10-Q 1 y41472e10-q.txt DOVER CORPORATION 1 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, 2000 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 203,094,568. 2 Part I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS THREE MONTHS ENDED SEPTEMBER 30, (000 OMITTED)
UNAUDITED 2000 1999 ----------- ----------- Net sales $ 1,390,486 $ 1,150,531 Cost of sales 876,243 734,564 ----------- ----------- Gross profit 514,243 415,967 Selling & administrative expenses 288,813 234,261 ----------- ----------- Operating profit 225,430 181,706 ----------- ----------- Other deductions (income): Interest expense 27,007 12,257 Interest income (1,656) (2,916) Foreign exchange 1,386 (49) Loss (gain) on dispositions and sale of equity securities (13,741) (20,931) All other, net (1,540) 5,266 ----------- ----------- Total 11,456 (6,373) ----------- ----------- Earnings before taxes on income 213,974 188,079 Federal & other taxes on income 69,512 66,544 ----------- ----------- Net earnings from continuing operations 144,462 121,535 Gain (loss) on sale of discontinued business, net of tax (13,595) ----------- ----------- Net earnings $ 130,867 $ 121,535 =========== =========== Weighted average number of common shares outstanding during the period - Basic 202,937 211,238 =========== =========== - Diluted 204,736 212,776 =========== =========== Net earnings per common share: Basic - Continuing $ 0.71 $ 0.58 Gain (loss) on sale (0.06) -- ----------- ----------- Net earnings $ 0.65 $ 0.58 =========== =========== Diluted - Continuing $ 0.71 $ 0.58 Gain (loss) on sale (0.07) -- ----------- ----------- Net earnings $ 0.64 $ 0.58 =========== ===========
See Notes to Consolidated Financial Statements. 3 DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS THREE MONTHS ENDED SEPTEMBER 30, (000 OMITTED)
UNAUDITED 2000 1999 --------- --------- Net earnings $ 130,867 $ 121,535 --------- --------- Other comprehensive earnings, net of tax: Foreign currency translation adjustments (9,134) 3,783 Less: reclassification adjustment for adjustments included in net earnings -- -- --------- --------- Total foreign currency translation adjustments (9,134) 3,783 --------- --------- Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period (7,627) -- Less: reclassification adjustment for gains (losses) included in net earnings 8,994 -- --------- --------- Total unrealized gains (losses) on securities (tax -$8,924 in 2000 and $0 in 1999) (16,621) -- --------- --------- Other comprehensive earnings (25,755) 3,783 --------- --------- Comprehensive earnings $ 105,112 $ 125,318 ========= =========
See Notes to Consolidated Financial Statements. 4 DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS NINE MONTHS ENDED SEPTEMBER 30, (000 OMITTED)
UNAUDITED 2000 1999 ----------- ----------- Net sales $ 4,021,029 $ 3,198,136 Cost of sales 2,542,226 2,049,151 ----------- ----------- Gross profit 1,478,803 1,148,985 Selling & administrative expenses 833,790 709,595 ----------- ----------- Operating profit 645,013 439,390 ----------- ----------- Other deductions (income): Interest expense 68,445 38,209 Interest income (6,072) (16,217) Foreign exchange (1,247) (472) Loss (gain) on dispositions and sale of equity securities (12,341) (17,256) All other, net (6,151) (542) ----------- ----------- Total 42,634 3,722 ----------- ----------- Earnings before taxes on earnings 602,379 435,668 Federal & other taxes on earnings 203,865 151,603 ----------- ----------- Net earnings from continuing operations 398,514 284,065 Gain (loss) on sale of discontinued business, net of tax (13,595) 523,938 ----------- ----------- Net earnings $ 384,919 $ 808,003 =========== =========== Weighted average number of common shares outstanding during the period - Basic 202,937 211,238 =========== =========== - Diluted 204,736 212,776 =========== =========== Net earnings per common share: Basic - Continuing $ 1.96 $ 1.34 Gain (loss) on sale (0.06) 2.49 ----------- ----------- Net earnings $ 1.90 $ 3.83 =========== =========== Diluted - Continuing $ 1.95 $ 1.34 Gain (loss) on sale (0.07) 2.46 ----------- ----------- Net earnings $ 1.88 $ 3.80 =========== ===========
See Notes to Consolidated Financial Statements. 5 DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS NINE MONTHS ENDED SEPTEMBER 30, (000 OMITTED)
