道爾 (DOV) 2004 Q4 法說會逐字稿

Good morning and welcome to the fourth-quarter 2004 Dover Corporation earnings conference call. With us today are Ron Hoffman, President and Chief Executive Officer of Dover Corporation and Rob Kuhback, Vice President of finance and Chief Financial Officer of Dover Corporation. Also with us today is Mr. Tom Reese, Chairman of Dover Corporation who will be giving some concluding remarks. 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. Ron Hoffman. Mr. Hoffman, please go ahead.

Good morning, ladies and gentlemen. Thank you for joining our call this morning. It is a pleasure for Tom Reese, Rob Kuhback and me to be here with you this morning to discuss Dover Corporation's 2004 fourth-quarter and year end results. Tom is joining us today from a well-deserved vacation in the Dominican Republic and again shows his expertise and planning. I am sure his sun, sand and surf is a welcome change to the snow and cold here in New York City. We are hopeful today's conference call will go smoothly without technical issues.

This is my first conference call since being named CEO of Dover at the first of the year. I am excited to be Dover's fifth CEO, and this May Dover will celebrate its 50th anniversary. It's an exciting time at Dover, and we are delighted to talk about posting record sales, orders, bookings and backlog in 2004 along with the second-highest earnings per share in the Company's history. Before we make our overview comment and open the call up for questions, I want to remind everyone that our comments might contain certain forward-looking statements that are inherently subject to uncertainties. We caution everyone to be guided in our analysis of Dover Corporation by referring to our 10-K for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statements.

I would also direct your attention to our Internet site www.DoverCorporation.com where considerably more information can be found. Last evening we reported fourth-quarter 2004 diluted earnings per share from continuing operations of 48 cents, up from 39 cents in 2003, an increase of 23 percent. For the year, diluted earnings per share from continuing operations increased 43 percent to $2 versus $1.40 in 2003. This is the second-highest earnings per share in Dover's history.

The fourth quarter saw sales gains in diversified resources and industries while the technology sector was reacting to a rapidly declining market. Sales for the quarter increased 19 percent to 1.421 billion, bringing the year to a new Dover record of 5.488 billion, up 24 percent over last year. Earnings before tax increased 18 percent for the quarter compared to last year and were up 49 percent to 552 million for the full year.

For the year each of our subsidiaries posted double-digit gains in both sales and operating earnings. Forty-six of our 49 operating companies reported increased sales, and 40 companies posted improved earnings. Dover's operating margin for the year improved from 10.8 percent to 12.2 percent, led by gains at resources and technologies. These results are really outstanding when taking into account the high-cost of SarbOx implementation put on our organizations coupled with numerous steel price hikes, the high cost of energy that impacted operating costs and the impact of foreign currency exchange. Rob will give additional details (indiscernible) operations in a moment.

Dover posted a 24 percent sales gain in 2004, and we were encouraged their operating companies posted 14 percent organic growth reflecting their market share gains and internal growth initiatives. We believe that getting 60 percent of our annual (technical difficulty) validate growth and currency accounted for 3 percent. (technical difficulty) (technical difficulty)

During the fourth quarter Dover announced two acquisitions Datamax, our largest acquisition of the year which increases our footprint in the product identification and printing market and Almatec which is an add-on for Wilden Pump. We continue to be encouraged by the activity level of acquisition opportunities and have already announced a 2005 acquisition, Avborne, a Florida-based aircraft component maintenance company as an add-on to Sargent.

Dover completed 8 acquisitions totaling 514 million in 2004, our third-highest total in history, and each of these will be additive to existing companies or platforms. These larger acquisitions bring solid management team and synergy opportunities to drive future growth. Our subsidiaries also made tough decisions to divest 6 companies during the year that were not providing long-term growth for our shareholders. As I take the reins of Dover I am enthusiastic about the opportunities and challenges that lie ahead. We have just implemented the first reorganization of the Company in roughly 20 years. We have now aligned into 6 subsidiaries which provides the management capacity and responsiveness to drive increased results for the future.

The new subsidiary leaders are quickly getting their arms around the issues of their operating companies, and I'm confident their renewed focus will drive value into their respective portfolios. As we enter 2005 our operating companies are forecasting growth in all subsidiaries and serve markets. Our companies are very focused on global sourcing efforts to provide the necessary cost structure to maintain their earnings in spite of a challenging pricing environment. In listening to our industrial focus subsidiaries they are optimistic about current business levels and market opportunities. They are encouraged that steel price increases will moderate and they will build on operating cost efficiencies.

Our technology companies are currently sizing their businesses to the proper levels and continuing to develop and bring to market the needed product to serve their customers as the current business decline reverses. In closing, Dover produced great operating results in 2004, and I want to express my sincere gratitude to our 28,000 employees who work on every continent serving a broad array of customers and markets. Their diligent efforts and focus results will continue to drive increased value for Dover's shareholders.

With that I will turn it over to Rob Kuhback to discuss our operations and financial highlights in more depth with you before we open the section for questions. Tom has some closing remarks to share after the questions.

