Roper Industries, Inc. — FY 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. The filing also reports unaudited fourth-quarter results; it is an annual report, not a standalone quarterly filing. The source identifies the issuer as Roper Industries, Inc., although the request metadata says Roper Technologies Inc.
Business context
Roper is a diversified designer, manufacturer and distributor serving niche markets through four segments: RF Technology; Industrial Technology; Energy Systems and Controls; and Scientific and Industrial Imaging. Its strategy emphasizes operating improvement and acquisitions. 2009 acquisitions were United Toll Systems (RF Technology) and Verathon (Scientific and Industrial Imaging).
Financial performance and liquidity
| Metric | FY 2009 | FY 2008 |
|---|---|---|
| Net sales | $2.050 billion | $2.306 billion |
| Gross profit / margin | $1.043 billion / 50.9% | $1.188 billion / 51.5% |
| Operating income / margin | $395.4 million / 19.3% | $486.2 million / 21.1% |
| Net earnings / diluted EPS | $239.5 million / $2.58 | $281.9 million / $3.01 |
| Cash from operating activities | $367.5 million | $434.4 million |
| Capital expenditures | $25.9 million | $30.0 million |
| Total debt | $1.154 billion | $1.267 billion |
- Sales fell 11.1%, primarily reflecting the global downturn: other-business sales decreased $335 million (15%), including 14% negative organic growth and a 1% unfavorable foreign-exchange effect. Acquisitions added approximately $79 million of sales compared with 2008.
- Segment sales: Industrial Technology $536.2 million, down 22.0%; Energy Systems and Controls $440.9 million, down 19.6%; Scientific and Industrial Imaging $354.8 million, down 5.5%; RF Technology $717.8 million, up 3.3%, with acquisition contribution offsetting internal declines.
- Operating cash flow declined mainly because of lower earnings and reduced liabilities, partly offset by improved inventory management and collections. Investing cash use was $374.2 million, principally acquisitions.
- Year-end cash was $167.7 million. The filing reports working capital of $392.7 million; it separately reports net working capital, excluding cash and debt, of $337.8 million. The company stated that approximately $661 million of senior-facility availability remained, subject to facility terms and outstanding letters of credit.
- Debt was 32.3% of total capital, versus 38.7% in 2008. The company had $500 million of senior notes due 2013, $500 million due 2019, $111 million of convertible notes, and $40 million drawn on its revolver, in addition to other debt. It reported covenant compliance throughout 2009.
- Fourth-quarter sales were $553.6 million, operating income $120.8 million, net earnings $71.9 million, and diluted EPS $0.77. In Q4 2008, sales were $575.9 million, net earnings $70.9 million, and diluted EPS $0.77.
Changes, outlook and material items
- New orders declined 12.1% for the year; year-end backlog declined 4.1% to $565.5 million. RF Technology backlog rose 0.8%, while the other three segments declined.
- Management expected operating cash flows and available borrowing capacity to support normal operations and acquisitions, and expected cash generation to permit scheduled debt reduction. The pace of 2010 debt reduction and interest savings would depend on acquisitions and business performance. No specific earnings or revenue guidance was provided.
- Cost-control actions included $12.4 million of severance and related restructuring charges ($4.1 million in cost of sales and $8.3 million in SG&A). $1.3 million remained accrued for payment in 2010; management did not expect additional material actions in 2010, while retaining contingency plans.
- In September 2009, Roper issued $500 million of 6.25% notes due 2019 and used net proceeds primarily to repay its $350 million term loan and revolving borrowings. It also raised $121.4 million net from a common-stock offering. The quarterly dividend was increased 15.2%, to $0.095 per share for the dividend paid in January 2010.
- Other notable items included a $4.1 million pretax gain on sale of satellite-communications assets, a $0.4 million debt-extinguishment charge, and a lower 29.5% effective tax rate versus 34.3% in 2008. The lower rate reflected foreign tax initiatives, permanently reinvested foreign earnings, reserve releases and a discrete tax benefit.
- Key risks include continued economic weakness and cyclical markets, acquisition integration and financing, debt covenants and servicing, unhedged foreign-currency exposure, customer and supplier concentration, environmental and product-liability exposure, and potential impairment of goodwill. Goodwill was $2.388 billion; no impairment was recorded in the 2009 annual review.
- Roper disclosed asbestos-related claims for which potential liability could not be determined; management said ordinary-course claims were not expected to materially affect consolidated results. Outstanding surety bonds were $285 million. The auditor gave an unqualified opinion and concluded internal control over financial reporting was effective; UTS and Verathon were excluded from the 2009 control assessment because of their recent acquisition.
Important facts for investors to verify
- Whether order trends and backlog, particularly in the weaker Industrial Technology and Energy Systems and Controls segments, recovered after year-end.
- The pace of debt reduction, available revolver capacity after letters of credit, and exposure to variable rates; a 1% rate increase was estimated to raise annual interest costs by $5.4 million.
- Acquisition performance and integration for UTS and Verathon, including whether expected cash generation supports management’s debt-reduction outlook.
- The sustainability of 2009 margins and the lower effective tax rate, including the assumptions behind permanently reinvested foreign earnings.
- Potential exposure from asbestos litigation, environmental matters, surety bonds and goodwill impairment; the filing does not quantify potential asbestos liability.