<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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 1-4506
GARAN, INCORPORATED
(Exact name of registrant as specified in its charter)
VIRGINIA 13-5665557
(State of incorporation) (I.R.S. Employer
Identification No.)
350 Fifth Avenue, New York, New York 10118
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-563-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Common Stock, no par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Purchase Rights
(Title of class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant on December 10, 1999, was approximately $131,087,000.
At December 10, 1999, 5,320,337 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 2000 Annual Meeting of
Shareholders ("2000 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, 1999, there were no
material changes or developments in the business done by the registrant or its
subsidiaries or in the manner in which it conducted its business during the
prior five fiscal years.
(a)(2) Not applicable.
(b) Financial information about industry segments.
The registrant produces only apparel and,
accordingly, information relative to industry segments is not
applicable.
(c) Narrative description of business.
(c)(i) The registrant is engaged in the design,
manufacture, and sale of apparel for men, women, and children in cluding 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:
<TABLE>
<CAPTION>
Percentage of Net Sales
(years ended September 30)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Men's apparel 6% 7% 6%
Women's apparel 18 16 14
Children's apparel 76 77 80
</TABLE>
3
<PAGE>
The registrant produces apparel primarily sold to 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, GARANIMALS,
and to a lesser extent, GARAN. Sales of branded apparel under the registrant's
own trademarks accounted for approximately 43%, 22%, and 16% of the registrant's
net sales in fiscal 1999, 1998, and 1997, 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
activewear, including T-shirts, knit shirts, sweatshirts, and sweatpants for
boys, since 1990, registrant has been a non-exclusive licensee of various
colleges and universities for sweatshirts and knit shirts for boys and men, and
from 1995 through 1998, the registrant was 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 3%, 5%, and 10% of
the registrant's net sales in fiscal 1999, 1998, and 1997, 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 18%,
4
<PAGE>
16%, and 14% of the registrant's net sales in fiscal 1999, 1998, and 1997,
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 30%, 21%, and 26% of the registrant's
net sales in fiscal 1999, 1998, and 1997, 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. The
combined revenues from these licenses and sublicenses accounted for less than 1%
of the registrant's net sales in each of the last three years.
(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 89%,
80%, and 71% of the registrant's net sales during fiscal 1999, 1998, and 1997,
respectively. During the same periods, J.C. Penney Company, Inc. accounted for
7%, 10%, and 12% of the registrant's net sales. The registrant has had business
relationships with Wal-Mart
5
<PAGE>
Stores, Inc. and J.C. Penney Company, Inc. for more than the past 20 years.
While the registrant's sales to Wal-Mart Stores, Inc. have increased
significantly in the last several years, generally these sales are on a seasonal
or multi-seasonal basis, meaning that there can be no assurance that, or the
extent to which, Wal-Mart Stores, Inc. will continue to do business with the
registrant at any particular volume. If, for some reason, there should be a
substantial reduction in the amount of business from this customer, the effect
would be significant. However, as evidenced by the growth in sales, management
believes that the working relationship with Wal-Mart Stores, Inc. is very good
and sees no reason for any significant change in that relationship. The balance
of the registrant's sales are made to approximately 900 accounts, none of which
is responsible for more than 10% of the registrant's net sales.
(c)(viii) The registrant plans its production
based upon retailer commitments for long range programs permitting the
registrant to maintain production levels relatively constant throughout the
year. In view of the registrant's reliance on such commitments and emphasis on
replenishment programs and EDI order placement, purchase orders are not
significant to an understanding of registrant's business.
(c)(ix) Not applicable.
(c)(x) The men's, women's, and children's
apparel business in the United States is highly competitive primarily in price,
style, and delivery and consists of many domes tic 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
6
<PAGE>
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 competi tive position during
the fiscal year ended September 30, 1999. The registrant does not anticipate any
material capital expenditures for environmental control in either its present or
succeeding fiscal years.
(c)(xiii) The registrant employed approximately
3,800 persons at September 30, 1999.
(d) Financial information about foreign and domestic operations
and export sales.
The registrant has operated a manufacturing
facility in Costa Rica since 1984. In fiscal 1995, it began operating
manufacturing facilities in El Salvador, and in 1998 it began operating
manufacturing facilities in Honduras. As of September 30, 1999, 1998, and 1997,
the registrant had $5,795,000, $3,178,000, and $1,989,000, respectively, in
aggregate fixed assets located in Central America. While the registrant knows of
no risks associated with its Central American operations, political instability
or other events of a local nature could disrupt the
7
<PAGE>
registrant's operations and its ability to transport goods to and from the
region, which would cause the registrant to divert production to its domestic
operations and to contractors. The registrant was not otherwise engaged in
business within any foreign country during the fiscal year ended September 30,
1999.
During fiscal 1999, 1998, and 1997, 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.
8
<PAGE>
Item 2. Properties.
<TABLE>
<CAPTION>
Expiration
Location Use Sq. Ft. Estate Date
- -------- --- ------- ------ ----------
<S> <C> <C> <C> <C>
Adamsville,
Tennessee Manufacturing 100,000 Fee
Manufacturing 60,080 Lease 2000(1)
Carthage,
Mississippi Manufacturing 105,300 Lease (1)(2)
Church Point,
Louisiana Manufacturing 73,000 Lease 2014(1)
Clinton,
Kentucky Manufacturing 52,000 Fee
Corinth,
Mississippi Manufacturing 76,000 Fee
Eupora,
Mississippi Manufacturing 96,742 Lease (1)(3)
Jemison,
Alabama Manufacturing 20,800 Lease 2001(1)
Jena,
Louisiana Warehouse 258,179 Fee
Kaplan,
Louisiana Manufacturing 87,900 Lease (1)(4)
43,900 Fee (4)
Marksville,
Louisiana Manufacturing 75,000 Lease 2014(1)
Oak Grove,
Louisiana Manufacturing 38,000 Lease 2004(1)
New York,
New York Showroom
and Office 38,500 Lease 2011
Ozark,
Arkansas Manufacturing 75,000 Lease 2002(1)
Philadelphia,
Mississippi Manufacturing 107,920 Lease (1)(5)
Rainsville,
Alabama Manufacturing 53,000 Fee
San Jose,
Costa Rica Manufacturing 33,258 Fee
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Expiration
Location Use Sq. Ft. Estate Date
- -------- --- ------- ------ ----------
<S> <C> <C> <C> <C>
San Pedro Sula,
Honduras Manufacturing 26,000 Lease 2003(1)
San Pedro Sula,
Honduras Manufacturing 79,856 Lease 2004(1)
San Pedro Sula,
Honduras Manufacturing 73,628 Lease 2000(1)
San Salvador,
El Salvador Manufacturing 41,047 Lease 2000
San Salvador,
El Salvador Manufacturing 24,200 Lease 2001
San Salvador,
El Salvador Manufacturing 16,937 Lease 2001
San Salvador,
El Salvador Manufacturing 30,896 Lease 2002
San Salvador,
El Salvador Manufacturing 38,470 Lease 2004
Starkville,
Mississippi Manufacturing
and Office 90,000 Lease 2003(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 79 years.
