1
Universal Instruments Corporation
Imaje, S.A.
Everett Charles Technologies, Inc.
Quadrant Technologies/Vectron
K&L Microwave, Inc.
DEK Printing Machines Ltd (U.K.)
TNI, Inc.
Novacap, Inc.
Soltec International, B.V. (Netherlands)
Rotary Lift
Heil Trailer International
Tipper Tie/Technopack
H.E.I.L.
Marathon Equipment
DovaTech
Chief Automotive Systems
[GRAPHIC OF FIVE SQUARES]
Texas Hydraulics
Davenport
Randell
Groen
1997
DOVER CORPORATION
ANNUAL REPORT
[DOVER LOGO]
Belvac
Tranter
Sargent Controls & Aerospace
A-C Compressor
Waukesha Bearings
Hill Phoenix
Mark Andy
Pathway Bellows
SWF, Inc.
De-Sta-Co Manufacturing
De-Sta-Co Industries
OPW Fueling Components
Blackmer
Midland Manufacturing
C. Lee Cook
Alberta Oil Tool (Canada)
Norris
Ronningen-Petter
OPW Engineered Systems
Wittemann
Civacon
Norriseal Controls
Tulsa Winch
Duncan Parking Systems
Hydro Systems Company
Quartzdyne
Dover Elevator International
2
Dover's business goal is to be the leader in all the markets we serve. We earn
that status by applying a simple philosophy to the management of our businesses.
This requires us to:
- - PERCEIVE OUR CUSTOMERS' REAL NEEDS FOR PRODUCTS AND SUPPORT.
- - PROVIDE BETTER PRODUCTS AND SERVICES THAN THE COMPETITION.
- - INVEST TO MAINTAIN OUR COMPETITIVE EDGE.
- - ASK OUR CUSTOMERS TO PAY A FAIR PRICE FOR THE EXTRA VALUE WE ADD.
Service to our customers, product quality, innovation and a long-term
orientation are implicit in this credo. Pursuit of this market leadership
philosophy by all our businesses, plus value oriented acquisitions of companies
that share this philosophy, plus a decentralized management style that gives the
greatest scope to the talented people who manage these companies have combined
to produce results featuring:
- - LONG-TERM EARNINGS GROWTH.
- - HIGH CASH FLOW.
- - SUPERIOR RETURNS ON STOCKHOLDERS' EQUITY.
TABLE OF CONTENTS
COMPARATIVE HIGHLIGHTS .................. 1
TO OUR STOCKHOLDERS ..................... 2
DOVER TECHNOLOGIES ...................... 8
DOVER INDUSTRIES ........................ 11
DOVER DIVERSIFIED ....................... 14
DOVER RESOURCES ......................... 17
DOVER ELEVATOR INTERNATIONAL ............ 20
FINANCIAL STATEMENTS .................... 22
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ............. 33
QUARTERLY DATA .......................... 35
COMMON STOCK CASH DIVIDENDS
AND MARKET PRICES ..................... 35
DIRECTORS, OFFICERS
AND STOCKHOLDER INFORMATION ........... 35
11-YEAR CONSOLIDATED SUMMARY ............ 36
3
Dover Corporation and Subsidiaries
1997 COMPARATIVE HIGHLIGHTS
(Dollars in thousands except per share figures)
Increase 1997
1997 1996 1995 versus 1996
---------- ---------- ---------- -------------
Net sales $4,547,656 $4,076,284 $3,745,877 12%
Earnings before taxes $ 616,836 $ 588,725 $ 417,111 5%
Net earnings $ 405,431 $ 390,223 $ 278,311 4%
Per common share:
Net earnings (3):
Basic $ 1.82 $ 1.72 $ 1.23 6%
Diluted $ 1.79 $ 1.69 $ 1.22 6%
Dividends $ .36 $ .32 $ .28 13%
Book value $ 7.65 $ 6.62 $ 5.40
Capital expenditures $ 145,620 $ 125,111 $ 102,668
Acquisitions (1) $ 261,460 $ 281,711 $ 323,292
Purchase of treasury stock $ 86,267 $ 62,815 $ 7,601
Cash flow (2) $ 576,094 $ 515,307 $ 386,147
Return on average equity 25.4% 28.7% 25.0%
Approximate number of stockholders 16,000 16,000 16,000
Number of employees 28,758 26,234 25,332
- --------------------------------------------------------------------------------------------------------
(1) See Notes to Consolidated Financial Statements, note 2.
(2) Represents net earnings plus depreciation and amortization.
(3) 1997 includes 11 cents per share and 1996 includes 22 cents per share
from sale of businesses. Adjusted, where applicable, to give retroactive
effect to the 2 for 1 stock splits in 1997 and 1995.
EARNINGS PER SHARE GROWTH (average annual rate)
For 10-Year Periods Ending 12/31 of each year shown
10 YEARS ENDING 12/31 DOVER S&P 500
--------------------- ----- -------
1988 13 7
1989 10 4.0
1990 11 3.5
1991 5 0
1992 6 4
1993 10 4.5
1994 10 6.5
1995 13 9.5
1996 17 11.5
1997 16.7 9.5
TOTAL RETURN TO INVESTORS (average annual rate)
For 10-Year Periods Ending 12/31 of each year shown
10 YEARS ENDING 12/31 DOVER S&P 500
--------------------- ----- -------
1988 22 16
1989 19 17
1990 13 14
1991 13 18
1992 15 16
1993 18 15
1994 15 14
1995 16 15
1996 18 15
1997 18 18
1
4
TO OUR STOCKHOLDERS
Dover's diluted earnings per share of $1.68, adjusted for 1997's two-for-one
stock split, represents an increase of 14% from the $1.47 earned in 1996. Both
figures exclude gains from the sale of companies, which netted $.11 in 1997 and
$.22 in 1996.
The earnings gain for 1997 was somewhat better than we had expected at the start
of the year, primarily because of the surprisingly strong upswing in demand for
electronic circuit board assembly equipment. The 14% gain equaled Dover's
40-year average gain of 14% and was only slightly below our average gain of 16%
thus far in the `90s.
On the previous page are the graphs in which we show Dover's earnings per share
growth and total return to shareholders as compared to the S&P 500. We are proud
of this record, but view it as a validation of a business process rather than as
the achievement of a specific goal. Success in serving customers better than the
competition, constant improvement of our own business processes, aggressive
investment in our businesses, and thoughtful reinvestment of excess cash flow
SHOULD create above-average earnings growth.
Dover's basic strategy for wealth creation, summarized on the inside cover of
this report, has been consistently applied for four decades by four chief
executive officers. This "strategic vision" is so simple that investors often
ask, "Can success continue?" With 40 years of evidence, the more relevant
question might be, "Why not?"
While Dover's strategy is simple, its execution is not. With over 150
manufacturing locations and an even larger number of product/market niches, we
are not running a single large race against competition but hundreds of smaller
races simultaneously, each of which has unique aspects. Success requires that
decisions be made quickly and very close to the action. Decentralization and
empowerment are essential. So are corporate managers who select and evaluate
rather than direct. And, most of all, so are presidents, management teams
BASIC EARNINGS PER SHARE
1992 $0.56
1993 $0.69
1994 $0.88
1995 $1.23
1996* $1.5
1997* $1.71
*excludes sale of business
EARNINGS BEFORE INTEREST, TAXES AND WRITE-OFFS PER BASIC SHARE (1)
1992 $1.02
1993 $1.27
1994 $1.63
1995 $2.17
1996* $2.61
1997* $3.18
*excludes sale of business
(1) Write-offs are costs relating to premium over book paid for acquisitions.
PROFITABILITY MEASURES (in percent)
After-Tax Operating Return on
Return On Investment Stockholder's Equity
(Acquision adjustments have
been excluded, see page 31,
footnote 14 for explanation.)
1992 27 16
1993 29 19
1994 31 22
1995 33 25
1996* 36 25
1997* 38 24
*excludes sale of business
2
5
[PHOTO OF THOMAS L. REECE]
THOMAS L. REECE, PRESIDENT AND CEO, VISITING A HEIL TRAILER PLANT IN ATHENS,
TENN. HEIL IS THE WORLD'S LARGEST MANUFACTURER OF ALUMINUM TANK TRAILERS AND ONE
OF 36 DOVER COMPANIES THAT ARE #1 IN THEIR PRIMARY MARKET.
and employee groups -- we call them companies -- that like to win and can figure
out for themselves how to do it.
The pictures and company logos on pages 4-6 recognize 12 Dover companies that
have been exceptional winners over the past five years. Through internal and
external initiatives, each has more than doubled its profits over this period,
while achieving margins at least in the high `teens and after-tax returns on
operating capital of at least 25%. They range in size from $60 million in annual
sales to almost $600 million. Together they earned in 1997 about triple what
they earned in 1992. Our strategic vision does not tell us which companies will
be on such a list five years from now, but every Dover president is encouraged
and empowered to make his company one of them.
HIGHLIGHTS OF 1997
ALL MARKET SEGMENTS STRONG... All five of our reporting segments achieved higher
earnings, with four setting records.
STRONG PERFORMANCE IN CIRCUIT BOARD PRODUCTION EQUIPMENT... The four Dover
Technologies companies serving this market experienced strong demand growth and
successfully ramped up production, maintaining or increasing market share. Our
statement in last year's annual report ("The market for assembly equipment
appears to have bottomed, and any upturn would enhance 1997 earnings growth.")
proved to be quite conservative.
STRONGER ELEVATOR RESULTS... Dover Elevator's ability to achieve earnings growth
without last year's income contribution from Europe reflects further benefits
from the 1995 restructuring and a strong U.S. market.
A-C COMPRESSOR GROWS... Profits in A-C's core business continued to expand as a
result of the company's focus on its niche markets and business processes. A-C
persuaded two significant aftermarket companies (Preco and Conmec) to join the
Dover family, more than doubling A-C's presence in the compressor and turbine
aftermarket.
HILL PHOENIX PERFORMANCE IMPROVES... Hill took a significant step forward in the
refrigerated display case business, growing both sales and margins to almost
triple earnings compared to prior year.
BELVAC RETRENCHES SUCCESSFULLY... The long anticipated "necking equipment"
downturn that finally took place in 1996-7 necessitated substantial downsizing,
as Belvac regretfully eliminated about one-third of its peak employment. Despite
a 38% reduction in shipments and even larger fall in profits, Belvac remained a
very profitable company and the overwhelmingly preferred supplier for its types
of equipment.
GAIN AT FOOD SERVICE COMPANIES... Both Randell and Groen, which make food
refrigeration and preparation equipment, showed strong earnings gains as a
result of new initiatives undertaken in 1997. Combined profits more than doubled
to their best levels in many years.
3
6
[PHOTO OF GERHARD D. MEESE]
GERHARD D. MEESE
President, Universal Instruments Corp.
[PHOTO OF A. PATRICK CUNNINGHAM]
A. PATRICK CUNNINGHAM
President, DovaTech
ACQUISITIONS IN 1997
During 1997 we remained very active in the acquisition marketplace, investing
$261 million in 17 separate transactions. We were disappointed not to find a
"large" opportunity, such as Everett Charles in 1996, Imaje in 1995 or Heil in
1993. Our ability to maintain a high level of good acquisition investments
reflects the continuing progress of our "add-on" acquisition program. Of the 17
transactions, 15 were add-ons, orchestrated by company presidents. I am pleased
that so many Dover presidents are learning to use this tool as part of their
response to the challenge implied by Dover's "tilt toward growth."
In the past four years, we have made 39 add-on acquisitions, representing an
expenditure of $476 million. Profits resulting from these acquisitions are
expected to exceed $100 million in 1998, although this is a difficult number to
measure since integration and synergies are often involved. With so many
transactions, we are bound to have some mistakes; hence the write-off this year
of the intangibles relating to the early 1996 acquisition of BSL. Overall,
however, the returns to our stockholders look to be quite favorable, and I am
inclined to encourage prudent risk-taking as part of our growth tilt.
Stand-alone acquisitions in 1997 -- those companies which report directly to one
of our independent subsidiary CEOs -- included Hydro Systems (Resources), a
maker of cleaning chemical dispensing systems, and SWF (Diversified), the
country's premier manufacturer of production equipment for making corrugated
boxes.
Our largest 1997 investments were for add-on transactions made by Everett
Charles (Technologies), whose several product-line acquisitions cost $37
million; by A-C Compressor (Diversified), whose two acquisitions cost $62
million, and by Soltec (Technologies), which spent $18 million to acquire
Vitronics, a complementary manufacturer of soldering equipment used in circuit
board assembly.
The companies acquired in 1997 had pro forma full-year sales volume of
approximately $240 million, only $127 million of which is included in our 1997
financial results. They made no contribution to 1997 earnings per share because
of acquisition premium write-offs and financing costs, but will add to 1998
results.
As usual, in 1997 we purchased good businesses, paying their owners a fair price
that represented a significant premium over historical book value. These
premiums are expensed in our income statement over a period of years. The EPS
impact of these non-cash charges was $.18 in 1995, $.17 in 1996 and $.29 in
1997. In the unlikely event that we make no acquisitions in 1998, this non-cash
charge will decline to $.19 per share. We will continue to report these numbers,
so long as they remain large in relation to reported EPS, because of their
relevance to valuation.
FINANCIAL POSITION
During the year we made long-term investments of $493 million in acquisitions,
capital equipment and repurchase of our own shares. The annual dividend rate was
increased as it has been every year since 1962, and our stock was split
two-for-one, following similar two-for-one splits in 1995 and 1988.
[PHOTO OF ALBERT JOURNO]
ALBERT JOURNO
President, Imaje S.A.
[PHOTO OF TERENCE W. EDE]
TERENCE W. EDE
President, Quadrant Technologies
4
7
[PHOTO OF DAVID R. VAN LOAN]
DAVID R. VAN LOAN
President,
Everett Charles Technologies
[PHOTO OF JON H. SIMPSON]
JON H. SIMPSON
President, De-Sta-Co
Industries
Free cashflow (after capital expenditures and dividends) set another record in
1997, reaching $263 million, about 6% of sales, and our debt-to-total capital
ratio, measured on a book value basis, dropped to 24%. At year end net debt
represented less than one year's EBITA and only 6% of Dover's total market
capitalization. Clearly, Dover has adequate financial resources for
opportunities that may present themselves.
Equally clearly, we will not stretch to make investments that are priced at
levels unattractive for long-term stockholders. I constantly hear from bankers
who recommend acquisitions at very high prices, from investors who feel that
some corporations are squandering their cash flow, and from those who forgive
both in the context of the one-year impact on EPS. Thank you, but we will stick
with our own vision.
SEGMENTS ACHIEVE STRONG OPERATIONAL PROFITS
Dover's segment results are reported on page 22 of the annual report in the
standard format required by generally accepted accounting principles. The table
that follows presents the same figures in a different way, as seen from the
perspective of the presidents of our 46 individual companies. It is presented
here, in shameless emulation of Warren Buffett at Berkshire Hathaway, to provide
stockholders with a context for better understanding the significance of
individual businesses to their segments and to Dover as a whole.
OPERATIONAL PROFITS (in Millions)
Technologies $243
Industries 145
Diversified 123
Resources 130
Elevator 105
----
Subtotal $746
Acquisition Premium Write-offs (87)
Interest, net (36)
Subsidiary, Corporate and other (38)
Gain on Dispositions 32
----
Dover Pre-Tax Income $617
====
Our companies earned profits of $746 million in profits. Their presidents are
not responsible for Dover's capital structure, which created $47 million in
interest expense; for the general expenses of our subsidiary and corporate
offices, which we prudently do not allocate to them; nor for the accounting
policies that drive the write-off of acquisition premiums. (The return on
Dover's investment in each acquisition is, however, a factor in determining the
compensation of the managers responsible for making the acquisition.)
