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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1998
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-12273
ROPER INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 51-0263969
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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160 Ben Burton Road
Bogart, Georgia 30622
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 369-7170
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class On Which Registered
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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
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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, 1998: $618,620,493
Number of shares of Registrant's Common Stock as of December 31, 1998:
30,361,742
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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
26, 1999, are incorporated by reference into Part III
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PART I
ITEM 1. BUSINESS
Roper Industries, Inc. (the "Company" or "Roper") 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 oil & 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 Company 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 that 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) acquisition of similar businesses. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Year Ended October 31, 1998 Compared to Year Ended October 31, 1997
and--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 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 1998 principally by new business
acquisitions. In December 1997, it acquired FTI Flow Technology, Inc. which
manufactures and markets turbine flow meters, emission measurement equipment and
flow meter calibration. In February 1998, it acquired Acton Research Corporation
which manufactures and markets high-end spectrographic systems and optical
equipment. In March 1998, the Company acquired Photometrics, Ltd., a Delaware
corporation ("Photometrics") manufacturing and selling scientific-grade digital
cameras and detectors based in Tucson, Arizona, and which subsequently was
combined with the Company's Princeton Instruments, Inc. ("Princeton" or
"Princeton Instruments") unit to form Roper Scientific, Inc ("Roper
Scientific"). As a result of the integration of Photometrics and Princeton,
Roper Scientific now offers customers a wide variety of digital imaging
solutions. Finally, in April 1998, the Company's Metrix unit acquired all of the
assets of Natick, Massachusetts-based PMC/Beta Limited Partnership, another
manufacturer of vibration sensing and control equipment.
The four acquisitions completed during fiscal 1998 represented a combined
investment of $64.3 million in cash and common stock. The Company completed its
most recent nine acquisitions in just over two years. These acquisitions have
been financed principally from borrowings. The Company, whose debt under its
primary credit facility was $119 million at October 31, 1998 and $98 million at
October 31, 1997 (37% and 35% of total capitalization, respectively), believes
it is well positioned for additional acquisitions.
INTERNATIONAL SALES. Sales outside the United States continue to play an
important part in the Company's overall operating results, including the
U.S.-based businesses. In fiscal 1998, 1997 and 1996, the Company's net sales
outside the U.S. were 50%, 46% and 48%, respectively, of total net sales.
International sales increased as a percentage of total sales in fiscal 1998,
primarily as a result of a higher level of sales to RAO Gazprom ("Gazprom"), a
Russian energy company. Excluding sales to Gazprom, net
1
sales outside the U.S. were 44%, 44% and 43% of the remaining total sales in
fiscal 1998, 1997 and 1996, respectively. Information regarding international
operations is set forth in Note 13 of the Notes to the Company's Consolidated
Financial Statements included elsewhere in this Annual Report.
RESEARCH AND DEVELOPMENT. The Company conducts applied research and development
to improve the quality and performance of its products, to develop new products
and to enter new markets. Research and development performed by the Company
often includes extensive field testing of its products. The Company spent
approximately $18.0 million, $14.2 million and $8.7 million in the years ended
October 31, 1998, 1997 and 1996, respectively, on research and development
activities.
INDUSTRIAL CONTROLS SEGMENT
The Industrial Controls segment's products are manufactured and distributed by
Amot Controls Corporation, Richmond, California ("Amot U.S.") and its U.K.
affiliated division of Roper Industries Limited, Bury St. Edmunds, England
("Amot U.K."), which are collectively referred to as "Amot", Compressor Controls
Corporation, Des Moines, Iowa ("Compressor Controls"), Metrix Instrument Co.,
L.P., having divisions located in Houston, Texas and Natick, Massachusetts
("Metrix") and Petrotech, Inc., Belle Chasse, Louisiana ("Petrotech").
The Industrial Controls segment's net sales, operating profit (before
unallocated corporate administrative costs) and identifiable assets are set
forth in Note 13 of the Notes to the Company's Consolidated Financial Statements
included elsewhere in this Annual Report. This segment's principal sales and
services consist of: (i) rotating machinery control systems and panels, (ii)
industrial value, control and measurement products, (iii) vibration
instrumentation and (iv) design, build, construct and install services.
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 generation 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 generation, 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.
2
DESIGN, BUILD, CONSTRUCT AND INSTALL SERVICES. The Company provides specialized
technical services to the product markets described above and thus offers
turnkey solution capability to its customers. Services offered include
engineering design, procurement, packaging and site installation.
Those classes of products within the Industrial Controls segment that accounted
for at least 10% of the Company's consolidated net sales in any of the periods
presented below are as follows (in thousands):
Years Ended October 31,
-------------------------
1998 1997 1996
---- ---- ----
Rotating machinery control systems and panels $93,540 $59,078 $46,402
Industrial valve, control and measurement products 32,298 34,827 33,689
The following chart shows the breakdown of sales by market for fiscal 1998 for
the Industrial Controls segment:
[PIE CHART APPEARS HERE]
Oil & Gas Exploration 21%
General Industrial & Other 10%
Petrochemical 4%
Oil & Gas-Production 13%
Oil & Gas-Pipeline 42%
Power Generation 7%
Marine 3%
BACKLOG. The bulk of this segment's business consists of large engineered oil &
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 $39.0 million at October 31, 1998 compared to $43.6 million as of
October 31, 1997. The largest component of this decrease was due to delayed
shipments to Gazprom at October 31, 1997 that were shipped during the first
quarter of fiscal 1998.
DISTRIBUTION AND SALES. Distribution and sales occur through direct sales
offices, manufacturer's representatives and industrial machinery distributors.
3
CUSTOMERS. Each of the Company's business units sells to a variety of customers
worldwide. Gazprom was the largest single customer in this segment for the year,
contributing approximately 24% of segment sales and has indicated its desire to
continue purchases of control systems for several years. In fiscal 1998, sales
to Gazprom were 11% of the Company's consolidated net sales. However, this
business will continue to be subject to numerous commercial and political
uncertainties beyond the Company's control. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Outlook".
FLUID HANDLING SEGMENT
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" or "Fluid Metering"), FTI Flow
Technology, Inc., Phoenix, Arizona ("Flow Technology"), Integrated Designs L.P.,
Carrollton, Texas ("Integrated Designs") and Roper Pump Company, Commerce,
Georgia ("Roper Pump").
The Fluid Handling segment's net sales, operating profit (before unallocated
corporate administrative costs) and identifiable assets are set forth in Note 13
of the Notes to the Company's Consolidated Financial Statements included
elsewhere in this Annual Report. This segment's principal products consist of
(i) general industrial pumps, (ii) integrated dispense systems and (iii) flow
metering products.
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 directional drilling, (iii) centrifugal pumps which are 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 systems are used principally in the semiconductor industry to dispense
chemicals in a precise and repeatable fashion during 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, emissions
measurement equipment and flow meter calibration for the aerospace, automotive
and other industrial applications.
Those classes of products within the Fluid Handling segment that accounted for
at least 10% of the Company's consolidated net sales in any of the periods
presented below are as follows (in thousands):
4
Years ended October 31,
-------------------------
1998 1997 1996
---- ---- ----
General industrial pumps $72,095 $71,918 $58,451
Integrated dispense systems 16,343 22,257 27,643
The following chart shows the breakdown of Fluid Handling segment sales by
market for fiscal 1998:
[PIE CHART APPEARS HERE]
Transportation 5%
Semiconductor 16%
Oil & Gas 5%
Power Generation 7%
Municipal Waste Water Treatment 5%
Agriculture 8%
Medical 9%
Aerospace 3%
General Industrial & Other 42%
BACKLOG. The Fluid Handling companies' sales also reflect a combination of
standard products and specifically engineered, application-specific products.
Standard products are typically shipped within two weeks of receipt or order.
Application-specific products typically occur within six-to-twelve weeks
following receipt of order, although certain blanket purchase orders for certain
OEMs and other end-users may extend for longer periods. This segment's backlog
of firm unfilled orders, including blanket purchase orders, totaled $12.7
million at October 31, 1998 compared to $15.9 million as of October 31, 1997.
Most of the decrease in backlog was attributed to Integrated Designs where
backlog was down 89% due to difficult market conditions in the semiconductor
equipment industry.
DISTRIBUTION AND SALES. Distribution and sales occur through direct sales
personnel, manufacturer's representatives and stocking and non-stocking
distributors.
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
5
U.S.-based semiconductor manufacturers, with a majority of sales concentrated
among a few customers. Approximately 56% of Integrated Designs' fiscal 1998
sales were attributable to three customers who were the only customers
representing over 10% of its annual sales. Fluid Metering has one OEM customer
that was responsible for 40% of its fiscal 1998 net sales. This OEM customer's
contribution to Fluid Metering's sales is customary and it is expected to
continue as Fluid Metering's dominant customer. Fluid Metering is developing
additional OEM relationships which is diminishing its dependence on future
business from this customer.
ANALYTICAL INSTRUMENTATION SEGMENT
The Analytical Instrumentation segment's products are manufactured and
distributed by Acton Research Corporation, Acton, Massachusetts ("Acton" or
"Acton Research"), Gatan, Inc., Pleasanton, California ("Gatan"),
Instrumentation Scientifique de Laboratoire, S.A., Verson, France ("ISL"),
Molecular Imaging Corporation, Tempe, Arizona ("Molecular Imaging"), Roper
Scientific, having operations in Tucson, Arizona and Trenton, New Jersey and
Uson L.P., Houston, Texas ("Uson").
