<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
Commission file number 0-19526
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Goody's Family Clothing, Inc.
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(Exact name of registrant as specified in its charter)
Tennessee 62-0793974
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
400 Goody's Lane, Knoxville, Tennessee 37922
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(Address of principal executive offices) (Zip Code)
(865) 966-2000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value, 32,528,330 shares outstanding as of
November 14, 2000.
1
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GOODY'S FAMILY CLOTHING, INC.
INDEX TO FORM 10-Q
OCTOBER 28, 2000
<TABLE>
<S> <C> <C>
Part I - Financial Information:
Item 1 - Financial Statements
Consolidated Statements of Operations............................................ 3
Consolidated Balance Sheets...................................................... 4
Consolidated Statements of Cash Flows............................................ 5
Notes to Consolidated Financial Statements....................................... 6 - 7
Independent Accountants' Review Report........................................... 8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 9 - 12
Item 3 - Quantitative and Qualitative Disclosures about Market Risk.................. 12
Part II - Other Information............................................................... 13
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. (a) Exhibits
Item 6. (b) Reports on Form 8-K
Signatures................................................................................ 14
</TABLE>
2
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
------------------------- -------------------------
OCTOBER 28, October 30, OCTOBER 28, October 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $276,550 $267,792 $850,329 $790,003
Cost of sales and occupancy expenses 193,975 193,634 623,207 560,637
-------- -------- -------- --------
Gross profit 82,575 74,158 227,122 229,366
Selling, general and administrative
expenses 80,404 72,283 224,857 200,982
-------- -------- -------- --------
Earnings from operations 2,171 1,875 2,265 28,384
Interest expense 59 51 166 157
Investment income 504 686 1,763 1,963
-------- -------- -------- --------
Earnings before income taxes 2,616 2,510 3,862 30,190
Provision for income taxes 981 941 1,448 11,323
-------- -------- -------- --------
Earnings before cumulative
effect of accounting change 1,635 1,569 2,414 18,867
Cumulative effect of accounting change,
net of tax benefit of $124 -- -- 207 --
-------- -------- -------- --------
Net earnings $ 1,635 $ 1,569 $ 2,207 $ 18,867
======== ======== ======== ========
Earnings per common share
Basic
Earnings before cumulative
effect of accounting change $ 0.05 $ 0.05 $ 0.07 $ 0.57
Cumulative effect of accounting
change -- -- -- --
-------- -------- -------- --------
Basic net earnings per share $ 0.05 $ 0.05 $ 0.07 $ 0.57
======== ======== ======== ========
Diluted
Earnings before cumulative
effect of accounting change $ 0.05 $ 0.05 $ 0.07 $ 0.56
Cumulative effect of accounting
change -- -- -- --
-------- -------- -------- --------
Diluted net earnings per share $ 0.05 $ 0.05 $ 0.07 $ 0.56
======== ======== ======== ========
Weighted average common
shares outstanding
Basic 32,520 33,168 32,544 33,273
======== ======== ======== ========
Diluted 32,541 33,611 32,674 33,809
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT
ACCOUNTANTS' REVIEW REPORT.
3
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GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 28, January 29, October 30,
2000 2000 1999
----------- ----------- -----------
(UNAUDITED) (unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 24,292 $ 97,299 $ 28,269
Inventories 286,124 182,894 274,849
Accounts receivable and other current assets 16,901 20,352 20,322
-------- -------- --------
Total current assets 327,317 300,545 323,440
Property and equipment, net 130,784 116,892 116,571
Other assets 10,499 5,856 7,191
-------- -------- --------
Total assets $468,600 $423,293 $447,202
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $180,011 $143,685 $164,995
Accrued expenses 60,331 52,329 54,359
Income taxes payable -- -- 498
Current portion of long-term debt 318 318 289
-------- -------- --------
Total current liabilities 240,660 196,332 220,141
Long-term debt -- -- 318
Other long-term liabilities 4,648 4,345 3,695
Deferred income taxes 11,873 11,610 11,107
-------- -------- --------
Total liabilities 257,181 212,287 235,261
-------- -------- --------
Commitments and Contingencies
Shareholders' Equity
Preferred stock, par value $1.00 per share;
Authorized - 2,000,000 shares; issued and outstanding - none
Class B Common stock, no par value;
Authorized - 50,000,000 shares; issued and outstanding - none
Common stock, no par value;
Authorized - 50,000,000 shares;
Issued and outstanding - 32,528,330, 32,799,380
and 33,086,380 shares, respectively 21,987 23,832 25,667
Paid-in capital 9,574 9,523 9,481
Retained earnings 179,858 177,651 176,793
-------- -------- --------
Total shareholders' equity 211,419 211,006 211,941
-------- -------- --------
Total liabilities and shareholders' equity $468,600 $423,293 $447,202
======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT
ACCOUNTANTS' REVIEW REPORT.
