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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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FORM 10-Q

(Mark One)

x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended
    
    November 1, 2003


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)




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(Former name, former address and former fiscal year, if changed since last report.)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x  No o

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.

Common Stock, no par value,
32,814,456 shares outstanding as of November 14,
2003.


1



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Goodys Family Clothing, Inc.
Index to Form 10-Q
November 1, 2003

Part I  Financial Information:Item 1 - Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Statements of Operations
    
    
    3Condensed Consolidated Balance Sheets
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6 - 9Independent Accountants Review Report
    
    
    10Item 2 - Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    11 - 15Item 3 - Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4 - Controls and Procedures
    
    
    15Part II  Other Information:
    
    
    16Item 1. Legal ProceedingsItem 2. Changes in Securities and Use of ProceedsItem 3. Defaults upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. (a) ExhibitsItem 6. (b) Reports on Form 8-KSignatures
    
    
    17


2



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PART 1  FINANCIAL INFORMATION

Item 1   Condensed Consolidated Financial Statements

Goodys Family Clothing, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)

Thirteen
    
    Thirty-nineWeeks Ended
    
    Weeks EndedNovember 1,
    
    November 2,
    
    November 1,
    
    November 2,2003
    
    2002
    
    2003
    
    2002Sales
    
    $
    280,777
    
    
    $
    268,324
    
    
    $
    857,828
    
    
    $
    835,873Cost of sales and occupancy expenses
    
    
    197,509
    
    
    
    190,660
    
    
    
    602,801
    
    
    
    594,860Gross profit
    
    
    83,268
    
    
    
    77,664
    
    
    
    255,027
    
    
    
    241,013Selling, general and administrative expenses
    
    
    80,676
    
    
    
    82,836
    
    
    
    238,571
    
    
    
    235,509Earnings (loss) from operations
    
    
    2,592
    
    
    
    (5,172
    )
    
    
    16,456
    
    
    
    5,504Investment income
    
    
    127
    
    
    
    150
    
    
    
    507
    
    
    
    408Interest expense
    
    
    1
    
    
    
    4
    
    
    
    2
    
    
    
    10Earnings (loss) before income taxes
    
    
    2,718
    
    
    
    (5,026
    )
    
    
    16,961
    
    
    
    5,902Provision (benefit) for income taxes
    
    
    1,006
    
    
    
    (1,885
    )
    
    
    6,276
    
    
    
    2,213Net earnings (loss)
    
    $
    1,712
    
    
    $
    (3,141
    )
    
    $
    10,685
    
    
    $
    3,689Earnings (loss) per common share:Basic
    
    $
    0.05
    
    
    $
    (0.10
    )
    
    $
    0.33
    
    
    $
    0.11Diluted
    
    $
    0.05
    
    
    $
    (0.10
    )
    
    $
    0.32
    
    
    $
    0.11Cash dividends declared per common share
    
    $
    0.02
    
    
    $
    
    
    
    $
    0.04
    
    
    $
    Weighted average common shares outstanding:Basic
    
    
    32,740
    
    
    
    32,556
    
    
    
    32,623
    
    
    
    32,515Diluted
    
    
    33,649
    
    
    
    32,556
    
    
    
    33,268
    
    
    
    33,122


See accompanying Notes to Condensed Consolidated Financial Statements and
Independent Accountants Review Report.

3



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Goodys Family Clothing, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)

November 1,
    
    February 1,
    
    November 2,2003
    
    2003
    
    2002(Unaudited)
    
    
    
    
    
    (Unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    66,727
    
    
    $
    100,030
    
    
    $
    25,088Inventories
    
    
    274,853
    
    
    
    180,023
    
    
    
    261,937Accounts receivable and other current assets
    
    
    21,763
    
    
    
    17,567
    
    
    
    17,269Total current assets
    
    
    363,343
    
    
    
    297,620
    
    
    
    304,294Property and equipment, net
    
    
    108,424
    
    
    
    108,688
    
    
    
    116,355Other assets
    
    
    13,901
    
    
    
    9,539
    
    
    
    9,525Total assets
    
    $
    485,668
    
    
    $
    415,847
    
    
    $
    430,174LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable  trade
    
    $
    160,775
    
    
    $
    105,898
    
    
    $
    133,356Accounts payable  other
    
    
    18,622
    
    
    
    24,321
    
    
    
    17,401Accrued expenses
    
    
    65,272
    
    
    
    54,769
    
    
    
    49,350Total current liabilities
    
    
    244,669
    
    
    
    184,988
    
    
    
    200,107Long-term liabilities
    
    
    6,379
    
    
    
    7,187
    
    
    
    6,240Deferred income taxes
    
    
    12,348
    
    
    
