SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For nine months ended September 30, 2001 Commission File No. 1-4018
DOVER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 53-0257888
(State of Incorporation) (I.R.S. Employer Identification
No.)
280 Park Avenue, New York, NY 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 922-1640
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
The number of shares outstanding of the Registrant's common stock as of the
close of the period covered by this report was 202,418,750.
1 of 18
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
THREE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
2001 2000
----------- -----------
Net sales $ 1,088,554 $ 1,390,486
Cost of sales 782,286 876,243
----------- -----------
Gross profit 306,268 514,243
Selling & administrative expenses 286,177 288,813
----------- -----------
Operating profit 20,091 225,430
----------- -----------
Other deductions (income):
Interest expense 21,456 27,007
Interest income (3,563) (1,656)
Foreign exchange (2,375) 1,386
Loss (gain) on sale of equity securities -- (13,741)
All other, net 1,137 (1,540)
----------- -----------
Total 16,655 11,456
----------- -----------
Earnings before taxes on income 3,436 213,974
Federal & other taxes on income 829 69,512
----------- -----------
Net earnings from continuing operations 2,607 144,462
Gain (loss) on sale of discontinued business, net of tax -- (13,595)
----------- -----------
Net earnings $ 2,607 $ 130,867
=========== ===========
Weighted average number of common shares outstanding during the period:
- Basic 203,086 202,937
=========== ===========
- Diluted 204,210 204,736
=========== ===========
Net earnings per common share:
- Basic $ 0.01 $ 0.71
=========== ===========
Gain (loss) on sale -- (0.06)
----------- -----------
Net earnings $ 0.01 $ 0.65
=========== ===========
- Diluted $ 0.01 $ 0.71
=========== ===========
Gain (loss) on sale -- (0.07)
----------- -----------
Net earnings $ 0.01 $ 0.64
=========== ===========
See Notes to Consolidated Financial Statements.
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DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS
THREE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
2001 2000
--------- ---------
Net earnings $ 2,607 $ 130,867
--------- ---------
Other comprehensive earnings, net of tax:
Foreign currency translation adjustments 35,411 (9,134)
--------- ---------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period (428) (7,627)
Less: reclassification adjustment for gains (losses)
included in net earnings -- 8,994
--------- ---------
Unrealized gains (losses) on securities (tax -$231 in 2001 (428) (16,621)
and -$8,924 in 2000)
--------- ---------
Other comprehensive earnings 34,983 (25,755)
--------- ---------
Comprehensive earnings $ 37,590 $ 105,112
========= =========
DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
2001 2000
----------- -----------
Net sales $ 3,474,691 $ 4,021,029
Cost of sales 2,368,562 2,542,226
----------- -----------
Gross profit 1,106,129 1,478,803
Selling & administrative expenses 862,637 833,790
----------- -----------
Operating profit 243,492 645,013
----------- -----------
Other deductions (income):
Interest expense 70,961 68,445
Interest income (13,500) (6,072)
Foreign exchange (2,501) (1,247)
Loss (gain) on dispositions and sale of equity securities (172,367) (12,341)
All other, net (8,519) (6,151)
----------- -----------
Total (125,926) 42,634
----------- -----------
Earnings before taxes on earnings 369,418 602,379
Federal & other taxes on earnings 144,427 203,865
----------- -----------
Net earnings from continuing operations 224,991 398,514
Gain (loss) on sale of discontinued business, net of tax -- (13,595)
----------- -----------
Net earnings $ 224,991 $ 384,919
=========== ===========
Weighted average number of common shares
outstanding during the period
- Basic 203,086 202,937
=========== ===========
- Diluted 204,210 204,736
=========== ===========
Net earnings per common share:
- Basic $ 1.11 $ 1.96
Gain (loss) on sale -- (0.06)
----------- -----------
Net earnings $ 1.11 $ 1.90
=========== ===========
- Diluted $ 1.10 $ 1.95
Gain (loss) on sale -- (0.07)
----------- -----------
Net earnings $ 1.10 $ 1.88
=========== ===========
See Notes to Consolidated Financial Statements.
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DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS
NINE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
2001 2000
--------- ---------
Net earnings $ 224,991 $ 384,919
--------- ---------
Other comprehensive earnings, net of tax:
Foreign currency translation adjustments (16,877) (55,521)
--------- ---------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period (3,168) 19,483
Less: reclassification adjustment for gains (losses)
included in net earnings -- 8,994
--------- ---------
Unrealized gains (losses) on securities (tax -$1,706 in 2001
and $5,673 in 2000) (3,168) 10,489
--------- ---------
Other comprehensive earnings (20,045) (45,032)
--------- ---------
Comprehensive earnings $ 204,946 $ 339,887
========= =========
DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
NINE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
2001 2000
---------- ----------
Retained earnings at January 1 $3,252,319 $2,830,175
Net earnings 224,991 384,919
---------- ----------
3,477,310 3,215,094
Deduct:
Common stock cash dividends
$ 0.385 per share ($0.355 in 2000) 78,219 72,076
---------- ----------
Retained earnings at end of period $3,399,091 $3,143,018
========== ==========
See Notes to Consolidated Financial Statements.
