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, 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 October 31, 2000, 22,013,067 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, 2000
PAGE
Part I - Financial Information
Item 1. Consolidated Financial Statements:
Statements of Earnings for the three months
ended October 31, 2000 and 1999 2
Statements of Earnings for the six months
ended October 31, 2000 and 1999 3
Balance Sheets at October 31, 2000 and
April 30, 2000 4-5
Statements of Cash Flows for the six months
ended October 31, 2000 and 1999 6
Notes to Financial Statements 7
Independent Accountants' Report 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
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
--------------------------------------------------------------
Three Months Ended
In thousands (except per share amounts) October 31,
--------------------------------------- ----------------------
2000 1999
--------- ---------
Revenue:
Product sales $130,463 $139,598
Service 12,391 13,255
-------- --------
142,854 152,853
-------- --------
Costs and Expenses:
Cost of product sales 82,589 82,412
Cost of service 7,940 7,188
Selling, general and administrative 35,846 38,442
Research and development expenses 7,515 8,304
Goodwill amortization 2,235 2,114
-------- --------
136,125 138,460
-------- --------
Operating income 6,729 14,393
Other income (expense) (434) 744
Interest expense (3,350) (2,407)
-------- --------
Earnings before income taxes 2,945 12,730
Provision for income taxes 1,100 4,400
-------- --------
Net earnings $ 1,845 $ 8,330
======== ========
Per share of common stock:
Basic $ .08 $ .38
Diluted $ .08 $ .37
Dividends $ .08 $ .08
Average shares outstanding:
Basic 22,009 22,175
Diluted 22,009 22,474
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,
--------------------------------------- ----------------------
2000 1999
--------- ---------
Revenue:
Product sales $256,421 $265,454
Service 24,823 26,875
-------- --------
281,244 292,329
-------- --------
Costs and Expenses:
Cost of product sales 163,692 155,033
Cost of service 16,338 14,493
Selling, general and administrative 71,769 73,534
Research and development expenses 15,270 16,902
Goodwill amortization 4,476 4,250
Special charge 4,419 --
-------- --------
275,964 264,212
-------- --------
Operating income 5,280 28,117
Other income 106 1,137
Interest expense (6,636) (4,871)
-------- --------
Earnings (loss) before income taxes (1,250) 24,383
Provision (benefit) for income taxes (400) 8,500
-------- --------
Net earnings (loss) $ (850) $ 15,883
======== ========
Per share of common stock:
Basic $ (.04) $ .72
Diluted $ (.04) $ .71
Dividends $ .16 $ .16
Average shares outstanding:
Basic 22,003 22,147
Diluted 22,003 22,463
See Accompanying Notes
<PAGE 4-5>
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------
October 31, April 30,
In thousands 2000 2000
-------------------------------------- ---------- ----------
Assets
Current Assets:
Cash and short-term cash investments $ 18,073 $ 22,954
Accounts receivable 102,907 121,494
Inventories 85,940 86,472
Prepaid expenses 20,459 21,042
Net assets held for sale 30,305 --
-------- --------
257,684 251,962
-------- --------
Property, Plant and Equipment 118,321 165,341
Less accumulated depreciation 52,459 66,121
-------- --------
65,862 99,220
-------- --------
Intangible Assets 245,270 245,797
Less accumulated amortization 32,160 27,419
-------- --------
213,110 218,378
-------- --------
Other Assets 4,219 3,276
-------- --------
$540,875 $572,836
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable $ -- $ --
Accounts payable 48,268 58,043
Accrued compensation and benefits 12,836 16,646
Other accrued liabilities 26,679 26,689
Deferred revenue 8,525 8,436
Advances on sales contracts 2,093 2,610
-------- --------
98,401 112,424
-------- --------
Noncurrent Liabilities:
Deferred income taxes 8,325 8,608
Long-term debt 183,475 194,892
-------- --------
191,800 203,500
-------- --------
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
22,805,185 and 22,779,651 shares 22,805 22,780
Paid-in capital 43,786 43,615
Retained earnings 206,382 210,749
