<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 1-5256
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Gerber Childrenswear, Inc.
(Exact name of registrant as specified in its charter)
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Delaware 62-1624764
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
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7005 Pelham Road
Suite D
Greenville, SC 29615
(Address of principal executive offices)
(864) 987-5200
(Registrant's telephone number, including area code)
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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.
[ X ] YES [ ] NO
As of May 7, 1999, there were outstanding 8,337,481 shares of Common Stock and
8,692,315 shares of Class B Common Stock.
<PAGE> 2
Gerber Childrenswear, Inc.
INDEX
<TABLE>
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of April 3, 1999 and
December 31, 1998............................................... 1
Condensed Consolidated Statements of Income and Comprehensive
Income for the quarters ended April 3, 1999 and April 4, 1998... 2
Condensed Consolidated Statements of Cash Flows for the quarters
ended April 3, 1999 and April 4, 1998........................... 3
Notes to Condensed Consolidated Financial Statements Statements. 4-7
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 8-12
Item 3 - Quantitative and Qualitative Disclosures about Market Risk....... 13
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K................................. 13
Signatures................................................................ 14
Exhibit - Financial Data Schedule......................................... 15
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Gerber Childrenswear, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (Note)
April 3, December 31,
1999 1998
-------------- --------------
(In thousands)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents.................. $ 3,082 $ 1,780
Accounts receivable, net................... 35,989 36,621
Inventories................................ 86,084 87,020
Deferred income taxes...................... 4,746 4,806
Other...................................... 2,348 2,534
-------------- --------------
Total current assets................. 132,249 132,761
-------------- --------------
Property, plant and equipment.................. 33,373 32,935
Less accumulated depreciation.............. 8,840 7,711
-------------- --------------
24,533 25,224
-------------- --------------
Other Assets
Excess of cost over fair value of net assets
acquired, net............................ 19,677 20,607
Other...................................... 7,581 7,146
-------------- --------------
Total other assets................... 27,258 27,753
============== ==============
$184,040 $185,738
============== ==============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable........................... $ 13,688 $ 11,815
Accrued expenses........................... 14,598 12,387
Revolving credit loan payable.............. 5,200 15,300
Current portion of long-term debt and
capital leases............................ 6,297 4,847
Income tax payable......................... 6,517 5,666
-------------- --------------
Total current liabilities............ 46,300 50,015
-------------- --------------
Non-Current Liabilities
Long-term debt............................. 17,975 19,631
Other non-current liabilities.............. 17,455 17,166
-------------- --------------
Total non-current liabilities........ 35,430 36,797
-------------- --------------
Shareholders' Equity........................... 102,310 98,926
-------------- --------------
$184,040 $185,738
============== ==============
</TABLE>
Note: The amounts were derived from the audited financial statements at that
date.
See accompanying notes
1
<PAGE> 4
Gerber Childrenswear, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
For the quarter ended
---------------------------------
April 3, April 4,
1999 1998
-------------- ---------------
(In thousands,
except per share data)
<S> <C> <C>
Net sales...................................... $ 66,285 $ 64,647
Cost of sales................................. 47,841 47,212
-------------- ---------------
Gross margin............................... 18,444 17,435
Selling, general and administrative expenses... 10,388 9,614
-------------- ---------------
Income before interest and income taxes........ 8,056 7,821
Interest expense, net of interest income....... 655 2,262
-------------- ---------------
Income before income taxes..................... 7,401 5,559
Provision for income taxes..................... 2,632 2,139
-------------- ---------------
Net income..................................... 4,769 3,420
Foreign currency translation............... (1,419) (188)
-------------- ---------------
Comprehensive income........................... $ 3,350 $ 3,232
============== ===============
Earnings per common share...................... $ .29 $ .27
Earnings per common share - diluted............ $ .24 $ .20
Numerator
Net income..................................... $ 4,769 $ 3,420
Preferred stock dividends...................... 0 (452)
-------------- ---------------
Net income available to common shareholders... $ 4,769 $ 2,968
============== ===============
Denominator
Weighted average shares - basic................ 16,576 10,991
Effect of dilutive securities:
Warrants..................................... 2,958 2,958
Nonvested stock/stock options................ 398 601
-------------- ---------------
Adjusted weighted average shares - diluted..... 19,932 14,550
============== ===============
</TABLE>
See accompanying notes
2
<PAGE> 5
Gerber Childrenswear, Inc.
