U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

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Form 10-Q

|ý                                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended July 31, 2004                 
|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 No. 0-26608

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CUTTER & BUCK INC.(Exact Name of Registrant as Specified in Its Charter)

|Washington(State or Other Jurisdiction of
Incorporation or Organization) |  | 91-1474587(I.R.S. Employer
Identification No.)
|------------------------------------------------------------------------ |  | ----------------------------------------------

701 N. 34th Street, Suite 400
Seattle, WA 98103(Address of Principal Executive Offices, Including Zip Code)

(206) 622-4191(Registrant's Telephone Number, Including Area Code)

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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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange
Act). Yes ý No o

The number of shares of Common Stock of the registrant outstanding as of September 3, 2004 was 10,918,194.



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CUTTER & BUCK INC.  Quarterly Report on Form 10-Q  For the Quarter Ended July 31, 2004        Index

|                             |         |                                                      |                                                                                       | Page
|---------------------------- | ------- | ---------------------------------------------------- | ------------------------------------------------------------------------------------- | ----
|PART IFINANCIAL INFORMATION |         |                                                     
|                             | Item 1. |                                                      | Financial Statements (unaudited):                                                     |     
|                             |         | Condensed Consolidated Balance Sheets                |                                                                                       | 3   
|                             |         | Condensed Consolidated Statements of Operations      |                                                                                       | 4   
|                             |         | Condensed Consolidated Statements of Cash Flows      |                                                                                       | 5   
|                             |         | Notes to Condensed Consolidated Financial Statements |                                                                                       | 6   
|                             | Item 2. |                                                      | Management's Discussion and Analysis of Financial Condition and Results of Operations |     
|                             | Item 3. |                                                      | Quantitative and Qualitative Disclosures about Market Risk                            |     
|                             | Item 4. |                                                      | Controls and Procedures                                                               |     
|PART IIOTHER INFORMATION    |         |                                                     
|                             | Item 1. |                                                      | Legal Proceedings                                                                     |     
|                             | Item 2. |                                                      | Changes in Securities and Use of Proceeds                                             |     
|                             | Item 3. |                                                      | Defaults Upon Senior Securities                                                       |     
|                             | Item 4. |                                                      | Submission of Matters to a Vote of Security Holders                                   |     
|                             | Item 5. |                                                      | Other Information                                                                     |     
|                             | Item 6. |                                                      | Exhibits and Reports on Form 8-K                                                      |     
|SIGNATURES                   |         | 20                                                  

2

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PART IFINANCIAL INFORMATION

Item 1. Financial Statements

CUTTER & BUCK INC.        Condensed Consolidated Balance Sheets

|                                                |                                                                                                                                               | July 31, 2004                              |       | April 30, 2004
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | --------------
|
|(in thousands, except share amounts)            |                                                                                                                                               |                                            |       |               
|Assets                                          |                                                                                                                                               |                                            |       |               
|Current assets:                                 |                                                                                                                                               |                                            |       |               
|                                                | Cash and cash equivalents                                                                                                                     |                                            | $     | 17,131        
|                                                | Short-term investments                                                                                                                        |                                            |       | 26,400        
|                                                | Accounts receivable, net of allowances for doubtful accounts, returns and allowances of $2,246 at July 31, 2004 and $2,496 at April 30, 2004  |                                            |       | 18,118        
|                                                | Inventories, net                                                                                                                              |                                            |       | 25,938        
|                                                | Deferred income taxes                                                                                                                         |                                            |       | 2,566         
|                                                | Prepaid expenses and other current assets                                                                                                     |                                            |       | 2,232         
|                                                |                                                                                                                                               |                                            |       |               
|                                                |                                                                                                                                               | Total current assets                       |       |               
|Furniture and equipment, net                    |                                                                                                                                               |                                            | 5,659 |               
|Deferred income taxes                           |                                                                                                                                               |                                            | 376   |               
|Other assets                                    |                                                                                                                                               |                                            | 308   |               
|                                                |                                                                                                                                               |                                            |       |               
|                                                |                                                                                                                                               | Total assets                               |       | $             
|                                                |                                                                                                                                               |                                            |       |               
|Liabilities and Shareholders' Equity            |                                                                                                                                               |                                            |       |               
|Current liabilities:                            |                                                                                                                                               |                                            |       |               
|                                                | Accounts payable                                                                                                                              |                                            | $     | 5,321         
|                                                | Accrued liabilities                                                                                                                           |                                            |       | 5,828         
|                                                | Income taxes payable                                                                                                                          |                                            |       | 2,279         
|                                                | Current portion of capital lease obligations                                                                                                  |                                            |       | 449           
|                                                |                                                                                                                                               |                                            |       |               
|                                                |                                                                                                                                               | Total current liabilities                  |       |               
|Capital lease obligations, less current portion |                                                                                                                                               |                                            | 55    |               
|Other liabilities                               |                                                                                                                                               |                                            | 2,135 |               
|Commitments and contingencies                   |                                                                                                                                               |                                            |      |               
|Shareholders' equity:                           |                                                                                                                                               |                                            |       |               
|                                                | Preferred stock, no par value, 6,000,000 shares authorized: none issued and outstanding                                                       |                                            |       |              
|                                                | Common stock, no par value, 25,000,000 shares authorized: 10,822,418 issued and outstanding at July 31, 2004 and 10,752,552 at April 30, 2004 |                                            |       | 65,339        
|                                                | Retained earnings                                                                                                                             |                                            |       | 17,322        
|                                                |                                                                                                                                               |                                            |       |               
|                                                |                                                                                                                                               | Total shareholders' equity                 |       |               
|                                                |                                                                                                                                               |                                            |       |               
|                                                |                                                                                                                                               | Total liabilities and shareholders' equity |       | $             
|                                                |                                                                                                                                               |                                            |       |               

