Roper (ROP) 10-K2021 FY Annual report

This Annual Report on Form 10-K (“Annual Report”) includes and incorporates by reference “forward-looking statements” within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the U.S. Securities and Exchange Commission (“SEC”) 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. Such risks and uncertainties include any ongoing impacts of the COVID-19 pandemic on our business, operations, financial results and liquidity, which will depend on numerous evolving factors that we cannot accurately predict or assess, including: the duration and scope of the pandemic, new variants of the virus and the distribution and efficacy of vaccines; the impact of vaccine mandates on our workforce in certain jurisdictions; any negative impact on global and regional markets, economies and economic activity; actions governments, businesses and individuals take in response to the pandemic; the effects of the pandemic, including all of the foregoing, on our employees, customers, suppliers, and business partners, and how quickly economies and demand for our products and services recover following the pandemic.

Examples of forward-looking statements in this report include but are not limited to statements regarding operating results, the success of our operating plans, our expectations regarding our ability to generate cash and reduce debt and associated interest expense, profit and cash flow expectations, the prospects for newly acquired businesses to be integrated and contribute to future growth, our expectations regarding growth through acquisitions and the ability to complete the announced divestiture of our TransCore business, including obtaining any required regulatory approvals with respect thereto. Important assumptions relating to the forward-looking statements include, among others, demand for our products, the cost, timing and success of product upgrades and new product introductions, raw material costs, expected pricing levels, expected outcomes of pending litigation, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include but are not limited to:

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.

Roper Technologies, Inc. (“Roper,” the “Company,” “we,” “our” or “us”) is a diversified technology company. We operate businesses that design and develop software (both license and Software-as-a-Service (“SaaS”)) and engineered products and solutions for a variety of niche end markets.

We pursue consistent and sustainable growth in earnings and cash flow by emphasizing continuous improvement in the operating performance of our existing businesses and by acquiring other businesses that offer high value-added software, services, engineered products and solutions that we believe are capable of achieving growth and maintaining high margins. We compete in many niche markets and believe we are the market leader or a competitive alternative to the market leader in most of these markets. In the last three years, we have deployed nearly $8.6 billion of capital toward acquisitions, including approximately $5.4 billion in 2020 for the acquisition of Vertafore, Inc., a leading provider of SaaS solutions for the property and casualty insurance industry.

During 2021, Roper signed definitive agreements to divest its TransCore, Zetec and CIVCO Radiotherapy businesses for an aggregate of approximately $3.2 billion in cash. Roper has completed the divestitures of Zetec and CIVCO Radiotherapy, in the first quarter of 2022 and fourth quarter of 2021, respectively, and expects the TransCore transaction to close in the first quarter of 2022 for approximately $2.7 billion. The financial results for these businesses are reported as discontinued operations for all periods presented. Information regarding discontinued operations is included in Note 3 of the Notes to Consolidated Financial Statements.

Our operations are reported in four segments based upon business models and capital deployment strategy and objectives. The segments are: Application Software, Network Software & Systems, Measurement & Analytical Solutions and Process Technologies. Financial information about our reportable segments is presented in Note 14 of the Notes to Consolidated Financial Statements included in this Annual Report.

Our Application Software segment had net revenues of $2,380.6 for the year ended December 31, 2021, representing 41.2% of our total net revenues. Below is a description of the products offered by business that comprise the Application Software segment.

Our Network Software & Systems segment had net revenues of $1,338.4 for the year ended December 31, 2021, representing 23.2% of our total net revenues. Below is a description of the products offered by business that comprise the Network Software & Systems segment.

Our Measurement & Analytical Solutions segment had net revenues of $1,559.6 for the year ended December 31, 2021, representing 27.0% of our total net revenues. Below is a description of the products offered by business that comprise the Measurement & Analytical Solutions segment.

Our Process Technologies segment had net revenues of $499.2 for the year ended December 31, 2021, representing 8.6% of our total net revenues. Below is a description of the products offered by business that comprise the Process Technologies segment.

We believe most materials and supplies we use are readily available from numerous sources and suppliers throughout the world. However, some components and sub-assemblies are currently available from only a limited number of suppliers. We regularly investigate and identify alternative sources where possible, and we believe these conditions equally affect our competitors. Although supply shortages have not had a material adverse effect on our revenues, we expect to continue to be impacted by supply chain challenges including increased material costs, component shortages and transportation disruptions and delays, all of which could escalate in the future.

Remaining performance obligations represents the transaction price of firm orders for which work has not been performed and excludes unexercised contract options. As of December 31, 2021 and December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $3,790.4 and $2,958.8, respectively.

Backlog is equal to our remaining performance obligations expected to be recognized as revenue within the next 12 months. Backlog was $2,560.8 at December 31, 2021, and $2,061.8 at December 31, 2020.

Distribution and sales occur primarily through direct sales offices, manufacturers’ representatives, resellers and distributors. 

We face extensive government regulation around the world relating to the development, manufacture, marketing, sale and distribution of our products, software, and services. The following sections describe certain significant regulations to which we are subject, but these are not the only regulations to which our businesses must comply. For a description of the risks related to the regulations that our businesses are subject to, please refer to “Item 1A. Risk Factors.”

We are subject to privacy and data security laws around the world that may impose operational burdens on our businesses. In 2018, the General Data Protection Regulation became effective in the European Union and United Kingdom and imposed restrictions on how companies use and process personal information. In the United States, several states have adopted legislation that imposes similar (but not identical) restrictions on companies conducting business or serving customers in those states. For example, in January 2020 the California Consumer Privacy Act became effective and required companies to make disclosures to consumers about their data collection, use, and sharing practices; allowed consumers to opt out of certain data sharing with third parties; and provided a private right of action for data breaches. Virginia and Colorado have passed similar legislation that will become effective in 2023, as will newly enacted changes to California’s privacy laws. Canada (Quebec) and China have also significantly updated their privacy laws. The compliance and other burdens on our businesses imposed by these privacy laws and regulations may be substantial as we work to comply with differing legal and implementation requirements across multiple jurisdictions.

The manufacture, sale, lease and service of medical diagnostic and surgical devices intended for commercial use are subject to extensive governmental regulation by the FDA in the U.S. and by a variety of regulatory agencies in other countries for some of our businesses. Under the Federal Food, Drug and Cosmetic Act, known as the FD&C Act, manufacturers of medical products and devices must comply with certain regulations governing the design, testing, manufacturing, packaging, servicing and

marketing of medical products. FDA product approvals may be withdrawn or suspended if compliance with regulatory standards is not maintained or if problems occur following initial marketing. We are also subject to a variety of federal, state and foreign laws which broadly relate to our interactions with healthcare practitioners and other participants in the healthcare system, including, among others, anti-kickback law, and laws regulating the confidentiality of sensitive personal information and the circumstances under which such information may be released and/or collected, such as the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Health Information Technology for Economic and Clinical Health Act, or HITECH Act, and the GDPR.

