Roper Technologies Inc (ROP) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to this Roper Industries year end financial results conference call.

This call is being recorded.

At this time I would like to turn the call over to John Humphrey, Chief Financial Officer.

Please go ahead, sir.

Thank you and thank you all for joining us this afternoon as we discuss the results of our 2008 fourth quarter and full year performance.

Joining me this morning is Brian Jellison, Chairman and Chief Executive Officer; and Paul Soni, Vice President and Controller.

Yesterday afternoon we issued a press release announcing our financial results.

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

In addition, we have prepared slides to accompany today's call which are available through the webcast and are also available on our website at www.roperind.com.

If will you please turn to slide two, we start with our Safe Harbor statement.

We will be making forward-looking statements during today's call which are subject to risks and uncertainties as described on this page and detailed in our SEC filings.

You should listen to today's call in the context of that information.

Now if you will please turn to slide three, I will turn the call over to Brian Jellison, Chairman, President, and Chief Executive Officer.

After his prepared remarks we will take questions from our participants.

Brian.

Thank you, John.

Here we look at kind of an outline for this afternoon.

I will talk about the fourth quarter challenge that many people faced, and certainly us as well, how the 2008 year played out and what its implications are for 2009.

We'll talk a little bit about the end market orientation around 2009 and what we see as risks and opportunities for us.

And then get into 2009 guidance and take your questions this afternoon.

Next slide.

The 2004 enterprise overview really, I think, is best thought about in terms of what was the challenge that we faced in the quarter.

We needed to stay ahead of the curve here, given the economic uncertainty, and unprecedented volatility really in the current situation that was occurring.

We'll talk about currency a couple more times this afternoon, but currency has really very little to do with operational effectiveness but a lot to do with stated numbers.

Secondly, it was a great test of the nimbleness of our management and leadership culture, because throughout it, when you have a lot of growth entities and still have a number of growth entities, you need to maintain the balance between nimbly reacting to the organic shift and still maintaining your product development and end market discipline's that we have.

We needed to assure ourselves that we restructured, but in targeted areas, not some kind of broad based thing without thought.

We had to kind of reset all of the issues around our supply chains, one of the great risks, I think of, 2009 is a lot of small suppliers falling by the way.

We put a lot of energy in November into our supply chain situation, and then a deep dive into our operating efficiencies and took some immediate actions and have more that will occur here in Q1 and perhaps a few more yet in Q2.

And we took a hard look at our working capital discipline because we wanted to assure ourselves we didn't wind up with untold levels of inappropriate ratios of working capital in the form of receivables or inventory or supply chain push-through.

And then lastly, we needed to react to some isolated shocks in specific end markets.

First was really the problems around petrochemical which, of course, any of you who follow that industry know it's been quite severe in the fourth quarter.

And then some oil and gas refinery issues as people were shutting down and not having normalized throughput in a variety of places.

Third, really plant shutdowns with some of our end users in the rubber and plastics arena, and normally, you might see a fall-off in demand but not a shut-off of demand for a month at a time, and that required some nimbleness on our part.

And then in a pretty broad-based way, abrupt changes to our historical Q4 patterns.

Normally, the fourth quarter we have a lot of things that are not capital, kind of fall in between standard MRO and that, and we get a lot of year-end CapEx cleanup for people that creates fourth quarter demand, and, of course that virtually disappeared this year as everybody put a lid on that activity.

So it was a very uniquely challenging quarter.

Next slide.

Here if you look at how we responded to that, is that we were able to immediately use the contingency plans that we had on the shelf, revisit those quickly, and execute those, particularly in the energy segment with the industrial process business.

Then we looked at restructuring and have a wonderful benefit here in that we look at break-even cost structures each month, in every one of our businesses, and that's a main part of our governance process.

So that has a lot of clarity and allowed people to speed their execution quickly and avoid what otherwise would have been more downward cost pressure in the quarter.

Then we looked at targeted actions.

We did not issue an across the board edict that says to take some percentage of people out.

Our businesses are pretty lean.

They don't have people standing around as potential contingency folks, and our guys did a wonderful job of really looking at assuring ourselves we took the targeted actions in those businesses that were critical and then revisited our next level of contingent actions, depending on incoming demand.

Acquisition integration was important because a major portion of what we achieved in 2008 was related to bringing in CBORD and Technolog and Horizon and our freight matching business and getting those to continue to grow.

They had wonderful growth in the year, which we always show as acquisition growth, even though it's organic for the company we acquire.

Then we have the record fourth quarter results.

I think that it would have been hard to believe, going into the quarter that you would have had a record fourth quarter for any fourth quarter in your history, given the unique challenges we faced, but we did accomplish that.

The sort of take away for sues that the contingency plan produced the expected results, and that's very refreshing.

Next slide.

