fy2008_10-k.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K

þ  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
 
¨  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)
----------------
Delaware
 
51-0263969
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
----------------
6901 Professional Parkway East, Suite 200
Sarasota, Florida 34240
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (941) 556-2601
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

   
Name of Each Exchange
Title of Each Class
 
On Which Registered
Common Stock, $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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes  ¨ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨ Yes  þ No

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) 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. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
þ Large accelerated filer ¨ Accelerated filer  ¨ Non-accelerated filer ¨ Smaller reporting company

Indicate by check mark if the registrant is a shell company (as defined in Rule 12-b2 of the Act). ¨ Yes  þ No

Based on the closing sale price on the New York Stock Exchange on June 30, 2008, the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was: $5,913,756,279.

Number of shares of Registrant’s Common Stock outstanding as of February 20, 2009: 89,765,578.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement to be furnished to Stockholders in connection with its Annual Meeting of Stockholders to be held on June 3, 2009, are incorporated by reference into Part III of this Annual Report on Form 10-K.
 
 
 
 
ROPER INDUSTRIES, INC.

FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

Table of Contents

PART I
   
Item 1.
Business
3
Item 1A.
Risk Factors
7
Item 1B.
Unresolved Staff Comments
10
Item 2.
Properties
11
Item 3.
Legal Proceedings
11
Item 4.
Submission of Matters to a Vote of Security Holders
11
     
PART II
   
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
12
Item 6.
Selected Financial Data
14
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
23
Item 8.
Financial Statements and Supplementary Data
24
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
53
Item 9A.
Controls and Procedures
53
Item 9B.
Other Information
53
     
PART III
   
Item 10.
Directors, Executive Officers and Corporate Governance
54
Item 11.
Executive Compensation
54
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
54
Item 13.
Certain Relationships and Related Transactions, and Director Independence
54
Item 14.
Principal Accountant Fees and Services
54
     
PART IV
   
Item 15.
Exhibits and Financial Statement Schedules
55
 
Signatures
57

 
 
 
 
 
 

Information About Forward-Looking Statements

This Annual Report on 10-K ("Annual Report") includes and incorporates by reference “forward-looking statements” within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the SEC or in connection with oral statements made to the press, potential investors or others. All statements that are not historical facts are “forward-looking statements.”  The words “estimate,” “project,” “intend,” “expect,” “believe,” “anticipate,” and similar expressions identify forward-looking statements. These forward-looking statements include statements regarding our expected financial position, business, financing plans, business strategy, business prospects, revenues, working capital, liquidity, capital needs, interest costs and income, in each case relating to our company as a whole, as well as statements regarding acquisitions, potential acquisitions and the benefits of acquisitions.

Forward-looking statements are estimates and projections reflecting our best judgment and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Examples of forward-looking statements in this report include but are not limited to our expectations regarding our ability to generate operating cash flows and reduce debt and associated interest expense and our expectations regarding growth through acquisitions. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, timing and success of product upgrades and new product introductions, raw materials costs, expected pricing levels, the timing and cost of expected capital expenditures, expected outcomes of pending litigation, competitive conditions, general economic conditions and expected synergies relating to acquisitions, joint ventures and alliances. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include:
 
·  
general economic conditions;
·  
difficulty making acquisitions and successfully integrating acquired businesses;
·  
any unforeseen liabilities associated with future acquisitions;
·  
limitations on our business imposed by our indebtedness;
·  
unfavorable changes in foreign exchange rates;
·  
difficulties associated with exports;
·  
risks and costs associated with our international sales and operations;
·  
increased directors and officers liability and other insurance costs;
·  
risk of rising interest rates;
·  
product liability and insurance risks;
·  
increased warranty exposure;
·  
future competition;
·  
the cyclical nature of some of our markets;
·  
reduction of business with large customers;
·  
risks associated with government contracts;
·  
changes in the supply of, or price for, parts and components;
·  
environmental compliance costs and liabilities;
·  
risks and costs associated with asbestos-related litigation;
·  
potential write-offs of our substantial intangible assets;
·  
our ability to successfully develop new products:
·  
failure to protect our intellectual property;
·  
economic disruption caused by terrorist attacks, health crises or other unforeseen events; and
·  
the factors discussed in Item 1A to this Annual Report under the heading “Risk Factors.”
 
We believe these forward-looking statements are reasonable. However, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update any of them in light of new information or future events.
 
 
PART I


ITEM 1.
BUSINESS

Our Business
 
Roper Industries, Inc. (“Roper” or the “Company”) was incorporated on December 17, 1981 under the laws of the State of Delaware. We are a diversified growth company that designs, manufactures and distributes energy systems and controls, scientific and industrial imaging products and software, industrial technology products and radio frequency (“RF”) products and services. We market these products and services to selected segments of a broad range of markets including RF applications, water, energy, research and medical, education, security and other niche markets.

We pursue consistent and sustainable growth in sales and earnings by emphasizing continuous improvement in the operating performance of our existing businesses and by acquiring other carefully selected businesses that offer high value-added services, engineered products and solutions and are capable of achieving growth and maintaining high margins. We compete in many niche markets and believe that we are the market leader or a competitive alternative to the market leader in the majority of these markets.
 

Market Share, Market Expansion, and Product Development
 
Leadership with Engineered Content for Niche Markets. We maintain a leading position in many of our markets. We believe our market positions are attributable to the technical sophistication of our products, the applications expertise used to create our advanced products and systems, and our distribution and service capabilities. Our operating units grow their businesses through new product development and development of new applications and services for existing products to satisfy customer needs. In addition, our operating units grow our customer base by expanding our distribution, selling other products through our existing channels and entering adjacent markets.

Diversified End Markets and Geographic Reach. Over the past decade, we have strategically expanded the number of end markets we serve to increase revenue and business stability and expand our opportunities for growth. We have a global presence, with sales of products manufactured and exported from the United States ("U.S.") and manufactured abroad and sold to customers outside the U.S. totaling $919 million in 2008, compared to $859 million in 2007. Information regarding our international operations is set forth in Note 14 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K (“Annual Report”).

Research and Development. We conduct applied research and development to improve the quality and performance of our products and to develop new technologies and products. Our research and development spending increased to $87.4 million in 2008 as compared to $67.9 and $58.6 million in 2007 and 2006, respectively. Research and development expense as a percentage of sales increased to 3.8% in 2008 from 3.2% in 2007. The increase is due to acquisitions made during 2008 which have higher research and development spending compared to many other Roper entities, and continued investment in existing businesses.

Our Business Segments

Our operations are reported in four market-focused segments around common customers, markets, sales channels, technologies and common cost opportunities. The segments are: Industrial Technology, Energy Systems and Controls, Scientific and Industrial Imaging, and RF Technology. Financial information about our business segments is presented in Note 14 of the Notes to Consolidated Financial Statements.


Scientific and Industrial Imaging

Our Scientific and Industrial Imaging segment principally offers high performance digital imaging products and software, patient positioning products and software in medical applications and handheld and vehicle mount computers and software. These products and solutions are provided through five U.S-based and one Canadian-based operating units. For 2008, this segment had net sales of $375.5 million, representing 16.3% of our total net sales.
 
Digital Imaging Products and Software - We manufacture and sell extremely sensitive, high-performance charged couple device (“CCD”) and complementary metal oxide semiconductor (“CMOS”) cameras, detectors and related software for a variety of scientific and industrial uses, which require high resolution and/or high speed digital video, including transmission electron microscopy and spectroscopy applications. We principally sell these products for use within academic, government research, semiconductor, security, automotive, and other end-user markets such as biological and material science. They are frequently incorporated into products by OEMs.
 
Patient Positioning Products and Software - We manufacture and sell patient positioning devices, image-guided therapy software and supply diagnostic and therapeutic disposable products used in conjunction with ultrasound imaging for minimally invasive medical procedures.
 
Handheld and Vehicle Mount Computers and Software - We manufacture and sell fully rugged handheld and vehicle mount computers for utility, principally water management, and non-utility markets and we develop and sell software to assist in utility meter reading and service order management.
 
Backlog - Our Scientific and Industrial Imaging segment companies have lead times of up to several months on many of their product sales, although standard products are often shipped within two weeks of receipt of order. Blanket purchase orders are placed by certain original equipment manufacturers (“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 $80.0 million at December 31, 2008, as compared to $74.8 million at December 31, 2007.
 
Distribution and Sales - Distribution and sales occur through direct sales personnel, manufacturers’ representatives, value added resellers (“VARs”), OEMs and distributors.


     Energy Systems and Controls

Our Energy Systems and Controls segment principally produces control systems, fluid properties testing equipment, industrial valves and controls, vibration and other non-destructive inspection and measurement products and solutions, which are provided through six U.S.-based operating units. For 2008, this segment had net sales of $548.2 million, representing 23.8% of our total net sales.

Control Systems - We manufacture control systems and panels and provide related engineering and commissioning services for turbomachinery applications, predominately in energy markets.

Fluid Properties Testing Equipment - We manufacture and sell automated and manual test equipment to determine physical and elemental properties, such as sulfur and nitrogen content, flash point, viscosity, freeze point and distillation, of liquids and gases for the petroleum and other industries.

Industrial Valves and Controls - We manufacture and distribute a variety of valves, sensors, switches and control products used on engines, compressors, turbines and other powered equipment for the oil and gas, pipeline, power generation, marine engine and general industrial markets. Many of these products are designed for use in hazardous environments.

Sensors and Controls - We manufacture sensors and control equipment including pressure sensors, temperature sensors, measurement instruments and control software for global rubber, plastics and process industries.

Non-destructive Inspection and Measurement Instrumentation - We manufacture non-destructive inspection and measurement solutions including measurement probes, robotics, and vibration sensors, switches and transmitters. These solutions are applied principally in energy markets. Many of these products are designed for use in hazardous environments.

Backlog - The Energy Systems and Controls operating units’ sales reflect a combination of standard products and large engineered projects. Standard products generally ship within two weeks of receipt of order, and large engineered projects may have lead times of several months. As such, backlog may fluctuate depending upon the timing of large project awards. This segment’s backlog of firm unfilled orders totaled $85.0 million at December 31, 2008 compared to $93.1 million at December 31, 2007.

Distribution and Sales - Distribution and sales occur through direct sales offices, manufacturers’ representatives and distributors in both the U.S. and various other countries.


Industrial Technology

Our Industrial Technology segment produces industrial pumps, equipment and consumables for materials analysis, industrial leak testing equipment, flow measurement and metering equipment and water meter and automatic meter reading (“AMR”) products and systems. These products and solutions are provided through six U.S.-based and two European-based operating units. For 2008, this segment had net sales of $687.6 million, representing 29.8% of our total net sales.
 
