Results of Operations

General

The following tables set forth selected information for the periods indicated. Dollar amounts are in thousands and percentages are the particular line item shown as a percentage of net sales. Percentages may not foot due to rounding.

Three months ended March 31, 2008 compared to three months ended March 31, 2007

Net sales for the quarter ended March 31, 2008 were $543.0 million as compared to $478.4 million in the prior year quarter, an increase of 13.5%. Our first quarter 2008 results included sales from the 2007 acquisitions of JLT, DJ Instruments, Roda Deaco, Dynamic Instruments and Black Diamond, and the 2008 acquisitions of CBORD and Tech-Pro, as well as the impact of the exit from the Redlake Motion product line in the fourth quarter of 2007. Approximately $15 million of our sales increase was due to these business activities; however, all of our four segments showed improvement over the prior year quarter resulting in internal sales growth of 10%, which included a 3% positive foreign exchange impact.

In our Industrial Technology segment, net sales were up 12.4% to $173.6 million in the first quarter of 2008 as compared to $154.5 million in the first quarter of 2007 due to strong sales throughout the segment, led by increased sales at Neptune represented by growth in both domestic and international markets. Gross margins increased to 48.8% for the first quarter of 2008 as compared to 47.5% in the first quarter of 2007 despite increased cost of raw materials, due to operating leverage from higher sales volume and increased operational focus. SG&A expenses as a percentage of net sales were 22.7%, down from 22.9% in the prior year quarter due to operating leverage from higher sales. The resulting operating profit margins were 26.1% in the first quarter of 2008 as compared to 24.7% in the first quarter of 2007.

Net sales in our Energy Systems & Controls segment increased by 23.5% to $128.4 million during the first quarter of 2008 compared to $104.0 million in the first quarter of 2007. Approximately $10 million of the sales increase is due to the 2007 acquisitions of Roda Deaco and Dynamic Instruments.  Internal growth was 14%. The internal growth was driven by continued penetration of steam generation inspection products and turbomachinery control systems for oil and gas projects in the Middle East and Africa. Gross margins increased to 53.5% in the first quarter of 2008 compared to 51.4% in the first quarter of 2007 due to the non-recurrence of the purchase accounting inventory step-up of $0.8 million related to Dynisco in the first quarter of 2007 and operating leverage on higher sales volume. SG&A expenses as a percentage of net sales were 31.5% compared to 32.3% in the prior year quarter due to operating leverage from higher sales. As a result, operating margins were 22.0% in the first quarter of 2008 as compared to 19.1% in the first quarter of 2007.

Our Scientific & Industrial Imaging segment net sales increased by 4.8%. Internal sales increased by 6% led by strong sales in the medical business and new product launches in microimaging applications. Gross margins decreased slightly to 55.6% in the first quarter of 2008 from 55.7% in the first quarter of 2007. SG&A as a percentage of net sales was 34.8% in the first quarter of 2008 as compared to 34.6% in the first quarter of 2007. As a result, operating margins were 20.8% in the first quarter of 2008 as compared to 21.1% in the first quarter of 2007.

In our RF Technology segment, net sales were up 13.0% at $144.5 million in the first quarter of 2008 as compared to $127.9 million in the first quarter of 2007. The increase is due partially to sales from CBORD and Black Diamond, which accounted for approximately 6% of the increase, with the remaining 7% of the increase resulting from internal growth, due primarily to continued wins in domestic tolling and traffic management projects. Gross margins increased to 48.1% as compared to 46.9% in the prior year quarter due to the addition of the higher-margin CBORD business. SG&A as a percentage of sales in the first quarter of 2008 was 28.7% up from 27.4% in the prior year due to a higher mix of tolling and traffic project work in the current year first quarter, as well as increased non-cash amortization expense related to acquired intangibles of CBORD, with a resulting operating profit margin of 19.4% as compared to 19.6% in 2007.

Corporate expenses increased to $13.3 million, or 2.4% of sales, in the first quarter of 2008 as compared to $9.5 million, or 2.0% of sales, in the first quarter of 2007. The primary reason for the increase was higher equity compensation costs related to retention programs and the additional costs to the Company as Roper’s stock price rises.

Interest expense of $12.2 million for the first quarter of 2008 was $1.2 million lower as compared to the first quarter of 2007. This is due to a decrease in interest rates on the variable rate portion of our outstanding debt and an increase in offsetting interest income related to higher cash balances, partially offset by higher average balances on our credit facility over the prior year quarter.

Income taxes were 35.0% of pretax earnings in the current quarter, unchanged from the first quarter of 2007.

At March 31, 2008, the functional currencies of our European and Asian subsidiaries were stronger against the U.S. dollar compared to currency exchange rates at March 31, 2007 and December 31, 2007. The currency changes resulted in an increase of $22.0 million in the foreign exchange component of comprehensive earnings for the quarter. Approximately $13.4 million of the total adjustment is related to goodwill and is not expected to directly affect our expected future cash flows. Operating results in the first quarter of 2008 increased slightly due to the weakening of the U.S. dollar as compared to a year ago. The difference between the operating results for these companies for the three months ended March 31, 2008, translated into U.S. dollars was approximately 1%.

