Ladies and gentlemen, the Roper Second Quarter 2008 Financial Results Conference Call will now begin. Today's call is being recorded. At this time, I will turn the call over to Mr. John Humprey, Chief Financial Officer. Mr. Humprey, please go ahead sir.

Thank you. Thank you all for joining us this morning, as we discuss the results of our second quarter performance. Joining me this morning is Brian Jellison, Chairman, President and Chief Executive Officer, and Paul Sony, Vice President and Controller. Yesterday afternoon, we issued a press release announcing our second quarter financial results. The press release also includes telephonic replay information for today's call. We've prepared slides to accompany today's call which are available through the webcast and also available on our website which is www.roperind.com. Now if you'll please turn to Slide 2. You'll once again see our Safe Harbor statement. I want to remind you that today's call will include forward-looking statements which are subject to risks and uncertainties as described on this page, additional information of our specific risks are included in our SEC filings. You should listen in today's call in the context of all that information. Now if you'll please turn to Slide 3, I will turn the call over to Brian Jellison, Chairman, President and Chief Executive Officer. After his prepared remarks we'll take questions. So with that, Brian.

Thank you John, and good morning everyone. If we move to what is labeled Slide 3, Roper second quarter 2008 overview. I'll start with the fact this was a record financial performance quarter by virtually any measure, and when we say a record, we don't just mean a record second quarter, we mean a historical record quarter for any quarter in the history of the Company. Our orders were $606 million. Our sales were $594 million. Our net earnings were 76 million. Our EBITDA performance was $151 million in the quarter, and our DEPS number is $0.80. And as many of you just noted there is a little noise in that number, and certainly be viewed at a much higher rate. We had some specific challenges in the quarter, imaging which we're going to talk about. We can't really excuse the performance from imaging in any way. But it can be put in context, so that it's more clearly understood. Then we had the Middle East toll project comparison, which has a lag on what's happening in terms of internal growth in the company, we'll explain that. The reality is it's in a wonderful situation for from us this quarter forward. And then third, we had a special charge which as, you know it's very unusual for us to have or to take, and we'll explain what happened around there. Then, we'll look at the financial results and some perspective about our results, some strategic things that occurred in the quarter, and then a review, a little more granular review of the four segments, and then an update on the guidance for Q3 and the rest of the year. So if we turn to the next slide. You'll see challenges in the quarter. For us the organic growth comparison due…

[Operator Instructions]. Our first question we go to Jeff Sprague with Citi.

Thank you. Good morning, everyone.

Morning.

Good morning, Jeff.

Brian, I'm wondering if you could give us a little bit of a backdrop of how Toronto evolved, what you think drove the decision in your favor and this is the second or third quarter in a row now where we heard about Mexico or Africa, and now it's Toronto? Maybe what else is kind of in the forward pipeline of things that you're working on, even if you can't name, name, so to speak?

Well Toronto is such a large thing. It's an enormous project. Just think about recently New York selected a fixed network system for high density application and doesn't involve us because it's not what we do. And everybody thinks that's wonderful, it's $30 million box or something, and this is $190 million, get out of here. It's an enormous job. We're going to be leading all the elements of the job, using a variety of different products that we have and some things we'll be acquiring from others. So we're very excited about that. It confirms again to people that are considering big projects that we're the most sophisticated and most customer friendly group to deal with those, and there are other products you could buy which are less expensive. But on balance, people want accuracy and they want quality and they want friendly service and all of those things were important. This is a very long-term project that Dave Stoddard has been working on in Canada for Neptune. And they've put a lot of time and energy into this. In Canada, unlike the US, we actually install the meter frequently for an additional fee. I think our track record in working in frozen tundra and having meters that don't leak, and digital readouts that work in a very tough environmental area was important. Now having said that, it's a public bid process, everybody knows what you bid in, and they know what our average price for the register is, they know what the meter was. We were certainly low or the highest value producer if anybody and all the stuff is really public. There was a City of Toronto thing out there, we were reading through it again last night to make sure we weren't miss quoting anything. But…

Great. And then I guess on a similar vane, different business, as you indicated. Now that you've got a kind of firm marker in the ground, Turnkey in the Middle East, people kicking the tires on the idea. Could we… should we expect some new development there in the next whatever you want to call it, six months, twelve months, on the project side in some other area?

