GOODYS FAMILY CLOTHING INC /TN - 10-K Annual Report

Back to GetFilings.com

[COLLAGE OF PICTURES FEATURING CUSTOMERS AND ARTICLES OF CLOTHING]

LISTEN

FOCUS

REACT

COMMIT

2002 ANNUAL REPORT [GOODY'S LOGO]

[PHOTOGRAPH OF CUSTOMERS]

TABLE OF CONTENTS

To Our Shareholders .................................................. 1

Growth in the Heartland .............................................. 4

Corporate, Shareholder and Investor Information.........Inside Back Cover

[PHOTOGRAPH OF CHAIRMAN AND CUSTOMER]

FORM 10-K INDEX

Forward-Looking Statements ................................. 2

Selected Financial Data .................................... 18

Management's Discussion and Analysis ....................... 19

Independent Auditors' Report ............................... F-2

Consolidated Financial Statements .......................... F-3

[PHOTOGRAPH OF CUSTOMERS]

Forward-Looking Statements

Please refer to the sections entitled "Forward-Looking Statements" and "Certain
Factors That May Affect Future Results" in the Form 10-K for the fiscal year
ended February 1, 2003, that accompanies and is part of this Annual Report.

[COLLAGE OF APPAREL LABELS]

TO OUR
SHAREHOLDERS

Throughout our 50-year history, Goody's has made a commitment to provide the
heartland communities of Middle America with quality, brand-name family apparel
at an outstanding value.

As we've successfully grown our business to more than $1 billion in annual
sales, our customer first approach is the foundation that has supported us --
one that will sustain us as we encounter periodic strategic challenges -- and
one that will ultimately enable us to reach our goal in becoming the Middle
American consumer's first choice for value-priced, brand-name apparel.

The past three years have presented us with a number of challenges. As a result,
we've had to re-evaluate our business to ensure that we are well positioned to
meet our shoppers' needs and expectations as we continue to grow. In answering
some of these questions we looked to the most obvious source of quality
information -- the shoppers themselves.

The Company's management team and I have spent the last 18 months visiting
stores and talking with shoppers one-on-one to get their ideas on what we can do
to make our stores -- their stores. We feel good about our progress.

Total sales for fiscal 2002 were $1.193 billion, virtually the same as fiscal
2001 sales. Comparable store sales for fiscal 2002 decreased 1.2 percent
compared with fiscal 2001. Net earnings for fiscal 2002 were $7.6 million or
$0.23 per diluted share compared with a net loss for fiscal 2001 of $20.2
million or $0.62 per share.

The United States economy and global political environment continue to be
uncertain as we operate in perhaps the most challenging retail landscape we've
faced since I joined my father, Mike Goodfriend, in his 12-store Goody's chain
in 1972. Yet we remain confident that as we move this Company forward we can
capture all of the opportunities that lie ahead.

DELIVERING WHAT OUR SHOPPERS EXPECT

Delivering quality brands at a great value to our customers will continue to be
the philosophy that guides our organization in 2003 and beyond. We've
traditionally had a vast array of brands to offer, and we are especially proud
of our exclusive brand programs. In the upcoming year, we expect to offer an
even better variety of brands, styles and sizes.

We'll continue to encourage shoppers to provide guidance in our decisions as we
merchandise our stores for the future. If we've learned anything during the past
several months-it's that most shoppers are delighted to share their opinions if
you take the time to ask -- and listen. We expect to keep in close touch with
our shoppers on an on-going basis, as members of our management team regularly
visit stores to talk with shoppers. Additionally, we get excellent input from
our customers through the "Ask Bob" section on the Goody's website, as well as,
periodic formalized research initiatives.

[PHOTOGRAPH OF CUSTOMERS]

TO OUR
SHAREHOLDERS
(continued)

STRONG BRANDS GREAT PRICES

At Goody's, we're known for offering a great selection of national brands at
competitive prices. We're committed to continue building our strong base of
national brands including: Alfred Dunner, Alexander Julian, Cathy Daniels, Lee,
Levi's, and Sag Harbor. This year we're pleased to add Norton McNaughton and
Nine & Company for our Missy customer, Munsingwear for Men, and
Baby Togs in the Infant and Toddler department. In the Shoe departments, we're
adding Connie and Calico Sport brand shoes for women and Bass brand shoes for
both men and women.

Our product development division has established a track record of offering
quality, trend-right exclusive brands including: Intimate Classics and Mountain
Lake for women; Ivy Crew, OCI and RMG Chairman's Collection for men; and Baby
Crew, OCI and Good Kidz for children. Early last year we added Goodclothes for
women. This exclusive line provides an upscale look and trend-right styling for
today's modern woman.

Responding last year to our customers' need for a greater selection of special
sizes, we engaged in a concentrated effort to offer a full spectrum of extended
sizes throughout the stores. Today, in addition to the traditional plus
programs, we offer extended size fashion assortments in the Petite, Juniors' and
Children's departments. Our customers are responding well to the programs, and
we'll continue to make special sizes a priority in our stores--increasing the
branded offerings in both plus and petite sizes and doing an even better job of
offering fashion in these programs.

[PHOTOGRAPH OF CUSTOMERS]

We will simplify our pricing strategies this year to make things easier for our
customers. Prices will be more clearly marked on the garments and on the product
display units enabling shoppers to more easily navigate the store and locate
items on sale. Menu signage will clearly communicate value prices.

MARKETING AND ADVERTISING

Marketing and advertising programs for Goody's are designed to support the
merchandising and promotional strategies and drive business in a difficult
economy while still communicating a consistent BRAND message. Our private label
credit card, direct mail, web-based marketing programs, and the GOODY'S
Giftcard, are all critical parts of the Company's overall marketing strategy.

We continue to grow our credit card programs, offering expanded customer
benefits to our more than 1.2 million members. Private label credit card
purchases last year represented 13.4% of our total sales. We will continue to
focus on building our base of loyal credit card customers.

[PHOTOGRAPH OF CUSTOMERS]

[PHOTOGRAPH OF CUSTOMERS]

TO OUR
SHAREHOLDERS
(continued)

FINANCIAL POSITION

For fiscal 2002, we had budgeted $11.0 million for capital expenditures.
However, in an effort to maintain financial integrity as we worked to improve
our business performance, we spent only $7.5 million primarily for the opening
of two new stores and the relocation or remodeling of seven stores.

True to our heritage of prudent financial management, we ended fiscal 2002 with
a strong balance sheet, $100 million in cash and cash equivalents, and no
long-term debt. We budgeted 2003 capital expenditures at $22 million including
approximately $16.4 million for the openings of approximately 10 new stores,
relocation or remodeling of 14 existing stores and the introduction of new
point of sale registers, radio frequency scanning equipment and back-office
systems in most of these stores. We expect to roll these out to the remainder of
the stores through fiscal 2004.

THE FUTURE

While we continue to operate our business somewhat conservatively through an
unpredictable economy and worldwide political unrest, we continue our efforts to
modestly expand our store presence and position our Company for profitable
growth both now and in the future.

[PHOTOGRAPH OF CHAIRMAN]

As we close fiscal 2002 and begin a new year, we owe a debt of gratitude to
our Associates chain-wide. Through hard work and perseverance, they have seen us
through several tough years and continue to work enthusiastically toward
building a brighter tomorrow for all who have a stake in the success of our
Company-- Associates, shareholders and customers alike.

/S/ Robert M. Goodfriend

Robert M. Goodfriend
Chairman of the Board and
Chief Executive Officer

[PHOTOGRAPH OF CUSTOMER]

growth in the heartland

As of February 1, 2003, the Company had 328 stores in 18 states.

[Map of Southeastern and Midwestern section of the United States of
America; the 18 states in which the Company has stores and the number of
stores in each state.]

1953 - 1962 1963 - 1972 1973 - 1982 1983 - 1992 1993 - 2002
1953 - M.D. 1970 - Goody's has 1978 - Company 1988 - Goody's 1992 - Goody's
Goodfriend opened grown to 12 stores changes name from opens first stores in opens first store in
the original "Athens Outlet Stores to MS and SC FL
Outlet" store in 1971 - M.D. Goody's Family Clothing
Athens, TN. Goodfriend buys 1989 - Goody's 1993 - Goody's
out partner and 1979 - Bob opens first store in opens first stores in
1957 - the becomes sole Goodfriend VA IL and WV
Company opens owner of company becomes president
first store GA 1990 - Goody's 1994 - Goody's
1972 - M.D.'s son 1979 - Goody's opens first store in opens first store in
Bob joins the opens first stores in IN AR
company AL and KY
1990 - Corporate 1997 - Goody's
1980 - Goody's headquarters moves opens first store in
opens first store in from Athens to MO
NC Knoxville, TN
1998 - Goody's
1991 - Goody's opens first store in
opens first store in TX
OH

1999 - Goody's
1991 - Goody's opens first store in
becomes a public OK
company
2000 - Goody's
opens first store in
LA

2001 - Goody's
opens second
distribution center
in Arkansas

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 2003
OR
[ ] 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 (IRS Employer
incorporation or organization) Identification No.)

400 GOODY'S LANE, KNOXVILLE, TENNESSEE 37922
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (865) 966-2000

Securities registered pursuant to Section 12(b) of the Act:
NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, No Par Value
(Title of Class)

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

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

Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 14, 2003: approximately $61,508,000

Number of shares of Common Stock outstanding as of March 14, 2003:
32,555,533

DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference
into the following parts of this Form 10-K: Certain information required in Part
III of this Form 10-K shall be incorporated from the Company's Proxy Statement
for its 2003 Annual Meeting of Shareholders currently scheduled to be held on
June 18, 2003.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Unless the context otherwise indicates, all references in this Form 10-K to
the "Company" or "Goody's" refer to Goody's Family Clothing, Inc., a Tennessee
corporation, and its subsidiaries. The Company's fiscal year ends on the
Saturday nearest the last day of January. The terms "fiscal 2008," "fiscal
2007," "fiscal 2006," "fiscal 2005," "fiscal 2004," "fiscal 2003," "fiscal
2002," "fiscal 2001," "fiscal 2000," "fiscal 1999," and "fiscal 1998," refer to
the Company's fiscal years ending or ended on January 31, 2009 (52 weeks),
February 2, 2008 (52 weeks), February 3, 2007 (53 weeks), January 28, 2006 (52
weeks), January 29, 2005 (52 weeks), January 31, 2004 (52 weeks), February 1,
2003 (52 weeks), February 2, 2002 (52 weeks), February 3, 2001 (53 weeks),
January 29, 2000 (52 weeks), and January 30, 1999 (52 weeks), respectively.

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements made by or on behalf of the Company. Management
has endeavored in its communications and in this Form 10-K to highlight the
trends and factors that might have an impact on the Company and the industry in
which it competes. 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 (the "Exchange Act"), 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. These
statements appear in a number of places in this Form 10-K and include statements
regarding the intent, belief or current expectations of the Company, its
directors or its officers with respect to, among other things: (i) the ability
to reverse negative comparable store sales trends; (ii) competition, including
the impact of competitors' pricing and store expansion; (iii) the effectiveness
of merchandising, advertising, pricing, and operational strategies; (iv)
compliance with loan covenants and the availability of sufficient eligible
collateral to enable borrowing; (v) growth of its store base; (vi) trends
affecting the Company's financial position, results of operations or cash flows;
(vii) the continued availability of adequate credit support from vendors and
factors; (viii) customer demand and trends in the apparel and retail industry
and the acceptance of merchandise acquired for sale by the Company; (ix) the
timely availability of branded and private label merchandise in sufficient
quantities to satisfy customer demand; (x) the ability to control shrinkage;
(xi) the success of the Company's information technology systems; (xii) the
ability to achieve business plan targets; (xiii) the ability to avoid excessive
markdowns; (xiv) weather conditions; (xv) the effectiveness of advertising and
promotional events; (xvi) the ability to enter into leases for new store
locations; (xvii) the outcome of pending litigation; (xviii) the timing,
magnitude and costs of opening new stores; (xix) individual store performance,
including new stores; (xx) relations with vendors, factors and employees; (xxi)
unanticipated needs for additional capital expenditures; (xxii) the general
economic conditions within the Company's markets and an improvement in the
overall retail environment; and (xxiii) global political unrest, including
terrorism and war. 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. Also see "Certain
Factors That May Affect Future Results." 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.
- --------------------------------------------------------------------------------

2

PART I

ITEM 1. BUSINESS

GENERAL

Goody's is a retailer of moderately-priced family apparel with 328 stores
in 18 states as of February 1, 2003. The Company primarily locates its stores in
small to midsize markets in the Southeast, Midwest and Southwest that have
demographic characteristics consistent with its targeted customer. All of
Goody's stores are leased, average approximately 27,900 gross square feet, and
are generally located in strip shopping centers. The Company manages its core
functions, such as purchasing, pricing, marketing and advertising, distribution,
planning and allocation, real estate, finance, and information systems, from its
centrally located corporate office in Knoxville, Tennessee. The Company has two
distribution centers, one each in Knoxville, Tennessee and Russellville,
Arkansas.

The Company's objective is to be a leading retailer of apparel for the
entire family in each of the markets it serves. In keeping with this objective,
Goody's offers a broad selection of current-season, nationally-recognized brands
for brand-conscious shoppers, as well as exclusive brands for those shoppers who
seek quality apparel at value prices.

The Company makes available, free of charge, through its web site, its
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed, or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after it electronically files such material with, or furnishes it to, the
Securities and Exchange Commission (the "SEC"). Such filings may be accessed
through the Company's web site, http://www.goodysonline.com/investor.asp, then
select "SEC Filings."

COMPETITIVE STRATEGY

The Company's operating strategies continually evolve to keep pace with the
competitive demands of an ever-changing retail environment. However, the central
elements of the Company's core business strategy remain essentially the same and
include the following:

- Appeal to Value-Conscious Customers. Goody's tries to appeal to
value-conscious customers by offering current-season, trend-right,
nationally-recognized and exclusive-brand merchandise at value prices.

- Offer a Broad Range of Merchandise for the Entire Family. The Company
provides a wide selection of merchandise designed to satisfy the casual
and career apparel needs of the entire family. The Company believes that
providing one-stop shopping for customers in convenient and accessible
locations gives it an advantage over many of its competitors.

- Emphasize Current-Season, Nationally-Recognized Brands. The Company is
committed to maintaining a strong line-up of nationally-recognized brands
including: Adidas, Alexander Julian, Alfred Dunner, American Eagle Shoes,
Arden Fragrances (that include Calvin Klein, Nautica, Obsession, Paul
Sebastian, and White Diamonds), Arrow, Baby Togs, Bass, Beach Native,
Body I.D., Bongo, Burnes of Boston, Calico Sport, Carter's, Cathy
Daniels, Connie, Dockers, Dorby, Duck Head, Eastland, Gloria Vanderbilt,
Hanes, JNCO, Keds, Kids Headquarters, Lee, L.E.I., Levi's, Maidenform,
Malibu Dream Girl, Manhattan Beachwear, Miss Erika, Mootsies Tootsies,
Mudd, Munsingwear, My Michelle, New Balance, Nike, Nine & Company, Norton
McNaughton, On Que, Paco, Paris Blues, Playtex, Reebok, Requirements,
Riveria, Rosetti, Sag Harbor, Skechers, U.S. Polo, Union Bay, and Zana-di
among others.

