ROPER TECHNOLOGIES INC - Annual Report: 2008 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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FORM
10-K
þ ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2008
¨ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ___ to ___
Commission
File Number 1-12273
ROPER
INDUSTRIES, INC.
(Exact
name of Registrant as specified in its charter)
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Delaware
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51-0263969
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(State
or other jurisdiction of
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(I.R.S.
Employer
|
|
incorporation
or organization)
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Identification
No.)
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6901
Professional Parkway East, Suite 200
Sarasota,
Florida 34240
(Address
of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code: (941) 556-2601
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SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name
of Each Exchange
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||
Title
of Each Class
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On
Which Registered
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Common
Stock, $0.01 Par Value
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New
York Stock
Exchange
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SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
----------------
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. þ Yes ¨ No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨ Yes þ No
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. þ Yes ¨ No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405) 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. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act).
þ Large accelerated filer
¨ Accelerated
filer ¨ Non-accelerated filer
¨ Smaller reporting
company
Indicate
by check mark if the registrant is a shell company (as defined in Rule 12-b2 of
the Act). ¨ Yes þ No
Based on
the closing sale price on the New York Stock Exchange on June 30, 2008, the
aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant was: $5,913,756,279.
Number of
shares of Registrant’s Common Stock outstanding as of February 20, 2009:
89,765,578.
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DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Registrant’s Proxy Statement to be furnished to Stockholders in
connection with its Annual Meeting of Stockholders to be held on June 3, 2009,
are incorporated by reference into Part III of this Annual Report on Form
10-K.
ROPER
INDUSTRIES, INC.
FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
Table
of Contents
PART
I
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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7
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Item
1B.
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Unresolved
Staff Comments
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10
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Item
2.
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Properties
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11
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Item
3.
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Legal
Proceedings
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11
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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11
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PART
II
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||
Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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12
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Item
6.
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Selected
Financial Data
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14
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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15
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Item
7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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23
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Item
8.
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Financial
Statements and Supplementary Data
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24
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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53
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Item
9A.
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Controls
and Procedures
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53
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Item
9B.
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Other
Information
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53
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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54
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Item
11.
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Executive
Compensation
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54
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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54
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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54
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Item
14.
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Principal
Accountant Fees and Services
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54
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PART
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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55
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Signatures
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57
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Information
About Forward-Looking Statements
This
Annual Report on 10-K ("Annual Report") includes and incorporates by
reference “forward-looking statements” within the meaning of the federal
securities laws. In addition, we, or our executive officers on our behalf, may
from time to time make forward-looking statements in reports and other documents
we file with the SEC or in connection with oral statements made to the press,
potential investors or others. All statements that are not historical facts are
“forward-looking statements.” The words “estimate,” “project,”
“intend,” “expect,” “believe,” “anticipate,” and similar expressions identify
forward-looking statements. These forward-looking statements include statements
regarding our expected financial position, business, financing plans, business
strategy, business prospects, revenues, working capital, liquidity, capital
needs, interest costs and income, in each case relating to our company as a
whole, as well as statements regarding acquisitions, potential acquisitions and
the benefits of acquisitions.
Forward-looking
statements are estimates and projections reflecting our best judgment and
involve a number of risks and uncertainties that could cause actual results to
differ materially from those suggested by the forward-looking statements. These
statements are based on our management’s beliefs and assumptions, which in turn
are based on currently available information. Examples of forward-looking
statements in this report include but are not limited to our expectations
regarding our ability to generate operating cash flows and reduce debt and
associated interest expense and our expectations regarding growth through
acquisitions. Important assumptions relating to the forward-looking statements
include, among others, assumptions regarding demand for our products, the cost,
timing and success of product upgrades and new product introductions, raw
materials costs, expected pricing levels, the timing and cost of expected
capital expenditures, expected outcomes of pending litigation, competitive
conditions, general economic conditions and expected synergies relating to
acquisitions, joint ventures and alliances. These assumptions could prove
inaccurate. Although we believe that the estimates and projections reflected in
the forward-looking statements are reasonable, our expectations may prove to be
incorrect. Important factors that could cause actual results to differ
materially from estimates or projections contained in the forward-looking
statements include:
·
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general
economic conditions;
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·
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difficulty
making acquisitions and successfully integrating acquired
businesses;
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·
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any
unforeseen liabilities associated with future
acquisitions;
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·
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limitations
on our business imposed by our
indebtedness;
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·
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unfavorable
changes in foreign exchange rates;
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·
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difficulties
associated with exports;
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·
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risks
and costs associated with our international sales and
operations;
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·
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increased
directors and officers liability and other insurance
costs;
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·
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risk
of rising interest rates;
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·
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product
liability and insurance risks;
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·
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increased
warranty exposure;
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·
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future
competition;
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·
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the
cyclical nature of some of our
markets;
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·
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reduction
of business with large customers;
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·
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risks
associated with government
contracts;
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·
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changes
in the supply of, or price for, parts and
components;
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·
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environmental
compliance costs and liabilities;
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·
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risks
and costs associated with asbestos-related
litigation;
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·
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potential
write-offs of our substantial intangible
assets;
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·
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our
ability to successfully develop new
products:
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·
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failure
to protect our intellectual
property;
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·
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economic
disruption caused by terrorist attacks, health crises or other unforeseen
events; and
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·
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the
factors discussed in Item 1A to this Annual Report under the heading “Risk
Factors.”
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We
believe these forward-looking statements are reasonable. However, you should not
place undue reliance on any forward-looking statements, which are based on
current expectations. Further, forward-looking statements speak only as of the
date they are made, and we undertake no obligation to publicly update any of
them in light of new information or future events.
PART
I
ITEM
1.
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BUSINESS
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Our Business
Roper
Industries, Inc. (“Roper” or the “Company”) was incorporated on December 17,
1981 under the laws of the State of Delaware. We are a diversified growth
company that designs, manufactures and distributes energy systems and controls,
scientific and industrial imaging products and software, industrial technology
products and radio frequency (“RF”) products and services. We market these
products and services to selected segments of a broad range of markets including
RF applications, water, energy, research and medical, education, security and
other niche markets.
We pursue
consistent and sustainable growth in sales and earnings by emphasizing
continuous improvement in the operating performance of our existing businesses
and by acquiring other carefully selected businesses that offer high value-added
services, engineered products and solutions and are capable of achieving growth
and maintaining high margins. We compete in many niche markets and believe that
we are the market leader or a competitive alternative to the market leader in
the majority of these markets.
Market
Share, Market Expansion, and Product Development
Leadership with Engineered Content
for Niche Markets. We maintain a leading position in many of our markets.
We believe our market positions are attributable to the technical sophistication
of our products, the applications expertise used to create our advanced products
and systems, and our distribution and service capabilities. Our operating units
grow their businesses through new product development and development of new
applications and services for existing products to satisfy customer needs. In
addition, our operating units grow our customer base by expanding our
distribution, selling other products through our existing channels and entering
adjacent markets.
Diversified End Markets and
Geographic Reach. Over the past decade, we have strategically expanded
the number of end markets we serve to increase revenue and business stability
and expand our opportunities for growth. We have a global presence, with sales
of products manufactured and exported from the United States ("U.S.") and
manufactured abroad and sold to customers outside the U.S. totaling $919 million
in 2008, compared to $859 million in 2007. Information regarding our
international operations is set forth in Note 14 of the Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K (“Annual
Report”).
Research and Development. We
conduct applied research and development to improve the quality and performance
of our products and to develop new technologies and products. Our research and
development spending increased to $87.4 million in 2008 as compared to $67.9 and
$58.6 million in 2007 and 2006, respectively. Research and development expense
as a percentage of sales increased to 3.8% in 2008 from 3.2% in 2007. The
increase is due to acquisitions made during 2008 which have higher research and
development spending compared to many other Roper entities, and continued
investment in existing businesses.
Our
Business Segments
Our
operations are reported in four market-focused segments around common customers,
markets, sales channels, technologies and common cost opportunities. The
segments are: Industrial Technology, Energy Systems and Controls, Scientific and
Industrial Imaging, and RF Technology. Financial information about our business
segments is presented in Note 14 of the Notes to Consolidated Financial
Statements.
Scientific
and Industrial Imaging
Energy
Systems and Controls
Our
Scientific and Industrial Imaging segment principally offers high performance
digital imaging products and software, patient positioning products and software
in medical applications and handheld and vehicle mount computers and software.
These products and solutions are provided through five U.S-based and one
Canadian-based operating units. For 2008, this segment had net sales of $375.5
million, representing 16.3% of our total net sales.
Digital Imaging
Products and Software - We manufacture and sell extremely sensitive,
high-performance charged couple device (“CCD”) and complementary metal oxide
semiconductor (“CMOS”) cameras, detectors and related software for a variety of
scientific and industrial uses, which require high resolution and/or high speed
digital video, including transmission electron microscopy and spectroscopy
applications. We principally sell these products for use within academic,
government research, semiconductor, security, automotive, and other end-user
markets such as biological and material science. They are frequently
incorporated into products by OEMs.
Patient
Positioning Products and Software - We manufacture and sell patient
positioning devices, image-guided therapy software and supply diagnostic and
therapeutic disposable products used in conjunction with ultrasound imaging for
minimally invasive medical
procedures.
Handheld and
Vehicle Mount Computers and Software - We manufacture and sell fully
rugged handheld and vehicle mount computers for utility, principally water
management, and non-utility markets and we develop and sell software to assist
in utility meter reading and service order
management.
Backlog
- Our Scientific and Industrial Imaging segment companies have lead times of up
to several months on many of their product sales, although standard products are
often shipped within two weeks of receipt of order. Blanket purchase orders are
placed by certain original
equipment manufacturers (“OEMs”) and end-users, with continuing
requirements for fulfillment over specified periods of time. The segment’s
backlog of firm unfilled orders, including blanket purchase orders, totaled
$80.0 million at December 31, 2008, as compared to $74.8 million at December 31,
2007.
Distribution
and Sales - Distribution and sales occur through direct sales personnel,
manufacturers’ representatives, value added resellers (“VARs”), OEMs and
distributors.
Our
Energy Systems and Controls segment principally produces control systems, fluid
properties testing equipment, industrial valves and controls, vibration and
other non-destructive inspection and measurement products and solutions, which
are provided through six U.S.-based operating units. For 2008, this segment had
net sales of $548.2 million, representing 23.8% of our total net
sales.
Control Systems - We
manufacture control systems and panels and provide related engineering and
commissioning services for turbomachinery applications, predominately in energy
markets.
Fluid Properties Testing
Equipment - We manufacture and sell automated and manual test equipment
to determine physical and elemental properties, such as sulfur and nitrogen
content, flash point, viscosity, freeze point and distillation, of liquids and
gases for the petroleum and other industries.
Industrial Valves and
Controls - We manufacture and distribute a variety of valves, sensors,
switches and control products used on engines, compressors, turbines and other
powered equipment for the oil and gas, pipeline, power generation, marine engine
and general industrial markets. Many of these products are designed for use in
hazardous environments.
Sensors and Controls - We
manufacture sensors and control equipment including pressure sensors,
temperature sensors, measurement instruments and control software for global
rubber, plastics and process industries.
Non-destructive Inspection and
Measurement Instrumentation - We manufacture non-destructive inspection
and measurement solutions including measurement probes, robotics, and vibration
sensors, switches and transmitters. These solutions are applied principally in
energy markets. Many of these products are designed for use in hazardous
environments.
Backlog - The Energy Systems
and Controls operating units’ sales reflect a combination of standard products
and large engineered projects. Standard products generally ship within two weeks
of receipt of order, and large engineered projects may have lead times of
several months. As such, backlog may fluctuate depending upon the timing of
large project awards. This segment’s backlog of firm unfilled orders totaled
$85.0 million at December 31, 2008 compared to $93.1 million at December 31,
2007.
Distribution and Sales -
Distribution and sales occur through direct sales offices, manufacturers’
representatives and distributors in both the U.S. and various other
countries.
Industrial
Technology
Our
Industrial Technology segment produces industrial pumps, equipment and
consumables for materials analysis, industrial leak testing equipment, flow
measurement and metering equipment and water meter and automatic meter reading
(“AMR”) products and systems. These products and solutions are provided through
six U.S.-based and two European-based operating units. For 2008, this segment
had net sales of $687.6 million, representing 29.8% of our total net
sales.
Industrial
Pumps - We manufacture and distribute a wide variety of pumps. These
pumps vary significantly in complexity and in pumping method employed, which
allows for the movement and application of a diverse range of liquids and solids
including low and high viscosity liquids, high solids content slurries and
chemicals. Our pumps are used in large and diverse sets of end markets such as
oil and gas, agricultural, water and wastewater, chemical and general
industrial.
Materials
Analysis Equipment and Consumables - We manufacture and sell equipment
and supply various types of consumables necessary to prepare materials samples
for testing and analysis. These products are used mostly within the academic,
government research, electronics, material science, basic materials, steel and
automotive end-user
markets.
Industrial Leak
Testing Equipment - We manufacture and sell products and systems to test
for leaks and confirm the integrity of assemblies and sub-assemblies in
automotive, medical, industrial and consumer products
applications.
Flow
Measurement Equipment - We manufacture and distribute turbine and
positive displacement flow meters, emissions measurement equipment and flow
meter calibration products for aerospace, automotive, power generation and other
industrial
applications.
Water Meter and
AMR Products and Systems - We manufacture and distribute several classes
of water meter products serving the residential, and certain commercial and
industrial water management markets, and several lines of automatic meter
reading products and systems serving these
markets.
Backlog
- The Industrial Technology operating units’ sales reflect a combination of
standard products and specially engineered, application-specific products.
Standard products are typically shipped within two weeks of receipt of order,
with certain valve and pump products shipped on an immediate basis.
Application-specific products typically ship within 6 to 12 weeks following
receipt of order. However, larger project orders and blanket purchase orders for
certain OEMs may extend shipment for longer periods. This segment’s backlog of
firm unfilled orders, including blanket purchase orders, totaled $59.1 million
at December 31, 2008, as compared to $93.1 million at December 31,
2007.
Distribution
and Sales - Distribution and sales occur through direct sales personnel,
manufacturers’ representatives and
distributors.
RF
Technology
Our RF
Technology segment provides radio frequency identification
(“RFID”) and other communication related technology and software
solutions that are used primarily in comprehensive toll and traffic systems and
processing, security and access control, campus card systems, freight matching,
mobile asset tracking and water sub-metering and remote monitoring applications.
These products and solutions are provided through six U.S.-based and one
European-based operating units. This segment had sales of $695.0 million for the
year ended December 31, 2008, representing 30.1% of our total net
sales.
Toll and Traffic Systems - We
manufacture and sell toll tags and monitoring systems as well as provide
transaction and violation processing services for toll and traffic systems to
both governmental and private sector entities. In addition, we provide
intelligent traffic systems that assist customers in improving traffic flow and
infrastructure utilization.
Freight Matching - We
maintain an electronic marketplace that matches available capacity of trucking
units with the available loads of freight to be moved from location to location
throughout North America.
Card Systems/Integrated Security
Solutions - We provide card systems and integrated security solutions to
education, health care and various other markets. In the education and health
care markets, we also provide an integrated nutrition management
solution.
Backlog - The RF Technology
operating units’ sales reflect a combination of standard products, large
engineered projects, and multi-year operations and maintenance contracts.
Standard products generally ship within two weeks of receipt of order, and large
engineered projects may have lead times of several months. As such, backlog may
fluctuate depending upon the timing of large project awards. This segment’s
backlog of firm unfilled orders totaled $365.7 million at December 31, 2008
compared to $271.3 million at December 31, 2007.
Distribution and Sales -
Distribution and sales occur through direct sales personnel, manufacturers’
representatives and distributors.
Materials
and Suppliers
We
believe that most materials and supplies used by us are readily available from
numerous sources and suppliers throughout the world. However, some of our
components and sub-assemblies are currently available from a limited number of
suppliers. Some high-performance components for digital imaging products can be
in short supply and/or suppliers have occasional difficulty manufacturing such
components to our specifications. We regularly investigate and identify
alternative sources where possible, and we believe that these conditions equally
affect our competitors. Thus far, supply shortages have not had a material
adverse effect on Roper’s sales although delays in shipments have occurred
following such supply interruptions.
Environmental
Matters and Other Governmental Regulation
Our
operations and properties are subject to laws and regulations relating to
environmental protection, including laws and regulations governing air
emissions, water discharges, waste management and workplace safety. We use,
generate and dispose of hazardous substances and waste in our operations and, as
a result, could be subject to potentially material liabilities relating to the
investigation and clean-up of contaminated properties and to claims alleging
personal injury. We are required continually to conform our operations and
properties to these laws and adapt to regulatory requirements in all countries
as these requirements change. We have experienced, and expect to continue to
experience, modest costs relating to our compliance with environmental laws and
regulations. In connection with our acquisitions, we may assume significant
environmental liabilities, some of which we may not be aware of, or may not be
quantifiable, at the time of acquisition. In addition, new laws and regulations,
stricter enforcement of existing laws and regulations, the discovery of
previously unknown contamination or the imposition of new clean-up requirements
could increase our environmental compliance costs or subject us to new or
increased liabilities.
Customers
No
customer accounted for 10% or more of net sales for 2008 for any segment or
for Roper as a whole.
Competition
Generally,
our products and solutions face significant competition, usually from a limited
number of competitors. We believe that we are a leader in most of our markets,
and no single company competes with us over a significant number of product
lines. Competitors might be large or small in size, often depending on the life
cycle and maturity of the technology employed. We compete primarily on product
quality, performance, innovation, technology, price, applications expertise,
distribution channel access and customer service capabilities.
Patents
and Trademarks
In
addition to trade secrets, unpatented know-how, and other intellectual property
rights, we own or license the rights under a number of patents, trademarks and
copyrights relating to certain of our products and businesses. We also employ
various methods, including confidentiality and non-disclosure agreements with
employees, to protect our trade secrets and know-how. We believe that our
operating units are not substantially dependent on any single patent, trademark,
copyright, or other item of intellectual property or group of patents,
trademarks or copyrights.
Employees
As of
December 31, 2008, we had approximately 7,900 total employees, with
approximately 5,800 located in the United States. Approximately 275 of our
employees are subject to collective bargaining agreements. We have not
experienced any work stoppages and consider our relations with our employees to
be good.
Available
Information
All
reports filed electronically by Roper with the United States Securities and
Exchange Commission (“SEC”), including our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and our annual proxy
statements, as well as any amendments to those reports, are accessible at no
cost on our website at www.roperind.com. These filings are also accessible on
the SEC’s website at www.sec.gov. You may also read and copy any material Roper
files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company’s
Corporate Governance Guidelines; the charters of the Audit Committee, the
Compensation Committee, and the Nominating and Governance Committee; and the
Code of Business Conduct & Ethics are also available on the Company’s
website.
We have
included the Chief Executive Officer and the Chief Financial Officer
certifications regarding Roper’s public disclosure required by Section 302
of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 of this report.
Additionally, Roper filed with the New York Stock Exchange (the “NYSE”) the
Chief Executive Officer certification regarding Roper’s compliance with the
NYSE’s Corporate Governance Listing Standards (the “Listing Standards”) pursuant
to Section 303A.12(a) of the Listing Standards. The certification was
filed with the NYSE on July 3, 2008 and indicated that the Chief Executive
Officer was not aware of any violations of the Listing Standards by the
Company.
ITEM
1A. RISK
FACTORS
Risks
Relating to Our Business
Our
indebtedness may affect our business and may restrict our operating
flexibility.
As of
December 31, 2008, we had approximately $1.27 billion in total consolidated
indebtedness. In addition, we had approximately $524 million undrawn
availability under our senior unsecured credit
facility, as well as the ability to request additional term loans or revolving
credit commitments not to exceed $350 million in aggregate. Our total
consolidated debt could increase using this additional borrowing capacity.
Subject to certain restrictions contained in our senior unsecured credit
facility, we may incur additional indebtedness in the future, including
indebtedness incurred to finance, or which is assumed in connection with,
acquisitions.
Our level
of indebtedness and the debt servicing costs associated with that indebtedness
could have important effects on our operations and business strategy. For
example, our indebtedness could:
|
·
|
place
us at a competitive disadvantage relative to our competitors, some of
which have lower debt service obligations and greater financial resources
than us;
|
|
·
|
limit
our ability to borrow additional
funds;
|
|
·
|
limit
our ability to complete future
acquisitions;
|
|
·
|
limit
our ability to pay dividends;
|
|
·
|
limit
our ability to make capital expenditures;
and
|
|
·
|
increase
our vulnerability to general adverse economic and industry
conditions.
|
Our
ability to make scheduled principal payments of, to pay interest on, or to
refinance our indebtedness and to satisfy our other debt obligations will depend
upon our future operating performance, which may be affected by factors beyond
our control. In addition, there can be no assurance that future borrowings or
equity financing will be available to us on favorable terms for the payment or
refinancing of our indebtedness. If we are unable to service our indebtedness,
our business, financial condition and results of operations would be materially
adversely affected.
Our
senior unsecured
credit facility contains financial covenants requiring us to achieve certain
financial and operating results and maintain compliance with specified financial
ratios. Our ability to meet the financial covenants or requirements in our
senior unsecured
credit facility may be affected by events beyond our control, and we may not be
able to satisfy such covenants and requirements. A breach of these covenants or
our inability to comply with the financial ratios, tests or other restrictions
contained in our senior unsecured credit facility could result in an event of
default under this facility, which in turn could result in an event of default
under the terms of our other indebtedness. Upon the occurrence of an event of
default under our senior unsecured credit
facility, and the expiration of any grace periods, the lenders could elect to
declare all amounts outstanding under the facility, together with accrued
interest, to be immediately due and payable. If this were to occur, our assets
may not be sufficient to fully repay the amounts due under this facility or our
other indebtedness.
Unfavorable
changes in foreign exchange rates may significantly harm our
business.
Several
of our operating companies have transactions and balances denominated in
currencies other than the U.S. dollar. Most of these transactions and balances
are denominated in euros, Canadian dollars, British pounds, Danish krone and
Japanese yen. Sales by our operating companies whose functional currency is not
the U.S. dollar represented approximately 24% of our total net sales for the
year ended December 31, 2008 compared to 28% for the year ended December 31,
2007. Unfavorable changes in exchange rates between the U.S. dollar and those
currencies could significantly reduce our reported sales and earnings. At
present, we do not hedge against foreign currency risks.
We
export a significant portion of our products. Difficulties associated with the
export of our products could harm our business.
