-----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, HRd8Vx0EgqrRTMsuLuFzWe+BX7i25pQID2YQFYB37YThXha4B/VvOkhsK81PcUQu S2024bKx2VBO/VgtyRi3BQ== 0001047469-98-045275.txt : 19981230 0001047469-98-045275.hdr.sgml : 19981230 ACCESSION NUMBER: 0001047469-98-045275 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981229 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-K SEC ACT: SEC FILE NUMBER: 001-04506 FILM NUMBER: 98776836 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-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ 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, New York 10118 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 212-563-2000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ------------------- --------------------- Common Stock, no par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Common Stock Purchase Rights (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 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.[ ] The aggregate market value of the voting stock held by non-affiliates of the registrant on December 1, 1998, was approximately $117,000,000. At December 1, 1998, 5,139,737 shares of the registrant's Common Stock, no par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE The registrant incorporates by reference in Part III of this Report specified portions of its definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with its 1999 Annual Meeting of Shareholders ("1999 Proxy Statement"). 2 PART I Item 1. Business. (a) General development of business. (a)(1) The registrant was incorporated on December 4, 1957. During the fiscal year ended September 30, 1998, there were no material changes or developments in the business done by the registrant or its subsidiaries or in the manner in which it conducted its business during the prior five fiscal years. (a)(2) Not applicable. (b) Financial information about industry segments. The registrant produces only apparel and, accordingly, information relative to industry segments is not applicable. (c) Narrative description of business. (c)(i) The registrant is engaged in the design, manufacture, and sale of apparel for men, women, and children including boys, girls, toddlers, and infants. The percentage of registrant's net sales in each of the foregoing categories in the last three fiscal years is as follows: Percentage of Net Sales (years ended September 30) 1998 1997 1996 ---- ---- ---- Men's apparel 7% 6% 8% Women's apparel 16 14 18 Children's apparel 77 80 74 3 The registrant produces apparel primarily sold to regional mass merchandisers, major national chain stores, department stores, and specialty stores. Sales are made primarily by the registrant's salaried sales staff. (c)(ii) Not applicable. (c)(iii) Raw materials essential to the registrant are readily available from various alternate sources of supply. (c)(iv) The registrant distributes children's apparel under various of its own trademarks including, principally, GARAN and GARANIMALS, men's apparel under various of its own trademarks including, principally, GARAN, and women's apparel under various of its own trademarks including, principally, GARAN. Sales of branded apparel under the registrant's own trademarks accounted for approximately 22%, 16%, and 4% of the registrant's net sales in fiscal 1998, 1997, and 1996, respectively. The registrant also distributes apparel under various trademarks licensed from third parties. Since 1975, registrant has been a non-exclusive licensee of professional sports leagues and teams for T-shirts, knit shirts, sweatshirts, and sweaters for boys and men, since 1990, registrant has been a non-exclusive licensee of various colleges and universities for sweatshirts and knit shirts for boys and men, and since 1995, the registrant has been the exclusive licensee of the trademark EVERLAST for men's, boys', and girls' activewear. Sales of all such licensed apparel by registrant accounted for approximately 5%, 10%, and 9% of the registrant's net sales in fiscal 1998, 1997, and 1996, respectively. The license agreements for EVERLAST expire on December 31, 1998, and will not be renewed. Since 1986, the regis- 4 trant has been the exclusive licensee of the trademark BOBBIE BROOKS for girls' and women's apparel, and sales of apparel by registrant bearing the BOBBIE BROOKS trademark accounted for approximately 16%, 14%, and 8% of the registrant's net sales in fiscal 1998, 1997, and 1996, respectively. Total sales of all apparel bearing licensed trademarks and logos, some of which apparel also bears the registrant's trademarks G.T.S, TEAM RATED, and SCRIMMAGE, accounted for approximately 21%, 26%, and 28% of the registrant's net sales in fiscal 1998, 1997, and 1996, respectively. The terms of the foregoing license agreements range from 1 to 3 years, royalty rates range from 1% to 12% of net sales, each license agreement has a minimum royalty commitment, and certain license agreements impose an advertising commitment. The registrant also licenses its GARANIMALS trademark and sublicenses the BOBBIE BROOKS trademark to non-affiliates. (c)(v) The registrant operates primarily on the basis of two seasons - Spring/Summer and Fall/Holiday. Shipments for the Spring/Summer season are generally made from December through July and for the Fall/Holiday season from June through December. Registrant maintains production levels relatively constant throughout the year, but because of seasonal shipping patterns, the registrant's inventory levels fluctuate during the year. (c)(vi) Not applicable. (c)(vii) Wal-Mart Stores, Inc. accounted for 80%, 71%, and 66% of the registrant's net sales during fiscal 1998, 1997, and 1996, respectively. During the same periods, J.C. Penney Company, Inc. accounted for 10%, 12%, and 15% of the registrant's 5 net sales. The registrant has had business relationships with Wal-Mart Stores, Inc. and J.C. Penney Company, Inc. for more than the past 20 years, but as neither of these relationships involves a long-term contractual commitment, there can be no assurance as to the level of future business with either of these customers. The balance of the registrant's sales are made to approximately 1,500 accounts, none of which is responsible for more than 10% of the registrant's net sales. (c)(viii) The registrant plans its production based upon retailer commitments for long range programs permitting the registrant to maintain production levels relatively constant throughout the year. In view of the registrant's reliance on such commitments and emphasis on replenishment programs and EDI order placement, purchase orders are not significant to an understanding of registrant's business. (c)(ix) Not applicable. (c)(x) The men's, women's, and children's apparel business in the United States is highly competitive primarily in price, style, and delivery and consists of many domestic and foreign manufacturers, importers, and distributors. The registrant does not compete solely on a price basis; the registrant competes by relying on style, delivery, replenishment, and vendor-managed programs as well as price. No single enterprise sells more than a small portion of the total apparel sold in the United States, and there are no reliable figures available from which the registrant's relative position in the United States apparel industry can be determined or from which the effect of foreign competition can be assessed. 