I will say this. We've had a tremendous of amount of activity, because people, one, they like to go to the place and check it out. There are several peoples who have been there more than once. We are fielding a lot of questions about how that works. And there is some considerable international activity in and around that area, but we don't have any firm commitments from anybody about them rolling out something similar to what we've done here. But we are effectively providing people with information about the design and cost structures and time for install and what have you. So I think we would be surprised if anything happened in the next six months, but I wouldn't rule it out, and I think it's more likely that neighboring countries or people who are visiting there and see the opportunity for it would think about deploying it. I think the good news is unlike the US when an international player decides to deploy, they actually decide to deploy and they do it. You don't have a whole lot of issues because there tends to be less political pushback. Here you always have these kind of political things that draw things out for very long period of time. So clearly, if we didn't have the install base in the Middle East, we wouldn't have an opportunity to do another $100 million project, but because we've got it, and it is working flawlessly, it is giving us a lot of new opportunities. When we'll take advantage of those, I have no idea.

Great. Thanks a lot.

We go next to Mike Schneider with Robert Baird.

Good morning, guys.

Good morning, Mike.

Sticking with Toronto for a second, is it a drive by, or is it a fixed network project, Brian?

There are several different aspects. But we're going to be deploying what used to be the hexagram a fixed network for a portion of this that we will get from them and install ourselves with our radios and registers.

So it's primarily a fixed network, maybe with some drive by on the periphery?

Right.

Okay. And then do you anticipate supplying the underlying meters, as well I presume?

Yes, absolutely.

Okay. And then the margin impact, when you had large projects like this in the past, the Middle East for example, in the tolling space generally been lower margin and we've talked about that several quarters as it's run through the P&L, is that going to be the case with Toronto in the industrial tech segment?

Nothing like the situation that you have with an install and traffic there won't… first of all, nothing Neptune does in flow, it won't be much of a drag. But there will be some stuff that's passed through and to the degree we have the pass-through and we'll give everybody plenty of warning around that. It will be in our guidance as things roll out. As these things rollout, that won't be… you can't take the 190 I assume a full normalized industrial EBITDA number on every aspect of it.

Because there will be pass-through on.

Yes. Some, but you make money on everything. It's not like this kind of 6% to 8% margin work, 10% or margin work that you're doing. There is some install work, because Dave does a lot of install in Canada, and that's okay, doesn't type any assets, but it will still be quite substantial.

Okay. And switching to tolling, the Florida order of 1.5 tags, at least I have learned that the first year projection of tag rollouts I believe was only 600,000, and I believe the early adoption just in the first three weeks of July was very strong. Is this a multiyear order or do they expect to actually exceed the initial estimate of 600 by more than 2?

I wouldn't speak for them, but it's an immediate order. I mean we're making product and shipping product. It's not a multiyear order. This is just the initial order for the product.

Okay, CBORD, final question. Just what type of growth if you look on their organic basis, are they growing at this point?

Mid-teens.

Okay. Thank you and congratulations, guys.

Okay.

We go next to Wendy Caplan with Wachovia.

Hi. Good morning.

Hey, good morning.

Brian, the imaging problems that you referenced, it is not really new news. This is a business that has been problematic for awhile. Can you sort of walkthrough for us what your… first breakout the camera business for us, so we know what we're dealing with today, and also your thoughts in terms of strategic actions that we might see regarding this camera business?

