UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2002
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from____________ to _________________
Commission File No. 1-4018
DOVER CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 53-0257888
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
280 Park Avenue, New York, NY 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(212) 922-1640
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, par value $1. New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of class
--------------
None
Indicate by check mark 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 (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past ninety days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Securities and Exchange Act of 1934) Yes [X] No [ ]
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The aggregate market value of the voting and non-voting common stock held by
non-affiliates of the Registrant as of the close of business June 30, 2002 was
$7,100,119,635. Registrant's closing price as reported on the New York Stock
Exchange-Composite Transactions for June 30, 2002 was $35.00 per share.
The number of outstanding shares of the Registrant's common stock as of March 5,
2003 was 202,522,178.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Certain portions of the Proxy Statement for Annual Meeting of
Stockholders to be held on April 22, 2003 (the "2003 Proxy
Statement").
Special Notes Regarding Forward Looking Statements
This Annual Report on Form 10-K, and the documents that are
incorporated by reference, particularly sections of any Annual Report to
Stockholders under the headings "Letter to Shareholders", "Chairman's Letter",
"Outlook" or "Management's Discussion and Analysis", contain forward-looking
statements within the meaning of the Securities Exchange Act of 1933, as
amended, and the Securities 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"
use of the future tense and similar words or phrases. Forward-looking statements
are subject to inherent uncertainties and risks, including among others:
continuing impact from the terrorist events of September 11, 2001 as well as the
prospects for armed conflict by the United States and others against Iraq, and
their effect on the worldwide economy; increasing price and product/service
competition by foreign 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 relative mix of
products and services which impacts margins and operating efficiencies; 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 success of the
Company's acquisition program; the cyclical nature of some 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.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Dover Corporation ("Dover" or the "Company"), originally incorporated in 1947 in
the State of Delaware, became a publicly traded company in 1955 with four
operating divisions. It is a diversified industrial manufacturing corporation
encompassing 50 operating companies which primarily manufacture a broad range of
specialized industrial products and sophisticated manufacturing equipment, and
seek to expand their range of related services. Additional information is
contained in Items 7 and 8.
The Company's businesses are divided into four business segments. Dover
Diversified builds packaging and printing machinery, heat transfer equipment,
food refrigeration and display cases, specialized bearings, construction and
agricultural cabs, as well as sophisticated products for use in the defense,
aerospace and automotive industries. Dover Industries makes products for use in
the waste handling, bulk transport, automotive service, commercial food service
and packaging, welding, cash dispenser and construction industries. Dover
Resources manufactures products primarily for the automotive, fluid handling,
petroleum, original equipment manufacturers (OEM) engineered components and
chemical equipment industries. Dover Technologies builds sophisticated automated
assembly and testing equipment and specialized electronic components for the
electronics industry, and industrial printers for coding and marking.
BUSINESS STRATEGY
Since inception, the Company has operated with certain fundamental objectives.
First, it seeks to acquire and own businesses with proprietary, engineered
industrial products which make them leaders in the niche markets which they
serve. Second, these businesses must be customer focused, innovative and well
managed to achieve above average profit margins by supplying customers with
value added products and related services. Third, the Company expects that these
types of businesses will generate strong cash flow which can not only sustain
such operations in terms of new product development and growth, but also provide
excess cash flow which the Company can then reinvest in new similar business
opportunities.
The Company's stated objectives are long-term earnings growth of 10%, built on
businesses which can produce operating profits of 15% and generate a return on
capital of 25%. These are goals the Company strives to achieve; it will not
necessarily be successful in every instance.
To the extent the Company is successful in its basic business strategy, over
time, it will generate operating cash flow which is sufficient to fund a large
part of its internal and external growth strategies, as well as provide a return
to its shareholders in the form of modest annual cash dividends and long term
capital appreciation, enhanced periodically by Company stock repurchases.
The Company expects to manage its cash flow so that external debt levels and its
capital structure are optimized to support continued ready access to the capital
markets.
MANAGEMENT PHILOSOPHY
The Company practices a highly decentralized management style. The presidents of
the operating companies are given a great deal of autonomy and have a high level
of independent responsibility for their businesses and their performance. This
is in keeping with the Company's operating philosophy that independent
operations are better able to serve customers by focusing closely on their
products and reacting quickly to customer needs. The Company's executive
management role is to provide management oversight, allocate and manage capital,
assist in major acquisitions, evaluate, motivate and, as necessary, replace
operating management and provide selected other services.
ACQUISITIONS AND DIVESTITURES
The Company has a long-standing and successful acquisition program. The Company
seeks to acquire and develop "platform" businesses, which are marked by growth,
innovation and higher than average profit margins. Each of its businesses should
be a leader in its market as measured by market share, customer service,
innovation, profitability and return on assets. The Company traditionally
focused on acquiring new businesses which could operate independently from other
Dover companies ("stand-alones"). In addition, over the last ten years,
increased emphasis has been placed on acquiring businesses that can be added on
to existing operations ("add-ons"). The target companies are generally
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manufacturers of high value-added, engineered products sold to a broad customer
base of industrial or commercial users. One of the most critical factors in the
decision to acquire a business is the Company's judgment of the skill, energy,
ethics and compatibility of the top executives at the acquisition target. Dover
expects that acquired companies will continue to be operated by the management
team in place at acquisition, with a high degree of autonomy in keeping with the
Company's decentralized structure. From January 1, 1998 through December 31,
2002, the Company made 74 acquisitions at a total acquisition cost of $2,033.5
million. In 2002, the Company completed one stand-alone and five add-on
acquisitions at a total cost of about $100.8 million. For more details regarding
acquisitions completed over the past two years, see Note 2 to the Consolidated
Financial Statements in Item 8. These acquisitions have had a substantial impact
on the Company's sales and earnings since 1998.
While the Company's expects to buy and hold businesses, it does periodically
reassess each business to verify that it continues to represent sound
stewardship for the shareholders. There may also be situations where a Company
business represents a very attractive acquisition for another company based on
specific market conditions. Based on these criteria, the Company has divested
businesses on occasion. During the past two years, the Company has sold 8
companies for an aggregate consideration of $376.6 million. For more details,
see Note 6 to the Consolidated Financial Statements in Item 8.
BUSINESS SEGMENTS
DOVER DIVERSIFIED
Dover Diversified's ten stand-alone operating companies manufacture equipment
and components for industrial, commercial and defense applications. In 2002,
Dover Diversified completed one "add-on" acquisition. A description of each
continuing stand-alone operating company is provided below:
MAJOR UNITS
Hill Phoenix's U.S. manufacturing facilities provide refrigeration systems,
display cases, walk-in coolers and freezers, electrical distribution products,
and engineering services for sale to the supermarket industry, as well as
commercial/industrial refrigeration and convenience store customers. Hill
Phoenix sells equipment primarily in North America directly to the end user with
a small percentage of sales through independent distributors.
Tranter manufactures three distinct types of heat transfer products for a wide
range of applications in a variety of industries. The Gasketed & Welded
products, plate and frame heat exchangers, welded surface heat exchangers, and
all-welded plate heat exchangers are made in the U.S., Sweden, India and the
U.K. The Brazed Products group's facilities in Sweden, Switzerland, the U.S. and
Malaysia produce copper-brazed and nickel-brazed heat exchangers, and small
gasketed heat exchangers. Radiator Products manufactures radiators to cool
oil-filled electrical transformers and has one facility in North America. The
majority of Tranters' sales are equally divided between the U.S and European
markets. Tranter's products are sold by a direct sales force in the North
American market, through wholly owned sales companies in European and Asian
markets and through sales agents and manufacturing representatives in other
parts of the world. In 2003, Tranter will be split into three distinct operating
companies, which will be independently managed as "stand-alones".
Mark Andy manufactures printing equipment and accessories primarily for the
specialty packaging-printing segment at locations in the U.S. and Europe. The
company specializes in the fabrication of narrow web printing presses used for
producing pressure sensitive labels for the food, cosmetic, pharmaceutical and
logistics (inventory, transportation, baggage handling) markets, as well as dry
offset printing machines used in direct printing on rigid plastic containers
(cups, tubs, lids and tubes) and color measurement control systems for printing
presses. Products are sold primarily in the Americas and Europe through
distributors.
Crenlo fabricates operator cabs and rollover structures for sale to OEM
manufacturers in the construction, agriculture, and commercial equipment
markets, such as Caterpillar, John Deere & Company, and Case New Holland. In
addition, Crenlo produces "build-per-print" high volume sheet metal enclosures
for the electronics, telecommunications and electrical markets. Crenlo operates
manufacturing facilities in the U.S., which is its primary market.
Waukesha Bearings Corporation manufactures bearings for certain rotating
machinery applications including turbo machinery, motors and generators, for use
in the industrial, utility, naval and commercial marine industries. Waukesha's
product lines include polymer, ceramic and magnetic designs for specific
customer applications, as well as hydrodynamic bearing design applications.
Waukesha's Hydratight Sweeney business makes manual and hydraulic bolt
tightening devices, and its Central Research Laboratories business makes remote
control manipulators for material handling applications in hazardous or sterile
environments. The company operates manufacturing facilities in the U.S. and the
U.K. and sales are made primarily in Europe and North America both directly and
through agents in several different countries.
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Performance Motorsports sells primarily pistons, and other engine components
into motor-sport and power-sport markets that include high performance racing,
motorcycles, all-terrain vehicles, snowmobiles and watercraft. Performance
Motorsports products include forged and cast pistons, connecting rods,
crankshafts and cylinder liners along with their complimentary components,
including, piston rings, bearings, gaskets, and a variety of other internal
valve train and engine components, as well as suspension, braking, clutching,
and chassis components. Products are manufactured in the U.S. and Europe for
sale through distributors.
Sargent supplies hydraulic power aerospace and fluid control components to the
aerospace and marine marketplace. From its U.S. manufacturing locations, these
businesses produce quiet hydraulic components for U.S. submarines, hydraulic
valves and actuators for aircraft, space and amphibious assault vehicles,
landing gear hydraulic components, self-lubricating bearings for aircraft,
pneumatic rings and seals for aircraft engines, and various other precision
engineered components. These businesses share common customers throughout the
commercial aerospace and defense industries and sell generally on a direct basis
throughout the world.
OTHER UNITS
SWF Companies manufacture packaging automation machinery utilized in forming,
loading and sealing folding carton stock and corrugated board packaging. SWF's
products are sold primarily in the U.S. through direct representation as well
as indirect channels. Approximately 30% of the company's machines are installed
and operated outside of North America.
Belvac manufactures systems in the U.S. for sale to worldwide beverage canmakers
who need high-speed trimming, necking, base reprofiling and reforming, shaping,
bottom rim coating, flanging and inspection capabilities.
Langbein & Engelbracht (L&E), based in Germany, assembles and installs custom
pollution and air handling systems used in paper mills, paint shops and
environmental control equipment for various industrial applications. L&E
primarily serves the paper, automotive and process engineering markets
throughout the world.
DOVER INDUSTRIES
Dover Industries is comprised of fourteen stand-alone operating companies that
manufacture a diverse mix of equipment and components for use in the waste
handling, bulk transport, automotive service, commercial food service,
packaging, and construction equipment industries. A description of each
stand-alone operating company is provided below:
MAJOR UNITS
Heil Environmental manufactures a wide variety of refuse collection bodies
(garbage trucks) including front loaders, rear loaders, side loaders, and
recycling units. Heil Environmental sells its products to municipal customers,
national accounts, and independent waste haulers through a network of
distributors, and directly in certain geographic areas. Heil Environmental also
manufactures a line of dump truck bodies/hoists for the hauling industry and a
line of refuse container lifts for the waste industry. Products are manufactured
in the U.S., for sales primarily in North America, and in the U.K. for the
European Market.
Rotary Lift manufactures a wide range of vehicle lifts, sold primarily through
channels of light-duty and heavy-duty equipment distributors, with products
supplied to a wide variety of markets including independent service and repair
shops, national chains and franchised service facilities, new car and truck
dealers, national and local governments, and government maintenance and repair
locations. Rotary has manufacturing operations located in the U.S. and sells
primarily in the Americas and Europe.
Heil Trailer International produces a complete line of tank trailers including
aluminum, stainless steel and steel trailers that carry petroleum, chemical,
edible, dry bulk, waste and oil field products. Trailers are marketed directly
to customers in the construction, trucking, railroad, oil, recovery and heavy
haul industries, as well as to various government agencies, primarily through
distributors, both domestically and internationally. Heil Trailer has
manufacturing facilities on four continents and services customers globally.
Tipper Tie develops and manufactures in the U.S. and Europe a wide variety of
packaging machinery which employs a clip as the means of flexible package
closure. These machines and clips are sold worldwide primarily for use with
meat, poultry and other food products. Tipper Tie also produces a line of woven
netting products used in many industries, including the meat and poultry,
horticulture, Christmas tree, and environmental markets. International sales
currently generate over 50% of total sales.
Marathon Equipment manufactures on-site waste management and recycling systems,
including a variety of stationary compactors, roll-off hoists and vertical,
horizontal and two ram balers. Equipment is manufactured and sold primarily in
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the U.S. to distribution centers, malls, stadiums, arenas, hotels/motels,
warehouses, office complexes, apartment buildings, retail stores, businesses,
and recycling centers.
Triton Systems manufactures small footprint cash-dispensing automatic teller
machines ("ATMs") for off-premise locations such as convenience stores,
airports, hotels, restaurants, shopping centers and casinos. The company has
more than 55,000 installations in over 15 countries worldwide. Triton sells
through an independent sales organization for installation throughout the world,
although the primary markets are North America, Australia and the U.K.
PDQ Manufacturing, Inc. manufactures touch free vehicle wash systems, which are
sold primarily in the U.S. and Canada to major oil companies as well as to
distributors. Sales are made through an industry distribution network that
installs the equipment and provides after-sale service and support.
DI Foodservice is a combination of two businesses. Randell produces commercial
foodservice equipment for use in both food preservation (storage) and food
preparation, including commercial refrigerators and freezers, hot food holding
equipment, ventilation, display cases, beer dispensing equipment, conveyorized
pizza ovens, and custom stainless steel counters. Randell's products are sold
through distributors primarily in North and South America. Groen manufactures
commercial food service cooking equipment, primarily steam-jacketed kettles and
tilting braising pans, at one U.S. facility. Groen primarily serves the domestic
institutional and commercial food industry and markets its products through a
network of distributors and sales agents, as well as a direct sales force.
Texas Hydraulics manufactures highly engineered welded hydraulic cylinders for
sale to the work platform, aerial utility truck, material handling,
construction, and mining industry OEM's throughout North America. Cylinders are
manufactured in Texas and Tennessee for sale directly to customers and through
distributors in North America. As of January 1, 2003, Texas Hydraulics was
transferred to Dover Resources because of very strong customer end-market
synergies with the Tulsa Winch Group.
OTHER UNITS
DovaTech produces industrial CO2 lasers used for cutting, welding, drilling and
cladding processes in the aerospace, automotive, heavy equipment and sheet metal
fabrication industries, YAG lasers used in a variety of micromachining, marking,
engraving, diamond processing, welding and cutting applications, and related
equipment used to control the temperature of industrial lasers, machine tools,
welding equipment, machinery coolants, plastic injection molding equipment and
medical diagnostic equipment. All products are made in the U.S. for sale
directly and through distributors in North America and Europe.
Kurz-Kasch manufactures electromagnetic products and specialty plastic
components, primarily electromagnetic stators that regulate electronic fuel
injectors, electronic fuel pumps for the heavy truck and automotive industries,
phenolic brake pistons and electronic valve assemblies. Kurz-Kasch also
manufactures specialty plastic components used in aerospace, electrical,
telecommunications and other industries. All products are manufactured in the
U.S. and sold direct to OEM's.
Chief Automotive Systems manufactures vehicle collision measuring and repair
systems, including pulling equipment, and computerized measuring and gas and
dust extraction systems. Chief markets its equipment worldwide in over 40
countries throughout Europe, Asia and the Americas, utilizing a direct sales,
service and training organization, as well as through investors.
Somero Enterprises manufactures highly specialized laser guided concrete
spreading equipment used in the commercial construction industry. Products are
built in the U.S. and sold globally through a direct sales force, sales
representatives and dealers.
DOVER RESOURCES
Dover Resources' thirteen stand-alone operating companies manufacture components
and equipment primarily for the oil and gas production industry, the petroleum
retailing industry, the process industries, the automotive industries, and
select commercial markets. During 2002, Dover Resources completed two add-on
acquisitions. A description of each stand-alone operating company is provided
below:
MAJOR UNITS
OPW Fueling Components is a leading global supplier of fuel dispensing nozzles
(gasoline, LPG, CNG), related fueling components and systems and underground
secondary containment products for service stations, including conventional
gasoline nozzles, vapor recovery nozzles, swivels, breakaways, and a complete
line of valves and connectors used on gasoline storage tanks. Its Petro Vend
unit provides automated fuel management systems to oil companies and commercial
and private refueling operations around the world. Its products are marketed
globally through a network of distributors and company sales offices.
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The Petroleum Equipment Group ("PEG") consists of four North American operating
units, Norris, Alberta Oil Tool ("AOT"), Norriseal and Ferguson-Beauregard,
which primarily serve the upstream oil and gas production industry. Norris and
AOT produce forged steel sucker rods, integral parts of artificial lift systems
used primarily in on-shore oil and gas production. Norriseal provides control
valves, butterfly valves, and control instrumentation primarily for oil and gas
production applications and, to a lesser extent, the general industrial,
refining, chemical processing and marine markets. Ferguson-Beauregard provides
products that improve production from natural gas wells, and electronic well
controllers for remotely monitoring, controlling and optimizing production from
natural gas fields. Sales are made both directly to customers and through
various distribution channels. PEG's market is global, but sales are
predominantly in North America, with the bulk of international sales occurring
in South America. In 2003, this group was renamed the Energy Products Group,
which will include Quartzdyne as well.
De-Sta-Co Industries manufactures and sells a variety of modular automation and
workholding components including manual toggle clamps, pneumatic and hydraulic
clamps, automation power clamps, automation shuttles and lifters, grippers,
slides, end-effectors and other "end of robot arm" devices. De-Sta-Co serves the
automotive, electronics, and general industrial markets from plant facilities in
the U.S., Germany, Thailand, France and Brazil and its products are marketed
globally both on a direct basis and through a network of distributors.
Blackmer manufactures a variety of pumps and compressors for the transfer of
liquid and gas products in a wide variety of markets, including the refined
fuels, pulp & paper, wastewater, food/sanitary, military/marine, transportation
and chemical process industries. Pump technologies include sliding vane,
eccentric disc, centrifugal and peristaltic. Compressor technologies include
reciprocating, rotary vane and screw. Blackmer sells to original equipment
manufacturers directly, and to other markets through a global network of
distributors, primarily in the Americas and Europe.
OPW Fluid Transfer Group supplies engineered products: primarily valves,
couplings, electronic controls, loading arms, swivels and couplings, for the
transfer, monitoring, measuring and protection of hazardous, liquid and dry bulk
commodities in the chemical, petroleum and transportation industries. These
products are manufactured in the U.S. and sold directly and through distributors
primarily in the Americas and Europe.
Wilden Pump & Engineering Company produces a wide range of air-operated,
double-diaphragm pumps made of steel, aluminum, and engineered plastics. Wilden
pumps are used in a wide variety of fluid transfer applications in general
industrial, process industry, and specialized applications. Sales are
predominantly through distributors, with nearly half of Wilden's sales derived
from international markets.
C. Lee Cook is comprised of three units: C. Lee Cook, Compressor Components
(CCI), and Cook Manley. C. Lee Cook is a leading manufacturer of piston rings,
seal rings, and packings for reciprocating compressors used in the natural gas
production and distribution markets, and petrochemical and petroleum refining
industries. These products are sold as original equipment parts to compressor
manufacturers, as well as aftermarket replacement parts. CCI manufactures
replacement valves, rods, rings, high performance plastic bushings and other
compressor components and provides compressor repair services through its
service centers, primarily for the North American gas production and
distribution markets. Cook Manley designs and manufactures specialty compressor
valves and injection molded engineered plastic components for gas compressor
markets worldwide. The company's products are sold both direct and through
various sales channels, largely in North America.
OTHER UNITS
The Tulsa Winch Group ("TWG") includes DP Winch, Greer Company, Pullmaster Winch
and Tulsa Winch. The group manufactures worm and planetary gear winches, worm
gear speed reducers, planetary swings, specialized in-cab load indication
equipment for the mobile crane industry, winch/bumper packages, capstans,
constant-pull traction winches and auger drives for the military, marine,
logging, drilling, utility, crane, construction and truck equipment markets. TWG
products are marketed and sold primarily in North America through various sales
channels including OEMs, and dealer distribution.
RPA Process Technologies manufactures engineered filtration equipment and
systems for the petroleum refining, pulp and paper, and other process industries
on a global basis.
Hydro Systems manufactures chemical proportioning and dispensing systems used to
dilute and dispense concentrated cleaning chemicals to the food service, health
care, supermarket, institutional, school, building service contractor and
industrial markets. Hydro Systems products are generally sold to manufacturers
of concentrated cleaning chemicals, who market them with their branded chemicals
and offer a complete chemical management system to their end user customers.
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De-Sta-Co Manufacturing produces reed valves, flapper valves and related
assemblies for compressors used in the automotive, commercial and residential
air conditioning and refrigeration markets. De-Sta-Co Manufacturing also
produces highly specialized discs for the automotive ride control market.
Quartzdyne manufactures precision pressure transducers using proprietary
quartz-resonator sensor technology to provide continuous monitoring of pressure,
temperature, and flow in "downhole" oil and gas exploration and production
applications.
Duncan manufactures parking controls, meters and systems primarily for the
municipal on-street parking market.
DOVER TECHNOLOGIES
Dover Technologies is comprised of thirteen stand-alone operating companies that
manufacture products in three broad groupings: Circuit Board Assembly and Test
equipment, Specialized Electronic Components, and Marking and Imaging systems.
In 2002, Dover Technologies made one stand-alone acquisition and two add-on
acquisitions. A description of each stand-alone operating company is provided
below:
CIRCUIT BOARD ASSEMBLY AND TEST (CBAT)
Universal Instruments manufactures high-speed precision machinery used to place
components onto printed circuit boards and produce semiconductor packages. Its
products include thru-hole component assembly machines, surface mount assembly
machines and odd component assembly cells. It also provides complete assembly
lines by integrating all machinery and software necessary to provide a complete
assembly solution. The Universal Surface Mount Laboratory provides process
solutions and supports a consortium of more than 30 leading electronic
manufacturing companies who develop advanced packaging. Universal manufactures
in the U.S. and is opening a facility in China in the first quarter of 2003.
Universal operates throughout the world with sales and service operations in
more than 30 countries.
Everett Charles Technologies makes machines, test fixtures and related products
used in testing "bare" and "loaded" electronic circuit boards and
semiconductors. Machines are built in the U.S. and Europe and test fixtures are
made at locations worldwide. Products are marketed directly on a worldwide
basis.
DEK makes high-speed precision screen printers and related consumables used to
apply solder paste and epoxy glue at the start of the printed circuit board
assembly process. Advanced applications include printing solder paste bumps onto
semiconductor wafers used in the "flip chip" process and onto "ball grid" array
packages. DEK manufactures in the U.K. and China and has sales/service offices
throughout Europe, North America and Asia Pacific, with a network of
distributors and agents providing further support in these territories.
OK International manufactures specialized and manual industrial tools for the
electronics workbench, including precision manual soldering and desoldering
tools, ball grid array rework and inspection stations, fluid dispensing systems,
static control and ionization equipment, and wirewrap tools and other hand
tools. Products are made at various U.S. locations for sales to customers in the
electronics, aerospace and telecom industries, through sales organizations
around the world who manage distributors and independent representatives.
Vitronics-Soltec manufactures automated soldering systems for high volume
electronic circuit board manufacturing. With factories in the U.S. and Holland,
it makes wave soldering machines used for thru-hole and double-sided surface
mount printed circuits, reflow soldering systems used for standard surface mount
circuits and selective soldering systems used to automatically solder large
odd-shaped components often used in the automotive and telecom industries.
Vitronics-Soltec has sales/service offices in Europe, North America and Asia and
sells direct to customers.
Alphasem manufactures die attach systems that are used to attach semiconductor
die to their protective packages, ready to be mounted on PCBs. These "packages"
are vital components in highly sophisticated computer systems, cars and space,
communication devices, medical systems, aircraft. Alphasem is based in
Switzerland and has sales and service operations Europe, Asia and North America.
Acquired in October 2002, Hover-Davis manufactures component feeders, direct die
feeders and label feeders that are used on high-speed component placement
machines as part of an automated circuit board assembly line. Headquartered in
Rochester, New York, Hover-Davis' products are offered in more than 35 countries
through a network of independent manufacture representatives and more than 25
distributors.
SPECIALTY ELECTRONIC COMPONENTS (SEC)
Quadrant Technologies makes high frequency engineered components and subsystems,
including frequency generation and control components using quartz crystal and
surface acoustic wave (SAW) technologies, microwave synthesizers
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(multiple frequency generators), and microwave and millimeter wave transceivers.
Products are made at multiple locations in the U.S. and Germany for direct sale
to the global telecom/datacom industry, both wired and wireless.
K&L Microwave designs and manufactures a wide range of radio frequency and
microwave filters including ceramic and dielectric resonator units, duplexers
and diplexers, combiners, receive multicouplers, directional couplers and
wireless subassemblies for cellular base stations. In addition to serving the
wireless industry, K&L sells to numerous military and aerospace customers. K&L
has manufacturing activities in the U.S., Dominican Republic, and China, and
sells its products worldwide through representatives.
Novacap is a specialty manufacturer of multi-layer ceramic capacitors and planar
arrays for commercial and high voltage, high reliability applications. It makes
products in the U.S. and the U.K., and sells through both representatives and
distributors worldwide to telecom/datacom equipment, implanted medical products,
aerospace and automotive manufacturers.
Dow-Key Microwave is a specialty manufacturer of microwave electro-mechanical
switches for use in the medical, wireless, military and high-reliability space
industries. Design and manufacturing operations are in the U.S. and sales are
made worldwide through representatives.
Dielectric Laboratories is a manufacturer of single and multi-layer high
frequency capacitors for use in the telecom, military and automotive industries.
Design and manufacturing operations are in the U.S. and sales are made worldwide
through representatives.
MARKING AND IMAGING
Imaje is a major worldwide supplier of industrial inkjet marking and coding
systems. Its primary product is a Continuous Ink Jet (CIJ) printer, which is
used for marking of variable information (such as date codes or serial numbers)
on consumer products. Markpoint, acquired in 2001, added two new technologies to
Imaje's product lineup: Drop on Demand (DOD) printers and thermal printers used
for marking on secondary packaging such as cartons. Imaje's markets are very
broad and include food, beverage, cosmetics, pharmaceutical, electronics,
automotive and other applications where variable marking is required. Products
are made in France, Sweden, U.S. and China, where Imaje engages in both printer
assembly and the formulation of ink. Imaje's direct sales/service network has
subsidiaries in 29 countries and sells in over 90 countries.
DISCONTINUED OPERATIONS
In October of 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
which was effective for fiscal years beginning after December 15, 2001. SFAS No.
144 establishes accounting and reporting standards for the impairment and
disposal of long-lived assets and discontinued operations. The Company elected
to early adopt SFAS No. 144 in 2001. The application of this statement results
in the classification, and separate financial presentation, of certain entities
as discontinued operations, which are not included in continuing operations. The
earnings (loss) from discontinued operations include charges to reduce these
businesses to estimated fair value less costs to sell. Fair value is determined
by using quoted market prices, when available, or other accepted valuation
techniques. All interim and full year reporting periods have been restated to
reflect the discontinued operations discussed below.
In 2002, the Company concluded that several businesses either had limited growth
prospects under its ownership, due to relevant domestic and international market
conditions, or did not align with management's long-term strategic plans.