See
accompanying notes

3

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CUTTER & BUCK INC.        Condensed Consolidated Statements of Operations (Unaudited)

|                                                          |                                     | Three Months Ended |       
|--------------------------------------------------------- | ----------------------------------- | ------------------ | ------
|
|(in thousands, except share and per share amounts)        |                                     |                    |       
|Net sales                                                 |                                     | $                  | 31,899
|Cost of sales                                             |                                     |                    | 16,147
|                                                          |                                     |                    |       
|Gross profit                                              |                                     |                    | 15,752
|Operating expenses:                                       |                                     |                    |       
|                                                          | Depreciation                        |                    |       
|                                                          | Selling, general and administrative |                    |       
|                                                          | Restatement expenses                |                    |       
|                                                          |                                     |                    |       
|                                                          | Total operating expenses            |                    |       
|                                                          |                                     |                    |       
|Operating income                                          |                                     |                    | 4,959 
|Interest income (expense)                                 |                                     |                    |       
|                                                          | Interest expense                    |                    |       
|                                                          | Interest income                     |                    |       
|                                                          |                                     |                    |       
|                                                          | Net interest income (expense)       |                    |       
|                                                          |                                     |                    |       
|Income from continuing operations before income taxes     |                                     |                    | 5,046 
|Income tax expense                                        |                                     |                    | 1,796 
|                                                          |                                     |                    |       
|Income from continuing operations                         |                                     |                    | 3,250 
|Income from discontinued retail operations, net of tax    |                                     |                    |      
|                                                          |                                     |                    |       
|Net income                                                |                                     | $                  | 3,250 
|                                                          |                                     |                    |       
|Basic earnings per share:                                 |                                     |                    |       
|Earnings from continuing operations                       |                                     | $                  | 0.30  
|Earnings from discontinued retail operations              |                                     | $                  |      
|Net earnings                                              |                                     | $                  | 0.30  
|Diluted earnings per share:                               |                                     |                    |       
|Earnings from continuing operations                       |                                     | $                  | 0.29  
|Earnings from discontinued retail operations              |                                     | $                  |      
|Net earnings                                              |                                     | $                  | 0.29  
|Shares used in computation of:                            |                                     |                    |       
|                                                          | Basic earnings per share            |                    |       
|                                                          |                                     |                    |       
|                                                          | Diluted earnings per share          |                    |       
|                                                          |                                     |                    |       
|Cash dividends paid per share of common stock outstanding |                                     | $                  | 0.05  

See
accompanying notes

4

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CUTTER & BUCK INC.        Condensed Consolidated Statements of Cash Flows (Unaudited)

|                                                                                  |                                                       | Three Months Ended                                          |        
|--------------------------------------------------------------------------------- | ----------------------------------------------------- | ----------------------------------------------------------- | -------
|
|(in thousands)                                                                    |                                                       |                                                             |        
|Operating activities:                                                             |                                                       |                                                             |        
|Net income                                                                        |                                                       | $                                                           | 3,250  
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                       |                                                             |        
|                                                                                  | Depreciation                                          |                                                             |        
|                                                                                  | Deferred gain on sale and leaseback of capital assets |                                                             |        
|                                                                                  | Loss on disposals of furniture and equipment          |                                                             |        
|                                                                                  | Amortization of deferred compensation                 |                                                             |        
|                                                                                  | Changes in assets and liabilities:                    |                                                             |        
|                                                                                  |                                                       | Restricted cash                                             |        
|                                                                                  |                                                       | Accounts receivable, net                                    |        
|                                                                                  |                                                       | Inventories, net                                            |        
|                                                                                  |                                                       | Prepaid expenses and other assets                           |        
|                                                                                  |                                                       | Accounts payable, accrued liabilities and other liabilities |        
|                                                                                  |                                                       | Income taxes payable                                        |        
|                                                                                  |                                                       |                                                             |        
|Net cash provided by operating activities                                         |                                                       |                                                             | 6,525  
|Investing activities:                                                             |                                                       |                                                             |        
|Purchases of furniture and equipment                                              |                                                       |                                                             | (180   
|Purchases of short-term investments                                               |                                                       |                                                             | (20,418
|Maturities of short-term investments                                              |                                                       |                                                             | 11,970 
|                                                                                  |                                                       |                                                             |        
|Net cash used in investing activities                                             |                                                       |                                                             | (8,628 
|Financing activities:                                                             |                                                       |                                                             |        
|Principal payments under capital lease obligations                                |                                                       |                                                             | (163   
|Payment of dividends                                                              |                                                       |                                                             | (541   
|Repurchases of common stock                                                       |                                                       |                                                             | (176   
|Issuance of common stock                                                          |                                                       |                                                             | 399    
|                                                                                  |                                                       |                                                             |        
|Net cash used in financing activities                                             |                                                       |                                                             | (481   
|                                                                                  |                                                       |                                                             |        
|Net increase (decrease) in cash and cash equivalents                              |                                                       |                                                             | (2,584 
|Cash and cash equivalents, beginning of period                                    |                                                       |                                                             | 19,715 
|                                                                                  |                                                       |                                                             |        
|Cash and cash equivalents, end of period                                          |                                                       | $                                                           | 17,131 
|                                                                                  |                                                       |                                                             |        

