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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017.
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                   to                 .

Commission File Number   1-12273
ROPER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
 
51-0263969
(I.R.S. Employer Identification No.)
 
 
 
6901 Professional Pkwy. East, Suite 200
Sarasota, Florida
(Address of principal executive offices)
 

34240
(Zip Code)
(941) 556-2601
(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes   o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ Yes   o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
þ   Large accelerated filer
o   Accelerated filer
 
 
o   Non-accelerated filer (Do not check if a smaller reporting company)
o   Smaller reporting company
 
 
 
o   Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  oYes    þ No
The number of shares outstanding of the Registrant's common stock as of October 27, 2017 was 102,362,184.

1


ROPER TECHNOLOGIES, INC.

REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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Table of Contents

PART I.    FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (unaudited)
(in thousands, except per share data)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2017
 
2016
 
2017
 
2016
Net revenues
$
1,159,912

 
$
945,144

 
$
3,380,888

 
$
2,779,125

Cost of sales
433,492

 
366,651

 
1,281,204

 
1,073,593

Gross profit
726,420

 
578,493

 
2,099,684

 
1,705,532

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
415,673

 
311,103

 
1,236,423

 
940,073

Income from operations
310,747

 
267,390

 
863,261

 
765,459

 
 
 
 
 
 
 
 
Interest expense, net
45,523

 
26,800

 
137,201

 
81,076

Other income/(expense), net
(659
)
 
(534
)
 
5,263

 
(1,997
)
 
 
 
 
 
 
 
 
Earnings before income taxes
264,565

 
240,056

 
731,323

 
682,386

 
 
 
 
 
 
 
 
Income taxes
74,292

 
72,977

 
203,423

 
205,822

 
 
 
 
 
 
 
 
Net earnings
$
190,273

 
$
167,079

 
$
527,900

 
$
476,564

 
 
 
 
 
 
 
 
Net earnings per share:
 
 
 
 
 
 
 
Basic
$
1.86

 
$
1.65

 
$
5.17

 
$
4.71

Diluted
$
1.84

 
$
1.63

 
$
5.11

 
$
4.65

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
102,303

 
101,372

 
102,091

 
101,231

Diluted
103,680

 
102,522

 
103,397

 
102,424

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.35

 
$
0.30

 
$
1.05

 
$
0.90


See accompanying notes to condensed consolidated financial statements.


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Table of Contents

Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(in thousands)

 
Three months ended September 30,
 
Nine months ended September 30,
 
2017
 
2016
 
2017
 
2016
Net earnings
$
190,273

 
$
167,079

 
$
527,900

 
$
476,564

 
 
 
 
 
 
 
 
Other comprehensive income/(loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
67,535

 
9,054

 
147,462

 
(35,673
)
Total other comprehensive income/(loss), net of tax
67,535

 
9,054

 
147,462

 
(35,673
)
 
 
 
 
 
 
 
 
Comprehensive income
$
257,808

 
$
176,133

 
$
675,362

 
$
440,891

 
See accompanying notes to condensed consolidated financial statements.


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Table of Contents

Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
 
 
September 30,
2017
 
December 31,
2016
ASSETS:
 
 
 
 
 
 
 
Cash and cash equivalents
$
605,616

 
$
757,200

Accounts receivable, net
603,874

 
619,854

Inventories, net
209,306

 
181,952

Unbilled receivables
157,852

 
129,965

Other current assets
115,408

 
87,530

Total current assets
1,692,056

 
1,776,501

 
 
 
 
Property, plant and equipment, net
141,279

 
141,318

Goodwill
8,793,956

 
8,647,142

Other intangible assets, net
3,502,687

 
3,655,843

Deferred taxes
32,459

 
30,620

Other assets
84,236

 
73,503

 
 
 
 
Total assets
$
14,246,673

 
$
14,324,927

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY:
 
 
 
 
 
 
 
Accounts payable
$
163,719

 
$
152,067

Accrued compensation
168,931

 
161,730

Deferred revenue
534,562

 
488,399

Other accrued liabilities
261,457

 
219,339

Income taxes payable
46,575

 
22,762

Current portion of long-term debt, net
401,534

 
400,975

Total current liabilities
1,576,778

 
1,445,272

 
 
 
 
Long-term debt, net of current portion
4,932,721

 
5,808,561

Deferred taxes
1,163,371

 
1,178,205

Other liabilities
114,819

 
104,024

Total liabilities
7,787,689

 
8,536,062

 
 
 
 
Commitments and contingencies (Note 9)


 


 
 
 
 
Common stock
1,043

 
1,036

Additional paid-in capital
1,591,039

 
1,489,067

Retained earnings
5,062,926

 
4,642,402

Accumulated other comprehensive loss
(177,277
)
 
(324,739
)
Treasury stock
(18,747
)
 
(18,901
)
Total stockholders' equity
6,458,984

 
5,788,865

 
 
 
 
Total liabilities and stockholders' equity
$
14,246,673

 
$
14,324,927

 
See accompanying notes to condensed consolidated financial statements.

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Table of Contents

Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
 
 
Nine months ended September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net earnings
$
527,900

 
$
476,564

Adjustments to reconcile net earnings to cash flows from operating activities:
 
 
 
Depreciation and amortization of property, plant and equipment
36,776

 
27,954

Amortization of intangible assets
221,518

 
149,149

Amortization of deferred financing costs
5,463

 
4,080

Non-cash stock compensation
67,598

 
60,480

Gain on sale of assets
(9,393
)
 

Changes in operating assets and liabilities, net of acquired businesses:
 
 
 
Accounts receivable
30,074

 
(1,660
)
Unbilled receivables
(27,186
)
 
3,684

Inventories
(19,577
)
 
(5,916
)
Accounts payable and accrued liabilities
48,276

 
17,273

Deferred revenue
50,554

 
19,692

Income taxes
(48,370
)
 
(52,728
)
Other, net
(17,900
)
 
(5,199
)
Cash provided by operating activities
865,733

 
693,373

 
 
 
 
Cash flows from investing activities:
 
 
 
Acquisitions of businesses, net of cash acquired
(88,070
)
 
(277,587
)
Capital expenditures
(35,898
)
 
(26,933
)
Capitalized software expenditures
(8,043
)
 
(1,528
)
Proceeds from sale of assets
10,614

 
866

Other, net
(6,932
)
 
