SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1997.
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Commission file no. 0-545.
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Moore Products Co.
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(Exact name of Registrant as specified in its charter)
Pennsylvania 23-1427830
- ------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
Spring House, Pennsylvania 19477-0900
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 646-7400
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 Par Value
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(Title of class)
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 periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
The aggregate market value of voting stock held by nonaffiliates of the
Registrant (as explained on page 9) as of March 12, 1998, was approximately
$47,500,000.
Common stock outstanding at March 12, 1998, was 2,604,581 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held
May 1, 1998, are incorporated by reference into Part III of this report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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 [X].
<PAGE>
This annual report contains various forward-looking statements and includes
assumptions concerning Moore's operations, future results and prospects. These
forward-looking statements are based on current expectations and subject to
risks and uncertainties. Moore does not undertake any obligation to publicly
release the results of any revisions that may be made to these forward-looking
statements to reflect any future events or circumstances.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Moore provides this cautionary statement
identifying important factors that, among others, could cause the actual results
and events to differ materially from those set forth in or implied by
forward-looking statements and related assumptions. Such factors include, but
are not limited to: product demand and market acceptance risks; the effect of
global economic conditions; the impact of competitive products and pricing;
product development and technological difficulties; capacity and supply
constraints or difficulties; availability of capital resources; general business
conditions; and changes in government laws and regulations, including taxes.
PART I
Item 1. Business.
Moore Products Co. ("Moore") was originally organized in 1940 as a
partnership and incorporated in the Commonwealth of Pennsylvania in December
1953.
Moore is in the business that develops, manufactures, sells, and supports
advanced technology automation and products used in the measurement and control
of industrial and manufacturing processes. These include a broad range of
technologically advanced control systems and components, industrial controls and
instrumentation, dimensional measuring gages, and high-precision metrology
calibration systems. Many of Moore's products are of standard design and are
sold from stock or integrated as standard components into larger process control
systems; some products are custom engineered and manufactured to order.
Industrial instruments measure and control process variables such as
temperature, pressure, flow of liquid or gas, liquid level, and others found in
industries, such as chemical, pharmaceutical, pulp and paper, and power and
utility. Metrology products, dimensional gages, and statistical process control
systems verify critical measurements and are used in quality-related
applications in high-precision calibration laboratories and in the manufacture
of precision and discrete parts such as is found in the automotive industry.
In recent years Moore has seen significant sales growth in control systems
and services and large scale measurement systems. Process control systems
typically consist of multiple process control loops, in which field instruments
measure process control variables at frequent intervals. The field instrument
sends process variable measurement information from a specific point in the
process through a communications network to a controller device. The controller
compares the process variable information with specific operating parameters and
calculates a control response (such as
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opening or closing a valve) to achieve a desired result. This response is sent
to a remotely located field control device. That device executes the
controller's calculated response and sends confirmation of the action back to
the control device and to an operator monitoring station. Moore's range of
products covers the full span of process control loop activity. Moore's field
instruments include pressure and temperature transmitters - controllers sold
under the trade name XTC(R) and fluidic flowmeters. Stand-alone control devices
and data acquisition stations include the Model 351 Triple-Loop Controller;
Model 352 Single-Loop Controller; and newer generation APACS(R) 353 unit
controller and APACS 354 Universal Control Station. Process data acquisition and
storage are handled by traditional paper strip chart recorders and newer LCD
display recorders under the trade name VIEWPAC(TM). Moore's most sophisticated
control products include the APACS process control systems and QUADLOG(R) safety
systems. These products, including a combination of hardware and software,
provide customers with maximum plant-wide process automation capabilities. These
systems also require a higher level of support in the form of engineering
services, customer training and periodic upgrades.
Moore uses digital electronic, analog electronic, pneumatic and software
technologies in the design of its products and does not specialize in one
particular technology.
Significant product advancements over the past year include the
introduction of a family of software products called APACS ProcessSuite(TM)
which is based on the Windows NT operating environment. An addition to the
market-leading single-loop controller family was the APACS 354 Universal Control
Station capable of delivering smaller scale integrated systems. Also, a new
generation of measurement and analysis instrumentation was introduced for
complex manual and automatic dimensional measurement applications, under the
trade name MPACS(TM).
The business of Moore is primarily capital equipment. As such, it is
subject to the cyclical nature of commitments to new or replacement
manufacturing facilities and equipment by the industries that it serves. The
business of Moore is not generally seasonal, but from time to time follows a
pattern of higher shipments in the second half of the calendar year, in response
to customers' capital expenditure cycles.
Markets:
The principal markets for Moore's products are the batch and continuous
process industries (including chemical, pulp and paper, power and utility,
pharmaceuticals, oil and gas, metals, synthetic fiber, and food and beverage),
precision discrete parts manufacturing industries (including machine tool,
aeronautical and automotive), and calibration laboratories. Certain of Moore's
systems products are sold in significant dollar amounts as part of major
customer projects. Changes in quarterly and annual sales can be significantly
influenced by the shipment of these orders.
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Sales and Distribution:
Moore's United States sales are made primarily through factory-trained
employees of its own organization, located in its sales offices in 37 cities.
Moore also markets its products through other independent channels, such as
engineering integrators, original equipment manufacturers, sales representatives
and integrated supply distributors. Some customers in Moore's industry, as in
many other markets, are consolidating their supplier base and are entering into
strategic business relationships or alliances.
International sales and customer support are handled through a combination
of 10 subsidiaries and approximately 110 sales representatives appointed by
Moore or its subsidiaries strategically located throughout the world. Sales in
Canada and Europe are made through Moore's wholly-owned or majority-owned
Canadian, English, Dutch, Italian, French and Mexican subsidiaries, Moore
Products Co. (Canada) Inc., Moore Products Co. (U.K.) Limited, Moore Products
Co. B.V., Moore Products Co. (Italia) S.r.l., Moore Products Co. (France) SARL,
and Moore Products de Mexico S.A. de C.V. Sales in the Asia/Pacific region are
also supported through wholly-owned subsidiaries in Australia and Singapore by
Moore Products Co. (Australia) Pty. Ltd. and Moore Products Co (S) Pte Ltd.
Sales in India and South Africa are made through jointly-owned subsidiaries,
Moore Controls Pvt. Limited and Moore Controls S.A. (Pty.) Ltd., respectively.
Raw Materials and Components:
In its manufacturing operation, Moore uses common metals (aluminum, brass,
stainless steel), various synthetic materials, forgings and castings, and
electronic components. Moore is experiencing no significant shortages in raw
materials at this time which would be expected to have a serious effect on the
delivery aspect of Moore's business, although occasional disruption in the
availability of certain electronic components can impact the scheduled
manufacture and shipment of some products. In most instances, Moore has more
than one source of supply for its material requirements.
Patents, Trademarks, and Licenses:
Moore applies for patents on inventions and developments which it considers
clearly patentable and desirable with respect to its products. As of December
31, 1997, Moore owned several unexpired United States patents and unexpired
international patents, none of which are considered individually to be material
to its business.
Considered to be of greater importance to its business is Moore's
"know-how" in manufacturing products, including those covered by patents which
have expired. Moore has from time to time granted "know-how" licenses to others,
and has been licensed by others, to manufacture certain products, but none of
these licenses are believed to be material to Moore. In addition, Moore has
distribution and/or license rights of varying terms in hardware and software
products developed by other companies, some of whom are regarded as competitors.
In the judgment of management, such
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rights are adequate for the conduct of the business being done by Moore.
Several of Moore's products are sold under trademarks, some of which are
registered. Examples of these include "PROCESSSUITE(TM)", "THE SAFETY PLC(TM)",
"VIEWPAC(TM)", "FIELDPAC(TM)", "QUADLOG(R)", APACS(R)", "XTC(R)",
"LABMASTER(R)", and "LASERULER(R)". In addition Moore conducts business under
the registered trademarks of "MOORE(R)" in block letters and logo form, "PRATT &
WHITNEY(R)" and "P&W(R)" in logo form, which provide unique identity within its
industry.
Backlog:
As of December 31, 1997, Moore had a total consolidated backlog of orders,
believed by it to be firm, amounting to $38,344,000. Moore expects that
substantially all such orders will be filled within the current fiscal year. As
of December 31, 1996, Moore had a total consolidated backlog of orders amounting
to $46,110,000. The lower backlog at December 31, 1997, was primarily due to a
concentration of scheduled customer shipments in the fourth quarter of 1997.
Competition:
The process measurement and control industry is highly competitive and
subject to technological changes in both hardware and software development.
Moore is a medium-sized company offering measurement and control solutions for
manufacturing processes including continuous, batch, and discrete parts
manufacturing. It is one of a limited number of companies in the United States
with the capability to bid as manufacturer for complete process instrumentation
projects, such as the instrumentation of a chemical plant, an oil refinery, or a
paper mill. Competition in Moore's industry has intensified as markets,
customers and competitors have become increasingly international in their focus.
Moore has attempted to maintain its position in the industry by the quality and
performance of its existing products and technical innovation of new product
developments so as to provide customers with greater functionality and
reliability than are available from competitors. Relative price/performance,
product features, availability, service and support also are important factors.
Moore's principal competitors in the industry, most of whom are
considerably larger than Moore, are The Foxboro Company, a SIEBE Company; ABB
Process Automation, Inc., and ABB Kent-Taylor Inc., two divisions of ABB Asea
Brown Boveri, Inc.; Elsag Bailey Process Automation N.V.; the Industrial
Automation and Control Division of Honeywell, Inc.; Fisher-Rosemount, a unit of
Emerson Electric Co.; Marposs Gauges Corp.; and Illitron Division of ITW.
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Research Activities:
Moore's products provide for integration of several complex technologies
including but not limited to electronics, physics, mechanical design and
software. Research and development has consistently been a central strategic
commitment. Moore views continued investment in new product development and
product enhancements as a significant factor to long-range success.
Approximately $11,097,000 was spent during 1997, $11,416,000 during 1996, and
$9,989,000 during 1995 on company-sponsored research activities relating to the
development of new products or the improvement of existing products. These
amounts represent 6.8%, 8.0% and 8.3%, respectively, of total revenues. The
amount spent on customer-sponsored research activity was not significant in any
of the years covered. No costs associated with the development of software
products are capitalized.
Many of Moore's products are developed on an "open" platform that enables
them to be linked to other manufacturers' control products and systems. However,
maximum functionality and advanced control capabilities are delivered to
customers by linking Moore's field instruments and control systems using
specially designed software and configuration tools that Moore believes are
technologically superior to others available on the market.
