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 SeptemberJune 30, 20212022
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 12, 2021July 14, 2022 was 143,984,653.143,549,312.
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, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Revenue | Revenue | $ | 2,018,269 | | | $ | 1,748,256 | | | $ | 5,917,846 | | | $ | 4,903,370 | | Revenue | $ | 2,158,715 | | | $ | 2,031,676 | | | $ | 4,210,616 | | | $ | 3,899,577 | |
Cost of goods and services | Cost of goods and services | 1,263,690 | | | 1,089,527 | | | 3,669,547 | | | 3,080,800 | | Cost of goods and services | 1,377,432 | | | 1,259,504 | | | 2,686,139 | | | 2,405,857 | |
Gross profit | Gross profit | 754,579 | | | 658,729 | | | 2,248,299 | | | 1,822,570 | | Gross profit | 781,283 | | | 772,172 | | | 1,524,477 | | | 1,493,720 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 412,553 | | | 381,831 | | | 1,249,593 | | | 1,135,512 | | Selling, general and administrative expenses | 424,433 | | | 428,042 | | | 868,276 | | | 837,040 | |
| Operating earnings | Operating earnings | 342,026 | | | 276,898 | | | 998,706 | | | 687,058 | | Operating earnings | 356,850 | | | 344,130 | | | 656,201 | | | 656,680 | |
Interest expense | Interest expense | 26,433 | | | 27,724 | | | 79,917 | | | 83,703 | | Interest expense | 26,989 | | | 26,661 | | | 53,541 | | | 53,484 | |
Interest income | Interest income | (1,466) | | | (960) | | | (3,088) | | | (2,871) | | Interest income | (949) | | | (942) | | | (1,724) | | | (1,622) | |
| Loss (gain) on sale of a business | — | | | 557 | | | — | | | (5,213) | | |
| Other income, net | Other income, net | (10,460) | | | (1,420) | | | (18,236) | | | (9,887) | | Other income, net | (4,546) | | | (4,933) | | | (6,675) | | | (7,776) | |
Earnings before provision for income taxes | Earnings before provision for income taxes | 327,519 | | | 250,997 | | | 940,113 | | | 621,326 | | Earnings before provision for income taxes | 335,356 | | | 323,344 | | | 611,059 | | | 612,594 | |
Provision for income taxes | Provision for income taxes | 63,763 | | | 50,697 | | | 179,080 | | | 119,981 | | Provision for income taxes | 45,738 | | | 58,836 | | | 95,288 | | | 115,317 | |
| Net earnings | Net earnings | $ | 263,756 | | | $ | 200,300 | | | $ | 761,033 | | | $ | 501,345 | | Net earnings | $ | 289,618 | | | $ | 264,508 | | | $ | 515,771 | | | $ | 497,277 | |
| | | | Net earnings per share: | Net earnings per share: | | Net earnings per share: | |
Basic | Basic | $ | 1.83 | | | $ | 1.39 | | | $ | 5.29 | | | $ | 3.48 | | Basic | $ | 2.01 | | | $ | 1.84 | | | $ | 3.58 | | | $ | 3.46 | |
Diluted | Diluted | $ | 1.81 | | | $ | 1.38 | | | $ | 5.24 | | | $ | 3.45 | | Diluted | $ | 2.00 | | | $ | 1.82 | | | $ | 3.56 | | | $ | 3.43 | |
Weighted average shares outstanding: | Weighted average shares outstanding: | | Weighted average shares outstanding: | |
Basic | Basic | 143,976 | | | 144,032 | | | 143,895 | | | 144,082 | | Basic | 143,832 | | | 143,941 | | | 143,959 | | | 143,854 | |
Diluted | Diluted | 145,440 | | | 145,289 | | | 145,220 | | | 145,313 | | 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 September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Net earnings | Net earnings | $ | 263,756 | | | $ | 200,300 | | | $ | 761,033 | | | $ | 501,345 | | Net earnings | $ | 289,618 | | | $ | 264,508 | | | $ | 515,771 | | | $ | 497,277 | |
Other comprehensive (loss) earnings, net of tax | Other comprehensive (loss) earnings, net of tax | | | | | | | | Other comprehensive (loss) earnings, net of tax | | | | | | | |
Foreign currency translation adjustments: | Foreign currency translation adjustments: | | Foreign currency translation adjustments: | |
Foreign currency translation (losses) gains | Foreign currency translation (losses) gains | (26,155) | | | 29,271 | | | (17,567) | | | (19,714) | | Foreign currency translation (losses) gains | (77,552) | | | 21,559 | | | (99,205) | | | 8,588 | |
