FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
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
December 31, 1993 l-4007
GERBER PRODUCTS COMPANY
-----------------------
(Exact name of Registrant as specified in its charter)
Michigan 38-0558270
-------- ----------
(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 January 31, 1994, 69,350,417 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
DECEMBER 31, MARCH 31,
1993 1993
-------------- ---------
(Thousands of Dollars)
ASSETS
Current assets:
Cash and cash equivalents $ 40,470 $ 95,390
Short-term investments 24,938
Trade accounts receivable, less
allowances 93,422 103,073
Reinsurance receivables - NOTE B 36,346 38,068
Inventories:
Finished products 106,253 112,816
Work-in-process 31,389 24,375
Raw materials and supplies 56,899 57,578
-------- --------
194,541 194,769
Deferred income taxes 35,731 36,510
-------- --------
TOTAL CURRENT ASSETS 400,510 492,748
Other assets:
Investments held by insurance operations 121,831 101,822
Deferred policy acquisition costs 63,950 57,055
Prepaid pension costs 58,787 54,754
Deferred income taxes 2,751 2,824
Miscellaneous 79,025 49,393
-------- --------
TOTAL OTHER ASSETS 326,344 265,848
Land, buildings and equipment:
Cost 418,109 400,384
Allowances for depreciation (175,424) (164,540)
-------- --------
TOTAL LAND, BUILDINGS AND EQUIPMENT 242,685 235,844
-------- --------
$969,539 $994,440
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 29,820 $ 10,557
Trade accounts payable 46,637 53,179
Salaries, wages and other compensation 38,150 35,469
Local taxes, interest and other expenses 74,896 93,546
Income taxes 14,030 24,810
Policy claims and reserves 53,187 48,042
Current maturities of long-term debt 1,079 1,017
-------- --------
TOTAL CURRENT LIABILITIES 257,799 266,620
Long-term debt 116,264 116,831
Future policy benefits 104,378 94,384
Postretirement benefits obligation 155,901 150,138
Shareholders' equity
Common stock - issued and outstanding:
December 31 - 69,341,947 shares;
March 31 - 72,060,375 shares 173,355 180,151
Retained earnings 185,395 209,344
Foreign currency translation adjustments (3,945) (3,266)
Unearned restricted stock compensation (2,351) (1,808)
Unearned ESOP compensation (17,257) (17,954)
-------- --------
335,197 366,467
-------- --------
$969,539 $994,440
======== ========
Subject to audit and year-end adjustments.
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
GERBER PRODUCTS COMPANY AND SUBSIDIARIES
NINE MONTHS ENDED
DECEMBER 31
------------------
1993 1992
-------- --------
(Thousands of Dollars)
Net sales and revenue $866,605 $959,435
Interest, royalties & other income 20,435 17,508
-------- --------
TOTAL INCOME 887,040 976,943
Deductions from income:
Cost of products sold and services
provided 466,087 544,760
Marketing, distribution, administrative
and general expenses 276,676 284,326
Interest expense 9,209 9,824
-------- --------
TOTAL DEDUCTIONS 751,972 838,910
-------- --------
EARNINGS BEFORE INCOME TAXES 135,068 138,033
Income taxes 47,085 48,240
-------- --------
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 87,983 89,793
Cumulative effect of accounting
changes-NOTE B (90,390)
-------- --------
NET EARNINGS (LOSS) $ 87,983 $ (597)
======== ========
Earnings per share on average shares
outstanding of 69,712,465 for 1993
and 74,183,045 for 1992:
Before cumulative effect of accounting
changes $ 1.26 $ 1.21
Cumulative effect of accounting
changes - NOTE B (1.22)
-------- --------
NET EARNINGS (LOSS) PER SHARE $ 1.26 $ (0.01)
======== ========
Dividends per share $ 0.635 $ 0.59
========= ========
Subject to audit and year-end adjustments.
