ROPER TECHNOLOGIES INC - Quarter Report: 2017 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017.

 



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)

 

 

(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.  Yes   No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Yes   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.

 

 

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. 

 

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No

 

The number of shares outstanding of the Registrant's common stock as of April 28, 2017 was 102,031,970.

ROPER TECHNOLOGIES, INC.

 

REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017

 

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)

 

 

See accompanying notes to condensed consolidated financial statements.

Roper Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(in thousands)

 

 

See accompanying notes to condensed consolidated financial statements.

Roper Technologies, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

(in thousands)

 

 

See accompanying notes to condensed consolidated financial statements.

Roper Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

 

See accompanying notes to condensed consolidated financial statements.

Roper Technologies, Inc. and Subsidiaries

Condensed Consolidated Statement of Changes in Stockholders' Equity (unaudited)

(in thousands)

 

See accompanying notes to condensed consolidated financial statements.

Roper Technologies, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

March 31, 2017

1.	Basis of Presentation

 

The accompanying condensed consolidated financial statements for the three months ended March 31, 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 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 months ended March 31, 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.

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 annual or interim 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 annual, or interim, 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 interim or annual 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.

In February 2016, the FASB issued an update on lease accounting. The 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. 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 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. The Company is in the process of quantifying the estimated impact of these identified differences on its consolidated financial statements but does not believe the adoption will have material impact on its results of operations, financial condition or cash flows.   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):

 

For the three months ended March 31, 2017, there were 661,525 outstanding stock options that were not included in the determination of diluted earnings per share because doing so would have been antidilutive, as compared to 988,475 outstanding stock options that would have been antidilutive for the three months ended March 31, 2016.

4.	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.

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 may be either treasury stock, stock purchased on the open market, or newly issued shares.

The following table provides information regarding the Company's stock-based compensation expense (in thousands):

 

Stock Options - In the three months ended March 31, 2017, 452,400 options were granted with a weighted average fair value of $40.17 per option. During the same period in 2016, 547,125 options were granted with a weighted average fair value of $34.44 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:

Cash received from option exercises for the three months ended March 31, 2017, and 2016 was $12.9 million and $1.9 million, respectively.

 

Restricted Stock Awards - During the three months ended March 31, 2017, 249,085 restricted stock awards were granted with a weighted average grant date fair value of $188.22 per restricted share. During the same period in 2016, 315,000 restricted stock awards were granted with a weighted average grant date fair value of $167.11 per restricted share. All grants were issued at grant date fair value.

 

During the three months ended March 31, 2017, 88,400 restricted awards vested with a weighted average grant date fair value of $145.68 per restricted share, and a weighted average vest date fair value of $206.92 per restricted share.

 

Employee Stock Purchase Plan - During the three months ended March 31, 2017 and 2016, participants in the employee stock purchase plan purchased 5,551 and 5,007 shares, respectively, of Roper's common stock for total consideration of $1.03 million and $0.88 million, respectively. All shares were purchased from Roper's treasury shares.

The components of inventory were as follows (in thousands):

6.	Goodwill and Other Intangible Assets

The carrying value of goodwill by segment was as follows (in thousands):

 

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

 

Other intangible assets were comprised of (in thousands):

Amortization expense of other intangible assets was $72,695 and $49,048 during the three months ended March 31, 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 expects to perform the annual analysis during the fourth quarter.

7.	Fair Value of Financial Instruments

Roper's debt at March 31, 2017 included $4.3 billion of fixed-rate senior notes with the following fair values (in millions):

 

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.

8.	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 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 three months ended March 31, 2017 is presented below (in thousands):

 

9.	Business Segments

Sales and operating profit by industry segment are set forth in the following table (dollars in thousands):

 

* Segment operating profit is before unallocated corporate general and administrative expenses of $34,370 and $29,172 for the three months ended March 31, 2017 and 2016, respectively.

ITEM 2.

MANAGEMENT'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 Conditions 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.

Overview

 

Roper Technologies, Inc. ("Roper," "we" or "us") 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, but not limited to, healthcare, transportation, commercial construction, food, energy, water, education and academic research.

 

We pursue consistent and sustainable growth in earnings 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 three months ended March 31, 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. 

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 March 31, 2017 compared to three months ended March 31, 2016

Net sales for the three months ended March 31, 2017 increased by 20.4% as compared to the three months ended March 31, 2016. Acquisitions added 15.6%, organic growth was 5.6% and the negative foreign exchange impact was 0.8%.

