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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
[ ] 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 Company (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 Company
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. [x]
The aggregate market value of the voting stock held by non-
affiliates of the Company on December 13, 2000, was approximately $93,500,000.
At December 20, 2000, 5,081,337_shares of the Company's Common Stock,
no par value, were outstanding.
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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 2001 Annual Meeting of
Shareholders ("2001 Proxy Statement").
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PART I
Item 1. Business.
(a) General development of business.
(a)(1) Garan, Incorporated ("Company") was
incorporated on December 4, 1957. During the fiscal year ended September 30,
2000, there were no material changes or developments in the business done by the
Company 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 Company produces only apparel and, accordingly,
information relative to industry segments is not applicable.
(c) Narrative description of business.
(c)(i) The Company is engaged in the design,
manufacture, and sale of apparel for men, women, and children, including boys,
girls, toddlers, and infants. The percentage of the Company's net sales in each
of the foregoing categories in the last three fiscal years is as follows:
Percentage of Net Sales
(years ended September 30)
2000 1999 1998
-------------------------
Men's apparel 7 6 7
Women's apparel 12 18 16
Children's apparel 81 76 77
The Company produces apparel sold primarily to mass merchandisers, major
national chain stores, department stores, and specialty stores. Sales are made
primarily by the Company's salaried sales staff.
(c)(ii) Not applicable.
(c)(iii) Raw materials essential to the Company are available from
various alternate sources of supply.
(c)(iv) The Company distributes children's apparel under various of
its own trademarks including, principally,
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GARANIMALS, and to a lesser extent, GARAN. Sales of branded apparel under the
Company's own trademarks accounted for approximately 44%, 43%, and 22% of the
Company's net sales in fiscal 2000, 1999, and 1998, respectively.
The Company also distributes apparel under various trademarks
licensed from third parties. Since 1975, the Company has been a non-exclusive
licensee of professional sports leagues and teams for activewear, including
T-shirts, knit shirts, sweatshirts, and sweatpants for boys, and since 1990, the
Company has been a non-exclusive licensee of various colleges and universities
for sweatshirts and knit shirts for boys and men. Sales of all such licensed
apparel by the Company accounted for approximately 3%, 3%, and 5% of the
Company's net sales in fiscal 2000, 1999, and 1998, respectively. Since 1986,
the Company has been the exclusive licensee of the trademark BOBBIE BROOKS for
girls' and women's apparel, and sales of apparel by the Company bearing the
BOBBIE BROOKS trademark accounted for approximately 12%, 18%, and 16% of the
Company's net sales in fiscal 2000, 1999, and 1998, respectively. The terms of
the foregoing license agreements range from 1 to 2 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 Company 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 Company's net sales
in each of the last three years.
(c)(v) The Company 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. The Company maintains relatively constant production
levels throughout the year, but because of large programs and
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customer delivery schedules, the Company's inventory levels fluctuate during the
year.
(c)(vi) Not applicable.
(c)(vii) Wal-Mart Stores, Inc. ("Wal-Mart") accounted for 87%, 89%,
and 80% of the Company's net sales during fiscal 2000, 1999, and 1998,
respectively. During the same periods, J.C. Penney Company, Inc. ("J.C. Penney")
accounted for 9%, 7%, and 10%of the Company's net sales. The Company has had
business relationships with Wal-Mart and J.C. Penney for more than the past 20
years. While the Company's sales to Wal-Mart have continued to increase over 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 will continue to do business with the Company 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 volume of sales, management believes that the working
relationship with Wal-Mart is very good and sees no reason for any significant
change in that relationship.
(c)(viii) The Company plans its production based upon retailer
commitments for long range programs permitting the Company to maintain
production levels relatively constant throughout the year. In view of the
Company's reliance on such commitments and emphasis on replenishment programs
and EDI order placement, purchase orders are not significant to an understanding
of the Company'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
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price, style, and delivery and consists of many domestic and foreign
manufacturers, importers, and distributors. The Company does not compete solely
on a price basis; the Company competes by relying on style, delivery,
replenishment, and vendor-managed programs as well as price. No single
enterprise sells more than a small portion of the total apparel sold in the
United States, and there are no reliable figures available from which the
Company'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 Company for
research activities relating to the development of new services or products or
the improvement of existing services or products.
(c)(xii) The Company's compliance with Federal, state, and local
environmental laws and regulations had no material effect upon its capital
expenditures, earnings, or competitive position during the fiscal year ended
September 30, 2000. The Company does not anticipate any material capital
expenditures for environmental control in either its present or succeeding
fiscal years.
(c)(xiii) The Company employed 5,035 persons at September 30,
2000.
(d) Financial information about foreign and domestic operations
and export sales.
The Company 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, 2000, 1999, and 1998, the Company had $6,500,000,
$5,795,000, and $3,178,000, respectively, in aggregate fixed assets located in
Central America. While the Company knows of no risks associated with its Central
American operations,
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political instability or other events of a local nature could disrupt the
Company's operations and its ability to transport goods to and from the region,
which would cause the Company to divert production to its domestic operations
and to contractors. The Company was not otherwise engaged in business within any
foreign country during the fiscal year ended September 30, 2000.
