Goodys Family Clothing (GDYS) 10-Q 2006 Q2 Quarterly report

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 July 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.

(Exact name of registrant as specified in its charter)

Tennessee	62-0793974
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
400 Goody’s Lane, Knoxville, Tennessee	37922
(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. Yesþ Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yesþ Noo

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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,33,107,881 shares outstanding as of August 12, 2005.

GOODY’S FAMILY CLOTHING, INC.

Index to Form 10-Q
July 30, 2005

Part I — Financial Information:
Item 1. — Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations	3
Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Cash Flows	5
Notes to Condensed Consolidated Financial Statements	6 - 9
Report of Independent Registered Public Accounting Firm	10
Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations	11 - 16
Item 3. — Quantitative and Qualitative Disclosures about Market Risk	17
Item 4. — Controls and Procedures	17
Part II — Other Information:
Item 4. Submission of Matters to a Vote of Security Holders	18
Item 6. Exhibits	18
Signatures	19
EX-10.108 LIMITED WAIVER AND JOINDER AGREEMENT
EX-15 ACCOUNTANT'S AWARENESS LETTER
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-31.3 SECTION 302 CERTIFICATION OF THE CHIEF ACCOUNTING OFFICER
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO
EX-32.3 SECTION 906 CERTIFICATION OF THE CHIEF ACCOUNTING OFFICER

2

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						Twenty-six
	Weeks Ended						Weeks Ended
				July 31,						July 31,
				2004						2004
	July 30,			(As restated,			July 30,			(As restated,
	2005			see note 2)			2005			see note 2)
Sales	$	291,668		$	294,632		$	584,373		$	597,510
Cost of sales and occupancy expenses		209,833			206,174			419,575			415,649
Gross profit		81,835			88,458			164,798			181,861
Selling, general and administrative expenses		91,467			86,497			177,837			167,221
(Loss) earnings from operations		(9,632	)		1,961			(13,039	)		14,640
Investment income		438			206			841			391
Interest expense		(1	)		(130	)		(11	)		(131	)
(Loss) earnings before income taxes		(9,195	)		2,037			(12,209	)		14,900
(Benefit) provision for income taxes		(3,770	)		759			(5,006	)		5,551
Net (loss) earnings	$	(5,425	)	$	1,278		$	(7,203	)	$	9,349
(Loss) earnings per common share:
Basic	$	(0.16	)	$	0.04		$	(0.22	)	$	0.28
Diluted	$	(0.16	)	$	0.04		$	(0.22	)	$	0.28
Cash dividends declared per common share	$	0.03		$	0.03		$	0.06		$	0.05
Weighted average common shares outstanding:
Basic		33,039			32,961			32,978			32,926
Diluted		33,039			33,893			32,978			33,897

See accompanying Notes to Condensed Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm.

3

Goody’s Family Clothing, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except per share amounts)

					July 31,
					2004
	July 30,		January 29,		(As restated,
	2005		2005		see Note 2)
ASSETS
Current Assets
Cash and cash equivalents	$	88,997	$	121,614	$	108,354
Inventories		237,885		230,637		240,729
Accounts receivable and other current assets		24,244		19,932		14,364
Total current assets		351,126		372,183		363,447
Property and equipment, net		135,917		126,229		120,706
Other assets		4,781		4,988		5,278
Total assets	$	491,824	$	503,400	$	489,431
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable — trade	$	134,646	$	136,116	$	140,911
Accounts payable — other		12,398		17,716		12,297
Accrued expenses		49,397		46,413		46,290
Current deferred income taxes		26,560		27,847		23,176
Total current liabilities		223,001		228,092		222,674
Long-term liabilities		30,626		26,032		18,386
Deferred income taxes		6,703		10,375		12,584
Total liabilities		260,330		264,499		253,644
Commitments and Contingencies (Note 5)
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 — 33,107,881; 32,842,019; and 32,969,952 shares, respectively		36,397		34,619		35,839
Retained earnings		195,097		204,282		199,948
Total shareholders’ equity		231,494		238,901		235,787
Total liabilities and shareholders’ equity	$	491,824	$	503,400	$	489,431

See accompanying Notes to Condensed Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm.

