Roper Technologies Inc (ROP) 2004 Q4 法說會逐字稿

Good day everyone and welcome to this Roper Industries fourth-quarter 2004 results conference call.

This call is being recorded.

At this time, I'd like to turn the call over to the Director of Investor Relations, Mr. Chris Hix, for opening remarks and introductions.

Please go ahead.

Thank you for joining us this morning for the Roper Industries year-end and 2004 conference call.

Also participating in today's call is Brian Jellison, Chairman, President and Chief Executive Officer and Mike Towe, Chief Financial Officer.

Yesterday afternoon, we issued a press release of our fourth quarter and full year financial results which include very strong performance across all fronts, including internal growth and cash flow performance.

In fact, we will be paying a little extra attention for Roper's growing cash flow in today's call.

If you've not already seen the press release, you can obtain it from our website at roperind.com.

The press release also includes telephonic replaying information for today's meeting.

In a moment, I will turn the meeting over to Brian and Mike for remarks, after which we will take questions from our telephone participants.

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

You can also obtain the slides in PDF format from the investor information section of our web site.

Please turn to slide 2.

Today's meeting includes forward-looking statements and I would like to remind everyone of our Safe Harbor statement which is included in both the press release and the slides for today's call.

You should also refer to our SEC filings which indicate specific risks and uncertainties for Roper Industries.

Today's call is organized into three sections.

First, we will review the 2004 full year accomplishments.

Next, we will discuss the fourth quarter results and then we'll finish with the Company's outlook for continued strong performance in 2005.

Slide 3 introduces the first part of today's presentation.

So why don't we turn to slide 4 as Brian begins his prepared remarks regarding 2004 full-year performance.

Thanks, Chris, and good morning everyone.

If we look at the first slide, it's just saying we're going to start out with the 2004 highlights and then we will move forward to how the quarter was, and then 2005 guidance.

So if WE turn to the next slide, 2004 enterprise initiatives.

This is actually a slide that we used in our year-end call last year in 2003 and we said that the enterprise initiatives that we were focused on this year were capturing the Neptune opportunities from that deal, which closed in December of '03, continuing our strategic acquisition strategy.

And thirdly, driving down net working capital and, 4, accelerating internal growth.

And there were some specific things we wanted to do there -- build on the market focus segments, as you can see; continue the segment growth initiatives capturing these competencies, and then achieve record economic performance.

And so with that, we thought we would just see how we did against those enterprise initiatives.

So next slide would be Neptune's successful integration.

That actually occurred sort of ahead of schedule.

Pretty much everything we needed to do got done in the first quarter.

The postacquisition activity throughout the year has proven to be relatively easy for us.

The relationships (technical difficulty) within the organization (technical difficulty).

Everybody remains in place there and we have added some talent there.

The one change we made during the year is we started out the year attempting to put the DB software business, which does route mapping, into imaging where we had a lot of synergies in terms of software engineers, but found that leaving it inside Neptune was a good strategy because there was (technical difficulty) communication.

The terrific news here is that we had modeled Neptune to grow between 4 and 8 percent, and for the year, it did a little above 10 percent, driven by continued growth and marketshare improvement in the AMR segment.

And then of course, the standard water meter business, which grew nicely in fact, had a record number of units shipped this past year.

The next slide looks at the strategic acquisition commitment, and we were fortunate enough to acquire really an outstanding company -- TransCore -- which we've talked quite a bit about.

We announced this acquisition in October.

I believe it closed December 13.

It, like Neptune, is a complete platform that allows us to do both on an adjacent acquisition associated with it.

It focuses on radiofrequency communication and satellite communications.

All of the segments that we have in TransCore are market-leading positions around the world and we see a lot of growth applications.

We will talk maybe a little bit later about some adjacencies and some current acquisitions that are fairly far along in our analytical work.

We closed out the calendar year with about 360 million of sales in Neptune.

You may remember we talked about 365 in sales with a January 31, '05 close.

But if we look at the calendar year, the base year for '04, it was about 360 million. (technical difficulty) our expectations as was cash flow.

And the technologies and marketplace synergies we're working on are ahead of schedule.

We've had a number of meetings with the TransCore engineering people in San Diego, bringing in particularly our Neptune engineering staff and looking at radiofrequency communication synergies and we have done quite a few things in an operating look at plant synergies between our Albuquerque operation, our Mexican operations and our Tallahassee (ph) operations at Neptune, and they're also helping us on some acquisition analysis we're doing today.

So we feel pretty good about the integration track for TransCore at this point.

Next slide is the portfolio transformation, which has occurred largely as a result of the acquisitions we have made since 2000.

You can see that we no longer have the dependency on the IDI, which was the Integrated Design Business, that was so prominent in our early years, in 2000 even in 2001, selling a specialized disposable pump applications to the semiconductor industry, and then Gazprom, which we've talked a lot about and which will not take much time in this meeting.

You can see that those things had wound down to be not overly important.

But with the continuing acquisition here of Neptune and TransCore, they not only don't represent 1 percent, they don't even represent 50 basis points of the operations anymore.

We are very much focused on bolt-on acquisition opportunities and growth opportunities for these four larger acquisitions we have made since 2000 here.

You see Struers' record year, just incredible performance.

Zetec, again, phenomenal performance and a very quick (technical difficulty) the RD Tech (ph) bolt-on that we bought for them in June, Neptune with up 10 percent record performance and TransCore.

All of these have great cash returns.

We think they are in pretty favorable end market.

They have very good growth paths.

And as we said, if one door closes for one of them, there are other doors to pursue. (technical difficulty) scale advantages where they are able to provide leadership, the things that we buy for them and we like the adjacencies we see.

Next slide looks at how we did on the networking capital.

You can see we have some real progress here.

Inventories at the end of last year were 13.5 percent of sales.

They dropped down to 9.5 percent of sales at the end of this year.

That was a goal I've had for three years, to get them to below 10 and we finally did achieve that this year.

Receivables dropped 120 basis points to 17.3.

And then if we look at our payables and our accruals, they finished the year at 13.7 percent.

So if we add inventory receivables and we subtract the payables and accruals, we are at 13.1 percent (technical difficulty) certainly the best that we have ever been.

And then if you look at total networking capital, we picked up 410 basis points dropping from 20 percent at the end of last year to 15.9 percent at the end of this year.

And obviously 4 (technical difficulty) revenue of 1 billion is $40 billion that we don't have tied up in networking capital anymore.

(technical difficulty) we look at the internal growth.

You can see the fourth quarter was by any definition for us a blowout in internal growth.

It was 21 percent, and this is probably the last time you'll hear us in a conference call refer to the Gazprom.

These metrics throughout have been what our internal growth was, excluding Gazprom, on a common basis.

So you can see starting with the 1 percent growth in calendar year '03, going up to 9 percent for the end of calendar year '03.

This year, 11, 10, 7, and then 21 percent, which was truly an achievement that all of the operating guys can be very proud of.

Next slide.

Here, we're looking at the financial results.

You can see the net sales were a record at 970 million; about 15 million of that was the stub period that we recorded for TransCore.

That is a 48 percent increase in sales.

Income from operations was up 60 percent to 173 million and the net earnings were up 58 percent from 64 to 101 million.

