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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2002
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from____________ to _________________
Commission File No. 1-4018
DOVER CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 53-0257888
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
280 Park Avenue, New York, NY 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(212) 922-1640
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, par value $1. New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of class
--------------
None
Indicate by check mark 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 (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past ninety days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Securities and Exchange Act of 1934) Yes [X] No [ ]
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The aggregate market value of the voting and non-voting common stock held by
non-affiliates of the Registrant as of the close of business June 30, 2002 was
$7,100,119,635. Registrant's closing price as reported on the New York Stock
Exchange-Composite Transactions for June 30, 2002 was $35.00 per share.
The number of outstanding shares of the Registrant's common stock as of March 5,
2003 was 202,522,178.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Certain portions of the Proxy Statement for Annual Meeting of
Stockholders to be held on April 22, 2003 (the "2003 Proxy
Statement").
Special Notes Regarding Forward Looking Statements
This Annual Report on Form 10-K, and the documents that are
incorporated by reference, particularly sections of any Annual Report to
Stockholders under the headings "Letter to Shareholders", "Chairman's Letter",
"Outlook" or "Management's Discussion and Analysis", contain forward-looking
statements within the meaning of the Securities Exchange Act of 1933, as
amended, and the Securities 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", "hope", "forecast", "Dover believes", "management is of the opinion"
use of the future tense and similar words or phrases. Forward-looking statements
are subject to inherent uncertainties and risks, including among others:
continuing impact from the terrorist events of September 11, 2001 as well as the
prospects for armed conflict by the United States and others against Iraq, and
their effect on the worldwide economy; increasing price and product/service
competition by foreign 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 relative mix of
products and services which impacts margins and operating efficiencies; 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 success of the
Company's acquisition program; the cyclical nature of some of the Company's
business; 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.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Dover Corporation ("Dover" or the "Company"), originally incorporated in 1947 in
the State of Delaware, became a publicly traded company in 1955 with four
operating divisions. It is a diversified industrial manufacturing corporation
encompassing 50 operating companies which primarily manufacture a broad range of
specialized industrial products and sophisticated manufacturing equipment, and
seek to expand their range of related services. Additional information is
contained in Items 7 and 8.
The Company's businesses are divided into four business segments. Dover
Diversified builds packaging and printing machinery, heat transfer equipment,
food refrigeration and display cases, specialized bearings, construction and
agricultural cabs, as well as sophisticated products for use in the defense,
aerospace and automotive industries. Dover Industries makes products for use in
the waste handling, bulk transport, automotive service, commercial food service
and packaging, welding, cash dispenser and construction industries. Dover
Resources manufactures products primarily for the automotive, fluid handling,
petroleum, original equipment manufacturers (OEM) engineered components and
chemical equipment industries. Dover Technologies builds sophisticated automated
assembly and testing equipment and specialized electronic components for the
electronics industry, and industrial printers for coding and marking.
BUSINESS STRATEGY
Since inception, the Company has operated with certain fundamental objectives.
First, it seeks to acquire and own businesses with proprietary, engineered
industrial products which make them leaders in the niche markets which they
serve. Second, these businesses must be customer focused, innovative and well
managed to achieve above average profit margins by supplying customers with
value added products and related services. Third, the Company expects that these
types of businesses will generate strong cash flow which can not only sustain
such operations in terms of new product development and growth, but also provide
excess cash flow which the Company can then reinvest in new similar business
opportunities.
The Company's stated objectives are long-term earnings growth of 10%, built on
businesses which can produce operating profits of 15% and generate a return on
capital of 25%. These are goals the Company strives to achieve; it will not
necessarily be successful in every instance.
To the extent the Company is successful in its basic business strategy, over
time, it will generate operating cash flow which is sufficient to fund a large
part of its internal and external growth strategies, as well as provide a return
to its shareholders in the form of modest annual cash dividends and long term
capital appreciation, enhanced periodically by Company stock repurchases.
The Company expects to manage its cash flow so that external debt levels and its
capital structure are optimized to support continued ready access to the capital
markets.
MANAGEMENT PHILOSOPHY
The Company practices a highly decentralized management style. The presidents of
the operating companies are given a great deal of autonomy and have a high level
of independent responsibility for their businesses and their performance. This
is in keeping with the Company's operating philosophy that independent
operations are better able to serve customers by focusing closely on their
products and reacting quickly to customer needs. The Company's executive
management role is to provide management oversight, allocate and manage capital,
assist in major acquisitions, evaluate, motivate and, as necessary, replace
operating management and provide selected other services.
ACQUISITIONS AND DIVESTITURES
The Company has a long-standing and successful acquisition program. The Company
seeks to acquire and develop "platform" businesses, which are marked by growth,
innovation and higher than average profit margins. Each of its businesses should
be a leader in its market as measured by market share, customer service,
innovation, profitability and return on assets. The Company traditionally
focused on acquiring new businesses which could operate independently from other
Dover companies ("stand-alones"). In addition, over the last ten years,
increased emphasis has been placed on acquiring businesses that can be added on
to existing operations ("add-ons"). The target companies are generally
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manufacturers of high value-added, engineered products sold to a broad customer
base of industrial or commercial users. One of the most critical factors in the
decision to acquire a business is the Company's judgment of the skill, energy,
ethics and compatibility of the top executives at the acquisition target. Dover
expects that acquired companies will continue to be operated by the management
team in place at acquisition, with a high degree of autonomy in keeping with the
Company's decentralized structure. From January 1, 1998 through December 31,
2002, the Company made 74 acquisitions at a total acquisition cost of $2,033.5
million. In 2002, the Company completed one stand-alone and five add-on
acquisitions at a total cost of about $100.8 million. For more details regarding
acquisitions completed over the past two years, see Note 2 to the Consolidated
Financial Statements in Item 8. These acquisitions have had a substantial impact
on the Company's sales and earnings since 1998.
While the Company's expects to buy and hold businesses, it does periodically
reassess each business to verify that it continues to represent sound
stewardship for the shareholders. There may also be situations where a Company
business represents a very attractive acquisition for another company based on
specific market conditions. Based on these criteria, the Company has divested
businesses on occasion. During the past two years, the Company has sold 8
companies for an aggregate consideration of $376.6 million. For more details,
see Note 6 to the Consolidated Financial Statements in Item 8.
BUSINESS SEGMENTS
DOVER DIVERSIFIED
Dover Diversified's ten stand-alone operating companies manufacture equipment
and components for industrial, commercial and defense applications. In 2002,
Dover Diversified completed one "add-on" acquisition. A description of each
continuing stand-alone operating company is provided below:
MAJOR UNITS
Hill Phoenix's U.S. manufacturing facilities provide refrigeration systems,
display cases, walk-in coolers and freezers, electrical distribution products,
and engineering services for sale to the supermarket industry, as well as
commercial/industrial refrigeration and convenience store customers. Hill
Phoenix sells equipment primarily in North America directly to the end user with
a small percentage of sales through independent distributors.
Tranter manufactures three distinct types of heat transfer products for a wide
range of applications in a variety of industries. The Gasketed & Welded
products, plate and frame heat exchangers, welded surface heat exchangers, and
all-welded plate heat exchangers are made in the U.S., Sweden, India and the
U.K. The Brazed Products group's facilities in Sweden, Switzerland, the U.S. and
Malaysia produce copper-brazed and nickel-brazed heat exchangers, and small
gasketed heat exchangers. Radiator Products manufactures radiators to cool
oil-filled electrical transformers and has one facility in North America. The
majority of Tranters' sales are equally divided between the U.S and European
markets. Tranter's products are sold by a direct sales force in the North
American market, through wholly owned sales companies in European and Asian
markets and through sales agents and manufacturing representatives in other
parts of the world. In 2003, Tranter will be split into three distinct operating
companies, which will be independently managed as "stand-alones".
Mark Andy manufactures printing equipment and accessories primarily for the
specialty packaging-printing segment at locations in the U.S. and Europe. The
company specializes in the fabrication of narrow web printing presses used for
producing pressure sensitive labels for the food, cosmetic, pharmaceutical and
logistics (inventory, transportation, baggage handling) markets, as well as dry
offset printing machines used in direct printing on rigid plastic containers
(cups, tubs, lids and tubes) and color measurement control systems for printing
presses. Products are sold primarily in the Americas and Europe through
distributors.
Crenlo fabricates operator cabs and rollover structures for sale to OEM
manufacturers in the construction, agriculture, and commercial equipment
markets, such as Caterpillar, John Deere & Company, and Case New Holland. In
addition, Crenlo produces "build-per-print" high volume sheet metal enclosures
for the electronics, telecommunications and electrical markets. Crenlo operates
manufacturing facilities in the U.S., which is its primary market.
Waukesha Bearings Corporation manufactures bearings for certain rotating
machinery applications including turbo machinery, motors and generators, for use
in the industrial, utility, naval and commercial marine industries. Waukesha's
product lines include polymer, ceramic and magnetic designs for specific
customer applications, as well as hydrodynamic bearing design applications.
Waukesha's Hydratight Sweeney business makes manual and hydraulic bolt
tightening devices, and its Central Research Laboratories business makes remote
control manipulators for material handling applications in hazardous or sterile
environments. The company operates manufacturing facilities in the U.S. and the
U.K. and sales are made primarily in Europe and North America both directly and
through agents in several different countries.
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Performance Motorsports sells primarily pistons, and other engine components
into motor-sport and power-sport markets that include high performance racing,
motorcycles, all-terrain vehicles, snowmobiles and watercraft. Performance
Motorsports products include forged and cast pistons, connecting rods,
crankshafts and cylinder liners along with their complimentary components,
including, piston rings, bearings, gaskets, and a variety of other internal
valve train and engine components, as well as suspension, braking, clutching,
and chassis components. Products are manufactured in the U.S. and Europe for
sale through distributors.
Sargent supplies hydraulic power aerospace and fluid control components to the
aerospace and marine marketplace. From its U.S. manufacturing locations, these
businesses produce quiet hydraulic components for U.S. submarines, hydraulic
valves and actuators for aircraft, space and amphibious assault vehicles,
landing gear hydraulic components, self-lubricating bearings for aircraft,
pneumatic rings and seals for aircraft engines, and various other precision
engineered components. These businesses share common customers throughout the
commercial aerospace and defense industries and sell generally on a direct basis
throughout the world.
OTHER UNITS
SWF Companies manufacture packaging automation machinery utilized in forming,
loading and sealing folding carton stock and corrugated board packaging. SWF's
products are sold primarily in the U.S. through direct representation as well
as indirect channels. Approximately 30% of the company's machines are installed
and operated outside of North America.
Belvac manufactures systems in the U.S. for sale to worldwide beverage canmakers
who need high-speed trimming, necking, base reprofiling and reforming, shaping,
bottom rim coating, flanging and inspection capabilities.
