<PAGE>1
August 28, 1997
Securities & Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Gerber Scientific, Inc.
Commission File No. 1-5865
Gentlemen:
Pursuant to regulations of the Securities and Exchange
Commission, submitted herewith for filing on behalf of Gerber
Scientific, Inc. (the "Company") is the Company's Form 10-Q for
the quarter ended July 31, 1997.
This filing is being effected by direct transmission to the
Commission's EDGAR System.
Very truly yours,
/s/ Gary K. Bennett
Senior Vice President, Finance
and Principal Financial Officer
<PAGE>2
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE) QUARTERLY REPORT / X / OR TRANSITION REPORT / /
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended
July 31, 1997 Commission File No. 1-5865
GERBER SCIENTIFIC, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
CONNECTICUT 06-0640743
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
83 Gerber Road West, South Windsor, Connecticut 06074
-------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code (860) 644-1551
----------------
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.
Yes / X / . No / / .
At July 31, 1997, 23,347,275 shares of common stock of the Registrant
were outstanding.
<PAGE>3
GERBER SCIENTIFIC, INC.
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended July 31, 1997
PAGE
----
Part I - Financial Information
Item 1. Consolidated Financial Statements:
Statement of Earnings for the three months
ended July 31, 1997 and 1996 2
Balance Sheet at July 31, 1997 and April 30, 1997 3
Statement of Cash Flows for the three months
ended July 31, 1997 and 1996 4
Notes to Financial Statements 5
Independent Accountants' Report 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II - Other Information
Item 1. Legal Proceedings 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
Exhibit Index 13
<PAGE>4
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
In Thousands
(except per share amounts)
------------------------------------------------------------------------
Three Months Ended July 31, 1997 1996
------------------------------------------------------------------------
Revenue:
Product sales $ 87,410 $ 74,530
Service 11,551 11,278
--------- ---------
98,961 85,808
--------- ---------
Costs and Expenses:
Cost of product sales 48,088 42,185
Cost of service 7,817 6,957
Selling, general and administrative 30,943 28,595
Research and development expenses 7,588 6,776
--------- ---------
94,436 84,513
--------- ---------
Operating income 4,525 1,295
Other income 2,340 998
Interest expense (94) (90)
--------- ---------
Earnings before income taxes 6,771 2,203
Provision for income taxes 2,200 600
--------- ---------
Net earnings $ 4,571 $ 1,603
========= =========
Net earnings per common share $ .19 $ .07
========= =========
Dividends paid per common share $ .08 $ .08
========= =========
Average common shares outstanding 23,714 23,373
========= =========
See Accompanying Notes
-2-
<PAGE>5
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
In Thousands
------------------------------------------------------------------------
July 31, April 30,
1997 1997
------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and short-term cash investments $ 16,204 $ 9,503
Accounts receivable 92,552 92,378
Inventories 64,671 62,221
Prepaid expenses 12,580 13,702
---------- ----------
186,007 177,804
---------- ----------
Investments and long-term
receivables 35,122 37,037
---------- ----------
Property, plant and equipment 123,790 121,447
Less accumulated depreciation 60,179 58,883
---------- ----------
63,611 62,564
---------- ----------
Intangible assets 56,869 56,687
Less accumulated amortization 11,163 10,774
---------- ----------
45,706 45,913
---------- ----------
Other assets 1,833 1,897
---------- ----------
$ 332,279 $ 325,215
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ -- $ --
Current maturities of long-term debt 193 193
Accounts payable 20,782 17,453
Accrued compensation and benefits 13,274 14,038
Other accrued liabilities 19,711 18,458
Deferred revenue and litigation award 5,616 6,249
Advances on sales contracts 4,154 2,465
---------- ----------
63,730 58,856
---------- ----------
Noncurrent Liabilities:
Deferred income taxes 11,271 11,193
Long-term debt 7,098 7,145
---------- ----------
18,369 18,338
---------- ----------
