SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For nine months ended September 30, 2001 Commission File No. 1-4018 DOVER CORPORATION (Exact name of registrant as specified in its charter) Delaware 53-0257888 (State of Incorporation) (I.R.S. Employer Identification No.) 280 Park Avenue, New York, NY 10017 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 922-1640 Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of the Registrant's common stock as of the close of the period covered by this report was 202,418,750. 1 of 18
Part I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS THREE MONTHS ENDED SEPTEMBER 30, (000 OMITTED) UNAUDITED 2001 2000 ----------- ----------- Net sales $ 1,088,554 $ 1,390,486 Cost of sales 782,286 876,243 ----------- ----------- Gross profit 306,268 514,243 Selling & administrative expenses 286,177 288,813 ----------- ----------- Operating profit 20,091 225,430 ----------- ----------- Other deductions (income): Interest expense 21,456 27,007 Interest income (3,563) (1,656) Foreign exchange (2,375) 1,386 Loss (gain) on sale of equity securities -- (13,741) All other, net 1,137 (1,540) ----------- ----------- Total 16,655 11,456 ----------- ----------- Earnings before taxes on income 3,436 213,974 Federal & other taxes on income 829 69,512 ----------- ----------- Net earnings from continuing operations 2,607 144,462 Gain (loss) on sale of discontinued business, net of tax -- (13,595) ----------- ----------- Net earnings $ 2,607 $ 130,867 =========== =========== Weighted average number of common shares outstanding during the period: - Basic 203,086 202,937 =========== =========== - Diluted 204,210 204,736 =========== =========== Net earnings per common share: - Basic $ 0.01 $ 0.71 =========== =========== Gain (loss) on sale -- (0.06) ----------- ----------- Net earnings $ 0.01 $ 0.65 =========== =========== - Diluted $ 0.01 $ 0.71 =========== =========== Gain (loss) on sale -- (0.07) ----------- ----------- Net earnings $ 0.01 $ 0.64 =========== =========== See Notes to Consolidated Financial Statements. 2 of 18
DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS THREE MONTHS ENDED SEPTEMBER 30, (000 OMITTED) UNAUDITED 2001 2000 --------- --------- Net earnings $ 2,607 $ 130,867 --------- --------- Other comprehensive earnings, net of tax: Foreign currency translation adjustments 35,411 (9,134) --------- --------- Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period (428) (7,627) Less: reclassification adjustment for gains (losses) included in net earnings -- 8,994 --------- --------- Unrealized gains (losses) on securities (tax -$231 in 2001 (428) (16,621) and -$8,924 in 2000) --------- --------- Other comprehensive earnings 34,983 (25,755) --------- --------- Comprehensive earnings $ 37,590 $ 105,112 ========= ========= DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS NINE MONTHS ENDED SEPTEMBER 30, (000 OMITTED) UNAUDITED 2001 2000 ----------- ----------- Net sales $ 3,474,691 $ 4,021,029 Cost of sales 2,368,562 2,542,226 ----------- ----------- Gross profit 1,106,129 1,478,803 Selling & administrative expenses 862,637 833,790 ----------- ----------- Operating profit 243,492 645,013 ----------- ----------- Other deductions (income): Interest expense 70,961 68,445 Interest income (13,500) (6,072) Foreign exchange (2,501) (1,247) Loss (gain) on dispositions and sale of equity securities (172,367) (12,341) All other, net (8,519) (6,151) ----------- ----------- Total (125,926) 42,634 ----------- ----------- Earnings before taxes on earnings 369,418 602,379 Federal & other taxes on earnings 144,427 203,865 ----------- ----------- Net earnings from continuing operations 224,991 398,514 Gain (loss) on sale of discontinued business, net of tax -- (13,595) ----------- ----------- Net earnings $ 224,991 $ 384,919 =========== =========== Weighted average number of common shares outstanding during the period - Basic 203,086 202,937 =========== =========== - Diluted 204,210 204,736 =========== =========== Net earnings per common share: - Basic $ 1.11 $ 1.96 Gain (loss) on sale -- (0.06) ----------- ----------- Net earnings $ 1.11 $ 1.90 =========== =========== - Diluted $ 1.10 $ 1.95 Gain (loss) on sale -- (0.07) ----------- ----------- Net earnings $ 1.10 $ 1.88 =========== =========== See Notes to Consolidated Financial Statements. 3 of 18
DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS NINE MONTHS ENDED SEPTEMBER 30, (000 OMITTED) UNAUDITED 2001 2000 --------- --------- Net earnings $ 224,991 $ 384,919 --------- --------- Other comprehensive earnings, net of tax: Foreign currency translation adjustments (16,877) (55,521) --------- --------- Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period (3,168) 19,483 Less: reclassification adjustment for gains (losses) included in net earnings -- 8,994 --------- --------- Unrealized gains (losses) on securities (tax -$1,706 in 2001 and $5,673 in 2000) (3,168) 10,489 --------- --------- Other comprehensive earnings (20,045) (45,032) --------- --------- Comprehensive earnings $ 204,946 $ 339,887 ========= ========= DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS NINE MONTHS ENDED SEPTEMBER 30, (000 OMITTED) UNAUDITED 2001 2000 ---------- ---------- Retained earnings at January 1 $3,252,319 $2,830,175 Net earnings 224,991 384,919 ---------- ---------- 3,477,310 3,215,094 Deduct: Common stock cash dividends $ 0.385 per share ($0.355 in 2000) 78,219 72,076 ---------- ---------- Retained earnings at end of period $3,399,091 $3,143,018 ========== ========== See Notes to Consolidated Financial Statements. 4 of 18
DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (000 OMITTED) UNAUDITED September 30, 2001 December 31, 2000 ------------------ ----------------- Assets: Current assets: Cash & cash equivalents $ 221,781 $ 181,399 Marketable securities 521 5,341 Receivables, net of allowance for doubtful accounts 762,885 903,177 Inventories 744,495 783,200 Prepaid expenses 104,742 101,732 ----------- ----------- Total current assets 1,834,424 1,974,849 ----------- ----------- Property, plant & equipment (at cost) 1,752,350 1,683,491 Accumulated depreciation (977,295) (927,943) ----------- ----------- Net property, plant & equipment 775,055 755,548 ----------- ----------- Goodwill, net of amortization 1,904,823 1,896,715 Other intangible assets, net of amortization 245,701 181,924 Deferred charges & other assets 68,099 83,080 ----------- ----------- $ 4,828,102 $ 4,892,116 =========== =========== Liabilities: Current liabilities: Notes payable $ 212,223 $ 839,880 Current maturities of long-term debt 9,118 2,657 Accounts payable 224,335 277,910 Accrued compensation & employee benefits 170,739 178,280 Accrued insurance 46,918 45,855 Other accrued expenses 253,650 209,247 Income taxes 119,401 50,811 ----------- ----------- Total current liabilities 1,036,384 1,604,640 ----------- ----------- Long-term debt 1,038,649 631,846 Deferred taxes 80,745 67,381 Other deferrals (principally compensation) 131,425 146,674 Stockholders' equity: Preferred stock -- -- Common stock 237,142 236,944 Additional paid-in surplus 53,065 48,552 Cumulative translation adjustments (129,588) (112,711) Unrealized holding gains (losses) (36) 3,132 ----------- ----------- Accumulated other comprehensive earnings (129,624) (109,579) ----------- ----------- Retained earnings 3,399,091 3,252,319 ----------- ----------- Subtotal 3,559,674 3,428,236 Less: treasury stock 1,018,775 986,661 ----------- ----------- 2,540,899 2,441,575 ----------- ----------- $ 4,828,102 $ 4,892,116 =========== =========== See Notes to Consolidated Financial Statements. 5 of 18
DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS NINE MONTHS ENDED SEPTEMBER 30, (000 OMITTED) UNAUDITED 2001 2000 --------- --------- Cash flows from operating activities: Net earnings $ 224,991 $ 384,919 --------- --------- Adjustments to reconcile net earnings to net cash from operating activities: (Gain) loss on sale of discontinued business, net -- 13,595 Depreciation 112,485 101,358 Amortization - goodwill 40,074 36,034 Amortization - other 13,204 13,868 Net increase (decrease) in deferred taxes 17,978 (10,587) Net increase (decrease) in LIFO reserves (1,653) 1,572 Increase (decrease) in deferred compensation (27,830) 25,486 (Gain) loss on sale of business (172,367) (12,341) Other, net (11,114) (5,943) Changes in assets & liabilities (excluding acquisitions and dispositions): Decrease (increase) in accounts receivable 151,181 (173,837) Decrease (increase) in inventories, excluding LIFO reserve 90,555 (97,621) Decrease (increase) in prepaid expenses (2,434) (13,424) Increase (decrease) in accounts payable (62,588) 13,629 Increase (decrease) in accrued expenses (507) 51,395 Increase (decrease) in federal & other taxes on income 44,369 10,414 --------- --------- Total adjustments 191,353 (46,402) --------- --------- Net cash from operating activities 416,344 338,517 --------- --------- Cash flows from (used in) investing activities: Additions to property, plant & equipment (131,342) (134,537) Acquisitions, net of cash & cash equivalents (268,115) (314,084) Proceeds from sale of business 358,916 1,771 Proceeds from sale of equity investment -- 14,185 --------- --------- Net cash from (used in) investing activities (40,541) (432,665) --------- --------- Cash flows from (used in) financing activities: Increase (decrease) in notes payable (630,001) 527,978 Increase (decrease) in long-term debt 401,938 14,465 Purchase of treasury stock (32,114) (3,928) Proceeds from exercise of stock options 2,975 7,046 Cash dividends to stockholders (78,219) (72,076) --------- --------- Net cash from (used in) financing activities (335,421) 473,485 --------- --------- Discontinued operations - tax payments -- (306,515) --------- --------- Net increase (decrease) in cash & cash equivalents 40,382 72,822 Cash & cash equivalents at beginning of period 181,399 138,038 --------- --------- Cash & cash equivalents at end of period $ 221,781 $ 210,860 ========= ========= See Notes to Consolidated Financial Statements. 6 of 18