Langbein & Engelbracht (L&E), based in Germany, assembles and installs custom
pollution and air handling systems used in paper mills, paint shops and
environmental control equipment for various industrial applications. L&E
primarily serves the paper, automotive and process engineering markets
throughout the world.
DOVER INDUSTRIES
Dover Industries is comprised of fourteen stand-alone operating companies that
manufacture a diverse mix of equipment and components for use in the waste
handling, bulk transport, automotive service, commercial food service,
packaging, and construction equipment industries. A description of each
stand-alone operating company is provided below:
MAJOR UNITS
Heil Environmental manufactures a wide variety of refuse collection bodies
(garbage trucks) including front loaders, rear loaders, side loaders, and
recycling units. Heil Environmental sells its products to municipal customers,
national accounts, and independent waste haulers through a network of
distributors, and directly in certain geographic areas. Heil Environmental also
manufactures a line of dump truck bodies/hoists for the hauling industry and a
line of refuse container lifts for the waste industry. Products are manufactured
in the U.S., for sales primarily in North America, and in the U.K. for the
European Market.
Rotary Lift manufactures a wide range of vehicle lifts, sold primarily through
channels of light-duty and heavy-duty equipment distributors, with products
supplied to a wide variety of markets including independent service and repair
shops, national chains and franchised service facilities, new car and truck
dealers, national and local governments, and government maintenance and repair
locations. Rotary has manufacturing operations located in the U.S. and sells
primarily in the Americas and Europe.
Heil Trailer International produces a complete line of tank trailers including
aluminum, stainless steel and steel trailers that carry petroleum, chemical,
edible, dry bulk, waste and oil field products. Trailers are marketed directly
to customers in the construction, trucking, railroad, oil, recovery and heavy
haul industries, as well as to various government agencies, primarily through
distributors, both domestically and internationally. Heil Trailer has
manufacturing facilities on four continents and services customers globally.
Tipper Tie develops and manufactures in the U.S. and Europe a wide variety of
packaging machinery which employs a clip as the means of flexible package
closure. These machines and clips are sold worldwide primarily for use with
meat, poultry and other food products. Tipper Tie also produces a line of woven
netting products used in many industries, including the meat and poultry,
horticulture, Christmas tree, and environmental markets. International sales
currently generate over 50% of total sales.
Marathon Equipment manufactures on-site waste management and recycling systems,
including a variety of stationary compactors, roll-off hoists and vertical,
horizontal and two ram balers. Equipment is manufactured and sold primarily in
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the U.S. to distribution centers, malls, stadiums, arenas, hotels/motels,
warehouses, office complexes, apartment buildings, retail stores, businesses,
and recycling centers.
Triton Systems manufactures small footprint cash-dispensing automatic teller
machines ("ATMs") for off-premise locations such as convenience stores,
airports, hotels, restaurants, shopping centers and casinos. The company has
more than 55,000 installations in over 15 countries worldwide. Triton sells
through an independent sales organization for installation throughout the world,
although the primary markets are North America, Australia and the U.K.
PDQ Manufacturing, Inc. manufactures touch free vehicle wash systems, which are
sold primarily in the U.S. and Canada to major oil companies as well as to
distributors. Sales are made through an industry distribution network that
installs the equipment and provides after-sale service and support.
DI Foodservice is a combination of two businesses. Randell produces commercial
foodservice equipment for use in both food preservation (storage) and food
preparation, including commercial refrigerators and freezers, hot food holding
equipment, ventilation, display cases, beer dispensing equipment, conveyorized
pizza ovens, and custom stainless steel counters. Randell's products are sold
through distributors primarily in North and South America. Groen manufactures
commercial food service cooking equipment, primarily steam-jacketed kettles and
tilting braising pans, at one U.S. facility. Groen primarily serves the domestic
institutional and commercial food industry and markets its products through a
network of distributors and sales agents, as well as a direct sales force.
Texas Hydraulics manufactures highly engineered welded hydraulic cylinders for
sale to the work platform, aerial utility truck, material handling,
construction, and mining industry OEM's throughout North America. Cylinders are
manufactured in Texas and Tennessee for sale directly to customers and through
distributors in North America. As of January 1, 2003, Texas Hydraulics was
transferred to Dover Resources because of very strong customer end-market
synergies with the Tulsa Winch Group.
OTHER UNITS
DovaTech produces industrial CO2 lasers used for cutting, welding, drilling and
cladding processes in the aerospace, automotive, heavy equipment and sheet metal
fabrication industries, YAG lasers used in a variety of micromachining, marking,
engraving, diamond processing, welding and cutting applications, and related
equipment used to control the temperature of industrial lasers, machine tools,
welding equipment, machinery coolants, plastic injection molding equipment and
medical diagnostic equipment. All products are made in the U.S. for sale
directly and through distributors in North America and Europe.
Kurz-Kasch manufactures electromagnetic products and specialty plastic
components, primarily electromagnetic stators that regulate electronic fuel
injectors, electronic fuel pumps for the heavy truck and automotive industries,
phenolic brake pistons and electronic valve assemblies. Kurz-Kasch also
manufactures specialty plastic components used in aerospace, electrical,
telecommunications and other industries. All products are manufactured in the
U.S. and sold direct to OEM's.
Chief Automotive Systems manufactures vehicle collision measuring and repair
systems, including pulling equipment, and computerized measuring and gas and
dust extraction systems. Chief markets its equipment worldwide in over 40
countries throughout Europe, Asia and the Americas, utilizing a direct sales,
service and training organization, as well as through investors.
Somero Enterprises manufactures highly specialized laser guided concrete
spreading equipment used in the commercial construction industry. Products are
built in the U.S. and sold globally through a direct sales force, sales
representatives and dealers.
DOVER RESOURCES
Dover Resources' thirteen stand-alone operating companies manufacture components
and equipment primarily for the oil and gas production industry, the petroleum
retailing industry, the process industries, the automotive industries, and
select commercial markets. During 2002, Dover Resources completed two add-on
acquisitions. A description of each stand-alone operating company is provided
below:
MAJOR UNITS
OPW Fueling Components is a leading global supplier of fuel dispensing nozzles
(gasoline, LPG, CNG), related fueling components and systems and underground
secondary containment products for service stations, including conventional
gasoline nozzles, vapor recovery nozzles, swivels, breakaways, and a complete
line of valves and connectors used on gasoline storage tanks. Its Petro Vend
unit provides automated fuel management systems to oil companies and commercial
and private refueling operations around the world. Its products are marketed
globally through a network of distributors and company sales offices.
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The Petroleum Equipment Group ("PEG") consists of four North American operating
units, Norris, Alberta Oil Tool ("AOT"), Norriseal and Ferguson-Beauregard,
which primarily serve the upstream oil and gas production industry. Norris and
AOT produce forged steel sucker rods, integral parts of artificial lift systems
used primarily in on-shore oil and gas production. Norriseal provides control
valves, butterfly valves, and control instrumentation primarily for oil and gas
production applications and, to a lesser extent, the general industrial,
refining, chemical processing and marine markets. Ferguson-Beauregard provides
products that improve production from natural gas wells, and electronic well
controllers for remotely monitoring, controlling and optimizing production from
natural gas fields. Sales are made both directly to customers and through
various distribution channels. PEG's market is global, but sales are
predominantly in North America, with the bulk of international sales occurring
in South America. In 2003, this group was renamed the Energy Products Group,
which will include Quartzdyne as well.
De-Sta-Co Industries manufactures and sells a variety of modular automation and
workholding components including manual toggle clamps, pneumatic and hydraulic
clamps, automation power clamps, automation shuttles and lifters, grippers,
slides, end-effectors and other "end of robot arm" devices. De-Sta-Co serves the
automotive, electronics, and general industrial markets from plant facilities in
the U.S., Germany, Thailand, France and Brazil and its products are marketed
globally both on a direct basis and through a network of distributors.
Blackmer manufactures a variety of pumps and compressors for the transfer of
liquid and gas products in a wide variety of markets, including the refined
fuels, pulp & paper, wastewater, food/sanitary, military/marine, transportation
and chemical process industries. Pump technologies include sliding vane,
eccentric disc, centrifugal and peristaltic. Compressor technologies include
reciprocating, rotary vane and screw. Blackmer sells to original equipment
manufacturers directly, and to other markets through a global network of
distributors, primarily in the Americas and Europe.
OPW Fluid Transfer Group supplies engineered products: primarily valves,
couplings, electronic controls, loading arms, swivels and couplings, for the
transfer, monitoring, measuring and protection of hazardous, liquid and dry bulk
commodities in the chemical, petroleum and transportation industries. These
products are manufactured in the U.S. and sold directly and through distributors
primarily in the Americas and Europe.
Wilden Pump & Engineering Company produces a wide range of air-operated,
double-diaphragm pumps made of steel, aluminum, and engineered plastics. Wilden
pumps are used in a wide variety of fluid transfer applications in general
industrial, process industry, and specialized applications. Sales are
predominantly through distributors, with nearly half of Wilden's sales derived
from international markets.
C. Lee Cook is comprised of three units: C. Lee Cook, Compressor Components
(CCI), and Cook Manley. C. Lee Cook is a leading manufacturer of piston rings,
seal rings, and packings for reciprocating compressors used in the natural gas
production and distribution markets, and petrochemical and petroleum refining
industries. These products are sold as original equipment parts to compressor
manufacturers, as well as aftermarket replacement parts. CCI manufactures
replacement valves, rods, rings, high performance plastic bushings and other
compressor components and provides compressor repair services through its
service centers, primarily for the North American gas production and
distribution markets. Cook Manley designs and manufactures specialty compressor
valves and injection molded engineered plastic components for gas compressor
markets worldwide. The company's products are sold both direct and through
various sales channels, largely in North America.
OTHER UNITS
The Tulsa Winch Group ("TWG") includes DP Winch, Greer Company, Pullmaster Winch
and Tulsa Winch. The group manufactures worm and planetary gear winches, worm
gear speed reducers, planetary swings, specialized in-cab load indication
equipment for the mobile crane industry, winch/bumper packages, capstans,
constant-pull traction winches and auger drives for the military, marine,
logging, drilling, utility, crane, construction and truck equipment markets. TWG
products are marketed and sold primarily in North America through various sales
channels including OEMs, and dealer distribution.
RPA Process Technologies manufactures engineered filtration equipment and
systems for the petroleum refining, pulp and paper, and other process industries
on a global basis.
Hydro Systems manufactures chemical proportioning and dispensing systems used to
dilute and dispense concentrated cleaning chemicals to the food service, health
care, supermarket, institutional, school, building service contractor and
industrial markets. Hydro Systems products are generally sold to manufacturers
of concentrated cleaning chemicals, who market them with their branded chemicals
and offer a complete chemical management system to their end user customers.
