cy10q2.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
[X]
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the quarterly period ended June 30, 2010.
OR
|
|
[ ]
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the transition period from to .
Commission File Number 1-12273
ROPER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
|
Delaware
(State or other jurisdiction of
incorporation or organization)
|
51-0263969
(I.R.S. Employer Identification No.)
|
| |
|
|
6901 Professional Pkwy. East, Suite 200
Sarasota, Florida
(Address of principal executive offices)
|
34240
(Zip Code)
|
|
(941) 556-2601
(Registrant’s telephone number, including area code)
|
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
þ Large accelerated filer
|
¨ Accelerated filer
|
|
¨ Non-accelerated filer
(do not check if smaller reporting company)
|
¨ Smaller reporting company
|
Indicate by check mark if the registrant is a shell company (as defined in Rule 12-b2 of the Act). ¨ Yes þ No
The number of shares outstanding of the Registrant’s common stock as of July 29, 2010 was approximately 94,178,951.
ROPER INDUSTRIES, INC.
REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010
TABLE OF CONTENTS
| |
|
Page
|
|
PART I.
|
FINANCIAL INFORMATION
|
|
|
Item 1.
|
Financial Statements:
|
|
| |
Condensed Consolidated Statements of Earnings
|
3
|
| |
Condensed Consolidated Balance Sheets
|
4
|
| |
Condensed Consolidated Statements of Cash Flows
|
5
|
| |
Condensed Consolidated Statements of Changes in Stockholders’ Equity
|
6
|
| |
Notes to Condensed Consolidated Financial Statements
|
7
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
13
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
21
|
|
Item 4.
|
Controls and Procedures
|
22
|
|
PART II.
|
OTHER INFORMATION
|
|
|
Item 1A.
|
Risk Factors
|
23
|
|
Item 5.
|
Exhibits
|
23
|
| |
Signatures
|
24
|
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Roper Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (unaudited)
(in thousands, except per share data)
| |
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
| |
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
567,104
|
|
$
|
504,910
|
|
$
|
1,101,545
|
|
$
|
1,010,354
|
|
|
Cost of sales
|
|
|
265,157
|
|
|
249,840
|
|
|
520,033
|
|
|
504,148
|
|
|
Gross profit
|
|
|
301,947
|
|
|
255,070
|
|
|
581,512
|
|
|
506,206
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
182,760
|
|
|
159,106
|
|
|
361,609
|
|
|
323,450
|
|
|
Income from operations
|
|
|
119,187
|
|
|
95,964
|
|
|
219,903
|
|
|
182,756
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
16,293
|
|
|
13,762
|
|
|
32,474
|
|
|
27,271
|
|
|
Other income/(expense)
|
|
|
(1,657
|
)
|
|
3,168
|
|
|
(1,210
|
)
|
|
2,812
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
101,237
|
|
|
85,370
|
|
|
186,219
|
|
|
158,297
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
29,956
|
|
|
25,782
|
|
|
55,213
|
|
|
47,150
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
71,281
|
|
$
|
59,588
|
|
$
|
131,006
|
|
$
|
111,147
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.76
|
|
$
|
0.66
|
|
$
|
1.40
|
|
$
|
1.23
|
|
|
Diluted
|
|
|
0.74
|
|
|
0.64
|
|
|
1.36
|
|
|
1.20
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
94,011
|
|
|
90,562
|
|
|
93,911
|
|
|
90,348
|
|
|
Diluted
|
|
|
96,449
|
|
|
92,712
|
|
|
96,235
|
|
|
92,508
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
0.0950
|
|
$
|
0.0825
|
|
$
|
0.1900
|
|
$
|
0.1650
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
Roper Industries, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
| |
|
June 30, 2010
|
|
|
|
December 31, 2009
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
290,740
|
|
|
|
$
|
167,708
|
|
|
Accounts receivable, net
|
|
|
347,681
|
|
|
|
|
381,658
|
|
|
Inventories, net
|
|
|
170,943
|
|
|
|
|
178,795
|
|
|
Deferred taxes
|
|
|
26,884
|
|
|
|
|
27,306
|
|
|
Unbilled receivables
|
|
|
80,327
|
|
|
|
|
57,153
|
|
|
Other current assets
|
|
|
68,893
|
|
|
|
|
58,125
|
|
|
Total current assets
|
|
|
985,468
|
|
|
|
|
870,745
|
|
| |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
104,505
|
|
|
|
|
109,493
|
|
|
Goodwill
|
|
|
2,365,297
|
|
|
|
|
2,388,432
|
|
|
Other intangible assets, net
|
|
|
833,594
|
|
|
|
|
868,900
|
|
|
Deferred taxes
|
|
|
29,848
|
|
|
|
|
33,123
|
|
|
Other assets
|
|
|
68,615
|
|
|
|
|
57,043
|
|
| |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,387,327
|
|
|
|
$
|
4,327,736
|
|
| |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
120,313
|
|
|
|
$
|
110,103
|
|
|
Accrued liabilities
|
|
|
240,393
|
|
|
|
|
253,441
|
|
|
Income taxes payable
|
|
|
-
|
|
|
|
|
-
|
|
|
Deferred taxes
|
|
|
1,446
|
|
|
|
|
1,671
|
|
|
Current portion of long-term debt, net
|
|
|
112,028
|
|
|
|
|
112,796
|
|
|
Total current liabilities
|
|
|
474,180
|
|
|
|
|
478,011
|
|
| |
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
1,016,400
|
|
|
|
|
1,040,962
|
|
|
Deferred taxes
|
|
|
328,578
|
|
|
|
|
328,299
|
|
|
Other liabilities
|
|
|
60,692
|
|
|
|
|
58,974
|
|
|
Total liabilities
|
|
|
1,879,850
|
|
|
|
|
1,906,246
|
|
| |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
963
|
|
|
|
|
958
|
|
|
Additional paid-in capital
|
|
|
1,003,289
|
|
|
|
|
982,321
|
|
|
Retained earnings
|
|
|
1,508,724
|
|
|
|
|
1,395,586
|
|
|
Accumulated other comprehensive earnings
|
|
|
15,677
|
|
|
|
|
63,945
|
|
|
Treasury stock
|
|
|
(21,176
|
)
|
|
|
|
(21,320
|
)
|
|
Total stockholders’ equity
|
|
|
2,507,477
|
|
|
|
|
2,421,490
|
|
| |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
4,387,327
|
|
|
|
$
|
4,327,736
|
|
See accompanying notes to condensed consolidated financial statements.
