UNITED STATES 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

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)

(212) 922-1640
(Registrant’s telephone number)

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 þ No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of “accelerated filer” and “large accelerated filer” in Rule 12-b-2 of the Securities and Exchange Act. Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by checkmark whether the registrant is a shell company (as defined by Rule 12b-2 of the Securities Exchange Act). Yes o No þ

The number of shares outstanding of the Registrant’s common stock as of April 18, 2006 was 203,890,983.

 

 

Dover Corporation
Form 10-Q
Table of Contents

PART I — FINANCIAL INFORMATION

EX-10.1: FIRST AMENDMENT IN RESPECT OF THE FIVE-YEAR CREDIT AGREEMENT

EX-31.1: CERTIFICATION

EX-31.2: CERTIFICATION

EX-32: CERTIFICATION

		Page		Item
				Item 1. Financial Statements (unaudited)
		1		Condensed Consolidated Statements of Operations
				(Three months ended March 31, 2006 and 2005)
		2		Condensed Consolidated Balance Sheets
				(At March 31, 2006 and December 31, 2005)
		2		Condensed Consolidated Statement of Stockholders’ Equity
				(For the three months ended March 31, 2006)
		3		Condensed Consolidated Statements of Cash Flows
				(For the three months ended March 31, 2006 and 2005)
		4		Notes to Condensed Consolidated Financial Statements
		14		Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
		21		Item 3. Quantitative and Qualitative Disclosures About Market Risk
		21		Item 4. Controls and Procedures
PART II — OTHER INFORMATION

		Page		Item
		22		Item 1. Legal Proceedings
		22		Item 1A. Risk Factors
		22		Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
		22		Item 3. Defaults Upon Senior Securities
		23		Item 4. Submission of Matters to a Vote of Security Holders
		23		Item 5. Other Information
		23		Item 6. Exhibits
		24		Signatures
		25		Exhibit Index

(All other schedules are not required and have been omitted)

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

DOVER CORPORATION

		Three Months Ended March 31,
		2006				2005
Revenue		$	1,668,362			$	1,367,755
Cost of goods and services			1,078,647				901,015
Gross profit			589,715				466,740
Selling and administrative expenses			373,559				327,222
Operating earnings			216,156				139,518
Interest expense, net			21,465				16,118
Other expense (income), net			3,060				(4,240	)
Total interest/other expense, net			(24,525	)			(11,878	)
Earnings before provision for income taxes and discontinued operations			191,631				127,640
Provision for income taxes			58,121				32,219
Earnings from continuing operations			133,510				95,421
Earnings from discontinued operations, net of tax			70,318				2,713
Net earnings		$	203,828			$	98,134
Basic earnings per common share:
Earnings from continuing operations		$	0.66			$	0.47
Earnings from discontinued operations			0.35				0.01
Net earnings			1.00				0.48
Weighted average shares outstanding			203,316				203,650
Diluted earnings per common share:
Earnings from continuing operations		$	0.65			$	0.47
Earnings from discontinued operations			0.34				0.01
Net earnings			0.99				0.48
Weighted average shares outstanding			204,960				204,904
Dividends paid per common share		$	0.17			$	0.16

The following table is a reconciliation of the share amounts used in computing earnings per share:

		Three Months Ended March 31,
		2006				2005
Weighted average shares outstanding — Basic			203,316				203,650
Dilutive effect of assumed exercise of employee stock options and stock settled appreciation rights			1,644				1,254
Weighted average shares outstanding — Diluted			204,960				204,904
Anti-dilutive shares excluded from diluted EPS computation			6,193				4,635

See Notes to Condensed Consolidated Financial Statements

DOVER CORPORATION

		At March 31, 2006				At December 31, 2005
Assets
Current assets:
Cash and equivalents		$	290,347			$	190,962
Receivables, net			1,066,922				992,607
Inventories, net			705,672				675,575
Prepaid and other current assets			67,174				56,981
Deferred tax asset			58,976				52,353
Total current assets			2,189,091				1,968,478
Property, plant and equipment, net			811,077				807,988
Goodwill			2,690,713				2,696,556
Intangible assets, net			761,134				730,461
Other assets and deferred charges			247,862				246,067
Assets of discontinued operations			54,217				130,891
Total assets		$	6,754,094			$	6,580,441
Liabilities
Current liabilities:
Notes payable and current maturities of long-term debt		$	78,482			$	194,162
Accounts payable			433,269				376,121
Accrued compensation and employee benefits			186,933				237,629
Accrued insurance			120,172				113,993
Other accrued expenses			181,435				180,252
Federal and other taxes on income			169,286				121,181
Total current liabilities			1,169,577				1,223,338
Long-term debt			1,343,794				1,344,173
Deferred income taxes			365,084				359,345
Other deferrals (principally compensation)			253,313				254,251
Liabilities of discontinued operations			72,520				69,811
Commitments and contingent liabilities
Stockholders’ Equity
Total stockholders’ equity			3,549,806				3,329,523
Total liabilities and stockholders’ equity		$	6,754,094			$	6,580,441