1,564

Cash used in investing activities
(128,329
)
 
(303,618
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Payments under revolving line of credit, net
(880,000
)
 
(180,000
)
Principal payments on convertible notes

 
(4,010
)
Cash premiums paid on convertible note conversions

 
(13,308
)
Cash dividends to stockholders
(106,480
)
 
(90,632
)
Proceeds from stock-based compensation, net
32,932

 
13,895

Treasury stock sales
3,194

 
2,576

Other
179

 
(7,816
)
Cash used in financing activities
(950,175
)
 
(279,295
)
 
 
 
 
Effect of foreign currency exchange rate changes on cash
61,187

 
(6,701
)
 
 
 
 
Net (decrease)/increase in cash and cash equivalents
(151,584
)
 
103,759

 
 
 
 
Cash and cash equivalents, beginning of period
757,200

 
778,511

 
 
 
 
Cash and cash equivalents, end of period
$
605,616

 
$
882,270

 
See accompanying notes to condensed consolidated financial statements.

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Table of Contents

Roper Technologies, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders' Equity (unaudited)
(in thousands)

 
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Accumulated
other
comprehensive
loss
 
Treasury
stock
 
Total
Balances at December 31, 2016
$
1,036

 
$
1,489,067

 
$
4,642,402

 
$
(324,739
)
 
$
(18,901
)
 
$
5,788,865

 
 
 
 
 
 
 
 
 
 
 
 
Net earnings

 

 
527,900

 

 

 
527,900

Stock option exercises
4

 
40,397

 

 

 

 
40,401

Treasury stock sold

 
3,040

 

 

 
154

 
3,194

Currency translation adjustments

 

 

 
147,462

 

 
147,462

Stock based compensation

 
66,010

 

 

 

 
66,010

Restricted stock activity
3

 
(7,475
)
 

 

 

 
(7,472
)
Dividends declared

 

 
(107,376
)
 

 

 
(107,376
)
Balances at September 30, 2017
$
1,043

 
$
1,591,039

 
$
5,062,926

 
$
(177,277
)
 
$
(18,747
)
 
$
6,458,984

 
See accompanying notes to condensed consolidated financial statements.


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Table of Contents

Roper Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
September 30, 2017

1.    Basis of Presentation

The accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2017 and 2016 are unaudited. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the financial position, results of operations, comprehensive income and cash flows of Roper Technologies, Inc. and its subsidiaries ("Roper" or the "Company") for all periods presented. The December 31, 2016 financial position data included herein was derived from the audited consolidated financial statements included in the Company's 2016 Annual Report on Form 10-K ("Annual Report") filed on February 27, 2017 with the Securities and Exchange Commission ("SEC") but does not include all disclosures required by U.S. generally accepted accounting principles ("GAAP").

Roper's management has made estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates.

The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year. You should read these unaudited condensed consolidated financial statements in conjunction with Roper's audited consolidated financial statements and the notes thereto included in its Annual Report. Certain prior period amounts have been reclassified to conform to current period presentation.

2.    Recent Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") establishes changes to accounting principles under GAAP in the form of accounting standards updates ("ASUs") to the FASB's Accounting Standards Codification.  The Company considers the applicability and impact of all ASUs.  Any recent ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company's results of operations, financial position or cash flows.

Recently Adopted Accounting Pronouncements

In July 2015, the FASB issued an update providing guidance to simplify the measurement of inventory. This update, effective for fiscal years beginning after December 15, 2016, requires that inventory within the scope of the update be measured at the lower of cost and net realizable value. The update did not have a material impact on the Company's results of operations, financial condition or cash flows.

Recently Released Accounting Pronouncements

In January 2017, the FASB issued an update simplifying the test for goodwill impairment. This update, effective on 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 amendments in the update, an entity should perform its goodwill impairment test 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 goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the update to have a material impact on its results of operations, financial condition or cash flows.

In August 2016, the FASB issued an update clarifying the classification of certain cash receipts and cash payments in the statement of cash flows. This update, effective for annual reporting periods after December 15, 2017, including interim periods within those annual periods, addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The Company does not expect the update to have a material impact on its results of operations, financial condition or cash flows.

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Table of Contents


In February 2016, the FASB issued an update on lease accounting. This update, effective for annual reporting periods after December 15, 2018, including interim periods within those annual periods, provides amendments to current lease accounting. These amendments include the recognition of lease assets and lease liabilities on the balance sheet and disclosing other key information about leasing arrangements. Early adoption is permitted. The Company is evaluating the impact of the update on its results of operations, financial condition and cash flows.

In May 2014, the FASB issued updates on accounting and disclosures for revenue from contracts with customers. These updates, effective for annual reporting periods after December 15, 2017, create a single, comprehensive revenue recognition model for all contracts with customers. The model is based on changes in contract assets (rights to receive consideration) and liabilities (obligations to provide a good or service). Revenue will be recognized based on the satisfaction of performance obligations, which occurs when control of a good or service transfers to a customer and enhanced disclosures will be required regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Either a retrospective or cumulative effect transition method is permitted. The Company has elected to adopt using the modified retrospective transition method. The Company has substantially completed its assessment to identify differences between the existing standard and new standard on its customer contracts. Based on this assessment, the Company expects the impact of the new standard is due primarily to the acceleration of recognition of revenues and associated costs for certain of our software license contracts. Under existing guidance, these contracts are recognized ratably over the contractual term of post-contract support services in the event vendor-specific objective evidence is unavailable. The new standard requires recognition at once upon the transfer of control of the software license. The Company estimates the opening balance sheet adjustment as of January 1, 2018 under the modified retrospective transition method will be less than 1% of the Company's 2017 annual revenues, prior to the effects of income taxes. The FASB has issued, and may issue in the future, interpretive guidance which may cause the evaluation to change. The Company believes it is following an appropriate timeline to allow for proper recognition, presentation and disclosure upon adoption effective the beginning of fiscal year 2018.

