ROPER TECHNOLOGIES, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 20172021
Table of Contents
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Information About Forward-Looking Statements
This Annual Report on Form 10-K ("(“Annual Report"Report”) includes and incorporates by reference "forward-looking statements"“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 U.S. Securities and Exchange Commission ("SEC"(“SEC”) or in connection with oral statements made to the press, potential investors or others. All statements that are not historical facts are "forward-looking“forward-looking statements."” Forward-looking statements may be indicated by words or phrases such as "anticipate," "estimate," "plans," "expects," "projects," "should," "will," "believes"“anticipate,” “estimate,” “plans,” “expects,” “projects,” “should,” “will,” “believes” or "intends"“intends” and similar words and phrases. These statements reflect management'smanagement’s current beliefs and are not guarantees of future performance. They involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in any forward-looking statement. Such risks and uncertainties include any ongoing impacts of the COVID-19 pandemic on our business, operations, financial results and liquidity, which will depend on numerous evolving factors that we cannot accurately predict or assess, including: the duration and scope of the pandemic, new variants of the virus and the distribution and efficacy of vaccines; the impact of vaccine mandates on our workforce in certain jurisdictions; any negative impact on global and regional markets, economies and economic activity; actions governments, businesses and individuals take in response to the pandemic; the effects of the pandemic, including all of the foregoing, on our employees, customers, suppliers, and business partners, and how quickly economies and demand for our products and services recover following the pandemic.
Examples of forward-looking statements in this report include but are not limited to statements regarding operating results, the success of our operating plans, our expectations regarding our ability to generate cash and reduce debt and associated interest expense, profit and cash flow expectations, the prospects for newly acquired businesses to be integrated and contribute to future growth, and our expectations regarding growth through acquisitions.acquisitions and the ability to complete the announced divestiture of our TransCore business, including obtaining any required regulatory approvals with respect thereto. Important assumptions relating to the forward-looking statements include, among others, demand for our products, the cost, timing and success of product upgrades and new product introductions, raw material costs, expected pricing levels, expected outcomes of pending litigation, competitive conditions and general economic conditions. 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 but are not limited to:
•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;
•failure to effectively mitigate cybersecurity threats, including any litigation arising therefrom;
•failure to comply with new data privacy laws and regulations, including any litigation arising therefrom;
•difficulties associated with exports;exports/imports and risks of changes to tariff rates;
•risks and costs associated with our international sales and operations;
•rising interest rates;
•product liability and insurance risks;
•increased warranty exposure;
•future competition;
•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, labor, energy, raw materials, parts and components;components, including as a result of impacts from the current inflationary environment, ongoing supply chain constraints or COVID-19;
•environmental compliance costs and liabilities;
•risks and costs associated with asbestos-related litigation;
•potential write-offs of our goodwill and other intangible assets;
•our ability to successfully develop new products;
•failure to protect our intellectual property;
•the effect of, or change in, government regulations (including tax);
•economic disruption caused by terrorist attacks, including cybersecurity threats, health crises (such as the COVID-19 pandemic) or other unforeseen geopolitical events; and
•the factors discussed in Item 1A to this Annual Report under the heading "Risk“Risk Factors."”
PART I
ITEM 1. BUSINESS
All currency amounts are in millions unless specified
Our Business
Roper Technologies, Inc. ("(“Roper,"” the "Company," "we," "our"“Company,” “we,” “our” or "us"“us”) is a diversified technology company. We operate businesses that design and develop software (both license and software-as-a-service)Software-as-a-Service (“SaaS”)) and engineered products and solutions for a variety of niche end markets.
We pursue consistent and sustainable growth in earnings and cash flow by emphasizing continuous improvement in the operating performance of our existing businesses and by acquiring other businesses that offer high value-added software, services, engineered products and solutions that we believe are capable of achieving growth and maintaining high margins. We compete in many niche markets and believe we are the market leader or a competitive alternative to the market leader in most of these markets. In the last three years, we have deployed nearly $8.6 billion of capital toward acquisitions, including approximately $5.4 billion in 2020 for the acquisition of Vertafore, Inc., a leading provider of SaaS solutions for the property and casualty insurance industry.
During 2021, Roper signed definitive agreements to divest its TransCore, Zetec and CIVCO Radiotherapy businesses for an aggregate of approximately $3.2 billion in cash. Roper has completed the divestitures of Zetec and CIVCO Radiotherapy, in the first quarter of 2022 and fourth quarter of 2021, respectively, and expects the TransCore transaction to close in the first quarter of 2022 for approximately $2.7 billion. The financial results for these businesses are reported as discontinued operations for all periods presented. Information regarding discontinued operations is included in Note 3 of the Notes to Consolidated Financial Statements.
We were incorporated on December 17, 1981 under the laws of the State of Delaware.
Market Share, Market Expansion, and Product Development
Leadership with Engineered Content for Niche Markets - We maintain a leading position in many of our markets. We believe our market positions are attributable to the technical sophistication of our products and software, the applications expertise used to create our advanced products and systems, and our distribution and service capabilities. Our operating units growbusinesses realize growth from new and existing customers in their businessesniche markets through successfully executing go-to-market strategies, developing new product developmentproducts and development of new applications, and services to satisfy customer needs. In addition, our operating units grow our customer base by expanding our access to customers and entering adjacent markets.delivering professional services.
Diversified End Markets and Geographic Reach - We have a global presence, with sales to customers outside the U.S. totaling $1.3 billion$1,342.2 in 2017.2021. Information regarding our international operations is set forth in Note 1314 of the Notes to Consolidated Financial Statements included in this Annual Report.
Our BusinessReportable Segments
Our operations are reported in four segments based upon common customers, markets, sales channels, technologiesbusiness models and common cost opportunities.capital deployment strategy and objectives. The segments are: RF Technology, MedicalApplication Software, Network Software & Scientific Imaging, Industrial TechnologySystems, Measurement & Analytical Solutions and Energy Systems & Controls.Process Technologies. Financial information about our businessreportable segments is presented in Note 1314 of the Notes to Consolidated Financial Statements included in this Annual Report.
Our RF Technology segment provides radio frequency identification ("RFID") communication technology and software solutions. ThisApplication Software segment had net revenues of $1.86 billion$2,380.6 for the year ended December 31, 2017,2021, representing 40.4%41.2% of our total net revenues. Below is a description of the products offered by business that comprise the Application Software segment.
CBORD - provides campus solutions software including access and cashless systems and food and nutrition service management serving primarily higher education and 3) preconstruction projecthealthcare markets.
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CliniSys - provides diagnostic and laboratory information management software solutions.
Data Innovations - provides software solutions that enable enterprise management of hospitals and independent laboratories.
Deltek - provides enterprise software and information solutions for constructiongovernment contractors, professional services firms and other project-based businesses.
Horizon - provides software, services, and technologies for foodservice operations–specializing in K-12.
IntelliTrans - provides transportation management software and services to bulk and break-bulk commodity producers.
PowerPlan - provides financial and compliance management software and solutions to large complex companies in asset-intensive industries.
Strata - provides cloud-based financial analytics and performance management software that is used by healthcare providers for financial planning, decision support and continuous cost improvement.
Vertafore - provides cloud-based software to the property and casualty insurance industry, professionals.including agency management, compliance, workflow, and data solutions.
Our Network Software & Systems segment had net revenues of $1,338.4 for the year ended December 31, 2021, representing 23.2% of our total net revenues. Below is a description of the products offered by business that comprise the Network Software & Systems segment.
ConstructConnect - We maintain provides cloud-based data, collaboration and estimating automation software solutions to a network of pre-construction contractors.
DAT - provides electronic marketplaces that connect 1) available capacity of trucking units with the available loads of freight to be moved from location to location throughout North America, 2)America.
Foundry - provides software technologies used to deliver visual effects and 3D content for the entertainment and digital design industries.
Inovonics - provides high performance wireless sensor network and solutions for a variety of applications.
iPipeline - provides cloud-based software solutions for the life insurance and financial services industries.
iTradeNetwork - provides electronic marketplaces and supply chain software that connect food suppliers, distributors and vendors, primarily in the perishable food sector and 3) construction industry professionals.sector.
MHA - provides health care markets. We also provide an integrated nutrition management solution used by food service customers.and software solutions to alternate site health care markets.
SHP - provides data analytics and OEMbenchmarking information for the post-acute healthcare provider marketplace.
SoftWriters - provides software solutions including secure printing and single sign-on across several vertical markets including healthcare, manufacturing and government.to pharmacies that primarily serve the long term care marketplace.
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Our MedicalMeasurement & Scientific Imaging segment offers products and software in medical applications, and high performance digital imaging products. For 2017, thisAnalytical Solutions segment had net revenues of $1.41 billion,$1,559.6 for the year ended December 31, 2021, representing 30.6%27.0% of our total net revenues. Below is a description of the products offered by business that comprise the Measurement & Analytical Solutions segment.
Alpha - provides precision rubber and polymer testing instruments, and data analysis software.
CIVCO Medical ProductsSolutions - provides accessories focused on guidance and Softwareinfection control for ultrasound procedures.
Dynisco - We provide diagnosticprovides solutions for testing and laboratory software solutions to healthcare providers and services and technologies to support the diverse and complex needs of alternate site health care providers who deliver services outside of an acute care hospital setting. We also manufacture and sell patient positioning devices and related software for use in radiation oncology and 3-D measurement technology in computer-assisted surgery, and we supply diagnostic and therapeutic disposable productsanalyzing plastics used in ultrasound imaginga variety of end markets.
FMI - provides dispensers and metering pumps which are utilized in a broad range of applications requiring precision fluid control.
Hansen - provides control valves for minimally invasive medical procedures. We designlarge industrial refrigeration systems.
Hardy - provides precision weighing equipment for process and manufacture a non-invasive instrument for portable ultrasound bladder volume measurement and a video laryngoscope designed to enable rapid intubation in difficult situations. In addition, we provide a cloud-based financial analytics and performance software platform to healthcare providers.
IPA - provides automated surgical scrub and linen dispensing equipment for healthcare providers.
Logitech - provides equipment and consumables used for sample preparation and material analysis used primarily in the semiconductor and geological science industries.
Neptune - provides water meters, enabling water utilities to remotely monitor their customers utilizing Automatic Meter Reading (AMR) and Advanced Metering Infrastructure (AMI) technologies.
Northern Digital - provides optical and electromagnetic precision measurement systems for medical and industrial uses, which require high resolution and/or high speed digital video,applications.
Struers - provides equipment and consumables for sample preparation and testing of solid materials used across a variety of end markets.
Technolog - provides products and services to water and gas utilities, used for network monitoring, pressure control, and remote meter reading.
Uson - provides automated leak detection equipment for a variety of end markets, including electron microscopyautomotive, medical device, pharmaceutical, and spectroscopy applications. We sell these productsgeneral industrial.
Verathon - provides medical devices that enable airway management and bladder volume measurement solutions for use within academic, government research, semiconductor, security and other end-user markets such as biological and material science. They are frequently incorporated into products by original equipment manufacturers ("OEMs").healthcare providers.
Our Industrial Technology segment produces primarily water meter and meter reading technology, fluid handling pumps, and materials analysis solutions. For 2017, thisProcess Technologies segment had net revenues of $784 million,$499.2 for the year ended December 31, 2021, representing 17.0%8.6% of our total net revenues. Below is a description of the products offered by business that comprise the Process Technologies segment.
CCC - provides turbomachinery control hardware, software, and services for customers across the upstream, midstream, and downstream energy markets.
Cornell - provides specialized pumps used across a variety of these products are designedend markets, including agriculture, energy, food processing, mining, waste water processing, and general industrial.
FTI - provides flow meter calibrators, and controllers used primarily in the aerospace, automotive, energy, and general industrial end markets.
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Metrix - provides vibration monitoring systems and controls across a variety of end markets.
PAC - provides analytical instruments used by energy refineries and laboratories.
Roper Pump - provides specialty pumps and drilling power sections used by customers in the energy, general industrial, and transportation end markets.
Viatran - provides pressure and level sensors for use in hazardous environments.energy and general industrial end markets.
Materials and Suppliers
We believe most materials and supplies we use are readily available from numerous sources and suppliers throughout the world. However, some components and sub-assemblies are currently available from only a limited number of suppliers. Some high-performance components for digital imaging products can be in short supply and/or suppliers have occasional difficulty manufacturing such components to our specifications. We regularly investigate and identify alternative sources where possible, and we believe these conditions equally affect our competitors. SupplyAlthough supply shortages have not had a material adverse effect on our revenues, althoughwe expect to continue to be impacted by supply chain challenges including increased material costs, component shortages and transportation disruptions and delays, all of which could escalate in shipments have occurred following such supply interruptions.the future.
Remaining Performance Obligations and Backlog
Remaining performance obligations represents the transaction price of firm orders for which work has not been performed and excludes unexercised contract options. As of December 31, 2021 and December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $3,790.4 and $2,958.8, respectively.
Backlog
Distribution and Sales
Distribution and sales occur primarily through direct sales offices, manufacturers'manufacturers’ representatives, resellers and distributors.
Governmental Regulations
We face extensive government regulation around the world relating to the development, manufacture, marketing, sale and distribution of our products, software, and services. The following sections describe certain significant regulations to which we are subject, but these are not the only regulations to which our businesses must comply. For a description of the risks related to the regulations that our businesses are subject to, please refer to “Item 1A. Risk Factors.”
Privacy and Data Security
We are subject to privacy and data security laws around the world that may impose operational burdens on our businesses. In 2018, the General Data Protection Regulation became effective in the European Union and United Kingdom and imposed restrictions on how companies use and process personal information. In the United States, several states have adopted legislation that imposes similar (but not identical) restrictions on companies conducting business or serving customers in those states. For example, in January 2020 the California Consumer Privacy Act became effective and required companies to make disclosures to consumers about their data collection, use, and sharing practices; allowed consumers to opt out of certain data sharing with third parties; and provided a private right of action for data breaches. Virginia and Colorado have passed similar legislation that will become effective in 2023, as will newly enacted changes to California’s privacy laws. Canada (Quebec) and China have also significantly updated their privacy laws. The compliance and other burdens on our businesses imposed by these privacy laws and regulations may be substantial as we work to comply with differing legal and implementation requirements across multiple jurisdictions.
Healthcare Regulations
The manufacture, sale, lease and service of medical diagnostic and surgical devices intended for commercial use are subject to extensive governmental regulation by the FDA in the U.S. and by a variety of regulatory agencies in other countries for some of our businesses. Under the Federal Food, Drug and Cosmetic Act, known as the FD&C Act, manufacturers of medical products and devices must comply with certain regulations governing the design, testing, manufacturing, packaging, servicing and
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marketing of medical products. FDA product approvals may be withdrawn or suspended if compliance with regulatory standards is not maintained or if problems occur following initial marketing. We are also subject to a variety of federal, state and foreign laws which broadly relate to our interactions with healthcare practitioners and other participants in the healthcare system, including, among others, anti-kickback law, and laws regulating the confidentiality of sensitive personal information and the circumstances under which such information may be released and/or collected, such as the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Health Information Technology for Economic and Clinical Health Act, or HITECH Act, and the GDPR.
Anti-Corruption and Anti-Bribery Laws and Regulations
We are subject to the U.S. Foreign Corrupt Practices Act (FCPA) and anti-corruption laws, and similar laws in foreign countries, such as the UK Anti-Bribery Act. Any violation of these laws by us or our agents or distributors could create substantial liability for us, subject our officers and directors to personal liability, and cause a loss of reputation in the market. Increased business in higher risk countries could subject us and our officers and directors to increased scrutiny and increased liability. In addition, becoming familiar with and implementing the infrastructure necessary to comply with laws, rules and regulations applicable to new business activities and mitigating and protecting against corruption risks could be quite costly.
Export Controls and Trade Policies
We are subject to numerous domestic and foreign regulations relating to our Medical & Scientific Imaging segmentoperations worldwide. In particular, our sales activities must comply with restrictions relating to the export of controlled technology and sales to denied or sanctioned parties contained in the U.S. Export Administration Regulations, U.S. International Traffic in Arms Regulations (ITAR), and sanctions administered by the Office of Foreign Asset Controls of the U.S. Treasury Department (OFAC). Our businesses may also sells through value added resellers ("VARs")be impacted by additional domestic or foreign trade regulations ensuring fair trade practices, including trade restrictions, tariffs and OEMs.sanctions.
Environmental Matters and Other Governmental RegulationRegulations
Our operations and properties are subject to laws and regulations relating to environmental protection, including those governing air emissions, water discharges, waste management and workplace safety. We use, generate and dispose of hazardous substances and waste in our operations and could be subject to material liabilities relating to the investigation and clean-up of contaminated properties and related claims. We are required to conform our operations and properties to these laws and adapt to regulatory requirements in all countries as these requirements change. In connection with our acquisitions, we may assume significant environmental liabilities, some of which we may not be aware of, or may not be quantifiable, at the time of acquisition. In addition, new laws and regulations, the discovery of previously unknown contamination or the imposition of new requirements could increase our costs or subject us to new or increased liabilities.
Customers
No customer accounted for 10% or more of net revenues for 20172021 for any of our segments or for our companyCompany as a whole.
Competition
Generally, our products and solutions face significant competition, usually from a limited number of competitors. We believe that we are a leader in most of our markets, and no single company competes with us over a significant number of product lines. Competitors might be large or small in size, often depending on the size of the niche market we serve. We compete primarily on product quality, performance, innovation, technology, price, applications expertise, system and service flexibility, distribution channel access and customer service capabilities.
In addition to trade secrets, including unpatented know-how and other intellectual property rights,like software source code, we own or license the rights under a number ofnumerous patents, trademarks, trade dress and copyrights relating to certain of our products and businesses. We also employ various methods, including confidentiality and non-disclosure agreements with individuals and companies we do business with, including employees, distributors, representatives, independent contractors and customers to protect our trade secrets and know-how.intellectual property. We believe none of our operating units are not substantially dependent on any single patent, trademark, copyright, or other item of intellectual property, including a trade secret, patent, trademark, trade dress, or groupcopyright.
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Human Capital Management
Roper is a diversified technology company that utilizes a decentralized operating model across our many businesses which serve a diverse set of patents, trademarksend markets. Subject to oversight and guidance from Roper executive management, each business operates as an individual unit with its managers empowered to make day to day operating decisions, including decisions with respect to human capital management. As a result, apart from guidance with respect to: (i) compliance with regulatory requirements or copyrights.corporate policies; and (ii) the implementation of compensation and benefit programs provided by corporate management, managers at individual businesses are the primary decision makers with respect to human capital management and development. Though our individual businesses are primarily responsible for these decisions, because of the importance of human capital to our enterprise, we provide guidance and share best practices on key aspects of selection, development, engagement and diversity of talent within our workforce.
As of December 31, 2017,2021, we had 14,236 employees, with 9,425 locatedemployed approximately 19,300 people worldwide on a consolidated basis, of which approximately 12,300 were employed in the United States and approximately 7,000 were outside of the United States. Approximately 2,200 of these employees are employed by Zetec (which closed in the first quarter of 2022) and TransCore (which is expected to close in the first quarter of 2022). Management believes that the Company's employee relations are favorable.
A very small portion of the Company’s U.S. employees are unionized. Outside the U.S., we have some employees, particularly in Europe, that are represented by an employee representative organization, such as a union, works council or employee association.
Roper has identified and implemented other human capital priorities, including providing competitive wages and benefits, and promoting a diverse and inclusive work environment. The Company is committed to increasing diversity and fostering an inclusive work environment that supports our large global workforce and helps us innovate for our customers. We continue to focus on building a pipeline for talent to create more opportunities for workplace diversity and to support greater representation within the Company.
Roper is a founding member of the OneTen Coalition. OneTen is an organization that plans to combine the power of over 30 committed large, public American companies to upskill, hire and promote one million Black Americans over the next 10 years into family-sustaining jobs with opportunities for advancement. Among the coalition’s founding members, Roper is uniquely situated to connect Black Americans with employment opportunities at many of our smaller and growing businesses.
In response to the COVID-19 pandemic and related mitigation measures we have 187 employees who are subjectimplemented changes in our business in an effort to collective bargaining agreements. We have not experienced any work stoppages and consider our relations withprotect our employees and customers, and to support appropriate health and safety protocols. For example, we implemented cleaning and sanitation processes for both production and office administration spaces and implemented broad work-from-home initiatives. While employees in our Application Software and Network Software & Solutions businesses, as well as employees in corporate and administrative functions throughout the Company worked remotely throughout much of the pandemic, many employees have returned to offices where such can be good.done in a safe manner. Employees at our manufacturing and assembly facilities (primarily in our Measurement & Analytical Solutions and Process Solutions businesses) have continued to work throughout the pandemic with only minor disruption.
Available Information
All reports we file electronically with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and our annual proxy statements, as well as any amendments to those reports, are accessible at no cost on our website at www.ropertech.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. These filings are also accessible on the SEC'sSEC’s website at www.sec.gov. You may also read and copy any material we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our Corporate Governance Guidelines; the charters of our Audit Committee, Compensation Committee, and Nominating and Governance Committee; and our Business Code of Ethics and Standards of Conduct are also available on our website. Any amendment to the Business Code of Ethics and Standards of Conduct and any waiver applicable to our directors, executive officers or senior financial officers will be posted on our website within the time period required by the SEC and the New York Stock Exchange (the "NYSE"“NYSE”). The information posted on our website is not incorporated into this Annual Report.
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ITEM 1A. RISK FACTORS
Risks RelatingRelated to Economic and Political Conditions
Impacts related to the COVID-19 pandemic could have an adverse effect on our business, financial condition, results of operations and cash flows.
We continue to closely monitor the impact of the COVID-19 global pandemic on our business, including how it has and will impact our customers, employees, suppliers, vendors and business partners. The COVID-19 global pandemic has created significant volatility, uncertainty and economic disruption, which may continue to affect our business operations and may materially and adversely affect our results of operations, cash flows and financial position.
The COVID-19 global pandemic has caused certain disruptions to our business and operations and could cause material disruptions to our business and operations in the future as a result of, among other things, quarantines, worker absenteeism as a result of illness or other factors, social distancing measures and other travel, health-related, business or other restrictions. The effects of the pandemic have created and exacerbated challenges with the attraction and retention of talent.
The COVID-19 global pandemic has and may continue to adversely impact, our suppliers and customers. As a result of the effects of the COVID-19 global pandemic our ability to obtain products or services from certain suppliers and to operate at certain locations have been and may continue to be impacted. As a result, our business, financial condition and results of operations have been adversely impacted and could be materially adversely affected if the COVID-19 global pandemic continues or there are resurgences of COVID-19 and its variants.