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De-Sta-Co Manufacturing produces reed valves, flapper valves and related
assemblies for compressors used in the automotive, commercial and residential
air conditioning and refrigeration markets. De-Sta-Co Manufacturing also
produces highly specialized discs for the automotive ride control market.
Quartzdyne manufactures precision pressure transducers using proprietary
quartz-resonator sensor technology to provide continuous monitoring of pressure,
temperature, and flow in "downhole" oil and gas exploration and production
applications.
Duncan manufactures parking controls, meters and systems primarily for the
municipal on-street parking market.
DOVER TECHNOLOGIES
Dover Technologies is comprised of thirteen stand-alone operating companies that
manufacture products in three broad groupings: Circuit Board Assembly and Test
equipment, Specialized Electronic Components, and Marking and Imaging systems.
In 2002, Dover Technologies made one stand-alone acquisition and two add-on
acquisitions. A description of each stand-alone operating company is provided
below:
CIRCUIT BOARD ASSEMBLY AND TEST (CBAT)
Universal Instruments manufactures high-speed precision machinery used to place
components onto printed circuit boards and produce semiconductor packages. Its
products include thru-hole component assembly machines, surface mount assembly
machines and odd component assembly cells. It also provides complete assembly
lines by integrating all machinery and software necessary to provide a complete
assembly solution. The Universal Surface Mount Laboratory provides process
solutions and supports a consortium of more than 30 leading electronic
manufacturing companies who develop advanced packaging. Universal manufactures
in the U.S. and is opening a facility in China in the first quarter of 2003.
Universal operates throughout the world with sales and service operations in
more than 30 countries.
Everett Charles Technologies makes machines, test fixtures and related products
used in testing "bare" and "loaded" electronic circuit boards and
semiconductors. Machines are built in the U.S. and Europe and test fixtures are
made at locations worldwide. Products are marketed directly on a worldwide
basis.
DEK makes high-speed precision screen printers and related consumables used to
apply solder paste and epoxy glue at the start of the printed circuit board
assembly process. Advanced applications include printing solder paste bumps onto
semiconductor wafers used in the "flip chip" process and onto "ball grid" array
packages. DEK manufactures in the U.K. and China and has sales/service offices
throughout Europe, North America and Asia Pacific, with a network of
distributors and agents providing further support in these territories.
OK International manufactures specialized and manual industrial tools for the
electronics workbench, including precision manual soldering and desoldering
tools, ball grid array rework and inspection stations, fluid dispensing systems,
static control and ionization equipment, and wirewrap tools and other hand
tools. Products are made at various U.S. locations for sales to customers in the
electronics, aerospace and telecom industries, through sales organizations
around the world who manage distributors and independent representatives.
Vitronics-Soltec manufactures automated soldering systems for high volume
electronic circuit board manufacturing. With factories in the U.S. and Holland,
it makes wave soldering machines used for thru-hole and double-sided surface
mount printed circuits, reflow soldering systems used for standard surface mount
circuits and selective soldering systems used to automatically solder large
odd-shaped components often used in the automotive and telecom industries.
Vitronics-Soltec has sales/service offices in Europe, North America and Asia and
sells direct to customers.
Alphasem manufactures die attach systems that are used to attach semiconductor
die to their protective packages, ready to be mounted on PCBs. These "packages"
are vital components in highly sophisticated computer systems, cars and space,
communication devices, medical systems, aircraft. Alphasem is based in
Switzerland and has sales and service operations Europe, Asia and North America.
Acquired in October 2002, Hover-Davis manufactures component feeders, direct die
feeders and label feeders that are used on high-speed component placement
machines as part of an automated circuit board assembly line. Headquartered in
Rochester, New York, Hover-Davis' products are offered in more than 35 countries
through a network of independent manufacture representatives and more than 25
distributors.
SPECIALTY ELECTRONIC COMPONENTS (SEC)
Quadrant Technologies makes high frequency engineered components and subsystems,
including frequency generation and control components using quartz crystal and
surface acoustic wave (SAW) technologies, microwave synthesizers
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(multiple frequency generators), and microwave and millimeter wave transceivers.
Products are made at multiple locations in the U.S. and Germany for direct sale
to the global telecom/datacom industry, both wired and wireless.
K&L Microwave designs and manufactures a wide range of radio frequency and
microwave filters including ceramic and dielectric resonator units, duplexers
and diplexers, combiners, receive multicouplers, directional couplers and
wireless subassemblies for cellular base stations. In addition to serving the
wireless industry, K&L sells to numerous military and aerospace customers. K&L
has manufacturing activities in the U.S., Dominican Republic, and China, and
sells its products worldwide through representatives.
Novacap is a specialty manufacturer of multi-layer ceramic capacitors and planar
arrays for commercial and high voltage, high reliability applications. It makes
products in the U.S. and the U.K., and sells through both representatives and
distributors worldwide to telecom/datacom equipment, implanted medical products,
aerospace and automotive manufacturers.
Dow-Key Microwave is a specialty manufacturer of microwave electro-mechanical
switches for use in the medical, wireless, military and high-reliability space
industries. Design and manufacturing operations are in the U.S. and sales are
made worldwide through representatives.
Dielectric Laboratories is a manufacturer of single and multi-layer high
frequency capacitors for use in the telecom, military and automotive industries.
Design and manufacturing operations are in the U.S. and sales are made worldwide
through representatives.
MARKING AND IMAGING
Imaje is a major worldwide supplier of industrial inkjet marking and coding
systems. Its primary product is a Continuous Ink Jet (CIJ) printer, which is
used for marking of variable information (such as date codes or serial numbers)
on consumer products. Markpoint, acquired in 2001, added two new technologies to
Imaje's product lineup: Drop on Demand (DOD) printers and thermal printers used
for marking on secondary packaging such as cartons. Imaje's markets are very
broad and include food, beverage, cosmetics, pharmaceutical, electronics,
automotive and other applications where variable marking is required. Products
are made in France, Sweden, U.S. and China, where Imaje engages in both printer
assembly and the formulation of ink. Imaje's direct sales/service network has
subsidiaries in 29 countries and sells in over 90 countries.
DISCONTINUED OPERATIONS
In October of 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
which was effective for fiscal years beginning after December 15, 2001. SFAS No.
144 establishes accounting and reporting standards for the impairment and
disposal of long-lived assets and discontinued operations. The Company elected
to early adopt SFAS No. 144 in 2001. The application of this statement results
in the classification, and separate financial presentation, of certain entities
as discontinued operations, which are not included in continuing operations. The
earnings (loss) from discontinued operations include charges to reduce these
businesses to estimated fair value less costs to sell. Fair value is determined
by using quoted market prices, when available, or other accepted valuation
techniques. All interim and full year reporting periods have been restated to
reflect the discontinued operations discussed below.
In 2002, the Company concluded that several businesses either had limited growth
prospects under its ownership, due to relevant domestic and international market
conditions, or did not align with management's long-term strategic plans.
Accordingly, four businesses were discontinued in Technologies and three
businesses were discontinued in Resources. Vectron GmbH, from Technologies, and
Tarby from Resources were sold during 2002 for a net after tax loss of $4.5
million. The remaining five businesses were classified as held for sale for the
year ended December 31, 2002. One of those businesses, Wittemann, in the
Resources segment, was subsequently sold in February of 2003. The Company
expects to dispose of the rest of these businesses by the end of 2003.
During 2001, the Company discontinued four businesses in the Diversified segment
and one business in both the Industries and Resources segments. The Company
determined that these businesses were not suited for long-term strategic growth
under its ownership. The DovaTech welding equipment business from Industries and
the AC Compressor business from Diversified were sold during 2001 for a net gain
after tax of $96.6 million. The four remaining businesses were classified as
held for sale as of December 31, 2001. In 2002, all four of these businesses
were disposed of or liquidated for a net after tax gain of $3.6 million.
During 2000, the Company reported a $13.6 million loss after tax due to
subsequent adjustments to both the purchase price and expenses related to the
disposition of the Dover Elevator International market segment in 1999. These
results are reported in the gain (loss) on sale of discontinued operations, net
of tax.
9 of 79
Charges to reduce these discontinued businesses to their estimated fair values
have been recorded in earnings (losses) from discontinued operations, net of
tax. For the years ended December 31, 2002 and 2001, charges were recorded to
write off goodwill of $31.6 million and $11.6 million and other long-lived asset
impairments of $12.3 million and $7.7 million, respectively.
RAW MATERIALS
Dover's operating companies use a wide variety of raw materials, primarily
metals and semi-processed or finished components, which are generally available
from a number of sources; as a result, shortages or the loss of any single
supplier have not had, and are not likely to have, a material impact on
operating profits. During 2002, steel tariffs were imposed on the importation of
certain steel products, which had a slight adverse impact on a number of Dover
operating companies which use large amounts of steel.
RESEARCH AND DEVELOPMENT
Dover's operating companies are encouraged to develop new products as well as to
upgrade and improve existing products to satisfy customer needs, expand sales
opportunities, maintain or extend competitive advantages, improve product
reliability and reduce production costs. During 2002, approximately $168.5
million was spent on research and development, compared with $170.2 million and
$165.4 million in 2001 and 2000, respectively.
For the Dover Technologies companies, efforts in these areas tend to be
particularly significant because the rate of product development by their
customers is often quite high. In general, Dover Technologies companies, that
provide electronic assembly equipment and services can anticipate that the
performance capabilities of such equipment are expected to improve significantly
over time, with a concurrent expectation of lower operating costs and increasing
efficiency. Likewise, Dover Technologies companies developing specialty
electronic components for the datacom and telecom commercial markets anticipate
a continuing rate of product performance improvement and reduced cost, such that
product life cycles generally average less than five years with meaningful sales
price reductions over that time period.
Dover Industries, Dover Resources and Dover Diversified contain many businesses
that are also involved in important product improvement initiatives. These
businesses also concentrate on working closely with customers on specific
applications, expanding product lines and market applications, and continuously
improving manufacturing processes. None of these businesses experience the rate
of change in markets and products as are experienced generally by the Dover
Technologies companies.
INTELLECTUAL PROPERTY
The Company has a number of patents, trademarks, licenses and other forms of
intellectual property, which have been acquired over a number of years and, to
the extent relevant, expire at various times over a number of years. A large
portion of the Company's intellectual property consists of confidential and
proprietary information constituting trade secrets that the Company seeks to
protect in various ways including confidentiality agreements with employees and
suppliers where appropriate. While the Company's intellectual property is
important to its success, the loss or expiration of any significant portion of
these rights would not materially affect the Company or any of its segments. The
Company believes that its commitment to continuous engineering improvements, new
product development and improved manufacturing techniques, as well as strong
sales, marketing and service efforts, are significant to its general leadership
position in the niche markets that it serves.