And the TransCore piece on a net earnings basis was essentially flat.

You will see that start to contribute in the first quarter and then (technical difficulty) contribute as the year unfolds.

Next slide.

Here, we look at the (technical difficulty).

They certainly were on target.

The adjusted (technical difficulty) as we said in the press release is 268.

That comes from (technical difficulty) GAAP number of 248, adding back the Neptune inventory revaluation, which was 4 cents, so it gets you to 252.

And then the debt extinguishment, which is the lion's share of that 16 cents; there is a little bit of noise there as we had about 18 days of a higher number of share count.

That was worth about 200,000 shares over the course of the average year and (technical difficulty) for that stub.

So that brings that number to 16 and closes the year at 268 and we had updated our guidance recently to suggest 267 to 269.

Also in that number, we do get the benefit of TransCore picking up about 600,000 of this inventory revaluation, which would have added a penny (ph) at that way.

But we have basically tried, as you'll see throughout the day, to go straight with GAAP so that we don't have adjustments that we have to talk about having gone through the maturation and turnaround process here.

If you look at the base period in 2003, you can see the GAAP number was 141.

We're up to 248.

The discontinued operations number, which was around Petrotech, which we spun off to employees, and then last year's debt extinguishment cost of 51 cents, which dropped to about 14 cents this year.

Next slide.

Here, we look at the EBITDA progression throughout the year.

I think this is important for a variety of reasons.

One, it demonstrates the continued focus on operational excellence.

In the enterprise, recently somebody said you don't talk a lot about that.

And we have had a lot of other things to talk about.

But I can assure you, everybody here in operations is deeply focused on continuous improvement and margin expansion, and you will see that margin expansion as we get into the numbers later.

Here you can look at the progression (technical difficulty) first quarter to 63 million in the fourth quarter.

We will have a similar experience this year.

We will start out slow and have continued sequential improvement throughout the year.

All of the segments improved their EBITDA margins.

And you can see at the bottom that we actually closed out the year with about 22 percent EBITDA, which is up 310 basis points from last year and something again the guys can take a lot of pride in.

The next slide here, we look at our cash flow performance.

It's a way we think it is important for people to think about us in all three categories here.

On the one, you have people who may be focused on the DEPS EPS number.

Well, our net earnings were up 58 percent from 64 to 101 million, but the operating cash flow, which is a GAAP number, rose from 98 million to 165 million.

So while net earnings were up 37 million, operating cash flow was up 67 million, or 68 percent, and EBITDA was up $90 million year-over-year.

You can see we closed out 2003 at 124, this year up 73 percent to 214.

And TransCore of course will drive a substantial improvement in EBITDA and operating cash flow for 2005, along with continued improvements in our base business.

Next slide.

Here, we will look now at the fourth quarter specifics activity.

We turn the page, next slide, we see the fourth quarter overview.

We achieved record financial results both in sales and net earnings and cash flow in the quarter.

And that was despite eating about $3 million of Sarbanes-Oxley costs in the quarter.

And for the full year, the Sarb-Ox cost that we recorded thus far is a little over $4 million.

The thing that I think we were very encouraged by is that we closed the year in our net debt to capital at 40.6 percent.

You might remember, we started out the year at 47 percent.

So to make a $600 million acquisition of TransCore and the bolt-on acquisition of our RD Tech and close out the year at 40.6 versus 47 does speak somewhat to our ability to generate cash and the capital structure that we have been able to lay in place.

Secondly, internal growth of 21 percent.

If you include Gazprom, that number is 18 percent.

And of the 18 percent, about 3 percent of that was currency.

Most of the currency benefit is now centered around our petroleum analyzer (technical difficulty) with operations in France and Germany and our Struers business with headquarters in Denmark, and a little bit (indiscernible).

If we look at TransCore, which was acquired on December 13, it contributed 15 (technical difficulty) in the stub period between December 13 and the end of the year.

Neutral on cash, although it did absorb 600,000 of what will be about a $4.9 million inventory revaluation we will have to take.

But incredibly, it contributed $10 million of cash.

And that is attributed to the work that we were doing throughout the time with TransCore's leadership team and demonstrating our focus on cash and things we thought that could be achieved, and then their execution of that between deal closure and end of the year.

We've done about things already with them on technical and market collaboration.

I referenced the meeting we've had in San Diego with the Neptune engineering organization and the TransCore folks.

We see some synergies in how we use radiofrequency communication technology.

We also have operational synergies that we're working on.

We're going to be able to take advantage we think of some manufacturing processes around injection molding and some assembly opportunities that are kind of exciting.

And perhaps most importantly, we are down the road on several acquisition discussions.

And in that process, the technology folks from TransCore have been particularly useful as we look at some of these white space opportunities that we see between (technical difficulty) and TransCore that are so attractive.

And their ability to affect our speed has really been a very big benefit.

New (technical difficulty) structure completed.

You see the credit facility of course is in place.

Talk a bit more about that here in a minute.

We did lower the spread from 200 basis points last year to 125 basis points this year.

And it's possible starting at the beginning of the third quarter for that spread to actually lower because of our debt ratios improving so quickly.

It does give us higher capacity and it did cost us on an after-tax basis non-cash, a charge of 5.7 million.

If we look at the next slide, see a little detail around the credit facility.

The flexibility is quite good for us.

No prepayment.

We can do a variety things with this if we see a big change in the markets.

The spread does lower as our debt ratios continue to improve.

It drops from 125 to 100 if our debt ratio is EBITDA about 3 I believe, and it drops to 75 basis points, we get down below 2.5.

The facility size in the past that Roper had was a $400 million term loan and a $225 million revolver for total capacity of 6.25.

Today, we have this term loan at 655, and then we have an undrawn $400 million revolver, so $1.55 billion.

We ended the year with 129 million in cash, and that is important as you think about our acquisition powder and where we are with attractive pipeline opportunities.

We already have 129 million in cash.

We have suggested in our guidance, we'd probably been in the neighborhood of 225 million or more of cash flow from operating activities this year.

So we have quite a strong balance sheet here without even beginning to deal with the $400 million revolver.

The S&P rating has improved to BB+ with a positive outlook.

If you look at our total debt, it's about 85, and if you look at pro forma EBITDA, you will see that our ratios are quite close to 3 already and with a little bit of improvement, are going to continue to improve.

And then of course anything we buy comes with about 2.5 times EBITDA leverage and still allows us to move towards investment-grade.

So we like our balance sheet this year better than any time in a decade.

Next page.

Here, we look at our cash performance.

You can see that in the fourth quarter, the EBITDA came in at $63 million, up from 33 million in the year prior.

A lot of that is the EBITDA margin improvement that you see here.

And then on the operating cash flow and sort of a numerical audit, you've got EBITDA actually as the same (technical difficulty).

The primary reason for that is the $10 million we picked up from TransCore in addition to our own 53 million generation.

So it is a terrific way to begin the year at a 40.6 net debt to net cap ratio.

Next slide -- we look at the fourth quarter for the enterprise.

Net sales in the quarter were up 63 percent to 277 million.

Income from ops, up 78 percent as you can see, and then net earnings up from $18 to $30 million.

All of the segments were very strong.

The orders in all of these segments you can see were very strong. 14 percent internal growth from existing segments.