During fiscal 2000, 1999, and 1998, export sales by the Company
amounted to less than 1% of total sales and are not considered to be significant
to an understanding of the Company's business.
RISK FACTORS
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
that involve certain risks and uncertainties. Discussions containing such
forward-looking statements may be found in the material set forth below as well
as in this Report generally, including the documents incorporated by reference
herein. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," and similar expressions are intended to identify
forward-looking statements. The Company's actual results could differ materially
from those anticipated in such forward-looking statements as a result of certain
factors, including those appearing elsewhere in this Report and in the documents
incorporated by reference herein. These forward-looking statements are made as
of the date of this Report and the Company assumes no obligation to update such
forward-looking statements or to update the reasons why actual results could
differ materially from those anticipated in such forward-looking statements.
In addition to the other information in this Report, the following risk
factors should be considered carefully in
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evaluating the Company and its business before purchasing the Company's Common
Stock.
No Assurance of Profitability. Although the Company has been profitable
for a substantial number of years, there can be no assurance that the Company
will be profitable in any future period. Future operating results will depend on
many factors, including conditions in the apparel industry generally, market
acceptance of the Company"s products, competition, and the other factors set
forth in these "Risk Factors."
Dependence on Relationship with Wal-Mart. During the Company"s fiscal
years ended September 30, 2000, 1999, and 1998, sales to Wal-Mart were
approximately $209 million, $204 million, and $155 million, respectively, and
accounted for 87%, 89%, and 80%, respectively, of the Company"s net sales. While
sales to Wal-Mart 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 will continue
to do business with the Company at any particular volume. If for any reason
there were a substantial reduction in the amount of the Company"s business with
Wal-Mart, the effect upon the Company"s business, operating results, and
financial condition would be significant.
Competition. The apparel business in the United States is highly
competitive, and no single enterprise sells more than a small portion of the
total apparel sold in the United States. The Company competes with numerous
domestic and foreign entities, and it is possible that one or more of such
competitors could win orders sought by the Company. In addition, the Company"s
customers are increasingly sourcing and importing apparel products for their own
account and could do so in lieu of ordering such items from the Company. There
can be no assurance that the Company will be able to compete successfully with
existing or new competitors or that competition or customer direct sourcing and
importing will not
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have a material adverse effect on the Company"s business, operating results, and
financial condition.
Attracting and Retaining Key Employees. The Company believes that its
future success will depend in significant part on its ability to attract and
retain highly skilled management and production personnel, particularly for its
Central American facilities, and sales personnel. Competition for such personnel
is intense, and the failure to obtain or loss of one or more of the Company"s
key personnel could have a material adverse impact on the Company"s business,
operating results, and financial condition.
Central American Operations. A substantial portion of the Company"s
production takes place in Central America, and such portion has increased over
the last several years. While the Company knows of no risks associated with its
Central American operations, political instability or other events of a local
nature could disrupt the Company"s operations and its ability to transport goods
to and from the region, and such disruption could have a material adverse impact
on the Company"s business, operating results, and financial condition.
Availability of Raw Materials. Raw materials, such as fabric, thread,
trimmings, and the like, are essential to the Company"s business. While raw
materials are available to the Company from various alternate sources of supply,
any disruption in the Company"s ability to obtain raw materials of usable
quality in sufficient quantities could have a material adverse impact on the
Company"s business, operating results, and financial condition.
Antitakeover Effects of the Company"s Rights Plan, Charter, and By-laws.
On April 21, 1993, the Company adopted an Amended and Restated Rights Agreement
("Rights Plan") pursuant to which shareholders were granted one right for each
share of Common Stock held by them. In the event 20% or more of the Company"s
stock is acquired by any one person, other shareholders have the right with
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respect to each share of Common Stock held by them to purchase for a purchase
price of $90 such number of shares of Common Stock as has a market value equal
to twice that amount. In addition, the Company"s Board of Directors has the
authority to issue up to 500,000 shares of Preferred Stock and to determine the
price, preferences, privileges, and restrictions, including voting rights, of
those shares without any further vote or action by the shareholders. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Common Stock pursuant to the Rights Plan or the issuance
of Preferred Stock may have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company. In
addition, pursuant to the Company"s By-laws, each director is elected for a term
of three years and the terms are staggered so that only one-third of the
directors are elected each year. These provisions could have the effect of
delaying any change in the constitution of the Board of Directors of the Company
as a result of a third-party acquiring a majority of the outstanding voting
stock of the Company. The Rights Plan and the Charter and By-law provisions
referred to in this paragraph may have the effect of discouraging, delaying, or
preventing a merger, tender offer, or proxy contest involving the Company, which
could adversely the market price of the Company"s Common Stock.
10
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Item 2. Properties.