See
accompanying notes

5

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Cutter & Buck Inc.        Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Cutter & Buck Inc. (the Company) in accordance with
accounting principles generally accepted in the United States for interim financial statements and in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In
the opinion of the Company's management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. The Company's revenues are seasonal, and
therefore the results of operations for the three months ended July 31, 2004 may not be indicative of the results for the full fiscal year. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended April 30, 2004, included in the Company's filing on Form 10-K.

Stock-Based Compensation

The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. The Company has elected to apply the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-based CompensationTransition and Disclosure." Compensation expense for
stock options is recognized over the vesting period of the grant based on the excess, if any, of the market price of the Company's common stock at the date of grant over the stock option exercise
price. Under the Company's plans, stock options are generally granted at fair market value on the date of grant. The Company also has an Employee Stock Purchase Plan that allows eligible employees to
purchase Company stock at a 15% discount from market price utilizing payroll deductions.

If
compensation costs for stock-based compensation had been recognized based on the fair value method, the pro forma amounts of the Company's net income and net earnings per share would
have been as follows:

Three Months Ended
July 31,2004

2003(in thousands, except per share amounts)Net income, as reported

$
3,250

$
1,098Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards


(291
)

(464
)Pro forma net income

$
2,959

$
634Earnings per share:Basicas reported

$
0.30

$
0.10Basicpro forma

$
0.27

$
0.06Dilutedas reported

$
0.29

$
0.10Dilutedpro forma

$
0.26

$
0.06


6

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The
fair value for each option grant was estimated at the date of grant using the Black-Scholes option pricing model, assuming a future dividend yield of approximately 2% annually and
the following weighted-average assumptions:

Three Months Ended
July 31,2004

2003Risk-free interest rate

2.6
%
2.5
%Volatility

57
%
59
%Expected life

5 years

5 years


The
fair value for shares purchased under the Employee Stock Purchase Plan was estimated at the date of purchase using the Black-Scholes option pricing model, assuming a future dividend
yield of approximately 2% annually and the following weighted-average assumptions. Shares are purchased twice a year under this Plan, in the first and third fiscal quarters. No shares are purchased in
the second or fourth fiscal quarters.

Three Months Ended
July 31,2004

2003Risk-free interest rate

3.8
%
2.4
%Volatility

41
%
59
%Expected life

6 months

6 months


Stock
compensation expense for options granted to non-employees is determined in accordance with SFAS No. 123 and the Emerging Issues Task Force (EITF) consensus in
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services" (EITF
No. 96-18). Accordingly, expense is recognized over the vesting period of the grant based on the fair value of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measured.

Segments

The Company has one operating segment: the design, production, marketing and selling of sportswear, fashion and outerwear apparel. The information for this
segment is the information used by the Company's chief operating decision maker to evaluate operating performance.

Note 2. Reclassifications

Certain prior year balances have been reclassified to conform to current-year presentation.

Note 3. Earnings Per Share

Basic earnings per share is based on the weighted average number of common shares outstanding. Diluted earnings per share is based on the weighted average number
of common shares and equivalents outstanding. Common share equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options except when the effect
of their inclusion would be antidilutive.

7

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Note 4. Short-term investments

Short-term investments held-to-maturity consisted of the following securities, all of which mature within one year:

Amortized cost

Gross unrealized gains

Gross unrealized losses

Estimated fair value(in thousands)U.S. Corporate debt securities

$
26,400

$
34

$
(1
)
$
26,433


Note 5. Debt

The Company has a loan agreement with Wells Fargo Bank, N.A. (Wells Fargo) as agent and Wells Fargo Century, an affiliate of Wells Fargo, as collateral agent and
lender for a $35 million line of credit that expires in March 2005. This agreement is collateralized by a security interest in the Company's accounts receivable, inventory, furniture and
equipment, contract rights and general intangibles. The loan agreement contains certain restrictive covenants covering minimum net worth, minimum working capital and maximum capital expenditures.
These financial covenants require that the Company maintains a tangible net worth of at least $50 million and working capital of at least $35 million at all times, and limit capital
expenditures to not more than $4.0 million in fiscal year 2005. The Company was in compliance with these covenants at July 31, 2004. At July 31, 2004, letters of credit
outstanding against the line of credit totaled approximately $6.8 million and there were no working capital advances outstanding. At July 31, 2003, letters of credit outstanding against
the line of credit totaled approximately $3.5 million and there were no working capital advances outstanding.