4

Goody’s Family Clothing, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Twenty-six Weeks Ended
				July 31,
				2004
	July 30,			(As restated,
	2005			see note 2)
Cash Flows from Operating Activities
Net (loss) earnings	$	(7,203	)	$	9,349
Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities:
Depreciation and amortization		13,045			12,188
Net loss on asset sales, disposals and write-downs		2,720			413
Changes in assets and liabilities:
Inventories		(7,248	)		(42,003	)
Accounts payable — trade		(1,470	)		21,500
Accounts payable — other		(5,222	)		298
Other assets, liabilities and income tax accounts		(2,909	)		2,459
Net cash (used in) provided by operating activities		(8,287	)		4,204
Cash Flows from Investing Activities
Acquisitions of property and equipment		(25,817	)		(18,277	)
Proceeds from sale of property and equipment		2,022			19
Net cash used in investing activities		(23,795	)		(18,258	)
Cash Flows from Financing Activities
Dividends paid to shareholders		(1,976	)		(1,316	)
Proceeds from exercise of stock options		1,441			691
Net cash used in financing activities		(535	)		(625	)
Net decrease in cash and cash equivalents		(32,617	)		(14,679	)
Cash and cash equivalents, beginning of period		121,614			123,033
Cash and cash equivalents, end of period	$	88,997		$	108,354
Supplemental Disclosures:
Net income tax (refunds) payments	$	(34	)	$	689
Interest payments		11			1
Sale/leaseback of property and equipment		1,797			3,257

See accompanying Notes to Condensed Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm.

5

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 and twenty-six weeks ended July 31, 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 thirteen and twenty-six weeks ended, July 31, 2004 (in thousands):

	Condensed Consolidated
	Statement of Operations
	As Previously					As
	Reported		Adjustments			Restated
For the thirteen weeks ended July 31, 2004
Cost of sales and occupancy expenses	$	206,669	$	(495	)	$	206,174
Gross profit		87,963		495			88,458
Selling, general and administrative expenses		86,037		460			86,497
Earnings from operations		1,926		35			1,961
Earnings before income taxes		2,002		35			2,037
Provision for income taxes		746		13			759
Net earnings		1,256		22			1,278

	Condensed Consolidated
	Statement of Operations
	As Previously					As
	Reported		Adjustments			Restated
For the twenty-six weeks ended July 31, 2004
Cost of sales and occupancy expenses	$	416,592	$	(943	)	$	415,649
Gross profit		180,918		943			181,861
Selling, general and administrative expenses		166,327		894			167,221
Earnings from operations		14,591		49			14,640
Earnings before income taxes		14,851		49			14,900
Provision for income taxes		5,532		19			5,551
Net earnings		9,319		30			9,349

6

	Condensed Consolidated Balance Sheet
	As Previously					As
	Reported		Adjustments			Restated
As of July 31, 2004
Property and equipment, net	$	111,627	$	9,079		$	120,706
Total assets		480,352		9,079			489,431
Accrued expenses		46,024		266			46,290
Current deferred income taxes		23,192		(16	)		23,176
Total current liabilities		222,424		250			222,674
Long-term liabilities		6,633		11,753			18,386
Deferred income taxes		13,712		(1,128	)		12,584
Total liabilities		242,769		10,875			253,644
Retained earnings		201,744		(1,796	)		199,948
Total shareholders’ equity		237,583		(1,796	)		235,787
Total liabilities and shareholders’ equity		480,352		9,079			489,431

(3) Stock-Based Compensation

The Company has options outstanding under five 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”), the Goody’s Family Clothing, Inc. 2005 Stock Incentive Plan (the “2005 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):

	Thirteen					Twenty-six
	Weeks Ended					Weeks Ended
	July 30,			July 31,		July 30,			July 31,
	2005			2004		2005			2004
Net (loss) earnings, as reported	$	(5,425	)	$	1,278	$	(7,203	)	$	9,349
Deduct: Total stock-based employee compensation expense determined under fair value based-method for all awards, net of related tax effects		1,810			270		3,511			459
Pro forma net (loss) earnings	$	(7,235	)	$	1,008	$	(10,714	)	$	8,890
(Loss) earnings per common share
Basic — as reported	$	(0.16	)	$	0.04	$	(0.22	)	$	0.28
Basic — pro forma		(0.22	)		0.03		(0.32	)		0.27
Diluted — as reported	$	(0.16	)	$	0.04	$	(0.22	)	$	0.28
Diluted — pro forma		(0.22	)		0.03		(0.32	)		0.26

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.

