Dover Corporation - 10-Q quarterly report FY

 

 

(Exact name of registrant as specified in its charter)

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 þ    No o

Indicate by checkmark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act). Yesþ    No o

The number of shares outstanding of the Registrant’s common stock as of July 21, 2005 was 202,493,696.

 

 

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

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

The computations of basic and diluted earnings per share from continuing operations were as follows:

See Notes to Condensed Consolidated Financial Statements

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

Dividends paid per share for the three and six months ended June 30, 2005 and 2004 were $0.16 and $0.32, and $0.15 and $0.30, respectively.

See Notes to Condensed Consolidated Financial Statements

See Notes to Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements, in accordance with Securities and Exchange Commission (“SEC”) rules, 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 Company’s consolidated financial statements included in the Annual Report on our Form 10-K for the year ended December 31, 2004, filed with the SEC. It is the opinion of the Company’s management that all adjustments necessary for a fair presentation of the interim results have been reflected therein. The results of operations of any interim period are not necessarily indicative of the results of operations for the fiscal year. Certain amounts in prior years have been reclassified to conform to the current presentation.

As previously disclosed, the Company expanded its subsidiary structure from four to six reporting market segments effective January 1, 2005 and is reporting financial information on this basis effective January 1, 2005.

For a more complete 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 14, 2005.

The Company has long-term incentive plans authorizing various types of market and performance based incentive awards that may be granted to officers and employees. Statement of Financial Accounting Standards (“SFAS”) No. 123 and SFAS No. 148 “Accounting for Stock-Based Compensation,” allow companies to measure compensation costs in connection with employee share option plans using a fair value based method or to continue to use an intrinsic value based method as defined by APB No. 25 “Accounting for Stock Issued to Employees.” The Company accounts for stock-based compensation under APB 25, and does not recognize stock-based compensation expense upon the grant of its stock options because the option terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. All granted stock options have a term of ten years and cliff vest after three years.

The following table illustrates the effect on net earnings and basic and diluted earnings per share if the Company had recognized compensation expense upon grant of the options, based on the Black-Scholes option pricing model:

The Company completed five acquisitions during the first six months of 2005 one of which was during the second quarter. During the first six months of 2004, the Company completed four acquisitions, all in the second quarter. The acquisitions have been appropriately accounted for under SFAS 141 “Business Combinations.” Accordingly, the accounts of the acquired companies, after adjustments to reflect fair market values assigned to assets and liabilities, have been included in the consolidated financial statements from their respective dates of acquisitions. The 2005 acquisitions are wholly owned and had an aggregate cost of approximately $119 million, including cash, at the date of acquisition.

2005 Acquisitions

The following unaudited pro forma information presents the results of operations of the Company for the three- and six-month periods ending June 30, 2005 and 2004 as if the 2005 and 2004 acquisitions had taken place on January 1, 2004.

These pro forma results of operations have been prepared for comparative purposes only and include certain adjustments, such as 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.

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

During the second quarter of 2005, Dover discontinued Hydratight Sweeney, a business in the Diversified segment, which was sold on May 17, 2005. The net gain on the sale of Hydratight Sweeney of $46.9 million or $0.23 per diluted share along with the income from operations, were partially offset by losses related to businesses discontinued in previous periods and resulted in net earnings from discontinued operations of $49.7 million.

During the first quarter of 2005, Dover discontinued one business from the Industries segment which was subsequently sold on April 1, 2005. The write-down of the carrying value of the entity to fair market value was partially offset by a small gain for a business discontinued in a previous period and resulted in a net loss on discontinued operations of $1.2 million.

During the second quarter of 2004, Dover sold two previously discontinued businesses from the Diversified segment. Earnings from discontinued operations during the second quarter and first six months of 2004 primarily relate to the disposition of discontinued operations. Discontinued operations did not have a material financial impact on any period presented.

Cash proceeds from the sale of discontinued operations during the first six months of 2005 and 2004 were $95.9 million and $22.3 million, respectively.

