filings.toolsItem 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue | $ | 2,158,715 | $ | 2,031,676 | $ | 4,210,616 | $ | 3,899,577 | |||||||||||||||
| Cost of goods and services | 1,377,432 | 1,259,504 | 2,686,139 | 2,405,857 | |||||||||||||||||||
| Gross profit | 781,283 | 772,172 | 1,524,477 | 1,493,720 | |||||||||||||||||||
| Selling, general and administrative expenses | 424,433 | 428,042 | 868,276 | 837,040 | |||||||||||||||||||
| Operating earnings | 356,850 | 344,130 | 656,201 | 656,680 | |||||||||||||||||||
| Interest expense | 26,989 | 26,661 | 53,541 | 53,484 | |||||||||||||||||||
| Interest income | (949) | (942) | (1,724) | (1,622) | |||||||||||||||||||
| Other income, net | (4,546) | (4,933) | (6,675) | (7,776) | |||||||||||||||||||
| Earnings before provision for income taxes | 335,356 | 323,344 | 611,059 | 612,594 | |||||||||||||||||||
| Provision for income taxes | 45,738 | 58,836 | 95,288 | 115,317 | |||||||||||||||||||
| Net earnings | $ | 289,618 | $ | 264,508 | $ | 515,771 | $ | 497,277 | |||||||||||||||
| Net earnings per share: | |||||||||||||||||||||||
| Basic | $ | 2.01 | $ | 1.84 | $ | 3.58 | $ | 3.46 | |||||||||||||||
| Diluted | $ | 2.00 | $ | 1.82 | $ | 3.56 | $ | 3.43 | |||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | 143,832 | 143,941 | 143,959 | 143,854 | |||||||||||||||||||
| Diluted | 144,669 | 145,118 | 144,998 | 145,040 |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net earnings | $ | 289,618 | $ | 264,508 | $ | 515,771 | $ | 497,277 | |||||||||||||||
| Other comprehensive (loss) earnings, net of tax | |||||||||||||||||||||||
| Foreign currency translation adjustments: | |||||||||||||||||||||||
| Foreign currency translation (losses) gains | (77,552) | 21,559 | (99,205) | 8,588 | |||||||||||||||||||
| Reclassification of foreign currency translation losses to earnings | — | — | 5,915 | — | |||||||||||||||||||
| Total foreign currency translation adjustments (net of $(10,539), $4,269, $(18,970) and $(6,223) tax benefit (provision), respectively) | (77,552) | 21,559 | (93,290) | 8,588 | |||||||||||||||||||
| Pension and other post-retirement benefit plans: | |||||||||||||||||||||||
| Amortization of actuarial losses included in net periodic pension cost | 345 | 2,353 | 705 | 4,727 | |||||||||||||||||||
| Amortization of prior service costs included in net periodic pension cost | 226 | 224 | 447 | 432 | |||||||||||||||||||
| Total pension and other post-retirement benefit plans (net of $(202), $(774), $(410) and $(1,548) tax provision, respectively) | 571 | 2,577 | 1,152 | 5,159 | |||||||||||||||||||
| Changes in fair value of cash flow hedges: | |||||||||||||||||||||||
| Unrealized net (losses) gains arising during period | (1,150) | (5) | 814 | 4,319 | |||||||||||||||||||
| Net gains reclassified into earnings | (1,045) | (1,460) | (2,621) | (2,871) | |||||||||||||||||||
| Total cash flow hedges (net of $631, $447, $519 and $(424) tax benefit (provision), respectively) | (2,195) | (1,465) | (1,807) | 1,448 | |||||||||||||||||||
| Other comprehensive (loss) earnings, net of tax | (79,176) | 22,671 | (93,945) | 15,195 | |||||||||||||||||||
| Comprehensive earnings | $ | 210,442 | $ | 287,179 | $ | 421,826 | $ | 512,472 |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| June 30, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 515,371 | $ | 385,504 | |||||||
| Receivables, net | 1,514,455 | 1,347,514 | |||||||||
| Inventories, net | 1,381,607 | 1,191,095 | |||||||||
| Prepaid and other current assets | 179,563 | 137,596 | |||||||||
| Total current assets | 3,590,996 | 3,061,709 | |||||||||
| Property, plant and equipment, net | 963,780 | 957,310 | |||||||||
| Goodwill | 4,481,451 | 4,558,822 | |||||||||
| Intangible assets, net | 1,294,626 | 1,359,522 | |||||||||
| Other assets and deferred charges | 476,568 | 466,264 | |||||||||
| Total assets | $ | 10,807,421 | $ | 10,403,627 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Notes payable | $ | 393,654 | $ | 105,702 | |||||||
| Accounts payable | 1,200,612 | 1,073,568 | |||||||||
| Accrued compensation and employee benefits | 224,244 | 302,978 | |||||||||
| Deferred revenue | 253,632 | 227,549 | |||||||||
| Accrued insurance | 105,823 | 101,448 | |||||||||
| Other accrued expenses | 316,209 | 347,097 | |||||||||
| Federal and other income taxes | 53,461 | 91,999 | |||||||||
| Total current liabilities | 2,547,635 | 2,250,341 | |||||||||
| Long-term debt | 2,936,124 | 3,018,714 | |||||||||
| Deferred income taxes | 366,498 | 364,117 | |||||||||
| Noncurrent income tax payable | 44,313 | 48,385 | |||||||||
| Other liabilities | 524,328 | 532,542 | |||||||||
| Stockholders' equity: | |||||||||||
| Total stockholders' equity | 4,388,523 | 4,189,528 | |||||||||
| Total liabilities and stockholders' equity | $ | 10,807,421 | $ | 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 March 31, 2022 | $ | 259,573 | $ | 858,587 | $ | 9,599,195 | $ | (168,821) | $ | (6,218,758) | $ | 4,329,776 | |||||||||||||||||||||||
| Net earnings | — | — | 289,618 | — | — | 289,618 | |||||||||||||||||||||||||||||
