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
October 31, 1999 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 October 31, 1999, 22,176,534 shares of common stock of the
Registrant were outstanding.
<PAGE 1>
GERBER SCIENTIFIC, INC.
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended October 31, 1999
PAGE
Part I - Financial Information
Item 1. Consolidated Financial Statements:
Statements of Earnings for the three months
ended October 31, 1999 and 1998 2
Statements of Earnings for the six months
ended October 31, 1999 and 1998 3
Balance Sheets at October 31, 1999 and
April 30, 1999 4-5
Statements of Cash Flows for the six months
ended October 31, 1999 and 1998 6
Notes to Financial Statements 7
Independent Accountants' Report 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
Exhibit Index 23
<PAGE 2>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------
Three Months Ended
In thousands (except per share amounts) October 31,
- --------------------------------------- ----------------------
1999 1998
--------- ---------
Revenue:
Product sales $139,598 $137,992
Service 13,255 12,598
-------- --------
152,853 150,590
-------- --------
Costs and Expenses:
Cost of product sales 82,412 81,269
Cost of service 7,188 7,333
Selling, general and administrative 38,442 37,446
Research and development expenses 8,304 7,645
Goodwill amortization 2,114 2,147
-------- --------
138,460 135,840
-------- --------
Operating income 14,393 14,750
Other income 744 937
Interest expense (2,407) (3,352)
-------- --------
Earnings before income taxes 12,730 12,335
Provision for income taxes 4,400 4,600
-------- --------
Net earnings $ 8,330 $ 7,735
======== ========
Per share of common stock:
Basic $ .38 $ .34
Diluted $ .37 $ .33
Dividends $ .08 $ .08
Average shares outstanding:
Basic 22,175 22,789
Diluted 22,474 23,487
See Accompanying Notes
<PAGE 3>
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------
Six Months Ended
In thousands (except per share amounts) October 31,
- --------------------------------------- ----------------------
1999 1998
--------- ---------
Revenue:
Product sales $265,454 $280,158
Service 26,875 24,091
-------- --------
292,329 304,249
-------- --------
Costs and Expenses:
Cost of product sales 155,033 165,137
Cost of service 14,493 14,020
Selling, general and administrative 73,534 77,038
Research and development expenses 16,902 15,273
Goodwill amortization 4,250 4,311
-------- --------
264,212 275,779
-------- --------
Operating income 28,117 28,470
Other income 1,137 1,197
Interest expense (4,871) (6,510)
-------- --------
Earnings before income taxes 24,383 23,157
Provision for income taxes 8,500 8,700
-------- --------
Net earnings $ 15,883 $ 14,457
======== ========
Per share of common stock:
Basic $ .72 $ .64
Diluted $ .71 $ .62
Dividends $ .16 $ .16
Average shares outstanding:
Basic 22,147 22,731
Diluted 22,463 23,500
See Accompanying Notes
<PAGE 4-5>
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------
October 31, April 30,
In thousands 1999 1999
- -------------------------------------- ---------- ----------
Assets
Current Assets:
Cash and short-term cash investments $ 20,218 $ 26,523
Accounts receivable 120,455 103,118
Inventories 92,775 72,367
Prepaid expenses 20,611 23,690
-------- --------
254,059 225,698
-------- --------
Property, Plant and Equipment 158,377 152,374
Less accumulated depreciation 61,493 61,789
-------- --------
96,884 90,585
-------- --------
Intangible Assets 243,278 238,777
Less accumulated amortization 22,467 18,018
-------- --------
220,811 220,759
-------- --------
Other Assets 4,651 5,218
-------- --------
$576,405 $542,260
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt $ -- $ 193
Accounts payable 57,863 48,374
Accrued compensation and benefits 16,976 18,982
Other accrued liabilities 34,408 35,854
Deferred revenue 8,367 6,874
Advances on sales contracts 3,430 5,721
-------- --------
121,044 115,998
-------- --------
Noncurrent Liabilities:
Deferred income taxes 10,315 9,593
Long-term debt 188,833 173,338
-------- --------
199,148 182,931
-------- --------
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
22,976,534 and 22,858,699 shares 22,977 22,859
Paid-in capital 42,390 40,255
Retained earnings 208,188 195,871
Treasury stock, at cost (800,000
shares) (16,450) (16,450)
Unamortized value of restricted stock
grants (457) (417)
Accumulated other comprehensive income
(loss) (435) 1,213
