-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, N/BLAO5+1BY8e1Zu3m3iUgr7V9qeiiueXoVSSuUxqfXhUq3UG3TJvCfiKCiESU7Z zJkBbhp8uYu4O+GJdOZ+FA== 0000950131-94-001024.txt : 19940702 0000950131-94-001024.hdr.sgml : 19940702 ACCESSION NUMBER: 0000950131-94-001024 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940621 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GERBER PRODUCTS CO CENTRAL INDEX KEY: 0000041130 STANDARD INDUSTRIAL CLASSIFICATION: 2030 IRS NUMBER: 380558270 STATE OF INCORPORATION: MI FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04007 FILM NUMBER: 94535037 BUSINESS ADDRESS: STREET 1: 445 STATE ST CITY: FREMONT STATE: MI ZIP: 49413 BUSINESS PHONE: 6169282000 MAIL ADDRESS: STREET 1: 445 STATE STREET CITY: FREMONT STATE: MI ZIP: 49413-0001 10-K 1 FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended March 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the Transition Period (Not Applicable) Commission File Number 1-4007 GERBER PRODUCTS COMPANY (Exact name of Registrant as specified in its charter)
Michigan 38-0558270 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 445 State Street, Fremont, Michigan 49413 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: 616-928-2000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on which registered - - - - - ------------------- --------------------- Common Stock, New York Stock Exchange $2.50 par value Chicago Stock Exchange Preferred Share Rights New York Stock Exchange Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [_] No ------ ------ Indicate by check mark if disclosures of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the Common Stock held by nonaffiliates of the Registrant as of June 1, 1994 was $3,163,182,489, based upon the closing price of the Common Stock on the New York Stock Exchange. Determination of Common Stock ownership by affiliates was made solely for the purpose of responding to this requirement and the Registrant is not bound by this determination for any other purpose. The number of shares of Common Stock outstanding as of June 1, 1994 was 69,600,629. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's information statement attached as Schedule I to the Registrant's definitive solicitation/recommendation statement on Schedule 14D-9 filed with the Securities and Exchange Commission on May 27, 1994, as amended on June 13, 1994 ("Information Statement") are incorporated by reference in Part III hereof. PART I ITEM 1. BUSINESS. (a) Registrant is a Michigan corporation, incorporated in 1901 as the Fremont Canning Company. Registrant and its subsidiaries primarily produce products and provide services for families with infants and small children. Products consist principally of baby foods, infant formula (pursuant to certain agreements with Bristol-Myers U.S. Pharmaceutical and Nutrition Group, as described below), juvenile apparel, and a baby care line of feeding products and infant care items. In addition, a subsidiary of Registrant offers life and health insurance products. On May 21, 1994, the Registrant's Board of Directors unanimously approved an Agreement and Plan of Merger (as amended, the "Merger Agreement") by and among the Registrant, Sandoz Ltd. and SL Sub Corp., an indirect wholly owned subsidiary of Sandoz Ltd. (the "Purchaser"). The Merger Agreement provides for the commencement of a cash tender offer (the "Offer") by the Purchaser for all of the Registrant's outstanding shares of Common Stock, together with the associated preferred stock purchase rights, at $53.00 net per share of Common Stock. The Merger Agreement further provides that, among other things, as soon as practicable after the consummation of the Offer and satisfaction or waiver of all conditions to the Merger, the Purchaser will be merged with and into the Registrant (the "Merger"), and the Registrant will continue as the surviving corporation. Pursuant to the terms of the Merger Agreement, the Registrant is subject to various covenants restricting the operations of the Registrant pending the consummation of the Merger or the termination of the Merger Agreement. Additionally, the Merger Agreement provides that upon the closing of the Offer, the Purchaser will be entitled to designate directors of the Registrant. The consummation of the Offer and the Merger are subject to the satisfaction or waiver of certain conditions and require the approval of the Superintendent of Insurance of the State of New York. The forgoing description of the Offer and the Merger does not purport to be complete and reference is made to the Merger Agreement, a copy of which has been filed as an exhibit to this Form 10-K. On May 27, 1994, the Purchaser commenced the Offer by filing its Schedule 14D-1 Tender Offer Statement, pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934, with the Securities and Exchange Commission. Pursuant to the Offer to Purchase contained within such Schedule 14D-1, the Offer will expire at 5:00 p.m., New York City time, on Thursday, June 30, 1994, unless the Offer is extended. The Offer is expected to close and the Merger is expected to be completed in the second or third quarter of fiscal year 1995. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer, shares representing not less than a majority of the total number of shares of Common Stock outstanding on a fully diluted basis. Gerber(R) Infant Formula is manufactured and sold pursuant to an agreement between Registrant and Bristol-Myers U.S. Pharmaceutical and Nutrition Group ("Bristol-Myers"). Under the agreement, Bristol-Myers is responsible for the manufacture, quality assurance and distribution -3- of the product and Registrant is responsible for sales under a brokerage agreement, which agreement contains certain restrictions which may be triggered upon a change of control. During fiscal year 1994, Registrant purchased additional shares in Alima-Gerber, S.A., an affiliate of Registrant located in Rzeszow, Poland. Registrant increased its ownership from 75% to approximately 98% in Alima-Gerber, S.A. (b) For financial information concerning Registrant's industry segments, see Note P of "Notes to Consolidated Financial Statements". (c) (1) (i) Industry Segments. Food and Baby Care. This segment sells food and baby care products of the Registrant worldwide. Principal products are baby foods (consisting of approximately 250 varieties, which include hermetically sealed First Foods(R) Fruits and Vegetables, Second Foods(TM), Third Foods(TM), Gerber(R) Graduates(TM) foods, fruit nectars, and toddler wet products, dry cereals, juice and bakery products), infant formula and baby care products, including nursers, nurser accessories, feeding products, toys, and sundry nursery accessories and infant care items. Most baby foods and baby care products are manufactured by Registrant. Infant formula is manufactured by Bristol-Myers and brokered by Registrant pursuant to the agreement described in Item 1(a) above. Apparel. This segment includes Registrant's wholly-owned subsidiary, Gerber Childrenswear, Inc., which manufactures and/or sells bed and bath products and apparel for children, including bibs, bedding, sleepers, cloth diapers, blanket sleepers, sleep 'n' play sets, underwear garments, playwear, vinyl baby pants and hosiery. Other. This segment includes Registrant's life and health insurance operations. Gerber Life Insurance Company is licensed to sell life and health insurance in all 50 states and the District of Columbia. Gerber Family Services, Inc. serves primarily as a marketing agent for Gerber Life Insurance Company. For the approximate percentages of consolidated sales and revenue by classes of products and services, see Note P of "Notes to Consolidated Financial Statements. Markets and Distribution. Food and Baby Care. Food, infant formula and baby care products are sold by the Registrant's own sales force in the United States through national channels for resale by grocery, drug, specialty, mass merchandise, catalog, and department store outlets. -4- Registrant's baby food plants located in Michigan, Arkansas and North Carolina and a warehousing operation in California serve as its principal domestic distribution centers for baby food products sold by the Gerber Products Division. The proximity of customers served from these locations and the adequacy of finished goods inventories maintained at each provide for prompt fulfillment of orders received. Separate warehousing and shipping operations are maintained in Indiana and California for the distribution of baby care products. Registrant exports products from the United States to many areas of the world. A Costa Rican subsidiary of Registrant manufactures and sells baby foods in Central America and to Registrant's distribution subsidiary in Puerto Rico as well as a number of European markets. Licensees of Registrant manufacture and sell its products (primarily baby foods) in a number of other foreign countries. Alima-Gerber, S.A. manufactures baby foods and fruit nectars primarily for the Poland market, although increased exports to other European countries are anticipated. Alima's baby food plant and warehouse operation is located in Rzeszow, Poland. Sales are made primarily to the grocery trade by Alima's sales force and by independent distributors. Gerber France S.A.R.L. markets baby foods in France primarily to supermarkets and hypermarkets. Gerber France has no manufacturing