DOVER TECHNOLOGIES
Profits, as defined above, reached $243 million. About two-thirds of these
profits came from the printed circuit board assembly equipment businesses, with
Universal, Everett Charles and DEK achieving profit records. End markets were
strong, particularly in the computer, telecommunications and contract assembly
areas. In the specialized electronic component portion of Technologies,
penetration of wireless and wired communication markets drove 1997 growth and
continues as a key objective in 1998. A strong second half allowed
[PHOTO OF TIMOTHY J. SANDKER]
TIMOTHY J. SANDKER
President, Rotary Lift
[PHOTO OF KENNETH L. KALTZ]
KENNETH L. KALTZ
President, Tranter, inc.
5
8
[PHOTO OF ROBERT FOSTER]
ROBERT FOSTER
President, Heil Tank Trailer
[PHOTO OF VERNON PONTES]
VERNON PONTES
President, Texas Hydraulics
Imaje to achieve record results, with profits up 17% in French francs and a
smaller amount in U.S. dollars.
Asian markets provided 18% of Technologies' sales in 1997. In view of the
economic turmoil in some of these countries, sales to these areas are likely to
decline in 1998. It is unlikely that DTI's companies will equal the $243 million
they earned in 1997, but profits for the segment might be close to the $195
million reported in 1997 due to lower write-offs.
DOVER INDUSTRIES
Operational profits at Dover Industries set a record, as eight of 11 businesses
improved earnings over prior year and five achieved record profits. The bulk of
the earnings gains were provided by Texas Hydraulics, which completed its sixth
consecutive year of strong growth, and by Groen, whose 1996 results were marred
by write-offs. Nine of Industries' companies have earned large and leading
market shares for their niche products, and two occupy strong number two
positions.
The strength of the U.S. economy was a significant plus factor for all of these
companies. The recovery of the tank trailer market and, to a lesser extent, the
solid waste equipment market, were encouraging signs for the year ahead.
DOVER DIVERSIFIED
The operational profits of Diversified's eight companies equaled those of 1996
despite a drop of more than $20 million at Belvac. This drop, which was
anticipated, stemmed from the end of the can-necking equipment boom that we have
commented upon in the past. Despite the market contraction, Belvac remains the
overwhelmingly preferred supplier of its types of equipment and achieved good
margins in 1997.
Diversified's other companies all showed gains. Particularly gratifying, after
several years of very hard work, was the near-tripling of profits at Hill
Phoenix. A-C Compressor continued its profit improvement, while Tranter achieved
another year of record profits. Diversified's presidents were successful in
their add-on acquisition programs, with four businesses acquired, involving an
investment of $85 million.
Diversified's outlook for 1998 is strong with gains expected to be larger than
those realized last year.
DOVER RESOURCES
Resources' operational earnings of $130 million were 12% above the prior year,
about half from the acquisition of Tulsa Winch and Hydro Systems. Both of these
companies had strong years, achieving profits above those expected when the
acquisitions were made. OPW Fueling Components remained Resources' largest
profit contributor while setting a new profit record. Our three companies
supplying oilfield production equipment improved profits to their best level in
more than 10 years. De-Sta-Co Industries and Duncan Systems also achieved profit
records with strong gains over the prior year.
All Resources companies anticipate good results in 1998, with most forecasting
profit gains. Obviously the strength of the U.S. economy will be an important
factor.
[PHOTO OF JAMES KOSH]
JAMES KOSH
President, Alberta Oil Tool
[PHOTO OF CHARLES J. SCHAUB]
CHARLES J. SCHAUB
President, K & L Microwave, Inc.
6
9
[PHOTO OF JOHN MCNIFF]
JOHN MCNIFF
Vice President, Finance
[PHOTO OF FRED SUESSER]
FRED SUESSER
Controller
DOVER ELEVATOR
Dover Elevator increased its operational profits to a record $105 million,
despite the June sale of its European operations, which provided a further gain
of $32 million. Sales advanced only 2%, but bookings and shipments of hydraulic
elevators again set records by substantial margins, although pricing showed only
a slight improvement. As our elevator business is now structured, new elevator
activities provide about 60% of sales with the balance from service and repairs.
Profitability of new elevator operations improved further in 1997. The U.S. real
estate market appears to be continuing its recovery and we anticipate another
record-setting year for Elevator in 1998.
MANAGEMENT CHANGES
Three new company presidents, each with at least 10 years' service in Dover
management, were appointed in 1997. Tom Phillips, a longtime Dover employee and
marketing vice president of Rotary Lift, was named president of Groen. Phil
Tribel became president of Tipper Tie in anticipation of the retirement of Chuck
Heard. Jack Ditterline was named president of Tranter to follow Ken Kaltz, who
is also retiring. In early 1998 Dave Ropp joined OPW Fueling Components as
president, since Bob Conner is retiring after his 20 years with OPW. Graeme
McMahon, formerly finance director at Hammond & Champness, U.K., became vice
president-finance of Dover Diversified.
OUTLOOK
We had a better year in 1997 than I thought prudent to forecast at the start of
the year. This resulted primarily from the strength of the printed circuit board
assembly market, whose short-term moves have always been difficult to predict.
Over the long haul, this product market has grown at approximately 15% per year,
a rate which we believe is sustainable into the future -- but not in 1998
because of the problems in Asia.
However, assuming that North America and Europe continue to enjoy economic
growth, we believe that Dover's 1998 operational income will improve from the
$746 million shown in the previous table. We also ended the year with fewer
shares and lower interest rates than at the start of 1997 and are forecasting
substantial free cash flow in 1998. Additionally, acquisition premium write-offs
were particularly heavy in 1997 and, as previously indicated, should be less of
a burden in 1998. While we hope that our earnings per share percentage increase
will again reach double digits, this result is certainly not assured.
Once again I attended all of our year-end review and planning meetings, which is
one of the most exciting business processes that takes place in Dover. The tone
of these meetings was excellent. Although I have promised both my wife and my
associates that I will not attend every review meeting in 1998, I am already
looking forward to taking advantage of as many opportunities as possible to hear
firsthand of the accomplishments that I know our companies will achieve.
/s/ Thomas L. Reece
Thomas L. Reece
President and Chief Executive Officer
February 23, 1998
[PHOTO OF ROBERT TYRE]
ROBERT TYRE
Vice President,
Corporate Development
[PHOTO OF ROBERT KUHBACH]
ROBERT KUHBACH
Vice President,
General Counsel & Secretary
7
10
DOVER TECHNOLOGIES
Dover Technologies again achieved record sales and earnings, with segment
profits of $195 million, more than six times the level of five years ago.
A portion of this extraordinary growth reflects acquisition activity, with $562
million invested over these five years in the acquisition of 16 companies.
However, internal growth, both by the companies owned at the start of 1992 and
by acquired companies after their acquisition, has been a more important factor.
The Technologies segment is discussed below as three end-market subsegments.
These are subject to different secular and cyclical forces, but all hold the
promise, and risks, characteristic of markets that require a high degree of
sophisticated and evolving technology.
SALES AND OPERATIONAL PROFITS (in millions)
Operational Margin
Sales Profits %
------ ----------- ------
Circuit board
assembly/test $ 852 $147 17%
Components 272 39 14%
Marking 177 57 32%
------ ---- ---
Subtotal $1,301 $243 19%
------ ---
Acquisition write-offs,
exchange gain and
subsidiary expense 48
------ ---- ---
Total segment profit $195
====== ==== ===
The market for circuit board assembly and test equipment strengthened in 1997
after a 1996 downturn. Sales in this area grew over 40%, with operational
profits up over 85%. The major portion of these gains came from internal growth
at Universal and from Everett Charles, which was part of DTI for all of 1997 and
only one month in 1996. Universal maintained its market-leading position for
fine-pitch flexible placement equipment. Its platform concept -- a common board
positioning and control system made package-specific through head-tooling --
has set the standard for this segment of the market. Sales of platform machines
were at record levels, with the one thousandth machine shipped in the third
quarter. Universal expanded its product offerings with higher speed and more
accurate versions of the platform. Combinations of flexible platform machines
can now replace high-speed turret machines in some applications. Shipments of
older technology thru-hole machines continued at 1996 levels, well below their
1995 record, but the strength in surface mount, both in volume and margin
improvement, drove Universal to near-record sales and profits.
Everett Charles performed well above pre-acquisition expectations in its core
business and launched an aggressive program of product and geographic expansion,
purchasing four businesses for a total of $37 million. This solidified Everett
Charles' position as the leading manufacturer of testing equipment for bare
circuit boards and of test fixtures used in the testing of populated boards. ECT
is also the world's largest producer of spring probes, as shown in the picture
opposite, which are used in both market applications.
DEK improved its screen printing machines' capabilities for accurate, high-speed
application of solder paste. DEK achieved record sales and earnings although
margins were below the average for the segment. Soltec took an important
strategic step by acquiring Vitronics, a leading manufacturer of reflow
soldering ovens. This is the preferred technology for surface mount assembly,
and the Vitronics and Soltec product lines and distribution systems fit together
nicely. The consolidation of these companies is well under way and should create
a strong challenger for the number one position in the worldwide soldering
equipment market.
8
11
[GRAPHIC]
A TEST FIXTURE DESIGNED AND MANUFACTURED BY EVERETT CHARLES. THE PROBES HAVE
INTERNAL SPRINGS THAT WILL ALIGN THEM WITH TEST POINTS ON A POPULATED BOARD,
ALLOWING A FUNCTIONAL CHECK BY COMPUTERIZED TESTER.
[PHOTO OF JOHN E. POMEROY]
JOHN E. POMEROY
President &
Chief Executive Officer
Dover Technologies
GROWTH IN ELECTRONIC COMPONENTS
Profits of the four companies involved in this end-market area improved 26%,
with records set by Novacap, K&L Microwave and Quadrant Technologies. Quadrant,
in combining Vectron Labs, Oscillatek, ATT Frequency Products, and three
companies acquired in Germany under the single banner of Vectron International,
has emerged as the world's largest supplier of high-end, quartz-based frequency
controls and timing products for telecommunications. The movement to higher
frequencies and more compressed information content is a key growth factor for
this market. K&L improved its sales to the cellular base station telephone
market. Novacap's focus on high-end, specialty capacitors continued to be
successful. TNI's profit declined as the company invested heavily in a
high-risk, but potentially high-reward, start-up of a new product line.
SEGMENT EARNINGS ($ millions)
1993 $ 42
1994 $ 76
1995 $134
1996 $146
1997 $195
AFTER-TAX OPERATING
RETURN ON INVESTMENT (%)*
1993 18%
1994 30%
1995 44%
1996 43%
1997 47%
*(Acquisition adjustments have been excluded, see page 31, footnote 14 for
explanation.)
9
12
[GRAPHIC]
UNIVERSAL'S ODD-FORM PLACEMENT MACHINE ADDS THE IRREGULAR SIZED CONNECTORS TO
THIS COMPUTER MOTHERBOARD. HISTORICALLY, THIS OPERATION HAS BEEN DONE BY HAND
BUT IN RECENT YEARS THE AVERAGE NUMBER OF CONNECTORS PER BOARD HAS RISEN
SIGNIFICANTLY, CREATING THE NEED FOR AUTOMATION.
1 Universal Instruments
Corporation
Gerhard D. Meese, President
Products: Automated assembly equipment for printed circuit boards
2 Imaje, S.A.*
Albert Journo, President
Products: Continuous Inkjet printers,
consumables
1 Everett Charles Technologies, Inc.*
David R. Van Loan, President
Products: Spring probes, test equipment, test fixtures
1 Quadrant Technologies
Terence W. Ede, President
Products: Vectron International, Inc. -
SAW devices, oscillators, crystals
Dielectric Laboratories, Inc. - Products:
High frequency capacitors
Communication Techniques, Inc. -
Products: Microwave synthesizers
1 K&L Microwave, Inc.
Charles J. Schaub, President
Products: Microwave/R.F. filters; Dow-Key coaxial switches
1 DEK Printing Machines Ltd (U.K.)*
John B. Knowles, Managing Director
Products: Screen printers for surface
mount printed circuit boards
2 TNI, Inc.
James M. Strathmeyer, President
Products: Ferrite transformers,
GFS transformers
Novacap, Inc.
Dr. Andre P. Galliath, President
Products: Multilayer ceramic capacitors
2 Soltec International, B.V. (Netherlands)
Michiel J. van Schaik, Managing Director
Products: Automated soldering equipment for printed circuit boards
Numbers indicate position in primary market served, generally North America
*Worldwide
INKJET MARKING
Imaje continued its string of sales and profit records with a small increase
when expressed in U.S. dollars. Results measured in French francs were
considerably stronger (up 17%) as, to some extent, the decline in the franc has
made Imaje even more competitive in certain international markets. End-markets
for Imaje's inkjet technology were healthy, with growing application in marking
for quality control and to meet regulatory requirements for food, drug packaging
and other consumer products. The installed base of Imaje inkjet printers
continued to expand, and this, coupled with the development of new proprietary
inks, resulted in increased after-market sales. The company improved its
participation in the North American market, although its share there remains
small compared to other areas of the world, and saw some recovery in its
European sales, where it is the market leader. Asian shipments also grew in
spite of increased competition, accounting for approximately 20% of Imaje's
shipments.
OUTLOOK
The size of the earnings record achieved in 1997, and the present uncertainty
about Asia, which provided 18% of Technologies' total 1997 volume, make
forecasting 1998 an uncertain exercise. We believe at this point that
operational profits will decline but that reduced acquisition-related write-offs
may result in segment earnings close to the 1997 level.
10
13
DOVER INDUSTRIES
Dover Industries' profits advanced to a new record for this segment of $129
million, 11% above prior year, and more than triple the level five years ago.
Operational earnings of Industries' 11 companies increased 12%, almost entirely
from internal growth.
The operational margin increase to 17% reflected improvements at several
companies, notably Groen and H.E.I.L. Environmental. With eight companies
reporting profits over $10 million, and no single company providing more than
15% of total operational profits, Industries has the most even company earnings
balance of Dover's five segments.
ROTARY EXCELS
Rotary Lift remained Industries' largest profit producer, followed closely by
Tipper Tie and Heil Tank Trailer. Rotary Lift's gain was modest because of a
flat domestic market, but cost improvements offset the more competitive pricing
environment, resulting in gains in sales and market share. Investments in
manufacturing and in business process improvement continued, as did Rotary's
strong effort to achieve a meaningful, and profitable, position in the European
market.
TIPPER TIE AND HEIL TANK TRAILER FLAT -- AT HIGH LEVEL
Tipper Tie had strong performances both domestically and in Europe at
Technopack, a 1994 acquisition that continues to work well for both companies.
This combination has facilitated better customer service and more cost-effective
coordination of product development. Heil Tank Trailer maintained its profit
level, as well as its commanding market leadership position, despite very large
swings in customer orders over the past three years. In this period, orders
averaged slightly over $36 million per quarter, but a then-record level of $57
million in the first quarter of 1995 gave way to a low of $10 million in the
third quarter of 1995 before rising to $93 million in the final quarter of 1997.
The strong focus that this has required -- on customer priorities,
computer-driven custom engineering, and faster manufacturing cycles -- turned a
big risk of disappointing customers into strong capabilities to support future
growth.
SEGMENT EARNINGS ($ millions)
1993 $ 60
1994 $ 81
1995 $118
1996 $116
1997 $129
AFTER-TAX OPERATING
RETURN ON INVESTMENT (%)*
1993 34%
1994 35%
1995 38%
1996 32%
1997 34%
*(Acquisition adjustments have been excluded, see page 31, footnote 14 for
explanation.)
11
14
[PHOTOGRAPH OF CYLINDER BLOCKS]
IT IS EASIER TO PLACE THESE TEXAS HYDRAULIC CYLINDER BLOCKS ON TOP OF EACH OTHER
FOR A PICTURE THAN TO DESIGN, PRECISION-MACHINE, ASSEMBLE, TEST AND SHIP -- ALL
TO RIGOROUS CUSTOMER SPECIFICATIONS AND WITH SHORT LEAD TIMES.
