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 six months ended June 30, 2001 Commission File No. 1-4018 DOVER CORPORATION (Exact name of registrant as specified in its charter) <TABLE> <S> <C> 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) </TABLE> 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 203,098,842. 1 of 18
2 Part I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS THREE MONTHS ENDED JUNE 30, (000 OMITTED) <TABLE> <CAPTION> UNAUDITED 2001 2000 ---- ---- <S> <C> <C> Net sales $ 1,138,573 $ 1,379,260 Cost of sales 762,512 871,839 ----------- ----------- Gross profit 376,061 507,421 Selling & administrative expenses 283,548 280,898 ----------- ----------- Operating profit 92,513 226,523 ----------- ----------- Other deductions (income): Interest expense 23,095 23,673 Interest income (2,804) (2,080) Foreign exchange 278 (3,447) Loss (gain) on dispositions (172,367) -- All other, net (7,307) (1,035) ----------- ----------- Total (159,105) 17,111 ----------- ----------- Earnings before taxes on income 251,618 209,412 Federal & other taxes on income 108,320 72,679 ----------- ----------- Net earnings $ 143,298 $ 136,733 =========== =========== Weighted average number of common shares outstanding during the period: - Basic 203,150 202,895 =========== =========== - Diluted 204,353 204,683 =========== =========== Net earnings per common share: - Basic $ 0.70 $ 0.67 =========== =========== - Diluted $ 0.70 $ 0.67 =========== =========== </TABLE> See Notes to Consolidated Financial Statements. 2 of 18
3 DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS THREE MONTHS ENDED JUNE 30, (000 OMITTED) <TABLE> <CAPTION> UNAUDITED 2001 2000 ---- ---- <S> <C> <C> Net earnings $ 143,298 $ 136,733 --------- --------- Other comprehensive earnings, net of tax: Foreign currency translation adjustments (16,514) (48,288) Unrealized gains (losses) on securities (tax -$238 in 2001 and $14,597 in 2000) (443) 27,110 --------- --------- Other comprehensive earnings (16,957) (21,178) --------- --------- Comprehensive earnings $ 126,341 $ 115,555 ========= ========= </TABLE> DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS SIX MONTHS ENDED JUNE 30, (000 OMITTED) <TABLE> <CAPTION> UNAUDITED 2001 2000 ---- ---- <S> <C> <C> Net sales $ 2,386,137 $ 2,630,543 Cost of sales 1,586,276 1,665,983 ----------- ----------- Gross profit 799,861 964,560 Selling & administrative expenses 576,460 544,977 ----------- ----------- Operating profit 223,401 419,583 ----------- ----------- Other deductions (income): Interest expense 49,505 41,438 Interest income (9,937) (4,416) Foreign exchange (126) (2,633) Loss (gain) on dispositions and sale of equity securities (172,367) 1,400 All other, net (9,656) (4,611) ----------- ----------- Total (142,581) 31,178 ----------- ----------- Earnings before taxes on earnings 365,982 388,405 Federal & other taxes on earnings 143,598 134,353 ----------- ----------- Net earnings $ 222,384 $ 254,052 =========== =========== Weighted average number of common shares outstanding during the period - Basic 203,150 202,895 =========== =========== - Diluted 204,353 204,683 =========== =========== Net earnings per common share: - Basic $ 1.09 $ 1.25 =========== =========== - Diluted $ 1.09 $ 1.24 =========== =========== </TABLE> See Notes to Consolidated Financial Statements. 3 of 18
4 DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS SIX MONTHS ENDED JUNE 30, (000 OMITTED) <TABLE> <CAPTION> UNAUDITED 2001 2000 ---- ---- <S> <C> <C> Net earnings $ 222,384 $ 254,052 --------- --------- Other comprehensive earnings, net of tax: Foreign currency translation adjustments (52,288) (46,387) Unrealized gains (losses) on securities (tax -$1,475 in 2001 and $14,597 in 2000) (2,740) 27,110 --------- --------- Other comprehensive earnings (55,028) (19,277) --------- --------- Comprehensive earnings $ 167,356 $ 234,775 --------- --------- </TABLE> DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS SIX MONTHS ENDED JUNE 30, (000 OMITTED) <TABLE> <CAPTION> UNAUDITED 2001 2000 ---- ---- <S> <C> <C> Retained earnings at January 1 $3,252,319 $2,830,175 Net earnings 222,384 254,052 ---------- ---------- 3,474,703 3,084,227 Deduct: Common stock cash dividends $ 0.25 per share ($0.23 in 2000) 50,798 46,691 ---------- ---------- Retained earnings at end of period $3,423,905 $3,037,536 ========== ========== </TABLE> See Notes to Consolidated Financial Statements. 4 of 18