Expiration
Location Use Sq. Ft. Estate Date
-------- --- ------- ------ ----------
Adamsville,
Tennessee Manufacturing 100,000 Fee
Manufacturing 60,080 Lease 2001(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 (3)
Eupora,
Mississippi Manufacturing 96,742 Lease (1)(4)
Jemison,
Alabama Manufacturing 20,800 Lease 2001(1)(5)
Jena,
Louisiana Warehouse 258,179 Fee
Kaplan,
Louisiana Manufacturing 87,900 Lease (1)(6)
43,900 Fee (6)
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)(7)
Rainsville,
Alabama Manufacturing 53,000 Fee
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Expiration
Location Use Sq. Ft. Estate Date
-------- --- ------- ------ ----------
San Jose,
Costa Rica Manufacturing 33,258 Fee
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 2002
San Pedro Sula,
Honduras Manufacturing 34,807 Lease 2002
San Salvador,
El Salvador Manufacturing 42,101 Lease 2005(1)
San Salvador,
El Salvador Manufacturing 24,240 Lease 2001
San Salvador,
El Salvador Manufacturing 16,937 Lease 2002
San Salvador,
El Salvador Manufacturing 30,896 Lease 2002
San Salvador,
El Salvador Manufacturing 38,470 Lease 2004
San Salvador,
El Salvador Manufacturing 24,302 Lease 2005(1)
Starkville,
Mississippi Manufacturing
and Office 90,000 Lease 2003(1)
(1) The Company or a wholly-owned subsidiary of the Company has the
option to purchase the facilities and/or to renew each of the current leases for
terms which vary between 2 and 78 years.
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(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) The Company determined that it no longer required the
anufacturing capacity of its plant in Corinth, Mississippi and ceased
operations there in 2000. The carrying value of the Corinth facility has been
written down to its net realizable value.
(4) 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 2001 and a 19,742 square foot section leased to
2004.
(5) The Company determined that it no longer required the
manufacturing capacity of its plant in Jemison, Alabama and ceased operations
there in 2000. The carrying value of the Jemison facility has been written down
to its net realizable value. The Company will not renew the lease for this
facility when it expires in 2001.
(6) One continuous building consisting of a 72,000 square foot
section leased to 2001 and a 15,900 square foot section leased to 2005, which
was expanded by a 43,000 square foot section owned by a wholly-owned subsidiary
of the registrant and financed with the proceeds of Industrial Revenue Bonds
issued in September, 1990. The entire building is located on land owned by a
wholly-owned subsidiary of the Company.
(7) One continuous building consisting of a 78,000 square foot
section leased to 2001 and a 29,920 square foot section leased to 2004.
The Company believes that its facilities are suitable and adequate
for its foreseeable needs, and except as otherwise noted, each was fully
utilized during fiscal 2000.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
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Not applicable.
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PART II
Item 5. Market for Company's Common Equity and Related
Stockholder Matters.
(a), (b), and (c) Market information, Holders, and
Dividends.
The Company'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 2000 and 1999 are set forth in the table
below:
Sales Price of Common Stock
---------------------------------
2000 1999
---- ----
Quarters High Low High Low
-------- ---- --- ---- ---
First . . . . . . . . . . . . . . . . $33 $28 5/8 $29 3/4 $23 3/8
Second. . . . . . . . . . . . . . . . 29 1/4 23 5/8 29 24 1/8
Third . . . . . . . . . . . . . . . . 25 1/8 20 1/2 32 1/8 24 5/8
Fourth. . . . . . . . . . . . . . . . 24 1/8 21 1/4 32 7/8 31 3/8
Dividends paid during the last two fiscal years were as follows:
Dividends Paid per Share
Quarters 2000 1999
-------- ---- ----
First -Regular . . . . . . . . . . $ .25 $ .20
-Special . . . . . . . . . . .80 .70
Second -Regular . . . . . . . . . . .25 .25
Third -Regular . . . . . . . . . . .25 .25
Fourth -Regular . . . . . . . . . . .25 .25
------ -----
Total . . . . . . . . . . . . $ 1.80 $1.65
====== =====
As at December 13, 2000, there were 370 shareholders of record including Cede &
Company in its capacity as nominee for the Depository Trust Company.
