<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to________.
Commission File Number 0-19818
ROPER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0263969
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
160 BEN BURTON ROAD
BOGART, GEORGIA 30622
(Address of principal executive offices) (Zip Code)
(706) 369-7170
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X NO ________
-----
The number of shares outstanding of the Registrant's common stock as of
September 8, 1997 was 30,874,154.
<PAGE>
ROPER INDUSTRIES, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED JULY 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements of Earnings 1
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
------------------ -----------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 88,523 $ 59,947 $210,650 $ 159,948
Cost of sales 43,740 30,259 99,461 78,760
- --------------------------------------------------------------------------------
Gross profit 44,783 29,688 111,189 81,188
Selling, general and
administrative expenses 25,428 18,242 65,594 47,409
- --------------------------------------------------------------------------------
Income from operations 19,355 11,446 45,595 33,779
Interest expense 1,706 1,099 4,217 1,778
Other income 106 14 553 106
- --------------------------------------------------------------------------------
Earnings before income taxes 17,755 10,361 41,931 32,107
Income taxes 6,125 3,372 14,325 10,656
- --------------------------------------------------------------------------------
Net earnings $ 11,630 $ 6,989 $ 27,606 $ 21,451
================================================================================
Per share data:
Earnings per common share $ 0.37 $ 0.23 $ 0.89 $ 0.70
================================================================================
Cash dividends per common share $ 0.045 $ 0.038 $ 0.135 $ 0.113
================================================================================
Weighted avg. common shares outstanding 31,491 31,044 31,190 30,835
================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
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ROPER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1997 1996*
(UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 580 $ 423
Accounts receivable, net 73,119 50,659
Inventories 51,053 31,133
Other current assets 2,423 2,298
- --------------------------------------------------------------------------------
Total current assets 127,175 84,513
- --------------------------------------------------------------------------------
PROPERTY, PLANT & EQUIPMENT:
Cost 60,138 50,646
Accumulated depreciation and amortization (30,151) (26,687)
- --------------------------------------------------------------------------------
Property, plant and equipment, net 29,987 23,959
- --------------------------------------------------------------------------------
Intangible assets, net 152,821 127,670
Other assets 7,384 6,811
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 317,367 $ 242,953
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 15,036 $ 11,004
Other current liabilities 22,315 17,965
Current maturities of long-term debt 2,282 6,814
Income taxes payable 2,241 3,723
- --------------------------------------------------------------------------------
Total current liabilities 41,874 39,506
- --------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt 101,666 63,373
Other liabilities 4,911 2,678
- --------------------------------------------------------------------------------
Total liabilities 148,451 105,557
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock 154 152
Additional paid-in capital 60,859 50,893
Foreign currency translation adjustments (1,754) 177
Retained earnings 109,657 86,174
- --------------------------------------------------------------------------------
Total stockholders' equity 168,916 137,396
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 317,367 $ 242,953
================================================================================
</TABLE>
* Reclassified
See accompanying notes to condensed consolidated financial statements.
2
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ROPER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JULY 31,
----------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 24,851 $ 18,147
- --------------------------------------------------------------------------------
Cash flows investing activities:
Acquisitions of businesses, net of cash acquired (50,700) (74,718)
Capital expenditures (2,696) (4,160)
- --------------------------------------------------------------------------------
Net cash used in investing activities (53,396) (78,878)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 48,532 75,702
Principal payments on long-term debt (16,948) (13,272)
Decrease in bank overdraft - (699)
Dividends paid on common stock (4,123) (3,385)
Other 1,361 670
- --------------------------------------------------------------------------------
Net cash used in financing activities 28,822 59,016
- --------------------------------------------------------------------------------
Effect of exchange rate changes on cash (120) (38)
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 157 (1,753)
Cash and cash equivalents, beginning of period 423 2,322
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 580 $ 569
================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements for the periods
ended July 31, 1997 and 1996 are unaudited. In the opinion of management, the
accompanying unaudited consolidated financial statements reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows of
Roper Industries, Inc. and its subsidiaries (the "Company") for all periods
presented.
The results of operations are not necessarily indicative of the results to be
expected for the full fiscal year. It is recommended that these unaudited
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's 1996 Annual Report on Form 10-K as filed with the Securities and
Exchange Commission.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect certain
amounts reported in the financial statements. Actual results could differ from
the estimated results.
Certain reclassifications have been made to the 1996 amounts to conform to the
presentation adopted in 1997.
