CAUTIONARY NOTE CONCERNING FACTORS THAT MAY INFLUENCE FUTURE RESULTS

This Management's Discussion and Analysis of Financial Condition and Results of Operations contains statements which, to the extent they are not statements of historical or present fact, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are intended to provide management's current expectations or plans for the future operating and financial performance of Gerber, based on assumptions currently believed to be reasonable. Forward-looking statements can be identified by the use of words such as "believe," "expect," "intend," "foresee," "may," "plan," "anticipate" and other words of similar meaning in connection with a discussion of future operating or financial performance. These forward-looking statements include, among others, statements relating to:

· expected financial condition, future earnings, levels of growth, or other measures of financial performance, or the future size of market segments or geographic markets;

· economic conditions;

· planned cost reductions;

· future cash flows and uses of cash and debt reduction strategies;

· prospective product developments and business growth opportunities, as well as competitor product developments;

· demand for Gerber's products and services;

· methods of and costs associated with potential geographic expansion;

· regulatory and market developments and the impact of such developments on future operating results;

· potential impacts from credit market risk;

· future effective income tax rates;

· the outcome of contingencies;

· the availability and cost of raw materials; and

· pension plan assumptions and future contributions.

All forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Some of these risks and uncertainties are set forth in Item 1A, "Risk Factors" of this Annual Report on Form 10-K. Gerber cannot assure that its results of operations, financial condition or cash flows will not be adversely affected by one or more of these factors. Gerber does not undertake to update any forward-looking statement made in this report or that may from time to time be made by or on behalf of Gerber.

GENERAL

The following discussion is intended to help the reader understand Gerber's operations and business environment. Management's Discussion and Analysis, or "MD&A," is provided as a supplement to the consolidated financial statements and therefore should be read in conjunction with Item 15, "Exhibits, Financial Statement Schedules," of this Annual Report on Form 10-K. MD&A is comprised of the following primary sections:

· Overview and Outlook - a brief summary of fiscal 2009 results and trends and expectations for future periods.

· Results of Operations and Segment Review - an analysis of Gerber's consolidated results of operations for the three years presented in the consolidated financial statements and by reportable segment.

· Financial Condition - an analysis of Gerber's liquidity and capital resources, cash flows, off-balance sheet arrangements, aggregate contractual obligations, and an overview of the financial position.

· Critical Accounting Estimates - a description of accounting policies that require critical judgment and estimates.

OVERVIEW AND OUTLOOK

Through its global operations, Gerber develops, manufactures, distributes and services integrated automation equipment and software, as well as related aftermarket supplies, for the sign making and specialty graphics industry, the apparel and flexible materials industry and the ophthalmic lens processing industry.

Gerber's three reportable business segments consist of the following:

· Sign Making and Specialty Graphics (Gerber Scientific Products and Spandex business units);

· Apparel and Flexible Materials (Gerber Technology); and

· Ophthalmic Lens Processing (Gerber Coburn).

Gerber's sales strategy emphasizes new product development and expansion into new geographic markets. Gerber's product development process focuses on platform development that enables the company to leverage its product innovations with product extensions and add-ons. Gerber's long-term growth strategy features geographic expansion in Asian markets, particularly in China, and the addition of markets throughout Europe. Gerber pursues a number of initiatives intended to improve its operating efficiency and gross profit margins. The focus of this effort is the implementation of lean manufacturing principles aimed at increasing Gerber's profit margins, including strengthening manufacturing policies and procedures, consolidating and improving supplier relationships, improving inventory methods and reducing inventory, seeking low-cost sourcing opportunities for key parts and components used in the company's newer products, and increasing the company's offerings of higher-margin value-added products, especially within aftermarket supplies. Gerber believes that the foregoing strategies will position Gerber for resumption in growth when Gerber's markets recover. Despite the current economic downturn, Gerber completed several initiatives in fiscal 2009 to promote future growth.