5 DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (000 OMITTED) <TABLE> <CAPTION> UNAUDITED June 30, 2001 December 31, 2000 ------------- ----------------- <S> <C> <C> Assets: Current assets: Cash & cash equivalents $ 360,030 $ 181,399 Marketable securities 1,180 5,341 Receivables, net of allowance for doubtful accounts 769,302 903,177 Inventories 784,444 783,200 Prepaid expenses 106,888 101,732 ----------- ----------- Total current assets 2,021,844 1,974,849 ----------- ----------- Property, plant & equipment (at cost) 1,704,975 1,683,491 Accumulated depreciation (935,768) (927,943) ----------- ----------- Net property, plant & equipment 769,207 755,548 ----------- ----------- Goodwill, net of amortization 1,879,652 1,896,715 Other intangible assets, net of amortization 231,444 181,924 Deferred charges & other assets 101,954 83,080 ----------- ----------- $ 5,004,101 $ 4,892,116 =========== =========== Liabilities: Current liabilities: Notes payable $ 387,785 $ 839,880 Current maturities of long-term debt 3,218 2,657 Accounts payable 213,394 277,910 Accrued compensation & employee benefits 156,384 178,280 Accrued insurance 48,444 45,855 Other accrued expenses 258,599 209,247 Income taxes 151,451 50,811 ----------- ----------- Total current liabilities 1,219,275 1,604,640 ----------- ----------- Long-term debt 1,032,999 631,846 Deferred taxes 67,362 67,381 Other deferrals (principally compensation) 131,829 146,674 Stockholders' equity: Preferred stock -- -- Common stock 237,134 236,944 Additional paid-in surplus 52,870 48,552 Cumulative translation adjustments (164,999) (112,711) Unrealized holding gains (losses) 392 3,132 ----------- ----------- Accumulated other comprehensive earnings (164,607) (109,579) ----------- ----------- Retained earnings 3,423,905 3,252,319 ----------- ----------- Subtotal 3,549,302 3,428,236 Less: treasury stock 996,666 986,661 ----------- ----------- 2,552,636 2,441,575 ----------- ----------- $ 5,004,101 $ 4,892,116 =========== =========== </TABLE> See Notes to Consolidated Financial Statements. 5 of 18
6 DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS SIX MONTHS ENDED JUNE 30, (000 OMITTED) <TABLE> <CAPTION> UNAUDITED 2001 2000 ---- ---- <S> <C> <C> Cash flows from operating activities: Net earnings $ 222,384 $ 254,052 --------- --------- Adjustments to reconcile net earnings to net cash from operating activities: Depreciation 73,730 68,462 Amortization of goodwill 26,669 23,612 Amortization - other 8,493 9,027 Net increase (decrease) in deferred taxes 7,337 4,768 Net increase (decrease) in LIFO reserves (1,903) 1,192 Increase (decrease) in deferred compensation (27,634) 13,888 (Gain) loss on sale of business (172,367) 1,400 Other, net (16,113) (12,238) Changes in assets & liabilities (excluding acquisitions and dispositions): Decrease (increase) in accounts receivable 136,855 (148,103) Decrease (increase) in inventories, excluding LIFO reserve 24,902 (60,344) Decrease (increase) in prepaid expenses (7,480) (11,812) Increase (decrease) in accounts payable (64,856) 14,963 Increase (decrease) in accrued expenses 1,293 (14,735) Increase (decrease) in federal & other taxes on income 60,096 (8,884) --------- --------- Total adjustments 49,022 (118,804) --------- --------- Net cash from operating activities 271,406 135,248 --------- --------- Cash flows from (used in) investing activities: Additions to property, plant & equipment (103,029) (77,347) Acquisitions, net of cash & cash equivalents (236,266) (224,606) Proceeds from sale of business 358,916 14,923 --------- --------- Net cash from (used in) investing activities 19,621 (287,030) --------- --------- Cash flows from (used in) financing activities: Increase (decrease) in notes payable (452,997) 485,097 Increase (decrease) in long-term debt 398,592 16,309 Purchase of treasury stock (10,005) (3,906) Proceeds from exercise of stock options 2,812 6,697 Cash dividends to stockholders (50,798) (46,691) --------- --------- Net cash from (used in) financing activities (112,396) 457,506 --------- --------- --------- --------- Discontinued operations - tax payments -- (308,051) --------- --------- Net increase (decrease) in cash & cash equivalents 178,631 (2,327) Cash & cash equivalents at beginning of period 181,399 138,038 --------- --------- Cash & cash equivalents at end of period $ 360,030 $ 135,711 ========= ========= </TABLE> See Notes to Consolidated Financial Statements. 6 of 18
