_________________
_________________
Delaware | 51-0263969 | ||||
(State or other jurisdiction of | (I.R.S. Employer | ||||
incorporation or organization) | Identification No.) |
_________________
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (941) 556-2601
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Title of Each Class |
Name of Each Exchange On Which Registered |
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Common Stock, $0.01 Par Value | New York Stock Exchange |
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [X] 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 [X] 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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrants 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 or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [X] Large accelerated file [ ] 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 [X] No
Based on the closing sales price on the New York Stock Exchange on June 30, 2007, the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was: $5,099,420,564
Number of shares of Registrants Common Stock outstanding as of February 22, 2008: 89,306,840.
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Portions of the Registrants Proxy Statement to be furnished to Stockholders in connection with its Annual Meeting of Stockholders to be held on June 6, 2008, are incorporated by reference into Part III of this Form 10-K.
ROPER
INDUSTRIES, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007
INDEX
PART I |
||
Item 1. |
Business |
2 |
Item 1A. |
Risk Factors |
8 |
Item 1B. |
Unresolved Staff Comments |
12 |
Item 2. |
Properties |
13 |
Item 3. |
Legal Proceedings |
14 |
Item 4. |
Submission of Matters to a Vote of Security Holders |
14 |
PART II |
||
Item 5. |
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
15 |
Item 6. |
Selected Financial Data |
17 |
Item 7. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
19 |
Item 7A. |
Quantitative and Qualitative Disclosures about Market Risk |
32 |
Item 8. |
Financial Statements and Supplementary Data |
32 |
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
33 |
Item 9A. |
Controls and Procedures |
33 |
Item 9B. |
Other Information |
34 |
PART III |
||
Item 10. |
Directors, Executive Officers and Corporate Governance |
35 |
Item 11. |
Executive Compensation |
35 |
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
35 |
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
35 |
Item 14. |
Principal Accountant Fees and Services |
35 |
PART IV |
||
Item 15. |
Exhibits and Financial Statement Schedules |
36 |
Signatures |
39 |
|
PART I
ITEM 1. BUSINESS
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, 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.
We continued our growth in 2007 from internal growth and the full-year contributions from the 2006 acquisitions of Sinmed Holding International BV (Sinmed) on April 5, 2006, Intellitrans, LLC (Intellitrans) on April 26, 2006, Lumenera Corporation (Lumenera) on July 25, 2006, AC Analytical Controls Holding B.V. (AC Controls) on August 8, 2006 and Dynisco Parent, Inc. (Dynisco) on November 30, 2006. We acquired JLT Mobile Computers, Inc. (JLT) on February 21, 2007, DJ Instruments on February 28, 2007, Roda Deaco Valve Ltd., (Roda Deaco) on March 22, 2007, Dynamic Instruments, Inc., (Dynamic Instruments) including its wholly owned subsidiary, Hardy Instruments, Inc., on June 21, 2007, and Black Diamond Advanced Technology, LLC, (Black Diamond) on September 24, 2007, all of which were purchased for cash and financed through borrowings under our credit agreement and cash generated from operations.
During the fourth quarter of 2007, we contributed the Redlake Motion product line and working capital for a minority investment in Integrated Design Tools, Inc.
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 SECs website at www.sec.gov. You may also read and copy any material Roper files with the SEC at the SECs 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 Companys 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 Companys website.
We have included the Chief Executive Officer and the Chief Financial Officer certifications regarding Ropers 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 Ropers compliance with the NYSEs 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 June 6, 2007 and indicated that the Chief Executive Officer was not aware of any violations of the Listing Standards by the Company.
Market Share, Market Expansion, and Product Development
Leadership with Engineered Content for Niche Markets. We have developed and maintained 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 continue to 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 U.S. and manufactured abroad and sold to customers outside the U.S. accounting for $859 million in 2007, compared to $610 million in 2006. 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 to enter new markets. Our research and development spending increased to $67.9 million in 2007 as compared to $58.6 and $53.5 million in 2006 and 2005, respectively. The dollar amount of research and development expense in 2007 increased versus 2006 and decreased slightly as a percent of sales as our internal sales have grown. We expect the dollar amount spent on research and development activities to rise in 2008 as a result of the acquisitions of JLT, Roda Deaco, DJ Instruments, Dynamic Instruments and Black Diamond in 2007.
Our
Business Segments
During 2006, Roper consolidated the number of reporting segments from five to four, reflecting the continued implementation of its market-focus strategy. Ropers four segments are: Industrial Technology, Energy Systems and Controls, Scientific and Industrial Imaging and RF Technology. All prior year comparisons have been restated to conform to the current year presentation. Financial information about our business segments is presented in Note 14 of the Notes to Consolidated Financial Statements.
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 2007, this segment had net sales of $644.4 million, representing 30.7% 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, medical, chemical and general industrial.
Materials Analysis Equipment and Consumables. We manufacture and sell equipment and supply various types of consumables necessary to extract and shape certain materials for production and to prepare materials samples for testing and analysis. These products are used mostly within the academic, government research, electronics and material science 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 Automatic Meter Reading (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 specifically 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 original equipment manufacturers, or OEMs, may extend shipment for longer periods. This segments backlog of firm unfilled orders, including blanket purchase orders, totaled $93.1 million at December 31, 2007, as compared to $95.5 million at December 31, 2006.
Distribution and Sales. Distribution and sales occur through direct sales personnel, manufacturers representatives and distributors.
Customers. No customer was responsible for as much as 10% of this segments net sales for 2007.
Energy Systems and Controls
Our Energy Systems and Controls segment principally produces control systems, fluid properties testing equipment, industrial valves and controls, machinery vibration and other non-destructive inspection and measurement products and solutions, which are provided through six U.S.-based and two European-based operating units. For 2007, this segment had net sales of $516.4 million, representing 24.6% 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 process industries.
Non-destructive Inspection and Measurement Instrumentation. We manufacture non-destructive inspection and measurement solutions including measurement probes, robotics, and machinery 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 segments backlog of firm unfilled orders totaled $93.1 million at December 31, 2007 compared to $79.2 million at December 31, 2006.
Distribution and Sales. Distribution and sales occur through direct sales offices, manufacturers representatives and distributors in both the U.S. and various other countries.
Customers.
None of this segments customers accounted for as much as 10% of its net sales in
2007.
Scientific and Industrial Imaging
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 two Canadian-based operating units. For 2007, this segment had net sales of $376.2 million, representing 17.9% 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 OEMs and end-users, with continuing requirements for fulfillment over specified periods of time. The segments backlog of firm unfilled orders, including blanket purchase orders, totaled $74.8 million at December 31, 2007, as compared to $68.6 million at December 31, 2006.
Distribution and Sales. Distribution and sales occur through direct sales personnel, manufacturers representatives, value added resellers (VARs), OEMs and distributors.
Customers. No customer was responsible for as much as 10% of this segments net sales for 2007.
RF Technology
Our RF Technology segment provides radio frequency identification (RFID), satellite-based communication technologies and software solutions that are used primarily in comprehensive toll and traffic systems and processing, security and access control, freight matching, mobile asset tracking and water sub-metering and remote temperature monitoring applications. These products and solutions are provided through three U.S.-based operating units. This segment had sales of $565.0 million for the year ended December 31, 2007, representing 26.9% of our total net sales.
Backlog. Backlog typically fluctuates significantly depending on the timing of large project awards. Standard products typically ship within two weeks of receipt of order. This segments backlog of firm unfilled orders totaled $271.3 million at December 31, 2007 compared to $261.2 million at December 31, 2006.
Distribution and Sales. Distribution and sales occur through direct sales personnel, manufacturers representatives and distributors.
Customers. No customer was responsible for as much as 10% of this segments net sales for 2007.
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 Ropers 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.
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. While 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, the product development and market activities of Compressor Controls, Neptune Technology, TransCore and our medical and imaging businesses, in particular, have been planned and conducted in conjunction with continuing patent and license strategies.
Employees
As of December 31, 2007, we had approximately 7,100 total employees, with approximately 5,200 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.
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, 2007, we had approximately $1.06 billion in total consolidated indebtedness. In addition, we had approximately $344 million undrawn availability under our senior secured credit facility. Our total consolidated debt could increase using this additional borrowing capacity. Subject to certain restrictions contained in our senior secured credit facility and other debt agreements, 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 payments of principal 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.
In addition, our senior secured 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 secured 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 secured 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 secured 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 28% of our total net sales for the year ended December 31, 2007 compared to 29% for the year ended December 31, 2006. 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 17% and 14% of our net sales for the years ended December 31, 2007 and December 31, 2006, 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.
Economic, political and other risks associated with our international operations could adversely affect our business.
As
of December 31, 2007, approximately 18%
of our long-lived assets, excluding goodwill and intangibles,
were attributable to operations outside the U.S. We expect our international operations to
continue 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 who 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
historical growth has depended, and our future growth is likely to continue to depend, to some degree
on our ability to make acquisitions and to successfully integrate acquired 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 larger 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 with existing customers. 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 increasingly stringent 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, 2007,
goodwill totaled $1.71
billion compared to $1.79
billion of stockholders' equity, which was 49%
of our total assets of $3.45
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 become more conservative, 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 abilities to develop new products.
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 disruption 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 Ropers periodic or current reports within the last 180 days prior to December 31, 2007.