Contingencies and Commitments
Shareholders' Equity:
Preferred stock, no par value; authorized
10,000,000 shares; no shares issued -- --
Common stock, $1.00 par value; authorized
65,000,000 shares; issued and outstanding
23,347,275 and 23,306,900 shares 23,347 23,307
Paid-in capital 36,506 36,100
Retained earnings 190,584 187,880
Cumulative translation component (257) 734
---------- ----------
250,180 248,021
---------- ----------
$ 332,279 $ 325,215
========== ==========
See Accompanying Notes
-3-
<PAGE>6
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
In Thousands
------------------------------------------------------------------------
Three Months Ended July 31, 1997 1996
------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR):
Operating Activities
Net earnings $ 4,571 $ 1,603
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization 3,228 2,931
Deferred income taxes 78 905
Changes in operating accounts:
Receivables (67) (1,483)
Inventories (2,450) (977)
Prepaid expenses 1,122 (1,539)
Accounts payable and accrued expenses 4,874 (5,548)
-------- ---------
Provided by (Used for) Operating Activities 11,356 (4,108)
-------- ---------
Financing Activities
Repayments of long-term debt (47) (48)
Exercise of stock options 446 243
Dividends on common stock (1,867) (1,855)
-------- ---------
Provided by (Used for) Financing Activities (1,468) (1,660)
-------- ---------
Investing Activities
Long-term debt securities 1,808 6,796
Additions to property, plant and equipment (3,765) (3,180)
Intangible and other assets (239) 62
Other long-term investments (991) 165
-------- ---------
Provided by (Used for) Investing Activities (3,187) 3,843
-------- ---------
Increase (Decrease) in Cash and Short-Term
Cash Investments 6,701 (1,925)
Cash and Short-Term Cash Investments,
Beginning of Period 9,503 8,704
-------- ---------
Cash and Short-Term Cash Investments,
End of Period $ 16,204 $ 6,779
======== =========
See Accompanying Notes
-4-
<PAGE>7
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The consolidated balance sheet at July 31, 1997 and the
consolidated statements of earnings and cash flows for the three-
month periods ended July 31, 1997 and 1996 are unaudited but, in
the opinion of the Company, include all adjustments, consisting
only of normal recurring accruals, necessary for a fair statement
of the results for the interim periods. The results of operations
for the three-month period ended July 31, 1997 are not necessarily
indicative of the results to be expected for the full fiscal year.
NOTE 2
The classification of inventories was as follows (in thousands):
July 31, 1997 April 30, 1997
------------- --------------
Raw materials and
purchased parts $ 48,430 $ 49,461
Work in process 16,241 12,760
-------- --------
$ 64,671 $ 62,221
======== ========
NOTE 3
Net earnings per common share were calculated on the basis of the
weighted average number of shares of common stock and common stock
equivalents outstanding during each period.
NOTE 4
Included in other income for the three month period ended July 31,
1997 was a gain resulting from the final settlement of the
Company's UK patent litigation with Lectra Systemes, S.A. of
France, which added $1,563,000 to earnings before income taxes and
approximately $1,000,000, or $.04 per share, to net income.
NOTE 5
Subsequent to the end of the first quarter, the Company purchased
800,000 shares of its common stock from the estate of H. Joseph
Gerber for a total of $16,400,000, or $20.50 per share. The
reacquired shares will be held by the Company as authorized but
unissued shares.
-5-
<PAGE>8
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
With respect to the unaudited consolidated financial
statements of Gerber Scientific, Inc. at July 31, 1997
and for the three-month periods ended July 31, 1997 and
1996, KPMG Peat Marwick LLP has made a review (based on
procedures adopted by the American Institute of Certified
Public Accountants) and not an audit, as set forth in
their separate report dated August 20, 1997 appearing on
page 7. That report does not express an opinion on the
interim unaudited consolidated financial information.
KPMG Peat Marwick LLP has not carried out any significant
or additional audit tests beyond those which would have
been necessary if their report had not been included.