Late in fiscal 2008 and early in fiscal 2009, Gerber launched several key new products, including the Solara ion UV inkjet printers; the DTL200 generator and MAAT polisher, which together form the basis for the Advanced Lens Processing System with free-form capability; and the Z7 GERBERcutter, the first in the new Z series of premium line of multi-ply cutting systems. Key new products, driven by sales of the Solara ion, generated $32.7 million in revenue during fiscal 2009 compared with new product revenue of $36.7 million in fiscal 2008. Gerber believes that the impact of the weak global economy and adverse credit markets that reduced credit availability for potential customers negatively impacted these product launches in fiscal 2009.

As part of Gerber's strategic process, management continually reviews its operating segments and selected markets in terms of their potential long-term returns. Management periodically reviews and negotiates potential business acquisitions and divestitures, some of which may be material. Decisions regarding "bolt-on" acquisitions generally focus on candidates that will contribute to the growth of Gerber's core businesses, increase earnings per share, and generate positive cash flow in the first year of acquisition. Gerber may also consider business divestitures if management determines that the applicable business no longer meets Gerber's long-term strategic objectives or that the divestiture could increase cash flows.

Gerber completed two key acquisitions in fiscal 2009. In September 2008, Gerber acquired Gamma Computer Tech Co., Ltd. in China for a purchase price of approximately $5.1 million. Gamma, a manufacturer of equipment for the apparel and flexible materials markets, is expected to expand Gerber's operations in this segment in China. In October 2008, Gerber acquired Virtek Vision International, Inc. for a purchase price of approximately $29.0 million. Virtek, a manufacturer of precision laser-based templating, inspection, marking and engraving solutions, expands Gerber Technology's footprint in the composite materials manufacturing value chain by extending its capabilities to provide an integrated solution in industrial applications. Together, these acquisitions generated revenue of approximately $23.1 million in fiscal 2009.

While new products and acquisitions had a positive impact on fiscal 2009 sales results, the weak global economy, which was believed to have caused uncertainty and reduced end-market visibility for customers, combined with reduced availability of credit for equipment purchases and the negative impact on international sales of a strengthening United States dollar, more than offset the positive benefits. The table below presents revenue by reportable segment for the past three fiscal years. The decline across each segment in fiscal 2009 illustrates the impact of the weak global economy upon Gerber's business.

                                             For the Fiscal Years Ended April 30,
In thousands                                  2009             2008          2007
Sign Making and Specialty Graphics    $    320,705       $  361,086     $ 302,087
Apparel and Flexible Materials             174,566          207,945       196,164
Ophthalmic Lens Processing                  57,543           70,986        76,547
Revenue                               $    552,814       $  640,017     $ 574,798

To moderate the impact of the worsening economic downturn, Gerber initiated several actions, including workforce reductions, in fiscal 2009 to control its operating costs. Gerber continues to focus on controlling costs and is managing all aspects of its

business to mitigate the effects of the current adverse economic environment.

The following table presents the components of operating income as a percentage of consolidated revenue.

                                                                            For the Fiscal Years Ended April 30,
                                                                        2009                 2008           2007
Gross profit margin                                                     27.9    %            29.1   %       30.0    %

The fiscal 2009 decline in gross profit margin was primarily attributable to overall lower sales volume, a lower sales contribution from Gerber's higher-margin software business and severance costs. Fiscal 2008 gross profit margin benefited from $2.3 million of patent license income.

To help mitigate the impacts of lower sales volume during fiscal 2009, Gerber focused on reducing its cost structure by several actions, including workforce reductions, facility rationalization plans and discretionary spending control. The full benefit of the workforce reductions will be realized in fiscal 2010, as the mid-year timing of the actions and severance costs of $2.8 million partially offset the full benefit in fiscal 2009. Gerber also implemented a ten percent salary reduction in the United States during the last two months of fiscal 2009 that continued into fiscal 2010, as well as certain furlough actions in the United States. Gerber expects to realize $16.8 million in savings as a result of the fiscal 2009 workforce reduction actions in fiscal 2010. Facility rationalization plans during fiscal 2009 resulted in a non-cash benefit of $0.9 million to SG&A expenses as a result of management's decision to utilize a leased facility that was vacant, eliminating the need for a previously established restructuring accrual. Effective April 30, 2009, Gerber froze its pension plan benefits, which eliminated future benefit accruals for participants in Gerber's United States defined benefit pension plans. Gerber expects that this action, coupled with the impact of fiscal 2010 pension assumptions, should result in a reduction of approximately $2.3 million of pension plan expenses in fiscal 2010.

