further provided that the Executive has been employed by the
Company for the first six (6) months of the then applicable fiscal year, a cash
amount equal to a portion of the Incentive Bonus, the product of a fraction, the
numerator of which is the number of days elapsed since the date the Incentive
Plan began for the applicable fiscal year through the date of such Termination
or termination without Cause, and the denominator of which is the total number
of days of the applicable fiscal year for such Incentive Plan.
6
<PAGE> 9
In addition, if the Executive has not accepted employment from a subsequent
employer prior to the date which is seven (7) months from the Date of
Termination (the "Supplemental Payment Date"), commencing on the Supplemental
Payment Date the Company shall pay the Executive an amount equal to fifty
percent (50%) of his monthly Base Salary at the rate in effect as of the date
when the Notice of Termination was given in equal monthly installments until the
earlier of (i) the payment of the sixth (6th) monthly installment; or (ii) the
date of the Executive's acceptance of employment from a subsequent employer. The
Executive shall notify the Company immediately upon his acceptance of any such
new employment if secured prior to the payment by the Company of such six (6)
additional monthly installments.
(d) Release. As a condition precedent to the receipt of
any termination benefits payable to the Executive under this Section 7, the
Executive agrees to execute a general release among other things releasing the
Company from any obligation or liability (other than those contained in Sections
7, 8, 9, 10, 11, 13 and 14 hereof, to the extent an obligation under any such
section arose at or prior to the Date of Termination and remains unfulfilled).
Such release shall exclude the Executive's rights under any Qualified Plan.
(e) Discharge of Company's Obligations. Subject to the
performance of its obligations under Sections 7, 8, 9, 10, 11, 13 and 14 (and
then, only to the extent an obligation under any such section arose at or prior
to the Date of Termination and remains unfulfilled), the Company shall have no
further obligations to the Executive under this Agreement in respect of any
termination of employment.
8. Change of Control. Upon the occurrence of a Change of
Control, the Company shall pay the Executive, as consideration for assisting the
Company in bringing about a successful transaction, an amount equal to twelve
(12) months of the Executive's Base Salary at the rate in effect as of the
Change of Control Date. Such amount shall be payable in a lump sum in cash or
certified check within five (5) days after the Change of Control Date.
9. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company and
for which the Executive may qualify, nor shall anything herein limit or
otherwise prejudice such rights as the Executive may have under any other
agreements with the Company, including, but not limited to stock option
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company at or
subsequent to the Date of Termination shall be payable in accordance with such
plan or program.
10. Full Settlement. The Executive shall not be obligated
to seek other employment by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement.
11. Arbitration of Disputes. In the event that a claim
for payment or benefits under this Agreement is disputed, the Company and the
Executive agree to submit such dispute to final and binding arbitration with
United States Arbitration and Mediation, Inc. ("USAM") in Knoxville, Tennessee
or such other arbitration firm as the Company and the Executive shall mutually
agree. Either party wishing to arbitrate any claim hereunder shall notify the
other party and USAM in writing whereupon USAM shall select a neutral arbitrator
and shall schedule an arbitration hearing within thirty (30) days of receipt of
such notice of arbitration. The arbitration shall be conducted in accordance
with the rules and procedures of USAM. The parties agree that any arbitrator's
award may be presented to a court of competent jurisdiction and judgment entered
thereon.
7
<PAGE> 10
12. Confidential Information and Nonsolicitation.
(a) The Executive shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or
data, including without limitation all trade secrets, relating to the Company,
and its business, (i) obtained by the Executive during his employment by the
Company, and (ii) which is not otherwise publicly known (other than by reason of
an unauthorized act by the Executive) and is subject to efforts that are
reasonable under the circumstances to maintain its secrecy. After termination of
the Executive's employment with the Company, the Executive shall not, without
the prior written consent of the Company, unless compelled pursuant to an order
of a court or other body having jurisdiction over such matter, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it.
(b) Upon termination of the Executive's employment for
any reason, the Executive, for the twelve (12) month period following the Notice
of Termination, shall not, on his own behalf or on behalf of any person or
entity, directly or indirectly solicit or aid in the solicitation of any
employees of the Company to leave their employment. In the event the Executive
violates the terms of Section 12(a) or this Section 12(b), the Employee shall
forfeit the right to all salary and benefits that the Executive and/or his
family members were otherwise entitled pursuant to the terms of Section 7. Also,
in the event that this Section 12 is determined to be unenforceable in part, it
shall be construed to be enforceable to the maximum extent permitted by law.
(c) The Executive agrees that the covenants of
confidentiality and non-solicitation contained in this Section 12 are reasonable
covenants under the circumstances and necessary to protect the business
interests and properties of the Company. The Executive agrees that irreparable
loss and damage will be suffered by the Company should the Executive breach any
of the covenants contained in this Section 12. Accordingly, the Executive agrees
that the Company, in addition to all remedies provided at law or in equity,
shall be entitled to a temporary restraining order and temporary and permanent
injunctions to prevent a breach or contemplated breach of any of the covenants
contained in this Section 12.
13. Successors.
(a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors. The Company shall require any
successor to all or substantially all of the business and/or assets of the
Company, whether direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent as the Company would be
required to perform if no such succession had taken place.
14. Miscellaneous.
(a) Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Tennessee, applied
without reference to principles of conflict of laws.
(b) Amendments. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
8
<PAGE> 11
(c) Notices. All notices and other communications
hereunder shall be in writing and shall be given by hand delivery to the other
party, by overnight delivery or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive: at the address listed on the last
page hereof
If to the Company: Goody's Family Clothing, Inc.
400 Goody's Lane
P.O. Box 22000
Knoxville, Tennessee 37933-2000
Attention: General Counsel
(with a copy to the attention of the Secretary or to such other address as
either party shall have furnished to the other in writing in accordance
herewith). Communications delivered by hand or by overnight delivery shall be
deemed received on the date of delivery and communications sent by registered or
certified mail shall be deemed received three (3) business days after the
sending thereof.
(d) Tax Withholding. The Company may withhold from any
amounts payable under this Agreement such federal, state or local taxes as shall
be required to be withheld pursuant to any applicable law or regulation.
(e) Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(f) Captions. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect.
(g) Entire Agreement. This Agreement expresses the entire
understanding and agreement of the parties regarding the terms and conditions
governing the Executive's employment with the Company, and all prior agreements
governing the Executive's employment with the Company (including, without
limitation, the letter agreement dated November 4, 1998 between the Company and
the Executive) shall have no further effect; provided, however, that except as
specifically provided herein, the terms of this Agreement do not supersede the
terms of any grant or award to the Executive under any stock option or profit
sharing program of the Company except as specifically set forth in Section 7(a)
with respect to the vesting and exercisability of stock options.
9
<PAGE> 12
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name on its behalf, and
its corporate seal to be hereunto affixed and attested by its Secretary, all
effective as of the day and year first above written.
GOODY'S FAMILY CLOTHING, INC.
By: /s/ Harry M. Call
--------------------------------
Harry M. Call
Title: President and Chief
Operating Officer
ATTEST:
/s/ Regis J. Hebbeler
- --------------------------------
Title: Assistant Secretary
- --------------------------------
(CORPORATE SEAL)
EXECUTIVE: Keith J. Reichelderfer
/s/ Keith J. Reichelderefer
-----------------------------------
Name: Keith J. Reichelderfer
Address:
<PAGE> 13
SCHEDULE A - KEITH J. REICHELDERFER
The following is a summary list of benefits available to the Executive
upon termination of the Executive's employment by reason of retirement on or
after the attainment of age sixty-five (65), death or Disability through Company
sponsored plans and programs as of the date of this Agreement. Nothing herein
shall preclude the Company from amending, altering, suspending, discontinuing or
terminating any of such plans and programs in compliance with applicable law and
regulation.
<TABLE>
<CAPTION>
COVERAGE TYPE BENEFIT AMOUNT
AMOUNT
<S> <C> <C> <C>
Group Life Insurance -- Basic $200,000
High Option $200,000
Group Disability Insurance -- Basic 2 year $ 5,000
High Option $ 5,000
(benefit for 5 years)
</TABLE>
Coverage by group life and disability insurance policies terminates upon
termination of the Executive's employment for any reason, except death (in the
case of life insurance) and disability (in the case of disability insurance).
The Executive's beneficiaries are entitled to benefits under the group life
insurance policy if the Executive dies during the period he is receiving
disability payments as a result of such disability.
In addition, the Company has a 401(k) plan in which the Executive may
participate on a voluntary basis. Company contributions therein on his behalf
vest in accordance with the terms of the 401(k) plan, which provides that such
contributions become immediately vested in the event of death during the term of
employment. Upon termination for any reason, the Executive must withdraw his
vested funds by the end of the following fiscal quarter.
<PAGE> 1
EXHIBIT - 10.67
AMENDMENT TO
GOODY'S FAMILY CLOTHING, INC.
AMENDED AND RESTATED 1991 STOCK INCENTIVE PLAN
The Goody's Family Clothing, Inc. Amended And Restated 1991 Stock
Incentive Plan is hereby amended by adding the following section:
18. Change of Control
Notwithstanding anything contained to the contrary herein
but subject, however, to the provisions set forth in the fourth
paragraph of Section 4, upon the occurrence of a Change of
Control (as hereinafter defined) all Options granted under the
Plan that are outstanding and not yet vested will become
immediately 100% vested effective on a Change of Control Date (as
hereinafter defined) and shall be thereafter exercisable in
accordance with the terms of the Plan (including, without
limitation, as provided in Sections 5 and 6) and any applicable
award agreement; provided, however, that the foregoing shall not
apply to the extent that such acceleration of vesting shall make
a "pooling of interests" accounting unavailable in the case of a
Change of Control transaction which is intended to be effected as
a "pooling of interests" transaction.
A Change of Control of the Company shall mean and shall
be deemed to have occurred if any person or group (within the
meaning of Rule 13d-3 of the rules and regulations promulgated
under the Securities Exchange Act of 1934, as amended), other
than Robert M. Goodfriend, members of his immediate family, his
affiliates, trusts or private foundations established by or on
his behalf, and the heirs, executors or administrators of Robert
M. Goodfriend, shall acquire in one or a series of transactions,
whether through sale of stock or merger, more than 50% of the
outstanding voting securities of the Company or any successor
entity of the Company or the shareholders of the Company shall
approve a sale of all or substantially all of the Company's
assets or a complete liquidation or dissolution of the Company. A
Change of Control Date shall mean the closing date on which a
Change of Control of the Company shall have occurred, or in the
case of a sale of all or substantially all of the Company's
assets or complete liquidation or dissolution of the Company, the
date on which shareholder approval is obtained.
This Amendment was approved by the Board of Directors of Goody's Family
Clothing, Inc. on May 13, 1998.
<PAGE> 1
EXHIBIT - 10.68
AMENDMENT TO
GOODY'S FAMILY CLOTHING, INC.
1993 STOCK OPTION PLAN
The Goody's Family Clothing, Inc. 1993 Stock Option Plan is hereby
amended by adding the following section:
18. Change of Control
Notwithstanding anything contained to the contrary herein
but subject, however, to the provisions set forth in the fourth
paragraph of Section 4, upon the occurrence of a Change of
Control (as hereinafter defined) all Options and Formula Options
granted under the Plan that are outstanding and not yet vested
will become immediately 100% vested effective on a Change of
Control Date (as hereinafter defined) and shall be thereafter
exercisable in accordance with the terms of the Plan (including,
without limitation, as provided in Sections 5 and 6) and any
applicable Agreement; provided, however, that the foregoing shall
not apply to the extent that such acceleration of vesting shall
make a "pooling of interests" accounting unavailable in the case
of a Change of Control transaction which is intended to be
effected as a "pooling of interests" transaction.
A Change of Control of the Company shall mean and shall
be deemed to have occurred if any person or group (within the
meaning of Rule 13d-3 of the rules and regulations promulgated
under the Exchange Act), other than Robert M. Goodfriend, members
of his immediate family, his affiliates, trusts or private
foundations established by or on his behalf, and the heirs,
executors or administrators of Robert M. Goodfriend, shall
acquire in one or a series of transactions, whether through sale
of stock or merger, more than 50% of the outstanding voting
securities of the Company or any successor entity of the Company
or the shareholders of the Company shall approve a sale of all or
substantially all of the Company's assets or a complete
liquidation or dissolution of the Company. A Change of Control
Date shall mean the closing date on which a Change of Control of
the Company shall have occurred, or in the case of a sale of all
or substantially all of the Company's assets or complete
liquidation or dissolution of the Company, the date on which
shareholder approval is obtained.
This Amendment was approved by the Board of Directors of Goody's Family
Clothing, Inc. on May 13, 1998.
<PAGE> 1
EXHIBIT - 10.69
AMENDMENT TO
GOODY'S FAMILY CLOTHING, INC.
1997 STOCK OPTION PLAN
The Goody's Family Clothing, Inc. 1997 Stock Option Plan is hereby
amended by adding the following section:
18. Change of Control
Notwithstanding anything contained to the contrary herein
but subject, however, to the provisions set forth in the fourth
paragraph of Section 4, upon the occurrence of a Change of
Control (as hereinafter defined) all Options and Formula Options
granted under the Plan that are outstanding and not yet vested
will become immediately 100% vested effective on a Change of
Control Date (as hereinafter defined) and shall be thereafter
exercisable in accordance with the terms of the Plan (including,
without limitation, as provided in Sections 5 and 6) and any
applicable Agreement; provided, however, that the foregoing shall
not apply to the extent that such acceleration of vesting shall
make a "pooling of interests" accounting unavailable in the case
of a Change of Control transaction which is intended to be
effected as a "pooling of interests" transaction.
A Change of Control of the Company shall mean and shall
be deemed to have occurred if any person or group (within the
meaning of Rule 13d-3 of the rules and regulations promulgated
under the Exchange Act), other than Robert M. Goodfriend, members
of his immediate family, his affiliates, trusts or private
foundations established by or on his behalf, and the heirs,
executors or administrators of Robert M. Goodfriend, shall
acquire in one or a series of transactions, whether through sale
of stock or merger, more than 50% of the outstanding voting
securities of the Company or any successor entity of the Company
or the shareholders of the Company shall approve a sale of all or
substantially all of the Company's assets or a complete
liquidation or dissolution of the Company. A Change of Control
Date shall mean the closing date on which a Change of Control of
the Company shall have occurred, or in the case of a sale of all
or substantially all of the Company's assets or complete
liquidation or dissolution of the Company, the date on which
shareholder approval is obtained.