| Total foreign currency translation adjustments (net of $(5,446), $9,872, $(11,669), $12,761 tax (provision) benefit, respectively) | (26,155) | | | 29,271 | | | (17,567) | | | (19,714) | | |
Reclassification of foreign currency translation losses to earnings | | 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) | | 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: | Pension and other post-retirement benefit plans: | | | | | | | | Pension and other post-retirement benefit plans: | | | | | | | |
| Amortization of actuarial losses included in net periodic pension cost | Amortization of actuarial losses included in net periodic pension cost | 2,353 | | | 1,881 | | | 7,080 | | | 5,385 | | 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 | Amortization of prior service costs included in net periodic pension cost | 214 | | | 250 | | | 646 | | | 794 | | 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 $(771), $(421), $(2,320), $(1,408) tax provision, respectively) | 2,567 | | | 2,131 | | | 7,726 | | | 6,179 | | |
Total pension and other post-retirement benefit plans (net of $(202), $(774), $(410) and $(1,548) tax provision, respectively) | | 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: | Changes in fair value of cash flow hedges: | | | | | | | | Changes in fair value of cash flow hedges: | | | | | | | |
Unrealized net (losses) gains arising during period | Unrealized net (losses) gains arising during period | (212) | | | (278) | | | 4,107 | | | (3,472) | | Unrealized net (losses) gains arising during period | (1,150) | | | (5) | | | 814 | | | 4,319 | |
Net (gains) losses reclassified into earnings | (206) | | | (210) | | | (3,077) | | | 318 | | |
Total cash flow hedges (net of $122, $139, $(302), $896 tax benefit (provision), respectively) | (418) | | | (488) | | | 1,030 | | | (3,154) | | |
Net gains reclassified into earnings | | 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) | | 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 | Other comprehensive (loss) earnings, net of tax | (24,006) | | | 30,914 | | | (8,811) | | | (16,689) | | Other comprehensive (loss) earnings, net of tax | (79,176) | | | 22,671 | | | (93,945) | | | 15,195 | |
Comprehensive earnings | Comprehensive earnings | $ | 239,750 | | | $ | 231,214 | | | $ | 752,222 | | | $ | 484,656 | | 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)
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Assets | |
ASSETS | | ASSETS |
Current assets: | Current assets: | | | | Current assets: | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 739,144 | | | $ | 513,075 | | Cash and cash equivalents | $ | 515,371 | | | $ | 385,504 | |
| Receivables, net of allowances of $41,598 and $40,474 | 1,351,144 | | | 1,137,223 | | |
Receivables, net | | Receivables, net | 1,514,455 | | | 1,347,514 | |
Inventories, net | Inventories, net | 1,055,831 | | | 835,804 | | Inventories, net | 1,381,607 | | | 1,191,095 | |
Prepaid and other current assets | Prepaid and other current assets | 153,296 | | | 133,085 | | Prepaid and other current assets | 179,563 | | | 137,596 | |
| Total current assets | Total current assets | 3,299,415 | | | 2,619,187 | | Total current assets | 3,590,996 | | | 3,061,709 | |
Property, plant and equipment, net | Property, plant and equipment, net | 906,268 | | | 897,326 | | Property, plant and equipment, net | 963,780 | | | 957,310 | |
| Goodwill | Goodwill | 4,153,846 | | | 4,072,542 | | Goodwill | 4,481,451 | | | 4,558,822 | |
Intangible assets, net | Intangible assets, net | 1,036,085 | | | 1,083,772 | | Intangible assets, net | 1,294,626 | | | 1,359,522 | |
Other assets and deferred charges | Other assets and deferred charges | 507,369 | | | 479,247 | | Other assets and deferred charges | 476,568 | | | 466,264 | |
| Total assets | Total assets | $ | 9,902,983 | | | $ | 9,152,074 | | Total assets | $ | 10,807,421 | | | $ | 10,403,627 | |
| Liabilities and Stockholders' Equity | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | LIABILITIES AND STOCKHOLDERS' EQUITY |
Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
| Notes payable | | Notes payable | $ | 393,654 | | | $ | 105,702 | |