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
GERBER PRODUCTS COMPANY AND SUBSIDIARIES
THREE MONTHS ENDED
DECEMBER 31
--------------------
1993 1992
-------- --------
(Thousands of Dollars)
Net sales and revenue $272,970 $299,235
Interest, royalties & other income 6,581 6,963
-------- --------
TOTAL INCOME 279,551 306,198
Deductions from income:
Cost of products sold and services
provided 146,699 172,602
Marketing, distribution, administrative
and general expenses 87,684 93,096
Interest expense 3,133 3,210
-------- --------
TOTAL DEDUCTIONS 237,516 268,908
-------- --------
EARNINGS BEFORE INCOME TAXES 42,035 37,290
Income taxes 14,103 12,676
-------- --------
NET EARNINGS $ 27,932 $ 24,614
======== ========
Earnings per share on average shares
outstanding of 69,335,703 for 1993
and 74,162,708 for 1992: $ .40 $ .33
======== ========
Dividends per share $ .215 $ .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
NINE MONTHS ENDED
DECEMBER 31
----------------------
1993 1992
-------- --------
(Thousands of Dollars)
CASH FROM OPERATIONS
Net earnings (loss) $ 87,983 $ (597)
Adjustments to reconcile net earnings
(loss) to cash from operating activities:
Cumulative effect of accounting changes 90,390
Depreciation and amortization 27,252 26,597
Deferred income taxes 852 (1,444)
Policy acquisition costs deferred (12,336) (14,692)
Other (4,747) (7,592)
Changes in operating assets and
liabilities:
Trade accounts receivables 8,961 31,510
Inventories (2,981) (17,081)
Reinsurance receivables 1,722 (4,046)
Other assets (1,017) (7,435)
Trade accounts payable and
accrued expenses (30,296) (15,587)
Policy claims and future
policy benefits 15,139 17,196
-------- --------
CASH FROM OPERATING ACTIVITIES 90,532 97,219
INVESTING ACTIVITIES
Purchases of land, buildings and
equipment (35,158) (49,890)
Proceeds from sale of land, buildings
and equipment 5,868 4,828
Purchases of investments by insurance
operations (82,077) (63,927)
Sale or maturity of investments held by
insurance operations 64,674 56,394
Decrease in short-term investments 24,938 15,524
Increase in long-term investments (25,825)
Other 1,484 (4,718)
-------- --------
CASH USED IN INVESTING
ACTIVITIES (46,096) (41,789)
FINANCING ACTIVITIES
Net increase (decrease) in short-term
borrowings 20,697 (1,284)
Payments of long-term debt (505) (3,452)
Cash dividends (44,217) (43,779)
Repurchase of shares of common stock (75,315) (33,942)
Issuance of shares under stock option
plans 535 4,027
Other (551) 1,759
-------- --------
CASH USED IN FINANCING ACTIVITIES (99,356) (76,671)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (54,920) (21,241)
Cash and cash equivalents at beginning of
year 95,390 64,211
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $40,470 $ 42,970
======== ========
( ) Denotes use of cash and cash equivalents.
Subject to audit and year-end adjustments.
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GERBER PRODUCTS COMPANY AND SUBSIDIARIES
NINE MONTHS ENDED DECEMBER 31, 1993
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 nine months ended December 31, 1993,
are not necessarily indicative of the results that may be
expected for the year ending March 31, 1994. 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, 1993.
NOTE B - ADOPTION OF NEW ACCOUNTING STANDARDS
During the fourth quarter of fiscal 1993, the company elected to
adopt the provisions of Financial Accounting Standards Board
(FASB) Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and Statement No.
112, "Employers' Accounting for Postemployment Benefits." The
company recorded an after-tax charge of $90,390,000 ($1.22 per
share) as of April 1, 1992 as the cumulative effect of
accounting changes. In addition, adoption of the new Statements
resulted in an increase in after-tax charges of $5,667,000 ($.08
per share) for the additional ongoing expenses related to the
nine months ended December 31, 1992 and $1,888,000 ($.03 per
share) related to the three months ended December 31, 1992.
Fiscal 1993 quarterly results were restated to reflect the
adoption of these statements.