ITEM 2. PROPERTIES
Ropers corporate offices, consisting of 22,000 square feet of leased space, are located at 6901 Professional Parkway East, Sarasota, Florida. We have established manufacturing, sales and service locations around the world to support our operations. The following table sets forth our principal properties as of December 31, 2007:
Square Footage |
|||||
---|---|---|---|---|---|
Location |
Property |
Owned |
Leased |
Industry segment | |
Tempe, AZ | Office/Mfg. | | 25,100 | Industrial Technology | |
Tucson, AZ | Office/Mfg. | | 49,300 | Scientific and Industrial Imaging | |
Tallassee, AL | Office/Mfg. | 300,000 | 5,000 | Industrial Technology | |
Kanata, Canada | Office/Mfg. | | 25,900 | RF Technology | |
Mississauga, Canada | Office | | 30,000 | Industrial Technology | |
Ottawa, Canada | Office/Mfg. | | 26,300 | Scientific and Industrial Imaging | |
Quebec City, Canada | Office/Mfg. | | 27,600 | Scientific and Industrial Imaging | |
Quebec City, Canada | Office/Mfg. | | 25,000 | Energy Systems and Controls | |
Vancouver, Canada | Office/Mfg. | | 25,500 | Scientific and Industrial Imaging | |
Pleasanton, CA | Office | | 37,600 | Scientific and Industrial Imaging | |
San Diego, CA | Office | | 84,500 | RF Technology | |
San Diego, CA | Office/Mfg. | | 31,400 | Energy Systems and Controls | |
Malu, China | Office/Mfg. | | 16,600 | Energy Systems and Controls | |
Louisville, CO | Office/Mfg. | | 50,000 | RF Technology | |
Ballerup, Denmark | Office/Mfg. | | 96,600 | Industrial Technology | |
Verson, France | Office/Mfg. | 22,500 | | Energy Systems and Controls | |
Commerce, GA | Office/Mfg. | 203,800 | | Industrial Technology | |
Büchen, Germany | Office/Mfg. | 118,900 | | Industrial Technology | |
Lauda, Germany | Office/Mfg. | 37,900 | | Energy Systems and Controls | |
Sarasota, FL | Office/HQ. | | 22,000 | N/A | |
Des Moines, IA | Office/Mfg. | | 88,000 | Energy Systems and Controls | |
Kalona, IA | Office/Mfg. | 50,000 | | Scientific and Industrial Imaging | |
Orange City, IA | Office/Mfg. | 37,100 | | Scientific and Industrial Imaging | |
Burr Ridge, IL | Office/Mfg. | 55,000 | | Industrial Technology | |
Acton, MA | Office/Mfg. | | 28,700 | Scientific and Industrial Imaging | |
Franklin, MA | Office/Mfg. | | 62,000 | Energy Systems and Controls | |
Juarez, Mexico | Office/Mfg. | | 59,900 | Industrial Technology | |
Trenton, NJ | Office/Mfg. | 40,000 | | Scientific and Industrial Imaging | |
Albuquerque, NM | Office/Mfg. | | 260,800 | RF Technology | |
Syosset, NY | Office/Mfg. | | 27,500 | Scientific and Industrial Imaging | |
Akron, OH | Office/Mfg. | | 71,700 | Energy Systems and Controls | |
Beaverton, OR | Office | | 48,200 | RF Technology | |
Clackamas, OR | Office/Mfg. | | 128,000 | Industrial Technology | |
Harrisburg, PA | Office/Mfg. | | 73,300 | RF Technology | |
Warrendale, PA | Office/Mfg. | | 76,300 | Scientific and Industrial Imaging | |
Dallas, TX | Office | | 27,200 | RF Technology | |
Houston, TX | Office/Mfg. | | 35,000 | Industrial Technology | |
Houston, TX | Office/Mfg. | | 216,000 | Energy Systems and Controls | |
Bury St. Edmunds, U.K | Office/Mfg. | 68,000 | | Energy Systems and Controls | |
Glasgow, U.K. | Office/Mfg. | 27,700 | | Industrial Technology | |
Snoqualmie, WA | Office/Mfg. | | 65,000 | Energy Systems and Controls |
We consider each of the above facilities to be in good operating condition and adequate for its present use and believe that we have sufficient plant capacity to meet our current and anticipated operating requirements.
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 2007.
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 2007 and 2006 quarters.
High |
Low |
Cash Dividends Declared | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2007 | 4th Quarter | $ | 70 | .81 | $ | 60 | .43 | $ | 0 | .07250 | ||||
3rd Quarter | 65 | .50 | 58 | .36 | 0 | .06500 | ||||||||
2nd Quarter | 58 | .36 | 53 | .88 | 0 | .06500 | ||||||||
1st Quarter | 55 | .14 | 48 | .61 | 0 | .06500 | ||||||||
2006 | 4th Quarter | $ | 51 | .31 | $ | 44 | .10 | $ | 0 | .06500 | ||||
3rd Quarter | 47 | .63 | 42 | .06 | 0 | .05875 | ||||||||
2nd Quarter | 50 | .39 | 42 | .39 | 0 | .05875 | ||||||||
1st Quarter | 48 | .63 | 38 | .46 | 0 | .05875 |
Based on information available to us and our transfer agent, we believe that as of February 22, 2007 there were 259 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 also annually increased our dividend rate since our initial public offering. In November 2007, our Board of Directors increased the quarterly dividend paid January 31, 2008 to $0.0725 per share from $0.0650 per share, an increase of 11.5%. However, 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 2007, 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, 2007, the cumulative total stockholder return for the Companys common stock, the Standard and Poors 500 Stock Index (the S&P 500) and the Standard and Poors Industrials Index (the S&P Industrials). Measurement points are the last trading day of each of the Companys fiscal years ended December 31, 2002, December 31, 2003, December 31, 2004, December 31, 2005, December 31, 2006 and December 31, 2007. The graph assumes that $100 was invested on December 31, 2002 in the common stock of the Company, the S&P 500 Stock Index and the S&P Industrials Index and assumes reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
12/31/02 |
12/31/03 |
12/31/04 |
12/31/05 |
12/31/06 |
12/31/07 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Roper Industries, Inc. | 100.00 | 135.83 | 168.78 | 220.33 | 281.64 | 352.19 | ||||||||||||||
S&P 500 | 100.00 | 128.68 | 142.69 | 149.70 | 173.34 | 182.87 | ||||||||||||||
S&P Industrials | 100.00 | 132.19 | 156.03 | 159.66 | 180.88 | 202.64 |
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, 2007, 2006, 2005, 2004 and 2003
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, 2007, 2006,
2005, 2004 and 2003
were audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm.
You should read the table below in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements and
related notes included elsewhere in this Annual Report (amounts in thousands, except per share data).
Years ended December 31, |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2007(1) |
2006(2) |
2005(3) |
2004(4) |
2003(5) |
|||||||||||||
Operations data: | |||||||||||||||||
Net sales | $ | 2,102,049 | $ | 1,700,734 | $ | 1,453,731 | $ | 969,764 | $ | 657,356 | |||||||
Gross profit | 1,058,395 | 861,325 | 726,407 | 485,045 | 346,138 | ||||||||||||
Income from operations(6) | 438,354 | 337,653 | 264,899 | 171,302 | 108,100 | ||||||||||||
Earnings from continuing | |||||||||||||||||
operations before change in | |||||||||||||||||
accounting principle | 250,033 | 193,324 | 153,175 | 93,852 | 48,061 | ||||||||||||
Net earnings | 250,033 | 193,324 | 153,175 | 93,852 | 45,239 | ||||||||||||
Per share data: | |||||||||||||||||
Earnings from continuing | |||||||||||||||||
operations before change in | |||||||||||||||||
accounting principle: | |||||||||||||||||
Basic | $ | 2.83 | $ | 2.23 | $ | 1.79 | $ | 1.26 | $ | 0.76 | |||||||
Diluted | 2.68 | 2.13 | 1.74 | 1.24 | 0.75 | ||||||||||||
Net earnings: | |||||||||||||||||
Basic | $ | 2.83 | $ | 2.23 | $ | 1.79 | $ | 1.26 | $ | 0.72 | |||||||
Diluted | 2.68 | 2.13 | 1.74 | 1.24 | 0.71 | ||||||||||||
Dividends declared | 0.27 | 0.24 | 0.22 | 0.20 | 0.18 | ||||||||||||
Balance sheet data: | |||||||||||||||||
Working capital(7) | $ | 283,607 | $ | 39,846 | $ | (7,418 | ) | $ | 302,610 | $ | 219,695 | ||||||
Total assets | 3,453,184 | 2,995,359 | 2,522,306 | 2,366,404 | 1,514,995 | ||||||||||||
Long-term debt, less current portion | 727,489 | 726,881 | 620,958 | 855,364 | 630,186 | ||||||||||||
Stockholders' equity | 1,789,806 | 1,486,839 | 1,249,788 | 1,114,086 | 655,781 |
(1) |
Includes results from the acquisitions of JLT from February 21, 2007, DJ Instruments from February 28, 2007, Roda Deaco from March 22, 2007, Dynamic Instruments from June 21, 2007, and Black Diamond from September 24, 2007. |
(2) |
Includes results from the acquisitions of Sinmed from April 5, 2006, Intellitrans from April 26, 2006, Lumenera from July 25, 2006, AC Controls from August 8, 2006 and Dynisco from November 30, 2006. |
(3) |
Includes results from the acquisitions of Inovonics from February 25, 2005, CIVCO from June 17, 2005 and MEDTEC from November 30, 2005. |
(4) |
Includes results from the acquisitions of the power generation business of R/D Tech from June 7, 2004 and TransCore from December 13, 2004. |
(5) |
Balance sheet data includes the effect of the Neptune Technology Group Holdings acquisition effective on December 29, 2003. |
(6) |
Includes $5.9 million of restructuring expenses in 2003. |
(7) |
The years ended December 31, 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 Companys 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 elsewhere 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 (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, 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
21, 2007, we purchased JLT, a
provider of rugged computers and software for mobile computing.
On February 28, 2007,
we purchased DJ
Instruments, a manufacturer
and provider of pressure
measurement sensors. On March
22, 2007, we purchased Roda
Deaco, a developer and manufacturer of air
intake cut-off devices.
On June 21, 2007, we
purchased Dynamic Instruments,
a provider of audio recording, vibration monitoring and process control equipment for
commercial and military markets. On September
24, 2007, we purchased Black Diamond, a
provider of rugged mobile computers.
The results of DJ Instruments, Roda Deaco and Dynamic
Instruments are reported in the Energy Systems and
Controls segment, JLT in the Scientific and
Industrial Imaging segment, and Black Diamond in the RF Technology segment.
During the year ended December 31, 2007, our results of operations benefited from the full-year results of the 2006 acquisitions of Intellitrans and Sinmed in April, AC Controls in July, Lumenera in August and Dynisco in November, as well as the partial year activities of JLT, DJ Instruments, Roda Deaco, Dynamic Instruments and Black Diamond.
During the year ended December 31, 2006, our results of operations benefited from the full-year results of the 2005 acquisitions of Inovonics, CIVCO and MEDTEC in February, June and November, respectively, as well as the partial year activities of Intellitrans, Sinmed, AC Controls, Lumenera and Dynisco.
Application of Critical Accounting Policies
Our
Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States,
or 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, 2007 included
elsewhere 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 employees requisite service period (generally the vesting period of the award).
On January 1, 2007 the Company adopted the provisions of FASB Interpretation (FIN) No. 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.