DOVER CORPORATION

										Accumulated
		Common				Additional				Other												Total
		Stock				Paid-In				Comprehensive				Retained				Treasury				Stockholders’
		$1 Par Value				Capital				Earnings (Loss)				Earnings				Stock				Equity
Balance at December 31, 2005		$	239,796			$	122,181			$	57,778			$	4,004,944			$	(1,095,176	)		$	3,329,523
Net earnings			—				—				—				203,828				—				203,828
Dividends paid			—				—				—				(34,579	)			—				(34,579	)
Common stock issued for options exercised			1,164				34,289				—				—				—				35,453
Stock-based compensation expense			—				8,161				—				—				—				8,161
Tax benefit from exercises of stock options			—				6,847				—				—				—				6,847
Common stock issued, net of cancellations			—				—				—				—				—				—
Common stock acquired			—				—				—				—				(9,413	)			(9,413	)
Translation of foreign financial statements			—				—				10,107				—				—				10,107
Other, net of tax			—				—				(121	)			—				—				(121	)
Balance at March 31, 2006		$	240,960			$	171,478			$	67,764			$	4,174,193			$	(1,104,589	)		$	3,549,806

Preferred Stock, $100 par value per share. 100,000 shares authorized; none issued.

See Notes to Condensed Consolidated Financial Statements

DOVER CORPORATION

		Three Months Ended March 31,
		2006				2005
Operating Activities of Continuing Operations
Net earnings		$	203,828			$	98,134
Adjustments to reconcile net earnings to net cash from operating activities:
Earnings from discontinued operations			(70,318	)			(2,713	)
Depreciation and amortization			52,173				40,476
Stock-based compensation			7,786				—
Changes in current assets and liabilities (excluding effects of acquisitions, dispositions and foreign exchange):
Increase in accounts receivable			(65,170	)			(55,797	)
Increase in inventories			(27,310	)			(27,616	)
Increase in prepaid expenses and other assets			(5,153	)			(4,137	)
Increase in accounts payable			35,208				35,393
Decrease in accrued expenses			(45,923	)			(38,515	)
Increase in accrued and deferred taxes			40,162				11,614
Other non-current, net			(12,588	)			(22,493	)
Net cash provided by operating activities of continuing operations			112,695				34,346
Investing Activities of Continuing Operations
Proceeds from the sale of property and equipment			5,124				1,090
Additions to property, plant and equipment			(39,162	)			(26,140	)
Proceeds from sales of discontinued businesses			153,429				—
Acquisitions (net of cash and cash equivalents acquired)			(13,860	)			(100,668	)
Net cash provided by (used in) investing activities of continuing operations			105,531				(125,718	)
Financing Activities of Continuing Operations
Increase (decrease) in debt, net			(115,998	)			178,193
Purchase of treasury stock			(9,413	)			(5,080	)
Proceeds from exercise of stock options, including tax benefits			42,300				7,865
Dividends to stockholders			(34,579	)			(32,592	)
Net cash provided by (used in) financing activities of continuing operations			(117,690	)			148,386
Cash Flows From Discontinued Operations (revised, see note 1)
Net cash provided by (used in) operating activities of discontinued operations			(1,687	)			7,415
Net cash used in investing activities of discontinued operations			(366	)			(1,680	)
Net cash provided by (used in) discontinued operations			(2,053	)			5,735
Effect of exchange rate changes on cash			902				(8,744	)
Net increase in cash and cash equivalents			99,385				54,005
Cash and cash equivalents at beginning of period			190,962				328,537
Cash and cash equivalents at end of period		$	290,347			$	382,542

See Notes to Condensed Consolidated Financial Statements

DOVER CORPORATION

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, in accordance with Securities and Exchange Commission (“SEC”) rules for interim periods, do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the Dover Corporation (“Dover” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2005, which provides a more complete understanding of Dover’s accounting policies, financial position, operating results, business properties and other matters. It is the opinion of management that these financial statements reflect all adjustments necessary for a fair presentation of the interim results. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year.

The Company has revised its 2005 statement of cash flows to separately disclose the operating and investing portions of the cash flows attributable to discontinued operations. These amounts were previously reported on a combined basis.

On January 1, 2006, the Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No. 123(R)”).

Certain prior period amounts have been reclassified to conform to the current period presentation.

2. New Accounting Pronouncement — Stock-Based Compensation

2005 Equity and Cash Incentive Plan

On April 20, 2004, the stockholders approved the Dover Corporation 2005 Equity and Cash Incentive Plan (the “2005 Plan”) to replace the 1995 Incentive Stock Option Plan and 1995 Cash Performance Program (the “1995 Plan”). Under the 2005 Plan, a maximum aggregate of 20 million shares are reserved for grants (non-qualified and incentive stock options, stock settled appreciation rights (“SSARs”), and restricted stock) to key personnel between February 1, 2005 and January 31, 2015, provided that no incentive stock options shall be granted under the plan after February 11, 2014 and a maximum of one million shares may be granted as restricted stock. The exercise price of options and SSARs may not be less than the fair market value of the stock at the time the awards are granted. The period during which these options and SSARs are exercisable is fixed by the Company’s Compensation Committee at the time of grant, but generally may not commence sooner than three years after the date of grant, and may not exceed ten years from the date of grant. All stock options or SSARs that have been issued under the 1995 Plan or the 2005 Plan vest after three years of service and expire at the end of ten years. New common shares are issued when options or SSARs are exercised.

In the first quarter of 2006, the Company issued 1,886,989 SSARs under the 2005 Plan. No stock options were issued in 2006 and the Company does not anticipate issuing stock options in the future.