facilities, but obtains products manufactured by the Registrant at its facilities in the U.S., Costa Rica and Poland, and distributes those products through an independent logistics company located in France. Gerber de Venezuela, C.A., 50% owned by Registrant, manufactures baby food for the Venezuelan market. Gerber de Venezuela's manufacturing facility is located in Miranda, District of Montalban, State of Carabobo, Venezuela. Productos Gerber, S.A. de C.V., a 49% owned affiliate of Registrant located in Queretaro, Mexico, manufactures baby food, cereals and juices for the Mexican market. Apparel. Bibs, bedding, underwear garments, sleepers, cloth diapers, blanket sleepers, vinyl pants and sleep 'n' play sets produced by Gerber Childrenswear, Inc. are sold primarily to mass merchants and in national chains under the Gerber brand and private labels. Gerber branded apparel is sold domestically to grocery and drug store channels. International sales of Gerber branded apparel primarily takes place through independent distributors. Other. Life and health insurance offered by Registrant's insurance subsidiary is marketed primarily by direct mail and agents. (ii) New Product or Industry Segments. During fiscal year 1994, Registrant entered into a license agreement with Warner Bros. for the use of "Looney Tunes Lovables" animated characters on Registrant's apparel and baby care products featuring Baby Bugs, Tweety, Daffy Duck, Tasmanian Devil, Road Runner, Wile E. Coyote and Sylvester. Looney Tunes and Looney Tunes Lovables, characters, names and all -5- related indicia are trademarks of Warner Bros., a Time-Warner Entertainment Company L.P.,(C)1993. (iii) Sources and Availability of Raw Materials. All raw materials used in Registrant's operations are available in normal channels. Since requirements for the manufacture of baby foods include fresh fruits and vegetables, seasonal factors and crop conditions can affect Registrant's food business. However, in view of the geographic diversity of Registrant's plant locations, both in the United States and globally, and the improved methods for the transportation of fresh produce, adverse crop conditions in any one area have little effect on Registrant's ability to obtain its overall requirements. Raw materials for many of Registrant's apparel products consist of raw cotton, yarn, knit fabric and woven fabric. Registrant has not experienced any problem in obtaining its requirements of these raw materials. (iv) Patents, Trademarks and Licenses. Registrant has various trademarks and licenses which are of material importance to the Registrant's business. Registrant believes that the duration, terms and conditions of its material licenses adequately support Registrant's business objectives. (v) Seasonality. Registrant's food and baby care segment is not subject to seasonality due to the Registrant's geographic diversity. Gerber Childrenswear, Inc. produces on a seasonal basis for certain product lines. (vi) Working Capital Items. Not material. (vii) Dependence Upon Single Customer. With respect to the apparel segment, Wal-Mart represents approximately 36% of sales for year ended March 31, 1994. No other segment of Registrant's business is dependent upon a single customer or a few customers, the loss of any one or more of which would have a material adverse effect on the segment. (viii) Backlog of Orders. Except for Gerber Childrenswear, Inc., which generally produces to order on a seasonal basis, Registrant and its subsidiaries do not produce to order, but sell from finished goods inventories. Unfilled orders at the end of the fiscal year are generally orders on hand for normal shipment within the next few days and, therefore, backlog is not material in relation to total sales. Unfilled orders for Gerber Childrenswear, Inc. were approximately $31,000,000 at March 31, 1994. Unfilled orders at March 31, 1993 were approximately $23,000,000. (ix) Government Business. Registrant has no material portion of its business which may be subject to renegotiation of profits or termination of contracts at the election of the government. -6- (x) Competition Food and Baby Care Group. The baby food business is highly competitive. Registrant is the leading producer of baby foods in the United States. H.J. Heinz Company and Ralcorp Holdings, Inc. are Registrant's principal competitors in the baby food market. Registrant is the second leading seller of baby foods in Canada, where H.J. Heinz Company is its principal competitor. In Mexico, Registrant's affiliate, Productos Gerber, S.A. de C.V. is the leading producer of baby foods. Quality, variety, value and innovation are the principal methods of competition employed by Registrant in these markets. France is the Registrant's largest market outside of the U.S. and Latin America for Gerber(R) baby foods. Gerber France is the third leading distributor of baby food in France behind BSN, S.A. and Nestle, S.A. Alima-Gerber, S.A. is the leading producer of fruit nectar under the Bobo Frut brand in Poland. The Registrant competes for the European market primarily on the basis of quality, customer service, innovation and brand recognition. The infant formula business is also highly competitive. Principal competitors are Ross Laboratories, Inc., a subsidiary of Abbott Laboratories; Mead Johnson & Co., a subsidiary of Bristol-Myers Company; Wyeth-Ayerst, Inc., a subsidiary of American Home Products Corporation; and The Carnation Company, a subsidiary of Nestle, S.A. The principal methods of competition employed by Registrant are direct consumer advertising and promotion and price. Registrant believes that the name recognition and reputation for quality it enjoys through its baby food business are positive factors in its competitive position in the infant formula market. Registrant's baby care business covers a wide array of feeding products and infant care items and is highly competitive. While there may be significant competitors within specific areas of the baby care business, overall the business is fragmented and Registrant typically faces different competitors within different product and geographic areas. Quality, variety, innovation and value are the principal methods of competition employed by Registrant. Apparel. The clothing business is highly competitive and Registrant has numerous competitors. Registrant gives primary emphasis to quality and value pricing. Registrant believes that it is one of the leading suppliers of childrenswear in the United States. Other. With respect to Registrant's life and health insurance products, competition is generally active. Registrant gives primary emphasis to service and quality. -7- (xi) Research and Development. Registrant has maintained, and will continue to maintain, active research and development programs. Amounts expended in these areas have not been material in relation to the Registrant's consolidated assets, revenues and aggregate operating expenses. (xii) Compliance with Environmental Laws. Compliance with federal, state and local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment has no material effect on capital expenditures, earnings or the competitive position of the Registrant. (xiii) Employees. The number of persons employed by Registrant and its subsidiaries in continuing operations is approximately 8,977. (d) As described in Note P of the "Notes to Consolidated Financial Statements", fiscal 1994 Consolidated sales and revenue included foreign sales representing 11% of consolidated totals, while operating profit from foreign operations was not material. Consolidated identifiable assets at March 31, 1994 included foreign assets representing 9% of consolidated totals. Foreign assets were less than 10% of consolidated totals in fiscal 1993 and foreign sales and revenue were 10% of consolidated totals in fiscal 1993. Interarea and export sales were not material in the fiscal years presented. Foreign assets, and sales and revenue were less than 10% of the related consolidated amounts in fiscal 1992. ITEM 2. PROPERTIES. Registrant owns three major baby food plants in the United States, located in Fremont, Michigan (where its general offices and research facilities are also located), Asheville, North Carolina and Fort Smith, Arkansas. All of these plants are equipped with modern processing machinery and special equipment for the preparation and packing of baby foods. Buildings and machinery are in excellent condition and well maintained at all locations. Each of the plants serves as a food distribution center and has extensive warehousing and shipping facilities. All plants are adequately served by both railroad facilities and motor carriers. With minor exception, each plant produces all products required for the distribution area that it serves. Registrant also leases a distribution center in Modesto, California. A foreign subsidiary of Registrant owns a baby food plant in San Jose, Costa Rica. The plant is adequately equipped to meet current production needs for its area of distribution. Another subsidiary leases distribution facilities in Puerto Rico. Alima-Gerber, S.A. owns a manufacturing and warehouse facility in Rzeszow, Poland. During fiscal year 1994, Registrant made significant capital improvements to the plant facilities of Alima-Gerber, S.A. and expects to make further capital improvements over the next three years. Gerber de Venezuela, C.A., 50% owned by