<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 September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-5256
------------------------------------------------------------
GERBER CHILDRENSWEAR, INC.
(Exact name of registrant as specified in its charter)
------------------------------------------------------------
Delaware 62-1624764
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
------------------------------------------------------------
7005 Pelham Road
Greenville, SC 29615
(Address of principal executive offices)
(864) 987-5200
(Registrant's telephone number, including area code)
------------------------------------------------------------
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 November 6, 2000, there were outstanding 8,256,271 shares of Common Stock
and 8,692,315 shares of Class B Common Stock.
<PAGE> 2
GERBER CHILDRENSWEAR, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000,
October 2, 1999 and December 31, 1999........................... 1
Condensed Consolidated Statements of Income and Comprehensive
Income for the quarters ended September 30, 2000 and
October 2, 1999 and for the nine months ended September 30, 2000
and October 2, 1999............................................. 2
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and October 2, 1999............. 3
Notes to Condensed Consolidated Financial Statements............ 4-7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results Of Operations....................................... 8-11
Item 3 - Quantitative and Qualitative Disclosures about Market Risk...... 12
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K................................ 12
Signatures............................................................... 13
Exhibit - Financial Data Schedule........................................ 14
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GERBER CHILDRENSWEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED) (NOTE)
SEPTEMBER 30, OCTOBER 2, DECEMBER 31,
2000 1999 1999
------------- ----------- ------------
(In thousands)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............................................ $ 16,307 $ 4,824 $ 17,503
Accounts receivable, net............................................. 41,531 48,642 37,261
Inventories.......................................................... 71,477 85,030 65,286
Deferred income taxes................................................ 4,038 4,858 3,100
Other................................................................ 1,887 1,543 1,831
------------- ----------- ------------
Total current assets........................................... 135,240 144,897 124,981
------------- ----------- ------------
Property, plant and equipment............................................ 44,599 36,764 39,149
Less accumulated depreciation........................................ 15,548 11,128 12,273
------------- ----------- ------------
29,051 25,636 26,876
------------- ----------- ------------
Other Assets
Excess of cost over fair value of net assets acquired, net........... 16,877 19,108 18,395
Other................................................................ 9,147 8,138 8,172
------------- ----------- ------------
Total other assets............................................. 26,024 27,246 26,567
------------- ----------- ------------
$190,315 $197,779 $178,424
============= =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable..................................................... $ 10,825 $.15,339 $ 9,239
Accrued expenses..................................................... 17,613 18,460 15,155
Revolving credit loan payable........................................ -- 8,800 --
Current portion of long-term debt and capital leases................. 6,392 6,605 6,686
Income tax payable................................................... 5,772 6,004 3,054
------------- ----------- ------------
Total current liabilities...................................... 40,602 55,208 34,134
------------- ----------- ------------
Non-Current Liabilities
Long-term debt....................................................... 7,695 14,593 12,843
Other non-current liabilities........................................ 21,139 19,222 19,521
------------- ----------- ------------
Total non-current liabilities.................................. 28,834 33,815 32,364
------------- ----------- ------------
Shareholders' Equity..................................................... 120,879 108,756 111,926
------------- ----------- ------------
$190,315 $197,779 $178,424
============= =========== ============
Note: The amounts were derived from the audited financial statements at that date.
