# ROPER TECHNOLOGIES INC (ROP) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ROPER TECHNOLOGIES INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/882835/000088283522000012/rop-20211231.htm
Accession: 0000882835-22-000012
Filing date: 2022-02-22
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/ROP/
All MD&A years: /company/ROP/mda/
Next year: /company/ROP/mda/fy2022/ (FY 2022)

ITEM 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All currency amounts are in millions unless specified

Overview

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.

Discontinued Operations

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.

Application of Critical Accounting Policies

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

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

During 2021, our effective income tax rate was 22.7%, as compared to the 2020 rate of 21.5%. The increase was due primarily to a non-recurring item related to a UK tax rate change, which had a $21.7 unfavorable impact in 2021. We expect the effective tax rate for 2022 to be approximately 21% to 22%.

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

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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.

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Results of Operations

All currency amounts are in millions unless specified, percentages are net of revenues

Percentages may not sum due to rounding.

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

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[[/GREPCENT_TABLE]]

(1)Includes results from the acquisitions of ComputerEase from August 19, 2019, Bellefield from December 18, 2019, Vertafore from September 3, 2020, EPSi from October 15, 2020 and American Legal Net from December 30, 2021.

(2)Includes results from the acquisitions of Foundry from April 18, 2019, iPipeline from August 22, 2019, FMIC from June 9, 2020, Team TSI from June 15, 2020, IFS from September 15, 2020, WELIS from September 18, 2020 and Construction Journal from December 21, 2021.

(3)Includes the results from the Imaging businesses through February 5, 2019 and Gatan through October 29, 2019.

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

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:

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[[/GREPCENT_TABLE]]

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 Measurement & Analytical Solutions segment, net revenues were $1,559.6 for the year ended December 31, 2021 as compared to $1,425.6 the year ended December 31, 2020. The growth of 8.2% in organic revenues was broad-based led by our industrial, water meter technology, and medical products businesses excluding Verathon, which declined due to unprecedented demand for their products used in the treatment of COVID-19 during 2020. Gross margin decreased to 57.4% in the year ended December 31, 2021, as compared to 59.3% in the year ended December 31, 2020, due primarily to revenue mix, reduced operating leverage associated with Verathon’s normalized 2021 revenues and costs associated with navigating the widespread supply chain challenges. SG&A expenses as a percentage of net revenues decreased to 26.5% in the year ended December 31, 2021, as compared to 26.8% in the year ended December 31, 2020 due to revenue mix. The resulting operating margin was 30.9% in the year ended December 31, 2021 as compared to 32.5% 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.

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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.

During 2021, our effective income tax rate was 22.7% as compared to our 2020 rate of 21.5%. The increase was due primarily to a non-recurring item related to a UK tax rate change, which had a $21.7 unfavorable impact in 2021.

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.

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[[/GREPCENT_TABLE]]

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

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:

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[[/GREPCENT_TABLE]]

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.

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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%.

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[[/GREPCENT_TABLE]]

Financial Condition, Liquidity and Capital Resources

All currency amounts are in millions unless specified

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.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

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.

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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%.

Contractual Cash Obligations and Other Commercial Commitments and Contingencies

All currency amounts are in millions

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

[[GREPCENT_TABLE]]
[["","","","Payments Due in Fiscal Year"],["ContractualCash Obligations 1","Total","","2022","","2023","","2024","","2025","","2026","","Thereafter"],["Total debt","$","7,970.3","","","$","800.2","","","$","1,170.1","","","$","500.0","","","$","1,000.0","","","$","700.0","","","$","3,800.0"],["Senior note interest","1,044.1","","","193.0","","","176.0","","","150.5","","","138.7","","","120.2","","","265.7"],["Purchase obligations 2","794.2","","","467.4","","","100.4","","","75.9","","","64.2","","","70.6","","","15.7"],["Total","$","9,808.6","","","$","1,460.6","","","$","1,446.5","","","$","726.4","","","$","1,202.9","","","$","890.8","","","$","4,081.4"]]
[[/GREPCENT_TABLE]]

1 We have excluded the liability for uncertain tax positions and certain other tax liabilities as we are not able to reasonably estimate the timing of the payments. See Note 7 of the Notes to Consolidated Financial Statements included in this Annual Report.

2 Represents minimum fixed price purchase commitments that are legally binding across Roper.

[[GREPCENT_TABLE]]
[["","","","Amounts Expiring in Fiscal Year"],["Other Commercial Commitments","Total Amount Committed","","2022","","2023","","2024","","2025","","2026","","Thereafter"],["Standby letters of credit and bank guarantees","$","84.9","","","$","65.5","","","$","8.8","","","$","9.7","","","$","0.2","","","$","0.1","","","$","0.6"]]
[[/GREPCENT_TABLE]]

As of December 31, 2021, we had $659.7 of outstanding surety bonds of which $634.2 are directly associated with our Transcore business. Certain contracts, primarily those involving public sector customers, require us to provide a surety bond as a guarantee of our performance of contractual obligations.

We believe that internally generated cash flows and the remaining availability under our credit facility will be adequate to finance normal operating requirements. Although we maintain an active acquisition program, any future acquisitions will be dependent on numerous factors and it is not feasible to reasonably estimate if or when any such acquisitions will occur and what the impact will be on our 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.

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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.

Recently Issued Accounting Standards

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

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