Our Medical & Scientific Imaging segment net sales increased by 5% to $348 million in the first quarter of 2017 as compared to $332 million in the first quarter of 2016.  Organic sales increased by 5%, acquisitions added 1% and the negative foreign exchange impact was 1%. The increase in organic sales was due to increased sales in our medical products and software businesses, led by NDI and MHA.  Gross margin decreased to 72.3% in the first quarter of 2017 from 74.3% in the first quarter of 2016 due to an increased percentage of lower margin medical instrument sales and the reclassification of certain expenses from selling, general and administrative ("SG&A") to cost of goods sold at CliniSys (acquired in the first quarter of 2016) as compared to the prior year quarter.  SG&A expenses as a percentage of net sales decreased to 37.9% in the first quarter of 2017 as compared to 39.9% in the first quarter of 2016 due to the reclassification of certain expenses at CliniSys from SG&A to cost of goods sold.  As a result, operating margin was 34.4% in the first quarter of 2017 as compared to 34.5% in the first quarter of 2016.

In our RF Technology segment, net sales were $430 million in the first quarter of 2017 as compared to $280 million in the first quarter of 2016, an increase of 53%.  The 2016 acquisitions of Deltek and ConstructConnect accounted for 49%, organic sales increased by 5% and the negative foreign exchange impact was 1%. The increase in organic sales was due primarily to increased sales in our software businesses as well as increased sales in tolling and traffic projects which were offset in part by lower tag sales.  Gross margin increased to 58.5% in the first quarter of 2017 as compared to 57.2% in the first quarter of 2016 due to an increased percentage of sales at our software businesses which have higher gross margins.  SG&A expenses as a percentage of net sales in the first quarter of 2017 increased to 37.8% as compared to 25.6% in the prior year quarter due to recently acquired software businesses with a higher SG&A structure, which includes amortization of acquired intangibles. The resulting operating margin was 20.7% in the first quarter of 2017 as compared to 31.7% in the first quarter of 2016.

Our Industrial Technology segment net sales increased by 7% to $183 million in the first quarter of 2017 as compared to $171 million in the first quarter of 2016.  Organic sales increased by 8% and the negative foreign exchange impact was 1%.  The increase in sales was due primarily to increased sales in our materials testing and water meter businesses.  Gross margin was relatively unchanged at 50.8% for the three months ended March 31, 2017 as compared to 50.2% for the three months ended March 31, 2016. SG&A expenses as a percentage of net sales decreased to 21.6% in the current year quarter as compared to 22.9% in the prior year quarter due to operating leverage on higher sales volume.  The resulting operating margin was 29.2% in the first quarter of 2017 as compared to 27.3% in the first quarter of 2016.

Net sales in our Energy Systems & Controls segment increased by 5% to $125 million during the first quarter of 2017 compared to $119 million in the first quarter of 2016, inclusive of a negative 1% foreign exchange impact.  The increase in sales was due primarily to increased sales in our industrial sensors and non-destructive testing businesses.  Gross margin increased to 56.8% in the first quarter of 2017 as compared to 55.8% in the first quarter of 2016 and SG&A expenses as a percentage of net sales decreased to 32.6% in the current year quarter as compared to 35.4% in the prior year quarter, both of which were due to operating leverage on higher sales volume.  As a result, operating margin was 24.2% in the first quarter of 2017 as compared to 20.4% in the first quarter of 2016.

While corporate expenses increased to $34.4 million in the first quarter of 2017 as compared to $29.2 million in the first quarter of 2016, they remained constant as a percentage of sales at 3.2%.  The dollar increase was due primarily to increased equity compensation costs as a result of an increased number of shares granted in recent years as well as increases in our common stock price.

Net interest expense was $45.9 million for the first quarter of 2017 as compared to $27.4 in the first quarter of 2016 due to higher weighted average debt balances offset in part by lower weighted average interest rates in the current quarter.

Other expense was $1.0 million in the first quarter of 2017 and $0.1 million in the first quarter of 2016  due primarily to foreign exchange losses at our non-U.S. based subsidiaries.

Income taxes as a percent of pretax earnings were 25.2% in the first quarter of 2017 as compared to 30.4% in the first quarter of 2016.  The decrease in the income tax rate was due primarily to a discrete benefit related to the resolution of a tax matter in the first quarter of 2017 as well as an increase in excess tax benefits related to equity compensation in the current year quarter.  We expect the effective tax rate for 2017 to be between 29% and 30%.

