- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-12273
ROPER INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
----------------
DELAWARE 51-0263969
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
----------------
160 BEN BURTON ROAD
BOGART, GEORGIA 30622
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 369-7170
----------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $.01 Par Value New York Stock Exchange
Preferred Stock Purchase Rights
with respect to Common Stock, $.01 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
----------------
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. [X] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
Aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the closing price of such stock, as of
December 31, 1997: $875,541,911
Number of shares of Registrant's Common Stock as of December 31, 1997:
30,992,634
----------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be furnished to Shareholders
in connection with its Annual Meeting of Shareholders to be held on February
20, 1998, are incorporated by reference into Part III
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART I
ITEM 1. BUSINESS
Roper Industries, Inc. ("Roper" or the "Company") designs, manufactures and
distributes specialty industrial controls, fluid handling and analytical
instrumentation products worldwide, serving selected segments of a broad range
of markets such as the oil and gas, agricultural irrigation, chemical and
petrochemical processing, large diesel engine and turbine/compressor control
applications, bulk-liquid trucking, power generation, semiconductor, medical
diagnostics, microscopy and scientific research industries.
The Industrial Controls segment's products are manufactured and distributed
by Amot Controls Corporation, Richmond, California ("Amot U.S.") and its U.K.
affiliate, Amot Controls Ltd., Bury St. Edmunds, England ("Amot U.K.") (Amot
U.S. and Amot U.K. are collectively referred to as "Amot"), Compressor Controls
Corporation, Des Moines, Iowa ("CCC"), Metrix Instrument Co., L.P., Houston,
Texas ("Metrix"), and Petrotech, Inc., New Orleans, Louisiana ("Petrotech").
The Fluid Handling segment's products are manufactured and distributed by
Cornell Pump Manufacturing Corporation, Portland, Oregon ("Cornell Pump"), Fluid
Metering, Inc., Syosset, New York ("FMI"), FTI Flow Technology, Inc., Phoenix,
Arizona ("Flow Technology"), Integrated Designs L.P., Dallas, Texas ("Integrated
Designs"), and Roper Pump Company, Commerce, Georgia ("Roper Pump").
The Analytical Instrumentation segment's products are manufactured and
distributed by Gatan, Inc., Pleasanton, California ("Gatan"), Instrumentation
Scientifique de Laboratoire-ISL, S.A., Verson, France ("ISL"), Princeton
Instruments, Inc., Trenton, New Jersey ("Princeton"), Uson L.P., Houston, Texas
("Uson") and its affiliate Industrial Data Systems, Inc., Salt Lake City, Utah
("IDS").
Roper pursues consistent and sustainable growth in sales and earnings by
operating and acquiring businesses which manufacture and sell high value-added,
highly engineered industrial products and which are capable of achieving and
maintaining high margins. This strategy continually emphasizes (i) increasing
market share and market expansion, (ii) new product development, (iii) improving
productivity and reducing costs, and (iv) acquiring similar businesses. All
operating companies achieved year-over-year increases in both sales and
operating profits in fiscal 1997, except CCC, whose business in the Commonwealth
of Independent States ("CIS")/Eastern Europe region lagged, and Integrated
Designs, which continued to confront a cyclical downturn in the semiconductor
capital equipment industry. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Year Ended October 31, 1997
Compared to Year Ended October 31, 1996."
MARKET SHARE, MARKET EXPANSION AND PRODUCT DEVELOPMENT. The Company
competes in many narrowly defined niche markets. Its position in these markets
is typically as the market leader or as a highly competitive alternate to the
market leader. In those markets where the Company is regionally dominant it
seeks to sustain growth through geographic expansion of its marketing efforts
and the development of new products for associated markets.
The Company expanded its markets in fiscal 1997 principally by new business
acquisitions. The May 1997 acquisition of Princeton complemented Gatan's digital
imaging product line and established the Company as a leading supplier of
scientific-grade digital camera and imaging products for a variety of market
segments. Petrotech, also acquired in May, is a significant turbomachinery
controls supplier and complements the business of CCC as well as provides the
Company with a new engineering/procurement business. Uson achieved a major
expansion of its leak-tester business into the medical products market with its
October acquisition of IDS.
The Company's sales of turbomachinery control systems to its principal
customer in the CIS, RAO Gazprom, reduced by 19% in fiscal 1997 from the prior
year due to difficulties encountered by Gazprom in securing dedicated financing
for its purchases. While Gazprom has reconfirmed its commitment to its business
with the Company for several more years, the Company will insist that it finance
and increase its control system purchases to more acceptable levels in fiscal
1998 and beyond, and if it fails to do so the Company will adjust its supporting
infrastructure and reduce, restructure, or, perhaps, abandon this business. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Outlook".
INTERNATIONAL SALES. Sales outside the United States continue to play an
important part in the Company's overall operating results, particularly for the
U.S.-based businesses. In fiscal 1997, 1996 and 1995, the Company's net sales
outside the U.S. were 46%, 48% and 43% respectively, of total net sales.
International sales declined as a percentage of total sales in fiscal 1997,
primarily as a result of the impact of Petrotech which made only 31% of its
sales internationally during the five months it was owned by the Company. All
of the U.S.-based subsidiaries reported increased levels of international sales
reflecting continued penetration of international markets. CCC's international
sales accounted for 33% of 1997 international sales, compared to 43% in 1996 and
43% in 1995, reflecting the impact of the Company's acquisition program.
Information regarding international operations is set forth in Note 13 of the
Notes to Consolidated Financial Statements included in this Annual Report on
Form 10-K.
GROWTH THROUGH ACQUISITIONS. Continuing its disciplined acquisition
strategy, the May 1997 purchases of Princeton and Petrotech, and the October
purchase of Uson's IDS unit, represent the Company's largest incremental growth
in sales through acquisitions in a single year and a combined investment of $64
million in cash and restricted common stock. With the acquisition of Flow
Technology shortly after fiscal year-end, the Company completed its most recent
six acquisitions within an eighteen-month period. These acquisitions have been
financed principally from borrowings. The Company, whose debt under a revolving
line of credit was $98 million at October 31, 1997 (36% of total
capitalization), believes it is well positioned for additional acquisitions.
INDUSTRIAL CONTROLS SEGMENT
The Industrial Controls segment's net sales, operating profit (before
allocation of corporate administrative costs) and identifiable assets for each
of the three most recent fiscal years are set forth in Note 13 of the Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K.
ROTATING MACHINERY CONTROL SYSTEMS AND PANELS. The Company manufactures
control
systems and panels engineered for applications involving compressors, turbines,
and engines in the oil, gas, pipeline, power and marine industries.
INDUSTRIAL VALVE, CONTROL AND MEASUREMENT PRODUCTS. The Company
manufactures a variety of valve, sensor, switch and control products used on
engines, compressors, turbines and other powered equipment for the oil, gas,
pipeline, power, marine and general industrial markets. Most of these products
are designed for use in hazardous, explosive environments.
VIBRATION INSTRUMENTATION. The Company manufactures industrial vibration
sensors, switches and transmitters for use in the broad industrial controls
market. Their applications typically involve turbomachinery, engines,
compressors, fans and/or pumps.
DESIGN, BUILD, CONSTRUCT AND INSTALL SERVICES. The Company provides
specialized technical services to the product market based defined above and
thus offers turnkey solution capability to the customer. Services offered
include engineering design, procurement, packaging and site installation.
Those classes of products within the Industrial Controls segment which
accounted for least 10% of the Company's consolidated net sales in any of the
last three fiscal years are as follows (in thousands):
YEAR ENDED OCTOBER 31,
-------------------------
1997 1996 1995
------- ------- -------
Rotating machinery control systems and panels $59,078 $46,402 $38,553
Industrial valve, control and measurement products 34,827 33,689 29,300
The following chart shows the breakdown of sales by market for fiscal 1997
for the Industrial Controls segment:
Industrial Controls Segment
"The pie chart which appears here shows the breakdown of sales by market
for fiscal 1997 for the Industrial Controls segment as follows:'
Oil & Gas - Exploration 13%
Marine 3%
Power Generation 10%
Oil & Gas - Pipeline 34%
Oil & Gas - Production 23%
Petrotechemical 6%
General Industrial & Other 11%
BACKLOG. The bulk of this segment's business consists of large engineered
oil and/or gas development and transmission projects with lead times of three-
to-nine months. Standard products generally ship within two weeks of receipt of
order, while shipment of orders for specialty products varies according to the
complexity of the product and availability of the required components. The
Company enters into blanket purchase orders for the manufacture of products for
certain OEMs and end-users over periods of time specified by such customers.
The segment's backlog of firm unfilled orders, including blanket purchase
orders, totaled $43.6 million as of October 31, 1997, compared to $19.0 million
as of October 31, 1996. The largest component of this increase is due to the
backlog in 1997 of Petrotech which was acquired in May 1997.
DISTRIBUTION AND SALES. Distribution and sales occurs through direct sales
offices, manufacturer's representatives and industrial machinery distributors.
CUSTOMERS. Each of the companies sells to a variety of customers
worldwide. 1997 was the fifth consecutive year during which a substantial
portion of CCC's control system sales were to Gazprom for pipeline system
retrofit and new equipment projects. Gazprom was the largest single customer in
this segment for the year, contributing approximately 12% of segment sales and
has indicated its desire to continue purchases of control systems for several
more years. However, the Company's continuation of its business with Gazprom as
presently planned will depend on Gazprom's demonstration of its financial
ability to sustain an acceptable, even level of business over that period. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Outlook". Even then, this business will continue to be subject to
numerous commercial and political uncertainties beyond the Company's control and
cannot be assured.
FLUID HANDLING SEGMENT
The Fluid Handling segment's net sales, operating profit (before allocation
of corporate administrative costs) and identifiable assets for each of the three
most recent fiscal years are set forth in Note 13 of the Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K.
GENERAL INDUSTRIAL PUMPS. The Company manufactures a variety of general
industrial pumps including (i) rotary gear pumps which operate on the principle
of two gears intermeshing and are primarily used for pumping particle-free
viscous liquids such as oil and certain fluid products, and specialty rotary
gear pumps such as lubricating oil pumps for diesel engines and fuel
distribution devices, (ii) progressing cavity pumps whose pumping elements
consist of a steel rotor within an elastomeric stator and which are used
primarily for handling viscous liquids with suspended solids and abrasive
material and is the basis for the Company's "mud motor" used in the oil & gas
industry for horizontal drilling, (iii) centrifugal pumps which are primarily
non-submersible end suction, single stage pumps used for pumping water and other
low-viscosity liquids in agricultural, industrial and municipal applications,
and (iv) piston-type metering pumps able to handle most types of chemicals and
fluids within low-flow applications and used principally in the medical
diagnostics, chemical processing, food processing and agricultural industries.
INTEGRATED DISPENSE SYSTEMS. The Company's microprocessor-based Integrated
Dispense
System is used principally in the semiconductor industry to dispense chemicals
in precise and repeatable amounts from a single point, to up to three points, in
the wafer fabrication process. These highly reliable dispense units incorporate
no mechanical displacement, but utilize the application of electronically
regulated vacuum pressure.
FLOW METERING PRODUCTS. The Company manufactures turbine flow meters,
calibrators and emissions measurement equipment for the space, automotive and
other industrial markets.
Those classes of products within the Fluid Handling segment which accounted
for at least 10% of the Company's consolidated net sales in any of the last
three fiscal years are as follows (in thousands):
YEAR ENDED OCTOBER 31,
----------------------
1997 1996 1995
---- ---- ----
General industrial pumps $71,918 $58,451 $50,615
Integrated Dispense Systems 22,257 27,643 23,358
The following chart shows the breakdown of Fluid Handling segment sales by
market for fiscal 1997:
"The pie chart which appears here shows the breakdown of sales by market
for fiscal 1997 for the Fluid Handling segment as follows:"
Medical 9%
Agricultural/Irrigation 9%
Municipal Waste Water
Treatment 4%
Power Generation 9%
Oil & Gas 5%
Semiconductor 24%
Transportation 4%
General Industrial & Other 36%
BACKLOG. The Fluid Handling companies also make a combination of standard
product sales and sales of specifically engineered, application-specific
products. Standard products are typically shipped within two weeks of receipt
or order, although shipment of FMI blanket order standard products may have a
lead time of up to twelve months. Application-specific products typically occur
within six-to-twelve weeks following receipt of order, except for certain
blanket purchase orders for certain OEMs and other end-users which may extend
for more significant periods. This
segment's backlog of firm unfilled orders, including blanket purchase orders,
totaled $15.9 million as of October 31, 1997, compared to $19.6 million as of
October 31, 1996.
DISTRIBUTION AND SALES. While Integrated Designs sells directly to
customers through regional representatives, most other sales are made through
stocking and non-stocking distributors, as well as directly to OEMs. Certain
products, such as centrifugal pumps, are sold to non-stocking distributors on a
"build-to-order" basis.