Treasury stock, at cost (792,118
and 797,444 shares, respectively) (16,288) (16,397)
Unamortized value of restricted stock
grants (524) (557)
Accumulated other comprehensive income
(loss) (5,487) (3,278)
-------- --------
250,674 256,912
-------- --------
$540,875 $572,836
======== ========
See Accompanying Notes
<PAGE 6>
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------
Six Months Ended
In thousands October 31,
-------------------------------------------- ---------------------
2000 1999
---------- ---------
Cash Provided by (Used for):
Operating Activities:
Net earnings (loss) $ (850) $ 15,883
Adjustments to reconcile net earnings(loss)
to cash provided by operating activities:
Depreciation and amortization 13,993 12,359
Special charge 4,419 --
Deferred income taxes (283) 722
Other non-cash items 265 155
Changes in operating accounts, net of
effects of business acquisitions:
Receivables 18,587 (15,024)
Inventories 532 (15,691)
Prepaid expenses 583 3,079
Accounts payable and accrued expenses (15,266) 2,580
-------- --------
Provided by Operating Activities 21,980 4,063
-------- --------
Investing Activities:
Additions to property, plant and equipment (8,872) (13,251)
Business acquisitions -- (7,452)
Intangible and other assets (752) (340)
Other, net (2,209) (391)
-------- --------
(Used for) Investing Activities (11,833) (21,434)
-------- --------
Financing Activities:
Additions of long-term debt 23,000 30,274
Repayments of long-term debt (34,417) (16,229)
Net short-term financing -- (1,249)
Debt issue costs (167) --
Proceeds from issuance of stock 73 1,809
Dividends on common stock (3,517) (3,539)
-------- --------
Provided by (Used for) Financing Activities (15,028) 11,066
-------- --------
(Decrease) in Cash and Short-Term
Cash Investments (4,881) (6,305)
Cash and Short-Term Cash Investments,
Beginning of Period 22,954 26,523
-------- --------
Cash and Short-Term Cash Investments, $ 18,073 $ 20,218
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, 2000 are not necessarily indicative of the results
that may be expected for the year ended April 30, 2001.
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, 2000.
NOTE 2. Inventories
The classification of inventories was as follows (in thousands):
October 31, 2000 April 30, 2000
---------------- --------------
Raw materials & purchased parts $55,746 $52,847
Work in process 30,194 33,625
------- -------
$85,940 $86,472
======= =======
NOTE 3. Special Charge and Net Assets Held for Sale
In June 2000, the Company began implementation of a program to
reduce the number of employees by approximately 7.5 percent (225-
240 people) through early retirement incentives, voluntary
separation arrangements, and involuntary severance. The
workforce reductions primarily affected the Sign Making and
Specialty Graphics and Apparel and Flexible Materials operating
segments. The Company recorded a special charge in the first
quarter of 2000 that included $1.9 million of provisions for
employee termination benefits (110 employees affected). As of
October 31, 2000, 71 of these employees have been terminated and
approximately $0.8 million, or 40 percent of the accrual for the
program, had been paid.
The special charge also included provisions for anticipated
losses on the sale of facilities amounting to $2.3 million and
losses for other impaired assets, principally patents, amounting
to $0.2 million. These facilities had a carrying value of $5.7
million after the provision and are included in the October 31,
<PAGE 8>
2000 balance sheet in the caption "Net assets held for sale"
along with certain other facilities that are the subject of
sale/leaseback negotiations.
The Company determined the impairment loss on the facilities in
accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." Under this standard, an
impairment is recognized when the future undiscounted cash flows
from these assets are estimated to be insufficient to recover
their related carrying values. Accordingly, the carrying values
of these assets were written down to the Company's estimates of
fair value. Actual results from the sale of these facilities
could vary from these estimates.