    12,539
    
    
    
    16,581Total liabilities
    
    
    263,396
    
    
    
    204,714
    
    
    
    222,928Commitments and Contingencies (Note 6)Shareholders EquityPreferred stock, par value $1.00 per share;
Authorized - 2,000,000 shares; issued and outstanding  noneClass B Common stock, no par value;
Authorized - 50,000,000 shares; issued and outstanding  noneCommon stock, no par value;Authorized - 50,000,000 shares;Issued and outstanding - 32,814,306; 32,555,533;
and 32,555,533 shares, respectively
    
    
    23,553
    
    
    
    22,245
    
    
    
    22,245Paid-in capital
    
    
    10,965
    
    
    
    10,510
    
    
    
    10,510Retained earnings
    
    
    187,754
    
    
    
    178,378
    
    
    
    174,491Total shareholders equity
    
    
    222,272
    
    
    
    211,133
    
    
    
    207,246Total liabilities and shareholders equity
    
    $
    485,668
    
    
    $
    415,847
    
    
    $
    430,174


See accompanying Notes to Condensed Consolidated Financial Statements and
Independent Accountants Review Report.

4



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Goodys Family Clothing, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

Thirty-nine Weeks EndedNovember 1,
    
    November 2,2003
    
    2002Cash Flows from Operating ActivitiesNet earnings
    
    $
    10,685
    
    
    $
    3,689Adjustments to reconcile net earnings to net cash
used in operating activities:Depreciation and amortization
    
    
    16,287
    
    
    
    17,105Net loss on asset disposals and write-downs
    
    
    287
    
    
    
    527Changes in assets and liabilities:Inventories
    
    
    (94,830
    )
    
    
    (81,966
    )Accounts payable  trade
    
    
    54,877
    
    
    
    18,293Accounts payable  other
    
    
    (5,699
    )
    
    
    (1,647
    )Income taxes
    
    
    5,767
    
    
    
    14,930Other assets and liabilities
    
    
    (1,085
    )
    
    
    5,612Net cash used in operating activities
    
    
    (13,711
    )
    
    
    (23,457
    )Cash Flows from Investing ActivitiesAcquisitions of property and equipment
    
    
    (16,365
    )
    
    
    (6,146
    )Acquisition of intangible assets
    
    
    (4,098
    )
    
    
    Proceeds from sale of property and equipment
    
    
    215
    
    
    
    359Net cash used in investing activities
    
    
    (20,248
    )
    
    
    (5,787
    )Cash Flows from Financing ActivitiesDividends paid to shareholders
    
    
    (652
    )
    
    
    Proceeds from exercise of stock options
    
    
    1,308
    
    
    
    526Net cash provided by financing activities
    
    
    656
    
    
    
    526Net decrease in cash and cash equivalents
    
    
    (33,303
    )
    
    
    (28,718
    )Cash and cash equivalents, beginning of period
    
    
    100,030
    
    
    
    53,806Cash and cash equivalents, end of period
    
    $
    66,727
    
    
    $
    25,088Supplemental Disclosures:Net income tax payments (refunds)
    
    $
    1,319
    
    
    $
    (11,694
    )Interest payments
    
    
    1
    
    
    
    5


See accompanying Notes to Condensed Consolidated Financial Statements and
Independent Accountants Review Report.

5



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Goodys Family Clothing, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(1) Basis of presentation

The accompanying condensed consolidated financial statements of Goodys Family
Clothing, Inc. and subsidiaries (the Company) are unaudited and have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for interim financial statements. In the opinion of the Companys
management, the accompanying unaudited condensed consolidated financial
statements include all adjustments, consisting primarily of normal and
recurring adjustments, necessary for a fair presentation of the Companys
financial position, results of operations and cash flows for the interim
periods presented. Due to the seasonal nature of the Companys business, the
results of operations for the interim periods are not necessarily indicative of
the results that may be achieved for the entire year. The condensed
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto contained in
the Companys Annual Report on Form 10-K for its fiscal year ended February 1,
2003.

(2) Stock-Based Compensation

The Company has options outstanding under four stock option plans: the Goodys
Family Clothing, Inc. Amended and Restated 1991 Stock Incentive Plan (the 1991
Plan), the Goodys Family Clothing, Inc. Amended and Restated 1993 Stock
Option Plan (the 1993 Plan), the Goodys Family Clothing, Inc. Amended and
Restated 1997 Stock Option Plan (the 1997 Plan) and the Amended and Restated
Discounted Stock Option Plan for Directors (the Directors Plan).