Industrial Pumps - We manufacture and distribute a wide variety of pumps. These pumps vary significantly in complexity and in pumping method employed, which allows for the movement and application of a diverse range of liquids and solids including low and high viscosity liquids, high solids content slurries and chemicals. Our pumps are used in large and diverse sets of end markets such as oil and gas, agricultural, water and wastewater, chemical and general industrial.
 
Materials Analysis Equipment and Consumables - We manufacture and sell equipment and supply various types of consumables necessary to prepare materials samples for testing and analysis. These products are used mostly within the academic, government research, electronics, material science, basic materials, steel and automotive end-user markets.
 
Industrial Leak Testing Equipment - We manufacture and sell products and systems to test for leaks and confirm the integrity of assemblies and sub-assemblies in automotive, medical, industrial and consumer products applications.
 
Flow Measurement Equipment - We manufacture and distribute turbine and positive displacement flow meters, emissions measurement equipment and flow meter calibration products for aerospace, automotive, power generation and other industrial applications.
 
Water Meter and AMR Products and Systems - We manufacture and distribute several classes of water meter products serving the residential, and certain commercial and industrial water management markets, and several lines of automatic meter reading products and systems serving these markets.
 
Backlog - The Industrial Technology operating units’ sales reflect a combination of standard products and specially engineered, application-specific products. Standard products are typically shipped within two weeks of receipt of order, with certain valve and pump products shipped on an immediate basis. Application-specific products typically ship within 6 to 12 weeks following receipt of order. However, larger project orders and blanket purchase orders for certain OEMs may extend shipment for longer periods. This segment’s backlog of firm unfilled orders, including blanket purchase orders, totaled $59.1 million at December 31, 2008, as compared to $93.1 million at December 31, 2007.
 
Distribution and Sales - Distribution and sales occur through direct sales personnel, manufacturers’ representatives and distributors.


RF Technology

Our RF Technology segment provides radio frequency identification (“RFID”)  and other communication related technology and software solutions that are used primarily in comprehensive toll and traffic systems and processing, security and access control, campus card systems, freight matching, mobile asset tracking and water sub-metering and remote monitoring applications. These products and solutions are provided through six U.S.-based and one European-based operating units. This segment had sales of $695.0 million for the year ended December 31, 2008, representing 30.1% of our total net sales.

Toll and Traffic Systems - We manufacture and sell toll tags and monitoring systems as well as provide transaction and violation processing services for toll and traffic systems to both governmental and private sector entities. In addition, we provide intelligent traffic systems that assist customers in improving traffic flow and infrastructure utilization.

Freight Matching - We maintain an electronic marketplace that matches available capacity of trucking units with the available loads of freight to be moved from location to location throughout North America.

Card Systems/Integrated Security Solutions - We provide card systems and integrated security solutions to education, health care and various other markets. In the education and health care markets, we also provide an integrated nutrition management solution.

Backlog - The RF Technology operating units’ sales reflect a combination of standard products, large engineered projects, and multi-year operations and maintenance contracts. Standard products generally ship within two weeks of receipt of order, and large engineered projects may have lead times of several months. As such, backlog may fluctuate depending upon the timing of large project awards. This segment’s backlog of firm unfilled orders totaled $365.7 million at December 31, 2008 compared to $271.3 million at December 31, 2007.

Distribution and Sales - Distribution and sales occur through direct sales personnel, manufacturers’ representatives and distributors.


Materials and Suppliers

We believe that most materials and supplies used by us are readily available from numerous sources and suppliers throughout the world. However, some of our components and sub-assemblies are currently available from a limited number of suppliers. Some high-performance components for digital imaging products can be in short supply and/or suppliers have occasional difficulty manufacturing such components to our specifications. We regularly investigate and identify alternative sources where possible, and we believe that these conditions equally affect our competitors. Thus far, supply shortages have not had a material adverse effect on Roper’s sales although delays in shipments have occurred following such supply interruptions.


Environmental Matters and Other Governmental Regulation

Our operations and properties are subject to laws and regulations relating to environmental protection, including laws and regulations governing air emissions, water discharges, waste management and workplace safety. We use, generate and dispose of hazardous substances and waste in our operations and, as a result, could be subject to potentially material liabilities relating to the investigation and clean-up of contaminated properties and to claims alleging personal injury. We are required continually to conform our operations and properties to these laws and adapt to regulatory requirements in all countries as these requirements change. We have experienced, and expect to continue to experience, modest costs relating to our compliance with environmental laws and regulations. In connection with our acquisitions, we may assume significant environmental liabilities, some of which we may not be aware of, or may not be quantifiable, at the time of acquisition. In addition, new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could increase our environmental compliance costs or subject us to new or increased liabilities.


Customers

No customer accounted for 10% or more of net sales for 2008 for any segment or for Roper as a whole.


Competition

Generally, our products and solutions face significant competition, usually from a limited number of competitors. We believe that we are a leader in most of our markets, and no single company competes with us over a significant number of product lines. Competitors might be large or small in size, often depending on the life cycle and maturity of the technology employed. We compete primarily on product quality, performance, innovation, technology, price, applications expertise, distribution channel access and customer service capabilities.
 
 
Patents and Trademarks

In addition to trade secrets, unpatented know-how, and other intellectual property rights, we own or license the rights under a number of patents, trademarks and copyrights relating to certain of our products and businesses. We also employ various methods, including confidentiality and non-disclosure agreements with employees, to protect our trade secrets and know-how. We believe that our operating units are not substantially dependent on any single patent, trademark, copyright, or other item of intellectual property or group of patents, trademarks or copyrights.


Employees

As of December 31, 2008, we had approximately 7,900 total employees, with approximately 5,800 located in the United States. Approximately 275 of our employees are subject to collective bargaining agreements. We have not experienced any work stoppages and consider our relations with our employees to be good.
 
 
Available Information
 
All reports filed electronically by Roper with the United States Securities and Exchange Commission (“SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and our annual proxy statements, as well as any amendments to those reports, are accessible at no cost on our website at www.roperind.com. These filings are also accessible on the SEC’s website at www.sec.gov. You may also read and copy any material Roper files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company’s Corporate Governance Guidelines; the charters of the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee; and the Code of Business Conduct & Ethics are also available on the Company’s website.

We have included the Chief Executive Officer and the Chief Financial Officer certifications regarding Roper’s public disclosure required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 of this report. Additionally, Roper filed with the New York Stock Exchange (the “NYSE”) the Chief Executive Officer certification regarding Roper’s compliance with the NYSE’s Corporate Governance Listing Standards (the “Listing Standards”) pursuant to Section 303A.12(a) of the Listing Standards. The certification was filed with the NYSE on July 3, 2008 and indicated that the Chief Executive Officer was not aware of any violations of the Listing Standards by the Company. 

 
ITEM 1A.                      RISK FACTORS


Risks Relating to Our Business

Our indebtedness may affect our business and may restrict our operating flexibility.

As of December 31, 2008, we had approximately $1.27 billion in total consolidated indebtedness. In addition, we had approximately $524 million undrawn availability under our senior unsecured credit facility, as well as the ability to request additional term loans or revolving credit commitments not to exceed $350 million in aggregate. Our total consolidated debt could increase using this additional borrowing capacity. Subject to certain restrictions contained in our senior unsecured credit facility, we may incur additional indebtedness in the future, including indebtedness incurred to finance, or which is assumed in connection with, acquisitions.

Our level of indebtedness and the debt servicing costs associated with that indebtedness could have important effects on our operations and business strategy. For example, our indebtedness could:

 
·
place us at a competitive disadvantage relative to our competitors, some of which have lower debt service obligations and greater financial resources than us;
 
·
limit our ability to borrow additional funds;
 
·
limit our ability to complete future acquisitions;
 
·
limit our ability to pay dividends;
 
·
limit our ability to make capital expenditures; and
 
·
increase our vulnerability to general adverse economic and industry conditions.

Our ability to make scheduled principal payments of, to pay interest on, or to refinance our indebtedness and to satisfy our other debt obligations will depend upon our future operating performance, which may be affected by factors beyond our control. In addition, there can be no assurance that future borrowings or equity financing will be available to us on favorable terms for the payment or refinancing of our indebtedness. If we are unable to service our indebtedness, our business, financial condition and results of operations would be materially adversely affected.

Our senior unsecured credit facility contains financial covenants requiring us to achieve certain financial and operating results and maintain compliance with specified financial ratios. Our ability to meet the financial covenants or requirements in our senior unsecured credit facility may be affected by events beyond our control, and we may not be able to satisfy such covenants and requirements. A breach of these covenants or our inability to comply with the financial ratios, tests or other restrictions contained in our senior unsecured credit facility could result in an event of default under this facility, which in turn could result in an event of default under the terms of our other indebtedness. Upon the occurrence of an event of default under our senior unsecured credit facility, and the expiration of any grace periods, the lenders could elect to declare all amounts outstanding under the facility, together with accrued interest, to be immediately due and payable. If this were to occur, our assets may not be sufficient to fully repay the amounts due under this facility or our other indebtedness.

Unfavorable changes in foreign exchange rates may significantly harm our business.

Several of our operating companies have transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions and balances are denominated in euros, Canadian dollars, British pounds, Danish krone and Japanese yen. Sales by our operating companies whose functional currency is not the U.S. dollar represented approximately 24% of our total net sales for the year ended December 31, 2008 compared to 28% for the year ended December 31, 2007. Unfavorable changes in exchange rates between the U.S. dollar and those currencies could significantly reduce our reported sales and earnings. At present, we do not hedge against foreign currency risks.

We export a significant portion of our products. Difficulties associated with the export of our products could harm our business.

Sales to customers outside the U.S. by our businesses located in the U.S. account for a significant portion of our net sales. These sales accounted for approximately 16% and 17% of our net sales for the years ended December 31, 2008 and December 31, 2007, respectively. We are subject to risks that could limit our ability to export our products or otherwise reduce the demand for these products in our foreign markets. Such risks include, without limitation, the following:
 
 
·
unfavorable changes in or noncompliance with U.S. and other jurisdictions’ export requirements;
 
·
restrictions on the export of technology and related products;
 
·
unfavorable changes in or noncompliance with U.S. and other jurisdictions’ export policies to certain countries;
 
·
unfavorable changes in the import policies of our foreign markets; and
 
·
a general economic downturn in our foreign markets.

The occurrence of any of these events could reduce the foreign demand for our products or could limit our ability to export our products and, therefore, could materially negatively affect our future sales and earnings.

The effects of the recent global financial crisis and general weakness in the global economy may impact our business. 
 
The recent global financial crisis and general weakness in the global economy have resulted in a general tightening in the credit markets, lower levels of liquidity and corresponding increases in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed income markets.  These macroeconomic developments have had adverse effects on our customers and could have adverse effects on our business, including decreased revenue from the sales of products and increased financing costs due to the failure of financial institutions.  The combination of some or all of these factors could adversely affect our results of operations and ability to execute our business strategy.

Economic, political and other risks associated with our international operations could adversely affect our business.

