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 nine months ended September 30, 1999 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 203,629,789.
2
Part. I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
THREE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
1999 1998
----------- -----------
Net sales $ 1,150,531 $ 1,018,532
Cost of sales 734,564 649,471
----------- -----------
Gross profit 415,967 369,061
Selling & administrative expenses 234,261 224,767
----------- -----------
Operating profit 181,706 144,294
----------- -----------
Other deductions (income):
Interest expense 12,257 17,505
Interest income (2,916) (1,106)
Foreign exchange (49) (346)
Gain on dispositions (20,931) --
All other, net 5,266 (477)
----------- -----------
Total (6,373) 15,576
----------- -----------
Earnings before taxes on income 188,079 128,718
Federal & other taxes on income 66,544 42,937
----------- -----------
Net earnings from continuing operations 121,535 85,781
Earnings from discontinued operations, net of tax 8,191
----------- -----------
Net earnings $ 121,535 $ 93,972
=========== ===========
Weighted average number of common shares
outstanding during the period
- Basic 211,238 223,028
=========== ===========
- Diluted 212,776 224,440
=========== ===========
Net earnings per share:
Basic - Continuing $ 0.58 $ 0.39
Discontinued -- 0.03
----------- -----------
Net earnings $ 0.58 $ 0.42
=========== ===========
Diluted - Continuing $ 0.58 $ 0.38
Discontinued -- 0.04
----------- -----------
Net earnings $ 0.58 $ 0.42
=========== ===========
See Notes to Consolidated Financial Statements.
3
DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS
THREE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
1999 1998
--------- ---------
Net earnings $ 121,535 $ 93,972
--------- ---------
Other comprehensive earnings, net of tax:
Foreign currency translation adjustments 3,783 15,809
Less: reclassification adjustment for adjustments
included in net earnings -- (10)
--------- ---------
Total foreign currency translation adjustments 3,783 15,819
--------- ---------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period -- 4
Less: reclassification adjustment for gains (losses)
included in net earnings -- 10
--------- ---------
Total unrealized gains on securities (tax $0 in 1999, -$4 in 1998) -- (6)
--------- ---------
Other comprehensive earnings 3,783 15,813
--------- ---------
Comprehensive earnings $ 125,318 $ 109,785
========= =========
See Notes to Consolidated Financial Statements.
4
DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
1999 1998
----------- -----------
Net sales $ 3,198,136 $ 2,958,800
Cost of sales 2,049,151 1,898,700
----------- -----------
Gross profit 1,148,985 1,060,100
Selling & administrative expenses 709,595 663,778
----------- -----------
Operating profit 439,390 396,322
----------- -----------
Other deductions (income):
Interest expense 38,209 43,269
Interest income (16,217) (13,092)
Foreign exchange (472) 1,370
Gain on dispositions (17,256) --
All other, net (542) (3,371)
----------- -----------
Total 3,722 28,176
----------- -----------
Earnings before taxes on earnings 435,668 368,146
Federal & other taxes on earnings 151,603 123,814
----------- -----------
Net earnings from continuing operations 284,065 244,332
Discontinued operations 523,938 39,689
----------- -----------
Net earnings $ 808,003 $ 284,021
=========== ===========
Weighted average number of common shares
outstanding during the period
- Basic 211,238 223,028
=========== ===========
- Diluted 212,776 224,440
=========== ===========
Net earnings per share:
Basic - Continuing $ 1.34 $ 1.10
Discontinued -- 0.17
Gain on sale 2.49 --
----------- -----------
Net earnings $ 3.83 $ 1.27
=========== ===========
Diluted - Continuing $ 1.34 $ 1.09
Discontinued -- 0.18
Gain on sale 2.46 --
----------- -----------
Net earnings $ 3.80 $ 1.27
=========== ===========
See Notes to Consolidated Financial Statements.