On February 2, 2003, the Company adopted Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure  an Amendment of Financial Accounting Standards Board (FASB)
Statement No. 123, (SFAS 148). SFAS 148 requires additional disclosures in
the footnotes of both interim and annual financial statements regarding the
method the Company uses to account for stock-based compensation and the effect
of such method on reported results.

The Company accounts for its stock option plans under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net 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 insignificant. Interim proforma information regarding net
income and earnings per share is required by SFAS 148, 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 earnings and 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
    
    Thirty-nineWeeks Ended
    
    Weeks EndedNovember 1,
    
    November 2,
    
    November 1,
    
    November 2,2003
    
    2002
    
    2003
    
    2002Net earnings (loss), as reported
    
    $
    1,712
    
    
    $
    (3,141
    )
    
    $
    10,685
    
    
    $
    3,689Deduct: Total stock-based employee compensation expense
determined under fair value based-method for all
awards, net of related tax effects
    
    
    165
    
    
    
    345
    
    
    
    618
    
    
    
    1,005Pro forma net earnings (loss)
    
    $
    1,547
    
    
    $
    (3,486
    )
    
    $
    10,067
    
    
    $
    2,684Earnings (loss) per common shareBasic  as reported
    
    $
    0.05
    
    
    $
    (0.10
    )
    
    $
    0.33
    
    
    $
    0.11Basic  pro forma
    
    
    0.05
    
    
    
    (0.11
    )
    
    
    0.31
    
    
    
    0.08Diluted  as reported
    
    $
    0.05
    
    
    $
    (0.10
    )
    
    $
    0.32
    
    
    $
    0.11Diluted  pro forma
    
    
    0.05
    
    
    
    (0.11
    )
    
    
    0.30
    
    
    
    0.08


6



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Goodys Family Clothing, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements   continued
(Unaudited)

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.

(3) 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. 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
thirty-nine weeks ended November 1, 2003 or November 2, 2002 and therefore 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 on the common stock in an amount equal to (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. In addition, in June 2003 the lenders
agreed to waive any events of default which could be deemed to have occurred by
reason of the Courts decision in the Hilfiger Matter described below. At
November 1, 2003, the Company had no borrowings and $22,741,000 in letters of
credit (not yet reflected in accounts payable) outstanding under the facility.
These letters of credit generally have terms of less than one year and are
primarily used to facilitate the purchase of import merchandise.

(4) Recent accounting pronouncements

FASB Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, was issued in November 2002. This interpretation requires guarantors
to account at fair value for and disclose certain types of guarantees. The
interpretations disclosure requirements were effective for the Companys year
ended February 1, 2003; the interpretations measurement requirements were
effective for guarantees issued or modified after December 31, 2002.
Historically, the Company has not incurred significant costs related to
performance under these types of guarantees. No liabilities have been recorded
for these obligations on the Companys consolidated balance sheet as of
November 1, 2003.

FIN No. 46, Consolidation of Variable Interest Entities, was issued in
January 2003. This interpretation requires consolidation of variable interest
entities (VIE) (also formerly referred to as special purpose entities) if
certain conditions are met. The interpretation applies immediately to VIEs
created after January 31, 2003, and to interests obtained in VIEs after
January 31, 2003. Beginning the first fiscal year or interim period commencing after December 15, 2003, the interpretation also
applies to VIE's created or interests obtained in VIE's before February 1, 2003.  The Company does not expect this interpretation
to have an impact on its consolidated financial statements.

In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity
(SFAS No. 150). SFAS No. 150 established standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003 and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The provisions of SFAS No. 150 did not have an impact on the Companys
consolidated financial statements.


7

Goodys Family Clothing, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements   continued
(Unaudited)

(5) Restructuring Charge

The Company recorded a restructuring charge during the fourth quarter of fiscal
2001 of approximately $1,335,000 for an announced reduction in the Companys
work force that was completed during 2002. The reduction resulted in the
elimination of jobs located at its corporate office and distribution center in
Knoxville, Tennessee, and its distribution center in Russellville, Arkansas.
The charge included the costs associated with severance, health benefits,
outplacement services and professional fees related to developing and
implementing the restructuring plan. During the third quarter of fiscal 2002,
the Company made payments related to the restructuring of $9,000. During the
remainder of fiscal 2002, payments related to the restructuring charge totaled
$33,000 and net credits to income were $1,000, leaving no accrued restructuring
charge on the balance sheet as of February 1, 2003.