Accordingly, four businesses were discontinued in Technologies and three
businesses were discontinued in Resources. Vectron GmbH, from Technologies, and
Tarby from Resources were sold during 2002 for a net after tax loss of $4.5
million. The remaining five businesses were classified as held for sale for the
year ended December 31, 2002. One of those businesses, Wittemann, in the
Resources segment, was subsequently sold in February of 2003. The Company
expects to dispose of the rest of these businesses by the end of 2003.
During 2001, the Company discontinued four businesses in the Diversified segment
and one business in both the Industries and Resources segments. The Company
determined that these businesses were not suited for long-term strategic growth
under its ownership. The DovaTech welding equipment business from Industries and
the AC Compressor business from Diversified were sold during 2001 for a net gain
after tax of $96.6 million. The four remaining businesses were classified as
held for sale as of December 31, 2001. In 2002, all four of these businesses
were disposed of or liquidated for a net after tax gain of $3.6 million.
During 2000, the Company reported a $13.6 million loss after tax due to
subsequent adjustments to both the purchase price and expenses related to the
disposition of the Dover Elevator International market segment in 1999. These
results are reported in the gain (loss) on sale of discontinued operations, net
of tax.
9 of 79
Charges to reduce these discontinued businesses to their estimated fair values
have been recorded in earnings (losses) from discontinued operations, net of
tax. For the years ended December 31, 2002 and 2001, charges were recorded to
write off goodwill of $31.6 million and $11.6 million and other long-lived asset
impairments of $12.3 million and $7.7 million, respectively.
RAW MATERIALS
Dover's operating companies use a wide variety of raw materials, primarily
metals and semi-processed or finished components, which are generally available
from a number of sources; as a result, shortages or the loss of any single
supplier have not had, and are not likely to have, a material impact on
operating profits. During 2002, steel tariffs were imposed on the importation of
certain steel products, which had a slight adverse impact on a number of Dover
operating companies which use large amounts of steel.
RESEARCH AND DEVELOPMENT
Dover's operating companies are encouraged to develop new products as well as to
upgrade and improve existing products to satisfy customer needs, expand sales
opportunities, maintain or extend competitive advantages, improve product
reliability and reduce production costs. During 2002, approximately $168.5
million was spent on research and development, compared with $170.2 million and
$165.4 million in 2001 and 2000, respectively.
For the Dover Technologies companies, efforts in these areas tend to be
particularly significant because the rate of product development by their
customers is often quite high. In general, Dover Technologies companies, that
provide electronic assembly equipment and services can anticipate that the
performance capabilities of such equipment are expected to improve significantly
over time, with a concurrent expectation of lower operating costs and increasing
efficiency. Likewise, Dover Technologies companies developing specialty
electronic components for the datacom and telecom commercial markets anticipate
a continuing rate of product performance improvement and reduced cost, such that
product life cycles generally average less than five years with meaningful sales
price reductions over that time period.
Dover Industries, Dover Resources and Dover Diversified contain many businesses
that are also involved in important product improvement initiatives. These
businesses also concentrate on working closely with customers on specific
applications, expanding product lines and market applications, and continuously
improving manufacturing processes. None of these businesses experience the rate
of change in markets and products as are experienced generally by the Dover
Technologies companies.
INTELLECTUAL PROPERTY
The Company has a number of patents, trademarks, licenses and other forms of
intellectual property, which have been acquired over a number of years and, to
the extent relevant, expire at various times over a number of years. A large
portion of the Company's intellectual property consists of confidential and
proprietary information constituting trade secrets that the Company seeks to
protect in various ways including confidentiality agreements with employees and
suppliers where appropriate. While the Company's intellectual property is
important to its success, the loss or expiration of any significant portion of
these rights would not materially affect the Company or any of its segments. The
Company believes that its commitment to continuous engineering improvements, new
product development and improved manufacturing techniques, as well as strong
sales, marketing and service efforts, are significant to its general leadership
position in the niche markets that it serves.
SEASONALITY
In general, Dover's operations are not seasonal to any significant degree but
tend to have stronger revenues in the second and third quarters. In particular,
those companies serving the transportation, construction, waste hauling,
petroleum, commercial refrigeration and food service markets tend to be strong
during the second and third quarters. Companies serving the major equipment
markets, such as power generation, chemical and processing industries, tend to
have long lead times geared to seasonal commercial or consumer demands, which
tend to delay or accelerate product ordering and delivery to coincide with those
market trends.
10 of 79
CUSTOMERS
Dover's businesses serve thousands of customers, no one of which accounted for
more than 10% of the Company's consolidated revenues in 2002. Within each of the
four segments, no customer accounted for more than 10% of that segment's sales
in 2002.
In the Dover Technologies segment, the rapid growth in datacom/telecom
infrastructure market development during the period 1997-2000, involving both
equipment providers and software developers such as Lucent, Motorola, Nortel,
Cisco, Siemens, Phillips, and Qualcomm, tended to concentrate the new product
development and demand with relatively few customers. At the same time, a number
of these customers have "outsourced" a significant amount of their manufacturing
capability to electronic manufacturing services (EMS) companies such as Jabil,
Solectron, Celestica, and Flextronics, which firms are now the direct customers
of Dover Technologies companies for a number of different OEM customers. Given
the significant downturn in these markets since 2000, and the shift in
manufacturing, this has tended to increase the concentration of manufacturing
with the EMS's companies, particularly with those located in China, hence,
machine and specialty component demand is concentrated with a smaller number of
"customers".
In the other Dover segments, customer concentrations are quite varied. Companies
supplying the automotive and commercial refrigeration industries tend to deal
with a few large customers that are significant within those industries. This
also tends to be true for companies supplying the power generation, aerospace
and chemical industries. In the other markets served, there is usually a much
lower concentration of customers, particularly where the companies provide a
substantial number of products and services, applicable to a broad range of end
use applications.
BACKLOG
Backlog generally is not a significant factor in most of Dover's businesses, as
most of Dover's products have relatively short order-to-delivery periods. It is
more relevant to those businesses in the segments which produce larger and more
sophisticated machines or have long-term government contracts, primarily in the
Diversified segment as well as the Heil companies from the Industries segment
and the CBAT and SEC companies from the Technologies segment. Total Company
backlog as of December 31, 2002 and 2001 was $687.9 million and $728.3 million,
respectively.
COMPETITION
Dover's competitive environment is complex because of the wide diversity of
products manufactured and markets served. In general, most Dover companies are
market leaders which compete with only a few companies and the key competitive
factors are customer service, product quality and innovation. In addition, since
most of Dover's manufacturing operations are in the United States, Dover usually
is a more significant competitor domestically than in foreign markets.
In the Dover Technologies segment, Dover competes globally against a few very
large companies, primarily operating in Japan, Europe and the Far East. Its
primary competitors are Japanese producers, including Fuji Machine, Panasonic
and TDK, and European manufacturers like Philips and Siemens.
Within the other segments, competition is primarily domestic, although an
increasing number of Dover companies see more international competitors and
several serve markets which are predominantly international, particularly
Belvac, L&E, Quartzdyne, RPA Process Technologies, Tipper Tie, Tranter, and
Waukesha.
INTERNATIONAL
For foreign sales, export sales and an allocation of the assets of the Company's
continuing operations, see Note 14 to the Consolidated Financial Statements in
Item No. 8 of this Form 10-K.
Although international operations are subject to certain risks, such as price
and exchange rate fluctuations and foreign governmental restrictions, Dover
intends to increase its expansion into foreign markets including South America,
Far East and Eastern Europe.
The countries where most of Dover's foreign subsidiaries and affiliates are
based are France, Germany, the U.K., The Netherlands, Sweden and Switzerland,
and to a lesser extent, China.
ENVIRONMENTAL MATTERS
Dover believes its operations generally are in substantial compliance with
applicable regulations. In a few instances, particular plants and businesses
have been the subject of administrative and legal proceedings with governmental
agencies or private parties relating to the discharge or potential discharge of
regulated substances. Where necessary, these matters have been addressed with
specific consent orders to achieve compliance. Dover believes that continued
11 of 79
compliance will not have any material impact on the Company's financial position
going forward and will not require significant capital expenditures.
EMPLOYEES
The Company had approximately 25,000 employees as of December 31, 2002.
OTHER INFORMATION
Dover makes available free of charge through the "Financial Reports" link on its
Internet website, http://www.dovercorporation.com, the Company's annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
any amendments to the reports. Dover posts each of these reports on the website
as soon as reasonably practicable after the report is filed with the Securities
and Exchange Commission. The information on the Company's Internet website is
not incorporated into this Form 10-K.
ITEM 2. PROPERTIES
The number, type, location and size of the Company's properties as of December
31, 2002 are shown on the following charts, by segment.
Number and Nature of Facilities Square Footage (000's)
-------------------------------- ----------------------
Ware- Sales/
Segment Mfg. house Service Owned Leased
- ------ --- ----- ------- ----- ------
Diversified 50 19 51 3,329 1,096
Industries 51 11 29 3,812 1,101
Resources 66 15 39 2,671 642
Technologies 74 22 168 1,811 1,837
Locations Leased Facilities
-------------------------------- -----------------------
North expiration dates (years)
American European Other Minimum Maximum
-------- -------- ----- ------- -------
Diversified 52 44 6 1 19
Industries 74 13 3 1 12
Resources 86 10 7 1 12
Technologies 79 67 98 1 20
The facilities are generally well maintained and suitable for the operations
conducted. During 2002 and 2001, excess capacity rapidly developed within the
Technologies segment, and to a much lesser degree within the other three
segments. During the year 2002, steps were taken to reduce capacity where
appropriate.
ITEM 3. LEGAL PROCEEDINGS
A few of the Company's subsidiaries are involved in legal proceedings relating
to the cleanup of waste disposal sites identified under Federal and State
statutes which provide for the allocation of such costs among "potentially
responsible parties." In each instance the extent of the Company's liability
appears to be very small in relation to the total projected expenditures and the
number of other "potentially responsible parties" involved and is anticipated to
be immaterial to the Company. In addition, a few of the Company's subsidiaries
are involved in ongoing remedial activities at certain plant sites, in
cooperation with regulatory agencies, and appropriate reserves have been
established.
The Company and certain of its subsidiaries are also parties to a number of
other legal proceedings incidental to their businesses. Management and legal
counsel periodically review the probable outcome of such proceedings, the costs
and expenses reasonably expected to be incurred, the availability and extent of
insurance coverage and established reserves. While it is not possible at this
time to predict the outcome of these legal actions, in the opinion of
12 of 79
management, based on these reviews, it is remote that the disposition of the
lawsuits and the other matters mentioned above will have a material adverse
effect on the Company's financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders in the last
quarter of 2002.
EXECUTIVE OFFICERS OF THE REGISTRANT
All officers are elected annually at the first meeting of the Board of Directors
following the annual meeting of stockholders and are subject to removal at any
time by the Board of Directors. The executive officers of Dover as of February
28, 2003, and their positions with the Company (and, where relevant, prior
business experience) for the past five years are as follows:
Name Age Positions Held and Prior Business Experience
---- --- --------------------------------------------
Thomas L. Reece 60 Director, Chairman of the Board (since May 1999), President and Chief Executive
Officer, Dover Corporation
Lewis E. Burns 64 Vice President of Dover and President of Dover Industries, Inc.
Charles R. Goulding 52 Vice President, Taxation (since August 1998); prior thereto for more than five
years Director of Taxation, Dover Corporation.
Ronald L. Hoffman 54 Vice President of Dover and President of Dover Resources, Inc., (since January
1, 2002); prior thereto Executive Vice President of Dover Resources, Inc. since
May 2000 and prior thereto for more than five years President of Tulsa Winch, a
subsidiary of Dover Resources, Inc.
Robert G. Kuhbach 55 Vice President, Finance, Chief Financial Officer and Treasurer (since November
2002); prior thereto for more than five years Vice President, General Counsel
and Secretary of Dover Corporation.
Raymond T. McKay, Jr. 49 Controller (since November 2002); prior thereto Assistant Controller, Dover
Corporation since June 1998 and prior thereto for more than five years, Manager
of Financial Reporting, Dover Corporation.
John E. Pomeroy 61 Vice President of Dover and President of Dover Technologies International, Inc.
Joseph W. Schmidt 56 Vice President, General Counsel & Secretary of Dover Corporation (since January
1, 2003); prior thereto for more than five years partner in Coudert Brothers LLP
(a multi-national law firm).
Robert A. Tyre 58 Vice President-Corporate Development, Dover Corporation.
Jerry W. Yochum 64 Vice President of Dover and President of Dover Diversified, Inc.
Maynard C. Wiff 48 Vice President of Information Technology, Dover Corporation (since February 14,
2002); prior thereto for more than five years Vice President of Information
Technology at Universal Instruments, a subsidiary of Dover Technologies
International, Inc.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The principal market in which the Company's Common Stock is traded is the New
York Stock Exchange. Information on the high and low sales prices of such stock,
and the frequency and the amount of dividends paid during the last two years is
as follows:
Dover Corporation Common Stock
Cash Dividends and Market Prices (1)
2002 2001
---- ----
Market Prices Dividends Market Prices Dividends
High Low Per Share High Low Per Share
----------------------------------- -----------------------------------
FIRST $ 43.55 $ 34.05 $ .135 $ 42.50 $ 33.81 $ .125
SECOND 41.19 32.78 .135 43.55 33.40 .125
THIRD 35.00 24.40 .135 38.90 26.40 .135
FOURTH 32.20 23.54 .135 39.00 28.71 .135
-------- -------
$ .54 $ .52
(1) As reported in the Wall Street Journal
The number of holders of record of the Company's Common Stock as of March 5,
2003, as shown by the records of the Company's transfer agent was approximately
16,000. This figure includes participants in the Company's 401(K) program.
On November 15, 2002, pursuant to the 1996 Non-Employee Directors' Stock
Compensation Plan, the Company issued an aggregate of 9,800 shares of its Common
Stock to its seven U.S. resident outside directors (after withholding an
aggregate of 4,200 additional shares to satisfy tax obligations), and the
Company issued an aggregate of 2,000 shares of its Common Stock to its non-U.S.
resident outside director who was not subject to U.S. withholding tax, as
compensation for serving as a director of the Company during 2002.
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ITEM 6. SELECTED FINANCIAL DATA
Dover Corporation and Subsidiaries financial information for the years 1998
through 2002 is set forth in the following 5-year Consolidated Table.
5 -YEAR CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
(in thousands, except per share figures) 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 4,183,664 4,368,415 5,064,805 4,125,824 3,636,754
Net earnings from continuing operations 211,149(1) 181,831(2) 513,523(3) 386,287 305,837
Net earnings (losses) per common share:
Basic - Continuing operations $ 1.04 0.90 2.53 1.85 1.37
- Discontinued operations (0.19) 0.32 0.03 2.59 0.33
-----------------------------------------------------------------
- Total net earnings before cumulative effect of
change in accounting principle 0.85 1.22 2.56 4.44 1.70
- Cumulative effect of change in accounting
principle (1.45) - - - -
------------------------------------------------------------------
- Net earnings (losses) $ (0.60) 1.22 2.56 4.44 1.70
==================================================================
Diluted - Continuing operations $ 1.04 0.89 2.51 1.83 1.36
- Discontinued operations (0.20) 0.33 0.03 2.58 0.33
------------------------------------------------------------------
- Total net earnings before cumulative effect of
change in accounting principle 0.84 1.22 2.54 4.41 1.69
- Cumulative effect of change in accounting
principle (1.44) - - - -
------------------------------------------------------------------
- Net earnings (losses) $ (0.60) 1.22 2.54 4.41 1.69
==================================================================
Dividends per common share $ .54 .52 .48 .44 .40
Weighted average number of common shares outstanding:
- Basic 202,571 202,925 202,971 209,063 222,793
- Diluted 203,346 204,013 204,677 210,679 224,386
Return on average equity 8.8% 7.9% 25.7% 23.9% 22.7%
Acquisitions (economic cost basis) $ 100,138 281,819 506,251 599,171 556,019
Capital expenditures $ 100,732 162,532 183,746 117,333 104,542
Depreciation and amortization $ 161,003 213,494 184,224 163,575 147,766
Cash flows from operating activities $ 394,915 683,280 535,756 431,548 496,226
Cash flows (used in) investing activities $ (184,072) (422,619) (588,416) (655,213) (646,975)
Cash flows from (used in) financing activities $ (140,299) (545,006) 411,283 (898,834) 153,598
Total assets $ 4,388,171 4,507,334 4,555,035 3,802,412 3,060,863
Long term debt $ 1,030,299 1,031,744 630,168 605,452 603,711
Total debt $ 1,054,060 1,075,257 1,472,237 903,118 1,037,077
All results and data in this section reflect continuing operations, which
exclude discontinued operations unless otherwise noted. See Note 6 to the
Consolidated Financial Statements.
"Return on average equity" is calculated by dividing net earnings from
continuing operations, adjusted for the sale of businesses and marketable
securities in 2000 and 1999, by a average current year stockholders' equity
adjusted for discontinued operations.
"Acquisitions (economic cost basis)" represents the acquisition purchase price
adjusted for long-term debt assumed and cash acquired on the date of
acquisition. The economic cost basis measure is used because it more accurately
reflects "total" purchase price.
(1) Includes restructuring charges of $28.7 million and $12.0 million of
inventory charges.
(2) Includes restructuring charges of $17.2 million and $63.8 million of
inventory charges.
(3) Includes gain on sale of marketable securities of $13.7 million.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY
Dover Corporation had net earnings from continuing operations for 2002 of $211.1
million or $1.04 diluted earnings per share (DEPS) compared to $181.8 million or
$.89 DEPS from continuing operations in 2001. Earnings from continuing
operations (net of tax) included inventory, restructuring and other charges of
$25.3 million or $.12 DEPS in 2002 and $52.6 million or $.26 DEPS in 2001. For
2002, net earnings before changes in accounting principles were $171.8 million
or $.84 DEPS, including $39.4 million or $.20 DEPS in losses from discontinued
operations, compared to $248.5 million or $1.22 DEPS in 2001 which included
$66.7 million or $.33 DEPS in earnings from discontinued operations which was
primarily the result of gains from the sale of AC Compressor and DovaTech
businesses.
For 2002, the net loss was $121.3 million or $.60 DEPS compared to earnings of
$248.5 million or $1.22 DEPS in 2001. 2002 results include the impact of the
adoption of Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142). The adoption resulted in a goodwill
impairment charge of $345.1 million ($293.0 million net of tax or $1.44 DEPS)
which was recognized as the cumulative effect of a change in accounting
principle in the first quarter of 2002. The adoption of SFAS 142 also included
the discontinuance of the amortization of goodwill, effective January 1, 2002.
Goodwill amortization, adjusted for discontinued operations, totaled $42.2
million net of tax or $.21 DEPS for 2001.
Sales for 2002 were $4,183.7 million compared to $4,368.4 million last year, a
decrease of 4%. Gross profit of $1,360.3 million for the year 2002 was down 2%
compared to the prior year's comparable amount of $1,386.3 million. This decline
was primarily due to the impact on Dover Technologies of the market contraction
in demand for its products serving the electronics industry. At the same time,
many of the industrial businesses in the other three operating segments were
negatively impacted by the slowdown in general economic activity. However, the
gross profit margin of 33% for 2002 compared favorably to 32% in 2001. Operating
profit of $341.6 million improved 7% compared to $320.3 million in 2001. As a
percentage of sales, operating profit in 2002 was 8% compared to 7% in 2001.
Comparisons to the prior year benefited from the discontinuation of goodwill
amortization in accordance with SFAS No. 142.
Segment earnings of $365.4 million improved 2% from $358.0 million in the prior
year. Diversified's earnings of $133.1 million improved 39% compared to the
prior year on a 7% sales increase to $1,192.1 million. In the Industries segment
earnings increased 4% to $147.6 million on a 3% sales decline to $1,124.0
million. Resources' earnings improved 1% to $115.1 million on a 7% sales
decrease to $837.4 million. In the Technologies segment a loss for 2002 of $30.3
million compared to 2001 earnings of $5.6 million, and reflected a 13% sales
decline to $1,036.5 million. For 2002, Diversified had margins of 11%, up two
points and Industries produced margins of 13%, an improvement of one percentage
point. Resources' margins improved one percentage point to 14%. Technologies'
negative margins of 3% compared to break-even margins in the prior year.
Dover's tax rate for continuing operations was 21.7% for 2002 and 29.8% in 2001.
The lower effective tax rate in 2002 was attributable to three factors. First,
the Company continued to benefit from tax credit programs, such as R & D,
foreign tax and the U.S. export program, which have been enhanced in the U.S.
and various other jurisdictions over the past two years. Second, the Company
implemented a reorganization of various entities. Third, the adverse impact
which market conditions have had on the Company, particularly in connection with
its adoption of SFAS 142, has provided the Company with the ability to identify
and recognize related tax benefits.
Interest expense of $70.0 million for the year ended 2002 was down 23% compared
to the prior year primarily due to lower levels of commercial paper borrowings
throughout 2002. Interest income declined in 2002 compared to the prior year,
which included $5.0 million related to a U.S. Federal tax settlement.
All other net income or expense declined $20.9 million for 2002 compared to the
prior year total, which included an insurance recovery of $6.4 million in the
Diversified segment. Foreign exchange losses of $6.3 million for 2002 compared
to gains of $1.3 million in the prior year. Current year losses were due to
unfavorable exchange rate movements primarily involving the Euro.
Restructuring and Inventory Charges
-----------------------------------
In 2002, the Company initiated restructuring programs at selected operating
companies with ongoing efforts to reduce costs in the continually challenging
business environments in which the Company operates. The total restructuring
charges related to these programs in 2002 were $28.7 million. The restructuring
charges included both employee separation costs of $11.9 million and costs
associated with exit activities of $16.8 million. The restructuring in
Technologies took place in the CBAT and SEC groups, in response to the
significant declines in the end-markets served by these operations.
16 of 79
CBAT recorded $6.6 million for employee separation and $11.2 million for exit
activities. The majority of the severance and exit costs were incurred at
Universal, Everett Charles and DEK. The facility exit costs are comprised of
lease terminations and idle equipment impairments. SEC recorded $2.5 million for
employee separation and $3.6 million for facility exit activities, a majority of
which costs were incurred at Quadrant and Novacap. Industries recorded
restructuring charges of $3.7 million, of which $2.1 million was incurred to
exit an under-performing product line at Tipper Tie. The remaining $1.6 million
was for employee separation and other exit costs. Diversified recorded $1.1
million of restructuring charges to rationalize its SWF business of which $0.8
million was for severance.
During 2001, the Company initiated various restructuring programs in response to
the downturn in the end markets served within its Technologies segment and to
reduce the overall cost structure in the Diversified, Industries and Resources
segments. The total restructuring charges related to these programs in 2001 was
$17.2 million. The restructuring charges included both employee separation costs
of $11.7 million and $5.5 million for exit costs. The Technologies segment
recorded restructuring charges in CBAT primarily for costs associated with
employee separation of $5.1 million. In addition, as a result of the downturn in
the end markets served, CBAT recorded charges of $1.4 million for exit costs.
SEC also announced restructuring programs, primarily related to the closure of
two European operations that were facing difficult market conditions, for $1.0
million. In addition, SEC recorded charges of $0.9 million for employee
separation costs. Imaje also recorded employee separation costs of $1.0 million
for certain management employees due to a change in strategic focus. The
Diversified segment recorded restructuring charges for employee separation costs
of $3.1 million and facility exit costs of $2.4 million related to the closure
of two North American facilities that were experiencing declining volume,
pricing pressure and excess capacity concerns. The Industries segment recorded
charges of $2.0 million to restructure its Rotary Lift European operations and
the Resources segment recorded $0.3 million to restructure its De-Sta-Co
operating company.
Restructuring charges for continuing operations were primarily recorded as
selling and administrative expenses. The employee separation programs for
continuing operations announced have involved approximately 3,280 employees, 88%
of whom have been terminated as of December 31, 2002. As a result of the
severance programs, the Company anticipates annual cost savings of approximately
$25 to $35 million. The Company expects to complete the restructuring programs
undertaken in 2002 by the end of 2003 and the majority of the 2001 restructuring
programs were completed by December 31, 2002.
Due to significant declines in the demand for certain products, special
inventory reserves of $63.8 million were established in 2001, primarily in the
Technologies segment and to a lesser degree in the Diversified and Resources
segments. Certain additions to these reserve balances were made in 2002 for
approximately $12.0 million in the Technologies and Diversified segments.
DOVER DIVERSIFIED
Dover Diversified's earnings increased 39% in 2002 to $133.1 million on a 7%
sales increase to $1,192.1 million. Implementation of lean initiatives,
operational improvements, and cost reduction efforts helped the earnings
increase, as well the absence of $18.1 million in restructuring, inventory, and
other charges taken in 2001. The impact of goodwill amortization on earnings for
the full year 2001 was $14.4 million. Segment profit margins improved to 11%
from 9%. A significant turnaround at Crenlo, strong earnings growth at Hill
Phoenix, and PMI gains accounted for a large portion of the earnings
improvement, which were somewhat offset by declines at SWF, L&E, Tranter, Mark
Andy, Waukesha, and Sargent.
Hill Phoenix's financial performance improved significantly in 2002, setting new
records in sales, earnings, and cash flow, leading Diversified in each of these
three categories. This was accomplished through ongoing market share gain in
recent years and benefiting from their largest customer's continuing expansion
programs. Market share improved to 18% in 2002 from 14% in 2001. This growth was
the result of being well positioned with the fastest growing customers as well
as securing new key accounts. Aggressive cost reduction initiatives at the
Refrigeration Division were a major contributor to the company's margin
improvement in 2002. Hill Phoenix enters 2003 looking forward to another
positive year as the capital programs of their core customer base are expected
to remain strong.
Tranter ended 2002 with a weak fourth quarter that left earnings and margins
below 2001, despite a record sales and bookings year. Tranter is highly
dependent on industrial capital spending, which remained weak in 2002. After
years of stable margins, the past two years have seen significant margin
erosion. A soft U.S. and European economy reduced total orders in the
marketplace, and led to stronger price competition for the orders that were
available. Tranter's markets are not expected to improve significantly in 2003,
and cost reduction actions are planned to better handle periods of declining
prices and lower volumes. Tranter's three business units, SWEP, Tranter
Radiator, and Tranter PHE, will report as independent operating companies of
Diversified beginning in 2003.
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Crenlo achieved a significant earnings improvement in 2002, turning sizable 2001
losses into a modest profit. The focus at Crenlo in 2002 was a return to
profitability through lean manufacturing initiatives, resulting in reduced
headcount and improvements in productivity and first pass yield. Cost reduction
efforts in the material acquisition area, including value-engineering efforts,
resulted in savings of over $2 million. Additionally, the inventory reserves
taken in 2001 were not repeated in 2002. These cost saving programs fueled the
significant earnings improvement with little additional sales volume. The focus
in 2003 will be to increase volume with new product introductions and expansion
of the specialty enclosure business. In general, the Cab and Commercial markets
remain soft with recovery not anticipated until at least the second half of
2003.
Sargent's 2002 earnings were down consistent with a decrease in sales volume.
The weakened commercial aircraft market negatively impacted the company's core
business, offset somewhat by the Marine Division's record earnings year fueled
by an active military market. Margins fell in 2002 due largely to a shift in
product mix and lower volume. The Sonic business was depressed by airline losses
and a 28% reduction in production at their largest customer. 2003 will be
another challenging year for Sargent, as the aircraft industry shows no signs of
a quick recovery. Growth in repair and overhaul sales to the aftermarket is
anticipated, but are not expected to make up for lower shipments to the aircraft
OEM's.
Mark Andy's printing equipment market continued to be weak for most of 2002 and
operational earnings decreased. Sales were higher than prior year due mainly to
having a full year's impact of the March 2001 acquisition of Comco. Improved
integration of the Comco product line was a focus in 2002, as a new sales
organization was introduced and was successful in gaining orders late in the
year. The printing market improved slightly in late 2002, allowing bookings and
backlog for label presses in the U.S. to improve in the fourth quarter. However,
the printing market is projected to show only gradual improvement throughout
2003. After three years of declining sales and earnings, new management and
improved processes/products at Van Dam in the Netherlands resulted in increased
earnings in 2002. The GMI division secured preferred partner status with a large
press supplier in 2002, as well having their products selected as the standard
platform for the future by two of the world's largest printing companies. The
Mark Andy structure will change in 2003 as GMI will report as a separate
Diversified operating company.
