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, 2002 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 202,320,840
1 of 25
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
2002 2001
---- ----
Net Sales $1,076,095 $1,081,005
Cost of Sales 722,087 773,311
---------- ----------
Gross Profit 354,008 307,694
Selling & Administrative Expenses 255,932 283,153
---------- ----------
Operating Profit 98,076 24,541
---------- ----------
Other Deductions (Income):
Interest expense 15,924 21,439
Interest income (1,274) (3,552)
Foreign exchange 3,988 (2,371)
All other, net 180 1,165
---------- ----------
Total 18,818 16,681
---------- ----------
Earnings from Continuing Operations, Before Taxes on Income 79,258 7,860
Federal and Other Taxes on Income 21,916 2,151
---------- ----------
Net Earnings from Continuing Operations 57,342 5,709
---------- ----------
Earnings (loss) from discontinued operations, net of tax (900) (3,102)
Gain (loss) on sale of discontinued operations, net of tax -- --
---------- ----------
Net Earnings (Loss) from Discontinued Operations (900) (3,102)
---------- ----------
Net Earnings Before Cumulative Effect of Change in Accounting Principle 56,442 2,607
---------- ----------
Cumulative Effect of Change in Accounting Principle, net of tax -- --
Net Earnings $ 56,442 $ 2,607
========== ==========
NET EARNINGS (LOSS) PER COMMON SHARE:
- Basic
Continuing Operations $ 0.28 $ 0.03
Discontinued Operations -- (0.02)
---------- ----------
Total Net Earnings Before Cumulative Effect of Change in Accounting Principle 0.28 0.01
---------- ----------
Cumulative Effect of Change in Accounting Principle, net of tax -- --
Net Earnings $ 0.28 $ 0.01
========== ==========
- Diluted
Continuing Operations $ 0.28 $ 0.03
Discontinued Operations -- (0.02)
---------- ----------
Total Net Earnings Before Cumulative Effect of Change in Accounting Principle 0.28 0.01
---------- ----------
Cumulative Effect of Change in Accounting Principle, net of tax -- --
Net Earnings $ 0.28 $ 0.01
========== ==========
Weighted average number of common shares outstanding during the period:
- Basic 202,647 203,086
---------- ----------
- Diluted 203,541 204,210
---------- ----------
See Notes to Condensed Consolidated Financial Statements.
2 of 25
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
2002 2001
---- ----
Net Earnings (Loss) $56,442 $ 2,607
------- -------
Other Comprehensive Earnings (Loss), Net of Tax:
Foreign currency translation adjustments 6,151 35,386
Unrealized gains (losses) on securities (net of tax -$50 in 2002
and -$231 in 2001) (93) (428)
------- -------
Other Comprehensive Earnings 6,058 34,958
------- -------
Comprehensive Earnings $62,500 $37,565
======= =======
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
2002 2001
---- ----
Net Sales $3,180,793 $3,392,361
Cost of Sales 2,141,747 2,306,091
---------- ----------
Gross Profit 1,039,046 1,086,270
Selling & Administrative Expenses 757,206 842,412
---------- ----------
Operating Profit 281,840 243,858
---------- ----------
Other Deductions (Income):
Interest expense 52,201 70,764
Interest income (2,965) (13,469)
Foreign exchange 2,595 (2,544)
All other, net (2,504) (8,278)
---------- ----------
Total 49,327 46,473
---------- ----------
Earnings from Continuing Operations, Before Taxes on Income 232,513 197,385
Federal and Other Taxes on Income 64,373 65,098
---------- ----------
Net Earnings from Continuing Operations 168,140 132,287
---------- ----------
Earnings (loss) from discontinued operations, net of tax (4,073) (434)
Gain (loss) on sale of discontinued operations, net of tax (7,308) 93,138
---------- ----------
Net Earnings (Loss) from Discontinued Operations (11,381) 92,704
---------- ----------
Net Earnings Before Cumulative Effect of Change in Accounting Principle 156,759 224,991
---------- ----------
Cumulative Effect of Change in Accounting Principle, net of tax (293,049) --
Net Earnings (Loss) $ (136,290) $ 224,991
========== ==========
NET EARNINGS (LOSS) PER COMMON SHARE:
- Basic
Continuing Operations $ 0.83 $ 0.65
Discontinued Operations (0.06) 0.46
---------- ----------
Total Net Earnings Before Cumulative Effect of Change in Accounting Principle 0.77 1.11
Cumulative Effect of Change in Accounting Principle, net of tax (1.44) --
---------- ----------
Net Earnings (Loss) $ (0.67) $ 1.11
========== ==========
- Diluted
Continuing Operations $ 0.83 $ 0.65
Discontinued Operations (0.06) 0.45
---------- ----------
Total Net Earnings Before Cumulative Effect of Change in Accounting Principle 0.77 1.10
Cumulative Effect of Change in Accounting Principle, net of tax (1.44) --
---------- ----------
Net Earnings (Loss) $ (0.67) $ 1.10
========== ==========
Weighted average number of common shares outstanding during the period:
- Basic 202,647 203,086
---------- ----------
- Diluted 203,541 204,210
---------- ----------
See Notes to Condensed Consolidated Financial Statements.
3 of 25
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
NINE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
2002 2001
---- ----
Net Earnings (Loss) $(136,290) $224,991
--------- --------
Other Comprehensive Earnings (Loss), Net of Tax:
Foreign currency translation adjustments 60,457 (16,951)
Unrealized gains (losses) on securities (tax -$244 in 2002
and -$1,706 in 2001) (452) (3,168)
--------- --------
Other Comprehensive Earnings (Loss) 60,005 (20,119)
--------- --------
Comprehensive Earnings (Loss) $ (76,285) $204,872
========= ========
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
NINE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
2002 2001
---- ----
Retained Earnings at January 1 $3,395,293 $3,252,319
Net Earnings (Loss) (136,290) 224,991
---------- ----------
3,259,003 3,477,310
Deduct:
Common stock cash dividends
($ 0.405 per share in 2002, $0.385 in 2001) 82,112 78,219
---------- ----------
Retained Earnings at End of Period $3,176,891 $3,399,091
========== ==========
See Notes to Condensed Consolidated Financial Statements
4 of 25
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
UNAUDITED
September 30, 2002 December 31, 2001
------------------ -----------------
Assets:
Current assets:
Cash & cash equivalents $ 174,331 $ 175,601
Marketable securities 301 997
Receivables, net of allowance for doubtful accounts 746,709 672,789
Inventories 629,045 653,548
Prepaid expenses 146,782 98,197
Deferred income taxes 32,908 43,510
----------- -----------
Total current assets 1,730,076 1,644,642
----------- -----------
Property, plant and equipment (at cost) 1,804,470 1,742,271
Accumulated depreciation (1,082,288) (985,920)
----------- -----------
Net property, plant and equipment 722,182 756,351
----------- -----------
Goodwill 1,662,869 1,946,423
Intangible assets, net of amortization 183,980 173,194
Other assets and deferred charges 51,667 55,990
Assets from discontinued operations 15,067 25,602
----------- -----------
$ 4,365,841 $ 4,602,202
=========== ===========
Liabilities:
Current liabilities:
Notes payable $ 40,936 $ 39,783
Current maturities of long-term debt 3,776 3,997
Accounts payable 205,245 206,375
Accrued compensation and employee benefits 131,965 154,011
Accrued insurance 44,628 45,535
Other accrued expenses 214,086 210,210
Federal and other taxes on income 118,698 155,298
----------- -----------
Total current liabilities 759,334 815,209
----------- -----------
Long-term debt 1,030,109 1,033,243
Deferred income taxes 64,038 102,855
Other deferrals (principally compensation) 136,442 106,878
Liabilities from discontinued operations 21,044 24,478
Stockholders' equity:
Preferred stock -- --
Common stock 237,656 237,303
Additional paid-in surplus 63,741 55,223