New Accounting Pronouncement — SFAS No. 123(R)

Prior to January 1, 2006, Dover accounted for stock-based compensation in accordance with Accounting Principles Board Opinion (“APB”) No. 25 “Accounting for Stock Issued to Employees,” (“APB No. 25”) and followed the disclosure only provisions of SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Accordingly, compensation expense was not recognized in the Company’s 2005 Statement of Operations in connection with stock options granted to employees.

Effective January, 1 2006, Dover adopted SFAS No. 123(R) which no longer permits the use of the intrinsic value method under APB No. 25. The Company used the modified prospective method to adopt SFAS No. 123(R), which requires compensation expense to be recorded for all stock–based compensation granted on or after January 1, 2006, as well as the unvested portion of previously granted options. The Company is recording the compensation expense on a straight-line basis, generally over the explicit service period of three years (except for retirement eligible employees and retirees). Prior to adoption, the Company calculated its pro-forma footnote disclosure related to stock-based compensation using the explicit service period for all employees, and will continue to vest those awards over their explicit service period. Concurrent with the adoption of SFAS No. 123(R), the Company changed its accounting policy for awards granted after January 1, 2006, to immediately expense awards granted to retirement

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

eligible employees and to shorten the vesting period for any employee who will become eligible to retire within the three-year explicit service period. Expense for these employees will be recorded over the period from the date of grant through the date the employee first becomes eligible to retire and is no longer required to provide service.

The following table illustrates the effect on net earnings and basic and diluted earnings per share if the Company had recognized compensation expense for stock options granted in prior years. The 2005 pro-forma amounts in this table were based on the explicit service periods (three years) of the options granted without consideration of retirement eligibility:

		Three Months Ended
(in thousands, except per share figures)		March 31, 2005
Net earnings, as reported		$	98,134
Add:
Total stock-based employee compensation expense included in net earnings, net of tax			—
Deduct:
Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax effects			(4,663	) (A)
Pro forma net earnings		$	93,471
Earnings per share:
Basic-as reported		$	0.48
Basic-pro forma			0.46
Diluted-as reported			0.48
Diluted-pro forma			0.46

The following table illustrates the effect that the adoption of SFAS No. 123(R) had on the Company’s first quarter 2006 results and cash flows:

										Actual
		Under Pre - SFAS No.				SFAS No. 123(R)				Three Months Ended
(in thousands, except per share figures)		123(R ) Accounting				Impact				March 31, 2006
Earnings before provision for income taxes and discontinued operations		$	199,417			$	7,786	(A)		$	191,631
Earnings from continuing operations			138,571				5,061				133,510
Net Earnings			209,134				5,306	(B)			203,828
Net Earnings:
Basic EPS		$	1.03			$	0.03			$	1.00
Diluted EPS			1.02				0.03				0.99
Cash Flows:
Operating Activities		$	119,542			$	(6,847	) (C)		$	112,695
Financing Activities			(124,537	)			6,847				(117,690	)

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The fair values of the 2006 SSAR and 2005 stock option grants were estimated on the dates of grant using a Black-Scholes option-pricing model with the following assumptions:

						2006 Grant				2005 Grant
						SSARs				Stock Options
Risk-free interest rates							4.63	%			3.97	%
Dividend yield							1.52	%			1.70	%
Expected life			(A	)			8				8
Volatility			(B	)			30.73	%			31.15	%
Weighted average option grant price						$	46.00			$	38.00
Weighted average fair value of options granted						$	17.01			$	13.24

First Quarter 2006 Activity

A summary of activity for SSARs and stock options for the quarter ended March 31, 2006 is as follows:

		SSARs																Stock Options
														Weighted																Weighted
														Average																Average
						Weighted								Remaining								Weighted								Remaining
						Average								Contractual								Average								Contractual
						Exercise				Aggregate				Term								Exercise				Aggregate				Term
		Shares				Price				Intrinsic Value				(Years)				Shares				Price				Intrinsic Value				(Years)
Outstanding at 1/1/2006			—			$	—												13,598,833			$	34.61
Granted			1,886,989				46.00												—				—
Forfeited			(2,349	)			46.00												(102,419	)			38.80
Exercised			—				—			$	—								(1,164,527	)			29.36			$	19,860,317	(A)
Outstanding at 3/31/2006			1,884,640				46.00				18,846				9.84				12,331,887				35.07				134,877,860				5.43
Exercisable at March 31, 2006 through:
2007			—								—								346,706			$	24.72			$	7,381,371
2008			—								—								467,066				35.00				5,142,397
2009			—								—								801,414				31.00				12,029,224
2010			—								—								650,344				39.00				4,558,911
2011			—								—								1,450,169				41.00				7,265,347
2012			—								—								1,635,429				38.00				13,099,786
2013			—								—								2,638,984				24.50				56,764,546
Total exercisable			—								—				—				7,990,112				32.71				106,241,582				5.10

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The following table summarizes the status of all non-vested stock-based awards:

		SSARs								Stock Options
						Weighted								Weighted
						Average								Average
						Grant-Date								Grant-Date
		Shares				Fair Value				Shares				Fair Value
Non-vested at 1/1/2006			—			$	—				7,505,593			$	11.92
Granted			1,886,989				17.01				—
Vested			—				—				(3,028,119	)			8.90
Forfeited			(2,349	)			17.01				(135,699	)			13.77
Non-vested at 3/31/2006			1,884,640				17.01				4,341,775				13.98

Unrecognized compensation expense related to non-vested shares was $52.5 million at March 31, 2006. This cost is expected to be recognized over a weighted average period of 2.2 years.

