SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For three months ended March 31, 2003 Commission File No. 1-4018
DOVER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 53-0257888
(State of Incorporation) (I.R.S. Employer Identification No.)
280 Park Avenue, New York, NY 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 922-1640
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate by checkmark whether the registrant is an accelerated filer (as defined
by Rule 12b-2 of the Securities Exchange Act) Yes [X] No [ ]
The number of shares outstanding of the Registrant's common stock as of the
close of the period covered by this report was 202,524,150.
1 of 22
Special Notes Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q, particularly "Management's Discussion and
Analysis", contains forward-looking statements within the meaning of the
Securities Act of 1933, as amended, and the Exchange Act of 1934, as amended,
and the Private Securities Litigation Reform Act of 1995. Such statements relate
to, among other things, industries in which the Company operates, the U.S. and
global economies, earnings, cash flow and operating improvements and may be
indicated by words or phrases such as "anticipates", "supports", "plans",
"projects", "expects", "should", "would", "could", "hope", "forecast", "Dover
believes", "management is of the opinion", similar words or phrases or use of
the future tense. Such statements may also be made by management orally.
Forward-looking statements are subject to inherent uncertainties and risks,
including among others: continuing impact from the terrorist events of September
11, 2001 as well as the impact of continued events in the Middle East on the
worldwide economy; increasing price and product/service competition by foreign
and domestic competitors, including new entrants; technological developments and
changes; the ability to continue to introduce competitive new products and
services on a timely, cost effective basis; the mix of products/services; the
achievement of lower costs and expenses; domestic and foreign governmental and
public policy changes including environmental regulations; protection and
validity of patent and other intellectual property rights; the continued success
of the Company's acquisition program; the cyclical nature of 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.
The Company may, from time to time, post financial or other information on its
Internet website, http://www.dovercorporation.com. Such information will be
found in the "What's New" section of the website's home page. It will be
accessible from the home page for approximately one month after release, after
which time it will be archived on the website for a period of time. The Internet
address in this report is for informational purposes only and is not intended
for use as a hyperlink. The Company is not incorporating any material on its
website into this report.
2 of 22
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
UNAUDITED
2003 2002
----------- -----------
Net sales $ 1,027,792 $ 994,569
Cost of sales 672,713 670,382
----------- -----------
Gross profit 355,079 324,187
Selling and administrative expenses 262,014 240,722
----------- -----------
Operating profit 93,065 83,465
----------- -----------
Other deductions (income):
Interest expense 17,933 18,186
Interest income (1,455) (1,063)
All other (income) expense, net (517) (3,996)
----------- -----------
Total 15,961 13,127
----------- -----------
Earnings from continuing operations, before taxes on income 77,104 70,338
Federal and other taxes on income 18,652 21,922
----------- -----------
Net earnings from continuing operations 58,452 48,416
----------- -----------
Net earnings (losses) from discontinued operations 1,019 (3,300)
----------- -----------
Net earnings before cumulative effect of change in accounting principle 59,471 45,116
----------- -----------
Cumulative effect of change in accounting principle, net of tax - (293,049)
Net earnings (losses) $ 59,471 $ (247,933)
=========== ===========
Net earnings (losses) per common share:
Basic - Continuing operations $ 0.29 $ 0.24
- Discontinued operations - (0.02)
----------- -----------
- Total net earnings before cumulative effect of change in accounting principle 0.29 0.22
- Cumulative effect of change in accounting principle - (1.44)
----------- -----------
- Net earnings (losses) $ 0.29 $ (1.22)
=========== ===========
Diluted - Continuing operations $ 0.29 $ 0.24
- Discontinued operations - (0.02)
----------- -----------
- Total net earnings before cumulative effect of change in accounting principle 0.29 0.22
- Cumulative effect of change in accounting principle - (1.44)
----------- -----------
- Net earnings (losses) $ 0.29 $ (1.22)
=========== ===========
Weighted average number of common shares outstanding during the period:
Basic 202,431 202,660
Diluted 202,949 203,818
See Notes to Condensed Consolidated Financial Statements.