DOVER CORPORATION CONSOLIDATED MARKET SEGMENT RESULTS (unaudited) Third quarter ended September 30, --------------------------------- Percent SALES 2001 2000 Change ----- ------------------ -------------------------- Dover Technologies $ 269,202,000 $ 564,988,000 -52% Dover Industries 289,600,000 314,037,000 -8% Dover Diversified 294,558,000 286,772,000 3% Dover Resources 236,574,000 226,311,000 5% --------------- -------------- Total (after intramarket eliminations) $ 1,088,554,000 $1,390,486,000 -22% =============== ============== EARNINGS Dover Technologies $ (53,528,000) $ 116,038,000 -146% Dover Industries 32,598,000 48,762,000 -33% Dover Diversified 21,170,000 39,313,000 -46% Dover Resources 26,517,000 28,985,000 -9% --------------- -------------- Subtotal 26,757,000 233,098,000 -89% Gain on sale of equity securities -- 13,741,000 Corporate expense (5,429,000) (7,337,000) -26% Net interest expense (17,892,000) (25,528,000) -30% --------------- -------------- Earnings before taxes on income 3,436,000 213,974,000 -98% Taxes on income 829,000 69,512,000 -99% --------------- -------------- Net earnings - Continuing Operations 2,607,000 144,462,000 -98% Loss on sale of discontinued operations, net of tax** -- (13,595,000) --------------- -------------- Net earnings $ 2,607,000 $ 130,867,000 -98% =============== ============== Net earnings per diluted common share - Continuing $ 0.01 $ 0.71 -98% Discontinued $ -- $ (0.07) --------------- -------------- Net earnings per diluted common share $ 0.01 $ 0.64 -98% =============== ============== Average number of diluted shares outstanding 204,210,000 204,736,000 Impact of acquisition write-offs on diluted EPS: EPS - Continuing $ 0.01 $ 0.71 -99% Goodwill write-offs (net of tax) 0.05 0.04 --------------- -------------- EPS before goodwill 0.06 0.75 -92% Other acquisition write-offs (net of tax) 0.05 0.05 --------------- -------------- EPS before all acquisition write-offs $ 0.11 $ 0.80 -86% =============== ============== ** On January 5, 1999, Dover completed the sale of its elevator business to Thyssen Industrie AG for $1.16 billion resulting in a net gain of $523.9 million in 1999. The loss of $13.6 million in 2000 reflects subsequent adjustments to both the purchase price and expenses related to the sale. 7 of 18
DOVER CORPORATION CONSOLIDATED MARKET SEGMENT RESULTS (UNAUDITED) Nine months ended September 30, ------------------------------- SALES 2001 2000 ----- ----------------- -------------------------- Dover Technologies $ 1,005,482,000 $1,558,706,000 -35% Dover Industries 888,690,000 $ 939,367,000 -5% Dover Diversified 865,555,000 866,722,000 Dover Resources 719,265,000 661,973,000 9% --------------- -------------- Total (after intramarket eliminations) $ 3,474,691,000 $4,021,029,000 -14% =============== ============== EARNINGS Dover Technologies $ ( 4,803,000) $ 311,177,000 -102% Dover Industries 109,990,000 150,679,000 -27% Dover Diversified 78,115,000 116,992,000 -33% Dover Resources 88,381,000 94,538,000 -7% --------------- -------------- Subtotal 271,683,000 673,386,000 -60% Gain on dispositions and sale of equity securities 172,367,000 12,341,000 Corporate expense (17,172,000) (20,454,000) -16% Net interest expense (57,460,000) (62,894,000) -9% --------------- -------------- Earnings before taxes on income 369,418,000 602,379,000 -39% Taxes on Income 144,427,000 203,865,000 -29% --------------- -------------- Net earnings - Continuing Operations 224,991,000 398,514,000 -44% Loss on sale of discontinued operations, net of tax** -- (13,595,000) --------------- -------------- Net earnings $ 224,991,000 $ 384,919,000 -42% =============== ============== Net earnings per diluted common share - Continuing * $ 1.10 $ 1.95 -44% Discontinued $ -- $ (0.07) --------------- -------------- Net earnings per diluted common share $ 1.10 $ 1.88 -41% =============== ============== Average number of diluted shares outstanding 204,210,000 204,736,000 Impact of acquisition write-offs on diluted EPS: EPS - Continuing * $ 1.10 $ 1.95 -44% Goodwill write-offs (net of tax) 0.16 0.14 --------------- -------------- EPS before goodwill * 1.26 2.09 -40% Other acquisition write-offs (net of tax) 0.11 0.12 --------------- -------------- EPS before all acquisition write-offs * $ 1.37 $ 2.21 -38% =============== ============== * 2001 includes gain on sale of businesses of $.45. ** On January 5, 1999, Dover completed the sale of its elevator business to Thyssen Industrie AG for $1.16 billion resulting in a net gain of $523.9 million in 1999. The loss of $13.6 million in 2000 reflects subsequent adjustments to both the purchase price and expenses related to the sale. DOVER CORPORATION AND SUBSIDIARIES MARKET SEGMENT IDENTIFIABLE ASSETS (000 OMITTED) UNAUDITED September 30, December 31, 2001 2000 ------------- ------------ Dover Technologies $1,390,516 $1,537,268 Dover Industries 1,130,435 1,088,640 Dover Diversified 1,182,566 1,211,151 Dover Resources 924,216 928,841 Corporate 200,369 126,316 ---------- ---------- Consolidated Total $4,828,102 $4,892,116 ========== ========== "Corporate" - principally cash and equivalents and marketable securities. 8 of 18
DOVER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE A - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and changes in financial position in conformity with generally accepted accounting principles. In the opinion of the Company, all adjustments, consisting only of normal recurring items necessary for a fair presentation of the operating results have been made. The results of operations of any interim period are subject to year-end audit and adjustments, and are not necessarily indicative of the results of operations for the fiscal year. NOTE B - Inventory Inventories, by components, are summarized as follows : (000 omitted) ------------------------------ UNAUDITED September 30, December 31, 2001 2000 -------- -------- Raw materials $295,491 $311,211 Work in progress 206,688 217,678 Finished goods 275,429 290,178 -------- -------- Total 777,608 819,067 Less LIFO reserve 33,113 35,867 -------- -------- Net amount per balance sheet $744,495 $783,200 ======== ======== NOTE C - Accumulated other Comprehensive Earnings Accumulated other comprehensive earnings, by components are summarized as follows: UNAUDITED (000 omitted) ----------------------------------------------- Accumulated Other Unrealized Comprehensive Cumulative Holding Earnings Translation Gains (losses) Adjustments (losses) ---------- ---------- ----- Beginning balance $ (109,579) (112,711) 3,132 Current-period change (20,045) (16,877) (3,168) ---------- ---------- ----- Ending balance $ (129,624) $ (129,588) $ (36) ========== ========== ===== 9 of 18
