##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 29, 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)
  
  
  þ o
 þ o
 o þ
   ,




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##### Table of Contents



GOODYS FAMILY CLOTHING, INC.
Index to Form 10-Q
October 29, 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11Report of Independent Registered Public Accounting Firm
    
    12Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    1319Item 3.  Quantitative and Qualitative Disclosures about Market Risk
    
    19Item 4.  Controls and Procedures
    
    20Part II  Other Information:Item 1. Legal Proceedings
    
    21Item 6. Exhibits
    
    22Signatures
    
    23EX-10.114 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT/EDWARD R. CARLINEX-15 LETTER FROM DELOITTE & TOUCHE LLPEX-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)
 Thirteen
    
    
    Thirty-nineWeeks Ended
    
    
    Weeks EndedOctober 30,
    
    
    
    
    
    
    October 30,2004
    
    
    
    
    
    
    2004October 29,
    
    
    (As restated,
    
    
    October 29,
    
    
    (As restated,2005
    
    
    see note 2)
    
    
    2005
    
    
    see note 2)Sales
    
    $
    295,210
    
    
    $
    284,794
    
    
    $
    879,583
    
    
    $
    882,304Cost of sales and occupancy expenses
    
    
    213,490
    
    
    
    200,476
    
    
    
    633,064
    
    
    
    616,125Gross profit
    
    
    81,720
    
    
    
    84,318
    
    
    
    246,519
    
    
    
    266,179Selling, general and administrative expenses
    
    
    90,846
    
    
    
    85,908
    
    
    
    268,683
    
    
    
    253,129Transaction expenses
    
    
    15,526
    
    
    
    
    
    
    
    15,526
    
    
    
    (Loss) earnings from operations
    
    
    (24,652
    )
    
    
    (1,590
    )
    
    
    (37,690
    )
    
    
    13,050Investment income
    
    
    384
    
    
    
    291
    
    
    
    1,225
    
    
    
    682Interest expense
    
    
    (40
    )
    
    
    (2
    )
    
    
    (51
    )
    
    
    (133
    )(Loss) earnings before income taxes
    
    
    (24,308
    )
    
    
    (1,301
    )
    
    
    (36,516
    )
    
    
    13,599(Benefit) provision for income taxes
    
    
    (833
    )
    
    
    (485
    )
    
    
    (5,839
    )
    
    
    5,066Net (loss) earnings
    
    $
    (23,475
    )
    
    $
    (816
    )
    
    $
    (30,677
    )
    
    $
    8,533(Loss) earnings per common share:Basic
    
    $
    (0.71
    )
    
    $
    (0.02
    )
    
    $
    (0.93
    )
    
    $
    0.26Diluted
    
    $
    (0.71
    )
    
    $
    (0.02
    )
    
    $
    (0.93
    )
    
    $
    0.25Cash dividends declared per common share
    
    $
    
    
    
    $
    0.03
    
    
    $
    0.06
    
    
    $
    0.08Weighted average common shares outstanding:Basic
    
    
    33,122
    
    
    
    32,915
    
    
    
    33,026
    
    
    
    32,923Diluted
    
    
    33,122
    
    
    
    32,915
    
    
    
    33,026
    
    
    
    33,812
 See accompanying Notes to Condensed Consolidated Financial Statements and Report of Independent
Registered Public Accounting Firm.
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Goodys Family Clothing, Inc. and Subsidiaries
 
 Condensed Consolidated Balance Sheets (Unaudited)
 (In thousands, except per share amounts)
 October 30,2004October 29,
    
    
    January 29,
    
    
    (As restated,2005
    
    
    2005
    
    
    see Note 2)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    52,961
    
    
    $
    121,614
    
    
    $
    67,016Inventories
    
    
    294,010
    
    
    
    230,637
    
    
    
    300,542Accounts receivable and other current assets
    
    
    27,955
    
    
    
    19,932
    
    
    
    22,703Total current assets
    
    
    374,926
    
    
    
    372,183
    
    
    