Note 6. Shareholders' Equity

During the three months ended July 31, 2004, the Company sold 86,666 shares under its employee stock purchase plan and pursuant to the exercise of stock
options. The Company repurchased 16,800 shares under its Stock Repurchase Program.

Note 7. Restructuring and Asset Impairment Expenses

The Company had two restructuring plans, the 2002 Restructuring Plan and the 2003 Restructuring Plan. These restructuring plans are now complete. The remaining
liability recorded for the 2002 Restructuring Plan relates to the sublease of excess warehouse capacity at the distribution center, and will be amortized through the end of the lease term in 2011.

For
the three months ended July 31, 2004, activity in the accrued liability account associated with the cash portion of charges in the 2002 Restructuring Plan consisted of the
following:

Balance at
April 30,
2004

Subsequent
Accruals,
Net

Subsequent
Payments

Balance at
July 31,
2004

Due
Within
1 Year

Due
After
1 Year(in thousands)Lease obligations

$
2,535

$


$
(80
)
$
2,455

$
320

$
2,135


8

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Note 8. Restatement Expenses

In fiscal 2002, the Company restated certain financial statements for irregularities and errors. As a result of the circumstances underlying the restatement,
three shareholder class action lawsuits and a shareholder derivative lawsuit were filed, naming the Company and certain of its current and former directors and officers as defendants. The Company
settled those lawsuits and recorded the $4.0 million settlement payment to the plaintiffs in fiscal 2003. The Company also settled the previously announced Securities and Exchange Commission
investigation of the Company arising from the circumstances underlying the restatement. That settlement did not require payment of any fines or penalties.

Although
the restatement has been completed, the Company expects to continue to incur legal and other professional service costs in connection with the indemnification of former officers
and the ongoing lawsuit against Genesis Insurance Company. These expenses cannot be estimated at this time.

Note 9. Litigation

As previously disclosed, the Company remains a party to its lawsuit against Genesis Insurance Company. The Company's complaint, which was originally filed in the
United States District Court for the Western District of Washington, alleged that Genesis' 2002 attempt to rescind its primary Directors' and Officers' liability insurance was unlawful, and sought
damages resulting from Genesis' breach of contract and the duty of good faith and fair dealing. On February 11, 2004, the Court entered an Order granting Genesis' motions for summary judgment
and, accordingly, the Company's claims against Genesis were dismissed on February 13, 2004. On March 1, 2004 the Company filed a motion asking the Court to alter its decision and vacate
this judgment, and on March 11, 2004 the Company filed a notice of appeal of the Court's decision to the Ninth Circuit Court of Appeals. On April 21, 2004, the Circuit Mediator for the
Ninth Circuit Court of Appeals entered an Order staying the Appeal, pending the outcome of the motion to alter the trial Court's decision and vacate the judgment. On May 25, 2004, the United
States District Court for the Western District of Washington entered an order denying the Company's motion to alter the earlier decision. Accordingly, the Company is proceeding with its appeal and on
June 3, 2004 the Company filed an Amended Notice of Appeal with the Ninth Circuit Court of Appeals.

The
Company is also party to other routine litigation incidental to its business. Management believes the ultimate resolution of these other routine matters will not have a material
adverse effect on the Company's financial condition and results of operations.

Note 10. Income Taxes

The Company recorded approximately $1.8 million of income tax expense in the first three months of fiscal year 2005 compared to approximately
$0.6 million of income tax expense in the first three months of fiscal year 2004. The effective rates for income taxes were 35.6% and 36.8% for the first three months of fiscal years 2005 and
2004, respectively.

9

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Statements made in this filing that are not historical facts are forward-looking statements. You should be aware that our actual results
could differ materially from those contained in any forward-looking statements. Our actual results will depend upon a number of factors, including but not limited to the following: relations with and
the performance of suppliers; our ability to control costs and expenses including costs associated with the upgrade and replacement of some of our computer systems and costs associated with regulatory
compliance; our ability to carry out successful designs, effectively advertise and communicate with the marketplace and penetrate our chosen distribution channels; costs associated with the
indemnification of former officers; competition; access to capital; risks related to the timely performance of third parties, such as shipping companies, including risks of strikes or labor disputes
involving these third parties; our need to maintain the integrity of our technology and information systems while enhancing and changing systems; our need to attract and retain employees during
intensive organizational change; our need to maintain satisfactory relationships with our banking partners; political and trade relations; changes in international trade quota systems for apparel; the
overall level of consumer spending on apparel; global economic and political conditions and additional threatened terrorist attacks and responses thereto, including war. Additional information on
these and other factors that could affect our financial results is set forth below and in our Form 10-K for the year ended April 30, 2004. Finally, there may be other factors
not mentioned above or included in our SEC filings that may cause actual results to differ materially from any forward-looking statements. You should not place undue reliance on any forward-looking
statements. We assume no obligation to update any forward-looking statements as a result of new information, future events or developments, except as required by securities
laws.

