SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
Amendment No. 1
(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, 2002
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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2160 Satellite Boulevard, Suite 200
Duluth, Georgia 30097
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 495-5100
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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
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Common Stock, $0.01 Par Value New York Stock Exchange
Preferred Stock Purchase Rights with respect
to Common Stock, $0.01 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 (ss.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. |X|
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, 2002: $1,148,012,000.
Number of shares of Registrant's Common Stock outstanding as of December 31,
2002: 31,366,442.
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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 21, 2003,
are incorporated by reference into Part III of this Form 10-K.
EXPLANATORY NOTE
Roper Industries, Inc. is filing this amendment to its Annual Report on
Form 10-K to correct a typographical error in footnote 14 to its consolidated
financial statements as of October 31, 2002 and 2001 and for the three years in
the period ended October 31, 2002 (included in Item 8 of the Annual Report). The
table listing net sales in countries and regions outside of the United States in
footnote 14 has been amended as follows: "88,669" has been changed to "8,669" in
the Industrial Controls column for 2002 sales in Latin America.
PART I
ITEM 1. BUSINESS
GENERAL
Roper Industries, Inc. ("Roper," "we" or "us") designs, manufactures and
distributes specialty industrial controls, fluid handling and analytical
instrumentation products worldwide, serving selected segments of a broad range
of markets. The principal markets include oil and gas, scientific and industrial
research, medical, semiconductor, refrigeration, automotive, water / wastewater,
power generation and general industrial.
Roper pursues consistent and sustainable growth in sales and earnings by
emphasizing continuous improvement in the operating performance of our existing
businesses, and by acquiring other carefully selected businesses, that offer to
our customers high value-added, engineered industrial products and solutions and
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 new businesses. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - - (i) Year Ended
October 31, 2002 Compared to Year Ended October 31, 2001 and (ii) - - Year Ended
October 31, 2001 Compared to Year Ended October 31, 2000."
Market Share, Market Expansion and Product Development. We compete in many
narrowly defined niche markets. Our position in these markets is typically as
the market leader or as a competitive alternate to the market leader. In those
markets where we are a regional leader we seek to sustain growth through
geographic expansion of our marketing efforts and the development of new
products for associated markets.
We continued our growth in fiscal 2002 principally through the full-year
contributions from businesses acquired during fiscal 2001, in particular Struers
and Logitech, and the partial year contributions from businesses acquired during
fiscal 2002, principally Zetec. Other businesses acquired during fiscal 2002
were Duncan Technologies, Qualitek, QImaging, and Definitive Imaging. Our fiscal
2002 acquisitions were purchased for cash and financed through borrowings under
existing credit agreements. Total acquisition costs during fiscal 2002 were
$82.8 million.
The outstanding debt under our primary credit agreement was $186.4 million at
October 31, 2002. Total outstanding debt at that date was $332.1 million, or 47%
of total capital (calculated as the sum of total debt and stockholders' equity),
or 2.6 x fiscal 2002's (EBITDA calculated as earnings before change in
accounting principle, interest, taxes, depreciation and amortization) unadjusted
for acquisitions. We believe we are well positioned to further expand our
businesses.
International Sales. Sales outside the United States continue to play an
important part in our business. International sales include sales of products
exported from the United States as well as products manufactured and sold
abroad. In fiscal 2002, 2001 and 2000, our net sales outside the
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U.S. were 58%, 52% and 51%, respectively, of total net sales. Information
regarding international operations is set forth in Note 14 of the Notes to
Consolidated Financial Statements included elsewhere in this Form 10-K ("Annual
Report").
Research and Development. We conduct applied research and development to improve
the quality and performance of our products, to develop new products and to
enter new markets. Our research and development often includes extensive field
testing of our products. We expensed $29.9 million (4.8% of net sales), $26.3
million (4.5% of net sales), and $22.6 million (4.5% of net sales) in the years
ended October 31, 2002, 2001 and 2000, respectively, on research and development
activities.
ANALYTICAL INSTRUMENTATION
Our analytical instrumentation segment offers high performance digital imaging
products and software, equipment and consumables for materials analysis, fluid
properties testing equipment, and industrial leak testing equipment. These
products and solutions are provided through nine U.S.-based, six European-based
and one Canadian-based operating units. Selected financial information for the
analytical instrumentation segment is set forth in Note 14 of the Notes to
Consolidated Financial Statements included elsewhere in this Annual Report.
Digital Imaging Products and Software. We manufacture and sell extremely
sensitive, high-performance charge-coupled device cameras, detectors and related
software for a variety of scientific and industrial uses, which require high
resolution and/or high speed digital video, including transmission electron
microscopy and spectroscopy applications. We also manufacture and sell
spectrometers, monochrometers and optical components and coatings for various
high-end 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 manufacturer ("OEM") products.
Materials Analysis Equipment and Consumables We manufacture and sell
semiconductor equipment and supplies various types of equipment necessary to
extract and shape certain materials for production and to prepare materials
samples for testing and analysis. This equipment includes specimen handling
products for use with electron and other microscopes that are incorporated into
OEM equipment and are also sold as a retrofit for microscopes currently in use.
Consumable supplies are also sold to assist customers with the preparation of
high quality samples. These products are mostly used within the academic,
government research, electronics, biological and material science end-user
markets.
Fluid Properties Testing Equipment. We manufacture and sell automated and manual
test equipment to determine certain physical and elemental properties, such as
sulfur and nitrogen content, flash point, viscosity, freeze point and
distillation, of liquids and gasses for the petroleum and other industries.
Industrial Leak Testing Equipment. We manufacture and sell products and systems
to determine any leaks and confirm the integrity of assemblies and
sub-assemblies in the automotive, medical and consumer products industries.
2
The following table sets forth information regarding each class of products
within the analytical instrumentation segment that accounted for at least 10% of
our total net sales in any of the periods presented (in thousands):
Year ended October 31,
--------------------------------
2002 2001 2000
-------- -------- --------
Digital imaging products and software $114,162 $123,055 $118,316
Materials analysis equipment
and consumables 118,819 61,970 33,829
Fluid properties testing equipment 68,180 63,022 51,499
The following chart shows the breakdown of the analytical instrumentation
segment's sales by end market for fiscal 2002:
[THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
General Industrial 13%
Semiconductor 5%
Research 32%
Automotive 10%
Oil & Gas 18%
Medical 3%
Electronics 4%
Other 15%
Backlog. Our 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 $57.9 million at
October 31, 2002 compared to $62.6 million at October 31, 2001. The decrease was
attributed to successful efforts to reduce delivery times at Struers and
Logitech along with weaker markets conditions, particularly in the automotive,
electronics and semiconductor end markets.
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 other countries.
3
Customers. Each of the operating units 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. Some of the operating units have sales to one or a few customers that
represent a significant portion of their respective sales and we expect the
relative importance of such a concentrated customer base for these operating
units to continue. However, none of this segment's customers accounted for as
much as 10% of its net sales during fiscal 2002.
INDUSTRIAL CONTROLS
Our industrial controls segment produces control systems, industrial valves and
controls and machinery vibration and other non-destructive inspection and
measurement instrumentation. These products and solutions are provided through
seven U.S.-based and one European-based operating units. Selected financial
information for the industrial controls segment is set forth in Note 14 of the
Notes to Consolidated Financial Statements included elsewhere in this Annual
Report.
Control Systems. We manufacture control systems and panels, and provides related
engineering and commissioning services, for applications involving compressors,
turbines, and engines in the oil and gas, pipeline, power generation and marine
engine markets.
Industrial Valves and Controls. We manufacture a variety of valves, sensors,
switches and control products used on engines, compressors, turbines and other
powered equipment for the oil and gas, pipeline, power generation,
refrigeration, marine engine and general industrial markets. Most of these
products are designed for use in hazardous environments.
Non-destructive Inspection and Measurement Instrumentation. We manufacture
non-destructive inspection and measurement solutions including measurement
probes, robotics, and machinery vibration sensors, switches and transmitters.
These solutions are applied in power generation, aerospace and broader
industrial markets. Many of these products are designed for use in hazardous
environments.
4
The following table sets forth information regarding each class of products
within the industrial controls segment that accounted for at least 10% of our
total net sales in any of the periods presented below were as follows (in
thousands):
Year ended October 31,
---------------------------------
2002 2001 2000
-------- -------- -------
Control systems $112,139 $109,325 $91,409
Industrial valves and controls 61,364 63,235 27,996
The following chart shows the breakdown of sales by end market for the
industrial controls segment during fiscal 2002:
[THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Refrigeration 15%
General Industrial 6%
Oil & Gas - Other 25%
Other 5%
Oil & Gas - Pipeline 35%
Power Generation 11%
Marine 3%
Backlog. The majority of this segment's business consists of larger engineered
oil and gas development and transmission projects with lead times of three to
nine months. As such, backlog typically fluctuates significantly dependent upon
the timing of large project awards. 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. Our companies in this segment enters into blanket purchase
orders for the manufacture of products for certain OEMs and end-users over
periods of time specified by these customers. This segment's backlog of firm
unfilled orders, including blanket purchase orders, totaled $35.4 million at
October 31, 2002 compared to $31.2 million at October 31, 2001.
Distribution and Sales. Distribution and sales occur through direct sales
offices, manufacturers' representatives and industrial machinery distributors.
Customers. Each of the industrial controls segment's business units sells to a
variety of customers worldwide. RAO Gazprom, a Russian enterprise that is the
world's largest gas provider continued to be the biggest single customer in this
segment for fiscal 2002, accounting for approximately 28% of its sales, compared
to 25% in fiscal 2001. Gazprom has indicated its interest to continue
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purchases of control systems through 2007. However, we expect sales to Gazprom
in fiscal 2003 to be reduced in amount and as a percentage of this segment's
sales compared to fiscal 2002 levels. The continuation of this business with
Gazprom is subject to numerous risks, many of which are beyond our control,
including, but not limited to, increased competition, availability of acceptable
financing and customer delays in commissioning and start-up of installations.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Forward Looking Information".
FLUID HANDLING
Our fluid handling segment produces industrial pumps, semiconductor production
equipment and flow measurement and metering equipment. These products and
solutions are provided through five U.S.-based and one European-based operating
units. Selected financial information for the fluid handling segment is set
forth in Note 14 of the Notes to Consolidated Financial Statements included
elsewhere in this Annual Report.
Industrial Pumps. We design, manufacture and distribute a wide variety of pumps.
These pumps vary significantly in complexity and in pumping method employed,
which allows for the movement and application of a diverse range of liquids and
solids including low and viscosity liquids, high solids content slurries and
chemicals. Our pumps are used in large and diverse set of end markets such as
oil and gas, agricultural, water/wastewater, medical, chemical and general
industrial.
Semiconductor Production Equipment. We manufacture microprocessor-based
integrated dispense systems that 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 distribution of bulk chemicals used in wafer
fabrication to equipment such as the dispense systems mentioned above.
Flow Measurement and Metering Equipment. We manufacture turbine and positive
displacement flow meters, emissions measurement equipment and flow meter
calibration products for aerospace, automotive, power generation and other
industrial applications.
The following table sets forth information regarding each class of products
within the fluid handling segment that accounted for at least 10% of our total
net sales in any of the periods presented (in thousands):
Year ended October 31,
-------------------------------
2002 2001 2000
------- ------- -------
Industrial pumps $83,484 $90,315 $78,895
The following chart shows the breakdown of the fluid handling segment's sales by
end market during fiscal 2002:
6
[THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Semiconductor 7%
Medical 7%
Power Generation 7%
Oil & Gas 6%
Food Processing 5%
Agriculture 7%
Aerospace 4%
Transportation 5%
Water and Wastewater 15%
General Industrial 25%
Other 12%
Backlog. The fluid handling operating units' 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 $19.8 million
at October 31, 2002 compared to $21.7 million at October 31, 2001. The decrease
was attributed primarily to significantly reduced demand for semiconductor
equipment products as that market continued to be depressed throughout fiscal
2002.
Distribution and Sales. Distribution and sales occur through direct sales
personnel, manufacturers' representatives and stocking and non-stocking
distributors.
Customers. Some of the fluid handling segment's operating unit's have sales to
one or a few customers that represent a significant portion of that operating
unit's sales and the relative importance of such a concentrated customer base
for these operating unit's is expected to continue. However, no customer was
responsible for as much as 10% of this segment's net sales during fiscal 2002.
MATERIALS AND SUPPLIERS
We believe that most materials and supplies used by us are readily available
from numerous sources and suppliers throughout the world which are adequate for
our needs. Some high-performance components for digital imaging products can be
in short supply and/or suppliers have occasional difficulty manufacturing such
components to our specifications. We regularly investigate and identify
alternative sources where possible and we believe that these conditions equally
affect our competitors and, thus far, it has not had a significant adverse
effect on sales although delays in shipments have occurred following such supply
interruptions.
7
ENVIRONMENTAL MATTERS AND OTHER GOVERNMENTAL REGULATION
Roper's operations and properties are subject to increasingly stringent laws and
regulations relating to environmental protection, including laws and regulations
governing air emissions, water discharges, waste management and workplace
safety. These laws and regulations can result in the imposition of substantial
fines and sanctions for violations and could require the installation of costly
pollution control equipment or operational changes to limit pollution emissions
and/or decrease the likelihood of accidental hazardous substance releases. We
must conform our operations and properties to these laws and adapt to regulatory
requirements in all countries as these requirements change. It is our policy to
comply with all applicable regulatory requirements.
We use and generate hazardous substances and waste in our operations and, as a
result, could be subject to potentially material liabilities relating to the
investigation and clean-up of contaminated properties and to claims alleging
personal injury. We have experienced, and expects to continue to experience,
operating costs to comply with environmental laws and regulations. In connection
with our acquisitions, we may assume significant environmental liabilities, some
of which we may not be aware of at the time of acquisition. In addition, new
laws and regulations, stricter enforcement of existing laws and regulations, the
discovery of previously unknown contamination or the imposition of new clean-up
requirements could require us to incur costs or become the basis for new or
increased liabilities.
COMPETITION
Generally, the products and solutions we offer our business segments face
significant competition, usually from a limited number of competitors. Although
we believe that we are a leader in most of our markets, no single company is a
leading competitor with us over a significant number of product lines.
Competitors might be large or small in size, often depending on the life cycle
and maturity of the technology employed. We compete primarily on product
quality, performance, innovation, price, applications expertise and customer
service capabilities.
PATENTS AND TRADEMARKS
We own the rights under a number of patents and trademarks relating to certain
of our products and businesses. While it believes that none of our operating
unit's are 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, Redlake 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 2002 sales was of equipment that
incorporated innovations that are the subject of several such patents that 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 that accounted for the majority of its fiscal 2002 sales. The U.S.
patent will expire in 2011.
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EMPLOYEES
As of October 31, 2002, we had approximately 3,100 total employees, of whom
approximately 2,100 were located in the United States.
OTHER INFORMATION
Roper was incorporated in Delaware in 1981.
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ITEM 2. PROPERTIES
In early January 2003, we relocated our corporate office to the Atlanta area
where we lease approximately 13,800 square feet of office space. We have
established sales and service locations around the world to support our
operations. The following table sets forth our principal properties.