CUSTOMERS. Roper Pump and Cornell Pump products are widely distributed to
customers in both domestic and international markets. Historically, most of
Integrated Designs' sales have been to U.S.-based semiconductor manufacturers,
with a majority of sales concentrated among a few customers. Approximately 50%
of Integrated Designs' 1997 sales were attributable to three customers who were
the only customers representing over 5% of its annual sales. FMI has one OEM
customer which was responsible for 42% of its fiscal 1997 net sales. This OEM
customer's contribution to FMI's sales is customary and it is expected to
continue as FMI's dominant customer.
ANALYTICAL INSTRUMENTATION SEGMENT
The Analytical Instrumentation segment's net sales, operating profit
(before allocation of corporate administrative costs) and associated
identifiable assets for each of the three most recent fiscal years are set forth
in Note 13 of the Notes to Consolidated Financial Statements included in this
Annual Report on Form 10-K.
INDUSTRIAL TESTING AND ANALYSIS PRODUCTS. The Company manufactures and
sells (i) automated and manual test equipment to determine certain
characteristics of petroleum products, such as flashpoint, viscosity and
distillation, and (ii) products and systems to determine leaks and completeness
of assemblies and sub-assemblies in the automotive, medical and consumer
products industries.
DIGITAL IMAGING PRODUCTS. The Company manufactures and sells extremely
sensitive, high-performance charge-coupled device ("CCD") cameras and detectors
for a variety of scientific uses, which include transmission electron
microscopy, and spectroscopy applications. These products are principally sold
for use within academic, government research, semiconductor and material science
end-user markets. They are frequently incorporated into OEM equipment.
MICROSCOPY SPECIMEN PREPARATION/HANDLING PRODUCTS. The Company
manufactures and sells specimen preparation and handling equipment for use on
electron microscopes. These products are incorporated into OEM equipment and
also sold as a retrofit for microscopes currently in use within the academic,
government research, electronics, and material sciences end-user markets.
Those classes of products within the Analytical Instrumentation segment
which accounted for at least 10% of the Company's consolidated net sales in any
of the last three fiscal years are as follows (in thousands):
YEAR ENDED OCTOBER 31,
----------------------
1997 1996 1995
---- ---- ----
Digital imaging products $37,181 $7,410 $ -
The following chart shows the breakdown of Analytical Instrumentation
segment sales by market for fiscal 1997:
"The pie chart which appears here shows the breakdown of sales by market
for fiscal 1997 for the Analytical Instrumentation segment as follows:"
Research 43%
Semiconductor 9%
Oil & Gas 13%
Petrochemical 4%
Automotive 19%
General Industrial & Other 12%
BACKLOG. The Analytical Instrumentation companies have lead times of up to
16 weeks on many of their product sales, although standard products are often
shipped within four weeks of receipt of their order. Blanket purchase orders
are placed by certain OEMs and end-users with continuing requirements, for
fulfillment over specified periods of time. The segment's backlog of firm
unfilled orders, including blanket purchase orders, totaled $23.1 million as of
October 31, 1997, compared to $17.2 million as of October 31, 1996. This year-
over-year increase is attributable to the backlog in 1997 of Princeton, acquired
in May 1997.
DISTRIBUTION AND SALES. Distribution and sales is achieved through a
combination of manufacturer's representatives, agents, distributors and direct
sales offices in both the U.S. and various leading industrial nations.
CUSTOMERS. Each of the companies in the Analytical Instrumentation segment
sells to a
variety of customers worldwide, with certain major OEMs in the automotive and
microscopy industries having operations globally.
MATERIALS AND SUPPLIERS
Most materials and supplies used by the Company are readily available from
numerous sources and suppliers throughout the world which are believed adequate
for the Company's needs. Some high-performance components for digital imaging
products have been in short supply. The Company believes that this condition
equally affects its competitors. Thus far, it has not had a significant adverse
effect on sales.
ENVIRONMENTAL MATTERS AND OTHER GOVERNMENTAL REGULATION
The Company is subject to environmental laws and regulations concerning
emissions to the air, discharges to waterways and the generation, handling,
storage, transportation, treatment and disposal of waste materials. These laws
and regulations are constantly changing and it is impossible to predict with
accuracy the effect they may have on the Company in the future. It is the
Company's policy to comply with all applicable environmental, health and safety
laws and regulations.
The Company is subject to various U.S. federal, state and local laws and
foreign laws affecting its businesses, as well as a variety of regulations
relating to such matters as working conditions and product safety. A variety of
state laws regulate the Company's contractual relationships with its
distributors and manufacturer's representatives, some of which impose
substantive standards on these relationships.
COMPETITION
The Company has significant competition from a limited number of companies
in each of its markets. No single competitor competes with the Company over a
significant number of product lines. The Company's products compete primarily
on the basis of price, performance and innovation.
PATENTS AND TRADEMARKS
The Company owns the rights under a number of patents and trademarks
relating to its products and businesses. While it believes that none of its
companies is dependent on intellectual property rights, the product development
and market activities of CCC, Integrated Designs, Gatan, and FMI have been
planned and conducted in conjunction with continuing patent strategies to a
greater extent than the other companies. CCC has been granted a series of
U.S. and associated foreign patents and a significant portion of 1997 sales of
CCC-manufactured products was of equipment which incorporated innovations that
are the subject of two patents expiring in 2004 and 2007, respectively.
Integrated Designs was granted a U.S. patent in 1994 related to methods and
apparatus claims embodied in its Integrated Dispense System which accounted for
virtually all of 1997 sales. The U.S. patent will expire in 2011.
While the Company considers patents, trademarks and tradenames important to
operations,
the Company does not believe it is dependent on any single patent or trademark
or group of patents or trademarks.
RESEARCH AND DEVELOPMENT
The Company conducts applied research and development to improve the
quality and performance of its products to develop new products and enter new
markets. Research and development performed by the Company often includes
extensive field testing of the Company's products. The Company expended
approximately $14.2 million, $8.7 million, and $5.9 million in 1997, 1996, and
1995, respectively, on research and development activities.
EMPLOYEES
As of December 31, 1997, the Company had approximately 2,000 employees in
total, of whom approximately 1,600 were located in the U. S.
Amot's U.S. shop employees are represented by the International Association
of Machinists. Their collective bargaining agreements have been traditionally
negotiated for three-year periods, although the current agreement completed in
November 1995 runs until November 1999. Some Amot U.K. employees subscribe to
membership in two unions, the Manufacturing, Science and Finance Union and the
Transport and General Workers Union. All other Company employees are non-union.
Total union membership is less than 100 employees.
Management believes that relations between its employees and the Company
are excellent and is not aware of any circumstance which is likely to result in
a work stoppage.
ITEM 2. PROPERTIES
Roper's corporate offices, consisting of 9,500 square feet of leased space,
are located in Bogart, Georgia, which is adjacent to Athens, Georgia. Each
operating company is based at and conducts its principal operations from a
single location, which may comprise one or more buildings, with the exception of
Pleasanton, California-based Gatan, whose manufacturing facility is in
Pittsburgh, Pennsylvania. Several of the Company's subsidiaries have relatively
minor sales and service locations, primarily in Europe, Asia and the Far East.
The principal operating company properties are as follows:
Type of Owned Leased
Location Property (sq.ft.) (sq.ft.) Industry Segment
-------- -------- -------- -------- ----------------
Phoenix, AZ Office/Mfg 32,100 Fluid Handling
Pleasanton, CA Office 19,400 Analytical Instrumentation
Richmond, CA Office/Mfg 70,000 Industrial Controls
Verson, France Office/Mfg 23,000 Analytical Instrumentation
Commerce, GA Office/Mfg 150,000 Fluid Handling
Des Moines, IA Office/Mfg 62,600 Industrial Controls
Belle Chasse, LA Office/Mfg 71,600 Industrial Controls
Trenton, NJ Office/Mfg 38,000 Analytical Instrumentation
Syosset, NY Office 27,500 Fluid Handling
Portland, OR Office/Mfg 55,000 Fluid Handling
Warrendale, PA Mfg. 24,500 Analytical Instrumentation
Carrollton, TX Office/Mfg 22,000 Fluid Handling
Houston, TX Office/Mfg 16,000 Industrial Controls
Houston, TX Office/Mfg 16,800 Analytical Instrumentation
Bury St. Edmunds, U.K. Office/Mfg 77,000 Industrial Controls
------- -------
Totals 422,600 282,900
======= =======
The Company considers each facility to be in good operating condition and
adequate for its present use and believes that it has sufficient plant capacity
to meet its current and anticipated manufacturing requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits involving product liability
and other matters, none of which, the Company believes, if adversely determined,
would have a material adverse effect on its consolidated financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matter was submitted to a vote of the Company's security-holders during
the fourth quarter of fiscal 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's single class of common stock issued and outstanding traded
under the symbol "ROPR" on the NASDAQ National Market System (the "NASDAQ") from
February 1992 through October 31, 1996. On November 1, 1996, trading of the
common stock on the NASDAQ ceased and trading on the New York Stock Exchange
("NYSE") commenced under the symbol "ROP". Following is the range of high and
low sales prices for the Company's common stock as reported by NASDAQ and the
NYSE, respectively, during each of the Company's fiscal 1997 and 1996 quarters,
as adjusted for the August 1, 1997 2-for-1 stock split. The last sales price
reported by the NYSE on December 31, 1997, was $28.250.
HIGH LOW
---- ---
1997 1/st/ QUARTER $21.938 $18.563
2/nd/ QUARTER 23.063 19.750
3/rd/ QUARTER 28.750 20.188
4/th/ QUARTER 34.875 25.500
1996 1/st/ Quarter 20.500 17.375
2/nd/ Quarter 26.375 19.500
3/rd/ Quarter 24.625 18.000
4/th/ Quarter 24.750 17.500
Based on information available to the Company and its transfer agent, the
Company believes that as of December 31, 1997 there were approximately 306
record holders of its common stock.
DIVIDEND POLICY. The Company has declared a cash dividend in each fiscal
quarter since its February 1992 initial public offering. Giving effect to a
September 1993 and August 1997 2-for-1 stock splits, its initial quarterly
dividend rate was $.01 per share. The quarterly rate was increased to $.015 per
share contemporaneously with the 1993 stock split, to $.025 per share in the
1994 fourth quarter, to $.0375 per share in the 1995 fourth quarter, to $.045
per share in the 1996 fourth quarter and to $.06 per share in the fourth quarter
ended October 31, 1997. However, the timing, declaration and payment of future
dividends will be at the sole discretion of the Board of Directors and will
depend upon the Company's profitability, financial condition, capital needs,
future prospects and other factors deemed relevant by the Board of Directors.
Therefore, there can be no assurance as to the amount, if any, that will be
available for the declaration of cash dividends in the future.
RECENT SALES OF UNREGISTERED SECURITIES. During fiscal 1997 the Company
completed three negotiated acquisitions of new businesses or product lines; the
May acquisitions of all of the operating assets of Princeton and, by merger, all
of the outstanding capital stock of Petrotech, and the October acquisition
(through Uson L.P.) of all of the operating assets of IDS. A portion of the
purchase price for each of these acquisitions was paid in unregistered shares of
the Company's common stock. These shares were not registered with the
Securities and Exchange Commission in reliance upon the exemption from such
registration afforded under Section 4(2) of the Securities Act of 1933, as
amended, principally because of the limited number of persons to whom the shares
were issued. The acquisition agreements provided that the value of the
restricted shares paid at closing was to be determined by the average of the
closing prices of the Company's common stock reported by the NYSE for each of
several days before and/or after the closing date.
The following table sets forth information as to the Company's issuance of
unregistered shares of its common stock (adjusted to reflect the August 1997
2-for-1stock split) in connection with new business acquisitions completed
during fiscal 1997:
Date Acquisition Shares Issued Agreed Value
---- ----------- ------------- ------------
5/16/97 Princeton 138,188 $2,640,054
5/30/97 Petrotech 262,296 5,720,000
10/31/97 IDS 14,473 352,000
ITEM 6. SELECTED FINANCIAL DATA
The consolidated selected financial data presented below has been derived
from the Company's audited consolidated financial statements and should be read
in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and with the Company's consolidated financial
statements and related notes thereto included elsewhere in this Annual Report on
Form 10-K. All share data have been restated to reflect 2-for-1 stock splits in
August 1997 and September 1993.
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------------
1997/(1)/ 1996/(2)/ 1995/(3)/ 1994/(4)/ 1993/(5)/
-------------- ------------- ------------- ------------ -------------
(Dollars in thousands except per share data)
OPERATIONS DATA:
Net sales $ 298,236 $ 225,651 $ 175,421 $ 147,683 $ 132,530
Gross profit 153,389 115,924 93,803 78,384 68,425
Income from operations 60,870 47,272 37,411 32,930 30,320
Earnings before accounting changes 36,350 28,857 23,271 20,862 19,058
Accounting Changes/6/ - - - (720) -
Net earnings applicable to common shares $ 36,350 $ 28,857 $ 23,271 $ 20,142 $ 19,058
============== ============= ============= ============ =============
PER SHARE DATA:
Net earnings applicable to common shares $ 1.16 $ 0.93 $ 0.77 $ 0.67 $ 0.64
============== ============= ============= ============ =============
Dividends $ 0.195 $ 0.158 $ 0.113 $ 0.070 $ 0.045
============== ============= ============= ============ =============
BALANCE SHEET DATA:
Working capital $ 86,954 $ 45,007 $ 38,077 $ 32,406 $ 13,973
Long-term debt, less current portion 99,638 63,373 20,150 16,683 9,909
Stockholders' equity 177,869 137,396 105,595 82,864 62,408
Total assets 329,320 242,953 155,381 121,982 94,210
(1) Reflects inclusion of Gatan and FMI for the full year as compared to five
months in the prior year; and inclusion of Princeton (5 months), Petrotech
(5 months) and IDS (balance sheet only) in 1997.