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
utilization, 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 credits histories are analyzed to determine likely future rates for such credits.
At December 31, 2007, our
allowance for doubtful accounts receivable was $10.3
million and our allowance for sales
returns and sales credits was $1.6
million, for a total of $11.9
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, 2007
is $2.9
million higher than at December
31, 2006 and has increased slightly as a percent
of sales by .04%.
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, 2007,
inventory reserves for excess and obsolete inventory were $28.4
million, or 14.0%
of gross inventory cost. This percentage has increased
from 13.5% at
December 31, 2006. 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. At December 31, 2007,
the reserve for future warranty obligations was $8.5
million. Our expense for warranty
obligations was less than 1% of net sales for each of the years
ended December 31, 2007,
2006, and 2005.
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, 2007,
we recognized revenue of approximately $135.5
million using this method, primarily for major turn-key, longer term toll
and traffic and energy projects. Approximately $94.8 million
and $90.0 million of revenue
was recognized using this method during the years
ended December 31, 2006
and December 31,
2005, respectively. At
December 31, 2007,
approximately $133.6
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 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
2007, our effective income
tax rate was 34.8%,
which was higher than the 2006
rate of 34.0%.
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 22 different business components with individual amounts ranging from zero to approximately $451 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 2007.
Results of Operations
General
The
following tables set forth selected information for the years indicated. Dollar amounts are in thousands and percentages are of
net sales. Results
from 2005 have been revised to conform to
the current segment presentation.
Years ended December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2007 |
2006 |
2005 |
|||||||||
Net sales | |||||||||||
Industrial Technology | $ | 644,436 | $ | 549,993 | $ | 496,060 | |||||
Energy Systems and Controls(1) | 516,420 | 343,699 | 311,199 | ||||||||
Scientific and Industrial Imaging(2) | 376,163 | 338,906 | 249,898 | ||||||||
RF Technology(3) | 565,030 | 468,136 | 396,574 | ||||||||
Total | $ | 2,102,049 | $ | 1,700,734 | $ | 1,453,731 | |||||
Gross profit: | |||||||||||
Industrial Technology | 48.2 | % | 47.9 | % | 47.4 | % | |||||
Energy Systems and Controls | 53.6 | 54.2 | 54.2 | ||||||||
Scientific and Industrial Imaging | 54.9 | 56.8 | 55.6 | ||||||||
RF Technology | 46.8 | 46.8 | 46.4 | ||||||||
Total | 50.4 | 50.6 | 50.0 | ||||||||
Operating profit: | |||||||||||
Industrial Technology | 25.6 | % | 23.4 | % | 21.2 | % | |||||
Energy Systems and Controls | 24.5 | 26.3 | 25.9 | ||||||||
Scientific and Industrial Imaging | 19.5 | 21.4 | 19.2 | ||||||||
RF Technology | 20.7 | 17.3 | 14.8 | ||||||||
Total | 22.9 | 21.9 | 20.1 | ||||||||
Corporate administrative expenses | (2.0 | )% | (2.0 | )% | (1.9 | )% | |||||
Income from continuing operations | 20.9 | 19.9 | 18.2 | ||||||||
Interest expense | (2.5 | ) | (2.6 | ) | (3.0 | ) | |||||
Loss on extinguishment of debt | | | (0.3 | ) | |||||||
Other income/(expense) | (0.1 | ) | | 0.2 | |||||||
Income from continuing operations before taxes and | |||||||||||
change in accounting principle | 18.3 | 17.3 | 15.1 | ||||||||
Income taxes | (6.4 | ) | (5.9 | ) | (4.6 | ) | |||||
Net earnings | 11.9 | % | 11.4 | % | 10.5 | % | |||||
(1) Includes results from the acquisitions of 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, Lumenera from July 25, 2006, CIVCO from June 17, 2005, MEDTEC from November 30, 2005 and several smaller business acquired during the years presented.
(3) Includes results from the acquisitions of Black Diamond from September 24, 2007, Intellitrans from April 26, 2006 and Inovonics from February 25, 2005.
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.
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 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.
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 have been resolved and we do not expect an adverse impact from these supplier issues going into 2008.
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 the current year from a large Middle East project which will continue 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 (SG&A) 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). Ropers 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 | % | |||||
Year
Ended December 31, 2006 Compared to Year Ended December 31, 2005
Net
sales for the year ended December 31, 2006 were $1.70 billion as compared to sales of $1.45 billion for the year ended December
31, 2005, an increase of 17.0%. This increase was the result of sales from acquired companies and strong internal growth. Our
2006 results included a full year of sales from Inovonics, CIVCO and MEDTEC acquired during 2005, approximately eight months of
sales from Sinmed, seven months from Intellitrans, five months from Lumenera and AC Controls, and one month from Dynisco. Net
sales of these acquisitions accounted for approximately $101 million of our 2006 net sales increase over 2005 and growth of our
other business accounted for the remaining $146 million of the increase.
Net sales for our Industrial Technology
segment increased by $53.9 million or 10.9% for the year ended December 31, 2006 over the year ended December 31, 2005. The
increase was due primarily to high market penetration for our new radio-frequency integrated water meter at Neptune Technologies,
accounting for 68% of the year over year growth. In addition, sales in our materials testing businesses were up $11 million
dollars over the prior year due to increased unit sales.
In our Energy Systems and Controls segment, net sales for the
year ended December 31, 2006 increased by $32.5 million or 10.4% over the year ended December 31, 2005. Approximately $19
million, or 6%, of the increase was due to the 2006 acquisitions of AC Controls and Dynisco. Internal growth was approximately
$14 million or 4.4%, primarily from strength in the oil and gas related businesses which benefited from the strong global oil and
gas market, offset by weak sales at Zetec in the first half of 2006.
Our Scientific and Industrial Imaging segment
reported an increase in net sales of $89.0 million or 35.6% for the year ended December 31, 2006 over the year ended December 31,
2005. The increase was attributable to the full-year impact of CIVCO and MEDTEC acquired in 2005, and partial year impact of
Sinmed and Lumenera in 2006, which accounted for approximately $65 million of the increase over prior year. Internal growth was
9.7%, approximately 50% of which was related to increased sales in the electron microscopy market due to higher demand from OEM
customers. Sales of new products in the digital camera businesses accounted for the remainder of the growth.
In our
RF Technology segment, net sales for the year ended December 31, 2006 increased by $71.6 million or 18.0% over the year ended
December 31, 2005. The full-year results of Inovonics, purchased in February 2005, and eight months from the Intellitrans
acquisition on April 26, 2006, accounted for approximately $17 million of the increase. Internal growth increased 13.8% due to
strong performance in the freight matching business and our traffic and tolling business.
Our overall gross profit
percentage was 50.6% for the year ended December 31, 2006, as compared to 50.0% for the year ended December 31, 2005. Industrial
Technology gross margins increased to 47.9% as compared to 47.4% in the prior year. Our Energy Systems and Controls segment gross
margins were unchanged at 54.2% in both 2006 and 2005, however, there was a $1.1 million purchase accounting inventory step-up
charge incurred in 2006. Our Scientific and Industrial Imaging segment gross margins were 56.8% in 2006 as compared to 55.6% in
2005. There were purchase accounting inventory step-up charges of $1.3 million in 2006 and $2.1 million in 2005. Excluding these
charges, our gross margins would have increased in 2006 due to a larger percentage of segment sales in our higher margin medical
businesses. Our RF Technology segment gross margins were 46.8% in 2006 as compared to 46.4% in 2005.
Selling, general
and administrative (SG&A) expenses decreased to 30.8% of net sales for the year ended December 31, 2006 from 31.8% of net
sales for the year ended December 31, 2005. The decrease was due
to leverage from higher sales while making a conscious effort to control general and administrative expenses.
Interest
expense increased $1.4 million, or 3.2%, for the year ended December 31, 2006 compared to the year ended December 31, 2005,
primarily as a result of borrowings under our revolving credit facility for the Dynisco acquisition on November 30, 2006. The
average debt balances and associated interest expense for the remaining 2006 acquisitions were relatively unchanged from the
average debt balances and associated interest expense related to 2005 acquisitions.
The loss on extinguishment of debt
for the year ended December 31, 2005 created a $3.9 million non-cash charge related to the expensing of deferred financing costs
for our senior subordinated convertible notes which were 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 Companys stock.
The change
in other income for the year ended December 31, 2006 as compared to the year ended December 31, 2005 was primarily due to the 2005
$0.8 million gain on sale of an investment in a previously owned business and proceeds of $0.7 million from a business
interruption insurance claim due to a fire at a supplier to one of our Imaging segment businesses that did not recur in 2006.
During 2006, our effective income tax rate was 34.0%. In 2005, our effective income tax rate was 30.6% which included a $6.6 million reduction to tax expense related to the repatriation of foreign sourced earnings under section 965 of the Internal Revenue Code at an effective tax rate significantly lower than previously provided on these earnings. As described above, our tax rate in 2007 increased to 34.9% as the Company continues to have a higher percentage of sales in the U.S. subject to additional state income tax.
At December 31, 2006, the functional currencies of our European and Canadian subsidiaries were stronger against the U.S. dollar compared to currency exchange rates at December 31, 2005. The net result of these changes led to an increase in the foreign exchange component of comprehensive earnings of $23.6 million in the year period ending December 31, 2006. Approximately $20.7 million of these adjustments related to goodwill and are not expected to directly affect our projected future cash flows. For the entire year of 2006, operating profit increased by 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, 2006 and 2005 (dollar amounts in thousands).
2006 |
2005 |
change |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Industrial Technology | $ | 589,322 | $ | 500,479 | 17.8 | % | |||||
Energy Systems and Controls | 346,880 | 322,038 | 7.7 | ||||||||
Scientific and Industrial Imaging | 341,178 | 263,339 | 29.6 | ||||||||
RF Technology | 511,188 | 408,825 | 25.0 | ||||||||
Total | $ | 1,788,568 | $ | 1,494,681 | 19.7 | % | |||||
The increase in sales orders was due to internal growth of 12.7% with the remainder from acquisitions. The Industrial Technology segment net orders strengthened in most markets over the prior year and in particular from strong orders for Neptune water meter and RF products, which was also the primary contributor to the increased backlog in this segment as noted in the table below. Scientific and Industrial Imaging net orders increased from the inclusion of orders from the partial year ownership of Sinmed and Lumenera and also from stronger orders in the electron microscopy market, which led to the higher backlog at 2006 in the Scientific and Industrial Imaging segment. The RF Technology segment experienced strong order growth including a significant international project awarded in the fourth quarter of 2006 leading to the increased backlog in this segment.