6 (c)(xi) No material expenditures are made by the registrant for research activities relating to the development of new services or products or the improvement of existing services or products. (c)(xii) The registrant's compliance with Federal, state, and local environmental laws and regulations had no material effect upon its capital expenditures, earnings, or competitive position during the fiscal year ended September 30, 1998. The registrant does not anticipate any material capital expenditures for environmental control in either its present or succeeding fiscal years. (c)(xiii) The registrant employed approximately 3,000 persons at September 30, 1998. (d) Financial information about foreign and domestic operations and export sales. The registrant has operated a manufacturing facility in Costa Rica since 1984, in fiscal 1995, it began operating manufacturing facilities in El Salvador, and in 1998 it began operating manufacturing facilities in Honduras. The registrant was not otherwise engaged in business within any foreign country during the fiscal year ended September 30, 1998. During fiscal 1998, 1997, and 1996, export sales by registrant amounted to less than 1% of total sales and are not considered to be significant to an understanding of registrant's business. 7 Item 2. Properties. Expiration Location Use Sq. Ft. Estate Date - -------- --- ------- ------ ---------- Adamsville, Tennessee Manufacturing 100,000 Fee Manufacturing 60,080 Lease 1999(1) Carthage, Mississippi Manufacturing 105,300 Lease (1)(2) Church Point, Louisiana Manufacturing 73,000 Lease 1999(1) Clinton, Kentucky Manufacturing 52,000 Fee Corinth, Mississippi Manufacturing 76,000 Fee Eupora, Mississippi Manufacturing 96,742 Lease (1)(3) Jemison, Alabama Manufacturing 20,800 Lease 2001(1) Kaplan, Louisiana Manufacturing 87,900 Lease (1)(4) 43,900 Fee (4) Marksville, Louisiana Manufacturing 75,000 Lease 1999(1) New York, New York Showroom and Office 38,500 Lease 2011 Ozark, Arkansas Manufacturing 75,000 Lease 2002(1) Philadelphia, Mississippi Manufacturing 107,920 Lease (1)(5) Rainsville, Alabama Manufacturing 53,000 Fee San Jose, Costa Rica Manufacturing 33,258 Fee 8 Expiration Location Use Sq. Ft. Estate Date - -------- --- ------- ------ ---------- San Pedro Sula, Honduras Manufacturing 26,000 Lease 2003(1) San Salvador, El Salvador Manufacturing 41,047 Lease 2000 San Salvador, El Salvador Manufacturing 24,200 Lease 2001 San Salvador, El Salvador Manufacturing 16,937 Lease 2001 San Salvador, El Salvador Manufacturing 30,896 Lease 2002 Starkville, Mississippi Manufacturing and Office 90,000 Lease 2003(1) (1) The registrant or a wholly-owned subsidiary of the registrant has the option to purchase the facilities and/or to renew each of the current leases for terms which vary between 2 and 66 years. (2) One continuous building consisting of a 63,000 square foot section leased to 1999, a 22,500 square foot section leased to 2002, and a 19,800 square foot section leased to 2004. (3) One continuous building consisting of a 15,000 square foot section leased to 1999, a 21,000 square foot section leased to 2003, a 41,000 square foot section leased to 1999, and a 19,742 square foot section leased to 2004. (4) One continuous building consisting of a 72,000 square foot section leased to 1999 and a 15,900 square foot section leased to 2005, which was expanded by a 43,000 square foot section owned by a wholly-owned subsidiary of the registrant and financed with the proceeds of Industrial Revenue Bonds issued in September, 1990. The 9 entire building is located on land owned by a wholly-owned subsidiary of the registrant. (5) One continuous building consisting of a 78,000 square foot section leased to 2000 and a 29,920 square foot section leased to 2004. The registrant believes that its facilities are suitable and adequate for its foreseeable needs, and except as otherwise noted, each was fully utilized during fiscal 1998. Item 3. Legal Proceedings. None. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. 10 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. (a), (b), and (c) Market information, Holders, and Dividends. The registrant's common stock is listed and traded on the American Stock Exchange under the symbol GAN. The high and low sales prices during each quarterly period for fiscal years 1998 and 1997 are set forth in the table below: Sales Price of Common Stock ------------------------------------ 1998 1997 ---- ---- Quarters High Low High Low - -------- ---- --- ---- --- First . . . . . . . . . . . . $26 1/8 $22 1/8 $20 1/8 $16 3/4 Second . . . . . . . . . . . 28 21 1/2 21 1/8 17 3/8 Third . . . . . . . . . . . . 28 26 1/2 20 7/8 17 3/8 Fourth . . . . . . . . . . . . 29 23 3/8 23 3/4 19 Dividends paid during the last two fiscal years were as follows: Dividends Paid per Share Quarters 1998 1997 - -------- ---- ---- First -Regular . . . . . . . $ .20 $ .20 -Special . . . . . . . .40 .20 Second -Regular . . . . . . . .20 .20 Third -Regular . . . . . . . .20 .20 Fourth -Regular . . . . . . . .20 .20 Total . . . . . . . . . $1.20 $1.00 As at December 1, 1998, there were 449 shareholders of record including Cede & Company in its capacity as nominee for the Depository Trust Company. 11 Item 6. Selected Financial Data FIVE-YEAR REVIEW - ------------------------------------------------------------------------
1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------------- NET SALES $194,197,000 $153,250,000 $146,491,000 $141,330,000 $173,002,000 COST OF SALES 148,382,000 116,833,000 114,744,000 111,454,000 131,687,000 - -------------------------------------------------------------------------------------------------- GROSS MARGIN ON SALES 45,815,000 36,417,000 31,747,000 29,876,000 41,315,000 SELLING AND ADMINISTRATIVE EXPENSES 25,126,000 22,915,000 22,652,000 23,270,000 27,320,000 INTEREST ON CAPITALIZED LEASES 111,000 119,000 123,000 141,000 153,000 INTEREST INCOME (2,960,000) (2,773,000) (2,426,000) (2,534,000) (1,491,000) - -------------------------------------------------------------------------------------------------- EARNINGS BEFORE PROVISION FOR INCOME TAXES 23,538,000 16,156,000 11,398,000 8,999,000 15,333,000 PROVISION FOR INCOME TAXES 9,501,000 6,441,000 4,502,000 3,510,000 5,980,000 - -------------------------------------------------------------------------------------------------- NET EARNINGS $14,037,000 $9,715,000 $6,896,000 $5,489,000 $9,353,000 - -------------------------------------------------------------------------------------------------- EARNINGS PER SHARE--BASIC $2.75 $1.92 $1.36 $1.08 $1.84 --DILUTED $2.73 $1.92 $1.36 $1.08 $1.84 AVERAGE SHARES OUTSTANDING--BASIC 5,109,000 5,070,000 5,070,000 5,070,000 5,070,000 --DILUTED 5,150,000 5,070,000 5,070,000 5,070,000 5,070,000 DIVIDENDS PAID PER SHARE $1.20 $1.00 $1.00 $1.00 $1.80 - -------------------------------------------------------------------------------------------------- CURRENT ASSETS $112,116,000 $94,014,000 $93,393,000 $88,685,000 $98,896,000 CURRENT LIABILITIES 31,267,000 25,607,000 17,626,000 20,237,000 18,519,000 - -------------------------------------------------------------------------------------------------- WORKING CAPITAL 80,849,000 68,407,000 75,767,000 68,448,000 80,377,000 WORKING CAPITAL RATIO 3.62 3.67 5.30 4.38 5.34 - -------------------------------------------------------------------------------------------------- TOTAL ASSETS $146,173,000 $132,386,000 $119,547,000 $120,431,000 $118,525,000 - -------------------------------------------------------------------------------------------------- LONG-TERM OBLIGATIONS $2,170,000 $2,807,000 $2,937,000 $3,061,000 $3,620,000 - -------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY $109,707,000 $100,786,000 $96,141,000 $94,315,000 $93,896,000 COMMON STOCK ISSUED AND OUTSTANDING 5,128,719 5,069,892 5,069,892 5,069,892 5,069,892 - --------------------------------------------------------------------------------------------------
