SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999 Commission File No 1-4506
GARAN, INCORPORATED
(Exact name of registrant as specified in its charter)
VIRGINIA 13-5665557
(State of Incorporation) (I.R.S. Employer Identification No.)
350 Fifth Avenue, New York, NY 10118
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 563-2000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period than the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this
report.
Class Outstanding June 30, 1999
Common Stock (no par value) 5,305,237 shares
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PART I. - FINANCIAL INFORMATION
GARAN, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
6/30/99 6/30/98
____________ _____________
<S> <C> <C>
Net sales $45,836,000 $43,706,000
Cost of sales 33,999,000 33,267,000
____________ ____________
Gross margin on sales 11,837,000 10,439,000
Selling and administrative expenses 6,292,000 5,980,000
Interest on capitalized leases 21,000 27,000
Interest income (707,000) (729,000)
___________ ___________
Earnings before provision
for income taxes 6,231,000 5,161,000
Provision for income taxes 2,555,000 2,090,000
___________ ___________
Net earnings $ 3,676,000 $ 3,071,000
=========== ===========
Earnings per share data:
Earnings per share - Basic $ 0.70 $ 0.60
- Diluted $ 0.69 $ 0.60
Average common shares outstanding - Basic 5,178,000 5,103,000
- Diluted 5,218,000 5,137,000
Dividends paid per share $ 0.25 $ 0.20
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<TABLE>
GARAN, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
6/30/99 6/30/98
____________ _____________
<S> <C> <C>
Net sales $143,529,000 $122,515,000
Cost of sales 106,650,000 93,358,000
____________ ____________
Gross margin on sales 36,879,000 29,157,000
Selling and administrative expenses 18,826,000 17,074,000
Interest on capitalized leases 67,000 83,000
Interest income (2,085,000) (2,343,000)
___________ ___________
Earnings before provision
for income taxes 20,071,000 14,343,000
Provision for income taxes 8,161,000 5,776,000
___________ ___________
Net earnings $11,910,000 $ 8,567,000
=========== ===========
Earnings per share data:
Earnings per share - Basic $ 2.30 $ 1.68
- Diluted $ 2.28 $ 1.67
Average common shares outstanding- Basic 5,178,000 5,103,000
- Diluted 5,218,000 5,137,000
Dividends paid per share $ 1.40 $ 1.00
</TABLE>
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<TABLE>
GARAN, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
06/30/99 9/30/98
____________ _____________
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,412,000 9,599,000
U.S. Government securities - short-term 6,850,000 22,216,000
Accounts receivable, less estimated
uncollectibles of $512,000 at
6/30/99 and $518,000 at 6/30/98 29,732,000 42,563,000
Inventories 58,495,000 32,776,000
Other current assets 4,757,000 4,962,000
Total current assets 105,246,000 112,116,000
U.S. Government Securities - Long-term 25,636,000 15,315,000
Property, plant and equipment, less
accumulated depreciation and amortization 14,001,000 13,345,000
Other assets 6,826,000 5,397,000
TOTAL $ 151,709,000 146,173,000
============ ============
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<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable $ 11,475,000 8,555,000
Accrued liabilities 18,548,000 18,575,000
Federal and state income taxes payable 1,996,000 4,000,000
Current portion of capitalized leases 137,000 137,000
Total current liabilities 32,156,000 31,267,000
Capitalized lease obligations, net of
current portion 2,033,000 2,170,000
Deferred income taxes 2,719,000 3,029,000
Shareholders' Equity:
Preferred stock ($10 par value) 500,000
shares authorized; none issued
Common stock (no par value) 15,000,000
shares authorized; issued 5,305,237
at 6/30/99 and 5,128,719 at 9/30/98 2,653,000 2,564,000
Additional paid-in-capital 11,263,000 6,792,000
Unamortized value of restricted stock (4,138,000) 0
Retained earnings 105,023,000 100,351,000
Total shareholders' equity 114,801,000 109,707,000