Net income in fiscal 2009 was favorably impacted by a tax benefit of $3.2 million from the merger of two French subsidiaries and $0.6 million of a pre-tax gain from the sale of its Australian facility, and was adversely impacted by $2.3 million of pre-tax impairment charges related to an investment deemed other-than-temporarily impaired. Net income in fiscal 2008 included the benefit of non-recurring pre-tax gains of $2.3 million related to the sale of a land parcel and the sale of the Ophthalmic Lens Processing segment's Innovations software. Fiscal 2007 results included a realized gain of $1.0 million related to the sale of certain investments.

Economic conditions can significantly impact Gerber's businesses, as experienced during fiscal 2009, and these challenging conditions have continued to date into fiscal 2010. Delays in customer orders and overall weaker demand due to the global recession and depressed credit markets present a significant challenge in forecasting customer purchase patterns and, as a result, Gerber's performance. Gerber believes that the significant efforts to stimulate the global economy will have a beneficial impact in the second half of fiscal 2010. Although global economic uncertainty continues, Gerber believes that the strength of its product portfolio, diversified business model and streamlined organizational structure should allow Gerber to resume growth quickly when its markets begin to recover. Until this economic recovery occurs, Gerber will continue to manage all aspects of its business with a heightened focus on cash generation.

RESULTS OF OPERATIONS

                                                                         For the Fiscal Years Ended April 30,
In thousands                                                              2009             2008          2007
Revenue                                                           $    552,814       $  640,017     $ 574,798
Cost of sales                                                          398,436          453,484       402,424
Gross profit                                                           154,378          186,533       172,374
Selling, general and administrative expenses                           125,726          135,297       124,460
Research and development                                                22,417           26,187        24,282
Operating income                                                  $      6,235       $   25,049     $  23,632

Revenue - Consolidated revenue for fiscal 2009 decreased by $87.2 million, or 13.6 percent, from fiscal 2008 levels. As a significant portion of Gerber's revenue base is international, fluctuations in foreign currency rates can have a significant impact on revenue. Unfavorable foreign currency translations negatively impacted fiscal 2009 revenue by approximately $18.9 million as a result of the United States dollar strengthening against several other currencies in which Gerber transacts business as compared with fiscal 2008. Lower sales volume negatively impacted revenue by approximately $95.6 million and was partially offset by the benefit of $23.1 million from the two acquisitions completed in fiscal 2009 and favorable pricing of $4.2 million. Gerber believes that the company has not lost market share in its various markets and that weak economic conditions account for most of the volume decline in Gerber's fiscal 2009 revenue. Fiscal 2008 revenue increased $65.2 million, or 11.3 percent, compared with fiscal 2007. The increase included favorable foreign currency translation of $37.1 million compared with fiscal 2007 and $14.1 million of revenue contribution from the acquisition of Data Technology.

The table below presents revenue by source for the fiscal years ended April 30, 2009, 2008 and 2007.

                                          For the Fiscal Years Ended April 30,
In thousands                          2009                2008                2007
Equipment and software revenue   $ 159,505    29 %   $ 205,180    32 %   $ 192,166    33 %
Aftermarket supplies revenue       319,857    58 %     360,765    56 %     316,975    55 %
Service revenue                     73,452    13 %      74,072    12 %      65,657    12 %
Revenue                          $ 552,814   100 %   $ 640,017   100 %   $ 574,798   100 %

Equipment and software revenue declined 22.3 percent in fiscal 2009 compared with fiscal 2008. Gerber believes the lower equipment orders and revenue in fiscal 2009 were indicative of customer delays in making capital expenditures caused by the weak economy and the lack of credit availability to finance new equipment purchases, as well as unfavorable foreign currency translation as compared with fiscal 2008. Gerber launched several key new products in late fiscal 2008 and fiscal 2009, which contributed $32.7 million of incremental revenue in fiscal 2009. While numerous new equipment products and enhancements were launched in fiscal 2009, the most significant contributors to fiscal 2009 sales performance included the Solara ion, a wide-format ultraviolet inkjet printer, the Z7 GERBERcutter, a high performance multi-ply cutting system and the DTL200 generator and MAAT polisher, which together form the basis for the Advanced Lens Processing System with free-form capability. Gerber believes that it is well positioned to capitalize on demand when the economies in its various markets recover.