Roper Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
| |
|
Six months ended June 30,
|
|
| |
|
2010
|
|
2009
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
131,006
|
|
$
|
111,147
|
|
|
Adjustments to reconcile net earnings to cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment
|
|
|
18,161
|
|
|
17,520
|
|
|
Amortization of intangible assets
|
|
|
38,289
|
|
|
34,308
|
|
|
Amortization of deferred financing costs
|
|
|
1,181
|
|
|
1,353
|
|
|
Non-cash stock compensation
|
|
|
13,118
|
|
|
14,081
|
|
|
Changes in operating assets and liabilities, net of acquired businesses:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
18,394
|
|
|
48,929
|
|
| Unbilled receivables |
|
|
(23,394
|
) |
|
4,253
|
|
|
Inventories
|
|
|
(998
|
)
|
|
8,740
|
|
|
Accounts payable and accrued liabilities
|
|
|
15,626
|
|
|
(62,396
|
)
|
|
Income taxes payable
|
|
|
1,910
|
|
|
(16,102
|
)
|
|
Other, net
|
|
|
(7,938
|
)
|
|
(971
|
)
|
|
Cash provided by operating activities
|
|
|
205,355
|
|
|
160,862
|
|
| |
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired
|
|
|
(14,651
|
)
|
|
(1,248
|
)
|
|
Capital expenditures
|
|
|
(14,113
|
)
|
|
(12,359
|
)
|
|
Proceeds from sale of assets
|
|
|
4,322
|
|
|
10,187
|
|
|
Other, net
|
|
|
(2,169
|
)
|
|
(2,173
|
)
|
|
Cash used in investing activities
|
|
|
(26,611
|
)
|
|
(5,593
|
)
|
| |
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments under revolving line of credit, net
|
|
|
(40,000
|
)
|
|
(19,000
|
)
|
|
Principal payments on convertible notes
|
|
|
(3,013
|
)
|
|
(86,104
|
)
|
|
Debt issuance costs
|
|
|
-
|
|
|
(404
|
)
|
|
Cash dividends to stockholders
|
|
|
(17,793
|
)
|
|
(14,850
|
)
|
|
Proceeds from stock option exercises
|
|
|
8,489
|
|
|
3,038
|
|
|
Stock award tax excess windfall benefit
|
|
|
2,862
|
|
|
423
|
|
|
Treasury stock sales
|
|
|
775
|
|
|
890
|
|
|
Other
|
|
|
115
|
|
|
(1,845
|
)
|
|
Cash used in financing activities
|
|
|
(48,565
|
)
|
|
(117,852
|
)
|
| |
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate changes on cash
|
|
|
(7,147
|
)
|
|
5,340
|
|
| |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
123,032
|
|
|
42,757
|
|
| |
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
167,708
|
|
|
178,069
|
|
| |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
290,740
|
|
$
|
220,826
|
|
See accompanying notes to condensed consolidated financial statements.
Roper Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
(in thousands)
| |
|
Common
stock
|
|
Additional paid-in capital
|
|
Retained
earnings
|
|
Accumulated other comprehensive earnings
|
|
Treasury
stock
|
|
Total
|
|
|
Balances at December 31, 2009
|
|
$
|
958
|
|
$
|
982,321
|
|
$
|
1,395,586
|
|
$
|
63,945
|
|
$
|
(21,320
|
)
|
$
|
2,421,490
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
-
|
|
|
-
|
|
|
131,006
|
|
|
-
|
|
|
-
|
|
|
131,006
|
|
|
Stock option exercises
|
|
|
3
|
|
|
8,486
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,489
|
|
|
Treasury stock sold
|
|
|
-
|
|
|
631
|
|
|
-
|
|
|
-
|
|
|
144
|
|
|
775
|
|
|
Currency translation adjustments, net of $827 tax
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(48,268
|
)
|
|
-
|
|
|
(48,268
|
)
|
|
Stock based compensation
|
|
|
-
|
|
|
12,530
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
12,530
|
|
|
Restricted stock grants
|
|
|
2
|
|
|
(3,688
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,686
|
)
|
|
Stock option tax benefit, net of shortfalls
|
|
|
-
|
|
|
2,872
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,872
|
|
|
Conversion of senior subordinated convertible notes
|
|
|
-
|
|
|
137
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
137
|
|
|
Dividends declared
|
|
|
-
|
|
|
-
|
|
|
(17,868
|
)
|
|
-
|
|
|
-
|
|
|
(17,868
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2010
|
|
$
|
963
|
|
$
|
1,003,289
|
|
$
|
1,508,724
|
|
$
|
15,677
|
|
$
|
(21,176
|
)
|
$
|
2,507,477
|
|
See accompanying notes to condensed consolidated financial statements.
Roper Industries, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
June 30, 2010
The accompanying condensed consolidated financial statements for the three and six month periods ended June 30, 2010 and 2009 are unaudited. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the financial position, results of operations and cash flows of Roper Industries, Inc. and its subsidiaries (“Roper” or the “Company”) for all periods presented.
Roper’s management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Actual results could differ from those estimates.
The results of operations for the three and six month periods ended June 30, 2010 are not necessarily indicative of the results to be expected for the full year. You should read these unaudited condensed consolidated financial statements in conjunction with Roper’s consolidated financial statements and the notes thereto included in its 2009 Annual Report on Form 10-K (“Annual Report”) filed on February 26, 2010 with the Securities and Exchange Commission (“SEC”).
|
2.
|
Recent Accounting Pronouncements
|
In October 2009, the Financial Accounting Standards Board issued amendments to the accounting and disclosure rules for revenue recognition. These amendments, effective for fiscal years beginning on or after June 15, 2010 (early adoption is permitted), modify the criteria for recognizing revenue in multiple element arrangements and the scope of what constitutes a non-software deliverable. The Company is currently assessing the impact of these amendments on its results of operations, financial condition and cash flows.
Basic earnings per share were calculated using net earnings and the weighted average number of shares of common stock outstanding during the respective period. Diluted earnings per share were calculated using net earnings and the weighted average number of shares of common stock and potential common stock outstanding during the respective period. Potentially dilutive common stock consisted of stock options and the premium over the conversion price on Roper’s senior subordinated convertible notes based upon the trading price of Roper’s common stock. The effects of potential common stock were determined using the treasury stock method. Weighted average shares outstanding are as shown below (in thousands):
| |
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
| |
|
2010
|
|
2009
|
|
2010
|
|
|
2009
|
|
|
Basic shares outstanding
|
|
94,011 |
|
90,562 |
|
93,911 |
|
|
90,348 |
|
|
Effect of potential common stock:
|
|
|
|
|
|
|
|
|
|
|
|
Common stock awards
|
|
983 |
|
835 |
|
940 |
|
|
815 |
|
|
Senior subordinated convertible notes
|
|
1,455 |
|
1,315 |
|
1,384 |
|
|
1,345 |
|
|
Diluted shares outstanding
|
|
96,449 |
|
92,712 |
|
96,235 |
|
|
92,508 |
|
For the three and six month periods ended June 30, 2010 there were 1,141,000 and 1,574,000 outstanding stock options, respectively, that were not included in the determination of diluted earnings per share because doing so would have been antidilutive; this compares to 2,126,000 and 2,259,000 outstanding stock options, respectively, that would have been antidilutive for the three and six month periods ended June 30, 2009.
|
4.
|
Stock Based Compensation
|
The Roper Industries, Inc. Amended and Restated 2006 Incentive Plan is a stock based compensation plan used to grant incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights or equivalent instruments to Roper’s employees, officers, directors and consultants.
Roper’s stock purchase plan allows employees in the U.S. and Canada to designate up to 10% of eligible earnings to purchase Roper’s common stock at a 5% discount to the average closing price of the stock at the beginning and end of a quarterly offering period. The common stock sold to the employees may be either treasury stock, stock purchased on the open market, or newly issued shares.
The following table provides information regarding our stock based compensation expense (in millions):
| |
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
| |
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Stock based compensation
|
|
$ |
6.1 |
|
|
$ |
7.1 |
|
|
$ |
13.1 |
|
|
$ |
14.1 |
|
|
Tax effect recognized in net income
|
|
|
2.1 |
|
|
|
2.5 |
|
|
|
4.6 |
|
|
|
4.9 |
|
|
Windfall tax benefit/(shortfall), net
|
|
|
1.8 |
|
|
|
0.1 |
|
|
|
2.9 |
|
|
|
(0.4 |
) |
Stock Options - In the six month period ended June 30, 2010, 573,000 options were granted with a weighted average fair value per share of $16.84. During the same period in 2009, 484,000 options were granted with a weighted average fair value per share of $12.34. All options were issued at grant date fair value.
