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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended            May 1, 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 number 0-19526 Goodys Family Clothing, Inc.  Tennessee
    
    62-0793974(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 400 Goodys Lane, Knoxville, Tennessee
    
    37922(Address of principal executive offices)
    
    (Zip Code)
 (865) 966-2000
(Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report.)
 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No 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,32,950,977 shares outstanding as of May 14, 2004. 1




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Goodys Family Clothing, Inc.
Index to Form 10-Q
May 1, 2004 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 - 8Independent Accountants Review Report
    
    9Item 2 - Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    10 - 13Item 3 - Quantitative and Qualitative Disclosures about Market Risk
    
    13Item 4 - Controls and Procedures
    
    14Part II  Other Information:
    
    15Item 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
    
    16EX-10.102 EMPLOYMENT AGREEMENTEX-15 ACCOUNTANTS AWARENESS LETTEREX-31.1 302 CERTIFICATION OF CEOEX-31.2 302 CERTIFICATION OF CFOEX-31.3 302 CERTIFICATION OF CHIEF ACCT. OFFICEREX-32.1 906 CERTIFICATION OF CEOEX-32.2 906 CERTIFICATION OF CFOEX-32.3 906 CERTIFICATION OF CHIEF ACCT. OFFICER
  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) ThirteenWeeks EndedMay 1,
    
    May 3,2004
    
    2003Sales
    
    $
    302,878
    
    
    $
    283,012Cost of sales and occupancy expenses
    
    
    209,923
    
    
    
    197,196Gross profit
    
    
    92,955
    
    
    
    85,816Selling, general and administrative expenses
    
    
    80,290
    
    
    
    83,034Earnings from operations
    
    
    12,665
    
    
    
    2,782Investment income
    
    
    185
    
    
    
    177Interest expense
    
    
    1
    
    
    
    1Earnings before income taxes
    
    
    12,849
    
    
    
    2,958Provision for income taxes
    
    
    4,786
    
    
    
    1,095Net earnings
    
    $
    8,063
    
    
    $
    1,863Earnings per common share:Basic
    
    $
    0.25
    
    
    $
    0.06Diluted
    
    $
    0.24
    
    
    $
    0.06Cash dividends declared per common share
    
    $
    0.02
    
    
    $
    Weighted average common shares outstanding:Basic
    
    
    32,890
    
    
    
    32,556Diluted
    
    
    33,902
    
    
    
    32,624
 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) May 1,
    
    January 31,
    
    May 3,2004
    
    2004
    
    2003(Unaudited)
    
    
    
    
    
    (Unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    109,217
    
    
    $
    123,033
    
    
    $
    91,395Inventories
    
    
    234,747
    
    
    
    198,726
    
    
    
    207,199Accounts receivable and other current assets
    
    
    20,537
    
    
    
    13,177
    
    
    
    20,263Total current assets
    
    
    364,501
    
    
    
    334,936
    
    
    
    318,857Property and equipment, net
    
    
    110,313
    
    
    
    106,968
    
    
    
    106,676Other assets
    
    
    5,349
    
    
    
    5,437
    
    
    
    9,594Total assets
    
    $
    480,163
    
    
    $
    447,341
    
    
    $
    435,127LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable  trade
    
    $
    139,698
    
    
    $
    119,411
    
    
    $
    115,636Accounts payable  other
    
    
    15,992
    
    
    
    11,999
    
    
    
    13,601Accrued expenses
    
    
    42,556
    
    
    
    46,095
    
    
    
    64,702Current deferred income taxes
    
    
    25,413
    
    
    
    21,909
    
    
    
    8,434Total current liabilities
    
    
    223,659
    
    
    
    199,414
    
    
    
    202,373Long-term liabilities
    
    
    6,517
    
    
    
    6,945
    
    
    
    6,879Deferred income taxes
    
    
    12,966
    
    
    
    12,212
    
    
    
    12,879Total liabilities
    
    
    243,142
    
    
    
    218,571
    
    
    
