SEC Filing | Roper Technologies, Inc.

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 April 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . ----------- -------------- Commission File Number 1-12273 ROPER INDUSTRIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 51-0263969 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 160 BEN BURTON ROAD BOGART, GEORGIA 30622 (Address of principal executive offices) (Zip Code) (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 June 8, 1998 was 31,254,418.

ROPER INDUSTRIES, INC. REPORT ON FORM 10-Q FOR THE QUARTER ENDED APRIL 30, 1998 TABLE OF CONTENTS Page ---- 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 8 PART II. OTHER INFORMATION Item 2. Recent Sales of Unregistered Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 ii

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) Three Months Ended Six Months Ended April 30, April 30, ------------------------------ --------------------------------- 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Net sales $95,995 $67,019 $186,094 $122,127 Cost of sales 47,580 30,049 92,212 55,721 - ------------------------------------------------------------------------------------------------------------------ Gross profit 48,415 36,970 93,882 66,406 Selling, general and administrative expenses 30,745 20,539 58,471 40,166 - ------------------------------------------------------------------------------------------------------------------ Income from operations 17,670 16,431 35,411 26,240 Interest expense 1,753 1,209 3,562 2,511 Other income 184 220 555 447 - ------------------------------------------------------------------------------------------------------------------ Earnings before income taxes 16,101 15,442 32,404 24,176 Income taxes 5,467 5,296 11,050 8,200 - ------------------------------------------------------------------------------------------------------------------ Net earnings $10,634 $10,146 $ 21,354 $ 15,976 ================================================================================================================== Net earnings per common and common equivalent share*: Basic $ 0.34 $ 0.34 $ 0.69 $ 0.53 Diluted $ 0.33 $ 0.32 $ 0.67 $ 0.51 ================================================================================================================== Weighted average common and common equivalent shares outstanding*: Basic 31,138 30,279 31,054 30,249 Diluted 32,016 31,233 31,936 31,030 ================================================================================================================== * Prior year data has been restated giving effect to the 2-for-1 stock split in the form of a 100% stock dividend that was paid in August 1997. See accompanying notes to condensed consolidated financial statements. 1

ROPER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) April 30, October 31, ASSETS 1998 1997 - -------------------------------------------------------------------------------------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 10,744 $ 649 Accounts receivable 71,054 78,752 Inventories 55,292 50,199 Other current assets 3,293 2,290 - -------------------------------------------------------------------------------------- Total current assets 140,383 131,890 - -------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT: Cost 66,863 63,002 Accumulated depreciation and amortization (34,627) (31,607) - -------------------------------------------------------------------------------------- Property, plant and equipment, net 32,236 31,395 - -------------------------------------------------------------------------------------- OTHER ASSETS: Intangible assets, net 200,860 154,255 Other assets 14,474 11,780 - -------------------------------------------------------------------------------------- Total other assets 215,334 166,035 - -------------------------------------------------------------------------------------- TOTAL ASSETS $387,953 $329,320 ====================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------------- CURRENT LIABILITIES: Accounts payable $ 15,127 $ 15,654 Accrued liabilities 28,280 25,231 Income taxes payable 3,595 1,564 Current portion of long-term debt 3,875 2,487 - -------------------------------------------------------------------------------------- Total current liabilities 50,877 44,936 - -------------------------------------------------------------------------------------- NONCURRENT LIABILITIES: Long-term debt 130,268 99,638 Other noncurrent liabilities 7,646 6,877 - -------------------------------------------------------------------------------------- Total noncurrent liabilities 137,914 106,515 - -------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY: Common stock 312 309 Additional paid-in capital 66,132 61,950 Cumulative translation adjustments (1,449) (937) Retained earnings 134,167 116,547 - -------------------------------------------------------------------------------------- Total stockholders' equity 199,162 177,869 - -------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $387,953 $329,320 ====================================================================================== See accompanying notes to condensed consolidated financial statements. 2