NOTE 2 ACQUISITIONS
On May 16, 1997, a wholly-owned subsidiary of the Company completed the
acquisition of the operating assets of Princeton Instruments, Inc., a New Jersey
corporation ("PI"), the real estate occupied by PI at its principal facility in
Trenton, New Jersey, and all of the stock of PI's foreign sales affiliates (PI
and its foreign affiliates are collectively referred to as "Princeton").
The purchase price consisted of $37.4 million of cash and $3.0 million of Roper
common stock (69,094 shares). Transaction costs and other direct costs of the
acquisition total approximately $0.3 million. $2.0 million of the Roper common
stock was placed in an escrow account to secure certain of the seller's
indemnification obligations associated with the acquisition of Princeton. The
acquisition of Princeton has been accounted for as a purchase. Princeton's
results of operations are included in the Company's consolidated financial
statements as of the acquisition date. The excess of the purchase costs over the
fair value of the net assets acquired is being amortized straight-line over 30
years.
4
<PAGE>
Princeton designs, manufactures and markets spectral and digital imaging cameras
and is a technological and market leader worldwide in most of its market
segments. Princeton supplies a diverse end-user base that includes the
scientific research market, industrial research markets and various industrial
process markets. For the year ended April 30, 1997, Princeton's net sales were
approximately $31 million.
On May 30, 1997, another wholly-owned subsidiary of the Company completed the
acquisition of all of the capital stock of Petrotech, Inc., a Louisiana
corporation ("Petrotech"). The purchase price consisted of $6.5 million of cash
and $6.5 million of Roper common stock (131,448 shares). In addition,
approximately $8.1 million of Petrotech debt was assumed. Other direct costs of
the acquisition total approximately $0.3 million. The acquisition of Petrotech
has been accounted for as a purchase. Petrotech's results of operations are
included in the Company's consolidated financial statements as of the
acquisition date. The excess of the purchase costs over the fair value of the
net assets acquired is being amortized straight-line over 15 years.
Petrotech provides system integration of control products and systems for
turbines and compressors within the oil & gas, pipeline, process control and
power generation markets. Petrotech is a recognized market leader and derives a
considerable portion of its revenues from manufacturing advanced turbine and
compressor control products. For the year ended April 30, 1997, Petrotech's net
sales were approximately $31 million.
NOTE 3. LONG-TERM DEBT
On May 15, 1997, the Company secured a new $200 million revolving credit
facility by the amendment and restatement of its principal credit agreement
which theretofore had provided for a $100 million facility. Financing under the
new agreement continues to be provided by a syndication of financial
institutions whose agent is NationsBank, N.A. (South).
Borrowings under this agreement accrue interest at the Company's option at
either a function of the prime rate or LIBOR and are secured only by the pledge
of the capital stock of the Company's subsidiaries to the lenders. The interest
rate is also influenced by certain financial ratios of the Company. There is a
$10 million sublimit for letters of credit under the new agreement.
The new credit agreement contains covenants restricting, among other things,
dividends, acquisitions, capital expenditures, and asset dispositions that are
customary in agreements of this type.
5
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NOTE 4. CONCENTRATION OF CREDIT RISK
At July 31, 1997, the Company had approximately $10.4 million of trade
receivables due from Gazprom and $4.0 million due from Ukrainlan Gazprom. Both
companies are large natural gas companies.
NOTE 5. PER SHARE AMOUNTS
The following table reconciles actual common shares outstanding to the average
shares outstanding used in the earnings per share calculations. All share
amounts have been restated to reflect the two-for-one stock split (in the form
of a 100% stock dividend) effective August 1, 1997. Common stock equivalents
consist of stock options. Common stock equivalents outstanding during the
period were determined using the treasury stock method. For primary dilution,
repurchases were deemed to occur at the average market price during the period.
For full dilution, repurchases were deemed to occur at the higher of the ending
market price and the average market price during the period.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average common shares outstanding 30,680 30,213 30,477 30,046
Average equivalents outstanding 811 831 713 789
-------- ------- ------- --------
Average primary shares outstanding 31,491 31,044 31,190 30,835
Incremental fully-diluted shares outstanding 91 0 208 4
-------- ------- ------- --------
Average fully diluted shares outstanding 31,582 31,044 31,398 30,839
======== ======= ======= ========
</TABLE>
Earnings per share of common stock is calculated by dividing net earnings by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period.
