GARAN INC, 10-K, 1996-12-27

GARAN INC
10-K, 1996-12-27
APPAREL & OTHER FINISHD PRODS OF FABRICS & SIMILAR MATL

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<PAGE>

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, 1996

[ ] 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 statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of
the registrant on December 2, 1996, was approximately $75,300,000.

At December 2, 1996, 5,069,892 shares of the registrant's Common Stock,
no par value, were outstanding.

<PAGE>

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 1997 Annual Meeting
of Shareholders ("1997 Proxy Statement").

<PAGE>

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, 1996, 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)(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:

<PAGE>

Percentage of Net Sales
(years ended September 30)

1996 1995 1994
---- ---- ----

Men's apparel 8% 10% 13%

Women's apparel 18 18 17

Children's apparel 74 72 70

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, GARANIMALS, and ROB
ROY, 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 4%, 6%, and 9% of the registrant's net
sales in fiscal 1996, 1995, and 1994, respectively.

<PAGE>

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, and since 1990, registrant has been a non-exclusive licensee
of various colleges and universities for sweatshirts and knit shirts for boys
and men. Sales of such apparel by registrant accounted for approximately 9%,
12%, and 19% of the registrant's net sales in fiscal 1996, 1995, and 1994,
respectively. Since 1986, the registrant 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 8%,
7%, and 3% of the registrant's net sales in fiscal 1996, 1995, and 1994,
respectively. (The registrant also sublicenses the BOBBIE BROOKS trademark to
non-affiliates.) Since fiscal 1991, registrant has been a non-exclusive
licensee of Disney Enterprises, Inc. for various trademarks and for
characters, scenes, and logos from various animated television series and
motion pictures for children's apparel, and sales of apparel bearing such
trademarks accounted for approximately 9%, 8%, and 11% of registrant's net
sales for fiscal 1996, 1995, and 1994, respectively. In 1995, the registrant
became the exclusive licensee of the trademark EVERLAST for men's, boys', and
girls' activewear. Sales of apparel bearing the EVERLAST trademark commenced
in fiscal 1996 and accounted for approximately .3% of registrant's net sales
for that fiscal year. Total sales of apparel bearing licensed trademarks and
logos, some of which apparel also bears the registrant's trademarks LONG
GONE, TEAM RATED, GLORY DAYS, and G.T.S., accounted for approximately 28%,

<PAGE>

27%, and 35% of the registrant's net sales in fiscal 1996, 1995, and 1994,
respectively. The terms of the foregoing license agreements range from 1 to
3 years, royalty rates range from 2% to 14% of net sales, each license
agreement has a minimum royalty commitment, and certain license agreements
impose an advertising commitment. Shortfalls between earned royalties and
minimum royalties have not been material. Except for certain license
agreements with Disney Enterprises, Inc. for characters, scenes, and logos
relating to motion pictures no longer in general release, the registrant, to
the extent it desires to do so, will seek to renew each license agreement
when it expires upon substantially the same terms.

(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 has been able to keep production
levels relatively constant throughout the year. However, because of long
production runs and short shipping periods, the registrant's inventory levels
fluctuate during the year.

(c)(vi) Not applicable.

(c)(vii) Wal-Mart Stores, Inc. accounted for 66%, 63%, and 62%
of the registrant's net sales during fiscal 1996, 1995, and 1994, respectively.
During the same periods, J.C. Penney Company, Inc. accounted for 15%, 20%, and
18% of the registrant's net sales. The registrant has had a business

<PAGE>

relationship with Wal-Mart Stores, Inc. for more than the past 19 years and with
J.C. Penney Company, Inc. for more than the past 30 years. However, neither of
these relationships involve long-term contractual commitments, and, accordingly,
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 3,800 accounts, none of which is responsible for more than 10% of
the registrant's net sales.

(c)(viii) The registrant has been consistently able to secure
substantial orders from its customers to insure that production levels are kept
relatively constant throughout the year. As of December 2, 1996, firm backlog
orders amounted to $31,600,000, and firm backlog orders as of December 1, 1995,
amounted to $37,000,000. Registrant expects that all of its backlog orders at
December 2, 1996, will be filled during the 1997 fiscal year. Registrant's firm
backlog orders at any given time represent orders taken throughout the year and
vary throughout the year. The registrant believes that year to year variations
are immaterial to an understanding of its 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 with low
cost foreign sources; the registrant competes by relying on style,

<PAGE>

programs, and delivery 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.

(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, 1996. 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 2,500 persons at
September 30, 1996.

(d) Financial information about foreign and domestic operations and
export sales.