Vaccine mandates and testing requirements have been announced in jurisdictions where we operate. In addition, certain customers have issued vaccine requirements with respect to our employees who provide on-site service at customer facilities. Our efforts to comply with these mandates, including requiring that some or all of our employees be fully vaccinated against COVID-19, could result in increased labor attrition and disruption, as well as difficulty securing future labor needs, and could adversely impact our ability to deliver services to our U.S. federal government customers and potentially other customers, which could in turn adversely impact our results of operations.
The extent to which the coronavirus outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus and its variants including distribution and administration of available vaccines through mandates or otherwise, and how quickly and to what extent normal economic and operating conditions can resume.
The ultimate impact of the outbreak is highly uncertain and subject to change. In addition, the rapidly changing situation could give rise to additional risks or adverse impacts of which we are not presently aware, such as the ability to complete acquisitions, the ability to obtain credit through the capital markets and/or through our revolving credit facility. We do not yet know the full extent of the impacts on our business, our operations or the global economic and political environment as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described below in this “Risk Factors” section.
Economic, political and other risks associated with our international operations could adversely affect our business.
For the year ended December 31, 2021, 20% of our net revenues and 14% of our long-lived assets, excluding goodwill and intangibles, were attributable to operations outside the U.S. We expect our international operations to contribute materially to our business for the foreseeable future. Our international operations are subject to varying degrees of risk inherent in doing business outside the U.S. including, without limitation, the following:
•adverse changes in a specific country’s or region’s political or economic conditions, particularly in emerging markets;
•oil price volatility;
•trade protection measures, tariffs, and import or export requirements;
•subsidies or increased access to capital for firms that are currently, or may emerge as, competitors in countries in which we have operations;
•partial or total expropriation;
•potentially negative consequences from changes in tax laws;
•difficulty in staffing and managing widespread operations;
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•differing labor regulations;
•differing protection of intellectual property;
•differing and unexpected changes in regulatory requirements, including any measures implemented to address the impacts of climate change; and
•potentially negative consequences from the United Kingdom’s exit from the European Union.
Risks Related to Our Business Operations
Our indebtedness may affect our business and may restrict our operating flexibility.
As of December 31, 2017,2021, we had $5.2 billion$7,921.8 in total consolidated indebtedness. In addition, we had $1.2 billionapproximately $2,502 undrawn availability under our seniorunsecured credit facility. Subject to restrictions contained in our credit facility, we may incur additional indebtedness in the future, including indebtedness incurred to finance acquisitions.
Our level of indebtedness and the debt servicing costs associated with that indebtedness could have important effects on our operations and business strategy. For example, our indebtedness could:
•limit our ability to borrow additional funds;
•limit our ability to complete future acquisitions;
•limit our ability to pay dividends;
•limit our ability to make capital expenditures;
•place us at a competitive disadvantage relative to our competitors, some of which have lower debt service obligations and greater financial resources; and
•increase our vulnerability to general adverse economic and industry conditions.
Our ability to make scheduled principal payments of, to pay interest on, or to refinance our indebtedness and to satisfy our other debt obligations will depend upon our future operating performance, which may be affected by factors beyond our control. In addition, there can be no assurance that future borrowings or equity financing will be available to us on favorable terms for the payment or refinancing of our indebtedness. If we are unable to service our indebtedness, our business, financial condition and results of operations would be materially adversely affected.
Our credit facility contains covenants requiring us to achieve certain financial and operating results and maintain compliance with specified financial ratios. Our ability to meet the financial covenants or requirements in our credit facility may be affected by events beyond our control, and we may not be able to satisfy such covenants and requirements. A breach of these covenants or our inability to comply with the financial ratios, tests or other restrictions contained in our facility could result in an event of default under this facility. Upon the occurrence of an event of default under our credit facility, and the expiration of any grace periods, the lenders could elect to declare all amounts outstanding under the facility, together with accrued interest, to be immediately due and payable. If this were to occur, our assets may not be sufficient to fully repay the amounts due under this facility or our other indebtedness.
Unfavorable changes in foreign exchange rates may harm our business.
Several of our operating companies have transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions and balances are denominated in euros, Canadian dollars, British pounds or Danish kroner. Sales by our operating companies whose functional currency is not the U.S. dollar represented 17% and 20%18% of our total net revenues for the years ended December 31, 20172021 and 2016,2020, respectively. Unfavorable changes in exchange rates between the U.S. dollar and those currencies could significantly reduce our reported revenues and earnings.
Our technology is important to our success and our failure to protect this technology could put us at a competitive disadvantage.
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Our growth strategy includes acquisitions. We may not be able to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully.
Our future growth is likely to depend to some degree on our ability to acquire and successfully integrate new businesses. We intend to seek additional acquisition opportunities, both to expand into new markets and to enhance our position in existing markets. There are no assurances, however, that we will be able to successfully identify suitable candidates, negotiate appropriate terms, obtain financing on acceptable terms, complete proposed acquisitions, successfully integrate acquired businesses or expand into new markets. Once acquired, operations may not achieve anticipated levels of revenues, profitability or profitability.cash flows.
Acquisitions involve risks, including difficulties in the integration of the operations, technologies, services and products of the acquired companies and the diversion of management'smanagement’s attention from other business concerns. Although our management will endeavor to evaluate the risks inherent in any particular transaction, there are no assurances that we will properly ascertain all such risks. In addition, prior acquisitions have resulted, and future acquisitions could result, in the incurrence of substantial additional indebtedness and other expenses. Future acquisitions may also result in potentially dilutive issuances of equity securities. Difficulties encountered with acquisitions may have a material adverse effect on our business, financial condition and results of operations.
Divestitures pose risks and challenges that could negatively impact our effortsbusiness. For example, when we decide to protect proprietary rights, unauthorized parties or competitors may copysell or otherwise obtaindispose of a business or assets, we may be unable to do so on satisfactory terms within our anticipated timeframe or at all, and use our productseven after reaching a definitive agreement to sell or technology. Actionsdispose a business the sale is typically subject to enforce these rightssatisfaction of pre-closing conditions which may result in substantial costsnot become satisfied. The consummation of any divestiture can be difficult, time-consuming and costly, and we may not be able to successfully complete identified divestitures. They may also cause diversion of resources,management time and we make no assurancesfocus away from operating our business. In addition, divestitures or other dispositions may have other adverse financial and accounting impacts, and disputes may arise with buyers that any such actions willcould be successful.difficult or costly to resolve.
Product liability, insurance risks and increased insurance costs could harm our operating results.
Our business exposes us to product liability risks in the design, manufacturingmanufacture and distribution of our products. In addition, certain of our products are used in hazardous environments. We currently have product liability insurance; however, we may not be able to maintain our insurance at a reasonable cost or in sufficient amounts to adequately protect us against losses. We also maintain other insurance policies, including directors'directors’ and officers'officers’ liability insurance and cyber insurance. We believe we have adequately accrued estimated losses, principally related to deductible amounts under our insurance policies, with respect to all product liability and other claims, based upon our past experience and available facts. However, a successful product liability or other claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations. In addition, a significant increase in our insurance costs could have an adverse impact on our operating results.
Our operating results could be adversely affected by a reduction of business with our large customers.
In some of our businesses, we derive a significant amount of revenue from large customers. The loss or reduction of any significant contracts with any of these customers could reduce our revenues and cash flows. Additionally, many of our customers are government entities. In many situations, government entities can unilaterally terminate or modify our existing contracts without cause and without penalty to the government agency.
We face intense competition. If we do not compete effectively, our business may suffer.
We face intense competition from numerous competitors.competitors in our various businesses. Our products compete primarily on the basis of product quality, performance, innovation, technology, price, applications expertise, system and service flexibility, distribution channel access and established customer service capabilities. We may not be able to compete effectively on all of these fronts or with all of our competitors. In addition, new competitors may emerge, and product lines may be threatened by new technologies or market trends that reduce the value of these product lines. To remain competitive, we must develop new products, respond to new technologies and enhance our existing products in a timely manner. We anticipate that we may have to adjust prices to stay competitive.
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Some of the industries in which we operate are cyclical, and, accordingly, our business is subject to changes in the economy.
Some of the business areas in which we operate are subject to specific industry and general economic cycles. Certain businesses are subject to industry cycles, including but not limited to, the industrial and energy markets. Accordingly, a downturn in these or other markets in which we participate could materially adversely affect us. If demand changes and we fail to respond accordingly, our results of operations could be materially adversely affected. The business cycles of our different operations may occur contemporaneously. Consequently, the effect of an economic downturn may have a magnified negative effect on material portions of our business.
Our goodwill and intangible assets are a significant amount of our total assets, and any write-off of our intangible assets would negatively affect our results of operations.
Our total assets reflect substantial intangible assets, primarily goodwill. At December 31, 2017,2021, goodwill totaled $8.8 billion$14,094.5 compared to $6.9 billion$11,563.8 of stockholders'stockholders’ equity, and represented 62%59% of our total assets of $14.3 billion.$23,713.9. The goodwill results from our acquisitions, representing the excess of costpurchase price over the fair value of the net identifiable assets we have acquired. We assess at least annually whether there has been an impairment in the value of our goodwill and indefinite economic life intangible assets. If future operating performance at one or more of our business units were to fall significantly below current levels, if competing or alternative technologies emerge, if interest rates rise or if business valuations decline, we could incur a non-cash charge to operating earnings.income. Any determination requiring the write-off of a significant portion of goodwill or unamortized intangible assets would negatively affect our results of operations, the effect of which could be material.
We depend on our ability to develop new products, and any failure to develop or market new products could adversely affect our business.
The future success of our business will depend, in part, on our ability to design and manufacture new competitive products and to enhance existing products so that we maintain our margin profile. This product development may require substantial internal investment. There can be no assurance that unforeseen problems will not occur with respect to the development, performance or market acceptance of new technologies or products or that we will otherwise be able to successfully develop and market new products. Failure of our products to gain market acceptance or our failure to successfully develop and market new products could reduce our margins, which would have an adverse effect on our business, financial condition and results of operations.
We rely on information and technology for many of our business operations which could fail and cause disruption to our business operations.
Our business operations are dependent upon information technology networks and systems to securely transmit, process and store electronic information and to communicate among our locations around the world and with clients and vendors. A shutdown of, or inability to access, one or more of our facilities, a power outage or a failure of one or more of our information technology, telecommunications or other systems could significantly impair our ability to perform such functions on a timely basis. Computer viruses, cyber-attacks,We rely on third-party cloud platforms, such as Amazon Web Services, Google Cloud Platform, and Microsoft Azure to host enterprise and customer systems, and any disruptions of these services could impact our business operations and our ability to service customers. Cyber-attacks, configuration or human error and/or other external hazards and human error could result in the misappropriation of assets or sensitive information, corruption of data or operational disruption. If sustained or repeated, suchFor example, in 2020, Vertafore determined that as a business interruption, system failure,result of human error, three data files containing Texas driver’s license data were inadvertently stored in an unsecured external storage service denial or data loss and damage couldthat appears to have been accessed without authorization. As a result, Vertafore was named as a defendant in a deteriorationnumber of putative class actions regarding the incident.
Global cybersecurity threats and attacks to networks, systems and endpoints can range from uncoordinated individual attempts to gain unauthorized access to IT systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company, its businesses, its customers and/or its third-party service providers, including, but not limited to, cloud providers and providers of network management services. These may include such things as unauthorized access, phishing attacks, account takeovers, denial of service, introduction of malware or ransomware and other disruptive problems caused by threat actors. Moreover, as more of our abilityemployees work remotely due to perform necessary business functions.the COVID-19 pandemic or otherwise, our employees are increasingly targeted by phishing attacks and endpoints may be more susceptible to threat exposures.
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monitoring of our networks, endpoints and systems and maintenance of backup and recovery capabilities. Despite these efforts, we can make no assurance that we will be able to detect, prevent, timely and adequately address, or mitigate the negative effects of cyberattacks or other security compromises, and such cybersecurity incidents, depending on their nature and scope, could potentially result in the United States, Europemisappropriation, destruction, corruption or unavailability of critical data and elsewhere are often uncertainconfidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include financial loss, reputational damage, damage to our IT systems, litigation with third parties, theft of intellectual property, fines, diminution in flux. It is possible that these laws may be interpretedthe value of our investment in research and applied in a manner
Changes in the supply of, or price for, raw materials, parts and components used in our products could affect our business.
The availability and prices of raw materials, parts and components are subject to curtailment or change due to, among other things, suppliers’ allocations to other purchasers, interruptions in production by suppliers, supply chain delays and disruptions, changes in exchange rates and prevailing price levels. For example, we expect to continue to be impacted by supply chain challenges, including increased material costs, component shortages and transportation disruptions and delays, all of which could escalate in the future. In addition, some of our products are provided by sole source suppliers. Any change in the supply of, or price for, these parts and components, as well as any increases in commodity prices, particularly copper, could affect our business, financial condition and results of operations.
Risks Related to Government Regulations
Regulation of privacy and data security may adversely affect sales of our products and services and result in increased compliance costs.
There has been, and likely will continue to be, increased regulation with respect to the collection, use and handling of an individual’s personal and financial information. Regulatory authorities around the world have passed or are considering legislative and regulatory proposals concerning data protection, privacy and data security. In the United States, Virginia and Colorado passed new comprehensive privacy legislation, and joined California (which further enhanced its existing privacy laws) in directly regulating the collection, use and sharing of personal information. These statutes create civil penalties for violations, and in the case of California, creates a private right of action for data breaches, alsothat increases the risk of data breach litigation. Absent a pre-emptive Federal privacy law, as more states pass privacy legislation, there is a strong possibility that we will be forced to comply with a patchwork of inconsistent privacy regulations. Globally, personal information collected within the European Union and United Kingdom remains subject to the 2018 General Data Protection Regulation (GDPR), which is a UK and European Union-wide legal framework that governs data collection, use, and sharing of an individual’s personal data and creates a range of consumer privacy rights. GDPR provides significant penalties for non-compliance (up to 4% of global revenue) and EU data protection authorities have already issued significant fines. Similarly, in November 2021, China promulgated the Personal Information Protection Law (PIPL) which regulates the processing of personal information of individuals within China. If a company breaches PIPL it can be assessed fines of up 5% of its annual revenue. The interpretation and application of consumer and data protection laws and industry standards in the United States, Europe, China and elsewhere can be uncertain and currently is in flux. Cloud-based solutions may be subject to further regulation, including data localization requirements and other restrictions concerning international transfer of data. The operational and cost impact of these cannot be fully known at this time. In addition to the possibility of fines, application of these existing laws in a manner inconsistent with our data and privacy practices could cause us to lose currentresult in an order requiring that we change our data and potential customers,privacy practices, which could have an adverse effect on our business and results of operations. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. Moreover,Also, any new law or regulation imposing greater fees or taxes or restriction on the collection, use or transfer of information or data internationally or over the Internet, could result in a decline in the use of our products and services and adversely affect sales and our results of operations. Finally, as we might be requiredincreasingly become a provider of technology solutions, our customers and regulators will expect that we can demonstrate compliance with current data privacy and security regulations as well as our privacy policies and data handling practices, and our inability to expend significant financialdo so may adversely impact sales of our solutions and other resourcesservices to protect further against security breaches or to rectify problems caused by any security breach.certain customers. This isparticularly true for customers in highly-regulated industries, such as the healthcare industry and government contractors, and could result in regulatory actions, fines, legal proceedings and negatively impact our brand, reputation and our business.
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General Risk Factors
Any business disruptions due to political instability, armed hostilities, incidents of terrorism, incidents of directed cyber-attacks, public health crisis, extreme weather events or other natural disasters could adversely impact our financial performance.
If terrorist activity, armed conflict, directed cyber-attacks, political instability, public health crisis, such as an epidemic or pandemic related to the COVID-19, or extreme weather events or other natural disasters occur in the U.S. or other locations, such events may negatively impact our operations, cause general economic conditions to deteriorate or cause demand for our products to decline. A prolonged economic slowdown or recession could reduce the demand for our products, and therefore, negatively affect our future sales and profits. Any of these events could have a significant impact on our business, financial condition or results of operations.
The potential insolvency or financial distress of third parties could adversely impact our business and results of operations.
We are exposed to the risk that third parties to various arrangements who owe us money or goods and services, or who purchase goods and services from us, will not be able to perform their obligations or continue to place orders due to insolvency or financial distress. In addition, the global COVID-19 pandemic has created heightened risk that third parties may be unable to perform their obligations or suffer financial distress due to the global economic impact of the pandemic and the regulatory measures that have been enacted by governments to contain the spread of the virus, however, we are unable predict the impact that COVID-19 will have on any of our customers, suppliers, vendors, and other business partners, and each of their financial conditions or their ability to perform their obligations. If third parties fail to perform their obligations under arrangements with us, we may be forced to replace the underlying commitment at current or above market prices or on other terms that are less favorable to us. In such events, we may incur losses, or our results of operations, financial condition or liquidity could otherwise be adversely affected.
Changes to our executive leadership team and any future loss of members of such team, and the resulting management transitions, could harm our operating results.
We have experienced significant changes to our executive leadership team in the past and may do so in the future. Leadership transitions and changes can be inherently difficult to manage and may cause uncertainty or disruption to our business or may increase the likelihood of turnover in key leadership positions. If we cannot effectively manage leadership transitions and changes, it could make it more difficult to successfully operate our business.
Legal proceedings in which we are, or may be, a party may adversely affect us.
We are currently, and may in the future, become subject to legal proceedings and commercial or contractual disputes. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes with our suppliers or customers, intellectual property matters, third party liability, including product liability claims, and employment claims. We are and may in the future become subject to litigation regarding data or privacy incidents, as more fully described above in “We rely on information and technology for many of our business operations which could fail and cause disruption to our business operations”.
A downgrade in the ratings of our debt could restrict our ability to access the debt capital markets and increase our interest costs.
Unfavorable changes in the ratings that rating agencies assign to our debt may ultimately negatively impact our access to the debt capital markets and increase the costs we incur to borrow funds. If ratings for our debt fall below investment grade, our access to the debt capital markets may be impacted and the price we pay to issue debt could increase. Additionally, our credit agreement includes an increase in interest rates if the ratings for our debt are downgraded. Further, an increase in the level of our indebtedness may increase our vulnerability to adverse general economic and industry conditions and may affect our ability to obtain additional financing.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
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ITEM 2. PROPERTIES
Our corporate offices, consisting of 29,000 square feet of leased space, are located at 6901 Professional Parkway, East, Sarasota, Florida. We have 128 principal locations aroundAs of December 31, 2021, we owned approximately 0.8 million square feet, and leased approximately 3.7 million square feet. Of the world to support our operations, of which 49 are manufacturing, assembly and testing facilities, andtotal 4.5 million square feet, 68% is concentrated in the remaining 79 locations provide sales, programming, service and administrative support functions.United States. We consider our facilities to be in good operating condition and adequate for their present use and believe we have sufficient capacity to meet our anticipated operating requirements.
| Office | Office & Manufacturing | |||
| Segment | Region | Leased | Leased | Owned |
| RF Technology | ||||
| U.S. | 1,163 | 108 | — | |
| Canada | 30 | — | — | |
| Europe | 82 | — | 16 | |
| Asia-Pacific | 116 | — | — | |
| Medical & Scientific Imaging | ||||
| U.S. | 325 | 275 | 120 | |
| Canada | — | 140 | — | |
| Europe | 68 | 28 | — | |
| Asia-Pacific | 21 | — | — | |
| Mexico | — | 43 | — | |
| Industrial Technology | ||||
| U.S. | 18 | 260 | 478 | |
| Canada | 36 | — | — | |
| Europe | 13 | 136 | 43 | |
| Asia-Pacific | 21 | — | — | |
| Mexico | — | 60 | — | |
| Energy Systems & Controls | ||||
| U.S. | — | 322 | — | |
| Canada | — | 56 | — | |
| Europe | 29 | 20 | 128 | |
| Asia-Pacific | — | 28 | 33 | |
ITEM 3. LEGAL PROCEEDINGS
Information pertaining to legal proceedings can be found in Note 1213 to the Consolidated Financial Statements included in this Annual Report, and is incorporated by reference herein.
ITEM 4. MINE SAFETY DISCLOSURES |
Not Applicable
Pursuant to General Instruction G(3) of Form 10-K, the following list of executive officers of the Company as of February 22, 2022 is included as an unnumbered Item in Part I of this report in lieu of being included in the Company’s Proxy Statement relating to the 2022 Annual Meeting of Shareholders.
L. Neil Hunn, 49, has served as President and Chief Executive Officer since August 2018. He previously served as Executive Vice President and Chief Operating Officer from 2017 to 2018. Mr. Hunn also served as Group Vice President of Roper’s medical segment from 2011 to 2018 and helped drive significant growth in the Company’s medical technology and application software businesses. In addition to his operating responsibilities at Roper, Mr. Hunn led the execution of the majority of the company’s capital deployment since joining Roper. Prior to joining Roper, Mr. Hunn served 10 years as Executive Vice President and Chief Financial Officer at MedAssets, an Atlanta-based SaaS company, and as President of its revenue cycle technology businesses. He successfully led MedAssets’ initial public offering and the execution of several M&A transactions. Mr. Hunn also held roles at CMGI, an incubator of Internet businesses, and Parthenon Group, a strategy consulting firm.
Robert C. Crisci, 46, has served as Executive Vice President and Chief Financial Officer since 2018 and as Vice President and Chief Financial Officer from 2017 to 2018. Mr. Crisci joined Roper in 2013 as Vice President, Finance and Investor Relations and led the Company’s financial planning and analysis and investor relations activities. Prior to joining Roper, he served in various roles across investment banking, consulting and finance. His prior experience includes positions at Morgan Keegan, VRA Partners, Devon Value Advisers and Deloitte.
John K. Stipancich, 53, has served as Executive Vice President, General Counsel and Corporate Secretary since 2018 and as Vice President, General Counsel and Corporate Secretary from 2016 to 2018. Prior to joining Roper, Mr. Stipancich was with Newell Brands, Inc., a consumer products company, from 2004 to 2016. At Newell Brands he served as Executive Vice President and Chief Financial Officer from February 2015 to May 2016. Prior thereto, he served in a number of leadership roles at Newell Brands including General Counsel and Corporate Secretary, and Executive Leader of its operations in Europe, the Middle East and Africa. Prior to his twelve years at Newell Brands, Mr. Stipancich served as Executive Vice President, General Counsel and Corporate Secretary for Evenflo Company and Assistant General Counsel for Borden, both KKR portfolio companies at the time. He started his legal career in the Cleveland office of the international law firm of Squire Patton Boggs.
