SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K
(Mark One)
ROPER INDUSTRIES, INC. (Exact name of Registrant as specified in its charter)
160 Ben Burton RoadBogart, Georgia 30622(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (706) 369-7170
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, 2000: $1,011,942,929.
Number of shares of Registrant’s Common Stock outstanding as of December 31, 2000: 30,609,284.
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 16, 2001, are incorporated by reference into Part III
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, refrigeration, petrochemical processing, large diesel engine and turbine/compressor control applications, automotive, water and wastewater, 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, 2000 Compared to Year Ended October 31, 1999 (i) and (ii) — Year Ended October 31, 1999 Compared to Year Ended October 31, 1998.”
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 continued its growth in fiscal 2000 principally by new business and product-line acquisitions. In the Industrial Controls segment, Hansen Technologies was acquired in September 2000. Roper acquired two new Fluid Handling segment companies in February 2000; Flowdata, which was merged with Flow Technology, and Cybor, now operated as a division of Integrated Designs. A new industrial pump company also was added to the segment in May 2000 with the acquisition of Abel Pump. In August 2000, Antek Instruments was acquired to complement the Analytical Instrumentation segment’s Petroleum Analyzer business.
In addition to the new business acquisitions, an electron microscopy accessories product-line was acquired to extend Gatan’s business, and the European distribution rights to Compressor Controls’ products and services were also acquired from Honeywell International, Inc. and its affiliates.
These new business acquisitions and business expansion transactions were financed principally from borrowings and represented a combined investment of approximately $161.5 million. Roper’s debt under its primary credit facility was $232.6 million at October 31, 2000 and $109.0 million at October 31, 1999. Total debt was 47% and 36% of total capitalization at October 31, 2000 and 1999, respectively. Roper believes it is well positioned for additional new business and other business acquisitions.
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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 2000, 1999 and 1998, Roper’s net sales outside the U.S. were 52%, 51% and 50%, 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 $22.6 million, $16.7 million and $18.0 million in the years ended October 31, 2000, 1999 and 1998, respectively, on research and development activities.
The Industrial Controls segment’s principal products include a wide variety of machinery and other industrial valves, controls, control systems and measurement and monitoring instruments which are manufactured and distributed by five U.S.-based, and one European-based, operating companies. 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, and provides related engineering and commissioning services, 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, refrigeration, marine and general industrial markets. Most of these products are designed for use in hazardous 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.
Engineering, Procurement and Construction 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 on-site installation.
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Those classes of products within the Industrial Controls 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):
The following chart shows the breakdown of sales by market for fiscal 2000 for the Industrial Controls segment:
Backlog. The majority 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 original equipment manufacturers (“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 $29.2 million at October 31, 2000 compared to $29.3 million as of October 31, 1999.
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 21% of segment sales in fiscal 2000, and has indicated its interest to continue purchases of control systems for several years by agreeing to extend its existing supply agreement through 2007 to purchase an additional $150 million of control system products and services. 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”.
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The Fluid Handling segment’s principal products include general and specialty pumps and a range of flow metering products which are manufactured and distributed by five U.S.-based, and one European-based, operating units. 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 IndustrialPumps. 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 materials, such as 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, (iv) membrane and piston pumps which transport high solids content slurries used in a variety of industries including municipal, mining, ceramics, and food, (v) high-pressure piston pumps used in marine, food, and municipal applications, and (vi) 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.
IntegratedDispense and Chemical Management Systems for Semiconductor Applications.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 either incorporate no mechanical displacement, utilizing the application of electronically regulated pressure, or utilize positive displacement technology. Cabinet based systems manage the distributions of bulk chemicals used in wafer fabrication to equipment such as the dispense systems mentioned above.
Flow Metering Products.Roper manufactures turbine flow meters, positive displacement meters, emissions measurement equipment and flow meter calibration products for the aerospace, automotive and other industrial applications.
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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):
The following chart shows the breakdown of Fluid Handling segment sales by market for fiscal 2000:
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 larger project orders and blanket purchase orders for certain OEMs may extend for longer periods. This segment’s backlog of firm unfilled orders, including blanket purchase orders, totaled $26.1 million at October 31, 2000 compared to $14.4 million as of October 31, 1999. The increase was attributed to both improved business conditions throughout the segment and new business acquisitions.
Distribution and Sales. Distribution and sales occur through direct sales personnel, manufacturer’s representatives and stocking and non-stocking distributors.
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. However, no customer was responsible for as much as 10% of the segment’s fiscal 2000 net sales.