7

On June 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 1993 Plan and the 1997 Plan (collectively, the “Plans”). The unvested options affected by the acceleration are those which had exercise prices of greater than $7.30 per share, the closing sales price of the Company’s common stock on the NASDAQ National Market on June 14, 2005, the effective date of the Acceleration. Pursuant to the Acceleration, options granted under the Plans to purchase approximately 646,000 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 449,000 were held by executive officers and 9,600 where held by directors. The accelerated options have exercise prices ranging from $7.63 to $9.58. 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 (R) (“SFAS 123(R)”), “Share-Based Payment.” SFAS 123(R) 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 $1.7 million in the thirteen weeks ended July 30, 2005. The Company expects that the adoption of SFAS 123(R) in fiscal 2006 will not 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 $164,359,000 at July 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 July 30, 2005 was approximately $111,225,000. 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 July 30, 2005, or July 31, 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 July 30, 2005, the Company had no borrowings outstanding and had letters of credit outstanding of $18,727,000. Of these letters outstanding, $11,338,000 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.

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.

8

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 July 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) Non-Qualified Deferred Compensation Plan and Agreement

The Company entered into the Robert M. Goodfriend Non-Qualified Deferred Compensation Plan and Agreement (the “Supplemental Retirement Plan”) for Robert M. Goodfriend, its Chairman and Chief Executive Officer during the second quarter of fiscal 2005. The Supplemental Retirement Plan is a defined contribution plan, pursuant to which the Company contributed $250,000 to a rabbi trust in August 2005 and has agreed to make an annual contribution of $250,000 to the Supplemental Retirement Plan on behalf of Mr. Goodfriend for each year beginning in January 2006 through the Company’s 2014 fiscal year for an aggregate of $2,750,000. The Company incurred a pre-tax charge of approximately $1,700,000 in the second quarter of fiscal 2005 in connection with the adoption of the Supplemental Retirement Plan. The difference between the aggregate payments of $2,750,000 and the charge of approximately $1,700,000 represents the discount for present value of the obligation at an interest rate of 7.1% and amounts previously accrued.

(8) Asset Held for Sale

The Company made a decision to sell an aircraft during the second quarter of fiscal 2005 and entered into an agreement with a broker/agent to place the aircraft on the open market. As a result, the Company recorded a writedown of approximately $1,400,000 to adjust the value of the aircraft to its net realizable value, which is reflected in the caption, accounts receivables and other current assets. This charge was recorded during the second quarter of fiscal 2005 in selling, general and administrative expenses. The Company expects the aircraft to be sold within the next four fiscal quarters.

(9) New Accounting Pronouncements

On April 14, 2005, the Securities and Exchange Commission announced that the required effective date for adopting SFAS 123(R), 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

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 July 30, 2005 and July 31, 2004, and the related condensed consolidated statements of operations for the thirteen and twenty-six week periods ended July 30, 2005 and July 31, 2004 and the related consolidated statements of cash flows for the twenty-six week periods ended July 30, 2005 and July 31, 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 July 31, 2004 and the related condensed consolidated statements of operations for the thirteen and twenty-six week periods ended July 31, 2004 and the related consolidated statement of cash flows for the twenty-six week period ended July 31, 2004 have been restated.

/s/ Deloitte & Touche LLP
Atlanta, Georgia
August 24, 2005

10

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 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;
(xvix)	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.

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.”