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FIVE-YEAR REVIEW
------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
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NET SALES $236,165,000 $228,845,000 $194,197,000 $153,250,000 $146,491,000
COST OF SALES 179,515,000 170,981,000 148,382,000 116,833,000 114,744,000
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GROSS MARGIN ON SALES 56,650,000 57,864,000 45,815,000 36,417,000 31,747,000
SELLING AND ADMINISTRATIVE EXPENSES 29,668,000 29,318,000 25,126,000 22,915,000 22,652,000
INTEREST ON CAPITALIZED LEASES 103,000 89,000 111,000 119,000 123,000
INTEREST INCOME (2,225,000) (2,513,000) (2,960,000) (2,773,000) (2,426,000)
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EARNINGS BEFORE PROVISION FOR INCOME
TAXES 29,104,000 30,970,000 23,538,000 16,156,000 11,398,000
PROVISION FOR INCOME TAXES 12,078,000 12,630,000 9,501,000 6,441,000 4,502,000
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NET EARNINGS $17,026,000 $18,340,000 $14,037,000 $9,715,000 $6,896,000
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EARNINGS PER SHARE--BASIC $3.26 $3.52 $2.75 $1.92 $1.36
--DILUTED $3.25 $3.49 $2.73 $1.92 $1.36
AVERAGE SHARES OUTSTANDING--BASIC 5,216,000 5,210,000 5,109,000 5,070,000 5,070,000
--DILUTED 5,238,000 5,257,000 5,150,000 5,070,000 5,070,000
DIVIDENDS PAID PER SHARE $1.80 $1.65 $1.20 $1.00 $1.00
---------------------------------------------------------------------------------------------------------------
CURRENT ASSETS $128,980,000 $116,372,000 $112,116,000 $94,014,000 $93,393,000
CURRENT LIABILITIES 36,289,000 38,970,000 31,267,000 25,607,000 17,626,000
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WORKING CAPITAL 92,691,000 77,402,000 80,849,000 68,407,000 75,767,000
WORKING CAPITAL RATIO 3.55 2.99 3.59 3.67 5.30
---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $163,592,000 $163,692,000 $146,173,000 $132,386,000 $119,547,000
---------------------------------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS $1,910,000 $2,150,000 $2,170,000 $2,807,000 $2,937,000
---------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY $123,490,000 $120,127,000 $109,707,000 $100,786,000 $96,141,000
COMMON STOCK ISSUED AND OUTSTANDING 5,072,337 5,305,737 5,128,719 5,069,892 5,069,892
---------------------------------------------------------------------------------------------------------------
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, that involve certain risks and
uncertainties. Discussions containing such forward-looking statements may be
found in the material set forth below in this Management's Discussion and
Analysis of Financial Condition and Results of Operations, under the heading
"Risk Factors" previously in this Report, as well as in this Report generally,
including the documents incorporated by reference herein. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. The Company's
actual results could differ materially from those anticipated in such
forward-looking statements as a result of certain factors, including those
appearing in this Report and in the documents incorporated by reference herein.
These forward-looking statements are made as of the date of this Report, and the
Company assumes no obligations to update such forward-looking statements or to
update the reasons why actual results could differ materially from those
anticipated in such forward-looking statements.
NET SALES
Net sales in fiscal 2000 were $236,165,000, an increase of $7,320,000, or 3.2%,
over fiscal 1999 net sales of $228,845,000. The 2000 sales increase was a result
of increased net sales primarily in the Company's Childrenswear Division offset
in part by the discontinuance of the Company's Women's Plus products.
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 Company's Childrenswear and Women's
Divisions.
GROSS MARGIN
Gross margin in fiscal 2000 was $56,650,000, or 25.3% of net sales, as compared
to $57,864,000, or 23.5% of net sales, in fiscal 1999. The gross margin decrease
in both percentage of sales and absolute dollars was due principally to changes
in customer programs (product mix).
Gross margin in fiscal 1999 was $57,854,000, or 25.3% 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 the increased sales volume. The gross margin increase
as a percentage of sales was due primarily to improvements in absorption of
manufacturing expenses.
Selling and administrative expenses in fiscal 2000 were $29,668,000, or 12.6% of
net sales, as compared to $29,318,000, or 12.8% of net sales, in fiscal 1999.
The expense increases primarily resulted from increased operating activity
relating to the continued expansion of manufacturing facilities in the Caribbean
Basin and a domestic distribution facility to support the offshore expansion,
offset in part by decreased advertising expenses.
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. The
dollar increase was due to increased expenditures for advertising, an increase
in shipping expenses related to the volume increase, and continued investment in
and upgrading of computer systems.
Interest income in fiscal 2000 decreased to $2,225,000 from $2,513,000 for the
comparable period last year. The decrease in interest income was due primarily
to a decline in the level of investments.
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--------------------------------------------------------------------------------
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 interest rates for short-term U.S. Government obligations.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
The balance sheet continued to reflect the strong financial condition of the
Company. At September 30, 2000, working capital was $92,691,000, an increase of
$15,289,000 from September 30, 1999, working capital of $77,402,000. The major
change in the components of the Company's working capital during fiscal 2000 was
an increase in inventory resulting from earlier production of the Company's
Spring products and a transfer of long-term securities to short-term.
Cash provided by investing activities totaled $2,578,000 in 2000 compared to
$701,000 in 1999. Capital expenditures were $8,726,000 in 2000 compared with
$5,961,000 in 1999. The increase in capital expenditures in 2000 over 1999 was
primarily due to the continued expansion of manufacturing facilities in the
Caribbean Basin and a domestic distribution facility and continued upgrade of
the Company's Management Information Systems. These capital expenditures were
offset by reductions in the amount of long-term investments in securities.
Cash used for financing activities totaled $14,535,000 in 2000 compared to
$8,412,000 in 1999. The Company's primary financing activities consisted of a
company stock repurchase and payment of dividends.
On April 24, 2000, the Company repurchased 250,000 shares of its Common Stock in
a single block purchase from an institutional investor at the market price.
