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Lehman Industrial Conference - October 27, 1997
Scroll down for slides 2
through 18
Slide 1 of 18
Slide 2 of 18
Notes:
- Grab your attention - if Dover is new to you.
- Annual Reports show Dover's growth, over any 10 year
period, always better than the S&P 500.
- Growth consistent. Only 3 down years in these 30. Never
longer than three years without a new record.
- The figure for 1997 is Lehman's. No implied endorsement.
Slide 3 of 18
Notes:
- Grab your attention - particularly if you aren't used to
long term outperformance of the S&P 500 by basis
points or more.
- Numbers from the report just received as a participant in
Dover's 401(k).
- 10,000 employee participants; most popular choice is
Dover stock; now own close to 3 million shares.
Confidence has been well rewarded.
- And, if you think you are demanding audience, guess
what!!
Slide 4 of 18
Notes:
- Are you thinking, "How do they do this?"
- Dover started over 40 years ago, with unique culture;
high standards for personal and financial performance;
strongly operational oriented; insisting on
decentralization; based on trust, not controls.
- Focused by simple strategy, consistently applied: Achieve
internal growth by serving customers better ; earn good
margins and a high ROI; invest RESULTING cash flow wisely
for the shareholders. Execute well, and surprise people
with the growth achieved.
- Dover provides great rewards of the best kind. First -
personal satisfaction. Second - positive feedback from
people you respect. Money has to be right, but is last -
where it belongs.
Slide 5 of 18
Notes:
- Other companies have grabbed off the best names and
acronyms for their business process. Call ours the Dover
M-D-T...E-I-S
M-U-B. Pronounced as spelled.
- Dover owns manufacturing companies, run by Presidents who
trust us, as we trust them, to do what is right. The
companies earn their leadership in the market day by day,
constantly seeking to improve and sharing the best
practices they learn. They have to live with, and will
only tolerate, minimal corporate involvement in their
affairs. They have no interest in being like everyone
else, and are focused on serving customers and earning
money, not top line growth.
Slide 6 of 18
Notes:
- First showed this in 1988 - but goes back to Dover's
origins.
- First - we are an operating company with an operating
company mentality. First priority is ALWAYS to run our
businesses well.
- Last two bullets under priority #1 added since 1988
presentation. Not "new" but more emphasis.
Relentless pursuit of continuing improvement to add
customer value. About 40 add-on acquisitions during
1993-1997.
- We like acquisitions and think we do it well. It is a
means, not an end, to growing Dover value.
- Over past 10 years have reduced share base, adjusted for
splits, by almost 35 million shares - almost 25%.
Slide 7 of 18
Notes:
- These are illustrative numbers only, but have worked over
time. Dover 14% EPS growth since birth over 40 years ago.
- Always some operating "stars" and some
depressed markets. Somewhat rotational due to spread of
markets across industrial business cycle.
- Did 21% in 70's: more inflation; big growth period for
oilfield (18% for Dover without).
- Actually achieved 10% growth for decade of 80's. Less
inflation; oil field bust (14% for Dover without).
- "Tilt to Growth" program in early 90's .
- We are about 15% for 1990-1997.
Slide 8 of 18
Notes:
- Dover President can look in the mirror and see why
business is successful
or not. No one else to
blame; no one else to hog glory.
- Toughest Dover audience is peers. Bar is set pretty high.
Every one sees everyone's results every month. Hard to be
first; horrible to be last.
- Money IS right; based on contributing to shareholder
wealth creation. For CEO mostly stock options. Only issue
about 40% of the number of options each year that other
companies do. Bulk of Company President's reward, and of
his key managers, is based on HIS company's performance,
not Dover's. Paid with cash that is charged to earnings.
- Each President gets a salary and annual (variable) bonus
and a small stock option each year.
- Also receives each February a nominal cash award,
actually paid to him the third February forward. When
time to pay the nominal award, it is multiplied by a
FACTOR.
Slide 9 of 18
Notes:
- Determine FACTOR from matrix; same for everyone;
determined by actual results, measured over three year
time frames.
- Possible to earn several times one's salary if results
very strong.
- No payments if real - deflated by GNP inflation factor -
earnings do not rise. Nothing if average ROI is less than
10% after tax.
- Performances shown for 1,2, and 3x. "Normal"
range of outcome. Each year some companies earn zero;
some much more. We hope, and you should also, that all
earn lots.
- Cash Payments Program covers about 275 people. For 1995,
1996 and 1997, combined payment will be close to $80
million. Since the start of 1995 shareholder wealth
creation has been about $4.5 billion.
Slide 10 of 18
Notes:
- Past . Present. All would like to know FUTURE
me
most of all.