This Amendment was approved by the Board of Directors of Goody's Family
Clothing, Inc. on May 13, 1998.
<PAGE> 1
EXHIBIT - 10.70
MASTER TRANSPORTATION
AND DECONSOLIDATION AGREEMENT
THIS MASTER TRANSPORTATION AND DECONSOLIDATION AGREEMENT (the "Agreement") made
and entered into as of the 1st day of January, 1999 ("Effective Date") by and
between GOODY'S FAMILY CLOTHING, INC., a Tennessee corporation having an office
at Knoxville, TN, hereinafter called "Goody's", and STAR TRANSPORTATION, INC., a
Tennessee corporation having an office at Nashville, TN, hereinafter called
"Carrier" or "Star".
RECITALS
A. Carrier is engaged in the business of transporting property as
a motor contract carrier in interstate and intrastate
commerce. Carrier has certain rights to operate tractors and
trailers for transportation in interstate and intrastate
commerce. In conjunction with Carrier's transportation
business, Carrier owns and operates warehouse facilities.
B. Goody's desires to use the carrier's transportation services
to satisfy the special and distinct needs of Goody's as
hereinafter set forth.
C. The parties desire to provide for stable rates and Carrier
agrees to assume some of the transportation functions now
performed by Goody's
D. Carrier agrees to transport property for Goody's at certain
fixed prices as set forth herein.
AGREEMENT
Goody's and Carrier agree as follows:
1. TRANSPORTATION AND DECONSOLIDATION
A) TRANSPORTATION
i) Tractors and Trailers Carrier is the owner/operator
of tractors (individually a "Tractor" and collectively, the "Tractors")
and trailers (individually a "Trailer and collectively, the
"Trailers"). During the "Term" (as hereinafter defined)
<PAGE> 2
of this Agreement, Carrier shall provide Tractor-Trailer service to
Goody's on the terms and conditions contained in this Agreement,
including, without limitation, the terms described in the Goody's
Delivery Procedures" described in Exhibit "A". For purposes of this
Agreement, a Tractor-Trailer shall be referred to as "Unit". Carrier is
responsible at its expense, for maintaining and paying for any and all
costs associated with owning and operating the Units and the "Ramps"
(as hereinafter defined).
ii) Control Goody's shall have absolute control over the
pick-up and delivery dates of Goody's merchandise, the location of
origin of each route, the loading and unloading of Goody's merchandise
from the Trailers, the Goody's stores and the Goody's warehouses, the
route each Tractor must take, and the type of merchandise to be
delivered on the Trailers.
iii) Ramps In order to accommodate the freight docks at
Goody's stores, Carrier, at its own expense, has installed ramps on the
Trailers identified on Exhibit "B" attached hereto. The specifications
for the Ramps and the actual total cost and current fair market value
for the Trailers and Ramps are identified on Exhibit "B-1" attached
hereto. Carrier, at its own expense, shall purchase Trailers and
install new Ramps on Trailers to accommodate the ratio described in
Section 6 (a) of this Agreement. All Ramps shall have a full one (1)
year unconditional warranty (including all parts and labor) from the
date of installation. All Ramps shall be new equipment, it being
understood and agreed that Carrier shall not purchase or install used
or reconditioned Ramps after the Effective Date without the prior
written approval of Goody's, and upon the prior written consent.
B) DECONSOLIDATION
Deconsolidation.
----------------
Goody's, among other things, has the absolute control over the
pick-up and delivery dates of Goody's merchandise from the Goody's warehouse to
Goody's stores, the route each Unit must take and the type of merchandise to be
delivered on the Units. In order for Goody's to enhance its shipping and
operational needs, a certain amount of Goody's merchandise shall be
consolidated, packed and reshipped by Carrier from a facility owned and operated
by Carrier ("Carrier's Warehouse"), after pick-up and removal of such
merchandise from the Goody's distribution center located at 400 Goody's Lane,
Knoxville, Tennessee ("Goody's Distribution Center"). For purposes of this
Agreement, the process of consolidating, packing and reshipping Goody's
merchandise shall
<PAGE> 3
hereafter be referred to as "Deconsolidation" or the "Deconsolidation Process".
a) Procedures - Generally. At Goody's direction, Carrier
shall pick-up trailers containing cartons/merchandise from the
Distribution Center (such cartons/merchandise may be randomly selected
by Goody's). Immediately following the pick-up of such
cartons/merchandise at the Distribution Center, Carrier shall deliver
the units to Carrier's Warehouse, located at 1116 Polk Avenue in
Nashville, Tennessee 37210. Upon arrival at Carrier's Warehouse,
Carrier shall unload the cartons/merchandise in Carrier's Warehouse,
segregate such cartons/merchandise into certain categories for Goody's
stores (as designated by Goody's) and reload such cartons/merchandise
on the Trailers in sequential order as designated by Goody's (the
"Deconsolidated Merchandise"), to deliver the Deconsolidated
Merchandise to Goody's stores as directed by Goody's and finally, to
return the Trailers to a destination directed by Goody's.
b) Procedures - Specific. The parties agree to comply
with the rules, rights, obligations and procedures described in the
"Deconsolidation Procedures" attached hereto as Exhibit "C". Except for
the Deconsolidation Procedures, all other terms and conditions of
Goody's Delivery Procedures as described in Exhibit "A" shall remain in
full force and effect.
c) Transportation Claims, Loss and Damages. Goody's
shall supply Carrier with a "Shipping Log" at the time a Tractor
picks-up the cartons/merchandise from the Distribution Center, a form
copy of such Shipping Log is attached hereto as Exhibit "C-1". Carrier
shall be required to notify Goody's, in the time and manner described
in Paragraph 16 of the Deconsolidation Procedures, of any variances
between the number of cartons noted on the applicable Shipping Log and
the actual number of cartons counted in accordance with the
Deconsolidation Procedures. In the event Carrier fails to notify
Goody's of any such variances in the time and manner described in
Paragraph 16 of the Deconsolidation Procedures, Goody's shall have the
right to pursue (and Carrier shall have the obligation to pay) for any
damages (including, but not limited to, shortages) for such variance,
such damages to be processed and calculated in accordance with Section
13 of this Agreement.
d) Rates. Goody's shall pay Carrier in arrears a monthly
fee consisting of two (2) components: (i) $4,725.00 per month; and (ii)
a variable fee of $.28 per case/carton on two routes per trailer and
$.36 per case/carton on three routes per trailer.
e) Inspection and Audit. Goody's shall have the right to
inspect the Carrier's Warehouse and Units at any time to ensure
Carrier's compliance
<PAGE> 4
with the Deconsolidation Process and this Agreement. Goody's shall
likewise have the right, upon one (1) days notice, to review and/or
audit the books and records of Carrier relative to this Agreement and
the Transportation Agreement.
2. TERM OF AGREEMENT; EARLY TERMINATION
A) TERM OF AGREEMENT The term of this Agreement shall
commence on the 1st day of January, 1999, and shall
continue until December 31, 2000, ("Term") unless
sooner terminated pursuant to the terms hereof or by
mutual agreement.
B) EARLY TERMINATION Either party may terminate this
Agreement by giving the other party ninety (90) days
prior written notice (the "Termination Notice Date")
whereupon this Agreement shall be terminated ninety
(90) days after receipt of such notice by the
non-terminating party (the "Early Termination Date").
In the event Goody's elects to exercise this early
termination right prior to the natural expiration
date of the Term, then this Agreement shall terminate
on the Early Termination Date and Goody's shall pay
Carrier the "Equipment Purchase Price" (as hereafter
defined) on the Early Termination Date. Goody's has
no obligation to pay Carrier the Equipment Purchase
Price if: (i) Carrier elects to terminate this
Agreement; (ii) such termination is due to a default
of Carrier; or (iii) such termination occurs after
the natural expiration date of the Term.
3. CARRIER'S OPERATING AUTHORITY; REPRESENTATIONS
(a) Carrier shall at its own expense obtain and maintain
all operating licenses, authorities and permits required by
governmental authorities for the transportation services,
Deconsolidation Procedures and Carrier's Warehouses. Carrier represents
and warrants that it is authorized, pursuant to Permit Number MC-157677
(the "Permit"), Sub 2, issued to Carrier by the Interstate Commerce
Commission, hereinafter called the "ICC", to transport, as a motor
contract carrier, freight of all kinds, except household goods, Classes
A and B explosives, Commodities in Bulk and hazardous materials in
interstate commerce from, to or between all points and places in the
United States and to lawfully furnish to Goody's all of the
transportation and related services provided for herein.
(b) Carrier represents and warrants that Exhibit "D-1",
attached hereto, is a true, correct and complete copy of the said
Permit as of the Effective Date and that there are no outstanding
liens, claims, penalties, fines or infractions relative to such Permit
or Carrier's rights to such Permit.
<PAGE> 5
4. ALL SHIPMENTS UNDER CONTRACT
Whether or not Carrier is authorized to operate, or does operate, as a
common carrier, each and every shipment tendered to Carrier by Goody's on or
after the Effective Date shall be deemed to be a tender to Carrier as a motor
contract carrier and shall be subject only to the terms of this Agreement and
the provisions of law applicable to motor contract carriage hereunder.
5. RECEIPTS AND BILLS OF LADING
(a) Carrier shall issue and sign a receipt for each
shipment in the form required by Goody's and as
otherwise described in Goody's Delivery Procedures
and the Deconsolidation Process.
(b) If Goody's elects to use a bill of lading or other
form of freight receipt or contract for each
shipment, any terms, conditions or provisions of such
bill of lading or other form shall be subject and
subordinate to the terms of this Agreement and, in
the event of a conflict, this Agreement shall govern.
(c) Upon delivery of each shipment, Carrier shall obtain
a receipt from any Goody's consignee, in a form
required by Goody's, showing the goods delivered, the
condition of such goods and the date and time of
delivery.
6. CARRIER'S OPERATIONS AND OBLIGATIONS
(a) Carrier, at its sole cost and expense, shall furnish
all other supplies and equipment including, but not limited to, Units
required for its services hereunder and shall maintain such supplies,
and equipment in good repair and condition. Carrier shall maintain and
have available a ratio of 1.65 trailers per tractor. In the event
Goody's request Carrier to exceed the 1.65 ratio, Carrier shall invoice
Goody's weekly according to rates in Exhibit E attached hereto.
(b) Carrier, at its sole cost and expense, shall employ
for its services hereunder only competent, able and legally licensed
personnel (such personnel must be at least 21 years old). Such
personnel shall maintain a proper appearance (including a uniform) and
attitude. Carrier shall always maintain a dedicated pool of drivers
with specific training in Goody's loading, unloading and delivery
procedures. Carrier, at its expense, shall conduct a thorough criminal
and credit background check on all drivers of Tractors.
<PAGE> 6
(c) Without the prior written consent of Goody's, Carrier
shall not cause or permit any shipment tendered hereunder to be
transported by any other motor carrier or in "substituted service" by
railroad or other modes of transportation.
(d) Carrier shall provide and operate units of such
quality, design and construction as are required for shipment of
Goody's property hereunder. All Units (including Ramps) operated by
Carrier shall be repaired and maintained in good operating condition by
Carrier at Carrier's sole cost and expense.
(e) Carrier, at its sole cost and expense, will pay all
state and federal taxes, wages, license fees, unemployment compensation
insurance, pension, social security, and other taxes and assessments
with respect to all persons engaged by it in the performance of this
Agreement, including, without limitation, all management and
administrative expenses related to this Agreement.
(f) Carrier, at its expense, shall be responsible for
unloading Goody's merchandise at destinations designated by Goody's,
reloading Goody's merchandise for transfer to points designated by
Goody's or for loading/unloading Goody's merchandise for Carrier
back-haul requirements.
(g) Carrier, in addition to the terms and conditions of
this Agreement, shall fully comply with the Goody's Delivery
Procedures, and the Deconsolidation Procedures, and the Trailer Seal
Verification attached hereto as Exhibit "A".
(h) Carrier, at its sole cost and expense, shall pay all
fuel, fuel taxes, insurance, licenses, permits, tolls and highway use
taxes.
(i) Carrier shall strictly adhere to Goody's delivery
schedule and shall have replacement drivers available (if necessary)
within 3 hours of any problems with Carrier's designated drivers.
Carrier will make available and explain Goody's Delivery and
Deconsolidation Procedures, as well as, delivery windows.
(j) Carrier shall be responsible for scheduling a
quarterly review with Goody's Transportation Management and Star
Transportation's Senior Management to ensure adequate operational staff
and dedicated drivers are available to provide service for deliveries
to the current stores and the new stores.
<PAGE> 7
7. RATES AND CHARGES
As full compensation for the service provided by Carrier
hereunder, Goody's shall pay, without offset or deductions, in
accordance with the rates, charges, rules and regulations set forth
in this Agreement and Exhibit "E" attached hereto. In no case shall
the charges on any shipments hereunder exceed the charges agreed to
in the amounts listed on Exhibit "E" attached hereto, unless amended
in writing and signed by both parties. Each freight bill issued by
Carrier hereunder, if complete and correct, shall be paid by Goody's
not more than fifteen (15) days after receipt by Goody's. Interest
obligations shall be assessed if such freight bill received by Goody's
is overdue thirty (30) days after Goody's receipt of such invoice, at
which point all unpaid charges shall bear interest at the rate of
twelve percent (12%) per annum.
Goody's shall specify whether the charges for any shipment
hereunder shall be "prepaid" or "collect". Goody's may specify whether
the collection of charges from any consignee shall be without recourse
to Goody's, in accordance with the provisions of the Uniform Bill of
Lading as in effect on the Effective Date.
8. NO LIEN
Carrier shall have no lien on any shipment hereunder.