12 Item 7. 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 Company. 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 Company's customers, and such other risk factors as may be identified from time to time in the Company's filings with the Securities and Exchange Commission. NET SALES Net sales in fiscal 1998 were $194,197,000, an increase of $40,947,000 over fiscal 1997 net sales of $153,250,000. The 1998 sales increase was primarily a result of an increase in total units shipped within the Childrenswear Division. Net sales in fiscal 1997 were $153,250,000, an increase of $6,759,000 over fiscal 1996 net sales of $146,491,000. The 1997 sales increase was the result of an increase in total units shipped offset in part by a reduction in average unit selling price primarily caused by a change in the mix of products sold. Sales growth occurred in the Childrenswear Division, which was offset by the discontinued business related to Disney animated films. GROSS MARGIN Gross margin in fiscal 1998 was $45,815,000, or 24% of net sales, as compared to $36,417,000, or 24% of net sales, in fiscal 1997. The gross margin was comparable as a percentage of sales to the same period last year. The dollar increase was due to the increased sales volume. Gross margin in fiscal 1997 was $36,417,000, or 24% of net sales, as compared to $31,747,000, or 22% of net sales, in fiscal 1996. The increase in gross margin was due to the combination of improvements in manufacturing efficiency due to increased production and absorption of overhead. SELLING AND ADMINISTRATIVE EXPENSES; INTEREST INCOME Selling and administrative expenses in fiscal 1998 were $25,126,000, or 13% of net sales, as compared to $22,915,000, or 15% of net sales, in fiscal 1997. The dollar increase in the amount of expenditures was due to additional shipping expense related to volume, increased advertising expense, and continued investment in and upgrading of computer systems. The decrease as a percentage of sales was attributable to the increased sales volume. Selling and administrative expenses in fiscal 1997 were $22,915,000, or 15% of net sales, as compared to $22,652,000, or 15% of net sales, in fiscal 1996. The selling and administrative expenses in fiscal 1997 were comparable as a percentage of sales to the same period in the prior year. The slight increase in dollars is the result of improvements to internal operating systems and systems related to customer service offset by a decrease in royalty expenses related to Disney animated film licenses. Interest income in fiscal 1998 was $2,960,000, an increase from $2,773,000 in the previous year. The increase from 1997 to 1998 was the result of higher levels of investments. Interest income in fiscal 1997 was $2,773,000, an increase from $2,426,000 in the previous year. The increase from 1996 to 1997 was the result of more favorable rates of return throughout the year and higher levels of investments. 13 - ----------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES The balance sheet continued to reflect the strong financial condition of the Company. At September 30, 1998 working capital was $80,849,000, an increase of $12,442,000 from September 30, 1997 working capital of $68,407,000. The major change in the components of the Company's working capital during 1998 was an increase in accounts receivable resulting from high seasonal shipments during the last two months of fiscal 1998 and an increase in the amount of long-term investments becoming short-term as a result of approaching maturities. The Company's primary source of cash during the three years ended September 30, 1998 has been its operating activities. In 1998, 1997 and 1996, operating activities provided $12,583,000, $11,632,000 and $20,453,000, respectfully. In addition, in fiscal 1998 $1,000,000 was received from the exercise of stock options. The primary uses of cash during the three-year period ended September 30, 1998, has been payment of dividends, additions to property, plant and equipment, and repayment of capitalized lease obligations. At September 30, 1998, shareholders' equity was $109,707,000 or $21.39 per share, up from $100,786,000, or $19.88 per share, at September 30, 1997. At September 30, 1996, shareholders' equity was $96,141,000, or $18.96 per share. In fiscal 1998 the Company continued its year end special dividend payment which it initiated in fiscal 1988. The special dividend generally is paid in November, after the balance sheet date. Management believes that the Company has sufficient working capital to finance its operations and projected growth. There were no short-term borrowings outstanding during fiscal years 1998, 1997 and 1996, and management does not anticipate the need for any such borrowings. If necessary, the Company has the ability to obtain funds from a number of sources to meet its seasonal and long-term requirements. YEAR 2000 The Company's principal MIS computer systems consist of (1) accounting software, such as payroll, accounts receivable, and general ledger, (2) electronic data interchange ("EDI") for receiving orders, invoicing, and the like between the Company and its major customers and suppliers, and (3) customer order management systems. In addition, the Company uses computer systems in its manufacturing operations. The Company has purchased software to replace all of the components of its MIS systems which were not Year 2000 compliant, and is implementing the Year 2000 compliant EDI software for 1, 2, and 3 above. The Company does not require any material change to its manufacturing systems for Year 2000 compliance. Although the Company could incur operating problems if it were unable to receive orders from its customers through EDI if the customer is not EDI compliant, the Company believes that its major customers either have completed or are in the process of completing Year 2000 compliance projects with respect to their EDI systems. The entire cost of the Company's Year 2000 compliance program is not material to the Company, and the Company anticipates that all of its MIS computer systems will be Year 2000 compliant by June 30, 1999. 14 Item 7a. Qualitative and Quantitative Disclosure about Market Risk The registrant does not believe it is exposed to market risk 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 securities with maturities of four years or less (see Footnote 2 to the Notes to Consolidated Financial Statements). 15 Item 8. Financial Statements & Supplementary Data CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------
ASSETS SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------- CURRENT ASSETS: Cash and cash equivalents $9,599,000 $8,660,000 U.S. Government securities--short-term 22,216,000 16,223,000 Accounts receivable, less estimated uncollectibles of $517,000 at 1998 and $510,000 at 1997 42,563,000 31,092,000 Inventories 32,776,000 33,731,000 Other current assets 4,962,000 4,308,000 - ------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 112,116,000 94,014,000 - ------------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES--LONG-TERM 15,315,000 19,853,000 PROPERTY, PLANT AND EQUIPMENT, NET 13,345,000 13,470,000 OTHER ASSETS 5,397,000 5,049,000 - ------------------------------------------------------------------------------------------- TOTAL $146,173,000 $132,386,000
