UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 29, 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 Goody's Family Clothing, Inc.
(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
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value, 32,528,330 shares outstanding as of
August 31, 2000.
<PAGE>
Goody's Family Clothing, Inc.
Index to Form 10-Q
July 29, 2000
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. 13
Part II - Other Information.............................................. 14
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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............................................................... 15
<PAGE>
PART 1 - FINANCIAL INFORMATION
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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 Twenty-six
Weeks Ended Weeks Ended
------------------------------- -------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
------------- ------------ ------------- -------
<S> <C> <C> <C> <C>
Sales $ 295,496 $ 271,462 $ 573,779 $ 522,211
Cost of sales and occupancy expenses 230,153 189,725 429,232 367,003
------------ ------------ ------- ------------
Gross profit 65,343 81,737 144,547 155,208
Selling, general and administrative
expenses 71,512 66,545 144,453 128,699
------------ ------------ ------------ ------------
(Loss) earnings from operations (6,169) 15,192 94 26,509
Interest expense 51 53 107 106
Investment income 617 699 1,259 1,277
------------ ------------ ------------ ------------
(Loss) earnings before income taxes (5,603) 15,838 1,246 27,680
(Benefit) provision for income taxes (2,101) 5,965 467 10,382
------------- ------------ ------------ ------------
(Loss) earnings before cumulative
effect of accounting change (3,502) 9,873 779 17,298
Cumulative effect of accounting change,
net of tax benefit of $124 - - 207 -
------------ ------------ ------------ ------------
Net (loss) earnings $ (3,502) $ 9,873 $ 572 $ 17,298
============= ============ ============ ============
(Loss) earnings per common share
Basic
(Loss) earnings before cumulative
effect of accounting change $ (0.11) $ 0.30 $ 0.02 $ 0.52
Cumulative effect of accounting
change - - - -
------------ ------------ ------------ ------------
Basic net (loss) earnings per share $ (0.11) $ 0.30 $ 0.02 $ 0.52
============ ============ ============ ============
Diluted
(Loss) earnings before cumulative
effect of accounting change $ (0.11) $ 0.29 $ 0.02 $ 0.51
Cumulative effect of accounting
change - - - -
------------ ------------ ------------ ------------
Diluted net (loss) earnings per share$ (0.11) $ 0.29 $ 0.02 $ 0.51
============ ============ ============ ============
Weighted average common
shares outstanding
Basic 32,525 33,318 32,557 33,325
============ ============ ============ ============
Diluted 32,525 33,900 32,740 33,909
============ ============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Independent
Accountants' Review Report.
<PAGE>
Goody's Family Clothing, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
July 29, 2000 January 29, 2000 July 31, 1999
---------------- ------------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 57,633 $ 97,299 $ 70,858
Inventories 224,973 182,894 209,666
Accounts receivable and other current assets 16,262 20,352 15,068
-------------- ------------- --------------
Total current assets 298,868 300,545 295,592
Property and equipment, net 124,384 116,892 113,343
Other assets 9,763 5,856 3,647
-------------- ------------- --------------
Total assets $ 433,015 $ 423,293 $ 412,582
============== ============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 155,271 $ 143,685 $ 133,885
Accrued expenses 51,578 52,329 49,506
Income taxes payable - - 1,764
Current portion of long-term debt 318 318 289
-------------- ------------- --------------
Total current liabilities 207,167 196,332 185,444
Long-term debt - - 318
Other long-term liabilities 4,704 4,345 3,790
Deferred income taxes 11,536 11,610 11,223
-------------- ------------- --------------
Total liabilities 223,407 212,287 200,775
-------------- ------------- --------------
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 - 32,488,330, 32,799,380
and 33,245,480 shares, respectively 21,817 23,832 27,104
Paid-in capital 9,568 9,523 9,479
Retained earnings 178,223 177,651 175,224
-------------- ------------- --------------
Total shareholders' equity 209,608 211,006 211,807
-------------- ------------- --------------
Total liabilities and shareholders' equity $ 433,015 $ 423,293 $ 412,582
============== ============= ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Independent
Accountants' Review Report.