</TABLE>
See accompanying notes
1
<PAGE> 4
GERBER CHILDRENSWEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
--------------------------- ---------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
------------- ---------- ------------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales................................................ $ 70,313 $ 80,159 $ 189,147 $ 205,212
Cost of sales........................................... 53,649 60,900 143,018 153,315
------------- ---------- ------------- ----------
Gross margin............................................. 16,664 19,259 46,129 51,897
Selling, general and administrative expenses............. 8,673 11,423 28,839 32,065
------------- ---------- ------------- ----------
Income before interest and income taxes.................. 7,991 7,836 17,290 19,832
Interest expense, net of interest income................. 107 1,141 242 2,339
------------- ---------- ------------- ----------
Income before income taxes............................... 7,884 6,695 17,048 17,493
Provision for income taxes............................... 2,810 2,340 5,712 6,154
------------- ---------- ------------- ----------
Net income............................................... 5,074 4,355 11,336 11,339
Foreign currency translation........................... (1,397) 749 (2,313) (1,497)
------------- ---------- ------------- ----------
Comprehensive income..................................... $ 3,677 $ 5,104 $ 9,023 $ 9,842
============= ========== ============= ==========
Earnings per common share.............................. $ .30 $ .26 $ .68 $ .68
Earnings per common share - diluted.................... $ .25 $ .22 $ .57 $ .57
Denominator
Weighted average shares - basic.......................... 16,834 16,665 16,793 16,621
Effect of dilutive securities:
Warrants............................................... 2,958 2,958 2,958 2,958
Nonvested stock/stock options.......................... 108 288 148 345
------------- ---------- ------------- ----------
Adjusted weighted average shares - diluted............... 19,900 19,911 19,899 19,924
============= ========== ============= ==========
</TABLE>
See accompanying notes
2
<PAGE> 5
GERBER CHILDRENSWEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------- ----------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................. $ 11,336 $ 11,339
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization............................................ 4,648 4,595
Other.................................................................... (2,480) (1,554)
Changes in assets and liabilities
Accounts receivable, net............................................. (4,709) (12,276)
Inventories.......................................................... (6,434) 1,799
Accounts payable..................................................... 1,639 3,571
Other assets and liabilities, net.................................... 7,082 9,986
------------- ----------
11,082 17,460
------------- ----------
INVESTING ACTIVITIES
Purchases of property, plant and equipment................................. (6,976) (4,486)
Proceeds from sale of property, plant and equipment........................ 682 142
------------- ----------
(6,294) (4,344)
------------- ----------
FINANCING ACTIVITIES
Borrowings under revolving credit agreement................................ -- 57,600
Repayments under revolving credit agreement................................ -- (64,100)
Principal payments on long-term borrowings and capital leases.............. (5,429) (3,254)
Other...................................................................... (144) (104)
------------- ----------
(5,573) (9,858)
------------- ----------
Effect of exchange rate changes on cash.................................... (411) (214)
------------- ----------
Net (decrease) increase in cash and cash equivalents........................... (1,196) 3,044
Cash and cash equivalents at beginning of period............................... 17,503 1,780
------------- ----------
Cash and cash equivalents at end of period..................................... $ 16,307 $ 4,824
============== ==========
</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 consolidated
financial statements and notes thereto included in the Company's 1999 Annual
Report on Form 10-K.
2. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed 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 United States 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 some of the Company's products and retailer initiated
promotions.
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. The Company
has made changes in certain selling, general and administrative expense
estimates for the quarter and for the nine months ended September 30, 2000. The
effect of these changes was to increase net income by approximately $0.5 million
(net of income taxes of $0.2 million) and $0.7 million (net of income taxes of
$0.4 million) for the quarter and nine months, respectively. These changes
resulted in a $.02 and $.04 increase in earnings per common share - diluted for
the quarter and for the nine months ended September 30, 2000, respectively.
4
<PAGE> 7
GERBER CHILDRENSWEAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. INVENTORIES
Inventories consist of the following (in thousands):
September 30, 2000 October 2, 1999 December 31, 1999
------------------ --------------- -----------------
Raw materials $ 7,932 $11,885 $10,058
Work in process 9,801 11,938 12,583
Finished goods 53,744 61,207 42,645
------- ------- -------
$71,477 $85,030 $65,286
======= ======= =======
6. INCOME TAXES
The Company's effective income tax rate of 35.6% and 33.5% for the
quarter and the nine months ended September 30, 2000, respectively, was lower
than the statutory rates due to the impact in 2000 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, 2000.
Adoption of FAS 133 is not anticipated to have a material impact on the
Company's financial statements.
5
<PAGE> 8
GERBER CHILDRENSWEAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 brand and
other labels. The hosiery segment consists of the production and sale of sport
socks under the Wilson, Coca-Cola, Converse and Dunlop names to major retailers
in the United States and/or Europe.
