-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QCy1n5gMKMO/9jHDF/0uxhhppVLvZ6IZlqz1XV+67UqopM1BprDQ+IRNqfHyL0Ar CmOH3IjRRxBRDKhIDBlhtw== 0000950115-98-000535.txt : 19980330 0000950115-98-000535.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950115-98-000535 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOORE PRODUCTS CO CENTRAL INDEX KEY: 0000067975 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 231427830 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-00545 FILM NUMBER: 98576312 BUSINESS ADDRESS: STREET 1: SUMNEYTOWN PIKE CITY: SPRING HOUSE STATE: PA ZIP: 19477 BUSINESS PHONE: 2156467400 MAIL ADDRESS: STREET 1: SUMNEYTOWN PIKE CITY: SPRING HOUSE STATE: PA ZIP: 19477 10-K 1 ANNUAL REPORT 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. ------------------ Commission file no. 0-545. ------ Moore Products Co. ------------------------------------------------------ (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 -------------- Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1 Par Value -------------------------- (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]. 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 2 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. 3 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 4 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. 5 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. 6 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 7 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. 8 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. -------------------------- 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. 9 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.
1997 1996 -------------------------------------- ------------------------------------- Market Price Cash Market Price Cash ------------------------ Dividends ------------------------- Dividends High Low Paid High Low Paid - --------------------------------------------------------------------------------------------------------------- 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 ======= =======
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.
As Reported for Year Ended December 31 1997 1996 1995 1994 1993 ------------------------------------------------------------------------ (in thousands of dollars, except per share data) 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
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. 10 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. 11 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. 12 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 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 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 Consolidated Income Statements
Year Ended December 31 1997 1996 1995 ------------------------------------------------------------ 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 ===== ===== =====
See Notes to Consolidated Financial Statements. 16 Consolidated Balance Sheets
December 31 ASSETS 1997 1996 ---------------------------------------- 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 ============== ==============
See Notes to Consolidated Financial Statements. 17 Consolidated Statements of Cash Flows
Year Ended December 31 1997 1996 1995 --------------------------------------------------------- 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 =============== =============== ==============
See Notes to Consolidated Financial Statements. 18 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 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 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 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
Foreign Capital in Currency Preferred Common Excess of Retained Translation Stock Stock Par Value Earnings Adjustments ------------------------------------------------------------------- (Thousands of dollars) 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) ========= ========== ========== ========== ==========
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 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:
1997 1996 1995 ------------------------------------------------ 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
23 NOTE G - Stock Option Plans (continued) Information with respect to stock options outstanding and exercisable at December 31, 1997, is as follows:
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 - -------------------------------------------------------------------------- -------------------------- $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 ======= =======
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:
1997 1996 1995 ---------------------------------------------- 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%
24 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:
1997 1996 1995 ---------------------------------------------------- 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 ====== ====== ======
25 NOTE I - Income Taxes
1997 1996 1995 ------------------------------------------------ (Thousands of dollars) 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 ========= ========= ========
The differences between the provision for income taxes and income tax expense using the U.S. federal statutory rate were as follows:
1997 1996 1995 ------------------------------------------------ (Thousands of dollars) 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 ========= ========= ========
26 NOTE I - Income Taxes (continued) The components of deferred tax liabilities and assets are as follows:
1997 1996 1995 ------------------------------------------------ (Thousands of dollars) 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 ========= ========= ========
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 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:
1997 1996 1995 ---------------------------------------------------- (Thousands of dollars) 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) ========= ======== ========
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:
1997 1996 ------------------------------- (Thousands of dollars) 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 ========== =========
Significant assumptions used in accounting for the pension plans are:
1997 1996 1995 ---------------- ---------------- ---------------- 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
28 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:
1997 1996 1995 ------------------------------------------------ (Thousands of dollars) 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 ========= ========= ========
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:
1997 1996 ----------------------------- (Thousands of dollars) 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 ========= =========
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 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.
United States Europe Other Eliminations Consolidated ---------------------------------------------------------------------------- 1997 (Thousands of dollars) 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
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 NOTE M - Quarterly Data (Unaudited) (In thousands of dollars, except per share data)
1997 Quarter Ended March 31 June 30 September 30 December 31 -------------------------------------------------------------- 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
1996 Quarter Ended March 31 June 30* September 30 December 31* --------------------------------------------------------------- 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
* 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 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 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:
Material in Proxy Statement for 1998 Annual Meeting which is incorporated herein by reference ------------------------------------------------ Form 10-K Item No. and Item Caption Caption - ---------------------------------------------- ------------------------------------------------ 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.
