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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 the quarterly period ended June 30, 2003 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 [ ]
Indicate by checkmark whether the registrant is an accelerated filer (as defined
by Rule 12b-2 of the Securities Exchange Act). Yes [X] No [ ]
The number of shares outstanding of the Registrant's common stock as July 25,
2003 was 202,597,562.
Page 1 of 24
Special Notes Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q, particularly "Management's Discussion and
Analysis", contains 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", "would", "could", "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: the impact
of continued events in the Middle East on the worldwide economy; the continuing
impact of SARS on the Asian economy; 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 same Company's businesses; 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 financial or other information on its
Internet website, http://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 in this release 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.
Page 2 of 24
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
Three Months Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net sales $ 1,124,219 $ 1,081,841 $ 2,152,011 $ 2,076,410
Cost of sales 736,536 727,056 1,409,249 1,397,438
----------- ----------- ----------- -----------
Gross profit 387,683 354,785 742,762 678,972
Selling and administrative expenses 271,600 250,371 533,614 491,093
----------- ----------- ----------- -----------
Operating profit 116,083 104,414 209,148 187,879
----------- ----------- ----------- -----------
Other deductions (income):
Interest expense 17,336 17,999 35,269 36,185
Interest income (1,663) (614) (3,118) (1,677)
All other (income) expense, net 3,139 98 2,622 (3,898)
----------- ----------- ----------- -----------
Total 18,812 17,483 34,773 30,610
----------- ----------- ----------- -----------
Earnings from continuing operations, before
taxes on income 97,271 86,931 174,375 157,269
Federal and other taxes on income 23,883 21,619 42,535 43,541
----------- ----------- ----------- -----------
Net earnings from continuing operations 73,388 65,312 131,840 113,728
----------- ----------- ----------- -----------
Net earnings (losses) from discontinued operations (607) (10,111) 412 (13,411)
----------- ----------- ----------- -----------
Net earnings before cumulative effect of
change in accounting principle 72,781 55,201 132,252 100,317
----------- ----------- ----------- -----------
Cumulative effect of change in accounting principle, net
of tax -- -- -- (293,049)
Net earnings (losses) $ 72,781 $ 55,201 $ 132,252 $ (192,732)
=========== =========== =========== ===========
Net earnings (losses) per common share:
Basic
- - Continuing operations $ 0.36 $ 0.32 $ 0.65 $ 0.56
- - Discontinued operations -- (0.05) -- (0.07)
----------- ----------- ----------- -----------
- - Total net earnings before cumulative effect of change
in accounting principle 0.36 0.27 0.65 0.50
- - Cumulative effect of change in accounting principle -- -- -- (1.45)
----------- ----------- ----------- -----------
- - Net earnings (losses) $ 0.36 $ 0.27 $ 0.65 $ (0.95)
=========== =========== =========== ===========
Diluted
- - Continuing operations $ 0.36 $ 0.32 $ 0.65 $ 0.56
- - Discontinued operations -- (0.05) -- (0.07)
----------- ----------- ----------- -----------
- - Total net earnings before cumulative effect of change
in accounting principle 0.36 0.27 0.65 0.49
- - Cumulative effect of change in accounting principle -- -- -- (1.44)
----------- ----------- ----------- -----------
- - Net earnings (losses) $ 0.36 $ 0.27 $ 0.65 $ (0.95)
=========== =========== =========== ===========
Weighted average number of common shares outstanding
during the period:
Basic 202,480 202,655 202,480 202,655
Diluted 203,108 203,713 203,108 203,713
See Notes to Condensed Consolidated Financial Statements.
Page 3 of 24
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
unaudited
June 30, 2003 December 31, 2002
------------- -----------------
Assets:
Current assets:
Cash, equivalents and marketable securities $ 306,905 $ 294,959
Receivables, net of allowance for doubtful accounts 731,151 669,885
Inventories, net 641,872 595,071
Prepaid expenses and other current assets 46,962 41,263
Deferred tax asset 64,919 56,823
---------- ----------
Total current assets 1,791,809 1,658,001
---------- ----------
Property, plant and equipment, at cost: 1,871,651 1,775,325
Less accumulated depreciation (1,164,272) (1,070,403)
---------- ----------
Net property, plant and equipment 707,379 704,922
---------- ----------
Goodwill, net of amortization 1,683,978 1,654,883
Intangible assets, net of amortization 201,703 202,836
Other assets and deferred charges 187,610 167,529
Assets of discontinued operations 29,407 49,214
---------- ----------
Total assets $4,601,886 $4,437,385
========== ==========
Liabilities:
Current liabilities:
Notes payable $ 21,356 $ 20,611
Current maturities of long-term debt 2,968 3,150
Accounts payable 251,048 199,624
Accrued compensation and employee benefits 128,469 133,570
Accrued insurance 58,744 50,431
Other accrued expenses 209,403 214,573
Federal and other taxes on income 40,287 74,979
---------- ----------
Total current liabilities 712,275 696,938
---------- ----------
Long-term debt 1,001,739 1,030,299
Deferred income taxes 163,133 136,469
Other deferrals (principally compensation) 164,038 151,225
Liabilities from discontinued operations 18,292 27,831
Stockholders' equity:
Total stockholders' equity 2,542,409 2,394,623
---------- ----------
Total liabilities and stockholders' equity $4,601,886 $4,437,385
========== ==========
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(UNAUDITED) (IN THOUSANDS)
Accumulated
Additional Other Total
Common Paid-In Comprehensive Retained Treasury Stockholders' Comprehensive
Stock Capital (Loss) Earnings Stock Equity Income
-------- ---------- ------------- ----------- ----------- ------------- -------------
Balance as of December 31, 2002 $237,680 $65,493 $(38,820) $ 3,164,596 $(1,034,326) $ 2,394,623
Net earnings (losses) -- -- -- 132,252 -- 132,252 $132,252
Dividends paid -- -- -- (54,687) -- (54,687) --
Common stock issued for options
exercised 252 4,661 -- -- -- 4,913 --
Stock acquired during the year -- -- -- -- (1,610) (1,610) --
Increase from translation of
foreign financial statements -- -- 66,804 -- -- 66,804 66,804
Unrealized holding gains (losses) -- -- 114 -- -- 114 114
-------- ------- -------- ----------- ----------- ----------- --------
Balance as of June 30, 2003 $237,932 $70,154 $ 28,098 $ 3,242,161 $(1,035,936) $ 2,542,409 $199,170
======== ======= ======== =========== =========== =========== ========
- -Preferred Stock, $100 par value per share. 100,000 shares authorized; none
issued.