Here if we look at the Q4 numbers, you will see sales were up 3%, acquisitions were up 9%, organic growth down 3%, and foreign currency down 3%, and, of course, that's not an across the board situation.

Each one of our businesses faces a different level of risk around the currency.

Our orders for the quarter were flat with acquisitions up 7%, organic growth down 4%, and currency dragging down 3%.

EBITDA despite the restructuring cost still expanded in the quarter to 26.4%, up 30 basis points.

And our adjusted diluted earnings per share reached $0.80, up from our $0.73 to $0.76 guided number and not really much off of the original concept of $0.83.

We had $0.02 of restructuring costs in the quarter.

Operating cash flow reached an all-time record.

We had $129 million in the fourth quarter which was 22.4% of revenue and an amazing 179% of net earnings.

For the full year, of course, again, another all-time record.

The ratio is we think spectacular, 18.8% of revenue, $434 million, and we ended the year with a record amount of backlog for any year end number, up 11% from last year with $590 million.

Our field people did a terrific job in the quarter to stay focused on what's important, kind of dig out of whatever holes they were seeing occur and executing quickly.

Next slide.

If we look at the year as a whole then for 2008, we kind of ask ourselves what did we set out to do at the beginning of the year and what did we achieve.

First of all, we needed to become investment grade to assure that we could refinance our debt and create a somewhat better, more nimble capital structure, and we achieved that.

Having guided to the investment grade status we then refinanced the entire debt structure of the Company ahead of the credit crisis completing that in July.

We were able to expand gross margins and operating margins on the year.

We actually improved our asset velocity and our cash returns in the business all to all-time records.

We were able to find just world-class growth businesses and acquire those during the year, investing $705 million in transactions above our sort of normalized $300 million to $400 million to $500 million a year.

Maintained our acquisition discipline.

We did not kind of get off the track in terms of multiples that were used for investments, and, of course, opportunities in '09 are going to be even less expensive.

We were able to remain nimble and respond to the changes that came in the fourth quarter.

And lastly, in almost every category you can think of about Roper, whether it's orders or sales or operating margin, net income, gross margin, diluted earnings per share, cash flow, all these things were all-time records for the Company.

Next slide.

If we look at the full-year income statement, here you'll see sales ramped up from $2.1 billion to $2.3 billion.

So we were up 10% on revenue.

Gross profit expanded from 50.4% to 51.5%, 110-basis-point improvement, and I think what's also unique is we had gross margin expansion in each of our four business segments.

Our operating profit went up another 20 bps from 20.9 to 21.1.

Interest cost went up a little bit but up substantially in the fourth quarter relative to the first three months of the year as the refinancing interest rates hit with the bond offering that we did.

And then our adjusted net earnings were up $290 million, 16% from the $250 million baseline in '07, which excludes just two items, the $0.02 of restructuring and the debt extinguishment costs that we took in the third quarter and announced previously.

So full-year bps would have been $3.10 against $2.68, up 16% on a sales increase of 10%.

Next slide.

Here we look at our asset velocity.

And five years ago, at the end of '03, as we really put these disciplines in place, we had at that time 13.5% of revenue tied up in inventory, at the end of this past month we were down to 8.1%, receivables you see came down 210 basis points, and payables and accruals expanded, so we've had just an enormous turnaround in the working capital required to run our businesses.

We ended the year at 7.8% of inventory plus receivables, minus the payables.

That avoided $225 million of investment if we were still back at the old working capital ratios, which is, frankly, that's more than our cash on hand.

So this process that we put that in that we continue to work on has really made an enormous difference in the cash efficiency of our Company's business models.

Next slide.

Something that I think, we don't always get just completely clear, when we talk about our asset-like business models.

Here you will see on slide 10, if you look at that time INDU section of the S&P 400 industrials, that group of companies takes 27% gross profit on sales.

The S&P 500 companies, somewhat larger at 29%.

Roper's gross profit, as a function of sales, is 51%.

If we look at the gross fixed assets, which is something we always like to remind people about.

I think far too many people still forget about accumulated depreciation and what it takes to run the same operations over time.

The gross fixed assets of revenue for the S&P 400s are 51%, and for the S&P 500s are 58%.

Our gross fixed assets as a function of revenue is 12%.

When we think about that in terms of efficiency and how one responds in a difficult economic environment that everyone faces today, and we think about how much gross profit does a standard industrial company generating a gains its gross fixed assets, we look at sort of 29% on that S&P 500 number against 58% gross fixed assets and say, wow, gross profits are half their fixed asset rates.

When we look at Roper, we look at that 51% against the 12%, and we say, we're at 425%, eight times more efficient in the utilization of our assets.

Next slide.

Another key component of our asset-like business philosophy is EBITDA as a function of revenue.

