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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 
 FORM 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 30, 2005 OR o
    
    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. 
  Tennessee
    
    62-0793974(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)400 Goodys Lane,Knoxville, Tennessee
    
    37922(Address of principal executive offices)
    
    (Zip Code)
 (865) 966-2000 
     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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes þ No o 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,32,971,069 shares outstanding as of May 13, 2005.




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GOODYS FAMILY CLOTHING, INC.
Index to Form 10-Q
April 30, 2005 Part I  Financial Information:Item 1. - Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Statements of Operations
    
    3Condensed Consolidated Balance Sheets
    
    4Condensed Consolidated Statements of Cash Flows
    
    5Notes to Condensed Consolidated Financial Statements
    
    6  9Report of Independent Registered Public Accounting Firm
    
    10Item 2. - Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    11  15Item 3. - Quantitative and Qualitative Disclosures about Market Risk
    
    16Item 4. - Controls and Procedures
    
    16Part
II  Other Information:Item 6. Exhibits
    
    17Signatures
    
    18EX-10.105 JOINDER AGREEMENTEX-15 ACCOUNTANTS AWARENESS LETTEREX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-31.3 SECTION 302, CERTIFICATION OF THE CAOEX-32.1 SECTION 906, CERTIFICATION OF THE CEOEX-32.2 SECTION 906, CERTIFICATION OF THE CFOEX-32.3 SECTION 906, CERTIFICATION OF THE CAO
  2




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##### Table of Contents



PART 1  FINANCIAL INFORMATION 
 Item 1.  Condensed Consolidated Financial Statements Goodys Family Clothing, Inc. and Subsidiaries 
 Condensed Consolidated Statements of Operations (Unaudited)
 (In thousands, except per share amounts)
 ThirteenWeeks EndedMay 1,2004April 30,
    
    
    (As restated2005
    
    
    see Note 2)Sales
    
    $
    292,705
    
    
    $
    302,878Cost of sales and occupancy expenses
    
    
    209,742
    
    
    
    209,475Gross profit
    
    
    82,963
    
    
    
    93,403Selling, general and administrative expenses
    
    
    86,370
    
    
    
    80,724(Loss) earnings from operations
    
    
    (3,407
    )
    
    
    12,679Investment income
    
    
    403
    
    
    
    185Interest expense
    
    
    10
    
    
    
    1(Loss) earnings before income taxes
    
    
    (3,014
    )
    
    
    12,863(Benefit) provision for income taxes
    
    
    (1,236
    )
    
    
    4,792Net (loss) earnings
    
    $
    (1,778
    )
    
    $
    8,071(Loss) earnings per common share:Basic
    
    $
    (0.05
    )
    
    $
    0.25Diluted
    
    $
    (0.05
    )
    
    $
    0.24Cash dividends declared per common share:
    
    $
    0.03
    
    
    $
    0.02Weighted average common shares outstanding:Basic
    
    
    32,917
    
    
    
    32,890Diluted
    
    
    32,917
    
    
    
    33,902
 See accompanying Notes to Condensed Consolidated Financial Statements and Report of Independent
Registered Public Accounting Firm. 3




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Goodys Family Clothing, Inc. and Subsidiaries 
 Condensed Consolidated Balance Sheets
 (Dollars in thousands, except per share amounts)
 May 1,2004April 30,
    
    
    January 29,
    
    
    (As restated,2005
    
    
    2005
    
    
    see Note 2)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    88,674
    
    
    $
    121,614
    
    
    $
    109,217Inventories
    
    
    242,914
    
    
    
    230,637
    
    
    
    234,747Accounts receivable and other current assets
    
    
    22,320
    
    
    
    19,932
    
    
    
    20,537Total current assets
    
    
    353,908
    
    
    
    372,183
    
    
    
    364,501Property and equipment, net
    
    
    138,747
    
    
    
    126,229
    
    
    
    118,262Other assets
    
    
    4,817
    
    
    
    4,988
    
    
    
    5,349Total assets
    
    $
    497,472
    
    
    $
    503,400
    
    
    $
    488,112LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable  trade
    
    $
    135,506
    
    
    $
    136,116
    
    
    $
    139,698Accounts payable  other
    
    
    12,904
    
    
    
    17,716
    
    
    
    15,992Accrued expenses
    
    
    47,048
    
    
    
    46,413
    
    
    
    42,822Current deferred income taxes
    
    
    27,505
    
    
    
    27,847
    
    
    
    25,397Total current liabilities
    
    
    222,963
    
    
    
    228,092
    
    
    
    223,909Long-term liabilities
    
    
    28,212
    
    
    
    26,032
    
    
    
    17,174Deferred income taxes
    
    
    9,355
    
    
    
    10,375
    
    
    
    11,825Total liabilities
    
    
    260,530
    
    
    
    264,499
    
    
    
    252,908Commitments and Contingencies (Note 5)Shareholders EquityPreferred stock, par value $1.00 per share;
Authorized - 2,000,000 shares; issued and outstanding  noneClass B Common stock, no par value;
Authorized - 50,000,000 shares; issued and outstanding  noneCommon stock, no par value;
Authorized - 50,000,000 shares;
Issued and outstanding  32,969,269; 32,842,019; and
32,950,977 shares, respectively
    