The registrant has operated a manufacturing facility in Costa Rica since
1984, and in fiscal 1995, began operating manufacturing facilities in El
Salvador, but it was not

<PAGE>

otherwise engaged in business within any foreign country during the fiscal year
ended September 30, 1996.

During fiscal 1996, 1995, and 1994, 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.

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)

Haleyville,
Alabama Manufacturing 10,000 Fee

Jemison,
Alabama Manufacturing 20,800 Lease 2001(1)

Kaplan,
Louisiana Manufacturing 87,900 Lease (1)(4)
43,900 Fee (4)

Lambert,
Mississippi Manufacturing 100,300 Fee (5)

Marksville,
Louisiana Manufacturing 75,000 Lease 1999(1)

<PAGE>

Expiration
Location Use Sq. Ft. Estate Date
- -------- --- ------- ------ ----------

New York,
New York Showroom
and Office 38,500 Lease 2011
Ozark,
Arkansas Manufacturing 75,000 Lease 1997(1)

Philadelphia,
Mississippi Manufacturing 107,920 Lease (1)(6)

Rainsville,
Alabama Manufacturing 53,000 Fee

San Jose,
Costa Rica Manufacturing 33,258 Fee

San Salvador,
El Salvador Manufacturing 22,350 Lease 1999(7)

San Salvador,
El Salvador Manufacturing 41,047 Lease 2000

San Salvador,
El Salvador Manufacturing 24,200 Lease 2001

Starkville,
Mississippi Manufacturing
and Office 90,000 Lease 1998(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 68 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.

<PAGE>

(3) One continuous building consisting of a 15,000 square foot section
leased to 1999, a 21,000 square foot section leased to 1997, a 41,000 square
foot section leased to 1997, 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 entire building is located on land owned by a
wholly-owned subsidiary of the registrant.

(5) The registrant determined that it no longer required the manufacturing
capacity of its plant in Lambert, Mississippi, and that facility was closed in
1995. The carrying value of the Lambert facility has been written down to its
net realizable value.

(6) One continuous building consisting of a 78,000 square foot section
leased to 2000 and a 29,920 square foot section leased to 2004.

(7) The registrant determined to transfer the operations of its first San
Salvador, El Salvador, facility to a new facility, and the first facility was
closed in 1996. The carrying value of that facility has been written down to
its net realizable value.

<PAGE>

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 1996.

Item 3. Legal Proceedings.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

Not applicable.

<PAGE>

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 1996 and 1995 are set forth in the table
below:

Sales Price of Common Stock
------------------------------------------
1996 1995
Quarters High Low High Low
- -------- ---- --- ---- ---

First . . . . . . . . . . . . $19 3/8 $16 3/8 $18 1/4 $15 1/2

Second . . . . . . . . . . . 17 15 1/8 18 14 7/8

Third . . . . . . . . . . . . 17 1/2 16 3/8 18 1/4 15 5/8

Fourth . . . . . . . . . . . . 18 16 3/8 17 3/4 15 7/8

Dividends paid during the last two fiscal years were as follows:

Dividends Paid per Share
Quarters 1996 1995
- -------- ---- ----

First -Regular . . . . . . . $ .20 $ .20
-Special . . . . . . . .20 .20
Second -Regular . . . . . . . .20 .20
Third -Regular . . . . . . . .20 .20
Fourth -Regular . . . . . . . .20 .20
----- -----
Total . . . . . . . . . $1.00 $1.00
----- -----
----- -----

As at December 2, 1996, there were 483 shareholders of record including Cede &
Company in its capacity as nominee for the Depository Trust Company.

<PAGE>

Item 6. Selected Financial Data

Five-Year Review
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------

<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------

Net Sales $146,491,000 $141,330,000 $173,002,000 $189,581,000 $170,377,000

Cost of Sales 114,744,000 111,454,000 131,687,000 134,212,000 122,716,000
- ------------------------------------------------------------------------------------------------------------------------

Gross Margin on Sales 31,747,000 29,876,000 41,315,000 55,369,000 47,661,000

Selling and Administrative Expenses 22,652,000 23,270,000 27,320,000 29,319,000 25,093,000

Interest on Capitalized Leases 123,000 141,000 153,000 202,000 250,000

Interest Income (2,426,000) (2,534,000) (1,491,000) (1,592,000) (2,007,000)
- ------------------------------------------------------------------------------------------------------------------------

Earnings before Provision for Income Taxes 11,398,000 8,999,000 15,333,000 27,440,000 24,325,000