During the past several years, Moore has introduced new product offerings
and enhancements intended to provide advanced technological solutions to
industries seeking efficient control of their manufacturing processes. These
products range from remote field transmission and control devices to
sophisticated microcomputer-based control systems including both hardware and
software products. Moore's products are linked through a standard industry
communication protocol and are custom configured to meet unique requirements of
specific customers. Many of these products have been formally recognized with
industry awards for their innovation and leading technology. Increased sales
volume in the past year is attributed to customer acceptance of these newer
products.
Environment:
Compliance with federal, state, and local provisions regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment is not expected to have a material effect on the
capital expenditures, earnings, or competitive position of Moore and its
subsidiaries. Moore's involvement in environmental actions, to date, has been
limited to situations where a former licensed waste hauler or a reprocessor of
manufacturing byproducts allegedly disposed of de minimis quantities of waste
materials from Moore's United States plant to several sites in an unacceptable
manner. In these instances Moore has been named as a "potentially responsible
party." Annual cash outlays in each of the past two years for claims and
assessments relating to these matters have been less than $100,000. In several
instances Moore's general liability insurance carrier has agreed to fund any
settlements or legal defense costs. In instances where insurance carriers have
denied coverage, Moore has estimated its probable liability in consultation with
legal counsel. Moore has accrued approximately $350,000 for situations where
insurance coverage has been denied.
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Management believes that such proceedings are not material to its business or
financial condition and that it has adequately provided accruals for ultimate
liability to be paid as a result of these actions.
Number of Employees:
Moore and its subsidiaries had approximately 1,230 employees as of December
31, 1997.
Foreign and Domestic Operations and Export Sales:
Financial information concerning domestic and foreign operations appears in
Note L in the "Notes to Consolidated Financial Statements" and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included as part of this report.
Item 2. Properties.
Moore's principal manufacturing facility and corporate office are contained
in a modern steel and masonry building of approximately 374,000 square feet
located on 154 acres in Spring House, Montgomery County, Pennsylvania. The
building and land at this facility are owned outright by Moore. Moore's Pratt &
Whitney Division owns and occupies an 18,000 square foot office and
manufacturing facility in Plainville, Connecticut.
Moore's Canadian subsidiary, Moore Products Co. (Canada) Inc., is located
in a modern plant and office building of approximately 35,000 square feet. The
building is located on 89 acres of land in Brampton, Ontario, Canada. Both the
building and the land are owned outright by Moore's subsidiary.
Moore's English subsidiary, Moore Products Co. (U.K.) Limited, is located
in a modern plant and office building of approximately 36,000 square feet. The
building is located on 5 acres of land in Yeovil, Somerset, England. Both the
building and land are owned outright by Moore's subsidiary. Moore Measurement
Systems, a division of Moore Products Co. (U.K.) Limited, leases an office and
manufacturing facility of approximately 23,000 square feet in Hitchin,
Hertfordshire, England.
The remaining international subsidiaries occupy leased premises. Moore's
leases for branch sales offices and international subsidiaries in the aggregate
are not material.
The equipment at Moore's plants, principally machine tools, assembly tools,
and automatic testing equipment, some of which was built by Moore itself, is
modern and in good condition. Equipment is generally owned outright by Moore.
Moore believes its facilities are adequate and suitable for its purposes.
Item 3. Legal Proceedings.
Moore is party to various legal claims and proceedings that have been
initiated or asserted against them in the ordinary course of business, including
those pertaining to environmental matters (see Part I "Environment"). It is the
opinion of management that any ultimate losses in connection
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with these matters and resolution of environmental issues will not have a
materially adverse effect on net income, financial position or liquidity of
Moore.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
Additional Information:
The following information is furnished in this report pursuant to
Instruction 3 to Item 401(b) of Regulation S-K:
Executive Officers of the Registrant:
Executive officers of Moore are elected annually by the Board of Directors,
to serve at the discretion of the Board until their successors are appointed.
The names, ages and positions of the executive officers of Moore are listed
below along with their business experience during the past five years.
Name, Age and Position Business Experience During Past Five Years
- ---------------------- ------------------------------------------
Donald E. Bogle, 52 Mr. Bogle was elected President and Chief
President and Chief Executive Executive Officer of Moore Products Co.
Officer in October 1997. From October 1996
through September 1997, he was President
of Honeywell Inc., Home and Building
Control. From January 1996 to October
1996, he was Vice President and General
Manager of Honeywell's worldwide Home and
Building Control strategic business unit.
From October 1994 to December 1995, he
was Vice President and General Manager of
Honeywell's worldwide Building Control
business. From May 1992 to September
1994, he was Vice President and General
Manager of Honeywell's Industrial
Automation and Control division.
Edward M. Coll, 48 Mr. Coll was elected Vice President,
Vice President, International International Sales, in July 1997. Since
Sales 1993, he has also held positions as Vice
President, Sales and Marketing, Vice
President and General Manager of the
Systems Division, General Manager of the
Systems Division and National Sales
Manager.
Edward J. Curry, 51 Mr. Curry was elected Executive Vice
Executive Vice President and President and Chief Operating Officer in
Chief Operating Officer September 1995. Prior to the appointment
as Chief Operating Officer, he served as
Executive Vice President since 1988.
Robert D. Greenlaw, 39 Mr. Greenlaw was elected Vice President,
Vice President, Customer Customer Services, in July 1997. Since
Services 1993, he has held positions as Director,
General Manager, and General Sales
Manager of Moore Measurement Systems.
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Name, Age and Positions Business Experience During Past Five Years
- ----------------------- ------------------------------------------
James McDonald, 48 Mr. McDonald was elected Vice President,
Vice President, North North American Sales, in July 1997. Prior
American Sales to this appointment, he served as Vice
President, Sales, since May 1992.
William B. Moore, 55 Mr. Moore was elected Vice Chairman of the
Vice Chairman of the Board Board and Chief Technology Officer in
and Chief Technology Officer October 1997. Prior to that appointment,
he served as President and Chief Executive
Officer since 1988.
Robert E. Wisniewski, 44 Mr. Wisniewski was elected Secretary and
Secretary and Treasurer Treasurer in May 1993. Prior to this
appointment, he held the positions of
Director of Finance and Controller.
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For the purposes of calculating the aggregate market value of the shares of
the voting stock of Moore held by nonaffiliates, as shown on the cover page of
this report, the value of Moore's outstanding preferred stock (which has voting
rights and is convertible into common stock but is not publicly traded), which
is held entirely by affiliates, has not been included, and it has been assumed
that all the other outstanding voting shares (common stock) were held by
nonaffiliates except for the shares held or beneficially owned by directors and
executive officers of Moore, the Moore Products Co. Pension Plan and by Frances
O. Moore, widow of the late Coleman B. Moore, founder of Moore. However, this
should not be deemed to constitute an admission that all directors and executive
officers of Moore, the Moore Products Co. Pension Plan and/or Frances O. Moore
are, in fact, affiliates of Moore, or that there are not other persons who may
be deemed to be affiliates of Moore. Further information concerning
shareholdings of executive officers, directors and principal shareholders of
Moore is included in Moore's definitive proxy statement filed or to be filed
with the Securities and Exchange Commission.
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PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
Moore's common stock is traded on The Nasdaq Stock Market under the symbol
"MORP." The table below sets forth the reported high and low sales prices of the
common stock and the dividends paid during the two most recent fiscal years.
<TABLE>
<CAPTION>
1997 1996
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Market Price Cash Market Price Cash
------------------------ Dividends ------------------------- Dividends
High Low Paid High Low Paid
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First quarter $26.5000 $18.0000 $ .00 $23.0000 $16.2500 $ .00
Second quarter 23.5000 20.7500 .00 19.3750 15.2500 .00
Third quarter 24.5000 21.0000 .00 19.7500 17.3125 .00
Fourth quarter 39.2500 23.3125 .00 19.7500 17.5000 .00
------- -------
Total year $ .00 $ .00
======= =======
</TABLE>
Common stockholders of record on December 31, 1997, totaled approximately 890
based on information obtained from Moore's transfer agent.
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
As Reported for Year Ended December 31
1997 1996 1995 1994 1993
------------------------------------------------------------------------
(in thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $164,247 $142,892 $121,037 $100,680 $ 88,059
Income (loss) before
cumulative effect of
change in accounting 6,468 1,278 259 (1,089) (4,589)
Net income (loss) 6,468 1,278 259 (1,089) (4,356)
Total assets 93,992 86,047 78,193 60,150 57,459
Net income (loss) per share:
Basic $2.50 $ .49 $ .12 $(.53) $(2.09)
Diluted 2.31 .47 .12 (.53) (2.09)
Cash dividends per
common share --- --- --- --- .06
</TABLE>
The net income per share amounts prior to 1997 have been restated, as required,
to comply with Financial Accounting Standards Board ("FASB") Statement No. 128,
"Earnings per Share." See Note B in the Notes to Consolidated Financial
Statements for explanation of unusual items in 1996. In 1993, loss before
cumulative effect of change in accounting and net loss include special gains
from early retirement settlements of $580,000. During 1993, Moore adopted
provisions of FASB Statement No. 109, "Accounting for Income Taxes," which
resulted in a cumulative noncash gain of $233,000.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Comparing 1997 to 1996, sales increased $21,355,000 or 15% to $164,247,000 from
$142,892,000. U.S. sales to unaffiliated customers in 1997 increased 16% to
$121,687,000, while international sales to unaffiliated customers increased to
$42,560,000 or 12% higher than 1996. These increases are primarily attributed to
increased sales of control and measurement systems products and services. While
the international revenue growth in 1997 occurred primarily in the United
Kingdom, the Asia-Pacific region also showed improvement from the prior year. In
1997 and 1996, sales by international subsidiaries and unaffiliated export sales
by the U.S. parent company were 33% and 36% of total consolidated sales,
respectively.
Order bookings for fiscal 1997 were $156,603,000 compared to $152,431,000 for
1996. This increase was primarily attributed to orders placed for control
systems products and services. Due to the exceptionally strong shipments in the
fourth quarter of 1997, the consolidated backlog of unshipped orders as of
December 31, 1997, was $38,344,000 compared to $46,110,000 as of December 31,
1996. As a result, first quarter 1998 shipments and operating results will be
below fourth quarter 1997 levels.