(2) Reflects inclusion of Uson for the full year as compared to eight months in
the prior year; inclusion of Metrix for full year as compared to one month
in the prior year; and inclusion of Gatan and FMI for five months in 1996.
(3) Reflects inclusion of ISL for the full year as compared to two months in
the prior year; and inclusion of Uson and Metrix for eight months and one
month, respectively, in 1995.
(4) Reflects inclusion of Integrated Designs for the full year as compared to
one month in the prior year.
(5) Reflects inclusion of Integrated Designs for one month.
(6) Cumulative effect of adopting SFAS No. 106 and No. 109.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and selected financial data included elsewhere
in this Annual Report on Form 10-K.
RESULTS OF OPERATIONS
GENERAL
The following tables set forth selected information for the years
indicated. Amounts are dollars in thousands and percentages are of net sales.
YEAR ENDED OCTOBER 31,
------------------------------
1997 1996 1995
------- ------ -------
Net sales 100.0% 100.0% 100.0%
Cost of sales 48.6 48.6 46.5
------ ----- -----
Gross profit 51.4 51.4 53.5
Selling, general and administrative expenses 31.0 30.5 32.2
------ ----- -----
Income from operations 20.4 20.9 21.3
Interest expense 2.0 1.4 1.1
Other income 0.1 0.1 0.3
------ ----- -----
Earnings before income taxes 18.5 19.6 20.5
Income taxes 6.3 6.8 7.3
------ ----- -----
Net earnings 12.2% 12.8% 13.2%
======= ===== =====
YEAR ENDED OCTOBER 31,
---------------------------------------------------
1997 1996 1995
-------------- --------------- -----------
$ % $ % $ %
------ ------- ------ ------- ----- ------
INDUSTRIAL CONTROLS: /(1)(2)/
Net sales 123,129 98,197 75,032
Gross profit 61,756 50.2 52,468 53.4 43,170 57.5
Operating profit /(3)/ 22,402 18.2 21,075 21.5 14,110 18.8
FLUID HANDLING: /(4)/
Net sales 94,175 86,094 73,973
Gross profit 43,213 45.9 38,686 44.9 35,665 48.2
Operating profit /(3)/ 25,853 27.5 24,026 27.9 23,132 31.3
ANALYTICAL INSTRUMENTATION: /(5)(6)(7)/
Net sales 80,932 41,360 26,416
Gross profit 48,420 59.8 24,770 59.9 14,968 56.7
Operating profit /(3)/ 18,292 22.6 6,377 15.4 3,819 14.5
_________________
/(1)/ Includes results of Metrix from September 29, 1995.
/(2)/ Includes results of Petrotech from May 30, 1997.
/(3)/ Excludes any allocation of corporate administrative costs. Such costs
were $5,677 in 1997, $4,206 in 1996 and $3,650 in 1995.
/(4)/ Includes results of FMI from May 23, 1996.
/(5)/ Includes results of Uson from February 28, 1995.
/(6)/ Includes results of Gatan from June 1, 1996.
/(7)/ Includes results of Princeton from May 17, 1997.
YEAR ENDED OCTOBER 31, 1997 COMPARED TO YEAR ENDED OCTOBER 31, 1996
Net sales for 1997 of $298.2 million represents the fifth consecutive year
that the Company has established a record high. Sales were $225.7 million in
1996. The increased sales during 1997 were due mostly to the inclusion of the
results of Gatan and FMI for the entire year (each of these companies was
acquired during May 1996 and combined, contributed $30.8 million of additional
revenues) and the inclusion of Princeton and Petrotech for part of 1997 (each of
these companies was acquired during May 1997 and combined, contributed $42.6
million of sales in 1997). Excluding these four companies, net sales for 1997
was approximately the same as 1996.
Metrix and Uson each had very strong sales growth in 1997 (in excess of
20%) primarily due to increased volume. Integrated Designs reported decreased
sales of about 20% due to continued adverse conditions affecting the cyclical
semiconductor equipment industry. Integrated Design's sales continue to
significantly trail the level reported during the first two quarters of 1996.
ISL reported sales about 16% lower in 1997 compared to 1996. The largest reason
for ISL's decreased sales was the strengthened U.S. Dollar during 1997 relative
to the French Franc (about 10%), the functional currency for most of ISL's
sales. Another factor contributing to ISL's lower sales was its restructuring
which resulted in the disposal of small sales subsidiaries in the U.K. and
Brazil. CCC also reported lower sales (about 4%) in 1997 compared to 1996. CCC
had significant sales to its primary customers in the CIS, RAO Gazprom, and
Ukraine Gazprom during 1996 ($23.3 million) that exceeded comparable 1997 sales
($14.9 million). Both of these customers were unable to finalize their
respective financing programs to make purchases at similar levels in 1997.
Net sales for the Industrial Controls segment (up $24.9 million, or 25%)
increased mostly due to the inclusion of Petrotech for the last five months of
1997. The increased sales at Metrix was largely offset by a sales decline at
CCC, where 18% gains in the core business were more than offset by declines in
the CIS business as noted above. Net sales for the Fluid Handling segment (up
$8.1 million, or 9%) increased mostly due to the inclusion of FMI for all of
1997 compared to only five months in 1996. The decrease in Integrated Designs
sales was partially offset by higher sales at Roper Pump. Net sales for the
Analytical Instrumentation segment (up $39.6 million, or 96%) increased mostly
due to the inclusion of Gatan for all of 1997 compared to the last five months
of 1996 and the inclusion of Princeton since its acquisition in May 1997. The
increased sales reported by Uson were largely offset by decreased sales by ISL.
The increase in gross profit in 1997 ($153.4 million in 1997 compared to
$115.9 million in 1996) is also due mostly to Gatan, FMI, Princeton and
Petrotech which were acquired over the past two years. Excluding these
companies, gross profit increased $3.4 million in 1997 even though sales were
relatively flat. Gross profit increased in each of the operating companies
except for Integrated Designs and ISL, whose decreases were directly related to
decreased sales. Despite the drop in sales, CCC's gross profit improved due to
a favorable product mix and certain cost reduction efforts.
Industrial Controls gross profit increased (up $9.3 million, or 18%) mostly
due to the inclusion of Petrotech ($5.8 million) for the last five months of
1997. Gross profit also increased at CCC ($2.6 million) as discussed
previously. Fluid Handling gross profit increased (up $4.5 million, or 12%)
mostly due to including FMI for a full year compared to only part of 1996.
Analytical Instrumentation gross profit increased (up $23.6 million, or 95%)
mostly due to the inclusion of
Gatan for all of 1997 compared to only part of 1996 ($14.1 million) and the
inclusion of Princeton for the latter part of 1997 ($9.4 million).
The overall gross profit percentage in 1997 equals that of 1996 (51.4%),
despite the increased profitability mentioned earlier. This is due to the
acquisition of Petrotech, whose typical gross profit percentage is significantly
less than that of the Company's other operating units. Excluding Petrotech, the
Company would have reported consolidated gross profit of 54.0%, or an increase
of 2.6% compared to 1996. This increase is mostly due to the product mix and
cost improvements at CCC, whose gross margin percentage is up almost 8% compared
to 1996 and the high margins on increased sales at Gatan (full year vs. partial
year). Excluding Petrotech, Industrial Controls would have reported gross
profit of 57.1% compared to 53.4% in 1996 due to the improvements at CCC. Gross
profit percentages in 1997 for the Fluid Handling and Analytical Instrumentation
segments are each within about 1% of the amounts reported in 1996. Other than
CCC, the gross profit percentages reported by each of the Company's operating
units are considered relatively comparable between 1997 and 1996 (within 5%).
Selling, general and administrative expenses ("SG&A") increased $23.9
million, or 34.8%, during 1997 compared to 1996. Most of the increase ($18.4
million) is due to the additional costs associated with those companies acquired
during the past two years. CCC also reported additional costs of $5.5 million,
mostly due to efforts over the past eighteen months to increase the
infrastructure supporting the anticipated increased business with RAO Gazprom
and other opportunities in the area.
SG&A expenses for Industrial Controls increased (up $8.0 million, or 25%)
mostly due to the additional costs reported at CCC and the inclusion of
Petrotech ($2.9 million). SG&A expenses for Fluid Handling increased (up $2.7
million, or 18%) mostly due to the full year vs. partial year effects of FMI
($2.0 million). SG&A expenses for Analytical Instrumentation increased (up
$11.7 million, or 64%) mostly due to the full year vs. partial year effects of
Gatan ($7.7 million) and the inclusion of Princeton in 1997 ($5.8 million).
Partially offsetting these increases were decreased costs at ISL due to the
benefits of the restructuring program executed early in 1997 and exchange rate
fluctuations.
As a percentage of sales, consolidated SG&A expenses was 31.0% in 1997
compared to 30.4% in 1996. Most of the increase is due to higher research and
development ("R&D") spending ($14.2 million in 1997, 4.8% of sales, compared to
$8.7 million in 1996, 3.9% of sales) associated with the higher technology
products at Gatan and Princeton. These two companies account for $4.2 million
of the increase. Other R&D spending increases reflect a continuing commitment
to new product development at all companies. Selling expenses and
administrative expenses decreased slightly as a percentage of sales (less than
1%) as a result of volume leverage and cost containment programs.
Interest expense increased $2.8 million during 1997 compared to 1996. This
increase is due to the full-year effect of the additional borrowings used to
finance most of the acquisition costs of Gatan and FMI (each acquired in May
1996) and the partial-year effect of the 1997 acquisitions of Princeton and
Petrotech.
The Company's effective tax rate was 34.0% in 1997 compared to 34.8% in
1996. The lower effective tax rate in 1997 results from greater utilization of
Foreign Sales Corporation ("FSC")
benefits. Utilization of the Company's FSC essentially results in income taxes
on U.S. export sales being at about one-third of the U.S. statutory rate. The
recently acquired Gatan, Princeton and Petrotech all have significant export
sales.
Reflecting the foregoing, net earnings were $36.4 million, or $1.16 per
common share, in 1997 compared to $28.9 million, or $0.93 per common share, in
1996. All per share amounts have been adjusted to reflect the 2-for-1 stock
split (in the form of a 100% stock dividend) that was paid on August 1, 1997.
Bookings during 1997 ($297.6 million) increased 29% compared to 1996
($230.4 million). Most of this increase is due to the impact of the companies
acquired over the past two years ($61.2 million). Excluding these companies,
bookings during 1997 increased 3% compared to 1996. This increase is due to
strength in the Industrial Controls segment (up 8%, mostly due to Amot and
Metrix). Fluid Handling and Analytical Instrumentation each reported slightly
lower bookings in 1997 for those companies included in all of both 1997 and 1996
(no individual company changed greater than 10%). On a pro forma basis to
include Gatan and FMI bookings since November 1, 1995 and Princeton and
Petrotech bookings since the comparable date in 1996 as their acquisition date
in 1997, bookings are up 4% in 1997 compared to 1996.
Sales order backlog was $82.6 million and $56.2 million at October 31, 1997
and 1996, respectively. Most of the increase ($21.0 million) represents the
backlog at Princeton and Petrotech, which were acquired during 1997. On a pro
forma basis to include these companies backlog at October 31, 1996, the 1997
backlog is 5% greater than 1996.
YEAR ENDED OCTOBER 31, 1996 COMPARED TO YEAR ENDED OCTOBER 31, 1995
Net sales for 1996 of $225.7 million were at record levels for the fourth
consecutive year, reflecting an increase of 29% over 1995. Each of the
Company's business segments achieved double-digit sales growth. For the
Industrial Controls segment net sales increased by $23.2 million, or 30%. A
31% increase in net sales from CCC, despite a modest 9% increase in its business
with RAO Gazprom, and the inclusion of Metrix for a full year, were the primary
contributors to the increase. The CCC sales gains included the first
significant orders shipped to customers other than RAO Gazprom in the CIS
following establishment of a significant local infrastructure. Also, CCC made
significant gains in other international markets for processing plant compressor
controls. Other contributors to sales gains within the Industrial Controls
segment included favorable market conditions in certain of the core markets and
incremental sales on new products. The Fluid Handling segment experienced net
sales gains of $12.1 million, or 16%, with the inclusion of FMI for five months
and the continued growth from Cornell Pump and Integrated Designs. This offset
a 4% decline in Roper Pump's net sales resulting from weak demand in the early
quarters for rotary gear and progressive cavity pumps. Record first half sales
at Integrated Designs were eroded by lower third and fourth quarter sales as a
result of a cyclical decline in the semiconductor industry, but still showed a
full year growth of 18% from continued international market gains, particularly
in Asia. The Analytical Instrumentation segment reported net sales increases of
$14.9 million, or 57%, with the inclusion of Gatan for five months and net sales
gains at the other two businesses. These sales gains were principally
attributable to incremental sales on new products, expansion into the medical
supplies testing market and international market expansion.