Aftermarket supplies revenue decreased 11.3 percent from fiscal 2008 to fiscal 2009. The decrease was primarily attributable to lower sales volume at Gerber's end-user customer locations within the Sign Making and Specialty Graphics segment and unfavorable foreign currency translation compared with fiscal 2008. Typically, aftermarket supplies sales of replacement parts and consumables remain relatively stable due to the large base of installed equipment in use, even during turbulent economic conditions.

Service revenue decreased 0.8 percent from fiscal 2008 to fiscal 2009. The increased equipment installed base and related service contracts over the past few fiscal years partially mitigated the full economic impact on fiscal 2009 service revenue. Similar to aftermarket sales, service revenue typically remains relatively stable due to the large base of installed equipment.

The following table presents segment revenue as a percentage of consolidated revenue in fiscal 2009, 2008 and 2007:

                                             For the Fiscal Years Ended April 30,
                                               2009           2008           2007
Sign Making and Specialty Graphics               58 %           56 %           53 %
Apparel and Flexible Materials                   32 %           33 %           34 %
Ophthalmic Lens Processing                       10 %           11 %           13 %
                                                100 %          100 %          100 %

The increased contribution from the Sign Making and Specialty Graphics segment primarily reflected results of the Spandex business unit, whose operations within Europe were not adversely affected by the worsening economic conditions until mid-fiscal 2009.

Revenue by geographic region and as a percentage of consolidated revenue in fiscal 2009, 2008 and 2007 was as follows:

                             For the Fiscal Years Ended April 30,
In thousands           2009                   2008                  2007
North America   $ 215,765    39.0 %   $ 208,225    32.5 %   $ 197,451    34.4 %
Europe            248,524    45.0 %     292,252    45.7 %     243,564    42.4 %
Rest of World      88,525    16.0 %     139,540    21.8 %     133,783    23.2 %
Revenue         $ 552,814   100.0 %   $ 640,017   100.0 %   $ 574,798   100.0 %

The increase in revenue contributed from North America in fiscal 2009 primarily reflected incremental revenue from the Virtek acquisition. This contribution was partially offset by weak demand from North America sign making and specialty graphics distributors and ophthalmic markets. The reduced ophthalmic market demand reflected, in addition to weakened global economic conditions, the impact of continued larger laboratories industry consolidation efforts. The fiscal 2009 decline in revenue contributed from Europe reflected lower demand as a result of global economic factors, particularly in the second half of fiscal 2009 and the impact of unfavorable foreign currency translation. The decline in Rest of World revenue was primarily related to lower equipment and software demand from apparel markets within Asia. Gerber reported revenue from China of $19.4 million, $32.4 million and $28.5 million for fiscal years 2009, 2008 and 2007, respectively. Gerber believes that the revenue decline in fiscal 2009 was attributable to the weak global economy and was not indicative of a fundamental change in the demand for its products.

As an international company, Gerber's operating results are affected by global, industrial and political factors. Global geographic sales expansion and industry diversification, both of which are key Gerber operating strategies, help to limit the adverse impact of any one industry or the economy of any single country on Gerber's consolidated revenue and operating results. In fiscal 2010, Gerber expects to continue to focus both on its domestic and international operations by promoting new product launches worldwide and conducting business in targeted markets, particularly in the Rest of World region.

Gross Profit - Gross profit for the past three fiscal years is shown in the following table:

For the Fiscal Years Ended April 30,

In thousands                2009               2008        2007
Gross profit        $    154,378       $    186,533   $ 172,374
Gross profit margin         27.9 %             29.1 %      30.0 %

Fiscal 2009 gross profit decreased 17.2 percent compared with fiscal 2008 directly as a result of the 13.6 percent decline in revenue. Additionally, the impact of unfavorable foreign currency translations lowered gross profit by $6.7 million, or 3.6 percent, compared with fiscal 2008. Gross profit for fiscal 2009 was also impacted by $0.8 million of severance costs incurred to implement workforce reductions. Incremental gross profit from fiscal 2009 acquisitions and cost savings measures, including workforce reductions and manufacturing shut-downs, partially mitigated these declines. Gross profit in fiscal 2008 compared with fiscal 2007 was positively impacted by favorable foreign currency translations, increased sales volume, including patent licensing income and a fiscal 2008 acquisition.