(2) One continuous building consisting of a 63,000 square foot
section leased to 2004, 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 2004, a 21,000 square foot section leased to 2003, a 41,000
square foot section leased to 2000, and a 19,742 square foot section leased to
2004.
10
<PAGE>
(4) One continuous building consisting of a 72,000 square foot
section leased to 2000 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 subsidi ary of the registrant.
(5) One continuous building consisting of a 78,000 square foot
section leased to 2000 and a 29,920 square foot section leased to 2004.
The registrant believes that its facilities are suitable and adequate
for its foreseeable needs, and each was fully utilized during fiscal 1999.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security
Holders.
Not applicable.
11
<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 1999 and 1998 are set forth in the
table below:
<TABLE>
<CAPTION>
SALES PRICE OF COMMON STOCK
------------------------------------------
1999 1998
---- ----
QUARTERS HIGH LOW HIGH LOW
- -------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First . . . . . . . . . . . . $29 3/4 $23 3/8 $26 1/8 $22 1/8
Second . . . . . . . . . . . 29 24 1/8 28 21 1/2
Third . . . . . . . . . . . . 32 1/8 24 5/8 28 26 1/2
Fourth . . . . . . . . . . . . 32 7/8 31 3/8 29 23 3/8
</TABLE>
Dividends paid during the last two fiscal years were as follows:
<TABLE>
<CAPTION>
Dividends Paid per Share
QUARTERS 1999 1998
- -------- ----- -----
<S> <C> <C>
First -Regular . . . . . . . $ .20 $ .20
-Special . . . . . . . .70 .40
Second -Regular . . . . . . . .25 .20
Third -Regular . . . . . . . .25 .20
Fourth -Regular . . . . . . . .25 .20
----- ----
Total . . . . . . . . . $1.65 $1.20
===== =====
</TABLE>
As at December 10, 1999, there were 402 shareholders of record in cluding Cede &
Company in its capacity as nominee for the Depository Trust Company.
12
<PAGE>
FIVE-YEAR REVIEW
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES $228,845,000 $194,197,000 $153,250,000 $146,491,000 $141,330,000
COST OF SALES 170,981,000 148,382,000 116,833,000 114,744,000 111,454,000
- ---------------------------------------------------------------------------------------------------------------
GROSS MARGIN ON SALES 57,864,000 45,815,000 36,417,000 31,747,000 29,876,000
SELLING AND ADMINISTRATIVE EXPENSES 29,318,000 25,126,000 22,915,000 22,652,000 23,270,000
INTEREST ON CAPITALIZED LEASES 89,000 111,000 119,000 123,000 141,000
INTEREST INCOME (2,513,000) (2,960,000) (2,773,000) (2,426,000) (2,534,000)
- ---------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE PROVISION FOR INCOME
TAXES 30,970,000 23,538,000 16,156,000 11,398,000 8,999,000
PROVISION FOR INCOME TAXES 12,630,000 9,501,000 6,441,000 4,502,000 3,510,000
- ---------------------------------------------------------------------------------------------------------------
NET EARNINGS $18,340,000 $14,037,000 $9,715,000 $6,896,000 $5,489,000
- ---------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE--BASIC $3.52 $2.75 $1.92 $1.36 $1.08
--DILUTED $3.49 $2.73 $1.92 $1.36 $1.08
AVERAGE SHARES OUTSTANDING--BASIC 5,210,000 5,109,000 5,070,000 5,070,000 5,070,000
--DILUTED 5,257,000 5,150,000 5,070,000 5,070,000 5,070,000
DIVIDENDS PAID PER SHARE $1.65 $1.20 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------
CURRENT ASSETS $116,372,000 $112,116,000 $94,014,000 $93,393,000 $88,685,000
CURRENT LIABILITIES 38,970,000 31,267,000 25,607,000 17,626,000 20,237,000
- ---------------------------------------------------------------------------------------------------------------
WORKING CAPITAL 77,402,000 80,849,000 68,407,000 75,767,000 68,448,000
WORKING CAPITAL RATIO 2.99 3.59 3.67 5.30 4.38
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $163,692,000 $146,173,000 $132,386,000 $119,547,000 $120,431,000
- ---------------------------------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS $2,150,000 $2,170,000 $2,807,000 $2,937,000 $3,061,000
- ---------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY $120,127,000 $109,707,000 $100,786,000 $96,141,000 $94,315,000
COMMON STOCK ISSUED AND OUTSTANDING 5,305,737 5,128,719 5,069,892 5,069,892 5,069,892
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
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, risks associated with the registrant's Central
American operations, competition, the potential impact of a reduction in sales
to the registrant's largest customer, the addition or loss of significant
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.
NET SALES
Net sales in fiscal 1999 were $228,845,000, an increase of $34,648,000, or 18%,
over fiscal 1998 net sales of $194,197,000. The 1999 sales increase was a result
of increased unit demand mainly in the registrant's Childrenswear and Women's
Divisions. Net sales in fiscal 1998 were $194,197,000, an increase of
$40,947,000 over fiscal 1997 net sales of $153,250,000. The 1998 sales increase
was primarily a result of an increase in total units shipped in the registrant's
Childrenswear Division. The increase in units shipped in both fiscal 1999 and
1998 over the prior periods was primarily the result of increased demand from
Wal-Mart Stores, Inc., the registrant's largest customer.
GROSS MARGIN
Gross margin in fiscal 1999 was $57,864,000 or 25% of net sales, as compared to
$45,815,000, or 24% of net sales, in fiscal 1998. The gross margin increase in
dollars was a result of increased sales volume. The gross margin increase as a
percentage of sales was due primarily to improvements in absorption of
manufacturing expenses.
Gross margin in fiscal 1998 was $45,815,000, or 24% of net sales, as compared to
$36,417,000, or 24% of net sales, in fiscal 1997. The gross margin was
comparable as a percentage of sales to the prior fiscal year. The gross margin
increase in dollars was a result of the increased sales volume.