9. INDEPENDENT CONTRACTOR
In the performance of services under this Agreement, Carrier
and its employees are not agents or employees of Goody's; Carrier shall
perform the services hereunder only as an independent contractor.
Nothing herein shall cause either party to be deemed the agent,
representative, partner or joint venturer of the other, and neither
party shall be authorized to bind the other in any manner nor shall
either party represent itself to others to have such authority.
10. GOODY'S PURCHASE OBLIGATION
In the event Goody's elects to terminate this Agreement prior
to the natural expiration date of the Term, then, in such event,
Goody's, within fifteen (15) days of the Termination Notice Date, shall
designate an appraiser, at its expense, having at least five (5) years
experience in appraising tractor-trailers in Tennessee. Carrier, at its
expense, shall then appoint an appraiser with the minimum credentials
recited in the preceding sentence within fifteen (15) days after
receipt of Goody's notice that Goody's has appointed an appraiser. The
<PAGE> 8
two (2) appraisers shall immediately appoint a third appraiser with
such above stated minimum credentials and all three (3) appraisers
shall then appraise the then fair market value (as of the Early
Termination Date) of the Trailers listed on Exhibit B (including the
Trailers added by Carrier with Goody's prior written approval) and each
appraiser shall then render written appraisals to both Goody's and the
Carrier at least ten (10) days prior to the Early Termination Date. The
Trailers listed on Exhibit B, including the Trailers added by Carrier
with Goody's prior written approval shall be referred to as the
"Equipment". The third appraiser's fee shall be shared equally between
Carrier and Goody's.
In the event Carrier fails to appoint an appraiser, Goody's appraiser
shall be solely responsible for determining the fair market value of
the Equipment. In the event the three (3) appraisers are not able to
agree upon a fair market value, then the fair market value shall be
deemed to be the average of the two (2) closest appraisals. For
purposes of the Agreement, the "Equipment Purchase Price" shall be the
fair market value of the Equipment as determined by appraiser(s)
appointed in the manner described in this Section. The Equipment
Purchase Price shall be paid in full on the Early Termination Date.
Carrier agrees to cooperate with the appraisal process by providing
such information and documents to the appraisers as may be necessary to
evaluate the fair market value of the Equipment.
In exchange for Goody's payment of the Equipment Purchase Price for the
Equipment, Carrier shall deliver to Goody's on the Early Termination
Date: (i) a book value certificate for carrier's equipment as of the
Early Termination Date from Carrier's independent CPA firm regarding
the Equipment; (ii) an invoice for the Equipment Purchase Price for the
Equipment, itemizing each piece of Equipment; (iii) an executed
unconditional bill of sale wherein the Carrier: (x) lists all the
Equipment included in the Equipment Purchase Price and (y) represents
that it is the owner of such Equipment and that such Equipment is free
of all liens and encumbrances, and that all taxes and other fees have
been paid through the Early Termination Date; (iv) a written
certificate acknowledging that the Equipment is in good operating order
and condition, normal wear and tear excepted; and (v) a written
assignment of all warranties and guarantees applicable to the
Equipment.
11. INDEMNITY
Carrier shall defend, indemnify and hold harmless Goody's
(including Goody's officers, directors, executives, employees, agents
and related entities) from and against all loss, damage, judgment,
actions, cost and expense (including attorney fees and litigation
costs), claims for injury to or death of persons and damage to property
arising out of or in connection with Carrier's loading, handling,
<PAGE> 9
transportation, unloading or delivery of any shipment hereunder or
Carrier's use or operation of the Units (including, but not limited to,
damage to such Units) unless caused by Goody's. It is further
understood and agreed that Goody's shall not be deemed or held
responsible for any damage resulting to Carrier's Units property,
vehicles or personnel, including Carrier's employee-drivers or
independently contracted drivers. Carrier shall be held responsible for
any damage to a Goody's facility caused by the operation of the Units
provided loss is reported within 72 hours to Star.
12. INSURANCE
(a) Carrier shall provide and maintain, at its sole cost
and expense, (i) general liability insurance and auto
liability with a insurer reasonably satisfactory to
Goody's, insuring Carrier against liability and
claims for injuries to or death of persons and damage
to property, in a combined single unit of not less
than $5,000,000.00 per occurrence, and for loss or
damage to cargo, in an amount not less than
$250,000.00 and workers compensation insurance in
amounts required by the state or any other
governmental agency; and (ii) any additional
insurance required by applicable laws, rules and
regulations; (iii) property damage coverage of not
less than $5,000,000.00 for Goody's
cartons/merchandise while it is being processed by
Carrier during the Deconsolidation Process
(including, but not limited to, unloading,
deconsolidating or reloading at Carrier's Warehouse
or otherwise being stored at or around Carrier's
Warehouse); and (iv) third party fidelity insurance
coverage of not less than $500,000.00 and will be
increased when necessary, to include a minimum of
$250,000 per trailer for Goody's cartons/merchandise.
(Exhibit D)
(b) Goody's shall be named as an additional insured under
such policies. Such policies shall contain a waiver
of subrogation releasing Goody's from any and all
claims, (unless determined to be due to the
negligence of Goody's) expenses and damages subject
to the respective insurance contracts.
(c) Carrier shall furnish to Goody's, on or before the
Effective Date and throughout the Term of this
Agreement, a copy of each such insurance policies and
written certificates of insurance.
(d) If any policy is canceled or materially modified,
written notice thereof shall be given to Goody's at
least thirty (30) days in advance.
<PAGE> 10
13. FREIGHT LOSS OR DAMAGE
(a) For loss, damage, injury or delay of any shipment
hereunder while in the custody, possession or control
of Carrier, Carrier hereby assumes the equivalent
liability of a motor common carrier as provided in
Section 14706 of Title 49 of the United States Code
and 49CFR370 as in effect on the Effective Date.
(b) If any shipment hereunder or any part thereof is
lost, damaged, or destroyed, Carrier shall pay the
wholesale invoice to Goody's (as well as $.09 for
each item of apparel or related product which is
either lost, damaged or destroyed) for the goods
lost, damaged or destroyed while in the care,
custody, or control of the Carrier.
(c) Goody's shall notify Carrier of shortage or damage to
any shipment within ten (10) days after delivery of
shipment, with written claim for loss to be filed by
Goody's within six (6) months after delivery. Carrier
shall use its best efforts to amicably settle and
resolve such claim within thirty (30) days after
receipt of Goody's notice of claim.
(d) Any action at law to recover for such loss or damage
shall be instituted by Goody's against Carrier not
later than twenty-four (24) months after such loss or
damage.
14. OVERCHARGES AND UNDERCHARGES
(a) Any request for arbitration by Carrier to recover
undercharges hereunder, or by Goody's to recover
overcharges hereunder, shall be commenced no more
than six (6) months after Carrier's receipt of the
shipment with respect to which such undercharge or
overcharge is claimed to be due.
(b) The provisions of this Section shall survive the
cancellation, termination or expiration of this
Agreement.
15. DEFAULT; ARBITRATION
(a) Default. If either party shall fail to perform or
observe any of the obligations and covenants
contained herein and such failure continues for more
than ten (10) days after written notice from the
non-defaulting party (unless more than ten (10) days
shall be required because of the nature of the
default) then, in such event, the non-defaulting
party shall have the right to terminate this
Agreement by providing ten (10) days prior written
notice to the defaulting party and to exercise any
right or
<PAGE> 11
remedy now or hereafter existing in law, equity or by
statute. In the event Carrier's Permit is revoked,
canceled or suspended or if Carrier's insurance
coverage is canceled or materially modified, Goody's
shall have the right to terminate this Agreement
immediately, without notice.
(b) Arbitration. Any dispute, controversy or claim
arising out of or relating to the provisions of this
Agreement or the performance of the parties hereunder
shall be resolved by arbitration before a single
arbitrator chosen under American Arbitration
Association ("AAA") procedures. The arbitration
proceedings shall be held in Knoxville, Tennessee, or
at such other place as the parties and the arbitrator
agree, in accordance with the Commercial Arbitration
Rules of the AAA. An award rendered by an arbitrator
appointed hereunder shall be final and binding on the
parties, and shall be enforceable under the Tennessee
Uniform Arbitration Act and the United States
Arbitration Act. The parties shall each bear all of
their respective arbitration costs and expenses, and
shall equally share the costs, fees, and expenses of
the arbitrator and the AAA. Except for a suit to
enforce the confidentiality provisions of Section 19
hereof, the provisions of this Section 15(b) shall be
a complete bar and defense to any suit, action or
proceeding instituted in any court or before any
administrative tribunal with respect to any dispute,
controversy or claim hereunder. The arbitration
provisions contained herein shall, with respect to
any such dispute, controversy or claim, survive the
termination or expiration of this Agreement.
16. NOTICES
(a) Any notice by either party to this Agreement shall be
given by registered or certified mail, return receipt
requested, addressed to the other party as set forth
below or to such other place as the parties hereto
may hereafter designate.
(b) Alternatively, any such notice may be given by fax
that is confirmed by mail or by overnight courier.
If to Carrier: Star Transportation, Inc.
1116 Polk Avenue
Nashville, Tennessee 37210
Attn: Beth D. Franklin
Fax number: 615-256-1203
<PAGE> 12
If to Goody's: Goody's Family Clothing, Inc.
400 Goody's Lane
Knoxville, Tennessee 37933-2000
Attn: Bob Whaley
With a copy to: Goody's Family Clothing, Inc.
General Counsel
Fax number: 423-671-4601
17. ASSIGNMENT
The Agreement may not be assigned, in whole or in part, by
Carrier without the prior written consent of Goody's.
18. MODIFICATION OF AGREEMENT; WAIVER
(a) This Agreement supersedes all previous agreements and
no modification of this Agreement and understandings
by and between the parties hereto. No waiver of its
terms or provisions shall be valid or binding unless
in writing signed by both parties.
(b) No waiver or failure to enforce the provisions hereof
by Carrier shall operate as a future or continuing
waiver of terms and provisions hereof.
19. CONFIDENTIALITY
Except as required by law, the terms and conditions of this
Agreement and information pertaining to any shipment hereunder
shall not be disclosed by either party hereto to persons other
than its directors, officers, employees, agents, lenders,
creditors, attorneys, accountants and auditors, and
governmental agencies.
20. GOVERNING LAW
This Agreement shall be interpreted and construed in
accordance with the laws of the State of Tennessee.
21. EXISTING CONTRACT
The parties have executed a Master Transportation Agreement
dated July 25, 1995 (the "MTA") and thereafter executed a
First Amendment to the Master Transportation Agreement on
September 23, 1998 (the "First MTA"). The
<PAGE> 13
MTA and the First MTA are hereafter jointly referred to as the
MTA. Concurrent with the Effective Date of this Agreement, the
MTA shall automatically terminate and become null and void.
Notwithstanding the termination of the MTA, each party
reserves any and all claims for unpaid obligations payable (or
claims) under the MTA through the Effective Date, it being
further understood and agreed that the confidentiality
indemnity and insurance rights and obligations in the MTA
shall survive the termination of the MTA.
IN WITNESS WHEREOF, this Agreement has been signed by the authorized
representative of Goody's and Carrier to be effective as of the date shown in
the opening paragraph of this Agreement.
GOODY'S CARRIER
GOODY'S FAMILY CLOTHING, INC. STAR TRANSPORTATION, INC.
By: /s/ Michael R. Bryant By: /s/ Beth D. Franklin
----------------------------------- -------------------------
Title: Director Distribution & Traffic Title: President, CEO
-------------------------------- -------------------------
Date: 2/1/99 Date: 2/3/99
-------------------------------- -------------------------
<PAGE> 1
EXHIBIT 11
GOODY'S FAMILY CLOTHING, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net earnings for the year.............................. $27,687,000 $33,286,000 $17,151,000
----------- ----------- -----------
Weighted average common shares outstanding ............ 33,155,000 32,548,000 32,264,000
Common equivalent shares for outstanding stock
options.............................................. 1,112,000 1,126,000 304,000
----------- ----------- -----------
Weighted average common and common equivalent shares
Outstanding ......................................... 34,267,000 33,674,000 32,568,000
----------- ----------- -----------
Earnings per common share
Basic................................................ $ 0.84 $ 1.02 $ 0.53
=========== =========== ===========
Diluted.............................................. 0.81 0.99 0.53
=========== =========== ===========
</TABLE>
Earnings per share and related data for the fiscal years 1997 and 1996 have been
restated to reflect a two-for-one stock split effected in July 1998.
<PAGE> 1
1998
Annual Report
[Woman in Goody's apparel]
<PAGE> 2
Financial Highlights
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Sales $1,091,084 $971,923 $819,056
Gross profit 287,295 265,157 209,372
Earnings before income taxes 44,158 53,386 27,442
Net earnings 27,687 33,286 17,151
Earnings per common share 0.81 0.99 0.53
Stores open at year end 257 223 203
</TABLE>
[Woman in Goody's apparel]
[Five year graphical presentation of Sales,
Earnings per Common Share, Shareholders'
Equity and Number of Stores.]
<PAGE> 3
[Little girl in Goody's apparel]
Table of Contents
Annual Report
1998
<TABLE>
<CAPTION>
<S> <C>
Company Profile ......................... 2
Letter to our Shareholders .............. 3
Being in the Right Places ............... 9
Having the Right Mix .................... 11
Knowing the Right People ................ 12
Doing the Right Things .................. 13
Financial Review ........................ 14
Selected Financial Data ................. 31
Board of Directors and Officers ......... 32
Shareholder
and Investor Information ................ 33
</TABLE>
<PAGE> 4
[Exterior of Goody's store front]
Company Profile
Goody's Family Clothing, Inc., headquartered in Knoxville, Tennessee, is a
retailer of moderately priced apparel for women, men and children. As of January
30, 1999, the Company operated 257 stores in Alabama, Arkansas, Florida,
Georgia, Illinois, Indiana, Kentucky, Mississippi, Missouri, North Carolina,
Ohio, South Carolina, Tennessee, Texas, Virginia and West Virginia.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of the Company. Management has
endeavored in its communications, in this Annual Report and in its Annual Report
on Form 10-K to highlight the trends and factors that might have an impact on
the Company and the industry in which the Company competes. Any "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which generally can be identified by the use of forward-looking terminology such
as "may," "will," "expect," "estimate," "anticipate," "believe," "target,"
"plan," "project" or "continue" or the negatives thereof or other variations
thereon or similar terminology, are made on the basis of management's plans and
current analysis of the Company, its business and the industry as a whole. These
statements appear in the "Letter to our Shareholders," in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Annual Report and include statements regarding the intent,
belief or current expectations of the Company, its directors or its officers
with respect to, among other things: (i) weather conditions; (ii) the timely
availability of 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 and (xiii) the
Company's business and growth strategies. Readers are cautioned that any such
forward-looking statement is not a guarantee of future performance and involves
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statement as a result of various factors.