Sales to
customers outside the U.S. by our businesses located in the U.S. account for a
significant portion of our net sales. These sales accounted for approximately
16% and 17% of our net sales for the years ended December 31, 2008 and December
31, 2007, respectively. We are subject to risks that could limit our ability to
export our products or otherwise reduce the demand for these products in our
foreign markets. Such risks include, without limitation, the
following:
|
·
|
unfavorable
changes in or noncompliance with U.S. and other jurisdictions’ export
requirements;
|
|
·
|
restrictions
on the export of technology and related
products;
|
|
·
|
unfavorable
changes in or noncompliance with U.S. and other jurisdictions’ export
policies to certain countries;
|
|
·
|
unfavorable
changes in the import policies of our foreign markets;
and
|
|
·
|
a
general economic downturn in our foreign
markets.
|
The
occurrence of any of these events could reduce the foreign demand for our
products or could limit our ability to export our products and, therefore, could
materially negatively affect our future sales and earnings.
The effects of
the recent global financial crisis and general weakness in the global economy
may impact our business.
The
recent global financial crisis and general weakness in the global economy have
resulted in a general tightening in the credit markets, lower levels of
liquidity and corresponding increases in the rates of default and bankruptcy,
and extreme volatility in credit, equity and fixed income
markets. These macroeconomic developments have had adverse effects on
our customers and could have adverse effects on our business, including
decreased revenue from the sales of products and increased financing costs due
to the failure of financial institutions. The combination of some or
all of these factors could adversely affect our results of operations and
ability to execute our business strategy.
Economic,
political and other risks associated with our international operations could
adversely affect our business.
As of
December 31, 2008, approximately 19% of our long-lived assets, excluding
goodwill and intangibles, were attributable to operations outside the U.S. We
expect our international operations to contribute materially to our business for
the foreseeable future. Our international operations are subject to varying
degrees of risk inherent in doing business outside the U.S. including, without
limitation, the following:
|
·
|
adverse
changes in a specific country’s or region’s political or economic
conditions, particularly in emerging
markets;
|
|
·
|
trade
protection measures and import or export
requirements;
|
|
·
|
trade
liberalization measures which could expose our international operations to
increased competition;
|
|
·
|
subsidies
or increased access to capital for firms that are currently, or may emerge
as, competitors in countries in which we have
operations;
|
|
·
|
partial
or total expropriation;
|
|
·
|
potentially
negative consequences from changes in tax
laws;
|
|
·
|
difficulty
in staffing and managing widespread
operations;
|
|
·
|
differing
labor regulations;
|
|
·
|
differing
protection of intellectual
property;
|
|
·
|
unexpected
changes in regulatory requirements;
|
|
·
|
longer
payment cycles of foreign customers and difficulty in collecting
receivables in foreign jurisdictions;
and
|
|
·
|
international
sentiment towards the U.S.
|
The
occurrence of any of these events could materially harm our
business.
Our
growth strategy includes acquisitions. We may not be able to identify suitable
acquisition candidates, complete acquisitions or integrate acquisitions
successfully.
Our
future growth is likely to depend to some degree on our ability to acquire and
successfully integrate new businesses. We intend to continue to seek additional
acquisition opportunities both to expand into new markets and to enhance our
position in existing markets globally. There are no assurances, however, that we
will be able to successfully identify suitable candidates, negotiate appropriate
acquisition terms, obtain necessary financing on acceptable terms, complete
proposed acquisitions, successfully integrate acquired businesses into our
existing operations or expand into new markets. Once integrated, acquired
operations may not achieve levels of revenues, profitability or productivity
comparable with those achieved by our existing operations, or otherwise perform
as expected.
Acquisitions
involve numerous risks, including difficulties in the integration of the
operations, technologies, services and products of the acquired companies and
the diversion of management’s attention from other business concerns. Although
our management will endeavor to evaluate the risks inherent in any particular
transaction, there are no assurances that we will properly ascertain all such
risks. In addition, prior acquisitions have resulted, and future acquisitions
could result, in the incurrence of substantial additional indebtedness and other
expenses. Future acquisitions may also result in potentially dilutive issuances
of equity securities. Difficulties encountered with acquisitions may have a
material adverse effect on our business, financial condition and results of
operations.
Product
liability, insurance risks and increased insurance costs could harm our
operating results.
Our
business exposes us to potential product liability risks that are inherent in
the design, manufacturing and distribution of our products. In addition, certain
of our products are used in potentially hazardous environments. We currently
have product liability insurance; however, we may not be able to maintain our
insurance at a reasonable cost or in sufficient amounts to protect us against
potential losses. We also maintain other insurance policies, including directors
and officers’ liability insurance. Our insurance costs increased in recent
periods and may continue to increase in the future. We believe that we have
adequately accrued estimated losses, principally related to deductible amounts
under our insurance policies, with respect to all product liability and other
claims, based upon our past experience and available facts. However, a
successful product liability or other claim or series of claims brought against
us could have a material adverse effect on our business, financial condition and
results of operations. In addition, a significant increase in our insurance
costs could have an adverse impact on our operating results.
Our
operating results could be adversely affected by a reduction of business with
our large customers.
In some
of our businesses, we derive a significant amount of revenue from large
customers. The loss or reduction of any significant contracts with any of these
customers could materially reduce our revenue and cash flows. Additionally, many
of our customers are government entities. In many situations, government
entities can unilaterally terminate or modify our existing contracts without
cause and without penalty to the government agency.
We
face intense competition. If we do not compete effectively, our business may
suffer.
We face
intense competition from numerous competitors. Our products compete primarily on
the basis of product quality, performance, innovation, technology, price,
applications expertise, system and service flexibility and established customer
service capabilities. We may not be able to compete effectively on all of these
fronts or with all of our competitors. In addition, new competitors may emerge,
and product lines may be threatened by new technologies or market trends that
reduce the value of these product lines. To remain competitive, we must develop
new products, respond to new technologies and periodically enhance our existing
products in a timely manner. We anticipate that we may have to adjust prices of
many of our products to stay competitive.
Changes
in the supply of, or price for, parts and components used in our products could
affect our business.
We
purchase many parts and components from suppliers. The availability and prices
of parts and components are subject to curtailment or change due to, among other
things, suppliers’ allocations to other purchasers, interruptions in production
by suppliers, changes in exchange rates and prevailing price levels. Some
high-performance components for digital imaging products may be in short supply
and/or suppliers may have occasional difficulty manufacturing these components
to meet our specifications. In addition, some of our products are provided by
sole source suppliers. Any change in the supply of, or price for, these parts
and components could affect our business, financial condition and results of
operations.
Environmental
compliance costs and liabilities could increase our expenses and adversely
affect our financial condition.
Our
operations and properties are subject to laws and regulations relating to
environmental protection, including laws and regulations governing air
emissions, water discharges, waste management and workplace safety. These laws
and regulations can result in the imposition of substantial fines and sanctions
for violations and could require the installation of costly pollution control
equipment or operational changes to limit pollution emissions and/or decrease
the likelihood of accidental hazardous substance releases. We must conform our
operations and properties to these laws and adapt to regulatory requirements in
the countries in which we operate as these requirements change.
We use
and generate hazardous substances and wastes in our operations and, as a result,
could be subject to potentially material liabilities relating to the
investigation and clean-up of contaminated properties and to claims alleging
personal injury. We have experienced, and expect to continue to experience,
costs relating to compliance with environmental laws and regulations. In
connection with our acquisitions, we may assume significant environmental
liabilities, some of which we may not be aware of at the time of acquisition. In
addition, new laws and regulations, stricter enforcement of existing laws and
regulations, the discovery of previously unknown contamination or the imposition
of new clean-up requirements could require us to incur costs or become the basis
for new or increased liabilities that could have a material adverse effect on
our business, financial condition and results of operations.
Some
of the industries in which we operate are cyclical, and, accordingly, our
business is subject to changes in the economy.
Some of
the business areas in which we operate are subject to specific industry and
general economic cycles. Certain businesses are subject to industry cycles,
including but not limited to, the industrial, energy and semiconductor markets.
Accordingly, any downturn in these or other markets in which we participate
could materially adversely affect us. If demand changes and we fail to respond
accordingly, our results of operations could be materially adversely affected in
any given quarter. The business cycles of our different operations may occur
contemporaneously. Consequently, the effect of an economic downturn may have a
magnified negative effect on our business.
Our
intangible assets are valued at an amount that is high relative to our total
assets, and a write-off of our intangible assets would negatively affect our
results of operations and total capitalization.
Our total
assets reflect substantial intangible assets, primarily goodwill. At December
31, 2008, goodwill totaled $2.12 billion compared to $2.00 billion of
stockholders’ equity, which was 53% of our total assets of $3.97 billion. The
goodwill results from our acquisitions, representing the excess of cost over the
fair value of the net assets we have acquired. We assess at least annually
whether there has been an impairment in the value of our intangible assets. If
future operating performance at one or more of our business units were to fall
significantly below current levels, if competing or alternative technologies
emerge or if business valuations decline, we could incur, under current
applicable accounting rules, a non-cash charge to operating earnings for
goodwill impairment. Any determination requiring the write-off of a significant
portion of unamortized intangible assets would negatively affect our results of
operations and total capitalization, the effect of which could be
material.
We
depend on our ability to develop new products, and any failure to develop or
market new products could adversely affect our business.
The
future success of our business will depend, in part, on our ability to design
and manufacture new competitive products and to enhance existing products so
that our products can be sold with high margins. This product development may
require substantial investment by us. There can be no assurance that unforeseen
problems will not occur with respect to the development, performance or market
acceptance of new technologies or products or that we will otherwise be able to
successfully develop and market new products. Failure of our products to gain
market acceptance or our failure to successfully develop and market new products
could reduce our margins, which would have an adverse effect on our business,
financial condition and results of operations.
Our
technology is important to our success and our failure to protect this
technology could put us at a competitive disadvantage.
Because
many of our products rely on proprietary technology, we believe that the
development and protection of intellectual property rights through patents,
copyrights, trade secrets, trademarks, confidentiality agreements and other
contractual provisions is important to the future success of our business.
Despite our efforts to protect proprietary rights, unauthorized parties or
competitors may copy or otherwise obtain and use our products or technology. The
steps we have taken may not prevent unauthorized use of our technology,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the U.S. Current and future actions to enforce these
rights may result in substantial costs and diversion of resources and we make no
assurances that any such actions will be successful.
Any
business disruptions due to political instability, armed hostilities, incidents
of terrorism or natural disasters could adversely impact our financial
performance.
If
terrorist activity, armed conflict, political instability or natural disasters
occur in the U.S. or other locations, such events may negatively impact our
operations, cause general economic conditions in the U.S. and abroad to
deteriorate or cause world-wide demand for U.S. products to decline. A prolonged
economic slowdown or recession in the U.S. or in other areas of the world could
reduce the demand for our products, and therefore, negatively affect our future
sales and profits. Any of these events could have a significant impact on our
business, financial condition or results of operations and may result in the
volatility of the market price of our common stock.
ITEM
1B. UNRESOLVED
STAFF COMMENTS
There
were no unresolved comments received from the SEC regarding Roper’s periodic or
current reports within the last 180 days prior to December 31,
2008.
ITEM
2. PROPERTIES
Roper’s
corporate offices, consisting of 22,000 square feet of leased space, are located
at 6901 Professional Parkway East, Sarasota, Florida. We have
established 118 principal locations around the world to support our operations,
of which 44 are manufacturing facilities, and the remaining 74 locations provide
sales, service and administrative support functions. We consider our
facilities to be in good operating condition and adequate for their present use
and believe that we have sufficient plant capacity to meet our current and
anticipated operating requirements.
The
following table summarizes the size, location and usage of our principal
properties as of December 31, 2008.
Segment
|
Region
|
Office
|
Office
& Manufacturing
|
||
Leased
|
Leased
|
Owned
|
|||
Industrial
Technology
|
(amounts
in thousands of square feet)
|
||||
US
|
42
|
159
|
559
|
||
Canada
|
36
|
-
|
-
|
||
Europe
|
30
|
92
|
485
|
||
Asia
|
9
|
-
|
-
|
||
Mexico
|
-
|
60
|
-
|
||
Energy
Systems & Controls
|
|||||
US
|
-
|
346
|
-
|
||
Canada
|
-
|
43
|
-
|
||
Europe
|
10
|
8
|
128
|
||
Asia
|
6
|
-
|
-
|
||
Scientific
& Industrial Imaging
|
|||||
US
|
43
|
134
|
127
|
||
Canada
|
-
|
70
|
-
|
||
Europe
|
-
|
21
|
-
|
||
RF
Technology
|
|||||
US
|
505
|
168
|
-
|
||
Canada
|
11
|
-
|
-
|
||
Europe
|
-
|
-
|
16
|
||
Middle
East
|
140
|
-
|
-
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
We are
defendants in various lawsuits involving product liability, employment practices
and other matters, none of which we believe will have a material adverse effect
on our consolidated financial position or results of operations. The majority of
such claims are subject to insurance coverage.
We and/or
one of our subsidiaries are named as defendants, along with many other
companies, in asbestos-related personal injury or wrongful death actions. The
allegations in these actions are vague, general and speculative. Given the state
of these claims, it is not possible to determine the potential liability, if
any.
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF
SECURITY-HOLDERS
|
There
were no matters submitted to a vote of our security-holders during the fourth
quarter of 2008.
PART
II
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Our
common stock trades on the NYSE under the symbol “ROP”. The table below sets
forth the range of high and low sales prices for our common stock as reported by
the NYSE as well as cash dividends declared during each of our 2008 and 2007
quarters.
High
|
Low
|
Cash
Dividends Declared
|
||
2008
|
4th
Quarter
|
$
54.66
|
$
35.19
|
$ 0.0825
|
3rd
Quarter
|
65.49
|
54.75
|
0.0725
|
|
2nd
Quarter
|
67.70
|
59.39
|
0.0725
|
|
1st
Quarter
|
61.01
|
50.05
|
0.0725
|
|
2007
|
4th
Quarter
|
$
70.81
|
$
60.43
|
$ 0.0725
|
3rd
Quarter
|
65.50
|
58.36
|
0.0650
|
|
2nd
Quarter
|
58.36
|
53.88
|
0.0650
|
|
1st
Quarter
|
55.14
|
48.61
|
0.0650
|
Based on
information available to us and our transfer agent, we believe that as of
February 20, 2009 there were 285 record holders of our common
stock.
Dividends - Roper has declared
a cash dividend in each quarter since our February 1992 initial public offering
and we have annually increased our dividend rate since our initial public
offering. In November 2008, our Board of Directors increased the quarterly
dividend paid January 31, 2009 to $0.0825 per share from $0.0725 per share, an
increase of 13.8%. The timing, declaration and payment of future dividends will
be at the sole discretion of our Board of Directors and will depend upon our
profitability, financial condition, capital needs, future prospects and other
factors deemed relevant by our Board of Directors.
Recent Sales of Unregistered
Securities - In 2008, there were no sales of unregistered
securities.
Performance Graph - This
performance graph shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise
subject to the liabilities under that Section and shall not be deemed to be
incorporated by reference into any filing of Roper under the Securities Act of
1933, as amended, or the Exchange Act.
The
following graph compares, for the five year period ended December 31, 2008, the
cumulative total stockholder return for the Company’s common stock, the Standard
and Poor’s 500 Stock Index (the “S&P 500”) and the Standard and Poor’s
500 Industrials Index (the “S&P 500 Industrials”). Measurement points
are the last trading day of each of the Company’s fiscal years ended December
31, 2003, December 31, 2004, December 31, 2005, December 31, 2006, December 31,
2007 and December 31, 2008. The graph assumes that $100 was invested on December
31, 2003 in the common stock of the Company, the S&P 500 and the S&P 500
Industrials and assumes reinvestment of any dividends. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.
12/31/03
|
12/31/04
|
12/31/05
|
12/31/06
|
12/31/07
|
12/31/08
|
|
Roper
Industries, Inc.
|
100.00
|
124.26
|
162.21
|
207.35
|
259.29
|
180.96
|
S&P
500
|
100.00
|
110.88
|
116.33
|
134.70
|
142.10
|
89.53
|
S&P
500 Industrials
|
100.00
|
118.03
|
120.78
|
136.83
|
153.29
|
92.09
|
![](https://www.sec.gov/Archives/edgar/data/0000882835/000088283509000004/graph2.gif)
The
information set forth in Item 12 “Securities Authorized for Issuance under
Equity Compensation Plans” is incorporated herein by reference.
ITEM
6. SELECTED
FINANCIAL DATA
The
following summary consolidated selected financial data for and as of the end of
the years ended December 31, 2008, 2007, 2006, 2005 and 2004 was derived from
our audited consolidated financial statements. Our consolidated financial
statements for and as of the end of each of the years ended December 31, 2008,
2007, 2006, 2005 and 2004 were audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm.
You
should read the table below in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our Consolidated
Financial Statements and related notes included in this Annual Report (amounts
in thousands, except per share data).
Years
ended December 31,
|
||||||||||||||||
2008(1)
|
2007(2)
|
2006(3)
|
2005(4)
|
2004(5)
|
||||||||||||
Operations
data:
|
||||||||||||||||
Net
sales
|
$
|
2,306,371
|
$
|
2,102,049
|
$
|
1,700,734
|
$
|
1,453,731
|
$
|
969,764
|
||||||
Gross
profit
|
1,188,288
|
1,058,395
|
861,325
|
726,407
|
485,045
|
|||||||||||
Income
from operations
|
486,161
|
438,354
|
337,653
|
264,899
|
171,302
|
|||||||||||
Net
earnings
|
286,515
|
250,033
|
193,324
|
153,175
|
93,852
|
|||||||||||
Per
share data:
|
||||||||||||||||
Basic
earnings per share
|
$
|
3.20
|
$
|
2.83
|
$
|
2.23
|
$
|
1.79
|
$
|
1.26
|
||||||
Diluted
earnings per share
|
3.06
|
2.68
|
2.13
|
1.74
|
1.24
|
|||||||||||
Dividends
declared
|
0.30
|
0.27
|
0.24
|
0.22
|
0.20
|
|||||||||||
Balance
sheet data:
|
||||||||||||||||
Working
capital(6)
|
$
|
239,099
|
$
|
283,607
|
$
|
39,846
|
$
|
(7,418
|
)
|
$
|
302,610
|
|||||
Total
assets
|
3,971,538
|
3,453,184
|
2,995,359
|
2,522,306
|
2,366,404
|
|||||||||||
Long-term
debt, less current portion
|
1,033,689
|
727,489
|
726,881
|
620,958
|
855,364
|
|||||||||||
Stockholders’
equity
|
2,003,738
|
1,789,806
|
1,486,839
|
1,249,788
|
1,114,086
|
(1)
|
Includes
results from the acquisitions of CBORD Holdings Corp. from February 20,
2008, Chalwyn Ltd. from June 18, 2008, Getloaded.com, LLC from July 17,
2008, Horizon Software Holdings, Inc. from August 27, 2008 and Technolog
Holdings Ltd. from September 10,
2008.
|
(2)
|
Includes
results from the acquisitions of JLT Mobile Computers, Inc. from February
21, 2007, DJ Instruments from February 28, 2007, Roda Deaco Valve, Ltd.
from March 22, 2007, Dynamic Instruments, Inc. from June 21, 2007, and
Black Diamond Advanced Technology, LLC from September 24,
2007.
|
(3)
|
Includes
results from the acquisitions of Sinmed Holding International BV from
April 5, 2006, Intellitrans, LLC from April 26, 2006, Lumenera Corporation
from July 25, 2006, AC Analytic Controls BV from August 8, 2006 and
Dynisco Parent, Inc. from November 30,
2006.
|
(4)
|
Includes
results from the acquisitions of Inovonics Corporation from February 25,
2005, CIVCO Holding, Inc. from June 17, 2005 and MEDTEC, Inc. from
November 30, 2005.
|
(5)
|
Includes
results from the acquisitions of the power generation business of R/D Tech
from June 7, 2004 and TransCore Holdings, Inc. from December 13,
2004.
|
(6)
|
The
years ended December 31, 2008, 2007, 2006 and 2005 include $230 million of
senior subordinated convertible notes required to be classified as
short-term debt, based upon the triggering of the conversion feature of
the notes due to increases in the trading price of the Company’s
stock.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS
|
You
should read the following discussion in conjunction with “Selected Financial
Data” and our Consolidated Financial Statements and related Notes included in
this Annual Report.
Overview
We are a
diversified growth company that designs, manufactures and distributes energy
systems and controls, scientific and industrial imaging products and software,
industrial technology products and radio frequency products and services. We
market these products and services to selected segments of a broad range of
markets including RF applications, water, energy, research and medical,
education, security and other niche markets.
We pursue
consistent and sustainable growth in earnings by emphasizing continuous
improvement in the operating performance of our existing businesses and by
acquiring other carefully selected businesses. Our acquisitions have represented
both bolt-ons and new strategic platforms. We strive for high cash and earnings
returns from our acquisition investments. On February 20, 2008, we purchased
CBORD Holdings Corp. (“CBORD”), a provider of card systems and integrated
security solutions to higher education, healthcare and other markets. On March
20, 2008, we acquired Tech-Pro, Inc. (“Tech-Pro”), a manufacturer of physical
testing instruments for the rubber and plastic industries. On June 18, 2008, we
purchased Chalwyn Limited (“Chalwyn”), an air shut-off valve provider. On July
17, 2008, we purchased the assets, intellectual property and internet domain
names of Getloaded.com, LLC (“Getloaded”), adding new subscribers to our
existing freight matching services. On August 27, 2008, we purchased Horizon
Software Holdings, Inc. (“Horizon”), a provider of comprehensive software
solutions and related services for the K-12 education market. On September 10,
2008 we purchased Technolog Holdings Limited (“Technolog”), an end-to-end
solutions provider for network monitoring, pressure management, automatic meter
reading and smart metering solutions.
Application
of Critical Accounting Policies
Our
Consolidated Financial Statements are prepared in conformity with generally
accepted accounting principles in the United States, (“GAAP”). A discussion of
our significant accounting policies can also be found in the notes to our
Consolidated Financial Statements for the year ended December 31, 2008 included
in this Annual Report.
GAAP
offers acceptable alternative methods for accounting for certain issues
affecting our financial results, such as determining inventory cost,
depreciating long-lived assets and recognizing revenue. We have not changed the
application of acceptable accounting methods or the significant estimates
affecting the application of these principles in the last three years in a
manner that had a material effect on our financial statements.
Effective
January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standard (“SFAS”) No. 123 (revised 2004), “Share-Based
Payment” (“SFAS 123R”), which requires the Company to recognize expense for the
grant date fair value of its employee stock option awards. The Company
recognizes the expense of all share-based awards on a straight-line basis over
the employee’s requisite service period (generally the vesting period of the
award).