Selling and administrative expenses in fiscal 1999 were $29,318,000, or 13% of
net sales, as compared to $25,126,000, or 13% of net sales, in fiscal 1998.
Spending for advertising, an increase in shipping expense related to the volume
increase, and continued investment in and upgrading of computer systems
accounted for most of the dollar increase.
Selling and administrative expenses in fiscal 1998 were $25,126,000, or 13% of
net sales, as compared to $22,915,000, or 15% of net sales, in fiscal 1997. The
dollar increase in the amount of expenditures was due to additional shipping
expense related to volume, increased advertising expense, and continued
investment in and upgrading of computer systems. The decrease as a percentage of
sales was attributable to increased sales volume.
Interest income in fiscal 1999 was $2,513,000, a decrease from $2,960,000 in the
previous year. The decrease in interest income was due primarily to a reduction
in overall interest rates as certain of the Company's higher-yielding,
longer-term U.S. Government obligations matured and the proceeds were reinvested
in lower-yielding, shorter-term U.S. Government obligations and, to a lesser
extent, to a reduction in the level of investment.
Interest income in fiscal 1998 was $2,960,000, an increase from $2,773,000 in
the previous year. The increase from 1997 to 1998 was the result of higher
levels of investments.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, working capital was $77,402,000, a decrease of $3,447,000
from September 30, 1998, working capital of $80,849,000. The decrease in working
capital was due primarily to a reduction in U.S. Government obligations maturing
in less than one year, offset by an increase in inventory.
At September 30, 1999, accounts receivable was $59,381,000, an increase of
$16,818,000 from September 30, 1998 of $42,563,000. The increase in the
receivable balance was primarily due to increased shipping during the fourth
quarter of fiscal 1999.
At September 30, 1999, inventory was $37,333,000, an increase of $4,557,000 from
September 30, 1998 of $32,776,000. The inventory increase was due primarily to
additional inventory required to support its accelerated delivery requests in
the registrant's replenishment programs.
Shareholders' equity at September 30, 1999 was $120,127,000 or $22.64 book value
per share, as compared to $109,707,000 or $21.39 book value per share, at
September 30, 1998.
In fiscal 1999 the registrant continued its year end special dividend payment
which it initiated in fiscal 1998. The special dividend generally is paid in
November, after the balance sheet date.
Management believes that the registrant has sufficient working capital to
finance its operations and projected growth. There were no short-term borrowings
outstanding during fiscal years 1999, 1998, 1997, and management does not
anticipate the need for any such borrowings. If necessary, the registrant has
the ability to obtain funds from a number of sources to meet its seasonal and
long-term requirements.
14
<PAGE>
- -------------------------------------------------------------------------------
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 have been 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 and all other customers
was completed by the end of August, 1999. Implementation of the new accounts
receivable system was completed by the end of the 1999 fiscal year. A new
payroll system for domestic manufacturing employees was selected and has been
implemented. All systems related to recording production, transfer, and movement
of inventory are Y2k compliant.
5. Testing and Certification. Test environments have been established for all
systems, and functional specialists have been reviewing the results for
correctness. The registrant has tested and certified all critical and important
IT systems, including all EDI systems with suppliers; 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. The registrant does not have any contingency plans in
place regarding systems that are not expected to be Y2k compliant because all
critical systems have been tested and found to be Y2k compliant.
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 of 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 substantially all
of both its IT and its non-IT systems, including all critical and important
systems, will function properly after January 1, 2000. The registrant has
jointly tested all EDI systems with both customers and suppliers. Through this
process any non-compliant components have been adjusted or workarounds
developed. The registrant also has continued 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 conditions. 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.
15
<PAGE>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
ASSETS SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,952,000 $ 9,599,000
U.S. Government securities--short-term 22,216,000
Accounts receivable, less estimated uncollectibles of
$512,000 at 1999 and $517,000 at 1998 59,381,000 42,563,000
Inventories 37,333,000 32,776,000
Other current assets 6,706,000 4,962,000
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 116,372,000 112,116,000
- --------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--LONG-TERM 25,435,000 15,315,000
PROPERTY, PLANT AND EQUIPMENT, NET 15,393,000 13,345,000
OTHER ASSETS 6,492,000 5,397,000
- --------------------------------------------------------------------------------------------------------
TOTAL $ 163,692,000 $ 146,173,000
- --------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 9,959,000 $ 8,555,000
Accrued liabilities 22,495,000 18,575,000
Income taxes payable 6,496,000 4,000,000
Current portion of capitalized lease obligations 20,000 137,000
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 38,970,000 31,267,000
- --------------------------------------------------------------------------------------------------------
CAPITALIZED LEASE OBLIGATIONS, NET OF CURRENT PORTION 2,150,000 2,170,000
- --------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 2,445,000 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;
shares issued: 5,305,737 at 1999 and 5,128,719 at 1998 2,653,000 2,564,000
Additional paid-in capital 11,272,000 6,792,000
Unamortized value of restricted stock (3,925,000)
Retained earnings 110,127,000 100,351,000
- --------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 120,127,000 109,707,000
- --------------------------------------------------------------------------------------------------------
TOTAL $ 163,692,000 $ 146,173,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $228,845,000 $194,197,000 $153,250,000
Cost of sales 170,981,000 148,382,000 116,833,000
- --------------------------------------------------------------------------------------------------------------
Gross margin on sales 57,864,000 45,815,000 36,417,000
Selling and administrative expenses 29,318,000 25,126,000 22,915,000
Interest on capitalized leases 89,000 111,000 119,000
Interest income (2,513,000) (2,960,000) (2,773,000)
- --------------------------------------------------------------------------------------------------------------
Earnings before provision for income taxes 30,970,000 23,538,000 16,156,000
Provision for income taxes 12,630,000 9,501,000 6,441,000
- --------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 18,340,000 $ 14,037,000 $ 9,715,000
- --------------------------------------------------------------------------------------------------------------
Earnings per share--Basic $3.52 $2.75 $1.92
--Diluted $3.49 $2.73 $1.92
Average shares outstanding--Basic 5,210,000 5,109,000 5,070,000
--Diluted 5,257,000 5,150,000 5,070,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UNAMORTIZED
ADDITIONAL VALUE OF
COMMON PAID-IN RESTRICTED RETAINED
YEARS ENDED 1997, 1998 AND 1999 STOCK CAPITAL STOCK EARNINGS TOTAL
- -----------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 $2,535,000 $ 5,821,000 $ 87,785,000 $ 96,141,000
- -----------------------------------------------------------------------------------------------------------
Net earnings 9,715,000 9,715,000
Dividends paid--$1.00 per share (5,070,000) (5,070,000)
- -----------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 $2,535,000 $ 5,821,000 $ 92,430,000 $100,786,000
- -----------------------------------------------------------------------------------------------------------
Net earnings 14,037,000 14,037,000
Exercise of stock options 29,000 971,000 1,000,000
Dividends paid--$1.20 per share (6,116,000) (6,116,000)
- -----------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 $2,564,000 $ 6,792,000 $100,351,000 $109,707,000
- -----------------------------------------------------------------------------------------------------------
