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July 22, 1997
YREND/10K97EDG
1
July 25, 1997
Securities & Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Re: Gerber Scientific, Inc.
Commission File No. 1-5865
Gentlemen:
Pursuant to regulations of the Securities and Exchange
Commission, submitted herewith for filing on behalf of Gerber
Scientific, Inc. (the "Company") is the Company's Annual Report
on Form 10-K for the fiscal year ended April 30, 1997.
This filing is being effected by direct transmission to the
Commission's EDGAR System.
Very truly yours,
/s/ Gary K. Bennett
Gary K. Bennett
Senior Vice President, Finance
2
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One) Annual Report / X / (Fee Required) or
Transition Report / / (No Fee Required)
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended April 30, 1997 Commission File No. 1-5865
GERBER SCIENTIFIC, INC.
(Exact name of Registrant as specified in its charter)
Connecticut 06-0640743
------------------------------ ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
83 Gerber Road West
South Windsor, CT 06074
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860)
644-1551
=================================================================
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
-------------------------------------- ----------------------
Common Stock, par value $1.00 per share New York Stock Exchange
At June 30, 1997, 23,334,025 shares of common stock of the registrant
were outstanding. On such date the aggregate market value of the
voting stock held by non-affiliates of the registrant was approximately
$392,500,000. Excluded from this amount is voting stock having an
aggregate market value of approximately $68,300,000 (representing 14.8%
of the outstanding voting stock) which is owned by the estate of the
Company's founder and former President and Chairman of the Board of
Directors and his family, and by the other members of the Company's
Board of Directors, who are deemed affiliates for purposes of this
computation.
Securities registered pursuant to Section 12(g) of the Act: None
=======================================================================
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K. / /.
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 / /.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the documents listed below have been incorporated by
reference into the indicated parts of this report, as specified in the
responses to the item numbers involved.
(1) 1997 Annual Meeting Proxy Statement (Parts I, III, and IV).
3
GERBER SCIENTIFIC, INC.
Index to Annual Report
on Form 10-K
Year Ended April 30, 1997
PART I PAGE
Item l. Business . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . 9
Executive Officers of the Registrant . . . . . 9
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . 9
Item 6. Selected Financial Data . . . . . . . . . . . . 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations . 11
Item 8. Financial Statements and Supplementary Data . . 19
Item 9. Changes in and Disagreements with Auditors
on Accounting and Financial Disclosure . . . . 47
PART III
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . 47
Item 11. Executive Compensation . . . . . . . . . . . . 48
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . 49
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . 49
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . 49
Signatures . . . . . . . . . . . . . . . . . . 51
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GERBER SCIENTIFIC, INC.
PART I
Item 1. Business.
Gerber Scientific, Inc., a Connecticut corporation
incorporated in 1948, is a holding company providing corporate
management services and financial resources to its
subsidiaries. As used herein, the term "Company" means Gerber
Scientific, Inc. and, unless the context indicates otherwise,
its subsidiaries. The Company designs, develops, manufactures,
markets, and services computer-aided design and computer-aided
manufacturing (CAD/CAM) systems to automate the design and
production processes in a broad range of industries. The
Company's principal manufacturing and administrative facilities
are located in Connecticut.
The Company conducts its business primarily through four
wholly owned operating subsidiaries. Gerber Garment
Technology, Inc. (GGT) designs, develops, manufactures,
markets, and services computer-controlled systems and software
for product design, marker-making (nesting), spreading,
labeling, cutting, and handling flexible materials, such as
fabrics and composites, in the apparel, aerospace, automotive,
furniture, and other industries. Gerber Scientific Products,
Inc. (GSP) designs, develops, manufactures, markets, and
services microprocessor- and PC-controlled production systems,
software, and aftermarket supplies for the signmaking, graphic
arts, and screenprinting industries. Gerber Systems
Corporation (GSC) designs, develops, manufactures, markets, and
services interactive imaging and inspection systems for the
electronics and commercial printing industries. Gerber
Optical, Inc. designs, develops, manufactures, markets, and
services computer-controlled production systems and aftermarket
supplies for the ophthalmic lens manufacturing industry.
The Company has foreign subsidiaries which provide
marketing and field service support for the Company's products.
These subsidiaries are located in Belgium, Germany, Italy,
France, Portugal, the United Kingdom, Sweden, Canada, Mexico,
Australia, New Zealand, and Hong Kong. The Company also has a
subsidiary in Denmark which performs manufacturing operations.
As of April 30, 1997, the Company had approximately 1,900
regular, full-time employees.
On February 12, 1997, the Company's GGT subsidiary acquired
the outstanding stock of Cutting Edge Inc. (Cutting Edge) of
Marblehead, Massachusetts, for a total cost of approximately
$7.8 million and subsequently merged that company into GGT.
Cutting Edge manufactures high-performance single layer fabric
cutting systems for the industrial fabric, automotive,
furniture, apparel, and composite materials industries. GGT
has continued to develop, manufacture, market, and support the
Cutting Edge product lines.
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On September 1, 1994, GGT acquired the outstanding stock of
Microdynamics, Inc. (Microdynamics) of Dallas, Texas, and
subsequently merged that company into GGT. The Microdynamics
purchase price was approximately $8.5 million plus additional
contingent cash consideration based on the earnings performance
of a certain acquired product line over the three-year period
following the date of acquisition. Microdynamics was a leading
supplier of computer-aided design (CAD), graphic design, and
product management systems for the apparel, footwear, and other
sewn goods industries. GGT has continued to develop,
manufacture, market, and support the Microdynamics product
lines.
On March 1, 1994, GGT purchased the business and certain
assets and liabilities of Niebuhr Maskinfabrik A/S (Niebuhr) of
Ikast, Denmark, for a total cost of approximately $1 million.
Niebuhr manufactures and markets computer-automated fabric
spreading equipment used in the apparel and related industries.
The acquisition was accomplished through a newly formed Danish
subsidiary of GGT known as GGT-Niebuhr A/S, which has continued
to manufacture, market, and support Niebuhr equipment.
Information About Industry Segments
The Company designs, develops, manufactures, markets, and
services CAD/CAM factory automation systems, software, and
related aftermarket supplies for a wide range of industries,
including apparel, automotive, aerospace, electronics,
commercial printing, ophthalmic, graphic arts, screenprinting,
and signmaking. No other segment of the Company constituted
10 percent or more of revenue or net earnings in the Company's
last three fiscal years.
The Company's principal CAD/CAM products consist of the
following: cutting, nesting, spreading, and material handling
systems; microprocessor- and PC-controlled signmaking and
graphic arts systems; interactive imaging and inspection
systems; and ophthalmic lens manufacturing systems. For each
of the Company's last three fiscal years, the approximate
percentage of consolidated sales and service revenue accounted
for by these classes of products and their related aftermarket
supplies was as follows:
1997 1996 1995
---- ---- ----
Cutting, nesting, spreading, and
material handling systems 51% 54% 57%
Microprocessor- and PC-controlled
signmaking and graphic arts systems 30% 30% 29%
Interactive imaging and inspection
systems 12% 10% 8%
Ophthalmic lens manufacturing systems 7% 6% 6%
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CAD/CAM Cutting, Nesting, Spreading, and Material Handling
Systems
The Company produces computer-controlled material spreading
and cutting systems for the apparel, aerospace, automotive, and
other industries that manufacture with sewn goods. Material
spreading systems enhance cutting room efficiency by automating
the preparation of multiple layers of material for the cutting
table. The Company's computer-controlled cutting systems
accurately cut parts out of single and multiple layers of
flexible materials, such as textiles, vinyls, plastics,
fiberglass, and advanced composite materials, quickly,
efficiently, and with more precision than the traditional
methods of hand cutting or die cutting.
The Company's computer-aided design, pattern-making, and
marker-making (nesting) systems automate the design, pattern-
making, pattern-grading (sizing), and marker-making functions.
This improves the efficiency of material usage in the apparel,
furniture, luggage, automotive, aerospace, sheet metal,
composites, and other industries.
The Company also produces several related hardware and
software products for the sewn goods industries. Among the
software products is a product data management system that
provides a powerful tool for developing product specifications,
controlling and managing data, and documenting the product
development process, along with production and quality
requirements.
CAD/CAM Microprocessor- and PC-Controlled Signmaking and
Graphic Arts Systems
The Company's microprocessor- and PC-controlled production
systems and software bring computer automation to the
signmaking, screenprinting, and graphic arts industries. The
Company produces a full range of automated lettering systems,
software, plotters, routers, and color digital imaging systems
for the design and production of signs and graphic arts on
adhesive-backed vinyls and other materials. The Company's
color digital imaging systems create continuous length,
durable, professional-quality text and graphics, including
complicated halftones, multiple colors, and process four color
images directly on signmaking vinyl.
The Company also sells aftermarket supplies to these
industries, including a wide variety of adhesive-backed vinyls,
translucent vinyl films, color foil cartridges, reflective
sheeting, masking film, sandblast stencil, heat transfer flock,
and specialty and screenprinting films.
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CAD/CAM Interactive Imaging and Inspection Systems
The Company produces interactive computer-based
photoplotting systems that automate the production of artwork,
tooling, and documentation for printed circuit board (PCB)
manufacturers. Photoplotting systems image with a beam of
light on photographic film or glass. They are used in the
electronics industry for producing master artwork and
associated manufacturing aids for PCBs, micropackaging of
microchips and ultra-large scale integrated circuits, and for
various other applications requiring accurate, high-quality
graphic masters. The Company also produces automatic optical
inspection systems which are used for quality control in PCB
manufacturing. These systems perform an on-line defect
analysis by comparing a PCB or its artwork master to the
original computer-aided design database.
The Company also produces laser imaging systems for the
commercial printing industry that are used to expose digital
printing plates, enabling direct computer-to-plate printing.
These systems enable printing plates to be imaged in a digital
work flow environment, eliminating the necessity to expose film
to make a plate for the printing press. The result is the
elimination of a number of steps in the printing process, a
reduction in waste, and an improvement in press efficiency,
providing cost savings and faster job turnaround for commercial
printers.
CAD/CAM Ophthalmic Lens Manufacturing Systems
The Company produces innovative, high-technology system
solutions in the manufacture of prescription eyewear. The
ophthalmic manufacturing systems offered by the Company replace
a set of related manual tasks with computer-controlled
automation, reducing operator skill levels and increasing
productivity. The Company's product offerings include the
components required to process an entire prescription,
including computerized frame tracing, lens blocking, surface
generating, and lens edging. The individual systems can be
used with other manufacturing equipment or can be combined in a
complete system managed by the Company's processing software.
The markets for the Company's ophthalmic manufacturing systems
include wholesale optical laboratories and optical retail
chains and superstores.
Research and Development
The Company continues to emphasize technological
development with research and development programs designed to
create new software and hardware products, improve existing
products, and modify products to meet specific customer needs.
The Company's research and development expenses for the years
ended April 30, 1997, 1996, and 1995 were $30,415,000,
$25,771,000, and $26,009,000, respectively. The Company also
received and expended approximately $736,000, $1,373,000, and
$3,109,000 for the years ended April 30, 1997, 1996, and 1995,
respectively, for customer-funded research and development
projects.
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Marketing
Most of the Company's product sales are to end-users and
are sold through the Company's direct sales force in the United
States, subsidiaries in Europe, Canada, Mexico, Australia, New
Zealand, and the Far East, and independent sales
representatives and agents in various parts of the world. The
Company's microprocessor- and PC-controlled signmaking and
graphic arts systems are sold principally to independent
distributors for resale by them. Domestic sales personnel are
located in a number of cities, including Hartford, New York,
Atlanta, Chicago, Dallas, and Los Angeles. The Company's
foreign sales and service subsidiaries are located in Belgium,
Germany, Italy, France, Portugal, the United Kingdom, Sweden,
Canada, Mexico, Australia, New Zealand, and Hong Kong. The
Company's foreign subsidiaries act both as sales
representatives on a commission basis and as distributors,
depending upon the product and the territory involved.
Raw Materials
The Company purchases materials, such as computers,
computer peripherals, electronic parts, hardware, and sheet
metal from numerous suppliers. Many of these materials are
incorporated directly into the Company's manufactured products,
while others require additional processing. In some cases the
Company uses only one source of supply for certain materials,
but to date the Company has not experienced significant
difficulties in obtaining timely deliveries. Increased demand
for these materials or future unavailability could result in
production delays which might adversely affect the Company's
business. The Company believes that, if required, it could
develop alternative sources of supply for the materials which
it uses.
Patents and Trademarks
The Company owns and has applications pending for a large
number of patents in the United States and other countries,
which expire from time to time, and cover many of its products
and systems. The Company has pending lawsuits in the United
States and elsewhere where the Company alleges that others are
violating one or more of its patents. While the Company
considers that such patents and patent applications as a group
are important to its operations, it does not consider that any
patent or group of them related to a specific product or system
is of such importance that the loss or expiration thereof would
have a materially adverse effect on its business considered as
a whole.
The Company believes that its success depends, to a
significant extent, on the innovative skills, technical
competence, and marketing abilities of its personnel.
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The Company also has registered trademarks for a number of
its products. Trademarks do not expire when continued in use
and properly protected.
Seasonality
No portion of the Company's business is subject to
significant seasonal fluctuation.