The Analytical Instrumentation segment's net sales, operating profit (before
unallocated corporate administrative costs) and associated identifiable assets
are set forth in Note 13 of the Notes to the Company's Consolidated Financial
Statements included elsewhere in this Annual Report. This segment's principal
products consist of (i) digital imaging products, (ii) industrial testing and
analysis products, (iii) microscopy specimen preparation/handling products and
(iv) spectroscopy products.
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.
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.
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 science end-user markets.
SPECTROSCOPY PRODUCTS. The Company manufactures and sells spectrometers,
monochrometers and optical components and coatings for various high-end
analytical applications. These products are often incorporated into OEM
equipment for use within the research and material science end-user markets.
The only class of products within the Analytical Instrumentation segment that
accounted for at least 10% of the Company's consolidated net sales in any of the
periods presented below is as follows (in thousands):
6
Years ended October 31,
-----------------------------
1998 1997 1996
---- ---- ----
Digital imaging products $65,576 $37,181 $7,410
The following chart shows the breakdown of Analytical Instrumentation segment
sales by market for fiscal 1998:
[PIE CHART APPEARS HERE]
Semiconductor 12%
Oil & Gas 9%
Petrochemical 3%
Automotive 10%
General Industrial & Other 13%
Medical 5%
Research 48%
BACKLOG. The Analytical Instrumentation companies have lead times of up to
several months on many of their product sales, although standard products are
often shipped within four weeks of receipt of 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 $28.9 million at
October 31, 1998 compared to $23.1 million as of October 31, 1997. This year-
over-year increase is mostly attributable to the fiscal 1998 acquisitions of
Photometrics and Acton Research.
DISTRIBUTION AND SALES. Distribution and sales are achieved through a
combination of manufacturer's representatives, agents, distributors and direct
sales offices in both the U.S. and various leading industrial nations.
7
CUSTOMERS. Each of the companies in the Analytical Instrumentation segment sells
to a variety of customers worldwide, with certain major OEMs in the automotive,
medical diagnostics and microscopy industries having operations globally.
MATERIALS AND SUPPLIERS
Most materials and supplies used by the Company are believed to be readily
available from numerous sources and suppliers throughout the world. Some high-
performance components for digital imaging products have been in short supply
and the Company continuously investigates and identifies alternative sources
where possible. The Company believes that this condition equally affects its
competitors and, 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 performance, innovation and price.
PATENTS AND TRADEMARKS
The Company owns the rights under a number of patents and trademarks relating to
certain of 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 Compressor Controls, Integrated Designs, Gatan, and
Roper Scientific, in particular, have been planned and conducted in conjunction
with continuing patent strategies. Compressor Controls has been granted a series
of U.S. and associated foreign patents and a significant portion of fiscal 1998
sales of Compressor Controls-manufactured products was of equipment which
incorporated innovations that are the subject of several such patents which will
not begin to expire until 2004.
8
Integrated Designs was granted a U.S. patent in 1994 related to methods and
apparatus claims embodied in its integrated dispense systems which accounted for
the majority of its fiscal 1998 sales. The U.S. patent will expire in 2011.
While patents, trademarks and tradenames are considered important to the
Company's operations, the Company does not believe it is dependent on any single
patent or trademark or group of patents or trademarks.
EMPLOYEES
As of December 31, 1998, the Company had approximately 2,100 total employees, of
whom approximately 1,800 were located in the U.S.
Amot U.S.'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.
9
ITEM 2. PROPERTIES
The Company'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
Gatan, whose manufacturing facility is near Pittsburgh, Pennsylvania. The
Company has established sales and service locations around the world to support
its operating units. The principal operating company properties are as follows:
SQUARE FOOTAGE
TYPE OF --------------
LOCATION PROPERTY OWNED LEASED INDUSTRY SEGMENT
-------- -------- ----- ------ ----------------
Phoenix, AZ Office/Mfg. - 32,100 Fluid Handling
Tucson, AZ Office/Mfg. - 37,000 Analytical Instrumentation
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
Acton, MA Office/Mfg. - 32,500 Analytical Instrumentation
Trenton, NJ Office/Mfg. 38,000 - Analytical Instrumentation
Syosset, NY Office/Mfg. - 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, UK Office/Mfg. 77,000 - Industrial Controls
------- -------
Totals 422,600 352,400
======= =======
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 1998.
10
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 trades on the
New York Stock Exchange ("NYSE") under the symbol "ROP". Following is the range
of high and low sales prices for the Company's common stock as reported by the
NYSE during each of the Company's fiscal 1998 and 1997 quarters, as adjusted for
an August 1997 2-for-1 stock split. The last sales price reported by the NYSE
on December 31, 1998, was $20.375.
HIGH LOW
---- ---
1998 4TH QUARTER $23.250 $13.313
3RD QUARTER 34.063 20.000
2ND QUARTER 33.500 25.750
1ST QUARTER 31.000 24.438
1997 4th Quarter 21.938 18.563
3rd Quarter 23.063 19.750
2nd Quarter 28.750 20.188
1st Quarter 34.875 25.500
Based on information available to the Company and its transfer agent, the
Company believes that as of December 31, 1998 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 the
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, to $.06 per share in the 1997 fourth
quarter and to $.065 per share in the 1999 first quarter ending January 31,
1999. 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. A portion of the Company's purchase
price for Acton Research was paid by the issuance of 75,000 unregistered shares
of Roper common stock at an agreed value of $1,936,000. 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 agreement provided that the value
of the restricted shares paid was to be determined by the average of the per
share closing
11
prices of Roper's common stock reported by the NYSE for each of several days
before and after the closing date.
12
ITEM 6. SELECTED FINANCIAL INFORMATION
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 the Annual
Report. All share data have been restated to reflect the 2-for-1 stock split in
August 1997.
Year ended October 31,
--------------------------------------------------------------------------------
1998 /(1)/ 1997 /(2)/ 1996 /(3)/ 1995 /(4)/ 1994
-------------- -------------- -------------- --------------- --------------
(Dollars in thousands except per share data)
Operations data:
Net sales $ 389,170 $ 298,236 $ 225,651 $ 175,421 $ 147,683
Gross profit 190,953 153,389 115,924 93,803 78,384
Income from operations 66,092 60,870 47,272 37,411 32,930
Earnings before accounting
changes 39,316 36,350 28,857 23,271 20,862
Accounting changes /(5)/ - - - - (720)
Net earnings applicable to
common shares $ 39,316 $ 36,350 $ 28,857 $ 23,271 $ 20,142
============== ============== ============== =============== ==============
Per share data:
Net earnings applicable to
common shares:
Basic $ 1.27 $ 1.19 $ 0.96 $ 0.78 $ 0.68
Diluted 1.24 1.16 0.93 0.77 0.67
Dividends 0.240 0.195 0.158 0.113 0.070
Balance sheet data:
Working capital $ 82,274 $ 86,954 $ 45,007 $ 38,077 $ 32,406
Total assets 381,533 329,320 242,953 155,381 121,982
Long-term debt, less current portion 120,307 99,638 63,373 20,150 16,683
Stockholders' equity 197,033 177,869 137,396 105,595 82,864
(1) Reflects inclusion of Princeton, Petrotech and IDS for the full year as
compared to only part of 1997 and the inclusion of Flow Technology, Acton,
Photometrics and PMC/Beta for part of 1998.
(2) Reflects inclusion of Gatan and FMI for the full year as compared to five
months in the prior year; and inclusion of Princeton (5 1/2 months),
Petrotech (5 months) and IDS (balance sheet only) in 1997.
(3) Reflects inclusion of Uson for the full year a compared to eight months in
the prior year; inclusion of Metrix for the full year as compared to one
month in the prior year; and inclusion of Gatan and FMI for five months in
1996.
(4) 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.
(5) Cumulative effect of adopting SFAS No. 106 and No. 109.
13
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.
RESULTS OF OPERATIONS
GENERAL
The following table sets forth selected information for the years indicated.
Amounts are dollars in thousands and percentages are of net sales.
YEAR ENDED OCTOBER 31,
-----------------------------------
1998 1997 1996
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 50.9 48.6 48.6
------ ----- ------
Gross profit 49.1 51.4 51.4
Selling, general and administrative expenses 32.1 31.0 30.5
------ ----- ------
Income from operations 17.0 20.4 20.9
Interest expense 2.0 2.0 1.4
Other income 0.3 0.1 0.1
------ ----- ------
Earnings before income taxes 15.3 18.5 19.6
Income taxes 5.2 6.3 6.8
------ ----- ------
Net earnings 10.1% 12.2% 12.8%
====== ===== ======
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
1998 1997 1996
---------------- --------------- ----------------
$ % $ % $ %
-------- ------ ------- ----- ------ -------
INDUSTRIAL CONTROLS:/(1)/
Net sales 177,258 123,129 98,197
Gross profit 84,386 47.6 61,756 50.2 52,468 53.4
Operating profit/(2)/ 31,458 17.7 22,402 18.2 21,075 21.5
FLUID HANDLING:/(3)/
Net sales 99,471 94,175 86,094
Gross profit 45,160 45.4 43,213 45.9 38,686 44.9
Operating profit/(2)/ 24,125 24.3 25,853 27.5 24,026 27.9
ANALYTICAL INSTRUMENTATION:/(4)/
Net sales 112,441 80,932 41,360
Gross profit 61,407 54.6 48,420 59.8 24,770 59.9
Operating profit/(2)/ 16,417 14.6 18,292 22.6 6,377 15.4
/(1)/ Includes results of Petrotech from June 1, 1997 and PMC/Beta from May 1,
1998.