- -Dividends paid per share for the six months ended June 30, 2003 were $0.27.
See Notes to Condensed Consolidated Financial Statements.
Page 4 of 24
DOVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
(UNAUDITED)(IN THOUSANDS)
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (losses) $ 132,252 $(192,732)
--------- ---------
Adjustments to reconcile net earnings to net cash from operating activities:
Cumulative effective of change in accounting principle, net of taxes -- 293,049
Net (earnings) losses from discontinued operations (412) 13,411
Depreciation 66,575 69,620
Amortization 9,030 8,954
Net increase (decrease) in working capital (27,179) (31,541)
Increase (decrease) in deferred and current taxes on income (17,142) (69,655)
Other, net (7,328) (2,360)
--------- ---------
Total adjustments 23,544 281,478
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 155,796 88,746
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment (44,692) (45,440)
Acquisitions (net of cash and cash equivalents acquired) (27,942) (49,482)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (72,634) (94,922)
--------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Increase (decrease) in notes payable 746 206
Increase (decrease) in long-term debt (28,743) 1,453
Purchase of treasury stock (1,610) (1,100)
Proceeds from exercise of stock options 2,327 5,322
Cash dividends to stockholders (54,687) (54,747)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (81,967) (48,866)
--------- ---------
Cash from (used in) discontinued operations 10,680 (4,209)
--------- ---------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 11,875 (59,251)
Cash & cash equivalents at beginning of period 294,448 175,331
--------- ---------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 306,323 $ 116,080
========= =========
See Notes to Condensed Consolidated Financial Statements.
Page 5 of 24
DOVER CORPORATION AND SUBSIDIARIES
MARKET SEGMENT RESULTS
(UNAUDITED) (IN THOUSANDS)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
SALES 2003 2002 2003 2002
----------- ----------- ----------- -----------
Diversified $ 316,264 $ 309,026 $ 608,297 $ 597,463
Industries 263,650 268,692 511,582 530,178
Resources 240,213 232,866 470,005 450,052
Technologies 306,207 272,682 566,249 501,527
Intramarket eliminations (2,115) (1,425) (4,122) (2,810)
----------- ----------- ----------- -----------
Net sales $ 1,124,219 $ 1,081,841 $ 2,152,011 $ 2,076,410
=========== =========== =========== ===========
EARNINGS
Diversified $ 37,750 $ 39,396 69,469 69,443
Industries 29,056 37,151 56,255 76,348
Resources 33,126 33,215 65,817 62,839
Technologies 20,730 3,030 31,228 (3,903)
----------- ----------- ----------- -----------
Subtotal continuing 120,662 112,792 222,769 204,727
Corporate expense (7,718) (8,476) (16,243) (12,950)
Net interest expense (15,673) (17,385) (32,151) (34,508)
----------- ----------- ----------- -----------
Earnings from continuing operations,
before taxes on income 97,271 86,931 174,375 157,269
Federal and other taxes on income 23,883 21,619 42,535 43,541
----------- ----------- ----------- -----------
Net earnings from continuing operations $ 73,388 $ 65,312 $ 131,840 $ 113,728
=========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
Page 6 of 24
DOVER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying unaudited condensed 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 accounting principles generally accepted in the United States of
America. It is the opinion of the Company's management that all adjustments
necessary for a fair statement of the interim results presented have been
reflected therein. All such adjustments were of a normal recurring nature. 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. Certain amounts in prior years have been reclassified to
conform to the current quarter's presentation.
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 11, 2003.
NOTE B - Earnings Per Share
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
exercises. The shares used in the computation of the Company's three and six
month basic and diluted earnings per common share are as follows:
Period Ended
June 30,
(in thousands) 2003 2002
------- -------
Weighted average number of common shares
outstanding during the period 202,480 202,655
Dilutive effect of employee stock options 628 1,058
------- -------
Weighted average number of common shares
outstanding during the period, assuming dilution 203,108 203,713
The diluted EPS computations were made using the treasury stock method. The
diluted weighted average shares exclude the dilutive effect of options with
exercise prices in excess of the average market price of the Company's common
stock of approximately 6.4 million and 4.3 million shares in the second quarter
and year-to-date 2003 and 2002, respectively. Dover did not repurchase shares
of its common stock on the open market during the first six months of 2003.
NOTE C - Stock-Based Compensation
SFAS No. 123 "Accounting for Stock-Based Compensation," allows companies to
measure compensation cost 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," which
generally does not result in a compensation cost at time of grant. 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. The following table illustrates the effect
on net earnings and basic diluted earnings per share if the Company had
recognized compensation expense upon grant of the options, based on the
Black-Scholes option pricing model:
Page 7 of 24
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2003 2002 2003 2002
----------- ----------- ----------- -----------
Net earnings (losses), as reported $ 72,781 $ 55,201 $ 132,252 $ (192,732)
Deduct:
Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects (4,490) (3,794) (8,877) (7,447)
----------- ----------- ----------- -----------
Pro forma net earnings (losses) $ 68,291 $ 51,407 $ 123,375 $ (200,179)
=========== =========== =========== ===========
Earnings (losses) per share:
Basic-as reported $ 0.36 $ 0.27 $ 0.65 $ (0.95)
----------- ----------- ----------- -----------
Basic-pro forma 0.34 0.25 0.61 (0.99)
----------- ----------- ----------- -----------
Diluted-as reported $ 0.36 $ .27 $ 0.65 $ (0.95)
----------- ----------- ----------- -----------
Diluted-pro forma 0.34 0.25 0.61 (0.98)
NOTE D - Acquisitions
The accounts of the acquired companies listed below reflect the fair market
values assigned to assets and liabilities and have been included in the
consolidated financial statements from their respective dates of acquisitions.