Gross profit increased 17% in 1997 to $70,640,000 compared to $60,204,000 in
1996. Gross profit margin was 43% in 1997 compared to 42% in 1996. The higher
gross profit reflects favorable product mix changes related to increased sales
of control systems, generally higher levels of sales and production volume,
improved manufacturing efficiencies, and cost reductions on selected product
lines.
Selling, general and administrative expenses increased by $2,520,000 in 1997 to
$49,146,000 but declined as a percent of revenues from 33% in 1996 to 30%. The
increase in these expenses was attributed to higher payroll costs and selling
expenses in support of Moore's growth. Research and development expenses were
$11,097,000 or 7% of revenues in 1997, compared to $11,416,000 or 8% of revenues
in 1996. Moore continues to make a strong commitment to ongoing product
development programs, with technological innovation being the keystone to all
new product introductions and existing product enhancements. The primary
emphasis for research and development in 1997 was the introduction of a new
generation of dimensional measurement and analysis instrumentation (MPACS); a
Windows NT-based software package for the APACS system; and the integration of
various new value-added control features to this software product. Moore also
enhanced the APACS and QUADLOG systems' functionality, and introduced a new
APACS 354 unit controller.
The 1996 operating results included $2,056,000 of net gain relating to an early
retirement program and a $1,000,000 loss due to the write-down of assets
associated with a joint venture in Brazil as more fully discussed below.
Interest expense for 1997 was $172,000 compared to $466,000 for 1996. The
decrease from last year was attributed to a reduction in borrowing levels in
1997.
Moore's effective tax rate for 1997 was 37% of pretax income compared to 54% for
1996. The fluctuation in the rates resulted from a changing mix of operating
results in countries for which tax loss benefit carryovers were utilized and
recognized in 1997. Statutory rates are applied to pretax income in the United
States. Consistent with previous reporting periods, tax benefits for losses
incurred by certain international subsidiaries in tax jurisdictions outside the
United States have not been fully recognized for financial reporting purposes
because the realization of such benefits is not presently assured.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued).
Net income for 1997 was $6,468,000 compared to net income of $1,278,000 for
1996. Diluted net income per share, computed in conformity with the newly issued
FASB Statement No. 128, was $2.31 for 1997 compared to $0.47 for 1996. The
increase in net income from 1996 to 1997 was due primarily to the factors
discussed above.
Comparing 1996 to 1995, sales increased $21,855,000 or 18% to $142,892,000 from
$121,037,000. U.S. sales to unaffiliated customers in 1996 increased 14% to
$104,898,000, while international sales to unaffiliated customers increased to
$37,994,000 or 33% higher than 1995. These increases were primarily attributed
to sales of measurement systems, control systems, services, and transmitter
products. All international regions, including Europe, Canada, and Asia-Pacific,
reported increased revenue growth. In 1996 and 1995, sales by international
subsidiaries and unaffiliated export sales by the U.S. parent company were 36%
and 32% of total consolidated sales, respectively.
Order bookings for fiscal 1996 were $152,431,000 compared to $130,053,000 for
1995, a 17% increase. This increase was primarily attributed to orders placed
for measurement systems, control systems and services. The consolidated backlog
of unshipped orders as of December 31, 1996, was $46,110,000 compared to
$36,997,000 as of December 31, 1995.
Gross profit increased 11% in 1996 to $60,204,000 compared to $54,077,000 in
1995. Gross profit increased in response to the higher sales but was also
affected by product mix and higher manufacturing costs. As a result, gross
profit margin declined from 45% in 1995 to 42% in 1996.
Selling, general and administrative expenses increased by $3,585,000 in 1996 to
$46,626,000 but declined as a percent of revenues from 36% in 1995 to 33%. The
increase in these expenses was attributed to higher payroll costs and selling
expenses needed to support Moore's growth. Research and development expenses
rose to $11,416,000 from $9,989,000 in 1995, while remaining level at 8% of
revenues for both years. Major product development activities in 1996 included
the introduction of the TUV-approved QUADLOG safety system, introduction of the
APACS 353 process automation controller, new software releases and enhancements
to the APACS process control system, and introduction of the Model 760D smart
valve positioner.
The 1996 operating results included a $3,066,000 pension gain offset by a
$1,010,000 curtailment charge for postretirement medical benefits related to a
special early retirement program for eligible U.S.-based employees. The gain is
attributed to pension settlements that accelerate the recognition of
unrecognized net assets and actuarial gains by the pension plan as required by
FASB Statement No. 88. Approximately 60 employees accepted the early retirement
program, which ended in July 1996. The program was completed, including payment
of all settlements, prior to year-end 1996 with no further liability after that
date.
The 1996 operating results were also impacted by a $1,000,000 loss due to the
write-down of assets related to a joint venture in Brazil, which followed
unsuccessful negotiations by the joint venture partner with other investors and
financial institutions to provide needed working capital for ongoing operations.
This was preceded by a series of market, product and economic shifts in Brazil
since the initial decision to set up the joint venture. Operating losses
recognized by Moore using equity accounting prior to the write-down were
$130,000. Moore has withdrawn from direct investment in Brazil and now utilizes
the services of local sales distributors and representatives to conduct sales
and support activity in this country.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued).
Interest expense for 1996 was $466,000 compared to $438,000 for 1995.
Moore's effective tax rate for 1996 was 54% of pretax income compared to 57% for
1995. These rates were substantially higher than U.S. statutory rates due to
losses in other countries. Consistent with previous reporting periods, tax
benefits for losses incurred by certain international subsidiaries in tax
jurisdictions outside the U.S. have not been fully recognized for financial
reporting purposes because the realization of such benefits is not presently
assured.
Net income for 1996 was $1,278,000 compared to net income of $259,000 for 1995.
Diluted income per share was $0.47 for 1996 compared to $0.12 for 1995. The
increase in net income from 1995 to 1996 was due primarily to the factors
discussed above.
1997 Liquidity and Capital Resources
Cash and cash equivalents decreased during 1997 by $250,000. Positive cash flow
of $6,780,000 generated from operations was primarily used to repay $4,230,000
of bank borrowing and for capital expenditures of $2,452,000. Capital
expenditures were related primarily to personal computers and network hardware
in support of ongoing product development and sales promotion.
Working capital increased $5,908,000 at December 31, 1997, to $41,235,000 from
$35,327,000 at December 31, 1996. Trade accounts receivable were unusually high
at December 31, 1997, due to a record level of sales activity in the fourth
quarter. These heavy shipment levels also reduced inventory and the amount of
customer advances for unshipped orders.
Cash and cash equivalents, which amounted to $3,816,000 at December 31, 1997,
are expected to be used to fund working capital needs and further capital
expenditures. It is intended that undistributed earnings from non-U.S.
subsidiaries will be reinvested in local market growth and support, and will not
be repatriated.
At year-end 1997, Moore had lines of credit with U.S. and non-U.S. banks
amounting to $15.8 million. Credit agreements for $3.5 million and $12.3 million
expire on May 31, 1998, and December 30, 1998, respectively. It is anticipated
that such agreements will be extended for additional one-year periods with
similar terms and conditions. Moore had only nominal temporary borrowings in
1997 and had no outstanding advances under credit arrangements at December 31,
1997.
In response to the improved operating results, in 1997 the Board of Directors of
Moore reinstated the payment of dividends on the 5% cumulative preferred stock,
including arrearages. In addition, the Directors, at their January 1998 meeting,
declared a special 40-cent cash dividend on common stock payable March 2, 1998,
to shareholders of record on February 13, 1998. The payment of future common
stock dividends will be evaluated on a periodic basis.
Management believes that current cash and cash equivalents, cash flows from
operations, and its established credit facilities should be sufficient during
fiscal 1998 to fund planned capital expenditures, working capital needs,
dividends, and other cash requirements.
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued).
Moore has conducted a review of all computer systems to identify and address the
code changes, testing and implementation procedures necessary to make these
systems Year 2000 compliant. Management believes that after modification to
existing software and conversion to new software, the Year 2000 problem will not
pose significant operational problems for Moore's computer systems. Moore
expects to be compliant by the end of calendar year 1998. Moore has also
initiated discussions with its suppliers and key customers to ensure that those
parties have taken appropriate steps to address Year 2000 issues in their
systems which may interface with Moore's systems or otherwise impact operations.
Moore has verified that its current product offerings are Year 2000 compliant.
For very limited older generation products, Moore is in communications with
customers with advice on recommended corrective actions. Amounts expended for
Year 2000 projects have not been and are not expected to be significant to
Moore's results of operations or financial condition.
14
<PAGE>
Item 8. Financial Statements and Supplementary Financial Information.
Moore Products Co.
Index To Consolidated Financial Statements
Consolidated Financial Statements included in Item 8: Page
----
Consolidated Income Statements for the years ended
December 31, 1997, 1996 and 1995 ........................................ 16
Consolidated Balance Sheets as of December 31, 1997 and 1996 ............... 17
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 ........................................ 18
Notes to Consolidated Financial Statements ............................ 19 - 31
Report of Independent Auditors ............................................. 32
15
<PAGE>
Consolidated Income Statements
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 164,247,000 $ 142,892,000 $ 121,037,000
Cost of sales 93,607,000 82,688,000 66,960,000
---------------- ---------------- ----------------
GROSS PROFIT 70,640,000 60,204,000 54,077,000
Selling, research, administrative and
general expenses 60,243,000 58,042,000 53,030,000
Write-down of joint venture assets --- 1,000,000 ---
Net gain from early retirement program --- (2,056,000) ---
---------------- ---------------- ----------------
OPERATING INCOME 10,397,000 3,218,000 1,047,000
Interest expense 172,000 466,000 438,000
---------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES 10,225,000 2,752,000 609,000
Income tax provision 3,757,000 1,474,000 350,000
---------------- ---------------- ----------------
NET INCOME $ 6,468,000 $ 1,278,000 $ 259,000
================ ================ ================
Net income per common share:
Basic $2.50 $ .49 $ .12
===== ===== =====
Diluted $2.31 $ .47 $ .12
===== ===== =====
</TABLE>
See Notes to Consolidated Financial Statements.
