FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission file number
June 30, 1994 l-4007
GERBER PRODUCTS COMPANY
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(Exact name of Registrant as specified in its charter)
Michigan 38-0558270
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
445 State Street, Fremont, Michigan 49413
- - ----------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 616-928-2000
Indicate by check mark whether the Registrant (l) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of July 31, 1994, 69,620,654 shares of the issuer's
common stock, $2.50 par value, were outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
GERBER PRODUCTS COMPANY AND SUBSIDIARIES
JUNE 30, MARCH 31,
1994 1994
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(Thousands of Dollars)
ASSETS
Current assets:
Cash and cash equivalents $ 42,615 $ 47,562
Accounts receivable, less allowances 109,116 107,061
Reinsurance receivables 42,953 44,541
Inventories:
Finished products 105,069 109,382
Work-in-process 31,334 30,862
Raw materials and supplies 43,804 50,904
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180,207 191,148
Deferred income taxes 50,093 50,256
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TOTAL CURRENT ASSETS 424,984 440,568
Other assets:
Investments held by insurance operations 127,869 124,939
Deferred policy acquisition costs 67,784 66,264
Prepaid pension costs 60,861 58,333
Miscellaneous 95,041 77,729
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TOTAL OTHER ASSETS 351,555 327,265
Land, buildings and equipment:
Cost 423,446 415,427
Allowances for depreciation (186,058) (181,257)
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TOTAL LAND, BUILDINGS AND EQUIPMENT 237,388 234,170
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$1,013,927 $1,002,003
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 10,440 $ 11,372
Accounts payable 48,812 62,578
Salaries, wages and other compensation 46,438 48,336
Local taxes, interest and other expenses 71,135 72,962
Income taxes 20,319 17,408
Policy claims and reserves 61,071 58,101
Current maturities of long-term debt 1,147 1,153
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TOTAL CURRENT LIABILITIES 259,362 271,910
Long-term debt 115,677 115,677
Future policy benefits 115,324 111,064
Postretirement benefits obligation 158,887 156,582
Shareholders' equity - Note C
Common stock - issued and outstanding:
June 30, 1994 - 69,615,249 shares;
March 31, 1994 - 69,377,933 shares 174,038 173,445
Paid-in Capital 6,081 921
Retained earnings 208,475 196,238
Foreign currency translation adjustments (4,423) (4,816)
Unearned restricted stock compensation (2,743) (2,014)
Unearned ESOP compensation (16,751) (17,004)
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364,677 346,770
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$1,013,927 $1,002,003
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Subject to audit and year-end adjustments.
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
GERBER PRODUCTS COMPANY AND SUBSIDIARIES
THREE MONTHS ENDED
JUNE 30
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1994 1993
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(Thousands of Dollars)
Net sales and revenue $285,054 $282,947
Interest, royalties & other income 7,196 7,878
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TOTAL INCOME 292,250 290,825
Deductions from income:
Cost of products sold and services
provided 151,016 151,543
Marketing, distribution, administrative
and general expenses 95,473 94,933
Interest expense 2,853 3,036
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TOTAL DEDUCTIONS 249,342 249,512
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EARNINGS BEFORE INCOME TAXES 42,908 41,313
Income taxes 15,834 14,822
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NET EARNINGS $ 27,074 $ 26,491
======== ========
Earnings per share on average shares
outstanding of 69,458,562 for 1994
and 70,480,341 for 1993
NET EARNINGS PER SHARE $ 0.39 $ 0.38
======== ========
Dividends per share $ 0.215 $ 0.205
========= ========
Subject to audit and year-end adjustments.