-------- --------
256,213 243,331
-------- --------
$576,405 $542,260
======== ========
See Accompanying Notes
<PAGE 6>
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------
Six Months Ended
In thousands October 31,
- -------------------------------------------- ----------------------
1999 1998
---------- ---------
Cash Provided by (Used for):
Operating Activities:
Net earnings $ 15,883 $ 14,457
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization 12,359 10,729
Deferred income taxes 722 (210)
Other non-cash items 155 122
Changes in operating accounts, net of
effects of business acquisitions:
Receivables (15,024) (13,738)
Inventories (15,691) 8,162
Prepaid expenses 3,079 11,096
Accounts payable and accrued expenses 2,580 (2,836)
-------- --------
Provided by Operating Activities 4,063 27,782
-------- --------
Investing Activities:
Additions to property, plant and equipment (13,251) (7,010)
Business acquisitions (7,452) (175,952)
Intangible and other assets (340) 362
Other, net (391) 1,923
-------- --------
(Used for) Investing Activities (21,434) (180,677)
-------- --------
Financing Activities:
Additions of long-term debt 30,274 181,686
Repayments of long-term debt (16,229) (19,648)
Net short-term financing (1,249) (11,963)
Debt issue costs -- (800)
Proceeds from issuance of stock 1,809 2,025
Dividends on common stock (3,539) (3,632)
-------- --------
Provided by Financing Activities 11,066 147,668
-------- --------
(Decrease) in Cash and Short-Term
Cash Investments (6,305) (5,227)
Cash and Short-Term Cash Investments,
Beginning of Period 26,523 27,007
-------- --------
Cash and Short-Term Cash Investments, $ 20,218 $ 21,780
End of Period ======== ========
See Accompanying Notes
<PAGE 7>
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial statements and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three- and six-month periods ended
October 31, 1999 are not necessarily indicative of the results
that may be expected for the year ended April 30, 2000.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended April 30, 1999.
NOTE 2. Inventories
The classification of inventories was as follows (in thousands):
October 31, 1999 April 30, 1999
---------------- --------------
Raw materials & purchased parts $53,949 $42,097
Work in process 38,826 30,270
------- -------
$92,775 $72,367
======= =======
NOTE 3. Segment Information
Three Months Ended Six Months Ended
In thousands October 31, October 31,
- ----------------------- ----------------- -------------------
1999 1998 1999 1998
-------- -------- --------- ---------
Segment revenue:
Sign Making &
Specialty Graphics $ 72,993 $ 71,240 $141,327 $143,799
Apparel & Flexible
Materials 56,607 53,434 105,472 106,702
Ophthalmic Lens
Processing 23,253 25,916 45,530 53,748
-------- -------- -------- --------
$152,853 $150,590 $292,329 $304,249
======== ======== ======== ========
<PAGE 8>
Segment profit:
Sign Making &
Specialty Graphics $ 8,782 $ 9,027 $ 17,648 $ 18,107
Apparel & Flexible
Materials 6,607 6,960 11,751 12,481
Ophthalmic Lens
Processing 1,416 1,624 2,667 3,283
-------- -------- -------- --------
$ 16,805 $ 17,611 $ 32,066 $ 33,871
======== ======== ======== ========
A reconciliation of total segment profits to consolidated
earnings before income taxes is as follows:
Three Months Ended Six Months Ended
In thousands October 31, October 31,
- ------------------------ ------------------ ----------------
1999 1998 1999 1998
-------- -------- ------- --------
Segment profit $ 16,805 $ 17,611 $ 32,066 $ 33,871
Corporate expenses, net
of other income/expense (1,668) (1,924) (2,812) (4,204)
-------- -------- -------- --------
Earnings before interest
and taxes 15,137 15,687 29,254 29,667
Interest expense (2,407) (3,352) (4,871) (6,510)
-------- -------- -------- --------
Earnings before income
taxes $ 12,730 $ 12,335 $ 24,383 $ 23,157
======== ======== ======== ========
There were no material changes in segment assets or differences
in the basis of segmentation since the Company's last Annual
Report on Form 10-K. However, the measure of segment profit was
changed. In the Company's segment disclosures on Form 10-K for
the year ended April 30, 1999, an allocation of general
corporate expenses was included in the measure of segment
profit. For the three- and six-month periods ended October 31,
1999 and 1998, segment profit is reported as earnings before
interest, taxes, and general corporate expenses.