NOTE 4. Segment Information
Three Months Ended Six Months Ended
In thousands October 31, October 31,
----------------------- ----------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Segment revenue:
Sign Making &
Specialty Graphics $ 70,112 $ 72,993 $138,965 $141,327
Apparel & Flexible
Materials 49,615 56,607 96,502 105,472
Ophthalmic Lens
Processing 23,127 23,253 45,777 45,530
-------- -------- -------- --------
$142,854 $152,853 $281,244 $292,329
======== ======== ======== ========
Segment profit:
Sign Making &
Specialty Graphics $ 4,404 $ 8,782 $ 7,259 $ 17,648
Apparel & Flexible
Materials 1,605 6,607 1,458 11,751
Ophthalmic Lens
Processing 1,281 1,416 2,121 2,667
-------- -------- -------- --------
$ 7,290 $ 16,805 $ 10,838 $ 32,066
======== ======== ======== ========
A reconciliation of total segment profits to consolidated
earnings before income taxes follows:
Three Months Ended Six Months Ended
In thousands October 31, October 31,
------------------------ ------------------ ----------------
2000 1999 2000 1999
-------- -------- ------- -------
Segment profit $ 7,290 $ 16,805 $10,838 $ 32,066
Corporate expenses and
special charge, net of
other income/expense (995) (1,668) (5,452) (2,812)
-------- -------- -------- --------
Earnings before interest
and taxes 6,295 15,137 5,386 29,254
Interest expense (3,350) (2,407) (6,636) (4,871)
-------- -------- -------- --------
Earnings (loss) before
income taxes $ 2,945 $ 12,730 $(1,250) $ 24,383
======== ======== ======== ========
<PAGE 9-10>
There were no material changes in segment assets, the measure of
segment profit, or differences in the basis of segmentation
since the Company's last Annual Report on Form 10-K.
NOTE 5. Comprehensive Income
The Company's total comprehensive income was as follows:
Three Months Six Months Ended
In thousands Ended October 31, October 31,
-------------------------- ----------------- ----------------
2000 1999 2000 1999
------- ------- ------- -------
Net earnings (loss) $ 1,845 $ 8,330 $ (850) $15,883
Other comprehensive income
(loss):
Foreign currency
translation adjustments (2,423) (1,083) (2,209) (1,648)
------- ------- ------- -------
Total comprehensive
income (loss) $ (578) $ 7,247 $(3,059) $14,235
======= ======= ======= =======
NOTE 6. 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,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
Numerator:
Net income (loss) $1,845,000 $ 8,330,000 $(850,000) $15,883,000
========== =========== ========== ===========
Denominators:
Denominator for basic
earnings per share--
weighted-average
shares outstanding 22,008,787 22,175,402 22,003,089 22,146,571
Effect of dilutive
securities:
Stock options -- 298,299 -- 316,040
---------- ----------- ---------- -----------
Denominator for
diluted earnings
per share-adjusted
weighted-average
shares outstanding 22,008,787 22,473,701 22,003,089 22,462,611
========== =========== ========== ===========
Basic earnings (loss)
per share $ .08 $ .38 $ (.04) $ .72
=========== =========== =========== ===========
Diluted earnings (loss)
per share $ .08 $ .37 $ (.04) $ .71
=========== =========== =========== ===========
For the quarter ended October 31, 2000, there were no common stock
equivalents because the average market price for the Company's stock was
lower than the exercise price on all outstanding stock options. For the
six months ended October 31, 2000, there were 1,497 shares of common
stock equivalents that were not included in the calculation of diluted
EPS above because they were antidilutive.
<PAGE 11>
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
With respect to the unaudited consolidated financial statements
of Gerber Scientific, Inc. and subsidiaries at October 31, 2000
and for the three- and six-month periods ended October 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
November 29, 2000 appearing on page 12. 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 12>
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, 2000 and 1999, the
consolidated statements of cash flows for the six-month periods
ended October 31, 2000 and 1999, and the consolidated balance
sheet as of October 31, 2000 in accordance with standards
established by the American Institute of Certified Public
Accountants. We have previously audited, in accordance with
auditing standards generally accepted in the United States of
America, and expressed our unqualified opinion dated May 24,
2000 on the consolidated financial statements for the year ended
April 30, 2000 (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 auditing standards generally
accepted in the United States of America, 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, 2000 and 1999, the consolidated
statements of cash flows for the six-month periods ended October
31, 2000 and 1999, or the consolidated balance sheet as of
October 31, 2000 for them to be in conformity with accounting
principles generally accepted in the United States of America.