NOTE D - Additional Information For a more adequate understanding of the Company's financial position, operating results, business properties and other matters, reference is made to the Company's Annual Report on Form 10-K which was filed with the Securities and Exchange Commission on March 13, 2001. Net earnings as reported was used in computing both basic EPS and diluted EPS without further adjustment. The Company does not have a complex capital structure. Accordingly, the entire difference between basic weighted average shares and diluted weighted average shares results from non-vested restricted stock and assumed stock option exercises. The diluted EPS computation was made using the treasury stock method. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities", marketable securities are classified as available-for-sale and are recorded at current market value. Net unrealized gains and losses on marketable securities available for sale are credited or charged to Other Comprehensive Earnings. At September 30, 2001 the fair value, cost basis and gross unrealized losses on available-for-sales securities are approximately $.5 million, $.6 million and $.1 million, respectively. In June 2000, the FASB issued statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of FASB Statement No. 133", effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company has adopted the statement and it has not had a material impact on the consolidated results of operations or financial position and related disclosure requirements. In July of 2001, the Financial Accounting Standards Board (the "FASB") issued two new standards; SFAS No. 141 "Business Combinations" and SFAS No.142 "Goodwill and Other Intangible Assets." SFAS No. 141 prohibits the pooling-of-interests method of accounting for business combinations and prescribes criteria for the initial recognition and measurement of goodwill and other intangible assets. SFAS No. 141 is effective for all business combinations completed after June 30, 2001. The adoption of SFAS No. 141 for the two third quarter acquisitions did not have a material effect on the Company's financial results. SFAS No. 142, which is for the Company effective January 1, 2002, establishes new guidelines for accounting for goodwill and other intangible assets. The provisions of SFAS No. 142 state that goodwill and indefinite-lived intangible assets will no longer be amortized and that goodwill and indefinite-lived intangible assets will be tested for impairment at least annually. Transitional goodwill impairment tests must be completed within six months of the date of adoption of SFAS No. 142. The Company is still assessing the potential impact of SFAS No. 142 on its results of operations and financial position. Goodwill amortization expense for the nine months ended September 30, 2001 was $40.0 million and amortization related to other intangible assets was $13.2 million. On August 16, 2001, the FASB issued Statement of Financial Accounting Standards SFAS No. 143, "Accounting for Asset Retirement Obligation", which is effective for financial statements issued for fiscal years beginning after June 15, 2002. The pronouncement addresses the recognition and remeasurement of obligations associated with the retirement of a tangible long-lived asset. On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective for financial statements issued for fiscal years beginning after December 15, 2001. SFAS 144 applies to all long-lived assets (including discontinued operations) and it develops one accounting model for long-lived assets that are to be disposed of by sale. The Company is currently reviewing these statements to determine their impact on future financial statements. 10 of 18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (1) MATERIAL CHANGES IN CONSOLIDATED FINANCIAL CONDITION: The Company's liquidity increased $40.4 million during the first nine months of 2001 as compared to the position at December 31, 2000. Proceeds from dispositions ($358.9) net of the amounts invested in acquisitions ($268.1 million) are the principal reasons for the increase in liquidity. Working capital increased from $370.2 million at the end of last year to $798.0 million at September 30, 2001, due principally to a reduction in short-term notes payable, offsetting reductions in inventory and receivables of $38.7 million and $140.3 million, respectively. Capital expenditures were $131.3 million for the first nine months of 2001 compared to $134.5 million last year. The working capital increase and capital expenditures were primarily funded by internal cash flow and an increase in long-term debt. Total debt levels for the quarter and on a year-to-date basis declined by $164 million and $214 million, respectively to $1.26 billion. At September 30, 2001, net debt (defined as long-term debt plus current maturities on long-term debt plus notes payable less cash and