4
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GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
-----------------------------
OCTOBER 28, October 30,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,207 $ 18,867
Adjustments to reconcile net earnings to net cash
used by operating activities:
Depreciation and amortization 14,324 12,099
Net loss on asset disposals 475 1,137
Cumulative effect of accounting change 207 --
Changes in assets and liabilities:
Inventories (103,230) (109,162)
Accounts payable 43,053 59,718
Income taxes (264) (410)
Other assets & liabilities 9,765 3,130
--------- ---------
Cash used in operating activities (33,463) (14,621)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment (28,722) (25,334)
Proceeds from sale of property and equipment 31 316
--------- ---------
Cash used in investing activities (28,691) (25,018)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options 723 111
Shares repurchased and retired (2,517) (2,513)
Changes in cash management accounts (9,059) (18,982)
--------- ---------
Cash used in financing activities (10,853) (21,384)
--------- ---------
Net decrease in cash and cash equivalents (73,007) (61,023)
Cash and cash equivalents, beginning of period 97,299 89,292
--------- ---------
Cash and cash equivalents, end of period $ 24,292 $ 28,269
========= =========
Supplemental Disclosures:
Income tax payments $ 3,787 $ 14,422
Interest payments 136 111
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT
ACCOUNTANTS' REVIEW REPORT.
5
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GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Goody's Family
Clothing, Inc. and subsidiaries (the "Company") are unaudited and have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for interim financial statements. In the opinion of the Company's
management, the accompanying unaudited condensed consolidated financial
statements include all adjustments, consisting primarily of normal and recurring
adjustments, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for the interim periods
presented. Due to the seasonal nature of the Company's business, the results of
operations for the interim periods are not necessarily indicative of the results
that may be achieved for the entire year. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes thereto contained in the Company's Annual Report on
Form 10-K for its fiscal year ended January 29, 2000.
(2) CHANGES IN ACCOUNTING METHODOLOGY
As more fully discussed in the Company's Current Report on Form 8-K filed on
March 2, 2000, the Company changed its accounting methodology, effective January
30, 2000 (the first day of the first quarter of fiscal 2000), to recognize the
sale and related gross profit from layaways upon delivery of the merchandise to
the customer. This new accounting methodology for layaways reduced earnings
(before the cumulative effect of the accounting change) by approximately
$600,000, or $0.02 per diluted share, for the thirty-nine weeks ended October
28, 2000; the effect for the thirteen weeks ended October 28, 2000 was not
significant.
As also disclosed in that Current Report, the Company retroactively restated its
balance sheet and statement of operations as of and for the thirteen and
thirty-nine weeks ended October 30, 1999 to accrue for sales returns and adopt a
change in accounting methodology related to leased departments in response to
the Securities and Exchange Commission's Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements."
(3) CREDIT ARRANGEMENTS
During September 2000, the Company amended its credit agreement for an unsecured
revolving line of credit which, as amended, provides for cash borrowings for
general corporate purposes as well as for the issuance of letters of credit of
up to an aggregate of $115,000,000 and which expires on June 30, 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.
(4) 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.
6
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GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
(5) RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for derivative instruments and hedging activities
The American Institute of Certified Public Accountants has issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No.133") which, as amended, is effective for the
Company in fiscal 2001. This standard requires that an entity recognize all
derivatives as either assets or liabilities in its statement of financial
position and measure those instruments at fair value. The Company has not yet
completed its analysis of the effect of SFAS No. 133 on its financial
statements.
(6) CONTINGENCIES
In February 1999, a lawsuit was filed in the United States District
Court for the Middle District of Georgia and was served on the Company and
Robert M. Goodfriend, its Chairman 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 lawsuit may have on the
Company's financial position or results of operations.
In addition, the Company is a party to various other legal proceedings arising
in the ordinary course of its business. While the costs and other effects of
pending proceedings could have a material adverse effect on the Company's
business, financial condition and operating results, management currently
believes that the ultimate outcome of all pending legal proceedings (other than
the matter noted in the paragraph above), individually and in the aggregate,
should not have a material adverse effect on the Company's financial position
and results of operations.
