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, 2000 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, 2000, 22,204,489 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 January 31, 2000
PAGE
Part I - Financial Information
Item 1. Consolidated Financial Statements:
Statements of Earnings for the three months
ended January 31, 2000 and 1999 2
Statements of Earnings for the nine months
ended January 31, 2000 and 1999 3
Balance Sheets at January 31, 2000 and
April 30, 1999 4-5
Statements of Cash Flows for the nine months
ended January 31, 2000 and 1999 6
Notes to Financial Statements 7-9
Independent Accountants' Report 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 18
Part II - Other Information
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
Exhibit Index 22
<PAGE 2>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
- --------------------------------------------------------------
Three Months Ended
In thousands (except per share amounts) January 31,
- --------------------------------------- ----------------------
2000 1999
--------- ---------
Revenue:
Product sales $141,997 $128,852
Service 13,546 11,947
-------- --------
155,543 140,799
-------- --------
Costs and Expenses:
Cost of product sales 84,916 74,159
Cost of service 7,080 7,250
Selling, general and administrative 38,534 36,666
Research and development expenses 7,982 7,682
Goodwill amortization 2,103 2,171
-------- --------
140,615 127,928
-------- --------
Operating income 14,928 12,871
Other income (expense) (21) 478
Interest expense (2,733) (2,604)
-------- --------
Earnings before income taxes 12,174 10,745
Provision for income taxes 3,900 3,700
-------- --------
Net earnings $ 8,274 $ 7,045
======== ========
Per share of common stock:
Basic $ .37 $ .31
Diluted $ .37 $ .31
Dividends $ .08 $ .08
Average shares outstanding:
Basic 22,193 22,700
Diluted 22,411 23,058
See Accompanying Notes
<PAGE 3>
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
- --------------------------------------------------------------
Nine Months Ended
In thousands (except per share amounts) January 31,
- --------------------------------------- ----------------------
2000 1999
--------- ---------
Revenue:
Product sales $407,451 $409,010
Service 40,421 36,038
-------- --------
447,872 445,048
-------- --------
Costs and Expenses:
Cost of product sales 239,949 239,296
Cost of service 21,573 21,270
Selling, general and administrative 112,068 113,704
Research and development expenses 24,884 22,955
Goodwill amortization 6,353 6,482
-------- --------
404,827 403,707
-------- --------
Operating income 43,045 41,341
Other income 1,116 1,675
Interest expense (7,604) (9,114)
-------- --------
Earnings before income taxes 36,557 33,902
Provision for income taxes 12,400 12,400
-------- --------
Net earnings $ 24,157 $ 21,502
======== ========
Per share of common stock:
Basic $ 1.09 $ .95
Diluted $ 1.08 $ .93
Dividends $ .24 $ .24
Average shares outstanding:
Basic 22,167 22,721
Diluted 22,450 23,213
See Accompanying Notes
<PAGE 4-5>
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------
January 31, April 30,
In thousands 2000 1999
(Unaudited)
- -------------------------------------- ---------- ----------
Assets
Current Assets:
Cash and short-term cash investments $ 24,367 $ 26,523
Accounts receivable 114,119 103,118
Inventories 97,683 72,367
Prepaid expenses 18,377 23,690
-------- --------
254,546 225,698
-------- --------
Property, Plant and Equipment 162,400 152,374
Less accumulated depreciation 64,077 61,789
-------- --------
98,323 90,585
-------- --------
Intangible Assets 246,830 238,777
Less accumulated amortization 24,947 18,018
-------- --------
221,883 220,759
-------- --------
Other Assets 4,193 5,218
-------- --------
$578,945 $542,260
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable $ 695 $ --
Current maturities of long-term debt -- 193
Accounts payable 53,500 48,374
Accrued compensation and benefits 17,158 18,982
Other accrued liabilities 30,350 35,854
Deferred revenue 7,545 6,874
Advances on sales contracts 3,478 5,721
-------- --------
112,726 115,998
-------- --------
Noncurrent Liabilities:
Deferred income taxes 9,255 9,593
Long-term debt 193,964 173,338
-------- --------
203,219 182,931
-------- --------