3 of 22
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
Accumulated
Additional Other
Common Paid-In Comprehensive Retained Comprehensive
Stock Capital (Loss) Earnings Income
----------- ----------- ------------- ----------- -------------
Balance as of December 31, 2002 $ 237,680 $ 65,493 $ (38,820) $ 3,164,596
Net earnings - - - 59,471 $ 59,471
Common stock cash dividends - - - (27,339) -
Common stock issued for
options exercised/restricted stock 149 2,428 - - -
Foreign currency translation adjustment - - 6,282 - 6,282
Unrealized gains on securities - - 18 - 18
----------- ----------- ----------- ----------- -----------
Balance as of March 31, 2003 $ 237,829 $ 67,921 $ (32,520) $ 3,196,728 $ 65,771
=========== =========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
4 of 22
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
UNAUDITED
March 31, 2003 December 31, 2002
-------------- -----------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 294,193 $ 294,448
Marketable securities, at market 539 511
Receivables, net of allowance for doubtful accounts 689,641 669,885
Inventories, net 613,236 595,071
Prepaid expenses and other current assets 44,469 41,263
Deferred tax asset 64,976 56,823
------------- ------------
TOTAL CURRENT ASSETS 1,707,054 1,658,001
------------- ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST: 1,805,629 1,775,325
Less accumulated depreciation (1,109,733) (1,070,403)
------------- ------------
Net property, plant and equipment 695,896 704,922
------------- ------------
GOODWILL, NET OF AMORTIZATION 1,661,198 1,654,883
INTANGIBLE ASSETS, NET OF AMORTIZATION 201,375 202,836
OTHER ASSETS AND DEFERRED CHARGES 180,526 167,529
ASSETS OF DISCONTINUED OPERATIONS 34,551 49,214
------------- ------------
TOTAL ASSETS $ 4,480,600 $ 4,437,385
============= ============
LIABILITIES:
CURRENT LIABILITIES:
Notes payable $ 21,099 $ 20,611
Current maturities of long-term debt 3,283 3,150
Accounts payable 231,395 199,624
Accrued compensation and employee benefits 106,399 133,570
Accrued insurance 55,028 50,431
Other accrued expenses 212,028 214,573
Federal and other taxes on income 57,160 74,979
------------- ------------
TOTAL CURRENT LIABILITIES 686,392 696,938
------------- ------------
LONG-TERM DEBT 1,031,006 1,030,299
DEFERRED INCOME TAXES 149,361 136,469
OTHER DEFERRALS (PRINCIPALLY COMPENSATION) 158,336 151,225
LIABILITIES FROM DISCONTINUED OPERATIONS 20,571 27,831
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 237,829 237,680
ADDITIONAL PAID-IN CAPITAL 67,921 65,493
ACCUMULATED OTHER COMPREHENSIVE LOSS (32,520) (38,820)
RETAINED EARNINGS 3,196,728 3,164,596
------------- ------------
Subtotal 3,469,958 3,428,949
Less: common stock in treasury stock 1,035,024 1,034,326
------------- ------------
Net stockholders' equity 2,434,934 2,394,623
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,480,600 $ 4,437,385
============= ============
See Notes to Condensed Consolidated Financial Statements.
5 of 22
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS)
UNAUDITED
2003 2002
--------- ---------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings (losses) $ 59,471 $(247,933)
--------- ---------
Adjustments to reconcile net earnings to net cash from operating activities:
Cumulative effective of change in accounting principle, net of taxes - 293,049
Net (earnings) losses from discontinued operations (1,019) 3,300
Depreciation and amortization 37,823 39,596
Net increase (decrease) in deferred taxes 4,250 8,573
Increase (decrease) in other deferrals (principally compensation) 6,974 (18,552)
Other, net (9,141) (9,469)
Changes in assets & liabilities (excluding acquisitions and dispositions):
Decrease (increase) in accounts receivable (17,977) (32,228)
Decrease (increase) in inventories (16,582) 5,984
Decrease (increase) in prepaid expenses (3,091) (1,403)
Increase (decrease) in accounts payable 31,174 630
Increase (decrease) in accrued expenses and other non-current liabilities (26,083) (21,755)
Increase (decrease) in federal & other taxes on income (17,819) (21,367)
--------- ---------
Total adjustments (11,491) 246,358
--------- ---------
NET CASH FROM (USED IN) OPERATING ACTIVITIES 47,980 (1,575)
--------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Additions to property, plant and equipment (19,914) (21,131)
Acquistions (net of cash and cash equivalents acquired) (15,196) (45,824)
--------- ---------
NET CASH FROM (USED IN) INVESTING ACTIVITIES (35,110) (66,955)
--------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Increase (decrease) in notes payable 489 133,083
Increase (decrease) in long-term debt 839 (838)
Purchase of treasury stock (699) (802)
Proceeds from exercise of stock options 1,173 3,011
Cash dividends to stockholders (27,339) (27,362)
--------- ---------
NET CASH FROM (USED IN) FINANCING ACTIVITIES (25,537) 107,092
--------- ---------
--------- ---------
Cash from (used in) discontinued operations 12,412 (49,011)
--------- ---------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (255) (10,449)
Cash & cash equivalents at beginning of period 294,448 175,331
--------- ---------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 294,193 $ 164,882
========= =========
See Notes to Condensed Consolidated Financial Statements.
