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Dover Reports Third Quarter 2001 Results
NEW YORK, Oct. 15 /PRNewswire/ -- Dover Corporation (NYSE: DOV) earned $.01 per diluted share in the third quarter ended September 30, 2001 compared to $.71 per diluted share from continuing operations in the comparable period last year. Sales in the third quarter were $1.1 billion, a 22% decline from $1.4 billion last year.
Earnings for the quarter included additions to inventory reserves and other charges of $53.4 million ($34.7 million net of tax), or $.17 per diluted share. Excluding these extra reserves, segment earnings for the quarter were $80.2 million, down 66% or $152.9 million from $233.1 million last year, and net income for the third quarter was $37.3 million or $.18 per diluted share, down 72% or $98.2 million from $135.5 million last year. These additional reserves recorded in the quarter, principally for inventory and accounts receivable, were required to adjust to current market conditions.
These depressed earnings levels and the need for additional reserves and charges resulted primarily from the continued steep decline in demand in the electronics manufacturing industry served by Dover Technologies. Adding to this was continued market weakness in most of the industrial markets served by the other three Dover segments. While several Dover companies experienced sales slow-downs after the September 11 terrorist attacks, it remains unclear what impact these events will have on the markets Dover serves.
The continuing recession in the electronics industry led to a loss of $11.1 million in Dover Technologies, excluding inventory and other reserves of $42.4 million. Dover Diversified's sales improved 3% while earnings declined 32%, before the impact of $5.5 million in reserves. Dover Resources improved sales by 5% on moderating strength in the oil and gas related markets and earnings increased 2%, before $3 million in reserves. Dover Industries' earnings declined by 28% on an 8% decline in sales, before $2.5 million in reserves. All four segments reported lower sales and lower earnings in the third quarter than in the second quarter.
Commenting on the results and the current outlook, Mr. Thomas L. Reece, Chairman and CEO said, "We are not happy with these results and continue to do everything that we can to improve earnings and secure our future success, as we search for market bottoms during this very difficult economic time. Our operating companies have and will continue to downsize aggressively. Many are now analyzing significant reorganizations in light of current market conditions. While not yet quantified, this analysis will lead to the recognition of restructuring charges and expenses in the fourth quarter. We continue to be optimistic about the long-term future of the manufacturing economy and of the markets we serve, and we are enthusiastic about the positions most of our companies occupy in those markets. Going forward, the task for all of us at Dover is clear. It is to achieve the best possible financial results that we can in the short term, while becoming stronger and ever more competitive in our niche markets so that we can reap the benefits that await us when the overall economy turns around."
Dover completed two add-on acquisitions during the quarter at a combined investment of $35.8 million, both in the Dover Diversified segment. These acquisitions had a negligible impact on net income due to acquisition-related amortization and depreciation, which are typically higher in the first year after acquisition. Acquisitions completed in the last twelve months added $74.3 million in sales for the quarter, with almost no impact on segment earnings after acquisition write-offs.
SEGMENT RESULTS
Dover Technologies' third quarter sales decreased 52% or $295.8 million to $269.2 million, generating a loss of $11.1 million (excluding additional reserves of $42.4 million) compared to earnings of $116.0 million in the same period last year. Reserves were established, primarily for excess and obsolete inventory, and for accounts receivable and other items. The segment loss, including the reserves, was $53.5 million. Acquisitions completed in the last year added approximately $31.4 million to sales in the quarter, with a loss of $5.5 million after acquisition write-offs.
Technologies' CBAT business recorded a loss of $12.3 million for the third quarter, before reserves of $27.7million, compared to earnings of $80.0 million for last year's comparable period. Third quarter sales decreased 61% or $221.7 million to $143.9 million. All CBAT operating companies experienced decreases in sales and all were unprofitable, highlighting the suddenness of the industry-wide collapse in demand. Bookings, at $109.2 million, were down 68% from the same period last year and were 15% lower than the second quarter of 2001. The book-to-bill ratio was .76 for the third quarter. Backlog, at $44.9 million, is approximately 20% of the level reached as recently as mid- 2000, and declined 39% from the second quarter. Customer demand for CBAT's capital equipment, particularly in North America, is anemic, as virtually all customers now have excess capacity, put in place during the industry expansion in 1999 and 2000. Since there is no current indication or expectation that this market will improve soon, the substantial headcount reductions, cost reductions and other restructuring actions taken so far will likely be expanded in the fourth quarter.