Jason P. Conley, 46, has served as Vice President and Chief Accounting Officer since 2021 and as Vice President and Controller from 2017 to 2021. Prior thereto, he served as the Chief Financial Officer at Managed Healthcare Associates, a Roper subsidiary, from 2013 to 2017. He also led the financial planning and investor relations activities for Roper from 2006 to 2013. Before Roper, Mr. Conley served in various finance and accounting leadership roles at Honeywell International and Deloitte.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on the NYSE under the symbol "ROP"“ROP”. The table below sets forth the range of high and low sales prices for our common stock as reported by the NYSE as well as cash dividends declared during each of our 2017 and 2016 quarters.
| High | Low | Cash Dividends Declared | ||||||||||
| 2017 | 4th Quarter | $ | 267.83 | $ | 243.45 | $ | 0.4125 | |||||
3rd Quarter | 247.54 | 226.81 | 0.35 | |||||||||
2nd Quarter | 235.50 | 204.62 | 0.35 | |||||||||
1st Quarter | 214.44 | 183.74 | 0.35 | |||||||||
| 2016 | 4th Quarter | $ | 188.04 | $ | 167.91 | $ | 0.35 | |||||
3rd Quarter | 182.84 | 163.33 | 0.30 | |||||||||
2nd Quarter | 184.66 | 164.77 | 0.30 | |||||||||
1st Quarter | 187.56 | 158.89 | 0.30 | |||||||||
Based on information available to us and our transfer agent, we believe that as of February 16, 2018 there were 136approximately 200 record holders of our common stock.stock as of February 11, 2022.
Dividends – We have declared a cash dividend in each quarter since our February 1992 initial public offering and we have annually increased our dividend rate since our initial public offering. In December 2017,November 2021, our Board of Directors increased the quarterly dividend paid January 23, 201824, 2022 to $0.4125$0.62 per share from $0.35$0.5625 per share, an increase of 18%10%. This is the twenty-fifthtwenty-ninth consecutive year in which Roperthe Company has increased its dividend. The timing, declaration and payment of future dividends will be at the sole discretion of our Board of Directors and will depend upon our profitability, financial condition, capital needs, future prospects and other factors deemed relevant by our Board of Directors.
Performance Graph - This performance graph shall not be deemed "filed"“filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or under the Exchange Act.
The following graph compares, for the five year period ended December 31, 2017,2021, the cumulative total stockholder return for our common stock, the Standard and Poor'sPoor’s 500 Stock Index (the "S“S&P 500"500”) and the Standard and Poor'sPoor’s 500 Industrials Index (the "S“S&P 500 Industrials"Industrials”). Measurement points are the last trading day of each of our fiscal years ended December 31, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2017.2021. The graph assumes that $100 was invested on December 31, 20122016 in our common stock, the S&P 500 and the S&P 500 Industrials and assumes reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
| 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | ||||||||||||||||||||||||||||||
| Roper Technologies, Inc. | $ | 100.00 | $ | 142.38 | $ | 147.39 | $ | 197.01 | $ | 241.12 | $ | 276.51 | |||||||||||||||||||||||
| S&P 500 | 100.00 | 121.83 | 116.49 | 153.17 | 181.35 | 233.41 | |||||||||||||||||||||||||||||
| S&P 500 Industrials | 100.00 | 121.03 | 104.95 | 135.77 | 150.79 | 182.63 | |||||||||||||||||||||||||||||
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| 12/31/2012 | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 | 12/31/2017 | ||||||||||||||||||
| Roper Technologies, Inc. | $ | 100.00 | $ | 124.89 | $ | 141.61 | $ | 172.94 | $ | 167.96 | $ | 239.15 | |||||||||||
| S&P 500 | 100.00 | 132.39 | 150.51 | 152.59 | 170.84 | 208.14 | |||||||||||||||||
| S&P 500 Industrials | 100.00 | 140.68 | 154.50 | 150.59 | 178.99 | 216.64 | |||||||||||||||||
The information set forth in Item 12 under the heading "Securities“Securities Authorized for Issuance under Equity Compensation Plans"Plans” is incorporated herein by reference.
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| As of and for the Years ended December 31, | |||||||||||||||||||
2017 (1) | 2016 (2) | 2015 (3) | 2014 (4) | 2013 (5) | |||||||||||||||
| Operations data: | |||||||||||||||||||
| Net revenues | $ | 4,607,471 | $ | 3,789,925 | $ | 3,582,395 | $ | 3,549,494 | $ | 3,238,128 | |||||||||
| Gross profit | 2,864,796 | 2,332,410 | 2,164,646 | 2,101,899 | 1,882,928 | ||||||||||||||
| Income from operations | 1,210,244 | 1,054,563 | 1,027,918 | 999,473 | 842,361 | ||||||||||||||
Net earnings (6) | 971,772 | 658,645 | 696,067 | 646,033 | 538,293 | ||||||||||||||
| Per share data: | |||||||||||||||||||
| Basic earnings per share | $ | 9.51 | $ | 6.50 | $ | 6.92 | $ | 6.47 | $ | 5.43 | |||||||||
| Diluted earnings per share | $ | 9.39 | $ | 6.43 | $ | 6.85 | $ | 6.40 | $ | 5.37 | |||||||||
| Dividends declared per share | $ | 1.4625 | $ | 1.2500 | $ | 1.0500 | $ | 0.8500 | $ | 0.6950 | |||||||||
| Balance sheet data: | |||||||||||||||||||
Working capital (7) | $ | (270,007 | ) | $ | 331,229 | $ | 897,919 | $ | 884,158 | $ | 730,246 | ||||||||
Total assets (8) | 14,316,413 | 14,324,927 | 10,168,365 | 8,400,185 | 8,169,120 | ||||||||||||||
Long-term debt, net of current portion (8) | 4,354,611 | 5,808,561 | 3,264,417 | 2,190,282 | 2,437,975 | ||||||||||||||
| Stockholders' equity | 6,863,564 | 5,788,865 | 5,298,947 | 4,755,360 | 4,213,050 | ||||||||||||||
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
All currency amounts are in conjunction with "Selected Financial Data" and our Consolidated Financial Statements and related notes included in this Annual Report.millions unless specified
Overview
We are a diversified technology company. We operate businesses that design and develop software (both license and software-as-a-service)SaaS) and engineered products and solutions for a variety of niche end markets.
We pursue consistent and sustainable growth in earnings and cash flow by emphasizing continuous improvement in the operating performance of our existing businesses and by acquiring other carefully selected businesses that offer high value-added software, services, engineered products and solutions that we believe are capable of achieving growth and maintaining high margins. We compete in many niche markets and believe we are the market leader or a competitive alternative to the market leader in most of these markets.
Discontinued Operations
During 2021, Roper signed definitive agreements to divest its TransCore, Zetec and CIVCO Radiotherapy businesses. Our acquisitions have represented both additionsRoper has completed the divestitures of Zetec and CIVCO Radiotherapy, in the first quarter of 2022 and fourth quarter of 2021, respectively, and expects the TransCore transaction to existingclose in the first quarter of 2022, subject to customary closing conditions, including regulatory approvals. The financial results for these businesses and new strategic platforms.are reported as discontinued operations for all periods presented. Information regarding discontinued operations is included in Note 3 of the Notes to Consolidated Financial Statements.
Application of Critical Accounting Policies
Our Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States ("GAAP"(“GAAP”). A discussion of our significant accounting policies can also be found in the notesNotes to our Consolidated Financial Statements for the year ended December 31, 20172021 included in this 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.Consolidated 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 has reviewed all financial disclosures in our annual 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, future warranty obligations, revenue recognition, (percentage-of-completion), income taxes, valuation of other intangible assets and goodwill and indefinite-lived impairment analyses. These issues affect each of our business segments andEstimates are evaluated using a combination of historical experience, current conditions and relatively short-term forecasting.
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 U.S., 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. If there is a material change in the actual effective tax rates, the time period within which the underlying temporary differences become taxable or deductible, or if the
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tax law changes are unfavorable, then we could be required to recognize valuation allowances against deferred tax balances, resulting in an increase to income tax expense and the effective tax rate.
During 2017,2021, our effective income tax rate was 6.1%22.7%, as compared to the 20162020 rate of 30.0%21.5%. The decreaseincrease was due primarily to the recognition of a $215 million net income tax benefitnon-recurring item related to the Tax Act as well as increased excessa UK tax benefits related to equity compensationrate change, which had a $21.7 unfavorable impact in 2017 as compared to 2016.2021. We expect the effective tax rate for 20182022 to be betweenapproximately 21% and 23%to 22%.
We account for goodwill in a purchase business combination as the excess of the costpurchase price over the estimated fair value of the net identifiable assets acquired. Goodwill, which is not amortized, is tested for impairment on an annual basis in conjunction with our annual forecast process during the fourth quarter (or an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value).
When testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform the quantitative impairment test; otherwise, no further analysis is required. Under the qualitative assessment, we consider various qualitative factors, including macroeconomic conditions, relevant industry and market trends, cost factors, overall financial performance, other entity-specific events and events affecting the reporting unit that could indicate a potential change in the fair value of our reporting unit or the composition of its carrying values. We also consider the specific future outlook for the reporting unit.
We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. The quantitative assessment utilizes both an equal weighted income approach (discounted cash flows) and a market approach consisting(consisting of a comparable company earnings multiples methodologymethodology) to estimate the fair value of a reporting unit. To determine the reasonableness of the estimated fair values, we review the assumptions to ensure that neither the income approach nor the market approach provides significantly different valuations. If the estimated fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the estimated fair value, a non-cash impairment loss is recognized in the amount of that excess.
Key assumptions used in the income and market approaches are updated when the analysis is performed for each reporting unit. VariousThe assumptions that have the most significant effect on the fair value calculations are utilized including forecastedthe projected revenue growth rates, future operating results, strategic plans, economic projections, anticipated future cash flows, the weighted-average cost of capital, comparable transactions, market datamargins, discount rates, terminal values and earnings multiples. While we use reasonable and timely information to prepare our cash flow and discount rate assumptions, actual future cash flows or market conditions could differ significantly and could result in future non-cash impairment charges related to recorded goodwill balances.
Recently acquired reporting units generally represent a higher inherent risk of impairment, which typically decreases as the businesses are integrated into our enterprise. Negative industry or economic trends, disruptions to our business, actual results significantly below projections, unexpected significant changes or planned changes in the use of the assets, divestitures and market capitalization declines may have a negative effect on the fair value of our reporting units.
impairment of goodwill was not likely in 31any of ourits reporting units and thus we werewas not required to perform a quantitative analysisassessment for these reporting units. For the remaining two reporting units the Company performed its quantitative analysis and concluded that the fair value of each of these two reporting units was substantially in excess of its carrying value, with no impairment indicated as of October 1, 2017.2021.
20
impairment, which typically decreases as the businesses are integrated into our enterprise and positioned for improved future sales growth.
During the fourth quarter of 2021, the Company determined the use of the Sunquest trade name would be discontinued given the strategic action to merge the Sunquest business into our CliniSys business, both of which are reported in our Application Software reportable segment. Considering the planned merger and updated market comparisons, the royalty rate utilized in the quantitative impairment assessment of the trade name was 0.5% as compared to a royalty rate of 3.5% used in the prior year. The royalty rate reduction was the significant assumption that resulted in a non-cash impairment charge of $94.4 recognized as a component of “Impairment of intangible assets” within the Consolidated Statements of Earnings.
The assessment of fair value for impairment purposes requires significant judgments to be made by management. Although our forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and estimates management uses to operate the underlying businesses, there is significant judgment in determining the expected results attributable to the businesses and/or reporting units. Changes in estimates or the application of alternative assumptions could produce significantly different results. No impairment resulted
The most significant identifiable intangible assets with definite useful economic lives recognized from our acquisitions are customer relationships. The fair value for customer relationships is determined as of the acquisition date using the excess earnings method. Under this methodology the fair value is determined based on the estimated future after-tax cash flows arising from the annual reviews performed in 2017.acquired customer relationships over their estimated lives after considering customer attrition and contributory asset charges. The assumptions that have the most significant effect on the fair value calculations are the customer attrition rates, projected customer revenue growth rates, margins, contributory asset charges and discount rates. When testing customer relationship intangible assets for potential impairment, management considers historical customer attrition rates and projected revenues and profitability related to customers that existed at acquisition. In evaluating the amortizable life for customer relationship intangible assets, management considers historical customer attrition patterns.
We evaluate whether there has been an impairment of identifiable intangible assets with definite useful economic lives, or of the remaining life of such assets, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost or remaining period of amortization of any asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be compared to the asset'sasset’s carrying amount to determine if a write-down to fair value or a revision in the remaining amortization period is required.
During the fourth quarter of 2021, Sunquest also recognized a non-cash impairment charge of $5.1 representing the unamortized balance related primarily to a software intangible asset that will be discontinued in 2022. This impairment charge is included as a component of “Impairment of intangible assets” within the Consolidated Statements of Earnings.
21
Results of Operations
All currency amounts are in millions unless specified, percentages are net of revenues
Percentages may not sum due to rounding.
The following table sets forth selected information for the years indicated. Dollar amounts are in thousands
| Years ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Net revenues: | |||||||||||||||||
Application Software (1) | $ | 2,380.6 | $ | 1,799.9 | $ | 1,588.0 | |||||||||||
Network Software & Systems (2) | 1,338.4 | 1,173.7 | 1,004.2 | ||||||||||||||
Measurement & Analytical Solutions (3) | 1,559.6 | 1,425.6 | 1,544.3 | ||||||||||||||
| Process Technologies | 499.2 | 455.0 | 591.2 | ||||||||||||||
| Total | $ | 5,777.8 | $ | 4,854.2 | $ | 4,727.7 | |||||||||||
| Gross margin: | |||||||||||||||||
| Application Software | 69.3 | % | 68.3 | % | 67.0 | % | |||||||||||
| Network Software & Systems | 82.2 | 81.3 | 83.0 | ||||||||||||||
| Measurement & Analytical Solutions | 57.4 | 59.3 | 58.6 | ||||||||||||||
| Process Technologies | 54.4 | 53.4 | 57.1 | ||||||||||||||
| Total | 67.8 | % | 67.4 | % | 66.4 | % | |||||||||||
| Segment operating margin: | |||||||||||||||||
| Application Software | 26.7 | % | 26.0 | % | 25.5 | % | |||||||||||
| Network Software & Systems | 38.2 | 35.3 | 38.7 | ||||||||||||||
| Measurement & Analytical Solutions | 30.9 | 32.5 | 31.8 | ||||||||||||||
| Process Technologies | 30.6 | 25.4 | 35.8 | ||||||||||||||
| Total | 30.9 | % | 30.1 | % | 31.7 | % | |||||||||||
| Corporate administrative expenses | (3.5) | % | (3.9) | % | (3.6) | % | |||||||||||
| Loss from impairment | (1.7) | — | — | ||||||||||||||
| Income from operations | 25.6 | 26.2 | 28.1 | ||||||||||||||
| Interest expense, net | (4.1) | (4.5) | (3.9) | ||||||||||||||
| Other income (expense), net | 0.4 | (0.1) | (0.1) | ||||||||||||||
| Gain on disposal of businesses | — | — | 19.5 | ||||||||||||||
| Earnings before income taxes | 22.0 | 21.7 | 43.5 | ||||||||||||||
| Income taxes | (5.0) | (4.7) | (8.8) | ||||||||||||||
| Net earnings from continuing operations | 17.0 | % | 17.0 | % | 34.7 | % | |||||||||||
(1)Includes results from the acquisitions of ComputerEase from August 19, 2019, Bellefield from December 18, 2019, Vertafore from September 3, 2020, EPSi from October 15, 2020 and percentages areAmerican Legal Net from December 30, 2021.
(2)Includes results from the acquisitions of net revenues. Percentages may not foot due to rounding.Foundry from April 18, 2019, iPipeline from August 22, 2019, FMIC from June 9, 2020, Team TSI from June 15, 2020, IFS from September 15, 2020, WELIS from September 18, 2020 and Construction Journal from December 21, 2021.
(3)Includes the results from the Imaging businesses through February 5, 2019 and Gatan through October 29, 2019.
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| Years ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Net revenues: | |||||||||||
RF Technology (1) | $ | 1,862,126 | $ | 1,210,264 | $ | 1,033,951 | |||||
Medical & Scientific Imaging (2) | 1,410,349 | 1,362,813 | 1,215,318 | ||||||||
Industrial Technology (3) | 783,707 | 706,625 | 745,381 | ||||||||
Energy Systems & Controls (4) | 551,289 | 510,223 | 587,745 | ||||||||
| Total | $ | 4,607,471 | $ | 3,789,925 | $ | 3,582,395 | |||||
| Gross margin: | |||||||||||
| RF Technology | 61.1 | % | 56.7 | % | 53.4 | % | |||||
| Medical & Scientific Imaging | 72.0 | 73.2 | 74.0 | ||||||||
| Industrial Technology | 50.6 | 50.6 | 49.8 | ||||||||
| Energy Systems & Controls | 57.4 | 57.1 | 58.1 | ||||||||
| Total | 62.2 | % | 61.5 | % | 60.4 | % | |||||
| Segment operating margin: | |||||||||||
| RF Technology | 25.7 | % | 30.8 | % | 30.2 | % | |||||
| Medical & Scientific Imaging | 34.5 | 35.0 | 36.4 | ||||||||
| Industrial Technology | 30.0 | 28.7 | 28.8 | ||||||||
| Energy Systems & Controls | 27.4 | 25.4 | 27.6 | ||||||||
| Total | 29.3 | % | 31.2 | % | 31.6 | % | |||||
| Corporate administrative expenses | (3.1 | )% | (3.4 | )% | (2.9 | )% | |||||
| Income from continuing operations | 26.3 | 27.8 | 28.7 | ||||||||
| Interest expense, net | (3.9 | ) | (2.9 | ) | (2.4 | ) | |||||
| Other income/(expense) | 0.1 | (0.1 | ) | 1.6 | |||||||
| Income from continuing operations before taxes | 22.5 | 24.8 | 28.0 | ||||||||
| Income taxes | (1.4 | ) | (7.4 | ) | (8.5 | ) | |||||
| Net earnings | 21.1 | % | 17.4 | % | 19.4 | % | |||||
Year Ended December 31, 20172021 Compared to Year Ended December 31, 20162020
Net revenues for the year ended December 31, 20172021 were $4.61 billion$5,777.8 as compared to $3.79 billion$4,854.2 for the year ended December 31, 2016,2020, an increase of 21.6%19.0%. The increase wascomponents of revenue growth for the result of contributions from acquisitions of 16.3%, organic growth of 5.3% and no impact from foreign exchange.year ended December 31, 2021 were as follows:
| Application Software | Network Software & Systems | Measurement & Analytical Solutions | Process Technologies | Roper | |||||||||||||||||||||||||
| Total Revenue Growth | 32.3 | % | 14.0 | % | 9.4 | % | 9.7 | % | 19.0 | % | |||||||||||||||||||
| Less Impact of: | |||||||||||||||||||||||||||||
| Acquisitions/Divestitures | 23.1 | 1.9 | — | — | 9.0 | ||||||||||||||||||||||||
| Foreign Exchange | 1.0 | 0.9 | 1.2 | 1.4 | 1.1 | ||||||||||||||||||||||||
| Organic Revenue Growth | 8.2 | % | 11.2 | % | 8.2 | % | 8.3 | % | 8.9 | % | |||||||||||||||||||
In our RF TechnologyApplication Software segment, net revenues for the year ended December 31, 2017 increased by $651.9 million or 54% over the year ended December 31, 2016. Acquisitions accounted for 51% and organic revenues increased by 3%. The increase in organic revenues was due primarily2021 were $2,380.6 as compared to growth in our software businesses. Gross margin was 61.1%$1,799.9 for the year ended December 31, 2017 as compared2020. The growth of 8.2% in organic revenues was broad-based across the segment led by our businesses serving the government contracting, healthcare and legal markets. Gross margin increased to 56.7%69.3% for the year ended December 31, 2016,2021 as compared to 68.3% for the year ended December 31, 2020 due primarily to an increased percentagethe acquisition of revenues from our software businesses, which have aVertafore and operating leverage on higher gross margin.organic revenues. Selling, general and administrative ("(“SG&A"&A”) expenses as a percentage of revenues in the year ended December 31, 20172021 increased to 35.3%42.6%, as compared to 25.9%42.2% in the year ended December 31, 2016,2020, due primarily to an increased percentage of revenues from our software businesses, which have a higher SG&A structure, including amortization of acquired intangibles.intangibles from the Vertafore and EPSi acquisitions, partially offset by operating leverage on higher organic revenues. The resulting operating margin was 25.7%26.7% in 2017the year ended December 31, 2021 as compared to 30.8%26.0% in 2016.the year ended December 31, 2020.
In our Process Technologies segment, net revenues were $499.2 for the year ended December 31, 2021 as compared to $455.0 for the year ended December 31, 2020. The growth of which were8.3% in organic revenues was due to broad-based across the segment as energy and industrial markets continue to recover from the reduction in demand caused by the pandemic. Gross margin increased to 54.4% in the year ended December 31, 2021 as compared to 53.4% in the year ended December 31, 2020, due primarily to increased operating leverage on higher sales volume.organic revenues partially offset by costs associated with navigating the widespread supply chain challenges. SG&A expenses as a percentage of net revenues decreased to 23.7% in the year ended December 31, 2021, as compared to 28.0% in the year ended December 31, 2020, due primarily to $13.6 of restructuring charges for structural cost reduction actions taken at certain of our businesses during the second quarter of 2020 and operating leverage on higher organic revenues. As a result, operating margin was 27.4%30.6% in the year ended December 31, 20172021 as compared to 25.4% in the year ended December 31, 2016.2020.
Corporate expenses increased by $14.3 million$15.6 to $141.8 million,$203.3, or 3.1%3.5% of revenues, in 20172021 as compared to $127.5 million,$187.7, or 3.4%3.9% of revenues, in 2016.2020. The dollar increase was due primarily to increased incentivehigher compensation related expenses, partially offset by lower acquisition related expenses.
23
Impairment of intangible assets was $99.5 for the year ended December 31, 2021, due to the strategic action to merge the Sunquest business into our CliniSys business resulting in impairment of a trade name and professional services.other amortizable intangible assets.