/(2)/ Operating profit excludes unallocated corporate administrative costs.
Such costs were $5,908, $5,677 and $4,206 for the years ended October 31,
1998, 1997 and 1996, respectively.
/(3)/ Includes results of Fluid Metering from May 23, 1996 and Flow Technology
from December 1, 1997.
/(4)/ Includes results of Gatan from June 1, 1996, Princeton from May 17, 1997,
IDS from November 1, 1997, Acton from March 1, 1998 and Photometrics from
April 1, 1998.
14
YEAR ENDED OCTOBER 31, 1998 COMPARED TO YEAR ENDED OCTOBER 31, 1997
Net sales for fiscal 1998 of $389.2 million represented the sixth consecutive
year that the Company has established a record high. The Company's core sales
(excludes sales to Gazprom) increased 23% for the year ended October 31, 1998
compared to the year ended October 31, 1997. Total Industrial Controls sales
increased 44% due mostly to the full year results from the May 1997 acquisition
of Petrotech and increased sales to Gazprom. Sales to Gazprom were $41.9 million
for the year ended October 31, 1998 as Gazprom entered into a financing
agreement to stabilize this business. This compared to $14.7 million in sales
during fiscal 1997. Fluid Handling sales increased 6% because of the December
1997 acquisition of Flow Technology which more than offset sales declines
related to this segment's oil & gas, power generation and semiconductor capital
equipment markets. Analytical Instrumentation sales increased 39% largely
because of the full year or partial year results of four recent acquisitions.
Changes in overall gross profit derived mainly from the impact of the recently
acquired companies and increased sales to Gazprom. The gross profit percentage
for the Industrial Controls segment in fiscal 1998 compared to fiscal 1997 was
adversely affected by Petrotech, which was acquired in May 1997 and historically
experiences lower returns than the segment's other units. Excluding Petrotech,
Industrial Controls' gross profit percentage would have been 56.5% compared to
57.2% for fiscal 1997. Most of the other decline stemmed from lower margins at
Compressor Controls as a result of lower margins on Gazprom business from
increased engineering and procurement services in fiscal 1998. The decline in
Fluid Handling's gross profit percentage was not significant despite some
difficult market conditions affecting several of this segment's units that more
than offset strong results from Flow Technology. The gross profit percentage
for Analytical Instrumentation decreased primarily because of results of Acton,
Photometrics and Princeton, which reported combined gross profit of 44.4%.
Photometrics and Princeton were merged into a single company named Roper
Scientific. Analytical Instrumentation's gross profit was also adversely
affected by about 2% on an inventory write-down at Roper Scientific that was
identified upon implementation of better business systems. Petrotech had the
greatest effect causing the decrease in Roper's overall gross profit percentages
in 1998 compared to 1997. Other large factors were the lower margins at
Compressor Controls and the inventory write-down at Roper Scientific.
Selling, general and administrative ("SG&A") expenses increased 35% for the year
ended October 31, 1998 compared to the year ended October 31, 1997, primarily
because of the expenses associated with the recent acquisitions. As a
percentage of sales, SG&A expenses were 32.1% for fiscal 1998 compared to 31.0%
for fiscal 1997. This increase resulted largely from additional reserves
recorded during the fourth quarter of fiscal 1998 in response to a further
deterioration of economic conditions in Russia and the region that cast doubt on
the collectibility of certain accounts receivable related to sales in 1996.
Interest expense increased $1.8 million for the year ended October 31, 1998
compared to the year ended October 31, 1997 principally because of higher debt
levels resulting from the acquisition of seven companies since the beginning of
fiscal 1997. Interest rates were slightly lower in fiscal 1998 compared to
fiscal 1997 primarily because of more favorable terms negotiated into the
NationsBank agreement in May 1997. LIBOR rates became lower late in fiscal
1998, but the effects on fiscal 1998 results were not significant.
15
The effective tax rate was 34.1% for fiscal 1998 compared to 34.0% for fiscal
1997. There were also no significant differences between years in the
reconciling items between the statutory rate and the effective rate for these
years.
Sales order bookings were $382.3 million during the year ended October 31, 1998
compared to $297.6 million for the year ended October 31, 1997, an increase of
28%. On a pro forma basis, to include acquisitions for similar periods in the
prior year, bookings were 4% higher this year compared to last year. Industrial
Controls' bookings were up 40% (20% on a pro forma basis) because of Petrotech,
which booked a large project, and Compressor Controls, because of increased
business with Gazprom following Gazprom establishing new financing arrangements
early in the year. Fluid Handling's bookings were up 2% (down 8% on a pro forma
basis) compared to fiscal 1997. The acquisition of Flow Technology offset 46%
lower bookings at Integrated Designs caused by the depressed business conditions
in the semiconductor capital equipment industry. Bookings within Analytical
Instrumentation increased 42% (down 6% on a pro forma basis). Whereas the
increase resulted from acquisitions, the pro forma decrease reflected weak
business conditions for all of the companies in this segment.
Sales order backlog was $80.7 million at October 31, 1998 compared to $82.6
million at October 31, 1997. On a pro forma basis, backlog was 13% lower than
last year. Pro forma backlog at Industrial Controls was down 11% despite a
significant increase at Petrotech that resulted from increased bookings
discussed above. Backlog related to Russia-region shipments was down $8.5
million compared to last year, largely because of delayed shipments at October
31, 1997 that were shipped during the first quarter of fiscal 1998. Excluding
the Russia-region decrease in backlog, actual and pro forma backlog at
Industrial Controls was up 12% and 11% at October 31, 1998 compared to October
31, 1997, respectively. Fluid Handling's pro forma backlog was 32% lower at the
end of fiscal 1998 compared to fiscal 1997 largely because of an 89% decline in
the backlog at Integrated Designs. Pro forma backlog was 6% lower at Analytical
Instrumentation due to the lower level of bookings.
YEAR ENDED OCTOBER 31, 1997 COMPARED TO YEAR ENDED OCTOBER 31, 1996
Net sales for 1997 of $298.2 million represented the fifth consecutive year that
the Company established a record high. Sales were $225.7 million in 1996. The
increased sales during 1997 derived mostly from the inclusion of the results of
Gatan and Fluid Metering 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
were approximately the same as 1996.
Metrix and Uson each had very strong sales growth in 1997 (in excess of 20%)
primarily because of increased volume. Integrated Designs reported decreased
sales of about 20% because of continued adverse conditions affecting the
cyclical semiconductor equipment industry. Integrated Design's sales during
fiscal 1997 continued 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
16
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. Compressor
Controls also reported lower sales (about 4%) in 1997 compared to 1996.
Compressor Controls had significant sales to its primary customers in the CIS,
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 because of the inclusion of Petrotech for the last five months
of 1997. The increased sales at Metrix was largely offset by a sales decline at
Compressor Controls, 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 because of the
inclusion of Fluid Metering 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 because of 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, Fluid Metering, 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, Compressor Controls' gross profit
improved on a favorable product mix and certain cost reduction efforts.
Industrial Controls gross profit increased (up $9.3 million, or 18%) mostly
because of the inclusion of Petrotech ($5.8 million) for the last five months of
1997. Gross profit also increased at Compressor Controls ($2.6 million) as
discussed previously. Fluid Handling gross profit increased (up $4.5 million,
or 12%) largely as a result of including Fluid Metering for a full year compared
to only part of 1996. Analytical Instrumentation gross profit increased (up
$23.6 million, or 95%) because of 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 equaled that of 1996 (51.4%),
despite the increased profitability mentioned earlier. This was attributable 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 was mainly from the
product mix and cost improvements at Compressor Controls, whose gross margin
percentage was 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
because of the improvements at Compressor Controls. Gross profit percentages in
1997 for the Fluid Handling and Analytical Instrumentation segments were each
within about 1% of the amounts reported in 1996. Other than Compressor
Controls, the gross profit percentages
17
reported by each of the Company's operating units were considered relatively
comparable between 1997 and 1996 (within 5%).
SG&A expenses increased $23.9 million, or 34.8%, during 1997 compared to 1996.
Most of the increase ($18.4 million) stemmed from the additional costs
associated with those companies acquired during the past two years. Compressor
Controls also reported additional costs of $5.5 million, largely the result of
efforts over the past eighteen months to increase the infrastructure supporting
the anticipated increased business with Gazprom and other opportunities in the
area.
SG&A expenses for Industrial Controls increased (up $8.0 million, or 25%) mainly
because of the additional costs reported at Compressor Controls and the
inclusion of Petrotech ($2.9 million). SG&A expenses for Fluid Handling
increased (up $2.7 million, or 18%) mostly because of the full year vs. partial
effects of Fluid Metering ($2.0 million). SG&A expenses for Analytical
Instrumentation increased (up $11.7 million, or 64%) as a result of 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 attributable 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 was derived from 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 accounted for $4.2 million
of the increase. Other R&D spending increases reflected 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 because of
the full-year effect of the additional borrowings used to finance most of the
acquisition costs of Gatan and Fluid Metering (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 on export sales. The recently acquired Gatan,
Princeton and Petrotech all had significant export sales.