Shareholders' equity at September 30, 2000 was $123,490,000 or $24.34 book value
per share, as compared to $120,127,000 or $22.64 book value per share, at
September 30, 1999.
Management believes that the Company has sufficient working capital to finance
its operations and projected growth. There were no short-term borrowings
outstanding during fiscal years 2000, 1999, and 1998, and management does not
anticipate the need for any such borrowings. If necessary, the Company has the
ability to obtain funds from a number of sources to meet its seasonal and
long-term requirements.
YEAR 2000
The Company has successfully updated its management information systems and
in doing so dealt with its Year 2000 compliance issues. The Company had no
material problems related to the millennium date change on January 1, 2000,
and does not anticipate that any Y2K issues will have any material adverse
effect on its operations and financial condition. At this time, the Company
continues to believe that the most likely "worst-case" scenario involves
potential disruptions in areas in which the Company's operations must rely on
third parties whose systems may not work properly at all times after
January 1, 2000, including failures impacting on the Company's Central
American operations. However, no such failures have occurred, and while such
failures could affect important operations of the Company, either directly or
indirectly, the Company cannot at present estimate either the likelihood or
the potential cost of such failure.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not believe it is exposed to market risks with respect to any
of its investments; the Company does not utilize market rate sensitive
instruments for trading or other purposes. The Company's investments consist
primarily of U.S. Government securities with maturities of three years or less.
18
<PAGE>
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 2000 September 30, 1999
--------------------------------------------------------------------------------------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $14,580,000 $12,952,000
U.S. Government securities--short-term 6,436,000
Accounts receivable, less estimated uncollectibles of
$512,000 at 2000 and 1999 53,732,000 59,381,000
Inventories 47,757,000 37,333,000
Other current assets 6,475,000 6,706,000
--------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 128,980,000 116,372,000
--------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--LONG-TERM 7,695,000 25,435,000
PROPERTY, PLANT AND EQUIPMENT, NET 18,878,000 15,393,000
OTHER ASSETS 8,039,000 6,492,000
--------------------------------------------------------------------------------------------------------
TOTAL $163,592,000 $163,692,000
--------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $10,417,000 $9,959,000
Accrued liabilities 21,263,000 22,495,000
Income taxes payable 4,369,000 6,496,000
Current portion of capitalized lease obligations 240,000 20,000
--------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 36,289,000 38,970,000
--------------------------------------------------------------------------------------------------------
CAPITALIZED LEASE OBLIGATIONS, NET OF CURRENT PORTION 1,910,000 2,150,000
--------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 1,903,000 2,445,000
--------------------------------------------------------------------------------------------------------
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: 5,072,337 at 2000 and 5,305,737 at 1999 2,536,000 2,653,000
Additional paid-in capital 6,327,000 11,272,000
Unamortized value of restricted stock (3,073,000) (3,925,000)
Retained earnings 117,700,000 110,127,000
--------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 123,490,000 120,127,000
--------------------------------------------------------------------------------------------------------
TOTAL $163,592,000 $163,692,000
--------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $236,165,000 $228,845,000 $194,197,000
Cost of sales 179,515,000 170,981,000 148,382,000
--------------------------------------------------------------------------------------------------------------
Gross margin on sales 56,650,000 57,864,000 45,815,000
Selling and administrative expenses 29,668,000 29,318,000 25,126,000
Interest on capitalized leases 103,000 89,000 111,000
Interest income (2,225,000) (2,513,000) (2,960,000)
--------------------------------------------------------------------------------------------------------------
Earnings before provision for income taxes 29,104,000 30,970,000 23,538,000
Provision for income taxes 12,078,000 12,630,000 9,501,000
--------------------------------------------------------------------------------------------------------------
NET EARNINGS $17,026,000 $18,340,000 $14,037,000
--------------------------------------------------------------------------------------------------------------
Earnings per share--Basic $3.26 $3.52 $2.75
--Diluted $3.25 $3.49 $2.73
Average shares outstanding--Basic 5,216,000 5,210,000 5,109,000
--Diluted 5,238,000 5,257,000 5,150,000
--------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNAMORTIZED
ADDITIONAL VALUE OF
COMMON PAID-IN RESTRICTED RETAINED
YEARS ENDED 1998, 1999 AND 2000 STOCK CAPITAL STOCK EARNINGS TOTAL
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
------------------------------------------------------------------------------------------------------------
Net earnings 17,026,000 17,026,000
Repurchase of stock (125,000) (5,219,000) (5,344,000)
Amortization of restricted stock 852,000 852,000
Exercise of stock options 8,000 274,000 282,000
Dividends paid--$1.80 per share (9,453,000) (9,453,000)
------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2000 $2,536,000 $6,327,000 $(3,073,000) $117,700,000 $123,490,000
------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS $17,026,000 $18,340,000 $14,037,000
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Deferred compensation 852,000 355,000
Depreciation and amortization 5,241,000 3,913,000 3,835,000
Provision for losses on accounts receivable (15,000)
Deferred income taxes 54,000 (2,114,000) (706,000)
Changes in assets and liabilities:
U.S. Government securities--short-term 5,434,000 733,000
Accounts receivable 5,649,000 (16,818,000) (11,456,000)
Inventories (10,424,000) (4,557,000) 955,000
Other current assets (390,000) (171,000) (163,000)
Accounts payable 458,000 1,404,000 1,966,000
Accrued liabilities (1,232,000) 3,920,000 2,141,000
Income taxes payable (2,102,000) 2,453,000 1,604,000
Other assets (1,547,000) (1,095,000) (348,000)