    222,131Commitments and Contingencies (Note 4)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 - 32,950,977; 32,841,706;
and 32,555,533 shares, respectively
    
    
    35,542
    
    
    
    34,697
    
    
    
    32,755Retained earnings
    
    
    201,479
    
    
    
    194,073
    
    
    
    180,241Total shareholders equity
    
    
    237,021
    
    
    
    228,770
    
    
    
    212,996Total liabilities and shareholders equity
    
    $
    480,163
    
    
    $
    447,341
    
    
    $
    435,127
 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) Thirteen Weeks EndedMay 1,
    
    May 3,2004
    
    2003Cash Flows from Operating ActivitiesNet earnings
    
    $
    8,063
    
    
    $
    1,863Adjustments to reconcile net earnings to net cash
used in operating activities:Depreciation and amortization
    
    
    5,603
    
    
    
    5,403Net loss on asset disposals and write-downs
    
    
    208
    
    
    
    326Changes in assets and liabilities:Inventories
    
    
    (36,021
    )
    
    
    (27,176
    )Accounts payable  trade
    
    
    20,287
    
    
    
    9,738Accounts payable  other
    
    
    3,993
    
    
    
    (10,720
    )Income taxes
    
    
    4,924
    
    
    
    1,551Other assets and liabilities
    
    
    (11,706
    )
    
    
    14,043Net cash used in operating activities
    
    
    (4,649
    )
    
    
    (4,972
    )Cash Flows from Investing ActivitiesAcquisitions of property and equipment
    
    
    (9,107
    )
    
    
    (3,690
    )Proceeds from sale of property and equipment
    
    
    7
    
    
    
    27Net cash used in investing activities
    
    
    (9,100
    )
    
    
    (3,663
    )Cash Flows from Financing ActivitiesDividends paid to shareholders
    
    
    (657
    )
    
    
    Proceeds from exercise of stock options
    
    
    590
    
    
    
    Net cash used in financing activities
    
    
    (67
    )
    
    
    Net decrease in cash and cash equivalents
    
    
    (13,816
    )
    
    
    (8,635
    )Cash and cash equivalents, beginning of period
    
    
    123,033
    
    
    
    100,030Cash and cash equivalents, end of period
    
    $
    109,217
    
    
    $
    91,395Supplemental Disclosures:Net income tax payments (refunds)
    
    $
    3
    
    
    $
    (38
    )Interest payments
    
    
    1
    
    
    
    
 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 January 31,
2004. Certain reclassifications have been made to the condensed consolidated
financial statements of prior periods to conform to the current period
presentation. (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). 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 Statement of Financial Accounting
Standards No. 148 (SFAS 148), Accounting for
Stock-Based Compensation  Transition and Disclosure  an Amendment of Financial Accounting Standards
Board (FASB) Statement No. 123, which requires that the information be
determined as if the Company had accounted for its employee stock options
granted under the fair value method of that statement. The following table
illustrates the effect on net 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): ThirteenWeeks EndedMay 1,
    
    May 3,2004
    
    2003Net earnings, as reported
    
    $
    8,063
    
    
    $
    1,863Deduct: Total stock-based employee compensation expense
determined under fair value based-method for all
awards, net of related tax
effects
    
    
    191
    
    
    
    218Pro forma net earnings
    
    $
    7,872
    
    
    $
    1,645Earnings per common shareBasic  as reported
    
    $
    0.25
    
    
    $
    0.06Basic  pro forma
    
    
    0.24
    
    
    
    0.05Diluted  as reported
    
    $
    0.24
    
    
    $
    0.06Diluted  pro forma
    
    
    0.23
    
    
    