Working Capital
The Company's business generally does not require unusually
large amounts of working capital. The Company receives advance
payments on customer orders for some of its products. The
Company also sells certain of its products through leasing
programs which are financed by third-party financial
institutions. These leases are generally for three- to five-
year terms. The Company has recourse obligations for leases
which are financed under these leasing programs and these
obligations are secured and collateralized by the underlying
equipment.
Customers
The Company's customers are primarily end-users, except in
the sale of microprocessor- and PC-controlled signmaking and
graphic arts systems, for which the Company's customers are
primarily independent distributors. No single customer
accounted for 10 percent or more of the Company's consolidated
revenue in 1997, 1996, or 1995. Customer purchases of capital
goods often vary from year to year, and it is normal for the
Company's customer base to change accordingly. The Company
believes that the loss of any single customer or small group
of customers would not have a materially adverse impact on the
Company's business.
Backlog
The Company's backlog of orders considered firm was
approximately $56,800,000 at April 30, 1997, compared with
$48,700,000 at April 30, 1996. Substantially all the backlog
at April 30, 1997, is scheduled for delivery in fiscal 1998.
The Company records as backlog firm orders from customers for
delivery at specified dates. Historically, the Company has
experienced few cancellations of orders.
Competition
The Company competes in a variety of markets and with a
variety of other companies. In certain of these markets,
competitors are larger and have greater financial, marketing,
and technological resources than the Company. In the markets
the Company serves, the principal competitive factors are
product performance, price, customer support, and company
reputation.
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The Company believes that it is the largest worldwide
supplier to the apparel and allied industries of
computer-controlled limp material cutting systems and pattern-
making, grading, and nesting systems. There is worldwide
competition in these markets, and certain competing companies
have become significant suppliers. Certain of these
competitors have marketed cutting equipment which the Company
believes may have infringed the Company's patents, and the
Company has lawsuits pending against such competitors.
In the marketplace for microprocessor- and PC-controlled
signmaking and graphic arts systems, the Company holds the
predominant market position. The Company pioneered the
development of these technologies, holding several key related
patents. While there has been an increase in the number of
companies marketing competing products, the Company believes
that none have been able to match the combined product,
marketing, and selling/distribution strength of the Company.
The Company also produces laser imaging systems for the
electronics and commercial printing industries. In the
electronics marketplace, there are significant competitors in
the manufacture and sale of laser imaging systems for printed
circuit board manufacturing. The Company's automated optical
inspection equipment for this market also has significant
competition, primarily from foreign-based manufacturers. At
the present time, the Company believes its direct computer-to-
printing plate laser imaging system for the commercial printing
industry has a leading position. There is competition in this
market and the Company anticipates that additional competition
from larger companies will emerge.
The Company's ophthalmic manufacturing systems, used in the
manufacture of eyeglass lenses, face entrenched competition.
The Company believes that its leadership in technology has
enabled it to become the major supplier of computerized surface
blocking systems, three-axis lens generating systems, and
three-axis edge polishing systems in the United States.
The Company could be adversely affected if it were unable
to respond with competitive products, in a timely manner, to
pricing changes or significant new product announcements
affecting its product lines.
Financial Information About Foreign and Domestic Operations and
Export Sales
The financial information required by Item 1 relating to
export sales is included in Note 1, "Products and Operations"
of "Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements" appearing on page 28 of this
Form 10-K.
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The approximate percentage of consolidated sales and
service revenue from foreign (i.e., non-U.S.) customers for
each of the last three fiscal years was as follows:
1997 1996 1995
---- ---- ----
Percentage of consolidated sales
and service revenue from
foreign customers 48% 49% 48%
The Company is subject to the usual risks involved in
international sales, which include unfavorable economic or
political conditions in foreign countries, restrictive trade
policies imposed by foreign governments, restrictions on the
transfer of funds, and foreign currency exchange rate
fluctuations. The Company's foreign product sales have
generally been made in U.S. dollars, but for certain products
and territories (principally in Western Europe), the Company
has made sales in local currencies. The Company has a program
to hedge such sales through the use of forward foreign currency
exchange contracts.
Item 2. Properties.
The Company's principal operations are conducted in the
following facilities:
Type of Facility Location
-------------------------------- -----------------
Manufacturing/office (O) South Windsor, CT
(4 sites)
Manufacturing/office (O) Tolland, CT
Manufacturing/office (O) Manchester, CT
Manufacturing/office (L) Ikast, Denmark
Manufacturing/office (L) Marblehead, MA
Service/office (O) Richardson, TX
Warehouses/sales and service
offices (L) Various
-----------------------
(O) Company owned
(L) Leased
Management believes that the Company's present facilities,
which are utilized primarily on a single-shift basis with
overtime, are well maintained and are adequate to meet the
Company's immediate requirements.
The Company's leases for warehouse and sales and service
office space are generally on short-term bases. Rentals for
leased facilities aggregated $2,668,000 in the fiscal year
ended April 30, 1997.
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The Company owns substantially all of the machinery and
equipment used in its operations and leases the remainder. In
the fiscal year ended April 30, 1997, the aggregate rental
under such leases was $1,420,000. The Company fully utilizes
such machinery and equipment.
Item 3. Legal Proceedings.
Various lawsuits, claims, and governmental proceedings are
pending against the Company. Certain of these matters relate
to the Company's patents. Management of the Company believes
that the ultimate resolution of these matters will not have a
materially adverse effect on the Company's consolidated
financial position or the results of its operations.
Other relevant information regarding legal proceedings is
included in Part II, Item 8, Note 10, "Deferred Litigation
Award," of the "Notes to Consolidated Financial Statements"
appearing on page 32 of this Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the security holders
during the fourth quarter of the Company's fiscal year ended
April 30, 1997.
Executive Officers of the Registrant.
Included in Part III, Item 10, "Directors and Executive
Officers of the Registrant" appearing on page 47 of this Form
10-K.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Company's common stock is listed on the New York Stock
Exchange under the symbol "GRB". Shareholders of record
totaled 1,575 at April 30, 1997. The other information
required by Item 5 is included in Part II, Item 8, Note 17,
"Quarterly Results (Unaudited)" of the "Notes to Consolidated
Financial Statements" appearing on page 44 of this Form 10-K.
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Item 6. Selected Financial Data.
Five Year Financial Summary
In thousands except
per share amounts For years ended April 30
---------------------------------------------------
1997 1996 1995 1994 1993
Sales and service
revenue $380,917 $ 359,120 $ 322,708 $ 260,734 $ 254,365
Net earnings 1-3 16,009 19,868 18,111 15,321 8,336
Net earnings per
common share 1-3 .69 .84 .76 .64 .35
Cash dividends per
common share .32 .32 .30 .23 .20
Total assets 325,215 312,988 324,428 286,443 269,981
Long-term debt 7,145 7,338 7,531 7,724 7,916
Shareholders'
equity $248,021 $ 239,298 $ 237,302 $ 224,824 $ 215,460
Weighted average
common shares
outstanding 23,365 23,689 23,950 23,967 23,918
(1) Net earnings for the year ended April 30, 1997 included a $1,032,000
gain ($.04 per share) from life insurance benefits the Company
received upon the death of Mr. H. Joseph Gerber.
(2) Net earnings for the year ended April 30, 1994 included a $788,000
gain ($.03 per share) from adopting the method of accounting for
income taxes required by Statement of Financial Accounting Standards
No. 109.
(3) In the year ended April 30, 1994, the Company recorded a gain as a
result of a final judgment in a U.S. patent infringement case brought
against Lectra Systemes S.A. of France and its U.S. subsidiary. The
gain, net of the 1994 expenses associated with it and after income
taxes, amounted to approximately $3,400,000 ($.14 per share).
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Item 7.
Management's Discussion and Analysis of Gerber Scientific, Inc.
Financial Condition and Results of Operations.
For years ended April 30, 1997, 1996, and 1995
----------------------------------------------------------------------
Results of Operations
Consolidated revenue in 1997 was $380.9 million, an increase of $21.8
million or 6.1 percent from $359.1 million in the prior year. The
increase in 1997 reflected higher product sales and a slight increase
in service revenue. Each of the Company's product classes experienced
sales growth in 1997, except for the Company's line of computer-
controlled cutting, nesting, spreading, and material handling systems.
The decrease in this product class was caused by the relative weakness
in demand from the apparel industry for fabric cutting systems, which
occurred in the first half of the year.
The largest increase in product sales occurred in imaging systems as
the Company continued to penetrate the commercial printing industry
with computer-to-plate digital imaging systems. The Company also
continued its heavy investment in the development of this business in
1997.
Increased sales of the Company's signmaking systems and aftermarket
supplies also contributed to the 1997 sales increase. The sales
increase was fueled by the introduction of two new high speed
signmaking routers and strong demand for aftermarket supplies,
especially consumables for the GERBER EDGE, a digital imaging system
for color printing directly on sign vinyl and other materials.
Product sales gains were also realized in 1997 from sales of the
Company's optical lens manufacturing systems to both the optical
superstore chains and the wholesale optical laboratories. The opening
of new retail stores, as well as the conversion of existing stores led
to higher demand for the Company's complete Premier Lab system.
Market consolidation and the Company's strategic alliance with a
major, vertically integrated lens manufacturer contributed to higher
sales to the wholesale optical laboratories.
In the third and fourth quarters, the Company experienced stronger
demand, especially from the United States and certain international
markets, for its line of computer-controlled cutting, nesting,
spreading, and material handling systems for the apparel and related
industries. Also contributing were higher sales of related software
products, including a product data management system that provides a
powerful tool for developing product specifications, controlling and
managing data, and documenting the product development process and
production and quality requirements.
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Slightly affecting year-to-year comparative sales was the Company's
acquisition of Cutting Edge Inc. (Cutting Edge) on February 12, 1997,
which added $2.3 million to 1997 fourth quarter and annual revenue.
Cutting Edge, based in Marblehead, Massachusetts, manufactures high-
performance single layer fabric cutting systems for the industrial
fabric, automotive, furniture, apparel, and composite materials
industries. In its most recent complete year prior to acquisition,
Cutting Edge had annual sales of approximately $16 million. Cutting
Edge's operations were included in the Company's 1997 consolidated
statement of earnings for the period February 12 to April 30, 1997.
Geographically, sales gains were realized in 1997 in each of the
Company's major markets. Export sales to Far East customers improved
significantly, up $5.9 million from the previous year to $42.4
million. In total, export sales from the United States in 1997 rose
$10.4 million, or 7.5 percent, from the previous year and represented
39 percent of total revenue compared with 39 percent in 1996 and 38
percent in 1995.
Consolidated revenue in 1996 was $359.1 million, an increase of $36.4
million or 11 percent from $322.7 million in 1995. The increase in
1996 reflected higher product sales while service revenue was
substantially unchanged. Revenue in 1995 included the effect of a
change in fiscal year-end for certain of the Company's foreign
subsidiaries which added $6.7 million to the 1995 total. Excluding
this amount from the comparison, year-to-year revenue increased 14
percent from 1995 to 1996.
Each of the Company's product classes and major geographic markets
experienced sales growth in 1996. The largest sales increase occurred
in color digital imaging signmaking systems and was led by sales of
the GERBER EDGE and related aftermarket supplies. Also contributing
to the higher sales in this product class was a new line of friction-
fed plotters, which are used to cut sign images from signmaking vinyl.
Increased sales of the Company's computer-to-plate digital imaging
systems for the commercial printing and graphic arts industries also
contributed to the 1996 sales increase. Product sales gains were also
realized in 1996 in optical lens manufacturing systems and in the
Company's line of marker-making and fabric spreading systems for the
apparel and allied industries.
Consolidated revenue in 1995 was $322.7 million, an increase of $62
million or 24 percent from 1994. The increase reflected a year-over-
year improvement in sales from the Company's baseline operations, the
acquisition of two new businesses, Microdynamics, Inc. (Microdynamics)
and Niebuhr Maskinfabrik A/S (Niebuhr), and a change in the fiscal
year-end for certain foreign subsidiaries.
The sales gain in 1995 occurred in all major geographic markets but
was particularly strong in Europe. Export sales to European customers
improved significantly, up $19.5 million from the previous year. In
total, export sales from the United States in 1995 rose $29 million or
32 percent from the previous year.
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The Niebuhr and Microdynamics acquisitions added a total of $22.7
million to 1995 revenue. Niebuhr was a Danish-based company that
manufactured computerized fabric spreading equipment for the apparel
and related industries. In 1995, Niebuhr's operations added $10.1
million to the Company's consolidated revenue. Microdynamics was a
Texas-based company and a leading supplier of computer-aided design,
graphic design, and product management systems. Its operations added
$12.6 million to the Company's 1995 consolidated revenue.
In 1995, the year-end of certain of the Company's foreign subsidiaries
was changed from February to April to coincide with the parent
Company's year-end.
Accordingly, an additional two months of operating results from these
subsidiaries was included in the fiscal 1995 financial statements.
The effect of this change in year-ends was to increase sales and
service revenue for the fourth quarter and year ended April 30, 1995
by $6.7 million. This change in year-ends had an insignificant effect
on net earnings and earnings per share for these periods.
In terms of the Company's products, the largest sales increase in 1995
occurred in GERBERcutter fabric cutting systems for the apparel and
allied industries, reflecting the introduction of a new series of
GERBERcutters. Product sales gains were also realized in the
Company's line of marker-making systems for these same industries.
Other significant sources of the sales increase in 1995 were shipments
of a new lens blocking system for the ophthalmic industry and higher
sales of aftermarket supplies to the signmaking industry.
