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 three months ended June 30, 1998 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 223,114,621.
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 1998 1997 ---- ---- <S> <C> <C> Net sales $ 1,235,107 $ 1,154,011 Cost of sales 815,230 758,936 ----------- ----------- Gross profit 419,877 395,075 Selling & administrative expenses 262,722 238,086 ----------- ----------- Operating profit 157,155 156,989 ----------- ----------- Other deductions (income): Interest expense 14,036 12,040 Interest income (6,937) (1,803) Foreign exchange 721 (1,026) Gain on dispositions -- (32,171) All other, net (2,901) (4,514) ----------- ----------- Total 4,919 (27,474) ----------- ----------- Earnings before taxes on earnings 152,236 184,463 Federal & other taxes on earnings 52,182 59,548 ----------- ----------- Net earnings $ 100,054 $ 124,915 =========== =========== Net earnings per common share - Basic $ 0.45 $ 0.56 =========== =========== - Diluted $ 0.45 $ 0.55 =========== =========== Weighted average number of common shares outstanding during the period - Basic 222,901 223,922 =========== =========== - Diluted 224,692 226,415 =========== =========== </TABLE> CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS THREE MONTHS ENDED JUNE 30, (000 OMITTED) <TABLE> <CAPTION> UNAUDITED 1998 1997 ---- ---- <S> <C> <C> Net earnings $ 100,054 $ 124,915 ----------- ----------- Other comprehensive earnings, net of tax: Foreign currency translation adjustments 126 (10,207) Less: reclassification adjustment for adjustments included in net earnings (486) (3,959) ----------- ----------- Total foreign currency translation adjustments 612 (6,248) ----------- ----------- Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period 3,285 1,296 Less: reclassification adjustment for gains (losses) included in net earnings 5,707 2 ----------- ----------- Total unrealized gains (losses) on securities (tax $(1,278) in 1998) (2,422) 1,294 ----------- ----------- Other comprehensive earnings (1,810) (4,954) ----------- ----------- Comprehensive earnings $ 98,244 $ 119,961 =========== =========== </TABLE>
3 DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS SIX MONTHS ENDED JUNE 30, (000 OMITTED) <TABLE> <CAPTION> UNAUDITED 1998 1997 ---- ---- <S> <C> <C> Net sales $ 2,383,691 $ 2,162,792 Cost of sales 1,567,680 1,429,850 ----------- ----------- Gross profit 816,011 732,942 Selling & administrative expenses 516,130 460,602 ----------- ----------- Operating profit 299,881 272,340 ----------- ----------- Other deductions (income): Interest expense 25,962 23,027 Interest income (12,251) (5,859) Foreign exchange 2,220 (7,103) Gain on dispositions -- (32,171) All other, net (4,657) (10,653) ----------- ----------- Total 11,274 (32,759) ----------- ----------- Earnings before taxes on earnings 288,607 305,099 Federal & other taxes on earnings 98,558 101,684 ----------- ----------- Net earnings $ 190,049 $ 203,415 =========== =========== Net earnings per common share - Basic $ 0.85 $ 0.91 =========== =========== - Diluted $ 0.85 $ 0.90 =========== =========== Weighted average number of common shares outstanding during the period - Basic 222,901 223,922 =========== =========== - Diluted 224,692 226,415 =========== =========== </TABLE> CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS SIX MONTHS ENDED JUNE 30, (000 OMITTED) <TABLE> <CAPTION> UNAUDITED 1998 1997 ---- ---- <S> <C> <C> Net earnings $ 190,049 $ 203,415 ----------- ----------- Other comprehensive earnings, net of tax: Foreign currency translation adjustments (1,218) (30,334) Less: reclassification adjustment for adjustments included in net earnings (486) (3,959) ----------- ----------- Total foreign currency translation adjustments (732) (26,375) ----------- ----------- Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period (27) (240) Less: reclassification adjustment for gains (losses) included in net earnings 5,713 3 ----------- ----------- Total unrealized gains on securities (tax $27 in 1998) (5,740) (243) ----------- ----------- Other comprehensive earnings (6,472) (26,618) ----------- ----------- Comprehensive earnings $ 183,577 $ 176,797 =========== =========== </TABLE>
