SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: May 21, 1994
GERBER PRODUCTS COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its Charter)
Michigan 1-4007 38-0558270
--------------- ------------------------ ------------------
(State or Other (Commission File Number) IRS Employer
Jurisdiction of Identification No.
Incorporation)
445 State Street
Fremont, Michigan
----------------------------------------
(Address of Principal Executive Offices)
49413
----------
(Zip Code)
616-928-2000
------------------------------
(Registrant's Telephone Number)
<PAGE>
Item 5. Other Events.
On May 21, 1994, Gerber Products Company (the "Company") and
Sandoz Ltd. entered into a definitive agreement (as the same may be
amended from time to time, the "Merger Agreement") for Sandoz Ltd.
to acquire all of the issued and outstanding shares of common stock
("Shares"), including the associated Rights (as defined below), of
the Company at $53.00 per share in cash. Pursuant to the
Agreement, SL Sub Corp., an indirect wholly owned subsidiary of
Sandoz Ltd., will commence a tender offer (the "Offer") for all
Shares on or prior to May 27, 1994, and the Offer will be followed
by a Merger in which any remaining Shares (other than common stock
held by shareholders who have perfected any appraisal rights
available under Michigan law) will be converted into the right to
receive $53.00 per Share in cash or any higher price per Share that
may be paid in the Offer. The joint press release, dated May 23,
1994, is attached hereto as an exhibit and incorporated herein by
reference.
Effective May 21, 1994, the Board of Directors of Gerber
Products Company (the "Company") amended the Rights Agreement (the
"Rights Agreement"), dated as of July 25, 1990, between the Company
and Harris Trust and Savings Bank, as Rights Agent (the "Rights
Agent"). The amendment to the Rights Agreement is described below.
The amended Rights Agreement sets forth the description and terms
of the rights (the "Rights") held by holders of the Company's
common stock to purchase shares of Series A Junior Participating
Preferred Stock.
Section 3(a) of the Rights Agreement was amended to provide
that a Distribution Date will not occur as a result of the
execution of the Merger Agreement, the commencement of a tender
offer for Shares by SL Sub Corp. or its affiliates pursuant to the
terms of the Merger Agreement or the beneficial ownership of Shares
by SL Sub Corp. or its affiliates pursuant to the terms of the
Merger Agreement unless and until the Board of Directors of the
Company adopts a resolution affirmatively stating that the
Distribution Date shall occur on a date set forth in such
resolution and the Distribution Date shall thereafter be deemed to
have occurred as of such date.
The foregoing description of the amendment to the Rights
Agreement does not purport to be complete and is qualified in its
entirety by reference to such amendment which is attached hereto as
an exhibit and incorporated herein by reference.
In addition, the Audited Consolidated Financial Statements of
the Company and its Subsidiaries for the fiscal year ended
March 31, 1994 are attached hereto as an exhibit.
<PAGE>
Item 7. Financial Statements and Exhibits.
Exhibits:
4.1 First Amendment to Rights Agreement, dated as of May 21,
1994, between Gerber Products Company and Harris Trust
and Savings Bank, as Rights Agent.
20.1 Press Release dated May 23, 1994.
99.1 Audited Consolidated Financial Statements of Gerber
Products Company and its Subsidiaries for the fiscal year
ended March 31, 1994.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned hereunto duly authorized.
GERBER PRODUCTS COMPANY
By: /s/ Stephen R. Clark
--------------------------------
Name: Stephen R. Clark
Title: Vice President and
General Counsel
Date: May 25, 1994
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
- - ------- ----------- ----
4.1 First Amendment to Rights Agreement,
dated as of May 21, 1994, between
Gerber Products Company and
Harris Trust and Savings Bank,
as Rights Agent.
20.1 Press Release dated May 23, 1994.
99.1 Audited Consolidated Financial
Statements of Gerber Products Company
and its Subsidiaries for the fiscal
year ended March 31, 1994.
EXHIBIT 4.1
FIRST AMENDMENT TO RIGHTS AGREEMENT
This Amendment (the "Amendment"), dated as of May 21, 1994, is
entered into by and between Gerber Products Company, a Michigan
corporation (the "Company"), and Harris Trust and Savings Bank, an
Illinois banking corporation, as Rights Agent (the "Rights Agent").
WHEREAS, the Company and the Rights Agent have entered into a
Rights Agreement, dated as of July 25, 1990 (the "Agreement");
WHEREAS, the Company wishes to amend the Agreement; and
WHEREAS, Section 26 of the Agreement provides, among other
things, that prior to the Distribution Date (as such term is
defined in the Agreement) the Company may and the Rights Agent
shall, if the Company so directs, supplement or amend any provision
of the Agreement without the approval of any holders of
certificates representing the Company's Common Shares.
NOW, THEREFORE, the Company and the Rights Agent hereby amend
the Agreement as follows:
1. Section 3(a) of the Agreement is deleted and
restated to read in its entirety as follows:
(a) Until the earlier of (i) the close of business on
the tenth day after the Stock Acquisition Date (or, if the
tenth day after the Stock Acquisition Date occurs before the
Record Date, the close of business on the Record Date),
(ii) the close of business on the tenth business day (or such
later date as the Board shall determine) after the date that
a tender or exchange offer by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or
any Person or entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan) is
first published or sent or given within the meaning of Rule
14d-2(a) of the General Rules and Regulations under the
Exchange Act, if upon consummation thereof, such Person would
be the Beneficial Owner of 15% or more of the Common Shares
then outstanding or (iii) the close of business on the tenth
Business Day after the Board of Directors determines, pursuant
to the criteria set forth in Section 11(a)(ii)(B) hereof, that
a Person is an Adverse Person (the earliest of (i), (ii) and
(iii) being herein referred to as the "Distribution Date"),
(x) the Rights will be evidenced (subject to the provisions of
paragraph (b) of this Section 3) by the certificates for the
Common Shares registered in the names of the holders of the
Common Shares (which certificates for Common Shares shall be
deemed also to be certificates for Rights) and not by separate
certificates, and (y) the Rights will be transferable only in
connection with the transfer of the underlying Common Shares
(including a transfer to the Company); PROVIDED, however, that
a Distribution Date will not occur as a result of the
execution of that certain Agreement and Plan of Merger, dated
as of May 21, 1994, by and among the Company, SL Sub Corp. and
Sandoz Ltd. (as the same may be amended from time to time, the
"Merger Agreement"), the commencement of a tender offer for
Common Shares by SL Sub Corp. or its affiliates pursuant to
the terms of the Merger Agreement or the beneficial ownership
of Common Shares by SL Sub Corp. or its affiliates pursuant to
the terms of the Merger Agreement unless and until the Board
of Directors of the Company adopts a resolution affirmatively
stating that the Distribution Date shall occur on a date set
forth in such resolution and the Distribution Date shall
thereafter be deemed to have occurred as of such date. As
soon as practicable after the Distribution Date, the Rights
Agent will send by first-class, insured, postage prepaid mail,
to each record holder of the Common Shares as of the close of
business on the Distribution Date, at the address of such
holder shown on the records of the Company, one or more rights
certificates, in substantially the form of Exhibit B hereto
(the "Rights Certificates"), evidencing one Right for each
Common Share so held, subject to adjustment as provided
herein. In the event that an adjustment in the number of
Rights per Common Share has been made pursuant to Section
11(p) hereof, at the time of distribution of the Rights
Certificates, the Company shall make the necessary and
appropriate rounding adjustments (in accordance with Section
14(a) hereof) so that Rights Certificates representing only
whole number of Rights are distributed and cash is paid in
lieu of any fractional Rights. As of and after the
Distribution Date, the Rights will be evidenced solely by such
Rights Certificates.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and attested as of the day and year
first above written.