-------------------------------------------------------------------------------------------------------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 13,585,000 11,064,000 12,583,000
-------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of U.S. Government securities--long-term 24,605,000 23,456,000 22,840,000
Purchase of U.S. Government securities--long-term (13,301,000) (16,794,000) (25,028,000)
Additions to property, plant and equipment (8,726,000) (5,961,000) (3,710,000)
-------------------------------------------------------------------------------------------------------
NET CASH FLOWS PROVIDED BY (USED FOR) INVESTING
ACTIVITIES 2,578,000 701,000 (5,898,000)
-------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (9,453,000) (8,564,000) (6,116,000)
Repayment of capitalized lease obligations (20,000) (137,000) (630,000)
Proceeds from exercise of stock options 282,000 289,000 1,000,000
Repurchase of stock (5,344,000)
-------------------------------------------------------------------------------------------------------
NET CASH FLOWS USED FOR FINANCING ACTIVITIES (14,535,000) (8,412,000) (5,746,000)
-------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,628,000 3,353,000 939,000
-------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,952,000 9,599,000 8,660,000
-------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $14,580,000 $12,952,000 $9,599,000
-------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
CASH PAID DURING THE YEAR FOR:
Interest $103,000 $89,000 $111,000
Income taxes 13,565,000 12,404,000 8,711,000
-------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
<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. Translation gains and losses on
consolidation of foreign subsidiaries are not significant, and, therefore no
comprehensive income or separate component of shareholder's equity have been
provided. 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, 2000 and 1999 is due to the net
incremental effect of outstanding stock options of 22,000 and 48,000 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.
22
<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 $7,695,000 at
September 30, 2000 and consisted of U.S. Treasury Notes with contractual
maturities as follows:
<TABLE>
<S> <C>
2002........................................................ $6,683,000
2003........................................................ 1,012,000
----------
$7,695,000
==========
</TABLE>
The estimated fair value of investments approximates the amortized cost, and,
therefore, there are no unrealized gains or losses as at September 30, 2000.
NOTE 3--INVENTORIES
INVENTORIES CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Raw materials............................................... $8,338,000 $6,997,000
Work in process............................................. 8,817,000 6,932,000
Finished goods.............................................. 30,602,000 23,404,000
----------- -----------
$47,757,000 $37,333,000
=========== ===========
</TABLE>
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Capitalized leased manufacturing plants..................... $12,023,000 $12,023,000
Machinery and equipment..................................... 25,393,000 19,847,000
Leasehold improvements...................................... 5,786,000 5,122,000
Transportation equipment.................................... 3,883,000 2,118,000
----------- -----------
47,085,000 39,110,000
Less accumulated depreciation and amortization.............. 28,207,000 23,717,000
----------- -----------
$18,878,000 $15,393,000
=========== ===========
</TABLE>
The net book value of the capitalized leased manufacturing plants was $3,058,000
at September 30, 2000 and $3,482,000 at September 30, 1999.
NOTE 5--CAPITALIZED LEASES
Substantially all of the Company's leases of manufacturing facilities in the
United States have been capitalized. Future minimum lease payments of principal
and interest under leases capitalized at September 30, 2000 are as follows:
<TABLE>
<S> <C>
2001........................................................ $309,000
2002........................................................ 300,000
2003........................................................ 430,000
2004........................................................ 262,000
2005........................................................ 253,000
Later years................................................. 898,000
-----------
2,452,000
Less interest--5.70% to 6.0%................................ (302,000)
-----------
Total minimum lease payments................................ 2,150,000
Less amounts due within one year............................ (240,000)
-----------
$1,910,000
===========
</TABLE>
23
<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>
2000 1999 1998
------------------------ ------------------------ ------------------------
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.... $10,186,000 35.0% $10,839,000 35.0% $8,238,000 35.0%
State and local income tax
expense, net of Federal income
tax benefit and other............ 1,892,000 6.5 1,791,000 5.8 1,263,000 5.4
----------- ---- ----------- ---- ----------- ----
Income tax expense............... $12,078,000 41.5% $12,630,000 40.8% $9,501,000 40.4%
=========== ==== =========== ==== =========== ====
</TABLE>
Income tax expense consists of the following components:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current..................................................... $12,024,000 $14,744,000 $10,207,000
Deferred.................................................... 54,000 (2,114,000) (706,000)
----------- ----------- -----------
$12,078,000 $12,630,000 $9,501,000
=========== =========== ===========
</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, 2000 and 1999 is $3,456,000
and $4,077,000, respectively, of current deferred income tax debits, and
included in Income Taxes Payable at September 30, 2000 and 1999 is $307,000 and
$332,000, 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>
2001........................................................ $2,380,000
2002........................................................ 2,280,000
2003........................................................ 2,144,000
2004........................................................ 1,841,000
2005........................................................ 1,254,000
2006 and thereafter......................................... 6,058,000
</TABLE>
Total rental expense charged to operations in 2000, 1999 and 1998 amounted to
$2,628,000, $2,138,000 and $1,952,000, respectively.