3.    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 period. Diluted earnings per share were calculated using net earnings and the weighted average number of shares of common stock and potential common stock outstanding during the respective period. Potentially dilutive common stock consisted of stock options and the premium over the conversion price on Roper's senior subordinated convertible notes based upon the trading price of Roper's common stock. The effects of potential common stock were determined using the treasury stock method. Weighted average shares outstanding are shown below (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2017
 
2016
 
2017
 
2016
Basic shares outstanding
102,303

 
101,372

 
102,091

 
101,231

Effect of potential common stock:
 
 
 
 
 
 
 
Common stock awards
1,377

 
1,112

 
1,306

 
1,131

Senior subordinated convertible notes

 
38

 

 
62

Diluted shares outstanding
103,680

 
102,522

 
103,397

 
102,424


For the three and nine months ended September 30, 2017, there were 475,098 and 487,298 outstanding stock options, respectively, that were not included in the determination of diluted earnings per share because doing so would have been antidilutive, as compared to 1,063,100 and 1,066,100 outstanding stock options that would have been antidilutive in the respective 2016 periods.

4.    Business Acquisitions and Divestitures

Roper completed three business acquisitions in the nine months ended September 30, 2017, with an aggregate purchase price of $87 million. The results of operations of the acquired businesses did not have a material impact on Roper's consolidated results of operations.

Acquisition of Phase Technology - On June 21, 2017, Roper acquired the assets of Phase Technology, a business engaged in the design, manufacture, marketing and sales of test instruments. Phase Technology is reported in the Energy Systems & Controls segment.


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Acquisition of Handshake Software, Inc. - On August 4, 2017, Roper acquired 100% of the shares of Handshake Software, Inc., a provider of search products, portals and services for legal professionals. Handshake Software is reported in the RF Technology segment.

Acquisition of Workbook Software A/S - On September 15, 2017, Roper acquired 100% of the shares of Workbook Software A/S, a provider of software solutions for customer relationship management, project management and finance/accounting. Workbook Software is reported in the RF Technology segment.

The Company recorded $58 million in goodwill and $36 million 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 customer relationships of $24 million (15 year weighted average useful life) and technology of $8 million (7 year weighted average useful life).

On October 4, 2017, three wholly owned subsidiaries of Roper entered into an agreement to acquire all of the outstanding shares of Onvia, Inc. ("Onvia") common stock for $9.00 per share in an all-cash tender offer for a total transaction value of approximately $70 million. Onvia provides enterprise, mid-market and small business customers with sales lead generation technologies into federal, state and local government markets. The acquisition will be funded with cash on hand and Roper expects the transaction to close in the fourth quarter of 2017.

Sale of Product Line -  On May 15, 2017, Roper completed the sale of a product line in our Energy Systems & Controls segment for $10.4 million. The pretax gain on the sale was $9.4 million, which is reported in Other income/(expense), net in the condensed consolidated statements of earnings.

5.    Stock Based Compensation

The Roper Technologies, Inc. 2016 Incentive Plan ("2016 Plan") is a stock-based compensation plan used to grant incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights or equivalent instruments to Roper's employees, officers and directors. The 2016 Plan replaces the Roper Technologies, Inc. Amended and Restated 2006 Incentive Plan ("2006 Plan"), and no additional grants will be made from the 2006 Plan.

The following table provides information regarding the Company's stock-based compensation expense (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2017
 
2016
 
2017
 
2016
Stock-based compensation
$
23,734

 
$
21,388

 
$
67,598

 
$
60,480

Tax effect recognized in net income
8,307

 
7,486

 
23,659

 
21,168


Stock Options - In the nine months ended September 30, 2017, 592,798 options were granted with a weighted average fair value of $40.67 per option. During the same period in 2016, 633,000 options were granted with a weighted average fair value of $34.45 per option. All options were issued at grant date fair value, which is defined by both the 2016 Plan and the 2006 Plan as the closing price of Roper's common stock on the date of grant.

Roper records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. Historical data is used to estimate the expected price volatility, the expected dividend yield, the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The following weighted average assumptions were used to estimate the fair value of options granted during current and prior year periods using the Black-Scholes option-pricing model:
 
Nine months ended September 30,
 
2017
 
2016
Risk-free interest rate (%)
2.03
 
1.38
Expected option life (years)
5.26
 
5.20
Expected volatility (%)
18.76
 
21.63
Expected dividend yield (%)
0.67
 
0.70


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Cash received from option exercises for the nine months ended September 30, 2017 and 2016 was $40.4 million and $15.9 million, respectively.

Restricted Stock Awards - During the nine months ended September 30, 2017, 389,117 restricted stock awards were granted with a weighted average grant date fair value of $203.02 per restricted share. During the same period in 2016, 395,980 restricted stock awards were granted with a weighted average grant date fair value of $169.03 per restricted share. All grants were issued at grant date fair value.

During the nine months ended September 30, 2017, 138,140 restricted awards vested with a weighted average grant date fair value of $143.29 per restricted share and a weighted average vest date fair value of $215.77 per restricted share.

Employee Stock Purchase Plan - Roper's stock purchase plan allows employees in the U.S. and Canada to designate up to 10% of eligible earnings to purchase Roper's common stock at a 5% discount to the average closing price of the stock at the beginning and end of a quarterly offering period. Common stock sold to employees pursuant to the stock purchase plan may be either treasury stock, stock purchased on the open market, or newly issued shares.

During the nine months ended September 30, 2017 and 2016, participants in the employee stock purchase plan purchased 15,511 and 15,076 shares, respectively, of Roper's common stock for total consideration of $3.19 million and $2.58 million, respectively. All shares were purchased from Roper's treasury shares.

6.    Inventories

The components of inventory were as follows (in thousands):
 
September 30,
2017
 
December 31,
2016
Raw materials and supplies
$
131,817

 
$
113,632

Work in process
29,172

 
24,290

Finished products
87,561

 
81,263

Inventory reserves
(39,244
)
 
(37,233
)
 
$
209,306

 
$
181,952


7.    Goodwill and Other Intangible Assets

The carrying value of goodwill by segment was as follows (in thousands):
 
RF Technology
 
Medical &
 Scientific Imaging
 
Industrial
Technology
 
Energy Systems
 & Controls
 
Total
Balances at December 31, 2016
$
4,687,670

 
$
3,185,071

 
$
363,978

 
$
410,423

 
$
8,647,142

Additions
38,349

 

 

 
19,169

 
57,518

Other
22,385

 
3,264

 

 

 
25,649

Currency translation adjustments
20,528

 
19,922

 
13,656

 
9,541

 
63,647

Balances at September 30, 2017
$
4,768,932

 
$
3,208,257

 
$
377,634

 
$
439,133

 
$
8,793,956


Other relates primarily to tax purchase accounting and working capital adjustments for 2016 acquisitions.