    0.05
 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. The borrowing
base was $172,879,000 at May 1, 2004, which excludes cash and most of cash equivalents and only
gives credit for specified percentages of inventory and receivables. The amount
available to draw under the credit facility at May 1, 2004 was approximately
$98,010,000. If availability (as calculated pursuant to the credit facility)
falls below $25,000,000, the Company would be required, for a period of time,
to comply with a financial covenant requiring it to maintain minimum levels of
tangible net worth based on formulas. The Companys availability did not fall
below $25,000,000 during the thirteen weeks ended May 1, 2004, or May 3, 2003
and therefore the Company was not required to comply with this financial
covenant. The credit facility also contains certain discretionary provisions
that enable the lender to reduce availability. The credit facility bears
interest at LIBOR plus an applicable margin or the prime rate. In June 2003,
the credit facility was amended to permit cash dividends in any fiscal year on
the common stock in an amount not to exceed (i) $3,500,000 (but not to exceed
$10,000,000 in the aggregate during the remaining term of the credit facility)
plus (ii) 50% of the Companys consolidated net income for the immediately
preceding fiscal year. 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 May 1, 2004, the
Company had no borrowings and $24,386,000 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) Contingencies Class Action Proceeding In February 1999, a lawsuit was filed in the United States District Court for
the Middle District of Georgia and was served on the Company and Robert M.
Goodfriend, its Chairman of the Board and Chief Executive Officer, by 20 named
plaintiffs, generally alleging that the Company discriminated against a class
of African-American employees at its retail stores through the use of
discriminatory selection and compensation procedures and by maintaining unequal
terms and conditions of employment. The plaintiffs further alleged that the
Company maintained a racially hostile working environment. On February 28, 2003, a proposed Consent Decree was filed with the District
Court for its preliminary approval. The proposed Consent Decree sets forth the
proposed settlement of the class action race discrimination lawsuit.
Ultimately, class action certification was sought in the lawsuit only with
respect to alleged discrimination in promotion to management positions and the
proposed Consent Decree is limited to such claims. Generally, the proposed
settlement provides for a payment by the Company in the aggregate amount of
$3.2 million to the class members (including the named plaintiffs) and their
counsel, as well as the Companys implementation of certain policies, practices
and procedures regarding, among other things, training of employees. The
Companys employer liability insurance underwriter has funded $3.1 million of
such payment to a third-party administrator. The proposed Consent Decree
explicitly provides that it is not an admission of liability by the Company and
the Company continues to deny all of the allegations. On April 30, 2003, the
District Court granted preliminary approval of the proposed Consent Decree, and
a hearing was held on June 30, 2003, regarding the adequacy and fairness of the
proposed settlement. On March 3, 2004, the United States District Court for the
Middle District of Georgia issued an Order granting final approval of the
Consent Decree. On or about February 23, 2004, a purported class member filed
an appeal with the U.S. Court of Appeals for the Eleventh Circuit (the
Eleventh Circuit), alleging, among other things, misconduct on the part of
the District Court and the plaintiffs/appellants counsel; the Eleventh
Circuit dismissed this appeal on March 5, 2004. On or about March 12, 2004, a
Motion to set aside the dismissal was filed with the Eleventh Circuit. There
can be no assurance that the Consent Decree will not be affected by the motion
pending with the Eleventh Circuit. 7




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Goodys Family Clothing, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements   continued
(Unaudited) 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
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). The Company recorded a pretax charge of $7,996,000 during the thirteen weeks
ended May 3, 2003, for legal claims and related legal fees in connection with
the Hilfiger Matter and related matters. In June 2003, the Company reached a settlement agreement with 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
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. The
settlement enabled the Company to reverse $4,441,000 ($0.08 per diluted share
after taxes) of the pretax charge of $7,996,000 ($0.15 per diluted share after
taxes) in the second quarter of fiscal 2003. 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. (5) Intangible Assets The Company purchased the Duck Head trademarks and four related licenses from
TSI Brands Inc., and its parent corporation, Tropical Sportswear Intl
Corporation during the second quarter of fiscal 2003 and total acquisition
costs were $4,103,000. In accordance with FASB Statement No. 142, Goodwill and
Other Intangible Assets, the Company performed a valuation of the trademarks
during fiscal 2003 and determined that the asset has an indefinite life and no
impairment charge was necessary. 8




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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 May 1,
2004 and May 3, 2003, and the related condensed consolidated statements of
operations and of cash flows for the thirteen-week periods then ended. These
interim condensed consolidated financial statements are the responsibility of
the Companys management. We conducted our reviews in accordance with standards established by the
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 interim condensed consolidated 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 January 31, 2004, 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 19, 2004, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of January 31, 2004, 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
May 19, 2004 9




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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:  (i)
    
    customer demand and trends in the apparel and retail industry;(ii)
    
    the acceptance of the Companys merchandise offerings, including the new Duck Head line;(iii)
    
    the ability to avoid excess promotional pricing;(iv)
    
    weather conditions;(v)
    
    the impact of competitors pricing and store expansion;(vi)
    
    the timely availability of branded and private label merchandise in sufficient
quantities to satisfy customer demand;(vii)
    
    the effectiveness of merchandising, advertising, pricing, and operational strategies;(viii)
    
    the ability to achieve business plan targets;(ix)
    
    the ability to enter into leases for new store locations;(x)
    
    the timing, magnitude and costs of opening new stores;(xi)
    
    individual store performance, including new stores;(xii)
    
    relations with vendors, factors and employees;(xiii)
    
    the general economic conditions within the Companys markets;(xiv)
    
    global political unrest, including terrorism and war;(xv)
    
    the continued availability of adequate credit support from vendors and factors;(xvi)
    
    the Companys compliance with loan covenants and the availability of sufficient
eligible collateral for borrowing;(xvii)
    
    the unanticipated needs for additional capital expenditures;(xviii)
    
    trends affecting the Companys financial condition, results of operations or cash flows;(xiv)
    
    the success of the Companys information technology systems; and(xx)
    
    the seasonality of the Companys business. 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,
and then choose SEC Filings. Critical Accounting Policies The Companys accompanying interim condensed consolidated financial statements
have been prepared in conformity with accounting principles generally accepted
in the United States of America, which require management to make estimates
that affect the amounts of revenues, expenses, assets and liabilities
reported. The critical accounting matters that are very important to the
portrayal of the Companys financial condition and results of operations and
require some of managements most difficult, subjective and complex judgments
are described in detail in the Companys Annual Report on Form 10-K for the
fiscal year ended January 31, 2004. The accounting for these matters involves
forming estimates based on current facts, circumstances and assumptions which,
in managements judgment, could change in a manner that would materially
affect managements future estimates with respect to such matters and,
accordingly, could cause future reported financial condition and results of
operations to differ materially from financial results reported based on
managements current estimates. There have been no material changes in the
critical accounting policies during the thirteen weeks ended May 1, 2004. 10




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##### Table of Contents



Results of Operations The following table sets forth unaudited results of operations, as a percent of
sales, for the periods indicated: ThirteenWeeks EndedMay 1,
    
    May 3,2004
    
    2003Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales and occupancy expenses
    
    
    69.3
    
    
    
    69.7Gross profit
    
    
    30.7
    
    
    
    30.3Selling, general and administrative expenses
    
    
    26.5
    
    
    
    29.3Earnings from operations
    
    
    4.2
    
    
    
    1.0Investment income
    
    
    0.1
    
    
    
    0.1Interest expense
    
    
    
    
    
    
    Earnings before income taxes
    
    
    4.3
    
    
    
    1.1Provision for income taxes
    
    
    1.6
    
    
    
    0.4Net earnings
    
    
    2.7
    %
    
    
    0.7
    %
 Thirteen Weeks Ended May 1, 2004 Compared with Thirteen Weeks Ended May 3, 2003 OverviewDuring the first quarter of fiscal 2004, the Company opened five new
stores, relocated one store and remodeled five stores, bringing the total
number of stores in operation at May 1, 2004 to 340, compared with 327 at May
3, 2003. During the corresponding period of the previous fiscal year, the
Company relocated or remodeled five stores and closed one store. Net earnings
for the first quarter of fiscal 2004 were $8,063,000, or 2.7% of sales,
compared with net earnings for the first quarter of fiscal 2003 of $1,863,000,
or 0.7% of sales. The fiscal 2003 results included a pretax charge of
$7,996,000 associated with the Hilfiger Matter and related matters as discussed
in Note 4 to the Notes to Consolidated Financial Statements. SalesSales for the first quarter of fiscal 2004 were $302,878,000, a 7.0%
increase from the $283,012,000 in sales for the first quarter of fiscal 2003.
This increase of $19,866,000 consisted of $11,489,000 in comparable store sales
and $8,377,000 in additional net sales from new stores, transition stores and
sales from stores that were subsequently closed. Comparable store sales for the
first quarter of fiscal 2004 increased 4.1% compared with the corresponding
period of the previous fiscal year. Comparable store sales increases for the
months of February, March and April were 14.4%, 0.25% and 1.8%, respectively.
Februarys increase was due, in part, to favorable weather conditions, while
March and April increases were lower due to unseasonably cool weather when
compared to the prior year periods. The Company launched its new Duck Head
brand, acquired during the second quarter of fiscal 2003, on March 14, 2004.
Sales of Duck Head merchandise for the full March and April period were
$13,200,000, which represented 5.8% of total sales for the full March and April
period. Total private-label sales, including Duck Head, represented
approximately 33% and 32% of total sales for the first quarter of fiscal 2004
and fiscal 2003, respectively. Additionally, sales for the first quarter of
fiscal 2004 included $402,000 in other revenue, principally attributable to
royalties from license fees. Gross profitGross profit for the first quarter of fiscal 2004 was
$92,955,000, or 30.7% of sales, a $7,139,000 increase from the $85,816,000 in
gross profit, or 30.3% of sales, for the first quarter of fiscal 2003. The 0.4%
increase in gross profit as a percent of sales in the first quarter of fiscal
2004 compared with the first quarter of fiscal 2003 resulted primarily from the
leveraging of occupancy costs due to the increase in sales and the other
revenue of $402,000 principally attributable to royalties from license fees as
noted above. Selling, general and administrative expensesSelling, general and
administrative expenses for the first quarter of fiscal 2004 were $80,290,000,
or 26.5% of sales, a decrease of $2,744,000 from $83,034,000, or 29.3% of
sales, for the first quarter of fiscal 2003. Selling, general and
administrative expenses decreased by 2.8%, as a percent of sales, for the first
quarter of fiscal 2004 compared with the first quarter of fiscal 2003. The 2.8%
decrease relates primarily to (i) a 2.8% decrease in legal claims and related
fees arising primarily from the $7,996,000 charge for the Hilfiger Matter and
related matters in the first quarter of fiscal 2003, (ii) a 0.5% reduction in
net payroll expense related to a decrease in salaries and bonuses, offset by
(iii) a 0.3% increase in the provision for health care costs, (iv) a 0.1%
increase in advertising expenses; and (v) a 0.1% increase in all other selling,
general and administrative expenses. Selling, general and administrative
expenses, as a percent of sales, are the same for the first quarter of fiscal
2004 when compared to the first quarter of fiscal 2003 without the legal claims
and related fees for the Hilfiger Matter. Income taxesThe provision for income taxes for the first quarter of fiscal
2004 was $4,786,000, for an effective tax rate of 37.25% of earnings before
income taxes, compared with a provision for income taxes of $1,095,000, for an
effective tax rate 11