Also, in our opinion the information in the accompanying consolidated
balance sheet as of April 30, 2000 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 29, 2000
<PAGE 13>
ITEM 2. 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
2.6 to 1 at October 31, 2000 compared with 2.2 to 1 at April 30,
2000. Net working capital at October 31, 2000 was $159.3
million, compared with $139.5 million at April 30, 2000. The
October 31, 2000 amount included $30.3 million of net assets held
for sale that were reclassified from net property, plant, and
equipment at April 30, 2000. The Company plans to sell two idle
facilities and a separate parcel of land, and enter into sale and
leaseback transactions for three additional facilities. The
Company expects to use the net cash proceeds from asset sales and
sale leaseback transactions to reduce long-term debt.
Adjusting for the reclassification of assets held for sale, net
working capital at October 31, 2000 decreased by $10.6 million
from the beginning of the fiscal year. The decrease was largely
attributable to lower accounts receivable balances, which were
caused by management's concerted efforts to accelerate customer
collections. Lower sales levels in both the Sign Making and
Specialty Graphics and Apparel and Flexible Materials operating
segments also reduced accounts receivable balances.
The Company's cash and investments totaled $18.1 million at
October 31, 2000 compared with $23.0 million at the end of the
prior fiscal year. Operating activities provided $22.0 million
in cash for the six-month period ended October 31, 2000 compared
with $4.1 million provided by operating activities for the same
period last year. Operating cash was generated by the add back
of non-cash charges for depreciation and amortization and the non-
cash elements of this year's first quarter special charge, and
was supplemented by the lower accounts receivable balances.
Lower accounts payable and accrued liability balances, due
largely to the timing of payments this year, were partial offsets
to cash generation in the first six months.
The principal non-operating use of cash in the six months ended
October 31, 2000 was for additions to property, plant, and
equipment of $8.9 million. The Company anticipates capital
expenditures for the current fiscal year to be in the range of
$15.0 - $16.0 million and expects to fund these with cash on hand
and cash from operations. Cash was also used for payment of
dividends of $3.5 million in this year's first six months.
The Company's total long-term debt at October 31, 2000 was $183.5
million, down from the April 30, 2000 balance of $194.9 million.
The ratio of total debt to EBITDA (earnings before interest,
taxes, depreciation, and amortization) has increased in the
current fiscal year and this has caused interest rates on the
Company's borrowings under its syndicated bank line to increase.
<PAGE 14>
Net debt (total debt less cash and investments) was $165.4
million at October 31, 2000 versus $171.9 million at April 30,
2000 and the ratio of net debt to total capital decreased
slightly to 39.8 percent at October 31, 2000 from 40.1 percent at
April 30, 2000.
RESULTS OF OPERATIONS
Combined sales and service revenue for the three-month period
ended October 31, 2000 decreased $10.0 million (6.5 percent) and
for the six-month period ended October 31, 2000 decreased $11.1
million (3.8 percent) from the prior year comparable periods. The
decreases reflected both lower product sales and service revenue.
Weaker foreign currency translation rates, especially in Europe,
suppressed product sales revenue approximately $10.9 million and
$17.6 million in the three- and six-month periods ended October
31, 2000, respectively. Holding exchange rates constant, product
sales were higher in this year's second quarter and first six
months in the Sign Making and Specialty Graphics operating
segment and in the Ophthalmic Lens Processing operating segment,
but lower for both periods in the Apparel and Flexible Materials
operating segment. Weaker demand for equipment in North American
markets pressured product sales in each of the Company's
operating segments. Foreign currency effects on competitive
pricing in European markets further reduced product sales in the
Apparel and Flexible Materials operating segment. Businesses
that were acquired in the prior year generated $4.2 million and
$10.4 million of incremental sales in the Sign Making and
Specialty Graphics operating segment in the second quarter and
first six months of the current year.