The operating margins up 160 basis points.

And of course, an 80 per share recorded DEPS.

Next slide, we will look at the individual segments.

Here is instrumentation.

Orders there you can see were up 23 percent, net sales up 26.

We started the private-label, a variety of things taking it through our channel.

We have real improvements in our channels that occurred in 2004.

We're selling more direct today, somewhat less through distribution, but still have excellent distribution where we have chosen to keep that.

The markets, particularly for the petroleum analyzer business and since Struers have remained quite strong.

Operating margins you can see reached 25.1 percent, which is an incredible level of performance out of our folks.

And Acton has been recorded in this segment but is increasingly working with our Imaging Alliance as part of an emerging spectroscopy business between Acton and Princeton.

If we look at the next slide, with the energy systems and controls.

Here again, spectacular performance.

You have orders up about 48 percent.

A channel again the focus that we have out of the compressor control people on applications that are not related to just Russia has given us a phenomenal spurt in (technical difficulty) and now sales that we think will have a long life benefit. (technical difficulty) see operating margins are really spectacular -- 27.4 percent.

A lot of this is because we're now selling much more direct, less through distribution and paying less commissions.

Those margins are really spectacular, but we feel pretty good about at least 25 percent margins in most of the activity we have in the segment, which is quite good.

Net sales you can see are up 34 percent, certainly benefiting from the Power Generation acquisition from June, which has added substantially to sales in the sector.

If we look at the next slide here, that would be Scientific and Industrial Imaging.

In here, we have seen some things that are very encouraging to me.

In addition to orders being up 15 percent and sales up 21, operating margins, not EBITDA margins, actually reached 19.3 percent in the quarter.

And throughout the year, we have put a lot of energy into Imaging.

It started in the first quarter, the operating margins were 15.1 percent.

In the second quarter, they went up to 16.2; in the third quarter, they went up to 18 and here in the fourth quarter, they are 19.3.

So we think as these (technical difficulty) around 2 primary markets -- spectroscopy separate from microscopy that there's some real opportunities for us.

Much better product development processes and discipline in place that's going to result in 30 new products launched in the fourth quarter of this past year and first quarter of '05 that should give us a better approach to 2005 than we've enjoyed in the last couple of years here.

We have had a lot of opportunity with our handheld computer business in (indiscernible) Quebec (ph) working directly with TransCore on form function design and software applications.

And the camera business has been working directly (technical difficulty) for new applications.

So we think that both handhelds and cameras are going to benefit in '05 from TransCore leadership and market access.

And then lastly, Princeton Instruments, which has been a real drag in Q2 and Q3, came back sharply in Q4 in terms of orders and we think economic performance out of that business should be substantially improved in '05.

Next slide.

Here, we look at industrial technology.

This business of course has Neptune in it, so we did break out the internal growth, because you can see what's happening.

The overall sector was up about 15 percent on internal growth.

Orders of course up 133, driven by the acquisition of Neptune, sales 134.

Very strong industrial markets, very good water and refrigeration and energy markets here.

Operating margins improved 200 basis points to 21.7 and that is a real credit.

The Neptune folks have done a great job in taking electromechanical cost out of the product where they have been where they have been stuck with a substantial brass and copper cost push in place and that they have been able to overcome, and the same with our pump and valve businesses.

In Q1 you can see something that has been a very, very important fact.

We've been watching very carefully the United Water decision around who they were going to commit to for their AMR process in the New York-New Jersey area.

Neptune has successfully won this contract.

It's the biggest AMR water contract since Cincinnati, which Neptune also won.

It's going to involve 255,000 units there in the New Jersey-New York area and we think really demonstrates the competency and leadership of Neptune in this area because as you can imagine, this (technical difficulty) very hard fought contract.

Next slide.

Here, we would look at the 2005 outlook.

Here, we are simply talking about focusing on what counts.

Not a lot of improvement we think in our strategic market opportunities and we will be focused on capturing more of that throughout 2005.

The enterprise initiatives going into this year are a little different than they were last year and we will share (technical difficulty).

This year is a year in which you can expect to see complementary and adjacent acquisitions for our largest platforms.

And I think you can expect to see those sooner rather than later.

The 2005 guidance that we will talk about here, we will share with you our assumptions and what we think are the key drivers that will affect us throughout the year.

We'll talk about our earnings and sales growth, talk a little bit about the first quarter.

I'm sure some of you in at the number were thinking, oh my goodness, what's happening.

We'll give you some idea about that.

And then, lastly, the cash flow and EBITDA growth.

And I think as you see, we're really focused on GAAP basis kind of discussions, but we're also going to say guidance is not just about EPS.

Guidance is about EBITDA and cash flow performance, and you're going to see just incredible results from us throughout 2005, we believe.

Next slide.

Here, if we look at our market situation, we have now 74 percent of the Company focused in RFID solutions -- energy, water and research -- all of which we think are markets that can outpace GDP growth.

And that leaves us with about 26 percent of the portfolio that is in 15 niche markets.

And if we put a slice in every one of these, we can't really write the names up here (inaudible) because there's just no space.

And we generally like the 15 little niche markets, but we certainly love the growth rates of the 74 percent of the portfolio.

Our energy exposure as you know is really not driven by exploration.

It's really around regulatory compliance and improving throughput.

Neither of these are going to go down, they're going to go up.

We've got continued strength in the water market segment.

The 4 to 8 percent growth rate we expected out of Neptune turned into double-digit growth, and we think they will be off to a good start this year.

Their research markets, pretty stabilized now.

We don't see the downticks of the experience two years ago and we think we'll do a little bit better there this here.

Our short-cycle industrial stuff is really quite modest in the portfolio, performing well now.

We just don't think that it is going to be something you would want to model in much one way or another.

Most of those things are kind of GDP-driven.

And then the platform in RFID we think has so many growth paths in it that we just have to keep the TransCore folks focused along with the Neptune folks and other people we're going to be bringing on board to drive opportunities that we see outside of the transportation arena.

So we think we're very strongly positioned in favorable markets.

Next slide.

We look at the enterprise initiatives here for '05, these would be sort of our top seven priorities.

One would be to continue to focus on cash flow and EBITDA performance and growth.

Two, to continue the internal growth momentum and to be able to get the kind of internal growth we've gotten in the last two years has really helped out in terms of our (technical difficulty) cash flow generation and ability to create the right kind of balance sheet.

Third, integrate TransCore and capture the technology opportunities that we see that are beyond transportation and other exciting markets.

Fourth, strengthen the enterprise staff.

We've got a great optimization today, but a lot of our energy has been put around the operational excellence and the people running businesses and creating that strength.

We will focus in 2005 at the corporate staff enterprise (technical difficulty) can expect to see us add my co-staff (ph) and finance and legal and HR and other areas that we think are enabling for our businesses.

Next would be to build on our Sarbanes-Oxley process which has gone pretty well even though it is costly and to assure that we build those into our business processes.

And we're spending real energy in that now and will continue to do that through the first part of the year.

Next would be to reduce the interest rate risk.

When we did the capital structure, that came with a $655 million term loan, all of which was floated.

And we will tell you what we felt we've needed to do in and have done in that arena.