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DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000 OMITTED)
UNAUDITED
September 30, 2001 December 31, 2000
------------------ -----------------
Assets:
Current assets:
Cash & cash equivalents $ 221,781 $ 181,399
Marketable securities 521 5,341
Receivables, net of allowance for doubtful accounts 762,885 903,177
Inventories 744,495 783,200
Prepaid expenses 104,742 101,732
----------- -----------
Total current assets 1,834,424 1,974,849
----------- -----------
Property, plant & equipment (at cost) 1,752,350 1,683,491
Accumulated depreciation (977,295) (927,943)
----------- -----------
Net property, plant & equipment 775,055 755,548
----------- -----------
Goodwill, net of amortization 1,904,823 1,896,715
Other intangible assets, net of amortization 245,701 181,924
Deferred charges & other assets 68,099 83,080
----------- -----------
$ 4,828,102 $ 4,892,116
=========== ===========
Liabilities:
Current liabilities:
Notes payable $ 212,223 $ 839,880
Current maturities of long-term debt 9,118 2,657
Accounts payable 224,335 277,910
Accrued compensation & employee benefits 170,739 178,280
Accrued insurance 46,918 45,855
Other accrued expenses 253,650 209,247
Income taxes 119,401 50,811
----------- -----------
Total current liabilities 1,036,384 1,604,640
----------- -----------
Long-term debt 1,038,649 631,846
Deferred taxes 80,745 67,381
Other deferrals (principally compensation) 131,425 146,674
Stockholders' equity:
Preferred stock -- --
Common stock 237,142 236,944
Additional paid-in surplus 53,065 48,552
Cumulative translation adjustments (129,588) (112,711)
Unrealized holding gains (losses) (36) 3,132
----------- -----------
Accumulated other comprehensive earnings (129,624) (109,579)
----------- -----------
Retained earnings 3,399,091 3,252,319
----------- -----------
Subtotal 3,559,674 3,428,236
Less: treasury stock 1,018,775 986,661
----------- -----------
2,540,899 2,441,575
----------- -----------
$ 4,828,102 $ 4,892,116
=========== ===========
See Notes to Consolidated Financial Statements.
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DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
2001 2000
--------- ---------
Cash flows from operating activities:
Net earnings $ 224,991 $ 384,919
--------- ---------
Adjustments to reconcile net earnings to net cash from operating activities:
(Gain) loss on sale of discontinued business, net -- 13,595
Depreciation 112,485 101,358
Amortization - goodwill 40,074 36,034
Amortization - other 13,204 13,868
Net increase (decrease) in deferred taxes 17,978 (10,587)
Net increase (decrease) in LIFO reserves (1,653) 1,572
Increase (decrease) in deferred compensation (27,830) 25,486
(Gain) loss on sale of business (172,367) (12,341)
Other, net (11,114) (5,943)
Changes in assets & liabilities (excluding acquisitions and dispositions):
Decrease (increase) in accounts receivable 151,181 (173,837)
Decrease (increase) in inventories, excluding LIFO reserve 90,555 (97,621)
Decrease (increase) in prepaid expenses (2,434) (13,424)
Increase (decrease) in accounts payable (62,588) 13,629
Increase (decrease) in accrued expenses (507) 51,395
Increase (decrease) in federal & other taxes on income 44,369 10,414
--------- ---------
Total adjustments 191,353 (46,402)
--------- ---------
Net cash from operating activities 416,344 338,517
--------- ---------
Cash flows from (used in) investing activities:
Additions to property, plant & equipment (131,342) (134,537)
Acquisitions, net of cash & cash equivalents (268,115) (314,084)
Proceeds from sale of business 358,916 1,771
Proceeds from sale of equity investment -- 14,185
--------- ---------
Net cash from (used in) investing activities (40,541) (432,665)
--------- ---------
Cash flows from (used in) financing activities:
Increase (decrease) in notes payable (630,001) 527,978
Increase (decrease) in long-term debt 401,938 14,465
Purchase of treasury stock (32,114) (3,928)
Proceeds from exercise of stock options 2,975 7,046
Cash dividends to stockholders (78,219) (72,076)
--------- ---------
Net cash from (used in) financing activities (335,421) 473,485
--------- ---------
Discontinued operations - tax payments -- (306,515)
--------- ---------
Net increase (decrease) in cash & cash equivalents 40,382 72,822
Cash & cash equivalents at beginning of period 181,399 138,038
--------- ---------
Cash & cash equivalents at end of period $ 221,781 $ 210,860
========= =========
See Notes to Consolidated Financial Statements.