6 of 22
DOVER CORPORATION AND SUBSIDIARIES
MARKET SEGMENT RESULTS
(UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE FIGURES)
Three months ended March 31,
2003 2002
----------- -----------
SALES
Dover Diversified $ 292,033 $ 288,437
Dover Industries 247,932 261,486
Dover Resources 229,792 217,186
Dover Technologies 260,042 228,845
----------- -----------
Total continuing (after intramarket eliminations) $ 1,027,792 $ 994,569
=========== ===========
EARNINGS (Losses)
Dover Diversified $ 31,719 $ 30,047
Dover Industries 27,199 39,198
Dover Resources 32,691 29,624
Dover Technologies 10,498 (6,933)
----------- -----------
Subtotal continuing 102,107 91,936
Corporate expense (8,525) (4,475)
Net interest expense (16,478) (17,123)
----------- -----------
Earnings from continuing operations, before taxes on income 77,104 70,338
Taxes on income 18,652 21,922
----------- -----------
Net earnings from continuing operations 58,452 48,416
Net earnings (losses) from discontinued operations * 1,019 (3,300)
----------- -----------
Net earnings before cumulative effect of change in accounting principle 59,471 45,116
----------- -----------
Cumulative effect of change in accounting principle, net of tax ** - (293,049)
Net earnings (losses) $ 59,471 $ (247,933)
=========== ===========
Net earnings (losses) per diluted common share:
Continuing operations $ 0.29 $ 0.24
Discontinued operations* - (0.02)
----------- -----------
Net earnings before cumulative effect of change in accounting
principle 0.29 0.22
----------- -----------
Cumulative effect of change in accounting principle, net of tax ** - (1.44)
Net earnings (losses) $ 0.29 $ (1.22)
=========== ===========
Average number of diluted shares outstanding 202,949 203,818
* In accordance with the adoption of SFAS No. 144 in 2001, the earnings (net of
tax) from discontinued operations are separately presented for all reported
periods in earnings from discontinued operations.
** Reflects the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets"
(adopted 1/1/02), which resulted in a $293 million write down (net of $52
million of tax benefits) of impaired goodwill to fair value.
See Notes to Condensed Consolidated Financial Statements.
7 of 22
DOVER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations, and changes in financial position in
conformity with generally accepted accounting principles. In the opinion of the
Company, all adjustments, consisting only of normal recurring items necessary
for a fair presentation of the operating results have been made. The results of
operations of any interim period are subject to year-end audit and adjustments,
and are not necessarily indicative of the results of operations for the fiscal
year. Certain amounts in prior years have been reclassified to conform to the
current quarter's presentation.
NOTE B - 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. The following table illustrates the effect on net
earnings and basic diluted earnings per share if the Company had recognized
compensation expense upon issuance of the options, based on the Black-Scholes
option pricing model:
Three months ended March 31,
(in thousands) 2003 2002
- -------------------------------------------------------------------------------------------
Net earnings (loss), as reported $ 59,471 $ (247,933)
Deduct:
Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (4,387) (3,653)
---------- -----------
Pro forma net earnings (losses) $ 55,084 $ (251,586)
========== ===========
Earnings per share:
Basic-as reported $ 0.29 $ (1.22)
---------- -----------
Basic-pro forma 0.27 (1.24)
---------- -----------
Diluted-as reported $ 0.29 $ (1.22)
---------- -----------
Diluted-pro forma 0.27 (1.23)
- -----------------------------------------------------------------------------------------
8 of 22
NOTE C - Inventory
UNAUDITED
March 31, December 31,
(in thousands) 2003 2002
- ---------------------------------------------------------------------------------------------
Raw materials $ 298,870 $ 288,426
Work in progress 173,705 178,631
Finished goods 172,585 159,495
-------------- -------------
Total 645,160 626,552
Less LIFO reserve 31,924 31,481
-------------- -------------
Net amount per balance sheet $ 613,236 $ 595,071
- ---------------------------------------------------------------------------------------------
NOTE D - Goodwill
The following table reconciles the changes in carrying value of goodwill by
market segment through the quarter ended March 31, 2003:
(in thousands) Diversified Industries Resources Technologies Total
- -----------------------------------------------------------------------------------------------------------------------------
Ending balance as of December 31, 2002 $ 401,743 $ 401,738 $ 313,570 $ 537,832 $ 1,654,883
Goodwill change due to purchase price
adjustments and allocations 2,835 - 3 751 3,589
Other (primarily cumulative translation) 23 349 1,169 1,185 2,726
--------------------------------------------------------------------------
Ending balance as of March 31, 2003 $ 404,601 $ 402,087 $ 314,742 $ 539,768 $ 1,661,198
- -----------------------------------------------------------------------------------------------------------------------------
NOTE E - Restructuring & Inventory Charges
During 2001 and 2002, 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. A reconciliation of
restructuring provisions from December 31, 2002, through March 31, 2003 is as
follows:
(in thousands) Severance Exit Total
- --------------------------------------------------------------------------------------------------
Ending balance as of December 31, 2002 $ 6,219 $ 9,142 $ 15,361
Benefits and exit costs paid / write downs (2,465) (358) (2,823)
-------------------------------------
Ending balance as of March 31, 2003 $ 3,754 $ 8,784 $ 12,538
- --------------------------------------------------------------------------------------------------
Due to significant declines in the demand for certain products, special
inventory reserves were recorded in the Technologies segment during 2001 and
2002. The following table details the utilization of these inventory reserves
recorded at December 31, 2002 through March 31, 2003 as follows:
(in thousands) Technologies
- -----------------------------------------------------------------
Ending balance as of December 31, 2002 $ 15,612
Disposed of through March 31, 2003 (3,924)
-------------
Ending balance as of March 31, 2003 $ 11,688
- -----------------------------------------------------------------
NOTE F - Discontinued Operations
During the first quarter of 2003 Dover disposed of Wittemann from the Resources
segment as well as small product line businesses at both OK International and
Vectron International from the Technologies segment, all of which were
previously classified as discontinued operations. These dispositions did not
have a material impact on Dover's financial results in the current quarter.