| Dividends paid ($0.50 per share) | — | — | (71,853) | — | — | (71,853) | |||||||||||||||||||||||||||||
| Common stock issued for the exercise of share-based awards | 28 | (2,088) | — | — | — | (2,060) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 7,218 | — | — | — | 7,218 | |||||||||||||||||||||||||||||
| Common stock acquired | — | — | — | — | (85,000) | (85,000) | |||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | (79,176) | — | (79,176) | |||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | 259,601 | $ | 863,717 | $ | 9,816,960 | $ | (247,997) | $ | (6,303,758) | $ | 4,388,523 |
| Common stock $1 par value | Additional paid-in capital | Retained earnings | Accumulated other comprehensive (loss) earnings | Treasury stock | Total stockholders' equity | ||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | 259,338 | $ | 849,585 | $ | 8,769,709 | $ | (160,730) | $ | (6,218,758) | $ | 3,499,144 | |||||||||||||||||||||||
| Net earnings | — | — | 264,508 | — | — | 264,508 | |||||||||||||||||||||||||||||
| Dividends paid ($0.495 per share) | — | — | (71,354) | — | — | (71,354) | |||||||||||||||||||||||||||||
| Common stock issued for the exercise of share-based awards | 33 | (2,648) | — | — | — | (2,615) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 6,872 | — | — | — | 6,872 | |||||||||||||||||||||||||||||
| Other comprehensive earnings, net of tax | — | — | — | 22,671 | — | 22,671 | |||||||||||||||||||||||||||||
| Other, net | — | 78 | — | — | — | 78 | |||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | 259,371 | $ | 853,887 | $ | 8,962,863 | $ | (138,059) | $ | (6,218,758) | $ | 3,719,304 |
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 | — | — | 515,771 | — | — | 515,771 | |||||||||||||||||||||||||||||
| Dividends paid ($1.00 per share) | — | — | (144,056) | — | — | (144,056) | |||||||||||||||||||||||||||||
| Common stock issued for the exercise of share-based awards | 144 | (12,250) | — | — | — | (12,106) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 18,331 | — | — | — | 18,331 | |||||||||||||||||||||||||||||
| Common stock acquired | — | — | — | — | (85,000) | (85,000) | |||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | (93,945) | — | (93,945) | |||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | 259,601 | $ | 863,717 | $ | 9,816,960 | $ | (247,997) | $ | (6,303,758) | $ | 4,388,523 |
| 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 | — | — | 497,277 | — | — | 497,277 | |||||||||||||||||||||||||||||
| Dividends paid ($0.99 per share) | — | — | (142,698) | — | — | (142,698) | |||||||||||||||||||||||||||||
| Common stock issued for the exercise of share-based awards | 389 | (33,457) | — | — | — | (33,068) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 18,393 | — | — | — | 18,393 | |||||||||||||||||||||||||||||
| Common stock acquired | — | — | — | — | (21,637) | (21,637) | |||||||||||||||||||||||||||||
| Other comprehensive earnings, net of tax | — | — | — | 15,195 | — | 15,195 | |||||||||||||||||||||||||||||
| Other, net | — | 69 | — | — | — | 69 | |||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | 259,371 | $ | 853,887 | $ | 8,962,863 | $ | (138,059) | $ | (6,218,758) | $ | 3,719,304 |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating Activities: | |||||||||||
| Net earnings | $ | 515,771 | $ | 497,277 | |||||||
| Adjustments to reconcile net earnings to cash from operating activities: | |||||||||||
| Depreciation and amortization | 154,294 | 145,325 | |||||||||
| Stock-based compensation expense | 18,331 | 18,393 | |||||||||
| Reclassification of foreign currency translation losses to earnings | 5,915 | — | |||||||||
| Other, net | (8,152) | (9,493) | |||||||||
| Cash effect of changes in assets and liabilities: | |||||||||||
| Accounts receivable, net | (204,676) | (192,192) | |||||||||
| Inventories | (223,804) | (144,903) | |||||||||
| Prepaid expenses and other assets | (17,923) | (23,133) | |||||||||
| Accounts payable | 147,829 | 149,588 | |||||||||
| Accrued compensation and employee benefits | (72,802) | (13,566) | |||||||||
| Accrued expenses and other liabilities | (4,937) | 14,289 | |||||||||
| Accrued and deferred taxes, net | (107,390) | (4,328) | |||||||||
| Net cash provided by operating activities | 202,456 | 437,257 | |||||||||
| Investing Activities: | |||||||||||
| Additions to property, plant and equipment | (100,577) | (73,231) | |||||||||
| Acquisitions, net of cash acquired | (8,453) | (81,187) | |||||||||
| Proceeds from sale of property, plant and equipment | 3,898 | 6,088 | |||||||||
| Other | (10,721) | (2,873) | |||||||||
| Net cash used in investing activities | (115,853) | (151,203) | |||||||||
| Financing Activities: | |||||||||||
| Repurchase of common stock | (85,000) | (21,637) | |||||||||
| Borrowings in commercial paper and notes payable, net | 287,952 | — | |||||||||
| Dividends paid to stockholders | (144,056) | (142,698) | |||||||||
| Payments to settle employee tax obligations on exercise of share-based awards | (12,106) | (33,068) | |||||||||
| Other | (1,525) | (2,785) | |||||||||
