-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VigdhQY1O1Q8poX0E49nxIb1eTsZ90xhWH9oCv4/1eQ2XaYmtUbkIbdvjO8adMLI GYedXeDWfzZHXWrnr+pCWw== 0001033525-99-000004.txt : 19990517 0001033525-99-000004.hdr.sgml : 19990517 ACCESSION NUMBER: 0001033525-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GARAN INC CENTRAL INDEX KEY: 0000039917 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 135665557 STATE OF INCORPORATION: VA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04506 FILM NUMBER: 99622237 BUSINESS ADDRESS: STREET 1: 350 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10118 BUSINESS PHONE: 2125632000 MAIL ADDRESS: STREET 1: 350 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10118 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 1999 Commission File No 1-4506 GARAN, INCORPORATED (Exact name of registrant as specified in its charter) VIRGINIA 13-5665557 (State of Incorporation) (I.R.S. Employer Identification No.) 350 Fifth Avenue, New York, NY 10118 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 563-2000 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 than 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Class Outstanding March 31, 1999 Common Stock (no par value) 5,145,237 shares PART I. - FINANCIAL INFORMATION GARAN, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED 3/31/99 3/31/98 ____________ _____________ Net sales $58,656,000 $41,098,000 Cost of sales 43,727,000 31,197,000 ____________ ____________ Gross margin on sales 14,929,000 9,901,000 Selling and administrative expenses 6,808,000 5,632,000 Interest on capitalized leases 22,000 29,000 Interest income (617,000) (817,000) ___________ ___________ Earnings before provision for income taxes 8,716,000 5,057,000 Provision for income taxes 3,530,000 2,035,000 ___________ ___________ Net earnings $ 5,186,000 $ 3,022,000 =========== =========== Earnings per share data: Earnings per share - Basic $ 1.01 $ 0.59 - Diluted $ 1.01 $ 0.59 Average common shares outstanding- Basic 5,141,000 5,090,000 - Diluted 5,176,000 5,129,000 Dividends paid per share $ 0.25 $ 0.20
GARAN, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
SIX MONTHS ENDED 3/31/99 3/31/98 ____________ _____________ Net sales $97,693,000 $78,809,000 Cost of sales 72,651,000 60,091,000 ____________ ____________ Gross margin on sales 25,042,000 18,718,000 Selling and administrative expenses 12,534,000 11,094,000 Interest on capitalized leases 46,000 56,000 Interest income (1,378,000) (1,614,000) ___________ ___________ Earnings before provision for income taxes 13,840,000 9,182,000 Provision for income taxes 5,606,000 3,686,000 ___________ ___________ Net earnings $ 8,234,000 $ 5,496,000 =========== =========== Earnings per share data: Earnings per share - Basic $ 1.60 $ 1.08 - Diluted $ 1.59 $ 1.07 Average common shares outstanding- Basic 5,141,000 5,090,000 - Diluted 5,176,000 5,129,000 Dividends paid per share $ 1.15 $ 0.80
GARAN, INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
03/31/99 9/30/98 ____________ _____________ ASSETS Current Assets: Cash and cash equivalents $ 12,723,000 $ 9,599,000 U.S. Government securities - short-term 16,772,000 22,216,000 Accounts receivable, less estimated uncollectibles of $518,000 at 3/31/99 and $517,000 at 9/30/98 31,613,000 42,563,000 Inventories 42,988,000 32,776,000 Other current assets 5,477,000 4,962,000 Total current assets 109,573,000 112,116,000 U.S. Government Securities - Long-term 18,379,000 15,315,000 Property, plant and equipment, less accumulated depreciation and amortization 14,028,000 13,345,000 Other assets 5,710,000 5,397,000 TOTAL $ 147,690,000 $ 146,173,000 ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 9,356,000 $ 8,555,000 Accrued liabilities 17,979,000 18,575,000 Federal and state income taxes payable 2,741,000 4,000,000 Current portion of capitalized leases 137,000 137,000 Total current liabilities 30,213,000 31,267,000 Capitalized lease obligations, net of current portion 2,123,000 2,170,000 Deferred income taxes 3,044,000 3,029,000 Shareholders' Equity: Preferred stock ($10 par value) 500,000 shares authorized; none issued Common stock (no par value) 15,000,000 shares authorized; issued 5,145,237 at 3/31/99 and 5,128,719 at 9/30/98 2,573,000 2,564,000 Additional paid-in-capital 7,063,000 6,792,000 Retained earnings 102,674,000 100,351,000 Total shareholders' equity 112,310,000 109,707,000 TOTAL $ 147,690,000 $ 146,173,000 ============ =============