Service revenue rose $7.1 million in 1995 compared with 1994.
Approximately one-half of this increase reflected the addition of the
Microdynamics service business. The additional two months of service
revenue from the change in year-ends for certain foreign subsidiaries
accounted for most of the remaining increase.
The overall gross profit margin in 1997 was 44.2 percent compared with
44.8 percent in 1996. This reflected lower margins on product sales
partially offset by higher service margins. The gross profit margin
on product sales was 45.2 percent in 1997 compared with 46.3 percent
in 1996. Contributing to the lower product gross margin in 1997 were
higher sales of OEM-supplied equipment, particularly for the
electronics industry. Price discounting affected margins on newly
introduced computer-to-plate digital imaging systems for the
commercial printing market and cutting and marker-making systems for
the apparel industry, especially in the European market. Service
gross profit margins increased in 1997 to 37 percent compared with
34.2 percent in 1996. The improvement in service gross profit margins
resulted, in part, from the utilization of service personnel on a
product retrofit program earlier in the year.
13
17
The gross profit margins on product sales in 1996 were higher than in
1995 while margins on service revenue declined slightly. The
improvement in product margins reflected the favorable impact of
higher sales volume in 1996, although product margins continued to be
pressured by price discounting on sales of cutting and marker-making
systems to the apparel industry. Service gross margins were lower in
1996 due to less-than-anticipated revenue growth in servicing cutting
and marker-making systems.
The gross profit margins on product sales in 1995 were lower than in
1994, while margins on service revenue improved. Contributing to the
product margin decline in 1995 were the sales of Niebuhr fabric
spreaders, whose margins were significantly below the Company's
average product margin. Higher costs of manufacturing in Denmark
coupled with the relative strength of the Danish currency versus the
U.S. dollar pressured the margins on this product. Lower product
margins in 1995 also reflected start-up costs on the early production
runs of a new GERBERcutter series and a lens blocking system. The
improved service margins in 1995 reflected the addition of the
Microdynamics service business.
Selling, general and administrative expenses were $120.1 million or
31.5 percent of revenue in 1997. This compared with $111.7 million or
31.1 percent of revenue in 1996 and $97.5 million (30.2 percent of
revenue) in 1995. The higher selling, general and administrative
expenses in each year related primarily to the higher sales volume and
also to marketing expenses associated with the introduction of new
products, particularly computer-to-plate systems for the commercial
printing and graphic arts industries. The additional expense of
Cutting Edge in 1997 and the additional expenses of Niebuhr and
Microdynamics in 1996 and 1995 also caused higher expense levels.
The Company has historically committed significant resources to
research and the development of new products and strives to maintain a
leading position in automation technology in the various markets it
serves. Research and development (R&D) expenses represented 8 percent
of revenue in 1997 compared with 7.2 percent and 8.1 percent of
revenue in 1996 and 1995, respectively. R&D expenses in 1997 were
higher than in 1996 due largely to the development of new computer-to-
plate imaging systems. Also contributing to higher R&D levels in 1997
were the development of new signmaking plotters and new Windows-based
software products for the Company's optical lens manufacturing
systems.
In each of the years 1997, 1996, and 1995, the Company's debt
obligations consisted of Industrial Revenue Bonds with short-term
variable tax-exempt interest rates. Since debt levels changed only
slightly over this three-year period, the changes in the Company's
interest expense reflected primarily the movements in short-term
interest rates.
14
18
Other income in 1997 included a gain of approximately $1 million from
life insurance benefits the Company received upon the death of Mr. H.
Joseph Gerber, the Company's founder and former president. Exclusive
of this amount, other income in 1997 and 1996 came primarily from
interest on investments in municipal bonds and royalty income. In
1995, the Company collected a damage award of $5.9 million in a patent
infringement case related to computer-controlled cutting equipment
brought in the United Kingdom against Lectra Systemes S.A. of France
and its U.K. subsidiary (Lectra). Lectra appealed this damage award
and the Company deferred any income recognition pending the outcome of
the appeals process. In December 1996, a Court of Appeals decision
required the Company to repay $3.2 million to Lectra. The Company has
sought the right to appeal this decision and has continued to defer
any income recognition of the amounts involved in this litigation
until such time as the ultimate award amount is determined.
The statutory U.S. Federal income tax rate was 35 percent for 1997,
1996, and 1995 while the effective income tax provision rates were
27.9 percent, 28.7 percent, and 27.9 percent, respectively.
Offsetting the statutory U.S. Federal income tax rate in 1997 were
research and development tax credits, which were reinstated through
legislation, and the tax-exempt life insurance benefit noted above.
Tax-exempt interest income from the Company's municipal bond
investments and the tax savings derived from the Company's Foreign
Sales Corporation also offset the statutory U.S. Federal income tax
rate in each year. The expiration of the research and development tax
credit in 1996 contributed to the higher tax rate in that year.
Statements of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and No.
112, "Employers' Accounting for Postemployment Benefits," have no
impact on the Company's consolidated financial position or results of
operations. The Company does not provide postemployment or
postretirement benefits other than through its pension plans.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," required the Company either to adopt a
method of accounting for stock options at "fair value" in its
financial statements or to retain its existing method and disclose the
pro forma effects of this "fair value" method beginning in fiscal year
1997. The Company has retained its prior method of accounting for
stock options and has included the required pro forma disclosures in
the notes to its consolidated financial statements.
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," was issued in February 1997 and is effective for financial
statements issued for periods after December 15, 1997. The statement
specifies the computation, presentation, and disclosure requirements
for earnings per share for entities with publicly held common stock.
The impact of the statement on earnings per share is not expected to
be material.
15
19
Financial Condition
The Company's short-term liquidity at April 30, 1997 improved slightly
from 1996 and was considered adequate for the Company's immediate
requirements. Cash and short-term cash investments totaled $9.5
million at April 30, 1997 compared with $8.7 million at April 30, 1996
and $10.2 million at April 30, 1995. Net working capital increased to
$118.9 million at April 30, 1997 from $101.7 million and $78.5 million
at April 30, 1996 and 1995, respectively. The working capital ratio
at April 30, 1997 was 3 to 1 compared with 2.8 to 1 and 2.1 to 1 at
April 30, 1996 and 1995, respectively.
Operating activities provided $8.4 million in cash in 1997. The cash
generated by earnings and by the non-cash charges against earnings for
depreciation and amortization was offset substantially by growth in
accounts receivable. The growth in receivables related to a
significantly higher volume of business in the 1997 fourth quarter.
Also affecting the Company's receivables in 1997 were extended payment
terms given on sales of computer-to-plate digital imaging systems.
Significant non-operating uses of cash in 1997 were $7.4 million for
the acquisition of Cutting Edge and $1 million for repayment of its
debt; additions to property, plant and equipment of $13.1 million; and
dividends on common stock of $7.4 million.
The net working capital position of Cutting Edge was weaker than the
Company's and, when combined with the acquisition-related cash
payments, slightly lowered the Company's consolidated liquidity,
working capital, and current ratio at April 30, 1997. In connection
with the acquisition, the Company recorded approximately $6.7 million
of goodwill which is being amortized on a straight-line basis over 20
years.
Operating activities provided $5.9 million in cash in 1996. The cash
generated by earnings and by the non-cash charges against earnings for
depreciation and amortization was substantially offset by growth in
accounts receivable and inventories related to the higher volume of
business, and by a reduction in accounts payable related primarily to
the timing of vendor payments. Significant non-operating uses of cash
in 1996 were for additions to property, plant and equipment ($12.6
million); open market purchases of the Company's common stock
($11.3 million); and dividends on common stock ($7.5 million).
Operating activities provided $29.3 million in cash in 1995. A
significant use of this cash in 1995 was for the acquisitions of
Niebuhr and Microdynamics. The Company paid approximately $1 million
for the Niebuhr acquisition and repaid approximately $1.1 million of
Niebuhr's bank debt subsequent to the acquisition. The Company paid
approximately $8 million in 1995 for the Microdynamics acquisition and
repaid approximately $2.2 million of its debt.
16
20
In addition to the business acquisitions and the repayments of the
acquired companies' debt, other significant uses of cash in 1995 were
for additions to property, plant and equipment ($12.5 million);
dividends on common stock ($7.1 million); additional investment in
tax-exempt securities ($2.2 million); and open market purchases of the
Company's common stock ($1.4 million).
The Company's longer-term investment portfolio of tax-exempt municipal
securities totaled $36.6 million at April 30, 1997, down from $58.9
million at April 30, 1996. The lower portfolio in 1997 resulted
primarily from working capital requirements, fixed asset additions,
and the Cutting Edge acquisition. The securities in the investment
portfolio had initial maturities ranging up to five and one-half years
in length with a weighted average maturity of approximately one year
at April 30, 1997. These investments are classified in the
consolidated balance sheet as a long-term asset. The Company intends
to hold these securities to maturity and, by doing so, expects to earn
a higher rate of return than that provided by short-term money market
instruments. The pre-tax equivalent yield on this portfolio was
approximately 7 percent at April 30, 1997.
The additions to property, plant and equipment of $13.1 million in
1997 were funded by operations and from the Company's investment
portfolio. In 1996 and 1995, the Company spent $12.6 million and
$12.5 million, respectively, for additions to property, plant and
equipment. The Company expects that 1998 capital expenditures will be
in the range of $11-$13 million and expects to fund these additions
with cash on hand and cash generated by operations.
The Company has a common stock buy-back program authorized by the
Board of Directors. Under this authorization, the Company may purchase
up to an additional 763,000 shares of its outstanding common stock as,
in the opinion of management, market conditions warrant. No purchases
of common stock were made in 1997. In 1996 and 1995, the Company
purchased 681,200 and 100,400 shares, respectively, for $11.3 million
and $1.4 million. These purchases were at average prices of $16.64
and $13.65 per share, respectively.
At April 30, 1997 and 1996, the Company's long-term debt consisted
entirely of tax-exempt Industrial Revenue Bonds amounting to $7.3
million and $7.5 million, respectively, at those dates. The Company's
ratio of total debt to shareholders' equity was 3 percent at April 30,
1997 compared with 3.1 percent at April 30, 1996 and 3.3 percent at
April 30, 1995. The Company believes its low debt-to-equity ratio is
an important indicator of the ability to borrow funds should needs
arise. Scheduled maturities of long-term debt in 1998 amount to $.2
million, and payment is expected to be made with cash from operations.
17
21
At April 30, 1997 and 1996, the Company had a line of credit agreement
with a major U.S. commercial bank providing for up to $20 million in
short-term borrowings by the Company. The Company also had a $15
million multi-currency line of credit with a major European bank
providing a short-term borrowing facility for certain of its European
subsidiaries. No amounts were borrowed against these credit lines as
of April 30, 1997 and 1996. Any such borrowings would bear interest
at 1/4 percent above the London Interbank Offered Rate (LIBOR). The
lines of credit have commitment fees of 1/8 percent of the unused
amounts.
With regard to the Microdynamics acquisition in September 1995, the
Company was contingently liable to make up to $4 million in additional
payments on the first anniversary based upon Microdynamics' closing
balance sheet and the realizability of certain of the acquired assets.
No additional payments were subsequently required under this
provision. The Microdynamics acquisition agreement also provides for
additional contingent cash consideration based on the earnings
performance of a certain acquired product line over the three-year
period following the acquisition. Any amounts due based upon the
earnings-related contingency would be payable at the end of the three-
year period. Any contingent amounts that become payable will be
recorded as additional goodwill and will be amortized over the
remainder of the 20-year amortization period.
Forward Looking Statements
This report includes forward looking statements that describe the
Company's business prospects. Readers should keep in mind factors
that could have an adverse impact on those prospects. These include
political, economic, or other conditions, such as recessionary or
expansive trends, inflation rates, currency exchange rates, taxes and
regulations and laws affecting the business, as well as product
competition, pricing, the degree of acceptance of new products in the
marketplace, and the difficulty of forecasting sales at various times
in various markets.
18
22
Item 8. Financial Statements and Supplementary Data.
Consolidated Statement of Earnings Gerber Scientific, Inc.
For years ended April 30
---------------------------
In thousands except per share amounts
1997 1996 1995
--------------------------------------------------------------------------
Revenue:
Product sales $334,990 $314,118 $278,451
Service 45,927 45,002 44,257
-------- -------- --------
380,917 359,120 322,708
-------- -------- --------
Costs and Expenses:
Cost of product sales 183,472 168,710 150,637
Cost of service 28,930 29,627 29,000
Selling, general and
administrative expenses 120,143 111,666 97,452
Research and development expenses 30,415 25,771 26,009
-------- -------- --------
362,960 335,774 303,098
-------- -------- --------
Operating income 17,957 23,346 19,610
Other income 4,590 4,940 5,964
Interest expense (338) (418) (463)
-------- -------- --------
Earnings before income taxes 22,209 27,868 25,111
Provision for income taxes 6,200 8,000 7,000
-------- -------- --------
Net Earnings $ 16,009 $ 19,868 $18,111
======== ======== ========
Net Earnings Per Common Share $ .69 $ .84 $ .76
======== ======== ========
See summary of significant accounting policies and notes to consolidated
financial statements.
19
23
Consolidated Balance Sheet Gerber Scientific, Inc.