Well, I think that you will see some strategic actions. We brought back a terrific person who some of you know you know, Don Templeman who used to be involved in Gatan and was involved in Princeton Instruments and he use to run Cornell. And so he's had a lot of experience, and was our Investor Relations person for a while. And Don has done a terrific job in trying to rescue the Princeton camera business down there, and was instrumental in us being able to divest the Redlake Motion business. We had Don join us on Friday, for a walk through of what Ben calls the micro imaging analyses group, which is containing Photometrics and Q. Photometrics has in past years used to be coupled up with Princeton as Roper Scientific. And Gatan felt that they could drive more out of Photometrics by getting it moderating with Gatan, and they have achieved that. They've driven more of the profit out of Photometrics, they've driven more of the organic growth out of it, and they managed to do everything that one worries about when you let people consolidate. So that was a failed concept, and we worked with them all day Friday. We brought other people in. We brought people in who previously had responsibility for the business. And we are going to look strategically at what we want to do about this business because it's just flat out not acceptable. It's about half of the imaging segment. So I don't have that number in front of me but.

Roughly $90 million.

It's about.

Its roughly $90 million in the quarter.

So the cameras might have been 50 or something like that.

Okay. That's very helpful. Thank you. And also the acquisitions that you mentioned, I don't think I heard you give us annualized revenue numbers, kind of if you could just?

I will tell you, it's a sensitive matter for us. One of them is really a software business provider, and it's going to be married up with an existing situation. So it does tend to have extreme margins, and doesn't have as much revenue because its contribution margins are extreme. The other one, the Chouen business, when we put the two together we're talking about something that's going to have hey high, maybe twice Roper's EBITDA margins. And it's maybe going to generate $25 to $30 $35 million of revenue over the next 15 months.

Okay. Thanks very much.

Lots of cash, lots of synergies, okay.

Thanks.

You're welcome.

We go next to Alex Blanton with Ingalls Snyder.

Good morning.

Good morning, Alex.

Just a clarification, you did $0.83 without that charge if you add the tax affected amount to the actual net income and compute it that way, it was slightly below that, but then you rounded up to 83. Was that in your guidance?

The charge, no, what you mean the forward guidance?

Yes, the guidance you gave us in the second quarter.

The 3.16 to 3.22 includes eating the charge of that $0.03.

I realize that. But the guide answers you gave us at the end of the first quarter was 77 to 79 for the quarter.

We didn't know about that. We only learned about this in, literally the last week of June.

Okay.

And I just can't tell you what an incredibly great job Neptune did, to take ten meters and recognize that it's actually a component problem and how it's going to have to be resolved.

Okay. That's great. So you did $0.83 versus $0.77 to $0.79 anticipated, right, am I right?

I can't do that math for you.

You're top in by $0.04 excluding the charge, that's what I am getting at.

Okay.

I mean is anything wrong with that way of thinking?

Well listen, we're always instructed that we could tell you what the charge was.

Yes.

And we can tell you what the shares are. But we cannot do a calculation about that number. So we're conservative about that, and that's why we didn't in our press release say that exactly what that was.

I don't understand these knitty-gritty things, but. Look I understand that it's a.

But we don't necessarily understand it but comply with them.

Okay. Now, S&P on the ratings situation, S&P raised their rating 2, but you didn't comment on that. Was that because you didn't quite get?

Yes, John, why don't you explain that?

Sure, actually with S&P we had an existing shelf out there, it was registered a while back at the time when we were a low-rated company, when we went to an unsecured facility for our credit facility. That required S&P to take a fresh look at the shelf. So they came out with their upgrade for that shelf. We remain at BBB minus with us a stable outlook with Moody's as we have been throughout the last nine months.

So what is this S&P's rating on you?

S&P is at a BBB minus with us a stable outlook, and Moody's is now at a Baa3.

Okay. So the S&P is slightly below the Moody's?

No, those are a 12 hour ratings.

Those are equivalent rating.

BBB minus is the same as a.

Got you, they're both investment graded?

Absolutely, yes.

Okay.

They're both investment grades.

I'm not a born person, so just wanted to clarify that.

They're both the first step into investment grade.

