GARAN INC, 10-K, 1997-12-24

GARAN INC
10-K, 1997-12-24
APPAREL & OTHER FINISHD PRODS OF FABRICS & SIMILAR MATL

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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, 1997

[ ] 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 / /

<PAGE>

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, 1997, was approximately
$106,000,000.

At December 1, 1997, 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 1998 Annual Meeting of
Shareholders ("1998 Proxy Statement").

2
<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, 1997, 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:

Percentage of Net Sales
(years ended September 30)

1997 1996 1995
---- ---- ----

Men's apparel 6% 8% 10%
Women's apparel 14 18 18
Children's apparel 80 74 72

The registrant produces apparel primarily sold to regional mass merchandisers,
major national chain stores, department stores, and

3
<PAGE>

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 16%, 4%, and 6% of the registrant's net sales in fiscal 1997,
1996, and 1995, 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 10%, 9%, and 12% of the registrant's net sales in fiscal 1997,
1996, and 1995, respectively. Since 1986, the registrant has been the exclusive
licensee of the

4
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trademark BOBBIE BROOKS for girls' and women's apparel, and sales of apparel by
registrant bearing the BOBBIE BROOKS trademark accounted for approximately 14%,
8%, and 7% of the registrant's net sales in fiscal 1997, 1996, and 1995,
respectively. Since fiscal 1991, registrant has been a non-exclusive licensee
of Disney Enterprises, Inc. for various trademarks, and sales of apparel bearing
such trademarks accounted for approximately 2%, 9%, and 8% of registrant's net
sales for fiscal 1997, 1996, and 1995, 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 26%, 28%, and 27% of the registrant's net sales in fiscal 1997,
1996, and 1995, 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 71%, 66%, and 63%
of the registrant's net sales during fiscal 1997, 1996, and 1995, respectively.
During the same periods, J.C. Penney

5
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Company, Inc. accounted for 12%, 15%, and 20% of the registrant's 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 2,300 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 it 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.

(c)(xi) No material expenditures are made by the registrant for
research activities relating to the development of

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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, 1997. 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 2,800 persons at
September 30, 1997.

(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 otherwise engaged in business within any foreign
country during the fiscal year ended September 30, 1997.

During fiscal 1997, 1996, and 1995, 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.

<PAGE>

Item 2. Properties.

Expiration
Location Use Sq. Ft. Estate Date
- -------- --- ------- ------ ----------
<S> <C> <C> <C> <C>
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 (4)

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

Kaplan,
Louisiana Manufacturing 87,900 Lease (1)(5)
43,900 Fee (5)

Lambert,
Mississippi Manufacturing 100,300 Fee (6)

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)(7)

Rainsville,
Alabama Manufacturing 53,000 Fee

</TABLE>

8
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<TABLE>
<CAPTION>

Expiration
Location Use Sq. Ft. Estate Date
- -------- --- ------- ------ ----------
<S> <C> <C> <C> <C>

San Jose,
Costa Rica Manufacturing 33,258 Fee

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 1998(1)

</TABLE>

(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 67 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 1998, a 41,000 square
foot section leased to 1998, and a 19,742 square foot section leased to 2004.

(4) The registrant determined that it no longer required the manufacturing
capacity of its plant in Haleyville, Alabama, and that facility was sold in
fiscal 1997.

(5) 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

9
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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.

(6) The registrant determined that it no longer required the
manufacturing capacity of its plant in Lambert, Mississippi, and that
facility was closed in 1995, at which time it was written down to its net
realizable value. The entire facility was donated to Quitman County,
Mississippi in fiscal 1997.

(7) 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 1997.

Item 3. Legal Proceedings.

None.

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

Not applicable.

10
<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 1997 and 1996 are set forth in the table
below:

Sales Price of Common Stock
----------------------------------
1997 1996
---- ----
Quarters High Low High Low
- -------- ---- --- ---- ---

First . . . . . . . . . . . . $20 1/8 $16 3/4 $19 3/8 $16 3/8
Second . . . . . . . . . . . . 21 1/8 17 3/8 17 15 1/8
Third . . . . . . . . . . . . 20 7/8 17 3/8 17 1/2 16 3/8
Fourth . . . . . . . . . . . . 23 3/4 19 18 16 3/8

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

Dividends Paid per Share
Quarters 1997 1996
- -------- ---- ----

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 1, 1997, there were 465 shareholders of record including Cede &
Company in its capacity as nominee for the Depository Trust Company.

