Roper Technologies Inc (ROP) 2003 Q3 法說會逐字稿

Good day everyone and welcome to this Roper Industries calendar third quarter 2003 financial results conference call.

This call is being recorded.

With us today we have Mr. Chris Hix, Director of Investor Relations, Mr. Brian Jellison, President and Chief Executive Officer.

And Mr. Martin Headley, Chief Financial Officer.

At this time, I will turn the call over to Mr. Chris Hix for opening remarks.

Please go ahead sir.

Thank you Steve and thank you all for joining us today to review our calendar year third quarter 2003 results.

I'm Chris Hix, Director of Investor Relations.

Also participating are Brian Jellison, President and Chief Executive Officer and Martin Headley, Chief Financial Officer.

Friday we released our results, if you have not already seen the press release you can obtain it from our press release at www.roperind.com.

The press release includes telephonic replay information for today's call.

In a moment I will turn the conference over to Brian Jellison for his remarks, following which we will take questions from our telephone participants.

We have prepared slides to accompany today's remarks which are available through the webcast and are viewer-controlled.

The slides can also be obtained in PDF format from the investor information section of our Website.

Our call today is scheduled to end at approximately 315 p.m. eastern.

Please turn to Slide 2.

Today's conference call includes forward-looking statements.

I would like to remind everybody of our safe harbor which enumerates numerous risks and uncertainties, and includes forward-looking statements.

Please refer also to our Form 10-KA from 2002 for a listing of key risks and uncertainties.

Also, I’d like to point out that at the end of the slides we do have reconciliations for some of the financial measures included in today's presentation.

And with that I ask you to turn to Slide 3, as I turn the call over to Brian.

Brian?

Thank you, Chris and good afternoon everyone everyone.

You can see we've had a strong third calendar quarter.

Net sales up 8% over the prior year to $172 million.

Refreshingly if you exclude Gazprom an and the acquisition we actually had a strong organic number as many of you reported.

It is up about 9% currency less half of that number so very strong organic growth.

We have $8 million lower net sales in the quarter to Gazprom, and still have these up numbers.

It is the second consecutive calendar quarter, now that we're on a calendar year basis of organic growth.

The gross profit margin actually expanded in the quarter and was up 9% to a record $93 million.

Our income from operations before the restructuring charge in the quarter that was $1 million, increased to $34 million--another record.

And earnings from continuing operations increased 28% to $20 million.

If we turn the slide, our continuing highlights in the third quarter you can see the diluted earnings per share from continuing ops are 62 cents.

That is up 27% from 49 cents in the prior year.

The net debt to cap has been reduced to 38.3% from [45.2] at the beginning of the calendar year.

You might note we've said 46% in the past but that was on a fiscal year basis.

We generated another $21 million of cash from operating activities in the third quarter, and think we'll do substantially better from that cash in the fourth quarter.

We also have signed the definitive agreement to acquire Neptune Technologies holding Inc. from Investcorp and had meetings earlier last week about that.

As you know, I can't say anything new about that but we will talk a little bit about it during the course of the conference.

The strong earnings there, the cash earnings and the strengthening balance sheets have really allowed us to go out into the debt markets and do this transaction which we think will be a great deal for shareholders going forward.

The next slide, we did get Petrotech sold in August, and that was a loss making business we had.

We sold it to the management team John Cazour and his folks and they're off to a decent start in that business.

That means when we report again we shouldn't have any discontinued operations in our instructions.

Our restructuring is pretty much completed now.

We have a formal opening of our Mexican operation outside of Juarez.

Almost all of the actions will be done by year end.

There is one we can't talk about that may get turned into the first quarter but it will be relatively minor.

The strength in operating margins are a huge story this quarter.

You can see the operating margins of 19.5% before restructuring.

That includes all those corporate G&A charges we talk about in the last call--are a huge improvement in the recent past.

And even with restructuring we were at 18.9% and that's up sharply from 17.2% in the third quarter of a year ago.

The next slide you can see the power again of the earnings model that we like to talk about here at Roper, to get a sales increase you generate some very nice numbers.

This quarter, you can see sales are up $12.8 million which is that 8%.

Income from operations expanded $5.1 million.

If you add the restructuring cost back in there they would have been up $6.1 million. 6.1 divided by the 12.8 gives you incremental of 48%.

And we continue to believe that the company moves along with a 40% or greater contribution to operating profits relative to increases in sales.

The next slide.

If you look at the income statement specifically you see net sales of $172 million, as we said, up [8].

This was partly due to strength in the compressor controlled nonGazprom piece of activity that we talked about.

And our imaging business eggs in general.

But there were strength in other segments as well.

Gross profit you see actually expanded despite difficult markets there from 53.6% to 54.1%.