7
<PAGE> 8
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
Goody's Family Clothing, Inc.
Knoxville, Tennessee:
We have reviewed the accompanying condensed consolidated balance sheets of
Goody's Family Clothing, Inc. and subsidiaries as of October 28, 2000 and
October 30, 1999 and the related consolidated statements of operations and cash
flows for the thirteen and thirty-nine week periods then ended. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Goody's Family Clothing, Inc. and subsidiaries as of January 29, 2000 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
March 14, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of January 29, 2000 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/Deloitte & Touche LLP
Atlanta, Georgia
November 13, 2000
8
<PAGE> 9
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains certain forward-looking statements which are
based upon current expectations, plans and estimates and involve material risks
and uncertainties including, but not limited to: (i) weather conditions; (ii)
the timely availability of branded and private label merchandise in sufficient
quantities to satisfy customer demand; (iii) customer demand and trends in the
apparel and retail industry and to the acceptance of merchandise acquired for
sale by the Company; (iv) the effectiveness of advertising and promotional
events; (v) the impact of competitors' pricing and store expansion; (vi) the
ability to enter into acceptable leases for new store locations; (vii) the
timing, magnitude and costs of opening new stores; (viii) individual store
performance, including new stores; (ix) employee relations; (x) the general
economic conditions within the Company's markets; (xi) the Company's financing
plans; (xii) trends affecting the Company's financial condition or results of
operations; (xiii) the Company's ability to achieve improvements in efficiency
in merchandise distribution through the second distribution center, without
material start-up problems; and (xiv) the Company's ability to successfully
execute its business plans and strategies. Any "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which generally
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "estimate," "anticipate," "believe," "target," "plan,"
"project" or "continue" or the negatives thereof or other variations thereon or
similar terminology, are made on the basis of management's plans and current
analysis of the Company, its business and the industry as a whole. Readers are
cautioned that any such forward-looking statement is not a guarantee of future
performance and involves risks and uncertainties, and that actual results may
differ materially from those projected in the forward-looking statement as a
result of various factors. The Company does not undertake to publicly update or
revise its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will not be
realized. Additional information on risk factors that could potentially affect
the Company's financial results may be found in the Company's public filings
with the Securities and Exchange Commission. Certain of such filings may be
accessed through the Securities and Exchange Commission's web site,
http://www.sec.gov.
RESULTS OF OPERATIONS
The following table sets forth unaudited results of operations, as a percent of
sales, for the periods indicated:
<TABLE>
<CAPTION>
Thirteen Thirty-nine
Weeks Ended Weeks Ended
-------------------------- ---------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales and occupancy expenses 70.1 72.3 73.3 71.0
----- ----- ----- -----
Gross profit 29.9 27.7 26.7 29.0
Selling, general and administrative expenses 29.1 27.0 26.4 25.4
----- ----- ----- -----
Earnings from operations 0.8 0.7 0.3 3.6
Interest expense -- -- -- --
Investment income 0.2 0.3 0.2 0.2
----- ----- ----- -----
Earnings before income taxes 1.0 1.0 0.5 3.8
Provision for income taxes 0.4 0.4 0.2 1.4
----- ----- ----- -----
Net earnings 0.6% 0.6% 0.3% 2.4%
===== ===== ===== =====
</TABLE>
THIRTEEN WEEKS ENDED OCTOBER 28, 2000 COMPARED WITH THIRTEEN WEEKS ENDED OCTOBER
30, 1999
OVERVIEW During the third quarter of fiscal 2000, the Company opened 13 new
stores and relocated five stores, bringing the total number of stores in
operation at October 28, 2000 to 310, compared with 280 at October 30, 1999.
During the corresponding period of the previous fiscal year, the Company opened
12 new stores, relocated one store and closed one store. Net earnings for the
third quarter of fiscal 2000 was $1,635,000, or 0.6% of sales, compared with net
earnings of $1,569,000, or 0.6% of sales, for the third quarter of fiscal 1999.
9
<PAGE> 10
SALES Sales for the third quarter of fiscal 2000 were $276,550,000, a 3.3%
increase over the $267,792,000 in sales for the third quarter of fiscal 1999.
This increase of $8,758,000 consisted primarily of additional sales from new and
transition stores which was offset by a 5.2% decrease in comparable store sales.
