160 Ben Burton Road
Our goal is to increase Roper's value to its shareholders by achieving consistent and sustainable growth in earnings per share. We do this by maximizing cash flow, and by using the cash effectively to fund acquisitions and internal growth. Strong operating margins and sound working capital management are the source of our strong and growing cash flow, and are thus the cornerstone of our strategy.
A leader in the fluid handling, industrial controls, and analytical instrumentation industries, Roper Industries, Inc. manufactures and distributes highly engineered, application-specific products for a broad range of industries, including the oil and gas, chemical and petrochemical processing, research, medical, semiconductor, and power generation industries. In the early 2000s, Roper Industries operated in three business segments: industrial controls, which manufactured microprocessor-based turbomachinery control systems, pressure sensors, and thermostatic valves; fluid handling, which manufactured rotary gear pumps, air-operated diaphragm pumps, and centrifugal pumps; and analytical instrumentation which manufactured digital imaging, fluid properties test, industrial leak test, materials analysis, microscopy preparation and handling, and spectroscopy products. With slightly more than half of its sales derived from overseas, the company recorded resolute growth during the early 2000s by expanding internationally through several key acquisitions.
Stoves and Pumps: Early History
Roper Industries' historical roots reach back to its founder, George D. Roper, and the company he started in 1919, the Geo. D. Roper Corporation. Founded in Rockford, Illinois, as a manufacturer of gas stoves and gear pumps, Geo. D. Roper Corp. became best known for its production stoves, developing into a flourishing concern that eventually manufactured electric and gas kitchen ranges, power gardening tools, and a host of other home-related goods. The company's smaller business segment, the manufacture of pumps, which constituted the origins of Roper Industries, remained overshadowed by the association of the Roper name with kitchen appliances, existing for decades as a barely known enterprise, while the appliance segment garnered the bulk of Geo. D. Roper Corp.'s total sales and, consequently, nearly all of its publicity.
For much of the first half of the 20th century, the two businesses--gear pumps and kitchen stoves--operated together within the same corporate structure, but in the late 1950s the two segments were split into two different companies that 30 years later existed as Roper Corporation a large kitchen appliance manufacturer with more than $700 million in annual sales; and Roper Industries, a manufacturer of an assortment of pumps and controls with an annual sales volume roughly 25 times smaller than Roper Corporation.
The Postwar Years: Two Distinct Companies Emerge
The two distinct business segments embarked on their separate paths of development when the Florence Stove Company, founded in the early 1870s as a maker of wood-burning stoves, set its acquisitive sights on the Geo. D. Roper Corp. In 1957, Florence Stove sold its manufacturing facility in Florence, Massachusetts, and transferred production to Illinois, then purchased the inventories of finished products, receivables, and all capital stock of Geo. D. Roper Corp. The entire new operation took the name Geo. D. Roper Corp. in 1958. Meanwhile, Geo. D. Roper Corp.'s pump manufacturing operations were moved to Georgia, as the newly assembled corporation flourished under the beneficent corporate umbrella of retailing giant Sears, Roebuck & Co.
Sears not only was Geo. D. Roper Corp.'s largest customer but also owned nearly half of the Illinois-based appliance manufacturer. This relationship between Sears and Geo D. Roper Corp. was strengthened when Geo D. Roper Corp. merged with a wholly owned Sears subsidiary, Newark Ohio Co., in 1964. Newark Ohio, which manufactured electric ranges, lawn mowers, and other products for Sears, sold nearly all of its products to its parent company prior to the merger, while Geo D. Roper Corp. derived 55 percent of its annual revenue from sales to Sears before the merger. Once combined, the merged entity relied on its relationship with Sears to generate more than three-quarters of total sales, ranking as Sears' largest supplier of gas and electric ranges, rotary mowers, and a major supplier of drapery hardware.
