<PAGE> 1
[DOVER LOGO]
1998
ANNUAL
REPORT
MARKET-LEADING PRODUCTS
TECHNOLOGIES INDUSTRIES DIVERSIFIED RESOURCES
[GRAPHICS]
<PAGE> 2
DOVER'S BUSINESS GOAL IS TO BE THE LEADER IN ALL THE MARKETS WE SERVE. WE EARN
THAT STATUS BY APPLYING A SIMPLE PHILOSOPHY TO THE MANAGEMENT OF OUR BUSINESSES.
THIS REQUIRES US TO:
- PERCEIVE OUR CUSTOMERS' REAL NEEDS FOR PRODUCTS AND SUPPORT.
- PROVIDE BETTER PRODUCTS AND SERVICES THAN THE COMPETITION.
- INVEST TO MAINTAIN OUR COMPETITIVE EDGE.
- ASK OUR CUSTOMERS TO PAY A FAIR PRICE FOR EXTRA VALUE WE ADD.
SERVICE TO OUR CUSTOMERS, PRODUCT QUALITY, INNOVATION AND A LONG-TERM
ORIENTATION ARE IMPLICIT IN THIS CREDO. PURSUIT OF THIS MARKET LEADERSHIP
PHILOSOPHY BY ALL OUR BUSINESSES, PLUS... VALUE ORIENTED ACQUISITIONS OF
COMPANIES THAT SHARE THIS PHILOSOPHY, PLUS... A DECENTRALIZED MANAGEMENT STYLE
THAT GIVES THE GREATEST SCOPE TO THE TALENTED PEOPLE WHO MANAGE THESE
COMPANIES... HAVE COMBINED TO PRODUCE RESULTS FEATURING:
- LONG-TERM EARNINGS GROWTH
- HIGH CASH FLOW
- SUPERIOR RETURNS ON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1 - COMPARATIVE HIGHLIGHTS
2 - TO OUR SHAREHOLDERS
8 - AT A GLANCE
10 - DOVER TECHNOLOGIES
13 - DOVER INDUSTRIES
16 - DOVER DIVERSIFIED
19 - DOVER RESOURCES
22 - FINANCIAL STATEMENTS
33 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
35 - DIRECTORS AND OFFICERS
35 - QUARTERLY DATA
35 - COMMON STOCK CASH DIVIDENDS
AND MARKET PRICES
36 - 11-YEAR CONSOLIDATED SUMMARY
</TABLE>
<PAGE> 3
Dover Corporation and Subsidiaries
1998 COMPARATIVE HIGHLIGHTS
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
Change 1998
1998 1997 1996 versus 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $3,977,666 $3,669,568 $3,215,573 8%
Earnings before taxes $ 488,646 $ 492,274 $ 502,109 (1%)
Net earnings $ 326,397 $ 324,914 $ 336,519 --
Per common share
Net earnings per diluted share(1)
Continuing $ 1.45 $ 1.43 $ 1.24 1%
Net earnings** $ 1.69 $ 1.79 $ 1.47 (6%)
Dividends $ .40 $ .36 $ .32 11%
Capital expenditures $ 125,730 $ 122,082 $ 113,679
Acquisitions(2) $ 556,019 $ 261,460 $ 281,711
Purchase of treasury stock $ 106,304 $ 86,267 $ 62,815
Cash flow(3) $ 494,084 $ 480,118 $ 447,003
Return on average equity (1) 20.5% 23.2% 24.7%
Approximate number of stockholders 16,000 16,000 16,000
Number of employees 23,314 21,814 19,213
===========================================================================================================
</TABLE>
Adjusted, where applicable, to give retroactive effect to the 2 for 1 stock
split in 1997.
Adjusted to give retroactive effect, where applicable, to the disposition of the
Dover Elevator International market segment (See Notes to Consolidated Financial
Statements, Note 2).
**Unadjusted as originally reported.
(1) 1996 "Return on Average Equity" and net earnings per diluted common share
excludes gain from sale of businesses which amounted to 22 cents per share.
(2) See Notes to Consolidated Financial Statements, Note 2.
(3) Represents net earnings plus depreciation and amortization.
EARNINGS PER SHARE GROWTH
(average annual rate) For 10-Year Periods Ending 12/31 of each year shown
+ Dover
- - S&P
[BAR GRAPH]
<TABLE>
<CAPTION>
YEAR DOVER S & P 500
---- ----- ---------
<S> <C> <C>
1989 10% 4.5%
1990 11% 3.5%
1991 5% 0%
1992 6% 4%
1993 1% 4.5%
1994 1% 6.5%
1995 13% 9.5%
1996 17% 11.5%
1997 16.7% 9.5%
1998 17% 7.2%
</TABLE>
TOTAL RETURN TO INVESTORS
(average annual rate) For 10-Year Periods Ending 12/31 of each year shown
[BAR GRAPH]
+ Dover
- - S&P
<TABLE>
<CAPTION>
YEAR DOVER S & P 500
---- ----- ---------
<S> <C> <C>
1989 19% 17%
1990 13% 14%
1991 13% 18%
1992 15% 16%
1993 18% 15%
1994 15% 14%
1995 16% 15%
1996 18% 15%
1997 18% 18%
1998 19% 19%
</TABLE>
TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES {1}
<PAGE> 4
- - - - - - DOVER
TO OUR STOCKHOLDERS
IN 1998, DOVER'S BUSINESS PROFILE CHANGED MORE THAN IN ANY OTHER SINGLE YEAR IN
OUR LONG HISTORY. THE SALE OF OUR ELEVATOR BUSINESS TO THYSSEN INDUSTRIE, AG
(FOR $1.1 BILLION), A RECORD AMOUNT INVESTED IN NEW ACQUISITIONS ($556 MILLION),
AND THE EXPECTED ROTATION IN THE SOURCES OF OUR OPERATIONAL EARNINGS MAKES THE
DOVER ENTERING 1999 VERY DIFFERENT FROM THE DOVER THAT BEGAN 1998.
The $2.35 per share gain on the sale of the elevator business (which closed
January 5, 1999), as well as all of Dover Elevator's historical operating
results, are required to be treated in our stockholder reporting as "results of
discontinued operations."
On this new basis, earnings per share from continuing operations rose from
$.54 in 1993 to $1.43 in 1997 and $1.45 in 1998, as shown in the chart at right.
Our EPS from continuing operations did not grow as much as usual in 1998 because
of the significant, market-driven decline in the electronic circuit board
assembly/test portion of Dover Technologies.
Since 1990, per-share earnings from continuing operations have risen from
$.39 to $1.45, a compound growth rate of 19%. Continuing growth at even our
historical mid-teens rate is a difficult, but achievable, result. A major reason
for selling the elevator business was to increase the likelihood of continuing
this growth as we saw little opportunity for Dover Elevator to contribute
without significant new investment and substantially more risk.
Since we will no longer be reporting on elevator results (apart from the
final accounting for its sale on January 5, 1999), I would like to use this
opportunity to thank the many thousands of Dover Elevator employees, both
current and retired. They created this business over a 40-year timeframe from
very modest beginnings as an internal product diversification of our Rotary Lift
Co. It became a hugely successful and valuable business through their efforts,
as they carved their position out of a marketplace that historically had been
almost exclusively "owned" by Otis and Westinghouse. Dover does not wish to be a
"global" elevator company, but Thyssen does, and I hope that the future for
Dover Elevator people will be brighter and broader as a result of the
combination with Thyssen.
We will be reinvesting the after-tax proceeds from the Elevator sale
(approximately $800 million) in Dover's future (through stock repurchase) and in
new companies that want to join Dover and that can meet the high standards
achieved by our existing businesses. There is no fixed schedule here for this
process. We are committed only to not spending any of your money on questionable
investments, just because we have it.
DILUTED EARNINGS PER SHARE
[BAR GRAPH]
<TABLE>
<CAPTION>
YEAR EPS
---- ---
<S> <C>
1993 $ 0.54
1994 $ 0.78
1995 $ 1.13
1996* $ 1.24
1997 $ 1.43
1998 $ 1.45
</TABLE>
EARNINGS BEFORE INTEREST, TAXES AND WRITE-OFFS PER DILUTED
SHARE(1)
(1) Write-offs are costs relating to premium over book paid for acquisitions.)
[BAR GRAPH]
<TABLE>
<CAPTION>
YEAR EPS
---- ---
<S> <C>
1993 $ 1.00
1994 $ 1.44
1995 $ 1.99
1996* $ 2.16
1997 $ 2.70
1998 $ 2.71
</TABLE>
PROFITABILITY MEASURES (in percent)
+ After-Tax Operating Return on Investment
- - Return on Stockholders' Equity
(Acquisition adjustments have been excluded, see page 31, footnote 12 for
explanation)
[BAR GRAPH]
<TABLE>
<CAPTION>
YEAR AFTER-TAX OPERATING RETURN ON INVESTMENT RETURN ON STOCKHOLDER'S EQUITY
- ---- ---------------------------------------- ------------------------------
<S> <C> <C>
1993 30 21
1994 33 24
1995 37 28
1996* 36 25
1997 39 23
1998 35 20
</TABLE>
* Excludes gains on sale of businesses.
{2} TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES
<PAGE> 5
STRATEGIC VISION
The thought expressed in my letter last year continues to reflect our strategic
vision: "Success in serving customers better than the competition, constant
improvement of our own business processes, aggressive investment in our
businesses, and thoughtful reinvestment of excess cash flow SHOULD create
above-average earnings growth. While Dover's strategy is simple, its execution
is not. We are not running a single large race against competition but hundreds
of smaller races simultaneously, each of which has unique aspects. Success
requires that decisions be made quickly and very close to the action.
Decentralization and empowerment are essential."
Lest we forget the above, amid all the graphs, financial data, compound
growth rates and investment return charts, we have illustrated this annual
report with drawings of some of the major products made by Dover-owned companies
and sold under their individual brand names. In the end, we must produce
superior products for real customers, providing better value than our
competitors. If we cannot do this successfully, we will not be able to do
anything for anyone -- customers, employees or stockholders.
HIGHLIGHTS OF 1998
DOVER TECHNOLOGIES' PROFITS FALL...
After record years in 1996 and 1997, Dover Technologies' profits fell $49
million (25%), but to a level still above that of 1996. The profit decline was
caused by an even larger drop in operational results of the four companies --
Universal, DEK, Vitronics Soltec and Everett Charles -- that are involved in the
circuit board assembly and test business. Operational profits were off $65
million, as capital spending by the electronics industry contracted sharply.
EARNINGS RECORDS IN DOVER'S OTHER SEGMENTS...
Dover Industries, Dover Resources and Dover Diversified achieved higher profits,
setting new earnings records with gains ranging from 10% to 25%. Twenty-one of
the 45 companies that were owned by Dover throughout all of 1998 achieved record
profits.
HEIL SETS RECORDS...
Five years after Dover's acquisition of Heil, its two businesses -- Heil Trailer
and Heil Environmental -- have more than doubled earnings to over $50 million in
1998 on sales of approximately $350 million. Stronger markets, sharp focus on a
few product areas, $36 million of capital investment, and eight small add-on
acquisitions contributed to this success.
HILL PHOENIX GAINS...
Several years of struggle by new managers in new facilities to integrate three
formerly competitive businesses resulted in a resounding success for Hill
Phoenix in 1998. Sales reached record levels, market share improved and profits
gained more than 50%.
OILFIELD EQUIPMENT PROFITS DROP...
In the face of a market collapse, we combined our Norris, Norriseal and AOT
companies into a new Petroleum Equipment Group. Profits declined more than 50%
and this company was only marginally profitable in the second half. These
businesses contributed more than 40% of Dover's income during an oil boom in the
early 1980s, but less than 2% of our operating profits in 1998. Things
change...and will again.
RECORD ACQUISITION INVESTMENT...
We invested a record $556 million in acquisitions. These companies contributed
only $.03 per share to 1998 earnings after imputed financing costs and
acquisition premium write-offs. As a group, they should represent sales of
approximately $275 million and operating profits of some $75 million in 1999,
and should make a larger contribution to earnings per share.
TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES {3}
<PAGE> 6
DOVER CORPORATION AND SUBSIDIARIES
OPERATIONAL PROFITS
(in millions)
<TABLE>
<CAPTION>
1998 1997
--------------------------------- ---------------------------------
SALES INCOME % Sales Income %
------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Circuit board assembly/test $ 745 $ 90 12% $ 852 $ 147 17%
Electronic components 282 31 11% 272 39 14%
Marking 184 57 31% 177 57 32%
------- ------- ---- ------- ------- ----
TECHNOLOGIES 1,211 178 15% 1,301 243 19%
INDUSTRIES 1,012 173 17% 860 145 17%
DIVERSIFIED 958 164 17% 767 123 16%
RESOURCES 801 144 18% 745 130 17%
------- ------- ---- ------- ------- ----
Subtotal $ 3,978 $ 659 17% $ 3,670 $ 641 17%
======= ======= ==== ======= ======= ====
Acquisition Write-offs -- (73) -- -- (83) --
Interest -- (57) -- -- (36) --
Corporate and other -- (40) -- -- (30) --
------- ------- ---- ------- ------- ----
-- (170) -- -- (149) --
------- ------- ---- ------- ------- ----
Dover Pre-Tax Income -- $ 489 -- -- $ 492 --
==========================================================================================================
</TABLE>
FINANCIAL EVENTS...
During 1998 we raised $350 million in new long-term debt, repurchased 3.3
million Dover shares, raised dividends for the 38th consecutive year, and
invested $126 million in new capital equipment. The combined investment in
capital equipment, acquisitions and stock repurchases set a record by a wide
margin at $788 million. The comparable number in 1997 was $470 million.
OPERATIONAL PROFITS...
Last year, "in shameless emulation of Warren Buffett at Berkshire Hathaway," we
reported our financial results in the way they are seen from the perspective of
our operating company presidents. We repeat this for 1998 (see table above) to
present a clearer picture of how our operating companies are performing as
businesses.
Our continuing companies earned $659 million, with an overall profit margin
of 17%. Acquisition premiums, net interest expense and corporate/subsidiary
office expenses decreased this total by $170 million, almost half of which was
the non-cash accounting charge to write off the premiums we have paid on our
acquisitions over the years. Current accounting standards call this last item a
cost, but some investors view it differently. The write-off of acquisition
premiums reduced our earnings per share from continuing operations by $.17 in
1996, $.26 in 1997 and $.23 in 1998.
1998 ACQUISITIONS
The $556 million we invested in the purchase of new businesses in 1998 enabled
us to acquire four stand-alone companies -- Wilden, PDQ, Wiseco and Quartzdyne
- -- and 10 add-ons that are now part of 10 different operating companies.
Wilden Pump and Engineering, of Grand Terrace, California, was our largest
acquisition ever in terms of purchase price, representing over 40% of our total
investment. Wilden is the leader by a substantial margin in its niche of the
worldwide pump market. Jim Wilden, who founded this company and whom I met for
the first time in the mid-1980s, was the inventor of the air-operated
double-diaphragm pump, which now constitutes a worldwide market approaching $250
million. After Jim's death, his family continued its ownership of the business,
strengthening operating management and continuing Wilden's success. While Jim
was alive, he was not willing to sell his business, but he always said that if
Wilden were sold, Dover would be the company to which he would like to entrust
his organization and his company's reputation. Nearly half of Wilden's sales are
international, and its distribution strength is significant. Wilden became part
of Dover Resources -- also home to the Blackmer group of pump companies, which
specialize in positive displacement pumps. This gives Resources leadership in
two of the many technology "niches" within the fragmented, multi-billion-dollar,
specialty pump market. We have no plans to consolidate any of the activities of
Wilden and Blackmer, but expect that they
{4} TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES
<PAGE> 7
will learn from each other.
Quartzdyne, based in Salt Lake City, Utah, is the world leader in the design
and production of quartz-based pressure transducers used primarily in gas and
oil drilling and the management of existing reserves. These transducers allow
highly accurate, real-time feedback without the need to interrupt operations to
insert a measuring device.
Wiseco, located in Mentor, Ohio, is the country's leading producer of
high-performance pistons used in racing engines for autos, motorcycles, boats
and snowmobiles. Racing enthusiasts typically buy Wiseco products to replace
standard OEM components to improve engine power output.
PDQ is the leading manufacturer of touchless car washing equipment, which is
the fastest growing segment of the car wash equipment business. The equipment
uses environmentally safe chemicals, high pressure spray, solvent recovery
systems, and electronic sensing and programming to provide a fast, reasonably
priced car wash with minimal manpower requirements.
The 10 add-on companies ranged in size from $3 million to $30 million in
sales, and accounted for $119 million of our total acquisition investment. Since
we began our more aggressive approach to add-on acquisitions in 1994, we have
completed 48 add-ons, representing an expenditure of $593 million. We continue
to be pleased with the overall financial result, although not with every
financial result. Beyond this, the challenge and opportunity that this activity
provides make it an appropriate avenue for many of our company presidents as
they pursue the higher growth goals that we have set for ourselves.
SEGMENT RESULTS
Each of our operating segments is discussed in some detail on pages 10 to 21,
but a few special comments seem appropriate.