33 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 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 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 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 Moore Products Co. SCHEDULE II - Valuation and Qualifying Accounts
Additions -------------------------- Charged Balance at Charged to to Other Beginning Costs and Accounts Deductions Balance at End Description of Period Expenses - Describe - Describe of Period - ------------------------------------------------------------------------------------------------------------------- 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
(1) Uncollectible accounts written off, net of recoveries. 38 EX-3.A 2 RESTATED ARTICLES OF INCORPORATION 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: (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- 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- 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- 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- 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- 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- 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- 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- EX-10.G 3 SUMMARY OF EMPLOYMENT TERMS WITH DONALD E. BOGLE 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. EX-21 4 SUBSIDIARIES OF REGISTRANT* 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. EX-23 5 CONSENT OF INDEPENDENT AUDITORS 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 EX-27.1 6 FDS FOR 1997 FORM 10-K
5 12-MOS DEC-31-1997 DEC-31-1997 3,816,000 0 42,539,000 1,771,000 18,317,000 67,110,000 59,526,000 44,257,000 93,992,000 25,875,000 0 0 176,000 2,593,000 0 93,992,000 167,247,000 167,247,000 93,607,000 93,607,000 0 0 172,000 10,225,000 3,757,000 6,468,000 0 0 0 6,468,000 2.50 2.31
EX-27.2 7 FDS FOR 1996 AND 1995 FORM 10-K
5 12-MOS 12-MOS DEC-31-1996 DEC-31-1995 DEC-31-1996 DEC-31-1995 4,066,000 1,103,000 0 0 31,371,000 30,906,000 830,000 205,000 21,479,000 20,423,000 59,694,000 55,344,000 58,183,000 55,513,000 41,639,000 38,627,000 86,047,000 78,193,000 24,367,000 20,210,000 0 0 0 0 176,000 176,000 2,586,000 2,583,000 0 0 86,047,000 78,193,000 142,892,000 121,037,000 142,892,000 121,037,000 82,688,000 66,960,000 82,688,000 66,960,000 0 0 0 0 466,000 438,000 2,752,000 609,000 1,474,000 350,000 1,278,000 259,000 0 0 0 0 0 0 1,278,000 259,000 .49 .12 .47 .12
EX-27.3 8 FDS FOR 1ST, 2ND AND 3RD QUARTER 10-Q
5 3-MOS 6-MOS 9-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 3,197,000 4,736,000 4,622,000 0 0 0 33,694,000 33,877,000 35,697,000 830,000 1,771,000 1,771,000 20,620,000 21,611,000 21,806,000 60,396,000 62,146,000 64,069,000 58,205,000 58,940,000 59,436,000 42,336,000 43,034,000 43,758,000 86,348,000 88,825,000 90,782,000 23,719,000 25,218,000 25,617,000 0 0 0 0 0 0 176,000 176,000 176,000 2,586,000 2,586,000 2,589,000 0 0 0 86,348,000 88,825,000 90,782,000 37,818,000 75,715,000 116,138,000 37,818,000 75,715,000 116,138,000 22,013,000 43,556,000 66,230,000 22,013,000 43,556,000 66,230,000 0 0 0 0 0 0 84,000 167,000 170,000 1,442,000 2,987,000 6,152,000 387,000 884,000 2,262,000 1,055,000 2,103,000 3,890,000 0 0 0 0 0 0 0 0 0 1,055,000 2,103,000 3,890,000 .41 .81 1.50 .38 .76 1.41
EX-27.4 9 FDS FOR 1ST, 2ND AND 3RD QUARTER 10-Q
5 3-MOS 6-MOS 9-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 894,000 2,279,000 930,000 0 0 0 32,600,000 31,499,000 30,480,000 205,000 830,000 830,000 21,325,000 21,536,000 22,035,000 58,222,000 57,213,000 55,475,000 56,512,000 57,416,000 58,078,000 39,482,000 40,289,000 41,164,000 81,402,000 82,777,000 81,013,000 23,145,000 23,415,000 21,134,000 0 0 0 0 0 0 176,000 176,000 176,000 2,584,000 2,584,000 2,584,000 0 0 0 81,402,000 82,777,000 81,013,000 35,155,000 71,123,000 107,105,000 35,155,000 71,123,000 107,105,000 20,005,000 41,342,000 61,871,000 20,005,000 41,342,000 61,871,000 0 0 0 0 0 0 119,000 253,000 363,000 940,000 1,260,000 1,989,000 711,000 972,000 1,349,000 229,000 288,000 640,000 0 0 0 0 0 0 0 0 0 229,000 288,000 640,000 .09 .11 .25 .08 .11 .24
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