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Roper Industries (ROP)

Q4 2010 Earnings Call

January 31, 2011 8:30 am ET


B. Jellison - Chairman of the Board, Chief Executive Officer, President and Member of Executive Committee

John Humphrey - Chief Financial Officer and Vice President


Wendy Caplan - SunTrust Robinson Humphrey Capital Markets

Richard Eastman - Robert W. Baird & Co. Incorporated

Terry Darling - Goldman Sachs Group Inc.

Matt Summerville - KeyBanc Capital Markets Inc.

D. Mark Douglass - Longbow Research LLC

Deane Dray - Citigroup Inc

Christopher Glynn - Oppenheimer & Co. Inc.



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Good day, and welcome to the Roper Industries Fourth Quarter and Full Year Financial Results Conference Call. [Operator Instructions] I will now turn the call over to John Humphrey, Chief Financial Officer. Please go ahead.

John Humphrey

Thank you, David, and thank you, all for joining us this morning as we discuss the results of the fourth quarter and full year 2010. Joining me this morning is Brian Jellison, Chairman, President and Chief Executive Officer; and Paul Soni, Vice President and Controller.

Earlier this morning, we issued a press release announcing our financial results. The press release also includes replay information for today's call. We prepared slides to accompany today's call, which are available through the webcast and also available on the website at

So if you turn to Slide 2, we'll begin with our Safe Harbor statement. During the course of today's call, we'll be making forward-looking statements which are subject to the risks and uncertainties that are described in this page and as detailed in our SEC filings. You should look into today's call in the context of that information.

And now if you'll please turn to Slide 3. I'll turn the call over to Brian Jellison, Chairman, President and Chief Executive Officer. After his prepared remarks, we'll take some questions from our telephone participants. Brian?

B. Jellison

Thank you. Good morning, everyone. We'll start off by just saying the outline for today, we'll talk first about our full year financial results here for 2010 and then go into the enterprise results on a financial basis for the fourth quarter. Then we'll look at the individual segment detail and the outlook for each one of those segments for 2011. I'll talk a little bit about sort of beyond the numbers, things that happened in 2010 that have been learnings for us during the downturn as we come out. And then establish our 2011 guidance and move to Q&A for you.

So next slide. For 2010, our enterprise financial results are just fundamentally in every category, an all-time record whether it's orders, sales, backlog, earnings, EBITDA, cash flow, anything one can think of. Our EBITDA margins for the year reached 26.7%, of course, another all-time high.

Our operating teams performed exceptionally well, and we enjoyed full year EBITDA leverage on the next dollar of incremental sales of 40%. We had a record asset loss, we will have more to talk about there. And for the first time, we were at $500 million in operating cash flow for the calendar year.

Our free cash flow became 20% of sales. We look around it, capital market competitors for us and many of the S&P 500 businesses don't enjoy 20% operating margin, let alone 20% free cash flow to sales. Our free cash flow exceeded net income for the 13th consecutive year. We increased our dividend this year by 16% for 2011 after raising them last year, 15% for 2009.

Our book-to-bill ratio for the full year was 1.06. This has created a record backlog of $785 million, which is up $220 million from our year-end backlog last year, and I think one of the things that's amazing for us is that the excellence that we had really permeated throughout the enterprise with only to or three businesses not participating.

Next slide. Our full year income statement, you can see here bookings reach about $2.5 billion for the first time. Our bookings were up 25% on the year. Our net sales were up 16%, 8% organic for the year but of course, it continued to move up throughout the year starting out the year with a minus 3% and then a plus 5%, and a plus 14% and closing out at a plus 15%. Our gross margin, again, spectacular 53.4% for the year, up 250 basis points over the prior year.

Our income from operations for the year was up 30% at $514 million, and I would like to remind people that we have about $86 million of noncash intangible amortization that depresses those income margin. So our operating profit margins reached 21.6% for the year. If you add back the noncash intangible amortization, you're over 25%.

Our interest expense was up just modestly at $67 million, and the tax rate was slightly down this year at 28.1% versus 29.5% for the prior year. That left us with net earnings of $323 million, up from last year's $239 million, and full year diluted earnings per share of $3.34 versus $2.58 last year.

Next slide. Our full year operating cash flow as we said before was $500 million, that was up 36% from last year's $367 million. And our operating cash flow as a percent of sales, you can see it continues to trend up, it was 16% in '07, 19% in '08, dropped by a point to 18% in the great recession and it's now back to 21% here in 2010. And our cash conversion on an operating cash flow basis was 155% of net income.

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