Business context and reporting period
Roper Industries, Inc. (the filing’s registrant name; the request identifies Roper Technologies, Inc.) filed this unaudited Form 10-Q for the quarter ended June 30, 2010. Roper is a diversified company operating in Industrial Technology, Energy Systems & Controls, Scientific & Industrial Imaging, and RF Technology.
Financial performance
| Metric | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Net sales | $567.1 million | $504.9 million | $1,101.5 million | $1,010.4 million |
| Gross profit | $301.9 million | $255.1 million | $581.5 million | $506.2 million |
| Income from operations | $119.2 million | $96.0 million | $219.9 million | $182.8 million |
| Net earnings | $71.3 million | $59.6 million | $131.0 million | $111.1 million |
| Diluted EPS | $0.74 | $0.64 | $1.36 | $1.20 |
| Gross margin | 53.2% | 50.5% | 52.8% | 50.1% |
| Operating margin | 21.0% | 19.0% | 19.9% | 18.1% |
| Net margin | 12.6% | 11.8% | 11.9% | 11.0% |
For the six months, operating cash flow was $205.4 million versus $160.9 million; capital expenditures were $14.1 million. Cash was $290.7 million at June 30, 2010, versus $167.7 million at year-end 2009. Total debt was $1.128 billion, net debt $837.7 million, and net debt to total net capital 25.0%, down from 28.9%. The company reported no borrowings under its $500 million credit facility and compliance with debt covenants. Working capital, as defined by management, was $332.6 million versus $337.8 million at year-end.
Material changes versus prior period
- Q2 sales rose 12.3%, including 7.2% from 2009 acquisitions and 5.1% organic growth. First-half sales grew 9.0%, with 1.0% organic growth, 6.9% from acquisitions, and a 1.1% favorable currency effect.
- Scientific & Industrial Imaging led Q2 growth, with sales up 69.4%, largely from acquisitions and also organic growth. RF Technology sales fell 7.2% in Q2 and 9.2% for the first half, reflecting reduced tolling, violation, traffic, and project activity.
- Q2 orders increased 26.7% to $619.3 million; backlog was up 19.2% year over year to $641.9 million.
- Interest expense increased despite lower debt, reflecting the higher fixed rate on 2013 senior notes issued in 2009. Other income shifted to expense, primarily due to foreign-exchange losses and the absence of the prior-year asset-sale gain.
Outlook, risks, and unusual items
- No numerical earnings or revenue guidance is provided. Management expects operating cash flows to support debt reduction, but says the pace depends on acquisition financing needs and operating performance. Capital spending for the remainder of 2010 was expected to be comparable to prior years as a percentage of sales.
- On July 27, 2010, after quarter-end, Roper acquired iTradeNetwork for $525 million in cash. The transaction and its financing and integration effects warrant attention.
- Risk factors include economic and market cyclicality, acquisition integration and liabilities, indebtedness and interest-rate exposure, foreign exchange, customer concentration, product warranties/liability, government contracts, supply costs, litigation, and potential impairment of substantial goodwill and intangible assets.
- Ordinary-course product liability and employment cases were assessed by management as adequately provided for and not expected to materially affect results. Asbestos claims were also disclosed; potential liability could not be determined. Warranty accrual was $7.3 million at June 30.
- A 1% increase in interest rates was estimated to raise annualized pretax interest costs by about $5.0 million. A 10% currency-rate difference over Q2 was estimated to affect net earnings by approximately $1.7 million.
- Foreign currency translation reduced first-half comprehensive earnings by $48.3 million; the company said goodwill-related translation effects do not directly affect cash flows. New revenue-recognition guidance was under assessment, with adoption required for fiscal years beginning on or after June 15, 2010.
Investor facts to verify
- Confirm the issuer identity: this filing names Roper Industries, Inc., while the request names Roper Technologies, Inc.
- Assess whether the Q2 order and backlog growth converts into sales, particularly in RF Technology and the recovering industrial markets.
- Review the $525 million iTradeNetwork acquisition’s funding, integration, and impact on debt reduction and interest expense.
- Track the sustainability of margin gains and organic growth, separating acquisition, foreign-exchange, and operating contributions.
- Monitor interest-rate exposure, foreign-exchange movements, warranty and litigation exposure, and the carrying value of goodwill and intangible assets.