Provision for Income Taxes 4,502,000 3,510,000 5,980,000 10,591,000 9,001,000
- ------------------------------------------------------------------------------------------------------------------------

Net Earnings $6,896,000 $5,489,000 $9,353,000 $16,849,000 $15,324,000
- ------------------------------------------------------------------------------------------------------------------------

Earnings Per Share $1.36 $1.08 $1.84 $3.32 $3.03

Average Shares Outstanding 5,070,000 5,070,000 5,070,000 5,068,000 5,058,000

Dividends Paid Per Share $1.00 $1.00 $1.80 $1.80 $1.175
- ------------------------------------------------------------------------------------------------------------------------

Current Assets $87,365,000 $88,685,000 $98,896,000 $101,847,000 $94,082,000

Current Liabilities 17,626,000 20,237,000 18,519,000 21,181,000 20,902,000
- ------------------------------------------------------------------------------------------------------------------------

Working Capital 75,767,000 68,448,000 80,377,000 80,666,000 73,180,000

Working Capital Ratio 5.30 4.38 5.34 4.81 4.50
- ------------------------------------------------------------------------------------------------------------------------

Total Assets $119,547,000 $120,431,000 $118,525,000 $121,791,000 $112,863,000
- ------------------------------------------------------------------------------------------------------------------------

Long-term Obligations $2,937,000 $3,061,000 $3,620,000 $4,176,000 $4,625,000
- ------------------------------------------------------------------------------------------------------------------------

Shareholders' Equity $96,141,000 $94,315,000 $93,896,000 $93,669,000 $85,795,000

Common Stock Issued and Outstanding 5,069,892 5,069,892 5,069,892 5,069,892 5,052,132
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE: All share and per share data give effect to the two-for-one stock split on
December 7, 1992.

<PAGE>
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations

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

Net Sales

Net sales in fiscal 1996 were $146,491,000, an increase of $5,161,000 over
fiscal 1995 net sales of $141,330,000. The increase in fiscal 1996 was primarily
a result of an increase in total units shipped.

Net sales in fiscal 1995 were $141,330,000, a decrease of $31,672,000 from
fiscal 1994 net sales of $173,002,000. The sales decreases occurred primarily in
the Sports Licensing divisions due to ongoing competitive conditions in the
marketplace, in the Disney division as a result of not participating in a film
property in 1995, and in the Women's Sweater division, which ceased operations
early in fiscal 1995.

Gross Margin

Gross margin in fiscal 1996 was $31,747,000, or 22% of net sales, as
compared to $29,876,000, or 21% of net sales, in fiscal 1995. The increase in
gross margin was the result of improved absorption of manufacturing expenses as
a result of the volume increase.

Gross margin for fiscal 1995 was $29,876,000, or 21% of net sales, as
compared to $41,315,000, or 24% of net sales, in fiscal 1994. The decline in
gross margin from year to year primarily resulted from (a) reduced volume in the
Sports Licensing divisions, which historically maintain higher gross margins
than the other divisions (the gross margin for the Sports Licensing divisions is
higher than for other divisions, but net sales of these divisions are subject to
a royalty expense which is included in selling and administrative expenses),
which affected product mix, and (b) from customer orders taken at lower margins
to maintain market share.

Selling and Administrative Expenses; Interest Income

Selling and administrative expenses in fiscal 1996 were $22,652,000, or 15%
of net sales, as compared to $23,270,000, or 16% of net sales, in fiscal 1995.
The decrease, both in absolute dollars and as a percentage of net sales, was the
result of reduced general overhead expenses offset by increased advertising in
the Everlast division.

Selling and administrative expenses in fiscal 1995 were $23,270,000, or 16%
of net sales, as compared to $27,320,000, or 16% of net sales, in fiscal 1994.
The decrease in dollar amount resulted primarily from reduced royalty and
commission expenses associated with the reduced sales volume in the Sports
Licensing divisions.

15
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Con't)

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

Interest income of $2,426,000 in fiscal 1996 decreased slightly from
$2,534,000 in fiscal 1995 due to a decline in interest rates on investments.

Interest income in fiscal 1995 was $2,534,000, an increase from $1,491,000
in the previous year. The increase from 1994 to 1995 was the result of more
favorable rates of return throughout the year and higher levels of investments.

Liquidity and Capital Resources

The Company's financial position remained strong throughout fiscal 1996. At
September 30, 1996 working capital was $75,767,000, an increase of $7,319,000
from September 30, 1995 working capital of $68,448,000. As is noted in footnote
1, the Company adopted Statement of Financial Accounting Standards No. 115 (SFAS
115), which requires that investments held to maturity be classified based upon
contractual maturities. As such, at September 30, 1996, $6,028,000 of
investments were reclassified as short-term.