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
23,004,489 and 22,858,699 shares 23,004 22,859
Paid-in capital 42,845 40,255
Retained earnings 214,689 195,871
Treasury stock, at cost (800,000
shares) (16,450) (16,450)
Unamortized value of restricted stock
grants (641) (417)
Accumulated other comprehensive income
(loss) (447) 1,213
-------- --------
263,000 243,331
-------- --------
$578,945 $542,260
======== ========
See Accompanying Notes
<PAGE 6>
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- ----------------------------------------------------------------------
Nine Months Ended
In thousands January 31,
- -------------------------------------------- ----------------------
2000 1999
---------- ---------
Cash Provided by (Used for):
Operating Activities:
Net earnings $ 24,157 $ 21,502
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization 18,665 17,809
Deferred income taxes (1,730) (382)
Other non-cash items 324 178
Changes in operating accounts, net of
effects of business acquisitions:
Receivables (7,310) (6,963)
Inventories (19,965) 7,322
Prepaid expenses 5,638 9,060
Accounts payable and accrued expenses (5,564) (10,901)
-------- --------
Provided by Operating Activities 14,215 37,625
-------- --------
Investing Activities:
Additions to property, plant and equipment (18,091) (14,369)
Business acquisitions (11,026) (175,952)
Intangible and other assets (1,156) (222)
Other, net (1,660) 1,113
-------- --------
(Used for) Investing Activities (31,933) (189,430)
-------- --------
Financing Activities:
Purchase of common stock -- (4,940)
Additions of long-term debt 40,566 186,686
Repayments of long-term debt (20,133) (24,445)
Net short-term financing (1,497) (11,963)
Debt issue costs -- (800)
Proceeds from issuance of stock 1,938 2,602
Dividends on common stock (5,312) (5,458)
-------- --------
Provided by Financing Activities 15,562 141,682
-------- --------
(Decrease) in Cash and Short-Term
Cash Investments (2,156) (10,123)
Cash and Short-Term Cash Investments,
Beginning of Period 26,523 27,007
-------- --------
Cash and Short-Term Cash Investments, $ 24,367 $ 16,884
End of Period ======== ========
See Accompanying Notes
<PAGE 7>
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 nine-month periods ended
January 31, 2000 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):
January 31, 2000 April 30, 1999
---------------- --------------
Raw materials & purchased parts $56,924 $42,097
Work in process 40,759 30,270
------- -------
$97,683 $72,367
======= =======
NOTE 3. Segment Information
Three Months Ended Nine Months Ended
In thousands January 31, January 31,
- ----------------------- ------------------ -------------------
2000 1999 2000 1999
-------- -------- --------- ---------
Segment revenue:
Sign Making &
Specialty Graphics $ 75,383 $ 63,833 $216,710 $207,632
Apparel & Flexible
Materials 56,302 53,345 161,774 160,047
Ophthalmic Lens
Processing 23,858 23,621 69,388 77,369
-------- -------- -------- --------
$155,543 $140,799 $447,872 $445,048
======== ======== ======== ========
<PAGE 8>
Segment profit:
Sign Making &
Specialty Graphics $ 8,815 $ 7,830 $ 26,463 $ 25,937
Apparel & Flexible
Materials 6,203 6,644 17,954 19,125
Ophthalmic Lens
Processing 1,786 980 4,453 4,263
-------- -------- -------- --------
$ 16,804 $ 15,454 $ 48,870 $ 49,325
======== ======== ======== ========
A reconciliation of total segment profits to consolidated
earnings before income taxes is as follows:
Three Months Ended Nine Months Ended
In thousands January 31, January 31,
- ------------------------ ------------------ -----------------
2000 1999 2000 1999
-------- -------- -------- --------
Segment profit $ 16,804 $ 15,454 $ 48,870 $ 49,325
Corporate expenses,
net of other income/expense (1,897) (2,105) (4,709) (6,309)
-------- -------- -------- --------
Earnings before interest
and taxes 14,907 13,349 44,161 43,016
Interest expense (2,733) (2,604) (7,604) (9,114)
-------- -------- -------- --------
Earnings before income
taxes $ 12,174 $ 10,745 $ 36,557 $ 33,902
======== ======== ======== ========
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 nine-month periods ended January 31,
2000 and 1999, segment profit is reported as earnings before
interest, taxes, and general corporate expenses.