Additional Detail

SSARs Outstanding

SSARs Exercisable

Weighted

Weighted Average

Weighted

Weighted Average

Average

Remaining Life in

Average

Remaining Life in

Range of Exercise Prices

Number

Exercise Price

Years

Number

Exercise Price

Years

$46.00

1,884,640

$

46.00

9.84

—

$

—

—

		Options Outstanding												Options Exercisable
						Weighted				Weighted Average								Weighted				Weighted Average
						Average				Remaining Life in								Average				Remaining Life in
Range of Exercise Prices		Number				Exercise Price				Years				Number				Exercise Price				Years
$24.50 - $31.00			3,818,428			$	25.92				5.48				3,796,254			$	25.90				5.47
$33.00 - $39.00			5,070,710				37.84				6.62				2,743,889				37.72				4.72
$39.40 - $46.00			3,442,749				41.15				6.60				1,449,969				41.01				4.86

Also, during the first quarter of 2006, the Company purchased 100,000 shares of common stock in the open market at an average price of $47.87 per share.

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

3. Acquisitions

The 2006 acquisitions are wholly-owned and had an aggregate cost of $13.9 million, net of cash acquired, at the date of acquisition. The following table details acquisitions made during the first quarter of 2006:

Operating

Date

Type

Acquired Companies

Location (Near)

Segment

Group

Company

27-Feb

Stock

Infocash/Cash Services Limited

Abingdon, U.K.

Electronics

Commercial Equipment

Triton

Deployer of Automated Teller Machines (ATM’s), and provider of ATM field maintenance/repair and finance services.

28-Feb

Stock

Cash Point Machines PLC

Barnstaple, U.K.

Electronics

Commercial Equipment

Triton

Deployer of ATM’s and ATM service management.

The following unaudited pro forma information illustrates the effect on Dover’s revenue and net earnings for the three month periods ended March 31, 2006 and 2005, assuming that the 2006 and 2005 acquisitions had all taken place on January 1, 2005.

(in thousands, except per share figures)		Three Months Ended March 31,
		2006				2005
Revenue from continuing operations:
As reported		$	1,668,362			$	1,367,755
Pro forma			1,671,093				1,456,028
Net earnings from continuing operations:
As reported		$	133,510			$	95,421
Pro forma			133,392				95,202
Basic earnings per share from continuing operations:
As reported		$	0.66			$	0.47
Pro forma			0.66				0.47
Diluted earnings per share from continuing operations:
As reported		$	0.65			$	0.47
Pro forma			0.65				0.46

These pro forma results of operations have been prepared for comparative purposes only and include certain adjustments to actual financial results for the relevant periods, such as imputed financing costs, and estimated additional amortization and depreciation expense as a result of intangibles and fixed assets acquired. They do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred on the date indicated, or which may result in the future.

4. Inventory

The following table displays the components of inventory:

		At March 31,				At December 31,
(in thousands)		2006				2005
Raw materials		$	312,849			$	304,447
Work in progress			187,939				168,971
Finished goods			246,901				243,207
Subtotal			747,689				716,625
Less LIFO reserve			42,017				41,050
Total		$	705,672			$	675,575

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

5. Property, Plant and Equipment

The following table displays the components of property, plant and equipment:

		At March 31,				At December 31,
(in thousands)		2006				2005
Land		$	58,721			$	59,846
Buildings and improvements			515,622				519,577
Machinery, equipment and other			1,613,436				1,577,755
			2,187,779				2,157,178
Accumulated depreciation			(1,376,702	)			(1,349,190	)
Total		$	811,077			$	807,988

6. Goodwill and Other Intangible Assets

Dover is continuing to evaluate the initial purchase price allocations of certain acquisitions and will adjust the allocations as additional information relative to the fair values of the assets and liabilities of the businesses becomes known. The Company is also in the process of obtaining or finalizing appraisals of tangible and intangible assets for certain acquisitions. The Company does not anticipate the final valuations of the assets and liabilities acquired to be significantly different than the initial purchase price allocations.

The following table provides the changes in carrying value of goodwill by market segment through the three months ended March 31, 2006:

										Other adjustments
						Goodwill from 2006				including currency
(in thousands)		At December 31, 2005				acquisitions				translations				At March 31, 2006
Diversified		$	271,304			$	—			$	222			$	271,526
Electronics			775,569				12,698				(19,941	) (A)			768,326
Industries			239,417				—				70				239,487
Resources			611,789				—				263				612,052
Systems			106,792				—				195				106,987
Technologies			691,685				—				650				692,335
Total		$	2,696,556			$	12,698			$	(18,541	)		$	2,690,713

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset:

		At March 31, 2006												At December 31, 2005
		Gross Carrying				Accumulated				Average				Gross Carrying				Accumulated
(in thousands)		Amount				Amortization				Life				Amount				Amortization
Amortized Intangible Assets:
Trademarks		$	30,083			$	12,181				29			$	30,012			$	11,752
Patents			105,013				59,063				13				107,680				57,823
Customer Intangibles			368,012				42,165				9				319,693				36,576
Unpatented Technologies			157,395				36,845				9				156,711				34,730
Non-Compete Agreements			6,126				5,726				5				6,713				6,203
Drawings & Manuals			6,251				3,755				5				6,242				3,632
Distributor Relationships			64,412				6,246				20				64,406				5,381
Other			15,335				15,177				14				15,244				9,703
Total			752,627				181,158				11				706,701				165,800
Unamortized Intangible Assets:
Trademarks			189,665												189,560
Total Intangible Assets		$	942,292			$	181,158							$	896,261			$	165,800