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
consolidated statements of financial position and cash flows have
been restated to conform to this presentation. This accounting
change will have no effect on earnings.
<PAGE>
NOTE C - 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 just
beginning. 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.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES - December 31, 1993, compared to
March 31, 1993:
Cash provided by operating activities amounted to $90,532,000.
Other sources of cash included an increase in short-term
borrowings of $20,697,000 and a decrease in short-term
investments of $24,938,000, resulting from the collection of
trade receivables purchased on a discounted basis under an
investment agreement terminated during the first quarter. These
funds, along with the cash proceeds from the February 10, 1993
sale of Buster Brown Apparel, Inc., were used to pay dividends of
$44,217,000 and to repurchase 2,682,900 shares of stock at a cost
of $75,315,000. Additions to land, buildings and equipment,
which consisted primarily of renewals and replacements to
maintain and improve existing capacity, amounted to $35,158,000
during the period. The growth of the Company's insurance
subsidiary resulted in an increase in investments held by
insurance operations of $20,009,000.
On August 2, 1993, the company filed a shelf registration
statement with the Securities and Exchange Commission for the
issuance of up to $150,000,000 of debt securities, preferred
stock and other securities (including convertible securities).
The timing and amount of securities to be issued, if any, has not
been determined.
RESULTS OF OPERATIONS BY SEGMENT - Nine months ended December 31,
1993, compared to nine months ended December 31, 1992 (in
thousands):
Sales and Revenue Operating Profit (Loss)
1993 1992 1993 1992
------------------ ----------------------
Food and Baby Care
Food $589,967 $597,347
Baby Care 73,965 72,009
-------- --------
663,932 669,356 $131,740 $136,511
Apparel Group 128,080 226,763 8,173 10,742
Other 74,593 63,316 10,770 7,942
-------- -------- -------- --------
$866,605 $959,435 150,683 155,195
======== ========
Corporate
Interest expense (9,209) (9,824)
Investment income 6,484 5,666
General corporate expense (12,890) (13,004)
------- -------
135,068 138,033
Income taxes 47,085 48,240
------- -------
Earnings Before Cumulative Effect
of Accounting Changes 87,983 89,793
Cumulative Effect of
Accounting Changes (90,390)
------- --------
Net Earnings (Loss) $ 87,983 $ (597)
======== ========
<PAGE>
Food sales declined by $7,380,000, or 1.2%, due to a 4.5% decline
in domestic baby food volumes partially offset by price increases
and higher international sales. The domestic baby food volume
decline was due to a lower birth rate and reduced consumption
levels. Baby care sales increased by $1,956,000, or 2.7%, due to
higher domestic and international sales volumes. International
food and care sales increased by $5,878,000, or 6.5%, to
$96,999,000. Gross margin dollars increased as slightly higher
selling prices and lower product costs were partially offset by
the lower sales volumes. Operating expenses increased due to
higher consumer promotional expenditures and increased expenses
resulting from continued expansion into international markets.
Operating income also benefitted from Gerber Baby Formula
increasing over the prior year due to higher sales volumes
realized by our licensee. Food and baby care operating income
declined by $4,771,000, or 3.5%.
Apparel sales declined by $98,683,000, or 43.5%. Prior year
sales include $100,093,000 of sales by the Company's Buster Brown
apparel unit which was sold in last year's fourth quarter.
Excluding Buster Brown, sales increased by $1,410,000, or 1.1%,
due to higher sleepwear and bed & bath sales, partially offset by
lower diaper and playwear sales and lower international sales.
Operating expenses declined due to lower administrative expenses.
Current year results include $1,750,000 of insurance proceeds
received in the second quarter from the settlement of a fire loss
occuring in the prior year. Excluding Buster Brown, operating
income increased by $2,796,000, or 52%.
Revenue for the Other segment, which now includes only Gerber
Life Insurance Company, increased by $11,277,000, or 17.8%.
Results for the current year include $2,606,000 of capital gains
from the sale of investments as compared to $1,608,000 in the
prior year. Excluding the effect of capital gains, operating
income increased by $1,830,000, or 28.9%.