In 1996, net sales to customers outside the United States represented 48%
of the total as
compared to 43% in 1995. The leading reasons for international sales growth were
the acquisition of Gatan which made 64% of its sales outside the United States
and increasing penetration of European and Pacific Rim markets through the
existing Roper infrastructure. Results of foreign operations were not
significantly impacted by fluctuations in foreign currency exchange rates in
1996.
Gross profit of $115.9 million in 1996 increased by $22.1 million over the
same period in 1995, while the gross margin decreased to 51.4% from 53.5% for
1995. This margin reduction was contributed to by similar margin impacts from
both Industrial Controls and Fluid Handling segments as offset by improved
margins in the Analytical Instrumentation segment. The gross margin for the
Industrial Controls segment declined to 53.4% from 57.5%. This was largely
attributable to more low margin, buy-out products sold to RAO Gazprom and
increased engineering and infrastructure costs supporting CCC's operations in
the CIS. The gross margin for the Fluid Handling segment declined to 44.9% from
48.2% in 1995, primarily due to lower margins at Integrated Designs caused by
increased discounted sales to OEM's and vendor price increases. The margins at
Integrated Designs returned close to historical levels for the last month of the
fiscal year. Gross margins for the Analytical Instrumentation segment increased
to 59.9% from 56.7% in 1995 reflecting the higher margin rates from the
acquisition of Gatan and margin improvements at ISL and Uson, both of which
benefited from the leverage of additional volume, cost reduction efforts and
price increases on products sold.
SG&A expenses increased by $12.3 million to $68.7 million, an increase of
21.8%. SG&A expenses as a percentage of net sales reduced to 30.5% from 32.2% in
1995. This reduction is attributable to the Industrial Controls segment where
SG&A expenses reduced to 31.9% of sales in 1996, from 37.5% in 1995, and was
principally the result of lower R&D costs at CCC where the Series 4 design was
stabilized and from reduced bonus compensation in 1996. R&D expenses were $8.7
million in 1996, an increase of $2.8 million, reflecting the increased
investment required in higher technology products throughout the Company.
Income from operations increased by $9.9 million to $47.3 million. The
operating margin declined to 20.9% versus 21.3% in 1995. In the Industrial
Controls segment, operating profit (before allocation of corporate
administrative expenses) increased by $7.0 million to $21.1 million; 21.5% of
sales, principally due to increased sales at CCC and the full year inclusion of
Metrix results. Operating profits (before allocation of corporate administrative
expenses) of the Fluid Handling segment increased by $0.9 million to $24.0
million; 27.9% of sales, with the inclusion of FMI offsetting margin-related
declines at Integrated Designs and volume-related declines at Roper Pump. The
Analytical Instrumentation segment increased operating profits by 67% to $6.4
million; 15.4% of sales, largely as a result of the acquisition of Gatan.
Interest expense increased by $1.3 million, or 68%, due to the additional
borrowings for the 1996 acquisitions. The decrease in other income results from
lower royalties collected under a license fee agreement.
The Company's effective tax rate was 34.8% in 1996 as compared to 35.4% in
1995. The effective tax rate was reduced from the statutory rate largely because
of the favorable tax treatment afforded export sales attributed to its FSC and a
lower state tax burden.
Reflecting the foregoing, net earnings were $28.9 million or $0.93 per
common share, in
1996 as compared to $23.3 million or $0.77 per common share, for 1995.
Bookings for 1996 increased by 7% to $230.4 million (pro forma to include
Gatan, FMI, Metrix and Uson for 1995). Sales order backlog was $56.2 million
and $36.2 million at October 31, 1996 and 1995, respectively, reflecting a 23%
increase in pro forma bookings in the fourth quarter. This increase in bookings
included a number of orders which totaled $7 million from Ukrainian Gazprom.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations and credit available under its NationsBank credit
agreement are the Company's primary sources of short-term liquidity. In 1997,
the Company generated $35.4 million of cash from operations, compared to $33.1
million and $26.2 million in 1996 and 1995, respectively. The increased
operating cash flow in 1997 principally resulted from higher earnings which were
partially offset by additional investments in working capital.
Working capital increased significantly ($42 million) during 1997 to a
total of $87 million at October 31, 1997. Most of the increase ($26 million) is
due to the working capital at October 31, 1997 of Princeton, Petrotech and IDS,
which were acquired during the year. The major components of the increased
working capital are accounts receivable ($28 million, $21 million due to the
1997 acquisitions), inventories ($19 million, $16 million due to the 1997
acquisitions), less current liability increases in accounts payable ($5 million,
$4 million due the 1997 acquisitions) and accrued liabilities ($7 million, $6
million due to the 1997 acquisitions).
An additional $6 million of working capital at October 31, 1997 is invested
in CCC accounts receivable and inventories compared to last year. CCC has not
collected certain receivables, primarily from RAO Gazprom, as anticipated and
inventories were built up at October 31, 1997 in anticipation of sales to RAO
Gazprom that have been delayed due to continuing financing issues. The Company
anticipates that all receivables from RAO Gazprom will be collected and that RAO
Gazprom will resolve its financing issues in fiscal 1998. Further shipments to
RAO Gazprom may also be affected by RAO Gazprom's ability to secure financing
arrangements acceptable to the Company and are subject to uncertainty as
described below in "Outlook".
The 1997 acquisitions were financed primarily with long-term debt and
equity. At October 31, 1996, approximately $6 million of borrowings under the
Company's NationsBank credit facility was classified as current in accordance
with the terms of the agreement. During 1997, this agreement was amended and
restated such that there are no longer any interim pay-down requirements.
Capital expenditures in 1997 were $5.0 million, compared to $5.0 million
and $3.2 million in 1996 and 1995, respectively. Inclusion of Gatan and FMI for
a full year in 1997 and Princeton and Petrotech since their acquisition added
approximately $1.3 million of capital expenditures in 1997 compared to 1996.
Offsetting this increase was decreased spending at other companies. The Company
believes that it can absorb anticipated sales growth without any significant
expansion in manufacturing facilities, that capital requirements will generally
be confined to ongoing replacement and upgrading of current machinery and
facilities. Capital expenditures have historically not been very significant
(never greater than 3% of sales in recent years) and this trend is expected to
continue in 1998. The approximate doubling of the Company's cost for buildings
is
attributable to two buildings acquired pursuant to the 1997 acquisitions.
The increase in intangible assets reflects approximately $35 million of
additions for the excess of acquisition costs over the fair value of net assets
acquired for the three companies that were acquired during 1997 (Princeton -
$20.7 million, Petrotech - $8.9 million and IDS - $3.7 million).
The increase in other noncurrent assets and other noncurrent liabilities is
primarily a reclassification within the balance sheet to separately reflect
liabilities arising from insurable losses and the associated amounts receivable
from the insurance companies. The estimated total of insurable settlements and
payments by insurance companies is approximately $3 million.
In May 1997 the Company amended and restated its NationsBank then-existing
credit agreement raising the borrowing capacity to $200 million, up from $100
million. Total borrowings under this agreement were approximately $98 million at
October 31, 1997 compared to approximately $67 million at October 31, 1996.
This increase in debt during 1997 resulted primarily from financing the
acquisitions of Princeton, Petrotech and IDS. Total cash acquisition costs were
approximately $55 million.
Total debt to total capitalization was 36.5% and 33.8% at October 31, 1997
and 1996, respectively, indicating (in management's opinion) a relatively modest
level of financial leverage. The slight increase in leverage is due to higher
debt levels largely offset by the Company's record earnings and the value of the
Company's common stock used to partially fund the acquisitions completed during
the year. At October 31, 1997 the Company had $102 million of additional
borrowing capacity under its NationsBank credit agreement, the material terms
and conditions of which are set out in Note 8 of the Company's consolidated
financial statements included elsewhere in this report. Most of the Company's
borrowings are LIBOR-based with maturities generally within 30 days. Over
longer terms, the Company's interest expense is influenced by the volatility of
financial markets. Interest costs are therefore subject to significant changes
depending upon the movement of short-term interest rates and other factors. The
Company is exploring transactions that would reduce exposure to interest rate
fluctuations. No such transactions have currently been entered into.
Total stockholders' equity increased by $40 million to $178 million, an
increase of 29%. Major components of this increase include current year net
earnings of $36 million and $11 million of the Company's common stock issued
pursuant to acquisitions, and stock option exercises. Dividends paid on common
stock were $6 million in 1997, an increase of 26% compared to 1996. Increased
dividend payments are primarily the result of higher dividend rates per share in
1997 compared to 1996. Quarterly rates in 1997 ranged from 20% to 33% higher
than the comparable quarters in 1996. Although the Company has a history of
paying dividends each quarter since its IPO in February 1992 and it has
increased the dividend rate per share annually since 1993, future dividends and
rate changes are at the discretion of the Company's board of directors and
cannot be assured.
The Company believes that internally generated cash flow and available
unused credit facilities will continue to be adequate to fund normal operating
requirements, capital expenditures, debt service costs and dividends. However,
the rate at which the Company can reduce its debt in 1998 (and the avoidance of
associated interest expense) will be significantly affected by the timing
and magnitude of any financing requirements of any new acquisitions.
The Company has generally been able to hold manufacturing and operating
cost increases to levels which are at or below inflation levels. It will
continue its aggressive efforts to minimize increases in the prices it pays for
materials and services and to implement cost reduction programs to offset the
effects of inflation. The Company expects to continue to be successful in
passing along any net cost increases to its customers.
OUTLOOK
With incoming orders of about $80 million for each of the last two quarters
of 1997 (fourth quarter bookings were about 9% higher than the comparable
quarter last year) and a backlog of $82.7 million, the Company expects its three
business segments to continue their growth in sales and earnings absent any
material adverse change in the market and business conditions.
As previously announced, the Company acquired IDS on October 31, 1997.
IDS will be included in the Company's Analytical Instrumentation segment.
Effective December 1, 1997 the Company acquired Flow Technology, formerly EG&G
Flow Technology, Inc., which will be included in the Company's Fluid Handling
segment. The annual sales of these two businesses prior to acquisition was
approximately $15 million in total and the Company anticipates these
acquisitions will have immediate favorable contributions to earnings. The
Company also continues working to close another acquisition of a company that
would become a part of its Analytical Instrumentation segment, as previously
announced. This transaction is currently undergoing review by the Federal Trade
Commission, which has delayed the earliest-case timetable described in the
Company's third quarter Form 10-Q. It is also subject to final negotiation and
execution of a purchase agreement. Pending satisfactory resolution of these
contingencies, the Company expects that it will be able to complete this
transaction during the early part of calendar 1998.
The Company has been informed by RAO Gazprom that it will discontinue its
efforts to obtain U.S. Export-Import Bank guaranteed financing to fund equipment
purchases under an existing turbomachinery controls equipment supply contract
with CCC. RAO Gazprom has expressed its continuing commitment to this supply
contract and has indicated that funds will be made available in 1998 out of
their general credit facilities. However, in light of RAO Gazprom's past
difficulties in carrying out its financing intentions, the Company will proceed
cautiously until it is reasonably assured that RAO Gazprom can fully fund its
business with CCC at the levels and on the schedule provided for in the supply
contract.
In the event that RAO Gazprom is unable to provide this assurance by mid-
year, the Company may walk away from much or all of this opportunity because of
the prohibitive cost of maintaining the infrastructure needed to support such
sales. Additionally, such a circumstance may place collection of existing
accounts receivable at risk. See Note 10 and Note 13 of the Company's
consolidated financial statements in this regard.
The Company believes that most "Year 2000" issues associated with its
business systems and products have already been resolved and that there are no
further significant costs associated with addressing any remaining matters.
The Company expects to continue an active acquisition program. However,
completion of
future acquisitions will be dependent on numerous factors and, unless otherwise
indicated, it is not feasible to reasonably estimate when any such acquisitions
will occur, what the financing requirements will be or what the impact will be
on the Company's activities, financial condition and results of operations.
The Financial Accounting Standards Board has issued several new accounting
and reporting standards that are applicable to the Company and will become
effective at the Company over the next several years. The issues most
applicable to the Company include disclosures related to earnings per share
reporting, comprehensive income reporting and business segment reporting. Once
adopted, the information to be presented in accordance with these new standards
is not expected to significantly affect the Company's disclosures. See Note 1
to the Company's consolidated financial statements for further discussion of the
specific new pronouncements.