All references to fiscal years are references to our fiscal year ended April 30.

Overview

Cutter & Buck designs, sources, markets and distributes high-quality men's and women's sportswear under the Cutter & Buck brand. We sell
our products primarily through golf pro shops and resorts, corporate accounts, upscale specialty retail stores, and international distributors and licensees.

Our
business strategy focuses on strengthening the upscale positioning of the Cutter & Buck brand and increasing the penetration of our target markets. We focus on the needs of
our customers within each
strategic business unit (SBU), and update our styles and add products to meet those needs. We are also investing in marketing to expand our brand awareness within our target markets.

Overall,
sales within our Corporate and Specialty Retail SBU are beginning to show some improvement as the economy improves. However, sales within our Golf SBU continue to lag. We have
recently hired a new manager to lead sales in that SBU, and we have invested in market research and other information gathering to provide data which we are using to create a strategic plan to realize
the full potential of our brand in the golf market.

To
understand the performance of our wholesale business, management considers it useful to review our operating results excluding costs that are not elements of running our wholesale
business on an ongoing basis, such as restatement expenses. We adjust our net income calculated in accordance with generally accepted accounting principles to exclude income and expense items that are
not directly related to our wholesale business, in order to give us better information regarding the profitability of

10

---



our
wholesale business. We use this analysis to compare pretax wholesale business income on a quarterly and year-to-date basis

Quarter Ended
July 312004

2003(in thousands)Net income as reported

$
3,250

$
1,098Income from discontinued retail operations





(146
)Income tax expense


1,796


555Pre-tax expense of closed European operations


6


40Restatement expenses


14


1,672Ongoing wholesale business income before tax

$
5,066

$
3,219


Our
business strategies are intended to provide long-term growth to our business. Due in part to the long product lead times in this industry, we remain relatively cautious
about sales for fiscal 2005 in relation to last year. In addition, we are currently searching for a successor to our CEO. Effective September 16, 2004, Bill Swint, currently the Vice President
and Manager of Order Fulfillment, will become the Interim President and CEO until a permanent CEO is hired. Once we have hired a permanent CEO, that individual will be responsible for positioning our
brand in the market and charting the Company's strategic direction, which may result in some change in our current brand positioning and strategy. In order to provide the permanent CEO with as much
strategic flexibility as possible, we do not plan any additional initiatives, other than those previously announced, that would significantly affect our working capital position during this transition
period.

Recent Developments

As previously announced, on August 25, 2004 the Board of Directors amended the company's bylaws to separate the offices of Chairperson and Chief Executive
Officer. Douglas Southern, currently a member of the Board, was appointed to the position of Chairperson effective September 16, 2004. The Board also appointed Whitney Tilson to the position of
Director effective September 16, 2004.

Results of Operations

The following table sets forth, for the periods indicated, certain consolidated statements of operations data expressed as a percentage of net sales. For all
periods presented in this section, results

11

---



of
operations reflect the classification of our Company-owned retail store operating results and income or loss on the disposal of these stores as discontinued retail operations.

Three Months EndedJuly 31,
2004

July 31,
2003Net sales

100.0
%
100.0
%Cost of sales

50.6

55.0Gross profit

49.4

45.0Operating expenses:Depreciation

2.4

3.2Selling, general and administrative

31.4

32.0Restatement expenses



5.1Total operating expenses

33.8

40.3Operating income

15.6

4.7Net interest income (expense)

0.2

(0.1
)Income from continuing operations before income taxes

15.8

4.6Income tax expense

5.6

1.7Income from continuing operations

10.2

2.9Income from discontinued retail operations, net of tax



0.4Net income

10.2
%
3.3
%




Net Sales

During the first quarter of fiscal 2005, net sales decreased approximately $0.8 million, or 2.6%, to $31.9 million from $32.7 million in the
same period of the prior year. Our net sales in the first quarter of fiscal 2005 have been affected by our strategy to forego some sales opportunities which would have generated lower gross profits.
However, this strategy has contributed to our overall increase in gross profits.

The
detail of net sales by SBU was as follows:

Three Months Ended July 31,2004

2003

Decrease

Percent
Change(in thousands, except percent change)Golf

$
8,827

$
11,047

$
(2,220
)
(20.1
)%Corporate


15,143


14,276


867

6.1Specialty Retail


5,322


5,008


314

6.3International


685


570


115

20.2Other


1,922


1,836


86

4.7Total

$
31,899

$
32,737

$
(838
)
(2.6
)%


In
the first quarter of fiscal 2005, net sales in our Golf SBU decreased by $2.2 million, to $8.8 million from $11.0 million in the same period of the prior year. We
are focusing significant management attention towards understanding the reasons for this decrease, with the goal of realizing the full potential of our brand within this SBU. This focus includes
analyzing our operational processes from the design to the sale of our product, reviewing our selling programs, and increasing our

12

---



marketing
activities. We are adding a new SBU manager, adding a senior golf merchandiser, expanding marketing programs and improving our customer service focus. However, due to our long product lead
times, we do not expect to realize significant improvements in our Golf sales over the short term.

Net
sales in our Corporate SBU increased by $0.9 million, to $15.1 million from $14.3 million in the same period of the prior year. Net sales in this SBU are showing
improvement as sales and marketing of our updated product line take effect, and as corporate customers begin to increase spending on their events and programs. Net sales in our Specialty Retail SBU
increased $0.3 million, to $5.3 million from $5.0 million in the same period of the prior year, primarily due to the continued success of our collegiate and pro sports sales
programs as we expand our presence in this market. We are also experiencing some increase in net sales as economic conditions begin to improve for independent specialty retail stores. Net sales in our
International SBU increased by $0.1 million, to $0.7 million from $0.6 million in the same period of the prior year, primarily due to our licensees' increased experience with the
brand in their marketplaces and improving international economic conditions. Net sales in our Other SBU, including liquidation sales, shipping revenue and our e-commerce business,
increased slightly compared to the same period of the prior year.

Gross Profit

In the first quarter of fiscal 2005, gross profit increased to 49.4% of net sales compared to 45.0% in the same period of the prior year. Our margins have
continued to increase as we improve our sourcing, focus on reducing our product returns and allowances and adjust our pricing structure for certain products. Gross margins during the first quarter
have also been favorably impacted by fluctuations in our sales mix.

Our
gross profit may not be comparable to other companies, since some companies include all costs related to their distribution network in the cost of sales. We have consistently
included inbound freight, import charges and embroidery costs in cost of sales, and included other costs of distribution in selling, general and administrative expenses.

Selling, General and Administrative Expense

Selling, general and administrative expenses totaled $10.0 million in the first quarter of fiscal 2005 compared to $10.5 million in fiscal 2004, a
decrease of $0.5 million. Salaries, sales commissions and related taxes and benefits decreased approximately $0.5 million, primarily due to a decrease in net sales and internal
cost-cutting measures. Business taxes decreased approximately $0.2 million, primarily due to a reduction in tax assessments. Professional fees decreased approximately
$0.1 million, primarily due to decreases in consulting fees. These decreases were partially offset by increases of approximately $0.2 million in employee recruiting and
$0.1 million in advertising expenses, primarily due to increases in print advertising, market research and sponsorship costs.

During
the remainder of fiscal 2005, we expect operating expenses to increase as we expand our marketing programs, upgrade and replace some of our computer systems, and comply with the
regulatory requirements of the Sarbanes-Oxley Act of 2002.

Operating Income

As a result of the above items, our operating income was $5.0 million in the first quarter of fiscal 2005 compared to $1.5 million in the first
quarter of fiscal 2004.

Income Taxes

We recorded approximately $1.8 million of income tax expense in the first quarter of fiscal 2005 compared to $0.6 million in the first quarter of
fiscal 2004. The effective rates for income taxes in the first quarters of fiscal 2005 and 2004 were 35.6% and 36.8%, respectively.

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Liquidity and Capital Resources

Our primary ongoing capital requirements are to finance working capital, the continued growth and operations of our business, our stock repurchase program and
cash dividends. During the first quarter of fiscal 2005, our capital requirements were funded by cash provided by operating activities. Net cash provided by operating activities in the first quarter
of fiscal 2005 was $6.5 million compared to $4.1 million for the first quarter of fiscal 2004. The increase in net cash provided by operating activities was primarily generated from our
net income of $3.3 million in the first quarter of fiscal 2005 compared to $1.1 million in the first quarter of fiscal 2004. The increase in our net income was primarily due to
improvements in our gross profit and reductions in our operating expenses. These changes were partially offset by increases in our inventory balance in the first quarter of fiscal 2005 compared to a
decrease in inventory in the first quarter of fiscal 2004, a smaller decrease in our accounts receivable in fiscal 2005, primarily due to a lower level of net sales, and an increase in accounts
payable and accrued liabilities. Net cash used in investing activities was $8.7 million in the first quarter of fiscal 2005 compared to $0.3 million in the first quarter of fiscal 2004.
The increase was primarily due to the purchase of short-term investments in fiscal 2005. We invest in interest-bearing U.S. Government and high-quality corporate debt
instruments and hold these instruments to maturity, which averages 109 days or less. At July 31, 2004 we held $26.4 million in short-term investments. Net cash used in
financing activities was $0.5 million in the first quarter of fiscal 2005, which primarily consisted of dividend payments, stock repurchases, and payments under capital lease obligations. At
July 31, 2004, our cash and cash equivalents were $17.1 million compared to $22.2 million at July 31, 2003.

On
March 13, 2003 we entered into a loan agreement with Wells Fargo Bank, N.A. (Wells Fargo) as agent and Wells Fargo Century, an affiliate of Wells Fargo, as collateral agent and
lender for a $35 million line of credit that expires in March 2005. The amount of credit available to us under this agreement is determined by a formula based on our accounts receivable
and inventory balances. The amount of our available credit fluctuates as these balances fluctuate, and may at times be less than the maximum $35 million available under the agreement. We use
this line of credit to support our trade financing with letters of credit. We may also use the line for operating expenses, although we do not currently do so. This loan agreement also contains
certain restrictive covenants covering minimum net worth, minimum working capital and maximum capital expenditures. These financial covenants require
that we maintain a tangible net worth of at least $50 million and working capital of at least $35 million at all times, and limit capital expenditures to not more than
$4.0 million in fiscal 2005. We were in compliance with these covenants at July 31, 2004. We have obtained a waiver from Wells Fargo for the loan covenant which previously limited our
capital expenditures to $2.5 million in fiscal 2005.

To
support our operations, capital expenditures totaling approximately $4.0 million are planned for fiscal 2005. These capital expenditures will primarily consist of information
technology initiatives, as we plan to upgrade and replace some of our computer systems.

Other
significant uses of cash included the payment of retention bonuses, payment of cash dividends, repurchases of our common stock, and payments under our Transition Agreement with our
CEO. In fiscal 2005, we will pay approximately $0.6 million in retention bonuses plus approximately $0.5 million under our Transition Agreement with our CEO. The Board declared a
dividend payable on October 8, 2004 to shareholders of record on September 24, 2004. We expect to pay similar dividends in future quarters. However, we may decide to discontinue or
modify the dividend payment at any time if we determine that other uses of our capital may be in the best interests of our shareholders. The share repurchase program authorizes the purchase of up to
$6 million in company stock. The purchases will be made from time to time in the open market or in privately negotiated transactions. During the first quarter of fiscal 2005, we purchased
16,800 shares of our common stock at an average price of $10.48, for a total repurchase of $0.2 million. Since the inception of the program, we have purchased 73,626 shares at an average price
of $10.27. We have paid a total of $0.8 million to repurchase stock

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and
have authorization to make additional repurchases up to $5.2 million of stock. The repurchase program may be suspended at any time without notice. The timing of repurchases and the actual
number of shares repurchased will depend on market conditions, alternative uses of capital and other factors.

We
believe that cash on hand and cash generated from operations, as well as our ability to borrow under bank lines of credit will be sufficient to meet our cash requirements during
fiscal 2005. We also have available alternative sources of financing, including factoring our accounts receivable and financing our capital expenditures with leases. Although these methods of
financing are currently available to us, we do not anticipate using alternative sources of financing during fiscal 2005. However, our capital needs will depend on many factors, including our growth
rate, the need to finance increased production and inventory levels, the success of our various sales and marketing programs, expenses associated with the risks and uncertainties related to our
restatement and various other factors.

Foreign Currency Exchange Risk

We do not currently use derivative financial instruments to reduce our exposure to changes in foreign exchange rates. In conjunction with the closing of our
European operations, we have some remaining assets and liabilities denominated in Euros. These balances are not material to our consolidated financial statements. To the extent we have assets and
liabilities denominated in Euros that are not hedged, we are subject to foreign currency transaction gains and losses.

Critical Accounting Policies

Our significant accounting policies are described in Note 1 to the consolidated financial statements included in the Company's filing on
Form 10-K for the year ended April 30, 2004. Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate the
estimates that we have made. These estimates have been based upon our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results
may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the more significant judgments and estimates used in the
preparation of our consolidated financial statements.

Allowances for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. These losses are
included in bad debt expense. We determine the adequacy of this allowance by regularly reviewing our accounts receivable aging and evaluating individual customer receivables, considering customers'
financial condition, credit history and current economic conditions. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.

Reserve for Product Returns

We maintain an estimate of potential future product returns related to current period product receivables. We analyze the rate of historical returns when
evaluating the adequacy of this reserve, and update our estimate based on our actual results. The estimate for product returns is included in our calculation of net sales. If we were to experience an
increase in our product returns, additional reserves may be required.

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Reserve for Sales Allowances

We maintain an estimate of future sales allowances related to current period sales. We analyze the rate of historical sales allowances when evaluating the
adequacy of this reserve, and update our estimate based on our actual results. The estimate for sales allowances is included in our calculation of net sales. If we were to grant additional sales
allowances, additional reserves may be required.

Inventories

Inventories, which are predominantly finished goods, are valued at the lower of cost or market, with cost determined using the weighted average method. We perform
a detailed analysis of inventory on a quarterly basis to identify unsold or slow-moving products. We estimate the net realizable value of these products based upon disposition plans and
historical experience. A valuation allowance is established to reduce the carrying amount of these products to their estimated net realizable value. If actual market conditions are less favorable than
those we project, additional allowances may be required.

Impairment of Long-Lived Assets

We review the carrying values of our long-lived assets whenever events or changes in circumstances indicate that such carrying values may not be
recoverable. Unforeseen events and changes in circumstances and market conditions and changes in estimates of future cash flows could negatively affect the fair value of our assets and result in an
impairment charge. Fair value is the
amount at which the asset could be bought or sold in a current transaction between willing parties and may be estimated using a number of techniques, including quoted market prices or valuations by
third parties, present value techniques based on estimates of cash flows, or multiples of earnings or revenues performance measures. The fair value of the asset could be different using different
estimates and assumptions in these valuation techniques.