In Technologies' SEC business, sales declined 54% or $79.6 million from the same period last year to $67.9 million and earnings declined $21.9 million to $4.9 million, excluding reserves of $14.2 million. Net bookings in the third quarter of $30.1 million were down 85% from last year and 32% from second quarter of this year. The book-to-bill ratio was .44 for the quarter, leaving backlog at $70.0 million at the end of the period (a 77% decline from last year and a 53% decline from the second quarter). Though a few of the SEC companies were modestly profitable in the third quarter before reserves, the demand for SEC's high-end components, particularly in the datacom/telecom and networking markets, is expected to remain weak. As a result, substantial restructuring costs are also likely to be experienced in SEC in the fourth quarter.
Imaje, the French-based industrial ink-jet printer and ink manufacturer, had a quarterly sales increase of 14% with earnings decreasing 10% compared with last year (measured in local currency) due to additional severance and inventory charges.
Dover Industries' third quarter sales declined 8% or $24.4 million to $289.6 million and segment income declined 33% or $16.2 million to $32.6 million compared to the same period last year. Before the effect of write-offs of $2.5 million, primarily for inventory obsolescence in two companies, segment income was $35.1 million, a decline of 28% from the prior year. Segment bookings were down 13% to $269.6 million and the book-to-bill ratio was .93 for the current quarter. Backlog decreased 1% from last year and 9% from the second quarter to $187 million. Acquisitions completed in the last year added approximately $19.3 million to sales in the quarter, with almost no impact on segment earnings after acquisition write-offs.
All companies owned for a full year had lower results in the quarter than in the comparable period last year due to weak markets, except for Rotary Lift, which has gained market share and managed margins extremely well in a down market. However, with weakness in the later half of September, Rotary's outlook is unclear even as compared to a weak prior year fourth quarter.
Heil Environmental, while maintaining very respectable margins overall, repeated this year's string of lower quarterly sales and earnings comparisons to a record prior year. Sequentially, earnings were substantially behind this year's second quarter but better than the first. Marathon, influenced by similar market factors also turned in weaker comparisons. Heil Trailer was unable to repeat its favorable comparisons to last year and the prior quarter, as its market remains quite weak.
Tipper Tie experienced substantial improvement from the second quarter as the impact of the "mad cow" disease scare on its European market has abated, but still had negative comparisons to the prior year. Texas Hydraulics which supplies hydraulic cylinders to a variety of industrial markets, with a concentration in aerial man-lifts, is experiencing very weak markets.
Triton continued to perform below expectations, and implemented a substantial headcount reduction in the quarter as part of its recovery strategy. Somero's recent results and prospects have been badly hurt by the sharp drop in commercial construction.
Dover Diversified's third quarter sales, after adjusting for the disposition of A-C Compressor in the second quarter of 2001, increased 12% or $31.8 million from the prior year to $294.6 million. Segment income decreased 32% or $12.6 million to $26.7 million compared to the same period last year, excluding non-recurring reserves of $5.5 million. The reserves were primarily for excess and obsolete inventory in businesses impacted by prolonged market downturns. After adjusting for the second quarter A-C Compressor disposition, bookings in the quarter were up 16% to $306.7 million and the book-to-bill ratio was favorable at 1.04; backlog at the end of the quarter of $400.2 million was 17% higher than last year and 5% higher than the second quarter. Acquisitions completed in the last year added approximately $18.3 million to sales in the quarter, with almost no impact on segment earnings after acquisition write-offs.
The earnings decline at Diversified was predominantly due to very unfavorable comparisons at Crenlo, which has reported significant operating losses in each quarter this year, as compared to the mid-teens margins it reported last year. This is due to a decline in its electronics enclosures business, and weak demand in its agricultural and construction equipment cab business. A turnaround focused on realigning costs with the current market environment is being executed by Diversified management.