FORWARD LOOKING INFORMATION
The information provided elsewhere in this report, in other Company filings
with the Securities and Exchange Commission and in other press releases or
public disclosures contains forward-looking statements about the Company's
businesses and prospects as to which there are numerous risks and uncertainties
which generally are beyond the Company's control. Some of these risks include
the level and timing of future business with RAO Gazprom, the integration and
performance of IDS and Flow Technology, the completion of any additional
acquisitions and the impact money market volatility can have on the Company's
leveraged capital structure. There is no assurance that these and other risks
and uncertainties will not have an adverse impact on the Company's future
operations, financial condition or financial results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item begin
at page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
PAGE
Consolidated Financial Statements:
Independent Auditors' Report.................................. F-2
Consolidated Balance Sheets as of October 31, 1997 and 1996... F-3
Consolidated Statements of Earnings for the Years ended
October 31, 1997, 1996 and 1995............................. F-4
Consolidated Statements of Stockholders' Equity for the
Years ended October 31, 1997, 1996 and 1995................. F-5
Consolidated Statements of Cash Flows for the Years ended
October 31, 1997, 1996 and 1995............................. F-6
Notes to Consolidated Financial Statements.................... F-7
Supplementary Data:
Schedule II - Consolidated Valuation and Qualifying Accounts
for the Years ended October 31, 1997, 1996 and 1995......... S-1
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Roper Industries, Inc.:
We have audited the consolidated financial statements of Roper Industries, Inc.
as listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule 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 Roper Industries,
Inc. and subsidiaries as of October 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended October 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG Peat Marwick LLP
Atlanta, Georgia
December 5, 1997
F-2
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1997 and 1996
(Dollars in thousands, except share data)
Assets 1997 1996
------ --------- --------
Current assets:
Cash and cash equivalents $ 649 $ 423
Accounts receivable, net 78,752 50,659
Inventories 50,199 31,133
Other current assets 2,290 2,298
-------- --------
Total current assets 131,890 84,513
Property, plant and equipment, net 31,395 23,959
Intangible assets, net 154,255 127,670
Other assets 11,780 6,811
-------- --------
Total assets $329,320 $242,953
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 15,654 $ 11,004
Accrued liabilities 25,231 17,965
Income taxes payable 1,564 3,723
Current portion of long-term debt 2,487 6,814
-------- --------
Total current liabilities 44,936 39,506
Long-term debt 99,638 63,373
Other liabilities 6,877 2,678
-------- --------
Total liabilities 151,451 105,557
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
none outstanding - -
Common stock, $.01 par value; 80,000,000 shares authorized;
30,919,637 and 30,322,972 issued and outstanding at
October 31, 1997 and 1996, respectively 309 303
Additional paid-in capital 61,950 50,742
Cumulative translation adjustments (937) 177
Retained earnings 116,547 86,174
-------- --------
Total stockholders' equity 177,869 137,396
-------- --------
Total liabilities and stockholders' equity $329,320 $242,953
======== ========
See accompanying notes to consolidated financial statements.
F-3
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended October 31, 1997, 1996 and 1995
(Dollars in thousands, except share data)
1997 1996 1995
-------- -------- --------
Net sales $298,236 $225,651 $175,421
Cost of sales 144,847 109,727 81,618
-------- -------- --------
Gross profit 153,389 115,924 93,803
Selling, general and administrative expenses 92,519 68,652 56,392
-------- -------- --------
Income from operations 60,870 47,272 37,411
Interest expense 6,048 3,282 1,952
Other income 278 250 542
-------- -------- --------
Earnings before income taxes 55,100 44,240 36,001
Income taxes 18,750 15,383 12,730
-------- -------- --------
Net earnings $ 36,350 $ 28,857 $ 23,271
======== ======== ========
Net earnings per common and common equivalent share $1.16 $0.93 $0.77
======== ======== ========
Weighted average common and common equivalent
shares outstanding 31,458 30,882 30,260
======== ======== ========
See accompanying notes to consolidated financial statements.
F-4
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended October 31, 1997, 1996 and 1995
(Dollars in thousands, except share data)
Additional Currency
Common stock paid-in translation Retained
-------------------
Shares* Amount* capital* adjustments earnings Total
---------- ------- ---------- ------------ --------- ---------
Balances at October 31, 1994 29,603,966 $296 $40,049 $ 374 $ 42,145 $ 82,864
Net earnings - - - - 23,271 23,271
Common stock issued for an
acquisition 145,132 2 1,812 - - 1,814
Exercise of stock options 126,336 1 733 - - 734
Currency translation adjustments - - - 261 - 261
Cash dividends ($0.1125 per share) - - - - (3,349) (3,349)
---------- ---- ------- ----------- -------- --------
Balances at October 31, 1995 29,875,434 299 42,594 635 62,067 105,595
Net earnings - - - - 28,857 28,857
Common stock issued for an
acquisition 248,052 2 5,698 - - 5,700
Common stock issued under
incentive bonus plan 75,106 1 1,351 - - 1,352
Exercise of stock options 124,380 1 1,099 - - 1,100
Currency translation adjustments - - - (458) - (458)
Cash dividends ($0.1575 per share) - - - - (4,750) (4,750)
---------- ---- ------- ----------- -------- --------
Balances at October 31, 1996 30,322,972 303 50,742 177 86,174 137,396
Net earnings - - - - 36,350 36,350
Common shares issued for
acquisitions 415,407 4 8,708 - - 8,712
Common stock issued under
incentive bonus plan 10,000 - 245 - - 245
Exercise of stock options
(inclusove of tax benefit of $500) 171,258 2 2,255 - - 2,257
Currency translation adjustments - - - (1,114) - (1,114)
Cash dividends ($0.1950 per share) - - - - (5,977) (5,977)
---------- ---- ------- ----------- -------- --------
Balances at October 31, 1997 30,919,637 $309 $61,950 $ (937) $116,547 $177,869
========== ==== ======= =========== ======== ========
* Amounts prior to August 1, 1997 have been restated to reflect the 2-for-1
stock split (in the form of a 100% stock dividend) that was paid on August 1,
1997.
See accompanying notes to consolidated financial statements.
F-5
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended October 31, 1997, 1996 and 1995
(Dollars in thousands)
1997 1996 1995
--------- --------- ---------
Cash flows from operating
activities:
Net earnings $ 36,350 $ 28,857 $ 23,271
Adjustments to reconcile net
earnings to net cash
provided by operating
activities:
Depreciation and amortization
of property, plant
and equipment 5,367 4,140 3,251
Amortization of intangible
assets 6,033 3,711 2,737
Changes in operating assets
and liabilities:
Accounts receivable (10,876) (7,470) (5,553)
Inventories 2,303 (469) (2,833)
Accounts payable and accrued
liabilities (2,357) 4,817 3,687
Income taxes payable (1,585) (1,909) 1,496
Other, net 168 1,409 163
-------- -------- --------
Net cash provided by
operating activities 35,403 33,086 26,219
-------- -------- --------
Cash flows from investing
activities:
Acquisitions of businesses, net
of cash acquired (55,311) (74,878) (24,187)
Capital expenditures (4,984) (5,010) (3,194)
Other, net (163) 5 19
-------- -------- --------
Net cash used in investing
activities (60,458) (79,883) (27,362)
-------- -------- --------
Cash flows from financing
activities:
Proceeds from long-term debt 94,845 101,456 38,732
Principal payments on long-term
debt (65,180) (51,979) (35,203)
Cash dividends to stockholders (5,977) (4,750) (3,349)
Proceeds from stock option
exercises 1,762 1,100 734
Other, net (116) (866) 525
-------- -------- --------
Net cash provided by
financing activities 25,334 44,961 1,439
-------- -------- --------
Effect of exchange rate changes on
cash (53) (63) 3
-------- -------- --------
Net increase (decrease) in
cash and cash equivalents 226 (1,899) 299
Cash and cash equivalents,
beginning of year 423 2,322 2,023
-------- -------- --------
Cash and cash equivalents, end of
year $ 649 $ 423 $ 2,322
======== ======== ========
See accompanying notes to consolidated financial statements.
F-6
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1997, 1996, and 1995
(Dollars in thousands, except share data)
(1) Summary of Accounting Policies
------------------------------
Basis of Presentation - The consolidated financial statements include the
---------------------
accounts of Roper Industries, Inc. ("the Company") and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated. On
August 1, 1997, the Company paid a 2-for-1 stock split on its common stock
in the form of a 100% stock dividend. All amounts related to common stock
prior to August 1, 1997 have been restated to reflect the stock split.
Cash and Cash Equivalents - The Company considers highly liquid financial
-------------------------
instruments with original maturities of three months or less to be cash
equivalents.
Accounts Receivable - Accounts receivable are stated net of the allowance
-------------------
for doubtful accounts of $1,866 and $992 at October 31, 1997 and 1996,
respectively.
Inventories - Inventories are valued at the lower of cost or market.
-----------
Subsidiaries of the Company use either the first-in, first-out cost method
("FIFO") or the last-in, first-out cost method ("LIFO"). Inventories valued
at LIFO cost comprised approximately 17% and 24% of consolidated inventories
at October 31, 1997 and 1996, respectively.
One of the Companies subsidiaries had a decrement in its LIFO reserve during
1997. The impact of this decrement on the Company's consolidated results of
operations was immaterial.
Property, Plant, and Equipment and Depreciation - Property, plant, and
-----------------------------------------------
equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are provided for using the straight-line
method over the estimated useful lives of the assets as follows:
Buildings 20-30 years
Machinery 8-12 years
Tooling 3 years
Other equipment 3-5 years
Revenue Recognition - Revenues under certain long-term contracts are
-------------------
recognized under the percentage-of-completion method using the ratio of
costs incurred to total estimated costs as the measure of performance.
Estimated losses on such contracts are recognized immediately. All other
revenue is recognized as products are shipped or services are rendered.
Fair Value of Financial Instruments - The Company's carrying value of long-
-----------------------------------
term debt approximates fair value since the rates are tied to floating
rates. The carrying value of all other financial instruments equals or
approximates fair value due to their short-term nature.
(Continued)
F-7
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
Intangible Assets - Intangible assets consist principally of goodwill, which
-----------------
is amortized on a straight-line basis over periods ranging from 15 to 40
years. The accumulated amortization for intangible assets was $14,402 and
$8,593 at October 31, 1997 and 1996, respectively. The Company accounts for
goodwill in a business combination as the excess of the purchase cost over
the fair value of the net assets acquired. Other intangible assets are
recorded at cost. On an ongoing basis, management reviews the valuation and
amortization periods of intangible assets. The Company assesses the
recoverability of its intangible assets by determining whether the
amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
enterprise. Based upon such reviews as of October 31, 1997 and 1996,
management considers the unamortized balances of goodwill or other
intangible assets to be recoverable.
Income Taxes - The Company has not provided deferred taxes on the
------------
accumulated undistributed earnings of its foreign subsidiaries, as
substantially all such earnings are intended to be permanently reinvested.
At October 31, 1997, the accumulated undistributed earnings totaled
approximately $8,000. The amount of U.S. tax due if such earnings were
repatriated approximates $3,000 and would be substantially offset by
allowable foreign tax credits. The Company also has not provided for any
foreign withholding taxes due on the repatriation of such earnings.
Research and Development - Research and development costs include salaries
------------------------
and benefits, rents, supplies, and other costs related to various products
under development. Research and development costs are expensed in the period
incurred and totaled approximately $14,200, $8,700 and $5,900 for the years
ended October 31, 1997, 1996, and 1995, respectively.
Foreign Currency Translation - Assets and liabilities of foreign
----------------------------
subsidiaries are translated at the exchange rate in effect at the balance
sheet date and revenues and expenses are translated at average exchange
rates for the year. Translation adjustments are reflected as a separate
component of stockholders' equity.
Use of Estimates - Management of the Company has made a number of estimates
----------------
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
Reclassifications - Certain reclassifications were made to prior year
-----------------
amounts to conform to the presentation adopted in fiscal 1997.
(Continued)
F-8
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
Earnings Per Common and Common Equivalent Share - Earnings per common and
-----------------------------------------------
common equivalent share are calculated based on the weighted average number
of restated shares of common stock and common stock equivalents outstanding
during the respective periods. The dilutive effect of common stock
equivalents is determined using the treasury stock method. Common stock
equivalents consist of stock options and deferred stock grants. The fully-
diluted results have not been presented since they are not significantly
different than the primary results.
A reconciliation between the weighted average actual outstanding shares and
the weighted average common and common share equivalents outstanding used
for earnings per share calculations is presented below for the years ended
October 31:
1997 1996 1995
------ ------ ------
Average actual common shares outstanding 30,580 30,112 29,752
Average common stock equivalents outstanding 878 770 508
------ ------ ------
Primary shares outstanding 31,458 30,882 30,260
Incremental fully-dilutive equivalents outstanding 84 10 152
------ ------ ------
Fully-diluted shares outstanding 31,542 30,892 30,412
====== ====== ======
Recently Released Accounting and Reporting Pronouncements - Statement of
---------------------------------------------------------
Financial Standards ("SFAS") 128 - Earnings Per Share ("EPS") establishes
standards for computing and presenting EPS. It replaces the presentation of
primary EPS with a presentation of basic EPS. Basic EPS will be calculated
using income available to common stockholders divided by average shares
outstanding (it excludes common stock equivalents that are used in
calculating primary EPS). Diluted EPS per SFAS 128 is computed similarly to
fully-diluted EPS pursuant to the to-be superceded accounting rules. SFAS
128 is applicable to the Company beginning with its first fiscal 1998
quarter ending January 31, 1998. Early adoption is not permitted. Once
adopted, prior period data will be restated. For the Company, basic EPS is
expected to be slightly higher than primary EPS.