DOVER TECHNOLOGIES
The decline in 1998 profits (and the even sharper decline in operational
profits) does not, in our view, represent anything other than the periodic,
unpredictable cycles of capital spending within the electronic equipment
industry. Operational margins in this area of our business remained in double
digits in a year in which many electronics capital equipment producers struggled
to survive.
Dover Technologies' companies have continued to invest heavily so as to
remain at the leading edge of product technology, while cutting back in other
areas to reflect the reality of current volume. When one invests in a cyclical
market, one needs managers who can sort out priorities and respond appropriately
throughout the cycle. It helps, of course, to pick an industry where the secular
growth is solidly double-digit, as has been our experience in the electronic
circuit board assembly/test area. Universal Instruments' 1997 profits, for
example, were 10 times the level of 1979, when Dover bought the company. Last
year, at the bottom of the market cycle, they were "only" five times the 1979
level, but more than double the previous market bottom.
DOVER DIVERSIFIED
This segment combined growth by acquisition with internal profit improvement to
achieve Dover's highest percentage gain in earnings. Segment profits were up
25%. The success of Hill Phoenix has already been noted. The profit improvement
program at A-C Compressor, and its successful acquisition expansion in the U.S.
aftermarket, allowed this company as well to increase its earnings more than
50%.
DOVER INDUSTRIES
Dover Industries increased its profits 20%, primarily as a result of internal
growth at the majority of its businesses, notably Tipper Tie, Heil Trailer, Heil
Environmental, Marathon and DovaTech. This strong growth made Dover Industries
our largest profit producer in 1998. Eight companies in the segment earned more
than $12 million in 1998, with no single business earning as much as $30
million, reflecting Dover
TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES {5}
<PAGE> 8
[GROUP PHOTO]
STANDING (L-R): JOHN MCNIFF, ROBERT KUHBACH, JERRY YOCHUM, RUDY HERRMANN,
ROBERT TYRE.
SEATED (L-R): TOM REECE, JOHN POMEROY, LEW BURNS.
Industries' overall balance and the strong positions of its individual
companies. The operational margins for the 12 Industries companies reached a
record level of 17%, with nine companies earning more than 15%. Heil Trailer
achieved the distinction of being the largest single contributor within Dover
Industries.
DOVER RESOURCES
Dover Resources, which was my home from 1985 until 1993, had a very mixed year,
with excellent profit gains in some areas almost offset by unavoidable declines
in others. As noted, profits from the Norris companies dropped $12 million. Most
other Resources companies, however, achieved earnings gains, led by a near
doubling of profits at Ronningen-Petter and by substantial growth at OPW Fueling
Components and Duncan Industries. Acquisitions added $8 million to reported
segment profits, which, combined with the other companies' increases and
declines, allowed Resources to achieve a 10% overall profit gain.
MANAGEMENT CHANGES
Retirements, resignations and internal reorganizations resulted in new
presidents for seven of our operating companies. Barry Hegarty joined us to run
DT Magnetics. At four companies, internal changes led to the promotion of
current employees to new Company President posi-
{6} TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES
<PAGE> 9
tions: John Anderson, OPW Fluid Transfer; Gary Walker, A-C Compressor; Jim
Johnson, Wiseco; and Dan Faltin, Chief Automotive. We are evaluating candidates,
internal and external, to serve as presidents at two other companies.
We also made several appointments to strengthen our independent subsidiaries.
Tom Bell, previously president of A-C Compressor, was named Chief Operating
Officer of Dover Diversified, with direct oversight responsibility for several
of its companies. At Dover Technologies, Bob Livingston, former chief financial
officer of the Technologies subsidiary, was named executive vice president with
direct oversight of the electronic components companies -- Quadrant, K&L
Microwave, DT Magnetics and Novacap. Peter Marshall, formerly a partner at
PricewaterhouseCoopers, joined Technologies as its new CFO. Bob Scheuer was
recruited as the new CFO of Dover Industries, as his predecessor assumed another
position within Dover. Following Fred Suesser's retirement as Controller after
36 years with Dover, George Meserole and Charles Goulding were named vice
presidents for Control and Taxation, respectively.
BOARD CHANGES
We regret that Magalen Ohrstrom Bryant, "Maggie" as Dover managers have known
her for many years, is retiring from our board. She has been Dover's largest
individual shareholder and a wise and supportive presence for over 20 years.
Maggie says her father told her, soon after founding Dover, to "Put all your
eggs in one basket and watch the basket." We intend to make this work just as
well with her daughter, Kristiane C. Graham, who is standing for election, doing
the watching. John Fort has also decided not to stand for re-election after 10
years of service.
OUTLOOK
In last year's annual report, I was happy to say that 1997 turned out somewhat
better than we had expected. Regrettably, 1998 continuing operations did not
meet our beginning-of-the-year expectations. This was primarily due to the
extent of the decline in worldwide electronic equipment capital spending.
The strategic changes in our business portfolio, our record level of
investment, and our strong liquidity position will be positive factors for 1999.
At this point, although we hear many fears expressed, we see no strong negative
indicators for economic performance in North America or Europe, where 82% of our
sales are made. On balance, a modest improvement in operational profits appears
possible, with the largest unknown being the pace of the expected recovery in
electronic capital spending.
The approximately $800 million of net proceeds from the Elevator sale will
add to 1999 EPS, but by an uncertain amount. To the extent that the money is
used only to reduce net debt, it could earn about $45 million pretax, about $.15
per share. If used for stock repurchase, its impact would be somewhat larger.
Invested in acquiring new companies, it might have a minimal impact on 1999
reported earnings (because of the normal "front-end loading" of acquisition
premium write-offs), although rewarding stockholders very well in future years.
We do expect that 1999 will be a record earnings year and will be
disappointed if EPS does not grow by 15% or more. Longer term, the outlook for
Dover is very positive, with our current business "mix" offering better growth
potential than in recent years.
/s/ THOMAS L. REECE
- -----------------------------------------
THOMAS L. REECE
President and Chief Executive Officer
February 25, 1999
TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES {7}
<PAGE> 10
- - - - - - DOVER
AT A GLANCE
PERCENTAGE OF 1998 SALES
[CHART]
<TABLE>
<S> <C>
Technologies 30%
Industries 26%
Diversified 24%
Resources 20%
</TABLE>
PERCENTAGE OF 1998 OPERATIONAL INCOME
(as described on page 4)
[CHART]
<TABLE>
<S> <C>
Technologies 27%
Industries 26%
Diversified 25%
Resources 22%
</TABLE>
TECHNOLOGIES
3 *UNIVERSAL INSTRUMENTS CORPORATION
Gerhard D. Meese, President
Products: Automated assembly equipment for printed circuit boards
1 *EVERETT CHARLES TECHNOLOGIES, INC.
David R. Van Loan, President
Products: Spring probes, test equipment, test fixtures for printed circuit
boards
1 *DEK PRINTING MACHINES LTD (U.K.)
John B. Knowles, Managing Director
Products: Screen printers for surface mount printed circuit boards
2 *VITRONICS SOLTEC
Michiel J. van Schaik, President
Products: Automated soldering equipment for printed circuit boards
2 *IMAJE, S.A.
Albert Journo, President
Products: continuous inkjet printers, consumables
1 QUADRANT TECHNOLOGIES
Terence W. Ede, President
Vectron International, Inc.
Products: Precision crystal devices
Dielectric Laboratories, Inc.
Products: High frequency capacitors
Communication Techniques, Inc.
Products: Microwave frequency sources
1 K&L MICROWAVE, INC.
Robert A. Livingston, Acting President
Products: Microwave/R.F. filters; Dow-Key coaxial switches
NOVACAP, INC.
Dr. Andre P. Galliath, President
Products: Multilayer ceramic capacitors
DT MAGNETICS
Wm. F. Barry Hegarty, President
Products: Ferrite transformers
INDUSTRIES
1 HEIL TRAILER INTERNATIONAL
Robert A. Foster, President
Products: Liquid and dry bulk tank trailers, trucks and intermodal
containers
1 HEIL ENVIRONMENTAL
Glenn M. Chambers, President
Products: Refuse collection vehicles and dump bodies
1 TIPPER TIE/TECHNOPACK
Philip L. Tribel, President
Products: Clip closures, packaging systems, netting, and wire products
1 MARATHON EQUIPMENT
Edward A. Furnari, President
Products: Solid waste compactors, balers, and recycling equipment
1 ROTARY LIFT
Timothy J. Sandker, President
Products: Automotive lifts and alignment racks
2 DOVATECH
A. Patrick Cunningham, President
Products: Welding torches, laser power sources, chillers and consumables
1 PDQ
Charles R. Lieb, President
Products: Touchless car wash equipment
1 TEXAS HYDRAULICS
Vernon E. Pontes, President
Products: Engineered hydraulic cylinders
2 RANDELL
Lynn L. Bay, President
Products: Commercial refrigeration; Food service preparation and holding
equipment
1 CHIEF AUTOMOTIVE SYSTEMS
Daniel E. Faltin, President
Products: Auto collision measuring and repair systems
1 GROEN
Thomas Phillips, Jr., President
Products: Commercial food service cooking equipment/industrial processing
equipment
1 DAVENPORT
Lawrence F. Gray Sr., Acting President
Products: Multi-spindle screw machines, benchtop machine tools, and spare
parts and attachments
Numbers indicate position in served market, North America, or worldwide when
noted by *.
{8} TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES
<PAGE> 11
DOVER'S 45 OPERATING COMPANIES ARE ORGANIZED WITHIN FOUR INDEPENDENT
SUBSIDIARIES, EACH HEADED BY A CEO WHO REPORTS TO T.L. REECE, THE DOVER CEO.
EACH OF THE 45 COMPANY PRESIDENTS OPERATES VERY AUTONOMOUSLY. COLLECTIVELY THEY
MANAGE OVER 130 FACTORY LOCATIONS AND MORE THAN 120 IDENTIFIABLE PRODUCT/MARKET
BUSINESSES.
DIVERSIFIED
1 TRANTER
Jack Ditterline, President
Products: Plate/frame and compact brazed heat exchangers; transformer
radiators
2 A-C COMPRESSOR
Gary Walker, President
Products: Centrifugal, oil-free screw, and rotary compressors; turbine and
compressor re-rate and repair
2 HILL PHOENIX
Ralph Coppola, President
Products: Commercial refrigeration systems; refrigerated display cases
1 **SARGENT
Donald C. Tarquin, President
Products: Submarine fluid controls; aircraft hydraulic controls;
self-lubricating bearings; aircraft fasteners
1 *BELVAC
Jim Schneiders, President
Products: Can necking, trimming and shaping equipment
2 WAUKESHA BEARINGS
Donald A. Fancher, President
Products: Fluid film bearings; Sweeney torquing tools; CRL manipulators and
isolators
1 WISECO
James A. Johnson, President
Products: High performance specialty pistons
1 *MARK ANDY
John Eulich, President
Products: Narrow web printing presses
1 PATHWAY
Robert Rabuck, President
Products: Metal and fabric expansion joints, autoclaves, and environmental
control equipment
1 SWF
Brent L. Parker, President
Products: Machinery for corrugated boxes and other packaging materials
RESOURCES
1 *OPW FUELING COMPONENTS
David J. Ropp, President
Products: Gasoline nozzles, fittings, valves, and environmental protection
products; PetroVend fuel management and key card systems, tank monitors
1 WILDEN PUMP & ENGINEERING CO.
Bruce J. Bartells, CEO/CFO
John D. Allen, President/COO
Products: air operated double diaphragm pumps
OPW FLUID TRANSFER GROUP
John Anderson, President
1 MIDLAND MANUFACTURING
Donald Rodda, President
Products: Tank car and barge valves, safety valves, and liquid level
measuring devices
1 CIVACON
John Anderson, Acting President
Products: Kamloks(R), Kamvaloks(R), and transport tank monitoring and
control systems; Knappco manhole/access covers and valves
1 OPW ENGINEERED SYSTEMS
Tom Niehaus, President
Products: Loading arms, swivels, and sight flow indicators
1 *DE-STA-CO INDUSTRIAL PRODUCTS
Jon H. Simpson, President
Products: Toggle clamps, cylinders, and workholding devices; Robohand,
CCMOP, EOA robotic and automation components
1 BLACKMER
Ray Pilch, President
Products: Rotary P.D. vane and eccentric pumps for fuel oil, propane and
industrial products; industrial gas compressors; progressing cavity pumps;
vane and screw compressors; peristaltic pumps
1 C. LEE COOK
David Jackson, President
Products: Piston rings, packings for gas compressors and aerospace sealing
applications; Compressor Components compressor rods, pistons, and repair
services; Cook Manley compressor valves and related plastics
1 PETROLEUM EQUIPMENT GROUP
James R. Kosh, President
James I. Mitchell, President
1 *ALBERTA OIL TOOL (CANADA)
Products: sucker rods, fittings, valves and controls; Norriseal
process valves and instrumentation systems
1 *NORRIS
Products: sucker rods, couplings, well servicing equipment, polished
rods; Ferguson-Beauregard/Logic Controls oil and gas production
systems
1 *RONNINGEN-PETTER
Peter Scovic, President
Products: Filtration systems; RP Products bag filters and high efficiency
media
1 DUNCAN PARKING SYSTEMS
Richard Farrell, President
Products: Parking control products and systems
1 *QUARTZDYNE
Roger W. Ward, President
Products: Quartz based pressure transducers
1 HYDRO SYSTEMS COMPANY
Gary E. Golub, President
Products: Cleaning chemical proportioning systems; Nova electronically
controlled systems
1 *DE-STA-CO MANUFACTURING
Bob Leisure, President
Products: Reed valves for compressors, stamped precision components, and
specialized aluminum tubular products
TULSA WINCH
Ron Hoffman, President
Products: Worm and planetary gear winches, speed reducers, swing drives,
and wheel drives
1 WITTEMANN
William Geiger, President
Products: CO(2) gas generation and recovery systems, merchant CO(2) and
industrial refrigeration systems
TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES {9}
<PAGE> 12
- - - - - - DOVER TECHNOLOGIES
DOVER TECHNOLOGIES' PROFITS DECLINED 25% IN 1998 AS A RESULT OF THE CONTRACTION
OF CAPITAL SPENDING FOR ELECTRONIC ASSEMBLY AND TEST EQUIPMENT THAT BEGAN IN
LATE 1997.
Nevertheless, profits in 1998 exceeded those recorded in every year prior to
1997. On an operational basis, as described on page 4, Technologies' profit drop
was greater -- especially in circuit board assembly and test equipment, where
earnings were off almost 40% from last year's record.
CYCLICAL DOWNTURN FOR ASSEMBLY AND TEST EQUIPMENT
After six consecutive years of growth, the market for assembly and test
equipment plunged in 1998, primarily because of the fall-off in Asian economies,
the caution it generated within the electronics industry worldwide, and excess
capacity resulting from heavy spending in 1995-97 in anticipation of much
stronger sales than were actually realized in 1998.
This pattern is typical of the industry. The most recent expansion followed a
downturn in 1989-91, which itself followed a growth period after a downturn in
1985. It is important to remember that Universal Instruments, which Dover has
owned for 20 years, earned profits in 1998 that were more than double those at
the previous cyclical bottom in 1992.
PROFIT DECLINE AT CIRCUIT BOARD ASSEMBLY AND TEST COMPANIES
Demand for Universal Instruments' assembly equipment fell sharply in both
surface mount and thru-hole product technology. Most of the year-over-year
decline took place in the U.S. market, exacerbated by, and to an extent caused
by, the fall-off in Asia -- particularly for thru-hole equipment. Europe was a
bright spot during most of the year. Universal continued to improve its internal
processes, with its investment in enterprise software (SAP) now having a
positive impact. Cost reductions were necessary to respond to the reduced order
levels; however, Universal maintained its product and technology development
programs. Particular effort was focused on developing products for advanced
packaging, such as flip-chip, array and chip-on-board assembly equipment. These
types of packages accounted for only 5% of all semiconductor packages in 1997,
but this area is expected to triple in size by 2002. Universal also launched new
versions of its GSM products to widen their application niche for existing
surface mount packages. These account for two-thirds of the semiconductor market
and their usage is expected to double between the 1997 peak and the top of the
next up-cycle.
Early in 1999, Universal purchased Alphasem, an established Swiss
manufacturer of semiconductor packaging equipment. As chip technology continues
to put more processing power into less space, the distinction between
Universal's advanced assembly and Alphasem's "back-end" semiconductor packaging
technologies is expected to blur. The acquisition of privately owned
SEGMENT EARNINGS
($ millions)
[BAR GRAPH]
<TABLE>
<CAPTION>
DTI SEGMENT EARNINGS
--------------------
YEAR DATA (EARNINGS)
---- ---------------
<S> <C>
1994 76
1995 134
1996 146
1997 195
1998 147
</TABLE>
AFTER-TAX OPERATING RETURN ON INVESTMENT (%)
(Acquisition adjustments have been excluded, see page 31, footnote 12 for
explanation)
[BAR GRAPH]
<TABLE>
<CAPTION>
DTI AFTER-TAX OPERATING ROI
---------------------------
YEAR DATA (EARNINGS)
---- ---------------
<S> <C>
1994 30%
1995 44%
1996 43%
1997 47%
1998 31%
</TABLE>
{10} TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES
<PAGE> 13
[GRAPHIC A.]