Got you, okay. So Moody's went up to, okay.

Yes.

You have announced the third quarter debt extinguishment charge I think it's $0.02.

Correct.

Well, that's not in your guidance.

Not it's not in our guidance. We view that as a non-cash administrative matter. And whenever we've had dead extinguishment costs in the past we've excluded it from our.

Okay. So do you know if the analysts will include it or not, because otherwise it gets confusing.

I have no idea what they're going to do, but if our history has been and pretty much anybody I have ever seen and in debt extinguishment non-cash charges it's not included, it's just an extraordinary item.

Let's hope not otherwise, we're going to have non-comparable numbers out there. Finally, the Mid-east project, you indicated that there was a 4% delta between including and not including in the sales, which works out to be about $20 million for the quarter.

That was actually a 2% delta, which would be half of the number you just mentioned about.

I thought you said that was up 12% versus up 8%.

On a reported basis our total sales were up 12%, but we also have acquisition benefit. So on an internal basis, sales were up 6. If you adjust for the impact of the Middle East tolling project, internal sales up 8. So the impact on the total company was 2 points.

Okay. 2%?

2% on the growth side, yeah.

That's 10 million for the quarter.

It was about a $10 million delta year-over-year.

Okay. So if I annualize that as $40 million, but I don't know if I can annualize it, because I don't if it was there the entire quarter, or just first up.

No. You can't really annualize that number. It was kind of flat year-over-year in the first quarter.

Yes.

And then it will be an impact in the third quarter as well.

There will be an additional impact?

A similar impact in the third quarter and moving into the fourth, it is not a full quarter impacting the fourth.

Okay. Thank you.

You're welcome.

We go next to Matt Somerville with KeyBanc.

Two questions. First back to imaging, Brian, what kind of average duration are you seeing in terms of these delays and I guess, right now would you say you have a little bit better visibility into the business and then just can you talk about how the performance of a medical pieces within scientific and industrial imaging segment have been performing and what the outlook is there?

Yeah, Matt, let's do just medical first, medical continues to do well. They have a big trade show coming up here. They are going to be launching a bunch of interesting oncology support materials. That business is still growing nicely it has above Roper EBITDA performance, low asset base. They did have some difficulty in the quarter, because we have two facilities, one in Colona and one in Orange City, Iowa. The flood did affect them, didn't do any damage to the facility, but it affected people who had to deal with issues around Cedar Rapids and what have you. That will immediately write itself here in the third quarter. We weren't going to use the Iowa flood for an excuse for any of the certain margin deterioration we had. We still very much like that business. It's doing well internationally. We still think it ought to be a double-digit grower. We're talking about something in the neighborhood of $100 million of revenue in that business, so the reason we're so disappointed with imaging is when you have one of the most attractive business elements inside your segment and you still have deteriorating performance, it makes it frankly much more unacceptable. As far as the visibility, what's really happened to some very well intended people is they took a couple of their OEMs at their word and the OEMs got involved in situations that they didn't foresee. One of our customers, a publicly trading company laid off 60 people in the second quarter and it is very well known what kind of problems they're going through. One of the competitors I see that one of them has, I just got a copy out UK that somebody might be buying them. So I think there is a lot of activity in the space. I think that the margins would not have deteriorated if they hadn't spent as much money ahead as they did and Gatan moved out of it's facility to get completely integrated in another facility in Pleasanton. That drove up their costs. They did an unacceptable job in budgeting, and I think John and I felt that commitments were made to us weren't lived up to and that's why we took people actions there recently. I think as far as visibility, we're not worried about imaging having further deterioration. I think it will be flat in the next quarter. Hopefully it starts to get a little bit better, but it is a short-term drag on our performance and as somebody else said it's we're going to take a hard look at what we're going to do with that business. We're either going to reconsolidate that business or think about somebody else do it.

Okay. And then the other question is just around the Energy Systems and Controls segment. If I break the segment into buckets, you have instruments, control systems, the protective technologies and the Z-Tech power business. Can you talk about fundamentally what you're seeing kind of across those four buckets?