SFAS No. 130 - Reporting Comprehensive Income establishes standards for
reporting comprehensive income and its components. This statement addresses
certain items that affect a company's net assets without affecting its
income statement. For the Company, the only such item is expected to be
foreign currency translation adjustments resulting from its non-U.S.
subsidiaries. SFAS 130 is applicable to the Company beginning with fiscal
1998. The impact on the Company's financial statements compared to
information presently available is not expected to be significant.
SFAS No. 131 - Disclosures about Segments of an Enterprise and Related
Information redefines the way that public companies report information about
their business segments. The statement intends to align reportable segments
and certain disclosures with how the operations are managed internally. It
also modifies certain geographic disclosures to be identified by country
instead of geographic region. SFAS 131 is applicable to the Company
beginning with its year-end reporting in fiscal 1999. The impact of this
statement on the Company's disclosures is not expected to be significant.
(Continued)
F-9
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
(2) Business Acquisitions
---------------------
On October 31, 1997, a wholly-owned subsidiary of the Company acquired the
operating assets of Industrial Data Systems, Inc. ("IDS") for total
consideration of approximately $4,800, consisting of $4,400 cash and
approximately 14,000 shares of Company common stock. Acquisition costs
include approximately $100 of transaction costs incurred by the Company.
Goodwill of approximately $3,700 will be amortized over 15 years.
IDS, based in Salt Lake City, Utah, is a leading manufacturer of leak
testing instrumentation primarily for the medical and industrial supplies
industry.
On May 30, 1997, a wholly-owned subsidiary of the Company completed the
acquisition of all of the capital stock of Petrotech, Inc., a Louisiana
corporation ("Petrotech"). The purchase price consisted of approximately
$6,500 of cash (net of cash acquired) and approximately 263,000 shares of
Company common stock. In addition, approximately $8,100 of Petrotech debt
was assumed. Other direct costs of the acquisition total approximately $300.
The excess of the acquisition costs over the fair value of the net assets
acquired (approximately $8,900) is being amortized straight-line over 15
years.
Petrotech provides system integration of control products and systems for
turbines and compressors within the oil & gas, pipeline, process control and
power generation markets. Petrotech is a recognized market leader and
derives a considerable portion of its revenues from manufacturing advanced
turbine and compressor control products.
On May 16, 1997, a wholly-owned subsidiary of the Company completed the
acquisition of the operating assets of Princeton Instruments, Inc., a New
Jersey corporation ("PI"), the real estate occupied by PI at its principal
facility in Trenton, New Jersey, and all of the stock of PI's foreign sales
affiliates (PI and its foreign affiliates are collectively referred to as
"Princeton").
The purchase price consisted of approximately $35,700 of cash (net of cash
acquired) and approximately 138,000 shares of Company common stock.
Transaction costs and other direct costs of the acquisition total
approximately $400. A total of 92,124 shares of Roper common stock was
placed in an escrow account to secure certain of the seller's
indemnification obligations associated with the acquisition of Princeton.
Goodwill of approximately $20,700 is being amortized straight-line over 30
years.
Princeton designs, manufactures and markets spectral and digital imaging
cameras and is a technological and market leader worldwide in most of its
market segments. Princeton supplies a diverse end-user base that includes
the scientific research market, industrial research markets and various
industrial process markets.
(Continued)
F-10
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
On May 31, 1996, the Company acquired the stock of Gatan International, Inc.
(collectively, with its subsidiaries referred to as "Gatan") for
approximately $48,600, net of cash acquired. Costs associated with the
acquisition totaled approximately $1,500. Of the total consideration paid,
approximately $34,500 represents goodwill and is being amortized over 30
years. Gatan is engaged in the business of manufacturing analytical systems
and products used in the operation of transmission and scanning electron
microscopes.
On May 22, 1996, the Company acquired the assets of Fluid Metering, Inc.
("FMI") for approximately $30,200, consisting of (i) $23,000 in cash; (ii)
248,052 shares of the Company's common stock; (iii) $1,124 cash paid to FMI
June 21, 1996 to fund the redemption of its outstanding debentures; and (iv)
$400 in cash to be paid in equal installments on May 22, 1997 and 1998. The
cash portion of the purchase price paid at closing was financed under the
Company's then-existing credit agreement. Costs associated with the
acquisition totaled approximately $509. Of the total consideration paid,
$27,200 represents goodwill and is being amortized over 30 years. FMI is
engaged in the business of manufacturing low-flow, precision dispense pumps.
On September 29, 1995, the Company acquired the assets of Metrix Instrument
Co. ("Metrix") for approximately $11,600 in cash, plus approximately $437 in
acquisition costs. Of the total consideration paid, $9,200 represents
goodwill and is being amortized over a 20 years. In conjunction with the
acquisition of Metrix, the Company also purchased the building in which
Metrix operates for $451. Metrix is engaged in the business of manufacturing
vibration monitoring equipment for rotating machinery such as engines,
turbines, fans, and pumps.
On March 6, 1995, the Company acquired the assets of Uson Corporation
("Uson") for approximately $11,900 in cash and also acquired the stock of
Prex Corporation (an affiliate) for 145,132 shares of the Company's stock.
Costs associated with these acquisitions totaled approximately $498. Of the
total consideration paid, $9,500 represents goodwill and is being amortized
over 15 years. Both Uson and its affiliate manufacture microprocessor based
control products used for leak testing in the automotive, machine tool, and
medical industries.
All of the preceding acquisitions were accounted for using the purchase
method of accounting and, accordingly, the assets and liabilities assumed
were recorded at their fair values based upon appraisals and other analyses.
The results of operations of the acquired companies subsequent to their
acquisition by the Company have been included in the consolidated results of
operations of the Company.
(Continued)
F-11
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
The following unaudited pro forma summary presents the Company's
consolidated results of operations as if the acquisitions during fiscal 1997
and 1996 had occurred at the beginning of fiscal 1996.
Year ended October 31,
----------------------
1997 1996
-------- ---------
Net sales $333,061 $312,088
======== ========
Net earnings 37,990 33,532
======== ========
Net earnings per share 1.20 1.07
======== ========
(3) Supplemental Cash Flow Information
----------------------------------
A summary of annual supplemental cash flow information for the years ended
October 31 is as follows:
1997 1996 1995
-------- ------- -------
Cash paid during the year for:
Interest $ 7,409 $ 2,048 $ 1,739
======== ======= =======
Income taxes, net of refunds received $ 20,207 $16,203 $11,378
======== ======= =======
Noncash investing activities:
Net assets of businesses acquired:
Fair value of assets, including goodwill $ 81,431 $82,311 $27,468
Liabilities assumed (17,408) (757) (1,034)
Common stock issued (8,712) (5,700) (1,814)
-------- ------- -------
Cash paid, net of cash acquired $ 55,311 $75,854 $24,620
======== ======= =======
(4) Inventories
-----------
The components of inventories at October 31 are as follows:
1997 1996
----- -----
Raw materials and supplies $25,729 $19,226
Work in process 13,715 5,905
Finished products 12,398 7,548
Less LIFO reserve (1,643) (1,546)
------- -------
$50,199 $31,133
======= =======
(Continued)
F-12
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
(5) Property, Plant and Equipment
-----------------------------
The components of property, plant, and equipment at October 31 are as
follows:
1997 1996
------- -------
Land $ 1,151 $ 1,171
Buildings 14,034 7,894
Machinery, tooling and other equipment 47,817 41,581
------- -------
63,002 50,646
Less accumulated depreciation and amortization 31,607 26,687
------- -------
$31,395 $23,959
======= =======
(6) Accrued Liabilities
-------------------
Accrued liabilities at October 31 consist of:
1997 1996
------- -------
Wages and other compensation $12,137 $ 8,546
Commissions 4,339 3,326
Other 8,755 6,093
------- -------
$25,231 $17,965
======= =======
(7) Income Taxes
------------
Earnings before income taxes for the years ended October 31 consist of the
following components:
1997 1996 1995
------- ------- -------
Domestic $47,704 $36,930 $30,007
Foreign 7,396 7,310 5,994
------- ------- -------
$55,100 $44,240 $36,001
======= ======= =======
Components of the income tax expense for the years ended October 31 are as
follows:
1997 1996 1995
------- ------- -------
Current:
Federal $15,414 $11,492 $ 9,832
State 993 845 1,131
Foreign 2,574 2,630 2,063
Deferred expense (benefit) (231) 416 (296)
------- ------- -------
$18,750 $15,383 $12,730
======= ======= =======
(Continued)
F-13
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
A reconciliation between the statutory federal income tax rate and the
effective income tax rate for the years ended October 31 is as follows:
1997 1996 1995
------- ------- -------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 1.2 1.3 2.0
Exempt income of Foreign Sales Corporation (4.0) (1.7) (1.2)
Goodwill amortization 1.5 1.6 1.0
Other 0.3 (1.4) (1.4)
------ ------ ------
34.0% 34.8% 35.4%
====== ====== ======
Components of the deferred tax assets and liabilities at October 31 are as
follows:
1997 1996
------ ------
Deferred tax assets:
Postretirement medical benefits $ 496 $ 446
Reserves and accrued expenses 2,380 1,286
Net operating loss carryforward 805 -
Amortizable intangible assets 4,311 4,738
------ ------
Total deferred tax assets 7,992 6,470
------ ------
Deferred tax liabilities:
Inventories 31 486
Domestic International Sales Corporation 1,072 -
Other 507 634
------ ------
Total deferred tax liabilities 1,610 1,120
------ ------
Net deferred tax asset $6,382 $5,350
====== ======
The Company has not recognized a valuation allowance as all deferred tax
assets are deemed to be realizable against future taxable income.
(8) Long-Term Debt
--------------
Long-term debt at October 31 consists of the following:
1997 1996
-------- -------
NationsBank credit facility $ 97,914 $67,175
Industrial revenue bonds 1,120 1,445
Other 3,091 1,567
-------- -------
102,125 70,187
Less current portion 2,487 6,814
-------- -------
$ 99,638 $63,373
======== =======
(Continued)
F-14
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
Future maturities of long-term debt for each of the next five yearsending
October 31 and thereafter are as follows:
Year ending October 31, Amount
----------------------- ------
1998 $ 2,487
1999 475
2000 555
2001 101
2002 98,134
Thereafter 373
--------
$102,125
========
NationsBank credit facility
---------------------------
On May 15, 1997, the Company secured a new $200 million revolving credit
facility by the amendment and restatement of its principal credit agreement
which theretofore had provided for a $100 million facility. Financing under
the new agreement continues to be provided by a syndication of financial
institutions whose agent is NationsBank, N.A. (South). The agreement
requires annual commitment fees ranging from 0.15% to 0.30% on the unused
portion of the total credit commitment, payable quarterly.
Borrowings under the NationsBank agreement accrue interest at the Company's
option at either a function of the prime rate or LIBOR and are secured only
by a pledge of the capital stock of the Company's subsidiaries to the
lenders. The interest rate is also influenced by certain financial ratios
of the Company. There is a $10,000 sublimit for letters of credit under
this agreement. The weighted average interest rate on the outstanding
borrowings under this facility was 6.21% at October 31, 1997.
At October 31, 1997, the Company had $102,086 in availability under the
NationsBank facility.
The NationsBank credit agreement generally provides for, among other
things, restrictions on future acquisitions and maintenance of certain
minimum consolidated tangible net worth and other financial ratios. As of
October 31, 1997, the Company was in compliance with all such covenants. At
October 31, 1997, the Company had approximately $24,000 available for
common stock dividends under the most restrictive covenant of this
agreement. This agreement is effective through May 31, 2002.
(9) Retirement and Other Benefit Plans
----------------------------------
The Company maintains defined contribution retirement plans under the
provisions of Section 401 of the Internal Revenue Code covering
substantially all domestic employees not subject to collective bargaining
agreements. The Company partially matches employee contributions, and its
costs related to the plans were $2,530, $2,065 and $1,609 in fiscal 1997,
1996 and 1995, respectively.
(Continued)
F-15
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
The Company also maintains a defined benefit retirement plan covering
employees of a foreign subsidiary. The costs associated with this plan are
not material.
The Company also provides postretirement medical benefits for employees at
several of its domestic subsidiaries. The costs associated with this plan
and accumulated benefit obligations are not material.
(10) Contingencies
-------------
The Company, in the ordinary course of business, is the subject of, or a
party to, various pending or threatened legal actions, including those
pertaining to product liability. The Company is vigorously contesting all
product liability lawsuits which, in general, are based upon claims of the
kind which have been customary over the past several years. Based upon the
Company's past experience with resolution of its product liability claims
and the limits of the primary, excess, and umbrella liability insurance
coverages that are available with respect to pending claims, management
believes that adequate provision has been made to cover any potential
liability not covered by insurance, and that the ultimate liability, if
any, arising from these actions should not have a material adverse effect
on the consolidated financial position or results of operations of the
Company. Included in other noncurrent assets at October 31, 1997 are
estimated insurable settlements receivable from insurance companies of
approximately $3,000.