ROPER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Six Months Ended April 30, ---------------------------- 1998 1997 - ------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 21,354 $ 15,976 Depreciation and amortization 6,829 5,076 Other, net 16,456 (5,984) - ------------------------------------------------------------------------------------ Net cash provided by operating activities 44,639 15,068 - ------------------------------------------------------------------------------------ Cash flows from investing activities: Acquisitions of businesses, net of cash acquired (62,053) - Capital expenditures (2,735) (1,788) - ------------------------------------------------------------------------------------ Net cash used in investing activities (64,788) (1,788) - ------------------------------------------------------------------------------------ Cash flows from financing activities: Proceeds from long-term debt 37,290 3,825 Principal payments on long-term debt (5,000) (14,174) Dividends paid on common stock (3,734) (2,734) Other 1,871 1,198 - ------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities 30,427 (11,885) - ------------------------------------------------------------------------------------ Effect of exchange rate changes on cash (183) (66) - ------------------------------------------------------------------------------------ Net increase in cash and cash equivalents 10,095 1,329 Cash and cash equivalents, beginning of period 649 423 - ------------------------------------------------------------------------------------ Cash and cash equivalents, end of period $ 10,744 $ 1,752 ==================================================================================== See accompanying notes to condensed consolidated financial statements. 3

ROPER INDUSTRIES, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements for the three-month and six-month periods ended April 30, 1998 and 1997 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. (the "Company") and its subsidiaries for all periods presented. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in accordance with generally accepted accounting principles. Actual results could differ from those estimates. 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 notes thereto included in the Company's 1997 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. NOTE 2. ACQUISITIONS Effective December 1, 1997, the Company acquired the outstanding common stock of EG&G Flow Technology, Inc. for cash consideration of $10.0 million. The company was subsequently renamed FTI Flow Technology, Inc. ("Flow Technology"). Flow Technology, based in Phoenix, Arizona, manufactures and markets turbine flow meters, calibrators and emissions measurement equipment for aerospace, automotive and industrial markets. Flow Technology is a member of the Company's Fluid Handling segment. On February 27, 1998, a subsidiary of the Company acquired the assets of Acton Research Corporation ("Acton") for cash consideration of $8.9 million and approximately 75,000 restricted shares of the Company's common stock with a quoted market valuation at the time of issuance of $2.2 million. Acton, based in Acton, Massachusetts, manufactures and markets spectrometers, monochromators and optical components and coatings for various high-end analytical applications. Acton is a member of the Company's Analytical Instrumentation segment. On March 31, 1998, the Company acquired the outstanding common stock of Photometrics, Ltd. ("Photometrics") for cash consideration of $36.3 million. 4

Photometrics, based in Tucson, Arizona, is a leading manufacturer and marketer of extremely sensitive cooled CCD cameras and detectors for primary and applied research markets. Subsequent to the acquisition of Photometrics, it was merged into the Company's Princeton Instruments, Inc. ("Princeton") subsidiary, a manufacturer and marketer of similar products. The combined company was renamed Roper Scientific, Inc. ("Roper Scientific") which will manage its Arizona- and New Jersey-based operations as separate divisions. Roper Scientific is a member of the Company's Analytical Instrumentation segment. On April 30, 1998, a subsidiary of the Company acquired the assets of PMC/BETA Limited Partnership ("PMC/BETA") for cash consideration of $6.5 million. PMC/BETA, based in Natick, Massachusetts, manufactures and markets vibration monitoring equipment. PMC/BETA is a member of the Company's Industrial Controls segment. All of the acquisitions reported thus far during fiscal 1998 have been accounted for as purchases. The consideration paid (payments to sellers and direct costs incurred by the Company) has been allocated to the net assets acquired based upon their fair values. The excess of the purchase price over the fair values of the net assets acquired is being amortized using the straight-line method over lives ranging from 15 to 25 years. Only the operating results of these companies subsequent to their being acquired are included in the Company's consolidated results. NOTE 3. LONG-TERM DEBT In February 1998, the Company entered into a five-year agreement to essentially convert $50 million of its variable-rate debt to fixed-rate debt at an interest rate of slightly less than 6%. At April 30, 1998, the accumulated difference between the variable-rate debt and the fixed-rate debt was not significant. In May 1998, the Company entered into another five-year agreement to essentially convert an additional $25 million of its variable-rate debt to fixed-rate debt at an interest rate of slightly less than 6%. NOTE 4. BASIC AND DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Basic earnings per share of common stock is calculated by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common equivalent share include common stock equivalents in the determination of average shares outstanding. The Company's common stock equivalents consist of stock options. 5