Net earnings 18,340,000 18,340,000
Issuance of restricted stock 80,000 4,200,000 (4,280,000)
Amortization of restricted stock 355,000 355,000
Exercise of stock options 9,000 280,000 289,000
Dividends paid--$1.65 per share (8,564,000) (8,564,000)
- -----------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1999 $2,653,000 $11,272,000 $ (3,925,000) $110,127,000 $120,127,000
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30,
-------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS $18,340,000 $14,037,000 $9,715,000
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Deferred compensation 355,000
Depreciation and amortization 3,913,000 3,835,000 2,932,000
Provision for losses on accounts receivable (15,000) 62,000
Deferred income taxes (2,114,000) (706,000) (325,000)
Changes in assets and liabilities:
U.S. Government securities--short-term 5,434,000 733,000 373,000
Accounts receivable (16,818,000) (11,456,000) (5,113,000)
Inventories (4,557,000) 955,000 (5,092,000)
Other current assets (171,000) (163,000) 1,759,000
Accounts payable 1,404,000 1,966,000 1,980,000
Accrued liabilities 3,920,000 2,141,000 5,113,000
Income taxes payable 2,453,000 1,604,000 1,041,000
Other assets (1,095,000) (348,000) (813,000)
- -------------------------------------------------------------------------------------------------------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 11,064,000 12,583,000 11,632,000
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of U.S. Government securities--long-term 23,456,000 22,840,000 6,028,000
Purchase of U.S. Government securities--long-term (16,794,000) (25,028,000) (22,906,000)
Additions to property, plant and equipment (5,961,000) (3,710,000) (1,622,000)
Proceeds from sales of property, plant and equipment 135,000
- -------------------------------------------------------------------------------------------------------
NET CASH FLOWS PROVIDED BY (USED FOR) INVESTING
ACTIVITIES 701,000 (5,898,000) (18,365,000)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (8,564,000) (6,116,000) (5,070,000)
Repayment of capitalized lease obligations (137,000) (630,000) (124,000)
Proceeds from exercised stock options 289,000 1,000,000
- -------------------------------------------------------------------------------------------------------
NET CASH FLOWS USED FOR FINANCING ACTIVITIES (8,412,000) (5,746,000) (5,194,000)
- -------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,353,000 939,000 (11,927,000)
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,599,000 8,660,000 20,587,000
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $12,952,000 $9,599,000 $8,660,000
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
CASH PAID DURING THE YEAR FOR:
Interest $ 89,000 $ 111,000 $ 119,000
Income taxes 12,404,000 8,711,000 5,819,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
<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 or returns
are not significant to the operations of the Company.
d. INVENTORIES
Inventories are stated at the lower of cost (principally standard cost which
approximates actual cost on a first-in, first-out basis) or market.
e. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation and amortization
for financial accounting purposes are provided by using the straight line method
over the estimated useful lives of the assets.
Leases of manufacturing facilities which are in substance financing arrangements
have been capitalized, with the corresponding liability included in capitalized
lease obligations.
f. INCOME TAXES
Deferred income taxes are provided to reflect the tax effect of timing
differences in reporting income and deductions for tax and financial statement
purposes under SFAS 109 which provides for accounting for deferred income taxes
using the liability method.
g. EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average number of
common shares outstanding during the period in accordance with the provisions of
Statement of Financial Accounting Standards No. 128. Diluted earnings per share
considers the effect of potential common shares such as stock options. The
dilution for the years ended September 30, 1999 and 1998 is due to the net
incremental effect of outstanding stock options of 48,000 and 41,000 shares,
respectively.
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.
19
<PAGE>
- -------------------------------------------------------------------------------
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 held-to-maturity category amounted to $25,435,000 at
September 30, 1999 and consisted of U.S. Treasury Notes with contractual
maturities as follows:
<TABLE>
<S> <C>
2001........................................................ $17,963,000
2002........................................................ 7,472,000
-----------
$25,435,000
===========
</TABLE>
The estimated fair value of investments approximates the amortized cost, and,
therefore, there are no unrealized gains or losses as at September 30, 1999.
NOTE 3--INVENTORIES
INVENTORIES CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Raw materials............................................... $6,997,000 $7,305,000
Work in process............................................. 6,932,000 5,560,000
Finished goods.............................................. 23,404,000 19,911,000
----------- -----------
$37,333,000 $32,776,000
=========== ===========
</TABLE>
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Capitalized leased manufacturing plants..................... $12,023,000 $11,373,000
Machinery and equipment..................................... 19,847,000 16,018,000
Leasehold improvements...................................... 5,122,000 3,912,000
Transportation equipment.................................... 2,118,000 1,880,000
----------- -----------
39,110,000 33,183,000
Less accumulated depreciation and amortization.............. 23,717,000 19,838,000
----------- -----------
$15,393,000 $13,345,000
=========== ===========
</TABLE>
The net book value of the capitalized leased manufacturing plants was $3,482,000
at September 30, 1999 and $2,933,000 at September 30, 1998.
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, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 99,000
2001........................................................ 309,000
2002........................................................ 300,000
2003........................................................ 430,000
2004........................................................ 262,000
Later years................................................. 1,151,000
-----------
2,551,000
Less interest--3.90% to 6.0%................................ (381,000)
-----------
Total minimum lease payments................................ 2,170,000
Less amounts due within one year............................ (20,000)
-----------
$ 2,150,000
===========
</TABLE>
20
<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>
1999 1998 1997
------------------------ ----------------------- -----------------------
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...... $10,839,000 35.0% $8,238,000 35.0% $5,655,000 35.0%
State and local income tax expense,
net of Federal income tax
benefit............................ 1,791,000 5.8 1,263,000 5.4 786,000 4.9
----------- ---- ---------- ---- ---------- ----
Income tax expense................. $12,630,000 40.8% $9,501,000 40.4% $6,441,000 39.9%
=========== ==== ========== ==== ========== ====
</TABLE>
Income tax expense consists of the following components:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current..................................................... $14,744,000 $10,207,000 $6,766,000
Deferred.................................................... (2,114,000) (706,000) (325,000)
----------- ----------- ----------
$12,630,000 $ 9,501,000 $6,441,000
=========== =========== ==========
</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, 1999 and 1998 is $4,077,000
and $2,504,000, respectively, of current deferred income tax debits, and
included in Income Taxes Payable at September 30, 1999 and 1998 is $332,000 and
$289,000, 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:
<TABLE>
<S> <C>
2000........................................................ $1,988,000
2001........................................................ 1,746,000
2002........................................................ 1,647,000
2003........................................................ 1,511,000
2004........................................................ 1,222,000
2005 and thereafter......................................... 7,080,000
</TABLE>
Total rental expense charged to operations in 1999, 1998 and 1997 amounted to
$2,138,000, $1,952,000 and $1,591,000, respectively.