Roper records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. Historical data, among other factors, is used to estimate the expected price volatility, the expected dividend yield, the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The following weighted average assumptions were used to estimate the fair value of options granted during current and prior year periods using the Black-Scholes option-pricing model:
| |
Six months ended June 30,
|
| |
2010
|
|
2009
|
|
Fair value per share ($)
|
16.84
|
|
12.34
|
|
Risk-free interest rate (%)
|
2.36
|
|
1.73
|
|
Expected option life (years)
|
5.38
|
|
5.37
|
|
Expected volatility (%)
|
34.54
|
|
32.05
|
|
Expected dividend yield (%)
|
0.72
|
|
0.79
|
Cash received from option exercises for the six months ended June 30, 2010 and 2009 was approximately $8.5 million and $3.0 million, respectively.
Restricted Stock Awards - During the six months ended June 30, 2010, 250,000 restricted stock awards were granted with a weighted average fair value per share of $52.55. During the same period in 2009, 178,000 awards were granted with a weighted average fair value per share of $41.62. All grants were issued at grant date fair value.
During the six months ended June 30, 2010, 214,000 restricted awards vested with a weighted average grant date fair value per share of $50.38, at a weighted average vest date fair value per share of $55.38.
Employee Stock Purchase Plan - During the six month periods ended June 30, 2010 and 2009, participants of the employee stock purchase plan purchased 15,000 and 21,000 shares, respectively, of Roper’s common stock for total consideration of $0.78 million and $0.93 million, respectively. All shares were purchased from Roper’s treasury shares.
|
5.
|
Comprehensive Earnings
|
Comprehensive earnings include net earnings and all other non-owner sources of changes in net assets and are as follows (in thousands):
| |
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
| |
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net income
|
|
$ |
71,281 |
|
|
$ |
59,588 |
|
|
$ |
131,006 |
|
|
$ |
111,147 |
|
|
Currency translation adjustments
|
|
|
(17,017 |
) |
|
|
44,659 |
|
|
|
(48,268 |
) |
|
|
25,160 |
|
|
Comprehensive earnings
|
|
$ |
54,264 |
|
|
$ |
104,247 |
|
|
$ |
82,738 |
|
|
$ |
136,307 |
|
| |
|
June 30, 2010
|
|
December 31, 2009
|
|
| |
|
(in thousands)
|
|
|
Raw materials and supplies
|
|
$
|
109,992
|
|
$
|
111,546
|
|
|
Work in process
|
|
|
24,734
|
|
|
24,557
|
|
|
Finished products
|
|
|
66,987
|
|
|
71,729
|
|
|
Inventory reserves
|
|
|
(30,770
|
)
|
|
(29,037
|
)
|
| |
|
$
|
170,943
|
|
$
|
178,795
|
|
| |
|
Industrial Technology
|
|
Energy Systems & Controls
|
|
Scientific & Industrial Imaging
|
|
RF Technology
|
|
Total
|
|
| |
|
(in thousands)
|
|
|
Balances at December 31, 2009
|
|
$
|
431,073
|
|
$
|
383,207
|
|
$
|
623,786
|
|
$
|
950,366
|
|
$
|
2,388,432
|
|
|
Additions
|
|
|
-
|
|
|
-
|
|
|
8,593
|
|
|
-
|
|
|
8,593
|
|
|
Other
|
|
|
-
|
|
|
-
|
|
|
(467
|
)
|
|
287
|
|
|
(180
|
)
|
|
Currency translation adjustments
|
|
|
(18,665
|
)
|
|
(5,379
|
)
|
|
(2,034
|
)
|
|
(5,470
|
)
|
|
(31,548
|
)
|
|
Balances at June 30, 2010
|
|
$
|
412,408
|
|
$
|
377,828
|
|
$
|
629,878
|
|
$
|
945,183
|
|
$
|
2,365,297
|
|
Current year additions are related to the acquisition of Heartscape, Inc., in the first quarter of 2010.
|
8.
|
Other intangible assets, net
|
| |
|
Cost
|
|
Accumulated
amortization
|
|
Net book
value
|
|
| |
|
(in thousands)
|
|
|
Assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Customer related intangibles
|
|
$
|
752,913
|
|
$
|
(181,307
|
)
|
$
|
571,606
|
|
|
Unpatented technology
|
|
|
101,578
|
|
|
(33,532
|
)
|
|
68,046
|
|
|
Software
|
|
|
53,408
|
|
|
(30,739
|
)
|
|
22,669
|
|
|
Patents and other protective rights
|
|
|
32,762
|
|
|
(20,187
|
)
|
|
12,575
|
|
|
Backlog
|
|
|
1,920
|
|
|
(1,920
|
)
|
|
-
|
|
|
Trade secrets
|
|
|
2,773
|
|
|
(1,224
|
)
|
|
1,549
|
|
|
Assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
192,455
|
|
|
-
|
|
|
192,455
|
|
|
Balances at December 31, 2009
|
|
$
|
1,137,809
|
|
$
|
(268,909
|
)
|
$
|
868,900
|
|
|
Assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Customer related intangibles
|
|
$
|
746,412
|
|
$
|
(204,439
|
)
|
$
|
541,973
|
|
|
Unpatented technology
|
|
|
106,860
|
|
|
(40,881
|
)
|
|
65,979
|
|
|
Software
|
|
|
53,360
|
|
|
(33,355
|
)
|
|
20,005
|
|
|
Patents and other protective rights
|
|
|
32,563
|
|
|
(21,662
|
)
|
|
10,901
|
|
|
Backlog
|
|
|
1,807
|
|
|
(1,807
|
)
|
|
-
|
|
|
Trade secrets
|
|
|
1,604
|
|
|
(201
|
)
|
|
1,403
|
|
|
Assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
193,333
|
|
|
-
|
|
|
193,333
|
|
|
Balances at June 30, 2010
|
|
$
|
1,135,939
|
|
$
|
(302,345
|
)
|
$
|
833,594
|
|
Amortization expense of other intangible assets was $37,013 and $33,037 during the six months ended June 30, 2010 and 2009, respectively.
Roper’s 3.75% senior subordinated convertible notes due 2034 became convertible on January 15, 2009. During the six month period ended June 30, 2010, 7,330 notes were converted for $3.0 million in cash and 35,000 shares of common stock at a weighted average share price of $54.21. No gain or loss was recorded upon these conversions. In addition, a related $0.1 million deferred tax liability associated with excess deductions recorded for tax purposes was relieved to additional paid in capital upon the conversions.
At June 30, 2010, the conversion price on the outstanding notes was $416.96. If converted at June 30, 2010, the value would exceed the $110 million principal amount of the notes by approximately $77 million and would result in the issuance of 1,346,000 shares of Roper’s common stock.
|
10.
|
Fair Value of Financial Instruments
|
Roper’s long-term debt at June 30, 2010 included $500 million of fixed-rate senior notes due 2019, with a fair value of approximately $550 million, and $500 million of fixed-rate senior notes due 2013, with a fair value of approximately $560 million, based on the trading prices of the notes. Short-term debt included $110 million of fixed-rate convertible notes which were at fair value due to the short term nature of the debt.
The Company manages interest rate risk by maintaining a combination of fixed and variable rate debt, which may include interest rate swaps to convert fixed rate debt to variable rate debt, or to convert variable rate debt to fixed rate debt. At June 30, 2010 an aggregate notional amount of $500 million in interest rate swaps designated as fair value hedges effectively changed our $500 million senior notes due 2013 with a fixed interest rate of 6.625% to a variable rate obligation at a weighted average spread of 4.377% plus the London Interbank Offered Rate (“LIBOR”).
The swaps are recorded at fair value in the balance sheet as an asset or liability, and the changes in fair value of both the interest rate swap and the hedged senior notes due 2013 are recorded as interest expense. At June 30, 2010 the fair value of the swap was an asset balance of $12.31 million, with a corresponding increase of $12.38 million in the notes being hedged. The impact on earnings for the six months ended June 30, 2010 was immaterial. The Company has determined the swaps to be Level 2 in the FASB fair value hierarchy, and uses inputs other than quoted prices that are observable for the asset or liability, including interest rates, yield curves and credit risks in order to value the instruments.