9 of 22
NOTE G - Additional Information
For a more adequate understanding of the Company's financial position, operating
results, business properties and other matters, reference is made to the
Company's Annual Report on Form 10-K which was filed with the Securities and
Exchange Commission on March 11, 2003.
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.
The diluted weighted average shares exclude the dilutive effect of approximately
6.5 million and 2.8 million in 2003 and 2002, respectively, options with
exercise prices in excess of the average market price of the Company's common
stock. Dover did not repurchase shares of its common stock on the open market
during the first quarter of 2003.
10 of 22
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(1) MATERIAL CHANGES IN CONSOLIDATED FINANCIAL CONDITION:
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, dispositions, 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 Three months ended March 31,
(in thousands) 2003 2002
- --------------------------------------------------------------------------------------------
Cash flows provided by (used in) operating activities $ 47,980 $ (1,575)
Cash flows (used in) investing activities $ (35,110) $ (66,955)
Cash flows (used in) provided by financing activities $ (25,537) $ 107,092
- --------------------------------------------------------------------------------------------
The Company's liquidity (cash, cash equivalents and marketable securities)
remained relatively unchanged during the first three months of 2003 as compared
to the position at December 31, 2002. Cash flow provided from continuing
operating activities for the first three months of 2003 was $48.0 million
compared to a use of cash flow of $1.6 million in 2002. Historically, Dover's
first quarter has produced its' weakest operating cash flows, as working capital
increases, annual compensation payouts and final prior year estimated U.S.
Federal tax payments are made during this period. The first quarter 2003
improvement reflects modest increases in working capital, lower year-end
compensation payments and no Federal tax payments made during the first quarter
of 2003. Increases in cash flows from operations were primarily driven by
increases in accounts payables, a source of cash of $30.5 million, and lower
increases in accounts receivable, a source of cash of $14.3 million, offset by
increases in inventories, a use of cash of $22.6 million, when compared to the
first quarter of 2002. The level of cash used in continuing investing activities
in the first three months of 2003 was $35.1 million, reflecting reduced
acquisition activity and capital expenditures from the comparable quarter last
year. Capital expenditures for the first three months of 2003 were $19.9 million
compared to $21.1 million in 2002, while current year acquisition expenditures
were $15.2 million compared to $45.8 million in the prior year comparable
period. The capital expenditures and acquisitions completed in the first three
months of 2003 were primarily funded by internal cash flow. Cash used in
continuing financing activities through March 31, 2003 were $25.5 million
compared to cash flows of $107.1 million in the prior year comparable period.
Net cash used from financing activities during the first three months of 2003
primarily reflected quarterly dividend payments of $27.3 million, with prior
year cash flows reflecting increases in short-term debt of $133.1 million and
quarterly dividend payments of $27.4 million.
Free Cash Flow
(reconciliation to operating activities cash flow) Three months ended March 31,
(in thousands) 2003 2002
- ----------------------------------------------------------------------------------
Cash flows provided by operating activities $ 47,980 $ (1,575)
Less: Capital expenditures (19,914) (21,131)
Dividends to stockholders (27,339) (27,362)
---------- -----------
Free cash flows $ 727 $ (50,068)
- ----------------------------------------------------------------------------------
Dover's free cash flow also increased significantly to $0.7 million as compared
to last year's first quarter, when operations consumed cash of approximately
$50.1 million. Management believes operating cash flow and free cash flow are
important measures of operating performance because it provides both management
and investors a measurement of cash generated from operations that is available
to fund acquisitions and repayment of debt. However, free cash flow is not a
measure of financial performance under GAAP, should not be considered as
substitute for cash flows from operating activities as determined in accordance
with GAAP as a measure of liquidity, and may not be comparable to similarly
titled measures reported by other companies.