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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 27,600 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 gross profit rate, with lower merchandise margins and a higher occupancy expense rate, is now expected to be lower than the previous guidance of a gross profit rate of approximately 30.0%, although the Company is not in a position to estimate a rate at this time; and (ii) the selling, general and administrative expense rate, with the lack of sales leverage, which includes retirement benefits for the CEO, and writedown charge for asset held for sale, is now expected to be modestly higher than last year, before calculating and accruing performance bonuses, which are not being accrued in 2005.

The Company believes that its emphasis on investments in private-label lines had a negative effect on other traditional branded lines of merchandise during the first half of fiscal 2005. Current plans are to seek a more appropriate balance of private-label brands with nationally recognized brands.

The Company opened 3 new stores and relocated 1 store on August 4, 2005, and expects to open 11 additional stores, relocate or remodel up to 5 stores and close 1 store during the remainder of fiscal 2005. The Company currently plans to open approximately 10 new stores and relocate 2 stores in fiscal 2006. Capital expenditures for the remainder of fiscal 2005 are currently expected to be approximately $21,000,000, 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 $48,000,000, of which approximately $10,500,000 is expected to be reimbursed from landlord/developers.

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 June 15, 2005, the Company’s Board of Directors declared a quarterly cash dividend of $0.03 per share to shareholders of record on September 1, 2005, payable on September 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 below.

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 July 30, 2005.

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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:

	Thirteen							Twenty-six
	Weeks Ended							Weeks Ended
	July 30,			July 31,				July 30,			July 31,
	2005			2004				2005			2004
Sales		100.0	%		100.0	%			100.0	%		100.0	%
Cost of sales and occupancy expenses		71.9			70.0				71.8			69.6
Gross profit		28.1			30.0				28.2			30.4
Selling, general and administrative expenses		31.4			29.4				30.4			28.0
(Loss) earnings from operations		(3.3	)		0.6				(2.2	)		2.4
Investment income		0.1			0.1				0.1			0.1
Interest expense		—			—				—			—
(Loss) earnings before income taxes		(3.2	)		0.7		��		(2.1	)		2.5
(Benefit) provision for income taxes		(1.3	)		0.3				(0.9	)		0.9
Net (loss) earnings		(1.9	)%		0.4	%			(1.2	)%		1.6	%

Thirteen Weeks Ended July 30, 2005 Compared with Thirteen Weeks Ended July 31, 2004

Overview. During the second quarter of fiscal 2005, the Company opened eight new stores, relocated one store, remodeled one store and closed one store, bringing the total number of stores in operation at July 30, 2005 to 368, compared with 345 at July 31, 2004. During the second quarter of fiscal 2004, the Company opened five new stores and remodeled two stores. The Company incurred a net loss for the second quarter of fiscal 2005 of $5,425,000, or 1.9% of sales, compared with net earnings for the second quarter of fiscal 2004 of $1,278,000, or 0.4% of sales.

Sales.Sales for the second quarter of fiscal 2005 were $291,668,000, a 1.0% decrease from the $294,632,000 in sales for the second quarter of fiscal 2004. The decrease of $2,964,000 consisted primarily of a $18,534,000 decrease in comparable store sales, offset by a $15,570,000 increase in additional net sales from new stores, transition stores and sales from stores that were subsequently closed. Comparable store sales for the second quarter of fiscal 2005 decreased 6.6% compared with the second quarter of fiscal 2004. Sales for the second quarter of fiscal 2005 were negatively affected by the following factors: (i) negative sales trends in the Missy and Special Size divisions, which in turn negatively affected customer traffic and sales throughout the store, (ii) inadequate inventory levels in certain departments of the Company’s stores, primarily in the children’s merchandise area, and (iii) a planned shift of advertising dollars from television to radio that was ultimately not successful. Sales of private-label and exclusive brand merchandise increased to approximately 37% of total merchandise sales for the second quarter of fiscal 2005 from 33% of total merchandise sales for the same period in the prior year.