11
<PAGE>

Item 6. Selected Financial Data

FIVE-YEAR REVIEW
- ------------------------------------------------------------------------

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------

NET SALES $153,250,000 $146,491,000 $141,330,000 $173,002,000 $189,581,000

COST OF SALES 116,833,000 114,744,000 111,454,000 131,687,000 134,212,000
- --------------------------------------------------------------------------------------------------

GROSS MARGIN ON SALES 36,417,000 31,747,000 29,876,000 41,315,000 55,369,000

SELLING AND ADMINISTRATIVE EXPENSES 22,915,000 22,652,000 23,270,000 27,320,000 29,319,000

INTEREST ON CAPITALIZED LEASES 119,000 123,000 141,000 153,000 202,000

INTEREST INCOME (2,773,000) (2,426,000) (2,534,000) (1,491,000) (1,592,000)
- --------------------------------------------------------------------------------------------------

EARNINGS BEFORE PROVISION FOR INCOME TAXES 16,156,000 11,398,000 8,999,000 15,333,000 27,440,000

PROVISION FOR INCOME TAXES 6,441,000 4,502,000 3,510,000 5,980,000 10,591,000
- --------------------------------------------------------------------------------------------------

NET EARNINGS $9,715,000 $6,896,000 $5,489,000 $9,353,000 $16,849,000
- --------------------------------------------------------------------------------------------------

EARNINGS PER SHARE $1.92 $1.36 $1.08 $1.84 $3.32

AVERAGE SHARES OUTSTANDING 5,070,000 5,070,000 5,070,000 5,070,000 5,068,000

DIVIDENDS PAID PER SHARE $1.00 $1.00 $1.00 $1.80 $1.80
- --------------------------------------------------------------------------------------------------

CURRENT ASSETS $94,014,000 $93,393,000 $88,685,000 $98,896,000 $101,847,000

CURRENT LIABILITIES 25,607,000 17,626,000 20,237,000 18,519,000 21,181,000
- --------------------------------------------------------------------------------------------------

WORKING CAPITAL 68,407,000 75,767,000 68,448,000 80,377,000 80,666,000

WORKING CAPITAL RATIO 3.67 5.30 4.38 5.34 4.81
- --------------------------------------------------------------------------------------------------

TOTAL ASSETS $132,386,000 $119,547,000 $120,431,000 $118,525,000 $121,791,000
- --------------------------------------------------------------------------------------------------

LONG-TERM OBLIGATIONS $2,807,000 $2,937,000 $3,061,000 $3,620,000 $4,176,000
- --------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY $100,786,000 $96,141,000 $94,315,000 $93,896,000 $93,669,000

COMMON STOCK ISSUED AND OUTSTANDING 5,069,892 5,069,892 5,069,892 5,069,892 5,069,892
- --------------------------------------------------------------------------------------------------
</TABLE>

12
<PAGE>

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 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 film licenses.

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.

GROSS MARGIN

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 volume and absorption of overhead.

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.

SELLING AND ADMINISTRATIVE EXPENSES; INTEREST INCOME

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 were comparable as a percentage of sales to
the same period last year. The slight increase in dollars is the result of
investments in internal operating systems and systems related to customer
service offset by a decrease in royalty expenses related to volume net of
shortfalls between royalties earned and minimum royalties.

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, net of shortfalls between royalties earned and minimum
royalties.

13
<PAGE>

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

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.

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

LIQUIDITY AND CAPITAL RESOURCES

The balance sheet reflects the strong financial condition of the Company. At
September 30, 1997 working capital was $68,407,000, a decrease of $7,360,000
from September 30, 1996 working capital of $75,767,000 primarily resulting from
a decrease in cash and cash equivalents of $11,927,000, due to investment in
government securities maturing more than one year after the balance sheet date.

The Company's primary source of cash during the three years ended September 30,
1997 has been its operating activities. In 1997, 1996 and 1995, operating
activities provided cash of $11,632,000, $20,453,000 and $6,727,000,
respectfully.

The primary uses of cash during the three-year period ended September 30, 1997,
have been payment of dividends, additions to property, plant and equipment, and
repayment of capitalized lease obligations.

In fiscal 1997 the Company continued its year end special dividend payment which
it initiated in fiscal 1988.

