Item 1. Financial Statements

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Item 1. Financial Statements

DOVER CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
		2022		2021
Revenue		$	2,051,901	$	1,867,901
Cost of goods and services		1,308,707		1,146,353
Gross profit		743,194		721,548
Selling, general and administrative expenses		443,843		408,998

Operating earnings		299,351		312,550
Interest expense		26,552		26,823
Interest income		(775)		(680)


Other income, net		(2,129)		(2,843)
Earnings before provision for income taxes		275,703		289,250
Provision for income taxes		49,550		56,481


Net earnings		$	226,153	$	232,769







Net earnings per share:
Basic		$	1.57	$	1.62
Diluted		$	1.56	$	1.61
Weighted average shares outstanding:
Basic		144,087		143,765
Diluted		145,329		144,938

See Notes to Condensed Consolidated Financial Statements

DOVER CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
		2022		2021
Net earnings		$	226,153	$	232,769
Other comprehensive (loss) earnings, net of tax
Foreign currency translation adjustments:
Foreign currency translation losses		(21,653)		(12,971)
Reclassification of foreign currency translation losses to earnings		5,915		—
Total foreign currency translation adjustments (net of $(8,431) and $(10,492) tax provision, respectively)		(15,738)		(12,971)
Pension and other post-retirement benefit plans:


Amortization of actuarial losses included in net periodic pension cost		360		2,374
Amortization of prior service costs included in net periodic pension cost		221		208

Total pension and other post-retirement benefit plans (net of $(208) and $(773) tax provision, respectively)		581		2,582
Changes in fair value of cash flow hedges:
Unrealized net gains arising during period		1,964		4,324
Net gains reclassified into earnings		(1,576)		(1,411)
Total cash flow hedges (net of $(112) and $(871) tax provision, respectively)		388		2,913

Other comprehensive (loss) earnings, net of tax		(14,769)		(7,476)
Comprehensive earnings		$	211,384	$	225,293

See Notes to Condensed Consolidated Financial Statements

DOVER CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	March 31, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	289,984	$	385,504

Receivables, net	1,446,670		1,347,514
Inventories, net	1,322,347		1,191,095
Prepaid and other current assets	173,483		137,596


Total current assets	3,232,484		3,061,709
Property, plant and equipment, net	960,130		957,310

Goodwill	4,526,137		4,558,822
Intangible assets, net	1,311,688		1,359,522
Other assets and deferred charges	470,608		466,264

Total assets	$	10,501,047	$	10,403,627

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable	$	113,480	$	105,702
Accounts payable	1,136,553		1,073,568
Accrued compensation and employee benefits	203,416		302,978
Deferred revenue	245,274		227,549
Accrued insurance	101,157		101,448
Other accrued expenses	328,992		347,097
Federal and other income taxes	118,050		91,999

Total current liabilities	2,246,922		2,250,341
Long-term debt	2,981,922		3,018,714
Deferred income taxes	369,107		364,117
Noncurrent income tax payable	48,376		48,385
Other liabilities	524,944		532,542

Stockholders' equity:







Total stockholders' equity	4,329,776		4,189,528
Total liabilities and stockholders' equity	$	10,501,047	$	10,403,627

See Notes to Condensed Consolidated Financial Statements

DOVER CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except per share data)

(Unaudited)


	Common stock $1 par value		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Treasury stock		Total stockholders' equity
Balance at December 31, 2021	$	259,457	$	857,636	$	9,445,245	$	(154,052)	$	(6,218,758)	$	4,189,528
Net earnings	—		—		226,153		—		—		226,153
Dividends paid ($0.50 per share)	—		—		(72,203)		—		—		(72,203)
Common stock issued for the exercise of share-based awards	116		(10,162)		—		—		—		(10,046)
Stock-based compensation expense	—		11,113		—		—		—		11,113

Other comprehensive loss, net of tax	—		—		—		(14,769)		—		(14,769)

Balance at March 31, 2022	$	259,573	$	858,587	$	9,599,195	$	(168,821)	$	(6,218,758)	$	4,329,776


	Common stock $1 par value		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Treasury stock		Total stockholders' equity
Balance at December 31, 2020	$	258,982	$	868,882	$	8,608,284	$	(153,254)	$	(6,197,121)	$	3,385,773

Net earnings	—		—		232,769		—		—		232,769
Dividends paid ($0.495 per share)	—		—		(71,344)		—		—		(71,344)
Common stock issued for the exercise of share-based awards	356		(30,809)		—		—		—		(30,453)
Stock-based compensation expense	—		11,521		—		—		—		11,521
Common stock acquired	—		—		—		—		(21,637)		(21,637)
Other comprehensive loss, net of tax	—		—		—		(7,476)		—		(7,476)
Other, net	—		(9)		—		—		—		(9)
Balance at March 31, 2021	$	259,338	$	849,585	$	8,769,709	$	(160,730)	$	(6,218,758)	$	3,499,144