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Other intangible assets were comprised of (in thousands):
 
Cost
 
Accumulated
amortization
 
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
$
3,313,342

 
$
(863,741
)
 
$
2,449,601

Unpatented technology
539,892

 
(193,223
)
 
346,669

Software
185,305

 
(77,894
)
 
107,411

Patents and other protective rights
26,034

 
(22,007
)
 
4,027

Trade names
6,638

 
(1,466
)
 
5,172

Assets not subject to amortization:
 
 
 
 
 
Trade names
588,349

 

 
588,349

In process research and development
1,458

 

 
1,458

Balances at September 30, 2017
$
4,661,018

 
$
(1,158,331
)
 
$
3,502,687


Amortization expense of other intangible assets was $220,683 and $147,773 during the nine months ended September 30, 2017 and 2016, respectively.

An evaluation of the carrying value of goodwill and indefinite-lived intangibles is required to be performed on an annual basis and on 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. There have been no events or changes in circumstances which indicate an interim impairment review is required in 2017. The Company will perform the annual analysis during the fourth quarter of 2017.

8.    Fair Value of Financial Instruments

Roper's debt at September 30, 2017 included $4.3 billion of fixed-rate senior notes with the following fair values (in millions):
$400 million 1.850% senior notes due 2017
$
400

$800 million 2.050% senior notes due 2018
802

$500 million 6.250% senior notes due 2019
539

$600 million 3.000% senior notes due 2020
612

$500 million 2.800% senior notes due 2021
504

$500 million 3.125% senior notes due 2022
513

$300 million 3.850% senior notes due 2025
311

$700 million 3.800% senior notes due 2026
723


The fair values of the senior notes are based on the trading prices of the notes, which the Company has determined to be Level 2 in the FASB fair value hierarchy.

9.    Contingencies

Roper, in the ordinary course of business, is the subject of, or a party to, various pending or threatened legal actions, including product liability and employment practices that, in general, are based upon claims of the kind that have been customary over the past several years and which the Company is vigorously defending. After analyzing the Company's contingent liabilities on a gross

12

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basis and, based upon past experience with resolution of its product liability and employment practices claims and the limits of the primary, excess, and umbrella liability insurance coverages that are available with respect to pending claims, management believes that adequate provision has been made to cover any potential liability not covered by insurance, and that the ultimate liability, if any, arising from these actions should not have a material adverse effect on Roper's consolidated financial position, results of operations or cash flows.

Roper or its subsidiaries have been named defendants along with numerous industrial companies in asbestos-related litigation claims in certain U.S. states. No significant resources have been required by Roper to respond to these cases and Roper believes it has valid defenses to such claims and, if required, intends to defend them vigorously. Given the state of these claims, it is not possible to determine the potential liability, if any.

Roper's consolidated financial statements include accruals for potential product liability and warranty claims based on its claims experience. Such costs are accrued at the time revenue is recognized. A summary of the warranty accrual activity for the nine months ended September 30, 2017 is presented below (in thousands):
Balances at December 31, 2016
$
10,548

Additions charged to costs and expenses
9,418

Deductions
(8,941
)
Other
149

Balances at September 30, 2017
$
11,174


10.    Business Segments

Revenues and operating profit by industry segment are set forth in the following table (dollars in thousands):
 
Three months ended September 30,
 
 
 
Nine months ended September 30,
 
 
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Revenues
 
 
 
 
 
 
 
 
 
 
 
RF Technology
$
480,572

 
$
303,565

 
58.3
 %
 
$
1,370,688

 
$
872,536

 
57.1
%
Medical & Scientific Imaging
343,639

 
338,027

 
1.7
 %
 
1,042,638

 
1,010,826

 
3.1
%
Industrial Technology
200,442

 
178,317

 
12.4
 %
 
576,713

 
528,179

 
9.2
%
Energy Systems & Controls
135,259

 
125,235

 
8.0
 %
 
390,849

 
367,584

 
6.3
%
Total
$
1,159,912

 
$
945,144

 
22.7
 %
 
$
3,380,888

 
$
2,779,125

 
21.7
%
Gross profit:
 
 
 
 
 
 
 
 
 
 
 
RF Technology
$
298,883

 
$
169,123

 
76.7
 %
 
$
830,096

 
$
492,493

 
68.5
%
Medical & Scientific Imaging
247,138

 
247,432

 
(0.1
)%
 
753,096

 
740,725

 
1.7
%
Industrial Technology
102,092

 
90,950

 
12.3
 %
 
293,410

 
266,679

 
10.0
%
Energy Systems & Controls
78,307

 
70,988

 
10.3
 %
 
223,082

 
205,635

 
8.5
%
Total
$
726,420

 
$
578,493

 
25.6
 %
 
$
2,099,684

 
$
1,705,532

 
23.1
%
Operating profit*:
 
 
 
 
 
 
 
 
 
 
 
RF Technology
$
134,148

 
$
94,785

 
41.5
 %
 
$
342,690

 
$
272,905

 
25.6
%
Medical & Scientific Imaging
115,506

 
118,979

 
(2.9
)%
 
356,614

 
347,706

 
2.6
%
Industrial Technology
62,255

 
52,800

 
17.9
 %
 
174,117

 
150,850

 
15.4
%
Energy Systems & Controls
36,351

 
31,777

 
14.4
 %
 
99,454

 
83,728

 
18.8
%
Total
$
348,260

 
$
298,341

 
16.7
 %
 
$
972,875

 
$
855,189

 
13.8
%
Long-lived assets:
 
 
 
 
 
 
 
 
 
 
 
RF Technology
$
81,863

 
$
30,984

 
164.2
 %
 
 
 
 
 
 
Medical & Scientific Imaging
43,858

 
38,793

 
13.1
 %
 
 
 
 
 
 
Industrial Technology
32,198

 
35,584

 
(9.5
)%
 
 
 
 
 
 
Energy Systems & Controls
9,461

 
10,720

 
(11.7
)%
 
 
 
 
 
 
Total
$
167,380

 
$
116,081

 
44.2
 %
 
 
 
 
 
 
 

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*Segment operating profit is before unallocated corporate general and administrative expenses. These expenses were $37,513 and $30,951 for the three months ended September 30, 2017 and 2016, respectively, and $109,614 and $89,730 for the nine months ended September 30, 2017 and 2016, respectively.