SEASONALITY
In general, Dover's operations are not seasonal to any significant degree but
tend to have stronger revenues in the second and third quarters. In particular,
those companies serving the transportation, construction, waste hauling,
petroleum, commercial refrigeration and food service markets tend to be strong
during the second and third quarters. Companies serving the major equipment
markets, such as power generation, chemical and processing industries, tend to
have long lead times geared to seasonal commercial or consumer demands, which
tend to delay or accelerate product ordering and delivery to coincide with those
market trends.
10 of 79
CUSTOMERS
Dover's businesses serve thousands of customers, no one of which accounted for
more than 10% of the Company's consolidated revenues in 2002. Within each of the
four segments, no customer accounted for more than 10% of that segment's sales
in 2002.
In the Dover Technologies segment, the rapid growth in datacom/telecom
infrastructure market development during the period 1997-2000, involving both
equipment providers and software developers such as Lucent, Motorola, Nortel,
Cisco, Siemens, Phillips, and Qualcomm, tended to concentrate the new product
development and demand with relatively few customers. At the same time, a number
of these customers have "outsourced" a significant amount of their manufacturing
capability to electronic manufacturing services (EMS) companies such as Jabil,
Solectron, Celestica, and Flextronics, which firms are now the direct customers
of Dover Technologies companies for a number of different OEM customers. Given
the significant downturn in these markets since 2000, and the shift in
manufacturing, this has tended to increase the concentration of manufacturing
with the EMS's companies, particularly with those located in China, hence,
machine and specialty component demand is concentrated with a smaller number of
"customers".
In the other Dover segments, customer concentrations are quite varied. Companies
supplying the automotive and commercial refrigeration industries tend to deal
with a few large customers that are significant within those industries. This
also tends to be true for companies supplying the power generation, aerospace
and chemical industries. In the other markets served, there is usually a much
lower concentration of customers, particularly where the companies provide a
substantial number of products and services, applicable to a broad range of end
use applications.
BACKLOG
Backlog generally is not a significant factor in most of Dover's businesses, as
most of Dover's products have relatively short order-to-delivery periods. It is
more relevant to those businesses in the segments which produce larger and more
sophisticated machines or have long-term government contracts, primarily in the
Diversified segment as well as the Heil companies from the Industries segment
and the CBAT and SEC companies from the Technologies segment. Total Company
backlog as of December 31, 2002 and 2001 was $687.9 million and $728.3 million,
respectively.
COMPETITION
Dover's competitive environment is complex because of the wide diversity of
products manufactured and markets served. In general, most Dover companies are
market leaders which compete with only a few companies and the key competitive
factors are customer service, product quality and innovation. In addition, since
most of Dover's manufacturing operations are in the United States, Dover usually
is a more significant competitor domestically than in foreign markets.
In the Dover Technologies segment, Dover competes globally against a few very
large companies, primarily operating in Japan, Europe and the Far East. Its
primary competitors are Japanese producers, including Fuji Machine, Panasonic
and TDK, and European manufacturers like Philips and Siemens.
Within the other segments, competition is primarily domestic, although an
increasing number of Dover companies see more international competitors and
several serve markets which are predominantly international, particularly
Belvac, L&E, Quartzdyne, RPA Process Technologies, Tipper Tie, Tranter, and
Waukesha.
INTERNATIONAL
For foreign sales, export sales and an allocation of the assets of the Company's
continuing operations, see Note 14 to the Consolidated Financial Statements in
Item No. 8 of this Form 10-K.
Although international operations are subject to certain risks, such as price
and exchange rate fluctuations and foreign governmental restrictions, Dover
intends to increase its expansion into foreign markets including South America,
Far East and Eastern Europe.
The countries where most of Dover's foreign subsidiaries and affiliates are
based are France, Germany, the U.K., The Netherlands, Sweden and Switzerland,
and to a lesser extent, China.
ENVIRONMENTAL MATTERS
Dover believes its operations generally are in substantial compliance with
applicable regulations. In a few instances, particular plants and businesses
have been the subject of administrative and legal proceedings with governmental
agencies or private parties relating to the discharge or potential discharge of
regulated substances. Where necessary, these matters have been addressed with
specific consent orders to achieve compliance. Dover believes that continued
11 of 79
compliance will not have any material impact on the Company's financial position
going forward and will not require significant capital expenditures.
EMPLOYEES
The Company had approximately 25,000 employees as of December 31, 2002.
OTHER INFORMATION
Dover makes available free of charge through the "Financial Reports" link on its
Internet website, http://www.dovercorporation.com, the Company's annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
any amendments to the reports. Dover posts each of these reports on the website
as soon as reasonably practicable after the report is filed with the Securities
and Exchange Commission. The information on the Company's Internet website is
not incorporated into this Form 10-K.
ITEM 2. PROPERTIES
The number, type, location and size of the Company's properties as of December
31, 2002 are shown on the following charts, by segment.
Number and Nature of Facilities Square Footage (000's)
-------------------------------- ----------------------
Ware- Sales/
Segment Mfg. house Service Owned Leased
- ------ --- ----- ------- ----- ------
Diversified 50 19 51 3,329 1,096
Industries 51 11 29 3,812 1,101
Resources 66 15 39 2,671 642
Technologies 74 22 168 1,811 1,837
Locations Leased Facilities
-------------------------------- -----------------------
North expiration dates (years)
American European Other Minimum Maximum
-------- -------- ----- ------- -------
Diversified 52 44 6 1 19
Industries 74 13 3 1 12
Resources 86 10 7 1 12
Technologies 79 67 98 1 20
The facilities are generally well maintained and suitable for the operations
conducted. During 2002 and 2001, excess capacity rapidly developed within the
Technologies segment, and to a much lesser degree within the other three
segments. During the year 2002, steps were taken to reduce capacity where
appropriate.
ITEM 3. LEGAL PROCEEDINGS
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.
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
12 of 79
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 Company's financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders in the last
quarter of 2002.
EXECUTIVE OFFICERS OF THE REGISTRANT
All officers are elected annually at the first meeting of the Board of Directors
following the annual meeting of stockholders and are subject to removal at any
time by the Board of Directors. The executive officers of Dover as of February
28, 2003, and their positions with the Company (and, where relevant, prior
business experience) for the past five years are as follows:
Name Age Positions Held and Prior Business Experience
---- --- --------------------------------------------
Thomas L. Reece 60 Director, Chairman of the Board (since May 1999), President and Chief Executive
Officer, Dover Corporation
Lewis E. Burns 64 Vice President of Dover and President of Dover Industries, Inc.
Charles R. Goulding 52 Vice President, Taxation (since August 1998); prior thereto for more than five
years Director of Taxation, Dover Corporation.
Ronald L. Hoffman 54 Vice President of Dover and President of Dover Resources, Inc., (since January
1, 2002); prior thereto Executive Vice President of Dover Resources, Inc. since
May 2000 and prior thereto for more than five years President of Tulsa Winch, a
subsidiary of Dover Resources, Inc.
Robert G. Kuhbach 55 Vice President, Finance, Chief Financial Officer and Treasurer (since November
2002); prior thereto for more than five years Vice President, General Counsel
and Secretary of Dover Corporation.
Raymond T. McKay, Jr. 49 Controller (since November 2002); prior thereto Assistant Controller, Dover
Corporation since June 1998 and prior thereto for more than five years, Manager
of Financial Reporting, Dover Corporation.
John E. Pomeroy 61 Vice President of Dover and President of Dover Technologies International, Inc.
Joseph W. Schmidt 56 Vice President, General Counsel & Secretary of Dover Corporation (since January
1, 2003); prior thereto for more than five years partner in Coudert Brothers LLP
(a multi-national law firm).
Robert A. Tyre 58 Vice President-Corporate Development, Dover Corporation.
Jerry W. Yochum 64 Vice President of Dover and President of Dover Diversified, Inc.
Maynard C. Wiff 48 Vice President of Information Technology, Dover Corporation (since February 14,
2002); prior thereto for more than five years Vice President of Information
Technology at Universal Instruments, a subsidiary of Dover Technologies
International, Inc.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The principal market in which the Company's Common Stock is traded is the New
York Stock Exchange. Information on the high and low sales prices of such stock,
and the frequency and the amount of dividends paid during the last two years is
as follows:
Dover Corporation Common Stock
Cash Dividends and Market Prices (1)
2002 2001
---- ----
Market Prices Dividends Market Prices Dividends
High Low Per Share High Low Per Share
----------------------------------- -----------------------------------
FIRST $ 43.55 $ 34.05 $ .135 $ 42.50 $ 33.81 $ .125
SECOND 41.19 32.78 .135 43.55 33.40 .125
THIRD 35.00 24.40 .135 38.90 26.40 .135
FOURTH 32.20 23.54 .135 39.00 28.71 .135
-------- -------
$ .54 $ .52
(1) As reported in the Wall Street Journal
The number of holders of record of the Company's Common Stock as of March 5,
2003, as shown by the records of the Company's transfer agent was approximately
16,000. This figure includes participants in the Company's 401(K) program.
On November 15, 2002, pursuant to the 1996 Non-Employee Directors' Stock
Compensation Plan, the Company issued an aggregate of 9,800 shares of its Common
Stock to its seven U.S. resident outside directors (after withholding an
aggregate of 4,200 additional shares to satisfy tax obligations), and the
Company issued an aggregate of 2,000 shares of its Common Stock to its non-U.S.
resident outside director who was not subject to U.S. withholding tax, as
compensation for serving as a director of the Company during 2002.
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ITEM 6. SELECTED FINANCIAL DATA
Dover Corporation and Subsidiaries financial information for the years 1998
through 2002 is set forth in the following 5-year Consolidated Table.