At September 30, 1997, shareholders' equity was $100,786,000 or $19.88 per
share, up from $96,141,000, or $18.96 per share, at September 30, 1996. At
September 30, 1995, shareholders' equity was $94,315,000, or $18.60 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 1997, 1996 and 1995, 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.

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Item 8. Financial Statement & Supplementary Data

CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1997 September 30, 1996
<S> <C> <C>
</TABLE>

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

<TABLE>
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $8,660,000 $20,587,000
U.S. Government securities--short-term 16,223,000 12,568,000
Accounts receivable, less estimated
uncollectibles of $510,000 at 1997 and
$514,000 at 1996 31,092,000 26,041,000
Inventories 33,731,000 28,639,000
Other current assets 4,308,000 5,558,000
- -------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 94,014,000 93,393,000
- -------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--LONG-TERM 19,853,000 7,003,000
PROPERTY, PLANT AND EQUIPMENT, NET 13,470,000 14,915,000
OTHER ASSETS 5,049,000 4,236,000
- -------------------------------------------------------------------------------------------
TOTAL $132,386,000 $119,547,000
</TABLE>

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

<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $6,589,000 $4,609,000
Accrued liabilities 16,434,000 11,321,000
Income taxes payable 2,454,000 1,572,000
Current portion of capitalized lease obligations 130,000 124,000
- -------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 25,607,000 17,626,000
- -------------------------------------------------------------------------------------------
CAPITALIZED LEASE OBLIGATIONS, NET OF CURRENT
PORTION 2,807,000 2,937,000
- -------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 3,186,000 2,843,000
- -------------------------------------------------------------------------------------------
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 1997
and 1996 2,535,000 2,535,000
Additional paid-in capital 5,821,000 5,821,000
Retained earnings 92,430,000 87,785,000
- -------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 100,786,000 96,141,000
- -------------------------------------------------------------------------------------------
TOTAL $132,386,000 $119,547,000
</TABLE>

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

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

15
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
- ------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C>
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------
NET SALES $153,250,000 $146,491,000 $141,330,000
Cost of sales 116,833,000 114,744,000 111,454,000
- --------------------------------------------------------------------------------------------
Gross margin on sales 36,417,000 31,747,000 29,876,000
Selling and administrative expenses 22,915,000 22,652,000 23,270,000
Interest on capitalized leases 119,000 123,000 141,000
Interest income (2,773,000) (2,426,000) (2,534,000)
- --------------------------------------------------------------------------------------------
Earnings before provision for income taxes 16,156,000 11,398,000 8,999,000
Provision for income taxes 6,441,000 4,502,000 3,510,000
- --------------------------------------------------------------------------------------------
NET EARNINGS $9,715,000 $6,896,000 $5,489,000
- --------------------------------------------------------------------------------------------
Earnings per share $1.92 $1.36 $1.08
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 1995, 1996 AND 1997 STOCK CAPITAL EARNINGS TOTAL
- ------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

16
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C>
YEARS ENDED SEPTEMBER 30,
-------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS $9,715,000 $6,896,000 $5,489,000
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET
CASH FLOWS FROM OPERATING ACTIVITIES:
Depreciation and amortization 2,932,000 3,426,000 3,591,000
Provision for losses on accounts
receivable 62,000 43,000 112,000
Deferred income taxes (325,000) 25,000 (537,000)
Changes in assets and liabilities:
U.S. Government Securities--short-term 373,000 12,887,000 (14,880,000)
Accounts receivable (5,113,000) (338,000) 13,849,000
Inventories (5,092,000) 815,000 (1,573,000)
Other current assets 1,759,000 (1,146,000) (514,000)
Accounts payable 1,980,000 (2,242,000) 305,000
Accrued liabilities 5,113,000 316,000 (4,000)
Income taxes payable 1,041,000 (655,000) 1,466,000
Other assets (813,000) 426,000 (577,000)
- ---------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 11,632,000 20,453,000 6,727,000
- ---------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of U.S. Government
Securities--long-term 6,028,000 997,000 3,000,000
Purchase of U.S. Government
Securities--long-term (22,906,000) (1,016,000)
Additions to property, plant and equipment (1,622,000) (3,557,000) (3,284,000)
Proceeds from sales of property, plant and
equipment 135,000 285,000 168,000
- ---------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING
ACTIVITIES (18,365,000) (3,291,000) (116,000)
- ---------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (5,070,000) (5,070,000) (5,070,000)
Repayment of capitalized lease obligations (124,000) (154,000) (556,000)
- ---------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING
ACTIVITIES (5,194,000) (5,224,000) (5,626,000)
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (11,927,000) 11,938,000 985,000
- ---------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 20,587,000 8,649,000 7,664,000
- ---------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $8,660,000 $20,587,000 $8,649,000
- ---------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
CASH PAID DURING THE YEAR FOR:
Interest $119,000 $123,000 $141,000
Income taxes 5,819,000 5,120,000 2,167,000
- ---------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

17
<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.