Accordingly, such report is not a "report" or "part of
the Registration Statement" within the meaning of
Sections 7 and 11 of the Securities Act of 1933 and the
liability provisions of Section 11 of such Act do not
apply.
-6-
<PAGE>9
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Gerber Scientific, Inc.
We have made a review of the consolidated statements of earnings
and cash flows of Gerber Scientific, Inc. and subsidiaries for
the three-month periods ended July 31, 1997 and 1996 and the
consolidated balance sheet as of July 31, 1997 in accordance
with standards established by the American Institute of
Certified Public Accountants. We have previously audited, in
accordance with generally accepted auditing standards, and
expressed our unqualified opinion dated May 22, 1997 on the
consolidated financial statements for the year ended
April 30, 1997 (not presented herein). The aforementioned
financial statements are the responsibility of the Company's
management.
A review of interim financial information consists principally
of applying analytical review procedures to financial data, and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
examination in accordance with generally accepted auditing
standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
consolidated statements of earnings and cash flows for the
three-month periods ended July 31, 1997 and 1996, or the
consolidated balance sheet as of July 31, 1997 for them to be in
conformity with generally accepted accounting principles. Also,
in our opinion the information in the accompanying consolidated
balance sheet as of April 30, 1997 is fairly presented, in all
material respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/ KPMG PEAT MARWICK LLP
Hartford, Connecticut
August 20, 1997
-7-
<PAGE>10
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's ratio of current assets to current liabilities was
2.9 to 1 at July 31, 1997 compared with 3 to 1 at April 30, 1997.
Net working capital at July 31, 1997 was $122.3 million, an
increase of $3.4 million from the beginning of the current fiscal
year. The Company's cash and short-term investments totalled
$16.2 million at July 31, 1997 compared with $9.5 million at the
end of the year. In addition, the Company's investment portfolio
of longer-term debt securities, primarily tax-exempt municipal
bonds, totalled $34.8 million at July 31, 1997 compared with
$36.6 million at April 30, 1997. Subsequent to the end of the
first quarter, the Company purchased 800,000 shares of its common
stock from the estate of H. Joseph Gerber for a total of $16.4
million, which reduced the Company's combined cash and
investments position from $51 million to $34.6 million.
Operating activities provided $11.4 million in cash during the
first quarter of the current year, a significant improvement from
use of $4.1 million of cash in last year's first quarter. Cash
generated by earnings and the non-cash charges for depreciation
and amortization was somewhat offset by growth in inventories in
this year's first quarter. However, increases in accounts
payable related to the timing of vendor payments and higher
accrued liabilities at July 31, 1997 produced additional cash
from operations in this year's first quarter.
The principal non-operating uses of cash in the first quarter
ended July 31, 1997 were additions to property, plant, and
equipment of $3.8 million and payment of dividends of $1.9
million. The Company anticipates that capital expenditures for
the current fiscal year will be in the range of $11-$13 million
and expects to fund these with cash on hand and cash from
operations.
The Company's total debt at July 31, 1997 was $7.3 million, down
slightly from April 30, 1997. The ratio of total debt to
shareholders' equity was 2.9 percent at July 31, 1997, compared
with 3 percent at April 30, 1997. The Company believes its low
ratio of debt-to-equity is an important indicator of its ability
to borrow funds should needs arise.
-8-
<PAGE>11
RESULTS OF OPERATIONS
Combined sales and service revenue for the three months ended
July 31, 1997 increased $13.2 million, or 15 percent, from the
first quarter of last year. The increase reflected higher
product sales and slightly higher service revenue. Product sales
increased in all of the Company's major product classes and was
most significant in sales of the Company's GERBERcutter fabric
cutting systems. In addition, GGT Cutting Edge, an acquisition
in last year's fourth quarter, contributed $2.8 million of the
year-to-year sales increase. Sales of aftermarket supplies for
the Company's signmaking and graphic arts systems were higher in
this year's first quarter as were sales of the Company's optical
lens manufacturing systems for optical superstore chains and
wholesale optical laboratories.
