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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1999
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-12273
ROPER INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 51-0263969
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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160 Ben Burton Road
Bogart, Georgia 30622
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 369-7170
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class On Which Registered
------------------- ---------------------
Common Stock, $.01 Par Value New York Stock Exchange
Preferred Stock Purchase Rights
with respect to Common Stock, $.01 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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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 ((S) 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock, as of
December 31, 1999: $1,147,060,111
Number of shares of Registrant's Common Stock outstanding as of December 31,
1999: 30,335,474
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be furnished to Shareholders
in connection with its Annual Meeting of Shareholders to be held on March 17,
2000, are incorporated by reference into Part III
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PART I
ITEM 1. BUSINESS
Roper Industries, Inc. ("Roper") designs, manufactures and distributes specialty
industrial controls, fluid handling and analytical instrumentation products
worldwide, serving selected segments of a broad range of markets such as oil &
gas, scientific research, medical diagnostics, semiconductor, microscopy,
chemical and petrochemical processing, large diesel engine and
turbine/compressor control applications, bulk-liquid trucking, power generation,
and agricultural irrigation industries.
Roper pursues consistent and sustainable growth in sales and earnings by
operating and acquiring businesses that manufacture and sell high value-added,
highly engineered industrial products that are capable of achieving and
maintaining high margins. This strategy continually emphasizes (i) increasing
market share and market expansion, (ii) new product development, (iii) improving
productivity and reducing costs and (iv) acquisition of similar businesses. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - - Year Ended October 31, 1999 Compared to Year Ended October 31,
1998 and - - Year Ended October 31, 1998 Compared to Year Ended October 31,
1997."
Market Share, Market Expansion and Product Development. Roper competes in many
narrowly defined niche markets. Its position in these markets is typically as
the market leader or as a competitive alternate to the market leader. In those
markets where Roper is regionally dominant it seeks to sustain growth through
geographic expansion of its marketing efforts and the development of new
products for associated markets.
Roper expanded its markets in fiscal 1999 principally by new business
acquisitions. In June 1999 it acquired the three units comprising the
instruments division of Varlen Corporation, and has integrated their management
and sales distribution with that of Roper's ISL unit. These businesses now
operate as Petroleum Analyzer Company ("Petroleum Analyzer") which manufactures
and markets petroleum properties test equipment. Subsequent to the end of the
fiscal year, Roper acquired in November 1999 the Motion Analysis Systems
Division of Eastman Kodak Company, now named Roper Scientific MASD, Inc.
("MASD"), and Redlake Imaging Corporation ("Redlake Imaging"). MASD and Redlake
Imaging manufacture and market high-speed and high-resolution digital video
equipment.
The fiscal 1999 Petroleum Analyzer acquisitions represented an investment of $36
million in cash. The MASD and Redlake Imaging acquisitions represented a
combined investment of approximately $60 million in cash. These acquisitions
have been financed principally from borrowings. Roper's debt under its primary
credit facility was $109 million at October 31, 1999 ($158 million after the
additional borrowings to purchase MASD) and $119 million at October 31, 1998.
Total debt was 36% (44% after the MASD borrowings) and 39% of total
capitalization at October 31, 1999 and 1998, respectively. Roper believes it is
well positioned for additional acquisitions.
1
International Sales. Sales outside the United States continue to play an
important part in Roper's overall operating results, including U.S.-based
businesses. In fiscal 1999, 1998 and 1997, Roper's net sales outside the U.S.
were 51%, 50% and 46%, respectively, of total net sales. Information regarding
international operations is set forth in Note 13 of the Notes to Consolidated
Financial Statements included elsewhere in this Annual Report on Form 10-K
("Annual Report").
Research and Development. Roper conducts applied research and development to
improve the quality and performance of its products, to develop new products and
to enter new markets. Research and development performed by Roper often
includes extensive field testing of its products. Roper expensed $16.7 million,
$18.0 million and $14.2 million in the years ended October 31, 1999, 1998 and
1997, respectively, on research and development activities.
INDUSTRIAL CONTROLS SEGMENT
The Industrial Controls segment's products are manufactured and distributed by
Amot Controls Corporation, Richmond, California ("Amot U.S."), and its U.K.
affiliated division, Roper Industries Limited, Bury St. Edmunds, England ("Amot
U.K."), which are collectively referred to as "Amot", Compressor Controls
Corporation, Des Moines, Iowa ("Compressor Controls"), Metrix Instrument Co.,
L.P., having divisions located in Houston, Texas and Natick, Massachusetts
("Metrix") and Petrotech, Inc., Belle Chasse, Louisiana ("Petrotech").
Selected financial information for the Industrial Controls segment is set forth
in Note 13 of the Notes to the Consolidated Financial Statements included
elsewhere in this Annual Report. This segment's principal sales and services
consist of: (i) rotating machinery control systems and panels (ii) industrial
valve, control and measurement products, (iii) vibration instrumentation and
(iv) design, build, construct and install services.
Rotating Machinery Control Systems and Panels. Roper manufactures control
systems and panels engineered for applications involving compressors, turbines,
and engines in the oil & gas, pipeline, power generation and marine industries.
Industrial Valve, Control and Measurement Products. Roper manufactures a
variety of valve, sensor, switch and control products used on engines,
compressors, turbines and other powered equipment for the oil & gas, pipeline,
power generation, marine and general industrial markets. Most of these products
are designed for use in hazardous, explosive environments.
Vibration Instrumentation. Roper manufactures industrial vibration sensors,
switches and transmitters for use in the broad industrial controls market.
Their applications typically involve turbomachinery, engines, compressors, fans
and/or pumps.
Design, Build, Construct and Install Services. Roper provides specialized
technical services to the product markets described above and thus offers
turnkey solution capability to its customers. Services offered include
engineering design, procurement, packaging and site installation. Those classes
of products within the Industrial Controls segment that accounted for at least
10% of
2
Roper's consolidated net sales in any of the periods presented below were as
follows (in thousands):
Year ended October 31,
-------------------------
1999 1998 1997
------- ------- -------
Rotating machinery control systems and panels $78,979 $93,540 $59,078
Industrial valve, control and measurement products 25,123 32,298 34,827
The following chart shows the breakdown of sales by market for fiscal 1999 for
the Industrial Controls segment:
Power Generation 10%
Oil & Gas - Pipeline 39%
General Industry 6%
Oil & Gas Production
and Processing 40%
Marine 5%
Backlog. The bulk of this segment's business consists of large engineered oil &
gas development and transmission projects with lead times of three-to-nine
months. Standard products generally ship within two weeks of receipt of order,
while shipment of orders for specialty products varies according to the
complexity of the product and availability of the required components. Roper
enters into blanket purchase orders for the manufacture of products for certain
OEMs and end-users over periods of time specified by such customers. The
segment's backlog of firm unfilled orders, including blanket purchase orders,
totaled $29.3 million at October 31, 1999 compared to $39.0 million as of
October 31, 1998. The principle reason for this decrease was softness in the
segment's oil & gas markets.
Distribution and Sales. Distribution and sales occur through direct sales
offices, manufacturer's representatives and industrial machinery distributors.
Customers. Each of Roper's business units sells to a variety of customers
worldwide. RAO Gazprom ("Gazprom"), a large Russian natural gas company, was
the biggest single customer in this segment for the year, contributing
approximately 22% of segment sales in fiscal 1999, and has
3
indicated its interest to continue purchases of control systems for several
years. However, continuation of this business at expected levels will continue
to be subject to numerous commercial and political risks beyond Roper's control
and cannot be assured. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Forward Looking Information".
FLUID HANDLING SEGMENT
The Fluid Handling segment's products are manufactured and distributed by
Cornell Pump Manufacturing Corporation, Portland, Oregon ("Cornell Pump"), Fluid
Metering, Inc., Syosset, New York ("Fluid Metering"), FTI Flow Technology, Inc.,
Phoenix, Arizona ("Flow Technology"), Integrated Designs L.P., Carrollton, Texas
("Integrated Designs") and Roper Pump Company, Commerce, Georgia ("Roper Pump").
Selected financial information for the Fluid Handling segment is set forth in
Note 13 of the Notes to Consolidated Financial Statements included elsewhere in
this Annual Report. This segment's principal products consist of (i) general
industrial pumps, (ii) integrated dispense systems and (iii) flow metering
products.
General Industrial Pumps. Roper manufactures a variety of general industrial
pumps including (i) rotary gear pumps which operate on the principle of two
gears intermeshing and are primarily used for pumping particle-free viscous
liquids such as oil and certain fluid products, and specialty rotary gear pumps
such as lubricating oil pumps for diesel engines and fuel distribution devices,
(ii) progressing cavity pumps whose pumping elements consist of a steel rotor
within an elastomeric stator and which are used primarily for handling viscous
liquids with suspended solids and abrasive material and is the basis for Roper's
"mud motor" used in the oil & gas industry for directional drilling, (iii)
centrifugal pumps which are used for pumping water and other low-viscosity
liquids in agricultural, industrial and municipal applications and (iv) piston-
type metering pumps able to handle most types of chemicals and fluids within
low-flow applications and used principally in the medical diagnostics, chemical
processing, food processing and agricultural industries.
Integrated Dispense Systems. Roper's microprocessor-based integrated dispense
systems are used principally in the semiconductor industry to dispense chemicals
in a precise and repeatable fashion during the wafer fabrication process. These
highly reliable dispense units incorporate no mechanical displacement, but
utilize the application of electronically regulated vacuum pressure.
Flow Metering Products. Roper manufactures turbine flow meters, emissions
measurement equipment and flow meter calibration for the aerospace, automotive
and other industrial applications.
4
Those classes of products within the Fluid Handling segment that accounted for
at least 10% of Roper's consolidated net sales in any of the periods presented
below were as follows (in thousands):
Year ended October 31,
-----------------------------
1999 1998 1997
-------- -------- --------
General industrial pumps $ 76,193 $ 72,095 $ 71,918
The following chart shows the breakdown of Fluid Handling segment sales by
market for fiscal 1999:
Semiconductor Equipment 12%
General Industry and Other 40%
Transportation 4%
Aerospace 3%
Irrigation 7%
Food Processing 8%
Oil & Gas 7%
Power Generation 9%
Medical 10%
Backlog. The Fluid Handling companies' sales also reflect a combination of
standard products and specifically engineered, application-specific products.
Standard products are typically shipped within two weeks of receipt of order.
Application-specific products typically ship within six-to-twelve weeks
following receipt of order, although certain blanket purchase orders for certain
OEMs and other end-users may extend for longer periods. This segment's backlog
of firm unfilled orders, including blanket purchase orders, totaled $14.4
million at October 31, 1999 compared to $12.7 million as of October 31, 1998.
Most of the increase in backlog was attributed to the semiconductor equipment
business where backlog was up over 500% compared to depressed conditions that
existed last year.
Distribution and Sales. Distribution and sales occur through direct sales
personnel, manufacturer's representatives and stocking and non-stocking
distributors.
5
Customers. Several of the Fluid Handling segment's companies have sales to one
or a few customers that represent a significant portion of that company's sales
and the relative importance of such a concentrated customer base for these
companies is expected to continue. In particular, two customers of Integrated
Designs contributed approximately 55% of its fiscal 1999 net sales. However, no
customer was responsible for as much as 10% of the segment's net sales.
ANALYTICAL INSTRUMENTATION SEGMENT
The Analytical Instrumentation segment's products are manufactured and
distributed by Gatan, Inc. ("Gatan"), having principal operations in Pleasanton,
CA and Warrendale PA, Molecular Imaging Corporation ("Molecular Imaging"),
Tempe, AZ, Petroleum Analyzer, having principal operations in Houston and San
Antonio, TX, Verson, France and Lauda, Germany, Redlake Imaging, Morgan Hill,
CA, Roper Scientific, Inc. ("Roper Scientific"), having principal operations in
Tucson, AZ, Trenton, NJ and Acton, MA, MASD, San Diego, CA and Uson L.P.
("Uson"), Houston, TX.
Selected financial information for the Analytical Instrumentation segment is set
forth in Note 13 of the Notes to Consolidated Financial Statements included
elsewhere in this Annual Report. This segment's principal products consist of
(i) digital imaging products, (ii) industrial testing and analysis products,
(iii) microscopy specimen preparation/handling products and (iv) spectroscopy
products.
Digital Imaging Products. Roper manufactures and sells extremely sensitive,
high-performance charge-coupled device ("CCD") cameras and detectors for a
variety of scientific uses, which use high resolution and/or high speed digital
video, including transmission electron microscopy and spectroscopy applications.
These products are principally sold for use within academic, government
research, semiconductor, automotive, ballistic and biological and material
science end-user markets. They are frequently incorporated into original
equipment manufacturers' ("OEM") products.
Industrial Testing and Analysis Products. Roper manufactures and sells (i)
automated and manual test equipment to determine certain characteristics of
petroleum products, such as flash point, viscosity, freeze point and
distillation and (ii) products and systems to determine leaks and completeness
of assemblies and sub-assemblies in the automotive, medical and consumer
products industries.
Microscopy Specimen Preparation/Handling Products. Roper manufactures and sells
specimen preparation and handling equipment for use with electron microscopes.
The handling products are incorporated into OEM equipment and also sold as a
retrofit for microscopes currently in use within the academic, government
research, electronics, biological and material science end-user markets.