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 $6,167,000 at September 30, 1997
and consisted of U.S. Treasury Bills maturing from October 1997 through April
1998. Gross unrealized holding gains at September 30, 1997 were deemed
immaterial.

18
<PAGE>

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

Investments in the held-to-maturity category amounted to $29,909,000 at
September 30, 1997 and consisted of U.S. Treasury Notes with contractual
maturities as follows:

<TABLE>
<S> <C>
1998 (included in U.S. Government securities -- short-term)................ $10,056,000
1999....................................................................... 15,692,000
2000....................................................................... 4,161,000
-----------
$29,909,000
-----------
-----------
</TABLE>

The estimated fair value of investments approximates the amortized cost, and,
therefore, there are no unrealized gains or losses as at September 30, 1997.

NOTE 3--INVENTORIES

INVENTORIES CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials........................................................... $6,697,000 $3,115,000
Work in process......................................................... 6,921,000 6,837,000
Finished goods.......................................................... 20,113,000 18,687,000
---------- ----------
$33,731,000 $28,639,000
---------- ----------
---------- ----------
</TABLE>

NOTE 4--PROPERTY, PLANT AND EQUIPMENT

PROPERTY, PLANT AND EQUIPMENT CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Capitalized leased manufacturing plants................................. $11,373,000 $11,545,000
Machinery and equipment................................................. 14,999,000 16,075,000
Leasehold improvements.................................................. 3,847,000 3,753,000
Transportation equipment................................................ 1,920,000 1,882,000
---------- ----------
32,139,000 33,255,000
Less accumulated depreciation and amortization.......................... 18,669,000 18,340,000
---------- ----------
$13,470,000 $14,915,000
---------- ----------
---------- ----------
</TABLE>

The net book value of the capitalized leased manufacturing plants was $3,629,000
at September 30, 1997 and $4,025,000 at September 30, 1996.

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, 1997 are as follows:

<TABLE>
<S> <C>
1998.......................................................................... $231,000
1999.......................................................................... 231,000
2000.......................................................................... 106,000
2001.......................................................................... 315,000
2002.......................................................................... 305,000
Later years................................................................... 2,358,000
-----------
3,546,000
Less interest--4.25% to 6.0%.................................................. (609,000)
-----------
Total minimum lease payments.................................................. 2,937,000
Less amounts due within one year.............................................. (130,000)
-----------
$2,807,000
-----------
-----------
</TABLE>

19
<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>
1997 1996
<S> <C> <C> <C> <C>
---------------------------- ----------------------------

<CAPTION>
Percent of Percent of
Pre-tax Pre-Tax
Amount Earnings Amount Earnings
<S> <C> <C> <C> <C>
---------------------------- ----------------------------
Federal statutory tax expense................................ $ 5,655,000 35.0% $ 3,989,000 35.0%
State and local income tax expense, net of Federal income tax
benefit...................................................... 786,000 4.9 513,000 4.5
------------- ----- ------------- -----
Income tax expense........................................... $ 6,441,000 39.9% $ 4,502,000 39.5%
------------- ----- ------------- -----
------------- ----- ------------- -----

<CAPTION>
1995
<S> <C> <C>
----------------------------
Percent of
Pre-Tax
Amount Earnings
<S> <C> <C>
----------------------------
Federal statutory tax expense................................ $ 3,150,000 35.0%
State and local income tax expense, net of Federal income tax
benefit...................................................... 360,000 4.0
------------- -----
Income tax expense........................................... $ 3,510,000 39.0%
------------- -----
------------- -----
</TABLE>

Income tax expense consists of the following components:

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current.......................................................... $6,766,000 $4,477,000 $4,047,000
Deferred......................................................... (325,000) 25,000 (537,000)
--------- --------- ---------
$6,441,000 $4,502,000 $3,510,000
--------- --------- ---------
--------- --------- ---------
</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, 1997 and 1996 is $2,013,000
and $1,504,000, respectively, of current deferred income tax debits, and
included in Income Taxes Payable at September 30, 1997 and 1996 is $347,000 and
$506,000, 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 1997, 1996 and 1995 amounted to
$1,591,000, $1,501,000, and $2,474,000, respectively.