GAINS AT TEXAS HYDRAULICS, OTHER COMPANIES
Rapid growth continued at Texas Hydraulics, as profits improved 30% and have now
quadrupled since 1992. While hydraulic cylinders are a mature technology, Texas
Hydraulics has refused to approach this market as a commodity environment. A
focus on quick-response engineering, lean manufacturing, targeted marketing
efforts and empowerment of its employees has made Texas Hydraulics an exciting
company. The company's motto, "Find and Fix Problems," has driven market share
gains and excellent profitability.
H.E.I.L. Environmental (refuse vehicles) and Marathon Equipment (compactors and
balers) continued their recovery after the industry downturn that began in the
spring of 1996. The waste hauler market has undergone significant restructuring
over the past two years, during which some of the larger
[PHOTO OF LEW BURNS]
LEW BURNS
President &
Chief Executive Officer
Dover Industries
12
15
companies cut back sharply on equipment orders. Both Heil Environmental and
Marathon saw an upturn in the second half of 1997 and are encouraged by customer
forecasts of a stronger year in 1998.
Industries' food service equipment companies, Groen (cooking equipment) and
Randell (refrigeration and food preparation tables), achieved a 10% gain in
sales, but profits more than doubled after a poor result in 1996. Better focus
of marketing efforts, the restructuring of Groen's business, and Randell's
strong emphasis on business process improvement were key contributors.
Industries' three other companies also had good results. Chief reached its
highest level of profits in the `90s. Product line additions at DovaTech and
Davenport, resulting from internal development and acquisitions, offer the
potential for strong 1998 growth at these companies.
OUTLOOK
Dover Industries enters 1998 with strong momentum and the expectation of
continued expansion of the U.S. economy, where it made 83% of its sales in 1997.
All Industries' companies are planning for sales gains. If these gains are
achieved, modest margin improvements are also possible as a result of the good
incremental profitability of Industries' market-leading product lines.
1 Rotary Lift
Timothy J. Sandker, President
Products: Automotive lifts and
alignment racks
1 Heil Trailer International
Robert A. Foster, President
Products: Trailerized tanks
1 Tipper Tie/Technopack
Philip L. Tribel, President
Products: Clip closures, packaging
systems, netting, and wire products
1 H.E.I.L.
Glenn M. Chambers, President
Products: Refuse collection vehicles
and dump bodies
1 Marathon Equipment
Edward A. Furnari, President
Products: Solid waste compaction, balers,
and recycling equipment
2 DovaTech
A. Patrick Cunningham, President
Products: Bernard MIG welding, Weldcraft
TIG welding, PlazCraft plasma cutting,
PRC laser equipment
1 Chief Automotive Systems
James E. Aylward, President
Products: Auto collision measuring
and repair systems
1 Texas Hydraulics
Vernon E. Pontes, President
Products: Specialty hydraulic cylinders
1 Davenport
Donald L. Firm, President
Products: Multi-spindle screw machines,
benchtop machine tools, and spare parts
and attachments
2 Randell
Lynn L. Bay, President
Products: Commercial refrigeration
food service preparation and holding equipment
1 Groen
Thomas Phillips, Jr., President
Products: Commercial food service
cooking equipment/industrial processing equipment
Numbers indicate position in primary
market served, generally North America
[GRAPHIC]
A HEIL ALUMINUM PETROLEUM TANKER FINISHING ASSEMBLY AND ABOUT TO BE SHIPPED.
13
16
DOVER DIVERSIFIED
A strong fourth quarter propelled Dover Diversified to record profits,
continuing its growth into a sixth consecutive year. Seven of Diversified's
eight individual companies achieved sales and profit gains.
Belvac's profit decline of $22 million was larger than expected at the start of
the year, but so was the over 30% gain at the seven other companies.
BELVAC MAINTAINS EDGE DESPITE DOWNTURN
Last year's annual report noted that demand for can-necking equipment had
largely been met, as most two-piece can production lines now had the equipment
needed to meet their can-diameter reduction targets. Belvac came back to earth
from the 1995-96 boom, downsizing its workforce and cost structure throughout
the year. Order patterns resulted in a shipment bulge in the fourth quarter, but
the overall book-to-bill ratio of .95 and a year-end backlog lower than at the
start of the year do not suggest growth in 1998. Belvac retained its
overwhelming leadership position for can-necking and trimming equipment, has
restructured itself to be quite profitable at 1997 shipment levels, and is
working to expand its product lines through internal development and
acquisition.
IMPROVEMENT AT HILL PHOENIX
Hill Phoenix more than doubled profits on a 6% increase in shipments. Quality,
on-time delivery and production costs improved substantially and will serve as a
good base for further growth in 1998. Margins, while improved, remained below
levels that Hill Phoenix's three largest competitors are believed to achieve.
The ownership structure of each of those companies changed in 1997, as
Kysor-Warren and Tyler were acquired by Scottsman and Carrier, respectively, and
Hussman is in the process of being spun off by Whitman as a public company. We
looked carefully at these transactions but saw nothing that would improve
Dover's stockholder value, especially in view of our expectations of further
sales growth and margin improvement at Hill Phoenix.
A-C COMPRESSOR SHARPENS MARKET FOCUS
A-C Compressor continued to improve its core business. Its focus on niche
markets and on business process improvement, particularly cycle times, paid
further dividends. With the acquisition of Preco and Conmec, A-C has divided
itself into two operating units: new compressor sales, design and manufacturing,
led by Gary Walker, and aftermarket, coordinated by Tom Bell, who remains
president of A-C Compressor. Preco has added a strong capability for service of
compressors and of the gas or steam turbines that drive them. Conmec is noted
for its "innovative genius" in reengineering and upgrading existing systems, and
in designing new ones, to give the customer more capability per dollar of
capital invested.
14
17
[GRAPHIC]
A CUT-AWAY VIEW OF A COMPRESSOR FROM AN ALABAMA CHEMICAL PLANT THAT WAS REVAMPED
AND RERATED AT A-C COMPRESSOR'S NEW CONMEC OPERATION. THIS CAPABILITY EXPANDS
A-C'S PRODUCT RANGE.
[PHOTO OF JERRY W. YOCHUM]
JERRY W. YOCHUM
President &
Chief Executive Officer
Dover Diversified
The combined companies have launched programs to capitalize on the synergies in
the aftermarket, which should also benefit new compressor activities by
increasing A-C's ability to service its products.
RECORD RESULTS AGAIN FOR TRANTER
Tranter achieved another year of strong growth, becoming Dover Corporation's
fourth largest profit producer (after Universal, Elevator and Imaje). Demand for
its industrial heat transfer products -- plate and frame and Platecoil(R) heat
exchangers -- was strong both in the U.S. and Europe. Its transformer radiators,
used on power lines to dissipate heat generated when electricity is converted to
lower voltages, also had a record year.
SEGMENT EARNINGS ($ millions)
1993 $ 39
1994 $ 67
1995 $ 93
1996 $107
1997 $115
AFTER-TAX OPERATING
RETURN ON INVESTMENT (%)*
1993 47%
1994 36%
1995 34%
1996 35%
1997 38%
*(Acquisition adjustments have been excluded, see page 31, footnote 14 for
explanation.)
15
18
1 BELVAC*
Jim Schneiders, President
Products: Can necking, trimming
and shaping equipment
1 TRANTER
Jack Ditterline, President
Products: Plate/frame and compact
brazed heat exchangers; transformer
radiators
1 SARGENT CONTROLS & AEROSPACE**
Donald C. Tarquin, President
Products: Submarine fluid controls;
aircraft hydraulic controls; self-lubricating bearings
2 A-C COMPRESSOR
Thomas Bell, President
Products: Centrifugal, oil-free screw,
and rotary compressors; turbine and
compressor re-rate and repair
2 WAUKESHA BEARINGS
Donald A. Fancher, President
Products: Fluid film bearings;
Sweeney torquing tools;
CRL manipulators and isolators
3 HILL PHOENIX
Ralph Coppola, President
Products: Commercial refrigeration
systems; refrigerated display cases
1 MARK ANDY*
John Eulich, President
Products: Flexographic presses
1 PATHWAY
Robert Rabuck, President
Products: Metal and fabric expansion
joints, autoclaves, industrial cleaning,
and environmental control equipment
1 SWF, INC.
Brent L. Parker, President
Products: Machinery for corrugated
boxes and other packaging materials
Numbers indicate position in primary
market served, generally North America, except as noted.
*Worldwide
**Position for submarine fluid controls
PROGRESS AT OTHER COMPANIES
Waukesha Bearings and Sargent Controls, both of which operated in 1996 at high
levels of profitability, showed further growth in 1997. Waukesha achieved
significant improvement in manufacturing costs, and its record bookings and
backlog support continued growth in 1998. Delayed ordering for the next nuclear
submarine will impact Sargent Controls in the first half of 1998, but demand for
its aircraft hydraulic controls and bearings is expected to be strong, allowing
reasonable profitability and a strong second half.
Both Pathway and Mark Andy, classified in last year's annual report as "not
yet," essentially doubled their profits. At Mark Andy, this resulted from
reduced costs, higher shipments and new product introductions, and at Pathway,
from improvements in its autoclave business and from the acquisition of L&E
Manufacturing. Both companies see good opportunities for further gains in 1998.
OUTLOOK
Diversified's strong finish to the year, good backlog position and numerous
profit improvement programs should support a strong gain in operational profits
in 1998. A-C Compressor, Hill Phoenix and Tranter should be the primary drivers
of this growth.
[GRAPHIC]
TURRETS ON A BELVAC DIE-NECKING MACHINE. THIS PRODUCT WAS REDESIGNED ON A
MODULAR BASIS, HELPING BELVAC'S MACHINE BECOME THE OVERWHELMING FAVORITE AMONG
CAN MAKERS.
16
19
DOVER RESOURCES
Dover Resources achieved record sales and profits, with the majority of its
companies showing gains over already strong results in 1996.
OPW Fueling Components Group achieved a new earnings record, as the market for
vapor recovery nozzles stabilized and demand for its gasoline handling equipment
continued to grow. Strong demand for vapor recovery products drove OPW's
earnings earlier in the `90s to its previous earnings record in 1994.
At the end of 1997, Petro Vend, a maker of key control systems for commercial
refueling and of underground tank probes, became part of OPW. Steve Trabilsy
will direct these activities following the retirement of Doug Stewart, who led
Petro Vend to a profit record in 1997. In 1997 OPW acquired technology for
underground piping systems, which is the base for its new PISCES(TM) by OPW
product offering.
Oilfield activity in North America strengthened in 1997, benefiting the three
Resources companies that supply oil and gas production equipment. Norris,
Norriseal and Alberta Oil Tool each improved profits, with a combined gain of
27%. Together they reached their highest profit level in over 10 years.
Both De-Sta-Co Industries (DSI) and Blackmer continued their product line and
geographic expansion activities. Blackmer acquired Mouvex, a leading French
producer of positive displacement pumps, while DSI made two smaller acquisitions
of producers of automation devices. Both companies also achieved record sales
and earnings levels. Recently acquired Tulsa Winch and Hydro Systems improved
their profits in 1997, contributing more than had been anticipated prior to
their acquisition. Both of these companies are also planning to expand through
add-on acquisitions.
Duncan Parking Systems doubled its profits to a record level by becoming the
preferred supplier of electronic parking meters to New York City and Los
Angeles. Both cities placed large orders and
SEGMENT EARNINGS ($ millions)
1993 $70
1994 $84
1995 $91
1996 $105
1997 $114
After-Tax Operating
Return on Investment (%)*
1993 32%
1994 36%
1995 32%
1996 34%
1997 33%
*(Acquisition adjustments have been excluded, see page 31, footnote 14 for
explanation.)
17
20
[PHOTOGRAPH OF ROBOHAND GRIPPER]
DE-STA-CO INDUSTRIES DESIGNS AND MANUFACTURES SPECIAL TOOLS FOR MANUAL AND
AUTOMATIC CLAMPING, GRIPPING, AND POSITIONING. A ROBOHAND (ACQUIRED IN 1996)
GRIPPER IS IN THE FOREGROUND.
the installations have performed well. Further orders from these cities and
other municipalities are expected in 1998. A joint venture in the development of
parking system software became profitable. This capability, together with
increased interest in the privatization and automation of toll-collecting,
creates interesting future possibilities.
Several Resources companies met with very weak markets and suffered earnings
declines - the expected outcome in cyclical businesses. Demand for tank car
valves, for filtration equipment, and for CO(2) [carbon dioxide] recovery and
generator equipment dropped sharply, affecting Midland, Ronningen-Petter and
Wittemann, respectively. For Ronningen-Petter and Midland, orders did improve in
the fourth quarter, but the outlook for Wittemann remains difficult. Its
products are primarily used in soft drink and beer bottling operations in
emerging economies. Wittemann expects brewers and bottlers to be very cautious
during 1998.
[PHOTO OF RUDOLF HERRMANN]
RUDOLF HERRMANN
President &
Chief Executive Officer
Dover Resources
18
21
De-Sta-Co Manufacturing (DSM) also faced weaker markets for its air conditioning
valves and for its manifold and tubular products. In the latter area, start-up
difficulties on new products also added to the profit decline. DSM has responded
aggressively with operating changes. The company is proceeding with development
of production capability for air conditioning valves in Europe and in Asia. The
automotive and compressor OEMs will expand their capacities in these markets,
and are eager for DSM to participate in their initiatives.
STRUCTURAL CHANGES
Over the past 2 years there have been substantial structural changes in Dover
Resources. Three new stand-alone businesses have been added, including
Quartzdyne, a manufacturer of quartz-resonator pressure transducers used in oil
drilling and production, which was acquired in early 1998. De-Sta-Co was split
into two companies; Petro Vend and Stark combined with larger companies that
have related product lines; IST was sold to its management; and six add-on
acquisitions completed.
OUTLOOK
Dover Resources anticipates profit growth in 1998, possibly by a larger amount
than was achieved in 1997. Momentum from the strong second half of last year,
improved backlog, new companies, and internal profit improvement programs all
will contribute.
OPW FUELING COMPONENTS' PATENTED VAPORRECOVERY GASOLINE NOZZLE SPOUT IS USED IN
GASOLINE RETAIL OUTLETS WORLDWIDE.
[GRAPHIC]
1 De-Sta-Co Manufacturing*
Bob Leisure, President
Products: Reed valves for compressors, stamped precision components, and
specialized aluminum tubular products
1 De-Sta-Co Industries
Jon H. Simpson, President
Products: Toggle clamps, cylinders, and workholding devices; Robohand and EOA
Products: Robotic and automation devices
1 OPW Fueling Components
David J. Ropp, President
Products: Gasoline nozzles, fittings, valves, and environmental products;
Petro Vend Products: Commercial key/card fuel control systems, retail
service station systems, and tank level monitoring equipment
1 Blackmer
Ray Pilch, President
Products: Rotary positive displacement vane and eccentric pumps for fuel oil,
propane, and chemicals; industrial gas compressors; vane & screw compressors;
peristaltic pumps; progressing cavity pumps.
1 Midland Manufacturing
Jerry Portis, Chairman
Donald Rodda, President
Products: Tank car and barge valves, safety valves, and liquid level
measuring devices
1 C. Lee Cook
David Jackson, President
Products: Piston rings, packings for gas compressors and aerospace sealing
applications; Compressor Components
Products: Compressor rods, pistons, and repair services; Cook Manley
Products: Compressor valves
1 Alberta Oil Tool (Canada)**
James R. Kosh, President
Products: Sucker rods, fittings, valves, and controls
1 Norris*
James L. Mitchell, President
Products: Sucker rods, couplings, well servicing equipment, polished rods
1 Ronningen-Petter*
Peter Scovic, President
Products:Filtration systems; RPProducts,
Products: Bag filters and high efficiency media
1 OPW Engineered Systems
Tom Niehaus,President
Products: Loading arms, swivels, and sight flow indicators
1 Wittemann*
William Geiger, President
Products: CO2 gas generation and recovery systems, merchant CO2 and
industrial refrigeration systems
1 Civacon*
James Johnson, President
Products: Gasoline cargo tank valves, fittings and overfill protection
systems; Kamlok, Autolok, Kamvalok and ProGrip hose attachment systems;
Knappco Products: Manhole/access covers and valves
Norriseal
Wade Wnuk, President
Products: Process valves and instrumentation systems; Ferguson-Beauregard/
Logic Controls
Products: Oil and gas production systems
Tulsa Winch
Ron Hoffman, President
Products: Worm and planetary gear winches, speed reducers, swing drives, and
wheel drives
1 Duncan Parking Systems*
Richard Farrell, President
Products: Parking control products and systems
1 Hydro Systems Company
Gary E. Golub, President
Products: Cleaning chemical proportioning and dispensing systems
1 Quartzdyne
Roger W. Ward, President
Products: Quartz based pressure
transducers
Numbers indicate position in primary
market served, worldwide generally
North America, except as noted.