7 DOVER CORPORATION CONSOLIDATED MARKET SEGMENT RESULTS (UNAUDITED) <TABLE> <CAPTION> Second quarter ended June 30, ----------------------------- Percent SALES 2001 2000 Change ----- ---- ---- ------ <S> <C> <C> <C> Dover Technologies $ 301,850,000 $ 527,352,000 -43% Dover Industries 299,383,000 326,289,000 -8% Dover Diversified 294,865,000 310,412,000 -5% Dover Resources 243,967,000 217,506,000 12% --------------- --------------- Total (after intramarket eliminations) $ 1,138,573,000 $ 1,379,260,000 -17% =============== =============== EARNINGS -------- Dover Technologies $ 499,000 $ 110,344,000 -100% Dover Industries 39,398,000 51,502,000 -24% Dover Diversified 36,427,000 44,214,000 -18% Dover Resources 30,146,000 32,012,000 -6% --------------- --------------- Subtotal (after intramarket eliminations) 106,470,000 238,072,000 -55% Gain (loss) on disposition 172,367,000 -- Corporate expense (7,185,000) (6,876,000) 4% Net interest expense (20,034,000) (21,784,000) -8% --------------- --------------- Earnings before taxes on income 251,618,000 209,412,000 20% Taxes on income 108,320,000 72,679,000 49% --------------- --------------- Net earnings $ 143,298,000 $ 136,733,000 5% =============== =============== Net earnings per diluted common share * $ 0.70 $ 0.67 4% =============== =============== Average number of diluted shares outstanding 204,353,000 204,683,000 Impact of acquisition write-offs on diluted EPS: Diluted EPS * $ 0.70 $ 0.67 4% Goodwill write-offs (net of tax) 0.06 0.05 --------------- --------------- EPS before goodwill * 0.76 0.72 6% Other acquisition write-offs (net of tax) 0.03 0.03 --------------- --------------- EPS before all acquisition write-offs * $ 0.79 $ 0.75 5% --------------- --------------- </TABLE> * 2001 includes gain on sale of businesses of $.45. 7 of 18
8 DOVER CORPORATION CONSOLIDATED MARKET SEGMENT RESULTS (UNAUDITED) <TABLE> <CAPTION> Six months ended June 30, ------------------------- SALES 2001 2000 ----- ---- ---- <S> <C> <C> <C> Dover Technologies $ 736,280,000 $ 993,718,000 -26% Dover Industries 599,090,000 625,330,000 -4% Dover Diversified 570,997,000 579,950,000 -2% Dover Resources 482,691,000 435,662,000 11% --------------- --------------- Total (after intramarket eliminations) $ 2,386,137,000 $ 2,630,543,000 -9% =============== =============== EARNINGS -------- Dover Technologies $ 48,725,000 $ 195,139,000 -75% Dover Industries 77,392,000 101,917,000 -24% Dover Diversified 56,945,000 77,679,000 -27% Dover Resources 61,864,000 65,553,000 -6% --------------- --------------- Subtotal (after intramarket eliminations) 244,926,000 440,288,000 -44% Gain (loss) on disposition 172,367,000 (1,400,000) Corporate expense (11,743,000) (13,117,000) -10% Net interest expense (39,568,000) (37,366,000) 6% --------------- --------------- Earnings before taxes on income 365,982,000 388,405,000 -6% Taxes on Income 143,598,000 134,353,000 7% --------------- --------------- Net earnings $ 222,384,000 $ 254,052,000 -12% =============== =============== Net earnings per diluted common share * $ 1.09 $ 1.24 =============== =============== Average number of diluted shares outstanding 204,353,000 204,683,000 Impact of acquisition write-offs on diluted EPS: Diluted EPS * $ 1.09 $ 1.24 -12% Goodwill write-offs (net of tax) 0.11 0.10 --------------- --------------- EPS before goodwill * 1.20 1.34 -10% Other acquisition write-offs (net of tax) 0.07 0.07 --------------- --------------- EPS before all acquisition write-offs * $ 1.27 $ 1.41 -10% =============== =============== </TABLE> * 2001 includes gain on sale of businesses of $.45. DOVER CORPORATION AND SUBSIDIARIES MARKET SEGMENT IDENTIFIABLE ASSETS (000 OMITTED) <TABLE> <CAPTION> UNAUDITED June 30, December 31, 2001 2000 ---- ---- <S> <C> <C> Dover Technologies $1,441,936 $1,537,268 Dover Industries 1,148,264 1,088,540 Dover Diversified 1,108,994 1,211,151 Dover Resources 942,160 928,841 Corporate 362,747 126,316 ---------- ---------- Consolidated Total $5,004,101 $4,892,116 ========== ========== </TABLE> "Corporate" - principally cash and equivalents and marketable securities. See Notes to Consolidated Financial Statements. 8 of 18