Accounts payable | Accounts payable | $ | 1,047,824 | | | $ | 853,942 | | Accounts payable | 1,200,612 | | | 1,073,568 | |
Accrued compensation and employee benefits | Accrued compensation and employee benefits | 270,944 | | | 239,750 | | Accrued compensation and employee benefits | 224,244 | | | 302,978 | |
Deferred revenue | Deferred revenue | 195,509 | | | 184,845 | | Deferred revenue | 253,632 | | | 227,549 | |
Accrued insurance | Accrued insurance | 104,000 | | | 98,954 | | Accrued insurance | 105,823 | | | 101,448 | |
Other accrued expenses | Other accrued expenses | 350,222 | | | 343,637 | | Other accrued expenses | 316,209 | | | 347,097 | |
Federal and other income taxes | Federal and other income taxes | 37,382 | | | 17,670 | | Federal and other income taxes | 53,461 | | | 91,999 | |
| Total current liabilities | Total current liabilities | 2,005,881 | | | 1,738,798 | | Total current liabilities | 2,547,635 | | | 2,250,341 | |
Long-term debt | Long-term debt | 3,060,184 | | | 3,108,829 | | Long-term debt | 2,936,124 | | | 3,018,714 | |
Deferred income taxes | Deferred income taxes | 321,610 | | | 298,423 | | Deferred income taxes | 366,498 | | | 364,117 | |
Noncurrent income tax payable | Noncurrent income tax payable | 48,376 | | | 49,937 | | Noncurrent income tax payable | 44,313 | | | 48,385 | |
Other liabilities | Other liabilities | 575,114 | | | 570,314 | | Other liabilities | 524,328 | | | 532,542 | |
| Stockholders' equity: | Stockholders' equity: | | | | Stockholders' equity: | | | |
| Total stockholders' equity | Total stockholders' equity | 3,891,818 | | | 3,385,773 | | Total stockholders' equity | 4,388,523 | | | 4,189,528 | |
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 9,902,983 | | | $ | 9,152,074 | | 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 | | 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 | | |
Balance at March 31, 2022 | | Balance at March 31, 2022 | $ | 259,573 | | | $ | 858,587 | | | $ | 9,599,195 | | | $ | (168,821) | | | $ | (6,218,758) | | | $ | 4,329,776 | |
Net earnings | Net earnings | — | | | — | | | 263,756 | | | — | | | — | | | 263,756 | | Net earnings | — | | | — | | | 289,618 | | | — | | | — | | | 289,618 | |
Dividends paid ($0.50 per share) | Dividends paid ($0.50 per share) | — | | | — | | | (72,107) | | | — | | | — | | | (72,107) | | Dividends paid ($0.50 per share) | — | | | — | | | (71,853) | | | — | | | — | | | (71,853) | |
Common stock issued for the exercise of share-based awards | Common stock issued for the exercise of share-based awards | 25 | | | (1,795) | | | — | | | — | | | — | | | (1,770) | | Common stock issued for the exercise of share-based awards | 28 | | | (2,088) | | | — | | | — | | | — | | | (2,060) | |
Stock-based compensation expense | Stock-based compensation expense | — | | | 6,660 | | | — | | | — | | | — | | | 6,660 | | Stock-based compensation expense | — | | | 7,218 | | | — | | | — | | | — | | | 7,218 | |
Common stock acquired | | Common stock acquired | — | | | — | | | — | | | — | | | (85,000) | | | (85,000) | |
Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | — | | | — | | | — | | | (79,176) | | | — | | | (79,176) | |
| 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 | | |
Balance at June 30, 2022 | | 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 | | Common stock $1 par value | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive (loss) earnings | | Treasury stock | | Total stockholders' equity |
Balance at June 30, 2020 | $ | 258,768 | | | $ | 869,526 | | | $ | 8,368,620 | | | $ | (263,629) | | | $ | (6,143,758) | | | $ | 3,089,527 | | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | $ | 259,338 | | | $ | 849,585 | | | $ | 8,769,709 | | | $ | (160,730) | | | $ | (6,218,758) | | | $ | 3,499,144 | |
| Net earnings | Net earnings | — | | | — | | | 200,300 | | | — | | | — | | | 200,300 | | Net earnings | — | | | — | | | 264,508 | | | — | | | — | | | 264,508 | |