Square footage
---------------------
Location Property Owned Leased Industry segment
--------------------- ------------ --------- -------- --------------------------
Phoenix, AZ Office / Mfg -- 45,900 Fluid Handling
Tucson, AZ Office / Mfg -- 37,300 Analytical Instrumentation
Burnaby, B.C., Canada Office / Mfg -- 8,200 Analytical Instrumentation
Pleasanton, CA Office -- 19,400 Analytical Instrumentation
Richmond, CA Office / Mfg 67,400 -- Industrial Controls
San Diego, CA Office / Mfg -- 43,000 Analytical Instrumentation
Rodovre, Denmark Office / Mfg -- 114,000 Analytical Instrumentation
Verson, France Office / Mfg -- 22,500 Industrial Controls
Commerce, GA Office / Mfg 203,800 -- Fluid Handling
Buchen, Germany Office / Mfg 191,500 -- Fluid Handling
Lauda, Germany Office / Mfg 37,900 -- Analytical Instrumentation
Des Moines, IA Office / Mfg -- 88,000 Industrial Controls
Belle Chasse, LA Office / Mfg -- 33,200 Industrial Controls
Burr Ridge, IL Office / Mfg 55,000 -- Industrial Controls
Acton, MA Office / Mfg -- 32,700 Analytical Instrumentation
Silver Spring, MD Office -- 11,800 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 -- 76,300 Analytical Instrumentation
Carrollton, TX Office / Mfg -- 22,000 Fluid Handling
Houston, TX Office / Mfg 16,200 -- Industrial Controls
Houston, TX Office / Mfg -- 35,000 Analytical Instrumentation
Houston, TX Office / Mfg -- 27,500 Analytical Instrumentation
McKinney, TX Office / Mfg -- 25,000 Industrial Controls
Bury St. Edmunds, U.K. Office / Mfg 90,000 -- Industrial Controls
Cambridge, U.K. Office / Mfg -- 14,000 Analytical Instrumentation
Glasgow, U.K. Office / Mfg 27,700 -- Analytical Instrumentation
Oxford, U.K. Office / Mfg 5,500 Analytical Instrumentation
Issaquah, WA Office / Mfg -- 86,400 Industrial Controls
We consider each of the above facilities 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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ITEM 3. LEGAL PROCEEDINGS
We are a defendant in various lawsuits involving product liability, employment
practices and other matters, none of which we believe would have a material
adverse effect on our consolidated financial position or results of operations.
The majority of such claims are subject to insurance coverage. Since 2001, we
and/or one of our subsidiaries have been named as defendants, along with many
other companies, in asbestos-related personal injury or wrongful death actions.
The allegations in these actions are vague, general and speculative, and the
actions are in their early stages. Given the state of these claims it is not
possible to determine the potential liability, in any.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matter was submitted to a vote of our security-holders during the fourth
quarter of fiscal 2002.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Roper's common stock trades on the New York Stock Exchange ("NYSE") under the
symbol "ROP". The table below sets forth the range of high and low sales prices
for our common stock as reported by the NYSE as well as cash dividends paid
during each of our fiscal 2002 and 2001 quarters.
Cash Dividends
High Low Paid
------- ------- --------------
2002 4th Quarter $ 39.14 $ 27.25 $ 0.0825
3rd Quarter 46.90 29.00 0.0825
2nd Quarter 51.90 41.04 0.0825
1st Quarter 52.91 35.90 0.0825
2001 4th Quarter $ 45.00 $ 31.00 $ 0.0750
3rd Quarter 45.80 34.99 0.0750
2nd Quarter 43.00 33.65 0.0750
1st Quarter 38.50 29.94 0.0750
Based on information available to us and our transfer agent, we believe that as
of December 31, 2002 there were 203 record holders of our common stock.
Dividends. Roper has declared a cash dividend in each fiscal quarter since our
February 1992 initial public offering and we have also annually increased our
dividend rate since our initial public offering. In November 2002, our board of
directors increased the quarterly dividend to be paid in the first quarter of
fiscal 2003 to $0.0875 per share, an increase of 6% from the prior rate.
However, the timing, declaration and payment of future dividends will be at the
sole discretion of our board of directors and will depend upon our
profitability, financial condition, capital needs, future prospects and other
factors deemed relevant by our board of directors. Therefore, there can be no
assurance as to the amount, if any, of cash dividends that will be declared in
the future.
Recent Sales of Unregistered Securities. None
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ITEM 6. SELECTED FINANCIAL INFORMATION
The consolidated selected financial data presented below have 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. The
Consolidated Financial Statements for fiscal years 1999 and 2000 were audited by
Arthur Andersen LLP (Andersen), a firm that has ceased operations. A copy of the
report previously issued by Andersen on our financial statements as of October
31, 2000 and 1999, and for the years then ended is included elsewhere in this
Report. Such report has not been reissued by Andersen.
Year ended October 31,
------------------------------------------------------------
2002(1) 2001(2) 2000(3) 1999(4) 1998(5)
-------- -------- -------- -------- --------
(in thousands, except per share data)
Operations data:
Net sales $627,030 $586,506 $503,813 $407,256 $389,170
Gross profit 336,319 308,970 258,824 210,503 190,953
Income from operations 114,829 98,428 88,196 77,955 66,092
Earnings before change in accounting principle 66,023 55,839 49,278 47,346 39,316
Per share data:
Earnings before change in accounting principle:
Basic $ 2.12 $ 1.82 $ 1.62 $ 1.56 $ 1.27
Diluted 2.08 1.77 1.58 1.53 1.24
Dividends 0.33 0.30 0.28 0.26 0.24
Balance sheet data:
Working capital $117,385 $128,812 $129,463 $ 89,576 $ 82,274
Total assets 828,973 762,122 596,902 420,163 381,533
Long-term debt, less current portion 311,590 323,830 234,603 109,659 120,307
Stockholders' equity 376,012 323,506 270,191 231,968 197,033
(1) Includes results of Zetec from August 2002 and several smaller businesses
acquired during fiscal 2002.
(2) Includes results of Struers and Logitech from September 2001 and several
smaller businesses acquired during fiscal 2001.
(3) Includes results of Redlake MASD from November 1999, Abel Pump from May
2000, Antek Instruments from August 2000, Hansen Technologies from
September 2000 and several smaller businesses acquired during fiscal 2000.
(4) Includes results of Petroleum Analyzer companies acquired in June 1999.
(5) Includes results of Photometrics from April 1998 and several smaller
businesses acquired during fiscal 1998.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion in conjunction with "Selection
Financial Information" and our consolidated financial statements and related
notes included elsewhere in this Annual Report. Within this Annual Report, we
have provided pro forma sales and sales orders information. This pro forma
information is not presented in accordance with generally accepted accounting
principles and does not conform to the pro forma information presented in our
consolidated financial statements. We present this pro forma information because
management believes that the information illustrates the impact of acquisitions
on our performance.
For the purposes of calculating pro forma net sales, net sales orders and sales
order backlog information, we have added sales and sales order information of
each company that Roper has acquired during one of the two periods being
compared to the appropriate period, so that the acquired company's results are
included for the same number of months for both periods. Further, pro forma net
sales, net sales orders and sales order backlog information exclude amounts
attributable to discontinued or divested operations for the period presented.
Application of Critical Accounting Policies
Our consolidated financial statements are prepared in conformity with generally
accepted accounting principles in the United States, or GAAP. A discussion of
our significant accounting policies can be found in the notes to our
consolidated financial statements for the year ended October 31, 2002 included
elsewhere in this Annual Report.
GAAP offers acceptable alternative methods for accounting for certain issues
affecting our financial results, such as determining inventory cost,
depreciating long-lived assets, recognizing revenues and issuing stock options
to employees. We have not changed the application of acceptable accounting
methods or the significant estimates affecting the application of these
principles in the last three years in a manner that had a material effect on our
financial statements, except for the adoption of Statement of Financial
Accounting Standards, or SFAS, No. 142, "Goodwill and Other Intangible Assets"
as discussed below.
The preparation of financial statements in accordance with GAAP requires the use
of estimates, assumptions, judgments and interpretations that can affect the
reported amounts of assets, liabilities, revenues and expenses, the disclosure
of contingent assets and liabilities and other supplemental disclosures.
The development of accounting estimates is the responsibility of our management.
Our management discusses those areas that require significant judgments with the
audit committee of our board of directors. The audit committee has reviewed all
financial disclosures in our annual filings with the SEC. Although we believe
the positions we have taken with regard to uncertainties are reasonable, others
might reach different conclusions and our positions can change over time as more
information becomes available. If an accounting estimate changes, its effects
are accounted for prospectively.
14
Our most significant accounting uncertainties are encountered in the areas of
accounts receivable collectibility, inventory utilization, future warranty
obligations, revenue recognition (percent of completion), income taxes and
goodwill analysis. These issues, except for income taxes, which are not
allocated to our business segments, affect each of our business segments. These
issues are evaluated primarily using a combination of historical experience,
current conditions and relatively short-term forecasting.
Accounts receivable collectibility is based on the economic circumstances of
customers and credits given to customers after shipment of products, including
in certain cases, credits for returned products. Accounts receivable are
regularly reviewed to determine customers who have not paid within agreed upon
terms, whether these amounts are consistent with past experiences, what
historical experience has been with amounts deemed uncollectible and the impact
that current and near-term forecast economic conditions might have on collection
efforts in general and with specific customers. The returns and other sales
credits histories are analyzed to determine likely future rates for such
credits. At October 31, 2002, our allowance for doubtful accounts receivable,
sales returns and sales credits was $3.8 million, or 3% of total gross accounts
receivable excluding securitized Gazprom receivables from a vendor financing
program. This percentage is influenced by the risk profile of the underlying
receivables. During 2002, that profile improved with the acquisition of Zetec
and other improvements in collections from core businesses, and the allowance
was reduced as a percent of net sales by 50 basis points.
We regularly compare inventory quantities on hand against anticipated future
usage, which we determine as a function of historical usage or forecasts related
to specific items in order to evaluate obsolescence and excessive quantities.
When we use historical usage, this information is also qualitatively compared to
business trends to evaluate the reasonableness of using historical information
as an estimate of future usage. Business trends can change rapidly and these
events can affect the evaluation of inventory balances. At October 31, 2002,
inventory reserves for excess and obsolete inventory were $20.2 million, or 18%
of gross first-in, first-out inventory cost. This percentage has increased by
390 basis points over the year as the relative age of inventory increased during
the cyclical downturn.
Most of our sales are covered by warranty provisions that generally provide for
the repair or replacement of qualifying defective items for a specified period
after the time of sale, typically 12 months. Future warranty obligations are
evaluated using, among other factors, historical cost experience, product
evolution and customer feedback. At October 31, 2002, the accrual for future
warranty obligations was $3.7 million or 0.5% of proforma sales. Our expense for
warranty obligations was less than 1% of net sales for each of the three years
ended October 31, 2002.
Revenues related to the use of the percentage-of-completion method of accounting
are dependent on a comparison of total costs incurred compared with total
estimated costs for a project. During fiscal 2002, 2001 and 2000, we recognized
revenue of approximately $1.9 million, $7.9 million and $5.6 million,
respectively using this method. In addition, approximately $8.3 million of
revenue related to unfinished percentage-of-completion contracts had yet to be
recognized at October 31, 2002. Contracts accounted for under this method are
generally not significantly different in profitability from revenues accounted
for under other methods.
15
Income taxes can be affected by estimates of whether and within which
jurisdictions, future earnings will occur and how and when cash is repatriated
to the United States, combined with other aspects of an overall income tax
strategy. Additionally, taxing jurisdictions could retroactively disagree with
our tax treatment of certain items, and some historical transactions have income
tax effects going forward. Accounting rules require these future effects to be
evaluated using current laws, rules and regulations, each of which can change at
any time and in an unpredictable manner. During fiscal 2002, our effective
income tax rate was reduced to 31% from 34%. Two of the key factors related to
the reduced rate were our expected utilization of all available foreign income
tax credits and the accounting change related to goodwill amortization that was
expensed for book purposes prior to the adoption of SFAS 142 but not deductible
for income tax purposes.
We adopted SFAS No. 142 effective November 1, 2001 - the beginning of our fiscal
2002. SFAS 142, issued in June 2001, requires the adoption of its provisions by
the beginning of our fiscal 2003, but the timing of our fiscal year end also
allowed it to elect to adopt SFAS 142 at the beginning of fiscal 2002. Based
primarily on investor interest to see results reflecting adoption of SFAS 142,
we elected to adopt this new standard at the earlier date.
The evaluation of goodwill under SFAS 142 requires valuations of each applicable
underlying business. These valuations can be significantly affected by estimates
of future performance and discount rates over a relatively long period of time,
market price valuation multiples and marketplace transactions in related
markets. These estimates will likely change over time. Some of our businesses
operate in cyclical industries and the valuation of these businesses can be
expected to fluctuate as a result of this cyclicality. The transitional business
valuation reviews required by SFAS 142 indicated a reduction of the carrying
value of goodwill for three business units in the analytical instrumentation and
industrial controls segments. This goodwill reduction has been reported as a
change in accounting principle retroactive to the beginning of fiscal 2002 and
resulted in a transitional charge to earnings of approximately $26 million.
After the adoption of SFAS 142, goodwill is required to be evaluated annually.
If this annual review indicates further impairment of goodwill balances, that
entire impairment will be recorded immediately and reported as a component of
current operations. Our acquisitions have generally included a large goodwill
component and we expect to continue with future acquisitions.
Prior to adopting SFAS 142, goodwill was amortized over periods not exceeding 40
years. With the adoption of this standard, goodwill is not amortized. It is
periodically reviewed for impairment as discussed above. SFAS 142 does not
permit retroactive application to years prior to adoption. Therefore, earnings
beginning in fiscal 2002 tend to be higher than earlier periods as a result of
this accounting change, except for the effects of any impairment provision on
current results. Note 5 to our consolidated financial statements includes a
reconciliation comparing earnings of pre-adoption periods to earnings of current
periods for those periods presented. Goodwill amortization prior to the adoption
of SFAS 142 was largest in the analytical instrumentation segment and the amount
of goodwill currently recorded is also largest for this segment. We believe it
inappropriate to conclude whether the likelihood of any impairment charge
resulting from subsequent annual reviews is more likely in any business segment
compared to another segment.
16
At October 31, 2002, Roper's total assets included $460.2 million of goodwill.
Goodwill was allocated $288.4 million to our analytical instrumentation segment,
$66.0 million to our fluid handling segment and $105.8 million to our industrial
controls segment. Total goodwill was allocated to 23 different business units
with individual amounts ranging from less than $1 million to approximately $78
million.
17
Results of Operations
General
The following tables set forth selected information for the years indicated.
Dollar amounts are in thousands and percentages are of net sales.
Year ended October 31,
--------------------------------------------
2002 2001 2000
---------- ---------- ----------
Net sales
Analytical Instrumentation(1) $ 318,839 $ 264,369 $ 223,164
Fluid Handling(2) 105,441 125,399 121,387
Industrial Controls(3) 202,750 196,738 159,262
---------- ---------- ----------
Total $ 627,030 $ 586,506 $ 503,813
========== ========== ==========
Gross profit:
Analytical Instrumentation 56.1% 55.9% 54.4%
Fluid Handling 46.2 48.4 48.5
Industrial Controls 53.7 51.1 49.3
---------- ---------- ----------
Total 53.6 52.7 51.4
Operating profit:
Analytical Instrumentation 18.2% 19.7% 19.9%
Fluid Handling 20.4 23.9 26.2
Industrial Controls 24.0 22.6 19.5
---------- ---------- ----------
Total 20.5 21.5 21.3
Operating profit 20.5% 21.5% 21.3%
Goodwill amortization -- (2.7) (2.5)
Corporate administrative expenses (2.2) (1.6) (1.3)
Restructuring charges(4) -- (0.4) --
---------- ---------- ----------
Income from operations 18.3 16.8 17.5
Interest expense (3.0) (2.7) (2.7)
Euro debt currency exchange loss (0.7) -- --
Other income 0.6 0.6 0.3
---------- ---------- ----------
Earnings before income taxes and change in accounting principle 15.2 14.7 15.1
Income taxes (4.7) (5.2) (5.3)
Goodwill adjustment effective November 1, 2001, net of taxes (4.1) -- --
---------- ---------- ----------
Net earnings 6.4% 9.5% 9.8%
========== ========== ==========
(1) Includes results of Antek Instruments from August 2000, Struers and
Logitech from September 2001 and several smaller businesses acquired
during the years presented.