And then lastly will, we want to make complementary and adjacent acquisitions that will help Neptune and help TransCore continue to grow in areas that give them greater reach than they have.

Next slide just deals with our guidance assumptions.

Here, we feel our internal growth will continue.

We see that certainly being well in excess of the GDP growth that people have forecast, which is I guess around 4 percent globally for next year.

TransCore is going to start slowly.

You ought to not be worried about that.

It's the nature of what's going to happen this year at TransCore.

It will pick up substantially.

We think probably 55 percent or more of its revenue will appear in the second half.

Remember, it has a lot of projects, longer lead times.

And for the transfer guys, they're doing an absolutely great job (technical difficulty) going to take a while for them (technical difficulty) to publicly traded quarterly performing company.

They think in terms of a year, they think that there is no paradigm around the importance of why I have got to get something done on March 31 versus April 5.

And I know John's staff, the two Johns and Joe, are working hard at TransCore to get people to understand the importance of us being able to provide meaningful guidance each quarter and achieving it.

We are stuck with an inventory revaluation charge here for the year, which will be $4.3 million.

It would be 4.9, but we picked up 600,000 in Q4.

We expect that that's going to cost us around 4 cents a share in the first quarter and another 2 cents in the second.

Last year when we talked to you, we said, look, we are going to treat that as a onetime cost at Neptune.

I think Chris has tried to provide guidance around the fact that that would be included in our guidance that we have issued.

Higher interest costs here -- as you know the 90-day LIBOR rate has gone up substantially this year, which is a drag on our interest cost for our floating debt.

We implemented a $250 million swap with some of the floating debt in January in an auction process we will describe in a minute.

We're going to have a higher tax rate, and Mike is going to talk in depth about the route the tax rate and why it is what it is.

It's going to be moving from 30.5, and really the net rate was slightly lower than that last year, to 32.5 percent with this blend of TransCore in the mix.

And we're going to invest some in a corporate infrastructure so that we can better support people, and that means a little more in our general counsel and HR financial planning and analysis, IT areas and some audit expense, certainly stuff that's in line (technical difficulty) that we're rapidly moving 1.4 billion and up.

Next slide.

Here if we look at the rising interest rate situation, you will see at January 31 of 2004, the 90-day LIBOR rate on which our debt costs were based was 1.12.

Back then, we had a 200 basis point spread, so you had 200 on the 1.12, and we were 3.12.

We had swapped out 100 million of our term loan previously.

Then in September 30, which is the immediate timeframe around us coming out with the October investor knowledge and our modeling, TransCore contribution and cost, the 90-day LIBOR rate was 1.95.

At the end of this year, just three months later in December 31, you've got the 90-day LIBOR break rate at 2.55 percent.

Last year's average on LIBOR was 1.65.

And with a 200 basis points spread, it meant that our floating debt was costing us about 3.65 percent last year.

Yesterday, the 90-day LIBOR rate was at 287 and if you look at the published 90-day forward LIBOR rate for December 2005, it would be 3.87 percent.

So we responded here by looking at what kind of blend we ought to have.

Should we have maybe two-thirds to three-quarters of our debt fixed so that we weren't as exposed to the floating number.

(technical difficulty) the next slide, you'll see where we actually are now.

We have $100 million of swap that we had done in the prior year that can carry forward.

That's at 2.11 fixed rate, plus the 125 bips we have today.

So you get 100 million at 336.

Then we have (technical difficulty) which continues to float that's at the ninety-day LIBOR plus 125 bips.

Although by the (technical difficulty) middle of the year, the spread may actually lower depending on our financial ratios.

The (technical difficulty) that we swapped we did in January at 3.79 percent.

And if you look at where the three-year T-bill is, you see it is a very modest amount of money above that.

And then of course, we have the spread at 125 that -- we ran an auction, a number of people in it.

It was just like the kind of auctions you see for goods and services.

We let a couple people observe the process and it was kind of a fascinating reserve auction which allowed us to get the best to available pricing and time.

And of course, it is a better deal and we would be able to repeat it if we were to do it today.

The bad news for us is that it adds a burden of around a nickel a share or so to our 2005 cost structure, but you always want to look at that in terms of what does it really do as 2006 and 2007 come on board, and how fast do you think these rates are going to move.

The last piece of our interest expense is our convertible, which is 230 million and that's fixed at 375.

So you can run your interest cost assumptions (technical difficulty) and be quite correct.

If we look at -- the thing we feel we've gotten out of it is that we get less interest rate exposure going forward and less volatility.

So you can kind of predict with some reasonable certainty what the interest cost, the risk at Roper would look like.

Now I would like to ask Mike, if we turn the next slide, to comment on the tax rate and explain to you what the rate really was in '04 and why it will be what it is in '05.

So Mike, if you would.

Brian, thanks.

Just to set the stage here as Brian mentioned, in the '04 rate, we had a $920,000 R&D credit that we were able to book based on exhaustive analysis on the amended returns.

And therefore, we did get some benefit out of that.

So the starting point that makes this apples-to-apples is a 30.5 rate.

And as you can see from this simplistic view of the rate rack here, the TransCore impact as we have kind of given a bit of indication is really driving the rate.

And as we think about TransCore coming into the Roper overall (technical difficulty) it's a very domestic driven rate type of a business with more of a state tax impact than the blended Roper rate, which is driving a lot of that.

And as you can see on the key drivers of the additional things going on with the legislation around the new Job Creation Act, with the phase-out of the extraterritorial tax in '05 where we're losing 20 percent of the deduction, if you will, and that coupled with the inclusion of the new Job Creation Act, Section 199.

And as we run the math on those two dynamics, we're a little bit unfavorable, really driven by the fact that in the 199 calculation, you include the NOLs.

And as you, know when we did the TransCore operation, we picked up substantial NOLs which is obviously will continue to help our cash flow of dynamics.

The bad news is, when we do this tax calculation, we get less of a bang, if you will, out of the section 199.

The only other point of I'd like to make here is we think about the dynamics of the earnings at Roper.

When you think about the Neptune impact, which is essentially a domestic base business, now Neptune becomes a lodger larger percentage of the total and -- which therefore is going to diminish the impact of the deductions that we actually have from our foreign entities.

As I said before, when we think about TransCore, we have a lot of room in terms of their state tax structure and we're looking at that exhaustively to integrate it into the Roper overall state tax structure.

And finally the other than on top of mine is the 965 election on the new Job Creation Act, the dividend repatriates -- the temporary dividend recede (ph) deduction.

And once again, with all with the dynamics in our tax structuring internationally, we're going through country by country to determine the impact on that, and stay tuned for that.

So as I said (technical difficulty) of changes from a legislative point of view, coupled with a mix of the Roper earnings being a bit more domestic, which is really driving the tax rate.

Thank you very much, Mike.

If we move on, next slide would be our 2004 full year guidance on sales.

And here, you can see 2003 with 657 this year.

We closed the year at 970, of which 15 plus was TransCore.

So the core would have been about 954.

And then we'll do in excess of 1.370 billion in revenue this year.

If we look at the adjusted DEPS number for '03, was 201.

The number this year was 268 and we established guidance here of 310 to 330.

There are several non-cash drags that make that 310 to 330 a number we think is possibly where we're going to be.