5
DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS
NINE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
1999 1998
--------- ---------
Net earnings $ 808,003 $ 284,021
--------- ---------
Other comprehensive earnings, net of tax:
Foreign currency translation adjustments (36,596) 14,591
Less: reclassification adjustment for adjustments
included in net earnings -- (496)
--------- ---------
Total foreign currency translation adjustments (36,596) 15,087
--------- ---------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period (5) (23)
Less: reclassification adjustment for gains (losses)
included in net earnings -- 5,723
--------- ---------
Total unrealized gains on securities (tax $0 in 1999, $24 in 1998) (5) (5,746)
--------- ---------
Other comprehensive earnings (36,601) 9,341
--------- ---------
Comprehensive earnings $ 771,402 $ 293,362
========= =========
DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
NINE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
1999 1999
---------- ----------
Retained earnings at January 1 $1,992,991 $1,703,335
Net earnings 808,003 284,021
---------- ----------
2,800,994 1,987,356
Deduct:
Common stock cash dividends
$ 0.325 per share ($0.295 in 1998) 68,508 65,829
---------- ----------
Retained earnings at end of period $2,732,486 $1,921,527
========== ==========
See Notes to Consolidated Financial Statements.
6
DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000 OMITTED)
UNAUDITED
September 30, 1999 December 31, 1998
------------------ -----------------
Assets:
Current assets:
Cash & cash equivalents $ 174,628 $ 96,774
Marketable securities -- --
Receivables, net of allowance for doubtful accounts 748,993 575,630
Inventories 612,947 559,267
Prepaid expenses 81,785 72,853
----------- -----------
Total current assets 1,618,353 1,304,524
----------- -----------
Property, plant & equipment (at cost) 1,388,985 1,282,436
Accumulated depreciation (792,390) (710,473)
----------- -----------
Net property, plant & equipment 596,595 571,963
----------- -----------
Intangible assets, net of amortization 1,656,874 1,438,793
Other intangible assets 7,358 7,358
Deferred charges & other assets 51,115 59,755
Net assets of discontinued operations 244,883
----------- -----------
$ 3,930,295 $ 3,627,276
=========== ===========
Liabilities:
Current liabilities:
Notes payable $ 183,974 $ 427,529
Current maturities of long-term debt 1,237 6,060
Accounts payable 213,722 187,738
Accrued compensation & employee benefits 155,734 149,855
Accrued insurance 52,847 43,246
Other accrued expenses 216,913 175,036
Income taxes 370,961 283
----------- -----------
Total current liabilities 1,195,388 989,747
----------- -----------
Long-term debt 609,401 610,090
Deferred taxes 53,306 50,196
Other deferrals (principally compensation) 74,142 66,359
Stockholders' equity:
Preferred stock -- --
Common stock 236,218 235,571
Additional paid-in surplus 32,035 18,630
Cumulative translation adjustments (63,839) (27,243)
Unrealized holding gains (losses) 46 51
----------- -----------
Accumulated other comprehensive earnings (63,793) (27,192)
----------- -----------
Retained earnings 2,732,486 1,992,991
----------- -----------
Subtotal 2,936,946 2,220,000
Less: treasury stock 938,888 309,116
----------- -----------
1,998,058 1,910,884
----------- -----------
$ 3,930,295 $ 3,627,276
=========== ===========
See Notes to Consolidated Financial Statements.