The Company's primary source of cash during the three years ended September
30, 1996 has been its operating activities. In 1996, 1995, and 1994, operating
activities provided $20,453,000, $6,727,000, and $17,113,000, respectively.

The primary uses of cash during the three year period ended September 30,
1996, have been payment of dividends, additions to property, plant, and
equipment, and repayment of capitalized lease obligations.

In fiscal 1996 the Company continued its year end special dividend payment
which it initiated in fiscal 1988.

At September 30, 1996, shareholders' equity was $96,141,000 or $18.96 per
share, up from $94,315,000, or $18.60 per share, at September 30, 1995. At
September 30, 1994 shareholders' equity was $93,896,000, or $18.52 per share.

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 1996, 1995 and 1994, 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.

16
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Consolidated Balance Sheets

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

<TABLE>
<CAPTION>
Assets September 30, 1996 September 30, 1995
<S> <C> <C>
- -------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 20,587,000 $ 8,649,000
U.S. Government securities--short-term 12,568,000 20,424,000
Accounts receivable, less estimated
uncollectibles:
1996 and 1995, $514,000 26,041,000 25,746,000
Inventories 28,639,000 29,454,000
Other current assets 5,558,000 4,412,000
- -------------------------------------------------------------------------------------------
Total Current Assets 93,393,000 88,685,000
- -------------------------------------------------------------------------------------------
U.S. Government Securities--long-term 7,003,000 12,015,000
Property, Plant and Equipment, net 14,915,000 15,069,000
Other Assets 4,236,000 4,662,000
- -------------------------------------------------------------------------------------------
Total $119,547,000 $120,431,000
- -------------------------------------------------------------------------------------------

Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 4,609,000 $ 6,851,000
Accrued liabilities 11,321,000 11,005,000
Income taxes payable 1,572,000 2,227,000
Current portion of capitalized lease obligations 124,000 154,000
- -------------------------------------------------------------------------------------------
Total Current Liabilities 17,626,000 20,237,000
- -------------------------------------------------------------------------------------------
Capitalized Lease Obligations, net of current
portion 2,937,000 3,061,000
- -------------------------------------------------------------------------------------------
Deferred Income Taxes 2,843,000 2,818,000
- -------------------------------------------------------------------------------------------
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: 5,069,892 at 1996
and 1995 2,535,000 2,535,000
Additional paid-in capital 5,821,000 5,821,000
Retained earnings 87,785,000 85,959,000
- -------------------------------------------------------------------------------------------
Total Shareholders' Equity 96,141,000 94,315,000
- -------------------------------------------------------------------------------------------
Total $119,547,000 $120,431,000
- -------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

17
<PAGE>
Consolidated Statements of Earnings

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

<TABLE>
<S> <C> <C> <C>
Years Ended September 30,
----------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------
Net Sales $146,491,000 $141,330,000 $173,002,000
Cost of sales 114,744,000 111,454,000 131,687,000
- --------------------------------------------------------------------------------------------
Gross margin on sales 31,747,000 29,876,000 41,315,000
Selling and administrative expenses 22,652,000 23,270,000 27,320,000
Interest on capitalized leases 123,000 141,000 153,000
Interest income (2,426,000) (2,534,000) (1,491,000)
- --------------------------------------------------------------------------------------------
Earnings before provision for income taxes 11,398,000 8,999,000 15,333,000
Provision for income taxes 4,502,000 3,510,000 5,980,000
- --------------------------------------------------------------------------------------------
Net Earnings $ 6,896,000 $ 5,489,000 $ 9,353,000
- --------------------------------------------------------------------------------------------
Earnings per share $ 1.36 $ 1.08 $ 1.84
Average shares outstanding 5,070,000 5,070,000 5,070,000
- --------------------------------------------------------------------------------------------
</TABLE>

Consolidated Statements of Shareholders' Equity

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

<TABLE>
<S> <C> <C> <C> <C>
Additional
Common Paid-in Retained
Years Ended 1994, 1995 and 1996 Stock Capital Earnings Total
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Balance at September 30, 1993 $2,535,000 $5,821,000 $85,313,000 $93,669,000
- ------------------------------------------------------------------------------------------
Net earnings 9,353,000 9,353,000
Dividends paid--$1.80 per share (9,126,000) (9,126,000)
- ------------------------------------------------------------------------------------------
Balance at September 30, 1994 $2,535,000 $5,821,000 $85,540,000 $93,896,000
- ------------------------------------------------------------------------------------------
Net earnings 5,489,000 5,489,000
Dividends paid--$1.00 per share (5,070,000) (5,070,000)
- ------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