Registrant, leases a manufacturing plant in Miranda, District of Montalban, State of Carabobo, Venezuela. -8- As of March 31, 1994, non-food products are manufactured at 14 plants, 12 located in the United States and 2 in the Dominican Republic. Of these, 11 are owned and 3 are leased. Registrant leases distribution warehouses in Indianapolis, Indiana, Charlotte, North Carolina and Baldwin Park, California, to serve as central shipping points for its non-food products. Sales offices and other offices, such as the headquarters for Registrant's insurance subsidiary, are leased throughout the United States. Registrant believes that its various facilities and equipment are substantially adequate and suitable for its current and foreseeable needs. ITEM 3. LEGAL PROCEEDINGS. On December 31, 1992, a food wholesale distributor filed suit against the Registrant 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 the 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 Registrant's consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Title and Principal Occupation - - - - - ---- --- ------------------------------ Alfred A. Piergallini 47 Chairman of the Board, President and 1/14/93 to Chief Executive Officer present Chairman of the Board and Chief 5/28/92 to Executive Officer 1/14/93 Chairman of the Board, President and 1/1/90 to Chief Executive Officer 5/28/92 President and Chief Operating Officer 4/17/89 to 1/1/90
-9- Prior thereto he was associated with The Carnation Company Fred K. Schomer 55 Executive Vice President and Chief 11/28/88 to Financial Officer present Stephen R. Clark 37 Vice President, General Counsel 11/8/89 to present General Counsel 1/1/88 to 11/8/89 Timothy J. Croasdaile 47 Vice President, Investor Relations and 9/30/91 to Corporate Affairs present Prior thereto he was associated with Itel Corporation and Bell & Howell Co. C. Simon Thompson 52 Vice President, Treasurer 12/1/93 to present Employed by C. Simon Thompson & 8/1/91 to Associates Limited 12/1/93 Group Treasurer and President 8/1/88 to Trafalgar House Group Finance plc. 8/1/91 Dennis G. Tischler 51 Vice President, Tax 5/28/92 to present Director, Tax 9/17/90 to 5/28/92 Prior thereto he was associated with TRW, Inc. Craig G. Wassenaar 38 Corporate Comptroller 6/1/92 to present Prior thereto he was associated with Ernst & Young -10- Jose A. Rodriguez 57 President, International Division 9/20/93 to present President, Quaker Europe 5/1/85 to 10/31/91 Kristina Kiley 43 Director - Human Resources and 1/9/94 to Corporate Secretary present Corporate Secretary, and Associate 3/8/93 to General Counsel 1/9/94 Associate General Counsel/Assistant 1/1/89 to Secretary 3/8/93 The following individuals are no longer employed by the Registrant: i) Robert L. Johnston, 62, Vice Chairman 1/1/91 to 12/31/93, Executive Vice President and President - Gerber Products Division 4/4/89 to 1/1/91; ii) E. Curtis Mairs, 57, Executive Vice President, Human Resources 9/23/92 to 1/10/94, Vice President, Human Resources 1/1/90 to 9/23/92, Director of Productivity and Organization 7/31/89 to 1/1/90; iii) Matthew Okkema, 62, Vice President, Treasurer 2/18/91 to 7/1/93, Treasurer 11/15/75 to 2/18/91; iv) George A. Purvis, 61, Vice President, Scientific Affairs 1/7/91 to 7/30/93, Vice President, Research and Development 7/23/87 to 1/7/91; and v) Michael A. Cipollaro, 58, President, International Division 11/20/89 to 9/30/93, prior thereto he was associated with McCormick Company, Inc. There is no family relationship between any of the above-named officers of the Registrant. All executive officers of the Registrant are elected annually at the meeting of its Board of Directors following the annual meeting of shareholders. -11- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. Dividends were declared on the Registrant's Common Stock during the two most recent fiscal years as follows:
PER SHARE CASH DIVIDENDS Fiscal Quarter and Year FIRST SECOND THIRD FOURTH 1994 $0.205 $0.215 $0.215 $0.215 1993 .18 .205 .205 .205
Dividends declared for the first quarter of Fiscal 1995 are $.215 per share. The principal United States markets on which the Registrant's Common Stock is traded are the New York Stock Exchange and the Chicago Stock Exchange. The high and low sale prices of the Common Stock on the New York Stock Exchange for each quarterly period within the two most recent fiscal years are as follows:
PER SHARE COMMON STOCK MARKET PRICE RANGE Fiscal Quarter FIRST SECOND THIRD FOURTH 1994 $25 1/2-30 7/8 $24 1/8-28 3/8 $25 3/4-29 3/8 $26 1/4-34 3/4 1993 30-34 5/8 31 7/8-35 7/8 29 3/8-37 29 3/8-32 1/2
At March 31, 1994 and 1993, there were 16,227 and 15,279 shareholders of record, respectively. -12- ITEM 6. SELECTED FINANCIAL DATA.
FIVE YEAR SUMMARY Gerber Products Company and Subsidiaries (In thousands except percentage and per share data) 1994 1993 1992 1991 1990 - - - - - -------------------------------------------------------------------------------------------------------------------------------- OPERATING DATA Net sales and revenues $1,171,838 $1,269,484 $1,268,143 $1,211,932 $1,159,929 Cost of products sold and services provided 624,947 716,621 711,298 691,527 678,216 Operating and general expenses 371,116 376,625 346,255 324,776 308,716 Interest expense 11,335 12,361 15,517 17,543 16,487 Earnings from continuing operations before income taxes 171,286 199,648 198,057 183,350 154,376 Income taxes applicable to continuing operations 57,656 66,803 70,488 70,532 59,822 Earnings from continuing operations* 113,630 132,845(a) 127,569 112,818 94,554 Loss from discontinued operations, net of income tax effect (479) Net earnings 113,630 42,455(a) 127,569 112,818 94,075 Cash dividends 59,108 58,771 51,631 42,937 34,830 Average shares outstanding 69,623 73,933 74,774 75,320 75,712 - - - - - -------------------------------------------------------------------------------------------------------------------------------- PER SHARE OF COMMON STOCK Earnings from continuing operations* $ 1.63 $ 1.80(a) $ 1.71 $ 1.50 $ 1.25 Earnings (loss) from discontinued operations (0.01) Net earnings 1.63 0.58(a) 1.71 1.50 1.24 Cash dividends 0.85 0.795 0.69 0.57 0.46 - - - - - -------------------------------------------------------------------------------------------------------------------------------- PERCENTAGE COMPARISONS Increase (decrease) in sales and revenue (7.7%) 0.1% 4.6% 4.5% 9.5% Return on sales and revenue* 9.7 10.5 10.1 9.3 8.1 Increase (decrease) in earnings from continuing operations* (14.5) 4.1(a) 13.1 19.3 10.4 Dividends to net earnings* 52.0 44.2 40.5 38.1 37.0 Return on average shareholders' equity* 31.9 32.3(a) 30.0 30.2 27.6 - - - - - -------------------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION DATA Total assets $1,002,003 $994,440(b) $ 923,345 $ 827,336 $ 754,733 Working capital 168,658 226,128(b) 275,246 249,763 181,090 Capital expenditures 41,982 65,910 36,769 41,421 39,803 Depreciation 30,291 26,853 25,231 22,002 21,043 Long-term debt 115,677 116,831 125,915 164,491 146,221 - - - - - --------------------------------------------------------------------------------------------------------------------------------
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SHAREHOLDERS' EQUITY Total $346,770 $366,467 $455,043 $394,557 $351,805 Per share outstanding 5.00 5.09 6.12 5.28 4.67 Percentage of total assets 34.6% 36.9%(b) 50.9% 47.7% 46.6% - - - - - ---------------------------------------------------------------------------------------------------------- MARKET PRICE High $ 34 3/4 $ 37 $ 38 5/8 $ 30 5/8 $ 25 3/4 Low 24 1/8 29 3/8 29 5/8 20 3/4 16 5/8 - - - - - ----------------------------------------------------------------------------------------------------------
*Before cumulative effect of accounting changes. (a) Net earnings for Fiscal 1993 include an after-tax charge of $90.4 million ($1.22 per share) for the cumulative effect of accounting changes due to adoption of Financial Accounting Standards Board Statement No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," and Statement No. 112, "Employers' Accounting for Postemployment Benefits." In addition, adoption of these Statements and Statement No. 109, "Accounting for Income Taxes," resulted in current year charges for Fiscal 1993 having an after-tax effect of $7.6 million ($0.10 per share). (b) Restated in connection with adoption of Financial Standards Accounting Board Statement No. 113, "Accounting and Reporting for Reinsurance of Short Duration and Long Duration Contracts." See Note G of Notes to Consolidated Financial Statements. -14- For further information regarding dispositions and their effect on the comparability of the selected financial data presented above in the Five Year Summary, also see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Notes to Consolidated Financial Statements" included in this report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FOOD AND BABY CARE SEGMENT The Food and Baby Care segment includes consolidated results of Gerber's worldwide food and baby care operations. Fiscal 1994 (F1994) food sales declined slightly from Fiscal 1993 ((F1993) because of lower domestic sales volumes partially offset by higher international volumes. Domestic volumes declined 3%; international volumes increased 8%. The international volume increase in F1994 was the result of higher Latin American and export market volumes. Lower births in the US and lower per capita