NOTE 5. SUPPLEMENTAL CASH FLOW INFORMATION A summary of supplemental cash flow information for the six months ended April 30, 1998 and 1997 is as follows (in thousands): 1998 1997 - ----------------------------------------------------------------------------- Cash paid during the period for: Interest $ 3,117 $3,407 ============================================================================= Income taxes $11,633 $8,277 ============================================================================= Net assets of businesses acquired: Fair value of assets, including goodwill $69,441 $ - Liabilities assumed (5,452) - Common stock issued (1,936) - - ----------------------------------------------------------------------------- Cash paid, net of cash acquired $62,053 $ - ============================================================================= NOTE 6. INVENTORIES Inventories are summarized below (in thousands): April 30, October 31, 1998 1997 - ---------------------------------------------------------- Raw materials and supplies $26,794 $25,729 Work in process 16,614 13,715 Finished products 13,575 12,398 Less LIFO reserve (1,691) (1,643) - ---------------------------------------------------------- Total $55,292 $50,199 ========================================================== 6

NOTE 8. INDUSTRY SEGMENTS Sales and operating profit by industry segment are set forth in the following table (in thousands): Three Months Ended Six Months Ended April 30, April 30, --------------------------- ------------------------------ 1998 1997 Change 1998 1997 Change - -------------------------------------------------------------------------------------------------- Net sales: Industrial Controls $42,508 $26,322 61.5% $85,069 $43,297 96.5% Fluid Handling 27,039 24,855 8.8% 51,275 47,008 9.1% Analytical Instrumentation 26,448 15,842 66.9% 49,750 31,822 56.3% - -------------------------------------------------------------------------------------------------- Total $95,995 $67,019 43.2% $186,094 $122,127 52.4% ================================================================================================== Gross profit: Industrial Controls $22,013 $15,950 38.0% $42,595 $25,561 66.6% Fluid Handling 12,030 11,363 5.9% 22,924 21,571 6.3% Analytical Instrumentation 14,372 9,657 48.8% 28,363 19,274 47.2% - -------------------------------------------------------------------------------------------------- Total $48,415 $36,970 31.0% $93,882 $66,406 41.4% ================================================================================================== Operating profit (a): Industrial Controls $9,375 $6,836 37.1% $18,345 $8,389 118.7% Fluid Handling 6,387 6,916 -7.6% 12,035 13,023 -7.6% Analytical Instrumentation 3,670 3,927 -6.5% 8,416 7,414 13.5% - -------------------------------------------------------------------------------------------------- Total $19,432 $17,679 9.9% $38,796 $28,826 34.6% ================================================================================================== (a) Operating profit is before any allocation for corporate general and administrative expenses. Corporate general and administrative expenses were $1,762 and $1,248 for the three months ended April 30, 1998 and 1997, respectively. These expenses were $3,385 and $2,586 for the six months ended April 30, 1998 and 1997, respectively. 7