18
<PAGE>
Consolidated Statements of Cash Flows

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

<TABLE>
<S> <C> <C> <C>
Years Ended September 30,
--------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net earnings $ 6,896,000 $ 5,489,000 $ 9,353,000
Adjustments to reconcile net earnings to
net
cash flows from operating activities:
Depreciation and amortization 3,426,000 3,591,000 3,647,000
Provision for losses on accounts
receivable 43,000 112,000 170,000
Deferred income taxes 25,000 (537,000) 480,000
Changes in assets and liabilities:
U.S. Government Securities--short-term 12,887,000 (14,880,000)
Accounts receivable (338,000) 13,849,000 1,443,000
Inventories 815,000 (1,573,000) 5,992,000
Other current assets (1,146,000) (514,000) 208,000
Accounts payable (2,242,000) 305,000 (71,000)
Accrued liabilities 316,000 (4,000) (1,113,000)
Income taxes payable (655,000) 1,466,000 (1,710,000)
Other assets 426,000 (577,000) (1,286,000)
- ---------------------------------------------------------------------------------------
Net Cash Flows From Operating
Activities 20,453,000 6,727,000 17,113,000
- ---------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Sale of U.S. Government
Securities--long-term 997,000 3,000,000 25,924,000
Purchase of U.S. Government
Securities--long-term (1,016,000) (27,149,000)
Additions to property, plant and equipment (3,557,000) (3,284,000) (2,535,000)
Proceeds from sales of property, plant and
equipment 285,000 168,000 489,000
- ---------------------------------------------------------------------------------------
Net Cash Flows From Investing
Activities (3,291,000) (116,000) (3,271,000)
- ---------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Payment of dividends (5,070,000) (5,070,000) (9,126,000)
Repayment of capitalized lease obligations (154,000) (556,000) (854,000)
- ---------------------------------------------------------------------------------------
Net Cash Flows From Financing
Activities (5,224,000) (5,626,000) (9,980,000)
- ---------------------------------------------------------------------------------------
Increase in Cash 11,938,000 985,000 3,862,000
- ---------------------------------------------------------------------------------------
Cash and Cash Equivalents At Beginning of
Year 8,649,000 7,664,000 3,802,000
- ---------------------------------------------------------------------------------------
Cash and Cash Equivalents At End of Year $ 20,587,000 $ 8,649,000 $ 7,664,000
- ---------------------------------------------------------------------------------------
Supplemental Disclosures
Cash Paid During The Year For:
Interest $ 123,000 $ 141,000 $ 153,000
Income taxes 5,120,000 2,167,000 7,211,000
- ---------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

19
<PAGE>
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 year.

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.

Effective December 31, 1994, the Company adopted Statement of Financial
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), under which 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. In accordance with
SFAS 115, prior years' financial statements have not been restated to reflect
the change in accounting method. There was no cumulative effect as a result of
adopting SFAS 115 and the impact on net earnings for the year ended September
30, 1995 was not material.

20
<PAGE>
- -----------------------------------------------------------
- -----------------------------------------------------------

Note 2--Investments

Investments in the trading category amounted to $6,540,000 at September 30, 1996
and consisted of U.S. Treasury Bills maturing from November 1996 through
December 1996. Gross unrealized holding gains at September 30, 1996 were
approximately $43,000.

Investments in the held-to-maturity category amounted to $13,031,000 at
September 30, 1996 and consisted of U.S. Treasury Notes with contractual
maturities as follows:

<TABLE>
<S> <C>
1997 (included in U.S. Government securities --
short-term)............................................ $ 6,028,000
1998..................................................... 6,051,000
1999..................................................... 952,000
------------
$ 13,031,000
------------
------------
</TABLE>

The estimated fair value of investments approximates the amortized cost, and,
therefore, there are no unrealized gains or losses as at September 30, 1996.

