Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Page
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP)28
Consolidated Balance Sheets as of December 31, 2011 and 201029
Consolidated Statements of Earnings for the Years ended December 31, 2011, 2010 and 200930
Consolidated Statements of Stockholders’ Equity and Comprehensive Earnings for the Years ended December 31, 2011, 2010 and 200931
Consolidated Statements of Cash Flows for the Years ended December 31, 2011, 2010 and 200932
Notes to Consolidated Financial Statements34
Supplementary Data:
Schedule II - Consolidated Valuation and Qualifying Accounts for the Years ended December 31, 2011, 2010 and 200954

Report of Independent Registered Public Accounting Firm

To the Shareholders of Roper Industries, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, of stockholders' equity and comprehensive earnings and of cash flows, present fairly, in all material respects, the financial position of Roper Industries, Inc. and its subsidiaries at December 31, 2011 and December 31, 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management's Report on Internal Control over Financial Reporting, management has excluded NDI Holding Corp., United Controls Group, Inc., and Trinity Integrated Systems Ltd. from its assessment of internal control over financial reporting as of December 31, 2011, because they were acquired by the Company in purchase business combinations during 2011. We have also excluded NDI Holding Corp., United Controls Group, Inc., and Trinity Integrated Systems Ltd. from our audit of internal control over financial reporting. NDI Holding Corp., United Controls Group, Inc., and Trinity Integrated Systems Ltd. are wholly-owned subsidiaries whose aggregated total assets and total revenues represent 0.5% and 1.1% respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2011.

/s/PricewaterhouseCoopers LLP

Tampa, Florida

February 24, 2012

ROPER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2011 and 2010

(in thousands, except per share data)

20112010
Assets
Cash and cash equivalents$338,101$270,394
Accounts receivable, net439,134403,337
Inventories, net204,758178,559
Deferred taxes38,00432,894
Unbilled receivables63,82975,620
Other current assets31,64737,287
Total current assets1,115,473998,091
Property, plant and equipment, net108,775103,487
Goodwill2,866,4262,727,780
Other intangible assets, net1,094,1421,104,513
Deferred taxes63,00657,850
Other assets71,59577,803
Total assets$5,319,417$5,069,524
Liabilities and Stockholders' Equity
Accounts payable$141,943$137,778
Accrued liabilities322,904298,080
Income taxes payable8,895-
Deferred taxes10,54810,445
Current portion of long-term debt, net69,90693,342
Total current liabilities554,196539,645
Long-term debt, net of current portion1,015,1101,247,703
Deferred taxes482,603465,001
Other liabilities72,41266,268
Total liabilities2,124,3212,318,617
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock, $0.01 par value per share; 2,000 shares authorized; none outstanding--
Common stock, $0.01 par value per share; 350,000 shares authorized; 98,684 shares issued and 96,678 outstanding at December 31, 2011 and 97,122 shares issued and 95,088 outstanding at December 31, 2010987971
Additional paid-in capital1,117,0931,045,286
Retained earnings2,063,1101,680,849
Accumulated other comprehensive earnings33,80043,978
Treasury stock 2,006 shares at December 31, 2011 and 2,034 shares at December 31, 2010(19,894)(20,177)
Total stockholders' equity3,195,0962,750,907
Total liabilities and stockholders' equity$5,319,417$5,069,524

See accompanying notes to consolidated financial statements.

ROPER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

Years ended December 31, 2011, 2010 and 2009

(Dollar and share amounts in thousands, except per share data)

Years ended December 31,
201120102009
Net sales$2,797,089$2,386,112$2,049,668
Cost of sales1,281,5251,110,9861,006,530
Gross profit1,515,5641,275,1261,043,138
Selling, general and administrative expenses855,025760,832647,742
Income from operations660,539514,294395,396
Interest expense, net63,64866,53358,544
Loss on extinguishment of debt--403
Other income, net8,0966333,319
Earnings before income taxes604,987448,394339,768
Income taxes177,740125,814100,287
Net earnings$427,247$322,580$239,481
Earnings per share:
Basic$4.45$3.42$2.64
Diluted$4.34$3.34$2.58
Weighted average common shares outstanding:
Basic95,95994,24290,685
Diluted98,38696,65392,820

See accompanying notes to consolidated financial statements.

ROPER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE EARNINGS

Years ended December 31, 2011, 2010 and 2009

(in thousands, except per share data)

Common StockAdditional paid-in capitalRetained earningsAccumulated other comprehensive earningsTreasury stockTotal stockholders’ equityCompre-hensive earnings
SharesAmount
Balances at December 31, 200889,721$919$815,736$1,187,467$21,513$(21,701)$2,003,934$194,655
Net earnings---239,481--239,481$239,481
Stock option exercises421410,502---10,506-
Treasury stock sold38-1,312--3811,693-
Currency translation adjustments, net of $5,257 tax----42,432-42,43242,432
Stock based compensation--26,660---26,660-
Restricted stock activity871(3,648)---(3,647)-
Stock option tax benefit, net of shortfalls--2,032---2,032-
Issuance of common stock, net of issue costs2,30023121,427---121,450-
Conversion of senior subordinated convertible notes1,051118,300---8,311-
Dividends declared ($0.34 per share)---(31,362)--(31,362)-
Balances at December 31, 200993,618$958$982,321$1,395,586$63,945$(21,320)$2,421,490$281,913
Net earnings---322,580--322,580$322,580
Stock option exercises864829,039---29,047-
Stock issued for Lumenera contingent consideration86-4,740--8515,591-
Treasury stock sold29-1,405--2921,697-
Currency translation adjustments, net of $153 tax----(19,967)-(19,967)(19,967)
Stock based compensation--23,980---23,980-
Restricted stock activity1652(4,547)---(4,545)-
Stock option tax benefit, net of shortfalls--7,282---7,282-
Conversion of senior subordinated convertible notes32631,066---1,069-
Dividends declared ($0.40 per share)---(37,317)--(37,317)-
Balances at December 31, 201095,088$971$1,045,286$1,680,849$43,978$(20,177)$2,750,907$302,613
Net earnings---427,247--427,247$427,247
Stock option exercises838828,159---28,167-
Treasury stock sold29-1,821--2832,104-
Currency translation adjustments, net of $866 tax----(10,178)-(10,178)(10,178)
Stock based compensation--30,906---30,906-
Restricted stock activity2683(6,008)---(6,005)-
Stock option tax benefit, net of shortfalls--12,684---12,684-
Conversion of senior subordinated convertible notes45654,245---4,250-
Dividends declared ($0.47 per share)---(44,986)--(44,986)-
Balances at December 31, 201196,679$987$1,117,093$2,063,110$33,800$(19,894)$3,195,096$417,069

See accompanying notes to consolidated financial statements.