11 of 22
The Company utilizes the total debt and net debt to total capitalization
calculations to asses its overall financial leverage.
Net Debt and Capitalization March 31, December 31,
(in thousands) 2003 2002
- --------------------------------------------------------------------------------
Notes payable $ 21,099 $ 20,611
Current maturities of long-term debt 3,283 3,150
Long-term debt 1,031,006 1,030,299
---------------------------------
Total debt 1,055,388 1,054,060
Less: Cash and cash equivalents 294,193 294,448
Marketable securities 539 511
---------------------------------
Net debt 760,656 759,101
Add: Shareholders equity 2,434,934 2,394,623
---------------------------------
Total capitalization $ 3,195,590 $ 3,153,724
Total debt to total capitalization 33.0% 33.4%
Net debt to total capitalization 23.8% 24.1%
- --------------------------------------------------------------------------------
The total debt level of $1,055.4 million as of March 31, 2003 was relatively
unchanged from the December 31, 2002 level. As of March 31, 2003, net debt
(defined as long-term debt plus current maturities on long-term debt plus notes
payable less cash and equivalents and marketable securities) of $760.7 million
represented 23.8% of total capital, a minimal decrease compared to 24.1% at
December 31, 2002.
Dover made one acquisition in the first quarter of 2003. On March 20, 2003 Dover
acquired the assets of the Airborne and Arell, business units of Standard
Automotive, which manufacture precision aero engine components, landing gear and
aircraft structure components. This business, a strategic add-on acquisition,
will be reported as part of Sargent Controls and Aerospace in the Diversified
segment. The acquisition had no material impact on segment earnings.
During the first quarter of 2003 Dover disposed of Wittemann from the Resources'
segment as well as small product line businesses at both OK International and
Vectron International from the Technologies segment, all of which were
previously classified as discontinued operations. These dispositions did not
have a material impact on Dover's first quarter 2003 financial results.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS:
Sales in the first quarter of 2003 of $1,027.8 million were up 3% from the
comparable period last year. However, sales would have been down 2% if 2002
foreign currency translation rates remained constant. Gross profit of $355.1
million in the first quarter of 2003 represented a 10% improvement compared to
$324.2 million in the prior year. Gross profit margins of 34.5% in 2003 compared
to 32.6% in 2002. Operating profit of $93.1 million in the first quarter
increased $9.6 million compared to the prior year due primarily to benefits from
the company's restructuring programs. Operating profit margins in the first
quarter were 9.1% compared to 8.4% in the prior year.
Selling and administrative expenses for the first quarter of 2003 were $262.0
million or 25.5% of net sales, compared to $240.7 million or 24.2% of net sales
in the comparable period last year. Net interest expense decreased slightly to
$16.5 million during the first quarter of 2003, comparable to $17.1 million in
the comparable period last year.
Dover's effective tax rate for continuing operations for the current quarter was
24.2% compared to last year's quarterly rate of 31.0% and the 2002 full year
rate of 21.7%. The low effective tax rate is largely due to the continuing
benefit from tax credit programs such as R&D, foreign tax and the U.S. export
programs combined with a lower foreign tax rate. Another contributor to the low
rate was the recognition of certain capital loss benefits associated with tax
planning strategies. Dover's operational tax rate, which excludes
12 of 22
tax planning strategies, was 29.3% for the first quarter of 2003 compared to
last year's operational quarterly rate of 31.0% and the full year rate of 29.9%.
Net earnings from continuing operations for the first three months of 2003 were
$58.5 million or $.29 per diluted share compared to $48.4 million or $.24 per
diluted share from continuing operations in the comparable period last year. For
the first three months of 2003, net earnings were $59.5 million or $.29 per
diluted share, including $1.0 million in earnings from discontinued operations,
compared to $45.1 million or $.22 per share in 2002, which included $3.3 million
or $.02 per share in losses from discontinued operations.
In the first quarter of 2002, the impact of the adoption of the Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets",
resulted in a net loss of $247.9 million. The adoption resulted in a goodwill
impairment charge of $345.1 million ($293.0 million, net of tax, or $1.44
diluted earnings per share). The adoption of the standard discontinued the
amortization of goodwill effective January 1, 2002.
DOVER DIVERSIFIED:
Three Months Ended March 31,
(in thousands) 2003 2002
- ------------------------------------------------------------
Net sales $ 292,033 $ 288,437
Earnings 31,719 30,047
Operating margin 11% 10%
First quarter earnings were $31.7 million, an increase of $1.7 million or 6%
over the comparative period last year, and sales in the quarter were $292.0
million, a $3.6 million or 1% increase compared to 2002. Segment margins
increased 1% over the prior year comparable period to 11% for the quarter.