Roper, in the ordinary course of business, is the subject of, or a party to, various pending or threatened legal actions, including those pertaining to product liability and employment practices. It is vigorously contesting all lawsuits that, in general, are based upon claims of the kind that have been customary over the past several years. After analyzing the Company’s contingent liabilities on a gross basis and, based upon past experience with resolution of its product liability and employment practices claims and the limits of the primary, excess, and umbrella liability insurance coverages that are available with respect to pending claims, management believes that adequate provision has been made to cover any potential liability not covered by insurance, and that the ultimate liability, if any, arising from these actions should not have a material adverse effect on Roper’s consolidated financial position, results of operations or cash flows.
Over recent years there has been an increase in certain U.S. states in asbestos-related litigation claims against numerous industrial companies. Roper or its subsidiaries have been named defendants in some such cases. No significant resources have been required by Roper to respond to these cases and the Company believes it has valid defenses to such claims and, if required, intends to defend them vigorously. Given the state of these claims it is not possible to determine the potential liability, if any.
Roper’s financial statements include accruals for potential product liability and warranty claims based on its claims experience. Such costs are accrued at the time revenue is recognized. A summary of the warranty accrual activity for the six months ended June 30, 2010 is presented below (in thousands).
|
Balance at December 31, 2009
|
|
$
|
7,341
|
|
|
Additions charged to costs and expenses
|
|
|
3,297
|
|
|
Deductions
|
|
|
(3,235
|
)
|
|
Other
|
|
|
(146
|
)
|
|
Balance at June 30, 2010
|
|
$
|
7,257
|
|
Sales and operating profit by industry segment are set forth in the following table (dollars in thousands):
| |
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
| |
|
2010
|
|
2009
|
|
Change
|
|
2010
|
|
2009
|
|
Change
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Technology
|
|
$
|
145,490
|
|
$
|
136,551
|
|
6.5
|
%
|
$
|
280,802
|
|
$
|
267,192
|
|
5.1
|
%
|
|
Energy Systems & Controls
|
|
|
119,387
|
|
|
105,398
|
|
13.3
|
|
|
225,065
|
|
|
212,009
|
|
6.2
|
|
|
Scientific & Industrial Imaging
|
|
|
128,514
|
|
|
75,860
|
|
69.4
|
|
|
258,758
|
|
|
159,980
|
|
61.7
|
|
|
RF Technology
|
|
|
173,713
|
|
|
187,101
|
|
(7.2
|
)
|
|
336,920
|
|
|
371,173
|
|
(9.2
|
)
|
|
Total
|
|
$
|
567,104
|
|
$
|
504,910
|
|
12.3
|
%
|
$
|
1,101,545
|
|
$
|
1,010,354
|
|
9.0
|
%
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Technology
|
|
$
|
73,930
|
|
$
|
65,732
|
|
12.5
|
%
|
$
|
141,442
|
|
$
|
128,441
|
|
10.1
|
%
|
|
Energy Systems & Controls
|
|
|
64,803
|
|
|
56,296
|
|
15.1
|
|
|
118,294
|
|
|
111,659
|
|
5.9
|
|
|
Scientific & Industrial Imaging
|
|
|
78,307
|
|
|
42,466
|
|
84.4
|
|
|
155,817
|
|
|
88,216
|
|
76.6
|
|
|
RF Technology
|
|
|
84,907
|
|
|
90,576
|
|
(6.3
|
)
|
|
165,959
|
|
|
177,890
|
|
(6.7
|
)
|
|
Total
|
|
$
|
301,947
|
|
$
|
255,070
|
|
18.4
|
%
|
$
|
581,512
|
|
$
|
506,206
|
|
14.9
|
%
|
|
Operating profit*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Technology
|
|
$
|
38,742
|
|
$
|
32,484
|
|
19.3
|
%
|
$
|
70,508
|
|
$
|
61,067
|
|
15.5
|
%
|
|
Energy Systems & Controls
|
|
|
29,072
|
|
|
23,193
|
|
25.3
|
|
|
47,995
|
|
|
40,712
|
|
17.9
|
|
|
Scientific & Industrial Imaging
|
|
|
27,796
|
|
|
12,401
|
|
124.1
|
|
|
57,130
|
|
|
28,482
|
|
100.6
|
|
|
RF Technology
|
|
|
34,704
|
|
|
39,423
|
|
(12.0
|
)
|
|
66,905
|
|
|
76,806
|
|
(12.9
|
)
|
|
Total
|
|
$
|
130,314
|
|
$
|
107,501
|
|
21.2
|
%
|
$
|
242,538
|
|
$
|
207,067
|
|
17.1
|
%
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Technology
|
|
$
|
41,033
|
|
$
|
43,205
|
|
(5.0
|
)%
|
|
|
|
|
|
|
|
|
|
Energy Systems & Controls
|
|
|
19,311
|
|
|
24,388
|
|
(20.8
|
)
|
|
|
|
|
|
|
|
|
|
Scientific & Industrial Imaging
|
|
|
35,670
|
|
|
25,544
|
|
39.6
|
|
|
|
|
|
|
|
|
|
|
RF Technology
|
|
|
31,154
|
|
|
33,511
|
|
(7.0
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
127,168
|
|
$
|
126,648
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
*Segment operating profit is calculated as income from operations before unallocated corporate general and administrative expenses. These expenses were $11,127 and $11,537 for the three months ended June 30, 2010 and 2009, respectively, and $22,635 and $24,311 for the six months ended June 30, 2010 and 2009, respectively.
On July 27, 2010, Roper acquired iTradeNetwork, Inc., a global provider of software as a service (“SaaS”)-based trading network and business intelligence solutions to the food industry, in a $525 million all-cash transaction.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This report includes “forward-looking statements” within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the SEC or in oral statements made to the press, potential investors or others. All statements that are not historical facts are “forward-looking statements.” The words “estimate,” “project,” “intend,” “expect,” “should,” “will,” “plan,” “believe,” “anticipate,” and similar expressions identify forward-looking statements. These forward-looking statements include statements regarding our expected financial position, business, financing plans, business strategy, business prospects, revenues, working capital, liquidity, capital needs, interest costs and income, in each case relating to our company as a whole, as well as statements regarding acquisitions, potential acquisitions and the benefits of acquisitions.
Forward-looking statements are estimates and projections reflecting our best judgment and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Examples of forward-looking statements in this report include but are not limited to our expectations regarding our ability to generate operating cash flows and reduce debt and associated interest expense and our expectations regarding growth through acquisitions. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, timing and success of product upgrades and new product introductions, raw materials costs, expected pricing levels, the timing and cost of expected capital expenditures, expected outcomes of pending litigation, competitive conditions, general economic conditions and expected synergies relating to acquisitions, joint ventures and alliances. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include:
|
|
·
|
general economic conditions;
|
|
|
·
|
difficulty making acquisitions and successfully integrating acquired businesses;
|
|
|
·
|
any unforeseen liabilities associated with future acquisitions;
|
|
|
·
|
limitations on our business imposed by our indebtedness;
|
|
|
·
|
unfavorable changes in foreign exchange rates;
|
|
|
·
|
difficulties associated with exports;
|
|
|
·
|
risks and costs associated with our international sales and operations;
|
|
|
·
|
increased directors’ and officers’ liability and other insurance costs;
|
|
|
·
|
risk of rising interest rates;
|
|
|
·
|
product liability and insurance risks;
|
|
|
·
|
increased warranty exposure;
|
|
|
·
|
the cyclical nature of some of our markets;
|
|
|
·
|
reduction of business with large customers;
|
|
|
·
|
risks associated with government contracts;
|
|
|
·
|
changes in the supply of, or price for, parts and components;
|
|
|
·
|
environmental compliance costs and liabilities;
|
|
|
·
|
risks and costs associated with asbestos-related litigation;
|
|
|
·
|
potential write-offs of our substantial intangible assets;
|
|
|
·
|
our ability to successfully develop new products;
|
|
|
·
|
failure to protect our intellectual property;
|
|
|
·
|
economic disruption caused by terrorist attacks, health crises or other unforeseen events; and
|
|
|
·
|
the factors discussed in other reports filed with the SEC.
|
We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update any of these statements in light of new information or future events.