A. AN EVERETT CHARLES SPRING PROBE FOR TESTING PRINTED CIRCUIT BOARDS, USING THE
NEW "BIAS BALL" DESIGN.
[GRAPHIC B.]
B. AN IMAJE CONTINUOUS INK JET PRINTER APPLIES DATE CODES TO A CUSTOMER'S
PRODUCT ON A HIGH-SPEED PRODUCTION LINE.
[GRAPHIC C.]
C. A K&L MICROWAVE INTEGRATED ANTENNA/FILTER/AMPLIFIER USED IN WIRELESS BASE
STATIONS FOR TRANSMIT AND RECEIVE SIGNAL MANAGEMENT.
[GRAPHIC D.]
D. UNIVERSAL'S GSM SURFACE MOUNT PLACEMENT MACHINE WITH THE NEW "FLEXJET" HEAD
DELIVERS HIGH-SPEED CHIP MOUNTING, ALONG WITH LARGE PART ACCURACY AND
PERFORMANCE.
TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES {11}
<PAGE> 14
[GRAPHIC E.]
E. A DEK 265 GSX PRECISION PRINTER WITH THE "PROFLOW" HEAD FOR APPLYING SOLDER
PASTE ON CIRCUIT BOARDS.
[GRAPHIC F.]
F. QUARTZ BASED TIMING DEVICES MANUFACTURED BY QUADRANT'S VECTRON
INTERNATIONAL ARE USED IN BASE STATION, SUBSCRIBER, AND SWITCHING/TRANSMISSION
EQUIPMENT.
Alphasem reflects both companies' belief that they will make each other stronger
in their pursuit of the markets that these technology changes will produce.
Everett Charles Technologies (ECT) experienced a smaller profit decline than
Universal, and sales actually increased as a result of add-on acquisitions.
However, demand for its bare board circuit board test equipment dropped sharply
in North America, and both volume and pricing deteriorated for test fixtures.
Volume declines in these two areas had a feedback effect on ECT's probe
business, where sales declined slightly. Everett Charles continued its
aggressive internal product development, launching new products for bare-board
testing/repair and for functional testing of assembled boards. The company also
moved forward on its program to expand its product and geographic scope with the
fourth-quarter acquisition of atg, a German company whose product line includes
highly advanced board testing products. The acquisition creates the opportunity
for ECT and atg to collaborate on both marketing and technology.
DEK sales increased modestly as a result of the introduction of a new,
advanced print head and a strong carryover of backlog from 1997 in the European
market. Soltec's sales volume increased, largely because of the acquisition of
Vitronics in the fourth quarter of 1997. However, pricing and unfavorable
product mix reduced profitability at both companies.
SOLID YEAR FOR IMAJE
Imaje slightly exceeded the sales and profit records it set in 1997, despite the
expected decline in Asian industrial markets, where Imaje is a particularly
strong factor. This decline was offset by double-digit sales growth in Europe
and in the Americas. Several new products were introduced that expand Imaje's
product range into additional market niches. Imaje reviewed a number of
potential add-on acquisitions, including both established companies and small
companies with new technologies, and is continuing to do so.
MIXED RESULTS IN ELECTRONIC COMPONENTS
Technologies' electronic components companies recorded a modest overall sales
increase, though earnings were down 22% from 1997.
Novacap (ceramic capacitors), the Vectron International -- Hudson unit
(oscillators) of Quadrant, and the New Hampshire division (custom transformers)
of DT Magnetics achieved strong growth and record earnings. Quadrant's
VI-Norwalk and German operations, K&L Microwave and DT Magnetics' Raleigh and
Watertown divisions suffered declines in sales and margins in their products
serving the wireless communications market.
New product initiatives and operational improvements should provide for some
recovery in the components businesses in 1999.
OUTLOOK
Among the four Dover segments, Dover Technologies has both the highest
potential, and most uncertainty, for earnings improvement in 1999. Much depends
upon the timing of expected increases in electronic industry capital spending
and on the resumption of growth in infrastructure for wireless communications.
The 1998 profit decline was almost $70 million in these two areas. Technologies
expects to exceed its 1997 earnings records at some point in the future.
Progress toward this goal is expected in 1999, but probably will not be evident
until the second half of the year.
{12} TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES
<PAGE> 15
- - - - - - DOVER INDUSTRIES
DOVER INDUSTRIES' 20% PROFIT GAIN PROPELLED IT TO FIRST PLACE AMONG DOVER'S
SEGMENTS FOR 1998 EARNINGS. BOTH SALES AND EARNINGS SET RECORDS.
Operational margins exceeded 17% and after-tax operating return on investment
reached 38%, also at record levels. Most of the $26 million increase in segment
earnings came from internal growth at businesses that were owned throughout both
1997 and 1998. All 12 Industries' companies were profitable, and all but one
achieved double-digit margins.
The four largest companies, measured by both sales and earnings -- Heil
Trailer, Heil Environmental, Rotary Lift and Tipper Tie -- provided just over
50% of the segment's sales and a similar percentage of income.
HEIL TRAILER SETS RECORDS
At the beginning of this decade, investment bankers advising the
then-privately-owned Heil Company suggested abandoning the trailer business
because of its poor profit record. Heil's management chose instead to fix the
business -- an effort that continued after the Heil Company's acquisition by
Dover in 1993. Heil Trailer focused on two important trailer segments --
petroleum tankers and drybulk trailers. It enlarged and improved its facilities
and expanded its product lines through strategic add-on acquisitions. It
shortened its engineering and manufacturing lead times dramatically, enabling it
to tailor products and deliveries to individual customer requirements. These
efforts helped Trailer set new sales and profit records in 1998, as this
business earned substantially more than all of Heil did in 1993. The company's
position in its selected domestic product markets is very strong and the company
is examining other domestic trailer markets for further growth. Heil Trailer
also took important steps in 1998 to become an international company, acquiring
a manufacturing operation in the U.K. and starting one in Argentina, thereby
adding an on-the-ground presence in Europe and South America to its established
positions in North America and Asia.
SOLID WASTE COMPANIES STRONG
Heil Environmental Industries Ltd. (H.E.I.L.) also set sales and earnings
records, aided by continued internal improvement and by stronger demand for
garbage trucks from major waste haulers. These companies have been refocusing on
their core businesses and are now upgrading their truck fleets after several
years of constrained capital spending. During this period, H.E.I.L. devoted
special effort to its programs for distributors and for local waste haulers,
leading to market share gains in these areas that are now augmented by the
national companies' return to normal. To strengthen its position in the European
market, H.E.I.L. revamped its operations in the U.K. -- eliminating private
branded sales through a master distributor and moving to direct sales and
distribution organizations for H.E.I.L. branded products. Commitments were made
to chassis-mounting facilities
SEGMENT EARNINGS
($ millions)
[BAR GRAPH]
<TABLE>
<CAPTION>
DII SEGMENT EARNINGS
--------------------
YEAR DATA (EARNINGS)
---- --------------
<S> <C>
1994 81
1995 118
1996 116
1997 129
1998 155
</TABLE>
AFTER-TAX OPERATING RETURN ON INVESTMENT (%)*
*(Acquisition adjustments have been excluded, see page 31, footnote 12 for
explanation)
[BAR GRAPH]
<TABLE>
<CAPTION>
DII AFTER-TAX OPERATING ROI
---------------------------
YEAR DATA (EARNINGS)
---- ---------------
<S> <C>
1994 35%
1995 38%
1996 32%
1997 34%
1998 38%
</TABLE>
TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES {13}
<PAGE> 16
[GRAPHIC A.]
A. HEIL ENVIRONMENTAL'S UNIQUE FORMULA 7000 SPLIT BODY AUTOMATICALLY COLLECTS
REFUSE AND CO-MINGLED RECYCLABLES AT THE SAME TIME.
[GRAPHIC B.]
B. TEXAS HYDRAULICS' CUSTOM ENGINEERED, WELDED HYDRAULIC CYLINDERS AND RELATED
COMPONENTS MAKE EQUIPMENT MOVE AROUND THE WORLD.
[GRAPHIC C.]
C. HEIL'S SUPERJET 2000 IS ONE OF MORE THAN ONE HUNDRED SPECIFIC MODELS DESIGNED
BY HEIL FOR WORLDWIDE NICHE MARKETS. ACCOUNT FOR MORE THAN HALF OF TIPPER TIE'S
SALES.
and service capabilities to support this effort.
Marathon achieved record sales and earnings for its compactor and baler
products, which also serve the solid waste industry. Direct sales to national
waste haulers are not as significant to Marathon as they are to H.E.I.L., but
the national haulers set the tone for the market. Driving Marathon's earnings
gains were a strong economy, expansion by retail and industrial compactor users,
the introduction of new products and internal operating improvements.
SOLID YEAR FOR AUTOMOTIVE SERVICE EQUIPMENT COMPANIES
The three companies producing automotive service equipment -- Rotary Lift (auto
lifts), Chief Automotive (frame-measuring and straightening systems), and PDQ
(touchless car washing equipment) -- all had strong years in more difficult
markets, and contributed about 20% of Industries' operational profits. The
acquisition of PDQ allowed combined earnings to grow, but none of the three
companies was able to set an earnings record. New product introductions at PDQ
and Rotary, a new pricing and distribution strategy for Rotary, and internal
improvements launched by Chief in 1998 are expected to have positive results in
1999. Full-year pro-forma sales for the three companies exceeded $200 million,
with a combined margin of nearly 20%, indicative of the strong leadership
positions that each of these companies has established for its specialty
equipment. PDQ broke ground on a new 79,000 square-foot assembly facility to
keep up with rising demand for its Laserwash(R) 4000. The company also
established a marketing arrangement for its products with the largest carwash
equipment company in Europe, and strengthened product development efforts on new
technology for in-bay and tunnel washing equipment. The initiatives taken by
these three businesses and the inclusion of a full year's results for PDQ should
be positive factors for Industries in 1999.
IMPROVED RESULTS AT MOST BUSINESSES
Tipper Tie again set sales and earnings records for its food packaging equipment
and clips as a result of continued expansion of its product line, internal
improvements and aggressive selling in a slowly growing world market. Non-U.S.
cus-
{14} TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES
<PAGE> 17
[GRAPHIC D.]
D. TIPPER TIE'S TECHNOPACK'S DCAE400 KEEPS FLEXIBILITY AHEAD OF THE REQUIREMENTS
OF TODAY'S MEAT PROCESSOR. EASY STRIPPABILITY OF TIPPER TIENET RESULTS IN ADDED
YIELD AND PROFITABILITY FOR CUSTOMERS.
[GRAPHIC E.]
E. PDQ LEADS THE WORLD IN TOUCH-FREE VEHICLE WASH EQUIPMENT WITH LASERWASH(R)
IN-BAY AUTOMATIC AND SPECTRAWASH(TM) TUNNEL LINES.
[GRAPHIC F.]
F. ROTARY LIFT SUSTAINS ITS MARKET LEADING POSITION IN THE AUTOMOTIVE LIFT
INDUSTRY WITH DESIGN IMPROVEMENTS, LOW COST MANUFACTURING, AND FABULOUS QUALITY
AND SERVICE.
tomers account for more than half of Tipper Tie's sales.
Texas Hydraulics achieved record sales and earnings although margins dipped.
The market for its specialty cylinders was not strong in 1998 and the company
achieved its sales gains through new programs it launched in 1997 to target
large-volume cylinder users. Having broadened its customer base, Texas
Hydraulics is now developing techniques for meeting customers' individual needs
without adding cost or unnecessary processes to all products for all customers.
DovaTech continued its recent rapid growth through successful add-on
acquisitions. Sales and profits set new records by substantial margins, aided by
the addition of Koolant Koolers in 1998 and the continued success of PRC Laser
and K&K Welding, acquired in 1996-97.
Industries' food service equipment companies -- Groen (steamers, combo ovens,
frypans and cook-chill equipment) and Randell (preparation tables, reach-in
refrigerators, pizza ovens and ventilation systems) -- achieved record combined
earnings as a result of internal improvements at both companies and Randell's
addition of Avtec early in the year. Groen's new management made substantial
progress in resolving warranty problems associated with some steamer and oven
products sold in past years. Both Randell and Groen are anticipating growth in
1999.
Davenport continued to experience difficulty with its efforts to develop new
products outside of its established niche in mechanical multi-spindle screw
machines and related replacement parts. Unrecovered costs on this program and
slower sales of new equipment to automotive parts manufacturers combined to
reduce Davenport's earnings for the year.
OUTLOOK
All 12 of Industries' individual companies are planning sales and earnings gains
in 1999. Achievement of their individual plans depends primarily on the strength
of the U.S. economy, where more than 80% of sales take place, and on
developments within their particular specialty markets. All the companies have
continuous improvement programs in place and expect to outperform their
competitors in whatever environment they may encounter.
TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES {15}
<PAGE> 18
- - - - - - DOVER DIVERSIFIED
DOVER DIVERSIFIED'S PROFITS INCREASED 25%, SETTING A NEW RECORD FOR THE SEVENTH
CONSECUTIVE YEAR.
Strong gains at Hill Phoenix and A-C Compressor and continued growth at Tranter,
Mark Andy and Waukesha more than offset the expected declines at Belvac and in
Sargent's submarine valve business.
Two new stand-alone acquisitions and three large add-ons completed in late
1997 and in early 1998 made the new earnings record much higher, accounting for
more than half of the total profit gain.
The average profit margin for Diversified's 10 companies exceeded 17%, with
six companies earning over 20%. The largest businesses -- Tranter, Hill Phoenix
and A-C Compressor -- contributed 55% of total sales and a similar percentage of
operational earnings. After-tax operating return on investment reached 39%, the
highest among Dover's four segments.
MAJOR GAINS AT TWO COMPANIES
Hill Phoenix increased its market share, particularly in supermarket
refrigeration equipment, fueling a 20% overall sales increase. Improved
manufacturing and purchasing costs and product design improvements helped expand
margins, leading to a profit gain of more than 50%. Hill Phoenix believes that
it has less than 20% of the U.S. market for its products, but that it may now be
the second largest of the four major companies in this field.
A-C Compressor leveraged growth in sales of OEM compressors from its
Appleton, Wisconsin manufacturing plant into higher margins and profits, which
gained more than 50%. This gain was significantly augmented by aftermarket
operations, with full-year contributions from Conmec and Preco, which were
acquired in the second half of 1997. The OEM market for A-C's large compressors,
which frequently have lead times of nine months to a year, weakened during 1998,
reducing A-C's backlog. A-C anticipates that continued expansion of its
aftermarket activities will help maintain strong, but reduced, profit levels in
1999.
DECLINES IN THREE BUSINESSES
The market for Belvac's can-making equipment contracted further. Weak demand
experienced by many soft drink and beer companies, particularly in developing
markets, led can-makers to delay planned capital spending projects. Belvac ended
the year with a very low backlog, but its reduced manufacturing lead time and
increasing aftermarket business, together with an add-on acquisition completed
in January of 1999 provide an opportunity to resume profit growth in 1999.
Profits on Sargent's submarine valve business declined as the result of
delayed placement of orders for the Navy's next nuclear submarine. However, the
addition of Sonic Industries, a leading manufacturer of specialty fasteners for
commercial aircraft, more than offset this decline, allowing Sargent's overall
profits to rise sharply.
SEGMENT EARNINGS
($ millions)
[BAR GRAPH]
<TABLE>
<CAPTION>
DDI SEGMENT EARNINGS
--------------------
YEAR DATA (EARNINGS)
---- ---------------
<S> <C>
1994 67
1995 93
1996 107
1997 115
1998 143
</TABLE>
AFTER-TAX OPERATING RETURN ON INVESTMENT (%)
(Acquisition adjustments have been excluded, see page 31, footnote 12 for
explanation)
[BAR GRAPH]
<TABLE>
<CAPTION>
DDI AFTER-TAX OPERATING ROI
---------------------------
YEAR DATA (EARNINGS)
---- ---------------
<S> <C>
1994 36%
1995 34%
1996 35%
1997 38%
1998 39%
</TABLE>
{16} TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES
<PAGE> 19
[GRAPHIC A.]
A. AIRCRAFT NOSE WHEEL STEERING ACTUATOR BY SARGENT. PLANE BY BOEING.
[GRAPHIC B.]
B. MARK ANDY 4000 SERIES LABEL PRINTING PRESS.
[GRAPHIC C.]
C. HIGH-PERFORMANCE FORGED PISTONS DESIGNED AND MANUFACTURED BY WISECO.
[GRAPHIC D.]
D. SPECIALTY FASTENERS FOR AIRCRAFT LANDING GEAR, WING FLAPS AND WINGS
SUPPORTERS MANUFACTURED BY SARGENT'S SONIC INDUSTRIES DIVISION.
[GRAPHIC E.]
E. MAXCHANGER ALL-WELDED HEAT EXCHANGER MANUFACTURED BY TRANTER IN WICHITA
FALLS, TEXAS.
TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES {17}
<PAGE> 20
Pathway encountered weak markets across most of its product line, resulting
in lower profits.
CONTINUED GROWTH AT THREE BUSINESSES
Tranter, Waukesha and Mark Andy all continued their growth, with Tranter and
Waukesha setting new earnings records. Tranter maintained its position as
Diversified's largest earner (and Dover's third largest) as it restructured its
organization to worldwide product line responsibilities from the previous
geographical focus. Tranter's brazed heat exchanger and transformer radiator
products showed gains in sales and earnings, resulting in the company's fifth
consecutive year of records.
Waukesha achieved record earnings, also for the fifth straight year, with
gains in its hydraulic and torquing tools business and its manipulator product
lines offsetting a modest decline in engineered bearings.
Mark Andy continued its profit improvement and posted near-record earnings
despite costs associated with discontinuing development work on a new product
line.
STRONG ACQUISITION GROWTH
Two stand-alone and a total of ten add-on acquisitions completed during 1997 and
1998 substantially increased the size and scope of Dover Diversified. SWF
completed a successful first year with Diversified and provides entree to the
packaging machinery market. Wiseco also had a strong year and gives Diversified
a foothold in engineered, high performance racing products.
Among the add-on acquisitions, Conmec and Preco have expanded A-C's
aftermarket capabilities, while Sonic essentially doubles the size of Sargent's
aerospace business.
The acquired companies provided more than 15% of Diversified's total 1998
sales, with operating margins (before acquisition write-offs) of 19%.
OUTLOOK
All Dover Diversified companies are planning for at least some growth in 1999,
with the exception of A-C Compressor, which anticipates a decline in its OEM
compressor business. The largest opportunities for earnings gains are at Hill
Phoenix, Mark Andy and Pathway, which expect to increase sales and operating
margins. Acquisition premium write-offs for the businesses owned at the end of
1998 will decline, adding to the segment's 1999 earnings gain.
[GRAPHIC F.]
F. "ORIGIN 2" ISLAND CHEESE CASE MANUFACTURED BY HILL PHOENIX.
[GRAPHIC G.]
G. VERTICALLY SPLIT (BARREL) COMPRESSOR MANUFACTURED BY A-C COMPRESSOR IN
APPLETON, WI.
{18} TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES
<PAGE> 21
- - - - - - DOVER RESOURCES
DOVER RESOURCES ACHIEVED RECORD SALES AND PROFITS, UP 7% AND 10%, RESPECTIVELY,
AS OPERATIONAL MARGINS REACHED 18% FOR THE FIRST TIME.
Dover Resources' $12 million profit gain came despite a similar decline from its
three oilfield production equipment companies. Strong internal gains were
achieved by most other companies, as OPW Fueling Components Group,
Ronningen-Petter and Duncan set new profit records by substantial amounts.
Acquisition activity during the year, primarily the addition of Wilden and
Quartzdyne, provided the balance of the Resources segment's profit gain.
PROFIT RECORDS AT THREE COMPANIES
OPW FCG set sales and earnings records for the second year, as 1998 profits
increased 25% from 1997 to a level more than 50% ahead of its 1995-1996 average.
Underpinning this performance were a strong service station market in the U.S.
for environmental products, in-ground tank retrofits, and growing penetration of
international markets, especially for vapor recovery nozzles and environmental
products. The company's PetroVend products for commercial fuel management also
continued strong, nearly matching 1997's records. The U.S. market, in
particular, has been driven by safety and environmental concerns about gasoline
storage and dispensing. This has provided substantial opportunities for OPWFCG
to grow by bringing to market new, high quality products designed to solve
customer problems at reasonable cost. After a pause in growth in the mid-1990s,
demand surged in the past two years, with some of the recent growth reflecting
"catch-up" by customers. OPW FCG expects another pause, probably beginning in
the second half of 1999.
Ronningen-Petter set an earnings record by a wide margin. Stronger bookings and
shipments, combined with good expense controls and manufacturing cost
improvements, resulted in increased margins. New products that the company has
introduced in the last several years for filtration in paper-making and oil
refining were key factors in its 1998 success. The new technology developed for
these areas is also giving Ronningen-Petter entree to other industrial
filtration applications. Duncan (parking meters and systems) achieved another
earnings record as its new products have re-established Duncan's premier
position in the market for on-street parking meters. New York City and Los
Angeles awarded Duncan major orders for electronic meters. Duncan is expanding
its product line with key and card systems, off-street parking solutions, and
systems for total management of municipal parking, collection and enforcement.
OILFIELD PRODUCTION EQUIPMENT GROUP
Norris, AOT and Norriseal suffered a 36% sales decline in 1998, and a greater
decline in profits. Market demand for their products -- most of them used for
the artificial lift of hydrocarbon fluids -- has always been sensitive to oil
price levels. The
SEGMENT EARNINGS
($ millions)
[BAR GRAPH]
<TABLE>
<CAPTION>
DRI SEGMENT EARNINGS
--------------------
YEAR DATA (EARNINGS)
---- ---------------
<S> <C> <C>
1994 84
1995 91
1996 105
1997 114
1998 125
</TABLE>
AFTER-TAX OPERATING RETURN ON INVESTMENT (%)
(Acquisition adjustments have been excluded, see page 31, footnote 12 for
explanation)
[BAR GRAPH]
<TABLE>
<CAPTION>
DRI AFTER-TAX OPERATING ROI
---------------------------
YEAR DATA (EARNINGS)
---- ---------------
<S> <C>
1994 36%
1995 32%
1996 34%
1997 33%
1998 34%
</TABLE>
TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES {19}
<PAGE> 22
current depression in this market recalls the 1986 collapse, although the
companies reduced cost structures very rapidly during the year, maintaining
profitability even in the severely depressed fourth quarter, when sales were
down 60% from the prior year. Recent improvements in oil prices are encouraging,
but are unlikely to provide relief here until late 1999 and beyond.
GAINS FOR OPW FLUID TRANSFER GROUP
Midland (rail tank car safety valves), Civacon (gasoline truck loading products
and no-spill couplers), and OPW Engineered Systems (petroleum loading arms,
swivels and flow indicators) have joined forces to create a new OPW Fluid
Transfer Group -- OPW FTG. All three companies achieved excellent financial
results in 1998, with records at two of the companies. OPW FTG intends to retain
all current facilities and their distinct company/brand names. Cooperation in
market planning, product development and international sales will be stimulated
by the increased mass of a group with almost $100 million in annual sales. John
Anderson, who joined Dover in 1995 when he sold his Knappco business to Civacon,
was named President of OPW FTG.
WILDEN AND QUARTZDYNE JOIN RESOURCES
Wilden and Quartzdyne, both acquired in the first half of the year, turned in
good financial results and strengthened their niche market leadership positions.
Earnings were consistent with expectations communicated by their managements in
pre-acquisition discussions with Dover Resources. Growth was muted, however, by
softer markets in Asia, whose use of Wilden's diaphragm pumps is an important
part of that company's sales base. In addition, the worldwide decline in oil
prices had some impact on demand for Quartzdyne's quartz pressure transducers.
Both companies serve long-term growth markets and each has a long record of
product and internal process improvements. Wilden's plans to reduce product
costs through better purchasing and increased in-house manufacturing and
Quartzdyne's next step forward in transducer design should result in profit
gains in 1999.
[GRAPHIC A.]
A. MIDLAND MANUFACTURING'S SPECIALIZED VALVES, FITTINGS AND GAUGING DEVICES ARE
CRITICAL COMPONENTS USED ON RAIL TANK CARS CARRYING HAZARDOUS MATERIALS.
[GRAPHIC B.]
B. DE-STA-CO INDUSTRIES' MANUFACTURES MODULAR AUTOMATION COMPONENTS, INCLUDING
THE SWING CYLINDER/CLAMP ASSEMBLY SHOWN.
[GRAPHIC C.]
C. OPW FUELING COMPONENTS IS THE MARKET LEADING MANUFACTURER OF GASOLINE
NOZZLES.
[GRAPHIC D.]
D. BLACKMER'S PUMP PRODUCTS ARE DESIGNED FOR A VARIETY OF INDUSTRIAL
APPLICATIONS.
{20}
<PAGE> 23
MIXED RESULTS AT OTHER COMPANIES
De-Sta-Co Industries (DSI) and Blackmer, both among Resources' five largest
businesses, also had strong years on sales that topped $190 million. DSI
experienced some weakness in automotive demand for its automation devices and
Blackmer encountered soft markets for its petroleum and propane product lines.
Both companies had offsetting gains in other product areas and continued their
programs of small add-on acquisitions that broaden their product/market range.
De-Sta-Co Manufacturing (DSM) moved forward on its program to transform its
largely domestic specialty valve business into a truly global company. DSM
opened a new manufacturing facility in the U.K. and expanded its capabilities in
Thailand. The cost of these new programs, along with somewhat reduced domestic
valve demand and continued poor profitability in automotive tubular products,
led to an earnings decline.
Cook and Hydro Systems achieved solid earnings gains, augmented in Hydro's
case by the acquisition of Nova Controls. Cook achieved above-average internal
growth, primarily as a result of cost improvements and increased demand for its
aircraft and compressor component product lines. Tulsa Winch had a flat year
after strong growth in 1997, as the oilfield segment of the winch market
declined. Wittemann struggled for profitability, achieving it in the fourth
quarter, after a precipitous decline in orders from international beer and soda
manufacturers that began in the second half of 1997.
OUTLOOK
As evidenced above, Dover Resources' individual companies are facing mixed
market conditions that will limit internal growth in 1999. Profit declines are
likely in petroleum production equipment and at Ronningen-Petter, whose year-end
backlog and order rate were lower than at the start of the year. However, the
inclusion of Wilden for a full year and a decline in acquisition-related costs
from second-half 1998 rates will be positive factors that should permit another
record earnings year.
[GRAPHIC E.]
E. QUARTZDYNE'S SPECIALIZED QUARTZ PRESSURE TRANSDUCERS ARE USED TO ACCURATELY
MEASURE PRESSURE IN CHALLENGING OIL PRODUCTION APPLICATIONS.
[GRAPHIC F.]
F. WILDEN PUMP AND ENGINEERING, DOVER RESOURCES' NEWEST ADDITION, IS THE
WORLD'S LEADING SUPPLIER OF AIR-OPERATED DOUBLE DIAPHRAGM PUMPS.
[GRAPHIC G.]
G. BLACKMER'S MOUVEX COMPANY (BASED IN FRANCE) ADDS ADDITIONAL SPECIALTY PUMPS,
INCLUDING THIS DISINTEGRATOR PUMP, TO THE BLACKMER FAMILY.
TECHNOLOGIES - INDUSTRIES - DIVERSIFIED - RESOURCES {21}
<PAGE> 24
Dover Corporation and Subsidiaries
SALES, OPERATING PROFIT AND OTHER DATA BY MARKET SEGMENT
(in thousands except % figures)
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers:
Dover Technologies $1,211,416 $1,300,503 $ 993,326 $ 873,505 $ 603,068 $ 488,248
Dover Industries 1,012,440 859,778 846,866 798,173 691,342 501,364
Dover Diversified 957,579 767,194 730,074 672,503 472,706 244,597
Dover Resources 800,914 745,429 648,546 583,727 525,971 472,643
Intramarket sales (4,683) (3,336) (3,239) (3,547) (1,115) (632)
-------------------------------------------------------------------------------------
Consolidated total $3,977,666 $3,669,568 $3,215,573 $2,924,361 $2,291,972 $1,706,220
-------------------------------------------------------------------------------------
Operating profit:
Dover Technologies $ 146,612 $ 195,393 $ 146,341 $ 133,641 $ 76,205 $ 41,797
Dover Industries 154,500 128,945 115,857 117,841 81,028 59,942
Dover Diversified 143,157 114,902 106,850 92,948 67,220 39,360
Dover Resources 125,225 113,538 105,394 90,745 83,979 70,290
Gain on dispositions -- -- 75,065 -- -- --
Interest income, Interest expense
and general corporate expenses, net (80,848) (60,504) (47,398) (50,911) (39,401) (20,763)
-------------------------------------------------------------------------------------
Consolidated earnings before
taxes on income $ 488,646 $ 492,274 $ 502,109 $ 384,264 $ 269,031 $ 190,626
-------------------------------------------------------------------------------------
Profit margin (pretax):
Dover Technologies 12.1% 15.0% 14.7% 15.3% 12.6% 8.6%
Dover Industries 15.3 15.0 13.7 14.8 11.7 12.0
Dover Diversified 14.9 15.0 14.6 13.8 14.2 16.1
Dover Resources 15.6 15.2 16.3 15.5 16.0 14.9
-------------------------------------------------------------------------------------
Consolidated profit margin 12.3% 13.4% 15.6% 13.1% 11.7% 11.2%
-------------------------------------------------------------------------------------
Identifiable assets at December 31:
Dover Technologies $1,000,209 $1,032,922 $ 924,745 $ 721,831 $ 330,661 $ 278,871
Dover Industries 732,136 598,643 613,512 591,228 541,109 485,419
Dover Diversified 802,872 704,591 547,341 570,269 452,074 340,072
Dover Resources 781,933 478,279 380,805 326,047 291,480 218,473
Corporate, (principally cash and
equivalents and marketable securities) 65,243 84,536 136,438 94,402 106,167 83,451
-------------------------------------------------------------------------------------
Total continuing 3,382,393 2,898,971 2,602,841 2,303,777 1,721,491 1,406,286
-------------------------------------------------------------------------------------
Net assets from discontinued operations 244,883 181,263 205,365 191,000 188,879 211,839
-------------------------------------------------------------------------------------
Consolidated total $3,627,276 $3,080,234 $2,808,206 $2,494,777 $1,910,370 $1,618,125
-------------------------------------------------------------------------------------
Depreciation and amortization:
Dover Technologies $ 56,853 $ 69,882 $ 34,071 $ 19,750 $ 13,904 $ 13,401
Dover Industries 33,379 28,992 27,918 26,783 25,453 20,520
Dover Diversified 41,040 30,188 26,857 27,141 21,948 14,837
Dover Resources 34,802 24,738 20,686 17,816 19,089 13,300
Corporate 1,613 1,404 952 696 922 863
-------------------------------------------------------------------------------------
Consolidated total $ 167,687 $ 155,204 $ 110,484 $ 92,186 $ 81,316 $ 62,921
-------------------------------------------------------------------------------------
Capital expenditures:
Dover Technologies $ 40,544 $ 42,303 $ 36,001 $ 18,546 $ 13,425 $ 11,769
Dover Industries 29,046 24,689 28,495 20,675 23,299 11,146
Dover Diversified 26,050 24,400 26,274 31,299 19,419 4,802
Dover Resources 29,473 28,317 22,149 21,127 16,340 11,515
Corporate 617 2,373 760 72 226 188
-------------------------------------------------------------------------------------
Consolidated total $ 125,730 $ 122,082 $ 113,679 $ 91,719 $ 72,709 $ 39,420
===================================================================================================================================
</TABLE>
{22}
<PAGE> 25
Dover Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS, ACCUMULATED COMPREHENSIVE EARNINGS, AND
RETAINED EARNINGS
(in thousands except per share figures)
<TABLE>
<CAPTION>
STATEMENT OF EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 3,977,666 $ 3,669,568 $ 3,215,573
Cost of sales 2,551,381 2,342,268 2,076,921
-----------------------------------------
Gross profit 1,426,285 1,327,300 1,138,652
Selling and administrative expenses 894,325 807,793 686,101
-----------------------------------------
Operating profit 531,960 519,507 452,551
-----------------------------------------
Other deductions (income):
Interest expense 60,746 46,163 41,663
Interest income (14,308) (9,495) (18,600)
All other, net (3,124) (9,435) (72,621)
-----------------------------------------
Total 43,314 27,233 (49,558)
-----------------------------------------
Earnings before taxes on income 488,646 492,274 502,109
Federal and other taxes on income 162,249 167,360 165,590
-----------------------------------------
Net earnings from continuing operations 326,397 324,914 336,519
Earnings from discontinued operations 52,448 57,084 53,704
Gain on sale of discontinued business -- 23,433 --
-----------------------------------------
Net Earnings $ 378,845 $ 405,431 $ 390,223
=========================================
Net earnings per common share:
Basic -- Continuing operations $ 1.47 $ 1.46 $ 1.49
-- Discontinued operations .23 .36 .23
-----------------------------------------
-- Net earnings $ 1.70 $ 1.82 $ 1.72
=========================================
Diluted -- Continuing operations $ 1.45 $ 1.43 $ 1.46
-- Discontinued operations .24 .36 .23
-----------------------------------------
-- Net earnings $ 1.69 $ 1.79 $ 1.69
=========================================
Weighted average number of common shares outstanding during the period:
Basic 222,793 223,181 226,524
Diluted 224,386 226,815 230,518
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED COMPREHENSIVE EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 378,845 $ 405,431 $ 390,223
-----------------------------------------
Other comprehensive earnings, net of tax:
Foreign currency translation adjustments 10,166 (43,894) (368)
Less: reclassification adjustment for adjustments
included in net earnings (486) (4,099) --
-----------------------------------------
Total foreign currency translation adjustments $ 10,652 $ (39,795) $ (368)
-----------------------------------------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period (27) 2,135 (331)
Less: reclassification adjustment for gains (losses)
included in net earnings 5,713 7 --
-----------------------------------------
Total unrealized gains (losses) on securities (tax $27 in 1998) (5,740) 2,128 (331)
-----------------------------------------
Other comprehensive earnings 4,912 (37,667) (699)
-----------------------------------------
Comprehensive earnings $ 383,757 $ 367,764 $ 389,524
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 1,703,335 $ 1,470,008 $ 1,152,187