(2) Includes results of Abel Pump from May 2000 and several smaller businesses
acquired during the years presented.
(3) Includes results of Hansen Technologies from September 2000, Zetec from
August 2002 and several smaller businesses acquired during the years
presented.
(4) Restructuring charges were $2,230,000, $279,000 and $50,000 in industrial
controls, fluid handling and analytical instrumentation, respectively.
18
Year Ended October 31, 2002 Compared to Year Ended October 31, 2001
Net sales for fiscal 2002 were $627.0 million, a 7% increase compared to fiscal
2001, and a 7% decrease on a pro-forma basis compared to fiscal 2001. The 7%
increase over prior year is attributable to the inclusion of full year sales
from Struers and Logitech, which were acquired in the fourth quarter of fiscal
2001 as well as sales from the acquisition of Zetec in the fourth quarter of
fiscal 2002. These sales increases were offset by exiting certain Petrotech
businesses and sales declines in other businesses due to widespread weak
economic conditions. The 7% decrease compared to pro forma net sales is
primarily attributable to exiting of certain Petrotech businesses, continued
declines in the semiconductor market and the downturn in oil and gas exploration
and certain industrial markets. The impact of these difficult market conditions
was somewhat mitigated by a 15% increase in sales to Gazprom and an 8% increase
in sales in our fluid properties testing businesses as their products help
customers respond to stricter environmental controls regarding sulfur content in
petroleum products.
In our Analytical Instrumentation segment, actual net sales increased 21% and
pro-forma net sales decreased 7%. The increase in actual net sales resulted
principally from the contribution of acquisitions and increased sales in our
fluid properties testing businesses. This was offset by lower sales into
semiconductor markets and lower motion product sales by Redlake due to the
pending release of a new generation of products that we anticipate to begin
shipping during the first half of fiscal 2003.
In our Fluid Handling segment, net sales declined 16% compared to fiscal 2001
primarily from the downturn in the semiconductor capital equipment market and
weakness in industrial and oil & gas exploration markets.
In our Industrial Controls segment, actual net sales increased 3% and pro-forma
net sales were roughly flat with fiscal 2001. Actual net sales increased
primarily as a result of the acquisition of Zetec and gains from certain oil &
gas control system applications, particularly those sold to Gazprom, partly
reduced by lower sales from exiting certain Petrotech businesses in fiscal 2001.
The increase in our overall gross profit percentage to 53.6% in fiscal 2002
compared to 52.7% to in fiscal 2001 was mostly due to exiting low margin
businesses at Petrotech. This also caused an increase in margins for the
industrial controls segment to 53.7% in fiscal 2002 compared to 51.1% in fiscal
2001. Analytical instrumentation gross margins were roughly flat at 56.1% in
fiscal 2002 compared to 55.9% in fiscal 2001. Fluid Handling's gross margins
decreased to 46.2% in fiscal 2002 compared to 48.4% in fiscal 2001. This
decrease was caused mostly by adverse volume leverage in our industrial pumps
businesses.
Excluding the effects from the accounting change related to goodwill and the
restructuring charges expensed in fiscal 2001, selling, general and
administrative ("SG&A") expenses increased to 35.3% of net sales in fiscal 2002
compared to 32.8% of sales in fiscal 2001. This increase is attributable to
higher SG&A expense levels at newly acquired businesses. SG&A expenses for
companies included in all of both 2002 and 2001 declined 2% in 2002 despite
significantly increased R&D and other engineering expenses at some of our
digital imaging companies. This spending was most notable at Redlake MASD as it
continues to develop new products it expects to be available in the
19
second quarter of fiscal 2003. There was also an increase in corporate SG&A due
primarily to an increase in medical insurance costs and salaries and related
employee relocation costs. As a percentage of net sales, SG&A expenses also
increased in 2002 compared to 2001 for each of our three business segments by
between 1% and 2%.
Interest expense increased $2.6 million, or 16%, for the year ended October 31,
2002 compared to the year ended October 31, 2001. Average borrowing levels were
approximately 36% higher during fiscal 2002 compared to the prior year and
effective interest rates were approximately 14% lower during fiscal 2002
compared to fiscal 2001. Higher borrowing levels in fiscal 2002 were primarily
from the September 2001 acquisition of Struers and Logitech and the July 2002
acquisition of Zetec.
A euro debt foreign exchange loss of $4.1 million arose from euro-denominated
debt that was carried in the U.S. and the strengthening of the euro against the
U.S. dollar during the third quarter of fiscal 2002. This debt matured near July
31, 2002 and was replaced with U.S. dollar denominated debt.
Income taxes were 31% of pretax earnings in fiscal 2002 compared to 35% in
fiscal 2001. Two of the key factors related to the reduced rate were the change
in accounting for goodwill amortization and our expected utilization of all
available foreign income tax credits associated with European tax structures.
During fiscal 2002, we completed a transition review for goodwill impairment
under SFAS 142 as of November 1, 2001. This review initially compared the fair
value of each previously acquired reporting unit to its carrying value. If an
impairment was indicated, the amount was then determined by comparing the
implied fair value of goodwill to its carrying amount. This impairment was
reported as a change in accounting principle, was a non-cash charge and was
related to the Redlake, Petrotech and Dynamco units.
At October 31, 2002, the functional currencies of our European subsidiaries were
stronger against the U.S. dollar compared to currency exchange rates at October
31, 2001. This strengthening resulted in a gain of $13.7 million in the foreign
exchange component of comprehensive earnings for fiscal 2002. Approximately $11
million of this adjustment related to goodwill and is not expected to directly
affect our expected future cash flows. Fiscal 2002's operating results also
benefited slightly from the stronger non-U.S. currencies. The benefits were less
than 2% of operating earnings. Foreign exchange differences related to our other
non-U.S. subsidiaries were immaterial to fiscal 2002's financial information.
20
The following table summarizes our net sales order information for the years
ended October 31 (dollar amounts in thousands).
2002 2001
-------------------------- -------------------------- Pro forma
Pro forma Actual Pro forma Actual change
----------- ----------- ----------- ----------- ---------
Analytical Instrumentation $ 314,237 $ 314,237 $ 339,935 $ 260,927 -8%
Fluid Handling 103,858 103,858 121,231 121,231 -14
Industrial Controls 196,933 196,933 207,292 200,681 -5
----------- ----------- ----------- ----------- ------
Total $ 615,028 $ 615,028 $ 668,458 $ 582,839 -8%
=========== =========== =========== ===========
Our fluid handling segment was more exposed to poor semiconductor conditions
than the other two segments. Semiconductor-related sales orders were down
significantly in fiscal 2002 compared to fiscal 2001. Excluding this business,
fluid handling's net sales orders decreased 10% in fiscal 2002 compared to
fiscal 2001.
The decrease in analytical instrumentation net sales orders was attributed to
weak semiconductor , electronics and automotive markets that more than offset
the increase in fluid properties testing. Aside from the semiconductor decline,
the fluid handling segment decline in net sales orders also reflected the weak
oil and gas exploration and power generation markets. A one-time supplemental
order of $20 million from Gazprom in fiscal 2001 caused unfavorable comparisons
in the industrial controls segment.
21
The following table summarizes sales order backlog information at October 31
(dollar amounts in thousands).
2002 2001
-------------------------- -------------------------- Pro forma
Pro forma Actual Pro forma Actual change
----------- ----------- ----------- ----------- ---------
Analytical Instrumentation $ 57,865 $ 57,865 $ 64,126 $ 62,609 -10%
Fluid Handling 19,799 19,799 21,678 21,678 -9
Industrial Controls 35,427 35,427 35,945 31,217 -1
----------- ----------- ----------- ----------- ------
Total $ 113,091 $ 113,091 $ 121,749 $ 115,504 -7%
=========== =========== =========== ===========
A significant impact on the decreased sales order backlog at October 31, 2002
compared to October 31, 2001 was the $11.5 million residual one-time
supplemental Gazprom order which is included in the prior year backlog for
industrial controls. Excluding this order, backlog is up 2%. Declines in
analytical instrumentation and fluid handling were attributable to weak
electronics and oil exploration markets, respectively.
Year Ended October 31, 2001 Compared to Year Ended October 31, 2000
Net sales for fiscal 2001 were $586.5 million, a 16% increase compared to fiscal
2000. Excluding sales to Gazprom, net sales increased 14% in fiscal 2001
compared to fiscal 2000. Fiscal 2001 pro forma net sales increased 5% compared
to pro forma net sales during fiscal 2000.
In our analytical instrumentation segment, actual net sales increased 18% in
fiscal 2001 and pro forma net sales increased 5%. The increase in actual net
sales resulted mostly from the contribution of companies acquired during fiscal
2001 and 2000. The increase in pro forma net sales resulted mostly from strong
digital imaging demand from research markets. Weakness in the automobile
industry adversely affected sales of our high-speed digital camera products and
our industrial leak test products.
In our fluid handling segment, actual net sales increased 3% in fiscal 2001 and
pro forma net sales decreased 7%. Actual net sales increased primarily as the
result of companies acquired during fiscal 2001 and 2000. Pro forma net sales
decreased primarily as the result of depressed business conditions in the
semiconductor industry. This segment's pro forma net sales to this industry
decreased 33% in fiscal 2001 compared to fiscal 2000. Net sales in fiscal 2001
for this segment's businesses not serving the semiconductor industry increased
2% compared to pro forma net sales in fiscal 2000.
In our industrial controls segment, actual net sales increased 24% and pro forma
net sales increased 13%. Actual net sales increased primarily as a result of
companies acquired since the beginning of fiscal 2000, increased shipments to
Gazprom and higher revenues from customers in energy markets. These increases
were partially offset by lower revenues at Petrotech that resulted from
restructuring activities that occurred during fiscal 2001. Pro forma net sales
increased primarily as a
22
result of additional sales to Gazprom. Sales to Gazprom were $49.3 million
during fiscal 2001, or an increase of 45% compared to fiscal 2000.
Our overall gross profit percentage increased to 52.7% in fiscal 2001 compared
to 51.4% in fiscal 2000. Several factors were the largest contributors to the
change. The largest factor was the growth in our Analytical Instrumentation
segment, the highest gross margin segment. Other large factors contributing to
increased margins were improved leverage on the additional sales to Gazprom and
the benefits from exiting certain low margin businesses at Petrotech during
2001. Increased sales from our lower margin refrigeration valves business that
was acquired in September 2000 adversely affected margins.
Analytical instrumentation's gross margin increased to 55.9% in fiscal 2001
compared to 54.4% in fiscal 2000. Most of this improvement resulted from
favorable leverage related to increased digital imaging sales and the
incremental sales at Struers and Logitech that were at relatively high margins.
Fluid handling's gross margin decreased to 48.4% in fiscal 2001 compared to
48.5% in fiscal 2000. This decrease was caused mostly by lower sales of its high
margin semiconductor-related products. Industrial controls' gross margin
increased to 51.1% in fiscal 2001 compared to 49.3% in fiscal 2000. This
increase was caused primarily by the favorable effects of increased sales to
Gazprom and lower sales from exited businesses, and was partially offset by
increased sales of lower-margin refrigeration valve products.
SG&A expenses as a percentage of net sales in fiscal 2001 and fiscal 2000 are
presented in the following table.
2001 2000
-------------------- -------------------
Total Adjusted* Total Adjusted*
----- --------- ----- ---------
Analytical Instrumentation 39.5% 36.2% 38.0% 34.5%
Fluid Handling 26.8 24.5 24.1 22.3
Industrial Controls 31.9 28.5 31.4 29.8
Corporate 1.7 1.7 1.3 1.3
---- ---- ---- ----
Total 35.9% 32.8% 33.9% 31.3%
==== ==== ==== ====
* Excludes goodwill amortization for fiscal 2001 and 2000 and
restructuring charges included in fiscal 2001.
The increase in SG&A costs as a percentage of net sales in fiscal 2001 compared
to fiscal 2000 for the fluid handling segment was caused by the adverse leverage
that resulted from the quick and deep cyclical decline in the segment's
semiconductor-related business. Other changes in the relationships between SG&A
costs and net sales were not considered significant.
Interest expense was $15.9 million in fiscal 2001 compared to $13.5 million in
fiscal 2000. Interest expense was higher in fiscal 2001 mostly due to the
borrowings associated with the acquisitions that occurred since the beginning of
fiscal 2000. All of these acquisitions, representing total costs of over $330
million during these two fiscal years, were paid for with cash provided by our
then-existing credit facilities. Short-term interest rates started to decline
dramatically early in calendar 2001. The effective interest rate was
approximately 6.5% during fiscal 2001 compared to approximately 6.9% during
fiscal 2000.
23
The provision for income taxes was 35.4% of pretax earnings in fiscal 2001
compared to 35.1% in fiscal 2000. This change was not considered significant.
The other components of comprehensive earnings in fiscal 2001 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, Danish krone or Japanese yen. During fiscal 2001, the
U.S. dollar weakened against the euro, was relatively stable against the pound
and strengthened against the yen and krone (after the acquisition of Danish
assets in September 2001). During fiscal 2001, our consolidated net assets
increased $1.2 million due to foreign currency translation adjustments.
The following table summarizes net sales order information for the years ended
October 31 (dollar amounts in thousands).
2001 2000
-------------------------- -------------------------- Pro forma
Pro forma Actual Pro forma Actual change
----------- ----------- ----------- ----------- -------
Analytical Instrumentation $ 260,927 $ 260,927 $ 273,105 $ 239,903 -4%
Fluid Handling 121,231 121,231 142,858 128,925 -15
Industrial Controls 195,073 200,681 170,267 160,136 +15
----------- ----------- ----------- -----------
Total $ 577,231 $ 582,839 $ 586,230 $ 528,964 -2%
=========== =========== =========== ===========
The decrease in analytical instrumentation's pro forma net sales orders in
fiscal 2001 compared to fiscal 2000 was broad-based. Net sales orders for each
major product group declined from 2% - 9%. This segment's businesses were
adversely affected by poor market conditions in the automotive and semiconductor
industries. The decrease in pro forma net sales orders for the fluid handling
segment was caused largely by a decline in semiconductor-related orders. The
increase in pro forma net sales orders for the industrial controls segment was
caused primarily by additional orders from Gazprom.
The following table summarizes our sales order backlog information at October 31
(dollar amounts in thousands).
2001 2000
-------------------------- -------------------------- Pro forma
Pro forma Actual Pro forma Actual change
----------- ----------- ----------- ----------- -------
Analytical Instrumentation $ 62,609 $ 62,609 $ 68,092 $ 54,550 -8%
Fluid Handling 21,678 21,678 26,073 26,073 -17
Industrial Controls 31,217 31,217 25,166 29,246 +24
----------- ----------- ----------- -----------
Total $ 115,504 $ 115,504 $ 119,331 $ 109,869 -3%
=========== =========== =========== ===========
Changes in sales order backlog were consistent with changes in net sales orders.
24
Financial Condition, Liquidity and Capital Resources
Net cash provided by operating activities was $87.0 million in fiscal 2002,
$102.4 million in fiscal 2001 and $67.6 million during fiscal 2000. Most of this
decrease in fiscal 2002 compared to fiscal 2001 was attributed to the one-time
supplemental order for Gazprom, partially offset by improved cash generation
from assets. Cash flows from investing activities during each of fiscal 2002,
2001, and 2000 were mostly business acquisition costs. Cash flows from financing
activities during each of these years were mostly the borrowing activities
associated with the business acquisitions and the debt reductions from our other
net positive cash flows. Financing activities in fiscal 2000 also included
refinancing our then-existing $200 million credit agreement with our current
$275 million credit facility and the issuance of $125 million of senior notes.
