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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number   1-12273

ROPER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

Delaware	51-0263969
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2160 Satellite Blvd., Suite 200 Duluth, Georgia	30097
(Address of principal executive offices)	(Zip Code)

(770) 495-5100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   X   No       

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes   X   No      

The number of shares outstanding of the Registrant’s common stock as of May 6, 2005 was approximately 42,601,382.

ROPER INDUSTRIES, INC.

REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Roper Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (unaudited)
(in thousands, except per share data)

        See accompanying notes to condensed consolidated financial statements.

Roper Industries, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands)

        See accompanying notes to condensed consolidated financial statements.

Roper Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)

        See accompanying notes to condensed consolidated financial statements.

Roper Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
(in thousands)

        See accompanying notes to condensed consolidated financial statements

Roper Industries, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2005

1. Basis of Presentation

The accompanying condensed consolidated financial statements for the three-month periods ended March 31, 2005 and 2004 are unaudited. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the financial position, results of operations and cash flows of Roper Industries, Inc. and its subsidiaries (“Roper” or “the Company”) for all periods presented.

Roper’s management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Actual results could differ from those estimates.

The results of operations for the three-month period ended March 31, 2005 are not necessarily indicative of the results to be expected for the full year. You should read these unaudited condensed consolidated financial statements in conjunction with Roper’s consolidated financial statements and the notes thereto included in its 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

2. Earnings Per Share

Basic earnings per share are calculated by dividing net earnings (there were no adjustments necessary to determine earnings available to common shares) by the weighted average number of common shares outstanding during the period. Diluted earnings per share included the dilutive effect of common stock equivalents outstanding during the period. Common stock equivalents consisted of stock options and restricted stock grants.

The FASB issued SFAS No. 148 – “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123” which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends certain disclosure requirements of Statement 123. Currently, Roper has chosen not to adopt the accounting provisions of SFAS 123; however, as permitted by SFAS 123, the Company continues to apply intrinsic value accounting for its stock option plans under Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.” Roper’s pro forma net earnings and pro forma earnings per share based upon the fair value at the grant dates for awards under the Company’s plans are disclosed below.

If the Company had elected to recognize compensation expense based upon the fair value at the grant dates for awards under these plans, the Company’s pro forma net income and income per share would have been approximately as presented below.

3. Comprehensive Earnings

Comprehensive earnings include net earnings and all other non-owner sources of changes in net assets. Comprehensive earnings (in thousands) for the three months ended March 31, 2005 and 2004 were $15,632 and $15,294, respectively. The differences between net earnings and comprehensive earnings were currency translation adjustments.

4. Acquisitions

On February 28, 2005, the Company acquired all the outstanding shares of Inovonics Wireless Corporation (“Inovonics”), a leading provider of 900 MHz radio frequency (RF) products for security applications. These operations of Inovonics are included in the RF Technology segment. The aggregate purchase price of the acquisition was approximately $45 million.

5. Inventories

6. Goodwill

7. Other intangible assets, net

Amortization expense of other intangible assets was $10,299 and $5,226 during the three months ended March 31, 2005 and 2004, respectively.

8. Contingencies

Roper, in the ordinary course of business, is the subject of, or a party to, various pending or threatened legal actions, including those pertaining to product liability and employment practices. It is vigorously contesting all lawsuits that, in general, are based upon claims of the kind that have been customary over the past several years. After analyzing the Company’s contingent liabilities on a gross basis and, based upon past experience with resolution of its product liability and employment practices claims and the limits of the primary, excess, and umbrella liability insurance coverages that are available with respect to pending claims, management believes that adequate provision has been made to cover any potential liability not covered by insurance, and that the ultimate liability, if any, arising from these actions should not have a material adverse effect on the consolidated financial position, results of operations or cash flows of Roper.

Over recent years there has been a significant increase in certain U.S. states in asbestos-related litigation claims against numerous industrial companies. Roper or its subsidiaries have been named defendants in some such cases. No significant resources have been required by Roper to respond to these cases and Roper believes it has valid defenses to such claims and, if required, intends to defend them vigorously. Given the state of these claims it is not possible to determine the potential liability, if any.