Well, frankly they're all doing really well. The Protective Technology business in terms of variable on effusion of revenue is leading the path. The sensor business is doing really well, up quite a bit in the quarter. So those two were at the high end, let's say favorable results and detracting compression, controls were sort of similarly up, detect a little smaller business and for us it's also actually out performed a bit more. The business that lagged in the quarter on a relative basis still up was our Petroleum Analyzer business, which had soft North American activity compared to what we would expect. And they're projecting a really, really strong second half of the year. So we see favorable comps in energy in Q3 and Q4.

The comment you made on M&A pipeline being relatively full, the transactions you're looking at, Brian, are they more along the lines of the smaller deals you closed on here very recently or are those things in the pipeline of historical size similar to the Neptune's and TransCores?

I would say the short answer to that is yes. But we look at over $5 billion a year in transactions. Now so far this year we've actually invested some real money. We don't think we're done this year, and some of those could be smaller, and some could be larger. I think what's really a little different, when we bought Neptune that was a very big deal because we had to spend over four times our trailing EBITDA to acquire Neptune. We issued equity and we issued a convertible secured. When we acquired TransCore, we still spend over 3.5 times our trailing EBITDA. At that time, we had to get the company debt rated. We had to establish all the relationships. We didn't have anything here prior to 2003. We put in place I think a world-class corporate team. And now it's really a sophisticated and straight forward standard company. It's an investment grade company, and that company is going to remain investment grade. To do that, it's not going to get a balance sheet debt to EBITDA situation like it had, that had to invest in to become a great company. So I think you're going to see us running at this kind of two and a half times debt-to-EBITDA, and you can put a pencil to that, and you can see what kind of capacity we have going forward. So we have a lot of opportunity, but we're not going to have taken four years to get this company into the status that it is squander that by making a big deal that doesn't fit our investment grade metrics. Now, we got a lot of opportunity foe that, and we also have some tangible assets. We may have been talking about one this morning. And if we cashed out some of our assets that were less happy with, we would have more powder to do a larger transaction. So I think I will stop there.

Thanks a lot, Brian.

You're welcome, Matt.

We go next to Deane Dray with Goldman Sachs.

Thank you. Good morning.

Morning.

Couple points first just to clarify there was a question earlier about whether debt extinguishment is treated as one-time and typically it is treated as one time, so you're right on that, Brian, and, John, we appreciate that inclusion of core revenue growth in the release, so in fact we had to double check to make sure that really was a Roper release we were looking at because that was a new iron for us, I appreciate it.

Always trying to be transparent.

Terrific. Now if we could, I would love to get more detail around this manufacturing issue at Neptune. Just from your description it begs a lot of questions here to the extent you can, just take us through. What is this component? Why, is it not covered under warranty? Is it going to be litigation, a big recall or is this very contained at this stage? So if we start there.

It's very contained at this stage. It won't be a big recall. The provider of this is a very large company with very deep pockets, and very deep personal reserves. It's quite clear to us that they are completely responsible for this. And it is exceptionally fortunate for them and everybody involved that we were able to catch this, because it's a component that would go into a significant number of our automatic meter reading devices. And the situation, it is a very in-expensive component. So we do some other business with this company, which gets to be larger in detail. But the problem is already known, it's already resolved. So it isn't getting worse, as we speak. So it's a finite thing involving a relatively small number of in-stock and installed devices. The bad news is that, you can't just pluck out the component. These things aren't that expensive in total. So we've got quite a bit of labor, and we talked about it here. It's actually because we learned about it in the last week in June, and people were continuously through the 4th of July to make sure that we understood exactly what it was and what the remedies were. We felt obligated to do book this. But I think the amount of money we booked is clearly adequate. Our responsibility for this we think gets transferred ultimately to the provider. They need to fess up and handle this as a warranty item for themselves in addition to a whole lot of other costs that we're providing. So it's not a product recall. It's something that can be fixed in the field, but unfortunately you don't get to walk into a plant. You have to go into the guy's yards, you got to open up his meter pit, got to make a change and the labor will be expensive, but parts are negligible.