The Company is obligated under various licensing agreements for annual minimum
royalty expense commitments, amounting to approximately $865,000 in 2000.
Total royalty expense charged to operations in 1999, 1998 and 1997 amounted to
$1,188,000, $1,868,000 and $2,444,000, respectively.
NOTE 8--STOCK OPTION PLAN
In 1989, the Company adopted a plan ("1989 Plan") for granting stock options to
employees to purchase common stock at a price not lower than its fair market
value at the respective date of grant, and 200,000 shares (as adjusted) were
reserved for issuance under the 1989 plan. 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 last day options may be granted pursuant to the 1989 plan passed during the
last fiscal year, and at September 30, 1999, no further options were available
for grant under the 1989 Plan. In 1998, the Company adopted a plan ("1998 Plan")
for granting stock options to employees pursuant to equivalent terms and
conditions as the 1989 Plan, and 200,000 shares were reserved for issuance. No
options have been granted pursuant to the 1998 Plan, and at September 30, 1999,
200,000 options were available for grant thereunder.
During fiscal 1999, 17,018 options were exercised for a total of $289,306. At
September 30, 1999, there were 101,655 options outstanding of which 97,493
options were exercisable.
21
<PAGE>
- -------------------------------------------------------------------------------
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 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 $253,899 in 1999, $37,595 in 1998 and $249,721 in 1997.
Pension information under FASB No. 132 is as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligation at beginning of year $14,755,787 $12,743,244
Service cost 631,223 535,555
Interest cost 1,097,255 1,027,095
Amendments 415,024
Actuarial loss 391,817 1,266,228
Benefits paid (260,468) (259,077)
Settlements (924,004) (972,282)
----------- -----------
Benefit obligation at end of year $15,691,610 $14,755,787
----------- -----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $18,556,352 $16,255,283
Actual return on plan assets 1,480,991 2,771,223
Employer contribution 776,423 761,205
Benefits paid (260,468) (259,077)
Settlements (924,004) (972,282)
----------- -----------
Fair value of plan assets at end of year $19,629,294 $18,556,352
----------- -----------
RECONCILIATION OF FUNDED STATUS
Funded status $ 3,937,684 $ 3,800,565
First Quarter Contribution 784,081 321,422
Unrecognized net transition obligation 447,901 510,901
Unrecognized prior service cost 796,088 982,510
Unrecognized net actuarial (gain) or loss 83,018 (551,810)
----------- -----------
Prepaid benefit cost, September 30 $ 6,048,772 $ 5,063,588
=========== ===========
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate
Beginning of year 7.50% 8.00%
End of year 7.50% 7.50%
Expected return on plan assets 9.50% 9.50%
Rate of compensation increase 5.30% 5.30%
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 631,223 $ 535,555
Interest cost 1,097,255 1,027,095
Expected return on plan assets (1,788,449) (1,561,879)
Amortization of net transition obligation 72,425 70,069
Amortization of prior service cost 186,422 162,942
Amortization of net actuarial loss 5,728
Settlement (gain) or loss 55,023 (201,915)
----------- -----------
Net periodic benefit cost $ 253,899 $ 37,595
=========== ===========
</TABLE>
22
<PAGE>
- -------------------------------------------------------------------------------
The Board of Directors adopted on April 1, 1989 a Supplemental Executive
Retirement Plan for certain executive employees to restore pension benefits
which had been reduced by legislative action. The Company purchased annuity
contracts to fund its obligation for the four participants (three
officers-directors and one employee-director of the Company) under such plan and
reimbursed the participants for the current tax recognition resulting from such
purchases. The respective costs were amortized over the remaining estimated
employment lives of the participants. In 1999 and 1998 there were no expenses
for the plan, and in 1997 the expense was $436,000. The plan was terminated in
May, 1999. See note 14.
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 had been reduced by
legislative action. The Company is currently funding its obligations under the
Plan and the 1999, 1998 and 1997 expense for such plan was $180,000, $146,000
and $81,000, respectively.
NOTE 10--MAJOR CUSTOMERS
The Company operates within one industry segment--the manufacture of apparel.
Sales to one mass merchandiser accounted for approximately 89% of the Company's
net sales in 1999, 80% in 1998 and 71% in 1997. In addition a national retail
chain accounted for approximately 7%, 10% and 12% of the Company's net sales in
1999, 1998 and 1997, respectively. No other customer accounted for more than 10%
of the Company's net sales in any of the three years. The Company routinely
assesses the financial strength of its customers and, as a consequence,
generally does not require collateral or other security to support customer
receivables. Historically, the Company has not experienced significant losses
related to receivables and management believes that its trade receivable credit
risk exposure is limited.
NOTE 11--SHAREHOLDERS' EQUITY
Pursuant to the Company's Rights Plan, each shareholder holds one right for each
share of common stock, and in the event any person acquires 20% of the Company's
common stock, each right will give the holder the option to purchase one share
of the Company's common stock for $90, subject to adjustment. The rights expire
May 16, 2003, and may be redeemed by the Company for $.01 per right. As of
September 30, 1999, 5,305,737 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 provisions
that would entitle each of the four directors to receive up to 2.99 times his
five year average annual compensation plus continuation of certain benefits if
there is a change in control in the Company (as defined) and his employment
terminates. The maximum contingent liability under these agreements in such
event is approximately $10,629,000. The employment agreements also provide for
severance benefits, disability and death benefits and, as to one
officer-director, consulting services under certain circumstances.