UNAUDITED 2000 1999 --------- --------- Net earnings $ 384,919 $ 808,003 --------- --------- Other comprehensive earnings, net of tax: Foreign currency translation adjustments (55,521) (36,596) Less: reclassification adjustment for adjustments included in net earnings -- -- --------- --------- Total foreign currency translation adjustments (55,521) (36,596) --------- --------- Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period 19,483 (5) Less: reclassification adjustment for gains (losses) included in net earnings 8,994 -- --------- --------- Total unrealized gains (losses) on securities (tax $5,673 in 2000 and $0 in 1999) 10,489 (5) --------- --------- Other comprehensive earnings (45,032) (36,601) --------- --------- Comprehensive earnings $ 339,887 $ 771,402 ========= =========
DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS NINE MONTHS ENDED SEPTEMBER 30, (000 OMITTED)
UNAUDITED 2000 1999 ---------- ---------- Retained earnings at January 1 $2,830,175 $1,992,991 Net earnings 384,919 808,003 ---------- ---------- 3,215,094 2,800,994 Deduct: Common stock cash dividends $ 0.355 per share ($0.325 in 1999) 72,076 68,508 ---------- ---------- Retained earnings at end of period $3,143,018 $2,732,486 ========== ==========
See Notes to Consolidated Financial Statements. 6 DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (000 OMITTED)
UNAUDITED September December 30, 2000 31, 1999 ------------ ------------ Assets: Current assets: Cash & cash equivalents $ 210,860 $ 138,038 Marketable securities - - Receivables, net of allowance for doubtful accounts 936,130 750,917 Inventories 768,887 639,379 Prepaid expenses 96,430 83,228 ------------ ------------ Total current assets 2,012,307 1,611,562 ------------ ------------ Property, plant & equipment (at cost) 1,600,553 1,480,833 Accumulated depreciation (893,869) (834,358) ------------ ------------ Net property, plant & equipment 706,684 646,475 ------------ ------------ Intangible assets, net of amortization 1,937,777 1,813,359 Other intangible assets 7,358 7,358 Deferred charges & other assets 127,199 53,186 ------------ ------------ $4,791,325 $4,131,940 ============ ============ Liabilities: Current liabilities: Notes payable $836,047 $296,637 Current maturities of long-term debt 2,501 1,263 Accounts payable 282,822 253,650 Accrued compensation & employee benefits 178,094 157,392 Accrued insurance 48,917 50,274 Other accrued expenses 221,336 186,405 Income taxes 99,006 389,244 ------------ ------------ Total current liabilities 1,668,723 1,334,865 ------------ ------------ Long-term debt 629,294 608,025 Deferred taxes 44,526 42,061 Other deferrals (principally compensation) 133,575 108,233 Stockholders' equity: Preferred stock - - Common stock 236,805 236,246 Additional paid-in surplus 45,070 33,060 Cumulative translation adjustments (135,506) (79,985) Unrealized holding gains (losses) 10,535 46 ------------ ------------ Accumulated other comprehensive earnings (124,971) (79,939) ------------ ------------ Retained earnings 3,143,018 2,830,175 ------------ ------------ Subtotal 3,299,922 3,019,542 Less: treasury stock 984,715 980,786 ------------ ------------ 2,315,207 2,038,756 ------------ ------------ $4,791,325 $4,131,940 ============ ============
See Notes to Consolidated Financial Statements. 7 DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS NINE MONTHS ENDED SEPTEMBER 30, (000 OMITTED)
ROUNDING & UNAUDITED ADJUST. 2000 1999 ----------- ----------- Cash flows from operating activities: Net earnings $ 384,919 $ 808,003 ----------- ----------- Adjustments to reconcile net earnings to net cash from operating activities: (Gain) loss on sale of discontinued business 13,595 (523,938) Depreciation 101,358 97,093 Amortization 49,902 44,069 Net increase (decrease) in deferred taxes (10,587) (2,581) Net increase (decrease) in LIFO reserves 1,572 1,623 Increase (decrease) in deferred compensation 25,486 7,880 (Gain) loss on sale of business and equity investments (12,341) (17,256) Other, net (5,943) (13,480) Changes in assets & liabilities (excluding acquisitions): Decrease (increase) in accounts receivable (173,837) (140,378) Decrease (increase) in inventories, excluding LIFO reserve (97,621) 1,863 Decrease (increase) in prepaid expenses (13,424) (7,846) Increase (decrease) in accounts payable 13,629 10,585 Increase (decrease) in accrued expenses 51,395 1,523 Increase (decrease) in federal & other taxes on income 10,414 (6,568) ----------- ----------- Total adjustments (46,402) (547,411) ----------- ----------- Net cash from operating activities of continuing operations 338,517 260,592 ----------- ----------- Cash flows from (used in) investing activities: Additions to property, plant & equipment (134,537) (86,911) Acquisitions, net of cash & cash equivalents (314,084) (368,616) Proceeds from sale of business 1,771 1,209,695 Proceeds from sale