NOTE 4. Comprehensive Income
The Company's total comprehensive income was as follows:
Three Months Six Months Ended
In thousands Ended October 31, October 31,
- -------------------------- ----------------- ----------------
1999 1998 1999 1998
------- -------- ------- -------
Net earnings $ 8,330 $ 7,735 $15,883 $14,457
Other comprehensive income
(loss):
Foreign currency
translation adjustments (1,083) (2,445) (1,648) (1,835)
------- ------- ------- -------
Total comprehensive
income $ 7,247 $ 5,290 $14,235 $12,622
======= ======= ======= =======
<PAGE 9>
NOTE 5. Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share for the periods indicated:
Three Months Ended Six Months Ended
October 31, October 31,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
Numerator:
Net Income $ 8,330,000 $ 7,735,000 $15,883,000 $14,457,000
=========== =========== =========== ===========
Denominators:
Denominator for
basic earnings per
share--weighted-
average shares
outstanding 22,175,402 22,789,437 22,146,571 22,731,381
Effect of dilutive
securities:
Employee stock
options 298,299 697,116 316,040 769,047
----------- ---------- ----------- -----------
Denominator for
diluted earnings
per share--adjusted
weighted-average
shares outstanding 22,473,701 23,486,553 22,462,611 23,500,428
=========== ========== =========== ===========
Basic earnings per
share $ .38 $ .34 $ .72 $ .64
=========== =========== =========== ===========
Diluted earnings per
share $ .37 $ .33 $ .71 $ .62
=========== =========== =========== ===========
<PAGE 10>
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
With respect to the unaudited consolidated financial statements
of Gerber Scientific, Inc. and subsidiaries at October 31, 1999
and for the three- and six-month periods ended October 31, 1999
and 1998, KPMG 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
November 17, 1999 appearing on page 11. That report does not
express an opinion on the interim unaudited consolidated
financial information. KPMG 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.
<PAGE 11>
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
six-month periods ended October 31, 1999 and 1998, the
consolidated statements of cash flows for the six-month periods
ended October 31, 1999 and 1998, and the consolidated balance
sheet as of October 31, 1999 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 26, 1999 on the consolidated
financial statements for the year ended April 30, 1999 (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 six-month
periods ended October 31, 1999 and 1998, the consolidated
statements of cash flows for the six-month periods ended October
31, 1999 and 1998, or the consolidated balance sheet as of
October 31, 1999 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, 1999 is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
/s/ KPMG LLP
Hartford, Connecticut
November 17, 1999
<PAGE 12>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In September 1999, the Company purchased the assets of Graphi-cal
Group with cash. Accordingly, Graphi-cal was included in the
Company's balance sheet at October 31, 1999, in the Company's results
from operations for the three- and six-month periods ended October 31,
1999, and in the Company's cash flows for the six-month period
ended October 31, 1999.
In this year's second quarter, the Company started to display
goodwill amortization as a separate line item in its consolidated
statements of earnings. All prior periods affected by the change
have been restated. This accounting change represents a first
step in complying with the disclosure requirements of the
Financial Accounting Standards Board's (FASB's) proposal on
business combinations and facilitates the calculation of earnings
before goodwill amortization.