GARAN, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED 3/31/99 3/31/98 _____________ _____________ Cash Flows From Operating Activities: Net earnings $ 8,234,000 $ 5,496,000 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 1,769,000 1,481,000 Provision for losses on accounts 0 10,000 receivable Deferred income taxes 15,000 (60,000) Changes in assets and liabilities: U.S. Government securities - Short-term 9,994,000 (3,877,000) Accounts receivable 10,950,000 9,696,000 Inventories (10,212,000) (8,969,000) Other current assets (515,000) 99,000 Accounts payable 801,000 1,490,000 Accrued liabilities (596,000) (1,710,000) Income taxes payable (1,259,000) (616,000) Other assets (313,000) 154,000 Net Cash Provided by Operating 18,868,000 3,194,000 Activities ____________ ____________ Cash Flows From Investing Activities: Sale of U.S. Gov't securities - Long-term 6,958,000 4,054,000 Purchase of U.S. Gov't securities - Long-term (14,572,000) (4,794,000) Additions to property, plant, and (2,452,000) (1,878,000) equipment Net Cash used for Investing Activities (10,066,000) (2,618,000) ____________ ____________ Cash Flows From Financing Activities: Payment of dividends (5,911,000) (4,064,000) Repayment of capitalized lease obligations (47,000) (604,000) Proceeds from exercised stock options 280,000 904,000 Net Cash used for Financing Activities (5,678,000) (3,764,000) Net increase (decrease)in Cash and Cash Equivalents 3,124,000 (3,188,000) Cash and Cash Equivalents At Beginning of Period 9,599,000 8,660,000 Cash and Cash Equivalents At End of Period $ 12,723,000 $ 5,472,000 ============ ============ Supplemental cash flow Disclosures Cash Paid During The Period For: Interest $ 46,000 $ 56,000 Income taxes 6,845,000 4,470,000 ============ ============
GARAN, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 (UNAUDITED) 1. In the opinion of management, all adjustments necessary to a fair statement of the results of operations have been reflected. 2. Basic and diluted earnings per share, which are calculated on the basis of the weighted average number of common shares outstanding during the period in accordance with the provisions of the Statements of Financial Accounting Standards No. 128, are as follows: 1999 1998 ----------------------------- ------------------------------- Income Shares Per Share Income Shares Per Share Basic EPS $8,234,000 5,141,000 $1.60 $5,496,000 5,090,000 $1.08 ========= ======== Effect of dilutive options 35,000 39,000 ------------------- ---------------------- $8,234,000 5,176,000 $1.59 $5,496,000 5,129,000 $1.07 ============================= =============================== 3. Inventories consist of the following:
03/31/99 09/30/98 ____________ _____________ Raw Materials $ 7,575,000 $ 7,305,000 Work in Process 7,688,000 5,560,000 Finished Goods 27,725,000 19,911,000 ___________ ____________ $42,988,000 $32,776,000 =========== ===========
ITEM 2. GARAN, INCORPORATED AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report contain "forward-looking statements" based upon management's expectations and beliefs concerning future events impacting the registrant. Actual results of operations or financial condition may differ because of business conditions in the apparel industry generally, competition, the addition or loss of significant customers or personnel, the timing of orders placed by the registrant's customers, and such other risk factors as may be identified from time to time in the registrant's filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS Three and Six Month Periods Ended March 31, 1999, and March 31, 1998 Net sales for the second quarter of fiscal 1999 were $58,656,000 compared to $41,098,000 for the comparable period last year. Net sales for the first six months of fiscal 1999 were $97,693,000 compared to $78,809,000 for the comparable period last year. The improvement in sales for both periods was the result of increased unit demand combined with accelerated delivery requirements in replenishment programs mainly in the registrant's Infants and Toddler and Women's Plus Divisions. Gross margin for the three months ended March 31, 1999, was $14,929,000 or 25.4% of net sales, compared to $9,901,000 or 24.1% of net sales for the comparable period last year. Gross margin for the six months ended March 31, 1999, was $25,042,000 or 25.6% of net sales, compared to $18,718,000 or 23.7% of net sales