Gross profit.Gross profit for the second quarter of fiscal 2005 was $81,835,000 or 28.1% of sales, a $6,623,000 decrease from the $88,458,000 in gross profit, or 30.0% of sales, for the second quarter of fiscal 2004. Merchandise margins in the second quarter of fiscal 2005 decreased 1.9% as a percent of sales from the second quarter of fiscal 2004. The components of the gross profit rate decrease were primarily (i) a 1.4% decrease related to reduced selling prices and increased promotional activity in an effort to stimulate sales and reduce seasonal inventory levels, and (ii) a 0.5% increase in occupancy costs due to the decrease in comparable store sales and the resulting lack of leverage as a percentage of sales.

Selling, general and administrative (“SG&A”) expenses.SG&A expenses for the second quarter of fiscal 2005 were $91,467,000, or 31.4% of sales, an increase of $4,970,000 from $86,497,000, or 29.4% of sales, for the second quarter of fiscal 2004. SG&A expenses increased by 2.0%, as a percent of sales, for the second quarter of fiscal 2005 compared with the second quarter of fiscal 2004. 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 1.1% increase in payroll expense, (ii) a 0.6% increase in retirement benefits relating to a contractual retirement benefit for the CEO to be funded by annual cash payments of $250,000 through the year 2014, (iii) a 0.5% increase related to a writedown on an aircraft which is held for sale, (iv) 0.3% increase in advertising expenses, (v) a 0.3% increase in trucking and utilities expenses, (vi) a 0.2% increase in depreciation, and (vii) a 0.2% increase in business licenses and property and franchise taxes, offset by (viii) a 0.4% decrease in

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group health insurance, (ix) a 0.3% decrease in workers compensation expense, (x) a 0.2% decrease from a gain on the sale of aircraft, and (xi) a 0.3% decrease in all other SG&A expenses.

Income taxes.The benefit for income taxes for the second quarter of fiscal 2005 was $3,770,000, for an effective tax rate of 41.00% of loss before income taxes, compared with a provision for income taxes of $759,000, for an effective tax rate of 37.25% of earnings before income taxes, for the second 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.

Twenty-six Weeks Ended July 30, 2005 Compared with Twenty-six Weeks Ended July 31, 2004

Overview. During the twenty-six weeks ended July 30, 2005, the Company opened 15 new stores, relocated 3 stores, remodeled 1 store and closed 4 stores, bringing the total number of stores in operation at July 30, 2005 to 368, compared with 345 at July 31, 2004. During the twenty-six weeks ended July 31, 2004, the Company opened 10 new stores relocated 1 store and remodeled 7 stores. The Company incurred a net loss for the twenty-six weeks ended July 30, 2005 of $7,203,000, or 1.2% of sales, compared with net earnings for the twenty-six weeks ended July 31, 2004 of $9,349,000, or 1.6% of sales.

Sales.Sales for the twenty-six weeks ended July 30, 2005 were $584,373,000, a 2.2% decrease from the $597,510,000 in sales for the twenty-six weeks ended July 31, 2004. The decrease of $13,137,000 consisted primarily of a $42,500,000 decrease in comparable store sales, offset by a $29,363,000 increase in additional net sales from new stores, transition stores and sales from stores that were subsequently closed. Comparable store sales for the twenty-six weeks ended July 30, 2005 decreased 7.3% compared with the twenty-six weeks ended July 31, 2004. Sales for the twenty-six weeks ended July 30, 2005 were negatively affected by the following factors: (i) negative sales trends in the Missy and Special Size divisions, which in turn negatively affected customer traffic and sales throughout the store, (ii) inadequate inventory levels in certain departments of the Company’s stores, primarily in the children’s merchandise area, and (iii) a planned shift of advertising dollars from television to radio that was ultimately not successful. Sales of private-label and exclusive brand merchandise increased to approximately 37% of total merchandise sales for the twenty-six weeks ended July 30, 2005 from 33% of total merchandise sales for the same period in the prior year.