As of December 31, 2008, approximately 19% of our long-lived assets, excluding goodwill and intangibles, were attributable to operations outside the U.S. We expect our international operations to contribute materially to our business for the foreseeable future. Our international operations are subject to varying degrees of risk inherent in doing business outside the U.S. including, without limitation, the following:

 
·
adverse changes in a specific country’s or region’s political or economic conditions, particularly in emerging markets;
 
·
trade protection measures and import or export requirements;
 
·
trade liberalization measures which could expose our international operations to increased competition;
 
·
subsidies or increased access to capital for firms that are currently, or may emerge as, competitors in countries in which we have operations;
 
·
partial or total expropriation;
 
·
potentially negative consequences from changes in tax laws;
 
·
difficulty in staffing and managing widespread operations;
 
·
differing labor regulations;
 
·
differing protection of intellectual property;
 
·
unexpected changes in regulatory requirements;
 
·
longer payment cycles of foreign customers and difficulty in collecting receivables in foreign jurisdictions; and
 
·
international sentiment towards the U.S.

The occurrence of any of these events could materially harm our business.

Our growth strategy includes acquisitions. We may not be able to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully.

Our future growth is likely to depend to some degree on our ability to acquire and successfully integrate new businesses. We intend to continue to seek additional acquisition opportunities both to expand into new markets and to enhance our position in existing markets globally. There are no assurances, however, that we will be able to successfully identify suitable candidates, negotiate appropriate acquisition terms, obtain necessary financing on acceptable terms, complete proposed acquisitions, successfully integrate acquired businesses into our existing operations or expand into new markets. Once integrated, acquired operations may not achieve levels of revenues, profitability or productivity comparable with those achieved by our existing operations, or otherwise perform as expected.

Acquisitions involve numerous risks, including difficulties in the integration of the operations, technologies, services and products of the acquired companies and the diversion of management’s attention from other business concerns. Although our management will endeavor to evaluate the risks inherent in any particular transaction, there are no assurances that we will properly ascertain all such risks. In addition, prior acquisitions have resulted, and future acquisitions could result, in the incurrence of substantial additional indebtedness and other expenses. Future acquisitions may also result in potentially dilutive issuances of equity securities. Difficulties encountered with acquisitions may have a material adverse effect on our business, financial condition and results of operations.

Product liability, insurance risks and increased insurance costs could harm our operating results.

Our business exposes us to potential product liability risks that are inherent in the design, manufacturing and distribution of our products. In addition, certain of our products are used in potentially hazardous environments. We currently have product liability insurance; however, we may not be able to maintain our insurance at a reasonable cost or in sufficient amounts to protect us against potential losses. We also maintain other insurance policies, including directors and officers’ liability insurance. Our insurance costs increased in recent periods and may continue to increase in the future. We believe that we have adequately accrued estimated losses, principally related to deductible amounts under our insurance policies, with respect to all product liability and other claims, based upon our past experience and available facts. However, a successful product liability or other claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations. In addition, a significant increase in our insurance costs could have an adverse impact on our operating results.

Our operating results could be adversely affected by a reduction of business with our large customers.

In some of our businesses, we derive a significant amount of revenue from large customers. The loss or reduction of any significant contracts with any of these customers could materially reduce our revenue and cash flows. Additionally, many of our customers are government entities. In many situations, government entities can unilaterally terminate or modify our existing contracts without cause and without penalty to the government agency.

We face intense competition. If we do not compete effectively, our business may suffer.

We face intense competition from numerous competitors. Our products compete primarily on the basis of product quality, performance, innovation, technology, price, applications expertise, system and service flexibility and established customer service capabilities. We may not be able to compete effectively on all of these fronts or with all of our competitors. In addition, new competitors may emerge, and product lines may be threatened by new technologies or market trends that reduce the value of these product lines. To remain competitive, we must develop new products, respond to new technologies and periodically enhance our existing products in a timely manner. We anticipate that we may have to adjust prices of many of our products to stay competitive.

Changes in the supply of, or price for, parts and components used in our products could affect our business.

We purchase many parts and components from suppliers. The availability and prices of parts and components are subject to curtailment or change due to, among other things, suppliers’ allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates and prevailing price levels. Some high-performance components for digital imaging products may be in short supply and/or suppliers may have occasional difficulty manufacturing these components to meet our specifications. In addition, some of our products are provided by sole source suppliers. Any change in the supply of, or price for, these parts and components could affect our business, financial condition and results of operations.

Environmental compliance costs and liabilities could increase our expenses and adversely affect our financial condition.

Our operations and properties are subject to laws and regulations relating to environmental protection, including laws and regulations governing air emissions, water discharges, waste management and workplace safety. These laws and regulations can result in the imposition of substantial fines and sanctions for violations and could require the installation of costly pollution control equipment or operational changes to limit pollution emissions and/or decrease the likelihood of accidental hazardous substance releases. We must conform our operations and properties to these laws and adapt to regulatory requirements in the countries in which we operate as these requirements change.

We use and generate hazardous substances and wastes in our operations and, as a result, could be subject to potentially material liabilities relating to the investigation and clean-up of contaminated properties and to claims alleging personal injury. We have experienced, and expect to continue to experience, costs relating to compliance with environmental laws and regulations. In connection with our acquisitions, we may assume significant environmental liabilities, some of which we may not be aware of at the time of acquisition. In addition, new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial condition and results of operations.

Some of the industries in which we operate are cyclical, and, accordingly, our business is subject to changes in the economy.

Some of the business areas in which we operate are subject to specific industry and general economic cycles. Certain businesses are subject to industry cycles, including but not limited to, the industrial, energy and semiconductor markets. Accordingly, any downturn in these or other markets in which we participate could materially adversely affect us. If demand changes and we fail to respond accordingly, our results of operations could be materially adversely affected in any given quarter. The business cycles of our different operations may occur contemporaneously. Consequently, the effect of an economic downturn may have a magnified negative effect on our business.

Our intangible assets are valued at an amount that is high relative to our total assets, and a write-off of our intangible assets would negatively affect our results of operations and total capitalization.

Our total assets reflect substantial intangible assets, primarily goodwill. At December 31, 2008, goodwill totaled $2.12 billion compared to $2.00 billion of stockholders’ equity, which was 53% of our total assets of $3.97 billion. The goodwill results from our acquisitions, representing the excess of cost over the fair value of the net assets we have acquired. We assess at least annually whether there has been an impairment in the value of our intangible assets. If future operating performance at one or more of our business units were to fall significantly below current levels, if competing or alternative technologies emerge or if business valuations decline, we could incur, under current applicable accounting rules, a non-cash charge to operating earnings for goodwill impairment. Any determination requiring the write-off of a significant portion of unamortized intangible assets would negatively affect our results of operations and total capitalization, the effect of which could be material.

We depend on our ability to develop new products, and any failure to develop or market new products could adversely affect our business.

The future success of our business will depend, in part, on our ability to design and manufacture new competitive products and to enhance existing products so that our products can be sold with high margins. This product development may require substantial investment by us. There can be no assurance that unforeseen problems will not occur with respect to the development, performance or market acceptance of new technologies or products or that we will otherwise be able to successfully develop and market new products. Failure of our products to gain market acceptance or our failure to successfully develop and market new products could reduce our margins, which would have an adverse effect on our business, financial condition and results of operations.

Our technology is important to our success and our failure to protect this technology could put us at a competitive disadvantage.

Because many of our products rely on proprietary technology, we believe that the development and protection of intellectual property rights through patents, copyrights, trade secrets, trademarks, confidentiality agreements and other contractual provisions is important to the future success of our business. Despite our efforts to protect proprietary rights, unauthorized parties or competitors may copy or otherwise obtain and use our products or technology. The steps we have taken may not prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the U.S. Current and future actions to enforce these rights may result in substantial costs and diversion of resources and we make no assurances that any such actions will be successful.

Any business disruptions due to political instability, armed hostilities, incidents of terrorism or natural disasters could adversely impact our financial performance.

If terrorist activity, armed conflict, political instability or natural disasters occur in the U.S. or other locations, such events may negatively impact our operations, cause general economic conditions in the U.S. and abroad to deteriorate or cause world-wide demand for U.S. products to decline. A prolonged economic slowdown or recession in the U.S. or in other areas of the world could reduce the demand for our products, and therefore, negatively affect our future sales and profits. Any of these events could have a significant impact on our business, financial condition or results of operations and may result in the volatility of the market price of our common stock.


ITEM 1B.                      UNRESOLVED STAFF COMMENTS

There were no unresolved comments received from the SEC regarding Roper’s periodic or current reports within the last 180 days prior to December 31, 2008.


ITEM 2.                      PROPERTIES

Roper’s corporate offices, consisting of 22,000 square feet of leased space, are located at 6901 Professional Parkway East, Sarasota, Florida.   We have established 118 principal locations around the world to support our operations, of which 44 are manufacturing facilities, and the remaining 74 locations provide sales, service and administrative support functions.  We consider our facilities to be in good operating condition and adequate for their present use and believe that we have sufficient plant capacity to meet our current and anticipated operating requirements.

The following table summarizes the size, location and usage of our principal properties as of December 31, 2008.

Segment
Region
Office
 
Office & Manufacturing
Leased
 
Leased
Owned
Industrial Technology
 
(amounts in thousands of square feet)
 
US
42
 
159
559
 
Canada
36
 
-
-
 
Europe
30
 
92
485
 
Asia
9
 
-
-
 
Mexico
-
 
60
-
Energy Systems & Controls
         
 
US
-
 
346
-
 
Canada
-
 
43
-
 
Europe
10
 
8
128
 
Asia
6
 
-
-
Scientific & Industrial Imaging
         
 
US
43
 
134
127
 
Canada
-
 
70
-
 
Europe
-
 
21
-
RF Technology
         
 
US
505
 
168
-
 
Canada
11
 
-
-
 
Europe
-
 
-
16
 
Middle East
140
 
-
-

 

ITEM 3.
LEGAL PROCEEDINGS

We are defendants in various lawsuits involving product liability, employment practices and other matters, none of which we believe will have a material adverse effect on our consolidated financial position or results of operations. The majority of such claims are subject to insurance coverage.

We and/or one of our subsidiaries are named as defendants, along with many other companies, in asbestos-related personal injury or wrongful death actions. The allegations in these actions are vague, general and speculative. Given the state of these claims, it is not possible to determine the potential liability, if any.


ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

There were no matters submitted to a vote of our security-holders during the fourth quarter of 2008.
 

 
PART II


ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the NYSE under the symbol “ROP”. The table below sets forth the range of high and low sales prices for our common stock as reported by the NYSE as well as cash dividends declared during each of our 2008 and 2007 quarters.