Cumulative translation adjustments (89,281) (149,738)
Unrealized holding gains (losses) (179) 273
Retained earnings 3,176,891 3,395,293
----------- -----------
Subtotal 3,388,828 3,538,354
Less: treasury stock 1,033,954 1,018,815
----------- -----------
Net stockholders' equity 2,354,874 2,519,539
----------- -----------
$ 4,365,841 $ 4,602,202
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
5 of 25
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
2002 2001
---- ----
Cash flows from operating activities:
Net Earnings (Loss) $(136,290) $ 224,991
--------- ---------
Adjustments to reconcile net earnings to net cash
from operating activities:
Cumulative effective of change in accounting principle, net of tax 293,049 --
(Earnings) loss from discontinued operations, net of tax 4,073 434
(Gain) loss on sale of discontinued operations, net of tax 7,308 (93,138)
Depreciation 108,771 108,117
Amortization - goodwill -- 38,431
Amortization - other 13,332 13,185
Net increase (decrease) in deferred taxes 17,595 16,590
Net increase (decrease) in LIFO reserves 1,200 (1,632)
Increase (decrease) in other deferrals (principally compensation) 30,625 (26,306)
Other, net (2,929) (13,289)
Changes in assets & liabilities (excluding acquisitions and dispositions):
Decrease (increase) in accounts receivable (51,394) 141,782
Decrease (increase) in inventories, excluding LIFO reserve 42,059 84,203
Decrease (increase) in prepaid expenses (44,750) (2,108)
Increase (decrease) in accounts payable (7,551) (58,755)
Increase (decrease) in accrued expenses (29,942) 4,590
Increase (decrease) in federal & other taxes on income (36,726) 63,495
--------- ---------
Total adjustments 344,720 275,599
--------- ---------
Net cash from (used in) operating activities 208,430 500,590
--------- ---------
Cash flows from (used in) investing activities:
Additions to property, plant & equipment (69,361) (128,869)
Acquisitions, net of cash & cash equivalents (50,827) (268,115)
--------- ---------
Net cash from (used in) investing activities (120,188) (396,984)
--------- ---------
Cash flows from (used in) financing activities:
Increase (decrease) in notes payable 913 (630,001)
Increase (decrease) in long-term debt (3,543) 407,919
Proceeds from interest rate swap terminations 8,434 --
Purchase of treasury stock (15,139) (32,114)
Proceeds from exercise of stock options 6,215 2,975
Cash dividends to stockholders (82,112) (78,219)
--------- ---------
Net cash from (used in) financing activities (85,232) (329,440)
--------- ---------
--------- ---------
Discontinued operations (4,280) 266,704
--------- ---------
Net increase (decrease) in cash & cash equivalents (1,270) 40,870
Cash & cash equivalents at beginning of period 175,601 180,560
--------- ---------
Cash & cash equivalents at end of period $ 174,331 $ 221,430
========= =========
See Notes to Condensed Consolidated Financial Statements.
6 of 25
DOVER CORPORATION AND SUBSIDIARIES
MARKET SEGMENT RESULTS
(UNAUDITED)
Third quarter ended September 30,
2002 2001
---- ----
SALES
Dover Industries $ 286,256,000 $ 289,600,000
Dover Diversified 299,401,000 296,170,000
Dover Resources 215,985,000 230,920,000
Dover Technologies 276,440,000 265,695,000
-------------- --------------
Total Continuing (after intramarket eliminations) $1,076,095,000 $1,081,005,000
============== ==============
EARNINGS (Loss)
Dover Industries $ 33,972,000 $ 32,595,000
Dover Diversified 36,348,000 22,279,000
Dover Resources 30,513,000 26,079,000
Dover Technologies (247,000) (49,777,000)
-------------- --------------
Subtotal Continuing 100,586,000 31,176,000
Corporate expense (6,678,000) (5,429,000)
Net interest expense (14,650,000) (17,887,000)
-------------- --------------
Earnings from Continuing Operations, before taxes on income 79,258,000 7,860,000
Taxes on income 21,916,000 2,151,000
-------------- --------------
Net Earnings from Continuing Operations 57,342,000 5,709,000
Net Earnings (Loss) from Discontinued Operations* (900,000) (3,102,000)
-------------- --------------
Net Earnings $ 56,442,000 $ 2,607,000
============== ==============
Net Earnings (Loss) per diluted common share:
Continuing Operations $ 0.28 $ 0.03
Discontinued Operations* -- (0.02)
-------------- --------------
Net Earnings $ 0.28 $ 0.01
============== ==============
Average number of diluted shares outstanding 203,541,000 204,210,000
Impact of goodwill amortization on continuing diluted EPS:
EPS from Continuing Operations $ 0.28 $ 0.03
Goodwill amortization (net of tax)** -- 0.05
-------------- --------------
EPS before goodwill amortization $ 0.28 $ 0.08
============== ==============
*In accordance with the adoption of SFAS No. 144, the earnings (net of tax) from
discontinued operations were separately presented for all reported periods in
earnings from discontinued operations. In the second quarter of 2002, Vectron
GmbH, formerly of the Technologies segment, qualified for discontinued
operations presentation.
**In accordance with the 1/1/2002 adoption of SFAS No. 142, goodwill and
indefinite-lived intangible assets are no longer amortized on a periodic basis
but are subjected to impairment testing on at least an annual basis.
7 of 25
DOVER CORPORATION AND SUBSIDIARIES
MARKET SEGMENT RESULTS
(UNAUDITED)
Nine months ended September 30,
2002 2001
SALES
Dover Industries $ 851,006,000 $ 879,246,000
Dover Diversified 896,865,000 827,889,000
Dover Resources 647,687,000 701,853,000
Dover Technologies 790,032,000 987,674,000
--------------- ---------------
Total Continuing (after intramarket eliminations) $ 3,180,793,000 $ 3,392,361,000
=============== ===============
EARNINGS (Loss)
Dover Industries $ 115,475,000 $ 108,361,000
Dover Diversified 105,791,000 77,825,000
Dover Resources 87,581,000 86,932,000
Dover Technologies (7,472,000) (1,265,000)
--------------- ---------------
Subtotal Continuing 301,375,000 271,853,000
Corporate expense (19,626,000) (17,173,000)
Net interest expense (49,236,000) (57,295,000)
--------------- ---------------
Earnings from Continuing Operations, before taxes on income 232,513,000 197,385,000
Taxes on Income 64,373,000 65,098,000
--------------- ---------------
Net Earnings from Continuing Operations 168,140,000 132,287,000
Net Earnings (Loss) from Discontinued Operations* (11,381,000) 92,704,000
--------------- ---------------
Net Earnings before cumulative effect of change in accounting principle 156,759,000 224,991,000
--------------- ---------------
Cumulative effect of change in accounting principle, net of tax** (293,049,000) --
Net Earnings (Loss) $ (136,290,000) $ 224,991,000
=============== ===============
Net Earnings (Loss) per diluted common share:
Continuing Operations $ 0.83 $ 0.65
Discontinued Operations* (0.06) 0.45
--------------- ---------------
Net Earnings before cumulative effect of change in accounting
principle 0.77 1.10
--------------- ---------------
Cumulative effect of change in accounting principle, net of tax** (1.44) --
Net Earnings (Loss) $ (0.67) $ 1.10
=============== ===============
Average number of diluted shares outstanding 203,541,000 204,210,000
Impact of goodwill amortization on continuing diluted EPS:
EPS from Continuing Operations $ 0.83 $ 0.65
Goodwill amortization (net of tax)** -- 0.15
--------------- ---------------
EPS before goodwill amortization $ 0.83 $ 0.80
=============== ===============
*In accordance with the adoption of SFAS No. 144, the earnings (net of tax) from
discontinued operations were separately presented for all reported periods in
earnings from discontinued operations. In the second quarter of 2002, Vectron
GmbH, formerly of the Technologies segment, qualified for discontinued
operations presentation.