Gross profit.Gross profit for the twenty-six weeks ended July 30, 2005 was $164,798,000 or 28.2% of sales, a $17,063,000 decrease from the $181,861,000 in gross profit, or 30.4% of sales, for the twenty-six weeks ended July 31, 2004. Merchandise margins for the twenty-six weeks ended July 30, 2005 decreased 2.2% as a percent of sales from the twenty-six weeks ended July 31, 2004. The components of the gross profit rate decrease were primarily (i) a 1.6% decrease related to reduced selling prices and increased promotional activity in an effort to stimulate sales and reduce seasonal inventory levels, and (ii) a 0.6% increase in occupancy costs due to the decrease in comparable store sales and the resulting lack of leverage as a percentage of sales.

Selling, general and administrative (“SG&A”) expenses.SG&A expenses for the twenty-six weeks ended July 30, 2005 were $177,837,000, or 30.4% of sales, an increase of $10,616,000 from $167,221,000, or 28.0% of sales, for the twenty-six weeks ended July 31, 2004. SG&A expenses increased by 2.4%, as a percent of sales, for the twenty-six weeks ended July 30, 2005 compared with the twenty-six weeks ended July 31, 2004. 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 1.3% increase in payroll expense, (ii) 0.4% increase in advertising expenses, (iii) a 0.3% increase in retirement benefits relating to a contractual retirement benefit for the CEO to be funded by annual cash payments of $250,000 through the year 2014, (iv) a 0.3% increase in trucking and utilities expenses, (v) a 0.2% increase related to a writedown on an aircraft which is held for sale, and (vi) a 0.2% increase in depreciation, offset by (vii) a 0.3% decrease in group health insurance.

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Income taxes.The benefit for income taxes for the twenty-six weeks ended July 30, 2005 was $5,006,000, for an effective tax rate of 41.00% of loss before income taxes, compared with a provision for income taxes of $5,551,000, for an effective tax rate of 37.25% of earnings before income taxes, for the twenty-six weeks ended July 31, 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 July 30, 2005, January 29, 2005, and July 31, 2004, the Company’s working capital was $128,125,000, $144,091,000 and $140,773,000, respectively.

The $12,648,000 decrease in working capital from July 31, 2004 to July 30, 2005, consisted primarily of (i) a $15,211,000 net change in property and equipment, (ii) a $5,881,000 decrease in deferred income taxes, (iii) dividends paid of $3,949,000, (iv) repurchases of common stock of $1,847,000, (v) $899,000 in net loss, offset by (vi) increases in long-term liabilities of $12,240,000, and (vii) $1,918,000 from the issuance of common stock through the exercise of stock options.

The $15,966,000 decrease in working capital from January 29, 2005 to July 30, 2005, consisted primarily of (i) a $9,688,000 net change in property and equipment, (ii) $7,203,000 in net loss, (iii) a $3,672,000 decrease in deferred income taxes, (iv) dividends paid of $1,976,000, offset by (v) increases in long-term liabilities of $4,594,000, and (vi) $1,441,000 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 $164,359,000 at July 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 July 30, 2005, was approximately $111,225,000. 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 twenty-six weeks ended July 30, 2005 or July 31, 2004, or during fiscal 2004. Letters of credit outstanding averaged $19,602,000 during the twenty-six weeks ended July 30, 2005, compared with $36,923,000 during the twenty-six weeks ended July 31, 2004. The highest balance of letters of credit outstanding during the twenty-six weeks ended July 30, 2005, was $39,735,000 in February 2005 compared with $43,473,000 in July 2004 during the twenty-six weeks ended July 31, 2004. The Company had letters of credit outstanding of $18,727,000, $39,735,000 and $43,473,000 at July 30, 2005, January 29, 2005 and July 31, 2004, respectively. Of these letters outstanding, $11,338,000, $23,122,000 and $25,350,000, at July 30, 2005, January 29, 2005 and July 31, 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.