   
High
Low
Cash Dividends Declared
2008
4th Quarter
$ 54.66
$ 35.19
$  0.0825
 
3rd Quarter
65.49
54.75
0.0725
 
2nd Quarter
67.70
59.39
0.0725
 
1st Quarter
61.01
50.05
0.0725
         
2007
4th Quarter
$ 70.81
$ 60.43
$  0.0725
 
3rd Quarter
65.50
58.36
0.0650
 
2nd Quarter
58.36
53.88
0.0650
 
1st Quarter
55.14
48.61
0.0650

Based on information available to us and our transfer agent, we believe that as of February 20, 2009 there were 285 record holders of our common stock.

Dividends - Roper has declared a cash dividend in each quarter since our February 1992 initial public offering and we have annually increased our dividend rate since our initial public offering. In November 2008, our Board of Directors increased the quarterly dividend paid January 31, 2009 to $0.0825 per share from $0.0725 per share, an increase of 13.8%. The timing, declaration and payment of future dividends will be at the sole discretion of our Board of Directors and will depend upon our profitability, financial condition, capital needs, future prospects and other factors deemed relevant by our Board of Directors.

Recent Sales of Unregistered Securities - In 2008, there were no sales of unregistered securities.

Performance Graph - This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of Roper under the Securities Act of 1933, as amended, or the Exchange Act.
 
The following graph compares, for the five year period ended December 31, 2008, the cumulative total stockholder return for the Company’s common stock, the Standard and Poor’s 500 Stock Index (the “S&P 500”) and the Standard and Poor’s 500 Industrials Index (the “S&P 500 Industrials”). Measurement points are the last trading day of each of the Company’s fiscal years ended December 31, 2003, December 31, 2004, December 31, 2005, December 31, 2006, December 31, 2007 and December 31, 2008. The graph assumes that $100 was invested on December 31, 2003 in the common stock of the Company, the S&P 500 and the S&P 500 Industrials and assumes reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.

 
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
Roper Industries, Inc.
100.00
124.26
162.21
207.35
259.29
180.96
S&P 500
100.00
110.88
116.33
134.70
142.10
89.53
S&P 500 Industrials
100.00
118.03
120.78
136.83
153.29
92.09




The information set forth in Item 12 “Securities Authorized for Issuance under Equity Compensation Plans” is incorporated herein by reference.
 

 
ITEM 6.                      SELECTED FINANCIAL DATA

The following summary consolidated selected financial data for and as of the end of the years ended December 31, 2008, 2007, 2006, 2005 and 2004 was derived from our audited consolidated financial statements. Our consolidated financial statements for and as of the end of each of the years ended December 31, 2008, 2007, 2006, 2005 and 2004 were audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm.

You should read the table below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and related notes included in this Annual Report (amounts in thousands, except per share data).

   
Years ended December 31,
 
   
2008(1)
 
2007(2)
 
2006(3)
 
2005(4)
 
2004(5)
 
Operations data:
                               
Net sales
 
$
2,306,371
 
$
2,102,049
 
$
1,700,734
 
$
1,453,731
 
$
969,764
 
Gross profit
   
1,188,288
   
1,058,395
   
861,325
   
726,407
   
485,045
 
Income from operations
   
486,161
   
438,354
   
337,653
   
264,899
   
171,302
 
Net earnings
   
286,515
   
250,033
   
193,324
   
153,175
   
93,852
 
                                 
Per share data:
                               
Basic earnings per share
 
$
3.20
 
$
2.83
 
$
2.23
 
$
1.79
 
$
1.26
 
Diluted earnings per share
   
3.06
   
2.68
   
2.13
   
1.74
   
1.24
 
                                 
Dividends declared
   
0.30
   
0.27
   
0.24
   
0.22
   
0.20
 
                                 
Balance sheet data:
                               
Working capital(6)
 
$
239,099
 
$
283,607
 
$
39,846
 
$
(7,418
)
$
302,610
 
Total assets
   
3,971,538
   
3,453,184
   
2,995,359
   
2,522,306
   
2,366,404
 
Long-term debt, less current portion
   
1,033,689
   
727,489
   
726,881
   
620,958
   
855,364
 
Stockholders’ equity
   
2,003,738
   
1,789,806
   
1,486,839
   
1,249,788
   
1,114,086
 

(1)
Includes results from the acquisitions of CBORD Holdings Corp. from February 20, 2008, Chalwyn Ltd. from June 18, 2008, Getloaded.com, LLC from July 17, 2008, Horizon Software Holdings, Inc. from August 27, 2008 and Technolog Holdings Ltd. from September 10, 2008.
(2)
Includes results from the acquisitions of JLT Mobile Computers, Inc. from February 21, 2007, DJ Instruments from February 28, 2007, Roda Deaco Valve, Ltd. from March 22, 2007, Dynamic Instruments, Inc. from June 21, 2007, and Black Diamond Advanced Technology, LLC from September 24, 2007.
(3)
Includes results from the acquisitions of Sinmed Holding International BV from April 5, 2006, Intellitrans, LLC from April 26, 2006, Lumenera Corporation from July 25, 2006, AC Analytic Controls BV from August 8, 2006 and Dynisco Parent, Inc. from November 30, 2006.
(4)
Includes results from the acquisitions of Inovonics Corporation from February 25, 2005, CIVCO Holding, Inc. from June 17, 2005 and MEDTEC, Inc. from November 30, 2005.
(5)
Includes results from the acquisitions of the power generation business of R/D Tech from June 7, 2004 and TransCore Holdings, Inc. from December 13, 2004.
(6)
The years ended December 31, 2008, 2007, 2006 and 2005 include $230 million of senior subordinated convertible notes required to be classified as short-term debt, based upon the triggering of the conversion feature of the notes due to increases in the trading price of the Company’s stock.

 
 
 
 
 

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with “Selected Financial Data” and our Consolidated Financial Statements and related Notes included in this Annual Report.


Overview

We are a diversified growth company that designs, manufactures and distributes energy systems and controls, scientific and industrial imaging products and software, industrial technology products and radio frequency products and services. We market these products and services to selected segments of a broad range of markets including RF applications, water, energy, research and medical, education, security and other niche markets.

We pursue consistent and sustainable growth in earnings by emphasizing continuous improvement in the operating performance of our existing businesses and by acquiring other carefully selected businesses. Our acquisitions have represented both bolt-ons and new strategic platforms. We strive for high cash and earnings returns from our acquisition investments. On February 20, 2008, we purchased CBORD Holdings Corp. (“CBORD”), a provider of card systems and integrated security solutions to higher education, healthcare and other markets. On March 20, 2008, we acquired Tech-Pro, Inc. (“Tech-Pro”), a manufacturer of physical testing instruments for the rubber and plastic industries. On June 18, 2008, we purchased Chalwyn Limited (“Chalwyn”), an air shut-off valve provider. On July 17, 2008, we purchased the assets, intellectual property and internet domain names of Getloaded.com, LLC (“Getloaded”), adding new subscribers to our existing freight matching services. On August 27, 2008, we purchased Horizon Software Holdings, Inc. (“Horizon”), a provider of comprehensive software solutions and related services for the K-12 education market. On September 10, 2008 we purchased Technolog Holdings Limited (“Technolog”), an end-to-end solutions provider for network monitoring, pressure management, automatic meter reading and smart metering solutions.


Application of Critical Accounting Policies

Our Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States, (“GAAP”). A discussion of our significant accounting policies can also be found in the notes to our Consolidated Financial Statements for the year ended December 31, 2008 included in this Annual Report.

GAAP offers acceptable alternative methods for accounting for certain issues affecting our financial results, such as determining inventory cost, depreciating long-lived assets and recognizing revenue. We have not changed the application of acceptable accounting methods or the significant estimates affecting the application of these principles in the last three years in a manner that had a material effect on our financial statements.

Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which requires the Company to recognize expense for the grant date fair value of its employee stock option awards. The Company recognizes the expense of all share-based awards on a straight-line basis over the employee’s requisite service period (generally the vesting period of the award).

On January 1, 2007 the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (“FIN 48”). This Interpretation requires the Company to recognize in the consolidated financial statements only those tax positions determined to be “more likely than not” of being sustained upon examination based on the technical merits of the positions.

The preparation of financial statements in accordance with GAAP requires the use of estimates, assumptions, judgments and interpretations that can affect the reported amounts of assets, liabilities, revenues and expenses, the disclosure of contingent assets and liabilities and other supplemental disclosures.

The development of accounting estimates is the responsibility of our management. Our management discusses those areas that require significant judgments with the audit committee of our Board of Directors. The audit committee has reviewed all financial disclosures in our annual filings with the SEC. Although we believe the positions we have taken with regard to uncertainties are reasonable, others might reach different conclusions and our positions can change over time as more information becomes available. If an accounting estimate changes, its effects are accounted for prospectively.

Our most significant accounting uncertainties are encountered in the areas of accounts receivable collectibility, inventory valuation, future warranty obligations, revenue recognition (percent of completion), income taxes and goodwill and indefinite-lived asset analyses. These issues, except for income taxes, which are not allocated to our business segments, affect each of our business segments. These issues are evaluated primarily using a combination of historical experience, current conditions and relatively short-term forecasting.

Accounts receivable collectibility is based on the economic circumstances of customers and credits given to customers after shipment of products, including in certain cases credits for returned products. Accounts receivable are regularly reviewed to determine customers who have not paid within agreed upon terms, whether these amounts are consistent with past experiences, what historical experience has been with amounts deemed uncollectible and the impact that current and near-term forecast economic conditions might have on collection efforts in general and with specific customers. The returns and other sales credit allowance is an estimate of customer returns, exchanges, discounts or other forms of anticipated concessions and is treated as a reduction in revenue. The returns and other sales credits histories are analyzed to determine likely future rates for such credits. At December 31, 2008, our allowance for doubtful accounts receivable was $11.2 million and our allowance for sales returns and sales credits was $1.5 million, for a total of $12.7 million, or 3.2% of total gross accounts receivable.  This percentage is influenced by the risk profile of the underlying receivables, and the timing of write-offs of accounts deemed uncollectible. The total allowance at December 31, 2008 is $0.8 million higher than at December 31, 2007 and is unchanged as a percent of sales.

We regularly compare inventory quantities on hand against anticipated future usage, which we determine as a function of historical usage or forecasts related to specific items in order to evaluate obsolescence and excessive quantities. When we use historical usage, this information is also qualitatively compared to business trends to evaluate the reasonableness of using historical information as an estimate of future usage. Business trends can change rapidly and these events can affect the evaluation of inventory balances. At December 31, 2008, inventory reserves for excess and obsolete inventory were $30.1 million, or 13.9% of gross inventory cost, as compared to $28.4 million, or 14.0% of gross inventory cost, at December 31, 2007. The inventory reserve as a percent of gross inventory cost will continue to fluctuate based upon specific identification of reserves needed based upon changes in our business as well as the physical disposal of our obsolete inventory.