Over the past four years, one of the Company's subsidiaries, Compressor
Controls, has made sales of approximately $127 million to large natural gas
distribution companies in the CIS ("Commonwealth of Independent States").
Certain of this business has been on an open account basis. Included in
accounts receivable at October 31, 1997 are amounts due from and
acknowledged by such customers totaling $14,062, of which $10,234 is due
from RAO Gazprom (a Russian energy company). The collection period of these
open accounts receivable has been significantly longer than experienced in
the Company's core business. Furthermore, the economic and political
climate for these companies may be subject to change such that recovery may
become uncertain. Management has closely reviewed the continuing pattern of
debt collection and considers all amounts to be recoverable at this time.
(11) Common Stock Transactions
-------------------------
The Company's restated Certificate of Incorporation provides that each
outstanding share of the Company's common stock entitles the holder thereof
to five votes per share, except that holders of outstanding shares with
respect to which there has been a change in beneficial ownership during the
four years immediately preceding the applicable record date will be
entitled to one vote per share.
The Company had an incentive stock bonus plan with an executive of one of
its subsidiary companies that provided for the issuance of up to 10,000
shares of the Company's common stock based on the financial performance of
the subsidiary company for a 12 month period ended during fiscal 1997. All
10,000 shares were earned and distributed during 1997.
(Continued)
F-16
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
The Company had another incentive stock bonus plan for certain key
executives at one of its other subsidiary companies. This plan provided for
the issuance of up to a maximum of 124,000 common shares per year if the
agreed-upon financial performance objectives were achieved and covered the
four-year period ended October 31, 1996. Under the plan, participants could
elect to apply a portion of the shares earned, based on market value at the
date of issuance, to fund the withholding tax requirement. In 1995, the
maximum number of shares was earned; the actual number of shares issued was
less because certain recipients opted to apply a portion of their award to
tax withholdings. No shares were earned in 1996.
In July 1996, the Company entered into an incentive stock bonus agreement
with one of its corporate executives. This agreement provides for the
issuance of 20,000 common shares if agreed-upon stock performance
objectives are achieved. The agreement is without a time limit.
On January 8, 1996, the Company's Board of Directors (the "Board") adopted
a Shareholder Rights Plan and declared a dividend of one Preferred Stock
Purchase Right (a "Right") for each outstanding share of common stock. Such
Rights only become exercisable, or transferable apart from the common
stock, ten business days after a person or group acquires various specified
levels of beneficial ownership, with or without the Board's consent. Two
Rights may be exercised to acquire one one-thousandth of a newly issued
share of the Company's Series A Preferred Stock, at an exercise price of
$170, subject to adjustment. Alternatively, upon the occurrence of certain
specified events, the Rights allow holders to purchase the Company's common
stock having a market value at such time of twice the Right's exercise
price. The Rights may be redeemed by the Company at a redemption price of
$.01 per Right at any time until the tenth business day following public
announcement that a 20% position has been acquired or ten business days
after commencement of a tender or exchange offer. The Rights will expire on
January 8, 2006.
(12) Stock Options
-------------
The Company has a Stock Option Plan (the "Plan"), as amended, which
authorizes the issuance of up to 3,500,000 shares of common stock to
certain directors, key employees, and consultants of the Company and its
subsidiaries as incentive and/or nonqualified options. Options under the
Plan may be granted through December 17, 2001 at prices not less than 100%
of market value of the underlying stock at the date of grant. These options
vest ratably over a five-year period from the date of the grant. Options
expire ten years from the date of grant. Payment of the option price may be
made in cash, extension of loans by the Company, or by tendering shares of
the Company's common stock having a fair market value equal to the
aggregate option price.
(Continued)
F-17
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company also has a stock option plan for non-employee directors (the
"Non-employee Director Plan"). The Non-employee Director Plan provides for
each Non-employee director appointed or elected to the Board initial options
to purchase 20,000 shares of the Company's common stock and thereafter
options to purchase an additional 4,000 shares per annum under terms and
conditions similar to the Plan, except that following their grant, all
options will become fully vested at the time of the Annual Meeting of
Shareholders in the next fiscal year and will be exercisable ratably over
five years from the date of grant.
SFAS No. 123 - Accounting for Stock-Based Compensation modifies the
accounting and reporting standards for the Company's stock-based compensation
plans. SFAS 123 provides that stock-based awards be measured at their fair
value at the grant date in accordance with a valuation model. This
measurement may either be recorded in the Company's basic financial
statements or the pro forma effect on earnings may be disclosed in its
financial statements. The Company has elected to provide the pro forma
disclosures.
A summary of stock option transactions under these plans is shown below:
Outstanding options Exercisable options
------------------------ --------------------
Average Average
exercise exercise
Number price Number price
------------ -------- --------- ---------
October 31, 1994 1,693,200 $10.65 167,400 $ 6.00
Fiscal 1995 activity:
Granted 257,200 13.01
Exercised (126,336) 6.57
Canceled (41,674) 12.46
---------
October 31, 1995 1,782,390 11.27 410,870 9.61
Fiscal 1996 activity:
Granted 543,600 19.89
Exercised (124,380) 8.76
Canceled (23,320) 15.15
---------
October 31, 1996 2,178,290 13.51 676,650 10.43
Fiscal 1997 activity:
Granted 204,900 22.18
Exercised (171,258) 10.29
Canceled (79,740) 16.06
---------
October 31, 1997 2,132,192 $14.51 995,413 $11.58
=========
(Continued)
F-18
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
Options outstanding and exercisable at October 31, 1997 are summarized below.
Outstanding options Exercisable options
----------------------------------------------- -----------------------
Exercise # Weighted avg. Weighted avg. # Weighted avg.
Price Options exercise price remaining life Options exercise price
-------- --------- --------------- ------------------- ------- --------------
$ 3.75 - $10.00 510,036 $ 6.00 5.0 years 416,614 $ 5.82
10.01 - 15.00 396,970 12.10 6.9 years 184,148 12.17
15.01 - 20.00 867,586 17.22 7.0 years 360,771 16.84
20.01 - 24.50 357,600 22.74 9.0 years 33,880 23.03
--------- ------ ---------- ------- ------
$ 3.75 - $24.50 2,132,192 $14.51 6.9 years 995,413 $11.58
========= ====== ========== ======= ======
For pro forma disclosure purposes, the weighted-average grant-date fair value
of options granted during the year ended October 31, 1997 and 1996 were $8.66
per share and $7.76 per share, respectively. All options granted during each
of the years ended October 31, 1997, 1996 and 1995 were at exercise prices
equal to the market price of the Company's common stock when granted.
Grant date fair values were determined using the Black-Scholes option-pricing
model. Factors used in the model include (a) a risk-free interest rate of
6.25%; (b) an average expected option life of 7 years; (c) an expected
volatility of 20%-27%; and (d) an expected dividend yield of 0.75%.
Had the Company recognized compensation expense for the fair value of options
granted during fiscal 1997 and 1996 in accordance with the provisions of SFAS
123, pro forma earnings and pro forma earnings per share would have been as
presented below. The pro forma effects on earnings for fiscal 1997 and 1996
do not include the effects of options granted prior to fiscal 1996 since the
provisions of SFAS 123 are not applicable to these options for this purpose.
The pro forma effects of applying SFAS 123 to fiscal 1997 and 1996 may not be
representative of the pro forma effects in future years. Based on the
historical vesting schedule of the Company's option grants, the pro forma
effects on earnings are most pronounced in the early years following each
grant. The timing and magnitude of any future option grants is at the
discretion of the Company's Board and cannot be assured.
1997 1996
------- -------
Net earnings, as reported $36,350 $28,857
Net earnings, pro forma 35,110 27,917
Net earnings per share, as reported $ 1.16 $ 0.93
Net earnings per share, pro forma 1.12 0.90
(Continued)
F-19
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
(13) Segment and Geographic Area Information
---------------------------------------
The Company's operations are grouped into three business segments: the
Industrial Controls ("IC") segment, the Fluid Handling ("FH") segment and
the Analytical Instrumentation ("AI") segment. The Industrial Controls
segment's products include thermostatic valves, pneumatic panel components,
pressure and temperature sensors, microprocessor-based turbomachinery
control systems and associated engineering services, and vibration
monitoring instruments. Products included within the Fluid Handling segment
are rotary gear, progressing cavity, positive displacement, and centrifugal
pumps and precision chemical dispensing products for the semiconductor
industry. The Analytical Instrumentation segment's products include
petroleum product analysis/test equipment, microprocessor-based leak
testers, cooled CCD cameras and detectors and analytical products used in
the operation of transmission and scanning electron microscopes.
Sales between geographic areas are primarily of finished products and are
accounted for at cost plus a profit margin. Operating profit by business
segment and by geographic area is defined as sales less operating costs and
expenses. Income and expenses not allocated to business segments or
geographic areas include investment income, interest expense, and corporate
administrative costs.
Identifiable assets are those assets used exclusively in the operations of
each business segment or geographic area, or which are allocated when used
jointly. Corporate assets are principally comprised of recoverable
insurance claims, cash, deferred compensation assets and property and
equipment.
(Continued)
F-20
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
The following table shows net sales, income from operations, and other
financial information by industry segment for the years ended October 31:
IC FH AI Corporate Total
-------- ------- -------- ---------- --------
1997
----
Net sales $123,129 $94,175 $ 80,932 $ - $298,236
Operating profit 22,402 25,853 18,292 (5,677) 60,870
Identifiable assets 118,386 69,117 134,970 6,847 329,320
Depreciation and amortization 3,712 2,844 4,347 497 11,400
Capital expenditures 1,817 1,693 1,347 127 4,984
1996
----
Net sales $ 98,197 $86,094 $ 41,360 $ - $225,651
Operating profit 21,075 24,026 6,377 (4,206) 47,272
Identifiable assets 84,845 71,405 84,048 2,655 242,953
Depreciation and amortization 2,909 2,184 2,538 220 7,851
Capital expenditures 1,991 2,300 446 273 5,010
1995
----
Net sales $ 75,032 $73,973 $ 26,416 $ - $175,421
Operating profit 14,110 23,132 3,819 (3,650) 37,411
Identifiable assets 81,972 39,045 30,590 3,774 155,381
Depreciation and amortization 2,901 1,664 1,225 198 5,988
Capital expenditures 1,066 1,596 432 100 3,194
The Company's Industrial Controls segment has significant business and
credit concentrations in the oil and gas related industries. The Company
performs ongoing credit evaluations of customers, and allowances are
maintained for potential credit losses. Net sales to the Industrial
Controls segment's largest customer, RAO Gazprom, were $14,742, $18,311 and
$16,831 for the years ended October 31, 1997, 1996, and 1995, respectively.
(Continued)
F-21
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
Summarized data for the Company's U.S. and foreign operations (principally
in Europe) for the years ended October 31 are as follows:
Corporate
adjustments
United and elimi-
States Foreign nations Total
--------- -------- ---------- ----------
1997
----
Sales to unaffiliated customers $259,583 $38,653 $ - $298,236
Sales between geographic areas 7,326 3,795 (11,121) -
-------- ------- -------- --------
Net sales $266,909 $42,448 $(11,121) $298,236
======== ======= ======== ========
Operating profit $ 59,286 $ 7,267 $ - $ 66,547
General corporate expenses - - (5,677) (5,677)
-------- ------- -------- --------
Income from operations $ 59,286 $ 7,267 $ (5,677) $ 60,870
======== ======= ======== ========
Identifiable assets $292,936 $29,537 $ 6,847 $329,320
======== ======= ======== ========
1996
----
Sales to unaffiliated customers $195,048 $30,603 $ - $225,651
Sales between geographic areas 2,334 740 (3,074) -
-------- ------- -------- --------
Net sales $197,382 $31,343 $ (3,074) $225,651
======== ======= ======== ========
Operating profit $ 44,497 $ 6,981 $ - $ 51,478
General corporate expenses - - (4,206) (4,206)
-------- ------- -------- --------
Income from operations $ 44,497 $ 6,981 $ (4,206) $ 47,272
======== ======= ======== ========
Identifiable assets $214,751 $25,547 $ 2,655 $242,953
======== ======= ======== ========
1995
----
Sales to unaffiliated customers $144,141 $31,280 $ - $175,421
Sales between geographic areas 860 770 (1,630) -
-------- ------- -------- --------
Net sales $145,001 $32,050 $ (1,630) $175,421
======== ======= ======== ========
Operating profit $ 34,789 $ 6,272 $ - $ 41,061
General corporate expenses - - (3,650) (3,650)
-------- ------- -------- --------
Income from operations $ 34,789 $ 6,272 $ (3,650) $ 37,411
======== ======= ======== ========
Identifiable assets $125,970 $25,637 $ 3,774 $155,381
======== ======= ======== ========
Export sales from the United States during the year ended October 31, 1997
were approximately $111,000. These exports were shipped primarily to Asia
and the Far East (29%), Europe (23%), Russia (14%) and Canada (10%).