23
<PAGE>
- -------------------------------------------------------------------------------
NOTE 13--QUARTERLY FINANCIAL DATA (UNAUDITED)
Financial data for the interim periods of 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
EARNINGS
PER SHARE
NET GROSS NET -------------------
SALES MARGINS EARNINGS BASIC DILUTED
----- ------- -------- ----- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Fiscal Year 1999
Quarters
- --------
First.................................................... $39,037 $10,113 $3,048 $ .59 $ .58
Second................................................... 58,656 14,929 5,186 1.01 1.01
Third.................................................... 45,836 11,837 3,676 .70 .69
Fourth................................................... 85,316 20,985 6,430 1.22 1.21
-------- ------- ------- ----- -----
Total................................................. $228,845 $57,864 $18,340 $3.52 $3.49
======== ======= ======= ===== =====
Fiscal Year 1998
Quarters
- --------
First.................................................... $37,711 $8,817 $2,474 $ .49 $ .48
Second................................................... 41,098 9,901 3,022 .59 .59
Third.................................................... 43,706 10,439 3,071 .60 .60
Fourth................................................... 71,682 16,658 5,470 1.07 1.06
-------- ------- ------- ----- -----
Total................................................. $194,197 $45,815 $14,037 $2.75 $2.73
======== ======= ======= ===== =====
</TABLE>
NOTE 14--RESTRICTED STOCK PLAN
In May, 1999, the Company terminated the Supplemental Executive Retirement Plan
("SERP"). In lieu of the SERP, the Company adopted a 1999 Restricted Stock Plan
("Restricted Stock Plan") for the benefit of the same individuals covered under
the SERP 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 year ended September 30, 1999, was $355,000.
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, 1999 and 1998 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, 1999. 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, 1999 and 1998, 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, 1999 in conformity
with generally accepted accounting principles.
Citrin Cooperman & Company, LLP
New York, New York
November 10, 1999
25
<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 2000 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 2000 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 2000 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 2000 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
September 30, 1999, and September 30, 1998.
Consolidated Statements of Earnings
- - years ended September 30, 1999, September 30, 1998, and
September 30, 1997.
Consolidated Statements of
Shareholders' Equity - years ended September 30, 1999,
September 30, 1998, and September 30, 1997.
Consolidated Statements of Cash
Flows - years ended September 30, 1999, September 30, 1998,
and September 30, 1997.
Notes to Consolidated Financial
Statements for the years ended September 30, 1999, September
30, 1998, and September 30, 1997.
<PAGE>
Page
----
Independent Auditors' Report dated
November 10, 1999.
(2) Consolidated Financial Statement Schedules.
Independent Auditors' Report on
Schedules dated November 10, 1999, and Consent of
Independent Certified Public Accountants dated December 28,
1999. F-1
Supplemental Notes to Consolidated
Financial Statements for the years ended September 30, 1999,
September 30, 1998, and September 30, 1997. 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 subsidiaries 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
----
(c) Exhibits filed as part of this Report.
(3) Articles of Incorporation and by-laws.
(i) Restated Articles of
Incorporation.(1)
(ii) Articles of Amendment of the Restated Articles
of Incorporation.(1)
(iii) Articles of Amendment of the Restated Articles
of Incorporation.(2)
(iv) By-laws, as amended through April 21, 1993.(3)
(4) Instruments defining the rights of security holders,
including indentures.
(i) Amended and Restated Rights Agreement dated as
of April 21, 1993, between the registrant and Chemical
Bank (now known as Chase Manhattan Bank).(3)
(10) Material Contracts.
(i) 1989 Stock Option Plan.(4)
(ii) 1998 Stock Option Plan.(5)
(iii) 1999 Restricted Stock Plan
(iv) Employment and Consulting Agreement amended
and restated as of October 1, 1996, between the
registrant and Seymour Lichtenstein.(6)
(v) Employment Agreement amended and restated as of
October 1, 1996, between the registrant and Jerald
Kamiel.(6)
(vi) Employment Agreement amended and restated as
of October 1, 1996, between the registrant and William
J. Wilson.(6)
<PAGE>
(vii) Employment Agreement amended and restated as
of October 1, 1996, between the registrant and Rodney
Faver.(6)
(viii) Amendment to Employment Agreement dated
November 9, 1998, between the registrant and Rodney
Faver.(7)
(ix) Form of Indemnity Agreement dated August 9,
1993, between the registrant and each of its
directors.(8)
(x) Indemnity Agreement dated August 9, 1993,
between the registrant and Alexander J. Sistarenik.(8)
(21) Schedule of Subsidiaries of registrant.
(27) Financial Data Schedule.
Exhibits not included in this filing are hereby incorporated by reference from
the following reports and registration statements previously filed by the
registrant:
(1) Annual Report on Form 10-K for the fiscal year ended September 30, 1988.
(2) Annual Report on Form 10-K for the fiscal year ended September 30, 1992.
(3) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1993.
(4) Registration Statement on Form S-8 (File No. 33-29054) filed May 31, 1989.
(5) Registration Statement on Form S-8 (File No. 333-66009) filed October 22,
1998.
(6) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997.
(7) Annual Report on Form 10-K for the fiscal year ended September 30, 1998.
(8) Annual Report on Form 10-K for the fiscal year ended September 30, 1993.
(d) The Consolidated Financial Statement Schedules Specified in
Item 14(a)(2) are annexed.
<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 28, 1999 By: /s/ WILLIAM J. WILSON
----------------------------------
William J. Wilson, Vice President
Finance and Administration
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
December 28, 1999 /s/ SEYMOUR LICHTENSTEIN
-------------------------------------
Seymour Lichtenstein
Principal Executive Officer, Director
December 28, 1999 /s/ WILLIAM J. WILSON
-------------------------------------
William J. Wilson
Principal Financial Officer, Director
December 28, 1999 /s/ ALEXANDER J. SISTARENIK
-------------------------------------
Alexander J. Sistarenik,
Principal Accounting Officer
December 28, 1999 /s/ STEPHEN J. DONOHUE
-------------------------------------
Stephen J. Donohue, Director
December 28, 1999 /s/ RODNEY FAVER
-------------------------------------
Rodney Faver, Director
December 28, 1999 /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, 1999, 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 10, 1999
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 10, 1999, included in, or
incorporated by reference in, Registration Statement Nos. 2-72544, 33-29054, and
333-66009 on Form S-8 and the related Prospectuses.