9 DOVER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 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 : <TABLE> <CAPTION> (000 omitted) ------------- UNAUDITED June 30, December 31, 2001 2000 ---- ---- <S> <C> <C> Raw materials $310,574 $311,211 Work in progress 217,238 217,678 Finished goods 289,487 290,178 -------- -------- Total 817,299 819,067 Less LIFO reserve 32,855 35,867 -------- -------- Net amount per balance sheet $784,444 $783,200 -------- -------- </TABLE> NOTE C - Accumulated other Comprehensive Earnings Accumulated other comprehensive earnings, by components are summarized as follows: <TABLE> <CAPTION> UNAUDITED (000 omitted) ----------------------- Accumulated Other Unrealized Comprehensive Cumulative Holding Earnings Translation Gains (losses) Adjustments (losses) -------- ----------- -------- <S> <C> <C> <C> Beginning balance $(109,579) $(112,711) $ 3,132 Current-period change (55,028) (52,288) (2,740) --------- --------- --------- Ending balance $(164,607) $(164,999) $ 392 ========= ========= ========= </TABLE> 9 of 18
10 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 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 June 30, 2001 the fair value, cost basis and gross unrealized gains on available-for-sales securities are approximately $1.2 million, $0.6 million and $0.6 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 Amendments 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 an 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 increased during the first half of 2001 as compared to the position at December 31, 2000. Proceeds from dispositions ($358.9) net of the amounts invested in acquisitions ($236.3 million) are the principal reason for the increase in liquidity. Working capital increased from $370.2 million at the end of last year to $802.6 million at June 30, 2001, due principally to a reduction in short-term notes payable. Capital expenditures were $103.0 million for the first half of 2001 compared to $77.3 million last year. The working capital increase and capital expenditures were funded by internal cash flow. At June 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 $1,062.8 million represented 29.4% of total capital. This compares with 34.5% at December 31, 2000. The Company continues to be rated A-1 by Standard & Poors and P-1 by Moody's. 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. On February 12, 2001 the Company completed its underwritten offering of $400.0 million, 6.50% notes due February 15, 2011. The proceeds were used to reduce short-term debt. 10 of 18
11 The Company completed one stand-alone and three add-on acquisitions during the quarter at a combined cost of $156.5 million. DOVER CORPORATION ACQUISITIONS - SECOND QUARTER 2001 <TABLE> <CAPTION> DATE TYPE ACQUIRED COMPANIES LOCATION (NEAR) SEGMENT - OPERATING CO. - ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 31-MAR STOCK TISMA MACHINERY CORPORATION ELK GROVE VILLAGE, IL DDI SWF Manufactures and designs automated packaging machinery used in forming, packing and sealing of corrugated packages. 31-MAY ASSET KURZ-KASCH, INC. DAYTON, OH DII STAND-ALONE Manufactures coil based electro magnetic switches and sensors that are encapsulated in thermo set plastic. 31-MAY STOCK MULTI-TEST AG ROSENHEIM, GERMANY DTI ECT Manufactures semiconductor test handling equipment. 20-JUN STOCK MARKPOINT HOLDING AB GOTEBORG, SWEDEN DTI IMAJE Manufactures and designs marking solutions for packaging industries. </TABLE> The profit impact in 2001, of these acquisitions, will be small due to acquisition write-offs, and imputed financing costs. Acquisitions completed in the last twelve months (May 1, 2000 - June 30, 2001) added $124.4 million in sales and $16.1 million in operational profit in the first half of 2001. (2) MATERIAL CHANGES IN RESULTS OF OPERATIONS: The Company earned $.70 per diluted share in the second quarter ended June 30, 2001. Of this total, the gains on the DovaTech welding equipment group and AC Compressor