7
DOVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED SEPTEMBER 30,
(000 OMITTED)
UNAUDITED
1999 1998
----------- -----------
Cash flows from operating activities:
Net earnings $ 808,003 $ 284,021
----------- -----------
Adjustments to reconcile net earnings to net cash from operating
activities:
Income from discontinued operations -- (39,689)
Gain on sale of discontinued business (523,938)
Depreciation 97,093 82,681
Amortization 44,069 39,518
Net increase (decrease) in deferred taxes (2,581) (759)
Net increase (decrease) in LIFO reserves 1,623 1,618
Increase (decrease) in deferred compensation 7,880 5,502
Gain on sale of business (17,256) --
Other, net (13,480) 5,287
Changes in assets & liabilities (excluding acquisitions):
Decrease (increase) in accounts receivable (140,378) (7,933)
Decrease (increase) in inventories, excluding LIFO reserve 1,863 (41,583)
Decrease (increase) in prepaid expenses (7,846) (957)
Increase (decrease) in accounts payable 10,585 (16,384)
Increase (decrease) in accrued expenses 1,523 32,307
Increase (decrease) in federal & other taxes on income (6,568) (20,080)
----------- -----------
Total adjustments (547,411) 39,528
----------- -----------
Net cash from operating activities 260,592 323,549
----------- -----------
Cash flows from (used in) investing activities:
Net sale (purchase) of marketable securities -- 16,540
Additions to property, plant & equipment (86,911) (86,189)
Acquisitions, net of cash & cash equivalents (368,616) (527,912)
Proceeds from sale of business 1,209,695 --
Purchase of treasury stock (629,772) (31,376)
----------- -----------
Net cash from (used in) investing activities 124,396 (628,937)
----------- -----------
Cash flows from (used in) financing activities:
Increase (decrease) in notes payable (245,072) 2,641
Increase (decrease) in long-term debt (769) 347,766
Proceeds from exercise of stock options 7,215 7,135
Cash dividends to stockholders (68,508) (65,830)
----------- -----------
Net cash from (used in) financing activities (307,134) 291,712
----------- -----------
----------- -----------
Cash from discontinued operations -- (25,596)
----------- -----------
Net increase (decrease) in cash & cash equivalents 77,854 (39,272)
Cash & cash equivalents at beginning of period 96,774 103,111
----------- -----------
Cash & cash equivalents at end of period $ 174,628 $ 63,839
=========== ===========
8
DOVER CORPORATION CONSOLIDATED
MARKET SEGMENT RESULTS
(unaudited)
EARNINGS SALES
Third quarter ended September 30,: 1999 1998 * 1999 1998 *
-------------------------------- ---------------------------------
Dover Industries $ 45,141,000 $ 38,207,000 $ 291,920,000 $ 266,776,000
Dover Technologies 74,042,000 40,697,000 400,325,000 302,512,000
Dover Diversified 40,080,000 38,771,000 268,330,000 239,255,000
Dover Resources 24,650,000 31,730,000 191,373,000 211,021,000
-------------------------------- ---------------------------------
Subtotal (after intramarket eliminations) 183,913,000 149,405,000 $1,150,531,000 $ 1,018,532,000
=================================
Gain on disposition 20,931,000 -
Corporate expense (7,361,000) (4,274,000)
Net interest expense (9,404,000) (16,413,000)
--------------------------------
Earnings before taxes on income 188,079,000 128,718,000
Taxes on income 66,544,000 42,937,000
--------------------------------
Net earnings - Continuing Operations 121,535,000 85,781,000
Earnings from discontinued operations * - 8,191,000
Gain on sale of discontinued operations * - -
--------------------------------
Net earnings $ 121,535,000 $ 93,972,000
================================
Net earnings per share:
Basic - Continuing $ 0.58 $ 0.39
Discontinued - 0.03
Gain on sale - -
--------------------------------
Net earnings $ 0.58 $ 0.42
================================
Diluted - Continuing $ 0.58 $ 0.38
Discontinued - 0.04
Gain on sale - -
--------------------------------
Net earnings $ 0.58 $ 0.42
================================
EARNINGS SALES
Nine months ended September 30,: 1999 1998 * 1999 1998 *
-------------------------------- ---------------------------------
Dover Industries $ 131,134,000 $109,575,000 $ 844,452,000 $ 748,335,000
Dover Technologies 147,860,000 115,321,000 1,023,328,000 917,202,000