of equity investment 14,185 -- Purchase of treasury stock (3,928) (629,772) ----------- ----------- Net cash from (used in) investing activities of continuing operations (436,593) 124,396 ----------- ----------- Cash flows from (used in) financing activities: Increase (decrease) in notes payable 527,978 (245,072) Increase (decrease) in long-term debt 14,465 (769) Proceeds from exercise of stock options 7,046 7,215 Cash dividends to stockholders (72,076) (68,508) ----------- ----------- Net cash from (used in) financing activities of continuing operations 477,413 (307,134) ----------- ----------- ----------- ----------- Discontinued operations - tax payments (306,515) -- ----------- ----------- Net increase (decrease) in cash & cash equivalents 72,822 77,854 Cash & cash equivalents at beginning of period 138,038 96,774 ----------- ----------- Cash & cash equivalents at end of period $ 210,860 $ 174,628 =========== ===========
See Notes to Consolidated Financial Statements. 8 DOVER CORPORATION CONSOLIDATED MARKET SEGMENT RESULTS (UNAUDITED)
Third quarter ended September 30, --------------------------------- Percent SALES 2000 1999 Change ----- ---- ---- ------ Dover Technologies $ 564,988,000 $ 400,325,000 41% Dover Industries 314,037,000 291,920,000 8% Dover Diversified 286,772,000 268,330,000 7% Dover Resources 226,311,000 191,373,000 18% --------------- --------------- Total (after intramarket eliminations) $ 1,390,486,000 $ 1,150,531,000 21% =============== =============== EARNINGS -------- Dover Technologies $ 116,038,000 $ 74,042,000 57% Dover Industries 48,762,000 45,141,000 8% Dover Diversified 39,313,000 40,080,000 -2% Dover Resources 28,985,000 24,650,000 18% --------------- --------------- Subtotal (after intramarket eliminations) 233,098,000 183,913,000 Gain (loss) on disposition and sale of equity investments $ 13,741,000 20,931,000 -34% Corporate expense (7,337,000) (7,361,000) Net interest expense (25,528,000) (9,404,000) 171% --------------- --------------- Earnings before taxes on income 213,974,000 188,079,000 14% Taxes on income 69,512,000 66,544,000 4% --------------- --------------- Net earnings - Continuing Operations 144,462,000 121,535,000 19% Loss on sale of discontinued operations * (13,595,000) -- --------------- --------------- Net earnings $ 130,867,000 $ 121,535,000 8% =============== =============== Net earnings per common share: Basic - Continuing $ 0.71 $ 0.58 22% Gain (loss) on sale (0.06) -- --------------- --------------- Net earnings $ 0.65 $ 0.58 =============== =============== Diluted - Continuing $ 0.71 $ 0.58 22% Gain (loss) on sale (0.07) -- --------------- --------------- Net earnings $ 0.64 $ 0.58 =============== ===============
* 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. See Notes to Consolidated Financial Statements. 9 DOVER CORPORATION CONSOLIDATED MARKET SEGMENT RESULTS (UNAUDITED)
Nine months ended September 30, ------------------------------- SALES 2000 1999 ----- ---- ---- Dover Technologies $1,558,706,000 $1,023,328,000 52% Dover Industries 939,367,000 844,452,000 11% Dover Diversified 866,722,000 759,625,000 14% Dover Resources 661,973,000 574,684,000 15% -------------- -------------- Total (after intramarket eliminations) $4,021,029,000 $3,198,136,000 26% ============== ============== EARNINGS -------- Dover Technologies $ 311,177,000 $ 147,860,000 110% Dover Industries 150,679,000 131,134,000 15% Dover Diversified 116,992,000 102,169,000 15% Dover Resources 94,538,000 76,478,000 24% -------------- -------------- Subtotal (after intramarket eliminations) 673,386,000 457,641,000 Gain (loss) on disposition and sale of equity investments 12,341,000 17,256,000 -28% Corporate expense (20,454,000) (17,021,000) 20% Net interest expense (62,894,000) (22,208,000) 183% -------------- -------------- Earnings before taxes on income 602,379,000 435,668,000 38% Taxes on Income 203,865,000 151,603,000 34% -------------- -------------- Net earnings - Continuing Operations 398,514,000 284,065,000 40% Gain / (loss) on sale of discontinued operations* (13,595,000) 523,938,000 -------------- -------------- Net earnings $ 384,919,000 $ 808,003,000 -52% ============== ============== Net earnings per common share: Basic - Continuing $ 1.96 $ 1.34 46% Gain (loss) on sale (0.06) 2.49 -------------- -------------- Net earnings $ 1.90 $ 3.83 ============== ============== Diluted - Continuing $ 1.95 $ 1.34 46% Gain (loss) on sale (0.07) 2.46 -------------- -------------- Net earnings $ 1.88 $ 3.80 ============== ============== Average number of shares outstanding - Basic 202,937,000 211,238,000 Average number of shares outstanding - Diluted 204,736,000 212,776,000