The Company believes that its sales were negatively effected by unseasonably
warm weather during October 2000 and its strategy of limiting the availability
of seasonal clearance merchandise on its sales floors. Sales were particularly
weak in the men's and junior's divisions as well as all basic denim departments.
GROSS PROFIT Gross profit for the third quarter of fiscal 2000 was $82,575,000,
or 29.9% of sales, a $8,417,000 increase from the $74,158,000 in gross profit,
or 27.7% of sales, generated for the third quarter of the previous fiscal year.
The 2.2% increase in gross profit, as a percent of sales, in the third quarter
of fiscal 2000 compared with the third quarter of fiscal 1999 resulted from a
decrease in cost of sales of 2.8% and an increase in occupancy costs of 0.6%.
The gross margin rate increase was due, in large part, to the strategy of
limiting the availability of clearance merchandise on the stores' sales floors
as explained above. The increase in occupancy costs primarily resulted from
higher rents associated with new and relocated stores and a decrease in
comparable store sales as discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses for the third quarter of fiscal 2000 were $80,404,000,
or 29.1% of sales, an increase of $8,121,000 from $72,283,000, or 27.0% of
sales, for the third quarter of fiscal 1999. The 2.1% increase in selling,
general and administrative expenses, as a percent of sales, for the third
quarter of fiscal 2000 compared with the third quarter of fiscal 1999 resulted
from (i) a 0.7% increase in payroll expenses, (ii) a 0.8% increase in
advertising and promotional expenses and (iii) a net 0.6% increase in all other
selling, general and administrative expenses.
INTEREST EXPENSE Interest expense for the third quarter of fiscal 2000
increased by $8,000 compared with the third quarter of the previous fiscal year.
INVESTMENT INCOME Investment income for the third quarter of fiscal 2000
decreased by $182,000 compared with the third quarter of the previous fiscal
year primarily as a result of a decrease in invested funds during the period.
INCOME TAXES The provision for income taxes for the third quarter of fiscal
2000 was $981,000, for an effective tax rate of 37.5% of earnings before income
taxes, compared with a provision for income taxes of $941,000, for an effective
tax rate of 37.5% of earnings before income taxes, for the third quarter of the
previous fiscal year.
THIRTY-NINE WEEKS ENDED OCTOBER 28, 2000 COMPARED WITH THIRTY-NINE WEEKS ENDED
OCTOBER 30, 1999
OVERVIEW During the thirty-nine weeks ended October 28, 2000, the Company
opened 25 new stores, relocated six stores and closed two stores, bringing the
total number of stores in operation at October 28, 2000 to 310, compared with
280 at October 30, 1999. During the corresponding period of the previous fiscal
year, the Company opened 24 new stores, relocated 13 stores, remodeled four
stores and closed one store. Net earnings for the thirty-nine weeks ended
October 28, 2000 were $2,207,000, or 0.3% as a percent of sales, compared with
$18,867,000, or 2.4% as a percent of sales, for the thirty-nine weeks ended
October 30, 1999.
SALES Sales for the thirty-nine weeks ended October 28, 2000 were $850,329,000,
a 7.6% increase over the $790,003,000 in sales for the corresponding period of
the previous fiscal year. This increase of $60,326,000 consisted of additional
sales from new and transition stores which was offset by a 2.8% decrease in
comparable store sales.
GROSS PROFIT Gross profit for the thirty-nine weeks ended October 28, 2000 was
$227,122,000, or 26.7% of sales, a $2,244,000 decrease from the $229,366,000 in
gross profit, or 29.0% of sales, generated for the corresponding period of the
previous fiscal year. The 2.3% decrease in gross profit, as a percent of sales,
for the thirty-nine weeks ended October 28, 2000 compared with the thirty-nine
weeks ended October 30, 1999 resulted from an increase in cost of sales of 1.9%
and an increase in occupancy costs of 0.4%. The increase in occupancy costs
primarily resulted from higher rents associated with new and relocated stores
and a decrease in comparable store sales as discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses for the thirty-nine weeks ended October 28, 2000 were
$224,857,000, or 26.4% of sales, an increase of $23,875,000 from $200,982,000,
or 25.4% of sales, for the corresponding period of the previous fiscal year. The
1.0% increase in selling, general and administrative expenses, as a percent of
sales, for the thirty-nine weeks ended October 28, 2000 compared with the
thirty-nine weeks ended October 30, 1999 resulted from (i) a 0.6% increase in
payroll expenses, (ii) a 0.5% increase in advertising and promotional expenses
and (iii) a net 0.1% decrease in all other selling, general and administrative
expenses.