**Reflects the transitional provisions of SFAS No. 142 "Goodwill and Other
Intangible Assets" (adopted 1/1/02), which resulted in a $293 million write down
(net of $52 million in tax) of impaired goodwill to fair value. In addition,
beginning in 2002 goodwill and indefinite-lived intangible assets are no longer
amortized on a periodic basis but are subjected to impairment testing on at
least an annual basis.
DOVER CORPORATION AND SUBSIDIARIES
MARKET SEGMENT IDENTIFIABLE ASSETS
(000 OMITTED)
UNAUDITED
September 30, December 31,
2002 2001
---- ----
Dover Industries $ 981,172 $1,115,291
Dover Diversified 1,006,090 1,122,938
Dover Resources 813,806 897,965
Dover Technologies 1,353,296 1,315,023
Corporate 196,410 125,383
---------- ----------
Total Continuing 4,350,774 4,576,600
Assets of Discontinued Operations 15,067 25,602
---------- ----------
Consolidated Total $4,365,841 $4,602,202
========== ==========
"Corporate" -principally cash and equivalents and marketable securities .
8 of 25
DOVER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying unaudited condensed 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. Certain amounts in prior years have been reclassified to conform to the
current quarter's presentation. In accordance with the adoption of Statement of
Financial Accounting Standards "SFAS" No. 144, "Accounting for the Impairment or
Disposal of Long-lived Assets" in 2001, the earnings (net of tax) from
discontinued operations were separately presented for all reporting periods in
earnings from discontinued operations. The assets, liabilities and cash flows
from discontinued operations were also separately presented. All financial
results were restated accordingly to reflect the adoption of this statement.
NOTE B - Inventory
Inventories, by components, are summarized as follows :
(000 omitted)
-------------
UNAUDITED
September 30, December 31,
2002 2001
---- ----
Raw materials $295,516 $295,059
Work in progress 185,604 178,047
Finished goods 179,678 210,995
-------- --------
Total 660,798 684,101
Less LIFO reserve 31,753 30,553
-------- --------
Net amount per balance sheet $629,045 $653,548
-------- --------
NOTE C - Accumulated Other Comprehensive Earnings (Loss)
Accumulated other comprehensive earnings (loss), by components, are summarized
as follows:
UNAUDITED (000 omitted)
---------------------------------------------------
Accumulated
Other Unrealized
Comprehensive Cumulative Holding
Earnings Translation Gains
(Loss) Adjustments (Loss)
------ ----------- ------
Beginning balance $(149,465) $(149,738) $ 273
Current-period change 60,005 60,457 (452)
--------- --------- -----
Ending balance $ (89,460) $ (89,281) $(179)
--------- --------- -----
NOTE D - Goodwill and Other Intangible Assets
As of January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets". In accordance with the guidelines of this accounting
principle, goodwill and indefinite-lived intangible assets are no longer
amortized but will be assessed for impairment on at least an annual basis.
As an initial step in the implementation process, the Company identified 41
Reporting Units that would be tested for impairment. In the Industries,
Diversified, and Resources market segments the "stand-alone" operating companies
were identified as "Reporting Units". These entities qualify as Reporting Units
in that they are one level below an operating segment (a "Component" as defined
in SFAS No. 131), discrete financial information exists for each entity and the
segment executive management group directly reviews these units. Due to the lack
of similarities in either products, production processes or markets served,
management could not identify any situations where the components in these three
operating segments could currently be aggregated into a single Reporting Unit.
In the Technologies segment, three Reporting
9 of 25
Units were identified, Marking (consisting of one stand-alone operating
company), Circuit Board Assembly and Test or "CBAT" and Specialty Electronic
Components or "SEC".
As required under the transitional accounting provisions of SFAS No. 142, the
Company completed both steps required to identify and measure goodwill
impairment at each of the 41 Reporting Units as of January 1, 2002. The first
step involved identifying all Reporting Units with carrying values (including
goodwill) in excess of fair value, which was estimated using the present value
of future cash flows. The identified Reporting Units from the first step were
then measured for impairment by comparing the implied fair value of the
Reporting Unit goodwill, determined in the same manner as in a business
combination, with the carrying amount of the goodwill. As a result of these
procedures, goodwill was reduced by $345 million and a net after tax charge of
$293 million was recognized as a cumulative effect of a change in accounting
principle in the first quarter of 2002. Five stand-alone operating companies or
Reporting Units accounted for over 90% of the total impairment - Triton and
Somero from the Industries segment, Crenlo and Mark Andy from the Diversified
segment, and Wilden from the Resources segment. Various factors impacted the
identification and amounts of impairment recognized at the reporting units.
These included declining market conditions in terms of size and new product
opportunities, lower than expected current and/or future operating margins and
lack of future growth potential relative to expectations when acquired. Of the
total goodwill reduction, $148 million was from the Diversified Segment, $127
million was from the Industries Segment and $70 million was from the Resources
Segment. The implementation of SFAS No. 142 required the use of judgments,
estimates and assumptions in the identification of Reporting Units and the
determination of fair market value and impairment amounts related to the
required testing. The Company believes that its use of estimates and assumptions
in this matter was reasonable, and complied with generally accepted accounting
principles. Additionally, pursuant to SFAS No. 142, the Company completed its
reassessment of previously recognized intangible assets, including trademarks,
and adjusted the remaining amortization lives of certain intangibles based on
relevant factors.
The Company also adopted SFAS No. 141, "Business Combinations", for all business
combinations completed after June 30, 2001. SFAS No. 141 prohibits the
pooling-of-interests method of accounting for business combinations, prescribes
criteria for the initial recognition and measurement of goodwill and other
intangible assets, and establishes disclosure requirements for material business
combinations.
Provided below is a reconciliation of previously reported financial statement
information to pro forma amounts that reflect the elimination of goodwill and
indefinite-lived intangible amortization for the comparable periods prior to
adoption:
THREE MONTHS ENDED SEPTEMBER 30, 2001
-------------------------------------
Earnings Per Share
------------------
Earnings Basic Diluted
-------- ----- -------
Net Earnings $ 2,607 $ 0.01 $ 0.01
Add back: Goodwill amortization, net of tax 11,107 0.05 0.05
Add back: Indefinite-lived intangible amortization, net of tax 396 -- --
------- ------ ------
Pro Forma Net Earnings $14,110 $ 0.06 $ 0.06
======= ====== ======
Net Earnings (Loss) from Discontinued Operations (3,102) (0.02) (0.02)
Pro Forma Net Earnings from Continuing Operations $17,212 $ 0.08 $ 0.08
======= ====== ======
NINE MONTHS ENDED SEPTEMBER 30, 2001
------------------------------------
Earnings Per Share
------------------
Earnings Basic Diluted
-------- ----- -------
Net Earnings $224,991 $1.11 $1.10
Add back: Goodwill amortization, net of tax 31,661 0.15 0.15
Add back: Indefinite-lived intangible amortization, net of tax 1,189 0.01 0.01
-------- ----- -----
Pro Forma Net Earnings $257,841 $1.27 $1.26
======== ===== =====
Net Earnings from Discontinued Operations 92,704 0.46 0.45
Pro Forma Net Earnings from Continuing Operations $165,137 $0.81 $0.81
-------- ----- -----
10 of 25
The changes in the carrying value of goodwill by market segment through the
quarter ended September 30, 2002 are as follows:
DOVER DOVER DOVER DOVER TOTAL DOVER
INDUSTRIES DIVERSIFIED RESOURCES TECHNOLOGIES
Balance as of January 1, 2002 $ 524,907 $ 539,169 $378,829 $503,518 $1,946,423
-----------------------------------------------------------------------
Goodwill From Acquisitions 185 2,947 1,359 31,215 35,706
Goodwill written off Due to Dispositions -- -- -- -- --
Impairment Losses (127,530) (147,950) (69,642) -- (345,122)
Other (primarily cumulative translation) 2,902 4,704 987 17,269 25,862
-----------------------------------------------------------------------
Balance as of September 30, 2002 $ 400,464 $ 398,870 $311,533 $552,002 1,662,869
----------
The following table provides the gross carrying value and accumulated
amortization for each major class of intangible asset based on the Company's
reassessment of previously recognized intangible assets and their remaining
amortization lives in accordance with the adoption of SFAS No. 142:
as of 9/30/2002 as of 12/31/2001
--------------- ----------------
Average
Gross Carrying Accumulated Amortizable Gross Carrying Accumulated
Amount Amortization Life Amount Amortization
------ ------------ ---- ------ ------------
Trademarks $ 19,481 $ 7,892 35 $ 88,318 $ 6,892
Patents 85,948 37,823 13 88,249 35,432
Customer Intangibles 15,341 4,037 10 5,655 1,536
Unpatented Technologies 37,224 10,155 14 20,860 9,752
Non-Compete Agreements 12,677 7,919 5 10,277 3,219
Other 8,729 4,004 11 30,463 13,797
-------- ------- ---- -------- -------
Total Amortizable Intangible Assets 179,400 71,830 14 243,822 70,628
-------- ------- -------- -------
Total Indefinite-Lived Trademarks 76,410 -- -- --
-------- ------- -------- -------
Total $255,810 $71,830 $243,822 $70,628
-------- ------- -------- -------
The total intangible amortization expense for the nine months ended September
30, 2002 and 2001 was $13.3 million and $13.2 million, respectively.
