Your SlideShare is downloading. ×

dover DOV-Transcript-2007-01-31T13-00

211

Published on

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
211
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
1
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. FINAL TRANSCRIPT DOV - Q4 2006 Dover Corporation Earnings Conference Call Event Date/Time: Jan. 31. 2007 / 8:00AM ET www.streetevents.com Contact Us © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 2. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call CORPORATE PARTICIPANTS Paul Goldberg Dover Corp. - Treasurer, IR Director Ron Hoffman Dover Corp. - President, CEO Rob Kuhbach Dover Corp. - VP Finance, CFO CONFERENCE CALL PARTICIPANTS Shannon O'Callaghan Lehman Brothers - Analyst Steve Tusa JPMorgan - Analyst Ned Armstrong Friedman Billings Ramsey & Co - Analyst Jack Kelly Goldman Sachs - Analyst John Inch Merrill Lynch - Analyst Robert McCarthy Robert W. Baird & Co. - Analyst PRESENTATION Operator Good morning and welcome to the fourth-quarter and full fiscal year 2006 Dover Corporation earnings conference call. With us today are Ron Hoffman, President and Chief Executive Officer of Dover Corporation, and Rob Kuhbach, Vice President of Finance and Chief Financial Officer of Dover Corporation, and Paul Goldberg, Treasurer and Director of Investor Relations of Dover Corporation. After the speakers' opening remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). As a reminder, ladies and gentlemen, this conference call is being recorded and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Mr. Paul Goldberg. Mr. Goldberg, please go ahead, sir. Paul Goldberg - Dover Corp. - Treasurer, IR Director Thank you, Jackie. Good morning and welcome to Dover's fourth-quarter earnings call. With me today are Ron Hoffman, Dover's President and Chief Executive Officer, and Rob Kuhbach, Dover's VP of Finance and CFO. Today's call will begin with some comments from Ron and Rob on Dover's operating and financial performance. We will then open the call up to questions. In the interest of time, we kindly ask that you limit your questions to one or two, with a follow-up. Please note that our current earnings release and associated presentation can be found on our Web site, www.DoverCorporation.com. This call will be available for playback through 5 PM February 7, and the audio portion of this call www.streetevents.com Contact Us 1 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 3. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call will be archived on our Web site for three months. The replay telephone number is 877-519-4471. When accessing the playback, you will need to supply the following reservation code--8293040. Before we get started, I'd like to remind everyone that our comments today, which are intended to supplement your understanding of Dover, may contain certain forward-looking statements that are inherently subject to uncertainties. We caution everyone to be guided in their analysis of Dover Corporation by referring to our Form 10-Q for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statements. Also, we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. We would also direct your attention to our Web site, where considerably more information can be found. With that, I'd like to turn this call over to Ron. Ron Hoffman - Dover Corp. - President, CEO Thanks, Paul. Good morning, everyone. Thank you for joining today's conference call. We apologize for a little bit of technical glitches. We started the call early. Hopefully everyone can hear us with great clarity. I'm pleased to report that Dover posted the best fourth-quarter results in its history and for the year set new records for earnings per share, sales, operating earnings, bookings and backlog. We also made significant progress towards meeting each of our Dover metric goals. As shown on slides 3 and 4, 2006 was a great year for Dover with record revenue of over $6.5 billion, up 22%, and earnings from continuing operations of $603.3 million, up 35%. Earnings per share from continuing operations were a record $2.94, up 34% over the prior year, easily surpassing Dover's all-time record achieved in 2000. Five of the six subsidiaries posted double-digit earnings growth for the year. In addition to posting a 34% improvement in earnings per share, Dover also increased its quarterly dividend by 8.8%, maintaining its 51-year record of continuous dividend improvement, the fourth-longest streak on the New York Stock Exchange. As announced this morning and shown on Slide 5, Dover recorded its strongest fourth quarter, posting record revenue of $1.7 billion, up 20% and generating earnings from continuing operations of $156.1 million, up 28%, resulting in a $0.76 earnings per share, up 27% relative to last year. Rob will give you greater detail on the operational accomplishments later in the call. These successful results were driven by a number of strategic initiatives that we set for ourselves at the beginning of 2006. The five key areas of strategic focus which are highlighted on Slide 6 were, first, to complete the portfolio rationalization process begun in 2005; second, to drive operational improvements through our emphasis on quot;PerformanceCOUNTSquot; and the five Dover metrics; third, to key in on operating strategies that would drive organic growth; fourth, to add new value-creating acquisitions; and last but highly important, to continue developing the pool of talented employees to fuel Dover's long-term success. We believe that we have significantly delivered on each of these strategic initiatives. Our subsidiary leader successfully completed the evaluation of our many businesses and made huge strides in revitalizing Dover's portfolio of operating companies. During 2006, 12 businesses were discontinued and 8 were sold. Five of the discontinued companies were highly volatile businesses in the technology segment. These companies were predominantly capital goods businesses serving lower-growth, narrow niche markets with limited recurring revenue opportunities and in many cases were not capable of sustaining Dover-like performance. These 12 companies represented annualized sales of $780 million at 4% margins. Dover's portfolio is now more focused on growth platforms that can deliver a higher and more sustainable level of performance during the inevitable swings in economic cycles. Even though we consider this portfolio evaluation as significantly accomplished, the process will remain an aspect of each subsidiary leader's responsibility. www.streetevents.com Contact Us 2 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 4. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call Over the past two years, as shown on Slide 7, the portfolio review process discontinued 20 companies with annualized revenue of $1.1 billion and margins of about 5%. 14 of those companies have been sold, and the remaining 6 are expected to be sold in 2007. Those sales netted $605 million of cash that was used to support the capital needs of our companies and to fuel our acquisition growth. We are confident that this process has significantly improved the quality of our portfolio and has focused our energies on the future growth platforms of Dover. Our quot;PerformanceCOUNTSquot; initiatives, driven by the five Dover Metrics, have produced substantial and sustainable improvements in Dover's operating companies. As highlighted on Slide 8, Dover registered improvements in all five metrics. For the year, our operating margins improved 110 basis points, annual earnings growth was 35%, inventory turns improved to 6.5, and working capital as a percent of sales declined by 180 basis points to 18.9%, and the ROI of our operating companies rose to 27.5%. Currently, 62% of Dover's revenue is at or above our 15% margin metric and 36% of our revenue is generated in companies at or above the eight inventory turn target. These improvements are moving Dover to true world-class performance. The margin improvement and working capital focus helped generate the cash flow in 2006 of $690 million or 11% of sales. While strength in many of our served markets was helpful, we are confident that the focus on internal excellence through our quot;PerformanceCOUNTSquot; program has permeated our operating companies and will continue to drive improvements going forward. 