TOTAL $ 151,709,000 146,173,000
============ =============
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GARAN, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
6/30/99 6/30/98
_____________ _____________
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 11,910,000 $ 8,567,000
Adjustments to reconcile to net cash
provided by operating activities:
Deferred compensation 142,000 0
Depreciation and amortization 2,952,000 2,517,000
Provision for losses on accounts
receivable 0 10,000
Deferred income taxes (310,000) (210,0000)
Changes in assets and liabilities:
U.S. Government securities - Short-term 5,597,000 113,000
Accounts receivable 12,831,000 6,355,000
Inventories (25,719,000) (15,336,000)
Other current assets 205,000 391,000
Accounts payable 2,920,000 (677,000)
Accrued liabilities (27,000) (900,000)
Income taxes payable (2,004,000) (649,000)
Other assets (1,429,000) (364,000)
Net Cash Provided by (used in) Operating 7,068,000 (183,000)
Activities ____________ ____________
Cash Flows From Investing Activities:
Sale of U.S. Gov't securities - Long-term 18,155,000 5,063,000
Purchase of U.S. Gov't securities -
Long-term (18,707,000) (5,791,000)
Additions to property, plant, and (3,608,000) (2,457,000)
equipment
Net Cash used for Investing Activities (4,160,000) (3,185,000)
_____________ ____________
Cash Flows From Financing Activities:
Payment of dividends (7,238,000) (5,090,000)
Repayment of capitalized lease obligations (137,000) (630,000)
Proceeds from exercised stock options 280,000 1,000,000
Net Cash used for Financing Activities (7,095,000) (4,720,000)
Net increase (decrease)in Cash and Cash
Equivalents (4,187,000) (8,088,000)
Cash and Cash Equivalents At Beginning
of Period 9,599,000 8,660,000
Cash and Cash Equivalents At End of Period $ 5,412,000 $ 572,000
============ ============
Supplemental cash flow Disclosures
Cash Paid During The Period For:
Interest $ 67,000 $ 83,000
Income taxes 10,400,000 6,743,000
============ ============
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<PAGE> GARAN, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(UNAUDITED)
1. In the opinion of management, all adjustments necessary to a fair
statement of the results of operations have been reflected.
2. Basic and diluted earnings per share are calculated on the basis of the
weighted average number of common shares outstanding during the period in
accordance with the provisions of the Statement of Financial Accounting
Standards No. 128 as follows:
1999 1998
----------------------------- -------------------------------
Income Shares Per Share Income Shares Per Share
Basic
EPS $11,910,000 5,178,000 $2.30 $8,567,000 5,103,000 $1.68
========= ========
Effect of
dilutive options 40,000 34,000
--------------------- -----------------------
$11,910,00 5,218,000 $2.28 $8,567,000 5,137,000 $1.67
=============================== ================================
3. Inventories consist of the following:
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<CAPTION>
6/30/99 09/30/98
___________ ____________
<S> <C> <C>
Raw Materials $ 7,213,000 $ 7,305,000
Work in Process 11,759,000 5,560,000
Finished Goods 39,523,000 19,911,000
___________ ____________
$58,495,000 $32,776,000
=========== ============
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4. In May, 1999, the Board of Directors of the registrant and the
participants, Messrs. Faver, Kamiel, S. Lichtenstein, and Wilson, agreed to
terminate all of the registrant's obligations pursuant to the Supplemental
Executive Retirement Plan ("SERP"). In lieu of the SERP, the Board of
Directors adopted a 1999 Restricted Stock Plan ("Restricted Stock Plan")
for the benefit of those same individuals and issued 160,000
shares of Common Stock thereunder. The shares issued pursuant to the
Restricted Stock Plan are subject to restrictions on transfer and certain
other conditions. During the restriction period, plan participants are
entitled to vote and receive dividends on such shares.