Thanks, Ron. Let me add some operational and financial comments. For 2004, 70 percent of sales growth and 82 percent of earnings increase reflect the significant improvements at Dover Resources and Dover Technologies, so let me start with those subsidiaries. In the fourth quarter Dover Resources' results continued to be strong with sales and earnings up over last year, although earnings dropped somewhat on essentially flat sales compared to the third quarter. Oil and gas equipment companies led the segment, but 9 of the 12 companies posted quarterly earnings gains.

For the year, Resources operating leverage was impressive with earnings up 58 percent on a 38 percent sales increase over the prior year period. Resources was the clear earnings leader for Dover, and all of its operating companies produced increased sales, earnings and bookings. Resources also had record bookings in December and enters 2005 with a record backlog. The three acquisitions completed in 2004 particularly US Synthetics and the strong energy market should provide further momentum for continued profitable growth in 2005.

The Technology segment saw a significant decline in fourth-quarter sales, primarily at ECT (ph) and Universal after posting six quarters of solid sales gains. Earnings for the quarter were down 11 percent from last year on an 18 percent sales gain as positive sales and earnings trends year over year and sequentially at Imaje and SEC could not overcome significant declines in CBAT. However, December was the best month of the quarter led by record sales at Imaje.

For the year Technologies had significant operating leverage with a 91 percent earnings gain on a 32 percent sales increase compared to the previous year. This was driven by record sales and earnings at Imaje and Everett Charles and positive earnings comparisons at 11 of 12 of the Technologies companies. In fact, for 2004 Everett Charles was the overall Dover operating company earnings leader. The Technology segment enters 2005 with a backlog up 18 percent over last year. We are also encouraged by the upturn in December coupled with the addition of Datamax, yet are fully aware that the late Chinese new year may impact first quarter results.

Technology companies are focused on improving 2005 sales and earnings with new products while reducing operating costs with efficiency improvements and integration activities from recent acquisitions. Diversified sales and earnings were up both 15 percent for the quarter compared to last year. Hill Phoenix, Belvac, Crenlo, Tranter PHE and Mark Andy all had strong quarters despite continuing high steel prices.

For the year Diversified posted record sales earnings and bookings over the prior year, driven largely by positive comparisons at Crenlo, Mark Andy and Graphics Microsystems. In 2005 diversified will build on the solid foundation of its 2004 results with improved pricing and a lower-cost structure. Dover industries fourth-quarter earnings were up 4 percent on record sales, up 16 percent from the previous year. Better year-over-year results at Heil Environmental, Triton and Tipper Tie were offset by some negative comparisons particularly at DI Foodservice and Heil Trailer, which reflected plant closing costs, accrual adjustments and product mix issues.

Industries also was the segment most impacted by rising steel costs whose net 2004 cost is estimated at $15 million. Nevertheless, it still posted records sales of 17 percent and strong earnings up 14 percent over the previous year and entered the year with a record backlog. Industry anticipates improved results in 2005 with new product innovations and continued strength in the marketplace.

Turning to some general data, free cash flow for 2004 was 364 million or 7 percent of revenue as compared to just over 381 million or 9 percent of revenue in the prior year period. Ron has already covered recent acquisition activity. I would simply add that the full year 2005 impact of these 2004 acquisitions should be accretive at about 8 to 10 cents to EPS. With regard to working capital all of our operating companies have put considerable effort into improving balance sheet management for 2004. Working capital as a percentage of sales was 22.3 percent, down from 26.2 percent in 2003, which reflects strong efforts to reduce inventories and improve receivable collections as well as extending payables consistent with industry practice.

As Ron commented, we also continue to dispose of discontinued operations. During 2004 we sold six businesses for net cash proceeds of nearly $74 million. Over the past four years Dover has discontinued and sold 17 businesses generating net cash proceeds of about $460 million resulting in a net loss of under $1 million. Net debt to capital ratio at year end was 18.7 percent, a decrease from prior year end of 20.2 percent. This gives Dover plenty of capacity to support its foreseeable internal investment needs and acquisitions as well as retire the $250 million of debt which comes due this Fall. Dover's effective tax rate for the quarter was 17.7 percent compared to 20.8 percent in the prior year quarter, which brings our full year effective tax rate to just under 26 percent compared to last year's 23.3 percent.

The quarterly rate reflects higher R&D credits and the full year rate reflects lower net credits and reserve benefits against significantly higher income. For the year there were no discretionary pensert (ph)contributions and capital expenditures were up 11 percent to just over a 107 million. Now Ron back to you for questions.

All right. We will open the floor for questions now.

(OPERATOR INSTRUCTIONS) Donald MacDougall with Banc of America Securities.

My questions are going to be mostly focused on technology, no surprise. But the surprise for me in your results was the operating margin that we got in the technology segment. I would like to understand to the extent possible a little bit more what actually pushed it down so much on a sequential basis. You did cite ForEx. (ph) You cited some product introduction costs, and some merger or acquisition costs in the press release, but could we get some more elaboration there?