* 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 disposition. DOVER CORPORATION AND SUBSIDIARIES MARKET SEGMENT IDENTIFIABLE ASSETS (000 OMITTED)
UNAUDITED September 30, December 31, 2000 1999 ---- ---- Dover Technologies $1,414,305 $1,206,549 Dover Industries 1,081,452 894,452 Dover Diversified 1,196,832 1,128,239 Dover Resources 895,087 804,664 Corporate(1) 203,649 98,036 ---------- ---------- Consolidated Total $4,791,325 $4,131,940 ========== ==========
(1) - Principally cash and cash equivalents. See Notes to Consolidated Financial Statements. 10 DOVER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 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, 2000 1999 ---- ---- Raw materials $284,493 $239,498 Work in progress 244,485 205,792 Finished goods 277,636 233,671 -------- -------- Total 806,614 678,961 Less LIFO reserve 37,727 39,582 -------- -------- Net amount per balance sheet $768,887 639,379 ======== =========
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 $ (79,939) $ (79,985) $ 46 Current-period change (45,032) (55,521) 10,489 --------- -------- ------- Ending balance $(124,971) $(135,506) $10,535 ========= ======== =======
11 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 16, 2000. 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 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, 2000 the fair value, cost basis and gross unrealized gains on available-for-sales securities are approximately $16.7 million, $0.6 million and $16.1 million, respectively. The Company held a small investment in Bookham Technology PLC, which went public in April resulting in the year-to-date unrealized gain reported above. On September 26th the Company sold 43% of its investment which resulted in a realized gain of $13.7 million, $8.9 million after tax. In June 2000, the FASB issued statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendments of FASB Statement No. 133", effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company does not expect the statement to have a significant impact on the consolidated results of operations or financial position and related disclosure requirements. In June 2000, the SEC staff issued SAB 101B "Second Amendment: Revenue Recognition in Financial Statements" to provide registrants with additional time to implement guidance contained in SAB 101, "Revenue Recognition in Financial Statements". SAB 101, as amended is effective no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company does not expect the SAB to have a impact on the consolidated results of operations or financial position and related disclosure requirements. 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 decreased during the first nine months of 2000 as compared to the position at December 31, 1999. The taxes paid on the gain from sale of the elevator business ($307 million), plus amounts invested in acquisitions ($333 million) are the principal reasons for the decrease in liquidity. Working capital increased from $276.7 million at the end of last year to $343.6 million at September 30, 2000. Capital expenditures were $134.5 million for the nine months compared to $86.9 million last year. The working capital increase and capital expenditures were funded by internal cash flow. At September 30, 2000, 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 $1,257 million represented 35.2% of total capital. This compares with 27.4% at December 31, 1999. The Company continues to be rated A-1 by Standard & Poors and F-1 by Fitch IBCA. The Company believes its significant free cash flow will enable it to fund internal growth and, together with modest debt utilization, fund its acquisition program. The Company also believes it will continue to maintain a solid credit profile. The Company filed a shelf registration for the possible issuance of up to $1 billion in senior debt securities on October 5th, 2000. The Company believes this will provide flexibility to issue public debt rapidly depending on market conditions or financing needs. 12 The Company completed six add-on acquisitions during the quarter at a combined cost of $91 million, bringing the total for the year to 18 acquisitions for a total of $333 million. ACQUISITIONS-THIRD QUARTER 2000