(6) 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 Court for
its preliminary approval. The proposed Consent Decree sets forth the proposed
settlement of the class action race discrimination lawsuit. Ultimately, class
action certification was sought in the lawsuit only with respect to alleged
discrimination in promotion to management positions and the proposed Consent
Decree is limited to such claims. Generally, the proposed settlement provides
for a payment by the Company in the aggregate amount of $3.2 million to the
class members (including the named plaintiffs) and their counsel, as well as
the Companys implementation of certain policies, practices and procedures
regarding, among other things, training of employees. The Companys employer
liability insurance underwriter has funded $3.1 million of such payment to a
third party administrator. The proposed Consent Decree explicitly provides that
it is not an admission of liability by the Company and the Company continues to
deny all of the allegations. On April 30, 2003, the 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. At such
hearing, the Court requested that plaintiffs counsel take certain action.
Plaintiffs counsel has since notified the Court that such action has been
taken and requested the Court to grant final approval of the Consent Decree.
The parties are still waiting for the Courts response. There can be no
assurance that such final approval to the Consent Decree will be granted or
that the settlement will not be overturned on appeal.

Hilfiger Matter, Sun Matter and Related Insurance Matters

In July 2000, Tommy Hilfiger Licensing, Inc. (Hilfiger) commenced an action
against the Company in the United States District Court for the Northern
District of Georgia, alleging, among other things, counterfeiting and trademark
infringement (the Hilfiger Matter). A bench trial for the Hilfiger Matter
concluded on March 13, 2003 and on May 9, 2003, the Court rendered its
decision, awarding damages to Hilfiger in the amount of approximately $11.0
million, plus reasonable attorneys fees and costs.

In June 2002, Hilfiger brought an action against Sun Apparel, Inc. (Sun), a
Goodys denim supplier, alleging trademark infringement arising out of Suns
manufacture of the allegedly infringing labels that gave rise to Hilfigers
trademark infringement claims against Goodys (the Sun Matter). Goodys had
agreed to pay for the defense of the Sun Matter because of certain
indemnification obligations it had to Sun.

At the time the Hilfiger Matter commenced, the Companys primary liability
insurer indicated that it would reimburse Goodys for its legal fees and
expenses. In February 2003, after several unsuccessful attempts to obtain such


8

Goodys Family Clothing, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements   continued
(Unaudited)

reimbursement, Goodys filed an insurance coverage action against the insurers.
Following the commencement of such action, the primary insurer agreed to
reimburse Goodys for a substantial portion of its past and future legal
expenses. However, the insurance carriers reserved their rights regarding their
obligations to indemnify Goodys against damages resulting from the Hilfiger
claims and the Sun Matter and the carriers asserted certain defenses against
their indemnity obligations. On May 13, 2003, Firemans Fund Insurance Company
(Firemans Fund), the excess layer (umbrella insurance) carrier, commenced an
action against Goodys in the Chancery Court for Knox County, Tennessee seeking
a declaratory judgment against Goodys declaring that it has no duty to
indemnify Goodys in the Hilfiger Matter (the Goodys suit against the insurers
and the Firemans Fund suit against the Company are collectively referred to
herein as the Insurance Matters).

In June 2003, the Company reached a settlement agreement with Tommy Hilfiger
resolving all outstanding issues arising out of the Hilfiger Matter. Under the
settlement, the Company agreed to make an $11.0 million cash payment to Tommy
Hilfiger. The settlement amount also encompassed the settlement of the Sun
Matter. In June 2003, the Company also reached an agreement in principle with
its insurance carriers regarding the Insurance Matters and a definitive
settlement agreement with its insurance carriers was executed in July 2003. As
a result of the combined settlements, in the second quarter of fiscal 2003, the
Company reversed $4,441,000 ($0.08 per diluted share after taxes) of the
pre-tax charge of $7,996,000 ($0.15 per diluted share after taxes) previously
recorded in the first quarter of fiscal 2003 based upon the Companys earlier
estimates in connection with these matters. Accordingly, for the thirty-nine
weeks ended November 1, 2003, the Company has recorded a pre-tax charge of
$3,571,000 ($0.07 per diluted share after taxes) in connection with these
matters.

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 (other than the class action proceeding
noted in the foregoing paragraphs), individually and in the aggregate, would
have a material adverse effect on the Companys financial position, results of
operations or cash flows.

(7) Reclassifications

Certain reclassifications have been made to the condensed consolidated
financial statements of prior periods to conform to the current period
presentation.

9



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##### 



INDEPENDENT ACCOUNTANTS REVIEW REPORT

Board of Directors and Shareholders
Goodys Family Clothing, Inc.
Knoxville, Tennessee:

We have reviewed the accompanying condensed consolidated balance sheets of
Goodys Family Clothing, Inc. and Subsidiaries (the Company) as of November
1, 2003 and November 2, 2002, and the related condensed consolidated statements
of operations for the thirteen and thirty-nine week periods then ended and of
cash flows for the thirty-nine week periods then ended. These interim financial
statements are the responsibility of the Companys management.