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, 1997 and Note 8 to the Company's Condensed Consolidated Financial Statements included elsewhere in this Report. RESULTS OF OPERATIONS GENERAL The following table presents certain information relating to the operations of the Company expressed as a percentage of net sales. THREE MONTHS ENDED SIX MONTHS ENDED APRIL 30, APRIL 30, ------------------ ---------------- 1998 1997 1998 1997 - ------------------------------------------------------------------------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 49.6% 44.8% 49.6% 45.6% - ------------------------------------------------------------------------ Gross profit 50.4% 55.2% 50.4% 54.4% SG&A expenses 32.0% 30.7% 31.4% 32.9% - ------------------------------------------------------------------------ Income from operations 18.4% 24.5% 19.0% 21.5% Interest expense 1.8% 1.8% 1.9% 2.1% Other income 0.2% 0.3% 0.3% 0.4% - ------------------------------------------------------------------------ Earnings before income taxes 16.8% 23.0% 17.4% 19.8% Income taxes 5.7% 7.9% 5.9% 6.7% - ------------------------------------------------------------------------ Net earnings 11.1% 15.1% 11.5% 13.1% ======================================================================== The profit margins for each segment are listed below as a percentage of net sales. THREE MONTHS ENDED SIX MONTHS ENDED APRIL 30, APRIL 30, ------------------------ ---------------------- 1998 1997 1998 1997 - ---------------------------------------------------------------------------------------------- Gross profit: Industrial Controls 51.8% 60.6% 50.1% 59.0% Fluid Handling 44.5% 45.7% 44.7% 45.9% Analytical Instrumentation 54.3% 61.0% 57.0% 60.6% - ---------------------------------------------------------------------------------------------- Operating profit (a): Industrial Controls 22.1% 26.0% 21.6% 19.4% Fluid Handling 23.6% 27.8% 23.5% 27.7% Analytical Instrumentation 13.9% 24.8% 16.9% 23.3% - ---------------------------------------------------------------------------------------------- (a) Before allocation of corporate general and administrative expenses 8

THREE MONTHS ENDED APRIL 30, 1998 COMPARED TO 1997 The Company's core (excludes Gazprom) sales increased 43% for the three months ended April 30, 1998 compared to the three months ended April 30, 1997. Total Industrial Controls sales increased 62% due mostly to the May 1997 acquisition of Petrotech, Inc. ("Petrotech") and a 22% increase at Amot Controls. Sales to Gazprom (reported as part of Industrial Controls) were $9.0 million this quarter compared to $6.0 million during the second quarter of last year. Fluid Handling sales increased 9% due mostly to the December 1997 acquisition of Flow Technology, a 14% increase at Fluid Metering and despite a 24% decrease at Integrated Designs (which continues to experience adverse business conditions in the semiconductor equipment industry). Analytical Instrumentation sales increased 67% due mostly to the recent acquisitions of four companies and despite a 17% decline at Gatan (due to lower bookings in the first quarter of fiscal 1998 resulting from economic uncertainties in Europe and Asia). The largest of the Analytical Instrumentation acquisitions were Princeton in May 1997 and Photometrics in March 1998. Princeton and Photometrics, both digital imaging companies, have since been merged to form Roper Scientific, but are operated as separate divisions. Changes in gross profit are mostly due to the recently acquired companies and changes in sales. The comparative gross profit percentage for the Industrial Controls segment is adversely affected by Petrotech, which historically experiences lower returns than the segment's other units. Excluding Petrotech, the Industrial Controls gross profit percentage would have been 61.4% (vs. 60.6% for the second quarter last year). The decline in Fluid Handling's gross profit percentages is attributable to Cornell Pump. Gross profit percentage for Analytical Instrumentation decreased primarily due to the results of Acton, Photometrics and Princeton, which reported a combined gross profit of 45.8%. This segment's gross profit percentage would have been 61.1% without these three companies. Princeton and Petrotech had the greatest effect on the comparability of the Company's overall gross profit percentages. Without these two companies the gross profit percentage would have been 55.2%, or the same as the second quarter of last year. Selling, general and administrative ("SG&A") expenses increased 50% for the three months ended April 30, 1998 compared to the three months ended April 30, 1997 due mostly to the expenses associated with the recent acquisitions. As a percentage of sales, SG&A expenses are relatively consistent between periods. Interest expense increased $544,000 for the three months ended April 30, 1998 compared to the three months ended April 30, 1997 principally due to higher debt levels resulting from the acquisition of six companies since April 30, 1997 (excluding PMC/BETA, acquired on April 30, 1998). A large portion of the acquisition costs consisted of cash. In February 1998, the Company entered into a five-year agreement to essentially convert $50 million of its variable-rate debt to fixed-rate debt at an interest rate of slightly less than 6%. In May 1998, the Company entered into another five-year agreement to essentially convert an additional $25 million of its variable-rate debt to fixed-rate debt at an interest rate of slightly less than 6%. 9