6
<PAGE>
NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the nine months ended July 31, 1997 and 1996 included interest
of $5,790,000 and $1,108,000, respectively and income taxes of $15,175,000 and
$13,720,000 respectively.
The acquisition costs of the businesses acquired are summarized as follows:
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
1997 1996**
--------------------------
<S> <C> <C>
Fair value of assets acquired, excluding cash $ 77,801 $ 85,238
Liabilities assumed (18,741) (4,820)
Common stock issued* (8,360) (5,700)
- --------------------------------------------------------------------------------
Cash acquisition costs, net of cash acquired $ 50,700 $ 74,718
- --------------------------------------------------------------------------------
</TABLE>
* For valuation purposes, the common stock issued in fiscal 1997 was
discounted from its market value when issued due to certain
restrictions regarding the disposition of the shares.
** Restated.
NOTE 7. INVENTORIES
Inventories are summarized below (in thousands):
<TABLE>
<CAPTION>
July 31, October 31,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $ 22,848 $ 19,226
Work in process 17,931 5,905
Finished products 12,129 7,548
Less LIFO Reserve (1,855) (1,546)
- --------------------------------------------------------------------------------
Total $ 51,053 $ 31,133
================================================================================
</TABLE>
7
<PAGE>
NOTE 8. INDUSTRY SEGMENTS
Sales and operating profit by industry segment are set forth in the following
table (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
---------------------------- ---------------------------------
1997 1996* Change 1997 1996* Change
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
NET SALES:
Industrial Controls $ 41,502 $ 25,434 63.2% $ 84,799 $ 70,711 19.9%
Fluid Handling 23,263 21,955 6.0% 70,271 62,010 13.3%
Analytical Instrumentation 23,758 12,558 89.2% 55,580 27,227 104.1%
- -------------------------------------------------------------------------------------------------------------------
Total $ 88,523 $ 59,947 47.7% $ 210,650 $159,948 31.7%
===================================================================================================================
GROSS PROFIT:
Industrial Controls $ 20,588 $ 12,867 60.0% $ 46,149 $ 36,830 25.3%
Fluid Handling 10,705 9,114 17.5% 32,276 27,744 16.3%
Analytical Instrumentation 13,490 7,707 75.0% 32,764 16,614 97.2%
- -------------------------------------------------------------------------------------------------------------------
Total $ 44,783 $ 29,688 50.8% $ 111,189 $ 81,188 37.0%
===================================================================================================================
OPERATING PROFIT (a):
Industrial Controls $ 9,856 $ 4,800 105.3% $ 18,245 $ 14,672 24.4%
Fluid Handling 6,287 5,004 25.6% 19,310 17,227 12.1%
Analytical Instrumentation 4,700 2,493 88.5% 12,114 4,804 152.2%
- -------------------------------------------------------------------------------------------------------------------
Total $ 20,843 $ 12,297 69.5% $ 49,669 $ 36,703 35.3%
===================================================================================================================
</TABLE>
* Reclassified.
(a) Operating profit is before any allocation for corporate general and
administrative expenses. Corporate general and administrative expenses were
$1,488 and $851 for the three months ended July 31, 1997 and 1996,
respectively. These expenses were $4,074 and $2,924 for the nine months
ended July 31, 1997 and 1996, respectively.
8
<PAGE>
NOTE 9. RECENTLY RELEASED ACCOUNTING AND REPORTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 123 - Accounting for
Stock-Based Compensation modifies the accounting and reporting standards for the
Company's stock-based compensation plans and is effective for the Company
beginning with fiscal 1997. SFAS 123 provides that stock-based awards be
measured at their fair value at the grant date in accordance with a valuation
model. This measurement may either be recorded in the Company's basic financial
statements or the pro forma effect on earnings may be disclosed in its year end
financial statements. The Company has elected to provide the pro forma
disclosures, if material.
SFAS No. 128 - Earnings Per Share ("EPS") establishes standards for computing
and presenting EPS. It replaces the presentation of primary EPS with a
presentation of basic EPS. Basic EPS will be calculated using income available
to common stockholders divided by average shares outstanding (it excludes common
stock equivalents that are used in calculating primary EPS). Diluted EPS per
SFAS 128 is computed similarly to fully-diluted EPS pursuant to the superceded
accounting rules. SFAS No. 128 is applicable to the Company beginning with its
quarter ending January 31, 1998. Early adoption is not permitted. Once adopted,
prior period data will be restated. For the Company, basic EPS is expected to be
slightly higher than primary EPS. Note 5 provides information useful for
determining the effects of SFAS 128 on the periods presented in these financial
statements.