April 30
-------------------
In thousands except per share amounts 1997 1996
---------------------------------------------------------------------------
Assets
Current Assets:
Cash and short-term cash investments $ 9,503 $ 8,704
Accounts receivable 92,378 74,035
Inventories 62,221 63,196
Prepaid expenses 13,702 12,021
-------- --------
177,804 157,956
-------- --------
Investments and Long-Term Receivables 37,037 59,594
-------- --------
Property, Plant and Equipment 121,447 109,430
Less accumulated depreciation 58,883 54,692
-------- --------
62,564 54,738
-------- --------
Intangible Assets 56,687 48,576
Less accumulated amortization 10,774 9,327
-------- --------
45,913 39,249
-------- --------
Other Assets 1,897 1,451
-------- --------
$325,215 $312,988
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable $ -- $ --
Current maturities of long-term debt 193 193
Accounts payable 17,453 12,895
Accrued compensation and benefits 14,038 13,673
Other accrued liabilities 18,458 18,351
Deferred revenue and litigation award 6,249 8,512
Advances on sales contracts 2,465 2,672
-------- --------
58,856 56,296
-------- --------
Noncurrent Liabilities:
Deferred income taxes 11,193 10,056
Long-term debt 7,145 7,338
-------- --------
18,338 17,394
-------- --------
Contingencies and Commitments (Notes 3, 5, 10, and 16)
Shareholders' Equity:
Preferred stock, no par value; authorized 10,000,000
shares; no shares issued -- --
Common stock, $1 par value; authorized 65,000,000
shares; issued and outstanding 23,306,900 and
23,198,725 shares 23,307 23,199
Paid-in capital 36,100 35,218
Retained earnings 187,880 179,307
Cumulative translation component 734 1,574
-------- --------
248,021 239,298
-------- --------
$325,215 $312,988
======== ========
See summary of significant accounting policies and notes to consolidated
financial statements.
20
24
Consolidated Statement of Changes
in Shareholders' Equity Gerber Scientific, Inc.
Common
Stock, Cumulative
In thousands except $1 Par Paid-in Retained Translation
per share amounts Value Capital Earnings Component
--------------------------------------------------------------------------
April 30, 1994 $ 23,828 $ 34,688 $166,771 $ (463)
Net earnings -- -- 18,111 --
Foreign currency translation
adjustment -- -- -- 2,501
Dividends ($.30 per share) -- -- (7,138) --
Exercise of stock options and
related tax benefit 30 344 -- --
Purchase and retirement of
common stock (100) (147) (1,123) --
-------- -------- -------- --------
April 30, 1995 23,758 34,885 176,621 2,038
Net earnings -- -- 19,868 --
Foreign currency translation
adjustment -- -- -- (464)
Dividends ($.32 per share) -- -- (7,536) --
Exercise of stock options and
related tax benefit 122 1,344 -- --
Purchase and retirement of
common stock (681) (1,011) (9,646) --
-------- -------- -------- --------
April 30, 1996 23,199 35,218 179,307 1,574
Net earnings -- -- 16,009 --
Foreign currency translation
adjustment -- -- -- (840)
Dividends ($.32 per share) -- -- (7,436) --
Exercise of stock options and
related tax benefit 108 882 -- --
-------- -------- -------- --------
April 30, 1997 $ 23,307 $ 36,100 $187,880 $ 734
======== ======== ======== ========
See summary of significant accounting policies and notes to consolidated
financial statements.
21
25
Consolidated Statement of Cash Flows Gerber Scientific, Inc.
For years ended April 30
------------------------------------
In thousands 1997 1996 1995
-----------------------------------------------------------------------------------------
Cash Provided by (Used for)
Operating Activities:
Net earnings $ 16,009 $ 19,868 $ 18,111
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 11,752 10,810 11,365
Deferred income taxes 1,137 515 2,756
Changes in operating accounts, net of
effects of business acquisitions:
Receivables (17,320) (10,358) (3,830)
Inventories (826) (3,489) (1,965)
Prepaid expenses (1,664) 2,289 (4,884)
Accounts payable and accrued expenses (729) (13,708) 7,788
-------- -------- --------
Provided by Operating Activities 8,359 5,927 29,341
-------- -------- --------
Financing Activities:
Purchase of common stock -- (11,338) (1,370)
Repayments of long-term debt (548) (193) (693)
Net short-term financing (595) -- (2,755)
Exercise of stock options 990 1,466 374
Dividends on common stock (7,436) (7,536) (7,138)
-------- -------- --------
(Used for) Financing Activities (7,589) (17,601) (11,582)
-------- -------- --------
Investing Activities:
Long-term debt securities 22,301 23,802 (2,224)
Business acquisitions (7,384) (486) (9,038)
Additions to property, plant and equipment (13,067) (12,647) (12,468)
Intangible and other assets (1,614) (14) (2,085)
Other long-term investments (207) (485) 2,659
-------- -------- --------
Provided by (Used for) Investing Activities 29 10,170 (23,156)
-------- -------- --------
Increase (Decrease) in Cash and Short-Term
Cash Investments 799 (1,504) (5,397)
Cash and Short-Term Cash Investments,
Beginning of Year 8,704 10,208 15,605
-------- -------- --------
Cash and Short-Term Cash Investments, End of Year $ 9,503 $ 8,704 $ 10,208
======== ======== ========
See summary of significant accounting policies and notes to consolidated financial
statements.
22
26
Report of Management Gerber Scientific, Inc.
----------------------------------------------------------------------
To the Shareholders of Gerber Scientific, Inc.
The financial statements of Gerber Scientific, Inc. included in this
Annual Report have been prepared by the Company's management, who are
responsible for the integrity and objectivity of the data presented.
The financial statements have been prepared in conformity with
generally accepted accounting principles appropriate in the
circumstances and include amounts based on management's best estimates
and judgments. Financial information elsewhere in this Annual Report
is consistent with the financial statements.
Management maintains a system of internal accounting controls and
procedures, supported by a program of internal auditing. This system
is intended to provide reasonable assurance, in relation to reasonable
cost, that transactions are executed in accordance with management's
authorization and are recorded properly and accurately, that
accountability for assets is maintained, and that the financial
records are reliable for preparing financial statements.
The financial statements have been audited by KPMG Peat Marwick LLP,
independent auditors, in accordance with generally accepted auditing
standards. Their role is to assess the accounting principles used and
the estimates made by management and to form an independent opinion as
to the fairness with which the financial statements present the
financial condition of the Company, the results of its operations, and
its cash flows. They obtain and maintain an understanding of the
Company's accounting policies and controls and conduct such tests and
related procedures as they consider necessary to arrive at an opinion
on the fairness of the financial statements.
The Board of Directors has appointed an Audit and Finance Committee
composed of outside directors who are not employees of the Company.
The Audit and Finance Committee meets periodically with
representatives of management, the internal auditors, and the
independent auditors for the purpose of monitoring their activities to
ensure that each is properly discharging its responsibilities. The
Audit and Finance Committee reports to the Board of Directors on its
activities and findings.
23
27
Independent Auditors' Report
----------------------------------------------------------------------
To the Board of Directors and Shareholders of
Gerber Scientific, Inc.
We have audited the accompanying consolidated balance sheet of Gerber
Scientific, Inc. and subsidiaries as of April 30, 1997 and 1996 and
the related consolidated statements of earnings, changes in
shareholders' equity and cash flows for each of the years in the
three-year period ended April 30, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Gerber Scientific, Inc. and subsidiaries as of April 30, 1997 and
1996 and the results of their operations and their cash flows for each
of the years in the three-year period ended April 30, 1997 in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
May 22, 1997
24
28
Summary of Significant Accounting Policies and
Notes to Consolidated Financial Statements Gerber Scientific, Inc.
---------------------------------------------------------------------
Basis of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany accounts and transactions
are eliminated.
In fiscal years 1997 and 1996, foreign subsidiaries were consolidated
on the basis of fiscal years ending on the last day of April. In
fiscal year 1995, the year-end of certain of the Company's foreign
subsidiaries was changed from February to April to coincide with the
parent Company's year-end. Accordingly, an additional two months of
operating results for these subsidiaries were included in the fiscal
1995 financial statements. The effect of this change in year-ends was
to increase sales and service revenue for the fourth quarter and year
ended April 30, 1995 by $6,749,000. This change did not have a
significant effect on net earnings and earnings per share for these
periods.
Foreign Currency Translation and Forward Exchange Contracts
Assets and liabilities of foreign subsidiaries are translated to U.S.
dollars at year-end exchange rates, and related revenue and expenses
are translated at average exchange rates during the year. Translation
adjustments and gains and losses on intercompany foreign currency
balances of a long-term investment nature are deferred and accumulated
in a separate component of shareholders' equity. Transaction gains
and losses are included in earnings.
The Company enters into forward foreign exchange contracts with major
international financial institutions to hedge the effects of exchange
rate fluctuations on foreign currency commitments. The Company does
not engage in speculation. These forward exchange contracts are
accounted for as hedges of commitments, and the gains and losses on
these hedges are deferred and included in the basis of the transaction
underlying the commitment.
Revenue
Product sales are generally recognized upon shipment. Sales under
production contracts are recognized on the percentage-of-completion
method of accounting. Anticipated losses on contracts, if any, are
provided for when determined. Service revenue is recognized ratably
over the contractual period or as services are performed. Royalties
are accounted for as other income as received.
Cash and Short-Term Cash Investments
Short-term cash investments are stated at cost plus accrued interest,
which approximates market value. For purposes of the statement of
cash flows, the Company considers short-term, highly liquid
investments with maturities of three months or less to be cash
equivalents.
25
29
Long-Term Investments
In accordance with the criteria of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company's current investments in long-term
debt securities are stated at amortized cost plus accrued interest
based on the Company's ability and intention to hold these securities
to maturity.
Inventories
Inventories of raw materials and purchased parts are stated at the
lower of average cost (which approximates first-in, first-out) or
market. Work in process inventory includes materials, direct labor,
and manufacturing overhead costs, less the portion of such costs
allocated to products delivered or recognized as cost of sales under
the percentage-of-completion method of accounting.
Property, Plant, Equipment, and Depreciation
Property, plant and equipment are stated on the basis of cost. Major
improvements and betterments to existing plant and equipment are
capitalized. Expenditures for maintenance and repairs that do not
extend the life of the applicable asset are charged to expense as
incurred. The cost and related accumulated depreciation of properties
sold or otherwise disposed of are removed from the accounts, and any
gain or loss is included in other income.
Depreciation is provided generally on a straight-line basis.
Estimated useful lives used for calculating depreciation are 45 years
for buildings and 3 to 10 years for machinery, tools, and other
equipment.
Intangible Assets
The excess of acquisition cost over the fair values of the net assets
of businesses acquired is included in intangible assets and is
amortized generally over 20 years on a straight-line basis. Patents
are stated at cost and amortized on a straight-line basis over the
life of the patent.
Certain intangible and other long-lived assets are reviewed for
possible impairment whenever events or changes in circumstances
indicate their carrying value may not be recoverable. Management
evaluates the carrying value of these assets based upon projections of
undiscounted future net cash flows of the related business unit. An
impairment loss is recognized if the carrying value of these assets
exceeds the related estimate of future cash flows.
Earnings Per Share
Net earnings per common share are based on the weighted average number
of common shares outstanding and common stock equivalents during each
year (23,365,000, 23,689,000, and 23,950,000 shares in 1997, 1996, and
1995, respectively).
26
30
Use of Estimates
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and the related disclosures. Actual results
could differ from those estimates.
New Accounting Standards
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," was issued February 1997 and is effective for financial
statements issued for periods after December 15, 1997. The statement
specifies the computation, presentation, and disclosure requirements
for earnings per share for entities with publicly held common stock.
The impact of the statement on earnings per share is not expected to
be material.
27
31
Notes to Consolidated Financial Statements Gerber Scientific, Inc.
----------------------------------------------------------------------
Note 1.Products and Operations
The Company designs, manufactures, markets, and services
computer-aided design (CAD) and computer-aided manufacturing (CAM)
systems and sells related aftermarket supplies. No other segment of
the Company accounted for more than 10 percent of consolidated revenue
or net earnings in 1997, 1996, or 1995. No individual customer
accounted for more than 10 percent of consolidated revenue in 1997,
1996, or 1995.
The Company's primary manufacturing facilities are in the United
States, and it also manufactures in Denmark. Company sales and
service offices are in numerous United States and foreign locations.
Export sales from the United States for each year were as follows:
In thousands 1997 1996 1995
----------------------------------------------------------------------
Europe $ 68,494 $ 67,025 $62,417
Far East 42,375 36,462 31,858
Other areas 38,187 35,180 27,584
-------- -------- --------
$149,056 $138,667 $121,859
======== ======== ========
Note 2.Cash and Short-Term Cash Investments
Cash and short-term cash investments at the end of each year were as
follows:
In thousands 1997 1996
-----------------------------------------------------------
Cash $ 1,161 $ 1,705
Time deposits 8,342 6,999
-------- --------
$ 9,503 $ 8,704
======== ========
The Company's short-term cash investments are in high-quality
securities placed with major U.S. and international financial
institutions. The Company's investment policies limit the amount of
exposure to any one financial institution. Due to the relatively
short maturity of these financial instruments, their carrying value at
April 30, 1997 was a reasonable estimate of their fair value.
28
32
Note 3.Accounts Receivable
Included in accounts receivable were amounts earned under specific
contracts which were not billable of $10,757,000 at April 30, 1997 and
$7,652,000 at April 30, 1996. The earned but unbilled amount at April
30, 1997 is expected to be billed and collected within the next year.