**Canada
19
22
DOVER ELEVATOR
Dover Elevator achieved a 6% earnings gain in 1997 despite the June sale of its
European operations, which had contributed to 1996 profits.
Elevator also announced a plan to close a factory, and took a $3 million charge
to cover the anticipated closing costs.
SALE OF EUROPEAN COMPANIES
Elevator's German and U.K. operations were sold to Thyssen Industries, a major
force in the $3 billion European market, following Dover Elevator's analysis
that they did not represent a sufficiently strong base for developing a
meaningful position in Europe. Dover believes the elevator business is highly
segmented on a regional basis and that Dover's size and strength in North
America neither assures it of being a major factor in other world markets, nor
requires it to be present everywhere. A gain of $32 million on the sale is not
included in the segment results.
STRONG FIELD OPERATIONS
North American field operations (installation of new elevators and service)
achieved good sales and earnings growth while providing factory operations with
a record amount of new elevator work. The emphasis on weeding out unprofitable
service contracts and refusing new elevator jobs at unprofitable prices
continued, as did the focus on improving the training, supervision and
productivity of field employees. Wages and benefits of field employees are by
far the largest cost element in the elevator business, which makes "continuous
productivity improvement" as important here as in any manufacturing operation.
Dover Elevator is proud to have the best field organization in North America,
and believes that it will be even better in 1998. An SAP enterprise software
system was introduced in the western region and will be extended throughout
Dover Elevator during 1998.
MANUFACTURING IMPROVEMENTS
New investments of almost $5 million in 1997 aided a production increase of 15%
for the year to a new record. Average factory employment in the fourth quarter
was 7% higher than in the year-earlier period, while fourth quarter shipments
increased more than 20%, an indication of continued productivity gains. Elevator
announced further significant investments for 1998, as its oldest production
facility will be closed and its activities moved to nearby plants where floor
space expansion is currently under way. This move should further reduce costs
and improve customer service. Factory bookings were at a record level in 1997,
up more than 10% from 1996. Oildraulic(TM) elevator production and bookings set
records by a wide margin.
INTERNATIONAL CHANGES
The European sale and continued difficulty in expanding bookings in Asia led to
a downsizing of employment and cost structures during the second half of the
year. Elevator will continue to pursue the Asian markets, which have great
long-term growth potential. The current financial turmoil in these economies,
however, will not impact Elevator significantly -- a perverse reward for not yet
having achieved a significant presence.
20
23
[PHOTOGRAPH OF ACTUATORS]
ACTUATORS FOR HYDRAULIC PUMPS USED IN DOVER OILDRAULIC(TM) ELEVATORS. DOVER IS
THE LARGEST FACTOR IN THE NORTH AMERICAN MARKET FOR THESE LOW-RISE ELEVATORS.
[PHOTO OF NIGEL P. DAVIS]
NIGEL P. DAVIS
President &
Chief Executive Officer
Dover Elevator International
OUTLOOK
The U.S. real estate market ended 1997 in very good condition. It was the sixth
consecutive year of growth, but without the speculative overbuilding of the
early `70s or late `80s. Interest rates remain low, vacancy rates are much
improved, and the value of existing buildings is increasing, even as the
elevators within them age. This is a healthy climate for Dover Elevator, which
expects to achieve record earnings in 1998.
DOVER ELEVATOR INTERNATIONAL
Nigel Davis, President
Gary Bailey, Steve Bailey, VPs, Eastern Marketing Group
Buzz Dana, VP Pacific/Canadian Marketing Group
Paul Nickel, VP, Finance
Dover is North America's largest new elevator company, and second in total
sales, including service.
SEGMENT EARNINGS ($ millions)
1993 $56
1994 $58 $46*
1995 $63 $32*
1996 $88
1997 $93
* Including special charges
AFTER-TAX OPERATING RETURN
ON INVESTMENT (%)*
1993 25%
1994 26% 21%*
1995 28% 14%*
1996 34%
1997 32%
* Including special charges
*(Acquisition adjustments have been excluded, see page 31, footnote 14 for
explanation.)
21
24
Dover Corporation and Subsidiaries
SALES AND OPERATING PROFIT BY MARKET SEGMENT
(in thousands)
For the Years Ended December 31, 1997 1996 1995 1994 1993 1992
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Sales to unaffiliated customers:
Dover Technologies $ 1,300,503 $ 993,326 $ 873,505 $ 603,068 $ 488,248 $ 458,603
Dover Industries 859,778 846,866 798,173 691,342 501,364 357,054
Dover Diversified 767,194 730,074 672,503 472,706 244,597 225,771
Dover Resources 745,429 648,546 583,727 525,971 472,643 439,389
Dover Elevator International 880,258 862,139 822,833 793,559 777,720 791,099
Intramarket sales (5,506) (4,667) (4,864) (1,370) (644) (336)
----------- ----------- ----------- ----------- ----------- -----------
Consolidated total $ 4,547,656 $ 4,076,284 $ 3,745,877 $ 3,085,276 $ 2,483,928 $ 2,271,580
=========== =========== =========== =========== =========== ===========
Operating profit:
Dover Technologies $ 195,393 $ 146,341 $ 133,641 $ 76,205 $ 41,797 $ 29,793
Dover Industries 128,945 115,857 117,841 81,028 59,942 37,837
Dover Diversified 114,902 106,850 92,948 67,220 39,360 37,373
Dover Resources 113,538 105,394 90,745 83,979 70,290 58,594
Dover Elevator International 92,958 87,985 31,550 46,123 56,404 59,198
Gain on dispositions 32,171 75,065 -- -- -- --
Interest income, interest expense
and general corporate
expenses, net (61,071) (48,767) (49,614) (47,696) (22,251) (22,460)
----------- ----------- ----------- ----------- ----------- -----------
Consolidated earnings before
taxes on income $ 616,836 $ 588,725 $ 417,111 $ 306,859 $ 245,542 $ 200,335
=========== =========== =========== =========== =========== ===========
Profit margin (pretax):
Dover Technologies 15.0% 14.7% 15.3% 12.6% 8.6% 6.5%
Dover Industries 15.0 13.7 14.8 11.7 12.0 10.6
Dover Diversified 15.0 14.6 13.8 14.2 16.1 16.6
Dover Resources 15.2 16.3 15.5 16.0 14.9 13.3
Dover Elevator International 10.6 10.2 3.8 5.8 7.3 7.5
----------- ----------- ----------- ----------- ----------- -----------
Consolidated profit margin 13.6% 14.4% 11.1% 9.9% 9.9% 8.8%
=========== =========== =========== =========== =========== ===========
Identifiable assets at December 31:
Dover Technologies $ 1,032,922 $ 924,745 $ 721,831 $ 330,661 $ 278,871 $ 285,749
Dover Industries 598,643 613,512 591,228 541,109 485,419 302,821
Dover Diversified 704,591 547,341 570,269 452,074 340,072 183,262
Dover Resources 478,279 380,805 326,047 291,480 218,473 219,216
Dover Elevator International 379,519 390,757 380,889 362,924 381,587 376,508
Corporate (principally cash and
equivalents, and marketable
securities) 83,570 136,219 76,387 92,389 69,267 58,568
----------- ----------- ----------- ----------- ----------- -----------
Consolidated total $ 3,277,524 $ 2,993,379 $ 2,666,651 $ 2,070,637 $ 1,773,689 $ 1,426,124
=========== =========== =========== =========== =========== ===========
Depreciation and amortization:
Dover Technologies $ 69,882 $ 34,071 $ 19,750 $ 13,904 $ 13,401 $ 19,755
Dover Industries 28,992 27,918 26,783 25,453 20,520 17,840
Dover Diversified 30,188 26,857 27,141 21,948 14,837 10,756
Dover Resources 24,738 20,686 17,816 19,089 13,300 13,602
Dover Elevator International 14,793 14,058 14,953 13,744 13,319 13,683
Corporate 2,070 1,494 1,393 1,651 1,592 1,821
----------- ----------- ----------- ----------- ----------- -----------
Consolidated total $ 170,663 $ 125,084 $ 107,836 $ 95,789 $ 76,969 $ 77,457
=========== =========== =========== =========== =========== ===========
Capital expenditures:
Dover Technologies $ 42,303 $ 36,001 $ 18,546 $ 13,425 $ 11,769 $ 11,665
Dover Industries 24,689 28,495 20,675 23,299 11,146 8,225
Dover Diversified 24,400 26,274 31,299 19,419 4,802 5,767
Dover Resources 28,317 22,149 21,127 16,340 11,515 11,560
Dover Elevator International 23,538 11,432 10,949 11,764 8,112 5,137
Corporate 2,373 760 72 226 188 87
----------- ----------- ----------- ----------- ----------- -----------
Consolidated total $ 145,620 $ 125,111 $ 102,668 $ 84,473 $ 47,532 $ 42,441
=========== =========== =========== =========== =========== ===========
22
25
Dover Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands except per share figures)
Years ended December 31, 1997 1996 1995
- -------------------------------------- ----------- ----------- -----------
Net sales $ 4,547,656 $ 4,076,284 $ 3,745,877
Cost of sales 2,975,920 2,709,652 2,564,344
----------- ----------- -----------
Gross profit 1,571,736 1,366,632 1,181,533
Selling and administrative expenses 959,067 827,958 743,133
----------- ----------- -----------
Operating profit 612,669 538,674 438,400
----------- ----------- -----------
Other deductions (income):
Interest expense 46,888 41,977 40,113
Interest income (9,918) (18,503) (20,060)
All other, net (41,137) (73,525) 1,236
----------- ----------- -----------
Total (4,167) (50,051) 21,289
----------- ----------- -----------
Earnings before taxes on income 616,836 588,725 417,111
Federal and other taxes on income 211,405 198,502 138,800
----------- ----------- -----------
Net earnings $ 405,431 $ 390,223 $ 278,311
=========== =========== ===========
Basic earnings per common share $ 1.82 $ 1.72 $ 1.23
----------- ----------- -----------
Basic weighted average shares outstanding 223,181 226,524 226,906
----------- ----------- -----------
Diluted earnings per common share $ 1.79 $ 1.69 $ 1.22
----------- ----------- -----------
Diluted weighted average shares outstanding 226,815 230,518 227,815
----------- ----------- -----------
See Notes to Consolidated Financial Statements.
Dover Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in thousands except per share figures)
Years ended December 31, 1997 1996 1995
- ------------------------------------------------------------ ---------- ---------- ----------
Balance at beginning of year $1,470,009 $1,152,187 $1,268,114
Net earnings 405,431 390,223 278,311
---------- ---------- ----------
1,875,440 1,542,410 1,546,425
Deductions:
Stock split 91,757 -- 56,793
Treasury stock retired -- -- 273,900
Common stock cash dividends of $.36 per share ($.32 in
1996; $.28 in 1995) 80,347 72,401 63,545
---------- ---------- ----------
Balance at end of year $1,703,336 $1,470,009 $1,152,187
========== ========== ==========
See Notes to Consolidated Financial Statements.
23
26
Dover Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share figures)
December 31, 1997 1996
- ---------------------------------------------------------- ----------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 124,780 $ 199,956
Marketable securities, at market 21,929 17,839
Receivables (less allowance for doubtful
accounts of $27,157 in 1997, $24,821 in 1996) 818,293 715,495
Inventories 562,830 499,870
Prepaid expenses and other current assets 63,513 56,653
----------- ----------
Total current assets 1,591,345 1,489,813
=========== ==========
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land 32,341 28,625
Buildings 288,342 254,927
Machinery and equipment 941,605 823,429
----------- ----------
1,262,288 1,106,981
Less accumulated depreciation 691,709 612,048
----------- ----------
Net property, plant and equipment 570,579 494,933
----------- ----------
INTANGIBLE ASSETS, NET OF AMORTIZATION 1,068,310 963,182
OTHER INTANGIBLE ASSETS 10,368 10,258
OTHER ASSETS AND DEFERRED CHARGES 36,922 35,193
----------- ----------
$ 3,277,524 $2,993,379
=========== ==========
LIABILITIES
CURRENT LIABILITIES:
Notes payable $ 435,920 $ 488,651
Current maturities of long-term debt 897 3,754
Accounts payable 226,936 202,763
Accrued compensation and employee benefits 158,815 130,598
Accrued insurance 107,818 104,916
Other accrued expenses 241,581 206,993
Federal and other taxes on income 24,606 1,430
----------- ----------
Total current liabilities 1,196,573 1,139,105
----------- ----------
LONG-TERM DEBT 262,630 252,955
DEFERRED INCOME TAXES 40,458 54,068
OTHER DEFERRALS (PRINCIPALLY COMPENSATION) 74,279 57,548
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 234,507,373
in 1997, (116,858,326 shares in 1996) 234,507 116,858
ADDITIONAL PAID-IN CAPITAL 658 13,818
CUMULATIVE TRANSLATION ADJUSTMENTS (37,895) 1,900
UNREALIZED HOLDING GAINS 5,790 3,663
RETAINED EARNINGS 1,703,336 1,470,009
----------- ----------
1,906,396 1,606,248
Less common stock in treasury, at cost,
11,911,594 shares (4,328,190 shares in 1996) 202,812 116,545
----------- ----------
Net stockholders' equity 1,703,584 1,489,703
----------- ----------
$ 3,277,524 $2,993,379
=========== ==========
See Notes to Consolidated Financial Statements.
24
27
Dover Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
increase (decrease) in cash and cash equivalents (in thousands)
Years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 405,431 $ 390,223 $ 278,311
--------- --------- ---------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 170,663 125,084 107,836
Provision for losses on accounts receivable 10,167 9,491 9,616
Net increase (decrease) in LIFO reserve 617 356 4,647
Deferred income taxes (15,199) 1,043 (13,688)
Loss (gain) on sale of property and equipment (1,352) 372 (219)
Increase (decrease) in deferred compensation 17,871 2,048 7,538
Acquisition inventory premium write-off 9,202 4,065 11,656
Gain on sale of businesses and certain assets (21,301) (79,245) (1,900)
Other, net (23,733) (3,048) (18,026)
Changes in assets and liabilities (excluding effects of
acquisitions and dispositions):
Decrease (increase) in accounts receivable (112,014) (5,366) (84,212)
Decrease (increase) in inventories excluding LIFO reserve (44,380) 10,555 (69,454)
Decrease (increase) in prepaid expenses (6,195) (6,003) 54
Decrease (increase) in other assets (5,995) 3,562 (13,150)
Increase (decrease) in accounts payable 22,335 3,133 25,939
Increase (decrease) in accrued expenses 38,854 (14,618) 53,845
Increase (decrease) in federal and other taxes on income 17,274 (30,202) 4,779
--------- --------- ---------
Total adjustments 56,814 21,227 25,261
--------- --------- ---------
Net cash provided by operating activities 462,245 411,450 303,572
--------- --------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Net sale (purchase) of marketable securities 1,701 8,884 31,524
Proceeds from sale of property and equipment 13,923 5,412 16,556
Additions to property, plant and equipment (includes rental equipment:
$217 in 1997, $406 in 1996 and $1,149 in 1995) (145,837) (125,517) (103,817)
Acquisitions (net of cash and cash equivalents: $6,689 in 1997,
$2,090 in 1996 and $32,840 in 1995) (251,754) (264,624) (297,427)
Proceeds from sale of businesses 67,736 105,838 5,000
Purchase of treasury stock (3,255 shares in 1997, 2,872 shares in 1996
and 498 shares in 1995) (86,267) (62,815) (7,601)
--------- --------- ---------
Net cash used in investing activities (400,498) (332,822) (355,765)
--------- --------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Increase (decrease) in notes payable (55,208) 66,703 153,853
Reduction of long-term debt (6,782) (3,344) (266,447)
Proceeds from long-term debt 1,088 268 250,211
Proceeds from exercise of stock options 13,022 7,446 9,944
Proceeds from sale (repurchases) of lease receivables (2,672) (1,500) 750
Cash dividends to stockholders (80,347) (72,401) (63,545)
--------- --------- ---------
Net cash from (used in) financing activities (130,899) (2,828) 84,766
--------- --------- ---------
Effect of exchange rates on cash (6,024) 2,458 (1,179)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (75,176) 78,258 31,394
Cash and cash equivalents at beginning of year 199,956 121,698 90,304
--------- --------- ---------
Cash and cash equivalents at end of year $ 124,780 $ 199,956 $ 121,698
========= ========= =========
SUPPLEMENTAL INFORMATION, CASH PAID DURING THE PERIOD FOR:
Income taxes $ 213,789 $ 227,077 $ 147,439
Interest 47,184 41,967 32,669
- ------------------------------------------------------------------------- --------- --------- ---------
See Notes to Consolidated Financial Statements.