DATE TYPE ACQUIRED COMPANIES LOCATION (NEAR) SEGMENT-OPERATING CO. ----------------------------------------------------------------------------------------------------------------------- 18-JUL STOCK SYFER TECHNOLOGY LTD. NORWICH, U.K. DTI NOVACAP Manufacturer of specialty ceramic electronic components. 24-JUL ASSET CHESTERTON SYSTEM ONE PUMP DIVISION STONEHAM, MA DRI BLACKMER Manufacturer of a high-end robust centrifugal pump line. 08-AUG STOCK KESSELTRONICS SYSTEMS CORPORATION HUDSON, QUEBEC DII PDQ Developer of unique electronic products primarily for the Vehicle Wash Equipment Industry. 01-SEP ASSET VERTEX PISTON S.P.A. REGGIO EMILA, ITALY DDI PERFORMANCE MOTORSPORTS Manufacturer of cast aluminum pistons. 15-SEP ASSET NATIONAL COOLER CORPORATION SAN DIMAS, CA DDI HILL PHOENIX Manufacturers of walk-in coolers, freezers and cold storage doors. 26-SEP STOCK PULLMASTER WINCH SURREY, VANCOUVER DRI TULSA WINCH Manufacturer of hydraulic planetary winches ranging from 1,000 to 50,000 pounds linepull.
The profit impact in 2000, of these acquisitions, will be small due to acquisition write-offs, and imputed financing costs. Acquisitions completed in the last twelve months (11/1/99 - 9/30/00) added $101 million in sales and $15 million in operational profit in the third quarter. (2) MATERIAL CHANGES IN RESULTS OF OPERATIONS: The company earned $.67 per diluted share in the third quarter ended September 30, 2000, excluding two non-recurring items. This was an increase of 26% from the $.53 per diluted share earned in the comparable quarter last year, excluding non-recurring items. After taking into account a $.04 gain on the sale of 43% of an equity investment and a non-recurring charge to discontinued operations of $ .07 per diluted share, the Company earned $.64 per diluted share outstanding. The $.07 per diluted share charge ($13.6 million after tax) is a result of finalizing the purchase price adjustment on the sale of the Dover Elevator International segment in January 1999 (which generated a $524 million after-tax or $2.49 per diluted share gain in that quarter). Operating income for the third quarter was $265.3 million, up 27% from $208.9 million last year. Net income from continuing operations for the third quarter was $135.5 million, up 23% from $110.4 million in net income from continuing operations last year, excluding the $ 8.9 million after tax gain on the equity investment sale this year, and the $11.1 million after-tax ( or $.05 per share) non-recurring gain last year. Sales in the quarter were a record $1.39 billion, up 21% from $1.15 billion last year. The Company completed six add-on acquisitions during the quarter at a combined investment of $91 million, bringing the total for the year to 18 acquisitions for a total investment of $333 million. The profit impact of these acquisitions in 2000 will be small due to acquisition write-offs, and imputed financing 13 costs. Acquisitions completed in the last twelve months added $101 million in sales and $15 million in operating profit in the third quarter. 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 $252 million was 28% higher than prior year. Of this, about 8 percentage points reflect acquisitions and 20 percentage points reflect the growth of existing companies (notably electronics). In 1997, Dover Technologies made a small investment in Bookham Technology PLC for strategic business reasons. Bookham (BKHM: NASDAQ) went public in April of this year. During the second quarter, Dover participated in a secondary offering, and the resultant sale of 313,043 Bookham shares resulted in a gain of $13.7 million, or $8.9 million after tax. To reflect it's remaining investment of 406,957 shares, Dover will report as part of its Statement of Comprehensive Income a year-to-date Unrealized Gain of $ 10.5 million after tax. This strong performance was led by Dover Technologies, where income increased 57% from the third quarter last year. Dover Resources and Dover Industries earnings were also up, by 18% and 8%, respectively, while Dover Diversified experienced a 2% earnings decline. DOVER TECHNOLOGIES: Sales in the third quarter increased 41% to $565.0 million, from $400.3 million last year, and segment profit increased 57% to $116.0 million, from $74.0 million last year. Segment bookings at $591.9 million were 5% greater than shipments. Technologies' Specialty Electronic Components (SEC) business has increased production dramatically in response to continued very strong demand from the data transmission, telecommunications, and networking markets it serves. This business, which supplies high-value components, precision devices, and multifunction integrated assemblies to OEM customers in these markets, is expanding capacity to address expected continued growth opportunities. SEC's sales in the quarter were $147.5 million, up 75% from the prior