The Company’s financial statements include accruals for potential product liability and warranty claims based on the Company’s claims experience. Such costs are accrued at the time revenue is recognized. A summary of the Company’s warranty accrual activity for the three months ended March 31, 2005 is presented below (in thousands).

9. Industry Segments

Sales and operating profit by industry segment are set forth in the following table (dollars in thousands):

        * Operating profit is before unallocated corporate general and administrative expenses. Such expenses were $6,187 and $3,946 for the three months ended March 31, 2005 and 2004, respectively.

10. Recently Released Accounting Pronouncements

The EITF reached final consensus on EITF 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share,” which would require convertible debt with a market price contingency to be included in diluted EPS calculations. The consensus should be applied to reporting periods ending after December 15, 2004. During December 2004, management completed a consent solicitation to modify the conversion provisions on the company’s convertible notes with the effect that they will not be required to be included in diluted EPS calculations pursuant to EITF 04-8.

In November 2004, the FASB issued FAS 151, “Inventory Costs-An Amendment of ARB No. 43” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and material waste. The standard requires that abnormal amounts of these items be recognized as current period charges. FAS 151 is effective for fiscal years beginning after June 15, 2005. The implementation of this standard is not expected to have a material impact on the Company’s Financial Statements.

In December, 2004, the FASB issued FAS 123(R), “Share-Based Payment” (revised 2004) which was originally effective for interim or annual reporting periods beginning after June 15, 2005. The effective date for this standard has been delayed until annual reporting periods beginning after December 31, 2005. This standard requires unvested equity awards outstanding at the effective date to continue to be measured and charged to expense over the remaining requisite service (vesting) period as required by FAS 123. The Company will implement this standard effective January 1, 2006 and is currently evaluating the impact of this statement.

The FASB issued FSP 109-1 and 109-2 related to the American Jobs Creation Act of 2004. FSP 109-1 provides guidance related to the accounting for special tax deductions on “qualified production activities income” FSP 109-2 provides companies with additional time to complete assessment of repatriation plans related to the one time deduction on certain repatriated foreign earnings as provided in the American Jobs Creation Act of 2004. The FSPs were effective upon issuance on December 21, 2004. The Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85 percent dividend received deduction for certain dividends from controlled foreign corporations. The deduction is subject to a number of limitations and, as of today, uncertainty remains as how to interpret numerous provisions of the Act. As such, we are not yet in a position to decide on whether, and to what extent, we might repatriate foreign earnings that have not yet been remitted to the U. S. Based on our analysis to date, however, it is reasonably possible that we may repatriate some amount between $0 and $100 million. A repatriation of foreign earnings under the Act could result in the recognition of a tax benefit that could be as high as $4.0 million or could result in the recognition of additional tax expense that could be as high as $4.0 million. We expect to be in a position to finalize our assessment by August 31, 2005.

11. Senior Subordinated Convertible Notes

In December 2003, we issued through a public offering $230 million of 3.75% subordinated convertible notes due 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 6.211 shares of our common stock, 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 the right to deliver, in lieu of our common stock, cash or common stock or a combination of cash and common stock. On November 19, 2004, the Company began a consent solicitation to amend the notes such that the Company would pay the same conversion value upon conversion of the Notes, but would change how the conversion value is paid. In lieu of receiving exclusively shares of common stock or cash upon conversion, noteholders would receive cash up to the value of the accreted principal amount of the Notes converted and, at the Company’s option, any remainder of the conversion value would be paid in cash or shares of common stock. The consent solicitation was successfully completed on December 6, 2004 and the amended conversion provisions were adopted. Holders may require us to purchase all or a portion of their notes on January 15, 2009 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 pay the purchase price of such notes in cash and not in common stock. In addition, if we experience a change in control, each holder may require us to purchase for cash all or a portion of such holder’s notes at a price equal to the sum of the issue price plus accrued original issue discount for non-tax purposes, accrued cash interest, if any, and accrued contingent cash interest, if any, to the date of purchase.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with Management’s Discussion and Analysis of Financial Conditions and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2004 as filed with the Securities and Exchange Commission (“SEC”) and the notes to our Condensed Consolidated Financial Statements included elsewhere in this report.