Sales for the three- and six-month periods ended October 31, 1999
were $152.9 million and $292.3 million, respectively. This
year's second quarter sales increased 1.5 percent over the prior
year while year-to-date sales decreased 3.9 percent. Both second
quarter and year-to-date sales were adversely affected by
relatively weaker European currencies this year. Anticipated
lower shipments in the Company's Ophthalmic Lens Processing
operating segment also accounted for part of the year-to-date
sales decrease. This year's second quarter sales rebounded from
the first quarter impact of implementing a new enterprise
resource planning (ERP) system.
The Company's backlog grew significantly in this year's second
quarter to $66.8 million at October 31, 1999, an increase of
$18.5 million from the prior year comparable period and $16.0
million higher than at the beginning of the current fiscal year.
This growth was caused by higher levels of orders received,
particularly for products recently introduced, and some shipment
delays.
Operating income for the three- and six-month periods ended
October 31, 1999 of $14.4 million and $28.1 million,
respectively, were substantially the same as the prior year
comparable periods of $14.7 million and $28.5 million. The
Company's gross profit margin of 41.4 percent in this year's
second quarter was substantially the same as the prior year
margin of 41.2 percent. Higher research and development (R&D)
spending, particularly related to this year's strong new product
flow, contributed to this year's lower second quarter operating
profit of 9.4 percent compared with the prior year margin of 9.8
percent.
For the six-month period ended October 31, 1999, the Company's
gross profit margin of 42.0 percent was 0.9 percentage points
<PAGE 13>
higher than the prior year comparable margin of 41.1 percent.
This was caused by a sales mix in this year's first quarter which
favored higher margin products as well as higher levels of
service revenue. Lower first quarter S,G,&A spending resulted in
an operating profit margin of 9.6 percent in the first half of
this year, which was 0.2 percentage points higher than the prior
year comparable period margin of 9.4 percent. The effect of
acquisition synergies and actions taken to resize the Ophthalmic
Lens Processing operating segment in last year's fourth quarter
contributed to the margin improvement.
Lower interest expense and a lower tax rate caused net earnings
to rise for the three- and six-month periods ended October 31,
1999 compared with the same periods last year. Diluted earnings
per share increased 12.1 percent to $0.37 in this year's second
quarter and 14.5 percent to $0.71 in this year's first half from
$0.33 per share and $0.62 per share, respectively, for the same
periods last year.
The Company's cash flow was adversely affected in this year's
first half by growth in working capital. This growth was related
to increased inventory associated with the introduction of new
products and inventory and receivable build-ups related to the
first quarter ERP system implementation noted above.
FINANCIAL CONDITION
The Company's ratio of current assets to current liabilities was
2.1 to 1 at October 31, 1999 compared with 1.9 to 1 at April 30,
1999. Net working capital at October 31, 1999 was $133.0
million, an increase of $23.3 million from the beginning of the
current fiscal year and largely attributable to higher accounts
receivable and inventory levels. The increase in accounts
receivable balances was primarily caused by the higher volume of
second quarter shipments and the acquisition of Graphi-cal. The
increase in inventory balances was largely attributable to the
rising backlog of new products recently introduced and the
acquisition of Graphi-cal. Although most of the ERP
implementation issues that arose in the first quarter were
resolved, both inventory and accounts receivable balances
continued to be affected in the second quarter. Reduction of
inventory and receivable balances represent a significant cash
flow generation opportunity for the Company.
The Company's cash and investments totaled $20.2 million at
October 31, 1999 compared with $26.5 million at the end of the
prior fiscal year. Operating activities provided $4.1 million in
cash for the six-month period ended October 31, 1999 compared
with $27.8 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
six months was offset by higher accounts receivable and inventory
balances, as discussed above. Higher accounts payable and accrued
<PAGE 14>
liabilities balances, due largely to the timing of payments, also
contributed to the cash generation in the first six months.
The principal non-operating uses of cash in the six months ended
October 31, 1999 were for additions to property, plant, and
equipment of $13.3 million and the acquisition of Graphi-cal of
$8.7 million, which included repayment of its debt. The Company
anticipates that capital expenditures for the current fiscal year
will be in the range of $23 - $24 million. Cash was also used
for payment of dividends of $3.5 million in the first six months.