The Company's effective tax rate was 34.0% for the three months ended April 30, 1998 compared to 34.3% for the three months ended April 30, 1997. The Company's income tax policy throughout a fiscal year is to adjust its quarterly provision based on its most current estimate of its effective income tax rate for the entire year. At this time during each of the past two years, that rate has been approximately 34%. The Company currently estimates that its effective income tax rate for fiscal 1998 will be approximately 34%. The effective tax rate for fiscal 1997 was 34.0%. Sales order bookings were $101.0 million during the three months ended April 30, 1998 compared to $67.8 million for the second quarter last year, an increase of 49% (up 58% excluding Gazprom, which placed $9.6 million of orders during the 1998 quarter). On a pro forma basis, bookings were 16% higher this year compared to last year. Compared to the three months ended April 1997, second quarter bookings in fiscal 1998 were $43.0 million, up 39%, in Industrial Controls (up 59% excluding Gazprom), $28.6 million, up 24%, in Fluid Handling and $29.4 million, up 116%, in Analytical Instrumentation. Most of these increases were due to the contributions from recently acquired companies. Sales order backlog was $91.5 million at April 30, 1998 compared to $71.0 million at April 30, 1997. SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO 1997 The Company's core sales increased 42% for the six months ended April 30, 1998 compared to the six months ended April 30, 1997. Total Industrial Controls sales increased 96% due mostly to the May 1997 acquisition of Petrotech and a 29% increase at Amot Controls. Sales to Gazprom (reported as part of Industrial Controls) were $21.7 million for the six months ended April 30, 1998 compared to $6.4 million during the first six months of last fiscal year. Fluid Handling sales increased 9% due mostly to the December 1997 acquisition of Flow Technology. Analytical Instrumentation sales increased 56% due mostly to the recent acquisitions of four companies and despite a 15% decline at Gatan (due to lower bookings in the first quarter of fiscal 1998 resulting from economic uncertainties in Europe and Asia). Changes in gross profit are mostly due to the recently acquired companies and changes in sales. The comparative gross profit percentage for the Industrial Controls segment is adversely affected by Petrotech, which historically experiences lower returns than the segment's other units. Excluding Petrotech, the Industrial Controls gross profit percentage would have been 59.7% (vs. 59.0% for the first six months of last year). The decline in Fluid Handling's gross profit percentage is attributable to Cornell Pump. Gross profit percentage for Analytical Instrumentation decreased primarily due to the results of Acton, Photometrics and Princeton, which reported a combined gross profit of 49.5%. This segment's gross profit percentage would have been 61.9% without these three 10

companies. Princeton and Petrotech had the greatest effect on the comparability of the Company's overall gross profit percentages. Without these two companies the gross profit percentage would have been 54.8%, or slightly ahead of the 54.4% reported for the first six months of last year. SG&A expenses increased 47% for the six months ended April 30, 1998 compared to the six months ended April 30, 1997 due mostly to the expenses associated with the recent acquisitions. As a percentage of sales, SG&A expenses are slightly lower for the six months ended April 30, 1998 compared to the first six months of last fiscal year. Interest expense increased $1.1 million for the six months ended April 30, 1998 compared to the three months ended April 30, 1997 principally due to higher debt levels resulting from the acquisition of six companies since April 30, 1997 (excluding PMC/BETA). The Company's effective tax rate was 34.1% for the six months ended April 30, 1998 compared to 33.9% for the six months ended April 30, 1997. The Company's income tax policy throughout a fiscal year is to adjust its quarterly provision based on its most current estimate of its effective income tax rate for the entire year. At this time during each of the past two years, that rate has been approximately 34%. Sales order bookings were $189.2 million during the six months ended April 30, 1998 compared to $138.0 million for the first six months of last year, an increase of 37%. On a pro forma basis, bookings were 7% higher this year compared to last year. Compared to the six months ended April 1997, first half bookings in fiscal 1998 were $87.5 million, up 39%, in Industrial Controls, $51.9 million, up 19%, in Fluid Handling and $49.7 million, up 60%, in Analytical Instrumentation. Most of these increases were due to the contributions from recently acquired companies. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Working capital was $89.5 million at April 30, 1998 compared to $87.0 million at October 31, 1997. Total debt was $134.1 million at April 30, 1998 compared to $102.1 million at October 31, 1997. The debt to total capitalization ratio was 40.2% at April 30, 1998 compared to 36.5% at October 31, 1997. Since October 31, 1997, the Company's cash costs for acquisitions have been $10.0 million for Flow Technology, $8.9 million for Acton, $36.3 million for Photometrics and $6.5 million for PMC/BETA. The acquisition of Acton also included the issuance of Roper common stock with a quoted market value of $2.2 million. 11