Dividends paid ($0.495 per share) | Dividends paid ($0.495 per share) | — | | | — | | | (71,458) | | | — | | | — | | | (71,458) | | Dividends paid ($0.495 per share) | — | | | — | | | (71,354) | | | — | | | — | | | (71,354) | |
Common stock issued for the exercise of share-based awards | Common stock issued for the exercise of share-based awards | 125 | | | (10,358) | | | — | | | — | | | — | | | (10,233) | | Common stock issued for the exercise of share-based awards | 33 | | | (2,648) | | | — | | | — | | | — | | | (2,615) | |
Stock-based compensation expense | Stock-based compensation expense | — | | | 7,371 | | | — | | | — | | | — | | | 7,371 | | Stock-based compensation expense | — | | | 6,872 | | | — | | | — | | | — | | | 6,872 | |
| Other comprehensive earnings, net of tax | Other comprehensive earnings, net of tax | — | | | — | | | — | | | 30,914 | | | — | | | 30,914 | | Other comprehensive earnings, net of tax | — | | | — | | | — | | | 22,671 | | | — | | | 22,671 | |
| Balance at September 30, 2020 | $ | 258,893 | | | $ | 866,539 | | | $ | 8,497,462 | | | $ | (232,715) | | | $ | (6,143,758) | | | $ | 3,246,421 | | |
Other, net | | Other, net | — | | | 78 | | | — | | | — | | | — | | | 78 | |
Balance at June 30, 2021 | | 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 | | 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 | | |
Balance at December 31, 2021 | | Balance at December 31, 2021 | $ | 259,457 | | | $ | 857,636 | | | $ | 9,445,245 | | | $ | (154,052) | | | $ | (6,218,758) | | | $ | 4,189,528 | |
Net earnings | Net earnings | — | | | — | | | 761,033 | | | — | | | — | | | 761,033 | | Net earnings | — | | | — | | | 515,771 | | | — | | | — | | | 515,771 | |
Dividends paid ($1.49 per share) | — | | | — | | | (214,805) | | | — | | | — | | | (214,805) | | |
Dividends paid ($1.00 per share) | | Dividends paid ($1.00 per share) | — | | | — | | | (144,056) | | | — | | | — | | | (144,056) | |
Common stock issued for the exercise of share-based awards | Common stock issued for the exercise of share-based awards | 414 | | | (35,252) | | | — | | | — | | | — | | | (34,838) | | Common stock issued for the exercise of share-based awards | 144 | | | (12,250) | | | — | | | — | | | — | | | (12,106) | |
Stock-based compensation expense | Stock-based compensation expense | — | | | 25,053 | | | — | | | — | | | — | | | 25,053 | | Stock-based compensation expense | — | | | 18,331 | | | — | | | — | | | — | | | 18,331 | |
Common stock acquired | Common stock acquired | — | | | — | | | — | | | — | | | (21,637) | | | (21,637) | | Common stock acquired | — | | | — | | | — | | | — | | | (85,000) | | | (85,000) | |
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | — | | | — | | | — | | | (8,811) | | | — | | | (8,811) | | Other comprehensive loss, net of tax | — | | | — | | | — | | | (93,945) | | | — | | | (93,945) | |
Other, net | — | | | 50 | | | — | | | — | | | — | | | 50 | | |
Balance at September 30, 2021 | $ | 259,396 | | | $ | 858,733 | | | $ | 9,154,512 | | | $ | (162,065) | | | $ | (6,218,758) | | | $ | 3,891,818 | | |
| Balance at June 30, 2022 | | 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 | | Common stock $1 par value | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total stockholders' equity |
Balance at December 31, 2019 | $ | 258,552 | | | $ | 869,719 | | | $ | 8,211,257 | | | $ | (216,026) | | | $ | (6,090,842) | | | $ | 3,032,660 | | |
Adoption of ASU 2016-13 | — | | | — | | | (2,112) | | | — | | | — | | | (2,112) | | |
Balance at December 31, 2020 | | Balance at December 31, 2020 | $ | 258,982 | | | $ | 868,882 | | | $ | 8,608,284 | | | $ | (153,254) | | | $ | (6,197,121) | | | $ | 3,385,773 | |
| Net earnings | Net earnings | — | | | — | | | 501,345 | | | — | | | — | | | 501,345 | | Net earnings | — | | | — | | | 497,277 | | | — | | | — | | | 497,277 | |
Dividends paid ($1.475 per share) | — | | | — | | | (213,028) | | | — | | | — | | | (213,028) | | |
Dividends paid ($0.99 per share) | | Dividends paid ($0.99 per share) | — | | | — | | | (142,698) | | | — | | | — | | | (142,698) | |