The Company sells products and services to customers in a variety of
industries and geographic areas and, accordingly, does not have
significant concentrations of credit risk. The Company evaluates the
creditworthiness of its customers prior to extending credit and in
some instances requires bank letters of credit to support customer
obligations. In addition, the Company's lease receivables and its
recourse obligations for leases which are financed by third parties
are secured and collateralized by the underlying equipment.
Note 4.Inventories
The classification of inventories at the end of each year was as
follows:
In thousands 1997 1996
----------------------------------------------------------------------
Raw materials and purchased parts $ 49,461 $ 51,493
Work in process 12,760 11,703
-------- --------
$ 62,221 $ 63,196
======== ========
Note 5.Business Acquisitions
On September 1, 1994, Gerber Garment Technology, Inc. (GGT), a wholly
owned subsidiary of the Company, acquired the outstanding stock of
Microdynamics, Inc. (Microdynamics) of Dallas, Texas and subsequently
merged that company into GGT. Microdynamics was a leading supplier of
computer-aided design (CAD), graphic design, and product management
systems for the apparel, footwear, and other sewn goods industries.
GGT has continued to develop, manufacture, market, and support the
Microdynamics product lines.
Under terms of the acquisition agreement, the purchase price of
Microdynamics was approximately $8,200,000 plus additional contingent
cash consideration based on the earnings performance of a certain
acquired product line over the three-year period following the date of
acquisition.
On February 12, 1997, GGT acquired the outstanding stock of Cutting
Edge Inc. (Cutting Edge) of Marblehead, Massachusetts and subsequently
merged that company into GGT. The purchase price was approximately
$7,800,000. Cutting Edge was a leading supplier of high-performance
single layer fabric cutting systems for the industrial fabric,
automotive, furniture, apparel, and composite materials industries.
GGT has continued to develop, manufacture, market, and support the
Cutting Edge product lines.
29
33
Each of the acquisitions was accounted for as a purchase and the
results of operations of the acquired companies have been included in
the Company's consolidated statements of earnings from the respective
dates of acquisition. The acquisition costs were allocated to the
assets and liabilities acquired based upon their fair values. The
excess of acquisition costs over the fair values of the net assets
acquired was included in intangible assets as goodwill and is being
amortized on a straight-line basis over 20 years from the date of
acquisition. Any contingent consideration that is subsequently
payable for the purchase of Microdynamics will be recorded as
additional acquisition cost at the time the contingency is resolved
and the amount is determinable. Additional goodwill resulting from
any contingency-related payment will be amortized over the remainder
of the 20-year goodwill amortization period.
The following pro forma combined results of operations for the years
ended April 30, 1997 and 1996 have been prepared as if the Cutting
Edge acquisition occurred at the beginning of each of the respective
fiscal years and give effect to estimated purchase accounting and
other adjustments resulting from the acquisition. The pro forma
information is presented on the assumption that the acquisition cost
would have been the same at the beginning of each period.
In thousands (Unaudited)
(except per share amounts) 1997 1996
----------------------------------------------------------------
Sales revenue $394,521 $371,503
Net earnings 15,157 20,160
Net earnings per
common share .65 .85
The pro forma financial information presented is not necessarily
indicative of the results of operations that would have been achieved
had the acquisition of Cutting Edge actually been effective as of the
beginning of each fiscal year or of future results of the combined
companies.
Note 6.Investments and Long-Term Receivables
Investments and long-term receivables at the end of each year were as
follows:
In thousands 1997 1996
--------------------------------------------------------
Tax-exempt municipal bonds $ 36,571 $ 58,872
Long-term receivables 466 89
Other -- 633
--------- --------
$ 37,037 $59,594
========= ========
30
34
The Company has purchased for investment purposes a portfolio of
investment-grade tax-exempt municipal bonds with initial maturities
ranging up to five and one-half years. At April 30, 1997, the
portfolio had a weighted average maturity of approximately one year
and a pre-tax equivalent yield of approximately 7 percent. The
Company purchased these securities to earn a higher after-tax rate of
return than that provided by short-term money market instruments. The
estimated aggregate fair value of the Company's tax-exempt municipal
bonds was $36,764,000 at April 30, 1997 and $59,281,000 at April 30,
1996 based upon quoted market prices or market prices for similar
securities. At April 30, 1997, the gross unrealized gains and losses
were $201,000 and $8,000, respectively. At April 30, 1996, the gross
unrealized gains and losses were $417,000 and $8,000, respectively.
Note 7.Property, Plant and Equipment
The components of property, plant and equipment at the end of each
year were as follows:
In thousands 1997 1996
---------------------------------------------------------
Land $ 4,368 $ 4,356
Buildings 45,098 43,348
Machinery, tools, and equipment 68,628 61,375
Construction in progress 3,353 351
-------- --------
$121,447 $109,430
======== ========
Note 8.Intangible Assets
The components of net intangible assets at April 30, 1997 and 1996
were as follows:
In thousands 1997 1996
--------------------------------------------------------------
Prepaid pension cost $ 20,181 $ 19,744
Patents, net of accumulated
amortization 8,092 7,507
Goodwill, net of accumulated
amortization 17,502 11,743
Other 138 255
-------- --------
$ 45,913 $ 39,249
======== ========
31
35
Note 9.Notes Payable
The Company has short-term bank lines of credit which totaled
approximately $38,000,000 at April 30, 1997 based upon year-end
foreign exchange rates. As of April 30, 1997 and 1996, no amounts
were borrowed under these credit lines. Included in the bank lines of
credit is a $20,000,000 line of credit from a major U.S. commercial
bank and a $15,000,000 multi-currency line of credit from a major
European commercial bank. The multi-currency line of credit is
available in various sub-limits to certain of the Company's European
subsidiaries, and repayment is guaranteed by the parent Company.
Borrowings under these lines of credit bear interest at 1/4
percent above the London Interbank Offered Rate (LIBOR) for the
relevant currency and term. These lines of credit have commitment
fees of 1/8 percent of the unused amount.
Note 10.Deferred Litigation Award
The Company brought suit in the United Kingdom alleging Lectra
Systemes, S.A. of France and its U.K. subsidiary (Lectra) infringed
certain Company patents dealing with automated fabric cutting
equipment. The High Court of Justice, Chancery Division, in London
found that Lectra had infringed two of the Company's patents, and in
1995 awarded damages to the Company of $5,868,000. Lectra paid this
award of damages to the Company and filed an appeal. In December
1996, the Court of Appeals for the United Kingdom reduced the earlier
award to the Company by $3,164,000, which was repaid to Lectra. The
Company has sought the right to appeal the Court of Appeals' decision
and has deferred any income recognition of the amounts involved in
this litigation until such time as the ultimate award amount is
determined.
Note 11.Income Taxes
The components of the provision for income taxes for the years ended
April 30, 1997, 1996, and 1995 were as follows:
In thousands 1997 1996 1995
--------------------------------------------------------------
Currently payable:
Federal $ 1,400 $ 6,300 $ 5,600
State and local 100 600 400
Foreign 600 500 500
-------- -------- --------
2,100 7,400 6,500
Deferred 4,100 600 500
-------- -------- --------
$ 6,200 $ 8,000 $ 7,000
======== ======== ========
Income tax payments totaled $3,415,000, $4,179,000, and $5,931,000 in
the years ended April 30, 1997, 1996, and 1995, respectively.
Reconciliations of the statutory U.S. Federal income tax rate to the
effective income tax rate for each year were as follows:
32
36
1997 1996 1995
-----------------------------------------------------------------
Statutory U.S. Federal income
tax rate 35.0% 35.0% 35.0%
State income taxes, net of U.S.
Federal tax benefit .7 .9 .9
Foreign tax rate differences .8 -- .7
Life insurance benefits (1.6) -- --
Tax-exempt interest income (3.4) (3.8) (4.8)
Foreign Sales Corporation (2.2) (2.4) (.7)
Research and development tax
credits (3.2) (.2) (2.3)
Other, net 1.8 (.8) (.9)
----- ----- -----
Effective income tax rate 27.9% 28.7% 27.9%
===== ===== =====
The Company's deferred income tax balances relate principally to
differing depreciation methods for property, plant and equipment,
differing book and tax treatment of patent costs, the timing of
employee benefit plan funding versus expense recognition, differing
valuations of inventories, accounts receivable, and other assets for
book and tax purposes, expense provisions not deductible until paid,
and tax operating loss carryforwards. At April 30, 1997 and 1996,
current deferred tax assets of approximately $8,000,000 and
$9,400,000, respectively, were included in prepaid expenses in the
consolidated balance sheet. Deferred tax assets and deferred tax
liabilities as of April 30, 1997 and 1996 were as follows:
33
37
1997 1996
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
In thousands Assets Liabilities Assets Liabilities
-------------------------------------------------------------------------------
Depreciation $ -- $ 3,100 $ -- $ 4,500
Patents -- 3,200 -- 3,000
Employee benefit plans 1,400 8,400 1,200 6,200
Asset valuations 7,200 700 4,600 800
Litigation award 600 -- 1,900 --
Provisions for estimated
expenses 3,600 3,200 3,000 1,700
Foreign exchange gains
and losses -- 700 -- 900
Tax carryforwards 4,300 -- 6,500 --
Other 200 300 2,200 1,700
-------- -------- -------- --------
17,300 19,600 19,400 18,800
Valuation allowance (900) -- (1,200) --
-------- -------- -------- --------
$ 16,400 $ 19,600 $ 18,200 $ 18,800
======== ======== ======== =======
Consolidated earnings before income taxes included foreign pre-tax
earnings of $3,371,000, $612,000, and $2,687,000 for 1997, 1996, and
1995, respectively. The Company has not provided U.S. income taxes on
the unremitted earnings of foreign subsidiaries because such earnings
are considered to be indefinitely reinvested in those operations. It
is not practicable for the Company to estimate the deferred tax
liability that might arise on the remittance of the earnings of these
foreign subsidiaries. For income tax reporting purposes, the Company
has U.S. and foreign net operating loss carryforwards of approximately
$8,000,000 at April 30, 1997. Such carryforwards have various
expiration dates and begin to expire in the 1998 fiscal year.
Note 12.Long-Term Debt
The composition of long-term debt at the end of each year was as
follows:
In thousands 1997 1996
----------------------------------------------------------
Industrial Revenue Bonds $ 7,338 $ 7,531
Less current maturities 193 193
-------- --------
$ 7,145 $ 7,338
======== ========
34
38
The Company's Industrial Revenue Bonds are collateralized by certain
property, plant and equipment and are payable to 2014 at variable
interest rates which ranged from 4.6 percent to 6 percent at April 30,
1997. Included therein are $6,000,000 of Variable Rate Demand
Industrial Development Bonds (VRDBs). The interest rate payable on
the VRDBs is adjusted weekly to maintain their market value at par.
During 1997 and 1996, the average interest rate on the VRDBs was 3.5
percent and 3.8 percent, respectively. The remaining Industrial
Revenue Bonds bear interest at 70 percent of the U.S. prime rate. The
variable interest rate feature of the Company's long-term debt allows
its repricing at current market interest rates and, accordingly, the
carrying amount of the debt at April 30, 1997 was a reasonable
estimate of its fair value.
The demand feature of the VRDBs is supported by a letter of credit
from a major U.S. commercial bank. The letter of credit has a
provision for automatic extension of an 18-month term and carries a
fee of .65 percent of the face amount. Any advances under the letter
of credit in support of the demand feature would be repayable over the
remaining letter of credit term at the bank's prime interest rate.
The bank providing the letter of credit was also granted a mortgage
and security interest in the project property.
Covenants in the Industrial Revenue Bond agreements require the
Company to maintain certain levels of tangible net worth and certain
ratios of debt to tangible net worth and working capital, as defined
therein. At April 30, 1997, the Company was in compliance with these
covenants. Under the most restrictive of these covenants,
approximately $117,000,000 of retained earnings was not available for
dividend payments at April 30, 1997.
The aggregate annual maturities of long-term debt for each of the four
years after 1998 total $193,000 annually. Interest payments totaled
$343,000, $426,000, and $439,000 in the years ended April 30, 1997,
1996, and 1995, respectively.
Note 13.Preferred Stock, Common Stock, Stock Option Plans, and
Incentive Bonus Plans
Preferred Stock
The Company's Certificate of Incorporation authorizes 10,000,000
shares of preferred stock, without par value, issuable in series. The
Board of Directors is authorized to fix and determine the terms,
limitations, and relative rights and preferences of the preferred
stock, including voting rights (if any), the amount of liquidation
preference over the common stock, and to establish series of preferred
stock and fix and determine the various terms among the series. As of
April 30, 1997, no preferred stock had been issued.
35
39
Common Stock
In 1988, the Board of Directors authorized the Company to purchase up
to 3,000,000 shares of its outstanding common stock over an
indeterminate period of time as, in the opinion of management, market
conditions warrant. Under this authorization, the Company has
purchased 2,237,000 shares at a total cost of $38,836,000, or an
average cost of $17.36 per share. The reacquired shares have been
retired and under Connecticut law constitute authorized but unissued
shares. As of April 30, 1997, the Company could purchase up to an
additional 763,000 shares under the current Board of Directors'
authorization.