Upon issuance of the 160,000 shares pursuant to the Restricted Stock Plan,
an unamortized compensation expense equivalent to the market value of the
shares on the date of grant was charged to shareholders' equity and will be
amortized over the five year restriction period. The compensation expense
taken with respect to the restricted shares during the quarter ended June
30, 1999, was $142,000.
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ITEM 2.
GARAN, INCORPORATED AND SUBSIDIARIES
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 registrant. 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 registrant's customers, and such other risk factors as may be
identified from time to time in the registrant's filings with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
Three and Nine Month Periods Ended June 30, 1999, and June 30, 1998
Net sales for the third quarter of fiscal 1999 were $45,836,000 compared to
$43,706,000 for the same period last year. Net sales for the first nine
months of fiscal 1999 were $143,529,000 compared to $122,515,000 for the
same period last year. The improvement in sales for both periods was the
result of increased unit demand mainly in the registrant's Infant and
Toddler and Women's Plus Divisions.
Gross margin for the three months ended June 30, 1999, was $11,837,000, or
25.8% of net sales, compared to $10,439,000, or 23.9% of net sales, for the
comparable period last year. Gross margin for the nine months ended June
30, 1999, was $36,879,000, or 25.7% of net sales, compared to $29,157,000,
or 23.8% of net sales, for the comparable period last year. The gross
margin increase in dollars for both periods was a result of the increased
sales noted in the prior paragraph. The gross margin increase as a
percentage of net sales for both periods was due primarily to improvements
in operating efficiency.
Selling and administrative expenses for the three months ended June 30,
1999, were $6,292,000, or 13.7% of net sales, as compared to $5,980,000,
or 13.7% of net sales, for the comparable period last year. Selling and
administrative expenses for the nine months ended June 30, 1999, were
$18,826,000, or 13.1% of net sales, as compared to $17,074,000, or 13.9% of
net sales, for the comparable period last year. Spending for advertising,
continued investment in upgrading internal operating systems, and an
increase in plant shipping expenses related to volume accounted for most of
the dollar increase in both periods. Selling and administrative expenses
as a percentage of net sales remained constant for the three month period
but decreased for the nine month period as a direct result of the increased
sales volume over the same period in fiscal 1998.
Interest income for the three months ended June 30, 1999, was $707,000 as
compared to $729,000 for the same period last year. Interest income for
the nine months ended June 30, 1999, was $2,085,000 as compared to
$2,343,000 for the same period last year. The decrease in interest income
for both periods was due primarily to a reduction in interest rates for
short-term U.S. Government obligations.
FINANCIAL CONDITION
At June 30, 1999, working capital was $73,090,000, a decrease of $7,759,000
from the September 30, 1998, working capital of $80,849,000. The decrease
was due primarily to a decrease in accounts receivable and government
securities maturing in less than one year, offset by a seasonal increase in
inventory. Investments in US Government Securities -- long-term increased
by $10,321,000 in the comparable periods. Shareholders' equity at June 30,
1999, was $114,801,000, or $21.64 book value per share, as compared to
$109,707,000, or $21.39 book value per share, at September 30, 1998. The
percentage increase in the book value per share was smaller than the
percentage increase in the shareholders' equity as a result of an increase
in shares outstanding.
Accounts receivable were $29,732,000 at June 30, 1999, a decrease of
$12,831,000 from the September 30, 1998, accounts receivable of
$42,563,000. Because the registrant's business is seasonal, the
receivable balance should be compared to the balance of $24,727,000 at June
30, 1998, rather than the September 30, 1998, year-end balance. The
increase in the receivable balance at June 30, 1999, as compared to the
balance at June 30, 1998, was primarily due to increased shipping during
the last month of the quarter.
Inventory increased to $58,495,000 at June 30, 1999, from $32,776,000 at
September 30, 1998. Because the registrant's business is seasonal and
certain programs are manufactured throughout the year but shipped primarily
in the fourth quarter, the inventory should be compared to the inventory of
$49,067,000 at June 30, 1998, rather than the September 30, 1998, year-end
balance. The inventory increase from June 30, 1998, to June 30, 1999, was
due primarily to the increased overall sales volume anticipated for the
fourth quarter in fiscal 1999.