for the comparable period last year. The gross margin increase in dollars for both periods was a result of the increased sales noted in the prior paragraph. The gross margin increase as a percentage of net sales for both periods was due primarily to improvements in absorption of manufacturing overhead expenses as a result of volume increase. Selling and administrative expenses for the three months ended March 31, 1999, were $6,808,000 or 11.6% of net sales, as compared to $5,632,000 or 13.7% of net sales for the comparable period last year. Selling and administrative expenses for the six months ended March 31, 1999, were $12,534,000 or 12.8% of net sales, as compared to $11,094,000 or 14.1% of net sales for the comparable period last year. Spending for advertising, continued investment in upgrading internal operating systems, and an increase in plant shipping expenses related to volume accounted for most of the dollar increase in both periods. The dollar increase in both periods was at a lower rate than the increase in net sales noted in the first paragraph. Accordingly, the decrease in selling and administrative expenses as a percentage of net sales was a direct result of the increased sales volume over the same periods in fiscal 1998. Interest income decreased for the three months ended March 31, 1999, to $617,000 from $817,000 for the comparable period last year. Interest income for the six months ended March 31, 1999, was $1,378,000 as compared to $1,614,000 for the comparable period last year. The decrease in interest income for both periods was due primarily to a reduction in interest rates for short-term U.S. Government obligations. FINANCIAL CONDITION At March 31, 1999, working capital was $79,360,000, a decrease of $1,489,000 from the September 30, 1998, working capital of $80,849,000. The decrease was due primarily to a decrease in accounts receivable and government securities maturing in less than one year, offset by a seasonal increase in inventory. Shareholders' equity at March 31, 1999, was $112,310,000 or $21.83 book value per share, as compared to $109,707,000 or $21.39 book value per share at September 30, 1998. Accounts receivable were $31,613,000 at March 31, 1999, a decrease of $10,950,000 over the balance at September 30, 1998. Because the registrant's business is seasonal, the receivable balance should be compared to the balance of $21,386,000 at March 31, 1998, rather than the September 30, 1998, year-end balance. The increase in the receivable balance at March 31, 1999, as compared to the balance at March 31, 1998, resulted from the 42.7% increase in net sales in the second quarter of fiscal 1999 over the same quarter in fiscal 1998. Inventory increased to $42,988,000 from $32,776,000 at September 30, 1998, an increase of 32.2%. Because the registrant's business is seasonal, the inventory should be compared to the inventory of $42,700,000 at March 31, 1998, when the inventory level was essentially the same, rather than the September 30, 1998, year-end balance. The inventory increase from September 30, 1998, to March 31, 1999, was due to the seasonal nature of the registrant's business and increases in inventory to support the registrant's increased demand, reduced by accelerated delivery requirements. Year 2000 "Year 2000" or "Y2k" compliance means the ability to process and receive, with retained functionality, date and time data for periods before and after the turn of the century. Certain time-sensitive computer programs written using only two digits to define a year may recognize a date using "00" as the year 1900 or some other year than year 2000, which could result in miscalculations and system failures. In 1996, in recognition of the potential impact of such computer program problems, the registrant assigned resources to prepare for Y2k, and efforts have been underway since then to minimize the risk of potential disruption to business operations. The registrant recognized that its Y2k problems also could potentially extend to non-IT (information technology) systems such as time clocks, security systems, telephone systems, as well as other items, Y2k failures on the part of the suppliers, distributors, licensees, and contractors, and potential failures in public and private infrastructure services, including electricity, water, gas, transportation, and communications. The registrant established a Year 2000 plan according to a six step process that included (1) an inventory of all computer hardware, software, and communication systems plus critical non-IT systems, (2) risk assessment, (3) a research and strategy program, (4) remediation, (5) testing and certification, and (6) contingency planning. 