On
January 1, 2007 the Company adopted the provisions of Financial Accounting
Standards Board (“FASB”) Interpretation (“FIN”) No. 48, “Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (“FIN
48”). This Interpretation requires the Company to recognize in the consolidated
financial statements only those tax positions determined to be “more likely than
not” of being sustained upon examination based on the technical merits of the
positions.
The
preparation of financial statements in accordance with GAAP requires the use of
estimates, assumptions, judgments and interpretations that can affect the
reported amounts of assets, liabilities, revenues and expenses, the disclosure
of contingent assets and liabilities and other supplemental
disclosures.
The
development of accounting estimates is the responsibility of our management. Our
management discusses those areas that require significant judgments with the
audit committee of our Board of Directors. The audit committee has reviewed all
financial disclosures in our annual filings with the SEC. Although we believe
the positions we have taken with regard to uncertainties are reasonable, others
might reach different conclusions and our positions can change over time as more
information becomes available. If an accounting estimate changes, its effects
are accounted for prospectively.
Our most
significant accounting uncertainties are encountered in the areas of accounts
receivable collectibility, inventory valuation, future warranty obligations,
revenue recognition (percent of completion), income taxes and goodwill and
indefinite-lived asset analyses. These issues, except for income taxes, which
are not allocated to our business segments, affect each of our business
segments. These issues are evaluated primarily using a combination of historical
experience, current conditions and relatively short-term
forecasting.
Accounts
receivable collectibility is based on the economic circumstances of customers
and credits given to customers after shipment of products, including in certain
cases credits for returned products. Accounts receivable are regularly reviewed
to determine customers who have not paid within agreed upon terms, whether these
amounts are consistent with past experiences, what historical experience has
been with amounts deemed uncollectible and the impact that current and near-term
forecast economic conditions might have on collection efforts in general and
with specific customers. The returns and other sales credit allowance is an
estimate of customer returns, exchanges, discounts or other forms of anticipated
concessions and is treated as a reduction in revenue. The returns and other
sales credits histories are analyzed to determine likely future rates for such
credits. At December 31, 2008, our allowance for doubtful accounts receivable
was $11.2 million and our allowance for sales returns and sales credits was $1.5
million, for a total of $12.7 million, or 3.2% of total gross accounts
receivable. This percentage is influenced by the risk profile of the
underlying receivables, and the timing of write-offs of accounts deemed
uncollectible. The total allowance at December 31, 2008 is $0.8 million higher
than at December 31, 2007 and is unchanged as a percent of sales.
We
regularly compare inventory quantities on hand against anticipated future usage,
which we determine as a function of historical usage or forecasts related to
specific items in order to evaluate obsolescence and excessive quantities. When
we use historical usage, this information is also qualitatively compared to
business trends to evaluate the reasonableness of using historical information
as an estimate of future usage. Business trends can change rapidly and these
events can affect the evaluation of inventory balances. At December 31, 2008,
inventory reserves for excess and obsolete inventory were $30.1 million, or
13.9% of gross inventory cost, as compared to $28.4 million, or 14.0% of gross
inventory cost, at December 31, 2007. The inventory reserve as a percent of
gross inventory cost will continue to fluctuate based upon specific
identification of reserves needed based upon changes in our business as well as
the physical disposal of our obsolete inventory.
Most of
our sales are covered by warranty provisions that generally provide for the
repair or replacement of qualifying defective items for a specified period after
the time of sale, typically 12 months. Future warranty obligations are evaluated
using, among other factors, historical cost experience, product evolution and
customer feedback. Our expense for warranty obligations was less than 1% of net
sales for each of the years ended December 31, 2008, 2007, and
2006.
Revenues
related to the use of the percentage-of-completion method of accounting are
dependent on a comparison of total costs incurred compared with total estimated
costs for a project. During the year ended December 31, 2008, we recognized
revenue of approximately $127.9 million using this method, primarily for major
turn-key, longer term toll and traffic and energy projects. Approximately $135.5
million and $94.8 million of revenue was recognized using this method during the
years ended December 31, 2007 and December 31, 2006, respectively. At December
31, 2008, approximately $206.8 million of revenue related to unfinished
percentage-of-completion contracts had yet to be recognized. Contracts accounted
for under this method are generally not significantly different in profitability
from revenues accounted for under other methods.
Income
taxes can be affected by estimates of whether and within which jurisdictions
future earnings will occur and if, how and when cash is repatriated to the
United States, combined with other aspects of an overall income tax strategy.
Additionally, taxing jurisdictions could retroactively disagree with our tax
treatment of certain items, and some historical transactions have income tax
effects going forward. Accounting rules require these future effects to be
evaluated using current laws, rules and regulations, each of which can change at
any time and in an unpredictable manner. During 2008, our effective income tax
rate was 34.3%, which was lower than the 2007 rate of 34.8%, due primarily to
certain foreign tax planning initiatives.
Roper
accounts for goodwill in a purchase business combination as the excess of the
cost over the fair value of net assets acquired. Business combinations can also
result in other intangible assets being recognized. Amortization of intangible
assets, if applicable, occurs over their estimated useful lives. SFAS No. 142,
“Goodwill and Other Intangible Assets” (“SFAS 142”) requires companies to cease
amortizing goodwill that existed at June 30, 2001 and establishes a two-step
method for testing goodwill for impairment on an annual basis (or an interim
basis if an event occurs that might reduce the fair value of a reporting unit
below its carrying value). Total goodwill includes 25 different business
components with individual amounts ranging from zero to approximately $502
million. SFAS 142 also requires that an identifiable intangible asset that is
determined to have an indefinite useful economic life not be amortized, but
separately tested for impairment using a one-step fair value based approach.
Roper conducts these reviews for all of its reporting units during the fourth
quarter of the fiscal year. No impairment resulted from the annual reviews
performed in 2008.
Results
of Operations
The
following table sets forth selected information for the years indicated. Dollar
amounts are in thousands and percentages are of net sales.
Years
ended December 31,
|
||||||||||
Net
sales
|
2008
|
2007
|
2006
|
|||||||
Industrial
Technology
|
$
|
687,622
|
$
|
644,436
|
$
|
549,993
|
||||
Energy
Systems and Controls(1)
|
548,214
|
516,420
|
343,699
|
|||||||
Scientific
and Industrial Imaging(2)
|
375,542
|
376,163
|
338,906
|
|||||||
RF
Technology(3)
|
694,993
|
565,030
|
468,136
|
|||||||
Total
|
$
|
2,306,371
|
$
|
2,102,049
|
$
|
1,700,734
|
||||
Gross
profit:
|
||||||||||
Industrial
Technology
|
48.5
|
%
|
48.2
|
%
|
47.9
|
%
|
||||
Energy
Systems and Controls
|
53.8
|
53.6
|
54.2
|
|||||||
Scientific
and Industrial Imaging
|
55.0
|
54.9
|
56.8
|
|||||||
RF
Technology
|
50.8
|
46.8
|
46.8
|
|||||||
Total
|
51.5
|
50.4
|
50.6
|
|||||||
Operating
profit:
|
||||||||||
Industrial
Technology
|
25.9
|
%
|
25.6
|
%
|
23.4
|
%
|
||||
Energy
Systems and Controls
|
23.1
|
24.5
|
26.3
|
|||||||
Scientific
and Industrial Imaging
|
19.9
|
19.5
|
21.4
|
|||||||
RF
Technology
|
23.0
|
20.7
|
17.3
|
|||||||
Total
|
23.4
|
22.9
|
21.9
|
|||||||
Corporate
administrative expenses
|
(2.3
|
)%
|
(2.0
|
)%
|
(2.0
|
)%
|
||||
Income
from continuing operations
|
21.1
|
20.9
|
19.9
|
|||||||
Interest
expense
|
(2.3
|
)
|
(2.5
|
)
|
(2.6
|
)
|
||||
Loss
on extinguishment of debt
|
(0.1
|
)
|
—
|
—
|
||||||
Other
income/(expense)
|
0.2
|
(0.1
|
)
|
—
|
||||||
Income
from continuing operations before taxes
|
18.9
|
18.3
|
17.3
|
|||||||
Income
taxes
|
(6.5
|
)
|
(6.4
|
)
|
(5.9
|
)
|
||||
Net
earnings
|
12.4
|
%
|
11.9
|
%
|
11.4
|
%
|
(1)
|
Includes
results from the acquisitions of Tech-Pro from March 20, 2008, Chalwyn
from June 18, 2008, DJ Instruments from February 28, 2007, Roda Deaco from
March 22, 2007, Dynamic Instruments from June 21, 2007, AC Controls from
August 8, 2006 and Dynisco from November 30,
2006.
|
(2)
|
Includes
results from the acquisitions of JLT from February 21, 2007, Sinmed from
April 5, 2006, and Lumenera from July 25,
2006.
|
(3)
|
Includes
results from the acquisitions of CBORD from February 20, 2008, Getloaded
from July 17, 2008, Horizon from August 27, 2008, Technolog from September
10, 2008, Black Diamond from September 24, 2007, and Intellitrans from
April 26, 2006.
|
Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007
Net sales
for the year ended December 31, 2008 were $2.31 billion as compared to sales of
$2.10 billion for the year ended December 31, 2007, an increase of 9.7%. This
increase was the result of sales from acquired companies and internal growth.
Our 2008 results included a full year of sales from our 2007 acquisitions of
JLT, DJ Instruments, Roda Deaco, Dynamic Instruments and Black Diamond. These
results also included ten months of sales from CBORD, nine months from Tech-Pro,
six months from Chalwyn, five months from Getloaded, four months from Horizon
and three months from Technolog. Net sales of these acquisitions accounted for
approximately $133 million of our 2008 net sales increase over 2007 and growth
of our other business accounted for $71 million of the increase, or internal
growth of 3.4% including a 1% foreign currency exchange
impact.
Our Scientific and
Industrial Imaging segment reported a $0.6 million or 0.2% decrease in net sales
for the year ended December 31, 2008 over the year ended December 31, 2007. The
decrease was attributable to the year over year impact of the removal of the
Redlake motion camera product line. Internal growth for 2008 was 0.8% led by
increased sales in our medical businesses, partially offset by slowing sales in
our industrial camera businesses.
In our
Energy Systems and Controls segment, net sales for the year ended December 31,
2008 increased by $31.8 million or 6.2% over the year ended December 31, 2007.
Approximately $18 million of the increase was due to full year results from the
2007 acquisitions of DJ Instruments, Roda Deaco, and Dynamic Instruments, as
well as partial year results from the 2008 acquisitions of Tech-Pro and Chalwyn.
Internal growth was approximately $14 million or 2.8%, led by strength in our
protective technology and oil and gas pipeline controls businesses.
Net sales
for our Industrial Technology segment increased by $43.2 million or 6.7% for the
year ended December 31, 2008 over the year ended December 31, 2007. The increase
was due to broad-based moderate growth in all businesses in this
segment.
In our RF
Technology segment, net sales for the year ended December 31, 2008 increased by
$130.0 million or 23.0% over the year ended December 31, 2007. The partial year
results from the acquisitions of CBORD, Getloaded, Horizon, and Technolog and
full-year results of 2007 acquisitions accounted for approximately $119 million
of the increase. Internal growth increased 1.9% due to growth in our intelligent
traffic systems business, offset by anticipated declines in our large Middle
East project as it transitions from the design and installation phase to
operations and maintenance.
Our
overall gross profit percentage was 51.5% for the year ended December 31, 2008,
as compared to 50.4% for the year ended December 31, 2007 due to operating
leverage on increased sales. Our Industrial Technology, Energy Systems and
Controls, and Scientific and Industrial Imaging segments gross margins were
relatively unchanged in 2008 as compared to 2007. Our RF Technology segment
gross margins increased to 50.8% in 2008 as compared to 46.8% in 2007, due to
the favorable mix within existing businesses and higher gross margins at
acquired businesses.
Selling,
general and administrative (“SG&A”) expenses increased to 30.4% of net sales
for the year ended December 31, 2008 from 29.5% of net sales for the year ended
December 31, 2007. The increase is primarily due to the higher SG&A
structure in our education market businesses within the RF Technology segment.
In addition, corporate expenses increased due to higher equity compensation
costs and the additional costs to the Company due to the increase in Roper’s
stock price on the grant dates of stock awards.
Interest
expense increased $1.5 million, or 2.8%, for the year ended December 31, 2008
compared to the year ended December 31, 2007, primarily due to higher average
debt balances throughout 2008, offset by lower interest rates on our variable
debt throughout the year.
The
change in other income for the year ended December 31, 2008 as compared to the
year ended December 31, 2007 was primarily due to foreign exchange gains at our
non-U.S. based companies on U.S. dollar cash, receivables and payables balances
as the U.S. dollar strengthened against most currencies in the fourth quarter of
2008. These foreign exchange gains were offset by a $3.1 million pre-tax debt
restructuring charge in the third quarter of 2008 related to the refinancing of
our credit facility.
During
2008, our effective income tax rate was 34.3% versus 34.8% in 2007. This
decrease was due primarily to certain foreign tax planning
initiatives.
At
December 31, 2008, the functional currencies of our European and Canadian
subsidiaries were weaker against the U.S. dollar compared to currency exchange
rates at December 31, 2007. The net result of these changes led to a decrease in
the foreign exchange component of comprehensive earnings of $86.7 million in the
year ending December 31, 2008. Approximately $59.8 million of these adjustments
related to goodwill and are not expected to directly affect our projected future
cash flows. For the entire year of 2008, operating profit increased by less than
1% of sales due to fluctuations in non-U.S. currencies.
The following table summarizes our net
sales order information for the years ended December 31, 2008 and 2007 (dollar
amounts in thousands).
2008
|
2007
|
change
|
|||||||
Industrial
Technology
|
$
|
656,176
|
$
|
639,348
|
2.6
|
%
|
|||
Energy
Systems and Controls
|
541,472
|
525,899
|
3.0
|
||||||
Scientific
and Industrial Imaging
|
383,543
|
377,653
|
1.6
|
||||||
RF
Technology
|
722,670
|
575,100
|
25.7
|
||||||
Total
|
$
|
2,303,861
|
$
|
2,118,000
|
8.8
|
%
|
The
increase in sales orders is due to internal growth of 2.3% with the remainder
from acquisitions. The Industrial Technology segment net orders strengthened in
most markets over the prior year. Net orders in the Energy Systems
and Controls segment increased due to the 2007 and 2008
acquisitions. Scientific and Industrial Imaging net orders increased
due to strength in our medical business and camera sales into the security and
teleconferencing application markets, offset by decreases in industrial cameras
sales. The RF Technology segment experienced strong order growth for
projects in the tolling and traffic control businesses.
The
following table summarizes sales order backlog information at December 31, 2008
and 2007 (dollar amounts in thousands). Roper’s policy is to include in backlog
only orders scheduled for shipment within twelve months.
2008
|
2007
|
change
|
|||||||
Industrial
Technology
|
$
|
59,128
|
$
|
93,076
|
(36.5
|
)%
|
|||
Energy
Systems and Controls
|
84,997
|
93,102
|
(8.7
|
)
|
|||||
Scientific
and Industrial Imaging
|
80,020
|
74,834
|
6.9
|
||||||
RF
Technology
|
365,669
|
271,305
|
34.8
|
||||||
Total
|
$
|
589,814
|
$
|
532,317
|
10.8
|
%
|
Year
Ended December 31, 2007 Compared to Year Ended December 31, 2006
Net sales
for the year ended December 31, 2007 were $2.10 billion as compared to sales of
$1.70 billion for the year ended December 31, 2006, an increase of 23.6%. This
increase was the result of sales from acquired companies and strong internal
growth. Our 2007 results included a full year of sales from our 2006
acquisitions of Sinmed, Intellitrans, Lumenera, AC Controls, and Dynisco. These
results also included ten months of sales from JLT and DJ Instruments, nine
months from Roda Deaco, six months from Dynamic Instruments and three months
from Black Diamond, all purchased in 2007. Net sales of these acquisitions
accounted for approximately $158 million of our 2007 net sales increase over
2006 and growth of our other business accounted for $243 million of the
increase, or internal growth of 14.5% including a 2% foreign currency exchange
impact.
Our
Scientific and Industrial Imaging segment reported an increase in net sales of
$37.3 million or 11.0% for the year ended December 31, 2007 over the year ended
December 31, 2006. The increase was attributable to the full-year impact of
Sinmed and Lumenera acquired in 2006, and partial year impact of JLT in 2007,
which accounted for approximately $23 million of the increase over prior year.
Internal growth was 4.2%, which was related to increased sales in the electron
microscopy market due to higher demand from OEM customers, offset by weakness in
our motion camera product line and decreased sales of handheld computers due to
supplier issues encountered during the year. The supplier issues were resolved
in 2007 and did not impact operations in 2008.
In our
Energy Systems and Controls segment, net sales for the year ended December 31,
2007 increased by $172.7 million or 50.3% over the year ended December 31, 2006.
Approximately $127 million of the increase was due to full year results from the
2006 acquisitions of AC Controls and Dynisco, as well as partial year results
for DJ Instruments, Roda Deaco, and Dynamic Instruments. Internal growth was
approximately $45 million or 14%, primarily from strength in the oil and gas
related businesses, which have benefited from the strong global oil and gas
market, as well as improved market penetration in our control valve
business.
Net sales
for our Industrial Technology segment increased by $94.4 million or 17.2% for
the year ended December 31, 2007 over the year ended December 31, 2006. The
increase was due primarily to high market penetration for our new
radio-frequency integrated water meter at Neptune Technologies, accounting for
63% of the year over year growth. In addition, sales in our materials testing
businesses were up $19 million over the prior year due to increased unit
sales.
In our RF
Technology segment, net sales for the year ended December 31, 2007 increased by
$96.9 million or 20.7% over the year ended December 31, 2006. The full-year
results of Intellitrans, purchased in April, 2006, and four months from the
acquisition of Black Diamond on September 24, 2007, accounted for approximately
$7 million of the increase. Internal growth increased 19.3% due to strong
performance in our traffic and tolling business, which benefited in 2007 from a
large Middle East project that continued into 2008.
Our
overall gross profit percentage was 50.4% for the year ended December 31, 2007,
as compared to 50.6% for the year ended December 31, 2006. Industrial Technology
gross margins increased to 48.2% as compared to 47.9% in the prior year. Our
Energy Systems and Controls segment gross margins decreased to 53.6% in 2007 as
compared to 54.2% in 2006, due to the mix change within the segment caused by
the inclusion of the lower gross margin Dynisco business. Our
Scientific and Industrial Imaging segment gross margins were 54.9% in 2007 as
compared to 56.8% in 2006, due primarily to the additional costs related to the
DAP touch screen quality issue. Our RF Technology segment gross margins remained
constant at 46.8% in both 2007 and 2006.
Selling,
general and administrative expenses decreased to 29.5% of net sales for the year
ended December 31, 2007 from 30.8% of net sales for the year ended December 31,
2006. The decrease is due to leverage from higher sales while making a conscious
effort to control general and administrative expenses.
Interest
expense increased $7.4 million, or 16.5%, for the year ended December 31, 2007
compared to the year ended December 31, 2006, primarily due to higher average
debt balances throughout 2007 related to the November 30, 2006 acquisition of
Dynisco, and additional borrowings throughout the year for the 2007 acquisitions
offset by payments on these balances throughout the year.
The
change in other income for the year ended December 31, 2007 as compared to the
year ended December 31, 2006 was primarily due to foreign exchange losses at our
non-U.S. based companies on U.S. dollar cash, receivables and payables balances
as the U.S. dollar weakened against most currencies in 2007.
During
2007, our effective income tax rate was 34.8% versus 34.0% in 2006. This
increase was due primarily to the expiration of the extraterritorial income
inclusion offset somewhat by an increased benefit from our foreign rate
differential.
At
December 31, 2007, the functional currencies of our European and Canadian
subsidiaries were stronger against the U.S. dollar compared to currency exchange
rates at December 31, 2006. The net result of these changes led to an increase
in the foreign exchange component of comprehensive earnings of $52.3 million in
the year period ending December 31, 2007. Approximately $34.8 million of these
adjustments related to goodwill and are not expected to directly affect our
projected future cash flows. For the entire year of 2007, operating profit
increased by approximately 1% of sales due to fluctuations in non-U.S.
currencies.
The
following table summarizes our net sales order information for the years ended
December 31, 2007 and 2006 (dollar amounts in thousands).
2007
|
2006
|
change
|
|||||||
Industrial
Technology
|
$
|
639,348
|
$
|
589,322
|
8.5
|
%
|
|||
Energy
Systems and Controls
|
525,899
|
346,880
|
51.6
|
||||||
Scientific
and Industrial Imaging
|
377,653
|
341,178
|
10.7
|
||||||
RF
Technology
|
575,100
|
511,188
|
12.5
|
||||||
Total
|
$
|
2,118,000
|
$
|
1,788,568
|
18.4
|
%
|
The
increase in sales orders is due to internal growth of 9.7% with the remainder
from acquisitions. The Industrial Technology segment net orders strengthened in
most markets over the prior year. Net orders in the Energy Systems and Controls
segment increased due to the 2006 and 2007 acquisitions, which accounted for
38.7% of the increase. In addition, there was strong internal growth in our
fluid properties testing, non-destructive testing and valve and control
businesses. Scientific and Industrial Imaging net orders increased from the
inclusion of orders from 2006 and 2007 acquisitions, and also from stronger
orders in the electron microscopy market, which led to the higher backlog at
2007 in the Scientific and Industrial Imaging segment. The RF Technology segment
experienced strong order growth including a significant international project
which began in the fourth quarter of 2006 and continued throughout
2007.
The
following table summarizes sales order backlog information at December 31, 2007
and 2006 (dollar amounts in thousands). Roper’s policy is to include in backlog
only orders scheduled for shipment within twelve months.
2007
|
2006
|
change
|
|||||||
Industrial
Technology
|
$
|
93,076
|
$
|
95,539
|
(2.6
|
)%
|
|||
Energy
Systems and Controls
|
93,102
|
79,217
|
17.5
|
||||||
Scientific
and Industrial Imaging
|
74,834
|
68,600
|
9.1
|
||||||
RF
Technology
|
271,305
|
261,243
|
3.9
|
||||||
Total
|
$
|
532,317
|
$
|
504,599
|
5.5
|
%
|
Financial
Condition, Liquidity and Capital Resources
Net cash
provided by operating activities was $434.4 million for the year ended December
31, 2008, $343.8 million for the year ended December 31, 2007 and $262.5 million
for the year ended December 31, 2006. The 2008 increase was primarily due to
higher earnings over the prior year and improved receivables collection. Cash
used by investing activities during 2008, 2007, and 2006 were primarily business
acquisition costs. Cash from financing activities during each of these years was
largely debt repayments and borrowings for acquisitions. Financing activities in
2008 included replacing our previous $1.355 billion secured credit facility with
our current $1.1 billion unsecured credit facility and the issuance of our $500
million senior notes.