The Company is obligated under various licensing agreements for annual minimum
royalty expense commitments, amounting to approximately $735,000 in 2001.
Total royalty expense charged to operations in 2000, 1999 and 1998 amounted to
$1,091,000, $1,188,000 and $1,868,000, 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. No
further options are available for grant under the 1989 Plan. In 1998, the
Company adopted a plan ("1998 Plan") for granting stock options to employees
pursuant to terms and conditions equivalent to 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, 2000, 200,000 options were available for grant
thereunder.
During fiscal 2000, 16,600 options were exercised for a total of $282,200. At
September 30, 2000, there were 85,055 options outstanding all of which were
exercisable.
24
<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 $279,718 in 2000, $253,899 in 1999 and $37,595 in 1998.
Pension information under FASB No. 132 is as follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligation at beginning of year $15,691,610 $14,755,787
Service cost 580,760 631,223
Interest cost 1,167,556 1,097,255
Actuarial loss (261,540) 391,817
Benefits paid (258,243) (260,468)
Settlements (1,402,627) (924,004)
----------- -----------
Benefit obligation at end of year $15,517,516 $15,691,610
----------- -----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $19,629,294 $18,556,352
Actual return on plan assets 222,177 1,480,991
Employer contribution 893,802 776,423
Benefits paid (258,243) (260,468)
Settlements (1,402,627) (924,004)
----------- -----------
Fair value of plan assets at end of year $19,084,403 $19,629,294
----------- -----------
RECONCILIATION OF FUNDED STATUS
Funded status $3,566,887 $3,937,684
First Quarter Contribution 1,354,255 784,081
Unrecognized net transition obligation 378,163 447,901
Unrecognized prior service cost 609,663 796,088
Unrecognized net actuarial (gain) or loss 1,324,062 83,018
----------- -----------
Prepaid benefit cost, September 30 $7,233,030 $6,048,772
=========== ===========
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate
Beginning of year 7.50% 7.50%
End of year 7.75% 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 $580,760 $631,223
Interest cost 1,167,556 1,097,255
Expected return on plan assets (1,911,687) (1,788,449)
Amortization of net transition obligation 73,768 72,425
Amortization of prior service cost 186,422 186,422
Amortization of net actuarial loss 26,574
Settlement (gain) or loss 156,325 55,023
----------- -----------
Net periodic benefit cost $279,718 $253,899
=========== ===========
</TABLE>
25
<PAGE>
--------------------------------------------------------------------------------
The Board of Directors adopted on January 1, 1995, a Supplemental Benefit
Restoration Plan for certain employees to restore certain pension benefits which
had been reduced by legislative action. The Company is currently funding its
obligations under the Plan and the 2000, 1999 and 1998 expense for such plan was
$184,000, $180,000 and $146,000, respectively.
NOTE 10--MAJOR CUSTOMERS
The Company operates within one industry segment--the manufacture of apparel.
Sales to one mass merchandiser accounted for approximately 87% of the Company's
net sales in 2000, 89% in 1999 and 80% in 1998. In addition a national retail
chain accounted for approximately 9%, 7% and 10% of the Company's net sales in
2000, 1999 and 1998, 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, 2000, 5,072,337 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 $8,994,000. The employment agreements also provide for
severance benefits, disability and death benefits and, as to one officer-
director, consulting services under certain circumstances.
NOTE 13--QUARTERLY FINANCIAL DATA (UNAUDITED)
Financial data for the interim periods of 2000 and 1999 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 2000
Quarters
---------------------------------------------------------
First.................................................... $53,345 $11,398 $3,184 $.60 $.59
Second................................................... 54,668 13,407 3,937 .74 .74
Third.................................................... 47,941 12,041 3,085 .60 .60
Fourth................................................... 80,211 19,804 6,820 1.32 1.32
-------- ------- ------- ----- -----
Total................................................. $236,165 $56,650 $17,026 $3.26 $3.25
======== ======= ======= ===== =====
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
======== ======= ======= ===== =====
</TABLE>
26
<PAGE>
NOTE 14--RESTRICTED STOCK PLAN
In May, 1999, the Company terminated the Supplemental Executive Retirement Plan
("SERP"), which had been adopted in 1989 for certain executive employees to
restore pension benefits which had been reduced by legislative action. 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, 2000 and 1999, was
$852,000 and $355,000, respectively.
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, 2000 and 1999 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, 2000. 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, 2000 and 1999, 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, 2000 in conformity
with generally accepted accounting principles.