SFAS No. 130 - Reporting Comprehensive Income establishes standards for
reporting comprehensive income and its components. This statement addresses
certain items that affect a company's net assets without affecting its income
statement. For the Company, the only such item is expected to be foreign
currency translation adjustments resulting from its non-U.S. subsidiaries. SFAS
130 is applicable to the Company beginning with fiscal 1998. The impact on the
Company's financial statements compared to information presently available is
not expected to be significant.
SFAS No. 131 - Disclosures about Segments of an Enterprise and Related
Information redefines the way that public companies report information about its
business segments. The statement intends to align reportable segments and
certain disclosures with how the operations are managed internally. It also
modifies certain geographic disclosures to be identified by country instead of
geographic region. SFAS 131 is applicable to the Company beginning with its
year-end reporting in fiscal 1999. The impact of this statement on the Company's
disclosures is not expected to be significant.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K for the year ended October 31, 1996.
RESULTS OF OPERATIONS
GENERAL
The following table sets forth certain information relating to the operations
of the Company expressed as a percentage of net sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
------------------ -----------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 49.4% 50.5% 47.2% 49.2%
- --------------------------------------------------------------------------------
Gross profit 50.6% 49.5% 52.8% 50.8%
SG & A expenses 28.7% 30.4% 31.2% 29.7%
- --------------------------------------------------------------------------------
Income from operations 21.9% 19.1% 21.6% 21.1%
Interest expense 1.9% 1.8% 2.0% 1.1%
Other income 0.1% 0.0% 0.3% 0.1%
- --------------------------------------------------------------------------------
Earnings before income taxes 20.1% 17.3% 19.9% 20.1%
Income taxes 7.0% 5.6% 6.8% 6.7%
- --------------------------------------------------------------------------------
Net earnings 13.1% 11.7% 13.1% 13.4%
================================================================================
</TABLE>
The profit margins for each segment are listed below as a percentage of net
sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
------------------ -----------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross profit:
Industrial Controls 49.6% 50.6% 54.4% 52.1%
Fluid Handling 46.0% 41.5% 45.9% 44.7%
Analytical Instrumentation 56.8% 61.4% 58.9% 61.0%
- --------------------------------------------------------------------------------
Operating profit (a):
Industrial Controls 23.7% 18.9% 21.5% 20.7%
Fluid Handling 27.0% 22.8% 27.5% 27.8%
Analytical Instrumentation 19.8% 19.9% 21.8% 17.6%
- --------------------------------------------------------------------------------
</TABLE>
(a) Before allocation of corporate general and administrative expenses
10
<PAGE>
THREE MONTHS ENDED JULY 31, 1997 COMPARED TO 1996
Operating results during the three months ended July 31, 1997 reflect a 7.6%
increase in core business sales. Core business sales are defined as those
companies whose results are included in the Company's consolidated results for
the same amount of time during both 1997 and 1996. For example, core business
sales for Gatan (acquired May 31, 1996) for the three months ended July 31, 1997
are only the months of June and July. Sales during the three months ended July
31, 1997 for those companies acquired since May 1996 that are not yet considered
core business sales were $22.0 million. Sales to Gazprom are also not considered
core business sales. Sales to Gazprom were $7.1 million during the three months
ended July 31, 1997 compared to $4.7 million during the three months ended July
31, 1996.
Core business sales increased in all three of the Company's business segments.
Analytical Instrumentation and Industrial Controls increased 15.1% and 10.4%,
respectively. Fluid Handling increased slightly. Fluid Handling continues to be
adversely affected by relatively weak market conditions in the semiconductor
equipment industry. Excluding Integrated Designs (sales were down 13.1%), the
other Fluid Handling companies posted increased sales of 5.5%.
Gross profit improvement of $15.1 million is primarily from the incremental
sales reported by those companies acquired since May 1996 and increased sales to
Gazprom. Other factors contributing to higher gross profit during the three
months ended July 31, 1997 include nonrecurring charges recorded during the 1996
quarter, improved product mix during the 1997 quarter and some cost reduction
efforts that benefited the 1997 quarter. Overall gross profit of 50.6% for the
three months ended July 31, 1997 is considered fairly comparable to the 49.5%
reported in 1996 and reflects improvements throughout the Company which more
than offset the gross profit drag of Petrotech, whose gross profit percentage is
substantially less than that of the Company's other subsidiaries.