Dover Diversified 102,169,000 106,066,000 759,625,000 698,362,000
Dover Resources 76,478,000 94,120,000 574,684,000 598,197,000
-------------------------------- ==================================
Subtotal (after intramarket eliminations) 457,641,000 425,082,000 $3,198,136,000 $ 2,958,800,000
=================================
Gain on disposition 17,256,000 -
Corporate expense (17,021,000) (16,676,000)
Net interest expense (22,208,000) (40,260,000)
--------------------------------
Earnings before taxes on income 435,668,000 368,146,000
Taxes on Income 151,603,000 123,814,000
--------------------------------
Net earnings - Continuing Operations 284,065,000 244,332,000
Earnings from discontinued operations * - 39,689,000
Gain on sale of discontinued operations * 523,938,000 -
--------------------------------
Net earnings $ 808,003,000 $ 284,021,000
================================
Net earnings per share:
Basic - Continuing $ 1.34 $ 1.10
Discontinued - 0.17
Gain on sale 2.49 -
--------------------------------
Net earnings $ 3.83 $ 1.27
================================
Diluted - Continuing $ 1.34 $ 1.09
Discontinued - 0.18
Gain on sale 2.46 -
--------------------------------
Net earnings $ 3.80 $ 1.27
================================
Average number of shares outstanding - Basic 211,238,000 223,028,000
Average number of shares outstanding - Diluted 212,776,000 224,440,000
* On January 5, 1999, Dover completed the sale of its elevator business to
Thyssen Industrie AG for $1.17 billion. Results for 1998 have been restated to
classify the elevator business as discontinued.
9
DOVER CORPORATION AND SUBSIDIARIES
MARKET SEGMENT IDENTIFIABLE ASSETS
(000 omitted)
UNAUDITED
September 30, December 31,
1999 1998
------------ ------------
Dover Industries $ 884,993 $ 732,136
Dover Technologies 1,200,112 1,000,209
Dover Diversified 945,633 802,872
Dover Resources 767,846 781,933
Corporate (1) 131,711 65,243
---------- ----------
Total Continuing 3,930,295 3,382,393
Net assets of discontinued operations -- 244,883
---------- ----------
Consolidated Total $3,930,295 $3,627,276
========== ==========
(1) - Principally cash and equivalents
10
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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.
On January 5, 1999 the company sold the Dover Elevator International
segment. The results of prior year third quarter and nine months have been
restated to show the segment as discontinued operations.
NOTE B - Inventory
Inventories, by components, are summarized as follows :
(000 omitted)
--------------------------
UNAUDITED
September 30, December 31,
1999 1998
-------- --------
Raw materials $240,782 $220,467
Work in progress 191,263 175,117
Finished goods 222,965 204,123
-------- --------
Total 655,010 599,707
Less LIFO reserve 42,063 40,440
-------- --------
Net amount per balance sheet $612,947 $559,267
======== ========
NOTE C - Accumulated other comprehensive earnings
Accumulated other comprehensive earnings, by components are summarized as
follows:
UNAUDITED (000 omitted)
---------------------------------------------
Accumulated
Other Unrealized
Comprehensive Cumulative Holding
Earnings Translation Gains
(losses) Adjustments (losses)
-------- ----------- --------
Beginning balance $(27,192) $(27,243) $ 51
Current-period change (36,601) (36,596) (5)
-------- -------- --------
Ending balance $(63,793) $(63,839) $ 46
======== ======== ========
11
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, 1999.
On January 5, 1999, Dover completed the sale of it's Elevator business
to Thyssen Industrie AG for $1.17 billion. Results for third quarter and nine
months 1998 have been restated to classify the elevator business as
discontinued.
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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(1) MATERIAL CHANGES IN CONSOLIDATED FINANCIAL CONDITION:
The Company's liquidity increased during the first nine months of 1999
as compared to the position at December 31, 1998. Cash flow provided by
operating activities ($261 million) and the proceeds from sale of businesses
($1.21 billion), net of amounts invested in treasury stock ($630 million) and
acquisitions ($371 million) is the principle reason for the increase in
liquidity.