The estimated amortization expense, based on current intangible balances, for
the next five fiscal years beginning January 1, 2002 is as follows:
For the year ended December 31, 2002: $19,743
For the year ended December 31, 2003: $18,273
For the year ended December 31, 2004: $16,913
For the year ended December 31, 2005: $15,654
For the year ended December 31, 2006: $14,488
NOTE E - Restructuring and Inventory Charges
In the third and fourth quarters of 2001, the Company announced restructuring
programs at operating company locations, primarily in the Technologies and
Diversified segments. The restructuring of Technologies' CBAT operations was in
response to the dramatic downturn in the markets served by these operations,
which resulted in excess capacity. Technologies' SEC businesses announced
restructuring programs in 2001, primarily related to the closure of two European
operations that were facing difficult market conditions. Imaje's 2001
restructuring charges related to severance costs for certain employees due to a
change in strategic focus. In the Diversified Segment, severance and exit
restructuring programs were announced in 2001 primarily to close a Canadian
facility of Tranter, that was experiencing declining volume, pricing pressure
and excess capacity concerns, and to close a US facility of Mark Andy and reduce
head-count in order to better leverage recent acquisition synergies. In the
third quarter of 2002, Tipper Tie, from the Industries segment, announced a
restructuring program to exit an inconsequential, under-performing product line
and recorded a $2.0 million charge. Additionally, in the third quarter of 2002,
restructuring programs were announced in the Technologies' segment totaling $2.1
million. Two CBAT operations announced restructuring charges totaling $1.0
million that primarily related to workforce reductions in the United Kingdom and
North America and an SEC operation incurred $1.1 million in restructuring
charges in connection with staff reductions and facility closures.
Year-to-date restructuring charges for continuing operations in 2002 of $5.6
million and third quarter charges of $4.1 million were primarily recorded as
selling and administrative expenses and, to a lesser extent, cost of goods sold,
as components of continuing operating earnings. The employee severance
11 of 25
programs for continuing operations announced since the third quarter of 2001
have involved approximately 2,900 employees, 87% of which have been terminated
as of September 30, 2002. $5.6 million in separation benefits were paid through
September 30, 2002 and the remaining total severance reserve balance for
continuing operations at September 30, 2002 was $3.4 million. Through September
30, 2002, $3.5 million was spent against the exit reserve for continuing
operations resulting in a reserve balance of $3.5 million. The Company expects
to complete most of these remaining restructuring programs by the end of fiscal
2003. The table provided below details the activity and balances for the
restructuring reserve accounts on a continuing operations basis:
RESTRUCTURING (IN MILLIONS)
AS OF SEPTEMBER 30, 2002 SEVERANCE EXIT TOTAL
- --------------------------------------------------------------------------------------
Beginning Reserve Balance, as of December 31, 2001 $5.7 $ 4.9 $ 10.6
Current Charges 3.2 2.4 5.6
Adjustments (Including Cumulative Translation) 0.1 (0.3) (0.2)
Benefits paid 5.6 3.5 9.1
------------------------------
Ending Reserve Balance as of September 30, 2002 $3.4 $ 3.5 $ 6.9
------------------------------
Due to sudden and significant declines in the demand for certain products in the
prior year, inventory reserves were established primarily in the third and
fourth quarters of 2001. Certain additional inventory provisions were made in
the current year in the Technologies segment, where adverse market conditions
persist. The utilization of these reserves by segment through September 30,
2002 is presented below:
Technologies Diversified Resources Industries TOTAL
---------------------------------------------------------------
2001 Inventory Reserves 47.2 13.2 3.4 -- 63.8
Discontinued Operations (2.0) -- -- -- (2.0)
2002 Inventory Provisions 6.3 -- -- -- 6.3
Disposed of through September 30, 2002 (19.7) (9.4) (2.2) -- (31.3)
Sold through September 30, 2002 (6.3) -- -- -- (6.3)
---------------------------------------------------------------
Ending balance as of September 30, 2002 25.5 3.8 1.2 -- 30.5
---------------------------------------------------------------
The inventory sold through September 30, 2002 has generated profits of less than
$1.2 million.
NOTE F - Discontinued Operations
In the second quarter of 2002, the operations of Vectron GmbH, from the
Technologies segment qualified for discontinued operations presentation and were
subsequently sold for a net loss of $7.3 million. All prior interim and full
year reporting periods have been restated to reflect the discontinuance of this
operation. Rapidly deteriorating market conditions in the international markets
served by Vectron GmbH led to the ultimate decision to dispose of these
operations.
The net sales from all discontinued operations for the third quarter and the
nine months ended September 30, 2002 were $3.4 million and $12.9 million,
respectively. The total year-to-date restructuring charge for discontinued
operations through September 30, 2002 of $6.4 million was included in earnings
from discontinued operations, net of tax. Of the four operations held for sale
as of December 31, 2001, one operation was sold, one was dissolved and two were
held for sale as of September 30, 2002. Since the end of the third quarter, both
of these operations have been sold. The impact of these sale transactions is
expected to be immaterial to Dover's results in the fourth quarter of 2002.
NOTE G - 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 1, 2002.
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. The diluted weighted average shares in 2002
exclude the dilutive effect of
12 of 25
approximately 4.4 million options with exercise prices in excess of the average
market price of the Company's common stock.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which is effective for fiscal years beginning after June 15, 2002.
SFAS No. 143 establishes the accounting standards for the recognition and
measurement of obligations associated with the retirement of tangible long-lived
assets. Under SFAS No. 143, the costs of retiring an asset will be recorded as a
liability when the retirement obligation arises, and will be amortized over the
life of the asset. The Company is still assessing the potential impact of SFAS
No. 143 on its consolidated results of operations and financial position. In
April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections", which
is effective for certain transactions, fiscal years and financial statements
issued on or after May 15, 2002. The effect of the adoption of SFAS No. 145 is
expected to be immaterial to the Company's consolidated results of operations
and financial position. In July 2002, the FASB issued SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities", which is effective for
disposal activities initiated after December 31, 2002. The standard replaces
Issue 94-3 and requires companies to recognize costs associated with exit or
disposal activities when they are incurred, as defined in SFAS No. 146, rather
than at the date of a commitment to an exit or disposal plan. The Company is
still assessing the potential impact of SFAS No. 146 on its consolidated results
of operations and financial position.