So we do think (indiscernible) just the EPS number when you're generating the kind of cash that we're generating.

If you look at the next chart, it would be our first-quarter guidance.

Here, it's going to be similar to what had in 2004 where we start the year with very modest EPS performance and then improve it substantially throughout the year.

We see the Q1 coming in at 52 to 56.

I have to say that that includes the eating 4 cents of inventory revaluation, so I suppose we could have communicated as 56 to 60 and said that if you had to exclude the inventory revaluation, I know Chris is desirous to get Roper to report as quickly as it can on a straight GAAP basis.

For that reason, we said 52 to 56 cents.

The seasonal strength we have at Roper does tend to come in Q2 and throughout the rest of the year.

Traditionally, Q1 has not been much.

If you look back, you're not going to find many periods where it was more than 16, 17, 18, maybe in a rare case, 19 percent of the full year.

It is just not our quarter that's best.

Q2 improvements include a lot of things that you will see sequentially that should let you understand why it will be dramatically better than Q1.

We have a good deal of energy project activity that comes.

We expect strength in Zetec in terms of their planned performance.

We know that we have strength in Compressor Control in that period.

We think the execution that is going on in imaging, particularly in the spectroscopy businesses, will continue to pay dividends.

We get the benefit of the product launch from the fourth quarter of this year and first quarter of '05 that will be beneficial.

The industrial markets continue strong, but we think they will be stronger for us in the second quarter.

We had just outside performance in the fourth quarter that may dampen the Q1 a little bit.

But the underlying factors there are very good.

Neptune will be seasonally stronger in the second quarter.

The first quarter given weather conditions and what you have in terms of access to water meters in the installed basis is never their stronger quarter and TransCore will improve dramatically throughout the year and you really see that beginning to take off in Q2.

Product sales for TransCore in the first quarter aren't going to be really strong (technical difficulty) because of (indiscernible) throughout the year.

Next slide, if we look at our 2005 guidance beyond just the DEPS number, and here I think is the real story about where we are as a company and how we've matured.

In 2003, our net earnings were 64 million.

You can see this year, they rose to 101 million, which is a 34 percent increase.

And with this guidance, we're talking about 135 million, and it of course could be higher than that.

And that's another $34 million increase in net earnings.

If you look at the operating cash flow, however, here are on a GAAP basis, we were at 98 million in '03, 165 million this year, 10 of which was cash from TransCore here at the last stub period, and 225 million or more in 2005.

And then if you look -- that's a $60 million increase in operating cash flow in '05 over '04.

Then, if we look at the EBITDA performance, it was 124 million in '03.

This past year, it was 214 million, so it went up $90 million.

This last year, we are talking about a $100 million increase in EBITDA as it will exceed 314 million, up 47 percent.

So we still think cash flow is a pretty important metric, and you can be assured that that's driving most of our behavior.

If we turn to the last slide and we look at the summary, here we have 2004 demonstrating we think a lot of strengths.

Both of our cash register operations, Neptune for the water utility business, TransCore for the road and transportation (technical difficulty) we think will perform very well in '05.

Our fourth quarter capped a record year, puts us in a great position to deliver more than this $100 million of incrementally EBITDA in '05.

And the results I think are well-positioned because the favorable (technical difficulty) give us less volatility and we don't have the dependency on either semiconductor or the Russians for worrying what's happening.

We have very little reliance on industrial economic strength continuing.

And since we think it will, we have an opportunity to do even better.

Our focus on cash has really driven the operating performance improvement.

You see it in the net working capital metrics, you see it in the margins, you see it in the internal growth and the focus of our leaders.

We have strong operating teams in place in almost every one of our businesses today.

They've been growing that strength, they're focused on what counts.

So I think we have a great aligned organization here and our hats off to them for a moment for the 2004 performance because they really did collectively an outstanding job.

And then we have a very attractive acquisition pipeline and we see these adjacencies and bolt-ons that worked for both Neptune and for TransCore that -- is going to make our acquisition process throughout 2005 easier than it has ever been.

And we remain focused on what we think what counts and creating shareholder value with that.

With that, Chris and Mike and I will open it up to questions.

Jamie, we're prepared now to open up the call to questions from the telephone participants.

(Operator Instructions) Alex Blanton, Ingalls & Snyder.

Good morning.

Quick housekeeping question.

What is the share count right now?

The share count that we've included in the press release that is the fully diluted share count, Alex?

Right now, for the first quarter.

Well, we started the year with a fully diluted share count of 38 million 920 (ph).

I think if you go back and look prior to the offering, folks were looking at closer to 37.5 or 37.8, and we issued 5.1 billion shares.

Yes, but what's the share count with that 5 million in there?

Is it 38 and then 9?

That was the average for the fourth quarter.

I think the Company is assuming in the excess of 43 million shares for the full-year, Alex.

That's what I'm looking for. 43 million plus, okay.

Second question.

The stock is down I think because the first quarter guidance is well below the First Call consensus of 72 cents.

But what you think of that consensus?

There were only 5 estimates in it.

Of the 12 people following the company, only 5 had a first-quarter estimate and the range was 61 to 82.

And the top four were 70, 75, 70 and 82, and the rest of the people had no estimates.

So is that really a consensus?

We don't know what the other 7 people thought about the quarter, but that is the reason the stock is down.

Could you comment on that?

You may well be correct.

Actually, I haven't looked to see what the stock is doing --.

It's down $1.

I think (technical difficulty) five people --.

12.

Well, I don't know if we took the 5 and then -- it is a hard question to answer.

I think that people need to have our guidance and kind of be reminded of how the last couple of years have gone and how this year will go and then sort of close.

Maybe we're at fault for not providing earlier Q1 guidance than we have.

We've been pretty busy here.

I know that is probably all I can say about that.

I feel comfortable about our full year guidance, I fell comfortable about our operating cash opportunities and our EBITDA performance.

I think if you think about the last several years, you don't get 25 percent of the performance in the first quarter at Roper.

And so maybe that's why the folks who didn't provide guidance thought they would wait to hear from the Company.

I don't know.

The 72 cents is really not a rational (multiple speakers) even though it's being reported as a consensus for the quarter.

That is why your stock is down, because your guidance was below that.

It's a nonissue to me.

The third question is this -- TransCore.

At 15 million in sales in the quarter and no earnings, even if you add back the 600,000 in inventory valuation, there's still very little in earnings.

And the same situation looks like for the first quarter, because your first quarter guidance is not that much above last year's 52 cents.

So clearly, you're not getting much on TransCore in the first quarter and the 4 cents, I mean the $4 million, is only about 4 cents.

If you had 16 to 20 percent operating margin for TransCore in the fourth quarter, it would have added 4 to 5 cents.

So what is the expectation for operating margins for TransCore for the year, and why aren't you getting it now or in the fourth quarter?

Alex, the expectation that we (technical difficulty) this business is that it's about a 20 percent EBITDA business.

What about operating margin?

I think if you look at the D&A that the Company offered up in the prospectus supplement during the offering process, most those folks are calibrating around, call it a 12 percent roughly or at least somewhere around 11 to 13 percent operating margin business.

Okay, so that would've indicated 3 cents for the (technical difficulty) margin.