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of 37.0% of earnings before income taxes, for the first quarter of fiscal 2003. 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 May 1, 2004, January
31, 2004 and May 3, 2003, the Companys working capital was $140,842,000,
$135,522,000 and $116,484,000, respectively. The increase in working capital
from May 3, 2003 to May 1, 2004 was $24,358,000 and the increase from January
31, 2004 to May 1, 2004 was $5,320,000. The $24,358,000 increase in working capital from May 3, 2003 to May 1, 2004,
consists primarily of: (i) $23,861,000 in earnings; (ii) $2,787,000 from the
issuance of common stock through the exercise of stock options; (iii)
$8,390,000 from the purchase of the Companys interests in certain
split-dollar life insurance policies; offset by (iv) an investment of
$4,103,000 related to the purchase of the Duck Head trademark and related
licenses; (v) dividends paid of $1,965,000; and (vi) a $3,637,000 net change
in property, plant and equipment. The $5,320,000 increase in working capital from January 31, 2004 to May 1,
2004, consists primarily of: (i) $8,063,000 in earnings; (ii) $845,000 from
the issuance of common stock through the exercise of stock options; partially
offset by (iii) $657,000 in dividends paid; and (iv) a $3,345,000 net change
in property, plant and equipment. In May 2001, the Company entered into a five-year, $130,000,000 syndicated
revolving loan and security agreement that provides for cash borrowings for
general corporate purposes, including a $95,000,000 sub-facility for the
issuance of letters of credit. Borrowings under this credit facility are
limited by collateral formulas, based principally upon the Companys eligible
inventories. The credit facility is secured primarily by the Companys
inventories, receivables and cash and cash equivalents. The borrowing
base was $172,879,000
at May 1, 2004, which excludes cash and most of cash
equivalents and only gives credit for specified percentages of inventory and
receivables. The amount available to draw under the credit facility at May 1,
2004 was approximately $98,010,000. If availability (as calculated pursuant to
the credit facility) falls below $25,000,000, the Company would be required,
for a period of time, to comply with a financial covenant requiring it to
maintain minimum levels of tangible net worth based on formulas. The credit
facility also contains certain discretionary provisions that enable the lender
to reduce availability. The credit facility bears interest at LIBOR plus an
applicable margin or the prime rate. In June 2003, the credit facility was
amended to permit cash dividends in any fiscal year on the common stock in an
amount not to exceed (i) $3,500,000 (but not to exceed $10,000,000 in the
aggregate during the remaining term of the credit facility) plus (ii) 50% of
the Companys consolidated net income for the immediately preceding fiscal
year. 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 May 1, 2004, January 31, 2004 and May 3, 2003, the Company had (i) no cash
borrowings under the credit facility and (ii) letters of credit outstanding
not yet reflected in accounts payable of $24,386,000, $28,908,000 and
$28,157,000, respectively. There were no cash borrowings at any time during
the thirteen weeks ended May 1, 2004 and May 3, 2003. Letters of credit
outstanding averaged $35,913,000 during the thirteen weeks ended May 1, 2004,
compared with $36,840,000 during the thirteen weeks ended May 3, 2003. The
highest balance of letters of credit outstanding during the thirteen weeks
ended May 1, 2004, was $43,269,000 in February 2004 compared with $47,428,000
in February 2003 during the thirteen weeks ended May 3, 2003. Cash FlowsCash used in operating activities was $4,649,000 and $4,972,000
for the thirteen weeks ended May 1, 2004 and May 3, 2003, respectively. Cash
used for increases in inventory during the thirteen weeks ended May 1, 2004
and May 3, 2003, was $36,021,000 and $27,176,000, respectively. Inventories on
a per square foot basis were $24.84 and $22.73 at May 1, 2004 and May 3, 2003,
respectively, which represents a 9.3% increase on a per square foot basis.
While inventory levels were modestly above plan at the end of the first
quarter, the inventory increases from the end of the fiscal year and from the
end of the first quarter last year were primarily attributable to additional
merchandise to support the March 14, 2004 launch of the new Duck Head line and
to expand certain other merchandise offerings including assortments for
automatically replenished basic merchandise and special size categories.
Additionally, as it relates to the comparison at year-end, the balance at the
end of the first quarter includes normal seasonal build-ups of inventory. An
increase in accounts payable  trade provided cash of $20,287,000 and
$9,738,000 in the thirteen weeks ended May 1, 2004 and May 3, 2003,
respectively, and was directly related to funding the seasonal and Duck Head
inventory buildups. Cash flows from investing activities reflected a net use of cash of $9,100,000
and $3,663,000 for the thirteen weeks ended May 1, 2004 and May 3, 2003,
respectively. The Company used cash to fund capital expenditures for new,
relocated and 12