    390,261Property and equipment, net
    
    
    140,453
    
    
    
    126,229
    
    
    
    124,008Other assets
    
    
    5,021
    
    
    
    4,988
    
    
    
    5,130Total assets
    
    $
    520,400
    
    
    $
    503,400
    
    
    $
    519,399LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable  trade
    
    $
    180,079
    
    
    $
    136,116
    
    
    $
    170,661Accounts payable  other
    
    
    17,396
    
    
    
    17,716
    
    
    
    14,265Accrued expenses
    
    
    49,451
    
    
    
    46,413
    
    
    
    45,153Current deferred income taxes
    
    
    25,730
    
    
    
    27,847
    
    
    
    24,754Total current liabilities
    
    
    272,656
    
    
    
    228,092
    
    
    
    254,833Long-term liabilities
    
    
    34,164
    
    
    
    26,032
    
    
    
    19,413Deferred income taxes
    
    
    5,408
    
    
    
    10,375
    
    
    
    12,736Total liabilities
    
    
    312,228
    
    
    
    264,499
    
    
    
    286,982Commitments 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  33,136,497; 32,842,019; and
32,788,969 shares, respectively
    
    
    36,552
    
    
    
    34,619
    
    
    
    34,269Retained earnings
    
    
    171,620
    
    
    
    204,282
    
    
    
    198,148Total shareholders equity
    
    
    208,172
    
    
    
    238,901
    
    
    
    232,417Total liabilities and shareholders equity
    
    $
    520,400
    
    
    $
    503,400
    
    
    $
    519,399
 See accompanying Notes to Condensed Consolidated Financial Statements and Report of Independent
Registered Public Accounting Firm.
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Goodys Family Clothing, Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 (In thousands)
 Thirty-nine Weeks EndedOctober 30,2004October 29,
    
    
    (As restated,2005
    
    
    see note 2)Cash Flows from Operating ActivitiesNet (loss) earnings
    
    $
    (30,677
    )
    
    $
    8,533Adjustments to reconcile net (loss) earnings to net cash used in operating activities:Depreciation and amortization
    
    
    19,595
    
    
    
    18,442Net loss on asset sales, disposals and write-downs
    
    
    2,216
    
    
    
    774Changes in assets and liabilities:Inventories
    
    
    (63,373
    )
    
    
    (101,816
    )Accounts payable  trade
    
    
    43,963
    
    
    
    51,250Accounts payable  other
    
    
    (163
    )
    
    
    2,266Other assets, liabilities and income tax accounts
    
    
    (3,856
    )
    
    
    (4,130
    )Net cash used in operating activities
    
    
    (32,295
    )
    
    
    (24,681
    )Cash Flows from Investing ActivitiesAcquisitions of property and equipment
    
    
    (37,954
    )
    
    
    (28,142
    )Proceeds from sale of property and equipment
    
    
    3,150
    
    
    
    24Net cash used in investing activities
    
    
    (34,804
    )
    
    
    (28,118
    )Cash Flows from Financing ActivitiesDividends paid to shareholders
    
    
    (2,969
    )
    
    
    (2,305
    )Proceeds from exercise of stock options
    
    
    1,415
    
    
    
    934Shares repurchased and retired
    
    
    
    
    
    
    (1,847
    )Net cash used in financing activities
    
    
    (1,554
    )
    
    
    (3,218
    )Net decrease in cash and cash equivalents
    
    
    (68,653
    )
    
    
    (56,017
    )Cash and cash equivalents, beginning of period
    
    
    121,614
    
    
    
    123,033Cash and cash equivalents, end of period
    
    $
    52,961
    
    
    $
    67,016Supplemental Disclosures:Net income tax (refunds) payments
    
    $
    (35
    )
    
    $
    7,209Interest payments
    
    
    18
    
    
    
    1Sale/leaseback of property and equipment
    
    
    2,297
    
    
    