Year 2000
"Year 2000" or "Y2k" compliance means the ability to process and receive,
with retained functionality, date and time data for periods before and
after the turn of the century. Certain time-sensitive computer programs
written using only two digits to define a year may recognize a date using
"00" as the year 1900 or some other year than year 2000, which could result
in miscalculations and system failures. In 1996, in recognition of the
potential impact of such computer program problems, the registrant assigned
resources to prepare for Y2k, and efforts have been underway since then to
minimize the risk of potential disruption to business operations. The
registrant recognized that its Y2k problems also could potentially extend
to non-IT (information technology) systems such as time clocks, security
systems, telephone systems, as well as other items, Y2k failures on the
part of the suppliers, distributors, licensees, and contractors, and
potential failures in public and private infrastructure services, including
electricity, water, gas, transportation, and communications.
The registrant established a Year 2000 plan according to a six step process
that included (1) an inventory of all computer hardware, software, and
communication systems plus critical non-IT systems, (2) risk assessment,
(3) a research and strategy program, (4) remediation, (5) testing and
certification, and (6) contingency planning.
1. Inventory. The registrant performed a complete review of all software,
hardware, and communication components of its systems as well as key non-IT
systems such as telephone systems, security systems, and time clocks. This
review involved over 100 employees, visits to all facilities, and required
several thousand hours to complete.
2. Risk Assessment. The registrant assigned risks to approximately 60
categories which were used as the basis for developing priorities and
schedules.
3. Research and Strategy. Each issue was reviewed for potential
solutions. As a result of this process, the registrant decided it was more
cost effective to replace most of its software components to improve
overall system functionality and resolve the Y2k readiness issue at the
same time. The registrant used the replacement opportunity to move from a
decentralized structure to a centralized structure to allow real-time
updating and access to information from all domestic and offshore plants.
The centralized strategy also will position the registrant to conduct
business more collaboratively with key customers who have developed
sophisticated systems.
4. Remediation. The registrant selected new software packages for
financials, electronic data interchange ("EDI"), customer order processing,
distribution, warehousing, and manufacturing. Computer hardware and
communication plans were developed to support the implementation of new
software packages. To date, the registrant has implemented new financial
software, including general ledger, accounts payable, and fixed assets.
These systems were implemented at the beginning of the 1999 fiscal year.
The registrant also has installed a new distribution system to be
implemented at all shipping facilities. To date this centralized
distribution system has been installed at all shipping facilities,
including a new warehouse and distribution facility. New EDI and customer
order processing systems will be implemented together in phases designated
by customers. The first two major customers were implemented as of the end
of April, 1999. Implementation of the 3rd major customer has been planned
for completion by the end of August, 1999. All other customers will be
implemented onto the new systems by the end of August, 1999.
Implementation of the new accounts receivable system is planned for
completion by the end of the 1999 fiscal year. A new payroll system for
domestic manufacturing employees has been selected and will be implemented
by the end of December, 1999. All systems related to recording production,
transfer, and movement of inventory will be implemented in all 21 operating
facilities before the end of December, 1999. As part of this process, the
registrant added a new warehousing system not driven by "Year 2000"
readiness issues, of which carton control is the major aspect, to be
implemented at several key plants before the end of December, 1999. The
remaining plants will most likely be implemented during 2000.
5. Testing and Certification. Test environments have been established for
all systems, and functional specialists have been reviewing the results for
correctness. The registrant expects all critical and important IT systems,
including all EDI systems with suppliers, to have been tested and certified
by the end of September, 1999; test of customer EDI systems have been
completed. The registrant has purchased software tools to audit and insure
software compliance as well as developed plans for test runs of various
dates crossing century boundaries. The outcome of these tests will
identify any non-compliant components needing adjustment.