Stock Option Plans
The Company's 1992 Employee Stock Plan (the 1992 Plan) was approved by
shareholders in September 1992 and provides for incentive and
nonqualified stock option grants to officers and key employees. Stock
options under the 1992 Plan are for a ten-year term and are granted at
the market price of the common stock on the date of grant.
In 1995, shareholders approved amendments to the 1992 Plan permitting
the grant of performance units in conjunction with stock option
grants. The performance units become payable in cash in the event
certain pre-established performance goals are attained and the grantee
simultaneously exercises related stock options with the cash award.
The maximum number of shares of common stock available for grant as
stock options under the amended 1992 Plan is 3,000,000 shares, and the
maximum number of performance units available for grant is 2,000,000.
The 1992 Non-Employee Director Stock Option Plan (the 1992 Director
Plan) was approved by shareholders in September 1992 and provides for
the automatic award each May 1 of options to purchase 1,000 shares of
common stock to eligible members of the Board of Directors who are not
also employees of the Company. Stock options under the 1992 Director
Plan are nonqualified options with a ten-year term and are granted at
the market price of the common stock on the date of grant. Options
granted under the 1992 Director Plan are immediately exercisable. The
maximum number of shares of common stock available for grant as stock
options under the 1992 Director Plan is 75,000 shares.
36
40
A summary of the stock option activity for the three years ended April
30, 1997 is set forth below:
1997 1996 1995
Options Weighted-Average Options Weighted-Average Options Weighted Average
Exercise Price Exercise Price Exercise Price
----------------------------------------------------------------------------------------------------------------------
Outstanding-
beginning of year 1,208,970 $ 13.67 699,365 $ 11.18 665,965 $ 10.72
Granted 138,000 15.01 689,000 15.76 90,000 14.40
Exercised (108,175) 7.80 (122,145) 10.74 (29,850) 9.82
Cancelled (67,625) 14.80 (57,250) 14.57 (26,750) 12.07
--------- --------- --------- --------- --------- ---------
Outstanding-
end of year 1,171,170 $ 14.31 1,208,970 $ 13.67 699,365 $ 11.18
========= ========= ========= ========= ========= =========
Exercisable at
end of year 491,045 $ 12.69 434,470 $ 10.52 431,115 $ 10.03
========= ========= ========= ========= ========= =========
Reserved for future
grants 2,153,875 2,231,250 1,371,000
========= ========= =========
The exercise prices for options outstanding as of April 30, 1997
ranged from $7.25 to $16.62. The weighted-average remaining
contractual life of options outstanding at April 30, 1997 is 7.2
years. In the event of a change in control of the Company, all
unexercised outstanding stock options become immediately exercisable.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for stock
options. Accordingly, no compensation cost has been recognized in the
Company's consolidated statement of earnings for the stock option
plans. Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant date for awards
under those plans, consistent with the requirements of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's pro forma net income and earnings per
share would have been as follows:
In thousands (except per share amounts) 1997 1996
----------------------------------------------------------------------
Net earnings-as reported $ 16,009 $ 19,868
Net earnings-pro forma 15,510 19,462
Net earnings per common share-as reported .69 .84
Net earnings per common share-pro forma .66 .82
To arrive at the pro forma amounts shown above, the fair value of each
stock option grant was estimated on the date of grant using the Black-
Scholes option pricing model with the following weighted-average
assumptions:
37
41
1997 1996
--------------------
Risk-free interest rate 6.5% 6.3%
Expected life 4 years 4 years
Expected volatility 24% 26%
Expected dividend yield 2% 2%
Incentive Bonus Plans
The Management Development and Compensation Committee of the Board of
Directors approved cash profit incentive bonus plans for each of the
years ended April 30, 1997, 1996, and 1995. The plans covered
substantially all employees in the United States and were based upon
pre-tax profits of the Company's operating subsidiaries and the
consolidated group. The amounts charged to expense under these plans
totaled $1,375,000, $1,908,000, and $2,293,000 for the years ended
April 30, 1997, 1996, and 1995, respectively. Plans for subsequent
years and their criteria are subject to the approval of the Management
Development and Compensation Committee of the Board of Directors.
Note 14.Employee Benefit Plans
Pension Plans
The Company has a noncontributory defined benefit pension plan
covering substantially all employees in the United States. Plan
benefits are based on years of service and an average of an employee's
highest five consecutive years of compensation, as defined, in the
last ten years of service.
The Company's general policy is to fund the Plan's normal cost plus
amounts required to amortize actuarial gains and losses and prior
service costs over periods ranging from 5 to 30 years. Amounts funded
totaled $3,086,000, $3,000,000, and $3,352,000 for the years ended
April 30, 1997, 1996, and 1995, respectively. Plan assets were
invested in a portfolio consisting primarily of common stocks, fixed
income securities, money market instruments, and mutual and collective
trust funds consisting of these instruments. Pension arrangements for
employees of foreign subsidiaries were provided generally through
local insurance contracts, the costs of which were funded currently.
The following table summarizes the funded status of the pension plan
and the related amounts recognized in the consolidated balance sheet
at the end of each year.
38
42
In thousands 1997 1996
----------------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested benefits $ 35,468 $ 35,996
Nonvested benefits 1,551 1,446
-------- --------
Accumulated benefit obligation 37,019 37,442
Provision for future salary increases 8,202 7,492
-------- --------
Projected benefit obligation for
services rendered to date 45,221 44,934
Plan assets available for benefits (50,419) (42,986)
-------- --------
Plan assets (greater than) less than
projected benefit obligation (5,198) 1,948
Unrecognized net actuarial (loss) (504) (6,003)
Unrecognized net transition liability (558) (651)
Unrecognized prior service cost (11,875) (12,863)
-------- --------
Net pension plan (asset) in the
consolidated balance sheet $(18,135) $(17,569)
======== ========
39
43
The Company also maintains a nonqualified supplemental pension plan.
The supplemental pension plan provides for the pension benefits earned
under the Company's primary pension plan benefit formula that cannot
be paid from such plan because of limitations imposed by income tax
regulations. The Company has established a trust to provide funding
for the benefits payable under the supplemental pension plan. The
trust is irrevocable and assets contributed to the trust can only be
used to pay such benefits, with certain exceptions. The trust assets
were invested in collective trust funds whose portfolios consisted
primarily of common stocks, fixed income securities, and money market
instruments.
The following table summarizes the funded status of the nonqualified
supplemental pension plan and the related amounts recognized in the
consolidated balance sheet at the end of each year.
In thousands 1997 1996
------------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested benefits $ 3,327 $ 3,174
Nonvested benefits 19 4
-------- --------
Accumulated benefit obligation 3,346 3,178
Provision for future salary
increases 1,249 932
-------- --------
Projected benefit obligation for
services rendered to date 4,595 4,110
Plan assets available for benefits (3,369) (3,240)
-------- --------
Plan assets less than
projected benefit obligation 1,226 870
Unrecognized net actuarial (loss) (740) (166)
Unrecognized prior service cost (2,532) (2,879)
-------- --------
Net supplemental pension plan (asset)
in the consolidated balance sheet $ (2,046) $ (2,175)
======== ========
The following table summarizes the components of the net periodic
pension cost for the years ended April 30, 1997, 1996, and 1995. The
pension cost associated with the supplemental pension plan was
$729,000, $662,000, and $108,000 in the years ended April 30, 1997,
1996, and 1995, respectively, and is included in the amounts shown
below.
40
44
In thousands 1997 1996 1995
------------------------------------------------------------------
Cost related to current service $ 2,522 $ 1,792 $ 709
Interest cost on projected benefit
obligation 3,575 2,980 2,175
Actual return on plan assets (6,671) (6,758) (2,172)
Net amortization and deferral 3,823 5,004 103
-------- ------- -------
Net periodic pension cost $ 3,249 $ 3,018 $ 815
======== ======= =======
For 1997, 1996, and 1995, the projected benefit obligation was
determined using assumed discount rates of 7.75 percent, 7.25 percent,
and 7.75 percent, respectively, and an assumed long-term compensation
increase rate of 4.5 percent in 1997 and 1996 and 5 percent in 1995.
The assumed long-term rate of return on invested assets was 9 percent
in each year.
401(k) Plan
Under the Company's 401(k) Maximum Advantage Program, employees in the
United States with one year of service may contribute a portion of
their compensation to a tax-deferred 401(k) Plan. The Company
contributes an amount equal to a specified percentage of each
employee's contribution up to an annual maximum. The Company's
expense for matching contributions under this Plan was $357,000,
$302,000, and $293,000 for the years ended April 30, 1997, 1996, and
1995, respectively.
Postemployment and Postretirement Benefits Other Than Pensions
Statements of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and No.
112, "Employers' Accounting for Postemployment Benefits," changed the
practice of accounting for these benefits (principally health care)
from an expense-as-paid basis to an accrual accounting basis. The
Company does not provide postemployment or postretirement benefits
other than through its pension plans, and as a result, Statements No.
106 and No. 112 have no impact on the Company's consolidated financial
position or results of operations.
41
45
Note 15.Other Income
The components of other income for each year were as follows:
In thousands 1997 1996 1995
-------------------------------------------------------------------
Interest income from
investments $ 2,440 $ 3,352 $ 3,686
Royalty income 1,470 1,700 1,784
Other, net 680 (112) 494
-------- -------- -------
$ 4,590 $ 4,940 $ 5,964
======== ======== =======
Included in other income in 1997 was a gain of $1,032,000 ($.04 per
share) from life insurance benefits the Company received upon the
death of Mr. H. Joseph Gerber.
Note 16.Contingencies and Commitments
Various lawsuits, claims, and governmental proceedings are pending
against the Company. Management of the Company believes that the
ultimate resolution of these matters will not have a materially
adverse effect on the Company's consolidated financial position or the
results of its operations.
The Company occupies space and uses certain equipment under operating
lease arrangements. The Company is not the lessee under any
significant capital leases. Rental expense under lease arrangements
was $4,088,000, $3,487,000, and $2,702,000 for the years ended
April 30, 1997, 1996, and 1995, respectively. Minimum annual rental
commitments at April 30, 1997 under long-term noncancelable operating
leases were as follows:
Building and Machinery and
In thousands Office Space Equipment Total
----------------------------------------------------------------
1998 $ 2,586 $ 269 $ 2,855
1999 2,159 235 2,394
2000 1,048 173 1,221
2001 629 8 637
2002 499 2 501
After 2002 1,213 -- 1,213
------- ----- -------
$ 8,134 $ 687 $ 8,821
======= ===== =======
42
46
As of April 30, 1997, the Company was party to approximately
$15,000,000 in forward exchange contracts providing for the delivery
by the Company of various foreign currencies in exchange for U.S.
dollars over the succeeding 14 months. The counterparties to the
forward exchange contracts were major international commercial banks.
The Company continually monitors its open forward exchange contract
position and does not anticipate nonperformance by the counterparties.
In management's opinion, these financial instruments do not represent
a material off-balance sheet risk in relation to the consolidated
financial statements. Based upon market prices at April 30, 1997 for
future deliveries of the foreign currencies in exchange for U.S.
dollars, the hedging gain deferred at that date amounted to
approximately $1,400,000.
The Company has an agreement with a major financial services
institution to provide lease financing to purchasers of the Company's
equipment. The present value of the lease receivables financed under
this agreement amounted to approximately $46,200,000 at April 30, 1997
and $34,800,000 at April 30, 1996. The lease receivables are
collateralized by the underlying equipment. In the event of default
by the lessee, the Company has liability to the financial services
institution under recourse provisions. The Company's liability for
uncollected amounts financed in excess of the estimated resale value
of the equipment is limited to the extent of loss pools. These loss
pools are established as percentages of each associated group of
transactions that are financed in a calendar year and range from five
to ten percent of the amount financed. Management believes that the
allowance it has established for losses under the recourse provisions
is adequate to cover the Company's obligations.
43
47
Note 17.Quarterly Results (Unaudited)
The quarterly results of operations, the dividends paid per share, and the
market price range of the Company's common stock as reported on the New York
Stock Exchange for each quarterly period of the past three fiscal years are set
forth below.
In thousands except First Second Third Fourth
per share amounts Quarter Quarter Quarter Quarter Year
-----------------------------------------------------------------------------
1997
Sales and service
revenue $ 85,808 $ 94,951 $ 94,591 $ 105,567 $ 380,917
Gross profit 36,666 42,529 42,309 47,011 168,515
Net earnings(1) 1,603 5,135 4,144 5,127 16,009
Net earnings
per share(1) .07 .22 .18 .22 .69
Dividends paid
per share .08 .08 .08 .08 .32
Stock price - High 17 5/8 14 7/8 15 7/8 17 1/2 17 5/8
- Low 13 7/8 13 13 3/8 13 7/8 13
1996
Sales and service
revenue $ 88,191 $ 90,158 $ 86,884 $ 93,887 $ 359,120
Gross profit 38,976 40,892 38,896 42,019 160,783
Net earnings 4,493 5,533 5,151 4,691 19,868
Net earnings
per share .19 .23 .22 .20 .84
Dividends paid
per share .08 .08 .08 .08 .32
Stock price - High 17 5/8 19 1/2 18 17 3/4 19 1/2
- Low 15 16 3/8 15 3/8 14 1/4 14 1/4
1995
Sales and service
revenue $ 70,033 $ 72,944 $ 82,810 $ 96,921 $ 322,708
Gross profit 29,793 32,262 37,738 43,278 143,071
Net earnings 3,101 4,053 4,779 6,178 18,111
Net earnings
per share .13 .17 .20 .26 .76
Dividends paid
per share .06 .08 .08 .08 .30
Stock price - High 16 3/8 15 7/8 14 3/4 15 3/8 16 3/8
- Low 13 5/8 13 11 7/8 13 1/2 11 7/8
(1) Net earnings for the second quarter of fiscal year 1997 included a
$1,032,000 gain ($.04 per share) from life insurance benefits the Company
received upon the death of Mr. H. Joseph Gerber.