6 of 18
DOVER CORPORATION CONSOLIDATED
MARKET SEGMENT RESULTS
(unaudited)
Third quarter ended September 30,
---------------------------------
Percent
SALES 2001 2000 Change
----- ------------------ --------------------------
Dover Technologies $ 269,202,000 $ 564,988,000 -52%
Dover Industries 289,600,000 314,037,000 -8%
Dover Diversified 294,558,000 286,772,000 3%
Dover Resources 236,574,000 226,311,000 5%
--------------- --------------
Total (after intramarket eliminations) $ 1,088,554,000 $1,390,486,000 -22%
=============== ==============
EARNINGS
Dover Technologies $ (53,528,000) $ 116,038,000 -146%
Dover Industries 32,598,000 48,762,000 -33%
Dover Diversified 21,170,000 39,313,000 -46%
Dover Resources 26,517,000 28,985,000 -9%
--------------- --------------
Subtotal 26,757,000 233,098,000 -89%
Gain on sale of equity securities -- 13,741,000
Corporate expense (5,429,000) (7,337,000) -26%
Net interest expense (17,892,000) (25,528,000) -30%
--------------- --------------
Earnings before taxes on income 3,436,000 213,974,000 -98%
Taxes on income 829,000 69,512,000 -99%
--------------- --------------
Net earnings - Continuing Operations 2,607,000 144,462,000 -98%
Loss on sale of discontinued operations, net of tax** -- (13,595,000)
--------------- --------------
Net earnings $ 2,607,000 $ 130,867,000 -98%
=============== ==============
Net earnings per diluted common share - Continuing $ 0.01 $ 0.71 -98%
Discontinued $ -- $ (0.07)
--------------- --------------
Net earnings per diluted common share $ 0.01 $ 0.64 -98%
=============== ==============
Average number of diluted shares outstanding 204,210,000 204,736,000
Impact of acquisition write-offs on diluted EPS:
EPS - Continuing $ 0.01 $ 0.71 -99%
Goodwill write-offs (net of tax) 0.05 0.04
--------------- --------------
EPS before goodwill 0.06 0.75 -92%
Other acquisition write-offs (net of tax) 0.05 0.05
--------------- --------------
EPS before all acquisition write-offs $ 0.11 $ 0.80 -86%
=============== ==============
** On January 5, 1999, Dover completed the sale of its elevator business to
Thyssen Industrie AG for $1.16 billion resulting in a net gain of $523.9
million in 1999. The loss of $13.6 million in 2000 reflects subsequent
adjustments to both the purchase price and expenses related to the sale.
7 of 18
DOVER CORPORATION CONSOLIDATED
MARKET SEGMENT RESULTS
(UNAUDITED)
Nine months ended September 30,
-------------------------------
SALES 2001 2000
----- ----------------- --------------------------
Dover Technologies $ 1,005,482,000 $1,558,706,000 -35%
Dover Industries 888,690,000 $ 939,367,000 -5%
Dover Diversified 865,555,000 866,722,000
Dover Resources 719,265,000 661,973,000 9%
--------------- --------------
Total (after intramarket eliminations) $ 3,474,691,000 $4,021,029,000 -14%
=============== ==============
EARNINGS
Dover Technologies $ ( 4,803,000) $ 311,177,000 -102%
Dover Industries 109,990,000 150,679,000 -27%
Dover Diversified 78,115,000 116,992,000 -33%
Dover Resources 88,381,000 94,538,000 -7%
--------------- --------------
Subtotal 271,683,000 673,386,000 -60%
Gain on dispositions and sale of equity securities 172,367,000 12,341,000
Corporate expense (17,172,000) (20,454,000) -16%
Net interest expense (57,460,000) (62,894,000) -9%
--------------- --------------
Earnings before taxes on income 369,418,000 602,379,000 -39%
Taxes on Income 144,427,000 203,865,000 -29%
--------------- --------------
Net earnings - Continuing Operations 224,991,000 398,514,000 -44%
Loss on sale of discontinued operations, net of tax** -- (13,595,000)
--------------- --------------
Net earnings $ 224,991,000 $ 384,919,000 -42%
=============== ==============
Net earnings per diluted common share - Continuing * $ 1.10 $ 1.95 -44%
Discontinued $ -- $ (0.07)
--------------- --------------
Net earnings per diluted common share $ 1.10 $ 1.88 -41%
=============== ==============
Average number of diluted shares outstanding 204,210,000 204,736,000
Impact of acquisition write-offs on diluted EPS:
EPS - Continuing * $ 1.10 $ 1.95 -44%
Goodwill write-offs (net of tax) 0.16 0.14
--------------- --------------
EPS before goodwill * 1.26 2.09 -40%
Other acquisition write-offs (net of tax) 0.11 0.12
--------------- --------------
EPS before all acquisition write-offs * $ 1.37 $ 2.21 -38%
=============== ==============
* 2001 includes gain on sale of businesses of $.45.
** On January 5, 1999, Dover completed the sale of its elevator business to
Thyssen Industrie AG for $1.16 billion resulting in a net gain of $523.9
million in 1999. The loss of $13.6 million in 2000 reflects subsequent
adjustments to both the purchase price and expenses related to the sale.
DOVER CORPORATION AND SUBSIDIARIES
MARKET SEGMENT IDENTIFIABLE ASSETS
(000 OMITTED)
UNAUDITED
September 30, December 31,
2001 2000
------------- ------------
Dover Technologies $1,390,516 $1,537,268
Dover Industries 1,130,435 1,088,640
Dover Diversified 1,182,566 1,211,151
Dover Resources 924,216 928,841
Corporate 200,369 126,316
---------- ----------
Consolidated Total $4,828,102 $4,892,116
========== ==========
"Corporate" - principally cash and equivalents and marketable securities.
8 of 18
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and therefore do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations, and changes in financial position in conformity
with generally accepted accounting principles. In the opinion of the Company,
all adjustments, consisting only of normal recurring items necessary for a fair
presentation of the operating results have been made. The results of operations
of any interim period are subject to year-end audit and adjustments, and are not
necessarily indicative of the results of operations for the fiscal year.