<PAGE>
Goody's Family Clothing, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
-----------------------------------------
Twenty-six Weeks Ended
-----------------------------------------
July 29, 2000 July 31, 1999
------------------- -------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net earnings $ 572 $ 17,298
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 9,486 7,819
Net loss on asset disposals 326 289
Cumulative effect of accounting change 207 -
Changes in assets and liabilities:
Inventories (42,079) (43,979)
Accounts payable 30,071 26,794
Income taxes (1,738) 2,398
Other assets & liabilities 3,452 5,428
--------------- -------------
Cash provided by operating activities 297 16,047
--------------- -------------
Cash Flows from Investing Activities
Acquisitions of property and equipment (17,336) (16,690)
Proceeds from sale of property and equipment 32 28
--------------- -------------
Cash used in investing activities (17,304) (16,662)
--------------- ------------
Cash Flows from Financing Activities
Exercise of stock options 547 103
Shares repurchased and retired (2,517) (1,071)
Changes in cash management accounts (20,689) (16,851)
---------------- --------------
Cash used in financing activities (22,659) (17,819)
---------------- --------------
Net decrease in cash and cash equivalents (39,666) (18,434)
Cash and cash equivalents, beginning of period 97,299 89,292
--------------- -------------
Cash and cash equivalents, end of period $ 57,633 $ 70,858
=============== =============
Supplemental Disclosures:
Income tax payments $ 3,613 $ 7,866
Interest payments 77 75
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Independent
Accountants' Review Report.
<PAGE>
Goody's Family Clothing, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of presentation
The accompanying condensed consolidated financial statements of Goody's Family
Clothing, Inc. and subsidiaries (the "Company") are unaudited and have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission 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
$500,000, or $0.02 per diluted share, for the twenty-six weeks ended July 29,
2000; the effect for the thirteen weeks ended July 29, 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 twenty-six weeks ended July 31, 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
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 on May 31, 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.
<PAGE>
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.
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
Goody's Family Clothing, Inc.
Knoxville, Tennessee:
We have reviewed the accompanying condensed consolidated balance sheets of
Goody's Family Clothing, Inc. and subsidiaries as of July 29, 2000 and July 31,
1999 and the related consolidated statements of operations and cash flows for
the thirteen and twenty-six week periods then ended. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with 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
August 15, 2000
<PAGE>
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking Statements
This Quarterly Report contains certain forward-looking statements which are
based upon current expectations, plans and estimates and involve material risks
and uncertainties including, but not limited to: (i) weather conditions; (ii)
the timely availability of branded and private label merchandise in sufficient
quantities to satisfy customer demand; (iii) customer demand and trends in the
apparel and retail industry and to the acceptance of merchandise acquired for
sale by the Company; (iv) the effectiveness of advertising and promotional
events; (v) the impact of competitors' pricing and store expansion; (vi) the
ability to enter into 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 success of the new credit card program; (xiv) the impact
of the stores' new presentation strategy; (xv) the ability to achieve
improvements in efficiency in merchandise distribution through the second
distribution center, without material start-up problems; and (xvi) 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 Twenty-six
Weeks Ended Weeks Ended
-------------------------- -----------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
------------ ------------ ----------- -------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales and occupancy expenses 77.9 69.9 74.8 70.3
----- ----- ----- -----
Gross profit 22.1 30.1 25.2 29.7
Selling, general and administrative expenses 24.2 24.5 25.2 24.6
----- ----- ----- -----
(Loss) earnings from operations (2.1) 5.6 - 5.1
Interest expense - - - -
Investment income 0.2 0.2 0.2 0.2
----- ----- ----- -----
(Loss) earnings before income taxes (1.9) 5.8 0.2 5.3
(Benefit) provision for income taxes (0.7) 2.2 0.1 2.0
------ ----- ----- -----
Net (loss) earnings (1.2)% 3.6% 0.1% 3.3%
====== ===== ===== =====
</TABLE>
Thirteen Weeks Ended July 29, 2000 Compared with Thirteen Weeks Ended July 31,
1999
Overview During the second quarter of fiscal 2000, the Company opened four new
stores and relocated one store, bringing the total number of stores in operation
at July 29, 2000 to 297, compared with 269 at July 31, 1999. During the
corresponding period of the previous fiscal year, the Company opened two new
stores, relocated five stores and remodeled two stores. Net loss for the second
quarter of fiscal 2000 was $3,502,000, or 1.2% of sales, compared with net
earnings of $9,873,000, or 3.6% of sales, for the second quarter of fiscal 1999.
<PAGE>
Sales Sales for the second quarter of fiscal 2000 were $295,496,000, an 8.9%
increase over the $271,462,000 in sales for the second quarter of fiscal 1999.