Bookings in the quarter were $293.4 million, a decrease of 1% from prior year,
and the quarter book-to-bill ratio was 1.0. Backlog at the end of the quarter
was $362.5 million, 1% higher than the beginning of the current year.
Diversified's results reflected a very strong performance at Belvac and higher
earnings at Hill Phoenix, Mark Andy and Tranter Radiator, offset by earnings
declines at other companies, primarily Waukesha Bearings, Sargent and SWF.
Belvac achieved the largest incremental earnings improvement in the segment
compared to the same period last year, mainly due to sizable planned can necking
and trimming equipment shipments to Russia. Current backlog and order entry
rates remain high at Belvac, supporting continued strong performance for the
remainder of the year. Hill Phoenix's cost management initiatives generated
higher margins in the first quarter, which produced double-digit earnings growth
despite a small sales decrease, due primarily to timing of shipments. Hill
Phoenix continues to gain market share and is benefiting from aggressive growth
plans with a number of its key supermarket customers. Mark Andy and Tranter
Radiator produced profit gains on modest sales growth, largely due to internal
improvements. Two of the heat exchanger companies increased first quarter
bookings over prior year, with Tranter PHE securing several large marine
projects in Korea and SWEP seeing increased orders in Europe. Several companies
had a challenging quarter operating in weak markets, including Sargent in
commercial aerospace and Waukesha in power generation. Other companies like
Crenlo and SWF were negatively impacted by the current economic climate, as
customers delayed capital investment decisions on new orders and requested
move-outs of delivery dates on current projects. PMI's results were negatively
impacted by market softness, acquisition integration matters, product mix and
some production issues.
DOVER INDUSTRIES:
Three Months Ended March 31,
(in thousands) 2003 2002
- ------------------------------------------------------------
Net sales $ 247,932 $ 261,486
Earnings 27,199 39,198
Operating margin 11% 15%
13 of 22
First quarter earnings decreased 31%, or $12.0 million to $27.2 million and
sales declined 5%, or $13.6 million, to $247.9 million from the comparable
period last year. Segment margins decreased 4% from the comparable period last
year to 11% for the quarter. Segment bookings in the quarter were $267.2
million, an increase of 6% from last year, and the book-to-bill ratio was 1.08
for the current quarter. Backlog increased 17% from the beginning of the current
year to $142.8 million.
First quarter results continued the trend witnessed in 2002 as market conditions
once again unfavorably impacted the majority of the Dover Industries businesses.
Companies are reducing costs in line with the lower sales volumes, but continue
to invest in their businesses where warranted. As a result, market shares have
continued to increase, although in some cases margins have suffered due to
competitive pressures. The earnings decline was principally driven by Heil
Environmental which, in addition to weak market conditions, is facing
comparisons to a very strong first quarter of 2002. Other companies with
unfavorable earnings comparisons include Rotary Lift, Heil Trailer, Marathon and
Chief. Rotary's earnings declined on flat volume, driven primarily by new
product development costs for products scheduled to be released later this year.
Heil Trailer remains in a cyclical downturn as industry conditions continue to
deteriorate. Marathon's volumes improved although pricing pressures affected
margins in the quarter. Chief's shift in how the company goes to market, which
was initiated in late 2002, has contributed to short-term sales and earnings
declines. Triton, DI Foodservice, Kurz-Kasch and Dovatech all had positive
earnings improvements. Triton's successful 2002 new product introductions
continue to contribute to share gains both domestically and internationally. The
recently formed DI Foodservice Group is beginning to recognize the synergies
derived from consolidating certain functions within Groen, Randell and Avtec
which have offset the effects of a soft foodservice market. Kurz-Kasch and
Dovatech are rebounding from a sub-par 2002 and at the present time are seeing a
slight pick-up in their respective markets.
DOVER RESOURCES:
Three Months Ended March 31,
(in thousands) 2003 2002
- ------------------------------------------------------------
Net sales $ 229,792 $ 217,186
Earnings 32,691 29,624
Operating margin 14% 14%
First quarter earnings increased $3.1 million or 10% to $32.7 million on a sales
increase of 6% or $12.6 million to $229.8 million, as compared to the same
period last year. Segment margins improved modestly to more than 14%. Bookings
in the quarter of $239.7 million were up 8% from the prior year and the
book-to-bill ratio for the quarter was 1.04. Ending backlog was $86.9 million, a
12% increase from the end of last year. Dover Resources' results for all periods
have been changed to reflect Texas Hydraulics, which was transferred from Dover
Industries at the beginning of the year.