NOTE B - Inventory
Inventories, by components, are summarized as follows :
(000 omitted)
------------------------------
UNAUDITED
September 30, December 31,
2001 2000
-------- --------
Raw materials $295,491 $311,211
Work in progress 206,688 217,678
Finished goods 275,429 290,178
-------- --------
Total 777,608 819,067
Less LIFO reserve 33,113 35,867
-------- --------
Net amount per balance sheet $744,495 $783,200
======== ========
NOTE C - Accumulated other Comprehensive Earnings
Accumulated other comprehensive earnings, by components are summarized as
follows:
UNAUDITED (000 omitted)
-----------------------------------------------
Accumulated
Other Unrealized
Comprehensive Cumulative Holding
Earnings Translation Gains
(losses) Adjustments (losses)
---------- ---------- -----
Beginning balance $ (109,579) (112,711) 3,132
Current-period change (20,045) (16,877) (3,168)
---------- ---------- -----
Ending balance $ (129,624) $ (129,588) $ (36)
========== ========== =====
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NOTE D - Additional Information
For a more adequate understanding of the Company's financial position, operating
results, business properties and other matters, reference is made to the
Company's Annual Report on Form 10-K which was filed with the Securities and
Exchange Commission on March 13, 2001.
Net earnings as reported was used in computing both basic EPS and diluted EPS
without further adjustment. The Company does not have a complex capital
structure. Accordingly, the entire difference between basic weighted average
shares and diluted weighted average shares results from non-vested restricted
stock and assumed stock option exercises. The diluted EPS computation was made
using the treasury stock method.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", marketable
securities are classified as available-for-sale and are recorded at current
market value. Net unrealized gains and losses on marketable securities available
for sale are credited or charged to Other Comprehensive Earnings.
At September 30, 2001 the fair value, cost basis and gross unrealized losses on
available-for-sales securities are approximately $.5 million, $.6 million and
$.1 million, respectively.
In June 2000, the FASB issued statement of Financial Accounting Standards No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an Amendment of FASB Statement No. 133", effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company has
adopted the statement and it has not had a material impact on the consolidated
results of operations or financial position and related disclosure requirements.
In July of 2001, the Financial Accounting Standards Board (the "FASB") issued
two new standards; SFAS No. 141 "Business Combinations" and SFAS No.142
"Goodwill and Other Intangible Assets." SFAS No. 141 prohibits the
pooling-of-interests method of accounting for business combinations and
prescribes criteria for the initial recognition and measurement of goodwill and
other intangible assets. SFAS No. 141 is effective for all business combinations
completed after June 30, 2001. The adoption of SFAS No. 141 for the two third
quarter acquisitions did not have a material effect on the Company's financial
results.
SFAS No. 142, which is for the Company effective January 1, 2002, establishes
new guidelines for accounting for goodwill and other intangible assets. The
provisions of SFAS No. 142 state that goodwill and indefinite-lived intangible
assets will no longer be amortized and that goodwill and indefinite-lived
intangible assets will be tested for impairment at least annually. Transitional
goodwill impairment tests must be completed within six months of the date of
adoption of SFAS No. 142. The Company is still assessing the potential impact of
SFAS No. 142 on its results of operations and financial position.
Goodwill amortization expense for the nine months ended September 30, 2001 was
$40.0 million and amortization related to other intangible assets was $13.2
million.
On August 16, 2001, the FASB issued Statement of Financial Accounting Standards
SFAS No. 143, "Accounting for Asset Retirement Obligation", which is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
The pronouncement addresses the recognition and remeasurement of obligations
associated with the retirement of a tangible long-lived asset. On October 3,
2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets", which is effective for financial statements issued for
fiscal years beginning after December 15, 2001. SFAS 144 applies to all
long-lived assets (including discontinued operations) and it develops one
accounting model for long-lived assets that are to be disposed of by sale. The
Company is currently reviewing these statements to determine their impact on
future financial statements.
10 of 18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(1) MATERIAL CHANGES IN CONSOLIDATED FINANCIAL CONDITION:
The Company's liquidity increased $40.4 million during the first nine months of
2001 as compared to the position at December 31, 2000. Proceeds from
dispositions ($358.9) net of the amounts invested in acquisitions ($268.1
million) are the principal reasons for the increase in liquidity.
Working capital increased from $370.2 million at the end of last year to $798.0
million at September 30, 2001, due principally to a reduction in short-term
notes payable, offsetting reductions in inventory and receivables of $38.7
million and $140.3 million, respectively. Capital expenditures were $131.3
million for the first nine months of 2001 compared to $134.5 million last year.
The working capital increase and capital expenditures were primarily funded by
internal cash flow and an increase in long-term debt.
Total debt levels for the quarter and on a year-to-date basis declined by $164
million and $214 million, respectively to $1.26 billion. At September 30, 2001,
net debt (defined as long-term debt plus current maturities on long-term debt
plus notes payable less cash and equivalents and marketable securities) of
$1,037.7 million represented 29% of total capital, a decrease of 5.5% from
December 31, 2000. As a result of the favorable impact of the second quarter
divestitures on book equity and the cash proceeds from the sales, which were
used to reduce debt and fund acquisitions, the Company's net debt to
capitalization ratio declined to its lowest level since December 1999. Going
forward, this will provide substantial financial flexibility for the Company.
Year to date free cash flow was 5.5% of sales.
The Company repurchased 687,200 shares in the open market during the third
quarter at an average price of $32.17, for a total of $22.1 million. Year to
date repurchases total 934,200 shares at an average price of $33.17, for a total
of $31.0 million.