Waukesha Bearings' earnings decline of 10% was caused by the collapse of the
power generation market for large bearing products. Backlog at year-end was
significantly down due to low bookings and cancelled orders throughout the year
from key customers. Waukesha's two other divisions, Hydratight Sweeney and
Central Research Labs, both had modest sales and earnings increases as their
markets, oil/gas and nuclear waste cleanup, remained fairly stable throughout
2002. In response to the bearing market decline, the Bearings division shutdown
one small facility in the U.K. and consolidated their large bearing production
into one plant in the U.S., resulting in a 25% headcount reduction. The lean
manufacturing culture was enhanced throughout all operations with expected
benefits of increased productivity, plant capacity, and reduced working capital
moving into 2003.
PMI achieved their sixth consecutive record year in sales and earnings. This
accomplishment was made in spite of a weak fourth quarter, as their usual pickup
in advance of the 2003 racing season did not occur. Also, the last few years of
mild winters in the Midwest hurt their seasonal sales of pistons to the
snowmobile market. Investments were made in the U.K. in both a European sales
office and a new Technology Center to promote and market their products in this
key region of the racing world. Successful integration of past acquisitions has
positioned PMI well in the market, increasing product offerings and
strengthening their distribution channels. In late December, PMI acquired
Chambon S.A. of St. Etienne, France, a manufacturer of premium crankshafts for
the Formula 1 market. The addition of Chambon gives PMI the ability to offer a
complete rotating assembly to the engine market.
SWF had a disappointing year as restructuring costs related to plant
consolidations and product rationalization were incurred, in addition to high
warranty expense to correct a number of large equipment projects. The weak
packaging machinery market continued throughout 2002, and sales for SWF
decreased when compared to last year. With under-performing assets reduced, the
lower cost structure and the implementation of lean manufacturing programs
should positively impact margins throughout 2003. Improved project selection and
pricing strategies have been implemented to focus on their core business where
acceptable profit margins can be attained.
Belvac ended the year on a positive trend resulting in their highest annual
bookings in five years. As the only independent global supplier of can forming
equipment, Belvac's recent success has been in the international market,
especially Russia and Eastern Europe, where can manufacturing and consumer
demand is growing. A significant part of their business includes spares and
retrofits that improve the productivity of their customers' equipment. Belvac is
well known for their proprietary technology, which provides them with a strong
position in the market. Further investment and advancement in their plastic
container equipment is beginning to complement their can forming business, and
is opening up new opportunities for growth.
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Langbein & Engelbracht located in Bochum, Germany, reported a small loss for
2002 on a 12% decline in sales. The largest volume decrease was in the
Automotive division where a poor European economy and intense competitive
pricing caused negative results. Their focus is on cost control, reduced
headcount, and expanded outsourcing of project work to lower cost countries. A
new entity was created in China in 2002 to develop opportunities for both
outsourcing and new business in this growing market.
DOVER INDUSTRIES
Dover Industries sales declined 3% to $1,124.0 million, as market weakness seen
in 2001 continued in 2002. Heil Environmental, Heil Trailer, Chief and Dovatech
experienced the largest sales declines. Earnings of $147.6 million, which were
4% above 2001 levels, were impacted by restructuring charges of $3.7 million
related to plant closings and the exiting of certain product lines. Segment
margins improved slightly to 13%. The impact of goodwill amortization on
earnings for the full year in 2001 was $14.6 million.
Heil Environmental's performance declined in 2002 as a soft market, reductions
in municipal budgets for refuse collection vehicles, and new engine emission
regulations combined to curtail sales. A majority of municipalities redirected
funds initially targeted for refuse collection equipment to support security and
emergency response infrastructure. In addition, many private, municipal and
large retail haulers postponed chassis purchases due to concerns regarding the
performance of new engines mandated by the new emission regulations. Countering
these negative trends, Environmental introduced a number of new products to
address customer needs and downsized their workforce given the lower volumes. A
management change was also initiated as a new President was named who had
previously been in charge of Rotary Lift. A number of new product introductions,
growth in our dump body group and strong European growth should lead to improved
performance in 2003.
Heil Trailer's sales and earnings declined for the third consecutive year. The
domestic bulk trailer industry remained slow for the entire year impacted by the
slowest petroleum trailer market in the past 7 years. In addition, military
sales were negatively impacted by delays in government testing, but should
provide a boost in 2003 and beyond. Trailer once again managed to increase share
in both the petroleum and dry bulk trailer markets in the face of intense
competitive pressures, driven by over capacity and a slow market. A strong focus
on global markets resulted in Trailer's international businesses contributing
almost one quarter of their profits this year. Plans are in place to expand
production in Eastern Europe which should further benefit Trailer's overseas
performance.
Rotary Lift, one of Industries largest sales and earnings contributors, again
delivered improved sales and earnings. Helped by zero percent financing driving
car sales, Rotary capitalized on its ability to provide innovative solutions and
nationwide service, and grew its car program business over 20%. Faced with a
stagnant market and increasing competition from low-cost Asian competitors,
Rotary was once again able to grow market share. Rotary's focus on cost
reduction allowed it to hold margins in a tough pricing environment.
Additionally, its focus on providing productivity based solutions, as evidenced
by their inbay(TM) product, has insulated them to some degree from the pricing
pressures seen at the commodity end of the business.
Marathon entered the year facing a depressed waste management market which
continued to slide throughout 2002 and is now down 33% over the last two years.
However, Marathon was able to grow market share and increase both sales and
earnings while maintaining margins at above historical levels. Leveraging its
broad product line enabled them to add new customers and gain additional
business, even with an industry that saw an increase in internet auctions and
severe pricing pressure. This was made possible through Marathon's strong
engineering focus, which they have parlayed to develop customer-friendly
products to meet the individual needs of waste haulage and chain store accounts.
Tipper-Tie rebounded somewhat from a weak 2001, driven by a strong performance
by their overseas subsidiary. Technopack, along with Alpina, a recent European
acquisition, enjoyed a record year with sales of equipment, clips and loops all
at record levels. This performance improvement was primarily driven by Eastern
European demand. Tipper U.S. had a more difficult year as sales of equipment and
clips slipped. However, second half results were promising and are expected to
continue in 2003, allowing for improvement in the U.S. markets. Late in the
year, Tipper decided to eliminate a small product line, which negatively
impacted profits in 2002, but will contribute positively to performance in 2003.
With the vehicle wash equipment market softening significantly, PDQ saw both
investors and corporate oil companies reduce their purchases in 2002. Oil
company consolidation took its toll on sales, while the investor market was hurt
by a difficulty in obtaining financing. As a result, for the first time since
they were purchased by Dover in 1998, PDQ had a down year. Sales and earnings
saw declines versus a record 2002, although they were flat compared to 2001.
However, PDQ was still able to grow share. In addition, new products along with
the implementation of `lean manufacturing' initiatives allowed PDQ to hold
margins as well. Industry uncertainty and a low backlog will lead to a slow
first half, but a stronger second half is expected.
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Triton, a company acquired in 2000, improved significantly versus a weak 2001.
Although the U.S. market was relatively flat, Triton's share improved behind the
successful introduction of their '9100' product, a product focused on the
broadest segment of the cash dispenser market. This product contributed more
than 50% of unit sales since its mid-year introduction. New products introduced
into the other segments of the market also contributed. Triton's results
internationally were also positive, lead by strong results in the U.K. Overall
margins rebounded to 2000 levels behind increased sales and a reduced cost
structure. Looking forward, initiatives begun in 2002, such as a focus on
recurring revenue, along with market growth overseas and continued new product
development, should lead to an even stronger 2003.
The DI Foodservice Companies, which include Groen, Randell and Avtec, finished
the year with flat sales and earnings. Declining tax receipts in most states and
municipalities led to a slowdown in Groen's institutional foodservice equipment
market while Randell's markets were impacted by cutbacks in new foodservice
chain start-ups. The newly identified DI Foodservice team is currently assessing
various consolidation and synergy prospects which should impact favorably on
2003 performance. A change in the way they go to market put in place toward the
latter part of 2002 is expected to show dividends as well.
Kurz-Kasch, which was acquired in 2001, and whose primary products include
electromagnetic stators and specialty plastics, saw margins decline (versus
record levels in 2001) on relatively flat sales. Increased quality and
engineering specifications imposed by customers, along with a weak market,
contributed to the margin deterioration. A strong first half is expected in 2003
as the world demand for heavy-duty trucks stabilizes along with improvements on
the plastics side of the business driven by new business and synergies
associated with a recent product line acquisition.
Chief had a disappointing year in 2002 as both sales and earnings were down
significantly. Softness in the economy coupled with changing insurance industry
trends negatively impacted buying decisions. A combination of more cars being
'totaled' and customers foregoing repairs to avoid higher insurance premiums has
hurt the industry. Recognizing this market shift, Chief has undergone a number
of strategic changes to better serve its markets going forward. These include
consolidating domestic channels of distribution, adding an inside sales support
function, streamlining product offerings, and revising current approaches to
installation, training, and service. Costs associated with these initiatives had
a major impact on 2002 performance. Although the market is expected to contract
again in 2003, these new initiatives are expected to lead to improved
performance.
Somero's performance suffered from the third year of double-digit market
declines with non-residential building down 17% and industrial construction off
45%. As a result, sales of their primary product, large laser screeds, were down
significantly. They successfully introduced the 'CopperHead' in 2002, a new
product that primarily serves the upper deck and smaller floor concrete
screeding markets. This is expected to open their market to smaller contractors,
and partially offset continued weakness expected in the large screed market.
Dovatech, which consists of laser and chiller businesses, experienced difficult
market conditions leading to double-digit sales declines. The chiller businesses
are expected to improve in 2003 as the second half of 2002 began to show an
upturn, while the laser businesses are counting on a number of new product
introductions to contribute, although later in the year.
DOVER RESOURCES
Dover Resources 2002 sales declined 7% or $60.0 million to $837.4 million
primarily driven by declines in the oil and gas production markets served by the
Petroleum Equipment Group and C. Lee Cook. Capital spending weakened in most
markets and distributors reduced inventories. Earnings increased by 1% or $0.9
million to $115.1 million. Full year results for 2001 included $7.1 million of
inventory, restructuring and other charges. No comparable charges were recorded
in 2002. Positive operating leverage (increased margins on flat to down sales)
at most companies resulted from cost reduction in operating expense and
implementation of lean manufacturing programs. The impact of goodwill
amortization on earnings for the full year in 2001 was $10.3 million. Operating
margins were 14%, up from 13% in 2001.
The market for the Petroleum Equipment Group was weak during 2002. Sales were
down approximately 21% and earnings were off over 36%. Commodity prices remained
high but drilling activity was down significantly as capital spending by oil
companies was reduced. The core products of Norris and Alberta Oil Tool (AOT)
saw a decline in international sucker rod sales but AOT drive rod sales remained
strong. Continued penetration in the sucker rod guide and premium coupling
markets should enhance future results as oilfield activity levels increase.
Ferguson Beauregard's plunger lift and automation products were off from the
prior year. Norriseal's sales and earnings were also below last year with an
unfavorable product mix.
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The industrial pump companies (Blackmer and Wilden) recorded a 3% sales increase
and a 19% earnings increase driven by a favorable product mix, innovative new
products and operational improvements resulting from lean manufacturing
initiatives. Blackmer gains were driven by increased sales at government
accounts, System One sales, and improved performance in Europe. Blackmer
continues to implement lean manufacturing initiatives and consolidated its
Oklahoma City compressor operations into its System One facility in
Massachusetts. Wilden Pump benefited from improved sales of its new food line
and plastic bolted series pumps. Wilden domestic sales were flat but
international sales to the Far East were up significantly. Wilden is
establishing a wholly owned foreign entity in China that will strengthen their
presence in that region.
OPW Fueling Components maintained sales in 2002 equal to prior year, primarily
as a result of two product line acquisitions made early in the year. Overall,
earnings were below prior year levels even though overhead structures were
reduced. Sales and earnings increases were achieved in every market outside the
U.S. with extremely strong growth in Latin America and Asia Pacific. These
increases were not enough to offset the declines caused by reduction in new
service station construction in the U.S. markets. Industry consolidation at
manufacturers, customers, and distributors accelerated in 2002. The
consolidations at major oil companies and financial failure at several major
convenience store chains provided an opportunity for customers to buy stations
at reduced prices versus building new stations. Brevetti-Nettuno, an Italian
manufacturer of LPG nozzles, was acquired to broaden product offerings for
alternative fuels. The acquisition of the Emco Electronics product line by Petro
Vend has moved OPW into a much stronger market position in electronic tank
gauging. These units were fully integrated in 2002 and now position Petro Vend
to be a much stronger global player in this expanding market. The continued
development of products to meet new environmental regulations began to pay
dividends in 2002 and these regulations are being adopted by markets outside
California.
OPW Fluid Transfer Group improved earnings on reduced sales in 2002 as cost
reduction initiatives implemented in 2001 produced positive results and improved
margins. The depressed bulk cargo tank and railcar markets hampered U.S. growth
but European sales set a new record. Although chemical processing markets were
down, renewed emphasis was placed on new products to existing customers. OPW
Fluid Transfer Group is continuing product development and customer focus
initiatives to drive improved results in 2003 despite the current market
conditions.
De-Sta-Co Industries leveraged 9% earnings growth on flat sales due to full year
results of on-going cost reduction initiatives. The automation products demand
grew in support of new vehicle model introductions in the automotive market.
Industrial market clamps sales are slowly improving as customers implement new
tooling programs to reduce set-up costs. Electronic market sales remain severely
depressed. De-Sta-Co Industries expanded their Asian operations and now have
cost effective facilities operating on all major continents.
C. Lee Cook sales and earnings were off significantly as demand from gas
compressor OEM's and aftermarket requirements slowed. Service work on existing
field products maintained levels similar with last year. A new service center
for the West Coast was opened and manufacturing expansions were completed that
will support future growth. The Manley valve business had operating results
equal to the prior year on slightly reduced sales volume. The longer-term
outlook for Cook products continues to be very favorable as gas production and
processing activity increases.
The Tulsa Winch Group was challenged in 2002 by significant declines in
construction equipment markets, aerial lift markets, and a slow petroleum
market. Strong cost reduction efforts maintained solid operating margins and
position the company to benefit as market conditions improve. The military winch
business remains strong and is driven by long-term contracts. The crane overload
protection products are targeting new applications in the higher volume, smaller
capacity mobile crane market.
Quartzdyne had record sales in 2002, as they gained new customers and increased
their applications into the measurement while drilling market. Investments were
made to vertically integrate their manufacturing processes. Quartzdyne continues
to develop new quartz based sensor technologies to serve the high temperature
and high pressure markets that will support future growth.
Hydro Systems posted record earnings on slightly reduced sales led by improved
earnings at Nova Controls and continued expansion in European markets. The
industrial cleaning market served by Hydro was slightly depressed this year due
to slower hotel and restaurant business. Hydro has a strong pipeline of new
products that is expected to drive future growth.
RPA Process Technologies (RPA) experienced significant delays in capital
spending from its customer base in 2002. Sales and earnings were both off
significantly with its European unit only contributing with major project
shipments in the fourth quarter. RPA implemented significant process
improvements during the year that should drive better results as markets
improve.
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De-Sta-Co Manufacturing had flat sales and earnings with continued pricing
pressure from their automotive customer base. Sales slowed during the fourth
quarter in their automotive market as well as in their Hydro Cam tool and die
business. De-Sta-Co Manufacturing continues to work on new product initiatives
to broaden its exposure to new markets.
Duncan Industries had flat sales and earnings increased, and has positioned
itself for an upturn by reducing costs internally and through improvement in
quality and cost reduction initiatives with outside suppliers.
Wittemann was sold in the first quarter of 2003 at a very modest loss.
DOVER TECHNOLOGIES
Dover Technologies sales decreased 13% from 2001 levels to $1,036.5 million. As
a result, Technologies reported a loss of $30.4 million as compared to earnings
of $5.6 million for 2001. The impact of goodwill amortization on earnings for
the full year 2001 was $12.1 million. Included in the losses for 2002 and 2001
were $35.2 million and $43.3 million of charges, respectively, for
restructuring, inventory reserves and other charges. The strengthening of, and
the increased focus on, the medical, automotive and military markets were not
enough to offset the continued major softness in the computer and industrial
electronics market segments. Although, it appeared that a recovery was beginning
to take place in the spring of 2002, it became clear that this was not
sustainable for the remainder of 2002. Accordingly, the companies serving the
communications, computer and industrial electronics industries began to resize
their companies for profitability at the sales levels they were experiencing
during the second half of the year. By the end of the first quarter 2003, the
Circuit Board Assembly and Test (CBAT) businesses and the Specialty Electronics
Components (SEC) businesses will have reduced their workforces by 15% and 13%,
respectively, from the beginning of 2002. In addition, where warranted, the
companies have reduced their capacity needs to adapt to the current market
opportunities.
The most significant change at substantially all of the CBAT and SEC companies
has been the geographic shift in their markets. The year marked the continued
shift to Asia (with an emphasis on China) for Electronic Manufacturing Services
(EMS) companies, and China was the strongest of the telecommunications equipment
markets. By the end of 2003, substantially all of the CBAT companies will be
manufacturing in China either at their own facility or through subcontractors.
Where the strengths of the markets warrant, the SEC companies will have Asian
based sales offices and in certain cases manufacturing facilities. While the
American markets reflect stronger automotive, medical and military
opportunities, the Asian, and in particular China, markets offer the best
opportunity for telecommunication equipment and electronic assembly growth in
the near term.
CBAT
Technologies CBAT businesses recorded a loss of $49.2 million in the year 2002
which included inventory, restructuring and other charges of $25.9 million
compared to a loss of $61.8 million in 2001 which included inventory,
restructuring and other charges of $33.3 million. Sales for the year were $598.6
million, a decrease of $48.4 million or 7% from full year 2001 results.
Universal Instruments experienced a decline in sales of 15% from the prior year,
and recorded a slightly smaller loss than in 2001. In the third quarter,
Universal undertook an aggressive reorganization, including significant
reductions in staff, redefining its sales channels by current market
opportunities, tailoring specific products for high volume automotive
manufacturing, and opening a 100,000 square foot plant in China (which commenced
operation in February 2003). During 2002, the actions Universal took resulted in
its ability to maintain and actually increase its market share. Universal
continues to invest in significant product development to address future circuit
board and component placement needs.
DEK, though seeing a similar decrease in sales of 14% over 2001, still
maintained a market leadership position. It acquired Acumen, a manufacturer of
stencils in North America and Asia, giving DEK a global presence in an
increasingly important segment of the process consumables and tooling business.
DEK has expanded its capabilities to serve the semiconductor industry and is
manufacturing some of its product line in China.
Vitronics Soltec was able to maintain its sales at the 2001 level with the
release of a Selective Soldering product line, improving their competitive
position.
Everett Charles Technologies' sales increased slightly as its acquisition of
MultiTest was held for all of 2002 versus only seven months of 2001. The North
American test market remained very weak while customer new product introductions
(NPI) were also slow. ECT's probe and fixture business depend to a large degree
on customer NPI. ECT's two German bare board test equipment companies maintained
their sales levels and increased their profitability. The back-end semiconductor
test market showed some strengthening in the second half of 2002, up
significantly from the second half of 2001.
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OK International saw a smaller decline in sales for 2002 compared to 2001 and
reported a loss. OK depends to a large part on the overall electronics
manufacturing industry and its results reflected the softness in that market.
Alphasem reported a slight upturn in sales despite the overall decline in the
semiconductor industry. Alphasem manufactures die-bonding equipment for the back
end of the semiconductor industry. Despite its improved sales efforts, Alphasem
still reflected a comparable loss to 2001 as Alphasem tried to meet the demands
of new product innovation.
Dover Technologies acquired Hover-Davis in the fourth quarter of 2002.
Hover-Davis is the largest independent manufacturer of component feeding, direct
die feeding and label printing devices for the circuit board assembly market. It
sells its products directly to both OEM (including Universal Instruments) and
end users of placement equipment. Since it was acquired in the fourth quarter,
it did not have a significant impact on reported sales or earnings.
Entering 2003, the CBAT companies plan to operate at sales levels achieved in
the last half of 2002 as they believe it is not possible to forecast the timing
of an upturn at this point in time. Since the beginning of 2001, all of the CBAT
companies have reduced their operating costs significantly and are finding less
expensive sources for their materials or manufacturing locations. Their product
development is on track for addressing their customers' needs. Assuming no
further adverse trends, these companies expect to achieve modest levels of
profitability in 2003.
SEC
In Technologies' SEC companies, sales for the year were $205.6 million compared
to $341.6 million last year, a decrease of 40%. SEC reported a loss of $7.1
million in 2002 which included inventory, restructuring and other charges of
$9.9 million compared to earnings of $42.1 million in 2001 which included
restructuring and other charges of $10.2 million.
The SEC companies produce highly specialized, often custom designed, high-end
components used in a wide variety of electronic devices. During 2002, all of the
SEC companies began to shift their focus from predominantly serving the wired
and wireless telecommunications industry, to high-reliability medical, space,
avionics and military applications. Though there is a greater mix of industries
served today, the largest customer base still remains in the telecommunications
market. Much of the excess industry inventory built up during 2000 and early
2001 has been depleted. However, the telecom and datacom service providers are
still very cautious in their capital equipment spending as their business models
are changing and new Federal telecommunications regulations are being developed.
Although it is starting to become apparent that the imbedded communications
infrastructure systems and equipment are showing the stresses of increased
capacity and lack of investment over the past 24 months, it will be necessary
for the anticipated Federal regulations to evolve and a rationalization of the
business model of these telecom service providers to occur before growth in
capital spending will resume. The timing of this impact is unknown.
Quadrant's sales decreased significantly resulting in an operating loss for
2002. Quadrant, under a new President, began a major restructuring early in the
year to consolidate facilities, reorganize the company structure to better
address the changes in its customer base and product needs, and to right size
its workforce. It also has focused on the Asian market and in growing its high
reliability space and military positions.
The capacitor companies, Novacap and Dielectric, saw continued decreases in
their sales, as they both serve the telecommunications industries. However,
their specialty products have avionics, military and medical applications which
are showing growth. Novacap and Dielectric reported small losses mostly
attributable to write-off of excess equipment.
K&L Microwave saw a significant decrease in sales but was able to maintain a
slight profit. It was hard hit by the telecommunication downturn as it serves
the base station deployment customers. K&L has opened a facility in Nanjing,
China to provide telecommunication infrastructure products to the growing
Chinese and Asian markets. Dow-Key Microwave improved its earnings on relatively
flat sales. Dow-Key has a strong military and space program that continues to
see funding for product deployment.
While the near term future remains unclear in the telecommunications industry,
the SEC companies expect to be modestly profitable at 2002 sales levels, while
working to address a broader customer base and be a global supplier of custom,
high-end component products.
MARKING AND CODING
Imaje, the French-based industrial ink-jet printer and ink manufacturer, had
full year earnings of $49.8 million, down 7% from last year but still generated
the highest earnings of any Dover company. Sales were up 11% or $22.5 million
from last year. Imaje continued with the integration of its mid-2001 acquisition
of Markpoint, with sales increasing 11%. A new thermal printer line was rolled
out to the Imaje marketing channels. Imaje has strong global presence selling
direct in the majority of its markets while using distributors to expand its
reach to over 90 countries. As a result of a tight industrial market place in
Europe and the Americas, and the increasing mix of Markpoint products, which
utilizes somewhat less consumables in their marking, margins decreased from 26%
to 21%.
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In 2002, Imaje opened its new ink plant and research and development center at
its headquarters in Valence, France.
CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements and related public financial
information are based on the application of generally accepted accounting
principles in the United States of America ("GAAP"). GAAP requires the use of
estimates, assumptions, judgments and subjective interpretations of accounting
principles that have an impact on the assets, liabilities, revenue and expense
amounts reported. These estimates can also affect supplemental information
contained in the external disclosures of the Company including information
regarding contingencies, risk and its financial condition. The Company believes
its use of estimates and underlying accounting assumptions adhere to GAAP and
are consistently and conservatively applied. Valuations based on estimates are
reviewed for reasonableness and conservatism on a consistent basis throughout
the Company. Primary areas where financial information of Dover is subject to
the use of estimates, assumptions and the application of judgment include the
following:
Revenue is recognized and earned when all of the following circumstances are
satisfied, a) persuasive evidence of an arrangement exists, b) price is fixed or
determinable, c) collectibility is reasonably assured and d) delivery has
occurred. In revenue transactions where installation is required, revenue can be
recognized when the installation obligation is not essential to the
functionality of the delivered products. Revenue transactions involving
non-essential installation obligations are those which can generally be
completed in a short period of time, at insignificant cost and the skills
required to complete these installations are not unique to the Company and in
many cases can be provided by third parties or the customers. If the
installation obligation is essential to the functionality of the delivered
product, revenues are deferred until installation is complete. In a limited
number of revenue transactions, other post shipment obligations such as training
and customer acceptance are required and, accordingly, revenues are deferred
until the customer is obligated to pay, or acceptance has been confirmed.
Shipping and handling fees are not material and are generally credited to
revenue with related costs principally charged to cost of sales. Service
revenues are recognized and earned when services are performed and are not
significant to any period presented.
Allowances for doubtful accounts are estimated at the individual operating
companies based on estimates of losses related to customer receivable balances.
Estimates are developed by using standard quantitative measures based on
historical losses, adjusting for current economic conditions and, in some cases,
evaluating specific customer accounts for risk of loss. The establishment of
reserves requires the use of judgment and assumptions regarding the potential
for losses on receivable balances. Though Dover considers these balances
adequate and proper, changes in economic conditions in specific markets in which
the Company operates could have a material effect on reserve balances required.
In times of rapid market decline, such as affected a number of Dover
Technologies' companies in 2001 and 2002, reserve balances needed to be adjusted
in response to these unusual circumstances.
Inventory for the majority of the Company's subsidiaries, including all
international subsidiaries and the Dover Technologies segment, are stated at the
lower of cost, determined on the first-in, first-out (FIFO) basis, or market.
Other domestic inventory is stated at cost, determined on the last-in, first-out
(LIFO) basis, which is less than market value. Under certain market conditions,
estimates and judgments regarding the valuation of inventory are employed by the
Company to properly value inventory. Dover Technologies companies tend to
experience higher levels of inventory value fluctuations, particularly given the
relatively high rate of product obsolescence over relatively short periods of
time.
During the year, the Company established restructuring reserves at a number of
operations. These reserves, for both severance and exit costs, required the use
of estimates. Though Dover believes that these estimates accurately reflect the
costs of these plans, actual results may be different than the estimated
amounts.
Dover has significant tangible and intangible assets on its balance sheet that
include goodwill and other intangibles related to acquisitions. The valuation
and classification of these assets and the assignment of useful depreciation and
amortization lives involves significant judgments and the use of estimates. The
testing of these intangibles under established accounting guidelines (including
the recently adopted SFAS No. 142) for impairment also requires significant use
of judgment and assumptions. Dover's assets are tested and reviewed for
impairment on an annual basis. Changes in business conditions could potentially
require future adjustments to these valuations.
The valuation of Dover's pension and other post-retirement plans requires the
use of assumptions and estimates that are used to develop actuarial valuations
of expenses and assets/liabilities. These assumptions include discount rates,
investment returns, projected salary increases and benefits, and mortality
rates. The actuarial assumptions used in Dover's pension reporting are reviewed
annually and compared with external benchmarks to assure that they accurately
account for Dover's future pension obligations. Changes in assumptions and
24 of 79
future investment returns could potentially have a material impact on Dover's
pension expenses and related funding requirements. Dover's expected long-term
rate of return on plan assets is reviewed annually based on actual returns and
portfolio allocation.