Note 3--Inventories

INVENTORIES CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Raw materials......................................... $ 3,115,000 $ 5,135,000
Work in process....................................... 6,837,000 9,374,000
Finished goods........................................ 18,687,000 14,945,000
----------- -----------
$28,639,000 $29,454,000
----------- -----------
----------- -----------
</TABLE>

Note 4--Property, Plant and Equipment

PROPERTY, PLANT AND EQUIPMENT CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Capitalized leased manufacturing plants............... $11,545,000 $12,626,000
Machinery and equipment............................... 16,075,000 14,711,000
Leasehold improvements................................ 3,753,000 3,689,000
Transportation equipment.............................. 1,882,000 1,788,000
----------- -----------
33,255,000 32,814,000
Less accumulated depreciation and amortization........ 18,340,000 17,745,000
----------- -----------
$14,915,000 $15,069,000
----------- -----------
----------- -----------
</TABLE>

The net book value of the capitalized leased manufacturing plants was $4,025,000
at September 30, 1996 and $4,716,000 at September 30, 1995.

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, 1996 are as follows:

<TABLE>
<S> <C>
1997...................................................... $ 227,000
1998...................................................... 226,000
1999...................................................... 262,000
2000...................................................... 165,000
2001...................................................... 367,000
Later years............................................... 2,731,000
------------
3,978,000
Less interest--4.0% to 8.0%............................... (917,000)
------------
Total minimum lease payments.............................. 3,061,000
Less amounts due within one year.......................... (124,000)
------------
$ 2,937,000
------------
------------
</TABLE>

21
<PAGE>
- -----------------------------------------------------------
- -----------------------------------------------------------

Note 6--Income Taxes

The difference between the total statutory Federal income tax and the actual
income tax expense is accounted for as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
------------------------- ------------------------- -------------------------

<CAPTION>
Percent of Percent of Percent of
Pre-Tax Pre-Tax Pre-Tax
Amount Earnings Amount Earnings Amount Earnings
<S> <C> <C> <C> <C> <C> <C>
------------------------- ------------------------- -------------------------
Federal statutory tax expense................ $3,989,000 35.0% $3,150,000 35.0% $5,367,000 35.0%
State and local income tax expense, net of
Federal income tax benefit................... 513,000 4.5 360,000 4.0 613,000 4.0
---------- --- ---------- --- ---------- ---
Income tax expense........................... $4,502,000 39.5% $3,510,000 39.0% $5,980,000 39.0%
---------- --- ---------- --- ---------- ---
---------- --- ---------- --- ---------- ---
</TABLE>

Income tax expense consists of the following components:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current....................................... $4,477,000 $4,047,000 $5,500,000
Deferred...................................... 25,000 (537,000) 480,000
---------- ---------- ----------
$4,502,000 $3,510,000 $5,980,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

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, 1996 and 1995 is $1,504,000
and $1,478,000, respectively, of current deferred income tax debits, and
included in Income Taxes Payable at September 30, 1996 and 1995 is $506,000 and
$863,000, 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:

Total rental expense charged to operations in 1996, 1995 and 1994 amounted to
$1,501,000, $2,474,000, and $2,421,000, respectively.

The Company is obligated under various licensing agreements for annual minimum
royalty expense commitments, amounting to approximately $1,800,000, $1,400,000
and $200,000 for 1997, 1998 and 1999, respectively.

Total royalty expense charged to operations in 1996, 1995 and 1994 amounted to
$3,433,000, $3,336,000, and $5,309,000, 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 equal to its fair market value at the
respective date of grant. Options expire five years after the respective date of
grant.

For the years ended September 30, 1994, 1995 and 1996, there were 200,000
options available for grant, and there were no unexercised options for these
respective periods.

22
<PAGE>
- -----------------------------------------------------------
- -----------------------------------------------------------

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 $606,385 in 1996, $391,055 in 1995 and $549,587 in 1994. Net
pension costs under FASB No. 87 included the following components:

<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Service cost-benefits earned during the
period.................................. $ 626,204 $ 562,230 $ 620,643
Interest cost on projected benefit
obligation.............................. 1,072,436 980,101 1,056,531
Actual return on plan assets loss
(gain).................................. (1,711,145) (1,797,953) 253,612
Net amortization and deferral............ 398,651 640,469 (1,381,199)
------------ ------------ ------------
Net periodic pension cost before
settlement.............................. 386,146 384,847 549,587
Settlement gain.......................... 220,239 6,208
------------ ------------ ------------
Net periodic pension cost after
settlement.............................. $ 606,385 $ 391,055 $ 549,587
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