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 segment
and geographic region (in thousands):
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
--------------------------- ---------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Net sales:
Apparel......................................... $ 55,935 $ 62,214 $ 138,519 $ 152,001
Hosiery......................................... 14,378 17,945 50,628 53,211
------------- ---------- ------------- ----------
Total net sales..................................... $ 70,313 $ 80,159 $ 189,147 $ 205,212
============= ========== ============= ==========
Income before interest and income taxes:
Apparel......................................... $ 6,436 $ 6,013 $ 11,156 $ 14,724
Hosiery......................................... 1,555 1,823 6,134 5,108
------------- ---------- ------------- ----------
Total income before interest and income taxes....... $ 7,991 $ 7,836 $ 17,290 $ 19,832
============= ========== ============= ==========
Depreciation and amortization:
Apparel......................................... $ 725 $ 784 $ 2,216 $ 2,246
Hosiery......................................... 812 781 2,432 2,349
------------- ---------- ------------- ----------
Total depreciation and amortization................. $ 1,537 $ 1,565 $ 4,648 $ 4,595
============= ========== ============= ==========
Capital additions:
Apparel......................................... $ 1,687 $ 988 $ 4,027 $ 3,557
Hosiery......................................... 1,080 450 2,949 929
------------- ---------- ------------- ----------
Total capital additions............................. $ 2,767 $ 1,438 $ 6,976 $ 4,486
============= ========== ============= ==========
</TABLE>
6
<PAGE> 9
GERBER CHILDRENSWEAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 2, DECEMBER 31,
2000 1999 1999
------------- ------------- --------------
<S> <C> <C> <C>
Assets:
Apparel............................................. $ 140,930 $ 147,935 $ 129,897
Hosiery............................................. 49,385 49,844 48,527
------------- ------------- --------------
Total assets............................................ $ 190,315 $ 197,779 $ 178,424
============= ============= ==============
Inventories (included in assets):
Apparel............................................. $ 61,682 $ 76,972 $ 57,538
Hosiery............................................. 9,795 8,058 7,748
------------- ------------- --------------
Total inventories (included in assets).................. $ 71,477 $ 85,030 $ 65,286
============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
------------------------------ -------------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales:
United States....................................... $ 65,278 $ 75,157 $ 173,464 $ 188,521
All other........................................... 5,035 5,002 15,683 16,691
------------- ------------- -------------- -------------
Total net sales......................................... $ 70,313 $ 80,159 $ 189,147 $ 205,212
============= ============= ============== =============
Income before interest and income taxes:
United States....................................... $ 6,983 $ 7,313 $ 15,053 $ 17,999
All other........................................... 1,008 523 2,237 1,833
------------- ------------- -------------- -------------
Total income before interest and income taxes........... $ 7,991 $ 7,836 $ 17,290 $ 19,832
============= ============= ============== =============
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 2, DECEMBER 31,
2000 1999 1999
------------- ------------- --------------
<S> <C> <C> <C>
Assets:
United States....................................... $ 167,327 $ 172,735 $ 153,820
All other........................................... 22,988 25,044 24,604
------------- ------------- --------------
Total assets............................................ $ 190,315 $ 197,779 $ 178,424
============= ============= ==============
</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, regional and foreign economic conditions
(including foreign exchange rates), 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 and financial difficulties encountered by customers. 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.
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.
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDED OCTOBER 2, 1999
Net sales. Apparel net sales were $55.9 million for the third quarter
of 2000, a decrease of $6.3 million or 10.1% below net sales of $62.2 million
for the third quarter of 1999. The Apparel sales decline was due to a $7.3
million reduction in sales of blanket sleeper products offset in part by an
increase in sales of other seasonal products in 2000. The decrease in blanket
sleepers sales was due partly to production and delivery problems on imported
merchandise and partly to the Company's decision to decrease sales in this
highly price sensitive category. Hosiery net sales were $14.4 million in the
third quarter of 2000, a decrease of $3.5 million or 19.9% below net sales of
$17.9 million for the third quarter of 1999. The 2000 decrease was due to a
general reduction in inventory by many retailers and aggressive pricing by
competitors, plus a drop in the average exchange rate between the Irish Punt and
the U.S. Dollar in the translation of the Irish operations.
