Roper Industries, Inc. — Q1 2010 Form 10-Q
Period: Three months ended March 31, 2010; comparative period is Q1 2009. The filing identifies the registrant as Roper Industries, Inc. (the company name in the request differs). Financial statements are unaudited.
Business context and results
Roper designs, manufactures and distributes products and services across Industrial Technology, Energy Systems & Controls, Scientific & Industrial Imaging, and RF Technology. It reported higher sales and earnings, with a strong contribution from acquired businesses and Scientific & Industrial Imaging.
- Net sales were $534.4 million, up 5.7%; acquisitions contributed $33.4 million, organic growth declined 3.0%, and foreign currency contributed 2.2%.
- Gross profit was $279.6 million, up 11.3%; gross margin rose to 52.3% from 49.7%.
- Operating income was $100.7 million, up from $86.8 million; operating margin was 18.8% versus 17.2%.
- Net earnings increased 15.8% to $59.7 million. Diluted EPS was $0.62 versus $0.56; weighted-average diluted shares rose to 96.0 million from 92.3 million.
- Interest expense increased to $16.2 million from $13.5 million, primarily reflecting the higher fixed rate on 2013 senior notes compared with prior-year revolving-credit borrowings. The effective tax rate was 29.7%, versus 29.3%.
Cash flow, balance sheet and debt
- Operating cash flow was $95.1 million, up from $50.6 million. Investing used $18.6 million, including $15.0 million for acquisitions and $6.5 million of capital expenditures. Financing used $48.0 million, including $43.0 million of net debt payments and $8.9 million of cash dividends.
- Cash was $191.3 million at March 31, 2010, up from $167.7 million at year-end. Total debt was $1.118 billion, down from $1.154 billion; net debt was $927.0 million. Net debt to total net capital declined to 27.5% from 28.9%.
- Current assets were $862.3 million and current liabilities were $448.3 million. Net working capital, excluding cash and debt, was $333.5 million, compared with $337.8 million at December 31, 2009.
- No borrowings were outstanding under the $500 million unsecured credit facility; the company reported $54 million of letters of credit and compliance with debt covenants. Management expected available borrowing capacity and operating cash flows to cover normal operating needs.
Material changes and management commentary
- Scientific & Industrial Imaging sales rose 54.8%, including a 42.5% contribution from 2009 acquisitions and 9.2% organic growth; segment operating profit rose 82.4%.
- Industrial Technology sales increased 3.6%, supported by recovery in materials-testing customers. Energy Systems & Controls sales declined 0.9%. RF Technology sales fell 11.3%, reflecting completion of a large prior-year traffic project and lower traffic and violation volumes.
- Net orders rose 20.3% to $567.2 million; backlog increased 7.9% year over year to $593.9 million. Management attributed order improvement to strengthening economic recovery across segments.
- Management anticipated that operating cash flow would support debt reduction at a historically consistent pace, but said the 2010 pace would depend on acquisition financing and operating performance. The company maintained an active acquisition program; no specific earnings or revenue guidance was provided.
- On February 22, 2010, Roper acquired Heartscape, Inc. assets, including technology for detecting heart attacks. The quarter also included $15.0 million of net acquisition cash outflow.
Risks, contingencies and unusual items
- Risks cited include economic conditions, acquisition execution and integration, indebtedness, interest rates, foreign exchange, cyclical markets, customer concentration, government contracts, product liability and warranty exposure, environmental matters, asbestos litigation, competition, and impairment of substantial goodwill and intangible assets.
- Ordinary-course product-liability and employment lawsuits were being contested; management believed provisions and insurance were adequate and did not expect a material adverse effect. The potential liability from asbestos claims could not be determined.
- Foreign-currency translation reduced comprehensive earnings by $31.3 million; approximately $19.8 million related to goodwill and did not directly affect expected cash flows. Total comprehensive earnings were $28.5 million, down from $32.1 million.
- A $500 million interest-rate swap converted the 2013 senior notes to a variable-rate obligation at a weighted-average spread of 4.377% plus LIBOR. Management estimated that a 1% rate increase would add approximately $5.0 million to annualized pretax interest costs.
- The company was assessing new revenue-recognition amendments effective for fiscal years beginning on or after June 15, 2010. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- How much future growth and margin performance depends on acquisitions versus organic demand, especially in Scientific & Industrial Imaging.
- Whether order and backlog growth converts to sales, particularly in RF Technology, and how segment demand and margins evolve.
- The trajectory of operating cash flow, debt reduction, interest expense and exposure under the variable-rate swap.
- Potential costs or changes in estimates related to litigation, warranties, percentage-of-completion contracts, and goodwill and intangible assets.
- Any quantified full-year outlook: this filing provides no specific revenue or EPS guidance and cautions that quarterly results are not necessarily indicative of full-year results.