The following table summarizes sales order backlog information at December 31, 2006 and 2005 (dollar amounts in thousands). Ropers policy is to include in backlog only orders scheduled for shipment within twelve months.
2006 |
2005 |
change |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Industrial Technology | $ | 95,539 | $ | 54,959 | 73.8 | % | |||||
Energy Systems and Controls | 79,217 | 63,583 | 24.6 | ||||||||
Scientific and Industrial Imaging | 68,600 | 61,606 | 11.4 | ||||||||
RF Technology | 261,243 | 200,233 | 30.5 | ||||||||
Total | $ | 504,599 | $ | 380,381 | 32.7 | % | |||||
Financial Condition, Liquidity and Capital Resources
Net
cash provided by operating activities was $343.8
million for the year ended December 31, 2007, $262.5
million for the year
ended December 31, 2006
and $281.3 million
for the year ended December 31, 2005.
The 2007 increase was primarily due to higher earnings over the prior year and increased
amortization of identifiable intangible assets related to our acquisitions. Cash
used by investing activities during 2007,
2006, and 2005
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 2007 included a
$300 million increase to our current $1.055 billion
credit agreement by exercise of an accordion feature of the agreement,
increasing the total to $1.355 billion.
Net working capital (current assets,
excluding cash, less total current liabilities, excluding debt) was $305.9
million at December 31, 2007
compared to $270.3
million at December 31, 2006.
We acquired approximately $7.5 million of net current
assets through business acquisitions during 2007.
Total
debt was $1.1 billion
at December 31, 2007 (37.2%
of total capital) compared to $1.0 billion
at December 31, 2006 (40.8%
of total capital). Our increased debt at December 31, 2007
compared to December 31, 2006
was due to borrowings related to the exercise of the accordion feature of the credit facility to increase the Company's liquidity.
Our $1.355
billion credit facility consists of a $955 million
term loan and a $400 million revolving loan, both with five year maturities. In 2005, the
Company entered into a fixed rate swap agreement ending on
March 13, 2008 which
fixes the interest rate on $250 million of our term notes. The weighted average interest
rate on the variable portion of our term loan at December 31, 2007
was 5.75%. At
December 31, 2007, our debt consisted of $230 million
in senior subordinated convertible notes due in 2034 and
a balance of $823.7
million on the term
loan. In addition, we had $4.8
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 $56.3
million of outstanding letters of credit at December 31, 2007,
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, 2007.
Capital
expenditures of $30.1 million, $32.2 million
and $24.8 million were incurred during 2007,
2006 and 2005,
respectively. In 2008,
we expect capital expenditures as a percentage of sales to
be comparable to 2007.
Description of Certain Indebtedness
Senior Secured Credit Facility
In
December 2004, we entered into a $1.055 billion senior secured credit facility which consisted
of a five-year $655 million term loan and a five-year $400 million revolving loan.
The credit agreement contained a $300 million term loan accordion which was exercised in December 2007,
thereby increasing the term
loan balance to $955 million and the credit facility to $1.355 billion.
Our
credit facility requires us to prepay the term loan and, in certain cases, reduce the commitments under the revolving loan, upon
the receipt of certain proceeds, including from certain asset sales, the incurrence of certain debt, and up to 75% of our excess
cash flows unless we meet a consolidated total leverage ratio test. We are also required to make quarterly principal payments on
the term loans.
The
facility contains various affirmative and negative covenants which, among other things, limit our ability to incur new debt,
prepay subordinated 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.
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 Companys 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 Companys 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 Companys 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, 2007
(dollars in thousands).
Payments Due in Fiscal Year | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total |
2008 |
2009 |
2010 |
2011 |
2012 |
Thereafter |
|||||||||||||||||
Long-term debt* | $ | 1,054,986 | $ | 329,491 | $ | 725,495 | $ | | $ | | $ | | $ | | |||||||||
Capital leases | 3,606 | 1,612 | 1,197 | 657 | 128 | 12 | | ||||||||||||||||
Operating leases | 108,115 | 27,426 | 21,873 | 16,884 | 11,989 | 7,929 | 22,014 | ||||||||||||||||
Total | $ | 1,166,707 | $ | 358,529 | $ | 748,565 | $ | 17,541 | $ | 12,117 | $ | 7,941 | $ | 22,014 | |||||||||
*Includes in 2008 $230 million of senior subordinated convertible notes which are recorded as a current liability, however, the Company does not expect note holders to exercise their conversion rights within the next 12 months.
Amounts Expiring in Fiscal Year | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total Amount Committed |
2008 |
2009 |
2010 |
2011 |
2012 |
Thereafter |
|||||||||||||||||
Standby letters of credit | |||||||||||||||||||||||
and bank guarantees | $ | 56,318 | $ | 25,474 | $ | 28,708 | $ | 653 | $ | 18 | $ | 1,465 | $ | | |||||||||
We
have excluded $23 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 to
the financial statements.
At
December 31, 2007,
the Company had outstanding surety bonds of $201.6
million.
At December 31, 2007 and 2006, 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 2008 (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
In
September 2006, the Financial Accounting Standards Board (FASB) issued
SFAS No. 157, "Fair Value Measurements," which clarifies the definition of fair value, establishes a framework for measuring
fair value and expands the disclosures on fair value measurements. SFAS No. 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 No. 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 Company is currently assessing the impact of SFAS No. 157 on its
consolidated financial position and results of operations.
In December 2007, the FASB issued
SFAS 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 No. 160). SFAS No. 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 parents equity. All changes in the parents 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 No. 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 No. 160 on its consolidated financial position and results of operations.
Information
About Forward Looking Statements
This
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 managements 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:
· |
difficulty making acquisitions and successfully integrating acquired businesses; |
· |
any unforeseen liabilities associated with future acquisitions; |
· |
limitations on our business imposed by our indebtedness; |
· |
unfavorable changes in foreign exchange rates; |
· |
difficulties associated with exports; |
· |
risks and costs associated with our international sales and operations; |
· |
increased directors and officers liability and other insurance costs; |
· |
risk of rising interest rates; |
· |
product liability and insurance risks; |
· |
increased warranty exposure; |
· |
future competition; |
· |
the cyclical nature of some of our markets; |
· |
reduction of business with large customers; |
· |
risks associated with government contracts; |
· |
changes in the supply of, or price for, parts and components; |
· |
environmental compliance costs and liabilities; |
· |
risks and costs associated with asbestos-related litigation; |
· |
potential write-offs of our substantial intangible assets; |
· |
our ability to successfully develop new products; |
· |
failure to protect our intellectual property; |
· |
economic disruptions caused by terrorist attacks, health crises or other unforeseen events; and |
· |
the factors discussed in Item 1A to this Annual Report under the heading Risk Factors. |
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We
are exposed to interest rate risks on our outstanding borrowings, and we are exposed 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, 2007,
we had a combination of fixed and floating rate borrowings. Our $1.355
billion senior credit facility contains $955
million in variable
rate term loans and
a $400 million variable rate revolver. To reduce the financial risk of future rate increases,
in 2005
the Company entered into a $250
million fixed rate swap agreement
expiring on March
13, 2008. At
December 31, 2007,
the weighted average interest rate was
5.75% on the variable portion of the term loans and 4.54%
on the portion of the term loans covered by the rate swap. Our
$230 million senior unsecured convertible notes have a fixed interest rate
of 3.75%.
At December 31, 2007, the prevailing
market rates were between 1.3%
and 2.1%
higher than the fixed rates on our debt instruments.
At
December 31, 2007,
Ropers outstanding variable-rate borrowings not covered
by the interest rate swap under the $1.355
billion credit facility were $573.7
million. An increase in interest rates of 1% would increase our
annualized interest costs by $5.7
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 28% of our total sales and 68% of these sales were by companies with a European functional currency. The U.S. dollar weakened against most currencies during 2007, which resulted in a 2% sales increase due to foreign currency exchange. The difference between 2007 operating results for these companies translated into U.S. dollars during 2007 and these operating results translated into U.S. dollars during 2006 was approximately 1%. If these currency exchange rates had been 10% different throughout 2007 compared to currency exchange rates actually experienced, the impact on our expected net earnings would have been approximately $6.1 million.
The changes in these currency exchange rates relative to the U.S. dollar during 2007 compared to currency exchange rates at December 31, 2006 resulted in an increase in net assets of $52.3 million that was reported as a component of comprehensive earnings, $34.8 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 prices also influence 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
The financial statements and supplementary data required by this item begin at page F-1.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
Consolidated Financial Statements: | Page | |||||||
Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP) | F-2 | |||||||
Consolidated Balance Sheets as of December 31, 2007 and 2006 | F-4 | |||||||
Consolidated Statements of Earnings for the Years ended December 31, 2007, 2006 and 2005 | F-5 | |||||||
Consolidated Statements of Stockholders' Equity and Comprehensive Earnings for the | ||||||||
Years ended December 31, 2007, 2006 and 2005 | F-6 | |||||||
Consolidated Statements of Cash Flows for the Years ended December 31, 2007, 2006 and 2005 | F-8 | |||||||
Notes to Consolidated Financial Statements | F-10 | |||||||
Supplementary Data: | ||||||||
Schedule II - Consolidated Valuation and Qualifying Accounts for the Years ended | ||||||||
December 31, 2007, 2006 and 2005 | S-1 |
Report of Independent Registered Public Accounting Firm
To the Shareholders of Roper Industries, Inc.:
In our opinion,
the consolidated financial statements, listed in the index appearing under Item 15(a)(1), present fairly, in all
material respects, the financial position of Roper Industries, Inc. and its subsidiaries at December 31, 2007 and
December 31, 2006, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2007 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, 2007, 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 Managements
Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on these financial statements, on the 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.
As discussed in Note 11 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in 2006.