Tranter's earnings comparisons to the prior year deteriorated in the third quarter due to weakness in the broad industrial market it serves. Tranter's earnings were also hurt by U.S. dollar strength both as it relates to the translation of its large Swedish based operations, and the impact of increased price competition in domestic markets. At Mark Andy, weak capital spending for printing machines has hurt margins, driving unfavorable comparisons.
Operating performance at Sargent, Performance Motorsports, and particularly Hill Phoenix, was strong in both absolute and comparative terms, though the degree to which the outlook for each has been tempered recently by the deteriorating market environment is uncertain.
Dover Resources' third quarter sales increased 5% or $10.3 million to $236.6 million, and segment earnings of $29.5 million, before inventory and other reserves of $3 million, were a slight increase from last year. The reserves established in the third quarter were for excess inventory in markets where weak demand has been experienced for prolonged periods. Segment bookings in the quarter were up 4% to $225.7 million and the book-to-bill ratio was .95. Backlog is $102.2 million, a 5% increase from last year and a 9% decrease from the second quarter. Acquisitions completed in the last year added approximately $5.4 million to sales in the quarter, with almost no impact on segment earnings after acquisition write-offs.
Resources' oil and gas related businesses (Petroleum Equipment Group, C. Lee Cook and Quartzdyne) again reported substantially higher sales and earnings compared to the same period last year. Though market demand is higher than last year, third quarter results were not as strong as those of this year's second quarter, as rig count declines and lower energy prices have led to a somewhat less robust short-term outlook.
Weakness in transportation related markets negatively impacted OPW Fluid Transfer's comparisons to the prior year again this quarter, though results were essentially flat with the prior quarter. Weak demand from automotive component and capital equipment markets have suppressed results all year at De-Sta-Co Manufacturing and De-Sta-Co Industries, and trends worsened at the end of the third quarter. OPW Fueling Components, which had favorable comparisons to the prior period last quarter, was on track for a similarly favorable result this quarter. However, it operates with very low backlog, and orders fell dramatically in the second half of September. Wilden, which has had comparable margins to the prior year throughout 2001 despite somewhat weaker markets, also operates with low backlogs and saw demand decline dramatically in September.
A noticeable operating profit improvement was experienced at Duncan, against weak comparable prior period performance.
Dover Corporation also reports its pretax earnings on an EBITACQ basis (Earnings before Interest, Taxes, and non-cash charges arising from purchase accounting for Acquisitions). Third quarter EBITACQ of $46 million was 82% lower than the prior year's third quarter.
Year to date free cash flow was 5.5% of sales. Dover's financial condition remains strong in this current weak business cycle, as the company has taken steps to manage conservatively its balance sheet in this environment. Total debt levels for the quarter and on a year-to-date basis declined by $164 million and $214 million, respectively to $1.26 billion. Net debt to total capital declined from 34.5% at December 31, 2000 to 29.0% at September 30, 2001. Despite the projected earnings fall-off for the year, the company's operating cash flow is projected to increase over last year, primarily due to significant reductions in working capital levels, and to a lesser extent lower capital spending. Commenting on Dover's financial condition, Mr. Reece said, "Given the uncertain market, we are focusing on cash and balance sheet management with increased intensity. In addition to exercising appropriate constraints on capital spending and the intensified focus on working capital, Dover has temporarily limited spending on acquisitions. Acquisitions remain a critical component of Dover's growth strategy, and we will resume spending when the economic environment stabilizes. Meanwhile we continue to search for transactions that have compelling shareholder value enhancing economics." Through the end of the third quarter, Dover has invested $275.2 million in acquisitions, and expects that total acquisition investment in 2001 will be substantially lower than the average $553 million invested in the prior two years.
Dover repurchased 687,200 shares in the open market during the third quarter at an average price of $32.17, for a total of $22.1 million. Year to date repurchases total 934,200 shares at an average price of $33.17, for a total of $31.0 million.
Additional information on Dover and its operating companies can be found on the company website. (http://www.dovercorporation.com). In addition to updates to financial information already posted to the website, additional information about the performance of Dover Technologies CBAT business compared to certain available industry data has also been posted for the purpose of potentially aiding investors studying this business. Dover makes no representation about the utility of this data or the validity of any conclusions that might be reached by referring to it. In addition, Dover will post to the website the segment detail of EBITACQ, as well as supplemental cash flow disclosure.