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
GERBER PRODUCTS COMPANY AND SUBSIDIARIES
THREE MONTHS ENDED
JUNE 30
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1994 1993
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(Thousands of Dollars)
OPERATING ACTIVITIES
Net earnings $ 27,074 $ 26,491
Items in net earnings not requiring
(providing) cash:
Depreciation and amortization 10,115 9,775
Deferred income taxes 151 (113)
Policy acquisition costs deferred (4,123) (5,838)
Other (703) (3,524)
Changes in operating assets and
liabilities:
Accounts receivable (1,801) 12,983
Inventories 10,590 4,261
Reinsurance receivables 1,588 (2,218)
Other assets 5,683 (2,141)
Accounts payable and
accrued expenses (14,812) 545
Policy claims and future
policy benefits 7,230 8,112
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CASH FROM OPERATING ACTIVITIES 40,992 48,333
INVESTING ACTIVITIES
Purchases of land, buildings and
equipment (14,057) (13,715)
Proceeds from sale of land, buildings
and equipment 3,707 2,869
Purchases of investments by insurance
operations (19,876) (37,388)
Sale or maturity of investments held by
insurance operations 15,349 33,530
Decrease in short-term investments 24,938
Other investments (20,000) (12,356)
Other (71) 1,604
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CASH USED IN INVESTING
ACTIVITIES (34,948) (518)
FINANCING ACTIVITIES
Net decrease in short-term
borrowings (1,081) (1,885)
Payments of long-term debt (6) (6)
Cash dividends (14,922) (14,445)
Repurchase of shares of common stock (73,415)
Issuance of shares under stock option
plans 6,165 105
Other (1,147) (146)
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CASH USED IN FINANCING ACTIVITIES (10,991) (89,792)
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DECREASE IN CASH AND CASH EQUIVALENTS (4,947) (41,977)
Cash and cash equivalents at beginning of
year 47,562 95,390
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $42,615 $ 53,413
======== ========
Subject to audit and year-end adjustments.
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GERBER PRODUCTS COMPANY AND SUBSIDIARIES
THREE MONTHS ENDED JUNE 30, 1994
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements were prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three months ended June 30, 1994, are
not necessarily indicative of the results that may be expected
for the year ending March 31, 1995. For further information,
refer to the consolidated financial statements and footnotes
thereto included in the company's annual report on Form 10-K for
the year ended March 31, 1994.
NOTE B - 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 filed on behalf of direct purchasers has been
certified as a class action. The lawsuits do not state specific
damage amounts and the potential 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 the
information it presently possesses, will not have a material
adverse effect on the company's consolidated financial position.
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NOTE C - MERGER AGREEMENT
On May 21, 1994, the company's Board of Directors unanimously
approved a merger agreement by which Sandoz Ltd. will acquire all
of the company's outstanding shares of common stock at a price of
$53 per share. A cash tender offer has commenced for all of the
outstanding shares of common stock and is scheduled to expire on
August 24, 1994, subject to the receipt of certain regulatory
approvals. The merger is expected to be completed in the second
or third quarter of fiscal 1995.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES - June 30, 1994, compared to
March 31, 1994:
Cash provided by operating activities amounted to $40,992,000.
The issuance of shares of common stock under stock option plans
provided $6,165,000 of cash. These funds were used to pay
dividends of $14,922,000. Additions to land, buildings, and
equipment, which consisted primarily of renewals and replacements
to maintain and improve existing capacity, amounted to
$14,057,000 during the period.
RESULTS OF OPERATIONS BY SEGMENT - Three months ended June 30,
1994, compared to three months ended June 30, 1993 (in
thousands):
THREE MONTHS ENDED JUNE 30
Sales and Revenue Operating Profit
1994 1993 1994 1993
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Food and Baby Care
Food $195,027 $200,806
Baby Care 25,636 24,522
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Total 220,663 225,328 $ 43,714 $ 41,999
Apparel Group 38,003 32,708 2,172 426
Other 26,388 24,911 2,138 4,260
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Total $285,054 $282,947 48,024 46,685
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Corporate
Interest expense (2,853) (3,036)
Investment income 1,698 2,022
General corporate expense (3,961) (4,358)
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Earnings Before Taxes 42,908 41,313
Income Taxes 15,834 14,822
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Net Earnings $ 27,074 $ 26,491
======== ========
<PAGE>
Food sales declined by $5,779,000, or 2.9%, due to a 4% decline
in worldwide baby food volumes. Domestic baby food volumes
declined 2.1% due to a lower birth rate and reduced consumption
levels. Baby care sales increased by $1,114,000, or 4.5%, due to
higher domestic sales volumes. Gross margin dollars declined due
to the reduced sales volumes partially offset by lower product
costs. Operating expenses declined due to lower consumer and
trade promotional expenditures. Food and baby care operating
income increased by $1,715,000 or 4.1%.