The Company's total long-term debt at October 31, 1999 was $188.8
million, which was higher than the April 30, 1999 balance of
$173.5 million. Net debt (total debt less cash and investments)
was $168.6 million at October 31, 1999 versus $147.0 million at
April 30, 1999, as cash was required in the first six months for
acquisition funding and to finance the growth in inventories and
accounts receivable. The ratio of net debt to total capital
increased to 39.7 percent at October 31, 1999 from 37.7 percent
at April 30, 1999.
RESULTS OF OPERATIONS
Combined sales and service revenue for the three-month period
ended October 31, 1999 increased $2.3 million (1.5 percent) and
for the six-month period ended October 31, 1999 decreased $11.9
million (3.9 percent) from the prior year comparable periods. The
increase in the second quarter reflected higher product sales and
service revenue. The decrease on a year-to-date basis reflected
lower product sales and higher service revenue. The higher
product sales in this year's second quarter came from higher
shipments in the Apparel and Flexible Materials operating segment
($2.7 million), largely resulting from a rebound in international
markets for that segment's products, and higher shipments in the
Sign Making and Specialty Graphics operating segment ($1.5
million), resulting from the Graphi-cal acquisition. The
service revenue increase of $0.7 million (5.2 percent) in this
year's second quarter also came from these operating segments.
The higher sales in these segments overcame the second quarter
impact of relatively weaker foreign currencies ($3.5 million).
Product sales and service revenue for the Ophthalmic Lens
Processing operating segment were lower in the second quarter
compared with the prior year ($2.7 million lower), as
anticipated.
The lower product sales in the six-month period ended October 31,
1999 were predominantly caused by anticipated lower shipments of
Ophthalmic Lens Processing equipment ($8.1 million); the prior
year first quarter sale of certain distribution operations in the
Sign Making and Specialty Graphics operating segment ($2.5
million); the impact on sales of relatively weaker foreign
currencies ($6.0 million); and this year's first quarter ERP
implementation in the Apparel and Flexible Materials operating
segment. The higher second quarter product sales in the Apparel
<PAGE 15>
and Flexible Materials and Sign Making and Specialty Graphics
operating segments noted above were an offset. Service revenue
increased $2.8 million (11.6 percent) in the six-month period
ended October 31, 1999. The largest increase came from the
Apparel and Flexible Materials operating segment and was partly
the result of incentives used to enhance that segment's service
business.
The consolidated gross profit margins in this year's first three-
and six-month periods ended October 31, 1999 were 41.4 percent
and 42.0 percent, respectively, which were higher than the prior
year comparable margins of 41.2 and 41.1 percent, respectively.
Gross profit margins on both product sales and service were
higher. The increase in product gross profit margins was the
result of a product mix favoring higher margin products such as
software in the Apparel and Flexible Materials operating segment
and newly introduced digital imaging products in the Sign Making
and Specialty Graphics operating segment. The increases in
service gross profit margins related primarily to the Apparel and
Flexible Materials operating segment and were caused by the
service revenue increases noted above.
Selling, general, and administrative (S,G,&A) expenses in this
year's second quarter increased $1.0 million (2.7 percent) and in
this year's first six months decreased $3.5 million (4.5 percent)
from the prior year comparable periods. Increases in the second
quarter came from increased marketing expenses relating to new
products and from including Graphi-cal's S,G,&A expenses for the
two months ended October 31, 1999. The S,G,&A increase in the
quarter was partly offset by management action taken in the prior
year to resize the Ophthalmic Lens Processing operating segment.
The decrease in the first six months compared with the prior year
was caused by the management action noted above and by marketing
synergies realized by the Company in the Sign Making and
Specialty Graphics operating segment through the acquisition of
Spandex PLC and in the Ophthalmic Lens Processing operating
segment through the acquisition of Coburn Optical Industries,
Inc.
After adjusting for the reclassification of goodwill amortization
mentioned earlier, S,G,&A expenses were 25.2 percent of sales in
both this year's second quarter and first six months compared
with 24.9 percent and 25.3 percent, respectively, in the prior
year comparable periods.
