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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number: 1-4018
(Exact name of registrant as specified in its charter) | | | | | | | | |
| Delaware | 53-0257888 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | | |
| 3005 Highland Parkway | |
Downers Grove, Illinois | 60515 |
| (Address of principal executive offices) | (Zip Code) |
(630) 541-1540
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock | DOV | New York Stock Exchange |
| 1.250% Notes due 2026 | DOV 26 | New York Stock Exchange |
| 0.750% Notes due 2027 | DOV 27 | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12-b-2 of the Exchange Act .
| | | | | | | | | | | | | | | | | |
Large Accelerated Filer | ☑ | Accelerated Filer | ☐ | Emerging Growth Company | ☐ |
Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The number of shares outstanding of the Registrant’s common stock as of October 13, 2022 was 140,353,950.
Dover Corporation
Form 10-Q
Table of Contents
Item 1. Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Revenue | $ | 2,158,291 | | | $ | 2,018,269 | | | $ | 6,368,907 | | | $ | 5,917,846 | |
| Cost of goods and services | 1,385,541 | | | 1,263,690 | | | 4,071,680 | | | 3,669,547 | |
| Gross profit | 772,750 | | | 754,579 | | | 2,297,227 | | | 2,248,299 | |
| Selling, general and administrative expenses | 402,339 | | | 412,553 | | | 1,270,615 | | | 1,249,593 | |
| | | | | | | |
| Operating earnings | 370,411 | | | 342,026 | | | 1,026,612 | | | 998,706 | |
| Interest expense | 29,789 | | | 26,433 | | | 83,330 | | | 79,917 | |
| Interest income | (1,244) | | | (1,466) | | | (2,968) | | | (3,088) | |
| | | | | | | |
| | | | | | | |
| Other income, net | (11,167) | | | (10,460) | | | (17,842) | | | (18,236) | |
| Earnings before provision for income taxes | 353,033 | | | 327,519 | | | 964,092 | | | 940,113 | |
| Provision for income taxes | 67,007 | | | 63,763 | | | 162,295 | | | 179,080 | |
| | | | | | | |
| | | | | | | |
| Net earnings | $ | 286,026 | | | $ | 263,756 | | | $ | 801,797 | | | $ | 761,033 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | |
| | | | | | | |
| | | | | | | |
| Net earnings per share: | | | | | | | |
| Basic | $ | 2.01 | | | $ | 1.83 | | | $ | 5.59 | | | $ | 5.29 | |
| Diluted | $ | 2.00 | | | $ | 1.81 | | | $ | 5.55 | | | $ | 5.24 | |
| Weighted average shares outstanding: | | | | | | | |
| Basic | 142,506 | | | 143,976 | | | 143,469 | | | 143,895 | |
| Diluted | 143,257 | | | 145,440 | | | 144,413 | | | 145,220 | |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Net earnings | $ | 286,026 | | | $ | 263,756 | | | $ | 801,797 | | | $ | 761,033 | |
| Other comprehensive loss, net of tax | | | | | | | |
| Foreign currency translation adjustments: | | | | | | | |
| Foreign currency translation losses | (117,460) | | | (26,155) | | | (216,665) | | | (17,567) | |
| Reclassification of foreign currency translation losses to earnings | — | | | — | | | 5,915 | | | — | |
Total foreign currency translation adjustments (net of $(21,020), $(5,446), $(39,990) and $(11,669) tax provision, respectively) | (117,460) | | | (26,155) | | | (210,750) | | | (17,567) | |
| Pension and other post-retirement benefit plans: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Amortization of actuarial losses included in net periodic pension cost | 327 | | | 2,353 | | | 1,032 | | | 7,080 | |
| Amortization of prior service costs included in net periodic pension cost | 223 | | | 214 | | | 670 | | | 646 | |
| | | | | | | |
Total pension and other post-retirement benefit plans (net of $(195), $(771), $(605) and $(2,320) tax provision, respectively) | 550 | | | 2,567 | | | 1,702 | | | 7,726 | |
| Changes in fair value of cash flow hedges: | | | | | | | |
| Unrealized net gains (losses) arising during period | 1,503 | | | (212) | | | 2,317 | | | 4,107 | |
| Net gains reclassified into earnings | (1,290) | | | (206) | | | (3,911) | | | (3,077) | |