This increase of $24,034,000 consisted primarily of additional sales from new
and transition stores which was offset by a 1.8% decrease in comparable store
sales. Sales for the second quarter of fiscal 2000 were particularly weak in the
men's and junior's divisions as well as all basic denim departments. Average
price per unit of merchandise sold during the second quarter of fiscal 2000 was
lower than the second quarter of fiscal 1999 as a result of significant
promotional activity which further contributed to a decline in the comparable
store sales during the second quarter of fiscal 2000.
Gross profit Gross profit for the second quarter of fiscal 2000 was $65,343,000,
or 22.1% of sales, a $16,394,000 decrease from the $81,737,000 in gross profit,
or 30.1% of sales, generated for the second quarter of the previous fiscal year.
The 8.0% decrease in gross profit, as a percent of sales, in the second quarter
of fiscal 2000 compared with the second quarter of fiscal 1999 resulted from an
increase in cost of sales of 7.7% and an increase in occupancy costs of 0.3%.
During the second quarter of fiscal 2000, gross margins were negatively impacted
as the Company reacted to declining comparable store sales by increasing
promotional activities. The increased promotional activity was necessary to
liquidate excess merchandise to reach acceptable inventory levels. The increase
in occupancy costs primarily resulted from higher rents associated with new and
relocated stores and a decrease in comparable store sales as discussed above.
Selling, general and administrative expenses Selling, general and administrative
expenses for the second quarter of fiscal 2000 were $71,512,000, or 24.2% of
sales, an increase of $4,967,000 from $66,545,000, or 24.5% of sales, for the
second quarter of fiscal 1999. The 0.3% decrease in selling, general and
administrative expenses, as a percent of sales, for the second quarter of fiscal
2000 compared with the second quarter of fiscal 1999 resulted from (i) a 0.2%
decrease in stores' utilities expenses, (ii) a 0.1% decrease in professional
fees, (iii) a 0.2% decrease in store supplies and repairs and maintenance
expenses, and (iv) a net 0.2% decrease in all other selling, general and
administrative expenses which were partially offset by a (a) 0.2% increase in
store salaries and (b) 0.2% increase in depreciation and amortization expense.
Interest expense Interest expense for the second quarter of fiscal 2000
decreased by $2,000 compared with the second quarter of the previous fiscal
year.
Investment income Investment income for the second quarter of fiscal 2000
decreased by $82,000 compared with the second quarter of the previous fiscal
year primarily as a result of a decrease in invested funds during the period.
Income taxes The benefit for income taxes for the second quarter of fiscal 2000
was $2,101,000, for an effective tax rate of 37.5% of loss before income taxes,
compared with a provision for income taxes of $5,965,000, for an effective tax
rate of 37.7% of earnings before income taxes, for the second quarter of the
previous fiscal year.
Twenty-Six Weeks Ended July 29, 2000 Compared with Twenty-Six Weeks Ended July
31, 1999
Overview During the twenty-six weeks ended July 29, 2000, the Company opened 12
new stores, relocated one store and closed two stores, bringing the total number
of stores in operation at July 29, 2000 to 297, compared with 269 at July 31,
1999. During the corresponding period of the previous fiscal year, the Company
opened 12 new stores, relocated 12 stores and remodeled four stores. Net
earnings for the twenty-six weeks ended July 29, 2000 were $572,000, or 0.1% as
a percent of sales, compared with $17,298,000, or 3.3% as a percent of sales,
for the twenty-six weeks ended July 31, 1999.
Sales Sales for the twenty-six weeks ended July 29, 2000 were $573,779,000, a
9.9% increase over the $522,211,000 in sales for the corresponding period of the
previous fiscal year. This increase of $51,568,000 consisted of additional sales
from new and transition stores which was offset by a 1.6% decrease in comparable
store sales. The sluggish sales during the first quarter of fiscal 2000 caused
inventory levels to rise above the Company's business plan. The Company
responded with intense promotional activities during the second quarter of
fiscal 2000 that lowered the average price per unit of merchandise sold and
ultimately overall sales.
Gross profit Gross profit for the twenty-six weeks ended July 29, 2000 was
$144,547,000, or 25.2% of sales, a $10,661,000 decrease from the $155,208,000 in
gross profit, or 29.7% of sales, generated for the corresponding period of the
previous fiscal year. The 4.5% decrease in gross profit, as a percent of sales,
for the twenty-six weeks ended July 29, 2000 compared with the twenty-six weeks
ended July 31, 1999 resulted from an increase in cost of sales of 4.2% and an
increase in occupancy costs of 0.3%. The increase in cost of sales primarily
resulted from promotional activities, including additional markdowns on
clearance of spring and summer merchandise. The increase in occupancy costs
primarily resulted from higher rents associated with new and relocated stores
and a decrease in comparable store sales as discussed above.