Net earnings 378,845 405,431 390,223
-----------------------------------------
2,082,180 1,875,439 1,542,410
Deductions:
Stock split -- 91,757 --
Common stock cash dividends of $.40 per share ($.36 in 1997; $.32 in 1996) 89,189 80,347 72,402
-----------------------------------------
Balance at end of year $ 1,992,991 $ 1,703,335 $ 1,470,008
========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
{23}
<PAGE> 26
Dover Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share figures)
<TABLE>
<CAPTION>
December 31, 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 96,774 $ 103,111
Marketable securities, at market -- 21,929
Receivables (less allowance for doubtful accounts of $20,955 in 1998, $19,468 in 1997) 575,630 616,168
Inventories 559,267 496,464
Prepaid expenses and other current assets 72,853 59,283
--------------------------
Total current assets 1,304,524 1,296,955
--------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land 33,845 30,537
Buildings 315,594 281,478
Machinery and equipment 932,997 817,559
--------------------------
1,282,436 1,129,574
Less accumulated depreciation 710,473 607,230
--------------------------
Net property, plant and equipment 571,963 522,344
--------------------------
INTANGIBLE ASSETS, NET OF AMORTIZATION 1,438,793 1,037,611
OTHER INTANGIBLE ASSETS 7,358 7,358
OTHER ASSETS AND DEFERRED CHARGES 59,755 34,703
NET ASSETS OF DISCONTINUED OPERATIONS 244,883 181,263
--------------------------
$ 3,627,276 $ 3,080,234
=================================================================================================================================
LIABILITIES
CURRENT LIABILITIES:
Notes payable $ 427,529 $ 435,220
Current maturities of long-term debt 6,060 897
Accounts payable 187,738 191,587
Accrued compensation and employee benefits 149,855 129,301
Accrued insurance 43,246 33,425
Other accrued expenses 175,036 190,553
Federal and other taxes on income 283 23,777
--------------------------
Total current liabilities 989,747 1,004,760
--------------------------
LONG-TERM DEBT 610,090 262,630
DEFERRED INCOME TAXES 50,196 48,263
OTHER DEFERRALS (principally compensation) 66,359 60,997
STOCKHOLDERS' EQUITY
CAPITAL STOCK:
Preferred, $100 par value per share
Authorized 100,000 shares; issued none -- --
Common, $1 par value per share
Authorized 500,000,000 shares; issued 235,570,770 in 1998, (234,507,373 shares in 1997) 235,571 234,507
ADDITIONAL PAID-IN CAPITAL 18,630 658
CUMULATIVE TRANSLATION ADJUSTMENTS (27,243) (37,895)
UNREALIZED HOLDING GAINS 51 5,791
RETAINED EARNINGS 1,992,991 1,703,335
--------------------------
2,220,000 1,906,396
Less common stock in treasury, at cost 15,163,974 shares in 1998, (11,911,594 shares in 1997) 309,116 202,812
--------------------------
Net stockholders' equity 1,910,884 1,703,584
--------------------------
$ 3,627,276 $ 3,080,234
=================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
{24}
<PAGE> 27
Dover Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
increase (decrease) in cash and cash equivalents (in thousands)
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings $ 378,845 $ 405,431 $ 390,223
-----------------------------------
Adjustments to reconcile net earnings to net cash from operating activities:
Income from discontinued operations (52,448) (57,084) (53,704)
Gain on sale of discontinued business -- (23,433) --
Depreciation and amortization 167,687 155,204 110,484
Provision for losses on accounts receivable 6,542 7,248 4,472
Net increase (decrease) in LIFO reserve (190) 842 561
Deferred income taxes (311) (13,553) (244)
Loss (gain) on sale of property and equipment 898 (890) 434
Increase (decrease) in deferred compensation 4,704 12,892 (1,428)
Acquisition inventory premium write-off 7,804 9,202 4,065
(Gain) loss on sale of businesses and certain assets (40) 10,870 (79,245)
Other, net (20,380) (19,004) (3,123)
Changes in assets and liabilities (excluding effects of acquisitions and dispositions):
Decrease (increase) in accounts receivable 74,655 (91,350) 14,478
Decrease (increase) in inventories excluding LIFO reserve (17,263) (30,573) 18,099
Decrease (increase) in prepaid expenses (11,479) (4,045) (6,529)
Decrease (increase) in other assets 117 (4,645) 3,298
Increase (decrease) in accounts payable (24,685) 18,822 (4,943)
Increase (decrease) in accrued expenses (150) 34,282 (19,210)
Increase (decrease) in federal and other taxes on income (26,181) 9,363 (25,046)
-----------------------------------
Total adjustments 109,280 14,148 (37,581)
-----------------------------------
Net cash from operating activities of continuing operations 488,125 419,579 352,642
-----------------------------------
CASH FLOWS FROM (USED) IN INVESTING ACTIVITIES:
Net sale (purchase) of marketable securities 21,979 1,701 8,884
Proceeds from sale of property and equipment 6,270 6,412 4,458
Additions to property, plant and equipment (includes rental equipment:
$400 in 1998, $217 in 1997 and $406 in 1996) (126,130) (122,299) (114,085)
Acquisitions (net of cash and cash equivalents: $7,421 in 1998,
$6,689 in 1997 and $2,090 in 1996) (549,762) (251,754) (264,624)
Proceeds from sale of businesses 668 167 105,838
Purchase of treasury stock (3,252 shares in 1998, 3,254 in 1997
and 2,872 shares in 1996) (106,304) (86,267) (62,815)
-----------------------------------
Net cash used in investing activities of continuing operations (753,279) (452,040) (322,344)
-----------------------------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Increase (decrease) in notes payable (8,235) (55,908) 66,703
Reduction of long-term debt (2,724) (6,782) (3,344)
Proceeds from long-term debt 349,115 1,088 268
Proceeds from exercise of stock options 19,036 13,022 7,446
Proceeds from sale (repurchases) of lease receivables -- (2,672) (1,500)
Cash dividend to stockholders (89,189) (80,347) (72,402)
-----------------------------------
Net cash from (used in) financing activities of continuing operations 268,003 (131,599) (2,829)
-----------------------------------
Effect of exchange rate changes on cash 1,986 (3,780) 2,432
Cash from discontinued operations (11,172) 104,619 39,339
-----------------------------------
Net increase (decrease) in cash and cash equivalents (6,337) (63,221) 69,240
Cash and cash equivalents at beginning of year 103,111 166,332 97,092
-----------------------------------
Cash and cash equivalents at end of year $ 96,774 $ 103,111 $ 166,332
===================================
SUPPLEMENTAL INFORMATION, CASH PAID DURING THE PERIOD FOR:
Income taxes $ 188,196 $ 175,995 $ 190,579
Interest 75,858 46,463 41,653
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
{25}
<PAGE> 28
Dover Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTANT POLICIES:
The Company is a multinational, diversified manufacturing corporation comprised
of over 45 different operating companies which manufacture a broad range of
specialized industrial products and sophisticated manufacturing equipment. The
Company groups its products and services by industry into four segments as set
forth in the tables shown on page 22. A description of the products manufactured
and services performed by each of the four segments is given on pages 8 through
21.
The accounting policies that affect the more significant elements of the
Company's financial statements are described briefly below:
A. CONSOLIDATION:
The consolidated financial statements include all significant subsidiaries after
elimination of all significant intercompany accounts and transactions, and
include the results of operations of purchased businesses from the dates of
acquisitions. On November 23, 1998, the Company reached an agreement to sell
it's Dover Elevator International segment to Thyssen Industrie, AG and the
segment has been treated as a discontinued operation. The assets, liabilities,
results of operations and cash flows have been segregated and reported as
discontinued operations for all periods presented and previously reported
results have been restated. (see note 2)
In conformity with the Financial Accounting Standards Board Statement No. 52,
"Foreign Currency Translation," the accounts of foreign subsidiaries have been
translated into U.S. dollars as follows: assets and liabilities have been
translated at year-end rates, profit and loss accounts have been translated at
average rates for the year, and the difference has been reflected in the equity
section of the balance sheet as cumulative translation adjustments. An analysis
of the changes during 1998 and 1997 in the cumulative translation adjustments
shown on the balance sheets follows:
Accumulated Other Comprehensive Earnings, Foreign Currency Translation
Adjustments:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $(37,895) $ 1,900
Aggregate adjustment for year 10,652 (39,795)
----------------------------
Balance at end of year $(27,243) $(37,895)
===============================================================================
</TABLE>
B. USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
C. INVENTORIES:
Approximately 41% of net inventory is stated at cost, determined on the last-in,
first-out (LIFO) basis, which is less than market value. Inventory of foreign
subsidiaries and inventory of some recently acquired domestic companies are
stated at the lower of cost, determined on the first-in, first-out (FIFO) basis,
or market.
D. PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION:
Property, plant and equipment includes the cost of land, buildings, equipment
and significant improvements of existing plant and equipment. Expenditures for
maintenance, repairs and minor renewals are expensed as incurred. When property
or equipment is sold or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts and the gain or loss
realized on disposition is reflected in earnings.
Plant and equipment is generally depreciated based upon accelerated methods,
utilizing estimated useful property lives, for both accounting and tax purposes.
Building lives range from 5 to 50 years; machinery and equipment lives range
from 3 to 15 years. Depreciation expense was $114,116,000 in 1998; $98,316,000
in 1997 and $77,641,000 in 1996.
E. INTANGIBLE ASSETS:
Intangible assets subject to amortization include goodwill purchased after 1970,
and the cost of certain patents, drawings, trademarks, work force, customer
lists, and covenants not to compete. Goodwill is being amortized on a
straight-line basis over a period, generally, of 40 years; the remaining
amortization is based on estimated useful lives which range from 3 to 20 years.
The Company evaluates its amortization policies regularly to determine whether
later events and circumstances warrant revised estimates of useful lives. The
Company periodically evaluates the recoverability of goodwill and other
long-lived assets including their relation to the operating performance and
future undiscounted net cash flows of the related business. In accordance with
SFAS 121, impairment losses are recognized when warranted. Goodwill, net of
amortization, aggregated $1,242,666,000 at December 31, 1998 and $822,310,000 at
December 31, 1997. Amortization of all intangibles was $53,571,000 in 1998,
$56,888,000 in 1997 and $32,843,000 in 1996, of which goodwill was $32,612,000,
$28,554,000, and $17,050,000, respectively.
Other intangible assets represent principally goodwill attributable to
businesses purchased prior to 1970. These intangibles are also regularly
evaluated and in the opinion of management have not diminished in value, and
accordingly have not been amortized.
F. REVENUE RECOGNITION:
Revenue is generally recognized as products are shipped or services rendered.
G. INCOME TAXES:
The provision for income taxes includes Federal, state, local and foreign taxes.
Tax credits, primarily for research and experimentation, are recognized as a
reduction of the provision for income taxes in the year in which they are
available for tax purposes, and aggregated $5,815,000 for 1998, $4,522,000 for
1997 and $5,305,000 for 1996. Research and experimentation expenditures charged
to earnings amounted to $131,265,000 in 1998, $106,747,000 in 1997 and
$93,706,000 in 1996. Generally, no provision is made for U.S. income taxes on
unremitted earnings of foreign subsidiaries since any U.S. taxes payable would
be offset by foreign tax credits.
H. CASH FLOWS:
For purposes of the statement of cash flows, the Company considers all highly
liquid investments, including highly liquid debt instruments purchased with an
original maturity of three months or less, to be cash equivalents.
I. SELF INSURANCE:
The Company is generally self-insured for losses and liabilities related
primarily to workers' compensation, health and welfare claims, business
interruption resulting from certain events and comprehensive general, product
and vehicle liability. Losses are accrued based upon the Company's estimates of
the aggregate liability for claims incurred using certain actuarial assumptions
followed in the insurance industry and based on Company experience.
J. MARKETABLE SECURITIES:
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
{26}
<PAGE> 29
Securities," trading securities are reported at fair value with unrealized gains
and losses recognized in earnings, and available-for-sale securities are also
reported at fair value but unrealized gains and losses are shown in the caption
"unrealized holding gains (losses)" included in stockholders' equity.
The Company did not hold any trading securities at December 31, 1998 or
December 31, 1997. The net realized gains for the years ended December 31, 1998,
1997 and 1996 were $5,713,000, $1,995,000, and $5,600,000, respectively. As of
December 31, 1998 the Company did not hold any available-for-sale securities. As
of December 31, 1997 available-for-sale securities totaled $21,929,000 with
related gross unrealized gains of $5,790,000 and consisted of investments in
certain mutual funds which invest primarily in equity securities. In each of the
above mentioned three years, gains and losses were determined using average
cost.
K. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1997 the Financial Accounting Standards Board ("FASB") issued Statements
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and
No. 131 "Disclosures about Segments of an Enterprise and Related Information";
both are effective in 1998, and are appropriately reflected in the accompanying
statements.
In February 1998 the FASB issued Statement of Financial Accounting Standards
No. 132, "Disclosures about Pension and Other Postretirement Benefits",
effective for 1998, and is appropriately reflected in the accompanying
statements.
In June 1998, the FASB issued statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities", effective
for all fiscal quarters of all fiscal years beginning after June 15, 1999. The
Company does not expect the statement to have a significant effect on its
current financial reporting and disclosure requirements.
2. ACQUISITIONS, DISPOSITIONS AND DISCONTINUED OPERATIONS:
1996 - On January 2 the Company acquired all of the stock of PRC Corporation in
a stock for stock exchange. PRC, located in Landing, New Jersey, is a leading
manufacturer of fast axial flow lasers, components and kits. On January 16 the
Company acquired all of the stock of Light Machine Corporation. Light Machine,
located in Manchester, New Hampshire, manufactures computer-aided design (CAD),
computer-aided manufacturing (CAM) software and computer numerical control
(CNC) machines utilizing personal computers for educational, engineering
prototyping and industrial markets. On January 23 the Company acquired 100% of
the stock of Bath Scientific, Ltd. Bath, located in Melksham, England,
manufactures a range of Flying Probe automatic test systems for testing high
density unpopulated circuit boards. On January 31 the Company acquired all of
the stock of Dow - Key Microwave Corporation. Dow - Key, located in Ventura,
California, manufactures a broad range of Coaxial, RF, Microwave and Waveguide
switch products for the electronics industry. On February 21 the Company
acquired the assets of Robohand, Inc. Robohand, located in Monroe, Connecticut,
manufactures automotion components and accessories (primarily grippers, slides,
and rotary actuators) for the robotics and automated assembly markets. On
February 27, the Company acquired all of the capital stock of Marte, s.r.l.,
located in Chiete, Italy. Marte manufactures scissor lifts used to service and
repair automobiles and light and heavy industrial vehicles. On July 23, the
Company acquired all of the stock of Realcold Systems, Inc. Realcold, located in
Cibolo, Texas, manufactures custom industrial refrigeration installations and
merchant carbon dioxide plants. On August 28, the Company acquired all of the
stock of KVG Kristall - Verarbeitung Neckararbischofsheim GmbH. KVG, located in
Heidelberg, Germany, manufactures high quality, high performance quartz crystal
oscillators, filters and discrete crystals. On November 25 the Company acquired
the assets of Everett Charles Technologies, Inc., located in Pomona, California.
Everett Charles manufactures circuit board testing equipment in three market
niches: spring loaded test probes, test fixtures for populated boards, and
testers for bare boards. On December 16, the Company acquired the assets of
Tulsa Winch, Inc. of Tulsa, Oklahoma. Tulsa Winch is a manufacturer of worm gear
and planetary gear winches and speed reducers.
On July 1 the Company sold the assets of its Dieterich Standard Division and
on July 26, the Company sold the assets of its subsidiary, Measurement Systems,
Inc. As a result of these transactions, the Company recorded a $75.1 million
before tax gain. The operating profits of these companies, separately or in the
aggregate, were not significant to the Company.
The aggregate cost of these 1996 acquisitions, including all direct costs was
approximately $266,714,000 of which $184,883,000 represents goodwill which is
being amortized over a forty-year period. The $266,714,000 purchase price
accounting cost can be reconciled to the $281,711,000 "economic cost" amount
shown elsewhere in this report by considering long-term debt assumed and cash
acquired on date of acquisition.