period, profits more than doubled to $29.6 million, and bookings were up 122% to $204 million, another new record. The quarter's book-to-bill ratio was 1.39 and the year-to date book-to-bill is 1.5. Technologies' Circuit Board Assembly and Test (CBAT) sales were up 38% to $ 366 million from last year, bookings were up 23% to $338 million, and earnings were up 57% to $80.5 million. These results represent the sixth quarter in a row that CBAT has shown improvement from the prior year's comparable quarter, and the seventh in a string of quarter-to quarter improvements. Sales have increased 110% and earnings 400% since the cyclical trough in this market in the first quarter of 1999. Operating margins in the quarter increased to 22%. The book-to bill ratio in the quarter slipped to .92, and was slightly lower at the largest CBAT company, Universal Instruments. Underlying demand for electronics (especially in the telecommunications industry), and thus demand for CBAT's production equipment for high volume electronics manufacturing, is expected to continue to grow. However, it appears that some customers are experiencing difficulty in managing the rate of their recent capacity expansions, and some have reported components shortages which have also dampened their enthusiasm for adding production capacity at the recent pace. Dover believes that while both of these Technologies businesses are affected by the electronics manufacturing market, the SEC business will experience less variability in sales and earnings than the CBAT business, which is more dependent on its customers' capital absorption capacity. Technologies' industrial marking business, Imaje, also continued its steady growth, with earnings up over 18% on a 15% sales increase, as measured in French Francs. 14 DOVER INDUSTRIES: Sales in the third quarter increased 8% to $314.0 million from $291.9 million last year, and segment earnings also increased 8% from $45.1 million to $48.8 million. Acquisitions made in the last year contributed all of the sales and earnings increase. Segment bookings in the quarter were up 7% to $309 million and the book-to-bill ratio was 0.99. Sales at Heil Environmental, Industries' largest company, were up, with excellent operating leverage, partly due to shipments on a large contract with New York City. However, sales and earnings declines at Heil Trailer, the liquid and dry bulk tank trailer company, more than offset these results, with continued comparative weakness in its markets, particularly in dry bulk. Industries' automotive service equipment businesses, Rotary Lift and Chief, again turned in very favorable comparisons to the prior year. PDQ, the manufacturer of touch-less car wash systems, whose comparisons had suffered in the second quarter from the adverse impact of new product introductions on existing product sales, strongly contributed to the prior year comparisons this quarter. TipperTie/Technopack, while solidly profitable and generating high returns, hurt the quarterly comparisons and is focused on cost reductions, as well as product line and marketing organization rationalization. The food service equipment businesses, Groen and Randell, both showed double-digit earnings increases on essentially flat sales in a very competitive market. DOVER DIVERSIFIED: Sales in the third quarter increased 7% to $286.8 million from $268.3 million last year, and segment income declined 2% to $39.3 million from $40.1 million. Segment bookings in the quarter were up 22% to $289 million and the book-to- bill was 1.01. Acquisitions in the last year, particularly Crenlo, were meaningful contributors to both sales and earnings. Hill Phoenix, the refrigeration systems and display case company, and Diversified's largest sales and second largest profit business, has experienced double-digit sales declines and margin erosion as capital spending in the supermarket and retail grocery industry has slowed due to industry consolidation, and as some key accounts have slowed store expansions. AC Compressor, serving the process industries, is a long lead-time business. While results were comparable to last year-to-date and though prospects of a stronger market are evident, experienced a weaker quarter due to weak bookings earlier in the year. Sargent's results, in its Aerospace components business, have felt the effect of lower OEM airframe and aftermarket overhaul demand. Partially offsetting these negatives, Tranter, Diversified's most profitable company, had improved margins on modest sales growth for both the quarter and year to date. And as in prior quarters this