See Notes to Condensed Consolidated Financial Statements

DOVER CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Operating Activities:
Net earnings	$	226,153	$	232,769

Adjustments to reconcile net earnings to cash from operating activities:


Depreciation and amortization	79,003		73,806
Stock-based compensation expense	11,113		11,521


Reclassification of foreign currency translation losses to earnings	5,915		—
Other, net	(5,593)		(9,031)
Cash effect of changes in assets and liabilities:
Accounts receivable, net	(97,220)		(116,320)
Inventories	(136,722)		(75,421)
Prepaid expenses and other assets	(23,524)		(22,005)
Accounts payable	58,484		63,766
Accrued compensation and employee benefits	(98,602)		(34,894)
Accrued expenses and other liabilities	(1,463)		22,945

Accrued and deferred taxes, net	6,139		30,048
Net cash provided by operating activities	23,683		177,184

Investing Activities:
Additions to property, plant and equipment	(50,381)		(31,260)

Proceeds from sale of property, plant and equipment	3,177		5,845

Other	241		(4,157)
Net cash used in investing activities	(46,963)		(29,572)

Financing Activities:
Repurchase of common stock	—		(21,637)

Borrowings in commercial paper and notes payable, net	7,778		—
Dividends paid to stockholders	(72,203)		(71,344)
Payments to settle employee tax obligations on exercise of share-based awards	(10,046)		(30,453)


Other	(733)		(805)
Net cash used in financing activities	(75,204)		(124,239)







Effect of exchange rate changes on cash and cash equivalents	2,964		64

Net (decrease) increase in cash and cash equivalents	(95,520)		23,437
Cash and cash equivalents at beginning of period	385,504		513,075
Cash and cash equivalents at end of period	$	289,984	$	536,512

See Notes to Condensed Consolidated Financial Statements

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

1. Basis of Presentation

The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim periods and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements. These unaudited interim Condensed Consolidated Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and Notes for Dover Corporation ("Dover" or the "Company") for the year ended December 31, 2021, included in the Company's Annual Report on Form 10-K filed with the SEC on February 11, 2022. The year-end Condensed Consolidated Balance Sheet was derived from audited financial statements.

The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect amounts reported in the Condensed Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates. The Condensed Consolidated Financial Statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair statement of results for these interim periods. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year.

2. Revenue

A majority of the Company’s revenue is short cycle in nature with shipments within one year from order. A small portion of the Company’s revenue derives from contracts extending over one year. The Company's payment terms generally range between 30 to 90 days and vary by the location of businesses, the type of products manufactured to be sold and the volume of products sold, among other factors.

Over 95% of the Company’s revenue is recognized at a point in time rather than over time as the Company completes its performance obligations. Specifically, revenue is recognized when control transfers to the customer, typically upon shipment or completion of installation, testing, certification, or other substantive acceptance provisions required under the contract. Less than 5% of the Company’s revenue is recognized over time and relates to the sale of equipment or services in which the Company transfers control of a good or service over time and the customer simultaneously receives and consumes the benefits provided by the Company's performance as the Company performs, or our performance creates or enhances an asset the customer controls as the asset is created or enhanced, or our performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for its performance to date plus a reasonable margin.

Revenue from contracts with customers is disaggregated by segment and geographic location, as they best depict the nature and amount of the Company’s revenue. See Note 16 — Segment Information for further details for revenue by segment and geographic location.

At March 31, 2022, we estimated that $303 million in revenue is expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. We expect to recognize approximately 80% of our unsatisfied (or partially unsatisfied) performance obligations as revenue through 2023, with the remaining balance to be recognized in 2024 and thereafter.

The following table provides information about contract assets and contract liabilities from contracts with customers:


	March 31, 2022		December 31, 2021		December 31, 2020

Contract assets	$	14,359	$	11,440	$	15,020
Contract liabilities - current	245,274		227,549		184,845
Contract liabilities - non-current	27,985		21,513		13,921

The revenue recognized during the three months ended March 31, 2022 and 2021 that was included in contract liabilities at the beginning of the period, inclusive of adjustments, amounted to $104,008 and $104,617, respectively.

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

3. Acquisitions

2022 Acquisitions

There were no acquisitions during the three months ended March 31, 2022.

2021 Acquisitions

There were no acquisitions during the three months ended March 31, 2021.

RegO

On December 28, 2021, the Company acquired 100% of the voting stock of ECI Holding Company, LLC ("RegO"), a provider of highly-engineered components and services that facilitate the production, storage, and distribution of cryogenic gases, for $624,693, net of cash acquired and inclusive of the impact of measurement period adjustments discussed below. In connection with this acquisition, the Company recorded goodwill of $154,445 deductible for income tax purposes and $118,075 non-deductible for income tax purposes. The Company also recorded intangible assets of $173,000 for customer intangibles, $40,000 for patents, and $21,000 for trademarks. The fair value of customer intangibles at the acquisition date was determined using the multi-period excess earnings method under the income approach. The fair value measurements of intangible assets are based on significant unobservable inputs and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include discounted future cash flows, customer attrition rates and discount rates. The fair value of assets acquired also includes trade receivables of $34,283. The gross amount is $34,612, of which $329 is expected to be uncollectible. The fair values of the assets acquired and liabilities assumed, and the related tax balances, are based on preliminary estimates and assumptions. These preliminary estimates and assumptions could change during the measurement period as the Company finalizes the valuations of the assets acquired and liabilities assumed, and the related tax balances. During the three months ended March 31, 2022, the Company recorded measurement period adjustments primarily related to its preliminary estimates of deferred taxes and property, plant and equipment. These adjustments are based on facts and circumstances that existed as of the acquisition date which resulted in a decrease in goodwill of $4,456.