Condensed Consolidated Statements Of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the quarter ended
---------------------------------
April 3, April 4,
1999 1998
-------------- ---------------
(in thousands)
<S> <C> <C>
Operating Activities
Net income................................. $ 4,769 $ 3,420
Adjustments to reconcile net income to net
cash provided by (used in)operating
activities:
Depreciation and amortization.......... 1,539 1,515
Other.................................. (547) (1,181)
Changes in assets and liabilities
Accounts receivable, net............. 373 (6,278)
Inventories.......................... 746 (10,413)
Accounts payable..................... 1,913 (1,620)
Other assets and liabilities, net.... 3,894 (859)
-------------- --------------
12,687 (15,416)
-------------- --------------
Investing Activities
Purchases of property, plant and equipment (886) (722)
-------------- --------------
Financing Activities
Borrowings under revolving credit agreement 21,650 32,240
Repayments under revolving credit agreement (31,750) (13,650)
Principal payments on long-term borrowings
and capital leases....................... (181) (1,629)
Other...................................... 0 262
-------------- --------------
(10,281) 17,223
-------------- --------------
Effect of exchange rate changes on cash.... (218) 181
-------------- --------------
Net increase in cash and cash equivalents...... 1,302 1,266
Cash and cash equivalents at beginning of period 1,780 536
-------------- --------------
Cash and cash equivalents at end of period..... $ 3,082 $ 1,802
============== ==============
</TABLE>
See accompanying notes
3
<PAGE> 6
Gerber Childrenswear, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements included herein have been
prepared by Gerber Childrenswear, Inc. ("the Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations; however, the Company believes that the
disclosures are adequate to make the information presented not misleading. The
interim financial statements are unaudited and, in the opinion of management,
contain all adjustments necessary to present fairly the Company's financial
position and the results of its operations and cash flows for the interim
periods presented. It is suggested that these interim financial statements be
read in conjunction with the Company's audited financial statements and notes
thereto included in the Company's 1998 Annual Report on Form 10-K.
2. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. The financial statements of all
foreign subsidiaries were prepared in their respective local currencies and
translated into U.S. dollars based on the current exchange rate at the end of
the period for the balance sheet and a weighted average rate for the periods on
the statements of income. All significant intercompany balances have been
eliminated in consolidation.
3. SEASONALITY OF BUSINESS
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for a full fiscal year, due to the
seasonal nature of the Company's operations.
4. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
4
<PAGE> 7
Gerber Childrenswear, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
5. INVENTORIES
A summary of inventories, by major classification, at April 3, 1999 and December
31, 1998 is as follows (in thousands):
<TABLE>
April 3, 1999 December 31, 1998
--------------- -------------------
<S> <C> <C>
Raw materials $ 13,661 $ 11,863
Work in process 15,501 13,515
Finished goods 56,922 61,642
--------------- -------------------
$ 86,084 $ 87,020
=============== ===================
</TABLE>
6. INCOME TAXES
The Company's effective income tax rate of 35.6% for the quarter ended April 3,
1999 was lower than the statutory rates due to the impact in 1999 of foreign
earnings, certain of which are taxed at lower rates than in the United States,
partially offset by goodwill amortization, most of which is not deductible for
federal and state income tax purposes.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). This statement established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Adoption of FAS 133 is not anticipated to have a material impact on the
Company's financial statements.
8. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Company operates in two business segments: Apparel and Hosiery. The Apparel
segment consists of the production and sale of infant and toddler's sleepwear,
playwear, underwear, bedding, bath, cloth diapers and other products to mass
merchandise outlets in the United States under the Gerber, Baby Looney Tunes and
Curity brand names, the Onesies trademark and private labels. The Hosiery
segment, which was acquired on December 17, 1997, consists of the production and
sale of sport socks under the Wilson, Coca Cola and Converse in the United
States and Europe and under the Dunlop brand name in Europe. The Company's first
three quarters always end on the Saturday closest to the calendar quarter end.