- We do NOT put together long range DOVER plans, so we
can't reveal what ours says. Our PLAN is to follow our
strategy while perpetuating our culture.
- This doesn't provide specific numbers; does provide
ability to build a reasonable model.
Slide 11 of 18
Notes:
- First question - "Is the PRESENT a reasonable base
to build from".
- Two columns on the left are Lehman numbers. Two on right
annualize these , multiplying by 2. Roughly, a
description of current annual earning power.
- Are we in unusual times? Hope not; don't think so. Honest
men could differ on timing of next recession and the next
cycle for the assembly/test equipment market. We don't
have to make that call to run the business. You need to
think about it. . .
Slide 12 of 18
Notes:
- Think base is reasonable. Applying growth strategy,
produces trend line putting 2000 within range shown.
- Chart has a few modifications from the earlier one on
strategy. Potential for elevator is shown lower - because
so much improvement already made recently; slow-growth
market. Nigel Davis won't agree. May be right.
- Test/assembly equipment market has history of 15% growth,
but not if the start or end of the measurement is a peak
or trough. NOT good forecasters of peaks and valleys.
- Growth component reasonably expected from reinventing
excess cash is lower because of acquisition prices and
our own p/e multiple.
- Keep saying that 15% is not a goal, not a goal, not a
goal
but 15% for the 90's requires the middle of
this range. If we had to do it all from corporate, even
the low end, looks awesome. . . Build a new business
earning $200 million pretax in three years.
Slide 13 of 18
Notes:
- Some real world events will help drive (or frustrate)
these statistical projections.
- New elevator market very competitive, but is growing
again. Hydraulic market units up about 35% in last 3
years. Dover recaptured some share; our unit volume up
more than this. Manufacturing and installing hydraulics
is over 30% of our business; very good at it.
- Cost reduction opportunities: value re-engineering on our
products; concentrating on field efficiency (IUEC field
labor is largest cost for both new elevators and
service).
- Have announced plan to close major plant and move the
work to reduce costs. Biggest manufacturing cost
improvement elevator has attempted.
- Working on new service call/response program; remote
monitoring capability; SAP computer network.
- All players want to keep share in new elevators;
cyclicality hurts. Not a big player in fast growing Asian
markets. Margins in North America better than anyone else
operating here; also better than anyone else's world-wide
average. This may limit further margin improvement.
Slide 14 of 18
Notes:
- Very strong U.S. market positions: compressor valves,
nozzles, gasoline containment, clamping devices, sucker
rods, specialty valves and pumps are over 50% market
shares.
- International presence growing; export and acquisition.
Mouvex. New DeStaco plants in Europe and Asia ;
development effort on European nozzle; sucker rod
exports.
- No overheated businesses (Midland last year). A few
market problems - Witteman and Ronningen Peter - and room
for improvement in several places, notably DSCM-Stark.
- Opportunities aren't huge, but neither are the threats.
Slide 15 of 18
Notes:
- Very similar position as Resources. Good success on
margin improvement. Can continue in a growth environment.
- Speed being taken to market, not just to manufacturing
cost. Heil Trailer custom design and build; Randell
pro-engineer for custom; Texas Hydraulics
"find-an-unhappy-cylinder-buyer-and-fix-before-old-supplier-can-satisfy".
Sales for these three up 18% in Q3; PROFITS up 48%.
Slide 16 of 18
Notes:
- Belvac current ship schedule puts Q4 ahead of prior year;
but full year 1997 less than half of 1996. Bookings for 9
months 197 are 120% of entire 1996 year. 1996 a base to
shrink from; 1997 a base to grow from.
- Strong domestic repair capability for A-C and other's
compressors. PLUS ability to service turbine drivers.
Combination could double current A-C profits over next 3
years.
- Hill substantial progress. 1997 at 7-8% on volume
approaching $200 million. Three largest competitors have
similar/better margins and higher sales volumes.
Slide 17 of 18
Notes:
- Platforms success - flexibility, accuracy, fine-pitch,
reliability. Head tooling changes the machine.
- Three new capabilities at Productronica - linear motor,
chip jet, faster thru-hole on smaller
"footprint".
- New solder paste printing method from DEK.
- The Soltec-Vitronics potential
- ECT 4 add-ons (so far) to broaden testing capabilities.
- Mobile Communication base stations at K & L.
- Oscillators for frequency control/timing.
- Technology and product needed world-wide and growing
faster outside the U.S.
- Asia, U.S. More machines adds to supplies base. Imaje IS
small character C-I-J. ALSO a potential platform.
Slide 18 of 18
Notes:
- Investor conference in Binghampton in September. Phua and
38 others. First ever. Asked for feedback. Got this.
- Couldn't have said it better myself.

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Last modified: October 29, 1997