13 of 25
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 (cash, cash equivalents and marketable securities)
decreased $2.0 million during the first nine months of 2002 as compared to the
position at December 31, 2001. Cash flow provided from continuing operating
activities for the first nine months of 2002 was $208.4 million compared to
$500.6 million in 2001. Factors influencing the decline in cash from operations
include an increase in receivables, an increase in prepaid expenses related to a
$44 million discretionary funding of the Dover defined benefit plan, and
increased tax payments which included prior year estimates that were deferred
into the current year. The level of cash used in continuing investing activities
in the first nine months of 2002 was $120.2 million, reflected reduced
acquisition activity and capital expenditures. Capital expenditures for the
first nine months of 2002 were $69.4 million compared to $128.9 million in 2001,
while current year acquisition expenditures were $50.8 million compared to
$268.1 million in the prior year. Cash used in continuing financing activities
through September 30, 2002 of $85.2 million reflected dividend payments of $82.1
million, the repurchase of $15.1 million of Dover stock, and proceeds of $8.4
million from the termination of two swap agreements. The capital expenditures
and acquisitions completed in the first nine months of 2002 were primarily
funded by internal cash flow. It is expected that any near-term cash
requirements above the internal cash flows generated will be funded through the
issuance of commercial paper.
The increase in receivables of $73.9 million included the recognition of a $51.0
million refund related to an overpayment of estimated federal taxes, of which
$47.7 million was received in the beginning of the fourth quarter of the 2002.
Inventory levels at September 30, 2002 were $629.0 million, a $24.5 million
decrease compared to December 31, 2001. Working capital increased from $829.4
million at the end of last year to $970.7 million at September 30, 2002, due to
decreased taxes payable related to a large U.S. federal estimated payment for
2001 made in the first quarter of the current year, increased receivables and
higher prepaid expenses that include the $44 million pension contribution. These
increases were partially offset by lower levels of inventories and deferred tax
assets.
The total debt level of $1.07 billion as of September 30, 2002 was relatively
unchanged from the December 31, 2001 level. As of September 30, 2002, 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 $900.2 million
represented 27.7% of total capital, an increase of 1.4 percentage points
compared to 26.3% at December 31, 2001. The ratio increase was caused by a
slight decrease in net debt and a $164.7 million reduction in equity. The
primary reason for the reduction in equity was lower current year earnings,
which included a $293.0 million charge for goodwill impairment related to the
adoption of SFAS No. 142 taken in the first quarter of 2002. This was partially
offset by a decrease in cumulative translation adjustments of $60.5 million.
After the quarter closed, Dover completed a new $600 million syndicated credit
facility, replacing its existing $750 million facility. The new arrangement,
which includes a $300 million 364-day facility and a $300 million 3-year
facility, will be used primarily as a commercial paper back-up for the company.
Rates and terms were competitive and consistent with the Company's continued
strong credit rating.
Also during the quarter, the Company successfully unwound two interest rate
swaps tied to its $250 million ten-year notes due in 2005, receiving $8.4
million in proceeds. The gains related to these transactions will be deferred
and amortized over the balance of the term of that issue, permanently reducing
Dover's effective interest cost on that issue from 6.5% to 5.3%.
During the current quarter, Dover repurchased 511,400 shares of stock on the
open market at an average price of $27.45. The Company did not repurchase any
shares in the first half of the year.
Dover did not acquire any companies in the third quarter of 2002. For the first
nine months of 2002, Dover has invested on a net economic basis (defined as GAAP
purchase price adjusted for debt assumed and cash acquired), a total of $51.3
million in five add-on acquisitions. On October 1, 2002, Dover acquired
Hover-Davis, Inc., a manufacturer of component feeder systems for the electronic
assembly automation industry. Hoover-Davis, Inc. will be reported as stand-alone
operating company in Technologies' CBAT group.
14 of 25
The Company's principal sources of liquidity are cash from operations, cash on
hand and certain available commercial paper and credit facilities, which
management believes, with respect to current operations, will be sufficient to
cover its working capital and debt service requirements.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS:
Dover Corporation earned $57.3 million or $.28 diluted earnings per share from
continuing operations in the third quarter ended September 30, 2002, compared to
$5.7 million or $.03 per diluted share from continuing operations in the
comparable period last year. Goodwill amortization, net of tax in the third
quarter of 2001 was $11.1 million or $.05 per diluted share and in accordance
with the adoption of SFAS No. 142 discussed below, there was no comparable
amortization in the third quarter of 2002. Net earnings for the third quarter of
2002, which included results of discontinued operations, were $56.4 million or
$.28 per diluted share compared to $2.6 million or $.01 per diluted share in the
third quarter of last year.
Sales in the third quarter of 2002 of $1.1 billion were flat to the comparable
quarter in the prior year. Gross profit of $354.0 million in the third quarter
of 2002 represented a 15% improvement compared to $307.7 million in the prior
year. Gross profit margins of 32.9% in 2002 compared to 28.5% in 2001. Operating
profit of $98.1 million in the third quarter increased $73.5 million compared to
the prior year due primarily to the discontinuation of goodwill amortization in
accordance with SFAS No. 142 and the impact of prior year restructuring and
other charges. Operating profit margins in the third quarter were 9.1% compared
to 2.3% in the prior year.
Segment earnings for the quarter were $100.6 million, an increase of 223% or
$69.4 million from $31.2 million last year. In the Dover Industries segment,
earnings increased 4% to $34.0 million from the comparable quarter last year on
a sales decline of 1%. Dover Diversified's earnings increased 63% to $36.3
million on a 1% sales increase. In Dover Resources, quarterly earnings were
$30.5 million, a 17% increase over last year on a sales decrease of 6%. The
Dover Technologies segment recorded a slight loss of $0.2 million in the third
quarter compared to a loss of $49.8 million last year. Technologies' sales of
$276.4 million were up 4% from last year's third quarter results. Compared to
the prior year's third quarter, Industries' margins of 12% improved one
percentage point, Resources' margins of 14% improved three percentage points,
and Diversified's margins improved four percentage points to 12%. Technologies'
margins were at break-even in the quarter, which compared to a significant loss
in the prior year.
Dover's tax rate for continuing operations was 27.7% for the third quarter and
27.7% for the current year-to-date period. The comparable quarter and
year-to-date effective tax rates in 2001 were 27.4% and 33.0%, respectively. The
lower effective year-to-date tax rate in 2002 was attributable to the effect of
certain foreign tax strategies.
Interest expense of $15.9 million in the third quarter and $52.2 million for the
nine months ended September 30, 2002 was down 26% compared to both of the prior
year's comparable periods primarily due to lower levels of commercial paper
borrowings throughout 2002. On a year-to-date basis interest income declined
compared to the prior year, which included $5.0 million related to a U.S.
Federal tax settlement. "All other, net" income declined $5.8 million on a
year-to-date basis compared to the prior year total, which included an insurance
settlement of $6.4 million in the second quarter of 2001 in the Diversified
segment. Foreign exchange losses in the third quarter of $4.0 million compared
to gains of $2.4 million in the prior year. On a year-to-date basis, foreign
exchange losses of $2.6 million compared to gains of $2.5 million in the prior
year. Current year losses were due to unfavorable exchange rate movements
primarily involving the Euro.