The fourth quarter ends on December 31 of the applicable year
5
<PAGE> 8
Net sales, income before interest and income taxes, depreciation and
amortization, and capital additions are reported based on the operations of each
business segment or geographic region. Assets are those used exclusively in the
operations of each business segment or geographic region, or which are allocated
when used jointly. The following table sets forth certain unaudited results of
operations and other financial information of the Company by business segments
and geographic areas (in thousands).
Business Segments
<TABLE>
For the quarter ended
------------------------------
April 3, April 4,
1999 1998
------------- -------------
<S> <C> <C>
Net sales:
Apparel....................................... $ 49,438 $ 50,109
Hosiery....................................... 16,847 14,538
------------- -------------
Total net sales............................... $ 66,285 $ 64,647
============= =============
Income before interest and income taxes:
Apparel....................................... $ 7,007 $ 7,042
Hosiery....................................... 1,049 779
------------- -------------
Total income before interest and income taxes. $ 8,056 $ 7,821
============= =============
Depreciation and amortization:
Apparel....................................... $ 747 $ 683
Hosiery....................................... 792 832
------------- -------------
Total depreciation and amortization........... $ 1,539 $ 1,515
============= =============
Capital additions:
Apparel....................................... $ 819 $ 582
Hosiery....................................... 67 140
------------- -------------
Total capital additions....................... $ 886 $ 722
============= =============
April 3, December 31,
1999 1998
------------- -------------
Assets:
Apparel....................................... $134,617 $136,246
Hosiery....................................... 49,423 49,492
------------- -------------
Total assets.................................. $184,040 $185,738
============= =============
Inventories (included in assets):
Apparel....................................... $ 78,984 $ 79,748
Hosiery....................................... 7,100 7,272
------------- -------------
Total inventories (included in assets)........ $ 86,084 $ 87,020
============= =============
</TABLE>
6
<PAGE> 9
Geographic Areas
<TABLE>
<CAPTION>
For the quarter ended
------------------------------
April 3, April 4,
1999 1998
------------- -------------
<S> <C> <C>
Net sales:
United States................................. $ 60,005 $ 59,551
All other..................................... 6,280 5,096
------------- -------------
Total net sales............................... $ 66,285 $ 64,647
============= =============
Income before interest and income taxes:
United States................................. $ 7,130 $ 7,056
All other..................................... 926 765
------------- -------------
Total income before interest and income taxes. $ 8,056 $ 7,821
============= =============
April 3, December 31,
1999 1998
------------- -------------
Assets:
United States................................. $159,694 $161,175
All other..................................... 24,346 24,563
------------- -------------
Total assets.................................. $184,040 $185,738
============= =============
</TABLE>
7
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE-HARBOR STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This report includes "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, which represent the
Company's expectations or beliefs concerning future events that involve known
and unknown risks and uncertainties, including, without limitation, those
associated with the effect of national and regional economic conditions, the
overall level of consumer spending, the performance of the Company's products
within the prevailing retail environment, customer acceptance of both new
designs and newly-introduced product lines, competition, financial difficulties
encountered by customers and Year 2000 compliance by the Company and third
parties. All statements other than statements of historical facts included in
this quarterly report, including, without limitation, the statements under
Management's Discussion and Analysis of Financial Condition and Results of
Operations, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statement are reasonable, it
can give no assurance that such expectations will prove to have been correct and
actual results, performance or events could differ materially from those
expressed in such statements.
YEAR 2000 COMPLIANCE
The Year 2000 ("Y2K") problem is a result of computer programs having been
written using two rather than four digits to identify an applicable year. Any
equipment that has time sensitive embedded chips may recognize a date using "00"
as the year 1900 rather than the year 2000. If not corrected, many computer
programs/embedded chips could cause systems to fail or other errors, leading to
possible disruptions in operations or creation of erroneous results. The
Company, in an enterprise-wide effort, is taking steps to ensure that its
internal systems are secure from such failure and that its current products will
perform. The Company created a Y2K Compliance Project that focused on three
primary areas of concern: the Company's Information Technology ("IT plan"),
other Non-IT equipment ("Non-IT plan") and third party suppliers and customers
("TP plan").