When Geo. D. Roper and Newark Ohio merged, the Geo. D. Roper Corporation corporate title was retained for several years until Roper Corporation was adopted as the company's new name in April 1968, by which time the gas stove manufacturing business originally founded by George Roper was rapidly approaching the $200-million-a-year sales mark. Over the ensuing two decades, Roper Corporation broadened its product line and grew as Sears grew, developing into a more than $500 million company by the mid-1980s, when Roper Corp. implemented a major restructuring program. Nonessential businesses, such as the company's involvement in luggage and window blind production, were spun off; manufacturing facilities were relocated from the Midwest to Georgia and South Carolina; and 60 percent of its shares were bought back from Sears, making Roper Corporation a more cost-efficient maker of electric kitchen ranges than other major producers. The changes effected during the mid-1980s also made Roper Corporation a much more attractive acquisition target, and in 1988 a bidding war between Whirlpool Corporation and the General Electric Company was touched off, as the two giant appliance makers battled for the rights to acquire one of the few U.S. electric appliance manufacturers still in existence. In the end, General Electric emerged the victor, and acquired Roper Corporation's manufacturing capacity for stoves and lawn equipment, the core of its more than $700 million business at the time.
1980s and Beyond: New Leadership and Expansion at Roper Industries
As Roper Corporation slowly disappeared from the business press spotlight, existing in relative anonymity deep within the sundry organizational layers comprising behemoth General Electric, the other half of the former Geo. D. Roper Corporation--the pump manufacturing facilities that were relocated to Georgia in the late 1950s--was beginning to etch a new identity for the Roper name as Roper Industries Inc. During Roper Corporation's rise as a major supplier to Sears, the Georgia-based pump works--Roper Pump Company--operated as a public company until 1981, when a leveraged buyout transferred ownership of the company to private hands. The following year, the person chiefly responsible for Roper Industries' growing stature during the 1980s and 1990s arrived, marking the beginning of a new era in the company's history that would punctuate its decades of quiet existence with resolute, international growth.
This pivotal figure in the company's ascension was British-born Derrick N. Key, who was named vice president of Roper Industries in June 1982. A former consultant for Johnson & Johnson, Key put his experience in marketing consumer products to work at Roper Industries, and introduced a management system that had achieved considerable success at numerous consumer products companies, but rarely had been used at manufacturing companies like Roper Industries. Key's importation of the product manager system, which was adopted by Roper Industries following Key's arrival, pushed the decision-making process down the company's management ladder, ceding substantial control to company managers. Within Roper Industries, each major product was assigned its own manager, who was then put in charge of overseeing the full development of the product, wielding control over production, sales, and advertising.
As the success engendered by the implementation of the product manager system grew, Key moved up Roper Industries' corporate ladder, becoming president of Roper Industries' primary revenue-generating engine, Roper Pump Company, in November 1985. Less than four years later, in February 1989, Key was named president of Roper Industries, assuming the company's presidential post at a time when annual sales hovered around $35 million and earnings stood at $2 million. Under Key's direction, these modest financial totals would rise strongly, propelled by an aggressive acquisition and expansion program orchestrated by Key that would position Roper Industries as a considerably larger international competitor in the specialty controls industry. In the first five years of Key's leadership, annual sales more than quadrupled, while earnings recorded a more prodigious gain, increasing tenfold, as Roper Industries began to attract the attention long-accorded to Roper Corporation's appliance business.
The first pivotal move in Roper Industries bid to become a larger, more globally oriented competitor was executed a year after Key's promotion to president, when the company acquired Amot Controls Corporation and its U.K. and Switzerland subsidiaries in July 1990 for approximately $28 million. Amot Controls, which manufactured valves, switches, and sensors for the oil and gas, power generation, and transportation industries, represented an important addition to Roper Industries, giving the company one of the primary pillars supporting its existence during the 1990s. After its first full year as a Roper Industries' company, Amot Controls helped push companywide annual sales to $75 million, or more than twice as much as Roper Industries generated two years earlier, setting the tone for the rapid growth to follow during the early 1990s.