Net earnings were $36.4 million, or $1.16 per common share (diluted), in 1997
compared to $28.9 million, or $0.93 per common share (diluted), 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), mainly because of 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, reflecting strength in the Industrial Controls
segment (up 8%, mostly at Amot and Metrix). Fluid Handling and Analytical
18
Instrumentation each reported slightly lower bookings in 1997 for those
companies included in all of both 1997 and 1996 (no individual company changed
more than 10%). On a pro forma basis including Gatan and Fluid Metering bookings
since November 1, 1995 and Princeton and Petrotech bookings since the date in
1996 comparable to their acquisition date in 1997, bookings were 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) represented 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 was 5% greater than 1996.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
OCTOBER 31, 1998 COMPARED TO OCTOBER 31, 1997
Working capital was reduced to $82.3 million at October 31, 1998 compared to
$87.0 million at October 31, 1997. Decreased working capital combined with
increased sales was representative of the Company's efforts to maximize cash
flow opportunities. The Company utilizes a $200 million credit agreement with a
syndicate of banks to provide most of its external financing requirements.
Total debt was $126.1 million at October 31, 1998 compared to $102.1 million at
October 31, 1997. The debt to total capitalization ratio increased to 39.0% at
October 31, 1998 from 36.5% at October 31, 1997.
Since October 31, 1997, the Company's cash costs for acquisitions have been $0.3
million for IDS, $10.0 million for Flow Technology, $9.3 million for Acton,
$36.4 million for Photometrics and $6.6 million for PMC/Beta. The acquisition
of Acton also included the issuance of Roper common stock with an assigned value
of $1.9 million.
The assets and liabilities of these companies at their respective acquisition
dates also accounted for many of the changes in the Company's financial
condition components between October 31, 1998 and October 31, 1997 as
illustrated in the following table (in thousands):
Acquired Other
10/31/97 Companies Activity 10/31/98
--------- --------- -------- ---------
Accounts receivable $ 78,752 $ 6,848 $ (8,601) $ 76,999
Inventories 50,199 7,362 (6,117) 51,444
Other current assets 2,290 1,533 (1,764) 2,059
Property and equipment 31,395 1,063 (553) 31,905
Intangible assets 154,255 50,842 (7,918) 197,179
Other noncurrent assets 11,780 2,107 (1,290) 12,597
Accounts payable (15,654) (2,497) (2,900) (21,051)
Accrued liabilities (25,231) (2,646) (2,038) (29,915)
Income taxes payable (1,564) - 701 (863)
Other noncurrent liabilities (6,877) - 262 (6,615)
19
The decrease in accounts receivable was mostly due to a reduction of
approximately $6.3 million in net receivables from Compressor Controls customers
in its CIS/Eastern Europe region. This reduction was mostly due to additional
reserves recorded in the fourth quarter in response to deteriorated economic
conditions in Russia as discussed previously. Other large reductions in accounts
receivable stemmed from a 68% decline in fourth quarter sales at Integrated
Designs and a 35% reduction in accounts receivable balances at Petrotech as a
result of improved collection procedures.
The decrease in inventories was also mostly at Compressor Controls where there
was a buildup of inventory at October 31, 1997 in anticipation of sales to
Gazprom that did not occur until the first quarter of fiscal 1998. Petrotech's
inventories were higher at October 31, 1998 than last year by $2.3 million
because of progress on a large project and Roper Scientific's inventories
(excluding the acquisition of Photometrics) were down due to an adjustment that
is the subject of an ongoing investigation possibly involving improper
activities, and because of other improvements in operating practices.
The decrease in intangible assets was from the periodic amortization of
goodwill.
During fiscal 1998, Gazprom put in place a long-term financing for its purchase
of turbomachinery controls sourced from the Company's Compressor Controls unit.
This financing has facilitated a more consistent supply of product to Gazprom.
This financing arrangement is expected to be available over the next several
years for additional turbomachinery controls purchases. However, given unstable
political and economic conditions in Russia, the Company's future shipments to
Gazprom will continue to be subject to these political, economic and other
uncertainties, which could adversely affect the timing and amount of future
shipments and cannot be assured.
In August 1998, the Company's Board of Directors authorized the purchase of up
to 5% of the Company's outstanding common stock over a twelve- month period.
These purchases can be either on the open market or through privately negotiated
transactions. Prior to October 31, 1998, the Company purchased approximately
964,000 shares of its common stock (about 3% of total outstanding shares) for
$18.0 million. Authorization still exists to complete the stock buy-back
program. However, future purchases will be dependent upon market conditions and
other factors deemed relevant and cannot be assured.
The Company's capital expenditures requirements are modest for an industrial
products company and were $5.5 million for the year ended October 31, 1998. The
Company does not believe there will be a change in the order of magnitude of
capital expenditure requirements in fiscal 1999.
The management team of one of the Company's smallest indirect subsidiaries holds
a minority interest in that company under an existing agreement whereby the
minority interest will be purchased by its parent based on a multiple of
operating income in fiscal 1999. This subsidiary will then become indirectly
wholly-owned by the Company. This transaction is to occur early in FY2000 and
is estimated to be about $1.1 million.
20
In November 1998, the Company's Board of Directors increased the quarterly cash
dividend paid on its outstanding common stock from $0.06 per share to $0.065 per
share. This represents the sixth consecutive year in which the quarterly
dividend has been increased.
The Company believes that internally generated cash flows and the remaining
unused credit under its NationsBank agreement will be adequate to finance
additional authorized common stock purchases, normal operating requirements and
further acquisition activities. Although the Company maintains an active
acquisition program, any further acquisitions will be dependent on numerous
factors and it is not feasible to reasonably estimate if or when any such
acquisitions will occur and what the impact will be on the Company's activities,
financial condition and results of operations.
The Company anticipates that the newly acquired companies as well as the
existing companies will generate positive cash flows from operating activities,
and that these cash flows will permit the reduction of currently outstanding
debt at a pace consistent with that which the Company generally has experienced.
However, the rate at which the Company can reduce its debt during fiscal 1999
(and reduce the associated interest expense) will be affected by, among other
things, the financing and operating requirements of any new acquisitions,
additional purchases of the Company's outstanding common stock under the buy-
back program and the financial performance of its existing companies and cannot
be predicted with certainty.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") 130 - Reporting Comprehensive Income, SFAS 131 -
Disclosures about Segments of an Enterprise and Related Information, SFAS 132 -
Employers' Disclosures about Pensions and Other Postretirement Benefits and SFAS
133 - Accounting for Derivative Instruments and Hedging Activities that will be
applicable to the Company in fiscal 1999 or fiscal 2000. Once adopted, none of
these standards is expected to affect its financial position, operating results
or disclosures significantly. See Note 1 to the Company's Consolidated
Financial Statements for further discussion of these specific new
pronouncements.
YEAR 2000 ISSUES
Many data processing applications identify a year using its last two digits and
assume the first two digits are 19. After December 31, 1999 when the first two
digits of a year become 20, there is uncertainty regarding how these
applications will interpret the current date and the inability to interpret the
date correctly might disrupt the effectiveness of the data processing
applications. Such disruptions might disrupt normal business operations. These
issues are commonly known as "Y2K" issues.
The Company believes it has taken reasonable steps to instigate a process that
should ensure that its operations are not going to be materially affected by Y2K
issues that affect the functionality of its products or processes. The Company
has identified some products and processes that need to be modified and such
changes are planned to be implemented well in advance of January 1, 2000. In
general, the Company has very few products that are date sensitive and most of
these products do not rely on the date for their performance.
21
Some of the Company's subsidiaries are or had been using data information
systems that would not properly address Y2K issues. Some of the changes
necessary to address these issues have already been made and remaining changes
are planned to be implemented before January 1, 2000. Total prior and future
costs, including capital expenditures, are expected to be less than $3 million,
most of which has already been incurred.
The Company does not utilize any material interdependent computer systems,
either between its subsidiaries or between the Company and its suppliers or
customers.
The Company believes that its most reasonably likely worst-case scenario with
Y2K issues involves a disruption at a direct vendor or one of the vendor's
vendors that reduces the availability of components to the Company's products.
No individual product accounts for a significant amount of the Company's
revenues and the Company believes it could find alternative sources for such
components that might become unavailable from historical sources. Each of the
Company's subsidiaries has been undergoing a process of contacting their vendors
to assess their preparedness for Y2K issues. It's also possible that Y2K issues
affecting the Company's customers could cause them to delay or cancel their
orders for the Company's products. The Company is continuing to assess
potential material disruption from Y2K issues that might disrupt our customers
businesses. Due to the diversity of the Company's customer base, the Company
does not believe that any disruption of its business by a single customer due to
its problems with Y2K issues would materially affect its business as a whole.
The Company cautions that it's not possible to know the full impacts of what
might happen when the events triggering Y2K issues actually occur and the impact
on the Company could be significantly worse than the worst-case scenario the
Company believes reasonably likely to occur.
MARKET RISKS
At October 31, 1998, the Company's interest rate swap agreements represented a
potential liability of $2.6 million, or about 1% of net assets. For every
interest rate movement of 10 basis points higher or lower at October 31, 1998,
the value attributed to the swap agreements would have been lower or higher by
about $570,000. Upon adoption of SFAS 133, the value attributed to the swap
agreements will be reflected in the financial position of the Company and
changes in this valuation will mostly be reflected as a component of other
comprehensive income. The swap agreements are intended to reduce the volatility
of interest payments related to its long-term borrowings. See Note 1 to the
Company's Consolidated Financial Statements.