We are subject to the U.S. Foreign Corrupt Practices Act (FCPA) and anti-corruption laws, and similar laws in foreign countries, such as the UK Anti-Bribery Act. Any violation of these laws by us or our agents or distributors could create substantial liability for us, subject our officers and directors to personal liability, and cause a loss of reputation in the market. Increased business in higher risk countries could subject us and our officers and directors to increased scrutiny and increased liability. In addition, becoming familiar with and implementing the infrastructure necessary to comply with laws, rules and regulations applicable to new business activities and mitigating and protecting against corruption risks could be quite costly.

We are subject to numerous domestic and foreign regulations relating to our operations worldwide. In particular, our sales activities must comply with restrictions relating to the export of controlled technology and sales to denied or sanctioned parties contained in the U.S. Export Administration Regulations, U.S. International Traffic in Arms Regulations (ITAR), and sanctions administered by the Office of Foreign Asset Controls of the U.S. Treasury Department (OFAC). Our businesses may also be impacted by additional domestic or foreign trade regulations ensuring fair trade practices, including trade restrictions, tariffs and sanctions.

Our operations and properties are subject to laws and regulations relating to environmental protection, including those governing air emissions, water discharges, waste management and workplace safety. We use, generate and dispose of hazardous substances and waste in our operations and could be subject to material liabilities relating to the investigation and clean-up of contaminated properties and related claims. We are required to conform our operations and properties to these laws and adapt to regulatory requirements in all countries as these requirements change. In connection with our acquisitions, we may assume significant environmental liabilities, some of which we may not be aware of, or may not be quantifiable, at the time of acquisition. In addition, new laws and regulations, the discovery of previously unknown contamination or the imposition of new requirements could increase our costs or subject us to new or increased liabilities.

Generally, our products and solutions face significant competition, usually from a limited number of competitors. We believe that we are a leader in most of our markets, and no single company competes with us over a significant number of product lines. Competitors might be large or small in size, often depending on the size of the niche market we serve. We compete primarily on product quality, performance, innovation, technology, price, applications expertise, system and service flexibility, distribution channel access and customer service capabilities.

In addition to trade secrets, including unpatented know-how and other intellectual property like software source code, we own or license the rights under numerous patents, trademarks, trade dress and copyrights relating to certain of our products and businesses. We also employ various methods, including confidentiality and non-disclosure agreements with individuals and companies we do business with, including employees, distributors, representatives, independent contractors and customers to protect our intellectual property. We believe none of our operating units are substantially dependent on any single item of intellectual property, including a trade secret, patent, trademark, trade dress, or copyright.

Roper is a diversified technology company that utilizes a decentralized operating model across our many businesses which serve a diverse set of end markets. Subject to oversight and guidance from Roper executive management, each business operates as an individual unit with its managers empowered to make day to day operating decisions, including decisions with respect to human capital management. As a result, apart from guidance with respect to: (i) compliance with regulatory requirements or corporate policies; and (ii) the implementation of compensation and benefit programs provided by corporate management, managers at individual businesses are the primary decision makers with respect to human capital management and development. Though our individual businesses are primarily responsible for these decisions, because of the importance of human capital to our enterprise, we provide guidance and share best practices on key aspects of selection, development, engagement and diversity of talent within our workforce.

As of December 31, 2021, we employed approximately 19,300 people worldwide on a consolidated basis, of which approximately 12,300 were employed in the United States and approximately 7,000 were outside of the United States. Approximately 2,200 of these employees are employed by Zetec (which closed in the first quarter of 2022) and TransCore (which is expected to close in the first quarter of 2022). Management believes that the Company's employee relations are favorable.

A very small portion of the Company’s U.S. employees are unionized. Outside the U.S., we have some employees, particularly in Europe, that are represented by an employee representative organization, such as a union, works council or employee association.

Roper has identified and implemented other human capital priorities, including providing competitive wages and benefits, and promoting a diverse and inclusive work environment. The Company is committed to increasing diversity and fostering an inclusive work environment that supports our large global workforce and helps us innovate for our customers. We continue to focus on building a pipeline for talent to create more opportunities for workplace diversity and to support greater representation within the Company.

Roper is a founding member of the OneTen Coalition. OneTen is an organization that plans to combine the power of over 30 committed large, public American companies to upskill, hire and promote one million Black Americans over the next 10 years into family-sustaining jobs with opportunities for advancement. Among the coalition’s founding members, Roper is uniquely situated to connect Black Americans with employment opportunities at many of our smaller and growing businesses.

In response to the COVID-19 pandemic and related mitigation measures we have implemented changes in our business in an effort to protect our employees and customers, and to support appropriate health and safety protocols. For example, we implemented cleaning and sanitation processes for both production and office administration spaces and implemented broad work-from-home initiatives. While employees in our Application Software and Network Software & Solutions businesses, as well as employees in corporate and administrative functions throughout the Company worked remotely throughout much of the pandemic, many employees have returned to offices where such can be done in a safe manner. Employees at our manufacturing and assembly facilities (primarily in our Measurement & Analytical Solutions and Process Solutions businesses) have continued to work throughout the pandemic with only minor disruption.

All reports we file electronically with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and our annual proxy statements, as well as any amendments to those reports, are accessible at no cost on our website at www.ropertech.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. These filings are also accessible on the SEC’s website at www.sec.gov. Our Corporate Governance Guidelines; the charters of our Audit Committee, Compensation Committee, and Nominating and Governance Committee; and our Business Code of Ethics and Standards of Conduct are also available on our website. Any amendment to the Business Code of Ethics and Standards of Conduct and any waiver applicable to our directors, executive officers or senior financial officers will be posted on our website within the time period required by the SEC and the New York Stock Exchange (the “NYSE”). The information posted on our website is not incorporated into this Annual Report or any other filing made by Roper with the SEC.

We continue to closely monitor the impact of the COVID-19 global pandemic on our business, including how it has and will impact our customers, employees, suppliers, vendors and business partners. The COVID-19 global pandemic has created significant volatility, uncertainty and economic disruption, which may continue to affect our business operations and may materially and adversely affect our results of operations, cash flows and financial position.

The COVID-19 global pandemic has caused certain disruptions to our business and operations and could cause material disruptions to our business and operations in the future as a result of, among other things, quarantines, worker absenteeism as a result of illness or other factors, social distancing measures and other travel, health-related, business or other restrictions. The effects of the pandemic have created and exacerbated challenges with the attraction and retention of talent.