At September 30, 1999, 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 $620.0 million represented 23.7% of total capital.
This compares with 33.1% at December 31, 1998.
Working capital increased from $314,777 million at the end of last year
to $422,965 million at September 30, 1999.
The Company announced record earnings from continuing operations for
its Third Quarter ended September 30. Earnings per share of $.58, which includes
$.05 from non-recurring items described below, were 53% ahead of the $.38 earned
in the Third Quarter of 1998. Excluding the non-recurring items, earnings per
share rose 39%. The Company's Elevator Business, which was sold at the beginning
of 1999 and which is therefore shown as a discontinued operation, added a
further $.04 to last year's reported earnings per share, bringing last year's
total to $.42.
The $.05 non-recurring net gain was composed of a $20.9 million gain on
the sale of the Pathway Bellows company (net of a charge to close a plant in the
OPW Fluid Transfer company) and a $3.1 million provision to settle legal claims
(shown as corporate expense). Non cash write-offs required by purchase
accounting rules amounted to $21 million (pre-tax) in the Quarter, equal to $.07
per share.
The Company invested $192 million to repurchase 4.9 million shares of
its common stock in the Quarter at an average price of $39. Since announcing the
sale of its Elevator Business in November, 1998 the Company has now repurchased
19.6 million of its shares, at an average cost of $36 per share, which has
reduced actual shares outstanding by 9%.
Dover companies also made five "add-on" acquisitions during the quarter
at a cost of $65 million, bringing 9-month acquisition spending to $371 million.
The Company's management now believes that total acquisition investment in 1999
could top the previous record of $556 million in 1998.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS:
Three of the Company's four Segments achieved profit gains, led by
Technologies, which was up 82% primarily as a result of strong bookings,
shipments, and earnings for its Circuit Board Assembly and Test Business (CBAT).
Earnings of the four companies serving this market more than doubled from prior
12
year as shipments improved 44%. An 18% gain in the Industries segment and a 3%
gain in Diversified more than offset Resources' 22% decline.
DOVER TECHNOLOGIES:
The 82% profit increase in the Technologies segment on a 32% gain in
sales reflects the strong operating leverage inherent in its CBAT and Specialty
Electronics Components (SEC) businesses, which provided almost all of the $98
million sales gain. The marking business (Imaje) primarily serves consumer
products manufacturers, rather than the electronics industry, and growth here
was very modest, as recovery in Asia was offset by slower sales in Europe.
Technologies' overall book-to-bill ratio in the Quarter was 1.04, with CBAT and
SEC at similar ratios.
All of the CBAT companies achieved significant earnings gains, driven
by sharply higher capital spending by both OEM and CEM customers who have begun
adding capacity for assembly of printed circuit boards. Dover does not believe
that increased market share has contributed significantly to the higher sales
levels in the Third Quarter. The general strengthening in the market that began
in June continued during July and August, providing record "rolling three month"
bookings. However, orders fell sharply in September raising a concern that there
may be a temporary pause coming in the market. The longer-term outlook remains
positive, however, based on more powerful processors being rolled out by
semiconductor makers and strong interest in downstream products for Internet
data transfer and access -- both hard wired and wireless.
Technologies' four SEC companies continued to benefit from these trends
with record shipments and profits for the quarter and record bookings in
September. Third quarter profits here rose 75% on a 20% sales gain with almost
all of the increases coming from communications related products. Quadrant has
again expanded production capacity for its oscillator products, the timing
"clocks" of voice and data transmissions. Orders for wireless base station
equipment rose sharply at K&L, which has created focused - factory work cells to
increase capacity.
Technologies management believes that its fourth quarter may not be as
strong as the third because of the September fall-off in CBAT orders. However,
CBAT's strong backlog and good order rates for marking and SEC products should
enable this segment to set an earnings record for the year, exceeding the $195
million earned in 1997.