7. Discontinued Operations

During the first quarter of 2006, Dover completed the previously announced sale of Tranter PHE, a business in the Diversified segment, resulting in a pre-tax gain of approximately $109.1 million ($85.1 million after tax). In addition, during the first quarter of 2006, the Company discontinued and sold a business in the Electronics segment for a loss of $2.5 million ($2.2 million after tax). During the first quarter of 2005, Dover discontinued one minor business from the Industries segment, resulting in a $2 million write-down of the carrying value of the entity to its fair market value. The business was subsequently sold on April 1, 2005.

Also, during the first quarter of 2006, the Company discontinued an operating company in the Resources segment, which is comprised of two businesses, resulting in an impairment of approximately $15.4 million ($14.4 million after tax). At March 31, 2006, the assets and liabilities of discontinued operations primarily represent amounts related to the operating company discontinued in the first quarter of 2006 and previously discontinued businesses in the Systems and Resources segments. Additional detail related to the assets and liabilities of the Company’s discontinued operations is as follows:

		At March 31,				At December 31,
(in thousands)		2006				2005
Assets of Discontinued Operations
Current assets		$	33,146			$	77,837
Non-current assets			21,071				53,054
		$	54,217			$	130,891
Liabilities of Discontinued Operations
Current liabilities		$	51,299			$	44,687
Long-term liabilities			21,221				25,124
		$	72,520			$	69,811

In addition to the assets and liabilities of the entities currently held for sale in discontinued operations, the assets and liabilities of discontinued operations include residual amounts related to businesses previously sold. These residual amounts include property, plant and equipment, deferred tax assets, short and long-term reserves, and contingencies.

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Summarized results of the Company’s discontinued operations are as follows:

		Three Months Ended March 31,
(in thousands)		2006				2005
Revenue		$	44,566			$	83,124
Gain on sale, net of taxes (1)		$	68,553			$	(2,238	)
Earnings from operations before taxes			2,463				6,900
Provision for income taxes related to operations			(698	)			(1,949	)
Earnings from discontinued operations, net of tax		$	70,318			$	2,713

8. Debt

Dover’s long-term notes with a book value of $1,344.8 million, of which $1.0 million matures in the current year, had a fair value of approximately $1,431.0 million at March 31, 2006. The estimated fair value of the long-term notes is based on quoted market prices for similar issues.

There are presently two interest rate swap agreements outstanding for a total notional amount of $100.0 million, designated as fair value hedges on part of the Company’s $150.0 million 6.25% Notes due on June 1, 2008. One $50 million interest rate swap exchanges fixed-rate interest for variable-rate interest. The other $50 million swap is designated in foreign currency and exchanges fixed-rate interest for variable-rate interest, and also hedges a portion of the Company’s net investment in foreign operations. The swap agreements have reduced the effective interest rate on the notes to 5.55%. There is no hedge ineffectiveness, and the fair value of the interest rate swaps outstanding as of March 31, 2006 was determined through market quotation.

9. Commitments and Contingent Liabilities

A few of the Company’s subsidiaries are involved in legal proceedings relating to the cleanup of waste disposal sites identified under federal and state statutes which provide for the allocation of such costs among “potentially responsible parties.” In each instance, the extent of the Company’s liability appears to be very small in relation to the total projected expenditures and the number of other “potentially responsible parties” involved and is anticipated to be immaterial to the Company. In addition, a few of the Company’s subsidiaries are involved in ongoing remedial activities at certain plant sites, in cooperation with regulatory agencies, and appropriate reserves have been established.

The Company and certain of its subsidiaries are also parties to a number of other legal proceedings incidental to their businesses. These proceedings primarily involve claims by private parties alleging injury arising out of use of the products of Dover companies, exposure to hazardous substances, patent infringement, litigation and administrative proceedings involving employment matters, and commercial disputes. 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 or any need for additional reserves, in the opinion of management, based on these reviews, it is very unlikely that the disposition of the lawsuits and the other matters mentioned above will have a material adverse effect on the financial position, results of operations, cash flows or competitive position of the Company.

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Estimated warranty program claims are provided for at the time of sale. Amounts provided for are based on historical costs and adjusted new claims. The changes in carrying amount of product warranties through March 31, 2006 and 2005 are as follows:

(in thousands)		2006				2005
Beginning Balance January 1		$	47,420			$	44,100
Provision for warranties			9,279				5,276
Settlements made			(7,470	)			(6,802	)
Other adjustments			127				(830	)
Ending Balance March 31		$	49,356			$	41,744

10. Employee Benefit Plans

The following table sets forth the components of net periodic expense.

