10-QPeriod: Q2 FY2002

DOVER Corp Quarterly Report for Q2 Ended Jun 30, 2002

Filed August 13, 2002For Securities:DOV

Summary

Dover Corporation's second quarter 2002 filing shows a mixed financial performance. While net sales remained flat year-over-year at $1.1 billion, net earnings from continuing operations saw a significant increase of 31% to $64.1 million, or $0.31 per diluted share, up from $48.8 million or $0.24 per diluted share in the prior year's second quarter. This improvement was largely driven by the discontinuation of goodwill amortization following the adoption of SFAS No. 142, which positively impacted operating profit margins. However, the overall net earnings for the quarter were substantially lower at $55.2 million ($0.27 per diluted share) compared to $143.3 million ($0.70 per diluted share) in the prior year. This significant decrease is primarily due to a large gain on the sale of discontinued operations in the second quarter of 2001, which did not recur in 2002. The company also recorded a net loss of $8.9 million from discontinued operations in Q2 2002. The adoption of SFAS No. 142 also resulted in a significant goodwill impairment charge of $345 million ($293 million net of tax) recognized as a cumulative effect of a change in accounting principle in the first quarter of 2002, leading to a net loss of $192.7 million for the six months ended June 30, 2002.

Key Highlights

  • 1Net sales for the second quarter of 2002 were $1.10 billion, flat compared to the prior year.
  • 2Net earnings from continuing operations increased by 31% to $64.1 million in Q2 2002, with diluted EPS at $0.31 compared to $0.24 in Q2 2001.
  • 3Overall net earnings for Q2 2002 were $55.2 million ($0.27 per diluted share), a significant decrease from $143.3 million ($0.70 per diluted share) in Q2 2001, due to the absence of a large gain from discontinued operations in the current year.
  • 4The company adopted SFAS No. 142, leading to the discontinuation of goodwill amortization, which positively impacted operating profit margins. This adoption also resulted in a $345 million goodwill impairment charge in the first quarter of 2002.
  • 5Dover Industries and Dover Diversified segments showed sales growth and earnings improvement in Q2 2002, while Dover Resources saw stable earnings with a sales decline, and Dover Technologies reported a significant earnings increase but also a sales decline.
  • 6Cash and cash equivalents decreased by $59.7 million during the first six months of 2002, largely due to lower cash from operations compared to the prior year, despite reduced capital expenditures and acquisition activity.
  • 7Total debt remained relatively unchanged at $1.08 billion, but net debt as a percentage of total capital increased due to a reduction in equity, primarily from the goodwill impairment charge.

Frequently Asked Questions

The adoption of SFAS No. 142, effective January 1, 2002, eliminated the amortization of goodwill and indefinite-lived intangible assets. This positively impacted operating profit and earnings from continuing operations by removing prior amortization expenses. However, the standard also required an assessment of goodwill for impairment. Dover recognized a $345 million goodwill impairment charge ($293 million net of tax) as a cumulative effect of a change in accounting principle in the first quarter of 2002, which led to a significant net loss for the six-month period.

The substantial decrease in overall net earnings is primarily due to a large gain of $93.1 million (or $0.45 per diluted share) recognized in the second quarter of 2001 from the sale of discontinued operations (A-C Compressor and DovaTech welding businesses). This one-time gain did not occur in the second quarter of 2002. In contrast, the second quarter of 2002 reported a net loss of $8.9 million from discontinued operations, including a $7.3 million loss on the sale of Vectron GmbH.

Dover Industries saw a 4% sales decline but a 1% earnings increase, with improved margins. Dover Diversified experienced an 11% sales increase and a 12% earnings increase, with flat margins. Dover Resources had a 6% sales decrease but a 3% earnings increase, with improved margins. Dover Technologies' sales declined by 5%, but its earnings significantly increased by 248% to $1.7 million, though overall segment margins remained low at 1%.

Dover's liquidity decreased during the first six months of 2002, with cash and cash equivalents down by $59.7 million. This was driven by lower cash from operations and increased receivables, although capital expenditures and acquisitions were also reduced. Total debt remained stable, but net debt as a percentage of total capital rose due to a reduction in equity, largely stemming from the goodwill impairment charge. The company expects internal cash flow to be sufficient for working capital and debt service, with potential funding through commercial paper if needed. The outlook is cautious, noting increased uncertainty in financial markets, potential continued weakness in electronics markets, and a slowdown in acquisition activity.