You can see the S&P 400 industrials are running 15%, the S&P 500 at 17%, Roper at 26%.

And then if you look at the conversion is that into cash, on the trailing 12 months period ended 9/30 for us, which is what had to be reported when we did this slide, it was 18% now versus 19% at the end of the full year, compared to the S&P 400 at 10% and the S&P 500 at 12%.

So the result really is when you think about the fixed assets on the prior page, we have high margins and low assets.

Here we have high returns and exceptional cash.

Next slide.

That's how we can drive this phenomenal result that you see here in operating cash flow.

It drives everything we do, and it permeates our thinking and governance processes.

This year our net earnings you can see were $287 million, depreciation and amortization added another $69 million, more than 3% to the operating income line.

If we focused on EBITA, which is the continuing nature of what we do, you would see even better margins than when you look at the operating profit line.

For the year we generated $434 million in operating cash flow up about 26% from the prior year, and if you add the last three years together we've created more than $1 billion of operating cash flow.

Next slide.

We're going to continue to drive great cash flow because of our business strategy.

Here you can see that every one of our businesses is self-funded in terms of throwing off excess cash versus having to get cash from the parent Company.

We also don't have the risk of the pension plan changes you are seeing in so many businesses when the equity markets underperform and they have to devote new cash to their pension programs.

We have no pension programs in the Company.

We don't have any commercial paper risk, so we don't have to worry about daily refinancing.

We have very little working capital as you saw it is down to less than 8% of revenue.

And our CapEx is routinely less than 1.5% of sales, so we have a lot of internal cash to reinvest to drive our own growth and protect our businesses.

Next slide.

Here if we look at the ending balance sheet you will see we ended the year with $524 million in an undrawn revolver.

We had $178 million of cash so our net debt was $1 billion.

Our net debt to cap, you can see at 35%, our net debt to EBITDA below two at 1.8.

That was -- we were able to make those changes which are interesting, in a year in which we actually did $705 million of acquisitions.

So we think we're particularly well positioned for our continuing acquisition program in 2009.

Next slide.

The larger transactions we did this year, CBORD and Horizon, which are now really nested together and Technolog, which we did at the end of the year, UK company with pan-European opportunities, and a Company that we will bring gradually into North America, met all the criteria we have for our acquisitions.

They provided substantial new growth opportunities for us, and all of them are ahead of plan throughout the year and are growing organically nicely.

Next slide.

CBORD which we've talked before about, we want to just remind ourselves when we think about 2008 in perspective it really is a strategic growth platform.

It is in the healthcare arena, it is in the educational arena.

It could it be a beneficiary of some of the things that happen in the stimulus package as people build out opportunities.

Next slide.

CBORD married up with Horizon gets us into an exciting area, we believe, and that's dealing with K through 12 programs.

We mostly are at the university and healthcare level with CBORD, but with Horizon we open up a market leading position in K through 12 processes.

Barely a day goes by you don't read more about childhood obesity or nutritional management, or parental involvement in what children are allowed to eat at school, or cashless solutions to putting money on meal carts for people and Horizon is a leader in that area and we think it will continue to grow nicely.

Next slide.

Here we're looking at Technolog, Technolog is a UK provider of network monitoring and pressure management for the utility industry.

They had a record year as did both CBORD and Horizon this year.

We expect them to have a record year next year.

They have already been meeting with -- in Avonix and sub metering and Neptune, metering and networking and we see a lot of opportunity for forward synergies here.

Next slide.

As we look at the individual segments, next slide, here you can look at how we performed on a segment by segment basis in 2008.

We had RF now 30% of the revenue of the Company and continuing to grow, as we'll get more contributions from acquisitions in 2008, most of which fell in the RF space, up over 50% gross margins with 29% EBITDA.

Industrial, despite a difficult fourth quarter, still finished with 30% EBITDA margins.

And I think that it's interesting, when you go back and think about, so what was that gross profit for the S&P 500 numbers?

I recall that the gross profit for the S&P 500 numbers for the -- what was that?

29%, right?

And Roper EBITDA margins and industrials, 30%.

So people who think we're similar to an S&P 500 industrial, they might want to go back and relook at their math.

Energy up 54% here for gross margins, 27% on EBITDA and imaging, which rebounded nicely in the second half we felt good about the total as you can see here.

Next slide?

Industrial Technology.

In Industrial Technology we had a record year for almost every business inside the family.

Neptune, which had a less attractive second half, still finished the year with the best performance in its history.

Our pump companies all had breakthrough performance each reaching historical highs, and our material analysis business did the same.

We had double-digit growth for fluid handling companies, partly driven by oil and gas, agriculture and some mining markets.

Obviously that's going to be a little more difficult for us in '09 than it has been in the past year.

All of the businesses executed very well.