- -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------- CURRENT LIABILITIES: Accounts payable $8,555,000 $6,589,000 Accrued liabilities 18,575,000 16,434,000 Income taxes payable 4,000,000 2,454,000 Current portion of capitalized lease obligations 137,000 130,000 - ------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 31,267,000 25,607,000 - ------------------------------------------------------------------------------------------- CAPITALIZED LEASE OBLIGATIONS, NET OF CURRENT PORTION 2,170,000 2,807,000 - ------------------------------------------------------------------------------------------- DEFERRED INCOME TAXES 3,029,000 3,186,000 - ------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY: Preferred stock ($10 par value), 500,000 shares authorized; none issued Common stock (no par value), 15,000,000 shares authorized; shares issued: 5,128,719 at 1998 and 5,069,892 at 1997 2,564,000 2,535,000 Additional paid-in capital 6,792,000 5,821,000 Retained earnings 100,351,000 92,430,000 - ------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 109,707,000 100,786,000 - ------------------------------------------------------------------------------------------- TOTAL $146,173,000 $132,386,000
- -------------------------------------------------------------------------------- SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 16 CONSOLIDATED STATEMENTS OF EARNINGS - ------------------------------------------------------------------------ YEARS ENDED SEPTEMBER 30, ---------------------------------------- 1998 1997 1996 - -------------------------------------------------------------------------------------------- NET SALES $194,197,000 $153,250,000 $146,491,000 Cost of sales 148,382,000 116,833,000 114,744,000 - -------------------------------------------------------------------------------------------- Gross margin on sales 45,815,000 36,417,000 31,747,000 Selling and administrative expenses 25,126,000 22,915,000 22,652,000 Interest on capitalized leases 111,000 119,000 123,000 Interest income (2,960,000) (2,773,000) (2,426,000) - -------------------------------------------------------------------------------------------- Earnings before provision for income taxes 23,538,000 16,156,000 11,398,000 Provision for income taxes 9,501,000 6,441,000 4,502,000 - -------------------------------------------------------------------------------------------- NET EARNINGS $14,037,000 $9,715,000 $6,896,000 - -------------------------------------------------------------------------------------------- Earnings per share--Basic $2.75 $1.92 $1.36 --Diluted $2.73 $1.92 $1.36 Average shares outstanding--Basic 5,109,000 5,070,000 5,070,000 --Diluted 5,150,000 5,070,000 5,070,000 - --------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------ ADDITIONAL COMMON PAID-IN RETAINED YEARS ENDED 1996, 1997 AND 1998 STOCK CAPITAL EARNINGS TOTAL - ------------------------------------------------------------------------------------------ BALANCE AT SEPTEMBER 30, 1995 $2,535,000 $5,821,000 $85,959,000 $94,315,000 - ------------------------------------------------------------------------------------------ Net earnings 6,896,000 6,896,000 Dividends paid--$1.00 per share (5,070,000) (5,070,000) - ------------------------------------------------------------------------------------------ BALANCE AT SEPTEMBER 30, 1996 $2,535,000 $5,821,000 $87,785,000 $96,141,000 - ------------------------------------------------------------------------------------------ Net earnings 9,715,000 9,715,000 Dividends paid--$1.00 per share (5,070,000) (5,070,000) - ------------------------------------------------------------------------------------------ BALANCE AT SEPTEMBER 30, 1997 $2,535,000 $5,821,000 $92,430,000 $100,786,000 - ------------------------------------------------------------------------------------------ Net earnings 14,037,000 14,037,000 Exercise of stock options 29,000 971,000 1,000,000 Dividends paid--$1.20 per share (6,116,000) (6,116,000) - ------------------------------------------------------------------------------------------ BALANCE AT SEPTEMBER 30, 1998 $2,564,000 $6,792,000 $100,351,000 $109,707,000 - ------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 17 CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------ YEARS ENDED SEPTEMBER 30, ------------------------------------- 1998 1997 1996 - --------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: NET EARNINGS $14,037,000 $9,715,000 $6,896,000 ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH FLOWS FROM OPERATING ACTIVITIES: Depreciation and amortization 3,835,000 2,932,000 3,426,000 Provision for losses on accounts receivable (15,000) 62,000 43,000 Deferred income taxes (706,000) (325,000) 25,000 Changes in assets and liabilities: U.S. Government Securities--short-term 733,000 373,000 12,887,000 Accounts receivable (11,456,000) (5,113,000) (338,000) Inventories 955,000 (5,092,000) 815,000 Other current assets (163,000) 1,759,000 (1,146,000) Accounts payable 1,966,000 1,980,000 (2,242,000) Accrued liabilities 2,141,000 5,113,000 316,000 Income taxes payable 1,604,000 1,041,000 (655,000) Other assets (348,000) (813,000) 426,000 - --------------------------------------------------------------------------------------- NET CASH FLOWS FROM OPERATING ACTIVITIES 12,583,000 11,632,000 20,453,000 - --------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale of U.S. Government Securities--long-term 22,840,000 6,028,000 997,000 Purchase of U.S. Government Securities--long-term (25,028,000) (22,906,000) (1,016,000) Additions to property, plant and equipment (3,710,000) (1,622,000) (3,557,000) Proceeds from sales of property, plant and equipment 135,000 285,000 - --------------------------------------------------------------------------------------- NET CASH FLOWS FROM INVESTING ACTIVITIES (5,898,000) (18,365,000) (3,291,000) - --------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment of dividends (6,116,000) (5,070,000) (5,070,000) Repayment of capitalized lease obligations (630,000) (124,000) (154,000) Proceeds from exercised stock options 1,000,000 - --------------------------------------------------------------------------------------- NET CASH FLOWS FROM FINANCING ACTIVITIES (5,746,000) (5,194,000) (5,224,000) - --------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH 939,000 (11,927,000) 11,938,000 - --------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,660,000 20,587,000 8,649,000 - --------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $9,599,000 $8,660,000 $20,587,000 - --------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES CASH PAID DURING THE YEAR FOR: Interest $111,000 $119,000 $123,000 Income taxes 8,711,000 5,819,000 5,120,000 - ---------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All inter-company accounts and transactions have been eliminated in consolidation. b. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. c. REVENUE RECOGNITION Sales are recognized upon shipment of merchandise. The Company does not provide for allowances or return of goods except for cause. When an allowance or return occurs, it is accounted for as a reduction of sales. Sales allowances are not significant to the operations of the Company. d. INVENTORIES Inventories are stated at the lower of cost (principally standard cost which approximates actual cost on a first-in, first-out basis) or market. e. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost. Depreciation and amortization for financial accounting purposes are provided by using the straight line method over the estimated useful lives of the assets. Leases of manufacturing facilities which are in substance financing arrangements have been capitalized, with the corresponding liability included in capitalized lease obligations. f. INCOME TAXES Deferred income taxes are provided to reflect the tax effect of timing differences in reporting income and deductions for tax and financial statement purposes under SFAS 109 which provides for accounting for deferred income taxes using the liability method. g. EARNINGS PER SHARE 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 Statement of Financial Accounting Standards No. 128. Diluted earnings per share considers the effect of potential common shares such as stock options. The dilution for the year ended September 30, 1998 is due to the net incremental effect of stock options of 41,000 shares. Prior years were not significant. h. CASH AND CASH EQUIVALENTS For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. i. INVESTMENTS Financial instruments, which potentially subject the Company to concentration of risk, consist of cash and investments. The Company places its investments in US Treasury obligations which limits the amount of credit exposure. The Company's investments are designated as trading or held-to-maturity. Trading securities are reported at fair value, with changes in fair value included in earnings. When the Company has the intent and ability to hold the securities to maturity they are classified as held-to-maturity securities and reported at amortized cost. NOTE 2--INVESTMENTS Investments in the trading category amounted to $5,434,000 at September 30, 1998 and consisted of U.S. Treasury Bills maturing from November 1998 through March 1999. Gross unrealized holding gains at September 30, 1998 were deemed immaterial. 19 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ Investments in the held-to-maturity category amounted to $32,097,000 at September 30, 1998 and consisted of U.S. Treasury Notes with contractual maturities as follows: 1999 (included in U.S. Government securities--short-term).................. $16,782,000 2000....................................................................... 6,966,000 2001....................................................................... 7,315,000 2002....................................................................... 1,034,000 ----------- $32,097,000 ----------- -----------
The estimated fair value of investments approximates the amortized cost, and, therefore, there are no unrealized gains or losses as at September 30, 1998. NOTE 3--INVENTORIES INVENTORIES CONSIST OF THE FOLLOWING:
1998 1997 ----------- ----------- Raw materials........................................................... $ 7,305,000 $ 6,697,000 Work in process......................................................... 5,560,000 6,921,000 Finished goods.......................................................... 19,911,000 20,113,000 ----------- ----------- $32,776,000 $33,731,000 ----------- ----------- ----------- -----------
NOTE 4--PROPERTY, PLANT AND EQUIPMENT PROPERTY, PLANT AND EQUIPMENT CONSIST OF THE FOLLOWING:
1998 1997 ----------- ----------- Capitalized leased manufacturing plants................................. $11,373,000 $11,373,000 Machinery and equipment................................................. 16,018,000 14,999,000 Leasehold improvements.................................................. 3,912,000 3,847,000 Transportation equipment................................................ 1,880,000 1,920,000 ----------- ----------- 33,183,000 32,139,000 Less accumulated depreciation and amortization.......................... 19,838,000 18,669,000 ----------- ----------- $13,345,000 $13,470,000 ----------- ----------- ----------- -----------
The net book value of the capitalized leased manufacturing plants was $2,933,000 at September 30, 1998 and $3,629,000 at September 30, 1997. NOTE 5--CAPITALIZED LEASES Substantially all of the Company's leases of manufacturing facilities have been capitalized. Future minimum lease payments of principal and interest under leases capitalized at September 30, 1998 are as follows: 1999.......................................................................... $228,000 2000.......................................................................... 103,000 2001.......................................................................... 312,000 2002.......................................................................... 302,000 2003.......................................................................... 433,000 Later years................................................................... 1,420,000 ----------- 2,798,000 Less interest--4.10% to 6.0%.................................................. (491,000) ----------- Total minimum lease payments.................................................. 2,307,000 Less amounts due within one year.............................................. (137,000) ----------- $2,170,000 ----------- -----------
20 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ NOTE 6--INCOME TAXES The difference between the total statutory Federal income tax and the actual income tax expense is accounted for as follows:
1998 1997 ---------------------------- ---------------------------- Percent of Percent of Pre-tax Pre-Tax Amount Earnings Amount Earnings ---------------------------- ---------------------------- Federal statutory tax expense................................ $ 8,238,000 35.0% $ 5,655,000 35.0% State and local income tax expense, net of Federal income tax benefit...................................................... 1,263,000 5.4 786,000 4.9 ------------- ----- ------------- ----- Income tax expense........................................... $ 9,501,000 40.4% $ 6,441,000 39.9% ------------- ----- ------------- ----- ------------- ----- ------------- ----- 1996 ---------------------------- Percent of Pre-Tax Amount Earnings ---------------------------- Federal statutory tax expense................................ $ 3,989,000 35.0% State and local income tax expense, net of Federal income tax benefit...................................................... 513,000 4.5 ------------- ----- Income tax expense........................................... $ 4,502,000 39.5% ------------- ----- ------------- -----
Income tax expense consists of the following components:
1998 1997 1996 ----------- ---------- ---------- Current......................................................... $10,207,000 $6,766,000 $4,477,000 Deferred........................................................ (706,000) (325,000) 25,000 ----------- ---------- ---------- $ 9,501,000 $6,441,000 $4,502,000 ----------- ---------- ---------- ----------- ---------- ----------
Deferred income taxes are provided to reflect the tax effect of timing differences in reporting income and deductions for tax and financial statement purposes, principally depreciation, pension, employee benefits, deferred compensation and inventory. Included in Other Current Assets at September 30, 1998 and 1997 is $2,504,000 and $2,013,000, respectively, of current deferred income tax debits, and included in Income Taxes Payable at September 30, 1998 and 1997 is $289,000 and $347,000, respectively, of current deferred income tax credits. NOTE 7--COMMITMENTS The Company is obligated under certain long-term leases which do not meet the criteria for capitalization. The annual minimum rental commitments (excluding escalation) of these leases are: 1999............................................................................ $1,507,000 2000............................................................................ 1,507,000 2001............................................................................ 1,305,000 2002............................................................................ 1,090,000 2003............................................................................ 1,031,000 2004 and thereafter............................................................. 7,080,000