5 -YEAR CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
(in thousands, except per share figures) 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 4,183,664 4,368,415 5,064,805 4,125,824 3,636,754
Net earnings from continuing operations 211,149(1) 181,831(2) 513,523(3) 386,287 305,837
Net earnings (losses) per common share:
Basic - Continuing operations $ 1.04 0.90 2.53 1.85 1.37
- Discontinued operations (0.19) 0.32 0.03 2.59 0.33
-----------------------------------------------------------------
- Total net earnings before cumulative effect of
change in accounting principle 0.85 1.22 2.56 4.44 1.70
- Cumulative effect of change in accounting
principle (1.45) - - - -
------------------------------------------------------------------
- Net earnings (losses) $ (0.60) 1.22 2.56 4.44 1.70
==================================================================
Diluted - Continuing operations $ 1.04 0.89 2.51 1.83 1.36
- Discontinued operations (0.20) 0.33 0.03 2.58 0.33
------------------------------------------------------------------
- Total net earnings before cumulative effect of
change in accounting principle 0.84 1.22 2.54 4.41 1.69
- Cumulative effect of change in accounting
principle (1.44) - - - -
------------------------------------------------------------------
- Net earnings (losses) $ (0.60) 1.22 2.54 4.41 1.69
==================================================================
Dividends per common share $ .54 .52 .48 .44 .40
Weighted average number of common shares outstanding:
- Basic 202,571 202,925 202,971 209,063 222,793
- Diluted 203,346 204,013 204,677 210,679 224,386
Return on average equity 8.8% 7.9% 25.7% 23.9% 22.7%
Acquisitions (economic cost basis) $ 100,138 281,819 506,251 599,171 556,019
Capital expenditures $ 100,732 162,532 183,746 117,333 104,542
Depreciation and amortization $ 161,003 213,494 184,224 163,575 147,766
Cash flows from operating activities $ 394,915 683,280 535,756 431,548 496,226
Cash flows (used in) investing activities $ (184,072) (422,619) (588,416) (655,213) (646,975)
Cash flows from (used in) financing activities $ (140,299) (545,006) 411,283 (898,834) 153,598
Total assets $ 4,388,171 4,507,334 4,555,035 3,802,412 3,060,863
Long term debt $ 1,030,299 1,031,744 630,168 605,452 603,711
Total debt $ 1,054,060 1,075,257 1,472,237 903,118 1,037,077
All results and data in this section reflect continuing operations, which
exclude discontinued operations unless otherwise noted. See Note 6 to the
Consolidated Financial Statements.
"Return on average equity" is calculated by dividing net earnings from
continuing operations, adjusted for the sale of businesses and marketable
securities in 2000 and 1999, by a average current year stockholders' equity
adjusted for discontinued operations.
"Acquisitions (economic cost basis)" represents the acquisition purchase price
adjusted for long-term debt assumed and cash acquired on the date of
acquisition. The economic cost basis measure is used because it more accurately
reflects "total" purchase price.
(1) Includes restructuring charges of $28.7 million and $12.0 million of
inventory charges.
(2) Includes restructuring charges of $17.2 million and $63.8 million of
inventory charges.
(3) Includes gain on sale of marketable securities of $13.7 million.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY
Dover Corporation had net earnings from continuing operations for 2002 of $211.1
million or $1.04 diluted earnings per share (DEPS) compared to $181.8 million or
$.89 DEPS from continuing operations in 2001. Earnings from continuing
operations (net of tax) included inventory, restructuring and other charges of
$25.3 million or $.12 DEPS in 2002 and $52.6 million or $.26 DEPS in 2001. For
2002, net earnings before changes in accounting principles were $171.8 million
or $.84 DEPS, including $39.4 million or $.20 DEPS in losses from discontinued
operations, compared to $248.5 million or $1.22 DEPS in 2001 which included
$66.7 million or $.33 DEPS in earnings from discontinued operations which was
primarily the result of gains from the sale of AC Compressor and DovaTech
businesses.
For 2002, the net loss was $121.3 million or $.60 DEPS compared to earnings of
$248.5 million or $1.22 DEPS in 2001. 2002 results include the impact of the
adoption of Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142). The adoption resulted in a goodwill
impairment charge of $345.1 million ($293.0 million net of tax or $1.44 DEPS)
which was recognized as the cumulative effect of a change in accounting
principle in the first quarter of 2002. The adoption of SFAS 142 also included
the discontinuance of the amortization of goodwill, effective January 1, 2002.
Goodwill amortization, adjusted for discontinued operations, totaled $42.2
million net of tax or $.21 DEPS for 2001.
Sales for 2002 were $4,183.7 million compared to $4,368.4 million last year, a
decrease of 4%. Gross profit of $1,360.3 million for the year 2002 was down 2%
compared to the prior year's comparable amount of $1,386.3 million. This decline
was primarily due to the impact on Dover Technologies of the market contraction
in demand for its products serving the electronics industry. At the same time,
many of the industrial businesses in the other three operating segments were
negatively impacted by the slowdown in general economic activity. However, the
gross profit margin of 33% for 2002 compared favorably to 32% in 2001. Operating
profit of $341.6 million improved 7% compared to $320.3 million in 2001. As a
percentage of sales, operating profit in 2002 was 8% compared to 7% in 2001.
Comparisons to the prior year benefited from the discontinuation of goodwill
amortization in accordance with SFAS No. 142.
Segment earnings of $365.4 million improved 2% from $358.0 million in the prior
year. Diversified's earnings of $133.1 million improved 39% compared to the
prior year on a 7% sales increase to $1,192.1 million. In the Industries segment
earnings increased 4% to $147.6 million on a 3% sales decline to $1,124.0
million. Resources' earnings improved 1% to $115.1 million on a 7% sales
decrease to $837.4 million. In the Technologies segment a loss for 2002 of $30.3
million compared to 2001 earnings of $5.6 million, and reflected a 13% sales
decline to $1,036.5 million. For 2002, Diversified had margins of 11%, up two
points and Industries produced margins of 13%, an improvement of one percentage
point. Resources' margins improved one percentage point to 14%. Technologies'
negative margins of 3% compared to break-even margins in the prior year.
Dover's tax rate for continuing operations was 21.7% for 2002 and 29.8% in 2001.
The lower effective tax rate in 2002 was attributable to three factors. First,
the Company continued to benefit from tax credit programs, such as R & D,
foreign tax and the U.S. export program, which have been enhanced in the U.S.
and various other jurisdictions over the past two years. Second, the Company
implemented a reorganization of various entities. Third, the adverse impact
which market conditions have had on the Company, particularly in connection with
its adoption of SFAS 142, has provided the Company with the ability to identify
and recognize related tax benefits.
Interest expense of $70.0 million for the year ended 2002 was down 23% compared
to the prior year primarily due to lower levels of commercial paper borrowings
throughout 2002. Interest income declined in 2002 compared to the prior year,
which included $5.0 million related to a U.S. Federal tax settlement.
All other net income or expense declined $20.9 million for 2002 compared to the
prior year total, which included an insurance recovery of $6.4 million in the
Diversified segment. Foreign exchange losses of $6.3 million for 2002 compared
to gains of $1.3 million in the prior year. Current year losses were due to
unfavorable exchange rate movements primarily involving the Euro.
Restructuring and Inventory Charges
-----------------------------------
In 2002, the Company initiated restructuring programs at selected operating
companies with ongoing efforts to reduce costs in the continually challenging
business environments in which the Company operates. The total restructuring
charges related to these programs in 2002 were $28.7 million. The restructuring
charges included both employee separation costs of $11.9 million and costs
associated with exit activities of $16.8 million. The restructuring in
Technologies took place in the CBAT and SEC groups, in response to the
significant declines in the end-markets served by these operations.
16 of 79
CBAT recorded $6.6 million for employee separation and $11.2 million for exit
activities. The majority of the severance and exit costs were incurred at
Universal, Everett Charles and DEK. The facility exit costs are comprised of
lease terminations and idle equipment impairments. SEC recorded $2.5 million for
employee separation and $3.6 million for facility exit activities, a majority of
which costs were incurred at Quadrant and Novacap. Industries recorded
restructuring charges of $3.7 million, of which $2.1 million was incurred to
exit an under-performing product line at Tipper Tie. The remaining $1.6 million
was for employee separation and other exit costs. Diversified recorded $1.1
million of restructuring charges to rationalize its SWF business of which $0.8
million was for severance.
During 2001, the Company initiated various restructuring programs in response to
the downturn in the end markets served within its Technologies segment and to
reduce the overall cost structure in the Diversified, Industries and Resources
segments. The total restructuring charges related to these programs in 2001 was
$17.2 million. The restructuring charges included both employee separation costs
of $11.7 million and $5.5 million for exit costs. The Technologies segment
recorded restructuring charges in CBAT primarily for costs associated with
employee separation of $5.1 million. In addition, as a result of the downturn in
the end markets served, CBAT recorded charges of $1.4 million for exit costs.
SEC also announced restructuring programs, primarily related to the closure of
two European operations that were facing difficult market conditions, for $1.0
million. In addition, SEC recorded charges of $0.9 million for employee
separation costs. Imaje also recorded employee separation costs of $1.0 million
for certain management employees due to a change in strategic focus. The
Diversified segment recorded restructuring charges for employee separation costs
of $3.1 million and facility exit costs of $2.4 million related to the closure
of two North American facilities that were experiencing declining volume,
pricing pressure and excess capacity concerns. The Industries segment recorded
charges of $2.0 million to restructure its Rotary Lift European operations and
the Resources segment recorded $0.3 million to restructure its De-Sta-Co
operating company.
Restructuring charges for continuing operations were primarily recorded as
selling and administrative expenses. The employee separation programs for
continuing operations announced have involved approximately 3,280 employees, 88%
of whom have been terminated as of December 31, 2002. As a result of the
severance programs, the Company anticipates annual cost savings of approximately
$25 to $35 million. The Company expects to complete the restructuring programs
undertaken in 2002 by the end of 2003 and the majority of the 2001 restructuring
programs were completed by December 31, 2002.
Due to significant declines in the demand for certain products, special
inventory reserves of $63.8 million were established in 2001, primarily in the
Technologies segment and to a lesser degree in the Diversified and Resources
segments. Certain additions to these reserve balances were made in 2002 for
approximately $12.0 million in the Technologies and Diversified segments.
DOVER DIVERSIFIED
Dover Diversified's earnings increased 39% in 2002 to $133.1 million on a 7%
sales increase to $1,192.1 million. Implementation of lean initiatives,
operational improvements, and cost reduction efforts helped the earnings
increase, as well the absence of $18.1 million in restructuring, inventory, and
other charges taken in 2001. The impact of goodwill amortization on earnings for
the full year 2001 was $14.4 million. Segment profit margins improved to 11%
from 9%. A significant turnaround at Crenlo, strong earnings growth at Hill
Phoenix, and PMI gains accounted for a large portion of the earnings
improvement, which were somewhat offset by declines at SWF, L&E, Tranter, Mark
Andy, Waukesha, and Sargent.
Hill Phoenix's financial performance improved significantly in 2002, setting new
records in sales, earnings, and cash flow, leading Diversified in each of these
three categories. This was accomplished through ongoing market share gain in
recent years and benefiting from their largest customer's continuing expansion
programs. Market share improved to 18% in 2002 from 14% in 2001. This growth was
the result of being well positioned with the fastest growing customers as well
as securing new key accounts. Aggressive cost reduction initiatives at the
Refrigeration Division were a major contributor to the company's margin
improvement in 2002. Hill Phoenix enters 2003 looking forward to another
positive year as the capital programs of their core customer base are expected
to remain strong.