Attest: GERBER PRODUCTS COMPANY
By: /s/ Stephen R. Clark By: /s/ Alfred A. Piergallini
------------------------ -----------------------------
Name: Stephen R. Clark Name: Alfred A. Piergallini
Title: Vice President Title: Chairman, CEO & President
Attest: HARRIS TRUST AND SAVINGS BANK
By: /s/ Bruce R. Hartney By: /s/ Keith A. Bradley
------------------------- -----------------------------
Name: Bruce R. Hartney Name: Keith A. Bradley
Title: Vice President Title: Assistant Vice President
EXHIBIT 20.1
SANDOZ
PRESS RELEASE
CONTACT:
Mr. Tim Croasdaile - Gerber Bjorn Edlund - Sandoz
(616) 928-2718 41-61-324-9001
FOR IMMEDIATE RELEASE: Laurie Smith - Burson-Marsteller
(212) 614-4952
SANDOZ LTD. TO ACQUIRE THE GERBER PRODUCTS COMPANY
SANDOZ TO COMMENCE TENDER OFFER AT $53 PER SHARE IN CASH
Fremont, Michigan and Basel, Switzerland, May 23, 1994 -
Gerber Products Company (NYSE:GEB) and Sandoz Ltd., Basel announced
today that they have entered into a definitive agreement for Sandoz
to acquire all of the issued and outstanding shares of common stock
of Gerber at $53 per share in cash, for an aggregate purchase price
of approximately $3.7 billion. According to the agreement, Sandoz
will commence a tender offer for all outstanding shares of common
stock of Gerber at $53 per share in cash on or prior to May 27,
1994.
The $53 cash price represents a premium of approximately 53
percent over Friday's closing price of Gerber stock on the New York
Stock Exchange.
Sandoz' obligation to purchase shares in the offer will be
subject to the satisfaction or waiver of certain conditions,
including the expiration or termination of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and, as a
result of Gerber's ownership of Gerber Life Insurance Company, the
receipt of the approval of the Superintendent of Insurance of New
York. The parties indicated that they expect to receive all such
approvals in due course and expect to close the tender offer in
three to six months.
All shares not purchased in the tender offer will be converted
into the right to receive $53 per share in a second-step merger to
be consummated as soon as practicable after the tender offer.
Mr. Alfred Piergallini, Gerber Chairman, President and CEO
said, "This transaction represents exceptional value for our
shareholders and is in the best interest of our customers and
associates. We spent many months assessing the best course for
Gerber. As I wrote to our shareholders in Gerber's Annual Report,
the most important ingredient in our future is further extending
the Gerber franchise in the international arena. To capitalize on
the large international potential for our products would require
significant investments over many years to build the necessary
infrastructure. Joining with Sandoz provides us with opportunities
for dynamic growth in a much shorter time horizon and with the
necessary infrastructure already in place in most major markets."
Dr. Marc Moret, Chairman of Sandoz, Ltd., said, "We are
delighted to welcome Gerber Products Company into the Sandoz Group.
This transaction furthers our long-term commitment to building a
high quality worldwide nutrition business. Gerber is a unique
company of the highest quality which will fit perfectly as a
cornerstone for this business in North America and complement our
strong nutrition business in Europe. We have been searching for
and acquiring high value-added nutritional products with market
leadership positions to add to our portfolio. Gerber's excellent
image and exceptional market strength in North America give us a
strong base in child nutrition on which we will expand
internationally."
Dr. Rolf Schweizer, CEO of Sandoz, Ltd. said, "Sandoz has in
place the international structure and presence to capitalize on the
Gerber brand and expertise in child nutrition. Gerber's position
in North America strengthens our existing base of nutrition
products there. This geographic balance will provide a platform
for dynamic growth. Gerber provides synergies for Sandoz with
advanced technologies in processing and packaging which we can
apply in Europe and the Far East."
Gerber had sales of $1.2 billion in fiscal 1994 (89% in North
America), operating income of $212 million and net income of $127
million before restructuring charges.
Gerber has for 65 years been a major developer, producer and
marketer of baby food and baby care products. In the U.S. Gerber
is the leading baby food company with over 70% of the market. The
Company has a strong presence in Mexico, Puerto Rico and Central
America. Gerber employs 12,000 worldwide.
Sandoz Ltd. founded in 1886 discovers, develops, manufactures
and markets products and services in pharmaceuticals, nutrition,
seeds, chemicals, agro and the construction & environment business.
Sandoz Nutrition develops, manufactures and markets a wide
range of health-related products such as food drinks, baked goods,
sport drinks, health foods and clinical nutrition. Sandoz
Nutrition operations were created by the merger with the Wander
Company in 1967. With Ovaltine as its base, Sandoz has built a
strong group of specialized nutrition products. Wasa and Roland
crispbread have strong market positions. Isostar sports drink is
the market leader in Europe. Health foods have shown good progress
with the recent acquisition of the Reforma group and the joint
venture with Gazzoni. Clinical enteral nutrition and healthcare
foodservice have grown from their U.S. base in Minneapolis, Minn.
to recent expansions in key European markets.
In 1993, Sandoz had sales of $15 billion Swiss Francs ($10.3
billion) and net income of 1.7 billion Swiss Francs ($1.2 billion).
The Nutrition division had sales of $1.2 billion (14% in North
America). Together with Gerber, Sandoz Nutrition will now double
its revenue world-wide to approximately $2.4 billion. Sandoz
Nutrition reported sales growth of 25% in the 1st Quarter 1994.
Sandoz has operated in the U.S. for 75 years and employs
approximately 11,000 in its U.S. subsidiaries. Sandoz Ltd. ADRs
(American Depository Receipts) are traded in the OTC market under
the symbol, SDOZY.
EXHIBIT 99.1
Audited Consolidated Financial Statements
GERBER PRODUCTS COMPANY AND SUBSIDIARIES
March 31, 1994
Audited Consolidated Financial Statements
Report of Independent Auditors. . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Financial Position . . . . . . . . . . 2
Consolidated Statements of Operations . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . 5
Consolidated Statements of Shareholders' Equity . . . . . . . . . 7
Notes to Consolidated Financial Statements. . . . . . . . . . . . 8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
-------------------------------
To the Shareholders and Board of Directors
Gerber Products Company
We have audited the accompanying consolidated statements of financial
position of Gerber Products Company and subsidiaries as of March 31, 1994
and 1993, and the related consolidated statements of operations, cash flows
and shareholders' equity for each of the three years in the period ended
March 31, 1994. 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 state-
ments. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Gerber
Products Company and subsidiaries at March 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended March 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Notes L and M to the consolidated financial statements, in
1993 the company changed its methods of accounting for postretirement
benefits other than pensions, postemployment benefits and income taxes.