The following table sets forth the funded status for the Company's defined
benefit pension plans:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligation
Vested benefit obligation........................... $(11,947,688) $(11,651,126)
Nonvested benefit obligation........................ (431,473) (465,500)
------------ ------------
Accumulated benefit obligation...................... (12,379,161) (12,116,626)
Excess of projected benefit obligation over
accumulated benefit obligation..................... (1,276,116) (1,409,543)
------------ ------------
Projected benefit obligation........................ (13,655,277) (13,526,169)
Actual plan assets at fair value.................... 17,131,256 15,774,026
------------ ------------
Projected benefit obligation less than plan
assets............................................. 3,475,979 2,247,857
Unrecognized net (gain)............................. (793,060) (105,711)
Unrecognized prior service cost..................... 455,558 535,719
Unrecognized net transition obligation at September
30,................................................ 629,800 655,568
------------ ------------
Prepaid pension cost at September 30,............... $ 3,768,277 $ 3,333,433
------------ ------------
------------ ------------
</TABLE>

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 1996, 7.0% in 1995 and 7.5% in
1994. The expected long-term rate of return on assets used for the Company's
plans was 9.5% in 1996 and 7.5% in 1995 and 9.5% in 1994.

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 1996, 1995 and 1994 expense for such
plan was $705,000, $705,000 and $736,000, 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 to the five
participants, and the 1996 and 1995 expense for such plan was $68,000 and
$75,000, respectively.

Note 10--Major Customers

The Company operates within one industry segment - the manufacture of apparel.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral or

23
<PAGE>
- -----------------------------------------------------------
- -----------------------------------------------------------
other security to support customer receivables. Sales to one national retail
chain accounted for approximately 66% of the Company's net sales in 1996, 63% in
1995 and 62% in 1994. Another national retail chain accounted for approximately
15%, 20% and 18% of the Company's net sales in 1996, 1995 and 1994,
respectively. No other customer accounted for more than 10% of the Company's net
sales in each of the three years ended 1996. The Company routinely assesses the
financial strength of its customers and, as a consequence, management believes
that its trade receivable credit risk exposure is limited. Historically, the
Company has not experienced significant losses related to receivables.

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, 1995, 5,069,892 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 salary plus continuation of certain
benefits if there is a change in control in the Company (as defined) and a
termination of his employment. The maximum contingent liability under these
agreements in such event is approximately $6,500,000. 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 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
Fiscal Year 1996 Net Gross Net Earnings
Quarters Sales Margins Earnings Per Share
- ---------------------------------------------- --------- ----------- ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
First......................................... $ 33,024 $ 6,474 $ 1,341 $ .26
Second........................................ 26,882 5,975 1,002 .20
Third......................................... 37,218 9,133 2,067 .41
Fourth........................................ 49,367 10,165 2,486 .49
--------- ----------- ----------- -----------
Total...................................... $ 146,491 $ 31,747 $ 6,896 $ 1.36
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------

Fiscal Year 1995
Quarters
- ----------------------------------------------
First......................................... $ 38,668 $ 7,404 $ 1,122 $ .22
Second........................................ 28,380 6,588 1,052 .21
Third......................................... 33,040 7,092 1,404 .28
Fourth........................................ 41,242 8,792 1,911 .37
--------- ----------- ----------- -----------
Total...................................... $ 141,330 $ 29,876 $ 5,489 $ 1.08
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>

24
<PAGE>
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, 1996 and 1995 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, 1996. 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, 1996 and 1995, 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, 1996 in conformity
with generally accepted accounting principles.

Robbins, Greene, Horowitz, Lester & Co., LLP

New York, New York
November 15, 1996

<PAGE>

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 1997 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 1997 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 1997 Proxy Statement under the caption "Election of Directors;
Security Ownership of Certain Beneficial Owners and Management" and is
incorporated by reference into this Report.

Item 13. Certain Relationships and Related Transactions.

The information required to be set forth in this Item will be
contained in registrant's 1997 Proxy Statement under the caption "Transactions
with Management" and is incorporated by reference into this Report.

<PAGE>

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 17
September 30, 1996, and September 30, 1995.

Consolidated Statements of Earnings - 18
years ended September 30, 1996, September 30, 1995, and
September 30, 1994.

Consolidated Statements of Shareholders' 18
Equity - years ended September 30, 1996, September 30, 1995,
and September 30, 1994.

Consolidated Statements of Cash Flows - 19
years ended September 30, 1996, September 30, 1995,
and September 30, 1994.

Notes to Consolidated Financial Statements 20-24
for the years ended September 30, 1996, September 30, 1995,
and September 30, 1994.

<PAGE>

Page
----

Independent Auditors' Report dated 25
November 15, 1996.

(2) Consolidated Financial Statement Schedules.

Independent Auditors' Report on Schedules
dated November 15, 1996, and Consent of Independent Certified
Public Accountants dated December 23, 1996. F-1

Supplemental Notes to Consolidated Finan-
cial Statements for the years ended September 30, 1996,
September 30, 1995, and September 30, 1994. F-2

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.