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ITEM 2.
MANAGMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2016 ("Annual Report")  as filed on February 27, 2017 with the U.S. Securities and Exchange Commission ("SEC") and the Notes to Condensed Consolidated Financial Statements included elsewhere in this report.

Information About Forward-Looking Statements

This report includes "forward-looking statements" within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the SEC or in connection with oral statements made to the press, potential investors or others. All statements that are not historical facts are "forward-looking statements."  Forward-looking statements may be indicated by words or phrases such as "anticipate," "estimate," "plans," "expects," "projects," "should," "will," "believes" or "intends" and similar words and phrases. These statements reflect management'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.

Examples of forward-looking statements in this report include but are not limited to statements regarding operating results, the success of our internal 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. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, timing and success of product upgrades and new product introductions, raw materials costs, expected pricing levels, 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;
difficulties associated with exports;
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, raw materials, parts and components;
environmental compliance costs and liabilities;
risks and costs associated with asbestos-related litigation;
potential write-offs of our substantial 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 or other unforeseen events; and
the factors discussed in other reports filed with the SEC.

We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update any of these statements in light of new information or future events.


15

Table of Contents

Overview

Roper Technologies, Inc. ("Roper," "we," "us" or "our") is a diversified technology company. We operate businesses that design and develop software (both license and software-as-a-service) and engineered products and solutions for a variety of niche end markets, including healthcare, transportation, commercial construction, food, energy, water, education and academic research.

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 services, engineered products and solutions and 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.

Critical Accounting Policies

There were no material changes during the nine months ended September 30, 2017 to the items that we disclosed as our critical accounting policies and estimates in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report.

Recently Issued Accounting Standards

Information regarding new accounting pronouncements is included in Note 2 of the Notes to Condensed Consolidated Financial Statements.  


16

Table of Contents

Results of Operations

General

The following table sets forth selected information for the periods indicated. Dollar amounts are in thousands and percentages are the particular line item shown as a percentage of net sales. Percentages may not foot due to rounding.

 
Three months ended September 30,
 
Nine months ended September 30,
 
2017
 
2016
 
2017
 
2016
Net revenues:
 
 
 
 
 
 
 
RF Technology
$
480,572

 
$
303,565

 
$
1,370,688

 
$
872,536

Medical & Scientific Imaging
343,639

 
338,027

 
1,042,638

 
1,010,826

Industrial Technology
200,442

 
178,317

 
576,713

 
528,179

Energy Systems & Controls
135,259

 
125,235

 
390,849

 
367,584

Total
$
1,159,912

 
$
945,144

 
$
3,380,888

 
$
2,779,125

Gross margin:
 
 
 
 
 
 
 
RF Technology
62.2
 %
 
55.7
 %
 
60.6
 %
 
56.4
 %
Medical & Scientific Imaging
71.9

 
73.2

 
72.2

 
73.3

Industrial Technology
50.9

 
51.0

 
50.9

 
50.5

Energy Systems & Controls
57.9

 
56.7

 
57.1

 
55.9

Total
62.6

 
61.2

 
62.1

 
61.4

Selling, general & administrative expenses:
 
 
 
 
 
 
 
RF Technology
34.3
 %
 
24.5
 %
 
35.6
 %
 
25.2
 %
Medical & Scientific Imaging
38.3

 
38.0

 
38.0

 
38.9

Industrial Technology
19.9

 
21.4

 
20.7

 
21.9

Energy Systems & Controls
31.0

 
31.3

 
31.6

 
33.2

Total
32.6

 
29.6

 
33.3

 
30.6

Segment operating margin:
 
 
 
 
 
 
 
RF Technology
27.9
 %
 
31.2
 %
 
25.0
 %
 
31.3
 %
Medical & Scientific Imaging
33.6

 
35.2

 
34.2

 
34.4

Industrial Technology
31.1

 
29.6

 
30.2

 
28.6

Energy Systems & Controls
26.9

 
25.4

 
25.4

 
22.8

Total
30.0

 
31.6

 
28.8

 
30.8

Corporate administrative expenses
(3.2
)
 
(3.3
)
 
(3.2
)
 
(3.2
)
 
26.8

 
28.3

 
25.5

 
27.5

Interest expense, net
(3.9
)
 
(2.8
)
 
(4.1
)
 
(2.9
)
Other income/(expense), net
(0.1
)
 
(0.1
)
 
0.2

 
(0.1
)
Earnings before income taxes
22.8

 
25.4

 
21.6

 
24.6

Income taxes
(6.4
)
 
(7.7
)
 
(6.0
)
 
(7.4
)
Net earnings
16.4
 %
 
17.7
 %
 
15.6
 %
 
17.1
 %

Three months ended September 30, 2017 compared to three months ended September 30, 2016

Net revenues for the three months ended September 30, 2017 increased by 23% as compared to the three months ended September 30, 2016. The increase was the result of a net effect of 17% from acquisitions and divestitures, organic growth of 5% and foreign exchange benefit of 1%.

In our RF Technology segment, revenues were $481 million in the third quarter of 2017 as compared to $304 million in the third quarter of 2016, an increase of 58%. Acquisitions accounted for 54% and organic revenue increased by 5%. The increase in organic revenues was due primarily to growth in our software businesses and increased revenues from tolling projects. Gross margin increased to 62.2% in the third quarter of 2017 as compared to 55.7% in the third quarter of 2016 due to an increased percentage of revenues at our software businesses which have higher gross margins. Selling, general and administrative ("SG&A") expenses

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Table of Contents

as a percentage of revenues in the third quarter of 2017 increased to 34.3% as compared to 24.5% in the third quarter of 2016 due to recently acquired software businesses with a higher SG&A expense structure, which includes amortization of acquired intangibles. The resulting operating margin was 27.9% in the third quarter of 2017 as compared to 31.2% in the third quarter of 2016.

Our Medical & Scientific Imaging segment revenues increased by 2% to $344 million in the third quarter of 2017 as compared to $338 million in the third quarter of 2016. Organic revenues increased by 1% due to growth in our alternate site healthcare businesses and several of our medical products businesses, partially offset by declines in our scientific imaging businesses. Gross margin decreased to 71.9% in the third quarter of 2017 as compared to 73.2% in the third quarter of 2016, due primarily to unfavorable sales mix at both our software and medical products businesses. SG&A expenses as a percentage of revenues increased to 38.3% in the third quarter of 2017 as compared to 38.0% in the third quarter of 2016 due primarily to increased software development and selling expenses at our software businesses. As a result, operating margin was 33.6% in the third quarter of 2017 as compared to 35.2% in the third quarter of 2016.