But the (technical difficulty) weeks of activity does not make a full year, and I think we want to be careful not to extrapolate either the 10 million of cash that we got from them, because certainly, they're not going to generate 240 million in cash next year, nor do we want to generate the fact that there's no EPS contribution for a two-week period of time.

Well, I know, but there was a sales contribution.

So could you tell us why there wasn't an EPS contribution and why the first quarter EPS contribution looks to be low (multiple speakers) your guidance.

As Brian indicated in his prepared remarks, we expect to see TransCore's increasing performance throughout the year.

I understand that, but why isn't it (multiple speakers) what are the mechanics here in terms of TransCore's performance?

Why is it starting slow?

Why are we seeing very little in earnings right now?

As we indicated when we (technical difficulty) business back in October and certainly through the operating process, it is very much a project-driven business.

There is an increasing product and service sales component, but you do still have the project portion of the business which is going to be lumpy.

If you look at the business on a full-year basis, I think everyone is very comfortable with the level of activity.

If you look at it on a quarterly basis, we understand and understood I think during our review of the business that there's going to be quarters that are weaker than others.

So the business starts off a little bit weak on the project side in the first quarter, and that's strictly an operating leverage situation.

As you add revenue throughout the year, you get increased profitability, which is no different than the other businesses that Roper has.

More revenue drives higher margins and higher levels of performance.

So you're getting revenue going up later, but you have expenses at the moment.

Is that what you're saying? (MULTIPLE SPEAKERS)

I think what we ought to comment on is you have a couple of things in that tiny stub period.

You have about the 600,000 of the inventory step-up, and then there is about 500,000 of intangible goodwill amortization in there.

So that is about 1 million, 1.1 million on the 15, so it is pushing the 7 percent on the core.

And generally, we're going to be looking in the earlier parts of the year in this 12 percent plus or minus EBIT number while we continue to work with them on that score.

So their EBITDA performance will be substantially better than their nominal EBIT performance for a little while.

Thank you.

Wendy Caplan, Wachovia Securities.

Your comments about the nature of the business, TransCore business in terms of been lumpy, do you have visibility I assume into '05 in terms of when that lumpiness will appear and when it won't, correct?

I mean, is that something we should expect as we look at this business as part of Roper going forward that we will have that visibility, given the project business?

Yes, there's sort of two things, Wendy.

We are working with them on this.

We look at the business around sort of the seven end markets.

Historically, all of the data has been gathered around three businesses -- services, project and products.

And products may represent 20 to 25 percent of the business routinely and is a little bit more standardized and they have pretty good knowledge around that.

And then they look at the project piece, which does fluctuate more, but generally, we wouldn't expect it to be probably more than 15 percent of the revenue.

And then that leaves the rest around the services and the services have lots of backlogs and recurring revenue associated with them and what have you.

So they're better at understanding that than they are the projects and the products.

I don't mean they don't understand it, but they're better at predicting it.

But in our first budget meeting with everybody, we were talking about the sort of hockey stick approach and how you're looking at definitely delivering your commitments for the year and people are very committed to that with us sort of chunking it up and giving them our orientation to life.

It is going to take a little while for that to clear.

What they would say is look, our -- once we get through this first quarter, our economic performance should be relatively predictable around the products and services.

But from time to time, we will have spikes in projects, but it may not carry a lot of EBITDA because it is stuff that they do to generate other sales later.

So you should not be worried about it.

Well, we are still pushing it for better quarterly guidance, and they know that.

So I think this is something we're going to get better at throughout the year.

And as we get better, we will provide information to investors about that.

So just be clear, you're saying that there is an element of lumpiness to this business.

We do, however, has some visibility.

So for example, if there were or were not a project in Q1 and you were looking at it now, you would say as a reminder, last year in Q1, we had a large project that probably won't be repeating this year.

I mean that kind of information --.

Absolutely.

To help us with our expectations. (multiple speakers) Now another project question.

The United Water project -- can you talk about that a little bit, in terms of relative profitability of that, in terms of giving up something to get the -- giving up the margin to get it, the size of it, and we will start to see that in the P&L?

Chris is smiling.

I think most people would have access to sort of quotations around it.

I think we bid they way we would bid for things in general and there is a lot of hard work that has been done with Neptune over a long period of time to assure that we were the right person selected.

In these things, you get prices that are aggressive, but you get a lot of volume so you pick up contribution margins on positive volume variances.

It's a very good business, it's business that we are proud to achieve and it ought to be consistent with the margins that we expect from Neptune routinely. (technical difficulty) it will be more as the year unfolds.

It won't have an effect in the first quarter on that activity.

And I don't think we yet know what the unit volume are.

This is going to be about a four-year contract.

So (technical difficulty) they start to install is something they are in control of and we don't know.

Okay, and I will do (technical difficulty), and I'm sure this won't make Chris smile. (technical difficulty) Neptune, your expectations of 4 to 8 percent growth for Neptune was surpassed in '04.

Your expectation for '05?

You know, we still sort of think about this 4 to 8 percent (technical difficulty) outperform that.

You have -- about half of the business is sort of GDP, and then you have (technical difficulty) the business or more that's substantially better.

If you look at 4 to 8 percent, you would (technical difficulty) you would like to be at the higher end of that range, rather than the lower end of that range for growth.

Michael Schneider, Robert W. Baird.

Good morning, guys.

Just following up on Wendy's question on Neptune.

Could you remind us how big the Cincinnati project was, in units?

The reason I asked -- is the New York-New Jersey project actually as large or larger than the Cincinnati project as it stands today?

Mike, I don't think we have that off the top of our heads here.

We'll have to get back to you that.

The reason I ask is if this project doesn't kick in until say in the second half in any meaningful way, it actually seems to me a stretch that Neptune is going to do 4 to 8 this year.

Because as you say, Brian, half of the business is GDP, which means the other half has got to be growing at least in the midteens.

And without a project like the United Water project kicking in early in the first half, how do you get there?

What's driving the growth in this other half of the Neptune business.

We are probably conservative in our commentary about this.

There's a lot of smaller projects.

We're just talking about a very big project in the case of United Water.

I think that was a watershed event about who was going to win that.

You have an installed base.

Even in Cincinnati, they're going to continue to take shipments.

So if people who have AMR installations, they don't it all in the year in which they make it, so there is a follow-on level of activity.

Our radio business grew very substantially this year for Neptune.

There's no knowledge of anybody there.

I just was there (indiscernible) I had the Board there last week (technical difficulty).

We don't see any downside risk in growth at Neptune candidly.

We've had some products that we're getting ready to launch and it is a little bit of a unique business in that you get a very fast turnaround and it is quick to make the products and everything is made to order, not that's made to stock.

So that aspect's there, but there's nothing (technical difficulty) that would indicate any softness at Neptune at all.

We had a record year last year in shipping, and the most units in our history.

And is that because municipal finances are moderately stronger now, or at least off the base, or what's driving that?

I think you have one heck of a focused organization knowing what you want to achieve and what our expectations are.

And they are on top of everything.

You also have the benefit of delivering the Cincinnati job and the rest of these things. (inaudible) we were looking back, by the way, we think that the Cincinnati units were 225,000 versus the United Water at 255.

And I don't recall, Mike, what Chuck said about this cycle of Cincinnati -- four or five years I think.