    4,080
 See accompanying Notes to Condensed Consolidated Financial Statements and Report of Independent
Registered Public Accounting Firm.
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Goodys Family Clothing, Inc. and Subsidiaries
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 (1) Basis of presentation
  Sale of the Company.
   6




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(2) Restatement
   Condensed ConsolidatedStatement of OperationsAs Previously
    
    
    
    
    
    AsReported
    
    Adjustments
    
    RestatedFor the 13 weeks ended October 30, 2004Cost of sales and occupancy expenses
    
    $
    200,975
    
    
    $
    (499
    )
    
    $
    200,476Gross profit
    
    
    83,819
    
    
    
    499
    
    
    
    84,318Selling, general and administrative expenses
    
    
    85,390
    
    
    
    518
    
    
    
    85,908Loss from operations
    
    
    (1,571
    )
    
    
    (19
    )
    
    
    (1,590
    )Loss before income taxes
    
    
    (1,282
    )
    
    
    (19
    )
    
    
    (1,301
    )Benefit for income taxes
    
    
    (478
    )
    
    
    (7
    )
    
    
    (485
    )Net loss
    
    
    (804
    )
    
    
    (12
    )
    
    
    (816
    )
 Condensed ConsolidatedStatement of OperationsAs Previously
    
    
    
    
    
    AsReported
    
    Adjustments
    
    RestatedFor the 39 weeks ended October 30, 2004Cost of sales and occupancy expenses
    
    $
    617,567
    
    
    $
    (1,442
    )
    
    $
    616,125Gross profit
    
    
    264,737
    
    
    
    1,442
    
    
    
    266,179Selling, general and administrative expenses
    
    
    251,717
    
    
    
    1,412
    
    
    
    253,129Earnings from operations
    
    
    13,020
    
    
    
    30
    
    
    
    13,050Earnings before income taxes
    
    
    13,569
    
    
    
    30
    
    
    
    13,599Provision for income taxes
    
    
    5,054
    
    
    
    12
    
    
    
    5,066Net earnings
    
    
    8,515
    
    
    
    18
    
    
    
    8,533
 Condensed Consolidated Balance SheetAs Previously
    
    
    
    
    
    AsReported
    
    Adjustments
    
    RestatedAs of October 30, 2004Property and equipment, net
    
    $
    114,692
    
    
    $
    9,316
    
    
    $
    124,008Total assets
    
    
    510,083
    
    
    
    9,316
    
    
    
    519,399Accrued expenses
    
    
    44,887
    
    
    
    266
    
    
    
    45,153Current deferred income taxes
    
    
    24,770
    
    
    
    (16
    )
    
    
    24,754Total current liabilities
    
    
    254,583
    
    
    
    250
    
    
    
    254,833Long-term liabilities
    
    
    7,405
    
    
    
    12,008
    
    
    
    19,413Deferred income taxes
    
    
    13,871
    
    
    
    (1,135
    )
    
    
    12,736Total liabilities
    
    
    275,859
    
    
    
    11,123
    
    
    
    286,982Retained earnings
    
    
    199,955
    
    
    
    (1,807
    )
    
    
    198,148Total shareholders equity
    
    
    234,224
    
    
    
    (1,807
    )
    
    
    232,417Total liabilities and shareholders equity
    
    
    510,083
    
    
    
    9,316
    
    
    
    519,399
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(3) Stock-Based Compensation
   Thirteen
    
    
    Thirty-nineWeeks Ended
    
    
    Weeks EndedOctober 29,
    
    
    October 30,
    
    
    October 29,
    
    
    October 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net (loss) earnings, as reported
    
    $
    (23,475
    )
    
    $
    (816
    )
    
    $
    (30,677
    )
    
    $
    8,533Deduct: Total stock-based employee
compensation expense determined
under fair value based-method for
all awards, net of related tax
effects
    
    
    (91
    )
    
    
    (346
    )
    
    
    (5,317
    )
    
    
    (459
    )Pro forma net (loss) earnings
    
    $
    (23,566
    )
    
    $
    (1,162
    )
    
    $
    (35,994
    )
    