Interest expense, net, increased $69.0 million,$15.6, or 61.9%7.1%, for the year ended December 31, 20172021 as compared to the year ended December 31, 2016.2020. The increase was due primarily to higher weighted average debt balances, to fund acquisitions atpartially offset by lower weighted average interest rates and $7.2 in interest expense for the end of 2016.origination fee on our bridge financing associated with the Vertafore acquisition in 2020.
Other income, net, of $5.0 million$24.9 for the year ended December 31, 20172021 was composed primarily of a $9.4 million gain on sale of a product line in our Energy Systems & Controls segment, offset in part by a $1.8 million charge on a minority investment and foreign exchange losses at our non-U.S. based companies.of $27.1. Other expense, net of $1.5 million$3.6 for the year ended December 31, 20162020, was composed primarily of foreign exchange losses at our non-U.S. based companies, offset in part by royalty income. subsidiaries.
During 2017,2021, our effective income tax rate was 6.1%22.7% as compared to our 20162020 rate of 30.0%21.5%. The decreaseincrease was due primarily to the recognition of a $215 million net income tax benefitnon-recurring item related to the Tax Act as well as increased excessa UK tax benefits relatedrate change, which had a $21.7 unfavorable impact in 2021.
Order backlog is equal to equity compensation in 2017 as compared to 2016.
| 2021 | 2020 | Change | |||||||||||||||
| Application Software | $ | 1,541.9 | $ | 1,366.9 | 12.8 | % | |||||||||||
| Network Software & Systems | 468.1 | 363.5 | 28.8 | ||||||||||||||
| Measurement & Analytical Solutions | 400.6 | 224.0 | 78.8 | ||||||||||||||
| Process Technologies | 150.2 | 107.4 | 39.9 | ||||||||||||||
| Total | $ | 2,560.8 | $ | 2,061.8 | 24.2 | % | |||||||||||
| 2017 | 2016 | change | ||||||||
| RF Technology | $ | 991,382 | $ | 991,212 | — | % | ||||
| Medical & Scientific Imaging | 467,836 | 423,616 | 10.4 | |||||||
| Industrial Technology | 110,841 | 65,259 | 69.8 | |||||||
| Energy Systems & Controls | 102,293 | 92,309 | 10.8 | |||||||
| Total | $ | 1,672,352 | $ | 1,572,396 | 6.4 | % | ||||
Year Ended December 31, 20162020 Compared to Year Ended December 31, 20152019
Net revenues for the year ended December 31, 20162020 were $3.79 billion$4,854.2 as compared to $3.58 billion$4,727.7 for the year ended December 31, 2015,2019, an increase of 5.8%2.7%. The increase wascomponents of revenue growth for the result of contributions from acquisitions of 6.8%, negative organic growth of 0.3% and a negative foreign exchange impact of 0.7%.year ended December 31, 2020 were as follows:
| Application Software | Network Software & Systems | Measurement & Analytical Solutions | Process Technologies | Roper | |||||||||||||||||||||||||
| Total Revenue Growth | 13.3 | % | 16.9 | % | (7.7) | % | (23.1) | % | 2.7 | % | |||||||||||||||||||
| Less Impact of: | |||||||||||||||||||||||||||||
| Acquisitions/Divestitures | 12.6 | 15.2 | (9.9) | — | 4.4 | ||||||||||||||||||||||||
| Foreign Exchange | 0.1 | 0.1 | 0.2 | — | 0.1 | ||||||||||||||||||||||||
| Organic Revenue Growth | 0.6 | % | 1.6 | % | 2.0 | % | (23.1) | % | (1.8) | % | |||||||||||||||||||
In our RF TechnologyApplication Software segment, net revenues for the year ended December 31, 2016 increased by $176 million or 17% over2020 were $1,799.9 as compared to $1,588.0 for the year ended December 31, 2015. Acquisitions net2019. The growth of the divestiture of the Black Diamond Advanced Technology business added 15%, organic revenues increased by 3%, and the negative foreign exchange impact was 1%. The increase0.6% in organic revenues was primarily due to businesses serving healthcare and government contracting markets. Gross margin increased to 68.3% for the year ended December 31, 2020 as compared to 67.0% for the year ended December 31, 2019 due primarily to increased sales in our software businesses, offset in part by the completion of large service contracts in our tolloperating leverage on higher organic revenues and traffic businesses in 2015. Gross margin was 56.7% in 2016 as compared to 53.4% in the prior year due to product mix in our toll and traffic businesses as well as an increased percentage of revenues at our software businesses which have a higher gross margin.revenue mix. SG&A expenses as a percentage of net revenues in the year ended December 31, 20162020 increased to 25.9%42.2%, as compared to 23.3%41.5% in the prior year ended December 31, 2019, due primarily to an increased percentagehigher amortization of net revenues at our software businesses which have a higher SG&A structure. Operatingacquired intangibles from the acquisitions completed in 2020. The resulting operating margin was 30.8%26.0% in 2016the year ended December 31, 2020 as compared to 30.2%25.5% in 2015.the year ended December 31, 2019.
24
In our Network Software & Scientific ImagingSystems segment, reported a $147 million or 12% increase in net revenues were $1,173.7 for the year ended December 31, 2016 over2020 as compared to $1,004.2 for the year ended December 31, 2015. Acquisitions contributed 9%, organic revenues increased 4% and the negative foreign exchange impact was 1%.2019. The increasegrowth of 1.6% in organic revenues was due to increased sales insubscription growth at our medicalSaaS businesses led by NDI and Verathon.our business serving the spot freight market in the United States. Gross margin decreased to 73.2% in81.3% for the year ended December 31, 20162020 from 74.0% in83.0% for the year ended December 31, 2015,2019, due primarily to productrevenue mix. SG&A expenses as a percentage of net revenues increased to 38.2%46.0% in the year ended December 31, 20162020, as compared to 37.7%44.2% in the year ended December 31, 2015,2019, due primarily to a higher SG&A structureamortization of acquired intangibles from the acquisitions completed in our medical businesses. Operating2019. The resulting operating margin was 35.0%35.3% in the year ended December 31, 20162020 as compared to 36.4%38.7% in the year ended December 31, 2015.2019.
In our Energy Systems & ControlsProcess Technologies segment, net revenues were $455.0 for the year ended December 31, 2016 decreased by $78 million or 13% from2020 as compared to $591.2 for the year ended December 31, 2015. Organic2019. The decrease of 23.1% in organic revenues decreased by 12%was due to decreased sales inbroad-based revenue declines across the segment led by lower demand at our businesses serving upstream oil and gas products, including safety systems and valves,end markets resulting from lower energy prices and the negative foreign exchange impact was 1%.COVID-19 pandemic. Gross margin decreased to 53.4% in the year ended December 31, 2020 as compared to 57.1% in the year ended December 31, 2016 as compared2019, due primarily to 58.1% in the year ended December 31, 2015 andlower revenues. SG&A expenses as a percentage of net revenues increased to 31.7%28.0% in the year ended December 31, 2020, as compared to 30.5%21.3% in the prior year bothended December 31, 2019, due primarily to $13.6 of which were due to negativerestructuring charges for structural cost reduction actions taken at certain of our businesses and lower operating leverage on lower sales volume. Operatingorganic revenue declines. As a result, operating margin was 25.4% in the year ended December 31, 20162020 as compared to 27.6%35.8% in the year ended December 31, 2015.2019.
Corporate expenses increased by $24.7 million$18.7 to $127.5 million,$187.7, or 3.4%3.9% of net revenues, in 20162020 as compared to $102.8 million,$169.0, or 2.9%3.6% of net revenues, in 2015.2019. The dollar increase was due primarily to increased equityhigher stock compensation costs as a result of both an increase in the number of shares granted in the current yearexpense and increases in our common stock price and increased costs related to acquisitions.professional services.
Interest expense, net, increased $27.3 million,$32.3, or 32.5%17.3%, for the year ended December 31, 20162020 as compared to the year ended December 31, 2015.2019. The increase was due primarily to (i) higher weighted average debt balances, to fund current year acquisitions as well as higherpartially offset by lower weighted average interest rates, throughout 2016.and (ii) $7.2 in interest expense for the origination fee on our bridge financing associated with the Vertafore acquisition in 2020.
Other expense, net, of $1.5 million$3.6 and $5.4 for the year ended December 31, 20162020 and December 31, 2019, respectively, was composed primarily of foreign exchange losses at our non-U.S. based companies, offsetsubsidiaries.
Gain on disposal of businesses, resulted in part by royalty income. Other incomea pretax gain of $58.7 million$920.7 for the year ended December 31, 2015 was composed primarily2019. The Company recognized $119.6 on the sale of the $70.9 million gain fromImaging businesses, which closed February 5, 2019, and $801.1 on the divestituresale of Abel Pumps (see Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report), offset in part by a $9.5 million impairment charge on a minority investment. Gatan, which closed October 29, 2019.
During 2016,2020, our effective income tax rate was 30.0%, which was 60 basis points lower than the 201521.5% as compared to our 2019 rate of 30.6%20.3%. The decreaseincrease was due primarily to the following non-recurring items in 2019, (i) recognition of $15.3 milliona discrete tax benefit of $41.0 in connection with a foreign restructuring plan allowing the future realization of net operating losses, and (ii) the reversal of the deferred tax liability associated with the excess of Gatan's book basis over tax benefitsbasis in the current year in accordance with an ASU related to stock compensation adoptedshares of $10.0 in the firstthird quarter of 2016 (see2019, partially offset by the higher income tax rate incurred on the Imaging and Gatan gains during 2019.
Order backlog is equal to our remaining performance obligations expected to be recognized within the next 12 months as discussed in Note 1 of the Notes to Consolidated Financial Statements included in this Annual Report), as well as the non-recurrence of the 2015 taxable gain on the divestiture of Abel Pumps which was partially offset by discrete tax benefits from settlements of tax matters in 2015.
25
| 2016 | 2015 | change | ||||||||
| RF Technology | $ | 991,212 | $ | 538,877 | 83.9 | % | ||||
| Medical & Scientific Imaging | 423,616 | 373,213 | 13.5 | % | ||||||
| Industrial Technology | 65,259 | 68,002 | (4.0 | )% | ||||||
| Energy Systems & Controls | 92,309 | 90,365 | 2.2 | % | ||||||
| Total | $ | 1,572,396 | $ | 1,070,457 | 46.9 | % | ||||
| 2020 | 2019 | Change | |||||||||||||||
| Application Software | $ | 1,366.9 | $ | 834.6 | 63.8 | % | |||||||||||
| Network Software & Systems | 363.5 | 346.7 | 4.8 | % | |||||||||||||
| Measurement & Analytical Solutions | 224.0 | 184.9 | 21.1 | % | |||||||||||||
| Process Technologies | 107.4 | 103.5 | 3.8 | % | |||||||||||||
| Total | $ | 2,061.8 | $ | 1,469.7 | 40.3 | % | |||||||||||
Financial Condition, Liquidity and Capital Resources
All currency amounts are in millions unless specified
Selected cash flows for the years ended December 31, 2017, 20162021 and 20152020 are as follows (in millions):follows. A detailed discussion of fiscal 2020 year-over-year changes can be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
| 2017 | 2016 | 2015 | 2021 | 2020 | |||||||||||||||||||||
| Cash provided by/(used in): | Cash provided by/(used in): | ||||||||||||||||||||||||
| Operating activities | $ | 1,234 | $ | 964 | $ | 929 | Operating activities | $ | 2,011.9 | $ | 1,525.1 | ||||||||||||||
| Investing activities | (210 | ) | (3,753 | ) | (1,698 | ) | Investing activities | (142.9) | (6,073.9) | ||||||||||||||||
| Financing activities | (1,170 | ) | 2,805 | 996 | Financing activities | (1,813.5) | 4,136.9 | ||||||||||||||||||
Operating activities - The increasegrowth in cash provided by operating activities in 2017 and in 20162021 as compared to 2020 was primarily due to increased earningshigher net income net of non-cash expenses and higher deferred revenue balances due to an increased percentagethe non-recurrence of revenue from software and other subscription based products. The increase$201.9 of cash taxes paid on the disposal of Gatan in 2020. These increases were partially offset by lower cash provided by operating activities in 2016 was offset in part by income tax payments in the first quarter of 2016 relatedworking capital as compared to the gain on the sale of the Abel Pumps business in the fourth quarter of 2015. prior year.
Investing activities - Cash used in investing activities during 2017, 2016 and 20152021 was primarily for business acquisitions. Cash received from investing activities in 2015 was primarilyacquisitions partially offset by proceeds from the sale of the Abel Pumps business.CIVCO Radiotherapy. Cash used in investing activities during 2020 was primarily for business acquisitions, most notably Vertafore and EPSi.
Financing activities - Cash used in/provided by financing activities in all periods presented was primarily debt repayments/borrowings as well as dividends paid to stockholders. Cash used in financing activities during 20172021 was primarily from the pay-downdue to net repayments of revolving debt borrowings$1,150.0 on our unsecured credit facility, $500.0 of $660 millionrepayments for our senior notes and the repayment of $400 million of senior notes.dividend payments. Cash provided by financing activities during 20162020 was primarily from the issuance of $1.2 billion$3,300.0 of senior notes and revolving debt$1,620.0 of net borrowings on the revolver, partially offset by $600.0 of repayments for acquisitions.senior notes and to a lesser extent dividend payments.
Net working capital (current(total current assets, excluding cash and current assets held for sale, less total current liabilities, excluding debt)debt and current liabilities held for sale) was a negative $140 million$882.5 at December 31, 20172021 compared to negative $25 million$704.4 at December 31, 2016,2020, due primarily to increased deferred revenues. Thisbalances of deferred revenue increase is due to a higher percentage of revenue from software and subscription-based services along with the impact of fair value purchase accounting resulting from 2016 acquisitions.income taxes payable partially offset by increased accounts receivable. Consistent negative net working capital demonstrates Roper’s focus on asset-light business models.
Total debt excluding unamortized debt issuance costs was $5.2 billion$7,970.3 at December 31, 2017 (43.0%2021 (40.8% of total capital) compared to $6.2 billion$9,620.5 at December 31, 2016 (51.8%2020 (47.9% of total capital). Our total debt decreased debt at December 31, 20172021 compared to December 31, 2016 was2020, due primarily to the pay-down$1,150.0 of revolving debt borrowings of $660 millionrepayments and the repaymentredemption of $400 million$500.0 of outstanding 2.80% senior unsecured notes.
On September 23, 2016, we2, 2020, the Company entered into a five-yearthree-year unsecured credit facility (the "2016 Facility") with JPMorgan Chase Bank, N.A., as administrative agent, Wells Fargo Bank, N.A. and a syndicateBank of lenders,America, N.A., as syndication agents, and MUFG Bank, Ltd., Mizuho Bank, Ltd., PNC Bank, National Association, Truist Bank and TD Bank, N.A., as co-documentation agents, which replaced ourits previous $2,500.0 unsecured credit facility, dated as of July 27, 2012,September 23, 2016, as amended as of October 28, 2015 (the "2012 Facility").amended. The 2016 Facilityfacility comprises a five year $2.5 billionthree-year $3,000.0 revolving credit facility, which includes availability of up to $150 million$150.0 for letters of credit. WeThe Company may also, subject to compliance with specified conditions, request additional term loans or additional revolving credit commitments in an aggregate amount not to exceed $500 million. $500.0.
The 2016 Facility contains various affirmative and negative covenants which, among other things, limit our ability to incur new debt, enter into certain mergers and acquisitions, sell assets and grant liens, make restricted payments (includingCredit Agreement requires the payment of dividends on our common stock) and capital expenditures, or change our line of business. We also are subject to financial covenants which require us to limit our consolidated total leverage ratio andCompany to maintain a consolidated interest coverage ratio. The most restrictive covenant isTotal Debt to Total Capital Ratio (as defined in the consolidated total leverage ratio which is limitedCredit Agreement) of 0.65 to 3.51.00 or less. Borrowings under the Credit Agreement are prepayable at Roper’s option at any time in whole or in part without premium or penalty.
26
We were in compliance with all debt covenants related to 1.
At December 31, 2017,2021, we had $3.9 billion$7,500.0 of senior unsecured notes and $1.3 billion$470.0 of outstanding revolver borrowings. In addition, we had $3.1 million of other debt in the form of capital leases and several smaller facilities that allow for borrowings or the issuance of letters of credit in foreign locations to support our non-U.S. businesses. We had $75.9 million$84.9 of outstanding letters of credit at December 31, 2017,2021, of which $33.1 million$28.2 was covered by our lending group, thereby reducing our revolving credit capacity commensurately.
We may redeem some or all of theseour senior unsecured notes at any time or from time to time, at 100% of their principal amount, plus a make-whole premium based on a spread to U.S. Treasury securities.
See Note 89 of the Notes to Consolidated Financial Statements included in this Annual Report for additional information regarding our credit facility and senior notes.
Cash and cash equivalents at our foreign subsidiaries at December 31, 20172021 totaled $592 million. The Tax Act included a one-time deemed mandatory repatriation tax on all undistributed foreign earnings, resulting in a charge of $110.7 million$310.8 as ofcompared to $259.1 at December 31, 2017.2020, an increase of 20.0%. The Company will elect to pay the liability over 8 years. In addition, the introduction of a modified territorial taxation system resulted in a one-time estimated charge of $28.7 millionincrease was due primarily due to cash generated from foreign operations, partially offset by the Company’s change in its indefinite reinvestment assertion on foreign earnings. The Company now intendsrepatriation of $329.3 during the year. We intend to distributerepatriate substantially all historical earnings subject to the deemed repatriation tax and has provided for deferred taxes related to the future state and foreign tax cost to repatriate. See Note 7 of the Notes to Consolidated Financial Statements included in this Annual Report for additional information regarding income taxes.earnings.
Capital expenditures of $48.8 million, $37.3 million$32.9, $28.3 and $36.3 million$43.0 were incurred during 2017, 20162021, 2020 and 2015,2019, respectively. Capitalized software expenditures of $10.8 million, $2.8 million$29.7, $17.7 and $2.4 million$10.2 were incurred during 2017, 20162021, 2020 and 2015,2019, respectively. The increasesCapital expenditures and capitalized software expenditures were relatively consistent in 20172021 as compared to 2016 was due primarily to our 2016 acquisitions.2020 and 2019. In the future, we expect the aggregate of capital expenditures and capitalized software expenditures as a percentage of annual net revenues to be between 1.0% and 1.5%.
Contractual Cash Obligations and Other Commercial Commitments and Contingencies
All currency amounts are in millions
The following tables quantify our contractual cash obligations and commercial commitments at December 31, 2017 (in thousands).2021.
| Payments Due in Fiscal Year | |||||||||||||||||||||||||||||||||||||||||
Contractual Cash Obligations 1 | Total | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | ||||||||||||||||||||||||||||||||||
| Total debt | $ | 7,970.3 | $ | 800.2 | $ | 1,170.1 | $ | 500.0 | $ | 1,000.0 | $ | 700.0 | $ | 3,800.0 | |||||||||||||||||||||||||||
| Senior note interest | 1,044.1 | 193.0 | 176.0 | 150.5 | 138.7 | 120.2 | 265.7 | ||||||||||||||||||||||||||||||||||
Purchase obligations 2 | 794.2 | 467.4 | 100.4 | 75.9 | 64.2 | 70.6 | 15.7 | ||||||||||||||||||||||||||||||||||
| Total | $ | 9,808.6 | $ | 1,460.6 | $ | 1,446.5 | $ | 726.4 | $ | 1,202.9 | $ | 890.8 | $ | 4,081.4 | |||||||||||||||||||||||||||
| Payments Due in Fiscal Year | |||||||||||||||||||||||||||
Contractual Cash Obligations 1 | Total | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | ||||||||||||||||||||
| Total debt | $ | 5,170,009 | $ | 800,009 | $ | 500,000 | $ | 600,000 | $ | 1,770,000 | $ | 500,000 | $ | 1,000,000 | |||||||||||||
| Senior note interest | 579,657 | 129,325 | 106,608 | 85,025 | 67,269 | 51,822 | 139,608 | ||||||||||||||||||||
| Capital leases | 3,140 | 1,494 | 1,061 | 529 | 47 | 9 | — | ||||||||||||||||||||
| Operating leases | 272,285 | 61,109 | 49,563 | 42,109 | 35,473 | 26,014 | 58,017 | ||||||||||||||||||||
| Total | $ | 6,025,091 | $ | 991,937 | $ | 657,232 | $ | 727,663 | $ | 1,872,789 | $ | 577,845 | $ | 1,197,625 | |||||||||||||
| Amounts Expiring in Fiscal Year | |||||||||||||||||||||||||||
Other Commercial Commitments | Total Amount Committed | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | ||||||||||||||||||||
| Standby letters of credit and bank guarantees | $ | 75,898 | $ | 28,614 | $ | 1,921 | $ | 723 | $ | 34,006 | $ | 10,351 | $ | 283 | |||||||||||||
1 We have excluded the liability for uncertain tax positions and certain other income tax liabilities resulting fromas we are not able to reasonably estimate the Tax Act considered "provisional."timing of the payments. See Note 7 of the Notes to Consolidated Financial Statements included in this Annual Report.
2 Represents minimum fixed price purchase commitments that are legally binding across Roper.
| Amounts Expiring in Fiscal Year | |||||||||||||||||||||||||||||||||||||||||
| Other Commercial Commitments | Total Amount Committed | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | ||||||||||||||||||||||||||||||||||
| Standby letters of credit and bank guarantees | $ | 84.9 | $ | 65.5 | $ | 8.8 | $ | 9.7 | $ | 0.2 | $ | 0.1 | $ | 0.6 | |||||||||||||||||||||||||||
As of December 31, 2017,2021, we had $573.4 million$659.7 of outstanding surety bonds.bonds of which $634.2 are directly associated with our Transcore business. Certain contracts, primarily those involving public sector customers, require us to provide a surety bond as a guarantee of itsour performance of contractual obligations.
We believe that internally generated cash flows and the remaining availability under our credit facility will be adequate to finance normal operating requirements. Although we maintain an active acquisition program, any 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 activities,business, financial condition and results of operations. WeSuch acquisitions may also explore alternativesbe financed by the use of existing credit lines, future cash flows from operations, future divestitures, the proceeds from the issuance of new debt or equity securities or any combination of these methods, the terms and availability of which will be subject to attract additional capital resources.market and economic conditions generally.
27
We anticipate that our businesses will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of currently outstanding debt in accordance with the repayment schedule. However, the rate at which we can reduce our debt during 20182022 (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.companies and the financial markets generally. None of these factors can be predicted with certainty.