16
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
ASSETS 1997 1996
----------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,816,000 $ 4,066,000
Trade accounts receivable, less allowances of
$1,771,000 in 1997 and $830,000 in 1996 40,768,000 30,541,000
Inventories:
Completed instruments 3,590,000 4,554,000
Finished parts 9,078,000 11,091,000
Work in process 5,196,000 4,957,000
Raw materials 453,000 877,000
-------------- --------------
18,317,000 21,479,000
Prepaid expenses and deferred income taxes 4,209,000 3,608,000
-------------- --------------
TOTAL CURRENT ASSETS 67,110,000 59,694,000
PROPERTY, PLANT AND EQUIPMENT
Land 948,000 970,000
Buildings 14,381,000 14,367,000
Machinery and equipment 44,197,000 42,846,000
Less: Accumulated depreciation (44,257,000) (41,639,000)
-------------- --------------
15,269,000 16,544,000
OTHER ASSETS
Prepaid pension costs 11,613,000 9,809,000
-------------- --------------
$ 93,992,000 $ 86,047,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank $ --- $ 4,230,000
Accounts payable 8,861,000 6,315,000
Accrued compensation 4,890,000 2,638,000
Advances from customers 2,977,000 5,129,000
Accrued income taxes 1,893,000 1,187,000
Other accrued liabilities 7,254,000 4,868,000
-------------- --------------
TOTAL CURRENT LIABILITIES 25,875,000 24,367,000
OTHER LIABILITIES
Postretirement medical benefits and deferred taxes 7,628,000 7,126,000
STOCKHOLDERS' EQUITY
Preferred Stock, 5% cumulative, voting and convertible, par value $1 per
share:
Authorized - 325,000 shares
Issued and outstanding - 175,950 shares 176,000 176,000
Common Stock, par value $1 per share:
Authorized - 7,500,000 shares
Issued and outstanding - 2,592,628 shares
in 1997 and 2,585,972 shares in 1996 2,593,000 2,586,000
Capital in excess of par value 10,980,000 10,885,000
Retained earnings 48,627,000 42,200,000
Foreign currency translation adjustments (1,887,000) (1,293,000)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 60,489,000 54,554,000
-------------- --------------
$ 93,992,000 $ 86,047,000
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,468,000 $ 1,278,000 $ 259,000
Noncash (income) expenses:
Depreciation 3,542,000 3,384,000 3,347,000
Deferred income taxes (147,000) 146,000 90,000
Pension and other postretirement benefits (1,890,000) (805,000) (1,221,000)
Write-down of joint venture assets --- 1,000,000 ---
Net gain from early retirement program --- (2,056,000) ---
Changes in operating assets and liabilities:
Trade accounts receivable (10,227,000) 160,000 (11,232,000)
Inventories 3,162,000 (1,056,000) (4,297,000)
Accounts payable 2,546,000 242,000 3,215,000
Other accrued liabilities 2,386,000 787,000 1,295,000
Accrued compensation 2,252,000 332,000 547,000
Advances from customers (2,152,000) 2,563,000 440,000
Accrued income taxes 706,000 309,000 319,000
Prepaid expenses 134,000 (496,000) (947,000)
--------------- --------------- --------------
Net cash provided by (used in)
operating activities 6,780,000 5,788,000 (8,185,000)
INVESTING ACTIVITY
Net purchase of property, plant and
equipment (2,452,000) (2,897,000) (3,602,000)
FINANCING ACTIVITIES
(Decrease) increase in notes payable
to bank (4,230,000) (76,000) 4,306,000
Proceeds from issuance of common stock --- --- 8,000,000
Proceeds from exercise of stock options 102,000 45,000 ---
Dividends paid (41,000) --- ---
--------------- --------------- --------------
Net cash (used in) provided by
financing activities (4,169,000) (31,000) 12,306,000
Effect of exchange rate changes (409,000) 103,000 15,000
--------------- --------------- --------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (250,000) 2,963,000 534,000
Cash and cash equivalents at
beginning of year 4,066,000 1,103,000 569,000
--------------- --------------- --------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 3,816,000 $ 4,066,000 $ 1,103,000
=============== =============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
18
<PAGE>
Notes to Consolidated Financial Statements
NOTE A - Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of Moore and all subsidiaries. All significant intercompany accounts
and transactions have been eliminated. Investments in affiliated companies that
are not majority owned or controlled are accounted for using the equity method.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Sales: Moore recognizes revenue from sales of products as shipped and from
services as performed.
Cash and Cash Equivalents: Moore considers all highly liquid investments, with a
maturity of three months or less when purchased, to be cash equivalents. The
value reported for cash and cash equivalents approximates its fair value.
Concentrations of Credit Risk: Financial instruments that potentially subject
Moore to concentrations of credit risk consist principally of temporary cash
investments and trade receivables. Moore places its temporary cash investments
with high credit quality financial institutions that invest primarily in U.S.
Government instrumentalities, commercial paper of prime quality, certificates of
deposit, and bankers acceptances guaranteed by banks or savings and loan
associations that are members of the FDIC. Concentrations of credit risk with
respect to trade receivables are limited due to Moore's large number of
customers and their dispersion across many different industries and countries
worldwide. At December 31, 1997, Moore had no significant concentrations of
credit risk.
Inventories: Inventories are stated at the lower of cost or market. Cost of
domestic inventories (approximately 66% of consolidated inventories) was
determined by the last-in, first-out (LIFO) method. Current cost exceeded the
LIFO value of inventories by approximately $8,400,000 and $8,800,000 at December
31, 1997 and 1996, respectively. Cost of international inventories was
determined by the first-in, first-out (FIFO) method.
Property, Plant and Equipment: Property, plant and equipment are stated at cost.
Depreciation is provided over the estimated useful lives of the assets using
primarily the straight-line method.
Currency Translation: Balance sheets of Moore's international operations are
translated to U.S. dollars at the current exchange rate and income statements
are translated at the average exchange rate for the year; resulting translation
adjustments are made directly to a separate component of stockholders' equity.
Certain other transaction adjustments are reported in operations.
Research and Development: Research and development costs, which approximated
$11,097,000 in 1997, $11,416,000 in 1996, and $9,989,000 in 1995, are expensed
as incurred.
19
<PAGE>
NOTE A - Significant Accounting Policies (Continued)
Income Taxes: Income taxes are accounted for under the liability method
prescribed by FASB Statement No. 109. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
United States income taxes have not been provided on unremitted earnings of
international subsidiaries because Moore plans to continue to finance
international expansion and operating requirements by reinvestment of such
unremitted earnings. No material amount of income taxes would result from
remittance of such earnings.
Changes in Presentation of Comparative Statements: Certain reclassifications
have been made in prior years' financial statements and quarterly data presented
in Note M in order to conform with the current year basis of presentation.
Net Income per Share: In 1997, the FASB issued Statement No. 128, "Earnings per
Share." Statement No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented and, where
appropriate, restated to conform to the Statement No. 128 requirements.
Recently Issued Financial Accounting Standards: In 1997, the FASB issued
Statement No. 130, "Reporting Comprehensive Income," and Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Both
statements are effective for fiscal periods beginning after December 15, 1997,
with early adoption permitted. Moore is evaluating the effects these statements
will have on its financial reporting and disclosures. These statements are
expected to have no material effect on Moore's results of operations, financial
position, capital resources or liquidity.
NOTE B - Nonrecurring/Unusual Items
In 1996, Moore recorded a net pretax gain of $2,056,000 ($1,300,000 in the
second quarter and $756,000 in the fourth quarter) for the combined effects of
settlements, curtailments and special termination pension and medical benefits
in connection with an early retirement program offered to eligible employees in
the United States. See Notes J and K.
In the second quarter of 1996, Moore completed a review of joint venture
operations in Brazil. As a result of this review and the decision to refocus
business activities, all assets related to the joint venture with a carrying
value of $1,000,000 were written off.
20
<PAGE>
NOTE C - Credit Agreements
At December 31, 1997, Moore had lines of credit with U.S. and non-U.S. banks of
approximately $15,800,000, including a $12,300,000 combined U.S. dollar/U.K.
pound sterling committed revolving credit facility with terms extending through
December 30, 1998. The agreements provide the lender with a security interest in
trade accounts receivable and inventory of the U.S.-based parent company. The
loan agreement further requires maintenance of certain restrictive financial
covenants, including a limitation on the amount of dividends paid per year.
These restrictions are not likely to affect the payment of dividends. There were
no outstanding cash advances under this facility at December 31, 1997;
outstanding cash advances at December 31, 1996, were $3,430,000. Such cash
advances are made at interest rates tied to the bank's prime or LIBOR. This line
of credit supported approximately $500,000 of outstanding letters of credit as
of December 31, 1997.
Moore's Canadian subsidiary has a $3,500,000 credit facility subject to an
annual renewal and extension on May 31, 1998. Under terms of the agreement, the
lender has a security interest in certain assets of the Canadian subsidiary. The
loan agreement requires maintenance of certain restrictive financial covenants.
There were no outstanding cash advances under this facility at December 31,
1997; outstanding cash advances were $800,000 at December 31, 1996, and were
made at rates tied to the bank's prime interest rate.
Moore's United Kingdom subsidiary has approximately $750,000 in a separate
credit facility that generally supports periodic bonding and financial guarantee
requirements arising out of routine trade activities. At year end, there were no
cash advances under this facility.
Moore had only nominal temporary borrowings under credit facilities during 1997.
The weighted average interest rate on short-term borrowings outstanding as of
December 31, 1996, was 8.3%. Cash outlays for interest approximate interest
expense in each of the years ended December 31, 1997, 1996 and 1995. The fair
value of cash advances under credit agreements approximates the carrying value
due to the short-term maturity of these financial instruments.
NOTE D - Leases
Moore leases certain plant, office space and equipment for varying periods. It
is anticipated that in the normal course of business, leases will be renewed or
replaced by other leases. Rent expense for all operating leases of plant and
equipment was $2,700,000 in 1997, $1,800,000 in 1996, and $1,500,000 in 1995.
Minimum future rental commitments under operating leases with initial or
remaining lease terms in excess of one year at December 31, 1997, are as
follows:
1998 $2,500,000
1999 1,700,000
2000 1,100,000
2001 600,000
2002 400,000
----------
Total $6,300,000
==========
21
<PAGE>
NOTE E - Contingent Liabilities
Various legal actions and proceedings have been or may be initiated or asserted
against Moore in the ordinary course of business, including those pertaining to
environmental, contractual and general liability. While Moore has provided
reserves for the estimated ultimate liability of such claims, the final outcome
could further impact operations and liquidity in future periods, but, in the
opinion of management, will not have a materially adverse effect on the
financial position of Moore.
