10-Q 1 garan10q.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 December 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 December 31, 2001 Common Stock (no par value) 4,500,087 shares GARAN, INCORPORATED AND SUBSIDIARIES FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Page # Item 1. Consolidated Statements of Earnings Three Months Ended December 31, 2001 and 2000 3 Consolidated Balance Sheets December 31, 2001 and September 30, 2001 4 Consolidated Statements of Cash Flows Three Months ended December 31, 2001 and 2000 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Qualitative and Quantitative Disclosure about Market Risk 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 9 Signatures 10 PART I. - FINANCIAL INFORMATION GARAN, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) THREE MONTHS ENDED 12/31/01 12/31/00 ----------- ----------- Net sales $55,666,000 $55,053,000 Cost of sales 40,350,000 41,464,000 ----------- ----------- Gross margin on sales 15,316,000 13,589,000 Selling and administrative expenses 7,569,000 7,265,000 Interest on capitalized leases 13,000 29,000 Interest income (352,000) (616,000) ----------- ----------- Earnings before provision for income taxes 8,086,000 6,911,000 Provision for income taxes 3,316,000 2,834,000 ----------- ----------- Net earnings $ 4,770,000 $ 4,077,000 =========== =========== Earnings per share data (see Note 2): Earnings per share - Basic $ 1.06 $ 0.80 - Diluted $ 1.05 $ 0.80 Average common shares outstanding - Basic 4,494,000 5,078,000 - Diluted 4,531,000 5,098,000 Dividends paid per share $ 1.15 $ 1.05 See notes to consolidated financial statements. -3- GARAN, INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) 12/31/01 9/30/01 ASSETS ------------- ------------ Current Assets: Cash and cash equivalents $ 40,183,000 $ 33,881,000 U.S. Government securities - short-term 7,907,000 0 Accounts receivable, less allowance for uncollectibles of $1,193,000 at 12/31/01 and $493,000 at 9/30/01 34,172,000 59,301,000 Inventories 38,423,000 41,596,000 Other current assets 8,188,000 7,092,000 ----------- ----------- Total current assets 128,873,000 141,870,000 U.S. Government Securities - Long-term 3,500,000 3,500,000 Property, plant and equipment, less accumulated depreciation and amortization 16,522,000 16,109,000 Other assets 6,480,000 6,554,000 ------------ ------------ TOTAL ASSETS $ 155,375,000 $ 168,033,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 7,165,000 $ 11,609,000 Accrued liabilities 17,729,000 20,573,000 Federal and state income taxes payable 5,053,000 9,945,000 Current portion of capitalized leases 200,000 220,000 ------------ ------------ Total current liabilities 30,147,000 42,347,000 ------------ ------------ Capitalized lease obligations, net of current portion 1,710,000 1,710,000 ------------ ------------ Deferred income taxes 1,212,000 1,412,000 ------------ ------------ Shareholders' Equity: Preferred stock ($10 par value) 500,000 shares authorized; none issued Common stock (no par value) 15,000,000 shares authorized; issued 4,500,087 at 12/31/01 and 4,491,387 at 9/30/01 2,250,000 2,246,000 Additional paid-in-capital 5,960,000 5,817,000 Retained earnings 114,096,000 114,501,000 ------------ ------------ Total shareholders' equity 122,306,000 122,564,000 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 155,375,000 $ 168,033,000 ============= ============= See notes to consolidated financial statements. -4- GARAN, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED 12/31/01 12/31/00 Cash Flows From Operating Activities: ------------- ------------ Net earnings $ 4,770,000 $ 4,077,000 Adjustments to reconcile to net cash provided by operating activities: Deferred compensation 0 213,000 Depreciation and amortization 1,248,000 1,344,000 Deferred income taxes (200,000) 175,000 Provision for bad debts 700,000 Changes in assets and liabilities: U.S. Government securities - Short-term (7,907,000) 29,000 Accounts receivable 24,429,000 19,132,000 Inventories 3,173,000 (3,106,000) Other current assets (1,096,000) (565,000) Accounts payable (4,444,000) (4,338,000) Accrued liabilities (2,844,000) (2,405,000) Income taxes payable (4,892,000) 668,000 Other assets 74,000 403,000 Net Cash Provided by Operating ------------ ------------ Activities 13,011,000 15,627,000 ------------ ------------ Cash Flows From Investing Activities: Additions to Property, Plant, and Equipment (1,661,000) (1,686,000) ------------ ------------ Net Cash used for Investing Activities (1,661,000) (1,686,000) ------------ ------------ Cash Flows From Financing Activities: Payment of dividends (5,175,000) (5,335,000) Repayment of capitalized lease obligations (20,000) Proceeds from exercised stock options 147,000 153,000 ------------ ------------ Net Cash used for Financing Activities (5,048,000) (5,182,000) ------------ ------------ Net increase in Cash and Cash Equivalents 6,302,000 8,759,000 Cash and Cash Equivalents At Beginning of Period 33,881,000 14,580,000 ------------ ------------ Cash and Cash Equivalents At End of Period $ 40,183,000 $ 23,339,000 ============ ============ Supplemental cash flow Disclosures Cash Paid During The Period For: Interest $ 13,000 $ 29,000 Income taxes 8,055,000 1,989,000 ============ ============ See notes to consolidated financial