DOVER INDUSTRIES:
Dover Industries' 18% profit gain on a 9% sales increase was driven by
(a) continued strength at Heil Environmental and Marathon, which serve the solid
waste disposal industry. Combined profits here were up 23% with new orders
almost equal to shipments and 21% higher than prior year; and (b) profit gains
in excess of 15% at Rotary Lift, Texas Hydraulics, DovaTech, and PDQ. New
products (internally developed and through acquisitions), new marketing
strategies and more aggressive pricing made possible by unit cost reductions
were important factors in these companies' gains.
Five of the Industries companies owned last year had earnings declines,
but by small amounts that totaled only $1.4 million. The addition of Somero
(acquired in Q2 of 1999) and of three add-on acquisitions during the quarter
added $1 million to Third Quarter profits (after purchase accounting
write-offs).
The book-to-bill ratio for Industries as a whole was .99 in the
Quarter. Backlog is an important "leading indicator" at only a few Industries'
companies, notably at Heil Trailer and Heil Environmental, which generally
account for more than half of total backlog. Combined, these two companies have
6% lower backlog than at the end of third quarter 1998, as large gains at
Environmental have almost offset weakness in Trailer's markets. Dover Industries
expects a solid fourth quarter with record full year earnings in the $170 - $180
million range.
DOVER DIVERSIFIED:
Profits at Dover Diversified continued to improve sequentially from the
start of 1999, reaching a record level of $40 million. Both A-C Compressor and
Belvac Production Machinery had sharply lower earnings than last year ($6
million in total) due to poor bookings last year at A-C and this year at Belvac.
Bookings at A-C thus far in 1999 have been 30% ahead of 1998, bringing backlog
up 25% since the start
13
of the year. Belvac's market, however, shows few signs of improvement. Hill
Phoenix offset much of these profit declines with a gain of more than 40% from
the third quarter of last year. Both sales and profits set records as this
company became
Diversified's largest profit maker in the Quarter (and Dover's fourth
largest). Diversified's other operations were close to, or ahead, of prior year
profits, with acquisitions made this year adding almost $4 million to quarterly
earnings (after acquisition write-offs). Book-to-bill at Diversified was .88 in
the quarter, with the largest imbalance at Hill Phoenix where record shipments
combined with seasonally soft orders. Diversified's total backlog is 1% below
last year.
DOVER RESOURCES:
Dover Resources' profits continued under pressure due to poor market
conditions for some of its companies and due to a strike at its OPW-Cincinnati
operations in mid-September. Contract discussions with the union are continuing,
but shipments (and profits) at OPW-Fueling Components and OPW-Fluid Transfer
will be adversely affected, at least through October. Market conditions for both
of these companies have been much softer than in 1998 and this, rather than the
strike, is the cause of their Third Quarter drop of $13 million in sales and
over $5 million in profits. Earlier in the quarter OPW-Fluid Transfer announced
the permanent closing of one of its Cincinnati plants to address the basic
overcapacity problem.
An improvement in crude oil prices and significant internal cost
reductions allowed Resource's Petroleum Equipment companies to achieve a strong
sales gain and very strong earnings improvement compared to last year's
depressed results. However, poor market conditions for Duncan (parking meters)
and Ronninger-Petter (filters for papermaking and oil refinery) depressed
profits for these companies, which are now comparing against last year's best
results. Within Dover, and especially within Dover Resources, the answer to the
question "Is the industrial economy strong or weak" continues to be, "It depends
on which Company President you ask ... and which month".
Resources' book-to-bill of 1.04 for the Quarter and 1.09 for September
(best bookings this year) give some hope for profit improvement in the Fourth
Quarter but probably not to the $31 million level of last year.