Our income before the restructuring and operations was 19.5% up from 17.2% a year ago.

That's a 230 basis point gain in operating margins year-over-year.

And if we add the cost of restructuring in it's still 170 point -- basis points gain to 18.9.

Earnings as we report, 62 cents up from 49.

That's a record earnings from continuing operations.

And the net earnings which has the effect of the Petrotech sale are up as well.

Next slide, is the balance sheet.

And cash flow.

If you look at the EBITDA performance, EBITDA performance you can see in the quarter we did $36.3 million up from last year's 31.4.

Our EBITDA contribution as a function of sales was 21.1% compared to 19.7%, and if we exclude the restructuring cost, that takes it up to an EBITDA margin of 21.7% on sales.

The EBITDA to interest coverage which is interesting given the debt financing we're going to do, a year ago we were at 6.7 times, which is quite good.

But today we're at 9.0 times.

So we feel very good about our balance sheet at this point in time.

Our net debt to cap you see has come down to 38.3% from 45.2%.

We've had some improvement in working capital.

We've got a way to go still in that arena, and I think the guys will do a better job in fourth quarter, as we strive to get down to a lower number.

Inventory clearly got better and our receivables are marginally better.

If you turn to the back which I wouldn't advise you to do now, there is a reconciliation slide that lays out the EBITDA according to the regs.

Next slide we'll look at our first business here which is energy systems and controls which is to remind us is compressor controls metrics and Zetec.

Orders, excluding Gazprom, were up nicely to 17%.

Gazprom remains down, it was down 31% from the prior year in orders, and also $8 million less sales, and you know what effect that has on our EPS when those occur.

Very strong oil and gas sales that we talked about through CCC to nonCIS territories.

Zetec contributed exceedingly well in the third quarter.

The third calendar quarter is the strongest seasonal quarter for Zetec and explains a lot of the strength in energy systems this quarter.

Operating margins reached 25.6% that is up from last year's 21.3% even despite a substantial falloff in Gazprom.

The news this business is we've had a lot of challenges yet overcome those and driven results that we can feel comfortable with.

Next slide on Industrial Technology here you can see the brands that we have in this space.

Orders were up 8% in the quarter, in Industrial Technology --that was a good sign.

We did have from a sales perspective, you can see a slight falloff to the prior year which was really around one large project order in water -- waste water -- in our business in Germany.

We don't see that problem to stay with us and we've got a considerable A project work under way that should shift in the fourth quarter.

The Mexican operation we're shipping directly to customers now for a couple of our brands.

And looking at a lot of different sourcing opportunities to bring work into the Mexican operation.

We had one disappointment in the quarter from a substantial customer for our medical pump business.

Abbott, which as many of you have had some FD&A issues throughout the year.

And Abbott's delaying purchases that we expect might occur in the fourth quarter.

That will dampen our performance in that one quarter.

Operating profit margins, though, it's important to remember that in Industrial Technology we're still making 22.8% excluding the restructuring.

And those are pretty spectacular margins for the maturity of those businesses.

Next slide.

And I guess I should add on the Industrial Technology, the fourth quarter will be better comparison to last year than this third quarter is.

On instrumentation, here you can see still have to struggle because telecom and semicon affecting a couple of ours businesses in this case, IDI and Alaska Acton (ph) and Logitec.

This is the second consecutive quarter we've been ahead on orders.

The restructuring in this segment is essentially behind us now.

Struers is in its new facility and doing well.

You can see the effect beginning to take already, operating margins increasing to 18.4%, up 100 basis point from the second quarter of this year and up sharply from 12.1% in the second quarter of this year, and 17.4 year ago.

Even on flattish sales we have 100 basis points of income and we expect that trend to continue in the fourth quarter.

Next slide, if we look at scientific and industrial imaging, you can see net orders were up 4% here.

Net sales up sharply 17% as we shipped some backlog out of our Gatan businesses.

Redlake's production integration has been pretty much behind us.

Everything is in place.

We're enjoying higher margins in the business.

Much better quality, that means less returns and less customers service.

Deliveries have improved and we feel very good about that transaction.

Our operating profit in the segment is up 89% over the prior year, and the margins have ballooned from 12.5% last year to 20.2% this year, exclusive of the restructuring.

So it's nice to go up $4 million there on a sales increase of $6 million.

Next slide would be looking at the remainder of the year.

You can see net sales are projected to be around $650 million or more for the full year, up from last year's $614.

You can see the footnote there on the $614.

That included $52 million of sales to Gazprom in 2002.

And we would expect this year's sales to be $27 to $32 million less than that number.

Even with that depressing sale decriment, we still look at a $650 million total sales or more.