The Company does not undertake to publicly update or revise its forward-looking
statements even if experience or future changes make it clear that any projected
results expressed or implied therein will not be realized.
2
<PAGE> 5
Letter to our Shareholders
To Our Shareholders:
1998 was an unusual year for Goody's Family Clothing, one marked by
extraordinary successes--yet tempered with unexpected disappointments. During
the first half of 1998, we achieved outstanding gains in market share, with a
comparable store sales increase of 6.9 percent, and an increase in earnings per
share of 52 percent. These results represented hard-won positive momentum that
began in early 1996 with a business plan we designed and implemented to improve
the profitability of our Company.
With the successes we enjoyed in 1996, 1997 and the first half of 1998,
we were aggressive with our second half 1998 sales plan and associated inventory
purchases. But unusually warm weather in our markets during the second half of
1998 caused a substantial shortfall in sales for the fall/winter season. As
sales declined, inventories built, effectively shutting down our ability to
freshen our merchandise mix with new purchases as we would normally do, and
forcing us to take large markdowns to sell excess merchandise. Accordingly, our
results for the second half of 1998 and, consequently, the full year were weaker
than planned.
Sales for 1998 of $1.091 billion surpassed 1997 sales of $971.9 million
by more than 12 percent while comparable store sales increased 0.5 percent. Net
earnings for the year were $27.7 million and earnings per share were $0.81
compared to net earnings of $33.3 million and earnings per share of $0.99 in
1997. Clearly these results did not meet our high expectations for the year. Yet
even with these disappointing results, our net earnings have grown--using 1995
as the base year--at a compound annual rate of approximately 36 percent for the
last three years, including 1998.
[Facial portrait of woman]
[Facial portrait of man]
[Facial portrait of child]
[Facial portrait of teenager]
3
<PAGE> 6
[Portrait of Harry M. Call and Robert M. Goodfriend]
Harry M. Call
President
and Chief
Operating
Officer
Robert M.
Goodfriend
Chairman of
the Board
and Chief
Executive
Officer
4
<PAGE> 7
[Facial portrait of woman]
[Facial portrait of woman]
Letter to our Shareholders
We learned valuable lessons from the difficulties we experienced during
the second half of 1998 and have already begun implementing changes to our core
merchandising and operating strategies to improve our performance for 1999.
Among these are plans to:
- - Grow the store base at approximately 12 percent per year;
- - Budget comparable store sales growth more conservatively and uniformly
from both a financial and merchandise perspective;
- - Improve merchandise margins and gross margin return on investment by
strategically reducing inventories and increasing inventory turns and
emphasizing higher margin products;
- - Slow the planned growth of our private label programs while focusing
instead on maximizing their margin potential;
- - Introduce new product lines, staying attuned to the needs and
expectations of our shoppers by increasing our assortments in
accessories and gifts and adding additional brands to our merchandise
mix and
- - Bring in-house our leased shoe operation during the first quarter of
fiscal 2000.
Without a doubt, the number one factor in our future success is having
the right merchandise to appeal to our value-conscious customers. Our
merchandise mix has evolved to include a wider assortment of
accessories and gifts, a category that was very profitable for the
Company in 1997 and even more so in 1998. We are also listening closely
to our customers and making subtle shifts in our approach to
merchandising. For example, through a series of focus group studies in
several markets last year, our customers told us they'd like to see a
younger attitude in our misses department. Our merchants have responded
by adding new brands such as Villager, and by emphasizing younger
styles in casual
[Lifestyle photo of young boy]
5
<PAGE> 8
Letter to our
Shareholders
[Facial portrait of woman]
and careerwear purchased from existing vendors. We have also added a new vice
president and divisional merchandise manager position to oversee the dress
department and further develop our petite and plus size businesses. In the
children's department, we are focusing more on enhancing our selection of
popular brands such as Bugle Boy, Carter and My Michelle, and adding more
fashion to the children's merchandise mix.
One of our Company's greatest strengths is our commitment to growth and
expansion. During 1998, we recorded $22.9 million in capital expenditures,
primarily for the opening of new stores and the relocating and remodeling of
selected existing stores. We opened 36 new stores, increasing our store base by
more than 16 percent and reaching beyond our traditional Southeastern and
Midwestern boundaries by adding our first stores in the state of Texas, in the
communities of Longview and Tyler. We also took advantage of opportunities to
expand our presence in key existing markets including Nashville, Tennessee;
Logan, West Virginia; Paragould, Arkansas; Mobile, Alabama and Kokomo, Indiana.
While growing our store base is important, we also take pride in our existing
locations and have invested substantially in a chainwide store update program,
making Goody's stores consistent with the modernized interior design we
introduced in 1996 with our entry into metropolitan Atlanta, Georgia. In fact,
we relocated or remodeled 10 stores last year, and since 1997 our store
development team has refixtured more than 150 stores.
While we had a difficult 1998, we remain confident in our business
strategies and outlook. Our goal as we look to 1999 and beyond is still to
improve the long-term profitability of the Company. To accomplish this we will
endeavor to increase our comparable store sales; expand our store base by
approximately 12 percent each year; improve merchandise margins and gross margin
return on investment and leverage our selling, general and administrative
expenses through new and comparable store sales growth and aggressive expense
management.
Capital expenditures for 1999 are estimated to be $40 million, most of
which will be allocated to the opening of approximately 30 to 35 new stores and
the relocation or remodeling of approximately 24 stores. A portion of our
capital expenditures
6
<PAGE> 9
Letter to our
Shareholders
[Facial portrait of woman]
budget will be directed to technology improvements, enhancements in our
distribution center and for general corporate purposes. Our balance sheet
remains strong, with virtually no long-term debt and we are in a good position
to fund the Company's planned growth with internally generated funds.
Additionally, we have a $130 million unsecured revolving line of credit
available through May 2001.
[Facial portrait of man]
Notwithstanding the disappointing results we recorded in the last half
of 1998, the progress we have made in improving the overall profitability of
Goody's in the last three years reaffirms our belief in our core business
strategies. In the critical areas of merchandising, operations and finance, we
are confident that we have the strategies and management in place to enhance the
Company's profitability for the fiscal year 1999 and beyond.
[Facial portrait of woman]
Since Goody's went public seven years ago, we have worked hard to build
a Company of which we can all--our customers, associates and shareholders
alike--be proud. We've encountered obstacles along the way, but with the
commitment and hard work of more than 8,200 associates, we are surpassing old
goals and setting new ones every day. At Goody's we believe that vision, sound
business strategies, high standards and perseverance will assure our Company's
long-term success.
[Facial portrait of woman]
As always we appreciate your support and look forward to your continued
interest in Goody's Family Clothing.
[Lifestyle photo of three women]
Sincerely,
/s/ Robert M. Goodfriend
Robert M. Goodfriend
Chairman of the Board and
Chief Executive Officer
/s/ Harry M. Call
Harry M. Call
President and
Chief Operating Officer
7
<PAGE> 10
[Lifestyle photo of woman]
[Southeastern and Midwestern map of United States with store locations
indicated]
Existing Stores [with color coded dots]
New Stores [with color coded dots]
Proposed Stores [with color coded dots]
As of January 30, 1999, the Company operated 257 stores in 16 states.
<TABLE>
<S> <C> <C> <C>
ALABAMA (30) ARKANSAS (10) - Athens - Rome
- - Alexander City - Batesville - Atlanta (7) - Savannah
- - Athens - Benton - Augusta (2) - Statesboro
- - Bessemer - Fayetteville - Bainbridge - St. Mary's
- - Birmingham (7) - Ft. Smith - Blue Ridge - Swainesboro
- - Cullman - Hot Springs - Brunswick - Thomasville
- - Dothan - Jonesboro - Canton - Tifton
- - Florence - Paragould - Carrollton - Valdosta
- - Fort Payne - Rogers - Cartersville - Waycross
- - Gadsden - Russellville - Centerville
- - Huntsville (2) - Searcy - Conyers ILLINOIS (1)
- - Jasper - Cordele - Carbondale
- - Mobile (2) FLORIDA (7) - Covington
- - Montgomery - Ft. Walton Beach - Cumming INDIANA (13)
- - Opelika - Gainesville (2) - Dalton - Bedford
- - Prattville - Lake City - Douglasville - Bloomington
- - Scottsboro - Palatka - Dublin - Columbus
- - Selma - Panama City - Gainesville - Jasper
- - Sylacauga - Tallahassee - Griffin - Kokomo
- - Talladega - Hinesville - Linton
- - Thomasville GEORGIA (42) - LaFayette - Marion
- - Troy - Albany - LaGrange - New Castle
- - Tuscaloosa - Alpharetta - Milledgeville - Princeton
- Newnan
</TABLE>
8
<PAGE> 11
Success is:
Being in the
Right
Places
Selecting the right locations for our stores is a key element of our competitive
strategy. Our real estate team looks for opportunities to locate in communities
where Goody's can be a primary retailer of moderately priced family clothing,
and where we can be an anchor tenant in a high traffic strip or power center.
Most often, the best real estate opportunities lie in small communities with
populations of fewer than 100,000 people. Real estate costs in such areas are
often lower than in large cities and there tends to be less competition. While
we have traditionally opened stores in the Southeastern and Midwestern part of
the United States, last year we began to expand beyond these boundaries by
adding our first two stores in Texas, in the communities of Longview and Tyler.
This year we expect to continue our Texas expansion with planned locations in
Nacogdoches, Paris, Conroe and Texarkana. Oklahoma and Louisiana are also
targeted states for new Goody's stores. Four stores are planned for Oklahoma
this year including one each in Ada, Ardmore, Enid and Stillwater. We expect to
open our first store in Louisiana in the fall of 1999 in Lake Charles.
[Southeastern and Midwestern map of United States with store locations
indicated]
<TABLE>
<S> <C> <C> <C> <C> <C>
- - Richmond - Owensboro NORTH - Sanford SOUTH TENNESSEE (44)
- - Seymour - Paducah CAROLINA (36) - Shelby CAROLINA (15) - Athens
- - Shelbyville - Pikeville - Albemarle - Smithfield - Aiken - Chattanooga (3)
- - Vincennes - Richmond - Asheville (2) - Southern Pines - Anderson - Clarksville
- Shelbyville - Boone - Spindale - Camden - Cleveland
KENTUCKY (24) - Somerset - Burlington - Statesville - Conway - Columbia
- - Bowling Green - Winchester - Charlotte (3) - Sylva - Florence - Cookeville
- - Campbellsville - Fayetteville - Waynesville - Greenville - Crossville
- - Corbin MISSISSIPPI (7) - Goldsboro - Wilkesboro - Greenwood - Dayton
- - Danville - Columbus - Greenville - Wilmington - Myrtle Beach - Dickson
- - Elizabethtown - Corinth - Henderson - Wilson - North Augusta - Dyersburg
- - Frankfort - Hattiesburg - Hickory - Orangeburg - Farragut
- - Glasgow - Meridian - High Point OHIO (6) - Rock Hill - Franklin
- - Hazard - Oxford - Jacksonville - Athens - Spartanburg(2) - Gallatin
- - Henderson - Pascagoula - Kinston - Chillicothe - Sumter - Greeneville
- - Lexington - Tupelo - Laurinburg - Portsmouth - Taylors - Jackson
- - London - Lexington - St. Clairsville - Johnson City
- - Madisonville MISSOURI (3) - Morganton - Steubenville - Kimball
- - Maysville - Cape Girardeau - Mt. Airy - Zanesville - Kingsport
- - Middlesboro - Rolla - Murphy - Knoxville(5)
- - Morehead - Sikeston - New Bern
- - Mt. Sterling - Roanoke Rapids
- - Nicholasville - Rocky Mount
- Salisbury
- - LaFollette VIRGINIA (10)
- - Lebanon - Bristol
- - Lenoir City - Charlottesville
- - Martin - Christiansburg
- - Maryville - Lynchburg
- - McMinnville - Martinsville
- - Morristown - Norton
- - Murfreesboro - Roanoke(2)
- - Nashville (2) - Staunton
- - Newport - Wytheville
- - Oak Ridge
- - Rockwood WEST
- - Rogersville VIRGINIA (7)
- - Sevierville - Beckley
- - Springfield - Charleston
- - Sweetwater - Clarksburg
- - Tullahoma - Logan (2)
- - Union City - Nitro
- Parkersburg
TEXAS (2)
- - Longview
- - Tyler
</TABLE>
9
<PAGE> 12
[Two women shopping at Goody's]
10
<PAGE> 13
Success is:
Having the
Right Mix
[Portrait of man]
The brands. The style. The selection. The prices. Combine these things
and you'll see what makes Goody's a standout in the crowded retail apparel
market. Goody's stores offer shoppers a dependable selection of popular brands
in the fresh updated styles of the season. Plus, exclusive private label
collections add to the drawing power of our national brands by providing
shoppers with high-quality designer inspired fashions at exceptional prices.
Having the right merchandise--at the right time--is key to maintaining
our position as a leading provider of family apparel in our markets. Using
information from automatic replenishment programs, detailed daily sales reports,
consumer research, customer satisfaction surveys and on-going feedback from
store associates, we have made considerable progress in developing a merchandise
mix that meets the tastes and expectations of our customers.
[Portrait of man] [Display of shoes]
Accessories, a fashion-driven category which represented only 2.5
percent of the Company's total sales in 1995, has been successfully expanded to
include decorative home accessories such as candles, picture frames and many
other gift and novelty items. In 1998 accessories and gifts, now one of the
Company's most profitable categories, accounted for $51 million or 4.7 percent
of total sales.