Our Industrial Technology segment revenues increased by 12% to $200 million in the third quarter of 2017 as compared to $178 million in the third quarter of 2016. Organic revenues increased by 12% and the foreign exchange benefit was 1%. The increase in revenues was due primarily to our fluid handling and water meter technology businesses. Gross margin was effectively consistent at 50.9% in the third quarter of 2017 as compared to 51.0% in the third quarter of 2016 due to a consistent sales mix. SG&A expenses as a percentage of revenues decreased to 19.9% in the third quarter of 2017 as compared to 21.4% in the third quarter of 2016 due to operating leverage on higher revenues. The resulting operating margin was 31.1% in the third quarter of 2017 as compared to 29.6% in the third quarter of 2016.

Our Energy Systems & Controls segment revenues increased by 8% to $135 million in the third quarter of 2017 compared to $125 million in the third quarter of 2016. Organic revenues increased by 6%, acquisitions contributed 1% and the foreign exchange benefit was 1%. The increase in organic revenues was due primarily to growth in our pressure sensors and valves businesses serving energy markets as well as businesses serving industrial end markets. Gross margin increased to 57.9% in the third quarter of 2017 as compared to 56.7% in the third quarter of 2016 and SG&A expenses as a percentage of revenues decreased to 31.0% in the third quarter of 2017 as compared to 31.3% in the third quarter of 2016, both of which were due to operating leverage on higher revenues. As a result, operating margin was 26.9% in the third quarter of 2017 as compared to 25.4% in the third quarter of 2016.

Corporate expenses increased to $37.5 million, or 3.2% of revenues, in the third quarter of 2017 as compared to $31.0 million, or 3.3% of revenues, in the third quarter of 2016. The dollar increase was due primarily to increased incentive and equity compensation and increased professional services.

Net interest expense was $45.5 million for the third quarter of 2017 as compared to $26.8 million for the third quarter of 2016 due to higher weighted average debt balances in the current quarter.

Other expense, net, of $0.7 million for the third quarter of 2017 was composed primarily of foreign exchange losses at our non-U.S. based subsidiaries. Other expense, net, of $0.5 million for the third quarter of 2016 was due primarily to a non-cash charge of $0.9 million related to the early termination of our prior credit facility partially offset by foreign exchange gains at our non-U.S. based subsidiaries.

Income taxes as a percent of pretax earnings were 28.1% in the third quarter of 2017 as compared to 30.4% in the third quarter of 2016. The rate was favorably impacted primarily due to a discrete tax benefit from the settlement of tax matters in the current quarter.

Order backlog was $1.59 billion at September 30, 2017 as compared to $1.12 billion at September 30, 2016, an increase of 42%. Acquisitions accounted for 33% and internal growth contributed 10%.


18

Table of Contents

 
Order backlog as of
 
September 30,
 
2017
 
2016
 
(in thousands)
RF Technology
$
956,264

 
$
563,716

Medical & Scientific Imaging
441,508

 
396,620

Industrial Technology
98,541

 
69,020

Energy Systems & Controls
96,481

 
90,699

Total
$
1,592,794

 
$
1,120,055


Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Net revenues for the nine months ended September 30, 2017 increased by 22% as compared to the nine months ended September 30, 2016. The increase was the result of a net effect of 17% from acquisitions and divestitures, organic growth of 6% and a negative foreign exchange impact of less than 1%.

In our RF Technology segment, revenues were $1,371 million in the nine months ended September 30, 2017 as compared to $873 million in the nine months ended September 30, 2016, an increase of 57%. Acquisitions accounted for 52% and organic revenues increased by 5%. The growth in organic revenues was due primarily to increased sales from tolling projects as well as growth in our software businesses. Gross margin increased to 60.6% in the nine months ended September 30, 2017 as compared to 56.4% in the nine months ended September 30, 2016 due to increased percentage of revenues at our software businesses, which have a higher gross margin. SG&A expenses as a percentage of revenues in the nine months ended September 30, 2017 increased to 35.6% as compared to 25.2% in the prior year due primarily to an increased percentage of revenues at our software businesses, which have a higher SG&A expense structure, including amortization of acquired intangibles. The resulting operating margin was 25.0% in the nine months ended September 30, 2017 as compared to 31.3% in the nine months ended September 30, 2016.

Our Medical & Scientific Imaging segment revenues increased by 3% to $1,043 million in the nine months ended September 30, 2017 as compared to $1,011 million in the nine months ended September 30, 2016, all of which was attributable to organic growth. The growth in organic revenues was due primarily to increased sales in our medical businesses, led by Northern Digital, and our alternate site healthcare businesses. Gross margin decreased to 72.2% in the nine months ended September 30, 2017 as compared to 73.3% in the nine months ended September 30, 2016 due primarily to an unfavorable sales mix at both our software and medical products businesses. SG&A expenses as a percentage of revenues decreased to 38.0% in the nine months ended September 30, 2017 as compared to 38.9% for the nine months ended September 30, 2016 due primarily to operating leverage on higher revenues. As a result, operating margin was 34.2% in the nine months ended September 30, 2017 as compared to 34.4% in the nine months ended September 30, 2016.

Our Industrial Technology segment revenues increased by 9% to $577 million in the nine months ended September 30, 2017 as compared to $528 million in the nine months ended September 30, 2016, all of which was attributable to organic growth. The growth in organic revenues was due primarily to our fluid handling, water meter technology and materials testing businesses. Gross margin increased to 50.9% in the nine months ended September 30, 2017 as compared to 50.5% in the nine months ended September 30, 2016 and SG&A expenses as a percentage of revenues decreased to 20.7% in the nine months ended September 30, 2017 as compared to 21.9% in the nine months ended September 30, 2016, both of which were due to operating leverage on higher revenues. The resulting operating margin was 30.2% in the nine months ended September 30, 2017 as compared to 28.6% in the nine months ended September 30, 2016.