A companys
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 companys 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 companys 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 Managements Report on
Internal Control Over Financial Reporting appearing under Item 9A, management has excluded JLT Mobile Computers,
Inc.; Black Diamond Advanced Technology, LLC; DJ Instruments; Dynamic Instruments, Inc.; and Roda Deaco Valve,
Ltd. from its assessment of internal control over financial reporting as of December 31, 2007, because they were
acquired by the Company in purchase business combinations during 2007. We have also excluded JLT Mobile
Computers, Inc.; Black Diamond Advanced Technology, LLC; DJ Instruments; Dynamic Instruments, Inc.; and Roda
Deaco Valve, Ltd. from our audit of internal control over financial reporting. JLT Mobile Computers, Inc.; Black
Diamond Advanced Technology, LLC; DJ Instruments; Dynamic Instruments, Inc.; and Roda Deaco Valve, Ltd. are
wholly-owned subsidiaries whose aggregate total assets and aggregate total revenues represent 4.1% and 1.7%,
respectively, of the related consolidated financial statement amounts as of and for the year ended December 31,
2007.
PricewaterhouseCoopers,
LLP
Atlanta, GA
February 29, 2008
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
December 31, 2007 and 2006
(in thousands, except per share data)
2007 |
2006 |
|||||||
---|---|---|---|---|---|---|---|---|
Assets | ||||||||
Cash and cash equivalents | $ | 308,768 | $ | 69,478 | ||||
Accounts receivable, net | 359,808 | 324,514 | ||||||
Inventories, net | 174,138 | 168,319 | ||||||
Deferred taxes | 27,800 | 17,908 | ||||||
Unbilled Receivable | 60,218 | 29,247 | ||||||
Other current assets | 20,405 | 18,029 | ||||||
Total current assets | 951,137 | 627,495 | ||||||
Property, plant and equipment, net | 107,513 | 107,003 | ||||||
Goodwill | 1,706,083 | 1,651,208 | ||||||
Other intangible assets, net | 613,505 | 544,136 | ||||||
Deferred taxes | 23,854 | 21,702 | ||||||
Other assets | 51,092 | 43,815 | ||||||
Total assets | $ | 3,453,184 | $ | 2,995,359 | ||||
Liabilities and Stockholders' Equity | ||||||||
Accounts payable | $ | 115,809 | $ | 96,139 | ||||
Accrued liabilities | 194,055 | 184,148 | ||||||
Income taxes payable | 24,121 | 5,896 | ||||||
Deferred taxes | 2,442 | 1,555 | ||||||
Current portion of long-term debt | 331,103 | 299,911 | ||||||
Total current liabilities | 667,530 | 587,649 | ||||||
Long-term debt, net of current portion | 727,489 | 726,881 | ||||||
Deferred taxes | 221,411 | 169,994 | ||||||
Other liabilities | 46,948 | 23,996 | ||||||
Total liabilities | 1,663,378 | 1,508,520 | ||||||
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; 160,000 shares authorized; | ||||||||
90,995 shares issued and 88,773 outstanding at December 31, 2007 and | ||||||||
90,035 shares issued and 87,779 outstanding at December 31, 2006. | 910 | 900 | ||||||
Additional paid-in capital | 757,318 | 717,751 | ||||||
Retained earnings | 944,886 | 721,899 | ||||||
Accumulated other comprehensive earnings | 108,732 | 68,666 | ||||||
Treasury stock 2,222 shares at December 31, 2007 and 2,256 shares at | ||||||||
December 31, 2006 | (22,040 | ) | (22,377 | ) | ||||
Total stockholders' equity | 1,789,806 | 1,486,839 | ||||||
Total liabilities and stockholders' equity | $ | 3,453,184 | $ | 2,995,359 | ||||
See accompanying notes to consolidated financial statements.
ROPER
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years
ended December 31, 2007, 2006 and 2005
(Dollar and share amounts in thousands, except per share data)
Years ended December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2007 |
2006 |
2005 |
|||||||||
Net sales | $ | 2,102,049 | $ | 1,700,734 | $ | 1,453,731 | |||||
Cost of sales | 1,043,654 | 839,409 | 727,324 | ||||||||
Gross profit | 1,058,395 | 861,325 | 726,407 | ||||||||
Selling, general and administrative expenses | 620,041 | 523,672 | 461,508 | ||||||||
Income from operations | 438,354 | 337,653 | 264,899 | ||||||||
Interest expense | 52,195 | 44,801 | 43,394 | ||||||||
Loss on extinguishment of debt | | | 3,932 | ||||||||
Other income (expense) | (2,502 | ) | 20 | 2,994 | |||||||
Earnings from continuing operations before income | |||||||||||
taxes | 383,657 | 292,872 | 220,567 | ||||||||
Income taxes | 133,624 | 99,548 | 67,392 | ||||||||
Net earnings | $ | 250,033 | $ | 193,324 | $ | 153,175 | |||||
Earnings per share: | |||||||||||
Basic | $ | 2.83 | $ | 2.23 | $ | 1.79 | |||||
Diluted | $ | 2.68 | $ | 2.13 | $ | 1.74 | |||||
Weighted average common shares outstanding: | |||||||||||
Basic | 88,390 | 86,842 | 85,498 | ||||||||
Diluted | 93,229 | 90,880 | 87,884 |
See accompanying notes to consolidated financial statements.
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE EARNINGS
Years ended December 31, 2007, 2006 and 2005
(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, 2004 | 42,416 | $ | 436 | $ | 650,917 | $ | (5,544 | ) | $ | 415,188 | $ | 76,249 | $ | (23,160 | ) | $ | 1,114,086 | $ | 121,112 | |||||||||||||
Net earnings | | | | | 153,175 | | | 153,175 | $ | 153,175 | ||||||||||||||||||||||
Stock option exercises | 505 | 5 | 13,688 | | | | | 13,693 | | |||||||||||||||||||||||
Treasury stock sold | 31 | | 906 | | | | 409 | 1,315 | | |||||||||||||||||||||||
Stock Split 2:1 | 42,829 | 440 | (440 | ) | | | | | | | ||||||||||||||||||||||
Currency translation adjustments, net of $1,869 tax | | | | | | (27,855 | ) | | (27,855 | ) | (27,855 | ) | ||||||||||||||||||||
Restricted Stock Grants | 145 | 2 | 13,905 | (9,584 | ) | | | | 4,323 | | ||||||||||||||||||||||
Issuance of stock for acquisition | 34 | | 2,249 | | | | | 2,249 | | |||||||||||||||||||||||
Stock option tax benefit | | | 4,225 | | | | | 4,225 | | |||||||||||||||||||||||
Unrealized gain on interest rate swap, net of | ||||||||||||||||||||||||||||||||
$1,797 tax | | | | | | 3,337 | | 3,337 | 3,337 | |||||||||||||||||||||||
Dividends declared ($0.215125 per share) | | | | | (18,760 | ) | | | (18,760 | ) | | |||||||||||||||||||||
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-FASB Statement No. 123-R | | | (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 FASB Statement 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 FASB Interpretation 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 | ||||||||||||||
See accompanying notes to consolidated financial statements.
ROPER
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2007, 2006 and 2005
(in
thousands)
Years ended December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2007 |
2006 |
2005 |
|||||||||
Cash flows from operating activities: | |||||||||||
Net earnings | $ | 250,033 | $ | 193,324 | $ | 153,175 | |||||
Adjustments to reconcile net earnings to cash flows | |||||||||||
from operating activities: | |||||||||||
Depreciation and amortization of property, plant and | |||||||||||
equipment | 31,805 | 29,939 | 28,413 | ||||||||
Amortization of intangible assets and deferred | |||||||||||
financing costs | 61,375 | 52,105 | 42,906 | ||||||||
Non-cash stock compensation | 20,688 | 15,415 | 4,323 | ||||||||
Changes in operating assets and liabilities, net of | |||||||||||
acquired businesses: | |||||||||||
Accounts receivable | (21,243 | ) | (34,580 | ) | (10,531 | ) | |||||
Inventories | (489 | ) | (14,442 | ) | 9,881 | ||||||
Unbilled Receivables | (30,971 | ) | (5,032 | ) | (3,877 | ) | |||||
Accounts payable and accrued liabilities | 14,219 | 32,943 | 11,240 | ||||||||
Income taxes payable | 23,840 | (4,506 | ) | 41,633 | |||||||
Other, net | (5,450 | ) | (2,628 | ) | 4,138 | ||||||
Cash provided by operating activities | 343,807 | 262,538 | 281,301 | ||||||||
Cash flows from investing activities: | |||||||||||
Acquisitions of businesses, net of cash acquired | (106,942 | ) | (352,125 | ) | (329,934 | ) | |||||
Capital expenditures | (30,107 | ) | (32,153 | ) | (24,762 | ) | |||||
Other, net | (5,339 | ) | (2,387 | ) | (1,174 | ) | |||||
Cash used in investing activities | (142,388 | ) | (386,665 | ) | (355,870 | ) | |||||
Cash flows from financing activities: | |||||||||||
Proceeds from notes payable and long-term debt, net | |||||||||||
of debt issuance costs | 93,100 | 158,413 | 40,598 | ||||||||
Principal payments on notes payable and long-term | |||||||||||
debt | (65,500 | ) | (32,750 | ) | (32,750 | ) | |||||
Cash dividends to stockholders | (22,954 | ) | (20,402 | ) | (18,151 | ) | |||||
Treasury stock sales | 1,763 | 1,567 | 1,099 | ||||||||
Stock award tax excess windfall benefit | 7,876 | 10,771 | | ||||||||
Proceeds from stock option exercises | 15,263 | 20,692 | 14,587 | ||||||||
Cash provided by financing activities | 29,548 | 138,291 | 5,383 | ||||||||
Effect of exchange rate changes on cash | 8,323 | 2,198 | (7,117 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | 239,290 | 16,362 | (76,303 | ) | |||||||
Cash and cash equivalents, beginning of year | 69,478 | 53,116 | 129,419 | ||||||||
Cash and cash equivalents, end of year | $ | 308,768 | $ | 69,478 | $ | 53,116 | |||||
Supplemental disclosures: | |||||||||||
Cash paid for: | |||||||||||
Interest | $ | 50,157 | $ | 43,721 | $ | 38,607 | |||||
Income taxes, net of refunds received | $ | 101,908 | $ | 93,284 | $ | 25,759 | |||||
Noncash investing activities: | |||||||||||
Net assets of businesses acquired: | |||||||||||
Fair value of assets, including goodwill | $ | 112,112 | $ | 408,571 | $ | 343,267 | |||||
Liabilities assumed | (5,170 | ) | (56,446 | ) | (11,084 | ) | |||||
Non-cash consideration | | | (2,249 | ) | |||||||
Cash paid, net of cash acquired | $ | 106,942 | $ | 352,125 | $ | 329,934 | |||||
See accompanying notes to consolidated financial statements.