Total current assets, excluding cash, exceeded total current liabilities,
excluding debt, by $125.5 million at October 31, 2002 compared to $115.6 million
at October 31, 2001. We acquired approximately $10 million of net current assets
through business acquisitions during fiscal 2002. We also financed a $20 million
one-time supplemental order for Gazprom. Working capital was otherwise reduced
by approximately $20 million during fiscal 2002 due to improved management of
our accounts receivable, inventories and payables. Total debt was $332.1 million
at October 31, 2002 (47% of total capital) compared to $326.8 million at October
31, 2001 (50% of total capital). Our increased debt at October 31, 2002 compared
to that a year ago was due to the borrowings incurred to fund fiscal 2002
business acquisitions in excess of cash generated by existing operations.
Our principal $275 million credit facility with a group of banks provides most
of our daily external financing requirements, consisting of revolving loans,
swing line loans and letters of credit. At October 31, 2002, utilization of this
facility included $144.7 million of U.S. denominated borrowings, the equivalent
of $41.7 million of non-U.S. denominated borrowings and $3.3 million of
outstanding letters of credit. Total unused availability under this facility was
$85.3 million at October 31, 2002. We expect that our available additional
borrowing capacity combined with the cash flows expected to be generated from
existing business will be sufficient to fund normal operating requirements and
finance some additional acquisitions. This facility matures May 2005. We also
have several smaller facilities that allow for borrowings or the issuance of
letters of credit in various foreign locations to support our non-U.S.
businesses. In total, these smaller facilities do not represent a significant
source of credit for us.
Our outstanding indebtedness at October 31, 2002 also included $125 million of
term notes maturing in May 2007 and May 2010 and do not require sinking fund
payments. We may prepay the notes by paying the holders thereof the discounted
present value of all remaining scheduled payments using a discount rate equal to
the sum of 50 basis points plus the yield of the U.S. Treasury Notes
corresponding to the then remaining average life of the notes being prepaid.
Capital expenditures of $7.8 million, $7.5 million and $15.2 million were
incurred during fiscal 2002, 2001 and 2000, respectively. We expect capital
expenditures in fiscal 2003 to be comparable as a percentage of sales to the
past two years.
25
In November 2002, Roper's Board of Directors increased the quarterly cash
dividend paid on our outstanding common stock to $0.0875 per share from $0.0825
per share, an increase of 6%. This represents the tenth consecutive year in
which the quarterly dividend has been increased since Roper's 1992 initial
public offering. Our board of directors has declared a dividend payable on
January 31, 2003. Payment of any additional dividends requires further action by
the board of directors.
Contractual Cash Obligations and Other Commercial Commitments and Contingencies
The following table quantifies our contractual cash obligations and
commercial commitments at October 31, 2002 (dollars in thousands).
Payments Due in Fiscal
Contractual
Cash Obligations Total 2003 2004 2005 2006 2007 Thereafter
---- ---- ---- ---- ---- ----------
Long-term debt $332,105 $20,515 $ 135 $186,455 $ 0 $40,000 $85,000
Operating Leases 38,900 8,900 6,800 4,900 3,600 2,800 11,900
-------- ------- ------ -------- ------ ------- -------
Total $371,005 $29,415 6,935 191,355 3,600 42,800 96,900
======== ======= ====== ======== ====== ======= =======
Amounts Expiring in Fiscal
Total
Other Commercial Amount
Commitments Committed 2003 2004 2005 2006 2007 Thereafter
---- ---- ---- ---- ---- ----------
Standby letters
of credit $ 3,336 $ 3,336 -- -- -- -- --
-------- ------- ------ -------- ------ ------- -------
Total $ 3,336 $ 3,336 $ -- -- -- -- --
======== ======= ====== ======== ====== ======= =======
At October 31, 2002 and 2001, we did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes.
We believe that internally generated cash flows and the remaining availability
under our various credit facilities will be adequate to finance normal operating
requirements and further acquisition activities. Although we maintain an active
acquisition program, any further acquisitions will be dependent on numerous
factors and it is not feasible to reasonably estimate if or when any such
acquisitions will occur and what the impact will be on our activities, financial
condition and results of operations. We may also explore alternatives to attract
additional capital resources.
26
We anticipate that our recently acquired companies as well as our other
companies will generate positive cash flows from operating activities, and that
these cash flows will permit the reduction of currently outstanding debt at a
pace consistent with that which has historically been experienced. However, the
rate at which we can reduce our debt during fiscal 2003 (and reduce the
associated interest expense) will be affected by, among other things, the
financing and operating requirements of any new acquisitions and the financial
performance of our existing companies; and none of these factors can be
predicted with certainty.
Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") issued SFAS 143 - "Accounting
for Asset Retirement Obligations" that Roper is required to adopt by November 1,
2002. Roper does not currently have, nor is it expected to have, any material
asset retirement obligations subject to this new standard.
The FASB issued SFAS 144 - "Accounting for the Impairment or Disposal of
Long-Lived Assets" that Roper is required to adopt by November 1, 2002. This new
standard does not apply to goodwill. Roper does not expect the adoption of this
standard to result in an impairment charge.
The FASB issued SFAS 145 that rescinded, amended or made technical corrections
to several previously issued statements. None of these changes are expected to
significantly affect Roper's accounting or financial reporting practices.
The FASB issued SFAS 146 - "Accounting for Costs Associated with Exit or
Disposal Activities" that Roper is required to adopt for applicable transactions
after December 31, 2002. This standard modifies the timing of when certain costs
are reported.
27
Outlook
We currently expect sales and net income for fiscal 2003 to be higher than for
fiscal 2002. Fiscal 2003 is expected to benefit from the full-year contributions
from the businesses acquired during fiscal 2002, especially Zetec, from
additional efforts to make our companies more efficient, and from reduced
interest expense resulting from paying down our debt. The conditions in the
semiconductor industry are currently poor and we do not expect any meaningful
recovery in this industry during fiscal 2003. The overall economic conditions of
the U.S.A. and Europe are sluggish and both the Federal Reserve Board and the
European Central Bank recently lowered discount rates yet again in an effort to
stimulate the respective economies. There continue to be terrorist threats
against the U.S. and its allies and also the possibility of military action
against Iraq. A significant terrorist attack or military action against Iraq
could cause changes in world economies that would adversely affect us. It is
impossible to isolate each of these factor's effects on current economic
conditions. It is also impossible to predict with any reasonable degree of
certainty what or when any additional events may occur that also will similarly
disrupt the economy.
We expect to continue an active acquisition program. However, completion of
future acquisitions and their impact on ours results or financial condition
cannot be accurately predicted.
Information About Forward Looking Statements
This Annual Report contains forward-looking statements within the meaning
of the federal securities laws. In addition, we, or our executive officers on
our behalf, may from time to time make forward-looking statements in reports and
other documents we file with the SEC or in connection with oral statements made
to the press, potential investors or others. Statements that are not historical
facts, including statements about our beliefs and expectations, are
forward-looking statements. Forward-looking statements include statements
preceded by, followed by or that include the words, "believes," "expects,"
"anticipates," "plans," "estimates" or similar expressions. These statements
include, among others, statements regarding our expected business outlook,
anticipated financial and operating results, strategies, contingencies,
financing plans, working capital needs, sources of liquidity, capital
expenditures and contemplated acquisitions.
Forward-looking statements are only predictions and are not guarantees of
performance. These statements are based on beliefs and assumptions of our
management, which in turn are based on currently available information.
Important assumptions relating to the forward-looking statements include, among
others, assumptions regarding demand for our products, expected pricing levels,
parts and components costs, the timing and cost of planned capital expenditures,
the estimated cost of environmental compliance, expected outcomes of pending
litigation, competitive conditions and general economic conditions. These
assumptions could prove inaccurate. The forward-looking statements also involve
risks and uncertainties, which could cause actual results to differ materially
from those contained in any forward-looking statement. Many of these factors are
beyond our ability to control or predict. Such factors include, but are not
limited to, the following:
o reductions in our business with Gazprom;
28
o unfavorable changes in foreign exchange rates;
o difficulties associated with exports;
o risks associated with our international operations;
o difficulty making acquisitions and successfully integrating acquired
businesses;
o increased product liability and insurance costs'
o increased warranty exposure;
o the fact that our former independent auditors, Arthur Andersen LLP
has ceased operations as described in the Notice filed as Exhibit
23.2 to this Annual Report;
o future competition;
o changes in the supply of, or price for, parts and components;
o environmental compliance costs and liabilities;
o risks and costs associated with asbestos-related litigation;
o potential write-offs of our substantial intangible assets; and
o the factors discussed in Exhibit 99.1 to this Annual Report under
the heading "Risk Factors."
We believe these forward-looking statements are reasonable; however, undue
reliance should not be placed on any forward-looking statements, which are based
on current expectations. Further, forward-looking statements speak only as of
the date they are made, and we undertake no obligation to update publicly any of
them in light of new information or future events.
29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate risks on its outstanding borrowings. We are
exposed to foreign currency exchange risks on our transactions denominated in
currencies other than the U.S. dollar. We are also exposed to equity market
risks pertaining to the traded price of our common stock.
At October 31, 2002, we 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, 2002, prevailing market interest rates were lower than the fixed
rates on the term notes by 2-3 percentage points. This resulted in the estimated
fair values of the term notes using a discounted cash flows model being greater
than the face amounts of the notes by an estimated $15.6 million and it
represented an unrecorded decrease in our net assets at October 31, 2002. There
was a comparable unrecorded decrease in our net assets of $11.7 million at
October 31, 2001. If interest rates had been 1% higher at October 31, 2002, the
difference between the fair values of the term notes and their face values would
have been approximately $7.1 million smaller. These interest rate differences do
not directly affect our reported earnings or cash flows.
At October 31, 2002, Roper's outstanding variable-rate borrowings under the $275
million credit facility were $186.4 million. An increase in interest rates of 1%
would increase our annualized interest costs by $1.9 million.
Several Roper companies have transactions and balances denominated in currencies
other than the U.S. dollar. Most of these transactions or balances are
denominated in euros, British pounds, Danish krone or Japanese yen.
Sales by companies whose functional currency was not the U.S. dollar were 28% of
our total sales and 80% of these sales were by companies with a European
functional currency. The U.S. dollar weakened against these European currencies
during fiscal 2002 and was relatively stable compared to other currencies. The
difference between fiscal 2002's operating results for these companies
translated into U.S. dollars at average currency exchange rates experienced
during fiscal 2002 and these operating results translated into U.S. dollars at
average currency exchange rates experienced during fiscal 2001 was not material.
If these currency exchange rates had been 10% different throughout fiscal 2002
compared to currency exchange rates actually experienced, the impact on our
expected net earnings would have been approximately $2 million.
The changes of these currency exchange rates relative to the U.S. dollar during
fiscal 2002 compared to currency exchange rates at October 31, 2001 resulted in
an increase in net assets of $13.7 million that was reported as a component of
comprehensive earnings, $10.9 million of which was attributed to goodwill.
Goodwill changes from currency exchange rate changes do not directly affect our
reported earnings or cash flows.
30
The trading price of Roper's common stock influences the valuation of stock
option grants and the effects these grants have on pro forma earnings disclosed
in our financial statements. The stock prices also influence the computation of
the dilutive effect of outstanding stock options to determine diluted earnings
per share. The stock price also affects our employees' perceptions of various
programs that involve our common stock. We believe the quantification of the
effects of these changing prices on our future earnings and cash flows is not
readily determinable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item begin at
page F-1 hereof.
31
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
Page
Consolidated Financial Statements:
Report of Independent Accountants (PricewaterhouseCoopers LLP) ...........F-2
Report of Independent Public Accountants (Arthur Andersen LLP) ...........F-3
Consolidated Balance Sheets as of October 31, 2002 and 2001 ..............F-4
Consolidated Statements of Earnings for the Years ended
October 31, 2002, 2001 and 2000 ........................................F-5
Consolidated Statements of Stockholders' Equity and Comprehensive
Earnings for the Years ended October 31, 2002, 2001 and 2000 ...........F-6
Consolidated Statements of Cash Flows for the Years ended
October 31, 2002, 2001 and 2000 ........................................F-7
Notes to Consolidated Financial Statements ...............................F-8
Supplementary Data:
Schedule II - Consolidated Valuation and Qualifying Accounts
for the Years ended October 31, 2002, 2001 and 2000 ....................S-2
F-1
Report of Independent Accountants
To the Shareholders of Roper Industries, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, stockholders' equity and comprehensive
earnings and cash flows present fairly, in all material respects, the financial
position of Roper Industries, Inc. and its subsidiaries at October 31, 2002 and
2001, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. The consolidated financial
statements of Roper Industries, Inc. as of October 31, 2000, and for the year
then ended, prior to the revision described in Note 5, were audited by other
independent public accountants who have ceased operations. Those independent
public accountants expressed an unqualified opinion on those financial
statements in their report dated December 6, 2000.
As discussed in Note 1 to the consolidated financial statements, on November 1,
2001, Roper Industries, Inc. adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets".
As discussed above, the financial statements of Roper Industries, Inc. as of
October 31, 2000, and for the year then ended, prior to the revision described
in Note 5, were audited by other independent public accountants who have ceased
operations. As described in Note 5, these financial statements have been revised
to include the transitional disclosures required by Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets", which was
adopted by Roper Industries, Inc. as of November 1, 2001. We audited the
transitional disclosures described in Note 5. In our opinion, the transitional
disclosures for 2000 in Note 5 are appropriate. However, we were not engaged to
audit, review, or apply any procedures to the 2000 financial statements of Roper
Industries, Inc. other than with respect to such disclosures and, accordingly,
we do not express an opinion or any form of assurance on the 2000 financial
statements taken as a whole.
PricewaterhouseCoopers LLP
Atlanta, Georgia
December 11, 2002
F-2
NOTE: THIS IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP, OUR
FORMER INDEPENDENT PUBLIC ACCOUNTANTS. THIS REPORT HAS NOT BEEN REISSUED
BY ARTHUR ANDERSEN LLP IN CONNECTION WITH THE FILING OF ROPER'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 2002.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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.
Arthur Andersen LLP
Atlanta, Georgia
December 6, 2000
F-3
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 2002 and 2001
(in thousands, except per share data)
2002 2001
--------- ---------
Assets
Cash and cash equivalents $ 12,362 $ 16,190
Accounts receivable, net 140,897 121,271
Inventories 88,991 90,347
Other current assets 5,372 4,884
--------- ---------
Total current assets 247,622 232,692
Property, plant and equipment, net 51,339 51,887
Goodwill, net 460,188 421,916
Other intangible assets, net 37,032 28,781
Other noncurrent assets 32,792 26,846
--------- ---------
Total assets $ 828,973 $ 762,122
========= =========
Liabilities and Stockholders' Equity
Accounts payable $ 35,963 $ 34,233
Accrued liabilities 66,141 61,020
Income taxes payable 7,618 5,617
Current portion of long-term debt 20,515 3,010
--------- ---------
Total current liabilities 130,237 103,880
Long-term debt 311,590 323,830
Other noncurrent liabilities 11,134 10,906
--------- ---------
Total liabilities 452,961 438,616
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value per share; 1,000 shares authorized;
none outstanding -- --
Common stock, $0.01 par value per share; 80,000 shares authorized;
32,593 shares issued and 31,363 outstanding at October 31, 2002 and
32,131 shares issued and 30,879 outstanding at October 31, 2001 326 321
Additional paid-in capital 89,153 80,510
Retained earnings 304,995 275,259
Accumulated other comprehensive earnings 5,940 (7,757)
Treasury stock, 1,230 shares October 31, 2002 and 1,252 shares at
October 31, 2001 (24,402) (24,827)
--------- ---------
Total stockholders' equity 376,012 323,506
--------- ---------
Total liabilities and stockholders' equity $ 828,973 $ 762,122
========= =========
See accompanying notes to consolidated financial statements.