    
    35,429
    
    
    
    34,619
    
    
    
    35,542Retained earnings
    
    
    201,513
    
    
    
    204,282
    
    
    
    199,662Total shareholders equity
    
    
    236,942
    
    
    
    238,901
    
    
    
    235,204Total liabilities and shareholders equity
    
    $
    497,472
    
    
    $
    503,400
    
    
    $
    488,112
 See accompanying Notes to Condensed Consolidated Financial Statements and Report of Independent
Registered Public Accounting Firm. 4




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Goodys Family Clothing, Inc. and Subsidiaries 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 (In thousands)
 Thirteen Weeks EndedMay 1,2004April 30,
    
    
    (As restated,2005
    
    
    see note 2)Cash Flows from Operating ActivitiesNet (loss) earnings
    
    $
    (1,778
    )
    
    $
    8,071Adjustments to reconcile net (loss) earnings to net cash used in operating activities:Depreciation and amortization
    
    
    6,421
    
    
    
    6,037Net loss on asset sales, disposals and write-downs
    
    
    386
    
    
    
    208Changes in assets and liabilities:Inventories
    
    
    (12,277
    )
    
    
    (36,021
    )Accounts payable  trade
    
    
    (610
    )
    
    
    20,287Accounts payable  other
    
    
    (4,812
    )
    
    
    3,993Other assets, liabilities and income tax accounts
    
    
    (608
    )
    
    
    (6,810
    )Net cash used in operating activities
    
    
    (13,278
    )
    
    
    (4,235
    )Cash Flows from Investing ActivitiesAcquisitions of property and equipment
    
    
    (20,452
    )
    
    
    (9,521
    )Proceeds from sale of property and equipment
    
    
    1,182
    
    
    
    7Net cash used in investing activities
    
    
    (19,270
    )
    
    
    (9,514
    )Cash Flows from Financing ActivitiesDividends paid to shareholders
    
    
    (987
    )
    
    
    (657
    )Proceeds from exercise of stock options
    
    
    595
    
    
    
    590Net cash used in financing activities
    
    
    (392
    )
    
    
    (67
    )Net decrease in cash and cash equivalents
    
    
    (32,940
    )
    
    
    (13,816
    )Cash and cash equivalents, beginning of period
    
    
    121,614
    
    
    
    123,033Cash and cash equivalents, end of period
    
    $
    88,674
    
    
    $
    109,217Supplemental Disclosures:Net income tax (refunds) payments
    
    $
    (2
    )
    
    $
    3Interest payments
    
    
    10
    
    
    
    1Sale/leaseback of property and equipment
    
    
    672
    
    
    
    2,147
 See accompanying Notes to Condensed Consolidated Financial Statements and Report of Independent
Registered Public Accounting Firm. 5




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Goodys Family Clothing, Inc. and Subsidiaries 
 Notes to Condensed 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, 2005.
Certain reclassifications have been made to the condensed consolidated financial statements of
prior periods to conform to the current period presentation. (2) Restatement As more fully discussed in the fiscal 2004 Annual Report on Form 10-K filed on April 15, 2005, the
Company restated its balance sheets and statements of operations and cash flows for certain periods
including as of, and for the thirteen weeks ended May 1, 2004, to correct its lease accounting for
rent holidays, normal tenant improvements, construction costs, and sale-leaseback transactions in
accordance with Financial Accounting Standards Board Technical Bulletin No. 85-3, Accounting for
Operating Leases with Scheduled Rent Increases, Emerging Issues Task Force Issue No. 97-10, The
Effect of Lessee Involvement in Asset Construction, and Statement of Financial Accounting
Standards No. 98, Accounting for Leases. The following is a summary of the effects of the restatement on the Companys condensed
consolidated financial statements as of, and for the quarter ended, May 1, 2004 (in thousands): As Previously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedFor the quarter ended May 1, 2004Cost of sales and occupancy expenses
    
    $
    209,923
    
    
    $
    (448
    )
    
    $
    209,475Gross profit
    
    
    92,955
    
    
    
    448
    
    
    
    93,403Selling, general and administrative expenses
    
    
    80,290
    
    
    
    434
    
    
    
    80,724Earnings from operations
    
    
    12,665
    
    
    
    14
    
    
    
    12,679Earnings before income taxes
    
    
    12,849
    
    
    
    14
    
    
    
    12,863Provision for income taxes
    
    
    4,786
    
    
    
    6
    
    
    
    4,792Net earnings
    
    
    8,063
    
    
    
    8
    
    
    
    8,071
 6




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Condensed Consolidated Balance SheetAs PreviouslyReported
    
    
    Adjustments
    
    
    As RestatedAs of May 1, 2004Property and equipment, net
    
    $
    110,313
    
    
    $
    7,949
    
    
    $
    118,262Total assets
    
    
    480,163
    
    
    
    7,949
    
    
    
    488,112Accrued expenses
    
    
    42,556
    
    
    
    266
    
    
    
    42,822Current deferred income taxes
    
    
    25,413
    
    
    
    (16
    )
    