    $
    8,074(Loss) earnings per common shareBasic  as reported
    
    $
    (0.71
    )
    
    $
    (0.02
    )
    
    $
    (0.93
    )
    
    $
    0.26Basic  pro forma
    
    
    (0.71
    )
    
    
    (0.03
    )
    
    
    (1.09
    )
    
    
    0.24Diluted  as reported
    
    $
    (0.71
    )
    
    $
    (0.02
    )
    
    $
    (0.93
    )
    
    $
    0.25Diluted  pro forma
    
    
    (0.71
    )
    
    
    (0.03
    )
    
    
    (1.09
    )
    
    
    0.24
  8




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(4) Credit arrangements
  (5) Contingencies
 Class Action Proceeding
    9




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Shareholder Actions Brought in Connection With the Sun Merger Agreement and Related Transactions
      10




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Other Matters
  (6) Intangible Assets
  (7) Non-Qualified Deferred Compensation Plan and Agreement
  (8) Asset Held for Sale
  (9) New Accounting Pronouncements
  11




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Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-looking Statements
  (i)
    
    that such number of shares are tendered, which, together with the shares
beneficially owned by GMM and Prentice, equal at least 51% of the Companys
fully diluted shares;(ii)
    
    that there be no event or occurrence which would have a material adverse effect
on the Company that would allow Parent or Acquisition Corp. to terminate the
Merger Agreement;(iii)
    
    that there be no law, order or injunction that would affect the ability of the
parties to consummate the tender offer;(iv)
    
    that there be no action by a governmental authority
challenging the transactions contemplated by the Merger Agreement;(v)
    
    that the Company comply with its covenants and not have breached its
representations and warranties (subject to applicable materiality qualifiers);
and(vi)
    
    certain other conditions to be met by the Company.
  (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 predict fashion trends;(viii)
    
    the ability to achieve business plan targets;(ix)
    
    the timely availability of branded and private-label merchandise in sufficient quantities to
satisfy customer demand;(x)
    
    the ability to achieve business plans for the Duck Head line, which call for continued growth;(xi)
    
    the impact of competitors pricing and store expansion;(xii)
    
    individual store performance, including new stores;(xiii)
    
    the ability to negotiate acceptable lease terms for new store locations and existing store
locations to be remodeled or relocated;(xiv)
    
    the timing, magnitude and costs of opening new stores;(xv)
    
    growth of the Companys store base;(xvi)
    
    relations with vendors, factors and employees;(xvii)
    
    the general economic conditions within the Companys markets, including gasoline and energy
prices, and an improvement in the overall retail environment;(xviii)
    
    global political unrest, including terrorism and war;(xix)
    
    the continued availability of adequate credit support from vendors and factors;(xx)
    
    the Companys compliance with loan covenants and the availability of sufficient eligible
collateral for borrowing;(xxi)
    
    the unanticipated needs for additional capital expenditures;(xxii)
    
    trends affecting the Companys financial condition, results of operations or cash flows;(xxiii)
    
    the success of the Companys information technology systems; and(xxiv)
    
    the success of the Companys e-commerce initiative.
  13




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www.goodysonline.com SEC Filings
 Overview
 General.
 Sale of the Company.
   14




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www.goodysonline.com
 Outlook
     Critical Accounting Policies
  15




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Results of Operations
  Thirteen
    
    
    Thirty-nineWeeks Ended
    
    
    Weeks EndedOctober 29,
    
    
    October 30,
    
    
    October 29,
    
    
    October 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales and occupancy expenses
    
    
    72.3
    
    
    
    70.4
    
    
    
    72.0
    
    
    
    69.8Gross profit
    
    
    27.7
    
    
    
    29.6
    
    
    
    28.0
    
    
    
    30.2Selling, general and administrative
expenses
    
    
    30.7
    
    
    
    30.2
    
    
    
    30.5
    
    
    
    28.7Transaction expenses
    
    
    5.3
    
    
    
    
    
    
    
    1.8
    
    
    