Through the end of the third quarter, Dover has invested on, a net economic
basis, a total of $275.2 million in ten add-on and one stand-alone acquisitions.
Two of the add-on acquisitions were completed during the quarter at a combined
investment of $35.8 million, both in the Dover Diversified segment.
DOVER CORPORATION
ACQUISITIONS - THIRD QUARTER 2001
DATE TYPE ACQUIRED COMPANIES LOCATION (NEAR) SEGMENT - OPERATING CO.
-------------------------------------------------------------------------------------------------------------
11-JUL STOCK CARRILLO SAN CLEMENTE, CA DDI PERFORMANCE
MOTORSPORTS
Manufactures steel connecting rods for the professional race market segment.
16-AUG ASSET FEDERAL-MOGUL RPB GLASGOW, SCOTLAND DDI WAUKESHA
BEARINGS
Specialized engineering hydrodynamic and magnetic bearings products and services
for the power generation, oil/gas, chemical and industrial markets.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS:
The Company earned $.01 per diluted share in the third quarter ended September
30, 2001 compared to $.71 per diluted share from continuing operations in the
comparable period last year. Sales in the third quarter were $1.1 billion, a 22%
decline from $1.4 billion last year.
On a year to date basis, the Company earned $1.10 per diluted share compared to
$1.95 per diluted share from continuing operations in the comparable period last
year. Sales in the nine month period ended September 30, 2001 were $3.5 billion,
a 14% decline from $4.0 billion last year.
Earnings for the quarter included additions to inventory reserves and other
charges of $53.4 million ($34.7 million net of tax), or $.17 per diluted share.
Excluding these extra reserves, segment earnings for the quarter were $80.2
million, down 66% or $152.9 million from $233.1 million last year, and net
income for
11 of 18
the third quarter was $37.3 million or $.18 per diluted share, down 72% or $98.2
million from $135.5 million last year. These additional reserves recorded in the
quarter, principally for inventory and accounts receivable, were required to
adjust to current market conditions.
These depressed earnings levels and the need for additional reserves and charges
resulted primarily from the continued steep decline in demand in the electronics
manufacturing industry served by Dover Technologies. Adding to this was
continued market weakness in most of the industrial markets served by the other
three Dover segments. While several companies experienced sales slow-downs after
the September 11 terrorist attacks, it remains unclear what impact these events
will have on the markets the Company serves.
The continuing recession in the electronics industry led to a Dover
Technologies' loss of $53.5 million, that included inventory and other reserves
of $42.4 million. Dover Diversified's sales improved 3% while earnings declined
46%, after the impact of $5.5 million in reserves. Dover Resources improved
sales by 5% on moderating strength in the oil and gas related markets and
earnings decreased 9%, after $3 million in reserves. Dover Industries' earnings
declined by 33% on an 8% decline in sales, after $2.5 million in reserves. All
four segments reported lower sales and lower earnings in the third quarter than
in the second quarter.
The two add-on acquisitions completed during the quarter had a negligible impact
on net income due to acquisition-related amortization and depreciation, which
are typically higher in the first year after acquisition. Acquisitions completed
in the last twelve months (October 1, 2000 - September 30, 2001) added $74.3
million in sales for the quarter, with almost no impact on segment earnings
after acquisition write-offs. Acquisitions completed in the last twelve months
added $155.7 million in sales and $7.7 million in operational profit in the
first nine months of 2001.
The Company also reports its pretax earnings on an EBITACQ basis (Earnings
before Interest, Taxes, and non-cash charges arising from purchase accounting
for Acquisitions). Third quarter EBITACQ of $46 million was 82% lower than the
prior year's third quarter. On a year to date basis, EBITACQ of $329 million was
54% lower than the comparable period in the prior year.
The tax rate for the third quarter was 24.1% and 39.1% for the nine months of
2001, as compared to 32.5% for the third quarter 2000 and 33.8% for the first
nine months of 2000. The lower quarterly rate for 2001 reflects the impact of
higher effective tax rates recorded on reserves in relation to lower earnings as
compared to the third quarter in 2000.
DOVER TECHNOLOGIES:
Dover Technologies' third quarter sales decreased 52% or $295.8 million to
$269.2 million, generating a loss of $53.5 million (including additional
reserves of $42.4 million) compared to earnings of $116.0 million in the same
period last year. Reserves were established, primarily for excess and obsolete
inventory, and for accounts receivable and other items. The segment loss,
excluding these reserves, was $11.1 million. Acquisitions completed in the last
year added approximately $31.4 million to sales in the quarter, with a loss of
$5.5 million after acquisition write-offs.
On a year to date basis, Dover Technologies' sales decreased $553.2 million or
35% to $1,005.5 million. Nine-month earnings declined from $311.2 million in the
prior year to a loss of $4.8 million in the current year. Acquisitions completed
in the last year added approximately $71.0 million to year to date sales and a
loss of $18.6 million after acquisition write-offs.