Net earnings from continuing operations for the first nine months of 2002 were
$168.1 million or $.83 per diluted share compared to $132.3 million or $.65 per
diluted share from continuing operations in the comparable period last year. For
the first nine months of 2002, net earnings before changes in accounting
principles were $156.8 million or $.77 per diluted share, including $11.4
million or $.06 per diluted share in losses from discontinued operations,
compared to $225.0 million or $1.10 per share in 2001, which included $92.7
million or $.45 per share in earnings from discontinued operations. Prior year
earnings from discontinued operations included a $96.6 million net gain on the
sales of AC Compressor and the welding equipment businesses of DovaTech. Net
earnings for the nine months ended September 30, 2002 were a loss of $136.3
million or $.67 per diluted share compared to earnings of $225.0 million or
$1.10 per diluted share in 2001. The current year's results include the impact
of the adoption of Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets. The adoption resulted in a goodwill impairment
charge of $345.1 million ($293.0 million net of tax or $1.44 per
15 of 25
diluted share), which was recognized as a change in accounting principle in the
first quarter of 2002. Goodwill amortization, net of tax, through September 30
of 2001 was $31.7 million or $.15 per diluted share and in accordance with the
adoption of SFAS No. 142 discussed below, there is no comparable amortization in
2002.
Year-to-date sales for 2002 were $3.2 billion compared to $3.4 billion last
year, a decrease of 6%. Gross profit of $1.0 billion for the nine months ended
September 30, 2002 was down 4% compared to the prior year's comparable amount of
$1.1 billion. The gross profit margin of 32.7% in the first nine months of 2002
compared favorably to 32.0% in 2001. Year-to-date operating profit of $281.8
million improved 16% compared to $243.9 million in 2001. As a percentage of
sales, operating profit in 2002 was 8.9% compared to 7.2% in 2001. Comparisons
to the prior year benefited from reduced headcount and the discontinuation of
goodwill amortization in accordance with SFAS No. 142.
Year-to-date segment earnings of $301.4 million improved 11% from $271.9 million
in the prior year. In the Industries segment earnings increased 7% to $115.5
million on a 3% sales decline to $851.0 million. Diversified's earnings of
$105.8 million improved 36% compared to the prior year on an 8% sales increase
to $896.9 million. Resources' earnings improved 1% to $87.6 million on an 8%
sales decrease to $647.7 million. In the Technologies segment a loss for the
first nine months of 2002 of $7.5 million compared to a loss of $1.3 million
after a 20% sales decline to $790.0 million. For the nine months ended September
30, 2002, Industries and Resources both produced year-to-date margins of 14%
that both represented improvements of two percentage points. Diversified's
year-to-date margins of 12% improved three points, and Technologies' margins of
- -1% compared to break-even margins in the prior year.
In the third and fourth quarters of 2001, the Company announced restructuring
programs at operating company locations, primarily in the Technologies and
Diversified segments. The restructuring of Technologies' CBAT operations was in
response to the dramatic downturn in the markets served by these operations,
which resulted in excess capacity. Technologies' SEC businesses announced
restructuring programs in 2001 primarily related to the closure of two European
operations, which were facing difficult market conditions. Imaje's 2001
restructuring charges related to severance costs for certain employees due to a
change in strategic focus. In the Diversified Segment, severance and exit
restructuring programs were announced in 2001 primarily to close a Canadian
facility of Tranter, that was experiencing declining volume, pricing pressure
and excess capacity concerns, and to close a US facility of Mark Andy and reduce
head-count in order to better leverage recent acquisition synergies. In the
third quarter of 2002, Tipper Tie, from the Industries segment, announced a
restructuring program to exit an inconsequential, under-performing product line
and recorded a $2.0 million charge. Additionally, in the third quarter of 2002,
restructuring programs were announced in the Technologies' segment totaling $2.1
million. Two CBAT operations announced restructuring charges totaling $1.0
million that primarily related to workforce reductions in the United Kingdom and
North America and an SEC operation incurred $1.1 million in restructuring
charges in connection with staff reductions and facility closures. Further
restructuring initiatives have been undertaken in the fourth quarter of 2002 and
are expected to persist during the balance of 2002 as certain operations
continue to pursue cost reduction and product rationalization programs.
Year-to-date restructuring charges in 2002 for continuing operations of $5.6
million and third quarter charges of $4.1 million were primarily recorded as
selling and administrative expenses and, to a lesser extent, cost of goods sold,
as components of continuing operating earnings. The total year-to-date
restructuring charge for discontinued operations through September 30, 2002 of
$6.4 million was included in earnings from discontinued operations, net of tax.
The employee severance programs for continuing operations announced since the
third quarter of 2001 have involved approximately 2,900 employees, 87% of which
have been terminated. $5.6 million in separation benefits were paid through
September 30, 2002 and the remaining total severance reserve balance for
continuing operations at September 30, 2002 was $3.4 million. Through September
30, 2002, $3.5 million was spent against the exit reserve for continuing
operations resulting in a reserve balance of $3.5 million. The Company expects
to complete most of these remaining restructuring programs by the end of fiscal
2003.
Due to sudden and significant declines in the demand for certain products in the
prior year, inventory reserves were established primarily in the third and
fourth quarters of 2001. Certain additional inventory provisions were made in
the current year in the Technologies segment, where adverse market conditions
persist. The utilization of these reserves by segment through September 30,
2002 is presented below:
16 of 25
---------------------------------------------------------------
Technologies Diversified Resources Industries TOTAL
---------------------------------------------------------------
2001 Inventory Reserves 47.2 13.2 3.4 -- 63.8
Discontinued Operations (2.0) -- -- -- (2.0)
2002 Inventory Provisions 6.3 -- -- -- 6.3
Disposed of through September 30, 2002 (19.7) (9.4) (2.2) -- (31.3)
Sold through September 30, 2002 (6.3) -- -- -- (6.3)
---------------------------------------------------------------
Ending balance as of September 30, 2002 25.5 3.8 1.2 -- 30.5
---------------------------------------------------------------
The inventory sold through September 30, 2002 has generated profits of less than
$1.2 million.
DOVER INDUSTRIES:
Third quarter segment earnings increased 4% or $1.4 million to $34.0 million and
sales declined 1% or $3.3 million to $286.3 million from the comparable period
last year. Segment margins increased slightly to 12% for the quarter. The impact
of goodwill amortization on earnings in the third quarter of 2001 was $3.6
million. Segment bookings in the quarter were $278.4 million, an increase of 3%
from last year and the book-to-bill ratio was .97 for the current quarter.
Backlog increased 1% from the beginning of the current year to $167.5 million.
Heil Environmental continued to produce sales and earnings well below both the
prior quarter and prior year, reflecting continued industry weakness.
Substantial efforts are being taken to improve profitability at these reduced
sales levels. Rotary Lift and PDQ continued to perform at levels consistent with
the third quarter of 2001, while Marathon has experienced growth in sales and
earnings over the comparable prior year period. One of Industries' other larger
companies, Heil Trailer, showed modest operating earnings and sales improvements
in the quarter. Tipper Tie's earnings were down despite sales gains compared to
the prior year due to a restructuring charge to exit an inconsequential,
under-performing product line.
The balance of Industries' companies experienced flat to down sales, with
corresponding profits that were relatively consistent with the prior year,
except for declines at Chief Automotive, and improvements at Somero and Triton
Systems. Chief Automotive experienced losses for the quarter, as it continued to
work through a major change in its distribution system, which has resulted in a
meaningful short-term decline in sales. Somero's profits improved on stronger
sales, but were compared to a weak prior year period.
Triton, the off-premises ATM manufacturer, had a substantial profit improvement
on stronger sales as its introduction of a new "low-cost" ATM model, that uses a
cash dispenser developed in-house, was extremely well-received, and now accounts
for more than half of its sales. On an overall basis, Triton's improvement in
profits went a long way to offset the earnings declines at Heil Environmental,
Tipper Tie and Chief Automotive.
Industries' sales for the nine months ended September 30, 2002 of $851.0 million
declined 3% compared to the prior year's total of $879.2 million due to
generally weaker sales across Industries' operating companies and larger
declines at Heil Environmental and Somero. Segment earnings compared to the
prior year improved 7% to $115.5 million from $108.4 million as margins
increased to 14% from 12% in the prior year. Earnings improvements at Triton,
Randell, and Marathon, combined with reduced goodwill amortization to bolster
comparisons to the prior year.