- Strategically Use Private-Label Programs. The Company's private-label
programs utilize exclusive brands that are designed to offer shoppers
quality products at exceptional value and generate higher gross margins.
The Company's exclusive brands include: Goodclothes and Mountain Lake for
women; Ivy Crew, OCI and RMG Chairman's Collection for men; and Baby
Crew, GoodKidz and OCI for children.

- Focus on Small to Midsize Markets. The Company generally locates its
stores in small to midsize markets that have demographic characteristics
consistent with its targeted value-conscious customer. While the Company
operates in selected larger metropolitan markets, smaller market areas
offer certain strategic advantages, including increased opportunities for
expansion, lower rent and occupancy costs, lower advertising costs, and
fewer competitors.

3

- Provide Strong Marketing and Advertising. The Company believes that
communicating frequently with customers is the key to maintaining traffic
flow in its stores and creating loyalty within its customer base. The
Company's marketing and advertising messages aim to brand Goody's as a
destination store for key categories of first-quality, value-priced
family apparel. Goody's advertises predominantly in local newspapers and
reinforces its print message with television and/or radio campaigns aired
at strategic times.

- Shopper-Friendly Store Environment. The Company endeavors to provide
easy-to-read in-store signage, clear and understandable pricing, wide and
easy-to-shop aisles, functional and space-efficient fixturing, efficient
check-out counters, and easy-to-locate customer service areas to enhance
the customer's shopping experience.

EXPANSION STRATEGY

The Company's store base was reduced by approximately 1% during fiscal
2002, as a result of the difficult economic environment and operating results in
fiscal 2001. During fiscal 2003, the Company expects to open approximately 10
new stores, relocate or remodel approximately 14 existing stores and close
approximately 5 stores. The Company expects the 10 new stores that may be opened
in fiscal 2003 will range from 22,500 square feet to 30,400 square feet and will
be located in small to midsize markets.

In making its decision to open a new store, the Company typically
evaluates, among other factors, market demographics, competition, location,
customer traffic, rent and occupancy costs, advertising, and other expenses
associated with the opening and operating of a new store. Goody's has
historically supported new store growth from internally generated funds.

Should operating performance improve significantly, management believes the
Company would likely resume its historical strategy of increasing its store base
by approximately 10% each year.

The Company would consider a complementary acquisition opportunity should
it arise, although the Company has no understandings, arrangements or agreements
with respect to any such opportunity.

The following table provides information regarding the number of stores in
operation, new stores opened, stores closed, and stores relocated or remodeled
during the years indicated:

The Company's 328 stores open at the end of fiscal 2002 included one store
in Charlottesville, Virginia that temporarily closed due to smoke damage on
January 15, 2003 and reopened on March 6, 2003.

MERCHANDISING STRATEGY

The Company's merchandising strategy has been developed to appeal to its
value-conscious customers by offering a broad selection of current-season,
trend-right, nationally-recognized and exclusive-brand merchandise at value
prices. The Company continually develops and refines its merchandising strategy
in an attempt to satisfy the preferences of its target customers. The Company
competes with: (i) department stores by offering nationally-recognized,
brand-name quality apparel at value prices, (ii) specialty stores by offering
apparel for the entire family, (iii) off-price apparel stores by offering a wide
selection of current-season merchandise at competitive prices, and (iv) discount
stores by offering nationally-recognized, brand-name merchandise generally
unavailable to discount retailers. While nationally-recognized, brand-name
merchandise remains the cornerstone of its merchandising strategy, the Company
continues to invest in the development of its own exclusive brands that offer
customers quality merchandise at value prices. The Company's exclusive-brand
sales accounted for approximately 28%, 19% and 17% of total sales in fiscal
2002, 2001 and 2000, respectively.

4

A typical Goody's store has five divisions that include women's (junior's,
misses, petite, plus size, intimate apparel, swimwear, outerwear, and
accessories), men's (sportswear, activewear, young men's, and men's
furnishings), children's (infants and toddlers, boys and girls), shoes (women's,
men's, children, and athletic), and other (tuxedo rentals and service fees). The
Company's stores carry an average of approximately 12,700 different styles of
merchandise that are electronically tracked (including by color and size, where
appropriate) in order to provide timely and accurate selling data to management.

MERCHANDISING DIVISIONS

Women's. The most comprehensive merchandise selection offered by the
Company is in the women's division, which contributed 60.7% of total sales in
fiscal 2002. The women's division emphasizes casual and career fashions, denim,
dresses, and accessories and includes misses, junior's, petite and plus sizes,
intimate apparel, swimwear, outerwear and accessories. Misses' merchandise lines
include popular brand names such as Adidas, Alfred Dunner, Cathy Daniels,
Dockers, Lee, Levi's, Miss Erika, Nike, Nine & Company, Norton McNaughton, On
Que, Requirements, and Sag Harbor, as well as the Company's exclusive brands,
Goodclothes and Mountain Lake. Juniors' merchandise lines include
nationally-recognized brand names such as Gloria Vanderbilt, Lee, L.E.I.,
Levi's, Mudd, My Michelle, Paris Blues, and Union Bay. Fashion dresses are also
an important part of Goody's overall women's product lines and feature popular
brand names such as Dorby, My Michelle and Sag Harbor. Nationally-recognized,
brand-name intimate apparel offered by the women's division include products
from Hanes, Maidenform and Playtex. Swimwear features labels such as Beach
Native, Body I.D., Malibu Dream Girl, Mudd, and Manhattan Beachwear.
Nationally-recognized brands featured in accessories include Arden Fragrances
(that include Calvin Klein, Nautica, Obsession, Paul Sebastian, and White
Diamonds), Burnes of Boston, L.E.I., Maidenform, Mudd, Playtex, Riveria, and
Rosetti.

Men's. The men's division contributed 21.5% of total sales in fiscal 2002
and consists of sportswear, activewear, denim, young men's, and men's
furnishings departments. The men's division features nationally-recognized,
brand-name merchandise and includes Adidas, Alexander Julian, Arrow, Dockers,
Duck Head, JNCO, Lee, Levi's, Munsingwear, Nike, Union Bay, and U.S. Polo. The
Company's exclusive brands for men are Ivy Crew, OCI and RMG Chairman's
Collection.

Children's. The children's division contributed 11.3% of total sales in
fiscal 2002 and offers durable apparel for children of all ages including
infants and toddlers, boys and girls. Nationally-recognized brands for children
offered by the children's division include Adidas, Baby Togs, Carter's, Kids
Headquarters, Lee, L.E.I., Levi's, Mudd, My Michelle, Nike, Paco, Union Bay,
U.S. Polo, and Zana-di. The Company's exclusive brands for children are Baby
Crew, GoodKidz and OCI.

Shoes. The Company operates its own shoe departments, which contributed
5.9% of total sales in fiscal 2002. At the end of fiscal 2002, 319 stores had
shoe departments; and the Company expects that all new and relocated stores in
fiscal 2003 will have shoe departments. The shoe departments offer
nationally-recognized brands such as Adidas, American Eagle Shoes, Bass, Bongo,
Calico Sport, Connie, Dockers, Eastland, Keds, L.E.I., Mootsies Tootsies, Mudd,
New Balance, Nike, Reebok, and Skechers.

Other. Includes revenue from tuxedo rentals and service fees that, in the
aggregate, contributed 0.6% of total sales in fiscal 2002.

The following table shows a breakdown of the Company's total sales for the
periods indicated (dollars in thousands):

5

STORE VISUAL PRESENTATION

Generally within each store, specific departments are well signed and have
aisles leading directly to major departments. Visual merchandising and store
presentation are enhanced by fixtures that showcase merchandise in an accessible
and customer-friendly shopping environment. Sale items featured in the Company's
advertising campaigns are highlighted in the stores with signs that allow
customers to quickly locate items of interest. The overall merchandise
presentation is organized to highlight selected fashion products as the seasons
progress. The visual merchandising department, in collaboration with the
merchandising staff, communicates with the stores frequently through its "Front
& Forward" program, a series of guidebooks designed to help store associates
coordinate visual presentation efforts with featured items contained in
advertisements or items being promoted in-store. The Company continually
endeavors to update its stores and improve their "shopability."

PURCHASING

The Company buys merchandise from approximately 615 vendors worldwide.
During fiscal 2002, the Company's receipts from Levi Strauss & Co., its largest
vendor, represented approximately 10.9% of total receipts. No more than 4.0% of
total receipts were attributable to any one of the Company's other vendors
during fiscal 2002. However, the Kellwood Company and Jones Apparel Group, Inc.
own 13 and 8 of the Company's vendors, respectively, which represented
approximately 5.9% and 5.4% of total receipts for fiscal 2002, respectively. The
Company does not have long-term or exclusive contracts with any manufacturer or
vendor. The Company believes it maintains strong relationships with its vendors.
A large portion of the Company's merchandise is prepackaged and preticketed by
the vendors for each store, thereby reducing the cost and processing time at its
distribution centers.

Merchandise associated with the Company's exclusive brands is largely
imported. The Company employs its own designers and product development teams
who work closely with the merchandising staff to track seasonal fashion trends,
analyze customer feedback and determine appropriate order quantities. The
Company controls its exclusive brands from initial concept to its introduction
in its stores and monitors product quality, freight costs and other expenses in
an effort to maximize gross margins on such merchandise.

PLANNING AND ALLOCATION

The Company's planning and allocation department works closely with
merchandising, distribution and store operations personnel to establish an
appropriate flow of merchandise for each of the Company's stores. This flow of
merchandise is intended to reflect customer preferences in each market. The
Company utilizes electronic data interchange ("EDI") with 214 vendors, wherein
the Company and vendors exchange documents electronically; additionally the
vendor will pack orders by store and ticket the merchandise at the color and
size levels. Sales from EDI vendors accounted for approximately 52.1% of total
sales in fiscal 2002. The Company also utilizes automatic replenishment programs
("QR") with 66 of the 214 EDI vendors, which allow for more efficient
replenishment of specific items of merchandise in particular styles, sizes and
colors to optimize in-stock positions of basic merchandise. Goody's provides QR
vendors with selling data for their products and reorders are automatically
produced when compared to pre-determined models. Sales from QR vendors
represented 26.4% of total sales in fiscal 2002. The Company continues to
support and encourage the use of QR and EDI for its vendors.

CENTRALIZED DISTRIBUTION

The Company has two distribution centers: a 344,000-square-foot
distribution center, located in Knoxville, Tennessee, and a 235,000-square-foot
distribution center, located in Russellville, Arkansas. The two distribution
centers have the combined capacity to serve approximately 525 stores. Both
distribution centers are equipped with automated merchandise handling equipment
that facilitates efficient distribution of merchandise to the Company's stores
and provides for efficient cross docking of prepackaged and preticketed
merchandise by store. Incoming merchandise is received at the distribution
centers where it is inspected for quality control at the Company's discretion.

Merchandise for individual stores is typically processed through the
distribution centers within 48 hours of its receipt from vendors. Furthermore,
because the distribution centers are located adjacent to main interstate
highways, the Company believes that it has been able to negotiate favorable
shipping terms with common carriers.

The Company also has developed an effective computerized system for
tracking merchandise from the time it arrives at its distribution centers until
it is delivered to the stores to ensure that shipments are delivered in an
accurate and timely manner. The Company utilizes a third-party contract carrier
to deliver merchandise to its stores.

6

MARKETING AND ADVERTISING

The Company's marketing and advertising strategies are designed to
reinforce its image as a destination store for trend-right casual and career
apparel at value prices for the entire family. The Company believes that its
advertisements, which emphasize a wide selection of nationally-recognized,
brand-name apparel at value prices for the entire family, have enabled it to
communicate a distinct identity that reinforces its brand in the marketplace.

Using a multi-media approach in fiscal 2002, Goody's utilized outside
agencies to develop its advertising for television and radio, as well as print
and broadcast media buying. However, the Company expects during fiscal 2003 to
internally develop its own advertising for television and radio, scheduled to
air at strategic times during 36 weeks of the fiscal year. The Company
frequently uses television and full-color print advertising to portray the depth
and selection of its merchandise. In-store merchandise presentation is
coordinated with such advertising to maximize promotional opportunities. While
the exact allocation of advertising expenditures differs from market to market,
the Company allocated approximately 54% of its fiscal 2002 advertising
expenditures to print media, 45% to television and radio with the remainder for
other promotional activities. Several of the Company's key vendors share in the
costs of mutually beneficial advertising campaigns through cooperative
advertising programs.

The Company offers the GOODY'S private label credit card through an
arrangement with Alliance Data Systems and World Financial Network National
Bank. Under this arrangement, the Company pays sales transaction fees, but is
not responsible for assessing customer credit-worthiness and does not assume the
risk associated with extending credit. During fiscal 2002, average net sales per
transaction on the GOODY'S private label credit card were higher than the
average of all other credit cards accepted. The GOODY's private label credit
card includes a loyalty program that is intended to increase the frequency and
volume of customer purchases. The Company advertises and markets directly to its
credit card customers.

The Company also offers its customers a GOODY's gift card. The GOODY's gift
card is designed to simplify the gift certificate sales transaction for the
customer and enhance the "Goody's" brand image. This card is offered at the
point-of-sale, and at certain times of the year, such as the Christmas season,
and is aggressively marketed to increase gift card sales. Customer response to
the GOODY's gift card has been favorable since its introduction in May 2001 and
has resulted in increased gift card sales when compared to traditional paper
gift certificates.

PRICING

The Company's pricing strategy is designed to provide value to its
customers by offering merchandise at value prices generally below the prices of
traditional department and specialty stores. In order to remain competitive and
enhance sales promotion efforts, Goody's frequently monitors its competitors'
prices. In addition, the Company's management information systems provide daily
and weekly sales and gross margin reports that, among other things, track sales
and gross margins by stock-keeping unit and provide management with the
flexibility to adjust prices, as appropriate.

CUSTOMER SERVICE

Goody's goal is to provide shoppers with a positive shopping experience
every time they visit its stores. The Company reviews and analyzes customer
calls, e-mails and letters, receives feedback from store management, and
conducts quantitative and qualitative studies to monitor customer expectations.
To support its efforts, the Company utilizes a customer service program called
"GREAT," an acronym that stands for "Greet every customer, Room to shop,
Exciting store presentation, Attention to detail, and Thank every customer."
Goody's store associates play the most important role in the success of the
GREAT program.

STORE OPERATIONS

Management of store operations is the responsibility of the Executive Vice
President -- Stores, who is assisted by a Vice President -- Store Operations, a
Vice President -- Loss Prevention, four Vice Presidents -- Sales, and 27
District Managers. The number of stores that each District Manager oversees
ranges from 9 to 15.

7

Each store is managed by a team consisting of a Manager and one to two
Assistant Managers, depending on the size of the store. Stores are typically
staffed by Sales Associates, Department Heads, Cashiers, and Stockroom
Associates. All associates are responsible for providing customer service by
interacting with customers, developing and maintaining creative visual
merchandise presentation and ensuring a positive shopping experience for each
customer. The store staff consists of a combination of full-time and part-time
associates; temporary associates are hired for peak selling seasons. The
Company's stores are generally open from 9:00 a.m. to 9:00 p.m. Monday through
Thursday; from 9:00 a.m. to 10:00 p.m. on Friday and Saturday; and from 12:00
a.m. to 7:00 p.m. on Sunday. These hours are extended during various holiday and
peak selling seasons.

STORE LOCATIONS

The Company typically locates its stores in small to midsize markets in the
Southeast, Midwest and Southwest that have populations of fewer than 100,000 and
demographic characteristics consistent with its targeted value-conscious
customer. However, since 1994, the Company has opened multiple locations within
selected larger metropolitan markets. Goody's has typically entered these larger
metropolitan markets by opening several stores simultaneously, enhancing the
Company's image and awareness throughout the market while leveraging advertising
costs that are generally higher than in small to midsize markets. Goody's leases
store space primarily in strip centers, where costs are generally lower than
mall locations. The smallest of the Company's stores has 7,600 gross square feet
and the largest store has 52,600 gross square feet; the average store size is
approximately 27,900 gross square feet. The Company's store locations can be
found by visiting its web site at www.goodysonline.com.

All of the Company's store locations are leased. The Company believes the
flexibility of leasing its stores provides substantial benefits and avoids the
inherent risks of owning real estate. The Company believes it has established
itself as an anchor tenant due to its sales volume, the size of its stores, its
advertising contributions in local markets, its financial position, and its
history of meeting lease commitments on a timely basis.

INFORMATION SYSTEMS

The Company frequently upgrades its core business systems with current
technology, when and where possible, in an effort to enhance financial and other
business controls. The Company maintains fully integrated point-of-sale ("POS"),
inventory and merchandise systems. The Company's information systems provide
management, buyers, planners, and distributors with comprehensive data that
allow them to identify emerging sales trends and, accordingly, manage
inventories. The data provided by information systems include merchandise
planning, purchase order management, open order reporting, open-to-buy,
receiving, distribution, EDI, basic stock replenishment, inventory, and price
management. Daily and weekly sales reports are used by management to enhance the
timeliness and effectiveness of purchasing and markdown decisions. Merchandise
purchases are based on planned sales and inventories, and are frequently revised
to reflect changing sales trends. The Company's POS systems are supported by an
in-store computer system. The in-store systems feature bar-coded ticket
scanning, automatic price look-up, credit and check authorization utilizing a
satellite network, and daily transmittal of detailed sales data from stores to
the corporate office. The Company plans to introduce new POS, radio frequency
scanners and back-office systems for most of its relocated, remodeled and new
stores during fiscal 2003 and expects to complete a rollout of the new equipment
during fiscal 2004.

TRADEMARKS

The United States Patent and Trademark Office (the "USPTO") has issued
federal registrations to the Company for the following trademarks: Accessory
Crossing, Authentic GFC, Bobby G by Ivy Crew, Chandler Hill, Chandler Hill
Sport, Feels Like You, "G" (stylized G with arch design), GFC, Goodclothes (and
design), GoodKidz (and design), Goody's, Goody's (credit card services), Goody's
Family Clothing, Goody's Family Clothing (and design), Goody's Low Price!!
Department Store Styles Department Store Brands (and design), International
Trading Company (and design), Intimate Classics, Ivy Crew, Low Prices Never
Looked So Good, MBJC, Mountain Lake, Mountain Lake Casuals, Mountain Lake High
Quality Apparel With A Feel Good Fit, Mountain Lake Jean Company, OCI, OCI
(shoes), OCI Quality Clothing (and design), Old College Inn, Old College Inn
Jean Company, Old College Inn Loungewear, Old College Inn Sport, RGM, Take A
Good Look (and design), Y.E.S. Your Everyday Savings, and Your Everyday Y.E.S.
Savings Brands Value Quality. The Company has also filed applications with the
USPTO seeking federal registrations for the following trademarks: Good Boys,
Good Girls, Good Kidz, Goody's -- It's All About You, Montana Blues, Montana
Blues Jean Company, Sterling Reflections, and West Interstate 40 (and design).

8

The following trademarks and tradenames used in this Form 10-K are owned by
(and in certain cases registered to) third parties: Adidas, Alexander Julian,
Alfred Dunner, American Eagle Shoes, Arden Fragrances (that include Calvin
Klein, Nautica, Obsession, Paul Sebastian, and White Diamonds), Arrow, Baby
Togs, Bass, Beach Native, Body I.D., Bongo, Burnes of Boston, Calico Sport,
Carter's, Cathy Daniels, Connie, Dockers, Dorby, Duck Head, Eastland, Gloria
Vanderbilt, Hanes, JNCO, Keds, Kids Headquarters, Lee, L.E.I., Levi's,
Maidenform, Malibu Dream Girl, Manhattan Beachwear, Miss Erika, Mootsies
Tootsies, Mudd, Munsingwear, My Michelle, New Balance, Nike, Nine & Company,
Norton McNaughton, On Que, Paco, Paris Blues, Playtex, Reebok, Requirements,
Riveria, Rosetti, Sag Harbor, Skechers, U.S. Polo, Union Bay, and Zana-di.

ASSOCIATES

As of March 15, 2003, the Company had approximately 10,000 active full and
part-time associates. Store managers and assistant store managers are
compensated on a salaried basis. Additionally, store managers are eligible to
receive additional compensation based on the Company's profitability as well as
meeting certain other objective goals at their respective stores. All other
store associates are compensated on an hourly basis. The Company's incentive
bonus program for certain key corporate associates is based on achieving certain
profitability goals and could potentially provide a significant portion of the
associates' total annual compensation. All of the Company's associates are
non-union employees, with the exception of the associates employed at its
distribution center in Knoxville, Tennessee, who are represented by the Union of
Needletrades, Industrial and Textile Employees.

On February 1, 2002, the Company announced a "reduction-in-force"
commencing in February 2002 that reduced the work force at the Company's
corporate headquarters and distribution centers. Eligible employees were
provided severance pay and health benefits based on compensation and tenure with
the Company. In addition, all affected employees were offered certain
outplacement services. The Company recorded a restructuring charge during the
fourth quarter of fiscal 2001 of approximately $1,335,000 related to this
reduction in the Company's work force that was completed during fiscal 2002.

The Company grants stock options to certain key associates. These options
are designed to align associates' interests with those of the Company's
shareholders and allow the Company to provide long-term incentives to these
associates.

The Company maintains the Goody's Family Clothing, Inc. 401(k) Retirement
Plan (the "401(k) Plan") with a salary deferral feature for all eligible
associates. Under the terms of the 401(k) Plan, eligible associates may
contribute between 3% and 15% of their annual compensation on a pretax basis
(with certain limitations imposed by the Internal Revenue Service) to the 401(k)
Plan. The Company provides matching contributions to the 401(k) Plan that are
determined by the Company on a discretionary basis at the start of each 401(k)
Plan year and committed to for the plan year, vest over an associate's service
period and are based upon a percent of an associate's elected contributions.
These matching contributions amounted to $813,000, $827,000 and $882,000 for
fiscal 2002, 2001 and 2000, respectively.

Until January 30, 2002, the Company also maintained the Goody's Family
Clothing, Inc. Executive Deferral Plan (the "EDP Plan") with a salary deferral
feature for all eligible associates. Under the terms of the EDP Plan, eligible
associates could have contributed up to the lesser of 25% or $30,000 of their
annual compensation on a pretax basis to the EDP Plan. The Company provided
matching contributions to the EDP Plan that were determined by the Company on a
discretionary basis at the start of each EDP Plan year and committed to for the
plan year, vested over an associate's service period and were based upon a
percent of an associate's elected contributions. These matching contributions
were $102,000 and $79,000 in fiscal 2001 and 2000, respectively. On January 30,
2002, the Company's Board of Directors elected to terminate the EDP Plan and
disburse all EDP Plan assets to EDP Plan participants. Such disbursement was
made to EDP Plan participants in February 2002.

The Company also has an Employee Payroll Investment Plan that allows
eligible associates to purchase the Company's common stock (the "Common Stock")
at fair market value through regular payroll deductions.

9

SEASONALITY AND INFLATION

The Company's business is seasonal by nature. The Christmas season
(beginning the Sunday before Thanksgiving and ending on the first Saturday after
Christmas), the back-to-school season (beginning the third week of July and
continuing through the first week of September) and the Easter season (beginning
two weeks before Easter Sunday and ending on the Saturday preceding Easter)
collectively accounted for approximately 38.9% of the Company's annual sales
based on the Company's last three fiscal years ended February 1, 2003. In
general, sales volume varies directly with customer traffic, which is heaviest
during the fourth quarter of a fiscal year. Because of the seasonality of the
Company's business, results for any quarter are not necessarily indicative of
the results that may be achieved for the full fiscal year.

Inflation can affect the costs incurred by the Company in the purchase of
its merchandise, the leasing of its stores and certain components of its
selling, general and administrative expenses. The Company believes that during
the last three fiscal years ended February 1, 2003, inflation has not had a
material adverse effect on the Company's business, although there can be no
assurance that inflation will not have a material adverse effect on the Company
in the future.

COMPETITION

The retail apparel business is highly competitive with price, selection,
fashion, quality, store location, store environment, and customer service being
the principal competitive factors. The Company believes that it is positioned to
compete on the basis of each of these factors. The Company competes primarily
with department stores, specialty stores, off-price apparel stores, and discount
stores. Many competitors are large national chains, with substantially greater
financial and other resources than those available to the Company; there is no
assurance that the Company will be able to compete successfully with any of them
in the future.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

The following important factors, among others, could cause the Company's
future operating results to differ materially from those indicated by
forward-looking statements made in this Form 10-K and presented elsewhere by
management from time to time.

Recent Decreases in Comparable Store Sales

The Company has had declines in comparable store sales for 14 of the last
15 fiscal quarters ended February 1, 2003. The Company continues to address the
reasons for the decreases and there can be no assurance that this trend will
reverse or that the Company can successfully execute its business plans and
strategies.

Despite the decreases in comparable store sales for 14 of the last 15
fiscal quarters ended February 1, 2003, the Company does not have plans to exit
a significant number of stores. However, should the negative trend continue,
circumstances could require the Company to close a significant number of stores
at material costs. Such store closures, as well as other effects from a
continuation in the negative trend, could have a material adverse effect on the
Company.

Highly Competitive Nature of the Retail Apparel Industry

Goody's faces intense competition not only for customers, but also for
access to quality merchandise and suitable store locations, from traditional
department stores, specialty retailers, off-price retail chains, and discount
stores. Many of these competitors are larger and have significantly greater
financial, marketing and other resources than the Company. In addition, many
department stores have become more promotional and have reduced their selling
price points, and certain finer department stores have opened outlet stores that
offer off-price merchandise in competition with the Company. Further, in view of
the Company's strategy of offering current-season, trend-right,
nationally-recognized and exclusive-brand merchandise at value prices,
aggressive department store pricing could adversely affect the Company's
margins. The effect of intense competition could require the Company to reduce
prices on merchandise for sale or increase spending on marketing and
advertising, any of which could have a material adverse effect on the Company.

10

Marketing and Advertising

The Company believes that communicating frequently with its customers is
the key to maintaining traffic flow in its stores and creating loyalty within
its customer base. The Company adopted new merchandising, advertising and
pricing strategies in fiscal 2002 that continually evolve in an effort to
reverse negative comparable store sales trends and has implemented
customer-directed changes in merchandising, advertising and in-store
presentation. There can be no assurance that the Company's new strategies will
be effective or will reverse the negative comparable store sales trends.

Credit Facility Covenant

The Company's borrowings under its credit facility are limited by
collateral formulas, based principally upon the Company's eligible inventories.
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. There can be no
assurance as to the continued sufficiency of eligible collateral to enable
borrowings by the Company under its credit facility, or that the Company will be
able to comply with covenants under its credit facility, or that the lender will
not otherwise limit borrowings by the Company under the credit facility.

Reduction in New Store Openings

The Company's revenue growth historically has been dependent, in part, upon
an expansion policy of growing its store base by approximately 10% each year.
During fiscal 2002, the Company decided to curtail its new store growth until
its operating performance improved significantly. As a result, the Company's
store base decreased by approximately 1% in fiscal 2002. The Company expects to
open only approximately 10 new stores and to close approximately 5 stores during
fiscal 2003. The inability of the Company to resume its historical levels of new
store growth may have a material adverse effect on its long-term growth. There
can be no assurance that the Company's operating performance will improve to the
degree necessary to sustain its historical level of new store openings.

Credit Support

The Company depends in part on credit (including acceptable credit terms)
provided by its vendors and factors, and there can be no assurance as to their
continued support. The Company believes that credit decisions made by vendors
and factors are influenced by their perception of the Company's credit rating
that is shaped by information reported in the industry and financial press and
elsewhere as to the Company's financial strength and operating performance.
Accordingly, negative perceptions as to the Company's financial strength or
operating performance could have a negative impact on the Company's liquidity.

Merchandising and Fashion Sensitivity

The Company's success is largely dependent upon its ability to gauge the
fashion tastes of its customers and to provide merchandise in sufficient
quantities to satisfy customer demand in a timely manner. The Company's failure
to anticipate, identify or react appropriately to changes in fashion trends
could have a material adverse effect on its financial results. Misjudgments or
unanticipated changes in fashion trends as well as economic conditions could
lead to excess inventories and higher markdowns, and repeated fashion
misjudgments could have a material adverse effect on the Company's image with
customers.

Dependence on Private-Label Merchandise

Sales from the Company's private-label merchandise represented
approximately 28% of the Company's total sales in fiscal 2002. Because of the
longer lead times required to manufacture private-label merchandise, and the
lack of recourse the Company might have otherwise with domestic vendors, failure
to anticipate, identify and react appropriately to changes in fashion trends
with its private-label merchandise could have an adverse effect on the Company.

11

Reliance on Key Merchandise Vendors and Private-Label Contract Manufacturers

The Company does not own or operate any manufacturing facilities and does
not have any long-term or exclusive contractual relationships with its vendors
and contract manufacturers. The success of the Company's business is largely
dependent upon its ability to purchase current-season, brand-name and
private-label apparel at competitive prices in adequate quantities and with
timely deliveries. The inability or unwillingness of key vendors to increase
their sales to the Company to keep pace with the Company's growth, or the loss
of one or more key vendors for any reason, could have a material adverse effect
on the Company. During fiscal 2002, the Company's largest vendor, Levi Strauss &
Co., accounted for approximately 10.9% of total receipts. In addition, the
Kellwood Company and Jones Apparel Group, Inc. own 13 and 8 of the Company's
vendors, respectively, which represented approximately 5.9% and 5.4% of total
receipts for fiscal 2002, respectively. There can be no assurance that the
Company will be able to acquire brand-name merchandise in sufficient quantities
and on favorable terms, if at all, in the future.