ERNST & YOUNG
Grand Rapids, Michigan
May 17, 1994, except for Note Q,
as to which the date is May 23, 1994
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Gerber Products Company and Subsidiaries
March 31
1994 1993
-------------------------
(Thousands of Dollars)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 47,562 $ 95,390
Short-term investments--Note E 24,938
Accounts receivable, less allowances of
$9,715 and $9,976 107,061 103,073
Reinsurance Receivables 44,541 38,068
Inventories--Note F:
Finished products 109,382 112,816
Work-in-process 30,862 24,375
Raw materials and supplies 50,904 57,578
---------- ----------
191,148 194,769
Deferred income taxes 50,256 36,510
---------- ----------
TOTAL CURRENT ASSETS 440,568 492,748
OTHER ASSETS
Investments held by insurance operations 124,939 101,822
Deferred policy acquisition costs 66,264 57,055
Prepaid pension costs--Note L 58,333 54,754
Miscellaneous 77,729 52,217
---------- ----------
327,265 265,848
LAND, BUILDINGS AND EQUIPMENT
Land 4,150 4,177
Buildings 97,129 98,920
Machinery and equipment 290,981 277,265
Construction in progress 23,167 20,022
Accumulated depreciation (181,257) (164,540)
---------- ----------
234,170 235,844
---------- ----------
$1,002,003 $ 994,440
========== ==========
<PAGE>
March 31
1994 1993
-------------------------
(Thousands of Dollars)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings--Note H $ 11,372 $ 10,557
Accounts payable 62,578 53,179
Salaries, wages and other compensation 48,336 35,469
Local taxes, interest and other expenses 72,962 93,546
Income taxes 17,408 24,810
Policy claims and reserves 58,101 48,042
Current maturities of long-term debt 1,153 1,017
---------- ----------
TOTAL CURRENT LIABILITIES 271,910 266,620
LONG-TERM DEBT--Note I 115,677 116,831
FUTURE POLICY BENEFITS 111,064 94,384
POSTRETIREMENT BENEFITS--Note L 156,582 150,138
SHAREHOLDERS' EQUITY--Notes I, J, K AND Q
Common stock, par value $2.50 a share--
authorized 200,000,000 shares;
issued: 1994--69,377,933,
1993--72,060,375 shares 173,445 180,151
Paid-in capital 921
Retained earnings 196,238 209,344
Foreign currency translation adjustments (4,816) (3,266)
Unearned restricted stock compensation (2,014) (1,808)
Unearned ESOP compensation (17,004) (17,954)
---------- ----------
346,770 366,467
---------- ----------
$1,002,003 $ 994,440
========== ==========
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Gerber Products Company and Subsidiaries
Year Ended March 31
1994 1993 1992
--------------------------------------
(Thousands of Dollars)
Net sales and revenue $1,171,838 $1,269,484 $1,268,143
Interest, royalties and other income 29,199 23,921 24,984
---------- ---------- ----------
TOTAL INCOME 1,201,037 1,293,405 1,293,127
Deductions from income:
Cost of products sold and services
provided 624,947 716,621 711,298
Marketing, distribution, admini-
strative and general expenses 371,116 376,625 346,255
Gain on sale of subsidiary--Note D (11,850)
Restructuring charges--Note B 22,353 22,000
Interest expense 11,335 12,361 15,517
---------- ---------- ----------
TOTAL DEDUCTIONS 1,029,751 1,093,757 1,095,070
EARNINGS BEFORE INCOME TAXES
AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 171,286 199,648 198,057
Income taxes--Note M 57,656 66,803 70,488
---------- ---------- ----------
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 113,630 132,845 127,569
Cumulative effect of accounting
changes--Note L (90,390)
---------- ---------- ----------
NET EARNINGS $ 113,630 $ 42,455 $ 127,569
========== ========== ==========
Earnings per share--Note K:
Before cumulative effect of
accounting changes $ 1.63 $ 1.80 $ 1.71
Cumulative effect of accounting
changes (1.22)
---------- ---------- ----------
NET EARNINGS PER SHARE $ 1.63 $ .58 $ 1.71
========== ========== ==========
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Gerber Products company and Subsidiaries
Year Ended March 31
1994 1993 1992
----------------------------------
(Thousands of Dollars)
OPERATING ACTIVITIES
Net earnings $ 113,630 $ 42,455 $ 127,569
Items in net earnings not requiring
(providing) cash:
Cumulative effect of accounting
changes 90,390
Depreciation and amortization 41,683 36,663 33,610
Deferred income taxes (6,915) (5,342) 1,965
Policy acquisition costs deferred (20,601) (20,605) (16,053)
Other (5,090) (6,302) (5,484)
Restructuring charges 22,353 22,000
Gain on sale of subsidiary (11,850)
Changes in operating assets and liabilities:
Accounts receivable (4,970) 9,018 (10,428)
Inventories 1,491 (14,856) (28,465)
Reinsurance receivables (6,473) (12,009) (10,910)
Other assets (619) (6,296) (718)
Accounts payable and accrued
expenses (16,231) 7,046 (5,793)
Policy claims and future policy
benefits 26,739 29,426 26,023
---------- ---------- ---------
CASH FROM OPERATING ACTIVITIES 144,997 137,738 133,316
INVESTING ACTIVITIES
Purchases of land, buildings and
equipment (41,982) (65,910) (36,769)
Proceeds from sale of land, buildings
and equipment 5,595 5,628 10,338
Net cash proceeds from sale of subsidiary 84,367
Purchased company, net of cash acquired (10,544)
Purchase of investments by insurance
operations (110,841) (76,550) (54,587)
Sale or maturity of investments held
by insurance operations 90,486 64,129 33,821
Decrease (increase) in short-term
investments 24,938 15,433 (10,479)
Other investments (26,826)
Other (1,827) (4,162) 1,179
---------- ---------- ---------
CASH FROM (USED IN)
INVESTING ACTIVITIES (60,457) 22,935 (67,041)
<PAGE>
FINANCING ACTIVITIES
Net increase in short-term
borrowings $ 1,721 $ 32 $ 6,157
Payments of long-term debt (1,018) (4,251) (38,787)
Repurchase of shares of common stock (75,314) (72,579) (23,650)
Cash dividends (59,108) (58,771) (51,631)
Issuance of shares under stock
option plans 1,587 4,907 4,724
Other (236) 1,168 1,928
---------- ---------- ---------
CASH USED IN FINANCING
ACTIVITIES (132,368) (129,494) (101,259)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (47,828) 31,179 (34,984)
Cash and cash equivalents at beginning
of year 95,390 64,211 99,195
---------- ---------- ---------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 47,562 $ 95,390 $ 64,211
========== ========== =========
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Gerber Products Company and Subsidiaries
Common Paid-in
Stock Capital
-------- --------
(Thousands of Dollars)
BALANCES AT APRIL 1, 1991 $ 93,481 $ 5,382
Net earnings
Cash dividends, $0.69 per share
Repurchase of 709,240 shares (887) (13,108)
ESOP compensation expense--Note I
Issuance of 226,048 shares upon exercise of
stock options--Note J 283 4,441
Issuance of 89,990 shares under restricted stock
plans, net of forfeitures--Note J 113 3,285
Compensation under restricted stock awards--Note J
Tax benefit of dividends paid to ESOP
Foreign currency translation adjustments
-------- --------
BALANCES AT MARCH 31, 1992 92,990 0
Net earnings
Cash dividends, $0.795 per share
Issuance of shares in connection with two for one
stock split--Note K 92,698
Repurchase of 2,123,934 shares (5,310) (5,268)
Common equity put options issued for 300,000 shares (750)
ESOP compensation expense--Note I
Issuance of 178,995 shares upon exercise of stock
options--Note J 448 4,459
Issuance of 30,087 shares under restricted stock
plans, net of forfeitures--Note J 75 809
Compensation under restricted stock awards--Note J
Tax benefit of dividends paid to ESOP
Foreign currency translation adjustments
-------- --------
BALANCES AT MARCH 31, 1993 180,151 0
Net earnings
Cash dividends, $0.85 per share
Repurchase of 2,682,900 shares (6,707) (335)
ESOP compensation expense--Note I
Issuance of 63,890 shares upon exercise of stock
options--Note J 160 1,427
Forfeiture of 63,372 shares under restricted stock
plans, net of issuance--Note J (159) (171)
Compensation under restricted stock awards--Note J
Tax benefit of dividends paid to ESOP
Foreign currency translation adjustments
-------- --------
BALANCES AT MARCH 31, 1994 $173,445 $ 921
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY--Continued
Gerber Products Company and Subsidiaries