Total cash flow hedges (net of $(61), $122, $458 and $(302) tax benefit (provision), respectively) | 213 | | | (418) | | | (1,594) | | | 1,030 | |
| | | | | | | |
| Other comprehensive loss, net of tax | (116,697) | | | (24,006) | | | (210,642) | | | (8,811) | |
| Comprehensive earnings | $ | 169,329 | | | $ | 239,750 | | | $ | 591,155 | | | $ | 752,222 | |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| ASSETS |
| Current assets: | | | |
| Cash and cash equivalents | $ | 306,002 | | | $ | 385,504 | |
| | | |
| Receivables, net | 1,497,062 | | | 1,347,514 | |
| Inventories, net | 1,407,797 | | | 1,191,095 | |
| Prepaid and other current assets | 166,184 | | | 137,596 | |
| | | |
| | | |
| Total current assets | 3,377,045 | | | 3,061,709 | |
| Property, plant and equipment, net | 958,894 | | | 957,310 | |
| | | |
| Goodwill | 4,532,333 | | | 4,558,822 | |
| Intangible assets, net | 1,313,001 | | | 1,359,522 | |
| Other assets and deferred charges | 471,068 | | | 466,264 | |
| | | |
| Total assets | $ | 10,652,341 | | | $ | 10,403,627 | |
| | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY |
| Current liabilities: | | | |
| Short-term borrowings | $ | 788,860 | | | $ | 105,702 | |
| Accounts payable | 1,143,253 | | | 1,073,568 | |
| Accrued compensation and employee benefits | 232,247 | | | 302,978 | |
| Deferred revenue | 246,181 | | | 227,549 | |
| Accrued insurance | 105,095 | | | 101,448 | |
| Other accrued expenses | 321,487 | | | 347,097 | |
| Federal and other income taxes | 51,631 | | | 91,999 | |
| | | |
| Total current liabilities | 2,888,754 | | | 2,250,341 | |
| Long-term debt | 2,842,662 | | | 3,018,714 | |
| Deferred income taxes | 389,133 | | | 364,117 | |
| Noncurrent income tax payable | 44,313 | | | 48,385 | |
| Other liabilities | 496,053 | | | 532,542 | |
| | | |
| Stockholders' equity: | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total stockholders' equity | 3,991,426 | | | 4,189,528 | |
| Total liabilities and stockholders' equity | $ | 10,652,341 | | | $ | 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 June 30, 2022 | $ | 259,601 | | | $ | 863,717 | | | $ | 9,816,960 | | | $ | (247,997) | | | $ | (6,303,758) | | | $ | 4,388,523 | |
| Net earnings | — | | | — | | | 286,026 | | | — | | | — | | | 286,026 | |
Dividends paid ($0.505 per share) | — | | | — | | | (72,580) | | | — | | | — | | | (72,580) | |
| Common stock issued for the exercise of share-based awards | 5 | | | (177) | | | — | | | — | | | — | | | (172) | |
| Stock-based compensation expense | — | | | 6,326 | | | — | | | — | | | — | | | 6,326 | |
| Common stock acquired, including accelerated share repurchase program | — | | | (100,000) | | | — | | | — | | | (400,000) | | | (500,000) | |
| Other comprehensive loss, net of tax | — | | | — | | | — | | | (116,697) | | | — | | | (116,697) | |
| | | | | | | | | | | |
| Balance at September 30, 2022 | $ | 259,606 | | | $ | 769,866 | | | $ | 10,030,406 | | | $ | (364,694) | | | $ | (6,703,758) | | | $ | 3,991,426 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common stock $1 par value | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total stockholders' equity |
| Balance at June 30, 2021 | $ | 259,371 | | | $ | 853,887 | | | $ | 8,962,863 | | | $ | (138,059) | | | $ | (6,218,758) | | | $ | 3,719,304 | |
| | | | | | | | | | | |
| Net earnings | — | | | — | | | 263,756 | | | — | | | — | | | 263,756 | |
Dividends paid ($0.50 per share) | — | | | — | | | (72,107) | | | — | | | — | | | (72,107) | |
| Common stock issued for the exercise of share-based awards | 25 | | | (1,795) | | | — | | | — | | | — | | | (1,770) | |
| Stock-based compensation expense | — | | | 6,660 | | | — | | | — | | | — | | | 6,660 | |
| | | | | | | | | | | |
| Other comprehensive loss, net of tax | — | | | — | | | — | | | (24,006) | | | — | | | (24,006) | |
| Other, net | — | | | (19) | | | — | | | — | | | — | | | (19) | |
| Balance at September 30, 2021 | $ | 259,396 | | | $ | 858,733 | | | $ | 9,154,512 | | | $ | (162,065) | | | $ | (6,218,758) | | | $ | 3,891,818 | |