		Retirement Plan Benefits								Post Retirement Benefits
		Three Months Ended March 31,								Three Months Ended March 31,
(in thousands)		2006				2005				2006				2005
Expected return on plan assets		$	7,900			$	7,058			$	—			$	—
Benefits earned during period			(5,599	)			(4,357	)			(83	)			(98	)
Interest accrued on benefit obligation			(8,318	)			(6,511	)			(275	)			(341	)
Amortization of:
Prior service cost			(1,972	)			(1,776	)			70				21
Unrecognized actuarial losses			(2,604	)			(1,334	)			(23	)			(25	)
Transition			274				271				—				—
Curtailment gain			—				—				—				502
Settlement gain (Tranter PHE sale)			—				—				4,699	(A)
Net periodic (expense) income		$	(10,319	)		$	(6,649	)		$	4,388			$	59

11. Comprehensive Earnings

Comprehensive earnings were as follows:

		Comprehensive Earnings
		Three Months Ended March 31,
(in thousands)		2006				2005
Net Earnings		$	203,828			$	98,134
Foreign currency translation adjustment			10,107				(50,047	)
Unrealized holding losses, net of tax			(145	)			(44	)
Derivative cash flow hedges			24				—
Comprehensive Earnings		$	213,814			$	48,043

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

12. Segment Information

Dover has six reportable segments which are based on the management reporting structure used to evaluate performance. Segment financial information and a reconciliation of segment results to consolidated results follows:

(in thousands)		Three Months Ended March 31,
		2006				2005
REVENUE
Diversified		$	199,864			$	185,057
Electronics			216,872				135,058
Industries			216,428				201,828
Resources			425,162				356,307
Systems			181,285				155,871
Technologies			431,848				336,036
Intramarket eliminations			(3,097	)			(2,402	)
Total consolidated revenue		$	1,668,362			$	1,367,755
EARNINGS FROM CONTINUING OPERATIONS
Segment Earnings:
Diversified		$	22,676			$	20,424
Electronics			20,972				10,481
Industries			27,525				22,325
Resources			82,797				62,747
Systems			26,971				22,037
Technologies			50,628				20,941
Total segments			231,569				158,955
Corporate expense / other			(18,473	)			(15,197	)
Net interest expense			(21,465	)			(16,118	)
Earnings from continuing operations before provision for income taxes and discontinued operations			191,631				127,640
Provision for income taxes			(58,121	)			(32,219	)
Earnings from continuing operations — total consolidated		$	133,510			$	95,421

13. New Accounting Standards

In December 2004, the FASB issued SFAS No. 123 (R), which revises previously issued SFAS 123, supersedes APB No. 25, and amends SFAS Statement No. 95 “Statement of Cash Flows.” Effective January 1, 2006, Dover adopted SFAS No. 123(R). See Note 2 for additional information related to the Company’s adoption of this standard.

In May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”), which replaces APB No. 20 “Accounting Changes,” and SFAS No. 3 “Reporting Accounting Changes in Interim Financial Statements.” SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle, and applies to all voluntary changes in accounting principles, as well as changes required by an accounting pronouncement in the unusual instance that it does not include specific transition provisions. Specifically, SFAS 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine the period-specific effects or the cumulative effect of the change. SFAS 154 does not change the transition provisions of any existing pronouncement. SFAS 154 is effective for Dover for all accounting changes and corrections of errors made beginning January 1, 2006 and had no impact on the quarter ended March 31, 2006.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, An Amendment of Accounting Research Bulletin No. 43, Chapter 4” (“SFAS 151”). SFAS 151 requires that abnormal amounts of idle capacity and spoilage costs should be excluded from the cost of inventory and expensed when incurred. The provisions of SFAS 151 were applicable to inventory costs incurred beginning January 1, 2006. The effect of the adoption of SFAS 151 was immaterial to Dover’s consolidated results of operations, cash flows or financial position.

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Refer to the section below entitled “Special Notes Regarding Forward Looking Statements” for a discussion of factors that could cause actual results to differ from the forward-looking statements contained below and throughout this quarterly report.

OVERVIEW

Dover Corporation (“Dover” or the “Company”) is a diversified multinational manufacturing corporation comprised of over 40 separate operating companies that provide a broad range of specialized industrial products and sophisticated manufacturing equipment, including related services and consumables. Dover’s operating companies are based primarily in the United States of America and Europe. The Company reports its operating companies’ results in six reportable segments and discusses its operations in 13 groups.

(1) FINANCIAL CONDITION:

Management assesses Dover’s liquidity in terms of its ability to generate cash and access to capital markets to fund its operating, investing and financing activities. Significant factors affecting liquidity are: cash flows generated from operating activities, capital expenditures, acquisitions, dispositions, dividends, adequacy of commercial paper and available bank lines of credit, and the ability to attract long-term capital with satisfactory terms. The Company generates substantial cash from operations and remains in a strong financial position, with enough liquidity available for reinvestment in existing businesses and strategic acquisitions while managing its capital structure on a short and long-term basis.

Cash and cash equivalents of $290.3 million at March 31, 2006 increased from the December 31, 2005 balance of $191.0 million. Cash and cash equivalents were invested in highly liquid investment grade money market instruments with a maturity of 90 days or less.

The following table is derived from the Condensed Consolidated Statements of Cash Flows:

		Three Months Ended March 31,
Cash Flows from Continuing Operations (in thousands)		2006				2005
Cash Flows Provided By (Used In):
Operating activities		$	112,695			$	34,346
Investing activities			105,531				(125,718	)
Financing activities			(117,690	)			148,386

Cash flows provided by operating activities for the first three months of 2006 increased $78.3 million from $34.3 million in the prior year period, primarily reflecting higher earnings from continuing operations and lower tax payments.