(indiscernible) the Technology sector, certainly we knew as the third quarter was finalizing that we were seeing an order rate decline in the Technology sector. In fact I think we've mentioned the backend semiconductor softening for a couple of quarters now. I think the fourth quarter probably was a little steeper decline than maybe even we anticipated as far as it hitting so quickly. At the same point in time I think as you are going through a downturn, many times you have some upfront costs as you separate employees and you go through the re-evaluation of what your sizing ought to be relative to that marketplace.

And typically I think in some cases you want to make certain you have read the signals properly so you don't cut core out of your company where you can't react to the upturn. So I think there may have been some of that that came into play during the course of the quarter. However, I would say that we continue to right size these businesses so that we can come back and respond to whatever market is out there in a very positive way as we roll into first quarter. I think looking a little more specifically Universal continued to have costs related to their rollout of new products. We are encouraged I think at Universal from the standpoint of saying that for a number of quarters now we have talked about them resolving issues on implementation of new products, getting the supply lines in place. I think that we are happy that the progress has been happening quarter to quarter, month to month in that business. And I think if you look at Universal in total regardless of the numbers that were posted, which we recognize numbers there are below what we hoped they would be also, but I think you look at this and you have to say are they doing the right things, are we going to respond in the market in a way that we feel we can.

And I think as you look at in talking with the people at Universal and Dover Technologies the last few days, we are very encouraged with the quoting activity going on at Universal. We are looking at the new orders we have received, which in many cases are from new customers, which we feel validates the fact that the strategy of taking Universal's products and reposturing it into a new segment of the market gives us a broader opportunity for business is paying off. We are winning runoffs against competition. We are booking orders with new customers. We think the product strategy is right, it has just been unfortunate that right now the market is in a bit of a down decline.

I think to also attest to that very recently Universal was named one of the 40 top companies by the Chinese Information Technology Ministry, which again I think kind of validates our play into China and our ability to respond to the customers in the region served in maybe even closer than competitors. So I think those are the things I think we have to keep somewhat in focus. We are reacting to our cost base at Universal as well as (technical difficulty) Technology company. New products continue to roll out. Everett Charles has just announced a new machine they call the Eliminator which we think will be a technology change in testing of circuit boards that will certainly reflect in '05 results.

And I would also say that I think last time we chatted we talked about the fact that we felt in our Technology business that companies like DEK and Vitronics Soltec should be able to hold up a little better and the numbers reflect that somewhat. And what it says is that if Vitronics Soltec we still have this lead-free initiative going on around the world and their products are still very much in demand in order to replace older technology products out there. At DEK they put emphasis on their consumables business, and I think that has buoyed their results somewhat; both of those companies had excellent years this year.

Imaje that we have talked about had an excellent December, had record Decembers. Their bookings have been very strong. The new products that they have rolled out, especially in the non CIG areas rolling into '05 that will bring us back to the kind of numbers we have chatted about historically.

Just to zero in on this a little bit more and see that is kind of I guess the big one you had cited. We had, I think 5.9 percent margins on CBAT in the fourth quarter. If I go back to the third quarter on $25 million less revenue, you were able to get margins of 9.5 percent, and in the second quarter when you had 179 million of sales, margins were comparable to what we got in the fourth quarter. So I guess I understand that the revenues came under pressure based on what was going on in the industry. What I really want to understand is why the margins came down so much just relative to very recent run rates of profitability on the business.

Don, when you mentioned the third quarter you said the sales were -- I am not sure I understand your number.

If I am looking at my model actually I got the maybe the wrong year in front of me.

Our second quarter, the last time we were at 229 was roughly in the first quarter of this year we were 223. And earnings were higher, margins then were 9. I think if -- without getting granular about this -- I think the difference between the first quarter of '04 and the last quarter where revenues were relatively in the same ballpark but margins were less. I think two things probably contributed to the difference in terms of margin and profitability. One, I think the backend semi space, Everett Charles' part of the market was stronger in the first quarter than it was in the fourth quarter. So that contributed modestly, and I think the other factor was Universal frankly had a more adverse quarter this quarter because they were ramping up their mid-range machine and their product line with the expectation of the Chinese market would remain strong into the fourth quarter. And that frankly didn't happen. And I think to some degree we still think that's the right investment position. I mean we have gotten as Ron said very positive feedback on the mid-range machine in our broader portfolio. But I think that is probably the other contributing factor along with some foreign exchange negatives that impacted the fourth-quarter results, as well.

I think you have to also (indiscernible) the fact where you are at in the business cycle you make these comparatives at quarter to quarter. In the first quarter that Rob referenced we were building in volume, so you typically are a little bit behind the curve in manning as you come up that curve, so therefore your costs are a little bit below. As you start building that headcount in order to meet those demands out in front of you, you now get that in place and so now as you tip over in the volume curve, you have to take that manning out and make adjustments in your cost base so it is a reactive quarter rather than a building quarter.

Okay. Maybe we'll explore that a little bit more off-line. The other general question is on the non tech businesses with respect to maybe pricing initiatives that you have. I know it is difficult to generalize across the number of businesses, but in Industries and Diversified you did take some pressure from input costs. What is your general level of success in pushing those prices to your customers?