Net orders were $558.0 million for the quarter, 13.2% higher than the first quarter 2007 net order intake of $493.0 million. Approximately $18.5 million of the order increase was due to acquisitions and the exit from the Redlake Motion product line. We experienced strong bookings in most of our businesses. Overall, our order backlog at March 31, 2008 was up 13.4% as compared to March 31, 2007. The increase in backlog is due to 5.5% internal growth as well as 7.9% or $41.4 million from acquisitions and the exit from the Redlake Motion product line.

Financial Condition, Liquidity and Capital Resources

Net cash provided by operating activities increased by 25.4% to $71.6 million in the first quarter of 2008 as compared to $57.1 million in the first quarter of 2007. Cash used in investing activities during the current and prior year quarters was primarily business acquisitions. Cash provided by financing activities in the current and prior year quarters resulted from debt borrowings to finance acquisitions, offset by dividend and debt payments. Debt borrowings due to acquisitions were $178.9 million in the three months ended March 31, 2008 as compared with $44.7 million repaid in the prior year period. Principal payments of $24.6 million were made on the Company’s $955.0 million term loan in accordance with the terms of the credit facility, as compared to $16.4 million in the first quarter of 2007.

Net working capital (total current assets, excluding cash, less total current liabilities, excluding debt) was $326.1 million at March 31, 2008 compared to $305.9 million at December 31, 2007, reflecting increases in working capital due primarily to an inventory build up in anticipation of higher sales in the second quarter of 2008. Total debt increased to $1.22 billion at March 31, 2008 compared to $1.06 billion at December 31, 2007 due to borrowings for the CBORD acquisition. The leverage of the Company is shown in the following table:

In December 2004, we entered into a $1.055 billion senior secured credit facility with a diverse group of participating financial institutions and banks, which consisted of a five-year $655 million term loan and a five-year $400 million revolving loan. The credit agreement contained a $300 million term loan accordion which was exercised in December 2007, thereby increasing the term loan balance to $955 million and the credit facility to $1.355 billion. We also have $230 million of senior subordinated convertible notes, due in 2034. At March 31, 2008, our debt consisted of the $230 million in senior subordinated convertible notes, $799.2 million of term loans and $179.0 million in outstanding revolver debt under the credit facility. The Company also had $53.0 million of outstanding letters of credit at March 31, 2008. We expect that our available additional borrowing capacity combined with the cash flows expected to be generated from existing business will be sufficient to fund normal operating requirements and finance additional acquisitions. We also have several smaller facilities that allow for borrowings or the issuance of letters of credit in various foreign locations to support our non-U.S. businesses. In total, these smaller facilities do not represent a significant source of credit for us.

The Company was in compliance with all debt covenants related to our credit facilities throughout the quarter ended March 31, 2008.

At March 31, 2008, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Capital expenditures of $6.4 million and $6.1 million were incurred during the first quarters of 2008 and 2007 respectively. We expect capital expenditures for the balance of the year to be comparable to prior years as a percentage of sales.

Recently Issued Accounting Standards

In March 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133,” (“SFAS 161”) which requires enhanced disclosures about an entity's derivative and hedging activities. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. This Statement will not impact the Company’s consolidated financial position as it is disclosure-only in nature.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," (“SFAS 157”) which clarifies the definition of fair value, establishes a framework for measuring fair value and expands the disclosures on fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FSP 157-2 “Partial Deferral of the Effective Date of Statement 157” (FSP 157-2). FSP 157-2 delays the effective date of SFAS 157, for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The adoption of SFAS 157 did not have a material effect on the consolidated financial position for fair value measurements made during the first quarter of 2008. While the Company does not expect the adoption of this Statement to have a material impact on its consolidated financial position in subsequent reporting periods, the Company continues to monitor any additional implementation guidance that is issued that addresses the fair value measurements for certain financial assets, nonfinancial assets and nonfinancial liabilities not disclosed at fair value in the financial statements on at least an annual basis.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures the assets acquired, liabilities assumed, and any noncontrolling interest (previously referred to as minority interest) in the acquiree. The provisions of SFAS 141(R) are effective for business combinations occurring on or after January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS 160). SFAS 160 establishes requirements for ownership interests in subsidiaries held by parties other than the Company (sometimes called “minority interests”) be clearly identified, presented, and disclosed in the consolidated statement of financial position within equity, but separate from the parent’s equity. All changes in the parent’s ownership interests are required to be accounted for consistently as equity transactions and any noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair value. SFAS 160 is effective, on a prospective basis, for fiscal years beginning after December 15, 2008. However, presentation and disclosure requirements must be retrospectively applied to comparative financial statements. The Company is currently assessing the impact of SFAS 160 on its consolidated financial position and results of operations.

Outlook

Current geopolitical uncertainties could adversely affect our business prospects. A significant terrorist attack or other global conflict could cause changes in world economies that would adversely affect us. It is impossible to isolate each of these factor’s effects on current economic conditions. It is also impossible to predict with any reasonable degree of certainty what or when any additional events may occur that also will similarly disrupt the economy.