The following presents the updated preliminary allocation of purchase price, net of cash acquired of $10,382, to the assets acquired and liabilities assumed under the RegO acquisition, based on their estimated fair values at their acquisition dates:


	Total
Accounts receivable	$	34,283
Inventories	77,775
Other current assets	2,958
Property, plant and equipment	52,873
Goodwill	272,520
Intangible assets	234,000
Other assets and deferred charges	884
Current liabilities	(20,152)
Non-current liabilities	(30,448)
Net assets acquired	$	624,693

The amounts assigned to goodwill and major intangible asset classifications were as follows:


	Amount allocated		Useful life (in years)
Goodwill - tax deductible	$	154,445	na
Goodwill - non-deductible	118,075		na
Customer intangibles	173,000		15
Patents	40,000		12

Trademarks	21,000		16

	$	506,520

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

Acme Cryogenics

On December 16, 2021, the Company acquired 100% of the voting stock of Acme Cryo Intermediate Inc. ("Acme Cryogenics"), a provider of highly-engineered components and services that facilitate the production, storage, and distribution of cryogenic gases, for $292,285, net of cash acquired and inclusive of the impact of measurement period adjustments discussed below. In connection with this acquisition, the Company recorded goodwill of $167,269 non-deductible for income tax purposes. The Company also recorded intangible assets of $99,000 for customer intangibles, $21,800 for unpatented technology and $6,500 for trademarks. The fair value of customer intangibles at the acquisition date was determined using the multi-period excess earnings method under the income approach. The fair value measurements of intangible assets are based on significant unobservable inputs and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include discounted future cash flows, customer attrition rates and discount rates. The fair value of assets acquired also includes trade receivables of $14,677. The gross amount is $14,912, of which $235 is expected to be uncollectible. The fair values of the assets acquired and liabilities assumed, and the related tax balances, are based on preliminary estimates and assumptions. These preliminary estimates and assumptions could change during the measurement period as the Company finalizes the valuations of the assets acquired and liabilities assumed, and the related tax balances. During the three months ended March 31, 2022, the Company recorded measurement period adjustments primarily related to changes in net working capital. These adjustments are based on facts and circumstances that existed as of the acquisition date which resulted in a decrease in goodwill of $1,940.

The following presents the updated preliminary allocation of purchase price to the assets acquired and liabilities assumed under the Acme Cryogenics acquisition, based on their estimated fair values at acquisition date:


	Total
Current assets, net of cash acquired	$	30,184
Property, plant and equipment	8,640
Goodwill	167,269
Intangible assets	127,300
Other assets and deferred charges	5,057
Current liabilities	(9,085)
Non-current liabilities	(37,080)
Net assets acquired	$	292,285

The amounts assigned to goodwill and major intangible asset classifications were as follows:


	Amount allocated		Useful life (in years)

Goodwill - non-deductible	$	167,269	na
Customer intangibles	99,000		15

Unpatented technologies	21,800		12
Trademarks	6,500		16

	$	294,569

4. Inventories, net


	March 31, 2022		December 31, 2021
Raw materials	$	750,559	$	671,195
Work in progress	291,601		271,659
Finished goods	413,721		377,800
Subtotal	1,455,881		1,320,654
Less reserves	(133,534)		(129,559)
Total	$	1,322,347	$	1,191,095

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

5. Property, Plant and Equipment, net


	March 31, 2022		December 31, 2021
Land	$	64,746	$	63,656
Buildings and improvements	586,083		582,314
Machinery, equipment and other	1,829,690		1,816,473
Property, plant and equipment, gross	2,480,519		2,462,443
Accumulated depreciation	(1,520,389)		(1,505,133)
Property, plant and equipment, net	$	960,130	$	957,310

Depreciation expense totaled $37,812 and $38,194 for the three months ended March 31, 2022 and 2021, respectively.

6. Credit Losses

The Company is exposed to credit losses primarily through sales of products and services. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected is based on the aging of the accounts receivable balances and other historical and forward-looking information on the financial condition of customers. Balances are written off when determined to be uncollectible.

The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.