I think all year long we've seen these steel price increases kind of come in waves, but there has been just a number of price increases that have hit our companies over the course of 2004. As we mentioned other conference calls, each quarter each month we are pushing more and more of that to our customers in either price increases or surcharges. It is really easier to do that where you have shorter cycle times to the customer distributor oriented businesses than it is where you are locked into longer-term contracts. I think we have been diligent in honoring our price contracts where we can. I think if you look to steel suppliers they have not honored their contracts; those costs have been pushed immediately. I think if you look at the year end total, though, we have been successful pushing a significant percentage of it and it's increased more and more each quarter.

Okay. Thank you.

Alex Blanton with Ingles and Snyder.

Three questions. Tax rate for 2005. Second question, acquisitions. If sales were flat, what they are now, what would the acquisitions that you have made in 2004 and so far in 2005 add to sales? For 2005? And third on the prior topic, do you have an estimate of how much these additional unrecovered raw material costs, and also any inefficiencies due to shortages of raw materials, how much did that cost you in 2004 in total. Some companies have made estimates of that. I don't know if you have. Because your operating margin of 11.2 percent while it's good, it's not as good as it was say twenty years ago. So, is there some opportunity to catch up here when these raw material shortages ease on this operating margin, and how big is that opportunity?

Alex let me answer your question maybe in reverse order if I might responding to the unrecovered costs of steel which is the way I interprete your question. We think the P&L impact on steel to Dover that was unrecoverable is in the range of $35 million, and I want to qualify in the range. You must recognize that we don't have succinct reporting of all these numbers from all of our companies probably in the right manner, and also I think you made an astute point there, the fact that there are inefficiencies that come about because in some cases you have to procure the steel that you can get which might be a different size, you might have to modify it or do additional operations in order to get those products out.

I think if you looked at the impact on margins just looking at steel only and not considering the other inefficiencies that probably came about from steel, and those inefficiencies would be perhaps in processing costs, perhaps in added freight costs to expedite shipments and meet demands, because we did not have supply issues as well as cost. And then maybe overtime that required because of those late deliveries. So I can't quantify that but if you just look at that 35 million let's say impact on the P&L for the steel, it probably would have been in the range of adding 1 to 2 percent to margins in our industrial sector, kind of across the board.

When you say industrial sector, --.

I was talking about Dover Diversified, Dover Industries and Dover Resources, that is really where we felt the impact of the steel prices, much less so in Technology. So I would say each of those three subsidiaries probably could have found 1 to 2 percent more margin or would have recorded that had they not had the impact of steel hit them during the year. And that is before we even talk about things such as SarbOx and other things that came about in all those areas. But nonetheless, I think that is kind of the range. Rob I will let you answer the other two parts of the question.

That is very helpful, thank you.

The tax rate for the coming year, Alex, is likely to be in the same range as where it is now, mid to high 20s. The only thing that would change that potentially is if Dover were to take advantage of the recent tax law change that allows for repatriation of foreign earnings. That could raise the rate because of the way the program works; you would be paying a very low tax, but there's no tax benefit on that tax. So your effective tax rate would go up based on the 5 percent you would be paying on what you repatriate. And we are currently looking at a repatriation amount which we haven't made any decision on but it would be in the range of 150 to 200 million dollars that might be repatriated.

Let me ask you something about that 150, 200. You can't use that to buy back stock or to pay higher dividends?

That's correct.

But how does the government know which pocket the money is coming from? For example you could use your normal cash flow to do those things and use the 150 to 200 million to make your acquisitions. How is it going to figure that one out?

You raise an interesting question. I think the regulations are brand new but my sense from talking to our top tax expert internally is that you will document the program and the use of proceeds, such that if you repatriated for example, we have a $250 million debt issue payable in November. And if we repatriated an amount in that ballpark we could clearly designate it for repayment of debt, and that would satisfy what we understand to be the regulation.

Wonderful, and then you would have an extra 150 to 200 million on the other side to buy back stock and pay higher dividend. It is fungible. That is the point.

You raise a very interesting point, Alex. But I leave that kind of discretion up to the Congress and the regulators to sort out.

All right, and the final question is about acquisition. How much --.

Revenue from 2004 acquisitions would be in the range of $350 million in the coming year, in that range. It would be up or down from that number because you know there is moving parts and some of these businesses will grow and so forth but in that ballpark.

That would be added by the acquisitions you have made?

That would be top line.

Sub periods?

Yes.

Thank you.

Dan Wang with Lehman Brothers.

Good morning and congratulations, Ron on your first earnings call. My first question was regarding the tech segment; it seemed like when you look at the numbers there are some restructuring expenses. Can you quantify what that was for the quarter and your expectation going forward?

I don't know that we can quantify it. I think we used the word restructuring I guess in this context in it is fairly broad -- it is not a formal accounting restructuring in the traditional sense. But obviously if you look at the two parts of technologies in the SEC area we did a significant acquisition from Corning, which we anticipate over time will involve some integration costs and some items where we hope to improve the efficiency of putting those two businesses together. So that is something that we had some of in the Fall. And we anticipate that will continue into next year.