consumption of baby food contributed to the domestic volume decrease. Higher selling prices partially offset the impact of the domestic volume decline. The company's average US retail market share for F1994 was 70.7% compared to 71.2% in the previous year. Per capita consumption in the US declined to 52.2 dozens per birth in F1994 from 52.7 dozens per birth in F1993. Food sales increased in F1993 over Fiscal 1992 (F1992), primarily the result of higher selling prices and higher international volume growth, including the business of Alima-Gerber in Poland (acquired late in F1992) offsetting lower domestic sales volumes. Baby care sales increased 5.5% in F1994 due to higher unit volumes in both the domestic and international markets. The company was successful in obtaining new distribution in US mass retail, food and drug channels. A new line of Looney Tune Lovables baby care products received excellent acceptance by the trade and consumers. Domestic baby care sales in F1993 declined slightly from the F1992 level due to lower unit volume, offset by gains in international. A shift away from certain types of lower margin retail distribution to the more traditional channels was the primary reason for the domestic sales decline. Gross margin percentage in F1994 was higher than F1993 because of lower costs of product and slightly higher selling prices. Higher expenses related to growing the international business were more than offset at the operating income line by reduced domestic expenses. A restructuring charge of $18.1 million related to the company's production efficiency program for the Food and Baby Care segment caused operating income to be lower in F1994 compared to F1993. The program is designed to improve manufacturing and distribution efficiencies by reducing staff levels, improving production yields and realigning the domestic sales force. The benefits of this -15- restructuring program will result in improved operating margins in the future. Management expects the cash investment of $14.6 million to result in annual savings of approximately $6 million in F1995, $17 million in F1996 and $20 million in F1997. Gross margin percentage in F1993 was slightly lower than F1992 due to increased product costs in the domestic baby care business partially offset by higher domestic selling prices. Operating income in F1993 was lower than F1992 because of higher expenses related to international expansion and increased domestic consumer promotion programs. APPAREL SEGMENT The Apparel segment consists of the operations of Gerber Childrenswear, Inc. and Buster Brown Apparel, Inc. (divested February 10, 1993). Sales declined in F1994, because of the sale of Buster Brown in the fourth quarter of F1993, which historically was the most significant sales quarter for Buster Brown. These lost sales were partially offset by increased sales of Gerber Childrenswear. Fiscal 1993 sales declined because of divested operations. Again, this was partially offset by increased Gerber Childrenswear sales. Gross margin percentage for F1994 increased due to a favorable sales mix at Gerber Childrenswear partially offset by the sale of Buster Brown. Expenses were lower versus the previous year also resulting from the sale of Buster Brown. Operating income was aided by the payment of $1.8 million to Gerber Childrenswear for an insurance claim related to a fire at a production facility in F1993. This was offset by lost income caused by the sale of Buster Brown and a $4.3 million restructuring charge related to the company's production efficiency programs. The restructuring will result in annual cost savings of $0.4 million in F1995, $1.4 million in F1996 and $2.0 million in F1997. As a result, operating income was lower in F1994 compared to the previous year. Gross margins for F1993 declined because of lower sales volumes and lower margins realized on Buster Brown sales due to product mix. F1992 expenses include a $22 million restructuring charge to eliminate cloth diaper weaving production and to consolidate other textile production at Gerber Childrenswear. The remaining expenses in F1993 were lower because of the sale of Buster Brown. OTHER SEGMENT The Other segment includes the results of Gerber Life Insurance Company for all years and Spartan Graphics, a printing company, until it was sold in the first quarter of F1992. Revenue for Gerber Life increased significantly because of higher life insurance premiums. Operating income in F1994 includes gains from the sale of certain securities of $2.7 million compared to $1.7 million in F1993 and only nominal gains in F1992. F1992 results include a -16- gain of approximately $800,000 on the sale of Spartan Graphics. Gerber Life had operating income increases of 33.9% in F1994 and 52.8% in F1993 over the respective prior years. INTERNATIONAL RESULTS Consolidated sales and revenue include foreign sales of baby food, baby care and apparel of approximately $127.8 million in F1994 compared to $126.5 million in F1993. When coupled with the sales of the company's 49%-owned Mexican and 50%- owned Venezuelan joint ventures, total foreign sales were $241.4 million in F1994 compared to $216.1 million in F1993. Including Gerber's share of earnings from these joint ventures, international posted a slight loss in F1994 compared to a minor amount of operating income in F1993. The loss was the result of increased investment in international expansion programs, primarily in Europe and Latin America. CONSOLIDATED RESULTS Consolidated sales and revenue declined 7.7% in F1994 because of the sale of Buster Brown, and were flat in F1993 over F1992. The increased level of F1994 investment income was the result of increased short-term investments and improved results of the joint venture in Mexico. The lower F1993 investment income was the result of a lower level of cash and short- term investments. General corporate expenses were slightly lower in F1994 because of cost sharing programs related to postretirement medical benefits. Corporate expenses increased in F1993 compared to F1992 due to the adoption of Financial Accounting Standards Board (FASB) Statement No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions", offset by lower incentive compensation expense and certain other expenses. Interest expense in F1994 declined because of lower interest rates and a lower level of borrowings. Interest expense declined from F1992 to F1993 due to a reduced level of borrowing and the early redemption of $35 million of long-term debt in the third quarter of F1992. Excluding the gain on the sale of Buster Brown in F1993, which was largely sheltered by a capital loss carryforward, income taxes provided as a percentage of pre-tax income decreased from 35.6% in F1993 to 33.7% in F1994 due to tax planning and the favorable effect of the Omnibus Budget Reconciliation Act of 1993 on the deferred tax assets. Excluding the F1992 restructuring charge in the Gerber Childrenswear business, which included certain costs for which no income tax benefit was currently recognizable, income taxes provided as a percent of pre-tax income increased from 34.8% in F1992 to 35.6% in F1993. Utilization of tax loss carryforwards and the benefit of the favorable clarification and settlement of tax issues resulted in a lower effective tax rate in F1992. -17- LIQUIDITY AND CAPITAL RESOURCES Cash from operating activities amounted to $145.0 million in F1994 compared with $137.7 million in F1993 and $133.3 million in F1992. Cash flow from operations continued to be the company's primary source of funds and is expected to satisfy a substantial portion of future cash needs. During F1994, the company repurchased 2.7 million shares of common stock at a cost of $75.3 million under share repurchase programs approved by the Board of Directors. In addition, the company paid dividends of $59.1 million, expended $42.0 million for capital additions and purchased $26.8 million of long-term investments. The company's current ratio was 1.62 at March 31, 1994 compared to 1.85 at March 31, 1993. During F1994, the company adopted the provisions of Financial Accounting Standards Board Statement No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts." The prior year statement of financial position has been restated to conform to this presentation (see Note G to the consolidated financial statements). This accounting change has no effect on earnings. The ratio of total debt to total capitalization increased from 26% to 27%. The company's share repurchase program was the primary reason for the change in these ratios. Management believes the company's present liquidity, in combination with cash flow from future operations, will be more than adequate to fund continuing operating requirements in the foreseeable future. The company has numerous sources of short-term financing available, including commercial paper, bank lines of credit and short-term credit facilities. During F1994, the company filed a shelf registration statement with the Securities and Exchange Commission for the issuance of up to $150 million of debt securities, preferred stock and other securities (including convertible securities). Short-term borrowing arrangements are disclosed in Note H of Notes to Consolidated Financial Statements. Further, because of the company's strong financial position, management believes it has substantial additional long-term borrowing capacity. CAPITAL ADDITIONS Additions to land, buildings and equipment (unrelated to discontinued operations and the acquisition of Alima) were $42.0 million in F1994, $65.9 million in F1993 and $36.8 million in F1992. Major expenditures in F1994 were for renewals and replacements to improve or maintain existing capacity. Capital expenditures for F1995 are expected to approximate $41 million and will be used primarily for renewals and replacements at existing food processing and warehousing facilities. INFLATION Inflation has not had a significant impact on the company over the past three years nor is it expected to have a significant impact in the foreseeable future. The company continually attempts to minimize the effect of inflation through cost reductions and improved productivity. -18- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 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. Our audits also included the financial statement schedules listed at Item 14(a)(2). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules 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 statements. 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 consolidated 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. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. 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 -19- 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 ========== =========