The cash provided by investing activities in the first quarter of 2006 was $105.5 million compared to a use of $125.7 million in the prior year period, largely reflecting the proceeds from the closing of the previously announced sale of Tranter PHE in 2006 compared to higher acquisition spending in the prior year first quarter. Capital expenditures in the first three months of 2006 increased $13.0 million to $39.2 million as compared to $26.1 million in the prior year period primarily due to investments in plant expansions, plant machinery and information technology systems. Acquisition spending was $13.9 million during the first quarter of 2006 compared to $100.7 million in the prior year first quarter. Proceeds from the sale of discontinued businesses in the first quarter of 2006 were $153.4 million. There were no sales of businesses in the first quarter of 2005. The Company currently anticipates that any additional acquisitions made during 2006 will be funded from available cash and internally generated funds and, if necessary, through the issuance of commercial paper, established lines of credit or public debt markets.

Cash used in financing activities for the first three months of 2006 totaled $117.7 million as compared to cash provided of $148.4 million during the comparable period last year. The net change in cash used in financing

activities of $117.7 during the first three months of 2006 primarily reflected dividends paid and a reduction in commercial paper borrowings partially offset by proceeds from exercise of stock options. Also, during the first quarter of 2006, the Company purchased 100,000 shares of common stock in the open market at an average price of $47.87 per share.

Adjusted Working Capital (calculated as accounts receivable, plus inventory, less accounts payable) increased from the prior year period by $47.3 million or 4% to $1,339.3 million, including increases in receivables of $74.3 million and increases in inventory of $30.1 million, partially offset by increases in payables of $57.1 million. There was no material impact from changes in foreign currency and acquisitions on Adjusted Working Capital. Average Adjusted Working Capital as a percentage of annualized revenue was 19.7% at March 31, 2006 compared to 21.4% at December 31, 2005, as the Company continues to focus on working capital management.

In addition to measuring its cash flow generation and usage based upon the operating, investing and financing classifications included in the Condensed Consolidated Statements of Cash Flows, the Company also measures free cash flow (a non-GAAP measure). Management believes that free cash flow is an important measure of operating performance because it provides both management and investors a measurement of cash generated from operations that is available to fund acquisitions, pay dividends, repay debt and repurchase Dover’s common stock. Dover’s free cash flow for the three months ended March 31, 2006, increased $65.3 million compared to the prior year period. The increase reflected higher earnings from continuing operations and lower tax payments offset by higher capital expenditures.

The following table is a reconciliation of free cash flow with cash flows from operating activities:

		Three Months Ended March 31,
Free Cash Flow (in thousands)		2006				2005
Cash flow provided by operating activities		$	112,695			$	34,346
Less: Capital expenditures			(39,162	)			(26,140	)
Free cash flow		$	73,533			$	8,206
Free cash flow as a percentage of revenue			4.4	%			0.6	%

The Company utilizes total debt and net debt-to-total-capitalization calculations to assess its overall financial leverage and capacity and believes the calculations are useful to investors for the same reason. The following table provides a reconciliation of total debt and net debt to total capitalization to the most directly comparable GAAP measures:

		At March 31,				At December 31,
Net Debt to Total Capitalization Ratio (in thousands)		2006				2005
Current maturities of long-term debt		$	1,038			$	1,201
Commercial paper and other short-term debt			77,444				192,961
Long-term debt			1,343,794				1,344,173
Total debt			1,422,276				1,538,335
Less: Cash and cash equivalents			290,347				190,962
Net debt			1,131,929				1,347,373
Add: Stockholders’ equity			3,549,806				3,329,523
Total capitalization		$	4,681,735			$	4,676,896
Net debt to total capitalization			24.2	%			28.8	%

The total debt level of $1,422.3 million at March 31, 2006 decreased from December 31, 2005 as a result of using cash proceeds, net of tax, generated from the sale of Tranter PHE to lower commercial paper borrowings.

The net debt decrease of $215.4 million was primarily a result of the increase in cash flow from operations, particularly the increase in earnings from continuing operations, and decreases in tax related payments. The net debt-to-total capitalization ratio decreased from 28.8% at December 31, 2005 to 24.2%.

Dover’s long-term notes with a book value of $1,344.8 million, of which approximately $1.0 million matures in the current year, had a fair value of approximately $1,431.0 million at March 31, 2006. The estimated fair value of the long-term notes is based on quoted market prices for similar issues.

There are presently two interest rate swap agreements outstanding for a total notional amount of $100.0 million, designated as fair value hedges of part of the Company’s $150.0 million 6.25% Notes due on June 1, 2008, to exchange fixed-rate interest for variable-rate. The swap agreements have reduced the effective interest rate on the notes to 5.55%. There is no hedge ineffectiveness, and the fair value of the interest rate swaps outstanding as of March 31, 2006, is based on market quotation.

(2) RESULTS OF OPERATIONS:

CONSOLIDATED RESULTS OF OPERATIONS

Revenue for the first quarter of 2006 increased 22% or $300.6 million to $1,668.4 million from the comparable 2005 period, driven by increases of $95.8 million at Technologies, $81.8 million at Electronics, $68.9 million at Resources, $25.4 million at Systems, $14.8 million at Diversified and $14.6 million at Industries. Acquisitions completed subsequent to the first quarter of 2005 contributed $98.0 million to consolidated revenue during the quarter ended March 31, 2006. Revenue would have increased 24% over the prior year quarter if 2005 foreign currency translation rates were applied to 2006 results. The gross profit increased 26% to $589.7 million from the prior year quarter while the gross profit margin improved to 35.3% from 34.1%.