ROPER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2011, 2010 and 2009

(in thousands)

Years ended December 31,
201120102009
Cash flows from operating activities:
Net earnings$427,247$322,580$239,481
Adjustments to reconcile net earnings to cash flows from operating activities:
Depreciation and amortization of property, plant and equipment36,78036,72834,163
Amortization of intangible assets103,36386,29369,285
Amortization of deferred financing costs2,3622,3622,573
Non-cash stock compensation31,73025,15027,476
Changes in operating assets and liabilities, net of acquired businesses:
Accounts receivable(33,333)(9,697)26,978
Inventories(23,033)(5,687)31,081
Unbilled receivables11,759(16,115)4,015
Accounts payable and accrued liabilities24,34752,540(58,801)
Income taxes14,52610,123(6,225)
Other, net5,870(4,737)(2,527)
Cash provided by operating activities601,618499,540367,499
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired(233,594)(536,413)(354,561)
Capital expenditures(40,702)(28,591)(25,885)
Proceeds from sale of assets1,9906,06811,218
Other, net(3,443)(4,338)(4,964)
Cash used in investing activities(275,749)(563,274)(374,192)
Cash flows from financing activities:
Proceeds from senior notes--500,000
Proceeds from/(payments on) senior unsecured term loan--(350,000)
Borrowings/(payments) under revolving line of credit, net(230,000)190,000(139,000)
Principal payments on convertible notes(26,457)(23,411)(124,270)
Debt issuance costs--(4,708)
Cash dividends to stockholders(42,090)(35,706)(29,823)
Treasury stock sales2,1041,6971,693
Stock award tax excess windfall benefit12,6646,3642,813
Proceeds from issuance of common stock, net of issue costs--121,450
Proceeds from stock option exercises28,16729,04710,506
Other(1,067)(382)(2,258)
Cash provided by/(used in) financing activities(256,679)167,609(13,597)
Effect of exchange rate changes on cash(1,483)(1,189)9,929
Net increase/(decrease) in cash and cash equivalents67,707102,686(10,361)
Cash and cash equivalents, beginning of year270,394167,708178,069
Cash and cash equivalents, end of year$338,101$270,394$167,708
Supplemental disclosures:
Cash paid for:
Interest$62,840$64,831$47,867
Income taxes, net of refunds received$150,550$109,327$103,699
Noncash investing activities:
Net assets of businesses acquired:
Fair value of assets, including goodwill$256,589$687,017$384,055
Liabilities assumed(22,995)(150,604)(29,494)
Cash paid, net of cash acquired$233,594$536,413$354,561

See accompanying notes to consolidated financial statements.

(1)Summary of Accounting Policies
Basis of Presentation – These financial statements present consolidated information for Roper Industries, Inc. and its subsidiaries (“Roper” or the “Company”). All significant intercompany accounts and transactions have been eliminated.

Nature of the Business – Roper is a diversified growth company that designs, manufactures and distributes energy systems and controls, medical and scientific imaging products and software, industrial technology products and radio frequency products and services. Roper markets these products and services to selected segments of a broad range of markets, including radio frequency applications, medical, water, energy, research, education, software-as-a-service ("SaaS")-based information networks, security and other niche markets.

Accounts Receivable - Accounts receivable were stated net of an allowance for doubtful accounts and sales allowances of $10.6 million and $10.3 million at December 31, 2011 and 2010, respectively. Outstanding accounts receivable balances are reviewed periodically, and allowances are provided at such time that management believes it is probable that an account receivable is uncollectible. The returns and other sales credit allowance is an estimate of customer returns, exchanges, discounts or other forms of anticipated concessions and is treated as a reduction in revenue.

Cash and Cash Equivalents - Roper considers highly liquid financial instruments with remaining maturities at acquisition of three months or less to be cash equivalents. Roper had in $136 million in cash equivalents at December 31, 2011 and $10 million at December 31, 2010.

Contingencies - Management continually assesses the probability of any adverse judgments or outcomes to its potential contingencies. Disclosure of the contingency is made if there is at least a reasonable possibility that a loss or an additional loss may have been incurred. In the assessment of contingencies as of December 31, 2011, management concluded that no accrual was necessary and that there were no matters for which there was a reasonable possibility of a material loss.

Earnings per Share – Basic earnings per share were calculated using net earnings and the weighted average number of shares of common stock outstanding during the respective year. Diluted earnings per share were calculated using net earnings and the weighted average number of shares of common stock and potential common stock outstanding during the respective year. Potentially dilutive common stock consisted of stock options and the premium over the conversion price on our senior subordinated convertible notes based upon the trading price of the Company’s common stock. The effects of potential common stock were determined using the treasury stock method (in thousands):

Years ended December 31,
201120102009
Basic shares outstanding95,95994,24290,685
Effect of potential common stock
Common stock awards1,2131,009853
Senior subordinated convertible notes1,2141,4021,282
Diluted shares outstanding98,38696,65392,820

As of and for the years ended December 31, 2011, 2010 and 2009, there were 760,000, 1,143,350 and 2,124,650 outstanding stock options, respectively, that were not included in the determination of diluted earnings per share because doing so would have been antidilutive.

Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

Foreign Currency Translation and Transactions - Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar were translated at the exchange rate in effect at the balance sheet date, and revenues and expenses were translated at average exchange rates for the period in which those entities were included in Roper’s financial results. Translation adjustments are reflected as a component of other comprehensive earnings. Foreign currency transaction gains and losses are recorded in the income statement as other income. The gain or loss included in pre-tax income was a net gain of $6.9 million for the year ended December 31, 2011 and a net loss of $0.9 million and $2.2 million for the years ended December 31, 2010 and 2009, respectively.

Goodwill and Other Intangibles – Roper accounts for goodwill in a purchase business combination as the excess of the cost over the fair value of net assets acquired. Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over their estimated useful lives. Goodwill, which is not amortized, is tested for impairment on an annual basis (or an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value) using a two-step process. The first step of the process utilizes both an income approach (discounted cash flows) and a market approach consisting of a comparable public company earnings multiples methodology to estimate the fair value of a reporting unit. To determine the reasonableness of the estimated fair values, the Company reviews the assumptions to ensure that neither the income approach nor the market approach provides significantly different valuations. If the estimated fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the estimated fair value, the goodwill of the reporting unit is potentially impaired and then the second step would be completed in order to measure the impairment loss by calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets (including unrecognized intangible assets) of the reporting unit from the fair value of the reporting unit. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss would be recognized.

Key assumptions used in the income and market methodologies are updated when the analysis is performed for each reporting unit. Various assumptions are utilized including forecasted operating results, strategic plans, economic projections, anticipated future cash flows, the weighted average cost of capital, comparable transactions, market data and earnings multiples. The assumptions that have the most significant effect on the fair value calculations are the anticipated future cash flows, discount rates, and the earnings multiples. While the Company uses reasonable and timely information to prepare its cash flow and discount rate assumptions, actual future cash flows or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances.

Total goodwill includes 26 reporting units with individual amounts ranging from zero to $536 million. The Company concluded that the fair value of each of its reporting units was substantially in excess of its carrying value as of December 31, 2011, and thus no goodwill impairment was identified.

The following events or circumstances would be considered to determine whether interim testing of goodwill would be required:

·a significant adverse change in legal factors or in the business climate;
·an adverse action or assessment by a regulator;
·unanticipated competition;
·a loss of key personnel;
·a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of;
·the testing for recoverability under the Impairment or Disposal of Long-Lived Assets of a significant asset group within a reporting unit; and
·recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit.

Identifiable intangible assets that are determined to have an indefinite useful economic life are not amortized, but separately tested for impairment annually using a one-step fair value based approach. Roper conducts these reviews for all of its reporting units and indefinite lived intangibles during the fourth quarter of the fiscal year or on an interim basis if an event occurs that it is more likely than not the fair value of the intangible asset is below its carrying value. No impairment resulted from the annual reviews performed in 2011.

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

Impairment of Long-Lived Assets – The Company determines whether there has been an impairment of long-lived assets, excluding goodwill and identifiable intangible assets that are determined to have indefinite useful economic lives, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost or life of any long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be compared to the asset’s carrying amount to determine if a write-down to fair value or revision to remaining life is required. Future adverse changes in market conditions or poor operating results of underlying long-lived assets could result in losses or an inability to recover the carrying value of the long-lived assets that may not be reflected in the assets’ current carrying value, thereby possibly requiring an impairment charge or acceleration of depreciation or amortization expense in the future.

Income Taxes – Roper is a U.S.-based multinational company and the calculation of its worldwide provision for income taxes requires analysis of many factors, including income tax systems that vary from country to country, and the United States’ treatment of non-U.S. earnings. The Company provides U.S. income taxes for unremitted earnings of foreign subsidiaries that are not considered permanently reinvested overseas. As of December 31, 2011, the approximate amount of earnings of foreign subsidiaries that the Company considers permanently reinvested and for which deferred taxes have not been provided was approximately $874 million. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested indefinitely.

Although it is the Company’s intention to permanently reinvest these earnings indefinitely there are certain events that would cause these earnings to become taxable. These events include, but are not limited to, changes in U.S. tax laws, dividends paid between foreign subsidiaries in the absence of Section 954(c)(6) of the Internal Revenue Code ("IRC"), foreign subsidiary guarantees of U.S. parent debt and the liquidation of foreign subsidiaries or actual distributions by foreign subsidiaries into a U.S. affiliate.

Certain assets and liabilities have different bases for financial reporting and income tax purposes. Deferred income taxes have been provided for these differences at the tax rates expected to be paid.

Interest Rate Risk – The Company manages interest rate risk by maintaining a combination of fixed and variable rate debt, which may include interest rate swaps to convert fixed rate debt to variable rate debt, or to convert variable rate debt to fixed rate debt. Interest rate swaps are recorded at fair value in the balance sheet as an asset or liability, and the changes in fair values of both the swap and the hedged item are recorded as interest expense in current earnings.

Inventories - Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out method. The Company writes down its inventory for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.

Other Comprehensive Earnings - Comprehensive earnings includes net earnings and all other non-owner sources of changes in a company’s net assets. The differences between net earnings and comprehensive earnings were currency translation adjustments, net of tax.

Product Warranties - The Company sells certain of its products to customers with a product warranty that allows customers to return a defective product during a specified warranty period following the purchase in exchange for a replacement product, repair at no cost to the customer or the issuance of a credit to the customer. The Company accrues its estimated exposure to warranty claims based upon current and historical product sales data, warranty costs incurred and any other related information known to the Company.

Property, Plant and Equipment and Depreciation and Amortization - Property, plant and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided for using principally the straight-line method over the estimated useful lives of the assets as follows:

Buildings20-30 years
Machinery8-12 years
Other equipment3-5 years

Recently Released Accounting Pronouncements - In September 2011, the Financial Accounting Standards Board ("FASB") issued updated accounting guidance which allows entities to perform a qualitative assessment on goodwill impairment to determine whether it is more likely than not (defined as having a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This guidance is effective for goodwill impairment tests performed in interim and annual periods for fiscal years beginning after December 15, 2011, with early adoption permitted. The implementation of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or cash flows.

In June 2011, the FASB issued updated accounting guidance which requires entities to present comprehensive income, which is currently presented in the Consolidated Condensed Statement of Stockholders’ Equity, either as a single continuous statement of comprehensive income or as two separate but consecutive statements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011, with early adoption permitted. As this new guidance is related to presentation only, the implementation in the first quarter of fiscal year 2012 will not have a material impact on the Company’s results of operations, financial position or cash flows.

In October 2009, the FASB issued amendments to the accounting and disclosure for revenue recognition. These amendments, effective for fiscal years beginning on or after June 15, 2010, modify the criteria for recognizing revenue in multiple element arrangements and the scope of what constitutes a non-software deliverable. The Company implemented the amendments on January 1, 2011. The impact on its results of operations, financial condition and cash flows was immaterial.

Research and Development - Research and development (“R&D”) costs include salaries and benefits, rents, supplies, and other costs related to products under development. Research and development costs are expensed in the period incurred and totaled $121.7 million, $102.4 million and $83.4 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Revenue Recognition - The Company recognizes revenue when all of the following criteria are met:

·persuasive evidence of an arrangement exists;
·delivery has occurred or services have been rendered;
·the seller’s price to the buyer is fixed or determinable; and
·collectibility is reasonably assured.

In addition, the Company recognizes revenue from the sale of product when title and risk of loss pass to the customer, which is generally when product is shipped. The Company recognizes revenue from services when such services are rendered or, if applicable, upon customer acceptance. Revenues under certain relatively long-term and relatively large-value construction projects are recognized under the percentage-of-completion method using the ratio of costs incurred to total estimated costs as the measure of performance. The Company recognized revenues of approximately $151.5 million, $131.0 million and $142.5 million for the years ended December 31, 2011, 2010 and 2009, respectively, using this method. Estimated losses on any projects are recognized as soon as such losses become known.

Capitalized Software - The Company accounts for capitalized software under applicable accounting guidance which, among other provisions, requires capitalization of certain internal-use software costs once certain criteria are met. Overhead, general and administrative and training costs are not capitalized. Capitalized software was $14.1 million and $17.3 million at December 31, 2011 and 2010, respectively.

Stock-Based Compensation - The Company recognizes expense for the grant date fair value of its employee stock option awards on a straight-line basis over the employee’s requisite service period (generally the vesting period of the award). The fair value of its option awards is estimated using the Black-Scholes option valuation model and recognizes the expense of all share-based awards. The Company presents the cash flows resulting from the tax benefits arising from tax deductions in excess of the compensation cost recognized for stock award exercises (excess tax benefits) as financing cash flows.

(2)Business Acquisitions

2011 Acquisitions - During the year ended December 31, 2011, Roper completed three business combinations. The results of operations of the acquired companies have been included in Roper’s consolidated results since the date of each acquisition. Supplemental pro forma information has not been provided as the acquisitions did not have a material impact on Roper’s consolidated results of operations individually or in aggregate.

The aggregate purchase price of 2011 acquisitions totaled $234 million of cash. The Company recorded $91 million in other identifiable intangibles and $149 million in goodwill in connection with these acquisitions. The majority of the goodwill is not expected to be deductible for tax purposes. The Company expensed transaction costs of $2.1 million related to these acquisitions, as incurred.

On June 3, 2011, Roper acquired 100% of the shares of NDI Holding Corp. (“Northern Digital”), a provider of 3-D measurement technology for medical applications in computer-assisted surgery and computer-assisted therapy. Roper acquired Northern Digital as an addition to its medical platform, and it is reported in the Medical and Scientific Imaging segment.

On September 26, 2011, Roper acquired 100% of the shares of United Controls Group, Inc. (“UCG”), a manufacturer of control systems in the oil and gas industry. UCG was acquired as an addition to our existing process control systems businesses, and is reported in the Energy Systems and Controls segment.

On December 1, 2011, Roper acquired 100% of the shares of Trinity Integrated Systems Ltd. (“Trinity”), a specialist provider of requirements capture, safety lifecycle management and engineering software tools, and safety and control system solutions to the oil and gas, industrial process and control markets. Trinity was acquired as an addition to our existing process control systems businesses, and is reported in the Energy Systems and Controls segment.

Of the $91 million of acquired intangible assets acquired in 2011, $3 million was assigned to trade names that are not subject to amortization. The remaining $88 million of acquired intangible assets have a weighted-average useful life of approximately 11 years. The intangible assets that make up that amount include customer relationships of $70 million (12 year weighted-average useful life), and unpatented technology of $18 million (8 year weighted-average useful life).

2010 Acquisitions - During the year ended December 31, 2010, Roper completed two business combinations. The results of operations of the acquired companies have been included in Roper’s consolidated results since the date of each acquisition. Supplemental pro forma information has not been provided as the acquisitions did not have a material impact on Roper’s consolidated results of operations individually or in aggregate.

The aggregate purchase price of 2010 acquisitions totaled $538 million of cash. The Company recorded $320 million in other identifiable intangibles and $345 million in goodwill, $115 million of which was recorded due to a deferred tax liability related to intangible assets, in connection with these acquisitions. The majority of the goodwill is not expected to be deductible for tax purposes. The Company expensed transaction costs of $2.1 million related to these acquisitions.

iTrade Acquisition - The largest of the 2010 acquisitions was the purchase of all outstanding shares of iTradeNetwork, Inc. on July 27, 2010. iTrade, whose operations are reported in the RF Technology segment, is a global provider of software as a service ("SaaS")-based trading network and business intelligence solutions primarily to the perishable food market. iTrade’s principal facilities are located in Pleasanton, California. The aggregate gross purchase price was $523 million of cash.

The Company acquired iTrade in order to complement and expand existing software services at other Roper businesses. The following table (in thousands) summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.

July 27, 2010
Current assets$14,174
Other assets2,998
Intangible assets313,600
Goodwill335,971
Total assets acquired666,743
Current liabilities(15,301)
Other liabilities(128,841)
Net assets acquired$522,601

On February 22, 2010, Roper purchased the assets of Heartscape, Inc, including a technology with the capability to improve the speed and accuracy of detecting heart attacks. The operations of Heartscape are reported in the Medical & Scientific Imaging segment.

Of the $320 million of acquired intangible assets acquired in 2010, $35 million was assigned to trade names that are not subject to amortization. The remaining $285 million of acquired intangible assets have a weighted-average useful life of approximately 14 years. The intangible assets that make up that amount include customer relationships of $234 million (15 year weighted-average useful life) and unpatented technology of $51 million (8 year weighted-average useful life).

2009 Acquisitions – During the year ended December 31, 2009, Roper completed two business combinations. The results of operations of the acquired companies have been included in Roper’s consolidated results since the date of each acquisition. Supplemental pro forma information has not been provided as the acquisitions did not have a material impact on Roper’s consolidated results of operations individually or in aggregate.

The aggregate purchase price of 2009 acquisitions totaled $353 million. Roper recorded approximately $246 million in goodwill and $126 million in other identifiable intangibles in connection with these acquisitions. The majority of the goodwill is not expected to be deductible for tax purposes. The Company recorded $2.2 million in transaction costs related to these acquisitions.

On October 30, 2009, Roper purchased the assets of United Toll Systems, LLC, which provides software and in-lane hardware systems for toll and traffic markets. The operations of UTS are reported in the RF Technology segment.

On December 3, 2009, Roper purchased Verathon, Inc., a leading global provider of proprietary medical devices and services, in order to expand its medical product lines. The results of Verathon are reported in the Medical & Scientific Imaging segment.

Of the $126 million of acquired intangible assets, $27 million was assigned to trade names that are not subject to amortization. The remaining $99 million of acquired intangible assets have a weighted-average useful life of approximately 10 years. The intangible assets that make up that amount include customer relationships of $46 million (14 year weighted-average useful life), unpatented technology of $53 million (7 year weighted-average useful life) and protective rights of $0.5 million (3 year weighted-average useful life).

(3)Inventories

The components of inventories at December 31 were as follows (in thousands):

20112010
Raw materials and supplies$119,550$113,415
Work in process31,08526,358
Finished products89,33471,302
Inventory reserves(35,211)(32,516)
$204,758$178,559
(4)Property, Plant and Equipment

The components of property, plant and equipment at December 31 were as follows (in thousands):

20112010
Land$4,228$4,194
Buildings69,87168,077
Machinery and other equipment264,216239,940
338,315312,211
Accumulated depreciation(229,540)(208,724)
$108,775$103,487

Depreciation expense was $36,780, $36,728 and $34,163 for the years ended December 31, 2011, 2010 and 2009, respectively.

(5)Goodwill
Industrial TechnologyEnergy Systems and ControlsMedical and Scientific ImagingRF TechnologyTotal
(in thousands)
Balances at December 31, 2009$431,073$383,207$623,786$950,366$2,388,432
Goodwill acquired--8,593341,243349,836
Currency translation adjustments(11,071)(2,554)804(2,657)(15,478)
Reclassifications and other-(58)4,8082404,990
Balances at December 31, 2010$420,002$380,595$637,991$1,289,192$2,727,780
Goodwill acquired-13,663135,379-149,042
Currency translation adjustments(949)(291)(5,142)1,258(5,124)
Reclassifications and other---(5,272)(5,272)
Balances at December 31, 2011$419,053$393,967$768,228$1,285,178$2,866,426

Goodwill acquired during the year ended December 31, 2011 was attributable to the acquisitions of Northern Digital, UCG and Trinity. The reclassifications and other are due to working capital and final purchase accounting tax adjustments related to iTrade, which was acquired in 2010.

(6)Other intangible assets, net
CostAccum. amort.Net book value
(in thousands)
Assets subject to amortization:
Customer related intangibles$960,013$(235,885)$724,128
Unpatented technology175,819(54,376)121,443
Software49,095(30,182)18,913
Patents and other protective rights25,505(15,292)10,213
Trade secrets1,604(1,174)430
Assets not subject to amortization:
Trade names229,386-229,386
Balances at December 31, 2010$1,441,422$(336,909)$1,104,513
Assets subject to amortization:
Customer related intangibles$1,022,134$(302,156)$719,978
Unpatented technology193,915(72,358)121,557
Software49,395(35,833)13,562
Patents and other protective rights25,398(17,699)7,699
Trade secrets1,500(1,361)139
Assets not subject to amortization:
Trade names231,207-231,207
Balances at December 31, 2011$1,523,549$(429,407)$1,094,142

Amortization expense of other intangible assets was $97.9 million, $83.7 million, and $66.8 million during the years ended 2011, 2010 and 2009, respectively. Amortization expense is expected to be $93.3 million in 2012, $90.3 million in 2013, $82.6 million in 2014, $68.8 million in 2015 and $66.0 million in 2016.

(7)Accrued Liabilities

Accrued liabilities at December 31 were as follows (in thousands):

20112010
Wages and other compensation$105,955$91,181
Deferred revenue94,76193,498
Interest26,74426,404
Customer deposits20,09513,941
Commissions12,13212,086
Accrued dividend13,29710,456
Warranty8,1477,038
Billings in excess of cost6,3516,763
Other35,42236,713
$322,904$298,080
(8)Income Taxes

Earnings before income taxes for the years ended December 31, 2011, 2010 and 2009 consisted of the following components (in thousands):

201120102009
United States$359,800$270,281$210,559
Other245,187178,113129,209
$604,987$448,394$339,768

Components of income tax expense for the years ended December 31, 2011, 2010 and 2009 were as follows (in thousands):

201120102009
Current:
Federal$123,310$93,594$54,636
State14,9038,1856,990
Foreign41,43732,70623,720
Deferred:
Federal1,846(23,107)14,880
Foreign(3,756)14,43661
$177,740$125,814$100,287

Reconciliations between the statutory federal income tax rate and the effective income tax rate for the years ended December 31, 2011, 2010 and 2009 were as follows:

201120102009
Federal statutory rate35.0%35.0%35.0%
Foreign rate differential(3.7)(4.3)(3.9)
R&D tax credits(0.7)(0.6)(0.6)
State taxes, net of federal benefit1.71.61.8
Foreign tax credit-(2.4)-
Other, net(2.9)(1.2)(2.8)
29.4%28.1%29.5%

The deferred income tax balance sheet accounts arise from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes.

Components of the deferred tax assets and liabilities at December 31 were as follows (in thousands):

20112010
Deferred tax assets:
Reserves and accrued expenses$72,150$64,946
Inventories7,1045,947
Net operating loss carryforwards20,64219,600
R&D credits1,1141,047
Valuation allowance-(796)
Total deferred tax assets$101,010$90,744
Deferred tax liabilities:
Reserves and accrued expenses$33,861$33,884
Amortizable intangible assets456,613435,143
Plant and equipment2,6776,419
Total deferred tax liabilities$493,151$475,446

The presentation of the deferred tax assets as of December 31, 2010 has been revised to reflect an adjustment to the classification of certain federal and state net operating losses and state R&D credit carryforwards in 2011. The impact of this adjustment changed the Company’s other deferred tax asset classifications by $12.1 million as of December 31, 2010. The adjustment had no impact on Roper's consolidated financial statements.

The Company establishes a valuation allowance against its deferred tax asset when it is more likely than not that all or a portion of the deferred tax asset will not be realized. In 2010, the Company recorded a valuation allowance of $0.8 million against a deferred tax asset for certain foreign operations that were in a cumulative loss position. The release of this valuation allowance in 2011 was contemplated after an assessment of both positive and negative evidence as to whether it is more likely than not that the deferred tax assets are recoverable. Based on the weight of available evidence, the Company believes it is more likely than not that the deferred tax asset will be utilized and accordingly, a release of the entire valuation allowance was recorded in the fourth quarter of 2011.

At December 31, 2011, Roper has approximately $30.1 million of U.S. federal net operating loss carryforwards. If not utilized, these carryforwards will expire in years 2021 through 2031. The net operating loss carryforward increased between 2010 and 2011 primarily because of losses incurred by a U.S. entity that is not a member of the Company’s consolidated tax group and whose losses are therefore not available for offset against the taxable income of other members of the group. Also, due to a recent acquisition, the consolidated group has acquired a net operating loss subject to a Section 382 limitation of the IRC; however, the Company expects to utilize the entire net operating loss prior to expiration. The majority of the state net operating loss carryforward is related to Florida and, if not utilized, will expire in years 2027 through 2030. The Company had smaller net operating losses in various other states. Additionally, Roper has foreign tax credit carryforwards and R&D credit carryforwards. Roper has not recognized a valuation allowance on these attributes since management has determined that it is more likely than not that the results of future operations will generate sufficient taxable income to realize these deferred tax assets.

The Company provides income taxes for unremitted earnings of foreign subsidiaries that are not considered permanently reinvested overseas. As of December 31, 2011, the approximate amount of earnings of foreign subsidiaries that the Company considers permanently reinvested and for which deferred taxes have not been provided was approximately $874 million. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested indefinitely.

Although it is the Company’s intention to permanently reinvest these earnings indefinitely there are certain events that would cause these earnings to become taxable. These events include, but are not limited to, change in U.S. tax laws, dividends paid between foreign subsidiaries in the absence of Section 954(c)(6) of the IRC, foreign subsidiary guarantees of U.S. parent debt and the liquidation of foreign subsidiaries or actual distributions by foreign subsidiaries into a U.S. affiliate.

The Company recognizes in the consolidated financial statements only those tax positions determined to be “more likely than not” of being sustained upon examination based on the technical merits of the positions. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

201120102009
Beginning balance$24,765$22,922$22,638
Additions for tax positions of prior periods470203156
Additions for tax positions of the current period2,5723,1694,750
Additions due to acquisitions-3,546-
Reductions for tax positions of prior periods(558)(565)(250)
Reductions for tax positions of the current period--
Settlements with taxing authorities(4,043)-(224)
Lapse of applicable statute of limitations(3,650)(4,510)(4,148)
Ending balance$19,556$24,765$22,922

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $12.8 million. Interest and penalties related to unrecognized tax benefits are classified as a component of income tax expense and totaled $(0.5) million in 2011. Accrued interest and penalties were $3.5 million at December 31, 2011 and $4.1 million at December 31, 2010. During the next twelve months, it is expected that the unrecognized tax benefits will be reduced by a net $3.8 million, due mainly to a lapse in the applicable statute of limitations.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state, city and foreign jurisdictions. The Company’s federal income tax returns for 2008 through the current period remain subject to examination and the relevant state, city and foreign statutes vary. There are no current tax examinations in progress where the Company expects the assessment of any significant additional tax in excess of amounts reserved.

(9)Long-Term Debt

In September 2009, the Company completed a public offering of $500 million aggregate principal amount of 6.25% senior unsecured notes due September 2019. The notes bear interest at a fixed rate of 6.25% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning March 1, 2010.

Roper may redeem some of all of these 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.

The notes are unsecured senior obligations of the Company and rank equally in right of payment with all of Roper’s existing and future unsecured and unsubordinated indebtedness. The notes are effectively subordinated to any of its existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness. The notes are not guaranteed by any of Roper’s subsidiaries and are effectively subordinated to all existing and future indebtedness and other liabilities of Roper’s subsidiaries.

On August 6, 2008, Roper issued $500 million aggregate principal amount of 6.625% senior notes due August 15, 2013. The notes bear interest at a fixed rate of 6.625% per year, payable semi-annually in arrears on February 15 and August 15 of each year, beginning February 15, 2009. The interest payable on the notes is subject to adjustment if either Moody’s Investors Service or Standard & Poor’s Ratings Services downgrades the rating assigned to the notes.

Roper may redeem some or all of the 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 as described in the indenture relating to the notes.

The notes are unsecured senior obligations of the Company and rank equally in right of payment with all of the Company’s existing and future unsecured and unsubordinated indebtedness. The notes are effectively subordinated to any of the Company’s existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness. The notes are not guaranteed by any of the Company’s subsidiaries and are effectively subordinated to all existing and future indebtedness and other liabilities of the Company’s subsidiaries.

On July 7, 2008, the Company entered into an unsecured credit facility with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders. The facility was originally composed of a $350 million term loan facility maturing July 7, 2010 and a five year $750 million revolving credit facility maturing July 7, 2013; however, the $350 million term loan was repaid in September 2009. The Company recorded a $0.4 million non-cash pre-tax debt extinguishment charge in the third quarter of 2009 related to the early termination of the term loan. This charge reflects the unamortized fees associated with the term loan. 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 $350 million.

Other debt includes $67 million of senior subordinated convertible notes due 2034.

Total debt at December 31 consisted of the following (in thousands):

20112010
$750 million revolving credit facility$-$230,000
Senior Notes due 2013*511,652514,092
Senior Notes due 2019500,000500,000
Senior Subordinated Convertible Notes67,25090,981
Other6,1145,972
Total debt1,085,0161,341,045
Less current portion69,90693,342
Long-term debt$1,015,110$1,247,703
*Shown net of fair value swap adjustment of $11,652 at December 31, 2011 and $14,092 at December 31, 2010.

Roper’s principal unsecured credit facility, $1.0 billion senior notes and senior subordinated convertible notes provide substantially all of Roper’s daily external financing requirements. The interest rate on the borrowings under the credit facility is calculated based upon various recognized indices plus a margin as defined in the credit agreement. At December 31, 2011, Roper’s debt consisted of $1.0 billion of senior notes and $67 million in senior subordinated convertible notes. In addition, the Company had $6.1 million of other debt in the form of capital leases, several smaller facilities that allow for borrowings or the issuance of letters of credit in foreign locations to support Roper’s non-U.S. businesses and $50 million of outstanding letters of credit at December 31, 2011.

In December 2003, the Company issued through a public offering $230 million of 3.75% subordinated convertible notes due in 2034 at an original issue discount of 60.498% (the “Convertible Notes”). The Convertible Notes are subordinated in right of payment and collateral to all of Roper’s existing and future senior debt. Cash interest on the notes was paid semi-annually until January 15, 2009, after which interest is recognized at the effective rate of 3.75% and represents accrual of original issue discount, and only contingent cash interest may be paid. Contingent cash interest may be paid during any six month period if the average trading price of a note for a five trading day measurement period preceding the applicable six month period equals 120% or more of the sum of the issue price, accrued original issue discount and accrued cash interest, if any, for such note. The contingent cash interest payable per note in respect of any six month period will equal the annual rate of 0.25%. In accordance with this criterion, contingent interest has been paid for each six month period since January 15, 2009. Holders receive cash up to the value of the accreted principal amount of the notes converted and, at the Company’s option, any remainder of the conversion value may be paid in cash or shares of common stock. Holders may require Roper to purchase all or a portion of their notes on January 15, 2014 at a price of $475.66 per note, on January 15, 2019 at a price of $572.76 per note, on January 15, 2024 at a price of $689.68 per note, and on January 15, 2029 at a price of $830.47 per note, in each case plus accrued cash interest, if any, and accrued contingent cash interest, if any. The Company may only pay the purchase price of such notes in cash and not in common stock. In addition, if Roper experiences a change in control, each holder may require Roper to purchase for cash all or a portion of such holder’s notes at a price equal to the sum of the issue price plus accrued original issue discount for non-tax purposes, accrued cash interest, if any, and accrued contingent cash interest, if any, to the date of purchase.

The Convertible Notes are classified as short term debt as the notes became convertible on October 1, 2005 based upon the Company’s common stock trading above the trigger price for at least 20 trading days during the 30 consecutive trading-day periods ending on September 30, 2005.

The adoption of accounting guidance on January 1, 2009 regarding convertible debt instruments that may be settled in cash upon either mandatory or optional conversion impacted the historical accounting for Roper’s Convertible Notes as of December 6, 2004, the date that the notes were modified to allow holders to receive cash only for accreted principal upon settlement of the notes with any remainder of the conversion value payable in cash or common stock, thus qualifying the notes for treatment under the new guidance. The required retrospective adoption resulted in a decrease in long term debt (debt discount) of $26.5 million, an increase in deferred tax liabilities of $9.3 million, and an increase in additional paid in capital of $17.3 million at December 9, 2004. The debt discount was amortized using the effective interest rate method based on an annual effective rate of 7.0%, which represented a market interest rate for similar debt without a conversion option on the modification date. The debt discount was amortized through January 15, 2009, the first date that holders of the notes could exercise their put option and Roper could exercise its call option.

The Company was required to separately account for the liability and equity components of the Convertible Notes in a manner that reflects Roper’s nonconvertible debt borrowing rate when interest cost is recognized. Interest expense related to the notes was as follows (amounts in thousands):

Years ended December 31,
201120102009
Contractual (stated) interest$2,750$3,812$5,209
Amortization of debt discount--301
Interest expense$2,750$3,812$5,510

At December 31, 2011, the conversion price on the outstanding notes was $440.92. If converted at December 31, 2011, the value would have exceeded the $67 million principal amount of the notes by $100 million and would have resulted in the issuance of 1,144,214 shares of the Company's common stock.

The Company's unsecured credit facility contains affirmative and negative covenants which, among other things, limit our ability to incur new debt, prepay subordinated debt, make certain investments and acquisitions, sell assets and grant liens, make restricted payments (including the payment of dividends on our common stock) and capital expenditures, or change our line of business. We also are subject to financial covenants which require us to limit our consolidated total leverage ratio and to maintain a consolidated interest coverage ratio. The most restrictive covenant is the consolidated total leverage ratio which is limited to 3.5.

The Company was in compliance with its debt covenants throughout the years ended December 31, 2011 and 2010.

Future maturities of long-term debt during each of the next five years ending December 31 and thereafter were as follows (in thousands):

2012$69,906
2013513,031
2014788
2015556
2016493
Thereafter500,242
$1,085,016
(10)Fair Value

Roper’s long-term debt at December 31, 2011 included $500 million of fixed-rate senior notes due 2019, with a fair value of approximately $583 million, and $500 million of fixed-rate senior notes due 2013, with a fair value of approximately $540 million, based on the trading prices of the notes. Short-term debt included $67 million of fixed-rate convertible notes which were at fair value due to the short term nature of the debt. Most of Roper’s other borrowings at December 31, 2011 were at various interest rates that adjust relatively frequently under its credit facility. The fair value for each of these borrowings at December 31, 2011 was estimated to be the face value of these borrowings.

In October 2009, Roper entered into interest rate swap agreements with an aggregate notional amount of $500 million. The swaps are designated as fair value hedges and effectively changed the Company's $500 million senior notes due 2013 with a fixed interest rate of 6.625% to a variable rate obligation at a weighted average spread of 4.377% plus LIBOR. The Company has determined the swaps to be Level 2 in the FASB fair value hierarchy. To account for the fair value hedge, the swap is recorded at fair value in the balance sheet as an asset or liability, and the changes in fair values of both the interest rate swap and the hedged senior notes due 2013 are recorded as interest expense. The fair value of the swap was an asset balance of $11.6 million and $14.1 million at December 31, 2011 and 2010, respectively. The corresponding change in the fair value of the notes being hedged was an increase of $11.7 million and $14.1 million at December 31, 2011 and 2010, respectively. The impact on earnings was immaterial in the years ended December 31, 2011, 2010 and 2009.

(11)Retirement and Other Benefit Plans

Roper maintains eleven defined contribution retirement plans under the provisions of Section 401(k) of the IRC covering substantially all U.S. employees not subject to collective bargaining agreements. Roper partially matches employee contributions. Costs related to these plans were $15.2 million, $14.0 million and $11.9 million for 2011, 2010 and 2009, respectively.

Roper also maintains various defined benefit retirement plans covering employees of non-U.S. and certain U.S. subsidiaries and a plan that supplements certain employees for the contribution ceiling applicable to the Section 401(k) plans. The costs and accumulated benefit obligations associated with each of these plans were not material.

(12)Stock-Based Compensation

The Roper Industries, Inc. Amended and Restated 2006 Incentive Plan (“2006 Plan”) is a stock-based compensation plan used to grant incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights or equivalent instruments to the Company’s employees, officers, directors and consultants. The 2006 Plan replaced the Amended and Restated 2000 Incentive Plan (“2000 Plan”), and no additional grants will be made from the 2000 Plan or the Non-employee Director Plan. The number of shares reserved for issuance under the 2006 Plan is 8,000,000, plus the 17,000 remaining shares that were available to grant under the 2000 Plan at June 28, 2006, plus any shares underlying outstanding awards under the 2000 Plan that terminate or expire unexercised, or are cancelled, forfeited or lapse for any reason subsequent to June 28, 2006. At December 31, 2011, 2,353,051 shares were available to grant.

Under the Roper Industries, Inc., Employee Stock Purchase Plan (“ESPP”), all employees in the U.S. and Canada are eligible to designate up to 10% of eligible earnings to purchase Roper’s common stock at a 5% discount to the average closing price of its common stock at the beginning and end of a quarterly offering period. The common stock sold to the employees may be either treasury stock, stock purchased on the open market, or newly issued shares.

Stock based compensation expense for the years ended December 31, 2011, 2010 and 2009 was as follows (in millions):

201120102009
Stock based compensation$31.7$25.2$27.5
Tax benefit recognized in net income11.18.89.6
Windfall tax benefit/(shortfall), net12.77.32.0

Stock Options – Stock options are typically granted at prices not less than 100% of market value of the underlying stock at the date of grant. Stock options typically vest over a period of up to three to five years from the grant date and generally expire seven to ten years after the grant date. The Company recorded $12.2 million, $9.0 million, and $9.1 million of compensation expense relating to outstanding options during 2011, 2010 and 2009, respectively, as a component of corporate and certain segment general and administrative expenses.

The Company estimates the fair value of its option awards using the Black-Scholes option valuation model that uses the assumptions noted in the following table. The stock volatility for each grant is measured using the weighted average of historical daily price changes of the Company’s common stock over the most recent period equal to the expected life of the grant. The expected term of options granted is derived from historical data to estimate option exercises and employee terminations, and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The weighted average fair value of options granted in 2011, 2010 and 2009 were calculated using the following weighted average assumptions:

201120102009
Weighted average fair value ($)24.4517.0012.68
Risk-free interest rate (%)1.912.321.78
Average expected option life (years)5.345.385.37
Expected volatility (%)35.2734.5532.24
Expected dividend yield (%)0.600.720.78

The following table summarizes the Company’s activities with respect to its stock option plans for the year ended December 31, 2011.

Number of sharesWeighted average exercise price per shareWeighted average contractual termAggregate intrinsic value
Outstanding at January 1, 20113,933,440$ 42.32
Granted755,00074.06
Exercised(839,881)33.62
Canceled(25,897)53.23
Outstanding at December 31, 20113,822,66250.445.78$ 139,243,760
Exercisable at December 31, 20112,238,712$ 42.624.11$ 99,065,980

The following table summarizes information for stock options outstanding at December 31, 2011:

Outstanding optionsExercisable options
Exercise priceNumberAverage exercise priceAverage remaining life (years)NumberAverage exercise price
$ 14.73 – 20.00281,938$ 19.050.9281,938$ 19.05
20.01 - 30.00222,09623.482.1222,09623.48
30.01 – 40.00186,32232.120.3186,32232.12
40.01 – 50.00657,16642.774.7503,79043.03
50.01 – 60.001,691,30753.476.51,009,25853.94
60.01 – 70.00135,33367.699.312,50164.49
70.01 - 80.00570,10073.599.100.0
80.01 – 86.4678,40084.199.222,80784.13
$ 14.73 – 86.463,822,662$ 50.445.82,238,712$ 42.62

At December 31, 2011, there was $18.7 million of total unrecognized compensation expense related to nonvested options granted under the Company’s share-based payment plans. That cost is expected to be recognized over a weighted-average period of 1.8 years. The total intrinsic value of options exercised in 2011, 2010 and 2009 was $41.2 million, $27.5 million and $10.5 million, respectively. Cash received from option exercises under all plans in 2011 and 2010 was $28.2 million and $29.0 million, respectively.

Restricted Stock Grants - During 2011 and 2010, the Company granted 352,330 and 257,893 shares, respectively, of restricted stock to certain employee and director participants under the 2006 Plan. Restricted stock grants generally vest over a period of 1 to 3 years. The weighted average fair value of the shares granted in 2011 was $74.66 per share. The Company recorded $19.5 million, $16.2 million and $18.3 million of compensation expense related to outstanding shares of restricted stock held by employees and directors during 2011, 2010 and 2009, respectively. A summary of the Company’s nonvested shares activity for 2011 is as follows:

Number of sharesWeighted average fair value
Nonvested at January 1, 2011670,401$52.64
Granted352,33074.66
Vested(264,848)78.12
Forfeited(4,072)54.38
Nonvested at December 31, 2011753,811$61.15

At December 31, 2011, there was $20.3 million of total unrecognized compensation expense related to nonvested awards granted to both employees and directors under the Company’s share-based payment plans. That cost is expected to be recognized over a weighted-average period of 2.2 years. There were 264,848 and 289,746 shares that vested during 2011 and 2010, respectively. Unrecognized compensation expense related to nonvested shares of restricted stock grants is recorded as a reduction to additional paid-in capital in stockholder’s equity at December 31, 2011.

Employee Stock Purchase Plan - During 2011, 2010 and 2009, participants of the ESPP purchased 27,756, 29,439 and 38,428 shares, respectively, of Roper’s common stock for total consideration of $2.1 million, $1.7 million, and $1.7 million, respectively. All of these shares were purchased from Roper’s treasury shares. The Company had no compensation expense relating to the stock purchase plan during 2011, 2010 and 2009.

(13)Common Stock Transactions

On December 29, 2009, the Company completed a public offering of 2,300,000 shares of common stock for proceeds of approximately $121.4 million, net of $0.8 million of costs associated with the offering.

(14)Contingencies

Roper, in the ordinary course of business, is the subject of, or a party to, various pending or threatened legal actions, including product liability and employment practices. It is vigorously contesting all lawsuits that, in general, are based upon claims of the kind that have been customary over the past several years. After analyzing the Company’s contingent liabilities on a gross basis and, based upon past experience with resolution of its product liability and employment practices claims and the limits of the primary, excess, and umbrella liability insurance coverages that are available with respect to pending claims, management believes that adequate provision has been made to cover any potential liability not covered by insurance, and that the ultimate liability, if any, arising from these actions should not have a material adverse effect on the consolidated financial position, results of operations or cash flows of Roper.

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

Roper’s rent expense was $29.7 million, $29.1 million and $27.0 million for 2011, 2010 and 2009, respectively. Roper’s future minimum property lease commitments totaled $116.3 million at December 31, 2011. These commitments included $28.6 million in 2012, $23.3 million in 2013, $20.9 million in 2014, $17.1 million in 2015, $12.5 million in 2016 and $13.9 million thereafter.

A summary of the Company’s warranty accrual activity is presented below (in thousands):

201120102009
Balance, beginning of year$7,038$7,341$9,885
Additions charged to costs and expenses8,8465,6714,416
Deductions(7,716)(5,895)(7,659)
Other(21)(79)699
Balance, end of year$8,147$7,038$7,341

Other included warranty balances at acquired businesses at the dates of acquisition, the effects of foreign currency translation adjustments, reclassifications and other.

At December 31, 2011 the Company had outstanding surety bonds of $313 million.

(15)Segment and Geographic Area Information

Roper’s operations are reported in four segments around common customers, markets, sales channels, technologies and common cost opportunities. The segments are: Industrial Technology, Energy Systems and Controls, Medical & Scientific Imaging, and RF Technology. Products included within the Industrial Technology segment are water and fluid handling pumps, flow measurement and metering equipment, industrial valves and controls, and equipment and consumables for materials analysis and industrial leak testing. The Energy Systems and Controls segment’s products include control systems, equipment and consumables for fluid properties testing, vibration sensors and other non-destructive inspection and measurement products and services. The Medical & Scientific Imaging segment offers medical products and software, high performance digital imaging products and software and handheld and vehicle mounted computers. The RF Technology segment includes products and systems related to comprehensive toll and traffic systems and processing, security and access control, campus card systems, software-as-a-service applications in the freight matching and food industries and utility metering and remote monitoring applications. Roper’s management structure and internal reporting are aligned consistently with these four segments.

There were no material transactions between Roper’s business segments during 2011, 2010 and 2009. Sales between geographic areas are primarily of finished products and are accounted for at prices intended to represent third-party prices. Operating profit by business segment and by geographic area is defined as net sales less operating costs and expenses. These costs and expenses do not include unallocated corporate administrative expenses. Items below income from operations on Roper’s statement of earnings are not allocated to business segments.

Identifiable assets are those assets used primarily in the operations of each business segment or geographic area. Corporate assets were principally comprised of cash and cash equivalents, recoverable insurance claims, deferred compensation assets, unamortized deferred financing costs and property and equipment.

Selected financial information by business segment for 2011, 2010 and 2009 follows (in thousands):

Industrial TechnologyEnergy Systems and ControlsMedical and Scientific ImagingRF TechnologyCorporateTotal
2011
Net sales$737,356$597,802$610,617$851,314$-$2,797,089
Operating profit208,188157,960148,376202,877(56,862)660,539
Assets:
Operating assets219,180194,527176,893237,71919,824848,143
Intangible assets, net597,769535,606971,5841,855,609-3,960,568
Other27,37658,71435,916(104,869)41817,555
Total4,826,266
Capital expenditures11,1536,88912,4989,63452840,702
Depreciation and other amortization23,11918,17734,22464,329294140,143
2010
Net sales$607,564$503,897$548,718$725,933$-$2,386,112
Operating profit162,009120,427130,558150,711(49,411)514,294
Assets:
Operating assets179,458166,554170,955256,01617,517790,500
Intangible assets, net610,542518,849791,6111,911,291-3,832,293
Other47,45176,68624,694(91,099)(94,237)(36,505)
Total4,586,288
Capital expenditures8,8493,4667,2698,9763128,591
Depreciation and other amortization23,66018,47227,99152,709189123,021
2009
Net sales$536,219$440,919$354,776$717,754$-$2,049,668
Operating profit123,95992,78874,183154,430(49,964)395,396
Assets:
Operating assets165,651166,461172,805238,24913,894757,060
Intangible assets, net635,147532,022787,8841,302,279-3,257,332
Other(51)8,0167,219(27,825)(33,281)(45,922)
Total3,968,470
Capital expenditures13,9773,1852,1266,29130625,885
Depreciation and other amortization24,63618,73616,69143,183202103,448

Summarized data for Roper’s U.S. and foreign operations (principally in Canada, Europe and Asia) for 2011, 2010 and 2009, based upon the country of origin of the Roper entity making the sale, was as follows (in thousands):

United StatesNon-U.S.EliminationsTotal
2011
Sales to unaffiliated customers$1,985,756$811,333$-$2,797,089
Sales between geographic areas153,121229,583(382,704)-
Net sales$2,138,877$1,040,916$(382,704)$2,797,089
Long-lived assets$135,399$35,729$-$171,128
2010
Sales to unaffiliated customers$1,758,797$627,315$-$2,386,112
Sales between geographic areas125,202174,265(299,467)-
Net sales$1,883,999$801,580$(299,467)$2,386,112
Long-lived assets$104,147$29,834$-$133,981
2009
Sales to unaffiliated customers$1,526,390$523,278$-$2,049,668
Sales between geographic areas87,323126,093(213,416)-
Net sales$1,613,713$649,371$(213,416)$2,049,668
Long-lived assets$124,382$28,922$-$153,304

Export sales from the U.S. during the years ended December 31, 2011, 2010 and 2009 were $410 million, $358 million and $301 million, respectively. In the year ended December 31, 2011, these exports were shipped primarily to Asia (34%), Europe (24%), Canada (14%), Middle East (13%), South America (6%) and other (9%).

Sales to customers outside the U.S. accounted for a significant portion of Roper’s revenues. Sales are attributed to geographic areas based upon the location where the product is ultimately shipped. Roper’s net sales for the years ended December 31, 2011, 2010 and 2009 are shown below by region, except for Canada, which is presented separately as it is the only country in which Roper has had greater than 5% of total sales for any of the three years presented (in thousands):

Industrial TechnologyEnergy Systems and ControlsMedical and Scientific ImagingRF TechnologyTotal
2011
Canada$64,864$39,547$21,127$40,636$166,174
Europe110,656148,767162,72588,741510,889
Asia67,093118,56586,8078,833281,298
Middle East3,96444,7925,06228,40682,224
Rest of the world33,72163,06417,1949,790123,769
Total$280,298$414,735$292,915$176,406$1,164,354
2010
Canada$44,678$27,360$15,306$35,270$122,614
Europe91,815135,019126,11664,605417,555
Asia49,232100,09479,3435,389234,058
Middle East2,80534,9125,85322,38765,957
Rest of the world22,32855,28015,16910,542103,319
Total$210,858$352,665$241,787$138,193$943,503
2009
Canada$40,121$25,746$7,251$30,184$103,302
Europe79,000118,77098,32848,849344,947
Asia41,36485,32365,6876,157198,531
Middle East4,04028,1212,16228,31662,639
Rest of the world12,25648,6579,42411,04281,379
Total$176,781$306,617$182,852$124,548$790,798
(16)Concentration of Risk

Financial instruments which potentially subject the Company to credit risk consist primarily of cash, cash equivalents and trade receivables.

The Company maintains cash and cash equivalents with various major financial institutions. Cash equivalents include investments in commercial paper of companies with high credit ratings, investments in money market securities and securities backed by the U.S. Government. At times such amounts may exceed the F.D.I.C. limits. The Company limits the amount of credit exposure with any one financial institution and believes that no significant concentration of credit risk exists with respect to cash investments.

Trade receivables subject the Company to the potential for credit risk with customers. To reduce credit risk, the Company performs ongoing evaluations of its customers’ financial condition.

(17)Quarterly Financial Data (unaudited)
First QuarterSecond QuarterThird QuarterFourth Quarter
(in thousands, except per share data)
2011
Net sales$645,309$699,871$712,705$739,204
Gross profit350,096377,063382,556405,849
Income from operations142,000163,970167,215187,354
Net earnings88,979106,311110,281121,676
Earnings from continuing operations per common share:
Basic0.931.111.151.26
Diluted0.911.081.121.23
2010
Net sales$534,441$567,104$605,088$679,479
Gross profit279,565301,947321,749371,865
Income from operations100,716119,187128,233166,158
Net earnings59,72571,28184,263107,311
Earnings from continuing operations per common share:
Basic0.640.760.891.13
Diluted0.620.740.871.10

The sum of the four quarters may not agree with the total for the year due to rounding.

ROPER INDUSTRIES, INC. AND SUBSIDIARIES

Schedule II – Consolidated Valuation and Qualifying Accounts

Years ended December 31, 2011, 2010 and 2009

Balance at beginning of yearAdditions charged to costs and expensesDeductionsOtherBalance at end of year
(in thousands)
Allowance for doubtful accounts and sales allowances
2011$10,349$2,816$(2,842)$313$10,636
201011,1871,558(2,900)50410,349
200912,6582,762(4,874)64111,187
Reserve for inventory obsolescence
2011$32,516$11,407$(8,848)$149$35,224
201029,03712,905(9,125)(301)32,516
200930,1088,789(10,508)64829,037

Deductions from the allowance for doubtful accounts represented the net write-off of uncollectible accounts receivable. Deductions from the inventory obsolescence reserve represented the disposal of obsolete items.

Other included the allowance for doubtful accounts and reserve for inventory obsolescence of acquired businesses at the dates of acquisition, the effects of foreign currency translation adjustments for those companies whose functional currency was not the U.S. dollar, reclassifications and other.

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