Most of our sales are covered by warranty provisions that generally provide for the repair or replacement of qualifying defective items for a specified period after the time of sale, typically 12 months. Future warranty obligations are evaluated using, among other factors, historical cost experience, product evolution and customer feedback. Our expense for warranty obligations was less than 1% of net sales for each of the years ended December 31, 2008, 2007, and 2006.

Revenues related to the use of the percentage-of-completion method of accounting are dependent on a comparison of total costs incurred compared with total estimated costs for a project. During the year ended December 31, 2008, we recognized revenue of approximately $127.9 million using this method, primarily for major turn-key, longer term toll and traffic and energy projects. Approximately $135.5 million and $94.8 million of revenue was recognized using this method during the years ended December 31, 2007 and December 31, 2006, respectively. At December 31, 2008, approximately $206.8 million of revenue related to unfinished percentage-of-completion contracts had yet to be recognized. Contracts accounted for under this method are generally not significantly different in profitability from revenues accounted for under other methods.

Income taxes can be affected by estimates of whether and within which jurisdictions future earnings will occur and if, 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 2008, our effective income tax rate was 34.3%, which was lower than the 2007 rate of 34.8%, due primarily to certain foreign tax planning initiatives.

Roper accounts for goodwill in a purchase business combination as the excess of the cost over the fair value of net assets acquired. Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over their estimated useful lives. SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) requires companies to cease amortizing goodwill that existed at June 30, 2001 and establishes a two-step method for testing goodwill for impairment on an annual basis (or an interim basis if an event occurs that might reduce the fair value of a reporting unit below its carrying value). Total goodwill includes 25 different business components with individual amounts ranging from zero to approximately $502 million. SFAS 142 also requires that an identifiable intangible asset that is determined to have an indefinite useful economic life not be amortized, but separately tested for impairment using a one-step fair value based approach. Roper conducts these reviews for all of its reporting units during the fourth quarter of the fiscal year. No impairment resulted from the annual reviews performed in 2008.
 

Results of Operations

The following table sets forth selected information for the years indicated. Dollar amounts are in thousands and percentages are of net sales.
 
   
Years ended December 31,
 
Net sales
 
2008
 
2007
 
2006
 
Industrial Technology
 
$
687,622
 
$
644,436
 
$
549,993
 
Energy Systems and Controls(1)
   
548,214
   
516,420
   
343,699
 
Scientific and Industrial Imaging(2)
   
375,542
   
376,163
   
338,906
 
RF Technology(3)
   
694,993
   
565,030
   
468,136
 
Total
 
$
2,306,371
 
$
2,102,049
 
$
1,700,734
 
                     
Gross profit:
                   
Industrial Technology
   
48.5
%
 
48.2
%
 
47.9
%
Energy Systems and Controls
   
53.8
   
53.6
   
54.2
 
Scientific and Industrial Imaging
   
55.0
   
54.9
   
56.8
 
RF Technology
   
50.8
   
46.8
   
46.8
 
Total
   
51.5
   
50.4
   
50.6
 
                     
Operating profit:
                   
Industrial Technology
   
25.9
%
 
25.6
%
 
23.4
%
Energy Systems and Controls
   
23.1
   
24.5
   
26.3
 
Scientific and Industrial Imaging
   
19.9
   
19.5
   
21.4
 
RF Technology
   
23.0
   
20.7
   
17.3
 
Total
   
23.4
   
22.9
   
21.9
 
                     
Corporate administrative expenses
   
(2.3
)%
 
(2.0
)%
 
(2.0
)%
Income from continuing operations
   
21.1
   
20.9
   
19.9
 
Interest expense
   
(2.3
)
 
(2.5
)
 
(2.6
)
Loss on extinguishment of debt
   
(0.1
)
 
   
 
Other income/(expense)
   
0.2
   
(0.1
)
 
 
Income from continuing operations before taxes
   
18.9
   
18.3
   
17.3
 
Income taxes
   
(6.5
)
 
(6.4
)
 
(5.9
)
                     
Net earnings
   
12.4
%
 
11.9
%
 
11.4
%

(1)
Includes results from the acquisitions of Tech-Pro from March 20, 2008, Chalwyn from June 18, 2008, DJ Instruments from February 28, 2007, Roda Deaco from March 22, 2007, Dynamic Instruments from June 21, 2007, AC Controls from August 8, 2006 and Dynisco from November 30, 2006.
(2)
Includes results from the acquisitions of JLT from February 21, 2007, Sinmed from April 5, 2006, and Lumenera from July 25, 2006.
(3)
Includes results from the acquisitions of CBORD from February 20, 2008, Getloaded from July 17, 2008, Horizon from August 27, 2008, Technolog from September 10, 2008, Black Diamond from September 24, 2007, and Intellitrans from April 26, 2006.


Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Net sales for the year ended December 31, 2008 were $2.31 billion as compared to sales of $2.10 billion for the year ended December 31, 2007, an increase of 9.7%. This increase was the result of sales from acquired companies and internal growth. Our 2008 results included a full year of sales from our 2007 acquisitions of JLT, DJ Instruments, Roda Deaco, Dynamic Instruments and Black Diamond. These results also included ten months of sales from CBORD, nine months from Tech-Pro, six months from Chalwyn, five months from Getloaded, four months from Horizon and three months from Technolog. Net sales of these acquisitions accounted for approximately $133 million of our 2008 net sales increase over 2007 and growth of our other business accounted for $71 million of the increase, or internal growth of 3.4% including a 1% foreign currency exchange impact.
 
Our Scientific and Industrial Imaging segment reported a $0.6 million or 0.2% decrease in net sales for the year ended December 31, 2008 over the year ended December 31, 2007. The decrease was attributable to the year over year impact of the removal of the Redlake motion camera product line. Internal growth for 2008 was 0.8% led by increased sales in our medical businesses, partially offset by slowing sales in our industrial camera businesses.
 
In our Energy Systems and Controls segment, net sales for the year ended December 31, 2008 increased by $31.8 million or 6.2% over the year ended December 31, 2007. Approximately $18 million of the increase was due to full year results from the 2007 acquisitions of DJ Instruments, Roda Deaco, and Dynamic Instruments, as well as partial year results from the 2008 acquisitions of Tech-Pro and Chalwyn. Internal growth was approximately $14 million or 2.8%, led by strength in our protective technology and oil and gas pipeline controls businesses.

Net sales for our Industrial Technology segment increased by $43.2 million or 6.7% for the year ended December 31, 2008 over the year ended December 31, 2007. The increase was due to broad-based moderate growth in all businesses in this segment.

In our RF Technology segment, net sales for the year ended December 31, 2008 increased by $130.0 million or 23.0% over the year ended December 31, 2007. The partial year results from the acquisitions of CBORD, Getloaded, Horizon, and Technolog and full-year results of 2007 acquisitions accounted for approximately $119 million of the increase. Internal growth increased 1.9% due to growth in our intelligent traffic systems business, offset by anticipated declines in our large Middle East project as it transitions from the design and installation phase to operations and maintenance.

Our overall gross profit percentage was 51.5% for the year ended December 31, 2008, as compared to 50.4% for the year ended December 31, 2007 due to operating leverage on increased sales. Our Industrial Technology, Energy Systems and Controls, and Scientific and Industrial Imaging segments gross margins were relatively unchanged in 2008 as compared to 2007. Our RF Technology segment gross margins increased to 50.8% in 2008 as compared to 46.8% in 2007, due to the favorable mix within existing businesses and higher gross margins at acquired businesses.

Selling, general and administrative (“SG&A”) expenses increased to 30.4% of net sales for the year ended December 31, 2008 from 29.5% of net sales for the year ended December 31, 2007. The increase is primarily due to the higher SG&A structure in our education market businesses within the RF Technology segment. In addition, corporate expenses increased due to higher equity compensation costs and the additional costs to the Company due to the increase in Roper’s stock price on the grant dates of stock awards.

Interest expense increased $1.5 million, or 2.8%, for the year ended December 31, 2008 compared to the year ended December 31, 2007, primarily due to higher average debt balances throughout 2008, offset by lower interest rates on our variable debt throughout the year.

The change in other income for the year ended December 31, 2008 as compared to the year ended December 31, 2007 was primarily due to foreign exchange gains at our non-U.S. based companies on U.S. dollar cash, receivables and payables balances as the U.S. dollar strengthened against most currencies in the fourth quarter of 2008. These foreign exchange gains were offset by a $3.1 million pre-tax debt restructuring charge in the third quarter of 2008 related to the refinancing of our credit facility.

During 2008, our effective income tax rate was 34.3% versus 34.8% in 2007. This decrease was due primarily to certain foreign tax planning initiatives.

At December 31, 2008, the functional currencies of our European and Canadian subsidiaries were weaker against the U.S. dollar compared to currency exchange rates at December 31, 2007. The net result of these changes led to a decrease in the foreign exchange component of comprehensive earnings of $86.7 million in the year ending December 31, 2008. Approximately $59.8 million of these adjustments related to goodwill and are not expected to directly affect our projected future cash flows. For the entire year of 2008, operating profit increased by less than 1% of sales due to fluctuations in non-U.S. currencies.

The following table summarizes our net sales order information for the years ended December 31, 2008 and 2007 (dollar amounts in thousands). 

   
2008
 
2007
 
change
 
Industrial Technology
 
$
656,176
 
$
639,348
 
2.6
%
Energy Systems and Controls
   
541,472
   
525,899
 
3.0
 
Scientific and Industrial Imaging
   
383,543
   
377,653
 
1.6
 
RF Technology
   
722,670
   
575,100
 
25.7
 
Total
 
$
2,303,861
 
$
2,118,000
 
8.8
%

The increase in sales orders is due to internal growth of 2.3% with the remainder from acquisitions. The Industrial Technology segment net orders strengthened in most markets over the prior year.  Net orders in the Energy Systems and Controls segment increased due to the 2007 and 2008 acquisitions.  Scientific and Industrial Imaging net orders increased due to strength in our medical business and camera sales into the security and teleconferencing application markets, offset by decreases in industrial cameras sales.  The RF Technology segment experienced strong order growth for projects in the tolling and traffic control businesses.

The following table summarizes sales order backlog information at December 31, 2008 and 2007 (dollar amounts in thousands). Roper’s policy is to include in backlog only orders scheduled for shipment within twelve months.
 
   
2008
 
2007
 
change
 
Industrial Technology
 
$
59,128
 
$
93,076
 
(36.5
)%
Energy Systems and Controls
   
84,997
   
93,102
 
(8.7
)
Scientific and Industrial Imaging
   
80,020
   
74,834
 
6.9
 
RF Technology
   
365,669
   
271,305
 
34.8
 
Total
 
$
589,814
 
$
532,317
 
10.8
%


Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Net sales for the year ended December 31, 2007 were $2.10 billion as compared to sales of $1.70 billion for the year ended December 31, 2006, an increase of 23.6%. This increase was the result of sales from acquired companies and strong internal growth. Our 2007 results included a full year of sales from our 2006 acquisitions of Sinmed, Intellitrans, Lumenera, AC Controls, and Dynisco. These results also included ten months of sales from JLT and DJ Instruments, nine months from Roda Deaco, six months from Dynamic Instruments and three months from Black Diamond, all purchased in 2007. Net sales of these acquisitions accounted for approximately $158 million of our 2007 net sales increase over 2006 and growth of our other business accounted for $243 million of the increase, or internal growth of 14.5% including a 2% foreign currency exchange impact.