CITRIN COOPERMAN & COMPANY, LLP
December 28, 1999
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:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Investments $2,259,000 $2,494,000 $2,262,000
Other 254,000 466,000 511,000
---------- ---------- ----------
$2,513,000 $2,960,000 $2,773,000
========== ========== ==========
</TABLE>
Note 15 - ACCRUED LIABILITIES
Accrued liabilities as at September 30, 1999, and September 30,
1998, consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Payroll/Bonus $ 7,199,000 $ 5,606,000
Payroll Taxes 108,000 141,000
Accrued Expenses 15,188,000 12,828,000
----------- -----------
$22,495,000 $18,575,000
=========== ===========
</TABLE>
F-2
<PAGE>
GARAN, INCORPORATED
1999 RESTRICTED STOCK PLAN
SECTION I
Establishment, Purpose, and Duration
1.1. Garan, Incorporated hereby establishes an incentive
compensation plan known as the Garan, Incorporated 1999 Restricted Stock Plan to
permit the grant of restricted stock to certain selected employees of Garan,
Incorporated and its subsidiaries.
1.2. The purpose of the Garan, Incorporated 1999 Restricted Stock
Plan is to provide an increased incentive for the participating employees to
contribute to the future success and prosperity of Garan, Incorporated, to link
the personal interest of the participating employees with the Garan,
Incorporated shareholders so that the value of the Garan, Incorporated Common
Stock is enhanced for the benefit of its shareholders, and to increase the
ability of Garan, Incorporated and its subsidiaries to retain individuals of
exceptional skill.
1.3. The Garan, Incorporated 1999 Restricted Stock Plan shall be
effective on May 7, 1999, and remain effective until all shares of Common Stock
subject to it shall have been granted and fully vested.
SECTION II
Definitions and Construction
2.1. The following terms used in this 1999 Restricted Stock Plan
shall have the respective meanings set forth in this Section.
Board shall mean the Board of Directors of Garan.
Cause shall mean, with respect to a Grantee, the commission by
the Grantee of one or more acts which constitute an indictable crime under
Federal, state, or local law, each as may be determined in good faith by written
resolution adopted by a majority of the members of the Board at a meeting duly
called and held for that purpose after reasonable notice to the Grantee and
opportunity for the Grantee and his or her counsel to be heard.
Change in Control shall mean: (a) Continuing Directors no
longer constitute at least a majority of the Board; (b) any person or group of
persons (as defined in Rule 13d-5 under the Exchange Act), together with its
affiliates, become the beneficial owner, directly or indirectly, of at least 40%
of Garan's then outstanding Common Stock; (c) the approval by Garan's
shareholders of the merger or consolidation of Garan with any other corporation,
the sale of substantially all of the assets of Garan, or the liquidation or
dissolution of Garan unless, in the case of a merger or consolidation, the
Continuing Directors in office immediately prior to such merger or consolidation
will constitute at least a majority of directors of the surviving corporation of
such merger or consolidation and any parent (as such terms is defined in Rule
12b-2 under the Exchange Act) of such corporation, and such
<PAGE>
surviving corporation (and such parent, if any) shall have at least five
directors; or (d) at least a majority of the Continuing Directors in office
immediately prior to any other action proposed to be taken by Garan's
shareholders or by the Board determines that such proposed action, if taken,
would constitute a change of control of Garan and such proposed action is
thereafter taken.
Committee shall mean the Compensation Committee appointed by
the Board.
Common Stock shall mean the Common Stock, no par value, of
Garan.
Company shall mean Garan, Incorporated and its Subsidiaries.
Continuing Director shall mean any individual who is a member
of the Board on May 7, 1999, or is designated after such date (before such
person's initial election as a director) as a Continuing Director by a majority
of the then Continuing Directors.
Disabled shall mean that a Grantee, in the reasonable opinion
of the Committee, has been unable for a period of 90 consecutive days or for an
aggregate of 120 days during any period of 360 consecutive days to substantially
carry out the duties customarily performed by him or her for the Company because
of psychological, emotional, or physical reasons.
Exchange Act shall mean the Securities Exchange Act of 1934,
as amended.
Fair Market Value shall mean with respect to a share of Common
Stock granted as a Stock Award, the reported closing price of the Common Stock
on the trading day prior to the date on which the Stock Award was granted or, if
there was no reported sale of Common Stock on that day, than the reported
closing price on the next preceding trading day on which there was such a sale.
Garan shall mean Garan, Incorporated
Grantee shall mean an individual who has been granted a Stock
Award.
Parent Corporation shall mean a parent corporation, as defined
in Section 424(e) of the Code.
Plan shall mean this Garan, Incorporated 1999 Restricted Stock
Plan.
Restricted Stock Award Agreement shall mean an agreement
between Garan and each Grantee setting forth the terms and provisions applicable
to his or her Stock Award.
Restriction Period shall mean the period beginning on the date
of a Stock Award and ending on the earlier of (a) the day prior to the fifth
anniversary of the date of the Stock Award, (b) the date of death of the Grantee
if such death occurs while the Grantee is in the employ of the Company, (c) the
date that the Grantee becomes Disabled if such event occurs while the Grantee is
in the employ of the Company, or (d) the date of a Change in Control.
Stock Award shall mean shares of Common Stock awarded to a
Grantee in accordance with Section 5.1.
Subsidiary shall mean a subsidiary corporation, as defined in
Section 424(f) of the Code.
2
<PAGE>
Termination of Employment shall mean the voluntary
termination, including retirement, by a Grantee of his or her employment or
consulting relationship with the Company or a termination by the Company of a
Grantee's employment without Cause but shall exclude a change from employee to
consultant status.
Termination With Cause shall mean a termination by the Company
of a Grantee's employment for Cause.
2.2. When used in this Plan, unless the context clearly indicates to
the contrary, (a) the singular shall include the plural and (b) if a defined
term is intended, it shall be capitalized.
SECTION III
Administration
3.1. Except as otherwise provided in the Plan, and subject to
Section 3.2, the Committee shall administer the Plan and shall have full power
to grant Stock Awards in such amounts as the Committee may determine, to
determine whether a Grantee shall forfeit any portion of his or her stock grant
if the Grantee incurs a Termination of Employment during the Restriction Period,
construe and interpret the Plan, establish and amend rules and regulations for
administration of the Plan, and perform all other acts relating to the Plan
including the delegation of administrative responsibilities which the Committee
believes reasonable and proper.
3.2. Subject to the provisions of the Plan and the right of the
Board to give specific direction, the Committee shall establish the policies and
criteria pursuant to which it shall grant Stock Awards and administer the Plan
and, in its discretion, shall determine which employees of the Company shall be
granted Stock Awards, the number of shares covered by any such Stock Awards, and
the terms and conditions of the Stock Awards.
3.3. Any decision made, or action taken, by the Committee or the
Board arising out of or in connection with the interpretation and administration
of the Plan shall be final and conclusive.
