Dec 10, 2010

Gerber Scientific, Inc. Reports Second Quarter Fiscal 2011 Operating Profit

Grew 35% Excluding Goodwill Impairment and Restructuring Charges on Revenue Increase of 9%.

SOUTH WINDSOR, CT – Gerber Scientific, Inc has reported revenue and operating results for its fiscal 2011 second quarter ended October 31, 2010.

Summary of Results from Continuing Operations for FY 2011 Second Quarter versus FY 2010 Second Quarter

- Reported revenue increased 9.0% to $129.3 million from $118.7 million. Unfavorable foreign currency impacts decreased revenue by approximately $2.7 million, or 2.3%. Excluding non-recurring licensing revenue of $1.3 million in the prior year, revenues were up 12.4% on a constant currency basis;

- Gross profit was $38.6 million or 29.9% of sales versus $35.2 million or 29.7% of sales. Prior year gross margin was 29.0% excluding licensing revenue. The improvement in gross profit and margin was due to the higher sales volume, cost reduction initiatives and lower warranty expenses. The impact of foreign currency exchange rates reduced gross profit approximately $0.6 million;

- Selling, general and administrative (SG&A) expenses were $29.5 million, or 22.8% of sales, compared with $27.5 million, or 23.2% of sales. The current quarter includes the restoration of approximately $1.5 million in temporary wage reductions and $0.8 million in incentive compensation. Changes in foreign currency exchange rates lowered current quarter expenses approximately $0.6 million;

- Excluding goodwill impairment from the current quarter and restructuring charges from both periods, operating income was up 35.3% to $4.7 million compared with $3.5 million. Reported operating loss was $14.4 million compared with operating income of $2.9 million, reflecting a $16.9 million goodwill impairment charge in connection with the previously announced sale of the ophthalmic lens processing business and $2.2 million of restructuring and other expenses.

- Loss from continuing operations was $16.1 million, or $0.64 per diluted share, compared to income of $2.0 million, or $0.08 per diluted share. Net loss for the current quarter was $16.1 million, or $0.64 per diluted share, compared with income of $0.5 million, or $0.02 per diluted share. Excluding the goodwill impairment charge, diluted earnings per share were $0.03 per share;

- Net cash flows from operations, less capital expenditures, increased $3.6 million to $4.0 million, from $0.4 million in the prior year, due principally to working capital improvements;

- Total outstanding debt fell to $35.0 million, representing a $3.0 million reduction in the quarter and a $10.0 million reduction since April 30, 2010.

"We continued our positive performance trend in the second quarter, with currency-neutral revenue up 11%, fueled by a strong rebound in equipment sales, up 27%, and solid revenue gains in software and aftermarket products, up 17% and 4%, respectively. We are particularly pleased by the significant ramp up in market demand within our Apparel and Industrial segment, which posted significantly higher orders across every business line and nearly every geographic market," said Marc Giles, Gerber Scientific President and Chief Executive Officer.

"Equally encouraging, Spandex, our distribution business within our Sign Making and Specialty Graphics segment, posted their highest revenue level since the second quarter of fiscal 2009 and generated a 40% improvement in operating income over the second quarter last year.

We also made important progress during the quarter with our key strategic initiatives to reduce our permanent cost structure and optimize our business portfolio. First, our cost reduction actions saved us approximately $1.6 million during the quarter. We expect our current actions plus other currently planned actions will generate savings of $6 million to $9 million in fiscal 2011 and $10 million to $16 million on a run rate basis by the end of fiscal 2012. Second, we announced earlier this month the sale of our ophthalmic lens processing business, Gerber Coburn. While Gerber Coburn is a good business, this sale will improve our strategic focus, our financial flexibility, and better enable strategic bolt-on acquisitions in our Apparel and Industrial segment. Due to the lost profit contribution and cost absorption from this divestiture, we are targeting additional cost reduction actions beyond those already planned and discussed above. As a result, we expect savings from all the combined cost reduction efforts to total $6 million to $9 million in fiscal 2011 and $14 million to $20 million for fiscal 2012 and beyond."

Outlook and Guidance

“Market conditions have improved steadily during the first half of fiscal 2011, and, as a result, our outlook has certainly become more positive,” said Mr. Giles. “Second quarter orders and order backlog are the strongest they’ve been in two years and our key market and financial indicators continue to improve. We are seeing significantly increased demand in our Apparel and Industrial Segment and our Sign Making and Specialty Graphics distribution business. Revenue in China, an important growth market for us, remains solid. While we are generally pleased with market reception for our new Gerber CAT UV printer, which was introduced during our fiscal first quarter, capital equipment financing constraints remains an issue for many of our customers on the equipment side of our Sign Making and Specialty Graphics business.”

Giles continued, “From a revenue and earnings perspective, we expect annual revenues, excluding the ophthalmic lens processing business, will range between $435 million and $440 million for fiscal 2011. Reported earnings visibility, on the other hand, will remain unclear as we continue to rationalize our businesses, restructure our operations and further reduce costs. We will be more comfortable providing earnings guidance once these initiatives are completed.”