6. Contingency Planning. As a precautionary measure, the registrant will
develop contingency plans for all systems that are not expected to be Y2k
compliant by August, 1999, although the registrant does not believe these
to be material. A variety of automated as well as manual fallback plans
will be considered. The registrant estimates that all of these plans will
be completed by December 1999.
While the primary thrust behind the replacement of existing software with
new systems has been improved functionality, the impact of Y2k readiness
issues accelerated implementation plans. Total costs are approximately
$2,500,000 including capital outlays for the software, services, hardware,
and communication components of the plans, all but approximately $200,000
of which has been expended to date. The source of funds has been current
working capital.
Based upon its efforts to date, the registrant believes that the vast
majority of both its IT and its non-IT systems, including all critical and
important systems, will function properly after January 1, 2000. The
registrant will jointly test all EDI systems with both customers and
suppliers and is expected to complete the testing process before the end of
the 1999 fiscal year. Through this process any non-compliant components
will be adjusted or workarounds developed. The registrant also will
continue its efforts to confirm that major third-party businesses and its
public and private providers of infrastructure services, such as utilities,
communications services, and transportation also will be prepared for the
Year 2000. Accordingly, the registrant does not currently anticipate that
internal systems failures will result in any material adverse effect to its
operations or financial condition. At this time, the registrant believes
that the most likely "worst-case" scenario involves potential disruptions
in areas in which the registrant's operations must rely on third parties
whose systems may not work properly after January 1, 2000, including
failures impacting on the registrant's Central American operations. While
such failures could affect important operations of the registrant, either
directly or indirectly, the registrant cannot at present estimate either
the likelihood or the potential cost of such failures.
Qualitative and Quantitative Disclosure about Market Risk
The registrant does not believe it is exposed to market risks with respect
to any of its investments; the registrant does not utilize market rate
sensitive instruments for trading or other purposes. The registrant's
investments consist primarily of U.S. Government obligations with
maturities of four years or less.
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PART II. - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
No reports have been filed on Form 8-K during the quarter
ended June 30, 1999.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GARAN, INCORPORATED
BY:Seymour Lichtenstein
Seymour Lichtenstein
Principal Executive Officer
BY:William J. Wilson
William J. Wilson
Principal Financial Officer
DATE: August 13, 1999
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF EARNINGS AND BALANCE SHEETS OF GARAN,
INCORPORATED AND SUBSIDIARIES ANNEXED HERETO AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000039917
<NAME> GARAN, INCORPORATED
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1999
<PERIOD-START> MAR-1-1999 OCT-1-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 5,412,000 5,412,000
<SECURITIES> 6,850,000 6,850,000
<RECEIVABLES> 30,244,000 30,244,000
<ALLOWANCES> 512,000 512,000
<INVENTORY> 58,495,000 58,495,000
<CURRENT-ASSETS> 105,246,000 105,246,000
<PP&E> 36,779,000 36,779,000
<DEPRECIATION> 22,778,000 22,778,000
<TOTAL-ASSETS> 151,709,000 151,709,000
<CURRENT-LIABILITIES> 32,156,000 32,156,000
<BONDS> 2,033,000 2,033,000
<COMMON> 2,653,000 2,653,000
0 0
0 0
<OTHER-SE> 112,148,000 112,148,000
<TOTAL-LIABILITY-AND-EQUITY> 151,709,000 151,709,000
<SALES> 45,836,000 143,529,000
<TOTAL-REVENUES> 45,836,000 143,529,000
<CGS> 33,999,000 106,650,000
<TOTAL-COSTS> 33,999,000 106,650,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 21,000 67,000
<INCOME-PRETAX> 6,231,000 20,071,000
<INCOME-TAX> 2,555,000 8,161,000
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,676,000 11,910,000
<EPS-BASIC> 0.70 2.30
<EPS-DILUTED> 0.69 2.28
</TABLE>