1997 - Effective January 1 the Company acquired all of the capital stock of SWEP
Warmetauscher Austria, GmbH. This company, located near Vienna, Austria, has
subsidiaries in the Czech Republic and Hungary and has been a SWEP agent for
over ten years. On January 31 the Company acquired the assets of Hydro Systems
Company. This Company, located in Cincinnati, Ohio, is the leading independent
designer and manufacturer of proportioning and dispensing systems sold primarily
to the institutional and industrial cleaning market. On February 1 the Company
acquired the assets of Quarzkeramik, GmbH. This company, located south of
Frankfurt, Germany, is the leading German manufacturer of oversized crystal
oscillators. On February 24 the Company acquired 100% of the capital stock of
Telefilter, GmbH, located in Tetlow, near Berlin, Germany. This company
manufactures low priced, high volume, SAW filters for the emerging wireless
telecommunications market, mainly for subscriber applications. On March 6 the
Company acquired all of the capital stock of Luther & Maelzer, GmbH. This
company, located in a suburb of Hanover, Germany, manufactures test equipment
used to test bare printed circuit boards. On March 16 the Company acquired all
of the capital stock of Langbein and Engelbracht, GmbH and Co. Located near
Dusseldorf, Germany, this company is a designer and manufacturer of air
pollution control systems and specialized air handling systems. On May 22 the
Company acquired the assets of Buffalo Environmental Products Corporation of
Hanover, Maryland. This company manufactures flexible piping for underground
service station and industrial applications. On July 1 the Company acquired (in
a stock for stock exchange) 100% of the capital stock of K&K Welding Products,
Inc. This company is located in Lake Zurich, Illinois, and is a low cost
manufacturer of torches and consumable welding parts generally sold as component
replacements. Also on July 1 the Company acquired all of the capital stock of
Emmert, GmbH, located in Efringen - Kirchen, Germany. This company manufactures
flexible modular punching units used primarily in the automotive industry and
the sheet metal fabricating industry. On August 28 the Company acquired all of
the capital stock of Sarment S.A., a French holding company, which owns 100% of
the capital stock of Mouvex S.A. and Abaque Industrie, S.A., two French pump
companies. Mouvex, headquartered in Paris, manufactures a comprehensive range of
pumps and compressors for the transfer of both liquids and powdered products.
Abaque is located in the south of France and manufactures hose pumps for general
industry and for the petroleum industry. On August
{27}
<PAGE> 30
29 the Company acquired the assets of ESH, Inc. This company, located in Temple,
Arizona, designs and manufactures specialty printed circuit boards that are used
in testing semiconductors. On September 3 the Company acquired (in a stock for
stock exchange) 100% of the capital stock of Preco Turbine Services, Inc. This
company is located in Houston, Texas and is primarily engaged in the repair of
large steam and gas turbines for both utility and industrial based customers. On
September 30 the Company acquired the assets of Conmec, Inc., located in
Bethlehem, Pennsylvania. This company manufactures turbomachinery for the
petrochemical and utility industries. On October 3 the Company acquired the
capital stock of Star Technology Group, Inc. Headquartered in Hudson, New
Hampshire, and operating under the name of "Circuitest" this company
manufactures fixtures and creates software for bare circuit board testing, and
performs contract service for bare board testing. On December 1 the Company
acquired all of the capital stock of EOA Systems, Inc. This company located in
Dallas, Texas, manufactures automation components and accessories used in
conjunction with industrial robots. On December 2 the Company completed, through
merger, the acquisition of all of the capital stock of Vitronics Corporation.
Vitronics, located in Newmarket, New Hampshire, is engaged in designing,
engineering, manufacturing and marketing state-of-the art thermal processing
systems for soldering surface mount devices to printed circuit boards and
cleaning of the finished assembly. On December 5 the Company acquired 100% of
the capital stock of Sanger Works Factory Holdings, Inc. of Sanger, California.
This company manufactures specialty corrugated packaging machinery for consumer
products companies, food processors and industrial products manufacturers.
The aggregate cost of these 1997 acquisitions, including all direct costs was
approximately $258,443,000 of which $141,091,000 represents goodwill which is
being amortized over a forty-year period. The $258,443,000 purchase price
accounting cost can be reconciled to the $261,460,000 "economic cost" amount
shown elsewhere in this report by considering long-term debt assumed and cash
acquired on date of acquisition.
1998 - Effective January 1 the Company acquired the assets of ThermoFluid
International, Inc. This company, located in Arlington, Texas, custom designs
and manufactures heat transfer equipment for the refrigeration industry. On
January 5 the Company acquired the assets of Quartzdyne, Inc. This company,
located in Salt Lake City, Utah, manufactures highly specialized quartz pressure
transducers whose principal use is in oil/gas drilling. On January 8 the Company
acquired 100% of the capital stock of Thompson Carmichael Holdings, Limited.
This company located in W. Midlands, U.K., manufactures aluminum and stainless
steel tank trailers and truck tanks. On February 10 the Company purchased the
assets of Wiseco Piston Company, Inc. This company located in Mentor, Ohio,
designs and manufactures forged aluminum-alloy pistons for certain high
performance aftermarket industries including racing cars, motorcycles, power
boats and snowmobiles. On April 16 the Company acquired 100% of the capital
stock of Nova Controls. This company located in Santa Cruz, California
manufactures electronic dispensing systems used in commercial laundry and
dishwashing applications. On April 21 the Company acquired 100% of the capital
stock of Sonic Industries. This company located in Torrence, California,
produces high strength, structured fasteners for the aerospace industry. On
April 30 the Company acquired the assets of Avtec Industries, Inc. This company,
located in Oswego, Illinois, manufactures food service and kitchen ventilation
equipment. On May 1 the Company acquired the assets of PDQ Manufacturing, Inc.
This company, located in Green Bay, Wisconsin, manufactures vehicle wash
equipment. On June 30 the Company acquired 100% of the capital stock of Wilden
Pump and Engineering, Inc. This company, located in Grand Terrace, California,
manufactures air activated double diaphragm pumps. On June 30 the company
acquired the assets of Koolant Koolers. This company, located in Kalamazoo,
Michigan, manufactures industrial chillers. On June 30 the Company acquired 100%
of the capital stock of Prox International B.V. This company, located in the
Netherlands, distributes engine components. On June 30 the Company acquired 100%
of the capital stock of Jag Industries S.A. This company, located in Paris,
France, produces automation components including grippers, tool changers,
collision sensing compliance devices, slides and rotate units. On December 10
the Company acquired 100% of the capital stock of Ing Mas. This company, located
in Rosario, Argentina, manufactures refrigeration systems, parallel racks and
HVAC systems for use in supermarkets, commercial and industrial buildings. On
December 23 the Company acquired 100% of the capital stock of atg test services
GmbH. This company, located in Wertheim Germany, manufactures circuit board test
equipment.
The aggregate cost of these 1998 acquisitions, including all direct costs was
approximately $557,183,000 of which $416,104,000 represents goodwill which is
being amortized over a forty-year period. The $557,183,000 purchase price
accounting cost can be reconciled to the $556,019,000 "economic cost" amount
shown elsewhere in this report by considering long-term debt assumed and cash
acquired on date of acquisition.
All of the above acquisitions have been accounted for by the purchase method
of accounting. Accordingly, the accounts of the acquired companies, after
adjustment to reflect fair market values assigned to assets and liabilities have
been included in the consolidated financial statements from their respective
dates of acquisitions.
During January and early February 1999 the Company acquired 3 separate
businesses at a cost of approximately $101 million.
In November 1998 the Company reached agreement to sell Dover Elevator
International Inc. to Thyssen Industrie, AG for approximately $ 1.1 billion. The
amount will be received and recorded in the first quarter of 1999, and will
result in a gain for the Company estimated at $530 million, equal to
approximately $2.35 per share. The Dover Elevator International segment is
accounted for as a discontinued operation, and accordingly, amounts in the
financial statements and related notes for all periods shown have been restated
to reflect discontinued operations accounting. Summarized results of the
discontinued business are shown separately as discontinued operations in the
accompanying consolidated financial statements. The investment in discontinued
operations is primarily comprised of accounts receivable, inventory, fixed
assets, net of liabilities. Effective June 1, 1997 the Company sold all of the
stock of three small elevator installation and services companies located in
Germany. Effective June 30, 1997 the Company sold all of the capital stock of
its U.K. elevator company, Hammond & Champness, Ltd., thus completing the
divestiture of the Company's European elevator operations. Operating results of
the discontinued segment are as follows:
<TABLE>
<CAPTION>
(in thousands) Year ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $899,015 $880,307 $862,175
- -----------------------------------------------------------------------------------
Earnings before income taxes 82,246 92,391 86,615
Income taxes 29,798 35,307 32,911
- -----------------------------------------------------------------------------------
Net earnings from
discontinued operations 52,448 57,084 53,704
Gain on sale of discontinued
businesses, net of taxes -- 23,433 --
- -----------------------------------------------------------------------------------
Net earnings from
discontinued segment $ 52,448 $ 80,517 $ 53,704
- -----------------------------------------------------------------------------------
Net earnings per diluted
common share:
Discontinued operations $ .24 $ .25 $ .23
Gain on sale of discontinued
businesses -- .11 --
===================================================================================
</TABLE>
{28}
<PAGE> 31
3. INVENTORIES:
<TABLE>
<CAPTION>
Summary by components December 31, (in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $220,467 $196,816
Work in process 175,117 158,205
Finished goods 204,123 182,072
-----------------------
Total 599,707 537,093
Less LIFO reserve 40,440 40,629
-----------------------
$559,267 $496,464
================================================================================
</TABLE>
During each of the years in the two year period ended December 31, 1998, some
inventory quantities were reduced. This reduction resulted in a liquidation of
certain LIFO inventory quantities carried at lower costs prevailing in prior
years as compared with costs at December 31 of each year. The effect of these
liquidations increased net earnings by less than 1 cent per share in both 1998
and 1997.
4. BANK LINES OF CREDIT:
The Company has open bank lines of credit and other bank credit agreements
totaling $580,000,000 which support its commercial paper. These lines are in
amounts requested by the Company and not the maximum that could be obtained.
Under the borrowing arrangements, the Company has generally agreed to either
maintain average collected bank compensating balances or pay fees, the total of
which is not material.
5. DEBT:
<TABLE>
<CAPTION>
A summary of long-term debt at December 31,
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
6.45% Notes due Nov. 15, 2005
(less unamortized discount of $387)
with an effective interest rate of 6.51% $249,613 $249,571
6.25% Notes due June 1, 2008
(less unamortized discount of $99)
with an effective interest rate of 6.26% 149,901 --
6.65% Debentures due June 1, 2028
(less unamortized discount of $876)
with an effective interest rate of 6.68% 199,124 --
Other 17,512 13,956
-----------------------
Total long-term debt 616,150 263,527
Less current installments 6,060 897
-----------------------
Long-term debt excluding
current installments $610,090 $262,630
================================================================================
</TABLE>
Annual repayments of long-term debt in the four years following 1999 are
scheduled as follows: 2000-$5,610,000, 2001-$743,000, 2002-$799,000, and
2003-$699,000.
The notes payable shown on the balance sheets for 1998 and 1997 represent
principally commercial paper. The weighted average interest rates at both
December 31, 1998 and 1997 was 5.5%.
6. CAPITAL STOCK, ADDITIONAL PAID-IN CAPITAL AND TREASURY STOCK:
The Board of Directors has been authorized to issue preferred stock, in one or
more series up to 100,000 shares, with such designations, preferences and
relative rights and limitations as may be stated in the resolution relating to
each issue.
On December 15, 1997, the Company effected a 2 for 1 common stock split in
the form of a stock dividend. This resulted in the issuance of 117,238,546
additional shares of common stock (including 380,220 shares attributable to
stock options exercised during 1997 prior to the split), the payment of $250,000
in fees, and a transfer of $25,731,904 from paid-in capital and $91,756,642 from
retained earnings. All references to per share amounts throughout this report
have been restated to reflect this stock split.
<TABLE>
<CAPTION>
Treasury Stock
Common Stock Additional ----------------------
(in thousands) $1 Par Value Paid-in Capital Shares Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
December 31, 1996 $116,858 $ 13,818 4,329 $116,545
Stock split 116,858 (25,731) 4,329 --
Stock options exercised 781 12,241 72* 1,960
Treasury stock purchased -- -- 3,182 84,307
Stock issued 10 330 -- --
--------------------------------------------------------
Balance at
December 31, 1997 $234,507 $ 658 11,912 $202,812
Stock options exercised 1,053 17,624 86* 2,746
Treasury stock purchased -- -- 3,166 103,558
Stock issued 11 348 -- --
--------------------------------------------------------
Balance at
December 31, 1998 $235,571 $ 18,630 15,164 $309,116
- ---------------------------------------------------------------------------------------
</TABLE>
* Shares received as consideration for exercise price.
During 1987 the Board of Directors adopted a Stockholders' Rights Plan that
is designed to protect stockholders from attempts to acquire control of the
Company at an inadequate price. On November 7, 1996, the Board of Directors
amended the original Plan by changing some of its features and extending the
Plan to November 2006.
7. STOCK OPTION AND PERFORMANCE INCENTIVE PROGRAM (ADJUSTED FOR 2 FOR 1 STOCK
SPLIT):
On April 24, 1984, the stockholders approved an incentive stock option plan and
cash performance program under which a maximum aggregate of 4,800,000
(unadjusted) shares was reserved for grant to key personnel until January 30,
1994. This plan expired on January 30, 1995, but certain previous grants remain
outstanding at December 31, 1998.
On April 25, 1995, the stockholders approved an incentive stock option plan
and a cash performance program to replace the expired 1984 plan and program.
Under the new plan a maximum aggregate of 20 million shares was reserved for
grant to key personnel until January 30, 2005. The option price may not be less
than the fair market value of the stock at the time the options are granted. The
period during which these options are exercisable is fixed by the Company's
Compensation Committee at the time of grant, but is not to exceed ten years.
Transactions in stock options (all of which are non-qualified and vest three
years after grant) under this plan are summarized as follows:
<TABLE>
<CAPTION>
Shares Under Option Price Range
<S> <C> <C>
- --------------------------------------------------------------------------------
Outstanding at Jan. 1, 1997 5,412,648 $6.59 - $23.53
Granted 961,544 $24.87
Exercised (780,921) $6.59 - $14.88
Canceled (88,618) $9.62 - $24.72
---------------------------------
Outstanding at Dec. 31, 1997 5,504,653 $6.59 - $24.87
=================================
Exercisable at Dec. 31, 1997
through February 27, 2004 2,591,768 $7.43 - $14.88
=================================
Outstanding at Jan. 1, 1998 5,504,653 $6.59 - $23.53
Granted 932,108 $35.00
Exercised (1,052,721) $7.43 - $14.88
Canceled (221,056) $7.43 - $35.00
---------------------------------
Outstanding at Dec. 31, 1998 5,162,984 $7.43 - $35.00
================================================================================
Exercisable at December 31, 1998
through:
February 28, 1999 104,416 $ 7.43
February 28, 2000 176,015 $ 8.68
February 28, 2001 230,552 $ 9.62
March 6, 2002 325,917 $ 9.67
March 4, 2003 336,787 $11.43
February 27, 2004 413,040 $14.88
February 2, 2005 979,996 $14.22
---------------------------------
Total 2,566,723 $7.43 - $14.88
================================================================================
</TABLE>
{29}
<PAGE> 32
The Company applies APB Opinion 25 and related Interpretations in accounting
for stock options; accordingly, no compensation cost has been recognized. Had
compensation cost been determined based upon the fair value of the stock options
at grant date consistent with the method in SFAS Statement 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings
As reported ('000) $ 378,845 $ 405,431 $ 390,223
Pro forma ('000) 375,194 399,044 386,330
Earnings per share - basic:
As reported $ 1.70 $ 1.82 $ 1.72
Pro forma 1.68 1.79 1.71
Earnings per share - diluted:
As reported $ 1.69 $ 1.79 $ 1.69
Pro forma 1.67 1.77 1.68
- -----------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant was estimated on the date of grant using
a Black-Scholes option-pricing model with the following assumptions for 1998,
1997 and 1996, respectively: risk-free interest rates of 6.06, 6.06 and 6.03
percent; dividend yield of 1.1, 1.1, and 1.3 percent; expected lives of 6 years
for each year; and volatility of 22.45, 17.1 and 25.9 percent. Additional
adjustments are made for assumed cancellations and expectations that shares
acquired through exercise of options are held during employment.
Net earnings as reported was used in computing both basic EPS and diluted EPS
without further adjustment. The Company does not have a complex capital
structure; accordingly, the entire difference between basic weighted average
shares and diluted weighted average shares results from assumed stock option
exercise. The diluted EPS computation was made using the treasury stock method.
8. TAXES ON INCOME:
Total income taxes for the years ended December 31, 1998, 1997 and 1996 were
allocated as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $ 162,249 $ 167,360 $ 165,590
Income from discontinued operations 29,798 35,307 32,911
Gain on sale of discontinued business -- 8,738 --
Stockholders' equity, for compensation
expense for tax purposes in excess of
amounts recognized for financial
reporting purposes (8,101) (4,999) (3,009)
-------------------------------------------
$ 183,946 $ 206,406 $ 195,492
==========================================================================================
</TABLE>
Income tax expense (benefit) is made up of the following components:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. Federal $ 107,257 $ 131,294 $ 126,299
State and local 8,864 8,425 9,687
Foreign 45,916 43,773 23,441
---------------------------------------------
Total current 162,037 183,492 159,427
---------------------------------------------
Deferred:
U.S. Federal 4,804 (14,412) (702)
State and local (296) 421 2,397
Foreign (4,296) (2,141) 4,468
---------------------------------------------
Total deferred 212 (16,132) 6,163
---------------------------------------------
Total expense $ 162,249 $ 167,360 $ 165,590
===============================================================================
</TABLE>
Income taxes have been based on the following components of earnings before
taxes on continuing income:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $383,819 $393,674 $417,852
Foreign 104,827 98,600 84,257
--------------------------------------------
$488,646 $492,274 $502,109
</TABLE>
================================================================================
The reasons for the difference between the effective rate and the U.S.
Federal income statutory rate of 35% follow:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal income tax rate 35.0% 35.0% 35.0%
State and local taxes, net of Federal
income tax benefit 1.1 1.2 1.6
R&E tax credits (1.2) (0.9) (1.1)
FSC benefit (2.8) (2.7) (2.5)
Foreign tax credits & benefits (1.4) (2.2) (0.1)
Non-tax deductible items 1.4 1.8 0.5
Miscellaneous items 1.1 1.8 (0.4)
- --------------------------------------------------------------------------------
Effective rate 33.2% 34.0% 33.0%
================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31
of each year are:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Accrued insurance $ 8,903 $ 7,499
Accrued compensation 31,999 29,917
Accrued expenses, principally for disposition of
businesses, interest and warranty 9,216 14,419
Inventories, principally due to reserves for financial
reporting purposes and capitalization for tax
purposes 13,335 12,552
Accounts receivable, principally due to allowance
for doubtful accounts 5,541 4,356
Other 306 516
--------------------------
Total gross deferred tax assets 69,300 69,259
==========================
Deferred Tax Liabilities:
Accounts receivable, principally due to
accrual acceptance on contracts (21,691) (25,286)
Plant and equipment, principally due to
differences in depreciation (20,639) (21,786)
Intangible assets, principally due to different tax
and financial reporting bases (58,448) (54,133)
Prepaid expenses, principally due to
overfunded pension plans (17,228) (14,775)
- ---------------------------------------------------------------------------------------
Total gross deferred tax liabilities (118,006) (115,980)
- ---------------------------------------------------------------------------------------
Net deferred tax liability (48,706) (46,721)
- ---------------------------------------------------------------------------------------
Net current deferred tax asset 1,490 1,542
- ---------------------------------------------------------------------------------------
Net non-current deferred tax liability $ (50,196) $ (48,263)
=======================================================================================
</TABLE>
9. RENTAL AND LEASE OPERATIONS:
The Company leases certain facilities and equipment under operating leases, many
of which contain renewal options. Total rental expense, net of insignificant
sublease rental income, on all operating leases was $22,648,000, $16,556,000 and
$17,431,000 for 1998, 1997 and 1996, respectively. Contingent rentals under the
operating leases were not significant.
Minimum future rental commitments under operating leases having noncancelable
lease terms in excess of one year aggregate $94 million as of December 31, 1998
and are payable as follows (in millions): 1999-$22; 2000-$18; 2001-$12, 2002-$9;
2003-$7; and after 2004-$26.
10. CONTINGENCIES:
Several of the Company's subsidiaries are involved in legal proceedings relating
to the cleanup of waste disposal sites identified under Federal
{30}
<PAGE> 33
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 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, several 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 management, based on these reviews, the disposition of the
lawsuits and the other matters mentioned above will not have a material effect
on financial position, results of operations or cash flows.
11. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company reports that the carrying amount of cash and cash equivalents, trade
receivables, accounts payable, notes payable and accrued expenses approximates
fair value due to the short maturity of these instruments, and that the carrying
amount of marketable securities is stated at fair value. In addition, the
Company believes the long-term debt approximates fair value because present
long-term interest rates approximate the Company's actual interest rates.
12. OPERATING RETURN ON OPERATING INVESTMENT (UNAUDITED):
When companies are acquired, Dover's purchase price generally exceeds the book
value of the acquired company. Increases in the book value of the assets,
including goodwill, arising in such instances, are assigned to the business
segments in which acquired companies are included. Similarly, the amortization
of these increased asset values is charged against the income of that business
segment.
These asset values and charges to income are also reflected in the
computation of Dover's net income and return on equity. However, to monitor the
progress of business operations on a continuous basis and in relation to
industry norms, Dover does not include these asset values or amortizable cost in
the calculation of "After-Tax Operating Return on Investment" as shown in the
unaudited charts on pages 2, 10, 13, 16 and 19. Additionally, the "Investment"
figure reflected in these charts is reduced by applicable current liabilities
for accounts payable and accrued expenses and for certain deferred taxes.
13. EMPLOYEE BENEFIT PLANS:
The Company has many defined benefit and defined contribution pension plans
covering substantially all employees of the Company and its domestic and foreign
subsidiaries. Plan benefits are generally based on years of service and employee
compensation. The Company's funding policy is consistent with the funding
requirements of ERISA and applicable foreign law.
The financial statements and related disclosures reflect Statement of
Financial Accounting Standards No. 132 "Employers' Disclosure About Pensions and
Other Postretirement Benefits," No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions," No. 87 "Employers' Accounting for
Pensions", for U.S. defined benefit pension plans; foreign defined benefit
pension plans are not considered material.
<TABLE>
<CAPTION>
Pension Benefits Others Benefits
---------------------------------------- -------------------------------------
(in thousands) 1998 1997 1996 1998 1997 1996
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC EXPENSE
Expected return on plan assets $ 20,522 $ 18,715 $ 18,937 $ -- $ -- $ --
Benefits earned during year (5,829) (5,637) (5,490) (521) (513) (448)
Interest accrued on benefit obligation (12,113) (11,293) (11,099) (1,575) (1,588) (1,622)
Amortization:
Prior service cost (761) (426) (427) 7 -- --
Unrecognized actuarial gains 4,256 1,230 1,019 82 96 277
Transition 1,268 1,268 1,308 -- -- --
Settlement gain (65) -- -- -- 144 --
-------------------------------------------------------------------------------------
Net periodic (expense) credit $ 7,278 $ 3,857 $ 4,248 $(2,007) $(1,861) $(1,793)
===================================================================================================================================
</TABLE>
The funded status and resulting prepaid pension cost of U.S. defined benefit
plans for the years ended December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------- ------------------------
(in thousands) 1998 1997 1998 1997
===============================================================================================================
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 165,573 $ 154,182 $ 26,934 $ 23,889
Benefits earned during the year 5,829 5,637 521 513
Interest cost 12,113 11,293 1,575 1,588
Amendments 3,655 9 (7) --
Actuarial loss (gain) 7,402 6,138 (2,816) (12)
Settlement (65) -- -- 144
Benefits paid (18,439) (11,686) (1,986) (1,879)
----------------------------------------------------------
Benefits obligation at end of year 176,068 165,573 24,221 24,243
==========================================================
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 247,310 211,571 -- --
Actuarial return on plan assets 914 47,342 -- --
Company contributions 145 83 -- --
Benefits paid (18,439) (11,686) -- --
----------------------------------------------------------
Fair value of plan assets at end of year 229,930 247,310 -- --
==========================================================
Funded status 53,862 81,737 (24,221) (24,243)
Unrecognized actuarial (gain) (4,767) (31,408) (2,479) (2,498)
Unrecognized prior service cost 5,796 2,966 (281) (193)
Unrecognized transition (gain) (9,473) (10,741) -- --
----------------------------------------------------------
Prepaid (accrued) benefit cost $ 45,418 $ 42,554 $(26,981) $(26,934)
===============================================================================================================
</TABLE>
{31}
<PAGE> 34
The assumptions used in determining the above were as follows: a weighted
average discount rate of 6.5% (7% in 1997), an average wage increase of 4% (5%
in 1997) and an expected long-term rate of return on plan assets of 10%.
Approximately 77% (75% in 1997) of defined benefit plan assets were invested
in equity securities with the remainder in fixed income and short term
investments.
The Company also provides, through nonqualified plans, supplemental pension
payments in excess of qualified plan limits imposed by Federal tax law. These
plans cover officers and certain key employees and serve to restore the combined
pension amount to original benefit levels. The plans are unfunded apart from the
general assets of the Company. The pension benefit obligation and pension
expense under these plans follow:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pension benefit obligation $17,248 $17,819 $14,140
Pension expense 3,992 3,495 2,042
- --------------------------------------------------------------------------------
</TABLE>
Pension cost for all world wide defined contribution and benefit plans was
$18,806,000 for 1998, $20,026,000 for 1997 and $15,305,000 for 1996.
For post retirement benefit measurement purposes a 3% to 13% annual rate of
increase in the per capita cost covered benefit (i.e., health care cost trend
rates) was assumed for 1999; the rates were assumed to decrease gradually to 5%
by the year 2009 and remain at that level thereafter. The health care cost trend
rate assumption has a significant effect on the amount reported. For example,
increasing (decreasing) the assumed health care cost trend rates by one
percentage point in each year would increase (decrease) the accumulated
postretirement benefit obligation as of December 31, 1998 by $1,240,000
($1,207,000) and the net postretirement benefit cost for 1998 by approximately
$143,000 ($144,000).
14. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS:
In June 1997 the FASB issued Statements of Financial Accounting Standards No.
131 "Disclosures about Segments of an Enterprise and Related Information",
effective in 1998. The segment information on page 22 and the following
information is disclosed as required by the statement:
<TABLE>
<CAPTION>
Revenues (1) Long-lived assets (2)
------------------------------------------------------------------------------
For the years ended December 31, 1998 1997 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States $2,497,770 $2,250,326 $1,695,336 $1,237,293 $1,092,708
Europe 749,824 692,351 365,690 353,106 307,968
Canada and Other Americas 357,719 319,111 11,657 6,952 3,412
Total Asia 295,744 332,431 4,868 4,374 2,228
Rest of the World 76,609 75,349 318 291 --
------------------------------------------------------------------------------
Total $3,977,666 $3,669,568 $2,077,869 $1,602,016 $1,406,316
==============================================================================
United States Exports $ 840,021 $ 867,362
=====================================================================================================================
</TABLE>
(1) Revenues are attributed to countries based on location of customer,
geographic revenue amounts were unavailable for some prior periods on a
comparable basis, and it was impracticable to accumulate such information.
(2) Long-term assets are comprised of net property, plant and equipment;
intangible assets, net of amortization; other intangible assets; and other
assets and deferred charges.
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and
Shareholders of Dover Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, accumulated comprehensive earnings,
retained earnings and cash flows present fairly, in all material respects, the
financial position of Dover Corporation and its subsidiaries at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
New York, New York
February 5, 1999
{32}
<PAGE> 35
Dover Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Despite the record amount spent during 1998 on our acquisition program, $556
million, liquidity measures remained essentially flat when compared to 1997.
The Company's current ratio increased to 1.32 at December 31, 1998, compared
with 1.29 at December 31, 1997. The quick ratio (current assets net of
inventories, divided by current liabilities) decreased slightly to .75 at
December 31, 1998, compared with .80 at December 31, 1997. At December 31, 1998,
the Company had bank lines of $580 million, which support its commercial paper.
Additional bank lines of credit are available at the Company's request. The
Company's commercial paper is rated A-1 by Standard & Poors and F-1 by Fitch
Investor Services. In the second quarter the Company, in its second public debt
offering, issued $200 million of 30 years bonds and $150 million of 10 year
debentures (both rated A-1, A+).
In January 1999 the Company received $1.1 billion from the sale of it's Dover
Elevator International segment. The proceeds will be used primarily to retire
short-term debt, fund acquisitions and stock repurchases. The net debt (notes
payable plus long-term debt and current maturities of long-term debt less cash
and equivalents and marketable securities) to total capital ratio increased to
33.1% ($946.9 million) at December 31, 1998, compared with 25.2% ($573.7
million) at December 31, 1997. Long-term debt maturities for the four years 1999
to 2002 aggregate $13.2 million. Management is not aware of any potential
impairment to the Company's liquidity.
During 1998 the entire capital expenditure program ($125 million) was
financed internally as it is expected to be in 1999, when the Company plans
capital spending of $140 million.
As indicated by the Consolidated Statement of Cash Flows (page 25), net cash
from operating activities increased to $488.1 million in 1998 from $419.6
million in 1997. This improvement was driven by decreased accounts receivable.
Net cash used in investment activities aggregated $753.3 million in 1998
compared with $452.0 million in 1997. Major differences from year to year
included increased acquisitions, stock repurchases and proceeds from sale of
marketable securities.
Net cash from financing activities was $268.0 million in 1998 compared with
net cash used of $131.6 in 1997. The principal difference was an increase of
$338.2 million in long-term debt and notes payable in 1998 compared to a
decrease of $61.6 million in 1997, a swing of $399.8 million.
At December 31, 1998, the Company's net property, plant, and equipment
amounted to $572.0 million compared with $522.3 million at the end of the
preceding year. Intangible assets, net of amortization increased by $401 million
during 1998 as a result of goodwill arising from acquisitions.
The aggregate of current and deferred income tax liabilities decreased from
$72.0 million at the beginning of the year to $50.5 million at year end. This
decrease resulted primarily from increased foreign and domestic income tax
payments for prior and current years.
Retained earnings increased from $1.703 billion at the beginning of 1998 to
$1.993 billion at December 31, 1998. The $290 million increase results from 1998
net earnings of $379 million, less cash dividends which aggregated $89 million.
RESULTS OF OPERATIONS 1998
Results of operations are explained in detail in the stockholders' letter and
operations review, pages 2 through 21.
YEAR 2000
The Company has taken action to assess the nature and extent of the work
required to make its systems, products, factories and infrastructure Year 2000
ready. The Company is approaching resolution of Year 2000 problems along two
separate tracks: (1) Corporate, Subsidiary Offices and Dover-wide information
systems. (2) Company-by-Company for each of the company's 45 separate
businesses. Corrective action has been ongoing for several years. Additionally,
the Company is evaluating Year 2000 readiness of suppliers and where critical
suppliers are not Year 2000 ready, the Company will monitor their progress and
take appropriate actions.
At the Corporate/Subsidiary level, appropriate remediation has been completed
for telecommunications equipment, and computer equipment and critical systems
and the Company believes they are Year 2000 compliant.
At the operating Company level, each business has taken responsibility for
its own Year 2000 compliance and has assembled working groups to deal with
critical plant and office equipment; products, including "fixes" for any
previous product generations that are Year 2000 sensitive; software; and the
ability of critical suppliers to maintain deliveries. Progress of the working
groups is monitored by each company President and reported to Subsidiary and
Corporate management.
As of December 31, 1998, each of the 45 companies has gone through a process
to take an inventory of critical systems, to make an assessment of Year 2000
readiness of those systems, to perform necessary remediation including replacing
or updating existing systems as needed, and to perform appropriate Year 2000
testing. More than two-thirds of the Company's 45 companies have completed these
procedures. All others have identified specific problems remaining and have
action plans to solve them by June 30, 1999. Further, the Company believes
products of all of these companies are either Year 2000 compliant or can be made
so by customers, using "fixes" already developed. Based on current progress and
future plans, the Company believes that the Year 2000 date change will not
significantly affect the Company's ability to deliver products and services to
its customers on a timely basis.
During 1997 and 1998 the Company and its companies spent approximately $22
million and $27 million, respectively, on computer equipment, software, and
non-employee consultants. Most of these expenditures were for new systems and
improved functionality, but an undetermined amount also served to meet Year 2000
compliance needs. The Company and its companies do not separately track the
internal cost incurred for the Y2K project.
While no amount of preparation and testing can guarantee Year 2000
compliance, the Company intends to complete its Year 2000 readiness during 1999,
and does not anticipate that expenditures to reach this goal will be material.
Moreover, due to the decentralized nature of the Company and the lack of
reliance on shared or "centralized" systems by its operating companies, the
Company believes that any Year 2000 problems that might become evident after
1999 will not be material to the Company. Appropriate contingency plans will be
developed in critical areas if deemed necessary. However, given the uncertain
consequences of failure to resolve significant Year 2000 issues, there can be no
assurance that any one or more such failures would not have a material adverse
{33}
<PAGE> 36
effect on the Company. The actual outcomes and results could be affected by
future factors including, but not limited to, the continued availability of
skilled personnel, cost control, the ability to locate and remediate software
code problems, critical suppliers and subcontractors meeting their commitments
to be Year 2000 ready, and timely actions by customers.
The above statement and similar statements, including estimated future costs,
timetables, contingency plans and remediation plans, and statements containing
the words "believes," "intends," "anticipates" and "expects" and words of
similar import, constitute "forward-looking" statements within the meaning of
the Private Securities Litigation Reform Act of 1995 and Section 21E of the
Securities Exchange Act of 1934. This "Year 2000 Plan" constitutes a "Year 2000
Readiness Disclosure" within the meaning of the "Year 2000 Information and
Readiness Disclosure Act."