Spectroscopy Products. Roper manufactures and sells spectrometers,
monochrometers and optical components and coatings for various high-end
analytical applications. These products are often incorporated into OEM
equipment for use within the research and material science end-user markets.
6
The class of products within the Analytical Instrumentation segment that
accounted for at least 10% of Roper's consolidated net sales in any of the
periods presented below were as follows (in thousands):
Year ended October 31,
----------------------------
1999 1998 1997
-------- -------- --------
Digital imaging products $ 89,739 $ 65,576 $ 37,181
The following chart shows the breakdown of Analytical Instrumentation segment
sales by market for fiscal 1999:
General Industry and Other 8%
Medical 7%
Oil & Gas 18%
Automotive 9%
Research 53%
Semiconductor 5%
Backlog. The Analytical Instrumentation companies have lead times of up to
several months on many of their product sales, although standard products are
often shipped within four 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 segment's backlog of firm
unfilled orders, including blanket purchase orders, totaled $30.0 million at
October 31, 1999 compared to $28.9 million as of October 31, 1998. This year-
over-year increase mostly attributed to the fiscal 1999 acquisition of the
Varlen Instruments companies.
Distribution and Sales. Distribution and sales are achieved through a
combination of manufacturer representatives, agents, distributors and direct
sales offices in both the U.S. and various leading industrial nations.
Customers. Each of the companies in the Analytical Instrumentation segment
sells to a variety of customers worldwide, with certain major OEMs in the
automotive, medical diagnostics and microscopy industries having operations
globally. In particular, the two major OEM customers of
7
Gatan contributed approximately 47% of its fiscal 1999 net sales. However, no
customer accounted for as much as 10% of the segment's sales.
MATERIALS AND SUPPLIERS
Most materials and supplies used by Roper are believed to be readily available
from numerous sources and suppliers throughout the world which are believed
adequate for their needs. Some high-performance components for digital imaging
products can be in short supply and Roper continuously investigates and
identifies alternative sources where possible. Roper believes this condition
equally affects its competitors and, thus far, it has not had a significant
adverse effect on sales.
ENVIRONMENTAL MATTERS AND OTHER GOVERNMENTAL REGULATION
Roper is subject to environmental laws and regulations concerning emissions to
the air, discharges to waterways and the generation, handling, storage,
transportation, treatment and disposal of waste materials. These laws and
regulations are constantly changing and it is impossible to predict with
accuracy the effect they may have on Roper in the future. It is Roper's policy
to comply with all applicable environmental, health and safety laws and
regulations.
Roper is subject to various U.S. federal, state and local laws and foreign laws
affecting its businesses, as well as a variety of regulations relating to such
matters as working conditions and product safety. A variety of state laws
regulate Roper's contractual relationships with its distributors and
manufacturer representatives, some of which impose substantive standards on
these relationships.
COMPETITION
Roper has significant competition from a limited number of companies in each of
its markets. No single competitor competes with Roper over a significant number
of product lines. Roper's products compete primarily on the basis of
performance, innovation and price.
PATENTS AND TRADEMARKS
Roper owns the rights under a number of patents and trademarks relating to
certain of its products and businesses. While it believes that none of its
companies is substantially dependent on any single, or group, of patents,
trademarks or other items of intellectual property rights, the product
development and market activities of Compressor Controls, Gatan, Integrated
Designs, MASD and Roper Scientific, in particular, have been planned and
conducted in conjunction with important and continuing patent strategies.
Compressor Controls has been granted a series of U.S. and associated foreign
patents and a significant portion of its fiscal 1999 sales of Compressor
Controls-manufactured products was of equipment which incorporated innovations
that are the subject of several such patents which will not begin to expire
until 2004. Integrated Designs was granted a U.S. patent in 1994 related to
methods and apparatus claims embodied in its integrated dispense
8
systems which accounted for the majority of its fiscal 1999 sales. The U.S.
patent will expire in 2011.
EMPLOYEES
As of October 31, 1999, Roper had approximately 2,200 total employees, of whom
approximately 1,800 were located in the United States.
ITEM 2. PROPERTIES
Roper's corporate offices, consisting of 9,500 square feet of leased space, are
located in Bogart, Georgia, which is adjacent to Athens, Georgia. Roper has
established sales and service locations around the world to support its
operating units. The principal operating company properties are on the table
that follows.
Roper considers each facility to be in good operating condition and adequate for
its present use and believes that it has sufficient plant capacity to meet its
current and anticipated operating requirements.
Square footage
----------------------
Location Property Owned Leased Industry segment
- ------------------------ ------------- ------- ------- --------------------------
Phoenix, AZ Office / Mfg. - 45,900 Fluid Handling
Tucson, AZ Office / Mfg. - 37,300 Analytical Instrumentation
Morgan Hill, CA Office / Mfg. - 10,500 Analytical Instrumentation
Pleasanton, CA Office - 19,400 Analytical Instrumentation
Richmond, CA Office / Mfg. 66,000 - Industrial Controls
San Diego, CA Office / Mfg. - 48,000 Analytical Instrumentation
Verson, France Office / Mfg. - 22,500 Analytical Instrumentation
Commerce, GA Office / Mfg. 189,000 - Fluid Handling
Lauda, Germany Office / Mfg. 24,000 Analytical Instrumentation
Des Moines, IA Office / Mfg. - 75,200 Industrial Controls
Belle Chasse, LA Office / Mfg. - 66,400 Industrial Controls
Acton, MA Office / Mfg. - 32,700 Analytical Instrumentation
Trenton, NJ Office / Mfg. 40,000 - Analytical Instrumentation
Syosset, NY Office / Mfg. - 27,500 Fluid Handling
Portland, OR Office / Mfg. - 128,000 Fluid Handling
Warrendale, PA Mfg. - 22,800 Analytical Instrumentation
Carrollton, TX Office / Mfg. - 22,000 Fluid Handling
Houston, TX Office / Mfg. 12,600 - Industrial Controls
Houston, TX Office 10,500 Analytical Instrumentation
Houston, TX Office / Mfg. - 17,800 Analytical Instrumentation
San Antonio, TX Office / Mfg. 37,900 Analytical Instrumentation
Bury St. Edmunds, U.K. Office / Mfg. 90,000 - Industrial Controls
9
ITEM 3. LEGAL PROCEEDINGS
Roper is a defendant in various lawsuits involving product liability and other
matters, none of which Roper believes, if adversely determined, would have a
material adverse effect on its consolidated financial position or results of
operations. The majority of such claims are the subject of insurance coverage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matter was submitted to a vote of Roper's security-holders during the fourth
quarter of fiscal 1999.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Roper's single class of common stock issued and outstanding trades on the New
York Stock Exchange ("NYSE") under the symbol "ROP". Following is the range of
high and low sales prices for Roper's common stock as reported by the NYSE
during each of its fiscal 1999 and 1998 quarters and the dividends declared per
share. The last sales price reported by the NYSE on December 31, 1999, was
$37.813.
Dividend
High Low Declared
------- ------- --------
1999 4th Quarter $38.562 $29.750 $0.065
3rd Quarter 36.500 28.000 0.065
2nd Quarter 29.594 20.875 0.065
1st Quarter 22.500 15.750 0.065
1998 4th Quarter 23.250 13.313 0.060
3rd Quarter 34.063 20.000 0.060
2nd Quarter 33.500 25.750 0.060
1st Quarter 31.000 24.438 0.060
Based on information available to Roper and its transfer agent, Roper believes
that as of December 31, 1999 there were approximately 273 record holders of its
common stock.
Dividend Policy. Roper has declared a cash dividend in each fiscal quarter
since its February 1992 initial public offering and has also increased its
dividend rate annually since the initial public offering. In November 1999,
Roper's Board of Directors increased the quarterly dividend rate to $0.07 per
share, an increase of 8%, from the prior rate. However, the timing, declaration
and payment of future dividends will be at the sole discretion of Roper's Board
of Directors and will depend upon Roper's profitability, financial condition,
capital needs, future prospects and other factors deemed relevant by the Board
of Directors. Therefore, there can be no assurance as to the amount, if any,
that will be available for the declaration of cash dividends in the future.
Recent Sales of Unregistered Securities. None
11
ITEM 6. SELECTED FINANCIAL INFORMATION
The consolidated selected financial data presented below has been derived from
Roper's audited consolidated financial statements and should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and with Roper's Consolidated Financial Statements
and related notes thereto included elsewhere in this Annual Report. All per
share data have been restated to reflect the 2-for-1 stock split in August 1997.
Year ended October 31,
-------------------------------------------------------------------------
1999/(1)/ 1998/(2)/ 1997/(3)/ 1996/(4)/ 1995/(5)/
------------- ------------- ------------ ------------- -------------
(Dollars in thousands except per share data)
Operations data:
Net sales $ 407,256 $ 389,170 $ 298,236 $ 225,651 $ 175,421
Gross profit 210,503 190,953 153,389 115,924 93,803
Income from operations 77,955 66,092 60,870 47,272 37,411
Net earning applicable to common shares 47,346 39,316 36,350 28,857 23,271
Per share data:
Net earnings applicable to
common shares:
Basic $ 1.56 $ 1.27 $ 1.19 $ 0.96 $ 0.78
Diluted 1.53 1.24 1.16 0.93 0.77
Dividends 0.26 0.24 0.20 0.16 0.11
Balance sheet data:
Working capital $ 89,576 $ 82,274 $ 86,954 $ 45,007 $ 38,077
Total assets 420,163 381,533 329,320 242,953 155,381
Long-term debt, less current portion 109,659 120,307 99,638 63,373 20,150
Stockholders' equity 231,968 197,033 177,869 137,396 105,595
(1) Reflects inclusion of Flow Technology, Acton Research, Photometrics (now
part of Roper Scientific) and PMC/Beta (now part of Metrix) for the full
year as compared to only part of 1998 and the inclusion of the fiscal 1999
Petroleum Analyzer acquisitions for four months in 1999.
(2) Reflects inclusion of Princeton Instruments (now part of Roper Scientific),
Petrotech and IDS (now part of Uson) for the full year as compared to only
part of 1997 and the inclusion of Flow Technology, Acton Research (now part
of Roper Scientific), Photometrics and PMC/Beta for part in 1998.
(3) Reflects inclusion of Gatan and Fluid Metering for the full year as compared
to five months in the prior year; and inclusion of Princeton Instruments (5
1/2 months), Petrotech (5 months) and IDS (balance sheet only) in 1997.
(4) Reflects inclusion of Uson for the full year as compared to eight months in
the prior year; inclusion of Metrix for the full year as compared to one
month in the prior year; and inclusion of Gatan and Fluid Metering for five
months in 1996.
(5) Reflects inclusion of ISL for the full year as compared to two months in the
prior year; and inclusion of Uson and Metrix for eight months and one month,
respectively, in 1995.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Roper's Consolidated
Financial Statements and selected financial data included elsewhere in this
Annual Report.
Results of Operations
General
The following table sets forth selected information for the years indicated.
Amounts are dollars in thousands and percentages are of net sales.
Year ended October 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
Net sales 100.0% 100.0% 100.0%
Cost of sales 48.3 50.9 48.6
-------- -------- --------
Gross profit 51.7 49.1 51.4
Selling, general and administrative expenses 32.6 32.1 31.0
-------- -------- --------
Income from operations 19.1 17.0 20.4
Interest expense 1.8 2.0 2.0
Other income 0.4 0.3 0.1
-------- -------- --------
Earnings before income taxes 17.7 15.3 18.5
Income taxes 6.1 5.2 6.3
-------- -------- --------
Net earnings 11.6% 10.1% 12.2%
======== ======== ========
Year ended October 31,
---------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
$ % $ % $ %
------- ------- ------- ------- ------- -------
Industrial Controls:/(1)/
Net sales 160,090 177,258 123,129
Gross profit 78,957 49.3 84,386 47.6 61,756 50.2
Operating profit/(2)/ 29,973 18.7 31,458 17.7 22,402 18.2
Fluid Handling:/(3)/
Net sales 98,298 99,471 94,175
Gross profit 47,662 48.5 45,160 45.4 43,213 45.9
Operating profit/(2)/ 27,386 27.9 24,125 24.3 25,853 27.5
Analytical Instrumentation:/(4)/
Net sales 148,868 112,441 80,932
Gross profit 83,884 56.3 61,407 54.6 48,420 59.8
Operating profit/(2)/ 27,713 18.6 16,417 14.6 18,292 22.6
/(1)/ Includes results of Petrotech from June 1, 1997 and the PMC/Beta
division of Metrix from May 1, 1998.
/(2)/ Operating profit excludes unallocated corporate administrative costs.
Such costs were $7,117, $5,908 and $5,677 for the years ended October
31, 1999, 1998 and 1997, respectively.
/(3)/ Includes results of Flow Technology from December 1, 1997.
/(4)/ Includes results of the Princeton Instruments division of Roper
Scientific from May 17, 1997, IDS from November 1, 1997, the Acton
Research division of Roper Scientific from March 1, 1998, the
Photometrics division of Roper Scientific from April 1, 1998 and the
fiscal 1999 Petroleum Analyzer acquisitions from June 21, 1999.