[Portrait of woman]
We've also expanded our fashion assortments, offering our customers
important new brands to meet their casual and career apparel needs. Much
sought after national apparel brands such as Villager, and Dockers by Levi
Strauss, have been a big hit with shoppers since we rolled them out to all of
our stores last year. Both of these brands have tremendous leverage with
value-conscious shoppers and strengthen the appeal of Goody's to consumers in
the communities where we operate stores.
[Display of handbags] [Portrait of woman]
During 1999, our merchandise mix will continue to evolve. Goody's
merchants will be focusing efforts on improving our misses department by adding
fashions with a younger attitude to meet the needs of women ages 25 to 35. Plus,
in an effort to provide our shoppers with better footwear brands and selection,
we have appointed a new vice president, divisional merchandise manager to
oversee the development of our shoe business, currently a leased operation that
we expect to bring in-house at the beginning of fiscal 2000.
[Portrait of baby]
11
<PAGE> 14
Success is:
Knowing the
Right People
In 1953 when Mike Goodfriend opened the first Goody's store, then
called Athens Outlet, he understood that to be successful he had to associate
himself and his Company with good people. As he built his business during the
60s and 70s, he held fast to this philosophy. Today, a few of Mr. Goodfriend's
early associates--plus thousands more good people still contribute to Goody's
success.
The Company's tradition of hiring positive, success oriented people,
and then recognizing and rewarding their accomplishments has inspired many
associates to make Goody's their career choice.
To attract and hire the best associates, Goody's offers a competitive
compensation package that includes health and dental insurance along with a
401(k) retirement plan to all eligible associates. In addition, assistant store
managers, store managers and district managers are eligible for performance
incentives based on their store's productivity, inventory shrinkage, expense
control and other standards.
Every fall the Company honors its top performing store and district
managers for their contributions during the prior fiscal year. In September
1998, Goody's recognized 36 management level associates for their outstanding
performance during 1997.
[Portrait of Jim Ewing]
Jim Ewing
1998 Retail District
Manager
of the Year
Among those honored last year was Jim Ewing, a 12-year Goody's veteran
and District Manager of 11 stores in Kentucky and Tennessee. Named Retail
District Manager of the Year in 1998 for his district's aggressive efforts to
improve the profitability of the Company during fiscal 1997, the stores in
Ewing's district contributed more than $7.1 million in operating profit to the
Company, making it the most profitable district in the chain.
[Portrait of James Freeman]
James Freeman
1998 Retail
Store Manager
of the Year
James Freeman, who joined Goody's five years ago with almost
20 years of retail experience, manages the Company's Kennesaw, Georgia store,
one of the highest volume and most challenging stores in the chain. Last year
Freeman was named Retail Store Manager of the Year, not only for his store's
remarkable sales performance in 1997, but also for its skillful inventory
shrinkage control and on-going commitment to community service.
Jim Ewing and James Freeman are just two of the people at Goody's who
exemplify the character, dedication and commitment that make our Company
special. We hire the best--and that means we have a little something extra to
offer our shoppers. More than just friendly faces in a check-out lane, our
associates are enthusiastic, take pride in their stores, and work hard every day
to make Goody's not only a great place to shop, but also a valued part of the
community.
12
<PAGE> 15
[Lifestyle photo of young woman]
Success is:
Doing the
Right Things
Helping others is as much a part of Goody's corporate culture as
selling clothing. With a special focus on improving the quality of life for kids
in our communities, Goody's has developed a long-term partnership with the
Children's Miracle Network and its affiliated children's hospitals, a
relationship that has generated more than $1.2 million for these hospitals in
the last two years.
At the local level, store associates have enthusiastically sought
organizations with which to develop fund-raising partnerships that benefit kids.
Every store in the chain gets involved. In Georgia, stores joined forces with
the Georgia Council on Child Abuse in a month-long fundraiser in July 1998 that
raised $68,000 for the organization.
In Dayton, Tennessee, Goody's store manager, Allene Nations, and her
associates raised more that $27,000 for Spring City Foursquare Needy Children's
Program during the store's 1998 Fourth of July Blowout festivities; and in
Bowling Green, Kentucky, store associates raised $17,000 for the American Red
Cross during Labor Day weekend. By the end of 1998 Goody's store associates
raised nearly $1 million for organizations serving the needs of children and
families.
At home in Knoxville, Tennessee, the Company's corporate office
provides on-going support to more than 30 local charities, including, among
others, the Boys and Girls Clubs of Greater Knoxville; Florence Crittenton
Agency; Junior Achievement of East Tennessee; Knox Area Urban League; the
National Conference of Community and Justice; Remote Area Medical Foundation's
Mobile Dental Unit; United Negro College Fund and United Way.
[Portrait of Allene Nations]
Allene Nations
Store Manager
1998 Community
Service Award
Winner
Community involvement isn't just an afterthought at Goody's, it is an
important facet of our overall approach to doing business. We encourage and
reward our associates for their contributions to their individual communities.
Allene Nations, former manager of our Dayton, Tennessee store was presented
Goody's 1998 Community Service award for her store's tireless work on behalf of
children in the Dayton community.
At Goody's we use the word "value" a lot. To us, giving value to our
customers means not only providing them with quality merchandise, great prices
and friendly service, it means really being a part of, and giving back to, the
communities we serve.
13
<PAGE> 16
Management's Responsibility for Financial Reporting
Management is responsible for the integrity and objectivity of all
financial information presented in this Annual Report. The consolidated
financial statements included herein have been prepared in accordance
with generally accepted accounting principles and include, where
necessary, the best estimates and judgments of management.
In fulfilling its responsibility for the reliability of financial information,
management has developed and maintains accounting systems and procedures
appropriately supported by internal accounting controls. Such controls include
the selection and training of qualified personnel, an organizational structure
providing for appropriate division of responsibility, communication of approved
accounting, control and business practices and a program of internal audit.
Although no system of internal accounting controls can ensure that all errors
or irregularities have been eliminated, management believes that the controls
in place provide reasonable assurance, at reasonable cost, that assets are
safeguarded against loss from unauthorized use or disposition, that
transactions are executed in accordance with management's authorization and
that the financial records are reliable for preparing financial statements. The
consolidated financial statements of the Company have been audited by Deloitte
& Touche LLP, the Company's independent auditors. Their report, which appears
below, is based on their audits conducted in accordance with generally accepted
auditing standards.
The Audit Committee of the Board of Directors, consisting solely of outside
directors, serves in an oversight role to assure the integrity and objectivity
of the Company's financial reporting process. The Audit Committee is
responsible for recommending to the Board of Directors the selection of
independent auditors. It also meets periodically with management and the
independent and internal auditors to assure that they are carrying out their
responsibilities. The independent and internal auditors have full and free
access to the Audit Committee and meet with it periodically with and without
management's presence.
Independent Auditors' Report
To the Board of Directors and Shareholders of Goody's Family Clothing, Inc.
We have audited the accompanying consolidated balance sheets of Goody's Family
Clothing, Inc. and subsidiaries as of January 30, 1999 and January 31, 1998 and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three fiscal years in the period ended January 30,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Goody's Family Clothing, Inc.
and subsidiaries as of January 30, 1999 and January 31, 1998 and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended January 30, 1999 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 17, 1999
14
<PAGE> 17
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Fourth Quarter Fiscal 1998 Compared with Fourth
Quarter Fiscal 1997
The following table sets forth the Company's unaudited results of
operations for the periods indicated (in thousands except per share amounts):
<TABLE>
<CAPTION>
Fourth Quarter 1998 Fourth Quarter 1997
--------------------- ---------------------
<S> <C> <C> <C> <C>
Sales $363,546 100.0% $334,752 100.0%
Cost of sales and occupancy expenses 279,861 77.0 244,776 73.1
Gross profit -------- ----- -------- -----
83,685 23.0 89,976 26.9
Selling, general and administrative expenses 71,683 19.7 62,680 18.7
Earnings from operations -------- ----- -------- -----
12,002 3.3 27,296 8.2
Interest expense 255 0.0 172 0.1
Investment income 826 0.2 645 0.2
-------- ----- -------- -----
Earnings before income taxes 12,573 3.5 27,769 8.3
Provision for income taxes 4,579 1.3 10,494 3.1
-------- ----- -------- -----
Net earnings $ 7,994 2.2% $ 17,275 5.2%
======== ===== ======== =====
Earnings per common share
Basic $ 0.24 $ 0.53
======== ========
Diluted $ 0.24 $ 0.51
======== ========
Weighted average common shares outstanding
Basic 33,331 32,696
======== ========
Diluted 33,895 33,934
======== ========
</TABLE>
Overview In the fourth quarter of fiscal 1998, the Company opened 11 new
stores and relocated two stores, bringing the total number of stores
in operation at January 30, 1999 to 257, compared with 223 at January
31, 1998. In the fourth quarter of fiscal 1997, five new stores were
opened, one store was relocated and five stores were remodeled. Net
earnings were $7,994,000, or 2.2% of sales, in the fourth quarter of
fiscal 1998 compared with $17,275,000, or 5.2% of sales, in the fourth
quarter of fiscal 1997.
Sales Sales for the fourth quarter of fiscal 1998 were $363,546,000, an 8.6%
increase over the $334,752,000 for the fourth quarter of fiscal 1997.
This increase of $28,794,000 consisted of additional sales from new and
transition stores of $42,867,000 which was offset by a 4.7% decrease in
comparable store sales of $14,073,000 compared with the corresponding
period of the previous fiscal year. The Company believes the unusually
warm weather that prevailed in the Company's markets during November
and the first half of December followed by ice and snow storms two days
prior to Christmas were the primary reasons for the depressed sales
during the quarter. Sales for the fourth quarter of 1998 were also
impaired by lower merchandise prices as discussed below. See "Gross
Profit."
Gross profit Gross profit for the fourth quarter of fiscal 1998 was
$83,685,000, or 23.0% of sales, a $6,291,000 decrease compared with the
$89,976,000, or 26.9% of sales, in gross profit generated for the
fourth quarter of the previous fiscal year. The 3.9% decrease in gross
profit, as a percent of sales, in the fourth quarter of fiscal 1998
compared with the fourth quarter of fiscal 1997 primarily consists of
(i) a 3.6% increase in cost of sales and (ii) a 0.3% increase in
occupancy costs which were not leveraged due to the shortfall in
comparable store sales. The increase in cost of sales resulted from the
implementation of an aggressive merchandise pricing and promotional
strategy in December 1998 in an effort to liquidate higher than planned
inventories at the end of November 1998. Due to its overstocked
position, the Company was further hampered from buying new merchandise
to replenish merchandise that was selling well during the fourth
quarter.
Selling, general and administrative expenses Selling, general and administrative
expenses for the fourth quarter of fiscal 1998 were $71,683,000, or
19.7% of sales, an increase of $9,003,000 from $62,680,000, or 18.7% of
sales, for the fourth quarter of fiscal 1997. The 1.0% increase in
selling, general and administrative expenses, as a percent of sales, in
the fourth quarter of fiscal 1998 compared with the fourth quarter of
fiscal 1997 resulted primarily from an increase of (i) 1.1% in
advertising and promotional expenses resulting primarily from the
implementation of the aggressive merchandise pricing and promotional
strategy mentioned above, (ii) 0.6% in professional fees and (iii) 0.2%
from a charge for the impairment of certain poorly performing stores'
property and equipment. These increases were offset by (i) a decrease
of 0.8% in bonus expenses related to the Company's Short-Term Incentive
Plan and other bonus plans and (ii) a net decrease of 0.1% in other
selling, general and administrative expenses, for the fourth quarter of
fiscal 1998 compared with the fourth quarter of fiscal 1997.
15
<PAGE> 18
Management's Discussion and Analysis (continued)
Interest expense Interest expense for the fourth quarter of fiscal 1998
increased by $83,000 compared with the fourth quarter of fiscal 1997.
This net increase consists of a $116,000 increase in the interest
expense on borrowings under the credit agreement which was offset by
decreases in other interest expenses incurred during the fourth quarter
of fiscal 1998 compared with the fourth quarter of fiscal 1997.
Investment income Investment income for the fourth quarter of fiscal 1998
increased by $181,000 compared with the fourth quarter of fiscal 1997
primarily as a result of an increase in invested funds during the
fourth quarter of fiscal 1998.
Income taxes The provision for income taxes for the fourth quarter of fiscal
1998 was $4,579,000, for an effective tax rate of 36.4% of earnings
before income taxes, compared with $10,494,000, for an effective tax
rate of 37.8% of earnings before income taxes, for the fourth quarter
of fiscal 1997. The decrease in the effective tax rate for the fourth
quarter of fiscal 1998 results from the adjustments required for a
lower than previously anticipated effective tax rate for fiscal 1998.
Results of Operations - Fiscal 1998, 1997 and 1996
The following table sets forth the Company's audited results of
operations as a percent of sales for the fiscal years indicated:
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales and occupancy expenses 73.7 72.7 74.4
----- ----- -----
Gross profit 26.3 27.3 25.6
Selling, general and administrative expenses 22.4 21.9 22.3
----- ----- -----
Earnings from operations 3.9 5.4 3.3
Interest expense 0.1 0.1 0.1
Investment income 0.2 0.2 0.2
----- ----- -----
Earnings before income taxes 4.0 5.5 3.4
Provision for income taxes 1.5 2.1 1.3
----- ----- -----
Net earnings 2.5% 3.4% 2.1%
===== ===== =====
</TABLE>
Fiscal 1998 Compared with Fiscal 1997
Overview In fiscal 1998, the Company opened 36 new stores, relocated seven
stores, remodeled three stores and closed two stores, bringing the
total number of stores in operation at January 30, 1999 to 257
compared with 223 at January 31, 1998. In fiscal 1997, 24 new stores
were opened, nine stores were relocated, seven stores were remodeled
and four stores were closed. Net earnings were $27,687,000, or 2.5% of
sales, in fiscal 1998, compared with net earnings of $33,286,000, or
3.4% of sales, in fiscal 1997.