4 DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS SIX MONTHS ENDED JUNE 30, (000 OMITTED) <TABLE> <CAPTION> UNAUDITED 1998 1997 ---- ---- <S> <C> <C> Retained earnings at January 1 $1,703,335 $1,470,009 Net earnings 190,049 203,415 ---------- ---------- 1,893,384 1,673,424 Deduct: Common stock cash dividends $ 0.19 per share ($0.17 in 1997) 42,364 38,058 ---------- ---------- Retained earnings at end of period $1,851,020 $1,635,366 ========== ========== </TABLE>
5 DOVER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (000 OMITTED) <TABLE> <CAPTION> UNAUDITED June 30, 1998 December 31, 1997 ------------- ----------------- <S> <C> <C> Assets: Current assets: Cash & cash equivalents $ 99,786 $ 124,780 Marketable securities -- 21,929 Receivables, net of allowance for doubtful accounts 844,724 818,293 Inventories 653,293 562,830 Prepaid expenses 65,407 63,513 ----------- ----------- Total current assets 1,663,210 1,591,345 ----------- ----------- Property, plant & equipment (at cost) 1,371,160 1,262,288 Accumulated depreciation (747,420) (691,709) ----------- ----------- Net property, plant & equipment 623,740 570,579 ----------- ----------- Intangible assets, net of amortization 1,468,324 1,068,310 Other intangible assets 10,368 10,368 Deferred charges & other assets 68,795 36,922 ----------- ----------- $ 3,834,437 $ 3,277,524 =========== =========== Liabilities: Current liabilities: Notes payable $ 520,214 $ 435,920 Current maturities of long-term debt 927 897 Accounts payable 221,779 226,936 Accrued compensation & employee benefits 140,771 158,815 Accrued insurance 123,484 107,818 Other accrued expenses 240,915 241,581 Income taxes 4,391 24,606 ----------- ----------- Total current liabilities 1,252,481 1,196,573 ----------- ----------- Long-term debt 611,360 262,630 Deferred taxes 40,832 40,458 Deferred compensation 75,833 74,279 Stockholders' equity: Preferred stock -- -- Common stock 235,058 234,507 Additional paid-in surplus 10,370 658 Cumulative translation adjustments (38,627) (37,895) Unrealized holding gains (losses) 50 5,790 ----------- ----------- Accumulated other comprehensive earnings (38,577) (32,105) ----------- ----------- Retained earnings 1,851,020 1,703,336 ----------- ----------- Subtotal 2,057,871 1,906,396 Less: treasury stock 203,940 202,812 ----------- ----------- 1,853,931 1,703,584 ----------- ----------- $ 3,834,437 $ 3,277,524 =========== =========== </TABLE>
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 1998 1997 ---- ---- <S> <C> <C> Cash flows from operating activities: Net earnings $ 190,049 $ 203,415 --------- --------- Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 59,337 49,599 Amortization 26,563 20,825 Net increase (decrease) in deferred taxes (813) (10,577) Net increase (decrease) in LIFO reserves 921 820 Increase (decrease) in deferred compensation 1,555 3,005 Gain on sale of business -- (32,171) Other, net (10,504) (23,966) Changes in assets & liabilities (excluding acquisitions): Decrease (increase) in accounts receivable (1,383) (59,786) Decrease (increase) in inventories, excluding LIFO reserve (48,802) (8,451) Decrease (increase) in prepaid expenses (5,736) (2,455) Increase (decrease) in accounts payable (14,190) 16,975 Increase (decrease) in accrued expenses (12,768) (25,839) Increase (decrease) in federal & other taxes on income (22,378) 764 --------- --------- Total adjustments (28,198) (71,257) --------- --------- Net cash provided by operating activities 161,851 132,158 --------- --------- Cash flows from (used in) investing activities: Net sale (purchase) of marketable securities 21,928 (1,688) Additions to property, plant & equipment (77,961) (62,027) Acquisitions, net of cash & cash equivalents (522,120) (75,267) Proceeds from sale of business -- 20,103 Purchase of treasury stock (1,128) (86,848) --------- --------- Net cash from (used in) investing activities (579,281) (205,727) --------- --------- Cash flows from (used in) financing activities: Increase (decrease) in notes payable 81,500 43,369 Increase (decrease) in long-term debt 347,816 (1,918) Proceeds from exercise of stock options 5,484 5,164 Cash dividends to stockholders (42,364) (38,057) --------- --------- Net cash from (used in) financing activities 392,436 8,558 --------- --------- Net increase (decrease) in cash & cash equivalents (24,994) (65,011) Cash & cash equivalents at beginning of period 124,780 199,955 --------- --------- Cash & cash equivalents at end of period $ 99,786 $ 134,944 ========= ========= </TABLE>
