FORM 10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2006
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File
No. 1-4018
Dover Corporation
(Exact name of Registrant as
specified in its charter)
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Delaware
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53-0257888
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(State of
Incorporation)
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(I.R.S. Employer
Identification)
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280 Park Avenue,
New York, NY
(Address of principal
executive offices)
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10017
(Zip
Code)
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(Registrants telephone number)
(212) 922-1640
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $1
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and
large accelerated filer in
Rule 12-b-2
of the Securities Exchange Act.
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined by
Rule 12b-2
of the Securities Exchange
Act). Yes o
No þ
The aggregate market value of the voting and non-voting common
stock held by non-affiliates of the registrant as of the close
of business June 30, 2006 was $10,010,284,222. The
registrants closing price as reported on the New York
Stock Exchange-Composite Transactions for June 30, 2006 was
$49.43 per share.
The number of outstanding shares of the registrants common
stock as of February 22, 2007 was 204,703,863.
Documents Incorporated by Reference:
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Part III |
Certain Portions of the Proxy Statement for Annual Meeting of
Stockholders to be Held on April 17, 2007 (the 2007
Proxy Statement).
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Special
Notes Regarding Forward-Looking Statements
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of the
Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, and the Private Securities Litigation
Reform Act of 1995. Such statements relate to, among other
things, income, earnings, cash flows, changes in operations,
operating improvements, industries in which Dover companies
operate and the U.S. and global economies. Statements in this
Form 10-K
that are not historical are hereby identified as
forward-looking statements and may be indicated by
words or phrases such as anticipates,
supports, plans, projects,
expects, believes, should,
would, could, hope,
forecast, management is of the opinion,
use of the future tense and similar words or phrases.
Forward-looking statements are subject to inherent uncertainties
and risks, including among others: increasing price and
product/service competition by foreign and domestic competitors
including new entrants; the impact of technological developments
and structural market changes on Dover companies, particularly
the companies in Dovers Electronics and Technologies
segments; the ability to continue to introduce competitive new
products and services on a timely, cost-effective basis; changes
in the cost or availability of raw materials, particularly
metal; changes in customer demand; the extent to which Dover
companies are successful in expanding into new geographic
markets, particularly outside of North America; the relative mix
of products and services which impacts margins and operating
efficiencies; short-term capacity restraints; the achievement of
lower costs and expenses; domestic and foreign governmental and
public policy changes including environmental regulations and
tax policies (including domestic and foreign export subsidy
programs, R&E credits and other similar programs);
unforeseen developments in contingencies such as litigation;
protection and validity of patent and other intellectual
property rights; the success of the Companys acquisition
program; the cyclical nature of the business of some of
Dovers companies; the impact of natural disasters, such as
hurricanes; global energy markets; and continued events in the
Middle East and possible future terrorist threats and their
effect on the worldwide economy. In addition, such statements
could be affected by general industry and market conditions and
growth rates, and general domestic and international economic
conditions including interest rate and currency exchange rate
fluctuations. In light of these risks and uncertainties, actual
events and results may vary significantly from those included in
or contemplated or implied by such statements. Readers are
cautioned not to place undue reliance on such forward-looking
statements. These forward-looking statements speak only as of
the date made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as
required by law.
The Company may, from time to time, post financial or other
information on its Internet website, www.dovercorporation.com.
The Internet address is for informational purposes only and is
not intended for use as a hyperlink. The Company is not
incorporating any material on its website into this report.
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TABLE OF CONTENTS
PART I
Overview
Dover Corporation (Dover or the
Company), incorporated in 1947 in the State of
Delaware, became a publicly traded company in 1955. It is a
diversified industrial manufacturing corporation encompassing
operating companies that manufacture a broad range of
specialized industrial products and components as well as
sophisticated manufacturing equipment, and seek to expand their
range of related services, consumables and wear parts sales.
Additional information is contained in Items 7 and 8.
The Company reports its results in six reportable business
segments Diversified, Electronics, Industries,
Resources, Systems and Technologies, and discusses their
operations in 13 groups, which are each comprised of two or more
business units. Diversified builds products for use in the
defense, aerospace and automotive aftermarket industries, heat
transfer equipment, specialized bearings, construction and
agricultural cabs, as well as color measurement and control
systems for printing presses. Electronics designs and
manufactures a wide variety of electronic and electromechanical
components for original equipment manufacturers
(OEMs) serving numerous end markets including
hearing aids, telecom infrastructure and cell phones, defense
and aerospace electronics, and medical/life sciences. In
addition, this segment manufactures ATM hardware and software
for retail applications and financial institutions, and chemical
proportioning and dispensing systems for janitorial/sanitation
applications. Industries produces equipment and components for
use in waste handling, bulk transport and automotive service
industries. Resources manufactures products primarily for the
petroleum and natural gas, automotive fueling, fluid handling,
engineered components, material handling and chemical equipment
industries. Systems manufactures refrigeration systems, display
cases, walk in coolers, food service cooking equipment and other
products for the supermarket/restaurant industries. In addition,
this segment manufactures specialized machinery for use in the
beverage and food processing industries. Technologies builds
sophisticated automated imaging and testing equipment for the
electronics industry, and industrial printers and consumables
for coding and marking.
Business
Strategy
The Company operates with certain fundamental strategies. First,
it seeks to acquire and own businesses with proprietary,
engineered industrial products which make them leaders in the
niche markets they serve. To ensure success, Dover companies
place emphasis on new product development to better serve
customers and expansion into new markets to serve new customers.
Second, it expects these businesses to be committed to
operational excellence and all of Dovers operating
companies are expected to be market leaders as measured by
market share, customer service, innovation, profitability and
return on invested capital. Third, the Company is committed to a
highly autonomous operating culture with high ethical standards,
trust, respect and open communication, to allow individual
growth and operational effectiveness.
Management
Philosophy
The Company practices a highly decentralized management style.
The presidents of the operating companies, within the 13 groups,
are given a great deal of autonomy and have a high level of
independent responsibility for their businesses and their
performance. This is in keeping with the Companys
operating philosophy that independent operations are better able
to serve customers by focusing closely on their products and
markets, and reacting quickly to customer needs. The
Companys executive management role is to provide
management oversight, allocate and manage capital, assist in
major acquisitions, evaluate, motivate and, as necessary,
replace operating company management, and also provide selected
other services.
Acquisitions
Dover has a long-standing acquisition program that seeks to
acquire and develop platform businesses that are
market leaders as measured by market share, customer service,
innovation, profitability and return on invested capital. Ideal
acquisition candidates are generally manufacturers of high
value-added, engineered products sold to a broad customer base
of industrial or commercial users. One of the most critical
factors in the decision to acquire a
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business is the Companys judgment of the skill, energy,
ethics and compatibility of the top executives at the
acquisition target. In keeping with the Companys
decentralized structure, Dover generally expects that acquired
companies will continue to be operated by the management team in
place at acquisition, with a high degree of autonomy. During the
period from 2004 through 2006, the Company significantly
increased the level of acquisition spending, buying 25
businesses with an aggregate cost of $2,709.0 million.
Annualized revenue of these companies were $1,600.0 million
as of their date of acquisition with projected annualized
operating margins in the range of 15%. Dover also changed its
focus towards acquiring fewer larger businesses with better
growth characteristics.
The Company has traditionally focused on acquiring new
businesses that can operate independently from other Dover
companies (stand-alones). Beginning in 1993, the
Company began increasing the number of add-on
businesses it acquired businesses that could be
added on to existing Dover companies. In recent years, including
2006, the Company has indicated an intention to buy larger
stand-alones, while continuing to acquire add-on
businesses to enhance companies already owned.
In 2004, the Company acquired eight add-on businesses for an
aggregate cost of $502.5 million. During 2005, the Company
acquired a total of ten businesses (eight add-ons) for an
aggregate cost of $1,089.7 million. In 2006, Dover acquired
seven companies (five add-ons) for an aggregate cost of
$1,116.8 million, the highest annual acquisition investment
level in its history.
For more details regarding acquisitions completed over the past
two years, see Note 3 to the Consolidated Financial
Statements in Item 8. The Companys future growth
depends in large part on finding and acquiring successful
businesses, as a substantial number of the Companys
current businesses operate in relatively mature markets. While
the Company expects all of its businesses to generate annual
organic growth of 5 7% over a business cycle,
sustained organic growth at these levels is difficult to achieve
consistently each year.
Divestitures
While the Company generally expects to hold businesses that it
buys, it periodically reassesses its portfolio of businesses to
verify that those businesses continue to be essential
contributors to Dovers long-term growth strategy. The
Company will strategically divest operations that cannot meet
Dovers long-term performance goals. In addition, on
occasion, there are situations in which one of Dovers
companies is a very attractive acquisition for another company
based on specific market conditions. In those circumstances,
Dover might make an opportunistic sale. Based on these criteria,
the Company has over the past six years discontinued 38 and sold
32 operations for an aggregate pre-tax consideration of
approximately $1,066 million.
In 2005, the Company announced a formal portfolio review, which
was substantially completed in 2006, resulting in the
discontinuance of 20 businesses, of which 14 were sold by
December 31, 2006. These actions have resulted in aggregate
pretax consideration of $605.2 million received for the
businesses sold, which had annualized revenue of approximately
$1,055 million with approximately 5% operating margins.
This process has improved the Companys focus on key
markets for long-term growth.
For more details, see the Discontinued Operations
discussion below and Note 8 to the Consolidated Financial
Statements in Item 8.
Reportable
Segments
The Company reports its results in six segments and discusses
their operations in 13 groups. The segment structure is
primarily based on markets served and allows the management of
each segment to focus its attention on particular markets, to
provide oversight capacity to acquire additional businesses and
to foster leadership development. Below is a listing of each
segment and the descriptions of each group therein. For
additional financial information about Dovers reportable
segments, see Note 14 to the Consolidated Financial
Statements in Item 8 of this
Form 10-K.
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Diversified
Industrial
Equipment
The Industrial Equipment group produces parts for vehicle
markets, including boats, construction equipment, automotive,
powersports, aerospace and commercial airlines. Specifically, it
fabricates operator cabs and rollover structures for sale to OEM
manufacturers in the construction, agriculture, and commercial
equipment markets, and it produces standard and custom high
volume sheet metal enclosures for the electronics,
telecommunications and electrical markets. In addition, the
group sells internal engine components and other engine
accessories to the motorsport and powersport markets that
include high performance racing vehicles, motorcycles,
all-terrain vehicles, snowmobiles and watercraft. Products
include forged and cast pistons, and connecting rods along with
their complementary components, including piston rings,
bearings, gaskets, and a variety of other internal valve train
and engine components. The Industrial Equipment group also
designs, manufactures, maintains and refurbishes fluid control
assemblies and structural components for the global aerospace
and U.S. defense industries, selectively supporting the
full product life cycle from the original design and build
through the aftermarket. It specializes in complex fluid control
assemblies with typical end-use applications such as submarines,
aircraft control systems and engine thrust reverser systems,
land and amphibious utility vehicle actuation systems,
helicopter rotary systems, engine pneumatic ducting and cooling
systems, aircraft environmental control systems, and general
airframe and engine components. The businesses share common
customers throughout the commercial aerospace and defense
industries and sell directly to their end users: OEMs, airlines
and government agencies.
Process
Equipment
The Process Equipment group designs and manufactures
copper-brazed compact heat exchangers, including heat exchangers
and design software for district heating and district cooling
substations; bearings for certain rotating machinery
applications, including turbo machinery, motors and generators
for use in the energy, industrial, utility, naval and commercial
marine industries. These product lines include polymer, ceramic
and magnetic designs for specific customer applications, as well
as hydrodynamic bearing design applications. In addition, the
group manufactures color measurement and control systems for
printing presses for the catalog, book, publication and
newspaper printing markets.
The Diversified segment has operations and manufacturing
facilities in North America, Europe and Asia, and its products
are sold primarily in the Americas and Europe.
Electronics
Components
The Components group designs and manufactures advanced
micro-acoustic components, precision frequency control, sensor
and hybrid product components and assemblies; provides quick
disconnect couplings for use in a broad range of fluid
applications; and designs and manufactures specialty ceramic,
high-voltage and high-frequency capacitors and RF and microwave
filters, switches and integrated assemblies.
Specifically, the group designs and manufactures miniaturized
transducers and electromechanical components for use in hearing
aids, cell phones and high-end headsets, frequency control
products including crystal oscillators, frequency translators,
clock and data recovery products, SAW filters, and hybrid
circuits for use in numerous telecom infrastructure systems,
defense and aerospace electronics and other industrial
applications. The quick disconnect couplings are used by OEMs
serving the industrial, biopharmaceutical, life sciences,
chemical and printing markets. Specialty ceramic capacitor
products include single, multi-layer, variable capacitors as
well as custom assemblies and planar arrays sold to customers in
the communications, defense and aerospace, medical and
automotive markets.
Commercial
Equipment
The Commercial Equipment group manufactures a line of ATM
machines and chemical and solvent proportioning and dispensing
systems. The ATM business provides hardware, software and
services for retail and financial institution customers and its
machines are found in banks, credit unions, major retail chains,
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convenience stores, airports, hotels, office buildings,
restaurants, shopping centers, supermarkets and casinos. The
proportioning and dispensing systems are used to dilute and
dispense concentrated chemicals and solvents used by
restaurants, hospitals, schools, universities and other large
institutions and building service contractors for
janitorial/sanitation and equipment maintenance applications.
Electronics products are sold to OEMs and their
manufacturing service providers in North America, Europe and
Asia by direct sales as well as through an extensive network of
independent representatives. Electronics products are
manufactured in the U.S., Canada, the Dominican Republic,
Brazil, Europe and Asia.
Industries
Mobile
Equipment
The Mobile Equipment group manufactures a wide variety of refuse
collection bodies (refuse trucks), tank trailers, including
aluminum, stainless steel and steel trailers, that carry
petroleum, chemical, edible, dry bulk and waste products,
including specialty trailers focused on the heavy haul, oil
field and recovery niches, and waste processing equipment.
Specifically, these products include manual and automated side
loaders, front loaders, rear loaders and a variety of recycling
units and container lifts for the refuse collection industry as
well as for commercial and industrial applications. They are
sold to municipal customers, national accounts and independent
waste haulers through a network of distributors and directly in
certain geographic areas. The waste processing equipment
products include self-contained compactors, stationary
compactors, vertical balers, and recycling equipment including
conveyor systems, horizontal auto-tie, two ram, and shear
balers. The baling equipment is sold primarily in the
U.S. to distribution centers, malls, stadiums, arenas,
hotels/motels, warehouses, office complexes, retail stores, and
environmental businesses. The tank trailers are marketed
globally to customers in the construction, trucking, railroad
oil field, towing and recovery, and heavy haul industries, as
well as to various government agencies.
Service
Equipment
The Service Equipment group manufactures vehicle service lifts,
vehicle wash systems, and vehicle collision measuring and repair
systems, including frame pulling equipment, computerized
measuring equipment, frame specifications, and vehicle
inspection products. The vehicle service lifts are sold through
equipment distributors to a wide variety of markets, including
independent service and repair shops, national chains and
franchised service facilities, new car and truck dealers,
national and local governments, and government maintenance and
repair locations worldwide. The groups vehicle wash
systems are sold primarily in the U.S. and Canada to major oil
companies, petroleum dealers and jobbers, as well as to
investors, and sales are made through distributors throughout
the world who install the equipment and provide after-sale
service and support. The vehicle collision repair and measuring
equipment is marketed worldwide in over 45 countries throughout
Europe, Asia and the Americas, utilizing distributors.
The Industries segment has operations and manufacturing
facilities in North and South America, Asia and Europe.
Resources
Fluid
Solutions
The Fluid Solutions group manufactures pumps and compressors for
the transfer of liquid and gas products; supplies engineered
products, including valves, electronic controls, loading arms,
swivels, and couplings; produces vehicle fuel dispensing
products; and produces a wide range of air-operated
double-diaphragm pumps. The pumps and compressors are used in a
wide variety of markets, including the refined fuels, LPG, pulp
and paper, wastewater, food/sanitary, military/marine,
transportation, and chemical process industries. The pump
technologies include positive displacement, sliding vane and
eccentric disc pumps in addition to centrifugal process pumps.
Its compressor technologies include reciprocating, rotary vane,
and screw compressors. The engineered products are used for the
transfer, monitoring, measurement, and protection of hazardous,
liquid and dry bulk commodities in the chemical, petroleum and
transportation industries.
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The fuel dispensing products offer an extensive line of
conventional, vapor recovery, and Clean Energy (LPG, CNG, and
Hydrogen) nozzles, swivels and breakaways, as well as a tank
pressure management system. The Fluid Solutions group provides a
complete line of environmental products for both aboveground and
underground storage tanks, suction system equipment, flexible
piping, and secondary containment systems. It also offers an
array of tire inflation and vacuum systems, as well as
unattended fuel management, integrated tank monitoring, and
Point-of-Sale
card systems. The double-diaphragm pumps are made of a variety
of metals and engineered plastics. These pumps are used in a
broad variety of fluid transfer applications in general
industrial, process industry, and specialized chemical,
pharmaceutical and food processing applications.
Material
Handling
The Material Handling group manufactures and sells a variety of
modular automation and workholding components; highly engineered
welded hydraulic cylinders, custom hydraulic swivels, and
electric slip rings, worm gear and planetary winches; worm gear
and planetary hoists; traction (constant pull) winches; rotation
drives and speed reducers; capstan drives; high capacity
bumper/winch packages; electronic monitoring systems and other
related products; and a full line of off-road equipment and
accessories that enhance the performance of four-wheel-drive
(4WD) vehicles, ATVs and utility vehicles; and a
variety of attachments and replacement parts that increase the
utilization and productivity of light and heavy mobile equipment
serving multiple segments of the construction and utility
markets. Modular automation and workholding products include
manual toggle clamps, pneumatic, electric and hydraulic power
clamps, automation shuttles and lifters, grippers, rotaries,
slides, end-effectors, servo-controlled linear actuators, and
other end of robot arm devices. The welded hydraulic
cylinders are used for work platform, aerial utility truck,
material handling, construction, and mining industry OEMs
throughout North America. The winch related products primarily
serve the construction, marine, lumber, railroad, refuse,
petroleum, military towing, recovery, and utility markets,
through OEMs and an extensive dealer network. The products
related to off-road equipment include recreational winches,
winch mounts, 4WD hubs and other accessories. The group also
markets and serves electric and hydraulic hoists to commercial
and industrial customers around the world and provides a range
of patented, technologically advanced 4WD and all-wheel drive
powertrain systems to automotive OEMs around the world, but
primarily in North America. The construction and utility
attachments and replacement parts include: mobile shears,
concrete demolition tools, buckets, backhoes, trenchers, augers,
customized excavator booms, excavator conversion packages,
buckets and couplers for excavators and wheel loaders, grapples,
mulchers and power rakes, among others. These construction
attachments are used in broad segments of the construction,
utility, demolition, recycling, material handling and forestry
markets.
Oil and
Gas Equipment
The Oil and Gas Equipment group manufactures products that
primarily serve the upstream oil and gas exploration and
production industries, including polycrystalline diamond cutters
used in drill bits; sucker rods and accessories; precision
quartz-resonator pressure transducers for downhole
data collection; natural gas wells production control devices;
various control valves, butterfly valves, and control
instrumentation primarily for oil and gas production
applications; piston rings, seal rings, engineered valves,
packings and various other replacement parts and components for
compressors used in the natural gas production and distribution
markets, as well as in the petrochemical and petroleum refining
industries; and compressor repair services through company owned
service centers.
Resources products are sold to OEMs directly, and to other
markets through a global network of distributors, primarily in
North America, Europe and Asia. Its products are manufactured in
North America, South America, Europe and Asia.
Systems
Food
Equipment
The Food Equipment group manufactures refrigeration systems,
display cases, walk-in coolers and freezers, electrical
distribution products, and provides engineering services for
sale to the supermarket industry, as well as to
commercial/industrial refrigeration, big box retail
and convenience store customers. In addition, the group
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manufactures commercial foodservice cooking equipment,
cook-chill production systems, refrigeration products, custom
food storage and preparation products, kitchen ventilation, air
handling systems and conveyer systems. The commercial
foodservice cooking equipment products serve the institutional
and commercial foodservice markets worldwide through a network
of dealers, distributors, national chain accounts, manufacturer
representatives, and a direct sales force, with the primary
market being North America.
Packaging
Equipment
The Packaging Equipment group manufactures high-speed trimming,
necking, bottom reforming, re-profiling, and flanging equipment
for the beverage can-making industry. It also develops and
manufactures a wide variety of packaging machines that employ a
clip as the means of flexible package closure, and bowl chopping
machines. In addition, the group designs and manufactures
shaping, bottom rim coating, and inspection equipment as
enhancements to its core product line and high-speed trimming
and burnishing equipment for the plastic container industry,
with an emphasis on containers for dry foods, condiments and
specialty beverages. The packaging machines and clips are sold
worldwide primarily for use with meat, poultry and other food
products.
The Systems segment manufacturing facilities and distribution
operations are in North America and Europe, with additional
distribution facilities in South America and Asia.
Technologies
Automation
and Measurement
The Automation and Measurement group (A&M)
manufactures equipment and consumable products related to the
imaging, test and repair of printed circuit boards and
semiconductor packages used in computers, automotive
applications, consumer electronics, space, telecommunications,
medical systems, and aircraft.
Product
Identification
The Product Identification group (PI) is a worldwide
supplier of industrial marking and coding systems. Its primary
printing products are used for marking variable information
(such as date codes or serial numbers) on consumer products. It
provides a broad array of printing technologies, including
Continuous Ink Jet (CIJ), Thermal Transfer Overprint
(TTO), Direct Thermal, laser and Drop on Demand
(DOD). PI provides solutions for product marking on
primary packaging, secondary packaging such as cartons, and
pallet marking for use in warehouse logistics operations. PI
also manufactures bar code printers and portable printers used
where on demand labels/receipts are required . The markets
served by PI include food, beverage, cosmetics, pharmaceutical,
electronics, automotive and other markets where variable marking
is required.