Foreign
Currency
Retained Translation
Earnings Adjustments
-------- -----------
(Thousands of Dollars)
BALANCES AT APRIL 1, 1991 $322,121 $ (3,598)
Net earnings 127,569
Cash dividends, $0.69 per share (51,631)
Repurchase of 709,240 shares (9,655)
ESOP compensation expense--Note I
Issuance of 226,048 shares upon exercise of
stock options--Note J
Issuance of 89,990 shares under restricted stock
plans, net of forfeitures--Note J (226)
Compensation under restricted stock awards--Note J
Tax benefit of dividends paid to ESOP 252
Foreign currency translation adjustments (1,130)
-------- --------
BALANCES AT MARCH 31, 1992 388,430 (4,728)
Net earnings 42,455
Cash dividends, $0.795 per share (58,771)
Issuance of shares in connection with two for one
stock split--Note K (92,698)
Repurchase of 2,123,934 shares (62,001)
Common equity put options issued for 300,000 shares (8,370)
ESOP compensation expense--Note I
Issuance of 178,995 shares upon exercise of stock
options--Note J
Issuance of 30,087 shares under restricted stock
plans, net of forfeitures--Note J
Compensation under restricted stock awards--Note J
Tax benefit of dividends paid to ESOP 299
Foreign currency translation adjustments 1,462
-------- --------
BALANCES AT MARCH 31, 1993 209,344 (3,266)
Net earnings 113,630
Cash dividends, $0.85 per share (59,108)
Repurchase of 2,682,900 shares (68,272)
ESOP compensation expense--Note I
Issuance of 63,890 shares upon exercise of stock
options--Note J
Forfeiture of 63,372 shares under restricted stock
plans, net of issuance--Note J 316
Compensation under restricted stock awards--Note J
Tax benefit of dividends paid to ESOP 328
Foreign currency translation adjustments (1,550)
-------- --------
BALANCES AT MARCH 31, 1994 $196,238 $ (4,816)
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY--Continued
Gerber Products Company and Subsidiaries
Unearned
Restricted Unearned
Stock ESOP
Compensation Compensation
------------ -------------
(Thousands of Dollars)
BALANCES AT APRIL 1, 1991 $ (3,115) $(19,714)
Net earnings
Cash dividends, $0.69 per share
Repurchase of 709,240 shares
ESOP compensation expense--Note I 834
Issuance of 226,048 shares upon exercise of
stock options--Note J
Issuance of 89,990 shares under restricted stock
plans, net of forfeitures--Note J (1,504)
Compensation under restricted stock awards--Note J 1,850
Tax benefit of dividends paid to ESOP
Foreign currency translation adjustments
-------- --------
BALANCES AT MARCH 31, 1992 (2,769) (18,880)
Net earnings
Cash dividends, $0.795 per share
Issuance of shares in connection with two for one
stock split--Note K
Repurchase of 2,123,934 shares
Common equity put options issued for 300,000 shares
ESOP compensation expense--Note I 926
Issuance of 178,995 shares upon exercise of stock
options--Note J
Issuance of 30,087 shares under restricted stock
plans, net of forfeitures--Note J (1,373)
Compensation under restricted stock awards--Note J 2,334
Tax benefit of dividends paid to ESOP
Foreign currency translation adjustments
-------- --------
BALANCES AT MARCH 31, 1993 (1,808) (17,954)
Net earnings
Cash dividends, $0.85 per share
Repurchase of 2,682,900 shares
ESOP compensation expense--Note I 950
Issuance of 63,890 shares upon exercise of stock
options--Note J
Forfeiture of 63,372 shares under restricted stock
plans, net of issuance--Note J (1,172)
Compensation under restricted stock awards--Note J 966
Tax benefit of dividends paid to ESOP
Foreign currency translation adjustments
-------- --------
BALANCES AT MARCH 31, 1994 $ (2,014) $(17,004)
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gerber Products Company and Subsidiaries
March 31, 1994
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of the company and all wholly-owned and majority-owned
subsidiaries. Insurance operations are included on the basis of a fiscal
year ended December 31 and a Costa Rican subsidiary and a Polish subsidiary
are included on the basis of February 28 fiscal year-ends. Upon consolida-
tion, all intercompany accounts, transactions and profits are eliminated.
Cash and Cash Equivalents: Highly liquid debt instruments are classified
as cash equivalents if the securities mature within 90 days from the date
of acquisition.
Inventories: Certain inventories are stated at the lower of last-in,
first-out (LIFO) cost or market, and all other inventories are stated at
the lower of first-in, first-out (FIFO) cost or market.
Investments Held By Insurance Operations: Bonds are carried at cost
adjusted for amortization of premium and accretion of discount. Policy
loans are carried at unpaid balances. Other investments are carried at
cost, which approximates market value. Interest on policy loans is
credited to income as it accrues. Realized gains and losses on sales of
investments are included in income on a specific identification basis.
Deferred Policy Acquisition Costs: The costs of acquiring new and renewal
business for insurance operations, principally commission, policy issuance
and underwriting expenses, have been deferred and are being amortized over
the anticipated premium paying period of the related policies.
Land, Buildings and Equipment: Land, buildings and equipment are stated at
cost. Depreciation is computed by the straight-line method at rates
expected to amortize the cost of buildings and equipment over their
estimated useful lives.
Future Policy Benefits: Reserves for insurance operations have been
computed utilizing the net level premium method based upon estimated future
investment yield, mortality, morbidity and withdrawals, including provision
for the risk of adverse deviation.
Income Taxes: Accounting for income taxes is based on the asset and
liability method of accounting for income taxes. Under the asset and
liability method, deferred income taxes are recognized for the tax conse-
quences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date. Prior to fiscal 1993 the
deferred method of accounting for income taxes was used, which requires
recognition of deferred taxes using the tax rate applicable to the year of
the calculation and does not include adjustment for subsequent changes in
tax rates.
Earnings Per Share: Earnings per share are based on the weighted average
number of shares of common stock outstanding after giving retroactive
effect to the fiscal 1993 two for one stock split. The exercise of
outstanding stock options would not result in a material dilution of
earnings per share.
Reclassification: Certain reclassifications have been made to the prior
years' consolidated financial statements to conform to the 1994 presenta-
tion.
<PAGE>
NOTE B--RESTRUCTURING CHARGES
During the fourth quarter of fiscal 1994, the company made a decision to
restructure its domestic baby food, baby care and apparel operations,
resulting in a pretax charge to operations of $22.4 million ($13.8 million
net of tax benefits, or $0.20 per share). Approximately $18.1 million of
this charge relates to the Food and Baby Care segment, while $4.3 million
relates to the Apparel segment.
The restructuring program, which began late in fiscal 1994, is designed to
reduce labor and overhead costs through a concentration on core manufactur-
ing technologies and efficiency gains in the company's domestic manufac-
turing and distribution facilities. Gains in efficiency will result from
adoption of operating practices which will reduce staffing levels and
improve production yields. The charge also includes a provision for costs
to realign the domestic sales force as a result of the changing retail
environment and efficiencies gained by technological improvements.
The pretax charge consists of approximately $5.9 million to write-down the
carrying value of facilities and equipment to net realizable value and
$16.5 million for future cash obligations representing severance costs for
terminated employees, consulting costs and relocation costs. About $11.6
million ($7.2 million net of tax benefits) is expected to be paid out in
fiscal 1995. The restructuring will be substantially completed by the end
of fiscal 1995.