Net
working capital (current assets, excluding cash, less total current liabilities,
excluding debt) was $294.9 million at December 31, 2008 compared to $305.9
million at December 31, 2007. We acquired approximately $7.9 million of net
current assets through business acquisitions during 2008.
Total
debt was $1.3 billion at December 31, 2008 (38.7% of total capital) compared to
$1.1 billion at December 31, 2007 (37.2% of total capital). Our increased debt
at December 31, 2008 compared to December 31, 2007 was due to the replacement of
our previous $1.355 billion secured credit facility with our current $1.1
billion unsecured credit facility and the issuance of our $500 million senior
notes.
Our $1.1
billion credit facility consists of a two year $350 million term loan and a five
year $750 million revolving loan. The weighted average interest rate on the
borrowings under the facility at December 31, 2008 was 1.90%. At December 31,
2008, our debt consisted of $230 million in senior subordinated convertible
notes due in 2034, $500 million in senior notes due 2013, the $350 million term
loan due 2010 and $179 million on the revolving loan. In addition, we had $8.5
million of other debt in the form of capital leases and several smaller
facilities that allow for borrowings or the issuance of letters of credit in
various foreign locations to support our non-U.S. businesses. The Company had
$51.1 million of outstanding letters of credit at December 31, 2008, of which
$47.3 million were covered by our lending group, thereby reducing its remaining
revolving credit capacity commensurately. We expect that our available borrowing
capacity, combined with existing cash balances and cash flows expected to be
generated from existing businesses, will be sufficient to fund normal operating
requirements and finance additional acquisitions.
We were
in compliance with all debt covenants related to our credit facilities
throughout the year ended December 31, 2008.
Capital
expenditures of $30.0 million, $30.1 million and $32.2 million were incurred
during 2008, 2007 and 2006, respectively. In the future, we expect capital
expenditures as a percentage of sales to be less than 2% of annual
sales.
Description
of Certain Indebtedness
Senior Unsecured
Credit Facility -
On July 7, 2008, the Company entered into a new $1.1 billion unsecured credit
facility with JPMorgan Chase Bank, N.A., as administrative agent, and a
syndicate of lenders, which replaces its $1.355 billion amended and restated
secured credit facility, dated as of December 13, 2004. The $1.1 billion
facility is composed of a $350 million term loan facility maturing July 7, 2010
and a five year $750 million revolving credit facility maturing July 7, 2013.
The Company may also, subject to compliance with specified conditions, request
additional term loans or revolving credit commitments in an aggregate amount not
to exceed $350 million.
The
facility contains various affirmative and negative covenants which, among other
things, limit our ability to incur new debt, make certain investments and
acquisitions, sell assets and grant liens, make restricted payments (including
the payment of dividends on our common stock) and capital expenditures, or
change our line of business. We also are subject to financial covenants which
require us to limit our consolidated total leverage ratio and to maintain a
consolidated interest coverage ratio. The most restrictive covenant is the
consolidated total leverage ratio which is limited to 3.5.
Senior Notes -
On August 6, 2008, we issued $500 million aggregate principal amount
of 6.625% senior notes due August 15, 2013 (the “Notes”). The Notes
bear interest at a fixed rate of 6.625% per year, payable semi-annually in
arrears on February 15 and August 15 of each year, beginning February 15, 2009.
The interest payable on the Notes is subject to adjustment if either Moody’s
Investors Service or Standard & Poor’s Ratings Services downgrades the
rating assigned to the Notes.
We may
redeem some or all of the Notes at any time or from time to time, at 100% of
their principal amount plus a make-whole premium based on a spread to U.S.
Treasury securities as described in the indenture relating to the
Notes.
The Notes
are unsecured senior obligations of the Company and rank equally in right of
payment with all of the Company’s existing and future unsecured and
unsubordinated indebtedness. The Notes are effectively subordinated to any of
the Company’s existing and future secured indebtedness to the extent of the
value of the collateral securing such indebtedness. The Notes are not guaranteed
by any of the Company’s subsidiaries and are effectively subordinated to all
existing and future indebtedness and other liabilities of the Company’s
subsidiaries.
Senior
Subordinated Convertible Notes - In December 2003, we issued $230 million
of senior subordinated convertible notes at an original issue discount of
60.498%, resulting in an effective yield of 3.75% per year to maturity. Interest
on the notes is payable semiannually, beginning July 15, 2004, until January 15,
2009. After that date, we will not pay cash interest on the notes prior to
maturity unless contingent cash interest becomes payable. Instead, after January
15, 2009, interest will be recognized at the effective rate of 3.75% and will
represent accrual of original issue discount, excluding any contingent cash
interest that may become payable. We will pay contingent cash interest to the
holders of the notes during any six month period commencing after
January 15, 2009 if the average trading price of a note for a five trading
day measurement period preceding the applicable six month period equals
120% or more of the sum of the issue price, accrued original issue discount and
accrued cash interest, if any, for such note. The contingent cash interest
payable per note in respect of any six month period will equal the annual rate
of 0.25%.
The notes
are unsecured senior subordinated obligations, rank junior to our existing and
future senior secured indebtedness and rank equally with our existing and future
senior subordinated indebtedness.
As
originally issued, each $1,000 principal amount of the notes will be convertible
at the option of the holder into 12.422 shares of our common stock (giving
effect to the 2-for-1 stock split effective August 26, 2005 and subject to
further adjustment), if (i) the sale price of our common stock reaches, or the
trading price of the notes falls below, specified thresholds, (ii) if the notes
are called for redemption or (iii) if specified corporate transactions have
occurred. Upon conversion, we would have the right to deliver, in lieu of common
stock, cash or a combination of cash and common stock. On November 19, 2004, the
Company began a consent solicitation to amend the notes such that the Company
would pay the same conversion value upon conversion of the notes, but would
change how the conversion value is paid. In lieu of receiving exclusively shares
of common stock or cash upon conversion, noteholders would receive cash up to
the value of the accreted principal amount of the notes converted and, at the
Company’s option, any remainder of the conversion value would be paid in cash or
shares of common stock. The consent solicitation was successfully completed on
December 6, 2004 and the amended conversion provisions were
adopted.
Holders
may require us to purchase all or a portion of their notes on January 15,
2009, January 15, 2014, January 15, 2019, January 15, 2024, and
January 15, 2029, at stated prices plus accrued cash interest, if any,
including contingent cash interest, if any. We may only pay the purchase price
of such notes in cash and not in common stock.
We may
redeem for cash all or a portion of the notes at any time on or after
January 15, 2009 at redemption prices equal to the sum of the issue price
plus accrued original issue discount and accrued cash interest, if any,
including contingent cash interest, if any, on such notes to the applicable
redemption date.
As of
September 30, 2005, the senior subordinated convertible notes were reclassified
from long term to short term debt as the notes became convertible on October 1,
2005 based upon the Company’s common stock trading above the trigger price for
at least 20 trading days during the 30 consecutive trading-day period ending on
September 30, 2005.
In
accordance with EITF 04-8, “The Effect of Contingently Convertible Debt on
Diluted Earnings Per Share,” the Company is required to include in its diluted
weighted-average common share calculation an increase in shares based upon the
difference between the Company’s average closing stock price for the period and
the conversion price of $31.80. This is calculated using the treasury stock
method.
Contractual
Cash Obligations and Other Commercial Commitments and Contingencies
The
following tables quantify our contractual cash obligations and commercial
commitments at December 31, 2008 (dollars in thousands).
Contractual
Cash
Obligations
|
Total
|
Payments
Due in Fiscal Year
|
||||||||||||||||||||
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
|||||||||||||||||
Long-term
debt
|
$
|
1,260,668
|
$
|
231,668
|
$
|
350,000
|
$
|
—
|
$
|
—
|
$
|
679,000
|
$
|
—
|
||||||||
Senior
Note interest
|
169,306
|
34,598
|
33,585
|
33,585
|
33,677
|
33,861
|
—
|
|||||||||||||||
Capital
leases
|
6,848
|
2,159
|
1,847
|
1,023
|
523
|
340
|
956
|
|||||||||||||||
Operating
leases
|
99,862
|
27,635
|
21,003
|
13,726
|
10,374
|
8,036
|
19,088
|
|||||||||||||||
Total
|
$
|
1,536,684
|
$
|
296,060
|
$
|
406,435
|
$
|
48,334
|
$
|
44,574
|
$
|
721,237
|
$
|
20,044
|
Other
Commercial
Commitments
|
Total
Amount
Committed
|
Amounts
Expiring in Fiscal Year
|
||||||||||||||||||||
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
|||||||||||||||||
Standby
letters of credit and
bank guarantees
|
$
|
51,082
|
$
|
47,670
|
$
|
1,262
|
$
|
319
|
$
|
85
|
$
|
1,746
|
$
|
—
|
We have
excluded $26 million related to the liability for uncertain tax positions under
FIN 48 from the tables as the current portion is not material, and we are not
able to reasonably estimate the timing of the long term portion of the
liability. See Note 8 of the Notes to Consolidated Financial
Statements.
At
December 31, 2008, the Company had outstanding surety bonds of $239
million.
At
December 31, 2008 and 2007, we did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes.
We
believe that internally generated cash flows and the remaining availability
under our various credit facilities will be adequate to finance normal operating
requirements and further acquisition activities. Although we maintain an active
acquisition program, any further acquisitions will be dependent on numerous
factors and it is not feasible to reasonably estimate if or when any such
acquisitions will occur and what the impact will be on our activities, financial
condition and results of operations. We may also explore alternatives to attract
additional capital resources.
We
anticipate that our recently acquired businesses as well as our other businesses
will generate positive cash flows from operating activities, and that these cash
flows will permit the reduction of currently outstanding debt in accordance with
the repayment schedule. However, the rate at which we can reduce our debt during
2009 (and reduce the associated interest expense) will be affected by, among
other things, the financing and operating requirements of any new acquisitions
and the financial performance of our existing companies. None of these factors
can be predicted with certainty.
Recently
Issued Accounting Standards
See Note
1 of the Notes to Consolidated Financial Statements for information regarding
the effect of new accounting pronouncements on our financial
statements.
ITEM
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are
exposed to interest rate risks on our outstanding borrowings, and to foreign
currency exchange risks on our transactions denominated in currencies other than
the U.S. dollar. We are also exposed to equity market risks pertaining to the
traded price of our common stock.
At
December 31, 2008, we had a combination of fixed and floating rate borrowings.
Our $1.1 billion senior credit facility contains $350 million in variable rate
term loans and a $750 million variable rate revolver. At December 31, 2008, the
weighted average interest rate was 1.90% on the variable portion of the term
loans and revolver. Our $500 million senior notes have a fixed interest rate of
6.625%, and our $230 million senior unsecured convertible notes have a fixed
interest rate of 3.75%. At December 31, 2008, the prevailing market rates for
long term notes were between 1.8% and 4.7% higher than the fixed rates on our
debt instruments.
At
December 31, 2008, Roper’s outstanding variable-rate borrowings under the $1.1
billion credit facility were $529 million. An increase in interest rates of 1%
would increase our annualized interest costs by $5.3 million.
Several
of our businesses have transactions and balances denominated in currencies other
than the U.S. dollar. Most of these transactions or balances are denominated in
euros, Canadian dollars, British pounds, Danish krone or Japanese yen. Sales by
companies whose functional currency was not the U.S. dollar were 24% of our
total sales and 71% of these sales were by companies with a European functional
currency. The U.S. dollar weakened against most currencies during the first
three quarters of 2008 and then strengthened significantly in the fourth quarter
of 2008, which resulted in a 1% sales increase due to foreign currency exchange.
The difference between 2008 operating income for these companies translated into
U.S. dollars during 2008 and operating income translated into U.S. dollars
during 2007 was less than 1%. If these currency exchange rates had been 10%
different throughout 2008 compared to currency exchange rates actually
experienced, the impact on our expected net earnings would have been
approximately 3.5%.
The
changes in these currency exchange rates relative to the U.S. dollar during 2008
compared to currency exchange rates at December 31, 2007 resulted in a decrease
in net assets of $86.7 million that was reported as a component of comprehensive
earnings, $59.8 million of which was attributed to goodwill. Goodwill changes
from currency exchange rate changes do not directly affect our reported earnings
or cash flows.
The
trading price of Roper’s common stock influences the valuation of stock award
grants and the effects these grants have on our results of operations. The stock
price also influences the computation of potentially dilutive common stock which
includes both stock awards and the premium over the conversion price on senior
subordinated convertible notes to determine diluted earnings per share. The
stock price also affects our employees’ perceptions of various programs that
involve our common stock. We believe the quantification of the effects of these
changing prices on our future earnings and cash flows is not readily
determinable.
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
|
|
Consolidated
Financial Statements:
|
|
Report
of Independent Registered Public Accounting Firm (PricewaterhouseCoopers
LLP)
|
27
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
28
|
Consolidated
Statements of Earnings for the Years ended December 31, 2008, 2007 and
2006
|
29
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Earnings for the
Years ended December 31, 2008, 2007 and 2006
|
30
|
Consolidated
Statements of Cash Flows for the Years ended December 31, 2008, 2007 and
2006
|
32
|
Notes
to Consolidated Financial Statements
|
34
|
Supplementary
Data:
|
|
Schedule
II – Consolidated Valuation and Qualifying Accounts for the Years ended
December 31, 2008, 2007 and 2006
|
54
|
Report
of Independent Registered Public Accounting Firm
To the
Shareholders of Roper Industries, Inc.:
In our
opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of stockholders' equity and comprehensive
earnings, and of cash flows, present fairly, in all material respects, the
financial position of Roper Industries, Inc. and its subsidiaries at December
31, 2008 and December 31, 2007, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
2008 in conformity
with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule listed in the
index appearing
under Item 15(a)(2), presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in
Management's Report on Internal Control over Financial Reporting appearing under
item 9A. Our responsibility is to express opinions on these financial
statements, financial statement schedule, and on the Company's internal control
over financial reporting based on our integrated audits. We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
As
discussed in Note 8 to the consolidated financial statements, the Company
changed the manner in which it accounts for uncertain tax positions in
2007.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
As
described in Management’s Report on Internal Control Over Financial Reporting
appearing under Item 9A, management has excluded CBORD Holdings Corp.; Tech-Pro,
Inc.; Chalwyn, Ltd.; GetLoaded.com, LLC; Horizon Software International, LLC;
and Technolog Holdings Ltd. from its assessment of internal control over
financial reporting as of December 31, 2008, because they were acquired by the
Company in purchase business combinations during 2008. We have also excluded
CBORD Holdings Corp.; Tech-Pro, Inc.; Chalwyn, Ltd.; GetLoaded.com, LLC; Horizon
Software International, LLC; and Technolog Holdings Ltd. from our audit of
internal control over financial reporting. CBORD Holdings Corp.; Tech-Pro, Inc.;
Chalwyn, Ltd.; GetLoaded.com, LLC; Horizon Software International, LLC; and
Technolog Holdings Ltd. are wholly-owned subsidiaries whose aggregate total
assets and aggregate total revenues represent 7.2% and 5.4%, respectively, of
the related consolidated financial statement amounts as of and for the year
ended December 31, 2008.
PricewaterhouseCoopers
LLP
Atlanta,
GA
February
27, 2009
ROPER
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
December
31, 2008 and 2007
(in
thousands, except per share data)
2008
|
2007
|
||||||||
Assets
|
|||||||||
Cash
and cash equivalents
|
$
|
178,069
|
$
|
308,768
|
|||||
Accounts
receivable, net
|
376,855
|
359,808
|
|||||||
Inventories,
net
|
185,919
|
174,138
|
|||||||
Deferred
taxes
|
29,390
|
27,800
|
|||||||
Unbilled
Receivables
|
61,168
|
60,218
|
|||||||
Other
current assets
|
26,906
|
20,405
|
|||||||
Total
current assets
|
858,307
|
951,137
|
|||||||
Property,
plant and equipment, net
|
112,463
|
107,513
|
|||||||
Goodwill
|
2,118,852
|
1,706,083
|
|||||||
Other
intangible assets, net
|
804,020
|
613,505
|
|||||||
Deferred
taxes
|
28,050
|
23,854
|
|||||||
Other
assets
|
49,846
|
51,092
|
|||||||
Total
assets
|
$
|
3,971,538
|
$
|
3,453,184
|
|||||
Liabilities
and Stockholders' Equity
|
|||||||||
Accounts
payable
|
$
|
121,807
|
$
|
115,809
|
|||||
Accrued
liabilities
|
261,682
|
194,055
|
|||||||
Income
taxes payable
|
1,892
|
24,121
|
|||||||
Deferred
taxes
|
—
|
2,442
|
|||||||
Current
portion of long-term debt
|
233,827
|
331,103
|
|||||||
Total
current liabilities
|
619,208
|
667,530
|
|||||||
Long-term
debt, net of current portion
|
1,033,689
|
727,489
|
|||||||
Deferred
taxes
|
272,077
|
221,411
|
|||||||
Other
liabilities
|
42,826
|
46,948
|
|||||||
Total
liabilities
|
1,967,800
|
1,663,378
|
|||||||
Commitments
and contingencies (Note 13)
|
|||||||||
Stockholders'
equity:
|
|||||||||
Preferred
stock, $0.01 par value per share; 2,000 shares authorized; none
outstanding
|
—
|
—
|
|||||||
Common
stock, $0.01 par value per share; 350,000 shares authorized; 91,909 shares
issued and 89,721 outstanding at December 31, 2008 and 90,995 shares
issued and 88,773 outstanding at December 31, 2007.
|
919
|
910
|
|||||||
Additional
paid-in capital
|
798,486
|
757,318
|
|||||||
Retained
earnings
|
1,204,521
|
944,886
|
|||||||
Accumulated
other comprehensive earnings
|
21,513
|
108,732
|
|||||||
Treasury
stock 2,188 shares at December 31, 2008 and 2,222 shares
at December 31, 2007
|
(21,701
|
)
|
(22,040
|
)
|
|||||
Total
stockholders' equity
|
2,003,738
|
1,789,806
|
|||||||
Total
liabilities and stockholders' equity
|
$
|
3,971,538
|
$
|
3,453,184
|
See
accompanying notes to consolidated financial statements.
ROPER
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EARNINGS
Years
ended December 31, 2008, 2007 and 2006
(Dollar
and share amounts in thousands, except per share data)
Years
ended December 31,
|
||||||||||||||
2008
|
2007
|
2006
|
||||||||||||
Net
sales
|
$
|
2,306,371
|
$
|
2,102,049
|
$
|
1,700,734
|
||||||||
Cost
of sales
|
1,118,083
|
1,043,654
|
839,409
|
|||||||||||
Gross
profit
|
1,188,288
|
1,058,395
|
861,325
|
|||||||||||
Selling,
general and administrative expenses
|
702,127
|
620,041
|
523,672
|
|||||||||||
Income
from operations
|
486,161
|
438,354
|
337,653
|
|||||||||||
Interest
expense
|
53,680
|
52,195
|
44,801
|
|||||||||||
Loss
on extinguishment of debt
|
3,133
|
—
|
—
|
|||||||||||
Other
income (expense)
|
6,607
|
(2,502
|
)
|
20
|
||||||||||
Earnings
from continuing operations before income taxes
|
435,955
|
383,657
|
292,872
|
|||||||||||
Income
taxes
|
149,440
|
133,624
|
99,548
|
|||||||||||
Net
earnings
|
$
|
286,515
|
$
|
250,033
|
$
|
193,324
|
||||||||
Earnings
per share:
|
||||||||||||||
Basic
|
$
|
3.20
|
$
|
2.83
|
$
|
2.23
|
||||||||
Diluted
|
$
|
3.06
|
$
|
2.68
|
$
|
2.13
|
||||||||
Weighted
average common shares outstanding:
|
||||||||||||||
Basic
|
89,468
|
88,390
|
86,842
|
|||||||||||
Diluted
|
93,699
|
93,229
|
90,880
|
See
accompanying notes to consolidated financial statements.