I think in the other businesses I would characterize the situation where given the dynamics in the marketplace as Ron alluded to, we have had to be very focused on maintaining our global network of service agents and how we staff our operations in China and elsewhere depending on volume fluctuations. As we gain sales in China, we have to invest, and as timing issues into how much we put money and people on the ground ahead of sales improvements. So I think I would characterize the quarter and the year as one of maintaining a close watch on how we match costs up against revenue and expense.

Right, and I think regarding the CBAT business and the margins, you know, talked about some of the upfront costs and eliminating some of the employee base there. So going forward, could we assume that some of that upfront cost that's eliminated, that even assuming that revenue base, see if that stays around that 2, 220 or 229 type of range, that margins would improve?

I think our expectation is realistic that yes, that should occur then. I think, though, it's still a question of each of these companies have different market drivers and different market signals, so the time for them to react, the depth to which they react, is all different. So we don't get all of our restructuring costs in just one fell swoop and in one timeframe, because they are going to react to different signals. An example that last quarter in the third quarter, we had some restructuring costs at K&L that has immediately come back and shown that company to now be in the black, after having a number of quarters in the red.

I think as we look at companies like Everett Charles, Vectron, companies that have done significant acquisition activity here in the last year, they are coming to terms with the rightsizing they need to do, the effectiveness of those acquisitions, and the fact that we now look for synergy in our acquisitions. If we look at the Corning CFC acquisition that Vectron did, that gave them significant opportunity as they evaluated the business, evaluated the market, evaluated their capacity needs to now go back and really start looking for those true synergistic things that will drive value. And I am confident those business leaders at Vectron have identified those and they'll be working through those over the coming weeks and months.

And in terms of your outlook on the whole tech segment, how is your view changed at all from the third quarter comments? I think just the view back in the third quarter was kind of mid cycle correction. But what is your current view?

I don't know that we are any wiser than any other companies that are trying to report tech side forecast right now. I think there is lots of plus and minuses. I think we were hopeful that it was going to be a correction as such. We have data that indicates I think because of our December being better, because of some of the trends and graphs that we look at of our Circuit Board Assembly and Test equipment, I guess indices from the industry it would lead you to think that we may have found the bottom and it may be plateauing, but I don't want to say that as a statement. I would just say that is kind of what we are seeing right now; we hope that is true. And then we have this difficult Chinese new year to think about a little bit, it is a little bit later this year. We hope that does not overly disrupt first-quarter activity. But I think there is a possibility.

I would add, Dan, that two things, one this year like last year will be choppy. Two, last year was strong second third quarter, weak first and fourth. That is probably more likely than not going to continue this year. On the other hand I think the overall level of activity if you look at on a top line basis in particular between 2003 and 2004 we did see a general increase in revenue levels. And we don't anticipate a drop off back to the 2003 levels. In other words we feel the market has fundamentally regained some general strength. But we don't see that the technology area is likely to get a whole lot better in 2005 than where it was running in 2004. But that will be choppy; that will change from quarter to quarter.

I think also, Dan, I think we mentioned this previously is that we do think perhaps there may have been some overbuying in the second and third quarter in terms of capacity of those equipment assemblers. And I think that impacted the fourth quarter maybe even more severely. Now where the true run rate of those companies are in their equipment needs I think we are still getting our head around that in evaluating the market but I think we did kind of get into a downside reaction, kind of the overreaction on the underside rather than the overreaction on a buying side maybe early on.

And final costs around the steel impact, could you quantify by quarter what the net impact from steel was net of price increases that you put forward to your customers in the perhaps third quarter, fourth quarter?

We don't have those specific numbers to share on quarter to quarter. I think we have mentioned in our quarterly releases that the steel price increases probably got larger during the course of the year but our ability to pass those on to customers improved during the course of the year also because we had more time to react to those things. So I would say that if you are looking at comparatives quarter to quarter those comparatives ought to get less over time. But I can't spout you statistical numbers on that.

Great. Thank you very much.

Julie Lapunzina with Wachovia Securities.

Hi, Julie Lapunzina for Wendy Caplan. Can you tell us which segment you view as having the most opportunity going forward and also which group of businesses you consider to be the most worrisome for 2005?

Let me take the positive side here. I think that certainly resources had a very strong year driven by a couple of factors. One is the oil patch that drove our oil and gas equipment companies was very strong; the commodity prices were high, the drilling activity was high, that drove a lot of demand for equipment. We have also during the course of the year made the US Synthetic's acquisition, which added to our platform of equipment in that arena. The signals that we continue to read are that commodity prices are going to stay at a high level, a level that should drive continued demanding that industry in that marketplace. And I think now that we have a broader play it will just give us that much more focus into that segment. So we are quite comfortable that that area should hold up through '05 unless we see some cratering of commodity cost.

Also the pump companies in that segment in the material handling companies and by material handling we would group that our winch companies which would include Warren all had good solid years, and they continue to book very well. The signals that they are getting to marketplace continue to be very robust. So I would say the industrial sector of American and markets they serve from what we see right now should hold up going into '05 so we look for that to be one of the positive groups.