Unless otherwise noted, all acquisitions are wholly owned.
2003 Acquisitions
Date Type Acquired Companies Location (Near) Segment Operating Company
- ---- ---- ------------------ --------------- ------- -----------------
20-Mar Asset Standard Aerospace Montreal, Canada Diversified Sargent
Manufactures aircraft engine rotating parts and airframe structural components.
27-May Stock/Asset Blitz GmbH Braunlingen, Germany Industries Rotary Lift
Manufactures heavy duty inground lifts, vehicle component removal devices, air
compressors, and tire filling products.
The aggregate purchase price of the 2003 acquisitions was approximately $27.9
million.
NOTE E - Inventory
Inventories, by components, are summarized as follows:
June 30, December 31,
(in thousands) 2003 2002
-------- --------
Raw materials $302,816 $288,426
Work in progress 175,340 178,631
Finished goods 195,937 159,495
-------- --------
Total 674,093 626,552
Less LIFO reserve 32,221 31,481
-------- --------
Net amount per balance sheet $641,872 $595,071
NOTE F - Goodwill
The following table provides the changes in carrying value of goodwill by market
segment through the quarter ended June 30, 2003:
(in thousands) Diversified Industries Resources Technologies Total
- -------------- ----------- ---------- --------- ------------ -----
Balance as of December 31, 2002 $401,743 $401,738 $313,570 $537,832 $1,654,883
Goodwill from acquisitions -- 2,697 -- -- 2,697
Other (primarily currency translation) 7,205 2,221 4,021 12,951 26,398
-------- -------- -------- -------- ----------
Balance as of June 30, 2003 $408,948 $406,656 $317,591 $550,783 $1,683,978
Page 8 of 24
NOTE G - Restructuring and Inventory Charges
During 2002 and 2001, the Company's segments and operating companies initiated a
variety of restructuring programs. These restructuring programs focused on
reducing the overall cost structure primarily through reductions in headcount
and through the disposition or closure of certain non-strategic or redundant
product lines and manufacturing facilities. Restructuring charges are comprised
of only employee separation and facility exit costs. A reconciliation of
restructuring provisions from December 31, 2002, through June 30, 2003 is as
follows:
(in thousands) Severance Exit Total
- -------------- --------- ---- -----
Balance as of December 31, 2002 $ 6,219 $ 9,142 $ 15,361
Benefits and exit costs paid/write downs (3,378) (1,055) (4,433)
------- ------- --------
Balance as of June 30, 2003 $ 2,841 $ 8,087 $ 10,928
Due to significant declines in the demand for certain products, special
inventory reserves were recorded in the Technologies segment during 2002 and
2001. The following table details the utilization of these inventory reserves
recorded at December 31, 2002 through June 30, 2003:
(in thousands) Technologies
- -------------- ------------
Balance as of December 31, 2002 $ 15,612
Disposed of through June 30, 2003 (5,054)
-------------
Balance as of June 30, 2003 $ 10,558
NOTE H - Discontinued Operations
During the first six months of 2003 Dover disposed of Duncan Parking Systems
from the Resources segment, Wittemann from the Resources segment and two small
product line businesses at OK International and Vectron International, both from
the Technologies segment, which were all previously classified as discontinued
operations in 2002. These dispositions did not have a material impact on Dover's
financial results during the period ended June 30, 2003.
During the first six months of 2002 Dover disposed of Vectron GmbH from the
Technologies segment, which was previously classified as a discontinued
operation. This disposition resulted in a $7.3 million loss on the sale.
Of the five operations held for sale as of December 31, 2002, four operations
have been sold, and one operation remains as held for sale through June 30,
2003.
NOTE I - Debt
Dover's long-term notes with a book value of $1,001.7 million at June 30, 2003,
had a fair value of approximately $1,148.0 million at June 30, 2003. The
estimated fair value of the Company's long-term notes is based on quoted market
prices for similar issues.
Subsequent to the period ending June 30, 2003, Dover entered into two interest
rate swap agreements terminating on June 1, 2008 with notional amounts of $50.0
million each to exchange 6.25% fixed interest rate Notes, due June 1, 2008 to
variable interest.
NOTE J - Commitments and Contingent Liabilities
A few of the Company's subsidiaries are involved in legal proceedings relating
to the cleanup of waste disposal sites identified under Federal and State
statutes which provide for the allocation of such costs among "potentially
responsible parties." In each instance the extent of the Company's liability
appears to be very small in relation to the total projected expenditures and the
number of other "potentially responsible parties" involved and is anticipated to
be immaterial to the Company. In addition, a few of the Company's subsidiaries
are involved in ongoing remedial activities at certain plant sites, in
cooperation with regulatory agencies, and appropriate reserves have been
established.
Page 9 of 24
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.
Warranty program claims are provided for at the time of sale. Amounts provided
for are based on historical costs and adjusted new claims. A reconciliation of
the warranty provision through June 30, 2003 is as follows:
(in thousands)
- --------------
Balance at December 31, 2002 $ 35,994
Provision for warranties 9,061
Settlements made (9,823)
Other adjustments (primarily currency translation) 1,108
-----------
Balance at June 30, 2003 $ 36,340
NOTE K - New Accounting Standards
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which is effective for exit and disposal
activities initiated after December 31, 2002. The standard replaces EITF Issue
94-3 and requires companies to recognize costs associated with exit or disposal
activities when they are incurred, as defined in SFAS No. 146, rather than at
the date of a commitment to an exit or disposal plan. The provisions of SFAS 146
are to be applied prospectively. The effect of the adoption of SFAS No. 146 was
immaterial to the Company's consolidated results of operations and financial
position.
In November of 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34." FIN
45 clarifies the requirements of FASB Statement No. 5., "Accounting for
Contingencies", relating to the guarantor's accounting for, and disclosure of,
the issuance of certain types of guarantees. The disclosure requirements of FIN
45 are effective for financial statements of interim or annual periods that end
after December 15, 2002 and have been incorporated into the footnotes. The
provisions for initial recognition and measurement are effective on a
prospective basis for guarantees that are issued or modified after December 31,
2002, irrespective of the guarantor's year-end. FIN 45 requires that upon
issuance of a guarantee, the entity must recognize a liability for the fair
value of the obligation it assumes under that guarantee. The effect of the
adoption of FIN 45 was immaterial to the Company's consolidated results of
operations and financial position. The Company has also adopted the disclosure
requirements of FIN 45.
In December of 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure - an amendment of SFAS 123" which is
effective for fiscal years ending after December 15, 2002 regarding certain
disclosure requirements which have been incorporated into the footnotes. This
Statement amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation. It also amends the disclosure provisions of that
Statement to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation. Finally, this Statement amends APB Opinion No. 28,
"Interim Financial Reporting", to require disclosure about those effects in
interim financial information. The effect of the adoption of SFAS No. 148 was
immaterial to the Company's consolidated results of operations and financial
position.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities". This interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements", addresses
consolidation of variable interest entities. FIN 46 requires certain variable
interest entities ("VIE's") to be consolidated by the primary beneficiary if the
entity does not effectively disperse risks among the parties involved. The
provisions of FIN 46 are effective immediately for those variable interest
entities created after January 31, 2003. The provisions are effective for the
first period beginning after June 15, 2003 for those variable interests
held prior to Feburary 1, 2003. The effect of the adoption of FIN 46 was
Page 10 of 24
immaterial to the Company's consolidated results of operations and financial
position.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 clarifies the
accounting for derivatives, amending the previously issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149
clarifies under what circumstances a contract with an initial net investment
meets the characteristics of a derivative, amends the definition of an
underlying contract, and clarifies when a derivative contains a financing
component in order to increase the comparability of accounting practices under
SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003. The adoption of SFAS No. 149 is not expected to have a
material impact on the Company's consolidated results of operations or financial
position.
In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 applies specifically to a number of financial instruments that companies
have historically presented within their financial statements either as equity
or between the liabilities section and the equity section, rather than as
liabilities. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The effect of the adoption
of SFAS No. 150 was immaterial to the Company's consolidated results of
operations and financial position.
Page 11 of 24
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(1) MATERIAL CHANGES IN CONSOLIDATED FINANCIAL CONDITION:
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, cash equivalents and marketable securities increased 4.1%
during the first six months of 2003 to $306.9 million at June 30, 2003 compared
to $295.0 million at December 31, 2002. Cash flow provided from continuing
operating activities for the first six months of 2003 was $155.8 million
compared to $88.7 million in the first six months of 2002. Increases in cash
flows from continuing operations were primarily driven by increased net earnings
and lower tax payments, which was partially offset by an incremental increase in
net working capital. During the six month period ended June 30, 2003, working
capital was primarily impacted by accounts receivable which increased less than
the comparable prior year period, by $5.2 million, inventories which increased
from the comparable prior year period, by $35.6 million, offset by increases in
accounts payable from the comparable prior year period, by $23.9 million. Dover
also made a discretionary contribution of $15.0 million to its defined benefit
pension plan in the second quarter of 2003 bringing the year-to-date
contribution to $18.8 million. The Company anticipates making additional
discretionary contributions between $10.0 million and $20.0 million to its
pension benefit plans for the remainder of the year. The level of cash used in
continuing investing activities for the first six months of 2003 was $72.6
million compared to $94.9 million for the comparable period last year,
reflecting reduced acquisition activity from the comparable prior year period.
The acquisition expenditures for the first six months of 2003 were $27.9 million
compared to $49.5 million in the comparable 2002 period, while capital
expenditures made in the first six months of 2003 were relatively flat at $44.7
million, compared to $45.4 million in the comparable 2002 period. Acquisitions
and capital expenditures during the first six months of 2003 were funded by
internal cash flow. Cash used in continuing financing activities through June
30, 2003 was $82.0 million compared to cash used of $48.9 million in the
comparable 2002 period. Net cash used from financing activities during the first
six months of 2003 primarily reflected a $28.7 million decrease of long-term
debt and dividend payments of $54.7 million, compared with prior year increases
in long-term debt of $1.4 million and dividend payments of $54.7 million. The
following table is derived from the Condensed Consolidated Statements of Cash
Flows:
Cash flows from Continuing Operations Six Months Ended
June 30, (in thousands, unaudited) 2003 2002
- ---------------------------------
Cash flows provided by (used in) operating activities $ 155,796 $88,746
Cash flows (used in) investing activities (72,634) (94,922)
Cash flows (used in) provided by financing activities (81,967) (48,866)
Dover's free cash flow for the six months ended June 30, 2003 increased
significantly as cash generated from operations improved $67.1 million from the
comparable 2002 period. The following table is a reconciliation of free cash
flow with cash flows from operating activities:
Six Months Ended June 30,
Free Cash Flow (in thousands, unaudited) 2003 2002
- ---------------------------------------- ---- ----
Cash flow provided by operating activities $ 155,796 $ 88,746
Less: Capital expenditures (44,692) (45,440)
Dividends to stockholders (54,687) (54,747)
--------- --------
Free cash flow $ 56,417 $(11,441)
========= ========
Page 12 of 24
The total debt level of $1,026.1 million as of June 30, 2003 decreased from
December 31, 2002 as a result of repaying approximately $28.0 million of debt
during the second quarter of 2003. As of June 30, 2003, net debt of $719.2
million represented 22.0% of total capital, a decrease of 2.1 percentage points
from December 31, 2002. Subsequent to the period ending June 30, 2003, Dover
entered into two interest rate swap agreements terminating on June 1, 2008 with
notional amounts of $50.0 million each to exchange 6.25% fixed interest rate
Notes, due June 1, 2008 to variable interest. The following table provides a
reconciliation of net debt to total capitalization with the GAAP information:
unaudited
June 30, December 31,
Net Debt to Total Capitalization Ratio (in thousands) 2003 2002
- ----------------------------------------------------- ---- ----
Short-term and long-term debt $1,026,062 $1,054,060
Less: Cash, equivalents and marketable securities 306,905 294,959
---------- ----------
Net debt 719,157 759,101
Add: Stockholders' equity 2,542,408 2,394,623
---------- ----------
Total capitalization $3,261,565 $3,153,724
Net debt to total capitalization 22.0% 24.1%
---------- ----------
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS:
THREE MONTHS ENDED JUNE 30, 2003 COMPARED WITH THREE MONTHS ENDED JUNE 20, 2002
Sales in the second quarter of 2003 of $1,124.2 million were up 3.9% from the
comparable 2002 period. However, sales would have decreased 0.8% to $1,072.8
million if 2002 foreign currency translation rates were applied to 2003 results.
Acquisitions completed during 2003 contributed $5.4 million to consolidated
sales during the quarter ended June 30, 2003. Gross profit of $387.7 million in
the second quarter of 2003 represented a 9.3% improvement compared to $354.8
million in the comparable 2002 period. Gross profit margins of 34.5% in the
second quarter of 2003 compared to 32.8% in the second quarter of 2002.
Selling and administrative expenses for the second quarter of 2003 were $271.6
million or 24.2% of net sales, compared to $250.4 million or 23.1% of net sales
in the comparable 2002 period. Operating profit of $116.1 million in the second
quarter increased $11.7 million compared to the prior year due primarily to
benefits from the company's restructuring programs undertaken during
2002. Operating profit margins in the second quarter of 2003 were 10.3%
compared to 9.7% in the second quarter of 2002. Net interest expense decreased
9.8% to $15.7 million during the second quarter of 2003, comparable to $17.4
million in the second quarter of 2002.
Other net expenses for the second quarter of 2003 were $3.1 million, which
primarily related to a legal settlement at the Dover Resources segment, compared
to other net expenses of $0.1 million in the comparable 2002 period.
Dover's effective tax rate for continuing operations for the second quarter of
2003 was 24.6% compared to last year's second quarter rate of 24.9%. The low
effective tax rate for both periods is largely due to the continuing benefit
from tax credit programs such as those for R&D and foreign taxes combined with
the benefit from U.S. export programs, a lower foreign tax rate and the
recognition of certain capital loss benefits.
Net earnings from continuing operations for the second quarter of 2003 were
$73.4 million or $.36 per diluted share compared to $65.3 million or $.32 per
diluted share from continuing operations in the comparable 2002 period. For the
second quarter of 2003, net earnings were $72.8 million or $.36 per diluted
share, including $0.6 million in losses from discontinued operations, compared
to $55.2 million or $.27 per diluted share in the second quarter of 2002, which
included $10.1 million or $.05 per diluted share in losses from discontinued
operations primarily related to a loss on the sale of Vectron GmbH of $7.3
million.
SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2002
Sales for the six months ended June 30, 2003 of $2,152.0 million were up 3.6%
from the comparable 2002 period. However, sales would have been down 0.9% to
$2,057.2 million if 2002 foreign currency translation rates were applied to 2003
results. Acquisitions made during 2003 contributed $5.4 million to consolidated
sales during the six months ended June 30, 2003. Gross profit of $742.8 million
during the first six months of 2003 represented a 9.4% improvement compared to
$679.0 million in the comparable 2002 period. Gross profit margins of 34.5% in
the first six months of 2003 compared to 32.7% in the first six monts of 2002.
Page 13 of 24
Selling and administrative expenses for the first six months of 2003 were $533.6
million or 24.8% of net sales, compared to $491.1 million or 23.7% of net sales
in the comparable 2002 period. Operating profit of $209.1 million for the six
month period ended June 30, 2003, increased $21.3 million compared to the prior
year due primarily to benefits from the company's restructuring programs
undertaken during 2002. Operating profit margins for the first six months of
2003 were 9.7% compared to 9.0% for the first six months of 2002. Net interest
expense decreased 6.8% to $32.2 million during the first six months of 2003,
compared to $34.5 million during the first six months of 2002.
Other net expenses for the six months ended June 30, 2003 were $2.6 million,
which primarily related to a legal settlement at the Dover Resources segment.
Other net income for the six months ended June 30, 2002 was $3.9 million, which
included a gain on the sale of a product line.
Dover's effective tax rate for continuing operations for the six months ended
June 30, 2003 was 24.4% compared to the 2002 six month rate of 27.7% and the
2002 full year rate of 21.7%. The low effective tax rate is largely due to the
continuing benefit from tax credit programs such as those for R&D and foreign
taxes combined with the benefit from U.S. export programs, a lower foreign tax
rate and the recognition of certain capital loss benefits.
Net earnings from continuing operations for the first six months of 2003 were
$131.8 million or $.65 per diluted share compared to $113.7 million or $.56 per
diluted share from continuing operations in the comparable 2002 period. For the
six months ended June 30, 2003, net earnings before cumulative effect of
accounting changes were $132.3 million or $.65 per diluted share, including $0.4
million in earnings from discontinued operations, compared to the first six
months of 2002 net earnings before cumulative effect of accounting changes of
$100.3 million or $.50 per diluted share, which included $13.4 million or $.07
per diluted share in losses from discontinued operations primarily related to a
loss on the sale of Vectron GmbH of $7.3 million.
For the six months ended June 30, 2002, the impact of the adoption of the
Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets", resulted in a net loss of $192.7 million. The adoption
resulted in a goodwill impairment charge of $345.1 million ($293.0 million, net
of tax, or $1.44 diluted earnings per share). The adoption of the standard also
discontinued the amortization of goodwill effective January 1, 2002.
DOVER DIVERSIFIED
Three Months Ended June 30, Six Months Ended June 30,
(in thousands, unaudited) 2003 2002 % Change 2003 2002 % Change
- ------------------------- ---- ---- -------- ---- ---- --------
Net sales $316,264 $309,026 2.3% $608,297 $597,463 1.8%
Earnings 37,750 39,396 -4.2% 69,469 69,443 --
Operating margins 11.9% 12.7% 11.4% 11.6%
Second quarter results at Diversified were driven by strong performances by Hill
Phoenix and Belvac. Hill Phoenix achieved record earnings during the quarter and
margins improved due to operating leverage, product redesigns, and manufacturing
efficiencies. Though its overall market is down, Hill Phoenix's bookings remain
strong for both display cases and refrigeration systems. Belvac's results
continue to be favorably impacted by machine sales to Eastern Europe. Current
quarter bookings for Belvac included sizable orders from key customers in the
U.S. and Australia. Sargent reported improved results from the first quarter, as
earnings were equal to last year. Decreases in its commercial aerospace
businesses were offset by increases in its defense business as well as a first
quarter add-on acquisition. Waukesha's earnings and margins improved from the
first quarter, with higher sales to its oil and gas markets offsetting lower
volume in its power generation and nuclear markets. SWEP and Tranter PHE
achieved increased bookings and sales, although margins were lower due to
competitive pricing and product mix. Performance Motorsports' earnings decreased
as it was challenged with lower demand in some markets, integrating a recent
acquisition, and resolving some manufacturing issues. Crenlo reported lower
earnings due to decreased sales volume in both its enclosure and cab businesses.
Mark Andy, SWF and Graphics Microsystems reported lower earnings as the
printing/packaging equipment market remains weak.
For the six months ended June 30, 2003, sales increases from the comparable 2002
period were primarily driven by Belvac, SWEP and Mark Andy, offset by decreases
at Waukesha, Hill Phoenix and Crenlo. Earnings for the sixth months ended
June 30, 2003 also increased from 2002, driven primarly by Belvac and Hill
Phoenix, with offsetting decrease at Performance Motorsports, Waukesha and
Graphics.
Page 14 of 24
Bookings in the second quarter of 2003 were $317.9 million, an increase of 7.7%
from the comparable 2002 period, and the quarter book-to-bill ratio was 1.01.
Bookings for the six months of 2003 were $611.3 million, an increase of 3.5%
from the comparable 2002 period, and the six months book-to-bill ratio was 1.00.
Backlog at the end of the quarter was $375.3 million, 4.2% higher than at the
beginning of the year.
DOVER INDUSTRIES
Three Months Ended June 30, Six Months Ended June 30,
(in thousands, unaudited) 2003 2002 % Change 2003 2002 % Change
- ------------------------- ---- ---- -------- ---- ---- --------
Net sales $263,650 $268,692 -1.9% $511,582 $530,178 -3.5%
Earnings 29,056 37,151 -21.8% 56,255 76,348 -26.3%
Operating margins 11.0% 13.8% 11.0% 14.4%
Although results across Dover Industries continue to lag compared to the prior
year, second quarter results were above the first quarter with sales of $247.9
million and earnings of $27.2 million both increasing more than 6%. Market share
gains along with productivity improvements have contributed to the
quarter-to-quarter gains although operating margins remained flat at 11.0% and
down from the prior year as pricing pressures continue. Compared to the prior
year, the earnings decline was principally driven by Heil Environmental, Heil
Trailer, DI Foodservice and Chief Automotive. Both Heil companies continue to be
impacted by weak markets as the refuse market along with the petroleum and large
cube dry bulk markets have declined at double-digit rates. DI Foodservice's
results were also market driven as the institutional market continues to face
budgetary constraints. Chief Automotive's results have been negatively impacted
by a sharp decline in pulling equipment demand, offset by modest strength in
measuring equipment. Strategic realignment costs across all four companies also
contributed to the earnings decline. Sales increased at both Rotary Lift and
Tipper-Tie, although pricing pressures narrowed margins. Marathon continues to
gain share in a highly competitive marketplace. Triton's unit sales increased
again this quarter due primarily to new products launched in 2002. New product
introductions also contributed to PDQ's strong operational performance. Dovatech
and Kurz-Kasch continued their rebound from a soft 2002 with their second
consecutive quarter of year-over-year sales, margins and earnings gains.
Somero's performance improved in the face of a declining construction market and
was partially driven by new product introductions.
For the six months ended June 30, 2003, sales decreases from the comparable 2002
period were primarily driven by Heil Environmental, Heil Trailer and Chief
Automotive, offset by increases at Tipper Tie, Kurz-Kasch and Dovatech. Earnings
for the six months ended June 30, 2003 also decreased from 2002, driven
primarily by Heil Environmental, Heil Trailer and Chief Automotive, with
offsetting increases at Dovatech and Kurz-Kasch.
Segment bookings in the second quarter of 2003 were $260.6 million, a decrease
of 6.6% from the comparable 2002 period, and the quarter book-to-bill ratio was
..99. Segment bookings for the first six months of 2003 were $527.8 million,
compared to $530.1 million during comparable 2002 period, and the six months
book-to-bill ratio was 1.03. Backlog increased 17.4% from the beginning of the
current year to $143.7 million.
DOVER RESOURCES
Three Months Ended June 30, Six Months Ended June 30,
(in thousands, unaudited) 2003 2002 % Change 2003 2002 % Change
---- ---- -------- ---- ---- --------
Net sales $240,213 $232,866 3.2% $470,005 $450,052 4.4%
Earnings 33,126 33,215 -0.3% 65,817 62,839 4.7%
Operating margins 13.8% 14.3% 14.0% 14.0%
Dover Resources' quarterly earnings were flat and included a legal settlement of
$2.2 million. The Energy Products Group and C. Lee Cook continue to benefit from
increased drilling demand and pricing of natural gas, as well as from the
stabilization of oil pricing. These companies have made improvements in earnings
as a result of internal cost initiatives that have provided very positive
earnings growth on a modest sales increase. The pump companies, Blackmer and
Wilden, saw relatively flat markets in the U.S. but both benefited from strong
international sales. Success continues at the Wilden operations in China and
Argentina, with both entities reporting positive results. OPW Fluid Transfer
Group continues to achieve positive leverage on relatively small sales increases
with solid performance at its Midland and Sure Seal businesses, a result of
strength in the roll tank car market. OPW Fueling Componets increased earnings
Page 15 of 24
and margins on reduced sales levels compared to the prior year. The increase
was a result of downsizing and global sourcing. Small improvements in service
station construction brought more business in higher margin products. De-Sta-Co
Industries continues to show improvement over prior year results, with solid
gains from its European operations and share gains in its industrial markets.
The traditional automotive markets remain soft, but are expected to improve in
the second half as more capital projects are being approved. De-Sta-Co
Manufacturing made solid improvement as compared to a difficult first quarter
driven by cost control initiatives and the successful launch of a new
automotive air conditioner compressor program. Those companies serving the
construction, crane, and aerial lift markets, Texas Hydraulics and Tulsa Winch,
have been negatively impacted by OEM production decreases and pricing. However,
Tulsa Winch has benefited from strength in the oil patch. Hydro Systems had a
strong second quarter driven primarily by strength in the UK and some key new
projects with major U.S. customers. In addition, Hydro Systems began to supply
customers in Brazil from its newly opened facility in Sao Paulo. RPA Process
Technologies operated at a loss primarily as a result of difficult market
conditions in the heavy equipment markets served by its European subsidiary.
For the six months ended June 30, 2003, sales increases from the comparable 2002
period were primarily driven by De-Sta-Co Industries, Energy Products Group and
Wilden, offset by decreases at Texas Hydraulics and RPA Process Technologies.
Earnings for the six months ended June 30, 2003 also increased from 2002, driven
primarily by Energy Products Group, De-Sta-Co Industries and C. Lee Cook, with
offsetting decreases at RPA Process Technologies and Texas Hydraulics.
Segment bookings in the second quarter of 2003 were $238.4 million, a decrease
of 2.0% from the comparable 2002 period and the book-to-bill ratio for the
quarter was .99. Segment bookings for the first six months of 2003 were $478.1
million, an increase of 2.8% from the comparable 2002 period and the
book-to-bill ratio for the six months was 1.02. Ending backlog was $87.2
million, a 12.3% increase from the end of last year. Dover Resources' results
for all periods presented have been adjusted to include Texas Hydraulics, which
was transferred from Dover Industries at the beginning of the year.
DOVER TECHNOLOGIES
Three Months Ended June 30, Six Months Ended June 30,
(in thousands, unaudited) 2003 2002 % Change 2003 2002 % Change
- ------------------------- ---- ---- -------- ---- ---- --------
Net sales $306,207 $272,682 12.3% $566,249 $ 501,527 12.9%
Earnings 20,730 3,030 584.2% 31,228 (3,903) 900.1%
Operating margins 6.8% 1.1% 5.5% -0.8%
In the fourth quarter of 2002, the Technologies companies serving the
electronics industry resized their organizations in order to operate profitably
at reduced levels of demand. The results for the first half of 2003 reflect this
successful effort. Bookings for the first six months of 2003 for the Specialty
Electronic Components (SEC) companies were up modestly from the average rate for
all of 2002. The intra-quarter bookings during the second quarter for CBAT
deteriorated modestly during the quarter while SEC's bookings remained flat.
This is in part a reflection of the SARS issue in Asia, as a large portion of
the current year CBAT orders and new growth in SEC orders are from that region.
There are also some positive indications from the market place that both the
excess equipment overhang from 2000 is diminishing and the utilization of
production equipment is showing signs of improvement.
Technologies' CBAT business recorded earnings of $10.2 million for the second
quarter compared to a loss of $10.2 million in the second quarter of 2002.
Second quarter sales were $179.2 million, an increase of $20.5 million or 12.9%
from last year's comparable quarter. Bookings at $181.8 million were up 3.4%
from the prior year. The CBAT book-to-bill ratio was 1.01 for the second quarter
with backlog at $91.2 million, 26.3% higher than at the end of 2002. Margins
were 5.6% for the quarter compared to negative margins of 6.3% for the
comparable period last year. Most of the CBAT companies experienced growth in
sales. CBAT companies continue their investment in new product introductions.
Universal has begun the "beta" site testing of its new modular High Speed Chip
placement head, capable of being mounted on its range of mid and high-end
platform machines. Other CBAT companies have products nearing or in beta testing
that will help to support future growth initiatives.
In Technologies' SEC business, sales in the quarter were $52.1 million compared
to $56.1 million in last year's second quarter, representing a decline of 7.2%.
SEC reported earnings of $1.9 million, compared to a loss of $1.1 million in the
second quarter of 2002. Margins were 3.8% for the quarter compared to negative
margins of 1.8% for the comparable period last year. Bookings in the second
quarter of $51.9 million were 4.0% lower than the same period last year.