The consolidated gross profit margin in this year's first quarter
was 43.5 percent compared with 42.7 percent in the same period
last year. Gross profit margins on product sales were 45 percent
in this year's first quarter compared with 43.4 percent last
year. The higher product margin this year reflected the
favorable effects of increased sales volume in the Company's
apparel manufacturing equipment and optical lens manufacturing
equipment. An offset to this margin gain were higher sales of
OEM-supplied equipment for the electronics industry and price
discounting on computer-to-plate digital imaging systems for the
commercial printing market. Service gross profit margins were
32.3 percent in this year's first quarter compared with 38.3
percent in the prior year. This decrease was caused partly by
costs in the current year associated with development of an
applications training revenue stream from the printed circuit
board and computer-to-plate systems businesses. In addition,
service margins were favorably impacted last year by the
utilization of service personnel on a product retrofit program.
Selling, general, and administrative expenses in this year's
first quarter rose by $2.3 million from last year but declined as
a percentage of revenue to 31.3 percent this year from 33.3
percent in last year's first quarter. The increased expenses
were caused primarily by higher marketing expenses associated
with the promotion of new products and also by the inclusion of
the expenses of GGT Cutting Edge. Partially offsetting these
increases was the effect of a cost reduction program implemented
at the Company's Gerber Garment Technology (GGT) subsidiary.
-9-
<PAGE>12
The Company continued to commit significant resources to research
and the development of new products. R&D expense increased $0.8
million to $7.6 million in this year's first quarter from $6.8
million last year. The increase was caused predominantly by the
development of new signmaking plotters and the inclusion of GGT
Cutting Edge. The proportion of R&D expenses to sales revenue is
lower in this year's first quarter at 7.7 percent versus 7.9
percent a year earlier. Management anticipates that this ratio of
R&D to revenue will continue to be lower in the current year due
in part to comparatively lower levels of development spending in
computer-to-plate imaging systems for the printing industry.
Other income in this year's first quarter was $1.3 million higher
than last year and reflected the final settlement of the
Company's UK patent litigation with Lectra Systemes S.A. of
France, amounting to $1.6 million. After income taxes, this
settlement amounted to approximately $1 million or $.04 per
share. Lower interest income this year resulting from a smaller
investment portfolio of tax-exempt municipal bonds partially
offset this gain.
The provision rate for income taxes was 32.5 percent in the first
quarter of this year compared with 27.2 percent in last year's
first quarter. The effective income tax rate continued to be
lower than the 35 percent statutory U.S. Federal tax rate
primarily because of tax-exempt interest income and the tax
benefits of the Company's Foreign Sales Corporation. The year-
to-year increase in the provision rate reflected the higher
marginal combined Federal and state income tax rates associated
with higher levels of pre-tax earnings.
As a result of the aforementioned, net earnings increased in this
year's first quarter to $4.6 million from $1.6 million in the
same period last year. Earnings per share were $.19 in this
year's first quarter, which included $.04 per share from the
patent litigation settlement, compared with $.07 per share last
year.
FORWARD LOOKING STATEMENTS
This report includes forward-looking statements that describe the
Company's business prospects. Readers should keep in mind
factors that could have an adverse impact on those prospects.
These include political, economic, or other conditions, such as
recessionary or expansive trends, inflation rates, currency
exchange rates, taxes and regulations and laws affecting the
business, as well as product competition, pricing, the degree of
acceptance of new products to the marketplace, and the difficulty
of forecasting sales at various times in various markets.
-10-
<PAGE>13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In July 1997, the highest court in the United Kingdom
denied the Company's petition to appeal the earlier
decision of the Court of Appeals relating to Gerber's
patent infringement suit against Lectra Systemes, S.A.
of France and its UK subsidiary (Lectra). The December
1996 Court of Appeals decision, which is now final,
required the Company to pay back to Lectra approximately
$3.1 million of the original award of approximately $5.9
million. The gain associated with the final award was
recorded in other income for the three month period
ended July 31, 1997 and added approximately $1.6 million
to earnings before income taxes and approximately $1
million, or $.04 per share, to net income.