Interest expense declined due to the divestiture of Buster Brown
and a lower level of debt than the prior year. Investment income
increased due to higher earnings from our 49%-owned Mexican
subsidiary.
Earnings before the cumulative effect of accounting changes
decreased by $1,810,000. Earnings per share before the
cumulative effect of accounting changes increased by $.05 per
share. As a result of a share repurchase program in the first
quarter, average shares outstanding decreased from 74,183,000 to
69,712,000. Net earnings and net earnings per share for the
prior year include a charge of $90,390,000 ($1.22 per share) for
the cumulative effect of the fourth quarter adoption of FASB
Statements No. 106 and 112 as of April 1, 1992 (see Note B to the
Consolidated Financial Statements).
Three months ended December 31, 1993, compared to three months
ended December 31, 1992 (in thousands):
Sales and Revenue Operating Profit (Loss)
1993 1992 1993 1992
------------------ ----------------------
Food and Baby Care
Food $181,760 $179,415
Baby Care 22,808 20,987
-------- --------
204,568 200,402 $ 41,818 $ 36,330
Apparel Group 43,889 77,630 1,810 3,450
Other 24,513 21,203 3,486 3,396
-------- -------- -------- ---------
TOTAL $272,970 $299,235 47,114 43,176
======== ========
Corporate
Interest expense (3,133) (3,210)
Investment income 2,352 1,775
General corporate expense (4,298) (4,451)
-------- --------
Earnings Before Taxes 42,035 37,290
Income taxes 14,103 12,676
-------- --------
Net Earnings $27,932 $24,614
======= =======
Food sales increased by $2,345,000, or 1.3%, due to international
sales volume increases and slight domestic price increases
partially offset by a 3.7% decline in domestic baby food volumes.
The domestic baby food volume decline was a result of lower
retail sales due to a lower birth rate and reduced consumption
levels. Baby care sales increased by $1,821,000, or 8.7%, due to
higher sales volume. International food and care sales increased
by $2,390,000, or 8.4%, to $30,908,000. Gross margin dollars
increased due to higher sales dollars and lower product costs.
Operating expenses also benefitted from lower distribution and
warehouse costs and lower sales force costs, as well as favorable
employee group medical experience. This was partially offset by
continued investments made to grow international operations and
support the Gerber Graduates line of toddler foods. Operating
income increased by $5,488,000, or 15.1%.
Apparel sales declined by $33,741,000 or 43.5%. Prior year sales
included $33,699,000 of sales by the Company's Buster Brown
apparel unit. Excluding Buster Brown, sales were in line with
the prior year as higher domestic bed & bath, sleepwear and
underwear sales were partially offset by lower international
sales. Excluding Buster Brown, operating income increased by
$62,000 or 3.5%.
Revenue for the Other segment, which now includes only Gerber
Life Insurance Company, increased by $3,310,000, or 15.6%, due to
the continued strength of group term life and the company's Grow-
Up policy. Results for the current year include $314,000 of
capital gains from the sale of investments as compared to
$1,187,000 in the prior year. Excluding the effects of capital
gains, operating income increased by $963,000, or 43.6%.
Investment income increased due to higher earnings from our 49%-
owned Mexican subsidiary. The effective income tax rate declined
from 34.0% to 33.6% due to tax planning opportunities, partially
offset by the increase in the statutory federal income tax rate.
Net earnings increased by $3,318,000 or $.07 per share. As a
result of a share repurchase program in the first quarter,
average shares outstanding decreased from 74,163,000 in the prior
year to 69,336,000 in the current year.
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K.
- ------- ---------------------------------
(a) List of Exhibits:
11 Statement re Computation of Per Share
Earnings.
(b) No reports on Form 8-K were filed by Registrant during
the quarter ended December 31, 1993.
<PAGE>
SIGNATURES
----------
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: February , 1994 By: /s/ Fred K. Schomer
-----------------------------------
Fred K. Schomer
Executive Vice President and
Principal Financial Officer
Date: February , 1994 By: /s/ Craig G. Wassenaar
-----------------------------------
Craig G. Wassenaar
Corporate Comptroller,
Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
-------------
11 Statement re Computation of Per Share Earnings. Page
12.