Overview
Roper Industries, Inc. (“Roper,” “we” or “us”) is a diversified growth company that designs, manufactures and distributes energy systems and controls, scientific and industrial imaging products and software, industrial technology products and radio frequency (“RF”) products and services. We market these products and services to selected segments of a broad range of markets, including RF applications, medical, water, energy, research, education, security and other niche markets.
We pursue consistent and sustainable growth in sales and earnings by emphasizing continuous improvement in the operating performance of our existing businesses and by acquiring other carefully selected businesses that offer high value-added, engineered products and solutions and are capable of achieving growth and maintaining high margins. Our acquisitions have represented both financial bolt-ons and new strategic platforms. We strive for high cash and earnings returns from our investments.
Application of Critical Accounting Policies
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). A discussion of our significant accounting policies can be found in the notes to our consolidated financial statements for the year ended December 31, 2009 included in our Annual Report.
GAAP offers acceptable alternative methods for accounting for certain issues affecting our financial results, such as determining inventory cost, depreciating long-lived assets and recognizing revenue. We have not changed the application of acceptable accounting methods or the significant estimates affecting the application of these principles in the last three years in a manner that had a material effect on our financial statements.
The preparation of financial statements in accordance with GAAP requires the use of estimates, assumptions, judgments and interpretations that can affect the reported amounts of assets, liabilities, revenues and expenses, the disclosure of contingent assets and liabilities and other supplemental disclosures.
The development of accounting estimates is the responsibility of our management. Our management discusses those areas that require significant judgments with the audit committee of our board of directors. The audit committee reviews all financial disclosures to be included in our filings with the SEC. Although we believe the positions we have taken with regard to uncertainties are reasonable, others might reach different conclusions and our positions can change over time as more information becomes available. If an accounting estimate changes, its effects are accounted for prospectively or through a cumulative catch-up adjustment.
Our most significant accounting uncertainties are encountered in the areas of accounts receivable collectibility, inventory valuation and utilization, future warranty obligations, revenue recognition (percentage of completion), income taxes and goodwill and indefinite-lived asset analyses. These issues, except for income taxes (which are not allocated to our business segments), affect each of our business segments. These issues are evaluated primarily using a combination of historical experience, current conditions and relatively short-term forecasting.
Accounts receivable collectibility is based on the economic circumstances of customers and credits given to customers after shipment of products, including in certain cases, credits for returned products. Accounts receivable are regularly reviewed to determine customers who have not paid within agreed upon terms, whether these amounts are consistent with past experiences, what historical experience has been with amounts deemed uncollectible and the impact that current and near-term forecast economic conditions might have on collection efforts in general and with specific customers. The returns and other sales credit allowance is an estimate of customer returns, exchanges, discounts or other forms of anticipated concessions and is treated as a reduction in revenue. The returns and other sales credit histories are analyzed to determine likely future rates for such credits. At June 30, 2010, our allowance for doubtful accounts receivable, sales returns and sales credits was $10.5 million, or 2.9% of total gross accounts receivable as compared to 2.8% at December 31, 2009.
We regularly compare inventory quantities on hand against anticipated future usage, which we determine as a function of historical usage or forecasts related to specific items in order to evaluate obsolescence and excessive quantities. When we use historical usage, this information is also qualitatively compared to business trends to evaluate the reasonableness of using historical information as an estimate of future usage. Business trends can change rapidly and these events can affect the evaluation of inventory balances. At June 30, 2010, inventory reserves for excess and obsolete inventory were $30.8 million, or 15.3% of gross inventory cost, as compared to 14.0% of gross inventory cost at December 31, 2009.
Most of our sales are covered by warranty provisions that generally provide for the repair or replacement of qualifying defective items for a specified period after the time of sale, typically 12 months. Future warranty obligations are evaluated using, among other factors, historical cost experience, product evolution and customer feedback. At June 30, 2010, the accrual for future warranty obligations was $7.3 million, or 0.3% of annualized second quarter sales and is consistent with prior quarters.
Revenues related to the use of the percentage-of-completion method of accounting are dependent on a comparison of total costs incurred to date to total estimated costs for a project. During the six months ended June 30, 2010, we recognized $58.2 million of net sales using this method. In addition, approximately $182.5 million of net sales related to unfinished percentage-of-completion contracts had yet to be recognized at June 30, 2010. Contracts accounted for under this method are generally not significantly different in profitability from revenues accounted for under other methods.
Income taxes can be affected by estimates of whether, and within which jurisdictions, future earnings will occur and if, how and when cash is repatriated to the United States, combined with other aspects of an overall income tax strategy. Additionally, taxing jurisdictions could retroactively disagree with our tax treatment of certain items, and some historical transactions have income tax effects going forward. Accounting rules require these future effects to be evaluated using current laws, rules and regulations, each of which can change at any time and in an unpredictable manner. Our second quarter effective income tax rate was 29.6%, 60 basis points lower than the prior year rate of 30.2%.
The evaluation of the carrying value of goodwill and indefinite-lived intangibles is required to be performed annually. We perform this analysis during our fourth quarter.
Results of Operations
The following tables set forth selected information for the periods indicated. Dollar amounts are in thousands and percentages are the particular line item shown as a percentage of net sales. Percentages may not foot due to rounding.