They had a lot of cost push inflation in the first part and of course, that's now going to turn to a favorable benefit for us in the next immediate period.

We had this global economic slowdown that affected a couple businesses in the fourth quarter, but to their credit, they were really on top of it and took actions in advance and have taken some more actions here in Q1.

As we look full year, Industrial Technology did $688 million.

Organically it was up 5%.

In the fourth quarter, it was flat, despite the difficult markets in comparisons.

Its orders organically in the full year were up 1% because of the fall-off in the fourth quarter when we were down 9% organically.

The operating margin, and this, again is a credit to how well our field people respond, in the fourth quarter, our operating margins were virtually identical to what they were for the full year at 25.8%.

Our Energy Systems and Controls here became kind of two stories within one year.

The first three-quarters, we had organic growth in excess of 6%, but in the fourth quarter, we fell off about 8% primarily in two business areas.

Our rubber and plastic sensor technology business, and our pack oil refinery and cementation business.

In the first three quarters we were getting growth driven primarily by channel improvements and new products that we were launching globally.

But then in the fourth quarter we had the head winds with the petrochemical and refinery markets we discussed.

Down at the bottom you can see operating margins for the year, Q4 was 110 basis points less than the full year.

Organically sales were down 8% in the fourth quarter but up 2% for the year and orders were down 4% in the fourth quarter and down 1% for the year.

Next slide.

In our scientific and industrial imaging business, here we had medical platform continue to drive growth with recurring revenue and new product launches.

We had a disappointing first half of the year in the camera businesses.

We took some remedial action, changed some organization structures and rekindled the product management function and operating disciplines in the Company.

That produced substantially better margins.

You can see at the bottom, in the first half of the year we were OP margins of 19.9%.

In the fourth quarter, we were at 22.1% even though sales were down 2% organically in the quarter, and orders were virtually flat.

In the RF arena, in technology, here we had the acquisitions we've discussed earlier with CBORD, Horizon, Technolog and our freight matching business all providing terrific cash.

No difficulty as we've moved to integrate those within the Company.

They all had fascinating organic growth achieved through the year, and we're confident we'll continue in '09.

We had substantial operating margin improvement in our TransCore project and back office operations that we call intelligent traffic system and design.

Those businesses did a better job in designing and delivering technology for people who were expanding their road platforms and their kiosk utilization.

We have managing margins expanding primarily with that execution that brought us up nicely.

As we enter 2009, we have record backlog in the RF space, and we have very solid visibility for the amount of revenue we can drive throughout the year which gives us some comfort as we established guidance.

If you look at sales you can see organically that sales for the year, if we exclude the Middle Eastern project, were up 6%, up 2% when you include that.

Orders were up 11% organically, 5% if you include the Middle Eastern project.

Our operating margins expanded in the full year to 23%, and in the quarter we're still strong at 21.8% because Q4 is not a seasonally great quarter for RF.

Next slide.

Here if we look at the outlook for 2009 what we see really is that we have some specific end markets in energy and industrial that we expect will face continuing economic challenges and uncertainty.

We'd start there with first half is going to be difficult in our petroleum analyzer business and oil and gas refinery.

We have a good deal of European presence, the retrenchment that we've taken there takes longer to really create benefits for us because of different time lines.

Secondly, the material analysis business, which is largely run out of Denmark has done some retrenchment, and, once again you wind up with some slowness in the execution savings that we see in those things.

But nonetheless, they're meaningful.

Our industrial process sensor and instrumentation businesses we worry about, because it -- sometimes you have tepid demand, but when you have people closing plants and extending shutdown periods for a longer time than normal, it is hard to know, as those reopen, which they will, these are process operations, just how our MRO process will move in there.

So we still worry about that in the first half somewhat.

But actually the biggest problem we have is just the currency translation effect.

Currency is causing most of the numerical shortfall of anything we would talk about in 2009 relative to the prior year.

There is some municipal spending softness and challenges that we're seeing in that people are waiting for the stimulus to take effect.

You hear that from virtually everybody in the municipal arena.

Most people still feel pretty good about the full year, but are anxious to just get a decision made no matter what it is so people can execute.

The Toronto project that was -- we had hoped would have been booked in the fourth quarter still hasn't been booked because it's not technically completed.

That could happen momentarily.

We would expect it certainly would happen within the first half of the year and would certainly mitigate any shortfall we'd get in municipal spending related to our water meter and networking businesses in the second half of the year.

Certainly the slowness in decision making around the solutions businesses worries us as we go into the year, we're not really worried about landing orders but we do wonder a bit about just where they are going to come in.

What we'll see in Q1 versus Q2 and Q3.

On the other hand we have great things in our favor.

We have very strong backlog at $590 million, very good visibility around what we'll do in the traffic side of our business.

We've got apparently quite a big inrush in the National Institute of Health funding.