Foreign Merchandise Sourcing

The Company's private-label programs are largely supported by products
directly purchased from vendors located abroad. In addition, the Company
believes that a substantial portion of its merchandise purchases from domestic
vendors are manufactured abroad. These arrangements are subject to the risks of
relying on products manufactured abroad, including import duties and quotas,
loss of "most favored nation" trading status, currency fluctuations, work
stoppages, economic uncertainties including inflation, foreign government
regulations, lack of compliance by foreign manufacturers with U.S. consumer
protection laws (for which, in respect of its private-label merchandise, the
Company may be responsible as the importer of record) and intellectual property
laws, political unrest including terrorism and war, and trade restrictions,
including U.S. retaliation against unfair foreign practices. While the Company
believes it could find alternative sources of supply for its private-label
programs, an interruption or delay in supply from these foreign sources or the
imposition of additional duties, taxes or other charges on these imports could
have a material adverse effect on the Company, unless and until alternative
supply arrangements are secured. Moreover, products from alternative sources may
be of lesser quality or more expensive than those currently purchased by the
Company.

Inventory Control

The Company maintains systems, programs and controls over its merchandise
inventories to mitigate possible risks associated with shrinkage. These risks
include losses primarily from: (i) customer and employee theft, (ii) merchandise
transferred between the distribution centers and stores, (iii) store to store
transfers, (iv) concealed shortages from vendors, and (v) merchandise returned
to vendors. The Company conducts a complete physical inventory count near the
end of each fiscal year in order to determine the Company's actual shrinkage
results. For interim financial reporting purposes, the Company provides a
reserve for shrinkage based principally upon its historical shrinkage
experience. The amount of actual shrinkage could vary significantly from
shrinkage reserves recorded in its interim financial statements throughout the
year and, accordingly, could have a material effect (either positive or
negative) on the Company's financial position, results of operations or cash
flows for that year and the fourth quarter of such year.

Reliance on Information Systems

Since the Company's information systems are important to its success, it
frequently upgrades its core information and in-store systems with current
technology, when and where possible, in an effort to enhance financial and other
operational controls. The Company also has implemented certain information
systems disaster recovery plans to mitigate the risk of business interruptions
related to information technology disasters. There can be no assurance that
information technology systems will not become obsolete or fail, or that the
execution of the Company's information systems disaster recovery plans will be
successful.

12

Seasonality

The Company's business is seasonal by nature. The Christmas season
(beginning the Sunday before Thanksgiving and ending on the first Saturday after
Christmas), the back-to-school season (beginning the third week of July and
continuing through the first week of September) and the Easter season (beginning
two weeks before Easter Sunday and ending on the Saturday preceding Easter)
collectively accounted for approximately 38.9% of the Company's annual sales
based on the Company's last three fiscal years ended February 1, 2003. In
general, sales volume varies directly with customer traffic, which is heaviest
during the fourth quarter of a fiscal year. Because of the seasonality of the
Company's business, results for any quarter are not necessarily indicative of
the results that may be achieved for the full fiscal year.

Fluctuation in Operating Results

The Company's results of operations have fluctuated in the past, and are
expected to fluctuate in the future, as a result of a variety of factors,
including weather conditions, the timing of store openings and related
advertising and pre-opening expenses, store closings and related write-offs,
price increases by suppliers, actions by competitors, the competitiveness of the
retail apparel environment and general economic conditions, and global political
unrest.

Reliance on Key Personnel

The Company believes that its future success will depend significantly on
the efforts and abilities of its senior executives, in particular Robert M.
Goodfriend, Chairman of the Board of Directors and Chief Executive Officer. The
loss of the services of Mr. Goodfriend, or other members of the Company's senior
management could have a material adverse effect on the Company. The Company has
employment agreements with its senior executives, other than Mr. Goodfriend. The
Company believes that its future success will also largely depend upon its
ability to attract and retain qualified employees. Competition for such
personnel is intense and there can be no assurance that the Company will
continue to be successful in attracting and retaining such personnel.

Expansion and Management of Growth

Prior to fiscal 2001, the Company had experienced significant growth by
opening new stores. The Company reduced such growth in its store base in fiscal
2001 and 2002 as a result of the difficult economic environment and operating
results in fiscal 2001 and plans to only resume moderate growth in fiscal 2003.
Its future operating results still could be affected by its ability to identify
suitable markets and sites for new stores, negotiate leases with acceptable
terms and maintain adequate working capital. To serve its store growth, the
Company must be able to achieve and maintain efficiency through the operation of
its two distribution centers, one each in Knoxville, Tennessee and Russellville,
Arkansas that currently services 225 and 103 of the Company's stores,
respectively. The Company expects to begin processing shoes at its Russellville
distribution center in early fiscal 2003, a process that was previously provided
by a third party. In addition, the Company must be able to continue to hire,
train and retain competent managers and store personnel. There can be no
assurance that the Company will be able to expand its market presence in its
existing markets or successfully enter new or contiguous markets by opening new
stores or that any such expansion will not adversely affect the Company.
Further, if the Company's management is unable to manage its growth effectively
or closes a material number of stores, the Company could be materially and
adversely affected.

Pending Litigation

The Company is involved in certain legal proceedings, including a class
action race discrimination lawsuit and a counterfeiting and trademark
infringement action. The ultimate outcome of such pending legal proceedings may
have a material adverse effect on the Company's financial position, results of
operations or cash flows. See "Item 3. -- Legal Proceedings."

13

ITEM 2. PROPERTIES

The Company owns the following properties:

(a) its corporate headquarters consisting of approximately 140,000
square feet and located at 400 Goody's Lane, Knoxville, Tennessee;

(b) its Knoxville, Tennessee distribution center located adjacent to
its corporate headquarters consisting of a one-story, 344,000-square foot
facility with 43 loading docks and a mezzanine level that has an additional
17,500 square feet currently used as office space. The Knoxville
distribution center has the capacity to distribute merchandise to a maximum
of approximately 325 stores; and

(c) its Russellville, Arkansas distribution center consisting of a
one-story, 235,000-square foot facility with 40 loading docks. This
facility has been designed to serve more than 200 stores primarily west of
the Mississippi River.

The Company currently leases all of its stores. Lease terms generally
contain renewal options and provide for a fixed minimum rent, additional rent
based on a percent of sales in excess of stipulated amounts, real estate taxes,
insurance, and common area maintenance costs. The Company also leases two
warehouses in Athens, Tennessee, one of which is primarily used for staging and
processing inventory for new stores, and one for storing certain store fixtures.
In addition, the Company leases a warehouse in Knoxville, Tennessee for record
storage.

The following table reflects at February 1, 2003 the number of store leases
that will expire in each indicated fiscal year if the Company: (i) does not
exercise any of its renewal options and (ii) exercises all of its renewal
options. This table does not reflect 14 store leases having month-to-month lease
terms, but does include four leases executed as of February 1, 2003 for stores
to be opened or relocated in fiscal 2003.

14

ITEM 3. LEGAL PROCEEDINGS

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 this 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
expects that $3.1 million of such payment will be covered by its insurance. 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. If the Court grants preliminary approval of the proposed Consent
Decree, the Court may determine to schedule a hearing regarding the adequacy and
fairness of the proposed settlement. At such hearing, any objections to the
proposed settlement would be heard and the Court would consider whether to grant
final approval. There can be no assurance that such preliminary or final
approvals to the Consent Decree will be granted or that the settlement will not
be overturned on appeal.

Hilfiger Matter

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"). The counterfeiting claims arose out of
Goody's sale of t-shirts bearing certain Hilfiger trademarks that Goody's
purchased from certain vendors, which Goody's believed at the time to be
genuine. According to Hilfiger's complaint, these items bore counterfeit
Hilfiger logos. The trademark infringement claims arose out of Goody's sale of
private label denim products. Hilfiger is seeking compensatory damages in excess
of $10 million and damages allowed by statute (including treble damages).

In September 2002, the Court granted Hilfiger's motion for partial summary
judgment as to liability relating to the Goody's sale of counterfeit Hilfiger
t-shirts. The Court determined that Hilfiger is entitled to recover Goody's
profits on those t-shirts in an amount to be determined at trial. The Court
denied Hilfiger's motion for summary judgment in all other respects. The Court
also denied, in its entirety, a motion made by Goody's for summary judgment.

A bench trial for the Hilfiger Matter concluded on March 13, 2003. Post
trial briefs are due to the Court on or about April 11, 2003, after which the
judge is expected to render a decision. Goody's believes that it has meritorious
arguments to limit the amount of damages awarded to Hilfiger on its claims for
counterfeiting and meritorious defenses to Hilfiger's claims of trademark
infringement.

Following the commencement of the Hilfiger Matter, Goody's filed suit in
November 2000 against its suppliers of the counterfeit Hilfiger t-shirts
alleging, among other things, breach of contract and fraudulent
misrepresentation. The sellers asserted certain counterclaims. In October 2002,
the Court entered judgment in favor of Goody's on its claims and denied
defendants' counterclaim. The Court reserved ruling on damages pending the
outcome of the Hilfiger Matter. However, no assurance can be given that Goody's
will be able to collect from the defendants any amount awarded to it as damages.

15

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 has
certain indemnification obligations to Sun and is paying for the defense of the
Sun Matter. The Sun Matter is in its preliminary stages, and only limited
discovery has been allowed. At Sun's request, the Court has informally stayed
the Sun Matter pending the outcome of the Hilfiger Matter. Goody's believes that
Sun has meritorious defenses to this action and is prepared to defend vigorously
the claims against Sun. In addition, Goody's believes that there may be
insurance coverage available for all or a portion of the liability, if any,
resulting from the Sun Matter. However, the insurers have not yet agreed to
provide indemnity to Goody's for the Sun Matter.

The Company has insurance in an amount which it believes is sufficient to
cover the liability, if any, and legal fees resulting from the Hilfiger Matter.
At the time the Hilfiger Matter commenced, the primary 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 (the "Insurance Matter").
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 have reserved their rights regarding
their obligations to indemnify Goody's against damages resulting from the
Hilfiger claims and the carriers have asserted certain defenses against their
indemnity obligations. As a result, the Company could be required to contribute
to any damage award assessed by the Court.

The results of the three matters described in this section cannot be
predicted with any certainty. An unfavorable resolution of the Hilfiger Matter
and/or the Sun Matter, in conjunction with an adverse outcome of the Insurance
Matter could have a material adverse effect on the Company's financial position,
results of operations or cash flows.

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, after considering all available
information for all legal proceedings (including the matters noted in the
foregoing paragraphs), has recorded an estimate for such liabilities, including
legal fees, as of February 1, 2003. The Company does not currently believe that
the ultimate outcome of all such pending legal proceedings (other than the
matters 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Common Stock is listed and traded on The NASDAQ Stock Market (National
Market) under the symbol GDYS. The following table sets forth the range of high
and low sale prices for the Common Stock for the periods indicated.

The Company has never declared, nor has it paid, any cash dividends on the
Common Stock. The Company currently intends to retain its earnings to finance
future growth and, therefore, does not anticipate paying any cash dividends on
the Common Stock in the foreseeable future.

16

At March 14, 2003, there were 494 shareholders of record and approximately
6,000 persons or entities that held Common Stock in nominee name. On March 14,
2003, the closing price of the Common Stock was $3.18.

The Company has options outstanding under four stock option plans: the
Amended and Restated 1991 Stock Incentive Plan (the "1991 Plan"), the Amended
and Restated 1993 Stock Option Plan (the "1993 Plan"), the Amended and Restated
1997 Stock Option Plan (the "1997 Plan"), and the Amended and Restated
Discounted Stock Option Plan for Directors (the "Directors Plan") (collectively,
the "Equity Compensation Plans"). The material terms of the Equity Compensation
Plans are described below.

The following table gives certain information about the Equity Compensation
Plans as of February 1, 2003.

The 1991 Plan, 1993 Plan and 1997 Plan provide for the grant of
nonqualified and incentive stock options to key employees and directors and
formula options to non-employee directors. The Compensation Committee of the
Board of Directors determines the exercise price (not to be less than the fair
market value of the Common Stock for incentive options or formula options on the
date of grant (based upon the closing sales price of the Common Stock for the
business day immediately preceding the date of grant)) and the vesting and
exercise periods. The options typically vest in equal installments over five
years from the date of grant and are generally exercisable up to 10 years from
the date of grant. The Company is authorized to issue an aggregate of 2,000,000
shares of Common Stock under the 1993 Plan and 3,500,000 shares of Common Stock
under the 1997 Plan. The 1991 Plan terminated in September 2001 and the Company
is no longer entitled to issue options thereunder. However, at February 1, 2003,
an aggregate of 418,537 options remain outstanding under the 1991 Plan. The 1993
Plan will terminate in April 2003.

The Company's shareholders approved the 1991 Plan on September 12, 1991,
the 1993 Plan on July 8, 1993, and approved the 1997 Plan on June 18, 1997 (and
amendments thereto on June 19, 2002).

Under the Directors Plan, non-employee directors may elect to receive
options to purchase Common Stock at an exercise price equal to 50% of the fair
market value of the Common Stock on the date of grant (based upon the closing
sales price of the Common Stock for the business day immediately preceding the
date of grant) in lieu of cash for their director fees. These options vest one
year from the date of grant and are exercisable up to 20 years from the date of
grant. The Company is authorized to issue an aggregate of 500,000 shares of
Common Stock under the Directors Plan.

The Company's shareholders approved the Directors Plan on July 8, 1993 (and
amendments thereto on June 19, 1996 and June 19, 2002).

17

ITEM 6. SELECTED FINANCIAL DATA

- ---------------

(1) Consists of 53 weeks -- all other years presented consist of 52 weeks.
(2) Beginning January 30, 2000, the first day of fiscal 2000, the Company
changed its policy to recognize the sale and the related gross profit from
layaways upon delivery of the merchandise to the customer. The cumulative
effect of this change at January 30, 2000 was $331,000 ($207,000 after tax)
and is included in selling, general and administrative expenses in fiscal
2000. See Note 1 in the Notes to the Consolidated Financial Statements.
(3) The restructuring (credit) charge consisted primarily of severance related
activities associated with a planned reduction in work force and
professional fees associated with the reduction program. See Note 9 in the
Notes to the Consolidated Financial Statements.
(4) Comparable store sales are based on stores that operated throughout the
fiscal year (including relocated, remodeled and expanded stores) and that
were in operation for the entire previous fiscal year (computed on
comparable 52-week periods).
(5) Sales per gross square foot is calculated by dividing (i) sales from stores
that operated throughout the fiscal year (including relocated, remodeled and
expanded stores) and that were in operation for the entire previous fiscal
year (computed on comparable 52-week periods) by (ii) the gross square
footage related to those stores.
(6) Average sales per store is calculated by dividing (i) total sales during
such fiscal year less sales attributable to new stores opened and stores
closed during the fiscal year by (ii) the number of stores open at the end
of the fiscal year less new stores opened during the fiscal year.