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The Analytical Instrumentation segment offers several lines of imaging products, testing and analysis products, and microscopy specimen preparation and handling products that are manufactured and distributed by ten U.S.-based, and two European-based, operating companies. 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 leak-testing products, (iii) industrial fluid properties testing products, (iv) microscopy specimen preparation/handling products and (v) spectroscopy products.
Digital Imaging Products. Roper manufactures and sells extremely sensitive, high-performance charge-coupled device cameras and detectors for a variety of scientific and industrial 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 OEM products.
Industrial Leak-Testing Products. Roper manufactures and sells products and systems to determine leaks and completeness of assemblies and sub-assemblies in the automotive, medical and consumer products industries.
Industrial Fluid Properties Testing Products. Roper manufactures and sells automated and manual test equipment to determine certain physical properties, such as sulfur and nitrogen content, flash point, viscosity, freeze point and distillation of liquids and gasses for the petroleum and other fluid product industries.
Microscopy Specimen Preparation/Handling Products. Roper manufactures and sells specimen preparation and handling equipment for use with electron and other 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.
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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):
The following chart shows the breakdown of Analytical Instrumentation segment sales by market for fiscal 2000:
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 $54.6 million at October 31, 2000 compared to $30.0 million as of October 31, 1999. Approximately half of the year-over-year increase was attributed to the fiscal 2000 acquisitions and the balance to general strength in the fiscal 2000 fourth quarter.
Distribution and Sales. Distribution and sales are achieved through a combination of manufacturers’ representatives, agents, distributors and direct sales offices in both the U.S. and various leading industrial nations.
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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. No segment customer accounted for as much as 10% of the segment’s sales.
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.
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. and foreign federal, state and local 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 manufacturers’ representatives, some of which impose substantive standards on these relationships.
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.
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 2000 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 systems which accounted for the majority of its fiscal 2000 sales. The U.S. patent will expire in 2011.
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As of October 31, 2000, Roper had approximately 2,600 total employees, of whom approximately 2,000 were located in the United States.
Roper’s corporate offices, consisting of 9,500 square feet of leased space, are located near 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.
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Roper is a defendant in various lawsuits involving product liability, employment practices 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 subject to insurance coverage.
No matter was submitted to a vote of Roper’s security-holders during the fourth quarter of fiscal 2000
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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 2000 and 1999 quarters. The last sales price reported by the NYSE on December 31, 2000, was $33.06.
Based on information available to Roper and its transfer agent, Roper believes that as of December 31, 2000 there were 241 record holders of its common stock.
Dividends.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 2000, Roper’s Board of Directors increased the quarterly dividend rate to $0.075 per share, an increase of 7%, 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, of cash dividends that will be declared in the future.
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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.
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The following discussion should be read in conjunction with Roper’s Consolidated Financial Statements and selected financial data included elsewhere in this Annual Report.
The following table sets forth selected information for the years indicated. Amounts are dollars in thousands and percentages are of net sales.
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Net sales for fiscal 2000 of $503.8 million, a 24% increase compared to the prior year, was the eighth consecutive year Roper established a record high. Excluding net sales to RAO Gazprom (“Gazprom”), a large Russian natural gas company, net sales increased 26% in fiscal 2000 compared to fiscal 1999. Net sales for fiscal 2000 were 1% less than pro forma net sales for fiscal 1999 (assuming fiscal 2000 acquisitions occurred at the same time in fiscal 1999).
Net sales for Roper’s Analytical Instrumentation segment increased 50%, mostly the result of business acquisitions (Petroleum Analyzer, MASD, Antek Instruments and other smaller businesses). This segment’s net sales were 2% less than the prior year’s pro forma net sales largely from lower comparative sales in fluid properties test equipment markets.
Net sales for Roper’s Fluid Handling segment increased 23%, mostly the result of business acquisitions (Flowdata, Cybor and Abel Pump) and a very strong fiscal 2000 for this segment’s semiconductor-related business. This segment’s net sales were 6% higher than pro forma net sales for fiscal 1999. Fluid Handling’s historical semiconductor business increased its net sales in fiscal 2000 by 81% (partly from favorable comparisons to reported net sales in the first half of fiscal 1999) and its recently-acquired business increased its net sales by 51% compared to the same period in the prior year. Fiscal 2000 net sales for this segment’s centrifugal pump business decreased 19% compared to the prior year due to weak agricultural and water/wastewater markets. Agricultural markets were adversely impacted by widespread drought conditions and low commodity prices in the United States. Roper believes the municipal water and wastewater markets were adversely affected by resources diverted to minimize Y2K exposures early in the fiscal year, and its centrifugal pump business had increased exposure to these markets as it developed larger pumps to pursue more lucrative projects. Fluid Handling’s piston metering pumps business’ net sales were also down 15% compared to fiscal 1999 as this company’s largest customer reduced its purchases until it resolves an FDA compliance problem unrelated to this company’s products. This company does not expect shipments to this customer to return to previous levels in the near future.