<PAGE 9>
NOTE 4. Comprehensive Income
The Company's total comprehensive income was as follows:
Three Months Ended Nine Months Ended
In thousands January 31, January 31,
- --------------------------------- ----------------- ----------------
2000 1999 2000 1999
-------- -------- ------- --------
Net earnings $ 8,274 $ 7,045 $24,157 $21,502
Other comprehensive income
(loss):
Foreign currency
translation adjustments (12) 1,511 (1,660) (324)
------- ------- ------- -------
Total comprehensive income $ 8,262 $ 8,556 $22,497 $21,178
======= ======= ======= =======
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 Nine Months Ended
January 31, January 31,
----------------------- -----------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Numerator:
Net Income $ 8,274,000 $ 7,045,000 $24,157,000 $21,502,000
=========== =========== =========== ===========
Denominators:
Denominator for
basic earnings per
share--weighted-
average shares
outstanding 22,193,140 22,699,682 22,166,749 22,720,640
Effect of dilutive
securities:
Employee stock
options 218,037 358,573 283,373 492,430
----------- ---------- ----------- -----------
Denominator for
diluted earnings
per share--adjusted
weighted-average
shares outstanding 22,411,177 23,058,255 22,450,122 23,213,070
=========== ========== =========== ===========
Basic earnings per share $ .37 $ .31 $ 1.09 $ .95
=========== =========== =========== ===========
Diluted earnings per
share $ .37 $ .31 $ 1.08 $ .93
=========== =========== =========== ===========
<PAGE 10>
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
With respect to the unaudited consolidated financial statements
of Gerber Scientific, Inc. and subsidiaries at January 31, 2000
and for the three- and nine-month periods ended January 31, 2000
and 1999, 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
February 16, 2000 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
nine-month periods ended January 31, 2000 and 1999, the
consolidated statements of cash flows for the nine-month periods
ended January 31, 2000 and 1999, and the consolidated balance
sheet as of January 31, 2000 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 nine-month
periods ended January 31, 2000 and 1999, the consolidated
statements of cash flows for the nine-month periods ended January
31, 2000 and 1999, or the consolidated balance sheet as of
January 31, 2000 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
February 16, 2000
<PAGE 12>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ACQUISITIONS
During the first nine months of fiscal 2000, the Company
purchased three businesses included in its Sign Making and
Specialty Graphics operating segment. The acquisitions totaled
$11.0 million and were made utilizing cash on hand and the
Company's multi-currency revolving credit facility. On a
combined basis, these businesses had annualized sales of
approximately $21.0 million. Each of the acquisitions was
accounted for as a purchase, and the results of operations of the
acquired companies have been included in the consolidated results
of the Company from their respective acquisition dates. The pro
forma net sales and results of operations for these acquisitions,
had the acquisitions occurred at the beginning of fiscal years
2000 and 1999, are not significant, and accordingly, have not
been provided. The acquisitions included the Graphi-cal Group
(Australia) in September 1999, R&D Marketing Aktiebolag (Sweden)
in November 1999, and SD Trading OY (Finland) in January 2000.
As a result of the acquisitions, approximately $7.8 million in
goodwill was recorded by the Company, which reflects the
adjustments necessary to allocate the individual purchase prices
to the fair value of assets acquired and liabilities assumed. On
February 1, 2000, the Company announced the acquisition of
Technograf Group (Australia), which will be included in the
Company's fourth quarter consolidated results.
FINANCIAL CONDITION
The Company's ratio of current assets to current liabilities was
2.3 to 1 at January 31, 2000 compared with 1.9 to 1 at April 30,
1999. Net working capital at January 31, 2000 was $141.8
million, an increase of $32.1 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
third quarter shipments and the business acquisitions. The
increase in inventory balances was largely attributable to the
rising backlog of new products and the business acquisitions.
