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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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
January 31, 1998 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 (IRS 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 (860) 644-1551
code ---------------
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 January 31, 1998, 22,592,275 shares of common stock of the
Registrant were outstanding.
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GERBER SCIENTIFIC, INC.
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended January 31, 1998
PAGE
Part I - Financial Information
Item 1. Consolidated Financial Statements:
Statement of Earnings for the three months
ended January 31, 1998 and 1997 2
Statement of Earnings for the nine months ended
January 31, 1998 and 1997 3
Balance Sheet at January 31, 1998 and
April 30, 1997 4
Statement of Cash Flows for the nine months
ended January 31, 1998 and 1997 5
Notes to Financial Statements 6
Independent Accountants' Report 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II - Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
Exhibit Index 16
1
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GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
- ------------------------------------------------------------
In thousands
(except per share amounts)
- ------------------------------------------------------------
Three Months Ended January 31, 1998 1997
- ------------------------------------------------------------
Revenue:
Product sales $ 92,559 $ 83,041
Service 12,277 11,550
------- -------
104,836 94,591
------- -------
Costs and Expenses:
Cost of product sales 48,743 44,825
Cost of service 7,301 7,457
Selling, general and administrative 32,219 29,335
Research and development expenses 7,746 7,659
------- -------
96,009 89,276
------- -------
Operating income 8,827 5,315
Other income 378 717
Interest expense (90) (88)
------- -------
Earnings before income taxes 9,115 5,944
Provision for income taxes 2,900 1,800
------- -------
Net earnings $ 6,215 $ 4,144
======= =======
Per share of common stock:
Basic $ .28 $ .18
Diluted $ .27 $ .18
Dividends $ .08 $ .08
Average shares outstanding:
Basic 22,586 23,261
Diluted 23,025 23,357
See Accompanying Notes
2
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GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
- -----------------------------------------------------------------
In thousands
(except per share amounts)
- -----------------------------------------------------------------
Nine Months Ended January 31, 1998 1997
- -----------------------------------------------------------------
Revenue:
Product sales $274,703 $240,919
Service 35,486 34,431
-------- --------
310,189 275,350
-------- --------
Costs and Expenses:
Cost of product sales 148,623 132,027
Cost of service 22,681 21,819
Selling, general and administrative 94,926 88,310
Research and development expenses 23,099 21,868
-------- --------
289,329 264,024
-------- --------
Operating income 20,860 11,326
Other income 3,388 4,017
Interest expense (266) (261)
-------- --------
Earnings before income taxes 23,982 15,082
Provision for income taxes 7,700 4,200
-------- --------
Net earnings $ 16,282 $ 10,882
======== ========
Per share of common stock:
Basic $ .71 $ .47
Diluted $ .70 $ .47
Dividends $ .24 $ .24
Average shares outstanding:
Basic 22,863 23,234
Diluted 23,354 23,352
See Accompanying Notes
3
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GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
In thousands
- --------------------------------------------------------------
January 31, April 30,
1998 1997
- --------------------------------------------------------------
Assets
Current Assets:
Cash and short-term cash investments $ 25,743 $ 9,503
Accounts receivable 93,489 92,378
Inventories 70,520 62,221
Prepaid expenses 13,411 13,702
-------- --------
203,163 177,804
-------- --------
Investments and long-term receivables 17,326 37,037
-------- --------
Property, plant and equipment 129,543 121,447
Less accumulated depreciation 62,039 58,883
-------- --------
67,504 62,564
-------- --------
Intangible assets 57,898 56,687
Less accumulated amortization 12,083 10,774
-------- --------
45,815 45,913
-------- --------
Other assets 457 1,897
-------- --------
$334,265 $325,215
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable $ -- $ --
Current maturities of long-term debt 193 193
Accounts payable 26,702 17,453
Accrued compensation and benefits 15,010 14,038
Other accrued liabilities 18,951 18,458
Deferred revenue and litigation award 6,747 6,249
Advances on sales contracts 7,403 2,465
-------- --------
75,006 58,856
-------- --------
Noncurrent Liabilities:
Deferred income taxes 11,687 11,193
Long-term debt 7,002 7,145
-------- --------
18,689 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
23,392,275 and 23,306,900 shares 23,392 23,307
Paid-in capital 37,008 36,100
Retained earnings 198,685 187,880
Cumulative translation component (2,065) 734
Treasury stock, at cost (800,000 shares) (16,450) --
-------- --------
240,570 248,021
-------- --------
$334,265 $325,215
======== ========
See Accompanying Notes
4
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GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
In thousands
- --------------------------------------------------------------------
Nine Months Ended January 31, 1998 1997
- --------------------------------------------------------------------
CASH PROVIDED BY (USED FOR):
Operating Activities
Net earnings $16,282 $10,882
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization 9,655 8,876
Deferred income taxes 494 1,384
Changes in operating accounts:
Receivables (778) (9,914)
Inventories (8,299) 410
Prepaid expenses 291 (2,297)
Accounts payable and accrued expenses 16,150 (5,550)
------- -------
Provided by Operating Activities 33,795 3,791
------- -------
Financing Activities
Purchase of common stock (16,450) --
Repayments of long-term debt (143) (144)
Exercise of stock options 993 740
Dividends on common stock (5,477) (5,573)
------- -------
(Used for) Financing Activities (21,077) (4,977)
------- -------
Investing Activities
Maturities of long-term debt securities 19,378 11,751
Additions to property, plant and equipment (13,109) (9,861)
Intangible and other assets 52 (1,421)
Other long-term investments (2,799) 541
------- -------
Provided by Investing Activities 3,522 1,010
------- -------
Increase (Decrease) in Cash and Short-Term
Cash Investments 16,240 (176)
Cash and Short-Term Cash Investments,
Beginning of Period 9,503 8,704
------- -------
Cash and Short-Term Cash Investments, $25,743 $ 8,528
End of Period ======= =======
See Accompanying Notes
5
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GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The consolidated balance sheet at January 31, 1998, the
consolidated statements of earnings for the three- and nine-month
periods ended January 31, 1998 and 1997, and the consolidated
statement of cash flows for the nine-month periods ended
January 31, 1998 and 1997 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 nine-
month period ended January 31, 1998 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):
January 31, 1998 April 30, 1997
---------------- ----------------
Raw materials and
purchased parts $52,570 $49,461
Work in process 17,950 12,760
------- -------
$70,520 $62,221
======= =======
NOTE 3
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per
Share, effective for financial statements for both annual and
interim periods ending after December 15, 1997. Statement 128
replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is similar to
the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented,
and where necessary, restated to conform to the Statement 128
requirements. This restatement had an immaterial impact on the
prior period earnings per share amounts under the previous
method.
6
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The following table sets forth the computation of basic and
diluted earnings per share:
Three Months Ended Nine Months Ended
January 31, January 31,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Numerator:
Net Income $6,215,000 $4,144,000 $16,282,000 $10,882,000
========== ========== =========== ===========
Denominators:
Denominator for
basic earnings per
share--weighted-
average shares
outstanding 22,585,845 23,260,861 22,863,194 23,234,334
Effect of dilutive
securities:
Employee stock
options 438,662 95,925 490,619 118,003
---------- ---------- ---------- ----------
Denominator for
diluted earnings
per share--adjusted
weighted-average
shares outstanding 23,024,507 23,356,786 23,353,813 23,352,337
========== ========== ========== ==========
Basic earnings per
share $ .28 $ .18 $ .71 $ .47
========== ========== ========== ==========
Diluted earnings per
share $ .27 $ .18 $ .70 $ .47
========== ========== ========== ==========
NOTE 4
Included in other income for the nine month period ended
January 31, 1998 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.
Included in other income for the nine month period ended
January 31, 1997 was a gain resulting from life insurance
benefits the Company received upon the death of Mr. H. Joseph
Gerber which added approximately $1,000,000, or $.04 per share,
to net income.
NOTE 5
On August 14, 1997 the Company purchased 800,000 shares of its
common stock from the estate of H. Joseph Gerber for a total
of $16,450,000, or $20.50 per share plus transaction fees
incurred. The reacquired shares are held by the Company as
treasury stock.
7
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GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
With respect to the unaudited consolidated financial statements
of Gerber Scientific, Inc. and subsidiaries at January 31, 1998
and for the three- and nine-month periods ended January 31, 1998
and 1997, 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 February 18, 1998 appearing on page 9. 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.
8
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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
of Gerber Scientific, Inc. and subsidiaries for the three- and
nine-month periods ended January 31, 1998 and 1997, the
consolidated statement of cash flows for the nine-month periods
ended January 31, 1998 and 1997, and the consolidated balance
sheet as of January 31, 1998 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 for the three- and nine-month
periods ended January 31, 1998 and 1997, the consolidated
statement of cash flows for the nine-month periods ended January
31, 1998 and 1997, or the consolidated balance sheet as of
January 31, 1998 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
February 18, 1998
9
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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
2.7 to 1 at January 31, 1998 compared with 3 to 1 at
April 30, 1997. Net working capital at January 31, 1998 was
$128.2 million, an increase of $9.2 million from the
beginning of the current fiscal year. The Company's cash and
investments, both short- and long-term, totaled $42.9 million at
January 31, 1998 compared with $46.1 million at the end of the
prior fiscal year.
Operating activities provided $33.8 million in cash for the
nine-month period ended January 31, 1998 compared with
$3.8 million provided by operating activities for the same period
last year. Cash generated by earnings and the non-cash charges
for depreciation and amortization in this year's first nine
months was somewhat offset by growth in inventories. However,
increases in accounts payable related primarily to improved
management of vendor payment cycles produced additional cash from
operations.
The principal non-operating uses of cash in the nine months ended
January 31, 1998 were the purchase of treasury stock of
$16.4 million, additions to property, plant, and equipment of
$13.1 million, and payment of dividends of $5.5 million. The
Company anticipates that capital expenditures for the current
fiscal year will be in the range of $15 million and expects to
fund these with cash on hand and cash from operations.
The Company's total debt at January 31, 1998 was $7.2 million,
down slightly from April 30, 1997. The ratio of total debt to
shareholders' equity was 3 percent at January 31, 1998, 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.
RESULTS OF OPERATIONS
Combined sales and service revenue for the three- and nine-month
periods ended January 31, 1998 increased $10.2 million
(10.8 percent) and $34.8 million (12.7 percent), respectively,
from the same periods last year. The increases reflected higher
product sales and slightly higher service revenue. The product
sales increases came predominantly from higher sales of the
Company's fabric cutting systems and optical lens manufacturing
equipment. In addition, GGT Cutting Edge, an acquisition in the
fourth quarter of last fiscal year, contributed $5.5 million and
$12.5 million of the third quarter and year-to-date sales
increases.
10
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The consolidated gross profit margin in this year's first nine
months was 44.8 percent, which was slightly higher than the prior
year margin of 44.1 percent. The consolidated gross profit
margin in this year's third quarter of 46.5 percent was 1.8
percentage points higher than the prior year margin of 44.7
percent. Gross profit margins on product sales were higher this
year in both the third quarter and first nine months. The
improvements were caused primarily by favorable volume effects
from higher shipments of fabric cutting systems, especially in
North American markets. The higher volume of shipments of
optical lens manufacturing systems also contributed to the third
quarter margin increase. These increases were partially offset
by higher sales of OEM-supplied equipment for the electronics
industry and also by price discounting on computer-to-plate
imaging systems for the commercial printing market.
Service gross profit margins were higher in this year's third
quarter but slightly lower for the first nine months. The
increase in this year's third quarter service margin was caused
primarily by the heavier utilization of service personnel to
assist in new installations of fabric cutting systems. On a year-
to-date basis, this increase was offset by costs in the current
year associated with development of an applications training
revenue stream from the computer-to-plate systems businesses.
Selling, general, and administrative expenses in this year's
third quarter and first nine months rose by $2.9 million and
$6.6 million, respectively, from last year. However, as a
percentage of revenue, these expenses declined to 30.7 percent
and 30.6 percent in this year's third quarter and first nine
months from 31 percent and 32.1 percent last year. The increased
expenses were caused primarily by higher marketing expenses
associated with major trade shows 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.
The Company continued to commit significant resources to research
and the development of new products. R&D expense of $7.7 million
in this year's third quarter and $23.1 million in the first nine
months represented 7.4 percent of revenue in both of these
periods. Although R&D expense increased from the comparable
prior year periods, the percentage of R&D expenses to sales
revenue was lower this year. The dollar increases were related
primarily to the development of new signmaking plotters and
output devices and the inclusion of the expenses of GGT Cutting
Edge. Management anticipates that this lower ratio of R&D to
revenue will continue for the balance of the current year due in
part to comparatively lower levels of development spending in
computer-to-plate imaging systems for the printing industry and
to growth in sales volume.
11
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Other income in this year's third quarter and first nine months
was lower than last year. The year-to-date decrease relates to a
prior year gain of approximately $1.0 million ($.04 per share)
from life insurance benefits and lower interest income this year
resulting from a smaller investment portfolio of tax-exempt
municipal bonds. Partially offsetting these items was a gain in
the current year's first quarter from the final settlement of the
Company's UK patent litigation with Lectra Systemes S.A. of
France, amounting to $1.6 million ($.04 per share).
The provision rate for income taxes was 32.1 percent for the nine
months ended January 31, 1998 compared with 27.8 percent in the
comparable prior year period. The lower tax rate last year
was the result of the tax-exempt life insurance benefits and the
larger amount of tax-exempt interest income noted above. The
year-to-year increase in the provision rate also reflects the
higher marginal combined Federal and state income tax rates
associated with the higher levels of pre-tax earnings in the
current year.
As a result of the above, net earnings increased in this year's
third quarter to $6.2 million or $.27 diluted earnings per share
from $4.1 million or $.18 diluted earnings per share in last
year's third quarter. For the first nine months, net earnings
this year increased to $16.3 million or $.70 diluted earnings per
share this year compared with $10.9 million or $.47 diluted
earnings per share last year.
YEAR 2000
The Company is in the process of assessing its exposure to the
impact of the Year 2000 date issue. The Year 2000 date issue can
affect computer programs that use only two digits to identify a
year in a date field. The Company's products and key financial
and operational systems are being reviewed and, where required,
detailed plans have been, or are being, developed and implemented
on a schedule intended to permit the Company's computer systems
and products to continue to function properly. The Year 2000
date conversion effort is expected to increase costs in
fiscal years 1999 and 2000 although cost estimates are not
complete. Management does not expect that these costs will have
a material adverse impact on the Company's financial position,
results of operations, or cash flows. However, the Company could
be adversely impacted by the year 2000 date issue if suppliers,
customers, and other businesses do not address this issue
successfully.
12
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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.
13
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Form 10-Q for the quarter ended July 31, 1997 reported the final
settlement of the Company's UK patent litigation with Lectra
Systemes, S.A. of France.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Gerber Scientific, Inc. Profit and Growth Incentive
Bonus Plan for the Fiscal Year Ending April 30, 1998.
(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.
14
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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: February 26, 1998 By: / s / Gary K. Bennett
------------------ --------------------------------
Gary K. Bennett
Senior Vice President, Finance
and Principal Financial Officer
15
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EXHIBIT INDEX
Exhibit Index
Number Exhibit Page
- ------------- ------- ----
10 Gerber Scientific, Inc. Profit and
Growth Incentive Bonus Plan for the
Fiscal Year Ending April 30, 1998.*
15 Letter Regarding Unaudited Interim
Financial Information.*
27 Financial Data Schedule.*
*Filed herewith.
16
EXHIBIT NO. 10
CONFIDENTIAL
GERBER SCIENTIFIC, INC.
PROFIT AND GROWTH INCENTIVE BONUS PLAN
FISCAL YEAR ENDING APRIL 30, 1998
The purpose of the Profit and Growth Incentive Bonus Plan (the
"Plan") is to reward certain domestic (U.S.) executives, key
management, and other employees by providing a cash bonus based
upon the adjusted pre-tax profits and the improvement in adjusted
pre-tax, pre-interest profits of their subsidiary or Corporate,
as applicable. This bonus is intended as an incentive to
increase shareholder value through sustained and improved
earnings.
The Plan for each of Gerber Scientific, Inc.'s subsidiaries,
Gerber Scientific Products, Inc. ("GSP"), Gerber Garment
Technology, Inc. ("GGT"), Gerber Systems Corporation ("GSC"), and
Gerber Optical, Inc. ("GOI"), for the fiscal year ending April
30, 1998 will be based on their individual performance. The Plan
for Gerber Scientific, Inc. ("Corporate") will be based on the
Company's consolidated performance.
The Plan is specifically for the fiscal year ending April 30,
1998, as approved by the Management Development and Compensation
Committee of the Board of Directors of Gerber Scientific, Inc.
(the "Committee"). Bonus plans for future years and their
criteria are subject to the approval of the Committee.
It has been the Committee's intention that interest income
(intercompany or otherwise) be eliminated from the adjusted pre-
tax profits on which bonuses are calculated for the category "All
Other Employees." Accordingly, the Plan for the fiscal year
ended April 30, 1996, eliminated one-half of such interest income
from adjusted pre-tax profits. Three-quarters of such interest
income was eliminated from adjusted pre-tax profits in the Plan
for the fiscal year ended April 30, 1997. All of such interest
income is eliminated from adjusted pre-tax profits in the fiscal
year 1998 Plan.