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remodeled stores, as well as for upgrading information technology, and for
general corporate purposes for the thirteen weeks ended May 1, 2004. Cash used in financing activities was $67,000 and $0 for the thirteen weeks
ended May 1, 2004 and May 3, 2003, respectively. In December 2003, the Company
announced that its Board of Directors had declared its third consecutive
quarterly cash dividend. The cash dividend of $0.02 per share was paid on
March 15, 2004, to shareholders of record on February 2, 2004, in the amount
of $657,000. Proceeds from the issuance of common stock resulting from the
exercise of stock options for the thirteen weeks ended May 1, 2004 and May 3,
2003 were $590,000 and $0, respectively. OutlookAs previously reported, the Companys sales target for Duck Head
products in fiscal 2004 is approximately $75.0 million, with 15% of such amount
representing incremental sales after giving effect to the consolidation of
underperforming private-label programs and the elimination of duplicate
assortments across all merchandising departments. The Company launched its Duck
Head line of merchandise on March 14, 2004 and this brand accounted for $13.2
million in sales for the full March and April 2004 period, outperforming
expectations. There can be no assurance
that the sales target for the year will be reached or exceeded. The Company opened 3 new stores on May 6, 2004, and expects to open up to
between 12 and 17 additional new stores and relocate or remodel up to 9 stores
during the remainder of fiscal 2004. Capital expenditures for the remainder of
fiscal 2004 are expected to be approximately $41,000,000, primarily related to
new and remodeled store costs, the point-of-sale equipment for the entire
chain, management information systems, and general corporate purposes. Total
capital expenditures for fiscal 2004 are expected to be approximately
$50,000,000. The Company expects that its per square foot inventory levels at the end of
the second and third quarters of fiscal 2004 will be higher than the same
periods last year. The Company is working to achieve its business plan, which
calls for year-end inventories on a per square foot basis to be similar to
inventory levels at the end of fiscal 2003. The Companys primary needs for capital resources are for the purchase of store
inventories, capital expenditures and for normal operating purposes. Management
believes that its existing working capital, together with anticipated cash
flows from operations, including credit terms from vendors and factors, and the
borrowings available under the credit facility will be sufficient to meet the
Companys operating and capital expenditure requirements for the foreseeable
future. On March 16, 2004, the Companys Board of Directors declared a quarterly cash
dividend of $0.02 per share to shareholders of record on May 3, 2004, payable
on June 15, 2004. 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 January 31, 2004.
There have been no significant developments with respect to the Companys
contractual obligations since January 31, 2004. 
 Item 3  Quantitative and Qualitative Disclosures about Market Risk The Company has no material investments or risks in market risk sensitive
instruments. 13




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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, under the supervision and with the participation of the
Companys management, including the Companys Chairman and Chief Executive
Officer, the Companys Chief Financial Officer and Chief Accounting Officer,
the Company carries out an evaluation of the effectiveness of the design and
operation of the Companys disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15. Based upon the foregoing, the Companys Chairman and
Chief Executive Officer, along with the Companys Chief Financial Officer and Chief
Accounting Officer, concluded that, as of May 1, 2004, 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 May 1, 2004, 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. 14




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PART II  OTHER INFORMATION 
 Item 1.  Legal Proceedings- See Note 4 to the Notes to Condensed
Consolidated Financial Statements contained herein for a discussion of the
Class Action. 
 Item 2.   Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities- 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 - 10.102
    
    
    Employment agreement between the registrant and Carmen
Monaco, dated February 9, 2004.15
    
    
    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 15




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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:
    
    May 19, 2004
    
    
    
    /s/ Robert M. GoodfriendRobert M. Goodfriend
Chairman of the Board and
Chief Executive OfficerDate:
    
    May 19, 2004
    
    
    
    /s/ Edward R. CarlinEdward R. Carlin
Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)Date:
    
    May 19, 2004
    
    
    
    /s/ David G. PeekDavid G. Peek
Senior Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
 16