NOTE F - Stockholders' Equity
<TABLE>
<CAPTION>
Foreign
Capital in Currency
Preferred Common Excess of Retained Translation
Stock Stock Par Value Earnings Adjustments
-------------------------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 $ 176 $ 2,083 $ 3,343 $ 40,663 $ (1,602)
Net income --- --- --- 259 ---
Foreign currency translation adjustment --- --- --- --- 61
Issuance of restricted stock --- 500 7,500 --- ---
--------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1995 176 2,583 10,843 40,922 (1,541)
Net income --- --- --- 1,278 ---
Foreign currency translation adjustment --- --- --- --- 248
Exercise of stock options --- 3 42 --- ---
--------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1996 176 2,586 10,885 42,200 (1,293)
Net income --- --- --- 6,468 ---
Dividends paid on preferred stock --- --- --- (41) ---
Foreign currency translation adjustment --- --- --- --- (594)
Exercise of stock options --- 7 95 --- ---
--------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1997 $ 176 $ 2,593 $ 10,980 $ 48,627 $ (1,887)
========= ========== ========== ========== ==========
</TABLE>
In December 1995, Moore sold 500,000 shares of restricted common stock to the
Moore Products Co. Pension Plan for $8 million. Coincident with this private
placement of shares, Moore and the Pension Plan entered into a registration
rights agreement under which the Pension Plan trustee may request Moore to
register the securities.
The 5% cumulative Preferred Stock is entitled to 5 votes per share. In addition,
the preferred shares may, at the election of the holder, be converted into
common shares at a rate of 2.5 preferred shares for each common share. Cash
dividends on common shares can be paid only after preferred dividends have been
fully paid or declared and set aside for payment. Moore's current loan agreement
limits dividend payments to 50% of the previous quarter's net income after
having achieved positive net income for four consecutive quarters.
22
<PAGE>
NOTE G - Stock Option Plans
Moore follows Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25), and related interpretations in accounting for its
employee stock options, because, as discussed below, the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. No compensation expense is
recognized under APB 25, because the exercise price of Moore's stock options
equals the market price of the underlying stock on the date of grant.
Moore's 1994 Incentive Stock Option Plan authorizes the grant of options to key
employees and consultants for up to 750,000 shares of Moore's common stock.
Options granted have ten-year terms and generally become vested and exercisable
at the end of five years. The 1997 Non-Employee Directors' Equity Incentive Plan
authorizes the grant of options to outside directors for up to 50,000 shares of
Moore's common stock. Options under the 1997 Plan, which are granted
automatically to outside directors following each annual meeting, have ten-year
terms and become fully vested and exercisable at the end of six months.
A summary of Moore's stock option activity and related information for the years
ended December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Number of shares under stock options:
Outstanding at beginning of year 395,700 266,900 154,300
Granted 245,300 139,500 115,600
Exercised (7,100) (2,880) ---
Canceled (16,480) (7,820) (3,000)
---------- ---------- ---------
Outstanding at end of year 617,420 395,700 266,900
========== ========== =========
Exercisable at end of year 177,010 81,300 31,080
========== ========== =========
Weighted average exercise price:
Granted $26.36 $18.30 $15.63
Exercised 15.68 15.75 ---
Canceled 17.50 15.43 15.42
Outstanding at end of year 20.51 16.67 15.78
Exercisable at end of year 16.71 15.85 15.90
</TABLE>
23
<PAGE>
NOTE G - Stock Option Plans (continued)
Information with respect to stock options outstanding and exercisable at
December 31, 1997, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------- --------------------------
Range Number Weighted Average Weighted Number Weighted
of Outstanding Remaining Average Exercisable Average
Exercise at Life Exercise at Exercise
Prices 12/31/97 (in years) Price 12/31/97 Price
- -------------------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
$14.44 - $17.32 241,920 6.3 $15.81 125,460 $15.85
$17.33 - $20.21 133,200 8.3 18.30 44,550 18.37
$20.22 - $23.10 78,000 9.3 21.39 7,000 21.50
$23.11 - $25.99 2,000 4.3 23.38 --- ---
$26.00 - $28.88 162,300 9.8 28.88 --- ---
------- -------
617,420 8.1 $20.51 177,010 $16.71
======= =======
</TABLE>
FASB Statement No. 123 requires pro forma disclosure under the fair value method
of net income and income per share for stock options granted. The fair value for
options was estimated at the date of grant using the Black-Scholes option
pricing model. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because Moore's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options. The fair weighted average value
of options granted in each year and assumptions used in estimating fair value
under the Black-Scholes model are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Estimated fair value of options granted $11.33 $ 7.58 $ 6.28
====== ====== ======
Principal assumptions in applying the
Black-Scholes valuation model:
Expected life, in years 6 6 6
Risk-free interest rate 5.70% 6.22% 6.16%
Expected volatility 32.50% 27.10% 27.10%
Expected dividend yield 0.00% 0.00% 0.00%
</TABLE>
24
<PAGE>
NOTE G - Stock Option Plans (continued)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Had compensation cost
been determined based upon the fair value of stock options at grant date
consistent with FASB Statement No. 123, Moore's net income and income per share
would have been reduced to the pro forma amounts indicated below (in thousands,
except income per share information):
1997 1996 1995
-------------------------------------------
Pro forma net income $5,971 $1,067 $174
Pro forma income per share
Basic $ 2.30 $ .41 $.08
Diluted 2.14 .40 .08
NOTE H - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income $ 6,468,000 $ 1,278,000 $ 259,000
Preferred stock dividends (9,000) (9,000) (9,000)
------------- ------------- -------------
Numerator for basic earnings per share -
income available to common stockholders 6,459,000 1,269,000 250,000
Effect of dilutive securities:
Preferred stock dividends 9,000 9,000 9,000
------------- ------------- -------------
Numerator for diluted earnings per share -
income available to common stockholders
after assumed conversions $ 6,468,000 $ 1,278,000 $ 259,000
============= ============= =============
Denominator:
Denominator for basic earnings per
share - weighted average shares 2,587,662 2,584,154 2,100,900
Effect of dilutive securities:
Stock options 136,212 37,157 14,042
Convertible preferred stock 70,380 70,380 70,380
------------- ------------- -------------
Dilutive potential common shares 206,592 107,537 84,422
------------- ------------- -------------
Denominator for diluted earnings
per share - adjusted weighted average
shares and assumed conversions 2,794,254 2,691,691 2,185,322
============= ============= =============
Basic income per share $ 2.50 $ .49 $ .12
====== ====== ======
Diluted income per share $ 2.31 $ .47 $ .12
====== ====== ======
</TABLE>
25
<PAGE>
NOTE I - Income Taxes
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Income before income taxes consisted of the following:
United States $ 8,221 $ 2,371 $ 250
Other countries 2,004 381 359
--------- --------- --------
Total $ 10,225 $ 2,752 $ 609
========= ========= ========
Income tax provision consisted of the following:
Current:
Federal $ 2,828 $ 784 $ 154
State 677 50 ---
Other countries 399 494 106
--------- --------- --------
3,904 1,328 260
Deferred (147) 146 90
--------- --------- --------
TOTAL INCOME TAX EXPENSE $ 3,757 $ 1,474 $ 350
========= ========= ========
NET INCOME TAXES PAID $ 2,882 $ 924 $ 167
========= ========= ========
</TABLE>
The differences between the provision for income taxes and income tax expense
using the U.S. federal statutory rate were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Tax expense at the federal statutory rate (34%) $ 3,477 $ 936 $ 207
Losses in countries for which no tax benefit
is recognized 511 274 275
Losses in countries for which benefit is
recognized currently (897) (15) (387)
Other countries' rate differences 103 105 96
State income tax, net of federal tax benefit 374 100 (63)
Permanent differences 102 74 117
Other 87 --- 105
--------- --------- --------
Provision for income taxes $ 3,757 $ 1,474 $ 350
========= ========= ========
</TABLE>
26
<PAGE>
NOTE I - Income Taxes (continued)
The components of deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 1,776 $ 1,915 $ 1,704
Prepaid pension costs 4,522 4,197 2,554
--------- --------- --------
Total deferred tax liabilities 6,298 6,112 4,258
Deferred tax assets:
Net operating loss carryforwards -
federal and state --- --- 35
Net operating loss carryforwards -
other countries 2,293 3,161 3,171
Postretirement medical benefits 1,453 1,489 1,045
Inventories 1,655 1,475 807
Vacation obligations 535 460 424
Alternative minimum tax credits --- 264 480
Accruals and reserves 1,816 1,315 531
--------- --------- --------
Total deferred tax assets 7,752 8,164 6,493
Valuation allowance for deferred tax assets (2,519) (3,161) (3,171)
--------- --------- --------
Net deferred tax assets 5,233 5,003 3,322
--------- --------- --------
Net deferred tax liabilities $ 1,065 $ 1,109 $ 936
========= ========= ========
</TABLE>
Moore's international subsidiaries have net operating loss carryforwards that
amount to approximately $6.7 million for income tax purposes, including
approximately $4.3 million with unlimited expiration. The balance of $2.4
million expires in varying amounts beginning in years 1998 though 2005. For
financial reporting purposes, a valuation allowance has been recognized to
offset the deferred tax assets related to these carryforwards. Utilization of
these net operating losses is contingent upon various international operations
generating sufficient taxable income, which cannot be ascertained at this time.
27
<PAGE>
NOTE J - Employee Retirement Plans
Moore has pension plans that cover substantially all United States and Canadian
employees. These plans provide benefits based upon years of service and
compensation prior to retirement. Pension costs are funded as actuarially
determined and to the extent cash contributions are deductible for tax purposes.
The following is a summary of net periodic pension income:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 2,450 $ 2,626 $ 2,017
Interest cost on projected benefit obligation 3,830 4,141 3,770
Actual return on plan assets (29,852) (19,677) (23,167)
Net amortization and deferral 22,459 12,270 16,306
--------- -------- --------
Net periodic pension income $ (1,113) $ (640) $ (1,074)
========= ======== ========
</TABLE>
During 1996, a special retirement program was offered to encourage retirements
among certain U.S.-based employees through July 31, 1996. The combined net
effect of settlements, curtailments and special termination benefits in
connection with this program resulted in a pretax, noncash gain of $3,066,000.