Net sales for Roper’s Industrial Controls segment decreased less than 1% in fiscal 2000 compared to fiscal 1999 and fiscal 2000 net sales were 3% less than pro forma fiscal 1999 net sales. The timing of this segment’s primary fiscal 2000 acquisition (Hansen Technologies) was such that it did not significantly affect fiscal 2000 results. This segment was significantly influenced by conditions in the exploration and production sectors of the oil & gas industry. Roper believes several large oil & gas business combinations early in the year delayed capital spending programs, and spending had yet to recover from the effects of relatively low oil and natural gas prices throughout much of fiscal 1999. Throughout fiscal 2000, net sales each quarter (excluding sales to Gazprom) improved in comparison to the same quarter of fiscal 1999. Whereas these first quarter net sales were down 22% compared to the prior year, fourth quarter net sales (also excluding Hansen Technologies) were up 13%. Net sales to Gazprom of $33.9 million in fiscal 2000 were comparable to fiscal 1999 net sales of $35.0 million.
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The gross profit percentage for the Analytical Instrumentation segment decreased to 54.4% in fiscal 2000 compared to 56.3% in fiscal 1999. This decrease arose mostly from the inclusion of MASD for most of fiscal 2000. If MASD’s results were excluded from the segment’s results in fiscal 2000, the segment’s gross profit percentage was 55.9%.
Selling, general and administrative (“SG&A) expenses as a percentage of net sales in fiscal 2000 and fiscal 1999 are presented in the following table.
SG&A expenses increased as a percentage of net sales for Roper as a whole because of the increased costs in the Fluid Handling segment and the increased size of the Analytical Instrumentation segment with its relatively high level of SG&A expenses compared to Roper’s other business segments.
SG&A expenses for the Fluid Handling segment increased as a percentage of net sales mostly due to relatively high cost structures of recent acquisitions, particularly Abel Pump and Flowdata. Roper expects to bring these cost structures more in line with the segment’s other businesses. Another significant reason for this segment’s increased SG&A expenses as a percentage of net sales was the adverse leverage associated with the decline in the segment’s centrifugal pump business combined with the added costs of this business moving into a larger facility early in fiscal 2000.
Interest expense was $13.5 million in fiscal 2000 compared to $7.3 million in fiscal 1999. Interest expense was higher in fiscal 2000 due primarily to the borrowings associated with the numerous acquisitions that occurred during fiscal 1999 and especially during fiscal 2000. All of these acquisitions, representing total costs of approximately $200 million during these two fiscal years, were paid for with cash provided by Roper’s then-existing credit facilities.
The provision for income taxes was 35.1% of pretax earnings in fiscal 2000 compared to 34.5% in fiscal 1999. The increase in the effective income tax rate was due to several of the recent acquisitions located in relatively high income tax rate jurisdictions and the amortization of some of the excess of the purchase price over the net assets acquired (“goodwill”) which was not deductible for income tax purposes.
Roper’s other components of comprehensive earnings in fiscal 2000 were currency translation adjustments resulting from net assets denominated in currencies other than the U.S. dollar. These net assets were primarily denominated in Euros, British pounds or Japanese yen. The U.S. dollar strengthened against each of these currencies during fiscal 2000, but especially against the Euro and particularly during Roper’s fourth quarter of fiscal 2000. During fiscal 2000, Roper’s consolidated net assets decreased $6.7 million ($4.1 million in the fourth quarter) due to foreign currency translation adjustments. Roper’s goodwill denominated in non-U.S. currencies also decreased by $6.7 million due to currency translation adjustments. Therefore, the impact of foreign currency translation adjustments during fiscal 2000 on Roper’s future cash flows is expected to be immaterial to Roper’s future cash flows.
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The following table summarizes Roper’s net sales orders and sales order backlog information (in thousands). The pro forma amounts include comparable time periods for those companies acquired during fiscal 2000.
The increase in Analytical Instrumentation’s net sales orders in fiscal 2000 compared to fiscal 1999 pro forma net sales orders was mostly due to an 8% increase in the segment’s digital imaging businesses and a 20% increase in its spectroscopy business (which was influenced by the strong semiconductor industry).