Dover’s long-term notes with a book value of $1,002.9 million, of which $251.2 million matures in the current year, had a fair value of approximately $1,096.0 million at June 30, 2005. The estimated fair value of the Company’s long-term notes is based on quoted market prices for similar issues.

During the second quarter of 2005 Dover terminated an interest rate swap with a notional amount of $50.0 million for an immaterial gain, which is being amortized over the remaining term of the debt issuance. This interest rate swap was designated as a fair value hedge of the Company’s 6.25% Notes, due June 1, 2008.

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 4.69%.

A few of the Company’s subsidiaries are involved in legal proceedings relating to the cleanup of waste disposal sites under federal and state statutes that 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. Management and legal counsel periodically review the probable outcome of such proceedings, the costs and expenses reasonably expected to be incurred, the availability and extent of insurance coverage, and established reserves. While it is not possible at this time to predict the outcome of these legal actions, in the opinion of management, based on these reviews, it is remote 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 or cash flows of the Company.

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 June 30, 2005 and 2004 are as follows:

The following table sets forth the components of the Company’s net periodic expense for the three and six months ended June 30, 2005 and 2004:

The Company does not anticipate making any employer discretionary contributions to defined benefit plan assets during the year ending December 31, 2005.

In May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”), which replaces Accounting Principles Board Opinion (“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 the Company for all accounting changes and corrections of errors made beginning January 1, 2006.

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). FIN 47 clarifies that a conditional asset retirement obligation, as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 is effective for the Company no later than the end of the 2005. The effect of FIN 47 will be immaterial to the Company’s consolidated results of operations, cash flows or financial position.

In December of 2004, the FASB issued SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”). SFAS No. 123R revises previously issued SFAS 123 “Accounting for Stock-Based Compensation,” supersedes APB No.25 “Accounting for Stock Issued to Employees,” and amends SFAS Statement No. 95 “Statement of Cash Flows.” SFAS 123R requires the Company to expense the fair value of employee stock options and other forms of stock-based compensation for the annual periods beginning after June 15, 2005. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award. The share-based award must be classified as equity or as a liability and the compensation cost is measured based on the fair value of the award at the date of the grant. In addition, liability awards will be re-measured at fair value each reporting period. Based on current guidance the Company will begin to expense the fair value of employee stock options and other forms of stock-based compensation in the first quarter of 2006. The effect of the adoption of SFAS 123R will not be materially different from the pro-forma results included in Note B — Stock-Based Compensation.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary assets, an amendment of APB No. 29, Accounting for Nonmonetary Transactions” (“SFAS 153”). The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. The statement is effective for the Company beginning July 1, 2005 and shall be applied prospectively. The effect of the adoption of SFAS 153 will be immaterial to the Company’s consolidated results of operations, cash flows or financial position.

In November of 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 are applicable to inventory costs incurred by the Company beginning January 1, 2006. The effect of the adoption of SFAS 151 will be immaterial to the Company’s consolidated results of operations, cash flow or financial position.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Refer to the section 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.

Dover Corporation (the “Company”) is a multinational, diversified manufacturing corporation comprised of 48 stand-alone operating companies which manufacture a broad range of specialized industrial products and sophisticated manufacturing equipment. The Company also provides some engineering and testing services, which are not significant in relation to consolidated revenue. The Company’s operating companies are based primarily in the United States of America and Europe. The Company reports its results in six segments and discusses its operations in 13 groups.

Management assesses the Company’s liquidity in terms of its ability to generate cash 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 available bank lines of credit and the ability to attract long-term capital with satisfactory terms.

The Company’s cash and cash equivalents of $399.7 million at June 30, 2005 increased from the December 31, 2004 balance of $356.9 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:

Cash flow provided by operating activities for the first six months of 2005 increased $20.9 million from $211.0 million in the prior year period. Increases in cash flows provided by operations were primarily due to increased net earnings which were partially offset by changes in net tax payments of $34.3 million over the same period last year and higher benefits and compensation payouts in 2005.