SECTION IV
Shares Subject to the Plan
4.1. The total number of shares of Common Stock available for awards
of Stock Grants under the Plan shall be 160,000, subject to adjustment in
accordance with Section VII. These shares may be either authorized and unissued
or reacquired shares of Common Stock. If any portion of a Stock Award shall be
forfeited, the forfeited shares covered by such Stock Award shall be available
for future grants of Stock Awards.
SECTION V
Eligibility
5.1. Stock Awards may be granted by the Committee to employees of
the Company who contribute to the management, direction, and/or overall success
of the Company.
3
<PAGE>
SECTION VI
Terms of Stock Awards
6.1. Each Stock Award shall be evidenced by a Restricted Stock Award
Agreement that shall contain the following terms and provisions and such other
terms and provisions as the Committee or Board shall determine:
6.1.a. The number of shares of Common Stock granted.
6.1.b. The applicable Restriction Period.
6.1.c. During the Restriction Period (i) a Grantee may not
sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of shares
granted pursuant to a Stock Award, (ii) Garan shall retain custody of the
certificates evidencing shares granted pursuant to a Stock Award, and (iii) the
Grantee will deliver to Garan a stock power, endorsed in blank, with respect to
each Stock Award.
6.1.d. If a Grantee during the Restriction Period incurs a
Termination With Cause, all shares granted under his or her Stock Award shall be
forfeited.
6.1.e. The Stock Award shall have an initial value equal to
Fair Market Value.
6.1.f. Unless the shares of Common Stock granted by the Stock
Award are registered on the date of grant of the Stock Award under the
Securities Act of 1933, as amended, if counsel to Garan advises that the same is
required prior to delivery of the shares granted, the Grantee shall agree to
hold such shares for investment only and not with a view to resale or
distribution of such shares to the public, and such Grantee shall deliver to
Garan a letter to that effect in a form specified by counsel to Garan together
with any additional documents specified by counsel, and, in the event that
issuance of shares of Common Stock pursuant to a Stock Award is subject to laws,
rules, and/or regulations of a jurisdiction other than the United States of
America, the Grantee simultaneously shall comply with requirements of counsel to
Garan to satisfy the same.
6.2. During the Restriction Period (as set forth in the applicable
Restricted Stock Award Agreement), a Grantee will have all rights of a
shareholder with respect to all shares of Common Stock granted to him or her as
a Stock Award which have not been forfeited, including the right to receive
dividends and vote the shares.
6.3. The limitations set forth in Section 6.1.c shall not apply
after the Restriction Period to shares granted as a Stock Award; shares of
Common Stock granted as a Stock Award shall become freely transferable by the
Grantee (subject to the provisions of Section 6.1.f) after the last day of the
applicable Restriction Period and the certificates evidencing the shares granted
shall be delivered to the Grantee.
4
<PAGE>
SECTION VII
Adjustments
7.1. If (a) Garan shall at any time be involved in a transaction to
which Section 424(a) of the Internal Revenue Code of 1986, as amended, is
applicable, (b) Garan shall declare a dividend payable in, or shall subdivide or
combine, its Common Stock, or (c) any other event shall occur which in the
judgment of the Committee necessitates action by way of adjusting the terms of
the outstanding Stock Awards, the Committee may take any such action as in its
judgment shall be necessary to preserve the Grantee's rights substantially
proportionate to the rights existing prior to such event and to the extent that
such action shall include an increase or decrease in the number of shares of
Common Stock subject to outstanding Stock Awards, the number of shares available
under Section IV shall be increased or decreased, as the case may be,
proportionately. The judgment of the Committee with respect to any matter
referred to in this Section VII shall be conclusive and binding upon each
Grantee.
SECTION VIII
Amendment and Termination of Plan
8.1. The Board may at any time, or from time to time, suspend or
terminate the Plan in whole or in part or amend it in such respects as the Board
may deem appropriate.
8.2. No amendment, suspension, or termination of this Plan, without
a Grantee's consent, shall alter or impair any of the rights or obligations
under any Stock Award theretofore granted under the Plan.
SECTION IX
Government and Other Regulations
9.1. The obligation of Garan to issue, or transfer and deliver,
shares for Stock Awards granted under the Plan shall be subject to all
applicable laws, regulations, rules, orders, and approvals which shall then be
in effect and required by governmental entities and any stock exchanges on which
the Common Stock may be traded.
SECTION X
Miscellaneous Provisions
10.1. The right of the Company to terminate (whether by a
Termination With Cause, a Termination Without Cause, or retirement) the
Grantee's employment at any time at will or as otherwise provided by any
agreement between the Company and the Grantee is specifically reserved.
10.2. All expenses of administering the Plan shall be borne by
Garan.
10.3. In addition to such other rights of indemnification as they
may have as members of the Board or the Committee, the members of the Board and
the Committee shall be indemnified by Garan against all costs and expenses
reasonably incurred by them in connection with any action, suit, or proceeding
to which they or any of them may be party by reason of any action taken or
failure to act under or in connection with the Plan or any Stock Award granted
under the Plan, and against all
5
<PAGE>
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by Garan) or paid by them in satisfaction
of a judgment in any such action, suit, or proceeding, except a judgment based
upon a finding of bad faith, provided that upon the institution of any such
action, suit, or proceeding, a Committee or Board member, in writing, shall give
Garan notice thereof and an opportunity, at its own expense, to handle and
defend the same before such Committee or Board member undertakes to handle and
defend it on such member's own behalf.
6
<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
Garan de Honduras, S.A. de C.V. Honduras
<TABLE> <S> <C>
<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 FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 12,952,000
<SECURITIES> 0
<RECEIVABLES> 59,893,000
<ALLOWANCES> 512,000
<INVENTORY> 37,333,000
<CURRENT-ASSETS> 116,372,000
<PP&E> 39,110,000
<DEPRECIATION> 23,717,000
<TOTAL-ASSETS> 163,692,000
<CURRENT-LIABILITIES> 38,970,000
<BONDS> 2,150,000
0
0
<COMMON> 2,653,000
<OTHER-SE> 117,474,000
<TOTAL-LIABILITY-AND-EQUITY> 163,692,000
<SALES> 228,845,000
<TOTAL-REVENUES> 228,845,000
<CGS> 170,981,000
<TOTAL-COSTS> 170,981,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,000
<INCOME-PRETAX> 30,970,000
<INCOME-TAX> 12,630,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,340,000
<EPS-BASIC> 3.52
<EPS-DILUTED> 3.49
</TABLE>