The IT plan was begun in 1997 and consisted of three phases: 1)
investigation of the Company's affected systems; 2) assessment and design of a
remediation plan; and 3) remediation and testing. As of April 3, 1999, the
Company had completed all phases of the IT plan. The Company believes that all
internal IT systems necessary to manage the business effectively have been
replaced, modified or upgraded.
The Non-IT plan was begun in 1998 and consists of two phases: 1) identification
and assessment of the Company's Non-IT equipment; and 2) remediation and/or
development of contingency plans. The Company's Non-IT equipment used to conduct
business at its business locations consist primarily of production equipment,
fire prevention equipment, security system equipment, office equipment (besides
computers), and communications equipment. The Company is presently investigating
whether time sensitive embedded chips are used in its Non-IT equipment and if
significant, are contacting the equipment vendors (via Y2K questionnaires) to
determine the status of their Y2K readiness. The Company's goal is to have all
significant Non-IT systems compliant by the end of the first half of 1999.
8
<PAGE> 11
Based on the results (as received) from the Y2K questionnaires, the Company is
currently in the process of developing contingency plans to minimize identified
exposures. Contingency plans include, but are not limited to, using alternate
vendors, using manual interfaces, and hard copies. The Company has not
established a timetable for completing these contingency plans since it is still
in the process of receiving Y2K questionnaires. The Company does not currently
believe that it faces material adverse issues related to its Non-IT equipment.
Like every other business, the Company is at risk from potential Y2K failures on
the part of its major business partners, including, but not limited to,
suppliers, vendors, financial institutions, benefit providers, payroll services,
and clients, as well as potential failures in public and private infrastructure
services, including electricity, water, transportation, and communications. The
Company in 1998 began its TP plan by initiating communications (with Y2K
questionnaires) with significant third party businesses. The Company is
reviewing the responses as received and is assessing the third parties' efforts
in addressing Y2K issues and is in the process of determining the Company's
vulnerability if these third parties fail to remediate their Y2K problems.
Contingency plans are being developed and include, but are not limited to, using
alternate vendors, using manual interfaces, and hard copies. The Company has not
established a timetable for completing these contingency plans since it is still
in the process of receiving third party Y2K questionnaires. There can be no
guarantee that the systems of third parties will be remediated on a timely
basis, or that such parties' failure to remediate Y2K issues would not have a
material adverse effect on the Company.
The total cost of adapting the Company's systems to the Y2K problem is now
estimated at approximately $350,000. Expenses incurred up to and including April
3, 1999 totaled $320,000. The remaining Y2K budget established by the Company is
expected to be adequate to cover costs still to be incurred. Provisions have not
been made for expenses that may arise from problems occurring from third party
non-compliance.
The Y2K problem is unique in that it has never previously occurred; thus, it is
not possible to completely foresee or quantify the overall or any specific
financial or operational impacts to the Company or to third parties which
provide significant services to the Company. Factors which could affect the
Company's ability to be Y2K compliant by the end of 1999 include the failure of
customers, suppliers, governmental entities and others to achieve compliance and
the inaccuracy of certifications received from them. Major business risks
associated with the Y2K problem include, but are not limited to, infrastructure
failures, disruptions to the economy in general, excessive cash withdrawal
activity, closure of government offices, foreign banks, and clearing houses, and
a general slow down in the economy. The Company believes its reasonably likely
worst case scenario related to Y2K issues is the inability to service customer
orders due to production/sourcing interruptions offshore which account for a
significant portion of the Company's products produced. However, the risks
indicated above, along with the risk of the Company failing to adequately
complete the remaining parts of its Y2K Compliance Project and the resulting
possible inability to properly process core business transactions and meet
contractual obligations, could expose the Company to loss of revenues,
litigation and fluctuations in the price of the Company's common stock, any of
which could be material.
9
<PAGE> 12
CASUALTY EVENT
In late September 1998, the Company's three plants in the Dominican Republic
sustained property damage and began to experience business interruption losses
associated with Hurricane Georges. The Company has maintained property damage
insurance and is currently working with its insurance providers in determining
the estimated proceeds for the loss.
The Company fully recovered the production levels of its Dominican Republic
plants during the first quarter of 1999. The Company has maintained business
interruption insurance and is currently working with its insurance providers in
determining the estimated loss value of production/sales. The final
outcome/settlement of this claim can not be presently determined and thus no
amounts have been recorded in the statement of income for the quarter ended
April 3, 1999. The final outcome may or may not have a material impact on the
statement of income in the year in which an outcome/settlement is made; however,
the Company does not believe that the final outcome/settlement will have a
material impact on the Company's financial position, although there can be no
assurance that this will be the case.
RESULTS OF OPERATIONS
Business Segment Data
For information regarding net sales, income before interest and income taxes and
assets by industry segment, reference is made to the information presented in
Note 8 "Business Segments and Geographic Areas" to the condensed consolidated
financial statements.
First Quarter Ended April 3, 1999 Compared to First Quarter April 4, 1998
Net sales. Apparel net sales were $49.4 million for the first quarter of 1999, a
decrease of $.7 million or 1.3% below net sales of $50.1 million for the first
quarter of 1998 due to promotional sales in 1998 and reduced sales in 1999 to
bankrupt customers whose businesses were liquidated. Hosiery net sales were
$16.8 million in the first quarter of 1999, an increase of $2.3 million or 15.9%
above net sales of $14.5 million for the first quarter of 1998 due to stronger
than anticipated 1999 shipments to key customers reflecting better sales at
retail and increased emphasis on customer pipe line stocking.
Gross margin. Gross margin as a percentage of net sales increased from 27.0% in
1998 to 27.8% in 1999. The increase in gross margin was largely due to improved
production efficiencies and reduced raw material cost.
Selling general & administrative expenses. Selling, general and administrative
expenses as a percentage of net sales increased to 15.7% in the first quarter of
1999, from 14.9% in 1998. The increase was due to costs associated with
reorganizing the sales and marketing functions and startup of the new Mexican
production facility for the Apparel segment.
10
<PAGE> 13
Income before interest and income taxes. Apparel income before interest and
income taxes as a percentage of Apparel sales was 14.2% in the first quarter of
1999 versus 14.1% in the first quarter of 1998. Hosiery income before interest
and income taxes was 6.2% and 5.4% of Hosiery sales in the first quarter of 1999
and 1998, respectively. The increase in Hosiery income as a percentage of
Hosiery sales in 1999 compared to 1998 was due to increased margins on higher
sales in the first quarter of 1999.
Interest expense, net of interest income. Interest expense was $.7 million in
the first quarter of 1999 versus $2.3 million in the first quarter of 1998. The
decrease in interest expense reflects the lower debt levels resulting from the
use of proceeds from the Company's initial public offering on June 11, 1998
partially offset by higher Apparel inventories.
Provision for income taxes. Provision for income taxes was $2.6 million in the
first quarter of 1999, compared to $2.1 million in the first quarter of 1998.
The effective tax rate was 35.6% for 1999 as compared to 38.5% for 1998. The
Company's effective income tax rate differed from the prior period effective
rate due to a greater impact of foreign earnings, certain of which are taxed at
lower rates than in the United States, partially offset by goodwill
amortization, most of which is not deductible for federal and state income tax
purposes.
Net income. As a result of the above, first quarter net income was $4.8 million
in 1999, a 39.4% increase over the $3.4 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are for working capital, capital expenditures
and debt service. The Company has financed its cash needs primarily through
internally generated cash flow, in addition to funds borrowed under the
Company's credit agreement.
For the Apparel segment, working capital requirements vary throughout the year.
Working capital generally increases during the first half of the year as
inventory, primarily blanket sleepers, builds to support peak shipping periods.
The Hosiery segment is less seasonal and, while working capital tends to
increase slightly during the second half of the year, the variation is small.
Net cash provided by (used in) operating activities for the quarters ended April
3, 1999 and April 4, 1998 was $12.7 million and $(15.4) million, respectively.