The assets and liabilities of these companies at their respective acquisition dates also account for many of the changes in the Company's financial condition components between October 31, 1997 and April 30, 1998. The amounts below are in thousands. Acquired Other 10/31/97 Companies Activity 04/30/98 --------- --------- -------- --------- Accounts receivable $ 78,752 $ 6,851 $(14,549) $ 71,054 Inventories 50,199 7,465 (2,372) 55,292 Other current assets 2,290 1,533 (530) 3,293 Property and equipment 31,395 1,263 (422) 32,236 Intangible assets 154,830 50,168 (4,138) 200,860 Other noncurrent assets 11,780 2,161 533 14,474 Accounts payable (15,654) (2,497) 3,024 (15,127) Accrued liabilities (25,231) (2,955) (94) (28,280) Income taxes payable (1,564) - (2,031) (3,595) Other noncurrent liabilities (6,877) - (769) (7,646) The decrease in accounts receivable is mostly due to a reduction in balances receivable from Compressor Controls customers in its CIS/Eastern Europe region of approximately $7 million. Included in the remaining receivables is $3.7 million due from a customer in this region (not RAO Gazprom) for which the Company is evaluating its alternatives to pursue collection. The underlying sales that generated this accounts receivable balance occurred nearly two years ago. Until the Company more fully evaluates its alternatives, a valuation allowance has not been deemed warranted. Over the past several years, the Company has been anticipating Gazprom putting in place a satisfactory financing mechanism related to a turbomachinery controls supply agreement with the Company's Compressor Controls unit. Gazprom has advised the Company that such a financing arrangement has been established with a Gazprom-wholly owned European bank to more easily facilitate the payment terms the Company has requested and more consistently achieve scheduled shipment dates. This financing arrangement is expected to be available over the next five years for up to $128 million of additional turbomachinery controls purchases. However, the Company's business with Gazprom will continue to be subject to political and other uncertainties, which could adversely affect the timing and amount of future shipments and cannot be assured. The Company believes that internally generated cash flows and the remaining unused credit under its $200 million credit facility will be adequate to finance normal operating and further acquisition requirements. Although the Company maintains an active acquisition program, any further acquisitions will be dependent on numerous factors and it is not feasible to reasonably estimate if or when any such acquisitions will occur and what the impact will be on the Company's activities, financial condition and results of operations. The Company anticipates that the newly acquired companies as well as the existing companies will generate positive cash flows, and that the cash flows from all operating companies will permit the reduction of currently outstanding 12

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 1998 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 six months ended April 30, 1998. For the year ending October 31, 1998, total expenditures are estimated to be similar to the $5.0 million that was spent in fiscal 1997. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") 130--Reporting Comprehensive Income, SFAS 131-- Disclosures about Segments of an Enterprise and Related Information and SFAS 132--Employers' Disclosures about Pensions and Other Postretirement Benefits that will be applicable to the Company in fiscal 1999. Once adopted, none of these standards is expected to significantly affect the Company's disclosures. FORWARD LOOKING INFORMATION The information provided elsewhere in this report, in other Company filings with the Securities and Exchange Commission, and in other press releases 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 future operating results of the newly acquired companies. There is no assurance that these and other risks and uncertainties will not have an adverse impact on the Company's future operations, financial condition, or financial results. 13