Overview

Roper Industries, Inc. (“Roper”, “we” or “us”) is a diversified industrial company that designs, manufactures and distributes energy systems and controls, scientific and industrial imaging products and software, industrial technology products and instrumentation products and services. We market these products and services to selected segments of a broad range of markets including radio frequency (RF) applications, water and wastewater, oil and gas, research, power generation, general industry and fifteen 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, engineered products and solution and are capable of achieving growth and maintaining high margins. Our acquisitions have represented both financial bolt-ons and new strategic platforms. We strive for high cash and earnings returns from our acquisition investments. During the first three months of 2005, our results of operations benefited from the 2004 acquisitions of the Power Generation business of R/D Tech on June 7, 2004 and TransCore Holdings, Inc. (“TransCore”) effective December 13, 2004.

Application of Critical Accounting Policies

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). A discussion of our significant accounting policies can be found in the notes to our consolidated financial statements for the year ended December 31, 2004 included in our 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, recognizing revenues and issuing stock options to employees. 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.

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 discusses critical estimates with our external auditors and reviews all financial disclosures to be included in our 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 analysis. These issues, except for income taxes (which are not allocated to our business segments), affect each of our business segments. These issues are evaluated primarily using a combination of historical experience, current conditions and relatively short-term forecasting.

Accounts receivable collectibility is based on the economic circumstances of customers and credits given to customers after shipment of products, including in certain cases, credits for returned products. Accounts receivable are regularly reviewed to determine customers who have not paid within agreed upon terms, whether these amounts are consistent with past experiences, what historical experience has been with amounts deemed uncollectible and the impact that current and near-term forecast economic conditions might have on collection efforts in general and with specific customers. The returns and other sales credit histories are analyzed to determine likely future rates for such credits. At March 31, 2005, our allowance for doubtful accounts receivable, sales returns and sales credits was $7.9 million, or 3.1% of total gross accounts receivable of $253.5 million. The amount of the reserve as a percent of sales has remained consistent over the past year.

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 March 31, 2005, inventory reserves for excess and obsolete inventory were $26.1 million, or 15.9% of gross first-in, first-out inventory cost.

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 March 31, 2005, the accrual for future warranty obligations was $6.9 million or 0.5% of annualized first quarter sales.

Net sales recognized under the percentage-of-completion method of accounting are estimated and dependent on a comparison of total costs incurred to date to total estimated costs for a project. During the first quarter of 2005, we recognized $7.7 million of net sales using this method. In addition, approximately $73.7 million of net sales related to unfinished percentage-of-completion contracts had yet to be recognized at March 31, 2005. Net sales accounted for under this method are generally not significantly different in profitability compared with net sales for similar products and services 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. Our first quarter effective income tax rate was 32.5%, which is 200 basis points higher than the 30.5% rate experienced in the prior year first quarter. This increase is mainly attributed to the domestic orientation of our recent TransCore acquisition, which decreases the relative percentage of our business in lower tax jurisdictions.

The evaluation of the carrying value of goodwill and indefinite-lived intangibles is required to be performed annually. We perform this analysis during our fourth quarter.

Results of Operations

General

The following tables set forth selected information for the periods indicated. Dollar amounts are in thousands and percentages are the particular line item shown as a percentage of net sales. Percentages may not foot due to rounding.

Three months ended March 31, 2005 compared to three months ended March 31, 2004

Net sales for the quarter ended March 31, 2005 were $333.8 million as compared to $220.6 million in the prior-year quarter, a 51.3% increase. Approximately $97 million of this increase was due to acquisitions, primarily TransCore, which was acquired on December 13, 2004; however, most of our segments showed improvement over the prior year quarter resulting in internal sales growth of 7.3%.

In our Instrumentation segment, net sales were up $5.4 million or 11.0% as compared to the prior year quarter due to continued strong sales into petroleum and materials testing markets. The Company continues to sell desulphurization systems for pipeline applications, which is the natural progression in the supply chain after the installations of these systems made in refineries. We expect this trend to continue. Gross margins were 58.0% in the current quarter compared to 59.5% in the first quarter of 2004, driven primarily by higher sales on some of our lower margin products. We do not expect this product mix issue to continue in future quarters. SG&A expenses as a percentage of net sales decreased to 38.2% in the current quarter, compared to 40.4% in the prior year quarter due to the operating leverage from the higher sales levels. Overall, the segment reported operating profit margins of 19.8% as compared to 19.1% in the prior-year quarter.