2006 was a very active and successful year in adding new value-creating acquisitions. Dover invested a record $1.1 billion on seven new acquisitions that reinforced our commitment to building key growth platforms. In particular, Markem, which closed the fourth quarter, and Paladin, our two largest acquisitions, will enhance our product identification and material-handling platforms. Both of these companies bring significant product development capabilities, market leadership, recurring revenue opportunities, and the scale to expand globally, all of which should significantly enhance Dover's future. We also added new companies with expanded products and technology to our electronic test, ATM, screenprinting, and fluid-handling businesses. For the year, acquisitions added 8% of our revenue growth and after acquisition accounting, 6% of earnings growth. Even with the record level of acquisition spending, Dover's return on invested capital rose 110 basis points to 14.2%. As highlighted on Slide 9, Dover has invested $2.2 billion in 17 acquisitions over the past two years that add approximately $1.2 billion of sales at Dover-like margins. We have been focusing our efforts on larger companies with expanded product portfolios and unique technologies that serve a diverse base of customers and end markets. Looking forward, the acquisition pipeline remains strong with considerable opportunities for additional growth. Acquisition spending is targeted at roughly 10% of revenue, but with our strong cash flow and available debt capacity, we are prepared to step up our spending if a significant value-creating opportunity to complement our growth platforms arises. As shown on Slide 10, Dover recorded its fifth consecutive quarter with double-digit organic growth. Fourth-quarter organic growth continued strong at 10% of revenues. For the full year, our organic growth rate was 14%, significantly above our industrial peers and a testament to the strategic initiatives of our operating companies and their continual focus on new product development, end-market expansion and customer-service initiatives. In support of our organic growth initiative, a number of our companies expanded their operations in Asia, Mexico and Eastern Europe to serve new customers while seeking venues for competitive cost advantage. We are very proud of our double digit organic growth results and will continue to strategically focus on this key growth vector. Succession planning and upgrading our talent pool at all levels of the organization is another key focus. We believe the autonomous Dover culture is very unique and attracting and developing talent to sustain these traits is vitally important. Many of our business leaders have developed focused programs to prepare upcoming talent for future growth opportunities. I am www.streetevents.com Contact Us 3 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 5. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call pleased to see the positive results of these development efforts, as well as the increased level of talent that joined the Company over the past year. Looking ahead, we anticipate building upon the record performance of 2006. The foundation of excellence set by our quot;PerformanceCOUNTSquot; program, the revitalized portfolio of operating companies, as well as the contributions from our new acquisition should deliver another record-setting year. As always, we will face challenges as we try to achieve these ambitious goals. Entering the year, our backlog is up 21% over the prior year, and many of our groups, such as Product Identification, Process Equipment, and Oil and Gas Equipment, continue to exhibit strength and participate in healthy end markets. We expect some early moderation in the end markets related to construction, food services, and our electronics businesses. As the year progresses, we anticipate an economic climate which will enable Dover to deliver another year of strong results and increased shareholder value. In 2007, we will continue to refine our focus on growth platforms. Our strategic emphasis on world-class performance standards, internal growth initiatives, and focusing on larger acquisitions is driving a new era of growth and improved results at Dover. In closing, I want to thank our 33,000 employees around the world whose tireless efforts drove these group results. Their dedication to attainment of the five Dover metrics and commitment to quot;PerformanceCOUNTSquot; is strongly recognized and is driving increased value for our shareholders. I am very proud of the 2006 accomplishments, and I am confident that our employees are ready to meet the challenges of 2007. With that, I will turn it over to Rob Kuhbach for an overview of our subsidiary performance and financial highlights, before we open up the call to your questions. Rob? Rob Kuhbach - Dover Corp. - VP Finance, CFO Thanks, Ron. Overall, Dover's aggregate segment operating results for the year were excellent. Relative to last year, five of the six subsidiaries posted double-digit earnings gains and all had double-digit margins for the first time in several years. Operating margins improved 110 basis points to 14.9%, the highest level since 1996, which drove operating leverage for the year to 20%. Resources was the overall earnings leader with Electronics posting the largest earnings gain, generating the biggest improvement in segment margins of 500 basis points. Electronics and Industries posted sequential quarterly improvements in sales, earnings and margin all year. Technologies' newly focused portfolio of businesses posted a 260 basis point improvement in margins. While the majority of the year-over-year earnings growth came from the Electronic Components, Automation and Measurement, Oil and Gas Equipment and Product Identification groups, the earnings improvement was very broad-based with gains in 11 of our 13 market groups. Turning to each segment, on Slide 11, we show the results for Dover Resources, where sales, earnings and margins were all-time leaders at Dover. In fact, Resources set records in revenue, earnings, margins, bookings, backlog, capital investment and cash flow. Driving these results for the quarter and the year was the Oil and Gas group, whose business has been and continues to remain strong. We believe that, despite near-term moderation in energy prices, the long-term prospects for this market are very positive. Two other groups in Resources, Fluid Solutions and Material Handling, had good years and quarters, although softness in retail fueling, automotive and light construction, some operational efficiency issues, as well as the short-term impact of the Paladin acquisition, hurt margins, earnings trend and operating leverage later in the year. In 2007, the oil and gas market should continue www.streetevents.com Contact Us 4 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 6. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call to be robust, and 2006 capital investment should drive further earnings growth and leverage in this market. The automotive and light construction markets are expected to be flat and with full-year improved performance from Paladin, the rest of Resources should show improvement over 2006. Slide 12 shows Dover Technologies, which was our second-most profitable segment in 2006, showing great leverage, strong year-over-year sales, earnings and margin growth. Within Technologies, Automation and Measurement had a superb year. Although its results moderated downward through the quarter, margins held up very well. Fourth-quarter booking levels and year-end backlog ended up flat with the prior year, reflecting conditions in the semiconductor industry and seasonal electronics industry trends. Second half 2006 back-end semiconductor bookings suggest a moderating first quarter of 2007 compared to 2006. The Product Identification group had a great year with sequential improvements all year in sales, earnings and margins, including the late-year Markem acquisition which had a negligible impact on 2006 results. Overall, markets remain strong and the prospects for 2007 are good, given the strong organic growth in 2006. That said, significant Markem integration efforts will likely affect earnings and margin levels during the year. Slide 13 shows the results of Dover Electronics, which had a great year with sequential improvements in sales, earnings and margins all year, largely reflecting strong growth at all of the components companies, particularly those serving the frequency controls and micro acoustics markets. Given their relative size, the commercial equipment companies made little contribution to year-over-year improvement, as they had a mixed year with modest revenue growth being more than offset by earnings weakness in the ATM markets. For 2007, components companies are expected to continue to show further growth in their markets and improvements in the commercial equipment companies should be additive. Slide 14 shows the Industries' results, which was the fourth highest quarterly earnings contributor for 2006, reflecting steady improvement sequentially all year in sales, earnings and margins. For both the quarter and the year, strong energy, military and transport markets were the major factors. These same three end markets are also expected to drive Industries' growth in 2007, despite some anticipated short-term slowdown in the refuse market. Slide 15 shows Dover Systems, which had a solid year, driven by the Foodservice Equipment companies which dominate this segment's results. Overall, both Food Equipment and Packaging Equipment groups had good years, subject to the customary seasonality of demand and delivery which can affect this segment on a quarterly basis, as happened again in this year's fourth quarter. While commodity prices and short-term capacity constraints had some impact on this segment during the latter half of the year, corrective actions, together with continued strength in key served markets, suggest that 2007 should be another year of growth and improved performance. Slide 16 highlights Dover's Diversified results which had modest improvements for the year and lack of leverage for the fourth quarter, which overall reflects very strong sales and earnings growth in the process equipment companies serving the broad heat exchanger and energy markets, offset by challenges in the industrial equipment companies, particularly those connected to the Aerospace, MRO and construction agricultural markets. With a record backlog, 2007 is expected to show meaningful improvement as 2006 internal initiatives bear fruit, Industrial Equipment companies recover, and Process Equipment companies continue to expand. Here's some additional other key corporate data as covered on Slide 17. For the fourth quarter, the impact of Paladin and Markem acquisitions, including short-term acquisition accounting, increased AD&A and [imputed] interest on purchase price was about $0.03 negative to overall earnings. For the first quarter of 2007, we expect that impact to be about $0.02 negative and for the full year, the impact is expected to be neutral. 2006 capital expenditures were $195 million, up 49% or $64 million from the prior year, reflecting significant investment in Oil and Gas and Electronic Components groups. www.streetevents.com Contact Us 5 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 7. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call Turning to our capitalization, Dover ended the year at a net debt-to-total capitalization of 26.8%, down from last year's level of 28.9%. This largely reflects strong cash flow and divestiture cash proceeds resulting in a modest increase in total debt. Our full-year tax rate was 26.7%, consistent with the last two years and reflecting some late-year adjustments for federal tax credit programs just enacted, as well as favorable mix of foreign and domestic income. The fourth-quarter rate was 22.6% versus last year's fourth-quarter rate of 25.6%. We expect our 2007 rate to be in the range of 28%. With this overview, let me turn the call back to Paul for questions. Paul Goldberg - Dover Corp. - Treasurer, IR Director Thank you very much, Ron. With that, we'd like to turn to Jackie who can queue up the questions. QUESTIONS AND ANSWERS Operator Thank you. (OPERATOR INSTRUCTIONS). Steve Tusa, JPMorgan. Steve Tusa - JPMorgan - Analyst Good morning. Just first a quick question on Resources--you know, I noticed kind of a sequential revenue increase was about in line with the contribution from Paladin, but earnings were flat. I'm just wondering if you could maybe discuss in more detail what the impact from these acquisition step-up costs was in the quarter. Rob Kuhbach - Dover Corp. - VP Finance, CFO Well, I think, in Resources, we anticipate that there were probably at least a couple hundred basis points of rate--of margin impact, almost 300 basis points of margin impact because of the Paladin acquisition. So you would have to look at their overall margins as actually being improved in the fourth quarter, absent the Paladin acquisition. Steve Tusa - JPMorgan - Analyst Okay. Are these one-time in nature or is that just a mix from the Paladin acquisition? Rob Kuhbach - Dover Corp. - VP Finance, CFO I think there are a couple things. One, I think some of it is AD&A, short-term, because we bought them late in August, so most of the impact from that was in the fourth quarter. Some of it was acquisition write-offs, which were short-term. Then the fact is their market tended to soften as the quarter wore on because of the light construction market slowdown. So it was really a combination of acquisition accounting and to some degree their market condition. Ron Hoffman - Dover Corp. - President, CEO I think, yes, Steve, I think the slowdown in the light equipment, which is one of t heir nice mix areas, was impacting. Also, they're moving some of their production to Mexico and they are taking this cost on right at the front of the acquisition. It's a part of www.streetevents.com Contact Us 6 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 8. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call the integration we anticipated in buying the company, and we will see that probably continue through the first quarter of next year. Certainly, the acquisition accounting issues are now behind us. Steve Tusa - JPMorgan - Analyst I know you guys are longer-term investors but you know, was this slowdown expected when you bought this business? You know, how does this look throughout '07? Ron Hoffman - Dover Corp. - President, CEO Well, we certainly were aware that there were signs on the horizon of a slowdown in housing starts that would affect light construction. At point in time, we certainly considered that in our valuation as well as our implementation plans, so I don't think it was a surprise, Steve. You know, how deep this is is still I think open for discussion, but I think, historically, what we've proven with Paladin or what Paladin has proven in their history, I should say, is that typically they don't see the swings to the full extent that the construction market might soften. They tend to be a recurring revenue spend, where you are buying either buckets or blades or mower decks or all of the various specialty devices they make. I think, if you look at Paladin in general, certainly light construction was down. Some of that is filtering into heavy construction and some of the OEMs tend to back off in that area at this point in time. But their demolition business is staying very strong. The utility business is strong. In fact, I think their utility business was at record levels in terms of bookings which will flow into the first quarter, so again, a very broad-based company. Yes, we bought it right as the light construction was down the again, looking at it long-term, we are very comfortable with this business where it's going. We think there's great integration opportunities, and we think you'll see that reflected in their performance throughout 2007. Steve Tusa - JPMorgan - Analyst Okay, so using the fourth-quarter margin as kind of a baseline as-reported is probably the wrong way to think about it; it's probably a little bit higher when we think about the 2007 outlook in margin? Ron Hoffman - Dover Corp. - President, CEO Absolutely. Steve Tusa - JPMorgan - Analyst Okay. Lastly just as a follow-up, you know, you talked about moderation in the first quarter. Does that mean--I don't quite understand. Does that mean--obviously a moderation in growth, but does that mean an absolute moderation relative to the fourth quarter? How should we think about you talking about a first-quarter moderation? Ron Hoffman - Dover Corp. - President, CEO Well, I think, Steve, as we end the year, we always have some seasonality issues. We normally see the Electronics business tend to peak in the latter part of the year; it rolls into the first quarter. I think it seeks what its new level is going to be for '07, and in most cases, you have to get past the Chinese New Year to get a good read on what's going to happen in your Asian market, which is the driver of those businesses. So, I think that's still a little bit unknown. There's spots that tell us, from some of the bookings in the A&M group, that there's a little bit of strength left in the market, but I would say, overall, we're waiting on the semiconductor side to weigh in and we just don't have a solid read on that yet. www.streetevents.com Contact Us 7 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 9. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call I think also, you look at seasonality as it affects the telecom sector and also the food services sector--very traditional what Dover has seen these last few years, and typically those are followed by pretty strong order periods in the first quarter. We're just waiting to see all that kick in. Steve Tusa - JPMorgan - Analyst Okay, so it's basically seasonality plus maybe a little bit of incremental softening in your end markets, so we can go back and look at first-quarter over fourth-quarter performance in the last few years and kind of figure out what you mean by that? Ron Hoffman - Dover Corp. - President, CEO Yes, I think the related construction-related businesses which impact, again, the material handling sector of Resources is certainly a bit on a decline, and I think that has been the impact. I think, ironically, you know, a question might beg about the performance of the oil patch when you consider that we've seen oil prices slow, but our activity levels in that arena stay very strong, robust, a little bit of slowdown perhaps in Canada but not really affecting our businesses yet, just seeing the pace of activity slow there a little. Steve Tusa - JPMorgan - Analyst So still up nicely over last year but just down sequentially? Ron Hoffman - Dover Corp. - President, CEO Absolutely. I think the pattern that you saw at the end of '04 to '05, where the first quarter was below fourth quarter of the prior year, is what we're more likely to see than what happened from '05 to '06 where the first quarter exceeded the end of '05. Steve Tusa - JPMorgan - Analyst Okay. Okay, great. That's very helpful. That should be your toughest comparison of the year I would think. Ron Hoffman - Dover Corp. - President, CEO We are hopeful that's the case. Steve Tusa - JPMorgan - Analyst Looks pretty good to me. Thanks a lot. Operator Ned Armstrong, FBR & Co. www.streetevents.com Contact Us 8 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 10. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call Ned Armstrong - Friedman Billings Ramsey & Co - Analyst Thank you, good morning. You alluded to the growth platforms that you [attacked] the acquisition over '05 and '06, and it was Oil and Gas, Electronic Test, Product ID, Material Handling, Electronic Components. Are those platforms continuing to be your main targets? Is there any shift of emphasis within those platforms as far as what you're targeting? Ron Hoffman - Dover Corp. - President, CEO Certainly, Ned, we've exhibited, through the last two years, that's where we've been spending the lion's share of our acquisition dollars, building those. Some of that is not only our focus on the sectors but just the properties that happen to come available. We were able to acquire Markem certainly at the end of the fourth quarter, which I think was an area of focus for us to exhibit strength in the product ID market that we feel has better-than-normal growth rates. What we think now that has established us with probably the broadest portfolio of product ID equipment in the marketplace. We would also say that certainly oil and gas--there's been some technology opportunities come available there that we think strengthen our posture in that way. I think, as we look at Dover in total, we spend a lot of time now evaluating our portfolio to define where are the businesses that we distinguish ourselves from a performance, from a market-coverage standpoint, sustainability of earnings. So I think we are becoming a little bit more focused company. We're not just looking at everything that comes over the transom; we're looking at those things that we think we can identify value and in areas that we truly understand the market well. Rob Kuhbach - Dover Corp. - VP Finance, CFO You know, I think you'll see, over the next quarter or two, that we're going to continue to be focused in the areas that Ron identified in his Slide 9 because I think those are areas where, as he said, we think we've developed some expertise and some in-depth understanding of those end markets and customers to where we can continue to get some leverage out of expanding our presence in those spaces. Ned Armstrong - Friedman Billings Ramsey & Co - Analyst So I can interpret your acquisition strategy as being really capitalizing on where you believe you're strong, so maybe more focused than it has been in the past? Ron Hoffman - Dover Corp. - President, CEO Well, I think yes, Ned, that is the right way to summarize it. However, we always hold the caveat that if there's a new opportunity that comes about that takes us into a new market that we think will create shareholder value and give us another growth vector, we will certainly evaluate that also. But we are trying to become much more focused in our acquisition spending. Again, because we're doing larger deals. We have to understand those deals much better and we need to know the end-market impact and be able to kind of track what we think the trends are, long-term. Ned Armstrong - Friedman Billings Ramsey & Co - Analyst Okay, good. Thank you. Operator Jack Kelly, Goldman Sachs. www.streetevents.com Contact Us 9 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 11. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call Jack Kelly - Goldman Sachs - Analyst Good morning, Ron. Just one broad question, Ron, in terms of the acquisitions that were completed in '06 and the dilutive impact they might have had. Can you just give us a feel for what the dilution was in aggregate for '06, for the '06 deals and what the swing factor might be in '07? So, they diluted--making up numbers, they diluted by $0.06 in '06 and they're going to contribute $0.15 in '07. Rob Kuhbach - Dover Corp. - VP Finance, CFO I think, if you're talking about the acquisitions completed in '05 and their impact on '06, we can talk about that. I think if you're talking about the ones we completed in '06, you know, I commented on those, Jack. We basically feel that the ones, really Paladin and Markem, are going to be relatively neutral in '07. I think we obviously benefited from Knowles and Kohler in '06 to the extent of about I think roughly $0.08 to $0.10 is what we indicated and we probably achieved that all in for '06. I think we're going to continue to see contribution from the '05 transactions in '07, and I think the '06 transactions basically will be neutral to '07. Jack Kelly - Goldman Sachs - Analyst After being diluted by $0.06 in '06? Rob Kuhbach - Dover Corp. - VP Finance, CFO Well, I think we estimated the dilution in '06 at about $0.04 for the quarter. For the year, actually, for the whole year, I think the dilution impact was about--most of that was in the fourth quarter but I would say that the whole-year impact was $0.04 in the third quarter, the fourth quarter was $0.03 of the $0.04. Ron Hoffman - Dover Corp. - President, CEO Is that clear? Jack Kelly - Goldman Sachs - Analyst Yes, so we are going from -4 to a push in ]07? Rob Kuhbach - Dover Corp. - VP Finance, CFO Right. Ron Hoffman - Dover Corp. - President, CEO I think the contributions that we saw so fast coming from Knowles as we look to integrate Markem and Paladin, certainly with Paladin, we acquired a company that really was kind of a roll-up of a number of acquisitions and the integration work really hadn't been completed, so we will absorb some costs to finish that integration move during the course of the year to optimize their performance. And really the same applies with Markem. Again, we bought a wonderful company there, but we have a significant play in Product ID with Imaje and the other companies we own. We have to look for, let's say, the Best Practices or best ideas in the group. That will take some time to ferret through that. That is in-process currently but there will be some costs and some transition expenses in that sector until we get that optimized. www.streetevents.com Contact Us 10 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 12. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call Jack Kelly - Goldman Sachs - Analyst Just on Foodservice, in the fourth quarter, revenues were up 18%. I assume that reflects kind of a rebound for Hill Phoenix, which was I think down in the third quarter. But then in your comments, Ron, in the press release talking about the first quarter, you talked about softness in end markets and Foodservice was cited. So is this another--going to be another--the first quarter is going to be another lumpy quarter for Hill Phoenix after recovering in the fourth quarter? Ron Hoffman - Dover Corp. - President, CEO Well, I think, Jack, we normally see a change of seasonality that impacts Hill Phoenix as to new store constructions, rebuilds of existing stores, so I think the impact of that always takes some time to be defined. I know that Hill Phoenix is talking with a number of their customers about their '07 requirements. They're getting greater clarity on that I think weekly in those dialogues. I think also some of their new technology of sustainability is really catching a lot attention. Some of their new CO2 capabilities as well as their second-nature coolant. In some cases, I think some of the customers are deciding if they want to invest in the new technology versus traditional technology, and that's a bit of a valuation process. We're pretty excited about those new technologies and what they're going to do for Hill Phoenix's performance in the marketplace. Rob Kuhbach - Dover Corp. - VP Finance, CFO I think it's safe to say, Jack, that our fourth quarter this year in that space, food equipment, was higher than last year's fourth quarter. We ended up the year not only on a revenue basis but on an earnings basis, we got some leverage in that sector. We continue to think that's going to play out, but the first quarter in that business generally is always softer than the second and the third, which are traditionally very strong. So in fact the normal pattern is that there is a pickup. We ended the year, I think, with a higher backlog than we did a year ago. So we think that portends to a decent quarter. But you're going to see most of the improvement, most of the normal gains in that whole space really show up strongly in the second and third quarters. So this is nothing unusual as far as we are concerned. Jack Kelly - Goldman Sachs - Analyst That's what I was trying to pick up on. And so the comment in the press release is a seasonal one, but you mean year-over-year-- Rob Kuhbach - Dover Corp. - VP Finance, CFO Correct. Jack Kelly - Goldman Sachs - Analyst --we're dealing with same seasonality, so year-over-year Hill Phoenix should be up but just don't expect the kind of performance that we maybe saw in the fourth quarter, which is probably a rebound-kind of quarter. Rob Kuhbach - Dover Corp. - VP Finance, CFO Right, and I think there are some other initiatives that we were taking late last year that we're going to see some additional benefit of, probably more again seasonally in the second and third, having to do with commodity prices and frankly gaining some traction in our markets where we think appropriate to recover that kind of issue. www.streetevents.com Contact Us 11 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 13. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call Ron Hoffman - Dover Corp. - President, CEO Actually, Jack, we never welcome a pullback in business but I think it has allowed Hill Phoenix also to complete some construction and rearrange them in their plant to get ready for the next business upturn. They had been delaying that most of the year because they were so busy they couldn't finish their rearrangement of the new plant expansion in Virginia. So I think it's kind of good that they are able to absorb some of that now so they can get ready for the next layer of capacity. Rob Kuhbach - Dover Corp. - VP Finance, CFO I mean, keep in mind, they had a huge increase in revenue, well over 20% year-over-year, from '05 to '06. That inherently led to some challenges in terms of the capacity and meeting those customer demands. I think it has given them an opportunity to kind of catch their breath and be ready to roll on a bigger scale for '07. Jack Kelly - Goldman Sachs - Analyst Just final question, Ron, in terms of your metrics with regard to O/I margin, you're basically right there, meaning 14.9 versus the 15. You know, as you think about continuing to raise the bar, you know, we expect some time during the first half of '07 for you to increase that metric from the 15% level? Ron Hoffman - Dover Corp. - President, CEO Thanks, Jack, for acknowledging the 14.9 is right near 15. That box should have been colored green but sometimes we are very succinct. Anyhow, I guess, as I look at that, Jack, you know, all of our companies don't see 15% as a stopping point. Our companies will always optimize their performance. I think that we still have companies that the 15% is a target they're working towards. Those that are at 15% are not stopping there; they are continuing to redouble their efforts and I think we've seen that across the board. Will we look at raising that target? Perhaps there will be a time, Jack, that we will visit that. At this point, we think that's still very much in line with what you'd call world-class performance companies, so it's not something that we are in the process of moving currently but it is something we are discussing at the executive level. Jack Kelly - Goldman Sachs - Analyst Because basically, given your comments about this year, you know, it's pretty clear you're going to exceed that, based on, you know, the backlogs, the margin improvement, etc. So it would seem, at some point here, it just makes sense to raise it, but anyway, we will pass the baton onto the next person. Ron Hoffman - Dover Corp. - President, CEO It does take lots of work, Jack. It's not that easy but nonetheless, I appreciate the confidence that we will exceed it. I agree with you. Operator John Inch, Merrill Lynch. www.streetevents.com Contact Us 12 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 14. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call John Inch - Merrill Lynch - Analyst Good morning. I'm wondering if we can get a little more direct on some of these questions. Hill Phoenix, if I go back to last quarter, my understanding was that a certain large customer that begins with 'W' had pushed out some orders. Has that come back? It sort of sounds like not necessarily if you're suggesting first quarter, although seasonally sort of softer but you're kind of looking for improvement in second and third quarters. Could you talk a little bit about that and what's going on there? Ron Hoffman - Dover Corp. - President, CEO I can't speak to the inner workings of Wal-Mart's demand, but I can't say that they have reshuffled some orders around. Some of this push-out did shift in the fourth quarter, but other orders were moved to different periods, so they've kind of shuffle their whole order base. Some of this is, I think, a reaction to some of their comments about pulling back on their growth vector of store announcements. But again, John, I don't think you can over-read too much into the fourth quarter. We still see that market as coming back, probably in the second quarter pretty strong, and we like the inroads we're making with some of the technology. But quite candidly, there has been some removement of orders but nothing that we are concerned about at the moment. John Inch - Merrill Lynch - Analyst (technical difficulty) then is basically kind of tracking--let's put it this way. Is the trajectory for '06 with that customer kind of coming out where you would have thought prior to the third quarter's push-out? Ron Hoffman - Dover Corp. - President, CEO Yes. In fact, I guess we are a little bit encouraged by some of the wins and the technology (indiscernible) that we're getting from some of those customers also, so we're feeling comfortable there. John Inch - Merrill Lynch - Analyst Okay. I wanted to flush out Resources a little bit. It's something about mislabeled segment. If you look at your oil and gas business, you know, there's kind of a rig count abatement trend and softening; there's certainly gas questions in North America. I know this business is kind of majority North America. Could you talk a little bit about sort of what kind of a growth rate trajectory you see? I mean what sort of a scenario is baked into that and why should we not--considering how strong this business has been--not be concerned, particularly given the trend of energy prices, gas prices, kind of rig counts, that sort of thing? Ron Hoffman - Dover Corp. - President, CEO Well, I think, again, gas prices, or let's say commodity prices, we could debate that all day long as to how much of that had premium versus real cost. I think what we see is certainly we've seen a change in the relationship of gas prices to oil prices. I think that also as we started the winter with a much warmer winter, I think we were concerned about the use natural gas, what impact that might have on drilling going forward. The only sector right now that we're reading a lot about in terms of potential downturn is Canada. We are seeing a change in--or let's say a pullback in the issuance of new permits in Canada, mainly related to gas wells. We also are heading into what we call the breakup season in Canada, so we expect that sector to probably be off a little bit in the first quarter. When I say off, again, we were running at an extremely high rate last year, so I'm talking rate of rate of growth more than physical pullback of actual numbers. www.streetevents.com Contact Us 13 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 15. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call I think, if you look at our thinking as we roll into 2007 and looking at the optimism of the business leaders and kind of how they reported, they still are showing significant growth forecasts there. I think some of our companies, again like our companies that make diamond inserts, continue to be gaining market share in that technology versus the traditional technology of roller cones. I think some of our technologies on sensors, hide high-pressure, high-temperature sensors is getting a global perspective, an additional business pretty much from the standpoint that some of the stuff is going deeper and offshore and that kind of plays into both of these companies' technologies going forward. We also kind of look at rig movement, which affects some of our other companies like Tulsa Winch and people like that. Their order rates continue to stay very strong. They had a great year. Their rates are strong which means there's still a demand for equipment in the Permian Basin as well as Canada in that particular regard. So the signals we get are still pretty strong. We're reading the same signals you are of looking at commodity prices and some of the permit requests and we're looking at a very cautious side. But incoming order rates, the diversity of the businesses we have still (indiscernible) very strongly in that sector. We're still encouraged by the growth opportunities in '07 in that sector. John Inch - Merrill Lynch - Analyst So Ron, do you think, even with Canada, this business can be up kind of high double digits, the way it was, perhaps a little bit of moderation? Ron Hoffman - Dover Corp. - President, CEO Well, I think you have to keep in mind, you know, last year was a huge gain and to be able to support that kind of a gain year-over-year, just the numbers get awfully large on us. But I think we will see it certainly. At this point, we see strong double-digit growth. John Inch - Merrill Lynch - Analyst Okay. My other question is just on leverage, Ron. It sort of follows Jack Kelly's question. If you kind of flip through the presentation and some of these businesses, if you look at the change in revenues versus earnings, you know, oil and gas kind of matched; fluid seemed to see deleveraging; you had strong automation leverage; components had strong leverage, some negative leverage. I mean, it kind of is a mixed bag in terms of sort of the impact on earnings in terms of the revenue deltas. How should we think about, based on that, what you think the potential is for Dover in terms of margin runway from present levels? I'm not holding you to an '07 number. I'm just more thinking, how much more juice out there--is there in these margins and how should we maybe be thinking about realizing some of that benefit in '07? Are we talking about a couple of points more before peak or how would you like us to think about it? Ron Hoffman - Dover Corp. - President, CEO John, I kind of heard you start your question relative to Resources and then you broadened it to Dover in total through the question, so are you speaking really to Resources or Dover in total? John Inch - Merrill Lynch - Analyst I'm sorry, Ron, I was just talking Dover in total but trying to--you know, if you just flip through the segments, it's a little bit mixed in terms of the sort of realized leverage that you saw in the fourth quarter. Sometimes the revenues and earnings match in terms of the growth rate; sometimes you get more bottom-line leverage, sometimes less. How would you like us to think about kind of how much juice you think there are in margins overall and then maybe what we can look forward to in '07? www.streetevents.com Contact Us 14 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 16. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call Rob Kuhbach - Dover Corp. - VP Finance, CFO John, this is Rob. I think a couple of things to keep in mind. I think ,in some cases, these businesses have had significant growth in demand and to some degree, their lack of leverage in the near-term reflects the need for them to frankly expand capacity and be able to meet some of the customer requirements. If you think about Resources, I think they probably consumed almost a third of our huge CapEx budget this year. So, I think the relative lack of leverage, although their margins and their growth rates are at high absolute levels, reflects the fact that they've had to make investments that includes US Synthetics, Quartz (indiscernible) a number of companies in their resource base in particular, but Hill Phoenix has put capacity in. I mean, a number of companies are now in effect recognizing that they are operating at a higher absolute sales revenue level, so they've been making investments, which has tended to moderate the leverage that you would normally expect to see. So I guess, in my mind, you're going to see sort of a resumption of I think some leveraging. I think most of the markets they are in are very strong right now. There still is opportunity, but I think they are operating at a relatively higher level than you would have seen a year or two ago. So I think there is still room for improvement on margin, particularly at some of the companies that have been a disappointment as some of these areas that you identified as pockets of relatively lower performance. So, I would say, overall, we think there's still margin opportunity, and to some degree, we are going to get that from the fact that we put a lot of capital into some of these businesses that's going to pay off. Ron Hoffman - Dover Corp. - President, CEO John, let me give you a little bit additional clarity maybe without trying to be overly directive here, but certainly think there's opportunities