Business context and reporting period
Roper Industries, Inc. (the registrant named in this filing; the request identifies Roper Technologies, Inc.) filed this Form 10-K for the fiscal year ended December 31, 2011. It is a diversified provider of engineered products, technology and software across four segments: Industrial Technology, Energy Systems and Controls, Medical and Scientific Imaging, and RF Technology. The filing also provides unaudited fourth-quarter results.
Financial results and key metrics
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Net sales | $2.797 billion | $2.386 billion |
| Gross profit / margin | $1.516 billion / 54.2% | $1.275 billion / 53.4% |
| Operating income / margin | $660.5 million / 23.6% | $514.3 million / 21.6% |
| Net earnings / margin | $427.2 million / 15.3% | $322.6 million / 13.5% |
| Diluted EPS | $4.34 | $3.34 |
| Cash from operating activities | $601.6 million | $499.5 million |
| Cash and cash equivalents at year-end | $338.1 million | $270.4 million |
| Total debt at year-end | $1.085 billion | $1.341 billion |
FY 2011 revenue increased 17.2%: organic growth contributed 12.7%, acquisitions 3.1%, and foreign exchange 1.4%. Operating cash flow less capital expenditures was approximately $560.9 million. Capital expenditures were $40.7 million. The effective tax rate rose to 29.4% from 28.1%; interest expense declined to $63.6 million from $66.5 million.
Segment sales were Industrial Technology $737.4 million, Energy Systems and Controls $597.8 million, Medical and Scientific Imaging $610.6 million, and RF Technology $851.3 million. Reported segment operating margins ranged from 23.8% in RF Technology to 28.2% in Industrial Technology.
In Q4 2011, sales were $739.2 million, operating income $187.4 million, net earnings $121.7 million, and diluted EPS $1.23, compared with $679.5 million, $166.2 million, $107.3 million, and $1.10, respectively, in Q4 2010.
Material changes versus the prior comparable period
- All four segments reported higher FY 2011 sales. Industrial Technology grew 21.4%, Energy Systems and Controls 18.6%, RF Technology 17.3%, and Medical and Scientific Imaging 11.3%.
- Gross margin increased 0.8 percentage points and operating margin increased 2.0 points. Management attributed margin improvement to higher volumes, operating leverage, and favorable medical product mix; Industrial Technology margin softened slightly on mix.
- Operating cash flow increased about $102 million. Debt declined about $256 million, primarily through repayment using operating cash flow; year-end debt was 25.4% of total capital versus 32.8% a year earlier.
- Orders increased 11.3% to $2.823 billion. Year-end backlog rose 5.5% to $828.3 million, although RF Technology backlog decreased 3.4% to $447.4 million.
- Three 2011 acquisitions—Northern Digital, United Controls Group and Trinity—were purchased for aggregate cash consideration of approximately $234 million. Acquisitions contributed 3.1% to overall annual sales growth.
Liquidity, outlook, risks and unusual items
At year-end, Roper had $707 million of stated undrawn availability under its $750 million revolving credit facility, subject to letters of credit and facility terms. Cash at foreign subsidiaries was $164 million and was considered permanently reinvested; repatriation could trigger additional taxes. The company reported compliance with debt covenants. Its $500 million senior notes due in 2013, alongside the revolving facility’s 2013 maturity, create a significant refinancing or repayment consideration.
Management stated that operating cash flows and available borrowing capacity should fund normal operations and future acquisitions. It expected acquired and existing businesses to generate positive cash flow and support debt reduction, while noting the pace would depend on acquisition needs and operating performance. Expected capital expenditures were 1.0%–1.5% of annual sales. The filing does not provide numerical revenue or earnings guidance for 2012.
Principal risks include leverage and debt covenants, refinancing needs, acquisition execution and integration, cyclical industrial and energy markets, foreign currency exposure, international operations, customer and government-contract concentration, competition, component supply constraints, environmental liabilities, product liability and warranty exposure, and potential impairment of substantial goodwill and intangible assets. Goodwill was $2.866 billion, approximately 54% of total assets; no goodwill or indefinite-lived intangible impairment was identified in 2011.
Roper had $313 million of outstanding surety bonds and $49.6 million of standby letters of credit and bank guarantees. Management said ordinary-course litigation was not expected to materially affect consolidated results; however, potential liability from asbestos-related cases could not be determined. No material loss contingency accrual was considered necessary. Other notable items: other income included an $8.1 million currency remeasurement gain, and the 2010 tax rate benefited from a foreign tax credit that did not recur.
The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective. The internal-control assessment excluded the three 2011 acquisitions, which represented 0.5% of consolidated assets and 1.1% of revenue.
Important facts for investors to verify
- How Roper plans to address the $500 million senior-note maturity and revolving-credit-facility maturity in 2013, including refinancing terms and related interest-rate exposure.
- Whether organic growth, order trends, and backlog conversion support continued growth; pay particular attention to the decline in RF Technology backlog.
- Whether acquisitions deliver expected performance and integration benefits, and how continued acquisition spending may affect debt reduction.
- Cash availability and tax consequences associated with the $164 million held abroad and approximately $874 million of foreign earnings treated as permanently reinvested.
- Sensitivity of goodwill and other intangible values to operating forecasts and valuation assumptions, as well as developments in asbestos litigation, surety commitments, and other contingencies.