    
    25,397Total current liabilities
    
    
    223,659
    
    
    
    250
    
    
    
    223,909Other long-term liabilities-
    
    
    6,517
    
    
    
    10,657
    
    
    
    17,174Deferred income taxes
    
    
    12,966
    
    
    
    (1,141
    )
    
    
    11,825Total liabilities
    
    
    243,142
    
    
    
    9,766
    
    
    
    252,908Retained earnings
    
    
    201,479
    
    
    
    (1,817
    )
    
    
    199,662Total shareholders equity
    
    
    237,021
    
    
    
    (1,817
    )
    
    
    235,204Total liabilities and shareholders equity
    
    
    480,163
    
    
    
    7,949
    
    
    
    488,112
 (3) Stock-Based Compensation The Company has options outstanding under four stock option plans: the Goodys Family Clothing,
Inc. Amended and Restated 1991 Stock Incentive Plan (the 1991 Plan), the Goodys Family Clothing,
Inc. Amended and Restated 1993 Stock Option Plan (the 1993 Plan), the Goodys Family Clothing,
Inc. Amended and Restated 1997 Stock Option Plan (the 1997 Plan) and the Amended and Restated
Discounted Stock Option Plan for Directors (the Directors Plan). The Company accounts for its stock option plans under the recognition and measurement principles of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost is reflected in net (loss) earnings, as
all options granted under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. However, expense is recorded in connection with stock
options issued under the Directors Plan to non-employee directors and this expense has been
immaterial. Interim pro forma information regarding net (loss) income and (loss) earnings per share
is required by Statement of Financial Accounting Standards No. 148 (SFAS 148), Accounting for
Stock-Based Compensation  Transition and Disclosure  an Amendment of Financial Accounting
Standards Board (FASB) Statement No. 123, which requires that the information be determined as
if the Company had accounted for its employee stock options granted under the fair value method of
that statement. The following table illustrates the effect on net (loss) earnings and (loss)
earnings per common share if the Company had applied the fair value recognition provisions of SFAS
148 to stock-based employee compensation (in thousands, except per share amounts): ThirteenWeeks EndedApril 30,
    
    
    May 1,2005
    
    
    2004Net (loss) earnings, as reported

    
    $
    (1,778
    )
    
    $
    8,071Deduct: Total stock-based employee
compensation expense determined under fair
value based-method for all awards, net of
related tax effects
    
    
    (1,732
    )
    
    
    (191
    )Pro forma net (loss) earnings
    
    $
    (3,510
    )
    
    $
    7,880(Loss) earnings per common share:Basic  as reported
    
    $
    (0.05
    )
    
    $
    0.25Basic  pro forma
    
    
    (0.11
    )
    
    
    0.24Diluted  as reported
    
    $
    (0.05
    )
    
    $
    0.24Diluted  pro forma
    
    
    (0.11
    )
    
    
    0.23
 7




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The weighted-average fair value of each stock option included in the preceding pro forma amounts
was estimated using the Black-Scholes option-pricing model and is amortized over the vesting period
of the underlying options. On March 15, 2005, the Board of Directors (the Board) of the Company, upon recommendation of the
Boards Compensation Committee, approved the accelerated vesting of all unvested and
out-of-the-money options held by current employees, officers and directors (the Acceleration).
The accelerated options had been granted under the Companys Amended and Restated 1993 Stock Option
Plan and Amended and Restated 1997 Stock Option Plan (collectively, the Plans). The unvested
options affected by the acceleration are those which had exercise prices of greater than $9.60 per
share, the closing sales price of the Companys common stock on the NASDAQ National Market on March
15, 2005, the effective date of the Acceleration. Pursuant to the Acceleration, options granted
under the Plans to purchase approximately 435,000 shares of the Companys common stock that would
otherwise have vested at various times within the next five years became fully vested, of which
13,000 were held by executive officers and 19,200 where held by directors. The accelerated options
have exercise prices ranging from $9.91 to $12.74. No other terms of the accelerated options were
changed. The decision to initiate the Acceleration under the Plans, which the Company believes to
be in the best interest of the Company and its shareholders, was made primarily to reduce
compensation expense that might be recorded in future periods following the Companys adoption on
January 29, 2006 (the first day of fiscal 2006) of FASB Statement of Financial Accounting Standards
No. 123 ® (SFAS 123®), Share-Based Payment. SFAS 123® will require the Company to record
compensation expense equal to the fair value of all equity-based compensation over the vesting
period of each such award. The Companys aggregate pro forma after tax compensation expense related
to the Acceleration was approximately $1.4 million after taxes in the first quarter of 2005. The
Company expects that the adoption of this SFAS 123® in fiscal 2006 will have a material effect on
its statement of operations for fiscal 2006. (4) Credit arrangements In May 2001, the Company entered into a five-year, $130,000,000 syndicated revolving loan and
security agreement that provides for cash borrowings for general corporate purposes, including a
$95,000,000 sub-facility for the issuance of letters of credit. Borrowings under this credit
facility are limited by collateral formulas, based principally upon the Companys eligible
inventories. The credit facility is secured primarily by the Companys inventories, receivables and
cash and cash equivalents. The borrowing base was $167,092,000 at April 30, 2005, which excludes
cash and most of cash equivalents and only gives credit for specified percentages of inventory and
receivables. The amount available to draw under the credit facility at April 30, 2005 was
approximately $112,592,000. If availability (as calculated pursuant to the credit facility) falls
below $25,000,000, the Company would be required, for a period of time, to comply with a financial
covenant requiring it to maintain minimum levels of tangible net worth based on formulas. The
Companys availability did not fall below $25,000,000 during the thirteen weeks ended April 30,
2005, or May 1, 2004, and therefore the Company was not required to comply with this financial
covenant. The credit facility also contains certain discretionary provisions that enable the lender
to reduce availability. The credit facility bears interest at LIBOR plus an applicable margin or
the prime rate. In June 2003, the credit facility was amended to permit cash dividends in any
fiscal year on the common stock in an amount not to exceed (i) $3,500,000 (but not to exceed
$10,000,000 in the aggregate during the remaining term of the credit facility) plus (ii) 50% of the
Companys consolidated net income for the immediately preceding fiscal year. At April 30, 2005, the
Company had no borrowings outstanding and had letters of credit outstanding of $17,369,000. Of
these letters outstanding, $15,045,000 represented merchandise that had not yet been shipped to the
Company and therefore had not yet been reflected in accounts payable. These letters of credit
generally have terms of less than one year and are primarily used to facilitate the purchase of
import merchandise. (5) Contingencies Class Action Proceeding 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 of the Board 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 alleged that the Company maintained a racially
hostile working environment. 8