7 DOVER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 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, 1998 1997 ---- ---- <S> <C> <C> Raw materials $262,379 $228,128 Work in progress 223,845 194,638 Finished goods 214,387 186,462 -------- -------- Total 700,611 609,228 Less LIFO reserve 47,318 46,398 -------- -------- Net amount per balance sheet $653,293 $562,830 ======== ======== </TABLE> NOTE C - Accumulated other Comprehensive Earnings In June 1997, the Financial Accounting Standards Board issued Statement Financial Accounting Standards No. 130, "Reporting Comprehensive Income". This statement is effective for financial statements issued for periods beginning after December 15, 1997, including interim periods. This new statement requires that more detail, on certain balance sheet information (cumulating translation adjustments and unrealized holding gains), be included in two separate disclosures. a) Consolidated statement of comprehensive earnings included with financial statements. b) Accumulated other comprehensive earnings by components reconciled from beginning of period to the end (see below). More information on these items can be found in the 1997 Annual Report footnotes 1. A. and J. 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 $(32,105) $(37,895) $ 5,790 Current-period change (6,472) (732) (5,740) -------- -------- -------- Ending balance $(38,577) $(38,627) $ 50 ======== ======== ======== </TABLE>
8 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 30, 1998. 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 assumed stock option exercise. The diluted EPS computation was made using the treasury stock method. In June 1998, the FASB issued statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". Effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. The Company does not expect the statement to have a significant effect on its current financial reporting and 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 half of 1998 as compared to the position at December 31, 1997. First half acquisitions, amounting to $526 million, was the principal reason for this decrease. Working capital increased from $394.8 million at the end of last year to $410.7 million at June 30, 1998. In the second quarter Dover issued $200 million of 30-year bonds and $150 million of 10-year debentures (both rated A1, A+). The Company also announced its intention to spin-off 100% of its elevator business to shareholders. A request for an IRS private ruling confirming the tax-free nature of the spin-off and a Form 10 Registration Statement for Elevator shares have been filed. Dover hopes to receive the necessary approvals, list the Elevator shares on the NYSE, and complete the spin-off before the end of the year. At June 30, 1998, 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 $1,032.7 million represented 35.8% of total capital. This compares with 24.5% at December 31, 1997. The unexpectedly rapid acquisition pace at the end of the quarter resulted in an increase in Dover's net debt position. Dover expects that free cash flow and a $200 million (estimated) pre-spin transfer from Dover Elevator will adequately support further acquisition activity in the second half of 1998. (2) MATERIAL CHANGES IN RESULTS OF OPERATIONS: The Company earned $.45 per share in its second quarter ended June 30, 1998, compared to $.55 per share in last year's second quarter. The year-ago figure included $.11 per share from the gain on the sale of a business. Dover completed seven acquisitions during the second quarter, investing $406 million, while making its largest acquisition thus far -- Wilden Pump & Engineering, which is the world's leading maker of air operated double-diaphragm pumps. This brought acquisition investment for the first half to $526 million. During the previous 5 years (1993-1997) acquisition spending totaled about $1.4 billion. Companies acquired in 1998 added $38 million to second quarter sales but less than $.01 to earnings per share. More than half of the $526 million was invested on June 30, 1998, and the three companies acquired on that date had no impact on sales or earnings.