PART II. OTHER INFORMATION ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES During the second quarter ended April 30, 1998, the Company negotiated and completed on February 27, 1998 the acquisition of all of the operating assets of Acton Research Corporation for $8.9 million in cash and 75,241 newly issued shares of restricted common stock of the Company with an agreed-upon value of $2.2 million. These shares were not registered with the Securities and Exchange Commission in reliance upon the exemption from such registration afforded under Section 4(2) of the Securities Act of 1933, as amended, principally because of the limited number of persons to whom the shares were issued. The acquisition agreement provided that the number of shares paid at closing was to be determined by the average of the per share closing prices of the Company's common stock reported by the NYSE for each of several days before and after the closing date. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its 1998 Annual Meeting on February 20, 1998. Of the 30,992,634 shares eligible to vote at the meeting, 23,448,323 were present either in person or by proxy, 2,398,799 of which were entitled to five votes per share (based on a required holding period for the shares). The following proposals were voted upon as follows: Proposal 1: Election of four directors. All of the following nominees were elected by at least 99.80% of the votes cast. For Withheld ---------- -------- W. Lawrence Banks 32,993,983 49,536 Luitpold von Braun 32,978,383 65,136 John F. Fort III 32,993,403 50,116 Wilbur J. Prezzano 32,984,173 59,346 Continuing directors whose terms expire at either the 1999 Annual Meeting or the 2000 Annual Meeting are as follows: Donald G. Calder 1999 Derrick N. Key 1999 Christopher Wright 1999 E. Douglas Kenna 2000 George L. Ohrstrom, Jr. 2000 Georg Graf Schall-Riaucour 2000 Eriberto R. Scocimara 2000 14

Proposal 2: Amendment of the 1991 Stock Option Plan to limit to 100,000 the number of shares of the Company's common stock for which options may be granted to any single employee during any fiscal year. This proposal was approved by 97.72% of the votes cast. For Against Abstentions Broker Non-Votes --- ------- ----------- ---------------- 32,290,704 501,935 250,880 None 15

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits *2 Agreement and Plan of Reorganization dated March 27, 1998, by and among Roper Industries, Inc., Roper Acquisition Corp., Photometrics, Ltd. and certain stockholders of Photometrics, Ltd. **3.1 Amended and Restated Certificate of Incorporation, including Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock. ***3.2 Amended and Restated By-Laws. ****4.01 Rights Agreement between Roper Industries, Inc. and SunTrust Bank, Atlanta, Inc. as Rights Agent, dated as of January 8, 1996, including Certificate of Designation, Preferences and Rights of Series A Preferred Stock (Exhibit A), Form of Rights Certificate (Exhibit B) and Summary of Rights (Exhibit C). ***4.02 Third Amended and Restated Credit Agreement dated May 15, 1997 by and between Roper Industries, Inc., and NationsBank N.A. (South) and the lender parties thereto. *****10.01 Lease of Milwaukee, Oregon facility. **10.02 1991 Stock Option Plan, as amended. + ******10.03 Non-employee Director Stock Option Plan. + *****10.04 Form of Indemnification Agreement. + **10.05 Consulting Agreement (G.L. Ohrstrom & Co.). + **10.06 Consulting Agreement (E.D. Kenna). + *******10.11 Labor Agreement. 27 Financial Data Schedule. b. Reports on Form 8-K Report dated April 15, 1998, filed April 15, 1998 reporting under Item 2 thereof the Company's acquisition of Photometrics, Ltd. - -------------------------------------------------------------------------------- * Incorporated herein by reference to the Roper Industries, Inc. Current Report on Form 8-K filed April 15, 1998. ** Incorporated herein by reference to the Roper Industries, Inc. Annual Report on Form 10-K filed January 21, 1998. *** Incorporated herein by reference to the Roper Industries, Inc. Current Report on Form 8-K filed June 2, 1997. **** Incorporated herein by reference to the Roper Industries, Inc. Current Report on Form 8-K filed January 18, 1996. ***** Incorporated herein by reference to the Roper Industries, Inc. Registration Statement (No. 33-44665) on Form S-1 filed December 20, 1991. ****** Incorporated herein by reference to the Roper Industries, Inc. Annual Report on Form 10-K filed January 28, 1994. ******* Incorporated herein by reference to the Roper Industries, Inc. Annual Report on Form 10-K filed January 25, 1996. + Management contract or compensatory plan or agreement. 16