-20-
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. -21-
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, administrative 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. -22-
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)
-23-
CONSOLIDATED STATEMENTS OF CASH FLOWS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES ================================================================================================= YEAR ENDED MARCH 31 1994 1993 1992 ____________________________ (Thousands of Dollars) 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. -24-
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY GERBER PRODUCTS COMPANY AND SUBSIDIARIES ======================================================================================== COMMON PAID-IN STOCK CAPITAL ________ ________ 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. -25-
FOREIGN UNEARNED CURRENCY RESTRICTED UNEARNED RETAINED TRANSLATION STOCK ESOP EARNINGS ADJUSTMENTS COMPENSATION COMPENSATION ________ ___________ ____________ ____________ (Thousands of Dollars) $322,121 $(3,598) $(3,115) $(19,714) 127,569 (51,631) (9,655) 834 (226) (1,504) 1,850 252 (1,130) ________ _______ _______ ________ 388,430 (4,728) (2,769) (18,880) 42,455 (58,771) (92,698) (62,001) (8,370) 926 (1,373) 2,334 299 1,462 ________ _______ _______ ________ 209,344 (3,266) (1,808) (17,954) 113,630 (59,108) (68,272) 950 316 (1,172) 966 328 (1,550) ________ _______ _______ ________ $196,238 $(4,816) $(2,014) $(17,004) ======== ======= ======= ========
-26- 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 consolidation, 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 consequences 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. -27- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 ================================================================================ 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 presentation. 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 manufacturing technologies and efficiency gains in the company's domestic manufacturing 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 Childrens wear 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 inventories. 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 -28- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 ================================================================================ 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. 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 disposition:
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. -29- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 ================================================================================ 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 agreement. During the first quarter of fiscal 1994, the investment was liquidated. 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 inventories, 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:
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. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 ================================================================================
NOTE G--INSURANCE OPERATIONS--CONTINUED 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 ======== ======= =======
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. -31- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 ================================================================================ 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 periodically. 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 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. -32- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 ================================================================================ NOTE I--LONG-TERM DEBT--CONTINUED 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 quotations. 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 provisions 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 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. -33- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 ================================================================================
NOTE J--STOCK COMPENSATION PLANS--CONTINUED 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 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. -34- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 ================================================================================ NOTE K--SHAREHOLDERS' EQUITY--CONTINUED 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 Shareholder 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 announcement 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 independent 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 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. -35- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 ================================================================================ NOTE L--RETIREMENT AND OTHER BENEFIT PLANS--CONTINUED 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) ======== ======== ========
-36- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 ================================================================================ 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 compensation 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 transition 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 -37- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 ================================================================================ NOTE L--RETIREMENT AND OTHER BENEFIT PLANS--CONTINUED 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 methodology. 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. 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. -38- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 ================================================================================ NOTE L--RETIREMENT AND OTHER BENEFIT PLANS--CONTINUED 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. 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 ======= ======= =======
-39- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 - - - - - ------------------------------------------------------------------------------ NOTE M--INCOME TAXES--CONTINUED 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% ==== ==== ====
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 miscellaneous 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. 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 - - - - - ------------------------------------------------------------------------------ NOTE N--LEGAL MATTERS--CONTINUED 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 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 information it presently possesses, will not have a material adverse effect on the company's consolidated financial position. NOTE O--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations:
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
41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 - - - - - ------------------------------------------------------------------------------ NOTE O--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)--CONTINUED (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). 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 agreements. 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: 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 - - - - - ------------------------------------------------------------------------------ NOTE P--INDUSTRY SEGMENTS--CONTINUED
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 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
43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994 - - - - - ------------------------------------------------------------------------------ NOTE P--INDUSTRY SEGMENTS--CONTINUED