We've got a number of potential stimulus situations that should benefit RF and a little bit in medical.

We've got the acquisitions performing really ahead of plan and very confident about their growth in 2009.

And that allows us, next slide, to look at the guidance profile.

So for the full year, from an operating cash flow, we're confident we would still exceed 130% of net income in generating operating cash flow next year.

We think full year DEPS should be somewhere between $2.70 on the low side and $3.00 on the high side.

That assumes that we had about 4% currency head wind.

So that currency is what's really frustrating, because the currency scenario could take $80 million, $90 million, maybe $100 million off of our stated revenue, even though nothing was different in terms of unit volumes.

It will have a more difficult impact in the first and second quarter by the third and fourth quarter it should largely go away.

We're assuming that we'll be able to have flat organic or maybe down low single digits as we have some things that will continue to grow, and they will mitigate, if not offset completely the difficulty in the energy market and in some of the industrial areas.

The guidance excludes any restructuring costs.

We wouldn't expect those to be enormous.

We took a $0.02 charge in the fourth quarter.

Probably a bit in the first and second quarter.

I don't think there would be any more throughout the rest of the year.

Our Q1 DEPS is at $0.55 to $0.60.

I know that's $0.02 less than what some people may have had.

The reality is all you have to do is look at first quarter more times than not is about 20% of the total year number.

If you start out with a $2.70 to $3.00, it kind of gets you to a $0.55 to $0.60 Q1.

We're comfortable that's a number that's achievable.

It's still going to be a difficult first quarter with head winds we see both in currency and certain end markets.

And then the next slide, here we look at the kind of overview.

Number one would be what happens with currency, huge swings in the quarter, 18% negative swing related to the pound, yet the month of January has been still more volatile in both the pound and the euro.

So that does make forecasting a bit more difficult.

The RF and scientific imaging businesses we think will largely mitigate the weakness we've talked about in energy and industrial.

And we're comfortable that we are going to continue to be nimble in executing our cost strategies.

We've got a variety of new product launches all of which are on target, and the growth in the acquisitions to protect our margins we feel comfortable with.

Then lastly, we certainly can use our proven acquisition capability to take advantage of opportunities in a much easier environment with lower price points.

And with that we'd like to open it up to questions.

Thank you.

And we'll take our first question from Michael Schneider at Robert W.

Baird.

Please go ahead.

Michael, your line is open.

Hi, guys.

Sorry about that.

First, congratulations.

Great performance in an extremely difficult quarter.

Brian, maybe you can just talk about Neptune and specifically what occurred there during the fourth quarter with municipal spending and some of the projects you have been working on?

Also comment then, do you have Toronto built into your guidance for 2009, and I guess to what degree is it built in?

In terms of Toronto, the way we look at that situation is best, we continue to work with them.

It's really -- we don't see any risk in it at all.

It's just a variety of administrative matters.

We -- originally, it looked like it might have been able to be booked in the fourth quarter, or certainly the first quarter, and then the speed of delivery has never been clear, but we're assuming that if it doesn't start to deliver until the third quarter, that it would not help much in the first half of the year.

But we have built in a modest amount of revenue and margin into the second half guidance.

If that project picked up inertia that would help us earlier in the year than is in our current thinking.

But given how slow it's gone administratively, we're not assuming that we'll see much of anything in the first half.

We think it's kind of a Q3 play.

And can you just talk about the core Neptune projects?

Have you seen municipalities cease installation and upgrades in the day to day meter business?

Then separately, you talked about the small and mid-size projects on the AMR side of the business that were being deployed.

Were there stalls put in place during Q4, and what have you seen thus far in January?

No, we haven't seen any real slowing in anything.

The only thing we see slowing in at Neptune would be people making decisions about deployments and waiting.

I think there is this perverse situation with the stimulus package that you probably have some people kind of holding on to see what happens.

We've kind of curtailed a number of things.

We've taken some actions in Neptune to reduce costs, and we're -- I'd say we're comfortable with Neptune.

I don't think Neptune can do as well in '09 as it did in '08, because the depth, in the housing starts, if they were off 10%, we wouldn't care, but when you have the kind of fall-off that you have in housing starts, it might result in several hundred thousand fewer water meter sales with some networking associated, because many of those are in communities that would be, frankly, more advanced in terms of AMR than others.

So that has to hurt us somewhat.

I think we've got a risk of certainly being down enough that it puts a drag on what '09 can do, and it's got to be made up from the rest of our businesses.

But we're not seeing any -- it's not a severely challenging environment, but it's not only an absence of growth for '09, it will drag down the Company a little bit.

It could put a 1% drag on the Company's organic growth for the year, but I wouldn't overly focus on Neptune.