Recently Issued Accounting Standards
See Note 1 of the Notes to Consolidated Financial Statements included in this Annual Report for information regarding the effect of new accounting pronouncements on our consolidated financial statements.Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate risks on our outstanding revolving credit 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.
At December 31, 2017,2021, we had $3.9 billion$7,500.0 of fixed rate borrowings with interest rates ranging from 2.05%0.45% to 6.25%4.20%. At December 31, 2017,2021, the prevailing market rates for our long-term notes were between 0.05%2.6% lower and 0.7% higher and 3.85% lower than the fixed rates on our debt instruments. Our credit facility contains a $2.5 billion$3,000.0 variable-rate revolver with $1.27 billion$470.0 of outstanding borrowings at December 31, 2017.2021.
Several of our businesses 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 kroner. Net revenues recognized by companies whose functional currency was not the U.S. dollar were 17% of our total revenues in 20172021 and 68%77% of these revenues were recognized by companies with a European functional currency. If these currency exchange rates had been 10% different throughout 20172021 compared to currency exchange rates actually experienced, the impact on our net earnings would have been approximately 1%.
The trading price of our common stock influences the valuation of stock award grants and the effects these grants have on our results of operations. The stock price also influences the computation of potentially dilutive common stock to determine diluted earnings per share. The stock price also affects our employees'employees’ perceptions of 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| Page | |||||
| Consolidated Financial Statements: | |||||
Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers | |||||
| Supplementary Data: | |||||
30
Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Stockholders of Roper Technologies, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Roper Technologies, Inc. and its subsidiaries (the "Company"“Company”) as of December 31, 2017,2021 and 2016,2020, and the related consolidated statements of earnings, of comprehensive income, of stockholders'stockholders’ equity, and of cash flows for each of the three years in the period ended December 31, 2017,2021 including the related notes and financial statement schedule listed in the accompanying index(collectively (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172021 and 2016, 2020, and the results oftheir its operations and theirits cash flows for each of the three years in the period endedDecember 31, 20172021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Report on Internal Control over Financial Reporting.Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded the seven acquisitions completed in 20172021 from its assessment of internal control over financial reporting as of December 31, 20172021 because they were acquired by the Company in purchase business combinations during 2017.2021. We have also excluded the seven acquisitions completed in 20172021 from our audit of internal control over financial reporting. These acquisitionsThe acquired entities are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent less than 1% and less than 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2017.2021.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
31
expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Indefinite-Lived Trade Name Intangible Asset Quantitative Impairment Assessment - Sunquest
As described in Notes 1 and 6 to the consolidated financial statements, the Company’s consolidated indefinite-lived intangible assets balance was $648.6 million as of December 31, 2021, which was comprised entirely of trade names. Trade names that are determined to have indefinite useful economic lives are not amortized, but separately tested for impairment during the fourth quarter of the fiscal year or on an interim basis if an event occurs that indicates the fair value is more likely than not below the carrying value. Management first qualitatively assesses whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of an indefinite-lived trade name is less than its carrying amount. If necessary, management conducts a quantitative review using the relief-from-royalty method. The assumptions that have the most significant effect on the fair value calculations are the royalty rates, projected revenue growth rates, discount rates, and terminal values. Each royalty rate is determined based on the profitability of the trade name to which it relates and observed market royalty rates. During the fourth quarter of 2021, management determined the use of the Sunquest trade name would be discontinued and performed a quantitative impairment assessment and recognized a non-cash impairment charge of $94.4 million.
The principal considerations for our determination that performing procedures relating to the Sunquest indefinite-lived trade name intangible asset quantitative impairment assessment is a critical audit matter are (i) the significant judgment by management when determining the fair value of the indefinite-lived trade name intangible asset; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the royalty rate, discount rate, and terminal value; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s Sunquest indefinite-lived trade name intangible asset quantitative impairment assessment, including controls over the valuation of Sunquest’s indefinite-lived trade name intangible asset. These procedures also included, among others (i) testing management’s process for determining the fair value; (ii) evaluating the appropriateness of the relief-from-royalty method; (iii) testing the completeness and accuracy of the underlying data used in the method; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the royalty rate, discount rate, and terminal value. Evaluating management’s significant assumption related to the terminal value involved evaluating whether the significant assumption used by management was reasonable considering (i) the current and past performance of the asset group comprised of Sunquest’s indefinite-lived trade name intangible asset; (ii) the consistency with external market and industry data; and (iii) whether the assumption was consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the relief-from-royalty method and (ii) the reasonableness of the royalty rate and the discount rate significant assumptions.
/S/s/ PricewaterhouseCoopers LLP
Tampa, Florida
February 23, 201822, 2022
We have served as the Company’s auditor since 2002.
ROPER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands,millions, except per share data)
| 2017 | 2016 | ||||||
| Assets | |||||||
| Cash and cash equivalents | $ | 671,327 | $ | 757,200 | |||
| Accounts receivable, net | 641,662 | 619,854 | |||||
| Inventories, net | 204,933 | 181,952 | |||||
| Income taxes receivable | 24,365 | 31,679 | |||||
| Unbilled receivables | 143,634 | 129,965 | |||||
| Other current assets | 73,481 | 55,851 | |||||
| Total current assets | 1,759,402 | 1,776,501 | |||||
| Property, plant and equipment, net | 142,535 | 141,318 | |||||
| Goodwill | 8,820,313 | 8,647,142 | |||||
| Other intangible assets, net | 3,475,218 | 3,655,843 | |||||
| Deferred taxes | 30,726 | 30,620 | |||||
| Other assets | 88,219 | 73,503 | |||||
| Total assets | $ | 14,316,413 | $ | 14,324,927 | |||
| Liabilities and Stockholders' Equity | |||||||
| Accounts payable | $ | 171,073 | $ | 152,067 | |||
| Accrued compensation | 198,020 | 161,730 | |||||
| Deferred revenue | 566,447 | 488,399 | |||||
| Other accrued liabilities | 266,574 | 219,339 | |||||
| Income taxes payable | 26,351 | 22,762 | |||||
| Current portion of long-term debt, net | 800,944 | 400,975 | |||||
| Total current liabilities | 2,029,409 | 1,445,272 | |||||
| Long-term debt, net of current portion | 4,354,611 | 5,808,561 | |||||
| Deferred taxes | 829,657 | 1,178,205 | |||||
| Other liabilities | 239,172 | 104,024 | |||||
| Total liabilities | 7,452,849 | 8,536,062 | |||||
| Commitments and contingencies (Note 12) | |||||||
| Stockholders' equity: | |||||||
| Preferred stock, $0.01 par value per share; 1,000 shares authorized; none outstanding | — | — | |||||
| Common stock, $0.01 par value per share; 350,000 shares authorized; 104,379 shares issued and 102,493 outstanding at December 31, 2017 and 103,578 shares issued and 101,672 outstanding at December 31, 2016 | 1,044 | 1,036 | |||||
| Additional paid-in capital | 1,602,869 | 1,489,067 | |||||
| Retained earnings | 5,464,571 | 4,642,402 | |||||
| Accumulated other comprehensive loss | (186,214 | ) | (324,739 | ) | |||
| Treasury stock, 1,886 shares at December 31, 2017 and 1,906 shares at December 31, 2016 | (18,706 | ) | (18,901 | ) | |||
| Total stockholders' equity | 6,863,564 | 5,788,865 | |||||
| Total liabilities and stockholders' equity | $ | 14,316,413 | $ | 14,324,927 | |||
| As of December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 351.5 | $ | 308.3 | |||||||
| Accounts receivable, net | 839.4 | 745.7 | |||||||||
| Inventories, net | 176.1 | 165.1 | |||||||||
| Income taxes receivable | 27.7 | 21.9 | |||||||||
| Unbilled receivables | 95.3 | 72.8 | |||||||||
| Other current assets | 142.5 | 114.3 | |||||||||
| Current assets held for sale | 788.6 | 324.2 | |||||||||
| Total current assets | 2,421.1 | 1,752.3 | |||||||||
| Property, plant and equipment, net | 102.8 | 127.3 | |||||||||
| Goodwill | 14,094.5 | 13,966.0 | |||||||||
| Other intangible assets, net | 6,588.5 | 7,168.2 | |||||||||
| Deferred taxes | 101.1 | 103.2 | |||||||||
| Other assets | 405.9 | 386.2 | |||||||||
| Assets held for sale | — | 521.6 | |||||||||
| Total assets | $ | 23,713.9 | $ | 24,024.8 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Accounts payable | $ | 150.8 | $ | 127.1 | |||||||
| Accrued compensation | 309.8 | 262.6 | |||||||||
| Deferred revenue | 1,130.2 | 990.2 | |||||||||
| Other accrued liabilities | 440.7 | 418.6 | |||||||||
| Income taxes payable | 132.0 | 25.7 | |||||||||
| Current portion of long-term debt, net | 799.2 | 499.4 | |||||||||
| Current liabilities held for sale | 159.1 | 120.8 | |||||||||
| Total current liabilities | 3,121.8 | 2,444.4 | |||||||||
| Long-term debt, net of current portion | 7,122.6 | 9,061.4 | |||||||||
| Deferred taxes | 1,479.5 | 1,531.5 | |||||||||
| Other liabilities | 426.2 | 443.6 | |||||||||
| Liabilities held for sale | — | 64.1 | |||||||||
| Total liabilities | 12,150.1 | 13,545.0 | |||||||||
| Commitments and contingencies (Note 13) | 0 | 0 | |||||||||
| Stockholders’ equity: | |||||||||||
| Preferred stock, $0.01 par value per share; 1.0 shares authorized; none outstanding | — | — | |||||||||
| Common stock, $0.01 par value per share; 350.0 shares authorized; 107.3 shares issued and 105.5 outstanding at December 31, 2021 and 106.7 shares issued and 104.9 outstanding at December 31, 2020 | 1.1 | 1.1 | |||||||||
| Additional paid-in capital | 2,307.8 | 2,097.5 | |||||||||
| Retained earnings | 9,455.6 | 8,546.2 | |||||||||
| Accumulated other comprehensive loss | (183.1) | (147.0) | |||||||||
| Treasury stock, 1.8 shares at December 31, 2021 and 1.8 shares at December 31, 2020 | (17.6) | (18.0) | |||||||||
| Total stockholders' equity | 11,563.8 | 10,479.8 | |||||||||
| Total liabilities and stockholders' equity | $ | 23,713.9 | $ | 24,024.8 | |||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
33
ROPER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar and share amounts in thousands,millions, except per share data)
| Years ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2021 | 2020 | 2019 | |||||||||||||||||||||||
| Net revenues | $ | 4,607,471 | $ | 3,789,925 | $ | 3,582,395 | Net revenues | $ | 5,777.8 | $ | 4,854.2 | $ | 4,727.7 | |||||||||||||||
| Cost of sales | 1,742,675 | 1,457,515 | 1,417,749 | Cost of sales | 1,860.4 | 1,583.4 | 1,587.6 | |||||||||||||||||||||
| Gross profit | 2,864,796 | 2,332,410 | 2,164,646 | Gross profit | 3,917.4 | 3,270.8 | 3,140.1 | |||||||||||||||||||||
| Selling, general and administrative expenses | 1,654,552 | 1,277,847 | 1,136,728 | Selling, general and administrative expenses | 2,337.7 | 1,997.3 | 1,811.8 | |||||||||||||||||||||
| Impairment of intangible assets | Impairment of intangible assets | 99.5 | — | — | ||||||||||||||||||||||||
| Income from operations | 1,210,244 | 1,054,563 | 1,027,918 | Income from operations | 1,480.2 | 1,273.5 | 1,328.3 | |||||||||||||||||||||
| Interest expense, net | 180,566 | 111,559 | 84,225 | Interest expense, net | 234.1 | 218.5 | 186.2 | |||||||||||||||||||||
| Loss on extinguishment of debt | — | 871 | — | |||||||||||||||||||||||||
| Other income/(expense), net | 5,045 | (1,481 | ) | 58,652 | ||||||||||||||||||||||||
| Other income (expense), net | Other income (expense), net | 24.9 | (3.6) | (5.4) | ||||||||||||||||||||||||
| Gain on disposal of businesses | Gain on disposal of businesses | — | — | 920.7 | ||||||||||||||||||||||||
| Earnings before income taxes | 1,034,723 | 940,652 | 1,002,345 | Earnings before income taxes | 1,271.0 | 1,051.4 | 2,057.4 | |||||||||||||||||||||
| Income taxes | 62,951 | 282,007 | 306,278 | Income taxes | 288.4 | 225.9 | 417.4 | |||||||||||||||||||||
| Net earnings from continuing operations | Net earnings from continuing operations | 982.6 | 825.5 | 1,640.0 | ||||||||||||||||||||||||
| Earnings from discontinued operations, net of tax | Earnings from discontinued operations, net of tax | 114.1 | 124.2 | 127.9 | ||||||||||||||||||||||||
| Gain on disposition of discontinued operations, net of tax | Gain on disposition of discontinued operations, net of tax | 55.9 | — | — | ||||||||||||||||||||||||
| Net earnings from discontinued operations | Net earnings from discontinued operations | 170.0 | 124.2 | 127.9 | ||||||||||||||||||||||||
| Net earnings | $ | 971,772 | $ | 658,645 | $ | 696,067 | Net earnings | $ | 1,152.6 | $ | 949.7 | $ | 1,767.9 | |||||||||||||||
| Earnings per share: | ||||||||||||||||||||||||||||
| Net earnings per share from continuing operations: | Net earnings per share from continuing operations: | |||||||||||||||||||||||||||
| Basic | Basic | $ | 9.33 | $ | 7.89 | $ | 15.79 | |||||||||||||||||||||
| Diluted | Diluted | $ | 9.23 | $ | 7.81 | $ | 15.60 | |||||||||||||||||||||
| Net earnings per share from discontinued operations: | Net earnings per share from discontinued operations: | |||||||||||||||||||||||||||
| Basic | Basic | $ | 1.62 | $ | 1.19 | $ | 1.23 | |||||||||||||||||||||
| Diluted | Diluted | $ | 1.59 | $ | 1.17 | $ | 1.22 | |||||||||||||||||||||
| Net earnings per share: | Net earnings per share: | |||||||||||||||||||||||||||
| Basic | $ | 9.51 | $ | 6.50 | $ | 6.92 | Basic | $ | 10.95 | $ | 9.08 | $ | 17.02 | |||||||||||||||
| Diluted | $ | 9.39 | $ | 6.43 | $ | 6.85 | Diluted | $ | 10.82 | $ | 8.98 | $ | 16.82 | |||||||||||||||
| Weighted-average common shares outstanding: | Weighted-average common shares outstanding: | |||||||||||||||||||||||||||
| Basic | 102,168 | 101,291 | 100,616 | Basic | 105.3 | 104.6 | 103.9 | |||||||||||||||||||||
| Diluted | 103,522 | 102,464 | 101,597 | Diluted | 106.5 | 105.7 | 105.1 | |||||||||||||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
34
ROPER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| Years ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Net earnings | $ | 971,772 | $ | 658,645 | $ | 696,067 | |||||
| Other comprehensive income, net of tax: | |||||||||||
| Foreign currency translation adjustments | 138,525 | (111,960 | ) | (139,789 | ) | ||||||
| Unrecognized pension gain | — | — | (1,063 | ) | |||||||
| Total other comprehensive income/(loss), net of tax | 138,525 | (111,960 | ) | (140,852 | ) | ||||||
| Comprehensive income | $ | 1,110,297 | $ | 546,685 | $ | 555,215 | |||||
| Year ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Net earnings | $ | 1,152.6 | $ | 949.7 | $ | 1,767.9 | |||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||
| Foreign currency translation adjustments | (36.1) | 65.8 | 30.5 | ||||||||||||||
| Total other comprehensive income (loss), net of tax | (36.1) | 65.8 | 30.5 | ||||||||||||||
| Comprehensive income | $ | 1,116.5 | $ | 1,015.5 | $ | 1,798.4 | |||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
35
ROPER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'STOCKHOLDERS’ EQUITY
(in thousands,millions, except per share data)
| Common Stock | ||||||||||||||||||||||||||
| Shares | Amount | Additional paid-in capital | Retained earnings | Accumulated other comprehensive earnings | Treasury stock | Total stockholders' equity | ||||||||||||||||||||
| Balances at December 31, 2014 | 100,126 | $ | 1,021 | $ | 1,325,338 | $ | 3,520,201 | $ | (71,927 | ) | $ | (19,273 | ) | $ | 4,755,360 | |||||||||||
| Net earnings | — | — | — | 696,067 | — | — | 696,067 | |||||||||||||||||||
| Stock option exercises | 402 | 4 | 33,002 | — | — | — | 33,006 | |||||||||||||||||||
| Treasury stock sold | 18 | — | 2,710 | — | — | 179 | 2,889 | |||||||||||||||||||
| Currency translation adjustments, net of $6,658 tax | — | — | — | — | (139,789 | ) | — | (139,789 | ) | |||||||||||||||||
| Stock based compensation | — | — | 61,766 | — | — | — | 61,766 | |||||||||||||||||||
| Restricted stock activity | 324 | 3 | (14,697 | ) | — | — | — | (14,694 | ) | |||||||||||||||||
| Stock option tax benefit, net of shortfalls | — | — | 22,175 | — | — | — | 22,175 | |||||||||||||||||||
| Conversion of senior subordinated convertible notes | — | — | (11,032 | ) | — | — | — | (11,032 | ) | |||||||||||||||||
| Post-retirement benefit plan adjustments | — | — | — | — | (1,063 | ) | — | (1,063 | ) | |||||||||||||||||
| Dividends declared ($1.05 per share) | — | — | — | (105,738 | ) | — | — | (105,738 | ) | |||||||||||||||||
| Balances at December 31, 2015 | 100,870 | $ | 1,028 | $ | 1,419,262 | $ | 4,110,530 | $ | (212,779 | ) | $ | (19,094 | ) | $ | 5,298,947 | |||||||||||
| Net earnings | — | — | — | 658,645 | — | — | 658,645 | |||||||||||||||||||
| Stock option exercises | 372 | 4 | 27,970 | — | — | — | 27,974 | |||||||||||||||||||
| Treasury stock sold | 19 | — | 3,147 | — | — | 193 | 3,340 | |||||||||||||||||||
| Currency translation adjustments, net of $2,570 tax | — | — | — | — | (111,960 | ) | — | (111,960 | ) | |||||||||||||||||
| Stock based compensation | — | — | 77,860 | — | — | — | 77,860 | |||||||||||||||||||
| Restricted stock activity | 411 | 4 | (17,980 | ) | — | — | — | (17,976 | ) | |||||||||||||||||
| Stock option tax benefit, net of shortfalls | — | — | (8,081 | ) | — | — | — | (8,081 | ) | |||||||||||||||||
| Conversion of senior subordinated convertible notes | — | — | (13,111 | ) | — | — | — | (13,111 | ) | |||||||||||||||||
| Dividends declared ($1.25 per share) | — | — | — | (126,773 | ) | — | — | (126,773 | ) | |||||||||||||||||
| Balances at December 31, 2016 | 101,672 | $ | 1,036 | $ | 1,489,067 | $ | 4,642,402 | $ | (324,739 | ) | $ | (18,901 | ) | $ | 5,788,865 | |||||||||||
| Net earnings | — | — | — | 971,772 | — | — | 971,772 | |||||||||||||||||||
| Stock option exercises | 645 | 6 | 61,317 | — | — | — | 61,323 | |||||||||||||||||||
| Treasury stock sold | 20 | — | 4,003 | — | — | 195 | 4,198 | |||||||||||||||||||
| Currency translation adjustments, net of $4,899 tax | — | — | — | — | 138,525 | — | 138,525 | |||||||||||||||||||
| Stock based compensation | — | — | 81,324 | — | — | — | 81,324 | |||||||||||||||||||
| Restricted stock activity | 156 | 2 | (32,842 | ) | — | — | — | (32,840 | ) | |||||||||||||||||
| Dividends declared ($1.4625 per share) | — | — | — | (149,603 | ) | — | — | (149,603 | ) | |||||||||||||||||
| Balances at December 31, 2017 | 102,493 | $ | 1,044 | $ | 1,602,869 | $ | 5,464,571 | $ | (186,214 | ) | $ | (18,706 | ) | $ | 6,863,564 | |||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Treasury stock | Total stockholders’ equity | |||||||||||||||||||||||||||||||||||
| Balances at December 31, 2018 | 103.4 | $ | 1.1 | $ | 1,751.5 | $ | 6,247.7 | $ | (243.3) | $ | (18.5) | $ | 7,738.5 | ||||||||||||||||||||||||||||
| Net earnings | — | — | — | 1,767.9 | — | — | 1,767.9 | ||||||||||||||||||||||||||||||||||
| Stock option exercises | 0.5 | — | 64.9 | — | — | — | 64.9 | ||||||||||||||||||||||||||||||||||
| Treasury stock sold | — | — | 6.6 | — | — | 0.2 | 6.8 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustments, including tax benefit of $3.8 | — | — | — | — | 30.5 | — | 30.5 | ||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | 110.9 | — | — | — | 110.9 | ||||||||||||||||||||||||||||||||||
| Restricted stock activity | 0.2 | — | (30.0) | — | — | — | (30.0) | ||||||||||||||||||||||||||||||||||
| Dividends declared ($1.90 per share) | — | — | — | (197.6) | — | — | (197.6) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2019 | 104.1 | $ | 1.1 | $ | 1,903.9 | $ | 7,818.0 | $ | (212.8) | $ | (18.3) | $ | 9,491.9 | ||||||||||||||||||||||||||||
| Adoption of ASC 326 | — | — | — | (1.7) | — | — | (1.7) | ||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | 949.7 | — | — | 949.7 | ||||||||||||||||||||||||||||||||||
| Stock option exercises | 0.7 | — | 105.5 | — | — | — | 105.5 | ||||||||||||||||||||||||||||||||||
| Treasury stock sold | — | — | 10.2 | — | — | 0.3 | 10.5 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustments, including tax provision of $14.6 | — | — | — | — | 65.8 | — | 65.8 | ||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | 119.0 | — | — | — | 119.0 | ||||||||||||||||||||||||||||||||||
| Restricted stock activity | 0.1 | — | (41.1) | — | — | — | (41.1) | ||||||||||||||||||||||||||||||||||
| Dividends declared ($2.10 per share) | — | — | — | (219.8) | — | — | (219.8) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | 104.9 | $ | 1.1 | $ | 2,097.5 | $ | 8,546.2 | $ | (147.0) | $ | (18.0) | $ | 10,479.8 | ||||||||||||||||||||||||||||
| Net earnings | — | — | — | 1,152.6 | — | — | 1,152.6 | ||||||||||||||||||||||||||||||||||
| Stock option exercises | 0.5 | — | 104.7 | — | — | — | 104.7 | ||||||||||||||||||||||||||||||||||
| Cash settlement of share-based awards in connection with disposition of discontinued operations | — | — | (6.7) | — | — | — | (6.7) | ||||||||||||||||||||||||||||||||||
| Treasury stock sold | — | — | 14.7 | — | — | 0.4 | 15.1 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustments, including tax benefit of $6.2 | — | — | — | — | (36.1) | — | (36.1) | ||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | 138.0 | — | — | — | 138.0 | ||||||||||||||||||||||||||||||||||
| Restricted stock activity | 0.1 | — | (40.4) | — | — | — | (40.4) | ||||||||||||||||||||||||||||||||||
| Dividends declared ($2.31 per share) | — | — | — | (243.2) | — | — | (243.2) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | 105.5 | $ | 1.1 | $ | 2,307.8 | $ | 9,455.6 | $ | (183.1) | $ | (17.6) | $ | 11,563.8 | ||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
36
ROPER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net earnings from continuing operations | $ | 982.6 | $ | 825.5 | $ | 1,640.0 | |||||||||||
| Adjustments to reconcile net earnings from continuing operations to cash flows from operating activities: | |||||||||||||||||
| Depreciation and amortization of property, plant and equipment | 49.7 | 46.7 | 43.1 | ||||||||||||||
| Amortization of intangible assets | 584.4 | 466.2 | 365.7 | ||||||||||||||
| Amortization of deferred financing costs | 13.5 | 10.9 | 7.3 | ||||||||||||||
| Non-cash stock compensation | 136.1 | 117.0 | 101.2 | ||||||||||||||
| Impairment of intangible assets | 99.5 | — | — | ||||||||||||||
| Gain on disposal of assets and businesses, net of associated income tax | (21.6) | — | (687.3) | ||||||||||||||