The increase in Fluid Handling’s net sales orders in fiscal 2000 compared to fiscal 1999 pro forma net sales orders was mostly due to continued strength in the segment’s semiconductor-related businesses, whose net sales orders increased 68%.
Net sales for fiscal 1999 of $407.3 million represented the seventh consecutive year that Roper established a record high. Net 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 net 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. Net 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 net 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 net sales increased 11% in fiscal 1999 compared to the prior year. Total Fluid Handling net 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.
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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’s gross profit also increased 1.7 points in fiscal 1999 compared to the prior year. The major contributors to this increase were a $1.9 million 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’s 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 improved consolidated gross profit percentage of 2.6 points in fiscal 1999 was due mostly to increased higher-margin Analytical Instrumentation sales.
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 33% in fiscal 1999 compared to 32% in fiscal 1998. This increase was attributed 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’s SG&A costs were 38% and 40% 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 $3.8 million of 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 in fiscal 1998.
Interest expense was 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 differences between the statutory income tax rate and the effective income tax rate for these years were 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.
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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 31%, 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.
On a pro forma basis to include fiscal 1999 acquisitions for the comparable prior year period, Analytical Instrumentation’s net sales orders and sales order backlog were up 8% and down 7%, respectively, in fiscal 1999 compared to fiscal 1998. Consolidated pro forma net sales orders and sales order 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 Analytical Instrumentation’s net sales orders 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’s net sales orders increased from its stronger centrifugal pump business and the increased sales order backlog reflected much better semiconductor industry conditions. Decreased Industrial Controls’ net sales orders reflected weak oil & gas industry conditions.
Working capital was $129.5 million at October 31, 2000 compared to $89.6 million at October 31, 1999. Total debt was $241.3 million at October 31, 2000 (47% of total capital) compared to $130.5 million at October 31, 1999 (36% of total capital). Roper’s increased financial leverage at October 31, 2000 compared to the prior year was due to the additional borrowings incurred to fund fiscal 2000 business acquisitions.
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Roper’s principal $275 million credit facility with a group of banks provides most of its daily external financing requirements, consisting of revolving loans, swing line loans and letters of credit. This facility also provides that up to $75 million of borrowings may be denominated in designated non-U.S. currencies. At October 31, 2000, $79.0 million of U.S. denominated borrowings and the equivalent of $28.6 million of non-U.S. denominated borrowings were outstanding under this facility. Total unused availability under this facility was $166.6 million at October 31, 2000. This facility matures May 2005.
Roper’s outstanding indebtedness at October 31, 2000 also included $125 million of term notes. One set of notes totaling $40 million bears interest at 7.58% and matures May 2007. The other set of notes totaling $85 million bears interest at 7.68% and matures May 2010. Neither set of notes requires sinking fund payments.
Roper’s other outstanding indebtedness at October 31, 2000 totaled $8.7 million. $6.4 million of this amount was with Japanese banks to fund normal business requirements of its Japanese operations.
Most of the increase in working capital at October 31, 2000 compared to October 31, 1999 resulted from the working capital of the businesses acquired during fiscal 2000. Approximately $28 million of working capital, excluding cash, was acquired with these businesses. Another large increase in working capital resulted from refinancing the short-term German revolving credit facility borrowings of $15.9 million that existed at October 31, 1999. This agreement was replaced by the non-U.S. borrowing capabilities of the $275 million credit facility.
Roper had significant capital expenditures of $15.2 million during the year ended October 31, 2000 in order to expand or move to larger facilities at Roper Pump, Cornell Pump and Compressor Controls. Research and development-related capital expenditures were also significant at Gatan and Roper Scientific, two of Roper’s digital imaging businesses. Roper anticipates capital expenditures will decline in fiscal 2001.
In November 2000, Roper’s Board of Directors increased the quarterly cash dividend paid on its outstanding common stock from $0.07 per share to $0.075 per share, an increase of 7%. This represents the eighth consecutive year in which the quarterly dividend has been increased since Roper’s 1992 initial public offering. There are no plans for further dividend increases during fiscal 2001.
Roper believes that internally generated cash flows and the remaining availability under its various 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 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.
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Roper anticipates that its recently acquired companies as well as its other companies will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of currently outstanding debt at a pace consistent with that which Roper historically has experienced. However, the rate at which Roper can reduce its debt during fiscal 2001 (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,” (and subsequently amended by SFAS 137 and SFAS 138) that will be applicable to Roper in its first quarter of fiscal 2001. 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.
The Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 101 – “Revenue Recognition in Financial Statements,” that will be applicable to Roper in its first quarter of fiscal 2001. SAB 101 reflects the basic principles of revenue recognition in existing generally accepted accounting principles and does not supersede any existing authoritative literature. SAB 101 represents the interpretations and practices of the Securities and Exchange Commission in administering the disclosure requirements of the Federal securities laws. Once adopted, these guidelines are not expected to significantly affect Roper’s revenue recognition practices. See Note 1 to Roper’s Notes to Consolidated Financial Statements for further discussion of this pronouncement.
Other accounting pronouncements have also been released whose effective dates were not yet applicable to Roper’s fiscal 2000 financial statements. However, none of these other standards are expected to significantly affect Roper’s future financial statements.
Fiscal 2001 is expected to be another record year for sales and earnings. Fiscal 2001 is expected to benefit from the full-year contributions from all of the acquisitions completed during fiscal 2000. Whereas the oil & gas industry has been a difficult market for Roper during the past two fiscal years, Roper’s Industrial Controls segment (the segment most dependent on this industry) had its highest level of sales and sales order bookings in the fourth quarter of fiscal 2000 than in any other quarter during this period. Roper is hopeful that this trend will continue. As announced previously, Roper has extended its long-term supply agreement with Gazprom whereby Gazprom will be supplied with an additional $150 million of equipment over and above the original agreement through December 2007. Roper expects that this extension will result in relatively consistent shipments to Gazprom in the near term.
20
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.
The information provided elsewhere in this Annual Report, in Roper’s filings with the Securities and Exchange Commission, in press releases and in other public disclosures contains forward-looking statements about Roper’s businesses and prospects. These forward-looking statements generally can be identified by use of statements that include phrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will” or other similar words or phrases. Similarly, statements that describe Roper’s objectives, plans or goals are or may be forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors which generally are beyond Roper’s control and which may cause Roper’s actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. Some of these risks include continuing improvement in Roper’s oil & gas markets, the level and timing of future business with Gazprom and other Eastern European customers, changes in interest rates, and the future operating results of the recently- and any 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.
21
Roper is exposed to interest rate risks on its outstanding borrowings. It is exposed to foreign currency exchange risks on its transactions denominated in currencies other than the U.S. dollar. It is also exposed to equity market risks pertaining to the traded price of its common stock.
At October 31, 2000, Roper had a combination of fixed-rate borrowings (primarily $125 million of term notes) and relatively variable-rate borrowings (primarily borrowings under the $275 million credit facility). Although each borrowing under the $275 million credit facility has a fixed rate, the terms of these individual borrowings are generally only 1-3 months.
At October 31, 2000, interest rates were higher than the fixed rates on the term notes. This resulted in the estimated fair values of the term notes being less than the face amounts of the notes. Roper estimated this difference to be $2.4 million and it represented an unrecorded increase in Roper’s net assets at October 31, 2000. If interest rates had been 0.1% higher, the difference between the fair values of the term notes and their face values would have increased to $3.2 million.
At October 31, 2000, Roper’s outstanding variable-rate borrowings under the $275 million credit facility were $107.6 million. An increase in interest rates of 0.1% would increase Roper’s annualized interest costs by $108,000.
Several Roper companies have transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in Euros (or equivalent currencies), British pounds or Japanese yen.
Sales by companies whose functional currency was not the U.S. dollar were 20% of Roper’s total sales. The U.S. dollar strengthened against each of these currencies during fiscal 2000 (British pound: 13% and Japanese yen: 4%) and especially against the Euro (25%) and especially during the fourth quarter (11%). These exchange rate changes adversely impacted fiscal 2000 sales by approximately $9.2 million, or less than 2% of total sales. The percentage impact on earnings was similar. A similar strengthening of the U.S. dollar against these currencies in fiscal 2001 can be expected to have a similar adverse impact on Roper’s financial results.
The weakening of these currencies during fiscal 2000 also resulted in a reduction of net assets that was reported as a component of comprehensive earnings. The decrease during fiscal 2000 was $6.7 million. However, Roper’s future cash flow exposure to this change in exchange rates was expected to be minimal.
The traded price of Roper’s common stock influences the valuation of stock option grants and the effects these grants have on pro forma earnings disclosed in Roper’s financial statements. The stock prices also influence the computation of the dilutive effect of outstanding stock options to determine diluted earnings per share. Certain cash compensation arrangements are also directly related to Roper’s stock price. The stock price also affects Roper’s employees’ perceptions of various Roper programs that involve its common stock.