Total rental expense charged to operations in 1998, 1997 and 1996 amounted to $1,952,000, $1,591,000, and $1,501,000, respectively. The Company is obligated under various licensing agreements for annual minimum royalty expense commitments, amounting to approximately $815,000 and $865,000 for 1999 and 2000, respectively. Total royalty expense charged to operations in 1998, 1997 and 1996 amounted to $1,868,000, $2,444,000, and $3,433,000, respectively. NOTE 8--STOCK OPTION PLAN In 1989, the Company adopted a plan for granting stock options to employees to purchase common stock at a price not lower than its fair market value at the respective date of grant. On November 6, 1996, options to purchase a total of 177,500 shares of the Company's Common Stock at an exercise price of $17 per share were granted to certain employees. The options are exercisable until ten years from date of grant subject to certain conditions. At September 30, 1998, there were 22,500 options available for grant. During fiscal 1998, 58,827 options were exercised for a total of $1,000,059. At September 30, 1998, there were 118,673 options outstanding of which 97,493 options were exercisable. The Company applies Accounting Principles Board Opinion No. 25 (Accounting for Stock Issued to Employees) and related interpretations in accounting for its stock options plans. Accordingly, no compensation expense is recognized when options are granted. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123 (Accounting for Stock-Based 21 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ Compensation) which became effective for the Company during the current year. Had compensation expense been determined based on the fair value methodology prescribed in this statement, net earnings and earnings per share for the current year would have been reduced by approximately $248,000 or $.05 per share for options granted in fiscal 1997. The fair value of the options granted during fiscal 1997 was estimated at $2.33 on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield 6%, volatility 19%, risk-free interest rate of 6.5% and an expected life of 6 years. NOTE 9--PENSION AND RETIREMENT PLANS The Company contributes to defined benefit pension plans which cover all eligible employees. Pension costs are generally funded currently. Pension expense amounted to $37,595 in 1998, $249,721 in 1997 and $606,385 in 1996. Net pension costs under FASB No. 87 included the following components:
1998 1997 1996 ----------- ----------- ----------- Service cost-benefits earned during the period............... $535,555 $546,053 $626,204 Interest cost on projected benefit obligation................ 1,027,095 1,032,140 1,072,436 Actual return on plan assets (gain).......................... (2,771,223) (1,978,791) (1,711,145) Net amortization and deferral................................ 1,448,083 628,063 398,651 ----------- ----------- ----------- Net periodic pension cost before settlement.................. 239,510 227,465 386,146 Settlement gain (loss)....................................... (201,915) 22,256 220,239 ----------- ----------- ----------- Net periodic pension cost after settlement................... $37,595 $249,721 $606,385 ----------- ----------- ----------- ----------- ----------- -----------
The following table sets forth the funded status for the Company's defined benefit pension plans:
1998 1997 ------------ ------------ Actuarial present value of benefit obligation Vested benefit obligation.............................................. $(12,112,932) $(10,774,077) Nonvested benefit obligation........................................... (752,018) (695,027) ------------ ------------ Accumulated benefit obligation......................................... (12,864,950) (11,469,104) Excess of projected benefit obligation over accumulated benefit obligation............................................................ (1,890,837) (1,274,140) ------------ ------------ Projected benefit obligation........................................... (14,755,787) (12,743,244) Actual plan assets at fair value....................................... 18,877,773 16,394,895 ------------ ------------ Projected benefit obligation less than plan assets..................... 4,121,986 3,651,651 Unrecognized net (gain)................................................ (551,809) (637,182) Unrecognized prior service cost........................................ 982,510 730,428 Unrecognized net transition obligation at September 30................. 510,901 563,271 ------------ ------------ Prepaid pension cost at September 30................................... $ 5,063,588 $ 4,308,168 ------------ ------------ ------------ ------------
The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation for the Company's plans was 8.0% in 1998, 8.0% in 1997 and 8.0% in 1996. The expected long-term rate of return on assets used for the Company's plans was 9.5% in 1998, 9.5% in 1997 and 9.5% in 1996. The Board of Directors adopted on April 1, 1989 a Supplemental Executive Retirement Plan for certain executive employees to restore pension benefits which have been reduced by legislative action. The Company purchases annuity contracts to fund its obligation for the four participants (three officers-directors and one employee-director of the Company) under such plan and reimburses the participants for the current tax recognition resulting from such purchases. The respective costs are being amortized over the remaining estimated employment lives of the participants. The 1998, 1997 and 1996 expense for such plan was $0, $436,000 and $705,000, respectively. The Board of Directors adopted on January 1, 1995, a Supplemental Benefit Restoration Plan for certain employees not covered by the Supplemental Executive Retirement Plan to restore certain pension benefits which have been reduced by legislative action. The Company is currently funding its obligations under the Plan and the 1998, 1997 and 1996 expense for such plan was $146,000, $81,000 and $68,000, respectively. 