| Income tax provision, excluding tax associated with gain on disposal of businesses and assets | 282.9 | 225.9 | 184.0 | ||||||||||||||
| Changes in operating assets and liabilities, net of acquired businesses: | |||||||||||||||||
| Accounts receivable | (100.2) | 55.0 | (30.7) | ||||||||||||||
| Unbilled receivables | (19.4) | 0.2 | 6.3 | ||||||||||||||
| Inventories | (13.9) | 0.1 | (14.1) | ||||||||||||||
| Accounts payable and accrued liabilities | 66.3 | 93.1 | (7.0) | ||||||||||||||
| Deferred revenue | 164.5 | 60.3 | 114.2 | ||||||||||||||
| Cash tax paid for gain on disposal of businesses | — | (201.9) | (39.4) | ||||||||||||||
| Cash income taxes paid, excluding tax associated with gain on disposal of businesses | (320.7) | (311.6) | (328.3) | ||||||||||||||
| Other, net | (37.5) | (19.4) | (23.8) | ||||||||||||||
| Cash provided by operating activities from continuing operations | 1,866.2 | 1,368.0 | 1,331.2 | ||||||||||||||
| Cash provided by operating activities from discontinued operations | 145.7 | 157.1 | 130.6 | ||||||||||||||
| Cash provided by operating activities | 2,011.9 | 1,525.1 | 1,461.8 | ||||||||||||||
| Cash flows from (used in) investing activities: | |||||||||||||||||
| Acquisitions of businesses, net of cash acquired | (217.0) | (6,018.1) | (2,387.3) | ||||||||||||||
| Capital expenditures | (32.9) | (28.3) | (43.0) | ||||||||||||||
| Capitalized software expenditures | (29.7) | (17.7) | (10.2) | ||||||||||||||
| Proceeds from (used in) disposal of businesses | — | (4.3) | 1,156.8 | ||||||||||||||
| Proceeds from sale of assets | 27.1 | — | — | ||||||||||||||
| Other, net | (0.7) | (2.6) | (2.3) | ||||||||||||||
| Cash used in investing activities from continuing operations | (253.2) | (6,071.0) | (1,286.0) | ||||||||||||||
| Proceeds from disposition of discontinued operations | 115.6 | — | — | ||||||||||||||
| Cash used in investing activities from discontinued operations | (5.3) | (2.9) | (10.0) | ||||||||||||||
| Cash used in investing activities | (142.9) | (6,073.9) | (1,296.0) | ||||||||||||||
| Cash flows from (used in) financing activities: | |||||||||||||||||
| Proceeds from senior notes | — | 3,300.0 | 1,200.0 | ||||||||||||||
| Payment of senior notes | (500.0) | (600.0) | — | ||||||||||||||
| Borrowings (payments) under revolving line of credit, net | (1,150.0) | 1,620.0 | (865.0) | ||||||||||||||
| Debt issuance costs | — | (42.0) | (12.1) | ||||||||||||||
| Cash dividends to stockholders | (236.4) | (214.1) | (191.7) | ||||||||||||||
| Treasury stock sales | 15.1 | 10.5 | 6.8 | ||||||||||||||
| Proceeds from stock based compensation, net | 64.3 | 64.4 | 34.9 | ||||||||||||||
| Other, net | (0.1) | (0.2) | (0.6) | ||||||||||||||
| Cash provided by (used in) financing activities from continuing operations | (1,807.1) | 4,138.6 | 172.3 | ||||||||||||||
| Cash provided by (used in) financing activities from discontinued operations | (6.4) | (1.7) | 4.7 | ||||||||||||||
| Cash provided by (used in) financing activities | (1,813.5) | 4,136.9 | 177.0 | ||||||||||||||
| (Continued) | |||||||||||||||||
ROPER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(in thousands)millions)
| Years ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ | 971,772 | $ | 658,645 | $ | 696,067 | |||||
| Adjustments to reconcile net earnings to cash flows from operating activities: | |||||||||||
| Depreciation and amortization of property, plant and equipment | 49,513 | 37,299 | 38,185 | ||||||||
| Amortization of intangible assets | 295,452 | 203,154 | 166,076 | ||||||||
| Amortization of deferred financing costs | 7,227 | 5,612 | 4,136 | ||||||||
| Non-cash stock compensation | 83,075 | 78,827 | 61,766 | ||||||||
| Gain on disposal of a business | — | — | (70,860 | ) | |||||||
| Gain on sale of assets | (9,393 | ) | — | — | |||||||
| Changes in operating assets and liabilities, net of acquired businesses: | |||||||||||
| Accounts receivable | (6,673 | ) | (20,734 | ) | 52,597 | ||||||
| Unbilled receivables | (13,493 | ) | (1,202 | ) | (21,844 | ) | |||||
| Inventories | (15,363 | ) | 6,353 | (1,150 | ) | ||||||
| Accounts payable and accrued liabilities | 73,333 | 20,176 | (8,392 | ) | |||||||
| Deferred revenue | 74,881 | 25,190 | 8,239 | ||||||||
| Income taxes | (256,971 | ) | (47,589 | ) | 3,069 | ||||||
| Other, net | (18,878 | ) | (1,946 | ) | 936 | ||||||
| Cash provided by operating activities | 1,234,482 | 963,785 | 928,825 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisitions of businesses, net of cash acquired | (153,736 | ) | (3,721,758 | ) | (1,762,883 | ) | |||||
| Capital expenditures | (48,752 | ) | (37,305 | ) | (36,260 | ) | |||||
| Capitalized software expenditures | (10,784 | ) | (2,801 | ) | (2,439 | ) | |||||
| Proceeds from disposal of a business | — | — | 105,624 | ||||||||
| Proceeds from sale of assets | 10,628 | 870 | 1,126 | ||||||||
| Other, net | (6,932 | ) | 8,138 | (3,500 | ) | ||||||
| Cash used in investing activities | (209,576 | ) | (3,752,856 | ) | (1,698,332 | ) | |||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from senior notes | — | 1,200,000 | 900,000 | ||||||||
| Payment of senior notes | (400,000 | ) | — | — | |||||||
| Borrowings/(payments) under revolving line of credit, net | (660,000 | ) | 1,750,000 | 180,000 | |||||||
| Principal payments on convertible notes | — | (4,284 | ) | (4,006 | ) | ||||||
| Debt issuance costs | — | (17,266 | ) | (8,044 | ) | ||||||
| Cash dividends to stockholders | (142,753 | ) | (121,130 | ) | (100,334 | ) | |||||
| Treasury stock sales | 4,198 | 3,340 | 2,889 | ||||||||
| Stock award tax excess windfall benefit | — | — | 22,228 | ||||||||
| Proceeds from stock based compensation, net | 28,487 | 9,998 | 18,312 | ||||||||
| Redemption premium on convertible debt | — | (14,166 | ) | (13,126 | ) | ||||||
| Other | 51 | (1,229 | ) | (1,677 | ) | ||||||
| Cash provided by/(used in) financing activities | (1,170,017 | ) | 2,805,263 | 996,242 | |||||||
| Effect of exchange rate changes on cash | 59,238 | (37,503 | ) | (58,654 | ) | ||||||
| Net increase/(decrease) in cash and cash equivalents | (85,873 | ) | (21,311 | ) | 168,081 | ||||||
| Cash and cash equivalents, beginning of year | 757,200 | 778,511 | 610,430 | ||||||||
| Cash and cash equivalents, end of year | $ | 671,327 | $ | 757,200 | $ | 778,511 | |||||
| Supplemental disclosures: | |||||||||||
| Cash paid for: | |||||||||||
| Interest | $ | 175,021 | $ | 104,928 | $ | 79,225 | |||||
| Income taxes, net of refunds received | $ | 320,235 | $ | 329,596 | $ | 280,801 | |||||
| Noncash investing activities: | |||||||||||
| Net assets of businesses acquired: | |||||||||||
| Fair value of assets, including goodwill | $ | 177,276 | $ | 4,433,085 | $ | 1,876,984 | |||||
| Liabilities assumed | (23,540 | ) | (711,327 | ) | (114,101 | ) | |||||
| Cash paid, net of cash acquired | $ | 153,736 | $ | 3,721,758 | $ | 1,762,883 | |||||
| Year ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Effect of exchange rate changes on cash | (12.3) | 10.5 | 2.5 | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 43.2 | (401.4) | 345.3 | ||||||||||||||
| Cash and cash equivalents, beginning of year | 308.3 | 709.7 | 364.4 | ||||||||||||||
| Cash and cash equivalents, end of year | $ | 351.5 | $ | 308.3 | $ | 709.7 | |||||||||||
| Supplemental disclosures: | |||||||||||||||||
| Cash paid for: | |||||||||||||||||
| Interest | 222.2 | $ | 197.7 | $ | 171.5 | ||||||||||||
| Noncash investing activities: | |||||||||||||||||
| Net assets of businesses acquired: | |||||||||||||||||
| Fair value of assets, including goodwill | $ | 249.8 | $ | 6,715.4 | $ | 2,472.4 | |||||||||||
| Liabilities assumed | (32.8) | (697.3) | (85.1) | ||||||||||||||
| Cash paid, net of cash acquired | $ | 217.0 | $ | 6,018.1 | $ | 2,387.3 | |||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
37
ROPER TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended December 31, 2017, 20162021, 2020 and 20152019
(Dollar and share amounts in millions unless specified, except per share data)
(1) Summary of Accounting Policies
Basis of Presentation - These financial statements present consolidated information for Roper Technologies, Inc. and its subsidiaries ("(“Roper,"” the "Company," "we," "our"“Company,” “we,” “our” or "us"“us”). All significant intercompany accounts and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to current period presentation.
Nature of the Business - Roper is a diversified technology company. The Company operates businesses that design and develop software (both license and software-as-a-service)SaaS) and engineered products and solutions for a variety of niche end markets.
Discontinued Operations - During 2021, the Company signed definitive agreements to divest its TransCore, Zetec and CIVCO Radiotherapy businesses, which are presented as discontinued operations for all periods presented. Unless otherwise noted, discussion within these Notes to Consolidated Financial Statements relate to continuing operations. Refer to Note 3 for additional information on discontinued operations.
Recent Accounting Pronouncements - The Financial Accounting Standards Board ("FASB"(“FASB”) establishes changes to accounting principles under GAAP in the form of accounting standards updates ("ASUs"(“ASUs”) to the FASB'sFASB’s Accounting Standards Codification.Codification (“ASC”). The Company considers the applicability and impact of all ASUs. Any ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company'sCompany’s results of operations, financial position or cash flows.
Recently Adopted Accounting Pronouncements
In January 2017,October 2021, the FASB issued an update simplifyingto improve the testaccounting for goodwill impairment. This update, effective onacquired revenue contracts with customers in a prospective basis for goodwill impairment tests performed in fiscal years beginning after December 15, 2019, eliminates Step 2 from the goodwill impairment test. Under the amendmentsbusiness combination by promoting consistency in the update,recognition of an entity should perform its goodwill impairment testacquired contract liability and the subsequent revenue recognized by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. Early adoption is permitted for interim or annual impairment tests performed on testing dates after January 1, 2017. The Company elected to early adopt this standard for it's annual goodwill impairment testing during the fourth quarter of 2017.acquirer. The update did not have an impact on the Company's results of operations, financial position or cash flows.
The Company recorded tax benefitsadopted ASC Topic 326, Financial Instruments - Credit Losses (“ASC 326”), as of $15.3 million within income tax expense for the year ended December 31, 2016 related to the excess tax benefit on share-based awards. Prior to adoption this amount would have been recorded as a reduction of additional paid-in capital. This change adds volatility to the Company's effective tax rate.
Cash and Cash Equivalents - Roper considers highly liquid financial instruments with remaining maturities at acquisition of three months or less to be cash equivalents. Roper had no cash equivalents at both December 31, 20172021 and December 31, 2016.2020.
Contingencies - Management continually assesses the probability of any adverse judgments or outcomes to its potential contingencies. Disclosure of the contingency is made if there is at least a reasonable possibility that a loss or an additional loss may have been incurred. In the assessment of contingencies as of December 31, 2017,2021, management concluded that there were no matters for which there was a reasonable possibility of a material loss.
Earnings per Share - Basic earnings per share were calculated using net earnings and the weighted-average number of shares of common stock outstanding during the respective year. Diluted earnings per share were calculated using net earnings and the weighted-average number of shares of common stock and potential common stock associated with stock options outstanding during the respective year. 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 the Company's common stock. Effective January 1, 2016, Roper adopted the provisions of an accounting standards update on a prospective basis which increased the number of potentially dilutive stock options as there is no longer a tax benefit in the calculation of dilutive stock options. See the caption "Recent Accounting Pronouncements" elsewhere in this Note for additional information regarding the ASU.
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The effects of potential common stock were determined using the treasury stock method (in thousands):method:
| Years ended December 31, | Year ended December 31, | ||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2021 | 2020 | 2019 | ||||||||||||||||||||
| Basic weighted-average shares outstanding | 102,168 | 101,291 | 100,616 | Basic weighted-average shares outstanding | 105.3 | 104.6 | 103.9 | ||||||||||||||||||
| Effect of potential common stock: | Effect of potential common stock: | ||||||||||||||||||||||||
| Common stock awards | 1,354 | 1,126 | 887 | Common stock awards | 1.2 | 1.1 | 1.2 | ||||||||||||||||||
| Senior subordinated convertible notes | — | 47 | 94 | ||||||||||||||||||||||
| Diluted weighted-average shares outstanding | 103,522 | 102,464 | 101,597 | Diluted weighted-average shares outstanding | 106.5 | 105.7 | 105.1 | ||||||||||||||||||
As of and for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, there were 477,898, 1,144,3500.521, 0.208 and 618,2200.627 outstanding stock options, respectively, that were not included in the determination of diluted earnings per share because doing so would have been antidilutive.
Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States ("GAAP")GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Foreign Currency Translation and Transactions - Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar were translated at the exchange rate in effect at the balance sheet date, and revenues and expenses were translated at average exchange rates for the period in which those entities were included in Roper'sRoper’s financial results. Translation adjustments are reflected as a component of other comprehensive income. Foreign currency transaction gains and losses are recorded in the consolidated statementConsolidated Statements of earnings as other income/Earnings within “Other income (expense)., net.” Foreign currency transaction losses were $1.4, million, $2.9 million$4.5 and $0.7 million$3.5 for the years ended December 31, 2017, 20162021, 2020 and 2015.2019, respectively.
Goodwill and Other Intangibles - Roper accounts for goodwill in a purchase business combination as the excess of the cost over the estimated fair value of net assets acquired. Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over their estimated useful lives. Goodwill, which is not amortized, is tested for impairment on an annual basis (or an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value). When testing goodwill for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If the Company elects to perform a qualitative assessment and determines that an impairment is more likely than not, then performance of the quantitative impairment test is required. The quantitative process utilizes both an income approach (discounted cash flows) and a market approach consisting(consisting of a comparable public company earnings multiples methodologymethodology) to estimate the fair value of a reporting unit. To determine the reasonableness of the estimated fair values, the Company reviews the assumptions to ensure that neither the income approach nor the market approach provides significantly different valuations. If the estimated fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the estimated fair value, a non-cash impairment loss is recognized in the amount of that excess.
When performing the quantitative assessment, key assumptions used in the income and market methodologies are updated when the analysis is performed for each reporting unit. Various assumptions are utilized including forecasted operating results, strategic plans, economic projections, anticipated future cash flows, the weighted-average cost of capital, comparable transactions, market data and earnings multiples. The assumptions that have the most significant effect on the fair value calculations are the anticipatedprojected revenue growth rates, future cash flows,operating margins, discount rates, terminal values and the earnings multiples. While the Company uses reasonable and timely information to prepare its discounted cash flow and discount rate assumptions,analysis, actual future cash flows or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances.
Roper has 3334 reporting units with individual goodwill amounts ranging from zero to $2.3 billion.$3,245.3. In 2017,2021, the Company performed its annual impairment test in the fourth quarter for all reporting units. The Company conducted its analysis qualitatively and assessed whether it was more likely than not that the respective fair value of these reporting units was less than the carrying amount. The Company determined that impairment of goodwill was not likely in 31any of its reporting units and thus was not required to perform a quantitative analysis for these reporting units. For the remaining two reporting units, the Company performed its quantitative analysis and concluded that the fair value of each of these two reporting units was substantially in excess of its carrying value, with no impairment indicated as of October 1, 2017.
Recently acquired reporting units generally represent a higher inherent risk of impairment, which typically decreases as the businesses are integrated into the enterprise. Negative industry or economic trends, disruptions to its business, actual results significantly below expected results, unexpected significant changes or planned changes in the use of the assets, divestitures and market capitalization declines may have a negative effect on the fair value of Roper'sRoper’s reporting units.
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The following events or circumstances, although not comprehensive, would be considered to determine whether interim testing of goodwill would be required:
•a significant adverse change in legal factors or in the business climate;
•an adverse action or assessment by a regulator;
•unanticipated competition;
•a loss of key personnel;
•a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of;
•the testing for recoverability under the Impairment or Disposal of Long-Lived Assets of a significant asset group within a reporting unit; and
•recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit.
Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over their estimated useful lives. Trade names that are determined to have an indefinite useful economic lifelives are not amortized, but separately tested for impairment during the fourth quarter of the fiscal year or on an interim basis if an event occurs that indicates the fair value is more likely than not below the carrying value. Roper first qualitatively assesses whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of an indefinite-lived trade name is less than its carrying amount. If necessary, Roper conducts a quantitative review using the relief-from-royalty method. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these assets. TheTo the extent the Company determines a fair value, of each trade name is determined by applyingthe inputs used represent a Level 3 fair value measurement in the FASB fair value hierarchy given that the inputs are unobservable. The assumptions that have the most significant effect on the fair value calculations are the royalty rate to a projection of net revenues discounted using a risk adjusted rate of capital.rates, projected revenue growth rates, discount rates and terminal values. Each royalty rate is determined based on the profitability of the trade name to which it relates and observed market royalty rates. Revenue growth rates are determined after considering current and future economic conditions, recent sales trends, discussions with customers, planned timing of new product launches or other variables. Trade names resulting from recent acquisitions generally represent the highest risk of impairment, which typically decreases as the businesses are integrated into Roper's enterprise.Roper.
During the fourth quarter of 2021, the Company determined the use of the Sunquest trade name would be discontinued given the strategic action to merge the Sunquest business into our CliniSys business, both of which are reported in our Application Software reportable segment. Considering the planned merger and updated market comparisons, the royalty rate utilized in the quantitative impairment assessment of the trade name was 0.5% as compared to a royalty rate of 3.5% used in the prior year. The royalty rate reduction was the significant assumption that resulted in a non-cash impairment charge of $94.4 recognized as a component of “Impairment of intangible assets” within the Consolidated Statements of Earnings.
The assessment of fair value for impairment purposes requires significant judgments to be made by management. Although forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and estimates management uses to operate the underlying businesses, there is significant judgment in determining the expected results attributable to the reporting units.estimating future operating results. Changes in estimates or the application of alternative assumptions could produce significantly different results. No impairment resulted
The most significant identifiable intangible assets with definite useful economic lives recognized from our acquisitions are customer relationships. The fair value for customer relationships is determined as of the acquisition date using the excess earnings method. Under this methodology the fair value is determined based on the estimated future after-tax cash flows arising from the annualacquired customer relationships over their estimated lives after considering customer attrition and contributory asset charges. The assumptions that have the most significant effect on the fair value calculations are the customer attrition rates, projected customer revenue growth rates, margins, contributory asset charges and discount rates. When testing performed in 2017.customer relationship intangible assets for potential impairment, management considers historical customer attrition rates and projected revenues and profitability related to customers that existed at acquisition. In evaluating the amortizable life for customer relationship intangible assets, management considers historical customer attrition patterns.
Roper evaluates whether there has been an impairment of identifiable intangible assets with definite useful economic lives, or of the remaining life of such assets, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost or remaining period of amortization of any asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be
compared to the asset'sasset’s carrying amount to determine if a write-down to fair value or a revision in the remaining amortization period is required.
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During the fourth quarter of 2021, Sunquest also recognized a non-cash impairment charge of $5.1 representing the unamortized balance related primarily to a software intangible asset that will be discontinued in 2022. This impairment charge is included as a component of “Impairment of intangible assets” within the Consolidated Statements of Earnings.