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 divestiture 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 Statement 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. 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. 44 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information under the captions "Board of Directors and Executive Officers-- Directors" and "Compliance with the Securities Exchange Act" in the Information Statement, which captions appear on pages I-3 and I-13 thereof, are incorporated herein by reference. See "Executive Officers of the Registrant" in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION. The information under the captions "The Board of Directors and Standing Committees of the Board," "Executive Management Compensation," and "Summary of Compensation Plans" in the Information Statement, which captions appear on pages I-5, I-7 and I-10, thereof, respectively, are incorporated herein by reference. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The compensation committee of the Registrant's Board of Directors consisted of Messrs. Carlson, Cummings, Curry, Gerber and McAuliffe, Ms. Spitz and Dr. Wyse, none of whom was an officer or employee of the Registrant. The Registrant retained Burson-Marsteller, of which Ms. Spitz is an officer, to provide certain public relations services in the fiscal year ended March 31, 1994. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information under the caption "Security Ownership of Certain Beneficial Owners and Management", in the Information Statement, which caption appears on page I-4 thereof, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The penultimate paragraph under the caption "The Board of Directors and Standing Committees of the Board" in the Information Statement, which paragraph appears on page I-6 thereof, is incorporated herein by reference. 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) - FINANCIAL STATEMENTS Included in Part II of this report: Report of Independent Auditors. Consolidated statements of financial position at March 31, 1994 and 1993. Consolidated statements of operations for the fiscal years ended March 31, 1994, 1993, and 1992. Consolidated statements of cash flows for the fiscal years ended March 31, 1994, 1993, and 1992. Consolidated statements of shareholders' equity for the fiscal years ended March 31, 1994, 1993, and 1992. Notes to consolidated financial statements. (a)(2) - FINANCIAL STATEMENT SCHEDULES Included in Part IV of this report: Schedule I - Marketable Securities - Other Investments. Schedule VIII - Valuation and Qualifying Accounts. Schedule IX - Short-Term Borrowings. Schedule X - Supplementary Income Statement Information. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 46 (a)(3) - LIST OF EXHIBITS: (3) (a)- Restated Articles of Incorporation as amended through July 25, 1990.(1) (b)- Bylaws, as amended through July 25, 1990.(2) (4) (a)- Indenture dated as of November 1, 1982, between Registrant and Harris Trust and Savings Bank.(3) - Supplemental Indenture dated as of June 1, 1986. (b)- Form of 9% Debentures due October 15, 2006.(4) - No other debt instruments are filed. Registrant agrees to furnish a copy of any of its other long-term debt agreements to the Commission upon request. (c)- Rights Agreement dated as of July 25, 1990 between Gerber Products Company and Harris Trust and Savings Bank.(5) (c)(1)- First Amendment to Rights Agreement dated as of May 21, 1994 between Registrant and Harris Trust and Savings Bank.(6) (10)(a) - 1975 Stock Option Plan as amended on July 25, 1984.(7)(*) (b)- 1985 Stock Option Plan as amended on November 9, 1988.(8)(*) (c)- Annual Bonus Plan as of April 1, 1990.(9)(*) (d)- Long-Term Incentive Plan as amended on November 9, 1988.(10)(*) (d)(1)- Long-Term Incentive Plan dated as of February 8, 1989.(11)(*) (e)- Stock Option Plan for Non-Employee Directors as amended on November 9, 1988.(12)(*) (f)- Restricted Stock Plan dated as of February 8, 1989.(13)(*) (g)- Elective Deferral Plan for Senior Management dated as of July 1, 1989.(14)(*) (h)- Supplemental Executive Retirement Plan effective as of February 8, 1989.(15)(*) (i)- Outside Directors' Fee Plan as amended on May 9, 1989.(16)(*) (j)- Form of Employment Agreement with certain Executive Officers.(17)(*) (k)- Schedule to Employment Agreements with certain Executive Officers setting forth the particular provisions in each personal agreement.(18)(*) (l)- Form of Severance Agreements with certain Executive Officers.(19)(*) (l)(1)- Form of Amendment to Severance Agreements with certain Executive Officers.(20)(*) (m)- Schedule of executive officers party to Severance Agreements.(*) (n)- Gerber Products Company Stock Ownership Program as of November 1, 1990.(21)(*) 47 (o)- Agreement and Plan of Merger dated as of May 21, 1994 by and among the Registrant, Sandos Ltd. and SL Sub Corp. (22) (o)(1)- Amendment No. 1 dated as of May 27, 1994 to the Agreement and Plan of Merger dated as of May 21, 1994 by and among the Registrant, Sandos Ltd. and SL Sub Corp. (23) (11) - Statement re: Computation of Per Share Earnings. (22) - List of subsidiaries of the Registrant. (24) - Consent of Independent Auditors. (25) - Power of Attorney (see signature page). 48 Footnotes to List of Exhibits (*) These exhibits are management contracts or compensatory plans or arrangements required to be filed as exhibits to this Form 10-K. (1) This Exhibit was filed as Exhibit (3)(a) to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1990, and is incorporated herein by reference. (2) This Exhibit was filed as Exhibit (3)(b) to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1990, and is incorporated herein by reference. (3) This Exhibit was filed as Exhibit (4)(b) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (4) This Exhibit was filed as Exhibit (4)(c) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (5) This Exhibit was filed as an Exhibit to the Registrant's Report on Amendment No. 3 to Form 8-A filed on July 26, 1990. (6) This Exhibit was filed as an Exhibit to the Registrant's Form 8- A/A filed on May 26, 1994, and is incorporated herein by reference. (7) This Exhibit was filed as Exhibit (10)(a) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (8) This Exhibit was filed as Exhibit (10)(b) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (9) This Exhibit was filed as Exhibit (10)(c) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (10) This Exhibit was filed as Exhibit (10)(d) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (11) This Exhibit was filed as Exhibit (10)(d)(1) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. 49 (12) This Exhibit was filed as Exhibit (10)(e) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (13) This Exhibit was filed as Exhibit (10)(f) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (14) This Exhibit was filed as Exhibit (10)(g) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (15) This Exhibit was filed as Exhibit 10(h) to Registrant's Report on Form 10-K for the fiscal year ended March 31, 1990, and is incorporated herein by reference. (16) This Exhibit was filed as Exhibit (10)(i) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (17) This Exhibit was filed as Exhibit (10)(j) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (18) This Exhibit was filed as Exhibit (10)(k) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (19) This Exhibit was filed as Exhibit (10)(l) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (20) This Exhibit was filed as Exhibit 2 to the Registrant's Schedule 14D-9 filed on May 27, 1994, and is incorporated herein by reference. (21) This Exhibit was filed as Exhibit (10)(n) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (22) This Exhibit was filed as Exhibit 1.1 to the Registrant's Schedule 14D-9 filed on May 27, 1994, and is incorporated herein by reference. (23) This Exhibit was filed as Exhibit 1.2 to the Registrant's Schedule 14D-9 filed on May 27, 1994, and is incorporated herein by reference. 50 (b) None. (c) See Exhibits listed in paragraph (a)(3) hereof, which are submitted as a separate section of this report. (d) SCHEDULE I-MARKETABLE SECURITIES-OTHER INVESTMENTS GERBER PRODUCTS COMPANY AND SUBSIDIARIES MARCH 31, 1994
COL. A COL. B COL. C COL. D COL. E - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Name of Issuer and Title Number of Shares or Market Value of Each Amount at Which Each of Each Share Units-Principal Amounts of Cost of Each Issue Issue at Statement of Portfolio of Equity Bonds and Notes Financial Position Date Security Issues and Each Other Security Issue Carried in the Statement of Financial Position - - - - - ------------------------------------------------------------------------------------------------------------------------------------ (THOUSANDS OF DOLLARS) FIXED MATURITIES: U.S. Government obligations $ 43,420 $ 43,837 $ 45,211 $ 43,822 Public utility obligations 20,500 21,385 21,270 21,319 Industrial and miscellaneous corporate obligations: Asset backed securities 3,098 3,172 3,182 3,164 Industrial 20,100 21,808 22,272 21,624 Financial 23,250 25,349 25,875 25,189 Transportation 500 486 480 487 Foreign 1,000 1,031 1,040 1,028 Miscellaneous 900 909 793 910 ------------------------------------------------------------------------------------------------------- Total fixed maturities 112,768 117,977 120,123 117,543 MISCELLANEOUS COMMON STOCKS 85,850 shares 2,071 2,114 2,071 MISCELLANEOUS HIGHLY LIQUID INVESTMENTS 5,325 5,325 5,282 5,325 ---------------------------------------------------------------------- TOTAL $125,373 $127,519 $124,939 ======================================================================