year, the turnaround at Belvac from marginal profitability last year to high margins this year, has been a major contributor to Diversified's comparisons. DOVER RESOURCES: Sales in the third quarter increased to $226.3 million from $191.4 million last year, or 18%, and segment income also increased 18%, from $24.7 million to $29.0 million. Segment bookings in the quarter were up 9% to $217 million and the book-to-bill ratio was 0.96. The oil production equipment company, Petroleum Equipment Group, is operating at record levels. C. Lee Cook, influenced by the gas gathering and transmission markets, is also sharply up from last year. Quartzdyne is now benefiting from increased drilling activity in the "measurement while drilling" market. OPW Fueling Components' sales improvement over the prior year's third quarter and the second quarter of this year reached low double digits, with substantial earnings leverage. OPW Fluid Transfer Group is well ahead of last year's restructuring and strike-impacted performance. Tulsa Winch reported strong results due to both internal growth and acquisitions. Companies serving the process industries (Wilden, Blackmer, Ronninger - Petter) have faced an unsettled market this year, and were up 16% in sales but down 6% in earnings compared to the prior period. 15 OUTLOOK: At the end of the second quarter we said we were on a track that could lead to a full year earnings per share gain of as much as 35%. Although the CBAT businesses' series of sequential quarter improvements may well be broken in the fourth quarter, with the strength in the SEC businesses, and strong prospects for improvement from the third quarter at several of the Companies in the other Subsidiaries, we still believe that is possible. 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: 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. 16 PART II OTHER INFORMATION Item 5. Other Information The Company amended Article IV, Paragraph 1 of its By-Laws, regarding the titles and election of officers. The Company included this table in its third quarter press release. See also 1999 Annual Report page 4. DOVER CORPORATION OPERATIONAL PROFITS(1) (in millions)
2000 - NINE MONTHS 1999 - NINE MONTHS 1999 - FULL YEAR ------------------------ ------------------------ ---------------------- SALES EARNINGS % SALES EARNINGS % SALES EARNINGS % ------ -------- --- ------ -------- --- ------ -------- --- Circuit board assembly/test.................... $1,037 $216 21 $ 647 $ 96 15 $ 934 $154 16 Electronic components.......................... 372 71 19 235 35 15 328 48 15 Marking........................................ 151 48 32 142 42 30 196 59 30 ------ -------- --- ------ -------- --- ------ -------- --- Dover Technologies............................... 1,560 335 21 1,024 173 17 1,458 261 18 Dover Industries................................. 939 169 18 844 149 18 1,145 203 18 Dover Diversified................................ 867 138 16 760 119 16 1,072 177 17 Dover Resources.................................. 662 117 18 575 91 16 778 128 16 ------ -------- --- ------ -------- --- ------ -------- --- Operational subtotal (after elim.)(1)............ $4,021 759 19 $3,198 532 17 $4,446 769 17 ====== ======== === ====== ======== === ====== ======== === Corporates and other............................. (37) (29) (44) -------- -------- -------- EBITACQ(2)....................................... 722 503 725 Gain (loss) on dispositions & Sale of equity securities...................... 12 17 10 Interest......................................... (63) (22) (35) Acquisition Write-offs........................... (69) (62) (85) -------- -------- -------- Dover Pre-tax income............................. $602 $436 $615 ======== ======== ========
(1) Differs from segment operating profits in that all non-cash write-offs relating to acquisitions are excluded, along with the expenses of each segment's corporate group. (2) Earnings before taxes, interest, acquisition write-offs and non-recurring gains. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits for this quarter. (3.ii) By-Laws (27) Financial Data Schedule. (EDGAR filing only) (b) No reports on Form 8-K were filed this quarter. 17 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 18, 2000 /s/ David S. Smith ---------------- ---------------------------------------- David S. Smith, Chief Financial Officer, Vice President, Finance Date: October 18, 2000 /s/ George F. Meserole ---------------- ---------------------------------------- George F. Meserole, Chief Accounting Officer, Vice President and Controller