ROPER
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE EARNINGS
Years
ended December 31, 2008, 2007 and 2006
(in
thousands, except per share data)
Common
Stock
|
Additional
paid-in capital
|
Unearned
compensation on restricted stock grants
|
Retained
earnings
|
Accumulated
other comprehensive earnings
|
Treasury
stock
|
Total
stockholders equity
|
Compre-hensive
earnings
|
|||||||||||||||||||
Shares
|
Amount
|
|||||||||||||||||||||||||
Balances
at December 31, 2005
|
85,960
|
$
|
883
|
$
|
685,450
|
$
|
(15,128
|
)
|
$
|
549,603
|
$
|
51,731
|
$
|
(22,751
|
)
|
$
|
1,249,788
|
$
|
128,657
|
|||||||
Net
earnings
|
—
|
—
|
—
|
—
|
193,324
|
—
|
—
|
193,324
|
$
|
193,324
|
||||||||||||||||
Reclassification
due to change in accounting principle-SFAS 123R
|
—
|
—
|
(15,128
|
)
|
15,128
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||
Stock
option exercises
|
1,188
|
12
|
20,692
|
—
|
—
|
—
|
—
|
20,704
|
—
|
|||||||||||||||||
Treasury
stock sold
|
38
|
—
|
1,193
|
—
|
—
|
—
|
374
|
1,567
|
—
|
|||||||||||||||||
Currency
translation adjustments, net of $5,802 tax
|
—
|
—
|
—
|
—
|
—
|
17,768
|
—
|
17,768
|
17,768
|
|||||||||||||||||
Stock
based compensation
|
—
|
—
|
15,415
|
—
|
—
|
—
|
—
|
15,415
|
—
|
|||||||||||||||||
Restricted
stock grants
|
593
|
5
|
(1,410
|
)
|
—
|
—
|
—
|
—
|
(1,405
|
)
|
—
|
|||||||||||||||
Stock
option tax benefit
|
—
|
—
|
11,539
|
—
|
—
|
—
|
—
|
11,539
|
—
|
|||||||||||||||||
Reduction
in unrealized gain on derivative, shown net of $(289) tax
|
—
|
—
|
—
|
—
|
—
|
(537
|
)
|
—
|
(537
|
)
|
(537
|
)
|
||||||||||||||
Adjustment
to adopt SFAS No. 158, net of $159 tax
|
—
|
—
|
—
|
—
|
—
|
(296
|
)
|
—
|
(296
|
)
|
—
|
|||||||||||||||
Dividends
declared ($0.24125 per share)
|
—
|
—
|
—
|
—
|
(21,028
|
)
|
—
|
—
|
(21,028
|
)
|
—
|
|||||||||||||||
Balances
at December 31, 2006
|
87,779
|
$
|
900
|
$
|
717,751
|
$
|
—
|
$
|
721,899
|
$
|
68,666
|
$
|
(22,377
|
)
|
$
|
1,486,839
|
$
|
210,555
|
||||||||
Adjustment
to adopt FIN No. 48
|
—
|
—
|
—
|
—
|
(3,349
|
)
|
—
|
—
|
(3,349
|
)
|
—
|
|||||||||||||||
Net
earnings
|
—
|
—
|
—
|
—
|
250,033
|
—
|
—
|
250,033
|
$
|
250,033
|
||||||||||||||||
Stock
option exercises
|
791
|
8
|
15,256
|
—
|
—
|
—
|
—
|
15,264
|
—
|
|||||||||||||||||
Treasury
stock sold
|
27
|
—
|
1,426
|
—
|
—
|
—
|
337
|
1,763
|
—
|
|||||||||||||||||
Currency
translation adjustments, net of $9,979 tax
|
—
|
—
|
—
|
—
|
—
|
42,326
|
—
|
42,326
|
42,326
|
|||||||||||||||||
Stock
based compensation
|
—
|
—
|
20,716
|
—
|
—
|
—
|
—
|
20,716
|
—
|
|||||||||||||||||
Restricted
stock grants
|
176
|
2
|
(3,560
|
)
|
—
|
—
|
—
|
—
|
(3,558
|
)
|
—
|
|||||||||||||||
Stock
option tax benefit
|
—
|
—
|
5,729
|
—
|
—
|
—
|
—
|
5,729
|
—
|
|||||||||||||||||
Reduction
in unrealized gain on derivative, shown net of $(1,217)
tax
|
—
|
—
|
—
|
—
|
—
|
(2,260
|
)
|
—
|
(2,260
|
)
|
(2,260
|
)
|
||||||||||||||
Dividends
declared ($0.2675 per share)
|
—
|
—
|
—
|
—
|
(23,697
|
)
|
—
|
—
|
(23,697
|
)
|
—
|
|||||||||||||||
Balances
at December 31, 2007
|
88,773
|
$
|
910
|
$
|
757,318
|
$
|
—
|
$
|
944,886
|
$
|
108,732
|
$
|
(22,040
|
)
|
$
|
1,789,806
|
$
|
290,099
|
||||||||
Net
earnings
|
—
|
—
|
—
|
—
|
286,515
|
—
|
—
|
286,515
|
$
|
286,515
|
||||||||||||||||
Stock
option exercises
|
462
|
5
|
11,032
|
—
|
—
|
—
|
—
|
11,037
|
—
|
|||||||||||||||||
Treasury
stock sold
|
34
|
—
|
1,555
|
—
|
—
|
—
|
339
|
1,894
|
—
|
|||||||||||||||||
Currency
translation adjustments, net of $9,404 tax
|
—
|
—
|
—
|
—
|
—
|
(86,679
|
)
|
—
|
(86,679
|
)
|
(86,679
|
)
|
||||||||||||||
Stock
based compensation
|
—
|
—
|
30,905
|
—
|
—
|
—
|
—
|
30,905
|
—
|
|||||||||||||||||
Restricted
stock grants
|
452
|
4
|
(7,967
|
)
|
—
|
—
|
—
|
—
|
(7,963
|
)
|
—
|
|||||||||||||||
Stock
option tax benefit
|
—
|
—
|
5,643
|
—
|
—
|
—
|
—
|
5,643
|
—
|
|||||||||||||||||
Reduction
in unrealized gain on derivative, shown net of $(291) tax
|
—
|
—
|
—
|
—
|
—
|
(540
|
)
|
—
|
(540
|
)
|
(540
|
)
|
||||||||||||||
Dividends
declared ($0.30 per share)
|
—
|
—
|
—
|
—
|
(26,880
|
)
|
—
|
—
|
(26,880
|
)
|
—
|
|||||||||||||||
Balances
at December 31, 2008
|
89,721
|
$
|
919
|
$
|
798,486
|
$
|
—
|
$
|
1,204,521
|
$
|
21,513
|
$
|
(21,701
|
)
|
$
|
2,003,738
|
$
|
199,296
|
See
accompanying notes to consolidated financial statements.
ROPER
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
ended December 31, 2008, 2007 and 2006
(in
thousands)
Years
ended December 31,
|
||||||||||
2008
|
2007
|
2006
|
||||||||
Cash
flows from operating activities:
|
||||||||||
Net
earnings
|
$
|
286,515
|
$
|
250,033
|
$
|
193,324
|
||||
Adjustments
to reconcile net earnings to cash flows from operating
activities:
|
||||||||||
Depreciation
and amortization of property, plant and equipment
|
33,900
|
31,805
|
29,939
|
|||||||
Amortization
of intangible assets and deferred financing costs
|
69,208
|
61,375
|
52,105
|
|||||||
Non-cash
stock compensation
|
30,905
|
20,688
|
15,415
|
|||||||
Changes
in operating assets and liabilities, net of acquired
businesses:
|
||||||||||
Accounts
receivable
|
14,609
|
(21,243
|
)
|
(34,580
|
)
|
|||||
Inventories
|
(8,728
|
)
|
(489
|
)
|
(14,442
|
)
|
||||
Unbilled
Receivables
|
(950
|
)
|
(30,971
|
)
|
(5,032
|
)
|
||||
Accounts
payable and accrued liabilities
|
9,209
|
14,219
|
32,943
|
|||||||
Income
taxes payable
|
(177
|
)
|
23,840
|
(4,506
|
)
|
|||||
Other,
net
|
(53
|
)
|
(5,450
|
)
|
(2,628
|
)
|
||||
Cash
provided by operating activities
|
434,438
|
343,807
|
262,538
|
|||||||
Cash
flows from investing activities:
|
||||||||||
Acquisitions
of businesses, net of cash acquired
|
(704,764
|
)
|
(106,942
|
)
|
(352,125
|
)
|
||||
Capital
expenditures
|
(30,047
|
)
|
(30,107
|
)
|
(32,153
|
)
|
||||
Other,
net
|
(4,483
|
)
|
(5,339
|
)
|
(2,387
|
)
|
||||
Cash
used in investing activities
|
(739,294
|
)
|
(142,388
|
)
|
(386,665
|
)
|
||||
Cash
flows from financing activities:
|
||||||||||
Proceeds
from senior unsecured term loan
|
350,000
|
—
|
—
|
|||||||
Proceeds
from senior notes
|
500,000
|
—
|
—
|
|||||||
Repayment
of borrowings under prior credit facility
|
(908,620
|
)
|
—
|
—
|
||||||
Principal
borrowings/(payments) on term notes under prior credit
facility
|
(49,125
|
)
|
234,500
|
(32,750
|
)
|
|||||
Borrowings/(payments)
under revolving line of credit, net
|
313,000
|
(206,900
|
)
|
158,413
|
||||||
Debt
issuance costs
|
(10,226
|
)
|
—
|
—
|
||||||
Cash
dividends to stockholders
|
(25,887
|
)
|
(22,954
|
)
|
(20,402
|
)
|
||||
Treasury
stock sales
|
1,894
|
1,763
|
1,567
|
|||||||
Stock
award tax excess windfall benefit
|
5,359
|
7,876
|
10,771
|
|||||||
Proceeds
from stock option exercises
|
11,037
|
15,263
|
20,692
|
|||||||
Other
|
487
|
—
|
—
|
|||||||
Cash
provided by financing activities
|
187,919
|
29,548
|
138,291
|
|||||||
Effect
of exchange rate changes on cash
|
(13,762
|
)
|
8,323
|
2,198
|
||||||
Net
increase (decrease) in cash and cash equivalents
|
(130,699
|
)
|
239,290
|
16,362
|
||||||
Cash
and cash equivalents, beginning of year
|
308,768
|
69,478
|
53,116
|
|||||||
Cash
and cash equivalents, end of year
|
$
|
178,069
|
$
|
308,768
|
$
|
69,478
|
||||
Supplemental
disclosures:
|
||||||||||
Cash
paid for:
|
||||||||||
Interest
|
$
|
39,063
|
$
|
50,157
|
$
|
43,721
|
||||
Income
taxes, net of refunds received
|
$
|
144,258
|
$
|
101,908
|
$
|
93,284
|
||||
Noncash
investing activities:
|
||||||||||
Net
assets of businesses acquired:
|
||||||||||
Fair
value of assets, including goodwill
|
$
|
774,164
|
$
|
112,112
|
$
|
408,571
|
||||
Liabilities
assumed
|
(69,400
|
)
|
(5,170
|
)
|
(56,446
|
)
|
||||
Cash
paid, net of cash acquired
|
$
|
704,764
|
$
|
106,942
|
$
|
352,125
|
See
accompanying notes to consolidated financial statements.
ROPER
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
Years
ended December 31, 2008, 2007 and 2006
(1)
|
Summary of Accounting
Policies
|
Basis of Presentation
– These financial statements present consolidated information for Roper
Industries, Inc. and its subsidiaries (“Roper” or the “Company”). All
significant intercompany accounts and transactions have been
eliminated.
Nature of the
Business – Roper is a diversified growth
company that designs, manufactures and distributes energy systems and controls,
scientific and industrial imaging products and software, industrial technology
products and radio frequency products and services. We market these products and
services to selected segments of a broad range of markets, including radio
frequency applications, water, energy, research and medical, education, security
and other niche markets.
Accounts Receivable -
Accounts receivable were stated net of an allowance for doubtful accounts and
sales allowances of $12.7 million and $11.9 million at December 31, 2008
and 2007, respectively. Outstanding accounts receivable balances are reviewed
periodically, and allowances are provided at such time that management believes
reasonable doubt exists that such balances will be collected within a reasonable
period of time. The returns and other sales credit allowance is an estimate of
customer returns, exchanges, discounts or other forms of anticipated concessions
and is treated as a reduction in revenue.
Cash and Cash
Equivalents - Roper considers highly liquid financial instruments with
remaining maturities at acquisition of three months or less to be cash
equivalents. Roper had no cash equivalents at December 31, 2008 and $198 million
at December 31, 2007.
Earnings per Share –
Basic earnings per share were calculated using net earnings and the weighted
average number of shares of common stock outstanding during the respective year.
Diluted earnings per share were calculated using net earnings and the weighted
average number of shares of common stock and potential common stock outstanding
during the respective year. Potentially dilutive common stock consisted of stock
options, restricted stock awards and the premium over the conversion price on
our senior subordinated convertible notes based upon the trading price of the
company’s common stock. The effects of potential common stock were determined
using the treasury stock method (in thousands).
Years
ended December 31,
|
|||
2008
|
2007
|
2006
|
|
Basic
shares outstanding
|
89,468
|
88,390
|
86,842
|
Effect
of potential common stock
|
|||
Common
stock awards
|
1,155
|
1,511
|
1,823
|
Senior
subordinated convertible notes
|
3,076
|
3,328
|
2,215
|
Diluted
shares outstanding
|
93,699
|
93,229
|
90,880
|
As of and
for the years ended December 31, 2008, 2007 and 2006, there were 190,000, 29,000
and 79,000 outstanding stock options that were not included in the determination
of diluted earnings per share because doing so would have been
antidilutive.
Estimates – The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
Fair Value of Financial
Instruments - Roper’s long-term debt at December 31, 2008 included $500
million of fixed-rate notes, the interest rate on which was 1.8% lower than
prevailing market rates which results in a valuation of approximately $465
million. Our short-term debt included $230 million of fixed-rate notes which
were at fair value due to the short term nature of the debt. Most of Roper’s
other borrowings at December 31, 2008 were at various interest rates that adjust
relatively frequently under its $1.1 billion credit facility. The fair value for
each of these borrowings at December 31, 2008 was estimated to be the face value
of these borrowings.
Foreign Currency
Translation - Assets and liabilities of subsidiaries whose functional
currency is not the U.S. dollar were translated at the exchange rate in effect
at the balance sheet date, and revenues and expenses were translated at average
exchange rates for the period in which those entities were included in Roper’s
financial results. Translation adjustments are reflected as a component of other
comprehensive earnings.
Impairment of Long-Lived
Assets – The Company determines whether there has been an impairment of
long-lived assets, excluding goodwill and identifiable intangible assets that
are determined to have indefinite useful economic lives, when certain indicators
of impairment are present. In the event that facts and circumstances indicate
that the cost of any long-lived assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future gross, undiscounted cash flows associated with the asset would be
compared to the asset’s carrying amount to determine if a write-down to market
value is required. Future adverse changes in market conditions or poor operating
results of underlying long-lived assets could result in losses or an inability
to recover the carrying value of the long-lived assets that may not be reflected
in the assets’ current carrying value, thereby possibly requiring an impairment
charge in the future.
Income Taxes – Roper
is a U.S.-based multinational company and the calculation of its worldwide
provision for income taxes requires analysis of many factors, including income
tax systems that vary from country to country, and the United States’ treatment
of non-U.S. earnings. The Company provides income taxes for unremitted earnings
of foreign subsidiaries that are not considered permanently reinvested overseas.
As of December 31, 2008, the approximate amount of earnings of foreign
subsidiaries that the Company considers permanently reinvested and for which
deferred taxes have not been provided was approximately $238 million. Because of
the availability of U.S. foreign tax credits, it is not practicable to determine
the U.S. federal income tax liability that would be payable if such earnings
were not reinvested indefinitely.
On
January 1, 2007 the Company adopted the provisions of FIN 48, “Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No.
109.” This Interpretation requires the Company to recognize in the
consolidated financial statements only those tax positions determined to be
“more likely than not” of being sustained upon examination based on the
technical merits of the positions. As a result of the adoption of FIN 48, the
Company recorded an increase of $3.3 million in the liability for unrecognized
tax benefits, which was accounted for as a decrease to the January 1, 2007
balance of retained earnings.
Certain
assets and liabilities have different bases for financial reporting and income
tax purposes. Deferred income taxes have been provided for these
differences.
Goodwill and Other
Intangibles – Roper accounts for goodwill in a purchase business
combination as the excess of the cost over the fair value of net assets
acquired. Business combinations can also result in other intangible assets being
recognized. Amortization of intangible assets, if applicable, occurs over their
estimated useful lives. SFAS No. 142, “Goodwill and Other Intangible Assets,”
requires companies to cease amortizing goodwill that existed at June 30, 2001
and establishes a two-step method for testing goodwill for impairment on an
annual basis (or an interim basis if an event occurs that might reduce the fair
value of a reporting unit below its carrying value). Total goodwill includes 25
different business components with individual amounts ranging from zero to
approximately $502 million. SFAS 142 also requires that an identifiable
intangible asset that is determined to have an indefinite useful economic life
not be amortized, but separately tested for impairment using a one-step fair
value based approach. Roper conducts these reviews for all of its reporting
units during the fourth quarter of the fiscal year. No impairment resulted from
the annual reviews performed in 2008.
Inventories -
Inventories are valued at the lower of cost or market. Cost is determined using
the first-in, first-out method. The Company writes down its inventory for
estimated obsolescence or excess inventory equal to the difference between the
cost of inventory and the estimated market value based upon assumptions about
future demand and market conditions.
Other Comprehensive
Earnings – Comprehensive earnings includes net earnings and all other
non-owner sources of changes in a company’s net assets. The differences between
net earnings and comprehensive earnings were currency translation adjustments
and the unrealized gain related to an interest rate swap, net of
tax.
Property, Plant and
Equipment and Depreciation and Amortization - Property, plant and
equipment is stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are provided for using principally the
straight-line method over the estimated useful lives of the assets as
follows:
Buildings
|
20-30
years
|
Machinery
|
8-12
years
|
Other
equipment
|
3-5
years
|
Capitalized Software
– The Company accounts for capitalized software under Statement of Position
(“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use.” Among other provisions, SOP 98-1 requires
that entities capitalize certain internal-use software costs once certain
criteria are met. Under SOP 98-1, overhead, general and administrative and
training costs are not capitalized. Capitalized software was $14.5 million and
$11.3 million at December 31, 2008 and 2007, respectively.
Recently Released Accounting
Pronouncements – In June 2008, the FASB issued FASB Staff Position
(“FSP”) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF
03-6-1 clarified that all outstanding unvested share-based payment awards that
contain rights to nonforfeitable dividends participate in undistributed earnings
with common shareholders. Awards of this nature are considered participating
securities and the two-class method of computing basic and diluted earnings per
share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning
after December 15, 2008. The implementation of this standard will not have a
material impact on our consolidated financial position and results of
operations.
In
May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 clarifies that convertible debt
instruments that may be settled in cash upon either mandatory or optional
conversion (including partial cash settlement) are not addressed by paragraph 12
of APB Opinion No. 14, “Accounting for Convertible Debt and Debt issued
with Stock Purchase Warrants.” Additionally, FSP APB 14-1 specifies that issuers
of such instruments should separately account for the liability and equity
components in a manner that will reflect the entity’s nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods. FSP APB
14-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. We
will adopt FSP APB 14-1 on January 1, 2009, and this standard must be applied on
a retrospective basis. The adoption of FSP APB 14-1 will result in
the recognition of an estimated $8 million decrease to retained earnings as a
cumulative effect of accounting change, net as of January 1,
2007. We have determined that the adoption of FSP APB 14-1
would result in a non-cash reduction in basic and diluted earnings per
common share from continuing operations before cumulative effect of accounting
change by approximately $0.05 per share for each of the years ended December 31,
2008, 2007 and 2006.
In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles” (“SFAS 162”). This standard is intended to
improve financial reporting by identifying a consistent framework, or hierarchy,
for selecting accounting principles to be used in preparing financial statements
that are presented in conformity with generally accepted accounting principles
in the United States for non-governmental entities. SFAS 162 is effective
60 days following approval by the SEC of the Public Company Accounting Oversight
Board’s amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles.” We do not expect SFAS
162 to have a material impact on the preparation of our consolidated financial
statements.
In April
2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors an entity should
consider in developing renewal or extension assumptions used in determining the
useful life of recognized intangible assets under FASB Statement No. 142,
“Goodwill and Other Intangible Assets”. This new guidance applies prospectively
to intangible assets that are acquired individually or with a group of other
assets in business combinations and asset acquisitions. FSP 142-3 is effective
for financial statements issued for fiscal years and interim periods beginning
after December 15, 2008. Early adoption is prohibited. The adoption of FSP 142-3
will require certain additional disclosures beginning January 1, 2009 and
application to useful life estimates prospectively for intangible assets
acquired after December 31, 2008. We are currently evaluating the
impact, if any, that FSP 142-3 will have on our consolidated financial
statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133,”
(“SFAS 161”) which requires enhanced disclosures about an entity’s derivative
and hedging activities. SFAS 161 is effective for fiscal years and interim
periods beginning after November 15, 2008. This Statement will not impact the
Company’s consolidated financial position as it is disclosure-only in
nature.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements,” (“SFAS 157”) which clarifies the definition of fair value,
establishes a framework for measuring fair value and expands the disclosures on
fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007. In February 2008, the FASB issued FSP 157-2
“Partial Deferral of the Effective Date of Statement 157” (“FSP 157-2”). FSP
157-2 delays the effective date of SFAS 157, for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually) to
fiscal years beginning after November 15, 2008. The adoption of SFAS 157 did not
have a material effect on the consolidated financial position for fair value
measurements made during 2008. While the Company does not expect the adoption of
this Statement to have a material impact on its consolidated financial position
in subsequent reporting periods, the Company continues to monitor any additional
implementation guidance that is issued that addresses the fair value
measurements for certain financial assets, nonfinancial assets and nonfinancial
liabilities not disclosed at fair value in the financial statements on at least
an annual basis.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141(R)”). SFAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and
measures the assets acquired, liabilities assumed, and any noncontrolling
interest (previously referred to as minority interest) in the acquiree. The
provisions of SFAS 141(R) are effective for business combinations occurring on
or after January 1, 2009.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS 160”). SFAS 160 establishes
requirements for ownership interests in subsidiaries held by parties other than
the Company (sometimes called “minority interests”) be clearly identified,
presented, and disclosed in the consolidated statement of financial position
within equity, but separate from the parent’s equity. All changes in the
parent’s ownership interests are required to be accounted for consistently as
equity transactions and any noncontrolling equity investments in deconsolidated
subsidiaries must be measured initially at fair value. SFAS 160 is effective, on
a prospective basis, for fiscal years beginning after December 15, 2008.
However, presentation and disclosure requirements must be retrospectively
applied to comparative financial statements. The Company is currently assessing
the impact of SFAS 160 on its consolidated financial position and results of
operations.
Research and
Development - Research and development costs include salaries and
benefits, rents, supplies, and other costs related to various products under
development. Research and development costs are expensed in the period incurred
and totaled $87.4 million, $67.9 million and $58.6 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
Revenue Recognition and
Product Warranties – The Company recognizes revenue when all of the
following criteria are met:
·
|
persuasive
evidence of an arrangement exists
|
·
|
delivery
has occurred or services have been
rendered
|
·
|
the
seller’s price to the buyer is fixed or determinable,
and
|
·
|
collectibility
is reasonably assured.
|
In
addition, the Company recognizes revenue from the sale of product when title and
risk of loss pass to the customer, which is generally when product is shipped.
The Company recognizes revenue from services rendered upon customer acceptance.
Revenues under certain relatively long-term and relatively large-value
construction projects are recognized under the percentage-of-completion method
using the ratio of costs incurred to total estimated costs as the measure of
performance. The Company recognized revenues of approximately $127.9 million,
$135.5 million and $94.8 million for the years ended December 31, 2008, 2007 and
2006, respectively, using this method. Estimated losses on any projects are
recognized as soon as such losses become known.
The
Company sells certain of its products to customers with a product warranty that
provides that customers can return a defective product during a specified
warranty period following the purchase in exchange for a replacement product,
repair at no cost to the customer or the issuance of a credit to the customer.
The Company accrues its estimated exposure to warranty claims based upon current
and historical product sales date, warranty costs incurred and any other related
information known to the Company.
Stock-Based
Compensation – Effective January 1, 2006, Roper adopted the
provisions of SFAS 123R, which requires recognition of expense for the grant
date fair value of its employee stock option awards. The Company estimates the
fair value of its option awards using the Black-Scholes option valuation model
and recognizes the expense of all share-based awards on a straight-line basis
over the employee’s requisite service period (generally the vesting period of
the award).