Technologies' CBAT business recorded a loss of $39.9 million for the third
quarter, including reserves of $27.7 million, compared to earnings of $80.0
million for last year's comparable period. Third quarter sales decreased 61% or
$221.7 million to $143.9 million. All CBAT operating companies experienced
decreases in sales and all were unprofitable, highlighting the suddenness of the
industry-wide collapse in demand. Bookings, at $109.2 million, were down 68%
from the same period last year and were 15% lower than the second quarter of
2001. The book-to-bill ratio was .76 for the third quarter. Backlog, at $44.9
million, is approximately 20% of the level reached as recently as mid-2000, and
declined 39% from the second quarter. Customer demand for CBAT's capital
equipment, particularly in North America, is anemic, as virtually all customers
now have excess capacity, put in place during the industry expansion in 1999 and
2000. Since there is no current indication or expectation that this market will
improve soon, the substantial
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headcount reductions, cost reductions and other organizational actions taken so
far will likely be expanded in the fourth quarter.
On a year to date basis, CBAT sales declined $516.8 million or 50% to $519.7
million. A nine-month loss of $43.3 million in the current year compares to
earnings of $216.1 million in the prior year. Year to date bookings have
declined 61% or $655.3 million to $425.7 million.
In Technologies' SEC business, third quarter sales declined 54% or $79.6 million
from the same period last year to $67.9 million and earnings declined $36.1
million to a loss of $9.3 million, which included reserves of $14.2 million. Net
bookings in the third quarter of $30.1 million were down 85% from last year and
32% from second quarter of this year. The book-to-bill ratio was .44 for the
quarter, leaving backlog at $70.0 million at the end of the period (a 77%
decline from last year and a 53% decline from the second quarter). Though a few
of the SEC companies were modestly profitable in the third quarter before
reserves, the demand for SEC's high-end components, particularly in the
datacom/telecom and networking markets, is expected to remain weak. As a result,
substantial restructuring costs are also likely to be experienced in SEC in the
fourth quarter.
On a year to date basis, SEC sales declined to $332.5 million, after an 11% or
$39.0 million decline from the prior year. Nine-month earnings of $34.2 million
in the current year compare to earnings of $67.2 million in the prior year. Year
to date bookings declined 70% from $550.2 to $166.0 million.
Imaje, the French-based industrial ink-jet printer and ink manufacturer, had a
third quarter sales increase of 14% with earnings decreasing 10% compared with
last year (measured in local currency) due to additional severance and inventory
charges.
DOVER INDUSTRIES:
Dover Industries' third quarter sales declined 8% or $24.4 million to $289.6
million and segment income declined 33% or $16.2 million to $32.6 million
compared to the same period last year. Before the effect of write-offs of $2.5
million, primarily for inventory obsolescence in two companies, segment income
was $35.1 million, a decline of 28% from the prior year. Segment bookings were
down 13% to $269.6 million and the book-to-bill ratio was .93 for the current
quarter. Backlog decreased 1% from last year and 9% from the second quarter to
$187 million. Acquisitions completed in the last year added approximately $19.3
million to sales in the quarter, with almost no impact on segment earnings after
acquisition write-offs.
On a year to date basis, Industries' sales declined 5% to $888.7 million from
$939.4 million in the prior year contributing to an earnings decline of 27% or
$40.7 million to $110.0 million. Year to date segment bookings were down 2% to
$889.0 million. Acquisitions completed in the last year added approximately
$37.4 million to year to date sales with almost no impact on segment earnings
after acquisition write-offs.
All companies owned for a full year had lower results in the quarter than in the
comparable period last year due to weak markets, except for Rotary Lift, which
has gained market share and managed margins extremely well in a down market.
However, with weakness in the later half of September, Rotary's outlook is
unclear even as compared to a weak prior year fourth quarter.
Heil Environmental, while maintaining very respectable margins overall, repeated
this year's string of lower quarterly sales and earnings comparisons to a record
prior year. Sequentially, third quarter earnings were substantially behind this
year's second quarter but better than the first. Marathon, influenced by similar
market factors also turned in weaker comparisons. Heil Trailer was unable to
repeat its favorable comparisons to last year and the prior quarter, as its
market remains quite weak.
In the quarter, Tipper Tie experienced substantial improvement from the second
quarter as the impact of the "mad cow" disease scare on its European market has
abated, but still had negative comparisons to the prior year. Texas Hydraulics
which supplies hydraulic cylinders to a variety of industrial markets, with a
concentration in aerial man-lifts, is experiencing very weak markets.
Triton continued to perform below expectations, and implemented a substantial
headcount reduction in the quarter as part of its recovery strategy. Somero's
recent results and prospects have been badly hurt by the sharp drop in
commercial construction.
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DOVER DIVERSIFIED:
Dover Diversified's third quarter sales improved 3% or $7.8 million to $294.6
million. After adjusting for the disposition of A-C Compressor in the second
quarter of 2001 sales, increased 12% or $31.8 million from the prior year.
Segment income decreased to $21.2 million, a 46% decline compared to the same
period last year. Excluding non-recurring reserves of $5.5 million segment
income decreased 32% or $12.6 million. The reserves were primarily for excess
and obsolete inventory in businesses impacted by prolonged market downturns.
After adjusting for the second quarter A-C Compressor disposition, bookings in
the quarter were up 16% to $306.7 million and the book-to-bill ratio was
favorable at 1.04; backlog at the end of the quarter of $400.2 million was 17%
higher than last year and 5% higher than the second quarter. Acquisitions
completed in the last year added approximately $18.3 million to sales in the
quarter, with almost no impact on segment earnings after acquisition write-offs.