44
48
Directors and Officers Gerber Scientific, Inc.
-------------------------------------------------------------------------
Directors Officers
George M. Gentile George M. Gentile
Chairman and Chief Executive Officer Chairman and Chief
Gerber Scientific, Inc. Executive Officer
Michael J. Cheshire Michael J. Cheshire
President and Chief Operating Officer President and Chief
Gerber Scientific, Inc. Operating Officer
David J. Gerber Gary K. Bennett
Director, New Business Development Senior Vice President,
and Technology Strategy Finance
Gerber Scientific, Inc.
Richard F. Treacy, Jr.
Stanley Simon 1,2,3 Senior Vice President,
Owner General Counsel and
Stanley Simon and Associates Secretary
Financial and Management
Consultants Brian G. Eastman
Senior Vice President
A. Robert Towbin 1,2,3 President,
Managing Director Gerber Systems
Unterberg Harris Corporation
Edward E. Hood, Jr. 1,2,3 Shawn M. Harrington
Retired Vice Chairman Senior Vice President
General Electric Company President,
Gerber Optical, Inc.
W. Jerome Vereen 1,2,3
President, Treasurer, and Chief Fredric K. Rosen
Executive Officer Senior Vice President
Riverside Manufacturing Company President,
Gerber Garment
David J. Logan 1,3 Technology, Inc.
Retired President
Gerber Scientific Products, Inc. Ronald B. Webster
Senior Vice President
President,
Gerber Scientific
Products, Inc.
1. Audit and Finance Committee
2. Management Development and Compensation Committee
3. Business Development Committee
45
49
Shareholder Information Gerber Scientific, Inc.
------------------------------------------------------------------------
Corporate Headquarters 83 Gerber Road West
South Windsor, Connecticut 06074
Phone: (860) 644-1551
Fax: (860) 643-7039
World Wide Web:http//www.gerberscientific.com
Annual Meeting The 1997 annual meeting of the shareholders
will be held on September 12, 1997 at
2:30 p.m., EDT, at the Sheraton at Bradley
International Airport, Windsor Locks,
Connecticut.
Record Date Shareholders of record at the close of
business on July 24, 1997 are entitled to
receive notice of and vote at the annual
meeting.
Common Stock Listing New York Stock Exchange
(GRB)
Common Stock Transfer ChaseMellon Shareholder Services
Agent and Registrar 111 Founders Plaza
East Hartford, Connecticut 06108
Form 10-K A copy of the Form 10-K Annual Report, which
the Company files with the United States
Securities and Exchange Commission, is
available without charge by writing:
Gerber Scientific, Inc.
83 Gerber Road West
South Windsor, Connecticut 06074
Attention: Secretary
Shareholders of Record 1,575 at April 30, 1997
General Counsel Richard F. Treacy, Jr.
46
50
Item 9. Changes in and Disagreements with Auditors on Accounting
and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 relating to identification of
directors is incorporated herein by reference to the information
contained under the caption "Election of Directors" in the Company's
1997 Annual Meeting Proxy Statement which will be filed within 120
days of the Company's April 30, 1997 fiscal year-end.
Identification of executive officers appears below. All officers
serve at the pleasure of the Board of Directors. The following table
presents the name and age of each of the Company's executive officers,
their present positions with the Company and date of initial
appointment thereto, and other positions held during the past five
years, including positions held with other companies and with
subsidiaries of the Company.
Present Position Other Positions
and Date of Held During
Name and Age Initial Appointment Last Five Years
------------------------------------------------------------------
George M. Gentile (61) Chief Executive Officer President and
(August 19, 1996) Chief Operating
Officer; Senior Vice
President, Finance;
Treasurer
Michael J. Cheshire (48) President and Chief President,
Operating Officer General Signal
(February 17, 1997) Electrical Group;
President, General
Signal Electrical
Power Systems Group;
President, Sola
Electric
Fredric K. Rosen (58) Senior Vice President President,
(September 5, 1990) Gerber
Garment Technology,
Inc.
Ronald B. Webster (60) Senior Vice President President,
(September 4, 1991) Gerber
Scientific
Products, Inc.
47
51
Brian G. Eastman (51) Senior Vice President President,
(June 4, 1996) Gerber
Systems Corporation;
Senior Vice
President,
Engineering, Leaf
Systems, Inc.
Shawn M. Harrington (43) Senior Vice President President,
(March 20, 1997) Gerber Optical,
Inc.; Vice
President, Finance
and Operations,
Gerber Optical,
Inc.; Director
Financial Planning
and Business
Development
Richard F. Treacy, Jr.(52) Senior Vice President General
(June 1, 1994) Counsel,
Secretary
Gary K. Bennett (46) Senior Vice President, Vice President;
Finance Treasurer and
(August 19, 1996) Corporate
Controller;
Assistant Corporate
Controller
Item 11. Executive Compensation.
The information required by Item 11 is incorporated herein by
reference to the information contained under the caption "Executive
Compensation and Transactions" in the Company's 1997 Annual Meeting
Proxy Statement which will be filed within 120 days of the Company's
April 30, 1997 fiscal year-end.
48
52
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
The information required by Item 12 is incorporated herein by
reference to the information contained under the captions "Voting
Rights and Principal Shareholders" and "Election of Directors" in the
Company's 1997 Annual Meeting Proxy Statement which will be filed
within 120 days of the Company's April 30, 1997 fiscal year-end.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is incorporated herein by
reference to the information contained under the caption "Election of
Directors" in the Company's 1997 Annual Meeting Proxy Statement which
will be filed within 120 days of the Company's April 30, 1997 fiscal
year-end.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) The following documents are filed as part of this
report:
1. Financial Statements: Page
Consolidated Statement of Earnings
for the years ended April 30, 1997,
1996, and 1995 . . . . . . . . . . . 19
Consolidated Balance Sheet at
April 30, 1997 and 1996 . . . . . . . 20
Consolidated Statement of Changes in
Shareholders' Equity for the years
ended April 30, 1997, 1996, and 1995 21
Consolidated Statement of Cash Flows
for the years ended April 30, 1997,
1996, and 1995 . . . . . . . . . . . 22
Independent Auditors' Report . . . . . 24
Summary of Significant Accounting
Policies and Notes to Consolidated
Financial Statements . . . . . . . . 25 - 44
2. Financial Statement Schedules:
All financial statement schedules are omitted
because they are not applicable or the required
information is shown in the consolidated
financial statements or notes thereto.
49
53
3. Exhibits:
3.1 Restated Certificate of Incorporation of
the Company.
3.2 By-laws of the Company.
4.1* Agreement pursuant to S-K Item
601(b)(4)(iii)(A) to provide to the
Commission, upon request, copies of
certain other instruments with respect to
long-term debt where the amount of
securities authorized under each such
instrument does not exceed 10 percent of
the total assets of the Registrant and
its subsidiaries on a consolidated basis.
10.1 Gerber Scientific, Inc. 1982 Employee
Stock Plan.
10.2 Gerber Scientific, Inc. 1992 Employee
Stock Plan as amended and restated as of
April 28, 1995.
10.3 Gerber Scientific, Inc. 1992 Non-Employee
Director Stock Option Plan.
10.4 Employment Agreement dated as of
January 29, 1997 between the Company and
Michael J. Cheshire.
10.5* Gerber Scientific, Inc. Profit and Growth
Incentive Bonus Plan for the Fiscal Year
Ending April 30, 1997.
10.6* Consulting Agreement dated
February 7, 1997 between the Company and
Stanley Simon & Associates.
10.7* Consulting Agreement between the Company
and David J. Logan commencing
July 18, 1996.
11.1* Statement re Computation of Per Share
Earnings.
22.1* Subsidiaries of the Registrant.
24.1* Consent of Independent Auditors.
27.0* Financial Data Schedule
(b) No reports on Form 8-K were filed during the last
quarter of fiscal year 1997.
(c) See Item 14(a) 3. above.
(d) See Item 14(a) 2. above.
*Filed herewith.
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54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
BY: /s/ Gary K. Bennett
----------------------------
Date: July 21, 1997 Gary K. Bennett
------------- Senior Vice President,
Finance and Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
Date Signature Title
---- --------- -----
July 21, 1997 /s/ George M. Gentile Chief Executive
------------- ----------------------- Officer,
(George M. Gentile) Director
July 21, 1997 /s/ Michael J. Cheshire President and Chief
------------- ----------------------- Operating Officer,
(Michael J. Cheshire) Director
July 21, 1997 /s/ Stanley Simon Director
------------- -----------------------
(Stanley Simon)
July 21, 1997 /s/ W. Jerome Vereen Director
------------- -----------------------
(W. Jerome Vereen)
July 21, 1997 /s/ A. Robert Towbin Director
------------- -----------------------
(A. Robert Towbin)
July 21, 1997 /s/ David J. Gerber Director
------------- -----------------------
(David J. Gerber)
July 21, 1997 /s/ Edward E. Hood, Jr. Director
------------- -----------------------
(Edward E. Hood, Jr.)
July 21, 1997 /s/ David J. Logan Director
------------- -----------------------
(David J. Logan)
July 21, 1997 /s/ Gary K. Bennett Senior Vice President,
------------- ----------------------- Finance
(Gary K. Bennett)
51
55
EXHIBIT INDEX
Exhibit Index
Number Exhibit Page
------------- ------- ----
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
April 30, 1990).
3.2 By-laws of the Company (incorporated herein by reference
to Exhibit 3.2 to the Company's Annual Report on Form 10-
K for the year ended April 30, 1990).
4.1* Agreement pursuant to S-K Item 601(b)(4)(iii)(A) to 56
provide to the Commission, upon request, copies of
certain other instruments with respect to long-term debt
where the amount of securities authorized under each such
instrument does not exceed 10 percent of the total assets
of the Registrant and its subsidiaries on a consolidated
basis.
10.1 Gerber Scientific, Inc. 1982 Employee Stock Plan
(incorporated herein by reference to the Company's
Registration Statement on Form S-8, File No. 2-93695
and Post-Effective Amendment No. 1 to the
Registration Statement).
10.2 Gerber Scientific, Inc. 1992 Employee Stock Plan as
amended and restated as of April 28, 1995 (incorporated
herein by reference to Exhibit A to the Company's Proxy
Statement filed in connection with the Annual Meeting of
Shareholders held October 13, 1995, File No. 1-5865, and
by reference to the Company's Registration Statement on
Form S-8, File No. 333-26177).
10.3 Gerber Scientific, Inc. 1992 Non-Employee Director Stock
Option Plan (incorporated herein by reference to Exhibit
B to the Company's Proxy Statement filed in connection
with the Annual Meeting of Shareholders held September
24, 1992, File No. 1-5865).
*Filed herewith.
52
56
Exhibit Index
Number Exhibit Page
------------- ------- ----
10.4 Employment Agreement dated as of January 29,
1997 between the Company and Michael J. Cheshire
(incorporated herein by reference to Exhibit 10
to the Company's quarterly report on Form 10-Q
for the quarter ended January 31, 1997.)
10.5* Gerber Scientific, Inc. Profit and Growth 58
Incentive Bonus Plan for the Fiscal Year Ending
April 30, 1997.
10.6* Consulting Agreement dated February 7, 1997 62
between the Company and Stanley Simon &
Associates.
10.7* Consulting Agreement between the Company and 63
David J. Logan commencing July 18, 1996.
11.1* Statement re Computation of Per Share Earnings. 64
22.1* Subsidiaries of the Registrant. 65
24.1* Consent of Independent Auditors. 66
27.0* Financial Data Schedule. 67
*Filed herewith.
53
57
Exhibit 10.5
CONFIDENTIAL
GERBER SCIENTIFIC, INC.
PROFIT AND GROWTH INCENTIVE BONUS PLAN
FISCAL YEAR ENDING APRIL 30, 1997
The Profit and Growth Incentive Bonus Plan (the "Plan") for each of
Gerber Scientific, Inc.'s subsidiaries, Gerber Scientific Products,
Inc. ("GSP"), Gerber Garment Technology, Inc. ("GGT"), Gerber Systems
Corporation ("GSC"), and Gerber Optical, Inc. ("GOI"), for the fiscal
year ending April 30, 1997 will be based on each subsidiary's
individual performance. The profit and growth incentive bonus for
Gerber Scientific, Inc. ("Corporate") will be based on the Company's
consolidated performance.
PURPOSE OF THE PLAN
The purpose of the Plan is to reward certain domestic (U.S.)
executives, key management, and other employees by providing a cash
bonus based upon the adjusted pre-tax profits and the improvement in
adjusted pre-tax, pre-interest profits of their subsidiary or
Corporate, as applicable. This bonus is intended as an incentive to
increase shareholder value through sustained and improved earnings.