Our Scientific and Industrial Imaging segment reported an increase in net sales of $37.3 million or 11.0% for the year ended December 31, 2007 over the year ended December 31, 2006. The increase was attributable to the full-year impact of Sinmed and Lumenera acquired in 2006, and partial year impact of JLT in 2007, which accounted for approximately $23 million of the increase over prior year. Internal growth was 4.2%, which was related to increased sales in the electron microscopy market due to higher demand from OEM customers, offset by weakness in our motion camera product line and decreased sales of handheld computers due to supplier issues encountered during the year. The supplier issues were resolved in 2007 and did not impact operations in 2008.
 
In our Energy Systems and Controls segment, net sales for the year ended December 31, 2007 increased by $172.7 million or 50.3% over the year ended December 31, 2006. Approximately $127 million of the increase was due to full year results from the 2006 acquisitions of AC Controls and Dynisco, as well as partial year results for DJ Instruments, Roda Deaco, and Dynamic Instruments. Internal growth was approximately $45 million or 14%, primarily from strength in the oil and gas related businesses, which have benefited from the strong global oil and gas market, as well as improved market penetration in our control valve business.

Net sales for our Industrial Technology segment increased by $94.4 million or 17.2% for the year ended December 31, 2007 over the year ended December 31, 2006. The increase was due primarily to high market penetration for our new radio-frequency integrated water meter at Neptune Technologies, accounting for 63% of the year over year growth. In addition, sales in our materials testing businesses were up $19 million over the prior year due to increased unit sales.

In our RF Technology segment, net sales for the year ended December 31, 2007 increased by $96.9 million or 20.7% over the year ended December 31, 2006. The full-year results of Intellitrans, purchased in April, 2006, and four months from the acquisition of Black Diamond on September 24, 2007, accounted for approximately $7 million of the increase. Internal growth increased 19.3% due to strong performance in our traffic and tolling business, which benefited in 2007 from a large Middle East project that continued into 2008.

Our overall gross profit percentage was 50.4% for the year ended December 31, 2007, as compared to 50.6% for the year ended December 31, 2006. Industrial Technology gross margins increased to 48.2% as compared to 47.9% in the prior year. Our Energy Systems and Controls segment gross margins decreased to 53.6% in 2007 as compared to 54.2% in 2006, due to the mix change within the segment caused by the inclusion of the lower gross margin Dynisco business.  Our Scientific and Industrial Imaging segment gross margins were 54.9% in 2007 as compared to 56.8% in 2006, due primarily to the additional costs related to the DAP touch screen quality issue. Our RF Technology segment gross margins remained constant at 46.8% in both 2007 and 2006.

Selling, general and administrative expenses decreased to 29.5% of net sales for the year ended December 31, 2007 from 30.8% of net sales for the year ended December 31, 2006. The decrease is due to leverage from higher sales while making a conscious effort to control general and administrative expenses.

Interest expense increased $7.4 million, or 16.5%, for the year ended December 31, 2007 compared to the year ended December 31, 2006, primarily due to higher average debt balances throughout 2007 related to the November 30, 2006 acquisition of Dynisco, and additional borrowings throughout the year for the 2007 acquisitions offset by payments on these balances throughout the year.

The change in other income for the year ended December 31, 2007 as compared to the year ended December 31, 2006 was primarily due to foreign exchange losses at our non-U.S. based companies on U.S. dollar cash, receivables and payables balances as the U.S. dollar weakened against most currencies in 2007.

During 2007, our effective income tax rate was 34.8% versus 34.0% in 2006. This increase was due primarily to the expiration of the extraterritorial income inclusion offset somewhat by an increased benefit from our foreign rate differential.

At December 31, 2007, the functional currencies of our European and Canadian subsidiaries were stronger against the U.S. dollar compared to currency exchange rates at December 31, 2006. The net result of these changes led to an increase in the foreign exchange component of comprehensive earnings of $52.3 million in the year period ending December 31, 2007. Approximately $34.8 million of these adjustments related to goodwill and are not expected to directly affect our projected future cash flows. For the entire year of 2007, operating profit increased by approximately 1% of sales due to fluctuations in non-U.S. currencies.

The following table summarizes our net sales order information for the years ended December 31, 2007 and 2006 (dollar amounts in thousands).
 
   
2007
 
2006
 
change
 
Industrial Technology
 
$
639,348
 
$
589,322
 
8.5
%
Energy Systems and Controls
   
525,899
   
346,880
 
51.6
 
Scientific and Industrial Imaging
   
377,653
   
341,178
 
10.7
 
RF Technology
   
575,100
   
511,188
 
12.5
 
Total
 
$
2,118,000
 
$
1,788,568
 
18.4
%

The increase in sales orders is due to internal growth of 9.7% with the remainder from acquisitions. The Industrial Technology segment net orders strengthened in most markets over the prior year. Net orders in the Energy Systems and Controls segment increased due to the 2006 and 2007 acquisitions, which accounted for 38.7% of the increase. In addition, there was strong internal growth in our fluid properties testing, non-destructive testing and valve and control businesses. Scientific and Industrial Imaging net orders increased from the inclusion of orders from 2006 and 2007 acquisitions, and also from stronger orders in the electron microscopy market, which led to the higher backlog at 2007 in the Scientific and Industrial Imaging segment. The RF Technology segment experienced strong order growth including a significant international project which began in the fourth quarter of 2006 and continued throughout 2007.

The following table summarizes sales order backlog information at December 31, 2007 and 2006 (dollar amounts in thousands). Roper’s policy is to include in backlog only orders scheduled for shipment within twelve months.
 
   
2007
 
2006
 
change
 
Industrial Technology
 
$
93,076
 
$
95,539
 
(2.6
)%
Energy Systems and Controls
   
93,102
   
79,217
 
17.5
 
Scientific and Industrial Imaging
   
74,834
   
68,600
 
9.1
 
RF Technology
   
271,305
   
261,243
 
3.9
 
Total
 
$
532,317
 
$
504,599
 
5.5
%


Financial Condition, Liquidity and Capital Resources

Net cash provided by operating activities was $434.4 million for the year ended December 31, 2008, $343.8 million for the year ended December 31, 2007 and $262.5 million for the year ended December 31, 2006. The 2008 increase was primarily due to higher earnings over the prior year and improved receivables collection. Cash used by investing activities during 2008, 2007, and 2006 were primarily business acquisition costs. Cash from financing activities during each of these years was largely debt repayments and borrowings for acquisitions. Financing activities in 2008 included replacing our previous $1.355 billion secured credit facility with our current $1.1 billion unsecured credit facility and the issuance of our $500 million senior notes.

Net working capital (current assets, excluding cash, less total current liabilities, excluding debt) was $294.9 million at December 31, 2008 compared to $305.9 million at December 31, 2007. We acquired approximately $7.9 million of net current assets through business acquisitions during 2008.

Total debt was $1.3 billion at December 31, 2008 (38.7% of total capital) compared to $1.1 billion at December 31, 2007 (37.2% of total capital). Our increased debt at December 31, 2008 compared to December 31, 2007 was due to the replacement of our previous $1.355 billion secured credit facility with our current $1.1 billion unsecured credit facility and the issuance of our $500 million senior notes.

Our $1.1 billion credit facility consists of a two year $350 million term loan and a five year $750 million revolving loan. The weighted average interest rate on the borrowings under the facility at December 31, 2008 was 1.90%. At December 31, 2008, our debt consisted of $230 million in senior subordinated convertible notes due in 2034, $500 million in senior notes due 2013, the $350 million term loan due 2010 and $179 million on the revolving loan. In addition, we had $8.5 million of other debt in the form of capital leases and several smaller facilities that allow for borrowings or the issuance of letters of credit in various foreign locations to support our non-U.S. businesses. The Company had $51.1 million of outstanding letters of credit at December 31, 2008, of which $47.3 million were covered by our lending group, thereby reducing its remaining revolving credit capacity commensurately. We expect that our available borrowing capacity, combined with existing cash balances and cash flows expected to be generated from existing businesses, will be sufficient to fund normal operating requirements and finance additional acquisitions.

We were in compliance with all debt covenants related to our credit facilities throughout the year ended December 31, 2008.

Capital expenditures of $30.0 million, $30.1 million and $32.2 million were incurred during 2008, 2007 and 2006, respectively. In the future, we expect capital expenditures as a percentage of sales to be less than 2% of annual sales.


Description of Certain Indebtedness

Senior Unsecured Credit Facility - On July 7, 2008, the Company entered into a new $1.1 billion unsecured credit facility with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders, which replaces its $1.355 billion amended and restated secured credit facility, dated as of December 13, 2004. The $1.1 billion facility is composed of a $350 million term loan facility maturing July 7, 2010 and a five year $750 million revolving credit facility maturing July 7, 2013. The Company may also, subject to compliance with specified conditions, request additional term loans or revolving credit commitments in an aggregate amount not to exceed $350 million.

The facility contains various affirmative and negative covenants which, among other things, limit our ability to incur new debt, make certain investments and acquisitions, sell assets and grant liens, make restricted payments (including the payment of dividends on our common stock) and capital expenditures, or change our line of business. We also are subject to financial covenants which require us to limit our consolidated total leverage ratio and to maintain a consolidated interest coverage ratio. The most restrictive covenant is the consolidated total leverage ratio which is limited to 3.5.

Senior Notes - On August 6, 2008, we issued $500 million aggregate principal amount of 6.625% senior notes due August 15, 2013 (the “Notes”).  The Notes bear interest at a fixed rate of 6.625% per year, payable semi-annually in arrears on February 15 and August 15 of each year, beginning February 15, 2009. The interest payable on the Notes is subject to adjustment if either Moody’s Investors Service or Standard & Poor’s Ratings Services downgrades the rating assigned to the Notes.

We may redeem some or all of the Notes at any time or from time to time, at 100% of their principal amount plus a make-whole premium based on a spread to U.S. Treasury securities as described in the indenture relating to the Notes.

The Notes are unsecured senior obligations of the Company and rank equally in right of payment with all of the Company’s existing and future unsecured and unsubordinated indebtedness. The Notes are effectively subordinated to any of the Company’s existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness. The Notes are not guaranteed by any of the Company’s subsidiaries and are effectively subordinated to all existing and future indebtedness and other liabilities of the Company’s subsidiaries.