1. Inventory. The registrant performed a complete review of all software, hardware, and communication components of its systems as well as key non-IT systems such as telephone systems, security systems, and time clocks. This review involved over 100 employees, visits to all facilities, and required several thousand hours to complete. 2. Risk Assessment. The registrant assigned risks to approximately 60 categories which were used as the basis for developing priorities and schedules. 3. Research and Strategy. Each issue was reviewed for potential solutions. As a result of this process, the registrant decided it was more cost effective to replace most of its software components to improve overall system functionality and resolve the Y2k readiness issue at the same time. The registrant used the replacement opportunity to move from a decentralized structure to a centralized structure to allow real-time updating and access to information from all domestic and offshore plants. The centralized strategy also will position the registrant to conduct business more collaboratively with key customers who have developed sophisticated systems. 4. Remediation. The registrant selected new software packages for financials, electronic data interchange ("EDI"), customer order processing, distribution, warehousing, and manufacturing. Computer hardware and communication plans were developed to support the implementation of new software packages. To date, the registrant has implemented new financial software, including general ledger, accounts payable, and fixed assets. These systems were implemented at the beginning of the 1999 fiscal year. The registrant also has installed a new distribution system to be implemented at all shipping facilities. To date this centralized distribution system is installed at 8 shipping facilities with the remaining 3 shipping facilities, including a new warehouse and distribution facility, to be installed before the end of June, 1999. New EDI and customer order processing systems will be implemented together in phases designated by customers. The first two major customers were implemented as of the end of April, 1999. Implementation of the 3rd major customer has been planned for completion by the end of May, 1999. All other customers will be implemented onto the new systems by the end of June, 1999. Implementation of the new accounts receivable system is planned for completion by the end of the 1999 fiscal year. A new payroll system for domestic manufacturing employees will be selected by the end of May, 1999 and implemented by the end of December, 1999. All systems related to recording production, transfer, and movement of inventory will be implemented in all 21 operating facilities before the end of December, 1999. As part of this process, the registrant added a new warehousing system not driven by "Year 2000" readiness issues, of which carton control is the major aspect, to be implemented at several key plants before the end of December, 1999. The remaining plants will most likely be implemented during 2000. 5. Testing and Certification. Test environments have been established for all systems, and functional specialists have been reviewing the results for correctness. The registrant expects all critical and important IT systems, including all EDI systems with customers and suppliers, to have been tested and certified by the end of August, 1999. The registrant has purchased software tools to audit and insure software compliance as well as developed plans for test runs of various dates crossing century boundaries. The outcome of these tests will identify any non-compliant components needing adjustment. 