The Dover website will host a Webcast of the third quarter conference call at 9:00 AM Eastern Time on Tuesday, October 16, 2001. The conference call will also be made available for replay on the website.
Dover Corporation makes information available to the public, orally and in writing, which may use words like "expects" and "believes", which are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. This press release contains forward-looking statements regarding future events and the performance of Dover Corporation that involve risks and uncertainties that could cause actual results to differ materially including, but not limited to, failure to achieve expected synergies, failure to successfully integrate acquisitions, failure to service debt, continuing impacts from the terrorist events of September 11, 2001 on the worldwide economy, economic conditions, customer demand, increased competition in the relevant market, and others. Dover Corporation refers you to the documents that it files from time to time with the Securities and Exchange Commission, such as the Form 10-K, Form 10-Q and Form 8-K, which contain additional important factors that could cause its actual results to differ from its current expectations and from the forward-looking statements contained in this press release.
DOVER CORPORATION CONSOLIDATED
MARKET SEGMENT RESULTS
(unaudited)
Third quarter ended September 30,
Percent
SALES 2001 2000 Change
Dover Technologies $ 269,202,000 $564,988,000 -52%
Dover Industries 289,600,000 314,037,000 -8%
Dover Diversified 294,558,000 286,772,000 3%
Dover Resources 236,574,000 226,311,000 5%
Total (after intramarket
eliminations) $1,088,554,000 $1,390,486,000 -22%
EARNINGS
Dover Technologies $ (53,528,000) $116,038,000 -146%
Dover Industries 32,598,000 48,762,000 -33%
Dover Diversified 21,170,000 39,313,000 -46%
Dover Resources 26,517,000 28,985,000 -9%
Subtotal 26,757,000 233,098,000 -89%
Gain on sale of equity
securities -- 13,741,000
Corporate expense (5,429,000) (7,337,000) -26%
Net interest expense (17,892,000) (25,528,000) -30%
Earnings before taxes
on income 3,436,000 213,974,000 -98%
Taxes on income 829,000 69,512,000 -99%
Net earnings - Continuing
Operations 2,607,000 144,462,000 -98%
Loss on sale of discontinued
operations, net of tax ** -- (13,595,000)
Net earnings $2,607,000 $130,867,000 -98%
Net earnings per diluted
common share - Continuing $ 0.01 $0.71 -98%
Discontinued $ -- $(0.07)
Net earnings per diluted
common share $ 0.01 $0.64 -98%
Average number of diluted
shares outstanding 204,210,000 204,736,000
Impact of acquisition
write-offs on diluted EPS:
EPS - Continuing $ 0.01 $0.71 -99%
Goodwill write-offs (net of tax) 0.05 0.04
EPS before goodwill 0.06 0.75 -92%
Other acquisition write-offs
(net of tax) 0.05 0.05
EPS before all acquisition
write-offs $ 0.11 $0.80 -86%
** On January 5, 1999, Dover completed the sale of its elevator business to Thyssen Industrie AG for $1.16 billion resulting in a net gain of $523.9 million in 1999. The loss of $13.6 million in 2000 reflects subsequent adjustments to both the purchase price and expenses related
DOVER CORPORATION CONSOLIDATED
MARKET SEGMENT RESULTS
(unaudited)
Nine months ended September 30,
Percent
SALES 2001 2000 Change
Dover Technologies $1,005,482,000 $1,558,706,000 -35%
Dover Industries 888,690,000 $939,367,000 -5%
Dover Diversified 865,555,000 866,722,000
Dover Resources 719,265,000 661,973,000 9%
Total (after intramarket
eliminations) $3,474,691,000 $4,021,029,000 -14%
EARNINGS
Dover Technologies $(4,803,000) $311,177,000 -102%
Dover Industries 109,990,000 150,679,000 -27%
Dover Diversified 78,115,000 116,992,000 -33%
Dover Resources 88,381,000 94,538,000 -7%
Subtotal 271,683,000 673,386,000 -60%
Gain on dispositions and
sale of equity securites 172,367,000 12,341,000
Corporate expense (17,172,000) (20,454,000) -16%
Net interest expense (57,460,000) (62,894,000) -9%
Earnings before taxes
on income 369,418,000 602,379,000 -39%
Taxes on Income 144,427,000 203,865,000 -29%
Net earnings - Continuing
Operations 224,991,000 398,514,000 -44%
Loss on sale of discontinued
operations, net of tax ** -- (13,595,000)
Net earnings $224,991,000 $384,919,000 -42%
Net earnings per diluted
common share - Continuing * $ 1.10 $1.95 -44%
Discontinued $ -- $(0.07)
Net earnings per diluted
common share $ 1.10 $1.88 -41%
Average number of diluted
shares outstanding 204,210,000 204,736,000
Impact of acquisition
write-offs on diluted EPS:
EPS - Continuing * $ 1.10 $1.95 -44%
Goodwill write-offs (net of tax) 0.16 0.14
EPS before goodwill * 1.26 2.09 -40%
Other acquisition
write-offs (net of tax) 0.11 0.12
EPS before all acquisition
write-offs * $ 1.37 $2.21 -38%
- 2001 Includes gain on sale of businesses of $.45.