F-4
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended October 31, 2002, 2001 and 2000
(Dollar and share amounts in thousands, except per share data)
2002 2001 2000
--------- -------- --------
Net sales $ 627,030 $586,506 $503,813
Cost of sales 290,711 277,536 244,989
--------- -------- --------
Gross profit 336,319 308,970 258,824
Selling, general and administrative expenses 221,490 210,542 170,628
--------- -------- --------
Income from operations 114,829 98,428 88,196
Interest expense 18,506 15,917 13,483
Euro debt currency exchange loss 4,093 -- --
Other income 3,456 3,928 1,218
--------- -------- --------
Earnings before income taxes and change in accounting principle 95,686 86,439 75,931
Income taxes 29,663 30,600 26,653
--------- -------- --------
Earnings before change in accounting principle 66,023 55,839 49,278
Goodwill impairment, net of taxes of $11,130 (25,970) -- --
--------- -------- --------
Net earnings $ 40,053 $ 55,839 $ 49,278
========= ======== ========
Earnings per share:
Basic:
Earnings before change in accounting principle $ 2.12 $ 1.82 $ 1.62
Goodwill adjustment effective November 1, 2001 (0.84) -- --
--------- -------- --------
Net earnings $ 1.28 $ 1.82 $ 1.62
========= ======== ========
Diluted:
Earnings before change in accounting principle $ 2.08 $ 1.77 $ 1.58
Goodwill adjustment effective November 1, 2001 (0.82) -- --
--------- -------- --------
Net earnings $ 1.26 $ 1.77 $ 1.58
========= ======== ========
Weighted average common shares outstanding:
Basic 31,210 30,758 30,457
========= ======== ========
Diluted 31,815 31,493 31,182
========= ======== ========
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, 2002, 2001 and 2000
(in thousands, except per share data)
Accumulated
Additional other Total Compre-
Common stock paid-in Retained comprehensive Treasury stockholders' hensive
Shares Amount capital earnings earnings stock equity earnings
------ ---- ------- --------- -------- -------- --------- ----------
Balances at October 31, 1999 30,282 $316 $71,084 $ 187,911 $ (2,172) $(25,171) $ 231,968
Net earnings -- -- -- 49,278 -- -- 49,278 $ 49,278
Exercise of stock options, net 308 3 3,949 -- -- -- 3,952 --
Currency translation adjustments -- -- -- -- (6,741) -- (6,741) (6,741)
Cash dividends ($0.28 per share) -- -- -- (8,537) -- -- (8,537) --
Treasury stock sold 9 -- 84 -- -- 187 271 --
------ ---- ------- --------- -------- -------- --------- ----------
Balances at October 31, 2000 30,599 319 75,117 228,652 (8,913) (24,984) 270,191 $ 42,537
==========
Net earnings -- -- -- 55,839 -- -- 55,839 $ 55,839
Exercise of stock options, net 272 2 5,293 -- -- -- 5,295 --
Currency translation adjustments -- -- -- -- 1,156 -- 1,156 1,156
Cash dividends ($0.30 per share) -- -- -- (9,232) -- -- (9,232) --
Treasury stock sold 8 -- 100 -- -- 157 257 --
------ ---- ------- --------- -------- -------- --------- ----------
Balances at October 31, 2001 30,879 321 80,510 275,259 (7,757) (24,827) 323,506 $ 56,995
==========
Net earnings -- -- -- 40,053 -- -- 40,053 $ 40,053
Stock option transactions 462 5 8,096 -- -- -- 8,101 --
Incentive bonus plan transactions 11 -- 325 -- -- 210 535 --
Currency translation adjustments -- -- -- -- 13,697 -- 13,697 13,697
Cash dividends ($0.33 per share) -- -- -- (10,317) -- -- (10,317) --
Treasury stock sold 11 -- 222 -- -- 215 437 --
------ ---- ------- --------- -------- -------- --------- ----------
Balances at October 31, 2002 31,363 $326 $89,153 $ 304,995 $ 5,940 $(24,402) $ 376,012 $ 53,750
====== ==== ======= ========= ======== ======== ========= ==========
See accompanying notes to consolidated financial statements.
F-6
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended October 31, 2002, 2001 and 2000
(in thousands)
2002 2001 2000
-------- --------- ---------
Cash flows from operating activities:
Net earnings $ 40,053 $ 55,839 $ 49,278
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization of property, plant
and equipment 11,721 9,993 8,623
Amortization of intangible assets 3,455 17,462 13,675
Goodwill transitional impairment, net of tax 25,970 -- --
Changes in operating assets and liabilities, net of
acquired businesses:
Accounts receivable 7,653 10,412 (13,863)
Inventories 10,723 7,418 (4,357)
Accounts payable and accrued liabilities (5,432) 5,790 14,001
Income taxes payable 6,723 1,725 786
Note receivable - supplier financing (11,710) (8,451) --
Other, net (2,187) 2,254 (504)
-------- --------- ---------
Net cash provided by operating activities 86,969 102,442 67,639
-------- --------- ---------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (82,813) (170,180) (161,546)
Capital expenditures (7,780) (7,455) (15,150)
Other, net (1,871) 906 (1,531)
-------- --------- ---------
Net cash used in investing activities (92,464) (176,729) (178,227)
-------- --------- ---------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt 76,621 146,125 321,941
Principal payments on notes payable and long-term debt (74,363) (62,815) (208,012)
Cash dividends to stockholders (10,317) (9,232) (8,537)
Treasury stock sales 972 257 271
Proceeds from stock option exercises, net 7,867 4,531 3,952
-------- --------- ---------
Net cash provided by financing activities 780 78,866 109,615
-------- --------- ---------
Effect of exchange rate changes on cash 887 239 (1,145)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents (3,828) 4,818 (2,118)
Cash and cash equivalents, beginning of year 16,190 11,372 13,490
-------- --------- ---------
Cash and cash equivalents, end of year $ 12,362 $ 16,190 $ 11,372
======== ========= =========
Supplemental disclosures:
Cash paid for:
Interest $ 18,695 $ 16,102 $ 9,018
======== ========= =========
Income taxes, net of refunds received $ 22,940 $ 28,875 $ 25,867
======== ========= =========
Noncash investing activities:
Net assets of businesses acquired:
Fair value of assets, including goodwill $ 92,660 $ 184,158 $ 177,230
Liabilities assumed (9,847) (13,978) (15,684)
-------- --------- ---------
Cash paid, net of cash acquired $ 82,813 $ 170,180 $ 161,546
======== ========= =========
See accompanying notes to consolidated financial statements.
F-7
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
(1) Summary of Accounting Policies
Basis of Presentation - These financial statements present consolidated
information for Roper Industries, Inc. and its subsidiaries ("Roper" or
the "Company"). All significant intercompany accounts and transactions
have been eliminated.
Reclassifications - Certain reclassifications of prior year information
were made to conform with the current presentation.
Nature of the Business - Roper designs, manufactures and distributes
specialty analytical instrumentation, fluid handling and industrial
controls products worldwide, serving selected segments of a broad range of
industrial markets.
Accounts Receivable - Accounts receivable were stated net of an allowance
for doubtful accounts of $3,762,000 and $4,344,000 at October 31, 2002 and
2001, respectively. Outstanding accounts receivable balances are reviewed
periodically, and allowances are provided at such time that management
believes reasonable doubt exists that such balances will be collected
within a reasonable period of time.
Cash and Cash Equivalents - Roper considers highly liquid financial
instruments with remaining maturities at acquisition of three months or
less to be cash equivalents. At October 31, 2002 and 2001, Roper had no
cash equivalents.
Earnings per Share - Basic earnings per share were calculated using net
earnings and the weighted average number of shares of common stock
outstanding during the respective year. Diluted earnings per share were
calculated using net earnings and the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding during the
respective year. Common stock equivalents consisted of stock options, and
the effects of common stock equivalents were determined using the treasury
stock method.
As of and for the years ended October 31, 2002, 2001 and 2000, there were
345,000, 107,000 and 9,000 outstanding stock options that were not
included in the determination of diluted earnings per share because doing
so would have been antidilutive.
Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets
and liabilities. Actual results could differ from those estimates.
Fair Value of Financial Instruments - Roper's long-term debt at October
31, 2002 included $125 million of fixed-rate term notes. Roper has
determined that current comparable interest rates at October 31, 2002 were
lower than the stated rates of the term notes by approximately 2-3
percentage points. A discounted cash flow analysis of anticipated cash
flows using October 31, 2002 interest rates indicated that the fair values
of the term notes were greater than the face amounts of the term notes by
$15.6 million. This liability is not reflected in Roper's basic financial
statements. At October 31, 2001, Roper had a similar unrecorded liability
of $11.7 million. The change compared to October 31, 2001 was caused
primarily from lower interest rates at October 31, 2002 compared to
October 31, 2001.
Most of Roper's other borrowings at October 31, 2002 were at various
interest rates that adjust relatively frequently under its $275 million
credit facility. The fair value for each of these borrowings at October
31, 2002 was estimated to be the face value of these borrowings.
In May 2000, Roper entered into a 3-year interest rate swap agreement for
a notional amount of $25 million. Under this agreement, Roper received a
fixed interest rate of 7.68% and paid a variable rate of 3-month
F-8
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
LIBOR plus a margin. In November 2000, Roper entered into another
agreement that effectively terminated this swap agreement for an
insignificant gain.
In February 1998 and April 1998, Roper entered into five-year interest
rate swap agreements for notional amounts of $50 million and $25 million,
respectively. In both agreements, Roper paid a fixed interest rate, and
the other party paid a variable interest rate. In May 2000, Roper
effectively terminated these agreements and received $1.8 million. This
gain is being amortized over the original term of the agreements.
The fair values for all of Roper's other financial instruments at October
31, 2002 approximated their carrying values.
Foreign Currency Translation - Assets and liabilities of subsidiaries
whose functional currency is not the U.S. dollar were translated at the
exchange rate in effect at the balance sheet date, and revenues and
expenses were translated at average exchange rates for the period in which
those entities were included in Roper's financial results. Translation
adjustments are reflected as a component of other comprehensive earnings.
Impairment of Long-Lived Assets - The company determines whether there has
been an impairment of long-lived assets, excluding goodwill and
identifiable intangible assets that are determined to have indefinite
useful economic lives, when certain indicators of impairment are present.
In the event that facts and circumstances indicate that the cost of any
long-lived assets may be impaired, an evaluation of recoverability would
be performed. If an evaluation is required, the estimated future gross,
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to market value is
required. Future adverse changes in market conditions or poor operating
results of underlying long-lived assets could result in losses or an
inability to recover the carrying value of the long-lived assets that my
not be reflected in the assets' current carrying value, thereby possibly
requiring an impairment charge in the future.
Income Taxes - Roper is a U.S.-based multinational company and the
calculation of its worldwide provision for income taxes requires analysis
of many factors, including income tax structures that vary from country to
country and the United States' treatment of non-U.S. earnings. Roper does
not treat undistributed earnings of non-U.S. subsidiaries as being
permanently reinvested. United States income taxes, net of foreign income
taxes, have been provided on the undistributed earnings of non-U.S.
subsidiaries.
Certain assets and liabilities have different bases for financial
reporting and income tax purposes. Deferred income taxes have been
provided for these differences.
Goodwill and Other Intangibles - Previous to Roper's adoption of Statement of
Financial Accounting Standard 142, "Goodwill and Other Intangible Assets" ("SFAS
142"), goodwill was amortized on a straight-line basis over periods that ranged
from 5 to 40 years. Roper accounts for goodwill in a purchase business
combination as the excess of the cost over the fair value of net assets
acquired. Business combinations can also result in other intangible assets being
recognized. Amortization of intangible assets, if applicable, occurs over their
estimated useful lives. SFAS 142 requires companies to cease amortizing goodwill
that existed at June 30, 2001 and establishes a new two-step method for testing
goodwill for impairment on an annual basis (or an interim basis if an event
occurs that might reduce the fair value of a reporting unit below its carrying
value). Roper conducts this review for all of its reporting units during the
fourth quarter of the fiscal year. The transitional impairment that resulted
from Roper's adoption of this standard on November 1, 2002 has been reported as
a change in accounting principle - see Note 5. No impairment resulted from the
annual review performed in 2002. SFAS 142 also requires that an identifiable
intangible asset that is determined to have an indefinite useful economic life
not be amortized, but separately tested for impairment using a one-step fair
value based approach.
F-9
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
Inventories - Inventories are valued at the lower of cost or market. Cost
is determined using either the first-in, first-out method or the last-in,
first-out method ("LIFO"). Inventories valued at LIFO cost comprised 9%
and 10% of consolidated inventories at October 31, 2002 and 2001,
respectively.
Any LIFO decrements recorded during any of the three years ended October
31, 2002 were immaterial to Roper's consolidated financial statements for
that year.
Other Comprehensive Earnings - Comprehensive earnings includes net
earnings and all other non-owner sources of changes in a company's net
assets. The differences between net earnings and comprehensive earnings
for Roper during fiscal 2002, 2001 and 2000 were currency translation
adjustments. Income taxes have not been provided on currency translation
adjustments.
Property, Plant and Equipment and Depreciation and Amortization -
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided
for using principally the straight-line method over the estimated useful
lives of the assets as follows:
Buildings 20-30 years
Machinery 8-12 years
Other equipment 3-5 years
Recently Released Accounting Pronouncements - The Financial Accounting
Standards Board ("FASB") issued SFAS 143 - "Accounting for Asset
Retirement Obligations" that Roper is required to adopt by November 1,
2002. Roper does not have, nor do we expect it to have, any material asset
retirement obligations subject to this new standard.
The FASB issued SFAS 144 - "Accounting for the Impairment or Disposal of
Long-Lived Assets" that Roper is required to adopt by November 1, 2002.
This new standard does not apply to goodwill. We do not expect the
adoption of this standard to result in a material impairment charge.
The FASB issued SFAS 145 that rescinded, amended or made technical
corrections to several previously issued statements. None of these changes
are expected to significantly affect Roper's accounting or financial
reporting practices.
The FASB issued SFAS 146 - "Accounting for Costs Associated with Exit or
Disposal Activities" that Roper is required to adopt for applicable
transactions after December 31, 2002. This standard modifies the timing of
when certain costs are reported.
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 $29.9 million, $26.3 million and $22.6 million
for the years ended October 31, 2002, 2001 and 2000, respectively.
Revenue Recognition - The Company recognizes revenue from the sale of
product when title and risk of loss pass to the customer, which is
generally when product is shipped. The Company recognizes revenue from
services rendered upon customer acceptance. Revenues under certain
relatively long-term and relatively large-value construction projects are
recognized under the percentage-of-completion method using the ratio of
costs incurred to total estimated costs as the measure of performance.
Revenues recognized under the percentage-of-completion method totaled $1.9
million, $7.9 million and $5.6 million for the fiscal years ended October
31, 2002, 2001 and 2000, respectively. Estimated losses on any projects
are recognized as soon as such losses become known.
Stock Options - Roper accounts for stock-based compensation under the
provisions of Accounting Principles Board Opinion 25 - "Accounting for
Stock Issued to Employees." Stock-based compensation is 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
F-10
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
statements or the pro forma effect on earnings may be disclosed in the
financial statements. Roper provides the pro forma disclosures.
Non-employee directors of Roper are eligible to receive stock options for
its common stock. These stock options are accounted for the same as stock
options granted to employees. Roper has never issued stock options other
than those issued to employees or its non-employee directors.