The variation was primarily due to changes in accounts receivable and
inventories. Accounts receivable for 1999 and 1998 changed due to the timing of
sales and collections. Inventories decreased in the first quarter of 1999 due to
higher sales in the quarter and ongoing efforts to reduce excessive inventories
through improvements in production planning and procurement practices, offset by
the seasonality of the Apparel segment's business. To support third and fourth
quarter sales volumes of certain seasonal products (such as blanket sleepers),
the Apparel segment builds inventory in the first six months of each year.
Inventory increased in the first quarter of 1998 due to both the seasonality of
the Apparel segment's business and an increase in build of year-round inventory
in anticipation of customer orders.
11
<PAGE> 14
Capital expenditures were $.9 million and $.7 million for the first quarter of
1999 and 1998, respectively. These expenditures consisted primarily of normal
replacement of manufacturing equipment, purchases of office equipment and
upgrades of information systems. The Company budgeted $9.2 million for capital
expenditures for 1999 ($5.6 million for the Apparel segment and $3.6 million for
the Hosiery segment). Included in the capital expenditure budget is $3.4 million
to replace or upgrade manufacturing equipment, $1.9 million for new knitting/toe
closing machines and $3.4 million to upgrade MIS systems.
Net cash (used in) provided by financing activities was $(10.2) million and
$17.2 million for the first quarter of 1999 and 1998, respectively. The decrease
in cash provided by financing activities for 1999 consisted of repayments under
the Company's revolving credit agreement, which was funded by its cash from
operating activities. Cash provided by financing activities in 1998 consisted
principally of borrowings under the Company's revolving credit agreement to fund
the increased working capital needs.
The Company believes that cash generated from operations, together with amounts
available under its credit facilities, will be adequate to meet its working
capital, capital expenditures and debt service requirements for the next twelve
months.
INFLATION
In general, costs are affected by inflation and the Company may experience the
effects of inflation in future periods. The Company does not currently consider
the impact of inflation to be significant in the businesses or countries in
which the Company operates.
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). This statement established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Adoption of FAS 133 is not anticipated to have a material impact on the
Company's financial statements.
12
<PAGE> 15
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company continues to have no holdings of derivative financial or
commodity-based instruments at April 3, 1999. A review of the Company's other
financial instruments and risk exposures at that date revealed that the Company
had exposure to interest rate and foreign currency exchange rate risks. The
Company performed sensitivity analysis at December 31, 1998 to assess the
potential effect of a change in the interest rate and a change to the foreign
currency exchange rates and concluded that near-term changes in either should
not materially affect the Company's financial position, results of operations or
cash flows. The Company has experienced no significant changes in these
financial instruments or risk exposures during the first quarter of 1999 and
thus believes that the Company's year-end assessment is still appropriate at
April 3, 1999.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K - None
13
<PAGE> 16
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Gerber Childrenswear, Inc.
(Registrant)
DATE: May 14, 1999 By: /s/ Edward Kittredge
-------------------------
Edward Kittredge
Chairman, Chief Executive
Officer and President
(Principal Executive Officer)
DATE: May 14, 1999 By: /s/ Richard L. Solar
-------------------------
Richard L. Solar
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
DATE: May 14, 1999 By: /s/ David E. Uren
----------------------
David E. Uren
Vice President of Finance,
Secretary and Treasurer
(Principal Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> APR-03-1999
<CASH> 3,082,000
<SECURITIES> 0
<RECEIVABLES> 37,356,000
<ALLOWANCES> 1,367,000
<INVENTORY> 86,084,000
<CURRENT-ASSETS> 132,249,000
<PP&E> 33,373,000
<DEPRECIATION> 8,840,000
<TOTAL-ASSETS> 184,040,000
<CURRENT-LIABILITIES> 46,300,000
<BONDS> 17,975,000
0
0
<COMMON> 171,000
<OTHER-SE> 102,139,000
<TOTAL-LIABILITY-AND-EQUITY> 184,040,000
<SALES> 66,285,000
<TOTAL-REVENUES> 66,285,000
<CGS> 47,841,000
<TOTAL-COSTS> 47,841,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 68,000
<INTEREST-EXPENSE> 655,000
<INCOME-PRETAX> 7,401,000
<INCOME-TAX> 2,632,000
<INCOME-CONTINUING> 4,769,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,769,000
<EPS-PRIMARY> .29
<EPS-DILUTED> .24
</TABLE>