The COVID-19 global pandemic has and may continue to adversely impact, our suppliers and customers. As a result of the effects of the COVID-19 global pandemic our ability to obtain products or services from certain suppliers and to operate at certain locations have been and may continue to be impacted. As a result, our business, financial condition and results of operations have been adversely impacted and could be materially adversely affected if the COVID-19 global pandemic continues or there are resurgences of COVID-19 and its variants.

Vaccine mandates and testing requirements have been announced in jurisdictions where we operate. In addition, certain customers have issued vaccine requirements with respect to our employees who provide on-site service at customer facilities. Our efforts to comply with these mandates, including requiring that some or all of our employees be fully vaccinated against COVID-19, could result in increased labor attrition and disruption, as well as difficulty securing future labor needs, and could adversely impact our ability to deliver services to our U.S. federal government customers and potentially other customers, which could in turn adversely impact our results of operations.

The extent to which the coronavirus outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus and its variants including distribution and administration of available vaccines through mandates or otherwise, and how quickly and to what extent normal economic and operating conditions can resume.

The ultimate impact of the outbreak is highly uncertain and subject to change. In addition, the rapidly changing situation could give rise to additional risks or adverse impacts of which we are not presently aware, such as the ability to complete acquisitions, the ability to obtain credit through the capital markets and/or through our revolving credit facility. We do not yet know the full extent of the impacts on our business, our operations or the global economic and political environment as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described below in this “Risk Factors” section.

For the year ended December 31, 2021, 20% of our net revenues and 14% of our long-lived assets, excluding goodwill and intangibles, were attributable to operations outside the U.S. We expect our international operations to contribute materially to our business for the foreseeable future. Our international operations are subject to varying degrees of risk inherent in doing business outside the U.S. including, without limitation, the following:

Our level of indebtedness and the debt servicing costs associated with that indebtedness could have important effects on our operations and business strategy. For example, our indebtedness could:

Our ability to make scheduled principal payments of, to pay interest on, or to refinance our indebtedness and to satisfy our other debt obligations will depend upon our future operating performance, which may be affected by factors beyond our control. In addition, there can be no assurance that future borrowings or equity financing will be available to us on favorable terms for the payment or refinancing of our indebtedness. If we are unable to service our indebtedness, our business, financial condition and results of operations would be materially adversely affected.

Our credit facility contains covenants requiring us to achieve certain financial and operating results and maintain compliance with specified financial ratios. Our ability to meet the financial covenants or requirements in our credit facility may be affected by events beyond our control, and we may not be able to satisfy such covenants and requirements. A breach of these covenants or our inability to comply with the financial ratios, tests or other restrictions contained in our facility could result in an event of default under this facility. Upon the occurrence of an event of default under our credit facility, and the expiration of any grace periods, the lenders could elect to declare all amounts outstanding under the facility, together with accrued interest, to be immediately due and payable. If this were to occur, our assets may not be sufficient to fully repay the amounts due under this facility or our other indebtedness.

Several of our operating companies have transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions and balances are denominated in euros, Canadian dollars, British pounds or Danish kroner. Sales by our operating companies whose functional currency is not the U.S. dollar represented 17% and 18% of our total net revenues for the years ended December 31, 2021 and 2020, respectively. Unfavorable changes in exchange rates between the U.S. dollar and those currencies could significantly reduce our reported revenues and earnings.

Many of our products and services rely on proprietary technology; therefore we believe that the development and protection of intellectual property rights through patents, copyrights, trade secrets, trademarks, confidentiality agreements and other contractual provisions are important to the future success of our business. Despite our efforts to protect proprietary rights, unauthorized parties or competitors may copy or otherwise obtain and use our products or technology. Actions to enforce these rights may result in substantial costs and diversion of resources, and we make no assurances that any such actions will be successful.

Our future growth is likely to depend to some degree on our ability to acquire and successfully integrate new businesses. We intend to seek additional acquisition opportunities, both to expand into new markets and to enhance our position in existing markets. There are no assurances, however, that we will be able to successfully identify suitable candidates, negotiate appropriate terms, obtain financing on acceptable terms, complete proposed acquisitions, successfully integrate acquired businesses or expand into new markets. Once acquired, operations may not achieve anticipated levels of revenues, profitability or cash flows.

Acquisitions involve risks, including difficulties in the integration of the operations, technologies, services and products of the acquired companies and the diversion of management’s attention from other business concerns. Although our management will endeavor to evaluate the risks inherent in any particular transaction, there are no assurances that we will properly ascertain all such risks. In addition, prior acquisitions have resulted, and future acquisitions could result, in the incurrence of substantial additional indebtedness and other expenses. Future acquisitions may also result in potentially dilutive issuances of equity securities. Difficulties encountered with acquisitions may have a material adverse effect on our business, financial condition and results of operations.

Divestitures pose risks and challenges that could negatively impact our business. For example, when we decide to sell or otherwise dispose of a business or assets, we may be unable to do so on satisfactory terms within our anticipated timeframe or at all, and even after reaching a definitive agreement to sell or dispose a business the sale is typically subject to satisfaction of pre-closing conditions which may not become satisfied. The consummation of any divestiture can be difficult, time-consuming and costly, and we may not be able to successfully complete identified divestitures. They may also cause diversion of management time and focus away from operating our business. In addition, divestitures or other dispositions may have other adverse financial and accounting impacts, and disputes may arise with buyers that could be difficult or costly to resolve.

Our business exposes us to product liability risks in the design, manufacture and distribution of our products. In addition, certain of our products are used in hazardous environments. We currently have product liability insurance; however, we may not be able to maintain our insurance at a reasonable cost or in sufficient amounts to adequately protect us against losses. We also maintain other insurance policies, including directors’ and officers’ liability insurance and cyber insurance. We believe we have adequately accrued estimated losses, principally related to deductible amounts under our insurance policies, with respect to all product liability and other claims, based upon our past experience and available facts. However, a successful product liability or other claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations. In addition, a significant increase in our insurance costs could have an adverse impact on our operating results.

In some of our businesses, we derive a significant amount of revenue from large customers. The loss or reduction of any significant contracts with any of these customers could reduce our revenues and cash flows. Additionally, many of our customers are government entities. In many situations, government entities can unilaterally terminate or modify our existing contracts without cause and without penalty to the government agency.

We face intense competition from numerous competitors in our various businesses. Our products compete primarily on the basis of product quality, performance, innovation, technology, price, applications expertise, system and service flexibility, distribution channel access and established customer service capabilities. We may not be able to compete effectively on all of these fronts or with all of our competitors. In addition, new competitors may emerge, and product lines may be threatened by new technologies or market trends that reduce the value of these product lines. To remain competitive, we must develop new products, respond to new technologies and enhance our existing products in a timely manner. We anticipate that we may have to adjust prices to stay competitive.