Dover has significant amounts of deferred tax assets that are reviewed for
recoverability and valued accordingly. These assets are evaluated by using
estimates of future taxable income streams and the impact of tax planning
strategies. Reserves are also estimated for ongoing audits regarding Federal,
state and international issues that are currently unresolved. The Company
routinely monitors the potential impact of these situations and believes that it
is properly reserved. Valuations related to tax accruals and assets can be
impacted by changes to tax codes and rulings, changes in statutory tax rates and
the Company's future taxable income levels.
Dover has significant accruals and reserves related to its risk management
program. These accruals require the use of estimates and judgment in regards to
risk exposure and ultimate liability. The Company estimates losses under these
programs using actuarial assumptions, Dover experience, and relevant industry
data. Dover considers the current level of accrual and reserves adequately
valued relative to current market conditions and Company experience.
Dover has established reserves for environmental and legal contingencies at both
the operating company and corporate levels. A significant amount of judgment and
use of estimates is required to quantify Dover's ultimate exposure in these
matters. The valuation of reserves for contingencies is reviewed on a quarterly
basis at the operating and corporate levels to assure that Dover is properly
reserved. Reserve balances are adjusted to account for changes in circumstances
for ongoing issues and the establishment of additional reserves for emerging
issues. While Dover believes that the current level of reserves is adequate,
changes in the future could impact these determinations.
The Company from time to time will discontinue certain operations for various
reasons. Estimates are used to properly restate the assets and liabilities of
discontinued operations to their estimated fair value less costs to sell. These
estimates include assumptions relating to the proceeds anticipated as a result
of the sale. Changes in business conditions or the inability to sell an
operation could potentially require future adjustments to these estimates.
LIQUIDITY AND CAPITAL RESOURCES
Management assesses the Company's liquidity in terms of its ability to generate
cash to fund its operating, investing and financing activities. Significant
factors affecting liquidity are: cash flows generated from operating activities,
capital expenditures, acquisitions, dividends, stock repurchases, adequacy of
available bank lines of credit and the ability to attract long-term capital with
satisfactory terms.
Cash flows from Continuing Operations
(in thousands) 2002 2001
- ----------------------------------------------------------------------------
Cash flows provided by operating activities $ 394,915 $ 683,280
Cash flows (used in) investing activities $ (184,072) $ (422,619)
Cash flows (used in) financing activities $ (140,299) $ (545,006)
The decrease in cash provided by operating activities from 2001 of $288.4
million is primarily due to lower decreases in accounts receivable and
inventories, which provided cash of $314.1 million in 2001 as compared to only
$101.0 million in 2002. In addition, a large estimated 2001 federal tax payment
of approximately $40.0 million was made in 2002 and a discretionary $44.0
million cash contribution was made to the Company's pension plans. Lastly, cash
outflows associated with restructuring and exit costs also decreased operating
cash flows.
Cash used in investing activities decreased $238.5 million in 2002 as compared
to 2001. Capital expenditures decreased $60.3 million to $102.3 million
reflecting reduced need. Capital expenditures for 2003 are budgeted to be
approximately $150 million, but the Company expects the actual level to be lower
and will internally finance these capital expenditures. During 2002, the Company
invested on a net economic basis (defined as the GAAP purchase price adjusted
for debt assumed and cash acquired) $100.1 million in acquisitions as compared
to $281.8 million in 2001 which is a decrease of $181.7 million or 64%.
Acquisition activity in 2003 is expected to approach 2001 levels but is largely
dependent upon the availability of appropriate acquisition candidates.
Cash used in financing activities was primarily for the cash dividends paid to
stockholders of $109.4 million, the repurchase of 511,400 shares of treasury
stock at an average price of $27.45 for $14.0 million, and finally the repayment
of commercial paper borrowings, offset by $8.4 million in proceeds from the
termination of two interest rate swap agreements. The principal cause for the
decrease of $404.7 million in 2002 for cash used in financing activities was due
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to a net decrease in notes payable and long term debt of $411.2 million in 2001
as compared to only a $21.8 million decrease in 2002.
Net Debt and Capitalization
(in thousands) 2002 2001
- -------------------------------------------------------------------------
Total debt $ 1,054,060 $ 1,075,257
Less: Cash and cash equivalents 294,448 175,331
Marketable securities 511 997
------------------------------
Net debt 759,101 898,929
Add: Shareholders equity 2,394,623 2,519,281
------------------------------
Total capitalization $ 3,153,724 $ 3,418,210
Total debt to total capitalization 33% 31%
Net debt to total capitalization 24% 26%
- -------------------------------------------------------------------------
The Company utilizes the total debt and net debt to total capitalization
calculations to assess its overall financial leverage.
Under the terms of the two new Revolving Credit Agreements dated October 2002
(which replaced the old Revolving Credit Agreement dated November 2001), the
Company has $600 million of bank credit availability. The arrangements include a
$300 million 364-day facility and a $300 million 3-year facility. The new
364-day facility bears interest at LIBOR plus .23% and the new 3-year facility
bears interest at LIBOR plus .21%. The key financial covenant of these
facilities requires the Company to maintain an interest coverage ratio of EBITDA
to net interest expense of not less than 3.5 to 1. The Company has been in
compliance with the covenant and the ratio was 7.8 to 1 as of December 31, 2002.
This credit facility was unused during 2002. Under the terms of the old
Revolving Credit Agreement dated November 2001, the Company had $750 million of
bank credit availability. This credit facility was unused during 2001. The
Company chose to decrease the aggregate amount of its Revolving Credit Facility
from $750 million to $600 million due to the anticipated reduced need for
short-term financing. The Company intends to replace the $300 million 364-day
Credit Facility on or before its expiration date of October 17, 2003 at
equivalent market rates. The Company established a new Canadian Credit Facility
in November of 2002. Under the terms of this Credit Agreement, the Company has a
Canadian (CAD) $30 million bank credit availability and has the option to borrow
in either Canadian Dollars or U.S. Dollars. At December 31, 2002, the
outstanding borrowings under this facility were $16.3 million in U.S. dollars.
The covenants and interest rates under this facility match those of the primary
$600 million Revolving Credit Facilities. The Canadian Credit Facility expires
on November 25, 2003. The Company intends to replace the Canadian Credit
facility on or before its expiration date at comparable market rates. The
primary purpose of these agreements is to act as an alternative for short term
financing in the event of a disruption in the commercial paper market which the
Company normally accesses for its short term borrowing needs.
The Company may, from time to time, enter into interest rate swap agreements to
manage its exposure to interest rate changes. Interest rate swaps are agreements
to exchange fixed and variable rate payments based on the notional principal
amounts. As of December 31, 2001, the Company had two interest rate swap
agreements terminating on November 15, 2005 with a total notional amount of $150
million to exchange fixed rate interest for variable. Both swaps were designated
as fair value hedges of the $250 million Notes, due November 15, 2005, and the
net interest payments or receipts from these agreements, during 2001, were
recorded as adjustments to interest expense. There was no hedge ineffectiveness
as of December 31, 2001 and the fair value of the interest rate swaps determined
through market quotation of $0.5 million was reported in other assets and
long-term debt. During 2002, both of the interest rate swaps were settled, which
resulted in net gains of $8.4 million. These gains were deferred and are being
amortized over the balance of the term of the debt, permanently reducing the
effective interest rate of the $250 million Notes, due November 15, 2005 from
6.5% to 5.3%.
In 2000, the Company filed a shelf registration for the issuance of up to $1
billion in senior debt securities and on February 12, 2001 issued $400.0 million
of 6.50% Notes due February 15, 2011 under this registration. The proceeds were
used to reduce short-term commercial paper borrowings. Under the shelf
registration up to $600.0 million of debt securities could be issued currently,
if such financing was required.
Management is not aware of any potential impairment to the Company's liquidity,
and the Company was in compliance with all its long-term debt covenants. It is
anticipated that in 2003 any funding requirements above cash generated from
operations will be met through the issuance of commercial paper or, depending
upon market conditions, through the issuance of long-term debt or some
combination of the two.
26 of 79
The Company's credit ratings are as follows for the years ended December 31:
2002 2001
- -----------------------------------------------------------------------------------------
Short term Long term Short term Long term
----------------------------- -----------------------------
Moody's P-1 A1 P-1 A1
Standard & Poor's A-1 A+ A-1 A+
Fitch F1 A+ F1 A+
=========================================================================================
A summary of the Company's long-term debt maturities and rental commitments as
of December 31, 2002 is as follows:
(in thousands) Total 2003 2004 2005 2006 Thereafter
- --------------------------------------------------------------------------------------------------------
Long term debt $ 1,033,449 $ 3,150 $ 2,396 $ 250,246 $ 419 $ 777,238
Rental Commitments 152,380 31,871 25,481 21,255 15,983 57,790
- --------------------------------------------------------------------------------------------------------
Total obligations $ 1,185,829 $ 35,021 $ 27,877 $ 271,501 $ 16,402 $ 835,028
- --------------------------------------------------------------------------------------------------------
The Company utilizes the current ratio (current assets divided by current
liabilities) and the quick ratio (current assets net of inventories divided by
current liabilities) to assess its overall ability to meet short-term
obligations.
(in thousands) 2002 2001
- -------------------------------------------
Current ratio 2.38 2.01
Quick ratio 1.53 1.19
- -------------------------------------------
In 2002, accounts receivable increased $6.0 million to $669.9 million,
inventories decreased $43.9 million to $595.1 million and accounts payable
decreased $2.4 million to $199.6 million. Decreased inventory levels resulted
from declining volumes and reserves recorded in 2002 of approximately $12.0
million to state inventory at the lower of cost or market, primarily in the
Technology segment.
At December 31, 2002, the Company's net property, plant, and equipment amounted
to $704.9 million compared with $738.2 million at the end of the preceding year.
Goodwill decreased $253.2 million as a result of the impairment recorded for
$345.1 million upon adoption of SFAS 142 offset by goodwill from acquisitions of
$43.1 million and the cumulative translation adjustment and other adjustments
for $48.9 million. Intangible assets, net of amortization increased $31.6
million during 2002 principally as a result of acquisitions.
The aggregate of current and deferred income tax liabilities decreased from
$222.3 million at the beginning of the year to $154.6 million at year-end. This
decrease resulted primarily from the payments of amounts related to extensions
granted for 2001 U.S. estimated tax payments in 2002.
Retained earnings decreased from $3,395.2 million at the beginning of 2002 to
$3,164.6 million at December 31, 2002. The $230.7 million decrease resulted from
2002 net losses of $121.3 million, and cash dividends which aggregated $109.4
million. Stockholders' equity decreased from $2,519.3 million to $2,394.6
million. The $124.7 million decrease resulted mainly from the $230.7 million
decrease in retained earnings and treasury stock purchases of $14.0 million
reduced by equity adjustments related to foreign currency fluctuations of $111.3
million.
Dover's consolidated pension benefit obligation increased by $17.1 million in
2002. The increase was due principally to increases in actuarial losses. In
addition, plan assets decreased $16.0 million due to losses sustained on plan
investments during the year partially offset by contributions of $44.0 million.
Due to the decrease in the net funded status of the plans, it is estimated that
pension expense will increase approximately $7 million in 2003. The Company
anticipates having to contribute to its pension benefit plans in 2003 between
$25 million and $45 million.
The Company believes that existing sources of liquidity are adequate to meet
anticipated funding needs at comparable risk-based interest rates for the
foreseeable future. Acquisition spending would increase company debt but,
management anticipates that the debt to capital ratio will remain generally
consistent with historical levels. Operating cash flow and access to capital
markets are expected to satisfy the Company's various cash flow requirements,
including acquisition spending and pension funding as needed.
27 of 79
NEW ACCOUNTING STANDARDS
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 effect of the adoption of SFAS No. 143 is expected to be
immaterial to the Company's 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 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 EITF 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 provisions of SFAS 146
are to be applied prospectively. The Company is still assessing the potential
impact of SFAS No. 146 on its consolidated results of operations and financial
position.
In November of 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34." FIN
45 clarifies the requirements of FASB Statement No. 5., "Accounting for
Contingencies", relating to the guarantor's accounting for, and disclosure of,
the issuance of certain types of guarantees. The disclosure requirements of FIN
45 are effective for financial statements of interim or annual periods that end
after December 15, 2002 and have been incorporated into the footnotes. The
provisions for initial recognition and measurement are effective on a
prospective basis for guarantees that are issued or modified after December 31,
2002, irrespective of the guarantor's year-end. FIN 45 requires that upon
issuance of a guarantee, the entity must recognize a liability for the fair
value of the obligation it assumes under that guarantee. The Company has adopted
the disclosure requirements of FIN 45 and does not expect the impact to be
material.
In December of 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure - an amendment of SFAS 123" which is
effective for fiscal years ending after December 15, 2002 regarding certain
disclosure requirements which have been incorporated into the footnotes. This
Statement amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation. It also amends the disclosure provisions of that
Statement to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation. Finally, this Statement amends APB Opinion No. 28,
"Interim Financial Reporting", to require disclosure about those effects in
interim financial information.
In January of 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of ARB 51",
which is effective for certain variable interest entities created and financial
statements issued after January 31, 2003. The Company does not have any variable
interest entities. Accordingly, FIN 46 will not impact the consolidated results
of operations and financial position.
2001 COMPARED WITH 2000
SUMMARY
In 2001, Dover Corporation sales declined 14% from 2000 to $4,368.4 million.
This decline was primarily due to the dramatic impact on Dover Technologies' of
the market contraction in demand for its products serving the electronics
industry. All of the Dover Technologies businesses were impacted. At the same
time, many of the industrial businesses in the other three operating segments
were negatively impacted by the slowdown in general economic activity.
As a result, segment income from continuing operations totaled $358.0 million in
2001, a decline of 58% from 2000. Record earnings of $384.8 million in
Technologies in 2000, a "boom" year, dropped to $5.6 million in 2001.
Industries' earnings of $191.0 million in 2000, declined 26% to $142.2 million
in 2001, the result of weak markets for most companies. Diversified's earnings
declined 36% from $150.6 million in 2000 to $95.9 million in 2001, largely due
to operational problems at Crenlo, but also due to weak markets for several
businesses. Dover Resources' earnings declined 6% from $121.4 million in 2000 to
28 of 79
$114.2 million in 2001, as strength in oil and gas related businesses until late
in the year were offset by weakness in industrial markets.
As the result of unexpectedly weak market conditions, efforts were made
throughout the year, and more intensively as the year progressed, to
"right-size" by reducing employment levels, eliminating costs, and restructuring
operations.
DOVER DIVERSIFIED
Dover Diversified's sales increased 9% in 2001 to $1,118.3 million, but earnings
declined 36% to $95.9 million. Continuing earnings were reduced $18.1 million by
charges for restructurings, inventory, accounts receivable and other reserves.
Before these charges, earnings were down 24%. Segment profit margins declined to
9% from 15%. A substantial amount of the decline in earnings related to Crenlo,
where strong earnings in 2000 became a significant loss in 2001. This, along
with earnings declines at Tranter, Mark Andy and SWF, caused by difficult market
conditions, offset gains at Hill Phoenix, Sargent, Waukesha and Performance
Motorsports.
Hill Phoenix's sales increased dramatically, setting a new record in 2001,
easily retaining its number one sales position within Diversified. This was
accomplished in a market that declined about 7% during the year. Hill Phoenix's
2001 market share gain should establish it as the strong number two company in
its highly competitive marketplace. Market share growth was a function both of
being well positioned with the fastest growing customers, and of penetrating new
key accounts. Some of these are the large discount chains that are becoming
larger competitors of the supermarket operators. Bookings grew and backlog
increased all through the year, until the fourth quarter when some spending
commitments were delayed into the coming year. Earnings were also sharply
higher, as margins were maintained. Both sales and earnings were helped to a
degree by the contribution of National Cooler, a walk-in cooler case business
acquired in September 2000 in an effort to broaden the product line, which was
successfully integrated into Hill Phoenix operations.
In a year when the competitive landscape was marked by consolidation,
particularly in the supermarket industry, the stability and experience of the
Hill Phoenix management team and the perceived technical superiority of its
product line both contributed to growth in market share.
Tranter, one of Diversified's largest businesses, again captured the distinction
of being its largest profit contributor despite significant erosion in profit
margin. Tranter's trend of steady growth and high, stable margins was broken in
a very challenging 2001. Tranter is highly dependent on industrial capital
spending, one of the weakest sectors of the economy. In addition, the strength
of the U.S. dollar gave foreign-based competitors an advantage in the U.S.
radiator market, and price competition was severe. Also because of U.S. dollar
strength, the profitability of Tranter's foreign operations was lower when
translated from local currency. Some plant inefficiencies and temporary product
line gaps also contributed to the shortfall in earnings.
Crenlo had a very disappointing year, as a variety of post-acquisition
management challenges were further complicated by a weak market for which it was
not well prepared. This led to a substantial loss for 2001, in contrast to a
highly profitable 2000, the first year after acquisition. Throughout 2000,
Crenlo had focused on growing sales by providing a cost effective, quality
source of cab enclosures to customers who had often manufactured these
internally. During the same period, the market for its electronics enclosures
product line was growing dramatically with the electronics market generally. A
decision to build a second large, fully integrated plant for cabs was made in
early 2000, and by mid-2001 the plant was complete.
In early 2001, it became apparent that during this growth-oriented period, not
only had internal controls over inventory begun to suffer, but also product
costs had risen and pricing had eroded while fixed costs had risen substantially
faster than the business was growing. A new president was installed and he began
the process of dealing with internal controls, and aligning the cost structure
more closely to the existing order intake levels.
As the year progressed, all served markets began to slow down, and then, late in
the year, contract rapidly. Costs added from the new plant added complexity to
the management challenge. New management's improvement initiatives were unable
to keep pace with the declining market, and losses continued. The focus is on
customer satisfaction through on-time delivery, quality and value and on
regaining Crenlo's historically stable profit profile.
Sargent's 2001 sales, adjusted for operations discontinued in the fourth
quarter, were up sharply due to a strong backlog at the beginning of the year
and stable conditions in both the aerospace and marine markets for much of the
year. However, with the weakening of market conditions after the September 11th
terrorist attacks, aerospace order intake, particularly in the profitable
aftermarket segment of the business, declined precipitously along with airline
29 of 79
traffic. Earnings for the year were also up to record levels, as margins
remained stable, despite heavy investment in new regional jet and marine product
development programs.
At the end of the year, the Airtomic business, which had been part of C. Lee
Cook in the Dover Resources segment, was transferred to Sargent because of very
strong synergies in the aerospace aftermarket repair and overhaul sector. The
incremental sales will roughly replace those of the discontinued operations, but
with much higher margins. Investment in new aerospace programs and in developing
new aftermarket service capabilities will continue.
Mark Andy's printing markets were weak throughout 2001, leading to a substantial
drop in profitability. Sales were higher due to the acquisition of Comco at the
end of March, but its sales and profitability were substantially below
expectations as well. As a result of the weak market, the integration of Comco
was accelerated, with more cost cutting at both facilities than had been
originally planned. Significant reductions in employment and plant
consolidations helped at both businesses, but these actions were not able to
restore margins. Mark Andy also consolidated facilities at its Graphics
Microsystems business. With the cost reductions completed to-date, a renewed
emphasis on marketing and new product development, and continued focus on
gaining efficiencies, Mark Andy is well-positioned for an improvement in the
market, but significant improvement in profitability will likely await better
market conditions.
Waukesha Bearings set an earnings record in 2001 on sharply higher sales. This
was driven primarily by continued strength in demand for its large bearing
products from the gas turbine market. Demand for electrical power generation
capacity was particularly strong, and bookings and backlog remained at high
levels throughout the year. However, the likely duration of this market's "boom"
period, which had been expected to continue for at least a few more years, has
recently been questioned with the decline in electrical usage in the economic
downturn, relative to capacity recently added. Waukesha's geographic
penetration, technical capabilities, and product offerings were substantially
improved with the third quarter acquisition of Federal Mogul RPB, a U.K. based
bearing manufacturing company. This acquisition makes Waukesha the clear market
leader in its niche.
Performance Motorsports Inc. (PMI) had a much stronger sales and earnings
performance in 2001 than it did in the prior year and a record performance on
both metrics, with consistently high margins. Though this was helped by
acquisitions of the Carillo and Perfect Bore businesses in the second half, the
core business also performed well for most of the year. Some market weakness was
evident in the fourth quarter. Performance improvements were primarily due to
investments in manufacturing efficiency and technical capabilities. Tangible
improvements in throughput, quality and cost reduction were also due to a
successful focus on "lean manufacturing" tools and techniques. The recent
acquisitions, though small, have also helped position PMI well in its markets
through improved geographic coverage, manufacturing synergies and a broader
array of technical capabilities for each of its market segments.
SWF's sales increased substantially in 2001 largely due to the full year impact
of acquisitions made in 2000, and the contribution of acquisitions made early in
2001. However, earnings declined for two reasons. Externally, the market for
SWF's packaging machine products was down an estimated 20%. In this environment,
SWF was able to maintain market share. Internally, the management complexity of
the acquisition integration process caused some slippage in focus on customers
and product cost. Improved internal processes, and the renewed focus on product
improvement and internal cost control should help improve margins regardless of
market conditions.
Belvac's position as the only remaining independent supplier of can forming
equipment ties its fortunes to the capital spending cycles and sourcing
preferences of its customers, some of whom have competing in-house capabilities.
Belvac is now structured to perform well even in the cyclical troughs in this
market. Thus the weak market experienced in 2001 resulted in a meaningful sales
decline but a more modest profit decline, enhancing its profile as a strong cash
flow contributor.
In 2001, Langbein & Engelbracht's sales increased modestly; however, earnings
were flat as competitive pricing pressures held margins down. Improved market
segmentation, investment in sales coverage, focus on higher first pass yield,
and project bidding with complementary suppliers may lead to more opportunities
but anemic economic growth in Europe will be a limiting factor.
DOVER INDUSTRIES
Dover Industries' sales in 2001 declined 4% to $1,160.1 million, as general
weakness in its industrial and commercial markets impacted most of its
companies. Heil Environmental, Texas Hydraulics, DovaTech and the food service
markets of Groen and Randell experienced the largest sales declines. Continuing
earnings of $142.2 million were reduced for the year by $4.6 million in charges
for restructurings, inventory and other reserves. Without those charges,
earnings were down 23%. Segment operating profit margins declined from 16% to
12%.
30 of 79
After Heil Environmental's strongest earning year in its history in 2000, market
conditions entering 2001, outside of large municipal markets (such as New York
City), were showing signs of softness. As the year progressed, all the negative
factors which can make this business cyclical such as capital spending
constraints at the large waste haulage companies, higher fuel costs, and the
impact of economic uncertainty on spending plans (particularly by the
independent smaller operators), were in evidence. The loss of a major portion of
one large customer's business during the first quarter compounded this problem,
as did a slow down in product acceptance in New York City after September 11th.
These factors led results for the year to fall below those of the prior two
years, both of which were new records at the time. Nonetheless, 2001 represented
the third best year in company history and though margins declined, they
remained significantly above the average for all Industries companies.
Heil Environmental has responded with programs for lowering product cost, both
through product redesign and "lean" manufacturing initiatives.
Marathon, influenced by many of the same industry dynamics, was plagued not only
by a very weak market, but also by fierce competition from a heavily leveraged
competitor liquidating inventory at low prices. Marathon has a much broader
range of product capability than any of its competitors, and can adapt more
readily in such a market--and it did receive important new business with large
national waste haulage and chain store accounts. However, Marathon typically
operates with relatively low backlogs, and the weak economy, particularly since
the fourth quarter, has led the company to focus on internal cost containment
programs to maintain its still above average margin levels.
For Rotary Lift, long one of Industries' largest earnings contributors and
increasingly so, 2001 was both a very challenging and successful year. The
market for automotive lifts was down 12%, after a smaller decline the prior
year. However, Rotary's sales in 2001 were flat with the prior year, and it
further improved its leading market share position. Rotary successfully
continued its track record of using cost reduction to drive price
competitiveness in the market, while maintaining margins. Rotary was also able
to solidify its position by developing a new product, "In-Bay"(TM). Having the
most technologically advanced product has helped grow market share, particularly
with larger accounts, such as the large auto repair chains.
Heil Trailer, one of Industries' largest companies measured by sales, endured
its second straight year of double-digit percentage earnings declines, which in
turn followed a year of flat earnings, because of the continuing recession in
its markets. Capital spending programs at the major oil companies for petroleum
tankers have been hurt by the wave of industry consolidations and the market for
dry bulk trailers has remained very weak. A pickup in military orders,
particularly at the recently acquired Kalyn/Siebert business, helped later in
the year.
The decline in the market has intensified competitive pricing pressure. Heil has
responded with new products, such as safer low profile petroleum tanker
trailers, and a repeatedly demonstrated commitment to cost reductions. Heil has
thus been able to stabilize margins, albeit at much lower than traditional
levels. Late in the year, Heil suffered currency losses in its Argentine
operation due to that country's currency crisis, but the other small operations
in the U.K. and Thailand both showed improved performance. Heil Trailer's
ability to address global oil companies' international product and service needs
is a distinct competitive advantage.
Texas Hydraulics' historical growth in sales and earnings, with very strong
margins, has been driven by a product differentiation strategy to provide
engineered solutions to customers' hydraulic cylinder needs. However, in 2001
all served markets were down substantially, particularly in Texas Hydraulics'
important aerial lift and utility platform markets. This trend began in 2000 and
was driven by consolidation in the rental equipment end-markets for these
applications. It resulted in a substantial decline in sales and earnings, but a
more modest margin deterioration. Texas Hydraulics has responded by
re-emphasizing penetration in other end-markets through new products and new
designs, but price competition has been fierce due to excess industry capacity.
Thus, significant investment has been made in "lean manufacturing" tools and
techniques, leading to higher quality, quicker response time to customers, and
lower labor and material cost.
PDQ, which joined Dover in mid-1998, turned in yet another full year of
substantial sales and earnings growth based on its continued penetration of the
vehicle wash equipment market with its innovative "touch-less" products. PDQ's
success is based on successful new market introductions, close attention to
competitive pricing, and continual cost reductions.
Tipper Tie struggled in 2001 with both internal and external problems that led
to flat sales and lower margins. Early in the year, demand for capital equipment
from meat processors was severely reduced by the "mad cow" and "hoof and mouth"
disease scares, particularly in Europe where roughly 50% of Tipper Tie's sales
are generated. Though this effect dissipated as the year progressed, margins for
new equipment came under pressure as the soft market caused fierce competition.
Intense price competition was also seen in the clip market. Miscues in product
31 of 79
introductions further depressed earnings. Entering 2002, cost reductions
(particularly in the U.S.), the introduction of proven European products into
the U.S. market, and new clip designs are the focus of Tipper Tie's still new
management team.
Triton, which was acquired in early 2000, has under-performed initial
expectations, and 2001 was a particularly difficult year. Sales were flat, but
profits were a fraction of the prior year. Adverse external factors included an
industry upheaval caused by the rapid rise and then decline to bankruptcy of
Credit Card Center (CCC), an independent sales organization that flooded the
market with competitor's product. This resulted in a market overloaded with a
great many unused ATM machines when CCC's business model proved unviable. That
overhang, which has not been fully absorbed by early 2002, is further
complicated by slowing domestic market growth, and resultant price competition.
Internally, Triton has struggled with delayed new product development and
introductions, as well as manufacturing inefficiencies. In the fourth quarter of
2001, Triton executed a major staff reduction, realigned the management
structure in marketing and manufacturing, and re-invigorated the product
pipeline.
Somero, acquired in mid-1999, has also failed to meet initial expectations, and
sales and earnings have declined significantly since acquisition. The Somero
market niche is small and narrow, and its construction markets remain depressed.
Chief Automotive has been challenged for three years by the sluggish growth of a
maturing market. Chief has responded by focusing on new product introductions
and marketing programs geared to induce customers to trade up to new, high-end
products. Sales and earnings declined in 2001 but Chief is maintaining market
leadership and high returns on operating investment.