The Company is obligated under various licensing agreements for annual minimum
royalty expense commitments, amounting to approximately $1,530,000 and
$1,700,000 for 1998 and 1999, respectively.

Total royalty expense charged to operations in 1997, 1996 and 1995 amounted to
$2,444,000, $3,433,000, and $3,336,000, 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. At September 30, 1995 and 1996, there were 200,000
options available for grant. At September 30, 1997, there were 22,500 options
available for 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.

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 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

20
<PAGE>

- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
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 $249,721 in 1997, $606,385 in 1996 and $391,055 in 1995. Net
pension costs under FASB No. 87 included the following components:

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost-benefits earned during the period............... $546,053 $626,204 $562,230
Interest cost on projected benefit obligation................ 1,032,140 1,072,436 980,101
Actual return on plan assets loss (gain)..................... (1,978,791) (1,711,145) (1,797,953)
Net amortization and deferral................................ 628,063 398,651 640,469
----------- ----------- -----------
Net periodic pension cost before settlement.................. 227,465 386,146 384,847
Settlement gain.............................................. 22,256 220,239 6,208
----------- ----------- -----------
Net periodic pension cost after settlement................... $249,721 $606,385 $391,055
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

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

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation

Vested benefit obligation.............................................. $(10,774,077) $(11,947,688)
Nonvested benefit obligation........................................... (695,027) (431,473)
----------- -----------
Accumulated benefit obligation......................................... (11,469,104) (12,379,161)
Excess of projected benefit obligation over accumulated benefit
obligation............................................................ (1,274,140) (1,276,116)
----------- -----------
Projected benefit obligation........................................... (12,743,244) (13,655,277)
Actual plan assets at fair value....................................... 16,394,895 17,131,256
----------- -----------
Projected benefit obligation less than plan assets..................... 3,651,651 3,475,979
Unrecognized net (gain)................................................ (637,182) (793,060)
Unrecognized prior service cost........................................ 730,428 455,558
Unrecognized net transition obligation at September 30................. 563,271 629,800
----------- -----------
Prepaid pension cost at September 30................................... $4,308,168 $3,768,277
----------- -----------
----------- -----------
</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 1997, 8.0% in 1996 and 7.0% in
1995. The expected long-term rate of return on assets used for the Company's
plans was 9.5% in 1997, 9.5% in 1996 and 7.5% in 1995.

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 1997, 1996 and 1995 expense for such
plan was $436,000, $705,000 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 1997, 1996 and 1995 expense for such plan was $81,000, $68,000 and
$75,000, respectively.

21
<PAGE>

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

NOTE 10--MAJOR CUSTOMERS

The Company operates within one industry segment--the manufacture of apparel.
Sales to one national retail chain accounted for approximately 71% of the
Company's net sales in 1997, 66% in 1996 and 63% in 1995. Another national
retail chain accounted for approximately 12%, 15% and 20% of the Company's net
sales in 1997, 1996 and 1995. 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, 1997, 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 his
employment terminates. The maximum contingent liability under these agreements
in such event is approximately $7,663,000. 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 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
NET GROSS NET EARNINGS
SALES MARGINS EARNINGS PER SHARE
--------- ----------- ----------- -------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Fiscal Year 1997
Quarters
- --------------------------------------------------------------

First......................................................... $30,993 $7,082 $1,437 $.28
Second........................................................ 37,611 9,153 2,541 .50
Third......................................................... 29,568 7,480 1,833 .36
Fourth........................................................ 55,078 12,702 3,904 .78
--------- ----------- ----------- -----
Total...................................................... $153,250 $36,417 $9,715 $1.92
--------- ----------- ----------- -----
--------- ----------- ----------- -----

<CAPTION>
Fiscal Year 1996
Quarters
- --------------------------------------------------------------
<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
--------- ----------- ----------- -----
--------- ----------- ----------- -----
</TABLE>

22
<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, 1997 and 1996 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, 1997. 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, 1997 and 1996, 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, 1997 in conformity
with generally accepted accounting principles.