divestitures contributed $.45 per diluted share to the quarter's results. Excluding these gains, earnings in the quarter were $.25 per diluted share, a decrease of 63% from the $.67 per diluted share earned in the comparable quarter last year. Sales in the second quarter were $1.14 billion, a 17% decline from $1.38 billion last year, and segment earnings for the quarter were $106.5 million, down 55% or $131.6 million from $238.1 million last year. Excluding the gains on sales of businesses, net income from continuing operations for the second quarter was $50.2 million, down 63% or $86.6 million from $136.7 million last year. The dominant reason for the sales and earnings decline was the impact of the downturn in the electronics industry on Dover Technologies, where income totaled $.5 million, compared to $110.3 million last year, on a 43% or $225.5 million sales decline. The other three market segments also had earnings declines due to the weak general economic environment. Dover Industries and Dover Diversified's earnings declined by 24% and 18% respectively, on lower sales, and Dover Resources' earnings declined 6% on a 12% sales increase. Except for Technologies, all segments reported higher sales and earnings than the first quarter. The Company completed one stand-alone and three add-on acquisitions during the quarter at a combined investment of $156.5 million. The net income impact of these acquisitions in the second quarter was small due to acquisition-related amortization and depreciation, which are typically higher in the first year after acquisition. Acquisitions completed in the last twelve months added $59 million in sales and $7 million in operating profit in the second 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). Second quarter EBITACQ of $123 million was 51% lower than the prior year's second quarter. The high overall book tax rate for the quarter of 43.0% resulted from the lack of tax deductibility of a substantial goodwill amount included in the divestiture transactions. The divestitures resulted in a pre-tax 11 of 18
12 gain of $172.4 million, tax expense of $79.2 million and a net book gain of $93.1 million. The after-tax proceeds from the divestitures were $279.4 million. The Company's tax rate for the second quarter, excluding the impact of the disposition gains, was 36.7% compared to 30.8% for the first quarter and 32.5% for the full year 2000. This high tax rate on operating results was due to losses in low tax rate jurisdictions, primarily in Technologies. Through the end of the second quarter, the Company invested $239.4 million in acquisitions compared to the $358.9 million divestiture proceeds. The earnings per share impact of these acquisitions on the second half of 2001 will not fully offset the earnings per share contribution that the divested companies would have made on the second half had they been retained. This difference is approximately $.05 per diluted share for the second half of 2001. However, the comparative earnings impact of the acquired businesses is expected to be substantially accretive to earnings in 2002. 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 29.4%, its lowest level since December 1999. This will provide substantial flexibility for profitable reinvestment. Repurchases of 192,000 shares in the open market were completed in the second quarter at an average price of $35.92. DOVER TECHNOLOGIES: Dover Technologies' second quarter sales decreased 43% or $225.5 million to $301.9 million, and earnings were $.5 million compared to $110.3 million in the same period last year. These results are due to the continued dramatic decline in the electronics industry served by the Circuit Board Assembly and Test (CBAT) and Specialty Electronics Components (SEC) businesses. Acquisitions completed in the last year added approximately $28 million to sales in the quarter, with no material impact on segment earnings after acquisition write-offs. In Technologies' CBAT business, second quarter sales decreased 59% or $208.7 million to $147.4 million, and for the quarter CBAT reported a loss of $18.9 million, compared to earnings of $73.6 million in the same period last year. Bookings, at $128.9 million, were down 67% from the same period last year and were 