25
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES:
The Company is a multinational, diversified manufacturing corporation comprised
of over 45 different operating companies which manufacture a broad range of
specialized industrial products and sophisticated manufacturing equipment. The
Company groups its products and services into five segments, along management
reporting lines, as set forth in the tables shown on page 22. A description of
the products manufactured and services performed by each of the five segments is
given on pages 8 through 21.
The accounting policies that affect the more significant elements of the
Company's financial statements are described briefly below:
A. CONSOLIDATION: The consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of all significant
intercompany accounts and transactions, and include the results of operations of
purchased businesses from the dates of acquisition.
In conformity with the Financial Accounting Standards Board Statement No. 52,
"Foreign Currency Translation," the accounts of foreign subsidiaries have been
translated into U.S. dollars as follows: assets and liabilities have been
translated at year-end rates, profit and loss accounts have been translated at
average rates for the year, and the difference has been reflected in the equity
section of the balance sheet as cumulative translation adjustments. An analysis
of the changes during 1997 and 1996 in the cumulative translation adjustments
shown on the balance sheets follows:
(in thousands) 1997 1996
-------- -------
Balance at beginning of year $ 1,900 $ 2,268
Aggregate adjustment for year (39,795) (368)
-------- -------
Balance at end of year $(37,895) $ 1,900
======== =======
B. USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
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.
C. INVENTORIES: Approximately 44% of net inventory is stated at cost, determined
on the last-in, first-out (LIFO) basis, which is less than market value.
Inventory of foreign subsidiaries and inventory of some recently acquired
domestic companies is stated at the lower of cost, determined on the first-in,
first-out (FIFO) basis, or market.
The remaining inventory principally represents the sum of actual production
and erection costs incurred to date on uncompleted elevator installation
contracts plus a percentage of estimated profit (where applicable) reduced by
progress billings. The net amounts so reflected in the balance sheets are not
considered material.
D. PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION: Property, plant and equipment
includes the cost of land, buildings, equipment and significant improvements of
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 are removed from the respective accounts and 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, for both accounting and tax purposes.
Depreciation expense in 1997 was $108,645,000 compared with $86,909,000 in
1996 and $70,125,000 in 1995.
E. INTANGIBLE ASSETS: Intangible assets subject to amortization include goodwill
purchased after 1970, and the cost of certain patents, drawings, trademarks,
work force, customer lists, service contracts and covenants not to compete.
Goodwill is being amortized on a straight-line basis, generally over a period of
40 years; the remaining amortization is based on estimated useful lives which
range from 3 to 20 years. The Company evaluates its amortization policies
regularly to determine whether later events and circumstances warrant revised
estimates of useful lives. The Company periodically evaluates the recoverability
of goodwill and other long-lived assets including their relation to the
operating performance and future undiscounted net cash flows of the related
business. In accordance with SFAS 121, impairment losses are recognized when
warranted.
Other intangible assets represent principally goodwill attributable to
businesses purchased prior to 1970. These intangibles are also regularly
evaluated and in the opinion of management have not diminished in value, and
accordingly have not been amortized.
Goodwill, net of amortization, aggregated $839,399,000 at December 31, 1997
and $749,592,000 at December 31, 1996.
F. REVENUE RECOGNITION: Revenue is generally recognized as products are shipped
or services rendered, however, substantially all of the Company's income from
elevator installation contracts (which is less than 10% of the Company's total
revenue) is recorded on the percentage-of-completion method. Under this method
contract revenue is recognized as costs are accrued using estimated gross profit
percentages.
G. INCOME TAXES: The provision for income taxes includes Federal, state, local
and foreign taxes.
Tax credits, primarily for research and experimentation, are recognized as a
reduction of the provision for income taxes in the year in which they are
available for tax purposes, and aggregated $3,542,000 from January 1 to June 30,
1995, (when the credit expired). The credit was reinstated during 1996 and
aggregated $3,127,000 for the reinstated second half of 1996. The full year 1997
credit aggregated $5,105,000. Research and experimentation expenditures charged
to earnings amounted to $114,392,000 in 1997, $98,857,000 in 1996 and
$94,372,000 in 1995.
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.
H. CASH FLOWS: For purposes of the statement of cash flows, the Company
considers all highly liquid investments, including highly liquid debt
instruments purchased with an original maturity of three months or less, to be
cash equivalents.
I. SELF INSURANCE: The Company is generally self-insured for losses and
liabilities related primarily to workers' compensation, health and welfare
claims, business interruption resulting from certain events and comprehensive
general, product and vehicle liability. Losses are accrued based upon
26
29
the Company's estimates of the aggregate liability for claims incurred using
certain actuarial assumptions followed in the insurance industry and based on
Company experience.
J. MARKETABLE SECURITIES: In accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," trading securities are reported at fair value with unrealized gains
and losses recognized in earnings, and available-for-sale securities are also
reported at fair value but unrealized gains and losses are shown in the caption
"unrealized holding gains (losses)" included in stockholders' equity.
The Company did not hold any trading securities at December 31, 1997 or
December 31, 1996. The net realized gains for the years ended December 31, 1997,
1996 and 1995 were $1,995,000, $5,600,000 and $2,140,000, respectively. As of
December 31, 1997 and 1996 available-for-sale securities totaled $21,929,000 and
$17,839,000 respectively, with related gross unrealized gains of $5,790,000 and
$3,663,000 respectively, and consisted of investments in certain mutual funds
which invest primarily in equity securities. In each of the above mentioned
three years, gains and losses were determined using average cost.
K. NEW ACCOUNTING PRONOUNCEMENTS: In October 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." The disclosure requirements
under this Standard affected the Company for the first time in 1996 for all of
its stock options granted after December 15, 1994. The Statement allows
alternative accounting methods and the Company has chosen to account for stock
options as in the past under Accounting Principles Board Opinion No. 25. In
addition, the Company has disclosed certain pro forma information required by
the Statement.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (EPS). In accordance therewith, the Company has
disclosed both basic and diluted EPS. 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 exercise. The diluted EPS computation was made
using the treasury stock method. Prior year diluted EPS have been presented in
accordance with this statement.
In June 1997 the FASB issued Statements of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" and No. 131 "Disclosures about Segments of
an Enterprise and Related Information"; both are effective in 1998. The Company
does not expect these Statements to have a significant effect on its current
financial reporting and disclosure requirements.
2. ACQUISITIONS AND DISPOSITIONS:
1995 -- On January 2 the Company acquired all of the capital stock of Knappco
Corporation. Knappco located in Kansas City, Missouri, manufactures
manhole/access covers and valves for petroleum, dry-bulk and chemical
transportation and storage. On March 6 the Company acquired certain assets of
Margaux Inc. Margaux, based in Conyers, Georgia, is a manufacturer of commercial
refrigeration systems for supermarkets. On April 11 the Company acquired all of
the capital stock of Hasstech, Inc. Hasstech, located in San Diego, California,
is a manufacturer of Stage II vapor recovery systems used at service stations.
On May 22 the Company acquired all of the capital stock of Mark Andy, Inc. Mark
Andy, located in St. Louis, Missouri, designs and manufactures printing presses
utilizing narrow web flexographic covering technology for the small container
market. On June 9 the Company sold 100% of the capital stock of its American
Metal Ware subsidiary. On June 30 the Company acquired certain assets of the
Frequency Control Products ("FCP") Division of AT&T, North Andover,
Massachusetts. FCP manufactures several high-tech, high-volume oscillators
utilizing unique technology. On September 29 the Company acquired 88% of the
capital stock of Imaje, S.A. ("Imaje") and has since then increased this
ownership to almost 100%. Imaje, based in Valance, France, is one of the world's
three largest manufacturers of industrial continuous inkjet printers and
specialized inks used for coding and marking products and consumables. On
October 3 the Company acquired all of the stock of Trailmaster Corporation,
located in Ft. Worth, Texas. Trailmaster manufactures aluminum and stainless
steel tank trailers, aircraft refuelers and hydraulic head disking machines. On
October 4 the Company acquired all of the stock of Hammond Engineering, Limited.
Hammond, located in Enfield, U.K., manufactures rotary vane and screw
compressors and hydraulic control units for the trucking industry. On November 8
the Company acquired all of the stock of GFS Manufacturing Co., Inc. GFS,
located in Dover, New Hampshire, manufactures custom transformers for the
industrial control and computer control industries.
The aggregate cost of these 1995 acquisitions, including all direct costs was
approximately $330,267,000 of which $224,414,000 represents goodwill and certain
other long lived intangible assets which are being primarily amortized over a
forty-year period. The $330,267,000 purchase price accounting cost can be
reconciled to the $323,292,000 "economic cost" amount shown elsewhere in this
report by considering long-term debt acquired and cash acquired on date of
acquisition.
1996 -- On January 2 the Company acquired all of the stock of PRC Corporation in
a stock for stock exchange. PRC, located in Landing, New Jersey, is a leading
manufacturer of fast axial flow lasers, components and kits. On January 16 the
Company acquired all of the stock of Light Machine Corporation. Light Machine,
located in Manchester, New Hampshire, manufactures computer - aided design
(CAD), computer - aided manufacturing (CAM) software and computer numerical
control (CNC) machines utilizing personal computers for educational, engineering
prototyping and industrial markets. On January 23 the Company acquired 100% of
the stock of Bath Scientific, Ltd. Bath, located in Melksham, England,
manufactures a range of Flying Probe automatic test systems for testing high
density unpopulated circuit boards. On January 31 the Company acquired all of
the stock of Dow - Key Microwave Corporation. Dow - Key, located in Ventura,
California, manufactures a broad range of Coaxial, RF, Microwave and Waveguide
switch products for the electronics industry. On February 21 the Company
acquired the assets of Robohand, Inc. Robohand, located in Monroe, Connecticut,
manufactures automotion components and accessories (primarily grippers, slides,
and rotary actuators) for the robotics and automated assembly markets. On
February 27 the Company acquired all of the capital stock of Marte, s.r.l.,
located in Chiete, Italy. Marte manufactures scissor lifts used to service and
repair automobiles and light and heavy industrial vehicles. On July 23 the
Company acquired all of the stock of Realcold Systems, Inc. Realcold, located in
Cibolo, Texas, manufactures custom industrial refrigeration installations and
merchant carbon dioxide plants. On August 28 the Company acquired all of the
stock of KVG Kristall - Verarbeitung Neckarbischofsheim GmbH. KVG, located in
Heidelberg, Germany, manufactures high quality, high performance quartz crystal
oscillators, filters and discrete crystals. On November 25 the Company acquired
the assets of Everett Charles Technologies, Inc., located in Pomona, California.
Everett Charles manufactures circuit board testing equipment in three market
niches: spring loaded test probes, test fixtures for populated boards, and
testers for bare boards. On December 16 the Company acquired the assets of Tulsa
Winch, Inc. of Tulsa, Oklahoma. Tulsa Winch is a manufacturer of worm gear and
planetary gear winches and speed reducers.
On July 1 the Company sold the assets of its Dieterich Standard Division and
on July 26 the Company sold the assets of its subsidiary, Measurement Systems,
Inc. As a result of these transactions, the Company recorded a $75.1 million
before tax gain. The operating profits of these companies, separately or in the
aggregate, were not significant to the Company.
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The aggregate cost of these 1996 acquisitions, including all direct costs was
approximately $266,714,000 of which $184,883,000 represents goodwill which is
being amortized over a forty-year period. The $266,714,000 purchase price
accounting cost can be reconciled to the $281,711,000 "economic cost" amount
shown elsewhere in this report by considering long-term debt assumed and cash
acquired on date of acquisition.
1997 - Effective January 1 the Company acquired all of the capital stock of SWEP
Warmetauscher Austria, GmbH. This company, located near Vienna, Austria, has
subsidiaries in the Czech Republic and Hungary and has been a SWEP agent for
over ten years. On January 31 the Company acquired the assets of Hydro Systems
Company. This Company, located in Cincinnati, Ohio, is the leading independent
designer and manufacturer of proportioning and dispensing systems sold primarily
to the institutional and industrial cleaning market. On February 1 the Company
acquired the assets of Quarzkeramik, GmbH. This company, located south of
Frankfurt, Germany, is the leading German manufacturer of oversized crystal
oscillators. On February 24 the Company acquired 100% of the capital stock of
Telefilter, GmbH, located in Tetlow, near Berlin, Germany. This company
manufactures low-priced, high volume, SAW filters for the emerging wireless
telecommunications market, mainly for subscriber applications. On March 6 the
Company acquired all of the capital stock of Luther & Maelzer, GmbH. This
company, located in a suburb of Hanover, Germany, manufactures test equipment
used to test bare printed circuit boards. On March 16 the Company acquired all
of the capital stock of Langbein and Engelbracht, GmbH and Co. Located near
Dusseldorf, Germany, this company is a designer and manufacturer of air
pollution control systems and specialized air handling systems. On May 22 the
Company acquired the assets of Buffalo Environmental Products Corporation of
Hanover, Maryland. This company manufactures flexible piping for underground
service station and industrial applications. On July 1 the Company acquired (in
a stock for stock exchange) 100% of the capital stock of K&K Welding Products,
Inc. This company is located in Lake Zurich, Illinois, and is a low cost
manufacturer of torches and consumable welding parts generally sold as component
replacements. Also on July 1 the Company acquired all of the capital stock of
Emmert, GmbH, located in Efringen - Kirchen, Germany. This company manufactures
flexible modular punching units used primarily in the automotive industry and
the sheet metal fabricating industry. On August 28 the Company acquired all of
the capital stock of Sarment S.A., a French holding company, which owns 100% of
the capital stock of Mouvex S.A. and Abaque Industrie, S.A., two French pump
companies. Mouvex, headquartered in Paris, manufactures a comprehensive range of
pumps and compressors for the transfer of both liquids and powdered products.
Abaque is located in the south of France and manufactures hose pumps for general
industry and for the petroleum industry. On August 29 the Company acquired the
assets of ESH, Inc. This company, located in Temple, Arizona, designs and
manufactures specialty printed circuit boards that are used in testing
semiconductors. On September 3 the Company acquired (in a stock for stock
exchange) 100% of the capital stock of Preco Turbine Services, Inc. This company
is located in Houston, Texas and is primarily engaged in the repair of large
steam and gas turbines for both utility and industrial based customers. On
September 30 the Company acquired the assets of Conmec, Inc., located in
Bethlehem, Pennsylvania. This company manufactures turbomachinery for the
petrochemical and utility industries. On October 3 the Company acquired the
capital stock of Star Technology Group, Inc. Headquartered in Hudson, New
Hampshire, and operating under the name of "Circuitest" this company
manufactures fixtures and creates software for bare circuit board testing, and
performs contract service for bare board testing. On December 1 the Company
acquired all of the capital stock of EOA Systems, Inc. This company located in
Dallas, Texas, manufactures automation components and accessories used in
conjunction with industrial robots. On December 2 the Company completed, through
merger, the acquisition of all of the capital stock of Vitronics Corporation.