(Continued)
F-22
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
Sales outside the United States account for a significant portion of the
Company's revenues and are summarized by business segment and by geographic
area as follows:
IC FH AI Total
------- -------- ------ ------
1997
----
Canada $ 5,347 $ 4,908 $ 1,069 $ 11,324
Europe 22,125 3,439 18,741 44,305
CIS 15,805 4 734 16,543
Japan 122 2,944 12,959 16,025
Asia and Far East 9,215 2,818 4,453 16,486
South & Central America 7,410 1,264 2,409 11,083
Other 17,407 1,490 3,447 22,344
------- ------- ------- --------
Total $77,431 $16,867 $43,812 $138,110
======= ======= ======= ========
1996
----
Canada $ 3,671 $ 3,861 $ 832 $ 8,364
Europe 23,806 1,994 8,937 34,737
CIS 25,440 - 800 26,240
Japan 77 4,355 3,422 7,854
Asia and Far East 5,347 3,215 2,952 11,514
South & Central America 3,956 1,079 1,738 6,773
Other 8,114 587 3,459 12,160
------- ------- ------- --------
Total $70,411 $15,091 $22,140 $107,642
======= ======= ======= ========
1995
----
Canada $ 3,565 $ 3,482 $ 182 $ 7,229
Europe 20,061 1,846 5,753 27,660
CIS 17,411 - 1,294 18,705
Japan 59 850 261 1,170
Asia and Far East 4,028 1,944 2,069 8,041
South & Central America 1,926 810 1,640 4,384
Other 5,096 360 2,249 7,697
------- ------- ------- --------
Total $52,146 $ 9,292 $13,448 $ 74,886
======= ======= ======= ========
(Continued)
F-23
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
(14) Quarterly Financial Data (Unaudited)
------------------------------------
Fiscal 1997 quarters
----------------------------------
First Second Third Fourth
------- ------- ------- -------
Net sales $55,108 $67,019 $88,523 $87,586
Gross profit 29,436 36,970 44,783 42,200
Net earnings 5,830 10,146 11,630 8,744
Earnings per common share $ 0.19 $ 0.33 $ 0.37 $ 0.27
======= ======= ======= =======
Fiscal 1996 quarters
----------------------------------
First Second Third Fourth
------- ------- ------- -------
Net sales $52,896 $47,105 $59,947 $65,703
Gross profit 29,000 22,500 29,688 34,736
Net earnings 8,809 5,653 6,989 7,406
Earnings per common share $ 0.29 $ 0.18 $ 0.23 $ 0.23
======= ======= ======= =======
F-24
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Schedule II - Consolidated Valuation and Qualifying Accounts
for the Years ended October 31, 1997, 1996 and 1995
(In thousands of dollars)
Additions
(deductions)
charged
Balance at (credited) Balance
beginning to costs and at end
Description of year expenses Deductions Other of year
----------- --------- ------------- ---------- ----- -------
Allowance for doubtful accounts:
Year ended October 31, 1997 992 1,053 (714) 535 1,866
Year ended October 31, 1996 990 19 (160) 143 992
Year ended October 31, 1995 552 616 (348) 170 990
Reserve for inventory obsolescence:
Year ended October 31, 1997 1,310 1,037 (516) 222 2,053
Year ended October 31, 1996 605 892 (621) 434 1,310
Year ended October 31, 1995 487 541 (436) 13 605
Deductions from the allowance for doubtful accounts represent the net write-
off of uncollectible accounts receivable. Deductions from the inventory
obsolescence reserve represent the disposal of obsolete inventory items.
Other is principally the allowance for doubtful accounts and reserve for
inventory obsolescence of acquired businesses at the dates of acquisition.
S-1
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Reference is made to the information included under the captions "BOARD OF
DIRECTORS AND EXECUTIVE OFFICERS -- Proposal 1: Election Of Four (4) Directors"
and " -- Executive Officers", and "VOTING SECURITIES -- Compliance with
Section 16 (a) of the Securities Exchange Act of 1934" contained in the
Company's definitive Proxy Statement which relates to the 1998 Annual Meeting of
Stockholders of the Company to be held on February 20, 1998 (the "Proxy
Statement"), to be filed within 120 days after the close of the Company's 1997
fiscal year, which information is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION.
Reference is made to the information included under the captions "BOARD OF
DIRECTORS AND EXECUTIVE OFFICERS -- Meetings of the Board and Board Committees;
Compensation of Directors", "--Related Transactions", and " -- Compensation
Committee Interlocks and Insider Participation in Compensation Decisions", and "
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION" contained in the Proxy
Statement, which information is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to the information included under the caption "VOTING
SECURITIES" contained in the Proxy Statement, which information is incorporated
herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the information included under the caption "BOARD OF
DIRECTORS AND EXECUTIVE OFFICERS -- Related Transactions" contained in the Proxy
Statement, which information is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Consolidated Financial Statements
---------------------------------
The Consolidated Financial Statements listed in Item 8 of Part II are
filed as a part of this Report.
(a)(2) Consolidated Financial Statement Schedules
------------------------------------------
The following consolidated financial statement schedule on Page S-1 is
filed in response
to this Item. All other schedules are omitted or the required
information is either inapplicable or is presented in the consolidated
financial statements or related notes:
II. Consolidated Valuation and Qualifying Accounts for the Years
Ended October 31, 1997, 1996 and 1995.
(b). Reports on Form 8-K
-------------------
None
(c). Exhibits
--------
The following exhibits are separately filed with this Annual Report on
Form 10-K.
Exhibit No. Description of Exhibit
----------- -----------------------
*2.1 Asset Purchase Agreement (Princeton Instruments, Inc.)
2.2 Agreement and Plan of Merger (Petrotech, Inc.)
3.1 Amended and Restated Certificate of Incorporation,
including Form of Certificate of Designation,
Preferences and Rights of Series A Preferred Stock
*3.2 Amended and Restated By-Laws
**4.01 Rights Agreement between Roper Industries, Inc. and
SunTrust Bank, Atlanta, Inc. as Rights Agent, dated as
of January 8, 1996, including Certificate of
Designation, Preferences and Rights of Series A
Preferred Stock (Exhibit A), Form of Rights Certificate
(Exhibit B) and Summary of Rights (Exhibit C)
*4.02 Third Amended and Restated Credit Agreement dated May
15, 1997 by and between Roper Industries, Inc. and
NationsBank, N.A. (South) and the lender parties
thereto.
***10.01 Lease of Milwaukee, Oregon Facility
10.02 1991 Stock Option Plan, as amended +
****10.03 Non-employee Director Stock Option Plan +
***10.04 Form of Indemnification Agreement +
10.05 Consulting Agreement (G.L. Ohrstrom & Co.) +
10.06 Consulting Agreement (E.D. Kenna) +
*****10.11 Labor Agreement
21 List of Subsidiaries
23 Consent of Independent Auditors-KPMG Peat Marwick LLP
27 Financial Data Schedule
___________________________
* Incorporated herein by reference to Exhibits 2, 3 and 4 to
the Roper Industries, Inc. Current Report on Form 8-K filed
June 2, 1997.
** Incorporated herein by reference to Exhibit 4.02 to the
Roper Industries, Inc. Current Report on Form 8-K filed on
January 18, 1996.
*** Incorporated herein by reference to Exhibits 10.8 and 10.10 to
the Roper Industries, Inc. Registration Statement (No. 33-44665)
on Form S-1 filed December 20, 1991.
**** Incorporated herein by reference to Exhibit 10.3 to the Roper
Industries, Inc. Annual Report on Form 10-K filed on January 28,
1994.
***** Incorporated herein by reference to Exhibit 10.3 to the Roper
Industries, Inc. Annual Report on 10-K filed on January 25, 1996
+ Management contract or compensatory plan or arrangement
ROPER INDUSTRIES, INC.
(COMPANY)
By /S/ DERRICK N. KEY January 16, 1998
- ---------------------------------
Derrick N. Key
Chairman of the Board, President
and Chief Executive 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 Company and in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ DERRICK N. KEY Chairman of the Board, President January 16, 1998
- --------------------------------
Derrick N. Key and Chief Executive Officer
/S/ MARTIN S. HEADLEY Vice President and January 16, 1998
- --------------------------------
Martin S. Headley Chief Financial Officer
/S/ KEVIN G. McHUGH Controller January 16, 1998
- --------------------------------
Kevin G. McHugh
/S/ W. LAWRENCE BANKS Director January 16, 1998
- --------------------------------
W. Lawrence Banks
/S/ LUITPOLD VON BRAUN Director January 16, 1998
- --------------------------------
Luitpold von Braun
/S/ DONALD G. CALDER Director January 16, 1998
- --------------------------------
Donald G. Calder
/S/ JOHN F. FORT, III Director January 16, 1998
- --------------------------------
John F. Fort, III
/S/ E. DOUGLAS KENNA Director January 16, 1998
- --------------------------------
E. Douglas Kenna
/S/ GEORGE L. OHRSTROM Director January 16, 1998
- --------------------------------
George L. Ohrstrom
/S/ WILBUR J. PREZZANO Director January 16, 1998
- --------------------------------
Wilbur J. Prezzano
/S/ GEORG GRAF SCHALL-RIAUCOUR Director January 16, 1998
- --------------------------------
Georg Graf Schall-Riaucour
/S/ ERIBERTO R. SCOCIMARA Director January 16, 1998
- --------------------------------
Eriberto R. Scocimara
/S/ CHRISTOPHER WRIGHT Director January 16, 1998
- --------------------------------
Christopher Wright
EXHIBIT INDEX
-------------
Number Exhibit
- ------ -------
2.1 Asset Purchase Agreement (Princeton Instruments, Inc.)
incorporated herein by reference to Exhibit 2 to the Roper
Industries, Inc. Current Report on Form 8-K filed June 2, 1997
*2.2 Agreement and Plan of Merger (Petrotech, Inc.) entered into on
May 14, 1997 by and among Petrotech Acquisition, Inc., Roper
Industries, Inc., Petrotech, Inc. and the shareholders of
Petrotech, Inc.
3.1 Amended and Restated Certificate of Incorporation, including
Form of Certificate of Designation, Preferences and Rights of
Series A Preferred Stock
3.2 Amended and Restated By-Laws incorporated herein by reference to
Exhibit 3 to the Roper Industries, Inc. Current Report on Form 8-
K filed June 2, 1997
4.01 Rights Agreement between Roper Industries, Inc. and SunTrust
Bank, Atlanta, Inc. as Rights Agent, dated as of January 8, 1996,
including Certificate of Designation, Preferences and Rights of
Series A Preferred Stock (Exhibit A), Form of Rights Certificate
(Exhibit B) and Summary of Rights (Exhibit C), incorporated by
reference to Exhibit 4.02 to the Roper Industries, Inc. Current
Report on Form 8-K on January 18, 1996
4.02 Third Amended and Restated Credit Agreement dated May 15, 1997 by
and between Roper Industries, Inc. and NationsBank, N.A. (South)
and the lender parties thereto, incorporated herein by reference
to Exhibit 4 to the Roper Industries, Inc. Current Report on Form
8-K filed June 2, 1997
10.01 Lease of Milwaukee, Oregon Facility incorporated herein by
reference to Exhibit 10.8 to the Roper Industries, Inc.
Registration Statement (No. 33-44665 on Form S-1 filed December
20, 1991
10.02 1991 Stock Option Plan, as amended
10.03 Non-employee Director Stock Option Plan, incorporated herein by
reference to Exhibit 10.3 to the Roper Industries, Inc. Annual
Report on Form 10-K field on January 28, 1994
10.04 Form of Indemnification Agreement, incorporated herein by
reference to Exhibit 10.10 to the Roper Industries, Inc.
Registration Statement (No. 33-44665 on Form S-1 filed December
20, 1991
10.05 Consulting Agreement
10.06 Consulting Agreement
10.11 Labor Agreement, incorporated herein by reference to Exhibit 10.3
to the Roper Industries, Inc. Annual Report on 10-K filed January
25, 1996
21 List of Subsidiaries
22 Consent of Independent Auditors-KPMG Peat Marwick LLP
27 Financial Data Schedule
- -------------------------------------------------------------------------------
* The following schedules or similar attachments to the above Exhibit have been
omitted and will be furnished supplementally to the Commission upon request.
Exhibits
Exhibit A-1 - A-3 - Lease Agreements with respect to Leased Real Property
Exhibit B - Unaudited Balance Sheet and Income Statement
Exhibit C - Aged Receivables
Exhibit D - Consolidated Balance Sheets
Exhibit E-1 - Employment Agreement of Douglas W. Moore
Exhibit E-2 - Employment Agreement of Terry E. Irwin
Exhibit E-3 - Employment Agreement of William A. Dyar
Exhibit E-4 - Non-Competition Agreement of Douglas W. Moore
Exhibit E-5 - Non-Competition Agreement of Terry E. Irwin
Exhibit E-6 - Non-Competition Agreement of William A. Dyar
Exhibit F - Opinion of Counsel to Acquired Company
Exhibit G - Estoppel Letters
Exhibit H - Opinion of Counsel to Buyer
Exhibit I - Resolutions of Board of Directors
Exhibit J - Escrow Agreement
Petrotech Disclosure Schedule