Impairment of Long-Lived Assets - The Company determines whether there has been an impairment of long-lived assets, excluding goodwill and identifiableother intangible assets, that are determined to have indefinite useful economic lives, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost or life of any long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be compared to the asset'sasset’s carrying amount to determine if a write-down to fair value or revision to remaining life is required. Future adverse changes in market conditions or poor operating results of underlying long-lived assets could result in losses or an inability to recover the carrying value of the long-lived assets that may not be reflected in the assets'assets’ current carrying value, thereby possibly requiring an impairment charge or acceleration of depreciation or amortization expense in the future.
Income Taxes - The Company recognizes in the consolidated financial statementsConsolidated Financial Statements only those tax positions determined to be "more“more likely than not"not” of being sustained upon examination based on the technical merits of the positions. Interest and penalties related to unrecognized tax benefits are classified as a component of income tax expense.
The Company records a valuation allowance to reduce its deferred tax assets if, based on the weight of available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that some portion or all of such deferred tax assets will not be realized. Available evidence which is considered in determining the amount of valuation allowance required includes, but is not limited to, the Company’s estimate of future taxable income and any applicable tax-planning strategies.
Certain assets and liabilities have different basesbasis for financial reporting and income tax purposes. Deferred income taxes have been provided for these differences at the enacted tax rates expected to be paid. See Note 78 for information regarding income taxes.
Inventories - Inventories are valued at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. The Company writes down its inventory for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions.
Product Warranties - The Company sells certain of its products to customers with a product warranty that allows customers to return a defective product during a specified warranty period following the purchase in exchange for a replacement product, repair at no cost to the customer or the issuance of a credit to the customer. The Company accrues its estimated exposure to warranty claims based upon current and historical product sales data, warranty costs incurred and any other related information known to the Company.
Property, Plant and Equipment and Depreciation and Amortization - Property, plant and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided for using principally the straight-line method over the estimated useful lives of the assets as follows:
| Buildings | 20-30 years | ||||
| Machinery | 8-12 years | ||||
| Other equipment and software | 3-5 years | ||||
Research, Development and DevelopmentEngineering - Research, development and development ("engineering (“R,&D"D&E”) costs include salaries and benefits, rents, supplies, and other costs related to products under development. Research and development or improvements to existing products. R,D&E costs are expensed in the periodas incurred and are included within selling, general and administrative expenses. R,D&E expenses totaled $281.1 million, $195.4 million$528.4, $423.6 and $164.2 million$379.7 for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively.
Revenue Recognition- The reported results reflect the application of ASC 606 guidance. The amount of revenue recognized reflects the consideration which the Company recognizesexpects to be entitled to receive in exchange for these products and/or services. To achieve this principle, the Company applies the following five steps:
•identify the contract with the customer;
•identify the performance obligations in the contract;
•determine the transaction price;
•allocate the transaction price to performance obligations in the contract; and
•recognize revenue when or as the Company satisfies a performance obligation.
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Disaggregated Revenue - We disaggregate our revenues into two categories: (i) software and related services; and (ii) engineered products and related services. Software and related services revenues are primarily derived from our Application Software and Network Software & Systems reportable segments. Engineered products and related services revenues are derived from all of our reportable segments except Application Software and comprise substantially all of the following criteriarevenues generated in our Measurement & Analytical Solutions and Process Technologies reportable segments. See details in the table below.
| Year ended December 31, | ||||||||||||||||||||
| 2021 | 2020 | 2019 | ||||||||||||||||||
| Software and related services | $ | 3,604.3 | $ | 2,871.1 | $ | 2,477.7 | ||||||||||||||
| Engineered products and related services | 2,173.5 | 1,983.1 | 2,250.0 | |||||||||||||||||
| Net revenues | $ | 5,777.8 | $ | 4,854.2 | $ | 4,727.7 | ||||||||||||||
Software and related services
SaaS - SaaS subscriptions and associated support are met:
generally accounted for as a single performance obligation and recognized ratably over the seller's price to the buyer is fixed or determinable; and
contractual term. In addition, SaaS arrangements may include implementation services which are accounted for as a separate performance obligation and recognized over time, using the Company recognizesinput method. Payment is generally required within 30 days of the commencement of the SaaS subscription period, which is primarily offered to customers over a one-year timeframe.
Licensed Software - Performance obligations in our customer contracts may include:
–Perpetual or time-based (“term”) software licenses
–Post contract support (“PCS”)
–Implementation/installation services
Software licenses may be combined with implementation/installation services as a single performance obligation if the implementation/installation significantly modifies or customizes the functionality of the software license.
We recognize revenue over time or at a point in time depending on our evaluation of when the customer obtains control over the promised products or services. Revenues from software implementation projects are generally recognized over time using the saleinput method, utilizing the ratio of costs or labor hours incurred to total estimated costs or labor, as the measure of performance. For software arrangements that include multiple performance obligations, we allocate revenue to each performance obligation based on estimates of the price that we would charge the customer for each promised product or service if it were sold on a standalone basis.
Payment for software licenses is generally required within 30 to 60 days of the transfer of control. Payment for PCS is generally required within 30 to 60 days of the commencement of the service period, which is primarily offered to customers over a one-year timeframe. Payment terms do not contain a significant financing component. Payment for implementation/installation services that are recognized over time are typically commensurate with milestones defined in the contract, or billable hours incurred.
Engineered products and related services
Revenue from product sales is recognized when title and risk of loss passcontrol transfers to the customer, which is generally when the product is shipped. The Company recognizes revenue from services when such
Non-project-based installation and repair services are rendered or, if applicable,performed by certain of our businesses for which revenue is recognized upon customer acceptance. Revenues under certain relatively long-term and relatively large-value construction and software projectscompletion.
Payment terms are generally 30 to 60 days from the transfer of control. Payment terms do not contain a significant financing component.
Preventative maintenance service revenues are recognized under the percentage-of-completion methodover time using the ratioinput method. If we determine our efforts or inputs are expended evenly throughout the performance period, we generally recognize revenue on a straight-line basis. Payment for preventative maintenance services are typically commensurate with milestones defined in the contract.
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We offer customers return rights and other credits subject to certain restrictions. We estimate variable consideration generally based on historical experience to arrive at the transaction price, or the amount to which we ultimately expect to be entitled from the customer.
Accounts receivable, net- Accounts receivable, net includes amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. Accounts receivable are stated net of costs incurredan allowance for doubtful accounts and sales allowances of $19.7 and $28.1 at December 31, 2021 and 2020, respectively. We make estimates of expected allowance for doubtful accounts based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, changes to total estimated costscustomer creditworthiness and other factors that may affect our ability to collect from customers.
Unbilled receivables-Our unbilled receivablesinclude unbilled amounts typically resulting from sales under project-based contracts when the input method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not solely due to the passage of time. Amounts may not exceed their net realizable value.
Deferred revenues -We record deferred revenues when cash payments are received or due in advance of our performance. Our deferred revenues relate primarily to software and related services. In most cases, we recognize these deferred revenues ratably over time as the measureSaaS or PCS performance obligation is satisfied. The non-current portion of performance.deferred revenue is included in “Other liabilities” in our Consolidated Balance Sheets.
Our unbilled receivables and deferred revenues are reported in a net position on a contract-by-contract basis at the end of each reporting period. The net balances are classified as current or non-current based on expected timing of revenue recognition and billable milestones.
Deferred commissions -Our incremental direct costs of obtaining a contract, which consist of sales commissions primarily for our software sales, are deferred and amortized on a straight-line basis over the period of contract performance or a longer period, depending on facts and circumstances. We classify deferred commissions as current or non-current based on the timing of when we expect to recognize the expense. The current and non-current portions of deferred commissions are included in “Other current assets” and “Other assets,” respectively, in our Consolidated Balance Sheets. At December 31, 2021 and 2020, the current portion of deferred commissions was $32.5 and $25.0, respectively, and the non-current portion of deferred commissions was $24.2 and $17.5, respectively. The Company recognized revenues$27.2, $30.1 and $30.1 of $249 million, $241 million and $253 millionexpense related to deferred commissions for the years ended December 31, 2017, 20162021, 2020 and 2015, respectively, using this method. Estimated losses2019, respectively.
Remaining performance obligations -Remaining performance obligations represents the transaction price of firm orders for which work has not been performed and excludes unexercised contract options. As of December 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $3,790.4. We expect to recognize revenue on any projects areapproximately 68% of our remaining performance obligations over the next 12 months, with the remainder to be recognized as soon as such losses become known.thereafter.
Capitalized Software - The Company accounts for capitalized software under applicable accounting guidance which, among other provisions, requires capitalization of certain internal-use software costs once certain criteria are met. Overhead, general and administrative and training costs are not capitalized. Capitalized software balances, net of accumulated amortization, were $14.0 million$65.9 and $4.4 million$43.1 at December 31, 20172021 and 2016, respectively.2020, respectively, which are included in “Other Assets” our Consolidated Balance Sheets.
Stock-Based Compensation - The Company recognizes expense for the grant date fair value of its employee stock awards on a straight-line basis (or, in the case of performance-based awards, on a graded basis) over the employee'semployee’s requisite service period (generally the vesting period of the award). The fair value of option awards is estimated using the Black-Scholes option valuation model.
(2) Business Acquisitions and DivestituresDispositions
Acquisitions
2021 Acquisitions - Roper completed four7 business acquisitions in the year ended December 31, 2017,2021 with an aggregate purchase price of $152 million,$225.9, net of cash acquired.acquired and debt assumed. The results of operations of the acquired businesses did not have a material impact on Roper's consolidatedare included in Roper’s Consolidated Financial Statements since the date of each acquisition. Pro forma results of operations.
During the first three quarters of 2021, Roper completed 4 acquisitions which are being integrated into our Deltek business and sales of test instruments. Phase Technology is reported in the Energy Systems & Controls segment.
On August 4, 2017,December 21, 2021, Roper acquired a majority of the assets of The Construction Journal, LTD. (“Construction Journal”), a provider of selling, marketing, and licensing software solutions for the commercial construction industry. Construction Journal is integrating into our ConstructConnect business and its results are reported in the Network Software and Systems reportable segment.
On December 30, 2021, Roper acquired 100% of the shares of Handshake Software,American LegalNet, Inc. (“ALN”), a provider of search products, portalscourt forms, eFiling, calendaring and servicesdocketing software solutions. ALN is integrating into our Aderant business and its results are reported in the Application Software reportable segment.
The Company recorded $138.8 in goodwill and $104.9 of other identifiable intangibles in connection with these 7 acquisitions. The amortizable intangible assets include customer relationships of $94.6 (12.9 year weighted average useful life) and technology of $10.3 (5.3 year weighted average useful life).
Subsequent to the year ended December 31, 2021, on January 3, 2022, Roper acquired 100% of the membership interests of Horizon Lab Systems, LLC (“HLS”) for legal professionals.a purchase price of $49.7, net of cash acquired and debt assumed. HLS is a leading provider of laboratory information management systems in the toxicology, environmental, public health and agricultural markets. HLS is integrating into our CliniSys business and its results will be reported in the Application Software reportable segment beginning in the first quarter of 2022.
The largest of the 2020 acquisitions was Vertafore, Inc. (“Vertafore”), a leading provider of SaaS solutions for the property and casualty insurance industry. Roper acquired 100% of the shares of WorkbookProject Viking Holdings, Inc. (the parent company of Vertafore) on September 3, 2020, for a purchase price of $5,398.6. The purchase price comprises an enterprise value of $5,335.0 and the settlement of certain liabilities, net of cash acquired. Additionally, the purchase price contemplated approximately $120 of federal tax attributes that were substantially utilized by the end of 2021. The results of Vertafore are reported in the Application Software A/S, a provider of software solutions for customer relationship management, project management and finance/accounting.reportable segment.
The Company recorded $83 million$3,229.1 in goodwill and $85 million$2,660.0 of other identifiable intangibles in connection with the acquisitions; however, purchase price allocations are preliminary pending final tax-related adjustments. The amortizable intangible assets include primarily customer relationships of $68 million (15 year weighted average useful life) and technology of $13 million (6 year weighted average useful life).
| Accounts receivable | $ | 94,506 | |
| Other current assets | 37,558 | ||
| Identifiable intangibles | 972,000 | ||
| Goodwill | 2,234,549 | ||
| Other assets | 43,098 | ||
| Total assets acquired | 3,381,711 | ||
| Deferred revenue | 166,393 | ||
| Other current liabilities | 57,433 | ||
| Long-term deferred tax liability | 349,810 | ||
| Other liabilities | 7,935 | ||
| Net assets acquired | $ | 2,800,140 | |
The majority of the goodwill is not expected to be deductible for tax purposes. Of the $972 million$2,660.0 of acquired intangible assets, acquired, $145 million was assigned to trade names that are not subject to amortization and $62 million was assigned to in process research and development. The remaining $765 million of acquired intangible assets have a weighted-average useful life of 12 years. The intangible assets that make up that amount include customer relationships of $625 million (13 year weighted-average useful life) and unpatented technology of $140 million (6 year weighted-average useful life).
Pro forma Year ended December 31, | |||||||
| 2016 | 2015 | ||||||
| Net revenues | $ | 4,268,052 | $ | 4,012,030 | |||
| Net income | 656,404 | 647,089 | |||||
| Earnings per share, basic | 6.48 | 6.43 | |||||
| Earnings per share, diluted | 6.41 | 6.37 | |||||
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During the year ended December 31, 2015,2020, Roper completed eight5 other acquisitions with an aggregate purchase price of $612.8, net of cash acquired and debt assumed.
Acquisition of Freight Market Intelligence Consortium - On June 9, 2020, Roper acquired substantially all of the assets of Freight Market Intelligence Consortium (“FMIC”), a leading provider of subscription-based freight transaction benchmarking and analysis service. FMIC was integrated into our DAT business combinations.and its results are reported in the Network Software & Systems reportable segment.
Acquisition of Team TSI Corporation - On June 15, 2020, Roper acquired substantially all of the assets of Team TSI Corporation (“Team TSI”), a leading provider of subscription-based data analytics serving long term health care facilities. Team TSI was integrated into our SHP business and its results are reported in the Network Software & Systems reportable segment.
Acquisition of Impact Financial Systems - On September 15, 2020, Roper acquired substantially all of the assets of Impact Financial Systems (“IFS”), a leading provider of service request automation solutions for client onboarding, transaction automation, maintenance and advisor transitions. IFS was integrated into our iPipeline business and its results are reported in the Network Software & Systems reportable segment.
Acquisition of WELIS - On September 18, 2020, Roper acquired all of the membership interests of WELIS, a premier provider of life insurance illustration systems to carriers in the US. WELIS was integrated into our iPipeline business and its results are reported in the Network Software & Systems reportable segment.
Acquisition of EPSi - On October 15, 2020, Roper acquired substantially all of the assets of EPSi, a leading provider of financial decision support and planning tools for hospitals and health systems. EPSi was integrated into our Strata business and its results are reported in the Application Software reportable segment.
The Company recorded $303.9 in goodwill and $313.0 of other identifiable intangibles in connection with these 5 acquisitions. The amortizable intangible assets include customer relationships of $283.7 (16 year weighted average useful life) and technology of $29.3 (5 year weighted average useful life).
2019 Acquisitions - Roper completed 4 business acquisitions in the year ended December 31, 2019, with an aggregate purchase price of $2,387.6, net of cash acquired. The results of operations of the acquired companies have beenbusinesses are included in Roper's consolidated resultsRoper’s Consolidated Financial Statements since the date of each acquisition. Supplemental proPro forma information has not been provided as the acquisitions did not have a material impact on Roper's consolidated results of operations and the revenue and net income subsequent to the acquisition date for the acquisitions completed during fiscal 2019 have not been presented because the effects of the acquisitions, individually orand in aggregate.the aggregate, were not material to our financial results.
Acquisition of Foundry - On April 18, 2019, Roper acquired 100% of the shares of Foundry, a leading provider of software technologies used to deliver visual effects and 3D content for the entertainment, digital design, and visualization industries. The results of the following acquisitionsFoundry are reported in the MedicalNetwork Software & Scientific Imaging segment:Systems reportable segment.
Acquisition of iPipeline - On August 22, 2019, Roper acquired 100% of the shares of iPipeline Holdings, Inc., a leading provider of cloud-based software solutions |
Acquisition of Bellefield - On December 18, 2019, Roper acquired substantially all of the assets of Bellefield Systems which provides SaaS solutions targeting the front office of law firms, specifically focused on professional service automation, compliance and timekeeping. Bellefield was $1.8 billion, paidintegrated into our Aderant business and its results are reported in cash. Roper purchased the businesses to expand upon existing software, supply chain and medical platforms.Application Software reportable segment.
The Company recorded $1.2 billion$1,447.0 in goodwill and $731 million in$1,181.9 of other identifiable intangibles in connection with the acquisitions. The majority of the goodwill recorded is not expected to be deductible for tax purposes. Of the $731 million ofThe amortizable intangible assets acquired, $51 million was assigned to trade names that are not subject to amortization. The remaining $680 million of acquired intangible assets have a weighted-average useful life of 17 years. The intangible assets that make up that amount include customer relationships of $541 million (19$1,020.0 (15.8 year weighted-average useful life), unpatented technology of $100 million (8 year weighted-averageweighted average useful life) and softwaretechnology of $39 million (6$109.3 (6.8 year weighted-averageweighted average useful life).
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Dispositions
On October 2, 2015,March 17, 2021, Roper completed the sale of Abel Pumps ("Abel")a minority investment in Sedaru, Inc. for $106 million (€95 million), net of cash divested.$27.1 in cash. The sale resulted in a pretax gain on the divestiture was $70.9 million,of $27.1, which is reported as Other income/within “Other income (expense), net onnet” in the consolidated statementConsolidated Statements of earnings. The gain resulted inEarnings. In addition, we recognized income tax expense of $46 million as well as$5.5 in connection with the sale, which is included within “Income taxes” in the Consolidated Statements of Earnings.
On October 29, 2019, the Company closed on its sale of Gatan to AMETEK for approximately $925.0 in cash. The sale resulted in a future tax benefitpretax gain of $11 million.
$801.1, which is reported within “Gain on disposal of businesses” in the Consolidated Statements of Earnings. The year to date pretax incomeresults of Abel was $5.9 million for the period ended October 2, 2015. Abel wasGatan are reported in the Industrial TechnologyMeasurement & Analytical Solutions segment through such date. In addition, we recognized income tax expense of $201.2 in connection with the sale, which is included within “Income taxes” in the Consolidated Statements of Earnings.
On February 5, 2019, the Company closed on its sale of the Imaging businesses to Teledyne for approximately $225.0 in cash. The results of the Imaging businesses are reported in the Measurement & Analytical Solutions segment through such date. The sale resulted in a pretax gain of $119.6, which is reported within “Gain on disposal of businesses” in the Consolidated Statements of Earnings. In addition, we recognized income tax expense of $32.2 in connection with the sale, which is included within “Income taxes” in the Consolidated Statements of Earnings.
(3) Discontinued Operations
During the year ended December 31, 2021, the Company signed definitive agreements to divest its TransCore, Zetec and CIVCO Radiotherapy businesses as described below.
•On November 1, 2021, Roper closed on the sale of the CIVCO Radiotherapy business to an affiliate of Blue Wolf Capital Partners LLC, for approximately $120.0 in cash. The sale resulted in a pretax gain of $77.2 and income tax expense of $21.3, which are reported within “Gain on disposition of discontinued operations, net of tax” in the Consolidated Statements of Earnings. CIVCO Radiotherapy was previously included in the Measurement & Analytical Solutions reportable segment.
•On January 5, 2022, Roper closed on the sale of the Zetec business to Eddyfi NDT Inc. for approximately $350.0 in cash. The Company is currently calculating the gain and associated tax expense on the sale, which will be disclosed within the Company’s first quarter 2022 Quarterly Report on Form 10-Q. Zetec was previously included in the Process Technologies reportable segment.
•On October 1, 2021, Roper signed a definitive agreement to divest its TransCore business to an affiliate of Singapore Technologies Engineering Ltd., for approximately $2,680.0 in cash. The transaction, which is expected to close in the first quarter of 2022, is subject to customary closing conditions, including regulatory approvals. TransCore was previously included in the Network Software & Systems reportable segment.
We concluded these disposal activities, in the aggregate, represented a strategic shift that will have a major effect on our operations and financial results. These divestitures significantly enhance our mix of high-margin, recurring revenue businesses and notably reduce our working capital requirements. Accordingly, the financial results of the TransCore, Zetec and CIVCO Radiotherapy businesses are presented in the Consolidated Financial Statements as discontinued operations for all periods presented, as applicable. Current and non-current assets and liabilities of these businesses are presented in the Consolidated Balance Sheet as assets and liabilities of discontinued operations classified as held for sale for both periods presented.
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The following tables summarize the major classes of assets and liabilities related to the discontinued operations of the TransCore, Zetec and CIVCO Radiotherapy businesses, as applicable, as reported in the Consolidated Balance Sheets at December 31:
2021 (1) | 2020 | ||||||||||
| Accounts receivable, net | $ | 74.7 | $ | 117.3 | |||||||
| Inventories, net | 47.8 | 33.3 | |||||||||
| Unbilled receivables | 158.2 | 168.9 | |||||||||
| Goodwill | 405.5 | — | |||||||||
| Other intangible assets, net | 31.0 | — | |||||||||
| Other current assets | 71.4 | 4.7 | |||||||||
| Current assets held for sale | 788.6 | 324.2 | |||||||||
| Goodwill | — | 429.2 | |||||||||
| Other intangible assets, net | — | 38.7 | |||||||||
| Other assets | — | 53.7 | |||||||||
| Assets held for sale | $ | — | $ | 521.6 | |||||||
| Accounts payable | $ | 40.3 | $ | 50.7 | |||||||
| Accrued compensation | 27.0 | 23.5 | |||||||||
| Deferred taxes | 29.5 | — | |||||||||
| Other current liabilities | 62.3 | 46.6 | |||||||||
| Current liabilities held for sale | 159.1 | 120.8 | |||||||||
| Deferred taxes | — | 31.0 | |||||||||
| Other liabilities | — | 33.1 | |||||||||
| Liabilities held for sale | $ | — | $ | 64.1 | |||||||
(1) All assets and liabilities held for sale were classified as current as it was probable that the sale of TransCore and Zetec would be completed within one year from the balance sheet date.