13
Year Ended October 31, 1999 Compared to Year Ended October 31, 1998
Net sales for fiscal 1999 of $407.3 million represented the seventh consecutive
year that Roper established a record high. Roper core sales (excluding sales to
Gazprom) increased 7% for the year ended October 31, 1999 compared to the year
ended October 31, 1998. Total Industrial Controls sales decreased 10% due
mostly to difficult market conditions throughout the oil & gas industry, as oil
and natural gas prices were at historical lows in the early part of fiscal 1999,
and consolidation within the industry. Each of these factors caused reductions
in capital spending by Roper's customers during fiscal 1999. Sales to Gazprom
were $35.0 million for the year ended October 31, 1999, down 16% from fiscal
1998 as a result of dropping certain low margin, pass-through products from the
contract. Total Analytical Instrumentation sales increased 32% due to full-year
contributions from the fiscal 1998 acquisitions of Acton Research (February
1998) and Photometrics (March 1998), the partial-year contribution from the
fiscal 1999 Petroleum Analyzer acquisitions (June 1999) and improved market
conditions for the segment's digital imaging business. On a pro forma basis,
Analytical Instrumentation sales increased 11% in fiscal 1999 compared to the
prior year. Total Fluid Handling sales decreased 1% in fiscal 1999 compared to
fiscal 1998. Poor semiconductor equipment industry conditions that affected the
Fluid Handling segment primarily in the first half of fiscal 1999 offset the
strength in the segment's centrifugal pump business as several new product
offerings were very well received by the market.
Industrial Controls gross profit percentage increased 1.7 points in fiscal 1999
compared to the prior year. The major reason for the increase was the
elimination of certain low-margin business with Gazprom in fiscal 1999.
Analytical Instrumentation gross profit also increased 1.7 points in fiscal 1999
compared to the prior year. The major contributors to this increase were an
inventory write-down in the fourth quarter of fiscal 1998, the realization of
cost structure improvements at those businesses acquired over the past two years
and volume leverage. Fluid Handling gross profit increased 3.1 points in fiscal
1999 compared to the prior year. This gain resulted from a number of factors,
including improved product mix in fiscal 1999 from larger diameter centrifugal
pumps, an improved power generation market, the leverage of improved
semiconductor industry conditions in the second half of fiscal 1999, and
improved cost structures throughout the segment. Every one of this segment's
businesses improved gross margins in fiscal 1999 compared to fiscal 1998. In
addition, the consolidated gross profit percentage improvement of 2.6 points in
fiscal 1999 was due mostly to increased higher-margin Analytical Instrumentation
sales.
Selling, general and administrative ("SG&A") expenses increased 6% in fiscal
1999 compared to the year ended October 31, 1998 mostly due to the partial year
costs associated with Petroleum Analyzer. As a percentage of sales, these costs
were 32.5% in fiscal 1999 compared to 32.1% in fiscal 1998. This increase was
attributable mostly to the increased size of the Analytical Instrumentation
segment, whose businesses typically have higher engineering and amortization
costs compared to Roper's other business segments. Analytical Instrumentation
SG&A costs were 37.7% and 40.0% of sales in fiscal 1999 and 1998, respectively.
Comparative percentages for the Industrial Controls and Fluid Handling segments
were each within 1 point for these years. Excluding Russian-related reserves
recorded during the fourth quarter of fiscal 1998 in the Industrial Controls
segment, this segment's SG&A costs were about the same in fiscal 1999 as fiscal
1998.
14
Interest expense was about 8% lower during the year ended October 31, 1999
compared to fiscal 1998, with lower interest rates throughout most of fiscal
1999 as compared to fiscal 1998. The German revolving credit facility opened in
June 1999 also accrued interest at a relatively low rate compared to U.S.
borrowings. Average debt levels were about 4% higher in fiscal 1999 compared to
the prior year.
The effective income tax rate was 34.5% for the year ended October 31, 1999 and
34.1% for the year ended October 31, 1998. The difference between these rates
and the differences between the reconciling items between the statutory income
tax rate and the effective income tax rate for these years are not considered
significant.
Average outstanding shares were less in fiscal 1999 than fiscal 1998 as a result
of the repurchase of 1.2 million shares by Roper during the fourth quarter of
fiscal 1998 through the second quarter of fiscal 1999. The buy-back program was
terminated in May 1999.
Other components of comprehensive earnings represented the change in cumulative
translation adjustments related to the net assets of non-U.S. subsidiaries whose
functional currency was not the U.S. dollar. The net change during each of
fiscal 1999 and fiscal 1998 was related to Roper's subsidiaries in Europe and
Japan.
Net cash provided by operating activities declined by $24.7 million, or 30.6%,
primarily as a result of a $10.6 million increase in accounts receivable as
compared to a $12.7 million decrease in the fiscal years ended October 31, 1999
and October 31, 1998, respectively. The reduction in 1998 was attributable to
exceptional Gazprom cash receipts and the increase in 1999 arose primarily at
Roper Scientific and Integrated Designs largely as a result of increased fourth
quarter business levels.
The following table summarizes bookings and backlog information (dollars in
thousands):
Bookings Backlog
-------------------------------- --------------------------------
Year ended October 31, October 31,
-------------------------------- --------------------------------
1999 1998 Change 1999 1998 Change
-------- -------- -------- -------- -------- --------
Analytical Instrumentation $148,478 $111,637 +33.0% $ 30,000 $ 28,898 +3.8%
Fluid Handling 100,600 94,470 +6.5 14,375 12,746 +12.8
Industrial Controls 150,604 176,228 -14.5 29,286 39,035 -25.0
-------- -------- -------- -------- -------- --------
$399,682 $382,335 +4.5% $ 73,661 $ 80,679 -8.7%
======== ======== ======== ======== ======== ========
On a pro forma basis to include current year acquisitions for the comparable
prior year period, Analytical Instrumentation segment bookings and backlog were
up 8% and down 7%, respectively, in fiscal 1999 compared to fiscal 1998.
Consolidated pro forma bookings and backlog were down 3% and down 12%,
respectively. Actual compared to pro forma results were about the same for the
Fluid Handling and Industrial Controls segments. The 33% increase in
15
Analytical Instrumentation segment bookings was due to the full-year
contributions of Acton Research and Photometrics, the partial-year contribution
of Petroleum Analyzer and strengthened digital imaging markets in fiscal 1999
(which also accounts for the pro forma increase). Fluid Handling segment
bookings increased from its stronger centrifugal pump business and the increased
backlog reflected much better semiconductor industry conditions. Decreased
Industrial Controls segment bookings reflected weak oil & gas industry
conditions.
Year Ended October 31, 1998 Compared to Year Ended October 31, 1997
Roper's core sales increased 23% for the year ended October 31, 1998 compared to
the year ended October 31, 1997. Total Industrial Controls sales increased 44%
due mostly to the full year results from the May 1997 acquisition of Petrotech
and increased sales to Gazprom. Sales to Gazprom were $41.9 million for the
year ended October 31, 1998 as Gazprom entered into a financing agreement to
stabilize this business. This compared to $14.7 million in sales during fiscal
1997. Fluid Handling sales increased 6% because of the December 1997
acquisition of Flow Technology, which more than offset sales declines related to
this segment's oil & gas, power generation and semiconductor capital equipment
markets. Analytical Instrumentation sales increased 39% largely because of the
full year or partial-year results of four then-recent acquisitions.
Changes in overall gross profit derived mainly from the impact of the recently
acquired companies and increased sales to Gazprom. The gross profit percentage
for the Industrial Controls segment in fiscal 1998 compared to fiscal 1997 was
adversely affected by Petrotech, which was acquired in May 1997 and historically
experiences lower returns than the segment's other units. Excluding Petrotech,
Industrial Controls' gross profit percentage would have been 56.5% compared to
57.2% for fiscal 1997. Most of the other decline stemmed from lower margins at
Compressor Controls as a result of lower margins on Gazprom business from
increased engineering and procurement services in fiscal 1998. The decline in
Fluid Handling's gross profit percentage was not significant despite some
difficult market conditions that affected several of this segment's units that
more than offset strong results from Flow Technology. The gross profit
percentage for Analytical Instrumentation decreased primarily because of results
of Acton Research, Photometrics and Princeton Instruments, which reported
combined gross profit of 44.4%. Photometrics and Princeton Instruments were
merged into a single company named Roper Scientific. Analytical
Instrumentation's gross profit was also adversely affected by about 2% on an
inventory write-down at Roper Scientific that was identified upon implementation
of better business systems. Petrotech had the greatest effect that caused the
decrease in Roper's overall gross profit percentages in 1998 compared to 1997.
Other large factors were the lower margins at Compressor Controls and the
inventory write-down at Roper Scientific.
SG&A expenses increased 35% for the year ended October 31, 1998 compared to the
year ended October 31, 1997, primarily because of the expenses associated with
the then-recent acquisitions. As a percentage of sales, SG&A expenses were
32.1% for fiscal 1998 compared to 31.0% for fiscal 1997. This increase resulted
largely from additional reserves recorded during the fourth quarter of fiscal
1998 in response to a further deterioration of economic conditions in Russia and
the region that cast doubt on the collectibility of certain accounts receivable
related to sales in 1996.
16
Interest expense increased $1.8 million for the year ended October 31, 1998
compared to the year ended October 31, 1997 principally because of higher debt
levels that resulted from the acquisition of seven companies during fiscal 1997
and 1998. Interest rates were slightly lower in fiscal 1998 compared to fiscal
1997 primarily because of more favorable terms negotiated into the U.S.
revolving credit facility agreement in May 1997. LIBOR rates became lower late
in fiscal 1998, but the effects on fiscal 1998 results were not significant.
The effective tax rate was 34.1% for fiscal 1998 compared to 34.0% for fiscal
1997. There were also no significant differences between years in the
reconciling items between the statutory rate and the effective rate for these
years.
Sales order bookings were $382.3 million during the year ended October 31, 1998
compared to $297.6 million for the year ended October 31, 1997, an increase of
28%. On a pro forma basis, to include acquisitions for similar periods in the
prior year, bookings were 4% higher in fiscal 1998 compared to fiscal 1997.
Industrial Controls' bookings were up 40% (20% on a pro forma basis) because of
Petrotech, which booked a large project, and Compressor Controls, because of
increased business with Gazprom following Gazprom establishing new financing
arrangements early in the year. Fluid Handling's bookings were up 2% (down 8%
on a pro forma basis) compared to fiscal 1997. The acquisition of Flow
Technology offset 46% lower bookings at Integrated Designs caused by the
depressed business conditions in the semiconductor capital equipment industry.
Bookings within Analytical Instrumentation increased 42% (down 6% on a pro forma
basis). Whereas the increase resulted from acquisitions, the pro forma decrease
reflected weak business conditions for all of the companies in this segment.
Sales order backlog was $80.7 million at October 31, 1998 compared to $82.6
million at October 31, 1997. On a pro forma basis, backlog was 13% lower than
fiscal 1997. Pro forma backlog at Industrial Controls was down 11% despite a
significant increase at Petrotech that resulted from increased bookings
discussed above. Backlog related to Russia-region shipments was down $8.5
million compared to fiscal 1997, largely because of delayed shipments at October
31, 1997 that were shipped during the first quarter of fiscal 1998. Excluding
the Russia-region decrease in backlog, actual and pro forma backlog at
Industrial Controls was up 12% and 11% at October 31, 1998 compared to October
31, 1997, respectively. Fluid Handling's pro forma backlog was 32% lower at the
end of fiscal 1998 compared to fiscal 1997 largely because of an 89% decline in
the backlog at Integrated Designs. Pro forma backlog was 6% lower at Analytical
Instrumentation due to the lower level of bookings.
17
Financial Condition, Liquidity and Capital Resources
October 31, 1999 compared to October 31, 1998
Working capital was $89.6 million at October 31, 1999 compared to $82.3 million
at October 31, 1998. October 1999 cash was unusually high due to long-term
borrowings made immediately prior to October 31, 1999 that were used to fund the
acquisition of Redlake Imaging in early November. Accounts receivable increased
as a result of strong fourth quarter digital imaging sales and the balances at
the fiscal 1999 Petroleum Analyzer acquisitions that more than offset the
effects of lower fourth quarter oil & gas-related sales. The increase in notes
payable and current portion of long-term debt at October 31, 1999 compared to
1998 reflected borrowings under the $16 million German revolving credit facility
that was opened in June 1999.
Roper utilizes a $200 million U.S. revolving credit facility with a syndicate of
banks to provide most of its external financing requirements. Total borrowings
under this agreement were $109.0 million at October 31, 1999 and an additional
$49 million was borrowed subsequent to October 31, 1999 to fund the acquisition
of MASD. The German revolving credit facility was amended subsequent to October
31, 1999 to increase its size to $30 million. Total borrowings under the German
facility were $15.9 million at October 31, 1999. The debt to total
capitalization ratio was 36.0% (43.6% including the November borrowings of $49
million) at October 31, 1999 compared to 39.0% at October 31, 1998.
During fiscal 1998, Roper's largest customer, Gazprom, put in place a long-term
financing for its purchase of turbomachinery controls sourced from Roper's
Compressor Controls unit. This financing has facilitated a more consistent
supply of product to Gazprom. This financing arrangement is expected to be
available over the next several years for additional turbomachinery controls
purchases. However, given unstable political and economic conditions in Russia,
Roper's future shipments to Gazprom will continue to be subject to these
political, economic and other uncertainties, which could adversely affect the
timing and amount of future shipments and cannot be assured.
Roper believes its capital expenditures requirements are modest for an
industrial products company and were $5.1 million for the year ended October 31,
1999. Although the increased size of the business will drive increased capital
expenditure requirements, Roper does not believe there will be a change in the
order of magnitude of capital expenditures in fiscal 2000.