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On February 28, 2003, a proposed Consent Decree was filed with the District Court for its
preliminary approval. The proposed Consent Decree sets forth the proposed settlement of the class
action race discrimination lawsuit. Ultimately, class action certification was sought in the
lawsuit only with respect to alleged discrimination in promotion to management positions and the
proposed Consent Decree is limited to such claims. Generally, the proposed settlement provides for
a payment by the Company in the aggregate amount of $3.2 million to the class members (including
the named plaintiffs) and their counsel, as well as the Companys implementation of certain
policies, practices and procedures regarding, among other things, training of employees. The
Companys employer liability insurance underwriter has funded $3.1 million of such payment to a
third-party administrator. The proposed Consent Decree explicitly provides that it is not an
admission of liability by the Company and the Company continues to deny all of the allegations. On
April 30, 2003, the District Court granted preliminary approval of the proposed Consent Decree, and
a hearing was held on June 30, 2003, regarding the adequacy and fairness of the proposed
settlement. On March 3, 2004, the United States District Court for the Middle District of Georgia
issued an Order granting final approval of the Consent Decree. On or about February 23, 2004, a
purported class member filed an appeal with the U.S. Court of Appeals for the Eleventh Circuit (the
Eleventh Circuit), alleging, among other things, misconduct on the part of the District Court and
the plaintiffs/appellants counsel; the Eleventh Circuit dismissed this appeal on March 5, 2004.
On or about March 12, 2004, a Motion to set aside the dismissal was filed with the Eleventh
Circuit. On May 28, 2004, the Eleventh Circuit dismissed all appeals regarding this matter. In
August 2004, a purported class member filed a Petition for a Writ of Certiorari with the United
States Supreme Court regarding the Eleventh Circuits dismissal of all appeals on this matter; on
January 20, 2005, the United States Supreme Court denied the Petition for a Writ of Certiorari.
Pursuant to the terms of the March 3, 2004, Order, the District Court will maintain jurisdiction of
this matter until July 2006 to monitor the parities compliance with the Consent Decree. Other Matters In addition, the Company is a party to various other legal proceedings arising in the ordinary
course of its business. The Company has various insurance policies in place in the event of
unfavorable outcomes from such proceedings. The insurance companies level of, and willingness to,
support their coverage could vary depending upon the circumstances of each particular case. As
such, there can be no assurance as to the level of support available from insurance policies. The
Company does not currently believe that the ultimate outcome of all such pending legal proceedings,
individually or in the aggregate, would have a material adverse effect on the Companys financial
position, results of operations or cash flows. (6) Intangible Assets The Company purchased the Duck Head trademarks and four related licenses from TSI Brands Inc., and
its parent corporation, Tropical Sportswear Intl Corporation during fiscal 2003 and total
acquisition costs were $4,103,000. In accordance with FASB Statement No. 142, Goodwill and Other
Intangible Assets, the Company performed a valuation of the trademarks during fiscal 2004 and
determined that the asset has an indefinite life and no impairment charge was necessary. Intangible
assets are included within other assets in the accompanying consolidated balance sheets. (7) New Accounting Pronouncement On April 14, 2005, the Securities and Exchange Commission announced that the required effective
date for adopting Statement of Financial Accounting Standards No. 123 ®, Share-Based Payment,
has been deferred to fiscal years beginning after June 15, 2005, instead of an effective date of
interim periods beginning after June 15, 2005. The Company will be required to adopt this statement
on January 29, 2006, the first day of fiscal 2006. 9




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 (the Company) as of April 30, 2005 and May 1, 2004, and the related
condensed consolidated statements of operations and of cash flows for the thirteen week periods
ended April 30, 2005 and May 1, 2004. These interim condensed consolidated financial statements are
the responsibility of the Companys management. We conducted our reviews in accordance with standards established by the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures and 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 of the Public Company Accounting Oversight Board (United States), 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 interim 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 of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of the Company as of January 29,
2005, 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 April 15, 2005, 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,
2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived. As discussed in Note 2, the accompanying condensed consolidated balance sheet as of May 1, 2004 and
the related condensed consolidated statements of operations and of cash flows for the thirteen week
period ended May 1, 2004 have been restated. /s/Deloitte & Touche LLP
Atlanta, Georgia
May 23, 2005 10




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##### Table of Contents



Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations The accompanying Managements Discussion and Analysis of Financial Condition and Results of
Operations gives effect to the restatement discussed in Note 2 in the Notes to Condensed
Consolidated Financial Statements. Forward-looking Statements This Quarterly Report contains certain forward-looking statements which are based upon current
expectations, business plans and estimates and involve material risks and uncertainties including,
but not limited to:  (i)
    customer demand and trends in the apparel and retail industry and to the acceptance of the
Companys merchandise offerings, including the Companys private-label and exclusive lines;(ii)
    the ability to reverse the negative trend in comparable-store sales;(iii)
    weather conditions;(iv)
    the effectiveness of advertising and promotional events;(v)
    the ability to avoid excess promotional pricing;(vi)
    the effectiveness of merchandising, advertising, pricing, and operational strategies;(vii)
    the ability to achieve business plan targets;(viii)
    the timely availability of branded and private-label merchandise in sufficient quantities to
satisfy customer demand;(ix)
    the ability to achieve business plans for the Duck Head line, which call for continued
growth;(x)
    the impact of competitors pricing and store expansion;(xi)
    individual store performance, including new stores;(xii)
    the ability to enter into leases for new store locations;(xiii)
    the timing, magnitude and costs of opening new stores;(xiv)
    growth of the Companys store base;(xv)
    relations with vendors, factors and employees;(xvi)
    the general economic conditions within the Companys markets, including gasoline and energy
prices, and an improvement in the overall retail environment;(xvii)
    global political unrest, including terrorism and war;(xviii)
    the continued availability of adequate credit support from vendors and factors;(xix)
    the Companys compliance with loan covenants and the availability of sufficient eligible
collateral for borrowing;(xx)
    the unanticipated needs for additional capital expenditures;(xxi)
    trends affecting the Companys financial condition, results of operations or cash flows;(xxii)
    the success of the Companys information technology systems;(xxiii)
    the success of the Companys e-commerce initiative; and(xxiv)
    the outcome of pending litigation. 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 2004 Annual Report on Form 10-K filed with the Securities and
Exchange Commission. Certain of such filings may be accessed through the Companys web site,
www.goodysonline.com, then choose SEC Filings. 11




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Overview Goodys is a retailer of moderately priced family apparel, with its stores located in small to
midsized markets in the Southeast, Midwest and Southwest regions of the United States that have
demographic characteristics consistent with its targeted customer. The Companys objective is to be
a leading retailer of apparel for the entire family in each of the markets it serves. In keeping
with this objective, Goodys offers a broad selection of current-season, nationally recognized
brands for brand-conscious shoppers, as well as exclusive brands for those shoppers who seek
quality apparel at value prices. All of Goodys stores are leased, average approximately 27,700
gross square feet, and are generally located in strip shopping centers. The Company manages its
core functions, such as purchasing, pricing, marketing and advertising, distribution, planning and
allocation, real estate, finance, and information systems, from its centrally located corporate
office in Knoxville, Tennessee. The Company has two distribution centers, one each in Knoxville,
Tennessee and Russellville, Arkansas. Outlook The Company has revised its previously announced business plan for fiscal 2005. Following are the
revised components for fiscal 2005, versus previous guidance: (i) the opening of 29 new stores,
versus 35 new stores; and (ii) the relocating or remodeling of approximately 10 stores, versus 15
stores. Actual results may vary from this revised guidance. The Company opened 2 new stores and 1 relocated store on May 5, 2005, and expects to open 20
additional stores and relocate or remodel up to 7 stores during the remainder of fiscal 2005.
Capital expenditures for the remainder of fiscal 2005 are currently expected to be approximately
$39,000,000, primarily related to new and remodeled store costs, management information systems and
general corporate purposes. Total capital expenditures for fiscal 2005 are currently expected to be
approximately $59,000,000. 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 anticipated cash flows from operations, including credit terms from
vendors and factors, and the borrowings available under the credit facility will be sufficient to
meet the Companys operating and capital expenditure requirements for the foreseeable future. On March 16, 2005, the Companys Board of Directors declared a quarterly cash dividend of $0.03 per
share to shareholders of record on June 1, 2005, payable on June 15, 2005. The Company anticipates
paying regular, quarterly cash dividends in the future, subject to the Companys earnings,
financial condition, capital requirements, general economic and business conditions, and other
factors deemed relevant by the Board of Directors. The Companys credit facility was amended to
permit such dividends within certain prescribed limitations, as described above. Critical Accounting Policies The Companys accompanying interim condensed consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States of America, which
require management to make estimates that affect the amounts of revenues, expenses, assets, and
liabilities reported. The critical accounting matters that are very important to the portrayal of
the Companys financial condition and results of operations and require some of managements most
difficult, subjective and complex judgments are described in detail in the Companys Annual Report
on Form 10-K for the fiscal year ended January 29, 2005. The accounting for these matters involves
forming estimates based on current facts, circumstances and assumptions which, in managements
judgment, could change in a manner that would materially affect managements future estimates with
respect to such matters and, accordingly, could cause future reported financial condition and
results of operations to differ materially from financial results reported based on managements
current estimates. There have been no material changes in the critical accounting policies during
the thirteen weeks ended April 30, 2005. 12




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Results of Operations The following table sets forth unaudited results of operations, as a percent of sales, for the
periods indicated: ThirteenWeeks EndedApril 30,
    
    
    May 1,2005
    
    
    2004Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales and occupancy expenses
    
    
    71.6
    
    
    
    69.1Gross profit
    
    
    28.4
    
    
    
    30.9Selling, general and administrative expenses
    
    
    29.5
    
    
    
    26.7(Loss) earnings from operations
    
    
    (1.1
    )
    
    
    4.2Investment income
    
    
    0.1
    
    
    
    0.1Interest expense
    
    
    
    
    
    
    (Loss) earnings before income taxes
    
    
    (1.0
    )
    
    
    4.3(Benefit) provision for income taxes
    
    
    (0.4
    )
    
    
    1.6Net (loss) earnings
    
    
    (0.6
    )%
    
    
    2.7
    %
 Thirteen Weeks Ended April 30, 2005 Compared with Thirteen Weeks Ended May 1, 2004 Overview. During the first quarter of fiscal 2005, the Company opened seven new stores, relocated
two stores and closed three stores, bringing the total number of stores in operation at April 30,
2005 to 361, compared with 340 at May 1, 2004. During the first quarter of fiscal 2004, the Company
opened five new stores, relocated one store and remodeled five stores. The Company incurred a net
loss for the first quarter of fiscal 2005 of $1,778,000, or 0.6% of sales, compared with net
earnings for the first quarter of fiscal 2004 of $8,071,000, or 2.7% of sales. Sales.Sales for the first quarter of fiscal 2005 were $292,705,000, a 3.4% decrease from the
$302,878,000 in sales for the first quarter of fiscal 2004. The decrease of $10,173,000 consisted
primarily of a $13,488,000 increase in additional net sales from new stores, transition stores and
sales from stores that were subsequently closed, offset by a $23,966,000 decrease in comparable
store sales. Comparable store sales for the first quarter of fiscal 2005 decreased 8.1% compared
with the first quarter of fiscal 2004. Sales for the first quarter of fiscal 2005 were negatively
affected, in part, by unseasonably cool and wet weather patterns during portions of the quarter.
Sales of private-label and exclusive brand merchandise increased to approximately 38% of total
merchandise sales for the first quarter of fiscal 2005 from 34% of total merchandise sales for the
same period in the prior year. Gross profit.Gross profit for the first quarter of fiscal 2005 was $82,963,000 or 28.4% of sales,
a $10,440,000 decrease from the $93,403,000 in gross profit, or 30.9% of sales, for the first
quarter of fiscal 2004. Merchandise margins in the first quarter of fiscal 2005 decreased 1.7% as a
percent of sales from the first quarter of fiscal 2004, due in part to increased promotional
activity in an effort to stimulate sales and lower levels of sales of spring seasonal merchandise,
much of which is private-label merchandise, which carries the highest gross margins in the Company.
Occupancy costs increased 0.8% due largely to the decrease in comparable store sales and the
resulting lack of leverage as a percentage of sales, as well as higher rent costs associated with
new and relocated stores. Selling, general and administrative (SG&A) expenses.SG&A expenses for the first quarter of
fiscal 2005 were $86,370,000, or 29.5% of sales, an increase of $5,646,000 from $80,724,000, or
26.7% of sales, for the first quarter of fiscal 2004. SG&A expenses increased by 2.8%, as a percent
of sales, for the first quarter of fiscal 2005 compared with the first quarter of fiscal 2004. SG&A
expense dollars increased primarily due to costs associated with the greater number of stores,
including payroll and advertising. The SG&A expense rate increase, as a percentage of sales, was
due largely to the decrease in comparable store sales and the resulting lack of leverage. The
components of the SG&A expense rate increase were primarily (i) a 1.4% increase in payroll expense,
(ii) a 0.5% increase in advertising expenses, (iii) a 0.2% increase in depreciation, (iv) a 0.2%
increase in utilities expense, and (v) a 0.5% increase in all other SG&A expenses. 13




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##### Table of Contents



Income taxes.The benefit for income taxes for the first quarter of fiscal 2005 was $1,236,000, for
an effective tax rate of 41.00% of loss before income taxes, compared with a provision for income
taxes of $4,792,000, for an effective tax rate of 37.25% of earnings before income taxes, for the
first quarter of fiscal 2004.The increase in the effective tax rate was primarily due to a shift in
the composition of earnings among various entities of the Company, changes in state tax laws and
certain disallowed deductions. Liquidity and Capital Resources Financial Position.The Companys primary sources of liquidity are cash flows from operations,
including credit terms from vendors and factors, and borrowings under its credit facility discussed
below. At April 30, 2005, January 29, 2005, and May 1, 2004, the Companys working capital was
$130,945,000, $144,091,000 and $140,592,000, respectively. The $9,647,000 decrease in working capital from May 1, 2004 to April 30, 2005, consisted primarily
of (i) a $20,485,000 net change in property and equipment, (ii) dividends paid of $3,619,000, (iii)
repurchases of common stock of $1,847,000, offset by (iv) increases in long-term liabilities of
$11,038,000, (v) $5,804,000 in earnings, and (vi) $1,173,000 from the issuance of common stock
through the exercise of stock options. The $13,146,000 decrease in working capital from January 29, 2005 to April 30, 2005, consisted
primarily of (i) a $12,518,000 net change in property and equipment, (ii) $1,778,000 in net loss,
(iii) dividends paid of $987,000, offset by (iv) increases in long-term liabilities of $2,180,000,
and (v) $595,000 from the issuance of common stock through the exercise of stock options. In May 2001, the Company entered into a five-year, $130,000,000 syndicated revolving loan and
security agreement that provides for cash borrowings for general corporate purposes, including a
$95,000,000 sub-facility for the issuance of letters of credit. Borrowings under this credit
facility are limited by collateral formulas, based principally upon the Companys eligible
inventories. The credit facility is secured primarily by the Companys inventories, receivables and
cash and cash equivalents. The borrowing base was $167,092,000 at April 30, 2005, which excludes
cash and most of cash equivalents and only gives credit for specified percentages of inventory and
receivables. The amount available to draw under the credit facility at April 30, 2005, was
approximately $112,592,000. If availability (as calculated pursuant to the credit facility) falls
below $25,000,000, the Company would be required, for a period of time, to comply with a financial
covenant requiring it to maintain minimum levels of tangible net worth based on formulas. The
credit facility also contains certain discretionary provisions that enable the lender to reduce
availability. The credit facility bears interest at LIBOR plus an applicable margin or the prime
rate. In June 2003, the credit facility was amended to permit cash dividends in any fiscal year on
the common stock in an amount not to exceed (i) $3,500,000 (but not to exceed $10,000,000 in the
aggregate during the remaining term of the credit facility) plus (ii) 50% of the Companys
consolidated net income for the immediately preceding fiscal year. There were no cash borrowings during the thirteen weeks ended April 30, 2005 or May 1, 2004, or
during fiscal 2004. Letters of credit outstanding averaged $21,765,000 during the thirteen weeks
ended April 30, 2005, compared with $35,913,000 during the thirteen weeks ended May 1, 2004. The
highest balance of letters of credit outstanding during the thirteen weeks ended April 30, 2005,
was $39,735,000 in February 2005 compared with $43,269,000 in February 2004 during the thirteen
weeks ended May 1, 2004. The Company had letters of credit outstanding of $17,369,000, $39,735,000
and $31,944,000 at April 30, 2005, January 29, 2005 and May 1, 2004, respectively. Of these letters
outstanding, $15,045,000, $23,122,000 and $24,386,000, at April 30, 2005, January 29, 2005 and May
1, 2004, respectively, represented merchandise that had not yet been shipped to the Company and
therefore had not yet been reflected in accounts payable. The Company renegotiated its business
arrangement with its primary import agent in the fourth quarter of fiscal 2004, and therein
eliminated the need for letters of credit with such agent. As a result, the Company expects its
need for letters of credit in fiscal 2005 to be substantially less than historical amounts. 14