The level of cash used in investing activities for the first six months of 2005 decreased $16.4 million compared to the prior year period, largely reflecting an increase in proceeds from dispositions, partially offset by higher than prior year acquisition and capital expenditure activity. Acquisition expenditures for the first six months of 2005 increased $34.3 million to $117.9 million from $83.6 million in the prior year period. Capital expenditures in the first six months of 2005 increased $20.9 million to $68.3 million as compared to $47.5 million in the prior year period due to investments in plant expansions, plant machinery and information systems. Proceeds from sales of discontinued businesses in the first six months of 2005 increased $73.6 million from $22.3 million of proceeds in the prior year period. The Company currently anticipates that any additional acquisitions made during 2005 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 six months of 2005 decreased $38.7 million to $68.8 million. Net cash used in financing activities during the first six months of 2005 primarily reflected an increase in borrowings which was used to fund the majority of our $46.0 million open market treasury stock buyback.

Operational working capital (calculated as accounts receivable, plus inventory, less accounts payable) increased from the prior year period by $38.7 million or 3% to $1,353.6 million, primarily driven by increases in receivables of $66.9 million and increases in inventory of $23.2 million, offset by increases in

payables of $51.4 million. Excluding the impact of changes in foreign currency of $44.0 million and acquisitions of $26.5 million, operational working capital increased approximately 4% when compared to the prior year period. 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 Statement of Cash Flow, the Company also measures free cash flow. 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 the Company’s common stock. Dover’s free cash flow for the six months ended June 30, 2005, was essentially flat compared to the prior year period, driven primarily by the increase of net tax funding of $34.3 million and higher benefits and compensation payouts in 2005 which were offset by higher earnings for the six months ended June 2005.

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

The Company utilizes the total debt and net debt-to-total-capitalization calculations to assess its overall financial leverage and capacity and believes the calculations are useful to its stakeholders 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:

The total debt level of $1,132.4 million as of June 30, 2005 increased from December 31, 2004 as a result of an increase of $42.9 million in borrowings of short-term commercial paper. Net debt as of June 30, 2005, decreased $2.7 million primarily as a result of increased cash from operations offset by higher capital expenditures. The net debt-to-total capitalization ratio decreased to 18.8% during the period.

Dover’s long-term notes with a book value of $1,002.9 million, of which $251.2 million matures in the current year, had a fair value of approximately $1,096.0 million at June 30, 2005. The estimated fair value of the Company’s long-term notes is based on quoted market prices for similar issues.

During the first quarter of 2005 Dover terminated an interest rate swap with a notional amount of $50.0 million for an immaterial gain, which is being amortized over the remaining term of the debt issuance. This interest rate swap was designated as a fair value hedge of the Company’s 6.25% Notes due June 1, 2008.

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 4.69%.

There is no hedge ineffectiveness, and the fair value of the interest rate swaps outstanding as of June 30, 2005 was determined through market quotation.

Sales in the second quarter of 2005 increased 16% or $218.8 million from the comparable 2004 period, driven by increases of $78.6 million at Resources, $45.3 million at Diversified, $29.6 at Systems, $28.2 million at Electronics, $25.4 million at Industries, and $12.0 million at Technologies. Sales would have increased 14% to $1,558.8 million if 2004 foreign currency translation rates were applied to 2005 results. Acquisitions completed subsequent to the second quarter of 2004 contributed $93.6 million to consolidated sales during the quarter ended June 30, 2005. Gross profit margin decreased slightly from the comparable 2004 period.

Sales for the six months of 2005 increased 16% or $426.2 million from the comparable 2004 period, driven by increases of $159.5 million at Resources, $84.2 million at Diversified, $53.5 at Electronics, $49.4 million at Industries, $47.6 million at Systems, and $32.8 million at Technologies. Sales would have increased 15% to $2,978.1 million if 2004 foreign currency translation rates were applied to 2005 results. Acquisitions completed subsequent to the second quarter of 2004 contributed $179.3 million to consolidated sales during the six months ended June 30, 2005. Gross profit margin decreased slightly from the comparable 2004 period.