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The following table summarizes the major classes of revenue and expenses constituting net earnings from discontinued operations attributable to the TransCore, Zetec and CIVCO Radiotherapy businesses:
| Year ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Net revenues | $ | 638.0 | $ | 672.9 | $ | 639.1 | |||||||||||
| Cost of sales | 372.9 | 400.7 | 352.1 | ||||||||||||||
| Gross profit | 265.1 | 272.2 | 287.0 | ||||||||||||||
Selling, general and administrative expenses(1) | 124.0 | 114.6 | 116.9 | ||||||||||||||
| Income from operations | 141.1 | 157.6 | 170.1 | ||||||||||||||
| Other income (expense), net | 1.5 | 0.3 | (0.1) | ||||||||||||||
Earnings before income taxes (2) | 142.6 | 157.9 | 170.0 | ||||||||||||||
| Income taxes | 28.5 | 33.7 | 42.1 | ||||||||||||||
| Earnings from discontinued operations, net of tax | 114.1 | 124.2 | 127.9 | ||||||||||||||
| Gain on disposition of discontinued operations, net of tax | 55.9 | — | — | ||||||||||||||
| Net earnings from discontinued operations | $ | 170.0 | $ | 124.2 | $ | 127.9 | |||||||||||
(1) Includes stock-based compensation expense of $5.4, $4.8 and $3.4 for the years ended December 31, 2021, 2020, and 2019, respectively. Stock-based compensation for discontinued operations was previously reported as a component of unallocated corporate general and administrative expenses. In connection with the sale of CIVCO Radiotherapy, we recognized expense of $0.9 associated with accelerated vesting of share-based awards. These charges were recorded as a component of “Gain on disposition of discontinued operations, net of tax” within the Consolidated Statements of Earnings.
(2) Includes depreciation and amortization of $5.2, $7.9 and $7.2 for the years ended December 31, 2021, 2020, and 2019, respectively.
(4) Inventories
The components of inventories at December 31 were as follows (in thousands):follows:
| 2021 | 2020 | ||||||||||
| Raw materials and supplies | $ | 112.7 | $ | 104.0 | |||||||
| Work in process | 30.2 | 22.9 | |||||||||
| Finished products | 69.3 | 74.4 | |||||||||
| Inventory reserves | (36.1) | (36.2) | |||||||||
| $ | 176.1 | $ | 165.1 | ||||||||
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| 2017 | 2016 | ||||||
| Raw materials and supplies | $ | 132,949 | $ | 113,632 | |||
| Work in process | 27,649 | 24,290 | |||||
| Finished products | 82,445 | 81,263 | |||||
| Inventory reserves | (38,110 | ) | (37,233 | ) | |||
| $ | 204,933 | $ | 181,952 | ||||
The components of property, plant and equipment at December 31 were as follows (in thousands):follows:
| 2021 | 2020 | ||||||||||
| Land | $ | 2.2 | $ | 2.2 | |||||||
| Buildings | 77.5 | 80.2 | |||||||||
| Machinery and other equipment | 164.4 | 176.1 | |||||||||
| Computer equipment | 117.5 | 110.9 | |||||||||
| Software | 77.4 | 75.7 | |||||||||
| 439.0 | 445.1 | ||||||||||
| Accumulated depreciation | (336.2) | (317.8) | |||||||||
| $ | 102.8 | $ | 127.3 | ||||||||
| 2017 | 2016 | ||||||
| Land | $ | 2,471 | $ | 2,404 | |||
| Buildings | 90,683 | 88,201 | |||||
| Machinery and other equipment | 226,320 | 221,325 | |||||
| Computer equipment | 77,508 | 70,110 | |||||
| Software | 62,387 | 54,451 | |||||
| 459,369 | 436,491 | ||||||
| Accumulated depreciation | (316,834 | ) | (295,173 | ) | |||
| $ | 142,535 | $ | 141,318 | ||||
Depreciation and amortization expense related to property, plant and equipment was $49,513, $37,299$49.7, $46.7 and $38,185$43.1 for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively.
The carrying value of goodwill by segment was as follows (in thousands):follows:
| Application Software | Network Software & Systems | Measurement &Analytical Solutions | Process Technologies | Total | |||||||||||||||||||||||||
| Balances at December 31, 2019 | $ | 5,389.4 | $ | 3,596.6 | $ | 1,155.5 | $ | 245.8 | $ | 10,387.3 | |||||||||||||||||||
| Goodwill acquired | 3,399.0 | 134.0 | — | — | 3,533.0 | ||||||||||||||||||||||||
| Currency translation adjustments | 14.5 | 16.6 | 11.8 | 4.4 | 47.3 | ||||||||||||||||||||||||
| Reclassifications and other | (0.6) | (1.0) | — | — | (1.6) | ||||||||||||||||||||||||
| Balances at December 31, 2020 | $ | 8,802.3 | $ | 3,746.2 | $ | 1,167.3 | $ | 250.2 | $ | 13,966.0 | |||||||||||||||||||
| Goodwill acquired | 85.9 | 52.9 | — | — | 138.8 | ||||||||||||||||||||||||
| Currency translation adjustments | (5.8) | (3.0) | (6.7) | (2.6) | (18.1) | ||||||||||||||||||||||||
| Reclassifications and other | 6.9 | 0.9 | — | — | 7.8 | ||||||||||||||||||||||||
| Balances at December 31, 2021 | $ | 8,889.3 | $ | 3,797.0 | $ | 1,160.6 | $ | 247.6 | $ | 14,094.5 | |||||||||||||||||||
| RF Technology | Medical & Scientific Imaging | Industrial Technology | Energy Systems & Controls | Total | |||||||||||||||
| Balances at December 31, 2015 | $ | 1,993,299 | $ | 3,039,197 | $ | 374,033 | $ | 418,197 | $ | 5,824,726 | |||||||||
| Goodwill acquired | 2,710,223 | 166,768 | — | — | 2,876,991 | ||||||||||||||
| Currency translation adjustments | (15,118 | ) | (19,100 | ) | (10,055 | ) | (7,774 | ) | (52,047 | ) | |||||||||
| Reclassifications and other | (734 | ) | (1,794 | ) | — | — | (2,528 | ) | |||||||||||
| Balances at December 31, 2016 | $ | 4,687,670 | $ | 3,185,071 | $ | 363,978 | $ | 410,423 | $ | 8,647,142 | |||||||||
| Goodwill acquired | 63,490 | — | — | 19,169 | 82,659 | ||||||||||||||
| Currency translation adjustments | 19,337 | 17,582 | 13,540 | 8,395 | 58,854 | ||||||||||||||
| Reclassifications and other | 28,394 | 3,264 | — | — | 31,658 | ||||||||||||||
| Balances at December 31, 2017 | $ | 4,798,891 | $ | 3,205,917 | $ | 377,518 | $ | 437,987 | $ | 8,820,313 | |||||||||
Reclassifications and other during the year ended December 31, 20172021 were due primarily to purchase accounting and tax adjustments for 2016 acquisitions.acquisitions completed in 2020. See Note 2 for information regarding acquisitions.
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Other intangible assets were comprised of (in thousands):of:
| Cost | Accum. amort. | Net book value | |||||||||||||||
| Assets subject to amortization: | |||||||||||||||||
| Customer related intangibles | $ | 7,473.7 | $ | (1,688.2) | $ | 5,785.5 | |||||||||||
| Unpatented technology | 942.8 | (363.9) | 578.9 | ||||||||||||||
| Software | 172.4 | (127.4) | 45.0 | ||||||||||||||
| Patents and other protective rights | 12.0 | (6.0) | 6.0 | ||||||||||||||
| Trade names | 7.3 | (5.6) | 1.7 | ||||||||||||||
| Assets not subject to amortization: | |||||||||||||||||
| Trade names | 751.1 | — | 751.1 | ||||||||||||||
| Balances at December 31, 2020 | $ | 9,359.3 | $ | (2,191.1) | $ | 7,168.2 | |||||||||||
| Assets subject to amortization: | |||||||||||||||||
| Customer related intangibles | $ | 7,532.0 | $ | (2,108.0) | $ | 5,424.0 | |||||||||||
| Unpatented technology | 906.4 | (431.8) | 474.6 | ||||||||||||||
| Software | 149.5 | (122.4) | 27.1 | ||||||||||||||
| Patents and other protective rights | 9.6 | (2.1) | 7.5 | ||||||||||||||
| Trade names | 12.8 | (6.1) | 6.7 | ||||||||||||||
| Assets not subject to amortization: | |||||||||||||||||
| Trade names | 648.6 | — | 648.6 | ||||||||||||||
| Balances at December 31, 2021 | $ | 9,258.9 | $ | (2,670.4) | $ | 6,588.5 | |||||||||||
| Cost | Accum. amort. | Net book value | |||||||||
| Assets subject to amortization: | |||||||||||
| Customer related intangibles | $ | 3,272,081 | $ | (712,718 | ) | $ | 2,559,363 | ||||
| Unpatented technology | 462,152 | (144,025 | ) | 318,127 | |||||||
| Software | 184,761 | (56,882 | ) | 127,879 | |||||||
| Patents and other protective rights | 24,656 | (20,399 | ) | 4,257 | |||||||
| Trade names | 6,591 | (653 | ) | 5,938 | |||||||
| Assets not subject to amortization: | |||||||||||
| Trade names | 578,279 | — | 578,279 | ||||||||
| In process research and development | 62,000 | — | 62,000 | ||||||||
| Balances at December 31, 2016 | $ | 4,590,520 | $ | (934,677 | ) | $ | 3,655,843 | ||||
| Assets subject to amortization: | |||||||||||
| Customer related intangibles | $ | 3,355,232 | $ | (913,680 | ) | $ | 2,441,552 | ||||
| Unpatented technology | 544,046 | (207,678 | ) | 336,368 | |||||||
| Software | 184,703 | (84,825 | ) | 99,878 | |||||||
| Patents and other protective rights | 26,090 | (22,729 | ) | 3,361 | |||||||
| Trade names | 6,635 | (1,731 | ) | 4,904 | |||||||
| Assets not subject to amortization: | |||||||||||
| Trade names | 587,737 | — | 587,737 | ||||||||
| In process research and development | 1,418 | — | 1,418 | ||||||||
| Balances at December 31, 2017 | $ | 4,705,861 | $ | (1,230,643 | ) | $ | 3,475,218 | ||||
Amortization expense of other intangible assets was $294 million, $201 million,$577.5, $461.5, and $164 million$363.5 during the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively. Amortization expense is expected to be $294 million$579 in 2018, $282 million2022, $565 in 2019, $276 million2023, $521 in 2020, $264 million2024, $493 in 20212025 and $260 million$461 in 2022.2026.
Accrued liabilities at December 31 were as follows (in thousands):follows:
| 2021 | 2020 | ||||||||||
| Interest | $ | 42.6 | $ | 44.1 | |||||||
| Customer deposits | 56.9 | 48.6 | |||||||||
| Accrued dividend | 66.8 | 60.0 | |||||||||
| Rebates | 63.0 | 51.5 | |||||||||
| Operating lease liability | 51.4 | 56.8 | |||||||||
| Sales and other taxes payable | 25.4 | 33.4 | |||||||||
| Other | 134.6 | 124.2 | |||||||||
| $ | 440.7 | $ | 418.6 | ||||||||
| 2017 | 2016 | ||||||
| Interest | $ | 20,060 | $ | 21,742 | |||
| Customer deposits | 29,236 | 16,707 | |||||
| Commissions | 8,341 | 9,144 | |||||
| Warranty | 10,587 | 10,548 | |||||
| Accrued dividend | 42,921 | 36,077 | |||||
| Rebates | 29,996 | 19,414 | |||||
| Billings in excess of cost | 23,284 | 12,381 | |||||
| Other | 102,149 | 93,326 | |||||
| $ | 266,574 | $ | 219,339 | ||||
Earnings before income taxes for the years ended December 31, 2017, 20162021, 2020 and 20152019 consisted of the following components (in thousands):components:
| 2021 | 2020 | 2019 | |||||||||||||||
| United States | $ | 915.3 | $ | 752.7 | $ | 1,741.2 | |||||||||||
| Other | 355.7 | 298.7 | 316.2 | ||||||||||||||
| $ | 1,271.0 | $ | 1,051.4 | $ | 2,057.4 | ||||||||||||
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| 2017 | 2016 | 2015 | |||||||||
| United States | $ | 783,654 | $ | 721,000 | $ | 710,614 | |||||
| Other | 251,069 | 219,652 | 291,731 | ||||||||
| $ | 1,034,723 | $ | 940,652 | $ | 1,002,345 | ||||||
Components of income tax expense for the years ended December 31, 2017, 20162021, 2020 and 20152019 were as follows (in thousands):follows:
| 2017 | 2016 | 2015 | 2021 | 2020 | 2019 | |||||||||||||||||||||||
| Current: | Current: | |||||||||||||||||||||||||||
| Federal | $ | 316,031 | $ | 239,217 | $ | 229,224 | Federal | $ | 130.6 | $ | 157.5 | $ | 366.5 | |||||||||||||||
| State | 29,768 | 21,779 | 22,041 | State | 56.8 | 50.0 | 72.0 | |||||||||||||||||||||
| Foreign | 89,894 | 54,937 | 71,507 | Foreign | 94.5 | 75.3 | 77.9 | |||||||||||||||||||||
| Deferred: | Deferred: | |||||||||||||||||||||||||||
| Federal | (358,300 | ) | (26,760 | ) | 6,710 | Federal | 28.0 | (56.7) | (47.1) | |||||||||||||||||||
| State | (3,670 | ) | 189 | (16,844 | ) | State | (26.6) | (5.2) | (2.2) | |||||||||||||||||||
| Foreign | (10,772 | ) | (7,355 | ) | (6,360 | ) | Foreign | 5.1 | 5.0 | (49.7) | ||||||||||||||||||
| $ | 62,951 | $ | 282,007 | $ | 306,278 | $ | 288.4 | $ | 225.9 | $ | 417.4 | |||||||||||||||||
Reconciliations between the statutory federal income tax rate and the effective income tax rate for the years ended December 31, 2017, 20162021, 2020 and 20152019 were as follows:
| 2017 | 2016 | 2015 | 2021 | 2020 | 2019 | ||||||||||||||||||||
| Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | Federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||||||
| Foreign rate differential | (2.6 | ) | (3.2 | ) | (3.3 | ) | |||||||||||||||||||
| Foreign operations, net | Foreign operations, net | 2.6 | 1.7 | (0.1) | |||||||||||||||||||||
| R&D tax credits | (0.8 | ) | (0.7 | ) | (0.5 | ) | R&D tax credits | (1.8) | (1.4) | (0.5) | |||||||||||||||
| State taxes, net of federal benefit | 1.9 | 1.9 | 2.0 | State taxes, net of federal benefit | 2.7 | 2.9 | 1.4 | ||||||||||||||||||
| Section 199 deduction | (1.3 | ) | (1.5 | ) | (1.3 | ) | |||||||||||||||||||
| Stock-based compensation | (3.9 | ) | (1.6 | ) | — | Stock-based compensation | (2.3) | (3.3) | (1.3) | ||||||||||||||||
| Tax Cuts and Jobs Act of 2017 | (20.8 | ) | — | — | |||||||||||||||||||||
| Impact of UK tax rate change | Impact of UK tax rate change | 1.7 | — | — | |||||||||||||||||||||
| Divestitures | Divestitures | — | — | 2.0 | |||||||||||||||||||||
| Legal entity restructuring | Legal entity restructuring | (1.2) | — | (2.0) | |||||||||||||||||||||
| Other, net | (1.4 | ) | 0.1 | (1.3 | ) | Other, net | — | 0.6 | (0.2) | ||||||||||||||||
| 6.1 | % | 30.0 | % | 30.6 | % | 22.7 | % | 21.5 | % | 20.3 | % | ||||||||||||||
The deferred income tax balance sheet accounts arise from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes.
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Components of the deferred tax assets and liabilities at December 31 were as follows (in thousands):follows:
| 2017 | 2016 | 2021 | 2020 | |||||||||||||||
| Deferred tax assets: | Deferred tax assets: | |||||||||||||||||
| Reserves and accrued expenses | $ | 121,509 | $ | 186,120 | Reserves and accrued expenses | $ | 195.8 | $ | 175.0 | |||||||||
| Inventories | 5,094 | 8,967 | ||||||||||||||||
| Net operating loss carryforwards | 71,774 | 87,010 | Net operating loss carryforwards | 101.5 | 153.6 | |||||||||||||
| R&D credits | 9,570 | 7,933 | R&D credits | 12.5 | 26.2 | |||||||||||||
| Foreign tax credits | — | 9,203 | ||||||||||||||||
| Interest expense limitation carryforwards | Interest expense limitation carryforwards | 10.9 | 63.0 | |||||||||||||||
| Outside basis differences on assets held for sale | Outside basis differences on assets held for sale | 57.5 | — | |||||||||||||||
| Lease liability | Lease liability | 52.6 | 56.3 | |||||||||||||||
| Valuation allowance | (25,690 | ) | (26,009 | ) | Valuation allowance | (44.4) | (37.7) | |||||||||||
| Total deferred tax assets | $ | 182,257 | $ | 273,224 | Total deferred tax assets | $ | 386.4 | $ | 436.4 | |||||||||
| Deferred tax liabilities: | Deferred tax liabilities: | |||||||||||||||||
| Reserves and accrued expenses | $ | 39,566 | $ | 13,915 | Reserves and accrued expenses | $ | 16.1 | $ | 21.5 | |||||||||
| Amortizable intangible assets | 935,874 | 1,400,792 | Amortizable intangible assets | 1,670.2 | 1,762.8 | |||||||||||||
| Plant and equipment | 5,748 | 6,102 | Plant and equipment | 3.8 | 7.4 | |||||||||||||
| Accrued tax on unremitted foreign earnings | Accrued tax on unremitted foreign earnings | 24.7 | 18.6 | |||||||||||||||
| ROU asset | ROU asset | 50.0 | 54.4 | |||||||||||||||
| Total deferred tax liabilities | $ | 981,188 | $ | 1,420,809 | Total deferred tax liabilities | $ | 1,764.8 | $ | 1,864.7 | |||||||||
As of December 31, 2017,2021, the Company hadhas approximately $29.2 million$11.1 of tax-effected U.S. federal net operating loss carryforwards. Some of these net operating loss carryforwards have an indefinite carryforward period, and those that do not will begin to expire in 2022 if not utilized will expireutilized. The majority of the U.S. federal net operating loss carryforwards are subject to limitation under the Internal Revenue Code of 1986, as amended (“IRC”) Section 382; however, the Company expects to utilize such losses in years 2021 through 2037.their entirety prior to expiration. The U.S. federal net operating loss carryforwards decreased from 20162020 to 20172021 primarily due to reduction in U.S. federal corporate tax rate for tax years beginning after December 31, 2017.current year utilization. The Company has approximately $26.1 million$39.2 of tax-effected state net operating loss carryforwards (without regard to federal benefit of state). Some of these net operating loss carryforwards have an indefinite carryforward period, and those that do not will begin to expire in 2022 if not utilized will expire in years 2018 through 2037.utilized. The state net operating loss carryforwards are primarily related to Florida, and New Jersey, but the Company has smaller net operating losses in various other states. The Company has approximately $22.0 million$59.5 of tax-effected foreign net operating loss carryforwards. Some of these net operating loss carryforwards have an indefinite carryforward period, and those that do not if not utilized will begin to expire in 2018. Additionally, the2022 if not utilized. The foreign net operating loss carryforwards decreased from 2020 to 2021 primarily due to current year utilization. The Company has $11.3 million$14.8 of U.S. federal and state research and development tax credit carryforwards (without regard to federal benefit of state). Some of these research and development credit carryforwards have an indefinite carryforward period, and those that do not will begin to expire in years 2018 through 2037.2022 if not utilized. The research and development tax credit carryforwards decreased from 2020 to 2021 primarily due to current year utilization. Additionally, as of December 31, 2021, the Company has $10.9 of IRC Section 163(j) interest expense limitation carryforwards which have an indefinite carryforward period. The interest expense limitation carryforward decreased from 2020 to 2021 primarily due to current year utilization.
As of December 31, 2017,2021, the Company determined that a total valuation allowance of $25.7 million$44.4 was necessary to reduce U.S. federal and state deferred tax assets by $9.5 million$25.3 and foreign deferred tax assets by $16.2 million,$19.1, where it was more likely than not that all of such deferred tax assets will not be realized. As of December 31, 2017, based on the Company's estimates of future taxable income and any applicable tax-planning strategies within various tax jurisdictions,2021, the Company believes that it is more likely than not that the remaining net deferred tax assets will be realized.realized based on the Company’s estimates of future taxable income and any applicable tax-planning strategies within various tax jurisdictions.
The Company recognizes in the consolidated financial statementsConsolidated Financial Statements only those tax positions determined to be "more“more likely than not"not” of being sustained upon examination based on the technical merits of the positions.
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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):follows:
| 2017 | 2016 | 2015 | 2021 | 2020 | 2019 | |||||||||||||||||||||||
| Beginning balance | $ | 38,678 | $ | 26,140 | $ | 28,567 | Beginning balance | $ | 75.6 | $ | 69.8 | $ | 63.6 | |||||||||||||||
| Additions for tax positions of prior periods | 24,804 | 3,450 | 3,525 | Additions for tax positions of prior periods | 2.2 | 6.0 | 2.9 | |||||||||||||||||||||
| Additions for tax positions of the current period | 4,174 | 9,012 | 3,299 | Additions for tax positions of the current period | 3.3 | 3.5 | 4.2 | |||||||||||||||||||||
| Additions due to acquisitions | — | 5,049 | 6,177 | Additions due to acquisitions | 1.0 | 6.2 | 1.9 | |||||||||||||||||||||
| Reductions for tax positions of prior periods | (11,162 | ) | (1,165 | ) | (12,206 | ) | Reductions for tax positions of prior periods | (0.6) | (3.6) | (0.3) | ||||||||||||||||||
| Reductions attributable to lapses of applicable statute of limitations | Reductions attributable to lapses of applicable statute of limitations | (4.6) | (6.3) | (2.5) | ||||||||||||||||||||||||
| Reductions attributable to settlements with taxing authorities | (1,536 | ) | (568 | ) | (142 | ) | Reductions attributable to settlements with taxing authorities | (27.5) | — | — | ||||||||||||||||||
| Reductions attributable to lapses of applicable statute of limitations | (2,769 | ) | (3,240 | ) | (3,080 | ) | ||||||||||||||||||||||
| Ending balance | $ | 52,189 | $ | 38,678 | $ | 26,140 | Ending balance | $ | 49.4 | $ | 75.6 | $ | 69.8 | |||||||||||||||