ROPER
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended December 31, 2007, 2006 and 2005
(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 (RF) 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, security and other niche markets. |
Accounts Receivable - Accounts receivable were stated net of an allowance for doubtful accounts and sales allowances of $11.9 million and $9.0 million at December 31, 2007 and 2006, 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. |
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 $198 million of cash equivalents at December 31, 2007 and no cash equivalents at December 31, 2006. |
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 companys common stock. The effects of potential common stock were determined using the treasury stock method (in thousands). |
Years ended December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2007 |
2006 |
2005 |
|||||||||
Basic shares outstanding | 88,390 | 86,842 | 85,498 | ||||||||
Effect of potential common stock | |||||||||||
Common stock awards | 1,511 | 1,823 | 1,631 | ||||||||
Senior subordinated convertible notes | 3,328 | 2,215 | 755 | ||||||||
Diluted shares outstanding | 93,229 | 90,880 | 87,884 | ||||||||
As of and for the years ended December 31, 2007, 2006 and 2005, there were 29,000, 79,000, and 8,000 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 short-term debt at December 31, 2007 included $230 million of fixed-rate notes, the interest rate on which was 2.12% less than prevailing market rates which results in a valuation of approximately $225 million. Most of Roper's other borrowings at December 31, 2007 were at various interest rates that adjust relatively frequently under its $1.355 billion credit facility. The fair value for each of these borrowings at December 31, 2007 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 assets 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, 2007, 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 $122 million. Because of the availability of US foreign
tax credits, it is not practicable to determine the US federal income tax liability that would be payable if such
earnings were not reinvested indefinitely. |
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 (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 22 different business components with individual amounts ranging from zero to approximately $451 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 2007. |
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 $11.3 million and $9.4 million at December 31, 2007 and 2006, respectively. |
Recently Released Accounting
Pronouncements In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which clarifies the definition of fair value, establishes a framework for measuring fair value and expands the
disclosures on fair value measurements. SFAS No. 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 No. 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 Company is currently
assessing the impact of SFAS No. 157 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 $67.9 million, $58.6 million and $53.5 million for the years ended December 31, 2007, 2006 and 2005, 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 sellers 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 $135.5 million, $94.8 million and $90.0 million for
the years ended December 31, 2007, 2006 and 2005, respectively, using this method. Estimated losses on any
projects are recognized as soon as such losses become known. |
Stock-Based
Compensation Effective
January 1, 2006, Roper adopted the provisions of SFAS No. 123 (revised 2004), Share-Based Payment
(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
employees requisite service period (generally the vesting period of the award). |
(2) | Business Acquisitions |
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. The aggregate
purchase price of the acquisition was approximately $12 million. The allocation of the purchase price resulted
in approximately $6 million of identifiable intangible assets, and $6 million of goodwill. |
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). |
(3) | Inventories |
The components of inventories at December 31 were as follows (in thousands): |
2007 |
2006 |
|||||||
---|---|---|---|---|---|---|---|---|
Raw materials and supplies | $ | 113,327 | $ | 114,131 | ||||
Work in process | 28,503 | 27,617 | ||||||
Finished products | 60,698 | 53,919 | ||||||
Inventory reserves | (28,390 | ) | (27,348 | ) | ||||
$ | 174,138 | $ | 168,319 | |||||
(4) | Property, Plant and Equipment |
The components of property, plant and equipment at December 31 were as follows (in thousands): |
2007 |
2006 |
|||||||
---|---|---|---|---|---|---|---|---|
Land | $ | 2,936 | $ | 2,912 | ||||
Buildings | 52,795 | 47,488 | ||||||
Machinery, tooling and other equipment | 207,906 | 185,663 | ||||||
263,637 | 236,063 | |||||||
Accumulated depreciation and amortization | (156,124 | ) | (129,060 | ) | ||||
$ | 107,513 | $ | 107,003 | |||||
Depreciation expense was $31,805, $29,939 and $28,413 for the years ended December 31, 2007, 2006 and 2005, respectively. |
(5) | Goodwill |
Industrial Technology |
Energy Systems and Controls |
Scientific and Industrial Imaging |
RF Technology |
Total |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands) | |||||||||||||||||
Balances at December 31, 2005 | $ | 401,657 | $ | 160,996 | $ | 357,584 | $ | 433,475 | $ | 1,353,712 | |||||||
Goodwill acquired | | 201,260 | 33,340 | 31,691 | 266,291 | ||||||||||||
Currency translation adjustments | 16,529 | 3,100 | 1,522 | 254 | 21,405 | ||||||||||||
Reclassifications and other | 10,104 | (808 | ) | 1,330 | (826 | ) | 9,800 | ||||||||||
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 during the year ended December 31, 2007 was primarily attributable to the acquisitions of JLT, DJ Instruments, Roda Deaco, Dynamic Instruments and Black Diamond. The reclassifications and other are the result of final purchase price allocations from deferred tax accounting and final asset valuations, primarily related to Dynisco. |
(6) | Other intangible assets, net |
Cost |
Accum. amort. |
Net book value |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands) | |||||||||||
Assets subject to amortization: | |||||||||||
Customer related intangibles | $ | 414,524 | $ | (62,553 | ) | $ | 351,971 | ||||
Unpatented technology | 31,571 | (8,928 | ) | 22,643 | |||||||
Software | 56,465 | (17,869 | ) | 38,596 | |||||||
Patents and other protective rights | 26,709 | (13,205 | ) | 13,504 | |||||||
Backlog | 19,460 | (9,198 | ) | 10,262 | |||||||
Trade secrets | 4,114 | (2,621 | ) | 1,493 | |||||||
Assets not subject to amortization: | |||||||||||
Trade names | 105,667 | | 105,667 | ||||||||
Balances at December 31, 2006 | $ | 658,510 | $ | (114,374 | ) | $ | 544,136 | ||||
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 | ||||
Amortization expense of other intangible assets was $55,653, $46,756, and $35,713 during the years ended 2007, 2006 and 2005, respectively. Estimated amortization expense for the five years subsequent to 2007 is $53,346, $48,824, $46,390, $43,409 and $37,286 for 2008, 2009, 2010, 2011 and 2012, respectively. |
(7) | Accrued Liabilities |
Accrued liabilities at December 31 were as follows (in thousands): |
2007 |
2006 |
|||||||
---|---|---|---|---|---|---|---|---|
Wages and other compensation | $ | 63,365 | $ | 57,283 | ||||
Commissions | 14,081 | 11,440 | ||||||
Warranty | 8,486 | 7,632 | ||||||
Accrued dividend | 6,438 | 5,725 | ||||||
Deferred revenue | 32,638 | 31,286 | ||||||
Billings in excess of cost | 9,728 | 6,664 | ||||||
Customer deposits | 8,794 | 6,490 | ||||||
Interest | 6,299 | 6,250 | ||||||
Other | 44,226 | 51,378 | ||||||
$ | 194,055 | $ | 184,148 | |||||
(8) | Income Taxes |
The
Company adopted the provisions of FASB Interpretation (FIN) No. 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. As a result of the adoption of FIN 48, we 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. |
Balance, January 1, 2007 | $ | 19,628 | |||
Additions for tax positions of prior periods | 84 | ||||
Additions for tax positions of the current period | 2,876 | ||||
Reductions for tax positions of prior years for: | |||||
Settlements with taxing authorities during the period | | ||||
Lapse of applicable statute of limitations | (1,815 | ) | |||
Balance, December 31, 2007 | $ | 20,773 | |||
The
total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $10.2 million. Interest
and penalties related to unrecognized tax benefits are classified as a component of income tax expense and totaled $0.4 million in 2007. Accrued
interest and penalties were $1.7 million at January 31, 2007 and $2.1 million
at December 31, 2007. The Company does not believe it is reasonably possible that its unrecognized tax benefits
will significantly increase or decrease within twelve months
of the reporting date. 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 Companys federal income tax returns for 2004
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. |
2007 |
2006 |
2005 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
United States | $ | 253,841 | $ | 191,649 | $ | 132,680 | |||||
Other | 129,816 | 101,223 | 87,887 | ||||||||
$ | 383,657 | $ | 292,872 | $ | 220,567 | ||||||
Components of income tax expense for the years ended December 31, 2007, 2006 and 2005 were as follows (in thousands): |
2007 |
2006 |
2005 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Current: | |||||||||||
Federal | $ | 82,923 | $ | 53,937 | $ | (132 | ) | ||||
State | 6,940 | 4,896 | 3,959 | ||||||||
Foreign | 39,062 | 29,942 | 27,048 | ||||||||
Deferred: | |||||||||||
Federal | 4,343 | 11,506 | 36,268 | ||||||||
Foreign | 356 | (733 | ) | 249 | |||||||
$ | 133,624 | $ | 99,548 | $ | 67,392 | ||||||
Reconciliations between the statutory federal income tax rate and the effective income tax rate for the years ended December 31, 2007, 2006 and 2005 were as follows: |
2007 |
2006 |
2005 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Federal statutory rate | 35.00 | % | 35.00 | % | 35.00 | % | |||||
Extraterritorial income exclusion | | (1.04 | ) | (1.36 | ) | ||||||
Foreign Rate differential | (1.66 | ) | (0.97 | ) | (1.33 | ) | |||||
R&D tax credits | (0.44 | ) | (0.36 | ) | (1.20 | ) | |||||
State taxes, net of federal benefit | 1.93 | 1.67 | 1.79 | ||||||||
Section 965 Benefit | | | (3.00 | ) | |||||||
Other, net | | (0.31 | ) | 0.65 | |||||||
34.83 | % | 33.99 | % | 30.55 | % | ||||||
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. |
2007 |
2006 |
|||||||
---|---|---|---|---|---|---|---|---|
Deferred tax assets: | ||||||||
Reserves and accrued expenses | $ | 31,352 | $ | 18,903 | ||||
Inventories | 5,764 | 5,581 | ||||||
Net operating loss carryforwards | 3,930 | 5,295 | ||||||
Foreign tax credits | 7,862 | 7,948 | ||||||
R&D credits | 747 | 1,883 | ||||||
Plant and equipment | 1,999 | | ||||||
Total deferred tax assets | $ | 51,654 | $ | 39,610 | ||||
Deferred tax liabilities: | ||||||||
Reserves and accrued expenses | $ | 43,580 | $ | 26,337 | ||||
Amortizable intangible assets | 180,058 | 141,693 | ||||||
Plant and equipment | | 2,675 | ||||||
Other | 215 | 844 | ||||||
Total deferred tax liabilities | $ | 223,853 | $ | 171,549 | ||||
At December 31, 2007, Roper had
approximately $9.0 million of U.S. federal net operating loss carryforwards, which will expire in future years,
with the majority of the carryforwards expiring in 2025. 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. |
(9) | Long-Term Debt |
Total debt at December 31 consisted of the following (table amounts in thousands): |
2007 |
2006 |
|||||||
---|---|---|---|---|---|---|---|---|
Term Loan | $ | 823,745 | $ | 588,766 | ||||
Senior Subordinated Convertible Notes | 230,000 | 230,000 | ||||||
Other | 4,847 | 208,026 | ||||||
Total debt | 1,058,592 | 1,026,792 | ||||||
Less current portion | 331,103 | 299,911 | ||||||
Long-term debt | $ | 727,489 | $ | 726,881 | ||||