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 | — | | | — | | | 801,797 | | | — | | | — | | | 801,797 | |
Dividends paid ($1.505 per share) | — | | | — | | | (216,636) | | | — | | | — | | | (216,636) | |
| Common stock issued for the exercise of share-based awards | 149 | | | (12,427) | | | — | | | — | | | — | | | (12,278) | |
| Stock-based compensation expense | — | | | 24,657 | | | — | | | — | | | — | | | 24,657 | |
| Common stock acquired, including accelerated share repurchase program | — | | | (100,000) | | | — | | | — | | | (485,000) | | | (585,000) | |
| Other comprehensive loss, net of tax | — | | | — | | | — | | | (210,642) | | | — | | | (210,642) | |
| | | | | | | | | | | |
| Balance at September 30, 2022 | $ | 259,606 | | | $ | 769,866 | | | $ | 10,030,406 | | | $ | (364,694) | | | $ | (6,703,758) | | | $ | 3,991,426 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | — | | | — | | | 761,033 | | | — | | | — | | | 761,033 | |
Dividends paid ($1.49 per share) | — | | | — | | | (214,805) | | | — | | | — | | | (214,805) | |
| Common stock issued for the exercise of share-based awards | 414 | | | (35,252) | | | — | | | — | | | — | | | (34,838) | |
| Stock-based compensation expense | — | | | 25,053 | | | — | | | — | | | — | | | 25,053 | |
| Common stock acquired | — | | | — | | | — | | | — | | | (21,637) | | | (21,637) | |
| Other comprehensive loss, net of tax | — | | | — | | | — | | | (8,811) | | | — | | | (8,811) | |
| Other, net | — | | | 50 | | | — | | | — | | | — | | | 50 | |
| Balance at September 30, 2021 | $ | 259,396 | | | $ | 858,733 | | | $ | 9,154,512 | | | $ | (162,065) | | | $ | (6,218,758) | | | $ | 3,891,818 | |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
| Operating Activities: | | | |
| Net earnings | $ | 801,797 | | | $ | 761,033 | |
| | | |
| Adjustments to reconcile net earnings to cash from operating activities: | | | |
| | | |
| | | |
| Depreciation and amortization | 230,808 | | | 218,236 | |
| Stock-based compensation expense | 24,657 | | | 25,053 | |
| | | |
| | | |
| Reclassification of foreign currency translation losses to earnings | 5,915 | | | — | |
| Other, net | (35,814) | | | (11,969) | |
| Cash effect of changes in assets and liabilities: | | | |
| Accounts receivable | (227,831) | | | (222,521) | |
| Inventories | (286,437) | | | (225,522) | |
| Prepaid expenses and other assets | (14,001) | | | (38,290) | |
| Accounts payable | 121,513 | | | 199,877 | |
| Accrued compensation and employee benefits | (62,208) | | | 32,284 | |
| Accrued expenses and other liabilities | (19,700) | | | 42,084 | |
| | | |
| Accrued and deferred taxes, net | (71,618) | | | 8,321 | |
| Net cash provided by operating activities | 467,081 | | | 788,586 | |
| | | |
| Investing Activities: | | | |
| Additions to property, plant and equipment | (166,039) | | | (121,157) | |
| Acquisitions, net of cash acquired | (229,296) | | | (171,287) | |
| Proceeds from sale of property, plant and equipment | 4,215 | | | 6,570 | |
| | | |
| Other | (10,941) | | | (768) | |
| Net cash used in investing activities | (402,061) | | | (286,642) | |
| | | |
| Financing Activities: | | | |
Repurchase of common stock, including prepayment under accelerated share repurchase program | (585,000) | | | (21,637) | |
| | | |
| Proceeds from commercial paper and other short-term borrowings, net | 682,928 | | | — | |
| Dividends paid to stockholders | (216,636) | | | (214,805) | |
| Payments to settle employee tax obligations on exercise of share-based awards | (12,278) | | | (34,838) | |
| | | |
| | | |
| Other | (2,593) | | | (3,518) | |
| Net cash used in financing activities | (133,579) | | | (274,798) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Effect of exchange rate changes on cash and cash equivalents | (10,943) | | | (1,077) | |
| | | |
| Net (decrease) increase in cash and cash equivalents | (79,502) | | | 226,069 | |