Reduction of inventory and receivable balances represent a
significant cash flow generation opportunity for the Company.
The Company's cash and investments totaled $24.4 million at
January 31, 2000 compared with $26.5 million at the end of the
prior fiscal year. Operating activities provided $14.2 million
in cash for the nine-month period ended January 31, 2000 compared
with $37.6 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 offset by higher accounts receivable and
inventory balances, as discussed above. Lower accrued
liabilities balances, due largely to the timing of payments, also
contributed to the use of cash in the first nine months.
<PAGE 13>
The principal non-operating uses of cash in the nine months ended
January 31, 2000 were for additions to property, plant, and
equipment of $18.1 million and the business acquisitions of $11.0
million. The Technograf acquisition effective February 1, 2000
amounted to $2.2 million. 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 $5.3 million in the first nine months.
The Company's total long-term debt at January 31, 2000 was $194.0
million, which was higher than the April 30, 1999 balance of
$173.5 million. Net debt (total debt less cash and investments)
was $170.3 million at January 31, 2000 versus $147.0 million at
April 30, 1999, as cash was required in the first nine months for
acquisition funding, additions to property, plant, and equipment,
and to finance the growth in inventories and accounts receivable.
The ratio of net debt to total capital increased to 39.3 percent
at January 31, 2000 from 37.7 percent at April 30, 1999.
RESULTS OF OPERATIONS
Combined sales and service revenue for the three-month period
ended January 31, 2000 increased $14.7 million (10.5 percent)
from the prior year comparable periods and $2.8 million (0.6
percent) for the nine-month period ended January 31. The
increase in the third quarter reflected higher product sales and
service revenue. The increase on a year-to-date basis reflected
lower product sales and higher service revenue. The higher
product sales in this year's third quarter came predominately
from the Sign Making and Specialty Graphics operating segment
($10.5 million). Acquisitions represented $5.1 million of the
increase, and products recently introduced, such as new digital
imaging systems and plotters, represented the majority of the
remainder. Higher product sales in the Apparel and Flexible
Materials operating segment ($2.6 million) resulted from products
recently introduced, such as new single-ply cutting systems and
plotters, and a rebound in international markets contributed to
the year-over-year increase. The service revenue increase of
$1.6 million (13.4 percent) in this year's third quarter came
from each of the Company's operating segments as the Company
continues its focus on improving its service businesses. The
factors noted above overcame the third quarter impact of
relatively weaker foreign exchange rates for the translation of
foreign currency revenue ($5.3 million).
The lower product sales in the nine-month period ended
January 31, 2000 were predominantly caused by anticipated lower
shipments of Ophthalmic Lens Processing equipment ($8.0 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 ($11.3 million); and some disruption in this
year's first quarter from the implementation of an Enterprise
Resource Planning (ERP) system in the Apparel and Flexible
<PAGE 14>
Materials operating segment. Service revenue increased $4.4
million (12.2 percent) in the nine-month period ended January 31,
2000. 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 margin in the three-month period
ended January 31, 2000 was 40.9 percent, which was lower than the
prior year comparable margin of 42.2 percent. The consolidated
gross profit margin in the nine-month period ended January 31,
2000, was 41.6 percent, which was substantially the same as the
prior year margin of 41.5 percent. Gross profit margins on
product sales were lower than the prior year periods while
margins on service sales were higher.
The decrease in product gross profit margins was primarily the
result of weaker European currencies. This margin impact
occurred because most of the Company's manufactured products are
U.S. dollar cost-based and sold in Europe generally in local
currencies. Sales of certain new products introduced this year
also pressured gross profit margins because of higher costs on
initial production runs. These products include newly introduced
digital imaging systems and plotters in the Sign Making and
Specialty Graphics operating segment. The increases in service
gross profit margins came from each of the Company's operating
segments and were the result of concerted efforts to improve the
Company's service businesses.