Gerber's gross profit margin has declined 2.1 percentage points over the past two fiscal years due principally to the negative impact of lower revenue on the fixed cost base and a higher revenue contribution from the Spandex distribution business, which realizes lower gross margins than Gerber's manufacturing businesses. Compared to fiscal 2008, fiscal 2009 results reported lower software sales and revenue from licensing patents, both of which types of revenue typically carry a higher gross profit margin. In response to the fiscal 2009 revenue decline, Gerber actively managed its fixed costs through workforce reductions. Gerber also continued to focus on continuous improvement initiatives through the implementation of lean manufacturing principles. Other initiatives pursued by Gerber to improve its profit margins include increasing the breadth and quality of product offerings, strengthening manufacturing policies and procedures and continuing to investigate low-cost sourcing opportunities for key parts and components used in its newer products.

Selling, General and Administrative Expenses

                                                                       For the Fiscal Years Ended April 30,
In thousands                                                  2009          2008   Change       2008       2007    Change
Selling, general and administrative expenses             $ 125,726     $ 135,297     (7.1 %)   $ 135,297 $ 124,460    8.7 %

The significant decline in SG&A expenses in fiscal 2009 compared with fiscal 2008 was principally attributable to fiscal 2009 workforce reductions. The reduction in SG&A expenses also reflected reutilization of a previously vacated leased facility, which generated a non-cash expense reduction of $0.9 million from the reversal of a previously established restructuring reserve; a heightened focus on controlling all discretionary spending; the absence of an incentive compensation expense since performance objectives were not met; and the favorable impact of foreign currency translation of approximately $4.1 million compared with fiscal 2008. SG&A expenses also benefited from lower selling expenses in fiscal 2009 attributable to lower sales volume and from a $0.6 million gain on the sale of property within the Ophthalmic Lens Processing segment. The full benefit of these items in fiscal 2009 was moderated by incremental SG&A expenses of $7.1 million from the recent acquisitions; higher net bad debt expense of $2.3 million from general economic conditions; higher defined benefit plan expenses of $1.5 million; higher medical and other self-insurance costs of $1.1 million; and incremental severance costs of $0.5 million. The higher defined benefit plan expenses included a $0.5 million curtailment loss recognized as a result of the freeze of future benefits.

SG&A expenses in fiscal 2008 included incentive compensation expense of $3.2 million; $0.9 million in professional fees related to Gerber's adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for the Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, or "FIN 48"; the unfavorable impact of foreign currency translations of approximately $6.2 million as compared with fiscal 2007; and the benefit from a gain of $1.0 million on the sale of assets within the Ophthalmic Lens Processing segment. In comparison to fiscal 2007, fiscal 2008 SG&A expenses also reflected higher commissions, sales and marketing costs for strategic investments related to new products, and incremental costs from geographic expansion; higher severance costs of $0.7 million; lower incentive compensation expense of $1.0 million; lower self-insurance costs of $0.8 million; and lower pension costs of $0.7 million. The lower incentive compensation expense primarily resulted from incentive compensation plan design changes adopted at the beginning of fiscal 2008. Lower pension costs were primarily related to employee demographic changes.

SG&A expenses are expected to benefit in fiscal 2010 from actions initiated in fiscal 2009, including the reduction in workforce and the implementation of the pension plans freeze effective on April 30, 2009.

Research and Development

                                                                     For the Fiscal Years Ended April 30,
In thousands                                               2009         2008    Change        2008       2007    Change
Research and development expenses ("R&D")              $ 22,417     $ 26,187   (14.4 % )  $ 26,187   $ 24,282     7.8 %

Gerber has a strong commitment to the development of new products and believes that such efforts are important to its future prospects for profitable growth. R&D as a percentage of revenue remained steady around 4.0 percent in the past three fiscal years. The lower expenses in fiscal 2009 compared to historical levels reflected the impact of workforce reductions, though the . . .