The Company continued to commit significant resources to research
and the development of new products. R&D spending increased
$0.7 million (8.6 percent) in the second quarter and $1.6 million
(10.7 percent) in the first six months compared with last year's
comparable periods. The increase was related to the stepped-up
flow of new products from each of the Company's operating
segments. As a percentage of sales, research and development was
5.4 percent in the second quarter and 5.8 percent in the first
<PAGE 16>
six months compared with 5.1 percent and 5.0 percent,
respectively, in the prior year comparable periods.
Interest expense decreased $0.9 million in the second quarter and
$1.6 million in the first six months to $2.4 million and $4.9
million, respectively. These decreases were the result of lower
interest rates and, to a lesser extent, lower average debt
balances. Most of the Company's borrowings were against a $235
million multi-currency revolving credit facility. The interest
rate on these borrowings is based on the London Interbank Offered
Rate (LIBOR) for the relevant currency and term plus a margin
based on the relationship of the Company's consolidated total
debt to EBITDA (earnings before interest, taxes, depreciation,
and amortization).
The provision rate for income taxes was 34.6 percent for the
second quarter and 34.9 percent for the first six months compared
with 37.3 percent and 37.6 percent in the comparable prior year
periods and 35.8 percent for the full prior year. The lower tax
rates this year were primarily the result of tax reduction
strategies involving the Company's wholly-owned foreign
subsidiaries.
As a result of the above, net earnings increased in this year's
second quarter to $8.3 million or $.37 diluted earnings per share
from $7.7 million or $.33 diluted earnings per share in last
year's second quarter. For the first six months, net earnings
this year increased to $15.9 million or $.71 diluted earnings per
share compared with $14.5 million or $.62 per diluted share last
year.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). The Statement establishes
accounting and reporting standards requiring that derivative
instruments be recorded in the balance sheet as either an asset
or liability measured at fair value and that changes in fair
value be recognized currently in earnings, unless specific hedge
accounting criteria are met. In June 1999, the FASB issued
Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," which delays the required adoption of SFAS
133 to the Company's fiscal year 2002. The timing of adoption
and the effect of SFAS 133 on the Company's financial position or
results of operations have not yet been determined.
YEAR 2000
As disclosed in the Company's Annual Report on Form 10-K for the
year ended April 30, 1999, the Company recognizes the business
risks posed by the Year 2000 date issue and is actively working
to control the associated risks. The risks identified by the
<PAGE 17>
Company's Year 2000 compliance program remain the same and the
Company's assessment and remediation plans have not changed
materially in terms of scope, timing, or estimated costs. The
Company believes that it has completed all critical aspects of
its Year 2000 readiness program. Although the Company designed
this program to properly prepare its systems and products for the
Year 2000, there can be no assurance that the Company will not
experience business disruptions or incur material costs caused
by the failure to detect and remediate all instances of Year
2000 noncompliance in its systems and products. Contingency plans,
including those designed to prevent the failure of critical systems
from having a material effect on the Company, are nearing completion.
The Company continues to evaluate its risks and, as necessary,
update contingency plans. Total costs to resolve the Year 2000
issue were not material to the Company's financial position,
results of operations or cash flows.
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains statements which, to the extent
they are not statements of historical or present fact, constitute
"forward-looking statements" under the securities laws. From
time to time, oral or written forward-looking statements may also
be included in other materials released to the public. These
forward-looking statements are intended to provide management's
current expectations or plans for the future operating and
financial performance of the Company, based on assumptions
currently believed to be valid. Forward-looking statements can
be identified by the use of words such as "believe," "expect,"
"plans," "strategy," "prospects," "estimate," "project,"
"anticipate," and other words of similar meaning in connection
with a discussion of future operating or financial performance.
These include, among others, statements relating to:
- - the effect of economic downturns or growth in particular
regions,
- - the effect of changes in the level of activity in particular
industries or markets,
- - the anticipated uses of cash,
- - the scope or nature of acquisition activity,
- - prospective product developments,
- - cost reduction efforts,
- - the outcome of contingencies,
- - the impact of Year 2000 conversion efforts, and
- - the transition to the use of the euro as a currency.