Senior Subordinated Convertible Notes - In December 2003, we issued $230 million of senior subordinated convertible notes at an original issue discount of 60.498%, resulting in an effective yield of 3.75% per year to maturity. Interest on the notes is payable semiannually, beginning July 15, 2004, until January 15, 2009. After that date, we will not pay cash interest on the notes prior to maturity unless contingent cash interest becomes payable. Instead, after January 15, 2009, interest will be recognized at the effective rate of 3.75% and will represent accrual of original issue discount, excluding any contingent cash interest that may become payable. We will pay contingent cash interest to the holders of the notes during any six month period commencing after January 15, 2009 if the average trading price of a note for a five trading day measurement period preceding the applicable six month period equals 120% or more of the sum of the issue price, accrued original issue discount and accrued cash interest, if any, for such note. The contingent cash interest payable per note in respect of any six month period will equal the annual rate of 0.25%.

The notes are unsecured senior subordinated obligations, rank junior to our existing and future senior secured indebtedness and rank equally with our existing and future senior subordinated indebtedness.

As originally issued, each $1,000 principal amount of the notes will be convertible at the option of the holder into 12.422 shares of our common stock (giving effect to the 2-for-1 stock split effective August 26, 2005 and subject to further adjustment), if (i) the sale price of our common stock reaches, or the trading price of the notes falls below, specified thresholds, (ii) if the notes are called for redemption or (iii) if specified corporate transactions have occurred. Upon conversion, we would have the right to deliver, in lieu of common stock, cash or a combination of cash and common stock. On November 19, 2004, the Company began a consent solicitation to amend the notes such that the Company would pay the same conversion value upon conversion of the notes, but would change how the conversion value is paid. In lieu of receiving exclusively shares of common stock or cash upon conversion, noteholders would receive cash up to the value of the accreted principal amount of the notes converted and, at the Company’s option, any remainder of the conversion value would be paid in cash or shares of common stock. The consent solicitation was successfully completed on December 6, 2004 and the amended conversion provisions were adopted.

Holders may require us to purchase all or a portion of their notes on January 15, 2009, January 15, 2014, January 15, 2019, January 15, 2024, and January 15, 2029, at stated prices plus accrued cash interest, if any, including contingent cash interest, if any. We may only pay the purchase price of such notes in cash and not in common stock.
 
We may redeem for cash all or a portion of the notes at any time on or after January 15, 2009 at redemption prices equal to the sum of the issue price plus accrued original issue discount and accrued cash interest, if any, including contingent cash interest, if any, on such notes to the applicable redemption date.

As of September 30, 2005, the senior subordinated convertible notes were reclassified from long term to short term debt as the notes became convertible on October 1, 2005 based upon the Company’s common stock trading above the trigger price for at least 20 trading days during the 30 consecutive trading-day period ending on September 30, 2005.

In accordance with EITF 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share,” the Company is required to include in its diluted weighted-average common share calculation an increase in shares based upon the difference between the Company’s average closing stock price for the period and the conversion price of $31.80. This is calculated using the treasury stock method.


Contractual Cash Obligations and Other Commercial Commitments and Contingencies

The following tables quantify our contractual cash obligations and commercial commitments at December 31, 2008 (dollars in thousands).
 
Contractual
Cash Obligations
 
Total
 
Payments Due in Fiscal Year
 
   
2009
 
2010
 
2011
 
2012
 
2013
 
Thereafter
 
                                             
Long-term debt
 
$
1,260,668
 
$
231,668
 
$
350,000
 
$
 
$
 
$
679,000
 
$
 
Senior Note interest
   
169,306
   
34,598
   
33,585
   
33,585
   
33,677
   
33,861
   
 
Capital leases
   
6,848
   
2,159
   
1,847
   
1,023
   
523
   
340
   
956
 
Operating leases
   
99,862
   
27,635
   
21,003
   
13,726
   
10,374
   
8,036
   
19,088
 
Total
 
$
1,536,684
 
$
296,060
 
$
406,435
 
$
48,334
 
$
44,574
 
$
721,237
 
$
20,044
 
 
Other Commercial
Commitments
 
Total
Amount
Committed
 
Amounts Expiring in Fiscal Year
 
   
2009
 
2010
 
2011
 
2012
 
2013
 
Thereafter
 
Standby letters of credit and bank guarantees
 
$
51,082
 
$
47,670
 
$
1,262
 
$
319
 
$
85
 
$
1,746
 
$
 

We have excluded $26 million related to the liability for uncertain tax positions under FIN 48 from the tables as the current portion is not material, and we are not able to reasonably estimate the timing of the long term portion of the liability. See Note 8 of the Notes to Consolidated Financial Statements.

At December 31, 2008, the Company had outstanding surety bonds of $239 million.

At December 31, 2008 and 2007, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

We believe that internally generated cash flows and the remaining availability under our various credit facilities will be adequate to finance normal operating requirements and further acquisition activities. Although we maintain an active acquisition program, any further acquisitions will be dependent on numerous factors and it is not feasible to reasonably estimate if or when any such acquisitions will occur and what the impact will be on our activities, financial condition and results of operations. We may also explore alternatives to attract additional capital resources.

We anticipate that our recently acquired businesses as well as our other businesses will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of currently outstanding debt in accordance with the repayment schedule. However, the rate at which we can reduce our debt during 2009 (and reduce the associated interest expense) will be affected by, among other things, the financing and operating requirements of any new acquisitions and the financial performance of our existing companies. None of these factors can be predicted with certainty.

Recently Issued Accounting Standards

See Note 1 of the Notes to Consolidated Financial Statements for information regarding the effect of new accounting pronouncements on our financial statements.



ITEM 7A.                      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate risks on our outstanding borrowings, and to foreign currency exchange risks on our transactions denominated in currencies other than the U.S. dollar. We are also exposed to equity market risks pertaining to the traded price of our common stock.

At December 31, 2008, we had a combination of fixed and floating rate borrowings. Our $1.1 billion senior credit facility contains $350 million in variable rate term loans and a $750 million variable rate revolver. At December 31, 2008, the weighted average interest rate was 1.90% on the variable portion of the term loans and revolver. Our $500 million senior notes have a fixed interest rate of 6.625%, and our $230 million senior unsecured convertible notes have a fixed interest rate of 3.75%. At December 31, 2008, the prevailing market rates for long term notes were between 1.8% and 4.7% higher than the fixed rates on our debt instruments.

At December 31, 2008, Roper’s outstanding variable-rate borrowings under the $1.1 billion credit facility were $529 million. An increase in interest rates of 1% would increase our annualized interest costs by $5.3 million.

Several of our businesses have transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in euros, Canadian dollars, British pounds, Danish krone or Japanese yen. Sales by companies whose functional currency was not the U.S. dollar were 24% of our total sales and 71% of these sales were by companies with a European functional currency. The U.S. dollar weakened against most currencies during the first three quarters of 2008 and then strengthened significantly in the fourth quarter of 2008, which resulted in a 1% sales increase due to foreign currency exchange. The difference between 2008 operating income for these companies translated into U.S. dollars during 2008 and operating income translated into U.S. dollars during 2007 was less than 1%. If these currency exchange rates had been 10% different throughout 2008 compared to currency exchange rates actually experienced, the impact on our expected net earnings would have been approximately 3.5%.

The changes in these currency exchange rates relative to the U.S. dollar during 2008 compared to currency exchange rates at December 31, 2007 resulted in a decrease in net assets of $86.7 million that was reported as a component of comprehensive earnings, $59.8 million of which was attributed to goodwill. Goodwill changes from currency exchange rate changes do not directly affect our reported earnings or cash flows.

The trading price of Roper’s common stock influences the valuation of stock award grants and the effects these grants have on our results of operations. The stock price also influences the computation of potentially dilutive common stock which includes both stock awards and the premium over the conversion price on senior subordinated convertible notes to determine diluted earnings per share. The stock price also affects our employees’ perceptions of various programs that involve our common stock. We believe the quantification of the effects of these changing prices on our future earnings and cash flows is not readily determinable.


ITEM 8.                      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


 
Page
Consolidated Financial Statements:
 
Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP)
27
Consolidated Balance Sheets as of December 31, 2008 and 2007
28
Consolidated Statements of Earnings for the Years ended December 31, 2008, 2007 and 2006
29
Consolidated Statements of Stockholders’ Equity and Comprehensive Earnings for the Years ended December 31, 2008, 2007 and 2006
30
Consolidated Statements of Cash Flows for the Years ended December 31, 2008, 2007 and 2006
32
Notes to Consolidated Financial Statements
34
Supplementary Data:
 
Schedule II – Consolidated Valuation and Qualifying Accounts for the Years ended December 31, 2008, 2007 and 2006
54
 

 
Report of Independent Registered Public Accounting Firm

To the Shareholders of Roper Industries, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, of stockholders' equity and comprehensive earnings, and of cash flows, present fairly, in all material respects, the financial position of Roper Industries, Inc. and its subsidiaries at December 31, 2008 and December 31, 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2), presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under item 9A.  Our responsibility is to express opinions on these financial statements, financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 8 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions in 2007.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, management has excluded CBORD Holdings Corp.; Tech-Pro, Inc.; Chalwyn, Ltd.; GetLoaded.com, LLC; Horizon Software International, LLC; and Technolog Holdings Ltd. from its assessment of internal control over financial reporting as of December 31, 2008, because they were acquired by the Company in purchase business combinations during 2008. We have also excluded CBORD Holdings Corp.; Tech-Pro, Inc.; Chalwyn, Ltd.; GetLoaded.com, LLC; Horizon Software International, LLC; and Technolog Holdings Ltd. from our audit of internal control over financial reporting. CBORD Holdings Corp.; Tech-Pro, Inc.; Chalwyn, Ltd.; GetLoaded.com, LLC; Horizon Software International, LLC; and Technolog Holdings Ltd. are wholly-owned subsidiaries whose aggregate total assets and aggregate total revenues represent 7.2% and 5.4%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2008.