Selling, general and administrative expenses Selling, general and administrative
expenses for the twenty-six weeks ended July 29, 2000 were $144,453,000, or
25.2% of sales, an increase of $15,754,000 from $128,699,000, or 24.6% of sales,
for the corresponding period of the previous fiscal year. The 0.6% increase in
selling, general and administrative expenses, as a percent of sales, for the
twenty-six weeks ended July 29, 2000 compared with the twenty-six weeks ended
July 31, 1999 resulted from (i) a 0.4% increase in advertising and promotional
expenses and (ii) a 0.5% increase in store salaries which were offset by (a) a
0.2% decrease in stores' utilities expenses and (b) a net 0.1% decrease in all
other selling, general and administrative expenses.
Interest expense Interest expense for the twenty-six weeks ended July 29, 2000
increased by $1,000 compared with the corresponding period of the previous
fiscal year.
Investment income Investment income for the twenty-six weeks ended July 29, 2000
decreased by $18,000 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 twenty-six weeks ended July
29, 2000 was $467,000, for an effective tax rate of 37.5% of earnings before
income taxes, compared with $10,382,000, 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 $500,000, or $0.02 per
diluted share, for the twenty-six weeks ended July 29, 2000; the effect on the
thirteen weeks ended July 29, 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 July 29, 2000, the Company's working capital was
$91,701,000 compared with $110,148,000 at July 31, 1999. At July 29, 2000
compared with July 31, 1999, (i) cash and cash equivalents decreased by
$13,225,000, (ii) net property and equipment increased by $11,041,000, (iii)
inventories increased by $15,307,000 and (iv) accounts payable increased by
$21,386,000. The net increase in inventories was primarily due to the addition
of internally operated shoe departments as well as for 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 69.0% at July 29, 2000 as
compared with 63.9% at July 31, 1999.
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 on May 31, 2001. The Company is committed to pay (i) interest on
the cash borrowings at a fluctuating base rate or LIBOR plus an applicable
margin, (ii) letter of credit fees based on the number of days a letter of
credit is outstanding times an applicable fee and (iii) an annual commitment fee
payable quarterly in advance. The terms of this credit agreement require, among
other things, maintenance of minimum levels of shareholders' equity, compliance
with certain financial ratios and Mr. Robert M. Goodfriend remaining as Chairman
of the Board or Chief Executive Officer of the Company, and place restrictions
on additional indebtedness, asset disposals, investments and capital
expenditures.
At July 29, 2000, the Company had no cash borrowings and $68,295,000 was
outstanding for letters of credit compared with no cash borrowings and
$54,187,000 outstanding for letters of credit at July 31, 1999. During the
twenty-six weeks ended July 29, 2000, the Company had no cash borrowings
compared with average cash borrowings of $19,000 (with the highest balance of
$2,000,000 in March 1999) during the twenty-six weeks ended July 31, 1999.
Letters of credit outstanding averaged $65,897,000 during the twenty-six weeks
ended July 29, 2000 compared with $47,128,000 during the twenty-six weeks ended
July 31, 1999. The highest balance of letters of credit outstanding during the
twenty-six weeks ended July 29, 2000 was $79,789,000 (in June 2000) compared
with $58,464,000 (in July 1999) during the twenty-six weeks ended July 31, 1999.
<PAGE>
Cash Flows Operating activities provided cash of $297,000 in the twenty-six
weeks ended July 29, 2000 compared with $16,047,000 in the corresponding period
of the previous fiscal year. Cash used for increases in inventory during the
twenty-six weeks ended July 29, 2000 and July 31, 1999 was $42,079,000 and
$43,979,000, respectively. Accounts payable provided cash of $30,071,000 and
$26,794,000 in the twenty-six weeks ended July 29, 2000 and July 31, 1999,
respectively. Other assets and liabilities provided cash of $3,452,000 in the
twenty-six weeks ended July 29, 2000 compared with $5,428,000 in the
corresponding period of the previous fiscal year. Depreciation and amortization
expenses were $9,486,000 and $7,819,000 for the twenty-six weeks ended July 29,
2000 and July 31, 1999, respectively.
Cash flows from investing activities reflected a $17,304,000 and $16,662,000 net
use of cash for the twenty-six weeks ended July 29, 2000 and July 31, 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 twenty-six weeks ended July 29, 2000
was $22,659,000 compared with $17,819,000 for the corresponding period of the
previous fiscal year. The Company's cash management program used cash of
$20,689,000 in the twenty-six weeks ended July 29, 2000 compared with
$16,851,000 for the corresponding period of the previous fiscal year. During the
twenty-six weeks ended July 29, 2000, the Company received $502,000 in cash and
realized a tax benefit of $45,000, compared with $73,000 in cash and a tax
benefit of $30,000 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 twenty-six weeks ended July 29, 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 approximately 18 new stores and relocate or
remodel approximately 14 stores during the last two quarters of fiscal 2000.
Management estimates that capital expenditures of approximately $37,700,000 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 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.
The Company is reevaluating its business plan for the second half of fiscal
2000, and is now planning comparable store sales to be flat for that period. As
a result, the Company no longer believes that, as had been previously stated,
earnings per share for fiscal 2000 will reach the $0.81 per share recorded in
fiscal 1998. Comparable store sales for August 2000 decreased 1.9% from August
1999. During August 2000, the Company continued clearing summer inventory by
selling that merchandise at a lower average price per unit compared with
August of last year.
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.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings - None
Item 2. - Changes in Securities and Use of Proceeds - None
Item 3. - Defaults Upon Senior Securities - None
Item 4. - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders (the "Meeting") on June 21,
2000 at which the election of directors was submitted to a vote of shareholders.
At the Meeting, the following persons were elected as directors of the Company
for three year terms expiring at the 2003 Annual Meeting of Shareholders:
Harry M. Call - 31,331,195 shares of common stock were voted in favor of his
election; 218,318 shares of common stock were withheld and 1,121,867 shares of
common stock were not voted. There were no abstentions or broker non-votes.
Effective July 28, 2000, Mr. Call resigned from the Board.
Samuel J. Furrow - 31,330,650 shares of common stock were voted in favor of his
election; 218,863 shares of common stock were withheld; and 1,121,867 shares of
common stock were not voted. There were no abstentions or broker non-votes.
The other directors of the Company include Robert M. Goodfriend and Robert F.
Koppel, whose terms expire at the 2001 Annual Meeting of Shareholders, and Irwin
L. Lowenstein and Cheryl L. Turnbull, whose terms expire at the 2002 Annual
Meeting of Shareholders.
Item 5. - Other Information - None
Item 6. - Exhibits and Reports on Form 8-K
--------------------------------------------
a) Exhibits -
10.77 Separation agreement and general release between the Registrant and
Keith J. Reichelderfer.*
10.78 Separation agreement and general release between the Registrant and
Thomas R. Kelly, Jr.*
10.79 Goody's Family Clothing, Inc. Amended and Restated 1991 Stock Incentive
Plan.*
10.80 Goody's Family Clothing, Inc. Amended and Restated 1993 Stock Option
Plan.*
10.81 Goody's Family Clothing, Inc. Amended and Restated 1997 Stock Option
Plan.*
10.82 Goody's Family Clothing, Inc. Amended and Restated Discounted Stock
Option Plan for Directors.*
10.83 Employment agreement between the Registrant and John A. Payne dated
July 18, 2000.*
10.84 Separation agreement and general release between the Registrant and
Harry M. Call.*
15 Accountants' Awareness Letter
27 Financial Data Schedule
* - The indicated exhibit is a management contract or compensatory plan
or arrangement required to be filed as an exhibit to this Form 10-Q.
b) Reports on Form 8-K - None
<PAGE>
GOODY'S FAMILY CLOTHING, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GOODY'S FAMILY CLOTHING, INC.
(Registrant)
Date: August 31, 2000 /s/ Robert M. Goodfriend
-------------------- ---------------------------------
Robert M. Goodfriend
Chairman of the Board and
Chief Executive Officer
Date: August 31, 2000 /s/ Lana Cain Krauter
-------------------- -----------------------------
Lana Cain Krauter
President, Special
Assistant to the Chairman
Date: August 31, 2000 /s/ Edward R. Carlin
-------------------- ----------------------------
Edward R. Carlin
Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financial
Officer)
Date: August 31, 2000 /s/ David G. Peek
-------------------- -------------------------
David G. Peek
Vice President, Corporate
Controller and
Chief Accounting Officer
(Principal Accounting
Officer)
<PAGE>