6. Contingency Planning. As a precautionary measure, the registrant will develop contingency plans for all systems that are not expected to be Y2k compliant by August, 1999, although the registrant does not believe these to be material. A variety of automated as well as manual fallback plans will be considered. The registrant estimates that all of these plans will be completed by December 1999. While the primary thrust behind the replacement of existing software with new systems has been improved functionality, the impact of Y2k readiness issues accelerated implementation plans. Total costs are approximately $2,500,000 including capital outlays for the software, services, hardware, and communication components of the plans, all but approximately $250,000 of which has been expended to date. The source of funds has been current working capital. Based upon its efforts to date, the registrant believes that the vast majority of both its IT and its non-IT systems, including all critical and important systems, will function properly after January 1, 2000. The registrant will jointly test all EDI systems with both customers and suppliers and is expected to complete the testing process before the end of the 1999 fiscal year. Through this process any non-compliant components will be adjusted or workarounds developed. The registrant also will continue its efforts to confirm that major third-party businesses and its public and private providers of infrastructure services, such as utilities, communications services, and transportation also will be prepared for the Year 2000. Accordingly, the registrant does not currently anticipate that internal systems failures will result in any material adverse effect to its operations or financial condition. At this time, the registrant believes that the most likely "worst-case" scenario involves potential disruptions in areas in which the registrant's operations must rely on third parties whose systems may not work properly after January 1, 2000, including failures impacting on the registrant's Central American operations. While such failures could affect important operations of the registrant, either directly or indirectly, the registrant cannot at present estimate either the likelihood or the potential cost of such failures. Qualitative and Quantitative Disclosure about Market Risk The registrant does not believe it is exposed to market risks with respect to any of its investments; the registrant does not utilize market rate sensitive instruments for trading or other purposes. The registrant's investments consist primarily of U.S. Government obligations with maturities of four years or less. PART II. - OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders. At the 1999 Annual Meeting of the shareholders of the registrant held on February 26, 1999, Richard A. Lichtenstein, Seymour Lichtenstein, and Marvin S. Robinson were reelected as directors of the registrant, and the selection of Citrin Cooperman & Company, LLP as the registrant's independent certified public accountants for the fiscal year ending September 30, 1999, was ratified. The tabulation of the votes is as follows: Votes For Votes Withheld ------------- -------------- Richard A. Lichtenstein 4,334,639 50,353 Seymour Lichtenstein 4,356,199 28,793 Marvin S. Robinson 4,334,598 50,394 The names of the registrant's other directors who continued in office after the 1999 Annual Meeting are: Stephen J. Donohue, Rodney Faver, Jerald Kamiel, Frank Martucci, Perry Mullen, and William J. Wilson. Votes For Votes Against Abstain ------------- -------------- ----------- Ratification of Accountants 4,382,902 504 1,586 ITEM 6. Exhibits and Reports on Form 8-K. a. Exhibits Exhibit 27. Financial Data Schedule b. Reports on Form 8-K No reports have been filed on Form 8-K during the quarter ended March 31, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GARAN, INCORPORATED BY:Seymour Lichtenstein Seymour Lichtenstein Principal Executive Officer BY:William J. Wilson William J. Wilson Principal Financial Officer DATE: May 14, 1999 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF EARNINGS AND BALANCE SHEETS OF GARAN, INCORPORATED AND SUBSIDIARIES ANNEXED HERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000039917 GARAN, INCORPORATED 3-MOS 6-MOS SEP-30-1999 SEP-30-1999 JAN-1-1999 OCT-1-1999 MAR-31-1999 MAR-31-1999 12,723,000 12,723,000 16,772,000 16,772,000 32,131,000 32,131,000 518,000 518,000 42,988,000 42,988,000 109,573,000 109,573,000 35,629,000 35,629,000 21,601,000 21,601,000 147,690,000 147,690,000 30,213,000 30,213,000 2,123,000 2,123,000 2,573,000 2,573,000 0 0 0 0 109,737,000 109,737,000 147,690,000 147,690,000 58,656,000 97,693,000 58,656,000 97,693,000 43,727,000 72,651,000 43,727,000 72,651,000 0 0 0 0 22,000 46,000 8,716,000 13,840,000 3,530,000 5,606,000 0 0 0 0 0 0 0 0 5,186,000 8,234,000 1.01 1.60 1.01 1.59
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