31% lower than the first quarter of 2001. The book-to-bill ratio was .87 for the second quarter. While all CBAT companies (which all manufacture capital equipment used to build or test circuit boards or semiconductors) experienced very weak markets after what was clearly a period of unsustainably robust customer spending last year, the impact at Universal Instruments, CBAT's largest company, was particularly pronounced. Sales levels at Universal have declined precipitously to a quarterly level not seen since the first quarter of 1993. Sales in the second quarter were merely 25% of the level experienced as recently as the third quarter last year. The magnitude and speed of this change has driven Universal into a quarterly loss position for the first time in its history. Though headcount reductions and other efforts to reduce costs rapidly to restore profitability continue, appropriate focus is also being given to sustaining the business for the still positive longer-term future in this market. Universal's book-to-bill ratio for the quarter was .95 (higher than the CBAT average), and while June was the strongest bookings month of the quarter, no clear signs of recovery in this market are yet visible. If the market does not recover this year, Universal will remain unprofitable for the balance of the year. Declining backlogs in the rest of CBAT, which was profitable in the quarter, are unlikely to be sufficient to offset these losses. In total, CBAT losses are currently expected to be in the same range in the third quarter. In Technologies' SEC business, sales declined 15% or $18.7 million from the same period last year to $102.3 million, and earnings declined 52% or $11.7 million to $10.9 million. Net bookings in the second quarter of $44.4 million were down 76% from last year, and the book-to-bill ratio was .43 for the quarter. SEC's customer concentration in the datacom/telecom/networking markets drove growth last year, but has now resulted in a dramatic decline in bookings and backlog as those markets decline. SEC is also responding to the rapid change in market conditions with appropriate cost reductions, while continuing to invest in product development linked to specific customer requirements. However, it is unclear at this time when market demand will improve, and with declining backlogs, earnings will be lower in the third quarter. Imaje, the French-based industrial ink-jet printer and ink manufacturing portion of this segment, with slightly lower earnings on sales approaching prior year levels, had substantially higher sales, earnings and bookings than the first quarter. 12 of 18
13 DOVER INDUSTRIES: Dover Industries' second quarter sales declined 8% or $26.9 million to $299.4 million and segment income declined 24% or $12.1 million to $39.4 million compared to the same period last year. Segment bookings were down 2% to $299.7 million and the book-to-bill ratio was 1.00. Acquisitions completed in the last year added approximately $10 million to sales in the quarter, with almost no impact on segment earnings after acquisition write-offs. Most of Industries' companies had lower sales and earnings as compared to the prior year due to weaker economic conditions in their markets. However, Industries' combined earnings and margins were slightly higher than the first quarter, with a majority of Industries' companies contributing to this favorable comparison. Heil Environmental's sales and earnings, while not quite as robust as the very strong prior year, recovered markedly from the first quarter's slow start. However, the full year will lag last year in a much weaker market. Heil Trailer's sales, profit and bookings performance compared favorably to both a weak comparable period last year and the prior quarter, and with this long awaited favorable trend comparison and a favorable book-to-bill in the quarter comes guarded optimism that this depressed market may be recovering slightly. Rotary Lift's performance matched last year's second quarter and the first quarter this year despite weak markets, with effective new products, marketing programs and cost reduction, and PDQ outperformed previous periods for the same reasons. Tipper Tie still suffers from the impact of disease scares on its primary meat