Groen's institutional food service equipment market declined in 2001,
particularly in the fourth quarter, causing Groen's sales and earnings to also
decline. A new management team has re-invigorated product development and has
begun introducing product line extensions and variations and has a new cost
conscious business model to grow margins and cash flow.
Randell's market, concentrated in the restaurant chains, has grown for a number
of years as the percentage of meals eaten away from home increased. However,
this trend may have slowed. The market, increasingly competitive, now depends
more on renovations and less on new construction. For 2001, these trends were
amplified in the weak economic environment, and margins suffered. In 2002,
Randell expects to renew its focus on new product development as a strategy to
gain share, and on operational improvements for competitiveness and margin
recovery.
After the sale of its main line welding products business in April of 2001,
DovaTech's remaining laser and laser cooler business was hit hard by the
economic downturn particularly in solid-state applications for the
telecommunications industry. Machine tool customers also slowed orders as the
year progressed.
DOVER RESOURCES
Dover Resources sales in 2001 increased 6% to a record $897.4 million, largely
due to strength in the oil and gas production markets served by Petroleum
Equipment Group, C. Lee Cook and Quartzdyne, and due to the full year impact of
add-on acquisitions in 2000. Earnings of $114.2 million in 2001 were reduced by
$7.1 million in charges for restructurings, inventory and other reserves.
Without those charges, earnings would have been slightly higher than the prior
year. Operating profit margins declined from 14% in 2000 to 13% in 2001, as very
difficult conditions in the automotive and transportation markets impacted
several Dover Resources' companies.
Petroleum Equipment Group's ("PEG") 2001 sales and earnings were both about 20%
higher than in 2000, reaching a modern record (post early 1980's boom period).
Through the first half of the year, demand was strong in the oil and gas
production markets served and across all product lines, but particularly for
sucker rods used in oil production. After mid-year, these markets weakened
considerably, and by the end of 2001, PEG's results were comparable to the same
period in 2000. Significant investments in production capabilities and business
streamlining initiatives since 1998 have resulted in lower product costs,
improved flexibility and reduced cycle times. These initiatives have also helped
PEG further increase its market penetration.
Lower oil prices discouraged new drilling as the year progressed. Declining
natural gas prices also reduced spending by natural gas producers. However, all
PEG units were able to maintain solid profitability even while demand was
weakening. Norriseal has been able to regain market share for its valves and
controls through enhanced customer service, Norris and AOT have been successful
with their sucker rod guide initiatives, and Ferguson-Beauregard's plunger lift
product line achieved solid success with its new initiative to provide complete
control systems to natural gas producers.
32 of 79
C. Lee Cook's record sales and earnings results in 2001 reflected strong demand
from the natural gas production and distribution customers (both OEM and
aftermarket) for its gas compressor components. Cook's recent investments in
improved manufacturing processes, increased capacity, new products, product line
extensions, and strong results from the service and repair operations at its
Compressor Components unit contributed to the company's ability to capitalize on
the strong market. The demand for increased natural gas production evident
earlier in 2001 has waned as new production has become available and demand and
prices declined in a weaker economy. As a result, C. Lee Cook's sales in the OEM
segment of the market will likely decline in 2002, with some possible offset
from increased emphasis on aftermarket sales of components and services, new
product initiatives and increased penetration in international markets.
Quartzdyne also had record sales and earnings in 2001, as high oil prices
spurred new oil well drilling and completions in the first half of the year. A
result of product development initiatives, Quartzdyne's "ruggedized" pressure
transducer product line, utilizing enhanced quartz pressure sensor technology
and hybrid circuit designs, is being increasingly used in measurement while
drilling, permanent pressure measurement and "intelligent completions"
applications.
In 2001, OPW Fueling Components managed a modest sales increase and maintained
flat earnings and margins in a challenging market. New service station
construction activity has continued to be slow, as pricing pressure on the major
oil companies and convenience store chains have curtailed investment. The only
source of significant new retail station growth has been in the "hyper-market"
segment. Industry consolidation at all levels of the market -- oil companies,
distributors and competitors -- has been a dampening factor, but has left the
company in a comparatively favorable position because of its strong product line
and global reach. Replacement demand for OPW Fueling Components' broad product
line of gasoline nozzles and other service station devices has been more stable.
Success continues with the Pisces(TM) line of underground secondary containment
systems and with Petro Vend's automated fuel management systems. OPW Fueling
Components' investment for its new line of enhanced vapor recovery products
positions it well as environmental compliance expectations increase in all
markets.
In 2001, OPW Fluid Transfer Group suffered from continued weakness in its
petroleum, dry bulk, chemical and petrochemical transportation-related
businesses. The benefits of a major business restructuring initiative undertaken
in 1999, which boosted 2000's results, also helped maintain respectable margins
in 2001. Nevertheless, further cost reductions and restructuring actions were
undertaken during the year. OPW Fluid Transfer Group's focus in 2002 will be to
maintain margins in a weak market, as it continues new product development and
customer service initiatives in order to benefit from substantial positive
operating leverage when transportation markets recover.
As a result of internal and operational improvements, better results from its
international sales channels, and successful introduction of a complete line of
plastic bolted pumps, Wilden has maintained solid operational profitability in
spite of the generally weak industrial and process industry markets it serves.
Blackmer experienced a significant profit improvement in 2001, as higher
European sales and a more pronounced increase in European margins resulted from
the streamlining actions initiated in 2000. With the exception of
government-related sales, most of Blackmer's other served markets -- industrial,
petroleum, chemical and petrochemical, and transportation-related -- were
generally weaker than the prior year.
The full year impact of acquisitions at Tulsa Winch Group led to record sales
and earnings. In the early part of the year, Tulsa Winch benefited from strong
demand from its OEM customer base and a very strong market for its oil field
winch product line. As the year progressed, the oil field related market
weakened and sales to its OEM market slowed dramatically. Further progress is
expected in 2002 in achieving synergistic benefits from the four previously
independent companies that now comprise the Tulsa Winch Group. In the weak
market expected in 2002, these operational improvements and a more focused
product offering will help position the company well for market recovery.
De-Sta-Co Industries was challenged in 2001 by low general industrial market
demand for its clamping and workplace automation products, particularly because
of its sales concentration in the domestic automotive industry. This decline in
end-user demand was made more pronounced by inventory reduction in distribution
channels. International markets were also weak, made worse by the strong U.S.
dollar. Sales of robotic equipment in the electronics assembly market also
declined severely. The result was a slump in profitability and margin decline.
De-Sta-Co Industries has responded with numerous right-sizing actions and a
focus on factory productivity solutions. This effort was boosted by the
acquisition of CPI (end of robot arm devices) at the beginning of the year. With
further market declines expected, De-Sta-Co Industries will accelerate market
penetration efforts and continue tight cost control measures to hold
profitability until economic conditions improve.
In 2001, De-Sta-Co Manufacturing maintained profits by reducing costs in the
face of severe margin pressure from its automotive customer base, and at the end
of the year finalized plans to exit an under-performing business segment. In
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2002, De-Sta-Co Manufacturing will focus on its core compressor reed valve and
ride control disc customers with a much-reduced cost structure.
RPA Process Technologies (RPA) had significant improvements in both sales and
operating profit as its European unit recovered from a very poor performance in
2000, the year it was acquired. Capital spending in RPA's markets, particularly
in the paper industry, was weak throughout 2001, and entering 2002 there are few
signs of near-term recovery in the global process industry markets that RPA
serves.
Hydro Systems had a record year for both sales and earnings, as a result of
success with new product and market initiatives and progress with cost reduction
efforts. The institutional and industrial cleaning market served by Hydro
Systems has proven to be relatively recession resistant, although some market
weakness is being experienced as Hydro Systems enters 2002.
The global market for carbon dioxide generation and recovery equipment supplied
by Wittemann remains quite depressed and although Duncan had another difficult
year in 2001, improved performance in the second half resulted from a reduced
cost structure and increased customer focus.
DOVER TECHNOLOGIES
Dover Technologies' sales in 2001 declined 40% from the prior year to $1,198.1
million due to the well-chronicled collapse of the technology sector.
Technologies reported earnings of $5.6 million after $43.3 million in charges
for restructurings, inventory and other reserves, following record earnings of
$384.8 million in 2000, the unprecedented "boom" year for the electronics
manufacturing market. The lack of end-market demand for electronics equipment
caused Technologies' Circuit Board Assembly and Test (CBAT) businesses'
customers to dramatically curtail spending for its predominantly capital
equipment products. CBAT sales declined 53% to $647.1 million, and record 2000
earnings of $271.5 million were transformed to a $52.8 million loss.
Technologies' Specialty Electronics Components (SEC) businesses were similarly
affected, particularly given their product focus on the higher technology data
communications, telecommunications and networking markets. SEC sales declined
27% to $341.6 million, and record earnings in 2000 of $109.0 million dropped to
$45.6 million. Imaje, the French based industrial ink-jet printer manufacturer,
had another very successful year.
CBAT
Universal Instruments experienced the largest percentage sales decline from the
prior year in this group of companies (a decline so large that Universal is no
longer Dover's largest company) and went from record profits to a sizable loss -
indeed Universal accounted for the majority of the loss at CBAT. Universal's
high end products were particularly hard hit as large Electronic Manufacturing
Services (EMS) and OEM customers stopped adding capacity. A similar thing
occurred at Universal's Alphasem subsidiary when semiconductor assembly
customers stopped expanding.
DEK, whose increasingly well positioned, broad line, of circuit board screen
printers had a smaller sales decline, as they also have lower priced products
that appeal to customers that were not as hard hit by the downturn. Vitronics
Soltec had a lower rate of decline than either Universal or DEK as its
comprehensive range of soldering machines improved their competitive position.
DEK and Vitronics Soltec both have a strong European base, which trailed the
U.S. in the downturn, and both companies managed to generate a modest level of
profitability.
Everett Charles Technologies' sales in 2001 declined less dramatically because
some of their products are not capital equipment and they acquired Multitest at
mid-year. Contact spring probes for instance, are not a capital item, and demand
depends more on its customer's production volumes and new product introduction
in electronics end-markets. However, these markets which were also slow in 2001.
The portion of the business serving the semiconductor test market, including
Multitest, though well positioned competitively, saw demand decline to
unanticipated low levels, creating an overall loss.
OK International, acquired in late 2000, experienced a sales decline similar to
DEK and Vitronics Soltec, and reported a small loss in 2001. OK's products are
generally shorter-lived tools or consumables. Thus OK also depends largely on
customers' production levels, which were declining entering 2001 and remained at
depressed levels all year. This condition persists.
Entering 2001, customer demand for the large machines used in circuit board
production, which had increasingly been centered with the large EMS customers,
had already begun to evaporate, and backlog was little more than half of what it
had been at the market peak six months earlier. As bookings and backlog
continued to decline, losses mounted, peaking in the third quarter. In the
fourth quarter, with some relative stability in demand, albeit at depressed
levels, together with the early benefits of substantial cost reductions, losses
began to diminish. The reaction to the dramatic downturn was to "right-size" the
business by reducing employment and eliminating all but critical operating
34 of 79
expenses. At Universal, for instance, near the end of 2001, a complete
organizational restructuring accompanied the third major employment reduction
for the year.
At the end of the year, most remaining demand for larger machines was from
smaller EMS companies and some OEMs. Demands for replacement parts to service
the installed base, re-manufactured machines, other types of assembly machines,
and through-hole placement equipment were all also down substantially, though
not as dramatically as in the core surface-mount businesses. At year end the
group was still below the breakeven point.
Throughout CBAT, product development critical for long-term market leadership in
this still attractive market was maintained, albeit under close cost benefit
scrutiny. Universal has recently introduced a new product, the all linear motor
"GSM-B" which sets new standards in "flexible fine pitch" applications, a market
segment requiring both high speed and extreme placement accuracy. Universal's
now self-sufficient Alphasem offspring also introduced a new product, the
leading die-sorter and die bonder suitable for the new 300 millimeter wafer
technology expected to become predominant in semiconductor manufacturing. At
DEK, continued new product development and introduction in the traditional
circuit board market are now also being supplemented by "wafer bumping" and
"ball attach" applications for semiconductor manufacturers. Vitronics Soltec's
new offerings range from redesigned machines for lower-end applications to
entirely new technologies for "selective" soldering, suitable for mixed
component attachment applications.
SEC
The SEC companies all produce highly specialized, often custom designed,
high-end components used in a wide variety of electronic devices. The largest
served market is the telecommunications industry---both wired and
wireless---primarily for infrastructure applications. This market experienced a
rapid ramp-up through 2000. Entering 2001, backlogs were still high and much of
the customer base remained optimistic that they could maintain reasonable volume
levels. However, order intake and market optimism dropped precipitously in the
first quarter of 2001, and backlog declined all year. In the wired
infrastructure end-market, SEC's customers were hurt as the collapse of the
"dot-com bubble" left the market glutted with unused equipment, and demand from
end-customers could not support the existing expanded capacity. In the wireless
market, the much anticipated boom in new markets and applications, such as "3G",
failed to materialize, and the high cost of frequency licenses, followed by a
contraction of capital availability, caused many carriers to restrict or
eliminate spending. Demand in end markets for access devices (cable and DSL
modems, telephones and the like) also slowed sharply.
In many cases, SEC's customers were left with excess component inventory,
causing not only low demand, but also cancellations of prior orders. In other
cases, customers, new product launches, critical to SEC's leading technology
orientation, were curtailed. Other markets for SEC, representing roughly one
third of sales, include the high reliability-oriented, military, satellite,
aerospace and industrial markets. The SEC companies saw modest growth in these
markets in 2001, as evidenced by the improved earnings at Dow-Key Microwave.
SEC was somewhat cushioned by its geographic profile, as the market slowdown
spread from the U.S., to Europe, and then Asia. Novacap, in particular, which
acquired like-sized, U.K.-based, Syfer in 2000, with complementary technologies
and customers, benefited from Syfer's relatively stronger demand through the
first half of the year.
Each SEC company has responded by significantly reducing headcount, restricting
unnecessary spending, and lowering product cost. DT Magnetics, for instance,
aggressively restructured its business by downsizing higher cost U.S. operations
and expanding off shore manufacturing---in this case, in the Dominican Republic.
K & L Microwave and Quadrant both moved aggressively to expand business
opportunities in China. The focus on China sourcing is motivated not only by the
desire to lower product cost and retain price competitiveness, but to be closer
to a healthy and growing telecom infrastructure market.
SEC companies have also responded by enhancing their research, design and
development activity. With the market decline, the increased availability of
talented technical experts has helped these companies develop the products
needed to maintain market leadership. Examples include the development of new
application specific integrated circuit (ASIC) designs at Quadrant, and
transformer products for customer chip sets at DT Magnetics.
Entering 2002 there is no clear evidence that the market will recover soon and
the group is operating at about the breakeven level.
MARKING AND CODING
Imaje, the industrial business in this segment, had a very strong year under a
new management team, particularly considering the switch of one large customer
account to a different technology. Sales were up due both to the addition of the
Markpoint acquisition in June 2001, and to a concentrated market penetration
35 of 79
effort. Earnings declined slightly, due to acquisition integration costs and
expenses related to the upgrade of the organization, particularly in the sales
network, but margins remained high.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES
The Company's exposure to market risk for changes in interest rates relates
primarily to the fair value of long-term fixed interest rate debt, commercial
paper borrowings and investments in cash equivalents. Generally, the fair market
value of fixed-interest rate debt will increase as interest rates fall and
decrease as interest rates rise. A 65 basis point increase in interest rates
(10% of the Company's long-term debt interest rate) would have an immaterial
effect on the fair value of the Company's long-term debt. Commercial paper
borrowings are at variable interest rates, and have maturities of three months
or less. A 46 basis point increase in the interest rates (10% of the Company's
weighted average commercial paper interest rate) on commercial paper borrowings
would have an immaterial impact on the Company's pre-tax earnings. All highly
liquid investments, including highly liquid debt instruments purchased with an
original maturity of three months or less, are considered cash equivalents. The
Company places its investments in cash equivalents with high credit quality
issuers and limits the amount of exposure to any one issuer. A 64 basis point
decrease in interest rates (10% of the Company's weighted average interest rate)
would have an immaterial impact on the Company's pre-tax earnings. The Company
does not enter into derivative financial or derivative commodity instruments for
trading or speculative purposes.
FOREIGN EXCHANGE
The Company conducts business in various foreign currencies, primarily in
Canada, Europe, Japan and other Asian countries. Therefore, changes in the value
of the currencies of these countries affect the Company's financial position and
cash flows when translated into U.S. Dollars. As of December 31, 2002 the
Company had not established a formal foreign-currency hedging program. The
Company has mitigated and will continue to mitigate a portion of its currency
exposure through operation of decentralized foreign operating companies in which
the majority of all costs are local-currency based. A 10% change in the value of
all foreign currencies would have an immaterial effect on the Company's
financial position and cash flows.
36 of 79
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page Financial Statements and Supplemental Data
- ---- ------------------------------------------
38 Report of Management
39 Report of Independent Accountants
40 Consolidated statements of earnings (losses), comprehensive earnings (losses)
and retained earnings for the years ended December 31, 2002, 2001 and 2000
41 Consolidated balance sheets as of December 31, 2002 and 2001
42 Consolidated statements of cash flows for the years ended
December 31, 2002, 2001 and 2000.
43-63 Notes to consolidated financial statements
64 Financial Statement Schedule - Schedule II, Valuation and Qualifying Accounts
(All other schedules are not required and have been omitted)
37 of 79
REPORT OF MANAGEMENT
The accompanying consolidated financial statements of Dover Corporation and
subsidiaries on Form 10K are the responsibility of the Company's management
and have been prepared in conformity with generally accepted accounting
principles and, in the judgment of management, present fairly and
consistently the Company's financial position and results of operations and
cash flows. These statements, by necessity, include amounts that are based
on management's best estimates and judgments and give due consideration to
materiality.
The accounting systems, financial reporting, disclosure and internal
accounting controls of the Company are designed by and are the
responsibility of the Company's management. This internal control framework
provides reasonable assurance that, in all material respects, transactions
are properly authorized and recorded, the financial records reliably and
accurately support the Company's consolidated financial statements and
assets are safeguarded against loss from unauthorized use or disposition.
An effective internal control system, no matter how well designed, has
inherent limitations, including the possibility of the circumvention or
overriding of controls and, therefore, can provide only reasonable
assurance with respect to financial statement preparation and such
safeguarding of assets. Qualified personnel throughout the organization
maintain and monitor these internal accounting controls on an ongoing
basis.
The Company's financial management systematically reviews the adequacy and
effectiveness of the controls and reports thereon. In accordance with
recently enacted Federal law, the Company assessed its internal control
system within the past 90 days. Based on this assessment, management
believes the internal accounting controls in use at the time of this filing
are likely to provide reasonable assurance that the Company's assets are
safeguarded, that transactions are executed in accordance with management's
authorizations, and that the financial records are reliable for the purpose
of preparing financial statements.
PricewaterhouseCoopers LLP, independent accountants, are retained to audit
Dover Corporation's consolidated financial statements. Their accompanying
report is based on audits conducted in accordance with auditing standards
generally accepted in the United States of America, which include the
consideration of the Company's internal controls to establish a basis for
determining the nature, timing and extent of audit tests to be applied.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with management and independent auditors to
review matters relating to the quality of financial reporting and internal
accounting control and the nature, extent and results of their audits. The
Company's independent auditors have free access to the Audit Committee.
/s/ Thomas L. Reece
------------------------------------
Thomas L. Reece
Chairman and Chief Executive Officer
March 5, 2003
/s/ Robert G. Kuhbach
------------------------------------
Robert G. Kuhbach
Vice President, Finance, Chief Financial Officer
and Treasurer
March 5, 2003
38 of 79
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Dover Corporation:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Dover
Corporation and its subsidiaries at December 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedules listed in the accompanying index present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedules are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 5 to the consolidated financial statements, in 2002 the
Company ceased recording amortization of goodwill as of the beginning of the
year and recorded a goodwill impairment charge of $293.0 million, net of tax.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
New York, New York
February 10, 2003
39 of 79
DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSSES),
COMPREHENSIVE EARNINGS (LOSSES), AND RETAINED EARNINGS
(in thousands, except per share figures)
STATEMENT OF EARNINGS (LOSSES) FOR THE YEARS ENDED DECEMBER 31, 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
Net sales $ 4,183,664 $ 4,368,415 $ 5,064,805
Cost of sales 2,823,348 2,982,067 3,204,051
------------------------------------------
Gross profit 1,360,316 1,386,348 1,860,754
Selling and administrative expenses 1,018,696 1,066,050 1,046,838
------------------------------------------
Operating profit 341,620 320,298 813,916
------------------------------------------
Other deductions (income):
Interest expense 70,001 91,010 97,055
Interest income (5,172) (15,801) (8,952)
Gain on sale of investments and businesses - - (10,495)
All other (income) expense, net 7,100 (13,756) (5,645)
------------------------------------------
Total 71,929 61,453 71,963
------------------------------------------
Earnings before taxes on income 269,691 258,845 741,953
Federal and other taxes on income 58,542 77,014 228,430
------------------------------------------
Net earnings from continuing operations 211,149 181,831 513,523
==========================================
Net earnings (losses) from discontinued operations (39,361) 66,706 6,089
------------------------------------------
Net earnings before change in accounting principle 171,788 248,537 519,612
Cumulative effect of change in accounting principle, net of tax (293,049) - -
------------------------------------------
Net earnings (losses) after cumulative effect of change in accounting principle $ (121,261) $ 248,537 $ 519,612
==========================================
Net earnings (losses) per common share:
Basic - Continuing operations $ 1.04 $ 0.90 $ 2.53
- Discontinued operations (0.19) 0.32 0.03
- Total net earnings before cumulative effect of change in ==========================================
accounting principle 0.85 1.22 2.56
- Cumulative effect of change in accounting principle (1.45) - -
==========================================
- Net earnings (losses) $ (0.60) $ 1.22 $ 2.56
==========================================
Diluted - Continuing operations $ 1.04 $ 0.89 $ 2.51
- Discontinued operations (0.20) 0.33 0.03
------------------------------------------
- Total net earnings before cumulative effect of change in
accounting principle 0.84 1.22 2.54
- Cumulative effect of change in accounting principle (1.44) - -
------------------------------------------
- Net earnings (losses) $ (0.60) $ 1.22 $ 2.54
==========================================
Weighted average number of common shares outstanding during the period:
Basic 202,571 202,925 202,971
Diluted 203,346 204,013 204,677
- --------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE EARNINGS (LOSSES) FOR THE YEARS ENDED DECEMBER 31, 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings (losses) $ (121,261) $ 248,537 $ 519,612
------------------------------------------
Other comprehensive earnings, net of tax:
Total foreign currency translation adjustments $ 111,286 $ (37,285) $ (32,726)
------------------------------------------
Unrealized gains (losses) on marketable securities:
Unrealized holding gains (losses) arising during period (383) (2,859) 12,080
Less: reclassification adjustment for gains (losses)
included in net earnings - - 8,994
------------------------------------------
Total unrealized gains (losses) on securities, net of taxes
of ($207) in 2002, ($1,539) in 2001 and $1,687 in 2000 (383) (2,859) 3,086
------------------------------------------
Other comprehensive earnings (losses) 110,903 (40,144) (29,640)
------------------------------------------
Comprehensive earnings (losses) $ (10,358) $ 208,393 $ 489,972
- --------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 3,395,293 $ 3,252,319 $ 2,830,175
Net earnings (losses) (121,261) 248,537 519,612
------------------------------------------
3,274,032 3,500,856 3,349,787
Deductions:
Common stock cash dividends of $ .54 per share in 2002, $.52 in
2001, $.48 in 2000 109,436 105,563 97,468
------------------------------------------
Balance at end of year $ 3,164,596 $ 3,395,293 $ 3,252,319
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
40 of 79
DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share figures)
December 31, 2002 2001
- ------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 294,448 $ 175,331
Marketable securities, at market 511 997
Receivables (less allowances of $31,283 in 2002, $34,239 in 2001) 669,885 663,839
Inventories, net 595,071 639,018
Prepaid expenses and other current assets 41,263 36,626
Deferred tax asset 56,823 57,534
----------------------------
Total current assets 1,658,001 1,573,345
----------------------------
Property, plant and equipment, at cost:
Land 49,204 42,689
Buildings 426,747 403,914
Machinery and equipment 1,299,374 1,248,647
----------------------------
1,775,325 1,695,250
Less accumulated depreciation 1,070,403 957,037
----------------------------
Net property, plant and equipment 704,922 738,213
----------------------------
Goodwill, net of amortization 1,654,883 1,908,040
Intangible assets, net of amortization 202,836 171,226
Other assets and deferred charges 167,529 116,510
Assets of discontinued operations 49,214 116,598
----------------------------
TOTAL ASSETS $ 4,437,385 $ 4,623,932
- ------------------------------------------------------------------------------------------------------------
LIABILITIES
Current liabilities:
Notes payable $ 20,611 $ 39,783
Current maturities of long-term debt 3,150 3,730
Accounts payable 199,624 202,042
Accrued compensation and employee benefits 133,570 151,416
Accrued insurance 50,431 45,535
Other accrued expenses 214,573 172,009
Federal and other taxes on income 74,979 169,387
----------------------------
Total current liabilities 696,938 783,902
----------------------------
Long-term debt 1,030,299 1,031,744
Deferred income taxes 136,469 110,496
Other deferrals (principally compensation) 151,225 142,002
Liabilities of discontinued operations 27,831 36,507
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Capital stock:
Preferred, $100 par value per share.
Authorized 100,000 shares; issued none - -
Common, $1 par value per share.