| Net cash provided by (used in) financing activities | 45,265 | (200,188) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (2,001) | 2,418 | |||||||||
| Net increase in cash and cash equivalents | 129,867 | 88,284 | |||||||||
| Cash and cash equivalents at beginning of period | 385,504 | 513,075 | |||||||||
| Cash and cash equivalents at end of period | $ | 515,371 | $ | 601,359 |
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 June 30, 2022, we estimated that $287 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 78% 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:
| June 30, 2022 | December 31, 2021 | December 31, 2020 | ||||||||||||||||||
| Contract assets | $ | 14,789 | $ | 11,440 | $ | 15,020 | ||||||||||||||
| Contract liabilities - current | 253,632 | 227,549 | 184,845 | |||||||||||||||||
| Contract liabilities - non-current | 23,520 | 21,513 | 13,921 |
The revenue recognized during the six months ended June 30, 2022 and 2021 that was included in contract liabilities at the beginning of the period, inclusive of adjustments, amounted to $157,175 and $139,891, respectively.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
3. Acquisitions
2022 Acquisitions
During the six months ended June 30, 2022, the Company completed one acquisition. On May 2, 2022, the Company acquired 100% of the voting stock of AMN DPI ("AMN"), a designer and manufacturer of polymer pelletizing tools, for $8,453, net of cash acquired. The AMN acquisition extends the Company's reach into polymer processing equipment production within the Pumps & Process Solutions segment. In connection with this acquisition, the Company recorded goodwill of $2,315 and intangible assets of $5,349, primarily related to customer intangibles. The goodwill recorded as a result of this acquisition reflects the benefits expected to be derived from product line expansions and operational synergies. The goodwill is non-deductible for U.S. income tax purposes for this acquisition.
2021 Acquisitions
During the six months ended June 30, 2021, the Company acquired four businesses in separate transactions for total consideration of $88,457, net of cash acquired and including contingent consideration. These businesses were acquired to complement and expand upon existing operations within the Imaging & Identification, Pumps & Process Solutions, and Clean Energy & Fueling segments. The goodwill recorded as a result of these acquisitions represents the economic benefits expected to be derived from product line expansions and operational synergies. The goodwill is non-deductible for U.S. income tax purposes for these acquisitions.
On June 24, 2021, the Company acquired 100% of the voting stock of Blue Bite LLC ("Blue Bite"), a leading provider of consumer engagement and brand protection software solutions, for $29,035, net of cash acquired and including contingent consideration. The Blue Bite acquisition strengthens the Company's offering of product traceability and authentication solutions within the Imaging & Identification segment. In connection with this acquisition, the Company recorded goodwill of $19,705 and intangible assets of $13,250, primarily related to technology.
On June 23, 2021, the Company acquired 100% of the voting stock of Quantex Arc Limited ("Quantex"), a leading provider of single-use, recyclable pumps, for $23,896, net of cash acquired and including contingent consideration. The Quantex acquisition enhances the offering of single-use pumps for biopharma and other hygienic applications within the Pumps & Process Solutions segment. In connection with this acquisition, the Company recorded goodwill of $15,596 and intangible assets of $11,034, primarily related to patented technology.
On April 19, 2021, the Company acquired 100% of the voting stock of AvaLAN Wireless Systems, Incorporated ("AvaLAN"), a leading provider of secure wireless communications solutions for the convenience and fuel retail industry, for $34,003, net of cash acquired. The AvaLAN acquisition extends the Company's reach into the systems and software offering within the Clean Energy & Fueling segment. In connection with this acquisition, the Company recorded goodwill of $26,495 and intangible assets of $14,630, primarily related to customer intangibles.
One other immaterial acquisition was completed during the six months ended June 30, 2021 within the Pumps & Process Solutions segment.
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 $626,620, 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 $158,212 deductible for income tax purposes and $121,616 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 $33,900. The gross amount is $34,606, of which $706 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.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
During the six months ended June 30, 2022, the Company recorded measurement period adjustments primarily related to its preliminary estimates of deferred taxes and changes in net working capital. These adjustments are based on facts and circumstances that existed as of the acquisition date which resulted in an increase in goodwill of $2,852.