packing markets. Triton's earnings comparisons to the prior year were very unfavorable, and it is focused on several product, marketing and manufacturing improvements. DOVER DIVERSIFIED: Dover Diversified's second quarter sales declined 5% or $15.5 million from the prior year to $294.9 million, and segment income decreased 18% or $7.8 million to $36.4 million compared to the same period last year. Sales were up 7% from the first quarter and earnings improved more sharply in the absence of inventory write-offs at Crenlo. Segment bookings in the quarter were up 10% to $324.3 million and the book-to-bill ratio was favorable at 1.10. Backlog at the end of the quarter, after adjusting for divestitures, was 15% ahead of last year. Acquisitions completed in the last year added approximately $11 million to sales in the quarter, with almost no impact on segment earnings after acquisition write-offs. AC Compressor, divested at the end of May, had recently contributed between 5 and 10% of segment sales with lower than average margins. While many of Diversified's companies also experienced difficult conditions in their markets, most also had higher margins than in the prior quarter. Hill Phoenix, though operating in a tough market, turned in favorable sales, earnings and bookings comparisons to both last year and the prior quarter, and expects an even stronger second half. Waukesha, Performance Motorsports, Sargent, and SWF again turned in stronger earnings than the same period last year in satisfactory market environments, with the latter two of these also showing improvement from more recent trends. Crenlo reported losses in the quarter compared to strong profits in the prior year and is realigning its cost structure in the current weak market. Belvac's market also remains challenging. DOVER RESOURCES: Dover Resources' second quarter sales increased 12% or $26.5 million to $244.0 million, and segment earnings declined 6% or $1.9 million to $30.1 million, compared to the same period last year. Segment bookings in the quarter were up 10% to $241.7 million and the book-to-bill ratio was .99. Acquisitions completed in the last year added approximately $9 million to sales in the quarter, with almost no impact on segment earnings after acquisition write-offs. Those Resources companies serving the energy production markets (Petroleum Equipment Group, Quartzdyne, and C. Lee Cook), all reported higher sales and earnings than in the comparable period last year as they continue to benefit from the strong energy markets they serve. Outside of the "oil patch", OPW Fueling Components' cost improvement efforts in a still difficult market are driving favorable comparisons to the prior period, and Tulsa Winch (the winch industry "roll-up") continues to benefit from acquisition synergies and some pockets of market strength. The balance of Resources' businesses 13 of 18
14 serving the process industries, the automotive industry, and general industrial and transportation markets, were adversely impacted by weak economic conditions. OUTLOOK: The challenges presented by the unexpectedly severe downturn in the electronics markets served by Dover Technologies, coming so shortly after a period of unprecedented growth, have had a significant adverse impact on the Company's earnings so far this year. However, the company's niche market positions in this long-term high growth industry remain very strong, and we expect to come out of this period stronger than we entered it. The Company remains firmly committed to what has been, and we are confident remains, a very successful investment for our shareholders. At this point, the electronics industry is unlikely to recover this year, and weak general economic conditions are impacting the balance of our industrial manufacturing businesses. Nevertheless, we are hopeful that the Company's earnings will begin to recover in the second half as we believe any remaining risk in Technologies is likely to be offset by improvements in the other segments. 14 of 18
15 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. 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. 15 of 18