Selling and administrative expenses of $373.6 million for the first quarter of 2006 increased $46.3 million over the comparable 2005 period, primarily due to increased revenue activity and $7.8 million of equity compensation expense related to the adoption of Statement of Financial Accounting Standard 123(R) (“SFAS No. 123(R)”), which requires companies to expense the fair value of equity compensation, such as options and stock settled appreciation rights (“SSARs”), primarily over the related vesting period. In the past, the proforma compensation expense related to options and SSARs was only disclosed in the Notes to the Condensed Consolidated Financial Statements in accordance with Accounting Principles Board Opinion (“APB”) No. 25 “Accounting for Stock Issued to Employees.” The Company used the modified prospective method to adopt SFAS No. 123(R), which does not require the restatement of prior periods. Selling and administrative expenses as a percentage of revenue decreased to 22.4% from 23.9% in the comparable 2005 period. Excluding the effect of SFAS No. 123(R), selling and administrative expenses would have been $365.8 million or 21.9% of revenue.

Interest expense, net, for the first quarter of 2006 increased $5.3 million, or 33%, due to increased borrowings during 2005 to fund acquisitions. Other expense (income), net, of $3.1 million for the three months ended March 31, 2006, primarily related to the effects of foreign exchange fluctuations on assets and liabilities denominated in currencies other than the functional currency.

The effective tax rate for continuing operations was 30.3% for the first quarter compared to the prior year first quarter rate of 25.2%. The rate increase is due to a $5.5 million benefit related to a favorable federal tax court decision included in the prior year first quarter, lower relative United States federal tax credits and exclusions in 2006, and the expiration of the United States federal research and development tax credit for the 2006 period. Excluding the aforementioned tax court decision related benefit, the prior year three-month tax rate for continuing operations would have been 29.6%.

Earnings from continuing operations for the quarter were $133.5 million or $0.65 EPS compared to $95.4 million or $0.47 EPS in the prior year first quarter, both an increase of 40%. The increases were primarily due to the Oil and Gas Equipment, Circuit Assembly and Test and Electronic Component groups with positive contributions from all segments. Excluding the impact of SFAS No. 123(R), earnings from continuing operations for the quarter were $138.6 million or $0.68 EPS, both an increase of 45% over the prior year first quarter.

Net earnings from discontinued operations for the quarter were $70.3 million or $0.34 EPS compared to net earnings of $2.7 million or $0.01 EPS for the same period last year. During the first quarter of 2006, Dover completed the previously announced sale of Tranter PHE, a business in the Diversified segment, resulting in a pre-tax gain of approximately $109.1 million ($85.1 million after tax). In addition, during the first quarter of 2006,

the Company discontinued and sold a business in the Electronics segment for a loss of $2.5 million ($2.2 million after tax) and discontinued one operating company, which is comprised of two businesses, in the Resources segment, resulting in an impairment of approximately $15.4 million ($14.4 million after tax). During the first quarter of 2005, Dover discontinued one minor business from the Industries segment, resulting in a $2 million write-down of the carrying value of the entity to its fair market value. The business was subsequently sold on April 1, 2005.

SEGMENT RESULTS OF OPERATIONS

Diversified

		Three Months Ended March 31,
(in thousands)		2006				2005				% Change
Revenue		$	199,864			$	185,057				8	%
Segment earnings			22,676				20,424				11	%
Operating margin			11.3	%			11.0	%
Bookings			214,317				231,308				-7	%
Book-to-Bill			1.07				1.25
Backlog			321,310				294,605				9	%

Diversified revenue and earnings increases over the prior year first quarter reflect improvements at both Industrial Equipment and Process Equipment. Operating margin increased 30 basis points compared to the prior year quarter. Backlog reached a record high despite a decline in bookings for the quarter. Excluding the impact of SFAS No. 123(R), earnings were $23.5 million and operating margin was 11.8% or an 80 basis point increase over the prior year first quarter.

The Industrial Equipment group’s revenue increased 5% over the prior year first quarter, primarily driven by the commercial aerospace market. Earnings improved 4% as the margin on increased volume combined with an easing of steel prices was offset by unfavorable product mix and the impact of SFAS No. 123(R). Bookings, which decreased 15% due to the prior year award of a large government contract, were up sequentially by 5%. The book-to –bill ratio was 1.06 and backlog increased 5% over the prior year first quarter.

The Process Equipment group achieved a 47% earnings improvement on a 16% increase in revenue over the prior year first quarter. These results reflect strength in the HVAC, boiler, and oil and gas markets. Earnings leverage was aided by strong cost controls and pricing initiatives. Bookings increased 12%, backlog grew 24%, and book-to-bill ratio was 1.11.

Electronics

		Three Months Ended March 31,
(in thousands)		2006				2005				% Change
Revenue		$	216,872			$	135,058				61	%
Segment earnings			20,972				10,481				100	%
Operating margin			9.7	%			7.8	%
Bookings			239,005				146,681				63	%
Book-to-Bill			1.10				1.09
Backlog			194,310				109,699				77	%