The increase in selling, general and administrative ("SG&A") expenses of $7.2
million is due primarily to expenses attributed to the companies acquired since
May 1996. The incremental costs at these companies were $5.2 million. As a
percentage of sales, SG&A expenses decreased slightly to 28.7% in 1997 compared
to 30.4% in 1996 as a result of volume leverage.
Interest expense increased $0.6 million principally due to higher debt levels
resulting from the May 1997 acquisitions of Petrotech and Princeton. Partially
offsetting the additional debt resulting from these acquisitions was $23.3
million of net debt reductions during the fourth quarter of last fiscal year and
the first two quarters of this fiscal year.
The Company's effective tax rate was 34.5% for the three months ended July 31,
1997 compared to 32.5% for the three months ended July 31, 1996. The increased
rate is due primarily to the acquisitions of Petrotech and Princeton. Both of
these companies operate in relatively high taxing states.
11
<PAGE>
For the three months ended July 31, 1997, bookings were $80.6 million,
representing an increase of $27.9 million compared to the bookings reported
during the three months ended July 31, 1996. On a pro forma basis to include the
recent acquisitions for the same months as they are included in the Company's
consolidated results for the 1997 period, bookings increased $5.1 million, or
6.8%. The largest component of the pro forma increase in bookings was a blanket
order placed with FMI for $4.8 million in July 1997. Shipments against this
order are expected to occur through December 1998.
Sales order backlog was $91.9 million at July 31, 1997 compared to $51.0 million
($77.6 million on a pro forma basis for the acquisitions of Petrotech and
Princeton) at July 31, 1996. Aside from the acquisitions, the biggest increases
in the backlog are at Compressor Controls ($12.6 million) and FMI due to the
large blanket order received in the third quarter.
NINE MONTHS ENDED JULY 31, 1997 COMPARED TO 1996
Operating results during the nine months ended July 31, 1997 reflect a 4.7%
increase in core business sales (see the three months section for the definition
of core business sales). Sales during the nine months ended July 31, 1997 for
those companies acquired since May 1996 that are not yet considered core
business sales were $46.7 million. Sales to Gazprom during the 1997 period were
down $2.7 million compared to 1996.
Core business sales increased in both the Industrial Controls (up 9.7%) and
Analytical Instrumentation (up 6.9%) segments. Fluid Handling continues to be
adversely affected by relatively weak market conditions in the semiconductor
equipment industry and, as a result, its core business sales were down 0.7%.
Excluding Integrated Designs (sales were down 25.0%), Fluid Handling's other
companies posted increased core business sales of 12.3%.
Gross profit improvement of $30 million is primarily from the inclusion of
companies acquired since May 1996 (FMI, Gatan, Petrotech and Princeton). These
companies contributed $23.1 million of the gross profit improvement during the
nine months ended July 31, 1997 compared to 1996. Gross profit percentages of
the core businesses were relatively stable for both the Fluid Handling and
Analytical Instrumentation segments during the nine months ended July 31, 1997
compared to 1996. Industrial Controls improved the gross profit percentage of
its core businesses about nine points, primarily due to favorable product mix
and certain cost reduction efforts at Compressor Controls.
The increase in SG&A expenses of $18.2 million is due mostly to the incremental
costs ($12.9 million) incurred by the companies that have been acquired since
May 1996. Increased costs also result from the full-year effect of improving
Compressor Control's infrastructure servicing Gazprom and other potential
customers in the CIS/Eastern
12
<PAGE>
Europe region. As a percentage of sales, SG&A expenses were 31.2% for the nine
months ended July 31, 1997 compared to 29.7% in 1996. The increased percentage
is attributable to the added costs at Compressor Controls.
Interest expense increased $2.4 million during the nine months ended July 31,
1997 principally due to higher debt levels resulting from the full year effects
of the May 1996 acquisitions of FMI and Gatan, and the current year acquisitions
of Petrotech and Princeton.
The Company's effective tax rate was 34.2% for the nine months ended July 31,
1997 compared to 33.2% for the nine months ended July 31, 1996. The slightly
increased rate is due primarily to the acquisitions during the past two years.
These companies operate in relatively high taxing states and the amortization of
the excess of the purchase price over the fair value of the net assets acquired
for Gatan is not deductible for income tax purposes.