I would also add that in other areas such as Dover Industries and Dover Diversified, again, as we anticipate and hope to see steel prices moderate we should see earnings improvement in those groups. Dover Industries has made via Heil Environmental has made some nice improvement in their cost structure that we think will continue to bear fruit going forward. They have also had share gains in their sales in their marketplace. We view that as very positive.

As we look at Heil Trailer they have had a military contract that has challenged them during the course of the year. They now are much more confident that they are meeting their cost targets there; we see that as uptick as we roll into '05. So I would say the industrial sector across the board, Hill Phoenix certainly not to forget Hill Phoenix had a very strong year last year. We think they are poised to repeat that and hopefully build on that over the course of time. The only thing that they dealt with last year again was a little bit of product mix and the impact of steel prices that we saw in all other companies.

I think the most concerning area continues to be the one that the questions relate around, and that is the technology sector. When will it come back and how robustly will it come back. I think we are confident that we will find some stabilization; hopefully we have found it at this point. We would like to believe that. But I don't think I want to go on record as saying that indeed we found the bottom, it is just that our signals indicate that we may have be plateauing at this point in time and building. We are encouraged by news that we hear out of Universal and many of our other companies, but I think that is the one sector that we just need to have a little bit more time to validate what its progress will be.

Robert McCarthy with Robert W. Baird.

First just a couple little maintenance items. What are you expecting to recognize for options related expense in 2005?

I would say we are looking at -- are you talking about on EPS basis?

Yes.

I would say it's in a range of 7 to 9 cents, well 5 to 6 cents because it is only a half a year. It is probably closer to 8 to 10 cents on a full year basis. And that's consistent with the footnotes that we have been disclosing for the last several years that sort of give you the numbers. So we pretty much indicated where we are in that area already.

Sorry to bore you with the question then.

Oh, no, no, it is not a boring question, it is just --

I just wanted to confirm that we had the right kind of number basically.

You are on target.

I appreciate the fact that you are probably getting a little tired of talking about a business where you don't have real good visibility but I want to make sure that I understand what your near-term expectations are, particularly at CBAT. First, I think it would help me if I understood whether there was incremental spending in the fourth quarter compared with just the prior quarter, the third on rightsizing initiatives at Universal, etc. It is not clear to me that there was significant spending within CBAT for those activities in the quarter.

I would say at Universal, Bob, I wouldn't say we had great downturn in Universal because we were still, again, keeping headcount resolve issues to make certain that we had all of our products functioning technically to meet the market demand that may come forward. (multiple speakers) reacting to the signals that we were reading from marketplace. I think as we look at other companies in that group DEK remained solid, Soltec has remained solid, Everett Charles has dropped off. They are recognizing that, dealing with that; in many cases that impact has been in Germany, which is a little slower to react on the headcount side until you really understand the true numbers just because the cost of what you get into there. So I think those are the kind of things.

it is not a big impact in the quarter in other words?

No. It's not an overriding impact in the quarter. I think you just finally get to the point where the volume related to your breakeven becomes an issue, and that is a lot of what impacted the fourth quarter.

And to make sure I understand what your comments mean about the Chinese new year, I gather it is your expectation that even if order rates have bottomed out you would still expect revenue in the March quarter to decline sequentially from the fourth quarter.

If it is bottomed out I think you would have to kind of go back and look at the fact that it bottoms out, but December was our best quarter, so to quickly jump in and agree with you that would be a down quarter I think its easy for us to go there, Bob, but I don't think we have enough information to want to validate that. I would say that if we could duplicate December for each of the three months, it would be a better quarter.

Okay. And the adverse currency effects that we're talking about, for the technology segment was exclusively the issues at Imaje, correct?

No, I would say it was not limited to Image. It also would have included DEK. (multiple speakers) and Alphasem.

I forgot. Sorry about that.

One other thing on that, I think it is important to keep in mind that the leverage in the CBAT companies particularly is relatively steep in both directions. So I think as you think about those companies -- it doesn't take a significant change on top line to generate a more significant change in bottom line performance. So I think as much as we saw some rapid improvements in earnings and margins in the second and third quarters of this last year you can see an equally rapid in the other direction, and then what complicates it, given that there is a bunch of moving parts as Ron said you've got really strong performances all year pretty much in DEK and Soltec. Universal was more problematic because of the unevenness of their order rate and sales rate particularly into China made it more problematic as to how much they could control some of those items. They were investing in what they thought would be improved sales levels into the fourth quarter and then they had to change.

Thanks, Rob. That's helpful. Two last things. As you mentioned earlier, you sold six businesses this year. Do you have anything left that has been identified for divestiture?

No, there's nothing currently designated as discontinued at this point.

Okay, and then in a more general sense it might be helpful -- you know Belvac identified as having had a very good quarter in the fourth quarter. If my memory serves me the first quarter of this year it had a terrible quarter. And it's just kind of lumpy business it is. Are there any businesses as you look into the first quarter where it would be useful for us to be aware that they had some terrific first quarter of '04 and you just know based on backlog, etc., that you're looking at a Belvac type swing in this year's coming first quarter?