| Cash and cash equivalents at beginning of period | 385,504 | | | 513,075 | |
| Cash and cash equivalents at end of period | $ | 306,002 | | | $ | 739,144 | |
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 September 30, 2022, we estimated that $318 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 73% 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:
| | | | | | | | | | | | | | | | | | |
| | | September 30, 2022 | | December 31, 2021 | | December 31, 2020 |
| | | | | | |
| Contract assets | | 14,660 | | | 11,440 | | | 15,020 | |
| Contract liabilities - current | | 246,181 | | | 227,549 | | | 184,845 | |
| Contract liabilities - non-current | | 20,872 | | | 21,513 | | | 13,921 | |
The revenue recognized during the nine months ended September 30, 2022 and 2021 that was included in contract liabilities at the beginning of the period, inclusive of adjustments, amounted to $178,098 and $155,255, 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 nine months ended September 30, 2022, the Company acquired two businesses in separate transactions for total consideration of $229,296, net of cash acquired. Of these transactions, one includes additional consideration contingent on achieving certain financial performance targets. These businesses were acquired to complement and expand upon existing operations within the Pumps & Process Solutions segment. 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.
Malema
On July 1, 2022, the Company acquired 99.7% of the equity interests in Malema Engineering Corporation and its related foreign entities ("Malema"), a designer and manufacturer of flow measurement and control instruments serving customers in the biopharmaceutical, semiconductor and industrial sectors, for $220,843, net of cash acquired, subject to contingent consideration. Subsequent to September 30, 2022, the Company acquired the remaining 0.3% of equity interests in Malema. The Malema acquisition expands the Company's biopharma single-use production offering within the Pumps & Process Solutions segment. The contingent consideration is based upon meeting certain financial performance targets for each twelve-month period over the next two years from March 31, 2022, with a range of payouts from $0 to $50,000. No value is attributed to the current estimated fair value of contingent earn-out liability, which will be reassessed quarterly during the performance periods. In connection with this acquisition, the Company recorded goodwill of $151,701 and intangible assets of $64,000 for customer intangibles, $16,000 for patents, and $4,000 for trademarks. The fair value for 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 $2,928. 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 significantly during the measurement period as the Company finalizes the valuations of the assets acquired and liabilities assumed, and the related tax balances.
The following presents the preliminary allocation of purchase price to the assets acquired and liabilities assumed under the Malema acquisition, based on their estimated fair values at acquisition date:
| | | | | | | | |
| | Total |
| Current assets, net of cash acquired | | $ | 8,985 | |
| Property, plant and equipment | | 2,733 | |
| Goodwill | | 151,701 | |
| Intangible assets | | 84,000 | |
| Other assets and deferred charges | | 1,159 | |
| Current liabilities | | (5,676) | |
| Non-current liabilities | | (22,059) | |
| Net assets acquired | | $ | 220,843 | |
The amounts assigned to goodwill and major intangible asset classifications were as follows:
| | | | | | | | | | | | | | | | | |
| Amount allocated | | Useful life
(in years) |
| | | |
| Goodwill - non-deductible | $ | 151,701 | | | na |
| Customer intangibles | 64,000 | | | 15 |
| | | |
| Patents | 16,000 | | | 10 |
| Trademarks | 4,000 | | | 15 |
| | | | | |
| $ | 235,701 | | | | | |
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Other acquisitions
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.