equivalents and marketable securities) of $1,037.7 million represented 29% of total capital, a decrease of 5.5% from December 31, 2000. As a result of the favorable impact of the second quarter divestitures on book equity and the cash proceeds from the sales, which were used to reduce debt and fund acquisitions, the Company's net debt to capitalization ratio declined to its lowest level since December 1999. Going forward, this will provide substantial financial flexibility for the Company. Year to date free cash flow was 5.5% of sales. The Company repurchased 687,200 shares in the open market during the third quarter at an average price of $32.17, for a total of $22.1 million. Year to date repurchases total 934,200 shares at an average price of $33.17, for a total of $31.0 million. Through the end of the third quarter, Dover has invested on, a net economic basis, a total of $275.2 million in ten add-on and one stand-alone acquisitions. Two of the add-on acquisitions were completed during the quarter at a combined investment of $35.8 million, both in the Dover Diversified segment. DOVER CORPORATION ACQUISITIONS - THIRD QUARTER 2001 DATE TYPE ACQUIRED COMPANIES LOCATION (NEAR) SEGMENT - OPERATING CO. ------------------------------------------------------------------------------------------------------------- 11-JUL STOCK CARRILLO SAN CLEMENTE, CA DDI PERFORMANCE MOTORSPORTS Manufactures steel connecting rods for the professional race market segment. 16-AUG ASSET FEDERAL-MOGUL RPB GLASGOW, SCOTLAND DDI WAUKESHA BEARINGS Specialized engineering hydrodynamic and magnetic bearings products and services for the power generation, oil/gas, chemical and industrial markets. (2) MATERIAL CHANGES IN RESULTS OF OPERATIONS: The Company earned $.01 per diluted share in the third quarter ended September 30, 2001 compared to $.71 per diluted share from continuing operations in the comparable period last year. Sales in the third quarter were $1.1 billion, a 22% decline from $1.4 billion last year. On a year to date basis, the Company earned $1.10 per diluted share compared to $1.95 per diluted share from continuing operations in the comparable period last year. Sales in the nine month period ended September 30, 2001 were $3.5 billion, a 14% decline from $4.0 billion last year. Earnings for the quarter included additions to inventory reserves and other charges of $53.4 million ($34.7 million net of tax), or $.17 per diluted share. Excluding these extra reserves, segment earnings for the quarter were $80.2 million, down 66% or $152.9 million from $233.1 million last year, and net income for 11 of 18
the third quarter was $37.3 million or $.18 per diluted share, down 72% or $98.2 million from $135.5 million last year. These additional reserves recorded in the quarter, principally for inventory and accounts receivable, were required to adjust to current market conditions. These depressed earnings levels and the need for additional reserves and charges resulted primarily from the continued steep decline in demand in the electronics manufacturing industry served by Dover Technologies. Adding to this was continued market weakness in most of the industrial markets served by the other three Dover segments. While several companies experienced sales slow-downs after the September 11 terrorist attacks, it remains unclear what impact these events will have on the markets the Company serves. The continuing recession in the electronics industry led to a Dover Technologies' loss of $53.5 million, that included inventory and other reserves of $42.4 million. Dover Diversified's sales improved 3% while earnings declined 46%, after the impact of $5.5 million in reserves. Dover Resources improved sales by 5% on moderating strength in the oil and gas related markets and earnings decreased 9%, after $3 million in reserves. Dover Industries' earnings declined by 33% on an 8% decline in sales, after $2.5 million in reserves. All four segments reported lower sales and lower earnings in the third quarter than in the second quarter. The two add-on acquisitions completed during the quarter had a negligible impact on net income due to acquisition-related amortization and depreciation, which are typically higher in the first year after acquisition. Acquisitions completed in the last twelve months (October 1, 2000 - September 30, 2001) added $74.3 million in sales for the quarter, with almost no impact on segment earnings after acquisition write-offs. Acquisitions completed in the last twelve months added $155.7 million in sales and $7.7 million in operational profit in the first nine months of 2001. The Company also reports its pretax earnings on an EBITACQ basis (Earnings before Interest, Taxes, and non-cash charges arising from purchase accounting for Acquisitions). Third quarter EBITACQ of $46 million was 82% lower than the prior year's third quarter. On a year to date basis, EBITACQ of $329 million was 54% lower than the comparable period in the prior year. The tax rate for the third quarter was 24.1% and 39.1% for the nine months of 2001, as compared to 32.5% for the third quarter 2000 and 33.8% for the first nine months of 2000. The lower quarterly rate for 2001 reflects the impact of higher effective tax rates recorded on reserves in relation to lower earnings as compared to the third quarter in 2000. DOVER TECHNOLOGIES: Dover Technologies' third quarter sales decreased 52% or $295.8 