And then when you see how that affects our DEPS, you can see last year's calendar year was $1.95.

But of course the $1.95 included $52 million of revenue to Gazprom, this year's $2.00 plus dollars a share will have 20 to 25 million to Gazprom.

And then we've also invested in the restructuring and those costs are going to be six to $6.5 million using the current tax rate and $32 million shares, you end up with a 13 cent cost to earnings in here.

So the $2 number looks substantially better.

To the degree that we could do so -- better than $2.00 it's going to require more from Gazprom than we could be comfortable to guarantee.

And some strength in our municipal water-waste water business in terms of being able to ship according to schedule, and that's a spotty kind of a thing.

We don't expect a problem but you never know.

So we think the $2.00 is a good, strong number and we hope to do better than that.

If you look then at our position for 2004, with Neptune Technology Holdings, we wind up with some real exciting new programs.

This next slide is one we shared with investors in meetings last week.

Talking about why we think this is such a compelling fit for Roper.

Our filter and our business model is around having engineered content followed by high gross margins, and then strong operating management capturing the gross margins in the form of EBITDA, and then being able to reinvest in the existing business or another business to create some growth.

And if you see well how does Neptune Technology Group Holdings fit with that?

On the technology or engineered content side, what have you here is the automatic meter-reading businesses, which everyone refers to in the trade as AMR, they have a good deal of technology associated with them involving radio frequency and reading.

And those businesses grow at a very fast pace.

The industry growth is something in excess of 20%.

Then there is a rugged portable instruments line.

And that's one of the ways we got started with this business discussion was thinking about ways that we could use hand-held computer products that were ruggedized to expand the reach of things like Stirs and Uson and other businesses we have for settings.

And we feel there are some real synergies here that we haven't previously discussed much.

Software protocol is a very important thing in this industry.

We know a great deal about software, have a number of software companies and feel that we're going to be able to add real value to NTG in that respect.

And lastly the sales tend to be engineered selling when it comes to systems, and we think we've got a lot of experience and consultative selling and can help people in that area.

So, they clearly past that screen and that gets you to the next screen which is high gross margins.

Well, this is a business that has from say standard products to systems solutions margins that range from about the mid-30s to the mid-50s.

So that certainly passes our margin screen.

And then we say can we capture those margins?

Well in this case the Neptune management team has done a great job of doing that all on their own.

They're currently producing 29% EBITDA margins, which is certainly a world-class result.

And that is something that we believe can be maintained if not even enhanced.

We have a lot of confident in both them and ourselves in being able to do that exactly ourselves.

And can you grow and invest in the business?

Well, a terrific thing about NTG is that you will see they have very low capex requirements, and those low capex requirements leave a lot of cash in the business.

And in their standard products they have very high inventory turns, which means you don't have to tie very much in networking capital.

You have very strong pathways for internal growth and product development--in AMR technology, in DAP, which is the brand used for the ruggedized hand held portable instrument lines and software applications.

Even after investing in those things you have substantial amounts of cash that we can pay down debt or make other transactions.

So we feel this acquisition really meets every one of our investment criteria.

Next page.

Just a quick summary on Neptune.

You have four growth businesses.

In the upper left-hand corner, the water, automatic reading business, those sales have doubled, since '99 for Neptune, you can see that category represents about 45% of total sales.

It is a huge amount of business in front of them and almost 90% of the water utilities haven't yet adapted AMR.

Then on the very mature kind of metering side of the business the water meters is about 40%.

They have 27 million installed meters throughout North America.

So a huge amount of recurring revenue.

In fact two-thirds of their sales come from meter replacements and upgrades, not from new housing starts.

So, that's a steady growth business.

Then down at the bottom on the software which enables people to do routing and hand held devices we think work in the ability applications as well as a lot of others, that represents about 15% of the business.

And that business has been growing over 20% for the last four years.

We think these businesses fit very tightly into the competencies we have in both instrumentation and industrial technology.

Next slide.

One of the great things about this, as you can see, is that we've got a very consistent revenue growth.

The four gold dots hopefully you see on your page, in the last 30 years depict economic recession.

And as you can see, Neptune's been able to blow right through all four of those, and now in the last couple of years, has an accelerated growth profile as they get into the higher technology AMR business and away from just the meter business.

Very attractive profile of revenue.

Next page.

This acquisition puts a different set of balance into Roper as a multiindustry diversified company that we think is terrific.

When you go back to 1992, you can see that 45% of our exposure was energy.

And of course, shortly thereafter, a real strong exposure to Gazprom and the issues around Gazprom and the rush (ph) of business.

At the end of last year in 2002, our dependency on energy was 32% and water represented only 3% of our portfolio.