And United Water maybe be a little faster.

Okay.

And then just in the energy segment, the margins were spectacular and the orders up (technical difficulty) questions.

First, what were the orders up on an organic basis?

And then secondly, what should we be modeling for margins in energy?

Because the margins and the revenue (multiple speakers).

I kind of hinted at 25 felt better to me than 27.

We had an awful lot of direct sales with very limited commissions.

And a lot of times, there's more commission associate with it than we had in the quarter. 25 operating profit is pretty spectacular.

So I probably would not go higher than that on my thinking about what is occurring there on moving paper (technical difficulty).

Maybe Chris may have to come back to that, but I can tell you this.

To give you a sense of a strong it was, we're trying to avoid without Gazprom that the orders without Gazprom were up (technical difficulty), not the 48 we talked about.

And the net sales without Gazprom were up 53 percent, and the leverage is (technical difficulty).

Okay?

Okay.

And then the guidance for the year, 310 to 330, does that include the impact of options expense?

No.

We don't expect that to be really big.

We will probably cover that when we do the April first quarter update.

We've done some work on it, we've talked with our comp committee about what we're going to be doing and it's not a really big number.

Okay.

And final question on TransCore. (technical difficulty) until mid-December, but if you pro forma the fourth quarter, what does the revenue look like or organic growth look like at TransCore during the fourth quarter?

We've challenged those guys.

I don't know that -- Q4 I think -- I would not worry about one quarter.

I think that's not a good idea.

I'd look at the 360 for the year, and we would expect to 5 to 8 to 10 percent growth out of TransCore this year.

Okay.

The reason I asked about the fourth quarter, Brian, it might give us some comfort, given the slow start in the first quarter to know indeed how strong the growth was in the fourth quarter if that is their seasonal peak.

Well, that is dangerous.

You can't always say it.

Last year’s first quarter was strong for them because they had a huge (technical difficulty) Oklahoma and products that (indiscernible) a nice margin.

It's not like Neptune where Q1 is going to generally be weak because of whether.

I just think we have to stay with the idea that it finished the calendar year at around 360 and we think it ought to grow at 5 to 8 to 10 percent and Roper ought to deliver that with the TransCore driving it.

It's less seasonal and more lumpy.

All right, thanks again guys.

Matt Summerville, McDonald Investments.

Thanks.

A couple questions on Neptune.

Outside what you've already talked about, what (technical difficulty) RFP activity, particularly for larger products in '05?

And then Brian, I think when you guys bought Neptune, you kind of laid out where you felt Neptune's relative market share was in both meters and around the AMR piece of the business.

And I was wondering if you could talk about how you think that share has progressed now that you have owned the business for a year.

And then lastly, if you're seeing any opportunity on the commercial side of the business or internationally.

Okay, Matt.

They gained a little share from the source that we are aware of last year, so they're certainly number one and census (ph) a very close number two.

We don't see any reason they would lose share.

We think they've bolstered distribution and pretty ample on that respect.

In AMR, they continue to gain share in the AMR orders.

Certainly with United Water, that is going to help them in that area.

We're working on a lot of technology applications with Neptune today that we cannot talk a lot about, but maybe we will be talk about them in the first quarter, that can take some of their AMR capabilities into a variety of areas that might actually expedite their growth pattern or get the adoption rate to come a little faster or have a little more flexible approach to every aspect of the way you could read things in an automated way, so we feel good about that.

Internationally, Neptune is really not much of a factor.

We do have some conversations with the Chinese.

But the water meter business in Europe is fundamentally different than the U.S. and they are strong, entrenched people in Europe.

So I don't think we will see much export growth.

It's pretty much a NAFTA of business with some sales into Mexico, strong sales into Canada and dominant position in the U.S.

On the oil & gas of the business, Brian, given the order activity that you saw in the fourth quarter, if we look out into 2005, maybe you can talk separate on instruments and control systems -- how much visibility do you feel you have in that business?

You want to want to take a swing at that?

Sure.

Matt, the systems business for us has traditionally offered greater visibility where the sales cycle can be long.

And once the order is received in-house, the timing around bout completing that and shipping it with the customer and getting final acceptance, it gives you very good visibility.

So on the energy systems and control side, we generally have pretty good visibility.

On the instrumentation side, we seem to have pretty good visibility in terms of market dynamics and our conversations with customers are very favorable, but we don't have the same -- we don't enjoy the same long sales cycle and long fulfillment cycle.

In fact, we often times refer to the order for fulfillment cycle as book mints (ph) because we book and ship the orders that we receive in the same month.

So you have a little less structural visibility.

But again, what we see in the market and what we talk to customers about is very favorable.

And then lastly, Brian, you've kind of hinted that the M&A environment is pretty hot in both (technical difficulty).

Can you give us a feel on the average transaction size you are looking at these days?

And then also comment on what your CapEx budget is for the Company in 2005 and what you think you can do in terms of working capital?

The pipeline is full as ever.

We are working on a variety of things, less than $100 million in revenue right now, that we like.

And they are what we would call white space opportunities where we're going to be able to take advantage of TransCore technology in some of them in markets with various businesses we already own.

Although the businesses themselves are good, terrific stand-alone businesses and probably would be run that way, and I will leave it at that.

There are always other opportunities.

We had a business that we put some (technical difficulty) and energy that we love and we saw that business acquired very recently for a modest 18 times trailing EBITDA by a non-U.S.

Company, and we marvel at that.

So we remain content to look at our strategy around what things are worth and what markets they ought to be in.

But we don't really have a size and strength.

We didn't buy Neptune because it had 360 million of revenue or -- I'm sorry -- TransCore or Neptune because it had a couple 100 million in revenue, we bought them because they're businesses.

On the CapEx, generally speaking, Roper runs around 1.5 percent of sales.

So if you had that same level of activity on close to 1.4 billion, (technical difficulty) 21 million and that 20, 25 million wheelhouse.

I can't imagine it would be over that.

Our CapEx this year was 12 million.

If we went back and looked at what the submittals were, it was higher.

I just can't envision us spending more than that on CapEx this early.

What was the third question?

You kind of ended the year with -- I have to go back to the slide with working capital as a percent of sales, net working capital is about 16 percent.

How much more improvement you're looking for in '05, and Brian, are you still incenting your various managers on that measure?

Well, we are, but some of them did really well this year and others did not get anything.

So there's opportunity, I can tell you, and they know it.

That receivable number finished the year above 17 percent.

I would like to see that improve a little, particularly as we have a little more domestic business.

So I think there's opportunity there, I think there's opportunity in payables.

Inventory, get down to 9.5, very pleasant thing to see.

But we're going to make inventory improvements in imaging.

We've had some breakthrough things that we just negotiated in the last three weeks that are really good new for our inventory position around sensors and chips there, which has taken forever.

But it's done and it's good news.

So there is a little room in there, no question about it.

I was just going to ask one more question.

In oil & gas, can you talk about what you're doing on the private-label side, some more detail there?

And then I will get back in queue.

Yes, we have some equipment that we're taking through existing channels for the petroleum analyzer and for Struers.

We have hardness testers that we are interested in.

With Struers, we have lubricity, measurement equipment at pack (ph) and we have some (technical difficulty) yet talk about that we're working on agreements with people where we're private-label and do our branding and our own channels that we think will help.