million to $269.2 million, generating a loss of $53.5 million (including additional reserves of $42.4 million) compared to earnings of $116.0 million in the same period last year. Reserves were established, primarily for excess and obsolete inventory, and for accounts receivable and other items. The segment loss, excluding these reserves, was $11.1 million. Acquisitions completed in the last year added approximately $31.4 million to sales in the quarter, with a loss of $5.5 million after acquisition write-offs. On a year to date basis, Dover Technologies' sales decreased $553.2 million or 35% to $1,005.5 million. Nine-month earnings declined from $311.2 million in the prior year to a loss of $4.8 million in the current year. Acquisitions completed in the last year added approximately $71.0 million to year to date sales and a loss of $18.6 million after acquisition write-offs. Technologies' CBAT business recorded a loss of $39.9 million for the third quarter, including reserves of $27.7 million, compared to earnings of $80.0 million for last year's comparable period. Third quarter sales decreased 61% or $221.7 million to $143.9 million. All CBAT operating companies experienced decreases in sales and all were unprofitable, highlighting the suddenness of the industry-wide collapse in demand. Bookings, at $109.2 million, were down 68% from the same period last year and were 15% lower than the second quarter of 2001. The book-to-bill ratio was .76 for the third quarter. Backlog, at $44.9 million, is approximately 20% of the level reached as recently as mid-2000, and declined 39% from the second quarter. Customer demand for CBAT's capital equipment, particularly in North America, is anemic, as virtually all customers now have excess capacity, put in place during the industry expansion in 1999 and 2000. Since there is no current indication or expectation that this market will improve soon, the substantial 12 of 18
headcount reductions, cost reductions and other organizational actions taken so far will likely be expanded in the fourth quarter. On a year to date basis, CBAT sales declined $516.8 million or 50% to $519.7 million. A nine-month loss of $43.3 million in the current year compares to earnings of $216.1 million in the prior year. Year to date bookings have declined 61% or $655.3 million to $425.7 million. In Technologies' SEC business, third quarter sales declined 54% or $79.6 million from the same period last year to $67.9 million and earnings declined $36.1 million to a loss of $9.3 million, which included reserves of $14.2 million. Net bookings in the third quarter of $30.1 million were down 85% from last year and 32% from second quarter of this year. The book-to-bill ratio was .44 for the quarter, leaving backlog at $70.0 million at the end of the period (a 77% decline from last year and a 53% decline from the second quarter). Though a few of the SEC companies were modestly profitable in the third quarter before reserves, the demand for SEC's high-end components, particularly in the datacom/telecom and networking markets, is expected to remain weak. As a result, substantial restructuring costs are also likely to be experienced in SEC in the fourth quarter. On a year to date basis, SEC sales declined to $332.5 million, after an 11% or $39.0 million decline from the prior year. Nine-month earnings of $34.2 million in the current year compare to earnings of $67.2 million in the prior year. Year to date bookings declined 70% from $550.2 to $166.0 million. Imaje, the French-based industrial ink-jet printer and ink manufacturer, had a third quarter sales increase of 14% with earnings decreasing 10% compared with last year (measured in local currency) due to additional severance and inventory charges. DOVER INDUSTRIES: Dover Industries' third quarter sales declined 8% or $24.4 million to $289.6 million and segment income declined 33% or $16.2 million to $32.6 million compared to the same period last year. Before the effect of write-offs of $2.5 million, primarily for inventory obsolescence in two companies, segment income was $35.1 million, a decline of 28% from the prior year. Segment bookings were down 13% to $269.6 million and the book-to-bill ratio was .93 for the current quarter. Backlog decreased 1% from last year and 9% from the second quarter to $187 million. Acquisitions completed in the last year added approximately $19.3 million to sales in the quarter, with almost no impact on segment earnings after acquisition write-offs. On a year to date basis, Industries' sales declined 5% to $888.7 million from $939.4 million in the prior year contributing to an earnings decline of 27% or $40.7 million to $110.0 million. Year to date segment bookings were down 2% to $889.0 million. Acquisitions completed in the last year added approximately $37.4 million to year to date sales with almost no impact on segment earnings after acquisition write-offs. All companies owned for a full year had lower results in the quarter than in the comparable period last year due to weak markets, except for Rotary Lift, which has gained market share and managed margins extremely well in a down market. However, with weakness in the later half of September, Rotary's outlook is unclear even as compared to a weak prior year fourth quarter. Heil Environmental, while maintaining very respectable margins overall, repeated this year's string of lower quarterly sales and