Apparel sales increased by $5,295,000, or 16.2%, as higher
underwear and bed and bath sales were partially offset by lower
sleepwear sales. Gross margin dollars increased due to the
higher sales volumes and increased operating efficiencies.
Operating income increased by $1,746,000.
Revenue for the Other segment, which now includes only Gerber
Life Insurance Company, increased by $1,477,000, or 5.9%.
Results for the current year include $88,000 of capital gains
from the sale of investments as compared to $2,201,000 in the
prior year. Excluding the effect of capital gains, operating
income declined by $9,000 or 0.4%.
Interest expense declined due to a lower level of debt than in
the prior year. Investment income declined due to a lower level
of cash and short-term investments in the current year partially
offset by higher earnings from our 49%-owned Mexican subsidiary.
Corporate expenses declined due to lower consulting expenses.
The effective income tax rate increased from 35.9% to 36.9% due
primarily to an increase in the statutory federal income tax
rate.
Net earnings increased by $583,000 or $.01 per share.
<PAGE>
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K.
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(a) List of Exhibits:
11 Statement re Computation of Per Share
Earnings.
(b) A Form 8-K dated May 21, 1994 was filed reporting that
Registrant and Sandoz Ltd. entered into a definitive
merger agreement and that certain amendments were made
to Registrant's Rights Agreement.
<PAGE>
SIGNATURES
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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 thereunto duly authorized.
GERBER PRODUCTS COMPANY
(Registrant)
Date: August 9, 1994 By: /s/ Fred K. Schomer
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Fred K. Schomer
Executive Vice President and
Principal Financial Officer
Date: August 9, 1994 By: /s/ Craig G. Wassenaar
-----------------------------------
Craig G. Wassenaar
Corporate Comptroller,
Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
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11 Statement re Computation of Per Share Earnings.
GERBER PRODUCTS COMPANY AND SUBSIDIARIES
EXHIBIT 11--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED
JUNE 30
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1994 1993
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(In thousands, except per
share data)
PRIMARY EARNINGS PER SHARE
Average number of shares outstanding
during the quarter 69,459 70,480
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 682 271
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Adjusted average number of shares 70,141 70,751
======== ========
Net Earnings $27,074 $26,491
Add tax benefit of dividends paid to the
employee stock ownership plan 85 77
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Earnings applicable to common shares $27,159 $26,568
PRIMARY EARNINGS PER SHARE $ 0.39 $ 0.38
FULLY DILUTED EARNINGS PER SHARE
Average number of shares outstanding
during the quarter 69,459 70,480
Net effect of dilutive stock options--
based on the treasury stock method
using the quarter-end market price,
if higher than average market price 877 272
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Adjusted average number of shares 70,336 70,752
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Net Earnings $27,074 $26,491
Add tax benefit of dividends paid to
the employee stock ownership plan 85 77
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Earnings applicable to common shares $27,159 $26,568
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FULLY DILUTED EARNINGS PER SHARE $ 0.39 $ 0.38
EARNINGS PER SHARE AS REPORTED $ 0.39 $ 0.38
The primary and fully diluted earnings per share calculations are
submitted in accordance with Regulation S-K item 601(b)(11). The
earnings per share as reported in the Quarterly Report on Form
10-Q excludes the effect of stock options because it results in
dilution of less than 3% (see footnote 2 to paragraph 14 of APB
Opinion No. 15).
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