Sales Sales for fiscal 1998 were $1,091,084,000, a 12.3% increase over the
$971,923,000 for fiscal 1997. This increase of $119,161,000 consisted
of (i) additional sales from new and transition stores of $115,162,000
and (ii) a 0.5% increase in comparable store sales of $3,999,000 from
the corresponding period of the previous fiscal year. Comparable store
sales for the first two quarters of fiscal 1998 produced a 6.9%
increase over the prior year, while the last two quarters of fiscal
1998 resulted in a 4.4% comparable store sales decrease. The
unusually warm weather experienced in the Company's markets from
September through the first half of December 1998, followed by ice and
snow storms two days prior to Christmas, significantly impaired the
Company's ability to sell winter merchandise during that period.
Gross profit Gross profit for fiscal 1998 was $287,295,000, or 26.3% of sales,
a $22,138,000 increase over the $265,157,000, or 27.3% of sales, in
gross profit generated for the previous fiscal year. The 1.0% decrease
in gross profit, as a percent of sales, resulted primarily from (i) a
0.9% decrease in gross margins resulting from the implementation of an
aggressive merchandise pricing and promotional strategy during the
fourth quarter of fiscal 1998 and (ii) a 0.1% increase in occupancy
costs which were not leveraged due to the shortfall in comparable store
sales during the last two quarters of fiscal 1998.
Selling, general and administrative expenses Selling, general and
administrative expenses for fiscal 1998 were $244,833,000, or 22.4% of
sales, an increase of $31,773,000 from $213,060,000, or 21.9% of sales,
for fiscal 1997. The 0.5% increase in selling, general and
administrative expenses, as a percent of sales, in fiscal 1998 compared
with fiscal 1997 resulted primarily from an increase of (i) 0.4% in
advertising and promotional expenses, (ii) 0.2% in professional fees,
(iii) 0.1% from a charge for the impairment of certain poorly
performing stores' property and equipment and (iv) 0.2% in all other
selling, general and administrative expenses. These increases were
offset by a 0.4% decrease in the bonus expenses related to the
Company's Short-Term Incentive Plan and other bonus plans for fiscal
1998 compared with the previous fiscal year.
16
<PAGE> 19
Interest expense Interest expense for fiscal 1998 decreased by $7,000 compared
with fiscal 1997.
Investment income Investment income for fiscal 1998 increased by $400,000
compared with fiscal 1997 primarily as a result of an increase in
invested funds during fiscal 1998.
Income taxes The provision for income taxes for fiscal 1998 was $16,471,000,
for an effective tax rate of 37.3% of earnings before income taxes,
compared with $20,100,000, for an effective tax rate of 37.7% of
earnings before income taxes, for fiscal 1997. The decrease in the
effective tax rate was primarily due to an increase in tax-exempt
investment income.
Fiscal 1997 Compared with Fiscal 1996
Overview In fiscal 1997, the Company opened 24 new stores, relocated nine
stores, remodeled seven stores and closed four stores. This brought
the total number of stores in operation at January 31, 1998 to 223,
compared with 203 at February 1, 1997. In fiscal 1996, 20 new stores
were opened, seven stores were relocated, one store was remodeled and
one store was closed. Net earnings were $33,286,000, or 3.4% of sales,
in fiscal 1997, compared with net earnings of $17,151,000, or 2.1% of
sales, in fiscal 1996.
Sales Sales for fiscal 1997 were $971,923,000, an 18.7% increase over the
$819,056,000 for fiscal 1996. This increase of $152,867,000 consisted
of (i) additional sales from new and transition stores of $91,581,000
and (ii) an 8.2% increase in comparable store sales of $61,286,000
from the corresponding period of the previous fiscal year. Sales were
positively impacted by favorable customer reaction to the Company's
private label merchandise, particularly in the women's division.
Strong sales gains were also achieved in the women's, men's and
children's divisions with the introduction of Dockers from Levi
Strauss & Co. to approximately 70% of the stores in the chain at
January 31, 1998. Plans to distribute Dockers products to the
entire chain were completed in the first quarter of fiscal 1998. The
Company's accessories division also realized strong sales gains
resulting from expanded product lines.
Gross profit Gross profit for fiscal 1997 was $265,157,000, or 27.3% of
sales, a $55,785,000 increase over the $209,372,000, or 25.6% of
sales, in gross profit generated for the previous fiscal year. The
1.7% increase in gross profit, as a percent of sales, resulted
primarily from the continuation of the merchandising strategies
implemented during 1995 and 1996. These strategies include, among
other things, improved merchandise selection and quality, stringent
inventory management and control, and a higher sales mix of certain
key merchandise items, including private label merchandise, which
generally have a higher gross margin rate.
Selling, general and administrative expenses Selling, general and
administrative expenses for fiscal 1997 were $213,060,000, or 21.9% of
sales, an increase of $30,432,000 from $182,628,000, or 22.3% of
sales, for fiscal 1996. The 0.4% decrease in selling, general and
administrative expenses, as a percent of sales, in fiscal 1997
compared with fiscal 1996 resulted primarily from a decrease of 0.2%
in advertising and promotional expenses and a net decrease of 0.2% in
all other selling, general and administrative expenses. Selling,
general and administrative expenses for fiscal 1996 included a
provision of $691,000 in connection with the early termination of a
lease of one of the Company's stores which closed in August 1996 and
$741,000 for the impairment of certain poorly performing stores'
property and equipment.
Interest expense Interest expense for fiscal 1997 decreased by $220,000
compared with fiscal 1996 primarily as a result of lower borrowings
during fiscal 1997.
Investment income Investment income for fiscal 1997 increased by $371,000
compared with fiscal 1996 primarily as a result of an increase in
invested funds during fiscal 1997.
Income taxes The provision for income taxes for fiscal 1997 was $20,100,000,
for an effective tax rate of 37.7% of earnings before income taxes,
compared with $10,291,000, for an effective tax rate of 37.5% of
earnings before income taxes, for fiscal 1996. The increase in the
effective tax rate was primarily due to a decrease in tax-exempt
investment income and an increase in other non-deductible expenses,
which were offset by a modest decrease in the effective state income
tax rates.
17
<PAGE> 20
Management's Discussion and Analysis (continued)
Liquidity and Capital Resources
Financial position The Company's primary sources of liquidity are cash flows
from operations, including credit terms from vendors, and borrowings
under its credit agreement (see below). The Company's working capital
was $102,598,000 at January 30, 1999 compared with $73,553,000 at
January 31, 1998 and $44,016,000 at February 1, 1997.
At January 30, 1999, the Company had 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 terms of
this credit agreement require, among other things, maintenance of
minimum levels of shareholders' equity, compliance with certain
financial ratios and Mr. Robert M. Goodfriend remaining as Chairman of
the Board or Chief Executive Officer of the Company, and place
restrictions on additional indebtedness, asset disposals, investments
and capital expenditures. At January 30, 1999, the Company had no cash
borrowings and $49,454,000 outstanding for letters of credit compared
with no cash borrowings and $41,238,000 outstanding for letters of
credit at January 31, 1998. Cash borrowings averaged $3,515,000 during
fiscal 1998 compared with $2,374,000 during fiscal 1997, with the
highest balance of $40,000,000 in November and December 1998 compared
with $25,000,000 in October and November 1997. Letters of credit
outstanding averaged $65,895,000 during fiscal 1998 compared with
$53,442,000 during fiscal 1997. The highest balance of letters of
credit outstanding was $84,090,000 during fiscal 1998 (in September
1998) compared with $71,937,000 during fiscal 1997 (in June 1997). The
weighted average interest rates on cash borrowings in fiscal 1998,
1997 and 1996 were 5.6%, 6.4% and 6.5%, respectively.
Cash flows Operating activities provided cash of $27,319,000 in fiscal 1998
compared with $35,096,000 in fiscal 1997 and $22,369,000 in fiscal
1996. Cash used in operating activities in fiscal 1998, 1997 and 1996
was primarily for increased inventory of $14,020,000, $44,172,000 and
$29,228,000, respectively, resulting from (i) additional inventory for
new stores, (ii) the strategic build-up of certain new classifications
of basic inventory items in all stores and (iii) for fiscal 1997, the
Company's decision to take early receipt of spring 1998 imported
merchandise. Accounts payable provided cash of $4,514,000, $24,038,000
and $7,081,000 in fiscal 1998, 1997 and 1996, respectively. Other
assets and liabilities provided cash of $3,235,000, $10,416,000 and
$9,672,000 in fiscal 1998, 1997 and 1996, respectively. Depreciation
and amortization expenses were $13,861,000, $11,571,000 and
$10,595,000 in fiscal 1998, 1997 and 1996, respectively.
Cash flows from investing activities reflected a $22,794,000,
$21,219,000 and $15,800,000 net use of cash for fiscal 1998, 1997 and
1996, respectively. Cash was used primarily to fund capital
expenditures for new, relocated and remodeled stores as well as for
upgrading information technology and for general corporate purposes.
Cash provided by financing activities for fiscal 1998, 1997 and 1996
was $20,593,000, $6,981,000 and $3,760,000, respectively. Cash
management programs maintained by the Company provided cash of
$13,242,000, $4,050,000 and $3,506,000 during fiscal 1998, 1997 and
1996, respectively. The Company received $2,886,000, $1,708,000 and
$347,000 in cash and realized a tax benefit of $4,728,000, $1,462,000
and $124,000 from the issuance of common stock on the exercise of
stock options in fiscal 1998, 1997 and 1996, respectively.
Outlook The Company plans to open approximately 30 to 35 new stores and
relocate or remodel approximately 24 stores during fiscal 1999. Capital
expenditures are expected to be approximately $40,000,000 in fiscal
1999 primarily for (i) opening new stores, (ii) upgrading existing
stores, (iii) distribution center enhancements, (iv) computer systems
and equipment and (v) for general corporate purposes.
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.
18
<PAGE> 21
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 the end of fiscal 1998, all internal
systems have been modified to be Year 2000 compliant.
Throughout fiscal 1999 the Company plans to continue testing
and monitoring its internal systems for Year 2000 compliance.
The oversight committee will continue to meet throughout
fiscal 1999 and into the Year 2000 to review the progress of
the Year 2000 efforts and to address the 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
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 issues or the impact on the
Company if any third party's Year 2000 compliance efforts
fail.
Costs to address Year 2000 issues
At the end of fiscal 1998, the costs incurred by the Company
for Year 2000 issues amounted to approximately $738,000 for
external and existing internal resources that were expensed as
incurred. The Company's remaining costs for Year 2000 issues
are estimated at $842,000, which primarily consist of (i)
$317,000 for the purchase of software and hardware and (ii)
$525,000 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 critical Year 2000
issues could have a materially adverse impact on the
Company's business, operations and financial condition.
19
<PAGE> 22
Management's Discussion and Analysis (continued)
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.
Selected Quarterly Data (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1998
-----------
Sales $226,714 $249,489 $251,335 $363,546
Gross profit 67,920 71,144 64,546 83,685
Net earnings 7,768 8,658 3,267 7,994
Earnings per common share
Basic 0.23 0.26 0.10 0.24
Diluted 0.22 0.25 0.10 0.24
Fiscal 1997
-----------
Sales $190,057 $212,206 $234,908 $334,752
Gross profit 54,977 58,170 62,034 89,976
Net earnings 5,058 5,418 5,535 17,275
Earnings per common share
Basic 0.16 0.17 0.17 0.53
Diluted 0.15 0.16 0.16 0.51
</TABLE>
20
<PAGE> 23
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Sales $1,091,084 $971,923 $819,056
Cost of sales and occupancy expenses 803,789 706,766 609,684
---------- -------- --------
Gross profit 287,295 265,157 209,372
Selling, general and administrative expenses 244,833 213,060 182,628
---------- -------- --------
Earnings from operations 42,462 52,097 26,744
Interest expense 535 542 762
Investment income 2,231 1,831 1,460
---------- -------- --------
Earnings before income taxes 44,158 53,386 27,442
Provision for income taxes 16,471 20,100 10,291
---------- -------- --------
Net earnings $ 27,687 $ 33,286 $ 17,151
========== ======== ========
Earnings per common share
Basic $ 0.84 $ 1.02 $ 0.53
========== ======== ========
Diluted $ 0.81 $ 0.99 $ 0.53
========== ======== ========
Weighted average common shares outstanding
Basic 33,155 32,548 32,264
========== ======== ========
Diluted 34,267 33,674 32,568
========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
21
<PAGE> 24
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 89,292 $ 64,174
Investments -- 1,555
Inventories 165,687 151,667
Accounts receivable and other current assets 14,195 10,519
-------- --------
Total current assets 269,174 227,915
Property and equipment, net 104,789 97,468
Other assets 3,210 2,933
-------- --------
Total assets $377,173 $328,316
======== ========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $122,776 $105,231
Accrued expenses 43,190 42,194
Income taxes payable 321 6,674
Current portion of long-term debt 289 263
-------- --------
Total current liabilities 166,576 154,362
Long-term debt 318 608
Other long-term liabilities 3,782 3,023
Deferred income taxes 11,020 10,266
-------- --------
Total liabilities 181,696 168,259
-------- --------
Commitments and Contingencies
Shareholders' Equity
Preferred stock, par value $1 per share;
Authorized - 2,000,000 shares; issued and outstanding-none
Class B Common stock, no par value;
Authorized - 50,000,000 shares; issued and outstanding-none
Common stock, no par value;
Authorized - 50,000,000 shares;
Issued and outstanding - 33,330,780 and 32,703,716 shares, respectively 28,102 25,097
Paid-in capital 9,449 4,721
Retained earnings 157,926 130,239
-------- --------
Total shareholders' equity 195,477 160,057
-------- --------
Total liabilities and shareholders' equity $377,173 $328,316
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
22
<PAGE> 25
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings $ 27,687 $ 33,286 $ 17,151
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 13,861 11,571 10,595
Net loss on asset disposals and write-down 1,612 1,135 1,965
Changes in assets and liabilities:
Inventories (14,020) (44,172) (29,228)
Accounts payable 4,514 24,038 7,081
Income taxes (9,570) (1,178) 5,133
Other assets and liabilities 3,235 10,416 9,672
-------- -------- --------
Cash provided by operating activities 27,319 35,096 22,369
-------- -------- --------
Cash Flows from Investing Activities
Acquisitions of property and equipment (22,855) (21,231) (16,070)
Proceeds from sale of property and equipment 61 12 270
-------- -------- --------
Cash used in investing activities (22,794) (21,219) (15,800)
-------- -------- --------
Cash Flows from Financing Activities
Repayment of long-term debt (263) (239) (217)
Exercise of stock options 7,614 3,170 471
Changes in cash management accounts 13,242 4,050 3,506
-------- -------- --------
Cash provided by financing activities 20,593 6,981 3,760
-------- -------- --------
Net increase in cash and cash equivalents 25,118 20,858 10,329
Cash and cash equivalents, beginning of year 64,174 43,316 32,987
-------- -------- --------
Cash and cash equivalents, end of year $ 89,292 $ 64,174 $ 43,316
======== ======== ========
Supplemental Disclosures:
Income tax payments $ 22,085 $ 20,336 $ 5,294
Interest payments 531 534 745
</TABLE>
See accompanying notes to consolidated financial statements
23
<PAGE> 26
Consolidated Statements of Shareholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Common Stock
--------------------- Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, February 3, 1996 32,250 $22,938 $3,135 $ 79,802 $105,875
Net earnings -- -- -- 17,151 17,151
Exercise of stock options 80 426 124 -- 550
------ ------- ------ -------- --------
Balance February 1, 1997 32,330 23,364 3,259 96,953 123,576
Net earnings -- -- -- 33,286 33,286
Exercise of stock options 374 1,733 1,462 -- 3,195
------ ------- ------ -------- --------
Balance January 31, 1998 32,704 25,097 4,721 130,239 160,057
Net earnings -- -- -- 27,687 27,687
Exercise of stock options 627 3,005 4,728 -- 7,733
------ ------- ------ -------- --------
Balance January 30, 1999 33,331 $28,102 $9,449 $157,926 $195,477
====== ======= ====== ======== ========
</TABLE>
24
See accompanying notes to consolidated financial statements
<PAGE> 27
Notes to Consolidated Financial Statements
Years ended January 30, 1999, January 31, 1998 and February 1, 1997
1 Summary of Significant Accounting Policies
Headquartered in Knoxville, Tennessee, Goody's Family Clothing, Inc.