And just to clarify if you could, is this an electrical component, or mechanical component?

It's an electrical component, and we would like to tell you what it was. We initially had that, decided I guess, we shouldn't do it because it wouldn't be that hard to figure out who the person was, the vendors ask to us work with them, so we're going to work with them. But they should do the right thing.

It is your sense that charge as it stands today will adequately cover.

Absolutely. We've been through that. We took TW through when we booked it. Yes. We're very comfortable that that charge reflects the right methodology.

And it's just your sense that this should be treated as a one-time item? Why is it not part of your manufacturing challenges and on a regular basis?

The way we treat it is a reduction in cost of goods sold. We'll probably put it through the warranty reserve, but we don't think in fact, it validates kind of our reserved methodology, because we caught it so early, it's just a weird thing it is going to cost all this labor. I think each person has got it, we're not asking people to, but we believe it is a one-time item. But we didn't say we earned $0.83. We said we earned $0.80. So if people want to give us credit for that as a one-time item, we thank them very much for that but our guidance assumes when people don't give us credit.

I understand. Thank you.

You're welcome. Okay. Rufus, we have time for one more question.

And that question comes from Shannon O'Callaghan with Lehman Brothers.

Good morning, guys.

Good morning, Shannon.

Yes, just a couple things. One more follow-up on imaging, just in terms of the actions you're taking and how you're thinking about it in the future? I mean it sounded like a lot of what was deemed up acceptable was kind of controller ship issues you made some of these people changes in the business. What else is there that makes you question whether you really want to this be a Roper business?

Well, it has been a frustrating business for us for several years, because we're getting up to the point where like half of our revenue is recurring revenue or subscription services and things like that, and the trouble with the camera businesses is it's always a new sale. It is always an application design. And it is always something the guy can buy a little bit later. Frequently its government funded, and you're looking for the Japanese government to spend money on research or you're looking for the US government. We get worn out with the excuses that we get from the camera people. They actually are always correct, okay? But investors don't reward us, because we can articulate what went wrong. They reward us for anticipating what can go wrong and taking action in advance. We've been too patient, too long with the camera businesses, and actually it's a good thing what happened this quarter, because we are no longer going to tolerate the kind of stuff that we have to live with. It's not going to happen in 2009 or ever again. And I think that everybody involved in those processes knows and understand exactly what we're saying.

Okay, great. That helps. And a couple of things on the margins, you mentioned these industrial margins extra charge. Those are pretty wild with kind of contribution margins you put up there. I mean even though industrial has been tracking with very strong contribution margins as it is, that looks like a bit of an outlier. Was there anything unusual there in the quarter?

We had phenomenal shipments out of Neptune, all time record. So you got really good… I hate to use the term absorption. There has been a terrific, but everybody is doing well. We had one small business in there that's struggling. Our punt businesses are doing phenomenally well. Right at the moment this is the time you would say, wow, I really love our industrial business, what do I have to talk about all of this other stuff for, because we would be up double-digits organically. We have everything in the world looks wonderful, so everybody is doing great. We came off a two-day quarterly review session with them last Wednesday or Thursday and in Atlanta, and when we walked out I was saying to the guys, well, this feels more like a strategic review than a quarterly review. I can't explain about anything. We did find things, what I mean is they are really just knocking the ball out of the ballpark.

Okay, great. I leave it at that. Thanks, guys.

Thanks.

And that will end our question-and-answer session for the call. We now return to John Humphrey for any closing remarks.

Okay. Well, I guess my closing remarks are to thank everyone for joining us this morning. And as always, we look forward to talking to you again in three months.

And ladies and gentlemen, this does conclude the Roper second quarter 2008 financial results conference call. We do appreciate your participation and you may disconnect at this time.