On January 13, 1992, the company announced that it would close the cloth
diaper weaving operations and consolidate other textile production of its
Gerber Childrenswear business. A charge to operations of $22 million was
recorded in the third quarter of fiscal 1992 to provide for anticipated
losses on the sale of three manufacturing facilities, the write-off of
intangible assets, employee termination costs and the liquidation of inven-
tories. The charge reduced net earnings for fiscal 1992 by $16 million
($0.215 per share). Remaining assets and liabilities at March 31, 1994
related to the fiscal 1992 restructuring are not significant.
NOTE C--BUSINESS ACQUISITION
On February 13, 1992, the company completed the purchase of a 60 percent
interest in Alima S.A., a manufacturer of food and juices located in
Poland, for $11.3 million in cash and a commitment to invest approximately
$14 million in future capital improvements, which were completed during
fiscal 1994. The company received additional shares of Alima common stock
as these capital improvements were made. During fiscal 1993 and 1994 the
company purchased substantially all of the remaining shares from minority
shareholders for $4.0 million in cash.
The acquisition has been accounted for as a purchase, and accordingly, the
purchase price has been allocated to the assets acquired and liabilities
assumed based on the estimated fair values at the date of acquisition. The
results of operations of Alima are included in the company's consolidated
financial statements from the date of acquisition. The minority interest's
share of results of operations is not material. Consolidated operating
results would not have differed materially from the reported amounts if the
acquisition was assumed to have occurred at the beginning of fiscal 1992.
<PAGE>
NOTE D--DIVESTITURE
On February 10, 1993, the company completed the sale of Buster Brown
Apparel, Inc., a manufacturer and marketer of children's apparel and
hosiery, for proceeds totalling approximately $100 million. Proceeds
included $80 million in cash at closing plus notes, the assumption of
certain debt and a warrant to repurchase 5% of the common stock of Buster
Brown. The sale resulted in a gain of $11.9 million after sales costs and
other adjustments for obligations in connection with the sale. Taxes on
the transaction were not significant due to the utilization of a capital
loss carryover, not previously recognized as an asset for financial
reporting purposes. In connection with the sale, the company also received
$5 million for a noncompete agreement.
Below are summarized financial results of Buster Brown which are included
in the consolidated statements of operations through the date of disposi-
tion :
1993 1992
------------------------
(Thousands of Dollars)
Net sales $118,578 $153,134
Cost of products sold 94,289 112,157
Operating income 6,206 20,805
Net earnings 3,767 13,620
NOTE E--INVESTMENTS
Included in miscellaneous other assets at March 31, 1994, is approximately
$25.8 million in affordable housing tax credit investments which generate
income in the form of tax credits. Income amounted to $1.8 million in
fiscal 1994 and is included in other income using a level yield approach
over the 15-year life of the investment.
On December 10, 1992, as part of its investing activities, the company
entered into an agreement with an unrelated manufacturing company (the
seller) to purchase trade receivables on a discounted basis. On March 31,
1993, the company held uncollected purchased accounts receivable totalling
$24.9 million, the maximum amount allowable under the terms of the agree-
ment. During the first quarter of fiscal 1994, the investment was liqui-
dated.
NOTE F--INVENTORIES
Inventories aggregating $62.9 million at March 31, 1994 and $64.2 million
at March 31, 1993, are stated at cost determined by the last-in, first-out
method. If the first-in, first-out method had been used for all invento-
ries, the amounts would have been approximately $48.8 million and $50.4
million higher than reported at March 31, 1994 and 1993, respectively.
NOTE G--INSURANCE OPERATIONS
Summarized financial information of insurance operations included in the
consolidated financial statements is as follows:
<PAGE>
NOTE G--INSURANCE OPERATIONS--Continued
STATEMENTS OF FINANCIAL POSITION
December 31
1993 1992
----------------------
(Thousands of Dollars)
Assets:
Investments at cost:
Long-term bonds $117,543 $ 94,289
Other investments 7,396 7,533
-------- --------
124,939 101,822
Reinsurance receivables 44,541 38,068
Deferred policy acquisition costs 66,264 57,055
Miscellaneous other assets 9,300 10,655
Land, buildings and equipment 653 602
-------- --------
$245,697 $208,202
Liabilities:
Accounts payable and accruals $ 13,557 $ 11,282
Policy claims and reserves 58,101 48,042
Deferred income taxes 5,536 7,131
Future policy benefits 111,064 94,384
Postretirement benefits 1,912 1,755
-------- --------
190,170 162,594
Shareholder's equity 55,527 45,608
-------- --------
$245,697 $208,202
======== ========
The approximate market value of investments held by insurance operations
was $127.5 million at December 31, 1993, and $103.6 million at December 31,
1992.
STATEMENTS OF OPERATIONS
Year Ended December 31
1993 1992 1991
-------------------------------
(Thousands of Dollars)
Revenue $ 99,358 $86,487 $67,687
Investment income 10,297 8,821 6,278
-------- ------- -------
TOTAL INCOME 109,655 95,308 73,965
Cost of services provided 67,529 58,857 44,282
Marketing, administrative and
general expenses 28,489 26,267 23,023
-------- ------- -------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT 13,637 10,184 6,660
Income taxes 5,000 3,352 2,290
-------- ------- -------
EARNINGS BEFORE CUMULATIVE
EFFECT 8,637 6,832 4,370
Cumulative effect of accounting changes (999)
-------- ------- -------
NET EARNINGS OF INSURANCE OPERATIONS $ 8,637 $ 5,833 $ 4,370
<PAGE>
NOTE G--INSURANCE OPERATIONS--Continued
Marketing, administrative and general expenses include deferred policy
acquisition cost amortization of $11.4 million, $9.8 million and $8.6
million in calendar 1993, 1992, and 1991, respectively. Effective January
1, 1992, the insurance operations adopted the provisions of Financial
Accounting Standards Board (FASB) Statement No. 106 for postretirement
benefits (see Note L). In addition to the transition obligation of $1.5
million recorded January 1, 1992, net of taxes of $0.5 million, insurance
operations recognized expense of $0.2 million and $0.3 million in the years
ended December 31, 1993 and 1992, respectively, for postretirement benefits
compared with only a minor amount in calendar 1991.
In December 1992, the FASB issued Statement No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts."
This statement eliminates the practice of reporting assets and liabilities
relating to reinsured contracts net of the effects of reinsurance. The
company's insurance subsidiary adopted Statement No. 113 as of April 1,
1993. The prior year statements of financial position and cash flows have
been restated to conform to this presentation. This accounting change has
no effect on earnings.
NOTE H--SHORT-TERM BORROWINGS
Short-term borrowings consist of borrowings under bank lines of credit. At
March 31, 1994, the company had committed lines of credit of $66,106,000,
for which the company pays nominal fees. These committed lines of credit
support the issuance of commercial paper and are subject to annual renewal.
Unused credit under such lines totaled $54,734,000 at March 31, 1994.
Under the terms of other short-term credit facilities, the company may
borrow up to $165 million on such terms as may be mutually agreed upon.
These arrangements do not have termination dates and are reviewed periodi-
cally. No commitment fees or compensating balances are required for the
short-term credit facilities. No borrowings were outstanding under these
arrangements at March 31, 1994.