On a year to date basis, Diversified's sales were consistent with prior year
levels at $866.0 million. However, nine-month earnings have declined 33% to
$78.1 million from $117.0 million in the comparable period last year. The third
quarter reserves and the earnings declines at Crenlo and Belvac more that offset
improvements at Hill Phoenix, Performance Motorsports and Sargent. After
adjusting for the second quarter A-C Compressor disposition, year to date
bookings were up 8% to $870.6 million. Acquisitions completed in the last year
added approximately $33.0 million to year to date sales, with almost no impact
on segment earnings after acquisition write-offs.
The third quarter earnings decline at Diversified was predominantly due to very
unfavorable comparisons at Crenlo, which has reported significant operating
losses in each quarter this year, as compared to the mid-teens margins it
reported last year. This is due to a decline in its electronics enclosures
business, and weak demand in its agricultural and construction equipment cab
business. A turnaround focused on realigning costs with the current market
environment is being executed by Diversified management.
Tranter's earnings comparisons to the prior year deteriorated in the third
quarter due to weakness in the broad industrial market it serves. Tranter's
earnings were also hurt by U.S dollar strength both as it relates to the
translation of its large Swedish based operations, and the impact of increased
price competition in domestic markets. At Mark Andy, weak capital spending for
printing machines has hurt margins, driving unfavorable comparisons.
Third quarter operating performance at Sargent, Performance Motorsports, and
particularly Hill Phoenix, was strong in both absolute and comparative terms,
though the degree to which the outlook for each has been tempered recently by
the deteriorating market environment is uncertain.
DOVER RESOURCES:
Dover Resources' third quarter sales increased 5% or $10.3 million to $236.6
million, and segment earnings of $26.5 million represented a 9% decline from
last year. Excluding inventory and other reserves of $3 million, earnings
increased slightly from last year. The reserves established in the third quarter
were for excess inventory in markets where weak demand has been experienced for
prolonged periods. Segment bookings in the quarter were up 4% to $225.7 million
and the book-to-bill ratio was .95. Backlog is $102.2 million, a 5% increase
from last year and a 9% decrease from the second quarter. Acquisitions completed
in the last year added approximately $5.4 million to sales in the quarter, with
almost no impact on segment earnings after acquisition write-offs.
On a year to date basis, Dover Resources' sales improved $57.3 million or 9% to
$719.3 million, while year to date earnings declined $6.2 million or 7% to $88.3
million. Approximately 50% of the year to date decline is attributable to the
third quarter inventory and other reserves of $3 million. Segment bookings in
the nine-month period ended September 30, 2001 improved 8%, or $55.1 million to
$722.5 million. Acquisitions completed during the year added approximately $14.2
million to year to date sales with almost no impact on segment earnings after
acquisition write-offs.
In the third quarter, Resources' oil and gas related businesses (Petroleum
Equipment Group, C. Lee Cook and Quartzdyne) again reported substantially higher
sales and earnings compared to the same period last year. Though market demand
is higher than last year, third quarter results were not as strong as those of
this year's second quarter, as rig count declines and lower energy prices have
led to a somewhat less robust short-term outlook.
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Weakness in transportation related markets negatively impacted OPW Fluid
Transfer's comparisons to the prior year again this quarter, though results were
essentially flat with the prior quarter. Weak demand from automotive component
and capital equipment markets have suppressed results all year at De-Sta-Co
Manufacturing and De-Sta-Co Industries, and trends worsened at the end of the
third quarter. OPW Fueling Components, which had favorable comparisons to the
prior period last quarter, was on track for a similarly favorable result this
quarter. However, it operates with very low backlog, and orders fell
dramatically in the second half of September. Wilden, which has had comparable
margins to the prior year throughout 2001 despite somewhat weaker markets, also
operates with low backlogs and saw demand decline dramatically in September.
A noticeable operating profit improvement in the quarter was experienced at
Duncan, against weak comparable prior period performance.
OUTLOOK:
Despite the projected earnings fall-off for the year, the Company's operating
cash flow is projected to increase over last year, primarily due to significant
reductions in working capital levels, and to a lesser extent lower capital
spending. While several operating companies experienced sales slow-downs after
the September 11 terrorist attacks, it remains unclear what impact these events
will have on the Company's markets. Given the uncertain environment, the Company
is focusing on cash and balance sheet management with increased intensity. In
addition to exercising appropriate constraints on capital spending and the
intensified focus on working capital, the Company has temporarily limited
spending on acquisitions. Acquisitions remain a critical component of the
Company's growth strategy, and will resume when the economic environment
stabilizes. Meanwhile the Company continues to search for transactions that have
compelling shareholder value enhancing economics.