	2022		2021
Beginning Balance, December 31 of the Prior Year	$	40,126	$	40,474

Provision for expected credit losses, net of recoveries	1,185		112
Amounts written off charged against the allowance	(603)		(973)
Other, including foreign currency translation	(387)		28
Ending balance, March 31	$	40,321	$	39,641

7. Goodwill and Other Intangible Assets

The changes in the carrying value of goodwill by reportable operating segments were as follows:


	Engineered Products		Clean Energy & Fueling		Imaging & Identification		Pumps & Process Solutions		Climate & Sustainability Technologies		Total
Balance at December 31, 2021	$	723,283	$	1,427,691	$	1,106,202	$	792,839	$	508,807	$	4,558,822

Measurement period adjustments	—		(6,233)		—		—		—		(6,233)

Foreign currency translation	(3,821)		(6,243)		(11,741)		(4,141)		(506)		(26,452)
Balance at March 31, 2022	$	719,462	$	1,415,215	$	1,094,461	$	788,698	$	508,301	$	4,526,137

During the three months ended March 31, 2022, the Company recorded measurement period adjustments that reduced goodwill by $6,233, principally related to deferred taxes, working capital adjustments, and property, plant and equipment for 2021 acquisitions within the Clean Energy & Fueling segment.

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

The Company’s definite-lived and indefinite-lived intangible assets by major asset class were as follows:


	March 31, 2022						December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets:
Customer intangibles	$	1,817,332	$	930,841	$	886,491	$	1,829,492	$	909,776	$	919,716
Trademarks	261,857		121,672		140,185		263,367		116,633		146,734
Patents	205,312		140,374		64,938		205,910		140,327		65,583
Unpatented technologies	219,562		126,163		93,399		221,239		123,464		97,775
Distributor relationships	82,745		55,706		27,039		84,204		55,260		28,944
Drawings and manuals	26,816		26,816		—		27,792		27,303		489
Other	21,316		18,355		2,961		22,347		18,775		3,572
Total	2,634,940		1,419,927		1,215,013		2,654,351		1,391,538		1,262,813
Unamortized intangible assets:
Trademarks	96,675		—		96,675		96,709		—		96,709
Total intangible assets, net	$	2,731,615	$	1,419,927	$	1,311,688	$	2,751,060	$	1,391,538	$	1,359,522

For the three months ended March 31, 2022 and 2021, amortization expense was $41,191 and $35,612, respectively, including acquisition-related intangible amortization of $40,799 and $35,173, respectively.

8. Restructuring Activities

The Company's restructuring charges by segment were as follows:


	Three Months Ended March 31,
		2022		2021
Engineered Products		$	457	$	3,991
Clean Energy & Fueling		196		49
Imaging & Identification		1,191		690
Pumps & Process Solutions		685		(17)
Climate & Sustainability Technologies		5,716		1,061
Corporate		(88)		661
Total		$	8,157	$	6,435

These amounts are classified in the Condensed Consolidated Statements of Earnings as follows:
Cost of goods and services		$	207	$	3,907
Selling, general and administrative expenses		7,950		2,528
Total		$	8,157	$	6,435

The restructuring expenses of $8,157 incurred during the three months ended March 31, 2022 were primarily the result of restructuring programs initiated in 2021 in response to demand conditions and broad-based operational efficiency initiatives focusing on footprint consolidation and IT centralization.

The $8,157 of restructuring charges incurred during the first quarter of 2022 primarily included the following items:

The Engineered Products segment recorded $457 of restructuring charges related primarily to headcount reduction.
The Clean Energy & Fueling segment recorded $196 of restructuring charges primarily due to headcount reductions.
The Imaging & Identification segment recorded $1,191 of restructuring charges related primarily to exit costs and asset charges.

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

The Pumps & Process Solutions segment recorded $685 of restructuring charges related primarily to headcount reductions and asset charges.
The Climate & Sustainability Technologies segment recorded $5,716 of restructuring charges related primarily to non-cash foreign currency translation losses due to the substantial liquidation of businesses in certain Latin America countries.

The Company’s severance and exit accrual activities were as follows:


	Severance		Exit			Total
Balance at December 31, 2021	$	10,730	$	3,067		$	13,797
Restructuring charges	778		7,379		(1)	8,157
Payments	(3,132)		(795)			(3,927)


Other, including foreign currency translation	(114)		(6,703)		(1)	(6,817)
Balance at March 31, 2022	$	8,262	$	2,948		$	11,210

(1) Other activity includes non-cash foreign currency translation losses recorded as restructuring charges due to the substantial liquidation of businesses in certain Latin America countries.