Authorized 500,000,000 shares; issued 237,680,338 in 2002,
and 237,302,864 shares in 2001 237,680 237,303
Additional paid-in capital 65,493 55,223
Cumulative translation adjustments (38,710) (149,996)
Unrealized holding gains (110) 273
Retained earnings 3,164,596 3,395,293
----------------------------
3,428,949 3,538,096
Less common stock in treasury, at cost 35,277,845 shares in 2002
and 34,723,815 shares in 2001 1,034,326 1,018,815
----------------------------
Net stockholders' equity 2,394,623 2,519,281
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,437,385 $ 4,623,932
- ------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
41 of 79
DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents (in thousands)
For the years ended December 31, 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings (losses) $ (121,261) $ 248,537 $ 519,612
----------------------------------------
Adjustments to reconcile net earnings to net cash from operating activities:
Net (earnings) losses from discontinued operations 39,361 (66,706) (6,089)
Cumulative effect of change in accounting principle, net of taxes 293,049 - -
(Gain) loss on sale of marketable securities - - (13,741)
Depreciation and amortization 161,003 213,494 184,224
Provision for losses on accounts receivable 12,696 19,244 7,232
Net increase (decrease) in LIFO reserve 1,286 (4,235) (511)
Deferred income taxes 21,519 2,402 14,979
(Gain) loss on sale of property and equipment 2,369 (1,861) (1,126)
Increase (decrease) in deferred compensation 4,162 (31,775) 34,872
Acquisition inventory premium write-off 648 9,307 13,756
(Gain) loss on sale of businesses - - 3,246
Other, net 3,347 (4,157) 15,411
Changes in assets and liabilities (excluding effects of acquisitions
and dispositions):
Decrease (increase) in accounts receivable 26,652 184,366 (117,187)
Decrease (increase) in inventories excluding LIFO reserve 74,359 129,711 (81,334)
Decrease (increase) in prepaid expenses (3,336) 9,122 (16,934)
Decrease (increase) in other assets (53,242) (19,070) (9,032)
Increase (decrease) in accounts payable (24,711) (64,381) 4,026
Increase (decrease) in accrued expenses and other non-current liabilities 17,297 (54,682) 29,149
Increase (decrease) in accrued federal and other taxes payable (60,283) 113,964 (44,797)
----------------------------------------
Total adjustments 516,176 434,743 16,144
----------------------------------------
NET CASH FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS 394,915 683,280 535,756
----------------------------------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Proceeds from the sale of marketable securities - - 14,185
Proceeds from sale of property and equipment 17,943 14,027 7,017
Additions to property, plant and equipment (102,305) (162,584) (183,879)
Acquisitions (net of cash and cash equivalents acquired) (99,710) (274,062) (442,658)
Proceeds from sale of businesses - - 16,919
----------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES OF CONTINUING OPERATIONS (184,072) (422,619) (588,416)
----------------------------------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Increase (decrease) in notes payable (19,670) (803,315) 532,023
Reduction of long-term debt (4,075) (8,008) (48,658)
Proceeds from long-term debt 1,979 400,090 22,257
Purchase of treasury stock (15,511) (32,155) (5,874)
Proceeds from exercise of stock options 6,414 3,945 9,003
Cash dividend to stockholders (109,436) (105,563) (97,468)
----------------------------------------
NET CASH FROM (USED IN) FINANCING ACTIVITIES OF CONTINUING OPERATIONS (140,299) (545,006) 411,283
----------------------------------------
Effect of exchange rate changes on cash and cash equivalents 23,415 (7,781) (4,097)
Cash from (used in) discontinued operations 1,067 (216) (8,945)
Taxes (paid) refunded on gain from sale of elevator market segment - 9,793 (302,369)
Proceeds from sale of discontinued operations, net of taxes paid 24,091 278,378 -
----------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 119,117 (4,171) 43,212
Cash and cash equivalents at beginning of year 175,331 179,502 136,290
----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 294,448 $ 175,331 $ 179,502
========================================
SUPPLEMENTAL INFORMATION-CONTINUING OPERATIONS, CASH PAID DURING THE PERIOD FOR:
Income taxes $ 89,318 $ 82,767 $ 263,351
Interest 67,554 83,941 95,426
- --------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
42 of 79
DOVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is a multinational, diversified manufacturing corporation comprised
of 50 stand-alone operating companies which manufacture a broad range of
specialized industrial products and sophisticated manufacturing equipment. The
Company also provides some engineering and testing services, which are not
significant in relation to consolidated revenues. The Company's operating
companies are based primarily in the United States of America and Europe. The
Company's businesses are divided into four reportable segments. Dover
Diversified builds packaging and printing machinery, heat transfer equipment,
food refrigeration and display cases, specialized bearings, construction and
agricultural cabs, as well as sophisticated products for use in the defense,
aerospace and automotive industries. Dover Industries makes products for use in
the waste handling, bulk transport, automotive service, commercial food service
and packaging, welding, cash dispenser and construction industries. Dover
Resources manufactures products primarily for the automotive, fluid handling,
petroleum, original equipment manufactures (OEM) engineered components and
chemical equipment industries. Dover Technologies builds sophisticated automated
assembly and testing equipment and specialized electronic components for the
electronics industry, and industrial printers for coding and marking. The
accounting policies that affect the more significant elements of the Company's
financial statements and that apply to the Company's segment information are
described briefly below:
CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. Intercompany accounts and transactions have
been eliminated in consolidation. The results of operations of purchased
businesses are included from the dates of acquisitions. Several businesses
qualified for discontinued operations treatment in 2002 and 2001. The assets,
liabilities, results of operations and cash flows of all discontinued operations
have been segregated and reported as discontinued operations for all periods
presented. Reference in the footnotes to "continuing" relates to continuing
operations.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Significant estimates include allowances for doubtful accounts receivable, net
realizable value of inventories, restructuring charges, determining pension and
post retirement assumptions, useful lives associated with amortization and
depreciation, warranty reserves, income taxes and tax valuation reserves,
environmental reserves, legal reserves, insurance reserves and the valuations of
discontinued assets and liabilities.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents includes cash on hand, demand deposits and short term
investments which are highly liquid in nature and have original maturities at
the time of purchase of three months or less. Cash equivalents were $236.2
million and $133.3 million at December 31, 2002 and 2001, respectively.
INVENTORIES:
Inventory for the majority of the Company's subsidiaries, including all
international subsidiaries and the Dover Technologies segment, are stated at the
lower of cost, determined on the first-in, first-out (FIFO) basis, or market.
Other domestic inventory is stated at cost, determined on the last-in, first-out
(LIFO) basis, which is less than market value.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION:
Property, plant and equipment includes the cost of land, buildings, equipment
and significant improvements to existing plant and equipment. Expenditures for
maintenance, repairs and minor renewals are expensed as incurred. When property
or equipment is sold or otherwise disposed of, the related cost and accumulated
depreciation is removed from the respective accounts and the gain or loss
realized on disposition is reflected in earnings. Plant and equipment is
generally depreciated based upon accelerated methods, utilizing estimated useful
property lives. Building lives range from 5 to 50 years; machinery and equipment
lives range from 2 to 20 years. Continuing depreciation expense was $143.1
million in 2002, $142.2 million in 2001, and $122.4 million in 2000.
43 of 79
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 and are assessed for impairment on at least an annual basis. Refer to
Footnote 5 for disclosure on the impact of the adoption. The Company has elected
to test annually for goodwill impairment in the fourth quarter of the fiscal
year. Goodwill of a reporting unit will also be tested for impairment between
annual tests if a triggering event occurs, as defined by SFAS No. 142, that
could potentially reduce the fair value of the reporting unit below its carrying
value. During 2001 and 2000 the Company amortized goodwill over a period of
principally 40 years.
LONG-LIVED ASSETS:
The carrying value of long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying value of such
assets may not be recoverable. Measurement of the impairment loss is based on
the fair value of the asset. Generally, fair value will be determined using
valuation techniques such as the present value of expected future cash flows.
COMPREHENSIVE EARNINGS (LOSSES):
Comprehensive earnings (losses) includes net earnings (losses), foreign currency
translation and both realized and unrealized holding gains (losses) on
marketable securities.
FOREIGN CURRENCY:
Assets and liabilities of foreign subsidiaries, where the local currency is the
functional currency, have been translated at year end exchange rates and profit
and loss accounts have been translated using weighted average yearly exchange
rates. Adjustments resulting from translation have been recorded in the equity
section of the balance sheet as cumulative translation adjustments. Assets and
liabilities of an entity that are denominated in currencies other than an
entity's functional currency are remeasured into the functional currency using
end of period exchange rates. Gains and losses related to these remeasurements
are recorded within the Statement of Earnings as a component of Other, net.
Other comprehensive earnings (losses) were increased by $111.3 million in 2002,
and decreased by $37.3 million and $32.7 million in 2001 and 2000, respectively,
as a result of the foreign currency translation adjustments.
REVENUE RECOGNITION:
Revenue on sales of product is recognized and earned when all of the following
circumstances are satisfied, a) persuasive evidence of an arrangement exists, b)
price is fixed or determinable, c) collectibility is reasonably assured and d)
delivery has occurred. In revenue transactions where installation is required,
revenue can be recognized when the installation obligation is not essential to
the functionality of the delivered products. Revenue transactions involving
non-essential installation obligations are those which can generally be
completed in a short period of time, at insignificant cost and the skills
required to complete these installations are not unique to the Company and in
many cases can be provided by third parties or the customers. If the
installation obligation is essential to the functionality of the delivered
product, revenues are deferred until installation is complete. In a limited
number of revenue transactions, other post shipment obligations such as training
and customer acceptance are required and, accordingly, revenues are deferred
until the customer is obligated to pay, or acceptance has been confirmed.
Shipping and handling fees are not material and are generally credited to
revenue with related costs principally charged to cost of sales. Service
revenues are recognized and earned when services are performed and are not
significant to any period presented.
STOCK-BASED COMPENSATION:
SFAS No. 123 "Accounting for Stock-Based Compensation," allows companies to
measure compensation cost in connection with employee share option plans using a
fair value based method or to continue to use an intrinsic value based method as
defined by APB No. 25 "Accounting for Stock Issued to Employees," which
generally does not result in a compensation cost. The Company accounts for
stock-based compensation under APB 25, and does not recognize stock-based
compensation expense upon the issuance of its stock options because the option
terms are fixed and the exercise price equals the market price of the underlying
stock on the grant date. If the Company had recognized compensation expense upon
issuance of the options, based on the Black-Scholes option pricing model, the
Company's pro-forma net earnings and basic and diluted earnings per share would
have been reduced by approximately $15.4 million or $0.07 and $0.08 per share
for 2002, $14.9 million or $0.08 and $0.07 per share for 2001 and $9.5 million
or $0.05 and $0.05 per share for 2000. Refer to Note 9 for additional
disclosures.
INCOME TAXES:
The provision for income taxes on continuing operations includes federal, state,
local and foreign taxes. Tax credits, primarily for research and experimentation
and foreign earnings and export programs are recognized as a reduction of the
provision for income taxes on continuing operations in the year in which they
44 of 79
are available for tax purposes. Generally, no provision is made for U.S. income
taxes on unremitted earnings of foreign subsidiaries since any U.S. taxes
payable would be offset by foreign tax credits. Deferred taxes are provided on
temporary differences between assets and liabilities for financial reporting and
tax purposes as measured by enacted tax rates expected to apply when temporary
differences are settled or realized. Future tax benefits are recognized to the
extent that realization of those benefits is considered to be more likely than
not. A valuation allowance is established for deferred tax assets for which
realization is not assured. The Company has not provided for any residual U.S.
income taxes on unremitted earnings of foreign subsidiaries as such earnings are
intended to be indefinitely reinvested.
RESEARCH AND DEVELOPMENT COSTS:
Research and development expenditures, including qualifying engineering costs,
are expensed when incurred and amounted to $168.5 million in 2002, $170.2
million in 2001 and $165.4 million in 2000.
RISK RETENTION, INSURANCE:
The Company generally retains the primary, first loss, risk for losses, claims
and liabilities related primarily to workers' compensation, health and welfare
claims, business interruption resulting from certain events and comprehensive
general, product and automobile liability. The Company accrues for claim
exposures which are probable of occurrence and can be reasonably estimated. As
part of the Company's risk management program, insurance is maintained to
transfer risk beyond the level of self-retention and provides stop loss
protection on both an individual claim and annual aggregate basis. The Company
self insures its product and general liability claims up to $2.0 million per
occurrence and its workers' compensation up to $0.3 million per occurrence and
automobile liability claims up to $1.0 million per occurrence. A third party
insurance provider insures claims per occurrence in excess of these amounts up
to predetermined limits of $5.0 million for product and general liability, and
state imposed statutory limits for workers' compensation and $2.0 million for
automobile liability. In addition, the Company has aggregate deductible stop
loss insurance from third party insurers on both an aggregate and an individual
occurrence well in excess of the limits discussed above. A worldwide program of
property insurance covers the Company's owned property and any business
interruptions which may occur due to a hazard risk affecting those properties.
MARKETABLE SECURITIES:
Available-for-sale securities, which consist of only one investment, are
reported at fair value and unrealized gains and losses on available for sale
securities are shown in the caption "unrealized holding gains" included in
stockholders' equity. As of December 31, 2002 and 2001 available-for-sale
securities totaled $0.5 million and $1.0 million with related unrealized
(losses) gains of ($0.1 million) in 2002 and $0.3 million in 2001, net of tax.
During 2000 the Company reported realized gains in the amount of $13.7 million
pre-tax on the sale of marketable securities.
ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS:
Effective January 1, 2001, the Company adopted SFAS Statement No. 133
"Accounting for Derivative Instruments and Hedging Activities" and its related
amendment SFAS Statement No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities". These statements establish accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
statements require recognition of all derivatives as either assets or
liabilities on the balance sheet and the measurement of those instruments at
fair value. If the derivative is designated as a fair value hedge and is
effective, the changes in the fair value of the derivative and of the hedged
item attributable to the hedged risk are recognized in earnings in the same
period. If the derivative is designated as a cash flow hedge, the effective
portions of changes in the fair value of the derivative are recorded in other
comprehensive income and are recognized in the income statement when the hedged
item affects earnings. Ineffective portions of changes in the fair value of cash
flow hedges are recognized in earnings. The Company does not enter into
derivative financial instruments for speculative purposes and does not have a
material portfolio of derivative financial instruments.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, trade receivables, accounts
payable, non-payable and accrued expenses approximates fair value due to the
short maturity of these instruments. In addition, the long-term debt
approximates fair value because present long-term interest rates approximate the
Company's actual interest rates.
NEW ACCOUNTING STANDARDS:
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
45 of 79
life of the asset. The effect of the adoption of SFAS No. 143 is immaterial to
the Company's 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 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 EITF 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 provisions of SFAS 146
are to be applied prospectively. The Company is still assessing the potential
impact of SFAS No. 146 on its consolidated results of operations and financial
position.
In November of 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34." FIN
45 clarifies the requirements of FASB Statement No. 5., "Accounting for
Contingencies", relating to the guarantor's accounting for, and disclosure of,
the issuance of certain types of guarantees. The disclosure requirements of FIN
45 are effective for financial statements of interim or annual periods that end
after December 15, 2002 and have been incorporated into the footnotes. The
provisions for initial recognition and measurement are effective on a
prospective basis for guarantees that are issued or modified after December 31,
2002, irrespective of the guarantor's year-end. FIN 45 requires that upon
issuance of a guarantee, the entity must recognize a liability for the fair
value of the obligation it assumes under that guarantee. The Company has adopted
the disclosure requirements of FIN 45 and does not expect the impact to be
material.
In December of 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure - an amendment of SFAS 123" which is
effective for fiscal years ending after December 15, 2002 regarding certain
disclosure requirements which have been incorporated into the footnotes. This
Statement amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation. It also amends the disclosure provisions of that
Statement to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation. Finally, this Statement amends APB Opinion No. 28,
"Interim Financial Reporting", to require disclosure about those effects in
interim financial information.
In January of 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of ARB 51",
which is effective for certain variable interest entities created and financial
statements issued after January 31, 2003. The Company does not have any variable
interest entities, accordingly FIN 46 will not impact the consolidated results
of operations and financial position.
RECLASSIFICATIONS:
Certain amounts in prior years have been reclassified to conform to the current
year's presentation.
2. ACQUISITIONS:
All of the acquisitions listed below for the years ending 2002 and 2001 have
been accounted for by the purchase method of accounting. Accordingly, the
accounts of the acquired companies, after adjustment to reflect fair market
values assigned to assets and liabilities have been included in the consolidated
financial statements from their respective dates of acquisitions. Unless
otherwise noted, all acquisitions are wholly owned.
2002 ACQUISITIONS
DATE TYPE ACQUIRED COMPANIES LOCATION (NEAR) SEGMENT OPERATING CO.
- -----------------------------------------------------------------------------------------------------------------------------
2-JAN ASSET IMPELL, INC. SUWANEE, GA DTI OK INTERNATIONAL
Manufactures air purification equipment and systems for the electronic assembly industry.
11-JAN STOCK BREVETTI NETTUNO BOLOGNA, ITALY DRI OPW FUELING COMPONENTS
Manufactures LPG (propane) nozzles and accessories.
15-FEB STOCK (40%) MULTITEST AG ROSENHEIM, GERMANY DTI EVERETT CHARLES TECHNOLOGIES
Manufactures semiconductor test handling equipment (purchased remaining minority interest).
25-MAR ASSET EMCO ELECTRONICS CARY, NC DRI OPW FUELING COMPONENTS
46 of 79
Manufactures fuel management and automatic tank gauging systems.
28-JUN STOCK/ASSET ACUMEN TECHNOLOGY MILPITAS, CA DTI DEK
Manufactures stencils and screens for the assembly of circuit boards.
1-OCT ASSET HOVER-DAVIS ROCHESTER, NY DTI STAND-ALONE
Manufactures component feeders, direct die feeders and label feeders used in automated circuit board assemble lines.
30-DEC STOCK CHAMBON ST. ETIENNE, FRANCE DDI PERFORMANCE MOTORSPORTS
Manufactures high quality crankshafts for the racing industry and special prototype crankshafts for OEMs.
The aggregate cost of the 2002 acquisitions was approximately $100.8 million of
which $43.1 million represents goodwill. The aggregate cost can be reconciled to
the $100.1 million "economic cost" basis by considering long-term debt assumed
of $0.4 million and cash acquired of $1.1 million on the date of acquisition.
The following unaudited pro forma information presents the results of operations
of the Company as if the 2002 and 2001 acquisitions had taken place on January
1, 2001.
(in thousands except per share figures)
For the years ended December 31, 2002 2001
- --------------------------------------------------------------------------------
Net sales from continuing operations:
As reported $ 4,183,664 $ 4,368,415
Pro forma 4,209,809 4,502,251
Net earnings from continuing operations
available to common stockholders:
As reported $ 211,149 $ 181,831
Pro forma 210,095 176,046
Basic earnings per share from
continuing operations:
As reported $ 1.04 $ 0.90
Pro forma 1.04 0.87
Diluted earnings per share from
continuing operations:
As reported $ 1.04 $ 0.89
Pro forma 1.03 0.86
- --------------------------------------------------------------------------------
These pro forma results of operations have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of goodwill (pre July 1, 2001) and intangibles and increased
interest expense on acquisition debt. They do not purport to be indicative of
the results of operations which actually would have resulted had the
acquisitions occurred on the date indicated, or which may result in the future.
2001 ACQUISITIONS
DATE TYPE ACQUIRED COMPANIES LOCATION (NEAR) SEGMENT OPERATING CO.
- -----------------------------------------------------------------------------------------------------------------------------------
1-JAN ASSET CPI PRODUCTS PLYMOUTH, MI DRI DE-STA-CO INDUSTRIES
Manufactures a broad array of end-of-arm, transfer press, and assembly tooling products.
4-JAN STOCK BAYNE MACHINE WORKS, INC. GREENVILLE, SC DII HEIL ENVIRONMENTAL
Manufactures hydraulic lift systems utilized in the waste industry.
31-JAN STOCK ADHOC LOGICIEL HAUTMONT, FRANCE DTI IMAJE
Develops software systems for trace-ability, identification and product flow management.
28-FEB STOCK SCHRIEBER ENGINEERING CERRITOS, CA DII DOVATECH
Manufactures small and medium-sized chillers.
31-MAR STOCK COMCO CINCINNATI, OH DDI MARK ANDY
Manufactures narrow and mid-web flexographic printing presses.
31-MAR STOCK TISMA MACHINERY CORPORATION ELK GROVE VILLAGE, IL DDI SWF
Manufactures and designs automated packaging machinery used in forming, packing and sealing of corrugated packages.
31-MAY ASSET KURZ-KASCH, INC. DAYTON, OH DII STAND-ALONE
Manufactures coil based electro magnetic switches and sensors that are encapsulated in thermoset plastic.
31-MAY STOCK(60%) MULTITEST AG ROSENHEIM, GERMANY DTI EVERETT CHARLES TECHNOLOGIES
Manufactures semiconductor test handling equipment.
20-JUN STOCK MARKPOINT HOLDING AB GOTEBORG, SWEDEN DTI IMAJE
Manufactures and designs marking solutions for packaging industries.
11-JUL STOCK CARRILLO SAN CLEMENTE, CA DDI PERFORMANCE MOTORSPORTS
Manufactures automotive engine connecting rods.
47 of 79
16-AUG ASSET FEDERAL-MOGUL RPB NORTHWOOD HILLS, UK DDI WAUKESHA BEARINGS
Manufactures hydrodynamic and magnetic bearing products for oil/gas, chemical and industrial markets.
18-OCT STOCK PERFECT BORE, LTD. ANDOVER, UK DDI PERFORMANCE MOTORSPORTS
Manufactures specialty cylinder liners for racing engines.
The aggregate cost of the 2001 acquisitions was approximately $282.0 million of
which $164.1 million represents goodwill. The aggregate cost can be reconciled
to the $281.8 million "economic cost" by considering long-term debt assumed of
$7.8 million and cash acquired of $7.9 million on the date of acquisition.
3. RESTRUCTURING AND INVENTORY CHARGES
During 2002 and 2001, the Company's segments and operating companies initiated a
variety of restructuring programs. These restructuring programs focused on
reducing the overall cost structure primarily through reductions in headcount
and through the disposition or closure of certain non-strategic or redundant
product lines and manufacturing facilities. Restructuring charges are comprised
of only employee separation and facility exit costs. Restructuring charges for
continuing operations were primarily recorded as selling and administrative
expenses. The employee separation programs for continuing operations announced
have involved approximately 3,280 employees, 88% of whom have been terminated as
of December 31, 2002. The Company expects to complete the restructuring programs
undertaken in 2002 by the end of 2003 and the majority of the 2001 restructuring
programs were completed by December 31, 2002.
2002 RESTRUCTURING
In 2002, the Company initiated restructuring programs at selected operating
companies with ongoing efforts to reduce costs in the continually challenging
business environments in which the Company operates. The total restructuring
charges related to these programs in 2002 were $28.7 million. The restructuring
charges included both employee separation costs of $11.9 million and costs
associated with exit activities of $16.8 million.
The restructuring in Technologies took place in the CBAT and SEC groups, in
response to the significant declines in the end-markets served by these
operations. CBAT recorded $6.6 million for employee separation and $11.2 million
for exit activities. The majority of the severance and exit costs were incurred
at Universal, Everett Charles and DEK. The facility exit costs are comprised of
lease terminations and idle equipment impairments. SEC recorded $2.5 million for
employee separation and $3.6 million for facility exit activities, a majority of
which costs were incurred at Quadrant and Novacap.
Industries recorded restructuring charges of $3.7 million, of which $2.1 million
was incurred to exit an under-performing product line at Tipper Tie. The
remaining $1.6 million was for employee separation and other exit costs.
Diversified recorded $1.1 million of restructuring charges to rationalize its
SWF business of which $0.8 million was for severance.
2001 RESTRUCTURING
During 2001, the Company initiated various restructuring programs in response to
the downturn in the end markets served within its Technologies segment and to
reduce the overall cost structure in the Diversified, Industries and Resources
segments. The total restructuring charges related to these programs in 2001 was
$17.2 million. The restructuring charges included both employee separation costs
of $11.7 million and $5.5 million for exit costs.
The Technologies segment recorded restructuring charges in CBAT primarily for
costs associated with employee separation of $5.1 million. In addition, CBAT
recorded charges of $1.4 million for exit costs. SEC also announced
restructuring programs, primarily related to the closure of two European
operations for $1.0 million. In addition, SEC recorded charges of $0.9 million
for employee separation costs. Imaje also recorded employee separation costs of
$1.0 million for certain management employees.
The Diversified segment recorded restructuring charges for employee separation
costs of $3.1 million and facility exit costs of $2.4 million related to the
closure of two North American facilities that were experiencing declining
volume, pricing pressure and excess capacity concerns. The Industries segment
recorded charges of $2.0 million to restructure its Rotary Lift European
operations and the Resources segment recorded $0.3 million to restructure its
De-Sta-Co operating company.
48 of 79
The Company recorded pre-tax restructuring charges by business segment for the
year ended December 31, as follows:
(in thousands) 2002 2001
- ---------------------------------------------------
Industries $ 3,724 $ 1,960
Diversified 1,128 5,529
Resources - 337
Technologies 23,886 9,362
---------------------------
Total $ 28,738 $ 17,188
- ---------------------------------------------------
A reconciliation of restructuring provisions is as follows:
(in thousands) Severance Exit Total
- ---------------------------------------------------------------------------------
2001 restructuring provision $ 11,656 $ 5,532 $ 17,188
Benefits and exit costs paid / write downs (5,958) (636) (6,594)
-----------------------------------
Ending balance as of December 31, 2001 5,698 4,896 10,594
- ---------------------------------------------------------------------------------
2002 restructuring provision 11,955 16,783 28,738
Benefits and exit costs paid / write downs (11,434) (12,537) (23,971)
-----------------------------------
Ending balance as of December 31, 2002 $ 6,219 $ 9,142 $ 15,361
- ---------------------------------------------------------------------------------
The following table details inventory write-downs recorded in 2002 and 2001. The
utilization of these reserves by segment through December 31, 2002 is presented
below:
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------
Technologies Diversified Resources Industries Total
---------------------------------------------------------------
2001 Inventory Provisions $ 47,202 $ 13,224 $ 3,413 $ - $ 63,839
Disposed of through December 31, 2001 (7,151) - - - (7,151)
---------------------------------------------------------------
Ending balance as of December 31, 2002 40,051 13,224 3,413 - 56,688
---------------------------------------------------------------
2002 Inventory Provisions 10,847 1,153 - - 12,000
Disposed of through December 31, 2002 (25,845) (14,377) (2,500) - (42,722)
Sold through December 31, 2002 (6,444) - - - (6,444)
Discontinued Operations (2,997) - (913) - (3,910)
---------------------------------------------------------------
Ending balance as of December 31, 2002 $ 15,612 $ - $ - $ - $ 15,612
- ------------------------------------------------------------------------------------------------------------------------
The inventory sold through December 31, 2002 has generated pretax profits of
less than $1.2 million.
4. INVENTORIES
Summary by components at December 31, (in thousands) 2002 2001
- --------------------------------------------------------------------------------
Raw materials $ 288,426 $ 283,617
Work in process 178,631 166,289
Finished goods 159,495 219,306
-------------------------
Total 626,552 669,212
Less LIFO reserve 31,481 30,194
-------------------------
$ 595,071 $ 639,018
- --------------------------------------------------------------------------------
At December 31, 2002, domestic inventories determined by the LIFO inventory
method amounted to $128.5 million and $154.1 million at December 31, 2001.
49 of 79
5. 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.
During 2001 and 2000 the Company amortized goodwill over a period of principally
40 years.
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, 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 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 $345.1 million and a net after tax charge of
$293.0 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 the current market conditions in terms of size and new product
opportunities, current and/or future operating margins and future growth
potential relative to expectations when acquired. Of the total goodwill
reduction, $148.0 million was from the Diversified segment, $127.5 million was
from the Industries Segment and $69.6 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 has elected to annually test for goodwill impairment in the fourth
quarter of its fiscal year. The Company has completed its 2002 testing of the
identified reporting units and has determined that there has been no additional
goodwill impairment.
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. The effect of the adoption of SFAS No. 141 did not have a material
impact on the Company's consolidated results of operations and financial
position.