Vitronics, located in Newmarket, New Hampshire, is engaged in designing,
engineering, manufacturing and marketing state-of-the art thermal processing
systems for soldering surface mount devices to printed circuit boards and
cleaning of the finished assembly. On December 5 the Company acquired 100% of
the capital stock of Sanger Works Factory Holdings, Inc. of Sanger, California.
This company manufactures specialty corrugated packaging machinery for consumer
products companies, food processors and industrial products manufacturers.
Effective June 1 the Company sold 100% of the stock of three small elevator
installation and services companies located in Germany. Effective June 30, the
Company sold all of the capital stock of its U.K. elevator company, Hammond &
Champness, Ltd., thus completing the divestiture of the Company's European
elevator operations.
The aggregate cost of these 1997 acquisitions, including all direct costs was
approximately $258,443,000 of which $141,246,000 represents goodwill which is
being amortized over a forty-year period. The $258,443,000 purchase price
accounting cost can be reconciled to the $261,460,000 "economic cost" amount
shown elsewhere in this report by considering long-term debt assumed and cash
acquired on date of acquisition.
All of the above acquisitions 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.
During January and early February 1998 the Company acquired four separate
businesses at a cost of approximately $115 million.
3. ACCOUNTS RECEIVABLE:
Accounts receivable include retainage which has been billed, but which is not
due pursuant to retainage provisions in construction contracts until completion
of performance and acceptance by the customer. This retainage aggregated
$54,457,000 at December 31, 1997 and $35,663,000 at December 31, 1996.
Substantially all retained balances are collectible within one year.
4. INVENTORIES:
Inventories, by components, are summarized as follows:
(in thousands) December 31, 1997 1996
-------- --------
Raw materials $228,128 $165,064
Work in process 194,638 219,729
Finished goods 186,462 160,858
-------- --------
Total 609,228 545,651
Less LIFO reserve 46,398 45,781
-------- --------
$562,830 $499,870
======== ========
During each of the years in the two year period ended December 31, 1997, some
inventory quantities were reduced. This reduction resulted in a liquidation of
certain LIFO inventory quantities carried at lower costs prevailing in prior
years as compared with costs at December 31 of each year. The effect of these
liquidations increased net earnings by less than 1 cent per share in both 1997
and 1996.
5. BANK LINES OF CREDIT:
The Company has open bank lines of credit and other bank credit agreements
totaling $552,000,000 which support its commercial paper. These lines are in
amounts requested by the Company and not the maximum that could be obtained.
Under the borrowing arrangements, the Company has generally agreed to either
maintain average collected bank compensating balances or pay fees, the total of
which is not material.
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6. DEBT:
A summary of long-term debt follows:
(in thousands) 1997 1996
-------- --------
6.45% Notes due Nov. 15, 2005
(less unamortized discount of $429)
with an effective interest rate of 6.51% $249,571 $249,530
Other 13,956 7,179
-------- --------
Total long-term debt 263,527 256,709
Less current installments 897 3,754
-------- --------
Long-term debt excluding current installments $262,630 $252,955
======== ========
Annual repayments of long-term debt in the four years following 1998 are
scheduled as follows: 1999-$4,775,000, 2000-$1,984,000, 2001-$1,613,000, and
2002-$769,000.
The notes payable shown on the balance sheets for 1997 and 1996 represent
principally commercial paper. The weighted average interest rates at December
31, 1997 and 1996 were 5.5% and 5.4%, respectively.
7. CAPITAL STOCK, ADDITIONAL PAID-IN CAPITAL AND TREASURY STOCK:
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.
On December 15, 1997, the Company effected a 2-for-1 common stock split in
the form of a stock dividend. This resulted in the issuance of 117,238,546
additional shares of common stock (including 380,220 shares attributable to
stock options exercised during 1997 prior to the split), the payment of $250,000
in fees, and a transfer of $25,731,904 from paid-in capital and $91,756,642 from
retained earnings. All references to per share amounts throughout this report
have been restated to reflect this stock split.
Treasury Stock
Common Stock Additional ----------------------
(in thousands) $1 Par Value Paid-in Capital Shares Amount
------------ --------------- ------ --------
Balance at
December 31, 1995 $116,563 $ 6,424 2,893 $ 53,730
Stock options exercised 291 7,155 36* 1,607
Treasury stock purchased -- -- 1,400 61,208
Stock issued 4 239 -- --
-------- -------- ------ --------
Balance at
December 31, 1996 $116,858 $ 13,818 4,329 $116,545
Stock split 116,858 (25,731) 4,329 --
Stock options exercised 781 12,241 72* 1,960
Treasury stock purchased -- -- 3,182 84,307
Stock issued 10 330 -- --
-------- -------- ------ --------
Balance at
December 31, 1997 $234,507 $ 658 11,912 $202,812
======== ======== ====== ========
* Shares received as consideration for exercise price.
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.
8. STOCK OPTION AND PERFORMANCE INCENTIVE PROGRAM
(Adjusted for 2-for-1 stock split):
On April 24, 1984, the stockholders approved an incentive stock option plan and
cash performance program under which a maximum aggregate of 4,800,000
(unadjusted) shares was reserved for grant to key personnel until January 30,
1994. This plan expired on January 30, 1995, but certain previous grants remain
outstanding at December 31, 1997. On April 28, 1987, the stockholders approved
an amendment to permit the grant or exercise of nonqualified stock options under
this plan. The stockholders also approved a cash bonus covering a portion of the
option holder's income tax liability to compensate any optionee who amends his
option changing its exercise from qualified to nonqualified. A nonqualified
exercise reduces the Company's after-tax cost of the program. During 1996, the
last of these cash bonuses were paid, $308,000 ($620,000 in 1995). At December
31, 1996 all outstanding stock options were non-qualified; accordingly, no
further cash bonuses will be paid.
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
grant 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.
Transactions in stock options (all of which vest three years after grant)
under these plans are summarized as follows:
Shares Under Option Price Range
------------------- --------------
Outstanding at Jan. 1, 1996 5,360,498 $ 4.78-$14.88
Granted 903,344 $ 23.53
Exercised (581,528) $ 4.78-$11.43
Canceled (269,666) $ 4.78-$23.53
---------- --------------
Outstanding at Dec. 31, 1996 5,412,648 $ 6.59-$23.53
========== ==============
Exercisable at Dec. 31, 1996
through March 4, 2003 2,712,998 $ 6.59-$23.53
========== ==============
Outstanding at Jan. 1, 1997 5,412,648 $ 6.59-$23.53
Granted 961,544 $ 24.87
Exercised (780,921) $ 6.59-$14.88
Canceled (88,618) $ 9.62-$24.72
---------- --------------
Outstanding at Dec. 31, 1997 5,504,653 $ 6.59-$23.53
========== ==============
Exercisable at December 31, 1997 through:
March 3, 1998 162,794 shares @ $ 7.62-$11.43
February 28, 1999 256,626 shares @ $ 7.44-$11.43
February 28, 2000 350,624 shares @ $ 8.68-$11.43
February 28, 2001 377,632 shares @ $ 9.63-$11.43
March 6, 2002 455,951 shares @ $ 9.68-$11.43
March 4, 2003 470,718 shares @ $ 11.43
February 27, 2004 517,423 shares @ $ 14.88
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 Statement 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated bellow:
1997 1996 1995
----------- ----------- -----------
Net earnings
As reported (`000) $ 405,431 $ 390,223 $ 278,311
Pro forma (`000) 399,044 386,330 275,789
Earnings per share - basic:
As reported $ 1.82 $ 1.72 $ 1.23
Pro forma 1.79 1.71 1.22
Earnings per share - diluted:
As reported 1.79 1.69 1.22
Pro forma 1.77 1.68 1.21
----------- ----------- -----------
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 1997, 1996
and 1995, respectively: risk-free interest rates of 6.06, 6.03 and 5.8 percent;
dividend yield of 1.1, 1.3 and 1.5 percent; expected lives of 6 years for each
year; and volatility of 17.1, 25.9 and 21.1 percent.
29
32
Additional adjustments are made for assumed cancellations and expectations that
shares acquired through exercise of options are held during employment.
9. 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 foreign
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 financial statements and related disclosures reflect Statement of
Financial Accounting Standard No. 87 "Employers' Accounting for Pensions", for
U.S. defined benefit pension plans; foreign defined benefit pension plans are
not considered material. Pension cost and related disclosures for U.S. funded
defined benefit plans for 1997, 1996 and 1995 include the following components:
(in thousands) 1997 1996 1995
-------- -------- --------
Actual return on plan assets $ 57,824 $ 15,441 $ 55,107
Less deferred (gain) loss (34,876) 6,476 (34,860)
-------- -------- --------
Net return 22,948 21,917 20,247
Net amortization 2,181 3,094 69
Deduct:
Benefits earned during year (7,773) (8,189) (7,920)
Interest accrued on projected
benefit obligation (14,318) (13,363) (12,847)
-------- -------- --------
Net pension (expense) credit $ 3,038 $ 3,459 $ (451)
======== ======== ========
The funded status and resulting prepaid pension cost of U.S. defined benefit
plans for the years ended December 31, 1997 and 1996 were as follows:
Funded Plans
-----------------------
(in thousands) 1997 1996
--------- ---------
Plan assets at fair value $ 291,091 $ 247,501
--------- ---------
Actuarial present value of benefit obligation:
Vested 170,557 167,648
Nonvested 10,436 7,393
--------- ---------
Accumulated benefit obligation 180,993 175,041
Effect of projected future salary increases 28,748 26,142
--------- ---------
Projected benefit obligation 209,741 201,183
--------- ---------
Plan assets in excess of projected benefit obligation 81,350 46,318
Unrecognized net (gain) loss (39,711) (6,436)
Unrecognized FAS 87 transition (gain) (14,626) (16,306)
Unrecognized prior service cost 4,902 5,218
--------- ---------
Prepaid pension cost at December 31 $ 31,915 $ 28,794
========= =========
The assumptions used in determining the above were as follows: a weighted
average discount rate of 7%, an average wage increase of 5% and an expected
long-term rate of return on plan assets of 10%.
Approximately 75% (70% in 1996) of defined benefit plan assets were invested
in equity securities with the remainder in fixed income and short term
investments.
The Company also provides, through nonqualified plans, supplemental pension
payments 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 unfunded apart from the
general assets of the Company. The pension benefit obligation and pension
expense under these plans follow:
(in thousands) 1997 1996 1995
- -----------------------------------------------------------------
Pension benefit obligation $20,175 $14,509 $12,143
Pension expense 3,928 2,089 2,404
- -----------------------------------------------------------------
For measurement purposes a discount rate of 8% was used together with an average
wage increase of 6%.
Pension cost for all plans was $40,700,000 for 1997, $37,044,000 for 1996 and
$36,719,000 for 1995.
In addition to the pension plans described above, certain of the
Company's subsidiaries sponsor twelve separate health care plans for retirees
which provide medical coverage and/or life insurance. None of these plans is
funded. The financial statements and related disclosures reflect Statement of
Financial Accounting Standards No. 106 "Employers Accounting for Postretirement
Benefits Other Than Pensions," for these plans.
The following table details the amounts recognized in the Company's
Consolidated Balance Sheet at December 31 of each year:
(in thousands) 1997 1996
------- -------
Accumulated postretirement benefit obligation:
Retirees $15,476 $15,795
Fully eligible active plan participants 10,015 9,457
Unamortized gain 2,684 2,936
------- -------
Accrued postretirement benefit cost
included in accrued liabilities $28,175 $28,188
======= =======
Net postretirement benefit cost for 1997, 1996 and 1995 included the following
components:
(in thousands) 1997 1996 1995
------- ------- -------
Service cost $ 513 $ 448 $ 483
Interest cost 1,606 1,634 1,773
Gain on settlement (144) -- --
Amortization gain (96) (277) (253)
------- ------- -------
Net postretirement benefit costs $ 1,879 $ 1,805 $ 2,003
======= ======= =======
For measurement purposes a discount rate of 7% was used for the plan liability
and rates from 3% to 15% annual rate of increase in the per capita cost covered
benefit (i.e., health care cost trend rates) was assumed for 1998; the rates
were assumed to decrease gradually to 5% by the year 2004 and remain at that
level thereafter. The health care cost trend rate assumption has a significant
effect on the amount reported. For example, increasing the assumed health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1997 by
$1,272,000 and the net postretirement benefit cost for 1997 by approximately
$161,000.
10. TAXES ON INCOME:
Total income taxes for the years ended December 31, 1997, 1996 and 1995 were
allocated as follows:
(in thousands) 1997 1996 1995
--------- --------- ---------
Income from continuing operations $ 211,405 $ 198,502 $ 138,800
Stockholders' equity, for compensation
expense for tax purposes in excess of
amounts recognized for financial
reporting purposes (4,999) (3,009) (3,285)
--------- --------- ---------
$ 206,406 $ 195,493 $ 135,515
========= ========= =========
Income taxes have been based on the following components of earnings before
taxes on income.
(in thousands) 1997 1996 1995
-------- -------- --------
Domestic $479,244 $498,156 $374,911
Foreign 137,592 90,569 42,200
-------- -------- --------
$616,836 $588,725 $417,111
======== ======== ========
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33
Income tax expense (benefit) is made up of the following components:
(in thousands) 1997 1996 1995
--------- --------- ---------
Current:
U.S. Federal $ 167,093 $ 159,229 $ 117,911
State and local 11,868 11,852 10,331
Foreign 47,643 26,378 24,246
--------- --------- ---------
Total current 226,604 197,459 152,488
========= ========= =========
Deferred:
U.S. Federal (14,417) (6,608) (1,609)
State and local 544 3,220 (2,671)
Foreign (1,326) 4,431 (9,408)
--------- --------- ---------
Total deferred (15,199) 1,043 (13,688)
========= ========= =========
Total expense $ 211,405 $ 198,502 $ 138,800
========= ========= =========
The reasons for the difference between the effective rate and the U.S. Federal
income statutory rate of 35% follow:
1997 1996 1995
------ ------ ------
U.S. Federal income tax rate 35.0% 35.0% 35.0%
State and local taxes, net of Federal income
tax benefit 1.3 1.7 1.2
R&E tax credits (.8) (.9) (.3)
FSC benefit (2.3) (2.2) (3.4)
Foreign tax credits & benefits (.9) (.1) (.4)
Non tax deductible items 3.8 1.0 2.4
Miscellaneous items (1.8) (.8) (1.2)
------ ------ ------
Effective rate 34.3% 33.7% 33.3%
====== ====== ======
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) 1997 1996
-------- -------
DEFERRED TAX ASSETS:
Accrued insurance $ 31,196 $ 30,251
Accrued compensation, principally postretirement
benefits, and compensated absences 34,237 23,876
Accrued expenses, principally for disposition of
businesses, interest and warranty 15,819 12,826
Inventories, principally due to reserves for financial
reporting purposes and capitalization for tax purposes 12,542 9,777
Accounts receivable, principally due to allowance
for doubtful accounts 6,720 6,216
Other 515 790
--------- ---------
Total gross deferred tax assets 101,029 83,736
========= =========
DEFERRED TAX LIABILITIES:
Accounts receivable, principally due to retainage
and accrual acceptance on elevator contracts (54,380) (44,660)
Plant and equipment, principally due to
differences in depreciation (19,718) (22,317)
Intangible assets, principally due to different tax
and financial reporting bases (52,658) (52,118)
Prepaid expenses, principally due to
overfunded pension plans (12,728) (7,718)
--------- ---------
Total gross deferred tax liabilities (139,484) (126,813)
========= =========
Net deferred tax liability (38,455) (43,077)
--------- ---------
Net current deferred tax asset 2,003 10,991
--------- ---------
Net non-current deferred tax liability $ (40,458) $ (54,068)
--------- ---------
11.RENTAL AND LEASE INFORMATION:
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 $33,348,000, $33,248,000 and
$27,353,000 for 1997, 1996 and 1995, respectively. Contingent rentals under the
operating leases were not significant.