The Technologies segment has operations and manufacturing
facilities in North America, Europe and Asia and sales
operations globally.
Discontinued
Operations
Companies that are considered discontinued operations in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, are presented
separately in the consolidated statements of operations, balance
sheets, and cash flows and are not included in continuing
operations. Earnings from discontinued operations include
charges, when necessary, to reduce these businesses to estimated
fair value less costs to sell. Fair value is determined by using
quoted market prices, when available, or other accepted
valuation techniques. All interim and full year reporting
periods presented reflect the discontinued operations discussed
below on a comparable basis. Please refer to Note 8 to the
Consolidated Financial Statements in Item 8 of this
Form 10-K
for additional information.
Raw
Materials
Dovers operating companies use a wide variety of raw
materials, primarily metals and semi-processed or finished
components, which are generally available from a number of
sources. As a result, shortages or the loss of any single
supplier have not had, and are not likely to have, a material
impact on operating profits. In 2004, there
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were meaningful increases in raw material costs, particularly
steel, and higher energy costs, including an estimated increase
in unrecovered steel costs of approximately $35 million.
These increases primarily affected the Companys industrial
segments. In 2005 and 2006, the impact of commodity prices
moderated and the operating companies have been able to
substantially offset cost increases with surcharges and price
increases over time.
Research
and Development
Dovers operating companies are encouraged to develop new
products as well as to upgrade and improve existing products to
satisfy customer needs, expand revenue opportunities
domestically and internationally, maintain or extend competitive
advantages, improve product reliability and reduce production
costs. During 2006, $155.0 million was spent on research
and development, including qualified engineering costs, compared
with $149.6 million and $133.8 million in 2005 and
2004, respectively.
For the Technologies and Electronics companies, efforts in these
areas tend to be particularly significant because the rate of
product development by their customers is often quite high.
Electronics companies developing specialty electronic components
for the life sciences, datacom and telecom commercial markets
believe that their customers expect a continuing rate of product
performance improvement and reduced costs. The result has been
that product life cycles in these markets generally average less
than five years with meaningful sales price reductions over that
time period.
Dovers other segments contain many businesses that are
also involved in important product improvement initiatives.
These businesses also concentrate on working closely with
customers on specific applications, expanding product lines and
market applications, and continuously improving manufacturing
processes. Most of these businesses experience a much more
moderate rate of change in their markets and products than is
generally experienced by the Technologies and Electronics
businesses.
Intellectual
Property and Intangible Assets
Dover companies own many patents, trademarks, licenses and other
forms of intellectual property, which have been acquired over a
number of years and, to the extent relevant, expire at various
times over a number of years. A large portion of the Dover
companies intellectual property consists of patents,
unpatented technology and proprietary information constituting
trade secrets that the companies seek to protect in various
ways, including confidentiality agreements with employees and
suppliers where appropriate. In addition, a significant portion
of the Companys intangible assets relate to customer
relationships. While the Dover companies intellectual
property and customer relationships are important to their
success, the loss or expiration of any of these rights or
relationships, or any groups of related rights or relationships,
would not materially affect the Company on a consolidated basis.
The Company believes that its companies commitment to
continuous engineering improvements, new product development and
improved manufacturing techniques, as well as strong sales,
marketing and service efforts, are significant to their general
leadership position in the niche markets that they serve.
Seasonality
In general, operations of the Dover companies, while not
seasonal, tend to have stronger revenue in the second and third
quarters, particularly companies serving the consumer
electronics, transportation, construction, waste hauling,
petroleum, commercial refrigeration and food service markets.
Companies serving the major equipment markets, such as power
generation, chemical and processing industries, tend to have
long lead times geared to seasonal, commercial or consumer
demands, and tend to delay or accelerate product ordering and
delivery to coincide with those market trends.
Customers
Dovers companies serve thousands of customers, no one of
which accounted for more than 10% of the Companys
consolidated revenue in 2006. One customer within the Systems
segment accounted for approximately 20% of Systems revenue
during 2006. Within each of the other five segments, no customer
accounted for more than 10% of that segments revenue in
2006.
8
The Components group within the Electronics segment serves the
military, space, aerospace, commercial and datacom/telecom
infrastructure markets. Its customers include some of the
largest operators in these markets. In addition, many of the OEM
customers of the Components group outsource their manufacturing
to Electronic Manufacturing Services (EMS)
companies. Customers of the A&M group within the
Technologies segment also include many of the largest global EMS
companies, particularly some of the newer EMS companies in
China, and major printed circuit board and semi-conductor
manufacturers.
In the other Dover segments, customer concentrations are quite
varied. Companies supplying the hearing aid, cell phone,
telecom, automotive and commercial refrigeration industries tend
to deal with a few large customers that are significant within
those industries. This also tends to be true for companies
supplying the power generation, aerospace and chemical
industries. In the other markets served, there is usually a much
lower concentration of customers, particularly where the
companies provide a substantial number of products and services
applicable to a broad range of end use applications.
Backlog
Backlog generally is not a significant long-term success factor
in most of Dovers businesses, as most of the products of
Dover companies have relatively short
order-to-delivery
periods. It is more relevant to those businesses that produce
larger and more sophisticated machines or have long-term
government contracts, primarily in the Diversified segment, as
well as the Mobile Equipment group within the Industries
segment, the A&M group within the Technologies segment and
the Components group within the Electronics segment. Total
Company backlog as of December 31, 2006 and 2005 was
$1,341.0 million and $1,111.5 million, respectively.
Competition
Dovers competitive environment is complex because of the
wide diversity of the products its companies manufacture and the
markets they serve. In general, most Dover companies are market
leaders, which compete with only a few companies and the key
competitive factors are customer service, product quality and
innovation. Dover usually is a more significant competitor
domestically, where its principal markets are, than in foreign
markets; however, Dover companies are becoming increasingly
global where greater competition exists.
In the Technologies segment, Dover companies compete globally
against a variety of companies, primarily operating in Europe
and the Far East.
Within the other segments, competition is primarily domestic,
although an increasing number of Dover companies see more
international competitors in the markets that they serve,
particularly certain companies in the Electronics, Systems,
Resources and Diversified segments.
International
For foreign revenue, including exports, and an allocation of the
assets of the Companys continuing operations, see
Note 14 to the Consolidated Financial Statements in
Item 8 of this
Form 10-K.
Although international operations are subject to certain risks,
such as price and exchange rate fluctuations and foreign
governmental restrictions, Dover intends to increase its
expansion into foreign markets, including South America, Asia
and Eastern Europe.
The countries where most of Dovers foreign subsidiaries
and affiliates are based are France, Germany, the U.K., the
Netherlands, Sweden, Switzerland and, with increased emphasis,
Malaysia and China.
Environmental
Matters
Dover believes its operations generally are in substantial
compliance with applicable regulations. In a few instances,
particular plants and businesses have been the subject of
administrative and legal proceedings with governmental agencies
or private parties relating to the discharge or potential
discharge of regulated substances. Where necessary, these
matters have been addressed with specific consent orders to
achieve compliance. Dover
9
believes that continued compliance will not have a material
impact on the Companys financial position and will not
require significant expenditures or adjustments to reserves.
Employees
The Company had approximately 33,000 employees in continuing
operations as of December 31, 2006.
Other
Information
Dover makes available free of charge through the Financial
Reports link on its Internet website,
http://www.dovercorporation.com,
the Companys annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and any amendments to these reports. Dover posts each of these
reports on the website as soon as reasonably practicable after
the report is filed with the Securities and Exchange Commission.
The information on the Companys Internet website is not
incorporated into this
Form 10-K.
Dovers business, financial condition, operating results
and cash flows can be impacted by a number of factors, including
but not limited to those set forth below, any one of which could
cause our actual results to vary materially from recent results
or from anticipated future results. For a discussion identifying
additional risk factors and important factors that could cause
actual results to differ materially from those anticipated, see
the discussion in SPECIAL NOTES REGARDING
FORWARD-LOOKING STATEMENTS included in this Annual Report
on
Form 10-K.
Cyclical
Economic Conditions May Affect the Companys Financial
Performance
A meaningful portion of the Companys revenue, most notably
those from the A&M group in the Technologies segment and the
Components group in the Electronics segment, is derived from
companies which serve the global electronics markets, that are
subject to somewhat unpredictable short-term business cycles. As
a result, the revenue and operating performance of these
companies in any one period are not necessarily predictive of
their revenue and operating performance in other periods, and
could have a material impact on Dovers consolidated
financial position.
The Oil and Gas group in the Resources segment has a certain
level of risk related to the volatility of energy prices
although overall demand is more directly related to depletion
rates and rig counts.
In addition, Dover is subject to substantially the same risk
factors as other
U.S.-based
industrial manufacturers. However, except as noted above, the
structure of Dover and the many different markets its companies
serve mitigate the possibility that any of these risk factors
will materially impact Dovers consolidated financial
position.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
Not Applicable.
10
The number, type, location and size of the Companys
properties as of December 31, 2006 are shown on the
following charts, by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number and Nature of Facilities
|
|
|
Square Footage (000s)
|
|
Segment
|
|
Mfg.
|
|
|
Warehouse
|
|
|
Sales/ Service
|
|
|
Owned
|
|
|
Leased
|
|
|
Diversified
|
|
|
29
|
|
|
|
8
|
|
|
|
13
|
|
|
|
1,600
|
|
|
|
600
|
|
Electronics
|
|
|
30
|
|
|
|
9
|
|
|
|
20
|
|
|
|
1,200
|
|
|
|
800
|
|
Industries
|
|
|
24
|
|
|
|
3
|
|
|
|
13
|
|
|
|
2,300
|
|
|
|
300
|
|
Resources
|
|
|
96
|
|
|
|
16
|
|
|
|
41
|
|
|
|
4,000
|
|
|
|
2,200
|
|
Systems
|
|
|
16
|
|
|
|
2
|
|
|
|
8
|
|
|
|
1,900
|
|
|
|
700
|
|
Technologies
|
|
|
52
|
|
|
|
39
|
|
|
|
173
|
|
|
|
1,100
|
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Locations
|
|
|
Leased Facilities
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
Expiration Dates (Years)
|
|
|
|
American
|
|
|
European
|
|
|
Asia
|
|
|
Other
|
|
|
Minimum
|
|
|
Maximum
|
|
|
Diversified
|
|
|
35
|
|
|
|
12
|
|
|
|
2
|
|
|
|
|
|
|
|
1
|
|
|
|
14
|
|
Electronics
|
|
|
21
|
|
|
|
8
|
|
|
|
8
|
|
|
|
2
|
|
|
|
1
|
|
|
|
15
|
|
Industries
|
|
|
32
|
|
|
|
4
|
|
|
|
2
|
|
|
|
2
|
|
|
|
1
|
|
|
|
12
|
|
Resources
|
|
|
125
|
|
|
|
17
|
|
|
|
5
|
|
|
|
6
|
|
|
|
1
|
|
|
|
9
|
|
Systems
|
|
|
20
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
5
|
|
Technologies
|
|
|
44
|
|
|
|
67
|
|
|
|
96
|
|
|
|
16
|
|
|
|
1
|
|
|
|
19
|
|
The facilities are generally well maintained and suitable for
the operations conducted. In 2006, the Company expects to make
selective increases in capacity for a few businesses
experiencing strong growth demands.
|
|
Item 3.
|
Legal
Proceedings
|
A few of the Companys subsidiaries are involved in legal
proceedings relating to the cleanup of waste disposal sites
identified under Federal and State statutes which provide for
the allocation of such costs among potentially responsible
parties. In each instance, the extent of the
Companys liability appears to be very small in relation to
the total projected expenditures and the number of other
potentially responsible parties involved and is
anticipated to be immaterial to the Company. In addition, a few
of the Companys 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 and from time to
time may be parties to a number of other legal proceedings
incidental to their businesses. These proceedings primarily
involve claims by private parties alleging injury arising out of
use of products of Dover companies, exposure to hazardous
substances or patent infringement, litigation and administrative
proceedings involving employment matters, and commercial
disputes. 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 to predict the outcome of these legal actions or any
need for additional reserves, in the opinion of management,
based on these reviews, it is very unlikely that the disposition
of the lawsuits and the other matters mentioned above will have
a material adverse effect on the Companys financial
position, results of operations, cash flows or competitive
position.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matter was submitted to a vote of the Companys security
holders in the last quarter of 2006.
11
Executive
Officers of the Registrant
All officers are elected annually at the first meeting of the
Board of Directors following the annual meeting of stockholders
and are subject to removal at any time by the Board of
Directors. The executive officers of Dover as of
February 28, 2007, and their positions with the Company
(and, where relevant, prior business experience) for the past
five years are as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Positions Held and Prior Business Experience
|
|
Ronald L. Hoffman
|
|
|
58
|
|
|
Chief Executive Officer (since
January 2005), President (since July 2003) and Chief Operating
Officer (from July 2003 December 2004) of Dover;
President and Chief Executive Officer of Dover Resources, Inc.
(from January 2002 to July 2003); Executive Vice President of
Dover Resources, Inc. (from May 2000 to January 2002).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ralph S. Coppola
|
|
|
62
|
|
|
Vice President of Dover and
President and Chief Executive Officer of Dover Systems, Inc.
(since October 1, 2004); prior thereto for more than five
years President of Hill Phoenix Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul E. Goldberg
|
|
|
43
|
|
|
Treasurer and Director of Investor
Relations of Dover (since February 2006); prior thereto
Assistant Treasurer of Dover (since July 2002); prior thereto
Treasury Manager at Arrow Electronics (a provider of electronic
components and products).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert G. Kuhbach
|
|
|
59
|
|
|
Vice President, Finance and Chief
Financial Officer (since November 2002); Treasurer of Dover
(November 2002 to February 2006); through December 2002 and for
more than five years prior thereto Vice President, General
Counsel and Secretary of Dover.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert A. Livingston
|
|
|
53
|
|
|
Vice President of Dover and
President and Chief Executive Officer of Dover Electronics, Inc.
(since October 1, 2004); prior thereto President of Vectron
International, Inc. (since January 2002); prior thereto
Executive Vice President of Dover Technologies, Inc. (since
April 1998).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raymond T. McKay, Jr
|
|
|
53
|
|
|
Vice President of Dover (since
February 2004), Controller of Dover (since November 2002); prior
thereto Assistant Controller of Dover (since June 1998).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George Pompetzki
|
|
|
54
|
|
|
Vice President, Taxation of Dover
(since May 2003); prior thereto for more than five years Senior
Vice President of Taxes, Siemens Corporation (a manufacturer of
diversified industrial products).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David J. Ropp
|
|
|
61
|
|
|
Vice President of Dover and
President and Chief Executive Officer of Dover Resources, Inc.
(since July 2003); prior thereto, Executive Vice President of
Dover Resources, Inc. (since February 2003); prior thereto,
President of OPW Fueling Components (since February 1998).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy J. Sandker
|
|
|
58
|
|
|
Vice President of Dover and
President and Chief Executive Officer of Dover Industries, Inc.
(since July 2003); prior thereto, Executive Vice President,
Dover Industries (since April 2000).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph W. Schmidt
|
|
|
60
|
|
|
Vice President, General
Counsel & Secretary of Dover (since January 2003);
prior thereto for more than five years partner in Coudert
Brothers LLP (a multi-national law firm).
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Positions Held and Prior Business Experience
|
|
William W. Spurgeon
|
|
|
48
|
|
|
Vice President of Dover and
President and Chief Executive Officer of Dover Diversified, Inc.
(since October 1, 2004); prior thereto Executive Vice
President of Dover Diversified, Inc. (since March 2004); prior
thereto President of Sargent Controls & Aerospace
(since October 2001); prior thereto Executive Vice President of
Sargent Controls & Aerospace (since May 2000).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert A. Tyre
|
|
|
62
|
|
|
Vice President, Corporate
Development of Dover.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Van Loan
|
|
|
58
|
|
|
Vice President of Dover and Chief
Executive Officer of Dover Technologies International, Inc.
(since January 2006) and President of Dover Technologies
International, Inc. (since May 2005); prior thereto for more
than five years, President and CEO of Everett Charles
Technologies.
|
13
PART II
|
|
Item 5.
|
Market
for Registrants common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information and Dividends
The principal market in which the Companys common stock is
traded is the New York Stock Exchange. Information on the high
and low sales prices of such stock, and the frequency and the
amount of dividends paid during the last two years, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Market Prices
|
|
|
Dividends
|
|
|
Market Prices
|
|
|
Dividends
|
|
|
|
High
|
|
|
Low
|
|
|
Per Share
|
|
|
High
|
|
|
Low
|
|
|
Per Share
|
|
|
First Quarter
|
|
$
|
49.55
|
|
|
$
|
40.30
|
|
|
$
|
0.170
|
|
|
$
|
42.11
|
|
|
$
|
36.84
|
|
|
$
|
0.160
|
|
Second Quarter
|
|
|
51.92
|
|
|
|
44.22
|
|
|
|
0.170
|
|
|
|
38.86
|
|
|
|
34.11
|
|
|
|
0.160
|
|
Third Quarter
|
|
|
50.23
|
|
|
|
45.12
|
|
|
|
0.185
|
|
|
|
42.00
|
|
|
|
35.75
|
|
|
|
0.170
|
|
Fourth Quarter
|
|
|
51.50
|
|
|
|
46.83
|
|
|
|
0.185
|
|
|
|
42.03
|
|
|
|
37.04
|
|
|
|
0.170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.710
|
|
|
|
|
|
|
|
|
|
|
$
|
0.660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holders
The number of holders of record of the Companys Common
Stock as of January 31, 2007 was approximately 16,000. This
figure includes participants in the Companys 401(k)
program.
Securities
Authorized for Issuance Under Equity Compensation
Plans
Information regarding securities authorized for issuance under
the Companys equity compensation plans in contained in
Part III, Item 12 of this From
10-K.
Recent
Sales of Unregistered Securities
None.
Issuer
Purchases of Equity Securities
The table below presents shares of the Companys stock
which were acquired by the Company during the fourth quarter.
These shares were acquired by the Company from the holders of
its employee stock options when they tendered shares as full or
partial payment of the exercise price of such options. These
shares are applied against the exercise price at the market
price on the date of exercise.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
(or Approximate Dollar
|
|
|
|
|
|
|
|
|
|
of Shares Purchased
|
|
|
Value) of Shares that
|
|
|
|
Total Number
|
|
|
Average
|
|
|
as Part of Publicly
|
|
|
May Yet Be Purchased
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Announced Plans
|
|
|
under the Plans
|
|
Period
|
|
Purchased
|
|
|
Per Share
|
|
|
or Programs
|
|
|
or Programs
|
|
|
October 1 to October 31,
2006
|
|
|
5,372
|
|
|
$
|
48.91
|
|
|
|
Not applicable
|
|
|
|
Not applicable
|
|
November 1 to
November 30, 2006
|
|
|
1,990
|
|
|
|
49.53
|
|
|
|
Not applicable
|
|
|
|
Not applicable
|
|
December 1 to
December 31, 2006
|
|
|
4,130
|
|
|
|
48.95
|
|
|
|
Not applicable
|
|
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fourth Quarter
2006
|
|
|
11,492
|
|
|
|
49.04
|
|
|
|
Not applicable
|
|
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Performance
Graph
This performance graph does not constitute soliciting material,
is not deemed filed with the SEC and is not incorporated by
reference in any of the Companys filings under the
Securities Act of 1933 or the Exchange Act of 1934, whether made
before or after the date of this Annual Report on
Form 10-K
and irrespective of any general incorporation language in any
such filing, except to the extent the Company specifically
incorporates this performance graph by reference therein.
Comparison
of Five Year Cumulative Total Return*
Dover Corporation, S&P 500 Index & Peer Group
Index
Total
Stockholder Return
Data Source: Hemscott, Inc.