F-11
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
(2) Business Acquisitions
On July 31, 2002, the company acquired all the outstanding shares of
Zetec, Inc. ("Zetec"). Zetec supplies non-destructive inspection solutions
using eddy current technology and related consumables, primarily for use
in power generating facilities and is included in the Industrial Controls
segment of the business. Zetec's principal facility is located near
Seattle, Washington. The results of Zetec's operations have been included
in the consolidated financial statements since the acquisition date.
The aggregate purchase price of the acquisition was $57.2 million of cash
and includes amounts paid to sellers, amounts incurred for due diligence
and other direct external costs associated with the acquisition.
The following table (in thousands) summarizes the estimated fair values of
the assets acquired and liabilities assumed at the date of acquisition.
The allocation includes estimates that were not finalized at October 31,
2002. Purchase price adjustments following the closing are also customary.
Roper does not anticipate that any such adjustments that were pending at
October 31, 2002 to be significant.
July 31, 2002
-------------
Current assets $12,448
Other assets 4,756
Intangible assets 7,060
Goodwill 40,574
-------
Total assets acquired 64,838
Current liabilities (7,615)
-------
Net assets acquired $57,223
=======
Of the $7.1 million of acquired intangible assets, $2.1 million was assigned to
trade names that are not subject to amortization. The remaining $5.0 million of
acquired intangible assets have a weighted-average useful life of approximately
6 years. The intangible assets that make up that amount include trade secrets of
$3.0 million (6 year weighted-average useful life), technology of $1.8 million
(5-year weighted-average useful life), and patents of $0.2 million (15-year
weighted-average useful life).
The $40.6 million of goodwill is not expected to be deductible for tax purposes.
In addition, in fiscal 2002, the company acquired the following four entities
for a total cost of $18.0 million, which was paid in cash:
o Acquired in August 2002, Quantitative Imaging Corporation,
(QImaging), based in Vancouver, Canada provides innovative,
high-performance digital cameras for scientific and industrial
imaging applications, complementing Roper's digital imaging
business within the Analytical Instrumentation segment.
o Acquired in July 2002, AiCambridge Ltd. ("Qualitek"), based in
Cambridge, England, is a designer and manufacturer of leak
detection equipment and systems for medical, pharmaceutical,
food, packaging and automotive industries, primarily in
Europe.
F-12
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
o Acquired in July 2002, Duncan Technologies, based in
Sacramento, California, is an innovative designer and
manufacturer of high-quality digital cameras for a variety of
markets including machine vision, remote sensing and traffic
monitoring.
o Acquired in September 2002, Definitive Imaging, based in
Cleveland, Ohio, provides image analysis software and
specialized knowledge for metallographic and science quality
control.
Goodwill recognized in those transactions amounted to $12.9 million and of that
amount approximately $0.8 million is expected to be fully deductible for tax
purposes. These businesses are included in the Analytical Instrumentation
segment.
On September 5, 2001, the company acquired all the outstanding shares of Struers
and Logitech. Struers develops, manufactures and markets materials analysis
preparation equipment and consumables used in quality inspection, failure
analysis and research of solid materials. Logitech develops, manufactures and
markets high-precision material-shaping equipment used primarily in the
production of advanced materials for the semiconductor and opto-electronics
markets. Struers is headquartered near Copenhagen, Denmark and Logitech is
headquartered near Glasgow, Scotland. Both companies also share sales and
service locations in the U.S., France, Germany and Japan. The results of these
operations have been included in the consolidated financial statements since the
acquisition date.
The aggregate purchase price of the acquisition was $150.9 million of cash and
includes amounts paid to sellers, amounts incurred for due diligence and other
direct external costs associated with the acquisition.
The following table (in thousands) summarizes the fair values of the assets
acquired and liabilities assumed at the date of acquisition.
September 5, 2001
-----------------
Current assets $ 30,482
Other assets 6,127
Intangible assets 20,680
Goodwill 106,964
---------
Total assets acquired 164,253
Current liabilities 12,401
Long-term liabilities 1,002
--------
Total liabilities 13,403
--------
Net assets acquired $150,850
========
Of the $20.7 million of acquired intangible assets, $4.9 million was assigned to
trade names that are not subject to amortization. The remaining $15.8 million of
acquired intangible assets have a weighted-average useful life of approximately
10 years. The intangible assets that make up that amount include an existing
customer base of $15.1 million (10-year useful life), and backlog of $0.7
million (1-year useful life).
The $107.0 million of goodwill is not expected to be deductible for tax
purposes.
In addition, in fiscal 2001, the company acquired the following two entities for
a total of cost of $23.2 million, which was paid in cash:
F-13
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
o Acquired in July 2001, Media Cybernetics, L.P. ("Media"), located in
Silver Springs, Maryland, is a leading image processing software
developer for scientific and industrial applications and is included
in the Analytical Instrumentation segment
o Acquired in May 2001, Dynamco, Inc. ("Dynamco") manufactures high
quality pneumatic valves, solenoids, relays and related products
that are sold to the semiconductor, packing, HVAC and medical
industries. Located in McKinney, Texas, Dynamco is included in the
Industrial Controls segment.
Goodwill recognized in those transactions amounted to $14.2 million and that
amount is expected to be fully deductible for tax purposes. Goodwill was
assigned to the analytical instrumentation and the fluid handling segments in
the amounts of $8.9 million and $5.2 million, respectively,
In fiscal 2000, the company completed nine business acquisitions for a total
cost of $161.5 million, which was paid in cash. The following provides a summary
of the significant acquisitions which represents 81% of the total aggregate
purchase price paid for fiscal year 2000 acquisitions.
o Acquired in September 2000, Hansen Technologies distributes
manufactured and outsourced shut-off and control valves,
auto-purgers and hermetic pumps for the commercial refrigeration
industry. Hansen Technologies' principal facility is located near
Chicago, Illinois and is included in the Industrial Controls
segment.
o Acquired in August 2000, Antek Instruments manufactures and supplies
spectrometers primarily used to detect sulfur, nitrogen and other
chemical compounds in petroleum, food and beverage processing and
other industries and is included in the Analytical Instrumentation
segment. Antek Instruments' principal facilities are located in
Houston, Texas.
o Acquired in May 2000, Abel Pump manufactures and supplies specialty
positive displacement pumps for a variety of industrial
applications, primarily involving abrasive or corrosive fluids or
those with high solids content and is included in the Fluid Handling
segment of the business. Abel Pump's principal facility is located
near Hamburg, Germany.
o Acquired in November 1999, MASD designs, manufacturers and markets
high-speed digital cameras used in automotive, industrial, military
and research markets. MASD also manufactures and markets
high-resolution digital cameras for the machine vision and image
conversion markets. MASD's principal facility is located in San
Diego, California. This business was subsequently merged with a
complementary business and currently operates as Redlake MASD and is
included in the Analytical Instrumentation segment.
The following unaudited pro forma summary presents Roper's consolidated results
of operations as if the acquisitions that occurred during fiscal 2002 and 2001
had occurred at the beginning of fiscal 2001. Goodwill associated with
acquisitions completed subsequent to June 30, 2001 has not been amortized for
purposes of this pro forma presentation to be consistent with current practice.
Also, 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. Data in the following table is in thousands, except per share data.
Unaudited
Year ended October 31,
----------------------
2002 2001
-------- --------
Net sales $674,251 $718,244
======== ========
Earnings before income taxes and change in accounting principle $101,004 $100,672
======== ========
Earnings before change in accounting principle $ 69,480 $ 65,127
======== ========
Earnings before change in accounting principle per share:
Basic $ 2.23 $ 2.12
======== ========
Diluted $ 2.18 $ 2.07
======== ========
F-14
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
(3) Inventories
The components of inventories at October 31 were as follows (in
thousands):
2002 2001
--------- ---------
Raw materials and supplies $ 45,836 $ 47,339
Work in process 11,852 13,047
Finished products 32,456 31,284
LIFO reserve (1,153) (1,323)
--------- ---------
$ 88,991 $ 90,347
========= =========
(4) Property, Plant and Equipment
The components of property, plant and equipment at October 31 were as
follows (in thousands):
2002 2001
--------- ---------
Land $ 2,372 $ 2,944
Buildings 25,649 24,996
Machinery, tooling and other equipment 93,977 83,541
--------- ---------
121,998 111,481
Accumulated depreciation and amortization (70,659) (59,594)
--------- ---------
$ 51,339 $ 51,887
========= =========
Depreciation expense was $11,721, $9,993 and $8,623 for the three years
ended October 31, 2002, October 31, ,2001 and October 31, 2000,
respectively.
F-15
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
(5) Goodwill, net
Analytical Fluid Industrial
Inst. Handling Controls Total
---------- -------- ---------- ---------
(in thousands)
Balances at October 31, 2001 $ 283,289 $ 64,721 $ 73,906 $ 421,916
Goodwill acquired 20,545 (204) 40,574 60,915
Impairment (27,900) -- (9,200) (37,100)
Currency translation adjustments 9,208 1,400 338 10,946
Reclassifications and other 3,261 94 156 3,511
--------- -------- --------- ---------
Balances at October 31, 2002 $ 288,403 $ 66,011 $ 105,774 $ 460,188
========= ======== ========= =========
Goodwill acquired during the year ended October 31, 2002 included a $7.6
million purchase price adjustment from the prior year's acquisition of the
Struers and Logitech businesses.
The impairment resulted from the transitional provisions of Roper's
adoption of SFAS 142. Impairment was recognized on the Redlake (analytical
instrumentation), Petrotech and Dynamco units. The reported change in
accounting principle for this impairment was net of income taxes.
SFAS 142, which Roper adopted at the beginning of fiscal 2002, does not
permit retroactive application of its method of accounting for goodwill
and other intangible assets. However, SFAS 142 does provide for the
following analysis comparing the current to the previous accounting
practice.
Year ended October 31,
----------------------------------------
2002 2001 2000
---------- ---------- ----------
Earnings before change in accounting principle, as reported $ 66,023 $ 55,839 $ 49,278
Add back: goodwill amortization, net of income taxes -- 12,287 10,130
---------- ---------- ----------
Earnings before change in accounting principle, adjusted $ 66,023 $ 68,126 $ 59,408
========== ========== ==========
Basic earnings per share:
Earnings before change in accounting principle, as reported $ 2.12 $ 1.82 $ 1.62
Add back: goodwill amortization, net of income taxes -- 0.40 0.33
---------- ---------- ----------
Earnings before change in accounting principle, adjusted $ 2.12 $ 2.22 $ 1.95
========== ========== ==========
Diluted earnings per share:
Earnings before change in accounting principle, as reported $ 2.08 $ 1.77 $ 1.58
Add back: goodwill amortization, net of income taxes -- 0.39 0.32
---------- ---------- ----------
Earnings before change in accounting principle, adjusted $ 2.08 $ 2.16 $ 1.90
========== ========== ==========
F-16
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
(6) Other intangible assets, net
Accum. Net book
Cost amort. value
------- ------- --------
(in thousands)
Assets subject to amortization:
Existing customer base $14,723 $(1,704) $13,019
Unpatented technology 7,623 (1,459) 6,164
Patents and other protective rights 7,056 (3,371) 3,685
Trade secrets 3,010 (125) 2,885
Assets not subject to amortization:
Trade names 11,279 -- 11,279
------- ------- -------
Balances at October 31, 2002 $43,691 $(6,659) $37,032
======= ======= =======
Amortization expense of other intangible assets was $3,455, $1,754 and
$825 during fiscal 2002, 2001 and 2000, respectively. Estimated
amortization expense for the five years subsequent to fiscal 2002 is
$4,120, $4,120, $4,100, $3,327 and $2,458 for fiscal 2003, 2004, 2005,
2006 and 2007, respectively.
(7) Accrued Liabilities
Accrued liabilities at October 31 were as follows (in thousands):
2002 2001
--------- ---------
Wages and other compensation $ 25,169 $ 27,152
Commissions 8,482 8,376
Interest 5,515 5,704
Other 26,975 19,788
--------- ---------
$ 66,141 $ 61,020
========= =========
(8) Income Taxes
Earnings before income taxes and change in accounting principle for the
years ended October 31 consisted of the following components (in
thousands):
2002 2001 2000
-------- -------- --------
United States $ 67,402 $ 64,879 $ 61,074
Other 28,284 21,560 14,857
-------- -------- --------
$ 95,686 $ 86,439 $ 75,931
======== ======== ========
Components of income tax expense before any change in accounting
principle for the years ended October 31 were as follows (in thousands):
2002 2001 2000
-------- -------- --------
Current:
Federal $ 17,724 $ 21,709 $ 19,587
State 984 1,189 945
Foreign 9,216 6,909 5,559
Deferred expense (benefit) 1,739 793 562
-------- -------- --------
$ 29,663 $ 30,600 $ 26,653
======== ======== ========
F-17
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
Reconciliations between the statutory federal income tax rate and the
effective income tax rate for the years ended October 31 were as follows:
2002 2001 2000
---- ---- ----
Federal statutory rate 35.0% 35.0% 35.0%
Extraterritorial Income Exclusion (5.1) -- --
Exempt income of Foreign Sales Corporation -- (4.3) (3.7)
Goodwill amortization 1.9 2.6 2.3
Other, net (0.8) 2.1 1.5
---- ---- ----
31.0% 35.4% 35.1%
==== ==== ====
Components of the deferred tax assets and liabilities at October 31 were
as follows (in thousands):
2002 2001
-------- --------
Deferred tax assets:
Reserves and accrued expenses $ 7,504 $ 7,735
Inventories 4,447 3,617
Postretirement medical benefits 714 631
Foreign taxes -- 575
Amortizable intangible assets 4,499 --
-------- --------
Total deferred tax assets 17,164 12,558
-------- --------
Deferred tax liabilities:
Amortizable intangible assets -- 2,629
Plant and equipment 1,584 1,599
Former IC-DISC recapture 462 577
-------- --------
Total deferred tax liabilities 2,046 4,805
-------- --------
Net deferred tax asset $ 15,118 $ 7,753
======== ========
Roper has not recognized a valuation allowance since management has
determined that it is more likely than not that the results of future
operations will generate sufficient taxable income to realize all deferred
tax assets.
(9) Long-Term Debt
Total debt at October 31 consisted of the following (table amounts in
thousands):
2002 2001
-------- --------
$275 million credit facility $186,358 $178,114
7.58% Senior Secured Notes 40,000 40,000
7.68% Senior Secured Notes 85,000 85,000
Supplier financing agreement 20,377 20,377
Other 370 3,349
-------- --------
Total debt 332,105 326,840
Less current portion 20,515 3,010
-------- --------
Long-term debt $311,590 $323,830
======== ========
The $275 million credit facility is with a group of banks and provides for
revolving loans, swing line loans and letters of credit. Interest on
outstanding borrowings is influenced by the type and currency of the
borrowings. Interest on outstanding borrowings under this facility is a
base rate plus a margin. The margin is influenced by certain financial
ratios of Roper and can range from 0.625% to 1.125%. This facility also
F-18
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
provides that Roper will maintain certain financial ratios addressing,
among other things, coverage of fixed charges, total debt under other
agreements, consolidated net worth and capital expenditures. Other costs
and provisions of this facility are believed to be customary. Repayment of
Roper's obligations under this facility is guaranteed by its U.S.
subsidiaries and the pledge of some of the stock of some of Roper's
non-U.S. subsidiaries. This agreement matures on May 18, 2005.
At October 31, 2002, utilization of the credit facility included $144.7
million of U.S. denominated borrowings, $41.7 million of borrowings
denominated in euros and $3.3 million of outstanding letters of credit.
The weighted average interest rate on these outstanding borrowings at
October 31, 2002 was 3.3%.
The Senior Secured Notes are with a group of insurance companies that
consist of $40 million of term notes due May 18, 2007 and $85 million of
term notes due May 18, 2010. The guarantees, pledges and financial
covenants associated with these notes are similar, but slightly less
restrictive, than those in the $275 million credit facility.