We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
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 generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

Based on our reviews, we are not aware of any material modifications that
should be made to such condensed consolidated 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 generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of February 1, 2003, and the related consolidated statements of
operations, shareholders equity, and cash flows for the year then ended (not
presented herein); and in our report dated March 17, 2003, 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 February 1, 2003 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.

/s/Deloitte & Touche LLP
Atlanta, Georgia
November 18, 2003

10



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##### 



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

Forward-looking Statements

This Quarterly Report contains certain forward-looking statements which are
based upon current expectations, business plans and estimates and involve
material risks and uncertainties including, but not limited to:



| |  |  | The effectiveness of the Companys planned merchandising,
advertising, pricing, and operational changes;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | The ability to achieve business plan targets;
| | - |  | ---------------------------------------------



| |  |  | The ability to avoid excess promotional pricing;
| | - |  | ------------------------------------------------



| |  |  | Weather conditions;
| | - |  | -------------------



| |  |  | The timely availability of branded and private label
merchandise in sufficient quantities to satisfy customer
demand;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | Customer demand and trends in the apparel and retail
industry and to the acceptance of merchandise acquired for sale
by the Company;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The effectiveness of advertising and promotional events;
| | - |  | --------------------------------------------------------



| |  |  | The ability to enter into leases for new store locations;
| | - |  | ---------------------------------------------------------



| |  |  | The timing, magnitude and costs of opening new stores;
| | - |  | ------------------------------------------------------



| |  |  | Individual store performance, including new stores;
| | - |  | ---------------------------------------------------



| |  |  | Competition, including the impact of competitors pricing
and store expansion in markets in which the Company operates;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | Employee relations;
| | - |  | -------------------



| |  |  | The general economic conditions within the Companys
markets and a continued improvement in the overall retail
environment;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | Global political unrest and associated risks;
| | - |  | ---------------------------------------------



| |  |  | The continued availability of adequate credit support from vendors and factors;
| | - |  | -------------------------------------------------------------------------------



| |  |  | The Companys compliance with loan covenants and the
availability of sufficient eligible collateral for borrowing;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | The unanticipated needs for additional capital expenditures;
| | - |  | ------------------------------------------------------------



| |  |  | Trends affecting the Companys financial condition, results of operations or cash flows;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | The Companys ability to resume historical levels of new store growth; and
| | - |  | --------------------------------------------------------------------------



| |  |  | The inherent uncertainty of, and possible adverse outcomes in, pending litigation.
| | - |  | ----------------------------------------------------------------------------------

Any forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, which generally can be identified by the use of
forward-looking terminology such as may, will, expect, estimate,
anticipate, believe, target, plan, project, or continue or the
negatives thereof or other variations thereon or similar terminology, are made
on the basis of managements plans and current analysis of the Company, its
business and the industry as a whole. Readers are cautioned that any such
forward-looking statement is not a guarantee of future performance and
involves risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statement as a result
of various factors. The Company does not undertake to publicly update or
revise its forward-looking statements even if experience or future changes
make it clear that any projected results expressed or implied therein will not
be realized. Additional information on risk factors that could potentially
affect the Companys financial results may be found in the Companys public
filings with the Securities and Exchange Commission. Certain of such filings
may be accessed through the Companys web site, http://www.goodysonline.com,
then select Investor Information and choose SEC Filings.

11



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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
    
    Thirty-nineWeeks Ended
    
    Weeks EndedNovember 1,
    
    November 2,
    
    November 1,
    
    November 2,2003
    
    2002
    
    2003
    
    2002Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales and occupancy expenses
    
    
    70.3
    
    
    
    71.0
    
    
    
    70.3
    
    
    
    71.2Gross profit
    
    
    29.7
    
    
    
    29.0
    
    
    
    29.7
    
    
    
    28.8Selling, general and administrative expenses
    
    
    28.8
    
    
    
    30.9
    
    
    
    27.8
    
    
    
    28.2Earnings (loss) from operations
    
    
    0.9
    
    
    
    (1.9
    )
    
    
    1.9
    
    
    
    0.6Investment income
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings (loss) before income taxes
    
    
    0.9
    
    
    
    (1.9
    )
    
    
    2.0
    
    
    
    0.7Provision (benefit) for income taxes
    
    
    0.3
    
    
    
    (0.7
    )
    
    
    0.7
    
    
    
    0.3Net earnings (loss)
    
    
    0.6
    %
    
    
    (1.2
    )%
    
    
    1.3
    %
    
    
    0.4
    %


Thirteen Weeks Ended November 1, 2003 Compared with Thirteen Weeks Ended November 2, 2002

OverviewDuring the third quarter of the year ending January 31, 2004 (fiscal
2003), the Company opened two new stores, remodeled three stores, and closed
two stores, bringing the total number of stores in operation at November 1,
2003 to 332, compared with 328 at November 2, 2002. During the corresponding
period of the previous fiscal year, the Company remodeled three stores and
closed two stores. Net earnings for the third quarter of fiscal 2003 were
$1,712,000 or 0.6% of sales, compared with a net loss of $3,141,000 or (1.2%)
of sales, for the third quarter of fiscal 2002, which included, for the third
quarter of fiscal 2002, certain one-time expenses, amounting to $1,730,000 or
(0.6%) of sales.