This graph assumes $100 invested on December 31, 2001 in
Dover Corporation common stock, the S&P 500 index and a peer
group index. The peer index consists of the following public
companies selected by the Company based on its assessment of
businesses with similar industrial characteristics: Actuant
Corp., Ametek Inc., Carlisle Cos. Inc., Cooper Industries, Ltd.,
Crane Co., Danaher Corp., Eaton Corp., Emerson Electric Co.,
Federal Signal Corp., Honeywell International, Inc., Hubbell
Inc. CL B, Illinois Tool Works, Ingersoll-Rand Company Limited,
ITT Industries Inc., 3M Co. (formerly Minnesota
Mining & Mfg.), Parker-Hannifin Corp., Pentair Inc.,
PerkinElmer Inc., Tecumseh Products CL A., Tyco International
Ltd. and United Technologies Corp.
|
|
|
* |
|
Total return assumes reinvestment of dividends. |
15
|
|
Item 6.
|
Selected
Financial Data
|
Selected Dover Corporation financial information for the years
2002 through 2006 is set forth in the following
5-year
Consolidated Table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands, except per share figures)
|
|
|
Revenue
|
|
$
|
6,511,623
|
|
|
$
|
5,333,338
|
|
|
$
|
4,479,390
|
|
|
$
|
3,607,359
|
|
|
$
|
3,348,377
|
|
Earnings from continuing operations
|
|
|
603,328
|
|
|
|
446,195
|
|
|
|
362,418
|
|
|
|
254,835
|
|
|
|
211,000
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.96
|
|
|
$
|
2.20
|
|
|
$
|
1.78
|
|
|
$
|
1.26
|
|
|
$
|
1.04
|
|
Discontinued operations
|
|
|
(0.20
|
)
|
|
|
0.32
|
|
|
|
0.25
|
|
|
|
0.19
|
|
|
|
(0.19
|
)
|
Total net earnings before
cumulative effect of change in accounting principle
|
|
|
2.76
|
|
|
|
2.51
|
|
|
|
2.03
|
|
|
|
1.45
|
|
|
|
0.85
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.45
|
)
|
Net earnings (loss)
|
|
|
2.76
|
|
|
|
2.51
|
|
|
|
2.03
|
|
|
|
1.45
|
|
|
|
(0.60
|
)
|
Weighted average shares outstanding
|
|
|
203,773
|
|
|
|
202,979
|
|
|
|
203,275
|
|
|
|
202,576
|
|
|
|
202,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.94
|
|
|
$
|
2.19
|
|
|
$
|
1.77
|
|
|
$
|
1.25
|
|
|
$
|
1.04
|
|
Discontinued operations
|
|
|
(0.20
|
)
|
|
|
0.31
|
|
|
|
0.25
|
|
|
|
0.19
|
|
|
|
(0.20
|
)
|
Total net earnings before
cumulative effect of change in accounting principle
|
|
|
2.73
|
|
|
|
2.50
|
|
|
|
2.02
|
|
|
|
1.44
|
|
|
|
0.84
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.44
|
)(1)
|
Net earnings (loss)
|
|
|
2.73
|
|
|
|
2.50
|
|
|
|
2.02
|
|
|
|
1.44
|
|
|
|
(0.60
|
)
|
Weighted average shares outstanding
|
|
|
205,497
|
|
|
|
204,177
|
|
|
|
204,786
|
|
|
|
203,614
|
|
|
|
203,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$
|
0.71
|
|
|
$
|
0.66
|
|
|
$
|
0.62
|
|
|
$
|
0.57
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
194,735
|
|
|
$
|
130,492
|
|
|
$
|
87,857
|
|
|
$
|
74,714
|
|
|
$
|
78,426
|
|
Depreciation and amortization
|
|
|
201,501
|
|
|
|
155,047
|
|
|
|
134,731
|
|
|
|
128,145
|
|
|
|
132,202
|
|
Total assets
|
|
|
7,626,658
|
|
|
|
6,580,492
|
|
|
|
5,777,853
|
|
|
|
5,151,398
|
|
|
|
3,842,632
|
|
Total debt
|
|
|
1,771,040
|
|
|
|
1,538,335
|
|
|
|
1,090,393
|
|
|
|
1,066,071
|
|
|
|
1,054,061
|
|
All results and data in the table above reflect continuing
operations, unless otherwise noted.
|
|
|
(1) |
|
The 2002 Net earnings (loss) include $293 million, net of
tax, or $1.44 EPS, of goodwill impairment related to the
adoption of SFAS 142. |
16
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition And Results of
Operation
|
Special
Note Regarding Forward-Looking Statements
This Annual Report on
Form 10-K,
particularly this Item 7, contains forward-looking
statements within the meaning of applicable law. Forward-looking
statements are subject to inherent uncertainties and risks. It
is important that you read SPECIAL NOTES REGARDING
FORWARD-LOOKING STATEMENTS inside the front cover of this
Annual Report of
Form 10-K
for more information about these forward-looking statements and
their inherent uncertainties and risks.
(1) FINANCIAL
CONDITION
Liquidity
and Capital Resources
Management assesses the Companys liquidity in terms of its
ability to generate cash to fund its operating, investing and
financing activities. Significant factors affecting liquidity
are: cash flows generated from operating activities, capital
expenditures, acquisitions, dispositions, dividends, adequacy of
available commercial paper and bank lines of credit, and the
ability to attract long-term capital with satisfactory terms.
The Company generates substantial cash from operations and
remains in a strong financial position, with enough liquidity
available for reinvestment in existing businesses and strategic
acquisitions while managing the capital structure on a short and
long-term basis.
The following table is derived from the Consolidated Statements
of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
Cash Flows from Continuing Operations
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Net Cash Flows Provided By (Used
In):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
878,812
|
|
|
$
|
570,304
|
|
Investing activities
|
|
|
(846,593
|
)
|
|
|
(1,049,057
|
)
|
Financing activities
|
|
|
128,290
|
|
|
|
274,604
|
|
Cash flows provided by operating activities during 2006
increased $308.5 million over the prior period primarily
reflecting higher earnings and margins from continuing
operations before depreciation and amortization and lower tax
payments.
Cash used in investing activities during 2006 decreased
$202.5 million compared to 2005, reflecting essentially
flat acquisition spending, higher proceeds from the disposition
of businesses in the 2006 period, partially offset by an
increase in capital expenditures, primarily in the
oil & gas and micro-acoustics businesses. Acquisition
expenditures in 2006 were $1,116.8 million compared to
$1,089.7 million in 2005 while proceeds from the
disposition of businesses increased $286.6 million over
2005 to $445.9 million. Capital expenditures of
$194.7 million, which increased $64.2 million over the
prior year, primarily funded investments in plant expansions,
plant machinery and information systems. The Company currently
anticipates that any acquisitions made during 2007 will be
funded from available cash and internally generated funds and,
if necessary, through the issuance of commercial paper,
established lines of credit or public debt markets. Capital
expenditures for 2007 are expected to be consistent with 2006
levels.
Cash provided by financing activities during 2006 decreased
$146.3 million when compared to 2005. Acquisitions during
2006 were primarily funded through cash from operations and
proceeds generated from dispositions. In addition, the Company
repurchased $48.3 million of treasury shares and paid
dividends of $144.8 million.
Adjusted Working Capital (a non-GAAP measure; calculated as
accounts receivable, plus inventory, less accounts payable)
increased from December 31, 2005 by $262.5 million,
primarily as a result of acquisitions, foreign exchange
translation and the Companys organic growth. Excluding the
impact of acquisitions and foreign currency, working capital
would have increased by $41.3 million from
December 31, 2005. Average Annual Adjusted
17
Working Capital as a percentage of revenue (a non-GAAP measure;
calculated as the five quarter average balance of accounts
receivable, plus inventory, less accounts payable divided by the
trailing twelve months of revenue) decreased to 18.9% from 20.7%
at year end 2005 and inventory turns improved to 6.5 turns from
5.7 turns in the prior year.
In addition to measuring its cash flow generation and usage
based upon the operating, investing and financing
classifications included in the Consolidated Statements of Cash
Flow, the Company also measures free cash flow (a non-GAAP
measure). Management believes that free cash flow is an
important measure of operating performance because it provides
both management and investors a measurement of cash generated
from operations that is available to fund acquisitions, pay
dividends, repay debt and repurchase Dovers common stock.
For further information, see Non-GAAP Disclosures at the
end of this Item 7.
Free cash flow for the year ended December 31, 2006 was
$684.1 million or 10.5% of revenue compared to
$440.0 million or 8.2% of revenue in the prior year. The
2006 increase in free cash flow reflected higher earnings and
margins from continuing operations before depreciation and
amortization, and lower tax payments, partially offset by higher
capital expenditures. The following table is a reconciliation of
free cash flow to cash flows from operating activities.
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
Free Cash Flow
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash flow provided by operating
activities
|
|
$
|
878,812
|
|
|
$
|
570,304
|
|
Less: Capital expenditures
|
|
|
(194,735
|
)
|
|
|
(130,492
|
)
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
684,077
|
|
|
$
|
439,812
|
|
|
|
|
|
|
|
|
|
|
Free cash flow as a percentage of
revenue
|
|
|
10.5
|
%
|
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
At December 31, 2006, the Companys net property,
plant, and equipment totaled $856.8 million compared to
$706.7 million at the end of 2005. The increase in net
property, plant and equipment reflected acquisitions of
$83.7 million, capital expenditures of $194.7 million,
partially offset by decreases related to foreign currency
fluctuation of $21.9 million, and depreciation.
The aggregate of current and deferred income tax assets and
liabilities decreased from a $307.5 million net liability
at the beginning of the year to a net liability of
$298.3 million at year-end 2006. This resulted primarily
from decreases in current tax liabilities, increases in deferred
tax assets from accruals, a decrease in deferred tax liabilities
as a result of the adoption of SFAS No. 158 (see
below) and net operating loss carryforwards (primarily
acquisition related), partially offset by an increase in
deferred tax liabilities related to intangible assets.
Dovers consolidated benefit obligation related to defined
and supplemental retirement benefits increased by
$52.0 million in 2006. The increase was due principally to
net obligations of $50.5 million related to acquisitions.
Offsetting this increase was a plan asset increase of
$37.6 million due to gains on plan investments during the
year and Company contributions of $3.0 million, which were
partially offset by benefit payouts. During 2006, plan
amendments, primarily from union negotiated contracts, created
an increase in the benefit obligation of $8.5 million. Due
to the decrease in the net funded status of the plans and the
increase in the amortization of unrecognized losses, it is
estimated that pension expense will increase from
$42.8 million to approximately $45.2 million in 2007.
Effective December 31, 2006 Dover adopted
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an
Amendment of Financial Accounting Standards Board
(FASB) Statements No. 87, 88, 106, and
132(R) (SFAS No. 158). See
notes 2 & 13 in Item 8 of this
Form 10-K
for additional information on the adoption of this standard.
18
The Company utilizes the net debt to total capitalization
calculation (a non-GAAP measure) to assess its overall financial
leverage and capacity and believes the calculation is useful to
investors for the same reason. The following table provides a
reconciliation of net debt to total capitalization to the most
directly comparable GAAP measures:
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
At December 31,
|
|
Net Debt to Total Capitalization Ratio
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Current maturities of long-term
debt
|
|
$
|
32,267
|
|
|
$
|
1,201
|
|
Commercial paper and other
short-term debt
|
|
|
258,282
|
|
|
|
192,961
|
|
Long-term debt
|
|
|
1,480,491
|
|
|
|
1,344,173
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,771,040
|
|
|
|
1,538,335
|
|
Less: Cash and cash equivalents
|
|
|
373,616
|
|
|
|
185,832
|
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
1,397,424
|
|
|
|
1,352,503
|
|
|
|
|
|
|
|
|
|
|
Add: Stockholders equity
|
|
|
3,811,022
|
|
|
|
3,329,523
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
5,208,446
|
|
|
$
|
4,682,026
|
|
|
|
|
|
|
|
|
|
|
Net debt to total capitalization
|
|
|
26.8
|
%
|
|
|
28.9
|
%
|
|
|
|
|
|
|
|
|
|
Net debt at December 31, 2006 remained relatively flat as
increased cash flow from operations and cash generated from
dispositions were used to fund Dovers acquisition
program. The percentage decrease in net debt to total capital,
after record acquisition spending, reflects strong operational
free cash flow and the proceeds from dispositions of
$445.9 million.
Dovers long-term debt instruments had a book value of
$1,512.8 million on December 31, 2006 and a fair value
of approximately $1,502.9 million. On December 31,
2005, the Companys long-term debt instruments had a book
value of $1,345.4 million and a fair value of approximately
$1,406.0 million.
The Company believes that existing sources of liquidity are
adequate to meet anticipated funding needs at comparable
risk-based interest rates for the foreseeable future.
Acquisition spending could potentially increase Company debt.
However, management anticipates that the debt to capital ratio
will remain generally consistent with historical levels.
Operating cash flow and access to capital markets are expected
to satisfy the Companys various cash flow requirements,
including acquisitions and capital expenditures.
Management is not aware of any potential impairment to the
Companys liquidity, and the Company is in compliance with
all of its long-term debt covenants. It is anticipated that in
2007 any funding requirements above cash generated from
operations will be met through the issuance of commercial paper
or, depending upon market conditions, through the issuance of
long-term debt or some combination of the two.
As of December 31, 2006, there were two interest rate swap
agreements outstanding for a total notional amount of
$100.0 million, designated as fair value hedges on part of
the Companys $150.0 million 6.25% Notes due on
June 1, 2008. One $50 million interest rate swap
exchanges fixed-rate interest for variable-rate interest. The
other $50 million swap is designated in foreign currency
and exchanges fixed-rate interest for variable-rate interest,
and also hedges a portion of the Companys net investment
in foreign operations. The swap agreements have reduced the
effective interest rate on the notes to 5.78%. There is no hedge
ineffectiveness, and the fair value of the interest rate swaps
outstanding as of December 31, 2006 was determined through
market quotation.
During the third quarter of 2006, the Company closed a
structured five-year, non-interest bearing, $165.1 million
amortizing loan with a non-US lender which also included a
participation fee received by the Company of $9.9 million.
The loan was recorded at face value. The Company also expects to
incur a total of $5.7 million in debt related issuance
costs. Beginning in April 2007, the repayment schedule requires
payments every April and September with the final payment to be
made in July 2011. The participation fee will be amortized
ratably into Other Expense (Income), Net over the term of the
loan and is recorded in Other Deferrals in the Consolidated
Balance Sheet. The loan agreement includes a put and call
provision that can be exercised starting in June 2008 though the
end of the loan term.
19
At December 31, 2006, the Company had open foreign exchange
forward purchase contracts expiring through March 2007 related
to fair value hedges of foreign currency exposures as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currencies Sold
|
|
|
|
U.S.
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Singapore
|
|
|
Average
|
|
|
|
Dollar
|
|
|
Contract
|
|
|
Euro
|
|
|
Contract
|
|
|
Dollar
|
|
|
Contract
|
|
Currencies Purchased
|
|
Value
|
|
|
Rate
|
|
|
Value
|
|
|
Rate
|
|
|
Value
|
|
|
Rate
|
|
|
|
(In thousands)
|
|
|
Euro
|
|
$
|
62,480
|
|
|
|
1.3127
|
|
|
|
|
|
|
|
|
|
|
|
4,481
|
|
|
|
2.0420
|
|
Singapore Dollar
|
|
|
|
|
|
|
|
|
|
|
9,121
|
|
|
|
0.4897
|
|
|
|
|
|
|
|
|
|
Swiss Franc
|
|
|
5,071
|
|
|
|
0.8097
|
|
|
|
1,331
|
|
|
|
0.6297
|
|
|
|
|
|
|
|
|
|
The Companys credit ratings, which are independently
developed by the respective rating agencies, are as follows for
the years ended December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Short term
|
|
|
Long term
|
|
|
Short term
|
|
|
Long term
|
|
|
Moodys
|
|
|
P-1
|
|
|
|
A2
|
|
|
|
P-1
|
|
|
|
A2
|
|
Standard & Poors
|
|
|
A-1
|
|
|
|
A
|
|
|
|
A-1
|
|
|
|
A
|
|
Fitch
|
|
|
F1
|
|
|
|
A
|
|
|
|
F1
|
|
|
|
A
|
|
A summary of the Companys undiscounted long-term debt,
commitments and obligations as of December 31, 2006 and the
years when these obligations are expected to be due is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Long-term debt
|
|
$
|
1,512,758
|
|
|
$
|
32,267
|
|
|
$
|
185,863
|
|
|
$
|
34,995
|
|
|
$
|
33,102
|
|
|
$
|
1,226,531
|
|
Interest expense
|
|
|
984,858
|
|
|
|
79,435
|
|
|
|
73,966
|
|
|
|
70,059
|
|
|
|
70,059
|
|
|
|
691,339
|
|
Rental commitments
|
|
|
174,443
|
|
|
|
42,959
|
|
|
|
34,108
|
|
|
|
25,393
|
|
|
|
18,286
|
|
|
|
53,697
|
|
Purchase obligations
|
|
|
28,536
|
|
|
|
27,744
|
|
|
|
721
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
Capital leases
|
|
|
16,688
|
|
|
|
2,608
|
|
|
|
2,379
|
|
|
|
1,822
|
|
|
|
1,289
|
|
|
|
8,590
|
|
Supplemental & post-
retirement benefits
|
|
|
189,000
|
|
|
|
15,000
|
|
|
|
14,000
|
|
|
|
17,000
|
|
|
|
33,000
|
|
|
|
110,000
|
|
Other long-term obligations
|
|
|
4,872
|
|
|
|
1,504
|
|
|
|
991
|
|
|
|
678
|
|
|
|
529
|
|
|
|
1,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations
|
|
$
|
2,911,155
|
|
|
$
|
201,517
|
|
|
$
|
312,028
|
|
|
$
|
150,018
|
|
|
$
|
156,265
|
|
|
$
|
2,091,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) RESULTS
OF OPERATIONS:
2006
COMPARED TO 2005
Consolidated
Results of Operations
Revenue for the year ended December 31, 2006 increased 22%
over 2005, due to increases at all six segments led by increases
of $322.6 million at Resources and $334.6 million at
Electronics. Resources revenue increased due to positive market
fundamentals, acquisitions and improved operating efficiencies
while Electronics revenue increased due to acquisitions
and strong organic growth. Overall, Dovers organic revenue
growth was 14%, acquisition growth was 8% and the impact from
foreign exchange was negligible. Gross profit increased 25% to
$2,348.0 million from 2005 while the gross profit margin
increased 80 basis points to 36.1%.
Selling and administrative expenses of $1,436.2 million for
the year ended December 31, 2006 increased
$224.8 million over the comparable 2005 period, primarily
due to increased revenue activity and $26.4 million of
equity compensation expense related to the adoption of Statement
of Financial Accounting Standard 123(R), Share Based
Payment (SFAS No. 123(R)), which
required companies to expense the fair value of equity
compensation, such as stock options and stock-settled stock
appreciation rights (SSARs), primarily over the
related vesting period. The Company used the modified
prospective method to adopt SFAS No. 123(R), which did
20
not require the restatement of prior periods. Selling and
administrative expenses as a percentage of revenue decreased to
22.1% from 22.7% in 2005. Excluding the effect of
SFAS No. 123(R), selling and administrative expenses
during the year ended December 31, 2006 would have been
$1,409.8 million or 21.7% of revenue.
Interest expense, net, increased 6.6% to $77.0 million for
2006, compared to $72.2 million for 2005 due to higher
average outstanding borrowings and average commercial paper
rates.
Other (Income) Expense, net for 2006 of $12.0 million was
driven primarily by foreign exchange losses. Other (Income)
Expense, net of ($12.3) million for 2005 included foreign
exchange gains of $7.5 million.
The 2006 tax rate for continuing operations was 26.7%,
reflecting the effect of the full year retroactive extension of
the U.S. federal research credit, a favorable mix of
foreign earnings in low-taxed overseas jurisdictions, a lower
relative U.S. federal tax exclusion for foreign sales in
2006 and the inclusion of a $7.8 million net benefit
primarily related to the resolution of a state income tax issue.
The 2005 tax rate for continuing operations of 26.5% included a
$9.5 million provision related to the repatriation of
$373.7 million of dividends and a $25.5 million
benefit primarily related to the resolution of U.S. tax
issues and a $5.5 million benefit related to a favorable
federal tax court decision. Excluding the repatriation
provision, the full year 2005 tax rate for continuing operations
was 24.9%.
Earnings from continuing operations for 2006 were
$822.9 million or $2.94 per diluted share compared to
$607.3 million or $2.19 per diluted share. For 2006,
net earnings were $561.8 million, or $2.73 per diluted
share, which included a $41.5 million, or $0.20 per
diluted share, loss from discontinued operations, compared to
$510.1 million, or $2.50 per diluted share for 2005,
which included $63.9 million, or $0.31 per diluted
share, in earnings from discontinued operations. Refer to
Note 8 in the Consolidated Financial Statements for
additional information on discontinued operations.
Segment
Results of Operations
Diversified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31 ,
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
778,125
|
|
|
$
|
722,054
|
|
|
|
8
|
%
|
Segment earnings
|
|
|
90,055
|
|
|
|
87,617
|
|
|
|
3
|
%
|
Operating margin
|
|
|
11.6
|
%
|
|
|
12.1
|
%
|
|
|
|
|
Bookings
|
|
|
830,756
|
|
|
|
785,983
|
|
|
|
6
|
%
|
Book-to-Bill
|
|
|
1.07
|
|
|
|
1.09
|
|
|
|
|
|
Backlog
|
|
|
358,385
|
|
|
|
304,781
|
|
|
|
18
|
%
|
Diversifieds revenue and earnings increases were primarily
due to growth in the Process Equipment group. Operating margin
decreased 50 basis points as the impact of the revenue
growth was offset by softness in markets served by the
Industrial Equipment group. Backlog reached a record high on a
6% increase in bookings for the year.
Industrial Equipment revenue was up 3% over the prior year,
mainly due to the commercial aerospace market. Earnings
decreased 6%, as the leverage on increased revenue was offset by
softness in light construction and agricultural markets, the
cost of productivity initiatives, higher material costs, and
lower margin aerospace revenue. Bookings decreased 5% and
backlog increased 2% over the prior year.
Process Equipment groups revenue increased 18% over the
prior year due to robust heat exchanger and energy markets.
Improved pricing and productivity partially offset by weak
demand for print control systems contributed to the 25% earnings
growth over the prior year. Bookings and backlog increased 28%
and 64%, respectively, when compared to the prior year.
21
Electronics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
880,685
|
|
|
$
|
546,043
|
|
|
|
61
|
%
|
Segment earnings
|
|
|
119,425
|
|
|
|
46,888
|
|
|
|
155
|
%
|
Operating margin
|
|
|
13.6
|
%
|
|
|
8.6
|
%
|
|
|
|
|
Bookings
|
|
|
888,244
|
|
|
|
571,983
|
|
|
|
55
|
%
|
Book-to-Bill
|
|
|
1.01
|
|
|
|
1.05
|
|
|
|
|
|
Backlog
|
|
|
150,143
|
|
|
|
141,102
|
|
|
|
6
|
%
|
The increases in revenue and earnings at Electronics compared to
the prior year were due to the third quarter 2005 acquisitions
of Knowles Electronics and Colder Products and significant
organic revenue growth of 21% for the year due to strength in
the core Components businesses.
Components revenue increased 81%, while operating earnings
increased 187% compared to the prior year, as a result of the
Knowles and Colder acquisitions and strong organic growth,
particularly in the frequency controls and micro acoustics
markets. Acquisitions accounted for 52% and 63% of the revenue
and earnings growth, respectively. Bookings and backlog
increased 72% and 7%, respectively, when compared to the prior
year.