In November 1999, Roper's Board of Directors increased the quarterly cash
dividend paid on its outstanding common stock from $0.065 per share to $0.07 per
share. This represents the seventh consecutive year in which the quarterly
dividend has been increased since Roper's 1992 initial public offering.
Roper believes that internally generated cash flows and the remaining unused
credit under its U.S. and German revolving credit facilities will be adequate to
finance normal operating requirements and further acquisition activities.
Although Roper maintains an active acquisition program, any further acquisitions
will be dependent on numerous factors and it is not feasible to reasonably
18
estimate if or when any such acquisitions will occur and what the impact will be
on Roper's activities, financial condition and results of operations. Roper may
also explore alternatives to increase its access to additional capital
resources.
Roper anticipates that the newly acquired companies as well as the existing
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 Roper historically has experienced. However,
the rate at which Roper can reduce its debt during fiscal 2000 (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 its existing companies and cannot be predicted with certainty.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") 133 - Accounting for Derivative Instruments and
Hedging Activities that will be applicable to Roper in fiscal 2001, as amended
by SFAS 137. Once adopted, this standard is not expected to significantly
affect Roper's financial position, operating results or disclosures. See Note 1
to Roper's Notes to Consolidated Financial Statements for further discussion of
this pronouncement.
Year 2000 Issues ("Y2K" issues)
During recent years, Roper instigated processes to ensure that its operations
would not be exposed to material adverse effects as a result of Y2K issues. In
total, the past costs associated with Y2K compliance, including capital
expenditures, were less than $3 million. All of Roper's business and
infrastructure systems have operated substantially as normal since January 1,
2000. In general, Roper has very few products that are date sensitive and most
of those products do not rely on the date for their performance. Accordingly,
Roper does not believe that it has any materially increased liability for
product warranty.
Generally, Roper is not aware of any potential disruptions in the businesses due
to problems with Y2K issues which could have a materially adverse effect on its
operations. However, Roper cautions that it is not presently possible to
evaluate whether all of its customers and/or vendors have been unaffected by any
Y2K issues which could, in turn, have an adverse impact on the Company's
operations.
Market Risks
At October 31, 1999, Roper's interest rate swap agreements represented a
potential asset. This asset value is directly related to changes in interest
rates. A sufficient decline in interest rates would cause the current asset
position to become a liability position. Upon adoption of SFAS 133, the value
attributed to the swap agreements will be reflected in Roper's balance sheet and
changes in this valuation will mostly be reflected as a component of other
comprehensive earnings. The
19
swap agreements are intended to reduce the volatility of interest payments
related to its long-term borrowings. See Note 1 to Roper's Notes to Consolidated
Financial Statements.
At October 31, 1999, Roper's total borrowings exceeded the notional value of the
interest rate swap agreements. These borrowings are generally at current market
rates and these rates have increased subsequent to October 31, 1999.
Some of Roper's fiscal 1999 sales were denominated in a currency other than U.S.
dollars (mostly Euro, U.K. sterling and Japanese yen) and some of Roper's net
assets at October 31, 1999 were maintained in a functional currency other than
U.S. dollars (mostly Euro and U.K. sterling). The effects of changes in foreign
currency exchange rates has not historically been significant to Roper's
operations or net assets.
The traded price of Roper's common stock influences the effects on Roper's
financial statements and disclosures with regard to Roper's stock option
programs and certain cash compensation arrangements.
Outlook
Fiscal 2000 is expected to be another record year for sales and earnings. The
November 1999 acquisitions of Redlake Imaging and MASD are expected to be
immediately accretive to earnings. The fiscal 1999 Petroleum Analyzer
acquisition will be included in Roper's results for the entire year and
increased quoting activity by Roper's oil & gas businesses is expected to
generate additional bookings and revenues (but not during the first fiscal
quarter).
Roper expects to continue an active acquisition program. However, completion of
future acquisitions and their impact on Roper's results or financial condition
cannot be accurately predicted.
Forward Looking Information
The information provided elsewhere in this Annual Report, in other Roper filings
with the Securities and Exchange Commission, and in other press releases and
public disclosures contains forward-looking statements about Roper's businesses
and prospects as to which there are numerous risks and uncertainties which
generally are beyond Roper's control. Some of these risks include the level and
timing of future business with Gazprom and other Eastern European customers,
changes in interest rates, Y2K effects and the future operating results of the
newly acquired companies. There is no assurance that these and other risks and
uncertainties will not have an adverse impact on Roper's future operations,
financial condition, or financial results.
20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Roper is exposed to interest rate risks on its outstanding interest rate swap
agreements and its outstanding variable-rate borrowings to the extent that such
borrowings exceed the notional value of the interest rate swap agreements.
Roper is exposed to foreign exchange risks pertaining to its business
denominated in currencies other than the U.S. dollar. Roper is exposed to
equity market risks pertaining to the traded price of its common stock.
Roper's interest rate swap agreements provide that Roper pays a fixed interest
rate in exchange for receiving a variable interest rate on a total notional
value of $75 million. These agreements mature in 2003 and the other party has
options to extend the agreements until 2008. At October 31, 1999, the fixed
rate obligation of Roper was less than the variable rate Roper was entitled to
receive. As a result, the fair value of the interest rate swap agreements was
determined to be an asset value of $1.2 million (assuming the options are not
exercised). At October 31, 1999, an interest rate movement up or down by 10
basis points would have increased or decreased the asset value by about
$250,000. Upon adoption of SFAS 133, changes in the valuation of the interest
rate swap agreements will be a direct charge to other comprehensive earnings.
Immediately after giving effect to the $49 million of additional borrowings in
November 1999 to finance the acquisition of MASD, Roper's outstanding variable
rate borrowings exceeded the notional value of the interest rate swap agreements
by about $103 million. Based on this level of debt, an increase or decrease in
interest rates by 10 basis points would increase or decrease annualized interest
expense by about $100,000.
Roper and its subsidiary companies generally do not enter into significant
transactions denominated in currencies other than the U.S. dollar or their
functional currency. Non-U.S. dollar balances and transactions at October 31,
1999 and for the year then ended were principally denominated in Western
European or Japanese currencies. At October 31, 1999 and for the year then
ended, 10-15% of Roper's consolidated net assets (and cumulative translation
adjustments were less than 1%) and sales were denominated in these currencies.
Roper expects that these currencies will remain relatively stable. Therefore,
foreign exchange risks are not expected to have a material effect on Roper's
financial statements.
Equity markets are influenced by many factors and changes in Roper's stock price
may be influenced by factors other than Roper's historical earnings and by
factors not within Roper's control. The volatility of Roper's common stock
prices preceding an option grant is directly related to the valuation of that
grant for purposes of determining pro forma earnings disclosures. Roper's stock
prices following an option grant directly influence the dilutive effect of these
options for earnings per share calculations. The sensitivity of these issues to
a change in Roper's stock price are not readily determinable, but a change in
Roper's stock price by $1.00 is not believed to have a material effect on
Roper's financial statements or disclosures.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item begin at
page F-1 hereof.
22
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
Page
Consolidated Financial Statements:
Independent Auditors' Report (fiscal 1999 auditors)........................................ F-2
Independent Auditors' Report (fiscal 1998 and 1997 auditors)............................... F-3
Consolidated Balance Sheets as of October 31, 1999 and 1998................................ F-4
Consolidated Statements of Earnings for the Years ended October 31, 1999, 1998 and 1997.... F-5
Consolidated Statements of Stockholders' Equity and Comprehensive Earnings for the
Years ended October 31, 1999, 1998 and 1997............................................... F-6
Consolidated Statements of Cash Flows for the Years ended October 31, 1999, 1998 and 1997.. F-7
Notes to Consolidated Financial Statements.................................................. F-8
Supplementary Data:
Schedule II - Consolidated Valuation and Qualifying Accounts for the Years ended
October 31, 1999, 1998 and 1997......................................................... S-1
F-1
Independent Auditors' Report
To The Shareholders of Roper Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Roper Industries,
Inc. (a Delaware corporation) as of October 31, 1999, and the related
consolidated statements of earnings, stockholders' equity and comprehensive
earnings and cash flows for the year then ended. These financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audit. The consolidated balance sheet
at October 31, 1998 and the consolidated statements of earnings, stockholders'
equity and comprehensive earnings, cash flows and the schedule referred to below
for the fiscal years ended October 31, 1998 and 1997 were audited by other
auditors whose report dated December 4, 1998 expressed an unqualified opinion on
those statements and schedule.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Roper Industries, Inc. as of
October 31, 1999, and the results of its operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The financial statement schedule listed in the
index to the consolidated financial statements and supplementary data is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Atlanta, Georgia
December 2, 1999
F-2
Independent Auditors' Report
The Board of Directors and Stockholders
Roper Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Roper Industries,
Inc. and subsidiaries as of October 31, 1998 and the related consolidated
statements of earnings, stockholders' equity and comprehensive earnings and cash
flows for the years ended October 31, 1998 and 1997. In connection with our
audits of the consolidated financial statements, we also audited the related
financial statement schedule for the years ended October 31, 1998 and 1997.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Roper Industries,
Inc. and subsidiaries as of October 31, 1998, and the results of their
operations and their cash flows for the years ended October 31, 1998 and 1997,
in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Atlanta, Georgia
December 4, 1998
F-3
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1999 and 1998
(Dollar and share amounts in thousands, except per share data)
1999 1998
-------- --------
Assets
Cash and cash equivalents $ 13,490 $ 9,350
Accounts receivable, net 89,154 76,999
Inventories 56,401 51,444
Other current assets 2,774 2,059
-------- --------
Total current assets 161,819 139,852
Property, plant and equipment, net 34,797 31,905
Intangible assets, net 215,020 197,179
Other assets 8,527 12,597
-------- --------
Total assets $420,163 $381,533
======== ========
Liabilities and Stockholders' Equity
Accounts payable $ 18,457 $ 21,051
Accrued liabilities 31,444 29,915
Income taxes payable 1,485 863
Current portion of long-term debt 20,857 5,749
-------- --------
Total current liabilities 72,243 57,578
Long-term debt 109,659 120,307
Other liabilities 6,293 6,615
-------- --------
Total liabilities 188,195 184,500
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value per share; 1,000 shares authorized;
none outstanding - -
Common stock, $.01 par value per share; 80,000 shares authorized;
31,551 shares issued and 30,282 outstanding at October 31, 1999 and
31,307 shares issued and 30,343 outstanding at October 31, 1998 316 313
Additional paid-in capital 71,084 67,145
Retained earnings 187,911 148,435
Accumulated other comprehensive earnings (2,172) (906)
Treasury stock, 1,269 shares October 31, 1999 and 964 shares at
October 31, 1998 (25,171) (17,954)
-------- --------
Total stockholders' equity 231,968 197,033
-------- --------
Total liabilities and stockholders' equity $420,163 $381,533
======== ========
See accompanying notes to consolidated financial statements.
F-4
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended October 31, 1999, 1998 and 1997
(Dollar and share amounts in thousands, except per share data)
1999 1998 1997
-------- -------- --------
Net sales $407,256 $389,170 $298,236
Cost of sales 196,753 198,217 144,847
-------- -------- --------
Gross profit 210,503 190,953 153,389
Selling, general and administrative expenses 132,548 124,861 92,519
-------- -------- --------
Income from operations 77,955 66,092 60,870
Interest expense 7,254 7,856 6,048
Other income 1,583 1,380 278
-------- -------- --------
Earnings before income taxes 72,284 59,616 55,100
Income taxes 24,938 20,300 18,750
-------- -------- --------
Net earnings $ 47,346 $ 39,316 $ 36,350
======== ======== ========
Net earnings per common and common equivalent share:
Basic $ 1.56 $ 1.27 $ 1.19
======== ======== ========
Diluted $ 1.53 $ 1.24 $ 1.16
======== ======== ========
Weighted average common and common equivalent
shares outstanding:
Basic 30,268 31,001 30,580
======== ======== ========
Diluted 30,992 31,717 31,458
======== ======== ========
See accompanying notes to consolidated financial statements.
F-5
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Earnings
Years ended October 31, 1999, 1998 and 1997
(Dollar and share amounts in thousands, except per share data)
Accumulated
Additional other Total
Common stock paid-in Retained comprehensive Treasury stockholders' Comprehensive
---------------
Shares Amount capital earnings earnings stock equity earnings
------- ------ ---------- --------- ------------- --------- ------------- -------------
Balances at October 31, 1996 30,323 $ 303 $ 50,742 $ 86,174 $ 177 $ - $ 137,396 $ -
Net earnings - - - 36,350 - - 36,350 36,350
Common shares issued for
acquisitions 416 4 8,708 - - - 8,712 -
Common shares issued under
incentive bonus plan 10 - 245 - - - 245 -
Exercise of stock options 171 2 2,255 - - - 2,257 -
Currency translation adjustments - - - - (1,114) - (1,114) (1,114)
Cash dividends ($0.195 per
share) - - - (5,977) - - (5,977) -
------ ------ ---------- --------- ------------- --------- ------------- -------------
Balances at October 31, 1997 30,920 309 61,950 116,547 (937) - 177,869 $ 35,236
=============
Net earnings - - - 39,316 - - 39,316 $ 39,316
Common shares issued for
acquisitions 75 1 1,935 - - - 1,936 -
Exercise of stock options 312 3 3,260 - - - 3,263 -
Currency translation adjustments - - - - 31 - 31 31
Cash dividends ($0.24 per share) - - - (7,428) - - (7,428) -
Treasury stock purchases (964) - - - - (17,954) (17,954) -
------ ------ ---------- --------- ------------- --------- ------------- -------------
Balances at October 31, 1998 30,343 313 67,145 148,435 (906) (17,954) 197,033 $ 39,347
=============
Net earnings - - - 47,346 - - 47,346 47,346
Common shares issued for
acquisitions (45) - - - - (1,667) (1,667) -
Exercise of stock options 244 3 3,939 - - - 3,942 -
Currency translation adjustments - - - - (1,266) - (1,266) (1,266)
Cash dividends ($0.26 per share) - - - (7,870) - - (7,870) -
Treasury stock purchases (260) - - - - (5,550) (5,550) -
------ ------ ---------- --------- ------------- --------- ------------- -------------
Balances at October 31, 1999 30,282 $ 316 $ 71,084 $ 187,911 $ (2,172) $ (25,171) $ 231,968 $ 46,080
====== ====== ========== ========= ============= ========= ============= =============
See accompanying notes to consolidated financial statements.