Tranter ended 2002 with a weak fourth quarter that left earnings and margins
below 2001, despite a record sales and bookings year. Tranter is highly
dependent on industrial capital spending, which remained weak in 2002. After
years of stable margins, the past two years have seen significant margin
erosion. A soft U.S. and European economy reduced total orders in the
marketplace, and led to stronger price competition for the orders that were
available. Tranter's markets are not expected to improve significantly in 2003,
and cost reduction actions are planned to better handle periods of declining
prices and lower volumes. Tranter's three business units, SWEP, Tranter
Radiator, and Tranter PHE, will report as independent operating companies of
Diversified beginning in 2003.
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Crenlo achieved a significant earnings improvement in 2002, turning sizable 2001
losses into a modest profit. The focus at Crenlo in 2002 was a return to
profitability through lean manufacturing initiatives, resulting in reduced
headcount and improvements in productivity and first pass yield. Cost reduction
efforts in the material acquisition area, including value-engineering efforts,
resulted in savings of over $2 million. Additionally, the inventory reserves
taken in 2001 were not repeated in 2002. These cost saving programs fueled the
significant earnings improvement with little additional sales volume. The focus
in 2003 will be to increase volume with new product introductions and expansion
of the specialty enclosure business. In general, the Cab and Commercial markets
remain soft with recovery not anticipated until at least the second half of
2003.
Sargent's 2002 earnings were down consistent with a decrease in sales volume.
The weakened commercial aircraft market negatively impacted the company's core
business, offset somewhat by the Marine Division's record earnings year fueled
by an active military market. Margins fell in 2002 due largely to a shift in
product mix and lower volume. The Sonic business was depressed by airline losses
and a 28% reduction in production at their largest customer. 2003 will be
another challenging year for Sargent, as the aircraft industry shows no signs of
a quick recovery. Growth in repair and overhaul sales to the aftermarket is
anticipated, but are not expected to make up for lower shipments to the aircraft
OEM's.
Mark Andy's printing equipment market continued to be weak for most of 2002 and
operational earnings decreased. Sales were higher than prior year due mainly to
having a full year's impact of the March 2001 acquisition of Comco. Improved
integration of the Comco product line was a focus in 2002, as a new sales
organization was introduced and was successful in gaining orders late in the
year. The printing market improved slightly in late 2002, allowing bookings and
backlog for label presses in the U.S. to improve in the fourth quarter. However,
the printing market is projected to show only gradual improvement throughout
2003. After three years of declining sales and earnings, new management and
improved processes/products at Van Dam in the Netherlands resulted in increased
earnings in 2002. The GMI division secured preferred partner status with a large
press supplier in 2002, as well having their products selected as the standard
platform for the future by two of the world's largest printing companies. The
Mark Andy structure will change in 2003 as GMI will report as a separate
Diversified operating company.
Waukesha Bearings' earnings decline of 10% was caused by the collapse of the
power generation market for large bearing products. Backlog at year-end was
significantly down due to low bookings and cancelled orders throughout the year
from key customers. Waukesha's two other divisions, Hydratight Sweeney and
Central Research Labs, both had modest sales and earnings increases as their
markets, oil/gas and nuclear waste cleanup, remained fairly stable throughout
2002. In response to the bearing market decline, the Bearings division shutdown
one small facility in the U.K. and consolidated their large bearing production
into one plant in the U.S., resulting in a 25% headcount reduction. The lean
manufacturing culture was enhanced throughout all operations with expected
benefits of increased productivity, plant capacity, and reduced working capital
moving into 2003.
PMI achieved their sixth consecutive record year in sales and earnings. This
accomplishment was made in spite of a weak fourth quarter, as their usual pickup
in advance of the 2003 racing season did not occur. Also, the last few years of
mild winters in the Midwest hurt their seasonal sales of pistons to the
snowmobile market. Investments were made in the U.K. in both a European sales
office and a new Technology Center to promote and market their products in this
key region of the racing world. Successful integration of past acquisitions has
positioned PMI well in the market, increasing product offerings and
strengthening their distribution channels. In late December, PMI acquired
Chambon S.A. of St. Etienne, France, a manufacturer of premium crankshafts for
the Formula 1 market. The addition of Chambon gives PMI the ability to offer a
complete rotating assembly to the engine market.
SWF had a disappointing year as restructuring costs related to plant
consolidations and product rationalization were incurred, in addition to high
warranty expense to correct a number of large equipment projects. The weak
packaging machinery market continued throughout 2002, and sales for SWF
decreased when compared to last year. With under-performing assets reduced, the
lower cost structure and the implementation of lean manufacturing programs
should positively impact margins throughout 2003. Improved project selection and
pricing strategies have been implemented to focus on their core business where
acceptable profit margins can be attained.
Belvac ended the year on a positive trend resulting in their highest annual
bookings in five years. As the only independent global supplier of can forming
equipment, Belvac's recent success has been in the international market,
especially Russia and Eastern Europe, where can manufacturing and consumer
demand is growing. A significant part of their business includes spares and
retrofits that improve the productivity of their customers' equipment. Belvac is
well known for their proprietary technology, which provides them with a strong
position in the market. Further investment and advancement in their plastic
container equipment is beginning to complement their can forming business, and
is opening up new opportunities for growth.
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Langbein & Engelbracht located in Bochum, Germany, reported a small loss for
2002 on a 12% decline in sales. The largest volume decrease was in the
Automotive division where a poor European economy and intense competitive
pricing caused negative results. Their focus is on cost control, reduced
headcount, and expanded outsourcing of project work to lower cost countries. A
new entity was created in China in 2002 to develop opportunities for both
outsourcing and new business in this growing market.
DOVER INDUSTRIES
Dover Industries sales declined 3% to $1,124.0 million, as market weakness seen
in 2001 continued in 2002. Heil Environmental, Heil Trailer, Chief and Dovatech
experienced the largest sales declines. Earnings of $147.6 million, which were
4% above 2001 levels, were impacted by restructuring charges of $3.7 million
related to plant closings and the exiting of certain product lines. Segment
margins improved slightly to 13%. The impact of goodwill amortization on
earnings for the full year in 2001 was $14.6 million.
Heil Environmental's performance declined in 2002 as a soft market, reductions
in municipal budgets for refuse collection vehicles, and new engine emission
regulations combined to curtail sales. A majority of municipalities redirected
funds initially targeted for refuse collection equipment to support security and
emergency response infrastructure. In addition, many private, municipal and
large retail haulers postponed chassis purchases due to concerns regarding the
performance of new engines mandated by the new emission regulations. Countering
these negative trends, Environmental introduced a number of new products to
address customer needs and downsized their workforce given the lower volumes. A
management change was also initiated as a new President was named who had
previously been in charge of Rotary Lift. A number of new product introductions,
growth in our dump body group and strong European growth should lead to improved
performance in 2003.
Heil Trailer's sales and earnings declined for the third consecutive year. The
domestic bulk trailer industry remained slow for the entire year impacted by the
slowest petroleum trailer market in the past 7 years. In addition, military
sales were negatively impacted by delays in government testing, but should
provide a boost in 2003 and beyond. Trailer once again managed to increase share
in both the petroleum and dry bulk trailer markets in the face of intense
competitive pressures, driven by over capacity and a slow market. A strong focus
on global markets resulted in Trailer's international businesses contributing
almost one quarter of their profits this year. Plans are in place to expand
production in Eastern Europe which should further benefit Trailer's overseas
performance.
Rotary Lift, one of Industries largest sales and earnings contributors, again
delivered improved sales and earnings. Helped by zero percent financing driving
car sales, Rotary capitalized on its ability to provide innovative solutions and
nationwide service, and grew its car program business over 20%. Faced with a
stagnant market and increasing competition from low-cost Asian competitors,
Rotary was once again able to grow market share. Rotary's focus on cost
reduction allowed it to hold margins in a tough pricing environment.
Additionally, its focus on providing productivity based solutions, as evidenced
by their inbay(TM) product, has insulated them to some degree from the pricing
pressures seen at the commodity end of the business.
Marathon entered the year facing a depressed waste management market which
continued to slide throughout 2002 and is now down 33% over the last two years.
However, Marathon was able to grow market share and increase both sales and
earnings while maintaining margins at above historical levels. Leveraging its
broad product line enabled them to add new customers and gain additional
business, even with an industry that saw an increase in internet auctions and
severe pricing pressure. This was made possible through Marathon's strong
engineering focus, which they have parlayed to develop customer-friendly
products to meet the individual needs of waste haulage and chain store accounts.
Tipper-Tie rebounded somewhat from a weak 2001, driven by a strong performance
by their overseas subsidiary. Technopack, along with Alpina, a recent European
acquisition, enjoyed a record year with sales of equipment, clips and loops all
at record levels. This performance improvement was primarily driven by Eastern
European demand. Tipper U.S. had a more difficult year as sales of equipment and
clips slipped. However, second half results were promising and are expected to
continue in 2003, allowing for improvement in the U.S. markets. Late in the
year, Tipper decided to eliminate a small product line, which negatively
impacted profits in 2002, but will contribute positively to performance in 2003.
With the vehicle wash equipment market softening significantly, PDQ saw both
investors and corporate oil companies reduce their purchases in 2002. Oil
company consolidation took its toll on sales, while the investor market was hurt
by a difficulty in obtaining financing. As a result, for the first time since
they were purchased by Dover in 1998, PDQ had a down year. Sales and earnings
saw declines versus a record 2002, although they were flat compared to 2001.
However, PDQ was still able to grow share. In addition, new products along with
the implementation of `lean manufacturing' initiatives allowed PDQ to hold
margins as well. Industry uncertainty and a low backlog will lead to a slow
first half, but a stronger second half is expected.
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Triton, a company acquired in 2000, improved significantly versus a weak 2001.
Although the U.S. market was relatively flat, Triton's share improved behind the
successful introduction of their '9100' product, a product focused on the
broadest segment of the cash dispenser market. This product contributed more
than 50% of unit sales since its mid-year introduction. New products introduced
into the other segments of the market also contributed. Triton's results
internationally were also positive, lead by strong results in the U.K. Overall
margins rebounded to 2000 levels behind increased sales and a reduced cost
structure. Looking forward, initiatives begun in 2002, such as a focus on
recurring revenue, along with market growth overseas and continued new product
development, should lead to an even stronger 2003.
The DI Foodservice Companies, which include Groen, Randell and Avtec, finished
the year with flat sales and earnings. Declining tax receipts in most states and
municipalities led to a slowdown in Groen's institutional foodservice equipment
market while Randell's markets were impacted by cutbacks in new foodservice
chain start-ups. The newly identified DI Foodservice team is currently assessing
various consolidation and synergy prospects which should impact favorably on
2003 performance. A change in the way they go to market put in place toward the
latter part of 2002 is expected to show dividends as well.
Kurz-Kasch, which was acquired in 2001, and whose primary products include
electromagnetic stators and specialty plastics, saw margins decline (versus
record levels in 2001) on relatively flat sales. Increased quality and
engineering specifications imposed by customers, along with a weak market,
contributed to the margin deterioration. A strong first half is expected in 2003
as the world demand for heavy-duty trucks stabilizes along with improvements on
the plastics side of the business driven by new business and synergies
associated with a recent product line acquisition.