OUTLOOK:
"Our excellent Third Quarter financial results make me confident of
fulfilling the goal for 1999 expressed in last year's Annual Report," Mr. Reece
added. I will indeed be 'very disappointed if earnings per share from continuing
operation (excluding special items) does not grow at least 15% in 1999.' More
important, I think we have established a good base for continued strong growth
for next year and beyond."
YEAR 2000:
The Company has taken action to assess the nature and extent of the
work required to make its systems, products, factories and infrastructure Year
2000 ready. The Company is approaching resolution of Year 2000 problems along
two separate tracks: (1) Corporate and Subsidiary Offices and Dover-wide
information systems. (2) Company-by-Company for each of the Company's 47
separate businesses. Corrective action has been ongoing for several years.
Additionally, the Company is evaluating Year 2000 readiness of suppliers and
where critical suppliers are not Year 2000 ready, the Company will monitor their
progress and take appropriate actions.
At the corporate/subsidiary level, appropriate remediation has been
completed for telecommunications equipment, and computer equipment and critical
systems and the Company believes they are Year 2000 compliant.
At the operating company level, each business has taken responsibility
for its own Year 2000 compliance and has assembled working groups to deal with
critical plant and office equipment; products, including "fixes" for any
previous product generations that are Year 2000 sensitive; software; and the
ability of critical suppliers to maintain deliveries. Progress of the working
groups is monitored by each company President and reported to Subsidiary and
Corporate management.
14
As of September 30, 1999 each of the 47 companies has gone through a
process to take an inventory of critical systems, to make an assessment of Year
2000 readiness of those systems, to perform necessary remediation including
replacing or updating existing systems as needed, and to perform appropriate
Year 2000 testing. Thirty-seven of the Company's 47 companies have completed
these procedures and all important issues have been fixed. All others have
identified specific problems remaining and have action plans to solve them by
December, 1999. Further, the Company believes products of all of these companies
are either Year 2000 compliant or can be made so by customers, using "fixes"
already developed. Based on current progress and future plans, the Company
believes that the Year 2000 date change will not significantly affect the
Company's ability to deliver products and services to its customers on a timely
basis.
During 1997, 1998 and the first nine months of 1999 the Company and its
companies spent approximately $22 million, $27 million and $19 million,
respectively, on computer equipment, software, and non-employee consultants.
Most of these expenditures were for new systems and improved functionality, but
an undetermined amount also served to meet Year 2000 compliance needs. The
Company and its companies do not separately track the internal cost incurred for
the Y2K project.
While no amount of preparation and testing can guarantee Year 2000
compliance, the Company intends to complete its Year 2000 readiness during 1999,
and does not anticipate that expenditures to reach this goal will be material.
Moreover, due to the decentralized nature of the Company and the lack of
reliance on shared or "centralized" systems by its operating companies, the
Company believes that any Year 2000 problems that might become evident after
1999 will not be material to the Company. Appropriate contingency plans will be
developed in critical areas if deemed necessary. However, given the uncertain
consequences of failure to resolve significant Year 2000 issues, there can be no
assurance that any one or more such failures would not have a material adverse
effect on the actual outcomes and results could be affected by future factors
including, but not limited to, the continued availability of skilled personnel,
cost control, the ability to locate and remediate software code problems,
critical suppliers and subcontractors meeting their commitments to be Year 2000
ready, and timely actions by customers.
The above statement and similar statements, including estimated future
costs, timetables, contingency plans and remediation plans, and statements
containing the words "believes," "intends," "anticipates" and "expects" and
words of similar import, constitute "forward-looking" statements within the
meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E
of the Securities Exchange Act of 1934.
This "Year 2000 Plan" constitutes a "Year 2000 Readiness Disclosure"
within the meaning of the "Year 2000 Information and Readiness Disclosure Act."