and subsidiaries (the "Company") is a retailer of moderately priced
apparel for women, men and children. At January 30, 1999, the Company
operated 257 stores located in 16 states (all under one business
segment). Its significant accounting policies are as follows:
Fiscal year-end The Company's fiscal year ends on the Saturday nearest
the last day of January. Fiscal 1998, 1997 and 1996 refer to the
Company's fiscal years ended January 30, 1999 (52 weeks), January 31,
1998 (52 weeks) and February 1, 1997 (52 weeks), respectively.
Principles of consolidation The consolidated financial statements
include the accounts of Goody's Family Clothing, Inc. and its
subsidiaries, all of which are wholly-owned. All material intercompany
balances and transactions have been eliminated.
Use of estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents Cash equivalents consist of highly liquid
investments, such as money market accounts, deposit accounts, government
backed securities and overnight repurchase agreements, each with a
maturity of less than three months. The cost of these investments
approximate their fair market value.
Amounts due banks upon the clearance of certain checks under the
Company's cash management programs are included in both accounts
payable and accrued expenses at January 30, 1999 and January 31, 1998
and amounted to $31,789,000 and $18,547,000, respectively.
Investments Investments were held by a bank, as trustee, to fund certain
potential severance payments in respect of which no liability existed at
January 31, 1998. The Company was restricted from using these funds for
its operating activities until April 1998.
Inventories Inventories are stated at the lower of weighted average cost
or market.
Property and equipment Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed by
using the straight-line method over the estimated useful lives of the
assets, which are 40 years for buildings and up to 10 years for other
assets. Leasehold improvements are amortized by the straight-line method
over the lesser of the useful lives of the improvements or the related
lease terms.
The Company continually evaluates its investment in long-lived assets
used in operations and records impairment write-downs, if necessary,
based on judgements as to the undiscounted future cash flows of
individual stores.
Store opening and closing costs Non-capital expenditures for new or
relocated stores are expensed as incurred. The net book value of
leasehold improvements and abandoned fixtures as well as any future
rents payable for stores, for which a decision has been made to close or
relocate the stores, are charged against current earnings.
Advertising The Company expenses all advertising expenditures as
incurred. Advertising expenses for fiscal 1998, 1997 and 1996 were
$46,723,000, $38,179,000 and $34,431,000, respectively.
Income taxes Deferred income taxes are recognized for the tax
consequences of temporary differences between the tax and financial
reporting basis of the Company's assets and liabilities based upon
enacted tax laws and statutory tax rates applicable to the future years
in which the differences are expected to affect taxable income.
Sales Sales include $39,885,000, $33,379,000 and $26,827,000 of leased
shoe department sales for fiscal 1998, 1997 and 1996, respectively.
Earnings per common share Basic earnings per common share is computed by
dividing net earnings by the weighted average number of common shares
outstanding. Diluted earnings per common share is computed by dividing
net earnings by the weighted average number of common shares outstanding
and potentially dilutive common shares. Weighted average diluted shares
outstanding differs from weighted average basic shares outstanding
solely from the effect of stock options. Stock options to purchase
1,203,177, 48,322 and 872,514 shares of the Company's common stock (the
"Common Stock") in fiscal 1998, 1997 and 1996, respectively, were not
included in the computation of weighted average diluted shares
outstanding because they would have been antidilutive.
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.
25
<PAGE> 28
Notes to Consolidated Financial Statements (continued)
Recent Accounting Pronouncements In March 1998, the American Institute
of Certified Public Accountants' Accounting Standards Executive
Committee issued Statement of Position No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
No. 98-1"). SOP No. 98-1, which is effective beginning with the
Company's fiscal year 1999, requires that certain costs incurred to
develop or obtain software for internal use be capitalized. SOP No. 98-1
will be adopted for the Company's fiscal year ending January 29, 2000
and is not expected to have a material effect on the Company's financial
statements.
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 effective beginning with the Company's fiscal
year 2000, 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. SFAS No. 133 will be adopted
for the Company's fiscal year ending February 3, 2001. The Company has
not yet completed its analysis of the effect of SFAS No. 133 on its
financial statements.
Reclassifications Certain reclassifications have been made to the
financial statements of prior periods to conform to the current period
presentation.
2 Property and equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
<S> <C> <C>
Land $ 3,512 $ 3,512
Buildings 26,522 25,704
Leasehold improvements 22,179 20,056
Furniture and equipment 108,165 94,765
Transportation equipment 6,447 6,181
Assets in progress 2,256 --
-------- --------
169,081 150,218
Less accumulated depreciation and amortization 64,292 52,750
-------- --------
Property and equipment, net $104,789 $ 97,468
======== ========
</TABLE>
Impairment charges for store property and equipment were $733,000 and
$741,000 in fiscal 1998 and 1996, respectively.
3 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.
At January 30, 1999 and January 31, 1998, the Company had no cash
borrowings under this credit agreement and letters of credit issued and
outstanding amounted to $49,454,000 and $41,238,000, respectively. Cash
borrowings under the Company's line of credit averaged $3,515,000,
$2,374,000 and $5,206,000 during fiscal 1998, 1997 and 1996,
respectively. The highest balances of cash borrowings were $40,000,000
in November and December 1998, $25,000,000 in October and November 1997
and $37,000,000 in November 1996. The weighted average interest rates on
cash borrowings in fiscal 1998, 1997 and 1996 were 5.6%, 6.4% and 6.5%,
respectively.
26
<PAGE> 29
4 Long-term debt
Long-term debt represents a promissory note payable to the Company's
founder and former chairman, M.D. Goodfriend, and his wife, who are the
parents of the Company's current Chairman of the Board and Chief
Executive Officer. The debt is unsecured and is payable in annual
installments of $350,000, including interest at 10%, through January
2001. Interest paid on this debt was $87,000, $111,000 and $133,000
during fiscal 1998, 1997 and 1996, respectively. Based on borrowing
rates currently available to the Company for bank loans with similar
terms and maturities, the fair value of such long-term debt was not
materially different than its carrying amount.
5 Income taxes
The provision for income taxes for the years indicated consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current
Federal $ 15,219 $ 18,833 $ 9,173
State 1,262 2,163 1,280
-------- -------- --------
Total current 16,481 20,996 10,453
-------- -------- --------
Deferred
Federal 32 (726) (84)
State (42) (170) (78)
-------- -------- --------
Total deferred (10) (896) (162)
-------- -------- --------
Provision for income taxes $ 16,471 $ 20,100 $ 10,291
======== ======== ========
</TABLE>
The provision for income taxes differed from the amounts computed by
applying the federal statutory rate to earnings before income taxes as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Tax expense at statutory rate $ 15,456 $ 18,685 $ 9,605
State taxes, net of federal benefit 1,086 1,319 745
Effect of tax-exempt income (206) (97) (89)
Effect of other items 135 193 30
-------- -------- --------
Provision for income taxes $ 16,471 $ 20,100 $ 10,291
======== ======== ========
</TABLE>
The tax effects of temporary differences were as follows (in thousands):
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
--------------------------
<S> <C> <C>
Current asset
Inventory carrying cost $ 3,733 $ 2,074
Net operating loss carryforward 364 --
Accrued expenses and other 5,329 3,381
-------- --------
Current deferred tax asset $ 9,426 $ 5,455
======== ========
Deferred liability
Depreciation $ 11,465 $ 10,787
Other (445) (521)
-------- --------
Long-term deferred tax liability $ 11,020 $ 10,266
======== ========
</TABLE>
Current deferred tax assets are included in "Accounts receivable and
other current assets" in the accompanying balance sheets.
27
<PAGE> 30
Notes to Consolidated Financial Statements (continued)
6 Stock options
The Company currently has four stock option plans: the Goody's Family
Clothing, Inc. 1991 Stock Incentive Plan (the "1991 Plan"), the Goody's
Family Clothing, Inc. 1993 Stock Option Plan (the "1993 Plan"), the
Goody's Family Clothing, Inc. 1997 Stock Option Plan (the "1997 Plan")
and the Discounted Stock Option Plan for Directors (the "Directors'
Plan").
The 1991 Plan, 1993 Plan and 1997 Plan provide for the grant of
nonqualified and incentive stock options to key associates and directors
and formula options to non-associate directors. The Compensation
Committee of the Board of Directors determines the exercise price (not
to be less than the fair market value of the Common Stock for incentive
options or formula options on the date of grant) and the vesting and
exercise periods. The options generally vest in equal installments over
five years from the date of grant and are generally exercisable up to 10
years from the date of grant. The Company is authorized to issue an
aggregate of 5,650,000 shares of Common Stock under the 1991 Plan, 1993
Plan and 1997 Plan.
Under the Directors' Plan, non-associate directors may elect to receive
options to purchase Common Stock at an exercise price equal to 50% of
the fair market value of the Common Stock on the date of grant in lieu
of cash for their director fees. These options vest one year from the
date of grant and are exercisable up to 20 years from the date of grant.
The expense recorded in connection with stock options issued under this
plan has been immaterial. The Company is authorized to issue an
aggregate of 300,000 shares of Common Stock under the Directors' Plan.
A summary of the stock option activity and the related weighted average
exercise prices for all the option plans is as follows:
<TABLE>
<CAPTION>
Shares Available Outstanding Weighted Average
For Grant Options Exercise Price
---------------------------------------------
<S> <C> <C> <C>
As of February 3, 1996 1,205,086 2,294,374 $ 4.72
Reserved 200,000 -- --
Granted (1,129,396) 1,129,396 6.99
Exercised -- (79,240) 4.38
Forfeited 160,960 (160,960) 4.64
--------- --------- ---------
As of February 1, 1997 436,650 3,183,570 5.53
Reserved 2,000,000 -- --
Granted (1,079,530) 1,079,530 11.58
Exercised -- (374,052) 4.57
Forfeited 214,044 (214,044) 5.90
--------- --------- ---------
As of January 31, 1998 1,571,164 3,675,004 7.39
Granted (609,192) 609,192 21.13
Exercised -- (627,064) 4.60
Forfeited 94,338 (94,338) 12.44
--------- --------- ---------
As of January 30, 1999 1,056,310 3,562,794 $ 10.09
========= ========= =========
</TABLE>
The following table summarizes information about stock options
outstanding at January 30, 1999:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------------------------------------ ------------------------------
Weighted
Average Weighted Weighted
Options Remaining Average Options Average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Exercise Prices January 30, 1999 Life (Years) Price January 30, 1999 Price
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.41 to $ 5.69 1,215,664 6.6 $ 4.58 705,484 $ 4.45
6.00 to 10.88 1,025,406 7.9 8.74 774,336 8.51
11.19 to 16.00 796,224 8.5 12.22 48,400 13.03
17.07 to 22.00 411,500 9.1 21.31 800 17.07
24.00 to 27.50 114,000 9.4 25.56 -- --
--------- ---------
3,562,794 1,529,020
========= =========
</TABLE>
28
<PAGE> 31
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to adopt the
disclosure-only provisions of SFAS No. 123 and to continue to account
for stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and its related interpretations. Accordingly, no
compensation cost has been recognized for the stock options granted
under the various stock option plans to associates and directors. Had
compensation cost for the Company's stock option plans been determined
based on the fair value on the date of grant for awards in fiscal 1998,
1997 and 1996 consistent with the provisions of SFAS No. 123, the
Company's net earnings and earnings per common share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
----------------------- ---------------------- ----------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Net earnings (in thousands) $27,687 $26,012 $33,286 $32,211 $17,151 $15,157
Earnings per common share
Basic 0.84 0.78 1.02 0.99 0.53 0.47
Diluted 0.81 0.76 0.99 0.96 0.53 0.47
</TABLE>
The fair value of the options granted under the Company's various stock
option plans during fiscal 1998, 1997 and 1996 was estimated on their
date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions: no dividend yield; expected
volatility of 63%, 56% and 49%, respectively; risk free interest rates
of 5.5%, 6.5% and 6.4%, respectively; and expected lives of 7.0, 7.0 and
4.7 years, respectively. The weighted average fair value of options
granted was $14.28, $14.78 and $6.44 for fiscal 1998, 1997 and 1996,
respectively.