In our Industrial Technology segment, net sales were up 10.1% to $102.5 million in the first quarter of 2005 as compared to $93.1 million in the first quarter of 2004 due to solid gains across virtually all operating units in this segment as well as solid progress on growth initiatives and operational improvements. Gross margins were higher at 43.8% for the first quarter of 2005 as compared to 40.3% in the first quarter of 2004. The increase was primarily due to the non-recurrence of inventory step-up costs at Neptune in the first quarter of 2004, which negatively impacted gross margins. SG&A expenses as a percentage of net sales were 23.0%, down from 23.4% in the prior year quarter due to operating leverage from higher sales. The resulting operating profit margins were 20.8% in the first quarter of 2005 as compared to 16.9% in the first quarter of 2004.

Net sales in our Energy Systems & Controls segment increased by 25.7% to $40.3 million during the first quarter of 2005 compared to $32.1 million in the first quarter of 2004 due to the acquisition of the power generation business of R/D Tech and internal growth. Gross margins decreased to 50.2% in the first quarter of 2005 compared to 54.9% in the first quarter of 2004 due to strong sales in the prior year quarter in the power generation inspection business from a very strong spring outage season. SG&A expenses as a percentage of net sales were down to 30.5% compared to prior year quarter at 40.0% due to the growing percentage of power generation business in the segment which carries a lower SG&A expense level. As a result, operating margins were 19.7% in the first quarter of 2005 as compared to 15.0% in first quarter of 2004.

Our Scientific & Industrial Imaging segment net sales decreased by 4.5%. We experienced growth in microscopy, spectroscopy and handheld applications, but these gains were offset by a decline in industrial camera sales. Gross margins improved from 54.2% in the first quarter of 2004 to 55.8% in the first quarter of 2005 due to a favorable mix of product sales. SG&A as a percentage of net sales was 40.4% in the first quarter of 2005 as compared to 39.1% in the first quarter of 2004. Overall, the segment reported operating profit margins of 15.4% as compared to 15.1% in the prior year quarter.

In our recently established RF Technology segment, net sales were $92.3 million which included sales from TransCore for the entire quarter and sales from Inovonics which contributed for one month. Gross margins were 44.6% which were depressed somewhat from purchase accounting inventory step-up charges. SG&A as a percentage of sales was 32.5%, with a resulting operating profit margin of 12.1%.

Corporate expenses were $6.2 million in the first quarter of 2005 as compared to $3.9 million in the first quarter of 2004. The increase over prior year was driven by significantly higher costs related to the completion of testing related to the Sarbanes-Oxley Act, higher professional service fees and higher variable compensation costs.

Interest expense of $10.4 million for the first quarter of 2005 was $3.5 million higher as compared to the first quarter of 2004. This increase is due to the higher debt levels associated with the TransCore acquisition completed in December 2004, and increasing interest rates on the variable rate portion of our outstanding debt.

Income taxes were 32.5% of pretax earnings in the current quarter as compared to 30.5% in the first quarter of 2004. This increase was expected as the Company has a lower percentage of its revenue in lower tax jurisdictions after the TransCore acquisition.

At March 31, 2005, the functional currencies of our European subsidiaries were slightly stronger against the U.S. dollar compared to currency exchange rates at March 31, 2004, but weaker against the dollar since December 31, 2004. The currency changes resulted in an decrease of $12.4 million in the foreign exchange component of comprehensive earnings for the quarter. Approximately $9.2 million of the total adjustment is related to goodwill and is not expected to directly affect our expected future cash flows. Operating results in the first quarter of 2005 benefited slightly from the weakening of the US dollar as compared to a year ago, primarily against the Euro. The difference between the operating results for these companies for the three months ended March 31, 2005, translated into U.S. dollars was less than 1%.

Net orders, booked from continuing operations, were $331.2 million for the quarter, 50.5% higher than the first quarter 2004 net order intake of $220.1 million. Approximately $89 million of the order increase was due to acquisitions, primarily TransCore, effective on December 13, 2004. We also experienced strong bookings in our Industrial Technology and Energy Systems and Controls segments. Overall, our order backlog at March 31, 2005 was up 126.6% as compared to March 31, 2004. The increase is primarily due to the TransCore acquisition which is reported in the RF Technology segment.