Note: No individual security has a cost or market value in excess of 2% of the company's consolidated total assets. 51 SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS GERBER PRODUCTS COMPANY AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E - - - - - ------------------------------------------------------------------------------------------------------------------------------------ ADDITIONS ---------------------------------- Description Balance at Beginning Charged to Costs Charged to Other Deductions-Describe Balance at End of Period and Expenses Accounts-Describe of Period - - - - - ------------------------------------------------------------------------------------------------------------------------------------ (THOUSANDS OF DOLLARS) Year ended March 31, 1994: Deducted from asset accounts: Allowances for: Doubtful trade accounts $ 3,018 $ 605 $ 235(1) $ 3,388 Discounts, allowances, and adjustments 6,958 17,522 18,153(2) 6,327 ----------------------------------------------------------------------------------------------- 9,976 18,127 18,388 9,715 Miscellaneous doubtful receivables 5,936 21 74(1) 5,883 Year ended March 31, 1993: Deducted from asset accounts: Allowances for: Doubtful trade accounts $ 3,980 $ 580 $ 1,136(1) $ 3,018 406(4) Discounts, allowances, and adjustments 8,327 22,689 21,882(2) 6,958 2,176(4) ----------------------------------------------------------------------------------------------- 12,307 23,269 25,600 9,976 Miscellaneous doubtful receivables 5,873 696 633(1) 5,936 Year ended March 31, 1992: Deducted from asset accounts: Allowances for: Doubtful trade accounts $ 3,332 $ 1,793 $591(3) $ 1,736(1) $ 3,980 Discounts, allowances, and adjustments 7,621 25,259 24,553(2) 8,327 ----------------------------------------------------------------------------------------------- 10,953 27,052 591 26,289 12,307 Miscellaneous doubtful receivables 4,882 1,294 303(1) 5,873
The amounts in Columns C and D are described as follows: (1) Amounts charged off. (2) Amounts actually given to customers in the form of discounts and allowances. (3) Amount represents reserves resulting from the purchase of a 60% interest in Alima, S.A. See Note C to the consolidated financial statements. (4) Amount represents the effect of the sale of Buster Brown Apparel, Inc. on February 10, 1993. See Note D to the consolidated financial statements. 52 SCHEDULE IX-SHORT-TERM BORROWINGS GERBER PRODUCTS COMPANY AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E COL. F - - - - - -------------------------------------------------------------------------------------------------------------------------------- Category of Aggregate Balance at End Weighted Maximum Average Weighted Short-Term Borrowings of Period Average Amount Amount Average Interest Outstanding Outstanding Interest rate Rate During the Period During the Period (3) During the Period (4) - - - - - -------------------------------------------------------------------------------------------------------------------------------- (THOUSANDS OF DOLLARS) Year ended March 31, 1994: Notes payable to banks (1) $11,372 11.0% $24,820 $10,653 15.5% Commercial paper (2) 0 5,000 417 3.3 Year ended March 31, 1993: Notes payable to banks (1) $10,557 10.9% $10,557 $ 8,683 10.9% Commercial paper (2) 0 0 0 0 Year ended March 31, 1992: Notes payable to banks (1) $10,287 23.6% $58,924 $11,490 8.0% Commercial paper (2) 0 15,000 1,250 4.3
(1) Notes payable to banks include borrowings under Canadian dollar, U.S. dollar, French franc, Italian lire and Polish zloty denominated bank lines of credit which are subject to annual renewal and borrowings under short-term credit facilities which do not have termination dates but are reviewed periodically. Average interest rates include the effect of short-term borrowings for Alima, S.A., which carry an interest rate impacted by the higher Polish inflation rate. See Note C of Notes to Consolidated Financial Statements. (2) Commercial paper matures within six months of date of issue with no provisions for the extension of its maturity. Issuance of commercial paper is supported by bank lines of credit. (3) The average amount outstanding during the period was computed by dividing the total of month-end outstanding principal balances by 12. (4) The weighted average interest rate during the period was computed by dividing the actual interest expense by average short-term debt outstanding. SCHEDULE X-SUPPLEMENTARY INCOME STATEMENT INFORMATION GERBER PRODUCTS COMPANY AND SUBSIDIARIES
- - - - - -------------------------------------------------------- COL. A COL. B - - - - - -------------------------------------------------------- Item Charged to Costs and Expenses - - - - - -------------------------------------------------------- (THOUSANDS OF DOLLARS) Year Ended March 31 1994 1993 1992 ------- ------- ------- Maintenance and repairs $14,711 $16,791 $13,868 Advertising costs 69,829 54,791 50,730
The other items required in this schedule do not exceed one percent of total sales and revenue in any year and are therefore omitted. 53 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) 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. Date: June 20, 1994 GERBER PRODUCTS COMPANY /s/ ALFRED A. PIERGALLINI ------------------------------ Alfred A. Piergallini Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below hereby severally constitutes and appoints Alfred A. Piergallini, Fred K. Schomer and Stephen R. Clark, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in the capacities indicated below, to sign any and all amendments to this report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/ ALFRED A. PIERGALLINI Chairman of the Board, President, June 20, 1994 - - - - - --------------------------- and Chief Executive Officer; Alfred A. Piergallini Director /s/ FRED K. SCHOMER - - - - - --------------------------- Executive Vice President, Chief June 20, 1994 Fred K. Schomer Financial Officer; Director (Principal Financial Officer) /s/ CRAIG G. WASSENAAR - - - - - --------------------------- Corporate Comptroller (Principal June 20, 1994 Craig G. Wassenaar Accounting Officer)
54 /s/ ROBERT B. CARLSON - - - - - -------------------------- Director June 20, 1994 Robert B. Carlson /s/ HARRINGTON M. CUMMINGS - - - - - -------------------------- Director June 20, 1994 Harrington M. Cummings /s/ CHARLES H. CURRY - - - - - -------------------------- Director June 20, 1994 Charles H. Curry /s/ RICHARD L. McAULIFFE - - - - - -------------------------- Director June 20, 1994 Richard L. McAuliffe /s/ DANIEL F. GERBER - - - - - -------------------------- Director June 20, 1994 Daniel F. Gerber /s/ GLORIA S. SPITZ - - - - - -------------------------- Director June 20, 1994 Gloria S. Spitz /s/ BONITA W. WYSE - - - - - -------------------------- Director June 20, 1994 Bonita W. Wyse 55 EXHIBIT INDEX
(3) (a)- Restated Articles of Incorporation as amended through July 25, 1990.(1) (b)- Bylaws, as amended through July 25, 1990.(2) (4) (a)- Indenture dated as of November 1, 1982, between Registrant and Harris Trust and Savings Bank.(3) - Supplemental Indenture dated as of June 1, 1986. (b)- Form of 9% Debentures due October 15, 2006.(4) - No other debt instruments are filed. Registrant agrees to furnish a copy of any of its other long-term debt agreements to the Commission upon request. (c)- Rights Agreement dated as of July 25, 1990, between Gerber Products Company and Harris Trust and Savings Bank.(5) (c)(1)- First Amendment to Rights Agreement dated as of May 21, 1994 between Registrant and Harris Trust and Savings Bank.(6) (10) (a)- 1975 Stock Option Plan as amended on July 25, 1984.(7) (b)- 1985 Stock Option Plan as amended on November 9, 1988.(8) (c)- Annual Bonus Plan as of April 1, 1990.(9) (d)- Long-Term Incentive Plan as amended on November 9, 1988.(10) (d)(1)- Long-Term Incentive Plan dated as of February 8, 1989.(11) (e)- Stock Option Plan for Non-Employee Directors as amended on November 9, 1988.(12) (f)- Restricted Stock Plan dated as of February 8, 1989.(13) (g)- Elective Deferral Plan for Senior Management dated as of July 1, 1989.(14) (h)- Supplemental Executive Retirement Plan effective as of February 8, 1989.(15) (i)- Outside Directors' Fee Plan as amended on May 9, 1989.(16) (j)- Form of Employment Agreement with certain Executive Officers.(17) (k)- Schedule to Employment Agreements with certain Executive Officers setting forth the particular provisions in each personal agreement.(18) (l)- Form of Severance Agreements with certain Executive Officers.(19) (l)(1)- Form of Amendment to Severance Agreements with certain Executive Officers.(20) (m)- Schedule of executive officers party to Severance Agreements. (n)- Gerber Products Company Stock Ownership Program as of November 1, 1990.(21) (o)- Agreement and Plan of Merger dated as of May 21, 1994 by and among the Registrant, Sandos Ltd. and SL Sub Corp. (22)
(o)(1)- Amendment No. 1 dated as of May 27, 1994 to the Agreement and Plan of Merger dated as of May 21, 1994 by and among the Registrant, Sandos Ltd. and SL Sub Corp. (23) (11) - Statement re: Computation of Per Share Earnings. (22) - List of subsidiaries of the Registrant. (24) - Consent of Independent Auditors. (25) - Power of Attorney (see signature page).