The Company's fiscal 1998 sales denominated in a currency other than U.S.
dollars (mostly western Europe and Japan) were less than 25% of total sales and
net assets maintained in a functional currency other than U.S. dollars (mostly
France and the U.K.) at October 31, 998 were less than 10% of total net assets.
The effects of changes in foreign currency exchange rates has not historically
been significant to the Company's operations or net assets.
22
OUTLOOK
With the unusually high level of shipments made to Gazprom in the first quarter
of fiscal 1998, the Company expects first quarter earnings in fiscal 1999 to be
less than that reported for the first quarter of fiscal 1998. For the entire
year, the Company expects fiscal 1999 to be its seventh consecutive year of
record sales and earnings. However, several of the markets for the Company's
products and services (oil & gas, power generation and semiconductor capital
equipment) are currently experiencing a softness in demand and the impact on
results for fiscal 1999 is uncertain.
The Company expects to continue an active acquisition program. However,
completion of future acquisitions and their impact on the Company's results or
financial condition cannot be accurately predicted.
FORWARD LOOKING INFORMATION
The information provided elsewhere in this Annual Report, in other Company
filings with the Securities and Exchange Commission, and in other press releases
and 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 Gazprom and other Eastern European
customers, changes in interest rates, Y2K effects and the future operating
results of the newly acquired companies. 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.
23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Market Risks."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item
begin at page F-1 hereof.
24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be included under the captions
"BOARD OF DIRECTORS AND EXECUTIVE OFFICERS - Proposal 1: Election of Three (3)
Directors" and "--Executive Officers", and "VOTING SECURITIES -- Compliance with
Section 16 (a) of the Securities and Exchange Act of 1934" in the Company's
definitive Proxy Statement which relates to the 1999 Annual Meeting of
Stockholders of the Company to be held on February 26, 1999 (the "Proxy
Statement"), to be filed within 120 days after the close of the Company's 1998
fiscal year, which information is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information to be 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 "-- 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 captions "VOTING
SECURITIES" 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 to be included under the captions
"BOARD OF DIRECTORS AND EXECUTIVE OFFICERS -- Related Transactions" in the Proxy
Statement, which information is incorporated herein by this reference.
25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The Consolidated Financial Statements listed in Item 8 of Part II
are filed as a part of this Annual Report.
(a)(2) 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, 1998, 1997 and 1996.
(b). Reports on Form 8-K
-------------------
The Company did not file any Current Reports on Form 8-K during the
fourth quarter of fiscal 1998.
(c). Exhibits
--------
The following exhibits are separately filed with this Annual Report.
Exhibit No. Description of Exhibit
- ----------- -----------------------
*2.1 Agreement and Plan of Reorganization (Photometrics, Ltd.)
**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.
*****4.03 Amendment Agreement No. 1 to Amended and Restated Credit
Agreement.
***** 4.04 Amendment Agreement No. 2 to Amended and Restated Credit
Agreement.
4.05 Amendment Agreement No. 3 to Amended and Restated Credit
Agreement.
26
******10.01 Lease of Milwaukee, Oregon facility.
**10.02 1991 Stock Option Plan, as amended. +
10.03 Non-employee Director Stock Option Plan, as amended. +
******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 LLP.
27 Financial Data Schedule.
================================================================================
* Incorporated herein by reference to Exhibit 2 to the Roper Industries,
Inc. Current Report on Form 8-K filed April 15, 1998.
** Incorporated herein by reference to Exhibits 3.1, 10.2, 10.5 and 10.6 to
the Roper Industries, Inc. Annual Report on Form 10-K filed January 21,
1998.
*** Incorporated herein by reference to Exhibits 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 January 18, 1996.
***** Incorporated herein by reference to Exhibits 4.03 and 4.04 to Roper
Industries, Inc.'s Quarterly Report on Form 10-Q filed August 21, 1998.
****** 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 January 25, 1996.
+ Management contract or compensatory plan or agreement.
27
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, therewith duly authorized.
ROPER INDUSTRIES, INC.
(COMPANY)
By /s/ DERRICK N. KEY January 8, 1999
--------------------------------------
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 8, 1999
- --------------------------------
Derrick N. Key and Chief Executive Officer
/s/ MARTIN S. HEADLEY Vice President and January 8, 1999
- --------------------------------
Martin S. Headley Chief Financial Officer
/s/ KEVIN G. McHUGH Controller January 8, 1999
- --------------------------------
Kevin G. McHugh
/s/ W. LAWRENCE BANKS Director January 8, 1999
- --------------------------------
W. Lawrence Banks
/s/ LUITPOLD VON BRAUN Director January 8, 1999
- --------------------------------
Luitpold von Braun
/s/ DONALD G. CALDER Director January 8, 1999
- --------------------------------
Donald G. Calder
/s/ JOHN F. FORT, III Director January 8, 1999
- --------------------------------
John F. Fort, III
/s/ WILBUR J. PREZZANO Director January 8, 1999
- --------------------------------
Wilbur J. Prezzano
/s/ GEORG GRAF SCHALL-RIAUCOUR Director January 8, 1999
- --------------------------------
Georg Graf Schall-Riaucour
/s/ ERIBERTO R. SCOCIMARA Director January 8, 1999
- --------------------------------
Eriberto R. Scocimara
/s/ CHRISTOPHER WRIGHT Director January 8, 1999
- --------------------------------
Christopher Wright
28
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
PAGE
Consolidated Financial Statements:
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of October 31, 1998 and 1997................................................ F-3
Consolidated Statements of Earnings for the Years ended October 31, 1998, 1997 and 1996.................... F-4
Consolidated Statements of Stockholders' Equity for the Years ended October 31, 1998, 1997 and 1996........ F-5
Consolidated Statements of Cash Flows for the Years ended October 31, 1998, 1997 and 1996.................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
Supplementary Data:
Schedule II - Consolidated Valuation and Qualifying Accounts for the Years ended October 31, 1998,
1997 and 1996............................................................................................ S-1
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Roper Industries, Inc.:
We have audited the accompanying consolidated financial statements of Roper
Industries, Inc. and subsidiaries 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended October 31, 1998, 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.
KPMG LLP
Atlanta, Georgia
December 4, 1998
F-2
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1998 and 1997
(Dollar and share amounts in thousands, except per share data)
1998 1997
----------- ----------
Assets:
Cash and cash equivalents $ 9,350 $ 649
Accounts receivable, net 76,999 78,752
Inventories 51,444 50,199
Other current assets 2,059 2,290
----------- -----------
Total current assets 139,852 131,890
Property, plant and equipment, net 31,905 31,395
Intangible assets, net 197,179 154,255
Other assets 12,597 11,780
----------- -----------
Total assets $ 381,533 $ 329,320
=========== ===========
Liabilities and Stockholders' Equity:
Accounts payable $ 21,051 $ 15,654
Accrued liabilities 29,915 25,231
Income taxes payable 863 1,564
Current portion of long-term debt 5,749 2,487
----------- -----------
Total current liabilities 57,578 44,936
Long-term debt 120,307 99,638
Other liabilities 6,615 6,877
----------- -----------
Total liabilities 184,500 151,451
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value per share; 1,000 shares authorized;
none outstanding - -
Common stock, $.01 par value per share; 80,000 shares authorized;
31,307 issued and 30,343 outstanding at October 31, 1998 and
30,920 issued and outstanding at October 31, 1997 313 309
Additional paid-in capital 67,145 61,950
Cumulative translation adjustment (906) (937)
Retained earnings 148,435 116,547
Treasury stock, 964 shares at October 31, 1998 (17,954) -
----------- -----------
Total stockholders' equity 197,033 177,869
----------- -----------
Total liabilities and stockholders' equity $ 381,533 $ 329,320
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per share data)
1998 1997 1996
----------- ----------- --------
Net sales $ 389,170 $ 298,236 $ 225,651
Cost of sales 198,217 144,847 109,727
----------- ----------- -----------
Gross profit 190,953 153,389 115,924
Selling, general and administrative expenses 124,861 92,519 68,652
----------- ----------- -----------
Income from operations 66,092 60,870 47,272
Interest expense 7,856 6,048 3,282
Other income 1,380 278 250
----------- ----------- -----------
Earnings before income taxes 59,616 55,100 44,240
Income taxes 20,300 18,750 15,383
----------- ----------- -----------
Net earnings $ 39,316 $ 36,350 $ 28,857
=========== =========== ===========
Net earnings per common and common equivalent share:
Basic $ 1.27 $ 1.19 $ 0.96
=========== =========== ===========
Diluted $ 1.24 $ 1.16 $ 0.93
=========== =========== ===========
Weighted average common and common equivalent shares outstanding:
Basic 31,001 30,580 30,112
=========== =========== ===========
Diluted 31,717 31,458 30,882
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per share data)
Add'l. Cumulative
Common stock paid-in translation Retained Treasury
-------------------
Shares Amount capital adjustment earnings stock Total
------- -------- --------- ------------ ---------- -------- --------
Balances at October 31, 1995 29,876 $ 299 $ 42,594 $ 635 $ 62,067 $ - $105,595
Net earnings - - - - 28,857 - 28,857
Common stock issued for an
acquisition 248 2 5,698 - - - 5,700
Common stock issued under
incentive bonus plan 75 1 1,351 - - - 1,352
Exercise of stock options 124 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 30,323 303 50,742 177 86,174 - 137,396
Net earnings - - - - 36,350 - 36,350
Common shares issued for
acquisitions 416 4 8,708 - - - 8,712
Common stock issued under
incentive bonus plan 10 - 245 - - - 245
Exercise of stock options 171 2 2,255 - - - 2,257
Currency translation adjustments - - - (1,114) - - (1,114)
Cash dividends ($0.195 per share) - - - - (5,977) - (5,977)
-------- -------- --------- ------------ ---------- -------- --------
Balances at October 31, 1997 30,920 309 61,950 (937) 116,547 - 177,869
Net earnings - - - - 39,316 - 39,316
Common stock issued for an
acquisition 75 1 1,935 - - - 1,936
Exercise of stock options 312 3 3,260 - - - 3,263
Currency translation adjustments - - - 31 - - 31
Cash dividends ($0.24 per share) - - - - (7,428) - (7,428)
Treasury stock purchases (964) - - - - (17,954) (17,954)
-------- --------- --------- ------------ ---------- -------- --------
Balances at October 31, 1998 30,343 $ 313 $ 67,145 $ (906) $ 148,435 $(17,954) $197,033
======== ========= ========= ============ ========== ======== ========
See accompanying notes to consolidated financial statements.