DETERMINATION OF THE BONUS POOLS
The bonus pool at each participating subsidiary company will be
computed as follows:
(a) For Subsidiary presidents and key management, the
sum of the following:
1 percent of the consolidated adjusted
pre-tax, pre-bonus profit of the subsidiary for
the year ending April 30, 1998, plus
3 percent of the improvement in
consolidated adjusted pre-tax, pre-bonus, pre-
interest profit for the year ending April 30, 1998
over 70 percent of the highest such annual amount
reported in the three fiscal years ended April 30,
1997 (or, in the case of losses in each of these
years, 100 percent of the smallest of the annual
losses in such three year period).
(b) For All Other Employees:
2.0 percent of the consolidated adjusted
pre-tax, pre-bonus profit of the subsidiary for
the year ending April 30, 1998. Such profit will
exclude any interest income (intercompany or
otherwise).
The bonus pool at Corporate will be computed as follows:
(a) For Corporate officers and key management, the sum
of the following:
.75 percent of the consolidated adjusted
pre-tax, pre-bonus profit for the year ending
April 30, 1998, plus
2.25 percent of the improvement in
consolidated adjusted pre-tax, pre-bonus, pre-
interest profit for the year ending April 30, 1998
over 70 percent of the highest such annual amount
reported in the three fiscal years ended April 30,
1997.
(b) For All Other Employees:
.25 percent of the consolidated adjusted
pre-tax, pre-bonus profit for the year ending
April 30, 1997. Such profit will be adjusted to
exclude any net interest income (intercompany or
otherwise).
Consolidated pre-tax profit is defined for participating
subsidiary companies as those subsidiary consolidated profits
before income taxes which are included in the consolidated
financial statements of Gerber Scientific, Inc. for the fiscal
year ending April 30, 1998, as certified by the Company's
independent public accountants. Consolidated pre-tax profit is
defined for Corporate as the profits before income taxes in the
consolidated financial statements of Gerber Scientific, Inc. for
the fiscal year ending April 30, 1998, as certified by the
Company's independent public accountants.
In addition to the adjustments for interest income described
above, such consolidated pre-tax profits will also be adjusted
for bonus computation purposes as follows: (1) to exclude the
effects of all Foreign Sales Corporation (FSC) activity; (2) to
exclude the effects of any material changes in accounting
principles which are subject to Corporate management's
discretion; (3) to include the equivalent income tax savings from
investments in tax-exempt securities; (4) to exclude all costs
and charges incurred due to discontinued operations at, or
restructuring by, one of the Company's subsidiaries; (5) to
exclude the effects of outside legal costs expensed during the
current fiscal year for lawsuits alleging infringement of
Company-owned patents for which Corporate has given approval; for
bonus computation purposes, these outside legal costs will be
amortized as a charge against consolidated pre-tax profit on a
straight line basis over the following 60 months; (6) to exclude
the effects of any settlement amounts or court awards for damages
resulting from a patent infringement lawsuit; for bonus
computation purposes, these amounts will first be offset against
the amount of current year patent infringement legal costs
amortized for bonus purposes during the year, and second, as an
offset against the cumulative unamortized amount of patent
infringement legal costs as of the end of such fiscal year; and
(7) if the settlement or court award amounts exceed the
cumulative amount of patent infringement legal costs, such
excess, for bonus computation purposes, will be amortized on a
straight line basis over three years, beginning in the year the
settlement or court award amounts are recognized in earnings, as
an increase to consolidated pre-tax profits.
DETERMINATION OF INDIVIDUAL BONUS AMOUNTS
The bonus pools for Corporate officers and key management, and
for Subsidiary presidents and key management, will be allocated
between them based upon their relative target bonus potential for
the year so as to yield bonus percentages in the appropriate
ratio (e.g., if the target bonus potential is 50 percent for
Subsidiary presidents and 30 percent for key management, then the
key management bonus percentage will be 60 percent of the
Subsidiary president bonus percentage). Management has the
discretion to add a third category of other key employees with a
20 percent (or less) target bonus potential. The total bonus
pool would remain the same in this situation and would be
allocated among the categories based on the relative target bonus
potential for the year so as to yield bonus percentages in the
appropriate ratio (e.g., 50 percent for Subsidiary presidents, 30
percent for key management, and 20 percent [or less] for other
key employees).
The respective bonus pools generated for each category will be
divided by the sum of the actual regular wages paid during the
fiscal year to the eligible employees in that category so as to
yield the appropriate percentages. These percentages are then
multiplied by each individual's regular wages paid to compute the
applicable bonus amount. Regular wages paid is defined as base
pay, including holiday pay, vacation pay, and sick time pay, but
excluding vacation paid in lieu of time off, overtime pay (except
for adjustments as may be appropriate to assure compliance with
the Fair Labor Standards Act), and any bonus pay.