22 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ NOTE 10--MAJOR CUSTOMERS The Company operates within one industry segment--the manufacture of apparel. Sales to one national retail chain accounted for approximately 80% of the Company's net sales in 1998, 71% in 1997 and 66% in 1996. Another national retail chain accounted for approximately 10%, 12% and 15% of the Company's net sales in 1998, 1997 and 1996, respectively. No other customer accounted for more than 10% of the Company's net sales in any of the three years. The Company routinely assesses the financial strength of its customers and, as a consequence, generally does not require collateral or other security to support customer receivables. Historically, the Company has not experienced significant losses related to receivables and management believes that its trade receivable credit risk exposure is limited. NOTE 11--SHAREHOLDERS' EQUITY Pursuant to the Company's Rights Plan, each shareholder holds one right for each share of common stock, and in the event any person acquires 20% of the Company's common stock, each right will give the holder the option to purchase one share of the Company's common stock for $90, subject to adjustment. The rights expire May 16, 2003, and may be redeemed by the Company for $.01 per right. As of September 30, 1998, 5,128,719 shares of the Company's common stock were reserved for issuance under the Company's Rights Plan. NOTE 12--EMPLOYMENT AGREEMENTS The Company maintains employment agreements with four directors, three of whom are also officers of the Company. The employment agreements contain change in control provisions that would entitle each of the four directors to receive up to 2.99 times his five year average annual compensation plus continuation of certain benefits if there is a change in control in the Company (as defined) and his employment terminates. The maximum contingent liability under these agreements in such event is approximately $9,134,000. The employment agreements also provide for severance benefits, disability and death benefits and, as to one officer-director, consulting services under certain circumstances. NOTE 13--QUARTERLY FINANCIAL DATA (UNAUDITED) Financial data for the interim periods of 1998 and 1997 were as follows:
EARNINGS PER SHARE NET GROSS NET ------------------------ SALES MARGINS EARNINGS BASIC DILUTED --------- ----------- ----------- ----------- ----------- (In thousands, except per share amounts) Fiscal Year 1998 Quarters - --------------------------------------------------------- First.................................................... $37,711 $8,817 $2,474 $ .49 $ .48 Second................................................... 41,098 9,901 3,022 .59 .59 Third.................................................... 43,706 10,439 3,071 .60 .60 Fourth................................................... 71,682 16,658 5,470 1.07 1.06 --------- ----------- ----------- ----- ----- Total................................................. $194,197 $45,815 $14,037 $ 2.75 $ 2.73 --------- ----------- ----------- ----- ----- --------- ----------- ----------- ----- ----- Fiscal Year 1997 Quarters - --------------------------------------------------------- First.................................................... $30,993 $7,082 $1,437 $ .28 $ .28 Second................................................... 37,611 9,153 2,541 .50 .50 Third.................................................... 29,568 7,480 1,833 .36 .36 Fourth................................................... 55,078 12,702 3,904 .78 .78 --------- ----------- ----------- ----- ----- Total................................................. $153,250 $36,417 $9,715 $ 1.92 $ 1.92 --------- ----------- ----------- ----- ----- --------- ----------- ----------- ----- -----
23 INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- Board of Directors and Shareholders Garan, Incorporated We have audited the accompanying consolidated balance sheets of Garan, Incorporated and its subsidiaries as at September 30, 1998 and 1997 and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three fiscal years in the period ended September 30, 1998. 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 generally accepted auditing standards. 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, the aforementioned financial statements present fairly, in all material respects, the consolidated financial position of Garan, Incorporated and its subsidiaries as at September 30, 1998 and 1997, and the results of consolidated operations, changes in shareholders' equity and cash flows for each of the three fiscal years in the period ended September 30, 1998 in conformity with generally accepted accounting principles. Citrin Cooperman & Company, LLP New York, New York November 6, 1998 24 PART III Item 10. Directors and Executive Officers of the Registrant. The information required to be set forth in this Item will be contained in registrant's 1999 Proxy Statement under the caption "Election of Directors" and is incorporated by reference into this Report. Item 11. Executive Compensation. The information required to be set forth in this Item will be contained in registrant's 1999 Proxy Statement under the caption "Executive Compensation" and is incorporated by reference into this Report. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required to be set forth in this Item will be contained in registrant's 1999 Proxy Statement under the caption "Election of Directors; Security Ownership of Certain Beneficial Owners and Management" and is incorporated by reference into this Report. 25 Item 13. Certain Relationships and Related Transactions. The information required to be set forth in this Item will be contained in registrant's 1999 Proxy Statement under the caption "Transactions with Management" and is incorporated by reference into this Report. 26 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules. Page ---- (1) Consolidated Financial Statements. Included in Part II, Item 8 of this Report: Consolidated Balance Sheets as at September 30, 1998, and September 30, 1997. Consolidated Statements of Earnings - years ended September 30, 1998, September 30, 1997, and September 30, 1996. Consolidated Statements of Shareholders' Equity - years ended September 30, 1998, September 30, 1997, and September 30, 1996. Consolidated Statements of Cash Flows - years ended September 30, 1998, September 30, 1997, and September 30, 1996. Notes to Consolidated Financial Statements for the years ended September 30, 1998, September 30, 1997, and September 30, 1996. 27 Page ---- Independent Auditors' Report dated November 6, 1998. (2) Consolidated Financial Statement Schedules. Independent Auditors' Report on Schedules dated November 6, 1998, and Consent of Independent Certified Public Accountants dated December 28, 1998. Supplemental Notes to Consolidated Finan- cial Statements for the years ended September 30, 1998, September 30, 1997, and September 30, 1996. Schedules other than those listed above are omitted for the reason that they are not required, are not applicable, or the required information is shown in the Consolidated Financial Statements or Notes thereto. Individual financial statements of the registrant and its subsidiaries are omitted because all subsidi- aries included in the Consolidated Financial Statements are 100% owned. (b) No reports on Form 8-K have been filed by the registrant during the last quarter of the period covered by this Report. 28 Page ---- (c) Exhibits filed as part of this Report. (3) Articles of Incorporation and by-laws. (i) Restated Articles of Incorporation were reported and filed as an exhibit in the registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1988, and are incorporated by reference into this report. (ii) Articles of Amendment of the Restated Articles of Incorporation were reported and filed as an exhibit in the registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1988, and are incorporated by reference into this report. (iii) Articles of Amendment of the Restated Articles of Incorporation dated November 9, 1992, were reported and filed as an Exhibit in the registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1992, and are incorporated by reference into this report. (iv) By-laws, as amended through April 21, 1993, were reported and filed as an Exhibit in the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, and are incorporated by reference into this report. (4) Instruments defining the rights of security holders, including indentures. Amended and Restated Rights Agreement dated as of April 21, 1993, between the registrant and Chemical Bank (now known as Chase Manhattan Bank) was reported and filed as an exhibit in the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, and is incorporated by reference into this report. 