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 | $ | 33,900 | ||||||
| Inventories | 74,484 | |||||||
| Other current assets | 2,958 | |||||||
| Property, plant and equipment | 51,157 | |||||||
| Goodwill | 279,828 | |||||||
| Intangible assets | 234,000 | |||||||
| Other assets and deferred charges | 884 | |||||||
| Current liabilities | (20,150) | |||||||
| Non-current liabilities | (30,441) | |||||||
| Net assets acquired | $ | 626,620 |
The amounts assigned to goodwill and major intangible asset classifications were as follows:
| Amount allocated | Useful life (in years) | ||||||||||||||||
| Goodwill - tax deductible | $ | 158,212 | na | ||||||||||||||
| Goodwill - non-deductible | 121,616 | na | |||||||||||||||
| Customer intangibles | 173,000 | 15 | |||||||||||||||
| Patents | 40,000 | 12 | |||||||||||||||
| Trademarks | 21,000 | 16 | |||||||||||||||
| $ | 513,828 |
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 $169,685 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 $14,143. The gross amount is $14,912, of which $769 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 six months ended June 30, 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 an increase in goodwill of $476.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
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 | $ | 27,907 | ||||||
| Property, plant and equipment | 8,640 | |||||||
| Goodwill | 169,685 | |||||||
| Intangible assets | 127,300 | |||||||
| Other assets and deferred charges | 5,057 | |||||||
| Current liabilities | (9,085) | |||||||
| Non-current liabilities | (37,219) | |||||||
| 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 | $ | 169,685 | na | ||||||||||||||
| Customer intangibles | 99,000 | 15 | |||||||||||||||
| Unpatented technologies | 21,800 | 12 | |||||||||||||||
| Trademarks | 6,500 | 16 | |||||||||||||||
| $ | 296,985 |
4. Inventories, net
| June 30, 2022 | December 31, 2021 | ||||||||||
| Raw materials | $ | 762,068 | $ | 671,195 | |||||||
| Work in progress | 308,706 | 271,659 | |||||||||
| Finished goods | 442,045 | 377,800 | |||||||||
| Subtotal | 1,512,819 | 1,320,654 | |||||||||
| Less reserves | (131,212) | (129,559) | |||||||||
| Total | $ | 1,381,607 | $ | 1,191,095 |
5. Property, Plant and Equipment, net
| June 30, 2022 | December 31, 2021 | ||||||||||
| Land | $ | 63,198 | $ | 63,656 | |||||||
| Buildings and improvements | 586,545 | 582,314 | |||||||||
| Machinery, equipment and other | 1,844,918 | 1,816,473 | |||||||||
| Property, plant and equipment, gross | 2,494,661 | 2,462,443 | |||||||||
| Accumulated depreciation | (1,530,881) | (1,505,133) | |||||||||
| Property, plant and equipment, net | $ | 963,780 | $ | 957,310 |
Depreciation expense totaled $36,573 and $36,045 for the three months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, depreciation expense totaled $74,385 and $74,239, 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.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
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 | (57) | 2,209 | |||||||||
| Amounts written off charged against the allowance | (1,041) | (2,460) | |||||||||
| Other, including foreign currency translation | (1,640) | 311 | |||||||||
| Ending balance, June 30 | $ | 37,388 | $ | 40,534 |
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 | |||||||||||||||||||||||
| Acquisitions | — | — | — | 2,315 | — | 2,315 | |||||||||||||||||||||||||||||
| Measurement period adjustments | 51 | 3,491 | (1,544) | — | — | 1,998 | |||||||||||||||||||||||||||||
| Foreign currency translation | (9,990) | (30,913) | (26,778) | (12,875) | (1,128) | (81,684) | |||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | 713,344 | $ | 1,400,269 | $ | 1,077,880 | $ | 782,279 | $ | 507,679 | $ | 4,481,451 |
During the six months ended June 30, 2022, the Company recognized additions of $2,315 to goodwill as a result of an acquisition as discussed in Note 3 — Acquisitions. During the six months ended June 30, 2022, the Company recorded measurement period adjustments that increased goodwill by $1,998, principally related to deferred taxes and working capital adjustments for 2021 acquisitions within the Clean Energy & Fueling and Imaging & Identification segments.