Common stock issued for the exercise of share-based awards | Common stock issued for the exercise of share-based awards | 341 | | | (21,791) | | | — | | | — | | | — | | | (21,450) | | Common stock issued for the exercise of share-based awards | 389 | | | (33,457) | | | — | | | — | | | — | | | (33,068) | |
Stock-based compensation expense | Stock-based compensation expense | — | | | 15,591 | | | — | | | — | | | — | | | 15,591 | | Stock-based compensation expense | — | | | 18,393 | | | — | | | — | | | — | | | 18,393 | |
Common stock acquired | Common stock acquired | — | | | — | | | — | | | — | | | (52,916) | | | (52,916) | | Common stock acquired | — | | | — | | | — | | | — | | | (21,637) | | | (21,637) | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | (16,689) | | | — | | | (16,689) | | |
Other comprehensive earnings, net of tax | | Other comprehensive earnings, net of tax | — | | | — | | | — | | | 15,195 | | | — | | | 15,195 | |
Other, net | Other, net | — | | | 3,020 | | | — | | | — | | | — | | | 3,020 | | Other, net | — | | | 69 | | | — | | | — | | | — | | | 69 | |
Balance at September 30, 2020 | $ | 258,893 | | | $ | 866,539 | | | $ | 8,497,462 | | | $ | (232,715) | | | $ | (6,143,758) | | | $ | 3,246,421 | | |
Balance at June 30, 2021 | | 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) | | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Operating Activities: | Operating Activities: | | | | Operating Activities: | | | |
Net earnings | Net earnings | $ | 761,033 | | | $ | 501,345 | | Net earnings | $ | 515,771 | | | $ | 497,277 | |
| Adjustments to reconcile net earnings to cash from operating activities: | Adjustments to reconcile net earnings to cash from operating activities: | | Adjustments to reconcile net earnings to cash from operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 218,236 | | | 205,844 | | Depreciation and amortization | 154,294 | | | 145,325 | |
Stock-based compensation expense | Stock-based compensation expense | 25,053 | | | 15,591 | | Stock-based compensation expense | 18,331 | | | 18,393 | |
| Gain on sale of a business | — | | | (5,213) | | |
| Reclassification of foreign currency translation losses to earnings | | Reclassification of foreign currency translation losses to earnings | 5,915 | | | — | |
Other, net | Other, net | (11,969) | | | (7,731) | | Other, net | (8,152) | | | (9,493) | |
Cash effect of changes in assets and liabilities: | Cash effect of changes in assets and liabilities: | | Cash effect of changes in assets and liabilities: | |
Accounts receivable, net | Accounts receivable, net | (222,521) | | | 31,631 | | Accounts receivable, net | (204,676) | | | (192,192) | |
Inventories | Inventories | (225,522) | | | (19,360) | | Inventories | (223,804) | | | (144,903) | |
Prepaid expenses and other assets | Prepaid expenses and other assets | (38,290) | | | (24,198) | | Prepaid expenses and other assets | (17,923) | | | (23,133) | |
Accounts payable | Accounts payable | 199,877 | | | (104,571) | | Accounts payable | 147,829 | | | 149,588 | |
Accrued compensation and employee benefits | Accrued compensation and employee benefits | 32,284 | | | (13,136) | | Accrued compensation and employee benefits | (72,802) | | | (13,566) | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 42,084 | | | 131,279 | | Accrued expenses and other liabilities | (4,937) | | | 14,289 | |
| Accrued and deferred taxes, net | Accrued and deferred taxes, net | 8,321 | | | (24,562) | | Accrued and deferred taxes, net | (107,390) | | | (4,328) | |
Net cash provided by operating activities | Net cash provided by operating activities | 788,586 | | | 686,919 | | Net cash provided by operating activities | 202,456 | | | 437,257 | |
| Investing Activities: | Investing Activities: | | | | Investing Activities: | | | |
Additions to property, plant and equipment | Additions to property, plant and equipment | (121,157) | | | (123,564) | | Additions to property, plant and equipment | (100,577) | | | (73,231) | |
Acquisitions, net of cash acquired | Acquisitions, net of cash acquired | (171,287) | | | (258,674) | | Acquisitions, net of cash acquired | (8,453) | | | (81,187) | |