Some of the business areas in which we operate are subject to specific industry and general economic cycles. Certain businesses are subject to industry cycles, including but not limited to, the industrial and energy markets. Accordingly, a downturn in these or other markets in which we participate could materially adversely affect us. If demand changes and we fail to respond accordingly, our results of operations could be materially adversely affected. The business cycles of our different operations may occur contemporaneously. Consequently, the effect of an economic downturn may have a magnified negative effect on material portions of our business.

Our total assets reflect substantial intangible assets, primarily goodwill. At December 31, 2021, goodwill totaled $14,094.5 compared to $11,563.8 of stockholders’ equity, and represented 59% of our total assets of $23,713.9. The goodwill results from our acquisitions, representing the excess purchase price over the fair value of the net identifiable assets acquired. We assess at least annually whether there has been an impairment in the value of our goodwill and indefinite economic life intangible assets. If future operating performance at one or more of our business units were to fall significantly below current levels, if competing or alternative technologies emerge, if interest rates rise or if business valuations decline, we could incur a non-cash charge to operating income. Any determination requiring the write-off of a significant portion of goodwill or unamortized intangible assets would negatively affect our results of operations, the effect of which could be material.

The future success of our business will depend, in part, on our ability to design and manufacture new competitive products and to enhance existing products so that we maintain our margin profile. This product development may require substantial internal investment. There can be no assurance that unforeseen problems will not occur with respect to the development, performance or market acceptance of new technologies or products or that we will otherwise be able to successfully develop and market new products. Failure of our products to gain market acceptance or our failure to successfully develop and market new products could reduce our margins, which would have an adverse effect on our business, financial condition and results of operations.

Global cybersecurity threats and attacks to networks, systems and endpoints can range from uncoordinated individual attempts to gain unauthorized access to IT systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company, its businesses, its customers and/or its third-party service providers, including, but not limited to, cloud providers and providers of network management services. These may include such things as unauthorized access, phishing attacks, account takeovers, denial of service, introduction of malware or ransomware and other disruptive problems caused by threat actors. Moreover, as more of our employees work remotely due to the COVID-19 pandemic or otherwise, our employees are increasingly targeted by phishing attacks and endpoints may be more susceptible to threat exposures.

Our customers are increasingly requiring cybersecurity protections and mandating cybersecurity standards in our products and services, and we may incur additional costs to comply with such demands. While we have experienced, and expect to continue to experience, these types of threats and incidents, none of them to date have been material to the Company. We seek to deploy measures to deter, prevent, detect, respond to and mitigate these threats, including identity and access controls, data protection, vulnerability assessments, product software designs which we believe are less susceptible to cyber-attacks, continuous

monitoring of our networks, endpoints and systems and maintenance of backup and recovery capabilities. Despite these efforts, we can make no assurance that we will be able to detect, prevent, timely and adequately address, or mitigate the negative effects of cyberattacks or other security compromises, and such cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include financial loss, reputational damage, damage to our IT systems, litigation with third parties, theft of intellectual property, fines, diminution in the value of our investment in research and development, and increased cybersecurity protection and remediation costs due to the increasing sophistication and proliferation of threats, which in turn could adversely affect our competitiveness and results of operations. Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could materially harm our operating results and financial condition.

The availability and prices of raw materials, parts and components are subject to curtailment or change due to, among other things, suppliers’ allocations to other purchasers, interruptions in production by suppliers, supply chain delays and disruptions, changes in exchange rates and prevailing price levels. For example, we expect to continue to be impacted by supply chain challenges, including increased material costs, component shortages and transportation disruptions and delays, all of which could escalate in the future. In addition, some of our products are provided by sole source suppliers. Any change in the supply of, or price for, these parts and components, as well as any increases in commodity prices, particularly copper, could affect our business, financial condition and results of operations.

If terrorist activity, armed conflict, directed cyber-attacks, political instability, public health crisis, such as an epidemic or pandemic related to the COVID-19, or extreme weather events or other natural disasters occur in the U.S. or other locations, such events may negatively impact our operations, cause general economic conditions to deteriorate or cause demand for our products to decline. A prolonged economic slowdown or recession could reduce the demand for our products, and therefore, negatively affect our future sales and profits. Any of these events could have a significant impact on our business, financial condition or results of operations.

We are exposed to the risk that third parties to various arrangements who owe us money or goods and services, or who purchase goods and services from us, will not be able to perform their obligations or continue to place orders due to insolvency or financial distress. In addition, the global COVID-19 pandemic has created heightened risk that third parties may be unable to perform their obligations or suffer financial distress due to the global economic impact of the pandemic and the regulatory measures that have been enacted by governments to contain the spread of the virus, however, we are unable predict the impact that COVID-19 will have on any of our customers, suppliers, vendors, and other business partners, and each of their financial conditions or their ability to perform their obligations. If third parties fail to perform their obligations under arrangements with us, we may be forced to replace the underlying commitment at current or above market prices or on other terms that are less favorable to us. In such events, we may incur losses, or our results of operations, financial condition or liquidity could otherwise be adversely affected.

We have experienced significant changes to our executive leadership team in the past and may do so in the future. Leadership transitions and changes can be inherently difficult to manage and may cause uncertainty or disruption to our business or may increase the likelihood of turnover in key leadership positions. If we cannot effectively manage leadership transitions and changes, it could make it more difficult to successfully operate our business.

Unfavorable changes in the ratings that rating agencies assign to our debt may ultimately negatively impact our access to the debt capital markets and increase the costs we incur to borrow funds. If ratings for our debt fall below investment grade, our access to the debt capital markets may be impacted and the price we pay to issue debt could increase. Additionally, our credit agreement includes an increase in interest rates if the ratings for our debt are downgraded. Further, an increase in the level of our indebtedness may increase our vulnerability to adverse general economic and industry conditions and may affect our ability to obtain additional financing.

Our corporate offices, consisting of 29,000 square feet of leased space, are located at 6901 Professional Parkway, Sarasota, Florida. As of December 31, 2021, we owned approximately 0.8 million square feet, and leased approximately 3.7 million square feet. Of the total 4.5 million square feet, 68% is concentrated in the United States. We consider our facilities to be in good operating condition and adequate for their present use and believe we have sufficient capacity to meet our anticipated operating requirements.

Information pertaining to legal proceedings can be found in Note 13 to the Consolidated Financial Statements included in this Annual Report, and is incorporated by reference herein.

Our common stock trades on the NYSE under the symbol “ROP”. Based on information available to us and our transfer agent, there were approximately 200 record holders of our common stock as of February 11, 2022.

The following graph compares, for the five year period ended December 31, 2021, the cumulative total stockholder return for our common stock, the Standard and Poor’s 500 Stock Index (the “S&P 500”) and the Standard and Poor’s 500 Industrials Index (the “S&P 500 Industrials”). Measurement points are the last trading day of each of our fiscal years ended December 31, 2016, 2017, 2018, 2019, 2020 and 2021. The graph assumes that $100 was invested on December 31, 2016 in our common stock, the S&P 500 and the S&P 500 Industrials and assumes reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.

The information set forth in Item 12 under the heading “Securities Authorized for Issuance under Equity Compensation Plans” is incorporated herein by reference.

We are a diversified technology company. We operate businesses that design and develop software (both license and SaaS) and engineered products and solutions for a variety of niche end markets.

We pursue consistent and sustainable growth in earnings and cash flow by emphasizing continuous improvement in the operating performance of our existing businesses and by acquiring other carefully selected businesses that offer high value-added software, services, engineered products and solutions that we believe are capable of achieving growth and maintaining high margins. We compete in many niche markets and believe we are the market leader or a competitive alternative to the market leader in most of these markets.

During 2021, Roper signed definitive agreements to divest its TransCore, Zetec and CIVCO Radiotherapy businesses. Roper has completed the divestitures of Zetec and CIVCO Radiotherapy, in the first quarter of 2022 and fourth quarter of 2021, respectively, and expects the TransCore transaction to close in the first quarter of 2022, subject to customary closing conditions, including regulatory approvals. The financial results for these businesses are reported as discontinued operations for all periods presented. Information regarding discontinued operations is included in Note 3 of the Notes to Consolidated Financial Statements.

Our Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States (“GAAP”). A discussion of our significant accounting policies can also be found in the Notes to Consolidated Financial Statements for the year ended December 31, 2021 included in this Annual Report.

GAAP offers acceptable alternative methods for accounting for certain issues affecting our financial results, such as determining inventory cost, depreciating long-lived assets and recognizing revenue. We have not changed the application of acceptable accounting methods or the significant estimates affecting the application of these principles in the last three years in a manner that had a material effect on our Consolidated Financial Statements.

The preparation of financial statements in accordance with GAAP requires the use of estimates, assumptions, judgments and interpretations that can affect the reported amounts of assets, liabilities, revenues and expenses, the disclosure of contingent assets and liabilities and other supplemental disclosures.

The development of accounting estimates is the responsibility of our management. Our management discusses those areas that require significant judgments with the Audit Committee of our Board of Directors. The Audit Committee has reviewed all financial disclosures in our annual filings with the SEC. Although we believe the positions we have taken with regard to uncertainties are reasonable, others might reach different conclusions and our positions can change over time as more information becomes available. If an accounting estimate changes, its effects are accounted for prospectively or through a cumulative catch up adjustment.

Our most significant accounting uncertainties are encountered in the areas of revenue recognition, income taxes, valuation of other intangible assets and goodwill and indefinite-lived impairment analyses. Estimates are considered to be significant if they meet both of the following criteria: (1) the estimate requires assumptions about matters that are uncertain at the time the estimate is made, and (2) changes in the estimate are reasonably likely to have a material financial impact from period-to-period.

Income taxes can be affected by estimates of whether and within which jurisdictions future earnings will occur and if, how and when cash is repatriated to the U.S., combined with other aspects of an overall income tax strategy. Additionally, taxing jurisdictions could retroactively disagree with our tax treatment of certain items, and some historical transactions have income tax effects going forward. Accounting rules require these future effects to be evaluated using current laws, rules and regulations, each of which can change at any time and in an unpredictable manner. If there is a material change in the actual effective tax rates, the time period within which the underlying temporary differences become taxable or deductible, or if the

tax law changes are unfavorable, then we could be required to recognize valuation allowances against deferred tax balances, resulting in an increase to income tax expense and the effective tax rate.

We account for goodwill in a purchase business combination as the excess purchase price over the fair value of the net identifiable assets acquired. Goodwill, which is not amortized, is tested for impairment on an annual basis in conjunction with our annual forecast process during the fourth quarter (or an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value).

When testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform the quantitative impairment test; otherwise, no further analysis is required. Under the qualitative assessment, we consider various qualitative factors, including macroeconomic conditions, relevant industry and market trends, cost factors, overall financial performance, other entity-specific events and events affecting the reporting unit that could indicate a potential change in the fair value of our reporting unit or the composition of its carrying values. We also consider the specific future outlook for the reporting unit.

We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. The quantitative assessment utilizes an equal weighted income approach (discounted cash flows) and market approach (consisting of a comparable company earnings multiples methodology) to estimate the fair value of a reporting unit. To determine the reasonableness of the estimated fair values, we review the assumptions to ensure that neither the income approach nor the market approach provides significantly different valuations. If the estimated fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the estimated fair value, a non-cash impairment loss is recognized in the amount of that excess.

Key assumptions used in the income and market approaches are updated when the analysis is performed for each reporting unit. The assumptions that have the most significant effect on the fair value calculations are the projected revenue growth rates, future operating margins, discount rates, terminal values and earnings multiples. While we use reasonable and timely information to prepare our cash flow and discount rate assumptions, actual future cash flows or market conditions could differ significantly and could result in future non-cash impairment charges related to recorded goodwill balances.

Recently acquired reporting units generally represent a higher inherent risk of impairment, which typically decreases as the businesses are integrated into our enterprise. Negative industry or economic trends, disruptions to our business, actual results significantly below projections, unexpected significant changes or planned changes in the use of the assets, divestitures and market capitalization declines may have a negative effect on the fair value of our reporting units.

Roper has 34 reporting units with individual goodwill amounts ranging from zero to $3,245.3. In 2021, the Company performed its annual impairment test in the fourth quarter for all reporting units. The Company conducted its analysis qualitatively and assessed whether it was more likely than not that the respective fair value of these reporting units was less than the carrying amount. The Company determined that impairment of goodwill was not likely in any of its reporting units and thus was not required to perform a quantitative assessment for these reporting units as of October 1, 2021.

Trade names that are determined to have an indefinite useful economic life are not amortized, but separately tested for impairment during the fourth quarter of the fiscal year or on an interim basis if an event occurs that indicates the fair value is more likely than not below the carrying value. We first qualitatively assess whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of the indefinite-lived trade name is less than its carrying amount. If necessary, we conduct a quantitative assessment using the relief-from-royalty method, which we believe to be an acceptable methodology due to its common use by valuation specialists in determining the fair value of intangible assets. This methodology assumes that, in lieu of ownership, a third-party would be willing to pay a royalty in order to exploit the related benefits of these assets. The assumptions that have the most significant effect on the fair value calculations are the royalty rates, projected revenue growth rates, discount rates and terminal values. Each royalty rate is determined based on the profitability of the trade name to which it relates and observed market royalty rates. Revenue growth rates are determined after considering current and future economic conditions, recent sales trends, discussions with customers, planned timing of new product launches or other variables. Trade names resulting from recent acquisitions generally represent the highest risk of

impairment, which typically decreases as the businesses are integrated into our enterprise and positioned for future sales growth.

During the fourth quarter of 2021, the Company determined the use of the Sunquest trade name would be discontinued given the strategic action to merge the Sunquest business into our CliniSys business, both of which are reported in our Application Software reportable segment. Considering the planned merger and updated market comparisons, the royalty rate utilized in the quantitative impairment assessment of the trade name was 0.5% as compared to a royalty rate of 3.5% used in the prior year. The royalty rate reduction was the significant assumption that resulted in a non-cash impairment charge of $94.4 recognized as a component of “Impairment of intangible assets” within the Consolidated Statements of Earnings.

The assessment of fair value for impairment purposes requires significant judgments to be made by management. Although our forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and estimates management uses to operate the underlying businesses, there is significant judgment in determining the expected results attributable to the businesses and/or reporting units. Changes in estimates or the application of alternative assumptions could produce significantly different results.

The most significant identifiable intangible assets with definite useful economic lives recognized from our acquisitions are customer relationships. The fair value for customer relationships is determined as of the acquisition date using the excess earnings method. Under this methodology the fair value is determined based on the estimated future after-tax cash flows arising from the acquired customer relationships over their estimated lives after considering customer attrition and contributory asset charges. The assumptions that have the most significant effect on the fair value calculations are the customer attrition rates, projected customer revenue growth rates, margins, contributory asset charges and discount rates. When testing customer relationship intangible assets for potential impairment, management considers historical customer attrition rates and projected revenues and profitability related to customers that existed at acquisition. In evaluating the amortizable life for customer relationship intangible assets, management considers historical customer attrition patterns.

We evaluate whether there has been an impairment of identifiable intangible assets with definite useful economic lives, or of the remaining life of such assets, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost or remaining period of amortization of any asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be compared to the asset’s carrying amount to determine if a write-down to fair value or a revision in the remaining amortization period is required.

During the fourth quarter of 2021, Sunquest also recognized a non-cash impairment charge of $5.1 representing the unamortized balance related primarily to a software intangible asset that will be discontinued in 2022. This impairment charge is included as a component of “Impairment of intangible assets” within the Consolidated Statements of Earnings.

Percentages may not sum due to rounding.

The following table sets forth selected information for the years indicated. 

 

Net revenues for the year ended December 31, 2021 were $5,777.8 as compared to $4,854.2 for the year ended December 31, 2020, an increase of 19.0%. The components of revenue growth for the year ended December 31, 2021 were as follows:

In our Application Software segment, net revenues for the year ended December 31, 2021 were $2,380.6 as compared to $1,799.9 for the year ended December 31, 2020. The growth of 8.2% in organic revenues was broad-based across the segment led by our businesses serving the government contracting, healthcare and legal markets. Gross margin increased to 69.3% for the year ended December 31, 2021 as compared to 68.3% for the year ended December 31, 2020 due primarily to the acquisition of Vertafore and operating leverage on higher organic revenues. Selling, general and administrative (“SG&A”) expenses as a percentage of revenues in the year ended December 31, 2021 increased to 42.6%, as compared to 42.2% in the year ended December 31, 2020, due primarily to higher amortization of acquired intangibles from the Vertafore and EPSi acquisitions, partially offset by operating leverage on higher organic revenues. The resulting operating margin was 26.7% in the year ended December 31, 2021 as compared to 26.0% in the year ended December 31, 2020.

In our Network Software & Systems segment, net revenues were $1,338.4 for the year ended December 31, 2021 as compared to $1,173.7 for the year ended December 31, 2020. The growth of 11.2% in organic revenues was broad-based across the segment led by our network software businesses serving the spot freight, post-acute care and construction markets. Gross margin increased to 82.2% for the year ended December 31, 2021 from 81.3% for the year ended December 31, 2020, due primarily to revenue mix. SG&A expenses as a percentage of net revenues decreased to 43.9% in the year ended December 31, 2021, as compared to 46.0% in the year ended December 31, 2020, due primarily to operating leverage on higher organic sales. The resulting operating margin was 38.2% in the year ended December 31, 2021 as compared to 35.3% in the year ended December 31, 2020.

In our Process Technologies segment, net revenues were $499.2 for the year ended December 31, 2021 as compared to $455.0 for the year ended December 31, 2020. The growth of 8.3% in organic revenues was due to broad-based across the segment as energy and industrial markets continue to recover from the reduction in demand caused by the pandemic. Gross margin increased to 54.4% in the year ended December 31, 2021 as compared to 53.4% in the year ended December 31, 2020, due primarily to increased operating leverage on higher organic revenues partially offset by costs associated with navigating the widespread supply chain challenges. SG&A expenses as a percentage of net revenues decreased to 23.7% in the year ended December 31, 2021, as compared to 28.0% in the year ended December 31, 2020, due primarily to $13.6 of restructuring charges for structural cost reduction actions taken at certain of our businesses during the second quarter of 2020 and operating leverage on higher organic revenues. As a result, operating margin was 30.6% in the year ended December 31, 2021 as compared to 25.4% in the year ended December 31, 2020.

Corporate expenses increased by $15.6 to $203.3, or 3.5% of revenues, in 2021 as compared to $187.7, or 3.9% of revenues, in 2020. The dollar increase was due primarily to higher compensation related expenses, partially offset by lower acquisition related expenses.

Impairment of intangible assets was $99.5 for the year ended December 31, 2021, due to the strategic action to merge the Sunquest business into our CliniSys business resulting in impairment of a trade name and other amortizable intangible assets. 

Interest expense, net, increased $15.6, or 7.1%, for the year ended December 31, 2021 as compared to the year ended December 31, 2020. The increase was due to higher weighted average debt balances, partially offset by lower weighted average interest rates and $7.2 in interest expense for the origination fee on our bridge financing associated with the Vertafore acquisition in 2020.

Other income, net, of $24.9 for the year ended December 31, 2021 was composed primarily of a gain on sale of minority investment of $27.1. Other expense, net of $3.6 for the year ended December 31, 2020, was composed primarily of foreign exchange losses at our non-U.S. based subsidiaries.

Order backlog is equal to our remaining performance obligations expected to be recognized within the next 12 months as discussed in Note 1 of the Notes to Consolidated Financial Statements. Backlog increased 24.2% to $2,560.8 at December 31, 2021 as compared to $2,061.8 at December 31, 2020, with the increase driven primarily by organic growth.

 

Net revenues for the year ended December 31, 2020 were $4,854.2 as compared to $4,727.7 for the year ended December 31, 2019, an increase of 2.7%. The components of revenue growth for the year ended December 31, 2020 were as follows:

In our Application Software segment, net revenues for the year ended December 31, 2020 were $1,799.9 as compared to $1,588.0 for the year ended December 31, 2019. The growth of 0.6% in organic revenues was primarily due to businesses serving healthcare and government contracting markets. Gross margin increased to 68.3% for the year ended December 31, 2020 as compared to 67.0% for the year ended December 31, 2019 due primarily to operating leverage on higher organic revenues and revenue mix. SG&A expenses as a percentage of revenues in the year ended December 31, 2020 increased to 42.2%, as compared to 41.5% in the year ended December 31, 2019, due primarily to higher amortization of acquired intangibles from the acquisitions completed in 2020. The resulting operating margin was 26.0% in the year ended December 31, 2020 as compared to 25.5% in the year ended December 31, 2019.

In our Network Software & Systems segment, net revenues were $1,173.7 for the year ended December 31, 2020 as compared to $1,004.2 for the year ended December 31, 2019. The growth of 1.6% in organic revenues was due to subscription growth at our SaaS businesses led by our business serving the spot freight market in the United States. Gross margin decreased to 81.3% for the year ended December 31, 2020 from 83.0% for the year ended December 31, 2019, due to revenue mix. SG&A expenses as a percentage of net revenues increased to 46.0% in the year ended December 31, 2020, as compared to 44.2% in the year ended December 31, 2019, due primarily to higher amortization of acquired intangibles from the acquisitions completed in 2019. The resulting operating margin was 35.3% in the year ended December 31, 2020 as compared to 38.7% in the year ended December 31, 2019.

In our Measurement & Analytical Solutions segment, net revenues were $1,425.6 for the year ended December 31, 2020 as compared to $1,544.3 the year ended December 31, 2019. The growth of 2.0% in organic revenues was due to accelerated adoption of Verathon’s video-assisted intubation products that aid in reducing COVID transmission to healthcare workers, partially offset by declines in our water meter technology business, due to restricted access to indoor meters located in the Northeast United States and Canada, and industrial business declines. Gross margin increased to 59.3% in the year ended December 31, 2020, as compared to 58.6% in the year ended December 31, 2019, due primarily to revenue mix. SG&A expenses as a percentage of net revenues remained flat at 26.8% in both the years ended December 31, 2020 and December 31, 2019. The resulting operating margin was 32.5% in the year ended December 31, 2020 as compared to 31.8% in the year ended December 31, 2019.

In our Process Technologies segment, net revenues were $455.0 for the year ended December 31, 2020 as compared to $591.2 for the year ended December 31, 2019. The decrease of 23.1% in organic revenues was due to broad-based revenue declines across the segment led by lower demand at our businesses serving upstream oil and gas end markets resulting from lower energy prices and the COVID-19 pandemic. Gross margin decreased to 53.4% in the year ended December 31, 2020 as compared to 57.1% in the year ended December 31, 2019, due primarily to lower revenues. SG&A expenses as a percentage of net revenues increased to 28.0% in the year ended December 31, 2020, as compared to 21.3% in the year ended December 31, 2019, due primarily to $13.6 of restructuring charges for structural cost reduction actions taken at certain of our businesses and lower operating leverage on organic revenue declines. As a result, operating margin was 25.4% in the year ended December 31, 2020 as compared to 35.8% in the year ended December 31, 2019.

Corporate expenses increased by $18.7 to $187.7, or 3.9% of revenues, in 2020 as compared to $169.0, or 3.6% of revenues, in 2019. The dollar increase was due primarily to higher stock compensation expense and professional services.

Interest expense, net, increased $32.3, or 17.3%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The increase was due to (i) higher weighted average debt balances, partially offset by lower weighted average interest rates, and (ii) $7.2 in interest expense for the origination fee on our bridge financing associated with the Vertafore acquisition in 2020.

Other expense, net, of $3.6 and $5.4 for the year ended December 31, 2020 and December 31, 2019, respectively, was composed primarily of foreign exchange losses at our non-U.S. based subsidiaries.

Gain on disposal of businesses, resulted in a pretax gain of $920.7 for the year ended December 31, 2019. The Company recognized $119.6 on the sale of the Imaging businesses, which closed February 5, 2019, and $801.1 on the sale of Gatan, which closed October 29, 2019.

During 2020, our effective income tax rate was 21.5% as compared to our 2019 rate of 20.3%. The increase was due primarily to the following non-recurring items in 2019, (i) recognition of a discrete tax benefit of $41.0 in connection with a foreign restructuring plan allowing the future realization of net operating losses, and (ii) the reversal of the deferred tax liability associated with the excess of Gatan's book basis over tax basis in the shares of $10.0 in the third quarter of 2019, partially offset by the higher income tax rate incurred on the Imaging and Gatan gains during 2019.

Order backlog is equal to our remaining performance obligations expected to be recognized within the next 12 months as discussed in Note 1 of the Notes to Consolidated Financial Statements. Backlog increased 40.3% to $2,061.8 at December 31, 2020 as compared to $1,469.7 at December 31, 2019, acquisitions contributed approximately 33% and organic growth was 7%.

Selected cash flows for the years ended December 31, 2021 and 2020 are as follows. A detailed discussion of fiscal 2020 year-over-year changes can be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Operating activities - The growth in cash provided by operating activities in 2021 as compared to 2020 was primarily due to higher net income net of non-cash expenses and the non-recurrence of $201.9 of cash taxes paid on the disposal of Gatan in 2020. These increases were partially offset by lower cash provided by working capital as compared to the prior year.

Investing activities - Cash used in investing activities during 2021 was primarily for business acquisitions partially offset by proceeds from the sale of CIVCO Radiotherapy. Cash used in investing activities during 2020 was primarily for business acquisitions, most notably Vertafore and EPSi.

Financing activities - Cash used in financing activities during 2021 was primarily due to net repayments of $1,150.0 on our unsecured credit facility, $500.0 of repayments for our senior notes and dividend payments. Cash provided by financing activities during 2020 was primarily from the issuance of $3,300.0 of senior notes and $1,620.0 of net borrowings on the revolver, partially offset by $600.0 of repayments for senior notes and to a lesser extent dividend payments.

Net working capital (total current assets, excluding cash and current assets held for sale, less total current liabilities, excluding debt and current liabilities held for sale) was negative $882.5 at December 31, 2021 compared to negative $704.4 at December 31, 2020, due primarily to increased balances of deferred revenue and income taxes payable partially offset by increased accounts receivable. Consistent negative net working capital demonstrates Roper’s focus on asset-light business models.

Total debt excluding unamortized debt issuance costs was $7,970.3 at December 31, 2021 (40.8% of total capital) compared to $9,620.5 at December 31, 2020 (47.9% of total capital). Our total debt decreased at December 31, 2021 compared to December 31, 2020, due primarily to $1,150.0 of revolving debt repayments and the redemption of $500.0 of outstanding 2.80% senior unsecured notes.

On September 2, 2020, the Company entered into a three-year unsecured credit facility with JPMorgan Chase Bank, N.A., as administrative agent, Wells Fargo Bank, N.A. and Bank of America, N.A., as syndication agents, and MUFG Bank, Ltd., Mizuho Bank, Ltd., PNC Bank, National Association, Truist Bank and TD Bank, N.A., as co-documentation agents, which replaced its previous $2,500.0 unsecured credit facility, dated as of September 23, 2016, as amended. The facility comprises a three-year $3,000.0 revolving credit facility, which includes availability of up to $150.0 for letters of credit. The Company may also, subject to compliance with specified conditions, request additional term loans or revolving credit commitments in an aggregate amount not to exceed $500.0.

The Credit Agreement requires the Company to maintain a Total Debt to Total Capital Ratio (as defined in the Credit Agreement) of 0.65 to 1.00 or less. Borrowings under the Credit Agreement are prepayable at Roper’s option at any time in whole or in part without premium or penalty.

We were in compliance with all debt covenants related to our credit facility throughout the years ended December 31, 2021 and 2020.

At December 31, 2021, we had $7,500.0 of senior unsecured notes and $470.0 of outstanding revolver borrowings. We had $84.9 of outstanding letters of credit at December 31, 2021, of which $28.2 was covered by our lending group, thereby reducing our revolving credit capacity commensurately.

We may redeem some or all of our senior unsecured notes at any time or from time to time, at 100% of their principal amount, plus a make-whole premium based on a spread to U.S. Treasury securities.

See Note 9 of the Notes to Consolidated Financial Statements included in this Annual Report for additional information regarding our credit facility and senior notes.

Cash and cash equivalents at our foreign subsidiaries at December 31, 2021 totaled $310.8 as compared to $259.1 at December 31, 2020, an increase of 20.0%. The increase was due primarily due to cash generated from foreign operations, partially offset by the repatriation of $329.3 during the year. We intend to repatriate substantially all historical and future earnings.

Capital expenditures of $32.9, $28.3 and $43.0 were incurred during 2021, 2020 and 2019, respectively. Capitalized software expenditures of $29.7, $17.7 and $10.2 were incurred during 2021, 2020 and 2019, respectively. Capital expenditures and capitalized software expenditures were relatively consistent in 2021 as compared to 2020 and 2019. In the future, we expect the aggregate of capital expenditures and capitalized software expenditures as a percentage of annual net revenues to be between 1.0% and 1.5%.

The following tables quantify our contractual cash obligations and commercial commitments at December 31, 2021.

 

We believe that internally generated cash flows and the remaining availability under our credit facility will be adequate to finance normal operating requirements. Although we maintain an active acquisition program, any future acquisitions will be dependent on numerous factors and it is not feasible to reasonably estimate if or when any such acquisitions will occur and what the impact will be on our business, financial condition and results of operations. Such acquisitions may be financed by the use of existing credit lines, future cash flows from operations, future divestitures, the proceeds from the issuance of new debt or equity securities or any combination of these methods, the terms and availability of which will be subject to market and economic conditions generally.

We anticipate that our businesses will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of currently outstanding debt in accordance with the repayment schedule. However, the rate at which we can reduce our debt during 2022 (and reduce the associated interest expense) will be affected by, among other things, the financing and operating requirements of any new acquisitions, the financial performance of our existing companies and the financial markets generally. None of these factors can be predicted with certainty.

See Note 1 of the Notes to Consolidated Financial Statements included in this Annual Report for information regarding the effect of new accounting pronouncements on our Consolidated Financial Statements.

We are exposed to interest rate risks on our outstanding revolving credit borrowings, and to foreign currency exchange risks on our transactions denominated in currencies other than the U.S. dollar. We are also exposed to equity market risks pertaining to the traded price of our common stock.

At December 31, 2021, we had $7,500.0 of fixed rate borrowings with interest rates ranging from 0.45% to 4.20%. At December 31, 2021, the prevailing market rates for our long-term notes were between 2.6% lower and 0.7% higher than the fixed rates on our debt instruments. Our credit facility contains a $3,000.0 variable-rate revolver with $470.0 of outstanding borrowings at December 31, 2021.

Several of our businesses have transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in euros, Canadian dollars, British pounds or Danish kroner. Net revenues recognized by companies whose functional currency was not the U.S. dollar were 17% of our total revenues in 2021 and 77% of these revenues were recognized by companies with a European functional currency. If these currency exchange rates had been 10% different throughout 2021 compared to currency exchange rates actually experienced, the impact on our net earnings would have been approximately 1%.

The trading price of our common stock influences the valuation of stock award grants and the effects these grants have on our results of operations. The stock price also influences the computation of potentially dilutive common stock to determine diluted earnings per share. The stock price also affects our employees’ perceptions of programs that involve our common stock. We believe the quantification of the effects of these changing prices on our future earnings and cash flows is not readily determinable.

Tampa, Florida

February 22, 2022

In October 2021, the FASB issued an update to improve the accounting for acquired revenue contracts with customers in a business combination by promoting consistency in the recognition of an acquired contract liability and the subsequent revenue recognized by the acquirer. The update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company early-adopted this update in the fourth quarter of 2021. This update did not have a material impact on the acquisitions completed in 2021 and the future impact of adoption, if any, will depend on the acquisitions made by the Company.

The Company adopted ASC Topic 326, Financial Instruments - Credit Losses (“ASC 326”), as of January 1, 2020 using the modified retrospective transition method. We recorded a noncash cumulative effect decrease to retained earnings of $1.7, net of income taxes, on our opening consolidated balance sheet as of January 1, 2020.

The effects of potential common stock were determined using the treasury stock method:

As of and for the years ended December 31, 2021, 2020 and 2019, there were 0.521, 0.208 and 0.627 outstanding stock options, respectively, that were not included in the determination of diluted earnings per share because doing so would have been antidilutive.