The Plan is specifically for the fiscal year ending April 30, 1997, as
approved by the Board of Directors of Gerber Scientific, Inc. Bonus
plans for future years and their criteria are subject to the approval
of the Board of Directors of Gerber Scientific, Inc. It is the
Board's present intention that interest income (intercompany or
otherwise) be eventually eliminated from the adjusted pre-tax profits
on which the bonus pools are calculated for the "All Other Employees"
category. Accordingly, the Plan for the fiscal year ended
April 30, 1996, eliminated one-half of such interest income from
adjusted pre-tax profits. Three-quarters of such interest income will
be eliminated from adjusted pre-tax profits in the Plan for the fiscal
year ending April 30, 1997. The Board contemplates that all of such
interest income would be eliminated in the fiscal year 1998 Plan.
DETERMINATION OF THE BONUS POOLS
The bonus pool at each participating subsidiary company will be
computed as follows:
(a) For Subsidiary presidents and key management, the sum of the
following:
- 1 percent of the consolidated adjusted pre-tax, pre-
bonus profit of the subsidiary for the year ending April
30, 1997, plus
- 3 percent of the improvement in consolidated adjusted
pre-tax, pre-bonus, pre-interest profit for the year
ending April 30, 1997 over 70 percent of the highest
such annual amount reported in the three fiscal years
ending April 30, 1996 (or, in the case of losses in each
of these years, 100 percent of the smallest of the
annual losses in such three year period).
54
58
(b) For All Other Employees:
- 1.50 percent of the consolidated adjusted pre-tax, pre-
bonus profit of the subsidiary for the year ending April
30, 1997. Such profit will be adjusted to exclude
three-fourths of any interest income (intercompany or
otherwise) and the equivalent income tax savings from
any tax-exempt interest income.
The bonus pool at Corporate will be computed as follows:
(a) For Corporate officers and key management, the sum of the
following:
- .75 percent of the consolidated adjusted pre-tax, pre-
bonus profit for the year ending April 30, 1997, plus
- 2.25 percent of the improvement in consolidated adjusted
pre-tax, pre-bonus, pre-interest profit for the year
ending April 30, 1997 over 70 percent of the highest
such annual amount reported in the three fiscal years
ending April 30, 1996.
(b) For All Other Employees:
- .25 percent of the consolidated adjusted pre-tax, pre-
bonus profit for the year ending April 30, 1997. Such
profit will be adjusted to exclude three-fourths of any
net interest income (intercompany or otherwise) and the
equivalent income tax savings from any tax-exempt
interest income.
Consolidated pre-tax profit is defined for participating subsidiary
companies as those subsidiary consolidated profits before income taxes
which are included in the consolidated financial statements of Gerber
Scientific, Inc. for the fiscal year ending April 30, 1997, as
certified by the Company's independent public accountants.
Consolidated pre-tax profit is defined for Corporate as the profits
before income taxes in the consolidated financial statements of Gerber
Scientific, Inc. for the fiscal year ending April 30, 1997, as
certified by the Company's independent public accountants.
55
59
In addition to the adjustments for interest income described above,
such consolidated pre-tax profits will be further adjusted for bonus
computation purposes as follows: (1) to exclude the effects of all
Foreign Sales Corporation (FSC) activity; (2) to exclude the effects
of any material changes in accounting principles which are subject to
Corporate management's discretion; (3) to include the equivalent
income tax savings from investments in tax-exempt municipal
securities; (4) to exclude the effects of outside legal costs expensed
during the current fiscal year for lawsuits alleging infringement of
Company-owned patents for which Corporate has given written approval;
for bonus computation purposes, these outside legal costs will be
amortized as a charge against consolidated pre-tax profit on a
straight line basis over the following 60 months; (5) to exclude the
effects of any settlement amounts or court awards for damages
resulting from a patent infringement lawsuit; for bonus computation
purposes, these amounts will first be offset against the amount of
current year patent infringement legal costs amortized during the
year, and second, as an offset against the cumulative unamortized
amount of patent infringement legal costs as of the end of such fiscal
year; and (6) if the settlement or court award amounts exceed the
cumulative unamortized amount of patent infringement legal costs, such
excess, for bonus computation purposes, will be amortized on a
straight line basis over three years, beginning in the year the
settlement or court award amounts are received, as an increase to
consolidated pre-tax profits.
DETERMINATION OF INDIVIDUAL BONUS AMOUNTS
The bonus pools for Corporate officers and key management, and for
Subsidiary presidents and key management, will be allocated between
them based upon the relative target bonus potential for the year so as
to yield bonus percentages in the appropriate ratio (e.g., if the
target bonus potential is 50 percent for Subsidiary presidents and 30
percent for key management, then a 50/30 bonus percentage ratio).
Management has the discretion to add a third category of other key
employees with a 20 percent (or less) target bonus potential. The
total bonus pool would remain the same in this situation and would be
allocated among the categories based on the relative target bonus
potential for the year so as to yield bonus percentages in the
appropriate ratio (e.g., 50 percent for Subsidiary presidents, 30
percent for key management, and 20 percent [or less] for other key
employees).
The portion of the respective bonus pools allocated to each category
will be divided by the sum of the actual regular wages paid during the
fiscal year to the eligible employees in that category so as to yield
a percentage. This percentage is then multiplied by each individual's
regular wages paid to compute the applicable bonus amount. Regular
wages paid is defined as base pay, including holiday pay, vacation
pay, and sick time pay, but excluding vacation paid in lieu of time
off, overtime pay (except for adjustments as may be appropriate to
assure compliance with the Fair Labor Standards Act), and any bonus
pay.
56
60
The maximum bonus percentage computed cannot exceed 150 percent of the
targeted bonus potential (e.g., 75 percent of regular wages paid for
Corporate officers and Subsidiary presidents whose targeted bonus
potential is 50 percent, 45 percent of regular wages paid for key
management whose targeted bonus potential is 30 percent, etc.). The
maximum bonus percentage computed for all other employees cannot
exceed 10 percent of regular wages paid to all other eligible
employees.
ELIGIBILITY FOR THE PLAN
All full time employees of Corporate and the participating domestic
subsidiary companies (GSP, GGT, GSC, and GOI) who are on the active
permanent payroll on April 30, 1997 are eligible to participate in the
Plan of their respective company. Specifically excluded from
participating in the Plan are: employees of foreign (i.e., non-U.S.)
subsidiaries and branches of Corporate or the domestic subsidiary
companies; employees who participate in other forms of cash incentive
compensation plans (e.g., salesmen on commission); and employees under
any form of collectively bargained wage or benefit contract.
Eligible employees who as of April 30, 1997 have been employed
continuously for a full year receive a full share (regular wages paid,
as defined, during the Plan's year multiplied by the applicable bonus
percentage, as computed). Eligible employees who as of April 30, 1997
have been employed continuously for more than six months but less than
one full year receive one-half share (regular wages paid during the
Plan's year multiplied by one-half the applicable bonus percentage).
Eligible employees who as of April 30, 1997 have been employed for
less than six months receive no share.
Eligible employees who transfer between participating companies will
participate pro-rata in the Plan of each company where they were
employed during the Plan year. Their bonus is based on the respective
regular wages paid and applicable bonus percentage at each company
where they were employed.
Employees who are laid-off during the Plan year but recalled to a
participating company within the period of recall rights and prior to
the end of the Plan year will be considered to have had no break in
service for purposes of determining bonus share. Employees who were
laid-off prior to the beginning of the Plan year and are recalled to a
participating company within the period of recall rights and prior to
the end of the Plan year will be considered to have been employed as
of the first day of the Plan year for purposes of determining bonus
share. An approved leave of absence will not be considered a break in
service for purposes of determining bonus share.
DISTRIBUTION OF THE PROFIT AND GROWTH INCENTIVE BONUS
The profit and growth incentive bonus for each participating company
will be paid in cash to eligible employees as a percentage of their
regular wages paid during the Plan year, based upon their period of
employment (see "Eligibility for the Plan"). It is expected that any
cash distribution will be made on or before July 15, 1997.
57
61
February 7, 1997 Exhibit 10.6
Mr. Stanley Simon
Stanley Simon and Associates
70 Pine Street, 33rd Floor
New York, New York 10270
Re: Retainer of Stanley Simon and Associates as
Management Consultant - Renewal
Dear Mr. Simon:
This letter is to memorialize our agreement concerning the renewal of
Stanley Simon and Associates ("SS&A") as a management consultant to
Gerber Scientific, Inc. (the "Company") for an additional year
beginning February 21, 1997.
As you know, by letter agreement dated September 5, 1995, it was
agreed that SS&A will provide management consulting services to the
Company (apart from the services to be provided by yourself by virtue
of your membership on the Company's Board of Directors and its
Committees) for an initial term of one year, effective February 21,
1995, which may be renewed annually by mutual written consent of SS&A
and the Company. The compensation payable to SS&A will be a fixed
rate of Ten Thousand Dollars ($10,000), payable monthly, plus
reasonable out-of-pocket expenses incurred by SS&A with respect to
consulting services performed hereunder. As an independent
contractor, SS&A will continue to be responsible for all other
expenses, applicable taxes, and insurance.
Please note that this letter is being sent in duplicate. To indicate
your agreement with the terms of this letter, please countersign both
copies and return one to my attention.
Very truly yours,
/s/ Gary K. Bennett
Gary K. Bennett
Senior Vice President, Finance
Accepted and Agreed: STANLEY SIMON AND ASSOCIATES
By: /s/ Stanley Simon
Stanley Simon, Principal
58
62
June 18, 1996 Exhibit 10.7
Mr. David J. Logan
P.O. Box 60
Great Barrington, MA 01230
Dear Dave,
The purpose of this letter is to offer to extend your consulting
agreement with Gerber Scientific, Inc. for an additional period of
three (3) years commencing on the current expiration date, July 18,
1996. All terms and conditions of the original agreement dated July
18, 1990, including the statement of your duties and responsibilities
shall remain in full force and effect for the extension period except
that your compensation for services shall be increased to one hundred
twenty thousand dollars ($120,000) per year effective July 18, 1996.
If you are agreeable to the above, please so indicate by your
signature in the space provided below and return the original of this
letter to me.
Sincerely,
/s/ Richard F. Treacy, Jr.
Richard F. Treacy, Jr.
Accepted and Agreed:
/s/ David J. Logan
David J. Logan
Date: June 19, 1996
Approved
/s/ George M. Gentile
George M. Gentile
Senior Vice President, Finance
Date: June 19, 1996
59
63
Exhibit 11.1
GERBER SCIENTIFIC, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
------------------------------------------------------------------
Years ended April 30, 1997 1996 1995
-------------------------------------------------------------------
Net earnings $16,009,000 $19,868,000 $18,111,000
=========== =========== ===========
Average common shares
outstanding 23,250,332 23,463,141 23,795,774
Common stock equivalents:
Common stock attributable
to stock options
(treasury stock method) 115,043 225,812 154,337
----------- ----------- -----------
Weighted average shares of
common stock outstanding
during the period 23,365,375 23,688,953 23,950,111
=========== =========== ===========
Net earnings per common share $ .69 $ .84 $ .76
=========== =========== ===========
Note:
Net earnings per common share as calculated above is presented on a
primary and fully diluted basis.
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64
EXHIBIT 22.1
GERBER SCIENTIFIC, INC.
SUBSIDIARIES OF THE REGISTRANT
State or Jurisdiction
of
Incorporation or
Subsidiary Organization
---------- ----------------------
Gerber Systems Corporation Connecticut
Gerber Systems GmbH Germany
Gerber Systems Corporation Srl Italy
Gerber Systems Corporation NV Belgium
Gerber Systems Corporation Limited United Kingdom
Gerber Systems Corporation Hong Kong Limited Hong Kong
Gerber Garment Technology, Inc. Connecticut
GGT Canada Ltd. Canada
GGT International (Australia) Pty. Ltd. Australia
GGT International (NZ) Pty. Ltd. New Zealand
GGT International (Far East) Ltd. Hong Kong
GGT International de Mexico, S.A. de C.V. Mexico
Gerber Garment Technology GmbH Germany
Gerber Garment Technology Srl Italy
Gerber Garment Technology SA/NV Belgium
Gerber Garment Technology SARL France
Gerber Garment Technology AB Sweden
Gerber Garment Technology Ltd. United Kingdom
GGT-Niebuhr A/S Denmark
Gerber Garment Technology Systems
Computorizados Lda Portugal
M.D. "Europe" Ltd. United Kingdom
C.I.M. Microdynamics Limited United Kingdom
Microdynamics AB Sweden
Gerber Scientific Products, Inc. Connecticut
Gerber Scientific Products GmbH Germany
Gerber Optical, Inc. Connecticut
Gerber Venture Capital Corporation Delaware
Gerber Foreign Sales Corporation, Inc. Barbados
Other entities, considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary as of April 30, 1997 and
are not listed above.
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65
EXHIBIT 24.1
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Gerber Scientific, Inc.
We consent to incorporation by reference in the registration
statements No. 2-93695, No. 33-58668, and No. 333-26177 on Form S-8
and No. 33-58670 on Form S-3 of Gerber Scientific, Inc. of our report
dated May 22, 1997 relating to the consolidated balance sheet of
Gerber Scientific, Inc. and subsidiaries as of April 30, 1997 and 1996
and the related consolidated statements of earnings, changes in
shareholders' equity and cash flows for each of the years in the
three-year period ended April 30, 1997, which report appears in the
April 30, 1997 annual report on Form 10-K of Gerber Scientific, Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
July 24, 1997
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66