The maximum bonus percentage computed cannot exceed 200 percent
of the targeted bonus potential, i.e., 100 percent of regular
wages paid for Corporate officers and Subsidiary presidents whose
targeted bonus potential is 50 percent, 60 percent of regular
wages paid for key management whose targeted bonus potential is
30 percent, etc. The maximum bonus percentage computed for All
Other Employees cannot exceed 10 percent of the regular wages
paid to that category.
ELIGIBILITY FOR THE PLAN
All full time employees of Corporate and the participating
domestic subsidiary companies (GSP, GGT, GSC, and GOI) who are on
the active permanent payroll on April 30, 1998 are eligible to
participate in the Plan of their respective company.
Specifically excluded from participating in the Plan are:
employees of foreign (i.e., non-U.S.) subsidiaries and branches
of Corporate or the domestic subsidiary companies; employees who
participate in other forms of cash incentive compensation plans
(e.g., salesmen on commission); and employees under any form of
collectively bargained wage or benefit contract.
Eligible employees who as of April 30, 1998 have been employed
continuously for more than six months receive a full share
(regular wages paid, as defined, during the Plan's year
multiplied by the applicable bonus percentage, as computed).
Employees who as of April 30, 1998 have been employed for less
than six months receive no share.
Eligible employees who transfer between participating companies
will participate pro-rata in the Plan of each company where they
were employed during the Plan year. Their bonus is based on the
respective regular wages paid and applicable bonus percentage at
each company where they were employed.
Employees who are laid-off during the Plan year but recalled to a
participating company within the period of recall rights and
prior to the end of the Plan year will be considered to have had
no break in service for purposes of determining bonus share.
Employees who were laid-off prior to the beginning of the Plan
year and are recalled to a participating company within the
period of recall rights and prior to the end of the Plan year
will be considered to have been employed as of the first day of
the Plan year for purposes of determining bonus share. An
approved leave of absence will not be considered a break in
service for purposes of determining bonus share.
DISTRIBUTION OF THE PROFIT AND GROWTH INCENTIVE BONUS
The profit and growth incentive bonus for each participating
company will be paid in cash to eligible employees as a
percentage of their regular wages paid during the Plan year,
based upon their period of employment (see "Eligibility for the
Plan"). It is expected that any distribution will be made on or
before July 15, 1998.
Corporate officers, Subsidiary presidents, and key employees
whose target bonus potential is 30 percent or higher may elect to
receive up to 50 percent of their bonus in the form of Gerber
Scientific, Inc. common stock in lieu of cash. Income tax
withholding on any bonus received in stock will be satisfied by
withholding shares. To encourage the election of stock in lieu
of cash, the Company will grant additional shares of restricted
common stock equal in value to one-third of the bonus amount
elected to be received in stock (before tax withholding). The
terms of the restricted stock award will be set forth in separate
grant agreements. The agreement will provide, among other
things, that such restricted stock will vest in equal
installments at each of the three anniversary dates following the
grant date, provided that the corresponding portion of the
original stock received as bonus (less shares withheld for taxes)
is still held by the participant. Any sale or transfer of the
original stock received as bonus will result in a proportional
forfeiture of the restricted stock not yet vested.
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, No. 333-42879
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
February 18, 1998 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
KPMG PEAT MARWICK LLP
Hartford, Connecticut
February 18, 1998
<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 nine-month period ended January 31, 1998 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JAN-31-1998
<CASH> 25,743
<SECURITIES> 0
<RECEIVABLES> 93,489
<ALLOWANCES> 0
<INVENTORY> 70,520
<CURRENT-ASSETS> 203,163
<PP&E> 129,543
<DEPRECIATION> 62,039
<TOTAL-ASSETS> 334,265
<CURRENT-LIABILITIES> 75,006
<BONDS> 7,002
0
0
<COMMON> 23,392
<OTHER-SE> 217,178
<TOTAL-LIABILITY-AND-EQUITY> 334,265
<SALES> 310,189
<TOTAL-REVENUES> 310,189
<CGS> 171,304
<TOTAL-COSTS> 289,329
<OTHER-EXPENSES> (3,388)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 266
<INCOME-PRETAX> 23,982
<INCOME-TAX> 7,700
<INCOME-CONTINUING> 16,282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,282
<EPS-PRIMARY> .71
<EPS-DILUTED> .70
</TABLE>