F-5
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended October 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
----------- ----------- ---------
Cash flows from operating activities:
Net earnings $ 39,316 $ 36,350 $ 28,857
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization of property, plant
and equipment 6,106 5,367 4,140
Amortization of intangible assets 8,328 6,033 3,711
Changes in operating assets and liabilities:
Accounts receivable 10,084 (10,876) (7,470)
Inventories 5,615 2,303 (469)
Accounts payable and accrued liabilities 7,118 (2,357) 4,817
Income taxes payable (1,001) (1,585) (1,909)
Other, net 607 168 1,409
----------- ----------- ---------
Net cash provided by operating activities 76,173 35,403 33,086
----------- ----------- ---------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (62,676) (55,311) (74,878)
Capital expenditures (5,502) (4,984) (5,010)
Other, net (252) (163) 5
----------- ----------- ---------
Net cash used in investing activities (68,430) (60,458) (79,883)
----------- ----------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 60,896 94,845 101,456
Principal payments on long-term debt (37,522) (65,180) (51,979)
Cash dividends to stockholders (7,428) (5,977) (4,750)
Treasury stock purchases (17,954) - -
Proceeds from stock option exercises 3,263 1,762 1,100
Other, net (200) (116) (866)
----------- ----------- ---------
Net cash provided by financing activities 1,055 25,334 44,961
----------- ----------- ---------
Effect of exchange rate changes on cash (97) (53) (63)
----------- ----------- ---------
Net increase (decrease) in cash and cash equivalents 8,701 226 (1,899)
Cash and cash equivalents, beginning of year 649 423 2,322
----------- ----------- ---------
Cash and cash equivalents, end of year $ 9,350 $ 649 $ 423
=========== =========== =========
See accompanying notes to consolidated financial statements.
F-6
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per 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. Cash equivalents at October 31, 1998 totaled $5,697 and were
comprised of money market investments and overnight Eurodollar funds.
There were no similar cash equivalents at October 31, 1997.
Accounts Receivable - Accounts receivable are stated net of an allowance
-------------------
for doubtful accounts of $6,915 and $1,866 at October 31, 1998 and 1997,
respectively. Accounts receivable include $2,587 and $0 at October 31,
1998 and 1997, respectively, of unbilled receivables related to long-term
contracts.
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 16% and 17% of
consolidated inventories at October 31, 1998 and 1997, respectively.
One of the Company's subsidiaries had a decrement in its LIFO reserve
during 1998 and 1997. The impact of these decrements on the Company's
consolidated results of operations was immaterial for each of these
years.
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 most of the debt matures
within 30-90 days of incurrance and is renewed at current interest rates.
In February 1998 and April 1998, the Company entered into five-year
interest rate swap agreements for notional amounts of $50,000 and
$25,000, respectively. In both agreements, the Company pays a fixed
interest rate and the other party pays a variable interest rate. In June
1998, both of these agreements were amended to lower the Company's fixed
interest rate obligations in exchange for granting the other party an
option to extend the agreements for an additional five years. At October
31, 1998, the Company's weighted average fixed-rate obligation was 5.7%
and the applicable LIBOR rate was 5.2%. The Company accrues the effects
of the different interest rates as a charge or credit against current
earnings over the life of the agreements. The effects during the year
ended October 31, 1998 were not material.
F-7
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per share data)
The Company has estimated the fair value of these agreements at October
31, 1998 to be a liability of about $1,350 ($2,555 assuming the options
are exercised) that was not reflected in the Company's financial
statements. This value was determined by comparing the present value of
the fixed interest payments to the variable interest payments based on
the interest rates at October 31, 1998.
The carrying value of all other financial instruments approximates fair
value due to their short-term nature.
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
$22,954 and $14,402 at October 31, 1998 and 1997, respectively. The
Company accounts for goodwill in a purchase business combination as the
excess of the cost over the fair value of 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 the goodwill element 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, 1998 and 1997, management did not consider the
unamortized balances of goodwill or other intangible assets to be
impaired.
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, 1998, the accumulated undistributed earnings
totaled approximately $12,000. The amount of U.S. tax due if such
earnings were repatriated approximates $4,000 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 $18,000,
$14,200 and $8,700 for the years ended October 31, 1998, 1997 and 1996,
respectively.
Foreign Currency Translation - Assets and liabilities of foreign
----------------------------
subsidiaries whose functional currency is not the U.S. dollar 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.
Earnings Per Common and Common Equivalent Share - Basic earnings per
-----------------------------------------------
share was calculated using net earnings and the weighted average number
of shares of common stock outstanding during the respective year. Diluted
earnings per share was calculated using net earnings and the weighted
average number of shares of common stock and dilutive common stock
equivalents outstanding during the respective year. There were no
differences between net earnings and net earnings available for common
stockholders. Common stock equivalents consisted of stock options. The
effects of common stock equivalents was determined using the treasury
stock method.
F-8
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per share data)
For the years ended October 31, 1998, 1997 and 1996, there were 365, 0
and 201 options outstanding at the end of each year, respectively, that
were not included in the determination of diluted earnings per share
because doing so would have been antidilutive.
In financial reports issued prior to fiscal 1998, earnings per share were
expressed as either primary or fully diluted. Earnings per share amounts
for periods prior to fiscal 1998 have been restated to conform with
Statement of Financial Accounting Standards ("SFAS") No. 128 - Earnings
per Share, which was implemented at the beginning of fiscal 1998.
Stock Options - Stock-based compensation is measured at its fair value at
-------------
the grant date in accordance with a valuation model and SFAS 123 -
Accounting for Stock-Based Compensation provides that the related expense
may be recorded in the basic financial statements or the pro forma effect
on earnings may be disclosed in the financial statements. The Company has
elected to provide the pro forma disclosures.
Recently Released Accounting and Reporting Pronouncements -
---------------------------------------------------------
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 1999. 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.
SFAS No. 132 - Employers' Disclosures about Pensions and Other
Postretirement Benefits standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practible. SFAS
132 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.
SFAS No. 133 - Accounting for Derivative Instruments and Hedging
Activities establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires recognition of all
derivatives as either assets or liabilities in the statement of financial
position at their fair value. SFAS 133 is applicable to the Company
beginning with its first quarter of fiscal 2000. The impact of this
statement on the Company's statement of financial position is not
expected to be significant.
(2) Business Acquisitions
---------------------
Over the past three years, the following acquisitions have occurred, each
of which was accounted for using the purchase method of accounting. The
acquired assets and liabilities of the acquired entities were recorded at
their fair values and the results of operations were included in the
Company's consolidated results of operations beginning from the date
acquired. The excess of the acquisition cost over the fair value of the
net assets acquired is amortized using the straight-line method.
F-9
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per share data)
Acquisition costs
--------------------------------
Roper shares Goodwill
---------------------
Date Cash 000's Value Segment period
-------- --------- --------- ----------- ---------------------------- --------------
PMC/Beta 04/30/98 $ 6,600 - $ - Industrial Controls 20 years
Photometrics 03/31/98 36,400 - - Analytical Instrumentation 25 years
Acton 02/27/98 9,300 75 1,936 Analytical Instrumentation 15 years
Flow Technology 12/01/97 10,000 - - Fluid Handling 20 years
IDS 10/31/97 4,900 15 352 Analytical Instrumentation 15 years
Petrotech 05/30/97 14,900 262 5,720 Industrial Controls 15 years
Princeton 05/16/97 36,000 138 2,640 Analytical Instrumentation 30 years
Gatan 05/31/96 50,100 - - Analytical Instrumentation 30 years
Fluid Metering 05/22/96 25,000 248 4,767 Fluid Handling 30 years
PMC/Beta manufactures and markets vibration-monitoring equipment and
operates as a division of the Company's Metrix unit.
Photometrics is a leading manufacturer and marketer of extremely
sensitive cooled CCD cameras and detectors for primary and applied
research markets. Subsequent to the acquisition of Photometrics, it was
merged into Princeton and the combined company was renamed Roper
Scientific, Inc. ("Roper Scientific").
Acton manufactures and markets spectrometers, monochromators and optical
components and coatings for various high-end analytical applications.