18

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

REPORT OF MANAGEMENT

Management is responsible for the integrity and objectivity of all
financial information presented in this Form 10-K. The consolidated financial
statements included herein have been prepared in accordance with accounting
principles generally accepted in the United States of America and include, where
necessary, certain amounts based on the best estimates and judgments of
management.

In fulfilling its responsibility for the reliability of financial
information, management has developed and maintains accounting systems and
procedures appropriately supported by internal accounting controls. Such
controls include the selection and training of qualified personnel, an
organizational structure providing for appropriate division of responsibility,
communication of approved accounting, control and business practices, and a
program of internal audit. Although no system of internal accounting controls
can ensure that all errors or irregularities have been eliminated, management
believes that the controls in place provide reasonable assurance, at reasonable
cost, that assets are safeguarded against loss from unauthorized use or
disposition, that transactions are executed in accordance with management's
authorization, and that the financial records are reliable for preparing
financial statements. The consolidated financial statements of the Company have
been audited by Deloitte & Touche LLP, the Company's independent auditors. Their
report is based on their audits conducted in accordance with auditing standards
generally accepted in the United States of America.

The Audit Committee of the Board of Directors, consisting solely of outside
directors, serves in an oversight role to assure the integrity and objectivity
of the Company's financial reporting process. The independent auditors are
ultimately accountable to the Audit Committee, which has the ultimate authority
and responsibility to select, compensate, evaluate and, where appropriate,
replace the independent auditors. The Audit Committee also oversees the
resolution of any financial reporting disagreements between management and the
independent auditors, reviews the independence and performance of the
independent auditors and the experience and qualifications of the partners and
managers of the independent auditor team. The Audit Committee annually appoints
the independent auditors or approves any discharge of the independent auditors
when circumstances warrant. The Audit Committee also meets periodically with
management, and the independent and internal auditors, to assure they are
carrying out their responsibilities. The independent and internal auditors have
full and free access to the Audit Committee and meet with it periodically with
and without management's presence.

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America that
require the Company to make estimates and assumptions. The SEC issued disclosure
guidance for "critical accounting policies." The SEC defines critical accounting
policies as those that require application of management's most difficult,
subjective or complex judgments that are inherently uncertain and may change in
subsequent periods.

The Company believes that of its significant accounting policies (see Note
1 in the Notes to Consolidated Financial Statements), the following may involve
a higher degree of judgment and complexity. Actual results may ultimately differ
from these estimates.

Inventory valuation. The Company's inventories are stated at the lower of
weighted average cost or market. The Company computes the weighted average cost
utilizing specific identification at the stock-keeping unit level multiplied by
the weighted average cost for such stock-keeping unit.

In most cases, the expected sales value (i.e., market value) of the
Company's inventory is higher than its cost. However, as the Company progresses
through a selling season, certain merchandise may be currently, or in the
future, marked to sell or ultimately sold below the cost for that item. As a
result, there is a high degree of judgment and complexity in determining the
market value of such inventories. For inventories on hand at any given fiscal
quarter end, the Company estimates the future selling price of its merchandise,
given its current selling price and its planned promotional activities, and
provides a reserve for the difference between cost and the expected selling
price for all items expected to be sold below cost.

The Company conducts a chainwide physical inventory count near the end of
each fiscal year and adjusts the Company's records to reflect the actual
inventory counts. For interim financial reporting quarters, the Company provides
a reserve for shrinkage based principally on historical shrinkage experience.

19

Contingencies. The Company evaluates contingencies in accordance with SFAS
No. 5, "Accounting for Contingencies." Accordingly, when a material loss
contingency exists, the Company accrues an estimated loss when the likelihood
that the future event or events will confirm the loss or the incurrence of a
liability is probable and the amount of loss can be reasonably estimated. If no
accrual is made for a material loss contingency because both of the above
conditions are not met, or if an exposure to loss exists materially in excess of
an accrual that is made, disclosure regarding the contingency is made when there
is at least a reasonable possibility that a loss or additional loss may be
incurred. A description of certain legal proceedings involving the Company can
be found in Part I, Item 3, "Legal Proceedings" and in Note 10 in the Notes to
Consolidated Financial Statements.

Impairment of long-lived assets. The Company periodically evaluates its
investment in long-lived assets used in operations at the individual store level
that is the lowest level at which individual cash flows can be identified. When
evaluating assets for potential impairment, the Company first compares the
carrying value of the asset to the asset's estimated future cash flows
(undiscounted and without interest charges). The individual store's estimated
future cash flows are based on the Company's estimated future results given
perceived local market conditions, the local economy and historical results. If
the individual store's estimated future cash flows used in this analysis are
less than the carrying amount of the asset, impairment is indicated. The
impairment loss would then be recorded and is generally measured as the excess
of the carrying amount of the asset over the asset's estimated fair value
(generally based upon future discounted cash flows.) In addition, a decision to
close a store, prior to the expiration of its underlying lease, generally
results in increased depreciation and amortization over the remaining revised
useful life of property and equipment.

Insurance. The Company is self-insured for workers' compensation, employee
health benefits and general liability up to a predetermined stop-loss amount.
Third party insurance coverage is maintained for claims that exceed the
predetermined stop-loss amount. The Company's self-insurance accruals are
calculated using loss development factors used by standard insurance industry
actuarial assumptions and the Company's historical claims experience. These
development factors utilize historical data to project the future development of
incurred losses. Loss estimates are adjusted based upon actual claims
settlements and reported claims.

Income taxes. The Company records reserves for estimates of probable
settlements of tax audits. At any one time, many tax years are subject to audit
by various taxing jurisdictions. The results of these audits and negotiations
with taxing authorities may affect the ultimate settlement of these issues.

20

RESULTS OF OPERATIONS -- FOURTH QUARTER FISCAL 2002 COMPARED WITH FOURTH QUARTER
FISCAL 2001

The following table sets forth the Company's unaudited results of
operations for the quarters indicated (in thousands, except per share amounts):

Overview. In the fourth quarter of fiscal 2002, the Company did not open
or close any stores, but did relocate one store, leaving the total number of
stores at February 1, 2003 at 328, compared with 332 at February 2, 2002. In the
fourth quarter of fiscal 2001, the Company did not open, relocate or close any
stores. Net earnings were $3,886,000, or 1.1% of sales, in the fourth quarter of
fiscal 2002 compared with a net loss of $7,674,000, or 2.1% of sales, in the
fourth quarter of fiscal 2001.

Sales. Sales for the fourth quarter of fiscal 2002 (which contained 13
weeks) were $357,532,000, a 1.5% decrease from the $363,102,000 for the fourth
quarter of fiscal 2001 (which also contained 13 weeks). This decrease of
$5,570,000 consisted of: (i) a $1,443,000 decrease in comparable store sales and
(ii) a $4,127,000 decrease of total sales from new, transition and closed stores
that are not included in comparable store sales. Comparable store sales for the
fourth quarter of fiscal 2002 decreased 0.4% compared with the corresponding
period of the previous fiscal year. The Company believes the decline in
comparable store sales in the fourth quarter of fiscal 2002 was due, in part, to
general economic uncertainty and a difficult retail environment.

Gross profit. Gross profit for the fourth quarter of fiscal 2002 was
$98,809,000, or 27.6% of sales, a $19,976,000 increase compared with the
$78,833,000, or 21.7% of sales, in gross profit generated for the fourth quarter
of fiscal 2001. The 5.9% increase in the gross profit rate, as a percent of
sales, in the fourth quarter of fiscal 2002 compared with the fourth quarter of
fiscal 2001 consisted primarily of a 6.1% decrease in cost of sales as a result
of (i) the Company being less promotional in overall pricing and (ii) favorable
shrinkage results (that benefited the fourth fiscal quarter of 2002 by 1.9% of
the 6.1% decrease in cost of sales), offset by a 0.2% increase in occupancy
costs that were not leveraged, as a percent of sales, due to higher occupancy
costs for new and relocated stores.

Selling, general and administrative expenses. Selling, general and
administrative expenses for the fourth quarter of fiscal 2002 were $92,793,000,
or 25.9% of sales, a $2,745,000 increase compared with the $90,048,000, or 24.8%
of sales, for the fourth quarter of fiscal 2001. The 1.1% increase in selling,
general and administrative expenses, as a percent of sales, in the fourth
quarter of fiscal 2002 compared with the fourth quarter of fiscal 2001 resulted
primarily from increases of: (i) 0.6% for legal fees and contingencies, (ii)
0.5% for insurance, including workers' compensation expense, (iii) 0.5% in
impairment charges for property and equipment relating to under-performing
stores, (iv) 0.3% for advertising and promotional expenses, offset by decreases
of (v) 0.2% in payroll expenses and (vi) 0.6% in all other selling, general and
administrative expenses.

21

Restructuring charge. In the fourth quarter of fiscal 2001 the Company
recorded a restructuring charge of $1,335,000, primarily consisting of severance
costs associated with a planned reduction in work force and professional fees
associated with the reduction program.

Investment income. Investment income for the fourth quarter of fiscal 2002
decreased by $66,000 compared with the fourth quarter of fiscal 2001 primarily
related to lower investment rates of return.

Interest expense. Interest expense for the fourth quarter of fiscal 2002
increased by $3,000 compared with the fourth quarter of fiscal 2001.

Income taxes. The provision for income taxes for the fourth quarter of
fiscal 2002 was $2,332,000, for an effective tax rate of 37.5% of earnings
before income taxes, compared with a benefit for income taxes of $4,605,000, for
an effective tax rate of 37.5% of loss before income taxes, for the fourth
quarter of fiscal 2001.

RESULTS OF OPERATIONS -- FISCAL 2002, 2001 AND 2000

The following table sets forth the Company's results of operations as a
percent of sales for the fiscal years indicated:

Fiscal 2002 Compared with Fiscal 2001

Overview. In fiscal 2002, the Company opened two new stores, relocated two
stores, remodeled five stores, and closed six stores, bringing the total number
of stores at February 1, 2003 to 328 compared with 332 at February 2, 2002. In
fiscal 2001, 18 new stores were opened, 9 stores were relocated, 3 stores were
remodeled, and 3 stores were closed. The Company had net earnings of $7,576,000,
or 0.6% of sales, in fiscal 2002, compared with a net loss of $20,191,000, or
1.7% of sales, in fiscal 2001.

Sales. Sales for fiscal 2002 were $1,193,405,000, a 0.1% increase from the
$1,192,546,000 for fiscal 2001. This increase of $859,000 consisted of: (i) a
$14,637,000 increase of total sales from new, transition and closed stores that
are not included in comparable store sales, offset by (ii) a $13,778,000
decrease in comparable store sales. Comparable store sales for fiscal 2002
decreased 1.2% compared with fiscal 2001. The Company believes the decline in
comparable store sales for fiscal 2002 was due, in part, to general economic
uncertainty and a difficult retail environment.

Gross profit. Gross profit for fiscal 2002 was $339,822,000, or 28.5% of
sales, a $42,353,000 increase from the $297,469,000, or 24.9% of sales, in gross
profit generated for fiscal 2001. The 3.6% increase in the gross profit rate, as
a percent of sales, in fiscal 2002 compared with fiscal 2001 resulted primarily
from a 3.8% decrease in cost of sales due to: (i) the Company being less
promotional in overall pricing and (ii) favorable shrinkage results (that
benefited fiscal 2002 by 0.5% of the 3.8% decrease in cost of sales), offset by
(iii) a 0.2% increase in occupancy costs that was due to higher occupancy costs
for new and relocated stores and lack of expense leverage.

Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 2002 were $328,375,000, or 27.5% of sales, a
decrease of $622,000 from $328,997,000 for fiscal 2001, or 27.6% of sales. The
0.1% decrease in selling, general and administrative expenses, as a percent of
sales, in fiscal 2002 compared with fiscal 2001 resulted primarily from a
decrease of: (i) 0.5% in payroll costs, and (ii) 0.4% in other selling, general
and administrative expenses, offset by increases of (iii) 0.3% in advertising
and promotional expenses, (iv) 0.3% in legal fees and contingencies, and (v)
0.2% in impairment charges for property and equipment relating to
under-performing stores.

22

Restructuring (credit) charge. The Company recorded a net restructuring
credit of $74,000 in fiscal 2002 and a restructuring charge of $1,335,000 in
fiscal 2001 primarily consisting of severance costs associated with a planned
reduction in work force and professional fees associated with the reduction
program.

Investment income. Investment income for fiscal 2002 decreased by $182,000
compared with fiscal 2001 primarily due to lower rates of return.

Interest expense. Interest expense for fiscal 2002 decreased by $225,000
compared with fiscal 2001. The decrease reflected the absence of borrowings
under the credit facility during fiscal 2002.

Income taxes. The provision for income taxes for fiscal 2002 was
$4,545,000, for an effective tax rate of 37.5% of earnings before income taxes,
compared with a benefit for income taxes of $12,115,000, for an effective tax
rate of 37.5% of loss before income taxes, for fiscal 2001.

Fiscal 2001 Compared with Fiscal 2000

Overview. In fiscal 2001, the Company opened 18 new stores, relocated 9
stores, remodeled 3 stores, and closed 3 stores, bringing the total number of
stores in operation at February 2, 2002 to 332 compared with 317 at February 3,
2001. In fiscal 2000, 32 new stores were opened, 12 stores were relocated, 1
store was remodeled, and 2 stores were closed. The Company sustained a net loss
of $20,191,000, or 1.7% of sales, in fiscal 2001, compared with net earnings of
$13,342,000, or 1.1% of sales, in fiscal 2000.

Sales. Sales for fiscal 2001 (which contained 52 weeks) were
$1,192,546,000, a 4.6% decrease from the $1,250,604,000 for fiscal 2000 (which
contained 53 weeks). This decrease of $58,058,000 consisted of: (i) $15,950,000
in sales from the additional week included in fiscal 2000, (ii) a $98,211,000
decrease in comparable store sales, offset by (iii) a $56,103,000 increase from
new, transition and closed stores that are not included in comparable store
sales. Comparable store sales for fiscal 2001 (on a 52-week basis) decreased
8.5% compared with fiscal 2000. The Company believes the decline in comparable
store sales for fiscal 2001 was due, in part, to the unseasonable weather, the
loss of market share related to ineffective marketing efforts, the events of
September 11, 2001 and the subsequent war, the generally weak economy, and a
very promotional and competitive retail apparel environment.

Gross profit. Gross profit for fiscal 2001 was $297,469,000, or 24.9% of
sales, a $40,547,000 decrease from the $338,016,000, or 27.0% of sales, in gross
profit generated for fiscal 2000. The 2.1% decrease in gross profit rate, as a
percent of sales, in fiscal 2001 compared with fiscal 2000 resulted primarily
from a 1.2% increase in cost of sales, and a 0.9% increase in occupancy costs
which were not leveraged, as a percent of sales, due to the shortfall in
comparable store sales and higher occupancy costs for new and relocated stores.

Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 2001 were $328,997,000, or 27.6% of sales, an
increase of $9,972,000 from $319,025,000 for fiscal 2000, or 25.5% of sales. The
2.1% increase in selling, general and administrative expenses, as a percent of
sales, in fiscal 2001 compared with fiscal 2000 resulted primarily from an
increase of: (i) 0.5% in payroll costs, (ii) 0.5% in advertising and promotional
expenses and (iii) 1.1% in all other selling, general and administrative
expenses.

Restructuring charge. In fiscal 2001, the Company recorded a restructuring
charge of $1,335,000 primarily consisting of severance costs associated with a
planned reduction in work force and professional fees associated with the
reduction program.

Investment income. Investment income for fiscal 2001 decreased by
$1,676,000 compared with fiscal 2000 primarily due to lower rates of return.

Interest expense. Even though borrowing rates were lower in fiscal 2001 as
compared with fiscal 2000, interest expense for fiscal 2001 increased by
$123,000 compared with fiscal 2000 due to higher levels of borrowing in the
third and fourth fiscal quarters of fiscal 2001.

Income taxes. The benefit for income taxes for fiscal 2001 was
$12,115,000, for an effective tax rate of 37.5% of loss before income taxes,
compared with a provision for income taxes of $8,005,000, for an effective tax
rate of 37.5% of earnings before income taxes, for fiscal 2000.

23

LIQUIDITY AND CAPITAL RESOURCES

Financial position

The Company's primary sources of liquidity are cash flows from operations,
including credit terms from vendors and factors, and borrowings under its credit
facility. The Company's working capital was $112,632,000 at February 1, 2003
compared with $85,244,000 at February 2, 2002 and $93,538,000 at February 3,
2001.

In May 2001, the Company entered into a five-year $130,000,000 syndicated
revolving loan and security agreement (the "credit facility") 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, which at
February 1, 2003 aggregated $241,280,000. Of this amount, approximately
$141,250,000 represented the borrowing base, 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
February 1, 2003 was approximately $83,360,000. 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. If this
financial covenant had been applicable at February 1, 2003, the minimum tangible
net worth required would have been $184,196,000. At February 1, 2003, the
Company's tangible net worth was $211,133,000. 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.

At February 1, 2003 and February 2, 2002, the Company had no cash
borrowings under the credit facility, and had letters of credit outstanding not
yet reflected in accounts payables of $31,758,000 and $22,758,000, respectively.
There were no cash borrowings during fiscal 2002 compared with average
borrowings of $5,650,000 during fiscal 2001, with the highest balance of
$38,000,000 in November 2001. Letters of credit outstanding averaged $40,189,000
during fiscal 2002 compared with $36,241,000 during fiscal 2001, with the
highest balance of $51,525,000 in December 2002 compared with $49,169,000 in May
and June 2001. The weighted average interest rates on cash borrowings in fiscal
2001 was 4.4%.

Future Commitments

The table below sets forth the Company's commercial commitments related to
real estate leases for its stores, data processing and equipment leases, service
fees associated with the Company's outsourced shoe distribution function, and
letters of credit:

In fiscal 1999, the Company entered into a split-dollar life insurance
agreement, whereby the Company agreed to pay the premiums for certain
second-to-die policies insuring the lives of Mr. and Mrs. Robert M. Goodfriend,
which policies are owned by a trust for the benefit of the Goodfriends'
children. The Company had planned to pay premiums on such policies of $2.4
million in fiscal 2002, and repay in fiscal 2003 a $1.3 million loan that had
been taken against such policies in fiscal 2001. However, the Company has
postponed premium payments on these split-dollar policies pending clarification
of certain provisions in the Sarbanes-Oxley Act of 2002. The Company has certain
rights under this agreement, including the right to terminate these policies at
any time prior to the occurrence of certain "restricting events." See Note 8 in
the Notes to Consolidated Financial Statements.

In June 1999, the Board of Directors authorized the Company to spend up to
$20 million to repurchase Common Stock. Through February 1, 2003, the Company
repurchased an aggregate of $7.4 million. The Company made no purchases during
fiscal 2002.

24

From time to time the Company enters into certain types of agreements that
contingently require the Company to indemnify parties against third party
claims. Generally, these agreements relate to: (i) agreements with vendors and
suppliers, under which the Company may provide customary indemnification to its
vendors and suppliers in respect of actions they take at the Company's request
or otherwise on its behalf, (ii) an agreement with a private label vendor to
indemnify it against trademark and copyright infringement claims concerning
merchandise it manufactures on behalf of the Company, (iii) real estate leases,
under which the Company may agree to indemnify the landlords for claims arising
from the Company's use of the property, and (iv) agreements with the Company's
officers, directors and employees, under which the Company may agree to
indemnify such persons for liabilities arising out of their relationship with
the Company. The Company's Charter and By-laws also provide for the
indemnification of the Company's directors, officers, employees and agents to
the fullest extent permitted by the Tennessee Business Corporation Act. The
Company has Directors and Officers Liability Insurance, which, subject to the
policy's conditions, provides coverage for indemnification amounts payable by
the Company with respect to its directors and officers up to specified limits
and subject to certain deductibles.

The nature and terms of these types of indemnities vary. The events or
circumstances that would require the Company to perform under these indemnities
are transaction and circumstance specific. Generally, a maximum obligation is
not explicitly stated. Because the obligated amounts of these types of
agreements often are not explicitly stated, the overall maximum amount of the
obligations cannot be reasonably estimated. Historically, the Company has not
incurred significant costs related to performance under these types of
indemnities. No material liabilities have been recorded for these obligations on
the Company's balance sheet as of February 1, 2003.

Cash flows

Operating activities provided cash of $52,864,000, $7,191,000 and
$11,298,000 in fiscal 2002, fiscal 2001 and 2000, respectively, and included the
following effects:

- Cash used for inventories in fiscal 2002 of $52,000 was primarily the
result of the Company managing inventory levels to approximate those
levels at the end of fiscal 2001. Cash provided by inventories in fiscal
2001 was $27,749,000 and cash used for inventories for fiscal 2000 was
$24,826,000.

- Cash used for accounts payable -- trade in fiscal 2002, 2001 and 2000 of
$9,165,000, $14,794,000 and $13,828,000, respectively, was a result of a
lower accounts payable to inventory ratio for fiscal 2002 and fiscal 2000
and lower inventory levels for fiscal 2001.

- Depreciation and amortization expenses were $22,695,000, $23,779,000 and
$20,068,000 in fiscal 2002, 2001 and 2000, respectively. The decrease in
depreciation and amortization in fiscal 2002 was due primarily to lower
capital expenditures for new, relocated and remodeled stores.

Cash flows used in investing activities reflected a $7,165,000, $15,215,000
and $43,277,000 net use of cash for fiscal 2002, 2001 and 2000, respectively.
Cash was used primarily to fund capital expenditures for new, relocated and
remodeled stores, the new distribution center in Russellville, Arkansas (in
fiscal 2000), as well as for upgrading information technology, and for general
corporate purposes.

Financing activities provided cash of $525,000 in fiscal 2002 from the
exercise of stock options. Cash used in financing activities was $920,000 and
$2,570,000 in fiscal 2001 and 2000, respectively. The Company used cash in
fiscal 2000 of $2,931,000 to repurchase 533,000 shares of Common Stock.

Outlook

For fiscal 2003, the Company currently expects to open approximately 10 new
stores, relocate or remodel approximately 14 of its existing stores and close
approximately 5 stores. Additionally, the Company's business plan for fiscal
2003 calls for: (i) comparable store sales to increase in the low single digits
for the full fiscal year, with a larger portion of the increase during the
second half of the fiscal year, (ii) a modest increase in gross profit rate over
fiscal 2002, (iii) a modest increase in selling, general and administrative
expenses with the expense rate modestly decreasing, (iv) an effective income tax
rate of approximately 37.0%, (v) capital expenditures of approximately $22.0
million (most of which is allocated for new and existing stores including new
point-of-sale, scanners and back-office systems for most of its relocated,
remodeled and new stores), and (vi) depreciation of approximately $23.0 million.
Actual results may vary from the business plan and an adverse outcome from the
risks and uncertainties described in the section above captioned "Certain
Factors That May Affect Future Results" could have a material adverse effect on
the Company's fiscal 2003 business plan.

25

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 its credit facility will be sufficient to meet
the Company's operating and capital expenditure requirements. However, an
adverse outcome from the risks and uncertainties described in the section above
captioned "Certain Factors That May Affect Future Results" could have a material
adverse effect on working capital or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has no material investments or risks in market risk sensitive
instruments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the financial statements listed under the heading
"(a)(1) Consolidated Financial Statements" of Item 15 hereof, which financial
statements are incorporated herein by reference in response to this Item 8.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to
information under the captions "Item 1. Election of Directors -- Biographies of
Director Nominees, Directors, and Executive Officers" and "Item 1. Election of
Directors -- Section 16(a) Beneficial Ownership Reporting Compliance" in the
Registrant's Proxy Statement for the 2003 Annual Meeting of Shareholders
currently scheduled to be held on June 18, 2003.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to
information under the caption "Item 1. Election of Directors -- Executive
Compensation and Other Information" in the Registrant's Proxy Statement for the
2003 Annual Meeting of Shareholders currently scheduled to be held on June 18,
2003.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to
information under the caption "Item 1. Election of Directors -- Share Ownership"
in the Registrant's Proxy Statement for the 2003 Annual Meeting of Shareholders
currently scheduled to be held on June 18, 2003.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to
information under the caption "Item 1. Election of Directors -- Certain
Transactions with Directors and Officers" in the Registrant's Proxy Statement
for the 2003 Annual Meeting of Shareholders currently scheduled to be held on
June 18, 2003.

ITEM 14. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this Form 10-K, the Company carried
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-14. Based
upon that evaluation, the Company's Chairman and Chief Executive Officer along
with the Company's Chief Financial Officer and Chief Accounting Officer
concluded that 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 periodic
SEC filings. There have been no significant changes in the Company's internal
controls or in other factors which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.

26

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K

(a)(1) Consolidated Financial Statements

The following consolidated financial statements of Goody's and the
Independent Auditors' Report thereon are included in Item 8 above:

- Independent Auditors' Report.

- Consolidated Statements of Operations for each of the three fiscal years
in the period ended February 1, 2003.

- Consolidated Balance Sheets as of February 1, 2003 and February 2, 2002.

- Consolidated Statements of Cash Flows for each of the three fiscal years
in the period ended February 1, 2003.

- Consolidated Statements of Shareholders' Equity for each of the three
fiscal years in the period ended February 1, 2003.

- Notes to Consolidated Financial Statements for each of the three fiscal
years in the period ended February 1, 2003.

(a)(2) Financial Statement Schedules

All financial statement schedules are omitted as the required information
is inapplicable.

(a)(3) Exhibits

The following Exhibits are incorporated herein by reference or are filed
with this report as indicated below.

EXHIBIT LIST

- ---------------

* The indicated exhibit is a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this Annual Report on Form
10-K:
a Incorporated herein by reference to exhibit of the same number in
Registrant's Registration Statement on Form S-3 (Registration No. 333-32409)
filed on August 18, 1997 and amended on August 25, 1997 and September 3,
1997.
b Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended July 29,
1995 (File No. 019526).

28

c Incorporated herein by reference exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended January 28, 1995 (File No.
019526).
d enforceable. Replacement franchises may require significantly higher fees.
e Incorporated herein by reference to exhibit of the same number in
Registrant's Annual Report on Form 10-K for the year ended February 3, 1996
(File No. 019526).
f Incorporated herein by reference to exhibit of the same number in
Registrant's Annual Report on Form 10-K for the year ended February 1, 1997
(File No. 019526).
g Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended November 1,
1997 (File No. 019526).
h Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended August 1,
1998 (File No. 019526).
i Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31,
1998 (File No. 019526).
j Incorporated herein by reference to exhibit of the same number in
Registrant's Annual Report on Form 10-K for the year ended January 30, 1999
(File No. 019526).
k Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31,
1999 (File No. 019526).
l Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended October 30,
1999 (File No. 019526).
m Incorporated herein by reference to exhibit of the same number in Registrant's
Annual Report on Form 10-K for the year ended January 29, 2000 (File No.
019526).
n Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended July 29,
2000 (File No. 019526).
o Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended October 28,
2000 (File No. 019526).
p Incorporated herein by reference to exhibit of the same number in
Registrant's Annual Report on Form 10-K for the year ended February 3, 2001
(File No. 019526).
q Incorporated herein by reference to exhibit of the same number in
Registrant's Annual Report on Form 8-K/A dated July 3, 2001 (File No.
019526).
r Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended August 3,
2002 (File No. 019526).
s Incorporated herein by reference to exhibit of the same number in
Registrant's Quarterly Report on Form 10-Q for the quarter ended November 2,
2002 (File No. 019526).
t Incorporated herein by reference to exhibit of the same number in
Registrant's Annual Report on Form 10-K for the year ended February 2, 2002
(File No. 019526).

(b) Forms 8-K: -

On November 4, 2002, the Company filed a Current Report on Form 8-K
reporting under item 5 of its issuance of a press release concerning the
termination of negotiations for the previously announced acquisition by a
private equity group.

29

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

By: /s/ ROBERT M. GOODFRIEND
------------------------------------
Robert M. Goodfriend
Chairman of the Board and
Chief Executive Officer

Dated: March 21, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

30

GOODY'S FAMILY CLOTHING, INC.
CERTIFICATION PURSUANT TO
RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert M. Goodfriend, Chairman of the Board and Chief Executive Officer of
the Company, certify that:

1. I have reviewed this annual report on Form 10-K of Goody's Family
Clothing, Inc. (the "registrant");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the consolidated financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

By: /s/ ROBERT M. GOODFRIEND
------------------------------------
Robert M. Goodfriend
Chairman of the Board and Chief
Executive Officer

March 21, 2003

31

GOODY'S FAMILY CLOTHING, INC.
CERTIFICATION PURSUANT TO
RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Edward R. Carlin, Executive Vice President, Chief Financial Officer and
Secretary of the Company, certify that:

1. I have reviewed this annual report on Form 10-K of Goody's Family
Clothing, Inc. (the "registrant");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the consolidated financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

By: /s/ EDWARD R. CARLIN
------------------------------------
Edward R. Carlin
Executive Vice President, Chief
Financial Officer and Secretary

March 21, 2003

32

GOODY'S FAMILY CLOTHING, INC.
CERTIFICATION PURSUANT TO
RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David G. Peek, Senior Vice President and Chief Accounting Officer of the
Company, certify that:

1. I have reviewed this annual report on Form 10-K of Goody's Family
Clothing, Inc. (the "registrant");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the consolidated financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

By: /s/ DAVID G. PEEK
------------------------------------
David G. Peek
Senior Vice President and
Chief Accounting Officer

March 21, 2003

33

GOODY'S FAMILY CLOTHING, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Goody's Family Clothing, Inc.

We have audited the accompanying consolidated balance sheets of Goody's
Family Clothing, Inc. and subsidiaries (the Company) as of February 1, 2003 and
February 2, 2002 and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three fiscal years in the
period ended February 1, 2003. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Goody's Family Clothing, Inc.
and subsidiaries as of February 1, 2003 and February 2, 2002, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended February 1, 2003 in conformity with accounting principles generally
accepted in the United States of America.