At March 31, 2017, the functional currencies of our European and Canadian subsidiaries were stronger against the U.S. dollar compared to currency exchange rates at December 31, 2016. The currency changes resulted in a pretax increase of $31 million in the foreign exchange component of comprehensive earnings for the three months ended March 31, 2017, $11 million of which is related to goodwill and does not directly affect our expected future cash flows. During the three months ended March 31, 2017, the functional currencies of our European subsidiaries were weaker, and the Canadian dollar stronger, against the U.S. dollar as compared to the three months ended March 31, 2016.  The difference in operating profit related to foreign exchange, translated into U.S. dollars, was less than 1% for these companies in the three months ended March 31, 2017 compared to the three months ended March 31, 2016.

Net orders were $1.11 billion in the first quarter of 2017 as compared to $927 million in the first quarter of 2016.  Acquisitions contributed 18% to the current quarter orders.  Our order backlog was $1.58 billion at March 31, 2017 as compared to $1.12 billion at March 31, 2016, an increase of 41%.  The increase in backlog was due to acquisitions which added 35% and internal growth of 6%.

Financial Condition, Liquidity and Capital Resources

Selected cash flows for the three months ended March 31, 2017 and 2016 were as follows (in millions):

Operating activities - Net cash provided by operating activities increased by 83% to $378 million in the first quarter of 2017 as compared to $207 million in the first quarter of 2016 due to increased earnings net of non-cash charges, higher deferred revenue balances due to an increased percentage of revenue from software and other subscription based products, improved receivables collections and the timing of interest payments offset in part by income tax payments in the first quarter of 2016 related to the gain on the sale of the Abel Pumps business in the fourth quarter of 2015.

Investing activities - Cash used in investing activities during the three months ended March 31, 2017 and 2016 was primarily for business acquisitions and capital expenditures.

Financing activities - Cash used in financing activities was primarily for debt principal repayments and dividends in the three months ended March 31, 2017 and 2016.  Cash provided by financing activities in the three months ended March 31, 2017 and 2016 was primarily proceeds from stock option exercises.  Net debt payments were $370 million in the three months ended March 31, 2017 as compared to $160 million in the three months ended March 31, 2016.

Total debt at March 31, 2017 consisted of the following (amounts in thousands):

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 March 31, 2017, there were $1.56 billion of outstanding borrowings under the facility.  At March 31, 2017, we had $2.8 million of other debt in the form of capital leases, several smaller facilities that allow for borrowings or the issuance of letters of credit in various foreign locations to support our non-U.S. businesses and $76 million of outstanding letters of credit.

Cash and short-term investments at our foreign subsidiaries at March 31, 2017 totaled $642 million.  Repatriation of these funds under current regulatory and tax law for use in domestic operations would expose us to additional taxes.  We 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 credit facility throughout the three months ended March 31, 2017.

Net working capital (total current assets, excluding cash, less total current liabilities, excluding debt) was negative $156 million at March 31, 2017 compared to negative $25 million at December 31, 2016, reflecting decreases in working capital due primarily to decreases in receivables, increases in deferred revenue balances and the timing of income tax and interest payments, offset in part by bonus payments. Total debt was $5.84 billion at March 31, 2017 as compared to $6.21 billion at December 31, 2016, due to payments on outstanding revolver borrowings made using cash from operations in the current quarter.   Our leverage is shown in the following table (in thousands):

Capital expenditures of $15 million and $9 million were incurred during the three months ended March 31, 2017 and 2016, respectively. We expect capital expenditures for the balance of the year to be comparable to prior years as a percentage of sales.

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

Off-Balance Sheet Arrangements

At March 31, 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 some combination of these methods.

We anticipate that our recently acquired companies as well as our other companies will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of currently outstanding debt. However, the rate at which we can reduce our 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; and none of these factors can be predicted with certainty.

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 three months ended March 31, 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.

 

Part II.

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

Information pertaining to legal proceedings can be found in Note 8 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 results of operations, financial condition and liquidity, see the risk factors discussion in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016 as filed on February 27, 2017 with the SEC. See also, "Information About Forward-Looking Statements" included in Part I, Item 2 of this Quarterly Report on Form 10-Q.

 

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.

 

 

 

EXHIBIT INDEX

TO REPORT ON FORM 10-Q