On September 28, 2001, Roper entered into a supplier financing credit
agreement (the "credit agreement") with a foreign financial institution.
Under the terms of the credit agreement, the maximum borrowing capacity
available to Roper was $20,377, which was fully drawn on October 1, 2001.
Roper is required to repay the principal amount of the borrowing in four
equal, consecutive quarterly installments beginning December 30, 2002 with
a scheduled maturity date of October 1, 2003. Under the terms of the
credit agreement, on October 1, 2001, the interest rate was fixed at 5.76%
through the maturity date. Interest is payable in arrears on October 1,
2002, January 1, 2003, April 1, 2003, July 1, 2003 and October 1, 2003.
The restrictive covenants associated with the credit agreement are
similarly restrictive to those in the $275 million credit facility.
At October 31, 2002, the Company was in compliance with its restrictive
covenants.
Future maturities of long-term debt during each of the next five years
ending October 31 and thereafter were as follows (in thousands):
2003 $ 20,515
2004 135
2005 186,455
2006 --
2007 40,000
Thereafter 85,000
--------
$332,105
========
(10) Retirement and Other Benefit Plans
Roper maintains two defined contribution retirement plans under the
provisions of Section 401(k) of the Internal Revenue Code covering
substantially all U.S. employees not subject to collective bargaining
agreements. Roper partially matches employee contributions. Its costs
related to these two plans were $4,549,000, $4,126,000 and $3,956,000 in
fiscal 2002, 2001 and 2000, respectively.
Roper also maintains various defined benefit retirement plans covering
employees of non-U.S. subsidiaries and a plan that supplements certain
employees for the contribution ceiling applicable to the Section 401(k)
plans. The costs and accumulated benefit obligations associated with each
of these plans were not material.
Pursuant to the fiscal 1999 Petroleum Analyzer acquisition, Roper agreed
to assume a defined benefit pension plan covering certain U.S. employees
subject to a collective bargaining agreement. Roper obtained the necessary
regulatory approvals to terminate this plan during fiscal 2002 and all
plan assets were distributed during fiscal 2002.
F-19
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
All U.S. employees are eligible to participate in Roper's stock purchase
plan whereby they may designate up to 10% of eligible earnings to purchase
Roper's common stock at a 10% discount to the average closing price of its
common stock at the beginning and end of a quarterly offering period. The
common stock sold to the employees may be either treasury stock, stock
purchased on the open market, or newly issued shares. During the years
ended October 31, 2002, 2001 and 2000, participants of the employee stock
purchase plan purchased 11,000, 8,000 and 9,000 shares, respectively, of
Roper's common stock for total consideration of $437,000, $257,000 and
$271,000, respectively. All of these shares were purchased from Roper's
treasury shares.
(11) Common Stock Transactions
Roper's restated Certificate of Incorporation provides that each
outstanding share of Roper'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.
Roper has 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 Roper'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 Roper's
common stock having a market value at such time of twice the Right's
exercise price. The Rights may be redeemed by Roper at a redemption price
of $0.01 per Right at any time until the tenth business day following
public announcement that a 20% position has been acquired or 10 business
days after commencement of a tender or exchange offer. The Rights expire
on January 8, 2006.
Roper periodically enters into agreements with the management of
newly-acquired companies for the issuance of Roper's common stock based on
the achievement of specified goals. A similar agreement was made with a
corporate executive during fiscal 1996 that matured during fiscal 2002.
During fiscal 2002, 20,000 shares of common stock were issued under such
agreements. At October 31, 2002, there were no such agreements
outstanding.
(12) Stock Options
Roper has two stock incentive plans (the "1991 Plan" and the "2000 Plan")
which authorize the issuance of shares of common stock to certain
directors, key employees, and consultants of Roper as incentive and/or
nonqualified stock options, stock appreciation rights or equivalent
instruments. Stock options under both plans must be granted at prices not
less than 100% of market value of the underlying stock at the date of
grant. All stock options granted under these plans vest annually and
ratably over a five-year period from the date of the grant. Stock options
expire ten years from the date of grant. Options may no longer be granted
under the 1991 Plan. The 2000 Plan has no expiration date for the granting
of options and had the capacity to grant an additional 682,000 options or
equivalent instruments at October 31, 2002.
Roper 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 Roper's common stock and thereafter
options to purchase an additional 4,000 shares each year under terms and
conditions similar to the above-mentioned stock option plans, except that
following their grant, all options become fully vested at the time of the
Annual Meeting of Shareholders
F-20
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
following the grant date and are exercisable ratably over five years
following the date of grant. At October 31, 2002, the Non-Employee
Director Plan had the capacity to grant an additional 92,000 options.
A summary of stock option transactions under these plans and information
about stock options outstanding at October 31, 2002 are shown below:
Outstanding options Exercisable options
---------------------- ----------------------
Average Average
exercise exercise
Number price Number price
--------- -------- --------- --------
October 31, 1999 2,117,000 $ 17.67 1,226,000 $ 14.67
Granted 365,000 33.18
Exercised (320,000) 13.68
Canceled (79,000) 25.76
---------
October 31, 2000 2,083,000 20.69 1,199,000 16.45
Granted 515,000 34.85
Exercised (292,000) 18.34
Canceled (75,000) 25.39
---------
October 31, 2001 2,231,000 24.11 1,171,000 17.91
Granted 651,000 41.11
Exercised (469,000) 17.12
Canceled (118,000) 31.89
---------
October 31, 2002 2,295,000 $ 29.97 1,034,000 $ 22.59
=========
Outstanding options Exercisable options
----------------------------------------- ----------------------
Average Average Average
exercise remaining exercise
Exercise price Number price life (years) Number price
--------------- --------- ---------- ------------ --------- ---------
$ 3.75 - 15.00 169,000 $ 10.95 1.7 169,000 $ 10.95
15.01 - 25.00 583,000 18.76 3.6 488,000 18.79
25.01 - 35.00 735,000 31.48 7.0 287,000 30.38
35.01 - 48.76 808,000 40.65 9.0 90,000 40.32
--------- ---------
$ 3.75 - 48.76 2,295,000 $ 29.97 6.4 1,034,000 $ 22.59
========= =========
For pro forma disclosure purposes, the following fair values and the
primary assumptions used to determine these fair values were used. All
stock options granted during each of the years ended October 31, 2002,
2001 and 2000 were at exercise prices equal to the market price of
Roper's common stock when granted.
2002 2001 2000
----------- ----------- ---------
Weighted average fair value per share ($) 16.77 16.86 15.37
Risk-free interest rate (%) 4.00 - 5.00 5.00 - 6.00 6.75
Average expected option life (years) 7.0 7.0 7.0
Expected volatility (%) 33 - 37 31 - 45 35 - 49
Expected dividend yield (%) 0.75 0.75 1.00
F-21
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
Had Roper recognized compensation expense during fiscal 2002, 2001 and
2000 for the fair value of stock options granted in accordance with the
provisions of SFAS 123, pro forma earnings and pro forma earnings per
share would have been approximately as presented below.
2002 2001 2000
---------- ---------- ----------
Net earnings, as reported (in thousands) $ 40,053 $ 55,839 $ 49,278
Net earnings, pro forma (in thousands) 32,589 50,859 45,385
Net earnings per share, as reported:
Basic 1.28 1.82 1.62
Diluted 1.26 1.77 1.58
Net earnings per share, pro forma:
Basic 1.04 1.65 1.49
Diluted 1.02 1.61 1.46
The disclosed pro forma effects on earnings do not include the effects of
stock options granted prior to fiscal 1996 (affecting fiscal 2000) since
the provisions of SFAS 123 are not applicable to stock options for this
purpose. The pro forma effects of applying SFAS 123 to fiscal 2002, 2001
and 2000 may not be representative of the pro forma effects in future
years. Based on the vesting schedule of Roper's stock 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 Roper's Board of Directors and cannot be assured.
(13) Contingencies
Roper, in the ordinary course of business, is the subject of, or a party
to, various pending or threatened legal actions, including those
pertaining to product liability and employment practices. It is vigorously
contesting all lawsuits that, in general, are based upon claims of the
kind that have been customary over the past several years. Based upon
Roper's past experience with resolution of its product liability and
employment practices claims and the limits of the primary, excess, and
umbrella liability insurance coverages that are available with respect to
pending claims, management believes that adequate provision has been made
to cover any potential liability not covered by insurance, and that the
ultimate liability, if any, arising from these actions should not have a
material adverse effect on the consolidated financial position, results of
operations or cash flows of Roper. Included in other noncurrent assets at
October 31, 2002 are estimated insurable settlements receivable from
insurance companies of $2.6 million. At October 31, 2001, the estimated
insurable settlements receivable from insurance companies was $1.7
million.
There recently has been a significant increase in certain U.S. states in
asbestos-related litigation claims against numerous industrial companies.
Roper or its subsidiaries have been named defendants in some such cases.
No significant resources have been required by Roper to respond to these
cases and Roper believes it has valid defenses to such claims and, if
required, intends to defend them vigorously. Given the state of these
claims it is not possible to determine the potential liability, if any.
Roper's future minimum lease commitments totaled $38.9 million at October
31, 2002. These commitments included $8.9 million in fiscal 2003, $6.8
million in fiscal 2004, $4.9 million in fiscal 2005, $3.6 million in
fiscal 2006, $2.8 million in fiscal 2007 and $11.9 million thereafter.
(14) Segment and Geographic Area Information
F-22
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
Roper's operations are grouped into three business segments based on
similarities between products and services: analytical instrumentation,
fluid handling and industrial controls. The analytical instrumentation
segment's products include fluid properties testing products, materials
analysis products, industrial leak test products and digital imaging
products. Products included within the fluid handling segment are rotary
gear, progressing cavity, membrane, positive displacement, centrifugal and
piston-type metering pumps; flow metering products; and precision
integrated chemical dispensing systems. The industrial controls segment's
products include industrial valve, control and measurement products;
microprocessor-based turbomachinery control systems and associated
technical services; and non-destructive inspection and measurement
solutions. Roper's management structure and internal reporting are also
aligned consistent with these three segments.
There were no material transactions between Roper's business segments
during any of the three years ended October 31, 2002. Sales between
geographic areas are primarily of finished products and are accounted for
at prices intended to represent third-party prices. Operating profit by
business segment and by geographic area is defined as sales less operating
costs and expenses. These costs and expenses do not include unallocated
corporate administrative expenses. Items below income from operations on
Roper's statement of earnings are not allocated to business segments.
Identifiable assets are those assets used primarily in the operations of
each business segment or geographic area. Corporate assets were
principally comprised of cash, recoverable insurance claims, deferred
compensation assets, unamortized deferred financing costs and property and
equipment.
Selected financial information by business segment for the years ended
October 31 follows (in thousands):
Analytical Fluid Industrial
Inst. Handling Controls Corporate Total
---------- --------- ---------- --------- --------
2002
Net sales $318,839 $ 105,441 $202,750 $ -- $627,030
Operating profit 58,160 21,511 48,685 (13,527) 114,829
Total assets:
Operating assets 133,470 45,275 108,009 -- 286,754
Intangible assets, net 317,430 66,982 112,808 -- 497,220
Other 26,774 (1,550) 786 18,989 44,999
--------
Total 828,973
Capital expenditures 4,172 1,396 1,999 213 7,780
Goodwill amortization -- -- -- -- --
Depreciation and other amortization 8,846 3,203 3,020 107 15,176
2001
Net sales $264,369 $ 125,399 $196,738 $ -- $586,506
Operating profit 43,157 27,123 37,836 (9,688) 98,428
Total assets:
Operating assets 148,389 50,714 78,807 -- 277,910
Intangible assets, net 310,725 65,887 74,085 450,697
Other 16,310 (1,262) 5,135 13,332 33,515
--------
Total 762,122
Capital expenditures 3,307 1,804 2,233 111 7,455
Goodwill amortization 8,745 2,616 4,347 -- 15,708
Depreciation and other amortization 5,467 3,248 2,663 369 11,747
2000
Net sales $223,164 $ 121,387 $159,262 $ -- $503,813
Operating profit 36,509 29,600 28,460 (6,373) 88,196
Total assets:
Operating assets 117,174 57,590 77,772 -- 252,536
Intangible assets, net 184,065 66,884 70,965 1,281 323,195
Other 7,312 (2,090) 3,695 12,254 21,171
--------
Total 596,902
Capital expenditures 4,773 6,380 3,936 61 15,150
Goodwill amortization 7,969 2,209 2,672 -- 12,850
Depreciation and other amortization 4,019 2,712 2,423 294 9,448
F-23
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
Summarized data for Roper's U.S. and foreign operations (principally in
Europe and Japan) for the years ended October 31 were as follows (in
thousands):
Corporate
United and elimi-
States Non-U.S. nations Total
----------- ----------- ----------- -----------
2002
Sales to unaffiliated customers $ 447,769 $ 179,261 $ -- $ 627,030
Sales between geographic areas 35,629 17,534 (53,163) --
----------- ----------- ----------- -----------
Net sales $ 483,398 $ 196,795 $ (53,163) $ 627,030
=========== =========== =========== ===========
Long-lived assets $ 382,002 $ 188,279 $ 11,070 $ 581,351
=========== =========== =========== ===========
2001
Sales to unaffiliated customers $ 451,189 $ 135,317 $ -- $ 586,506
Sales between geographic areas 41,752 9,394 (51,146) --
----------- ----------- ----------- -----------
Net sales $ 492,941 $ 144,711 $ (51,146) $ 586,506
=========== =========== =========== ===========
Long-lived assets $ 367,537 $ 154,230 $ 7,663 $ 529,430
=========== =========== =========== ===========
2000
Sales to unaffiliated customers $ 370,351 $ 133,462 $ -- $ 503,813
Sales between geographic areas 29,435 6,958 (36,393) --
----------- ----------- ----------- -----------
Net sales $ 399,786 $ 140,420 $ (36,393) $ 503,813
=========== =========== =========== ===========
Long-lived assets $ 327,311 $ 49,251 $ 6,385 $ 382,947
=========== =========== =========== ===========
Export sales from the United States during the years ended October 31,
2002, 2001 and 2000 were $223 million, $238 million and $195 million,
respectively. In the year ended October 31, 2002 these exports were
shipped primarily to Russia (27%), elsewhere in Europe (28%), Japan (10%),
elsewhere in Asia excluding the Middle East (14%), Latin America (9%) and
other (12%).
F-24
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
Sales to customers outside the United States accounted for a significant
portion of Roper's revenues. Sales are attributed to geographic areas
based upon the location where the product is ultimately shipped. Foreign
countries that accounted for at least 5% of Roper's net sales in any of
the past three years have been individually identified in the following
table (in thousands). Other countries have been grouped by region.