As we thought carefully about where we'd like to expand a platform, to us, water and waste water was a great area, avenue of opportunity.

If we looked at a lot of things over the last year that would get us there and then finally settled in as NTG as the best platform for us to pursue.

Once we've done that you combine Roper and Neptune and you see what happens is that energy is 25% of the platform and water becomes 25% and research 13%.

So those areas of Gazprom and Semicon become much, much smaller pieces of the entire proceed folio, going forward about 2% of revenue, and that's a lot better than having it be as dramatic as it was.

And anything that dampens (ph) the cyclical risk of Gazprom in our view is healthy for our investors.

Next slide just looks at the kind of overall performance here and sets up your question period.

We have had a very strong performance in the third quarter.

Net sales record up 8%, gross profit record up 9%, income from operations excluding restructuring, a record up 22%.

And earnings from continuing operations up 28.

Other organic things, the net sales up 9% excluding Gazprom.

The margins up to 19.5% even after corporate G&A.

EBITDA margins up 21.1, and earnings per share at 62 cents for the DEPS.

Coupled with the transaction around Neptune Technology, they've really put us in a very strong place for 2004 and beyond.

There is on your charts a reconciliation table in the back.

But those are kind of conclude my comments and we're ready for your questions.

Steve, at this point we'd like to open up the call for questions from our callers.

Thank you. (Operator’s instructions) Michael Schneider, Robert W. Baird.

Good afternoon guys.

Update on the orders excluding currency, we have seen the absolute numbers but what did currency contribute to the quarter?

Currency in the quarter was about $5 million.

Our year-to-date number is up 6%, currency would be a piece of that.

Currency number --

Was about $5.2 million of currency contributed to the bookings increase in the quarter, Mike.

Okay, great.

And just second question.

More broadly Brian, the stock has traded down since announcing the Neptune deal.

And I'm curious as to what you view the biggest miss conception is about the transaction with investors.

Gee, I don't know that there's a misconception.

The market traded down for those three days.

I have great faith in investors.

I think the stock trade up over a dollar today.

So it's hard to poll any one company out of what's happening in the overall market.

We think the opportunity that makes Roper a great investment is actually amplified by the Neptune transaction.

You're looking at a 29% EBITDA company, you're looking at somebody with light asset requirement.

You're looking for somebody that's going to generate a lot of cash relative to sales that can be used for paying down debt and investments.

When-- we looked at this a long time, had a lot of discussions around it, I think the fear we had is that people would think we're buying a water meter company.

And they would think what in the devil are you doing buying a water meter company.

The slide tries to explain we're really buying a company that's an emerging technology company.

They're funded terrifically, sort of like we were in the beginning when we had Roper Pump and Cornell, and

Neptune is in the same opportunity mode.

They've only just started to do that.

They acquired the rugged hand-held computer business, earlier, and tiptoed into the software business.

We'll be able to escalate that quite dramatically and we think the two companies go together very well.

I think when you look at the frustration we've had over the last year with Gazprom, it is healthy for our investors to no longer have that reliance on Gazprom to (inaudible) our financial results.

We think as time goes on, investors will become increasingly confident, and see the value of this transaction.

Can you give us more detail where you see the technology overlap?

Use on Logitec, some good combinations.

It is not just the application.

We have been a lot more experienced in software than the folks have.

We have a wide variety of people who understand protocol, know how to write code fast paced.

We'll be announcing soon an operation in India that we think will have some real power behind it.

As it relates so software.

We think there are ways to speed up product development and product launches.

We've look looked at a lot of other applications that we think you can use.

The rugged instruments for.

Any time you're doing remote work and remote investigation, or portable laboratory work, all of the DAP products are suitable for that.

It's conceivable that that will be able to make some products for Roper's other businesses, frankly.

We like the Canadian structure, we think they've got a very talented group up in DAP that we like a lot.

So the synergies, while we didn't put any synergies, into this deal and we couldn't say what the synergies are now, just because we'd be making news and you can't really make news on the subject.

But you know, there are certainly synergies we think.

But part of it comes from our leadership, to be candid.

Great, thank you.

Our next question, Alex Blanton, Ingalls and Snyder.

Good afternoon.

On Gazprom, what's the outlook for the fourth quarter, and actually could you give us the exact sales?

Because we have those numbers in the supplemental financial data that you handed out so we could get the nine months exact sales?

I don't have it cumulative Alex.

The sales in the first quarter were 1.4 and the second quarter --

We have that.

8.7 and the third quarter they were 7.4.

7.4.

Fourth quarter somewhere in the 2 to 7 range.

Yep.

Right?

So that's going to be down from the third.

Yes, and down from the prior year.

Down from the prior year.