Our Energy Systems & Controls segment revenues increased by 6% to $391 million in the nine months ended September 30, 2017 as compared to $368 million in the nine months ended September 30, 2016. Organic revenues increased by 7% and the negative foreign exchange impact was 1%. The growth in organic revenues was due primarily to increased sales in our pressure sensors and valves businesses serving energy markets as well as businesses serving industrial end markets. Gross margin increased to 57.1% in the nine months ended September 30, 2017 as compared to 55.9% in the nine months ended September 30, 2016 and SG&A expenses as a percentage of revenues decreased to 31.6% in the nine months ended September 30, 2017 as compared to 33.2% in the nine months ended September 30, 2016, both of which were due to operating leverage on higher revenues. As a result, operating margin was 25.4% in the nine months ended September 30, 2017 as compared to 22.8% in the nine months ended September 30, 2016.


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Table of Contents

Corporate expenses increased to $109.6 million in the nine months ended September 30, 2017 as compared to $89.7 million in the nine months ended September 30, 2016, which were consistent as a percentage of revenues at 3.2%. The dollar increase was due primarily to increased incentive and equity compensation and increased professional services.

Net interest expense was $137.2 million for the nine months ended September 30, 2017 as compared to $81.1 million for the nine months ended September 30, 2016 due to higher weighted average debt balances in the current year.

Other income, net, of $5.3 million for the nine months ended September 30, 2017 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 foreign exchange losses at our non-U.S. subsidiaries. Other expense, net, was $2.0 million for the nine months ended September 30, 2016 due primarily to foreign exchange losses at our non-U.S. subsidiaries and to a non-cash charge of $0.9 million related to the early termination of our prior credit facility.

Income taxes as a percent of pretax earnings decreased to 27.8% in the nine months ended September 30, 2017 as compared to 30.2% in the nine months ended September 30, 2016 due primarily to discrete tax benefits from settlements of tax matters and an increase in excess tax benefits related to equity compensation in the current year. We expect the effective tax rate for 2017 to be between 28% and 29%.

Financial Condition, Liquidity and Capital Resources

Selected cash flows for the three and nine months ended September 30, 2017 and 2016 were as follows (in millions):
 
Three months ended September 30,
 
Nine months ended September 30,
Cash provided by/(used in):
2017
 
2016
 
2017
 
2016
Operating activities
$
315.6

 
$
316.5

 
$
865.7

 
$
693.4

Investing activities
(66.3
)
 
(10.4
)
 
(128.3
)
 
(303.6
)
Financing activities
(331.8
)
 
(47.3
)
 
(950.2
)
 
(279.3
)

Operating activities - Net cash provided by operating activities decreased by 0.3% to $316 million in the third quarter of 2017 as compared to $317 million in the third quarter of 2016 due primarily to increases in accounts receivable, unbilled receivables and higher income tax payments, largely offset by higher net income net of non-cash charges, higher deferred revenue balances and the timing of interest payments. Net cash provided by operating activities increased by 24.9% to $866 million in the nine months ended September 30, 2017 as compared to $693 million in the nine months ended September 30, 2016 due primarily to higher net income net of non-cash charges, higher deferred revenue balances due to an increased percentage of revenue from software and other subscription based products and improved collections on accounts receivable, offset in part by higher unbilled receivables associated with our project-based businesses, higher prepaid asset balances and increased inventories.

Investing activities - Cash used in investing activities was primarily for business acquisitions and capital expenditures during the three and nine months ended September 30, 2017 and 2016. Cash received from investing activities during the nine months ended September 30, 2017 was primarily proceeds from the sale of a product line in our Energy Systems & Controls segment.

Financing activities - Cash used in financing activities was primarily for debt principal repayments and dividends during the three and nine months ended September 30, 2017 and 2016. Net debt repayments on the unsecured credit facility were $880 million in the nine months ended September 30, 2017 as compared to net debt repayments of $180 million in the nine months ended September 30, 2016.

Effect of foreign currency exchange rate changes on cash - Cash and cash equivalents increased during the three and nine months ended September 30, 2017 by $24.7 million and $61.2 million, respectively, due primarily to the strengthening of functional currencies of our European and Canadian subsidiaries against the U.S. dollar, as compared to an increase and a decrease during the three and nine months ended September 30, 2016 of $1.1 million and $6.7 million, respectively. The increase for the three months ended September 30, 2016 was due primarily to the strengthening of the Euro against the U.S. dollar, while the decrease for the nine months ended September 30, 2016 was due primarily to the weakening of the British Pound against the U.S. dollar, offset in part by the strengthening of the Euro and Canadian dollar against the U.S. dollar.


20

Table of Contents

Total debt at September 30, 2017 consisted of the following (amounts in thousands):

$400 million 1.850% senior notes due 2017
$
400,000

$800 million 2.050% senior notes due 2018
800,000

$500 million 6.250% senior notes due 2019
500,000

$600 million 3.000% senior notes due 2020
600,000

$500 million 2.800% senior notes due 2021
500,000

$500 million 3.125% senior notes due 2022
500,000

$300 million 3.850% senior notes due 2025
300,000

$700 million 3.800% senior notes due 2026
700,000

Unsecured credit facility
1,050,000

Deferred finance costs
(19,023
)
Other
3,278

Total debt, net of deferred finance costs
5,334,255

Less current portion
401,534

Long-term debt, net of deferred finance costs
$
4,932,721


The interest rate on borrowings under our $2.5 billion unsecured credit facility is calculated based upon various recognized indices plus a margin as defined in the credit agreement. At September 30, 2017, there were $1,050 million outstanding borrowings under the unsecured credit facility. At September 30, 2017, we had $3.3 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 various foreign locations to support our non-U.S. businesses and $76 million of outstanding letters of credit.

Cash and short-term investments at our foreign subsidiaries at September 30, 2017 totaled $572 million. Repatriation of these funds under current regulatory and tax law for use in domestic operations could expose us to additional taxes. We generally consider this cash to be permanently reinvested. We expect existing cash and cash equivalents, cash generated by our U.S. operations, our unsecured credit facility, as well as our expected ability to access the capital markets, will be sufficient to fund operating requirements in the U.S. for the foreseeable future.

We were in compliance with all debt covenants related to our unsecured credit facility throughout the nine months ended September 30, 2017.