Selling and administrative expenses for the second quarter of 2005 increased $53.4 million from the comparable 2004 period, primarily due to increased sales activity, while selling and administrative expenses as a percentage of sales remained essentially flat.

Selling and administrative expenses for the first six months of 2005 increased $101.8 million from the comparable 2004 period, primarily due to increased sales activity, while selling and administrative expenses as a percentage of sales remained essentially flat.

Net interest expense for the second quarter of 2005 remained essentially flat when compared to the prior year. Net interest expense for the first six months of 2005 increased $1.3 million, primarily due to an increase in commercial paper borrowings. Other Income of $7.3 million and $11.7 million for the three and six months ended June 30, 2005, respectively, primarily results from 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 for the second quarter and first six months of 2005 were 28.9% and 27.4%, respectively, compared to last year’s second quarter tax rate of 29.6% and first six months tax rate of 29.2%. A $5.5 million tax benefit, or a 4.1% tax rate reduction, was recognized during the first quarter of 2005 as a result of a favorable United States Tax Court decision related to a 1997 income tax return position. The tax reserve related to this transaction was no longer required since the Tax Court decision became final during the first quarter and can no longer be appealed. The benefit of this discrete item did not affect the second quarter effective tax rate which saw a slight increase due to the 20% reduction in tax benefits relating to U.S. export sales caused by the American Jobs Creation Act of 2004.

Net earnings from continuing operations for the second quarter of 2005 were $123.5 million or $0.61 per diluted share compared to $108.0 million or $0.53 per diluted share from continuing operations in the comparable 2004 period.

Net earnings from continuing operations for the first six months of 2005 were $222.9 million or $1.09 per diluted share compared to $191.0 million or $0.93 per diluted share from continuing operations in the comparable 2004 period.

During the second quarter of 2005, Dover discontinued Hydratight Sweeney a business in the Diversified segment which was sold on May 17, 2005. The gain on the carrying value of Hydratight Sweeney of $46.9 million or $0.23 per diluted share along with the income from operations, were partially offset by losses related to businesses discontinued in previous periods and resulted in net earnings from discontinued operations of $49.7 million.

During the first quarter of 2005, Dover discontinued one business from the Industries segment which was subsequently sold on April 1, 2005. The write-down of the carrying value of the entity to fair market value was partially offset by a small gain for a business discontinued in a previous period and resulted in a net loss on discontinued operations of $1.2 million.

During the second quarter of 2004, Dover sold two previously discontinued businesses from the Diversified segment. Earnings from discontinued operations during the second quarter and first six months of 2004 primarily relate to the disposition of discontinued operations. Discontinued operations did not have a material financial impact on any period presented.

Cash proceeds from the sale of discontinued operations during the first six months of 2005 and 2004 were $95.9 million and $22.3 million, respectively.

For the six months ended June 30, 2005, Electronics sales, bookings and earnings increases reflected improvements at both Components and Commercial Equipment. Components had sales and earnings increases of 30% and 2%, respectively. Bookings increased 23% and the book-to-bill ratio was 1.04. Commercial Equipment had sales and earnings increases of 12% and 9%, respectively. Bookings increased 8% and the book-to-bill ratio was 0.97.

Industries sales have increased for the ninth consecutive quarter, driven by market strength, share gains and pricing. Industries second quarter 12% sales increase was driven primarily by Mobil Equipment.

During the second quarter, Mobile Equipment sales increased 17% compared to the prior year, resulting from strength in the dry bulk and petroleum transportation markets and a rebounding refuse collection vehicle market. A 22% earnings increase was driven by increased volume, pricing and productivity gains. Bookings were up 15%, backlog was essentially flat, and the book-to-bill ratio was 0.98.

Service Equipment sales increased 5%, and earnings declined 3% compared to the prior year quarter as commodity and new product introduction costs, along with product mix impacted margins. Revenue softness in the automotive service industry continued, but was more than offset by pricing and continued share gains. Bookings were essentially flat, backlog decreased 14% and the book-to-bill ratio was 1.02.