<PAGE>

Page
----

(3) Articles of Incorporation and by-laws.

(i) Restated Articles of Incorporation was 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 is
in-corporated by reference into this report.

(ii) Articles of Amendment of the Restated
Articles of Incorporation was 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 is
incorporated by reference into this report.

(iii) Articles of Amendment of the Restated
Articles of Incorporation dated November 9, 1992, was
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 is 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 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.

<PAGE>

Page
----

(10) Material Contracts.

(i) Employment Agreement as amended and restated
on December 4, 1992,between the registrant and Rodney Faver,
was 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 is incorporated by reference into
this report.

(ii) Amendment to Employment Agreement dated
November 15, 1995, between the registrant and Rodney Faver
was reported and filed as an Exhibit in the registrant's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, and is incorporated by reference into
this report.

(iii) Employment Agreement as amended and
restated on December 4, 1992, between the registrant and
Jerald Kamiel, was 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 is incorporated by reference
into this report.

(iv) Employment and Consulting Agreement as
amended and restated on December 4, 1992, between the
registrant and Seymour Lichtenstein, was 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 is
incorporated by reference into this report.

(v) Employment Agreement as amended and
restated on December 4, 1992, between the registrant and
William J. Wilson, was 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 is incorporated by
reference into this report.

(vi) Supplemental Executive Retirement Plan,
effective April 1, 1989, was reported and filed as an
exhibit in the

<PAGE>

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 registrant'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 registrant. 33

(27) Financial Data Schedule. 34

(d) The Consolidated Financial Statement Schedules Specified in Item
14(a)(2) are annexed.

<PAGE>

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, 1996, 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.

ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP

November 15, 1996
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 15, 1996 included in, or incorporated
by reference in, Registration Statement Nos. 2-72544 and 33-29054 on Form S-8
and the related Prospectuses.

ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP

December 23, 1996
New York, New York

F-1

<PAGE>

GARAN, INCORPORATED AND SUBSIDIARIES

SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 - INTEREST INCOME

Interest income is comprised of the following components:

1996 1995 1994
---- ---- ----

Investments $1,999,000 $2,155,000 $1,066,000

Other 427,000 379,000 425,000
--------- --------- ---------

$2,426,000 $2,534,000 $1,491,000
--------- --------- ---------
--------- --------- ---------

Note 16 - ACCRUED LIABILITIES

Accrued liabilities as at September 30, 1996 and
September 30, 1995 consist of the following:

1996 1995
---- ----

Payroll $ 3,236,000 $ 2,663,000

Payroll Taxes 132,000 67,000

Accrued Expenses 7,953,000 8,275,000

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

$11,321,000 $11,005,000
---------- ----------
---------- ----------

F-2

<PAGE>

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 23, 1996 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 23, 1996 /s/Seymour Lichtenstein
----------------------------------------
Seymour Lichtenstein
Principal Executive Officer, Director

December 23, 1996 /s/William J. Wilson
----------------------------------------
William J. Wilson
Principal Financial Officer, Director

December 23, 1996 /s/Alexander J. Sistarenik
----------------------------------------
Alexander J. Sistarenik,
Principal Accounting Officer

December 23, 1996 /s/Rodney Faver
----------------------------------------
Rodney Faver, Director

December 23, 1996 /s/Jerald Kamiel
----------------------------------------
Jerald Kamiel, Director

December 23, 1996 /s/Marvin S. Robinson
----------------------------------------
Marvin S. Robinson, Director

<PAGE>

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

<PAGE>
<ARTICLE> 5
<LEGEND>
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 FINANCAIL
STATMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-1-1995
<PERIOD-END> SEP-30-1996
<CASH> 20,587,000
<SECURITIES> 12,568,000
<RECEIVABLES> 26,555,000
<ALLOWANCES> 514,000
<INVENTORY> 28,639,000
<CURRENT-ASSETS> 93,393,000
<PP&E> 33,255,000
<DEPRECIATION> 18,340,000
<TOTAL-ASSETS> 119,547,000
<CURRENT-LIABILITIES> 17,626,000
<BONDS> 2,937,000
0
0
<COMMON> 2,535,000
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<SALES> 146,491,000
<TOTAL-REVENUES> 146,491,000
<CGS> 114,744,000
<TOTAL-COSTS> 114,744,000
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 123,000
<INCOME-PRETAX> 11,398,000
<INCOME-TAX> 4,502,000
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,896,000
<EPS-PRIMARY> 1.36
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</TABLE>