EUROPEAN MONETARY UNION - EURO:
On January 1, 1999, several member countries of the European Union established
fixed conversion rates between their existing sovereign currencies, and adopted
the Euro as their new common legal currency. The Euro conversion may affect
cross-border competition by creating cross-border price transparency. The
Company's businesses are assessing their pricing/marketing strategy in order to
ensure that it remains competitive in a broader European market. The Company is
also assessing its information technology systems to allow for transactions to
take place in both the legacy currencies and the Euro and the eventual
elimination of the legacy currencies, and reviewing whether certain existing
contracts will need to be modified. Final accounting, tax and governmental legal
and regulatory guidance generally has not been provided in final form. The
Company will continue to evaluate issues involving the introduction of the Euro.
Based on current information and the Company's current assessment, it does not
expect that the Euro conversion will have a material adverse effect on its
business, results of operations, cash flows or financial condition.
15
PART II OTHER INFORMATION
Item 5. Other Information
The Company also announced that John F. McNiff, who has been Chief
Financial Officer of Dover since 1983, plans to retire in the course of the year
2000 after a successor has been named. Thomas L. Reece, Dover's Chief Executive
Officer, noted, "John has done a terrific job for Dover, and I will miss his
analytic mind and encyclopedic memory of Dover's corporate history. We will
conduct a thorough evaluation, both internally and externally, for the best
possible successor. I understand and support John's decision that after 30 years
as a 'corporate officer' he would like to take a break and then look at
something different. John has given me an open-ended commitment to an orderly
transition."
The Company included this table in its third quarter press release. See
also annual report page 4.
Dover Corporation
Operational Profits (1)
(in millions)
1999 - THIRD QUARTER 1999 - NINE MONTHS 1998 - FULL YEAR
-------------------------- ----------------------------- ---------------------------
SALES EARNINGS % SALES EARNINGS % SALES EARNINGS %
----- -------- - ----- -------- - ----- -------- -
DOVER INDUSTRIES $ 292 $ 52 18 $ 844 $ 149 18 $ 1,012 $ 173 17
DOVER TECHNOLOGIES 400 82 21 1,024 173 17 1,211 178 15
DOVER DIVERSIFIED 268 45 17 760 119 16 958 164 17
DOVER RESOURCES 191 30 15 575 91 16 801 144 18
-------------------------- ----------------------------- ---------------------------
OPERATIONAL PROFITS
(AFTER ELIM.) (1) $ 1,151 209 18 $ 3,198 532 17 $ 3,978 659 17
========================== ============================= ===========================
CORPORATES AND OTHER (12) (29) (40)
------ ------ ------
EBITACQ (2) 197 503 619
GAIN ON DISPOSITIONS 21 17
INTEREST (9) (22) (57)
ACQUISITION WRITE-OFFS (21) (62) (73)
------ ------ ------
DOVER PRE-TAX INCOME $ 188 $ 436 $ 489
====== ====== ======
(1) Differs from segment operating profits in that all non-cash write-offs
relating to acquisitions are excluded, along with the expenses of each
segment's corporate group.
(2) Earnings before taxes, interest, acquisition write-offs and non-recurring
gains.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule. (EDGAR filing only)
(b) No reports on Form 8-K were filed this quarter.
16
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: October 25, 1999 /s/ John F. McNiff
---------------------------- ---------------------------------------------
John F. McNiff, Chief Financial Officer, Vice
President and Treasurer
Date: October 25, 1999 /s/ George F. Meserole
---------------------------- ---------------------------------------------
George F. Meserole, Chief Accounting Officer,
Vice President and Controller
5
1000
9-MOS
DEC-31-1999
JUL-1-1999
SEP-30-1999
174,628
0
772,250
23,257
612,947
1,618,353
1,388,985
(792,390)
3,930,295
1,195,388
609,401
0
0
236,218
1,761,840
3,930,295
3,198,136
3,198,136
2,049,151
2,758,746
(18,270)
0
38,209
435,668
151,603
284,065
523,938
0
0
808,003
3.83
3.80