50 of 79
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:
December 31, 2001 December 31, 2000
----------------------------------------- ------------------------------------
Earnings Per Share Earnings Per Share
Earnings ------------------ Earnings ------------------
(in thousands) Basic Diluted (in thousands) Basic Diluted
Net earnings $ 248,537 $ 1.22 $ 1.22 $ 519,612 $ 2.56 $ 2.54
Add back: Goodwill amortization, net of tax 42,158 0.21 0.21 37,655 0.18 0.18
Add back: Indefinite-lived intangible
amortization, net of tax 1,585 0.01 0.01 1,585 0.01 0.01
------------ ---------- ------------ ---------- --------- ----------
Pro forma net earnings $ 292,280 $ 1.44 $ 1.44 $ 558,852 $ 2.75 $ 2.73
============ ========== ============ ========== ========= ==========
Net earnings from discontinued operations 66,706 0.33 0.33 6,089 0.03 0.03
Pro forma net earnings from continuing
operations $ 225,574 $ 1.11 $ 1.11 $ 552,763 $ 2.72 $ 2.70
------------ ---------- ------------ ---------- --------- ----------
The changes in the carrying value of goodwill by market segment through the year
ended December 31, 2002 are as follows:
(in thousands) Diversified Industries Resources Technologies Total
- ---------------------------------------------------------------------------------------------------------------------------
Balance as of January 1, 2002 $ 539,169 $ 524,907 $ 371,262 $ 472,702 $ 1,908,040
--------------------------------------------------------------------------
Goodwill from acquisitions - - 1,359 41,758 43,117
Impairment losses (147,950) (127,530) (69,642) - (345,122)
Other (primarily cumulative translation) 10,524 4,361 10,591 23,371 48,847
--------------------------------------------------------------------------
Balance as of December 31, 2002 $ 401,743 $ 401,738 $ 313,570 $ 537,831 $ 1,654,882
- ---------------------------------------------------------------------------------------------------------------------------
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:
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands) December 31, 2002 December 31, 2001
---------------------------- ------------------------------
Average
Gross Carrying Accumulated Amortizable Gross Carrying Accumulated
Amount Amortization Life Amount Amortization
-------------- ------------ ----------- -------------- ------------
Trademarks $ 21,736 $ 8,321 29 $ 81,869 $ 3,986
Patents 89,568 43,981 13 89,192 37,228
Customer Intangibles 14,275 2,689 9 5,655 1,536
Unpatented Technologies 58,092 11,248 9 2,624 971
Non-Compete Agreements 10,345 6,310 5 10,936 4,031
Other 9,021 4,580 14 29,153 451
------------ ---------- -- ------------ ------------
Total Amortizable Intangible Assets $ 203,037 $ 77,129 13 $ 219,429 $ 48,203
------------ ---------- ------------ ------------
Total Indefinite-Lived Trademarks 76,928 - - -
------------ ---------- ------------ ------------
Total $ 279,965 $ 77,129 $ 219,429 $ 48,203
===========================================================================================================================
The total intangible amortization expense for the twelve months ended December
31, 2002, 2001 and 2000 was $17.8 million, $20.2 million, and $15.8
respectively. The estimated amortization expense, based on current intangible
balances, for the next five fiscal years beginning January 1, 2003 is as
follows:
(in thousands)
- ------------------------------------------
2003 $ 16,200
2004 $ 14,972
2005 $ 12,748
2006 $ 11,400
2007 $ 10,419
- ------------------------------------------
51 of 79
6. DISCONTINUED OPERATIONS AND DISPOSITIONS:
In October of 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", which was effective for fiscal years
beginning after December 15, 2001. SFAS No. 144 establishes accounting and
reporting standards for the impairment and disposal of long-lived assets and
discontinued operations. The Company elected to early adopt SFAS No. 144 in
2001. The application of this statement results in the classification, and
separate financial presentation of certain entities as discontinued operations,
which are not included in continuing operations. The earnings (loss) from
discontinued operations include charges to reduce these businesses to estimated
fair value less costs to sell. Fair value is determined by using quoted market
prices, when available, or other accepted valuation techniques. All interim and
full year reporting periods have been restated to reflect the discontinued
operations discussed below.
In 2002, the Company concluded that several businesses either had limited growth
prospects under its ownership, due to relevant domestic and international market
conditions, or did not align with management's long-term strategic plans.
Accordingly, four businesses were discontinued in Technologies and three
businesses were discontinued in Resources. Vectron GmbH, from Technologies, and
Tarby from Resources were sold during 2002 for a net after tax loss of $4.5
million. The remaining five businesses were classified as held for sale for the
year ended December 31, 2002. One of those businesses, Wittemann in the
Resources segment, was subsequently sold in February of 2003. The Company
expects to dispose of the rest of these businesses by the end of 2003.
During 2001, the Company discontinued four businesses in the Diversified segment
and one business in both the Industries and Resources segments. The Company
determined that these businesses were not suited for long-term strategic growth
under its ownership. The DovaTech welding equipment business from Industries and
the AC Compressor business from Diversified were sold during 2001 for a net gain
after tax of $96.6 million. The four remaining businesses were classified as
held for sale as of December 31, 2001. In 2002, all four of these businesses
were disposed of or liquidated for a net after tax gain of $3.6 million.
During 2000, the Company reported a $13.6 million loss after tax due to
subsequent adjustments to both the purchase price and expenses related to the
disposition of the Dover Elevator International market segment in 1999. These
results are reported in the gain (loss) on sale of discontinued operations, net
of tax.
Earnings (losses) from discontinued operations include the following results for
the years ended December 31:
(in thousands) 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Net Sales $ 67,326 $ 159,569 $ 335,913
Operating Income (17,708) (23,911) 29,294
Earnings (losses) from discontinued operations, net of taxes (38,520) (29,888) 19,684
Gains (losses) on sale of discontinued operations, net of taxes (841) 96,594 (13,595)
- -------------------------------------------------------------------------------------------------------------
Total net earnings (losses) from discontinued operations (39,361) 66,706 6,089
- -------------------------------------------------------------------------------------------------------------
Charges to reduce these discontinued businesses to their estimated fair values
have been recorded in earnings (losses) from discontinued operations, net of
tax. For the years ended December 31, 2002 and 2001, charges were recorded to
write off goodwill of $31.6 million and $11.6 million and other long-lived asset
impairments and other charges of $12.3 million and $7.7 million, respectively.
The major classes of discontinued assets and liabilities included in the
Consolidated Balance Sheets are as follows:
(in thousands) 2002 2001
- -------------------------------------------------------------------------------
Assets:
Current Assets $ 34,305 $ 42,229
Non-Current Assets 14,909 74,369
-------------------------
Total Assets of Discontinued Operations $ 49,214 $ 116,598
-------------------------
Liabilities:
Current liabilities $ 17,745 $ 33,851
Long-term liabilities 10,086 2,656
-------------------------
Total Liabilities of Discontinued Operations $ 27,831 $ 36,507
- -------------------------------------------------------------------------------
52 of 79
7. LINES OF CREDIT AND DEBT
Under the terms of the two new Revolving Credit Agreements dated October 2002
(which replaced the old Revolving Credit Agreement dated November 2001) the
Company has $600 million of bank credit availability. The arrangements include a
$300 million 364-day facility and a $300 million 3-year facility. The new
364-day facility bears interest at LIBOR plus .23% and the new 3-year facility
bears interest at LIBOR plus .21%. The key financial covenant of these
facilities requires the Company to maintain an interest coverage ratio of EBITDA
to net interest expense of not less than 3.5 to 1. The Company has been in
compliance with the covenant and the ratio was 7.8 to 1 as of December 31, 2002.
This credit facility was unused during 2002. Under the terms of the old
Revolving Credit Agreement dated November 2001, the Company had $750 million of
bank credit availability. This credit facility was unused during 2001. The
company chose to decrease the aggregate amount of its Revolving Credit Facility
from $750 million to $600 million due to the anticipated reduced need for
short-term financing. The Company intends to replace the $300 million 364-day
Credit Facility on or before its expiration date of October 17, 2003 at
equivalent market rates. The Company established a new Canadian Credit Facility
in November of 2002. Under the terms of this Credit Agreement, the Company has a
Canadian (CAD) $30 million bank credit availability and has the option to borrow
in either Canadian Dollars or U.S. Dollars. At December 31, 2002, the
outstanding borrowings under this facility were $16.3 million in U.S. dollars.
The covenants and interest rates under this facility match those of the primary
$600 million Revolving Credit Facilities. The Canadian Credit Facility expires
on November 25, 2003. The Company intends to replace the Canadian Credit
facility on or before its expiration date at comparable market rates. The
primary purpose of these agreements is to act as an alternative for short term
financing in the event of a disruption in the commercial paper market which the
Company normally accesses for its short term borrowing needs.
Notes payable shown on the consolidated balance sheets for 2002 principally
represented short-term borrowings at a foreign subsidiary and for 2001
principally represented commercial paper borrowings issued in the U.S. The
weighted average interest for short-term borrowings for the years 2002 and 2001
was 1.8% and 4.6% respectively.
A summary of the Company's long-term debt is as follows for years ended December
31:
(in thousands) 2002 2001
- -----------------------------------------------------------------------------------
6.45% Notes due Nov. 15, 2005
(less unamortized discount of $220)
with an effective interest rate of 6.51% $ 249,780 $ 250,251
6.25% Notes due June 1, 2008
(less unamortized discount of $69)
with an effective interest rate of 6.26% 149,931 149,923
6.65% Debentures due June 1, 2028
(less unamortized discount of $838)
with an effective interest rate of 6.68% 199,162 199,152
6.50% Notes due Feb. 15, 2011
(less unamortized discount of $529)
with an effective interest rate of 6.52% 399,471 399,427
Other 35,105 36,721
---------------------------
Total long-term debt 1,033,449 1,035,474
Less current installments 3,150 3,730
---------------------------
Long-term debt excluding current installments $ 1,030,299 $ 1,031,744
- -----------------------------------------------------------------------------------
Annual repayments of long-term debt are scheduled as follows:
(in thousands)
- -----------------------------------------------------
2003 $ 3,150
2004 2,396
2005 250,246
2006 419
2007 332
Thereafter 776,906
-------------
Total Long Term Debt $ 1,033,449
- -----------------------------------------------------
The Company may, from time to time, enter into interest rate swap agreements to
manage its exposure to interest rate changes. Interest rate swaps are agreements
to exchange fixed and variable rate payments based on the notional
53 of 79
principal amounts. As of December 31, 2001, the Company had two interest rate
swap agreements terminating on November 15, 2005 with a total notional amount of
$150 million to exchange fixed rate interest for variable. Both swaps were
designated as fair value hedges of the $250 million Notes, due November 15,
2005, and the net interest payments or receipts from these agreements, during
2001, were recorded as adjustments to interest expense. There was no hedge
ineffectiveness as of December 31, 2001 and the fair value of the interest rate
swaps determined through market quotation of $0.5 million was reported in other
assets and long-term debt. During 2002, both of the interest rate swaps were
settled, which resulted in net gains of $8.4 million. These gains were deferred
and are being amortized over the balance of the term of the debt, permanently
reducing the effective interest rate of the $250 million Notes, due November 15,
2005 from 6.5% to 5.3%.
8. CAPITAL STOCK, ADDITIONAL PAID-IN CAPITAL AND TREASURY STOCK
A summary of equity activity follows:
Treasury Stock
Common Stock Additional --------------
(in thousands) $1 Par Value Paid-in Capital Shares Amount
- ------------------------------------------------------------------------------------------------
Balance at
December 31, 2000 $ 236,944 $ 48,552 33,761 $ 986,661
Stock options exercised 274 6,016 29 * 1,169
Treasury stock purchased - - 934 30,985
Stock issued, net of cancellations 85 655 - -
--------------------------------------------------------
Balance at
December 31, 2001 $ 237,303 $ 55,223 34,724 $ 1,018,815
Stock options exercised 381 8,630 43 * 1,472
Treasury stock purchased - - 511 14,039
Stock issued, net of cancellations (4) 1,640 - -
--------------------------------------------------------
Balance at
December 31, 2002 $ 237,680 $ 65,493 35,278 $ 1,034,326
- ------------------------------------------------------------------------------------------------
* Shares received as consideration for exercise price.
The Board of Directors has been authorized to issue preferred stock, in one or
more series, up to 100,000 shares, with such designations, preferences and
relative rights and limitations as may be stated in the resolution relating to
each issue.
During 1987 the Board of Directors adopted a Stockholders' Rights Plan that is
designed to protect stockholders from attempts to acquire control of the Company
at an inadequate price. On November 7, 1996, the Board of Directors amended the
original Plan by changing some of its features and extending the Plan to
November 2006.
9. STOCK OPTION AND PERFORMANCE INCENTIVE PROGRAM
On April 24, 1984, the stockholders approved an incentive stock option plan and
cash performance program under which a maximum aggregate of 19 million shares
was reserved for grants to key personnel until January 30, 1994. This plan
expired on January 30, 1995, but certain previous grants for approximately
312,000 shares remain outstanding at December 31, 2002. The period during which
these options are exercisable is fixed by the Company's Compensation Committee
at the time of grant, but is not to exceed ten years.
On April 25, 1995, the stockholders approved an incentive stock option plan and
a cash performance program to replace the expired 1984 plan and program. Under
the new plan a maximum aggregate of 20 million shares was reserved for grants to
key personnel until January 30, 2005. The option price may not be less than the
fair market value of the stock at the time the options are granted. The period
during which these options are exercisable is fixed by the Company's
Compensation Committee at the time of grant, but is not to exceed ten years.
54 of 79
Transactions in stock options (all of which are non-qualified and cliff vest
three years after grant) under this plan are summarized as follows:
Shares Weighted
Under Option Price Range Average
- -----------------------------------------------------------------------------------------------------
Outstanding at January 1, 2000 5,723,485 $ 8.67 - $35.00 $ 23.20
Granted 1,032,671 $ 39.00 - $43.00 $ 39.05
Exercised (660,524) $ 8.67 - $24.72 $ 13.63
Canceled (119,713) $ 8.67 - $39.00 $ 34.27
-------------------------------------------------
Outstanding at December 31, 2000 5,975,919 $ 9.62 - $43.00 $ 26.69
=================================================
Exercisable at December 31, 2000
through February 4, 2007 2,927,003 $ 9.62 - $24.72 $ 18.62
=================================================
Outstanding at January 1, 2001 5,975,919 $ 9.62 - $43.00 $ 26.69
Granted 2,007,965 $ 33.00 - $41.00 $ 40.95
Exercised (273,837) $ 9.62 - $35.00 $ 14.41
Canceled (305,778) $ 14.88 - $43.00 $ 38.18
-------------------------------------------------
Outstanding at December 31, 2001 7,404,269 $ 9.67 - $43.00 $ 30.68
=================================================
Exercisable at December 31, 2001
through February 5, 2008 3,434,323 $ 9.67 - $35.00 $ 22.71
=================================================
Outstanding at January 1, 2002 7,404,269 $ 9.67 - $43.00 $ 30.68
Granted 2,139,792 $ 27.00 - $38.00 $ 37.92
Exercised (380,674) $ 9.67 - $35.00 $ 16.85
Canceled (331,004) $ 29.00 - $43.00 $ 39.38
-------------------------------------------------
Outstanding at December 31, 2002 8,832,383 $ 9.67 - $43.00 $ 32.71
=================================================
Exercisable at December 31, 2002 through:
March 4, 2003 102,651 $ 11.42
February 27, 2004 209,560 $ 14.88
February 2, 2005 707,460 $ 14.22
February 4, 2006 589,886 $ 23.53
February 4, 2007 710,600 $ 24.72
February 5, 2008 753,201 $ 35.00
February 4, 2009 1,145,561 $ 31.00
-------------------------------------------------
Total 4,218,919 $ 11.40 - $35.00 $ 25.52
- -----------------------------------------------------------------------------------------------------
The Company applies APB Opinion 25 and related Interpretations in accounting for
stock options; accordingly, no compensation cost has been recognized. Had
compensation cost been determined based upon the fair value of the stock options
at grant date consistent with the method in SFAS No. 123, the Company's
continuing net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
(in thousands except per share figures)
For the years ended December 31, 2002 2001 2000
- ----------------------------------------------------------------------------------------------------
Net earnings from continuing
operations available to
common stockholders:
As reported $ 211,149 $ 181,831 $ 513,523
Less: Total stock based compensation, net of tax 15,447 14,945 9,525
Pro forma 195,702 166,886 503,998
Basic earnings per share from
continuing operations:
As reported $ 1.04 $ 0.90 $ 2.53
Pro forma 0.97 0.82 2.48
Diluted earnings per share from
continuing operations:
As reported $ 1.04 $ 0.89 $ 2.51
Pro forma 0.96 0.82 2.46
- ----------------------------------------------------------------------------------------------------
55 of 79
The fair value of each option grant was estimated on the date of grant using a
Black-Scholes option-pricing model with the following assumptions:
For the years ended December 31, 2002 2001 2000
- ----------------------------------------------------------------------------------------------
Risk-free interest rates 5.32% 5.05% 6.88%
Dividend yield 1.27% 1.18% 1.18%
Expected life 9 9 9
Volatility 28.10% 28.28% 23.67%
Weighted average fair value of options granted $ 15.29 $ 16.59 $ 16.38
- ----------------------------------------------------------------------------------------------
The Company also has a restricted stock program, under which common stock of the
Company may be granted at no cost to certain officers and key employees. In
general, restrictions limit the sale or transfer of these shares during a two or
three year period, and restrictions lapse proportionately over the two or three
year period. No restricted shares were granted in 2002; 71,969 and 25,000
restricted shares were granted in 2001 and 2000, respectively.
In addition, the Company has a stock compensation plan under which non-employee
directors are granted 2,000 shares of Dover's common stock per year as their
primary compensation for serving as directors. As the Company's board meeting in
February of 2003, the Board approved a change to the directors' compensation
arrangement. Under the new arrangement, non-employee directors will be entitled
to receive annual compensation in an amount to be set from time to time
(currently $90,000 per year), 25% of which will be paid in cash and 75% in Dover
common stock based on the fair market value on the date of issue. This new
compensation arrangement for non-employee directors is subject to approval by
the Company's stockholders at its annual meeting on April 22, 2003.
10. EARNINGS PER SHARE
(in thousands except per share figures) 2002 2001 2000
- ------------------------------------------------------------------------------------
Numerator:
Net earnings from continuing
operations available to
common stockholders: $ 211,149 $ 181,831 $ 513,523
=====================================
Denominator:
Basic weighted average shares 202,571 202,925 202,971
-------------------------------------
Effect of dilutive securities:
Employee stock options 775 1,088 1,706
-------------------------------------
Denominator:
Diluted weighted average shares 203,346 204,013 204,677
=====================================
Basic earnings per share from
continuing operations $ 1.04 $ 0.90 $ 2.53
=====================================
Diluted earnings per share from
continuing operations $ 1.04 $ 0.89 $ 2.51
====================================================================================
The computations of basic and diluted earnings per share from continuing
operations for each year were as follows:
The diluted weighted average shares in 2002 exclude the dilutive effect of
approximately 5,129,000 options with exercise prices in excess of the average
market price of the Company's common stock. The diluted weighted average shares
in 2001 exclude the dilutive effect of approximately 2,793,000 options with
exercise prices in excess of the average market price of the Company's common
stock. There were no stock options in 2000, that were not dilutive because the
average market price was greater than the exercise price of all options
outstanding during that year.
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 assumed stock option
exercises. The diluted EPS computation was made using the treasury stock method.
56 of 79
11. TAXES ON INCOME
Total income taxes for the years ended December 31, 2002, 2001 and 2000 were
allocated as follows:
(in thousands) 2002 2001 2000
- -----------------------------------------------------------------------------------
Income from continuing operations $ 58,542 $ 77,014 $ 228,430
Stockholders' equity, for
compensation expense for tax
purposes in excess of amounts
recognized for financial
reporting purposes (2,597) (2,345) (6,691)
-------------------------------------
$ 55,945 $ 74,669 $ 221,739
===================================================================================
Income tax expense (benefit) is made up of the following components:
(in thousands) 2002 2001 2000
- --------------------------------------------------------------------------
Current:
U.S. Federal $ 8,575 $ 29,174 $ 149,880
State and local 526 4,497 3,031
Foreign 27,922 40,941 60,540
-------------------------------------
Total current - continuing 37,023 74,612 213,451
-------------------------------------
Deferred:
U.S. Federal 18,424 9,094 17,146
State and local 2,128 (1,413) 1,059
Foreign 967 (5,279) (3,226)
-------------------------------------
Total deferred - continuing 21,519 2,402 14,979
-------------------------------------
Total expense - continuing $ 58,542 $ 77,014 $ 228,430
==========================================================================
Income taxes have been based on the following components of earnings before
taxes on continuing income:
(in thousands) 2002 2001 2000
- -------------------------------------------------------------------------
Domestic $ 209,285 $ 178,126 $ 544,126
Foreign 60,406 80,719 197,827
-------------------------------------
$ 269,691 $ 258,845 $ 741,953
=========================================================================
The reasons for the difference between the effective rate and the U.S. Federal
income statutory rate of 35% follow:
2002 2001 2000
- -----------------------------------------------------------------------------------
U.S. Federal income tax rate 35.0% 35.0% 35.0%
State and local taxes, net of Federal
income tax benefit 0.6 0.8 0.4
Foreign operations tax effect 3.3 2.9 (0.1)
===============================
Subtotal 38.9 38.7 35.3
R&E tax credits (2.4) (2.4) (1.2)
Foreign export program benefits (4.1) (4.8) (2.5)
Foreign tax credits (1.1) (1.1) (0.3)
Branch losses (2.2) (1.3) -
Other, principally non-tax deductible items 0.8 2.7 1.0
===============================
Effective rate before reorganizations 29.9 31.8 32.3
Reorganization of entities (8.2) (2.0) (1.5)
===============================
Effective rate from continuing operations 21.7% 29.8% 30.8%
==================================================================================
57 of 79
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31 of each
year are:
(in thousands) 2002 2001
- -------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Accrued insurance $ 15,180 $ 15,878
Accrued compensation, principally postretirement
benefits, and other employee benefits 40,895 37,359
Accrued expenses, principally for disposition
of businesses, interest and warranty 17,096 9,706
Long term liabilities principally warranty, environmental
and exit costs 12,427 12,372
Inventories, principally due to reserves for financial
reporting purposes and capitalization for tax
purposes 28,218 32,787
Net operating loss carryforwards 30,086 33,679
Accounts receivable, principally due to allowance
for doubtful accounts 6,834 9,572
Other assets 5,182 4,914
-----------------------
Total gross deferred tax assets 155,918 156,267
-----------------------
Valuation allowance (30,086) (33,679)
-----------------------
Total deferred tax assets $ 125,832 $ 122,588
=======================
DEFERRED TAX LIABILITIES:
Accounts receivable $ (21,717) $ (21,128)
Plant and equipment, principally due to
differences in depreciation (10,752) (11,934)
Intangible assets, principally due to different tax
and financial reporting bases and
amortization lives (135,397) (120,540)
Prepaid pension assets (37,244) (21,388)
Other liabilities (368) (560)
-----------------------
Total gross deferred tax liabilities (205,478) (175,550)
-----------------------
Net deferred tax liability (79,646) (52,962)
-----------------------
Net current deferred tax asset 56,823 57,534
-----------------------
Net non-current deferred tax liability $ (136,469) $ (110,496)
-----------------------
The Company has loss carryovers for federal and foreign purposes as of December
31, 2002 and 2001 of $411 million and $165 million, respectively. Approximately
$235 million of the 2002 losses will be carried back to 1999 and monetized. The
remaining losses can be carried forward, with $41 million of the carryforward
losses beginning to expire during the years 2003 through 2009. The remaining
$135 million of such losses can be carried forward indefinitely. The Company
maintains a valuation allowance to reduce the deferred tax assets relating to
these carry forwards as the utilization of these losses is not assured.
The Company does not provide for U.S. federal income taxes or tax benefits on
the undistributed earnings or losses of its international subsidiaries because
such earnings are reinvested and, in the opinion of management, will continue to
be reinvested indefinitely. At December 31, 2002, the Company had not provided
federal income taxes on earnings of approximately $160.0 million from its
international subsidiaries. Should these earnings be distributed in the form of
dividends or otherwise, the Company would be subject to both U.S. income taxes
and withholding taxes in various international jurisdictions which will be
partially offset by U.S. foreign tax credits. Determination of the related
amount of unrecognized deferred U.S. income taxes is not practicable because of
the complexities associated with this hypothetical calculation.
Dover is continuously involved with an examination by the Internal Revenue
Service (the "IRS") of the Company's Federal income tax returns. The Company and
the IRS have settled tax years through 1995. The Company expects to resolve open
years (1996-1997) in the near future, all within the amounts paid and/or
reserved for these liabilities. The IRS is currently examining the Company's
1998 and 1999 Federal income tax returns. Additionally, the Company is routinely
involved in state and local income tax audits, and on occasion, foreign
jurisdiction tax audits.
58 of 79
12. COMMITMENTS AND CONTINGENT LIABILITIES
A few of the Company's subsidiaries are involved in legal proceedings relating
to the cleanup of waste disposal sites identified under Federal and State
statutes which provide for the allocation of such costs among "potentially
responsible parties." In each instance the extent of the Company's liability
appears to be very small in relation to the total projected expenditures and the
number of other "potentially responsible parties" involved and is anticipated to
be immaterial to the Company. In addition, a few of the Company's subsidiaries
are involved in ongoing remedial activities at certain plant sites, in
cooperation with regulatory agencies, and appropriate reserves have been
established.
The Company and certain of its subsidiaries are also parties to a number of
other legal proceedings incidental to their businesses. Management and legal
counsel periodically review the probable outcome of such proceedings, the costs
and expenses reasonably expected to be incurred, the availability and extent of
insurance coverage and established reserves. While it is not possible at this
time to predict the outcome of these legal actions, in the opinion of
management, based on these reviews, it is remote that the disposition of the
lawsuits and the other matters mentioned above will have a material adverse
effect on financial position, results of operations or cash flows of the
Company.
The Company leases certain facilities and equipment under operating leases, many
of which contain renewal options. Total rental expense, net of insignificant
sublease rental income, on all operating leases was $44.9 million, $42.0
million, and $33.9 million for 2002, 2001, and 2000, respectively. Contingent
rentals under the operating leases were not significant.
Minimum future rental commitments under operating leases having non-cancelable
lease terms in excess of one year aggregate $152.4 million as of December 31,
2002 and are payable as follows:
(in thousands)
- ---------------------------------------------------------
2003 $ 31,871
2004 25,481
2005 21,255
2006 15,983
2007 and beyond 57,790
---------
Total future rental commitments $ 152,380
- ---------------------------------------------------------
Warranty program claims are provided for at the time of sale. Amounts provided
for are based on historical costs and adjusted for new claims. A reconciliation
of the warranty provision is as follows:
(in thousands)
- -------------------------------------------------------------------
Balance at January 1, 2001 $ 36,769
Provision for warranties 17,826
Settlements made (20,069)
Other adjustments (primarily currency translation) 1,468
----------
Balance at December 31, 2002 $ 35,994
- -------------------------------------------------------------------
13. EMPLOYEE BENEFIT PLANS
The Company has many defined benefit and defined contribution pension plans
covering substantially all employees of the Company and its domestic and
international subsidiaries. Plan benefits are generally based on years of
service and employee compensation. The Company's funding policy is consistent
with the funding requirements of ERISA and applicable foreign law.
The Company also provides, through nonqualified plans, supplemental pension
benefits in excess of qualified plan limits imposed by Federal tax law. These
plans cover officers and certain key employees and serve to restore the combined
pension amount to original benefit levels. The plans are funded from the general
assets of the Company.
The following table sets forth the components of the Company's net periodic
benefit (expense) for 2002, 2001 and 2000.
59 of 79
Defined Benefits Supplemental Benefits
-------------------------------- --------------------------------
(in thousands) 2002 2001 2000 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Components of net periodic expense
Expected return on plan assets $ 22,564 $ 23,741 $ 22,812 $ - $ - $ -
Benefits earned during year (6,906) (5,540) (6,309) (2,404) (1,544) (1,751)
Interest accrued on benefit obligation (14,406) (12,376) (12,476) (4,049) (2,798) (2,959)
Amortization
Prior service cost (879) (950) (951) (2,300) (1,628) (1,628)
Unrecognized actuarial gains (losses) - 450 190 - 491 -
Transition 931 1,140 1,145 - - -
Settlement and curtailment gain (loss) - - - - - -
-------------------------------------- --------------------------------------
Net periodic (expense) benefit $ 1,304 $ 6,465 $ 4,411 $ (8,753) $ (5,479) $ (6,338)
- --------------------------------------------------------------------------------------------------------------------------------
Post Retirement Benefits
--------------------------------
(in thousands) 2002 2001 2000
- ---------------------------------------------------------------------------------------
Components of net periodic expense
Expected return on plan assets $ - $ - $ -
Benefits earned during year (355) (403) (573)
Interest accrued on benefit obligation (1,607) (1,696) (1,583)
Amortization
Prior service cost 14 11 11
Unrecognized actuarial gains (losses) 86 37 20
Transition - - -
Settlement and curtailment gain (loss) 55 - 16
--------------------------------------
Net periodic (expense) benefit $ (1,807) $ (2,051) $ (2,109)
- --------------------------------------------------------------------------------------
The funded status and resulting prepaid pension cost of U.S. defined benefit
plans (international defined benefit plans are not considered material) for the
years ended December 31, 2002 and 2001 were as follows:
Defined Benefits Supplemental Benefits Post Retirement Benefits
------------------ --------------------- ------------------------
(in thousands) 2002 2001 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 199,564 $ 163,928 $ 53,486 $ 36,376 $ 23,112 $ 21,897
Benefits earned during the year 6,906 5,541 2,404 1,543 355 403
Interest cost 14,406 12,376 4,049 2,798 1,606 1,696
Plan participants' contributions - - - - 280 458
Amendments 1,120 244 (1,186) 10,756 (104) (34)
Actuarial loss (gain) 11,583 22,919 (2,021) 3,385 978 1,065
Settlements and curtailments - - - - (59) -
Acquisitions - 17,235 - - - -
Divestitures - (9,483) - - - -
Benefits paid (16,911) (13,196) (2,025) (1,372) (2,088) (2,373)
------------------------ -------------------------- -----------------------
Benefit obligation at end of year 216,668 199,564 54,707 53,486 24,080 23,112
------------------------ -------------------------- -----------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 215,800 264,412 - - - -
Actual return on plan assets (43,128) (43,798) - - - -
Company contributions 44,000 - 2,025 1,372 1,808 1,915
Employee contributions - - - - 280 458
Benefits paid (16,911) (13,196) (2,025) (1,372) (2,088) (2,373)
Acquisitions - 8,382 - - - -
------------------------ -------------------------- -----------------------
Fair value of plan assets at end of year 199,761 215,800 - - - -
------------------------ -------------------------- -----------------------
Funded status (16,907) 16,236 (54,707) (53,486) (24,080) (23,112)
Unrecognized actuarial (gain) loss 121,522 44,247 (4,206) (2,185) (876) (1,936)
Unrecognized prior service cost 6,228 5,987 28,436 31,922 (140) (49)
Unrecognized transition (gain) (4,431) (5,362) - - - -
------------------------ -------------------------- -----------------------
Prepaid (accrued) benefit cost $ 106,412 $ 61,108 $ (30,477) $ (23,749) $ (25,096) $ (25,097)
- ----------------------------------------------------------------------------------------------------------------------------------
The assumptions used in determining the above were as follows:
Defined Benefits Supplemental Benefits Post Retirement Benefits
---------------- --------------------- ------------------------
2002 2001 2002 2001 2002 2001
-------------------------------------------------------------------------
Weighted average discount rate 6.75% 7.25% 6.75% 7.25% 6.75% 7.25%
Average wage increase 4.00% 4.00% 6.75% 6.75% - -
Expected long term rate of return on plan
assets 9.00% 9.50% - - - -
Ultimate medical trend rate - - - - 6.00% 5.00%
======================================================================================================================
Approximately 67% and 87% in 2002 and 2001, respectively, of defined benefit
plan assets were invested in equity securities with the remainder in fixed
income and short-term investments.
Pension cost for all defined contribution and benefit plans was $23.1 million
for 2002, $27.6 million for 2001, and $31.0 million for 2000.
60 of 79
For post retirement benefit measurement purposes an 11% annual rate of increase
in the per capita cost covered benefit (i.e., health care cost trend rates) was
assumed for 2002; the rates were assumed to decrease gradually to 6% by the year
2008 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amount reported. For example,
increasing (decreasing) the assumed health care cost trend rates by one
percentage point in each year would increase (decrease) the accumulated
postretirement benefit obligation as of December 31, 2002 by $1.5 million ($1.3
million) and the net postretirement benefit cost for 2002 by approximately $0.1
million ($0.1 million).
The post retirement benefit plans only cover approximately 650 participants (200
active and 450 retirees) and are closed to new participants.
14. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT SEGMENTS AND
GEOGRAPHIC AREAS
Selected information by geographic regions is presented below:
Revenues Long-lived assets
------------------------------------------ ---------------------------
For the years ended December 31, 2002 2001 2000 2002 2001
- -------------------------------------------------------------------------------------------------------------
United States $ 2,554,993 $ 2,726,462 $ 3,042,244 $ 2,118,108 $ 2,332,035
Europe 794,099 820,289 915,084 559,561 534,310
Other Americas 288,024 348,382 479,948 33,334 41,898
Total Asia 455,701 374,901 547,639 18,799 25,521
Rest of the World 90,847 98,381 79,890 368 225
------------------------------------------------------------------------
$ 4,183,664 $ 4,368,415 $ 5,064,805 $ 2,730,170 $ 2,933,989
------------------------------------------------------------------------
U.S. Exports $ 838,691 $ 907,090 $ 1,228,975
- -------------------------------------------------------------------------------------------------------------
"Revenues" are attributed to regions based on the location of the Company's
customer which in some instances is an intermediary and not necessarily the end
user.
"Long-lived assets" are comprised of net property, plant and equipment;
intangible assets and goodwill, net of amortization; and other assets and
deferred charges.
The Company's operating companies are based primarily in the United States of
America and Europe. The Company's businesses are divided into four reportable
segments. Dover's businesses serve thousands of customers, none of which
accounted for more than 10% of consolidated revenues. Accordingly, it is
impracticable to provide revenues from external customers for each product and
service sold by segment. Selected financial information by market segment as
follows:
61 of 79
SALES, OPERATING PROFIT AND OTHER DATA BY MARKET SEGMENT
(in thousands except % figures)
For the Years Ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers:
Dover Industries $ 1,124,039 $ 1,160,147 $ 1,203,431
Dover Diversified 1,192,057 1,118,283 1,019,307
Dover Resources 837,363 897,380 846,142
Dover Technologies 1,036,472 1,198,137 2,003,600
Intramarket sales (6,267) (5,532) (7,675)
---------------------------------------------------------------
Consolidated continuing sales $ 4,183,664 $ 4,368,415 $ 5,064,805
---------------------------------------------------------------
Operating profit:
Dover Industries $ 147,572 $ 142,235 $ 190,977
Dover Diversified 133,097 95,935 150,607
Dover Resources 115,077 114,171 121,430
Dover Technologies (30,339) 5,621 384,849
Gain (loss) on dispositions, net - - 10,495
Interest income, interest expense
and general corporate expenses, net (95,716) (99,117) (116,405)
---------------------------------------------------------------
Consolidated continuing earnings before taxes on
income $ 269,691 $ 258,845 $ 741,953
---------------------------------------------------------------
Operating profit margin (pretax):
Dover Industries 13.1% 12.3% 15.9%
Dover Diversified 11.2 8.6 14.8
Dover Resources 13.7 12.7 14.4
Dover Technologies (2.9) 0.5 19.2
---------------------------------------------------------------
Consolidated continuing profit margin 6.4% 5.9% 14.6%
Total assets at December 31:
Dover Industries $ 960,432 $ 1,115,291 $ 1,064,515
Dover Diversified 1,008,923 1,122,938 1,030,012
Dover Resources 792,432 866,249 887,752
Dover Technologies 1,327,284 1,263,449 1,446,950
Corporate (principally cash and equivalents
and marketable securities) 299,100 139,407 125,806
---------------------------------------------------------------
Total continuing assets $ 4,388,171 $ 4,507,334 $ 4,555,035
---------------------------------------------------------------
Assets from discontinued operations 49,214 116,598 337,901
---------------------------------------------------------------
Consolidated total $ 4,437,385 $ 4,623,932 $ 4,892,936
---------------------------------------------------------------
Depreciation and amortization:
Dover Industries $ 31,247 $ 45,877 $ 40,742
Dover Diversified 38,081 50,053 43,365
Dover Resources 35,281 46,702 41,363
Dover Technologies 55,076 69,573 56,684
Corporate 1,318 1,289 2,070
---------------------------------------------------------------
Consolidated continuing total $ 161,003 $ 213,494 $ 184,224
---------------------------------------------------------------
Capital expenditures:
Dover Industries $ 24,592 $ 22,315 $ 31,304
Dover Diversified 26,102 48,632 49,391
Dover Resources 16,692 28,145 29,467
Dover Technologies 32,944 62,434 72,869
Corporate 402 1,006 715
---------------------------------------------------------------
Consolidated continuing total $ 100,732 $ 162,532 $ 183,746
========================================================================================================================
62 of 79
15. QUARTERLY DATA (UNAUDITED)
(in thousands, except per share figures)
Per Share (1)
Net Gross Continuing Net --------------------------
Quarter Sales (1) Profit (1) Net Earnings(1) Earnings(2) Basic Diluted
- -------------------------------------------------------------------------------------------------------------------
2002
FIRST $ 994,569 $ 324,187 $ 48,416 $ (247,933) $ 0.24 $ 0.24
SECOND 1,081,841 354,785 65,312 55,201 0.32 0.32
THIRD 1,062,451 350,557 58,491 56,442 0.29 0.29
FOURTH 1,044,803 330,787 38,930 15,029 0.19 0.19
-------------------------------------------------------------------------------------------------------
$ 4,183,664 $ 1,360,316 $ 211,149 $ (121,261) $ 1.04 $ 1.04
-------------------------------------------------------------------------------------------------------
2001
First $ 1,177,587 $ 404,450 $ 78,095 $ 79,086 $ 0.38 $ 0.38
Second 1,088,512 361,888 49,318 143,298 0.25 0.24
Third 1,065,927 309,609 11,578 2,607 0.05 0.06
Fourth 1,036,389 310,401 42,840 23,546 0.22 0.21
-------------------------------------------------------------------------------------------------------
$ 4,368,415 $ 1,386,348 $ 181,831 $ 248,537 $ 0.90 $ 0.89
-------------------------------------------------------------------------------------------------------
All quarterly and full year periods have been restated to reflect certain
operations that were discontinued in 2002 and 2001. The quarterly data presented
above will not agree to previously issued quarterly statements made during the
year as a result of this restatement.
(1) Represents results from continuing operations. 2001 includes
goodwill amortization of $42.2 million, net of tax.
(2) 2002 net earnings include goodwill impairment of $293.0 million net
of tax as a result of the adoption of SFAS No. 142 effective January 1,
2002.
63 of 79
Schedule II
DOVER CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2001, 2000
(in thousands)
Additions
Balance at Acq. By Charged to
Beginning of Purchase Disp/Dissol Cost and
Year or Merger of Business Expense
---- --------- ----------- -------
Year Ended December 31, 2002
Allowance for Doubtful Accounts $ 34,239 $ 123 $ - $ 12,958
Year Ended December 31, 2001
Allowance for Doubtful Accounts $ 23,158 $ 1,505 $ - $ 19,762
Year Ended December 31, 2000
Allowance for Doubtful Accounts $ 19,991 $ 4,093 $ (409) $ 7,490
Deductions Balance at
Accounts Current Year Close of
Written Off Credit to Income Other Year
----------- ---------------- ----- ----
Year Ended December 31, 2002
Allowance for Doubtful Accounts $ (11,283) $ (4,843) $ 89 $ 31,283
Year Ended December 31, 2001
Allowance for Doubtful Accounts $ (9,079) $ (261) $ (846) $ 34,239
Year Ended December 31, 2000
Allowance for Doubtful Accounts $ (7,470) $ (766) $ 229 $ 23,158
Charged,
Balance at (Credited) to Acquired by Balance at
Beginning of Cost and Merger or Close of
Year Expense Disposition Year
---- ------- ----------- ----
Year Ended December 31, 2002
Lifo Reserve $ 30,194 $ 1,287 $ - $ 31,481
Year Ended December 31, 2001
Lifo Reserve $ 34,422 $ (4,235) $ 7 $ 30,194
Year Ended December 31, 2000
Lifo Reserve $ 38,253 $ (511) $ (3,320) $ 34,422
64 of 79
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to the directors of the Company required to be
included pursuant to this Item 10 is included under the caption "1. Election of
Directors" in the 2003 Proxy Statement relating to the 2003 Annual Meeting of
Stockholders filed with the Securities and Exchange Commission pursuant to Rule
14a-6 under the Securities Exchange Act of 1934, as amended, and is incorporated
in this Item 10 by reference. The information with respect to the executive
officers of the Company required to be included pursuant to this Item 10 is
included under the caption "Executive Officers of the Registrant" in Part I of
this Annual Report on Form 10-K and is incorporated in this Item 10 by
reference. The information with respect to Section 16(a) reporting compliance
required to be included in this Item 10 is included under the caption "Section
16(a) Beneficial Ownership Reporting Compliance" in the 2003 Proxy Statement and
is incorporated in this Item 10 by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to executive compensation required to be included
pursuant to this Item 11 is included under the caption "Executive Compensation"
in the 2003 Proxy Statement and is incorporated in this Item 11 by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding security ownership of certain beneficial owners and
management that is required to be included pursuant to this Item 12 is included
under the caption "Security Ownership of Certain Beneficial Owners and
Management" in the 2003 Proxy Statement and is incorporated in this Item 12 by
reference.
EQUITY COMPENSATION PLANS
The Equity Compensation Plan Table below presents information regarding the
Company's equity compensation plans at December 31, 2002:
NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE AVAILABLE FOR FUTURE ISSUANCE
BE ISSUED UPON EXERCISE EXERCISE PRICE OF UNDER EQUITY COMPENSATION PLANS
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES REFLECTED
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS IN COLUMN (a))
(a) (b) (c)
Equity compensation plans
approved by stockholders
8,832,383 $288,907,248 8,046,891
Equity compensation plans
not approved by
stockholders 0 0 0
--------- ------------ ---------
Total 8,832,383 $288,907,248 8,046,891
65 of 79
The Company has three compensation plans under which equity securities of the
Company have been authorized for issuance and have been issued to employees and
to non-employee directors:
THE 1984 INCENTIVE STOCK OPTION PLAN AND CASH PERFORMANCE PROGRAM
The purpose of the 1984 Stock Option Plan and Cash Performance Program (the
"1984 PLAN") was to give key employees of the Company the opportunity to receive
options to purchase the Company's common stock and to participate in the cash
performance program. The 1984 Plan expired in January 1995 and was replaced by
the 1995 Incentive Stock Option Plan and Cash Performance Program, however as of
December 31, 2002, there were outstanding options for 312,211 shares under the
1984 Plan.
THE 1995 INCENTIVE STOCK OPTION PLAN AND CASH PERFORMANCE PROGRAM
The Company has an Incentive Stock Option Plan and Cash Performance Program (the
"PERFORMANCE PLAN"), adopted in 1995 (replacing the 1984 Plan which expired in
January 1995), which provides for stock options, restricted stock awards and
cash performance awards.
The Performance Plan is intended to promote the long-term success of Dover by
providing salaried officers and other key employees of Dover and its
subsidiaries with a long-range inducement to remain with Dover and to encourage
them to increase their efforts to make Dover successful. Options granted under
the Performance Plan are designated as either non-qualified stock options or
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code.
The option price is based on the fair market value on the date of grant and is
determined in good faith by the Compensation Committee. The Compensation
Committee determines the term of each option but in no event may an option be
exercised more than 10 years following the grant date. No more than 600,000
shares may be granted to a single participant in any one year. Options granted
under this plan may not be sold, transferred, hypothecated, pledged or otherwise
disposed of by any of the holders except by will or by the laws of descent and
distribution except that a holder may transfer any non-qualified option granted
under this plan to members of the holder's immediate family, or to one or more
trusts for the benefit of such family members provided that the holder does not
receive any consideration for the transfer.
The information above summarizes the material aspects of the Performance Plan.
The rights and obligations of participants are determined by the provisions of
the plan document itself.
THE 1996 NON-EMPLOYEE DIRECTORS' STOCK COMPENSATION PLAN
Under the Dover Corporation 1996 Non-Employee Directors' Stock Compensation Plan
(the "DIRECTORS' PLAN"), non-employee directors are granted 2,000 shares of the
Company's common stock per year (adjusted for stock splits) as their primary
compensation for serving as directors. If any director serves for less than a
full calendar year, the number of shares to be granted to that director for the
year is adjusted pro rata, based on the number of calendar quarters for such
year for which he or she serves as a director. The shares granted under the
Directors' Plan may be treasury shares or newly issued shares but in either case
they will be listed on the New York Stock Exchange.
The information above summarizes the material aspects of the Directors' Plan.
The rights and obligations of participants are determined by the provisions of
the plan document itself. As described in the Company's 2003 proxy statement and
incorporated herein by reference, the Directors' Plan has been amended, subject
to shareholder approval, and as amended will provide for different levels of
stock grants in 2003 and beyond.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to any reportable transaction, business
relationship or indebtedness between the Company and the beneficial owners of
more than 5% of the Common Stock, the directors or nominees for director of the
Company, the executive officers of the Company or the members of the immediate
families of such individuals that is required to be included pursuant to this
Item 13 is included under the caption "1. Election of Directors-Directors'
Compensation" in the 2003 Proxy Statement and is incorporated in this Item 13 by
reference.
66 of 79
ITEM 14. CONTROLS AND PROCEDURES
On March 5, 2003, 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 were 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.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1)Financial Statements
Financial Statements covered by the Report of Independent Accountants:
(A) Consolidated balance sheets as of December 31, 2002 and 2001.
(B) Consolidated statements of earnings (losses), comprehensive
earnings (losses) and retained earnings for the years ended
December 31, 2002, 2001 and 2000.
(C) Consolidated statements of cash flows for the years ended
December 31, 2002, 2001 and 2000.
(D) Notes to consolidated financial statements.
(2) Financial Statement Schedule
The following financial statement schedule is included in Item No.8 of
this report on form 10-K:
Schedule II--Valuation and Qualifying Accounts
All other schedules are not required and have been omitted.
(3) Not covered by the Report of Independent Accountants:
Quarterly financial data (unaudited)
(4) See (c) below.
(b) Current Reports on Form 8-K:
The Company filed with the Securities and Exchange Commission a
report on Form 8-K, dated October 30, 2002, under Item 9, regarding
the press release on October 30, 2002 informing shareholders of a
mini-tender offer made by TRC Capital Corporation for up to 5
million shares of common stock on Dover or approximately 2.5% of
Dover's outstanding common shares.
(c) Exhibits:
(3)(i) Restated Certificate of Incorporation, filed as Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the Period
Ended June 30, 1998, is incorporated by reference.
(3)(i)b Certificate of Correction to the Restated Certificate of
Incorporation dated as of January 24, 2002, filed as Exhibit
3(i) to the Company's Current Report on Form 8-K filed February
28, 2002, is incorporated by reference.
(3)(ii) Certificate of Correction to the Restated Certificate of
Incorporation dated as of January 24, 2002.
(3)(iii) By-Laws of the Company filed as Exhibit 3.1 to Quarterly Report
on Form 10-Q for Period Ended September 30, 2000, are
incorporated by reference.
(4.1) Amended and Restated Rights Agreement, dated as of November
15, 1996, between Dover Corporation and Harris Trust Company of
New York, filed as Exhibit 1 to Form 8-A/A dated November 15,
1996, is incorporated by reference.
(4.2) Indenture, dated as of June 8, 1998 between Dover Corporation
and The First National Bank Chicago, as Trustee, filed as
Exhibit 4.1 to the Company's Current Report on Form 8-K filed
June 12, 1998, is incorporated by reference.
(4.3) Form of 6.25% Note due June 1, 2008 ($150,000,000 aggregate
principal amount), filed as Exhibit 4.3 to the Company's
Current Report on Form 8-K filed June 12, 1998, is incorporated
by reference.
(4.4) Form of 6.65% Note due June 1, 2028 ($200,000,000 aggregate
principal amount), filed as Exhibit 4.4 to the Company's
Current Report on Form 8-K filed June 12, 1998, is incorporated
by reference.
(4.5) Form of Indenture, dated as of November 14, 1995 between the
Company and The First National Bank of Chicago, as Trustee,
relating to the 6.45% Notes due November 15, 2005 (including
the form of the note), filed as Exhibit 4 to the Company's
Registration Statement on Form S-3 (Reg. No. 33-63713) filed
under the Securities Act of 1933, is incorporated by reference.
68 of 79
(4.6) Form of 6.50% Notes due February 15, 2011 ($400,000,000
aggregate principal amount), filed as exhibit 4.3 to the
Company's current report on Form 8-K filed February 12, 2001,
is incorporated by reference.
(4.7) Indenture, dated as of February 8, 2001 between the Company and
BankOne Trust Company, N.A., as trustee, filed as Exhibit 4.1
to the Company's current report on Form 8-K filed February 12,
2001, is incorporated by reference.
(4.8) Officers' certificate, dated February 12, 2001, pursuant to
Section 301 of the Indenture, dated as of February 8, 2001
between the Company and BankOne Trust Company N.A., as trustee,
filed as Exhibit 4.2 to the Company's current report on Form
8-K filed February 12, 2001, is incorporated by reference.
The Company agrees to furnish to the Securities and Exchange
Commission upon request, a copy of any instrument with respect
to long-term debt under which the total amount of securities
authorized does not exceed 10 percent of the total consolidated
assets of the Company.
(10.1) 1984 Incentive Stock Option and Cash Performance Program,
filed as Exhibit 10(a) to Annual Report on Form 10-K for year
ended December 31, 1984, is incorporated by reference.*
(10.2) Employee Savings and Investment Plan, filed as Exhibit 99 to
Registration Statement on Form S-8 filed under Securities Act
of 1933 (Reg. No.33-01419), is incorporated by reference.*
(10.3) Amended and Restated 1996 Non-Employee Directors' Stock
Compensation Plan, included as Exhibit A to the Proxy
Statement, dated March 17, 2003 and subject to shareholder
approval, is incorporated by reference.*
(10.4) Executive Officer Annual Incentive Plan, included as Exhibit A
to the Proxy Statement, dated March 17, 2003, is incorporated
by reference.*
(10.5) Form of Executive Severance Agreement, filed as Exhibit 10.6
to Annual Report on Form 10-K for year ended December 31, 1998,
is incorporated by reference.*
(10.6) 1995 Incentive Stock Option and Cash Performance Program,
filed as Exhibit 10.7 to Annual Report on Form 10-K for year
ended December 31, 2000, is incorporated by reference.*
(10.7) Dover Corporation Deferred Compensation Plan, as amended
as of December 31, 2001, filed as Exhibit 10 to the Company's
Current Report on Form 8-K filed February 28, 2002, is
incorporated by reference.*
(21) Subsidiaries of Dover.
(23.1) Consent of Independent Accountants.
(24) Power of Attorney.
* Executive compensation plan or arrangement.
(d) Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
By:/s/Thomas L. Reece
---------------------------
Thomas L. Reece
Chairman, President
and Chief Executive Officer
Date: March 5, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/Thomas L. Reece
- ------------------------------
Thomas L. Reece Chairman, President and Chief
Executive Officer and Director
(Principal Executive Officer) March 5, 2003
/s/ Robert G. Kuhbach
- ------------------------------
Robert G. Kuhbach Vice President, Finance and Chief Financial
Officer and Treasurer
(Principal Financial Officer) March 5, 2003
/s/Raymond T. McKay, Jr.
- ------------------------------
Raymond T. McKay, Jr. Controller
(Principal Accounting Officer) March 5, 2003
- ------------------------------
David H. Benson Director* March 5, 2003
- ------------------------------
Jean-Pierre M. Ergas Director* March 5, 2003
- ------------------------------
Kristiane C. Graham Director* March 5, 2003
- ------------------------------
James L. Koley Director* March 5, 2003
- ------------------------------
Richard K. Lochridge Director* March 5, 2003
- ------------------------------
Bernard G. Rethore Director* March 5, 2003
- ------------------------------
Gary L. Roubos Director* March 5, 2003
- ------------------------------
Michael B. Stubbs Director* March 5, 2003
* By: /s/Joseph W. Schmidt
--------------------------
Joseph W. Schmidt
Attorney-in-Fact
70 of 79
CERTIFICATION
I, Thomas L. Reece, certify that:
1. I have reviewed this annual report on Form 10-K of Dover Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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: March 5, 2003 /s/ Thomas L. Reece
-------------------
Thomas L. Reece
Chairman, President and Chief Executive Officer
71 of 79
CERTIFICATION
I, Robert G. Kuhbach, certify that:
1. I have reviewed this annual report on Form 10-K of Dover Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c. presented in this annual 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'sauditors 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
annual 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: March 5, 2003 /s/ Robert G. Kuhbach
---------------------
Robert G. Kuhbach
Vice President, Finance, Chief Financial Officer
and Treasurer
72 of 79
EXHIBIT INDEX
(3)(i) Restated Certificate of Incorporation, filed as Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the Period
Ended June 30, 1998, is incorporated by reference.
(3)(i)b Certificate of Correction to the Restated Certificate of
Incorporation dated as of January 24, 2002, filed as Exhibit
3(i) to the Company's Current Report on Form 8-K filed February
28, 2002, is incorporated by reference.
(3)(ii) By-Laws of the Company filed as Exhibit 3.1 to Quarterly Report
on Form 10-Q for Period Ended September 30, 2000, are
incorporated by reference.
(4.1) Amended and Restated Rights Agreement, dated as of November
15, 1996, between Dover Corporation and Harris Trust Company of
New York, filed as Exhibit 1 to Form 8-A/A dated November 15,
1996, is incorporated by reference.
(4.2) Indenture, dated as of June 8, 1998 between Dover Corporation
and The First National Bank Chicago, as Trustee, filed as
Exhibit 4.1 to the Company's Current Report on Form 8-K filed
June 12, 1998, is incorporated by reference.
(4.3) Form of 6.25% Note due June 1, 2008 ($150,000,000 aggregate
principal amount), filed as Exhibit 4.3 to the Company's
Current Report on Form 8-K filed June 12, 1998, is incorporated
by reference.
(4.4) Form of 6.65% Note due June 1, 2028 ($200,000,000 aggregate
principal amount), filed as Exhibit 4.4 to the Company's
Current Report on Form 8-K filed June 12, 1998, is incorporated
by reference.
(4.5) Form of Indenture, dated as of November 14, 1995 between the
Company and The First National Bank of Chicago, as Trustee,
relating to the 6.45% Notes due November 15, 2005 (including
the form of the note), filed as Exhibit 4 to the Company's
Registration Statement on Form S-3 (Reg. No. 33-63713) filed
under the Securities Act of 1933, is incorporated by reference.
(4.6) Form of 6.50% Notes due February 15, 2011 ($400,000,000
aggregate principal amount), filed as exhibit 4.3 to the
Company's Current Report on Form 8-K filed February 12, 2001,
is incorporated by reference.
(4.7) Indenture, dated as of February 8, 2001 between the Company and
BankOne Trust Company, N.A., as trustee, filed as Exhibit 4.1
to the Company's Current Report on Form 8-K filed February 12,
2001, is incorporated by reference.
(4.8) Officers' certificate, dated February 12, 2001, pursuant to
Section 301 of the Indenture, dated as of February 8, 2001
between the Company and BankOne Trust Company, N.A., as
trustee, filed as Exhibit 4.2 to the Company's current report
on Form 8-K filed February 12, 2001, is incorporated by
reference.
The Company agrees to furnish to the Securities and Exchange
Commission upon request, a copy of any instrument with respect
to long-term debt under which the total amount of securities
authorized does not exceed 10 percent of the total consolidated
assets of the Company.
(10.1) 1984 Incentive Stock Option and Cash Performance Program, filed
as Exhibit 10(a) to Annual Report on Form 10-K for year ended
December 31, 1984, is incorporated by reference.*
(10.2) Employee Savings and Investment Plan, filed as Exhibit 99 to
Registration Statement on Form S-8 filed under Securities Act
of 1933 (Reg. No.33-01419), is incorporated by reference.*
(10.3) Amended and Restated 1996 Non-Employee Directors' Stock
Compensation Plan, included as Exhibit A to the Proxy
Statement, dated March 17, 2003 and subject to shareholder
approval, is incorporated by reference.*
(10.4) Executive Officer Annual Incentive Plan, included as Exhibit A
to the Proxy Statement, dated March 17, 2003, is incorporated
by reference.*
(10.5) Form of Executive Severance Agreement, filed as Exhibit 10.6
to Annual Report on Form 10-K for year ended December 31, 1998,
is incorporated by reference.*
(10.6) 1995 Incentive Stock Option and Cash Performance Program,
filed as Exhibit 10.7 to Annual Report on Form 10-K for year
ended December 31, 2000, is incorporated by reference.*
(10.7) Dover Corporation Deferred Compensation Plan, as amended as of
December 31, 2001, filed as Exhibit 10 to the Company's Current
Report on Form 8-K filed February 28, 2002, is incorporated by
reference.*
(21) Subsidiaries of Dover.
(23.1) Consent of Independent Accountants.
(24) Power of Attorney.
73 of 79