Financial Condition, Liquidity and Capital Resources

Net cash provided by operating activities was $38.6 million in the first quarter of 2005 as compared to $25.6 million in the first quarter of 2004, a 51.0% increase. This increase is primarily due to the higher income levels from the year-ago quarter. Cash used in investing activities during the current and prior year quarter related to business acquisitions. Cash used by financing activities during the current and prior year quarter resulted primarily from dividend and debt payments. $8.4 million of debt was repaid over the three months ended March 31, 2005 as compared with $25.8 million in the prior-year period. Principal payments of $8.2 million were made on the Company’s $655.0 million term loan in accordance with the terms of the credit facility.

Net working capital (total current assets, excluding cash, less total current liabilities, excluding debt) was $239.5 million at March 31, 2005 compared to $209.7 million at December 31, 2004, reflecting the decrease in certain accrued liabilities that existed at year end related to the TransCore acquisition and increases in working capital due to first quarter acquisitions. Total debt was $880.9 million at March 31, 2005 compared to $891.9 million at December 31, 2004. The leverage of the Company is shown in the following table:

Our debt consists of a $1.055 billion senior secured credit facility with a diverse group of participating financial institutions and banks, and $230 million of senior subordinated convertible notes. The credit facility consists of a $655 million amortizing term loan with a five year maturity and a $400 million revolving loan with a five year maturity. Our senior subordinated convertible notes are due in 2034. At March 31, 2005, our debt consisted of the $230 million in senior subordinated convertible notes and $646.8 million of term loans under the credit facility. The Company also had $54.0 million of outstanding letters of credit at March 31, 2005. We expect that our available additional borrowing capacity combined with the cash flows expected to be generated from existing business will be sufficient to fund normal operating requirements and finance some additional acquisitions. We also have 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. In total, these smaller facilities do not represent a significant source of credit for us.

The Company was in compliance with all debt covenants related to our credit facilities throughout the quarter ended March 31, 2005.

At March 31, 2005, 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.

Capital expenditures of $5.1 million and $2.5 million were incurred during the first quarters of 2005 and 2004 respectively. We expect capital expenditures for the balance of the year to be comparable to prior years as a percentage of sales.

Recently Issued Accounting Standards

The EITF reached final consensus on EITF 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share,” which would require convertible debt with a market price contingency to be included in diluted EPS calculations. The consensus should be applied to reporting periods ending after December 15, 2004. During December 2004, management completed a consent solicitation to modify the conversion provisions on the company’s convertible notes with the effect that they will not be required to be included in diluted EPS calculations pursuant to EITF 04-8.

In November 2004, the FASB issued FAS 151, “Inventory Costs-An Amendment of ARB No. 43” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and material waste. The standard requires that abnormal amounts of these items be recognized as current period charges. FAS 151 is effective for fiscal years beginning after June 15, 2005. The implementation of this standard is not expected to have a material impact on the Company’s Financial Statements.

In December, 2004, the FASB issued FAS 123(R), “Share-Based Payment” (revised 2004) which was originally effective for interim or annual reporting periods beginning after June 15, 2005. The effective date for this standard has been delayed until annual reporting periods beginning after December 31, 2005. This standard requires unvested equity awards outstanding at the effective date to continue to be measured and charged to expense over the remaining requisite service (vesting) period as required by FAS 123. The Company will implement this standard effective January 1, 2006 and is currently evaluating the impact of this statement.

The FASB issued FSP 109-1 and 109-2 related to the American Jobs Creation Act of 2004. FSP 109-1 provides guidance related to the accounting for special tax deductions on “qualified production activities income” FSP 109-2 provides companies with additional time to complete assessment of repatriation plans related to the one time deduction on certain repatriated foreign earnings as provided in the American Jobs Creation Act of 2004. The FSPs were effective upon issuance on December 21, 2004. The Company is currently evaluating the impact of the new FSPs.