SalesSales for the third quarter of fiscal 2003 were $280,777,000, a 4.6%
increase from the $268,324,000 in sales for the third quarter of fiscal 2002.
This increase of $12,453,000 consisted of increases of $9,023,000 in comparable
store sales and $3,430,000 in additional net sales from new stores, transition
stores and sales from stores that were subsequently closed. Comparable store
sales for the third quarter of fiscal 2003 increased 3.4% compared with the
corresponding period of the previous fiscal year. The Company believes the
improvement in total sales and comparable store sales were at least partially
attributable to an improved overall retail environment.

Gross profitGross profit for the third quarter of fiscal 2003 was
$83,268,000, or 29.7% of sales, a $5,604,000 increase from the $77,664,000 in
gross profit, or 29.0% of sales, for the third quarter of fiscal 2002. A
majority of the 0.7% increase in gross profit as a percent of sales in the
third quarter of fiscal 2003 compared with the third quarter of fiscal 2002
resulted from improved merchandise margins.

Selling, general and administrative expensesSelling, general and
administrative expenses for the third quarter of fiscal 2003 were $80,676,000,
or 28.8% of sales, a decrease of $2,160,000 from $82,836,000, or 30.9% of
sales, for the third quarter of fiscal 2002. Selling, general and
administrative expenses decreased by 2.1%, as a percent of sales, for the third
quarter of fiscal 2003 compared with the third quarter of fiscal 2002. The 2.1%
decrease relates primarily to (i) a 0.9% decrease in advertising and
promotional expenses, (ii) a 0.3% reduction in net payroll expense related to a
decrease in salaries and an increase in the accrual of performance bonuses,
(iii) a 0.3% reduction in consulting expenses, (iv) a 0.2% reduction in the
provision for health care costs, primarily due to the effect of plan design
changes, (v) a 0.2% decrease in workers compensation expense, and (vi) a 0.2%
decrease in legal expenses.

Interest expenseInterest expense for the third quarter of fiscal 2003 was
similar to the third quarter of fiscal 2002. The Company had no borrowings
under its credit facility during the first three quarters of fiscal 2003 or the
first three quarters of fiscal 2002.

Investment incomeInvestment income for the third quarter of fiscal 2003
decreased by $23,000 compared with the third quarter of fiscal 2002 primarily
as a result of lower rates of return from invested funds.

Income taxesThe provision for income taxes for the third quarter of fiscal
2003 was $1,006,000, for an effective tax rate of 37.0% of earnings before
income taxes, compared with a benefit for income taxes of $1,885,000, for an
effective tax rate of 37.5% of loss before income taxes, for the third quarter
of fiscal 2002.

12



---



##### 



Thirty-nine Weeks Ended November 1, 2003 Compared with Thirty-nine Weeks Ended
November 2, 2002

OverviewDuring the thirty-nine weeks ended November 1, 2003, the Company
opened 7 new stores, relocated or remodeled 13 stores and closed 3 stores,
bringing the total number of stores in operation at November 1, 2003 to 332,
compared with 328 at November 2, 2002. During the corresponding period of the
previous fiscal year, the Company opened two new stores, relocated or remodeled
six stores and closed six stores. Net earnings for the thirty-nine weeks ended
November 1, 2003 were $10,685,000, or 1.3% as a percent of sales, compared with
net earnings of $3,689,000, or 0.4% as a percent of sales, for the thirty-nine
weeks ended November 2, 2002. Net earnings for the thirty-nine weeks ended
November 1, 2003 include a pretax charge of $3,571,000, or $0.07 per diluted
share after taxes, related to the previously reported settlements of the
Hilfiger litigation. See Note 6 of the Notes to Condensed Consolidated
Financial Statements.

SalesSales for the thirty-nine weeks ended November 1, 2003 were
$857,828,000, a 2.6% increase from the $835,873,000 in sales for the
corresponding period of the previous fiscal year. This increase of $21,955,000
consisted of increases of (i) $17,764,000 in comparable store sales and (ii)
$4,191,000 in additional net sales from new stores, transition stores and sales
from stores that were subsequently closed. Comparable store sales for the
thirty-nine weeks ended November 1, 2003 increased 2.2% compared with the
corresponding period of the previous fiscal year.