We actually had a record fourth quarter for any fourth quarter in our history, and Neptune certainly wasn't a huge part of the fourth quarter.

And sticking in industrial, along the Neptune lines, orders were down 9% in that segment during Q4.

I'm just curious, if you broke apart Neptune versus the other sides of the segment, the pump companies, stirrers, were they down in equal amount that 9% in orders, or--?

Let me have John comment on that, but I do want to make sure that everybody knows that the industrial businesses through the first nine months really did exceptionally well, and they helped Neptune.

Neptune wasn't the sole driver of industrial performance.

It was strong in the first half of the year, not as strong in the second.

And then the turnaround in Q4 was largely driven by currency and situations at stirrers with kind of customers they have.

John, you want to?

Yes, actually, the order rate was about the same for the non Neptune businesses as for Neptune.

Kind of down in the 7 to 9% range for both groups of companies.

On the revenue side, actually the non-Neptune side continued to grow in the fourth quarter, kind of in the mid single digit range.

So they continued to respond well and continue to service those customers but the order rate clearly slowed down, and hence the reason we're looking at restructuring actions there.

Final question, then I will get off.

On the copper hedges which I presume, copper and steel, for that matter, I presume they impact industrial tech most.

How far are you hedged and/or forward launched and when due really start to see spot prices benefit this segment?

In terms of Neptune, we won't really get a benefit, unfortunately, until the second half of the year on copper.

You get a -- they get a little fall-off, so you don't have quite as much throughput absorption of the tonnage.

And the Canadian contract, which is basically locked in, because of the way it is negotiated, not happening, well, will preclude them from seeing the benefit in costs until the second half of the year, but it will start to help us in the second half.

Okay.

Thanks, guys.

And we'll take our next question from Shannon O'Callaghan at Barclays.

Good afternoon, guys.

Good afternoon.

So, just looking at some of the things that happened in December, thinking about next year, orders down 4% organically, so the guidance for next year assumes we're no worse than that.

What things get better from here, do you think?

Well, I'm not sure we're counting on a dramatic improvement in the economic conditions.

I think we're -- we understand the economy.

It's not very good right now, and we're not looking for a huge improvement in the second half.

But, on the other hand, we do have some of our businesses with very good visibility, particularly in the RF side, around transportation solutions and projects that are already booked and underway, as well as the rollover effect for some of the acquisitions around CBORD and Horizon and the growth objectives that they have there.

At some point here during 2009 those will actually fall into organic growth instead of just growing against what their pro forma numbers were before we acquired them.

So those, I think, will be positives.

In our imaging segment, that area, once again, largely NIH funding and other types of R&D funding levels drive the ultimate end market demand there, combined with new product introductions, we have some very good new products that are available, and we're excited about the opportunities there.

We do look forward having to some of those R&D moneys freed up and start to flow out to research institutes.

And we'll be able to serve them accordingly.

Great.

What about stimulus?

You mentioned that a couple times.

Have you assumed any benefit in your plan, and aside from that, what kind of potential things are you hearing about or thinking about?

We've assumed no benefit from the stimulus plan, I can assure you.

Right now, since people talk about it, and don't executing against it, it's a negative.

If somebody will do something about it, then we'll determine whether there's anything really positive or not, but whatever the decision is we'll allow other people to go ahead and execute.

So that will be beneficial.

It's just common sense would say that the CBORD and Horizon platform we have in school situation can be benefited from the kind of things that some people want to put into the stimulus, so that would be beneficial.

Certainly if you got more infrastructure building, the first stimulus package was exceptionally tepid, in terms of what's truly going into infrastructure for roads that a lot of indications would be there would be more available for that, if there's more available for that then people are going want design work that we tend to provide at a faster clip.

Unfortunately, these things really aren't shovel ready.

They take a longer time, but we're part of the people that would maybe get involved early in those things while people are getting ready to use the shovels later.

So that could help a little bit.

But I don't think Roper is really a play one way or the other on whatever stimulus program ultimately is passed this evening or next week or any other time.

But it's certainly not a negative for us.

It's probably a modest net positive.

Great.

I guess last one for me, could you talk a little bit about pricing.

Mike mentioned you got raws coming down.

It will take you a while to benefit from that.

How do you think about the pricing across your set of businesses, and are you seeing any kind of pressure on that yet?

No, not at all.

Every single segment expanded gross margins last year.

We don't see that.

We have very few standard products, pretty much everything is built to customer order.

Our businesses are largely driven by application engineering with a little bit of refinement.

So people are generally making decisions about value of what they're acquiring and since you don't really have much sort of standard product, if you will, hard to measure pricing effectiveness, but a simple way is to look at whether gross margins are going down or up.

And they're holding steady to going up.

So we don't see price as a problem.

Okay, thanks a lot.

You are welcome.

We'll take our next question from Jeff Sprague at Citigroup.