The Company’s definite-lived and indefinite-lived intangible assets by major asset class were as follows:
| June 30, 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 | $ | 1,796,305 | $ | 942,681 | $ | 853,624 | $ | 1,829,492 | $ | 909,776 | $ | 919,716 | |||||||||||||||||||||||
| Trademarks | 258,892 | 124,256 | 134,636 | 263,367 | 116,633 | 146,734 | |||||||||||||||||||||||||||||
| Patents | 203,314 | 141,449 | 61,865 | 205,910 | 140,327 | 65,583 | |||||||||||||||||||||||||||||
| Unpatented technologies | 248,534 | 128,700 | 119,834 | 221,239 | 123,464 | 97,775 | |||||||||||||||||||||||||||||
| Distributor relationships | 79,873 | 55,325 | 24,548 | 84,204 | 55,260 | 28,944 | |||||||||||||||||||||||||||||
| Drawings and manuals | 25,757 | 25,757 | — | 27,792 | 27,303 | 489 | |||||||||||||||||||||||||||||
| Other | 21,986 | 18,448 | 3,538 | 22,347 | 18,775 | 3,572 | |||||||||||||||||||||||||||||
| Total | 2,634,661 | 1,436,616 | 1,198,045 | 2,654,351 | 1,391,538 | 1,262,813 | |||||||||||||||||||||||||||||
| Unamortized intangible assets: | |||||||||||||||||||||||||||||||||||
| Trademarks | 96,581 | — | 96,581 | 96,709 | — | 96,709 | |||||||||||||||||||||||||||||
| Total intangible assets, net | $ | 2,731,242 | $ | 1,436,616 | $ | 1,294,626 | $ | 2,751,060 | $ | 1,391,538 | $ | 1,359,522 |
For the three months ended June 30, 2022 and 2021, amortization expense was $38,718 and $35,474, respectively. For the six months ended June 30, 2022 and 2021, amortization expense was $79,909 and $71,086, respectively. Amortization expense is primarily comprised of acquisition-related intangible amortization. During the six months ended June 30, 2022, the Company acquired certain intellectual property assets related to electric refuse collection vehicles for approximately $29,750, including contingent consideration of up to $20,000. These assets were classified as unpatented technologies and included in the Engineered Products segment.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
8. Restructuring Activities
The Company's restructuring charges by segment were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Engineered Products | $ | 524 | $ | 4,339 | $ | 981 | $ | 8,330 | |||||||||||||||
| Clean Energy & Fueling | 1,423 | 1,415 | 1,619 | 1,464 | |||||||||||||||||||
| Imaging & Identification | 344 | 174 | 1,535 | 864 | |||||||||||||||||||
| Pumps & Process Solutions | 1,476 | 904 | 2,161 | 887 | |||||||||||||||||||
| Climate & Sustainability Technologies | 159 | 2,283 | 5,875 | 3,344 | |||||||||||||||||||
| Corporate | 383 | 321 | 295 | 982 | |||||||||||||||||||
| Total | $ | 4,309 | $ | 9,436 | $ | 12,466 | $ | 15,871 | |||||||||||||||
| These amounts are classified in the Condensed Consolidated Statements of Earnings as follows: | |||||||||||||||||||||||
| Cost of goods and services | $ | 1,037 | $ | 4,839 | $ | 1,244 | $ | 8,746 | |||||||||||||||
| Selling, general and administrative expenses | 3,272 | 4,597 | 11,222 | 7,125 | |||||||||||||||||||
| Total | $ | 4,309 | $ | 9,436 | $ | 12,466 | $ | 15,871 |
The restructuring expenses of $4,309 and $12,466 incurred during the three and six months ended June 30, 2022 were primarily the result of restructuring programs initiated in 2021 and 2022 in response to demand conditions and broad-based operational efficiency initiatives focusing on footprint consolidation and IT centralization.
The $4,309 of restructuring charges incurred during the second quarter of 2022 primarily included the following items:
-
The Engineered Products segment recorded $524 of restructuring charges related primarily to headcount reductions and exit costs.
-
The Clean Energy & Fueling segment recorded $1,423 of restructuring charges primarily due to headcount reductions and exit costs.
-
The Imaging & Identification segment recorded $344 of restructuring charges related primarily to headcount reductions and asset charges.
-
The Pumps & Process Solutions segment recorded $1,476 of restructuring charges related primarily to headcount reductions.
-
The Climate & Sustainability Technologies segment recorded $159 of restructuring charges related primarily to headcount reductions.
-
Corporate recorded $383 of restructuring charges related primarily to simplification of organizational structure and headcount reductions.
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 | 3,838 | 8,628 | (1) | 12,466 | |||||||||||||
| Payments | (6,837) | (1,941) | (8,778) | ||||||||||||||
| Other, including foreign currency translation | (226) | (7,075) | (1) | (7,301) | |||||||||||||
| Balance at June 30, 2022 | $ | 7,505 | $ | 2,679 | $ | 10,184 |
(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.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
9. Borrowings
Borrowings consisted of the following:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Short-term: | |||||||||||
| Short-term borrowings | $ | 654 | $ | 702 | |||||||
| Commercial paper | 393,000 | 105,000 | |||||||||
| Notes payable | $ | 393,654 | $ | 105,702 |
| Carrying amount (1) | |||||||||||||||||
| Principal | June 30, 2022 | December 31, 2021 | |||||||||||||||
| Long-term | |||||||||||||||||
| 3.15% 10-year notes due November 15, 2025 | $ | 400,000 | $ | 397,726 | $ | 397,389 | |||||||||||
| 1.25% 10-year notes due November 9, 2026 (euro-denominated) | € | 600,000 | 628,695 | 674,217 | |||||||||||||
| 0.750% 8-year notes due November 4, 2027 (euro denominated) | € | 500,000 | 523,329 | 561,293 | |||||||||||||
| 6.65% 30-year debentures due June 1, 2028 | $ | 200,000 | 199,406 | 199,356 | |||||||||||||
| 2.950% 10-year notes due November 4, 2029 | $ | 300,000 | 297,218 | 297,029 | |||||||||||||
| 5.375% 30-year debentures due October 15, 2035 | $ | 300,000 | 296,684 | 296,559 | |||||||||||||
| 6.60% 30-year notes due March 15, 2038 | $ | 250,000 | 248,222 | 248,166 | |||||||||||||
| 5.375% 30-year notes due March 1, 2041 | $ | 350,000 | 344,844 | 344,705 | |||||||||||||
| Total long-term debt | $ | 2,936,124 | $ | 3,018,714 |
(1) Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discounts were
$13.7 million and $15.1 million as of June 30, 2022 and December 31, 2021, respectively. Total deferred debt issuance costs were $11.6 million and $12.5 million as of June 30, 2022 and December 31, 2021, respectively.