We maintain an active acquisition program; however, future acquisitions will be dependent on numerous factors and it is not feasible to reasonably estimate if or when any such acquisitions will occur and what the impact will be on our business, financial condition and results of operations. Such acquisitions may be financed by the use of existing credit lines, future cash flows from operations, the proceeds from the issuance of new debt or equity securities or some combination of these methods.

We anticipate that our recently acquired companies as well as our other companies will generate positive cash flows from operating activities, and that these cash flows will permit the reduction of currently outstanding debt at a pace consistent with that which has historically been experienced. However, the rate at which we can reduce our debt during 2008 (and reduce the associated interest expense) will be affected by, among other things, the financing and operating requirements of any new acquisitions and the financial performance of our existing companies; and none of these factors can be predicted with certainty.

Information About Forward Looking Statements

This report includes “forward-looking statements” within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the SEC or in oral statements made to the press, potential investors or others. All statements that are not historical facts are “forward-looking statements.” The words “estimate,” “project,” “intend,” “expect,” “should,” “will,” “plan,” “believe,” “anticipate,” and similar expressions identify forward-looking statements. These forward-looking statements include statements regarding our expected financial position, business, financing plans, business strategy, business prospects, revenues, working capital, liquidity, capital needs, interest costs and income, in each case relating to our company as a whole, as well as statements regarding acquisitions, potential acquisitions and the benefits of acquisitions.

Forward-looking statements are estimates and projections reflecting our best judgment and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Examples of forward-looking statements in this report include but are not limited to our expectations regarding our ability to generate operating cash flows and reduce debt and associated interest expense and our expectations regarding growth through acquisitions. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, timing and success of product upgrades and new product introductions, raw materials costs, expected pricing levels, the timing and cost of expected capital expenditures, expected outcomes of pending litigation, competitive conditions, general economic conditions and expected synergies relating to acquisitions, joint ventures and alliances. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include:

We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update any of these statements in light of new information or future events.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate risks on our outstanding borrowings, and we are exposed to foreign currency exchange risks on our transactions denominated in currencies other than the U.S. dollar. We are also exposed to equity market risks pertaining to the traded price of our common stock.

At March 31, 2008 we had fixed-rate borrowings of $230 million related to our senior subordinated convertible notes and variable rate borrowings under the $1.355 billion credit facility. An additional $250 million of term loan debt reported as fixed rate debt at December 31, 2007 was classified as variable rate debt at March 31, 2008 due to the expiration of an interest rate swap on March 13, 2008. Our $955 million 5-year term loan under this credit facility was variable at a spread over LIBOR. Any borrowings under the $400 million revolving credit facility have a fixed rate, but the terms of these individual borrowings are generally only one to three months. At March 31, 2008, the prevailing market rates were 0.3% lower than the fixed rate on our debt instruments.

At March 31, 2008, Roper’s outstanding variable-rate borrowings under the $1.355 billion credit facility were $1.0 billion. An increase in interest rates of 1% would increase our annualized pre-tax interest costs by approximately $10 million.

Several Roper companies have transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in Euros, Canadian dollars, British pounds, or Danish krone. Sales by companies whose functional currency was not the U.S. dollar were 24.6% of our total first quarter sales and 67.6% of these sales were by companies with a European functional currency. The U.S. dollar weakened against most European and Asian currencies during the first quarter of 2008 versus December 31, 2007 and was relatively stable compared to other currencies. The difference between the current quarter operating results for these companies translated into U.S. dollars at exchange rates experienced during first quarter 2008 versus exchange rates experienced during first quarter 2007 was not material and resulted in increased operating profits of 2%. If these currency exchange rates had been 10% different throughout the first quarter of 2008 compared to currency exchange rates actually experienced, the impact on our net earnings would have been approximately $1.7 million.

The changes in these currency exchange rates relative to the U.S. dollar during the first quarter of 2008 compared to currency exchange rates at December 31, 2007 resulted in an increase in net assets of $22.0 million that was reported as a component of comprehensive earnings, $13.4 million of which was attributed to goodwill. Goodwill changes from currency exchange rate changes do not directly affect our reported earnings or cash flows.

The trading price of Roper's common stock influences the valuation of stock option grants and the effects these grants have on net income. The stock price also influences the computation of the dilutive effect of outstanding stock options to determine diluted earnings per share. The stock price also affects our employees' perceptions of various programs that involve our common stock. We believe the quantification of the effects of these changing prices on our future earnings and cash flows is not readily determinable.

As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report (“Evaluation Date”). This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation as of the Effective Date, these officers have concluded that the design and operation of our disclosure controls and procedures are effective.

Disclosure controls and procedures are our controls and other procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes to our internal controls during the period covered by this quarterly report that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Part II.   OTHER INFORMATION

For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors discussion in Item 1A of Roper’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 as filed on February 29, 2008 with the SEC. See also, “Information about Forward-Looking Statements” included in Item 2 of this Quarterly Report on Form 10-Q.                

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Roper Industries, Inc.

EXHIBIT INDEX

TO REPORT ON FORM 10-Q