Well, again, I guess I would want to caution everybody to their reactions to Belvac as those questions come up. Belvac is a, is not one of the larger companies in Dover. It does have impact in Diversified because it is a profitable company, but it also gets its business as you characterize and as we characterize in a lumpy fashion, meaning it wins projects, it works on those projects, the projects get shipped and you have significant sales and earnings in those periods. Then they go through periods where they don't have the big projects, and you don't hear as much about them in the release. So they do reflect well when they ship. When they don't ship their numbers aren't going to come through the earnings release quite as resoundly.

There is no company, let's say single company that you could set and put your finger on and say gee, they've got this big backlog or this big project that is just going to go bang all of a sudden and make the first quarter be a totally different quarter. But I would again come back to the fact that if you look at some of the acquisitions we announced in the fourth quarter, Almatec will be added if dewilded (ph) which is in the resources group, we think that will be positive on a go forward basis. Datamax which is our largest acquisition of the year we just announced over Christmas, and that will be fully additive as we roll into '05 which has not been reflected in the numbers in the past. So I think that will be the things that will flush up the earnings results as we roll into '05.

I would add as I mentioned earlier that typically our first quarters and our fourth quarters are weaker than our second and third. But there is no -- I was sitting here thinking about your question -- I am not aware of any major situation that is going to dramatically change this year's first quarter to last year's first quarter.

That's helpful. Thanks a lot, guys.

Jack Kelly with Goldman Sachs.

Good morning. I am just taking one more swing at this technology thing but it is really simple. As you looked at CBAT kind of historically, let's just focus on bookings. You've typically had four to six up quarters and maybe a like amount of down quarters. Going back to the first quarter of '03, bookings were 160 odd million, and then they peaked out in the second quarter of '04 at around 308 million. So pretty significant pick up. We've had two sequential declines in the third and fourth quarters, as you described. And I guess and maybe China is the answer but kind of what is different this time? And I know you're seeing tentative signs of maybe a bottoming, but typically cycles are cycles.

And I am just kind of wondering if you would offer up that you guys see differently than maybe you have in the last 3,4,5 years -- in terms of I am talking about the magnitude of the decline but just the lengths, duration.

Jack, I don't think we can influenza what the business cycle is. However, I guess I would say we have to be confident that the strategies of product development our companies will broaden our marketplace so we can play broader in those cycles as they come about. I think that is where the growth really comes and hopefully we can find products or services or consumables that allow us to play more in the downside of the cycle as well as in the upside of the cycle. I think all of our companies are putting that in focus. They are looking for expanding in each of those arenas. And I think that is the only thing that we can do that might be countercyclical is to just try to play in a bigger sphere of the arena and not be so niched to the point that we are always get the full burden of the cycle.

I think if you look, again I don't want to overly beat Universal here but I think that as Universal is successful in moving into this different segment of the market they serve, it is a much broader segment which gives us more opportunities to gain share because it is not so broadly niched. I think that should hopefully soften this cycle in a go forward basis. I wish that Universal would have been at a different point in their product development as the cycle develops so that we could really say that with true validity, but I think we are very comfortable that they are on stream to really serve a different segment of the market which hopefully will give them a bit of a difference in the next up cycle.

One other comment I would share, Jack is that much as the Chinese CEMs and ODMs and these other groups have been fairly aggressive acquirers of equipment, we are beginning to get a sense that some of the other contract manufacturers, global contract manufacturers may be having to evaluate their own equipment needs and performance levels because it has been essentially almost five years since the last big equipment boom 2000. And I think there is some suggestion that at least in some other parts of the world companies that are still anxious to play in this space are not prepared to seed the markets of the Chinese, so I think there is potentially this is a moderating factor.

It is not going to change the fact that the market is uneven as you well know, but the last big equipment boom if you really think about it was almost five years ago. And frankly, that suggests that at least in some spheres companies that were significant acquirers and then dropped out of the picture for most of the 1, 2 and 3 almost through 2004 other than the Chinese have to reevaluate their competitiveness in the market space.

Two follow-up questions. One on Hill Phoenix, one on Heil Environmental. On Hill it looks like you are looking for an up year this year based on some of the comments you made plus some comments about your bookings also. Is that a function of the market turning? Because I know last year it was more a function of their customers just not ordering. So it really wasn't some (indiscernible) market, it was their customer base. If you could just give us some color on the '05 prospects.

And then with Heil mentioned you gained share in a flat to declining market on Heil Environmental last year, what is going to be your view of the market and/or is the continued growth there going to come from just grabbing share because it may be getting back into some contracts you weren't in previously?

Well let me respond I think to Hill Phoenix first. Hill Phoenix has continued to have a good year in spite of a few of their major customers that really put some of their new construction store remodel projects on hold. So I think they've had to gain share. They've had to garner some new customers in order to hold the business level as intact as they were able to do during the year, which I think is a testament to their ability to serve their customers with the products they have.