Footnotes to Index of Exhibits (1) This Exhibit was filed as Exhibit (3)(a) to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1990, and is incorporated herein by reference. (2) This Exhibit was filed as Exhibit (3)(b) to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1990, and is incorporated herein by reference. (3) This Exhibit was filed as Exhibit (4)(b) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (4) This Exhibit was filed as Exhibit (4)(c) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (5) This Exhibit was filed as Exhibit (4)(a) to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1989 and is incorporated herein by reference. (6) This Exhibit was filed as an Exhibit to the Registrant's Form 8-A/A filed on May 26, 1994, and is incorporated herein by reference. (7) This Exhibit was filed as Exhibit (10)(a) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (8) This Exhibit was filed as Exhibit (10)(b) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (9) This Exhibit was filed as Exhibit (10)(c) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (10) This Exhibit was filed as Exhibit (10)(d) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (11) This Exhibit was filed as Exhibit (10)(d)(1) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (12) This Exhibit was filed as Exhibit (10)(e) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (13) This Exhibit was filed as Exhibit (10)(f) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (14) This Exhibit was filed as Exhibit (10)(g) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (15) This Exhibit was filed as Exhibit 10(h) to Registrant's Report on Form 10-K for the fiscal year ended March 31, 1990, and is incorporated herein by reference. (16) This Exhibit was filed as Exhibit (10)(i) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (17) This Exhibit was filed as Exhibit (10)(j) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (18) This Exhibit was filed as Exhibit (10)(k) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (19) This Exhibit was filed as Exhibit (10)(l) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1989, and is incorporated herein by reference. (20) This Exhibit was filed as Exhibit 2 to the Registrant's Schedule 14D-9 filed on May 27, 1994, and is incorporated herein by reference. (21) This Exhibit was filed as Exhibit (10)(n) to the Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991, and is incorporated herein by reference. (22) This Exhibit was filed as Exhibit 1.1 to the Registrant's Schedule 14D-9 filed on May 27, 1994, and is incorporated herein by reference. (23) This Exhibit was filed as Exhibit 1.2 to the Registrant's Schedule 14D-9 filed on May 27, 1994, and is incorporated herein by reference. EX-10.M 2 SCHED EXEC OFFCR PARTY EXHIBIT (10)(m) The following executive officers have entered into a severance agreement substantially in the form included in the Registrant's Report on Form 10-K. - Stephen R. Clark - Timothy J. Croasdaile - Kristina Kiley - Alfred A. Piergallini - Jose A. Rodriguez - Fred K. Schomer EX-11 3 COMPUT PER SHARE EARNING GERBER PRODUCTS COMPANY AND SUBSIDIARIES EXHIBIT 11--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Year Ended March 31 -------------------------------- 1994 1993 1992 ------ ------ ------ (In thousands, except per share data) PRIMARY EARNINGS PER SHARE Average number of shares outstanding during the year 69,623 73,933 74,774 Net effect of dilutive stock options-- based on the treasury stock method using average market price 256 381 472 -------- -------- -------- Adjusted average number of shares 69,879 74,314 75,246 ======== ======== ======== Earnings before cumulative effect of accounting changes $113,630 $132,845 $127,569 Add tax benefit of dividends paid to the employee stock ownership plan 328 299 252 -------- -------- -------- Earnings applicable to common shares before cumulative effect of accounting changes 113,958 133,144 127,821 Cumulative effect of accounting changes (90,390) -------- -------- -------- Net earnings applicable to common shares $113,958 $ 42,754 $127,821 ======== ======== ======== PRIMARY EARNINGS PER SHARE: Before cumulative effect of accounting changes $ 1.63 $ 1.79 $ 1.70 Cumulative effect of accounting changes (1.21) -------- -------- -------- Net earnings per share $ 1.63 $ 0.58 $ 1.70 ======== ======== ======== FULLY DILUTED EARNINGS (LOSS) PER SHARE Average number of shares outstanding during the year 69,623 73,933 74,774 Net effect of dilutive stock options--based on the treasury stock method using the period-end market price, if higher than average market price 367 381 496 -------- -------- -------- Adjusted average number of shares 69,990 74,314 75,270 ======== ======== ========
Earnings before cumulative effect of accounting changes $113,630 $132,845 $127,569 Add tax benefit of dividends paid to the employee stock ownership plan 328 299 252 -------- -------- -------- Earnings applicable to common shares before cumulative effect of accounting changes 113,958 133,144 127,821 Cumulative effect of accounting changes (90,390) -------- -------- -------- Net earnings applicable to common shares $113,958 $ 42,754 $127,821 ======== ======== ======== FULLY DILUTED EARNINGS PER SHARE: Before cumulative effect of accounting changes $ 1.63 $ 1.79 $ 1.70 Cumulative effect of accounting changes (1.21) -------- -------- -------- Net earnings per share $ 1.63 $ .58 $ 1.70 ======== ======== ======== EARNINGS PER SHARE AS REPORTED: 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 $ 0.58 $ 1.71 ======== ======== ========
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 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). EX-22 4 SUBSIDIARIES EXHIBIT 22 SUBSIDIARIES At March 31, 1994, Registrant had the following subsidiaries (all wholly owned unless otherwise indicated) the accounts of which are included in the consolidated financial statements: Gerber (Canada), Inc., an Ontario, Canada, corporation. Productos Gerber de Centroamerica, S.A., a Costa Rican corporation. Gerber Products Company of Puerto Rico, Inc., a Puerto Rican corporation. Gerber Childrenswear, Inc., a Delaware corporation. Costura Dominicana, Inc., a Delaware corporation. Gerber Life Insurance Company, a New York corporation. Gerber Family Services, Inc., a Delaware corporation. Gerber Finance Company, a Delaware corporation. Gerber France, S.A.R.L., a French corporation. Alima-Gerber, S.A., a Polish corporation (approximately 98% owned by Registrant). Gerber de Venezuela, C.A., a Venezuelan corporation (50% owned by Registrant). EX-24 5 CONSENT OF IND AUDITORS EXHIBIT 24 - Consent of Independent Auditors We consent to the incorporation by reference of our report dated May 17, 1994, except for Note Q, as to which the date is May 23, 1994, with respect to the consolidated financial statements and schedules of Gerber Products Company and subsidiaries, included in the Annual Report (Form 10-K) for the year ended March 31, 1994, in the following registration statements: . Registration Statement (Form S-8 No. 33-32011) dated December 4, 1989, pertaining to the Gerber Retirement Investment Plan. . Registration Statement (Form S-8 No. 33-42103) dated August 5, 1991, pertaining to the Stock Ownership Program. . Registration Statement (Form S-3 No. 33-66878) dated August 2, 1993, pertaining to the issuance of up to $150 million of debt securities, preferred stock and certain other securities. ERNST & YOUNG Grand Rapids, Michigan June 20, 1994 -----END PRIVACY-ENHANCED MESSAGE-----