Commercial equipment revenue increased 9% while earnings
decreased 8%, due to weakness in the ATM business. Bookings
increased 8%, while backlog decreased 8%, when compared to the
prior year.
Industries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
876,494
|
|
|
$
|
817,947
|
|
|
|
7
|
%
|
Segment earnings
|
|
|
123,982
|
|
|
|
104,282
|
|
|
|
19
|
%
|
Operating margin
|
|
|
14.1
|
%
|
|
|
12.7
|
%
|
|
|
|
|
Bookings
|
|
|
939,149
|
|
|
|
846,258
|
|
|
|
11
|
%
|
Book-to-Bill
|
|
|
1.07
|
|
|
|
1.03
|
|
|
|
|
|
Backlog
|
|
|
288,835
|
|
|
|
222,793
|
|
|
|
30
|
%
|
Industries revenue and earnings increases over the prior
year were the result of improvements in the Mobile Equipment
group which experienced strong energy, military, and commercial
transportation markets in 2006. Operating margin increased
140 basis points largely due to operating efficiencies and
positive leverage in the refuse and trailer markets.
Mobile Equipment revenue increased 13% over the prior year,
driven for the most part by strength in the commercial
transportation market. Earnings increased 29% driven by volume
and improved leverage. In addition, prior year earnings were
positively impacted by a gain of approximately $1 million
on the sale of a facility. Bookings and backlog increased 20%
and 37%, respectively.
Revenue in the Service Equipment group declined 3% compared to
the prior year reflecting weakness in the North American
automotive service industry. Earnings increased by 2% compared
to the prior year. Bookings and backlog decreased 5% and 7%,
respectively.
22
Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
1,841,491
|
|
|
$
|
1,518,939
|
|
|
|
21
|
%
|
Segment earnings
|
|
|
316,328
|
|
|
|
260,671
|
|
|
|
21
|
%
|
Operating margin
|
|
|
17.2
|
%
|
|
|
17.2
|
%
|
|
|
|
|
Bookings
|
|
|
1,873,241
|
|
|
|
1,550,000
|
|
|
|
21
|
%
|
Book-to-Bill
|
|
|
1.02
|
|
|
|
1.02
|
|
|
|
|
|
Backlog
|
|
|
237,987
|
|
|
|
167,561
|
|
|
|
42
|
%
|
Resources revenue, earnings, and bookings increases were
primarily the result of improvements in the Oil and Gas
Equipment group and the August 30, 2006 acquisition of
Paladin. Margin remained flat as it was impacted by purchase
accounting amortization related to the Paladin acquisition.
Overall, the segment had organic revenue growth of 13% during
the year, with the remainder primarily from acquisitions.
Oil and Gas Equipment delivered strong results throughout 2006
with revenue and earnings increases of 37% and 52%,
respectively, over the prior year. Commodity pricing for oil and
gas began moderating in the second quarter of 2006, however,
strong activity in exploration, production and drilling
continued to drive the positive 2006 results. The group
continues to add capacity judiciously to meet increasing levels
of demand. Bookings increased by 37% and backlog increased 72%
when compared to the prior year.
Fluid Solutions revenue and earnings increased 8% and 3%,
respectively, when compared to the prior year. The revenue
increase was due to improvements in mobile transport equipment,
global demand for retail petroleum equipment and support
equipment for the growing ethanol business. Product mix had a
negative impact on earnings and margin. Bookings increased 9%
and backlog increased 27% when compared to the prior year.
Material Handling revenue increased 20% while earnings increased
13% compared to the prior year . The revenue increase was
primarily due to the Paladin acquisition and continued growth in
the heavy winch business, partially offset by softness in the
automotive and recreational vehicle markets. Margin was impacted
by the weak automotive, light construction and recreational
vehicle markets. Bookings increased 19% while the backlog grew
39% when compared to the prior year.
Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
834,854
|
|
|
$
|
705,377
|
|
|
|
18
|
%
|
Segment earnings
|
|
|
114,113
|
|
|
|
100,088
|
|
|
|
14
|
%
|
Operating margin
|
|
|
13.7
|
%
|
|
|
14.2
|
%
|
|
|
|
|
Bookings
|
|
|
841,913
|
|
|
|
755,436
|
|
|
|
11
|
%
|
Book-to-Bill
|
|
|
1.01
|
|
|
|
1.07
|
|
|
|
|
|
Backlog
|
|
|
181,530
|
|
|
|
174,402
|
|
|
|
4
|
%
|
Systems increases in revenue and earnings over the prior
year were driven by improvements at all businesses in the
segment. The decrease in operating margin was due to the Food
Equipment group which more than offset increases by Packaging
Equipment.
Food Equipment revenue and earnings increased 19% and 13%,
respectively, over the prior year due to positive market demand
for both supermarket and foodservice equipment. The margin
decrease reflects increased commodity costs and temporary cost
inefficiencies related to higher production levels in the food
equipment business. Bookings increased 15% compared to the prior
year, while backlog increased 5%.
23
Packaging Equipment revenue and earnings increased 15% and 19%,
respectively, over the prior year, as a result of increases in
both can necking equipment and packaging closure systems.
Bookings remained flat while backlog increased 1%.
Technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
1,313,546
|
|
|
$
|
1,033,853
|
|
|
|
27
|
%
|
Segment earnings
|
|
|
206,728
|
|
|
|
134,963
|
|
|
|
53
|
%
|
Operating margin
|
|
|
15.7
|
%
|
|
|
13.1
|
%
|
|
|
|
|
Bookings
|
|
|
1,297,719
|
|
|
|
1,058,873
|
|
|
|
23
|
%
|
Book-to-Bill
|
|
|
0.99
|
|
|
|
1.02
|
|
|
|
|
|
Backlog
|
|
|
125,929
|
|
|
|
102,207
|
|
|
|
23
|
%
|
Technologies revenue and earnings increases over the prior
year reflect the relative strength of the segments markets
during 2006. The segment achieved strong organic growth of 19%,
with the remainder mainly from acquisitions as improvements were
reported in both groups in the segment.
Automation and Measurement revenue increased 33% and earnings
increased 97% when compared to the prior year. Although the
semiconductor market moderated in the fourth quarter of 2006,
the group continued to exhibit strong fundamentals based on
levels of recurring revenue and the overall strength of the
consumer electronics industry. Bookings increased 26% and
backlog increased 2% compared to the prior year.
Product Identification (PI) revenue increased 21%
and earnings increased 37% over the prior year, reflecting
successful results from all product lines and regions as well as
the impact of the Markem and ONeil acquisitions which
contributed 12% to the groups revenue growth for the year.
Bookings increased 18% and backlog increased 64%.
2005
COMPARED WITH 2004
Consolidated
Results of Operations
Revenue for the year ended December 31, 2005 increased
19.1% or $853.9 from 2004, primarily driven by increases at all
six segments led by $278.7 million at Resources and
$142.2 million at Electronics. Resources revenue
increased due to positive market fundamentals, acquisitions and
improved operating efficiencies. Electronics revenue was
impacted by the acquisition of two significant Components
companies in the third quarter of 2005 along with operating
improvements in the core businesses. Overall, Dovers
organic revenue growth was 10%, acquisition growth was 9%, and
the foreign exchange impact was negligible. Gross profit
increased 17.3% to $1,878.7 million, while gross profit
margin of 35.2% decreased 50 basis points.
Selling and administrative expenses for 2005 were
$1,211.5 million, or 22.7% of revenue, compared to
$1,053.1 million or 23.5% of revenue in 2004. The increase
in selling and administrative expenses included increases in
compensation and pension benefits along with the impact of the
2005 acquisitions. Operating earnings of $667.2 million for
2005 increased $119.1 million compared to the prior year
due primarily to the 19.1% increase in revenue, benefits from
improved operating efficiencies and improved global economic
conditions. Operating margin for 2005 increased 30 basis
points to 12.5%.
Net interest expense increased 18.1% to $72.2 million for
2005, compared to $61.1 million for 2004, primarily due to
the increase in net interest expense from higher outstanding
borrowings used to fund 2005 acquisitions.
Other (Income) Expense, net for 2005 of ($12.3) million was
driven primarily by foreign exchange gains. Other (Income)
Expense, net of ($5.1) million for 2004 included favorable
settlements and miscellaneous credits of $11.8 million,
which were largely offset by foreign exchange losses of
$6.7 million.
24
The 2005 effective tax rate for continuing operations was 26.5%
compared to 26.4% in 2004 and included a $9.5 million
U.S. tax provision related to the repatriation of
$373.7 million of dividends, a $25.5 million benefit
primarily related to the resolution of U.S. tax issues, and
a $5.5 million first quarter benefit related to a favorable
federal tax court decision. Excluding the repatriation
provision, the full year 2005 effective tax rate for continuing
operations was 24.9%.
Earnings from continuing operations for 2005 were
$446.2 million or $2.19 per diluted share compared to
$362.4 million or $1.77 per diluted share in 2004. For
2005, net earnings were $510.1 million or $2.50 per
diluted share, which included $63.9 million or
$0.31 per diluted share in earnings from discontinued
operations, compared to $412.8 million or $2.02 per
diluted share for 2004, which included $50.3 million or
$0.25 per diluted share in earnings from discontinued
operations. Refer to Note 8 in the Consolidated Financial
Statements for additional information on discontinued operations.
Segment
Results of Operations
Diversified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
722,054
|
|
|
$
|
574,960
|
|
|
|
26
|
%
|
Segment earnings
|
|
|
87,617
|
|
|
|
69,050
|
|
|
|
27
|
%
|
Operating margin
|
|
|
12.1
|
%
|
|
|
12.0
|
%
|
|
|
|
|
Bookings
|
|
|
785,983
|
|
|
|
633,472
|
|
|
|
24
|
%
|
Book-to-Bill
|
|
|
1.09
|
|
|
|
1.10
|
|
|
|
|
|
Backlog
|
|
|
304,781
|
|
|
|
242,025
|
|
|
|
26
|
%
|
Diversifieds revenue and earnings increases were driven by
both the Industrial Equipment Group and the Process Equipment
Group due to growth in the aerospace, defense, heat exchanger,
and oil and gas markets.
Industrial Equipments revenue and earnings increased 29%
and 19%, respectively, over the prior year. The revenue increase
was driven primarily by strength in the aerospace and
construction markets. The margin decrease resulted from
unfavorable product mix and acquisition-related costs, partially
offset by volume increases and moderating raw material pricing.
The automotive and powersports business was down as gains from
the North American professional racing market were not enough to
offset a weak powersports market. Bookings increased 26% and
backlog increased 25%.
Process Equipments full-year revenue and earnings rose 19%
and 33%, respectively, and margin grew to over 15%, reflecting
double digit revenue growth in all areas, and significant
earnings and margin growth in the oil and gas market for
bearings. In addition, overall growth was driven by the
expanding HVAC markets for heat exchangers, as well as
productivity gains. Bookings increased 20% and backlog grew 30%.
Electronics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
546,043
|
|
|
$
|
403,856
|
|
|
|
35
|
%
|
Segment earnings
|
|
|
46,888
|
|
|
|
35,293
|
|
|
|
33
|
%
|
Operating margin
|
|
|
8.6
|
%
|
|
|
8.7
|
%
|
|
|
|
|
Bookings
|
|
|
571,983
|
|
|
|
408,259
|
|
|
|
40
|
%
|
Book-to-Bill
|
|
|
1.05
|
|
|
|
1.01
|
|
|
|
|
|
Backlog
|
|
|
141,102
|
|
|
|
77,388
|
|
|
|
82
|
%
|
The increases in both revenue and earnings at Electronics were
primarily driven by the acquisition of two significant
Components companies, Knowles Electronics and Colder Products,
in the third quarter of 2005 and
25
operating improvements within core businesses, although these
gains were partially offset by decreases in Commercial Equipment
and purchase accounting amortization.
Components operating earnings increased 207% in 2005 compared to
the prior year on a 57% increase in revenue, reflecting the
acquisitions, and revenue and earnings growth in almost all of
the other Components businesses. The margin grew to exceed 12%
and was aided by the two acquisitions and included
$5.3 million of integration costs related to a 2004 Vectron
acquisition. Bookings increased 65% and backlog grew 89%.
Commercial Equipment full year revenue was flat, with earnings
down 23% and a substantial decrease in margin, reflecting some
market softness and the effect of Hurricane Katrina, which
disrupted the ATM operations significantly in the third quarter
of 2005. Bookings decreased 2% and backlog grew 23%.
Industries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
817,947
|
|
|
$
|
748,082
|
|
|
|
9
|
%
|
Segment earnings
|
|
|
104,282
|
|
|
|
88,967
|
|
|
|
17
|
%
|
Operating margin
|
|
|
12.7
|
%
|
|
|
11.9
|
%
|
|
|
|
|
Bookings
|
|
|
846,258
|
|
|
|
777,495
|
|
|
|
9
|
%
|
Book-to-Bill
|
|
|
1.03
|
|
|
|
1.04
|
|
|
|
|
|
Backlog
|
|
|
222,793
|
|
|
|
192,510
|
|
|
|
16
|
%
|
Revenue and earnings increases in Industries were driven
primarily by the Mobile Equipment group, due to strong military
sales and strength in environmental markets. Industries
earnings increase was partially offset by a decrease at the
Service Equipment group. Bookings and backlog both exceeded
prior-year levels on improved strength in the environmental and
military markets.
Strong military sales and strength in the oil field industry
contributed to Mobile Equipment revenue and earnings increases
of 15% and 41%, respectively, with significant margin
improvement. Earnings were also positively impacted by a gain of
approximately $1 million on the sale of a facility and cost
control initiatives. Bookings increased 14% driven by strong
demand for trailer and refuse products and backlog increased 15%.
Service Equipment revenue and margin were flat while earnings
declined moderately, reflecting overall end market conditions
and weakness in the automotive service industry. Earnings were
negatively impacted by product mix, new product introduction
costs, and a facility shutdown. Bookings were essentially flat,
while backlog increased 18%.
Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
1,518,939
|
|
|
$
|
1,240,255
|
|
|
|
22
|
%
|
Segment earnings
|
|
|
260,671
|
|
|
|
206,256
|
|
|
|
26
|
%
|
Operating margin
|
|
|
17.2
|
%
|
|
|
16.6
|
%
|
|
|
|
|
Bookings
|
|
|
1,550,000
|
|
|
|
1,292,621
|
|
|
|
20
|
%
|
Book-to-Bill
|
|
|
1.02
|
|
|
|
1.04
|
|
|
|
|
|
Backlog
|
|
|
167,561
|
|
|
|
137,145
|
|
|
|
22
|
%
|
In 2005, Resources had record revenue, earnings, margin,
bookings and backlog, reflecting positive market fundamentals,
acquisitions and improved operating efficiencies.
26
Oil and Gas Equipment led the segment in 2005 with increases in
revenue and earnings of 52% and 62%, respectively, due to
continued robust demand for its energy-related products.
Bookings increased by 49% and backlog increased 58%.
Fluid Solutions revenue and earnings increased 12% and 16%,
respectively, due to strong refining, petrochemical, and
transportation markets, partially offset by weakness in the
retail petroleum markets. Bookings were up 11%, and backlog was
up 10%.
Material Handling realized an increase in revenue of 14% while
earnings, which included strategic realignment costs at one of
the businesses, grew 6%. The increase in revenue was driven by
demand in the construction, crane, aerial lift, petroleum, and
military markets, partially offset by slow demand from the
automotive industry. Bookings were up 11% and backlog was up 20%.
Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
705,377
|
|
|
$
|
619,434
|
|
|
|
14
|
%
|
Segment earnings
|
|
|
100,088
|
|
|
|
73,479
|
|
|
|
36
|
%
|
Operating margin
|
|
|
14.2
|
%
|
|
|
11.9
|
%
|
|
|
|
|
Bookings
|
|
|
755,436
|
|
|
|
654,053
|
|
|
|
16
|
%
|
Book-to-Bill
|
|
|
1.07
|
|
|
|
1.06
|
|
|
|
|
|
Backlog
|
|
|
174,402
|
|
|
|
124,908
|
|
|
|
40
|
%
|
Systems revenue and earnings increases were driven by both Food
Equipment and Packaging Equipment, reflecting strength in the
supermarket equipment and can machinery markets.
Food Equipment revenue increased 14% in 2005 compared to the
prior year, due to higher supermarket and foodservice equipment
sales, resulting in an earnings increase of 42%. Margin improved
due to volume leverage, pricing initiatives and productivity
gains. Bookings increased 13% and backlog was up 26%.
Packaging Equipment revenue and earnings in 2005 increased 13%
and 18%, respectively, over the prior year and margin rose
80 bps due to strength in the can machinery market,
particularly in Eastern Europe, Asia and the Middle East, driven
by both new lines and can size conversions. The package closure
business experienced continued weak market conditions in Western
Europe, particularly Germany. Bookings increased 22% and backlog
increased 89%.
Technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
1,033,853
|
|
|
$
|
902,283
|
|
|
|
15
|
%
|
Segment earnings
|
|
|
134,963
|
|
|
|
129,058
|
|
|
|
5
|
%
|
Operating margin
|
|
|
13.1
|
%
|
|
|
14.3
|
%
|
|
|
|
|
Bookings
|
|
|
1,058,873
|
|
|
|
870,238
|
|
|
|
22
|
%
|
Book-to-Bill
|
|
|
1.02
|
|
|
|
0.96
|
|
|
|
|
|
Backlog
|
|
|
102,207
|
|
|
|
75,940
|
|
|
|
35
|
%
|
Revenue and earnings increases in 2005 reflected strength in the
product identification market, offset by costs of
$8 million related to restructuring charges that are
expected to have a positive impact on the segments future
financial performance.
A&M revenue was essentially flat and earnings declined 25%
in 2005 compared to the prior year, reflecting restructuring
charges of approximately $6 million, principally related to
certain facility closures, and general sales
27
declines, except at the screen printer rework equipment
companies. Bookings increased 9% and backlog increased 59%.
PI reported a revenue increase of 41%, while earnings increased
30%. The revenue and earnings increases were primarily
attributable to the impact of the Datamax acquisition at the end
of 2004, partially offset by approximately $2 million of
restructuring costs, weakness in printing equipment markets and
price competitiveness for marking equipment. Bookings increased
41% and backlog increased 3%.
Critical
Accounting Policies
The Companys consolidated financial statements and related
public financial information are based on the application of
generally accepted accounting principles in the United States of
America (GAAP). GAAP requires the use of estimates,
assumptions, judgments and subjective interpretations of
accounting principles that have an impact on the assets,
liabilities, revenue and expense amounts reported. These
estimates can also affect supplemental information contained in
the public disclosures of the Company, including information
regarding contingencies, risk and its financial condition. The
Company believes its use of estimates and underlying accounting
assumptions conform to GAAP and are consistently applied.
Valuations based on estimates are reviewed for reasonableness on
a consistent basis throughout the Company. Primary areas where
the financial information of Dover is subject to the use of
estimates, assumptions and the application of judgment include
the following areas:
|
|
|
|
|
Revenue is recognized when all of the following circumstances
are satisfied: a) persuasive evidence of an arrangement
exists, b) price is fixed or determinable,
c) collectibility is reasonably assured, and
d) delivery has occurred. In revenue transactions where
installation is required, revenue can be recognized when the
installation obligation is not essential to the functionality of
the delivered products. Revenue transactions involving
non-essential installation obligations are those which can
generally be completed in a short period of time at
insignificant cost and the skills required to complete these
installations are not unique to the Company and in many cases
can be provided by third parties or the customers. If the
installation obligation is essential to the functionality of the
delivered product, revenue recognition is deferred until
installation is complete. In addition, when it is determined
that there are multiple deliverables to a sales arrangement, the
Company will allocate consideration received to the separate
deliverables based on their relative fair values and recognize
revenue based on the appropriate criteria for each deliverable
identified. In a limited number of revenue transactions, other
post shipment obligations such as training and customer
acceptance are required and, accordingly, revenue recognition is
deferred until the customer is obligated to pay, or acceptance
has been confirmed. Service revenue is recognized and earned
when services are performed.
|
|
|
|
Allowances for doubtful accounts are estimated at the individual
operating companies based on estimates of losses related to
customer receivable balances. Estimates are developed by using
standard quantitative measures based on historical losses,
adjusting for current economic conditions and, in some cases,
evaluating specific customer accounts for risk of loss. The
establishment of reserves requires the use of judgment and
assumptions regarding the potential for losses on receivable
balances. Due to the fact that Dover operates in many different
markets, changes in economic conditions in specific markets
generally should not have a material effect on reserve balances
required.
|
|
|
|
Inventory for the majority of the Companys subsidiaries,
including all international subsidiaries and the Technologies
segment, are stated at the lower of cost, determined on the
first-in,
first-out (FIFO) basis, or market. Other domestic inventory is
stated at cost, determined on the
last-in,
first-out (LIFO) basis, which is less than market value. Under
certain market conditions, estimates and judgments regarding the
valuation of inventory are employed by the Company to properly
value inventory. Technologies companies tend to experience
higher levels of inventory value fluctuations, particularly
given the relatively high rate of product obsolescence over
relatively short periods of time.
|
|
|
|
Occasionally, the Company will establish restructuring reserves
at an operation in accordance with appropriate accounting
principles. These reserves, for both severance and exit costs,
require the use of estimates. Though Dover believes that these
estimates accurately reflect the anticipated costs, actual
results may be different than the estimated amounts.
|
28
|
|
|
|
|
Dover has significant tangible and intangible assets on its
balance sheet that include goodwill and other intangibles
related to acquisitions. The valuation and classification of
these assets and the assignment of useful depreciation and
amortization lives involve significant judgments and the use of
estimates. The testing of these intangibles under established
accounting guidelines (including
SFAS No. 142) for impairment also requires
significant use of judgment and assumptions, particularly as it
relates to the identification of reporting units and the
determination of fair market value. Dovers assets and
reporting units are tested and reviewed for impairment on an
annual basis during the fourth quarter or when indicators of
impairment exist. The Company believes that its use of estimates
and assumptions are reasonable and comply with generally
accepted accounting principles. Changes in business conditions
could potentially require adjustments to the valuations.
|
|
|
|
The valuation of Dovers pension and other post-retirement
plans requires the use of assumptions and estimates that are
used to develop actuarial valuations of expenses and
assets/liabilities. These assumptions include discount rates,
investment returns, projected salary increases and benefits, and
mortality rates. The actuarial assumptions used in Dovers
pension reporting are reviewed annually and are compared with
external benchmarks to assure that they accurately account for
Dovers future pension obligations. Changes in assumptions
and future investment returns could potentially have a material
impact on Dovers pension expenses and related funding
requirements. Dovers expected long-term rate of return on
plan assets is reviewed annually based on actual returns,
economic trends and portfolio allocation. Dovers discount
rate assumption is determined by constructing a portfolio of
bonds to match the expected benefit stream to be paid from the
Companys pension plans. The benefit payment stream is
assumed to be funded from bond coupons and maturities, as well
as interest on the excess cash flows from the bond portfolio.
|
|
|
|
Dover has significant amounts of deferred tax assets that are
reviewed for recoverability and valued accordingly. These assets
are evaluated by using estimates of future taxable income
streams and the impact of tax planning strategies. Reserves are
also estimated for ongoing audits regarding federal, state and
international issues that are currently unresolved. The Company
routinely monitors the potential impact of these situations and
believes that it is properly reserved. Valuations related to tax
accruals and assets can be impacted by changes in accounting
regulations, changes in tax codes and rulings, changes in
statutory tax rates, and the Companys future taxable
income levels.
|
|
|
|
Dover has significant accruals and reserves related to its risk
management program. These accruals require the use of estimates
and judgment with regard to risk exposure and ultimate
liability. The Company estimates losses under these programs
using actuarial assumptions, Dovers experience, and
relevant industry data. Dover considers the current level of
accruals and reserves adequate relative to current market
conditions and Company experience.
|
|
|
|
Dover has established reserves for environmental and legal
contingencies at both the operating company and corporate
levels. A significant amount of judgment and use of estimates is
required to quantify Dovers ultimate exposure in these
matters. The valuation of reserves for contingencies is reviewed
on a quarterly basis at the operating and corporate levels to
assure that Dover is properly reserved. Reserve balances are
adjusted to account for changes in circumstances for ongoing
issues and the establishment of additional reserves for emerging
issues. While Dover believes that the current level of reserves
is adequate, future changes in circumstances could impact these
determinations.
|
|
|
|
The Company from time to time will discontinue certain
operations for various reasons. Estimates are used to adjust, if
necessary, the assets and liabilities of discontinued operations
to their estimated fair value less costs to sell. These
estimates include assumptions relating to the proceeds
anticipated as a result of the sale. The adjustments to fair
market value of these operations provide the basis for the gain
or loss when sold. Changes in business conditions or the
inability to sell an operation could potentially require future
adjustments to these estimates.
|
|
|
|
The Company uses the Black-Scholes valuation model to estimate
the fair value of SSARs and stock options that are granted to
employees. The model requires management to estimate the
expected life of the SSAR or option and the volatility of
Dovers stock using historical data. For additional
information related to the assumptions used, see Note 10 to
the Consolidated Financial Statements in Item 8 of this
Form 10-K.
|
29
New
Accounting Standards
Effective January, 1 2006, Dover adopted
SFAS No. 123(R), Share Based Payment. See
Notes 1 and 2 to the Consolidated Financial Statements in
Item 8 of this
Form 10-K
for additional information on the adoption of this standard.
Effective December 31, 2006, Dover adopted
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an
Amendment of Financial Accounting Standards Board
(FASB) Statements No. 87, 88, 106, and
132(R) (SFAS No. 158). See
Notes 2 and 13 to the Consolidated Financial Statements in
Item 8 of this
Form 10-K
for additional information on the adoption of this standard.
In July 2006, the FASB issued Interpretation No. 48
Accounting for Uncertainty in Income Taxes
(FIN 48). FIN 48 clarifies the way
companies are to account for uncertainty in income tax reporting
and filing and prescribes a consistent recognition threshold and
measurement attribute for recognizing, derecognizing, and
measuring the tax benefits of a tax position taken, or expected
to be taken, on a tax return. Any change in net assets as a
result of adopting the new standard is required to be recorded
as a cumulative effect adjustment to Dovers opening
retained earnings balance as of January 1, 2007. The
adoption of FIN 48 is not expected to have a material
impact on the Companys retained earnings balance as of
January 1, 2007.
In September 2006, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current year Financial Statements
(SAB 108), which provides interpretive guidance
on the consideration of the effects of prior year misstatements
in quantifying current year misstatements for the purpose of a
materiality assessment. SAB 108 is effective as of the end
of Dovers 2006 fiscal year, allowing a one-time
transitional cumulative effect adjustment to beginning retained
earnings as of January 1, 2006 for errors that were not
previously deemed material, but are material under the guidance
in SAB 108. The adoption of SAB 108 as of
December 31, 2006 had no impact on Dovers financial
statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This statement is effective for
fiscal periods beginning after November 15, 2007 and does
not require any new fair value measurements. The Company is
currently evaluating the impact of SFAS No. 157 on its
overall results of operations or financial position.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections
(SFAS No. 154), which replaces APB
No. 20 Accounting Changes, and
SFAS No. 3 Reporting Accounting Changes in
Interim Financial Statements. SFAS No. 154
changes the requirements for the accounting for and reporting of
a change in accounting principle, and applies to all voluntary
changes in accounting principles, as well as changes required by
an accounting pronouncement in the unusual instance that it does
not include specific transition provisions. Specifically,
SFAS No. 154 requires retrospective application to
prior periods financial statements, unless it is
impracticable to determine the period-specific effects or the
cumulative effect of the change. SFAS No. 154 does not
change the transition provisions of any existing pronouncement.
SFAS No. 154 is effective for Dover for all accounting
changes and corrections of errors made beginning January 1,
2006 and had no impact on Dover.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, An Amendment of Accounting Research
Bulletin No. 43, Chapter 4
(SFAS No. 151). SFAS No. 151
requires that abnormal amounts of idle capacity and spoilage
costs be excluded from the cost of inventory and expensed when
incurred. The provisions of SFAS No. 151 were
applicable to inventory costs incurred beginning January 1,
2006. The effect of the adoption of SFAS No. 151 was
immaterial to Dovers consolidated results of operations,
cash flows or financial position.
Non-GAAP Disclosures
In an effort to provide investors with additional information
regarding the Companys results as determined by GAAP, the
Company also discloses non-GAAP information which management
believes provides useful information to investors. Free cash
flow, net debt, total capitalization, operational working
capital, revenue excluding the impact of changes in foreign
currency exchange rates and organic revenue growth are not
financial measures under GAAP and should not be considered as a
substitute for cash flows from operating activities, debt or
equity, revenue
30
and working capital as determined in accordance with GAAP and
they may not be comparable to similarly titled measures reported
by other companies. Management believes the net debt to total
capitalization ratio and free cash flow are important measures
of operating performance and liquidity. Net debt to total
capitalization is helpful in evaluating the Companys
capital structure and the amount of leverage it employs. Free
cash flow provides both management and investors a measurement
of cash generated from operations that is available to fund
acquisitions, pay dividends, repay debt and repurchase
Dovers common stock. Reconciliations of free cash flow and
net debt can be found above in this Item 7,
Managements Discussion and Analysis. Management believes
that reporting operational working capital (also sometimes
called adjusted working capital), which is
calculated as accounts receivable, plus inventory, less accounts
payable, provides a meaningful measure of the Companys
operational results by showing the changes caused solely by
revenue. In addition, management believes that reporting
operational working capital and revenue at constant currency,
which excludes the positive or negative impact of fluctuations
in foreign currency exchange rates, provides a meaningful
measure of the Companys operational changes, given the
global nature of Dovers businesses. Management also
believes that reporting organic revenue growth, which excludes
the impact of foreign currency exchange rates and acquisitions,
provides a useful comparison of the Companys revenue
performance and trends between periods.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest
Rates
The Companys exposure to market risk for changes in
interest rates relates primarily to the fair value of long-term
fixed interest rate debt, interest rate swaps attached thereto,
commercial paper borrowings and investments in cash equivalents.
Generally, the fair market value of fixed-interest rate debt
will increase as interest rates fall and decrease as interest
rates rise. A 59 basis point increase or decrease in interest
rates (10% of the Companys weighted average long-term debt
interest rate) would have an immaterial effect on the fair value
of the Companys long-term debt. Commercial paper
borrowings are at variable interest rates, and have maturities
of three months or less. A 53 basis point increase or
decrease in the interest rates (10% of the Companys
weighted average commercial paper interest rate) on commercial
paper borrowings would have an immaterial impact on the
Companys pre-tax earnings. All highly liquid investments,
including highly liquid debt instruments purchased with an
original maturity of three months or less, are considered cash
equivalents. The Company places its investments in cash
equivalents with high credit quality issuers and limits the
amount of exposure to any one issuer. A 51 basis point
decrease or increase in interest rates (10% of the
Companys weighted average interest rate) would have an
immaterial impact on the Companys pre-tax income. As of
December 31, 2006, the Company had two interest rate swaps
outstanding, as discussed in Note 9 to the Consolidated
Financial Statements. The Company does not enter into derivative
financial or derivative commodity instruments for trading or
speculative purposes.
Foreign
Exchange
The Company conducts business in various foreign countries,
primarily in Canada, Mexico, substantially all of the European
countries, Brazil, Argentina, Malaysia, China and other Asian
countries. Therefore, changes in the value of the currencies of
these countries affect the Companys financial position and
cash flows when translated into U.S. Dollars. The Company
has generally accepted the exposure to exchange rate movements
relative to its investment in foreign operations. The Company
may, from time to time, for a specific exposure, enter into fair
value hedges. Certain individual operating companies that have
foreign exchange exposure have established formal policies to
mitigate risk in this area by using fair value
and/or cash
flow hedging. The Company has mitigated and will continue to
mitigate a portion of its currency exposure through operation of
decentralized foreign operating companies in which the majority
of all costs are local-currency based. A change of 10% or less
in the value of all foreign currencies would not have a material
effect on the Companys financial position and cash flows.
31
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
|
|
|
Page
|
|
|
|
33
|
|
Managements Report on
Internal Control Over Financial Reporting
|
34
|
|
Report of Independent Registered
Public Accounting Firm
|
36
|
|
Consolidated Statements of
Operations (For the years ended December 31, 2006, 2005 and
2004)
|
37
|
|
Consolidated Balance Sheets (At
December 31, 2006 and 2005)
|
38
|
|
Consolidated Statements of
Stockholders Equity and Comprehensive Earnings (For the
years ended December 31, 2006, 2005 and 2004)
|
39
|
|
Consolidated Statements of Cash
Flows (For the years ended December 31, 2006, 2005 and 2004)
|
40-70
|
|
Notes to Consolidated Financial
Statements
|
71
|
|
Financial Statement
Schedule Schedule II, Valuation and Qualifying
Accounts
|
(All
other schedules are not required and have been
omitted)
32
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act
Rule 13a-15(f).
The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2006. In making this assessment, the
Companys management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework.
Based on its assessment under the criteria set forth in
Internal Control Integrated Framework,
management concluded that, as of December 31, 2006, the
Companys internal control over financial reporting was
effective to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles.
In making its assessment of internal control over financial
reporting as of December 31, 2006, management has excluded
those companies acquired in purchase business combinations
during 2006, which included Infocash/Cash Services Limited, Cash
Point Machines PLC, ONeil Product Development, Paladin
Brands Holding Inc., Environ Holdings, Markem Corp., and Magnum
Systems Inc. These companies are wholly-owned by the Company and
their total revenue for the year ended December 31, 2006
represents approximately 3% of the Companys consolidated
total revenue for the same period and their assets represent
approximately 18% of the Companys consolidated assets as
of December 31, 2006.
Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2006 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
33
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Dover Corporation:
We have completed integrated audits of Dover Corporations
consolidated financial statements and of its internal control
over financial reporting as of December 31, 2006, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Our opinions, based on our
audits, are presented below.
Consolidated
financial statements and financial statement
schedule
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15 (a)(1) present fairly, in
all material respects, the financial position of Dover
Corporation and its subsidiaries at December 31, 2006 and
2005, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2006 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. These financial
statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit of financial statements 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 our opinion.
As discussed in Note 1 to the consolidated financial
statements, the Company changed the manner in which it accounts
for share-based compensation and defined benefit pension and
other postretirement obligations in 2006.
Internal
control over financial reporting
Also, in our opinion, managements assessment, included in
Managements Report on Internal Control Over
Financial Reporting, appearing under Item 8, that the
Company maintained effective internal control over financial
reporting as of December 31, 2006 based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), is fairly
stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2006, based on criteria
established in Internal Control Integrated
Framework issued by the COSO. The Companys management
is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express opinions on managements assessment and on
the effectiveness of the Companys internal control over
financial reporting based on our audit. We conducted our audit
of internal control over financial reporting in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. An audit of internal
control over financial reporting includes obtaining an
understanding of internal control over financial reporting,
evaluating managements assessment, testing and evaluating
the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance
34
with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in
accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
As described in Managements Report of Internal Control
Over Financial Reporting, management has excluded Infocash/Cash
Services Limited, Cash Point Machines PLC, ONeil Product
Development, Paladin Brands Holding Inc., Environ Holdings,
Markem Corp., and Magnum Systems Inc. from its assessments of
internal control over financial reporting as of
December 31, 2006 because they were acquired by the Company
in purchase business combinations during 2006. These companies
are wholly owned by the Company and their total revenue and
assets represent approximately 3% and 18% of the Companys
consolidated total revenue and assets, respectively, as
reflected in its financial statements for the year ended
December 31, 2006.
/s/ PricewaterhouseCoopers
LLP
New York, New York
February 28, 2007
35
DOVER
CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share figures)
|
|
|
Revenue
|
|
$
|
6,511,623
|
|
|
$
|
5,333,338
|
|
|
$
|
4,479,390
|
|
Cost of goods and services
|
|
|
4,163,581
|
|
|
|
3,454,634
|
|
|
|
2,878,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,348,042
|
|
|
|
1,878,704
|
|
|
|
1,601,260
|
|
Selling and administrative expenses
|
|
|
1,436,237
|
|
|
|
1,211,461
|
|
|
|
1,053,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
911,805
|
|
|
|
667,243
|
|
|
|
548,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
76,984
|
|
|
|
72,231
|
|
|
|
61,143
|
|
Other expense (income), net
|
|
|
11,952
|
|
|
|
(12,321
|
)
|
|
|
(5,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest/other expense, net
|
|
|
88,936
|
|
|
|
59,910
|
|
|
|
56,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before provision for
income taxes and discontinued operations
|
|
|
822,869
|
|
|
|
607,333
|
|
|
|
492,115
|
|
Provision for income taxes
|
|
|
219,541
|
|
|
|
161,138
|
|
|
|
129,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations
|
|
|
603,328
|
|
|
|
446,195
|
|
|
|
362,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued
operations, net
|
|
|
(41,546
|
)
|
|
|
63,947
|
|
|
|
50,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
561,782
|
|
|
$
|
510,142
|
|
|
$
|
412,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
$
|
2.96
|
|
|
$
|
2.20
|
|
|
$
|
1.78
|
|
Earnings (loss) from discontinued
operations
|
|
|
(0.20
|
)
|
|
|
0.32
|
|
|
|
0.25
|
|
Net earnings
|
|
|
2.76
|
|
|
|
2.51
|
|
|
|
2.03
|
|
Weighted average shares outstanding
|
|
|
203,773
|
|
|
|
202,979
|
|
|
|
203,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
$
|
2.94
|
|
|
$
|
2.19
|
|
|
$
|
1.77
|
|
Earnings (loss) from discontinued
operations
|
|
|
(0.20
|
)
|
|
|
0.31
|
|
|
|
0.25
|
|
Net earnings
|
|
|
2.73
|
|
|
|
2.50
|
|
|
|
2.02
|
|
Weighted average shares outstanding
|
|
|
205,497
|
|
|
|
204,177
|
|
|
|
204,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per common share
|
|
$
|
0.71
|
|
|
$
|
0.66
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table is a reconciliation of the share amounts
used in computing earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Weighted average shares
outstanding Basic
|
|
|
203,773
|
|
|
|
202,979
|
|
|
|
203,275
|
|
Dilutive effect of assumed
exercise of employee stock options
|
|
|
1,724
|
|
|
|
1,198
|
|
|
|
1,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding Diluted
|
|
|
205,497
|
|
|
|
204,177
|
|
|
|
204,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from
diluted EPS computation
|
|
|
1,716
|
|
|
|
4,339
|
|
|
|
3,604
|
|
See Notes to Consolidated Financial Statements.
36
DOVER
CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
At December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
373,616
|
|
|
$
|
185,832
|
|
Receivables, net of allowances of
$28,632 and $26,158
|
|
|
1,056,828
|
|
|
|
850,084
|
|
Inventories, net
|
|
|
709,647
|
|
|
|
573,265
|
|
Prepaid and other current assets
|
|
|
65,646
|
|
|
|
49,716
|
|
Deferred tax asset
|
|
|
65,769
|
|
|
|
46,881
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,271,506
|
|
|
|
1,705,778
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment,
net
|
|
|
856,799
|
|
|
|
706,744
|
|
Goodwill
|
|
|
3,201,983
|
|
|
|
2,555,596
|
|
Intangible assets,
net
|
|
|
1,065,382
|
|
|
|
696,267
|
|
Other assets and deferred
charges
|
|
|
123,045
|
|
|
|
239,367
|
|
Assets of discontinued
operations
|
|
|
107,943
|
|
|
|
676,740
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,626,658
|
|
|
$
|
6,580,492
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable and current
maturities of long-term debt
|
|
$
|
290,549
|
|
|
$
|
194,162
|
|
Accounts payable
|
|
|
410,001
|
|
|
|
329,362
|
|
Accrued compensation and employee
benefits
|
|
|
280,580
|
|
|
|
218,312
|
|
Accrued insurance
|
|
|
122,488
|
|
|
|
112,414
|
|
Other accrued expenses
|
|
|
183,642
|
|
|
|
155,409
|
|
Federal and other taxes on income
|
|
|
146,720
|
|
|
|
97,033
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,433,980
|
|
|
|
1,106,692
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,480,491
|
|
|
|
1,344,173
|
|
Deferred income taxes
|
|
|
364,034
|
|
|
|
354,426
|
|
Other deferrals (principally
compensation)
|
|
|
405,845
|
|
|
|
238,417
|
|
Liabilities of discontinued
operations
|
|
|
131,286
|
|
|
|
207,261
|
|
Commitments and contingent
liabilities
|
|
|
|
|
|
|
|
|
Stockholders
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
242,293
|
|
|
|
239,796
|
|
Additional paid-in capital
|
|
|
241,455
|
|
|
|
122,181
|
|
Accumulated other comprehensive
earnings
|
|
|
48,852
|
|
|
|
57,778
|
|
Retained earnings
|
|
|
4,421,927
|
|
|
|
4,004,944
|
|
Common stock in treasury
|
|
|
(1,143,505
|
)
|
|
|
(1,095,176
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,811,022
|
|
|
|
3,329,523
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
7,626,658
|
|
|
$
|
6,580,492
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
37
DOVER
CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Comprehensive
|
|
|
|
Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Earnings
|
|
|
|
$1 Par Value
|
|
|
Capital
|
|
|
Earnings (Loss)
|
|
|
Earnings
|
|
|
Stock
|
|
|
Equity
|
|
|
|
(Loss)
|
|
|
|
(In thousands, except per share figures)
|
|
Balance at
12/31/03
|
|
$
|
238,304
|
|
|
$
|
80,746
|
|
|
$
|
119,673
|
|
|
$
|
3,342,020
|
|
|
$
|
(1,038,072
|
)
|
|
$
|
2,742,671
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
412,755
|
|
|
|
|
|
|
|
412,755
|
|
|
|
$
|
412,755
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126,060
|
)
|
|
|
|
|
|
|
(126,060
|
)
|
|
|
|
|
|
Common stock issued for options
exercised
|
|
|
698
|
|
|
|
12,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,607
|
|
|
|
|
|
|
Tax benefit from the exercise of
stock options
|
|
|
|
|
|
|
4,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,959
|
|
|
|
|
|
|
Common stock issued, net of
cancellations
|
|
|
13
|
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
Common stock acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,175
|
)
|
|
|
(5,175
|
)
|
|
|
|
|
|
Translation of foreign financial
statements
|
|
|
|
|
|
|
|
|
|
|
76,081
|
|
|
|
|
|
|
|
|
|
|
|
76,081
|
|
|
|
|
76,081
|
|
Unrealized holding losses, net of
tax
|
|
|
|
|
|
|
|
|
|
|
(534
|
)
|
|
|
|
|
|
|
|
|
|
|
(534
|
)
|
|
|
|
(534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
12/31/04
|
|
|
239,015
|
|
|
|
98,979
|
|
|
|
195,220
|
|
|
|
3,628,715
|
|
|
|
(1,043,247
|
)
|
|
|
3,118,682
|
|
|
|
$
|
488,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
510,142
|
|
|
|
|
|
|
|
510,142
|
|
|
|
$
|
510,142
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(133,913
|
)
|
|
|
|
|
|
|
(133,913
|
)
|
|
|
|
|
|
Common stock issued for options
exercised
|
|
|
762
|
|
|
|
18,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,220
|
|
|
|
|
|
|
Tax benefit from the exercise of
stock options
|
|
|
|
|
|
|
3,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,628
|
|
|
|
|
|
|
Common stock issued, net of
cancellations
|
|
|
19
|
|
|
|
1,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,135
|
|
|
|
|
|
|
Common stock acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,929
|
)
|
|
|
(51,929
|
)
|
|
|
|
|
|
Translation of foreign financial
statements
|
|
|
|
|
|
|
|
|
|
|
(134,540
|
)
|
|
|
|
|
|
|
|
|
|
|
(134,540
|
)
|
|
|
|
(134,540
|
)
|
Unrealized holding gains, net of tax
|
|
|
|
|
|
|
|
|
|
|
3,014
|
|
|
|
|
|
|
|
|
|
|
|
3,014
|
|
|
|
|
3,014
|
|
Minimum pension liability
adjustment (SFAS No. 87)
|
|
|
|
|
|
|
|
|
|
|
(5,916
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,916
|
)
|
|
|
|
(5,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
12/31/05
|
|
|
239,796
|
|
|
|
122,181
|
|
|
|
57,778
|
|
|
|
4,004,944
|
|
|
|
(1,095,176
|
)
|
|
|
3,329,523
|
|
|
|
$
|
372,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
561,782
|
|
|
|
|
|
|
|
561,782
|
|
|
|
$
|
561,782
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(144,799
|
)
|
|
|
|
|
|
|
(144,799
|
)
|
|
|
|
|
|
Common stock issued for options
exercised
|
|
|
2,486
|
|
|
|
74,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,427
|
|
|
|
|
|
|
Tax benefit from the exercise of
stock options
|
|
|
|
|
|
|
15,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,316
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
28,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,460
|
|
|
|
|
|
|
Common stock issued, net of
cancellations
|
|
|
11
|
|
|
|
557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
568
|
|
|
|
|
|
|
Common stock acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,329
|
)
|
|
|
(48,329
|
)
|
|
|
|
|
|
Translation of foreign financial
statements
|
|
|
|
|
|
|
|
|
|
|
113,282
|
|
|
|
|
|
|
|
|
|
|
|
113,282
|
|
|
|
|
113,282
|
|
Unrealized holding losses, net of
tax
|
|
|
|
|
|
|
|
|
|
|
(364
|
)
|
|
|
|
|
|
|
|
|
|
|
(364
|
)
|
|
|
|
(364
|
)
|
Minimum pension liability
adjustment (SFAS No. 87)
|
|
|
|
|
|
|
|
|
|
|
1,660
|
|
|
|
|
|
|
|
|
|
|
|
1,660
|
|
|
|
|
1,660
|
|
Adjustment related to adoption of
SFAS No. 158(1)
|
|
|
|
|
|
|
|
|
|
|
(123,504
|
)
|
|
|
|
|
|
|
|
|
|
|
(123,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
12/31/06
|
|
$
|
242,293
|
|
|
$
|
241,455
|
|
|
$
|
48,852
|
|
|
$
|
4,421,927
|
|
|
$
|
(1,143,505
|
)
|
|
$
|
3,811,022
|
|
|
|
$
|
676,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) For additional information on the adoption of
SFAS No. 158 and on Dovers employee benefit
plans see Notes 2 and 13, respectively.
|
|
|
Preferred Stock, par value $100 per share.
100,000 shares authorized; none issued.
|
|
|
Common Stock, par value $1 per share.
500,000,000 shares authorized; 242,292,767 and
239,795,594 shares issued at December 31, 2006 and
2005, respectively.
|
|
|
Treasury Stock, at cost; 37,976,618 and 36,945,538 shares
at December 31, 2006 and 2005, respectively.
|
|
|
Unrealized holding gains (losses), net of tax provision
(benefit) of $(127), $1,085 and ($288) in 2006, 2005 and 2004,
respectively.
|
See Notes to Consolidated Financial Statements.
38
DOVER
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Operating Activities of
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
561,782
|
|
|
$
|
510,142
|
|
|
$
|
412,755
|
|
Adjustments to reconcile net
earnings to net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (earnings) from discontinued
operations
|
|
|
41,546
|
|
|
|
(63,947
|
)
|
|
|
(50,337
|
)
|
Depreciation and amortization
|
|
|
201,501
|
|
|
|
155,047
|
|
|
|
134,731
|
|
Stock-based compensation
|
|
|
26,396
|
|
|
|
|
|
|
|
|
|
Provision for losses on accounts
receivable
|
|
|
6,521
|
|
|
|
8,224
|
|
|
|
3,823
|
|
Deferred income taxes
|
|
|
(9,485
|
)
|
|
|
25,077
|
|
|
|
12,789
|
|
Employee retirement benefits
|
|
|
38,926
|
|
|
|
27,514
|
|
|
|
19,955
|
|
Other non-current, net
|
|
|
3,673
|
|
|
|
(69,793
|
)
|
|
|
46,645
|
|
Changes in current assets and
liabilities (excluding effects of acquisitions, dispositions and
foreign exchange):
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(47,927
|
)
|
|
|
(112,848
|
)
|
|
|
(69,089
|
)
|
Decrease (increase) in inventories
|
|
|
(5,915
|
)
|
|
|
52,956
|
|
|
|
(48,941
|
)
|
Decrease (increase) in prepaid
expenses and other assets
|
|
|
(6,490
|
)
|
|
|
503
|
|
|
|
(2,296
|
)
|
Increase in accounts payable
|
|
|
6,038
|
|
|
|
31,607
|
|
|
|
54,362
|
|
Increase in accrued expenses
|
|
|
30,674
|
|
|
|
82,420
|
|
|
|
11,994
|
|
Increase (decrease) in accrued taxes
|
|
|
34,576
|
|
|
|
(56,889
|
)
|
|
|
25,675
|
|
Contributions to defined benefit
pension plan
|
|
|
(3,004
|
)
|
|
|
(19,709
|
)
|
|
|
(4,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities of continuing operations
|
|
|
878,812
|
|
|
|
570,304
|
|
|
|
547,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities of
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of property
and equipment
|
|
|
19,017
|
|
|
|
11,807
|
|
|
|
12,769
|
|
Additions to property, plant and
equipment
|
|
|
(194,735
|
)
|
|
|
(130,492
|
)
|
|
|
(87,857
|
)
|
Proceeds from sales of discontinued
businesses
|
|
|
445,905
|
|
|
|
159,278
|
|
|
|
73,921
|
|
Acquisitions (net of cash and cash
equivalents acquired)
|
|
|
(1,116,780
|
)
|
|
|
(1,089,650
|
)
|
|
|
(502,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities of continuing operations
|
|
|
(846,593
|
)
|
|
|
(1,049,057
|
)
|
|
|
(503,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities of
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in notes payable, net
|
|
|
65,321
|
|
|
|
106,871
|
|
|
|
23,582
|
|
Reduction of long-term debt
|
|
|
(811
|
)
|
|
|
(256,303
|
)
|
|
|
(8,953
|
)
|
Proceeds from long-term-debt
|
|
|
163,597
|
|
|
|
590,658
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(48,329
|
)
|
|
|
(51,929
|
)
|
|
|
(5,175
|
)
|
Proceeds from exercise of stock
options, including tax benefits
|
|
|
93,311
|
|
|
|
19,220
|
|
|
|
13,607
|
|
Dividends to stockholders
|
|
|
(144,799
|
)
|
|
|
(133,913
|
)
|
|
|
(126,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities of continuing operations
|
|
|
128,290
|
|
|
|
274,604
|
|
|
|
(102,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities of discontinued operations
|
|
|
15,899
|
|
|
|
122,571
|
|
|
|
45,314
|
|
Net cash used in investing
activities of discontinued operations
|
|
|
(8,440
|
)
|
|
|
(25,174
|
)
|
|
|
(19,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
discontinued operations
|
|
|
7,459
|
|
|
|
97,397
|
|
|
|
25,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on
cash
|
|
|
19,816
|
|
|
|
(17,234
|
)
|
|
|
13,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
187,784
|
|
|
|
(123,986
|
)
|
|
|
(19,368
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
185,832
|
|
|
|
309,818
|
|
|
|
329,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of period
|
|
$
|
373,616
|
|
|
$
|
185,832
|
|
|
$
|
309,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
159,232
|
|
|
$
|
190,395
|
|
|
$
|
107,378
|
|
Interest
|
|
|
95,717
|
|
|
|
76,659
|
|
|
|
67,861
|
|
See Notes to Consolidated Financial Statements.
39
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
1. Description
of Business and Summary of Significant Accounting Policies
Description
of Business
Dover Corporation (Dover or the Company)
is a diversified, multinational manufacturing corporation
comprised of stand-alone operating companies which manufacture a
broad range of specialized industrial products and components.
The Company also provides engineering, testing and other
services, which are not significant in relation to consolidated
revenue. Dovers operating companies are based primarily in
the United States of America and Europe with manufacturing and
other operations throughout the world. The Company reports its
results in six segments, Diversified, Electronics, Industries,
Resources, Systems and Technologies, and discusses its
operations in 13 groups. For additional information on
Dovers segments, see Note 14.
Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.
The results of operations of purchased businesses are included
from the dates of acquisitions. The assets, liabilities, results
of operations and cash flows of all discontinued operations have
been separately reported as discontinued operations for all
periods presented. Certain amounts in prior years have been
reclassified to conform to the current year presentation.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue
and expenses during the reporting period. Actual results could
differ from those estimates. Significant estimates include
allowances for doubtful accounts receivable, net realizable
value of inventories, restructuring charges, valuation of
goodwill, pension and post retirement assumptions, useful lives
associated with amortization and depreciation of intangibles and
fixed assets, warranty reserves, income taxes and tax valuation
reserves, environmental reserves, legal reserves, insurance
reserves and the valuations of discontinued assets and
liabilities.
Cash
and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits
and short-term investments which are highly liquid in nature and
have original maturities at the time of purchase of three months
or less.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable is composed principally of trade accounts
receivable that arise primarily from the sale of goods or
services on account and are stated at historical cost.
Management at each operating company evaluates accounts
receivable to estimate the amount of accounts receivable that
will not be collected in the future and records the appropriate
provision. The provision for doubtful accounts is recorded as a
charge to operating expense and reduces accounts receivable. The
estimated allowance for doubtful accounts is based primarily on
managements evaluation of the aging of the accounts
receivable balance, the financial condition of its customers,
historical trends, and time outstanding of specific balances.
Actual collections of accounts receivable could differ from
managements estimates due to changes in future economic,
industry or customers financial conditions.
Fair
Value of Financial Instruments
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.
40
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories
Inventories for the majority of the Companys subsidiaries,
including all international subsidiaries and the Technologies
segment, are stated at the lower of cost, determined on the
first-in,
first-out (FIFO) basis, or market. Other domestic inventory is
stated at cost, determined on the
last-in,
first-out (LIFO) basis, which is less than market value.
Property,
Plant and Equipment
Property, plant and equipment includes the cost of land,
buildings, equipment and significant improvements to 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 is removed from the respective accounts
and the gain or loss realized on disposition is reflected in
earnings. Depreciation expense was $132.6 million in 2006,
$113.1 million in 2005, and $108.4 million in 2004 and
was calculated on a straight-line basis for all periods
presented.
Derivative
Instruments
The Company periodically enters into fair value and cash flow
hedge transactions specifically to hedge its exposures to
various items, including but not limited to interest rate and
foreign exchange rate risk. The Company does not enter into
derivative financial instruments for speculative purposes and
does not have a material portfolio of derivative financial
instruments.
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities and related amendments
and interpretations, the Company recognizes all derivatives as
either assets or liabilities on the balance sheet and measures
those instruments at fair value. If the derivative is designated
as a fair value hedge and is effective, the changes in the fair
value of the derivative and of the hedged item attributable to
the hedged risk are recognized in earnings in the same period.
If the derivative is designated as a cash flow hedge, the
effective portions of changes in the fair value of the
derivative are recorded in other comprehensive earnings and are
recognized in the statement of operations when the hedged item
affects income. Ineffective portions of changes in the fair
value of cash flow hedges are recognized in earnings.
Tests for hedge ineffectiveness are conducted periodically and
any ineffectiveness found is recognized in the statement of
operations. The fair market value of all outstanding
transactions is recorded in the Other assets and deferred
charges, or Other deferrals section of the balance sheet, as
applicable. The corresponding change in value of the hedged
assets/liabilities is recorded directly in that section of the
balance sheet.
During 2006, the Company entered into derivative contracts to
hedge potential foreign currency exposure on current assets and
liabilities. The contracts were designated as fair value hedges
and were considered by management to be highly effective. The
derivative foreign exchange contracts settled during 2006 and
resulted in a gain of approximately $0.6 million, which is
recognized in Revenue and Other (income) Expense, net.
At December 31, 2006, the Company had open foreign exchange
forward purchase contracts, expiring through March, 2007,
related to fair value hedges of foreign currency exposures, as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currencies Sold
|
|
|
|
U.S.
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Singapore
|
|
|
Average
|
|
|
|
Dollar
|
|
|
Contract
|
|
|
Euro
|
|
|
Contract
|
|
|
Dollar
|
|
|
Contract
|
|
Currencies Purchased
|
|
Value
|
|
|
Rate
|
|
|
value
|
|
|
Rate
|
|
|
Value
|
|
|
Rate
|
|
|
|
(In thousands)
|
|
|
Euro
|
|
$
|
62,480
|
|
|
|
1.3127
|
|
|
|
|
|
|
|
|
|
|
|
4,481
|
|
|
|
2.0420
|
|
Singapore Dollar
|
|
|
|
|
|
|
|
|
|
|
9,121
|
|
|
|
0.4897
|
|
|
|
|
|
|
|
|
|
Swiss Franc
|
|
|
5,071
|
|
|
|
0.8097
|
|
|
|
1,331
|
|
|
|
0.6297
|
|
|
|
|
|
|
|
|
|
41
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
and Other Intangible Assets
Goodwill is the excess of the acquisition cost of businesses
over the fair value of the identifiable net assets acquired. In
accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, the Company does not amortize goodwill
and indefinite-lived intangible assets. Instead, these assets
are tested for impairment annually unless indicators of
impairment exist during the interim periods. For 2006 and 2005,
the Company identified 16 reporting units for testing purposes.
Step one of the test compared the fair value of the reporting
unit (using a discounted cash flow method) to its book value.
Step two, which compares the book value of the goodwill to its
implied fair value, was not necessary since there were no
indicators of potential impairment from step one. For
information related to the amount of the Companys goodwill
by segment and intangible asset classes, see Note 7.
Long-Lived
Assets
In accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, long
-lived assets (including intangible assets that are amortized)
are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. If an indicator of impairment exists for any
grouping of assets, an estimate of undiscounted future cash
flows is produced and compared to its carrying value. If an
asset is determined to be impaired, the loss is measured by the
excess of the carrying amount of the asset over its fair value
as determined by an estimate of discounted future cash flows.
Foreign
Currency
Assets and liabilities of foreign subsidiaries, where the
functional currency is not the U.S. dollar, have been
translated at year-end exchange rates and profit and loss
accounts have been translated using weighted average yearly
exchange rates. Adjustments resulting from translation have been
recorded in the equity section of the balance sheet as
cumulative translation adjustments. Assets and liabilities of an
entity that are denominated in currencies other than an
entitys functional currency are remeasured into the
functional currency using end of period exchange rates or
historical rates where applicable to certain balances. Gains and
losses related to these remeasurements are recorded within the
Statement of Operations as a component of Other (income)
expense, net.
Revenue
Recognition
Revenue is recognized when all of the following circumstances
are satisfied: a) persuasive evidence of an arrangement
exists, b) price is fixed or determinable,
c) collectibility is reasonably assured, and
d) delivery has occurred. In revenue transactions where
installation is required, revenue can be recognized when the
installation obligation is not essential to the functionality of
the delivered products. Revenue transactions involving
non-essential installation obligations are those which can
generally be completed in a short period of time at
insignificant cost and the skills required to complete these
installations are not unique to the Company and in many cases
can be provided by third parties or the customers. If the
installation obligation is essential to the functionality of the
delivered product, revenue recognition is deferred until
installation is complete. In addition, when it is determined
that there are multiple deliverables to a sales arrangement, the
Company will allocate consideration received to the separate
deliverables based on their relative fair values and recognize
revenue based on the appropriate criteria for each deliverable
identified. In a limited number of revenue transactions, other
post-shipment obligations such as training and customer
acceptance are required and, accordingly, revenue recognition is
deferred until the customer is obligated to pay, or acceptance
has been confirmed. Service revenue is recognized and earned
when services are performed and is not significant to any period
presented.
Stock-Based
Compensation
Prior to 2006, Dover accounted for stock-based compensation in
accordance with Accounting Principles Board (APB)
Opinion No. 25 Accounting for Stock Issued to
Employees, and followed the disclosure only provisions of
SFAS No. 123 Accounting for Stock-Based
Compensation. Accordingly, no compensation expense was
42
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognized in the Companys 2005 and 2004 Statement of
Operations in connection with stock-based compensation granted
to employees.
Effective January, 1 2006, Dover adopted Statement of Financial
Accounting Standard No. 123(R), Share Based
Payment (SFAS No. 123(R)) which no
longer permits the use of the intrinsic value method under APB
No. 25. The Company used the modified prospective method to
adopt SFAS No. 123(R), which requires compensation
expense to be recorded for all stock-based compensation granted
on or after January 1, 2006, as well as the unvested
portion of previously granted options. The Company is recording
the compensation expense on a straight-line basis, generally
over the explicit service period of three years (except for
retirement eligible employees and retirees). Prior to adoption,
the Company calculated its pro-forma footnote disclosure related
to stock-based compensation using the explicit service period
for all employees, and will continue to vest those awards over
their explicit service period. Concurrent with the adoption of
SFAS No. 123(R), the Company changed its accounting
policy for awards granted after January 1, 2006 to expense
immediately awards granted to retirement eligible employees and
to shorten the vesting period for any employee who will become
eligible to retire within the three-year explicit service
period. Expense for these employees will be recorded over the
period from the date of grant through the date the employee
first becomes eligible to retire and is no longer required to
provide service.
For additional information on the impact of adopting
SFAS No. 123(R) see Note 2. For additional
information related to stock-based compensation, including
activity for 2006, 2005 and 2004, see Note 10.
Income
Taxes
The provision for income taxes on continuing operations includes
federal, state, local and foreign taxes. Tax credits, primarily
for research and experimentation and foreign earnings and export
programs, are recognized as a reduction of the provision for
income taxes on continuing operations in the year in which they
are available for tax purposes. Deferred taxes are provided on
temporary differences between assets and liabilities for
financial and tax reporting purposes as measured by enacted tax
rates expected to apply when temporary differences are settled
or realized. Future tax benefits are recognized to the extent
that realization of those benefits is considered to be more
likely than not. A valuation allowance is established for
deferred tax assets for which realization is not assured. The
Company has not provided for any residual U.S. income taxes
on unremitted earnings of foreign subsidiaries as such earnings
are currently intended to be indefinitely reinvested.
During 2005, the Company recorded a net U.S. tax provision
of $9.5 million related to the repatriation of
$373.7 million of foreign dividends under the provisions of
the American Jobs Creation Act of 2004, which provides for a
favorable income tax rate on repatriated earnings, provided the
criteria of the law are met.
See Recent Accounting Standards below for a
discussion of the expected impact of Financial Accounting
Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48).
Research
and Development Costs
Research and development expenditures, including qualifying
engineering costs, are expensed when incurred and amounted to
$155.0 million in 2006, $149.6 million in 2005 and
$133.8 million in 2004.
Risk,
Retention, Insurance
The Companys property and casualty insurance programs
contain various deductibles that, based on our experience, are
typical and customary for a company of our size and risk
profile. We do not consider any of the deductibles to represent
a material risk to the Company. The Company generally maintains
deductibles for claims and liabilities related primarily to
workers compensation, health and welfare claims, general
commercial, product and automobile liability and property
damage, and business interruption resulting from certain events.
The Company accrues for claim exposures that are probable of
occurrence and can be reasonably estimated. As part of the
Companys risk management program, insurance is maintained
to transfer risk beyond the level of self-
43
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
retention and provides protection on both an individual claim
and annual aggregate basis. The Company currently self-insures
its product and commercial general liability claims up to
$5.0 million per occurrence, its workers compensation
claims up to $0.5 million per occurrence, and automobile
liability claims up to $1.0 million per occurrence.
Third-party insurance provides primary level coverage in excess
of these amounts up to certain specified limits. In addition,
the Company has excess liability insurance from third-party
insurers on both an aggregate and an individual occurrence basis
well in excess of the limits of the primary coverage. A
worldwide program of property insurance covers the
Companys owned property and any business interruptions
that may occur due to an insured hazard affecting those
properties, subject to reasonable deductibles and aggregate
limits.
Employee
Benefit Plans
Effective December 31, 2006, Dover adopted
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an
Amendment of FASB Statements No. 87, 88, 106, and
132(R) (SFAS No. 158). For
additional information on the adoption of this standard and
Dovers employee benefit plans, see Notes 2
and 13, respectively.
Recent
Accounting Standards
In July 2006, the FASB issued Interpretation No. 48
Accounting for Uncertainty in Income Taxes
(FIN 48). FIN 48 clarifies the way
companies are to account for uncertainty in income tax reporting
and filing and prescribes a consistent recognition threshold and
measurement attribute for recognizing, derecognizing, and
measuring the tax benefits of a tax position taken, or expected
to be taken, on a tax return. Any change in net assets as a
result of adopting the new standard is required to be recorded
as a cumulative effect adjustment to Dovers opening
retained earnings balance as of January 1, 2007. The
adoption of FIN 48 is not expected to have a material
impact on the Companys retained earnings balance as of
January 1, 2007.
In September 2006, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
(SAB 108), which provides interpretive guidance
on the consideration of the effects of prior year misstatements
in quantifying current year misstatements for the purpose of a
materiality assessment. SAB 108 is effective as of the end
of Dovers 2006 fiscal year, allowing a one-time
transitional cumulative effect adjustment to beginning retained
earnings as of January 1, 2006 for errors that were not
previously deemed material, but are material under the guidance
in SAB 108. The adoption of SAB 108 as of
December 31, 2006 had no impact on Dovers financial
statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This statement is effective for
fiscal periods beginning after November 15, 2007 and does
not require any new fair value measurements. The Company is
currently evaluating the impact of SFAS No. 157 on its
overall results of operations or financial position.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections
(SFAS No. 154), which replaces APB
No. 20 Accounting Changes, and
SFAS No. 3 Reporting Accounting Changes in
Interim Financial Statements. SFAS No. 154
changes the requirements for the accounting for and reporting of
a change in accounting principle, and applies to all voluntary
changes in accounting principles, as well as changes required by
an accounting pronouncement in the unusual instance that it does
not include specific transition provisions. Specifically,
SFAS No. 154 requires retrospective application to
prior periods financial statements, unless it is
impracticable to determine the period-specific effects or the
cumulative effect of the change. SFAS No. 154 does not
change the transition provisions of any existing pronouncement.
SFAS No. 154 is effective for Dover for all accounting
changes and corrections of errors made beginning January 1,
2006 and had no impact on Dover.
44
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, An Amendment of Accounting Research
Bulletin No. 43, Chapter 4
(SFAS No. 151). SFAS No. 151
requires that abnormal amounts of idle capacity and spoilage
costs be excluded from the cost of inventory and expensed when
incurred. The provisions of SFAS No. 151 were
applicable to inventory costs incurred beginning January 1,
2006. The effect of the adoption of SFAS No. 151 was
immaterial to Dovers consolidated results of operations,
cash flows or financial position.
2. Accounting
Changes
Stock-based
Compensation
As discussed in Note 1, the Company adopted
SFAS No. 123(R) on January 1, 2006. The following
table illustrates the effect on net earnings and basic and
diluted earnings per share if the Company had recognized
compensation expense for stock options granted in prior years.
The 2005 and 2004 pro forma amounts in this table were based on
the explicit service periods (three years) of the options
granted without consideration of retirement eligibility:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Net earnings, as
reported
|
|
$
|
510,142
|
|
|
$
|
412,755
|
|
Deduct:
|
|
|
|
|
|
|
|
|
Total stock-based employee
compensation expense determined under fair value based method
for all awards, net of tax effects
|
|
|
20,033
|
(A)
|
|
|
18,206
|
(A)
|
|
|
|
|
|
|
|
|
|
Pro forma net
earnings
|
|
$
|
490,109
|
|
|
$
|
394,549
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic-as reported
|
|
$
|
2.51
|
|
|
$
|
2.03
|
|
Basic-pro forma
|
|
|
2.41
|
|
|
|
1.94
|
|
Diluted-as reported
|
|
|
2.50
|
|
|
|
2.02
|
|
Diluted-pro forma
|
|
|
2.40
|
|
|
|
1.93
|
|
|
|
|
(A) |
|
Had the Company applied the new accounting treatment for
retirement eligible employees to grants made prior to 2006,
stock-based compensation expense, net of tax benefits, would
have been $18.0 million in 2005 and $19.5 million in
2004. |
45
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table illustrates the effects that the adoption of
SFAS No. 123(R) had on the Companys results and
cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
Under Pre SFAS
|
|
|
|
|
|
|
|
|
|
No. 123(R)
|
|
|
SFAS No. 123(R)
|
|
|
|
|
|
|
Accounting
|
|
|
Impact
|
|
|
Actual
|
|
|
|
(In thousands, except per share figures)
|
|
|
Earnings before provision for
income taxes and discontinued operations
|
|
$
|
849,265
|
|
|
$
|
26,396
|
(A)
|
|
$
|
822,869
|
|
Earnings from continuing operations
|
|
|
620,486
|
|
|
|
17,158
|
|
|
|
603,328
|
|
Net Earnings
|
|
|
580,297
|
|
|
|
18,515
|
(B)
|
|
|
561,782
|
|
Net Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
2.85
|
|
|
$
|
0.09
|
|
|
$
|
2.76
|
|
Diluted EPS
|
|
|
2.82
|
|
|
|
0.09
|
|
|
|
2.73
|
|
Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
$
|
894,128
|
|
|
$
|
(15,316
|
)(C)
|
|
$
|
878,812
|
|
Financing Activities
|
|
|
(861,909
|
)
|
|
|
15,316
|
|
|
|
(846,593
|
)
|
(A) Recorded in Selling and Administrative expenses.
|
|
|
|
(B)
|
Had the Company applied the new accounting treatment for
retirement eligible employees to grants made prior to 2006,
stock based compensation expense, net of tax benefits, would
have been $17.8 million for the year ended
December 31, 2006.
|
(C) Represents tax benefit from option exercises.
For additional information related to stock-based compensation,
including activity for 2006, 2005 and 2004, see Note 10.
Defined
Benefit Pension and Other Postretirement Benefit
Plans
In September 2006, the FASB issued SFAS No. 158 which
requires companies to report the funded status of their defined
benefit pension and other postretirement benefit plans on their
balance sheets as a net liability or asset as of
December 31, 2006. The new standard does not address the
accounting treatment for pension and postretirement benefits in
the income statement. Upon adoption at December 31, 2006,
Dover recorded a net reduction to stockholders equity of
$123.5 million, net of tax. This adjustment had no impact
on the Companys debt covenants.
The following table presents the effect of applying
SFAS No. 158 on the individual line items in
Dovers Consolidated Balance Sheet as of December 31,
2006. For additional detail related to Dovers Employee
Benefit Plans, see Note 13.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Under
|
|
|
|
|
|
Application of
|
|
|
|
SFAS No. 87
|
|
|
Adjustments
|
|
|
SFAS No. 158
|
|
|
|
(In thousands)
|
|
|
Other assets and deferred charges
|
|
$
|
260,232
|
|
|
$
|
(137,187
|
)
|
|
$
|
123,045
|
|
Accrued compensation and employee
benefits
|
|
|
280,580
|
|
|
|
|
|
|
|
280,580
|
|
Other deferrals (principally
compensation)
|
|
|
351,082
|
|
|
|
54,763
|
|
|
|
405,845
|
|
Deferred income taxes
|
|
|
432,480
|
|
|
|
(68,446
|
)
|
|
|
364,034
|
|
Total liabilities
|
|
|
3,829,319
|
|
|
|
(13,683
|
)
|
|
|
3,815,636
|
|
Accumulated other comprehensive
earnings
|
|
|
172,356
|
|
|
|
123,504
|
|
|
|
48,852
|
|
Total stockholders equity
|
|
|
3,934,526
|
|
|
|
123,504
|
|
|
|
3,811,022
|
|
46
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
3. Acquisitions
All of the Companys acquisitions have been accounted for
under SFAS No. 141, Business Combinations.
Accordingly, the accounts of the acquired companies, after
adjustments to reflect fair market values assigned to assets and
liabilities, have been included in the consolidated financial
statements from their respective dates of acquisition. The 2006
acquisitions (see list below) are wholly-owned and had an
aggregate cost of $1,116.8 million, net of cash acquired,
at the date of acquisition. There is no contingent consideration
related to the acquisitions at December 31, 2006. In
connection with certain acquisitions, the Company accrued a
preliminary expense estimate of $14.7 million at the date
of acquisition related to severance and facility closings in
accordance with the provisions of Emerging Issues Task Force
Issue
No. 95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination.
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Type
|
|
Acquired Companies
|
|
Location (Near)
|
|
Segment
|
|
Group
|
|
Operating Company
|
|
27-Dec
|
|
|
|
Asset Magnum Systems Inc.
|
|
Tampa, FL
|
|
Resources
|
|
Material Handling
|
|
Paladin
|
Manufacturer of mulching
attachments for use in land clearing,
right-of-way
clearing and site development.
|
6-Dec
|
|
Stock
|
|
Markem Corp.
|
|
Keene, N.H.
|
|
Technologies
|
|
Product Identification
|
|
N/A
|
Provides printing solutions,
including equipment, software, supplies and services, for the
food and beverage, cosmetics, pharmaceutical, and electronics
industries.
|
6-Oct
|
|
Asset
|
|
Environ Holdings
|
|
Smithfield, North Carolina
|
|
Resources
|
|
Fluid Handling
|
|
OPW FC
|
Manufacturer of environmentally
safe underground piping components used in fuel delivery systems.
|
30-Aug
|
|
Stock
|
|
Paladin Brands Holding Inc.
|
|
Cedar Rapids, Iowa
|
|
Resources
|
|
Material Handling
|
|
N/A
|
Manufacturer of attachments and
tools used in heavy and light mobile equipment.
|
|
|
12-May
|
|
Stock
|
|
ONeil Product Development Inc.
|
|
Irvine, CA
|
|
Technologies
|
|
Product Identification
|
|
PI
|
Manufacturer of portable printers
and related media consumables sold under the ONeil brand
and to various OEM partners.
|
28-Feb
|
|
Stock
|
|
Cash Point Machines PLC
|
|
Barnstaple, U.K.
|
|
Electronics
|
|
Commercial Equipment
|
|
Triton
|
Deployer of ATMs and ATM
service management.
|
27-Feb
|
|
Stock
|
|
Infocash/Cash Services Limited
|
|
Abingdon, U.K.
|
|
Electronics
|
|
Commercial Equipment
|
|
Triton
|
Deployer of Automated Teller
Machines (ATMs), and provider of ATM field
maintenance/repair and finance services.
|
For certain acquisitions that occurred in the latter half of
2006, the Company is in the process of obtaining or finalizing
appraisals of tangible and intangible assets and it is
continuing to evaluate the initial purchase price allocations,
as of the acquisition date, which will be adjusted as additional
information relative to the fair values of the assets and
liabilities of the businesses becomes known. Accordingly,
management has used their best estimate in the initial purchase
price allocation as of the date of these financial statements.
The following table summarizes the estimated fair values of the
assets and liabilities assumed as of the dates of the 2006
acquisitions and the amounts assigned to goodwill and intangible
asset classifications:
|
|
|
|
|
|
|
At December 31, 2006
|
|
|
|
(In thousands)
|
|
|
Current assets, net of cash
acquired
|
|
$
|
234,517
|
|
PP&E
|
|
|
83,678
|
|
Goodwill
|
|
|
636,099
|
|
Intangibles
|
|
|
398,967
|
|
Other assets
|
|
|
6,898
|
|
|
|
|
|
|
Total assets acquired
|
|
|
1,360,159
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(243,379
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
1,116,780
|
|
|
|
|
|
|
47
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amounts assigned to goodwill and major intangible asset
classifications by segment for the 2006 acquisitions are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
Electronics
|
|
|
Technologies
|
|
|
Resources
|
|
|
Total
|
|
|
Period (Years)
|
|
|
Goodwill Tax deductible
|
|
$
|
|
|
|
$
|
|
|
|
$
|
55,899
|
|
|
$
|
55,899
|
|
|
|
N/A
|
|
Goodwill Non-tax
deductible
|
|
|
15,699
|
|
|
|
447,126
|
|
|
|
117,375
|
|
|
|
580,200
|
|
|
|
N/A
|
|
Trademarks (indefinite life)
|
|
|
|
|
|
|
25,000
|
|
|
|
32,350
|
|
|
|
57,350
|
|
|
|
N/A
|
|
Trademarks
|
|
|
|
|
|
|
1,300
|
|
|
|
2,300
|
|
|
|
3,600
|
|
|
|
15
|
|
Patents
|
|
|
|
|
|
|
|
|
|
|
6,533
|
|
|
|
6,533
|
|
|
|
11
|
|
Customer intangibles
|
|
|
18,790
|
|
|
|
173,500
|
|
|
|
115,520
|
|
|
|
307,810
|
|
|
|
12
|
|
Other intangibles
|
|
|
|
|
|
|
13,630
|
|
|
|
9,420
|
|
|
|
23,050
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,034,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Type
|
|
|
Acquired Companies
|
|
|
Location (Near)
|
|
|
Segment
|
|
|
Group
|
|
|
Operating Company
|
|
|
29-Dec
|
|
|
Asset
|
|
|
|
Epsilon Product Line
|
|
|
|
Lebanon, OH
|
|
|
|
Resources
|
|
|
|
Fluid Handling
|
|
|
|
OPW Fluid Transfer Group
|
|
Manufacturer of dry disconnect
fittings used extensively in the chemical and pharmaceutical
processing industry.
|
23-Dec
|
|
|
Stock
|
|
|
|
Compressor Valve Eng.
|
|
|
|
Ellesmere, U.K.
|
|
|
|
Resources
|
|
|
|
Fluid Handling
|
|
|
|
Cook
|
|
Manufacturer and designer of valves
for compressors used in air, gas, marine and other industrial
applications.
|
27-Sep
|
|
|
Stock
|
|
|
|
Knowles Electronics
|
|
|
|
Itasca, Illinois
|
|
|
|
Electronics
|
|
|
|
Components
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer of advanced
micro-acoustic component products for the hearing aid and
consumer electronics industries.
|
7-Sep
|
|
|
Stock
|
|
|
|
Harbor Electronics, Inc.
|
|
|
|
Santa Clara, CA
|
|
|
|
Technologies
|
|
|
|
Circuit Assembly & Test
|
|
|
|
ECT
|
|
Manufacturer of complex, high-layer
count, impedance controlled interface Printed
Circuit Boards for the Semiconductor Test Industry.
|
5-Aug
|
|
|
Asset
|
|
|
|
Colder Products Company
|
|
|
|
St. Paul, Minnesota
|
|
|
|
Electronics
|
|
|
|
Components
|
|
|
|
N/A
|
|
Manufacturer of quick disconnect
couplings for a wide variety of biomedical and commercial
applications.
|
7-Jun
|
|
|
Stock
|
|
|
|
C-Tech Energy Services Inc.
|
|
|
|
Edmonton, Alberta
|
|
|
|
Resources
|
|
|
|
Petroleum Equipment
|
|
|
|
Energy Products Group
|
|
Manufacturer of continuous rod
technology for oil and gas production.
|
2-Mar
|
|
|
Asset
|
|
|
|
APG
|
|
|
|
Longmont, Colorado
|
|
|
|
Technologies
|
|
|
|
Circuit Assembly & Test
|
|
|
|
ECT
|
|
Manufacturer of test fixtures for
loaded circuit board testing.
|
23-Feb
|
|
|
Stock
|
|
|
|
Fas-Co Coders, Inc.
|
|
|
|
Phoenix, Arizona
|
|
|
|
Technologies
|
|
|
|
Product Identification
|
|
|
|
Imaje
|
|
Integrator of high resolution
carton printers.
|
21-Feb
|
|
|
Asset
|
|
|
|
Rostone (Reunion Industries
|
)
|
|
|
Lafayette, Indiana
|
|
|
|
Electronics
|
|
|
|
Components
|
|
|
|
Kurz-Kasch*
|
|
Manufacturer of specialty thermo
set plastics.
|
18-Jan
|
|
|
Asset
|
|
|
|
Avborne Accessory Group, Inc.
|
|
|
|
Miami, Florida
|
|
|
|
Diversified
|
|
|
|
Industrial Equipment
|
|
|
|
Sargent
|
|
Maintenance, repair, and overhaul
of commercial, military and business aircraft compnents and sub
assemblies.
|
|
|
|
* |
|
Subsequently discontinued in 2006. |
Pro
Forma Information
The following unaudited pro forma information illustrates the
effect on Dovers revenue and net earnings for the
twelve-month periods ended December 31, 2006 and 2005,
assuming that the 2006 and 2005 acquisitions had all taken place
on January 1, 2005.
48
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share figures)
|
|
|
Revenue from continuing operations:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
6,511,623
|
|
|
$
|
5,333,338
|
|
Pro forma
|
|
|
7,039,634
|
|
|
|
6,242,009
|
|
Net earnings from continuing
operations:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
603,328
|
|
|
$
|
446,195
|
|
Pro forma
|
|
|
615,497
|
|
|
|
482,307
|
|
Basic earnings per share from
continuing operations:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
2.96
|
|
|
$
|
2.20
|
|
Pro forma
|
|
|
3.02
|
|
|
|
2.38
|
|
Diluted earnings per share from
continuing operations:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
2.94
|
|
|
$
|
2.19
|
|
Pro forma
|
|
|
3.00
|
|
|
|
2.36
|
|
These pro forma results of operations have been prepared for
comparative purposes only and include certain adjustments to
actual financial results for the relevant periods, such as
imputed financing costs, and estimated additional amortization
and depreciation expense as a result of intangibles and fixed
assets acquired. They do not purport to be indicative of the
results of operations that actually would have resulted had the
acquisitions occurred on the date indicated or that may result
in the future.
4. Inventories
The following table displays the components of inventory:
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
At December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
330,016
|
|
|
$
|
268,714
|
|
Work in progress
|
|
|
173,194
|
|
|
|
144,636
|
|
Finished goods
|
|
|
254,684
|
|
|
|
198,720
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
757,894
|
|
|
|
612,070
|
|
Less LIFO reserve
|
|
|
48,247
|
|
|
|
38,805
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
709,647
|
|
|
$
|
573,265
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006 and 2005, domestic inventories
determined by the LIFO inventory method amounted to
$86.8 million and $91.1 million, respectively.
49
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
5. Property,
Plant & Equipment
The following table details the components of property,
plant & equipment, net:
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
At December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
52,227
|
|
|
$
|
51,933
|
|
Buildings and improvements
|
|
|
503,464
|
|
|
|
434,634
|
|
Machinery, equipment and other
|
|
|
1,641,151
|
|
|
|
1,409,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,196,842
|
|
|
|
1,896,237
|
|
Accumulated depreciation
|
|
|
(1,340,043
|
)
|
|
|
(1,189,493
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
856,799
|
|
|
$
|
706,744
|
|
|
|
|
|
|
|
|
|
|
6. Other
Accrued Expenses (Current)
The following table details the major components of other
current accrued expenses:
|
|
|
|
|
|
|
|
|
|
|
At
|
|
|
At
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Warranty
|
|
$
|
40,608
|
|
|
$
|
33,597
|
|
Taxes other than income
|
|
|
23,605
|
|
|
|
17,189
|
|
Unearned revenue
|
|
|
13,289
|
|
|
|
7,991
|
|
Accrued interest
|
|
|
19,306
|
|
|
|
19,484
|
|
Legal and enviromental
|
|
|
7,578
|
|
|
|
4,832
|
|
Restructuring and exit
|
|
|
13,622
|
|
|
|
11,965
|
|
Other
|
|
|
65,634
|
|
|
|
60,351
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
183,642
|
|
|
$
|
155,409
|
|
|
|
|
|
|
|
|
|
|
7. Goodwill
and Other Intangible Assets
The changes in the carrying value of goodwill by segment through
the year ended December 31, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Including
|
|
|
|
|
|
|
|
|
Including
|
|
|
|
|
|
|
At December 31,
|
|
|
Goodwill from
|
|
|
Currency
|
|
|
At December 31,
|
|
|
Goodwill from
|
|
|
Currency
|
|
|
At December 31,
|
|
|
|
2004
|
|
|
2005 Acquisitions
|
|
|
Translations
|
|
|
2005
|
|
|
2006 Acquisitions
|
|
|
Translations
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Diversified
|
|
$
|
205,834
|
|
|
$
|
55,702
|
|
|
$
|
(1,452
|
)
|
|
$
|
260,084
|
|
|
$
|
|
|
|
$
|
1,737
|
|
|
$
|
261,821
|
|
Electronics
|
|
|
129,785
|
|
|
|
619,958
|
|
|
|
(5,507
|
)
|
|
|
744,236
|
|
|
|
15,699
|
|
|
|
(10,778
|
)(A)
|
|
|
749,157
|
|
Industries
|
|
|
240,516
|
|
|
|
|
|
|
|
(1,099
|
)
|
|
|
239,417
|
|
|
|
|
|
|
|
(4,734
|
)
|
|
|
234,683
|
|
Resources
|
|
|
608,891
|
|
|
|
15,501
|
|
|
|
(12,603
|
)
|
|
|
611,789
|
|
|
|
173,274
|
|
|
|
3,925
|
|
|
|
788,988
|
|
Systems
|
|
|
109,368
|
|
|
|
|
|
|
|
(2,576
|
)
|
|
|
106,792
|
|
|
|
|
|
|
|
2,085
|
|
|
|
108,877
|
|
Technologies
|
|
|
579,358
|
|
|
|
39,244
|
|
|
|
(25,324
|
)
|
|
|
593,278
|
|
|
|
447,126
|
|
|
|
18,053
|
|
|
|
1,058,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,873,752
|
|
|
$
|
730,405
|
|
|
$
|
(48,561
|
)
|
|
$
|
2,555,596
|
|
|
$
|
636,099
|
|
|
$
|
10,288
|
|
|
$
|
3,201,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Includes a reclass from goodwill to customer-related intangibles
of $23.0 million in the first quarter of 2006 related to
the September 2005 acquisition of Knowles Electronics Holdings,
Inc. |
50
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides the gross carrying value and
accumulated amortization for each major class of intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006
|
|
|
|
|
|
At December 31, 2005
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Average
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Life
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
(In thousands)
|
|
|
Amortized Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
29,865
|
|
|
$
|
11,848
|
|
|
|
29
|
|
|
$
|
25,561
|
|
|
$
|
10,039
|
|
Patents
|
|
|
116,128
|
|
|
|
64,833
|
|
|
|
13
|
|
|
|
107,680
|
|
|
|
57,823
|
|
Customer Intangibles
|
|
|
648,283
|
|
|
|
80,794
|
|
|
|
9
|
|
|
|
317,782
|
|
|
|
39,582
|
|
Unpatented Technologies
|
|
|
135,449
|
|
|
|
40,196
|
|
|
|
9
|
|
|
|
130,330
|
|
|
|
26,005
|
|
Non-Compete Agreements
|
|
|
6,746
|
|
|
|
5,021
|
|
|
|
5
|
|
|
|
5,613
|
|
|
|
5,188
|
|
Drawings & Manuals
|
|
|
15,765
|
|
|
|
4,479
|
|
|
|
5
|
|
|
|
3,942
|
|
|
|
2,578
|
|
Distributor Relationships
|
|
|
72,374
|
|
|
|
9,235
|
|
|
|
20
|
|
|
|
64,406
|
|
|
|
5,381
|
|
Other
|
|
|
29,217
|
|
|
|
8,038
|
|
|
|
14
|
|
|
|
12,866
|
|
|
|
3,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,053,827
|
|
|
|
224,444
|
|
|
|
11
|
|
|
|
668,180
|
|
|
|
150,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
235,999
|
|
|
|
|
|
|
|
|
|
|
|
178,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets
|
|
$
|
1,289,826
|
|
|
$
|
224,444
|
|
|
|
|
|
|
$
|
846,695
|
|
|
$
|
150,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible amortization expense for the twelve months
ended December 31, 2006, 2005 and 2004 was
$68.9 million, $41.9 million, and $26.3 million,
respectively. Amortization expense, based on current intangible
balances, is estimated to be $66.8 million in 2007,
$65.6 million in 2008, $65.4 million in 2009,
$64.9 million in 2010, and $62.0 million in 2011.
51
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
8. Discontinued
Operations
During 2006, the Company discontinued 13 businesses, of which 8
were sold during the year. In addition, the Company sold two
businesses that were previously discontinued in 2005. At
December 31, 2006, assets and liabilities of discontinued
operations primarily represent amounts related to three small
businesses in the Diversified segment, a business in the
Electronics segment, a business in the Resources segment, and a
business in the Systems segment, which was sold in January 2007.
The major classes of discontinued assets and liabilities
included in the Consolidated Balance Sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
At December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Assets of Discontinued
Operations
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
69,769
|
|
|
$
|
340,590
|
|
Non-current assets
|
|
|
38,174
|
|
|
|
336,150
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107,943
|
|
|
$
|
676,740
|
|
|
|
|
|
|
|
|
|
|
Liabilities of Discontinued
Operations
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
107,239
|
|
|
$
|
160,934
|
|
Long-term liabilities
|
|
|
24,047
|
|
|
|
46,327
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
131,286
|
|
|
$
|
207,261
|
|
|
|
|
|
|
|
|
|
|
In addition to the entities currently held for sale in
discontinued operations, the assets and liabilities of
discontinued operations include residual amounts related to
businesses previously sold. These residual amounts include
property, plant and equipment, deferred tax assets, short and
long-term reserves, and contingencies.
Summarized results of the Companys discontinued operations
are detailed in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
667,970
|
|
|
$
|
1,007,100
|
|
|
$
|
1,106,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale, net of
taxes(1)
|
|
$
|
(37,362
|
)
|
|
$
|
28,010
|
|
|
$
|
2,394
|
|
Earnings (loss) from operations
before taxes
|
|
|
(3,422
|
)
|
|
|
48,369
|
|
|
|
61,493
|
|
Provision for income taxes related
to operations
|
|
|
(762
|
)
|
|
|
(12,432
|
)
|
|
|
(13,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued
operations, net of tax
|
|
$
|
(41,546
|
)
|
|
$
|
63,947
|
|
|
$
|
50,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes impairments and other tax impacts. |
Additional information related to operations that were
discontinued
and/or sold
in 2006 is as follows:
|
|
|
|
|
During the fourth quarter of 2006, the Company finalized the
sales of five previously discontinued businesses, including
Alphasem, Vitronics Soltec, Universal Instruments, and Hover
Davis from the Technologies segment. In addition, the Company
discontinued three small businesses in the Diversified segment,
and adjusted the carrying value of a previously discontinued
business resulting in a loss of $38.9 million
($27.0 million after tax).
|
|
|
|
During the third quarter of 2006, the Company finalized the
sales of four previously discontinued businesses, including Mark
Andy, RPA Process Technologies and Heil Truck. As a result of
the gains on the sales ($27.2 million net of tax) and
adjustments to the carrying value of other previously
discontinued businesses ($21.6 million net of tax), the
Company recorded a $5.6 million gain, net of tax.
|
52
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
During the second quarter of 2006, the Company discontinued five
businesses in the Technologies segment, one business in the
Industries segment and one business in the Electronics segment.
As a result, the Company recorded a $106.5 million
write-down ($87.9 million after-tax) of the carrying values
of these businesses to their estimated fair market value.
|
|
|
|
During the first quarter of 2006, Dover completed the sale of
Tranter PHE, a business discontinued in the Diversified segment
in the fourth quarter of 2005, resulting in a pre-tax gain of
approximately $109.0 million ($85.5 million
after-tax). In addition, during the first quarter of 2006, the
Company discontinued and sold a business in the Electronics
segment for a loss of $2.5 million ($2.2 million
after-tax). Also, during the first quarter of 2006, the Company
discontinued an operating company, comprised of two businesses,
in the Resources segment, resulting in an impairment of
approximately $15.4 million ($14.4 million after-tax).
|
During 2005, the Company discontinued seven businesses, of which
four were sold during 2005. Additional information related to
operations that were discontinued
and/or sold
in 2005 is as follows:
|
|
|
|
|
Dover sold one minor business from the Industries segment on
April 1, 2005 resulting in a loss of approximately
$2 million.
|
|
|
|
Hydratight Sweeney, a business in the Diversified segment, was
sold on May 17, 2005 for a gain of approximately
$49.7 million ($47.0 million after tax).
|
|
|
|
Somero Enterprises, a business in the Industries segment, was
sold on August 11, 2005 for a gain of approximately
$31.8 million ($22.1 million after tax).
|
|
|
|
The Company discontinued a business in the Systems segment in
the third quarter of 2005 resulting in a goodwill and intangible
impairment of approximately $55.0 million.
|
|
|
|
Koolant Koolers, a business in the Industries segment, was sold
in December 2005, for a loss of $5.4 million
($3.5 million after tax) and the Company discontinued a
minor business in the Resources segment in the Material Handling
group.
|
During 2004, the Company discontinued and sold one business in
the Technologies segment and sold five businesses that had been
discontinued in 2003. In 2004, six businesses were disposed of
or liquidated for a net after-tax gain of $2.4 million.
9. Lines
of Credit and Debt
During the third quarter of 2006, the Company closed a
structured five-year, non-interest bearing, $165.1 million
amortizing loan with a non-US lender, which also included a
participation fee received by the Company of $9.9 million.
The loan was recorded at face value. The Company also expects to
incur a total of $5.7 million in debt related issuance
costs over the course of the loan. Beginning in April 2007, the
repayment schedule requires payments every April and September
with the final payment to be made in July 2011. The
participation fee will be amortized ratably into Other Expense
(Income), Net over the term of the loan and is recorded in Other
Deferrals in the Consolidated Balance Sheet. The loan agreement
includes a put and call provision that can be exercised starting
in June of 2008 though the end of the loan term.
On October 26, 2005, the Company closed a $1 billion
5-year
unsecured revolving credit facility with a syndicate of banks
that replaces the Companys
5-year
$600 million facility. At the Companys election,
loans under the Credit Agreement will bear interest at a
Eurodollar or alternative currency rate based on LIBOR, plus an
applicable margin ranging from 0.125% to 0.475% (subject to
adjustment based on the rating accorded the Companys
senior unsecured debt by S&P and Moodys), or at a base
rate pursuant to a formula defined in the credit agreement. In
addition, the Company will pay a facility fee and a utilization
fee in certain circumstances as described in the Credit
Agreement. The Credit Agreement imposes various restrictions on
the Company that are substantially identical to those in the
replaced facilities. Among other things, the credit agreement
generally requires the Company to maintain an interest coverage
ratio of EBITDA to consolidated net interest expense of not less
than 3.5 to 1. The Company primarily uses this facility to
support its commercial paper program and has not
53
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
drawn down any loans under the $1 billion facility and does
not anticipate doing so. As of December 31, 2006, the
Company had commercial paper outstanding in the principal amount
of $240.0 million.
The Company established a Canadian Dollar Credit Facility in
November 2002 with the Bank of Nova Scotia. Under the terms of
this Credit Agreement, the Company has a Canadian (CAD)
$30 million bank credit availability and has the option to
borrow in either Canadian Dollars or U.S. Dollars (USD).
The outstanding borrowings at year end under this facility were
approximately $21 million (CAD) in 2006 and 2005. The
covenants and interest rates under this facility match those of
the primary $1 billion revolving credit facility. The
Canadian Credit Facility was renewed for an additional year
prior to its expiration date of November 22, 2006, and
expires on November 22, 2007.
On October 13, 2005, Dover issued $300 million of
4.875% notes due 2015 and $300 million of
5.375% debentures due 2035. The net proceeds of
$588.6 million from the notes and debentures were used to
repay borrowings under Dovers commercial paper program.
The notes and debentures are redeemable at the option of Dover
in whole or in part at any time at a redemption price that
includes a make-whole premium, with accrued interest to the
redemption date. In November 2005, the Company retired its
6.45% notes due November 15, 2005 with a face amount
of $250.0 million.
On November 25, 2005, the Company established a
75 million credit facility with Credit Lyonnais. The
interest rate on outstanding balances is 15 basis points over
the Euribor rate and the annual commitment fee is 5 basis
points on unborrowed amounts. The facility has no material
covenants. At December 31, 2006, there was no outstanding
balance under this facility.
Notes payable shown on the consolidated balance sheets for 2006
and 2005 principally represented commercial paper issued in the
U.S. The weighted average interest for short-term
borrowings for the years 2006 and 2005 was 5.0% and 3.2%,
respectively.
Dovers long-term debt instruments had a book value of
$1,512.8 million on December 31, 2006 and a fair value
of approximately $1,502.9 million. On December 31,
2005, the Companys long-term debt instruments had a book
value of $1,344.2 million and a fair value of approximately
$1,406.0 million.
A summary of the Companys long-term debt is as follows for
the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average Effective
|
|
|
|
|
|
|
|
|
|
Maturities
|
|
|
Interest Rate
|
|
|
Interest Rate
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Notes*
|
|
|
2008 to 2015
|
|
|
|
4.93
|
|
|
|
5.42
|
|
|
$
|
1,012,983
|
|
|
$
|
847,633
|
|
Debentures**
|
|
|
2028 to 2035
|
|
|
|
5.89
|
|
|
|
5.95
|
|
|
|
494,648
|
|
|
|
494,453
|
|
Other long-term debt, including
capital leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,127
|
|
|
|
3,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,512,758
|
|
|
|
1,345,374
|
|
Less current installments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,267
|
|
|
|
1,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current
installments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,480,491
|
|
|
$
|
1,344,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes unamortized (discount) of ($2.1) million and
($2.4) million in 2006 and 2005, respectively. |
|
** |
|
Includes unamortized (discount) of ($5.4) million and
($5.5) million in 2006 and 2005, respectively. |
Annual repayments of long-term debt are $32.3 million in
2007, $185.9 million in 2008, $35.0 million in 2009,
$33.1 million in 2010, $432.7 million in 2011 and
$793.8 million thereafter.
The Company may, from time to time, enter into interest rate
swap agreements to manage its exposure to interest rate changes.
Interest rate swaps are agreements to exchange fixed and
variable rate payments based on notional principal amounts.
54
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the third quarter of 2005, Dover entered into several
treasury rate locks related to the notes and debentures that
were issued on October 13, 2005. The contracts were settled
on October 13, 2005 and the resulting gain of
$3.0 million is being deferred in Accumulated Other
Comprehensive Earnings (Loss) and amortized over the life of the
related notes and debentures.
As of December 31, 2006, there were two interest rate swap
agreements outstanding for a total notional amount of
$100.0 million, designated as fair value hedges on part of
the Companys $150.0 million 6.25% Notes due
June 1, 2008. One $50 million interest rate swap
exchanges fixed-rate interest for variable-rate interest. The
other $50 million swap is designated in foreign currency
and exchanges fixed-rate interest for variable-rate interest,
and also hedges a portion of the Companys net investment
in foreign operations. The swap agreements have reduced the
effective interest rate on the notes to 5.78%. There is no hedge
ineffectiveness. The fair value of the interest rate swaps
outstanding as of December 31, 2006 was determined through
market quotation.
10. Equity
and Performance Incentive Program
2005
Equity and Cash Incentive Plan
On April 20, 2004, the stockholders approved the Dover
Corporation 2005 Equity and Cash Incentive Plan (the 2005
Plan) to replace the 1995 Incentive Stock Option Plan and
1995 Cash Performance Program (the 1995 Plan), which
expired on January 30, 2005. Under the 2005 Plan, a maximum
aggregate of 20 million shares are reserved for grants
(non-qualified and incentive stock options, stock-settled stock
appreciation rights (SSARs), and restricted stock)
to key personnel between February 1, 2005 and
January 31, 2015, provided that no incentive stock options
shall be granted under the plan after February 11, 2014 and
a maximum of one million shares may be granted as restricted
stock. The exercise price of options and SSARs may not be less
than the fair market value of the stock at the time the awards
are granted. The period during which these options and SSARs are
exercisable is fixed by the Companys Compensation
Committee at the time of grant, but generally may not commence
sooner than three years after the date of grant, and may not
exceed ten years from the date of grant. All stock options or
SSARs issued under the 1995 Plan or the 2005 Plan vest after
three years of service and expire at the end of ten years. All
stock options and SSARs are granted at regularly scheduled
quarterly Compensation Committee meetings (usually only at the
meeting during the first quarter) and have an exercise price
equal to the fair market value of Dover stock on that day. New
common shares are issued when options or SSARs are exercised.
In 2006, the Company issued 1,886,989 SSARs under the 2005 Plan.
No stock options were issued in 2006 and the Company does not
anticipate issuing stock options in the future. The fair value
of each grant was estimated on the date of grant using a
Black-Scholes option-pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2006 Grant
|
|
|
2005 Grant
|
|
|
2004 Grant
|
|
|
|
SSARs
|
|
|
Options
|
|
|
Options
|
|
|
Risk-free interest rate
|
|
|
4.63
|
%
|
|
|
3.97
|
%
|
|
|
3.71
|
%
|
Dividend yield
|
|
|
1.52
|
%
|
|
|
1.70
|
%
|
|
|
1.46
|
%
|
Expected life
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
Volatility
|
|
|
30.73
|
%
|
|
|
31.15
|
%
|
|
|
31.54
|
%
|
Option grant price
|
|
$
|
46.00
|
|
|
$
|
38.00
|
|
|
$
|
41.25
|
|
Fair value of options granted
|
|
$
|
17.01
|
|
|
$
|
13.24
|
|
|
$
|
14.89
|
|
55
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of activity for SSARs and stock options for the years
ended December 31, 2006, 2005, and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SSARs
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
Contractual
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
Contractual
|
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
Term
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
Term
|
|
|
|
Shares
|
|
|
Price
|
|
|
Value
|
|
|
(Years)
|
|
|
Shares
|
|
|
Price
|
|
|
Value
|
|
|
(Years)
|
|
|
Outstanding at
1/1/2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,383,082
|
|
|
$
|
30.99
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,248,801
|
|
|
|
41.25
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(319,165
|
)
|
|
|
19.50
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(697,974
|
)
|
|
|
31.68
|
|
|
$
|
15,180,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
12/31/2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,614,744
|
|
|
|
33.45
|
|
|
|
98,412,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2004 through February 8, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,386,255
|
|
|
$
|
33.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
1/1/2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,614,744
|
|
|
$
|
33.45
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,519,736
|
|
|
|
38.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(774,239
|
)
|
|
|
25.26
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(761,408
|
)
|
|
|
35.53
|
|
|
$
|
10,446,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
12/31/2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,598,833
|
|
|
|
34.61
|
|
|
|
59,389,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2005 through February 14, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,093,240
|
|
|
$
|
36.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
1/1/2006
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
13,598,833
|
|
|
$
|
34.61
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,886,989
|
|
|
|
46.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(171,479
|
)
|
|
|
46.00
|
|
|
|
|
|
|
|
|
|
|
|
(336,319
|
)
|
|
|
38.73
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
(2,485,219
|
)
|
|
|
30.71
|
|
|
$
|
42,055,643
|
(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
12/31/2006
|
|
|
1,715,510
|
|
|
|
46.00
|
|
|
|
5,524,224
|
|
|
|
9.10
|
|
|
|
10,777,295
|
|
|
|
35.38
|
|
|
|
149,127,629
|
|
|
|
5.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2006 through:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
138,926
|
|
|
$
|
24.72
|
|
|
$
|
3,403,876
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385,574
|
|
|
|
35.00
|
|
|
|
5,482,926
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
705,717
|
|
|
|
31.00
|
|
|
|
12,858,279
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
549,464
|
|
|
|
39.05
|
|
|
|
5,589,612
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,234,299
|
|
|
|
40.99
|
|
|
|
10,164,640
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,401,903
|
|
|
|
37.94
|
|
|
|
15,816,382
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,292,186
|
|
|
|
24.60
|
|
|
|
56,438,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,708,069
|
|
|
|
32.86
|
|
|
|
109,754,054
|
|
|
|
4.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Cash received by the Company for stock options exercised during
the year ended December 31, 2006 totaled $77.4 million. |
Unrecognized compensation expense related to non-vested shares
was $27.7 million at December 31, 2006. This cost is
expected to be recognized over a weighted average period of
1.7 years.
56
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Additional
Detail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SSARs Outstanding
|
|
|
SSARs Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining Life
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining Life
|
|
Range of Exercise Prices
|
|
Number
|
|
|
Exercise Price
|
|
|
in Years
|
|
|
Number
|
|
|
Exercise Price
|
|
|
in Years
|
|
|
$46.00
|
|
|
1,715,510
|
|
|
$
|
46.00
|
|
|
|
9.10
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining Life
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining Life
|
|
Range of Exercise Prices
|
|
Number
|
|
|
Exercise Price
|
|
|
in Years
|
|
|
Number
|
|
|
Exercise Price
|
|
|
in Years
|
|
|
$24.50-$31.00
|
|
|
3,136,029
|
|
|
$
|
26.01
|
|
|
|
4.95
|
|
|
|
3,136,029
|
|
|
$
|
26.01
|
|
|
|
4.95
|
|
$33.00-$39.00
|
|
|
4,464,356
|
|
|
|
37.86
|
|
|
|
5.96
|
|
|
|
2,330,391
|
|
|
|
37.73
|
|
|
|
3.99
|
|
$39.40-$46.00
|
|
|
3,176,910
|
|
|
|
41.15
|
|
|
|
5.95
|
|
|
|
1,241,649
|
|
|
|
41.01
|
|
|
|
4.11
|
|
During the fourth quarter of 2006, the Company did not purchase
any shares of common stock in the open market. During the twelve
months ended December 31, 2006, the Company purchased a
total of 900,000 shares of common stock in the open market
at an average price of $47.12.
The Company also has a restricted stock program (as part of the
2005 Plan), under which common stock of the Company may be
granted at no cost to certain officers and key employees. In
general, restrictions limit the sale or transfer of these shares
during a two or three year period, and restrictions lapse
proportionately over the two or three year period. The Company
did not grant any restricted shares in 2006. Restricted shares
granted in 2005 and 2004 were 6,000, and 4,000, respectively.
In addition, the Company has a stock compensation plan under
which non-employee directors are granted shares of Dovers
common stock each year as more than half of their compensation
for serving as directors. During 2006, the Company issued an
aggregate of 15,232 shares of its common stock to ten
outside directors (after withholding 3,958 additional shares to
satisfy tax obligations). During 2005, the Company issued an
aggregate of 12,860 shares of its common stock to ten
outside directors (after withholding an aggregate of 3,790
additional shares to satisfy tax obligations), as partial
compensation for serving as directors of the Company during
2005. During 2004, the Company issued an aggregate of
9,120 shares of its common stock to eight outside directors
(after withholding an aggregate of 3,904 additional shares to
satisfy tax obligations), as partial compensation for serving as
directors of the Company during 2004.
11. Income
Taxes
Total income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Taxes on income from continuing
operations
|
|
$
|
219,541
|
|
|
$
|
161,138
|
|
|
$
|
129,697
|
|
Credit to Stockholders
equity, for tax benefit related to stock option exercises
|
|
|
(15,316
|
)
|
|
|
(3,628
|
)
|
|
|
(4,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
204,225
|
|
|
$
|
157,510
|
|
|
$
|
124,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
DOVER
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income tax expense (benefit) for the years ended
December 31, 2006, 2005 and 2004 is comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
154,470
|
|
|
$
|
83,316
|
|
|
$
|
78,583
|
|
State and local
|
|
|
11,175
|
|
|
|
14,686
|
|
|
|
2,390
|
|
Foreign
|
|
|
63,381
|
|
|
|
38,059
|
|
|
|
35,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
continuing
|
|
|
229,026
|
|
|
|
136,061
|
|
|
|
116,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
(14,912
|
)
|
|
|
23,219
|
|
|
|
8,784
|
|
State and local
|
|
|
1,463
|
|
|
|
(1,611
|
)
|
|
|
3,363
|
|
Foreign
|
|
|
3,964
|
|
|
|
3,469
|
|
|
|
642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
continuing
|
|
|
(9,485
|
)
|
|
|
25,077
|
|
|
|
12,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
continuing
|
|
$
|
219,541
|
|
|
$
|
161,138
|
|
|
$
|
129,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes have been based on the following components of
Earnings Before Provision for Income Taxes and
Discontinued Operations in the Consolidated Statements of
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Domestic
|
|
$
|
488,413
|
|
|
$
|
396,664
|
|
|
$
|
368,829
|
|
Foreign
|
|
|
334,456
|
|
|
|
210,669
|
|
|
|
123,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|