Selling, general, and administrative (S,G,&A) expenses in this
year's third quarter increased $1.9 million (5.1 percent) and in
this year's first nine months decreased $1.6 million (1.4
percent) from the prior year comparable periods. Increases in
the third quarter came from higher marketing expenses related to
new product introductions and from including the S,G,&A expenses
of the acquisitions. The decrease in the first nine months
compared with the prior year reflected cost reduction actions
taken in the prior year to resize the Ophthalmic Lens Processing
operating segment. Also contributing to the decrease were
further 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. Increased marketing expenses relating to new
products and the incremental S,G,&A expense of the acquisitions
partially offset these decreases. S,G,&A expenses were 24.8 and
25.0 percent of sales in this year's third quarter and first nine
months, respectively, down from 26.0 percent and 25.5 percent 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 $0.3
million (3.9 percent) in the third quarter and $1.9 million (8.4
percent) in the first nine months compared with last year. The
increases were related to the stepped-up flow of new products
from each of the Company's operating segments in the current
<PAGE 15>
year. As a percentage of sales, research and development was 5.1
percent in the third quarter and 5.6 percent in the first nine
months compared with 5.5 percent and 5.2 percent, respectively,
in the prior year comparable periods.
The year-to-year impact of comparatively weaker European
currencies on earnings was significant in both the three- and
nine-month periods ended January 31, 2000. Had prior year
translation rates been in effect earnings before interest and
taxes would have been higher by approximately $3.0 million in the
third quarter and approximately $4.6 million in the nine-month
period of fiscal 2000.
Interest expense increased $0.1 million in the third quarter and
decreased $1.5 million in the first nine months of the current
year. The increase in the third quarter was caused by
comparatively higher current year borrowings and a higher
weighted average interest rate. The decrease in interest expense
in this year's nine months was the result of lower average
interest rates in this year's first half compared with the prior
year. 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 32.0 percent for the
third quarter and 33.9 percent for the first nine months compared
with 34.4 percent and 36.6 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 and also the benefits from the Company's Foreign
Sales Corporation.
As a result of the above, net earnings increased in this year's
third quarter to $8.3 million or $.37 diluted earnings per share
from $7.0 million or $.31 diluted earnings per share in last
year's third quarter. For the first nine months, net earnings
this year increased to $24.2 million or $1.08 diluted earnings
per share compared with $21.5 million or $.93 per diluted share
last year.
NEW ACCOUNTING PRONOUNCEMENTS
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
<PAGE 16>
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 had developed plans to
address the possible business risks related to the impact of the
Year 2000 on its computer systems. Since entering the Year 2000,
the Company has not experienced any major disruptions to its
business nor is it aware of any significant Year 2000-related
disruptions affecting its customers and suppliers. Although the
Company does not anticipate any significant impact due to Year
2000 exposures, it will continue to monitor critical systems,
suppliers, and customers over the next several months. Despite
these efforts, the Company can provide no assurance that all
supplier and customer Year 2000 compliance plans were
successfully completed in a timely manner, although it is not
currently aware of any problems that would significantly impact
its operations. Costs incurred to achieve Year 2000 readiness
were not material and were charged to expense as incurred.
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:
- - future earnings and other measurements of financial
performance,
- - future cash flow and uses of cash,
- - 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 scope, nature, or impact of acquisition activity,
- - product developments and new business opportunities,
- - cost reduction efforts,
- - the outcome of contingencies,
- - the impact of Year 2000 issues, and
<PAGE 17>
- - 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,
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 18>
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 19>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On January 6, 2000, the Company issued a press release reporting
the acquisition of SD Trading OY, a leading distributor of
computerized sign making hardware in Finland. The terms of the
acquisition were not disclosed.
On February 1, 2000, the Company issued a press release reporting
the acquisition of Technograf Group, a leading distributor of
computerized sign making systems in Australia and New Zealand.
The terms of the acquisition were not disclosed.
<PAGE 20>
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 21>
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: March 3, 2000 By: / s / Gary K. Bennett
------------------ --------------------------------
Gary K. Bennett
Senior Vice President, Finance
(Principal Financial and
Accounting Officer)
<PAGE 22>
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
February 16, 2000 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.
/ s / KPMG LLP
KPMG LLP
Hartford, Connecticut
March 3, 2000
<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, 2000 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-30-2000
<PERIOD-END> JAN-31-2000
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0
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