9 Charges to earnings for premiums paid on all acquisitions, required under purchase accounting rules, were $19 million pre tax in the second quarter (equivalent to $ .06 per share), up from $16 million ($ .05 per share) in the year ago quarter. Three of Dover's 5 market segments achieved earnings gains in the quarter, led by a 42% increase at Diversified and 14% at Industries. These offset a 21% decline in the Technologies area. A small gain at Resources balanced a small decline at Elevator. DOVER TECHNOLOGIES: Technologies experienced an $11 million profit decline on a $14 million sales decline, all in the 4 companies that supply equipment for circuit board assembly and test. The sharpest decline was at Universal Instruments where shipments were down by over 20% and profits by over 40%. These declines were expected due to the fall-off in orders that began in last year's fourth quarter. Specialty components suffered a slight profitability decline primarily because of weakness in mobile telecom end-markets. Imaje (marking equipment and supplies) had an 18% profit gain, as strong European markets more than compensated for weakness in Asia. The book-to-bill in Technologies was .94 in the quarter, with circuit board assembly and test at .90. The dollar value of orders trailed last year's by 11% and June 30 backlog assembly was lower by 23%, indicating that Technologies' profit results will be below prior year's in the second half of 1998. DOVER DIVERSIFIED: Dover Diversified's 42% earnings gain on a 28% sales gain reflects both profit growth at businesses owned in last year's Q2 and the impact of 6 acquisitions completed since June 30 of last year. These six companies added $46 million to second quarter sales and $8.4 million to profits (after acquisition premium write-offs). Sales at Tranter, Hill Phoenix and Mark Andy grew at double-digit rates with significant margin improvement at the latter two businesses. Belvac's strong shipments drove earnings well above prior year, but orders continued very weak. Diversified's bookings in the quarter exceeded prior year by 7% but were only 94% of shipments. DOVER INDUSTRIES: Dover Industries achieved a 14% profit gain at 7 of its 12 companies, including newly acquired PDQ (touchless washing marking equipment). Nine companies had higher sales, with Heil Trailer, Heil Environmental, Marathon, PDQ, Texas Hydraulics, and Randell (which added Avtec in May) growing more than 15%. The two Heil companies had the largest profit gains, combining for second quarter profits of more than $13 million with margins over 15%. The one "stand-alone" and the three "add-on" acquisitions completed since June 30 of last year added $15 million to second quarter sales but only $1.4 million to earnings due to acquisition premium write-offs. Bookings for Industries were 2% higher than shipments during the quarter and backlog is 72% higher than at June 30 last year, primarily due to a tripling of backlog at Heil Trailer, strong gains in the solid waste market (Heil Environmental, Marathon), and increases due to acquisitions. DOVER RESOURCES: Profits at Dover Resources gained only 3% from last year due to a sharp decline in the three oil field production equipment businesses (down $12 million in sales and almost $3 million in profits) as lower oil prices have impacted both drilling and investment in producing wells. Elsewhere in Resources markets were somewhat stronger than prior year, with good profit growth at OPW Fueling Components, De-Sta-Co Industries, Midland, Civacon, Hydro Systems and Duncan. Wittemann had an unfavorable prior year comparison, but managed to break even after losses in the two previous quarters, and substantially improved its backlog. The one stand-alone and five add-on acquisitions, completed since June 30 of last year, added $15 million to second quarter sales and $1.7 million to profits (after acquisition premium write-offs). Resources' book-to-bill in the quarter was .98. DOVER ELEVATOR: Elevator profits declined 7% from last year on flat sales. Prior year figures include $12 million of sales from European companies that were sold in the June '97 quarter. Sales of ongoing operations rose 6%. The profit decline reflected the lack of European profits this year, increased spending on a new information system, and inefficiencies in manufacturing due to the closing of the Horn Lake plant and
10 movement of its production operations to other DEI facilities. These factors were partially offset by higher construction and service sales within North America at slightly improved margins. Bookings for new elevator production and installation increased 4% from prior year (7% in North America) with a very strong June pushing backlog to a record level. OUTLOOK: At an analyst meeting on June 25, and in a press release on that date, Dover management expressed its expectation that second quarter earnings per share would be "essentially flat" and that full year EPS will set a new record, but are unlikely to be up by as much as 10% from the $1.68 (excluding the $.11 gain from sale of a business) earned in 1997. The Company believes that June and second quarter financial results support this expectation. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (3.1) Restated Certificate of Incorporation (3.2) By-Laws (27) Financial Data Schedule. (EDGAR filing only) (b) Reports on Form 8-K A Form 8-K dated 5/7/98 was filed on 5/8/98 regarding press release announcing the intention to pursue a plan to spin-off its elevator business to Dover stockholders as an independent publicly traded company. A Form 8-K dated 5/29/98 was filed on 6/1/98 regarding pro-forma condensed financial information showing the effect of the Elevator Spin-off in connection with a proposed offering of Notes and Debentures by the Company under the registration statement on Form S-3 which was declared effective by the SEC on March 24, 1998. A Form 8-K dated 6/11/98 was filed on 6/12/98 regarding the June 9, 1998 completion of an underwritten offering of $150,000,000 aggregate principal amount of its 6.25% Notes due June 1, 2008 and $200,000,000 aggregate principal amount of its 6.65% Debentures due June 1, 2028 under a registration statement declared effective by the SEC on March 24, 1998.
11 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 29, 1998 /s/ John F. McNiff ---------------------------- ------------------------------------ John F. McNiff, Vice President and Treasurer Date: July 29, 1998 /s/ George F. Meserole ---------------------------- ------------------------------------ George F. Meserole, Chief Accounting Officer and Asst. Controller