earnings comparisons to a record prior year. Sequentially, third quarter earnings were substantially behind this year's second quarter but better than the first. Marathon, influenced by similar market factors also turned in weaker comparisons. Heil Trailer was unable to repeat its favorable comparisons to last year and the prior quarter, as its market remains quite weak. In the quarter, Tipper Tie experienced substantial improvement from the second quarter as the impact of the "mad cow" disease scare on its European market has abated, but still had negative comparisons to the prior year. Texas Hydraulics which supplies hydraulic cylinders to a variety of industrial markets, with a concentration in aerial man-lifts, is experiencing very weak markets. Triton continued to perform below expectations, and implemented a substantial headcount reduction in the quarter as part of its recovery strategy. Somero's recent results and prospects have been badly hurt by the sharp drop in commercial construction. 13 of 18
DOVER DIVERSIFIED: Dover Diversified's third quarter sales improved 3% or $7.8 million to $294.6 million. After adjusting for the disposition of A-C Compressor in the second quarter of 2001 sales, increased 12% or $31.8 million from the prior year. Segment income decreased to $21.2 million, a 46% decline compared to the same period last year. Excluding non-recurring reserves of $5.5 million segment income decreased 32% or $12.6 million. The reserves were primarily for excess and obsolete inventory in businesses impacted by prolonged market downturns. After adjusting for the second quarter A-C Compressor disposition, bookings in the quarter were up 16% to $306.7 million and the book-to-bill ratio was favorable at 1.04; backlog at the end of the quarter of $400.2 million was 17% higher than last year and 5% higher than the second quarter. Acquisitions completed in the last year added approximately $18.3 million to sales in the quarter, with almost no impact on segment earnings after acquisition write-offs. On a year to date basis, Diversified's sales were consistent with prior year levels at $866.0 million. However, nine-month earnings have declined 33% to $78.1 million from $117.0 million in the comparable period last year. The third quarter reserves and the earnings declines at Crenlo and Belvac more that offset improvements at Hill Phoenix, Performance Motorsports and Sargent. After adjusting for the second quarter A-C Compressor disposition, year to date bookings were up 8% to $870.6 million. Acquisitions completed in the last year added approximately $33.0 million to year to date sales, with almost no impact on segment earnings after acquisition write-offs. The third quarter earnings decline at Diversified was predominantly due to very unfavorable comparisons at Crenlo, which has reported significant operating losses in each quarter this year, as compared to the mid-teens margins it reported last year. This is due to a decline in its electronics enclosures business, and weak demand in its agricultural and construction equipment cab business. A turnaround focused on realigning costs with the current market environment is being executed by Diversified management. Tranter's earnings comparisons to the prior year deteriorated in the third quarter due to weakness in the broad industrial market it serves. Tranter's earnings were also hurt by U.S dollar strength both as it relates to the translation of its large Swedish based operations, and the impact of increased price competition in domestic markets. At Mark Andy, weak capital spending for printing machines has hurt margins, driving unfavorable comparisons. Third quarter operating performance at Sargent, Performance Motorsports, and particularly Hill Phoenix, was strong in both absolute and comparative terms, though the degree to which the outlook for each has been tempered recently by the deteriorating market environment is uncertain. DOVER RESOURCES: Dover Resources' third quarter sales increased 5% or $10.3 million to $236.6 million, and segment earnings of $26.5 million represented a 9% decline from last year. Excluding inventory and other reserves of $3 million, earnings increased slightly from last year. The reserves established in the third quarter were for excess inventory in markets where weak demand has been experienced for prolonged periods. Segment bookings in the quarter were up 4% to $225.7 million and the book-to-bill ratio was .95. Backlog is $102.2 million, a 5% increase from last year and a 9% decrease from the second quarter. Acquisitions completed in the last year added approximately $5.4 million to sales in the quarter, with almost no impact on segment earnings after acquisition write-offs. On a year to date basis, Dover Resources' sales improved $57.3 million or 9% to $719.3 million, while year to date earnings declined $6.2 million or 7% to $88.3 million. Approximately 50% of the year to date decline is attributable to the third quarter inventory and other reserves of $3 million. Segment bookings in the nine-month period ended September 30, 2001 improved 8%, or $55.1 million to $722.5 million. Acquisitions completed during the year added approximately $14.2 million to year to date sales with almost no impact on segment earnings after acquisition write-offs. In the third quarter, Resources' oil and gas related businesses (Petroleum Equipment Group, C. Lee Cook and Quartzdyne) again reported substantially higher sales and earnings compared to the same period last year. Though market demand is higher than last year, third quarter results were not as strong as those of this year's second quarter, as rig count declines and lower energy prices have led to a somewhat less robust short-term outlook. 14 of 18