GERBER PRODUCTS COMPANY AND SUBSIDIARIES
EXHIBIT 11--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
NINE MONTHS ENDED
DECEMBER 31
------------------
1993 1992
-------- --------
(In thousands, except per
share data)
PRIMARY EARNINGS (LOSS) PER SHARE
Average number of shares outstanding
during the period 69,712 74,183
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 243 415
-------- --------
Adjusted average number of shares 69,955 74,598
======== ========
Earnings before cumulative effect of
accounting changes $87,983 $89,793
Add tax benefit of dividends paid to the
employee stock ownership plan 242 221
-------- --------
Earnings applicable to common shares before
cumulative effect of accounting changes 88,225 90,014
Cumulative effect of accounting changes (90,390)
-------- --------
Net earnings (loss) applicable to common
shares $88,225 $ (376)
======== ========
PRIMARY EARNINGS (LOSS) PER SHARE
Before cumulative effect of accounting
changes $ 1.26 $ 1.21
Cumulative effect of accounting changes (1.22)
-------- --------
Net earnings (loss) per share $ 1.26 $ (0.01)
======== ========
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Average number of shares outstanding
during the period 69,712 74,183
Net effect of dilutive stock options--based
on the treasury stock method using the
period-end market price, if higher than
average market price 289 415
-------- --------
Adjusted average number of shares 70,001 74,598
======== ========
Earnings before cumulative effect of
accounting changes $87,983 $89,793
Add tax benefit of dividends paid to the
employee stock ownership plan 242 221
-------- --------
Earnings applicable to common shares before
cumulative effect of accounting changes 88,225 90,014
Cumulative effect of accounting changes (90,390)
-------- --------
Net earnings (loss) applicable to
common shares $88,225 $ (376)
======== ========
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Before cumulative effect of accounting
changes $ 1.26 $ 1.21
Cumulative effect of accounting changes (1.22)
-------- --------
Net earnings (loss) per share $ 1.26 $ (0.01)
======== ========
EARNINGS (LOSS) PER SHARE AS REPORTED
Before cumulative effect of accounting
changes $ 1.26 $ 1.21
Cumulative effect of accounting changes (1.22)
-------- --------
Net earnings (loss) per share $ 1.26 $ (0.01)
======== ========
The primary and fully diluted earnings (loss) per share
calculations are submitted in accordance with Regulation S-K item
601(b)(11). The earnings (loss) 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).
<PAGE>
GERBER PRODUCTS COMPANY AND SUBSIDIARIES
EXHIBIT 11--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED
DECEMBER 31
-------------------
1993 1992
-------- --------
(In thousands, except per
share data)
PRIMARY EARNINGS PER SHARE
Average number of shares outstanding
during the quarter 69,336 74,163
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 274 432
------- -------
Adjusted average number of shares 69,610 74,595
======= =======
Net Earnings $27,932 $24,614
Add tax benefit of dividends paid to the
employee stock ownership plan 86 84
------- -------
Earnings applicable to common shares $28,018 $24,698
======= =======
PRIMARY EARNINGS PER SHARE $ 0.40 $ 0.33
======= =======
FULLY DILUTED EARNINGS PER SHARE
Average number of shares outstanding
during the quarter 69,336 74,163
Net effect of dilutive stock options--
based on the treasury stock method
using the quarter-end market price,
if higher than average market price 293 432
------- -------
Adjusted average number of shares 69,629 74,595
======= =======
Net Earnings $27,932 $24,614
Add tax benefit of dividends paid to the
employee stock ownership plan 86 84
------- -------
Earnings applicable to common shares $28,018 $24,698
======= =======
FULLY DILUTED EARNINGS PER SHARE $ 0.40 $ 0.33
======= =======
EARNINGS PER SHARE AS REPORTED $ 0.40 $ 0.33
======= =======
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).