NOTE I--LONG-TERM DEBT
Long-term debt at March 31 consists of the following:
1994 1993
---------------------
(Thousands of Dollars)
9% debentures, due October 15, 2006 $100,000 $100,000
7.85% ESOP Note 16,750 17,744
Other 80 104
-------- --------
116,830 117,848
Less current maturities 1,153 1,017
-------- --------
$115,677 $116,831
The company's employee stock ownership plan (ESOP), which covers the
majority of parent company employees, has borrowings from an insurance
company under a loan agreement which is unconditionally guaranteed by the
company as to principal and interest. The ESOP Note is payable in fixed,
semi-annual payments through 2004. The note, which is reflected as long-
term debt in the company's consolidated financial statements, was initially
offset by a like amount of unearned ESOP compensation in shareholders'
equity. As company contributions plus the dividends on the shares held by
the ESOP are used to meet interest and principal payments, shares are
released
<PAGE>
NOTE I--LONG-TERM DEBT--Continued
for allocation to eligible employees. The unearned ESOP compensation in
shareholders' equity represents future compensation expenses related to the
ESOP program and is reduced as shares are allocated.
The company made cash contributions to the ESOP of $3.0 million in fiscal
1994, $1.9 million in fiscal 1993 and $2.2 million in fiscal 1992, which
were allocated to compensation expense ($1.6 million, $0.4 million and $0.7
million, respectively) and interest expense ($1.4 million, $1.5 million and
$1.5 million, respectively). Dividends paid on ESOP shares, which reduce
the company's required contribution, were $0.9 million in fiscal 1994, $0.8
million in fiscal 1993 and $0.7 million in fiscal 1992. Such dividends
result in a tax benefit to the company which is recorded directly to
retained earnings.
Based on borrowing rates available at March 31, 1994, for arrangements with
similar terms and remaining maturities, the fair value of long-term debt at
March 31, 1994, is not materially different from the amount reported based
on historical cost, except for the debentures due October 15, 2006, which
have a fair value of approximately $113.1 million based on market quota-
tions. The debentures, however, are not redeemable.
Interest paid was $12.2 million in fiscal 1994, $12.8 million in 1993 and
$16.8 million in 1992.
NOTE J--STOCK COMPENSATION PLANS
On August 7, 1991, the shareholders of the company approved a Stock
Ownership Program for key employees and non-employee members of the Board
of Directors of the company. Under the Program, the company may issue non-
qualified and incentive stock options, stock appreciation rights or common
stock to key employees. Terms and conditions of the grants will be
determined by the Board of Directors when awards are granted. The company
may also issue non-qualified stock options to non-employee directors under
the Program, the terms and conditions of which are fixed under the provi-
sions of the Program.
The maximum number of shares of common stock that are reserved for issuance
under the Program each fiscal year is 1% of the total issued shares of the
company as of the beginning of the fiscal year plus 1) any shares of common
stock reserved for future grant under all other stock compensation plans of
the company terminated upon adoption of the Program and 2) the shares
reserved for
<PAGE>
NOTE J--STOCK COMPENSATION PLANS--Continued
issuance under the Program in prior fiscal years, which were not previously
issued. The maximum number of shares that may be issued under all stock
plans in any one fiscal year is limited to 2% of the total issued shares of
the company as of the beginning of the fiscal year. The company may also
issue shares of preferred stock which are convertible into shares of common
stock, subject to the limitations on the number of shares of common stock,
as described above, based on the number of shares of common stock issuable
upon conversion of the preferred stock. During fiscal 1994 and 1993,
43,508 and 36,974 shares of common stock, respectively, were issued to key
employees and 4,060 and 5,220 shares of common stock, respectively, were
issued to non-employee directors. At March 31, 1994, 5,717,174 shares were
available for issuance under the Program.
Non-qualified options allow for the purchase of common stock at prices not
less than 85% of market price at the date of grant and expire five years
after grant. The incentive stock options allow the employee to purchase
shares of common stock at prices equal to market value at the date of grant
and expire five years after grant. Options generally become exercisable
twelve months after grant, subject to certain limitations.
A summary of shares subject to options follows:
Shares Price Range
--------- -------------
Outstanding at April 1, 1992 1,047,542 $ 5.09-$32.47
Granted 330,796 27.17- 35.56
Exercised (243,806) 5.09- 30.94
Cancelled (13,840) 9.63- 32.46
---------
Outstanding at March 31, 1993 1,120,692 5.09- 35.56
Granted 775,496 23.11- 31.00
Exercised (63,890) 5.09- 28.37
Cancelled (15,150) 23.11- 27.17
---------
Outstanding at March 31, 1994 1,817,148 7.13- 35.56
=========
Exercisable at March 31, 1994 1,074,358
=========
The company was permitted to issue shares under a Restricted Stock Plan
which reserved 2,000,000 shares of common stock for grant to key employees.
Shares were awarded in the name of the employee, who has all rights of a
shareholder, subject to certain restrictions or forfeiture. The time
period over which the restrictions lapse varies and was determined by the
Board of Directors when awards were granted. The restrictions on certain
of the awards granted lapse over three years while the restriction period
for other awards is fifteen years, or three years if certain financial
goals are achieved. With the approval of the company's Stock Ownership
Program, no further awards can be
<PAGE>
NOTE J--STOCK COMPENSATION PLANS--Continued
made under the Restricted Stock Plan. At March 31, 1994, 115,938 shares
remain subject to restrictions. The compensation element related to the
awarding of such shares is recognized ratably over the restriction periods.
NOTE K--SHAREHOLDERS' EQUITY
On August 5, 1992, the company's Board of Directors declared a two for one
stock split payable in the form of a 100 percent stock dividend which was
distributed on September 10, 1992, to holders of record on August 17, 1992.
The par value of the additional 37,079,268 shares of common stock issued in
connection with the stock split was credited to common stock and a like
amount charged to retained earnings. All share and per share data have
been restated for all periods presented to reflect the stock split.
The company is authorized to issue up to 5,000,000 shares of $1.00 par
value, preferred stock. The rights of the preferred stock as to dividends,
redemption, liquidation, and conversion, if any, will be determined by the
Board of Directors upon issuance.
On July 25, 1990, the Board of Directors declared a dividend distribution
of one Right for each outstanding common share to shareholders at the close
of business on August 13, 1990, as part of the adoption of a new Sharehold-
er Rights Plan (the Plan). Each Right entitles the registered holder to
buy from the company a unit consisting of 1/100 of a share of Series A
Junior Participating Preferred Stock at a price of $180 a unit, subject to
adjustment. The Rights will not be exercisable or separable from the
common stock until the earlier of (1) ten days following a public announce-
ment that a person or group has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the company's outstanding common
shares; (2) ten business days following the commencement of a tender offer
or exchange offer that would result in a person or group beneficially
owning 15% or more of such outstanding common shares; or (3) ten business
days (or such later date as the Board shall determine) after the company's
Board of Directors determines that a person or group having beneficial
ownership of 10% or more of the company's common stock then outstanding is
an "Adverse Person" as defined in the Plan.
If a person or group acquires 15% or more of the company's shares, except
pursuant to an offer for all outstanding common shares which the indepen-
dent directors determine to be fair to and otherwise in the best interest
of the shareholders, or in certain other circumstances, the Rights will
entitle the
<PAGE>
NOTE K--SHAREHOLDERS' EQUITY--Continued
holder to purchase a number of the company's common shares having a market
value of twice the exercise price of each Right. Similarly, if the company
is involved in a merger or other business combination at any time after the
Rights become exercisable, the Rights will be modified so as to entitle a
holder to buy a number of shares of common stock of the surviving company
having a market value of twice the exercise price of each Right.
The Rights expire on August 12, 2000, unless redeemed by the company at a
price of $.01 per Right, according to the terms and definitions of the
Plan. Until exercised, the Right does not entitle the holder to any rights
as a shareholder, including the right to vote or receive dividends.