The funded status of defined benefit pension plans as of December 1 is as
follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------
(Thousands of dollars)
<S> <C> <C>
Plan assets at fair value (primarily stocks
and U.S. Government obligations) $ 127,790 $ 103,724
Less projected benefits:
Vested 44,351 43,868
Accumulated, not vested 331 233
Effects of future pay increases 13,501 12,482
---------- ---------
Plan assets over projected benefits 69,607 47,141
Adjustments:
Unrecognized net asset (3,533) (4,256)
Unrecognized net gains (54,461) (33,076)
---------- ---------
Net pension asset recognized in the
consolidated balance sheets $ 11,613 $ 9,809
========== =========
</TABLE>
Significant assumptions used in accounting for the pension plans are:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Weighted average discount rate 7.00% 7.25% 7.25%
Long-term rate of return on plan assets 8.00% 8.00% 8.00%
Rate of increase in future
compensation levels Graded from Graded from Graded from
7.44% to 2.80% 7.44% to 2.80% 7.44% to 2.80%
at ages 21 to 60 at ages 21 to 60 at ages 21 to 60
</TABLE>
28
<PAGE>
NOTE J - Employee Retirement Plans (continued)
In addition to the defined benefit plans described above, Moore also sponsors
defined contribution plans within the United States and the United Kingdom.
Under the U.S. plan, Moore matches 50% of participants' tax deferred
contributions on the first 4% of participants' compensation. The U.K. plans
cover all full-time employees and provide for contributions of 6% of salary.
Amounts charged to expense for these plans were approximately $906,000 in 1997,
$764,000 in 1996, and $647,000 in 1995.
NOTE K - Postretirement Benefits Other Than Pension
Moore provides medical insurance benefits to early retirees in the United States
until they reach age 65.
Net periodic benefit costs include the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Service cost of benefits earned $ 92 $ 86 $ 68
Interest cost on the accumulated postretirement
benefit obligation ("APBO") 213 183 141
Net amortization and deferral (15) (17) (42)
--------- --------- --------
Total net periodic benefit cost $ 290 $ 252 $ 167
========= ========= ========
</TABLE>
In addition to the net periodic benefit cost, in 1996, Moore recognized a net
curtailment loss of $1,010,000 related to a special early retirement program
described in Notes B and J.
Summary of the unfunded APBO as of December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
-----------------------------
(Thousands of dollars)
<S> <C> <C>
Early retirees $ 1,645 $ 1,887
Fully eligible active employees 289 267
Other active participants 1,195 982
--------- ---------
Total APBO 3,129 3,136
Unrecognized net gain 531 610
--------- ---------
Accrued postretirement medical benefits
recognized in accompanying
consolidated balance sheets $ 3,660 $ 3,746
========= =========
</TABLE>
The discount rate used in determining the APBO was 7.00% at December 31, 1997,
and 7.25% at December 31, 1996. The assumed health care cost trend rate used in
measuring the APBO was 8% in 1996, declining to 7% in the year 1997 and
remaining level thereafter. If the health care cost trend rate assumptions were
increased by 1%, the net periodic postretirement benefit cost for 1997 would
increase by approximately $38,000 and the APBO as of December 31, 1997, would
increase by approximately $275,000.
29
<PAGE>
NOTE L - Segment and Geographic Information
Moore, operating in one industry segment, is in the business of developing,
manufacturing and selling process control instruments and systems. In addition
to its principal manufacturing operations and markets in the United States,
Moore conducts sales, customer support and service operations out of other
locations in Europe, North America and the Pacific Rim. The following table
presents financial information by geographic region for the years 1997, 1996 and
1995.
<TABLE>
<CAPTION>
United
States Europe Other Eliminations Consolidated
----------------------------------------------------------------------------
1997 (Thousands of dollars)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 121,687 $ 23,403 $ 19,157 $ --- $ 164,247
Sales and transfers between
geographic areas 16,062 1,032 2,822 (19,916) ---
----------- ---------- ------------ ----------- -----------
Total revenue $ 137,749 $ 24,435 $ 21,979 $ (19,916) $ 164,247
=========== ========== ============ =========== ===========
Operating income $ 8,180 $ 2,133 $ 37 $ 47 $ 10,397
Identifiable assets 79,427 18,606 11,462 (15,503) 93,992
1996
Sales to unaffiliated customers $ 104,898 $ 18,582 $ 19,412 $ --- $ 142,892
Sales and transfers between
geographic areas 16,039 1,263 2,609 (19,911) ---
----------- ---------- ------------ ----------- -----------
Total revenue $ 120,937 $ 19,845 $ 22,021 $ (19,911) $ 142,892
=========== ========== ============ =========== ===========
Operating income (loss) $ 2,901 $ (533) $ 1,209 $ (359) $ 3,218
Identifiable assets 73,353 12,606 12,087 (11,999) 86,047
1995
Sales to unaffiliated customers $ 92,367 $ 14,496 $ 14,174 $ --- $ 121,037
Sales and transfers between
geographic areas 11,956 910 2,152 (15,018) ---
----------- ---------- ------------ ----------- -----------
Total revenue $ 104,323 $ 15,406 $ 16,326 $ (15,018) $ 121,037
=========== ========== ============ =========== ===========
Operating income (loss) $ 815 $ (63) $ 544 $ (249) $ 1,047
Identifiable assets 67,129 13,453 10,355 (12,744) 78,193
</TABLE>
In the above table, "United States" includes all domestic operations. "Other"
includes subsidiaries located in Canada, Mexico, Australia and Singapore. Sales
between geographic areas are accounted for at cost plus a reasonable profit.
Identifiable assets are those assets identified with the operations in each
area. United States sales to unaffiliated customers include export sales of
$12.0 million in 1997, $12.9 million in 1996 and $10.0 million in 1995.
30
<PAGE>
NOTE M - Quarterly Data (Unaudited)
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1997
Quarter Ended
March 31 June 30 September 30 December 31
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $37,818 $37,897 $40,423 $48,109
Gross profit 15,805 16,354 17,749 20,732
Net income 1,055 1,048 1,787 2,578
Net income per share:
Basic $ .41 $ .40 $ .69 $ .99
Diluted .38 .38 .65 .90
</TABLE>
<TABLE>
<CAPTION>
1996
Quarter Ended
March 31 June 30* September 30 December 31*
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $35,155 $35,968 $35,983 $35,786
Gross profit 15,150 14,631 15,454 14,969
Net income 229 59 352 638
Net income per share:
Basic $ .09 $ .02 $ .14 $ .25
Diluted .08 .02 .13 .24
</TABLE>
* See Note B for explanation of unusual items.
The 1996 and first three quarters of 1997 net income per share amounts have been
restated to comply with FASB Statement No. 128, "Earnings per Share."
31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Moore Products Co.
We have audited the accompanying consolidated balance sheets of Moore
Products Co. as of December 31, 1997 and 1996, and the related consolidated
income statements and statements of cash flows for each of the three years in
the period ended December 31, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Moore Products
Co. at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
\s\ Ernst & Young LLP
---------------------
Philadelphia, Pennsylvania
January 29, 1998
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
32
<PAGE>
PART III
As indicated in the following table, the information required to be
presented in Part III of this report (other than the information concerning
executive officers as set forth at the end of Item 4 herein) is hereby
incorporated by reference to Moore's definitive Proxy Statement for its 1998
Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission within 120 days of the end of the fiscal year covered by this report:
<TABLE>
<CAPTION>
Material in Proxy Statement for 1998
Annual Meeting which is incorporated
herein by reference
------------------------------------------------
Form 10-K Item No. and Item Caption Caption
- ---------------------------------------------- ------------------------------------------------
<S> <C>
10 Directors and Executive Officers of Moore. "1. ELECTION OF DIRECTORS" and "COMPLIANCE WITH
SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF
1934"
11 Executive Compensation. "ADDITIONAL INFORMATION"
12 Security Ownership of Certain Beneficial "Beneficial Ownership of Principal Shareholders
Owners and Management. and Management"
13 Certain Relationships and Related "Compensation of Directors"
Transactions.
</TABLE>
33
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements
The following consolidated financial statements of Moore and its
subsidiaries, are included in Item 8:
Consolidated Income Statements -
Years ended December 31, 1997, 1996, and 1995
Consolidated Balance Sheets - December 31, 1997
and December 31, 1996
Consolidated Statements of Cash Flows -
Years ended December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements - December 31, 1997
Report of Independent Auditors
(a)(2) Financial Statement Schedule
Schedule
Page Number
---- --------
Valuation and Qualifying Accounts 38 II
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
(a)(3) Exhibits
Exhibit
Number Description
------- --------------------------------------------------
3a Restated Articles of Incorporation. (Filed herewith.)
3b By-Laws, as amended through May 2, 1991.
(Incorporated by reference to Exhibit 3b to
Moore's 1991 Form 10-K.)
4 Instruments defining the rights of security
holders. (Reference is made to (i) Articles 5 and
10 of Moore's Articles of Incorporation (Exhibit
3a to this report) and (ii) Articles III, IV,
VIII, X and XIII of Moore's By-Laws (Exhibit 3b to
this report).)
34
<PAGE>
Exhibit
Number Description
------- -------------------------------------------------
10a Registration Rights Agreement entered into as of
December 18, 1995, between Moore Products Co. and
Mellon Bank N.A., as trustee for the Moore
Products Co. Pension Plan. (Incorporated by
reference to Exhibit 10 to Moore's 1995 Form
10-K.)
10b* 1994 Incentive Stock Option and Non-qualified
Stock Option Plan, as amended. (Incorporated by
reference to Exhibit 10a to Moore's Form 10-Q for
the quarter ended September 30, 1997.)
10c* 1997 Non-Employee Directors' Equity Incentive
Plan. (Incorporated by reference to Exhibit 10b to
Moore's Form 10-Q for the quarter ended September
30, 1997.)
10d* Form of agreement with Raymond M. Reed, dated June
7, 1996. (Incorporated by reference to Exhibit 10a
to Moore's Form 10-Q for the quarter ended
September 30, 1996.)
10e* Form of agreement with Edward T. Hurd, dated June
13, 1996. (Incorporated by reference to Exhibit
10b to Moore's Form 10-Q for the quarter ended
September 30, 1996.)
10f* Form of agreement with F. Lawton Hindle, dated
December 28, 1994. (Incorporated by reference to
Exhibit 10a to Moore's 1994 Form 10-K.)
10g* Summary of Employment Terms with Donald E. Bogle.