F-6
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended October 31, 1999, 1998 and 1997
(In thousands)
1999 1998 1997
--------- --------- ---------
Cash flows from operating activities:
Net earnings $ 47,346 $ 39,316 $ 36,350
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization of property, plant
and equipment 6,620 6,106 5,367
Amortization of intangible assets 9,346 8,328 6,033
Changes in operating assets and
liabilities:
Accounts receivable (10,621) 10,084 (10,876)
Inventories 3,778 5,615 2,303
Accounts payable and accrued
liabilities (7,557) 7,118 (2,357)
Income taxes payable 4,112 (1,001) (1,585)
Other, net (198) 607 168
-------- -------- --------
Net cash provided by operating activities 52,826 76,173 35,403
-------- -------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (36,343) (62,676) (55,311)
Capital expenditures (5,148) (5,502) (4,984)
Other, net 167 (252) (163)
-------- -------- --------
Net cash used in investing activities (41,324) (68,430) (60,458)
-------- -------- --------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt 45,926 60,896 94,845
Principal payments on notes payable and long-term debt (41,867) (37,522) (65,180)
Cash dividends to stockholders (7,870) (7,428) (5,977)
Treasury stock purchases (5,550) (17,954) -
Proceeds from stock option exercises 3,942 3,263 1,762
Other, net (1,667) (200) (116)
-------- -------- --------
Net cash provided by (used in) financing activities (7,086) 1,055 25,334
-------- -------- --------
Effect of exchange rate changes on cash (276) (97) (53)
-------- -------- --------
Net increase in cash and cash equivalents 4,140 8,701 226
Cash and cash equivalents, beginning of year 9,350 649 423
-------- -------- --------
Cash and cash equivalents, end of year $ 13,490 $ 9,350 $ 649
======== ======== ========
See accompanying notes to consolidated financial statements.
F-7
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollars amounts in thousands, except per share data)
(1) Summary of Accounting Policies
------------------------------
Accounts Receivable - Accounts receivable were stated net of an allowance
-------------------
for doubtful accounts of $3,760 and $6,915 at October 31, 1999 and 1998,
respectively.
Basis of Presentation - The consolidated financial statements include the
---------------------
accounts of Roper Industries, Inc. (the "Company") and its subsidiaries.
All significant intercompany accounts and transactions have been
eliminated. On August 1, 1997, the Company effected a 2-for-1 stock split
on its common stock in the form of a 100% stock dividend. All amounts
related to fiscal 1997 reflect the stock split for the entire year.
Cash and Cash Equivalents - The Company considers highly liquid financial
-------------------------
instruments with original maturities of three months or less to be cash
equivalents. Cash equivalents at October 31, 1999 and October 31, 1998 were
none and $5,697, respectively, and were comprised of money market
investments and overnight Eurodollar funds.
Earnings Per Common and Common Equivalent Share - Basic earnings per share
-----------------------------------------------
was calculated using net earnings and the weighted average number of shares
of common stock outstanding during the respective year. Diluted earnings
per share was calculated using net earnings and the weighted average number
of shares of common stock and dilutive common stock equivalents outstanding
during the respective year. There were no differences between net earnings
and net earnings available for common stockholders. Common stock
equivalents consisted of stock options. The effects of common stock
equivalents was determined using the treasury stock method.
For the year ended October 31, 1998, there were 365,000 options that were
not included in the determination of diluted earnings per share because
doing so would have been antidilutive. There were no such antidilutive
options in 1999 or 1997.
In financial reports issued prior to fiscal 1998, earnings per share were
expressed as either primary or fully diluted. Earnings per share amounts
for periods prior to fiscal 1998 have been restated to conform with SFAS
128 -Earnings per Share, which was implemented at the beginning of fiscal
1998.
Estimates - The preparation of financial statements in conformity with
---------
generally accepted accounting principles 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 - The Company's carrying value of
-----------------------------------
long-term debt approximated fair value since most of the debt matures
within 30-90 days of incurrance and is renewed at current interest rates.
In February 1998 and April 1998, the Company entered into five-year
interest rate swap agreements for notional amounts of $50,000 and $25,000,
respectively. In both agreements, the Company pays a fixed interest rate
and the other party pays a variable interest rate. In June 1998, both of
these agreements were amended to lower the Company's fixed interest rate
obligations in exchange for granting the other party an option to extend
the agreements for an additional five years. At October 31, 1999, the
Company's weighted average fixed-rate obligation was 5.7% and the
applicable LIBOR rate was 6.2%. The Company accrues the effects of the
different interest rates as a charge or credit against current earnings
over the life of the
F-8
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollars amounts in thousands, except per share data)
agreements. The earnings effects of these agreements during the years ended
October 31, 1999 and 1998 were not material.
The estimated fair value of these agreements at October 31, 1999 was an
asset of approximately $1,150 ($2,470 assuming the options are exercised)
that was not reflected in the Company's financial statements. This value
was determined by comparing the present value of the fixed interest
payments to the variable interest payments based on the interest rates at
October 31, 1999.
The carrying value of all other financial instruments approximated fair
value due to their short-term nature.
Foreign Currency Translation - Assets and liabilities of foreign
----------------------------
subsidiaries whose functional currency is not the U.S. dollar are
translated at the exchange rate in effect at the balance sheet date and
revenues and expenses are translated at average exchange rates for the
year. Translation adjustments are reflected as a component of other
comprehensive earnings.
Income Taxes - The Company has not provided deferred income taxes on the
------------
accumulated undistributed earnings of its non-U.S. subsidiaries, as
substantially all of such presently undistributed earnings are expected to
be permanently invested. At October 31, 1999, the accumulated undistributed
earnings were approximately $20,000. The amount of U.S. income tax due if
such earnings were repatriated would be approximately $7,000 and would be
substantially offset by allowable foreign income tax credits. The Company
also has not provided for any foreign withholding taxes that would be due
upon the repatriation of such earnings.
Intangible Assets - Intangible assets consisted principally of goodwill,
-----------------
which is amortized on a straight-line basis over periods ranging from 15 to
40 years. The accumulated amortization for intangible assets was $32,315
and $22,954 at October 31, 1999 and 1998, respectively. The Company
accounts for goodwill in a purchase business combination as the excess of
the cost over the fair value of net assets acquired. Other intangible
assets not arising out of acquisitions are recorded at cost. On an ongoing
basis, management reviews the valuation and amortization periods of
intangible assets. The Company assesses the recoverability of the goodwill
element of its intangible assets by determining whether the amortization of
the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired enterprise. Based
upon such reviews as of October 31, 1999 and 1998, management did not
consider the unamortized balances of goodwill or other intangible assets to
be impaired.
Inventories - Inventories are valued at the lower of cost or market.
-----------
Subsidiaries of the Company use primarily either the first-in, first-out
cost method ("FIFO") or the last-in, first-out cost method ("LIFO").
Inventories valued at LIFO cost comprised 15% and 16% of consolidated
inventories at October 31, 1999 and 1998, respectively.
One of the Company's subsidiaries had a decrement in its LIFO reserve
during 1999, 1998 and 1997. The impact of these decrements on the Company's
consolidated results of operations was immaterial for each of these years.
Inventories included $2,443 and $2,587 at October 31, 1999 and 1998,
respectively, of costs incurred in excess of billings related to long-term
contracts.
F-9
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollars amounts in thousands, except per share data)
Other Comprehensive Earnings - Effective November 1, 1998, the Company
----------------------------
adopted Statement of Financial Accounting Standards ("SFAS") No. 130 -
Reporting Comprehensive Income. Comprehensive income includes net earnings
and all other non-owner sources in a company's net assets. The difference
between net earnings and comprehensive earnings for the Company was
currency translation adjustments. Income taxes have not been provided on
currency translation adjustments because the net assets invested in the
Company's non-U.S. are considered to be permanently invested. Fiscal 1998
and 1997 were restated to reflect the adoption of SFAS 130.
F-10
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollars amounts in thousands, except per share data)
Property, Plant and Equipment and Depreciation - Property, plant and
----------------------------------------------
equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided for using the
straight-line method over the estimated useful lives of the assets as
follows:
Buildings 20-30 years
Machinery 8-12 years
Tooling 3 years
Other equipment 3-5 years
Recently Released Accounting and Reporting Pronouncements - SFAS 133 -
---------------------------------------------------------
Accounting for Derivative Instruments and Hedging Activities establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. It requires recognition of all derivatives as either assets or
liabilities in the statement of financial position at their fair value.
SFAS 133 was subsequently amended by SFAS 137 to defer the effective date
of SFAS 133 such that it is currently applicable to the Company beginning
with its first quarter of fiscal 2001. The impact of SFAS 133 on the
Company's financial statements is not expected to be significant.
Reclassifications - Certain reclassifications were made to prior year
-----------------
amountsto conform to the fiscal 1999 presentation.
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 approximately $16,700, $18,000 and $14,200 for
the years ended October 31, 1999, 1998 and 1997, respectively.
Revenue Recognition - Revenues under certain long-term contracts are
-------------------
recognized under the percentage-of-completion method using the ratio of
costs incurred to total estimated costs as the measure of performance.
Estimated losses on such contracts are recognized immediately. All other
revenue is recognized as products are shipped or services are rendered.
Stock Options - Stock-based compensation was measured at its fair value at
-------------
the grant date in accordance with an option pricing model. SFAS 123 -
Accounting for Stock-Based Compensation provides that the related expense
may be recorded in the basic financial statements or the pro forma effect
on earnings may be disclosed in the financial statements. The Company
provides the pro forma disclosures.
(2) Business Acquisitions
---------------------
Over the past three years, the following acquisitions have occurred, each
of which was accounted for using the purchase method of accounting. The
acquired assets and liabilities of the acquired entities were recorded at
their estimated fair values and the results of operations were included in
the Company's consolidated results of operations beginning from the date
acquired. Some recent allocations of fair value are preliminary, but the
Company does not believe that subsequent revisions will be significant.
F-11
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
Acquisition costs
----------------------
Roper shares Goodwill
-------------
Date Cash 000's Value Segment period
-------- ------- ----- ------ -------------------------- --------
Petroleum Analyzer 06/18/99 $ 36,439 - $ - Analytical Instrumentation 25 years
PMC/Beta 04/30/98 6,600 - - Industrial Controls 20 years
Photometrics 03/31/98 36,400 - - Analytical Instrumentation 25 years
Acton Research 02/27/98 9,300 75 1,936 Analytical Instrumentation 15 years
Flow Technology 12/01/97 10,000 - - Fluid Handling 20 years
IDS 10/31/97 4,900 15 352 Analytical Instrumentation 15 years
Petrotech 05/30/97 14,900 262 5,720 Industrial Controls 15 years
Princeton Instruments 05/16/97 36,000 138 2,640 Analytical Instrumentation 30 years
In November 1999, the Company acquired Redlake Imaging Corporation
("Redlake Imaging") and the Motion Analysis Systems Division ("MASD") of
Eastman Kodak Company. Total purchase costs were approximately $60,000
cash. Each of these companies designs, manufactures and markets high-speed
digital cameras used in automotive, industrial, military and research
markets. The MASD business also manufactures and markets high-resolution
digital cameras for the machine vision and image conversion markets. These
businesses will be included in the Company's Analytical Instrumentation
segment.
Petroleum Analyzer manufactures, markets and distributes instrumentation
products for petroleum analysis in the laboratory and process markets.
PMC/Beta manufactures and markets vibration-monitoring equipment and
operates as a division of the Company's Metrix unit.
Photometrics is a leading manufacturer and marketer of extremely sensitive
cooled CCD cameras and detectors for primary and applied research markets.
Subsequent to the acquisition of Photometrics, it was merged into Princeton
and the combined company was renamed Roper Scientific, Inc. ("Roper
Scientific").
Acton Research manufactures and markets spectrometers, monochromators and
optical components and coatings for various high-end analytical
applications.
Flow Technology manufactures and markets turbine flow meters, calibrators
and emissions measurement equipment for aerospace, automotive and
industrial markets.
IDS is a leading manufacturer of leak testing instrumentation primarily for
the medical and industrial supplies industry and operates as a division of
the Company's Uson unit.