DELOITTE & TOUCHE LLP

Atlanta, Georgia
March 17, 2003

F-2

GOODY'S FAMILY CLOTHING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements

F-3

GOODY'S FAMILY CLOTHING, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements

F-4

GOODY'S FAMILY CLOTHING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements

F-5

GOODY'S FAMILY CLOTHING, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

See accompanying notes to consolidated financial statements

F-6

GOODY'S FAMILY CLOTHING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 1, 2003, FEBRUARY 2, 2002 AND FEBRUARY 3, 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business. Headquartered in Knoxville, Tennessee, Goody's
Family Clothing, Inc. and subsidiaries (the "Company") is a retailer of
moderately-priced family apparel with 328 stores in 18 states (all under one
business segment) as of February 1, 2003.

Fiscal year end. The Company's fiscal year ends on the Saturday nearest
the last day of January. Fiscal 2002, 2001 and 2000 refer to the Company's
fiscal years ended February 1, 2003 (52 weeks), February 2, 2002 (52 weeks) and
February 3, 2001 (53 weeks), respectively.

Principles of consolidation. The consolidated financial statements include
the accounts of Goody's Family Clothing, Inc. and its subsidiaries, all of which
are wholly owned. All material intercompany balances and transactions have been
eliminated.

Use of estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Cash and cash equivalents. Cash equivalents consist of highly liquid
investments, such as money market accounts, deposit accounts, government-backed
securities, and overnight repurchase agreements, each with an original maturity
of less than three months. The costs of these investments approximate their fair
market value.

Inventories. Inventories are stated at the lower of weighted average cost
or market. Weighted average cost is computed utilizing specific identification
at the stock-keeping unit level multiplied by the weighted-average cost for such
stock-keeping unit.

Property and equipment. Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed by using the
straight-line method over the estimated useful lives of the assets, which are 40
years for buildings and up to 10 years for other assets. Leasehold improvements
are amortized by the straight-line method over the lesser of the useful lives of
the improvements or the related lease terms. Maintenance and repair costs are
charged directly to expense as incurred. Major renewals or replacements that
substantially extend the useful life of an asset are capitalized and
depreciated.

Impairment of long-lived assets. The Company periodically evaluates its
investment in long-lived assets used in operations at the individual store
level, which is the lowest level individual cash flows can be identified. When
evaluating assets for potential impairment, the Company first compares the
carrying value of the asset to the asset's estimated future cash flows
(undiscounted and without interest charges). If the estimated future cash flows
used in this analysis are less than the carrying amount of the asset, an
impairment loss is recorded. The impairment loss is generally the excess of the
carrying amount of the asset over the asset's estimated fair value (generally
based upon future discounted cash flows.) In addition, decisions to close a
store, prior to the expiration of its underlying lease, generally results in
increased depreciation over the remaining revised useful life of property and
equipment.

Revenue recognition. The Company recognizes revenue from the sale of
merchandise at the time merchandise is sold and the customer takes delivery. At
each period end, an estimate of sales returns is recorded.

The Company changed its method of recording layaway sales in fiscal 2000.
Prior to fiscal 2000, the Company recorded the sale and related gross profit
from a layaway on receipt of the initial layaway deposit from its customers.
Beginning January 30, 2000, the first day of fiscal 2000, the Company recognized
the sale and the related gross profit from layaways upon delivery of the
merchandise to the customer. The pre-tax cumulative effect of this change at
January 30, 2000 was $331,000 and is included in selling, general and
administrative expenses in fiscal 2000.

F-7

GOODY'S FAMILY CLOTHING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Vendor allowances. The Company receives allowances from its vendors from a
variety of programs and arrangements, including markdown reimbursement programs
and co-operative advertising and fixturing programs. Markdown reimbursements are
typically credited to cost of goods sold during the period in which the related
product was sold. Co-operative advertising allowances are reported as a
reduction of advertising expense in the period in which the advertising occurs.
Fixture allowances received from vendors are offset against the related fixture
purchase.

Advertising. For annual financial reporting purposes, the Company expenses
all advertising expenditures as incurred. For interim financial reporting
purposes, the Company expenses advertising expenditures in the period when the
advertisement first runs. Advertising expenses, net of vendor reimbursements,
were $69,477,000, $65,355,000 and $62,795,000 for fiscal 2002, 2001 and 2000,
respectively.

Store opening and closing costs. New and relocated store opening costs are
charged directly to expense when incurred. Through December 31, 2002, when the
Company decided to close or relocate a store, the estimated unrecoverable costs
to be incurred upon or after the store closing, principally consisting of the
remaining lease obligations, were charged to expense. Effective January 1, 2003,
upon adoption of Statement of Financial Accounting Standards No. 146 (see
description under caption "Accounting Pronouncements" below), these estimated
unrecoverable costs are charged to expense when the store is closed.

Insurance. The Company is self-insured for workers' compensation, employee
health benefits and general liability up to a predetermined stop-loss amount.
Third party insurance coverage is maintained for claims that exceed the
predetermined stop-loss amount. The Company's self-insurance accruals are
calculated using loss development factors used by standard insurance industry
actuarial assumptions and the Company's historical claims experience. These loss
development factors utilize historical data to project the future development of
incurred losses. Loss estimates are adjusted based upon actual claims
settlements and reported claims.

Income taxes. Deferred income taxes are recognized for the tax
consequences of temporary differences between the tax and financial reporting
basis of the Company's assets and liabilities based on enacted tax laws and
statutory tax rates applicable to the future years that the differences are
expected to affect taxable income.

Earnings (loss) per common share. Basic earnings (loss) per common share
are computed by dividing net earnings (loss) by the weighted-average number of
common shares outstanding during the period. Diluted earnings per common share
are computed by dividing net earnings by the weighted-average number of common
shares outstanding and potentially dilutive common shares. Weighted-average
diluted shares outstanding differs from weighted-average basic shares
outstanding solely from the effect of dilutive stock options under the treasury
stock method and amounted to 496,000, 59,000 and 112,000 shares for fiscal 2002,
2001 and 2000, respectively. Stock options to purchase 930,000, 2,440,000 and
2,556,000 shares of the Company's common stock in fiscal 2002, 2001 and 2000,
respectively, were excluded from the computation of weighted-average diluted
shares outstanding because they would have been antidilutive.

F-8

GOODY'S FAMILY CLOTHING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock-Based Compensation. At February 1, 2003, the Company had four stock
option plans that are described more fully in Note 5. The Company accounts for
those 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 income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. However, expense is
recorded in connection with stock options issued under the Directors' Plan to
non-employee directors and this expense has been immaterial. The following table
illustrates the effect on net earnings (loss) and earnings (loss) per common
share if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards No. 148 ("SFAS 148"), "Accounting
for Stock-Based Compensation -- Transaction and Disclosure -- an Amendment of
FASB Statement No. 123," to stock-based employee compensation (in thousands,
except per share amounts):

The fair value of the options granted under the Company's various stock
option plans during fiscal 2002, 2001 and 2000 was estimated on their date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions: no dividend yield; expected volatility of 71%, 68% and 58%,
respectively; risk free interest rates of 3.6%, 4.5% and 6.3%, respectively; and
expected lives of seven, five and four years, respectively. The weighted average
fair value of options granted was $3.66, $2.58 and $2.75 for fiscal 2002, 2001
and 2000, respectively.

Contingencies. As discussed in Note 10 to these consolidated financial
statements, the Company is involved in various legal proceedings and
contingencies. The Company has recorded liabilities for these matters in
accordance with Statement of Financial Accounting Standards No. 5, "Accounting
for Contingencies" ("SFAS 5"). SFAS 5 requires the Company to accrue an
estimated loss when the likelihood that the future event or events will confirm
the loss or the incurrence of a liability is probable and the amount of loss can
be reasonably estimated. The actual resolution of these contingencies may differ
from the Company's estimates. If a contingency is settled for an amount greater
than the estimate, a future charge to income would result. Likewise, if a
contingency is settled for an amount that is less than the estimate, a future
credit to income would result.

Comprehensive income. The Company is required to disclose within the basic
consolidated financial statements items of comprehensive income (loss), such as
foreign currency transactions and unrealized gains and losses on
available-for-sale securities. Since the Company has no items that qualify as
comprehensive income (loss), there is no difference between comprehensive income
(loss) and net earnings (loss) for any fiscal year presented.

Accounting Pronouncements. In July 2001, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). This statement
revises the standards for accounting for goodwill and other intangible assets by
not allowing amortization of goodwill and establishing accounting for impairment
of goodwill and other intangible assets. The Company adopted SFAS 142 on
February 3, 2002. To date, the Company has not entered into any business
combinations and has no goodwill or intangible assets that are subject to this
statement. Accordingly, the adoption of SFAS 142 had no impact on the Company's
consolidated financial statements and related disclosures.

F-9

GOODY'S FAMILY CLOTHING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions relating to the disposal of a segment of a
business of Accounting Principles Board Opinion No. 30. The provisions of this
statement provide a single accounting model for impairment of long-lived assets.
The Company adopted SFAS 144 on February 3, 2002; the adoption of this statement
did not have a significant impact on the Company's consolidated financial
statements.

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS 146 supersedes Emerging Issues Task Force Issue No. 94-3. SFAS
146 requires that the liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, not at the date of an
entity's commitment to an exit or disposal plan. The Company adopted SFAS 146 on
January 1, 2003; the adoption of this statement did not have a significant
impact on the Company's consolidated financial statements.

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 ("SFAS 148"), "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an Amendment of FASB Statement No.
123." SFAS 148 amends SFAS 123, "Accounting for Stock-Based Compensation", to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The disclosure provisions of this statement are
effective for financial statements for fiscal years ending after December 15,
2002. The disclosures required by this statement are included in Note 1 above.
The Company is currently assessing the alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation included in this statement. One of these alternatives will
not be available to the Company if it is not adopted during fiscal 2003.

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 are effective for the Company's year
ended February 1, 2003 (see Note 7 to these consolidated financial statements);
the interpretation's accounting requirements are 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
material liabilities have been recorded for these obligations on the Company's
consolidated balance sheet as of February 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 after June 15, 2003, the interpretation applies also to
VIE's created or interests obtained in VIE's before January 31, 2003. The
Company believes this interpretation will have no effect on its financial
position, results of operations or cash flows.

FASB's EITF Issue 02-16, "Accounting By A Customer (Including A Reseller)
For Cash Consideration Received From A Vendor" addressed the accounting
treatment for vendor allowances. The Company has not completed the process of
evaluating the impact of EITF Issue 02-16, however, the Company does not expect
that its adoption in fiscal 2003 will have a material impact on its financial
position, results of operations or cash flows.

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

F-10

GOODY'S FAMILY CLOTHING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following (in thousands):

Impairment charges included in selling, general and administrative costs
for property and equipment were $4,312,000, $1,892,000 and $1,196,000 in fiscal
2002, 2001 and 2000, respectively.

3. CREDIT FACILITY

In May 2001, the Company entered into a five-year $130,000,000 syndicated
revolving loan and security agreement (the "credit facility") 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, which at
February 1, 2003 aggregated $241,280,000. Of this amount, approximately
$141,250,000 represented the borrowing base, 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
February 1, 2003 was approximately $83,360,000. 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.

At February 1, 2003 and February 2, 2002, the Company had no cash
borrowings under the credit facility, and had letters of credit outstanding not
yet reflected in accounts payables of $31,758,000 and $22,758,000, respectively.
There were no cash borrowings during fiscal 2002 compared with average
borrowings of $5,650,000 during fiscal 2001, with the highest balance of
$38,000,000 in November 2001. Letters of credit outstanding averaged $40,189,000
during fiscal 2002 compared with $36,241,000 during fiscal 2001, with the
highest balance of $51,525,000 in December 2002 compared with $49,169,000 in May
and June 2001. The weighted average interest rates on cash borrowings in fiscal
2001 was 4.4%.

F-11

GOODY'S FAMILY CLOTHING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. INCOME TAXES

The provision (benefit) for income taxes for the years indicated consisted
of the following (in thousands):

The provision (benefit) for income taxes differed from the amounts computed
by applying the federal statutory rate to earnings (loss) before income taxes as
follows (in thousands):

The tax effects of temporary differences were as follows (in thousands):

The Company has net operating loss carryforwards for state income tax
purposes aggregating $54,552,000 at February 1, 2003, with expirations ranging
from fiscal 2003 through fiscal 2022. Current deferred tax liabilities are
included in accrued expenses at February 1, 2003 and current deferred tax assets
are included in accounts receivable and other current assets at February 2, 2002
in the accompanying consolidated balance sheets.

5. STOCK OPTIONS

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").

F-12

GOODY'S FAMILY CLOTHING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The 1991 Plan, 1993 Plan and 1997 Plan provide for the grant of
nonqualified and incentive stock options to key employees and directors and
formula options to non-employee directors. The Compensation Committee of the
Board of Directors determines the exercise price (not to be less than the fair
market value of the Common Stock for incentive options or formula options on the
date of grant (based upon the closing sales price of the Common Stock for the
business day immediately preceding the date of grant)) and the vesting and
exercise periods. The options typically vest in equal installments over five
years from the date of grant and are generally exercisable up to 10 years from
the date of grant. The Company is authorized to issue an aggregate of 5,500,000
shares of common stock under the 1993 Plan and 1997 Plan. The 1991 Plan
terminated in September 2001 and the Company is no longer entitled to issue
options thereunder. However, at February 1, 2003, an aggregate of 418,537
options remain outstanding under the 1991 Plan. The 1993 Plan will terminate in
April 2003.

Under the Directors' Plan, non-employee directors may elect to receive
options to purchase Common Stock at an exercise price equal to 50% of the fair
market value of the Common Stock on the date of grant (based upon the closing
sales price of the Common Stock for the business day immediately preceding the
date of grant) in lieu of cash for their director fees. These options vest one
year from the date of grant and are exercisable up to 20 years from the date of
grant. The expense recorded in connection with stock options issued under this
plan has been immaterial. The Company is authorized to issue an aggregate of
500,000 shares of common stock under the Directors' Plan.

A summary of the stock option activity and the related weighted-average
exercise prices for all the option plans is as follows:

The following table summarizes information about stock options outstanding
at February 1, 2003:

F-13

GOODY'S FAMILY CLOTHING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. BENEFIT PLANS

The Company maintains the Goody's Family Clothing, Inc. 401(k) Retirement
Plan (the "401(k) Plan") with a salary deferral feature for all eligible
associates. Under the terms of the 401(k) Plan, eligible associates may
contribute between 3% and 15% of their annual compensation on a pretax basis
(with certain limitations imposed by the Internal Revenue Service) to the 401(k)
Plan. The Company provides matching contributions to the 401(k) Plan that are
determined by the Company on a discretionary basis at the start of each 401(k)
Plan year and committed to for the plan year, vest over an associate's service
period and are based upon a percent of an associate's elected contributions.
These matching contributions amounted to $813,000, $827,000 and $882,000 for
fiscal 2002, 2001 and 2000, respectively.