Gross margin. Gross margin as a percentage of net sales was 23.7% in
2000 and 24.0% in 1999. The decrease in gross margin in 2000 was due to higher
Apparel sales allowances.
8
<PAGE> 11
Selling, general and administrative expenses. Selling, general and
administrative expenses ("SG&A") decreased in absolute dollars and as a
percentage of net sales to 12.3% for the third quarter of 2000, from 14.3% for
the third quarter of 1999. The percentage decrease was due to lower expense
levels in 2000 for advertising, professional services, salaries and related
employee costs, bad debt expense, and facilities realignment cost. These
decreases included approximately $0.7 million for changes in previous estimates,
plus $0.2 million miscellaneous income in 2000 representing the gain on sale of
an idle facility and an insurance recovery.
Income before interest and income taxes. Apparel income before interest
and income taxes ("EBIT") was $6.4 million in the third quarter of 2000 compared
to $6.0 million in the third quarter of 1999. The increase in Apparel EBIT in
2000 was the result of lower expenses offset mostly by lower gross margin on
reduced sales. Hosiery EBIT was $1.6 million in the third quarter of 2000
compared with $1.8 million in the third quarter of 1999. The decrease in Hosiery
EBIT was the result of a lower volume of sales in 2000 and a drop in the average
exchange rate between the Irish Punt and the U.S. Dollar in the translation of
the Irish operations.
Interest expense, net of interest income. Interest expense, net was
$0.1 million in the third quarter of 2000 compared to $1.1 million in the third
quarter of 1999. The decrease in interest expense, net is due to higher levels
of invested cash and lower levels of debt in 2000 due to the Company's
continuing strong cash flow.
Provision for income taxes. Provision for income taxes was $2.8 million
in the third quarter of 2000 compared to $2.3 million in the third quarter of
1999. The effective tax rate was 35.6% for 2000 compared to 35.0% for 1999. The
Company's effective income tax rate reflects the 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, net income for the third quarter
was $5.1 million in 2000 and $4.4 million in 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED OCTOBER 2,
1999
Net sales. Apparel net sales were $138.5 million for the first nine
months of 2000, a decrease of $13.5 million or 8.9% below net sales of $152.0
million for the first nine months of 1999. The Apparel sales decline was
primarily due to a reduction in sales of seasonal products led by an $8.6
million reduction in sales of blanket sleepers. The decrease in blanket sleepers
sales was due partly to production and delivery problems on imported merchandise
and partly to the Company's decision to decrease sales in this highly price
sensitive category. Hosiery net sales were $50.6 million for the first nine
months of 2000, a decrease of $2.6 million or 4.9% below net sales of $53.2
million for the first nine months of 1999 due to a general reduction in
inventory by many retailers and aggressive pricing by competitors, plus a drop
in the average exchange rate between the Irish Punt and the U.S. Dollar in the
translation of the Irish operations.
Gross margin. Gross margin as a percentage of net sales was 24.4% in
2000 and 25.3% in 1999. The decrease in gross margin in 2000 was due to the
Apparel segment's slower than planned return to prior efficiency levels in
manufacturing, higher transitional costs of sourcing a larger percentage of
products offshore, and unexpected losses on certain imported merchandise.
9
<PAGE> 12
Selling, general and administrative expenses. Selling, general and
administrative expenses ("SG&A") decreased in absolute dollars and as a
percentage of net sales to 15.2% for the first nine months of 2000 from 15.6%
for the same period in 1999. The percentage decrease was due to lower expense
levels in 2000, particularly in the third quarter, for advertising, professional
services, salaries and related employee costs, bad debt expense, and facilities
realignment cost. These decreases included $1.1 million for changes in previous
estimates, plus $0.3 million miscellaneous income in 2000 representing the gain
on sale of an idle facility and insurance recoveries.