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 - ---------------------- Chief Executive Officer June 8, 1998 Derrick N. Key /s/ Martin S. Headley Vice President and - ---------------------- Chief Financial Officer June 8, 1998 Martin S. Headley /s/ Kevin G. McHugh Controller June 8, 1998 - ---------------------- Kevin G. McHugh 17

EXHIBIT INDEX TO REPORT ON FORM 10-Q Number Exhibit - ------ ------- 2 Agreement and Plan of Reorganization dated March 27, 1998, by and among Roper Industries, Inc., Roper Acquisition Corp., Photometrics, Ltd. and certain stockholders of Photometrics, Ltd. incorporated herein by this reference to Roper Industries, Inc. Report on Form 8-K dated April 15, 1998, and filed April 15, 1998. 3.1 Amended and Restated Certificate of Incorporation, including Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock incorporated herein by reference to the Roper Industries, Inc. Annual Report on Form 10-K filed January 21, 1998. 3.2 Amended and Restated By-Laws incorporated herein by reference to the Roper Industries, Inc. Current Report on Form 8-K filed June 2, 1997. 4.01 Rights Agreement between Roper Industries, Inc. and SunTrust Bank, Atlanta, Inc. as Rights Agent, dated as of January 8, 1996, including Certificate of Designation, Preferences and Rights of Series A Preferred Stock (Exhibit A), Form of Rights Certificate (Exhibit B) and Summary of Rights (Exhibit C) incorporate herein by reference to the Roper Industries, Inc. Current Report on Form 8-K filed January 18, 1996. 4.02 Third Amended and Restated Credit Agreement dated May 15, 1997 by and between Roper Industries, Inc., and NationsBank N.A. (South) and the lender parties thereto incorporated herein by reference to the Roper Industries, Inc. Current Report on Form 8-K filed June 2, 1997. 10.01.1 Lease of Milwaukee, Oregon facility incorporated herein by reference to the Roper Industries, Inc. Annual Report on Form 10-K filed January 28, 1994. 10.01.2 1991 Stock Option Plan, as amended, incorporated herein by reference to the Roper Industries, Inc. Annual Report on Form 10-K filed January 21, 1998. 10.01.3 Non-employee Director Stock Option Plan incorporated herein by reference to the Roper Industries, Inc. Annual Report on Form 10-K filed January 28, 1994. 10.01.4 Form of Indemnification Agreement incorporated herein by reference to he Roper Industries, Inc. Registration Statement (No. 33-44665) on Form S-1 filed December 20, 1991. 10.01.5 Consulting Agreement (G.L. Ohrstrom & Co.) incorporated herein by reference to the Roper Industries, Inc. Annual Report on Form 10-K filed January 21, 1998. 10.01.6 Consulting Agreement (E.D. Kenna) incorporated herein by reference to the Roper Industries, Inc. Annual Report on Form 10-K filed January 21, 1998. 10.11 Labor Agreement incorporated herein by reference to the Roper Industries, Inc. Annual Report on Form 10-K filed January 25, 1996. 27 Financial Data Schedule.

5 1,000 6-MOS OCT-31-1998 NOV-01-1997 APR-30-1998 10,744 0 71,054 0 55,292 140,383 66,863 34,627 387,953 50,877 0 312 0 0 198,850 387,953 186,094 186,094 92,212 92,212 0 0 3,562 32,404 11,050 21,354 0 0 0 21,354 0.69 0.67