16 PART II OTHER INFORMATION Item 4. Submission of Matter to Vote of Security Holders The Annual Meeting of Stockholders was held in Wilmington, Delaware on April 24, 2001. Stockholders representing 163,328,007 shares of common stock, or approximately 80% of the outstanding stock, were present in person or by proxy. All of the nominees for director, namely David H. Benson, Kristiane C. Graham, Jean-Pierre M. Ergas, Roderick J. Fleming, James J. Koley, Richard K. Lochridge, Thomas L. Reece, Gary L. Roubos, and Michael B. Stubbs were elected directors for a one year term, each receiving at least 149,174,793 votes. Item 5. Other Information See also 2000 Annual Report page 23. DOVER CORPORATION OPERATIONAL INCOME (in millions) (unaudited) <TABLE> <CAPTION> 2001 - Six Months 2000 - Six Months 2000 - Full Year ----------------- ----------------- ---------------- SALES INCOME % SALES INCOME % SALES INCOME % ----- ------ - ----- ------ - ----- ------ - <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Circuit board assembly / test $ 376 ($ 3) (1) $ 671 $ 136 20 $1,369 $ 265 19 Electronic components 265 44 17 224 42 19 531 104 20 Marking 96 24 25 99 30 30 200 60 30 ------ ------ -- ------ ------ -- ------ ------ -- DOVER TECHNOLOGIES 737 65 9 994 208 21 2,100 429 20 DOVER INDUSTRIES 599 92 15 625 114 18 1,246 224 18 DOVER DIVERSIFIED 571 70 12 580 92 16 1,176 194 17 DOVER RESOURCES 483 77 16 436 80 18 887 149 17 ------ ------ -- ------ ------ -- ------ ------ -- OPERATIONAL SUBTOTAL (AFTER ELIM.) $2,386 $ 304 13 $2,631 $ 494 19 $5,401 $ 996 18 ====== ====== == ====== ====== == ====== ====== == CORPORATES AND OTHER (21) (24) (49) ------ ------ ------ EBITACQ $ 283 $ 470 $ 947 ====== ====== ====== </TABLE> "Operational Income" - differs from segment operating profits because it excludes all non-cash write-offs relating to acquisitions, the expenses of each segment's corporate group, and foreign exchange gains or losses. "EBITACQ" - earnings before taxes, interest, acquisition write-offs and non-recurring gains. DOVER CORPORATION AND SUBSIDIARIES ANALYSIS OF CASH FLOW: DEPRECIATION, AMORTIZATION & ACQUISITION WRITE-OFFS, WITH TAX EFFECTS (UNAUDITED) (IN MILLIONS) <TABLE> <CAPTION> 2001 - SIX MONTHS 2000 - SIX MONTHS 2000 - FULL YEAR ----------------- ----------------- ---------------- TAX DEDUCTIBLE TAX DEDUCTIBLE TAX DEDUCTIBLE -------------- -------------- -------------- TOTAL YES NO TAX TOTAL YES NO TAX TOTAL YES NO TAX <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> EBIT $234 $80 $426 $148 $851 $267 ACQUISITION RELATED: GOODWILL AMORTIZATION 27 13 14 5 24 12 12 4 49 24 25 9 ----- --- -- --- ----- --- -- ---- ----- --- -- ---- OTHER AMORTIZATION 8 8 15 DEPRECIATION 8 8 18 INVENTORY WRITE-OFFS 6 4 14 ----- --- -- --- ----- --- -- ---- ----- --- -- ---- SUBTOTAL OTHER WRITE-OFFS 22 21 1 8 20 15 5 6 47 38 9 13 TOTAL ACQUISITION WRITE-OFFS 49 34 15 13 44 27 17 10 96 62 34 22 ----- --- -- --- ----- --- -- ---- ----- --- -- ---- EBITACQ 283 $93 470 $158 947 $289 --- ---- ---- OTHER DEPRECIATION 66 60 118 OTHER AMORTIZATION - 1 3 ----- ----- ----- EBITDAI 349 531 1,068 ===== ===== ===== INVENTORY WRITE-OFFS (6) (4) (14) ----- ----- ----- EBITDA $343 $527 $1,054 ===== ===== ===== </TABLE> "EBIT" - REPRESENTS EARNINGS BEFORE INTEREST AND TAXES. "EBITACQ" - REPRESENTS EARNINGS BEFORE INTEREST, TAXES AND ACQUISITION WRITE-OFFS. "EBITDAI" - REPRESENTS EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AMORTIZATION AND INVENTORY WRITE-OFFS. "EBITDA" - REPRESENTS EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION. EBIT, EBITACQ, EBITDAI AND EBITDA - ALL EXCLUDE GAINS (LOSSES) ON SALE OF BUSINESSES AND EQUITY INVESTMENT. 16 of 18
17 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits for this quarter (4.1) Dover Corporation Deferred Compensation Plan, filed as Exhibit 4.1 to Registration Statement on Form S-8 filed under Securities Act of 1933 (Reg. No. 333-64160), is incorporated by reference. 17 of 18
18 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: July 17, 2001 /s/ David S. Smith ---------------------------- ---------------------------------------- David S, Smith, Chief Financial Officer, Vice President, Finance Date: July 17, 2001 /s/ George F. Meserole ---------------------------- ---------------------------------------- George F. Meserole, Chief Accounting Officer, Vice President and Controller 18 of 18