    (Loss) earnings from operations
    
    
    (8.3
    )
    
    
    (0.6
    )
    
    
    (4.3
    )
    
    
    1.5Investment income
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) earnings before income taxes
    
    
    (8.2
    )
    
    
    (0.5
    )
    
    
    (4.2
    )
    
    
    1.6(Benefit) provision for income taxes
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.7
    )
    
    
    0.6Net (loss) earnings
    
    
    (8.0
    )%
    
    
    (0.3
    )%
    
    
    (3.5
    )%
    
    
    1.0
    %
 Thirteen Weeks Ended October 29, 2005 Compared with Thirteen Weeks Ended October 30, 2004
 Overview
 Sales.
 Gross profit.
 Selling, general and administrative (SG&A) expenses.
 16




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##### Table of Contents



Transaction Expenses.
 Income taxes.
 Thirty-nine Weeks Ended October 29, 2005 Compared with Thirty-nine Weeks Ended October 30, 2004
 Overview
 Sales.
 Gross profit.
 Selling, general and administrative (SG&A) expenses.
 17




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Transaction Expenses.
 Income taxes.
 Liquidity and Capital Resources
 Financial Position.
     18




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Cash Flows. .
   New Accounting Pronouncement
  Contractual Obligations
  
 Item 3.  Quantitative and Qualitative Disclosures about Market Risk
  19




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Item 4.  Controls and Procedures
      20




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PART II  OTHER INFORMATION
 
 Item 1.  Legal Proceedings
      21




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Item 6.  Exhibits and Reports on Form 8-K
  2.1
    
    Acquisition Agreement and Agreement and Plan of Merger, among the Company, GFC Enterprises,
Inc., and GFC Holding Corp., dated October 7, 2005.(a)2.2
    
    Acquisition Agreement and Agreement
and Plan of Merger among the Company, GF Acquisition Corp., and GF
Goods, Inc., dated October 27, 2005.(b)10.108
    
    Stock Option Agreement, among the
Company, GFC Enterprises, Inc., and GFC Holding Corp., dated
October 7, 2005.(a)10.109
    
    Support Agreement, among the
Company, GFC Enterprises, Inc., and GFC holding Corp. and certain
shareholders of the Company, dated October 7, 2005.(a)10.110
    
    Commitment Letter, between Sun
Capital Partners IV, LP and GFC Holding Corp., dated October 7,
2005.(a)10.111
    
    Stock Option Agreement among the
Company, GF Acquisition Corp., and GF Goods, Inc., dated
October 27, 2005.(b)10.112
    
    Support Agreement among the
Company, GF Acquisition Corp., and GF Goods, Inc., and certain
shareholders of the Company dated October 27, 2005.(b)10.113
    
    Commitment Letter between Prentice
Capital Management, LP, GMM Capital LLC and GF Goods, Inc. dated
October 27, 2005.(b)10.114
    
    Second Amendment to the employment agreement between the Registrant and Edward R.
Carlin dated September 20, 2005.15
    
    Letter from Deloitte & Touche
LLP regarding unaudited interim financial information.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.(a)
    
    Incorporated herein by reference to
exhibit of the same number in Registrants Current Report on
Form 8-K filed with the Securities and Exchange Commission on
October 11, 2005.(b)
    
    Incorporated herein by reference to
exhibit of the same number in Registrants Current Report on
Form 8-K filed with the Securities and Exchange Commission on
October 28, 2005.
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##### Table of Contents



GOODYS FAMILY CLOTHING, INC.(Registrant)Date: November 22, 2005
    
    /s/ Robert M. GoodfriendRobert M. GoodfriendChairman of the Board andChief Executive OfficerDate: November 22, 2005
    
    /s/ Edward R. CarlinEdward R. CarlinExecutive Vice President,Chief Financial Officer andSecretary(Principal Financial Officer)Date: November 22, 2005
    
    /s/ David G. PeekDavid G. PeekSenior Vice President andChief Accounting Officer(Principal AccountingOfficer)
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