| |
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
| |
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Technology
|
|
$
|
145,490
|
|
$
|
136,551
|
|
$
|
280,802
|
|
$
|
267,192
|
|
|
Energy Systems & Controls
|
|
|
119,387
|
|
|
105,398
|
|
|
225,065
|
|
|
212,009
|
|
|
Scientific & Industrial Imaging
|
|
|
128,514
|
|
|
75,860
|
|
|
258,758
|
|
|
159,980
|
|
|
RF Technology
|
|
|
173,713
|
|
|
187,101
|
|
|
336,920
|
|
|
371,173
|
|
|
Total
|
|
$
|
567,104
|
|
$
|
504,910
|
|
$
|
1,101,545
|
|
$
|
1,010,354
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Technology
|
|
|
50.8
|
%
|
|
48.1
|
%
|
|
50.4
|
%
|
|
48.1
|
%
|
|
Energy Systems & Controls
|
|
|
54.3
|
|
|
53.4
|
|
|
52.6
|
|
|
52.7
|
|
|
Scientific & Industrial Imaging
|
|
|
60.9
|
|
|
56.0
|
|
|
60.2
|
|
|
55.1
|
|
|
RF Technology
|
|
|
48.9
|
|
|
48.4
|
|
|
49.3
|
|
|
47.9
|
|
|
Total
|
|
|
53.2
|
|
|
50.5
|
|
|
52.8
|
|
|
50.1
|
|
|
Selling, general & administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Technology
|
|
|
24.2
|
%
|
|
24.3
|
%
|
|
25.3
|
%
|
|
25.2
|
%
|
|
Energy Systems & Controls
|
|
|
29.9
|
|
|
31.4
|
|
|
31.2
|
|
|
33.5
|
|
|
Scientific & Industrial Imaging
|
|
|
39.3
|
|
|
39.6
|
|
|
38.1
|
|
|
37.3
|
|
|
RF Technology
|
|
|
28.9
|
|
|
27.3
|
|
|
29.4
|
|
|
27.2
|
|
|
Total
|
|
|
30.3
|
|
|
29.2
|
|
|
30.8
|
|
|
29.6
|
|
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Technology
|
|
|
26.6
|
%
|
|
23.8
|
%
|
|
25.1
|
%
|
|
22.9
|
%
|
|
Energy Systems & Controls
|
|
|
24.4
|
|
|
22.0
|
|
|
21.3
|
|
|
19.2
|
|
|
Scientific & Industrial Imaging
|
|
|
21.6
|
|
|
16.3
|
|
|
22.1
|
|
|
17.8
|
|
|
RF Technology
|
|
|
20.0
|
|
|
21.1
|
|
|
19.9
|
|
|
20.7
|
|
|
Total
|
|
|
23.0
|
|
|
21.3
|
|
|
22.0
|
|
|
20.5
|
|
|
Corporate administrative expenses
|
|
|
(2.0
|
)
|
|
(2.3
|
)
|
|
(2.1
|
)
|
|
(2.4
|
)
|
| |
|
|
21.0
|
|
|
19.0
|
|
|
19.9
|
|
|
18.1
|
|
|
Interest expense
|
|
|
(2.8
|
)
|
|
(2.7
|
)
|
|
(2.9
|
)
|
|
(2.7
|
)
|
|
Other income/(expense)
|
|
|
(0.3
|
)
|
|
0.6
|
|
|
(0.1
|
)
|
|
0.3
|
|
|
Earnings before income taxes
|
|
|
17.9
|
|
|
16.9
|
|
|
16.9
|
|
|
15.7
|
|
|
Income taxes
|
|
|
(5.3
|
)
|
|
(5.1
|
)
|
|
(5.0
|
)
|
|
(4.7
|
)
|
|
Net earnings
|
|
|
12.6
|
%
|
|
11.8
|
%
|
|
11.9
|
%
|
|
11.0
|
%
|
Three months ended June 30, 2010 compared to three months ended June 30, 2009
Net sales for the quarter ended June 30, 2010 were $567.1 million as compared to $504.9 million in the prior year quarter, an increase of 12.3%. The current year quarter results included $36.4 million, or a 7.2% increase, in sales from 2009 acquisitions. We experienced a 5.1% increase in organic growth.
In our Industrial Technology segment, net sales were up 6.5% to $145.5 million in the second quarter of 2010 as compared to $136.6 million in the second quarter of 2009. The increase was due primarily to sales growth in our materials testing businesses as customer manufacturing facilities which had experienced slowdowns or temporary shutdowns in 2009 came back on line or increased production. In addition, more normal buying patterns resumed for our water meter business. Gross margins increased to 50.8% for the second quarter of 2010 as compared to 48.1% in the second quarter of 2009 due to operating leverage from higher sales volume. Selling, general and administrative (“SG&A”) expenses as a percentage of net sales were relatively unchanged from 24.3% in the prior year quarter to 24.2% in the current year quarter. The resulting operating profit margins were 26.6% in the second quarter of 2010 as compared to 23.8% in the second quarter of 2009.
Net sales in our Energy Systems & Controls segment increased by 13.3% to $119.4 million during the second quarter of 2010 compared to $105.4 million in the second quarter of 2009. The increase in sales was due to increased orders in industrial process end markets and growth in our diesel engine protection products. Gross margins increased to 54.3% in the second quarter of 2010 compared to 53.4% in the second quarter of 2009 due to operating leverage on higher sales volume. SG&A expenses as a percentage of net sales were 29.9% compared to 31.4% in the prior year quarter due to lower cost levels resulting from the prior year restructuring activities. As a result, operating margins were 24.4% in the second quarter of 2010 as compared to 22.0% in the second quarter of 2009.
Our Scientific & Industrial Imaging segment net sales increased by 69.4% to $128.5 million in the second quarter of 2010 compared to $75.9 million in the second quarter of 2009. Acquisitions completed in 2009 added 49.6%, with 18.8% resulting from organic growth, primarily from increased sales in our camera businesses, as well as a positive 1% impact from foreign currency. Gross margins increased to 60.9% in the second quarter of 2010 from 56.0% in the second quarter of 2009 due primarily to operating leverage on higher sales volume and higher gross margin contributions from 2009 acquisitions. SG&A as a percentage of net sales was 39.3% in the second quarter of 2010 as compared to 39.6% in the second quarter of 2009 due to higher SG&A expenses for 2009 acquisitions offset partially by operating leverage on higher sales volume. As a result, operating margins were 21.6% in the second quarter of 2010 as compared to 16.3% in the second quarter of 2009.
In our RF Technology segment, net sales were $173.7 million in the second quarter of 2010 as compared to $187.1 million in the second quarter of 2009, a decrease of 7.2%, due to lower tolling project activity in the current year. Gross margins increased to 48.9% as compared to 48.4% in the prior year quarter due to a more favorable mix in tolling and traffic management products and services. SG&A as a percentage of sales in the second quarter of 2010 was 28.9% up from 27.3% in the prior year due to negative operating leverage on lower sales volume and poor margin performance in our wireless security business. As a result, operating profit margins were 20.0% as compared to 21.1% in 2009.
Corporate expenses were $11.1 million, or 2.0% of sales, in the second quarter of 2010 as compared to $11.5 million, or 2.3% of sales, in the second quarter of 2009.
Interest expense of $16.3 million for the second quarter of 2010 was $2.5 million higher than the second quarter of 2009, despite lower outstanding debt balances. The increase in interest expense is due to the higher fixed rate of our senior notes due 2013 issued in September 2009 as compared to the variable rate borrowings under the credit facility that were outstanding in the second quarter of 2009.
Other expense in the second quarter of 2010 was $1.7 million, due primarily to foreign exchange losses at our non-U.S. based companies, compared to other income of $3.2 million in the second quarter of 2009 due primarily to a pre-tax gain related to the sale of certain assets of our satellite communications business, offset partially by foreign exchange losses at our non-U.S. based companies.
Income taxes were 29.6% of pretax earnings in the current quarter, 60 basis points lower than the prior year rate of 30.2%.
At June 30, 2010, the functional currencies of our European subsidiaries were weaker, and that of our Canadian subsidiaries stronger, against the U.S. dollar compared to currency exchange rates at June 30, 2009 and December 31, 2009. The currency changes resulted in a decrease of $18.7 million in the foreign exchange component of comprehensive earnings for the current year quarter. Approximately $11.8 million of the total adjustment is related to goodwill and does not directly affect our expected future cash flows. Operating results in the second quarter of 2010 decreased slightly due to the fluctuation of other currencies against the U.S. dollar as compared to a year ago. The difference between the operating results for these companies for the second quarter of 2010 compared to the prior year quarter, translated into U.S. dollars, was less than 1%.
Net orders were $619.3 million for the quarter, 26.7% higher than the second quarter 2009 net order intake of $488.8 million. Orders increased across all of our segments as the economic recovery strengthened throughout the second quarter of 2010. Acquisitions made in 2009 contributed 8% to the current quarter orders. Overall, our order backlog at June 30, 2010 was up 19.2% as compared to June 30, 2009.
| |
|
Net orders booked for the three months ended June 30,
|
|
Order backlog as of June 30
|
|
| |
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
Industrial Technology
|
|
$
|
164,685
|
|
$
|
125,880
|
|
$
|
88,153
|
|
$
|
57,276
|
|
|
Energy Systems & Controls
|
|
|
126,960
|
|
|
96,144
|
|
|
85,219
|
|
|
66,381
|
|
|
Scientific & Industrial Imaging
|
|
|
135,265
|
|
|
74,505
|
|
|
80,032
|
|
|
69,272
|
|
|
RF Technology
|
|
|
192,419
|
|
|
192,225
|
|
|
388,483
|
|
|
345,638
|
|
| |
|
$
|
619,329
|
|
$
|
488,754
|
|
$
|
641,887
|
|
$
|
538,567
|
|
Six months ended June 30, 2010 compared to six months ended June 30, 2009
Net sales for the six months ended June 30, 2010 were $1.1 billion as compared to $1.0 billion in the prior year six month period, an increase of 9.0%. The increase is comprised of a 1% increase in organic sales, an increase of 6.9% from acquisitions, and a positive 1.1% impact from foreign currency.
