10-Q 1 r10q-331.txt FORM 10-Q 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, 2001 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, 2001 Common Stock (no par value) 5,082,837 shares GARAN, INCORPORATED AND SUBSIDIARIES FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Page # Item 1. Consolidated Statements of Earnings Three Months Ended March 31, 2001 and 2000 3 Consolidated Statements of Earnings Six Months Ended March 31, 2001 and 2000 4 Consolidated Balance Sheets March 31, 2001 and September 30, 2000 5 Consolidated Statements of Cash Flows Six Months ended March 31, 2001 and 2000 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Qualitative and Quantitative Disclosure about Market Risk 10 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 PART I. - FINANCIAL INFORMATION GARAN, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) THREE MONTHS ENDED 3/31/01 3/31/00 ----------- ----------- Net sales $56,685,000 $54,668,000 Cost of sales 40,305,000 41,261,000 ----------- ----------- Gross margin on sales 16,380,000 13,407,000 Selling and administrative expenses 7,515,000 7,374,000 Interest on capitalized leases 21,000 22,000 Interest income (542,000) (719,000) ----------- ----------- Earnings before provision for income taxes 9,386,000 6,730,000 Provision for income taxes 3,848,000 2,793,000 ----------- ----------- Net earnings $ 5,538,000 $ 3,937,000 =========== =========== Earnings per share data: Earnings per share - Basic $ 1.09 $ 0.74 - Diluted $ 1.08 $ 0.74 Average common shares outstanding - Basic 5,083,000 5,322,000 - Diluted 5,105,000 5,348,000 Dividends paid per share $ 0.25 $ 0.25 GARAN, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) SIX MONTHS ENDED 3/31/01 3/31/00 ----------- ----------- Net sales $111,738,000 $108,013,000 Cost of sales 81,769,000 83,208,000 ----------- ----------- Gross margin on sales 29,969,000 24,805,000 Selling and administrative expenses 14,780,000 13,970,000 Interest on capitalized leases 50,000 46,000 Interest income (1,158,000) (1,383,000) ----------- ----------- Earnings before provision for income taxes 16,297,000 12,172,000 Provision for income taxes 6,682,000 5,051,000 ----------- ----------- Net earnings $ 9,615,000 $ 7,121,000 =========== =========== Earnings per share data: Earnings per share - Basic $ 1.89 $ 1.34 - Diluted $ 1.88 $ 1.33 Average common shares outstanding- Basic 5,083,000 5,322,000 - Diluted 5,105,000 5,348,000 Dividends paid per share $ 1.30 $ 1.30 GARAN, INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) 03/31/01 9/30/00 ASSETS ------------- ------------ Current Assets: Cash and cash equivalents $ 21,454,000 $ 14,580,000 U.S. Government securities - short-term 8,491,000 6,436,000 Accounts receivable, less estimated uncollectibles of $509,000 at 3/31/01 and $512,000 at 9/30/00 36,704,000 53,732,000 Inventories 58,264,000 47,757,000 Other current assets 6,716,000 6,475,000 ----------- ----------- Total current assets 131,629,000 128,980,000 U.S. Government Securities - Long-term 9,550,000 7,695,000 Property, plant and equipment, less accumulated depreciation and amortization 17,604,000 18,878,000 Other assets 7,063,000 8,039,000 ------------ ------------ TOTAL ASSETS $ 165,846,000 $ 163,592,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 11,120,000 $ 10,417,000 Accrued liabilities 18,954,000 21,263,000 Federal and state income taxes payable 4,380,000 4,369,000 Current portion of capitalized leases 240,000 240,000 ------------ ------------ Total current liabilities 34,694,000 36,289,000 ------------ ------------ Capitalized lease obligations, net of current portion 1,890,000 1,910,000 Deferred income taxes 2,158,000 1,903,000 ------------ ------------ Shareholders' Equity: Preferred stock ($10 par value) 500,000 shares authorized; none issued Common stock (no par value) 15,000,000 shares authorized; issued 5,082,837 at 3/31/01 and 5,072,337 at 9/30/00 2,541,000 2,536,000 Additional paid-in-capital 6,501,000 6,327,000 Unamortized value of restricted stock (2,647,000) (3,073,000) Retained earnings 120,709,000 117,700,000 ------------ ------------ Total shareholders' equity 127,104,000 123,490,000 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 165,846,000 $ 163,592,000 ============= ============= GARAN, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED 3/31/01 3/31/00 Cash Flows From Operating Activities: ------------- ------------ Net earnings $ 9,615,000 $ 7,121,000 Adjustments to reconcile to net cash provided by operating activities: Deferred compensation 426,000 426,000 Depreciation and amortization 3,662,000 2,378,000 Deferred income taxes 255,000 (335,000) Changes in assets and liabilities: U.S. Government securities - Short-term (1,884,000) (5,916,000) Accounts receivable 17,028,000 28,130,000 Inventories (10,507,000) (11,845,000) Other current assets (241,000) (568,000) Accounts payable 703,000 248,000 Accrued liabilities (2,309,000) (1,230,000) Income taxes payable 11,000 (3,682,000) Other assets 976,000 121,000 Net Cash Provided by Operating ------------ ------------ Activities 17,735,000 14,848,000 ------------ ------------ Cash Flows From Investing Activities: Purchase of U.S. Gov't securities - Long-term (2,026,000) (13,129,000) Additions to property, plant, and Equipment (2,388,000) (3,212,000) ------------ ------------ Net Cash used for Investing Activities (4,414,000) (16,341,000) ------------ ------------ Cash Flows From Financing Activities: Payment of dividends (6,606,000) (6,917,000) Repayment of capitalized lease obligations (20,000) (20,000) Proceeds from exercised stock options 179,000 274,000 ------------ ------------ Net Cash used for Financing Activities (6,447,000) (6,663,000) ------------ ------------ Net (decrease) increase in Cash and Cash Equivalents 6,874,000 (8,156,000) Cash and Cash Equivalents At Beginning of Period 14,580,000 12,952,000 ------------ ------------ Cash and Cash Equivalents At End of Period $ 21,454,000 $ 4,796,000 ============ ============ Supplemental cash flow Disclosures Cash Paid During The Period For: Interest $ 50,000 $ 46,000 Income taxes 6,251,000 8,891,000 ============ ============ GARAN, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (UNAUDITED) 1. In the opinion of management, all adjustments necessary for a fair statement of the results of operations have been reflected. 2. Basic and diluted earnings per share 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 as follows: 2001 2000 ----------------------------- ------------------------------- Income Shares Per Share Income Shares Per Share Basic EPS $9,615,000 5,083,000 $1.89 $7,121,000 5,322,000 $1.34 ========= ======== Effect of dilutive options 22,000 26,000 ------------------- ---------------------- $9,615,000 5,105,000 $1.88 $7,121,000 5,348,000 $1.33 ============================= =============================== 3. Inventories consist of the following: 03/31/01 09/30/00 ----------- ----------- Raw Materials $ 9,146,000 $ 8,338,000 Work in Process 8,487,000 8,817,000 Finished Goods 40,631,000 30,602,000 ----------- ----------- $58,264,000 $47,757,000 =========== =========== ITEM 2. GARAN, INCORPORATED AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Some of the information presented in this Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report includes 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, that involve certain risks and uncertainties. Discussions containing such forward-looking statements may be found in the material set forth below and in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2000, which is incorporated by reference herein. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. The Company's actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors including, but not limited to, uncertainties regarding continued market acceptance of the Company's products, competition, the Company's relationship with its principal customer, and the consistent availability of raw materials and risks associated with the Company's Central American operations, as well as those identified in the incorporated report under the heading "Risk Factors". These forward-looking statements are made as of the date of the incorporated report or this report, as the case may be, and the Company assumes no obligation to update such forward-looking statements or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements. Net Sales Three and Six-Month Periods Ended March 31, 2001 and March 31, 2000 Net sales for the three-month period ended March 31, 2001, were $56,685,000 compared to $54,668,000 for the same period last year. Net sales for the first six months of fiscal 2001 were $111,738,000 compared to $108,013,000 for the same period last year. Net earnings for the three-month period were $5,538,000, or $1.09 per share, compared to $3,937,000, or $0.74 per share, last year. Net earnings for the six-month period were $9,615,000, or $1.89 per share, compared to $7,121,000, or $1.34 per share, last year. The sales increase for the three and six months periods was a result of increased units shipped in the Company's Childrenswear Division. Gross Margin Gross margin for the three months ended March 31, 2001, was $16,380,000, or 28.9% of net sales, compared to $13,407,000, or 24.5% of net sales, for the comparable period in fiscal 2000. Gross margin for the six months ended March 31, 2001, was $29,969,000, or 26.8% of net sales, compared to $24,805,000, or 23.0% of net sales, for the comparable period last year. The gross margin increase for the three and six month periods was due to a combination of (a) the initial impact of duty savings as a result of lower effective duty rates on a portion of the Company's Caribbean Basin production which was within current quotas, (b) lower production costs as a result of shifting more production offshore, (c) lower costs associated with improved manufacturing efficiencies, and (d) product mix changes. The Company is a beneficiary of the Trade and Development Act of 2000 pursuant to which a portion of its garments produced in the Caribbean Basin may be imported free of duty limited, in certain instances, by annual quota. Selling and administrative expenses for the three months ended March 31, 2001, were $7,515,000, or 13.3% of net sales, as compared to $7,374,000, or 13.5% of net sales, for the comparable period last year. Selling and administrative expenses for the six months ended March 31, 2001, were $14,780,000, or 13.2% of net sales, as compared to $13,970,000, or 12.9% of net sales, for the comparable period last year. The increase in absolute dollars for both periods was related to the increased sales and the continued upgrade of computer systems. Interest income for the three months ended March 31, 2001, decreased to $542,000 from $719,000 for the comparable period last year. Interest income for the six months ended March 31, 2001, was $1,158,000 as compared to $1,383,000 for the comparable period last year. The decrease in interest income for both periods was due primarily to a decline in the level of investments. Financial Position At March 31, 2001, working capital was $96,935,000, an increase of $4,244,000 from working capital at September 30, 2000, of $92,691,000. The increase was due primarily to a reduction in accrued liabilities and an increase in inventory. Shareholders' equity at March 31, 2001, was $127,104,000 or $25.01 book value per share as compared to $123,490,000 or $24.34 book value per share at September 30, 2000. Accounts receivable were $36,704,000 at March 31, 2001, a decrease of $17,028,000 from the balance at September 30, 2000. Because the Company's business is seasonal, the accounts receivable balance should be compared to the balance of $31,251,000 at March 31, 2000, rather than the September 30, 2000, year-end balance. The difference is related to increased sales in the 2001 quarter over the 2000 quarter and changes in shipping patterns. Inventory increased to $58,264,000 from $47,757,000 at September 30, 2000. Because the Company's business is seasonal, the inventory should be compared to the inventory of $49,178,000 at March 31, 2000, rather than the September 30, 2000, year-end balance. The inventory increase is due primarily to the seasonal nature of the Company's business as the Company seeks to build inventory to support anticipated demand in the second half of fiscal 2001. Event Subsequent To March 31, 2001 On April 30, 2001, the Company's Board of Directors authorized the Company to offer to purchase up to 700,000 shares of its Common Stock (including the associated Common Stock Purchase Rights) at a purchase price not in excess of $30.00 nor less than $26.00 per share. The tender offer commenced on May 4, 2001, and will expire on June 6, 2001, unless extended, in accordance with the terms and conditions set forth in the Offer to Purchase and related documents filed by the Company with the Securities and Exchange Commission on May 4, 2001, as part of Amendment No. 1 to a Schedule TO (Tender Offer). Item 3: Qualitative and Quantitative Disclosure About Market Risk The Company does not believe it is exposed to market risks with respect to any of its investments; the Company does not utilize market rate sensitive instruments for trading or other purposes. The Company's investments consist primarily of U.S. Government securities with maturities of two years or less. PART II. - OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders. At the 2001 Annual Meeting of the shareholders of the Company held on March 2, 2001, Rodney Faver, Frank Martucci, and Perry Mullen were reelected as directors of the Company, and the selection of Citrin Cooperman & Company, LLP as the Company's independent certified public accountants for the fiscal year ending September 30, 2001, was ratified. The names of the Company's other directors who continued in office after the 2001 Annual Meeting are: Stephen J. Donohue, Jerald Kamiel, Richard A. Lichtenstein, Seymour Lichtenstein, Marvin S. Robinson, and William J. Wilson. The tabulation of the votes is as follows: Votes For Votes Withheld ------------- -------------- Rodney Faver 4,668,260 15,724 Frank Martucci 4,471,094 212,890 Perry Mullen 4,676,583 7,401 Votes For Votes Against Abstain ------------- -------------- ----------- Ratification of Accountants 4,682,728 402 854 ITEM 6. Exhibits and Reports on Form 8-K. a. Exhibits None. b. Reports on Form 8-K No reports have been filed on Form 8-K during the quarter ended March 31, 2001. 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 11, 2001 12