Good afternoon, everyone.

Good afternoon.

Hi, Jeff.

Just a few items.

Brian, what do you think about the use of the balance sheet in this environment?

I think in the past, you expressed comfort with 2.5 turns on the EBITDA but maybe flex up to 3 for the right deal or even a little bit above with the visibility to drive it back down.

Is that still operative in this environment, or the rating agencies such that your own internal concerns such that you wouldn't really take it that far?

You would not have any qualms going to, say, 2.75.

It would have to be one heck of a deal to get to us go up to 3, but I would say one of the things that works in our favor, just look at that Q4 cash and the difficult period includes paying for the lower restructuring.

We'll still have, we think really outstanding cash.

So I don't think there's any constraint about that.

We entered the year about $700 million and kind of powder that we would have before you would need any new debt, anyway, and we're going to throw off cash.

We're already throwing off cash.

So we got, we don't really see a problem around that, and certainly purchase multiples are coming down, and -- but, yes, if I were modeling it, I would assume, up, they're likely to invest 400 million $500 million.

Maybe they'll do $700 million.

It really just depends.

We are going to maintain our discipline around the transactions.

There are things that didn't used to happen that are out there that we thought might happen.

They're really there now, because you have a lot of good companies that are in distressed debt situations.

And we're spending as much time talking to private equity types around their problems as we are talking to people about actual deals.

So I don't know how those ultimately end up but there's some pretty attractive situations that are emerging there.

Can you give us a sense on CBORD and Horizon and maybe Technolog is a little less relevant, since it came later in the year, but what was the -- kind of the pro forma organic growth profile of what you acquired in '08, and did you -- I assume you maybe had some cash accretion from CBORD, but did you actually have EPS dilution from those deals in '08?

No, we didn't have any EPS dilution from anything.

You might argue that while we did the $500 million bond, and it had a six and five-eighths coupon so that interest cost was more.

If you took the Q4 interest cost, on an annualized basis or something, but that's dangerous, because we throw off cash.

I think we've said routinely that those businesses were growing in excess of 10% organically.

In fact, they did grow more than that, and we expect them to grow at least as much in '09.

A question, maybe it's a tad bit of an editorial comment, but on the restructuring, given that you are such a cash focused Company, why are you bothering calling out a few pennies of restructuring here and there?

Just seems to me--?

I'll tell you why.

Because a whole lot of other people who are not paying as much attention to cash machine we have occasionally challenge us and say, you're not doing any restructuring.

This guy took $50 million, this guy took this, this guy took that, they're going to take more.

Part of the reason that we include it in these slides, the awareness to please look at the gross fixed asset comparisons of these companies and what Roper is and how special it is, and we're sort of tired of people saying, why don't you do something?

We've done precisely the right thing at precisely the right time in the fourth quarter.

We'll do a little bit more in the first quarter and we'll do a little bit more in the second quarter depending upon the kind of constraints that those businesses have.

They all have their plans in place.

We've already had a call already, off of what does the last two weeks look like?

So that's why.

I think people want to know if we are doing restructuring how much we're doing, and we're trying to be transparent about it.

Thanks a lot.

And we'll take our next question from Wendy Caplan at Wachovia.

Thanks.

Since you mentioned the restructuring, you said it could go into first half -- into this current half.

Mostly headcount, or should we expect any consolidation?

What are the plans?

Mostly headcount, Wendy.

I think that there are few places that we really would be able to consolidate if we wanted to, but if end markets were to continue to deteriorate in the industrial arena, there might be a couple things that we could consider.

We might do -- have one division insource another division's work and back away from the assembly that that division did.

That's certainly in our contingency planning.

It's not warranted yet, but if you had a deeper dive and fall-off in demand, those are the things we have kind of available to do if the made sense.

Okay.

And you spoke a lot about the translational impact of currency and what you're expecting in '09.

Have you seen any impact from the transactional impact of the stronger dollar?

No, honestly, and it's what's difficult for us, we're very well matched on a global basis, and so if the stated currency is down 4% on $2.3 billion, that's $92 million, and it will deleverage at the same rate as though it was an operating number.

It doesn't have a decramental deleveraging effect that deals with absorption issues and contribution margins.

It kind of delevers at the same ratio.

So if it's down 20 or 25%, because that's the kind of businesses it is, that's how it shows up.

So you could have the same level of efficiency and effectiveness, and it could have as much as a $0.20 drain on our earnings per share in 2009, purely from currency, having nothing to do with end markets.

So we expect it in '09, as we went through the fourth quarter, that RF and kind of some turnaround benefits we're getting in medical and scientific imaging, would be able to offset industrial and energy, and then the depth of what happened in the industrial sensor business and the refining business made us worry to the point where we said, well, we think it should largely mitigate.