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Special Notes Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q, the Annual Report on Form 10-K and the
documents that are incorporated by reference, particularly sections of any
report under the headings "Outlook" or "Management's Discussion and Analysis",
contain forward-looking statements within the meaning of the Securities Act of
1933, as amended, and the Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995. Such statements relate to, among other
things, industries in which the Company operates, the U.S. and global economies,
earnings, cash flow and operating improvements and may be indicated by words or
phrases such as "anticipates", "supports", "plans", "projects", "expects",
"should", "hope", "forecast", "Dover believes", "management is of the opinion"
and similar words or phrases. Such statements may also be made by management
orally. Forward-looking statements are subject to inherent uncertainties and
risks, including among others: continuing impact from the terrorist events of
September 11, 2001 on the worldwide economy; increasing price and
product/service competition by foreign and domestic competitors, including new
entrants; technological developments and changes; the ability to continue to
introduce competitive new products and services on a timely, cost effective
basis; the mix of products/services; the achievement of lower costs and
expenses; domestic and foreign governmental and public policy changes including
environmental regulations; protection and validity of patent and other
intellectual property rights; the continued success of the Company's acquisition
program; the cyclical nature of the Company's business; and the outcome of
pending and future litigation and governmental proceedings. In addition, such
statements could be affected by general industry and market conditions and
growth rates, and general domestic and international economic conditions
including interest rate and currency exchange rate fluctuations. In light of
these risks and uncertainties, actual events and results may vary significantly
from those included in or contemplated or implied by such statements. Readers
are cautioned not to place undue reliance on such forward-looking statements.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
The Company may, from time to time, post additional or supplemental financial or
other information on its internet website, http://www.dovercorporation.com. Such
information will supplement regular quarterly public filings and will be found
in the "What's New" section of the website's home page. It will be accessible
from the home page for approximately one month after release, after which time
it will be archived on the website for a period of time. The Internet address in
this release is for informational purposes only and is not intended for use as a
hyperlink.
16 of 18
PART II OTHER INFORMATION
Item 5. Other Information
See also 2000 Annual Report page 23.
DOVER CORPORATION
OPERATIONAL INCOME
(in millions) (unaudited)
<Table>
<Caption>
2001 - NINE MONTHS 2000 - NINE MONTHS 2000 - FULL YEAR
------------------------- ------------------------- -------------------------
SALES INCOME % SALES INCOME % SALES INCOME %
----- ------ - ----- ------ - ----- ------ -
Circuit board assembly/test $ 520 $(41) (8) $1,037 $216 21 $1,369 $265 19
Electronic components 333 36 11 372 71 19 531 104 20
Marking 153 39 25 151 48 32 200 60 30
------------------------- ------------------------- -------------------------
DOVER TECHNOLOGIES 1,006 34 3 1,560 335 21 2,100 429 20
DOVER INDUSTRIES 889 132 15 939 169 15 1,246 224 18
DOVER DIVERSIFIED 866 99 11 867 138 16 1,176 194 17
DOVER RESOURCES 719 112 16 662 117 18 887 149 17
------------------------- ------------------------- -------------------------
OPERATIONAL SUBTOTAL (AFTER ELIM.) $3,475 $377 11 $4,021 $759 19 $5,401 $996 18
------------------------- ------------------------- -------------------------
CORPORATES AND OTHER (48) (37) (49)
---- ---- ----
EBITACQ $329 $722 $947
==== ==== ====
</Table>
"Operational Income" - differs from segment operating profits because it
excludes all non-cash write-offs relating to acquisitions, the expenses of
each segment's corporate group, and foreign exchange gains or losses.
"EBITACQ" - earnings before taxes, interest, acquisitions write-offs and
non-recurring gains.
<Table>
<Caption>
2001 - NINE MONTHS 2000 - NINE MONTHS 2000 - FULL YEAR
------------------------ ------------------------- --------------------------
Tax Deductible Tax Deductible Tax Deductible
-------------- -------------- --------------
Total Yes No Tax Total Yes No Tax Total Yes No Tax
EBIT $254 $164 $653 $221 $ 851 $267
ACQUISITION RELATED:
GOODWILL AMORTIZATION 40 19 21 7 36 17 18 8 40 24 25 9
---------------------------- -------------------------- --------------------------
OTHER AMORTIZATION 12 13 15
DEPRECIATION 12 12 18
INVENTORY WRITE-OFFS 11 8 14
---------------------------- -------------------------- --------------------------
SUBTOTAL OTHER WRITE-OFFS 35 32 3 11 33 26 7 9 47 38 9 13
TOTAL ACQUISITION WRITE-OFFS 75 51 24 18 69 43 28 15 96 62 34 22
---------------------------- -------------------------- --------------------------
EBITACQ 329 $182 722 $238 947 $289
---- ---- ----
OTHER DEPRECIATION 100 89 118
OTHER AMORTIZATION 1 1 3
---- ---- ------
EBITDAI 450 812 1,088
---- ---- ------
INVENTORY WRITE-OFFS (11) (8) (14)
---- ---- ------
EBITDA $419 $804 $1,054
==== ==== ======
</Table>
"EBIT" - REPRESENTS EARNINGS BEFORE INTEREST AND TAXES.
"EBITACQ" - REPRESENTS EARNINGS BEFORE INTEREST, TAXES AND ACQUISITION
WRITE-OFFS.
"EBITDAI" - REPRESENTS EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION,
AMORTIZATION AND INVENTORY WRITE-OFFS.
"EBITDA" - REPRESENTS EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION.
EBIT, EBITACQ, EBITDAI AND EBITDA - ALL EXCLUDE GAINS (LOSSES) ON SALE OF
BUSINESSES AND EQUITY INVESTMENT.
17 of 18
Item 6. Exhibits and Reports on Form 8-K
None.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOVER CORPORATION
Date: October 17, 2001 /s/ David S. Smith
----------------- ----------------------------------
David S, Smith, Chief Financial
Officer, Vice President, Finance
Date: October 17, 2001 /s/ Raymond T, McKay
----------------- ----------------------------------
Raymond T. McKay
Assistant Controller
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