10
<PAGE> 11
INTEREST EXPENSE Interest expense for the thirty-nine weeks ended October 28,
2000 increased by $9,000 compared with the corresponding period of the previous
fiscal year.
INVESTMENT INCOME Investment income for the thirty-nine weeks ended October 28,
2000 decreased by $200,000 compared with the corresponding period of the
previous fiscal year primarily as a result of a decrease in invested funds
during the period.
INCOME TAXES The provision for income taxes for the thirty-nine weeks ended
October 28, 2000 was $1,448,000, for an effective tax rate of 37.5% of earnings
before income taxes, compared with $11,323,000, for an effective tax rate of
37.5% of earnings before income taxes, for the corresponding period of the
previous fiscal year.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - The Company changed its accounting
methodology, effective January 30, 2000 (the first day of the first quarter of
fiscal 2000), to recognize the sale and related gross profit from layaways upon
delivery of the merchandise to the customer. The cumulative effect of this new
accounting methodology for layaways was recorded in the first quarter of fiscal
2000 and reduced earnings by $207,000, net of a tax benefit of $124,000. In
addition, this new accounting methodology for layaways reduced earnings (before
cumulative effect of accounting change) by approximately $600,000, or $0.02 per
diluted share, for the thirty-nine weeks ended October 28, 2000; the effect on
the thirteen weeks ended October 28, 2000 was not significant.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL POSITION The Company's primary sources of liquidity are cash flows
from operations, including credit terms from vendors, and borrowings under its
credit agreement. At October 28, 2000, the Company's working capital was
$86,657,000 compared with $103,299,000 at October 30, 1999. At October 28, 2000
compared with October 30, 1999, (i) cash and cash equivalents decreased by
$3,977,000, (ii) net property and equipment increased by $14,213,000, (iii)
inventories increased by $11,275,000 and (iv) accounts payable increased by
$15,016,000. The net increase in inventories was primarily due to the addition
of internally operated shoe departments and the opening of new stores which were
offset by lower inventories on a store by store basis for existing stores. Trade
payables as a percent of inventories increased to 62.9% at October 28, 2000 as
compared with 60.0% at October 30, 1999.
During September 2000, the Company amended its credit agreement for an unsecured
revolving line of credit which, as amended, provides for cash borrowings for
general corporate purposes as well as for the issuance of letters of credit of
up to an aggregate of $115,000,000 and which expires on June 30, 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 October 28, 2000, the Company had no cash borrowings and $32,125,000 was
outstanding for letters of credit compared with no cash borrowings and
$57,296,000 outstanding for letters of credit at October 30, 1999. During the
thirty-nine weeks ended October 28, 2000, the Company had no cash borrowings
compared with average cash borrowings of $13,000 (with the highest balance of
$2,000,000 in March 1999) during the thirty-nine weeks ended October 30, 1999.
Letters of credit outstanding averaged $64,262,000 during the thirty-nine weeks
ended October 28, 2000 compared with $52,890,000 during the thirty-nine weeks
ended October 30, 1999. The highest balance of letters of credit outstanding
during the thirty-nine weeks ended October 28, 2000 was $79,789,000 (in June
2000) compared with $76,941,000 (in September 1999) during the thirty-nine weeks
ended October 30, 1999.
CASH FLOWS Cash used by operating activities for the thirty-nine weeks ended
October 28, 2000 was $33,463,000 compared with $14,621,000 for the corresponding
period of the previous fiscal year. Cash used for increases in inventory during
the thirty-nine weeks ended October 28, 2000 and October 30, 1999 was
$103,230,000 and $109,162,000, respectively. Accounts payable provided cash of
$43,053,000 and $59,718,000 in the thirty-nine weeks ended October 28, 2000 and
October 30, 1999, respectively. Other assets and liabilities provided cash of
$9,765,000 in the thirty-nine weeks ended October 28, 2000 compared with
$3,130,000 in the corresponding period of the previous fiscal year. Depreciation
and amortization expenses were $14,324,000 and $12,099,000 for the thirty-nine
weeks ended October 28, 2000 and
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October 30, 1999, respectively.