** On January 5, 1999, Dover completed the sale of its elevator business to Thyssen Industrie AG for $1.16 billion resulting in a net gain of $523.9 million in 1999. The loss of $13.6 million in 2000 reflects subsequent adjustments to both the purchase price and expenses related to the sale.
Dover Corporation Consolidated
Market Segment Results
September 30, December 31,
BALANCE SHEET ('000) 2001 2000
Assets:
Cash, equivalents and marketable securities $222,302 $186,740
Receivables, net of allowances
for doubtful accounts 762,885 903,177
Inventories 744,495 783,200
Prepaid expenses 104,742 101,732
Net property, plant & equipment 775,055 755,548
Goodwill, net of amortization 1,904,823 1,896,715
Other intangibles and assets, net 313,800 265,004
$4,828,102 $4,892,116
Liabilities & stockholders' equity:
Short term debt $221,341 $842,537
Payables and accrued expenses 815,043 762,103
Deferred credits 212,170 214,055
Long-term debt 1,038,649 631,846
Stockholders' equity 2,540,899 2,441,575
$4,828,102 $4,892,116
Nine Months
CASH FLOWS ('000) 2001 2000
Operating activities:
Net earnings $ 224,991 $ 384,919
(Gain) loss on sale of discontinued
business, net -- 13,595
(Gain) loss on sale of business (172,367) (12,341)
Depreciation 112,485 101,358
Amortization - goodwill 40,074 36,034
Amortization - other 13,204 13,868
Working capital changes 220,576 (209,444)
Other, net (22,619) 10,528
Net cash from operating activities 416,344 338,517
Investing activities:
Capital expenditures (131,342) (134,537)
Acquisitions, net of cash and
cash equivalents (268,115) (314,084)
Proceeds from sale of businesses and
equity investments 358,916 15,956
Net cash from (used in) investing activities (40,541) (432,665)
Financing activities:
Increase (decrease) in notes payable (630,001) 527,978
Increase (decrease) in long-term debt 401,938 14,465
Cash dividends (78,219) (72,076)
Purchase of treasury stock (32,114) (3,928)
Proceeds from exercise of stock options 2,975 7,046
Net cash from (used in) financing activities (335,421) 473,485
Discontinued operations - tax payments -- (306,515)
Net increase (decrease) in cash & equivalents 40,382 72,822
Cash & cash equivalents at beginning of period 181,399 138,038
Cash & cash equivalents at end of period $ 221,781 $ 210,860
DOVER CORPORATION
ACQUISITIONS - THIRD QUARTER 2001
DATE TYPE ACQUIRED COMPANIES LOCATION (Near) SEGMENT - Operating Co.
11-Jul Stock Carrillo San Clemente, CA DDI Performance
Motorsports
Manufactures steel connecting rods for the professional
race market segment.
16-Aug Asset Federal-Mogul RPB Glasgow, Scotland DDI Waukesha
Bearings
Specialized engineering hydrodynamic and magnetic bearings products and
services for the power generation, oil/gas, chemical and industrial
markets.
SOURCE Dover Corporation
CONTACT: David S. Smith, Vice President Finance of Dover Corporation, +1-212-922-1640/