Until January 30, 2002, the Company also maintained the Goody's Family
Clothing, Inc. Executive Deferral Plan (the "EDP Plan") with a salary deferral
feature for all eligible associates. Under the terms of the EDP Plan, eligible
associates could have contributed up to the lesser of 25% or $30,000 of their
annual compensation on a pretax basis to the EDP Plan. The Company provided
matching contributions to the EDP Plan that were determined by the Company on a
discretionary basis at the start of each EDP Plan year and committed to for the
plan year, vested over an associate's service period and were based upon a
percent of an associate's elected contributions. These matching contributions
were $102,000 and $79,000 in fiscal 2001 and 2000, respectively. On January 30,
2002, the Company's Board of Directors elected to terminate the EDP Plan and
disburse all EDP Plan assets to EDP Plan participants. Such disbursement was
made to EDP Plan participants in February 2002.

The Company also has an Employee Payroll Investment Plan that allows
eligible associates to purchase its Common Stock at fair market value through
regular payroll deductions.

7. COMMITMENTS

The Company leases its stores under operating leases, the majority of which
expire at various times during the next 10 years. The Company can, at its
option, renew most of these leases at rents that are fixed based at their then
current fair rental value. Payments under store leases consist of a fixed
minimum rent, additional rent based on a percent of sales in excess of
stipulated amounts ("percentage rent") and real estate taxes, insurance, and
common area maintenance costs. The Company also leases certain data processing
and store systems equipment.

The future minimum rental payments under operating leases having initial or
remaining non-cancelable lease terms in excess of one year at February 1, 2003
are as follows (in thousands):

Total rental expense for operating leases for fiscal 2002, 2001 and 2000
were $83,451,000, $80,920,000 and $72,541,000, respectively, including
percentage rent of $103,000, $88,000 and $242,000, respectively.

F-14

GOODY'S FAMILY CLOTHING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

From time to time the Company enters into certain types of agreements that
contingently require the Company to indemnify parties against third party
claims. Generally, these agreements relate to: (i) agreements with vendors and
suppliers, under which the Company may provide customary indemnification to its
vendors and suppliers in respect of actions they take at the Company's request
or otherwise on its behalf, (ii) an agreement with a private label vendor to
indemnify it against trademark and copyright infringement claims concerning
merchandise it manufactures on behalf of the Company, (iii) real estate leases,
under which the Company may agree to indemnify the landlords for claims arising
from the Company's use of the property, and (iv) agreements with the Company's
officers, directors and employees, under which the Company may agree to
indemnify such persons for liabilities arising out of their relationship with
the Company. The Company's Charter and By-laws also provide for the
indemnification of the Company's directors, officers, employees and agents to
the fullest extent permitted by the Tennessee Business Corporation Act. The
Company has Directors and Officers Liability Insurance, which, subject to the
policy's conditions, provides coverage for indemnification amounts payable by
the Company with respect to its directors and officers up to specified limits
and subject to certain deductibles.

The nature and terms of these types of indemnities vary. The events or
circumstances that would require the Company to perform under these indemnities
are transaction and circumstance specific. Generally, a maximum obligation is
not explicitly stated. Because the obligated amounts of these types of
agreements often are not explicitly stated, the overall maximum amount of the
obligations cannot be reasonably estimated. Historically, the Company has not
incurred significant costs related to performance under these types of
indemnities. No material liabilities have been recorded for these obligations on
the Company's balance sheet as of February 1, 2003.

8. RELATED PARTY TRANSACTIONS

The Company has entered into the following related party transactions with
respect to Robert M. Goodfriend (the Company's Chairman of the Board and Chief
Executive Officer and beneficial owner of approximately 42% of the Company's
common stock):

During fiscal 1999, the Company entered into a new split-dollar life
insurance agreement (the "Agreement") and therein agreed to pay the premiums for
certain second-to-die policies insuring the lives of Mr. and Mrs. Goodfriend.
These policies are owned by a trust for the benefit of the Goodfriends' children
(the "Trust"). The Company, however, has certain rights including the right to
terminate these policies at any time prior to the occurrence of the following
"restricting events": (i) a change of control (as defined in the Agreement),
(ii) the termination of Mr. Goodfriend's employment by the Company, or (iii)
unless certain conditions are met, the death of Mr. Goodfriend. The Company will
be reimbursed for all premiums paid by it on the policies' termination (subject
to deficiencies in the cash surrender value from the early termination of the
policies prior to a restricting event). The Agreement generally provides that
one-half of the new coverage would terminate should Mr. Goodfriend decrease his
Company ownership below 20%. The Trust has the right, but not the obligation, to
purchase the policies from the Company at any time for a purchase price equal to
the cumulative premiums paid by the Company on the policies; should the policies
be purchased, all of the Company's future obligations would cease.

During fiscal 2002 and 2001, the Company did not pay premiums on the
policies. However, in fiscal 2001 a premium under one of the policies was funded
from a loan taken against the cash surrender value of such policy. The Company
paid premiums for all policies of $4,195,000 in fiscal 2000. The cash surrender
value of all policies covered by the Agreement at February 1, 2003 and February
2, 2002 aggregated $7,733,000 and $7,510,000, respectively; such amounts are
included in other assets. In addition, the Company paid a premium of $47,510 on
a term policy on the life of Mr. Goodfriend in connection with the Agreement
during each of fiscal 2002, 2001 and 2000.

The Company paid rent and taxes amounting to $312,000, $312,000 and
$311,000 for fiscal 2002, 2001 and 2000, respectively, for a store leased from
another trust benefiting Mr. Goodfriend's children. Future commitments at
February 1, 2003 under this related party lease are $1,714,000.

F-15

GOODY'S FAMILY CLOTHING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company had a promissory note payable to its founder and former
chairman, Mike D. Goodfriend, and his wife, who are the parents of Robert M.
Goodfriend. The debt was repaid in January 2001. Interest paid on this debt was
$32,000 during fiscal 2000.

Mr. Robert F. Koppel, a director of the Company, is the President of the
East Tennessee Children's Hospital (the "Hospital") of which Mr. Goodfriend is a
director. The Company facilitates contributions by its employees to the Hospital
through a payroll deduction plan and matches employee contributions to the
Hospital on a 100% basis. The Company also makes additional contributions (in
cash or in kind) to the Hospital. The total amount of contributions paid by the
Company (including employee contributions) to the Hospital in fiscal 2002, 2001
and 2000 were $514,000, $494,800 and $532,000.

9. 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. The following is a rollforward schedule of
the activity related to the restructuring accrual for fiscal 2002 and 2001:

10. 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 expects that
$3.1 million of such payment will be covered by its insurance. 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. If the
Court grants preliminary approval of the proposed Consent Decree, the Court may
determine to schedule a hearing regarding the adequacy and fairness of the
proposed settlement. At such hearing, any objections to the proposed settlement
would be heard and the Court would consider whether to grant final approval.
There can be no assurance that such preliminary or final approvals to the
Consent Decree will be granted or that the settlement will not be overturned on
appeal.

F-16

GOODY'S FAMILY CLOTHING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Hilfiger Matter

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"). The counterfeiting claims arose out of
Goody's sale of t-shirts bearing certain Hilfiger trademarks that Goody's
purchased from certain vendors, which Goody's believed at the time to be
genuine. According to Hilfiger's complaint, these items bore counterfeit
Hilfiger logos. The trademark infringement claims arose out of Goody's sale of
private label denim products. Hilfiger is seeking compensatory damages in excess
of $10 million and damages allowed by statute (including treble damages).

In September 2002, the Court granted Hilfiger's motion for partial summary
judgment as to liability relating to the Goody's sale of counterfeit Hilfiger
t-shirts. The Court determined that Hilfiger is entitled to recover Goody's
profits on those t-shirts in an amount to be determined at trial. The Court
denied Hilfiger's motion for summary judgment in all other respects. The Court
also denied, in its entirety, a motion made by Goody's for summary judgment.

A bench trial for the Hilfiger Matter concluded on March 13, 2003. Post
trial briefs are due to the Court on or about April 11, 2003, after which the
judge is expected to render a decision. Goody's believes that it has meritorious
arguments to limit the amount of damages awarded to Hilfiger on its claims for
counterfeiting and meritorious defenses to Hilfiger's claims of trademark
infringement.

Following the commencement of the Hilfiger Matter, Goody's filed suit in
November 2000 against its suppliers of the counterfeit Hilfiger t-shirts
alleging, among other things, breach of contract and fraudulent
misrepresentation. The sellers asserted certain counterclaims. In October 2002,
the Court entered judgment in favor of Goody's on its claims and denied
defendants' counterclaim. The Court reserved ruling on damages pending the
outcome of the Hilfiger Matter. However, no assurance can be given that Goody's
will be able to collect from the defendants any amount awarded to it as damages.

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 has
certain indemnification obligations to Sun and is paying for the defense of the
Sun Matter. The Sun Matter is in its preliminary stages, and only limited
discovery has been allowed. At Sun's request, the Court has informally stayed
the Sun Matter pending the outcome of the Hilfiger Matter. Goody's believes that
Sun has meritorious defenses to this action and is prepared to defend vigorously
the claims against Sun. In addition, Goody's believes that there may be
insurance coverage available for all or a portion of the liability, if any,
resulting from the Sun Matter. However, the insurers have not yet agreed to
provide indemnity to Goody's for the Sun Matter.

The Company has insurance in an amount which it believes is sufficient to
cover the liability, if any, and legal fees resulting from the Hilfiger Matter.
At the time the Hilfiger Matter commenced, the primary 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 (the "Insurance Matter").
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 have reserved their rights regarding
their obligations to indemnify Goody's against damages resulting from the
Hilfiger claims and the carriers have asserted certain defenses against their
indemnity obligations. As a result, the Company could be required to contribute
to any damage award assessed by the Court.

The results of the three matters described in this section cannot be
predicted with any certainty. An unfavorable resolution of the Hilfiger Matter
and/or the Sun Matter, in conjunction with an adverse outcome of the Insurance
Matter could have a material adverse effect on the Company's financial position,
results of operations or cash flows.

F-17

GOODY'S FAMILY CLOTHING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, after considering all available
information for all legal proceedings (including the matters noted in the
foregoing paragraphs), has recorded an estimate for such liabilities, including
legal fees, as of February 1, 2003. The Company does not currently believe that
the ultimate outcome of all such pending legal proceedings (other than the
matters 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.

11. SELECTED QUARTERLY DATA (UNAUDITED)

Following is a summary of unaudited results of operations for the
respective fiscal quarters (in thousands, except per share amounts):

F-18

CORPORATE INFORMATION

BOARD OF DIRECTORS

Robert M. Goodfriend(3)
Chairman of the Board and
Chief Executive Officer
Goody's Family Clothing, Inc.

Samuel J. Furrow(2)(3)*
Chairman
Furrow Auction Company
Innovo Group, Inc.
Owner
Mercedes Benz of Knoxville
Land Rover of Knoxville
Land Rover of Chattanooga
Advisory Board
AmSouth Bank

Robert F. Koppel(1)(2)*
President
East Tennessee Children's Hospital

Irwin L. Lowenstein(1)(3)
Retired Chairman and CEO
Rhodes Furniture
Director
Schnadig Corp.
Chairman
The Powell Company

Cheryl L. Turnbull(1)*(2)
Managing Director
Banc One Mezzanine Corp.

Committees of the Board of Directors
(1) Compensation Committee
(2) Audit Committee
(3) Nominating Committee
(*) Chairperson

EXECUTIVE AND OTHER OFFICERS

Robert M. Goodfriend Mary Ann Barr Barbara J. Mesecke
Chairman of the Board and Vice President Vice President
Chief Executive Officer Divisional Merchandise Manager Divisional Merchandise Manager
Center Core Junior's
Edward R. Carlin
Executive Vice President Michael R. Bryant Rosalind C. Parneix
Chief Financial Officer Vice President Vice President
and Secretary Distribution - Russellville, AR Divisional Merchandise Manager
Misses Sportswear
Max W. Jones Chris A. Bullard
Executive Vice President Vice President Michael N. Restaino
Merchandising Sales Vice President
Product Development
David R. Mullins Michael D. Burgard
Executive Vice President Vice President Mike H. Teeple
Stores Loss Prevention Vice President
Sales
Robert S. Gobrecht Richard E. Gatian
Senior Vice President Vice President Barbara J. Thoreson
Assistant to the Chairman Treasurer Vice President
Divisional Merchandise Manager
Bruce E. Halverson Donald E. Goett Dresses and Special Sizes
Senior Vice President Vice President
Planning and Allocation Divisional Merchandise Manager Donald R. Whitted
Shoes Vice President
Hazel A. Moxim Sales
Senior Vice President Jeffrey D. Hayes
Human Resources Vice President John G. Wise
Sales Vice President
John J. Okvath, III Visual Merchandising
Senior Vice President Regis J. Hebbeler
Product Development Vice President Lynn R. Youngs
General Counsel and Vice President
John A. Payne Assistant Secretary Store Operations
Senior Vice President
General Merchandise Manager William S. Kegley, Jr.
Men's Vice President
Corporate Controller
David G. Peek
Senior Vice President Donna J. Lerner
Chief Accounting Officer Vice President
Product Development
Jay D. Scussel
Senior Vice President Gregory S. Lurry
Management Information Systems Vice President
Planning and Allocation
Bobby Whaley
Senior Vice President Allen P. Markway
Distribution, Transportation Vice President
and Logistics Divisional Merchandise Manager
Children's

SHAREHOLDER AND INVESTOR INFORMATION

DIVIDEND POLICY

The Company has not paid cash dividends during the last three fiscal
years. The Company currently intends to retain all net earnings for the
development of its business and does not anticipate paying dividends in
the foreseeable future. The payment of future dividends, if any, will
depend upon profitability, financial condition, cash requirements,
future prospects and other factors deemed relevant by the Board of
Directors.

ANNUAL MEETING

The Annual Meeting of Shareholders will be held at 10:00 a.m. on
Wednesday, June 18, 2003, at the Company's headquarters in
Knoxville, Tennessee. Detailed information about the meeting is
contained in the Notice of Annual Meeting and Proxy Statement sent with
a copy of this Annual Report to each shareholder of record as of April
28, 2003.

CORPORATE HEADQUARTERS
Goody's Family Clothing, Inc.
400 Goody's Lane
Knoxville, Tennessee 37922
Tel: (865) 966-2000
Fax: (865) 777-4555

INDEPENDENT AUDITORS

Deloitte & Touche LLP
Atlanta, Georgia

GENERAL COUNSEL

Swidler Berlin Shereff Friedman, LLP
New York, New York

TRANSFER AGENT AND REGISTRAR

Communications concerning shareholder records, the transfer of shares,
lost certificates or change of address should be directed to:

EquiServe Trust Co., N.A.
c/o EquiServe Limited Partnership
P.O. Box 43012
Providence, RI 02940-3012
Tel: (800) 633-4236

GOODY'S WEBSITE

www.goodysonline.com

[GOODY'S LOGO]