I think as some of those customers kick back in next year and I think it's inevitable that at some point they will because they will have to refresh their stores and will have to continue their construction programs that will be upside to their business. If we look at Heil Environmental, Heil Environmental the numbers that they publish shows very significant market share gains this year. I think that they are the solid number one in a refuse market as far as collection vehicles. I think they have done that by gaining share. They've done that by having products that customers want that are proving to be very effective in their needs and use in the marketplace. I think they will build on that. I think that the market didn't have great growth this year, but again many of the cities municipalities even though some of the midrange cities participated well, I think there is still the opportunity of some pent-up demand in large cities that will come in and generate additional opportunities.

I also think there may be some opportunity that Heil has taken advantage of, I think Leach became somewhat disorganized in the market space because they announced they were relocating to Canada. And I think that gave companies like Heil an opportunity to pickup some customer activity that might otherwise not have been as easily available. So I think they have taken advantage of what is available in the marketplace pretty aggressively.

Ron, you mentioned significant gains in share. Where would you guess you are in terms of market share in the U.S.?

You know, I hazard a guess from the standpoint that I don't know the source of all their data, but I would anticipate that it is in excess of 30 percent.

Okay. Thanks.

With that I would like to say we will take one more question. And before everyone bows off the call Tom has some concluding remarks that he would like to make. So we will take one more question.

Ned Armstrong with FBR.

You had mentioned with regard to Dover INDUSTRIES that steel impacted you $15 million worth and that was over the course of the year, correct?

Yes.

Then with regard to the fourth quarter, is it possible to quantify some of the effects of the items you mentioned, notably the steel as well as the higher energy, foreign exchange and higher transportation cost?

It is not really possible. I would simply say of the 15 million more of that would have been impacting the results in the second and third quarter, and it would have moderated in the fourth quarter from prior two quarters. It probably had the least impact relatively in the first quarter and then as we talked earlier this year, it went up and then I think the management reaction to those steel cost increases got better as the year progressed.

I was actually saying for the company as a whole within the fourth quarter the aggregate effect of not only the steel, but the other costs such as transportation and energy, as well.

We do not have the ability frankly to capture that data on a macro level. It is not something we candidly try to collect because it is so individualistic.

I think all of them would say their freight rates on receiving freight on the materials that they consume would be up due to fuel costs. And I think in those areas where they have some item that may have energy related cost as part of the material costs of those products they buy, those are reflected in higher costs to them. But again, this is not a copout. Again, remind yourself of our autonomous operating style that we don't have one account that all these numbers feed into so that it is easy to collect.

Okay. Thank you.

Thank you very much, Ned. With that I would like to allow Tom Reese to maybe conclude our call with some closing remarks.

Thanks, Ron. I think I did pretty good of staying out of this call up till now, as a matter-of-fact. Jack Kelly just to you, I wasn't going to make this comment but I think everybody knows that with a dynamic industry does come cyclicality and more ups and downs, and of course as you know I've always been a great champion of the electronics industry and Dover's participation in that. I hope it continues. I think it will provide good results for Dover shareholders over the long-term but certainly not without some of the fits and starts that we suffer from today and have suffered from in the past.

With that what I wanted to do just very briefly is to thank all of you who have participated in these calls and who I have worked with over the last 10 or more years for your interest in Dover, for your challenging questions, for your keeping our feet to the fire a little bit. I think it has been fun, and I think Dover's shareholders benefit tremendously from your participation.

On December 31 I served my last day as an active employee of Dover Corporation. That was after almost 40 years. Over thirty-five of which I had a great opportunity to run something in Dover, I had three operating companies, created Dover Resources and of course, for the last 10 years as CEO. I feel like I had a great career. I had a lot of success. That success basically due to the efforts of tens of thousands of great Dover people who I thank and I appreciate very much. I conclude my participation on what will be my last call by telling you a little secret.

I don't think this is an FD (ph) secret, Rob, you'll have to make that decision or Joe Schmidt. The secret, however, has to be qualified a little bit. As you qualify in some of your documents the fact that past performance is no indication of what the future will hold. But I can tell you in 4 previous examples of where I have turned something over in Dover to a new President to succeed me, the results in that entity have always achieved fairly quickly a new high operating level.

Frankly I have every confidence that that is going to happen here with Ron Hoffman taking the reigns of Dover. I'm very comfortable with that. I am very happy to see him take it over, and I wish him every success and every success for the people in Dover for that sort of a repeat of past performance with businesses I have turned over. I am pleased to say I will continue for the foreseeable future anyway as nonexecutive Chairman. So I look forward to continued participation in Dover and in your continued interest in Dover. Thank you very much.

Thank you Tom for your kind comment. To the analysts that are still on the call, I would like to say just a couple of final words and that is the fact that I think via Tom and via Dover's legacy that we've always tried to speak very openly, very forthcoming, very truthfully about anything going on inside of our Company. We try to be very frank; that will always be the hallmark of Dover. We will do our best to always speak as candidly as openly as we can in these releases and try to give you the best possible information.

With that, we will conclude our conference call today. Thank you very much.

Ladies and gentlemen, thank you very much for your participation in today's fourth-quarter 2004 earnings conference for Dover Corporation. This concludes today's call. You may now disconnect.