Service revenue decreased $0.9 million (6.5 percent) and $2.1
million (7.6 percent) in the three- and six-month periods ended
October 31, 2000, respectively, from the prior year comparable
periods. The decreases occurred primarily in the Apparel and
Flexible materials operating segment and resulted from the
translation effect on service revenue earned in weaker European
currencies and some loss of service business in North America.
The decline in North American service is coincident with the
continuing migration of the apparel industry to offshore locales.
The consolidated gross profit margins in this year's three- and
six-month periods ended October 31, 2000 were 36.6 percent and
36.0 percent, respectively, which were significantly lower than
the prior year margins of 41.4 and 42.0 percent. Gross profit
margins on both product sales and service revenue were lower in
the current year. The decreases were the result of a shift in
sales mix on both a product and geographic basis and also the
sales impact of lowered European currency values, which
compressed margins and impacted price competitiveness. From a
business mix perspective, equipment sales (hardware and software)
slipped to 41.4 percent and 40.2 percent of the Company's total
sales for the three- and six-month periods ended October 31,
2000, compared with 44.3 percent and 42.7 percent of sales in the
<PAGE 15>
prior year comparable periods. Within the equipment category,
hardware sales were higher in the current year while sales of
computer aided design systems, software, and services (with
comparatively higher margins) were lower. On a geographic basis,
an increase in sales in international markets and weakness in the
North American equipment market had negative gross margin
implications in the second quarter and first six months of the
current year. Sales in North America are generally more
profitable than in international markets where sales go through
the Company's independent distribution and agency network. The
continued deterioration of foreign currency valuations further
eroded gross profits from the prior year in the Sign Making and
Specialty Graphics and Apparel and Flexible Materials operating
segments. This margin impact resulted from sales of products
manufactured with a U.S. dollar cost-base and sold in Europe in
weaker local currencies.
The decrease in service gross profit margins in this year's three-
and six-month periods ended October 31, 2000 resulted from improved
classification of expenses as a result of implementaton of an
enterprise resource planning system. The new system distinguishes
more clearly between warranty, installation, and training and the
fulfillment of service contract obligations. The decrease in this
segment's North American service business noted above also was a
factor in the margin decline.
Selling, general, and administrative (S,G,&A) expenses decreased
$2.6 million (6.8 percent) in this year's second quarter and $1.8
million (2.4 percent) in this year's first six months from the
prior year comparable periods. Contributing to these decreases
were cost reduction actions taken in this year's first quarter to
reduce employment levels, largely affecting the Apparel and
Flexible Materials and Sign Making and Specialty Graphics
operating segments. Additional expenses associated with the
businesses acquired last year in the Sign Making and Specialty
Graphics operating segment were a partial offset. As a
percentage of sales, S,G,&A expenses were 25.1 percent in both
years' second quarters and were 25.5 percent and 25.2 percent of
sales for the six-month periods ended October 31, 2000 and 1999,
respectively.
R&D spending decreased $0.8 million (9.5 percent) in this year's
second quarter and $1.6 million (9.7 percent) in this year's
first six months. There were comparatively higher levels of
expenses related to new product introductions in last year's
first half in each of the Company's operating segments. As a
percentage of sales, research and development was 5.3 percent in
the second quarter and 5.4 percent in the first six months
compared with 5.4 percent and 5.8 percent, respectively, in the
prior year periods.
In this year's first quarter, the Company recorded a $4.4 million
pre-tax special charge that consisted of provisions for severance
of $1.9 million, provisions for losses on the sale of facilities
<PAGE 16>
of $2.3 million, and $0.2 million for other asset impairments.