Citrin Cooperman & Company, LLP

New York, New York
November 11, 1997

23
<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 1998 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 1998 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 1998 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 1998 Proxy Statement under the caption "Transactions
with Management" and is incorporated by reference into this Report.

24
<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
September 30, 1997, and September 30, 1996.

Consolidated Statements of Earnings -
years ended September 30, 1997, September 30, 1996, and
September 30, 1995.

Consolidated Statements of Shareholders'
Equity - years ended September 30, 1997, September 30, 1996,
and September 30, 1995.

Consolidated Statements of Cash Flows -
years ended September 30, 1997, September 30, 1996,
and September 30, 1995.

Notes to Consolidated Financial Statements
for the years ended September 30, 1997, September 30, 1996,
and September 30, 1995.

25
<PAGE>

PAGE

Independent Auditors' Report dated
November 11, 1997.

(2) Consolidated Financial Statement Schedules.

Independent Auditors' Report on Schedules
dated November 11, 1997, and Consent of Independent Certified
Public Accountants dated December 22, 1997.

Supplemental Notes to Consolidated Finan-
cial Statements for the years ended September 30, 1997,
September 30, 1996, and September 30, 1995.

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.

26
<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
incorporated 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 (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.

27
<PAGE>

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) 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.

(vi) Form of Indemnity Agreement

28
<PAGE>

dated August 9, 1993, between the regist-
rant and each of its directors was re-
ported 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.

(vii) 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 registrant.

(27) Financial Data Schedule.

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

29
<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 22, 1997 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 22, 1997 /s/ Seymour Lichtenstein
---------------------------------------
Seymour Lichtenstein
Principal Executive Officer, Director

December 22, 1997 /s/ William J. Wilson
---------------------------------------
William J. Wilson
Principal Financial Officer, Director

December 22, 1997 /s/ Alexander J. Sistarenik
---------------------------------------
Alexander J. Sistarenik,
Principal Accounting Officer

December 22, 1997 /s/ Rodney Faver
---------------------------------------
Rodney Faver, Director

December 22, 1997 /s/ Jerald Kamiel
---------------------------------------
Jerald Kamiel, Director

December 22, 1997 /s/ Marvin S. Robinson
---------------------------------------
Marvin S. Robinson, Director

<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, 1997, 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 11, 1997
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 11, 1997 included in, or incorporated
by reference in, Registration Statement Nos. 2-72544 and 33-29054 on Form S-8
and the related Prospectuses.

CITRIN COOPERMAN & COMPANY, LLP

December 22, 1997
New York, New York

F-1
<PAGE>

GARAN, INCORPORATED AND SUBSIDIARIES

SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 - INTEREST INCOME

Interest income is comprised of the following components:

1997 1996 1995
---- ---- ----

Investments $2,262,000 $1,999,000 $2,155,000

Other 511,000 427,000 379,000
---------- ---------- ----------

$2,773,000 $2,426,000 $2,534,000
========== ========== ==========

Note 15 - ACCRUED LIABILITIES

Accrued liabilities as at September 30, 1997, and
September 30, 1996, consist of the following:

1997 1996

Payroll/Bonus $ 4,252,000 $ 3,236,000

Payroll Taxes 103,000 132,000

Accrued Expenses 12,079,000 7,953,000
----------- -----------

$16,434,000 $11,321,000
=========== ===========

F-2

<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 COMTAINS 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.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 8,660,000
<SECURITIES> 16,223,000
<RECEIVABLES> 31,602,000
<ALLOWANCES> 510,000
<INVENTORY> 33,731,000
<CURRENT-ASSETS> 94,014,000
<PP&E> 32,139,000
<DEPRECIATION> 18,669,000
<TOTAL-ASSETS> 132,386,000
<CURRENT-LIABILITIES> 25,607,000
<BONDS> 2,807,000
0
0
<COMMON> 2,535,000
<OTHER-SE> 98,251,000
<TOTAL-LIABILITY-AND-EQUITY> 132,386,000
<SALES> 153,250,000
<TOTAL-REVENUES> 153,250,000
<CGS> 116,833,000
<TOTAL-COSTS> 116,833,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,000
<INCOME-PRETAX> 16,156,000
<INCOME-TAX> 6,441,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,715,000
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 0

</TABLE>