Item 5. Other Information
On August 6, 1997, the Company issued a press release
reporting the retirement of Ronald B. Webster, a Senior
Vice President of the Company and President of its
wholly owned subsidiary, Gerber Scientific
Products(GSP), as of May 1, 1998. Charles M. Hevenor, a
28-year employee of the Company and most recently Senior
Vice President, Software and Systems of GSP was
appointed Executive Vice President and General Manager
of GSP and will become President of GSP upon Mr.
Webster's retirement next May.
On August 14, 1997, the Company issued a press release
reporting the purchase of 800,000 shares of its common
stock from the estate of H. Joseph Gerber for a total of
$16,400,000, or $20.50 per share. The reacquired
shares, which represented approximately 3.4% of the
Company's outstanding stock, will be held by the Company
as authorized but unissued shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement regarding computation of per share
earnings.
(15) Letter regarding unaudited interim financial
information.
(27) Financial data schedule.
(b) Reports on Form 8-K
No Form 8-K was filed during the quarter for which this
report is filed.
-11-
<PAGE>14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GERBER SCIENTIFIC, INC.
-----------------------
(Registrant)
Date: August 28, 1997 By: /s/ Gary K. Bennett
----------------- ------------------------------
Gary K. Bennett
Senior Vice President, Finance
and Principal Financial Officer
-12-
<PAGE>15
EXHIBIT INDEX
Exhibit Index
Number Exhibit Page
------------- ------- ----
11 Statement Regarding Computation
of Per Share Earnings.* 16
15 Letter Regarding Unaudited Interim
Financial Information.* 17
27 Financial Data Schedule.* 18
*Filed herewith.
-13-
<PAGE>16
EXHIBIT NO. 11
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Three Months Ended July 31, 1997 1996
---------------------------------------------------------------------
Net earnings $ 4,571,000 $ 1,603,000
=========== ===========
Weighted average shares of common
stock outstanding during the
period 23,326,588 23,210,514
Common stock equivalents:
Common stock attributable to
stock options (treasury stock
method) 387,623 162,504
----------- -----------
Average common shares outstanding 23,714,211 23,373,018
=========== ===========
Net earnings per common share $ .19 $ .07
=========== ===========
Note: Net earnings per common share as calculated above is presented
on a primary and fully diluted basis.
-14-
<PAGE>17
EXHIBIT NO. 15
To the Board of Directors and Shareholders of
Gerber Scientific, Inc.
Re: Registration Statements on Form S-8,
File No. 2-93695, No. 33-58668, and
No. 333-26177
Registration Statement on Form S-3,
File No. 33-58670
With respect to the subject Registration Statements, we
acknowledge our awareness of the use therein of our report dated
August 20, 1997 related to our review of interim financial
information.
Pursuant to Rule 436(c) under the Securities Act, such reports
are not considered a part of a Registration Statement prepared or
certified by an accountant or a report prepared or certified by
an accountant within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ KPMG PEAT MARWICK LLP
Hartford, Connecticut
August 20, 1997
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Statement of Earnings of Gerber Scientific, Inc.
as of and for the three-month period ended July 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JUL-31-1997
<CASH> 16,204
<SECURITIES> 0
<RECEIVABLES> 92,552
<ALLOWANCES> 0
<INVENTORY> 64,671
<CURRENT-ASSETS> 186,007
<PP&E> 123,790
<DEPRECIATION> 60,179
<TOTAL-ASSETS> 332,279
<CURRENT-LIABILITIES> 63,730
<BONDS> 0
0
0
<COMMON> 23,347
<OTHER-SE> 226,833
<TOTAL-LIABILITY-AND-EQUITY> 332,279
<SALES> 98,961
<TOTAL-REVENUES> 98,961
<CGS> 55,905
<TOTAL-COSTS> 94,436
<OTHER-EXPENSES> (2,340)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 6,771
<INCOME-TAX> 2,200
<INCOME-CONTINUING> 4,571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,571
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