Flow Technology manufactures and markets turbine flow meters, calibrators
and emissions measurement equipment for aerospace, automotive and
industrial markets.
IDS is a leading manufacturer of leak testing instrumentation primarily
for the medical and industrial supplies industry and operates as a
division of the Company's Uson unit.
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.
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.
Gatan is engaged in the business of manufacturing analytical systems and
products used in the operation of transmission and scanning electron
microscopes.
Fluid Metering designs, manufactures and markets low-flow, precision-
dispense pumps.
F-10
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per share data)
The following unaudited pro forma summary presents the Company's
consolidated results of operations as if the acquisitions during fiscal
1998 and 1997 had occurred at the beginning of fiscal 1997.
Years ended October 31,
--------------------------
1998 1997
----------- -----------
Net sales $ 405,249 $ 379,139
=========== ===========
Net earnings $ 39,826 $ 38,647
=========== ===========
Net earnings per share:
Basic $ 1.28 $ 1.25
=========== ===========
Diluted $ 1.25 $ 1.22
=========== ===========
(3) Supplemental Cash Flow Information
----------------------------------
A summary of annual supplemental cash flow information for the years ended
October 31 is as follows:
1998 1997 1996
----------- ----------- -----------
Cash paid during the year for:
Interest $ 6,869 $ 7,409 $ 2,048
----------- ----------- -----------
Income taxes, net of refunds received $ 19,906 $ 20,207 $ 16,203
=========== =========== ===========
Noncash investing activities:
Net assets of businesses acquired:
Fair value of assets, including goodwill $ 69,755 $ 81,431 $ 82,311
Liabilities assumed (5,143) (17,408) (757)
Common stock issued (1,936) (8,712) (5,700)
----------- ----------- -----------
Cash paid, net of cash acquired $ 62,676 $ 55,311 $ 75,854
=========== =========== ===========
(4) Inventories
-----------
The components of inventories at October 31 are as follows:
1998 1997
----------- -----------
Raw materials and supplies $ 27,462 $ 25,729
Work in process 10,700 13,715
Finished products 14,885 12,398
Less LIFO reserve (1,603) (1,643)
----------- -----------
$ 51,444 $ 50,199
=========== ===========
F-11
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per share data)
(5) Property, Plant and Equipment
-----------------------------
The components of property, plant, and equipment at October 31 are as
follows:
1998 1997
----------- -----------
Land $ 1,348 $ 1,151
Buildings 14,682 14,034
Machinery, tooling and other equipment 53,579 47,817
----------- -----------
69,609 63,002
Less accumulated depreciation and amortization (37,704) (31,607)
----------- -----------
$ 31,905 $ 31,395
=========== ===========
(6) Accrued Liabilities
-------------------
Accrued liabilities at October 31 consist of:
1998 1997
----------- -----------
Wages and other compensation $ 13,271 $ 12,137
Commissions 4,489 4,339
Other 12,155 8,755
----------- -----------
$ 29,915 $ 25,231
=========== ===========
(7) Income Taxes
------------
Earnings before income taxes for the years ended October 31 consist of the
following components:
1998 1997 1996
----------- ----------- -----------
Domestic $ 48,065 $ 47,704 $ 36,930
Foreign 11,551 7,396 7,310
----------- ----------- -----------
$ 59,616 $ 55,100 $ 44,240
=========== =========== ===========
Components of income tax expense for the years ended October 31 are as
follows:
1998 1997 1996
----------- ----------- -----------
Current:
Federal $ 17,188 $ 15,414 $ 11,492
State 353 993 845
Foreign 3,941 2,574 2,630
Deferred expense (benefit) (1,182) (231) 416
----------- ----------- -----------
$ 20,300 $ 18,750 $ 15,383
=========== =========== ===========
F-12
ROPER INDUSTRIES, INC, AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per 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:
1998 1997 1996
----------- ----------- --------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 0.4 1.2 1.3
Exempt income of Foreign Sales Corporation (3.5) (4.0) (1.7)
Goodwill amortization 2.2 1.5 1.6
Other, net - 0.3 (1.4)
-------- -------- ------
34.1% 34.0% 34.8%
======== ======== ======
Components of the deferred tax assets and liabilities at October 31 are
as follows:
1998 1997
----------- ---------
Deferred tax assets:
Reserves and accrued expenses $ 4,365 $ 2,380
Amortizable intangible assets 2,193 4,311
Postretirement medical benefits 540 496
Inventories 422 -
Net operating loss carryforward 146 805
--------- ---------
Total deferred tax assets 7,666 7,992
--------- ---------
Deferred tax liabilities:
Plant and equipment 629 507
Former IC-DISC recapture 1,019 1,072
Inventories - 31
--------- ---------
Total deferred tax liabilities 1,648 1,610
--------- ---------
Net deferred tax asset $ 6,018 $ 6,382
========= =========
The Company has not recognized a valuation allowance since management has
determined that it is more likely than not that the results of future
operations will generate sufficient taxable income to realize all
deferred tax assets. The net operating loss carryforward expires in
varying amounts from 2001 through 2006.
(8) Long-Term Debt
--------------
Long-term debt at October 31 consists of the following:
1998 1997
----------- -----------
NationsBank credit facility $ 119,000 $ 97,914
Other 7,056 4,211
----------- -----------
126,056 102,125
Less current portion 5,749 2,487
----------- -----------
$ 120,307 $ 99,638
=========== ===========
F-13
ROPER INDUSTRIES, INC, AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per share data)
Future maturities of long-term debt during each of the next five years
ending October 31 and thereafter are as follows:
1999 $ 5,749
2000 575
2001 226
2002 119,117
2003 129
Thereafter 260
-----------
$ 126,056
===========
On May 15, 1997, the Company secured a new $200,000 revolving credit
facility by the amendment and restatement of its principal credit
agreement that theretofore had provided for a $100,000 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 5.9% at
October 31, 1998 and 6.2% at October 31, 1997.
At October 31, 1998, the Company had $77,866 in unused availability under
the NationsBank agreement.
The NationsBank agreement generally provides for, among other things,
restrictions on certain future acquisitions and cash payments to
stockholders and for the Company to maintain certain minimum consolidated
tangible net worth and other financial ratios. Restricted payments to
stockholders include dividends and are limited to 50% of fiscal year net
earnings as defined in the agreement. The NationsBank agreement is
effective through May 31, 2002.
(9) Retirement and Other Benefit Plans
----------------------------------
The Company maintains two 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. Its
costs related to the plans were $3,293, $2,530 and $2,065 in fiscal 1998,
1997 and 1996, respectively.
The Company also maintains a defined benefit retirement plan covering
employees of a foreign subsidiary, a plan that provides postretirement
medical benefits for employees at a number of its domestic subsidiaries
and a plan that supplements certain employees for the contribution
ceiling applicable to the Section 401 plans. The costs and accumulated
benefit obligations associated with each of these plans were 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
F-14
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per share data)
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, 1998 are estimated
insurable settlements receivable from insurance companies of $1,651.
Over the past five years, one of the Company's subsidiaries, Compressor
Controls, has made significant sales to large natural gas distribution
companies and compressor manufacturers in the countries of the former
Soviet Union. Certain of this business was on an open account basis.
During the fourth quarter of fiscal 1998, economic uncertainties in
Russia and the region got worse and a severe devaluation of the region's
currencies occurred. This created additional doubt concerning the
collectibility of certain accounts receivable from customers in this
region. In response to these events, the Company provided $3,800 to fully
reserve all of these receivables except those from RAO Gazprom. The
Company believes that RAO Gazprom receivables will be fully collected as
most of these receivables are secured by letters of credit. Net of this
reserve, accounts receivable at October 31, 1998 included amounts due
from such customers totaling $8,408. The Company continues to take action
to attempt to receive partial payment of the amounts reserved.
(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.
In January 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. Each Right 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.
The Company periodically enters into agreements with the management of
newly-acquired companies for the issuance of Company common stock based
on the achievement of specified goals. A similar agreement was made with
a corporate executive. Under these agreements, 10 and 124 shares were
issued during fiscal 1997 and 1996, respectively, and 20 shares are
reserved for future issue.
F-15
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per share data)
(12) Stock Options
-------------
The Company has a stock option plan (the "Plan"), as amended, which
authorizes the issuance of up to three and one half million 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.
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 four thousand shares of the Company's common stock
and thereafter options to purchase an additional four thousand 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.
A summary of stock option transactions under these plans is shown below:
Outstanding options Exercisable options
----------------------- ------------------------
Average Average
exercise exercise
000's price 000's price
--------- ---------- -------- -----------
October 31, 1995 1,782 $ 11.27 411 $ 9.61
Fiscal 1996 activity:
Granted 544 19.89
Exercised (125) 8.76
Canceled (23) 15.15
--------
October 31, 1996 2,178 13.51 677 10.43
Fiscal 1997 activity:
Granted 205 22.18
Exercised (171) 10.29
Canceled (80) 16.06
--------
October 31, 1997 2,132 14.51 995 11.58
Fiscal 1998 activity:
Granted 389 27.59
Exercised (316) 10.73
Canceled (118) 19.48
--------
October 31, 1998 2,087 $ 17.24 1,109 $ 13.08
======== ========== ========= ===========
F-16
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per share data)
Options outstanding and exercisable at October 31, 1998 are summarized
below.