to improve the margins in Diversified. We think there's some unique issues in Diversified that are being responded to. I think the pullback in the construction market that impacts our (technical difficulty) businesses is something we would like to see turn. But I think some of the Aerospace business, some of the improvements we are seeing in our heat exchanger business lead me to believe that diversified certainly can perform better in '07 than it did in '06. If I look at Electronics, which had some nice growth certainly relative to the impact of the business at Knowles, I think we will see continued growth at Knowles that will continue to impact that sector. I think we had some tough, a tough year in the ATM business and we will see how that rolls out into '07. Hopefully, we will continue to see some improvement and gain there. I was very pleased with Dover Industries, who posted quarter-to-quarter improvement in margins and performance across the year. I think that's a nice-headed momentum in that group that hopefully can be maintained. If we look at Resources, again we can talk about knits and knats and Resources and mix, but if you look at that, that whole subsidiary, which is our largest earnings group, is running in a very narrow band of margin. It's almost in 1% if you look at the whole quarterly spread, so again, very good, solid performance there, again with the only change being that with Paladin coming in, that will have some negative pullback on the Material Handling margins until we will get all the integration moves completed. If you look at Systems, again, I think we will see a good strong year there, very similar to what you've seen in the past year. With Electronics, you always have the A&M market that is a little harder for us to predict and call because it's going to depend on the level of the capital demand as it impacts our handler business in the group. So I think the recurring revenue side of that, which is a high POGO replacement, pin, fixture-replacement side, should hold well. I really see our product identification business being--continuing to gain strength. With the integration moves we will make with the Markem acquisition over time, I feel that's going to be a very nice long-term play for us. www.streetevents.com Contact Us 15 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 17. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call John Inch - Merrill Lynch - Analyst Yes, that was very helpful color. Thank you, Ron. Lastly, do you guys ever think about maybe changing out some of these segment names? You know, Industries, Diversified, Systems--it's sort of--even Resources, it's kind of a little bit non-intuitive when you think about the businesses inside of it. I don't know, just to perhaps improve upon the clarity that you've already improved upon since becoming CEO! Ron Hoffman - Dover Corp. - President, CEO You don't have a speaker on the wall at our executive meetings, do you, John? John Inch - Merrill Lynch - Analyst (LAUGHTER) Ron Hoffman - Dover Corp. - President, CEO Certainly, we challenge ourselves with that on all occasions. I think one of the challenges we have is we've turned around the portfolio. We think we are more focused; we think we will continue to look at, you know, are we portraying Dover in the best light with the greatest clarity? We will see what develops in '07 in that regard. John Inch - Merrill Lynch - Analyst Okay, well, I won't file away my eyechart just yet. Thanks very much. Operator Robert McCarthy, Robert W. Baird. Robert McCarthy - Robert W. Baird & Co. - Analyst Good morning, guys. I really just need to follow up on a couple of things that have already got a fair amount of attention. In your comments, Ron, about Resources just as you were just talking about the expectation for somewhat slower growth in '07 but still solid, double-digit, it wasn't clear to me whether you were speaking about Resources in its entirety or just the Oil and Gas Equipment group specifically. Ron Hoffman - Dover Corp. - President, CEO I think the dialogue was more related to oil and gas as we were having that and talking double-digit growth. I think Resources certainly is forecasting growth. They've posted double-digit growth the last few years. I'd like to think that they will have that opportunity but I don't think I want to go out and say that yet. Robert McCarthy - Robert W. Baird & Co. - Analyst Okay, fine. (multiple speakers) www.streetevents.com Contact Us 16 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 18. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call Ron Hoffman - Dover Corp. - President, CEO Subject only to the fact that you've got Paladin coming in, so you're going to see some inherent growth because Paladin eventually will become organic. You're going to see that, what I will call natural shift, so you may still see double-digit growth in Material Handling revenue just because of the addition of Paladin. Rob Kuhbach - Dover Corp. - VP Finance, CFO Yes, I think that is a good clarification because it isn't impacting acquisition. Robert McCarthy - Robert W. Baird & Co. - Analyst Absolutely. If I'm reading between the lines correctly, do I understand that Material Handling group had a down quarter without the impact of the acquisition? Ron Hoffman - Dover Corp. - President, CEO Well, certainly, again, light construction did impact a number of businesses in that group, plus automotive. Keep in mind that, in that group, what little bit of automotive content we have in Dover pretty much shows up in that group. That sector has been down and stayed down. I think we've seen the slide of light construction impact some companies in there but it's been offset, again, by some nice business games at Tulsa Winch. So in general, I think you are right; we have seen just a flat to slow market overall in that sector. However, I guess I would also say, though, that the sector down there, absent Paladin, really wasn't too bad in terms of order rates and overall earnings--excuse me, overall revenue. Robert McCarthy - Robert W. Baird & Co. - Analyst Okay, thank you. That's helpful. I would assume, as you look towards 2007, you are thinking in terms of the Material Handling group, given likely auto production schedules, some ongoing pressure on light construction, that the first half of the year is probably significantly weaker on a year-to-year basis than the second half will be. Ron Hoffman - Dover Corp. - President, CEO Right now, I think, because of the light construction, it might filter into heavy construction if we don't see that turnaround come in the spring when you'd expect the building season to improve. That could be the case. But again, most of this is pretty short leadtime business, Rob, so you don't get the long backlogs in that sector that we might in some of our other businesses. So the change will come about probably pretty quick and be reflected for a large amount in the same quarter as we receive it. Robert McCarthy - Robert W. Baird & Co. - Analyst Okay, very good. To follow up on your comments about Technologies, particularly Automation and Measurement, I guess. We are--moderating first quarter means down compared with prior year, right? Ron Hoffman - Dover Corp. - President, CEO Well, in the prior year, we actually starting with a better backlog at off of a better base of orders. In fact, we had a few of our companies that--again, I'm going to use a technical term here--the manufacture flying prober which is a test device that had booked some all-time highs actually in the fourth quarter, so you get a lot of diverse signals. www.streetevents.com Contact Us 17 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 19. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call But I would say, sequentially, we should see that business show the same pattern as it has in the past that we would expect to see pickup after Chinese New Year to impact the second and third quarter with some drifting probably in the fourth quarter, again absent some major consumer electronic device. That puts a whole level of demand out there in the marketplace. Robert McCarthy - Robert W. Baird & Co. - Analyst Okay. I certainly understand the picture you're painting for the entire year, but I'm still a little bit confused about the first-quarter outlook down sequentially but I hear you saying not necessarily down compared with prior year. Ron Hoffman - Dover Corp. - President, CEO That would be a reasonable assumption. Robert McCarthy - Robert W. Baird & Co. - Analyst Okay. Lastly if I may, could you comment on the issues in the ATM market in the quarter and to what extent you see those as temporary, and whether they are related at all to--through the, you know, bank initiative or not? Ron Hoffman - Dover Corp. - President, CEO Well, I think, Rob, our comment there would be we saw let's say slower growth or a slower market in the U.S. ATM retail market, which is where we have exhibited the most strength. Robert McCarthy - Robert W. Baird & Co. - Analyst Yes, the core market. Ron Hoffman - Dover Corp. - President, CEO Yes. The growth that we are seeking in the banking market, we are continuing to see strides in improvement in that market, but again, that's slower in coming because these are in bigger blocks and you have to prove your ability to perform in that area, so you put out trial ATMs and they have to go through their tenure of being accepted by those major banking institutions. I think are we encouraged? Yes. Is it slower than we would hope? Yes. But I think we're still pretty optimistic about what's going to happen to that sector over time. Robert McCarthy - Robert W. Baird & Co. - Analyst So to what do we attribute the slowing in the core business in the quarter? Is this slower construction activity in some of their key markets like [C] store and gas station? Ron Hoffman - Dover Corp. - President, CEO I think that is the case. I think we're trying to kind of get a feel of what is the saturation point of ATMs in these retail outlets. I think we're seeing that industry has built out an awful lot over the last few years, and now it's a question of what's the magnitude of the replacement market? www.streetevents.com Contact Us 18 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 20. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call Robert McCarthy - Robert W. Baird & Co. - Analyst Okay, thanks. Very helpful. Operator Shannon O'Callaghan, Lehman Brothers. Shannon O'Callaghan - Lehman Brothers - Analyst Good morning, guys. Just a higher-level question I guess on organic growth, still very strong in the quarter, sort of a natural moderation over the course of this year. How are you thinking about '07 for organic growth? Ron Hoffman - Dover Corp. - President, CEO Well, I think certainly, mathematically, the number is down in the fourth quarter from what it was. If you look at our average (technical difficulty) but I think, Shannon, anybody that can post double-digit growth five consecutive quarters, that's really a testament to what's going on inside those companies. So I think I would hope everybody would interpret that that we're not just buying growth; we are actually developing growth internally into our companies. I think looking forward, I think we will continue to see organic growth. We've historically said that organic growth target was 5 to 7%. We would think that it would probably be at the high end if not exceeding that through the course of the year. Whether it will maintain double digits all year I think is a little early to call, but we're pretty comfortable with our organic growth initiatives going forward. Shannon O'Callaghan - Lehman Brothers - Analyst Okay. You know, you mentioned, on Paladin and I thought you said it on semi, too, some moderation over the course of the fourth quarter. I mean, how are you guys, given your sort of broad exposure, how are you feeling about the economy? Ron Hoffman - Dover Corp. - President, CEO Actually, the economy, again, we think is still holding in pretty robust with just the exceptions that we noted in our dialogue. But in general, we are not seeing order rates or business trends that are scary to us. We anticipate some of the pullback you saw in the second half of the year is going to come back in its normal, seasonal fashion. So we're really still pretty optimistic. I think, if you look the broad base of companies we have and the markets we touch, we are getting a pretty solid read and it's not a negative read. In fact, I would say, on-balance, it's more positive than negative. Shannon O'Callaghan - Lehman Brothers - Analyst Okay. You know, just I guess the last one, you made the comment on acquisition spending of 10% of revenue but you're willing to go higher. You know, what drives that comment? Are you seeing things out there that are bigger that you are thinking of going after, or I mean why would you sort of start to think higher than that now? www.streetevents.com Contact Us 19 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 21. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call Ron Hoffman - Dover Corp. - President, CEO Well, I think, again, when you think of 10% of revenue of Dover and, let's say, just roughly $7 billion of (indiscernible) or something, 700 million in spending after two years at 2.2--or excuse me, 1.1 billion in each year, I think it says our appetite is out there to look at bigger deals as they come across as opportunities. So we're just saying that we have plenty of debt capacity. Our earnings are generating a lot of cash for us, in terms of balance sheet are generating cash. We are going to deploy that into our acquisition program. I think now that we're more focused, we're going to be able to kind of identify where those true value-building opportunities are going to be for us. If there is one that we have to reach for, we're willing to reach. Shannon O'Callaghan - Lehman Brothers - Analyst How about on the divestiture side? I mean, could some of that be funded through the sale of something else? Ron Hoffman - Dover Corp. - President, CEO Well, again, we feel like most of the divestiture activity is behind us. We have a few smaller ones to finish cleaning up yet, but I think the gain of cash off of those will not equal what we posted in the past so we won't get as much cash back from that activity. But again, you know, our debt equity has peaked up into the low 30s as we've done major acquisitions, but with the cash generation, we've been able to pull not only from the acquisitions but just the portfolio of our companies now that we've optimized it. You know, we get that back down into the mid-20s pretty fast. So I think we are very comfortable with our capacity going forward. Shannon O'Callaghan - Lehman Brothers - Analyst Okay, well, thanks a lot, guys. Operator Thank you. I would like to turn the call over to Ron Hoffman for closing remarks. Ron Hoffman - Dover Corp. - President, CEO Again, I would like to thank everyone for being on the call and the questions they asked today. Hopefully, we've provided some clarity to help you think of Dover on a go-forward basis. Again, I would like to just draw attention to the fact that I think this portfolio work that we essentially completed over the last two years has significantly changed the outlook for Dover, the growth potential for Dover. We think it has allowed us to focus our energies and has certainly been reflected in our results. It also reduces the volatility of Dover that we've exhibited historically. We are very comfortable that we are poised to continue to deliver shareholder improved results over the coming year. With that, we will close our call. Operator Thank you. This concludes today's Dover Corporation conference call. You may now disconnect. www.streetevents.com Contact Us 20 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 22. FINAL TRANSCRIPT Jan. 31. 2007 / 8:00AM, DOV - Q4 2006 Dover Corporation Earnings Conference Call DISCLAIMER Thomson Financial reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes. In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in the companies' most recent SEC filings. Although the companies may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON FINANCIAL OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. ©2007, Thomson Financial. All Rights Reserved. 1450809-2007-01-31T16:01:59.073 www.streetevents.com Contact Us 21 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

×