If we're lucky, it actually will offset it, but maybe we'll have low single digit negative organic growth because of the depth of the industrial and energy end market challenges.

Then that left us open to an exposure only related to currency translation.

Okay.

And you mentioned the decision making, the slowness in decision making on the part of your customers.

How would you characterize the existing business in terms of, are we seeing a significant number of customer delays, any cancellations?

Are your customers revisiting price?

We have sort of stepped up -- we put a number of new call systems in place, where we're involved very frequently.

The activity that our divisions have, and their quotation indices and everything else is not off.

The activity level is as good as it was before, but the commitments are slower, and so we remain cautious, because our fear would be that it's just going to take a longer time for people to commit, and that's what worries us.

We're not seeing any cancellations.

We're not seeing price difficulty.

Okay.

Finally, the hit that you took in the second quarter of '08 on Neptune, relative to the repair cost to the customers, or the vendors' components, have you received any of that $3.5 million back yet?

Can you give us an update on that?

Yes, let me take it in both categories.

First, as far as the reserve that we took, we've spent about 85 or 90% of that, so we're almost completely complete with that repair and fix activity.

As far as the vendor and the negotiations there, no, we have not received any of that yet.

We have come to a framework for a--.

Yes.

We have framework, not guidance here.

We have come to an agreement in principle with the supplier that will result in slightly lower prices over the next two to three years or so, that will just run through as lower cost of goods sold to the Neptune business.

Thanks very much.

We'll go next to Matt Summerville at KeyBanc.

Mr.

Summerville, your line is open.

Please go ahead with your question.

Just a couple questions.

First on the imaging business, in the fourth quarter I think your operating margins were 22%, which is the best performance that segment has had in a couple years.

First, can you talk about how much of that is mix related, and how sustainable is that if you think your medical and life sciences businesses will, on a relative basis, at least, outperform in 2009?

Well, part of it is, Matt, they're growing faster than the others, so there is a natural mix gain.

I don't know, John, you want to take a swat at that?

We had really, in the first part of the year, Matt, what happened is, a couple businesses had arrangement with customers that had made some expensive investments in specific R&D without getting the right kind of assurances, and the customers didn't follow through in the time lines that they thought they would and so it depressed margins, because you had no revenue matching up against the R&D costs.

And it wasn't billable in any way.

So we've taken some actions in those businesses around restructuring, which we never really even talked about, they're just all done, we made some management changes, and have done things, all of which are beneficial.

We've got some new leadership that is doing a better job.

We got better focused.

In the first part of the year there was a concept called MAG and people trying to put some things together, and we didn't think that was in the best interest of things, and unfortunately we were proven right, so we unwound that.

Now you've got the focus back and things look better.

And the business could do better in '09, especially with this NIH funding initiative that people are talking about.

And then the challenge would be if the industrial side was worse.

Those businesses, the industrial camera stuff, a lot of that is used in flat panel inspection, and that business is on its worse possible legs so the rest of it has to offset that.

And we think it will.

Two questions then on energy.

First, I think you talked about in the third quarter seeing some pretty meaningful push-out with Z-Tech, what the timing of that is going to look like, if you saw any of that in the fourth quarter, whether that's 2009?

Just more broadly speaking on energy you tend to talk about themes around safety, environmental regulation, productivity improvement really driving the business sort of outside some of the macro things going on.

I guess I'm trying to get a sense for how much of your energy business do you feel is really well insulated from the macro cross currents right now?

Well, the first question around Z-Tech, you're right, those push-outs happened in the third quarter, and we didn't really expect them in the fourth quarter, and they should hit sometime in the first half of 2009.

We have largely been insulated, and really haven't had very much correlation to what the overall oil price has been.

But, on the other hand, the end markets that are served by particularly around refinery and petrochemical, for them it's not around whether they want to invest in new productivity solutions or compliance with regulations, those folks just shut their plants down.

And as a result, they weren't buying anything.

And so what normally would have been a very strong fourth quarter and historically has been a very strong first quarter, for some of those businesses, as folks kind of flushed out their annual operating budget, not only did they not flush out their operating budget, they didn't even do their normal level of activity.

So I think once folks get back to actually running their plants, then they will start looking at ways to either become more efficient or comply with whatever regulations that may be out there.

We have some activity underway with some of the regulatory bodies in California that could have some very good tail winds, but that probably won't happen until 2010 and beyond but there's some good conversations there.

Thanks a lot, guys.

You are welcome.

And that will end our question-and-answer session for this call.

We now return back to Mr.

John Humphrey for any closing remarks.

Okay.

Thank you all for joining us today, and we look forward to talking to you as we finish the first quarter in a couple months.

This does conclude today's presentation.

We thank everyone for their participation.

You may disconnect your lines at any time, and have a good day.