During the six months ended June 30, 2022, commercial paper borrowings increased $288,000. The borrowings outstanding under the commercial paper program had a weighted average annual interest rate of 1.90% and 0.38% as of June 30, 2022 and December 31, 2021, respectively.
As of June 30, 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 June 30, 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 June 30, 2022 and had an interest coverage ratio of consolidated EBITDA to consolidated net interest expense of 17.8 to 1.
Letters of Credit and other Guarantees
As of June 30, 2022, the Company had approximately $166 million outstanding in letters of credit, surety bonds, and performance and other guarantees which expire on various dates through 2039. 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.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
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 June 30, 2022 and December 31, 2021, the Company had contracts with total notional amounts of $173,852 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 $112,640 and $108,736 as of June 30, 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 June 30, 2022 and December 31, 2021 and the balance sheet lines in which they are recorded:
| Fair Value Asset (Liability) | |||||||||||||||||
| June 30, 2022 | December 31, 2021 | Balance Sheet Caption | |||||||||||||||
| Foreign currency forward | $ | 2,095 | $ | 2,825 | Prepaid and other current assets | ||||||||||||
| Foreign currency forward | (1,659) | (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, cost of goods and services, or selling, general and administrative expenses 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.
Amounts recognized in other comprehensive earnings for the gains (losses) on net investment hedges were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Gain (loss) on euro-denominated debt | $ | 46,742 | $ | (18,894) | $ | 84,490 | $ | 27,539 | |||||||||||||||
| Tax (expense) benefit | (10,539) | 4,269 | (18,970) | (6,223) | |||||||||||||||||||
| Net gain (loss) on net investment hedges, net of tax | $ | 36,203 | $ | (14,625) | $ | 65,520 | $ | 21,316 |
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
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 June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Level 2 | Level 2 | ||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Foreign currency cash flow hedges | $ | 2,095 | $ | 2,825 | |||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
| Foreign currency cash flow hedges | 1,659 | 433 | |||||||||||||||||||||||||||||||||
The estimated fair value of long-term debt at June 30, 2022 and December 31, 2021, was $2,879,335 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 June 30, 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 June 30, 2022 and 2021 were 13.6% and 18.2%, respectively. The decrease in the effective tax rate for the three months ended June 30, 2022 relative to the prior comparable period was primarily driven by favorable audit resolutions, including $22.6 million related to the Tax Cuts and Jobs Act.
The effective tax rates for the six months ended June 30, 2022 and 2021 were 15.6% and 18.8%, respectively. The decrease in the effective tax rate for the six months ended June 30, 2022 relative to the prior year comparable period was primarily driven by favorable audit resolutions, including $22.6 million related to the Tax Cuts and Jobs Act.
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 $4.5 million.
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 six months ended June 30, 2022, the Company issued stock-settled appreciation rights ("SARs") covering 335,285 shares, performance share awards of 40,087 and restricted stock units ("RSUs") of 76,509.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
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, which was $160.21 and $122.73 for RSUs granted in 2022 and 2021, respectively.
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Pre-tax stock-based compensation expense | $ | 7,218 | $ | 6,872 | $ | 18,331 | $ | 18,393 | |||||||||||||||
| Tax benefit | (731) | (559) | (1,846) | (1,781) | |||||||||||||||||||
| Total stock-based compensation expense, net of tax | $ | 6,487 | $ | 6,313 | $ | 16,485 | $ | 16,612 |
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
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 June 30, 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 material.