2021 Acquisitions
During the nine months ended September 30, 2021, the Company acquired six businesses in separate transactions for total consideration of $179,161, net of cash acquired and including contingent consideration. These businesses were acquired to complement and expand upon existing operations within the Engineered Products, 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. Goodwill of $29,317 is deductible for income tax purposes and $83,142 is non-deductible for income tax purposes for these acquisitions.
On September 15, 2021, the Company acquired 100% of the voting stock of The Espy Corporation ("Espy"), a manufacturer of advanced electronic radio frequency sensor systems, for $60,457, net of cash acquired. The Espy acquisition strengthens the Company's offering of complete signal intelligence systems with integrated software within the Engineered Products segment. In connection with this acquisition, the Company recorded goodwill of $29,317 and intangible assets of $21,100, primarily related to customer intangibles. The Espy acquisition was treated as an asset acquisition for U.S. income tax purposes, classifying the goodwill and intangibles as tax deductible.
On July 23, 2021, the Company acquired 100% of the voting stock of CDS Visual, Inc. ("CDS Visual"), a leading provider of 3D visualization solutions tailored for industrial applications, for $29,147, net of cash acquired. The CDS Visual acquisition extends the Company's reach of customer-facing digital capabilities within the Engineered Products segment. In connection with this acquisition, the Company recorded goodwill of $20,863 and intangible assets of $9,930, primarily related to technology.
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 $30,143, 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 $20,458 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 $23,747, 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 $14,327 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 $34,144, 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 $26,803 and intangible assets of $14,630, primarily related to customer intangibles.
One other immaterial acquisition was completed during the nine months ended September 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 $158,894 deductible for income tax purposes and $122,301 non-deductible for income tax purposes. The Company also recorded intangible assets of $173,000 for customer intangibles,
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
$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. During the nine months ended September 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 $4,219.
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 | | 72,551 | |
| Other current assets | | 2,958 | |
| Property, plant and equipment | | 50,027 | |
| Goodwill | | 281,195 | |
| Intangible assets | | 234,000 | |
| Other assets and deferred charges | | 884 | |
| Current liabilities | | (20,150) | |
| Non-current liabilities | | (28,745) | |
| 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 | $ | 158,894 | | | na |
| Goodwill - non-deductible | 122,301 | | | na |
| Customer intangibles | 173,000 | | | 15 |
| Patents | 40,000 | | | 12 |
| | | | | |
| Trademarks | 21,000 | | | 16 |
| | | | | |
| $ | 515,195 | | | | | |
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 $164,870 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 $14,568. The gross amount is $14,912, of which $344 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 nine months ended September 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 a decrease in goodwill of $4,339.