For the six months ended June 30, 2005, Industries sales, bookings and earnings increases reflected improvement primarily at Mobile Equipment, which had sales and earnings increases of 16% and 26%, respectively. Mobile Equipment bookings increased 5% and the book-to-bill ratio was 1.00. Service Equipment earnings were flat on increased sales of 7% with a bookings decrease of 2% and a book-to-bill ratio of 1.02.

All three Resources groups contributed to record quarterly sales and earnings.

During the quarter, the Oil and Gas Equipment group was the strongest performer in the segment with sales and earnings increases of 55% and 67%, respectively, aided by the acquisition of US Synthetic in the third quarter of 2004, as well as positive market conditions. Bookings increased 70%, the book-to-bill ratio was 1.02, and backlog increased 112%.

For the quarter, Fluid Solutions sales and earnings both increased 17% due to strength in the rail car, chemical processing and environmental markets and from the Almatec acquisition, partially offset by softness in the petroleum transport and industrial markets. Bookings increased 3%, the book-to-bill ratio was 0.97, and backlog was essentially flat.

Material Handling earnings increased 5% on a 16% sales increase compared to the prior year quarter. The negative sales to earnings leverage reflects continued investment in, and cost of analysis of, the businesses, as well as some operational inefficiencies, and managing significant increases in volume. The book-to-bill ratio was 0.97, backlog increased 6% and bookings were essentially flat.

For the six months ended June 30, 2005, Resources sales, bookings and earnings increases reflected improvements at all three Resources groups. Oil and Gas Equipment had sales and earnings increases of 56% and 76%, respectively. Bookings increased 53% and the book-to-bill ratio was 1.02. Fluid Solutions had sales and earnings increases of 19% and 22%, respectively. Bookings increased 11% and the book-to-bill ratio was 1.02. Material Handling had sales and earnings increases of 17% and 4%, respectively. Bookings increased 6% and the book-to-bill ratio was 1.07.

Incremental margin improvement in both the Food Equipment and Packaging groups contributed to Systems’ increase in quarterly sales and earnings. Compared to the first quarter, sales and earnings were up 14% and 10%, respectively.

Food Equipment sales and earnings improved 14% and 30%, respectively, over the prior year quarter primarily due to increased supermarket equipment sales. Bookings increased 27%, backlog increased 42% and the book-to-bill ratio was 1.23.

For the quarter, Packaging Equipment sales were up 30% and earnings more than doubled due to increased can necking and trimming equipment and closure systems sales, partially offset by a decrease in automated packaging equipment sales. The book-to-bill ratio was 1.25, bookings increased 41% and backlog increased 33%.

For the six months ended June 30, 2005, Systems sales, bookings and earnings increases reflected improvements at both Food Equipment and Packaging. Food Equipment had sales and earnings increases of 14% and 30%, respectively. Bookings increased 17% and the book-to-bill ratio was 1.15. Packaging had sales and earnings increases of 19% and 53%, respectively. Bookings increased 21% and the book-to-bill ratio was 1.12.

Technologies second quarter sales, earnings and margins were the best since the third quarter of 2004. The second quarter earnings decline reflects lower demand in the Circuit Assembly and Test (“CAT”) markets and competitive conditions in the Product Identification and Printing (“PIP”) markets, and also includes the results of Datamax, a fourth quarter 2004 acquisition.

CAT experienced a 12% sales decline and a 41% earnings decline when compared to the same quarter in 2004. This reflects very strong first half 2004 conditions in the backend semiconductor equipment market, which subsequently moderated in 2004 and through the first quarter of 2005. Beginning late in the second quarter of 2005 conditions improved in the backend semiconductor equipment market. As a result, on a sequential basis, CAT companies leveraged a 21% sales increase into a 184% earnings increase. The book-to-bill ratio grew to 1.08 during the quarter with a sequential bookings increase of 13%. CAT also continues to see growth resulting from the replacement of equipment required for compliance with the new lead free regulations in Europe.