In our Industrial Technology segment, net sales increased by 5.1% to $280.8 million in the first six months of 2010 as compared to $267.2 million in the first six months of 2009. The increase was due primarily to sales growth in our materials testing businesses as customer manufacturing facilities which had experienced slowdowns or temporary shutdowns in 2009 came back on line or increased production. Gross margins were increased to 50.4% for the first six months of 2010 as compared to 48.1% in the first six months of 2009 due to operating leverage from higher sales volume. SG&A expenses as a percentage of net sales were 25.3%, up slightly from 25.2% in the prior year six month period, due to a 0.5% impact related to the resolution of a long-standing customer issue in the first quarter of 2010. The resulting operating profit margins were 25.1% in the first six months of 2010 as compared to 22.9% in the first six months of 2009.
Net sales in our Energy Systems & Controls segment increased by 6.2% to $225.1 million during the first six months of 2010 compared to $212.0 million in the first six months of 2009. The increase in sales was due to a rebound in industrial process end markets, offset partially by a decline in orders in our control valve and vibration testing businesses. Gross margins were 52.6% in the first six months of 2010, relatively unchanged from 52.7% in the first six months of 2009. SG&A expenses as a percentage of net sales were 31.2% as compared to 33.5% in the prior year six month period due to lower cost levels resulting from the prior year restructuring activities. Operating margins were 21.3% in the first six months of 2010 as compared to 19.2% in first six months of 2009.
In our Scientific & Industrial Imaging segment net sales increased 61.7% to $258.8 million in the first six months of 2010 as compared to $160.0 million in the first six months of 2009. Acquisitions completed in 2009 added 45.9%, with 13.7% resulting from organic growth, primarily from increased sales in our camera businesses, as well as a positive 2.1% impact from foreign currency. Gross margins increased to 60.2% in the first six months of 2010 from 55.1% in the first six months of 2009, due primarily to operating leverage on higher sales volume and higher gross margin contributions from 2009 acquisitions. SG&A as a percentage of net sales increased to 38.1% in the six month period ended June 30, 2010 as compared to 37.3% in the prior year period due to higher SG&A expenses for 2009 acquisitions offset partially by operating leverage on higher sales volume. Operating margins were 22.1% in the first six months of 2010 as compared to 17.8% in the first six months of 2009.
In our RF Technology segment, net sales were $336.9 million compared to $371.2 million in the first six months of 2009, a decrease of 9.2%, due to lower violation and traffic volumes and lower project activity in the current year. Gross margins were 49.3% as compared to 47.9% in the prior year six month period due to product mix in our transportation businesses. SG&A as a percentage of sales in the first six months of 2010 was 29.4%, an increase from 27.2% in the prior year due to negative operating leverage on lower sales volume. Operating profit margins were 19.9% in 2010 as compared to 20.7% in 2009.
Corporate expenses decreased by $1.7 million to $22.6 million, or 2.1% of sales, in the first half of 2010 as compared to $24.3 million, or 2.4% of sales, in the first half of 2009.
Interest expense of $32.5 million for the first half of 2010 was $5.2 million higher as compared to $27.3 million in the first half of 2009, despite lower outstanding debt balances. The increase in interest expense is due to the higher fixed rate of our senior notes due 2013 issued in September 2009 as compared to the variable rate borrowings under the credit facility that were outstanding in the first half of 2009.
Other expense in the first half of 2010 was $1.2 million, due primarily to foreign exchange losses at our non-U.S. based companies, compared to other income of $2.8 million in the first half of 2009 due primarily to a pre-tax gain related to the sale of certain assets of our satellite communications business, offset partially by foreign exchange losses at our non-U.S. based companies.
Income taxes were 29.7% of pretax earnings in the first six months of 2010, and were relatively unchanged from 29.8% in the first six months of 2009.
Financial Condition, Liquidity and Capital Resources
Selected cash flows for the three and month periods ended June 30, 2010 and 2009 were as follows (in millions):
| |
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
| |
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Cash provided by/(used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
110.3 |
|
|
$ |
110.3 |
|
|
$ |
205.4 |
|
|
$ |
160.9 |
|
|
Investing activities
|
|
|
(8.0 |
) |
|
|
1.3 |
|
|
|
(26.6 |
) |
|
|
(5.6 |
) |
|
Financing activities
|
|
|
(0.5 |
) |
|
|
(77.0 |
) |
|
|
(48.6 |
) |
|
|
(117.9 |
) |
Operating activities - Net cash provided by operating activities in the second quarter of 2010 was $110.3 million, and was unchanged from the prior year second quarter as higher net income and the timing of interest payments in the current year were offset by slower customer payments on long-term projects. In the six month period ending June 30, 2010, operating cash flow increased by $44.5 million, or 27.7% over the prior year six month period, due to higher net income, and lower income tax payments.
Investing activities - Cash used in investing activities during the second quarter of 2010 was primarily capital expenditures. Cash provided by investing activities during the second quarter of 2009 was from proceeds from the sale of assets, offset by capital expenditures. Cash used in investing activities in the six months ended June 30, 2010 was for business acquisitions and capital expenditures. Cash used in investing activities in the six months ended June 30, 2009 was for capital expenditures, offset partially by proceeds from the sale of assets.
Financing activities - Cash used in financing activities in the second quarter of 2010 was for dividends, offset partially by stock option proceeds, and in the second quarter of 2009, primarily for principal debt payments and dividends. Cash used in financing activities in the six month periods ended June 30, 2010 and 2009 was for principal debt payments and dividends.
Total debt at June 30, 2010 consisted of the following (amounts in thousands):
|
Senior Notes due 2013*
|
$
|
512,380
|
|
|
Senior Notes due 2019
|
|
500,000
|
|
|
Senior Subordinated Convertible Notes
|
|
109,579
|
|
|
Other
|
|
6,469
|
|
|
Total debt
|
|
1,128,428
|
|
|
Less current portion
|
|
112,028
|
|
|
Long-term debt
|
$
|
1,016,400
|
|
|
|
*Shown net of fair value swap adjustment of $12.4 million.
|
Our principal unsecured credit facility, $500 million senior notes due 2013, $500 million senior notes due 2019 and senior subordinated convertible notes provide substantially all of our daily external financing requirements. The interest rate on the borrowings under the credit facility is calculated based upon various recognized indices plus a margin as defined in the credit agreement. At June 30, 2010, there were no outstanding borrowings under the facility. At June 30, 2010, we had $6.5 million of other debt in the form of capital leases, several smaller facilities that allow for borrowings or the issuance of letters of credit in various foreign locations to support our non-U.S. businesses and $53 million of outstanding letters of credit. We expect that our available additional borrowing capacity combined with the cash flows expected to be generated from existing business will be sufficient to fund normal operating requirements.
We were in compliance with all debt covenants related to our credit facilities throughout the six months ended June 30, 2010.