9. Borrowings

Borrowings consisted of the following:


	March 31, 2022		December 31, 2021
Short-term:
Short-term borrowings	$	680	$	702
Commercial paper	112,800		105,000
Notes payable	$	113,480	$	105,702


			Carrying amount (1)
	Principal		March 31, 2022		December 31, 2021
Long-term
3.15% 10-year notes due November 15, 2025	$	400,000	$	397,558	$	397,389
1.25% 10-year notes due November 9, 2026 (euro-denominated)	€	600,000	653,913		674,217
0.750% 8-year notes due November 4, 2027 (euro denominated)	€	500,000	544,357		561,293
6.65% 30-year debentures due June 1, 2028	$	200,000	199,381		199,356
2.950% 10-year notes due November 4, 2029	$	300,000	297,123		297,029
5.375% 30-year debentures due October 15, 2035	$	300,000	296,621		296,559
6.60% 30-year notes due March 15, 2038	$	250,000	248,194		248,166
5.375% 30-year notes due March 1, 2041	$	350,000	344,775		344,705



Total long-term debt			$	2,981,922	$	3,018,714

(1) Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discounts were

$14.4 million and $15.1 million as of March 31, 2022 and December 31, 2021, respectively. Total deferred debt issuance costs were $12.1 million and $12.5 million as of March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022, the Company maintained a $1.0 billion five-year unsecured revolving credit facility (the "Credit Agreement") with a syndicate of banks which expires on October 4, 2024. The Company uses the Credit Agreement principally as liquidity back-up for its commercial paper program and for general corporate purposes. At the Company's election, loans under the Credit Agreement will bear interest at a base rate plus an applicable margin. The Credit Agreement requires the Company to pay a facility fee and imposes various restrictions on the Company such as, among other things, a requirement to maintain a minimum interest coverage ratio of consolidated EBITDA to consolidated net interest expense of not less than 3.0 to 1. As of March 31, 2022 and December 31, 2021, there were no borrowings under the Credit Agreement.

The Company was in compliance with all covenants in the Credit Agreement and other long-term debt covenants at March 31, 2022 and had an interest coverage ratio of consolidated EBITDA to consolidated net interest expense of 17.7 to 1.

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

Letters of Credit and other Guarantees

As of March 31, 2022, the Company had approximately $149.7 million outstanding in letters of credit, surety bonds, and performance and other guarantees which expire on various dates through 2029. These letters of credit and bonds are primarily issued as security for insurance, warranty and other performance obligations. In general, we would only be liable for the amount of these guarantees in the event of default in the performance of our obligations.

10. Financial Instruments

Derivatives

The Company is exposed to market risk for changes in foreign currency exchange rates due to the global nature of its operations and certain commodity risks. In order to manage these risks, the Company has hedged portions of its forecasted sales and purchases to occur within the next twelve months that are denominated in non-functional currencies, with currency forward contracts designated as cash flow hedges. At March 31, 2022 and December 31, 2021, the Company had contracts with total notional amounts of $169,157 and $180,929, respectively, to exchange currencies, principally euro, pound sterling, Swedish krona, Canadian dollar, Chinese yuan, and Swiss franc. The Company believes it is probable that all forecasted cash flow transactions will occur.

In addition, the Company had outstanding contracts with a total notional amount of $97,921 and $108,736 as of March 31, 2022 and December 31, 2021, respectively, that are not designated as hedging instruments. These instruments are used to reduce the Company's exposure for operating receivables and payables that are denominated in non-functional currencies. Gains and losses on these contracts are recorded in other income, net in the Condensed Consolidated Statements of Earnings.

The following table sets forth the fair values of derivative instruments held by the Company as of March 31, 2022 and December 31, 2021 and the balance sheet lines in which they are recorded:


	Fair Value Asset (Liability)
	March 31, 2022		December 31, 2021		Balance Sheet Caption
Foreign currency forward	$	3,822	$	2,825	Prepaid and other current assets
Foreign currency forward	(229)		(433)		Other accrued expenses

For a cash flow hedge, the change in estimated fair value of a hedging instrument is recorded in accumulated other comprehensive (loss) earnings as a separate component of the Condensed Consolidated Statements of Stockholders' Equity and is reclassified into revenues and cost of goods and services in the Condensed Consolidated Statements of Earnings during the period in which the hedged transaction is settled. The amount of gains or losses from hedging activity recorded in earnings is not significant, and the amount of unrealized gains and losses from cash flow hedges that are expected to be reclassified to earnings in the next twelve months is not significant; therefore, additional tabular disclosures are not presented. There are no amounts excluded from the assessment of hedge effectiveness, and the Company's derivative instruments that are subject to credit risk contingent features were not significant.

The Company is exposed to credit loss in the event of nonperformance by counterparties to the financial instrument contracts held by the Company; however, nonperformance by these counterparties is considered unlikely as the Company’s policy is to contract with highly-rated, diversified counterparties.

The Company has designated the €500,000 and €600,000 of euro-denominated notes issued November 4, 2019 and November 9, 2016, respectively, as hedges of a portion of its net investment in euro-denominated operations. Changes in the value of the euro-denominated debt are recognized in foreign currency translation adjustments within other comprehensive earnings of the Condensed Consolidated Statements of Comprehensive Earnings to offset changes in the value of the net investment in euro-denominated operations.

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

Amounts recognized in other comprehensive earnings for the gains (losses) on net investment hedges were as follows:


	Three Months Ended March 31,
		2022		2021
Gain on euro-denominated debt		$	37,748	$	46,433
Tax expense		(8,431)		(10,492)
Net gain on net investment hedges, net of tax		$	29,317	$	35,941

Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value.