22
The financial statements and supplementary data required by this item begin at page F-1 hereof.
23
F-1
To the Shareholders of Roper Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Roper Industries, Inc. (a Delaware corporation) and subsidiaries as of October 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders’ equity and comprehensive earnings and cash flows for the years then ended. These consolidated 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 consolidated financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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, 2000 and 1999, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedule listed in Item 14 (II) of this Annual Report on Form 10-K 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 audits 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.
Atlanta, GeorgiaDecember 6, 2000
F-2
The Board of Directors and StockholdersRoper Industries, Inc.:
We have audited the accompanying consolidated statements of earnings, stockholders’ equity and comprehensive earnings and cash flows of Roper Industries, Inc. and subsidiaries for the year ended October 31, 1998. In connection with our audit of the consolidated financial statements, we also audited the related financial statement schedule for the year ended October 31, 1998. 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 audit.
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 consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Roper Industries, Inc. and subsidiaries for the year ended October 31, 1998, 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 for the year ended October 31, 1998.
Atlanta, GeorgiaDecember 4, 1998
F-3
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 2000 and 1999(Dollar and share amounts in thousands, except per share data)
See accompanying notes to consolidated financial statements.
F-4
Consolidated Statements of Earnings
Years ended October 31, 2000, 1999 and 1998(Dollar and share amounts in thousands, except per share data)
F-5
Consolidated Statements of Stockholders’ Equity and Comprehensive Earnings
F-6
Consolidated Statements of Cash Flows
Years ended October 31, 2000, 1999 and 1998(In thousands)
F-7
ROPER INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements October 31, 2000, 1999 and 1998
F-8
F-9
F-10
F-11
F-12
F-13
F-14
F-15
F-16
F-17
F-18
ROPER INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsOctober 31, 2000, 1999 and 1998
F-19
F-20
F-21
F-22
ROPER INDUSTRIES, INC. AND SUBSIDIARIESSchedule II — Consolidated Valuation and Qualifying Accountsfor the Years ended October 31, 2000, 1999 and 1998
Deductions from the allowance for doubtful accounts represented the net write-off of uncollectible accounts receivable. Deductions from the inventory obsolescence reserve represented the disposal of obsolete items.
Other included the allowance for doubtful accounts and reserve for inventory obsolescence of acquired businesses at the dates of acquisition, the effects of foreign currency translation adjustments for those companies whose functional currency was not the U.S. dollar, reclassifications and other.
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, Roper provided $3.8 million to fully reserve these receivables, except those from RAO Gazprom, a large Russian natural gas company. These fully-reserved accounts were written off during fiscal 1999.
S-1
NOT APPLICABLE
25
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 2001 Annual Meeting of Shareholders of Roper to be held on March 16, 2001 (the “Proxy Statement”), to be filed within 120 days after the close of Roper’s 2000 fiscal year, which information is incorporated herein by this reference.
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”, “ — 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.
Reference is made to the information included under the captions “VOTING SECURITIES” in the Proxy Statement, which information is incorporated herein by this reference.
Not Applicable
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27
28
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.
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.
29
Section (c)(i)(D) — ConsiderationSection 3(a) — Organization of Company and SubsidiariesSection 3(b) — Trust InstrumentsSection 3(c) — NoncontraventionSection 3(e) — AssetsSection 3(f) — Company SharesSection 3(g) — Financial StatementsSection 3(h) — Events subsequent to 9/30/99Section 3(i) — Undisclosed LiabilitiesSection 3(k) — Tax MattersSection 3(l) — Real PropertySection 3(m) — Intellectual PropertySection 3(p) — ContractsSection 3(r) — Powers of AttorneySection 3(s) — InsuranceSection 3(t) — LitigationSection 3(u) — Product WarrantySection 3(w) — EmployeesSection 3(x) — Employee BenefitsSection 3(z) — Environment, Health & SafetySection 3(aa) — Business relationships with the Company and its subsidiariesSection 7 — Post Closing CovenantsSection 8(b) — Indemnification Provisions
Exhibits: Exhibit A — Escrow AgreementExhibit B — Financial Statements
Exhibit C — Third party consentsExhibit D — Noncompetition and Assignment of Inventions AgreementExhibit E — Indemnification and Release AgreementExhibit F — OmittedExhibit G — OpinionsExhibit H — Opinions
Disclosure Schedules: