Dover Reports Third Quarter 2002 Results
Net earnings from continuing operations for the first nine months of 2002 were $168.1 million or $.83 per diluted share compared to $132.3 million or $.65 per diluted share from continuing operations in the comparable period last year. For the first nine months of 2002, net earnings before changes in accounting principles were $156.8 million or $.77 per diluted share, including $11.4 million or $.06 per diluted share in losses from discontinued operations, compared to $225.0 million or $1.10 per share in 2001, which included $92.7 million or $.45 per share in earnings from discontinued operations. The nine months' earnings results (net of tax), included restructuring, inventory and other charges of $8.2 million ($.04 DEPS) in 2002 and $43.9 million ($.21 DEPS) in 2001. Year-to-date sales for 2002 were $3.2 billion compared to $3.4 billion last year, a decrease of 6%.
For the first nine months of 2002, net earnings were a loss of $136.3 million or $.67 per diluted share compared to earnings of $225.0 or $1.10 per diluted share in 2001. The current year's results include the impact of the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. The adoption resulted in a goodwill impairment charge of $345.1 million ($293.0 million net of tax or $1.44 DEPS) for Dover, which was recognized as a change in accounting principle in the first quarter of 2002. The adoption of the Statement also discontinues the amortization of goodwill, effective January 1, 2002. Goodwill amortization totaled $11.1 million net of tax or $.05 per diluted share in the third quarter of 2001 and $31.7 million net of tax or $.15 per diluted share for the first nine months of 2001.
Segment earnings for the quarter were $100.6 million, an increase of 223% or $69.4 million from $31.2 million last year. In the Dover Industries segment, earnings increased 4% to $34.0 million from the comparable quarter last year on a sales decline of 1%. Dover Diversified's earnings increased 63% to $36.3 million on a 1% sales increase. In Dover Resources, quarterly earnings were $30.5 million, a 17% increase over last year on a sales decrease of 6%.
The Dover Technologies segment recorded a slight loss of $0.2 million in the third quarter compared to a loss of $49.8 million last year. Sales of $276.4 million were up 4% from last year's third quarter results.
Commenting on the results and the current outlook, Thomas L. Reece, Chairman and CEO, said, "Our performance in the third quarter represents a significant improvement over last year's results, which reflected substantial inventory reserves and other charges we took to address the difficult market conditions we were facing. Since that time, all of our businesses have continued to make good progress in cost reduction and operating efficiency, and the positive results of their efforts can be seen in the improved operating leverage at many of our companies, even where sales have declined compared to prior year periods. In the long run, these efforts will yield additional dividends once a sustained economic recovery takes hold.
For now, however, the current economic climate remains challenging, particularly in the markets served by our CBAT and SEC companies. In fact, these companies will be taking additional steps to further reduce their cost structure to help ensure that they can deliver consistent profits while responding to the changing needs of their electronics and telecommunications customers. There are likely to be charges in the fourth quarter for the additional restructurings. As we have done throughout the current downturn, we continue to encourage and support new product development across our organization so that we will be well-positioned to take full advantage of the opportunities created by a sustained recovery. Enhancing our geographic diversity is also a long-term priority, and a number of our companies, particularly in the Technologies segment, are committed to substantially increasing their presence and activities in Asia to better serve those growing markets."
Dover Industries' third quarter segment earnings increased 4% or $1.4 million to $34.0 million and sales declined 1% or $3.3 million to $286.3 million from the comparable period last year. Segment margins increased slightly to 12% for the quarter. The impact of goodwill amortization on earnings in the third quarter of 2001 was $3.6 million. Segment bookings in the quarter were $278.4 million, an increase of 3% from last year and the book-to-bill ratio was .97 for the current quarter. Backlog increased 1% from the beginning of the current year to $167.5 million.
Heil Environmental continued to produce sales and earnings well below both the prior quarter and prior year, reflecting continued industry weakness. Substantial efforts are being taken to improve profitability at these reduced sales levels. Rotary Lift and PDQ continued to perform at levels consistent with the third quarter of 2001, while Marathon has experienced growth in sales and earnings over the comparable prior year period. Two of the other larger Industries' companies, Heil Trailer and Tipper Tie, showed modest operating improvement on some increases in sales, although Tipper Tie's actual results were off due to a restructuring charge to exit an inconsequential, under-performing product line.
The balance of Industries' companies experienced flat to down sales, with corresponding profits that were relatively consistent with the prior year, except for declines at Chief Automotive, and improvements at Somero and Triton Systems. Chief Automotive experienced losses for the quarter, as it continued to work through a major change in its distribution system, which has resulted in a meaningful short-term decline in sales. Somero's profits improved on stronger sales, but were compared to a weak prior year period.
There was some very positive news at Triton, the off-premises ATM manufacturer, which had a substantial profit improvement on stronger sales. Its successful introduction of a new "low-cost" ATM model, that uses a cash dispenser developed in-house, has been extremely well-received, and now accounts for more than half of its sales. On an overall basis, Triton's improvement in profits went a long way to offset the earnings declines at Heil Environmental, Tipper Tie and Chief Automotive.
Dover Diversified's third quarter segment earnings were $36.3 million, an increase of $14.1 million or 63% over the comparative period last year, and sales in the quarter were $299.4 million, a $3.2 million or 1% increase compared to 2001. The impact of goodwill amortization on earnings in the third quarter of 2001 was $3.8 million. Bookings in the quarter were $286.6 million and the quarter book-to-bill ratio was .96. Backlog at the end of the quarter was $367.2 million, 4% lower than the beginning of the year. Six out of Diversified's ten operating companies had higher sales, and seven had better earnings than the comparable prior year quarter.
Overall performance benefited largely from a continued focus on cost reductions and operating efficiency at a number of companies. Crenlo, despite flat sales year to year, continued to show profit improvement for the third consecutive quarter, compared to a substantial loss in the same period last year. Similarly, Mark Andy more than doubled its earnings on essentially the same sales level as last year. Strong quarterly bookings driven by increased printing press demand, left Mark Andy with its highest backlog level in recent history. Hill Phoenix continues to be well positioned in its market, with earnings and margins improvements on modest sales growth as compared to the prior year. Belvac benefited from large overseas orders in the past two quarters, resulting in sales and earnings that bettered both the second quarter and prior year results. The increased orders have pushed backlog to the highest level in over four years. Tranter produced record sales for the quarter which resulted in earnings that were higher than the prior year and were flat with the second quarter. On a modest sales increase, Waukesha Bearings had earnings which bettered the second quarter results, although they were slightly lower than the prior year quarter. The full effects of the power generation market downturn are not expected to be seen by Waukesha until the fourth quarter. PMI experienced a seasonal downturn resulting in weaker sales and earnings than second quarter levels, while the effect of acquisitions improved overall results when compared to the prior year. The only significant decline in performance was experienced by Sargent, which had lower sales and earnings for the quarter compared to the prior year period, reflecting the decrease in demand for its commercial aerospace products.
Dover Resources' segment earnings increased $4.4 million or 17% to $30.5 million on a sales decrease of 6% or $14.9 million to $216.0 million, as compared to the same period of the prior year. The impact of goodwill amortization on earnings in the third quarter of 2001 was $2.6 million. Bookings in the quarter of $210.4 million were down 4% from the prior year and the book-to-bill ratio for the quarter was .97. Ending backlog was $81.8 million, a 4% increase from the end of last year.
Earnings for the oil and gas equipment companies (Petroleum Equipment Group, Quartzdyne, and Cook), while up 4% over this year's second quarter on a slight sales decline, decreased 24% from last year's comparable quarter on a sales decrease of 13% as capital spending among the major oil companies remains depressed due to oil and gas price uncertainty. On the other hand, the Resources' pump companies, Blackmer and Wilden, with increased margins and improved Asian sales, had sales and earnings increases of 7% and 32%, respectively, compared to 2001. The OPW Fueling Components and Fluid Transfer Group companies had flat sales and earnings were down 10% compared to last year in extremely competitive markets. De-Sta-Co Industries and De-Sta-Co Manufacturing realized the benefits of cost reduction initiatives and had a 107% increase in earnings on a 3% sales increase. Ronningen-Petter and Tulsa Winch group saw significant revenue and earnings shortfalls compared to last year as markets served remain weak. Hydro Systems continues to perform well, with solid earnings improvements on modest sales growth.
Dover Technologies' recorded a segment earnings loss of $.2 million for the current quarter compared to a loss of $49.8 million last year and earnings of $1.7 million in the previous quarter. The current quarter's results include foreign exchange losses of $3.1 million. Also included in these amounts were inventory, restructuring and other charges of $3.8 million in the current quarter and $38.2 million in the comparable period of 2001. Third quarter sales were $276.4 million, an increase of $10.7 million or 4% from the same period of the prior year and slightly less than the second quarter of 2002. The impact of goodwill amortization on earnings in the third quarter of 2001 was $3.3 million.
Technologies' CBAT business recorded a loss of $3.5 million for the third quarter, which included restructuring and other charges of $2.7 million, compared to a loss of $4.4 million in the second quarter of 2002, and a loss of $37.9 million in the third quarter of 2001, which included charges of $27.7 million. Third quarter sales were $163.3 million, an increase of $19.4 million or 13% from last year, and an increase of $3.9 million or 2% from the second quarter. Bookings, at $153.2 million, were up 40% from the same period last year but were 13% lower than the second quarter of 2002. The CBAT book-to-bill ratio was .94 for the third quarter with backlog at $74.6 million, 39% higher than at the end of 2001. Despite the poor results, the CBAT companies continue to pursue appropriate market and product development opportunities and believe that they have increased their respective shares of these contracting markets. At the same time, the CBAT companies have concluded that current difficult market conditions are likely to persist for the foreseeable future, and accordingly, serious efforts are underway to further reduce the size and scope of the CBAT operations to achieve profitability at these reduced operating levels. While no quantification has been made, CBAT will make additional provisions in the fourth quarter to reflect these changes.
In Technologies' SEC business sales in the quarter were $52.2 million compared to $64.4 million in last year's third quarter and $62.2 million in the second quarter of the current year, representing declines of 19% and 16%, respectively. SEC reported a loss of $4.6 million, which included charges of $1.1 million, compared to a loss of $5.1 million in last year's third quarter, which included charges of $10.0 million, and a loss of $2.4 million in this year's second quarter. Net bookings in the third quarter of $54.2 million were higher than the same period last year and decreased slightly compared to the second quarter of the current year. The book-to-bill ratio was 1.04 for the quarter with backlog at $48.5 million at the end of the period (a 4% decline from the beginning of the current year). Much like the CBAT companies, the SEC businesses are now evaluating their organizations to adapt to current levels of demand, and expect that further steps will be taken in the fourth quarter to adjust to these new circumstances and return to profitability.
In the quarter, Imaje, the French-based industrial ink-jet printer and ink manufacturer, had sales of $61.0 million, up 6% from both the comparable period last year and the prior quarter. Earnings fell by 4% to $14.5 million from the comparable 2001 quarter, although they were up 17% over the second quarter of 2002. Imaje had a strong finish to the quarter even with somewhat reduced margin levels which continue to reflect the sales of lower margin Markpoint products (a second quarter 2001 acquisition). Despite depressed economic conditions throughout many of the global markets served, Imaje continues to improve its sales and market coverage.
Dover Corporation did not make any acquisitions in the third quarter. On October 1, 2002 Dover acquired Hover-Davis Inc., a manufacturer of component feeder systems for the electronic assembly automation industry. Hover-Davis will be reported as a stand-alone operating company in the Circuit Board Assembly and Test (CBAT) group in the Dover Technologies subsidiary. Acquisitions completed in the last twelve months added $6.1 million in sales for the quarter, with almost no impact on segment earnings after acquisition write-offs.
The consolidated tax rate for continuing operations was 27.7% for the third quarter and for the current year. This low effective tax rate is attributable to non-recurring benefits related to foreign tax planning strategies.
Dover's cash flow was strong with cash from operations of $123.2 million and free cash flow at $113.0 for the current quarter (10.5% of sales). Cash from operations was $208.4 million and free cash flow was $140.9 million for the first nine months of 2002 (4.4% of sales). Dover's net debt levels decreased by $61.8 million to $900.2 million during the quarter and the debt to total capital ratio fell to 27.7% from 29.2%. Dover made a discretionary contribution of $44 million to its defined benefit pension plan in the third quarter of 2002 to offset decreases in pension plan asset values. During the current quarter, Dover repurchased 511,400 shares of stock on the open market at an average price of $27.45.
After the quarter closed, Dover completed a new $600 million syndicated credit facility, replacing its existing $750 million facility. The new arrangement, which includes a $300 million 364-day facility and a $300 million 3-year facility, will be used primarily as a commercial paper back-up for the company. Rates and terms were competitive and consistent with the Company's continued strong credit rating.
Dover also successfully unwound two interest rate swaps tied to its $250 million ten-year notes due in 2005, receiving $8.4 million in proceeds. The gains related to these transactions will be deferred and amortized over the balance of the term of that issue, permanently reducing Dover's effective interest cost on that issue from 6.5% to 5.3%.
Additional unaudited information on Dover and its operating companies can be found on the company website. (http://www.dovercorporation.com). Dover makes no representation about the utility of this data or the validity of any conclusions that might be reached by referring to it. In addition, Dover will post to the website supplemental financial information for the third quarter 2002.
The Dover website will host a Webcast of the third quarter conference call at 9:00 AM Eastern Time on Tuesday, October 22, 2002. The conference call will also be made available for replay on the website.
Dover Corporation makes information available to the public, orally and in writing, which may use words like "expects" and "believes," which are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. This press release contains forward-looking statements regarding future events and the performance of Dover Corporation that involve risks and uncertainties that could cause actual results to differ materially including, but not limited to, failure to achieve expected synergies, failure to successfully integrate acquisitions, failure to service debt, continuing impacts from the terrorist events of September 11, 2001 on the worldwide economy, economic conditions, customer demand, increased competition in the relevant market, and others. Dover Corporation refers you to the documents that it files from time to time with the Securities and Exchange Commission, such as the Form 10-K, Form 10-Q and Form 8-K, which contain additional important factors that could cause its actual results to differ from its current expectations and from the forward-looking statements contained in this press release.
DOVER CORPORATION AND SUBSIDIARIES MARKET SEGMENT RESULTS (unaudited) Third quarter ended September 30, SALES 2002 2001 Dover Industries $286,256,000 $289,600,000 Dover Diversified 299,401,000 296,170,000 Dover Resources 215,985,000 230,920,000 Dover Technologies 276,440,000 265,695,000 Total Continuing (after intramarket eliminations) $1,076,095,000 $1,081,005,000 EARNINGS (Loss) Dover Industries $33,972,000 $32,595,000 Dover Diversified 36,348,000 22,279,000 Dover Resources 30,513,000 26,079,000 Dover Technologies (247,000) (49,777,000) Subtotal Continuing 100,586,000 31,176,000 Corporate expense (6,678,000) (5,429,000) Net interest expense (14,650,000) (17,887,000) Earnings from Continuing Operations, before taxes on income 79,258,000 7,860,000 Taxes on income 21,916,000 2,151,000 Net Earnings from Continuing Operations 57,342,000 5,709,000 Net Earnings (Loss) from Discontinued Operations* (900,000) (3,102,000) Net Earnings (Loss) $56,442,000 $2,607,000 Net Earnings (Loss) per diluted common share: Continuing Operations $0.28 $0.03 Discontinued Operations* -- (0.02) Net Earnings (Loss) $0.28 $0.01 Average number of diluted shares outstanding 203,541,000 204,210,000 Impact of goodwill amortization on continuing diluted EPS: EPS from Continuing Operations $0.28 $0.03 Goodwill amortization (net of tax)** -- 0.05 EPS before goodwill amortization $0.28 $0.08 Other acquisition write-offs (net of tax)*** 0.03 0.04 EPS before all acquisition write- offs $0.31 $0.12 *In accordance with the adoption of SFAS No. 144, the earnings (net of tax) from discontinued operations were separately presented for all reported periods in earnings from discontinued operations. In the second quarter of 2002, Vectron GmbH, formerly of the Technologies segment, qualified for discontinued operations presentation. **In accordance with the 1/1/2002 adoption of SFAS No.142, goodwill and indefinite-lived intangible assets are no longer amortized on a periodic basis but are subjected to impairment testing on at least an annual basis. ***Acquisition write-offs include depreciation and amortization of purchase accounting asset step-ups. DOVER CORPORATION AND SUBSIDIARIES MARKET SEGMENT RESULTS (unaudited) Nine months ended September 30, SALES 2002 2001 Dover Industries $851,006,000 $879,246,000 Dover Diversified 896,865,000 827,889,000 Dover Resources 647,687,000 701,853,000 Dover Technologies 790,032,000 987,674,000 Total Continuing (after intramarket eliminations) $3,180,793,000 $3,392,361,000 EARNINGS (Loss) Dover Industries $115,475,000 $108,361,000 Dover Diversified 105,791,000 77,825,000 Dover Resources 87,581,000 86,932,000 Dover Technologies (7,472,000) (1,265,000) Subtotal Continuing 301,375,000 271,853,000 Corporate expense (19,626,000) (17,173,000) Net interest expense (49,236,000) (57,295,000) Earnings from Continuing Operations, before taxes on income 232,513,000 197,385,000 Taxes on Income 64,373,000 65,098,000 Net Earnings from Continuing Operations 168,140,000 132,287,000 Net Earnings (Loss) from Discontinued Operations* (11,381,000) 92,704,000 Net Earnings before cumulative effect of change in accounting principle 156,759,000 224,991,000 Cumulative effect of change in accounting principle, net of tax** (293,049,000) -- Net Earnings (Loss) $(136,290,000) $224,991,000 Net Earnings (Loss) per diluted common share: Continuing Operations $0.83 $0.65 Discontinued Operations* (0.06) 0.45 Net Earnings before cumulative effect of change in accounting principle 0.77 1.10 Cumulative effect of change in accounting principle, net of tax** (1.44) -- Net Earnings (Loss) $(0.67) $1.10 Average number of diluted shares outstanding 203,541,000 204,210,000 Impact of goodwill amortization on continuing diluted EPS: EPS from Continuing Operations $0.83 $0.65 Goodwill amortization (net of tax)** - 0.15 EPS before goodwill amortization $0.83 $0.80 Other acquisition write-offs (net of tax)*** 0.09 0.11 EPS before all acquisition write- offs $0.92 $0.91 *In accordance with the adoption of SFAS No. 144, the earnings (net of tax) from discontinued operations were separately presented for all reported periods in earnings from discontinued operations. In the second quarter of 2002, Vectron GmbH, formerly of the Technologies segment, qualified for discontinued operations presentation. **Reflects the transitional provisions of SFAS No. 142 "Goodwill and Other Intangible Assets" (adopted 1/1/02), which resulted in a $293 million write down (net of $52 million in tax) of impaired goodwill to fair value. In addition, beginning in 2002 goodwill and indefinite-lived intangible assets are no longer amortized on a periodic basis but are subjected to impairment testing on at least an annual basis. ***Acquisition write-offs include depreciation and amortization of purchase accounting asset step-ups. DOVER CORPORATION CONSOLIDATED (unaudited) September 30, December 31, CONDENSED BALANCE SHEET ('000) 2002 2001 Assets: Cash, equivalents and marketable securities $174,632 $176,598 Receivables, net of allowances for doubtful accounts 746,709 672,789 Inventories 629,045 653,548 Prepaid expenses & deferred tax asset 179,690 141,707 Net property, plant & equipment 722,182 756,351 Goodwill* 1,662,869 1,946,423 Intangibles, net of amortization 183,980 173,194 Other assets 51,667 55,990 Assets of discontinued operations** 15,067 25,602 $4,365,841 $4,602,202 Liabilities & Stockholders' Equity: Short term debt $44,712 $43,780 Payables and accrued expenses 595,924 616,131 Taxes payable (including deferred) 182,736 258,153 Other deferrals 136,442 106,878 Long-term debt 1,030,109 1,033,243 Liabilities of discontinued operations** 21,044 24,478 Stockholders' equity 2,354,874 2,519,539 $4,365,841 $4,602,202 *The transitional provisions of SFAS No. 142 "Goodwill and Other Intangible Assets" (adopted 1/1/02) resulted in a $345 million write down of impaired goodwill to fair value. **In accordance with the 2001 adoption of SFAS No. 144, the assets and liabilities from discontinued operations have been separately presented on the Balance Sheet for all periods presented. Nine Months Ended September 30, CONDENSED CASH FLOWS ('000) 2002 2001 Operating activities: Net Earnings (Loss) $( 136,290) $224,991 Cumulative effective of change in accounting principle 293,049 -- (Earnings) loss from discontinued operations, net of tax 4,073 434 (Gain) loss on sale of discontinued business, net of tax 7,308 (93,138) Depreciation 108,771 108,117 Amortization - goodwill -- 38,431 Amortization - other 13,332 13,185 Increase (decrease) in other deferrals 30,625 (26,306) Working capital changes (excluding taxes)* (91,578) 169,711 Federal & other taxes on income (36,726) 63,495 Other, net 15,866 1,670 Net cash from (used in) operating activities 208,430 500,590 Investing activities: Capital expenditures (69,361) (128,869) Acquisitions, net of cash and cash equivalents (50,827) (268,115) Net cash from (used in) investing activities (120,188) (396,984) Financing activities: Increase (decrease) in notes payable 913 (630,001) Increase (decrease) in long-term debt (3,543) 407,919 Proceeds from interest rate swap terminations 8,434 -- Cash dividends (82,112) (78,219) Purchase of treasury stock (15,139) (32,114) Proceeds from exercise of stock options 6,215 2,975 Net cash from (used in) financing activities (85,232) (329,440) Discontinued operations (4,280) 266,704 Net increase (decrease) in cash & equivalents (1,270) 40,870 Cash & cash equivalents at beginning of period 175,601 180,560 Cash & cash equivalents at end of period $174,331 $221,430 *Working capital use of funds in 2002 primarily attributable to increases in receivables of $51 million and prepaid assets of $44 million due to a third quarter discretionary pension plan contribution.SOURCE Dover Corporation
CONTACT: Robert G. Kuhbach, Acting Vice President Finance of Dover,