Dover Resources' positive operating leverage for the quarter resulted from
favorable product mix, positive savings resulting from internal initiatives and
downsizing actions implemented over past months. Despite the very unsettled
world oil situation, the Energy Products Group continued to see solid Canadian
activity, coupled with improvement in the U.S. Permian Basin Region. C. Lee Cook
had improved earnings resulting from reduced operating expenses on a slight
decline in sales. The pump companies, Wilden and Blackmer, continue to perform
very well, gaining market share in a highly competitive marketplace and finding
success in international markets. Wilden opened its new Wei Li operation in
China during the quarter, which is already producing positive results. De-Sta-Co
Industries showed solid improvement with cost reduction efforts gaining traction
and improved volume in Europe. Sourcing initiatives from China and South America
should help boost its performance over the remainder of the year. OPW Fueling
had improved sales and earnings for the quarter but continued to see declines in
products related to new construction. Although OPW Fluid Transfer Group had flat
sales, bookings were the best they have been in three years, driven by
improvements in the rail tank car valve market. Texas Hydraulics' volume and
earnings declined due to decreases in the aerial lift market. Tulsa Winch's
first quarter was similar to last year with improved oil patch shipments but a
decline in mobile crane equipment. Hydro Systems had improved earnings led by
gains in Europe. RPA operated at a loss due to a decline in the European heavy
equipment market.
14 of 22
DOVER TECHNOLOGIES:
Three Months Ended March 31,
(in thousands) 2003 2002
- --------------------------------------------------------------
Net sales $ 260,042 $ 228,845
Earnings 10,498 (6,933)
Operating margin 4% -3%
First quarter earnings increased $17.4 million, to $10.5 million compared to a
loss of $6.9 million for the comparable period last year on a sales increase of
14%, or $31.2 million, to $260.0 million from the same period last year. Segment
margins improved seven percentage points to 4% for the quarter. Bookings in the
quarter of $276.5 million were up 15% from the prior year and the book- to-bill
ratio for the quarter was 1.06. Ending backlog was $146.4 million, a 15%
increase from the end of last year.
Technologies companies serving the electronics industry successfully resized
their organizations in the fourth quarter of 2002 in order to operate profitably
at lower levels of demand. Bookings at both the Circuit Board Assembly and Test
(CBAT) companies and Specialized Electronic Components (SEC) companies were
close to the average rate in the last half of 2002 and indicate that the
industry is still operating at a depressed level. The outlook is quite unclear
at the moment, particularly now that the SARS medical issue in south China may
have a disruptive effect on the electronics industry that has migrated to this
region of the world. However, for the first time since the first quarter of
2001, both the SEC and CBAT groups were profitable.
Technologies' CBAT business recorded earnings of $1.6 million for the first
quarter compared to a loss of $13.3 million in the first quarter of 2002. First
quarter sales were $148.9 million, an increase of $24.1 million or 19% from last
year's comparable quarter and bookings from the fourth quarter of 2002, at
$160.5 million, were up 16% from prior year. The CBAT book-to-bill ratio was
1.08 for the first quarter with backlog at $85.0 million, 18% higher than at the
end of 2002. Margins were 1% for the quarter compared to negative margins of 11%
for the comparable period last year. In line with expectations, not all of the
CBAT companies were profitable during the first quarter of 2003, as their
primary focus continues to be on expansion into China and new product
development. Universal Instruments celebrated the opening of their new
production facility in Shenzhen with the introduction of two new models of their
very successful GSM assembly machine. Several other CBAT companies will share
the facilities with Universal. One of Everett Charles' companies introduced a
new bare board tester during the quarter that doubles the test speed of the
machine it replaces.
In Technologies' SEC business, sales in the quarter were $50.3 million compared
to $53.8 million in last year's first quarter, representing a decline of 6%. SEC
reported earnings of $3.0 million, compared to a loss of $2.7 million in the
first quarter of 2002. Margins were 6% for the quarter compared to negative
margins of 5% for the comparable period last year. Bookings in the first quarter
of $53.9 million were 5% higher than the same period last year. The book-to-bill
ratio was 1.07 for the quarter with backlog at $46.4 million at the end of the
period (a 9% increase from the beginning of the current year). Most of the SEC
companies were profitable and have continued their focused product development
activities while simultaneously moving certain operations to China.
In the quarter, Imaje, the French-based industrial ink-jet printer and ink
manufacturer, had sales of $60.8 million, up 21% from the comparable period last
year. Earnings increased by 18% to $11.2 million from the comparable 2002
quarter and margins decreased slightly to 18%. Imaje's bookings were up 24% from
the prior year in the first quarter to $62.1 million and the book-to-bill ratio
was 1.02. The company's development of its global distribution network and
broadening of its product line are paying off in increased market share despite
a relatively soft industrial market. Since Imaje's functional currency is the
Euro and its products are made in the European Union, the strength of the Euro
has had a positive impact on reported sales and earnings, although these same
factors have had an adverse effect on exports and margins.
15 of 22
OUTLOOK:
There were a number of positive signs in Dover's first quarter results despite
the fact that generally weak economic conditions continued to have an impact on
most of our companies. Dover Technologies, including its CBAT and SEC groups,
made money for the first time in two years. This is a direct result of actions
taken by CBAT and SEC company management to size their operations to be
profitable at the continuing low sales levels of the second half of last year.
While one quarter does not make a recovery, and while segment operating margins
of 4% are not satisfactory over the long-term, the Company is encouraged by
Technologies' return to profitability at these sales levels. It is also hopeful,
based on a positive book-to-bill, that the electronics markets served are
stabilizing.
Dover Resources, which was the most profitable segment for the quarter, showed
continued operating strength with good operating leverage and strong margins of
14% in spite of challenging market conditions. Dover Diversified also showed
improvement over the prior year period, producing increased profits on
essentially flat sales. Dover Industries had a challenging quarter compared to
last year. Most markets, particularly those served by both Heil companies,
Rotary, DI Foodservice and Chief, remain depressed as customers, particularly
municipalities and other governmental agencies, lack funding for capital
projects.
In light of the current political and economic uncertainties, it is difficult to
forecast Dover's financial outlook for the rest of the year with any degree of
certainty. Nevertheless, our first quarter performance is encouraging, and it
validates Dover operating managements' initiatives to improve competitiveness,
continue product and market development efforts and improve operating margins.
The Company is confident that any improvement in the global manufacturing
economy will amplify the positive momentum seen in the first quarter results.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in the Company's exposure to market risk
during the first three months of 2003.
Item 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls, nor any significant
deficiencies or material weaknesses in such controls requiring corrective
actions, subsequent to the date of their evaluation.
16 of 22
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the quarter
ended March 31, 2003. Subsequently at the Annual Meeting of Stockholders of
Dover Corporation held on April 22, 2003, the following matters set forth in the
Company's Proxy Statement dated March 17, 2003, which was filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, were voted upon with the results indicated
below.
(1) The nominees listed below were elected directors for a one-year term
ending at the 2004 Annual Meeting with the respective votes set forth
opposite their names:
For Withheld
--- --------
David H. Benson 163,195,755 3,179,088
Jean-Pierre Ergas 163,252,823 3,122,020
Kristiane C. Graham 163,168,214 3,206,629
James L. Koley 163,151,523 3,223,320
Richard K. Lochridge 163,256,746 3,118,097
Thomas L. Reece 162,692,168 3,682,675
Bernard G. Rethore 163,182,783 3,192,060
Gary L. Roubos 128,657,035 37,717,808
Michael B. Stubbs 163,205,153 3,169,690
(2) A proposal seeking re-approval of the Dover Corporation Executive
Officer Annual Incentive Plan and the performance goals set forth
therein was approved, with 157,441,417 votes cast FOR, 7,601,326 votes
cast AGAINST and 1,332,099 abstentions;
(3) A proposal to ratify and approve the Amended and Restated 1996
Non-Employee Directors' Stock Compensation Plan was approved, with
134,727,825 votes cast FOR, 29,982,445 votes cast AGAINST and
1,654,502 abstentions;
(4) A stockholder proposal regarding the adoption of a written policy
expressly prohibiting discrimination based on sexual orientation was
not approved, with 58,453,122 votes cast FOR, 78,099,247 votes cast
AGAINST, 11,339,172 abstentions and 18,483,301 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99 Certificate Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002, signed
and dated by Thomas L. Reece and Robert G. Kuhbach as of April 30,
2003.
(b) The Company filed with the Securities and Exchange Commission a report
on Form 8-K, filed on April 18, 2003, covering information reported
under Item 9. Regulation FD Disclosure but furnished pursuant to Item
12. Results of Operation and Financial Condition in accordance with
SEC Release No. 33-8216.
17 of 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOVER CORPORATION
Date: May 2, 2003 /s/ Robert G. Kuhbach
---------------------
Robert G. Kuhbach, Vice President,
Finance, Chief Financial Officer &
Treasurer
(Principal Financial Officer)
Date: May 2, 2003 /s/ Raymond T. McKay, Jr.
-------------------------
Raymond T. McKay, Jr.
Controller
(Principal Accounting Officer)
18 of 22
CERTIFICATION
I, Robert G. Kuhbach, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dover
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days before the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 2, 2003 /s/ Robert G. Kuhbach
---------------------
Robert G. Kuhbach
Vice President, Finance, Chief
Financial Officer & Treasurer
19 of 22
CERTIFICATION
I, Thomas L. Reece, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dover
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days before the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
c) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
d) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 2, 2003 /s/ Thomas L. Reece
-------------------
Thomas L. Reece
Chairman, President and Chief
Executive Officer
20 of 22
EXHIBIT INDEX
99 Certificate Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by
Thomas L. Reece and Robert G. Kuhbach as of April 30, 2003.
21 of 22