Effective
January 1, 2006 and in accordance with SFAS 123R, the Company presents the
cash flows resulting from the tax benefits arising from tax deductions in excess
of the compensation cost recognized for stock award exercises (excess tax
benefits) as financing cash flows.
(2)
|
Business
Acquisitions
|
2008 Acquisitions - During
the year ended December 31, 2008, Roper completed six business
combinations. The results of operations of the acquired companies
have been included in Roper’s consolidated results since the date of each
acquisition. Supplemental pro forma information has not been provided
as the acquisitions did not have a material impact on Roper’s consolidated
results of operations individually or in aggregate.
CBORD Acquisition - The
largest of the 2008 acquisitions was the purchase of all outstanding shares of
CBORD Holdings Corporation on February 20, 2008. CBORD, whose operations are
reported in the RF Technology segment, is a provider of card systems and
integrated security solutions to higher education, healthcare and other markets.
CBORD’s principal facilities are located in Ithaca, New York. The aggregate
gross purchase price was $375 million of cash, which includes amounts incurred
for direct external transaction costs associated with the
acquisition.
Roper
acquired CBORD due to growth prospects in CBORD’s end markets of education and
health care. In addition, CBORD has excellent customer retention and strong
recurring revenues. We also see opportunities to realize complementary
technologies within our RF Technology segment to CBORD’s product
offerings.
The
allocation of the purchase resulted in $158 million of identifiable intangible
assets, and $258 million of goodwill. The following table (in thousands)
summarizes the fair values of the assets acquired and liabilities assumed at the
date of acquisition.
February
20, 2008
|
||||
Current
assets
|
$
|
31,666
|
||
Other
assets
|
4,916
|
|||
Intangible
assets
|
158,180
|
|||
Goodwill
|
257,871
|
|||
Total
assets acquired
|
452,633
|
|||
Current
liabilities
|
(34,823
|
)
|
||
Other
liabilities
|
(42,887
|
)
|
||
Net
assets acquired
|
$
|
374,923
|
Of the
$158 million of acquired intangible assets, $28 million was assigned to trade
names that are not subject to amortization. The remaining $130 million of
acquired intangible assets have a weighted-average useful life of approximately
15 years. The intangible assets that make up that amount include customer
relationships of $114 million (20 year weighted-average useful life), unpatented
technology of $12 million (6 year weighted-average useful life), and protective
rights of $4 million (5 year weighted-average useful life).
The
majority of the $258 million of goodwill is not expected to be deductible for
tax purposes.
Other 2008 acquisitions - The
aggregate purchase price of all other acquisitions made in 2008 totaled $331
million, which includes amounts incurred for direct external transaction costs
associated with the acquisitions. We recorded approximately $219
million in goodwill and $122 million in other identifiable intangibles in
connection with these acquisitions. The majority of the goodwill is
not expected to be deductible for tax purposes.
On March
20, 2008, we acquired the assets of Tech-Pro, Inc. a provider of industrial test
instruments and software in our Energy Systems & Controls
segment.
On June
18, 2008, we acquired all of the outstanding shares of Chalwyn Limited, a
U.K.-based air shut-off valve provider in our Energy Systems & Controls
segment.
On July
17, 2008, we acquired the assets, intellectual property and domain name of
Getloaded.com, LLC, which adds new subscribers for our freight matching services
in the RF Technology segment.
On August
27, 2008, we acquired the assets of Horizon Software Holdings, Inc., a leading
provider of comprehensive software solutions and related services that
complements CBORD’s higher education business to allow us to better serve the
entire education spectrum. The operations of Horizon are reported in the RF
Technology segment.
On
September 10, 2008, we acquired all of the outstanding shares of Technolog
Holdings Limited, a U.K.-based end-to-end solutions provider for network
monitoring, pressure management, automatic meter reading and smart metering
solutions. The operations of Technolog are reported in the RF Technology
segment.
Of the
$122 million of acquired intangible assets, $22 million was assigned to trade
names that are not subject to amortization. The remaining $100 million of
acquired intangible assets have a weighted-average useful life of approximately
13 years. The intangible assets that make up that amount include customer
relationships of $82 million (14 year weighted-average useful life), unpatented
technology of $14 million (9 year weighted-average useful life), protective
rights of $2 million (7 year weighted-average useful life) and backlog of $2
million (1 year weighted-average useful life).
2007 Acquisitions - During
the year ended December 31, 2007, Roper completed six business combinations for
an aggregate purchase price of $106 million, which includes amounts incurred for
direct external transaction costs associated with the
acquisitions. The results of operations of the acquired companies
have been included in Roper’s consolidated results since the date of each
acquisition. Supplemental pro forma information has not been provided
as the acquisitions did not have a material impact on Roper’s consolidated
results of operations individually or in aggregate. We recorded
approximately $40 million in goodwill and $50 million in other identifiable
intangibles in connection with these acquisitions. The majority of
the goodwill is not expected to be deductible for tax purposes.
On
February 21, 2007, we acquired all the outstanding shares of JLT Mobile
Computers, Inc., a provider of rugged computers and software for mobile
computing. The operations of JLT are included in the Scientific and Industrial
Imaging segment.
On
February 28, 2007, we acquired the assets of DJ Instruments, a manufacturer and
provider of pressure measurement sensors. The operations of DJ Instruments are
included in the Energy Systems and Controls segment.
On March
22, 2007, we acquired the assets of Roda Deaco Valve Ltd., a Canadian-based
developer and manufacturer of air intake cut-off devices. The operations of Roda
Deaco are included in the Energy Systems and Controls segment.
On June
21, 2007, we acquired all the outstanding shares of Dynamic Instruments, Inc.,
including its wholly owned subsidiary, Hardy Instruments, Inc., a provider of
audio recording, vibration monitoring and process control equipment for
commercial and military markets. The operations of Dynamic Instruments are
included in the Energy Systems and Controls segment.
On
September 24, 2007, we acquired the assets of Black Diamond Advanced Technology,
LLC, a provider of rugged mobile computers. The operations of Black Diamond are
included in the RF Technology segment.
Of the
$50 million of acquired intangible assets, $12 million was assigned to trade
names that are not subject to amortization. The remaining $38 million of
acquired intangible assets have a weighted-average useful life of approximately
10 years. The intangible assets that make up that amount include customer
relationships of $35 million (10 year weighted-average useful life) and
unpatented technology of $3 million (11 year weighted-average useful
life).
2006 Acquisitions - During
the year ended December 31, 2006, Roper completed five business
combinations. The results of operations of the acquired companies
have been included in Roper’s consolidated results since the date of each
acquisition. Supplemental pro forma information has not been provided
as the acquisitions did not have a material impact on Roper’s consolidated
results of operations individually or in aggregate.
Dynisco Acquisition - The
largest of the 2006 acquisitions was the purchase of all outstanding shares of
Dynisco Parent, Inc., a provider of highly engineered sensors and software used
in testing, measurement and control applications. The operations of Dynisco are
included in the Energy Systems and Controls segment. Dynisco’s principal
facilities are located in Franklin, Massachusetts; Akron, Ohio; and Grand
Island, New York. The aggregate gross purchase price of the Dynisco acquisition
was approximately $247 million of cash and includes amounts incurred for direct
external transaction costs associated with the acquisition.
Roper
acquired Dynisco as a strategic fit for our businesses which determine physical
and elemental properties of various liquids and materials and to gain Dynisco’s
base of recurring business, technical and engineering competencies, and market
channels. The purchase price reflected these factors and Dynisco’s historically
strong margins and operating cash flows, and its future prospects and growth
potential.
The
allocation of the purchase resulted in $120 million of identifiable intangible
assets, and $153 million of goodwill, the majority of which is not expected to
be deductible for tax purposes. The following table (in thousands) summarizes
the fair values of the assets acquired and liabilities assumed at the date of
acquisition.
November
30, 2006
|
||||
Current
assets
|
$
|
28,924
|
||
Other
assets
|
3,730
|
|||
Intangible
assets
|
119,690
|
|||
Goodwill
|
153,297
|
|||
Total
assets acquired
|
305,641
|
|||
Current
liabilities
|
(33,201
|
)
|
||
Other
liabilities
|
(25,579
|
)
|
||
Net
assets acquired
|
$
|
246,861
|
Of the
$120 million of acquired intangible assets, $12 million was assigned to trade
names that are not subject to amortization. The remaining $108 million of
acquired intangible assets have a weighted-average useful life of approximately
17 years. The intangible assets that make up that amount include customer
relationships of $89 million (19 year weighted-average useful life), unpatented
technology of $11 million (9 year weighted-average useful life), software of $7
million (9 year weighted-average useful life), and patents of $1 million (8 year
weighted-average useful life).
Other 2006 Acquisitions - The
aggregate purchase price of all other acquisitions made in 2006 totaled $96
million, which includes amounts incurred for direct external transaction costs
associated with the acquisitions. We recorded approximately $63
million in goodwill and $26 million in other identifiable intangibles in
connection with these acquisitions. The majority of the goodwill is
not expected to be deductible for tax purposes.
On April
5, 2006, the Company acquired all the outstanding shares of Sinmed Holding
International B.V., a European-based maker of medical positioning equipment. The
operations of Sinmed are included in the Scientific and Industrial Imaging
segment.
On April
26, 2006, the Company acquired the assets of Intellitrans, LLC, a provider of
asset tracking technology. The operations of Intellitrans are included in the RF
Technology segment.
On July
25, 2006, the Company acquired all the outstanding shares of Lumenera
Corporation, a Canadian-based developer and manufacturer of high performance
digital cameras for industrial, scientific and security markets. The operations
of Lumenera are included in the Scientific and Industrial Imaging
segment.
On August
8, 2006, the Company acquired all the outstanding shares of AC Analytical
Controls Holding B.V., a European-based provider of chromatographic analyzers
for the petrochemical industry. The operations of AC Controls are included in
the Energy Systems and Controls segment.
Of the
$26 million of acquired intangible assets, $3 million was assigned to trade
names that are not subject to amortization. The remaining $23 million of
acquired intangible assets have a weighted-average useful life of approximately
9 years. The intangible assets that make up that amount include customer
relationships of $16 million (11 year weighted-average useful life), unpatented
technology of $5 million (5 year weighted-average useful life) and backlog of $1
million (2 year weighted-average useful life).
(3)
|
Inventories
|
The
components of inventories at December 31 were as follows (in
thousands):
2008
|
2007
|
||||||
Raw
materials and supplies
|
$
|
120,604
|
$
|
113,327
|
|||
Work
in process
|
26,913
|
28,503
|
|||||
Finished
products
|
68,510
|
60,698
|
|||||
Inventory
reserves
|
(30,108
|
)
|
(28,390
|
)
|
|||
$
|
185,919
|
$
|
174,138
|
(4)
|
Property, Plant and
Equipment
|
The
components of property, plant and equipment at December 31 were as follows (in
thousands):
2008
|
2007
|
||||||
Land
|
$
|
2,947
|
$
|
2,936
|
|||
Buildings
|
59,821
|
52,795
|
|||||
Machinery,
tooling and other equipment
|
229,486
|
207,906
|
|||||
292,254
|
263,637
|
||||||
Accumulated
depreciation and amortization
|
(179,791
|
)
|
(156,124
|
)
|
|||
$
|
112,463
|
$
|
107,513
|
Depreciation
expense was $33,900, $31,805 and $29,939 for the years ended December 31, 2008,
2007 and 2006, respectively.
(5)
|
Goodwill
|
Industrial
Technology
|
Energy
Systems and Controls
|
Scientific
and Industrial Imaging
|
RF
Technology
|
Total
|
||||||||||||
(in
thousands)
|
||||||||||||||||
Balances
at December 31, 2006
|
$
|
428,290
|
$
|
364,548
|
$
|
393,776
|
$
|
464,594
|
$
|
1,651,208
|
||||||
Goodwill
acquired
|
—
|
49,325
|
7,929
|
3,239
|
60,493
|
|||||||||||
Currency
translation adjustments
|
13,735
|
7,750
|
9,437
|
3,925
|
34,847
|
|||||||||||
Reclassifications
and other
|
118
|
(40,739
|
)
|
48
|
108
|
(40,465
|
)
|
|||||||||
Balances
at December 31, 2007
|
$
|
442,143
|
$
|
380,884
|
$
|
411,190
|
$
|
471,866
|
$
|
1,706,083
|
||||||
Goodwill
acquired
|
—
|
15,795
|
—
|
460,771
|
476,566
|
|||||||||||
Currency
translation adjustments
|
(18,482
|
)
|
(8,800
|
)
|
(10,838
|
)
|
(21,677
|
)
|
(59,797
|
)
|
||||||
Reclassifications
and other
|
—
|
(6,223
|
)
|
126
|
2,097
|
(4,000
|
)
|
|||||||||
Balances
at December 31, 2008
|
$
|
423,661
|
$
|
381,656
|
$
|
400,478
|
$
|
913,057
|
$
|
2,118,852
|
Goodwill
acquired during the year ended December 31, 2008 was attributable to the
acquisitions of CBORD, Tech-Pro, Chalwyn, Getloaded, Horizon and Technolog. The
reclassifications and other are the result of final purchase price allocations
from deferred tax accounting and final asset valuations related to 2007
acquisitions.
(6)
|
Other intangible
assets, net
|
Cost
|
Accum.
amort.
|
Net
book value
|
||||||||
(in
thousands)
|
||||||||||
Assets
subject to amortization:
|
||||||||||
Customer
related intangibles
|
$
|
504,850
|
$
|
(99,079
|
)
|
$
|
405,771
|
|||
Unpatented
technology
|
46,116
|
(13,714
|
)
|
32,402
|
||||||
Software
|
58,152
|
(24,278
|
)
|
33,874
|
||||||
Patents
and other protective rights
|
33,480
|
(18,246
|
)
|
15,234
|
||||||
Backlog
|
16,560
|
(13,196
|
)
|
3,364
|
||||||
Trade
secrets
|
6,930
|
(3,443
|
)
|
3,487
|
||||||
Assets
not subject to amortization:
|
||||||||||
Trade
names
|
119,373
|
—
|
119,373
|
|||||||
Balances
at December 31, 2007
|
$
|
785,461
|
$
|
(171,956
|
)
|
$
|
613,505
|
|||
Assets
subject to amortization:
|
||||||||||
Customer
related intangibles
|
$
|
683,130
|
$
|
(137,794
|
)
|
$
|
545,336
|
|||
Unpatented
technology
|
70,693
|
(22,232
|
)
|
48,461
|
||||||
Software
|
58,053
|
(30,215
|
)
|
27,838
|
||||||
Patents
and other protective rights
|
38,195
|
(21,998
|
)
|
16,197
|
||||||
Backlog
|
18,257
|
(17,024
|
)
|
1,233
|
||||||
Trade
secrets
|
5,116
|
(3,890
|
)
|
1,226
|
||||||
Assets
not subject to amortization:
|
||||||||||
Trade
names
|
163,729
|
—
|
163,729
|
|||||||
Balances
at December 31, 2008
|
$
|
1,037,173
|
$
|
(233,153
|
)
|
$
|
804,020
|
Amortization
expense of other intangible assets was $64,017, $55,653, and $46,756 during the
years ended 2008, 2007 and 2006, respectively. Estimated amortization expense
for the five years subsequent to 2008 is $66,236, $62,078, $59,044, $56,120 and
$54,565 for 2009, 2010, 2011, 2012 and 2013, respectively.
(7)
|
Accrued
Liabilities
|
Accrued
liabilities at December 31 were as follows (in thousands):
2008
|
2007
|
||||||
Wages
and other compensation
|
$
|
63,878
|
$
|
63,365
|
|||
Commissions
|
13,419
|
14,081
|
|||||
Warranty
|
9,885
|
8,486
|
|||||
Accrued
dividend
|
7,403
|
6,438
|
|||||
Deferred
revenue
|
73,308
|
32,638
|
|||||
Billings
in excess of cost
|
18,398
|
9,728
|
|||||
Customer
deposits
|
13,825
|
8,794
|
|||||
Interest
|
18,649
|
6,299
|
|||||
Other
|
42,917
|
44,226
|
|||||
$
|
261,682
|
$
|
194,055
|
(8)
|
Income
Taxes
|
Earnings
before income taxes for the years ended December 31, 2008, 2007 and 2006
consisted of the following components (in thousands):
2008
|
2007
|
2006
|
||||||||
United
States
|
$
|
267,386
|
$
|
253,841
|
$
|
191,649
|
||||
Other
|
168,569
|
129,816
|
101,223
|
|||||||
$
|
435,955
|
$
|
383,657
|
$
|
292,872
|
Components
of income tax expense for the years ended December 31, 2008, 2007 and 2006 were
as follows (in thousands):
2008
|
2007
|
2006
|
||||||||
Current:
|
||||||||||
Federal
|
$
|
77,920
|
$
|
82,923
|
$
|
53,937
|
||||
State
|
12,309
|
6,940
|
4,896
|
|||||||
Foreign
|
40,739
|
39,062
|
29,942
|
|||||||
Deferred:
|
||||||||||
Federal
|
19,526
|
4,343
|
11,506
|
|||||||
Foreign
|
(1,054
|
)
|
356
|
(733
|
)
|
|||||
$
|
149,440
|
$
|
133,624
|
$
|
99,548
|
Reconciliations
between the statutory federal income tax rate and the effective income tax rate
for the years ended December 31, 2008, 2007 and 2006 were as
follows:
2008
|
2007
|
2006
|
|||||
Federal
statutory rate
|
35.00
|
%
|
35.00
|
%
|
35.00
|
%
|
|
Extraterritorial
income exclusion
|
—
|
—
|
(1.04
|
)
|
|||
Foreign
rate differential
|
(2.54
|
)
|
(1.66
|
)
|
(0.97
|
)
|
|
R&D
tax credits
|
(0.41
|
)
|
(0.44
|
)
|
(0.36
|
)
|
|
State
taxes, net of federal benefit
|
2.02
|
1.93
|
1.67
|
||||
Other,
net
|
0.21
|
—
|
(0.31
|
)
|
|||
34.28
|
%
|
34.83
|
%
|
33.99
|
%
|
The
deferred income tax balance sheet accounts arise from temporary differences
between the amount of assets and liabilities recognized for financial reporting
and tax purposes.
Components
of the deferred tax assets and liabilities at December 31 were as follows (in
thousands):
2008
|
2007
|
||||||
Deferred
tax assets:
|
|||||||
Reserves
and accrued expenses
|
$
|
42,408
|
$
|
31,352
|
|||
Inventories
|
6,914
|
5,764
|
|||||
Net
operating loss carryforwards
|
3,983
|
3,930
|
|||||
Foreign
tax credits
|
1,244
|
7,862
|
|||||
R&D
credits
|
757
|
747
|
|||||
Plant
and equipment
|
2,134
|
1,999
|
|||||
Total
deferred tax assets
|
$
|
57,440
|
$
|
51,654
|
|||
Deferred
tax liabilities:
|
|||||||
Reserves
and accrued expenses
|
$
|
38,734
|
$
|
43,580
|
|||
Amortizable
intangible assets
|
233,130
|
180,058
|
|||||
Other
|
213
|
215
|
|||||
Total
deferred tax liabilities
|
$
|
272,077
|
$
|
223,853
|
At
December 31, 2008, Roper had approximately $11.9 million of U.S. federal net
operating loss carryforwards. If not utilized, these carryforwards will expire
in years 2023 through 2027. Additionally, Roper had foreign tax credit
carryforwards and research and development credit carryforwards. Roper has not
recognized a valuation allowance since management has determined that it is more
likely than not that the results of future operations will generate sufficient
taxable income to realize these deferred tax assets.
The
Company provides income taxes for unremitted earnings of foreign subsidiaries
that are not considered permanently reinvested overseas. As of December 31,
2008, the approximate amount of earnings of foreign subsidiaries that the
Company considers permanently reinvested and for which deferred taxes have not
been provided was approximately $237.8 million. Because of the availability of
U.S. foreign tax credits, it is not practicable to determine the U.S. federal
income tax liability that would be payable if such earnings were not reinvested
indefinitely.
The
Company adopted the provisions of FIN 48, “Accounting for Uncertainty in Income
Taxes - an Interpretation of FASB Statement No. 109,” on January 1, 2007. This
Interpretation requires the Company to recognize in the consolidated financial
statements only those tax positions determined to be “more likely than not” of
being sustained upon examination based on the technical merits of the
positions.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows (in thousands):
2008
|
2007
|
||||||
Beginning
balance
|
$
|
20,773
|
$
|
19,628
|
|||
Additions
for tax positions of prior periods
|
960
|
84
|
|||||
Additions
for tax positions of the current
period
|
3,086
|
2,876
|
|||||
Reductions
for tax positions of prior years
for:
|
|||||||
Settlements
with taxing authorities during the
period
|
(1,609
|
)
|
—
|
||||
Lapse
of applicable statute of
limitations
|
(572
|
)
|
(1,815
|
)
|
|||
Ending
balance
|
$
|
22,638
|
$
|
20,773
|
The total
amount of unrecognized tax benefits that, if recognized, would affect the
effective tax rate is $12.0 million. Interest and penalties related to
unrecognized tax benefits are classified as a component of income tax expense
and totaled $1.1 million in 2008. Accrued interest and penalties were $2.1
million at December 31, 2007 and $3.2 million at December 31, 2008. During the
next twelve months, it is expected that the unrecognized tax benefits will be
reduced by a net $1.1 million, due mainly to a lapse in the applicable statute
of limitations.
The
Company and its subsidiaries are subject to U.S. federal income tax as well as
income tax of multiple state, city and foreign jurisdictions. The Company’s
federal income tax returns for 2005 through the current period remain subject to
examination and the relevant state, city and foreign statutes vary. There are no
current tax examinations in progress where the Company expects the assessment of
any significant additional tax in excess of amounts reserved.
(9)
|
Long-Term
Debt
|
On July
7, 2008, the Company entered into a new $1.1 billion unsecured credit facility
with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of
lenders, which replaces its $1.355 billion amended and restated secured credit
facility, dated as of December 13, 2004. The $1.1 billion facility is composed
of a $350.0 million term loan facility maturing July 7, 2010 and a five year
$750.0 million revolving credit facility maturing July 7, 2013. The Company may
also, subject to compliance with specified conditions, request additional term
loans or revolving credit commitments in an aggregate amount not to exceed
$350.0 million.
On August
6, 2008, we issued $500 million aggregate principal amount of 6.625% senior
notes due August 15, 2013 (the “Notes”). The Notes bear interest at a
fixed rate of 6.625% per year, payable semi-annually in arrears on
February 15 and August 15 of each year, beginning February 15,
2009. The interest payable on the Notes is subject to adjustment if either
Moody’s Investors Service or Standard & Poor’s Ratings Services
downgrades the rating assigned to the Notes.