Another important acquisition, one that would play a leading role in Roper Industries' most publicized event in its history, was completed two years after the purchase of Amot Controls. In September 1992, Roper Industries acquired Compressor Controls Corporation, the world's leading turbocompressor control manufacturer, for an estimated $35 million. Together, Amot Controls and Compressor Controls composed Roper Industries' industrial controls business segment, the smaller of the company's two business segments in 1992, but the segment that would provide the bulk of the company's growth between 1992 and the mid-1990s.
After an 11-year hiatus, Roper Industries once again became a publicly owned company in 1992, giving it the necessary capital to continue its acquisition and expansion campaign, which became increasingly international in focus following the purchase of Compressor Controls. Relying on the global connections it had realized through its two international acquisitions, Roper Industries made the headlines in the business press the year after its public offering by striking a deal with the massive Russian natural gas conglomerate, Gazprom, to supply computerized control systems for Russia's enormous pipeline system. The agreement between Compressor Controls and Gazprom led to a seven-year contract worth $350 million, the announcement of which drew enough praise from certain sectors of the financial community to push Roper Industries' stock from a low of $5.75 a share to $78 a share before splitting two-for-one.
Although Roper Industries' Russian deal represented a potential boon to the company's business, it also represented a possible tinderbox, given the economic and political instability pervading Russia during the early and mid-1990s and the confounding vagaries of Russian bureaucracy. When shipments to Gazprom began in April 1993, however, expectations were high and largely substantiated by the year's end. By the end of 1993, in an abbreviated year as far as the company's contract with Gazprom was concerned, Roper Industries shipped $42 million worth of high-technology, high-speed controls to Gazprom, but in 1994, the difficulties inherent in doing business in Russia led to lackluster financial results. Installation delays and problems with financing in Russia hindered Roper Industries' Gazprom-related activities during the year, reducing the amount of the company's shipments to $35 million for the year.
The Gazprom deal continued to cause the company problems into the late 1990s. Starting in 1993, Roper worked with the U.S. Export-Import Bank (Ex-Im) to secure financing for shipments to Gazprom. In 1996, however, the company was forced to stop shipments because of congressional threats to block the financing. Senator Alfonse D'Amato of New York led the fight to suspend Ex-Im's dealings with Gazprom, citing Gazprom's dealings with Iran and the United States' increased sanctions on that country. As a result, Roper canceled a $12 million shipment to Gazprom in October 1997. That year, difficulties with the Russian gas conglomerate caused Roper's stock to fall by 24 percent. By December 1997, president Derrick Key announced that Gazprom would need to secure substantial funds by the middle of 1998, otherwise Roper would reduce its business or abandon the deal altogether. Gazprom then began efforts to arrange European bank financing to support the balance of its deal with Roper.
In January 1998, Roper announced a $12.3 million shipment to Gazprom (financed by Gazprom's general credit facilities). In May 1998, Gazprom had secured financing through a wholly owned European bank for its future business. This financing arrangement was expected to be available over the next five years for $128 million of additional turbomachinery controls purchases. By the time the company's 1998 annual report was released, Derrick Key was confident enough to pronounce that Roper had "finally achieve[d] the consistency of the Gazprom business that we have long striven for." In 2000, Gazprom extended its deal with Roper, committing to an additional $150 million of purchases over and above the original agreement and extended the term through the end of 2007.
Into a New Century: Growth in the 1990s and Beyond
Elsewhere in the family of Roper Industries companies, more consistently positive results were being achieved during the 1990s. In September 1993, Roper Industries acquired Integrated Designs Inc. (IDI) for $12 million, adding IDI's semiconductor-manufacturing equipment capabilities and its high profitability to the company's fluid handling business segment. The following year, as the company contended with the difficulties associated with Gazprom, it continued to focus on building other facets of its business by looking for industrial equipment companies to acquire, seeking to strengthen its involvement in the production of highly engineered, high-margin products. Roper Industries found such a company in August 1994 when it acquired Instrumentation Scientifique de Laboratoire, S.A. (ISL) for approximately $10.5 million. Headquartered in Verson, France with sales and service offices in the United States, the United Kingdom, Brazil, and Russia, ISL was one of the leading competitors in the world for oil refinery laboratory testing equipment. This acquisition bolstered Roper Industries' position in an industry--oil and refined petroleum products--it already served and it increased the company's international presence.
By the end of 1994, Roper Industries was deriving more than half its annual sales from outside the United States, largely through the foreign business developed by Key, who had been named chief executive officer in 1991, then finally chairman of Roper Industries in December 1994. Annual sales, which had reached $75 million in 1991, had climbed to $147 million by the end of 1994, thanks primarily to the development of the company's industrial controls segment, made up entirely of companies acquired since 1990. ISL, Compressor Controls Corporation, and Amot Controls Corporation composed Roper Industries' industrial controls segment, with Richmond, California-based Amot U.S. and Bury St. Edmunds, England-based Amot U.K. functioning as the two operating companies of Amot Controls Corporation. Combined, these companies generated $91 million of Roper Industries' 1994 total sales, with the company's fluid handling business segment, comprising Roger Pump Company, Cornell Pump Company and IDI, accounting for the balance.
As Roper Industries entered the mid-1990s, the company began mapping plans for the future, which included the strengthening of its U.S. businesses to offset any further problems with its contract to supply compressor controls to Russia. Toward this objective, the company announced the completion of its acquisition of Houston, Texas-based Metrix Instrument Company in October 1995. A manufacturer of vibration detection and analysis equipment for the rotating machinery industry, Metrix Instrument was incorporated into Roper Industries' burgeoning industrial controls segment. Roper continued to grow the segment through the 1990s with such acquisitions in 1997 as Petrotech, a turnkey control systems company, and in 2000 Hansen Technologies, a manufacturer of valves and controls for refrigeration systems. In 2001, Roper's industrial controls segment netted sales of $197 million.
In 1997 the company began expanding into the area of analytical instrumentation by making a series of acquisitions through the late 1990s and into the early 21th century. These acquisitions included Gatan International (a manufacturer of electron microscopy control systems) in 1996, Acton Research (a maker of high-end spectrographic systems and specialty optics) in 1998, and Struers Holdings A/S (a producer of materialographic sample preparation equipment) in 2001. In the first quarter of 2002, Roper's analytical instrumentation segment had grown to net sales of $82 million.
The company carried over its strategy of acquiring small companies into its fluid handling segment, adding such companies as Abel Pump (a manufacturer of water, industrial, marine, and mining pumps) in 1998. In 2001, sales in the fluid handling segment netted the company $125 million.
The company was not immune from the economic downturn of the early 2000s, but Roper entered the early years of the 21th century optimistically and reported a strong start to the year 2002. The first quarter of that year saw a 9 percent increase in sales and a 240 basis point improvement in gross margins, and Roper remained confident in its ability to continue growing. "Roper is making good progress on the objectives we outlined for 2002," said president and CEO Brian Jellison in the company's first quarter report. "Despite the challenging first quarter economic environment, we are confident that our disciplined financial and operational processes will assure another record year for Roper Industries in 2002."
Principal Subsidiaries:ABEL Pump; Acton Research; Amot Controls Corp.; Antek Instruments; Compressor Controls Corp.; Cornell Pump Co.; Dynamco; Flow Technology; Fluid Metering, Inc.; Gatan; Hansen Technologies; Integrated Designs Inc.; Media Cybernetics; Metrix Instrument Co.; Petroleum Analyzer Company; Petrotech; Redlake/MASD; Roper Pump Co.; Roper Scientific.
Principal Operating Units:Analytical Instrumentation; Fluid Handling; Industrial Controls.
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