PricewaterhouseCoopers LLP
Atlanta, GA
February 27, 2009

 
 
 
 
 

ROPER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
December 31, 2008 and 2007
 (in thousands, except per share data)
 
   
2008
     
2007
 
Assets
                 
Cash and cash equivalents
 
$
178,069
     
$
308,768
 
Accounts receivable, net
   
376,855
       
359,808
 
Inventories, net
   
185,919
       
174,138
 
Deferred taxes
   
29,390
       
27,800
 
Unbilled Receivables
   
61,168
       
60,218
 
Other current assets
   
26,906
       
20,405
 
Total current assets
   
858,307
       
951,137
 
                   
Property, plant and equipment, net
   
112,463
       
107,513
 
Goodwill
   
2,118,852
       
1,706,083
 
Other intangible assets, net
   
804,020
       
613,505
 
Deferred taxes
   
28,050
       
23,854
 
Other assets
   
49,846
       
51,092
 
                   
Total assets
 
$
3,971,538
     
$
3,453,184
 
                   
Liabilities and Stockholders' Equity
                 
                   
Accounts payable
 
$
121,807
     
$
115,809
 
Accrued liabilities
   
261,682
       
194,055
 
Income taxes payable
   
1,892
       
24,121
 
Deferred taxes
   
       
2,442
 
Current portion of long-term debt
   
233,827
       
331,103
 
Total current liabilities
   
619,208
       
667,530
 
                   
Long-term debt, net of current portion
   
1,033,689
       
727,489
 
Deferred taxes
   
272,077
       
221,411
 
Other liabilities
   
42,826
       
46,948
 
Total liabilities
   
1,967,800
       
1,663,378
 
                   
Commitments and contingencies (Note 13)
                 
                   
Stockholders' equity:
                 
Preferred stock, $0.01 par value per share; 2,000 shares authorized; none outstanding
   
       
 
Common stock, $0.01 par value per share; 350,000 shares authorized; 91,909 shares issued and 89,721 outstanding at December 31, 2008 and 90,995 shares issued and 88,773 outstanding at December 31, 2007.
   
919
       
910
 
Additional paid-in capital
   
798,486
       
757,318
 
Retained earnings
   
1,204,521
       
944,886
 
Accumulated other comprehensive earnings
   
21,513
       
108,732
 
Treasury stock 2,188 shares at December 31, 2008 and 2,222 shares at  December 31, 2007
   
(21,701
)
     
(22,040
)
Total stockholders' equity
   
2,003,738
       
1,789,806
 
                   
Total liabilities and stockholders' equity
 
$
3,971,538
     
$
3,453,184
 

See accompanying notes to consolidated financial statements.

 
 
 
 
 

ROPER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31, 2008, 2007 and 2006
 (Dollar and share amounts in thousands, except per share data)

 
   
Years ended December 31,
 
   
2008
     
2007
     
2006
 
Net sales
 
$
2,306,371
     
$
2,102,049
     
$
1,700,734
 
Cost of sales
   
1,118,083
       
1,043,654
       
839,409
 
Gross profit
   
1,188,288
       
1,058,395
       
861,325
 
Selling, general and administrative expenses
   
702,127
       
620,041
       
523,672
 
Income from operations
   
486,161
       
438,354
       
337,653
 
Interest expense
   
53,680
       
52,195
       
44,801
 
Loss on extinguishment of debt
   
3,133
       
       
 
Other income (expense)
   
6,607
       
(2,502
)
     
20
 
Earnings from continuing operations before income taxes
   
435,955
       
383,657
       
292,872
 
Income taxes
   
149,440
       
133,624
       
99,548
 
                             
Net earnings
 
$
286,515
     
$
250,033
     
$
193,324
 
                             
Earnings per share:
                           
Basic
 
$
3.20
     
$
2.83
     
$
2.23
 
Diluted
 
$
3.06
     
$
2.68
     
$
2.13
 
                             
Weighted average common shares outstanding:
                           
Basic
   
89,468
       
88,390
       
86,842
 
Diluted
   
93,699
       
93,229
       
90,880
 


See accompanying notes to consolidated financial statements.

 
 
 
 
 

ROPER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE EARNINGS
Years ended December 31, 2008, 2007 and 2006
 (in thousands, except per share data)
 
 
Common Stock
 
Additional paid-in capital
 
Unearned compensation on restricted stock grants
 
Retained earnings
 
Accumulated other comprehensive earnings
 
Treasury stock
 
Total stockholders equity
 
Compre-hensive earnings
 
Shares
 
Amount
               
Balances at December 31, 2005
85,960
 
$
883
 
$
685,450
 
$
(15,128
)
$
549,603
 
$
51,731
 
$
(22,751
)
$
1,249,788
 
$
128,657
 
Net earnings
   
   
   
   
193,324
   
   
   
193,324
 
$
193,324
 
Reclassification due to change in accounting principle-SFAS 123R
   
   
(15,128
)
 
15,128
   
   
   
   
   
 
Stock option exercises
1,188
   
12
   
20,692
   
   
   
   
   
20,704
   
 
Treasury stock sold
38
   
   
1,193
   
   
   
   
374
   
1,567
   
 
Currency translation adjustments, net of $5,802 tax
   
   
   
   
   
17,768
   
   
17,768
   
17,768
 
Stock based compensation
   
   
15,415
   
   
   
   
   
15,415
   
 
Restricted stock grants
593
   
5
   
(1,410
)
 
   
   
   
   
(1,405
)
 
 
Stock option tax benefit
   
   
11,539
   
   
   
   
   
11,539
   
 
Reduction in unrealized gain on derivative, shown net of $(289) tax
   
   
   
   
   
(537
)
 
   
(537
)
 
(537
)
Adjustment to adopt SFAS No. 158, net of $159 tax
   
   
   
   
   
(296
)
 
   
(296
)
 
 
Dividends declared ($0.24125 per share)
   
   
   
   
(21,028
)
 
   
   
(21,028
)
 
 
Balances at December 31, 2006
87,779
 
$
900
 
$
717,751
 
$
 
$
721,899
 
$
68,666
 
$
(22,377
)
$
1,486,839
 
$
210,555
 
Adjustment to adopt FIN No. 48
   
   
   
   
(3,349
)
 
   
   
(3,349
)
 
 
Net earnings
   
   
   
   
250,033
   
   
   
250,033
 
$
250,033
 
Stock option exercises
791
   
8
   
15,256
   
   
   
   
   
15,264
   
 
Treasury stock sold
27
   
   
1,426
   
   
   
   
337
   
1,763
   
 
Currency translation adjustments, net of $9,979 tax
   
   
   
   
   
42,326
   
   
42,326
   
42,326
 
Stock based compensation
   
   
20,716
   
   
   
   
   
20,716
   
 
Restricted stock grants
176
   
2
   
(3,560
)
 
   
   
   
   
(3,558
)
 
 
Stock option tax benefit
   
   
5,729
   
   
   
   
   
5,729
   
 
Reduction in unrealized gain on derivative, shown net of $(1,217) tax
   
   
   
   
   
(2,260
)
 
   
(2,260
)
 
(2,260
)
Dividends declared ($0.2675 per share)
   
   
   
   
(23,697
)
 
   
   
(23,697
)
 
 
Balances at December 31, 2007
88,773
 
$
910
 
$
757,318
 
$
 
$
944,886
 
$
108,732
 
$
(22,040
)
$
1,789,806
 
$
290,099
 
Net earnings
   
   
   
   
286,515
   
   
   
286,515
 
$
286,515
 
Stock option exercises
462
   
5
   
11,032
   
   
   
   
   
11,037
   
 
Treasury stock sold
34
   
   
1,555
   
   
   
   
339
   
1,894
   
 
Currency translation adjustments, net of $9,404 tax
   
   
   
   
   
(86,679
)
 
   
(86,679
)
 
(86,679
)
Stock based compensation
   
   
30,905
   
   
   
   
   
30,905
   
 
Restricted stock grants
452
   
4
   
(7,967
)
 
   
   
   
   
(7,963
)
 
 
Stock option tax benefit
   
   
5,643
   
   
   
   
   
5,643
   
 
Reduction in unrealized gain on derivative, shown net of $(291) tax
   
   
   
   
   
(540
)
 
   
(540
)
 
(540
)
Dividends declared ($0.30 per share)
   
   
   
   
(26,880
)
 
   
   
(26,880
)
 
 
Balances at December 31, 2008
89,721
 
$
919
 
$
798,486
 
$
 
$
1,204,521
 
$
21,513
 
$
(21,701
)
$
2,003,738
 
$
199,296
 

See accompanying notes to consolidated financial statements.

 
 
 
 
 

ROPER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2008, 2007 and 2006
 (in thousands)
 
   
Years ended December 31,
 
   
2008
 
2007
 
2006
 
Cash flows from operating activities:
                   
Net earnings
 
$
286,515
 
$
250,033
 
$
193,324
 
Adjustments to reconcile net earnings to cash flows from operating activities:
                   
Depreciation and amortization of property, plant and equipment
   
33,900
   
31,805
   
29,939
 
Amortization of intangible assets and deferred financing costs
   
69,208
   
61,375
   
52,105
 
Non-cash stock compensation
   
30,905
   
20,688
   
15,415
 
Changes in operating assets and liabilities, net of acquired businesses:
                   
Accounts receivable
   
14,609
   
(21,243
)
 
(34,580
)
Inventories
   
(8,728
)
 
(489
)
 
(14,442
)
Unbilled Receivables
   
(950
)
 
(30,971
)
 
(5,032
)
Accounts payable and accrued liabilities
   
9,209
   
14,219
   
32,943
 
Income taxes payable
   
(177
)
 
23,840
   
(4,506
)
Other, net
   
(53
)
 
 (5,450
)
 
 (2,628
)
Cash provided by operating activities
   
434,438
   
343,807
   
262,538
 
                     
Cash flows from investing activities:
                   
Acquisitions of businesses, net of cash acquired
   
(704,764
)
 
(106,942
)
 
(352,125
)
Capital expenditures
   
(30,047
)
 
(30,107
)
 
(32,153
)
Other, net
   
 (4,483
)
 
 (5,339
)
 
 (2,387
)
Cash used in investing activities
   
(739,294
)
 
(142,388
)
 
(386,665
)
                     
Cash flows from financing activities:
                   
Proceeds from senior unsecured term loan
   
350,000
   
   
 
Proceeds from senior notes
   
500,000
   
   
 
Repayment of borrowings under prior credit facility
   
(908,620
)
 
   
 
Principal borrowings/(payments) on term notes under prior credit facility
   
(49,125
)
 
234,500
   
(32,750
)
Borrowings/(payments) under revolving line of credit, net
   
313,000
   
(206,900
)
 
158,413
 
Debt issuance costs
   
(10,226
)
 
   
 
Cash dividends to stockholders
   
(25,887
)
 
(22,954
)
 
(20,402
)
Treasury stock sales
   
1,894
   
1,763
   
1,567
 
Stock award tax excess windfall benefit
   
5,359
   
7,876
   
10,771
 
Proceeds from stock option exercises
   
11,037
   
15,263
   
20,692
 
Other
   
487
   
   
 
Cash provided by financing activities
   
187,919
   
29,548
   
138,291
 
Effect of exchange rate changes on cash
   
(13,762
)
 
8,323
   
2,198
 
                     
Net increase (decrease) in cash and cash equivalents
   
(130,699
)
 
239,290
   
16,362
 
Cash and cash equivalents, beginning of year
   
308,768
   
69,478
   
53,116
 
                     
Cash and cash equivalents, end of year
 
$
178,069
 
$
308,768
 
$
69,478
 
                     
Supplemental disclosures:
                   
Cash paid for:
                   
Interest
 
$
39,063
 
$
50,157
 
$
43,721
 
Income taxes, net of refunds received
 
$
144,258
 
$