We may
redeem some or all of the Notes at any time or from time to time, at 100% of
their principal amount plus a make-whole premium based on a spread to U.S.
Treasury securities as described in the indenture relating to the
Notes.
The Notes
are unsecured senior obligations of the Company and rank equally in right of
payment with all of the Company’s existing and future unsecured and
unsubordinated indebtedness. The Notes are effectively subordinated to any of
the Company’s existing and future secured indebtedness to the extent of the
value of the collateral securing such indebtedness. The Notes are not guaranteed
by any of the Company’s subsidiaries and are effectively subordinated to all
existing and future indebtedness and other liabilities of the Company’s
subsidiaries.
Other
debt includes $230 million of senior subordinated convertible notes due
2034.
Total
debt at December 31 consisted of the following (table amounts in
thousands):
2008
|
2007
|
|||||
$350
million term loan
|
$
|
350,000
|
$
|
—
|
||
$750
million revolving credit facility
|
179,000
|
—
|
||||
$955
million term loan
|
—
|
823,745
|
||||
$400
million revolving credit facility
|
—
|
—
|
||||
Senior
Notes
|
500,000
|
—
|
||||
Senior
Subordinated Convertible Notes
|
230,000
|
230,000
|
||||
Other
|
8,516
|
4,847
|
||||
Total
debt
|
1,267,516
|
1,058,592
|
||||
Less
current portion
|
233,827
|
331,103
|
||||
Long-term
debt
|
$
|
1,033,689
|
$
|
727,489
|
Our
principal $1.1 billion credit facility, $500 million senior notes and $230
million senior subordinated convertible notes provide substantially all of our
daily external financing requirements. The interest rate on the borrowings under
the $1.1 billion credit facility is calculated based upon various recognized
indices plus a margin as defined in the credit agreement. At December 31, 2008,
the weighted average interest rate on the term and revolver loans was 1.90%. At
December 31, 2008, our debt consisted of the $500 million senior notes, $230
million in senior subordinated convertible notes, $350 million term loans and a
$179 million revolver balance. In addition, we had $8.5 million of other debt in
the form of capital leases, several smaller facilities that allow for borrowings
or the issuance of letters of credit in various foreign locations to support our
non-U.S. businesses and $51 million of outstanding letters of credit at December
31, 2008. We expect that our available additional borrowing capacity combined
with the cash flows expected to be generated from existing business will be
sufficient to fund normal operating requirements and finance some additional
acquisitions.
The
Company recorded a $3.1 million non-cash pre-tax debt extinguishment charge in
the third quarter of 2008 related to the early termination of the previous
$1.355 billion secured credit facility. This charge reflects the unamortized
fees associated with the $1.355 billion secured credit facility and was reported
as other expense.
In
December 2003, we issued through a public offering $230 million of 3.75%
subordinated convertible notes due in 2034 at an original issue discount of
60.498% (the “Convertible Notes”). The Convertible Notes are subordinated in
right of payment and collateral to all of our existing and future senior debt.
Interest on the notes is payable semiannually, beginning July 15, 2004,
until January 15, 2009. After that date, we will not pay cash interest on
the notes prior to maturity unless contingent cash interest becomes payable.
Instead, after January 15, 2009, interest will be recognized at the
effective rate of 3.75% and will represent accrual of original issue discount,
excluding any contingent cash interest that may become payable. We will pay
contingent cash interest to the holders of the notes during any six month
period commencing after January 15, 2009 if the average trading price of a
note for a five trading day measurement period preceding the applicable
six month period equals 120% or more of the sum of the issue price, accrued
original issue discount and accrued cash interest, if any, for such note. The
contingent cash interest payable per note in respect of any six month period
will equal the annual rate of 0.25%. As originally issued, holders could convert
their notes into 12.422 shares of our common stock (giving effect for the
2-for-1 stock split effective August 26, 2005), subject to adjustment, only (1)
if the sale price of our common stock reaches, or the trading price of the notes
falls below, specified thresholds, (2) if the notes are called for redemption,
or (3) if specified corporate transactions have occurred. Upon conversion, we
would have had the right to deliver, in lieu of our common stock, cash or common
stock or a combination of cash and common stock. On December 6, 2004, the
Company completed a consent solicitation to amend the notes such that the
Company pays the same conversion value upon conversion of the notes, but changes
how the conversion value is paid. In lieu of receiving exclusively shares of
common stock or cash upon conversion, noteholders would receive cash up to the
value of the accreted principal amount of the notes converted and, at the
Company’s option, any remainder of the conversion value would be paid in cash or
shares of common stock. Holders may require us to purchase all or a portion of
their notes on January 15, 2009 at a price of $395.02 per note, on January 15,
2014 at a price of $475.66 per note, on January 15, 2019 at a price of $572.76
per note, on January 15, 2024 at a price of $689.68 per note, and on January 15,
2029 at a price of $830.47 per note, in each case plus accrued cash interest, if
any, and accrued contingent cash interest, if any. We may only pay the purchase
price of such notes in cash and not in common stock. In addition, if we
experience a change in control, each holder may require us to purchase for cash
all or a portion of such holder’s notes at a price equal to the sum of the issue
price plus accrued original issue discount for non-tax purposes, accrued cash
interest, if any, and accrued contingent cash interest, if any, to the date of
purchase.
As of
September 30, 2005, our $230 million of senior subordinated convertible notes
were reclassified from long term to short term debt as the notes became
convertible on October 1, 2005 based upon the Company’s common stock trading
above the trigger price for at least 20 trading days during the 30 consecutive
trading-day periods ending on September 30, 2005.
Our $1.1
billion credit facility contains various affirmative and negative covenants
which, among other things, limit our ability to incur new debt, make certain
investments and acquisitions, sell assets and grant liens, make restricted
payments (including the payment of dividends on our common stock) and capital
expenditures, or change our line of business. We also are subject to financial
covenants which require us to limit our consolidated total leverage ratio and to
maintain a consolidated interest coverage ratio. The most restrictive covenant
is the consolidated total leverage ratio which is limited to 3.5.
At
December 31, 2008, and 2007, the Company was in compliance with our debt
covenants.
Future
maturities of long-term debt during each of the next five years ending December
31 and thereafter were as follows (in thousands):
2009
|
$
|
233,827
|
||
2010
|
351,847
|
|||
2011
|
1,023
|
|||
2012
|
523
|
|||
2013
|
679,340
|
|||
Thereafter
|
956
|
|||
$
|
1,267,516
|
(10)
|
Retirement and Other
Benefit Plans
|
Roper
maintains eight defined contribution retirement plans under the provisions of
Section 401(k) of the Internal Revenue Code covering substantially all U.S.
employees not subject to collective bargaining agreements. Roper partially
matches employee contributions. Its costs related to these plans were $12.9
million, $10.3 million and $9.9 million for 2008, 2007 and 2006,
respectively.
Roper
also maintains various defined benefit retirement plans covering employees of
non-U.S. and certain U.S. subsidiaries and a plan that supplements certain
employees for the contribution ceiling applicable to the Section 401(k) plans.
The costs and accumulated benefit obligations associated with each of these
plans were not material.
(11)
|
Stock-Based
Compensation
|
The Roper
Industries, Inc. Amended and Restated 2006 Incentive Plan (“2006 Plan”) is a
stock-based compensation plan used to grant incentive stock options,
nonqualified stock options, restricted stock, stock appreciation rights or
equivalent instruments to the Company’s employees, officers, directors and
consultants. The 2006 Plan replaced the Amended and Restated 2000 Incentive Plan
(“2000 Plan”), and no additional grants will be made from the 2000 Plan or the
Non-employee Director Plan. The number of shares reserved for issuance under the
2006 plan is 8,000,000, plus the 17,000 remaining shares that were available to
grant under the 2000 Plan at June 28, 2006, plus any shares underlying
outstanding awards under the 2000 plan that terminate or expire unexercised, or
are cancelled, forfeited or lapse for any reason subsequent to June 28, 2006. At
December 31, 2008, 5,429,000 shares were available to grant.
In the
Roper Industries, Inc., Employee Stock Purchase Plan (“ESPP”), all employees in
the U.S. and Canada are eligible to designate up to 10% of eligible earnings to
purchase Roper’s common stock at a discount to the average closing price of its
common stock at the beginning and end of a quarterly offering period. Effective
January 1, 2008, the ESPP was modified to change the discount from 10% to 5%.
The common stock sold to the employees may be either treasury stock, stock
purchased on the open market, or newly issued shares.
The
Company recognized stock based compensation expense of $30.9 million and $20.7
million for the years ended December 31, 2008 and 2007, respectively. The total
tax effect recognized in net income related to stock based compensation during
2008 and 2007 was $10.8 million and $7.2 million, respectively. The tax benefit
from option exercises and restricted stock vesting under all plans totaled
approximately $5.6 million and $5.7 million in 2008 and 2007,
respectively.
Stock Options – Stock options
are typically granted at prices not less than 100% of market value of the
underlying stock at the date of grant. Stock options typically vest over a
period of up to three to five years from the grant date and generally expire
seven to ten years after the grant date. The Company recorded $8.2 and $5.1
million of compensation expense relating to outstanding options during 2008 and
2007, respectively, as a component of corporate and certain segment general and
administrative expenses.
The
Company estimates the fair value of its option awards using the Black-Scholes
option valuation model that uses the assumptions noted in the following table.
The stock volatility for each grant is measured using the weighted average of
historical daily price changes of the Company’s common stock over the most
recent period equal to the expected life of the grant. The expected term of
options granted is derived from historical data to estimate option exercises and
employee terminations, and represents the period of time that options granted
are expected to be outstanding. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant. The weighted average fair value of options granted
in 2008, 2007 and 2006 were calculated using the following weighted average
assumptions:
2008
|
2007
|
2006
|
|
Weighted
average fair value ($)
|
12.83
|
15.50
|
13.19
|
Risk-free
interest rate (%)
|
2.87
|
4.69
|
4.67
|
Average
expected option life (years)
|
5.02
|
5.02
|
4.51
|
Expected
volatility (%)
|
21.10
|
23.08
|
28.24
|
Expected
dividend yield (%)
|
0.53
|
0.50
|
0.54
|
The
following table summarizes the Company’s activities with respect to its stock
option plans for the year ended December 31, 2008:
Number
of shares
|
Weighted
average exercise price per share
|
Weighted
average contractual term
|
Aggregate
intrinsic value
|
|
Outstanding
at January 1, 2008
|
3,656,000
|
$
30.84
|
||
Granted
|
1,051,000
|
55.50
|
||
Exercised
|
(463,000)
|
23.59
|
||
Canceled
|
(57,000)
|
46.74
|
||
Outstanding
at December 31, 2008
|
4,187,000
|
37.77
|
5.20
|
$
42,411,000
|
Exercisable
at December 31, 2008
|
2,611,000
|
$
28.06
|
4.01
|
$
42,285,000
|
The
following table summarizes information for stock options outstanding at December
31, 2008:
Outstanding
options
|
Exercisable
options
|
||||
Exercise
price
|
Number
|
Average
exercise
price
|
Average remaining
life
(years)
|
Number
|
Average
exercise
price
|
$ 3.97
– 20.00
|
609,000
|
$ 17.72
|
3.5
|
609,000
|
$ 17.72
|
20.01
- 30.00
|
894,000
|
21.82
|
3.8
|
894,000
|
21.82
|
30.01
– 40.00
|
597,000
|
31.45
|
3.8
|
593,000
|
31.39
|
40.01
– 50.00
|
500,000
|
43.62
|
4.3
|
332,000
|
43.64
|
50.00
– 60.00
|
1,559,000
|
54.81
|
7.4
|
180,000
|
53.64
|
60.00
– 70.81
|
28,000
|
64.10
|
7.6
|
3,000
|
64.44
|
$ 3.97
– 70.81
|
4,187,000
|
$ 37.77
|
5.2
|
2,611,000
|
$ 28.06
|
At
December 31, 2008, there was $14.5 million of total unrecognized compensation
expense related to nonvested options granted to both employees and directors
under the Company’s share-based payment plans. That cost is expected to be
recognized over a weighted-average period of 2.5 years. The total intrinsic
value of options exercised in 2008 and 2007 was $16.3 million and $29.8 million,
respectively. Cash received from option exercises under all plans in 2008 and
2007 was approximately $11.0 million and $15.3 million,
respectively.
Restricted Stock Awards -
During 2008 and 2007, the Company granted 610,000 and 240,000 shares,
respectively, of restricted stock to certain employee and director participants
under the 2006 Plan. Restricted stock awards generally vest over a period of 1
to 3 years. The weighted average fair value of the shares granted in 2008 was
$55.68 per share. The Company recorded approximately $22.7 million and $15.3
million of compensation expense related to outstanding shares of restricted
stock held by employees and directors during 2008 and 2007, respectively. A
summary of the Company’s nonvested shares activity for 2008 is as
follows:
Number
of shares
|
Weighted
average fair value
|
|
Nonvested
at January 1, 2008
|
663,000
|
$ 43.13
|
Granted
|
610,000
|
55.68
|
Vested
|
(476,000)
|
51.65
|
Forfeited
|
(5,000)
|
54.45
|
Nonvested
at December 31, 2008
|
792,000
|
$ 53.83
|
At
December 31, 2008, there was $25.4 million of total unrecognized compensation
expense related to nonvested shares granted to both employees and directors
under the Company’s share-based payment plans. That cost is expected to be
recognized over a weighted-average period of 3.1 years. There were 476,000 and
231,000 shares that vested during 2008 and 2007, respectively. Unrecognized
compensation expense related to nonvested shares of restricted stock awards is
recorded as a reduction to additional paid-in capital in shareholder’s equity at
December 31, 2008.
Employee Stock Purchase Plan -
During 2008, 2007 and 2006, participants of the ESPP purchased 34,000, 33,000
and 38,000 shares, respectively, of Roper’s common stock for total consideration
of $1.9 million, $1.7 million, and $1.6 million, respectively. All of these
shares were purchased from Roper’s treasury shares. The Company recorded $0,
$250,000, and $227,000 of compensation expense relating to the stock purchase
plan during 2008, 2007 and 2006, respectively.
(12)
|
Common Stock
Transactions
|
At the
2006 Shareholder Meeting, shareholders approved an amendment to the Restated
Certificate of Incorporation, to eliminate time phase voting and give all
outstanding shares of common stock of the Company one vote on matters properly
submitted to the shareholders of the Company for their vote. Previously, Roper’s
restated Certificate of Incorporation provided that each outstanding share of
Roper’s common stock entitled the holder thereof to five votes per share, except
that holders of outstanding shares with respect to which there had been a change
in beneficial ownership during the four years immediately preceding the
applicable record date would have been entitled to one vote per
share.
On
January 8, 2006, the Roper Shareholder Rights Plan expired. This plan had
provided that one Preferred Stock Purchase Right (a “Right”) accompanied each
outstanding share of common stock. Such Rights only became exercisable, or
transferable apart from the common stock, ten business days after a person or
group acquires various specified levels of beneficial ownership.
(13)
|
Contingencies
|
Roper, in
the ordinary course of business, is the subject of, or a party to, various
pending or threatened legal actions, including those pertaining to product
liability and employment practices. It is vigorously contesting all lawsuits
that, in general, are based upon claims of the kind that have been customary
over the past several years. After analyzing the Company’s contingent
liabilities on a gross basis and, based upon past experience with resolution of
its product liability and employment practices claims and the limits of the
primary, excess, and umbrella liability insurance coverages that are available
with respect to pending claims, management believes that adequate provision has
been made to cover any potential liability not covered by insurance, and that
the ultimate liability, if any, arising from these actions should not have a
material adverse effect on the consolidated financial position, results of
operations or cash flows of Roper.
Over
recent years there has been a significant increase in certain U.S. states in
asbestos-related litigation claims against numerous industrial companies. Roper
or its subsidiaries have been named defendants in some such cases. No
significant resources have been required by Roper to respond to these cases and
Roper believes it has valid defenses to such claims and, if required, intends to
defend them vigorously. Given the state of these claims it is not possible to
determine the potential liability, if any.
Roper’s
rent expense was approximately $24.8 million, $25.4 million and $21.8 million
for 2008, 2007 and 2006, respectively. Roper’s future minimum
property lease commitments totaled $93.6 million at December 31, 2008.
These commitments included $24.2 million in 2009, $19.2 million in 2010, $13.0
million in 2011, $10.2 million in 2012, $8.0 million in 2013 and $19.0 million
thereafter.
A summary
of the Company’s warranty accrual activity for the year ended December 31, 2008
is presented below (in thousands):
Balance
at beginning
of year
|
Additions
charged to costs and
expenses
|
Deductions
|
Other
|
Balance
at end
of year
|
$ 8,486
|
9,920
|
(8,415)
|
(106)
|
$
9,885
|
At
December 31, 2008 the Company had outstanding surety bonds of $239
million.
(14)
|
Segment and Geographic
Area Information
|
Our
operations are reported in four market-focused segments around common customers,
markets, sales channels, technologies and common cost opportunities. The
segments are: Industrial Technology, Energy Systems and Controls, Scientific and
Industrial Imaging, and RF Technology. Products included within the Industrial
Technology segment are industrial pumps, flow measurement and metering
equipment, and industrial valves and controls, and equipment and consumables for
materials analysis and industrial leak testing. The Energy Systems and Controls
segment’s products include control systems, equipment and consumables for fluid
properties testing, vibration and other non-destructive inspection and
measurement products and services. Our Scientific and Industrial Imaging segment
offers high performance digital imaging products and software, patient
positioning products and software in medical applications and handheld and
vehicle mounted computers and software. The RF Technology segment includes
products and systems related to comprehensive toll and traffic systems and
processing, security and access control, campus card systems, freight matching,
mobile asset tracking and water sub-metering and remote temperature monitoring
applications. Roper’s management structure and internal reporting are also
aligned consistent with these four segments.
There
were no material transactions between Roper’s business segments during 2008,
2007 and 2006. Sales between geographic areas are primarily of finished products
and are accounted for at prices intended to represent third-party prices.
Operating profit by business segment and by geographic area is defined as sales
less operating costs and expenses. These costs and expenses do not include
unallocated corporate administrative expenses. Items below income from
operations on Roper’s statement of earnings are not allocated to business
segments.
Identifiable
assets are those assets used primarily in the operations of each business
segment or geographic area. Corporate assets were principally comprised of cash,
recoverable insurance claims, deferred compensation assets, unamortized deferred
financing costs and property and equipment.
Selected
financial information by business segment for 2008, 2007 and 2006 follows (in
thousands):
Industrial
Technology
|
Energy
Systems and Controls
|
Scientific
and Industrial Imaging
|
RF
Technology
|
Corporate
|
Total
|
||||||||||||||||||||
2008
|
|||||||||||||||||||||||||
Net
sales
|
$
|
687,622
|
$
|
548,214
|
$
|
375,542
|
$
|
694,993
|
$
|
—
|
$
|
2,306,371
|
|||||||||||||
Operating
profit
|
178,270
|
126,609
|
74,739
|
159,787
|
(53,244
|
)
|
486,161
|
||||||||||||||||||
Total
assets:
|
|||||||||||||||||||||||||
Operating
assets
|
184,445
|
199,049
|
126,657
|
246,785
|
6,375
|
763,311
|
|||||||||||||||||||
Intangible
assets, net
|
639,988
|
538,367
|
473,655
|
1,270,862
|
—
|
2,922,872
|
|||||||||||||||||||
Other
|
6,814
|
3,522
|
24,322
|
(12,975
|
)
|
(8,405
|
)
|
13,278
|
|||||||||||||||||
Total
|
3,699,461
|
||||||||||||||||||||||||
Capital
expenditures
|
12,385
|
6,618
|
2,895
|
7,905
|
244
|
30,047
|
|||||||||||||||||||
Depreciation
and other amortization
|
24,899
|
19,568
|
17,780
|
38,439
|
2,422
|
103,108
|
|||||||||||||||||||
2007
|
|||||||||||||||||||||||||
Net
sales
|
$
|
644,436
|
$
|
516,420
|
$
|
376,163
|
$
|
565,030
|
$
|
—
|
$
|
2,102,049
|
|||||||||||||
Operating
profit
|
164,750
|
126,367
|
73,230
|
117,057
|
(43,050
|
)
|
438,354
|
||||||||||||||||||
Total
assets:
|
|||||||||||||||||||||||||
Operating
assets
|
183,639
|
209,152
|
129,342
|
191,889
|
8,060
|
722,082
|
|||||||||||||||||||
Intangible
assets, net
|
671,806
|
550,798
|
497,072
|
599,912
|
—
|
2,319,588
|
|||||||||||||||||||
Other
|
37,665
|
30,749
|
21,601
|
23,236
|
74,410
|
187,661
|
|||||||||||||||||||
Total
|
3,229,331
|
||||||||||||||||||||||||
Capital
expenditures
|
9,687
|
6,749
|
4,752
|
8,823
|
96
|
30,107
|
|||||||||||||||||||
Depreciation
and other amortization
|
25,601
|
19,093
|
18,183
|
28,079
|
2,224
|
93,180
|
|||||||||||||||||||
2006
|
|||||||||||||||||||||||||
Net
sales
|
$
|
549,993
|
$
|
343,699
|
$
|
338,906
|
$
|
468,136
|
$
|
—
|
$
|
1,700,734
|
|||||||||||||
Operating
profit
|
128,668
|
90,390
|
72,485
|
81,068
|
(34,958
|
)
|
337,653
|
||||||||||||||||||
Total
assets:
|
|||||||||||||||||||||||||
Operating
assets
|
175,426
|
184,653
|
133,899
|
145,876
|
7,258
|
647,112
|
|||||||||||||||||||
Intangible
assets, net
|
669,491
|
438,261
|
478,356
|
609,236
|
—
|
2,195,344
|
|||||||||||||||||||
Other
|
4,348
|
6,728
|
20,283
|
(10,949
|
)
|
(39,215
|
)
|
(18,805
|
)
|
||||||||||||||||
Total
|
2,823,651
|
||||||||||||||||||||||||
Capital
expenditures
|
11,966
|
10,108
|
3,595
|
6,194
|
290
|
32,153
|
|||||||||||||||||||
Depreciation
and other amortization
|
26,256
|
8,383
|
16,212
|
28,979
|
2,214
|
82,044
|
Summarized
data for Roper’s U.S. and foreign operations (principally in Canada, Europe and
Asia) for 2008, 2007 and 2006, based upon the country of origin of the Roper
entity making the sale, was as follows:
United
States
|
Non-U.S.
|
Eliminations
|
Total
|
||||||||||
(in
thousands)
|
|||||||||||||
2008
|
|||||||||||||
Sales
to unaffiliated customers
|
$
|
1,709,844
|
$
|
596,507
|
$
|
—
|
$
|
2,306,351
|
|||||
Sales
between geographic areas
|
102,954
|
182,551
|
(285,505
|
)
|
—
|
||||||||
Net
sales
|
$
|
1,812,798
|
$
|
779,058
|
$
|
(285,505
|
)
|
$
|
2,306,351
|
||||
Long-lived
assets
|
$
|
122,005
|
$
|
29,131
|
$
|
—
|
$
|
151,136
|
|||||
2007
|
|||||||||||||
Sales
to unaffiliated customers
|
$
|
1,572,660
|
$
|
529,389
|
$
|
—
|
$
|
2,102,049
|
|||||
Sales
between geographic areas
|
90,268
|
165,735
|
(256,003
|
)
|
—
|
||||||||
Net
sales
|
$
|
1,662,928
|
$
|
695,124
|
$
|
(256,003
|
)
|
$
|
2,102,049
|
||||
Long-lived
assets
|
$
|
125,800
|
$
|
27,439
|
$
|
—
|
$
|
153,239
|
|||||
2006
|
|||||||||||||
Sales
to unaffiliated customers
|
$
|
1,305,772
|
$
|
394,962
|
$
|
—
|
$
|
1,700,734
|
|||||
Sales
between geographic areas
|
86,491
|
120,502
|
(206,993
|
)
|
—
|
||||||||
Net
sales
|
$
|
1,392,263
|
$
|
515,464
|
$
|
(206,993
|
)
|
$
|
1,700,734
|
||||
Long-lived
assets
|
$
|
118,692
|
$
|
26,241
|
$
|
—
|
$
|
144,933
|
Export
sales from the United States during the years ended December 31, 2008, 2007 and
2006 were $358 million, $359 million and $234 million, respectively. In the year
ended December 31, 2008, these exports were shipped primarily to Europe (26%),
Canada (15%), Middle East (13%), Japan (7%), China (6%), South America (6%),
rest of Asia (17%), and other (10%).