Cash flows from investing activities reflected a $28,691,000 and $25,018,000 net
use of cash for the thirty-nine weeks ended October 28, 2000 and October 30,
1999, respectively. Cash was used primarily to fund capital expenditures for (i)
new, relocated and remodeled stores, (ii) the construction of a new distribution
center, and (iii) for general corporate purposes.
Cash used by financing activities for the thirty-nine weeks ended October 28,
2000 was $10,853,000 compared with $21,384,000 for the corresponding period of
the previous fiscal year. The Company's cash management program used cash of
$9,059,000 in the thirty-nine weeks ended October 28, 2000 compared with
$18,982,000 for the corresponding period of the previous fiscal year. During the
thirty-nine weeks ended October 28, 2000, the Company received $672,000 in cash
and realized a tax benefit of $51,000, compared with $79,000 in cash and a tax
benefit of $32,000 during the corresponding period of the previous year from the
issuance of common stock upon the exercise of stock options. In addition, the
Company purchased 423,000 shares of its common stock for an aggregate of
$2,517,000 during the thirty-nine weeks ended October 28, 2000 under a stock
repurchase plan authorized by the Company's Board of Directors in June 1999.
Since the inception of the plan, the Company has purchased 1,008,300 shares of
its common stock for an aggregate of $7,024,000.
OUTLOOK The Company plans to open 7 new stores and relocate or remodel 6 stores
during the last quarter of fiscal 2000 which will complete its store expansion
plans for fiscal 2000. Management estimates that capital expenditures of
approximately $25,000,000 will be required for (i) opening new stores, (ii)
upgrading existing stores, (iii) construction of a new distribution center,
(iv) upgrading the existing distribution center, computer systems and
equipment, and (v) for general corporate purposes during the remainder of
fiscal 2000. The Company also plans to continue purchasing shares of its common
stock, from time to time, in the open market or in privately negotiated
transactions, depending on price, prevailing market conditions and other
factors.
The Company's primary needs for capital resources are for the purchase of store
inventories, capital expenditures and for normal operating purposes. 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 (subject to the Company's ability to negotiate
renewal of its credit agreement), will be sufficient to meet the Company's
operating and capital expenditure requirements. However, an adverse outcome of
pending litigation (as described in "Note (6) Contingencies" in the Notes to
Consolidated Financial Statements) could negatively affect working capital.
Also, the Company's credit agreement for its unsecured revolving line of credit
currently expires at the end of June 2001, and while the Company believes that
it will be able to negotiate a new credit facility, there is no assurance that
Company will be able to do so.
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 33.2% of the Company's annual sales based on the
Company's last three fiscal years ended January 29, 2000. 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 29, 2000, inflation has not materially affected the Company's business,
although there can be no assurance that inflation will not have a material
adverse effect on the Company in the future.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material investments or risks in market risk sensitive
instruments.
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PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS - None
ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS - None
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5. - OTHER INFORMATION - None
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
10.85 Employment agreement between the Registrant and Max W. Jones
dated July 31, 2000.*
10.86 Fourth Amendment Agreement dated September 30, 2000 between
the Registrant, GOODY'S MS, L.P. and GOODY'S IN, L.P. (the
"Original Borrowers"), GFCTX, L.P., GFCTN, L.P., GFCGA, L.P.
and GFC FS, LLC (the "Additional Borrowers"), TREBOR of TN,
Inc., SYDOOG, Inc. and GOFAMCLO, Inc. (the "Guarantors") and
the Lenders as identified therein and First Tennessee Bank
National Association as Administrative Agent.
15 Accountants' Awareness Letter
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - None
* The indicated exhibit is a management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Form
10-Q.
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GOODY'S FAMILY CLOTHING, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOODY'S FAMILY CLOTHING, INC.
(Registrant)
Date: November 21, 2000 /s/ Robert M. Goodfriend
----------------- -------------------------------------------
Robert M. Goodfriend
Chairman of the Board and
Chief Executive Officer
Date: November 21, 2000 /s/ Lana Cain Krauter
----------------- -------------------------------------------
Lana Cain Krauter
President, Chief Merchandising Officer
Date: November 21, 2000 /s/ Edward R. Carlin
----------------- -------------------------------------------
Edward R. Carlin
Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)
Date: November 21, 2000 /s/ David G. Peek
----------------- -------------------------------------------
David G. Peek
Vice President, Corporate Controller and
Chief Accounting Officer
(Principal Accounting Officer)
14