Yeah, I'm really looking sequentially.

Because if you use $2 exactly, that implies 55 cents, down sequentially from 62 cents.

So we have Gazprom possibly down, Zetec is that another one?

Zetec will be down in the fourth quarter.

Calendar fourth quarter will not be a strong calendar quarter for them versus strongest quarter of the year is the third.

Uh-huh.

What else do you think would be down sequentially that would contribute to this?

We had that little medical pump situation with Abbott that's going to dampen our fourth quarter a little bit.

That's a high marriage business.

Okay.

So finally, for 2004, if we start with $2, and we add back 13 cents restructuring, and I believe we established on the last call that incrementally, there would be another 28 cents of restructuring savings, a total of $15 million in total of which $13 million would come in 2004, that is 28 cents, of which you should keep most, because you really control the pricing in most of your markets, you're not going to be giving a lot of that away to competitors, as happens in other industries, businesses.

So we're up to about $2.40 just adding back those two things with no growth at all in the business.

So what's your thinking?

I mean, if your sales are up 6% in 2004, would you be adding another, what, 30 cents to that or what is your thinking for 2004 at this time?

You didn't say anything about that.

No, I really haven't established much in the way of guidance for 2004.

We're certainly excited about the year but there's not much we can say about it.

The only thing I could say to try to deal with your question is, we still think, another 1% change in revenue.

You know, we tend to believe you wind up with 40% or more, that end you can kind of do the math on the earnings so --

Have you done that math in the past.

What is it again?

If you took a point up on revenue and you assumed that the contribution margin variance would be 40% or more, you'd get 40% on a dollar would get you -- well, let's take them if you have a million dollars more in revenue and you got 40% which is $400,000, that's almost a penny a share for us.

Right, so a penny a share for each 1%.

No, I'm sorry, that's not right.

Well, at any rate, you should see a pretty good increase on top of the $2.40, wouldn't you agree, if the economy is strong?

Whether I could or couldn't is just not anything I can talk about.

Okay.

And finally what are you looking for Gazprom for 2004, they have one year here where they're half of what they were the year before.

Is there catch up on their installations, can we look at higher next year, what do you think?

You know, we had a meeting recently, we have another meeting coming up in November.

One of their reasons we're not pushing an even stronger fourth quarter number is we're not really sure where we'll be with Gazprom.

This year's number if it comes in and there's $20 billion (ph) to $25 billion (ph) arena, we haven't heard anything that would say next year wouldn't be at least that good or better.

But I think until we go through the regular negotiation process and wind up with something from them, it's hard for us to make a forward-looking statement about what Gazprom will be.

If we've learned anything this year about Gazprom, it's that the answers come very slowly.

Okay.

Thank you.

Our next question Wendy Caplan Wachovia Securities.

Hi.

Question about your water/waste water projects.

It sounded as if when you reported the third fiscal quarter, you sounded more confident that the waste water program would ship in the second half.

And you seemed to be less positive about that right now.

Am I just hearing you wrong, or do you really feel that way?

No, I'm not -- we're not -- there is not a confidence issue Wendy.

It's more -- we have got a lot of in-housework that we're doing.

And to get more up in the fourth quarter, we need to get more of it through.

And we're not in control of when it ships.

It's more of releasing when they want it.

But there's nothing different in the fourth quarter that's negative relative to any comments I made in the fiscal third quarter call.

Okay.

We're not worried about it.

It just -- we'd like to have now we're closer to the end of the year, people could have asked for early delivery, not postponed anything, we would have had a stronger fourth quarter.

They still have time to do that.

We have got four weeks or five weeks that we're curious about but we don't want to over hype.

Okay.

And the Abbott project, the pumps are not happening in '03, is that correct?

Yeah, that's-well, there westbound sales to them, it's a major portion of one of our company's business.

But we had expected a stronger fourth quarter than we're going to have from them.

And that's will dampen Q4 by a little bit of money.

Finally Brian, your comment that you'll be generating more cash flow from 4 Q versus 3 Q given earnings will probably be down if we're following your outlook information.

Where are we going to get that extra cash?

Networking capital.

I thought we could have and should have done better in this quarter than we had in networking cap capital.

Quarterly review on everybody and they could articulate how I felt about that.

Inventories dropped from 14.9% last September to 13.8%.

But you know, that is still too high.

And receivables have come down.

And payables are up but they're only up 30 basis points.

I just think we've got some things there, plus we had these strong sales so we'll have good receivables and that gets converted to cash in the fourth quarter.

So I think we should have -- we're looking for very strong cash in the fourth quarter up at least 20% over last year's fourth quarter cash.

Okay.

Thanks very much.

You're welcome.

Our next question, Jim Lucas Janney Montgomery Scott.

The capex number for the year was still a small amount, was up significantly, doubled from a year-ago period.

Does that have to do with the new low-cost facilities that you're putting in place?

No.

That's not meaningful.

Martin, it's mostly cap loss.

There are obviously fixtures and fittings and things that have gone into those new facilities.

But the rest of the capital expenditures that have been an increase this year, we had to make an investment in some previously committed building and loans in Germany associated with our bits and pieces around the various businesses and nothing of any great magnitude.

Okay.

And so we should see that number come down in the fourth quarter?

I would say that the full year is going to be consistent with our guidance of being plus or minus 1.5% of sales.

Okay.

And secondly, if we look at the seasonality of the business, with the conversion to the calendar year and with some of the acquisitions with Zetec having a big third quarter, can you speak a little bit to what kind of seasonality we can look for on a quarterly basis going forward?

That's a difficult question Jim, because our culture hasn't sort of wrapped around this.

The -- we were -- we went through these quarterly reviews a week ago, and guys Siemens seemed to fee as they're looking at the calendar quarters, that we're going to have less seasonality than we did in the fiscal quarters.

But I don't think they really know, and a lot of them are on this call.

But we think they should have a stronger fourth calendar quarter, yet they would -- they would point to a strong second and third calendar quarter, with a first and fourth being a little weaker.

I think before we get through this fourth quarter, we're not going to really know.

Most of our customers are on a calendar quarter, and they make decisions in November and December.

And I continue to challenge our guys to capture some of that decision making in November and December now that, frankly, they were less focused on in the past because the world ended on October 31st.

And you know, it started again in January, while they did some work.

So we tend to think it should help us over time, but it might take us a year or two to kind of get that inculcated.

Now, the only real seasonal variant business we have with big fluctuation is Zetec and it's because it's so dependent on utilities at the moment.

And their work occurs very little in the fourth quarter, not too much in the first quarter.

Okay.

And finally, I'm sure you along with everyone else are glad to see trends beginning to reverse in the third quarter, obviously some pluses and minuses.

Can you talk a little bit about some of the more encouraging signs you're seeing right now, and finally what are some of your worries as you're going into '04?

(inaudible) less than going into '04 than we have a couple of years.

This year Gazprom scenario has been a huge challenge.

And getting the balance sheet righted and costs aligned and clarity around the cash generation so we could do a deal like Neptune has been a big challenge.

We see a lot of opportunity in '04 with nowhere near the complexity associated with it to capture earnings.

We've made terrific progress in our imaging business which was, really a challenge for us in the year before.

I think we've made some progress in Instrumentation that that will unfold as time goes on here.

The most encouraging thing about the third quarter in terms of kind of macroeconomics is a whole lot of the businesses were up, even if they were marginally up it was the most number of business businesses that's been up in revenue in a while.

And it takes so little revenue to create income for us.

So that was good.

And instead of several being down, we really only had three businesses in the third quarter that were off by any degree.

And one of those was Able, which is a difficult comparison on the equipment they had last year that they didn't have in the third quarter but the business will be fine and it will be strong in the fourth quarter.

And then Logitech, which we've talked about all year, is a telecom related, serious problem for us.

Even if it's a small business it was off substantially in the third quarter.

And everything else looks relatively good.

So you know, we'd like to see a little more business out of the refinery stuff than what we've seen so far and we'd like to see life science get a little stronger, physical science came back nicely life science could be stronger.

On balance I think people feel pretty good.

Thank you very much.

Okay.

Steven Colbert, JMP securities.

Good morning, afternoon, prays in production in China I guess early on.

Can you give us some feelings in terms of from where the volumes are in those two operations right now, how they might progress during 2004 in terms of the relative importance to company revenues?

Steve, what we started in Mexico was, we had a small business called Nanco, the opportunities in Mexico were pretty much in industrial technology segment, little bit of assembly.

We've got a group of people going down there this week who are looking at getting some assembly sourcing out of Roper Mex that currently they get from other places.

I don't think this will be a case of us moving much work out of Roper facilities.

This will be us using that as a sourcing entity to create a lower cost sourcing opportunity for us from others.

So it won't be a lot of revenue.

It's not going to be, $50 million of revenue, next year or anything like that.

China was less around cost reduction although it is a dramatic cost reduction.

It was really driven by customers.

Our Amont (ph) businesses sell valves into the shipbuilding industry, and the industry of course has pretty much migrated from England into China.

And the customers wanted us to be closer to them.

So Amont is not a large business and the sales are unsubstantially off of a very modest base in China.

It's ahead of schedule for revenue generation and income contribution into next year.

I don't think too much of the rest of Roper will participate in the Malou operation for a while.

Our customer sales in China need to get increased and that's something we'll focus on in '04.

But the customers that we know, and are getting, were expanding with compressor controls opportunities with Amont in China and in Taiwan and that's good for us.

So it sounds like you know, roughly we're just looking at less than 10% of revenues perhaps in the year from now, coming out of these low-cost operations?

absolutely.

This is an evolution, not a revolution.

If I can ask also, on the scientific end, in image side, you have talked from time to time in the past or discussed the Japanese life sciences market and what's happened there.

Maybe just update us into that market and the relative importance of that market to that segment.

Yeah, it's -- it's slower than we'd like it to be.

The situation in that market, I think increasingly is going to be driven by software.

We're developing some new software products for that market.

It used to be that the camera was the driving force.

It's still absolutely critical for us, but software is increasingly important being -- accompanying it.

We have our media cybernetics people working on that and we are doing some other things in software there.

One of the difficulties we talk about, when you get to an individual business level in Roche Roper, you get granular.

So softness in Japan for life science might translate into $1 billion to $1.5 billion l less revenue this year than we than we had expected.

It is not overly material but at the margin it can cost you a penny a share.

Thank you, one last question I'll get back in the queue.

The Neptune Technology business in terms of the AMR side there, do they have contracts, high-volume contracts with a handful of utilities, or is it far more spread out than that?

Can you give us some feel for the concentration of revenues, I guess, at Neptune on the AMR side?

No, they're not concentrated at all.

Their largest customer is still relatively minor.

They're blessed with access to 56,000 water utilities around the U.S.

It's not-- they don't have a Gazprom, our internal joke is votive water or Russian for water, this is no Vodaprom.

This is very straightforward business.

It's got a terrific sales channel, access to every customer that there is.

I'm not going to say who their largest customers are.

But no one customer there is much more important than any other customer.

Every customer at Neptune counts.

Even on the AMR side that's the case?

Absolutely.

What happened with AMR is they may have one particular city, Neptune's been particularly successful in Cincinnati and various other places but it tends to be a city by city situation.

Thank you Brian..

Our next question Matt Summerville, McDonald Investments.

Couple of questions.

Brian can you talk about the activity level you're seeing in CCC in nonGazprom business in terms of the relative geographies that you're talking about?

And whether or not the current level of activity supports the kind of growth rates that you saw in the third quarter moving into next year?

Yeah, I would say that the -- basically everywhere outside of outside of the growth opportunities there are growth opportunities for CCC.

Quotation work is very high, the amount of work that's incoming is substantial.

We don't see any falloff in compressor controls, nongazprom growth at all.

We have got a new guy running that, Paul Fisher, doing a terrific job.

Tim Winfrey just finished, didn't see anything bad at all.

I’d say it is universally good news and not limited to any particular territory.

And then follow-up, in terms of you know you talked about a little about and demand trends.

Can you talk in terms in general what you saw from month to month as you progressed throughout the quarter, either strengthening, weakening, relatively flat performance?

And, whether or not you've seen really any signs of life in your high-tech businesses and semiconductor, electronics, telecom, et cetera?

I think there were a couple of questions in there, Matt.

The -- on semicon and telecom, the answer is very, very little.

Acton and IDI has got interesting things that could materialize around turnkey projects.

But it's quotations, it's not results.

But it is the sort of first sign of encouragement, because people go back and firing some of the new lines without major capex we will be positioned nicely to do refurbishment there.

But it has not manifested itself in any sales.

The telecom piece of Logitec remains very weak.

We were actually up a tiny bit in the quarter versus what they thought they'd be but still off from prior year.

You can still buy used equipment for pity fully small prices.

When you get into technology imaging businesses you can see they're doing very well.

Quotation is up, very strong focus on end users.

We see revitalization coming not only from the restructuring effort but from our marketplace activity.

We'll introduce more products in six months in imaging than we ever have before.

So there's a lot of good news you're going to hear from us on imaging.

Instrumentation open the technology side of that we have very high quotation.

Will Crocker was talking about the high levels of, Amtec, high technology set software measuring stuff, we are slogging our way through the improvement over the prior year there.

But I'd say there is, people feel good about that, about that segment.

The industrial side is up modestly.

But what happens with us is, a lot of little businesses do a little bit better, we do phenomenally well.

You got to stay to the knitting and keep everybody motivated and keep to your guess effort everywhere and we deliver results.

Brian, what you saw on a month to month basis would you progress through the quarter on a macro standpoint?

I couldn't say Matt that July, August and September, we've got any meaningful trend data on that.

You know, we're probably a little less crisp on these things, it's been a overwhelming to get over the communication and reauditing things and stuff we've had to do to get ready to file our shelf.

We're comfortable with what happened but I wouldn't say that we saw like August was better than July and September was better than August.

I can't say that.

The quarter as a whole was better, and it's all over the place in terms of who delivered what and when.

Okay, thanks a lot.

We have a follow-up question, Michael Schneider, Robert W. Baird.

Could you walk through the fourth quarter guidance, it looks like the guidance is around the low end of the range, $165 million but yet the EPS has come down.

Is that solely due to the Abbott shipments or is Gazprom even lower that is you expected last quarter?

Gazprom we're -- it is lower than we thought we would get.

And the quarter isn't over, Mike.

You know, we're -- you can kind of do the Matt and math, it's easy for us to do over $2.00.

I won't say we'll make over $2.00 because it's absolutely available to us.

Just modest little improvements need to happen.

We had a meeting this morning about, you know, three hours ago, and people were pretty encouraged.

They feel good about what's happening so far this month.

We just don't want to given the sensitivity period with us, if the sun and did moon and the stars aligned here, and we filed our shelf and didn't get reviewed, we'd be issuing some of these instruments in December.

And we just don't want to overpromise and underdeliver.

So that's why we tend to be at the bottom end of the number at the $2.00, it goes to a higher number.

But it's very much available to us that we could perform better in the fourth quarter, that would put us above the $2.00 number.

That's why it's $2.00 with a plus on us instead of plus or minus $2.00.

Okay, because that's the point I was driving towards, is it seems to me you're being overly conservative, given that you've got some equity issuance coming and you want people to be at the low end of the range, is that fair?

I couldn't comment on anybody else's interpretation of my words.

I struggle with them myself.

Secondly just on Gazprom, the status of the negotiations, are you confident that Gazprom has not or is not bringing in a second source of any meaningful amount?

hey have a lot of different projects at Gazprom.

There's one pipeline we've never been involved with and others that we have.

And we tend to get the high technology piece, the stuff that's done with programmable logic control that's easier to do, there are other local players that can do that work.

When with it comes to our work that is the algorithm derivative dedicated controllers, we think we're in the driver's seat in that work.

The slowness at Gazprom is really related to a lot of issues around Gazprom, and what they're doing next and how they're making decisions about it.

And I don't know, our take is that this year is probably what we have to look forward to for a while from Gazprom, which is, a highly valued customer that's got a good relationship with us, that's gone through a transformational year in how they make decisions and they're still struggling with it.

There's news every day in Russia.

Okay.

And Neptune, the -- can you give us a sense of what the backlog is in some of the larger AMR projects because cities like Houston, Cincinnati, Akron?

I can't do that, Mike.

I'm not really free to cover anything other than we've covered in our investor meeting, maybe at the road show I'd have more time but I can't provide any new information.

Final question.

Martin, just other current assets during the quarter, sequentially down from 24 million and change to 5.2 million, just some unusual accounting there this quarter with taxes or something?

Sequentially from when, Mike?

Sequentially from calendar Q2 to what is now calendar Q3.

If you don't have it I can follow up.

I'll have to follow up on that.

I was not prepared for that.

Thank you.

Final question, follow-up, Alex Blanton, Ingalls and Snyder.

Thank you.

Actually, I misspoke earlier.

There is the Neptune accretion, which I think you said should be 10 cents to 15 cents in 2004.

-- in our investor presentation we got a statement about accretion of ten to 15 cents that excludes the inventory step up.

So that would get you to at least $2.50 with no growth in sales.

If you add that in, too.

And if you work out the math, Brian, it does come out about 5 cents a share for every 1% sales increase, because that's $6.5 million open your current sales and using 30 --

You got it.

Using 36 million shares with the new shares it would be --

Right.

You would be substantially above the 2.50 if the economy is strong I would think.

But I have a question finally on capex and depreciation and amortization forecast for 2003 and '04.

Okay.

Do you have those numbers?

I could get you --

No.

Not really.

We've done the initial discussions but I'm not aware of anybody doing anything odd.

You know, we tend to think of about 1.5%.

We don't have an '04 capex budget yet.

We don't approve that until the end of next month.

But there isn't anything going on that would be outsized.

We just moved Struers this year and we went into a leased facility.

So I can't -- there are no big projects in front of us.

There should be no looking forward one -- there are no specific events that would materially change the depreciation and amortization rates going forward either.

Just use the current rates, okay, thank you.

And due to time constraints at this point Mr. Hix, I'd like to turn the conference back over to you for any additional or closing comments.

Okay, well thank you.

We appreciate everybody staying to today.

We thought it was a very good quarter and we look forward to talking with you soon.

Thank you very much everyone.

This does conclude today's conference.

Thank you for your participation.

You may now disconnect.