Minimum future rental commitments under operating leases having noncancelable
lease terms in excess of one year aggregate $109 million as of December 31, 1997
and are payable as follows (in millions): 1998 -- $26.8; 1999 -- $21.5; 2000 --
$14.2; 2001 -- $10.7; 2002 -- $7.6; and after 2003 -- $28.1.
12.CONTINGENCIES:
Several 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 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, several 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.
With respect to federal income taxes, all years prior to 1990 have been
closed. During 1994, the Internal Revenue Service (IRS) completed its
examination of the Company's 1990 and 1991 Federal income tax returns and has
proposed additional taxes aggregating $36.2 million plus interest, which action
is being vigorously contested by the Company. If ultimately the Company must pay
certain of these additional taxes, such taxes will be recovered in future years.
During 1996 the IRS completed its examination of the Company's 1992 and 1993
Federal income tax returns and has proposed additional taxes and penalties
aggregating $18.6 million plus interest which action is being vigorously
contested by the Company. The IRS is currently examining the Company's 1994 and
1995 Federal income tax returns.
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, the disposition of the lawsuits and the
other matters mentioned above will not have a material effect on financial
position, results of operations or cash flows.
13.DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company reports that the carrying amount of cash and cash equivalents, trade
receivables, accounts payable, notes payable and accrued expenses approximates
fair value due to the short maturity of these instruments, and that the carrying
amount of marketable securities is stated at fair value. In addition, the
Company believes the long-term debt approximates fair value because present
long-term interest rates approximate the Company's actual interest rates.
14.OPERATING RETURN ON OPERATING INVESTMENT (Unaudited):
When companies are acquired, Dover's purchase price generally exceeds the book
value of the acquired company. Increases in the book value of the assets,
including goodwill, arising in such instances, are assigned to the business
segments in which acquired companies are included. Similarly, the amortization
of these increased asset values is charged against the income of that business
segment.
31
34
These asset values and charges to income are also reflected in the
computation of Dover's net income and return on equity. However, to monitor the
progress of business operations on a continuous basis and in relation to
industry norms, Dover does not include these asset values or cost in the
calculation of "Operating Return on Investment" as shown in the unaudited charts
on pages 2, 9, 11, 15, 17 and 21. Additionally, the "Investment" figure
reflected in these charts is reduced by applicable current liabilities for
accounts payable and accrued expenses and for certain deferred taxes.
15.INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS:
(in thousands) For the Years Ended December 31, 1997 1996 1995
----------- ----------- -----------
Sales to unaffiliated customers:
United States $ 3,610,991 $ 3,258,497 $ 3,012,837
Europe 633,632 530,421 508,826
Canada, Far East, Pacific, other 303,033 287,366 224,214
Transfers between geographic areas:
United States 221,724 175,185 203,953
Europe 182,099 93,938 53,008
Canada, Far East, Pacific, other 5,059 2,165 1,096
Eliminations (408,882) (271,288) (258,057)
----------- ----------- -----------
Consolidated Sales $ 4,547,656 $ 4,076,284 $ 3,745,877
=========== =========== ===========
Operating Profit:
United States $ 544,370 $ 471,508 $ 412,506
Europe 81,526 73,269 42,846
Canada, Far East, Pacific, other 19,890 17,650 11,373
----------- ----------- -----------
Subtotal (excludes corporate &
dispositions) 645,786 562,427 466,725
Gain on dispositions 32,121 75,065 --
Interest income, interest expense and
General corporate expenses, net (61,071) (48,767) (49,614)
----------- ----------- -----------
Consolidated total $ 616,836 $ 588,725 $ 417,111
=========== =========== ===========
Identifiable assets at December 31,
United States $ 2,507,777 $ 2,176,500 $ 1,894,862
Europe 622,089 610,088 585,128
Canada, Far East, Pacific, other 64,088 70,572 110,274
----------- ----------- -----------
Subtotal (excludes corporate) $ 3,193,954 $ 2,857,160 $ 2,590,264
Corporate 83,570 136,219 76,387
----------- ----------- -----------
Consolidated total $ 3,277,524 $ 2,993,379 $ 2,666,651
=========== =========== ===========
Export sales as a percentage of United
States sales 25% 25% 26%
----------- ----------- -----------
(in thousands) For the Years Ended December 31, 1994 1993 1992
----------- ----------- -----------
Sales to unaffiliated customers:
United States $ 2,561,107 $ 2,093,354 $ 1,884,051
Europe 342,320 252,297 264,546
Canada, Far East, Pacific, other 181,849 138,277 122,983
Transfers between geographic areas:
United States 131,463 82,623 74,416
Europe 28,648 20,266 16,993
Canada, Far East, Pacific, other 905 793 1,998
Eliminations (161,016) (103,682) (93,407)
----------- ----------- -----------
Consolidated Sales $ 3,085,276 $ 2,483,928 $ 2,271,580
=========== =========== ===========
Operating Profit:
United States $ 306,895 $ 237,847 $ 187,118
Europe 35,620 17,821 22,664
Canada, Far East, Pacific, other 12,040 12,125 13,013
----------- ----------- -----------
Subtotal (excludes corporate &
dispositions) 354,555 267,793 222,795
Gain on dispositions -- -- --
Interest income, interest expense and
General corporate expenses, net (47,696) (22,251) (22,460)
----------- ----------- -----------
Consolidated total $ 306,859 $ 245,542 $ 200,335
=========== =========== ===========
Identifiable assets at December 31,
United States $ 1,604,380 $ 1,447,217 $ 1,119,072
Europe 280,720 154,488 154,247
Canada, Far East, Pacific, other 93,147 102,717 94,237
----------- ----------- -----------
Subtotal (excludes corporate) $ 1,978,248 $ 1,704,422 $ 1,367,556
Corporate 92,389 69,267 58,568
----------- ----------- -----------
Consolidated total $ 2,070,637 $ 1,773,689 $ 1,426,124
=========== =========== ===========
Export sales as a percentage of United
States sales 22% 20% 22%
----------- ----------- -----------
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Dover Corporation:
We have audited the accompanying consolidated balance sheets of Dover
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, retained earnings, and cash flows for the
years ended December 31, 1997, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on those financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dover
Corporation and subsidiaries at December 31, 1997, and 1996, and the results of
their operations and their cash flows for the years ended December 31, 1997,
1996 and 1995 in conformity with generally accepted accounting principles.
1301 Avenue of the Americas
New York, N.Y. 10019-6013
February 6, 1998
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
32
35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES: The Company continues to be in excellent
financial condition. Despite the amount spent during 1997 on its acquisition
program, $261.5 million, liquidity measures remained essentially flat when
compared to 1996.
The Company's current ratio (current assets divided by current liabilities)
increased to 1.33 at December 31, 1997, compared with 1.31 at December 31, 1996.
The quick ratio (current assets net of inventories, divided by current
liabilities) decreased slightly to .86 at December 31, 1997, compared with .87
at December 31, 1996. Year-end working capital expressed as a percentage of
sales shows an increase this year to 8.68% from the prior year's 8.64%.
At December 31, 1997, the Company had bank lines of $552 million, which
support its commercial paper. Additional bank lines of credit are available at
the Company's request. The Company's commercial paper is rated A-1 by Standard &
Poors and F-1 by Fitch Investor services.
With respect to debt percentages, the general trend is downward,
notwithstanding the 1997 acquisition expenditures. The net debt (notes payable
plus long-term debt and current maturities of long-term debt less cash and
equivalents and marketable securities) to total capital ratio decreased to 24.5%
at December 31, 1997, compared with 26.2% at December 31, 1996. The Company's
net debt (total debt less cash, cash equivalents and marketable securities)
increased during 1997 to $552.7 million at December 31, 1997 from $527.6 million
at December 31, 1996. The debt to equity ratio decreased from 35% at December
31, 1996 to 32% at year-end 1997. Long-term debt maturities for the four years
1998 to 2001 aggregate $9.3 million. Management is not aware of any potential
impairment to the Company's liquidity, other than contingent liabilities as
discussed in Note 12 to the Consolidated Financial Statements. The Company has
examined the Year 2000 computer issue and has determined that it will not have a
material impact on its business, operations or financial condition.
Historically, capital expenditures have been financed with internally
generated funds. During 1997 the entire capital expenditure program was financed
internally. Internal financing is also expected to provide all of the funds for
capital expenditures in 1998, which the Company believes will aggregate
approximately $165 million. The Company plans to continue its acquisition
program, combining external financing if necessary, with internally generated
cash.
As indicated by the Consolidated Statement of Cash Flows (page 25), net cash
provided by operating activities increased by $50.8 million during 1997 (from
$411.5 million in 1996 to $462.3 million in 1997). This improvement was driven
by increased net earnings, increased depreciation and amortization and increased
deferred compensation, which were sufficient to offset cash absorbing changes in
assets and liabilities.
Net cash used in investment activities aggregated $400.5 million in 1997
compared with $332.8 million in 1996. Major differences from year to year
included increased capital expenditures and reduced proceeds from the sale of
businesses.
Net cash used in financing activities was $130.9 million in 1997 compared
with only $2.8 million in 1996. The principal difference was an increase of
$66.7 million in notes payable in 1996 compared to a decrease of $55.2 million
in 1997; a swing of $121.9 million.
At December 31, 1997, the Company's net property, plant, and equipment
amounted to $570.6 million compared with $494.9 million at the end of the
preceding year. Capital expenditures, which exceeded depreciation by $37
million, and acquisitions net of business divestitures accounted for the
increase. Intangible assets, net of amortization increased by $105.1 million
during 1997 principally the result of goodwill arising through acquisitions
which exceeded amortization (see footnote 2 regarding 1997 acquisitions).
The aggregate of current and deferred income tax liabilities increased from
$55.5 million at the beginning of the year to $65.1 million at year end. This
increase resulted primarily from income tax liabilities assumed from acquired
companies.
Retained earnings increased from $1.470 billion at the beginning of 1997 to
$1.703 billion at December 31, 1997. The $233 million increase results from 1997
net earnings of $405, million, less cash and stock dividends which aggregated
$172 million.
RESULTS OF OPERATIONS 1997: Results of operations are explained in detail in the
stockholders' letter and operations review, pages 2 through 21.
1996 COMPARED WITH 1995: Dover Corporation's 1996 net income increased to $390
million, or $1.72 a share, including a special gain of $.22 per share from the
sale of two companies -- Dieterich Standard and Measurement Systems, Inc. Sales
exceeded $4 billion for the first time, rising 9% from 1995.
Excluding the special gain, Dover's earnings grew from $1.23 per share in
1995 to $1.50, a 23% increase, marking the fourth consecutive year of per-share
earnings gain of more than 20%. At $1.50 per share, Dover's earnings per shares
(EPS) have grown at a compound annual rate of more than 16% thus far in the
`90s. This compares favorably with the 11% annual growth rate that Dover
achieved during the decade of the 1980s.
During the most recent five years, 1991-1996, Dover's earnings per share have
grown by 23% per year. While we are proud of this accomplishment, Dover
stockholders should not expect 20% earnings growth to continue indefinitely. Our
goal is consistent, above-average, high quality earnings growth. We would be
pleased to maintain our 1990-96 growth rate of 16% for the balance of the
decade, recognizing that this will be difficult to achieve in the low-growth,
low inflation environment that most economists are predicting.
DOVER TECHNOLOGIES: Dover Technologies offset the assembly equipment downturn,
which was similar to those of 1985-86 and 1990-91, by successful diversification
into other markets. Imaje, acquired in 1995, had record profits exceeding $50
million and provided about one third of segment earnings. The four electronic
component companies -- Quadrant, K&L Microwave, TNI and Novacap -- were aided by
add-on acquisitions (ATT Frequency Control, GFS, Dow-Key and KVG) and all had
record profits that provided more than 20% of segment earnings.
Considering the decline in demand for both surface mount (SM) and thru-hole
assembly equipment from the cyclical peak of 1995, Universal Instruments had a
surprisingly good year. Profits, although down by $35 million on a sales decline
of nearly $90 million, were the second best in its history, and well above
previous cyclical peaks.
The successful introduction of its GSM-2 machine allowed Universal to retain
its "best in class" position for flexible, fine-pitch placement machines in the
SM market, and resulted in a modest increase in market share. Universal
continues to focus its machine development on leading-edge componentry in the SM
area, while continually improving the performance-to-price relationship of its
thru-hole assembly products.
Imaje, continuing to rebound from its turnaround position of 1990-91,
33
36
achieved sales and earnings records and margins over 30%. Although its business
was soft in Europe, where Imaje is a leader, the company achieved solid growth
in Asia, the fastest growing market, where it is the leader, and in the huge
U.S. market, where its share has been small. Asia and the U.S. thus represent
significant growth opportunities.
The four companies that produce components all had record earnings, as they
expanded their markets through product development and strategic acquisitions.
Quadrant's 1995 purchase of ATT Frequency Controls -- now called Vectron
Technologies -- has been very successful. Vectron reduced costs by moving to a
new plant, kept Lucent as its biggest customer, and attracted the attention of
other telecommunications OEMs with its low-cost oscillator and surface
acoustical wave (SAW) filter technology. Quadrant further extended its
technological and market reach by acquiring KVG, a German maker of oscillators
and crystals.
DOVER INDUSTRIES: The mid-year divestiture of Dieterich Standard, which provided
a gain to Dover Corporation of more than $.20 per share (which is not shown in
the Dover Industries numbers), adversely affected Dover Industries' second-half
comparisons. The flat earnings in 1996 followed three years of very strong
progress, during which earnings more than tripled, including a 45% gain in 1995.
Rotary Lift again achieved record profits, with an increase of more than 30%,
as the company continued to expand its market-leading position in the North
American automotive lift market. Rotary made further manufacturing improvements
to reduce costs and expand capacity. Its strategy has been to invest heavily in
manufacturing equipment and systems and then to use its low-cost producer
position and high levels of quality and service to increase unit volume. This
strategy has proven extremely successful, with profits more than doubling in the
past three years.
DovaTech (MIG, TIG and laser welding) generated record profits in 1996, its
growth accelerated by its successful first quarter acquisition of PRC, which
produces a power source for laser welding and cutting equipment.
Texas Hydraulics also set a profit record while expanding its capacity in
anticipation of further potential within the hydraulic cylinder market. Tipper
Tie established a new earnings record as well, with a strong performance in the
U.S. and continued good results at Technopack, a German subsidiary.
Chief Automotive increased its earnings substantially, although not to a
record level, maintaining its market-leading position for auto body repair
pulling equipment and expanding its capabilities in measurement equipment.
Heil Trailer International almost matched its record profit level of 1995,
despite a significantly weaker market. A capacity expansion in late 1995 and a
large backlog allowed strong shipments to continue during the first half of
1996, but the pace slackened in the second half.
After vigorous growth in 1995 that continued into early 1996, the market for
solid waste handling equipment fell sharply in the year's second half. Both Heil
Environmental (refuse trucks) and Marathon (compactors and balers) had sharply
lower profits compared to 1995. However, each company had its second best
earnings year. Heil introduced its new STARRTM waste-hauling system that
provides robotic arm loading with tandem trailers to reduce lost time driving to
dump sites.
DOVER DIVERSIFIED: Belvac again set sales and earnings records as a result of
higher shipments of its can necking machines. Belvac had the right product at
the right time when can-makers launched a massive program to reduce their
consumption of high-cost aluminum, adding die-necking capability to existing
can-making lines at a very rapid pace. Belvac garnered by far the largest share
of this market, more than tripling its shipments of necking equipment between
1993 and 1996. The domestic demand has now been largely met and Belvac's monthly
orders have trailed shipments for more than a year, as previously reported to
shareholders.
Sargent Controls and Aerospace improved its profits significantly on a sales
gain of more than 20%. Strong shipments of hydraulic controls for aircraft and
increased billings on submarine projects fueled the gain. Work on the Navy's new
SSN23 submarine has proceeded much more smoothly than on its two predecessors.