DOVER DIVERSIFIED:
Third quarter segment earnings were $36.3 million, an increase of $14.1 million
or 63% over the comparative period last year, and sales in the quarter were
$299.4 million, a $3.2 million or 1% increase compared to 2001. The impact of
goodwill amortization on earnings in the third quarter of 2001 was $3.8 million.
Bookings in the quarter were $286.6 million and the quarter book-to-bill ratio
was .96. Backlog at the end of the quarter was $367.2 million, 4% lower than the
beginning of the year. Six out of Diversified's ten operating companies had
higher sales, and seven had better earnings than the comparable prior year
quarter.
Overall Diversified's performance benefited largely from a continued focus on
cost reductions and operating efficiency at a number of companies. Crenlo,
despite flat sales year to year, continued to show profit improvement for the
third consecutive quarter, compared to a substantial loss in the same period
last year. Similarly, Mark Andy more than doubled its earnings on essentially
the same sales level as last year. Strong quarterly bookings driven by increased
printing press demand, left Mark Andy with its highest backlog level in recent
history. Hill Phoenix continues to be well positioned in its market, with
earnings
17 of 25
and margins improvements on modest sales growth as compared to the prior year.
Belvac benefited from large overseas orders in the past two quarters, resulting
in sales and earnings that bettered both the second quarter and prior year
results. The increased orders have pushed backlog to the highest level in over
four years. Tranter produced record sales for the quarter, which resulted in
earnings that were higher than the prior year and were flat with the second
quarter. On a modest sales increase, Waukesha Bearings had earnings, which
bettered the second quarter results, although they were slightly lower than the
prior year quarter. The full effects of the power generation market downturn are
not expected to be seen by Waukesha until the fourth quarter. PMI experienced a
seasonal downturn resulting in weaker sales and earnings than second quarter
levels, while the effect of acquisitions improved overall results when compared
to the prior year. The only significant decline in performance was experienced
by Sargent, which had lower sales and earnings for the quarter compared to the
prior year period, reflecting the decrease in demand for its commercial
aerospace products.
Diversified's year-to-date sales improved 8% to $896.9 million compared $827.9
million in the prior year. Sales improvements were driven by strong internal
growth at Hill Phoenix, and at PMI, where comparisons benefited from recent
acquisitions. Nine-month earnings in 2002 improved 36% to $105.8 million from
$77.8 million in the prior year as margins improved to 12% from 9% in 2001.
Comparisons to the prior year were favorable due to significant earnings
improvements at Hill Phoenix and Crenlo, the elimination of goodwill
amortization, and the absence of third quarter charges in 2002 for restructuring
and inventory write-downs.
DOVER RESOURCES:
Third quarter segment earnings increased $4.4 million or 17% to $30.5 million on
a sales decrease of 6% or $14.9 million to $216.0 million, as compared to the
same period in the prior year. The impact of goodwill amortization on earnings
in the third quarter of 2001 was $2.6 million. Bookings in the quarter of $210.4
million were down 4% from the prior year and the book-to-bill ratio for the
quarter was .97. Ending backlog was $81.8 million, a 4% increase from the end of
last year.
Earnings for the oil and gas equipment companies (Petroleum Equipment Group,
Quartzdyne, and Cook), while up 4% over this year's second quarter on a slight
sales decline, decreased 24% from last year's comparable quarter on a sales
decrease of 13% as capital spending among the major oil companies remains
depressed due to oil and gas price uncertainty. The Resources' pump companies,
Blackmer and Wilden, with increased margins and improved Asian sales, had sales
and earnings increases of 7% and 32%, respectively, compared to 2001. The OPW
Fueling Components and Fluid Transfer Group companies had flat sales and
earnings were down 10% compared to last year in extremely competitive markets.
De-Sta-Co Industries and De-Sta-Co Manufacturing realized the benefits of cost
reduction initiatives and had a 107% increase in earnings on a 3% sales
increase. Ronningen-Petter and Tulsa Winch group saw significant revenue and
earnings shortfalls compared to last year as markets served remain weak. Hydro
Systems continues to perform well, with solid earnings improvements on modest
sales growth.
Resources' sales for the nine months ended September 30, 2002 of $647.7 million
represented a decline of 8% compared to $701.9 million in the prior year due to
lower sales at most companies. Larger sales declines were experienced at the
Petroleum Equipment Group and Tulsa Winch. Earnings of $87.6 million improved 1%
compared to the prior year total of $86.9 million on a margin improvement from
12% in the prior year to 14% in the current year. Earnings improvements at
Resources' process companies and the elimination of goodwill amortization offset
declines at the production companies.
DOVER TECHNOLOGIES:
Third quarter segment results were a loss of $.2 million compared to a loss of
$49.8 million in the prior year. The current quarter's results include foreign
exchange losses of $3.1 million. Also included in these amounts were inventory,
restructuring and other charges of $3.8 million in the current quarter and $38.2
million in the comparable period of 2001. Third quarter sales were $276.4
million, an increase of $10.7 million or 4% from the same period of the prior
year. The impact of goodwill amortization on earnings in the third quarter of
2001 was $3.3 million.
Technologies' CBAT business recorded a loss of $3.5 million for the third
quarter, which included restructuring and inventory charges of $2.7 million,
compared to a loss of $37.9 million in the third quarter of 2001, which included
restructuring, inventory and other charges of $27.7 million. Third quarter sales
were $163.3 million, an increase of $19.4 million or 13% from last year.
Bookings, at $153.2 million, were up 40% from the same period last year and the
CBAT book-to-bill ratio was .94 for the third quarter with
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backlog at $74.6 million, 39% higher than at the end of 2001. Despite the poor
results, the CBAT companies continue to pursue appropriate market and product
development opportunities and believe that they have increased their respective
shares of these contracting markets. At the same time, the CBAT companies have
concluded that current difficult market conditions are likely to persist for the
foreseeable future, and accordingly, serious efforts are underway to further
reduce the size and scope of the CBAT operations to achieve profitability at
these reduced operating levels. While no quantification has been made, CBAT will
make additional provisions in the fourth quarter to reflect these changes.
In Technologies' SEC business sales in the quarter were $52.2 million compared
to $64.4 million in last year's third quarter representing a decline of 19%. SEC
reported a loss of $4.6 million, which included restructuring charges of $1.1
million, compared to a loss of $5.1 million in last year's third quarter, which
included restructuring, inventory and other charges $10.0 million. Net bookings
in the third quarter of $54.2 million were higher than the same period last year
and the book-to-bill ratio was 1.04 for the quarter with backlog at $48.5
million at the end of the period (a 4% decline from the beginning of the current
year). Much like the CBAT companies, the SEC businesses are now evaluating their
organizations to adapt to current levels of demand, and expect that further
steps will be taken in the fourth quarter to adjust to these new circumstances
and return to profitability.
In the quarter, Imaje, the French-based industrial ink-jet printer and ink
manufacturer, had sales of $61.0 million, up 6% from the comparable period last
year. Earnings fell by 4% to $14.5 million from the comparable 2001 quarter.
Imaje had a strong finish to the quarter even with somewhat reduced margin
levels which continue to reflect the sales of lower margin Markpoint products (a
second quarter 2001 acquisition). Despite depressed economic conditions
throughout many of the global markets served, Imaje continues to improve its
sales and market coverage.
Technologies' year-to-date sales of $790.0 million represented a decline of 20%
from $987.7 million in the prior year. The year-to-date loss in 2002 of $7.5
million compared to a loss of $1.3 million in the prior year. These declines
were largely due to weak first quarter results in 2002. CBAT's year-to-date
sales of $448.3 million and loss of $21.3 million represented declines of 14%
and 48%, respectively, compared to the prior year. SEC's year-to-date sales of
$172.6 million were down 45% compared to the prior year and earnings fell from
$36.1 million in 2001 to a loss of $6.3 million in 2002. Imaje's sales improved
10% compared to the prior year to $169.1 million, while earnings declined 6% to
$36.5 million.
OUTLOOK:
Dover's businesses have continued to make good progress in cost reduction and
operating efficiency, and the positive results of their efforts can be seen in
the improved operating leverage at many companies, even where sales have
declined compared to prior year periods. Dover's businesses also continued to
focus on new product development and enhanced geographic diversity. In the long
run, these efforts will yield additional dividends once a sustained economic
recovery takes hold. For now, however, the current economic climate remains
challenging, particularly in the markets served by the CBAT and SEC companies.
In fact, these companies will be taking additional steps to further reduce their
cost structure to help ensure that they can deliver consistent profits while
responding to the changing needs of their electronics and telecommunications
customers. Further restructuring initiatives have already been undertaken in the
fourth quarter of 2002 and are expected to continue through the balance of the
year.
ACCOUNTING PRONOUNCEMENTS:
As of January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets". In accordance with the guidelines of this accounting
principle, goodwill and indefinite-lived intangible assets are no longer
amortized but will be assessed for impairment on at least an annual basis. As an
initial step in the implementation process, the Company identified 41 Reporting
Units that would be tested for impairment. In the Industries, Diversified, and
Resources market segments the "stand-alone" operating companies were identified
as "Reporting Units". These entities qualify as Reporting Units in that they are
one level below an operating segment (a "Component" as defined in SFAS No. 131),
discrete financial information exists for each entity and the segment executive
management group directly reviews these units. Due to the lack of similarities
in either products, production processes or markets served, management could not
identify any situations where the components in these three operating segments
could currently be aggregated into a single Reporting Unit. In the Technologies
segment, three Reporting Units were identified, Marking (consisting of one
stand-alone operating company), Circuit Board Assembly and Test or "CBAT" and
Specialty Electronic Components or "SEC".
As required under the transitional accounting provisions of SFAS No. 142, the
Company completed both steps required to identify and measure goodwill
impairment at each of the 41 Reporting Units as of
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January 1, 2002. The first step involved identifying all Reporting Units with
carrying values (including goodwill) in excess of fair value, which was
estimated using the present value of future cash flows. The identified Reporting
Units from the first step were then measured for impairment by comparing the
implied fair value of the Reporting Unit goodwill, determined in the same manner
as in a business combination, with the carrying amount of the goodwill. As a
result of these procedures, goodwill was reduced by $345 million and a net after
tax charge of $293 million was recognized as a cumulative effect of a change in
accounting principle in the first quarter. Five stand-alone operating companies
or Reporting Units accounted for over 90% of the total impairment - Triton and
Somero from the Industries segment, Crenlo and Mark Andy from the Diversified
segment, and Wilden from the Resources segment. Various factors impacted the
identification and amounts of impairment recognized at the reporting units.
These included declining market conditions in terms of size and new product
opportunities, lower than expected current and/or future operating margins and
lack of future growth potential relative to expectations when acquired. Of the
total goodwill reduction, $148 million was from the Diversified Segment, $127
million was from the Industries Segment and $70 million was from the Resources
Segment. The implementation of SFAS No. 142 required the use of judgments,
estimates and assumptions in the identification of Reporting Units and the
determination of fair market value and impairment amounts related to the
required testing. The Company believes that its use of estimates and assumptions
in this matter was reasonable, and complied with generally accepted accounting
principles. Additionally, pursuant to SFAS No. 142, the Company completed its
reassessment of previously recognized intangible assets, including trademarks,
and adjusted the remaining amortization lives of certain intangibles based on
relevant factors.
The Company also adopted SFAS No. 141 "Business Combinations" for all business
combinations completed after June 30, 2001. SFAS No. 141 prohibits the
pooling-of-interests method of accounting for business combinations, prescribes
criteria for the initial recognition and measurement of goodwill and other
intangible assets, and establishes disclosure requirements for material business
combinations.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which is effective for fiscal years beginning after June 15, 2002.
SFAS No. 143 establishes the accounting standards for the recognition and
measurement of obligations associated with the retirement of tangible long-lived
assets. Under SFAS No. 143, the costs of retiring an asset will be recorded as a
liability when the retirement obligation arises, and will be amortized over the
life of the asset. The Company is still assessing the potential impact of SFAS
No. 143 on its consolidated results of operations and financial position. In
April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections", which
is effective for certain transactions, fiscal years and financial statements
issued on or after May 15, 2002. The effect of the adoption of SFAS No. 145 is
expected to be immaterial to the Company's consolidated results of operations
and financial position. In July 2002, the FASB issued SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities", which is effective for
disposal activities initiated after December 31, 2002. The standard replaces
Issue 94-3 and requires companies to recognize costs associated with exit or
disposal activities when they are incurred, as defined in SFAS No. 146, rather
than at the date of a commitment to an exit or disposal plan. The Company is
still assessing the potential impact of SFAS No. 146 on its consolidated results
of operations and financial position.
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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", "would", "could", "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.
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PART II OTHER INFORMATION
Item 4. Controls and Procedures
On November 4, 2002, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective. There were no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls, nor any significant deficiencies or
material weaknesses in such controls requiring corrective actions, subsequent to
the date of their evaluation.
Item 5. Other Information
DOVER CORPORATION AND SUBSIDIARIES
GOODWILL AMORTIZATION SUMMARY - 2001 (000'S)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL 2001
----------- ----------- ----------- ----------- ----------
DOVER INDUSTRIES $ 3,453 $ 3,441 $ 3,643 $ 4,079 $14,616
DOVER DIVERSIFIED 3,469 3,469 3,751 3,713 14,402
DOVER RESOURCES 2,636 2,636 2,636 2,637 10,545
DOVER TECHNOLOGIES 2,907 3,054 3,336 3,302 12,599
TOTAL GOODWILL $12,465 $12,600 $13,366 $13,731 $52,162
------- ------- ------- ------- -------
TAX ON GOODWILL 2,255 2,256 2,259 2,430 9,200
------- ------- ------- ------- -------
NET GOODWILL $10,210 $10,344 $11,107 $11,301 $42,962
======= ======= ======= ======= =======
Earnings Per Diluted Share $ 0.05 $ 0.05 $ 0.05 $ 0.06 $ 0.21
Item 6. Exhibits and Reports on Form 8-K
(a) The Company filed with the Securities and Exchange Commission a
report on Form 8-K, dated August 14, 2002, furnishing information
under Item 9, regarding a Regulation FD Disclosure regarding sworn
statements to the Securities and Exchange Commission pursuant to
Section 21 (a) (1) of the Securities and Exchange Act of 1934 and
written statements to the Securities and Exchange Commission
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The Company filed with the Securities and Exchange Commission a
report on Form 8-K, dated October 30, 2002, furnishing information
under Item 9, regarding a Regulation FD Disclosure in connection
with a mini-tender offer made by TRC Capital, Corporation.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOVER CORPORATION
Date: November 6, 2002 /s/ Robert G. Kuhbach
--------------------
Robert G. Kuhbach, Vice President,
Acting Chief Financial Officer
(Principal Financial Officer)
Date: November 6, 2002 /s/ Raymond T. McKay
--------------------
Raymond T. McKay
Assistant Controller
(Principal Accounting Officer)
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CERTIFICATION
I, Robert G. Kuhbach, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dover Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days before the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 6, 2002 /s/ Robert G. Kuhbach
---------------------
Robert G. Kuhbach
Vice President, Acting Chief Financial Officer
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CERTIFICATION
I, Thomas L. Reece, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dover Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days before the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent functions):
c) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
d) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 6, 2002 /s/ Thomas L. Reece
-------------------
Thomas L. Reece
Chairman, President and Chief Executive Officer
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