Analytical Fluid Industrial
Inst. Handling Controls Total
----------- ----------- ----------- -----------
2002
Russia $ 2,590 $ 23 $ 60,024 $ 62,637
Germany 26,163 8,709 4,597 39,469
Elsewhere in Europe 63,851 10,215 32,115 106,181
Japan 40,730 2,301 1,258 44,289
Elsewhere in Asia excluding the Middle East 34,617 2,685 10,971 48,273
Latin America 14,337 1,189 8,669 24,195
Rest of the world 16,496 6,677 15,457 38,630
----------- ----------- ----------- -----------
Total $ 198,784 $ 31,799 $ 133,091 $ 363,674
=========== =========== =========== ===========
2001
Russia $ 1,389 $ -- $ 58,389 $ 59,778
Germany 21,735 7,852 4,017 33,604
Elsewhere in Europe 50,185 10,592 30,216 90,993
Japan 32,299 4,044 910 37,253
Elsewhere in Asia excluding the Middle East 28,131 2,890 7,372 38,393
Latin America 10,419 1,361 6,923 18,703
Rest of the world 10,364 6,993 11,222 28,579
----------- ----------- ----------- -----------
Total $ 154,522 $ 33,732 $ 119,049 $ 307,303
=========== =========== =========== ===========
2000
Russia $ 992 $ -- $ 39,980 $ 40,972
Germany 15,156 3,654 3,692 22,502
Elsewhere in Europe 41,031 7,157 27,814 76,002
Japan 27,783 7,767 822 36,372
Elsewhere in Asia excluding the Middle East 19,204 2,686 8,304 30,194
Latin America 9,085 881 8,436 18,402
Rest of the world 10,361 8,064 16,382 34,807
----------- ----------- ----------- -----------
Total $ 123,612 $ 30,209 $ 105,430 $ 259,251
=========== =========== =========== ===========
(15) Restructuring Activities
During the three months ended April 30, 2001, Roper recorded $2,559,000 of
expenses, reported as part of selling, general and administrative
expenses, related to activities to close certain activities at its
Petrotech unit and to consolidate certain other facilities. These expenses
included approximately $950,000 of personnel costs, $1,100,000 of asset
impairment and $509,000 of other related exit costs. All significant
restructuring activities were completed by October 31, 2001. These
Petrotech activities represented 1% of Roper's total net sales during
fiscal 2001 and 4% of net sales during fiscal 2000. The operating profit
of these activities was immaterial to Roper during each of fiscal 2001 and
fiscal 2000. The total workforce reduction pursuant to these restructuring
activities was approximately 150 people, or about 6% of Roper's total
workforce at that time.
F-25
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
(16) Quarterly Financial Data (unaudited)
First Second Third Fourth
quarter quarter quarter quarter
--------- --------- --------- ---------
(in thousands, except per share data)
2002
Net sales $ 149,584 $ 153,809 $ 154,640 $ 168,997
Gross profit 79,429 83,080 82,787 91,023
Income from operations 24,647 30,452 27,957 31,773
Earnings before change in accounting principle 14,510 17,456 15,033 19,024
Earnings before change in accounting principle
per common share:
Basic* 0.47 0.56 0.48 0.61
Diluted 0.46 0.55 0.47 0.60
2001
Net sales $ 137,664 $ 146,830 $ 137,969 $ 164,043
Gross profit 69,741 75,658 73,819 89,752
Income from operations 21,864 24,125 23,304 29,135
Net earnings 11,760 13,862 13,133 17,084
Earnings per common share:
Basic* 0.38 0.45 0.43 0.55
Diluted 0.38 0.44 0.41 0.54
Earnings before change in accounting principle in fiscal 2002 is
comparable to net earnings in fiscal 2001. In the fourth quarter of fiscal
2002, Roper completed its adoption of SFAS 142 retroactive to the
beginning of fiscal 2002.
* The sum of the four quarters does not agree with the total for the
year due to rounding.
F-26
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
Of Roper Industries, Inc:
Our audit of the consolidated financial statements referred to in our report
dated December 11, 2002 also included an audit of the financial statement
schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements The consolidated financial statements and
financial statement schedule of Roper Industries, Inc. as of October 31, 2000,
and for the year then ended, were audited by other independent accountants who
have ceased operations. Those independent accountants expressed an unqualified
opinion on those financial statements and financial statement schedules in their
report dated December 6, 2000.
PricewaterhouseCoopers LLP
Atlanta, Georgia
December 11, 2002
S-1
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Schedule II - Consolidated Valuation and Qualifying Accounts
for the Years ended October 31, 2002, 2001 and 2000
Additions
Balance at charged to Balance at
beginning costs and end
of year expenses Deductions Other of year
--------- --------- ---------- --------- ---------
(in thousands)
Allowance for doubtful accounts and sales allowances:
2002 $ 4,344 $ 1,460 $ (2,491) $ 449 $ 3,762
2001 4,294 822 (1,513) 741 4,344
2000 3,760 1,805 (1,543) 272 4,294
Reserve for inventory obsolescence:
2002 $ 15,486 $ 4,632 $ (3,658) $ 3,771 $ 20,231
2001 10,704 5,103 (4,044) 3,723 15,486
2000 6,769 2,636 (1,644) 2,943 10,704
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.
S-2
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 14, 2002, Roper terminated its relationship with Arthur Andersen LLP
("Arthur Andersen") as our independent public accountants and engaged
PricewaterhouseCoopers LLP as our independent public accountants. The decision
to change independent public accountants was recommended by the audit committee
and approved by our board of directors.
In connection with the audits of our consolidated financial statements as of and
for the two fiscal years ended October 31, 2001, and with respect to the
subsequent period through January 31, 2002, there were no disagreements with
Arthur Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if
not resolved to Arthur Andersen's satisfaction, would have caused them to make
reference in connection with their report on our consolidated financial
statements to the subject matter of the disagreement.
Arthur Andersen's reports on our consolidated financial statements for the past
two years ended October 31, 2001 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.
We provided Arthur Andersen with a copy of the foregoing disclosure. Attached as
Exhibit 16 is a copy of Arthur Andersen's letter, dated May 31, 2002, stating
its agreement with such statements.
32
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 -- "COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES AND EXCHANGE ACT OF 1934" in our definitive Proxy Statement which
relates to our 2003 Annual Meeting of Shareholders to be held on March 21, 2003
to be filed within 120 days after the close of our 2002 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 -- Compensation of Directors" and "--
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 AND
RELATED STOCKHOLDER MATERS
Reference is made to the information included under the captions "COMMON STOCK
OWNERSHIP BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS" and "EQUITY COMPENSATION
PLAN INFORMATION" in the Proxy Statement, which information is incorporated
herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 14. CONTROLS AND PROCEDURES
Based on their evaluation as of a date within 90 days of the filing of this
Annual Report, our principal executive officer and our principal financial
officer have concluded that our disclosure controls and procedures (as defined
in Rule 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
33
amended) are effective to ensure that information required to be disclosed by us
in reports that we file or submit under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation. There were no significant deficiencies or material weaknesses and,
therefore, there were no corrective actions taken.
34
PART IV
ITEM 15. 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-2 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, 2002, 2001 and 2000.
(b) Reports on Form 8-K
We filed the following reports on Form 8-K during the fourth
quarter of fiscal 2002.
On August 1, 2002, we reported under Item 5 the acquisition of
three businesses, provided guidance on third quarter results,
and announced our participation at an upcoming investor
conference. No financial statements were required to be filed
with this report and no financial statements were filed.
On September 13, 2002, we reported under Item 9 the filing of
our Form 10-Q for the quarterly period ended July 31, 2002 and
the accompanying certifications of our Chief Executive Officer
and our Chief Financial Officer.
(c) Exhibits
The following exhibits are separately filed with this Annual
Report.
Number Exhibit
------ -------
2.1 Agreement and Plan of Merger by and among RPR Acquisition
Subsidiary, Inc., Roper Industries, Inc. and Zetec, Inc.,
dated as of July 31, 2002.
(a) 2.2 Share Sale and Purchase Agreement dated July 9, 2001,
regarding Struers Holding A/S.
(b) 3.1 Amended and Restated Certificate of Incorporation, including
Form of Certificate of Designation, Preferences and Rights of
Series A Preferred Stock
(c) 3.2 Amended and Restated By-Laws
35
(d)4.01 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)
(c)4.02 Credit Agreement dated as of May 18, 2000
(c)4.03 Note Purchase Agreement dated as of May 18, 2000
(b)10.01 1991 Stock Option Plan, as amended +
10.02 Non-employee Director Stock Option Plan, as amended +
(e)10.03 Form of Amended and Restated Indemnification Agreement +
(f)10.04 Employee Stock Purchase Plan +
(f)10.05 2000 Stock Incentive Plan +
10.06 Roper Industries, Inc. Non-Qualified Retirement Plan, as
amended +
(g)10.07 Brian D. Jellison Employment Agreement dated as of November 6,
2001 +
(g)10.08 C. Thomas O'Grady offer letter dated February 19, 2001 +
10.09 Timothy J. Winfrey offer letter dated May 20, 2002 +
(h)16 Letter from Arthur Andersen LLP to the Securities and Exchange
Commission dated May 31, 2002
21 List of Subsidiaries
23.1 Consent of Independent Public Accountants
23.2 Notice Regarding Consent of Arthur Andersen LLP
99.1 Risk Factors
------------------------
(a) Incorporated herein by reference to Exhibit 99.1 to the Roper Industries,
Inc. Current Report on Form 8-K filed December 13, 2001 (file no. 1-12273).
36
(b) Incorporated herein by reference to Exhibits 3.1 and 10.2 to the Roper
Industries, Inc. Annual Report on Form 10-K filed January 21, 1998 (file
no. 1-12273).
(c) Incorporated herein by reference to Exhibits 3.2, 4.02, 4.03 and 10.06 to
the Roper Industries, Inc. Form 10-Q filed September 13, 2000 (file no.
1-12273).
(d) Incorporated herein by reference to Exhibit 4.02 to the Roper Industries,
Inc. Current Report on Form 8-K filed January 18, 1996 (file no. 0-19818).
(e) Incorporated herein by reference to Exhibit 10.04 to the Roper Industries,
Inc. Quarterly Report on Form 10-Q filed August 31, 1999 (file no.
1-12273).
(f) Incorporated herein by reference to Exhibits 10.04 and 10.05 to the Roper
Industries, Inc. Quarterly Report on Form 10-Q filed June 12, 2000 (file
no. 1-12273).
(g) Incorporated herein by reference to Exhibits 10.07 and 10.09 to the Roper
Industries, Inc. Annual Report on Form 10-K filed January 22, 2002 (file
no. 1-12273).
(h) Incorporated herein by reference to Exhibit 16 to the Roper Industries,
Inc. Amended Current Report on Form 8-K/A filed June 3, 2002 (file no.
1-2273).
+ Management contract or compensatory plan or arrangement.
37
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Roper has duly caused this amended Report to be signed on its
behalf by the undersigned, therewith duly authorized.
ROPER INDUSTRIES, INC.
(Registrant)
By: /S/ BRIAN D. JELLISON January 22, 2003
-------------------------------------
Brian D. Jellison
President and Chief Executive Officer
38
CERTIFICATIONS
I, Brian D. Jellison, certify that:
1. I have reviewed this annual report on Form 10-K of Roper Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14, for the registrant and
have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Effective Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 22, 2003
By: /s/ BRIAN D. JELLISON
----------------------------------------------------------
Brian D. Jellison, President and Chief Executive Officer
39
CERTIFICATIONS
I, Martin S. Headley, certify that:
1. I have reviewed this annual report on Form 10-K of Roper Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14, for the registrant and
have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Effective Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 22, 2003
By /s/ MARTIN S. HEADLEY
----------------------------------------------------------
Martin S. Headley, Vice President and Chief Financial Officer
40
EXHIBIT INDEX
Number Exhibit
(a)2.1 Agreement and Plan of Merger by and among RPR Acquisition
Subsidiary, Inc., Roper Industries, Inc. and Zetec, Inc., dated as
of July 31, 2002.
2.2 Share Sale and Purchase Agreement (Struers A/S & Logitech Limited)
incorporated herein by reference to Exhibits 99.1 to the Roper
Industries, Inc. Current Report on Form 8-K filed December 13, 2001
(File No. 1-12273).
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 and
10.2 to the Roper Industries, Inc. Annual Report on Form 10-K filed
January 21, 1998 (File No. 1-12273).
3.2 Amended and Restated By-Laws incorporated herein by reference to
Exhibit 3.2, 4.02, 4.03 and 10.06 to the Roper Industries, Inc. Form
10-Q filed September 13, 2000 (File No. 1-12273).
4.01 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), incorporated herein
by reference to Exhibit 4.02 to the Roper Industries, Inc. Current
Report on Form 8-K filed January 18, 1996 (File No. 0-19818).
4.02 Credit Agreement Dated as of May 18, 2000, incorporated herein by
reference to Exhibits 3.2, 4.02, 4.03 and 10.06 to the Roper
Industries, Inc. Form 10-Q filed September 13, 2000 (File No.
1-12273).
4.03 Note Purchase Agreement Dated as of May 18, 2000, incorporated
herein by reference to Exhibits 3.2, 4.02, 4.03 and 10.06 to the
Roper Industries, Inc. Form 10-Q filed September 13, 2000 (File No.
1-12273).
10.01 1991 Stock Option Plan, as amended incorporated herein by reference
to Exhibits 3.1 and 10.2 to the Roper Industries, Inc. Annual Report
on Form 10-K filed January 21, 1998 (File No. 1-12273).
10.02 Non-employee Director Stock Option Plan, as amended.
10.03 Form of Amended and Restated Indemnification Agreement incorporated
herein by reference to Exhibit 10.04 to the Roper Industries, Inc.
Quarterly Report on Form 10-Q filed August 31, 1999 (File No.
1-12273).
10.04 Employee Stock Purchase Plan incorporated herein by reference to
Exhibits 10.04 and 10.05 to the Roper Industries, Inc. Quarterly
Report on Form 10-Q filed June 12, 2000 (File No. 1-12273).
10.05 2000 Stock Incentive Plan herein by reference to Exhibits 10.04 and
10.05 to the Roper Industries, Inc. Quarterly Report on Form 10-Q
filed June 12, 2000 (File No. 1-12273).
10.06 Roper Industries, Inc. Non-Qualified Retirement Plan, as amended.
10.07 Brian D. Jellison Employment Agreement dated as of November 6,
2001 incorporated herein by reference to Exhibits 10.07 and 10.09 to
the Roper Industries, Inc. Annual Report on Form 10-K filed January
22, 2002 (file no. 1-2273).
10.08 C. Thomas O'Grady letter dated February 19, 2001 incorporated herein
by reference to Exhibits 10.07 and 10.09 to the Roper Industries,
Inc. Annual Report on Form 10-K filed January 22, 2002 (file No.
1-12273)..
10.09 Timothy J. Winfrey offer letter dated May 20, 2002.
21 List of Subsidiaries
23.1 Consent of Independent Public Accountants
23.2 Notice Regarding Consent of Artnur Andersen LLP
99.1 Risk Factors
----------------
(a) The following schedules or similar attachments to this exhibit has been
omitted and will be furnished supplementally upon request.
Disclosure Schedules
Section 2(c) - Officers and Directors of Corporation
Section 3.A.(a) - Organization of the Company and its Subsidiary
Section 3.A.(c) - Noncontravention
Section 3.A.(e) - Capitalization; Company Shares
Section 3.A.(f) - Redemptions
Section 3.A.(g) - Shareholder Debt
Section 3.B.(a) - Financial Statements
Section 3.B.(b) - Events Subsequent to December 31, 2001
Section 3.B.(c) - Undisclosed Liabilities
Section 3.B.(d) - Legal Compliance
Section 3.B.(e) - Tax Matters
Section 3.B.(f) - Real Property
Section 3.B.(g) - Intellectual Property
Section 3.B.(h) - Software
Section 3.B.(i) - No Infringement
Section 3.B.(j) - Tangible Assets
Section 3.B.(l) - Contracts
Section 3.B.(m) - Notes and Accounts Receivable
Section 3.B.(n) - Powers of Attorney
Section 3.B.(o) - Insurance
Section 3.B.(q) - Product Warranty
Section 3.B.(s) - Employees
Section 3.B.(t) - Employee Benefits
Section 3.B.(v) - Environment, Health, and Safety
Section 3.B.(w) - Certain Business Relationships with the company and its
Subsidiary
Section 3.B.(z) - Knowledge Group
Exhibits:
Exhibit A - Amended and Restated Escrow, Release, and Indemnification Agreement
Exhibit B - Required Consents
Exhibit C - Consent, Termination and Release Agreement
Exhibit D - Noncompetition and Assignment of Inventions Agreement
Exhibit E - Form of Opinion of Counsel to the Company
Exhibit F - Form of Opinion of Counsel to Stockholders