Okay, thanks a lot.

Curt Woodworth, J.P. Morgan.

A few quick questions.

First, on RFID and some of the M&A opportunity there, you mentioned that you're looking to drive opportunities outside of the transportation market.

Could you comment on what niche opportunities there you're looking at?

We see solution opportunities in security, we see solution opportunities in frankly in meter reading, we see opportunities in broader global reach than (technical difficulty) and we see opportunities in how we add more value to the projects that we take and the products that can go in association with the projects.

So all of those things are attractive.

We see opportunities in the software applications and we see businesses that are beginning to use RFID for commercial-driven feedback that are kind of interesting.

All of the things we're looking at generally are read-write applications, they are not things that the some well entrenched people have that are just tags that are read that are modest cost things.

The things we're looking at are higher dollar value items that require application experience to go along with the product itself.

Great.

And then in terms of the lumpiness at TransCore, I know you mentioned that you think you're going to see 55 percent of the sales realized in the back half of the year, just given the lead times that you're seeing.

Could you provide a little bit more color on exactly what those projects are?

It is largely a project business.

There's just no way to really -- there's just a wide variety.

Everything they do is project-driven for some specific transportation application.

Maybe is it more electronic toll, asset tracking?

The majority of the project things are really electronic tolling.

The asset tracking and the road sharing load factor stuff, that's more occurring, ongoing natural (technical difficulty) project work, which is mostly on (indiscernible) tolling, is what's so lumpy.

Thanks.

Just quickly on Neptune -- can you help us quantify the impact of the United Water deal, in terms of the 250,000 units?

What was your unit volume for AMR in '04, how help us to get a sense for the magnitude there?

I think the best way to express it, because we're still gathering the competitive and market share data for 2004, is to think about that project being slightly larger than Cincinnati, which again, most people would ship (technical difficulty) four-year shipping schedule and it is obviously the largest project that folks have recorded in the last couple of years.

In terms of the aggregate dollar value, we actually have an agreement with the customer not to disclose the full purchase value of that contract.

Great, thank you.

Daryl Pardee (ph), Merrill Lynch.

Good morning guys.

Brian, what are the initial applications that Neptune is interested in using or applying (technical difficulty)?

There are a variety of things that we can do to expand their range and the quality of a mobile complexion of information.

And Neptune does a very good job in this area, but there are technologies that will allow us to look at improving that beyond where we are today, in terms of reach.

An example would be, if we had a long exploratory meeting in San Diego -- I sort of have to choose my words here because we don't want to really divulge a lot -- but there are actually different forms of radiocommunication which are used routinely in some of the business that other businesses don't really know anything about and have never really have studied or thought about.

And those could involve I would say longer reading capability or less cost or more compact items, so that's (technical difficulty) interesting.

We think there will be growth in sub-metering markets where people who currently (technical difficulty) meters have read (technical difficulty) multiple resident facilities will be exposed to having meters read prospectively, and we want to grow that aspect of Neptune and we think that the technology we have here will little help Neptune do that.

If you look on the other side, if you think about satellite communication, we've already run to the ground literally because we read all of the meters with satellite technology.

And the (indiscernible), there's one factor is that where you put the utilities out of business on their CapEx if they did it.

But those are (technical difficulty) that I think are going to lead some white space situations where we say, hey, if we had that or if we acquired this, look at how that would synergistically nip technology with the in-depth customer knowledge that Neptune has.

And we're working aggressively on that.

What pace of activity would we expect on product introduction?

Can we expect to see products this year, or is this a (multiple speakers)?

Yes, absolutely.

Or if not products, you will see acquisitions this year.

Okay, but I'm talking about products where Neptune is leveraging some of the TransCore technology?

Well, we're already getting benefits today in our DAP (ph) handheld computer business.

We have a lot of trials in place that we would not have had before.

We're working on some ergonomic situations, we're working on some software applications for data collection and the process that is happening is moving.

So there will definitely be products within the calendar year of 2006 that we will be able to show and demonstrate to people.

The Princeton management team, when do they come in, the new management team there?

We took Gene Yasbach (ph), who is one of our strongest leaders who was running Acton, we had sort of moved out integrated design as that business wound down and out that into Acton from an operating perspective to lower the breakeven and capture some money and Gene provided that leadership.

Acton, a big part of their product line has do with spectroscopy and we really feel that's where Princeton needs to focus its camera business in the future.

So we've take the Princeton business and merged it with Gene's Acton business, providing leadership today.

We have some new manufacturing leadership in there and (technical difficulty) other things as well.

We have added some strong salespeople, we've taken away some of the competitors' (technical difficulty) some would say all. (technical difficulty) has joined us.

We have a stronger focus in Europe and some great product launches.

So we feel good about that thing starting to turn around.

Great.

The Sarbanes-Oxley expenses, the 4 million that you incurred in '04 -- how much of that was related to implementing systems that was onetime in nature versus sort of ongoing support of compliance?

Well, we can get Towe back online there.

There's an awful lot of continuing activity with Sarb-Ox.

I suppose the deepest disappointment is that you are going to have ongoing expenses.

Clearly as a result of it, we can see some processes we want to beef up and we're going to have to do more in IT than we've done.

That has really been very decentralized, and there are things that we want to do there.

So it should (technical difficulty), but you can take back 3 million into the base profit line, I don't think.

Okay, thanks.

David Smith, Smith Barney.

This is James filling in for David. (technical difficulty) 10 percent you talk about for TransCore for the year, could you talk a little bit more about what is driving that and how the industry dynamics are going right now and what goes into the 5, what goes into the 10?

As the year comes on, we would expect more product sales.

And I don't have really good year-over-year things.

Probably something that I should provide better guidance at in Q1 than right now.

But we would see a little more out of products.

That would be the way, and then project revenue could be up double-digit, but it doesn't carry with it a lot of profit.

And then services would have the (technical difficulty) lead level of growth, but they do have a nice stable cash flow associated with them.

So the upside of the business this year is going to come from more product sales and applications.

And your net debt to cap of 40 percent. is that a comfort zone for you guys, or how much further down can you go there?

It really depends on what we buy.

We're sitting on 129 million in cash.

So is we did a couple of modest sized deals, we would not be changing anything and we would continue to throw off more cash so it would continue to drop.

We got up to like 50 percent was the high watermark, and we're able to throw off enough cash it wasn't too scary as long as you didn't sort of go beyond it and paid things down.

The noise we have is that my personal desire to drive the debt to EBITDA ratio down to 2.5 or 2.5 to 3, and we have -- the rating agencies, God love 'em, they don't give any credit for the cash (technical difficulty) we like -- look back, we have 885 of debt and 129 in cash, would give us net debt of 756.

If you divided that at the end of the year by 314 in EBITDA, you'd be at (technical difficulty) be a pretty interesting number.

So it's more around that than it is, whether it's 40.6 or 35 or 45, David.

Thanks.

That will end our question and answer session for this call.

We now return back to Chris Hix for any closing remarks.

We just want to thank everyone for their participation in today's call and we look forward to a very successful 2005.

Thank you very much.

Once again, ladies and gentlemen, that does conclude today's call.

Thank you for your participation and you may disconnect at this time.