Outlook

Current geopolitical uncertainties could adversely affect our business prospects. A significant terrorist attack or other global conflict could cause changes in world economies that would adversely affect us. It is impossible to isolate each of these factor’s effects on current economic conditions. It is also impossible to predict with any reasonable degree of certainty what or when any additional events may occur that also will similarly disrupt the economy.

We maintain an active acquisition program; however, future 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 business, financial condition and results of operations. Such acquisitions may be financed by the use of existing credit lines, future cash flows from operations, the proceeds from the issuance of new debt or equity securities or some combination of these methods.

We anticipate that our recently acquired companies as well as our other companies will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of currently outstanding debt at a pace consistent with that which has historically been experienced. However, the rate at which we can reduce our debt during 2005 (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; and none of these factors can be predicted with certainty.

Information About Forward Looking Statements

This report includes “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 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,” “should,” “will,” “plan,” “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, including with respect to the Neptune and TransCore acquisitions.

Forward-looking statements are estimates and projections reflecting our best judgment and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Examples of forward looking statements in this report include but are not limited to our expectations regarding our ability to generate operating cash flows and reduce debt and associated interest expense and our expectations regarding growth through acquisitions. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, timing and success of product upgrades and new product introductions, raw materials costs, expected pricing levels, the timing and cost of expected capital expenditures, expected outcomes of pending litigation, competitive conditions, general economic conditions and expected synergies relating to acquisitions, joint ventures and alliances. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include:

• our ability to integrate the TransCore acquisition businesses into our operations;
• 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;
• difficulty making acquisitions and successfully integrating acquired businesses;
• 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 technology;
• trade tariffs that may be applied due to the U.S. government’s delay in complying with certain WTO directives;
• terrorist attacks;
• future health crises; and
• the factors discussed in other reports filed with the SEC.

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 these statements in light of new information or future events.

ITEM 3. 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 March 31, 2005 we had a combination of fixed-rate borrowings (primarily our $230 million senior subordinated convertible notes and $350 million of our term loan with accompanying interest rate swaps) and variable rate borrowings under the $1.055 billion credit facility. Our $655 million 5-year term note under this credit facility was variable at a spread over LIBOR. Any borrowings under the $400 million revolving credit facility have a fixed rate, but the terms of these individual borrowings are generally only one to three months. To reduce the financial risk of future rate increases, the Company entered into fixed rate swap agreements, including a $100 million agreement expiring January 6, 2006, and a $250 million agreement expiring March 13, 2008. At March 31, 2005, there was no material difference between prevailing market rates and the fixed rate on our debt instruments.

At March 31, 2005, Roper’s outstanding variable-rate borrowings under the $1.055 billion credit facility were $300.9 million. An increase in interest rates of 1% would increase our annualized interest costs by approximately $3.0 million.

Several Roper companies have transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in Euros, British pounds, Danish krone or Japanese yen. Sales by companies whose functional currency was not the U.S. dollar were 25.8% of our total first quarter sales and 79.8% of these sales were by companies with a European functional currency. The U.S. dollar strengthened against these European currencies during the first quarter of 2005 versus December 2004 and was relatively stable compared to other currencies. The difference between the current quarter operating results for these companies translated into U.S. dollars at exchange rates experienced during first-quarter 2005 versus exchange rates experienced during first-quarter 2004 was not material and resulted in increased operating profits of less than 1%. If these currency exchange rates had been 10% different throughout the first quarter of 2005 compared to currency exchange rates actually experienced, the impact on our expected net earnings would have been approximately $0.9 million.

The changes in these currency exchange rates relative to the U.S. dollar during the first quarter of 2005 compared to currency exchange rates at December 31, 2004 resulted in a decrease in net assets of $12.4 million that was reported as a component of comprehensive earnings, $9.2 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 option grants and the effects these grants have on pro forma earnings disclosed in our financial statements. The stock price also influences the computation of the dilutive effect of outstanding stock options 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 4. CONTROLS AND PROCEDURES

As required by Securities and Exchange Commission 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 quarterly 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, these officers have concluded that the design and operation of our disclosure controls and procedures are effective. There were no changes to our internal controls during the period covered by this quarterly report that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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 Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Part II. OTHER INFORMATION

Item 6. Exhibits

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Roper Industries, Inc.

EXHIBIT INDEX TO REPORT ON FORM 10-Q