Net working capital (total current assets, excluding cash, less total current liabilities, excluding debt) was negative $89 million at September 30, 2017 compared to negative $25 million at December 31, 2016, reflecting a decrease in working capital due primarily to increased deferred revenues and other accrued liabilities, offset in part primarily by an increase in unbilled receivables and inventories. Total debt was $5.33 billion at September 30, 2017 as compared to $6.21 billion at December 31, 2016 due primarily to the use of operating cash flows to pay down outstanding debt under our unsecured credit facility. Our leverage is shown in the following table (in thousands):
 
September 30,
2017
 
December 31,
2016
Total debt
$
5,334,255

 
$
6,209,536

Cash
(605,616
)
 
(757,200
)
Net debt
4,728,639

 
5,452,336

Stockholders' equity
6,458,984

 
5,788,865

Total net capital
$
11,187,623

 
$
11,241,201

 
 
 
 
Net debt / total net capital
42.3
%
 
48.5
%

Capital expenditures were $36 million for the nine months ended September 30, 2017 as compared to $27 million for the nine months ended September 30, 2016. We expect capital expenditures for the balance of the year to be comparable to prior years as a percentage of revenues.

There have been no significant changes to our contractual obligations from those disclosed in our Annual Report.


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Off-Balance Sheet Arrangements

At September 30, 2017, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Outlook

Current geopolitical uncertainties could adversely affect our business prospects. A significant terrorist attack or other global conflict could cause changes in world economies that would adversely affect us. It is impossible to isolate each of these factor's effects on current economic conditions. It is also impossible to predict with any reasonable degree of certainty what or when any additional events may occur that also would similarly disrupt the economy.

We maintain an active acquisition program; however, future acquisitions will be dependent on numerous factors and it is not feasible to reasonably estimate if or when any such acquisitions will occur and what the impact will be on our business, financial condition and results of operations. Such acquisitions may be financed by the use of existing credit lines, future cash flows from operations, the proceeds from the issuance of new debt or equity securities or any combination of these methods.

We anticipate that our recently acquired companies as well as our other companies will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of borrowings under our unsecured credit facility. However, the rate at which we can reduce debt during 2017 (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. None of these factors can be predicted with certainty.

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Table of Contents

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See "Item 7A - Quantitative and Qualitative Disclosures about Market Risk" in our Annual Report. There were no material changes during the nine months ended September 30, 2017.

ITEM 4.    CONTROLS AND PROCEDURES

As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q ("Evaluation Date"). This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation as of the Evaluation Date, these officers have concluded that the design and operation of our disclosure controls and procedures are effective.

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes to our internal controls during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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Table of Contents


PART II.    OTHER INFORMATION
 
ITEM 1.    LEGAL PROCEEDINGS

Information pertaining to legal proceedings can be found in Note 9 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q and is incorporated by reference herein.

ITEM 1A.    RISK FACTORS

For information regarding factors that could affect our business, financial condition and results of operations, see the risk factors discussion in Item 1A of our Annual Report. See also "Information About Forward-Looking Statements" included in Part I, Item 2 of this Quarterly Report on Form 10-Q.

Item 6.                  Exhibits

31.1

 
Rule 13a-14(a)/15d-14(a), Certification of the Chief Executive Officer, filed herewith.
 
 
 
31.2

 
Rule 13a-14(a)/15d-14(a), Certification of the Chief Financial Officer, filed herewith.
 
 
 
32.1

 
Section 1350 Certification of the Chief Executive and Chief Financial Officers, furnished herewith.
 
 
 
101.INS

 
XBRL Instance Document, filed herewith.
 
 
 
101.SCH

 
XBRL Taxonomy Extension Schema Document, filed herewith.
 
 
 
101.CAL

 
XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith.
 
 
 
101.DEF

 
XBRL Taxonomy Extension Definition Linkbase Document, filed herewith.
 
 
 
101.LAB

 
XBRL Taxonomy Extension Label Linkbase Document, filed herewith.
 
 
 
101.PRE

 
XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith.


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Table of Contents

EXHIBIT INDEX
TO REPORT ON FORM 10-Q

Number
 
Exhibit
 
 
 
31.1

 
 
 
 
31.2

 
 
 
 
32.1

 
 
 
 
101.INS

 
XBRL Instance Document, filed herewith.
 
 
 
101.SCH

 
XBRL Taxonomy Extension Schema Document, filed herewith.
 
 
 
101.CAL

 
XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith.
 
 
 
101.DEF

 
XBRL Taxonomy Extension Definition Linkbase Document, filed herewith.
 
 
 
101.LAB

 
XBRL Taxonomy Extension Label Linkbase Document, filed herewith.
 
 
 
101.PRE

 
XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith.


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Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Roper Technologies, Inc.

/s/ Brian D. Jellison
 
Chairman of the Board, President,
November 6, 2017
Brian D. Jellison
 
and Chief Executive Officer
 
 
 
(Principal Executive Officer)
 

 
 
 
 
/s/ Robert Crisci
 
Vice President and Chief Financial Officer
November 6, 2017
Robert Crisci
 
(Principal Financial Officer)
 

/s/ Jason Conley
 
Vice President and Controller
November 6, 2017
Jason Conley
 
(Principal Accounting Officer)
 


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Section 2: EX-31.1 (EXHIBIT 31.1)

Exhibit


Exhibit 31.1
 
I, Brian D. Jellison, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Roper Technologies, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter  (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 6, 2017
/s/ Brian D. Jellison
 
Brian D. Jellison
 
Chairman of the Board, President and
 
Chief Executive Officer
 
(Principal Executive Officer)



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Section 3: EX-31.2 (EXHIBIT 31.2)

Exhibit


Exhibit 31.2
 
I, Robert Crisci, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Roper Technologies, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter  (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 6, 2017
/s/ Robert Crisci
 
Robert Crisci
 
Vice President and Chief Financial Officer
 
(Principal Financial Officer)
 
 


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Section 4: EX-32.1 (EXHIBIT 32.1)

Exhibit


EXHIBIT 32.1
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Roper Technologies, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Brian D. Jellison, Chief Executive Officer of the Company, and Robert Crisci, Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge that:

1.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 6, 2017
/s/ Brian D. Jellison
 
Brian D. Jellison
 
Chairman of the Board, President and Chief Executive Officer
 
(Principal Executive Officer)
 
 
 
/s/ Robert Crisci
 
Robert Crisci
 
Vice President and Chief Financial Officer
 
(Principal Financial Officer)
 
This certificate is being made for the exclusive purpose of compliance of the Company with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by any person or for any reason other than specifically required by law.



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