Income before interest and income taxes. Apparel income before interest
and income taxes ("EBIT") was $11.2 million for the first nine months of 2000
compared to $14.7 million for the first nine months of 1999. The drop in Apparel
EBIT in 2000 was the result of the reduction in unit sales combined with a shift
in product mix during the period, unexpected losses on certain imported
merchandise and higher sales allowances, offset in part by lower SG&A expenses.
Hosiery EBIT was $6.1 million for the first nine months of 2000 compared with
$5.1 million for the first nine months of 1999. The increase in Hosiery EBIT was
the result of improved margins reflecting lower manufacturing cost, partially
offset by a drop in the average exchange rate between the Irish Punt and the
U.S. Dollar in the translation of the Irish operations.
Interest expense, net of interest income. Interest expense, net was
$0.2 million for the first nine months of 2000 compared to $2.3 million for the
first nine months of 1999. The decrease in interest expense, net is due to
higher levels of invested cash and lower levels of debt in 2000 due to the
Company's continuing strong cash flow.
Provision for income taxes. Provision for income taxes was $5.7 million
for the first nine months of 2000 compared to $6.2 million for the first nine
months of 1999. The effective tax rate was 33.5% for 2000 compared to 35.2% for
1999. The Company's effective income tax rate reflects the 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, net income for the first nine
months of 1999 and 2000 was $11.3 million.
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 requirements generally increase during the first half
of the year as inventory for seasonal products builds to support peak shipping
periods. The Hosiery segment is less seasonal and, while working capital
requirements tend to increase slightly during the second half of the year, the
variation is small.
10
<PAGE> 13
Net cash provided by operating activities for the nine months ended
September 30, 2000 and October 2, 1999 was $11.1 million and $17.5 million,
respectively. The decrease in cash provided by operating activities in 2000 was
primarily due to increases in accounts receivable and inventories. The accounts
receivable balance in 2000 was lower than in 1999 due to the decline in Apparel
sales, primarily $8.6 million in blanket sleepers. In addition, a portion of the
accounts receivable change is due to the timing of sales and receipt of
payments. Inventories increased in the first nine months of 2000 due to the
seasonality of the Apparel segment's business. The inventory decrease in the
first nine months of 1999 was due to higher sales during the period and ongoing
efforts to reduce excessive inventories through improvements in production
planning and procurement practices, partially offset by the seasonality of the
Apparel segment's business.
Capital expenditures were $7.0 million and $4.5 million for the first
nine months of 2000 and 1999, respectively. These expenditures consisted
primarily of building/leasehold improvements, normal replacement of
manufacturing equipment, purchases of office equipment and upgrades of
information systems. The Company also sold an idle facility in July, 2000 for
approximately $.5 million.
Net cash used in financing activities was $5.6 million and $9.9 million
for the first nine months of 2000 and 1999, respectively. Based on the cash
provided by operating activities in the first nine months of 2000 and 1999, the
Company made repayments on the Company's revolving credit agreement and/or other
long-term borrowing arrangements.
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, 2000.
Adoption of FAS 133 is not anticipated to have a material impact on the
Company's financial statements.
11
<PAGE> 14
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not utilize derivative financial or commodity based
instruments for trading or for speculative purposes but does utilize them in the
regular course of business. A review of the Company's financial instruments and
risk exposures at September 30, 2000 revealed that the Company had exposure to
interest rate and foreign currency exchange rate risks. The Company performed
sensitivity analysis at December 31, 1999 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 nine months of 2000 and thus believes that the
Company's year-end assessment is still appropriate at September 30, 2000.
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
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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: November 10, 2000 By: /s/ Edward Kittredge
-----------------------------
Edward Kittredge
Chairman, Chief Executive Officer
and President
(Principal Executive Officer)
DATE: November 10, 2000 By: /s/ Richard L. Solar
-----------------------------
Richard L. Solar
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
DATE: November 10, 2000 By: /s/ David E. Uren
-----------------------------
David E. Uren
Vice President of Finance, Secretary
and Treasurer
(Principal Accounting Officer)
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