For the quarter, PIP reported a 14% increase in earnings on a 44% increase in sales. The acquisition of Datamax Corporation accounted for a significant portion of sales growth and substantially all of the earnings growth. The product identification market is seeing increased price and margin pressure along with continuing weakness in European sales. However, new product releases continue to be accepted by the market and orders trended positively through the second quarter. The book-to-bill ratio was 0.99, bookings increased 40% and backlog increased 11%.

For the six months ended June 30, 2005, Technologies sales increased 5%, bookings were up 3% and earnings decreased 16%. CAT had a 10% decrease in sales and bookings, and a 53% decrease in earnings with a book-to-bill ratio of 1.11. PIP earnings increased 26% on a 43% increase in sales with a 37% increase in bookings and a book-to-bill ratio of 1.03. The six month results for Technologies and its two groups reflect the conditions described for the second quarter.

The Company expects to see the benefits of its renewed focus on operational excellence which includes improving margins and working capital. Most market indicators are cautiously positive, and each subsidiary enters the third quarter with a strong backlog after two quarters of record or near record bookings. This gives the Company some confidence that the third quarter should continue to show positive trends.

The acquisition market is active and the Company expects to complete additional purchases through the remainder of the year.

of which were changed in 2004); unforeseen developments in contingencies such as litigation; protection and validity of patent and other intellectual property rights; the success of the Company’s acquisition program; and the cyclical nature of some of the Company’s businesses. 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, except as required by law.

The Company may, from time to time, post financial or other information on its Internet website, www.dovercorporation.com. Such information 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 is for informational purposes only and is not intended for use as a hyperlink. The Company is not incorporating any material on its website into this report.

In an effort to provide investors with additional information regarding the Company’s results as determined by generally accepted accounting principles (GAAP), the Company also discloses non-GAAP information which management believes provides useful information to investors. Free cash flow, net debt, total capitalization, operational working capital, revenues excluding the impact of changes in foreign currency exchange rates and organic sales growth are not financial measures under GAAP and should not be considered as a substitute for cash flows from operating activities, debt or equity, sales and working capital as determined in accordance with GAAP, and they may not be comparable to similarly titled measures reported by other companies. Management believes the (1) net debt to total capitalization ratio and (2) free cash flow are important measures of operating performance and liquidity. Net debt to total capitalization is helpful in evaluating the Company’s capital structure and the amount of leverage it employs. Free cash flow provides both management and investors a measurement of cash generated from operations that is available to fund acquisitions, pay dividends, repay debt and repurchase the Company’s common stock. Reconciliations of free cash flow, total debt and net debt can be found in Part (1) of Item 2-Management’s Discussion and Analysis. Management believes that reporting operational working capital (also sometimes called “working capital”), which is calculated as accounts receivable, plus inventory, less accounts payable, provides a meaningful measure of the Company’s operational results by showing the changes caused solely by sales. Management believes that reporting operational working capital and revenues at constant currency, which excludes the positive or negative impact of fluctuations in foreign currency exchange rates, provides a meaningful measure of the Company’s operational changes, given the global nature of Dover’s businesses. Management believes that reporting organic sales growth, which excludes the impact of foreign currency exchange rates and the impact of acquisitions, provides a better comparison of the Company’s revenue performance and trends between periods.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no significant change in the Company’s exposure to market risk during the first six months of 2005. For discussion of the Company’s exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

Item 4. CONTROLS AND PROCEDURES

At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective. During the second quarter of 2005, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. In making its assessment of changes in internal control over financial reporting as of June 30, 2005, management has excluded SSE GmbH, Flexbar, Rasco, Voltronics, US Synthetics, Corning Frequency Control, Almatec, Datamax, Avborne Accessory Group, Rostone, Fas-Co Coders, APG and C-Tech because these companies were acquired in purchase business combinations during the twelve months ended June 30, 2005. The Company is currently assessing the control environments of these acquisitions. These companies are wholly-owned by the Company and their total sales for both the three- and six-month periods ended June 30, 2005 and assets at June 30, 2005, represent approximately 5.9% and 10.4% of the Company’s consolidated total sales and assets, respectively.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

See Part I, Notes to Condensed Consolidated Financial Statements, Note I.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds