Roper Industries, Inc. (now identified in the request as Roper Technologies) — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; the filing was signed February 25, 2013. The company reported four diversified segments: Industrial Technology, Energy Systems and Controls, Medical and Scientific Imaging, and RF Technology.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $2.993 billion | $2.797 billion |
| Gross profit / margin | $1.672 billion / 55.8% | $1.516 billion / 54.2% |
| Operating income / margin | $757.6 million / 25.3% | $660.5 million / 23.6% |
| Net earnings / diluted EPS | $483.4 million / $4.86 | $427.2 million / $4.34 |
| Cash from operating activities | $677.9 million | $601.6 million |
| Capital expenditures | $38.4 million | $40.7 million |
Revenue increased 7% year over year, comprising 4% organic growth, 4% acquisition contribution and a 1% unfavorable foreign-exchange effect. Net earnings rose approximately 13%. The effective tax rate was 29.6%, versus 29.4% in 2011.
Fourth quarter: Revenue was $809.9 million, gross profit $466.4 million, operating income $225.2 million, net earnings $143.5 million and diluted EPS $1.44. The comparable 2011 quarter recorded revenue of $739.2 million, operating income of $187.4 million, net earnings of $121.7 million and diluted EPS of $1.23.
Segment revenue: Industrial Technology $795.2 million (+8%); Energy Systems and Controls $646.1 million (+8%); Medical and Scientific Imaging $703.8 million (+15%); and RF Technology $848.3 million (down slightly). Segment operating margins improved across all four segments; company-reported margins were 30.8%, 27.8%, 26.6% and 26.3%, respectively.
Cash and cash equivalents were $370.6 million at year-end. Management reported net working capital, excluding cash and debt, of $307.8 million, compared with $293.1 million in 2011. Total debt was $2.022 billion, up from $1.085 billion; debt was 35.4% of total capital versus 25.4%. The $1.5 billion unsecured revolving facility had $100 million drawn at year-end, and the filing reported approximately $1.4 billion of undrawn availability. The company was in compliance with its debt covenants.
Material changes and notable items
- On August 22, 2012, Roper acquired Sunquest Information Systems for $1.416 billion in cash. Sunquest contributed $69.4 million of revenue and $8.8 million of earnings for the period included in 2012 results. Acquisition funding contributed to the increase in debt and goodwill.
- Roper issued $400 million of 1.850% notes due 2017 and $500 million of 3.125% notes due 2022. A $500 million note maturity in August 2013 was classified as current debt; total current debt was $519.0 million.
- Operating cash flow increased, supported by higher earnings, increased acquired-intangible amortization and lower year-end inventory, partly offset by higher tax payments. Investing cash outflow was $1.506 billion, primarily for acquisitions.
- Industrial Technology gross profit included a $5.5 million one-time cost-of-sales reduction correcting a cumulative accounting-system error; the company said prior-period effects were individually and annually immaterial.
- Goodwill was $3.869 billion, or 55% of total assets; no goodwill impairment was indicated in 2012. Management identified sensitivity in a recently acquired RF Technology trade name to lower assumed sales growth.
- Quarterly dividends declared increased 20% in November 2012 to $0.165 per share. Future dividends remain at the board’s discretion.
Outlook, risks and contingencies
Management expected operating cash flows and borrowing capacity to fund normal requirements and future acquisitions, and anticipated that cash generation would support scheduled debt reduction. The pace of debt repayment and related interest savings in 2013 would depend on operating performance and any new acquisitions. No specific consolidated revenue or EPS guidance was provided. Expected capital expenditures were 1.0%–1.5% of annual sales.
Key risks include substantial indebtedness and the 2013 maturity, acquisition integration and financing, cyclical energy and industrial markets, foreign exchange and international operations, customer or government-contract concentration, competition, component supply constraints, environmental exposure, product liability and potential impairment of significant goodwill and intangibles. A 1% increase in interest rates was estimated to add $6.0 million to annualized interest costs. A 10% currency-rate difference from actual 2012 rates was estimated to affect net earnings by approximately 2.5%.
The company reported $402 million of outstanding surety bonds. It was involved in ordinary-course legal matters, including asbestos-related claims; management said no accrual was necessary and no matter had a reasonable possibility of material loss, while noting asbestos exposure could not be quantified. Unrecognized tax benefits were $24.9 million. The 2012 financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control; 2012 acquisitions were excluded from the internal-control assessment.
Tax legislation enacted in January 2013 retroactively reinstated certain tax provisions. Management estimated two separate discrete tax benefits of approximately $3 million each in the first quarter of 2013.
Important facts for investors to verify
- Backlog inconsistency: The Business section states year-end 2012 backlog of $828 million and 2011 backlog of $785 million, while the MD&A backlog table reports $947.2 million for 2012 and $828.3 million for 2011, a 14.4% increase. Confirm the correct figures and definitions.
- Confirm the refinancing or repayment plan for the $500 million senior notes due August 2013 and the resulting effect on liquidity and interest expense.
- Assess Sunquest’s post-acquisition performance, integration progress and the assumptions supporting its substantial goodwill and acquired intangible assets.
- Evaluate the sustainability of margin expansion, including the $5.5 million one-time cost correction, and distinguish organic growth from acquisition-related growth.
- Monitor exposure to foreign currency, rate changes, environmental and asbestos claims, surety obligations, and potential goodwill or trade-name impairment.