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.

Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021:


	March 31, 2022		December 31, 2021
	Level 2			Level 2
Assets:
Foreign currency cash flow hedges	$	3,822		$	2,825
Liabilities:
Foreign currency cash flow hedges	229			433

The estimated fair value of long-term debt at March 31, 2022 and December 31, 2021, was $3,167,903 and $3,440,501, respectively. The estimated fair value of long-term debt is based on quoted market prices for similar instruments and is, therefore, classified as Level 2 within the fair value hierarchy.

The carrying values of cash and cash equivalents, trade receivables, accounts payable and notes payable are reasonable estimates of their fair values as of March 31, 2022 and December 31, 2021 due to the short-term nature of these instruments.

11. Income Taxes

The effective tax rates for the three months ended March 31, 2022 and 2021 were 18.0% and 19.5%, respectively. The decrease in the effective tax rate for the three months ended March 31, 2022 relative to the prior year comparable period was primarily driven by favorable audit resolutions.

Dover and its subsidiaries file tax returns in the U.S., including various state and local returns, and in other foreign jurisdictions. We believe adequate provision has been made for all income tax uncertainties. The Company is routinely audited by taxing authorities in its filing jurisdictions, and a number of these audits are currently underway. The Company believes that within the next twelve months uncertain tax positions may be resolved and statutes of limitations will expire, which could result in a decrease in the gross amount of unrecognized tax benefits of approximately zero to $30.6 million.

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

12. Equity Incentive Program

The Company typically makes its annual grants of equity awards pursuant to actions taken by the Compensation Committee of the Board of Directors at its regularly scheduled first quarter meeting. During the three months ended March 31, 2022, the Company issued stock-settled appreciation rights ("SARs") covering 327,940 shares, performance share awards of 40,087 and restricted stock units ("RSUs") of 71,961.

The Company uses the Black-Scholes option pricing model to determine the fair value of each SAR on the date of grant. Expected volatilities are based on Dover's stock price history, including implied volatilities from traded options on Dover stock. The Company uses historical data to estimate SAR exercise and employee termination patterns within the valuation model. The expected life of SARs granted is derived from the output of the option valuation model and represents the average period of time that SARs granted are expected to be outstanding. The interest rate for periods within the contractual life of the SARs is based on the U.S. Treasury yield curve in effect at the time of grant.

The assumptions used in determining the fair value of the SARs awarded during the respective periods were as follows:


	SARs
	2022		2021
Risk-free interest rate	1.86	%	0.59	%
Dividend yield	1.25	%	1.62	%
Expected life (years)	5.4		5.5
Volatility	29.46	%	30.49	%

Grant price	$160.21		$122.73
Fair value per share at date of grant	$42.07		$29.08

The performance share awards granted in 2022 and 2021 are market condition awards as attainment is based on Dover's performance relative to its peer group (companies listed under the S&P 500 Industrials sector) for the relevant performance period. The performance period and vesting period for these awards is three years. These awards were valued on the date of grant using the Monte Carlo simulation model (a binomial lattice-based valuation model) and are generally recognized ratably over the vesting period, and the fair value is not subject to change based on future market conditions. The assumptions used in determining the fair value of the performance shares granted in the respective periods were as follows:


	Performance Shares
	2022		2021
Risk-free interest rate	1.68	%	0.19	%
Dividend yield	1.25	%	1.62	%
Expected life (years)	2.9		2.9
Volatility	31.10	%	31.90	%

Grant price	$160.21		$122.73
Fair value per share at date of grant	$196.40		$148.29

The Company also has granted RSUs, and the fair value of these awards was determined using Dover's closing stock price on the date of grant.

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

Stock-based compensation is reported within selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans:


	Three Months Ended March 31,
		2022		2021
Pre-tax stock-based compensation expense		$	11,113	$	11,521
Tax benefit		(1,115)		(1,222)
Total stock-based compensation expense, net of tax		$	9,998	$	10,299

13. Commitments and Contingent Liabilities

Litigation

Certain of the Company’s subsidiaries are involved in legal proceedings relating to the cleanup of waste disposal sites identified under federal and state statutes that provide for the allocation of such costs among "potentially responsible parties." In each instance, the extent of the Company’s liability appears to be very small in relation to the total projected expenditures and the number of other "potentially responsible parties" involved and is anticipated to be immaterial to the Company. In addition, certain of the Company’s subsidiaries are involved in ongoing remedial activities at certain current and former plant sites, in cooperation with regulatory agencies, and appropriate estimated liabilities have been established. At March 31, 2022 and December 31, 2021, these estimated liabilities for environmental and other matters, including private party claims for exposure to hazardous substances that are probable and estimable, were not significant.

The Company and certain of its subsidiaries are also 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 the Company’s products, patent infringement, employment matters, and commercial disputes. Management and legal counsel, at least quarterly, review the probable outcome of such proceedings, the costs and expenses reasonably expected to be incurred and currently accrued to-date, and the availability and extent of insurance coverage. The Company has estimated liabilities for legal matters that are probable and estimable, and at March 31, 2022 and December 31, 2021, these estimated liabilities were not significant. While it is not possible at this time to predict the outcome of these legal actions, in the opinion of management, based on the aforementioned reviews, the Company is not currently involved in any legal proceedings which, individually or in the aggregate, could have a material effect on its financial position, results of operations, or cash flows.

Warranty Accruals

Estimated warranty program claims are provided for at the time of sale of the Company's products. Amounts provided for are based on historical costs and adjusted for new claims and are included within other accrued expenses and other liabilities in the Condensed Consolidated Balance Sheet. The changes in the carrying amount of product warranties through March 31, 2022 and 2021, were as follows:


	2022		2021
Beginning Balance, December 31 of the Prior Year	$	48,568	$	51,088
Provision for warranties	16,052		18,897
Settlements made	(15,485)		(17,760)
Other adjustments, including acquisitions and currency translation	255		(839)
Ending balance, March 31	$	49,390	$	51,386

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

14. Employee Benefit Plans

Retirement Plans

The Company sponsors qualified defined benefit pension plans covering certain employees of the Company and its subsidiaries, although the U.S. qualified and non-qualified defined benefit plans are closed to new entrants. The plans’ benefits are generally based on years of service and employee compensation. The Company also provides to certain management employees, through non-qualified plans, supplemental retirement benefits in excess of qualified plan limits imposed by federal tax law.

The tables below set forth the components of the Company’s net periodic (income) expense relating to retirement benefit plans. The service cost component is recognized within selling, general and administrative expenses and cost of goods and services, depending on the functional area of the underlying employees included in the plans, and the non-operating components of pension costs are included within other income, net in the Condensed Consolidated Statements of Earnings.

Qualified Defined Benefits


	Three Months Ended March 31,
		U.S. Plan	Non-U.S. Plans
			2022		2021		2022		2021
Service cost			$	1,426	$	1,784	$	1,221	$	1,442
Interest cost			3,436		3,401		884		667
Expected return on plan assets			(7,276)		(7,245)		(1,891)		(1,799)
Amortization:
Prior service cost (credit)			27		53		(134)		(169)
Recognized actuarial loss			575		2,503		458		1,000



Net periodic (income) expense			$	(1,812)	$	496	$	538	$	1,141

Non-Qualified Supplemental Benefits


	Three Months Ended March 31,
		2022		2021
Service cost		$	356	$	390
Interest cost		304		308
Amortization:
Prior service cost		372		383
Recognized actuarial gain		(504)		(418)

Net periodic expense		$	528	$	663

Defined Contribution Retirement Plans

The Company also offers defined contribution retirement plans which cover the majority of its U.S. employees, as well as employees in certain other countries. The related expense is recognized within selling, general and administrative expenses and cost of goods and services, depending on the functional area of the underlying employees included in the plans. The Company’s expense relating to defined contribution plans was $17,673 and $15,061 for the three months ended March 31, 2022 and 2021, respectively.

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

15. Other Comprehensive Earnings

Amounts reclassified from accumulated other comprehensive loss to earnings during the three months ended March 31, 2022 and 2021 were as follows:


	Three Months Ended March 31,
		2022		2021
Foreign currency translation:
Reclassification of foreign currency translation losses to earnings for the substantial liquidation of businesses		$	5,915	$	—
Tax benefit		—		—
Net of tax		$	5,915	$	—
Pension plans:
Amortization of actuarial losses		$	521	$	3,085
Amortization of prior service costs		268		270

Total before tax		789		3,355
Tax benefit		(208)		(773)
Net of tax		$	581	$	2,582
Cash flow hedges:
Net gains reclassified into earnings		$	(2,029)	$	(1,833)
Tax provision		453		422
Net of tax		$	(1,576)	$	(1,411)

Foreign currency translation losses were recognized in selling, general and administrative expenses within the Condensed Consolidated Statement of Earnings as a result of the substantial liquidation of certain businesses.

The Company recognizes the amortization of net actuarial gains and losses and prior service costs in other income, net within the Condensed Consolidated Statements of Earnings.

Cash flow hedges consist mainly of foreign currency forward contracts. The Company recognizes the realized gains and losses on its cash flow hedges in the same line item as the hedged transaction, such as revenue, cost of goods and services, or selling, general and administrative expenses.

16. Segment Information

The Company categorizes its operating companies into five reportable segments as follows:

Engineered Products segment provides a wide range of equipment, components, software, solutions and services for vehicle aftermarket, waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing end-markets.
Clean Energy & Fueling segment provides components, equipment, and software and service solutions enabling safe transport of traditional and clean fuels and other hazardous substances along the supply chain, as well as the safe and efficient operation of convenience retail, retail fueling and vehicle wash establishments.
Imaging & Identification segment supplies precision marking and coding, packaging intelligence, product traceability, brand protection and digital textile printing equipment, as well as related consumables, software and services to the global packaged and consumer goods, pharmaceutical, industrial manufacturing, fashion and apparel and other end-markets.
Pumps & Process Solutions segment manufactures specialty pumps and flow meters, fluid connecting solutions, plastics and polymer processing equipment, and highly-engineered precision components for rotating and reciprocating machines serving single-use biopharmaceutical production, diversified industrial manufacturing, polymer processing, midstream and downstream oil and gas and other end-markets.

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

Climate & Sustainability Technologies segment is a provider of innovative and energy-efficient equipment and systems that serve the commercial refrigeration, heating and cooling and beverage container-making equipment markets.

Segment financial information and a reconciliation of segment results to consolidated results was as follows:


	Three Months Ended March 31,
		2022		2021
Revenue:
Engineered Products		$	487,647	$	428,127
Clean Energy & Fueling		458,395		389,678
Imaging & Identification		272,255		284,328
Pumps & Process Solutions		435,195		394,377
Climate & Sustainability Technologies		399,078		372,077
Intercompany eliminations		(669)		(686)
Total consolidated revenue		$	2,051,901	$	1,867,901
Net earnings:
Segment earnings (EBIT): (1)
Engineered Products		$	66,134	$	68,779
Clean Energy & Fueling		41,442		66,480
Imaging & Identification		51,529		56,992
Pumps & Process Solutions		139,340		123,645
Climate & Sustainability Technologies (2)		40,396		38,117
Total segment earnings (EBIT)		338,841		354,013
Corporate expense / other (3)		37,361		38,620
Interest expense		26,552		26,823
Interest income		(775)		(680)
Earnings before provision for income taxes		275,703		289,250
Provision for income taxes		49,550		56,481
Net earnings		$	226,153	$	232,769

(1) Segment earnings (EBIT) includes non-operating income and expense directly attributable to the segments.

(2) Q1 2022 includes $5,457 of non-cash foreign currency translation losses reclassified to earnings included within restructuring costs and a $2,117 write-off of assets related to an exit from certain Latin America countries.

(3) Certain expenses are maintained at the corporate level and not allocated to the segments. These expenses include executive and functional compensation costs, non-service pension costs, non-operating insurance expenses, shared business services overhead costs, deal related expenses and various administrative expenses relating to the corporate headquarters.

The following table presents revenue disaggregated by geography based on the location of the Company's customer:


	Three Months Ended March 31,
Revenue by geography		2022		2021
United States		$	1,151,500	$	1,036,014
Europe		447,565		445,295
Asia		229,386		192,107
Other Americas		151,592		130,177
Other		71,858		64,308
Total		$	2,051,901	$	1,867,901

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

17. Share Repurchases

In November 2020, the Company's Board of Directors approved a new standing share repurchase authorization, whereby the Company may repurchase up to 20 million shares beginning on January 1, 2021 through December 31, 2023. This share repurchase authorization replaced the February 2018 share repurchase authorization.

In the three months ended March 31, 2022, no shares were repurchased. During the three months ended March 31, 2021, the Company repurchased 182,951 shares of common stock at a total cost of $21,637, or $118.27 per share.

As of March 31, 2022, 19,817,049 shares remain authorized for repurchase under the November 2020 share repurchase authorization.

18. Earnings per Share

The following table sets forth a reconciliation of the information used in computing basic and diluted earnings per share:


	Three Months Ended March 31,
		2022		2021


Net earnings		$	226,153	$	232,769
Basic earnings per common share:


Net earnings		$	1.57	$	1.62

Weighted average shares outstanding		144,087,000		143,765,000
Diluted earnings per common share:


Net earnings		$	1.56	$	1.61

Weighted average shares outstanding		145,329,000		144,938,000

The following table is a reconciliation of the share amounts used in computing earnings per share:


	Three Months Ended March 31,
		2022	2021
Weighted average shares outstanding - Basic		144,087,000	143,765,000
Dilutive effect of assumed exercise of SARs and vesting of performance shares and RSUs		1,242,000	1,173,000
Weighted average shares outstanding - Diluted		145,329,000	144,938,000

Diluted earnings per share amounts are computed using the weighted average number of common shares outstanding and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of SARs and vesting of performance shares and RSUs, as determined using the treasury stock method.

The weighted average number of anti-dilutive potential common shares excluded from the calculation above were approximately 58,000 and 88,000 for the three months ended March 31, 2022 and 2021, respectively.

19. Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In October 2021, the FASB issued ASU 2021-08 Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. The Company early adopted the guidance during the first quarter of 2022. Prior to adoption, the acquirer recognized such contract assets and contract liabilities at fair value on the acquisition date. The adoption did not have a material impact on the Company's Condensed Consolidated Financial Statements.

DOVER CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated) (Unaudited)

20. Subsequent Events

On April 6, 2022, the Company completed the acquisition of certain intellectual property assets related to electric refuse collection vehicles for approximately $9.75 million, plus potential contingent consideration of up to $20 million. These assets will be included in the Engineered Products segment.

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