Restructuring Liabilities

Restructuring-related liabilities consist of estimates for losses on anticipated disposition of lease obligations. Key variables in determining this estimate
include the anticipated timing of sublease rentals, estimates of sublease rental payment amounts and estimates for brokerage and other related costs. We periodically evaluate and, if necessary, adjust
our estimates based on currently available information.

Valuation Allowance in Deferred Income Tax Assets

We periodically review the need for a valuation allowance to reduce our deferred income tax asset balances to their net realizable value. To the extent we
determine an allowance is required, we determine the adequacy of this allowance by regularly reviewing our historical taxable income and forecasts of future taxable income over the periods in which
the temporary differences are anticipated to reverse. If our actual results are lower than our forecasted future results, additional allowances may be required.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are subject to certain market risks, including interest rate risks associated with financial instruments included in cash and cash equivalents and
short-term investments. We invest in interest-bearing U.S. Government and high-quality corporate debt instruments and hold these instruments until maturity, which averages
109 days or less. Changes in interest rates may affect the fair market value of these instruments. Due to the short-term nature of these instruments and our investment policies and

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procedures,
we do not expect interest rate fluctuations to have a material adverse effect on our results of operations. We do not use derivative financial instruments to manage interest rate risk.

We
do not use derivative financial instruments to reduce our exposure to changes in foreign currency exchange rates, and we do not use derivatives for speculative trading purposes.

The
following table provides information about our cash equivalent and marketable fixed income securities, including principal cash flows by expected maturity and the related weighted
average interest rates at July 31, 2004.

Expected maturity date(in thousands, except percentages)


Fiscal 2005U.S. Corporate debt securities

$
26,400Average interest rate


1.3
%


Item 4. Controls and Procedures

Evaluation of the Company's Disclosure Controls and Procedures.As of July 31, 2004, we evaluated the effectiveness of
our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). This
evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. The evaluation included inquiring of senior
managers whether our records and reports were correct and complete. We are continuing to develop internal processes for documenting, testing and monitoring our disclosure procedures. These
internal processes are based on employees' reports of their processes, analysis of our documentation, and limited testing to validate our processes and documentation.

Limitations on the Effectiveness of Controls.Our management does not expect that our disclosure controls or our internal
controls will prevent all errors and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. The design of our control system reflects the fact that there are resource constraints and the benefits of such controls were considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control failures and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of control. The design of any system of controls is also based in part on certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the
inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Conclusions.Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms.

Changes in Internal Controls.There were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during the quarter ended July 31, 2004 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

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PART IIOTHER INFORMATION

Item 1. Legal Proceedings

As previously disclosed, we remain a party to our lawsuit against Genesis Insurance Company. Our complaint, which was originally filed in the United States
District Court for the Western District of Washington, alleged that Genesis' 2002 attempt to rescind our primary Directors' and Officers' liability insurance was unlawful, and sought damages resulting
from Genesis' breach of contract and the duty of good faith and fair dealing. On February 11, 2004, the Court entered an Order granting Genesis' motions for summary judgment and, accordingly,
our claims against Genesis were dismissed on February 13, 2004. On March 1, 2004 we filed a motion asking the Court to alter its decision and vacate this judgment, and on
March 11, 2004 we filed a notice of appeal of the Court's decision to the Ninth Circuit Court of Appeals. On April 21, 2004, the Circuit Mediator for the Ninth Circuit Court of Appeals
entered an Order staying our Appeal, pending the outcome of our motion to alter the trial Court's decision and vacate the judgment. On May 25, 2004, the United States District Court for the
Western District of Washington entered an order denying our motion to alter the earlier decision. Accordingly, we are proceeding with our appeal and on June 3, 2004 we filed our Amended Notice
of Appeal with the Ninth Circuit Court of Appeals.

We
are also party to other routine litigation incidental to our business. Management believes the ultimate resolution of these other routine matters will not have a material adverse
effect on our financial condition and results of operations.

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

|Exhibit
Number |  | Description                                                                                                        
|-------------- |  | -------------------------------------------------------------------------------------------------------------------
|31.1           |  | Certification of the Company's Chief Executive Officer required by Section 302(a) of the Sarbanes-Oxley Act of 2002
|31.2           |  | Certification of the Company's Chief Financial Officer required by Section 302(a) of the Sarbanes-Oxley Act of 2002
|32.1           |  | Certification of the Company's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002   
|32.2           |  | Certification of the Company's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002   

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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.

|                         |  | Cutter & Buck Inc.
(Registrant)                                                                                                     
|------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------
|Dated: September 9, 2004 |  |                                                                                                                                     
|                         |  | /s/ERNEST R. JOHNSONErnest R. Johnson Senior Vice President and Chief
Financial Officer (Principal Accounting and Financial Officer)

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