Chief had a disappointing year in 2002 as both sales and earnings were down
significantly. Softness in the economy coupled with changing insurance industry
trends negatively impacted buying decisions. A combination of more cars being
'totaled' and customers foregoing repairs to avoid higher insurance premiums has
hurt the industry. Recognizing this market shift, Chief has undergone a number
of strategic changes to better serve its markets going forward. These include
consolidating domestic channels of distribution, adding an inside sales support
function, streamlining product offerings, and revising current approaches to
installation, training, and service. Costs associated with these initiatives had
a major impact on 2002 performance. Although the market is expected to contract
again in 2003, these new initiatives are expected to lead to improved
performance.
Somero's performance suffered from the third year of double-digit market
declines with non-residential building down 17% and industrial construction off
45%. As a result, sales of their primary product, large laser screeds, were down
significantly. They successfully introduced the 'CopperHead' in 2002, a new
product that primarily serves the upper deck and smaller floor concrete
screeding markets. This is expected to open their market to smaller contractors,
and partially offset continued weakness expected in the large screed market.
Dovatech, which consists of laser and chiller businesses, experienced difficult
market conditions leading to double-digit sales declines. The chiller businesses
are expected to improve in 2003 as the second half of 2002 began to show an
upturn, while the laser businesses are counting on a number of new product
introductions to contribute, although later in the year.
DOVER RESOURCES
Dover Resources 2002 sales declined 7% or $60.0 million to $837.4 million
primarily driven by declines in the oil and gas production markets served by the
Petroleum Equipment Group and C. Lee Cook. Capital spending weakened in most
markets and distributors reduced inventories. Earnings increased by 1% or $0.9
million to $115.1 million. Full year results for 2001 included $7.1 million of
inventory, restructuring and other charges. No comparable charges were recorded
in 2002. Positive operating leverage (increased margins on flat to down sales)
at most companies resulted from cost reduction in operating expense and
implementation of lean manufacturing programs. The impact of goodwill
amortization on earnings for the full year in 2001 was $10.3 million. Operating
margins were 14%, up from 13% in 2001.
The market for the Petroleum Equipment Group was weak during 2002. Sales were
down approximately 21% and earnings were off over 36%. Commodity prices remained
high but drilling activity was down significantly as capital spending by oil
companies was reduced. The core products of Norris and Alberta Oil Tool (AOT)
saw a decline in international sucker rod sales but AOT drive rod sales remained
strong. Continued penetration in the sucker rod guide and premium coupling
markets should enhance future results as oilfield activity levels increase.
Ferguson Beauregard's plunger lift and automation products were off from the
prior year. Norriseal's sales and earnings were also below last year with an
unfavorable product mix.
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The industrial pump companies (Blackmer and Wilden) recorded a 3% sales increase
and a 19% earnings increase driven by a favorable product mix, innovative new
products and operational improvements resulting from lean manufacturing
initiatives. Blackmer gains were driven by increased sales at government
accounts, System One sales, and improved performance in Europe. Blackmer
continues to implement lean manufacturing initiatives and consolidated its
Oklahoma City compressor operations into its System One facility in
Massachusetts. Wilden Pump benefited from improved sales of its new food line
and plastic bolted series pumps. Wilden domestic sales were flat but
international sales to the Far East were up significantly. Wilden is
establishing a wholly owned foreign entity in China that will strengthen their
presence in that region.
OPW Fueling Components maintained sales in 2002 equal to prior year, primarily
as a result of two product line acquisitions made early in the year. Overall,
earnings were below prior year levels even though overhead structures were
reduced. Sales and earnings increases were achieved in every market outside the
U.S. with extremely strong growth in Latin America and Asia Pacific. These
increases were not enough to offset the declines caused by reduction in new
service station construction in the U.S. markets. Industry consolidation at
manufacturers, customers, and distributors accelerated in 2002. The
consolidations at major oil companies and financial failure at several major
convenience store chains provided an opportunity for customers to buy stations
at reduced prices versus building new stations. Brevetti-Nettuno, an Italian
manufacturer of LPG nozzles, was acquired to broaden product offerings for
alternative fuels. The acquisition of the Emco Electronics product line by Petro
Vend has moved OPW into a much stronger market position in electronic tank
gauging. These units were fully integrated in 2002 and now position Petro Vend
to be a much stronger global player in this expanding market. The continued
development of products to meet new environmental regulations began to pay
dividends in 2002 and these regulations are being adopted by markets outside
California.
OPW Fluid Transfer Group improved earnings on reduced sales in 2002 as cost
reduction initiatives implemented in 2001 produced positive results and improved
margins. The depressed bulk cargo tank and railcar markets hampered U.S. growth
but European sales set a new record. Although chemical processing markets were
down, renewed emphasis was placed on new products to existing customers. OPW
Fluid Transfer Group is continuing product development and customer focus
initiatives to drive improved results in 2003 despite the current market
conditions.
De-Sta-Co Industries leveraged 9% earnings growth on flat sales due to full year
results of on-going cost reduction initiatives. The automation products demand
grew in support of new vehicle model introductions in the automotive market.
Industrial market clamps sales are slowly improving as customers implement new
tooling programs to reduce set-up costs. Electronic market sales remain severely
depressed. De-Sta-Co Industries expanded their Asian operations and now have
cost effective facilities operating on all major continents.
C. Lee Cook sales and earnings were off significantly as demand from gas
compressor OEM's and aftermarket requirements slowed. Service work on existing
field products maintained levels similar with last year. A new service center
for the West Coast was opened and manufacturing expansions were completed that
will support future growth. The Manley valve business had operating results
equal to the prior year on slightly reduced sales volume. The longer-term
outlook for Cook products continues to be very favorable as gas production and
processing activity increases.
The Tulsa Winch Group was challenged in 2002 by significant declines in
construction equipment markets, aerial lift markets, and a slow petroleum
market. Strong cost reduction efforts maintained solid operating margins and
position the company to benefit as market conditions improve. The military winch
business remains strong and is driven by long-term contracts. The crane overload
protection products are targeting new applications in the higher volume, smaller
capacity mobile crane market.
Quartzdyne had record sales in 2002, as they gained new customers and increased
their applications into the measurement while drilling market. Investments were
made to vertically integrate their manufacturing processes. Quartzdyne continues
to develop new quartz based sensor technologies to serve the high temperature
and high pressure markets that will support future growth.
Hydro Systems posted record earnings on slightly reduced sales led by improved
earnings at Nova Controls and continued expansion in European markets. The
industrial cleaning market served by Hydro was slightly depressed this year due
to slower hotel and restaurant business. Hydro has a strong pipeline of new
products that is expected to drive future growth.
RPA Process Technologies (RPA) experienced significant delays in capital
spending from its customer base in 2002. Sales and earnings were both off
significantly with its European unit only contributing with major project
shipments in the fourth quarter. RPA implemented significant process
improvements during the year that should drive better results as markets
improve.
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De-Sta-Co Manufacturing had flat sales and earnings with continued pricing
pressure from their automotive customer base. Sales slowed during the fourth
quarter in their automotive market as well as in their Hydro Cam tool and die
business. De-Sta-Co Manufacturing continues to work on new product initiatives
to broaden its exposure to new markets.
Duncan Industries had flat sales and earnings increased, and has positioned
itself for an upturn by reducing costs internally and through improvement in
quality and cost reduction initiatives with outside suppliers.
Wittemann was sold in the first quarter of 2003 at a very modest loss.
DOVER TECHNOLOGIES
Dover Technologies sales decreased 13% from 2001 levels to $1,036.5 million. As
a result, Technologies reported a loss of $30.4 million as compared to earnings
of $5.6 million for 2001. The impact of goodwill amortization on earnings for
the full year 2001 was $12.1 million. Included in the losses for 2002 and 2001
were $35.2 million and $43.3 million of charges, respectively, for
restructuring, inventory reserves and other charges. The strengthening of, and
the increased focus on, the medical, automotive and military markets were not
enough to offset the continued major softness in the computer and industrial
electronics market segments. Although, it appeared that a recovery was beginning
to take place in the spring of 2002, it became clear that this was not
sustainable for the remainder of 2002. Accordingly, the companies serving the
communications, computer and industrial electronics industries began to resize
their companies for profitability at the sales levels they were experiencing
during the second half of the year. By the end of the first quarter 2003, the
Circuit Board Assembly and Test (CBAT) businesses and the Specialty Electronics
Components (SEC) businesses will have reduced their workforces by 15% and 13%,
respectively, from the beginning of 2002. In addition, where warranted, the
companies have reduced their capacity needs to adapt to the current market
opportunities.
The most significant change at substantially all of the CBAT and SEC companies
has been the geographic shift in their markets. The year marked the continued
shift to Asia (with an emphasis on China) for Electronic Manufacturing Services
(EMS) companies, and China was the strongest of the telecommunications equipment
markets. By the end of 2003, substantially all of the CBAT companies will be
manufacturing in China either at their own facility or through subcontractors.
Where the strengths of the markets warrant, the SEC companies will have Asian
based sales offices and in certain cases manufacturing facilities. While the
American markets reflect stronger automotive, medical and military
opportunities, the Asian, and in particular China, markets offer the best
opportunity for telecommunication equipment and electronic assembly growth in
the near term.
CBAT
Technologies CBAT businesses recorded a loss of $49.2 million in the year 2002
which included inventory, restructuring and other charges of $25.9 million
compared to a loss of $61.8 million in 2001 which included inventory,
restructuring and other charges of $33.3 million. Sales for the year were $598.6
million, a decrease of $48.4 million or 7% from full year 2001 results.
Universal Instruments experienced a decline in sales of 15% from the prior year,
and recorded a slightly smaller loss than in 2001. In the third quarter,
Universal undertook an aggressive reorganization, including significant
reductions in staff, redefining its sales channels by current market
opportunities, tailoring specific products for high volume automotive
manufacturing, and opening a 100,000 square foot plant in China (which commenced
operation in February 2003). During 2002, the actions Universal took resulted in
its ability to maintain and actually increase its market share. Universal
continues to invest in significant product development to address future circuit
board and component placement needs.
DEK, though seeing a similar decrease in sales of 14% over 2001, still
maintained a market leadership position. It acquired Acumen, a manufacturer of
stencils in North America and Asia, giving DEK a global presence in an
increasingly important segment of the process consumables and tooling business.
DEK has expanded its capabilities to serve the semiconductor industry and is
manufacturing some of its product line in China.
Vitronics Soltec was able to maintain its sales at the 2001 level with the
release of a Selective Soldering product line, improving their competitive
position.