EUROPEAN MONETARY UNION - EURO
On January 1, 1999, several member countries of the European Union established
fixed conversion rates between their existing sovereign currencies, and adopted
the Euro as their new common legal currency. The Euro conversion may affect
cross-border competition by creating cross-border price transparency. The
Company's businesses are assessing their pricing/marketing strategy in order to
ensure that it remains competitive in a broader European market. The Company is
also assessing its information technology systems to allow for transactions to
take place in both the legacy currencies and the Euro and the eventual
elimination of the legacy currencies, and reviewing whether certain existing
contracts will need to be modified. Final accounting, tax and governmental legal
and regulatory guidance generally has not been provided in final form. The
Company will continue to evaluate issues involving the introduction of the Euro.
Based on current information and the Company's current assessment, it does not
expect that the Euro conversion will have a material adverse effect on its
business, results of operations, cash flows or financial condition.
1997 COMPARED WITH 1996:
The Company's diluted earnings per share from continuing operations of $1.43,
adjusted for disposition of Dover Elevator International market segment,
represented an increase of 15% form the $1.24 earned in 1996, adjusted for the
$22 gain from the sale of companies.
During the year the Company made long-term investments of $470 million in
acquisitions, capital equipment and repurchases of our own shares. The annual
dividend rate was increased as it has been every year since 1962, and our stock
was split two-for-one, following similar two-for-one splits in 1995 and 1988.
In the past four years, we have made 38 add-on acquisitions, representing an
expenditure of $474 million. With so many transactions, we are bound to have
some mistakes; hence the 1997 write-off of the intangibles relating to the early
1996 acquisition of BSL.
Stand-alone acquisitions in 1997 - those companies which report directly to
one of our independent subsidiary CEOs - included Hydro Systems (Resources), a
maker of cleaning chemical dispensing systems, and SWF (Diversified), the
country's premier manufacturer of production equipment for making corrugated
boxes.
Our largest 1997 investments for add-on transactions were made by Everett
Charles (Technologies), whose several product-line acquisitions cost $37
million; by A-C Compressor (Diversified), whose two acquisitions cost $62
million, and by Soltec (Technologies), which spent $18 million to acquire
Vitronics.
The companies acquired in 1997 had pro forma full-year sales volume of
approximately $240 million, only $127 million of which is included in our 1997
financial results. They made no contribution to 1997 earnings per share because
of acquisition premium write-offs and financing costs. Free cashflow (after
capital expenditures and dividends) set another record in 1997, reaching $332
million, about 9% of sales, and our debt-to-total capital ratio, measured on a
book value basis, dropped to 25%. At year-end net debt represented less than one
year's EBITA.
DOVER TECHNOLOGIES
Operational profits, on page 4, reached $243 million. About two-thirds of these
profits came from the printed circuit board assembly equipment businesses, with
Universal, Everett Charles and DEK achieving profit records. In the specialized
electronic component portion of Technologies, penetration of wireless and wired
communication markets drove 1997 growth and continued as a key objective in
1998. A strong second half allowed Imaje to achieve record results, with profits
up 17% in French francs and a smaller amount in U.S. dollars.
DOVER INDUSTRIES
Operational profits (see page 4) at Dover Industries set a record, as eight of
11 business improved earnings over prior year and five achieved record profits.
The bulk of the earnings gains were provided by Texas Hydraulics, which
completed its sixth consecutive year of strong growth, and by Groen whose 1996
results were marred by write-offs. Nine of Industries' companies have earned
large and leading market share for their niche products, and two occupy strong
number two positions. The strength of the U.S. economy was a significant plus
factor for all of these companies. The recovery of the tank trailer market and,
to a lesser extent, the solid waste equipment market, were encouraging signs for
1998.
DOVER DIVERSIFIED
The operational profits (see page 4) of Diversified's eight companies equaled
those of 1996 despite a drop of more than $20 million at Belvac. This drop,
which was anticipated, stemmed from the end of the can-necking equipment boom
that we have commented upon in the past. Despite the market contraction, Belvac
remains the overwhelmingly preferred supplier of its types of equipment and
achieved good margins in 1997.
Diversified's other companies all showed gains. Particularly gratifying,
after several years of very hard work, was the near-tripling of profits at Hill
Phoenix. A-C Compressor continued its profit improvement, while Tranter achieved
another year of record profits. Diversified's presidents were successful in
their add-on acquisition programs, with four businesses acquired, involving an
investment of $85 million.
DOVER RESOURCES
Resources' operational profits (see page 4) of $130 million were 12% above the
prior year, about half from the acquisition of Tulsa Winch and Hydro Systems.
Both of these companies had strong years, achieving profits above those expected
when the acquisitions were made. OPW Fueling Components remained Resources'
largest profit contributor while setting a new profit record. Our three
companies supplying oilfield production equipment improved profits to their best
level in more than 10 years. De-Sta-Co Industries and Duncan Systems also
achieved profit records with strong gains over the prior year.
{34}
<PAGE> 37
Dover Corporation and Subsidiaries
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
DAVID H. BENSON+
Non-Executive Director, Kleinwort-Benson Group, Plc.
MAGALEN O. BRYANT*(N)
Director of various corporations
JEAN-PIERRE M. ERGAS*(N)
Executive Vice President, Europe Alcan Aluminum Limited
RODERICK J. FLEMING+
Director, Robert Fleming Holdings, Limited
KRISTIANE C. GRAHAM
Nominee, Private Investor
JAMES L. KOLEY+*
Chairman, Koley, Jessen, Daubman & Rupiper, P.C.
JOHN F. MCNIFF
THOMAS L. REECE*
GARY L. ROUBOS+*
Chairman of Dover, Director of various corporations
JOHN E. POMEROY
* Members of Executive Committee
+ Members of Audit Committee
(n) Members of Compensation Committee
OFFICERS
THOMAS L. REECE
President and Chief Executive Officer
JOHN F. MCNIFF
Vice President, Finance
ROBERT G. KUHBACH
Vice President, General Counsel and Secretary
ROBERT A. TYRE
Vice President, Corporate Development
GEORGE F. MESEROLE
Vice President, Controller
CHARLES R. GOULDING
Vice President, Taxes
DOVER TECHNOLOGIES INTERNATIONAL, INC:
JOHN E. POMEROY
President and Chief Executive Officer
DOVER INDUSTRIES, INC:
LEWIS E. BURNS
President and Chief Executive Officer
DOVER DIVERSIFIED, INC:
JERRY W. YOCHUM
President and Chief Executive Officer
DOVER RESOURCES, INC:
RUDOLF J. HERRMANN
President and Chief Executive Officer
STOCKHOLDER INFORMATION
TRANSFER AGENT/REGISTRAR:
Harris Trust & Savings Bank
Chicago, Illinois
Requests concerning stockholder records, issuance of stock certificates, and
distribution of our dividends and the IRS Form 1099 are most efficiently
answered by corresponding directly with Harris Trust at the following address:
HARRIS TRUST & SAVINGS BANK
311 West Monroe Street
Post Office Box A3504
Chicago, Illinois 60690
(312) 360-5197 (tel.)
(312) 293-8861 (fax)
Dover common stock is listed on the New York Stock Exchange with symbol DOV. The
common stock is also listed on The London Stock Exchange.
INDEPENDENT ACCOUNTANTS:
PRICEWATERHOUSECOOPERS LLP
New York, New York
EXECUTIVE OFFICES:
DOVER CORPORATION
280 Park Avenue
New York, New York 10017-1292
(212) 922-1640
Internet: www.dovercorporation.com
Dover Corporation and Subsidiaries
QUARTERLY DATA
(unaudited) (in thousands except per share figures)
<TABLE>
<CAPTION>
Common Stock
Cash Dividends and Market Prices
- ----------------------------------------------------------------------------------------- --------------------------------
Per Share Continuing(2)
Net Gross Net ------------------------- Market Prices(1) Dividends
Quarter Sales(2) Profit(2) Earnings(2) Basic Diluted High Low Per Share
- ----------------------------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
FIRST $ 930,496 $ 332,124 $ 73,843 $ .33 $ .33 $39.69 $32.50 $ .095
SECOND 1,009,772 358,915 84,708 .38 .38 39.94 33.25 .095
THIRD 1,018,532 369,061 85,781 .39 .38 35.31 25.50 .105
FOURTH 1,018,866 366,185 82,065 .37 .36 36.94 26.88 .105
----------------------------------------------------------------------- ------
$3,977,666 $1,426,285 $326,397 $ 1.47 $ 1.45 $ .40
======================================================================= ======
1997
First $ 791,846 $ 277,504 $ 63,924 $ .28 $ .28 $27.44 $24.13 $ .085
Second 929,641 332,041 83,253 .38 .37 32.00 25.88 .085
Third 945,333 341,500 85,912 .38 .38 36.69 30.72 .095
Fourth 1,002,748 376,255 91,825 .42 .40 36.31 32.56 .095
----------------------------------------------------------------------- ------
$3,669,568 $1,327,300 $324,914 $ 1.46 $ 1.43 $ .36
========================================================================================= ================================
</TABLE>
(2) Represents results from continuing operations, adjusted to give retroactive
effect to the disposition of the Dover Elevator International market
segment (see Consolidated Financial Statement note 2). Adjusted to give
retroactive effect to the 2 for 1 stock split in 1997.
(1) As reported in the Wall Street Journal.
{35}
<PAGE> 38
Dover Corporation and Subsidiaries
11-YEAR CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA FOR CONTINUING
OPERATIONS
(dollars in thousands except per share figures)
<TABLE>
<CAPTION>
1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Summary of Operations (1)
Net sales $3,977,666 3,669,568 3,215,573 2,924,361
Cost of sales 2,551,381 2,342,268 2,076,921 1,936,944
Selling and administrative expenses 894,325 807,793 686,101 599,170
Interest expense 60,746 46,163 41,663 39,586
Other income, net 17,432 18,930 91,221 35,603
Earnings before taxes 488,646 492,274 502,109 384,264
Income taxes 162,249 167,360 165,590 126,696
- ---------------------------------------------------------------------------------------------------------
Net earnings $ 326,397 324,914 336,519 257,568
% of sales 8.2% 8.9% 10.5% 8.8%
Return on average equity 20.5% 23.2% 24.7%(2) 27.9%
Net earnings per diluted common share $ 1.45 1.43 1.24(2) 1.13
Dividends per common share** $ .40 .36 .32 .28
- ---------------------------------------------------------------------------------------------------------
Book value per common share $ 7.56 6.84 5.71 4.56
Depreciation and amortization $ 167,687 155,204 110,484 92,186
Capital expenditures $ 125,730 122,082 113,679 91,719
Acquisitions $ 556,019 261,460 281,711 323,291
Cash flow (4) $ 494,084 480,118 447,003 349,754
Weighted average number of diluted common
shares outstanding ('000's)** 224,386 226,815 230,518 227,815
Number of employees 23,314 21,814 19,213 18,337
- ---------------------------------------------------------------------------------------------------------
Financial position at December 31
Working capital $ 314,777 292,195 237,429 209,850
Net property, plant and equipment $ 571,963 522,344 454,144 384,981
Total assets $3,382,393 2,898,971 2,602,841 2,303,777
Long-term debt $ 610,090 262,630 252,955 255,600
Common stockholders' equity** $1,910,884 1,703,584 1,489,703 1,227,706
Common shares outstanding ('000's)** 220,407 222,596 225,060 227,340
- ---------------------------------------------------------------------------------------------------------
Net earnings per diluted common share** $ 1.69 1.79 1.69 1.22
=========================================================================================================
</TABLE>
(1) Represents results from continuing operations, adjusted to give retroactive
effect to the disposition of the Dover Elevator International market
segment.
See Notes to Consolidated Financial Statements, Note 2. **Unadjusted - as
originally reported.
(2) 1996 Return on Average Equity and earnings per common share excludes gain
from sale of businesses which amounted to 22 cents per share.
DOVER RETURN ON AVERAGE EQUITY (%)
[BAR GRAPH]
<TABLE>
<CAPTION>
YEAR DOVER RETURN ON AVERAGE EQUITY
---- ------------------------------
<S> <C>
1989 16.9%
1990 17.8%
1991 16.7%
1992 16.4%
1993 20.8%
1994 24.4%
1995 27.9%
1996* 24.7%
1997 23.2%
1998 20.5%
</TABLE>
* Excludes sale of businesses.
DOVER LONG TERM INVESTMENT (IN $ MILLIONS)
[BAR GRAPH]
<TABLE>
<CAPTION>
FREE CASH FLOW
Year Capital Expenditures Stock Repurchases Acquisitions
---- -------------------- ----------------- ------------
<S> <C> <C> <C>
1989 $ 37 $ 94 $ --
1990 $ 33 $ 80 $ 86
1991 $ 37 $ 39 $ 3
1992 $ 37 $ 85 $101
1993 $ 39 $ 2 $312
1994 $ 73 $ 30 $185
1995 $ 92 $ 8 $323
1996 $114 $ 63 $282
1997 $122 $ 86 $261
1998 $126 $106 $556
</TABLE>
{36}
<PAGE> 39
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2,291,972 1,706,220 1,480,481 1,404,386 1,379,756 1,354,736 1,240,015
1,527,442 1,129,127 998,587 976,001 908,925 917,515 831,830
483,414 378,505 339,502 321,644 312,635 289,074 259,823
36,083 21,717 19,257 22,366 29,650 30,873 18,441
23,998 13,753 15,090 61,501 17,691 18,792 (8,222)
269,030 190,625 138,225 145,877 146,237 136,065 121,699
90,185 66,153 46,851 52,559 50,740 46,169 41,195
- -----------------------------------------------------------------------------------------------------
178,845 124,472 91,374(3) 93,318 95,497 89,896 80,504
7.8% 7.3% 6.2% 6.6% 6.9% 6.6% 6.5%
24.4% 20.8% 16.4% 16.7% 17.8% 16.9% 16.1%
.78 .54 .39(3) .39 .39 .36 .31
.25 .23 .22 .21 .19 .18 .16
- -----------------------------------------------------------------------------------------------------
3.56 2.88 2.37 2.44 2.25 2.14 2.04
81,316 62,921 63,773 71,000 64,839 64,954 59,790
72,709 39,420 37,304 36,671 32,931 36,835 44,035
185,324 312,480 100,961 3,315 85,634 -- 167,785
260,161 187,393 155,147 164,319 160,336 154,850 140,294
228,740 228,441 231,953 239,000 244,675 253,000 262,905
15,512 12,941 11,235 11,008 11,567 11,686 12,295
- -----------------------------------------------------------------------------------------------------
280,797 217,808 111,962 198,869 129,261 181,389 106,068
292,698 235,310 201,046 193,655 209,862 217,281 229,777
1,721,492 1,406,287 1,051,506 980,104 1,091,599 1,077,013 1,052,525
253,587 252,065 980 1,393 7,465 13,136 17,958
1,011,230 883,240 810,026 828,277 787,787 746,682 742,274
226,920 228,652 228,340 235,912 239,884 248,972 260,832
- -----------------------------------------------------------------------------------------------------
.88 .69 .56 .54 .64 .57 .55
=====================================================================================================
</TABLE>
(3) 1992 net earnings and net earnings per common share include $565,000 and 3
cents per share, respectively, applicable to the cumulative effects of
changes in accounting principles for FAS 109, "Accounting for Income Taxes"
and FAS 106 "Employers' Accounting for Postretirement Benefits Other Than
Pensions".
(4) Represent net earnings plus depreciation and amortization.
Adjusted, where applicable, to give retroactive effect to the 2 for 1 stock
splits in 1988, 1995 and 1997.
"FREE" CASH FLOW (A) (IN $ MILLIONS)
[BAR GRAPH]
<TABLE>
<CAPTION>
YEAR FREE CASH FLOW
---- --------------
<S> <C>
1989 $149
1990 $112
1991 $101
1992 $ 74
1993 $104
1994 $143
1995 $189
1996* $250
1997 $332
1998 $289
</TABLE>
(A) Free cash flow is operating cash generated after funding capital
expenditures, working capital and dividends, but excluding acquisitions, net
proceeds from dispositions and stock repurchases.
* Excludes sale of businesses.
"FREE" CASH FLOW AS A PERCENTAGE OF SALES (A) (%)
[BAR GRAPH]
<TABLE>
<CAPTION>
YEAR ANNUAL THREE YEAR MOVING AVERAGE
---- ------ -------------------------
<S> <C> <C>
1989 11.0% 9.3%
1990 8.1% 7.4%
1991 7.2% 8.8%
1992 5.0% 6.8%
1993 6.1% 6.1%
1994 6.2% 5.8%
1995 6.5% 6.3%
1996* 7.8% 6.8%
1997 9.0% 7.8%
1998 7.3% 8.0%
</TABLE>
(A) Free cash flow is operating cash generated after funding capital
expenditures, working capital and dividends, but excluding acquisitions, net
proceeds from dispositions and stock repurchases.
* Excludes sale of businesses.
DESIGN: ROBERT WEBSTER INC (RWI) - COPY: HOLCOMB ASSOCIATES - ILLUSTRATIONS:
ALLEN GARNS - PHOTOGRAPHY: ENRICO FERORELLI - PRINTED ON RECYCLED PAPER
<PAGE> 40
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