statements. -5- GARAN, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 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 for the three month periods ended December 31, 2001, and 2000 are calculated on the basis of the weighted average number of common shares outstanding during such three month periods 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 $4,770,000 4,494,000 $ 1.06 $4,077,000 5,078,000 $0.80 ========= ========= Effect of dilutive options 37,000 20,000 --------------------- ---------------------- $4,770,000 4,531,000 $ 1.05 $4,077,000 5,098,000 $0.80 ============================== =============================== 3. Inventories consist of the following: 12/31/01 09/30/01 ----------- ----------- Raw Materials $ 5,061,000 $ 6,627,000 Work in Process 5,811,000 6,070,000 Finished Goods 27,551,000 28,899,000 ----------- ----------- $38,423,000 $41,596,000 =========== =========== -6- 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, 2001, 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. Results of Operations -- Three Month Periods Ended December 31, 2001, and December 31, 2000: Net Sales Net sales for the three-month period ended December 31, 2001, were $55,666,000 compared to $55,053,000 for the same period last year. Net earnings for the three-month period were $4,770,000, or $1.06 per share, compared to $4,077,000, or $0.80 per share, last year. The increase in net sales for the quarter was due primarily to an increase in units shipped in the Company's Childrenswear Division partially offset by a decrease in units shipped in its Womens division. The decrease in units shipped in the Womens' Division was due to a change in shipping pattern. The increase in net earnings per share for the three month period ended December 31, 2001, also reflects the Company's repurchase of 596,250 of its shares in June, 2001. Gross Margin Gross margin for the three months ended December 31, 2001, was $15,316,000, or 27.5% of net sales, compared to $13,589,000, or 24.7% of net sales, for the comparable period in fiscal 2001. The increase in gross margin was due to various factors including (a) duty savings resulting from lower effective duty rates on a portion of the Company's Caribbean Basin -7- production, (b) lower costs of production as a result of shifting more production to the Caribbean Basin, and (c) lower costs associated with improved manufacturing efficiencies. 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 are imported free of duty subject to annual quotas. Selling and administrative expenses for the three months ended December 31, 2001, were $7,569,000, or 13.6% of net sales, as compared to $7,265,000, or 13.2% of net sales, for the comparable period last year. The increase in selling and administrative expenses was due primarily to increased premiums on insurance policies renewed after September 11, 2001. Interest income for the three months ended December 31, 2001, decreased to $352,000 from $616,000 for the comparable period last year. The decrease in interest income was due to declines in interest rates. Financial Position, Capital Resources, and Liquidity - December 31, 2001, and September 30, 2001: At December 31, 2001, working capital was $98,726,000, a decrease of $797,000 from working capital at September 30, 2001, of $99,523,000. The decrease was due to the special dividend of $0.90 per share in addition to the regular quarterly dividend of $0.25 per share, which were paid in November 2001, and an increase in the allowance for uncollectible accounts offset by net earnings generated by the Company's operations. Shareholders' equity at December 31, 2001, was $122,306,000, or $27.18 book value per share, as compared to $122,564,000, or $27.29 per share, at September 30, 2001. Accounts receivable were $34,172,000 at December 31, 2001, a decrease of $25,129,000 over the balance at September 30, 2001. Because the Company's business is seasonal, the receivable balance should be compared to the balance of $34,600,000 at December 31, 2000, rather than the September 30, 2001, year-end balance. The decrease in accounts receivable at December 31, 2001, from December 31, 2000, was principally due to a $700,000 increase in the allowance for uncollectible accounts, representing approximately 25% of the amount due from Kmart Corp. as of the date of its bankruptcy filing. Inventory decreased to $38,423,000 at December 31, 2001, from $41,596,000 at September 30, 2001. Because the Company's business is seasonal, inventory at December 31, 2001, should be compared to the balance at December 31, 2000, rather than the September 30, 2001, year-end balance. The decrease in inventory from $50,863,000 at December 31, 2000, to the balance at December 31, 2001, was the result of variations in shipping patterns as well as a shift in the composition of the inventory from larger sizes to smaller sizes with lower unit value. 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. -8- PART II. - OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders. None. 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 December 31, 2001. -9- 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:/s/ Seymour Lichtenstein Seymour Lichtenstein Principal Executive Officer BY:/s/ William J. Wilson William J. Wilson Principal Financial Officer DATE: February 14, 2002 -10-