(Filed herewith)
21 Subsidiaries of Moore. (Filed herewith.)
23 Consent of Independent Auditors. (Filed herewith.)
27.1 Financial Data Schedule for Year Ended December 31, 1997.
(Filed herewith)
27.2 Restated Financial Data Schedule for Years Ended December 31,
1996 and 1995. (Filed herewith)
27.3 Restated Financial Data Schedule for Quarters Ended March 31,
1997, June 30, 1997 and September 30, 1997. (Filed herewith)
27.4 Restated Financial Data Schedule for Quarters
Ended March 31, 1996, June 30, 1996 and September
30, 1996. (Filed herewith)
* Indicates a management contract, arrangement or compensatory plan.
(b) No reports on Form 8-K were filed by Moore during the last quarter of
1997.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Moore has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MOORE PRODUCTS CO.
\s\ D. E. Bogle
--------------------------
Date: March 25, 1998 D. E. Bogle, 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 Moore and in
the capacities and on the dates indicated.
\s\ D. E. Bogle
--------------------------
Date: March 25, 1998 D. E. Bogle, President,
Chief Executive Officer and Director
\s\ E. J. Curry
--------------------------------------
Date: March 25, 1998 E. J. Curry, Executive Vice President,
Chief Operating Officer and Director
\s\ R. E. Wisniewski
------------------------------------------
Date: March 25, 1998 R. E. Wisniewski
Secretary and Treasurer
(Principal Financial & Accounting Officer)
---------------------------
Date: R. B. Adams, Director
---------------------------
Date: F. L. Hindle, Director
\s\ E. T. Hurd
---------------------------
Date: March 25, 1998 E. T. Hurd, Director
\s\ J. O. Moore
---------------------------
Date: March 25, 1998 J. O. Moore, Director
---------------------------
Date: T. C. Moore, Director
\s\ W. B. Moore
---------------------------
Date: March 25, 1998 W. B. Moore, Director
---------------------------
Date: R. H. Owens, Director
---------------------------
Date: R. M. Reed, Director
\s\ E. G. Rorke
---------------------------
Date: March 25, 1998 E. G. Rorke, Director
36
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- --------------------------------------------------------------------
3a Restated Articles of Incorporation. (Filed herewith.)
10g Summary of Employment Terms with Donald E. Bogle. (Filed herewith.)
21 Subsidiaries of Moore. (Filed herewith.)
23 Consent of Independent Auditors. (Filed herewith.)
27.1 Financial Data Schedule for Year Ended December 31, 1997.
(Filed herewith.)
27.2 Restated Financial Data Schedule for Years Ended December 31, 1996
and 1995. (Filed herewith.)
27.3 Restated Financial Data Schedule for Quarters Ended March 31,
1997, June 30, 1997 and September 30, 1997. (Filed herewith.)
27.4 Restated Financial Data Schedule for Quarters Ended March 31,
1996, June 30, 1996 and September 30, 1996. (Filed herewith.)
37
<PAGE>
Moore Products Co.
SCHEDULE II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
--------------------------
Charged
Balance at Charged to to Other
Beginning Costs and Accounts Deductions Balance at End
Description of Period Expenses - Describe - Describe of Period
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Reserves and allowances
deducted from asset accounts:
Allowance for
doubtful accounts $830,000 $1,016,000 $ --- $75,000(1) $1,771,000
YEAR ENDED DECEMBER 31, 1996
Reserves and allowances
deducted from asset accounts:
Allowance for
doubtful accounts $205,000 $ 647,000 $ --- $22,000(1) $ 830,000
YEAR ENDED DECEMBER 31, 1995
Reserves and allowances
deducted from asset accounts:
Allowance for
doubtful accounts $200,000 $ 27,000 $ --- $22,000(1) $ 205,000
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
38
Exhibit 3a
RESTATED ARTICLES OF INCORPORATION
OF
MOORE PRODUCTS CO.
(A Pennsylvania Business Corporation)
In compliance with the requirements of Sections 1914 and 1915 of the
Pennsylvania Business Corporation Law of 1988, as amended, (15 Pa. C.S.A.
ss.1914 and ss.1915), Moore Products Co. hereby restates its Articles of
Incorporation, as heretofore amended, in their entirety to read as follows:
First. The name of the corporation is Moore Products Co.
Second. The location and post office address of its registered office
in this Commonwealth is Sumneytown Pike, Spring House, Montgomery
County, Pennsylvania 19477.
Third. To manufacture, sell and deal in instruments and gages of any
and all kinds, with parts and supplies therefor, and to have all
powers necessary and essential thereto.
Fourth. The term of its existence is perpetual.
Fifth. The aggregate number of shares of capital stock which the
Company shall have authority to issue is 7,825,000 shares divided
into 325,000 shares of Preferred Stock of the par value of $1 per
share (the "Preferred Shares"), and 7,500,000 shares of Common Stock
of the par value of $1 per share (the "Common Shares").
The voting rights, preferences, qualifications, privileges,
limitations, options, conversion rights and other special rights of
each class, and the provisions authorizing the Board of Directors of
the Company (the "Board") to create and designate series and to fix
and determine certain variations in the relative rights and
preferences as between series of Preferred Shares are as follows:
1. Series. Preferred Shares may be divided into and issued in
one or more series from time to time as herein provided. The
Preferred Shares of all series shall be identical, except as to the
following rights and preferences, in respect of any or all of which
there may be variations as between series, namely:
<PAGE>
(a) The designation of each series and the number of
shares initially included in or thereafter added to such
series;
(b) The rate of dividend (hereinafter called the
"Dividend Rate") specified for such series, payable as set
forth herein;
(c) The price, which may vary according to the time and
circumstances of redemption (such price being hereinafter
called the "Redemption Price"), at which shares of such series
may be redeemed in accordance with the provisions for
redemption set forth herein; and
(d) The price, which may vary according to the time and
circumstances of conversion, at which the shares of such
series may be converted into Common Shares (such price being
hereinafter called the "Conversion Price"), in accordance with
the provisions for conversion and subject to adjustment as set
forth herein.
The designation of each series (which shall be such as to
distinguish the shares of such series from the shares of all other
series and classes) and the relative rights and preferences thereof
shall be specified prior to the issuance thereof by resolutions of
the Board and as provided by law, except that the relative rights and
preferences of the Series A Preferred Shares shall be as specified in
these Articles.
2. Dividends. The Preferred Shares shall entitle the holders
to receive, as and when declared by the Board, cumulative dividends
at the Dividend Rate specified for the series and no more, out of
funds legally available therefor, in cash or (subject to the
limitations set forth below) in Preferred Shares, in preference to
the holders of the Common Shares. Dividends on the Preferred Shares
may be declared and paid quarterly, semi-annually or annually, in the
discretion of the Board on such dates as it may determine; and if
full cumulative dividends in cash or in Preferred Shares shall not
have been paid or declared and set apart for payment for the first
three fiscal quarters in any year, no dividend shall be paid or
distribution made thereafter on the Common Shares (other than
dividends payable in Common Shares) until full cumulative dividends
in cash or in Preferred
-2-
<PAGE>
Shares for such year and all prior periods shall have been paid or
declared and set apart for payment. If in any year there shall be
paid one or more stock dividends payable in Common Shares upon the
outstanding Common Shares, there may also be declared and paid an
equal number of stock dividends payable in Preferred Shares upon the
outstanding Preferred Shares in lieu of cash; but in no case shall
any such dividend on the Preferred Shares be at a percentage rate
higher than the rate of such dividend on the Common Shares, nor shall
the aggregate of cash and stock dividends paid on any series of
Preferred Shares exceed in percentage of par value the Dividend Rate
specified for such series, on a cumulative basis, taking the
Preferred Shares distributed in the dividend at a value of $1 per
share. Preferred Shares issued in a stock dividend may be of a series
different from any series theretofore outstanding or, in the
discretion of the Board, may constitute additional shares of any
series. Subject to the foregoing provisions, dividends on the Common
Shares shall be payable as and when declared by the Board in its
discretion out of funds legally available therefor.
3. Voting Rights. The Preferred Shares of each series shall
entitle the holders to five (5) votes per share, and the Common
Shares shall entitle the holders to one (1) vote per share, in the
election of directors and all other corporate matters submitted to a
shareholders' vote, without voting separately by series or classes
except as otherwise required by law or by the Company's Articles of
Incorporation or Bylaws. Shareholders shall have no right to cumulate
their votes in the election of directors.
4. Redemption and Retirement of Preferred Shares. The
Preferred Shares of each series shall be subject to redemption at the
option of the Company, as a whole at any time or in part from time to
time, on thirty (30) days' written notice to the holders of the
shares to be redeemed, at the Redemption Price specified for the
series plus an amount equal to all unpaid cumulative dividends
accrued thereon to the date fixed for redemption in the notice,
whether or not earned. If less than all the Preferred Shares are to
be redeemed, those to be redeemed shall be selected by lot or pro
rata or by such other equitable method as the Board shall direct. If
the Company shall deposit in a bank, bank and trust company or
national banking association in the City of Philadelphia sufficient
-3-
<PAGE>
funds to pay the full Redemption Price of the shares to be redeemed
and all dividends accrued thereon to the date fixed for redemption,
in trust to be paid to the holders of such shares upon due surrender
of the certificates therefor, and shall state in the notice of
redemption that such deposit has been or will be made, then from and
after the date fixed for redemption in such notice or the date on
which the deposit is made, whichever is later, the shares to be
redeemed shall no longer be deemed to be outstanding, and the holders
thereof shall have no other rights than to receive the amount of the
Redemption Price and dividends aforesaid from the depository upon
surrender of the certificates for such shares properly indorsed. Upon
any redemption of the Preferred Shares they shall be retired and
cancelled and shall not be reissued.
5. Restriction on Redemptions and Purchases. The Company shall
not call for redemption or purchase less than all the outstanding
Preferred Shares unless full cumulative dividends on all the
outstanding Preferred Shares shall have been paid or declared and set
apart for payment in respect of all periods up to the end of the
preceding year.
6. Conversion Rights. The Preferred Shares of any series may
at the election of the holder be converted into Common Shares in
whole at any time or in part from time to time, prior to redemption,
at the Conversion Price specified for such series, subject to
adjustment of such price as hereinafter provided. Any Preferred
Shares which have been called for redemption may be converted at any
time up to but not later than the close of business on the date fixed
for redemption in the aforesaid notice, unless default shall be made
and be continuing in payment therefor. To exercise the right of
conversion the holder shall surrender the certificate for the
Preferred Shares to be converted, properly indorsed, at the office of
the Company in Philadelphia, or at such other place as the Board may
determine and as shall be specified by written notice given to the
holders of Preferred Shares. In no event upon conversion shall there
be made any allowance or adjustment in respect of dividends on shares
of either class. Upon any conversion of Preferred Shares they shall
be retired and cancelled and shall not be reissued.