NOTE L--RETIREMENT AND OTHER BENEFIT PLANS
The company and its subsidiaries have a number of non-contributory defined
benefit plans covering a majority of employees. The benefits provided are
generally based upon years of service and the employees' final average
earnings (as defined). The company's objective in funding these plans is
to accumulate funds sufficient to provide for all accrued benefits and to
maintain a relatively stable contribution level in the future.
The company also sponsors defined contribution retirement plans covering a
majority of employees. Company contributions are based on employees'
earnings for non-contributory plans and on a percentage of employee
contributions for contributory plans.
A summary of the composite of net periodic pension credit for the defined
benefit plans and the total contribution charged to pension expense for the
defined contribution plans follows:
1994 1993 1992
---------------------------------
(Thousands of Dollars)
Defined benefit plans:
Service cost--benefits earned
during the period $ 6,159 $ 5,666 $ 6,017
Interest cost on projected
benefit obligation 18,280 16,293 16,255
Actual return on plan assets (35,179) (22,692) (47,261)
Net amortization and deferral 7,328 (5,263) 20,808
-------- -------- --------
Net pension credit for defined
benefit plans (3,412) (5,996) (4,181)
Defined contribution plans 2,712 2,430 3,346
-------- -------- --------
$ (700) $ (3,566) $ (835)
======== ======== ========
<PAGE>
NOTE L--RETIREMENT AND OTHER BENEFIT PLANS--Continued
The amounts recognized in the consolidated statements of financial position
at March 31 for the company's defined benefit plans, all of which have plan
assets in excess of their accumulated benefit obligations, are presented
below:
1994 1993
----------------------
(Thousands of Dollars)
Actuarial present value of benefit
obligations:
Vested benefit obligation $214,676 $184,603
======== ========
Accumulated benefit obligation $220,708 $189,656
======== ========
Projected benefit obligation $255,819 $218,588
Plan assets at fair value 321,775 302,354
-------- --------
Plan assets in excess of projected
benefit obligation 65,956 83,766
Unrecognized net experience (gain) loss 10,175 (8,706)
Unrecognized transition asset net
of amortization (17,798) (20,306)
-------- --------
Prepaid pension costs $ 58,333 $ 54,754
======== ========
The weighted average discount rate and rate of increase in future compensa-
tion levels used in determining the actuarial present value of benefit
obligations were 7.5% and 5.5% respectively, in 1994 and 8.0% and 5.5%,
respectively, in 1993. The expected long-term rate of return on plan assets
used to determine the net periodic pension cost was 9.0% in fiscal 1994 and
1993 and 9.5% in fiscal 1992.
In addition to providing pension benefits, the company and certain of its
subsidiaries provide unfunded medical, dental and life insurance benefits
for a majority of retired employees and their eligible dependents. In
order to be eligible, employees of operating units providing such benefits
must retire from the company and have been covered under the company's
active medical, dental and life insurance plans for five years.
Effective April 1, 1992, the company adopted the provisions of FASB
Statement No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions." This Statement requires a change to the accrual basis of
accounting for postretirement benefits. The company recorded the transi-
tion obligation of $139.4 million as of April 1, 1992 as a charge to
operations, net of income tax benefits of $51.7 million, as the cumulative
effect of an accounting change. In addition to the cumulative effect as of
the beginning of fiscal 1993, adoption of the new Statement resulted in an
increase in pretax charges for fiscal 1993 of $10.8 million, or $0.09 per
share, compared with the company's previous expense recognition methodolo-
gy. Previously reported quarterly results for fiscal 1993 were restated to
reflect the adoption of the new principle (see Note O). The weighted
average discount rate used to determine the accumulated postretirement
benefits obligation was 7.5% in 1994 and 8.0% in 1993.
<PAGE>
NOTE L--RETIREMENT AND OTHER BENEFIT PLANS--Continued
The following table sets forth the combined status of the company's
postretirement benefit plans other than pension plans:
March 31
1994 1993
-----------------------
(Thousands of Dollars)
Actuarial present value of accumulated
postretirement benefits obligation:
Retirees $ 49,721 $ 52,458
Active participants fully eligible 15,136 16,778
Other active participants 46,874 52,071
-------- --------
111,731 121,307
Unrecognized prior service cost credit 30,749 27,797
Unrecognized net experience gains 14,102 1,034
-------- --------
Postretirement benefits obligation $156,582 $150,138
======== ========
Net periodic cost for postretirement benefits other than pensions includes
the following:
1994 1993
----------------------
(Thousands of Dollars)
Service cost--benefits earned during
the period $ 4,743 $ 6,196
Interest cost on accumulated obligation 9,266 9,943
Prior service cost (credit) (2,445) (976)
------- --------
$11,564 $ 15,163
======= ========
In years prior to fiscal 1993, the company recognized the cost of providing
these benefits as claims were incurred. Expense recognized in fiscal 1992
was $3.6 million.
During fiscal 1993 and 1994, the company's postretirement benefit plans
were amended to provide for a higher level of retiree cost sharing to be
phased in over time. The resulting decrease in the accumulated
postretirement benefits obligation is being amortized as prior service cost
(credit) along with unrealized net experience gains on a straight-line
basis over the average remaining service lives of the relevant employee
groups, generally between 12 and 18 years.
For measurement purposes, assumed increases in the cost of covered benefits
for fiscal 1994 were 13.9% for participants under age 65 and 9.8% for
participants over age 65, decreasing to 5.5% and 5.2%, respectively, over a
9 year period. A 1% increase in the medical cost trend rate would increase
the accumulated postretirement benefits obligation at March 31, 1994 by
13.1% and the fiscal 1994 expense by 16.7%.
Also during the fourth quarter of fiscal 1993 the company elected to adopt
the provisions of FASB Statement No. 112, "Employers' Accounting for
Postemployment Benefits." This Statement requires the accrual of the
estimated obligation for future benefits as of the date an employee is
terminated or becomes inactive. The company recorded the April 1, 1992
obligation of $4.3 million for this accounting change as a charge to
operations, net of income tax benefits of $1.6 million, as the cumulative
effect of an accounting change. The impact of the new Statement on
earnings before the cumulative effect of accounting changes for fiscal 1993
was not significant.
<PAGE>
NOTE M--INCOME TAXES
The company adopted FASB Statement No. 109, "Accounting for Income Taxes,"
in the fourth quarter of fiscal 1993. The cumulative effect of the change
in the method of accounting for income taxes as of the beginning of fiscal
1993 and the effect of the new Statement on fiscal 1993 net earnings were
not significant. Financial statements for prior years have not been
restated.