Gross profitGross profit for the thirty-nine weeks ended November 1, 2003 was
$255,027,000, or 29.7% of sales, a $14,014,000 increase from the $241,013,000
in gross profit, or 28.8% of sales, generated for the corresponding period of
the previous fiscal year. Gross profit increased 0.9% as a percent of sales for
the thirty-nine weeks ended November 1, 2003 compared with the thirty-nine
weeks ended November 2, 2002. A majority of the 0.9% increase in gross profit
as a percent of sales for the thirty-nine weeks ended November 1, 2003 compared
with the thirty-nine weeks ended November 2, 2002 resulted from improved
merchandise margins.

Selling, general and administrative expensesSelling, general and
administrative expenses for the thirty-nine weeks ended November 1, 2003 were
$238,571,000, or 27.8% of sales, an increase of $3,062,000 from $235,509,000,
or 28.2% of sales, for the corresponding period of the previous fiscal year.
Selling, general and administrative expenses, excluding the pretax charge of
$3,571,000 related to the previously reported settlements of the Hilfiger
litigation, were $235,000,000 or 27.4% of sales. Selling, general and
administrative expenses, including the Hilfiger charge, decreased by 0.4%, as a
percent of sales, for the thirty-nine weeks ended November 1, 2003 compared
with the corresponding period of the previous fiscal year. The 0.4% decrease
relates primarily to (i) a 0.4% reduction in the provision for health care
costs, primarily due to the effect of plan design changes and (ii) a 0.4%
reduction in all other selling, general and administrative expenses, offset by
increases of (iii) a 0.2% in legal claims and related fees primarily related to
Hilfiger as described above, (iv) a 0.1% in advertising and promotional
expenses, and (v) a 0.1% in net payroll expense related to an increase in the
accrual of performance bonuses and a decrease in salaries.

Interest expenseInterest expense for the thirty-nine weeks ended November 1,
2003 was similar to the corresponding period of the previous fiscal year. The
Company had no borrowings under its credit facility during the first three
quarters of fiscal 2003 or fiscal 2002.

Investment incomeInvestment income for the thirty-nine weeks ended November
1, 2003 increased by $99,000 compared with the corresponding period of the
previous fiscal year primarily as a result of an increase in invested funds in
excess of the lower rates of return from invested funds.

Income taxesThe provision for income taxes for the thirty-nine weeks ended
November 1, 2003 was $6,276,000, for an effective tax rate of 37.0% of
earnings before income taxes, compared with a provision for income taxes of
$2,213,000, for an effective tax rate of 37.5% of earnings before income
taxes, for the corresponding period of the previous fiscal year.

Liquidity and Capital Resources

Financial positionThe 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 November 1, 2003,
February 1, 2003 and November 2, 2002, the Companys working capital was
$118,674,000, $112,632,000 and $104,187,000, respectively.

At November 1, 2003 compared with November 2, 2002, (i) cash and cash
equivalents increased by $41,639,000, (ii) net property and equipment
decreased by $7,931,000, (iii) inventories increased by $12,916,000 and were
4% higher on a per square foot basis, (iv) accounts payable  trade increased
by $27,419,000, and (v) accounts payable  other increased by $1,221,000.


13

At November 1, 2003 compared with February 1, 2003, (i) cash and cash
equivalents decreased by $33,303,000, (ii) net property and equipment
decreased by $264,000, (iii) inventories increased by $94,830,000, (iv)
accounts payable  trade increased by $54,877,000, and (v) accounts payable -
other decreased by $5,699,000.

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. 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 on the common
stock in an amount equal to (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. In addition, in June 2003 the lenders agreed to waive any events of
default which could be deemed to have occurred by reason of the Courts
decision in the Hilfiger Matter.

At November 1, 2003, February 1, 2003 and November 2, 2002, the Company had
(i) no cash borrowings under the credit facility and (ii) letters of credit
outstanding not yet reflected in accounts payables of $22,741,000, $31,758,000
and $31,421,000, respectively. There were no cash borrowings at any time
during the thirty-nine weeks ended November 1, 2003 and November 2, 2002.
Letters of credit outstanding averaged $36,586,000 during the thirty-nine
weeks ended November 1, 2003 compared with $38,214,000 during the thirty-nine
weeks ended November 2, 2002. The highest balance of letters of credit
outstanding during the thirty-nine weeks ended November 1, 2003 was
$47,428,000 in February 2003 compared with $59,698,000 in April 2002 during
the thirty-nine weeks ended November 2, 2002.

Cash FlowsCash used in operating activities was $13,711,000 and $23,457,000
for the thirty-nine weeks ended November 1, 2003 and November 2, 2002,
respectively. Cash used for increases in inventory during the thirty-nine
weeks ended November 1, 2003 and November 2, 2002 was $94,830,000 and
$81,966,000, respectively. These increases were typical build-ups of inventory
levels from the end of the fiscal year throughout the spring selling season
and the beginning of the fall season. An increase in accounts payable  trade
provided cash of $54,877,000 and $18,293,000 in the thirty-nine weeks ended
November 1, 2003 and November 2, 2002, respectively, and is directly related
to funding the seasonal inventory buildup.

Cash flows from investing activities reflected a $20,248,000 and $5,787,000
net use of cash for the thirty-nine weeks ended November 1, 2003 and November
2, 2002, respectively. The Company used cash of $16,365,000 and $6,146,000 to
fund capital expenditures for new, relocated and remodeled stores and for
other corporate purposes for the thirty-nine weeks ended November 1, 2003 and
November 2, 2002, respectively. 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 the second quarter of fiscal 2003
and total acquisition costs to date are $4,098,000.

Cash provided by financing activities was $656,000 and $526,000 for the
thirty-nine weeks ended November 1, 2003 and November 2, 2002, respectively.
In June 2003, the Company announced that its Board of Directors declared its
first quarterly cash dividend since becoming a public company in 1991. The
cash dividend of $0.02 per share was paid on September 15, 2003, to
shareholders of record on August 1, 2003 in the amount of $652,000. Proceeds
from the issuance of common stock resulting from the exercise of stock options
for the thirty-nine weeks ended November 1, 2003 and November 2, 2002 were
$1,308,000 and $526,000, respectively.

OutlookThe Company opened three new stores in November 2003, relocated one
store and does not plan any additional store openings or relocations for the
remainder of fiscal 2003. Capital expenditures for the remainder of fiscal 2003
are expected to be approximately $7,200,000, primarily related to new and
remodeled store costs, the completion of the installation of new radio
frequency scanning equipment for the entire chain, management information
systems, and general corporate purposes. Total capital expenditures for fiscal
2003 are now expected to be approximately $23,500,000.

For fiscal 2004, the Company anticipates that it will open 20 to 25 new stores,
and relocate or remodel up to 25 existing stores. Additionally, the Company
expects to install new point of sale equipment in all stores during fiscal
2004. Capital expenditures for fiscal 2004 are anticipated to be in the range
of $50,000,000.


14

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. However, an adverse
outcome of the risks and uncertainties described in the Companys 2002 Annual
Report on Form 10-K under the caption Certain Factors That May Affect Future
Results could have a material adverse effect on the Companys working capital,
results of operations or cash flows.

On October 15, 2003, the Companys Board of Directors declared a quarterly cash
dividend of $0.02 per share to shareholders of record on November 3, 2003,
payable on December 15, 2003. The Company anticipates paying regular, quarterly
cash dividends in the future, subject to the Companys earnings, financial
condition, capital requirements, general economic and business conditions, and
other factors deemed relevant by the Board of Directors. The Companys credit
facility was amended to permit such dividends within certain prescribed
limitations, as described above.

Contractual ObligationsFor 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
our Annual Report on Form 10-K for the fiscal year ended February 1, 2003.
There have been no significant developments with respect to the Companys
contractual obligations since February 1, 2003.

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

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 the Company carries out an evaluation, under the
supervision and with the participation of the Companys management, including
the Companys Chairman and Chief Executive Officer along with the Companys
Chief Financial Officer and Chief Accounting Officer, 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 November 1, 2003,
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.

During the fiscal quarter ended November 1, 2003, 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.

15



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##### 



PART II  OTHER INFORMATION

Item 1.  Legal Proceedings- See Note 6 to the Notes to Condensed
Consolidated Financial Statements contained herein for a discussion of the
Class Action, Hilfiger Matter, the Sun Matter and the Insurance Matters.

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



| | a) |  | Exhibits -
| | -- |  | ----------

15
    
    Accountants Awareness Letter31.1
    
    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.




| | b) |  | Reports on Form 8-K:
| | -- |  | --------------------



| |  |  | None
| |  |  | ----

16



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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:
    
    November 19, 2003
    
    /s/ Robert M. GoodfriendRobert M. Goodfriend
Chairman of the Board and
Chief Executive OfficerDate:
    
    November 19, 2003
    
    /s/ Edward R. CarlinEdward R. Carlin
Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)Date:
    
    November 19, 2003
    
    /s/ David G. PeekDavid G. Peek
Senior Vice President and Chief
Accounting Officer
(Principal Accounting Officer)


17