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 June 30, 2022 and December 31, 2021, these estimated liabilities were not material. 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 June 30, 2022 and 2021, were as follows:
| 2022 | 2021 | ||||||||||
| Beginning Balance, December 31 of the Prior Year | $ | 48,568 | $ | 51,088 | |||||||
| Provision for warranties | 31,112 | 34,900 | |||||||||
| Settlements made | (30,955) | (34,424) | |||||||||
| Other adjustments, including acquisitions and currency translation | (721) | (528) | |||||||||
| Ending balance, June 30 | $ | 48,004 | $ | 51,036 |
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.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Qualified Defined Benefits
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Plan | Non-U.S. Plans | U.S. Plan | Non-U.S. Plans | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||
| Service cost | $ | 1,426 | $ | 1,784 | $ | 1,173 | $ | 1,397 | $ | 2,852 | $ | 3,567 | $ | 2,394 | $ | 2,839 | |||||||||||||||||||||||||||||||
| Interest cost | 3,437 | 3,401 | 846 | 695 | 6,873 | 6,803 | 1,730 | 1,363 | |||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | (7,276) | (7,245) | (1,815) | (1,820) | (14,552) | (14,490) | (3,706) | (3,619) | |||||||||||||||||||||||||||||||||||||||
| Amortization: | |||||||||||||||||||||||||||||||||||||||||||||||
| Prior service cost (credit) | 28 | 53 | (130) | (162) | 55 | 106 | (264) | (330) | |||||||||||||||||||||||||||||||||||||||
| Recognized actuarial loss | 575 | 2,503 | 436 | 989 | 1,150 | 5,006 | 894 | 1,989 | |||||||||||||||||||||||||||||||||||||||
| Net periodic (income) expense | $ | (1,810) | $ | 496 | $ | 510 | $ | 1,099 | $ | (3,622) | $ | 992 | $ | 1,048 | $ | 2,242 | |||||||||||||||||||||||||||||||
Non-Qualified Supplemental Benefits
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Service cost | $ | 357 | $ | 390 | $ | 713 | $ | 781 | |||||||||||||||
| Interest cost | 304 | 308 | 608 | 616 | |||||||||||||||||||
| Amortization: | |||||||||||||||||||||||
| Prior service cost | 373 | 383 | 745 | 766 | |||||||||||||||||||
| Recognized actuarial gain | (504) | (418) | (1,008) | (836) | |||||||||||||||||||
| Net periodic expense | $ | 530 | $ | 663 | $ | 1,058 | $ | 1,327 | |||||||||||||||
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 $14,584 and $16,052 for the three months ended June 30, 2022 and 2021, respectively, and $32,257 and $31,113 for the six months ended June 30, 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 and six months ended June 30, 2022 and 2021 were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 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 | $ | 499 | $ | 3,074 | $ | 1,020 | $ | 6,159 | |||||||||||||||
| Amortization of prior service costs | 274 | 277 | 542 | 548 | |||||||||||||||||||
| Total before tax | 773 | 3,351 | 1,562 | 6,707 | |||||||||||||||||||
| Tax benefit | (202) | (774) | (410) | (1,548) | |||||||||||||||||||
| Net of tax | $ | 571 | $ | 2,577 | $ | 1,152 | $ | 5,159 | |||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||
| Net gains reclassified into earnings | $ | (1,345) | $ | (1,877) | $ | (3,374) | $ | (3,710) | |||||||||||||||
| Tax provision | 300 | 417 | 753 | 839 | |||||||||||||||||||
| Net of tax | $ | (1,045) | $ | (1,460) | $ | (2,621) | $ | (2,871) |
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 can-making equipment markets.
The Company's Chief Operating Decision Maker ("CODM") uses segment earnings to evaluate segment performance and allocate resources. Segment earnings is defined as earnings before purchase accounting expenses, restructuring and other costs (benefits), loss (gain) on dispositions, corporate expenses/other, interest expense, interest income and provision for income taxes.
During the three month period ended June 30, 2022, the segment measure of profit and loss used by the CODM was changed to segment earnings from segment earnings (EBIT), defined as earnings before corporate expenses/other, interest expense, interest income and provision for income taxes. This change in segment measure allows the CODM to better assess operating results over time and is consistent with how the CODM evaluates our businesses. Accordingly, we have updated our segment earnings for the three and six months ended June 30, 2021 to conform to the new presentation.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Segment financial information and a reconciliation of segment results to consolidated results were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Engineered Products | $ | 514,436 | $ | 442,091 | $ | 1,002,083 | $ | 870,218 | |||||||||||||||
| Clean Energy & Fueling | 494,075 | 437,042 | 952,470 | 826,720 | |||||||||||||||||||
| Imaging & Identification | 275,951 | 294,076 | 548,206 | 578,404 | |||||||||||||||||||
| Pumps & Process Solutions | 441,127 | 428,701 | 876,322 | 823,078 | |||||||||||||||||||
| Climate & Sustainability Technologies | 434,164 | 430,506 | 833,242 | 802,583 | |||||||||||||||||||
| Intersegment eliminations | (1,038) | (740) | (1,707) | (1,426) | |||||||||||||||||||
| Total consolidated revenue | $ | 2,158,715 | $ | 2,031,676 | $ | 4,210,616 | $ | 3,899,577 | |||||||||||||||
| Net earnings: | |||||||||||||||||||||||
| Segment earnings: | |||||||||||||||||||||||
| Engineered Products | $ | 81,671 | $ | 71,255 | $ | 152,801 | $ | 147,939 | |||||||||||||||
| Clean Energy & Fueling | 99,034 | 93,430 | 171,996 | 173,002 | |||||||||||||||||||
| Imaging & Identification | 61,392 | 66,565 | 119,990 | 130,183 | |||||||||||||||||||
| Pumps & Process Solutions | 138,048 | 146,759 | 284,665 | 275,654 | |||||||||||||||||||
| Climate & Sustainability Technologies | 64,181 | 56,905 | 117,790 | 100,380 | |||||||||||||||||||
| Total segment earnings | 444,326 | 434,914 | 847,242 | 827,158 | |||||||||||||||||||
| Purchase accounting expenses (1) | 47,019 | 35,162 | 100,305 | 70,678 | |||||||||||||||||||
| Restructuring and other costs (2) | 7,944 | 10,779 | 18,496 | 14,941 | |||||||||||||||||||
| Loss on dispositions (3) | — | — | 194 | — | |||||||||||||||||||
| Corporate expense / other (4) | 27,967 | 39,910 | 65,371 | 77,083 | |||||||||||||||||||
| Interest expense | 26,989 | 26,661 | 53,541 | 53,484 | |||||||||||||||||||
| Interest income | (949) | (942) | (1,724) | (1,622) | |||||||||||||||||||
| Earnings before provision for income taxes | 335,356 | 323,344 | 611,059 | 612,594 | |||||||||||||||||||
| Provision for income taxes | 45,738 | 58,836 | 95,288 | 115,317 | |||||||||||||||||||
| Net earnings | $ | 289,618 | $ | 264,508 | $ | 515,771 | $ | 497,277 |
(1) Purchase accounting expenses are primarily comprised of amortization of intangible assets and charges related to fair value step-ups for acquired inventory sold during the period.
(2) Restructuring and other costs relate to actions taken for employee reductions, facility consolidations and site closures, product line exits, and other asset charges. Restructuring and other costs consist of the following:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Restructuring | $ | 4,309 | $ | 9,436 | $ | 12,466 | $ | 15,871 | |||||||||||||||
| Other costs (benefits), net | 3,635 | 1,343 | 6,030 | (930) | |||||||||||||||||||
| Restructuring and other costs | $ | 7,944 | $ | 10,779 | $ | 18,496 | $ | 14,941 |
(3) Loss on disposition includes working capital adjustments related to dispositions.
(4) 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.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The following table presents revenue disaggregated by geography based on the location of the Company's customers:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| Revenue by geography | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| United States | $ | 1,253,061 | $ | 1,091,015 | $ | 2,404,561 | $ | 2,127,029 | |||||||||||||||
| Europe | 458,263 | 459,074 | 905,828 | 904,369 | |||||||||||||||||||
| Asia | 229,116 | 236,008 | 458,502 | 428,115 | |||||||||||||||||||
| Other Americas | 149,728 | 171,891 | 301,320 | 302,068 | |||||||||||||||||||
| Other | 68,547 | 73,688 | 140,405 | 137,996 | |||||||||||||||||||
| Total | $ | 2,158,715 | $ | 2,031,676 | $ | — | $ | 4,210,616 | $ | 3,899,577 | |||||||||||||
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 and six months ended June 30, 2022, the Company repurchased 641,428 shares of common stock at a total cost of $85,000, or $132.52 per share. In the first quarter of 2021, the Company repurchased 182,951 shares of common stock at a total cost of $21,637, or $118.27 per share. There were no repurchases during the three months ended June 30, 2021.
As of June 30, 2022, 19,175,621 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net earnings | $ | 289,618 | $ | 264,508 | $ | 515,771 | $ | 497,277 | |||||||||||||||
| Basic earnings per common share: | |||||||||||||||||||||||
| Net earnings | $ | 2.01 | $ | 1.84 | $ | 3.58 | $ | 3.46 | |||||||||||||||
| Weighted average shares outstanding | 143,832,000 | 143,941,000 | 143,959,000 | 143,854,000 | |||||||||||||||||||
| Diluted earnings per common share: | |||||||||||||||||||||||
| Net earnings | $ | 2.00 | $ | 1.82 | $ | 3.56 | $ | 3.43 | |||||||||||||||
| Weighted average shares outstanding | 144,669,000 | 145,118,000 | 144,998,000 | 145,040,000 |
The following table is a reconciliation of the share amounts used in computing earnings per share:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Weighted average shares outstanding - Basic | 143,832,000 | 143,941,000 | 143,959,000 | 143,854,000 | |||||||||||||||||||
| Dilutive effect of assumed exercise of SARs and vesting of performance shares and RSUs | 837,000 | 1,177,000 | 1,039,000 | 1,186,000 | |||||||||||||||||||
| Weighted average shares outstanding - Diluted | 144,669,000 | 145,118,000 | 144,998,000 | 145,040,000 |
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.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The weighted average number of anti-dilutive potential common shares excluded from the calculation above were approximately 6,000 and 0 for the three months ended June 30, 2022 and 2021, respectively, and 32,000 and 34,000 for the six months ended June 30, 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.
20. Subsequent Events
On July 1, 2022, the Company completed the acquisition of Malema Engineering Corporation ("Malema"), a designer and manufacturer of flow measurement and control instruments serving customers in the biopharmaceutical, semiconductor and industrial sectors, for approximately $224,000, subject to customary post-closing adjustments, and contingent consideration of up to $50,000. At the closing of the transaction, the Company acquired 99.7% of the equity interests in the Malema group. The acquisition of the remaining equity interests is expected to occur during the third quarter. The Malema acquisition expands the Company's biopharma single-use production offering within the Pumps & Process Solutions segment. The initial accounting for the Malema acquisition is incomplete as a result of the timing of the acquisition. Accordingly, it is impracticable for us to make certain business combination disclosures such as the estimated fair values of assets and liabilities acquired and the amount of goodwill expected to be deductible for tax purposes.
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