All forward-looking statements involve risks and uncertainties
that may cause actual results to differ materially from those
expressed or implied in the forward-looking statements. For
additional information identifying factors that may cause actual
results to vary materially from those stated in the forward-
looking statements, see the Company's reports on Forms 10-K,
<PAGE 18>
10-Q, and 8-K filed with the Securities and Exchange Commission
from time to time. The Company's Annual Report on Form 10-K for
fiscal year 1999 includes important information as to risk
factors in the "Business" section under the headings "Operating
Segments" and "Other Matters Relating to the Corporation's
Business as a Whole."
<PAGE 19>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
No material changes have occurred in the quantitative and
qualitative market risk disclosures for the Company from those
presented in the Company's Annual Report on Form 10-K for the
year ended April 30, 1999.
<PAGE 20>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 15, 1999, the Company held its annual meeting of
shareholders. The holders of 88 percent of the shares of common
stock entitled to vote at this meeting were present either in
person or by proxy. The following were the voting results for
the meeting:
- The shareholders elected Directors to hold office until the
annual meeting to be held in the year 2002 with the following
votes:
For Withheld
David J. Logan 18,473,931 982,399
Carole F. St. Mark 19,071,490 384,840
A. Robert Towbin 18,375,996 1,080,334
The terms of office of the other Directors, Donald P.
Aiken, Michael J. Cheshire, George M. Gentile, David J.
Gerber, Edward E. Hood, Jr., and W. Jerome Vereen,
continued after the meeting.
- The shareholders approved the Gerber Scientific, Inc.
2000-2004 Executive Annual Incentive Bonus Plan with
18,496,160 votes in favor, 847,543 votes against, and
111,627 abstentions. Votes not cast totaled 1,000.
ITEM 5. OTHER INFORMATION
On September 13, 1999, the Company issued a press release
reporting the acquisition of Graphi-cal Group, Australia's
largest sign making supplies distributor with approximately $12
million (U.S.) in annual revenues. The purchase price was
approximately $7.5 million. In addition, Graphi-cal had
approximately $1.2 million in outstanding debt that was assumed.
On November 1, 1999, the Company issued a press release reporting
the acquisition of R&D Marketing Aktiebolag (R&D Marketing), a
leading Scandinavian sign making supplier distributor located in
Sweden, with approximately $8 million (U.S.) in annual revenues.
The purchase price was approximately $3.1 million. R&D Marketing
will be included in the Company financial statements starting in
this year's third quarter.
<PAGE 21>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(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.
*Filed herewith.
<PAGE 22>
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: December 9, 1999 By: / s / Gary K. Bennett
------------------ --------------------------------
Gary K. Bennett
Senior Vice President, Finance
(Principal Financial and
Accounting Officer)
<PAGE 23>
EXHIBIT INDEX
Exhibit
Index Page
Number ----
--------
(15)* Letter regarding unaudited interim financial
information.
(27)* Financial data schedule.
*Filed herewith.
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. 333-261777, and No. 333-42879,
No. 33-81447, and No. 333-83463
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
November 17, 1999 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 LLP
KPMG LLP
Hartford, Connecticut
December 9, 1999
<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 six-month period ended October 31, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> OCT-31-1999
<CASH> 20,218
<SECURITIES> 0
<RECEIVABLES> 120,455
<ALLOWANCES> 0
<INVENTORY> 92,775
<CURRENT-ASSETS> 254,059
<PP&E> 158,377
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<TOTAL-ASSETS> 576,405
<CURRENT-LIABILITIES> 121,044
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0
0
<COMMON> 22,977
<OTHER-SE> 233,236
<TOTAL-LIABILITY-AND-EQUITY> 576,405
<SALES> 292,329
<TOTAL-REVENUES> 292,329
<CGS> 169,526
<TOTAL-COSTS> 264,212
<OTHER-EXPENSES> (1,137)
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<INTEREST-EXPENSE> 4,871
<INCOME-PRETAX> 24,383
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