For the nine months ended July 31, 1997, bookings were $218.5 million,
representing an increase of $60.7 million over the comparable nine months of
1996. On a pro forma basis assuming the recently acquired companies are included
for the same months as in fiscal 1997, bookings are up $18.1 million, or 9.1%,
in 1997 compared to 1996. About half of the pro forma increase is at Compressor
Controls (despite bookings with Gazprom being about the same between periods).
The remainder of the increase is spread over most of the other operating
companies. Excluding the recent acquisitions, only ISL is reporting lower
bookings this year than last year. ISL results (as translated into U.S. dollars)
have been adversely impacted during fiscal 1997 by the strengthening of the U.S.
dollar relative to the French Franc.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $40.3 million to $85.3 million at July 31, 1997
compared to $45.0 million at October 31, 1996. Total debt was $103.9 million at
July 31, 1997 compared to $70.2 million at October 31, 1996. This represents an
increase in the debt to total capitalization ratio to 38.1% at July 31, 1997
from 33.8% at October 31, 1996. The increased financial leverage is due to the
debt incurred with the acquisitions of Petrotech and Princeton. The Company
believes that future acquisitions may further increase the financial leverage of
the Company without significantly adversely affecting the financial strength of
the Company.
On May 15, 1997, the Company secured a new $200 million revolving credit
facility by the amendment and restatement of its principal credit agreement
which theretofore had provided for a $100 million facility. Financing under the
new agreement continues to be provided by a syndication of financial
institutions whose agent is NationsBank, N.A. (South).
13
<PAGE>
Borrowings under this agreement accrue interest at the Company's option at
either a function of the prime rate or LIBOR and are secured only by the pledge
of the capital stock of the Company's subsidiaries to the lenders. The interest
rate is also influenced by certain financial ratios of the Company. There is a
$10 million sublimit for letters of credit under the new agreement. Based on the
financial ratios of the Company at July 31 as defined in the credit agreement,
the interest rate adjustment for the next quarterly period will be slightly less
than its preceding period.
The new agreement contains covenants restricting, among other things, dividends,
acquisitions, capital expenditures, and asset dispositions that are customary in
agreements of this type. In general, the new agreement requires less
collateralization by the Company and is less restrictive than the previous
agreement.
The Company believes that internally generated cash flow and the remaining
unused credit under the new $200 million revolving credit agreement will be
adequate to finance normal operating and further acquisition requirements.
The Company expects to continue an active acquisition program. However,
completion of future acquisitions will be dependent on numerous factors and it
is not feasible to reasonably estimate if or when any such acquisitions will
occur, what the financing requirements will be or what the impact will be on the
Company's activities, financial condition and results of operations. On August
12, 1997, the Company announced that it signed a letter of intent to acquire the
assets of a company that would operate in its Analytical Instrumentation
segment. Completion of this transaction is still dependent upon Hart-Scott-
Rodino clearance, negotiation of a definitive purchase agreement and other
contingencies customary in this type of transaction. Pending satisfactory
resolution of these contingencies, completion of this acquisition is not
expected to occur earlier than mid-October, 1997.
On July 23, 1997, the Company announced it received notification from the U.S.
Export-Import Bank (the "Ex-Im Bank") that it had reached an agreement in
principle with RAO Gazprom related to the Ex-Im Bank's financing guarantee for
Gazprom's $151 million contract with Compressor Controls. This contract provides
for Compressor Controls to supply turbo-machinery control systems to Gazprom
over a five-year period. However, availability of funds from the financing
guaranteed by the Ex-Im Bank will still require completion of negotiations and
execution of transaction documents and satisfaction of closing and draw-down
conditions. Although neither the completion nor the timing of this guaranteed
financing to Gazprom can be assured, the Company expects substantial progress
toward completion during its 4th quarter and anticipates shipments related to
this contract will begin before October 31, 1997.
On August 12, 1997, the Company's board of directors authorized a 33% increase
in the per share dividend rate (adjusted for the two-for-one stock split on
August 1, 1997) effective with the 4th quarter dividend. This represents
additional dividend payments over the course of a year of about $2 million
compared to the previous dividend rate. Although
14
<PAGE>
the Company has a history of paying dividends each quarter since its IPO in
February 1992, and it has increased the dividend annually since 1993, future
dividends and changes in the dividend rate are at the discretion of the
Company's board of directors and cannot be assured.
The Company anticipates that its existing companies, including those recently
acquired, will generate positive cash flow. The Company further anticipates that
this positive cash flow will permit the reduction of currently outstanding debt
at a pace consistent with that which the Company recently has experienced.
However, the rate at which the Company can reduce its debt for the remainder of
fiscal 1997 and beyond (and reduce the associated interest expense) will be
affected by, among other things, the financing and operating requirements of any
new acquisitions, the financial performance of its existing companies and the
receipt, timing and shipments of new orders from Gazprom and cannot be predicted
with certainty.
Capital expenditures total $2.7 million for the nine months ended July 31, 1997.
For the year ending October 31, 1997, total expenditures are estimated to be
similar to the $5.0 million that was spent in fiscal 1996.
FORWARD LOOKING INFORMATION
In the event satisfactory progress towards completion of the guaranteed
financing agreement for sales to Gazprom is made as anticipated, further
shipments to Gazprom during the fourth quarter are expected to be approximately
$10-12 million and the Company projects earnings for the three months ending
October 31, 1997 to be in the range of $0.39 to $0.43 per share. This will
result in earnings for the year ending October 31, 1997 being in the range of
$1.28 to $1.32 per share.
The information provided elsewhere in this report, in other Company filings with
the Securities and Exchange Commission, and in other press releases and public
disclosures contains forward-looking statements about the Company's businesses
and prospects as to which there are numerous risks and uncertainties which
generally are beyond the Company's control. Some of these risks include the
level and timing of future business with Gazprom and other Eastern European
customers and the timing, acquisition costs and components thereof, and future
operating results of any newly acquired companies. There is no assurance that
these and other risks and uncertainties will not have an adverse impact on the
Company's future operations, financial condition, or financial results.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
*2 Asset Purchase Agreement dated May 16, 1997 by and among Roper
Acquisition, Inc., Roper Industries, Inc., Princeton Instruments,
Inc. and Yair Talmi.
**3.1 Amended and Restated Certificate of Incorporation.
*3.2 Amended and Restated By-laws dated May 13, 1997.
*4 Third Amended and Restated Credit Agreement dated May 15, 1997 by
and among Roper Industries, Inc., and NationsBank N.A. (South) and
the lenders party hereto from time to time.
27 Financial Data Schedule.
b. Reports on Form 8-K
Report dated May 16, 1997, filed June 2, 1997, reporting under Item
2 thereof the Company's acquisition of the operating assets of
Princeton Instruments, Inc.
________________________________________________________________________________
* INCORPORATED HEREIN BY THIS REFERENCE TO ROPER INDUSTRIES, INC. REPORT ON
FORM 8-K DATED MAY 16, 1997 AND FILED JUNE 2, 1997.
** INCORPORATED HEREIN BY THIS REFERENCE TO ROPER INDUSTRIES, INC. REPORT ON
FORM 8-K DATED JUNE 5, 1996 AND FILED JUNE 6, 1996.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Derrick N. Key President and September 10, 1997
- ----------------------------
Derrick N. Key Chief Executive Officer
/s/ Martin S. Headley Vice President and September 10, 1997
- ----------------------------
Martin S. Headley Chief Financial Officer
/s/ Kevin G. McHugh Controller September 10, 1997
- ----------------------------
Kevin G. McHugh
17
<PAGE>
EXHIBIT INDEX
TO REPORT ON FORM 10-Q
Number Exhibit
- ------ -------
2 Asset Purchase Agreement dated May 16, 1997 by and among Roper
Acquisition, Inc., Roper Industries, Inc., Princeton Instruments, Inc.
and Yair Talmi incorporated herein by this reference to Roper
Industries, Inc. Report on Form 8-K dated May 16, 1997 and filed June
2, 1997.
3.1 Amended and Restated Certificate of Incorporation incorporated herein
by this reference to Roper Industries, Inc. Report on Form 8-K dated
June 5, 1996 and filed June 6, 1996.
3.2 Amended and Restated By-laws dated May 13, 1997 incorporated herein by
this reference to Roper Industries, Inc. Report on Form 8-K dated May
16, 1997 and filed June 2, 1997.
4 Third Amended and Restated Credit Agreement dated May 15, 1997 by and
among Roper Industries, Inc., and NationsBank N.A. (South) and the
lenders party hereto from time to time incorporated herein by this
reference to Roper Industries, Inc. Report on Form 8-K dated May 16,
1997 and filed June 2, 1997.
27 Financial Data Schedule.
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