Page 16 of 24
The book-to-bill ratio was 1.00 for the quarter with backlog at $46.3 million
at the end of the period, an 8.3% increase from the beginning of the current
year. Overall, the telecom market continues to show signs of weakness in both
sales opportunities and in pricing. For the first six months of 2003, the SEC
companies were able to show significant improvement in earnings while reducing
sales, as compared to the same period in 2002. This is a direct result of not
only cost reductions from restructuring operations, but also the shift to
higher margin markets such as military, space, medical and industrial. Even in
the continued weak telecom sector, the SEC companies have made strategic price
increases for certain high value added products. These strategic efforts are
expected to continue.
In the quarter, Imaje, the French-based industrial ink-jet printer and ink
manufacturer, had sales of $75.0 million, up 29.6% from the comparable period
last year. However, sales would have been up only 11.2% to $64.4 million if 2002
foreign currency translation rates were applied to 2003 results. Earnings
increased by 27.0% to $15.8 million from the comparable 2002 quarter and margins
decreased slightly. Imaje's bookings were up 36.3% from the prior year in the
second quarter to $79.0 million and the book-to-bill ratio was 1.05. Imaje's
various product expansion initiatives and sales force reorganization are paying
off with gains in market share. The strength of the Euro has put pressure on
earnings and margins, as a substantial portion of costs are incurred in Euros.
However, appropriate cost control measures are mitigating this impact.
For the six months ended June 30, 2003, sales at the CBAT businesses were $328.1
million, an increase of $44.6 million and earnings were $11.8 million, an
increase of $35.2 million as compared to the same 2002 period. For the six
months ended June 30, 2003, sales at the SEC businesses were $102.4, a decrease
of $7.5 million and earnings were $4.9 million, an increase of $8.7 million as
compared to the same 2002 period. For the six months ended June 30, 2003, sales
at Imjaje were $135.8 million, an increase of $27.7 million and earnings were
$27.1 million, an increases of $5.1 million as compared to the same 2002 period.
CBAT bookings for the first six months of 2003 were $342.3 million, an increase
of 8.8% from the comparable 2002 period and the book-to-bill ratio was 1.04. SEC
bookings for the first six months of 2003 were $105.7 million, flat from the
comparable 2002 period and the book-to-bill ratio was 1.03. Imaje's bookings for
the first six months of 2003 were $141.2 million, an increase of 30.7% from the
comparable 2002 period and the book-to-bill ratio was 1.04.
OUTLOOK
Dover's second quarter results continue to reflect the progress seen in the
first quarter, despite generally weak economic conditions which continue to have
an impact on most Dover companies. The positive improvement for the quarter over
the prior year and prior quarter primarily reflects the sustained improvements
at Dover Technologies, particularly its CBAT companies and Imaje. Operating
margins for Dover Technologies were 6.8%, up from 4.0% in the first quarter,
driven by continued improvement in sales at the CBAT companies, and strong
growth in sales and earnings at Imaje.
The other three segments were all flat to down compared to the prior year
period, but up, in some cases substantially, compared to the first quarter of
2003. Dover Resources' earnings were essentially the same as the prior year and
prior quarter, largely because of a non-recurring expense. Dover Diversified was
down modestly compared to last year, although sales, earnings and margins
improved over the prior quarter, showing better operating leverage, lead by
another strong performance at Hill Phoenix. Dover Industries continues to face
challenges in many markets, although results were modestly better than the first
quarter.
Dover's operating management continues to demonstrate their commitment to new
product and market development, improved competitiveness and striving for better
operating margins. Dover's overall assessment of the global manufacturing
economy remains unclear with some encouraging signs. It is expected that any
improvement will be reflected in positive operating results as seen in Dover's
performance in this most recent quarter and year-to-date.
NON-GAAP INFORMATION
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 and
Page 17 of 24
capitalization are not financial measures under GAAP and should not be
considered as a substitute for cash flows from operating activities, debt or
equity and sales as determined in accordance with GAAP and may not be comparable
to similarly titled measures reported by other companies. Management believes
the net debt to capitalization ratio and free cash flow are important measures
of liquidity and operating performance because they provide both management and
investors a measurement of cash generated from operations that is available to
fund acquisitions and repay debt.
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 2003. 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 incorporated by reference
in Form 10-K for the fiscal year ended December 31, 2002.
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 2003, there were no changes in the
Company's internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Page 18 of 24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The results of the matters submitted to a vote of security holders at the Annual
Meeting of Stockholders of Dover Corporation held on April 22, 2003 were
reported in the Company's first quarter Form 10-Q filed with the Securities and
Exchange Commission on May 2, 2003.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
31.1 Certificate pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, signed and dated by Robert
G. Kuhbach.
31.2 Certificate pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, signed and dated by Thomas
L. Reece.
32 Certificate Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
signed and dated by Thomas L. Reece and Robert G. Kuhbach.
(b) Reports on Form 8-K:
The Company filed with the Securities and Exchange Commission a
report on Form 8-K, filed on April 18, 2003, covering information
reported under Item 9. Regulation FD Disclosure but furnished
pursuant to Item 12. Results of Operation and Financial Condition in
accordance with SEC Release No. 33-8216.
The Company filed with the Securities and Exchange Commission a
report on Form 8-K, filed on July 18, 2003, covering information
reported under Item 9. Regulation FD Disclosure but furnished
pursuant to Item 12. Results of Operation and Financial Condition in
accordance with SEC Release No. 33-8216.
Page 19 of 24
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.
DOVER CORPORATION
Date: July 30, 2003 /s/ Robert G. Kuhbach
------------- ---------------------
Robert G. Kuhbach, Vice President,
Finance, Chief Financial Officer &
Treasurer
(Principal Financial Officer)
Date: July 30, 2003 /s/ Raymond T. McKay, Jr.
------------- -------------------------
Raymond T. McKay, Jr.
Controller
(Principal Accounting Officer)
Page 20 of 24
EXHIBIT INDEX
31.1 Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended, signed and dated by Robert G. Kuhbach.
31.2 Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended, signed and dated by Thomas L. Reece.
32 Certificate Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Robert
G. Kuhbach and Thomas L. Reece.
Page 21 of 24