29 Page ---- (10) Material Contracts. (i) Employment and Consulting Agree- ment amended and restated as of October 1, 1996, between the registrant and Seymour Lichtenstein was reported and filed as an Exhibit in the registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997, and is incorporated by reference into this report. (ii) Employment Agreement amended and restated as of October 1, 1996, between the registrant and Jerald Kamiel was reported and filed as an Exhibit in the registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997, and is incorporated by reference into this report. (iii) Employment Agreement amended and restated as of October 1, 1996, between the registrant and William J. Wilson was reported and filed as an Exhibit in the registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997, and is incorporated by reference into this report. (iv) Employment Agreement amended and restated as of October 1, 1996, between the registrant and Rodney Faver was reported and filed as an Exhibit in the registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997, and is incorporated by reference into this report. (v) Amendment to Employment Agreement dated November 9, 1998, between the registrant and Rodney Faver. 30 (vi) Supplemental Executive Retire- ment Plan, effective April 1, 1989, was reported and filed as an exhibit in the registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1989, and is incorporated by reference into this report. (vii) Form of Indemnity Agreement dated August 9, 1993, between the registrant and each of its directors was reported and filed as an exhibit in the registrant's Annual Report on Form 10-K for the fiscal year ended September 30,1993, and is incorporated by reference into this report. (viii) Indemnity Agreement dated August 9, 1993, between the registrant and Alexander J. Sistarenik was reported and filed as an exhibit in the regis- trant's Annual Report on Form 10-K for the fiscal year ended September 30, 1993, and is incorporated by reference into this report. (21) Schedule of Subsidiaries of regis- trant. (27) Financial Data Schedule. (d) The Consolidated Financial Statement Schedules Specified in Item 14(a)(2) are annexed. 31 SIGNATURES Pursuant to the requirements of Section 13 of 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. GARAN, INCORPORATED December 28, 1998 By: /s/ William J. Wilson ------------------------------------------ William J. Wilson, Vice President Finance and Administration 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. December 28, 1998 /s/ Seymour Lichtenstein --------------------------------------------- Seymour Lichtenstein Principal Executive Officer, Director December 28, 1998 /s/ William J. Wilson --------------------------------------------- William J. Wilson Principal Financial Officer, Director December 28, 1998 /s/ Alexander J. Sistarenik --------------------------------------------- Alexander J. Sistarenik, Principal Accounting Officer December 28, 1998 /s/ Rodney Faver --------------------------------------------- Rodney Faver, Director December 28, 1998 /s/ Jerald Kamiel --------------------------------------------- Jerald Kamiel, Director December 28, 1998 /s/ Marvin S. Robinson --------------------------------------------- Marvin S. Robinson, Director INDEPENDENT AUDITORS' REPORT ON SCHEDULES Board of Directors and Shareholders Garan, Incorporated In connection with our audit of the Consolidated Financial Statements of Garan, Incorporated for the year ended September 30, 1998, incorporated into this Annual Report on Form 10-K in Part II, Item 8, we also have audited the supporting Consolidated Financial Statement Schedules listed in Item 14(a)(2) of this Report. In our opinion, those Consolidated Financial Statement Schedules present fairly, when read in conjunction with the related Consolidated Financial Statements, the financial data required to be set forth therein. CITRIN COOPERMAN & COMPANY, LLP November 6, 1998 New York, New York CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report dated November 6, 1998 included in, or incorporated by reference in, Registration Statement Nos. 2-72544, 33-29054, and 333-66009 on Form S-8 and the related Prospectuses. CITRIN COOPERMAN & COMPANY, LLP December 28, 1998 New York, New York F-1 GARAN, INCORPORATED AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14 - INTEREST INCOME Interest income is comprised of the following components: 1998 1997 1996 ---- ---- ---- Investments $2,494,000 $2,262,000 $1,999,000 Other 466,000 511,000 427,000 ---------- ---------- ---------- $2,960,000 $2,773,000 $2,426,000 ========== ========== ========== Note 15 - ACCRUED LIABILITIES Accrued liabilities as at September 30, 1998, and September 30, 1997, consist of the following: 1998 1997 ---- ---- Payroll/Bonus $1,356,000 $ 4,252,000 Payroll Taxes 38,000 103,000 Accrued Expenses 17,181,000 12,079,000 ----------- ----------- $18,575,000 $16,434,000 =========== =========== F-2 EX-10.(V) 2 EMPLOYMENT AGREEMENT EXHIBIT 10(v) GARAN, INCORPORATED 350 Fifth Avenue New York, New York 10118 November 9, 1998 Mr. Rodney Faver Route l, Box 260 Starkville, Mississippi 39759 Dear Rodney: We are writing to amend, as of October 1, 1998, the agreement between you and Garan, Incorporated ("Garan") originally entered into on October 1, 1988, and subsequently amended and restated as of October 1, 1992, and as of October 1, 1996 (the agreement, as amended and restated, "Employment Agreement"), with respect to your continuing employment by Garan. We have agreed that: A. Section 1.3, Period of Employment, shall be amended to read as follows: "Your employment under this Employment Agreement shall be for a term ending September 30, 2000." B. Section 3.2, Termination by Garan Other than for Cause, shall be amended (i) by changing the date in the first paragraph from "October 1, 1998 to "October 1, 2000 ", and (ii) by changing the date in Paragraph 3.2.b from "September 30, 2000 " to September 30, 2002." C. In all other respects, the Employment Agreement shall be unchanged. If the foregoing correctly sets forth our agreement, please sign and return the enclosed copy of this letter. Sincerely, GARAN, INCORPORATED By: /s/ Seymour Lichtenstein ------------------------------------ Seymour Lichtenstein, Chairman AGREED AND ACCEPTED: /s/ Rodney Faver - --------------------- Rodney Faver EX-21 3 LIST OF SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF REGISTRANT Name of Corporation State of Incorporation ------------------- ---------------------- Garan Central America Corp. Virginia Garan Export Corp. New York Garan Manufacturing Corp. Virginia Garan Services Corp. Delaware Garan de El Salvador, S.A. de C.V. El Salvador Garan de Honduras, S.A. de C.V. Honduras EX-27 4 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF EARNINGS AND BALANCE SHEETS OF GARAN, INCORPORATED ANNEXED HERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS SEP-30-1998 OCT-01-1997 SEP-30-1998 9,599,000 22,216,000 43,080,000 517,000 32,776,000 112,116,000 33,183,000 19,838,000 146,173,000 31,267,000 2,170,000 0 0 2,564,000 107,143,000 146,173,000 194,197,000 194,197,000 148,382,000 148,382,000 0 0 111,000 23,538,000 9,501,000 0 0 0 0 14,037,000 2.75 2.73
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