Outstanding options Exercisable options
------------------------------------- ---------------------
Average Average Average
exercise remaining exercise
Exercise price 000's price life 000's price
---------------- -------- -------- ----------- -------- --------
$ 3.75 - 10.00 352 $ 6.15 4.1 years 352 $ 6.15
10.01 - 15.00 314 11.96 5.9 years 212 11.99
15.01 - 20.00 732 17.22 6.0 years 451 16.96
20.01 - 25.00 324 22.80 8.0 years 94 22.94
25.01 - 30.00 338 27.19 9.1 years - -
30.01 - 32.25 27 32.16 9.5 years - -
-------- -------- ----------- -------- --------
$ 3.75 - 32.25 2,087 $ 17.24 6.5 years 1,109 $ 13.08
======== ======== =========== ======== ========
For pro forma disclosure purposes, the weighted-average grant-date fair
value of options granted during the years ended October 31, 1998, 1997
and 1996 was $11.73 per share, $8.66 per share and $7.76 per share,
respectively. All options granted during each of the years ended October
31, 1998, 1997 and 1996 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%-36%; and (d) an expected dividend yield of
0.75%.
Had the Company recognized compensation expense for the fair value of
options granted during fiscal 1998, 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.
1998 1997 1996
----------- ----------- -----------
Net earnings, as reported $ 39,316 $ 36,350 $ 28,857
Net earnings, pro forma 36,094 35,110 27,917
Net earnings per share, as reported:
Basic 1.27 1.19 0.96
Diluted 1.24 1.16 0.93
Net earnings per share, pro forma:
Basic 1.16 1.15 0.93
Diluted 1.14 1.12 0.90
The disclosed pro forma effects on earnings do not include the effects of
options granted prior to fiscal 1996 since the provisions of SFAS 123 are
not applicable to options for this purpose. The pro forma effects of
applying SFAS 123 to fiscal 1998, 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 grants is at the discretion of the Company's Board
and cannot be assured.
F-17
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per share data)
(13) Segment and Geographic Area Information
The Company's operations are grouped into three business segments:
industrial controls ("IC"), fluid handling ("FH") and analytical
instrumentation ("AI"). 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, centrifugal and
piston-type metering pumps, turbine flow meters, calibrators, emissions
measuring equipment 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.
The following table shows net sales, operating profit, and other
financial information by industry segment for the years ended October 31:
IC FH AI Corporate Total
----------- ----------- ----------- ------------- -----------
1998
----
Net sales $ 177,258 $ 99,471 $ 112,441 $ - $ 389,170
Operating profit 31,458 24,125 16,417 (5,908) 66,092
Identifiable assets 116,454 76,487 176,574 12,018 381,533
Depreciation and amortization 4,331 3,440 6,195 468 14,434
Capital expenditures 2,139 1,706 1,475 182 5,502
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
F-18
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997 and 1996
(Dollar and share amounts in thousands, except per share data)
Summarized data for the Company's U.S. and foreign operations (principally in
Europe and Japan) for the years ended October 31 are as follows:
Corporate
adjustments
United and elimi-
States Foreign nations Total
----------- ----------- ------------ ------------
1998
- ----
Sales to unaffiliated customers $ 336,985 $ 52,185 $ - $ 389,170
Sales between geographic areas 12,385 5,077 (17,462) -
----------- ----------- ----------- -----------
Net sales $ 349,370 $ 57,262 $ (17,462) $ 389,170
=========== =========== =========== ===========
Operating profit $ 60,788 $ 11,212 $ - $ 72,000
General corporate expenses - - (5,908) (5,908)
----------- ----------- ----------- -----------
Income from operations $ 60,788 $ 11,212 $ (5,908) $ 66,092
=========== =========== =========== ===========
Identifiable assets $ 338,191 $ 31,324 $ 12,018 $ 381,533
=========== =========== =========== ===========
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
=========== =========== =========== ===========
Export sales from the United States during the years ended October 31, 1998,
1997 and 1996 were approximately $160,000, $111,000 and $78,000, respectively.
In the year ended October 31, 1998 these exports were shipped primarily to
Russia (27%), Asia and the Far East (23%), Europe (22%) and Latin America (12%).
F-19
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997, and 1996
(Dollar and share amounts in thousands, except per share data)
Sales to customers 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
----------- ----------- ----------- -----------
1998
----
Canada $ 5,226 $ 4,156 $ 1,343 $ 10,725
United Kingdom 11,032 1,010 4,678 16,720
Europe (excluding U.K.) 17,127 3,710 23,692 44,529
CIS 43,811 - 372 44,183
Japan 165 3,704 15,701 19,570
Asia and Far East 13,065 2,658 6,250 21,973
Latin America 15,021 1,827 2,668 19,516
Other 15,667 551 2,654 18,872
----------- ----------- ----------- -----------
Total $ 121,114 $ 17,616 $ 57,358 $ 196,088
=========== =========== =========== ===========
1997
----
Canada $ 5,347 $ 4,908 $ 1,069 $ 11,324
United Kingdom 8,556 510 2,140 11,206
Europe (excluding U.K.) 13,569 2,929 16,601 33,099
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
Latin 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
United Kingdom 11,209 337 1,858 13,404
Europe (excluding U.K.) 12,597 1,657 7,079 21,333
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
Latin 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
=========== =========== =========== ===========
Net sales to RAO Gazprom were $41,870, $14,742 and $18,311 for the years
ended October 31, 1998, 1997 and 1996, respectively.
F-20
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998, 1997, and 1996
(Dollar and share amounts in thousands, except per share data)
(14) Quarterly Financial Data (Unaudited)
-----------------------------------
Fiscal 1998 quarters
---------------------------------------------------------
First Second Third Fourth
----------- ----------- ----------- -----------
Net sales $ 90,099 $ 95,995 $ 97,412 $ 105,664
Gross profit 45,467 48,415 48,299 48,772
Net earnings 10,720 10,634 10,560 7,402
Earnings per common share:
Basic $ 0.35 $ 0.34 $ 0.34 $ 0.24
=========== =========== =========== ===========
Diluted $ 0.34 $ 0.33 $ 0.33 $ 0.24
=========== =========== =========== ===========
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:
Basic $ 0.19 $ 0.34 $ 0.38 $ 0.28
=========== =========== =========== ===========
Diluted* $ 0.19 $ 0.32 $ 0.37 $ 0.27
=========== =========== =========== ===========
* The sum of the four quarters does not agree with the total for the year
due to rounding.
F-21
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Schedule II - Consolidated Valuation and Qualifying Accounts
for the Years ended October 31, 1998, 1997 and 1996
(In thousands)
Additions
Balance at charged to Balance at
beginning costs and end
of year expenses Deductions Other of year
---------- ---------- ---------- ----- ----------
Allowance for doubtful accounts:
Year ended October 31, 1998 $ 1,866 $ 4,643 $ (173) $ 579 $ 6,915
Year ended October 31, 1997 992 1,053 (714) 535 1,866
Year ended October 31, 1996 990 19 (160) 143 992
Reserve for inventory obsolescence:
Year ended October 31, 1998 2,053 1,558 (911) 1,381 4,081
Year ended October 31, 1997 1,310 1,037 (516) 222 2,053
Year ended October 31, 1996 605 892 (621) 434 1,310
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 items.
Other includes the allowance for doubtful accounts and reserve for inventory
obsolescence of acquired businesses at the dates of acquisition and the
effects of foreign currency translation adjustments for those companies
whose functional currency is not the U.S. dollar.
S-1
EXHIBIT INDEX
- -------------
Number Exhibit
- ------ -------
2.1 Agreement and Plan of Reorganization (Photometrics,
Ltd.) incorporated herein by reference to Exhibit 2 to
the Roper Industries, Inc. Current Report on Form 8-K
filed April 15, 1998
3.1 Amended and Restated Certificate of Incorporation,
including Form of Certificate of Designation,
Preferences and Rights of Series A Preferred Stock
incorporated herein by reference to Exhibit 4.01 to the
Roper Industries, Inc. Current Report on Form 8-K filed
on January 18, 1996
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 4.02 to the Roper
Industries, Inc. Current Report on Form 8-K filed June
2, 1997
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
4.03 Amendment Agreement No. 1 to the Amended and Restated
Credit Agreement incorporated herein by reference to
Exhibits 4.03 and 4.04 to Roper Industries, Inc.'s
Quarterly Report on Form 10-Q filed August 21, 1998
4.04 Amendment Agreement No. 2 to the Amended and Restated
Credit Agreement 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
4.05 Amendment Agreement No. 3 to the Amended and Restated
Credit Agreement
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, incorporated herein
by reference to Exhibits 3.1, 10.2, 10.5 and 10.6 to the
Roper Industries, Inc. Annual Report on Form 10-K filed
January 21, 1998
10.03 Stock Option Plan, as amended
10.04 Form of Indemnification Agreement, incorporated herein
Registration Statement (No. 33-44665 on Form S-1 filed
December 20, 1991)
10.05 Consulting Agreement incorporated herein by reference to
Exhibits 3.1, 10.1, 10.5 and 10.6 to the Roper
Industries, Inc. Annual Report on Form 10-K filed
January 21, 1998
10.06 Consultant Agreement incorporated herein by reference to
Exhibits 3.1, 10.1, 10.5 and 10.6 to the Roper
Industries, Inc. Annual report on Form 10-K filed
January 21, 1998
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
23 Consent of Independent Auditors-KPMG Peat Marwick LLP
27 Financial Data Schedule