In December 2007, we exercised an
accordion feature under our current credit agreement. This allowed us to increase our term loan balance by $300
million, thereby increasing the total credit facility from $1.055 billion to $1.355 billion. |
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 Companys 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 holders
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. |
2008 | $ | 331,103 | |||
2009 | 726,692 | ||||
2010 | 657 | ||||
2011 | 128 | ||||
2012 | 12 | ||||
Thereafter | | ||||
$ | 1,058,592 | ||||
(10) | Retirement and Other Benefit Plans |
Roper
maintains four 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 $10.3 million, $9.9 million and $9.3
million for 2007, 2006 and 2005, respectively. |
(11) | Stock-Based Compensation |
The Roper Industries, Inc. 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 Companys
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 3,000,000, 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, 2007, 2,059,000 shares were available to grant. |
2005 |
|||||
---|---|---|---|---|---|
Net earnings, as reported (in thousands) | $ | 153,175 | |||
Add: Total additional stock based compensation | |||||
included in net income, net of tax | 2,810 | ||||
Deduct: Total additional stock based compensation | |||||
cost, net of tax | (10,729 | ) | |||
Net earnings, pro forma (in thousands) | 145,256 | ||||
Net earnings per share, as reported: | |||||
Basic | 1.79 | ||||
Diluted | 1.74 | ||||
Net earnings per share, pro forma: | |||||
Basic | 1.70 | ||||
Diluted | 1.65 |
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 $5.1 and $3.7 million of compensation
expense relating to outstanding options during 2007 and 2006, respectively, as a component of corporate general
and administrative expenses. |
2007 |
2006 |
2005 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Weighted average fair value ($) | 15.50 | 13.19 | 12.21 | ||||||||
Risk-free interest rate (%) | 4.69 | 4.67 | 3.92 | ||||||||
Average expected option life (years) | 5.02 | 4.51 | 5.96 | ||||||||
Expected volatility (%) | 23.08 | 28.24 | 35.51 | ||||||||
Expected dividend yield (%) | 0.50 | 0.54 | 0.68 |
The following table summarizes the Companys activities with respect to its stock option plans for the year ended December 31, 2007: |
Number of shares |
Weighted average exercise price per share |
Weighted average contractual term |
Aggregate intrinsic value |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding at January 1, 2007 | 3,964,000 | $ | 25.40 | |||||||||||
Granted | 556,000 | 54.05 | ||||||||||||
Exercised | (815,000 | ) | 20.22 | |||||||||||
Canceled | (49,000 | ) | 34.80 | |||||||||||
Outstanding at December 31, 2007 | 3,656,000 | 30.84 | 4.96 | $ | 115,944,000 | |||||||||
Exercisable at December 31, 2007 | 2,489,000 | $ | 23.92 | 4.54 | $ | 96,128,000 | ||||||||
The following table summarizes information for stock options outstanding at December 31, 2007: |
Outstanding options |
Exercisable options |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exercise price |
Number |
Average exercise price |
Average remaining life (years) |
Number |
Average exercise price |
||||||||||||
$3.97 - 20.00 | 808,000 | $ | 17.31 | 4.1 | 808,000 | $ | 17.31 | ||||||||||
20.01 - 30.00 | 1,050,000 | 21.93 | 4.8 | 1,044,000 | 21.93 | ||||||||||||
30.01 - 40.00 | 708,000 | 31.47 | 4.8 | 442,000 | 31.61 | ||||||||||||
40.01 - 50.00 | 518,000 | 43.59 | 5.3 | 172,000 | 43.61 | ||||||||||||
50.00 - 60.00 | 558,000 | 53.69 | 6.3 | 23,000 | 51.87 | ||||||||||||
60.00 - 70.81 | 14,000 | 64.19 | 6.8 | | | ||||||||||||
$3.97 - 70.81 | 3,656,000 | $ | 30.84 | 5.0 | 2,489,000 | $ | 23.92 | ||||||||||
At December 31, 2007, there was $9.1 million of total unrecognized compensation
expense related to nonvested shares granted to both employees and directors under the Companys share-based
payment plans. That cost is expected to be recognized over a weighted-average period of 1.9 years. The total intrinsic value of
options exercised in 2007 and 2006 was $29.8 million and $34.2 million, respectively. Cash received from option exercises under all plans in 2007
and 2006 was approximately $15.3 million and $20.7 million, respectively. |
Number of shares |
Weighted average fair value |
|||||||
---|---|---|---|---|---|---|---|---|
Nonvested at January 1, 2007 | 657,000 | $ | 38.18 | |||||
Granted | 240,000 | 52.63 | ||||||
Vested | (231,000 | ) | 38.80 | |||||
Forfeited | (3,000 | ) | 51.37 | |||||
Nonvested at December 31, 2007 | 663,000 | $ | 43.13 | |||||
At December 31, 2007, there was $14.3 million of total unrecognized compensation expense related to nonvested shares granted to
both employees and directors under the Companys share-based payment plans. That cost is expected to be
recognized over a weighted-average period of 1.6 years. There were 231,000 and 177,000 shares that vested during 2007 and
2006, respectively. Unrecognized compensation expense related to nonvested shares of restricted stock awards
is recorded as a reduction to additional paid-in capital in shareholders equity at December
31, 2007. |
(12) | Common Stock Transactions |
On
July 27, 2005, the Company declared a two-for-one split of its common stock. The split was effected in the form
of a 100% stock dividend paid on August 26, 2005 to shareholders of record at the end of business on August 12,
2005. All historical weighted average share and per share amounts and all references to stock compensation data
and market prices of the Companys common stock for all periods presented have been adjusted to reflect this
two-for-one stock split. |
(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 Companys 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. |
Balance at beginning of year |
Additions charged to costs and expenses |
Deductions |
Other |
Balance at end of year |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
$ | 7,632 | 7,358 | (6,991 | ) | 487 | $ | 8,486 |
At December 31, 2007 the Company had outstanding surety bonds of $201.6 million. |
(14) | Segment and Geographic Area Information |
In
2006, Roper consolidated the number of reporting segments from five to four, reflecting the continued
implementation of its market-focus strategy to capture value-creating opportunities around common customers,
market orientation, sales channels and common cost opportunities. Results from 2005 have been restated to
conform to the current segment presentation. Ropers four 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, machinery 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, security and access control, 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. |
Industrial Technology |
Energy Systems and Controls |
Scientific and Industrial Imaging |
RF Technology |
Corporate |
Total |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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 | ||||||||||||||
2005 | ||||||||||||||||||||
Net sales | $ | 496,060 | $ | 311,199 | $ | 249,898 | $ | 396,574 | $ | | $ | 1,453,731 | ||||||||
Operating profit | 104,975 | 80,662 | 47,889 | 58,546 | (27,173 | ) | 264,899 | |||||||||||||
Total assets: | ||||||||||||||||||||
Operating assets | 161,552 | 116,973 | 115,841 | 124,876 | 4,166 | 523,408 | ||||||||||||||
Intangible assets, net | 655,241 | 174,046 | 439,733 | 586,057 | | 1,855,077 | ||||||||||||||
Other | (22,457 | ) | 27,853 | 21,071 | (22,562 | ) | 12,648 | 16,553 | ||||||||||||
Total | 2,395,038 | |||||||||||||||||||
Capital expenditures | 8,038 | 6,027 | 3,212 | 7,385 | 100 | 24,762 | ||||||||||||||
Depreciation and other | ||||||||||||||||||||
amortization | 25,644 | 6,293 | 7,810 | 28,427 | 3,145 | 71,319 |
Summarized data for Roper's U.S. and foreign operations (principally in Canada, Europe and Japan) for 2007, 2006 and 2005, based upon the country of origin of the Roper entity making the sale, were as follows: |
United States |
Non-U.S. |
Corporate and eliminations |
Total |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands) | ||||||||||||||
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 | $ | 96,589 | $ | 27,371 | $ | 29,279 | $ | 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 | $ | 97,025 | $ | 24,627 | $ | 23,281 | $ | 144,933 | ||||||
2005 | ||||||||||||||
Sales to unaffiliated customers | $ | 1,088,744 | $ | 364,987 | $ | | $ | 1,453,731 | ||||||
Sales between geographic areas | 52,812 | 59,596 | (112,408 | ) | | |||||||||
Net sales | $ | 1,141,556 | $ | 424,583 | $ | (112,408 | ) | $ | 1,453,731 | |||||
Long-lived assets | $ | 91,895 | $ | 21,348 | $ | 22,052 | $ | 135,295 | ||||||
Export
sales from the United States during the years ended December 31, 2007, 2006 and 2005 were $359 million, $234
million and $232 million, respectively. In the year ended December 31, 2007, these exports were shipped primarily
to Europe (25%), Middle East (19%), Canada (13%), China (9%), Japan (7%), South America (6%), rest of Asia (14%),
and other (7%). |
Industrial Technology |
Energy Systems and Controls |
Scientific and Industrial Imaging |
RF Technology |
Total |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands) | |||||||||||||||||
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 | |||||||
2005 | |||||||||||||||||
Canada | $ | 31,003 | $ | 24,999 | $ | 6,286 | $ | 18,812 | $ | 81,100 | |||||||
Europe | 74,985 | 93,710 | 73,541 | 3,449 | 245,685 | ||||||||||||
Asia | 34,840 | 38,095 | 56,124 | 1,752 | 130,811 | ||||||||||||
Middle East | 3,610 | 23,002 | 974 | 1,399 | 28,985 | ||||||||||||
Rest of the world | 13,703 | 36,797 | 2,651 | 5,642 | 58,793 | ||||||||||||
Total | $ | 158,141 | $ | 216,603 | $ | 139,576 | $ | 31,054 | $ | 545,374 | |||||||
(15) | Concentration of Risk |
Financial instruments which
potentially subject the Company to credit risk consist primarily of cash, cash equivalents and trade receivables. |
(16) | Quarterly Financial Data (unaudited) |
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands, except per share data) | ||||||||||||||
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 | ||||||||||
2006 | ||||||||||||||
Net sales | $ | 382,723 | $ | 425,310 | $ | 427,217 | $ | 465,484 | ||||||
Gross profit | 192,397 | 214,883 | 218,250 | 235,795 | ||||||||||
Income from operations | 67,476 | 85,392 | 87,520 | 97,265 | ||||||||||
Net earnings | 37,686 | 48,093 | 50,814 | 56,731 | ||||||||||
Earnings from continuing operations before | ||||||||||||||
change in accounting principle per | ||||||||||||||
common share: | ||||||||||||||
Basic | 0.44 | 0.55 | 0.58 | 0.65 | ||||||||||
Diluted | 0.42 | 0.53 | 0.56 | 0.62 |
The sum of the four quarters may not agree with the total for the year due to rounding. |
(17) | Subsequent Event |
On February 20, 2008 we acquired the CBORD Group, Inc., (CBORD), a provider of card systems and integrated security solutions to higher education, healthcare and other markets in a transaction valued at $367 million. The results of CBORD will be reported in the RF Technology segment. |
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Schedule II Consolidated Valuation and Qualifying Accounts
Years ended December 31, 2007, 2006 and 2005
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: | |||||||||||||||||
2007 | $ | 9,003 | $ | 4,957 | $ | (2,429 | ) | $ | 376 | $ | 11,907 | ||||||
2006 | 8,625 | 1,259 | (1,539 | ) | 658 | 9,003 | |||||||||||
2005 | 7,838 | 2,605 | (2,443 | ) | 625 | 8,625 | |||||||||||
Reserve for inventory obsolescence: | |||||||||||||||||
2007 | $ | 27,348 | $ | 4,649 | $ | (5,402 | ) | $ | 1,795 | $ | 28,390 | ||||||
2006 | 25,420 | 5,220 | (5,366 | ) | 2,074 | 27,348 | |||||||||||
2005 | 25,603 | 4,590 | (4,926 | ) | 153 | 25,420 |
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
Managements
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, 2007. The
Companys internal control over financial reporting as of December 31, 2007 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 Companys internal
control over financial reporting as of December 31, 2007.