To protect the conversion privilege from dilution the
Conversion Price shall be subject to adjustment
-4-
<PAGE>
according to the following provisions:
(1) In determining the Conversion Price the Preferred Shares
shall be taken at $1 per share, so that the initial Conversion Price
shall be expressed in terms of the dollars and cents resulting from
multiplying $1 by the number of whole and fractional Preferred Shares
of the particular series that must be surrendered upon conversion
into one (1) Common Share.
(2) Whenever the Company shall issue any Common Shares in
excess of 364,518 (all Common Shares in excess of that amount being
hereinafter called "Additional Shares"), and the Additional Shares
are issued at a price (calculated as hereinafter provided) which is
less than the Conversion Price, applicable to any one or more series,
in effect immediately prior to the issue of such Additional Shares,
then the Conversion Price applicable to each such series shall be
adjusted forthwith, separately for each series having a different
Conversion Price, and as often as such event occurs, to an amount
determined as follows:
(a) The number of Common Shares outstanding immediately
prior to the issue of Additional Shares shall be multiplied by
the Conversion Price then in effect; to the result there shall
be added the price at which the Additional Shares were issued;
and the sum so obtained shall be divided by the number of
Common Shares outstanding immediately after such issue. The
quotient shall be the adjusted Conversion Price of the Common
Shares until a further adjustment is required, provided that
the Conversion Price shall in no event be increased by any
adjustment resulting from an issue of Additional Shares, and
provided that the Conversion Price shall be adjusted to the
nearest cent disregarding fractions.
(b) If in any calendar year the Company issues
Additional Shares as one or more stock dividends not in the
aggregate exceeding 5% of the largest number of Common Shares
outstanding at any time in such calendar year, or if it issues
Additional Shares at any time upon conversion of Preferred
Shares, or if it issues Additional Shares in any calendar year
(otherwise than as a stock dividend) for consideration less
than the Conversion Price then in effect but in an
-5-
<PAGE>
aggregate amount less than 5% of the number of Common Shares
outstanding at the beginning of that calendar year, then in
each such case or combination of cases the Additional Shares
so issued shall be deemed to have been issued for a price
equal to the Conversion Price, and no adjustment shall be made
therefor; but if the Company shall issue Additional Shares as
one or more stock dividends exceeding such 5% in any calendar
year, or as a subdivision of the outstanding Common Shares
into a greater number of Common Shares, the Additional Shares
which (as a stock dividend) exceed such 5% or which are issued
in such subdivision shall be deemed to have been issued at a
price of zero; and if in any calendar year the Company shall
issue Additional Shares (otherwise than as a stock dividend)
for consideration less than the Conversion Price then in
effect and in an aggregate amount exceeding 5% of the number
of Common Shares outstanding at the beginning of that calendar
year, adjustment of the Conversion Price shall be made on the
basis of the consideration for all the Additional Shares so
issued (otherwise than as a stock dividend) in that calendar
year. In determining the number of Common Shares outstanding
at the beginning of a calendar year, for the purposes of this
paragraph, adjustment shall be made retroactively to reflect
any subsequent subdivision of outstanding shares or stock
dividend in excess of 5% aforesaid effective at or before the
date as of which such determination is made.
(c) If the Company shall issue any securities (other
than Preferred Shares) convertible into Common Shares, or
options for the purchase of Common Shares, such action shall
be deemed to be an issue of Additional Shares occurring as of
the date of issue of such securities in the amount of the
total number of Common Shares initially issuable upon
conversion of such securities or exercise of such options; and
the aggregate consideration (if any) for which such securities
or options were issued, plus the additional consideration (if
any) initially payable upon conversion of such securities or
exercise of such options, shall be deemed to be the price of
the Additional Shares.
(d) If any part of the consideration
-6-
<PAGE>
for Additional Shares consists of property or services, the
fair value of such property or services as determined by the
Board in connection with the issue shall be deemed to be the
consideration therefor; and the price or consideration for an
issue of Additional Shares shall be determined without
deduction for the amount of any commissions, underwriting
charges or expenses paid or allowed by the Company in
connection with such issue.
(e) For purposes of adjusting the Conversion Price, the
term "Common Shares" shall mean Common Shares now authorized
and shares of any class by whatever name designated which does
not have priority over the Common Shares in respect of
dividends and distribution of assets.
(3) If the Company shall at any time be consolidated or
merged with or into, or shall sell its property substantially as an
entirety to, one or more other corporations, or in the event of any
recapitalization or reclassification of its shares, proper provision
shall be made as part of the terms of such transaction so that the
holders of Preferred Shares shall be entitled to conversion and other
rights equivalent to those granted hereunder.
7. Liquidation Preference. Upon any liquidation, dissolution
or winding up of the Company the holders of Preferred Shares without
distinction as to series shall be entitled, in preference to the
holders of Common Shares, to receive distribution out of assets
available therefor to the amount of $1 per share if such event be
involuntary, or $1.05 per share if it be voluntary, together in
either case with an amount equal to full cumulative dividends unpaid
and accrued thereon to the date fixed for distribution (whether or
not earned), and no more. The assets remaining thereafter shall be
distributed among the holders of Common Shares, pro rata according to
the number of shares held by them respectively.
8. Modification of Rights. No modification of any of the
rights, preferences or privileges of the Preferred Shares of any
series shall be made by amendment of the Articles of Incorporation,
merger, consolidation, sale of assets substantially as an entirety,
voluntary liquidation, or otherwise, without either (a) the prior
written consent of all the holders of
-7-
<PAGE>
Preferred Shares adversely affected by such modification, or (b) the
prior consent of holders owning 66-2/3% of the outstanding Preferred
Shares as a class and 66-2/3% of the outstanding Preferred Shares of
each series adversely affected by such modification, given by vote in
person or by proxy at a duly constituted meeting of such holders.
9. Series A Preferred Shares. There is hereby created and
established a series of Preferred Shares with the designation and
initial number of shares, Dividend Rate, Redemption Price and
Conversion Price hereby specified as follows:
(a) Designation of Series and Number of Shares: The
series is hereby designated the Series A Preferred Shares, which
shall consist of 176,000 Preferred Shares.
(b) Dividend Rate: Five per cent (5%) of the par value
of the shares, per annum.
(c) Redemption Price: One Dollar Five Cents ($1.05) per
share.
(d) Conversion Price: Two Dollars Fifty Cents ($2.50),
being at the rate of 2 1/2 Series A Preferred Shares for each Common
Share.
Sixth. The value of the property with which the corporation will
begin business is $500.00.
Seventh. The names and addresses of the first directors:
Name Address
---- (including street number, if any)
---------------------------------
C.B. Moore Uwchland P.O., Chester County Pa.
Chas. H. Thompson 1058 Huntingdon Pike, Huntingdon
Valley, Pa.
Walter G. Trumbower 245 Berkley Road, Glenside, Pa.
Robert Buhner 2104 Benezet Road, Abington, Pa.
James J. FitzGerald 546 Highland Avenue, Glenside, Pa.
C.H. Welles, III Waverly, Pa.
-8-
<PAGE>
Eighth. In furtherance and not in limitation of the powers conferred
by statute the board of directors is expressly authorized to make,
alter, amend and repeal by-laws, subject to the power of the
shareholders to change or repeal such by-laws.
- -----------------
Articles First, Third, Fourth, Sixth, Seventh and Eighth (formerly Article
Tenth) have not been amended since the Company's original Articles of
Incorporation were filed in December 1953.
-9-
Exhibit 10g
Summary of Employment Terms with Donald E. Bogle
The Company and Mr. Bogle have agreed upon certain basic terms of employment
that it is expected will ultimately be incorporated into a written employment
agreement. The basic elements of that agreement are as follows: Mr. Bogle's
compensation as approved by the Compensation Committee includes a base salary of
$250,000 per year plus a bonus ranging from 25% to 50% of base salary if certain
business plan objectives are achieved. Long-term compensation tied to
shareholder value was provided with the granting in 1997 of non-qualified stock
options to purchase 100,000 shares of common stock. Half of the granted shares
vest on January 1, 1999. The remaining 50,000 shares vest on January 1, 2003,
but vesting will be accelerated upon achievement of certain operating
performance goals. Furthermore, if certain operating goals are achieved for 1999
an additional grant of options for 50,000 shares will be made at the then
current common stock market price. In addition, to the above the Company will
reimburse Mr. Bogle for relocation costs, grossed up for taxes and will provide
employee benefits, use of an automobile, and premiums on an executive life
insurance policy. It is contemplated that in the event of termination of
employment in certain circumstances, Mr. Bogle will be entitled to one years
salary plus bonus to the extent earned, continuation of various insurance
benefits, and immediate vesting of granted options to be exercised within one
year.
Exhibit 21
SUBSIDIARIES OF REGISTRANT*
---------------------------
State or Other
Jurisdiction of
Incorporation or
Name of Subsidiary Organization
- ----------------------------------------- ----------------
Moore Products Co. (Canada) Inc. Canada
Moore Products Co. (U.K.) Limited England
Moore Products Co. B.V. Netherlands
Moore Products Co. (Italia) S.r.l. Italy
Moore Products Co. (France) SARL France
Moore Products Co. (Australia) Pty. Ltd. Australia
Moore Products Co. (S) Pte Ltd Singapore
Moore Products de Mexico S.A. de C.V. Mexico
*The names of certain subsidiaries are omitted pursuant to Item 601(b)(21)(ii)
of Regulation S-K.
Exhibit 23
----------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-82948 and No. 333-41895) pertaining to the Incentive Stock
Option and Non-Qualified Stock Option Plan and Registration Statement (Form S-8
No. 333-41893) pertaining to the 1997 Non-Employee Directors' Equity Incentive
Plan of Moore Products Co. of our report dated January 29, 1998, with respect to
the consolidated financial statements and schedule of Moore Products Co.
included in the Annual Report (Form 10-K) for the year ended December 31, 1997.
\s\ Ernst & Young LLP
Philadelphia, Pennsylvania
March 25, 1998
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