The provisions for income taxes applicable to earnings before income taxes
and cumulative effect of accounting changes consist of the following:
1994 1993 1992
-------------------------------
(Thousands of Dollars)
Current:
Federal $56,359 $63,806 $60,891
State 8,212 8,339 7,632
------- ------- -------
64,571 72,145 68,523
Deferred:
Federal (6,112) (4,816) 2,088
State (803) (526) (123)
------- ------- -------
(6,915) (5,342) 1,965
------- ------- -------
$57,656 $66,803 $70,488
======= ======= =======
A reconciliation of the Federal statutory income tax rate and the company's
effective income tax rate follows:
1994 1993 1992
-------------------------------
Federal statutory rate 35.0% 34.0% 34.0%
State income taxes net of
federal benefit 3.0 2.6 2.5
Utilization of capital loss
carryforwards (2.7) (2.2)
Other (1.6) (0.9) (0.9)
----- ----- -----
33.7% 33.5% 35.6%
===== ===== =====
<PAGE>
NOTE M--INCOME TAXES--Continued
The deferred income tax assets and liabilities recorded in the consolidated
statement of financial position as of March 31 are as follows:
Deferred Income Deferred Income
Tax Assets Tax Liabilities
----------------- ----------------
1994 1993 1994 1993
-------- -------- ------- -------
(Thousands of Dollars)
Depreciation $21,411 $21,325
Employee benefit plans 20,497 18,576
Postretirement benefits $ 59,728 $ 55,551
Life insurance company costs
and benefits 13,551 5,875 19,701 13,500
Capital loss carryforwards 3,100
Reserves and accruals not
currently deductible 37,979 33,362
Other 219 2,631
-------- -------- ------- -------
111,477 100,519 61,609 53,401
Valuation allowance (3,619) (7,784)
-------- -------- ------- -------
$107,858 $ 92,735 $61,609 $53,401
======== ======== ======= =======
Net deferred income tax assets are included in current assets and miscella-
neous noncurrent assets. The company made income tax payments of $70.7
million in fiscal 1994, $60.2 million in fiscal 1993 and $64.2 million in
fiscal 1992.
NOTE N--LEGAL MATTERS
On December 31, 1992, a food wholesale distributor filed suit against the
company and its principal competitors. The suit alleges price fixing in
the United States baby food industry. Since that date, several similar
lawsuits have been filed by other food distributors and on behalf of
indirect purchasers. The initial lawsuit has been certified as a class
action. The lawsuits do not state specific damage amounts and the poten-
tial liability, if any, is not determinable since discovery on the merits
of the case is in its early stages. Management believes the suits are
without merit and intends to contest the suits vigorously. These claims
when finally concluded, in the opinion of management, based upon informa-
tion it presently possesses, will not have a material adverse effect on the
company's consolidated financial position.
<PAGE>
NOTE O--QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a tabulation of the unaudited quarterly results of opera-
tions:
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------
(Thousands of Dollars, except per share amounts)
1994
- - ----
Net sales and revenue $282,947 $310,688 $272,970 $305,233
Cost of products sold
and services
provided 151,543 167,845 146,699 158,860
Net earnings (1) 26,491 33,560 27,932 25,647
Net earnings per share (1) .38 .48 .40 .37
1993
- - ----
Net sales and revenue $315,471 $344,729 $299,235 $310,049
Cost of products sold
and services
provided (2) 174,154 198,004 172,602 171,861
Earnings before
cumulative effect (3) 32,520 32,659 24,614 43,052
Cumulative effect (2) (90,390)
-------- -------- -------- --------
Net earnings (loss) (57,870) 32,659 24,614 43,052
Per share amounts:
Earnings before
cumulative effect (3) .44 .44 .33 .59
Cumulative effect (2) (1.22)
-------- -------- -------- --------
Net earnings (loss) (.78) .44 .33 .59
(1) Net earnings in the fourth quarter were reduced by $13.8 million ($.20
per share) to recognize the cost of restructuring the domestic baby
food, baby care and apparel operations (see Note B).
(2) Adoption of FASB Statement No. 106 and Statement No. 112 (see Note L).
(3) The company completed the sale of Buster Brown Apparel, Inc. (see Note
D) in the fourth quarter and recorded a gain of $11.9 million ($.16 per
share).
<PAGE>
NOTE P--INDUSTRY SEGMENTS
The company's operations are reported in the following major industry
segments:
Food and Baby Care: Principal products include baby foods, nursers, nurser
accessories, toys and infant care items. These products are marketed
domestically, by the company's own sales force, under the Gerber and NUK
trademarks and are distributed through grocery, drug and mass-
merchandise outlets. In addition, international operations are conducted
through certain foreign subsidiaries, export sales and licensing agree-
ments.
Apparel Group: Infant and children's sleepwear and playwear, underwear,
bedding and cloth diapers are sold primarily to mass merchandise outlets
under the Gerber trademark and private labels. Buster Brown children's
fashion playwear and hosiery (which was divested in fiscal 1993) and
Weather Tamer outerwear (which was divested in fiscal 1992) are marketed
primarily through department and specialty stores.
The "Other" category includes the operations of Gerber Life Insurance
Company, which is licensed for the purpose of writing and selling life and
health insurance.
Sales to unaffiliated customers, intersegment sales, which are recorded at
normal gross margins, operating profit, identifiable assets, depreciation
and amortization and capital additions by segment, follow:
Food and Apparel
Baby Care Group Other Corporate
--------------------------------------------
(Thousands of Dollars)
Net Sales and Revenue:
1994
Unaffiliated customers $901,378 $171,102 $99,358
Intersegment 16,101
-------- -------- -------
Total 901,378 187,203 99,358
1993
Unaffiliated customers 899,069 283,928 86,487
Intersegment 21,917
-------- -------- -------
Total 899,069 305,845 86,487
1992
Unaffiliated customers 866,298 333,169 68,676
Intersegment 2,106 1,364
-------- -------- -------
Total 866,298 335,275 70,040
<PAGE>
NOTE P--INDUSTRY SEGMENTS--Continued
Food and Apparel
Baby Care Group Other Corporate
-------------------------------------------
(Thousands of Dollars)
Operating Income:
1994 $171,068 $ 5,902 $ 13,637 $(19,321)
1993 186,459 14,294 10,181 (11,286)
1992 198,350 10,249 7,678 (18,220)
Identifiable Assets:
1994 $501,161 $137,297 $240,554 $122,991
1993 529,127 139,381 199,959 125,973
1992 443,179 209,867 134,374 106,303
Depreciation and Amortization:
1994 $ 25,783 $ 3,912 $ 11,484 $ 504
1993 21,073 5,240 9,863 487
1992 17,925 6,453 8,743 489
Capital Additions:
1994 $ 38,687 $ 2,837 $ 135 $ 323
1993 57,029 8,526 311 44
1992 32,728 3,893 138 10
Segment operating income includes the restructuring charges described in
Note B. Net corporate expenses include primarily interest and general
corporate expenses, offset by interest and dividend income and a divesti-
ture gain in fiscal 1993 (see Note D). Corporate assets include cash and
cash equivalents, short-term investments, net pension assets, nontrade
notes receivable and general corporate assets.
As discussed in Note L, the company adopted the provisions of FASB State-
ment No. 106 and Statement No. 112 effective April 1, 1992. The new
methodology resulted in a decrease to operating profit for fiscal 1993 of
$1,395 for the food and baby care segment, $532 for the apparel group
segment, $242 for the other segment and $8,609 for corporate.
The approximate percentages of consolidated net sales and
revenue by classes of products and services are:
1994 1993 1992
---- ---- ----
Food 68.2% 63.2% 60.8%
Baby care/apparel/services 31.8 36.8 39.2
Fiscal 1994 and 1993 consolidated sales and revenues included foreign sales
representing 11% and 10%, of consolidated totals, respectively, while
consolidated operating profit from foreign operations was not material.
Consolidated identifiable assets at March 31, 1994 and 1993 included
foreign assets representing 9% of consolidated totals. Foreign assets and
sales and revenue were less than 10% of the related consolidated amounts in
fiscal 1992. Interarea sales and export sales and their effects were not
material in the fiscal years presented.
<PAGE>
NOTE Q--SUBSEQUENT EVENTS
On May 21, 1994, the company's Board of Directors unanimously approved a
merger agreement and transactions by which Sandoz Ltd. will purchase all
of the company's outstanding shares of common stock, together with the
Rights described in Note K, at a price of $53 per share. A tender offer
will commence on or about May 27, 1994 and the merger is expected to be
completed in the second or third quarter of fiscal 1995.