Everett Charles Technologies' sales increased slightly as its acquisition of
MultiTest was held for all of 2002 versus only seven months of 2001. The North
American test market remained very weak while customer new product introductions
(NPI) were also slow. ECT's probe and fixture business depend to a large degree
on customer NPI. ECT's two German bare board test equipment companies maintained
their sales levels and increased their profitability. The back-end semiconductor
test market showed some strengthening in the second half of 2002, up
significantly from the second half of 2001.
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OK International saw a smaller decline in sales for 2002 compared to 2001 and
reported a loss. OK depends to a large part on the overall electronics
manufacturing industry and its results reflected the softness in that market.
Alphasem reported a slight upturn in sales despite the overall decline in the
semiconductor industry. Alphasem manufactures die-bonding equipment for the back
end of the semiconductor industry. Despite its improved sales efforts, Alphasem
still reflected a comparable loss to 2001 as Alphasem tried to meet the demands
of new product innovation.
Dover Technologies acquired Hover-Davis in the fourth quarter of 2002.
Hover-Davis is the largest independent manufacturer of component feeding, direct
die feeding and label printing devices for the circuit board assembly market. It
sells its products directly to both OEM (including Universal Instruments) and
end users of placement equipment. Since it was acquired in the fourth quarter,
it did not have a significant impact on reported sales or earnings.
Entering 2003, the CBAT companies plan to operate at sales levels achieved in
the last half of 2002 as they believe it is not possible to forecast the timing
of an upturn at this point in time. Since the beginning of 2001, all of the CBAT
companies have reduced their operating costs significantly and are finding less
expensive sources for their materials or manufacturing locations. Their product
development is on track for addressing their customers' needs. Assuming no
further adverse trends, these companies expect to achieve modest levels of
profitability in 2003.
SEC
In Technologies' SEC companies, sales for the year were $205.6 million compared
to $341.6 million last year, a decrease of 40%. SEC reported a loss of $7.1
million in 2002 which included inventory, restructuring and other charges of
$9.9 million compared to earnings of $42.1 million in 2001 which included
restructuring and other charges of $10.2 million.
The SEC companies produce highly specialized, often custom designed, high-end
components used in a wide variety of electronic devices. During 2002, all of the
SEC companies began to shift their focus from predominantly serving the wired
and wireless telecommunications industry, to high-reliability medical, space,
avionics and military applications. Though there is a greater mix of industries
served today, the largest customer base still remains in the telecommunications
market. Much of the excess industry inventory built up during 2000 and early
2001 has been depleted. However, the telecom and datacom service providers are
still very cautious in their capital equipment spending as their business models
are changing and new Federal telecommunications regulations are being developed.
Although it is starting to become apparent that the imbedded communications
infrastructure systems and equipment are showing the stresses of increased
capacity and lack of investment over the past 24 months, it will be necessary
for the anticipated Federal regulations to evolve and a rationalization of the
business model of these telecom service providers to occur before growth in
capital spending will resume. The timing of this impact is unknown.
Quadrant's sales decreased significantly resulting in an operating loss for
2002. Quadrant, under a new President, began a major restructuring early in the
year to consolidate facilities, reorganize the company structure to better
address the changes in its customer base and product needs, and to right size
its workforce. It also has focused on the Asian market and in growing its high
reliability space and military positions.
The capacitor companies, Novacap and Dielectric, saw continued decreases in
their sales, as they both serve the telecommunications industries. However,
their specialty products have avionics, military and medical applications which
are showing growth. Novacap and Dielectric reported small losses mostly
attributable to write-off of excess equipment.
K&L Microwave saw a significant decrease in sales but was able to maintain a
slight profit. It was hard hit by the telecommunication downturn as it serves
the base station deployment customers. K&L has opened a facility in Nanjing,
China to provide telecommunication infrastructure products to the growing
Chinese and Asian markets. Dow-Key Microwave improved its earnings on relatively
flat sales. Dow-Key has a strong military and space program that continues to
see funding for product deployment.
While the near term future remains unclear in the telecommunications industry,
the SEC companies expect to be modestly profitable at 2002 sales levels, while
working to address a broader customer base and be a global supplier of custom,
high-end component products.
MARKING AND CODING
Imaje, the French-based industrial ink-jet printer and ink manufacturer, had
full year earnings of $49.8 million, down 7% from last year but still generated
the highest earnings of any Dover company. Sales were up 11% or $22.5 million
from last year. Imaje continued with the integration of its mid-2001 acquisition
of Markpoint, with sales increasing 11%. A new thermal printer line was rolled
out to the Imaje marketing channels. Imaje has strong global presence selling
direct in the majority of its markets while using distributors to expand its
reach to over 90 countries. As a result of a tight industrial market place in
Europe and the Americas, and the increasing mix of Markpoint products, which
utilizes somewhat less consumables in their marking, margins decreased from 26%
to 21%.
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In 2002, Imaje opened its new ink plant and research and development center at
its headquarters in Valence, France.
CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements and related public financial
information are based on the application of generally accepted accounting
principles in the United States of America ("GAAP"). GAAP requires the use of
estimates, assumptions, judgments and subjective interpretations of accounting
principles that have an impact on the assets, liabilities, revenue and expense
amounts reported. These estimates can also affect supplemental information
contained in the external disclosures of the Company including information
regarding contingencies, risk and its financial condition. The Company believes
its use of estimates and underlying accounting assumptions adhere to GAAP and
are consistently and conservatively applied. Valuations based on estimates are
reviewed for reasonableness and conservatism on a consistent basis throughout
the Company. Primary areas where financial information of Dover is subject to
the use of estimates, assumptions and the application of judgment include the
following:
Revenue is recognized and earned when all of the following circumstances are
satisfied, a) persuasive evidence of an arrangement exists, b) price is fixed or
determinable, c) collectibility is reasonably assured and d) delivery has
occurred. In revenue transactions where installation is required, revenue can be
recognized when the installation obligation is not essential to the
functionality of the delivered products. Revenue transactions involving
non-essential installation obligations are those which can generally be
completed in a short period of time, at insignificant cost and the skills
required to complete these installations are not unique to the Company and in
many cases can be provided by third parties or the customers. If the
installation obligation is essential to the functionality of the delivered
product, revenues are deferred until installation is complete. In a limited
number of revenue transactions, other post shipment obligations such as training
and customer acceptance are required and, accordingly, revenues are deferred
until the customer is obligated to pay, or acceptance has been confirmed.
Shipping and handling fees are not material and are generally credited to
revenue with related costs principally charged to cost of sales. Service
revenues are recognized and earned when services are performed and are not
significant to any period presented.
Allowances for doubtful accounts are estimated at the individual operating
companies based on estimates of losses related to customer receivable balances.
Estimates are developed by using standard quantitative measures based on
historical losses, adjusting for current economic conditions and, in some cases,
evaluating specific customer accounts for risk of loss. The establishment of
reserves requires the use of judgment and assumptions regarding the potential
for losses on receivable balances. Though Dover considers these balances
adequate and proper, changes in economic conditions in specific markets in which
the Company operates could have a material effect on reserve balances required.
In times of rapid market decline, such as affected a number of Dover
Technologies' companies in 2001 and 2002, reserve balances needed to be adjusted
in response to these unusual circumstances.
Inventory for the majority of the Company's subsidiaries, including all
international subsidiaries and the Dover Technologies segment, are stated at the
lower of cost, determined on the first-in, first-out (FIFO) basis, or market.
Other domestic inventory is stated at cost, determined on the last-in, first-out
(LIFO) basis, which is less than market value. Under certain market conditions,
estimates and judgments regarding the valuation of inventory are employed by the
Company to properly value inventory. Dover Technologies companies tend to
experience higher levels of inventory value fluctuations, particularly given the
relatively high rate of product obsolescence over relatively short periods of
time.
During the year, the Company established restructuring reserves at a number of
operations. These reserves, for both severance and exit costs, required the use
of estimates. Though Dover believes that these estimates accurately reflect the
costs of these plans, actual results may be different than the estimated
amounts.
Dover has significant tangible and intangible assets on its balance sheet that
include goodwill and other intangibles related to acquisitions. The valuation
and classification of these assets and the assignment of useful depreciation and
amortization lives involves significant judgments and the use of estimates. The
testing of these intangibles under established accounting guidelines (including
the recently adopted SFAS No. 142) for impairment also requires significant use
of judgment and assumptions. Dover's assets are tested and reviewed for
impairment on an annual basis. Changes in business conditions could potentially
require future adjustments to these valuations.
The valuation of Dover's pension and other post-retirement plans requires the
use of assumptions and estimates that are used to develop actuarial valuations
of expenses and assets/liabilities. These assumptions include discount rates,
investment returns, projected salary increases and benefits, and mortality
rates. The actuarial assumptions used in Dover's pension reporting are reviewed
annually and compared with external benchmarks to assure that they accurately
account for Dover's future pension obligations. Changes in assumptions and
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future investment returns could potentially have a material impact on Dover's
pension expenses and related funding requirements. Dover's expected long-term
rate of return on plan assets is reviewed annually based on actual returns and
portfolio allocation.
Dover has significant amounts of deferred tax assets that are reviewed for
recoverability and valued accordingly. These assets are evaluated by using
estimates of future taxable income streams and the impact of tax planning
strategies. Reserves are also estimated for ongoing audits regarding Federal,
state and international issues that are currently unresolved. The Company
routinely monitors the potential impact of these situations and believes that it
is properly reserved. Valuations related to tax accruals and assets can be
impacted by changes to tax codes and rulings, changes in statutory tax rates and
the Company's future taxable income levels.
Dover has significant accruals and reserves related to its risk management
program. These accruals require the use of estimates and judgment in regards to
risk exposure and ultimate liability. The Company estimates losses under these
programs using actuarial assumptions, Dover experience, and relevant industry
data. Dover considers the current level of accrual and reserves adequately
valued relative to current market conditions and Company experience.
Dover has established reserves for environmental and legal contingencies at both
the operating company and corporate levels. A significant amount of judgment and
use of estimates is required to quantify Dover's ultimate exposure in these
matters. The valuation of reserves for contingencies is reviewed on a quarterly
basis at the operating and corporate levels to assure that Dover is properly
reserved. Reserve balances are adjusted to account for changes in circumstances
for ongoing issues and the establishment of additional reserves for emerging
issues. While Dover believes that the current level of reserves is adequate,
changes in the future could impact these determinations.
The Company from time to time will discontinue certain operations for various
reasons. Estimates are used to properly restate the assets and liabilities of
discontinued operations to their estimated fair value less costs to sell. These
estimates include assumptions relating to the proceeds anticipated as a result
of the sale. Changes in business conditions or the inability to sell an
operation could potentially require future adjustments to these estimates.
LIQUIDITY AND CAPITAL RESOURCES
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, dividends, stock repurchases,