Weakness in transportation related markets negatively impacted OPW Fluid Transfer's comparisons to the prior year again this quarter, though results were essentially flat with the prior quarter. Weak demand from automotive component and capital equipment markets have suppressed results all year at De-Sta-Co Manufacturing and De-Sta-Co Industries, and trends worsened at the end of the third quarter. OPW Fueling Components, which had favorable comparisons to the prior period last quarter, was on track for a similarly favorable result this quarter. However, it operates with very low backlog, and orders fell dramatically in the second half of September. Wilden, which has had comparable margins to the prior year throughout 2001 despite somewhat weaker markets, also operates with low backlogs and saw demand decline dramatically in September. A noticeable operating profit improvement in the quarter was experienced at Duncan, against weak comparable prior period performance. OUTLOOK: Despite the projected earnings fall-off for the year, the Company's operating cash flow is projected to increase over last year, primarily due to significant reductions in working capital levels, and to a lesser extent lower capital spending. While several operating companies experienced sales slow-downs after the September 11 terrorist attacks, it remains unclear what impact these events will have on the Company's markets. Given the uncertain environment, the Company is focusing on cash and balance sheet management with increased intensity. In addition to exercising appropriate constraints on capital spending and the intensified focus on working capital, the Company has temporarily limited spending on acquisitions. Acquisitions remain a critical component of the Company's growth strategy, and will resume when the economic environment stabilizes. Meanwhile the Company continues to search for transactions that have compelling shareholder value enhancing economics. 15 of 18
Special Notes Regarding Forward Looking Statements This Quarterly Report on Form 10-Q, the Annual Report on Form 10-K and the documents that are incorporated by reference, particularly sections of any report under the headings "Outlook" or "Management's Discussion and Analysis", contain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, industries in which the Company operates, the U.S. and global economies, earnings, cash flow and operating improvements and may be indicated by words or phrases such as "anticipates", "supports", "plans", "projects", "expects", "should", "hope", "forecast", "Dover believes", "management is of the opinion" and similar words or phrases. Such statements may also be made by management orally. Forward-looking statements are subject to inherent uncertainties and risks, including among others: continuing impact from the terrorist events of September 11, 2001 on the worldwide economy; increasing price and product/service competition by foreign and domestic competitors, including new entrants; technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost effective basis; the mix of products/services; the achievement of lower costs and expenses; domestic and foreign governmental and public policy changes including environmental regulations; protection and validity of patent and other intellectual property rights; the continued success of the Company's acquisition program; the cyclical nature of the Company's business; and the outcome of pending and future litigation and governmental proceedings. In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic and international economic conditions including interest rate and currency exchange rate fluctuations. In light of these risks and uncertainties, actual events and results may vary significantly from those included in or contemplated or implied by such statements. Readers are cautioned not to place undue reliance on such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The Company may, from time to time, post additional or supplemental financial or other information on its internet website, http://www.dovercorporation.com. Such information will supplement regular quarterly public filings and will be found in the "What's New" section of the website's home page. It will be accessible from the home page for approximately one month after release, after which time it will be archived on the website for a period of time. The Internet address in this release is for informational purposes only and is not intended for use as a hyperlink. 16 of 18
PART II OTHER INFORMATION Item 5. Other Information See also 2000 Annual Report page 23. DOVER CORPORATION OPERATIONAL INCOME (in millions) (unaudited)
Item 6. Exhibits and Reports on Form 8-K None. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DOVER CORPORATION Date: October 17, 2001 /s/ David S. Smith ----------------- ---------------------------------- David S, Smith, Chief Financial Officer, Vice President, Finance Date: October 17, 2001 /s/ Raymond T, McKay ----------------- ---------------------------------- Raymond T. McKay Assistant Controller 18 of 18