Management excluded JLT, DJ Instruments, Roda Deaco, Dynamic Instruments and Black Diamond from its assessment of internal control over financial reporting as of December 31, 2007, because they were acquired by the Company in purchase business combinations during 2007. JLT, DJ Instruments, Roda Deaco, Dynamic Instruments and Black Diamond are wholly-owned subsidiaries whose aggregate total assets and aggregate total revenues represent 4.1% and 1.7%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2007.
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, 2007.
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 Commissions 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 Companys internal control over financial reporting that occurred during the fourth quarter that has materially affected, or is reasonably likely to materially affect, the Companys 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 2007 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 various sections of the Roper Proxy Statement for the annual meeting of shareholders to be held on June 6, 2008, as summarized 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, 2007 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) | 3,656,000 | $ | 30.84 | 2,059,000 | |||||||
Equity Compensation Plans Not | |||||||||||
Approved by Shareholders | -- | -- | -- | ||||||||
Total | 3,656,000 | $ | 30.84 | 2,059,000 | |||||||
(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 Companys 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, 2007
and 2006
Consolidated
Statements of Earnings for the years
ended December 31, 2007, 2006
and 2005
Consolidated
Statements of Stockholders' Equity and Comprehensive Earnings for the years
ended December 31, 2007,
2006 and 2005
Consolidated
Statements of Cash Flows for the years ended December 31, 2007,
2006 and 2005
Notes
to Consolidated Financial Statements
(2) |
Consolidated Valuation and Qualifying Accounts for the years ended December 31, 2007, 2006 and 2005 |
(b) |
Exhibits |
Exhibit No. |
Description of Exhibit |
|
(a)3.1 |
Amended and Restated Certificate of Incorporation, including Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock. |
|
(b)3.2 |
Amended and Restated By-Laws. |
|
(c)3.3 |
Certificate of Amendment, amending Restated Certificate of Incorporation. |
|
(c)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)10.01 |
1991 Stock Option Plan, as amended. |
|
(j)10.02 |
1993 Stock Plan for Nonemployee Directors, as amended and restated. |
|
(k)10.03 |
Form of Amended and Restated Indemnification Agreement. |
|
(l)10.04 |
Employee Stock Purchase Plan. |
|
(m)10.05 |
2000 Stock Incentive Plan, as amended. |
|
(n)10.06 |
Non-Qualified Retirement Plan, as amended. |
|
(o)10.07 |
Brian D. Jellison Employment Agreement, dated as of November 6, 2001. |
|
(n)10.08 |
Timothy J. Winfrey offer letter dated May 20, 2002. |
|
(p)10.09 |
Credit Agreement among Roper Industries, Inc. and certain lenders, dated December 29, 2003 (schedule and exhibits to this agreement have been omitted and will be furnished supplementally upon request). |
|
(q)10.10 |
Amended and Restated Credit Agreement, dated as of December 29, 2003, as amended and restated as of December 13, 2004, among Roper Industries, Inc., as parent borrower, the foreign subsidiary borrowers of Roper Industries, Inc. referred to therein, the several lenders from time to time parties thereto, Bank of Tokyo-Mitsubishi Trust Company, KeyBank National Association and SunTrust Bank, as documentation agents, Wachovia Bank, National Association, as syndication agent, JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Securities, Inc. and Wachovia Capital Markets, LLC as joint bookrunners and joint lead arrangers. |
|
(r)10.11 |
Form of Executive Officer Restricted Stock Award Agreement. |
|
(r)10.12 |
Brian D. Jellison Restricted Stock Unit Award Agreement. |
|
(s)10.13 |
Offer letter for John Humphrey, dated March 31, 2006. |
|
(t)10.14 |
Roper Industries, Inc. 2006 Incentive Plan. |
|
(u)10.15 |
Amendment to the Roper Industries, Inc. Incentive Plan. |
|
(v)10.16 |
Form of Restricted Stock Agreement for Employee Directors. |
|
(v)10.17 |
Form of Restricted Stock Agreement for Non-Employee Directors. |
|
(v)10.18 |
Form of Restricted Stock Agreement for Employees. |
|
(v)10.19 |
Form of Incentive Stock Option Agreement. |
|
(v)10.20 |
Form of Non-Statutory Stock Option Agreement. |
|
(w)10.21 |
Director Compensation Plan. |
|
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 Officer, filed herewith. |
|
32.2 |
Section 1350 Certification of Chief Financial Officer, 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). |
|
|
(b) |
Incorporated herein by reference to Exhibit 3.2 to the Roper Industries, Inc. Quarterly Report on Form 10-Q filed September 13, 2000 (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 10.02 to the Roper Industries, Inc. Annual Report on Form 10-K filed January 21, 1998 (file no. 1-12273). |
|
|
(j) |
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). |
|
(k) |
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). |
(l) |
Incorporated herein by reference to Exhibit 10.04 to the Roper Industries, Inc. Quarterly Report on Form 10-Q filed June 12, 2000 (file no. 1-12273). |
|
(m) |
Incorporated herein by reference to Annex B to the Roper Industries, Inc. Definitive Proxy Statement dated February 7, 2003 (file no. 1-12273). |
|
(n) |
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). |
|
(o) |
Incorporated herein by reference to Exhibits 10.07 and 10.09 to the Roper Industries, Inc. Annual Report on Form 10-K filed January 22, 2002 (file no. 1-12273). |
|
(p) |
Incorporated herein by reference to Exhibit 10.11 to the Roper Industries, Inc. Annual Report on Form 10-K filed March 15, 2004 (file no. 1-12273). |
|
|
(q) |
Incorporated herein by reference to Exhibit 10.1 to the Roper Industries, Inc. Current Report on Form 8-K filed December 15, 2004 (file no. 1-12273). |
(r) |
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). |
|
(s) |
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) |
|
(t) |
Incorporated herein by reference to Annex B of the Roper Industries, Inc. Definitive Proxy Statement on Schedule 14A filed May 1, 2006 (file no. 1-12273) |
|
(u) |
Incorporated herein by reference to Exhibit 10.1 to the Roper Industries, Inc. Quarterly Report on Form 10-Q filed November 9, 2006 (file no. 1-12273) |
|
(v ) |
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). |
|
(w) |
Incorporated herein by reference to Exhibit 10.21 to the Roper Industries, Inc. Annual Report on Form 10-K filed March 1, 2007 (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. |
By:/s/ Brian D. Jellison | February 29, 2008 | ||||
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 indicated and as of the dates indicated. |
/s/ Brian D. Jellison | President, Chief Executive Officer and | February 29, 2008 | ||||||
Brian D. Jellison | Chairman of the Board of Directors | |||||||
(Principal Executive Officer) | ||||||||
/s/ John Humphrey | Vice President, Chief Financial Officer | February 29, 2008 | ||||||
John Humphrey | (Principal Financial Officer) | |||||||
/s/ Paul J. Soni | Vice President and Controller | February 29, 2008 | ||||||
Paul J. Soni | (Principal Accounting Officer) | |||||||
/s/ W. Lawrence Banks | Director | February 29, 2008 | ||||||
W. Lawrence Banks | ||||||||
/s/ David W. Devonshire | Director | February 29, 2008 | ||||||
David W. Devonshire | ||||||||
/s/ Donald G. Calder | Director | February 29, 2008 | ||||||
Donald G. Calder | ||||||||
/s/ John F. Fort, III | Director | February 29, 2008 | ||||||
John F. Fort, III | ||||||||
/s/ Robert D. Johnson | Director | February 29, 2008 | ||||||
Robert D. Johnson | ||||||||
/s/ Wilbur J. Prezzano | Director | February 29, 2008 | ||||||
Wilbur J. Prezzano | ||||||||
/s/ Richard F. Wallman | Director | February 29, 2008 | ||||||
Richard F. Wallman | ||||||||
/s/ Christopher Wright | Director | February 29, 2008 | ||||||
Christopher Wright |