7 Benefit plans
The Company maintained a profit sharing plan through December 1997 for
full-time associates. This plan provided for discretionary contributions
by the Company which were approved by its Board of Directors. The
Company's contributions to the profit sharing plan were $750,000 and
$525,000 for fiscal 1997 and 1996, respectively.
In January 1998, the Company adopted the Goody's Family Clothing, Inc.
401(k) Retirement Plan (the "401(k) Plan") with a salary deferral
feature for all eligible associates. All the assets of the profit
sharing plan were transferred to the 401(k) Plan. Under the terms of the
401(k) Plan, eligible associates may contribute between 3% and 15% of
their annual compensation on a pretax basis (with certain limitations
imposed by the Internal Revenue Service) to the 401(k) Plan. The Company
provides matching contributions to the 401(k) Plan, which are
discretionary, vest over time and are based upon a percent of the
associates' elected contributions. These matching contributions amounted
to $826,000 and $35,000 for fiscal 1998 and 1997, respectively.
The Company also has an Employee Payroll Investment Plan that allows
eligible associates to purchase the Common Stock at fair market value
through regular payroll deductions.
8 Lease obligations
The Company leases its stores under operating leases, the majority of
which expire at various times during the next 10 years. The Company can,
at its option, renew most of these leases at rents which are fixed based
at their then current fair rental value. Payments under store leases
consist of a fixed minimum rent, additional rent based on a percent of
sales in excess of stipulated amounts and a share of taxes, insurance
and common area maintenance costs. The Company also leases certain data
processing and store systems equipment.
The future minimum rental payments under operating leases having
initial or remaining non-cancelable lease terms in excess of one year
at January 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999 $ 48,176
2000 45,227
2001 43,202
2002 40,486
2003 38,275
Thereafter 177,778
--------
Total $393,144
========
</TABLE>
Total rental expense for operating leases for fiscal 1998, 1997 and 1996
were $53,173,000, $47,234,000 and $41,299,000, respectively, including
percentage rent of $545,000, $632,000 and $451,000, respectively.
29
<PAGE> 32
Notes to Consolidated Financial Statements (continued)
9 Related party transactions
The Company has entered into various related party transactions with Mr.
Robert M. Goodfriend (the Company's Chairman of the Board and Chief
Executive Officer and beneficial owner of approximately 40.9% of the
Common Stock) as described below.
The Company paid premiums of $54,000 in each of fiscal 1998, 1997 and
1996 for split-dollar life insurance policies insuring the life of Mr.
Goodfriend. The beneficiary of these policies is a trust established for
the benefit of Mr. Goodfriend's children. The trust has assigned to the
Company an interest in the cash value of the life insurance policies to
the extent of cumulative premiums paid by the Company. Included in
"Other assets" at January 30, 1999 and January 31, 1998 are $2,029,000
and $1,930,000, respectively, related to these policies.
The Company paid rent and taxes amounting to $374,000, $442,000 and
$442,000 for fiscal 1998, 1997 and 1996, respectively, for a store
leased from another trust benefiting Mr. Goodfriend's children. Future
commitments at January 30, 1999 under this related party lease are
$2,947,000.
10 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.
30
<PAGE> 33
Selected Financial Data
(Dollars in thousands, except per share
amounts and sales per gross square foot)
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------------------------------
1998 1997 1996 1995(1) 1994
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Sales $1,091,084 $971,923 $819,056 $696,868 $ 613,664
Cost of sales and occupancy expenses 803,789 706,766 609,684 526,151 458,857
---------- -------- -------- -------- ---------
Gross profit 287,295 265,157 209,372 170,717 154,807
Selling, general and administrative expenses 244,833 213,060 182,628 154,901 142,755
---------- -------- -------- -------- ---------
Earnings from operations 42,462 52,097 26,744 15,816 12,052
Interest expense 535 542 762 608 1,163
Investment income (loss) 2,231 1,831 1,460 1,319 (117)
---------- -------- -------- -------- ---------
Earnings before income taxes 44,158 53,386 27,442 16,527 10,772
Provision for income taxes 16,471 20,100 10,291 6,063 3,900
---------- -------- -------- -------- ---------
Net earnings $ 27,687 $ 33,286 $ 17,151 $ 10,464 $ 6,872
========== ======== ======== ======== =========
Earnings per common share(2)
Basic $ 0.84 $ 1.02 $ 0.53 $ 0.32 $ 0.21
========== ======== ======== ======== =========
Diluted $ 0.81 $ 0.99 $ 0.53 $ 0.32 $ 0.21
========== ======== ======== ======== =========
Weighted average common shares
outstanding (in thousands)(2)
Basic 33,155 32,548 32,264 32,246 32,194
========== ======== ======== ======== =========
Diluted 34,267 33,674 32,568 32,568 32,514
========== ======== ======== ======== =========
Selected Operating Data
(At year end)
Stores open 257 223 203 184 171
Gross store square footage (in thousands) 7,026 6,071 5,498 4,913 4,505
Comparable store sales increase(3) 0.5% 8.2% 6.9% 1.3% 3.4%
Sales per gross square foot(4) $ 167 $ 165 $ 156 $ 150 $ 150
Average sales per store(5) 4,517 4,504 4,090 3,922 3,741
Capital expenditures 22,855 21,231 16,070 10,632 39,388
Depreciation and amortization 13,861 11,571 10,595 9,141 6,185
Balance Sheet Data
Working capital $ 102,598 $ 73,553 $ 44,016 $ 27,786 $ 16,707
Total assets 377,173 328,316 254,347 208,443 185,744
Long-term debt 318 608 871 1,110 1,327
Shareholders' equity 195,477 160,057 123,576 105,875 95,365
</TABLE>
- --------------------------------------------------------------------------------
1 Consists of 53 weeks.
2 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.
3 Comparable store sales for fiscal 1996 and thereafter are based on
stores which operated throughout the fiscal year (including relocated,
remodeled and expanded stores) and which were in operation for the
entire previous fiscal year (computed on comparable 52-week periods).
Prior to fiscal 1996, new stores were included in such calculation
beginning the first full month following the anniversary of their
opening.
4 Sales per gross square foot is calculated by dividing (i) sales from
stores which operated throughout the fiscal year (including relocated,
remodeled and expanded stores) and which were in operation for the
entire previous fiscal year (computed on comparable 52-week periods) by
(ii) the gross square footage related to those stores.
5 Average sales per store is calculated by dividing (i) total sales during
such fiscal year less sales attributable to new stores opened and stores
closed during the fiscal year by (ii) the number of stores open at the
end of the fiscal year less new stores opened during the fiscal year.
31
<PAGE> 34
Board of Directors and Officers
<TABLE>
<S> <C> <C>
Board of Directors Executive and Other Officers
Robert M. Goodfriend(3) Robert M. Goodfriend John W. Boles
Chairman of the Board and Chairman of the Board and Vice President
Chief Executive Officer Chief Executive Officer Sales - Northern Region
Goody's Family Clothing, Inc.
Harry M. Call Philip M. Dangel
Harry M. Call President and Vice President
President and Chief Operating Officer Divisional Merchandise Manager
Chief Operating Officer Children's
Goody's Family Clothing, Inc. Edward R. Carlin
Executive Vice President Robert S. Gobrecht
Samuel J. Furrow(2,3(*)) Chief Financial Officer and Vice President
Chairman Secretary Merchandise Coordinator
Furrow Auction Company
Furrow-Justice Machinery Corporation Thomas R. Kelly, Jr. Donald E. Goett
Owner Executive Vice President Vice President
Knoxville Motor Company-Mercedes Benz General Merchandise Manager Divisional Merchandise Manager
Land Rover of Knoxville Shoes
Director David R. Mullins
Southeastern-Advertising, Inc. Executive Vice President Jeffrey D. Hayes
First American National Bank Stores Vice President
Innovo Group, Inc. Store Development
Bruce E. Halverson
Senior Vice President Regis J. Hebbeler
Robert F. Koppel(1,2(*)) Planning and Allocation Vice President
President General Counsel and
East Tennessee Children's Hospital Stanley B. Latacha Assistant Secretary
Senior Vice President
Irwin L. Lowenstein(1,3) Marketing and Advertising Myrna J. Mahon
Executive Vice President Vice President
Rhodes/Helig-Meyers Company John J. Okvath, III Divisional Merchandise Manager
Director Senior Vice President Ready to Wear
L.A. T Sportswear, Inc. Product Development
The Powell Company, Inc. Allen P. Markway
Keith Reichelderfer Vice President
Cheryl L. Turnbull(1(*),2) Senior Vice President Divisional Merchandise Manager
Director General Merchandise Manager Men's
Banc One Capital Markets, Inc. Women's
Hazel A. Moxim
Jay D. Scussel Vice President
Senior Vice President Human Resources
Management Information
Systems Rosalind C. Parneix
Vice President
Marcus H. Smith, Jr. Divisional Merchandise Manager
Senior Vice President Misses Sportswear
Real Estate
David G. Peek
Bobby Whaley Vice President
Senior Vice President Corporate Controller and
Distribution, Transportation Chief Accounting Officer
and Logistics
Mike H. Teeple
Vice President
Sales - Southern Region
Barbara Thoreson
Vice President
Divisional Merchandise Manager
Dresses and Special Sizes
Donald R. Whitted
Vice President
Sales - Central Region
Lynn R. Youngs
Vice President
Store Operations
</TABLE>
Committees of the Board of Directors
1 Compensation Committee
2 Audit Committee
3 Nominating Committee
(*) Chairperson
32
<PAGE> 35
Shareholder and Investor Information
Common stock information
The Company's Common Stock is listed and traded on The Nasdaq Stock
Market (National Market) under the symbol GDYS. At April 16, 1999, there
were 520 shareholders of record and approximately 9,500 persons or
entities who held Common Stock in nominee name. On April 16, 1999, the
closing price of the Common Stock was $9.38.
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------------------------------------------------------------
Fiscal 1998
-----------
<S> <C> <C> <C> <C>
High $26.81 $29.00 $28.00 $13.00
Low 16.88 21.44 7.63 8.25
Fiscal 1997
-----------
High $12.19 $19.88 $19.00 $18.57
Low 8.19 7.88 10.69 12.75
</TABLE>
Dividend policy
The Company has not paid cash dividends during the last three fiscal
years. The Company currently intends to retain all net earnings for the
development of its business and does not anticipate paying dividends in
the foreseeable future. The payment of future dividends, if any, will
depend upon the profitability, financial condition, cash requirements,
future prospects and other factors deemed relevant by the Board of
Directors.
Annual meeting
The Annual Meeting of Shareholders will be held at 10:00 a.m. on
Wednesday, June 16, 1999, at the Company's headquarters in Knoxville,
Tennessee. Detailed information about the meeting is contained in the
Notice of Annual Meeting and Proxy Statement sent with a copy of this
Annual Report to each shareholder of record as of April 26, 1999.
Corporate headquarters
Goody's Family Clothing, Inc.
400 Goody's Lane
Knoxville, Tennessee 37922
Tel: (423) 966-2000
Fax: (423) 777-4230
Independent auditors
Deloitte & Touche LLP
Atlanta, Georgia
General counsel
Swidler Berlin Shereff Friedman, LLP
New York, New York
Transfer agent and registrar
Communications concerning shareholder records, the transfer of shares,
lost certificates or change of address should be directed to:
Wachovia Bank of North Carolina, NA
Post Office Box 8217
Boston, MA 02266-8217
Tel: (800) 633-4236
Annual report on Form 10-K
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999, as filed with the Securities and Exchange
Commission, may be obtained, without charge, upon written request to
Edward R. Carlin, Executive Vice President, Chief Financial Officer and
Secretary, Goody's Family Clothing, Inc., P.O. Box 22000, Knoxville,
Tennessee 37933-2000.
33
<PAGE> 36
[Woman and little girl in Goody's apparel]
low prices never looked so good
GOODY's
FAMILY CLOTHING
<PAGE> 1
EXHIBIT - 21
GOODY'S FAMILY CLOTHING, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF INCORPORATION
NAME OF SUBSIDIARY PARENT OR GENERAL PARTNER OF SUBSIDIARY OR ORGANIZATION
------------------------- ----------------------------------------------- -------------------------
<S> <C> <C>
SYDOOG, Inc. Goody's Family Clothing, Inc. Delaware
GOFAMCLO, Inc. Goody's Family Clothing, Inc. Delaware
GFCFS, LLC SYDOOG, Inc. Delaware
Trebor of TN, Inc. Goody's Family Clothing, Inc. Tennessee
GOODY'S MS, L.P. Trebor of TN, Inc. Tennessee
GOODY'S IN, L.P. Trebor of TN, Inc. Tennessee
GFCTX, L.P. Trebor of TN, Inc. Tennessee
GFCGA, L.P. Trebor of TN, Inc. Tennessee
GFCTN, L.P. Trebor of TN, Inc. Tennessee
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-32357, 33-51210, 33-68520, 333-00052 and 333-09595 of Goody's Family
Clothing, Inc. on Form S-8 of our report dated March 17, 1999, incorporated by
reference in the Annual Report on Form 10-K of Goody's Family Clothing, Inc. for
the year ended January 30, 1999.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JANUARY 30, 1999 AND THE RELATED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FIFTY-TWO WEEKS ENDED ON
JANUARY 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 89,292
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 165,687
<CURRENT-ASSETS> 269,174
<PP&E> 169,081
<DEPRECIATION> 64,292
<TOTAL-ASSETS> 377,173
<CURRENT-LIABILITIES> 166,576
<BONDS> 318
0
0
<COMMON> 28,102
<OTHER-SE> 167,375
<TOTAL-LIABILITY-AND-EQUITY> 377,173
<SALES> 1,091,084
<TOTAL-REVENUES> 1,091,084
<CGS> 803,789
<TOTAL-COSTS> 244,833
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 535
<INCOME-PRETAX> 44,158
<INCOME-TAX> 16,471
<INCOME-CONTINUING> 27,687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,687
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.81
</TABLE>