See Note 3 on page 7 of this quarterly report on Form 10-Q for
further discussion of this special charge.
Interest expense increased $0.9 million in the second quarter and
$1.8 million in the first six months of the current year,
principally the result of higher interest rates and also higher
debt balances. Substantially all 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 over the trailing four
quarters. The lower EBITDA realized by the Company in last
year's fourth quarter and this year's first half has caused this
debt to EBITDA relationship to rise, and accordingly the interest
margin over LIBOR to rise. As a result of this higher debt to
EBITDA relationship, the Company was required to renegotiate
certain debt covenants in its syndicated bank agreement, the
effect of which has increased the interest margin over LIBOR.
Accordingly, management believes that interest expense will
remain at a higher level until the full impact of its cost
reduction, working capital improvement, and asset sale programs
are implemented and the debt to EBITDA relationship improves.
The benefit rate for income taxes was 32.0 percent for the six-
month period ended October 31, 2000. This compared with a tax
provision rate of 34.9 percent in the comparable prior year
period and a 33.6 percent provision rate for the full prior year.
The components of the tax rates in the two years were not
substantially different; the comparability of the resulting
percentages was affected more by the relatively small size of the
pre-tax loss in this year's six-month period.
As a result of the above, net earnings decreased in this year's
second quarter to $1.8 million or $.08 diluted earnings per share
from $8.3 million or $.37 diluted earnings per share in last
year's second quarter. For the first six months, net earnings in
this year's first half were $2.0 million or $.09 diluted earnings
per share, before the special charge of $2.8 million, net after
taxes, or $.13 per diluted share. A net loss of $0.8 million or
$.04 per share was realized in this year's first six months after
the special charge. Net earnings were $15.9 million or $.71
diluted earnings per share in last year's first half.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133) which, as amended, is currently effective May 1, 2001,
for the Company. 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.
<PAGE 17>
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 or nature of acquisition activity,
- prospective product developments and new business
opportunities,
- cost reduction efforts,
- the outcome of contingencies, 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,
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 2000 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, 2000.
<PAGE 19>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 31, 2000, the Company issued a press release reporting
that its Board of Directors had authorized the Company to pursue
strategic alternatives for its Ophthalmic Lens Processing
operating segment, including the potential divestiture of the
segment. The Company also indicated it had no plans to divest
any of its other businesses.
On August 31, 2000, the Company also reported the appointment of
F. David Jones as President of the Sign Making and Specialty
Graphics operating segment and Senior Vice President of Gerber
Scientific, Inc. Jones was previously Group Managing Director of
the Company's Spandex PLC unit.
On October 26, 2000, the Company issued a press release reporting
the appointment of Marc T. Giles as President of the Apparel and
Flexible Materials operating segment and a Senior Vice President
of Gerber Scientific, Inc. Giles was previously with FMC
Corporation as Division Manager, Food Systems and Handling.
Also announced in the Apparel and Flexible Materials operating
segment was the appointment of Bernard J. Demko as Executive Vice
President and Chief Operating Officer in a press release dated
September 29, 2000. Demko was previously Vice President and
Corporate Controller at Gerber Scientific, Inc.
<PAGE 20>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10.1)* Employment Agreement dated as of October 20,
2000 between the Company, Gerber Technology,
and Marc T. Giles.
(10.2)* Letter Agreement dated as of November 6, 2000
between the Company, Gerber Technology, and
Fredric K. Rosen.
(15)* Letter regarding unaudited interim financial
information.
(27)* Financial data schedule.
(99)* Supplemental Segment Information
(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: December 14, 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 ----
--------
(10.1)* Employment Agreement dated as of October 20,
2000 between the Company, Gerber Technology,
and Marc T. Giles.
(10.2)* Letter Agreement dated as of November 6,
2000 between the Company, Gerber Technology,
and Fredric K. Rosen.
(15)* Letter regarding unaudited interim financial
information.
(27)* Financial data schedule.
(99)* Supplemental Segment Information
*Filed herewith.