Net working capital (total current assets, excluding cash, less total current liabilities, excluding debt) was $332.6 million at June 30, 2010 compared to $337.8 million at December 31, 2009, reflecting decreases in working capital due primarily to the timing of the payment of accrued liabilities related to interest and compensation. Total debt decreased to $1.13 billion at June 30, 2010 compared to $1.15 billion at December 31, 2009 due to the use of operating cash flows to reduce outstanding debt. Our leverage is shown in the following table:
| |
|
June 30, 2010
|
|
|
|
December 31, 2009
|
|
|
Total Debt
|
|
$
|
1,128,428
|
|
|
|
$
|
1,153,758
|
|
|
Cash
|
|
|
(290,740
|
)
|
|
|
|
(167,708
|
)
|
|
Net Debt
|
|
|
837,688
|
|
|
|
|
986,050
|
|
|
Stockholders’ Equity
|
|
|
2,507,477
|
|
|
|
|
2,421,490
|
|
|
Total Net Capital
|
|
$
|
3,345,165
|
|
|
|
$
|
3,407,540
|
|
| |
|
|
|
|
|
|
|
|
|
|
Net Debt / Total Net Capital
|
|
|
25.0%
|
|
|
|
|
28.9%
|
|
At June 30, 2010, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Capital expenditures of $14.1 million and $12.4 million were incurred during the six months ended June 30, 2010 and 2009, respectively. We expect capital expenditures for the balance of the year to be comparable to prior years as a percentage of sales.
Recently Issued Accounting Standards
Information regarding new accounting pronouncements is included in Note 2 of the Notes to Condensed Consolidated Financial Statements.
Outlook
Current geopolitical uncertainties could adversely affect our business prospects. A significant terrorist attack or other global conflict could cause changes in world economies that would adversely affect us. It is impossible to isolate each of these factor’s effects on current economic conditions. It is also impossible to predict with any reasonable degree of certainty what or when any additional events may occur that also will similarly disrupt the economy.
We maintain an active acquisition program; however, future acquisitions will be dependent on numerous factors and it is not feasible to reasonably estimate if or when any such acquisitions will occur and what the impact will be on our business, financial condition and results of operations. Such acquisitions may be financed by the use of existing credit lines, future cash flows from operations, the proceeds from the issuance of new debt or equity securities or some combination of these methods.
We anticipate that our recently acquired companies as well as our other companies will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of currently outstanding debt at a pace consistent with that which has historically been experienced. However, the rate at which we can reduce our debt during 2010 (and reduce the associated interest expense) will be affected by, among other things, the financing and operating requirements of any new acquisitions and the financial performance of our existing companies; and none of these factors can be predicted with certainty.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate risks on our outstanding borrowings, and to foreign currency exchange risks on our transactions denominated in currencies other than the U.S. dollar. We are also exposed to equity market risks pertaining to the traded price of our common stock.
The Company manages interest rate risk by maintaining a combination of fixed and variable rate debt, which may include interest rate swaps to convert fixed rate debt to variable rate debt, or to convert variable rate debt to fixed rate debt. At June 30, 2010 an aggregate notional amount of $500 million in interest rate swaps effectively converted our $500 million senior notes due 2013 with a fixed interest rate of 6.625% to a variable rate obligation at a weighted average spread of 4.377% plus LIBOR. An increase in interest rates of 1% would increase our annualized pre-tax interest costs by approximately $5.0 million.
At June 30, 2010, we had $610 million of fixed rate borrowings. Our $500 million senior notes due 2019 have a fixed interest rate of 6.25%, and our senior unsecured convertible notes due 2034 have a fixed interest rate of 3.75%. At June 30, 2010, the prevailing market rates for long term notes similarly rated to our $500 million senior notes due 2013 and $500 million senior notes due 2019 were 0.6% to 0.2% lower, respectively, than the fixed rates on our senior notes. At June 30, 2010, we had no outstanding variable-rate borrowings under the unsecured credit facility.
Several of our companies have transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in Euros, Canadian dollars, British pounds, or Danish krone. Sales by companies whose functional currency was not the U.S. dollar were 23.4% of our total second quarter sales and 61.8% of these sales were by companies with a European functional currency. The U.S. dollar strengthened against most European currencies and weakened against the Canadian dollar during the second quarter of 2010 versus the second quarter of 2009. The difference between the current quarter operating results for these companies translated into U.S. dollars at exchange rates experienced during the second quarter of 2010 versus exchange rates experienced during the second quarter of 2009 was not material and resulted in decreased operating profits of less than 1%. If these currency exchange rates had been 10% different throughout the second quarter of 2010 compared to currency exchange rates actually experienced, the impact on our net earnings would have been approximately $1.7 million.
The U.S. dollar was stronger against most European currencies and weaker against the Canadian dollar at June 30, 2010 versus December 31, 2009. The changes in these currency exchange rates resulted in a decrease in net assets of $49.1 million that was reported as a component of comprehensive earnings, $31.5 million of which was attributed to goodwill. Goodwill changes from currency exchange rate changes do not directly affect our reported earnings or cash flows.
The trading price of our common stock influences the valuation of stock option grants and the effects these grants have on net income. The stock price also influences the computation of potentially dilutive common stock which includes both stock awards and the premium over the conversion price on our senior subordinated convertible notes to determine diluted earnings per share. The stock price also affects our employees’ perceptions of various programs that involve our common stock. We believe the quantification of the effects of these changing prices on our future earnings and cash flows is not readily determinable.
ITEM 4. CONTROLS AND PROCEDURES
As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report (“Evaluation Date”). This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation as of the Evaluation Date, these officers have concluded that the design and operation of our disclosure controls and procedures are effective.
Disclosure controls and procedures are our controls and other procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes to our internal controls during the period covered by this quarterly report that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Part II. OTHER INFORMATION
Item 1A. Risk Factors
For information regarding factors that could affect our results of operations, financial condition and liquidity, see the risk factors discussion in Item 1A of Roper’s Annual Report for the fiscal year ended December 31, 2009 as filed on February 26, 2010 with the SEC. See also the information about forward-looking statements included in the introduction to our Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this Quarterly Report on Form 10-Q.
Item 5. Exhibits
|
31.1
|
|
Rule 13a-14(a)/15d-14(a), Certification of the Chief Executive Officer, filed herewith.
|
| |
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a), Certification of the Chief Financial Officer, filed herewith.
|
| |
|
|
|
32.1
|
|
Section 1350 Certification of the Chief Executive and Chief Financial Officers, filed herewith.
|
| |
|
|
|
101.INS
|
|
XBRL Instance Document, furnished herewith.
|
| |
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document, furnished herewith.
|
| |
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document, furnished herewith.
|
| |
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document, furnished herewith.
|
| |
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document, furnished herewith.
|
| |
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document, furnished herewith.
|
| |
|
|
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Roper Industries, Inc.
|
/s/ Brian D. Jellison
|
|
Chairman of the Board, President,
|
August 6, 2010
|
|
Brian D. Jellison
|
|
and Chief Executive Officer
|
|
| |
|
(Principal Executive Officer)
|
|
|
/s/ John Humphrey
|
|
Chief Financial Officer and Vice President
|
August 6, 2010
|
|
John Humphrey
|
|
(Principal Financial Officer)
|
|
|
/s/ Paul J. Soni
|
|
Vice President and Controller
|
August 6, 2010
|
|
Paul J. Soni
|
|
(Principal Accounting Officer)
|
|
EXHIBIT INDEX
TO REPORT ON FORM 10-Q
Number Exhibit
|
31.1
|
|
Rule 13a-14(a)/15d-14(a), Certification of the Chief Executive Officer, filed herewith.
|
| |
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a), Certification of the Chief Financial Officer, filed herewith.
|
| |
|
|
|
32.1
|
|
Section 1350 Certification of the Chief Executive and Chief Financial Officers, filed herewith.
|
| |
|
|
|
101.INS
|
|
XBRL Instance Document, furnished herewith.
|
| |
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document, furnished herewith.
|
| |
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document, furnished herewith.
|
| |
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document, furnished herewith.
|
| |
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document, furnished herewith.
|
| |
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document, furnished herewith.
|