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Cash Flows.Cash flows from operating activities reflected a net use of cash of $8,287,000 for the twenty-six weeks ended July 30, 2005 and provided cash of $4,204,000 for the twenty-six weeks ended July 31, 2004. Cash used for increases in inventory during the twenty-six weeks ended July 30, 2005 and July 31, 2004, was $7,248,000 and $42,003,000, respectively. Inventories on a per square foot basis were $23.38 and $25.17 at July 30, 2005 and July 31, 2004, respectively, which represents a 7.1% decrease on a per square foot basis.A decrease in accounts payable — trade used cash of $1,470,000 for the twenty-six weeks ended July 30, 2005 and was due primarily to a lower payables to inventories ratio at July 30, 2005 of 56.6% versus 59.0% at January 29, 2005. An increase in accounts payable — trade provided cash of $21,500,000 for the twenty-six weeks ended July 31, 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 $23,795,000 and $18,258,000 for the twenty-six weeks ended July 30, 2005 and July 31, 2004, respectively. The Company used cash to fund capital expenditures for new, relocated and remodeled stores, upgrading information technology and for general corporate purposes for the twenty-six weeks ended July 30, 2005 and July 31, 2004. Additionally, the Company used cash to purchase used aircraft for the twenty-six weeks ended July 30, 2005.

Cash flows from financing activities used cash of $535,000 and $625,000 for the twenty-six weeks ended July 30, 2005 and July 31, 2004, respectively. The Company paid two quarterly cash dividends of $0.03 per share on March 15, 2005 and June 15, 2005, of $987,000 and $989,000, respectively. Proceeds from the issuance of common stock resulting from the exercise of stock options for the twenty-six weeks ended July 30, 2005 and July 31, 2004, were $1,441,000 and $691,000, 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 (R), “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 June 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 $7.30 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 646,000 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 exercise prices ranging from $7.63 to $9.58. 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, other than the execution of the Robert M. Goodfriend Non-Qualified Deferred Compensation Plan and Agreement (the “Supplemental Retirement Plan”) during the second quarter of fiscal 2005. The Supplemental Retirement Plan is a defined contribution plan, pursuant to which the Company has agreed to make future annual contributions of $250,000 per year through the Company’s 2014 fiscal year for an aggregate of $2,750,000.

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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 July 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 July 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.

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PART II — OTHER INFORMATION

Item 4. — Submission of Matters to a Vote of Security Holders

The Company held its Annual Meeting of Shareholders (the “Meeting”) on June 15, 2005, at which the following items were submitted to a vote of shareholders:

1.	To elect two directors to serve for terms of three years;
2.	To consider, approve and adopt the Goody’s Family Clothing, Inc. 2005 Stock Incentive Plan.

At the Meeting, the following persons were elected as a director of the Company for a three-year term expiring at the 2008 Annual Meeting of Shareholders:

Irwin L. Lowenstein — 31,444,057 shares of common stock were voted in favor of his election; 370,224 shares of common stock were withheld and 1,154,988 shares of common stock were not voted. There were no abstentions or broker non-votes.

Cheryl L. Turnbull — 31,450,257 shares of common stock were voted in favor of her election; 364,024 shares of common stock were withheld and 1,154,988 shares of common stock were not voted. There were no abstentions or broker non-votes.

The other directors of the Company are Samuel J. Furrow, whose term expires at the 2006 Annual Meeting of Shareholders and Robert M. Goodfriend and Robert F. Koppel, whose terms expire at the 2007 Annual Meeting of Shareholders.

At the Meeting, the Goody’s Family Clothing, Inc. 2005 Stock Incentive Plan was approved with 26,960,836 shares of common stock voting in favor, 1,905,579 shares of common stock voting against, 63,108 shares of common stock abstaining, and 1,154,988 shares of common stock not voting. There were 2,914,758 broker non-votes.

Item 6. — Exhibits

10.108	Limited Waiver and Joinder Agreement.
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.

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GOODY’S FAMILY CLOTHING, INC.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GOODY’S FAMILY CLOTHING, INC.
	(Registrant)
Date: August 24, 2005	/s/ Robert M. Goodfriend
	Robert M. Goodfriend
	Chairman of the Board and
	Chief Executive Officer
Date: August 24, 2005	/s/ Edward R. Carlin
	Edward R. Carlin
	Executive Vice President,
	Chief Financial Officer and
	Secretary
	(Principal Financial Officer)
Date: August 24, 2005	/s/ David G. Peek
	David G. Peek
	Senior Vice President and
	Chief Accounting Officer
	(Principal Accounting
	Officer)

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