Citrin Cooperman & Company, LLP
New York, New York
November 10, 2000
27
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company.
The information required to be set forth in this Item will be contained
in the Company's 2001 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 the Company's 2001 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 the Company's 2001 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 the Company's 2001 Proxy Statement under the caption "Transactions with
Management" and is incorporated by reference into this Report.
28
<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, 2000, and September 30, 1999. 19
Consolidated Statements of Earnings -
years ended September 30, 2000, September 30, 1999, and
September 30, 1998. 20
Consolidated Statements of Shareholders'
Equity - years ended September 30, 2000, September 30, 1999,
and September 30, 1998. 20
Consolidated Statements of Cash Flows -
years ended September 30, 2000, September 30, 1999,
and September 30, 1998. 21
Notes to Consolidated Financial Statements
for the years ended September 30, 2000, September 30, 1999,
and September 30, 1998 22 - 27
Independent Auditors' Report dated November 10, 2000. 27
(2) Consolidated Financial Statement Schedules.
Independent Auditors' Report on Schedules
dated November 10, 2000, and Consent of Independent Certified
29
<PAGE>
Public Accountants dated December 22, 2000. F-1
Supplemental Notes to Consolidated Finan-
cial Statements for the years ended September 30, 2000,
September 30, 1999, and September 30, 1998. 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
Company and its subsidiaries are omitted because all subsidi- aries included in
the Consolidated Financial Statements are 100% owned.
(b) No reports on Form 8-K have been filed by the Company during
the last quarter of the period covered by this Report.
(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 Company and Chemical Bank
(now known as Chase Manhattan Bank).3
(10) Material Contracts.
30
<PAGE>
(i) 1989 Stock Option Plan.4
(ii) 1998 Stock Option Plan.5
(iii) 1999 Restricted Stock Plan6
(iv) Employment and Consulting Agreement
amended and restated as of October 1,1996, between
the Company and Seymour Lichtenstein.7
(v) Employment Agreement amended
and restated as of October 1, 1996,
between the Company and Jerald Kamiel.7
(vi) Employment Agreement amended
and restated as of October 1, 1996,
between the Company and William
J. Wilson.7
(vii) Employment Agreement amended
and restated as of October 1, 1996,
between the Company and Rodney
Faver.7
(viii) Amendment to Employment and
Consulting Agreement dated as of October 1,
2000, between the Company and Seymour
Lichtenstein.
(ix) Amendment to Employment
Agreement dated as of October 1, 2000, between
the Company and William J. Wilson.
(x) Amendment to Employment Agreement
dated as of October 1, 2000, between the
Company and Rodney Faver.
(xi) Form of Indemnity Agreement
dated August 9, 1993, between the Company and
each of its directors.8
(xi) Indemnity Agreement dated
August 9, 1993, between the Company
and Alexander J. Sistarenik.8
(21) Schedule of Subsidiaries of
the Company.
(27) Financial Data Schedule.
31
<PAGE>
Exhibits not included in this filing are hereby incorporated by reference from
the following reports and registration statements previously filed by the
Company:
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 Annual Report on Form 10-K for the fiscal year ended September 30, 1999.
7 Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997.
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.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GARAN, INCORPORATED
December 22, 2000 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
Company and in the capacities and on the dates indicated.
December 22, 2000 /s/ SEYMOUR LICHTENSTEIN
-------------------------------------
Seymour Lichtenstein
Principal Executive Officer, Director
December 22, 2000 /s/ WILLIAM J. WILSON
-------------------------------------
William J. Wilson
Principal Financial Officer, Director
December 22, 2000 /s/ ALEXANDER J. SISTARENIK
-------------------------------------
Alexander J. Sistarenik,
Principal Accounting Officer
December 22, 2000 /s/ JERALD KAMIEL
-------------------------
Jerald Kamiel, Director
December 22, 2000 /s/ RODNEY FAVER
-------------------------------------
Rodney Faver, Director
December 22, 2000 /s/ MARVIN S. ROBINSON
-------------------------------------
Marvin S. Robinson, Director
33
<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, 2000, 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, 2000
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, 2000, included in, or
incorporated by reference in, Registration Statement Nos. 33-29054, 333-66009,
and 333-35710 on Form S-8 and the related Prospectuses.
CITRIN COOPERMAN & COMPANY, LLP
December 22, 2000
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:
2000 1999 1998
---- ---- ----
Investments $1,950,000 $2,259,000 $2,494,000
Other 275,000 254,000 466,000
---------- ---------- ----------
$2,225,000 $2,513,000 $2,960,000
========== ========== ==========
Note 15 - ACCRUED LIABILITIES
Accrued liabilities as at September 30, 2000, and September 30,
1999, consist of the following:
2000 1999
---- ----
Payroll/Bonus $ 6,977,000 $ 7,199,000
Payroll Taxes 240,000 108,000
Accrued Expenses 14,046,000 15,188,000
----------- -----------
$21,263,000 $22,495,000
=========== ===========
F-2