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 | | $ | 28,332 | |
| Property, plant and equipment | | 8,640 | |
| Goodwill | | 164,870 | |
| Intangible assets | | 127,300 | |
| Other assets and deferred charges | | 5,057 | |
| Current liabilities | | (7,286) | |
| Non-current liabilities | | (34,628) | |
| 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 | $ | 164,870 | | | na |
| Customer intangibles | 99,000 | | | 15 |
| | | | | |
| Unpatented technologies | 21,800 | | | 12 |
| Trademarks | 6,500 | | | 16 |
| | | | | |
| $ | 292,170 | | | | | |
4. Inventories, net | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| Raw materials | $ | 781,168 | | | $ | 671,195 | |
| Work in progress | 311,819 | | | 271,659 | |
| Finished goods | 446,098 | | | 377,800 | |
| Subtotal | 1,539,085 | | | 1,320,654 | |
| Less reserves | (131,288) | | | (129,559) | |
| Total | $ | 1,407,797 | | | $ | 1,191,095 | |
5. Property, Plant and Equipment, net | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| Land | $ | 60,706 | | | $ | 63,656 | |
| Buildings and improvements | 571,851 | | | 582,314 | |
| Machinery, equipment and other | 1,848,889 | | | 1,816,473 | |
| Property, plant and equipment, gross | 2,481,446 | | | 2,462,443 | |
| Accumulated depreciation | (1,522,552) | | | (1,505,133) | |
| Property, plant and equipment, net | $ | 958,894 | | | $ | 957,310 | |
Depreciation expense totaled $36,889 and $36,913 for the three months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022 and 2021, depreciation expense totaled $111,274 and $111,152, 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 | 2,791 | | | 4,744 | |
| Amounts written off charged against the allowance | (3,320) | | | (3,991) | |
| Other, including foreign currency translation | (3,202) | | | 371 | |
| Ending balance, September 30 | $ | 36,395 | | | $ | 41,598 | |
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 | — | | | — | | | — | | | 154,016 | | | — | | | 154,016 | |
| Measurement period adjustments | (286) | | | 44 | | | (1,544) | | | — | | | — | | | (1,786) | |
| | | | | | | | | | | |
| Foreign currency translation | (21,852) | | | (70,344) | | | (56,274) | | | (27,867) | | | (2,382) | | | (178,719) | |
| Balance at September 30, 2022 | $ | 701,145 | | | $ | 1,357,391 | | | $ | 1,048,384 | | | $ | 918,988 | | | $ | 506,425 | | | $ | 4,532,333 | |
During the nine months ended September 30, 2022, the Company recognized additions of $154,016 to goodwill as a result of acquisitions as discussed in Note 3 — Acquisitions. During the nine months ended September 30, 2022, the Company recorded measurement period adjustments that decreased goodwill by $1,786, principally related to deferred taxes and working capital adjustments for 2021 acquisitions within the Imaging & Identification and Engineered Products segments.
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: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 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 | $ | 1,819,083 | | | $ | 947,490 | | | $ | 871,593 | | | $ | 1,829,492 | | | $ | 909,776 | | | $ | 919,716 | |
| Trademarks | 257,029 | | | 125,754 | | | 131,275 | | | 263,367 | | | 116,633 | | | 146,734 | |
| Patents | 215,500 | | | 141,621 | | | 73,879 | | | 205,910 | | | 140,327 | | | 65,583 | |
| Unpatented technologies | 243,792 | | | 129,646 | | | 114,146 | | | 221,239 | | | 123,464 | | | 97,775 | |
| Distributor relationships | 74,812 | | | 53,594 | | | 21,218 | | | 84,204 | | | 55,260 | | | 28,944 | |
| Drawings and manuals | 24,447 | | | 24,447 | | | — | | | 27,792 | | | 27,303 | | | 489 | |
| Other | 22,503 | | | 18,017 | | | 4,486 | | | 22,347 | | | 18,775 | | | 3,572 | |
| Total | 2,657,166 | | | 1,440,569 | | | 1,216,597 | | | 2,654,351 | | | 1,391,538 | | | 1,262,813 | |
| Unamortized intangible assets: | | | | | | | | | | |
| Trademarks | 96,404 | | | — | | | 96,404 | | | 96,709 | | | — | | | 96,709 | |
Total intangible assets, net(1) | $ | 2,753,570 | | | $ | 1,440,569 | | | $ | 1,313,001 | | | $ | 2,751,060 | | | $ | 1,391,538 | | | $ | 1,359,522 | |
(1)The change in intangible assets, net for the nine months ended September 30, 2022 includes a decrease of $48.2 million due to foreign currency translation.
For the three months ended September 30, 2022 and 2021, amortization expense was $39,625 and $35,998, respectively. For the nine months ended September 30, 2022 and 2021, amortization expense was $119,534 and $107,084, respectively. Amortization expense is primarily comprised of acquisition-related intangible amortization.
During the nine months ended September 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.
8. Restructuring Activities
The Company's restructuring charges by se