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##### Table of Contents



Cash Flows.Cash used in operating activities was $13,278,000 and $4,235,000 for the thirteen weeks
ended April 30, 2005 and May 1, 2004, respectively. Cash used for increases in inventory during the
thirteen weeks ended April 30, 2005 and May 1, 2004, was $12,277,000 and $36,021,000, respectively.
Inventories on a per square foot basis were $24.36 and $24.84 at April 30, 2005 and May 1, 2004,
respectively, which represents a 1.9% decrease on a per square foot basis. A decrease in accounts payable  trade used cash of $610,000 for the thirteen weeks ended April 30,
2005 due to a lower payables to inventories ratio at April 30,
2005 of 55.8% versus 59.0% at
January 29, 2005. An increase in accounts payable  trade provided cash of $20,287,000 for the
thirteen weeks ended May 1, 2004, and was primarily related to the funding of inventory for new and
relocated stores and normal seasonal buildups. Cash flows from investing activities reflected a net use of cash of $19,270,000 and $9,514,000 for
the thirteen weeks ended April 30, 2005 and May 1, 2004, respectively. The Company used cash to
fund capital expenditures, which consisted primarily of (i) $10.6 million for the purchase of used
aircraft to replace aging aircraft, which is intended to be sold, (ii) $9.2 million for new,
relocated and remodeled stores (which includes $3.4 million in store assets there were, or will be,
funded from landlord / developers), offset by (iii) $1.2 million in proceeds from the sale of store
assets for the thirteen weeks ended April 30, 2005. Cash flows from financing activities used cash of $392,000 and $67,000 for the thirteen weeks ended
April 30, 2005 and May 1, 2004, respectively. The Company paid a quarterly cash dividend of $0.03
per share on March 15, 2005, of $987,000, and a cash dividend of $0.02 per share on March 15, 2004,
of $657,000. Proceeds from the issuance of common stock resulting from the exercise of stock
options for the thirteen weeks ended April 30, 2005 and May 1, 2004, were $595,000 and $590,000,
respectively. New Accounting Pronouncement On April 14, 2005, the Securities and Exchange Commission announced that the required effective
date for adopting Statement of Financial Accounting Standards No. 123 ®, Share-Based Payment,
has been deferred to fiscal years beginning after June 15, 2005, instead of an effective date of
interim periods beginning after June 15, 2005. The Company will be required to adopt this statement
on January 29, 2006, the first day of fiscal 2006. On March 15, 2005, the Board of Directors (the Board) of the Company, upon recommendation of the
Boards Compensation Committee, approved the accelerated vesting of all unvested out-of-the-money
options held by current employees, officers and directors (the Acceleration) with exercise prices
of greater than $9.60 per share. The accelerated options had been granted under the Companys
Amended and Restated 1993 Stock Option Plan and Amended and Restated 1997 Stock Option Plan
(collectively, the Plans). Pursuant to the Acceleration, options granted under the Plans to
purchase approximately 435,000 shares of the Companys common stock that would otherwise have
vested at various times within the next five years became fully vested. The accelerated options
have an exercise prices ranging from $9.91 to $12.74. See further discussion in Note 3 of the Notes
to Condensed Consolidated Financial Statements. Contractual Obligations For a discussion of the Companys contractual obligations, see a discussion of future commitments
under Item 7, Managements Discussion and Analysis of Financial Condition and Results of
Operations in its Annual Report on Form 10-K for the fiscal year ended January 29, 2005. There
have been no significant developments with respect to the Companys contractual obligations since
January 29, 2005. 15




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##### Table of Contents



Item 3.  Quantitative and Qualitative Disclosures about Market Risk The Company has no material investments or risks in market risk sensitive instruments. 
 Item 4.  Controls and Procedures  (a)
    Evaluation of disclosure controls and procedures. The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed by the Company in the reports filed or submitted by it under
the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and include controls and procedures designed to ensure that
information required to be disclosed by the Company in such reports is accumulated and communicated
to the Companys management, including the Companys Chairman and Chief Executive Officer, and the
Companys Chief Financial Officer and Chief Accounting Officer, as appropriate, to allow timely
decisions regarding required disclosure. Each fiscal quarter, under the supervision and with the participation of the Companys management,
including the Companys Chairman and Chief Executive Officer, the Companys Chief Financial Officer
and Chief Accounting Officer, the Company carries out an evaluation of the effectiveness of the
design and operation of the Companys disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15. Based upon the foregoing, the Companys Chairman and Chief Executive Officer, along
with the Companys Chief Financial Officer and Chief Accounting Officer, concluded that, as of
April 30, 2005, the Companys disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company (including its consolidated subsidiaries)
required to be included in the Companys Exchange Act reports.  (b)
    Changes in internal control over financial reporting. During the fiscal quarter ended April 30, 2005, there has been no change in the Companys internal
control over financial reporting that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting, except for the
previously reported correction in its fiscal 2004 Annual Report on Form 10-K of its process for
evaluating accounting for rent holidays, normal tenant improvements, construction costs, and
sale-leaseback transactions by a more thorough review of Financial Accounting Standards Board
Technical Bulletin No. 85-3, Accounting for Operating Leases with Scheduled Rent Increases,
Emerging Issues Task Force Issue No. 97-10, The Effect of Lessee Involvement in Asset
Construction, and Statement of Financial Accounting Standards No. 98, Accounting for Leases.
Management will continue to monitor developments in generally accepted accounting principles and
changes in the Companys business to reduce the risk of classification errors in the condensed
consolidated financial statements. 16




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##### Table of Contents



PART II  OTHER INFORMATION 
 Item 6.  Exhibits  10.105
    Joinder Agreement and Fourth Amendment to Loan and Security Agreement, dated March 16, 2005.
15 Accountants Awareness Letter.15
    Accountants Awareness Letter.31.1
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.3
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.3
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 17




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##### Table of Contents



GOODYS FAMILY CLOTHING, INC. 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GOODYS FAMILY CLOTHING, INC.(Registrant)Date: May 23, 2005
    
    /s/ Robert M. GoodfriendRobert M. GoodfriendChairman of the Board andChief Executive OfficerDate: May 23, 2005
    
    /s/ Edward R. CarlinEdward R. CarlinExecutive Vice President,Chief Financial Officer andSecretary(Principal Financial Officer)Date: May 23, 2005
    
    /s/ David G. PeekDavid G. PeekSenior Vice President andChief Accounting Officer(Principal AccountingOfficer)
 18