At A-C Compressor, the change in focus introduced by new management in the
latter part of 1995 was quickly rewarded by improved profitability. Margins
improved by 10 percentage points, although they have not yet recovered to A-C's
historical levels. A more conservative approach to quoting and a renewed
emphasis on A-C's niche strengths in the giant, worldwide compressor market
depressed bookings in the early part of the year, but these recovered sharply
during the second half.
Tranter again produced record earnings, as its collaboration with SWEP, a
European company acquired in 1994, continued to work well. Increased demand for
SWEP's products in the U.S. and a strong year for Tranter's own product lines
(Superchangers, PlateCoil, and transformer radiators) have required expansion of
both European and U.S. production facilities.
DOVER RESOURCES: The average margin at the 17 Dover Resources companies, at
nearly 18%, was the highest of the five Dover market segments. No single company
was responsible for the major portion of the segment's $15 million profit
increase, as all but three businesses improved their results.
Both De-Sta-Co and Stark reported record profits, primarily as a result of
De-Sta-Co's strength in automotive air conditioning valves and its acquisition
of Robohand, and improved profitability at Stark, which also serves automotive
markets. At year-end, these companies were reorganized into two units.
Midland continued to invest in manufacturing equipment and processes to meet
a cyclical spurt in demand for its valves and safety devices for railroad tank
cars. A surge in tank car production that doubled customer demand over the past
three years resulted in record earnings in 1996.
OPW Engineered Systems continued its string of profit records with a 40%
earnings gain on modestly higher sales. The company focused its selling efforts
on more profitable product lines and continued to reduce manufacturing costs,
resulting in the strong margin increase.
Alberta Oil Tool also had record profits, taking advantage of strong demand
in the Canadian "oil patch" while maintaining its commanding market shares in
oilfield production equipment. In the U.S., Norris Sucker Rods set a post-oil
boom profit record with stronger domestic shipments and increased exports.
OPW Fueling Components remained Dover Resources' largest profit producer
despite its second yearly profit decline from its 1994 peak. Shipments of Stage
II vapor recovery nozzles continued to lag, as the EPA required fewer new areas
to mandate this system for reducing air pollution.
DOVER ELEVATOR INTERNATIONAL: Profits were at their highest level since 1990,
despite the soft market for new elevators and tough service competition that has
persisted since the real estate crash of 1991.
Profits increased 178% over the prior year, which was burdened by $31.9
million of non-recurring charges associated with the DEI reorganization. On an
operating basis, excluding these charges, profits rose an impressive 39% on a 5%
sales gain.
Top management focused on returning to the fundamental strengths in Dover's
elevator operations. A strengthened and better focused selling effort and better
installation efficiency supported gains in new elevator margins, particularly in
the Oildraulic(R) range, which is directed at the low-rise market segment. The
improvement in new elevator profitability was attributable in part to reductions
in central support overhead. New elevator operations -- sale, installation and
manufacture of elevators in new buildings -- accounted for almost half of DEI's
sales, and were profitable in 1996 for the first time since 1990.
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37
Dover Corporation and Subsidiaries
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
David H. Benson+
Non-Executive Director, Dresdner
Kleinwort-Benson Group, Plc.
Magalen O. Bryant*(n)
Director of various corporations
Jean-Pierre M. Ergas(n)
Executive Vice President--Europe
Alcan Aluminum Limited
Roderick J. Fleming+
Director, Robert Fleming Holdings, Limited
John F. Fort*(n)
Director of Tyco International, Ltd.
James L. Koley+*
Chairman, Koley, Jessen, Daubman
& Rupiper, P.C.
John F. McNiff
Anthony J. Ormsby*+
Director of various corporations
Thomas L. Reece*
Gary L. Roubos*
* Members of Executive Committee
+ Members of Audit Committee
(n) Members of Compensation Committee
OFFICERS
HEADQUARTERS:
Gary L. Roubos
Chairman
Thomas L. Reece
President and Chief Executive Officer
John F. McNiff
Vice President--Finance
Robert G. Kuhbach
Vice President, General Counsel
and Secretary
Robert A. Tyre
Vice President--Corporate Development
Alfred Suesser
Controller
Dover Technologies International, Inc:
John E. Pomeroy
President and Chief Executive Officer
Dover Industries, Inc:
Lewis E. Burns
President and Chief Executive Officer
Dover Diversified, Inc:
Jerry W. Yochum
President and Chief Executive Officer
Dover Resources, Inc:
Rudolf J. Herrmann
President and Chief Executive Officer
Dover Elevator International, Inc:
Nigel P. Davis
President
STOCKHOLDER INFORMATION
TRANSFER AGENT/REGISTRAR:
Harris Trust & Savings Bank
Chicago, Illinois
Requests concerning stockholder records, issuance of stock certificates, and
distribution of our dividends and the IRS Form 1099 are most efficiently
answered by corresponding directly with Harris Trust at the following address:
Harris Trust & Savings Bank
311 West Monroe Street
Post Office Box 755
Chicago, Illinois 60690
(312) 461-6832 (tel.) (312) 461-1530 (fax)
Dover common stock is listed on the New York Stock Exchange with symbol DOV. The
common stock is also listed on The London Stock Exchange.
INDEPENDENT ACCOUNTANTS:
Coopers & Lybrand L.L.P.
New York, New York
EXECUTIVE OFFICES:
Dover Corporation
280 Park Avenue
New York, New York 10017-1292
(212) 922-1640
Internet: www.dovercorporation.com
Dover Corporation and Subsidiaries
QUARTERLY DATA
(Unaudited) (In thousands except per share figures)
Common Stock
Cash Dividends and Market Prices
------------------------------------
Net Gross Net Per Share Market Prices (1) Dividends
Quarter Sales Profit Earnings Basic Diluted High Low Per Share
- ------- ---------- ---------- -------- -------- -------- -------- -------- ---------
1997
FIRST $1,008,781 $ 337,867 $ 78,500 $ .35 $ .35 $ 27.44 $ 24.13 $.08 1/2
SECOND 1,154,011 395,075 124,915(3) .56(3) .55(3) 32.00 25.88 .08 1/2
THIRD 1,163,744 403,498 101,756 .46 .44 36.69 30.72 .09 1/2
FOURTH 1,221,120 435,296 100,260 .45 .45 36.31 32.56 .09 1/2
---------- ---------- -------- -------- -------- --------
$4,547,656 $1,571,736 $405,431 $ 1.82 $ 1.79 $.36
========== ========== ======== ======== ======== ========
1996
First $ 999,473 $ 335,197 $ 77,745 $ .34 $ .34 $ 24.75 $ 18.32 $.07 1/2
Second 1,023,423 348,786 87,858 .39 .39 26.57 21.94 .07 1/2
Third 1,009,388 336,405 144,323(2) .64(2) .61(2) 24.25 20.50 .08 1/2
Fourth 1,044,000 346,244 80,297 .35 .35 27.57 23.63 .08 1/2
---------- ---------- -------- -------- -------- --------
$4,076,284 $1,366,632 $390,223(2) $ 1.72(2) $ 1.69(2) $.32
========== ========== ======== ======== ======== ========
(1) As reported in the Wall Street Journal.
(2) Net earnings include $49.6 million, and per share earnings include 22 cents,
respectively, representing gain from the sale of businesses.
(3) Net earnings include $23.4 million, and per share earnings include 11 cents,
respectively, representing gain from the sale of businesses. Adjusted to give
retroactive effect to the 2 for 1 stock split in 1997.
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38
Dover Corporation and Subsidiaries
11-YEAR CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
(dollars in thousands except per share figures)
1997 1996 1995 1994
---------- --------- --------- ---------
Summary of Operations
Net sales $4,547,656 4,076,284 3,745,877 3,085,276
Cost of sales 2,975,920 2,709,652 2,564,344 2,137,477
Selling and administrative expenses 959,067 827,958 743,133 622,434
Interest expense 46,888 41,977 40,113 36,461
Other income, net 51,055 92,028 18,824 17,955
Earnings before taxes 616,836 588,725 417,111 306,859
Income taxes 211,405 198,502 138,800 104,486
---------- --------- --------- ---------
Net earnings $ 405,431 390,223 278,311 202,373
% of sales 8.9% 9.6% 7.4% 6.6%
Return on average equity 23.9%(1) 25.1%(2) 25.0% 21.7%
Net earnings per common share:
Basic $ 1.71(1) 1.50(2) 1.23 .88
Diluted $ 1.68(1) 1.47(2) 1.22 .88
Dividends per common share $ .36 .32 .28 .24 1/2
---------- --------- --------- ---------
Book value per common share $ 7.65 6.62 5.40 4.39
Depreciation and amortization $ 170,663 125,084 107,836 95,789
Capital expenditures $ 145,620 125,111 102,668 84,473
Acquisitions $ 261,460 281,711 323,292 187,704
Cash flow(4) $ 576,094 515,307 386,147 298,162
Weighted average number of common
shares outstanding (`000s) 223,181 226,524 226,906 228,740
Number of employees 28,758 26,234 25,332 22,992
---------- --------- --------- ---------
Financial position at December 31
Working capital $ 394,772 350,708 303,312 360,916
Net property, plant and equipment $ 570,579 494,933 423,940 342,685
Total assets $3,277,524 2,993,379 2,666,651 2,070,637
Long-term debt $ 262,630 252,955 255,600 253,587
Common stockholders' equity $1,703,584 1,489,703 1,227,706 995,859
Common shares outstanding (`000s) 222,595 225,060 227,340 226,920
---------- --------- --------- ---------
(1) 1997 "Return on Average Equity" and earnings per common share excludes gain
from sale of businesses which amounted to 11 cents per share.
(2) 1996 "Return on Average Equity" and earnings per common share excludes gain
from sale of businesses which amounted to 22 cents per share.
(3) 1992 net earnings and net earnings per common share include $565,000 and 3
cents per share, respectively, applicable to the cumulative effects of
changes in accounting principles for FAS 109, "Accounting for Income Taxes"
and FAS 106 "Employers' Accounting for Postretirement Benefits Other Than
Pensions."
(4) Represents net earnings plus depreciation and amortization.
Adjusted to give retroactive effect to the 2 for 1 stock splits in 1988,
1995 and 1997.
DOVER RETURN ON AVERAGE EQUITY
1988 21
1989 19
1990 20
1991 16
1992 16
1993 19
1994 22
1995 25
1996* 25
1997* 24
*Excludes sale of businesses
DOVER LONG TERM INVESTMENT (in $ millions)
Capital Stock
Expenditures Repurchase Acquisitons
1988 57 35 206
1989 63 94
1990 45 80 103
1991 46 39 14
1992 42 85 112
1993 48 2 321
1994 85 30 188
1995 103 8 323
1996 125 63 282
1997 146 86 261
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39
1993 1992 1991 1990 1989 1988 1987
- --------- --------- --------- --------- --------- --------- ---------
2,483,928 2,271,580 2,195,786 2,210,345 2,120,434 1,953,754 1,588,224
1,733,256 1,601,596 1,580,051 1,516,753 1,480,880 1,363,852 1,096,612
496,798 466,777 452,394 440,313 404,043 360,122 306,792
22,339 20,059 23,161 30,658 29,644 21,324 15,044
14,007 17,187 63,908 21,497 21,112 16,304 11,083
245,542 200,335 204,088 244,118 226,979 224,760 180,859
87,288 71,192 75,880 88,439 82,999 78,988 69,158
- --------- --------- --------- --------- --------- --------- ---------
158,254 129,707(3) 128,208 155,679 143,980 145,772 111,701
6.4% 5.7% 5.8% 7.0% 6.8% 7.5% 7.0%
18.9% 15.9% 15.9% 20.3% 19.4% 20.6% 17.2%
.69 .56(3) .54 .64 .57 .55 .41
.69 .56(3) .54 .64 .57 .55 .41
.22 1/2 .21 1/2 .20 1/2 .19 .17 1/2 .15 1/2 .13
- --------- --------- --------- --------- --------- --------- ---------
3.80 3.53 3.52 3.29 3.00 2.85 2.54
76,969 77,457 85,366 77,530 78,813 73,797 63,505
47,532 42,441 46,618 44,980 62,504 56,779 40,397
321,002 111,243 13,192 102,834 -- 205,765 57,718
235,223 207,164 213,575 233,210 222,793 219,569 175,205
228,440 231,953 239,000 244,675 253,000 262,905 270,207
20,445 18,827 18,898 20,461 20,049 20,412 17,592
- --------- --------- --------- --------- --------- --------- ---------
307,846 201,641 280,902 206,748 245,755 198,038 316,116
283,363 251,270 251,145 268,386 272,158 268,139 219,031
1,773,689 1,426,124 1,356,620 1,468,366 1,406,376 1,365,630 1,155,226
252,065 1,230 6,317 20,955 26,691 27,773 35,134
870,002 804,937 828,374 787,660 746,809 741,142 671,950
228,652 228,340 235,912 239,884 248,972 260,832 265,008
- --------- --------- --------- --------- --------- --------- ---------
"FREE" CASH FLOW(A) (in $ millions)
1988 73
1989 143
1990 135
1991 119
1992 84
1993 114
1994 176
1995 172
1996* 259
1997* 263
(A) Free cash flow is operating cash generated after funding capital
expenditures, working capital and dividends, but excluding acquisitions, net
proceeds from dispositions and stock repurchases.
*Excludes sale of businesses
"FREE" CASH FLOW AS A PERCENTAGE OF SALES(A) (%)
Annual Three Year Moving Averge
1988 3.7 5.3
1989 6.7 5.4
1990 6.1 5.5
1991 5.4 6.1
1992 3.7 5.1
1993 4.6 4.6
1994 5.7 4.9
1995 4.6 5
1996* 6.3 5.5
1997* 5.8 5.6
(A) Free cash flow is operating cash generated; after funding capital
expenditures, working capital, and dividends but excluding acquistions, net
proceeds from dispositions and stock repurchases.
* Excludes sale of businesses
Design: Robert Webster Inc. Copy: Holcomb Associates Photographer: Enrico
Ferorelli Printed on recycled paper.
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[DOVER CORPORATION LOGO]
DOVER CORPORATION
280 PARK AVENUE
NEW YORK, NEW YORK 10017-1292
41
EXHIBIT 13
The electronic filing includes the following numeric tables which replace
graphical charts contained within the 1996 Annual Report for the Dover
Corporation.
Page 1: Dover Corporation's earnings per share growth for years
1988-1997. Dover Corporation's total return to investors for
the years 1988-1997.
Page 2: Dover Corporation's earnings per share for years 1992-1997.
Dover Corporation's earnings before interest, taxes and
write-offs per basic share for years 1992-1997. Dover
Corporation Return on Stockholder's Equity and after-Tax
return on Investment for years 1992-1997.
Page 9: Dover Technologies' segment earnings for the years 1993-1997.
Dover Technologies' after-tax operating return on investment
for the years 1993-1997.
Page 11: Dover Industries' segment earnings for the years 1993-1997.
Dover Industries' after-tax operating return on investment for
the years 1993-1997.
Page 15: Dover Diversified's segment earnings for the years 1993-1997.
Dover Diversified's after-tax operating return on investment
for the years 1993-1997.
Page 17: Dover Resources' segment earnings for the years 1993-1997.
Dover Resources' after-tax operating return on investment for
the years 1993-1997.
Page 21: Dover Elevator International Inc.'s segment earnings for
the years 1993-1997. Dover Elevator International Inc.'s
after-tax operating return on investment for the years
1993-1997.
Page 36: Dover Corporation's return on average equity for the years
1988-1997. Dover Corporation's long term investment for
years 1988-1997.
Page 37: Dover Corporation's free cash flow as a percentage of sales
for the years 1988-1997. Dover Corporation's cash flow for
years 1988-1997.
Pages 3, 4, 5, 6, 7, 9, 10, 12, 13, 15, 16, 18, 19 and 21 of the Annual Report
contain photographs that are not included in the Edgar filing. The captions,
relating to these photographs, have been retained in the filing and provide
sufficient descriptive detail.