Petrotech provides system integration of control products and systems for
turbines and compressors within the oil & gas, pipeline, process control
and power generation markets. Petrotech derives a considerable portion of
its revenues from manufacturing advanced turbine and compressor control
products.
Princeton Instruments (now part of Roper Scientific, see Photometrics
above) designs, manufactures and markets spectral and digital imaging
cameras supplied to a diverse end-user base including the scientific
F-12
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollars amounts in thousands, except per share data)
research market, industrial research markets and various industrial process
markets. During 1999, the Company settled its dispute with the seller of
Princeton Instruments regarding alleged breeches by the seller of certain
re presentations and warranties related to the purchase of Princeton
Instruments. Pursuant to the settlement, approximately 45,000 shares of the
Company's common stock, valued at $1,667, were returned to the Company. The
excess of the settlement above the amount previously estimated by the
Company was not material.
Using applicable rules, the following unaudited pro forma summary presents
the Company's consolidated results of operations as if the acquisitions
during fiscal 1999 and 1998 had occurred at the beginning of fiscal 1998.
However, actual results may have been different had the acquisitions
occurred at an earlier date and this pro forma information provides no
assurance as to future results.
Years ended October 31,
-----------------------
1999 1998
----------- ----------
Net sales $430,863 $445,403
Net earnings $ 46,914 $ 40,850
======== ========
Net earnings per share:
Basic $ 1.55 $ 1.32
======== ========
Diluted $ 1.51 $ 1.29
======== ========
(3) Supplemental Cash Flow Information
----------------------------------
A summary of annual supplemental cash flow information for the years
ended October 31 is as follows:
1999 1998 1997
-------- -------- ---------
Cash paid during the year for:
Interest $ 7,471 $ 6,869 $ 7,409
======= ======= ========
Income taxes, net of refunds received $20,826 $19,906 $ 20,207
======= ======= ========
Noncash investing activities:
Net assets of businesses acquired:
Fair value of assets, including goodwill $42,770 $69,755 $ 81,431
Liabilities assumed (6,427) (5,143) (17,408)
Common shares issued - (1,936) (8,712)
------- ------- --------
Cash paid, net of cash acquired $36,343 $62,676 $ 55,311
======= ======= ========
(4) Inventories
-----------
The components of inventories at October 31 are as follows:
1999 1998
-------- --------
Raw materials and supplies $27,811 $27,462
Work in process 14,556 10,700
F-13
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollars amounts in thousands, except per share data)
Finished products 15,724 14,885
Less LIFO reserve (1,690) (1,603)
------- -------
$56,401 $51,444
======= =======
F-14
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
(5) Property and Equipment
----------------------
The components of property and equipment at October 31 were as follows:
1999 1998
-------- --------
Land $ 1,524 $ 1,348
Buildings 20,604 14,682
Machinery, tooling and other equipment 58,712 53,579
-------- --------
80,840 69,609
Less accumulated depreciation and amortization (46,043) (37,704)
-------- --------
$ 34,797 $ 31,905
======== ========
(6) Accrued Liabilities
-------------------
Accrued liabilities at October 31 were as follows:
1999 1998
-------- --------
Wages and other compensation $ 14,478 $ 13,271
Commissions 4,317 4,489
Other 12,649 12,155
-------- --------
$ 31,444 $ 29,915
======== ========
(7) Income Taxes
------------
Earnings before income taxes for the years ended October 31 consist of
the following components:
1999 1998 1997
------- ------- -------
Domestic $59,972 $48,065 $47,704
Foreign 12,312 11,551 7,396
------- ------- -------
$72,284 $59,616 $55,100
======= ======= =======
Components of income tax expense for the years ended October 31 are as follows:
1999 1998 1997
------- ------- -------
Current:
Federal $16,317 $17,188 $15,414
State 1,102 353 993
Foreign 5,449 3,941 2,574
Deferred expense (benefit) 2,070 (1,182) (231)
------- ------- -------
$24,938 $20,300 $18,750
======= ======= =======
F-15
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
A reconciliation between the statutory federal income tax rate and the
effective income tax rate for the years ended October 31 were as follows:
1999 1998 1997
------ ------ ------
Federal statutory rate 35.0% 35.0% 35.0%
Exempt Income of Foreign Sales Corporation (3.7) (3.5) (4.0)
Goodwill amortization 2.3 2.2 1.5
Other, net 0.9 0.4 1.5
------ ------ -----
34.5% 34.1% 34.0%
====== ====== =====
Components of the deferred tax assets and liabilities at October 31 are
as follows:
1999 1998
------ ------
Deferred tax assets:
Reserves and accrued expenses $3,455 $4,511
Amortizable intangible assets 811 2,193
Postretirement medical benefits 584 540
Research and development 250 -
Inventories 880 422
------ ------
Total deferred tax assets 5,980 7,666
------ ------
Deferred tax liabilities:
Plant and equipment 760 629
Former IC-DISC recapture 872 1,019
------ ------
Total deferred tax liabilities 1,632 1,648
------ ------
Net deferred tax asset $4,348 $6,018
====== ======
The Company 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 all
deferred tax assets.
(8) Long-Term Debt
--------------
Long-term debt at October 31 consists of the following:
1999 1998
-------- --------
U.S. revolving credit facility $109,000 $119,000
German revolving credit facility 15,866 -
Other 5,650 7,056
-------- --------
130,516 126,056
Less current portion 20,857 5,749
-------- --------
$109,659 $120,307
======== ========
F-16
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
Future maturities of long-term debt during each of the next five years
ending October 31 and thereafter are as follows:
2000 $ 20,857
2001 127
2002 109,209
2003 110
2004 110
Thereafter 103
--------
$130,516
========
On May 15, 1997, the Company secured a new $200,000 U.S. revolving credit
facility by the amendment and restatement of its principal credit agreement
that theretofore had provided for a $100,000 facility. Financing under the
new agreement continues to be provided by a syndication of financial
institutions whose agent is Bank of America (following a merger between
Bank of America and NationsBank). The agreement requires annual commitment
fees ranging from 0.15% to 0.30% on the unused portion of the total credit
commitment, payable quarterly.
Borrowings under the U.S. revolving credit facility accrue interest at the
Company's option at either a function of the prime rate or LIBOR and are
secured only by a pledge of varying percentages of the capital stock of the
Company's subsidiaries to the lenders. The interest rate is also influenced
by certain financial ratios of the Company. There is a $10,000 sublimit for
letters of credit under this agreement. The weighted average interest rate
on the outstanding borrowings under this facility was 5.9% at October 31,
1999 and 5.9% at October 31, 1998.
At October 31, 1999, the Company had $88,055 in unused availability under
the U.S. revolving credit facility. In early November, the Company borrowed
$49,000 to fund its acquisition of MASD. The acquisition of Redlake Imaging
was financed with cash on hand at October 31, 1999.
The U.S. revolving credit facility generally provides for, among other
things, restrictions on certain future acquisitions and cash payments to
stockholders and for the Company to maintain certain minimum consolidated
tangible net worth and other financial ratios. Restricted payments to
stockholders include dividends and are limited to 50% of fiscal year net
earnings as defined in the agreement. The U.S. revolving credit facility is
effective through May 31, 2002.
In June 1999, the Company entered into a one year agreement with a German
bank to provide the Company with a $16,000 revolving credit facility.
Subsequent to the year-end, the revolving credit facility was increased to
$30,000. Outstanding borrowings under this facility may be denominated in
various currencies and such borrowings at October 31, 1999 were subject to
at a weighted average interest rate of 3.5%.
(9) Retirement and Other Benefit Plans
----------------------------------
The Company maintains two defined contribution retirement plans, under the
provisions of Section 401 of the Internal Revenue Code, covering
substantially all domestic employees not subject to collective bargaining
F-17
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
agreements. The Company partially matches employee contributions. Its costs
related to these two plans were $3,269, $3,293 and $2,530 in fiscal 1999,
1998 and 1997, respectively.
The Company also maintains a defined benefit retirement plan covering
employees of a foreign subsidiary, a plan that provides postretirement
medical benefits for employees at a number of its domestic subsidiaries and
a plan that supplements certain employees for the contribution ceiling
applicable to the Section 401 plans. The costs and accumulated benefit
obligations associated with each of these plans were not material.
Pursuant to the fiscal 1999 Petroleum Analyzer acquisitions, the Company
agreed to assume a defined benefit pension plan covering certain U.S.
employees subject to a collective bargaining agreement. Upon obtaining
necessary regulatory approvals, the Company intends to terminate this plan.
Total plan assets at October 31, 1999 were not material and the anticipated
costs associated with terminating this plan are not expected to be material
to the Company's financial statements.
In November 1999, the Company's Board of Directors (the "Board") approved
an employee stock purchase plan covering eligible employees whereby they
may designate up to 10% of eligible earnings to purchase the Company's
common stock at a 10% discount to the average closing price of the
Company's common stock at the beginning and end of a quarterly period. The
common stock sold to the employees may be either treasury stock, stock
purchased on the open market, or newly issued shares to be authorized by
the Board on a periodic basis.
(10) Common Stock Transactions
-------------------------
The Company's restated Certificate of Incorporation provides that each
outstanding share of the Company's common stock entitles the holder thereof
to five votes per share, except that holders of outstanding shares with
respect to which there has been a change in beneficial ownership during the
four years immediately preceding the applicable record date will be
entitled to one vote per share.
The Company's Board adopted a Shareholder Rights Plan whereby one Preferred
Stock Purchase Right (a "Right") accompanies each outstanding share of
common stock. Such Rights only become exercisable, or transferable apart
from the common stock, ten business days after a person or group acquires
various specified levels of beneficial ownership, with or without the
Board's consent. Each Right may be exercised to acquire one one-thousandth
of a newly issued share of the Company's Series A Preferred Stock, at an
exercise price of $170, subject to adjustment. Alternatively, upon the
occurrence of certain specified events, the Rights allow holders to
purchase the Company's common stock having a market value at such time of
twice the Right's exercise price. The Rights may be redeemed by the Company
at a redemption price of $.01 per Right at any time until the tenth
business day following public announcement that a 20% position has been
acquired or ten business days after commencement of a tender or exchange
offer. The Rights expire on January 8, 2006.
The Company periodically enters into agreements with the management of
newly-acquired companies for the issuance of Company common stock based on
the achievement of specified goals. A similar agreement was made with a
corporate executive. Under these agreements, 10,000 shares were issued
during fiscal 1997 and 20,000 shares are reserved for future issue.
F-18
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
(11) Stock Options
-------------
The Company has a stock option plan (the "Plan"), as amended, which
authorizes the issuance of up to 3,500,000 shares of common stock to
certain directors, key employees, and consultants of the Company and its
subsidiaries as incentive and/or nonqualified options. Options under the
Plan may be granted through December 17, 2001 at prices not less than 100%
of market value of the underlying stock at the date of grant. These options
vest annually and ratably over a five-year period from the date of the
grant. Options expire ten years from the date of grant. Payment of the
option price may be made in cash, extension of loans by the Company, or by
tendering shares of the Company's common stock having a fair market value
equal to the aggregate option price.
The Company also has a stock option plan for non-employee directors (the
"Non-employee Director Plan"). The Non-employee Director Plan provides for
each non-employee director appointed or elected to the Board initial
options to purchase 4,000 shares of the Company's common stock and
thereafter options to purchase an additional 4,000 shares per annum under
terms and conditions similar to the Plan, except that following their
grant, all options will become fully vested at the time of the Annual
Meeting of Shareholders in the next fiscal year and will be exercisable
ratably over five years from the date of grant.
A summary of stock option transactions under these plans is shown below:
Outstanding options Exercisable options
------------------- -------------------
Average Average
exercise exercise
000's price 000's price
----- -------- ------ --------
October 31, 1996 2,178 $ 13.51 677 $ 10.43
Granted 205 22.18
Exercised (171) 10.29
Canceled (80) 16.06
-----
October 31, 1997 2,132 14.51 995 11.58
Granted 389 27.59
Exercised (316) 10.73
Canceled (118) 19.48
-----
October 31, 1998 2,087 17.24 1,109 13.08
Granted 350 18.71
Exercised (251) 13.66
Canceled (69) 22.22
-----
October 31, 1999 2,117 $ 17.67 1,226 $ 14.67
===== ======= ===== =======
F-19
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
Options outstanding and exercisable at October 31, 1999 are summarized
below.
Outstanding options Exercisable options
------------------------------- -------------------
Average Average Average
exercise remaining exercise
Exercise price 000's price life 000's price
-------------- ----- -------- --------- ----- --------
$ 3.75 - 10.00 299 $ 6.31 3.1 years 299 $ 6.31
10.01 - 15.00 257 11.98 5.0 years 223 12.00
15.01 - 20.00 900 17.37 6.3 years 508 16.97
20.01 - 25.00 319 22.94 7.2 years 131 22.98
25.01 - 30.00 307 27.22 8.1 years 59 27.24
30.01 - 35.84 35 32.90 8.7 years 6 32.16
----- ------- --------- ----- -------
$ 3.75 - 35.84 2,117 $ 17.67 6.1 years 1,226 $ 14.67
===== ======= ========= ===== =======
For pro forma disclosure purposes, the weighted-average grant-date fair
value of options granted during the years ended October 31, 1999, 1998 and
1997 was $8.95 per share, $11.73 per share and $8.66 per share,
respectively. All options granted during each of the years ended October
31, 1999, 1998 and 1997 were at exercise prices equal to the market price
of the Company's common stock when granted.