Sales to
customers outside the United States accounted for a significant portion of
Roper’s revenues. Sales are attributed to geographic areas based upon the
location where the product is ultimately shipped. Roper’s net sales for the
years ended December 31, 2008, 2007 and 2006 are shown below by region, except
for Canada, which is the only country in which we have had greater than 5% of
our total sales for any of the three years presented.
Industrial
Technology
|
Energy
Systems and Controls
|
Scientific
and Industrial Imaging
|
RF
Technology
|
Total
|
||||||||||||
(in
thousands)
|
||||||||||||||||
2008
|
||||||||||||||||
Canada
|
$
|
39,831
|
$
|
40,951
|
$
|
8,814
|
$
|
30,909
|
$
|
120,505
|
||||||
Europe
|
110,590
|
171,627
|
111,373
|
21,372
|
414,962
|
|||||||||||
Asia
|
50,333
|
90,265
|
69,820
|
4,473
|
214,891
|
|||||||||||
Middle
East
|
3,766
|
23,506
|
1,576
|
34,418
|
63,266
|
|||||||||||
Rest
of the world
|
27,406
|
58,330
|
7,732
|
11,993
|
105,461
|
|||||||||||
Total
|
$
|
231,926
|
$
|
384,679
|
$
|
199,315
|
$
|
103,165
|
$
|
919,085
|
||||||
2007
|
||||||||||||||||
Canada
|
$
|
39,841
|
$
|
38,306
|
$
|
6,331
|
$
|
31,506
|
$
|
115,984
|
||||||
Europe
|
97,394
|
163,640
|
111,614
|
5,073
|
377,721
|
|||||||||||
Asia
|
43,873
|
84,925
|
68,721
|
907
|
198,426
|
|||||||||||
Middle
East
|
3,722
|
27,171
|
1,381
|
52,669
|
84,943
|
|||||||||||
Rest
of the world
|
22,311
|
45,194
|
7,569
|
6,426
|
81,500
|
|||||||||||
Total
|
$
|
207,141
|
$
|
359,236
|
$
|
195,616
|
$
|
96,581
|
$
|
858,574
|
||||||
2006
|
||||||||||||||||
Canada
|
$
|
34,259
|
$
|
19,763
|
$
|
4,668
|
$
|
25,908
|
$
|
84,598
|
||||||
Europe
|
81,799
|
115,790
|
87,822
|
2,534
|
287,945
|
|||||||||||
Asia
|
39,248
|
44,589
|
65,277
|
517
|
149,631
|
|||||||||||
Middle
East
|
3,815
|
25,573
|
1,119
|
4,348
|
34,855
|
|||||||||||
Rest
of the world
|
12,823
|
34,014
|
5,454
|
953
|
53,244
|
|||||||||||
Total
|
$
|
171,944
|
$
|
239,729
|
$
|
164,340
|
$
|
34,260
|
$
|
610,273
|
(15)
|
Concentration of
Risk
|
Financial
instruments which potentially subject the Company to credit risk consist
primarily of cash, cash equivalents and trade receivables.
The
Company maintains cash and cash equivalents with various major financial
institutions. Cash equivalents include investments in commercial paper of
companies with high credit ratings, investments in money market securities and
securities backed by the U.S. Government. At times such amounts may exceed the
F.D.I.C. limits. The Company limits the amount of credit exposure with any one
financial institution and believes that no significant concentration of credit
risk exists with respect to cash investments.
Trade
receivables subject the company to the potential for credit risk with customers.
To reduce credit risk, the Company performs ongoing evaluations of its
customers’ financial condition.
(16)
|
Quarterly Financial
Data (unaudited)
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
||||||||||
(in
thousands, except per share data)
|
|||||||||||||
2008
|
|||||||||||||
Net
sales
|
$
|
542,995
|
$
|
594,414
|
$
|
593,100
|
$
|
575,862
|
|||||
Gross
profit
|
276,390
|
305,330
|
308,760
|
297,808
|
|||||||||
Income
from operations
|
108,266
|
126,541
|
132,299
|
119,055
|
|||||||||
Net
earnings
|
63,582
|
75,673
|
75,199
|
72,061
|
|||||||||
Earnings
from continuing operations before change in accounting principle per
common share:
|
|||||||||||||
Basic
|
0.71
|
0.85
|
0.84
|
0.80
|
|||||||||
Diluted
|
0.68
|
0.80
|
0.80
|
0.78
|
|||||||||
2007
|
|||||||||||||
Net
sales
|
$
|
478,427
|
$
|
530,636
|
$
|
532,902
|
$
|
560,084
|
|||||
Gross
profit
|
238,148
|
262,395
|
271,779
|
286,073
|
|||||||||
Income
from operations
|
92,851
|
107,956
|
113,738
|
123,809
|
|||||||||
Net
earnings
|
51,434
|
61,229
|
65,140
|
72,230
|
|||||||||
Earnings
from continuing operations before change in accounting principle per
common share:
|
|||||||||||||
Basic
|
0.59
|
0.69
|
0.74
|
0.81
|
|||||||||
Diluted
|
0.56
|
0.66
|
0.70
|
0.77
|
The sum
of the four quarters may not agree with the total for the year due to
rounding.
ROPER
INDUSTRIES, INC. AND SUBSIDIARIES
Schedule
II – Consolidated Valuation and Qualifying Accounts
Years ended
December 31, 2008, 2007 and 2006
Balance
at beginning of year
|
Additions
charged to costs and expenses
|
Deductions
|
Other
|
Balance
at end
of
year
|
||
(in
thousands)
|
||||||
Allowance
for doubtful accounts and sales allowances
|
||||||
2008
|
$
11,907
|
$
5,953
|
$
(5,402)
|
$ 200
|
$
12,658
|
|
2007
|
9,003
|
4,957
|
(2,429)
|
376
|
11,907
|
|
2006
|
8,625
|
1,259
|
(1,539)
|
658
|
9,003
|
|
Reserve
for inventory obsolescence
|
||||||
2008
|
$
28,390
|
$ 6,321
|
$
(4,063)
|
$ (540)
|
$
30,108
|
|
2007
|
27,348
|
4,649
|
(5,402)
|
1,795
|
28,390
|
|
2006
|
25,420
|
5,220
|
(5,366)
|
2,074
|
27,348
|
Deductions
from the allowance for doubtful accounts represented the net write-off of
uncollectible accounts receivable. Deductions from the inventory obsolescence
reserve represented the disposal of obsolete items.
Other
included the allowance for doubtful accounts and reserve for inventory
obsolescence of acquired businesses at the dates of acquisition, the effects of
foreign currency translation adjustments for those companies whose functional
currency was not the U.S. dollar, reclassifications and other.
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
There
have been no changes in accountants or disagreements with accountants on
accounting and financial disclosures.
ITEM
9A. CONTROLS AND PROCEDURES
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and
15d-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our evaluation under the framework in Internal
Control-Integrated Framework, our management concluded that our internal control
over financial reporting was effective as of December 31, 2008. The Company’s
internal control over financial reporting as of December 31, 2008 has been
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included herein, which
expresses an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2008.
Management
excluded CBORD, Tech-Pro, Chalwyn, Getloaded, Horizon and Technolog from its
assessment of internal control over financial reporting as of December 31, 2008,
because they were acquired by the Company in purchase business combinations
during 2008. CBORD, Tech-Pro, Chalwyn, Getloaded, Horizon and Technolog are
wholly-owned subsidiaries whose excluded aggregate assets represent 7.2%, and
whose aggregate total revenues represent 5.4%, of the related consolidated
financial statement amounts as of and for the year ended December 31,
2008.
Evaluation
of Disclosure Controls and Procedures
As
required by SEC rules, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period
covered by this report. This evaluation was carried out under the supervision
and with the participation of our management, including our principal executive
officer and principal financial officer. Based on this evaluation, we have
concluded that our disclosure controls and procedures are effective as of
December 31, 2008.
Disclosure
controls and procedures are our controls and other procedures designed to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commission’s
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by the Company in the reports that we file or submit under the
Exchange Act are accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure.
Changes
in Internal Control over Financial Reporting
There was
no change in the Company’s internal control over financial reporting that
occurred during the fourth quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
ITEM
9B. OTHER INFORMATION
There
were no disclosures of any information required to be filed on Form 8-K during
the fourth quarter of 2008 that were not filed.
PART
III
Except as
otherwise indicated, the following information required by the Instructions to
Form 10-K is incorporated herein by reference from the sections of the
Roper Proxy Statement for the annual meeting of shareholders to be held on June
3, 2009, as specified below:
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
“Board of
Directors;” “Section 16(a) Beneficial Ownership Reporting Compliance;”
“Corporate Governance;” and “Board Committees and Meetings.”
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
“Compensation
Discussion and Analysis;” “Executive Compensation;” “Director Compensation;”
“Compensation Committee Interlocks and Insider Participation;” and “Compensation
Committee Report.”
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
“Beneficial
Ownership.”
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table provides information as of December 31, 2008 regarding
compensation plans (including individual compensation arrangements) under which
our equity securities are authorized for issuance.
Plan
Category
|
(a)
Number
of Securities to be Issued Upon Exercise of Outstanding Options, Warrants
and Rights
|
(b)
Weighted-Average
Exercise Price of Outstanding Options, Warrants and Rights
|
(c)
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected in
Column (a))
|
Equity
Compensation Plans Approved by Shareholders (1)
|
4,187,000
|
$
37.77
|
5,429,000
|
Equity
Compensation Plans Not Approved by Shareholders
|
-
|
-
|
-
|
Total
|
4,187,000
|
$
37.77
|
5,429,000
|
(1)
|
Consists
of the 1991 Stock Option Plan, the Amended and Restated 2000 Stock
Incentive Plan, the 1993 Stock Plan for Non-Employee Directors (no
additional equity awards may be granted under these three plans) and the
2006 Incentive Plan.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
“Review
and Approval of Related Party Transactions” and “Director
Independence.”
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Fees paid
to the Company’s independent registered public accounting firm are disclosed
under the caption “Ratification of the Selection of an Independent Registered
Public Accountants.”
PART
IV
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
(a)
|
The
following documents are filed as a part of this Annual
Report.
|
|
(1)
|
Consolidated
Financial Statements: The following
consolidated financial statements are included in Part II, Item 8 of this
report.
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
Consolidated
Statements of Earnings for the years ended December 31, 2008, 2007 and
2006
Consolidated
Statements of Stockholders’ Equity and Comprehensive Earnings for the years
ended December 31, 2008, 2007 and 2006
Consolidated
Statements of Cash Flows for the years ended December 31, 2008, 2007 and
2006
Notes to
Consolidated Financial Statements
|
(2)
|
Consolidated
Valuation and Qualifying Accounts for the years ended December 31, 2008,
2007 and 2006
|
(b)
|
Exhibits
|
Exhibit
No.
|
Description
of Exhibit
|
|
(a)3.1
|
Amended
and Restated Certificate of Incorporation.
|
|
(b)3.2
|
Amended
and Restated By-Laws.
|
|
(c)3.3
|
Certificate
of Amendment, amending Restated Certificate of
Incorporation.
|
|
(d)3.4
|
Certificate
Eliminating References to Roper Industries, Inc.’s Series A Preferred
Stock from the Certificate of Incorporation of Roper Industries, Inc.
dated November 16, 2006.
|
|
(e)3.5
|
Certificate
of Amendment, amending Restated Certificate of
Incorporation.
|
|
(f)4.2
|
Form
of Indenture for Debt Securities.
|
|
4.3
|
Form
of Debt Securities (included in Exhibit 4.4).
|
|
(g)4.4
|
First
Supplemental Indenture between Roper Industries, Inc. and SunTrust Bank,
dated as of December 29, 2003.
|
|
(h)4.5
|
Second
Supplemental Indenture between Roper Industries, Inc. and Sun Trust Bank,
dated as of December 7, 2004.
|
|
(i)4.6
|
Form
of Senior Indenture.
|
|
4.7
|
Form
of Note (included in Exhibit 4.6).
|
|
(j)10.01
|
1991
Stock Option Plan, as amended. †
|
|
(k)10.02
|
1993
Stock Plan for Nonemployee Directors, as amended and restated. †
|
|
(l)10.03
|
Form
of Amended and Restated Indemnification Agreement. †
|
|
10.04
|
Employee
Stock Purchase Plan, as amended, filed herewith. †
|
|
10.05
|
2000
Stock Incentive Plan, as amended, filed herewith. †
|
|
10.06
|
Non-Qualified
Retirement Plan, as amended, filed herewith. †
|
|
10.07
|
Brian
D. Jellison Employment Agreement, dated as of December 29, 2008, filed
herewith. †
|
|
(m)10.08
|
Timothy
J. Winfrey offer letter dated May 20, 2002. †
|
|
(n)10.09
|
Credit
Agreement, dated as of July 7, 2008, among Roper Industries, Inc., as
parent borrower, the foreign subsidiary borrowers of Roper Industries,
Inc. from time to time parties thereto, the several lenders from time to
time parties thereto, Bank of Tokyo-Mitsubishi UFJ Trust Company and BNP
Paribas, as documentation agents, Wachovia Capital Markets, LLC and Banc
of America Securities, LLC, as syndication agents, and JPMorgan Chase
Bank, N.A., as administrative agent.
|
|
(o)10.10
|
Form
of Executive Officer Restricted Stock Award Agreement.
†
|
|
(o)10.11
|
Brian
D. Jellison Restricted Stock Unit Award Agreement. †
|
|
(p)10.12
|
Offer
letter for John Humphrey, dated March 31, 2006. †
|
|
(q)10.13
|
2006
Incentive Plan, as amended. †
|
|
(r)10.14
|
Form
of Restricted Stock Agreement for Employee Directors. †
|
|
(r)10.15
|
Form
of Restricted Stock Agreement for Non-Employee Directors.
†
|
|
(r)10.16
|
Form
of Restricted Stock Agreement for Employees. †
|
|
(r)10.17
|
Form
of Incentive Stock Option Agreement. †
|
|
(r)10.18
|
Form
of Non-Statutory Stock Option Agreement. †
|
|
10.19
|
Director
Compensation Plan, as amended, filed herewith. †
|
|
10.20
|
David
B. Liner offer letter dated July 21, 2005, filed herewith.
†
|
|
10.21
|
Amendment
to John Humphrey offer letter, filed herewith. †
|
|
10.22
|
Amendment
to Timothy J. Winfrey offer letter, filed herewith. †
|
|
10.23
|
Amendment
to David B. Liner offer letter, filed herewith. †
|
|
21.1
|
List
of Subsidiaries, filed herewith.
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm, filed
herewith.
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer, filed
herewith.
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial Officer, filed
herewith.
|
|
32.1
|
Section
1350 Certification of Chief Executive and Chief Financial Officers, filed
herewith.
|
(a)
|
Incorporated
herein by reference to Exhibit 3.1 to the Roper Industries, Inc. Quarterly
Report on Form 10-Q filed March 17, 2003 (file no. 1-12273), as amended by
the Certificate Eliminating References to the Company’s Series A Preferred
Stock from the Certificate of Incorporation of Roper Industries, Inc.
dated November 16, 2006, incorporated herein by reference to Exhibit 3.1
to the Roper Industries, Inc. Current Report on Form 8-K filed November
16, 2006 (file no. 1-12273).
|
|
(b)
|
Incorporated
herein by reference to Exhibit 3.1 to the Roper Industries, Inc. Current
Report on Form 8-K filed February 19, 2009 (file no.
1-12273).
|
|
(c)
|
Incorporated
herein by reference to Exhibit 10.1 to the Roper Industries, Inc.
Quarterly Report on Form 10-Q filed August 9, 2006 (file no.
1-12273)
|
|
(d)
|
Incorporated
herein by reference to Exhibit 3.1 to the Roper Industries, Inc. Current
Report on Form 8-K filed November 17, 2006 (file no.
1-12273).
|
|
(e)
|
Incorporated
herein by reference to Exhibit 3.1 to the Roper Industries, Inc. Quarterly
Report on Form 10-Q filed on August 9, 2007 (file no.
1-12273).
|
|
(f)
|
Incorporated
herein by reference to Exhibit 4.2 to the Roper Industries, Inc.
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-3
filed November 28, 2003 (file no. 333-110491).
|
|
(g)
|
Incorporated
herein by reference to Exhibit 4.1 to the Roper Industries, Inc. Current
Report on Form 8-K filed January 13, 2004 (file no.
1-12273).
|
|
(h)
|
Incorporated
herein by reference to Exhibit 4.1 to the Roper Industries, Inc. Current
Report on Form 8-K filed December 7, 2004 (file no.
1-12273).
|
|
(i)
|
Incorporated
herein by reference to Exhibit 4.1 to the Registration Statement on Form
S-3 filed July 29, 2008 (file no. 333-152590).
|
|
(j)
|
Incorporated
herein by reference to Exhibit 10.02 to the Roper Industries, Inc. Annual
Report on Form 10-K filed January 21, 1998 (file no.
1-12273).
|
|
(k)
|
Incorporated
herein by reference to Exhibit 10.2 to the Roper Industries, Inc.
Quarterly Report on Form 10-Q filed June 16, 2003 (file no.
1-12273).
|
|
(l)
|
Incorporated
herein by reference to Exhibit 10.04 to the Roper Industries, Inc.
Quarterly Report on Form 10-Q filed August 31, 1999 (file no.
1-12273).
|
|
(m)
|
Incorporated
herein by reference to Exhibits 10.06 and 10.09 to the Roper Industries,
Inc. Annual Report on Form 10-K/A filed November 3, 2003 (file no.
1-12273).
|
|
(n)
|
Incorporated
herein by reference to Exhibit 10.1 to the Roper Industries, Inc. Current
Report on Form 8-K filed July 7, 2008 (file no.
1-12273).
|
|
(o)
|
Incorporated
herein by reference to Exhibits 99.1 and 99.2 to the Roper Industries,
Inc. Current Report on Form 8-K filed December 30, 2004 (file no.
1-12273).
|
|
(p)
|
Incorporated
herein by reference to Exhibit 10.1 to the Roper Industries, Inc.
Quarterly Report on Form 10-Q filed August 9, 2006 (file no.
1-12273)
|
|
(q)
|
Incorporated
herein by reference to Exhibit 10.1 to the Roper Industries, Inc.
Quarterly Report on Form 10-Q filed November 7, 2008 (file no.
1-12273)
|
|
(r)
|
Incorporated
herein by reference to Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 to the
Roper Industries, Inc. Current Report on Form 8-K filed December 6, 2006
(file no. 1-12273).
|
|
†
|
Management
contract or compensatory plan or
arrangement.
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, Roper has duly caused this Report to be signed on its behalf by the
undersigned, therewith duly authorized.
|
ROPER
INDUSTRIES, INC.
|
(Registrant)
By:
|
/S/
BRIAN D. JELLISON
|
February
27, 2009
|
Brian
D. Jellison, 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 Roper and in the capacities
and on the dates indicated.
/S/
BRIAN D. JELLISON
|
President,
Chief Executive Officer and
|
||
Brian
D. Jellison
|
Chairman
of the Board of Directors
|
February
27, 2009
|
|
(Principal
Executive Officer)
|
|||
/S/
JOHN HUMPHREY
|
Vice
President, Chief Financial Officer
|
||
John
Humphrey
|
(Principal
Financial Officer)
|
February
27, 2009
|
|
/S/
PAUL J. SONI
|
Vice
President and Controller
|
||
Paul
J. Soni
|
(Principal
Accounting Officer)
|
February
27, 2009
|
|
/S/
W. LAWRENCE BANKS
|
|||
W.
Lawrence Banks
|
Director
|
February
27, 2009
|
|
/S/
DAVID W. DEVONSHIRE
|
|||
David
W. Devonshire
|
Director
|
February
27, 2009
|
|
/S/
JOHN F. FORT, III
|
|||
John
F. Fort, III
|
Director
|
February
27, 2009
|
|
/S/
ROBERT D. JOHNSON
|
|||
Robert
D. Johnson
|
Director
|
February
27, 2009
|
|
/S/
ROBERT E. KNOWLING
|
|||
Robert
E. Knowling
|
Director
|
February
27, 2009
|
|
/S/
WILBUR J. PREZZANO
|
|||
Wilbur
J. Prezzano
|
Director
|
February
27, 2009
|
|
/S/
RICHARD F. WALLMAN
|
|||
Richard
F. Wallman
|
Director
|
February
27, 2009
|
|
/S/
CHRISTOPHER WRIGHT
|
|||
Christopher
Wright
|
Director
|
February
27,
2009
|