1999 1998 1997
------- ------- -------
Risk-free interest rate (%) 5.75 6.25 6.25
Average expected option life (years) 7.00 7.00 7.00
Expected volatility (%) 35-41 28-36 24-26
Expected dividend yield (%) 0.75 0.75 0.75
Had the Company recognized compensation expense for the fair value of
options granted during fiscal 1999, 1998 and 1997 in accordance with the
provisions of SFAS 123, pro forma earnings and pro forma earnings per share
would have been as presented below.
1999 1998 1997
------- ------- -------
Net earnings, as reported $47,346 $39,316 $36,350
Net earnings, pro forma 44,177 36,094 35,110
Net earnings per share, as reported:
Basic 1.56 1.27 1.19
Diluted 1.53 1.24 1.16
Net earnings per share, pro forma:
Basic 1.46 1.16 1.15
Diluted 1.43 1.14 1.12
The disclosed pro forma effects on earnings do not include the effects of
options granted prior to fiscal 1996 since the provisions of SFAS 123 are
not applicable to options for this purpose. The pro forma effects of
applying SFAS 123 to fiscal 1999, 1998 and 1997 may not be representative
of the pro forma effects in
F-20
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
future years. Based on the historical vesting schedule of the Company's
option grants, the pro forma effects on earnings are most pronounced in the
early years following each grant. The timing and magnitude of any future
grants is at the discretion of the Company's Board and cannot be assured.
(12) Contingencies
-------------
The Company, 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. The Company is vigorously contesting all
product liability lawsuits which, in general, are based upon claims of the
kind which have been customary over the past several years. Based upon the
Company's past experience with resolution of its product liability 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 or results of operations of the
Company. Included in other noncurrent assets at October 31, 1999 are
estimated insurable settlements receivable from insurance companies of
$195.
Over the past five years, one of the Company's subsidiaries, Compressor
Controls, has made significant sales to large natural gas distribution
companies and compressor manufacturers in the countries of the former
Soviet Union. Certain of this business was on an open account basis. During
the fourth quarter of fiscal 1998, economic uncertainties in Russia and the
region deteriorated and a severe devaluation of the region's currencies
occurred. This created additional doubt concerning the collectibility of
certain accounts receivable from customers in this region. In response to
these events, the Company provided $3,800 to fully reserve all of these
receivables except those from RAO Gazprom. The Company believes that RAO
Gazprom receivables will be fully collected as most of these receivables
are secured by U.S. dollar letters of credit drawn on a European bank.
Accounts receivable at October 31, 1999 included amounts due from such
customers, primarily RAO Gazprom, of $8,383.
(13) Segment and Geographic Area Information
---------------------------------------
The Company's operations are grouped into three business segments based on
similarities between the Company's products and services: industrial
controls ("IC"), fluid handling ("FH") and analytical instrumentation
("AI"). The industrial controls segment's products include thermostatic
valves, pneumatic panel components, pressure and temperature sensors,
microprocessor-based turbomachinery control systems and associated
engineering services, and vibration monitoring instruments. Products
included within the fluid handling segment are rotary gear, progressing
cavity, positive displacement, centrifugal and piston-type metering pumps,
turbine flow meters, calibrators, emissions measuring equipment and
precision chemical dispensing products. The analytical instrumentation
segment's products include petroleum product analysis/test equipment,
microprocessor-based leak testers, CCD cameras and detectors and analytical
products used in the operation of transmission and scanning electron
microscopes.
There have been no material transactions between the Company's business
segments during any of the three years ended October 31, 1999. Sales
between geographic areas are primarily of finished products and are
accounted for at cost plus a profit margin. Operating profit by business
segment and by geographic area is
F-21
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
defined as sales less operating costs and expenses. Items below operating
profit on the Company's consolidated statement of earnings are not
allocated to the Company's business segments.
Identifiable assets are those assets used exclusively in the operations of
each business segment or geographic area, or which are allocated when used
jointly. Corporate assets were principally comprised of cash, recoverable
insurance claims, deferred compensation assets and property and equipment.
F-22
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
Selected financial information by business segment for the years ended
October 31 follows:
IC FH AI Corporate Total
--------- -------- --------- --------- ---------
1999
----
Net sales $ 160,090 $ 98,298 $ 148,868 $ - $ 407,256
Operating profit 29,973 27,386 27,713 (7,117) 77,955
Total assets:
Operating assets 55,704 37,245 88,405 - 181,354
Intangible assets, net 44,314 41,055 129,612 39 215,020
Other 3,411 (1,981) 6,408 15,951 23,789
---------
Total 420,163
Capital expenditures 1,935 1,702 1,425 86 5,148
Depreciation and amortization 4,398 3,474 7,795 299 15,966
1998
----
Net sales $ 177,258 $ 99,471 $ 112,441 $ - $ 389,170
Operating profit 31,458 24,125 16,417 (5,908) 66,092
Total assets:
Operating assets 65,127 35,843 61,036 - 162,006
Intangible assets, net 46,312 42,648 108,005 214 197,179
Other 5,015 (2,004) 7,533 11,804 22,348
---------
Total 381,533
Capital expenditures 2,139 1,706 1,475 182 5,502
Depreciation and amortization 4,331 3,440 6,195 468 14,434
1997
----
Net sales $ 123,129 $ 94,175 $ 80,932 $ - $ 298,236
Operating profit 22,402 25,853 18,292 (5,677) 60,870
Total assets:
Operating assets 76,067 34,355 57,511 - 167,933
Intangible assets, net 42,836 36,226 74,719 474 154,255
Other (517) (1,464) 2,740 6,373 7,132
---------
Total 329,320
Capital expenditures 1,817 1,693 1,347 127 4,984
Depreciation and amortization 3,712 2,844 4,347 497 11,400
F-23
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
Summarized data for the Company's U.S. and foreign operations (principally in
Europe and Japan) for the years ended October 31 are as follows:
Corporate
adjustments
United and elimi-
States Foreign nations Total
-------- ------- ----------- ---------
1999
----
Sales to unaffiliated customers $345,376 $61,880 $ - $ 407,256
Sales between geographic areas 20,282 4,760 (25,042) -
-------- ------- ---------- ---------
Net sales $365,658 $66,640 $ (25,042) $ 407,256
======== ======= ========== =========
Long-lived assets $229,898 $27,795 $ 651 $ 258,344
======== ======= ========== =========
1998
----
Sales to unaffiliated customers $336,985 $52,185 $ - $ 389,170
Sales between geographic areas 12,385 5,077 (17,462) -
-------- ------- ---------- ---------
Net sales $349,370 $57,262 $ (17,462) $ 389,170
======== ======= ========== =========
Long-lived assets $230,769 $ 7,178 $ 3,734 $ 241,681
======== ======= ========== =========
1997
----
Sales to unaffiliated customers $259,583 $38,653 $ - $ 298,236
Sales between geographic areas 7,326 3,795 (11,121) -
-------- ------- ---------- ---------
Net sales $266,909 $42,448 $ (11,121) $ 298,236
======== ======= ========== =========
Lon-lived assets $181,480 $10,691 $ 5,259 $ 197,430
======== ======= ========== =========
Export sales from the United States during the years ended October 31, 1999,
1998 and 1997 were $163,000, $160,000 and $111,000, respectively. In the year
ended October 31, 1999 these exports were shipped primarily to Europe (25%),
Russia (23%), Asia and the Far East (19%) and Latin America (15%).
F-24
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
Sales to customers outside the United States accounted for a significant
portion of the Company's revenues. Sales are attributed to geographic areas
based upon the location to which the product is shipped. Foreign countries
that accounted for at least 10% of consolidated net sales in any of the
past three years have been individually identified in the following table.
Other countries have been grouped by region.
IC FH AI Total
-------- ------- ------- --------
1999
----
Europe $ 26,219 $ 5,009 $39,586 $ 70,814
Asia and Far East 9,342 3,280 29,743 42,365
Russia 36,715 16 232 36,963
Latin America 16,959 2,875 4,974 24,808
Other 20,113 7,461 4,178 31,752
-------- ------- ------- --------
Total $109,348 $18,641 $78,713 $206,702
======== ======= ======= ========
1998
----
Europe $ 28,159 $ 4,720 $28,370 $ 61,249
Asia and Far East 13,230 6,362 21,951 41,543
Russia 43,811 - 372 44,183
Latin America 15,021 1,827 2,668 19,516
Other 20,893 4,707 3,997 29,597
-------- ------- ------- --------
Total $121,114 $17,616 $57,358 $196,088
======== ======= ======= ========
1997
----
Europe $ 22,125 $ 3,439 $18,741 $ 44,305
Asia and Far East 9,337 5,762 17,412 32,511
Russia 15,805 4 734 16,543
Latin America 7,410 1,264 2,409 11,083
Other 22,754 6,398 4,516 33,668
-------- ------- ------- --------
Total $ 77,431 $16,867 $43,812 $138,110
======== ======= ======= ========
F-25
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
(14) Quarterly Financial Data (Unaudited)
------------------------------------
Fiscal 1999 quarters
----------------------------------------------
First Second Third Fourth
------- -------- -------- ---------
Net sales $89,078 $100,452 $104,095 $113,631
Gross profit 43,644 52,887 54,258 59,714
Earnings from operations 13,496 20,143 21,184 23,132
Net earnings 7,840 12,039 12,796 14,671
Earnings per common share:
Basic $ 0.26 $ 0.40 $ 0.42 $ 0.48
======= ======== ======== ========
Diluted $ 0.26 $ 0.39 $ 0.41 $ 0.47
======= ======== ======== ========
Fiscal 1998 quarters
-------------------------------------------------
First Second Third Fourth
------- -------- -------- --------
Net sales $90,099 $ 95,995 $ 97,412 $105,664
Gross profit 45,467 48,415 48,299 48,772
Earnings from operations 17,741 17,670 18,002 12,679
Net earnings 10,720 10,634 10,560 7,402
Earnings per common share:
Basic $ 0.35 $ 0.34 $ 0.34 $ 0.24
======= ======== ======== ========
Diluted $ 0.34 $ 0.33 $ 0.33 $ 0.24
======= ======== ======== ========
F-26
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Schedule II - Consolidated Valuation and Qualifying Accounts
for the Years ended October 31, 1999, 1998 and 1997
(In thousands)
Additions
Balance at charged to Balance at
beginning costs and end
of year expenses Deductions Other of year
---------- ---------- ----------- ----- ----------
Allowance for doubtful accounts:
Year ended October 31, 1999 $6,915 $1,618 $(5,072) $299 $3,760
Year ended October 31, 1998 1,866 4,643 (173) 579 6,915
Year ended October 31, 1997 992 1,053 (714) 535 1,866
Reserve for inventory obsolescence:
Year ended October 31, 1999 4,081 2,257 (1,519) 1,950 6,769
Year ended October 31, 1998 2,053 1,558 (911) 1,381 4,081
Year ended October 31, 1997 1,310 1,037 (516) 222 2,053
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
and the effects of foreign currency translation adjustments for those
companies whose functional currency was not the U.S. dollar.
S-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Roper engaged Arthur Andersen LLP to serve as its independent public accountants
on May 13, 1999. Prior to that date, KPMG LLP had served as Roper's independent
public accountants. The decision to change public accountants was recommended by
the Audit Committee and approved by the Board of Directors.
In connection with the audits of Roper's two fiscal years ended October 31,
1998, and with respect to the subsequent period through May 13, 1999, there were
no disagreements with KPMG LLP on any matter of accounting principles or
practices, financial statements disclosure, or auditing scope or procedures,
which disagreements, if not resolved to their satisfaction, would have caused
them to make reference in connection with their opinion to the subject matter of
the disagreement.
KPMG LLP's reports on Roper's consolidated financial statements as of and for
the two fiscal year periods ended October 31, 1998 did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles.
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be included under the captions "BOARD OF
DIRECTORS AND EXECUTIVE OFFICERS - Proposal 1: Election of Three (3) Directors"
and "-- Executive Officers", and "VOTING SECURITIES -- Compliance with Section
16 (a) of the Securities and Exchange Act of 1934" in Roper's definitive Proxy
Statement which relates to the 2000 Annual Meeting of Shareholders of Roper to
be held on March 17, 2000 (the "Proxy Statement"), to be filed within 120 days
after the close of Roper's 1999 fiscal year, which information is incorporated
herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information to be included under the captions "BOARD OF
DIRECTORS AND EXECUTIVE OFFICERS - Meetings of the Board and Board Committees;
Compensation of Directors", "-- Related Transactions", "-- Compensation
Committee Interlocks and Insider Participation in Compensation Decisions", and
"--Executive Compensation" contained in the Proxy Statement, which information
is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information included under the captions "VOTING
SECURITIES" in the Proxy Statement, which information is incorporated herein by
this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information to be included under the captions "BOARD OF
DIRECTORS AND EXECUTIVE OFFICERS -- Related Transactions" in the Proxy
Statement, which information is incorporated herein by this reference.
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The Consolidated Financial Statements listed in Item 8 of Part II
are filed as a part of this Annual Report.
(a)(2) The following consolidated financial statement schedule on page S-1
is filed in response to this Item. All other schedules are omitted
or the required information is either inapplicable or is presented
in the consolidated financial statements or related notes:
II. Consolidated Valuation and Qualifying Accounts for the Years ended
October 31, 1999, 1998 and 1997.
(b). Reports on Form 8-K
-------------------
Roper did not file any Current Reports on Form 8-K during the fourth
quarter of fiscal 1999.
(c). Exhibits
--------
The following exhibits are separately filed with this Annual Report.
Exhibit No. Description of Exhibit
- ----------- ----------------------
2.1 Stock Purchase Agreement (Varlen Instruments, Inc.)
2.2 Stock Purchase Agreement (Walter Herzog GmbH)
2.3 Agreement to Purchase Partnership Interest (Herzog-Varlen
Instruments)
2.4 Asset Purchase Agreement (Kodak MASD Division)
2.5 Agreement and Plan of Merger (Redlake Imaging Corporation)
3.1/(a)/ Amended and Restated Certificate of Incorporation, including Form
of Certificate of Designation, Preferences and Rights of Series A
Preferred Stock
3.2/(b)/ Amended and Restated By-Laws
4.01/(c)/ Rights Agreement between Roper Industries, Inc. and SunTrust
Bank, Atlanta, Inc. as Rights Agent, dated as of January 8, 1996,
including Certificate of Designation, Preferences and Rights of
Series A Preferred Stock (Exhibit A), Form of Rights Certificate
(Exhibit B) and Summary of Rights (Exhibit C)
25
4.02/(b)/ Third Amended and Restated Credit Agreement dated May 15, 1997 by
and between Roper Industries, Inc. and NationsBank, N.A. (South)
and the lender parties thereto
4.03/(d)/ Amendment Agreement No. 1 to Amended and Restated Credit
Agreement
4.04/(d)/ Amendment Agreement No. 2 to Amended and Restated Credit
Agreement
4.05/(e)/ Amendment Agreement No. 3 to Amended and Restated Credit
Agreement
10.01/(a)/ 1991 Stock Option Plan, as amended
10.02/(e)/ Non-employee Director Stock Option Plan, as amended
10.03/(f)/ Form of Amended and Restated Indemnification Agreement
10.04/(a)/ Consulting Agreement (G.L. Ohrstrom & Co., Inc.)
10.06/(g)/ Amendment to G.L. Ohrstrom & Co., Inc. Consulting Agreement
21 List of Subsidiaries
23.1 Consent of Independent Auditors - Arthur Andersen LLP
23.2 Consent of Independent Auditors - KPMG LLP
27 Financial Data Schedule
__________________________
(a) Incorporated herein by reference to Exhibits 3.1, 10.2 and 10.5 to the
Roper Industries, Inc. Annual Report on Form 10-K filed
January 21, 1998.
(b) Incorporated herein by reference to Exhibits 3 and 4 to the Roper
Industries, Inc. Current Report on Form 8-K filed June 2, 1997.
(c) Incorporated herein by reference to Exhibit 4.02 to the Roper
Industries, Inc. Current Report on Form 8-K filed January 18, 1996.
(d) Incorporated herein by reference to Exhibits 4.03 and 4.04 to the
Roper Industries, Inc. Quarterly Report on Form 10-Q filed
August 21, 1998.
(e) Incorporated herein by reference to Exhibits 4.05 and 10.03 to the
Roper Industries, Inc. Annual Report on Form 10-K filed
January 20, 1999.
(f) Incorporated herein by reference to Exhibit 10.04 of the Roper
Industries, Inc. Quarterly Report on Form 10-Q filed August 31, 1999.
(g) Incorporated herein by reference to Exhibit 10.06 to the Roper
Industries, Inc. Quarterly Report on Form 10-Q filed June 11, 1999.
+ Management contract or compensatory plan or arrangement.
26
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Roper has duly caused this Report to be signed on its behalf by the
undersigned, therewith duly authorized.
ROPER INDUSTRIES, INC.
(Registrant)
By /S/ DERRICK N. KEY January 26, 2000
------------------------------------------
Derrick N. Key
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of Roper and in the
capacities and on the dates indicated.
/s/ DERRICK N. KEY Chairman of the Board, President January 26, 2000
- --------------------------------
Derrick N. Key and Chief Executive Officer
/s/ MARTIN S. HEADLEY Vice President and January 26, 2000
- --------------------------------
Martin S. Headley Chief Financial Officer
/s/ KEVIN G. McHUGH Controller January 26, 2000
- --------------------------------
Kevin G. McHugh
/s/ W. LAWRENCE BANKS Director January 26, 2000
- --------------------------------
W. Lawrence Banks
/s/ LUITPOLD VON BRAUN Director January 26, 2000
- --------------------------------
Luitpold von Braun
/s/ DONALD G. CALDER Director January 26, 2000
- --------------------------------
Donald G. Calder
/s/ JOHN F. FORT III Director January 26, 2000
- --------------------------------
John F. Fort III
/s/ WILBUR J. PREZZANO Director January 26, 2000
- --------------------------------
Wilbur J. Prezzano
/s/ GEORG GRAF SCHALL-RIAUCOUR Director January 26, 2000
- --------------------------------
Georg Graf Schall-Riaucour
/s/ ERIBERTO R. SCOCIMARA Director January 26, 2000
- --------------------------------
Eriberto R. Scocimara
/s/ CHRISTOPHER WRIGHT Director January 26, 2000
- --------------------------------
Christopher Wright
27
EXHIBIT INDEX
- -------------
Number Exhibit
- ------ -------
/a/2.1 Stock Purchase Agreement (Varlen Instruments, Inc.)
/b/2.2 Stock Purchase Agreement (Walter Herzog GmbH)
/c/2.3 Agreement to Purchase Partnership Interest (Herzog-Varlen
Instruments)
/d/2.4 Asset Purchase Agreement (Kodak MASD Division)
/e/2.5 Agreement and Plan of Merger (Redlake Imaging Corporation)
3.1 Amended and Restated Certificate of Incorporation, including Form
of Certificate of Designation, Preferences and Rights of Series A
Preferred Stock incorporated herein by reference to Exhibit 3.1
to the Roper Industries, Inc. Annual Report on Form 10-K filed
January 21, 1998
3.2 Amended and Restated By-Law incorporated herein by reference to
Exhibit 3 to the Roper Industries, Inc. Current Report on Form 8-
K filed June 2, 1997
4.01 Rights Agreement between Roper Industries, Inc. and Sun Trust
Bank, Atlanta, Inc. as Rights Agent, dated as of January 8, 1996,
including Certificate of Designation, Preferences and Rights of
Series A (Exhibit A), Form of Rights Certificate (Exhibit B) and
Summary of Rights (Exhibit C), incorporation by reference to
Exhibit 4.02 to the Roper Industries, Inc. Current Report on Form
8-K filed January 18, 1996
4.02 Third Amended and Restated Credit Agreement dated May 15, 1997 by
and between Roper industries, Inc. and Nationsbank, N.A. (South
and the lender parties thereto, incorporated herein by reference
to Exhibit 4 to the Roper Industries, Inc. Current Report on Form
8-K filed June 2, 1997
4.03 Amendment Agreement No. 1 to the Amended and Restated Credit
Agreement incorporated herein by reference to Exhibit 4.03 to
Roper Industries, Inc.'s Quarterly Report on Form 10-Q filed
August 21, 1998
4.04 Amendment Agreement No.2 to the Amended and Restated Credit
Agreement incorporated herein by reference to Exhibit 4.04 to
Roper Industries, Inc.'s Quarterly Report on Form 10-Q filed
August 21, 1998
4.05 Amendment Agreement No.3 to the Amended and Restated Credit
Agreement incorporated herein by reference to Exhibit 4.05 to
Roper Industries, Inc.'s Annual Report on Form 10-K filed January
20, 1999
10.01 1991 Stock Option Plan, as amended incorporated herein by
reference to Exhibit 10.2 to the Roper Industries, Inc. Annual
Report on Form 10-K filed January 21, 1998
10.02 Non-employee Director Stock Option Plan, as amended incorporated
herein by reference to Exhibit 10.03 to the Roper industries,
Inc. Annual Report on Form 10-K filed January 20, 1999
10.03 Form of Amended and Restated Indemnification Agreement
incorporated herein by reference to Exhibit 10.06 to the Roper
Industries, Inc. Quarterly Report on Form 10-Q filed August 31,
1999
10.04 Consulting Agreement (G.L. Ohrstrom & Co., Inc.) incorporated
herein by reference to Exhibit 10.05 to the Roper Industries,
Inc. Annual Report on Form 10-K filed January 21, 1998
10.06 Amendment to G.L. Ohrstrom & Co., Inc. Consulting Agreement
incorporated herein by reference to Exhibit 10.04 of the Roper
Industries, Inc. Quarter Report on Form 10-Q filed June 11, 1999
21 List of Subsidiaries
23.1 Consent of Independent Auditors - Arthur Anderson LLP
23.2 Consent of Independent Auditors - KPMG LLP
27 Financial Data Schedule
_____________________
/a/ The following schedules or similar attachments to this exhibit has been
omitted and will be furnished supplementally upon request.
Disclosure Schedule:
2.1(a) Organization and Standing
2.1(b) Consents, Authorization and Binding Effect
2.1(d) Capitalization of the Company
2.1(e) Subsidiaries
2.1(f) Minute Books and Stock Records
2.1(g) Financial Statements
2.1(h) Absence of Certain Changes
2.1(i) Title and Condition of Assets
2.1(j) Litigation; Compliance with Laws
2.1(k) Company Contacts
2.1(l) Pension and Other Employee Plans and Agreements
2.1(m)(iii) Tax Matters
2.1(p) Inventories
2.1(q) Intangible Assets
2.1(s) Employees
2.1(t) Real Estate
/b/ The following schedules or similar attachments to this exhibit has been
omitted and will be furnished supplementally upon request.
Disclosure Schedule:
2.1(a) Organization and Standing
2.1(b) Consents, Authorization and Binding Effect
2.1(d) Capitalization of the Company
2.1(f) Financial Statements
2.1(g) Absence of Certain Changes
2.1(i) Title and Condition of Assets
2.1(j) Company Contacts
2.1(k) Pension and Other Employee Plans and Agreements
2.1(l) Tax Matters
2.1(n) Receivables
2.1(o) Inventories
2.1(p) Intangible Assets
2.1(s) Real Estate
/c/ The following schedules or similar attachments to this exhibit has been
omitted and will be furnished supplementally upon request.
Disclosure Schedule:
2.1(a) Organization and Standing
2.1(d) Capitalization of the Company
2.1(f) Minute Books and Stock Records
2.1(g) Financial Statements
2.1(h) Absence of Certain Changes
2.1(i) Title and Condition of Assets
2.1(k) Company Contacts
2.1(s) Real Estate
/d/ The following schedules or similar attachments to this exhibit has been
omitted and will be furnished supplementally upon request.
Exhibits:
A-1 Agreement - Patent and Intellectual Property Licenses to Buyer
and Buyer's Covenant Not to Asset Buyer's Patient Rights
A-2 Seller License Agreement for Seller-Licensed Software
B Agreement - Patent and Intellectual Property Licenses to Buyer
and Buyer's Covenant Not to Asset Buyer's Patient Rights
C Image Sensor Supply Agreement between East Kodak Company and
Roper Industries, Inc.
D Transition Distribution Agreement
E Summary of Terms of Master License Agreement
F Development Agreement Term Sheet
Schedules:
1.1(a) Required Approvals
1.2(e) Persons with Knowledge
2.1(e) Assumed Leases and Assumed Contracts
2.1(f)(i) Transferred Patents
2.1(f)(ii) Transferred Trademarks
2.1(f)(iii) Transferred Product Development Projects
2.1(f)(iv) Transferred Software and firmware
2.1(f)(vi) Transferred Licenses
2.1(l) Certain Transferred Assets
2.2(o) Certain Excluded Assets
2.3(a)(i) Seller-Licensed Intellectual Property: Patents
2.3(a)(ii) Seller-Licensed Intellectual Property: Software
2.8 Closing Balance Sheet
3.3 Consents Other Than Required Approvals
3.6(b) September Balance Sheet
3.6(c) Financial Statement
3.6(d) Certain Liabilities
3.9(a) Litigation and Claims
3.9(b) Orders and Judgements
3.10(b) Intellectual Property: Infringement
3.11(a) Employee Benefits: U.S. Plans
3.11(b) Employee Benefits: Litigation
3.12 Environmental Matters
3.13(a) Labor Matters
3.16 Subsequent Changes
3.19 Year 2000 Compliance Plan
5.6(f) Licensed Trademarks
6.1 Employees
6.2 Roper Scientific Benefits for MASD Employees
/c/ The following schedules or similar attachments to this exhibit has been
omitted and will be furnished supplementally upon request.
Exhibits:
Exhibit A Escrow Agreement
Exhibit B Lease Consent
Exhibit C Financial Statements
Exhibit D Third Party Consents
Exhibit E Noncompetition Agreements
Exhibit F Employment Agreements
Exhibit G RPI Opinion
Exhibit H PGFM Opinion
Exhibit I Stockholder Notice Addresses
Schedules:
3(a) Organization of the Company
3(b) Noncontravention
3(d) Brokers Fees
3(e) Title to Assets
3(f) The Company Shares
3(h) Events Subsequent to September 30, 1999
3(k) Tax Matters
3(l) Real Property
3(m) Intellectual Property
3(p) Contracts
3(q) Accounts Receivable aged by Due Date
3(s) Insurance