Proceeds from sale of property, plant and equipment | Proceeds from sale of property, plant and equipment | 6,570 | | | 5,090 | | Proceeds from sale of property, plant and equipment | 3,898 | | | 6,088 | |
Proceeds from sale of businesses | — | | | 15,400 | | |
| Other | Other | (768) | | | (1,250) | | Other | (10,721) | | | (2,873) | |
Net cash used in investing activities | Net cash used in investing activities | (286,642) | | | (362,998) | | Net cash used in investing activities | (115,853) | | | (151,203) | |
| Financing Activities: | Financing Activities: | | | | Financing Activities: | | | |
Repurchase of common stock | Repurchase of common stock | (21,637) | | | (52,916) | | Repurchase of common stock | (85,000) | | | (21,637) | |
| Change in notes payable | — | | | 5,811 | | |
Borrowings in commercial paper and notes payable, net | | Borrowings in commercial paper and notes payable, net | 287,952 | | | — | |
Dividends paid to stockholders | Dividends paid to stockholders | (214,805) | | | (213,028) | | Dividends paid to stockholders | (144,056) | | | (142,698) | |
Payments to settle employee tax obligations on exercise of share-based awards | Payments to settle employee tax obligations on exercise of share-based awards | (34,838) | | | (21,450) | | Payments to settle employee tax obligations on exercise of share-based awards | (12,106) | | | (33,068) | |
| Other | Other | (3,518) | | | (1,753) | | Other | (1,525) | | | (2,785) | |
Net cash used in financing activities | (274,798) | | | (283,336) | | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 45,265 | | | (200,188) | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (1,077) | | | (10,337) | | Effect of exchange rate changes on cash and cash equivalents | (2,001) | | | 2,418 | |
| Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | 226,069 | | | 30,248 | | Net increase in cash and cash equivalents | 129,867 | | | 88,284 | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 513,075 | | | 397,253 | | Cash and cash equivalents at beginning of period | 385,504 | | | 513,075 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 739,144 | | | $ | 427,501 | | 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, 2020,2021, included in the Company's Annual Report on Form 10-K filed with the SEC on February 12, 2021.11, 2022. The year-end Condensed Consolidated Balance Sheet was derived from audited financial statements. Certain amounts in the prior periods have been reclassified to conform to the current year presentation.
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 performance obligations arerevenue is recognized at a point in time that relate torather than over time as the manufacture and sale of a broad range of products and components. RevenueCompany 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 1716 — Segment Information for further details for revenue by segment and geographic location.
At SeptemberJune 30, 2021,2022, we estimated that $260$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 48%78% of our unsatisfied (or partially unsatisfied) performance obligations as revenue through 2022,2023, with the remaining balance to be recognized in 20232024 and thereafter.
The following table provides information about contract assets and contract liabilities from contracts with customers:
| | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | | December 31, 2019 |
| | | | | | |
Contract assets | | $ | 25,454 | | | $ | 15,020 | | | $ | 14,894 | |
Contract liabilities - current | | 195,509 | | | 184,845 | | | 104,901 | |
Contract liabilities - non-current | | 24,415 | | | 13,921 | | | 10,921 | |
In the fourth quarter of 2020, the Company adjusted its prior year balance sheet classification and footnote disclosure related to certain upfront cash consideration received from customers that should have been classified as contract liabilities (included in deferred revenue or other liabilities) rather than customer deposits (included in accounts payable). | | | | | | | | | | | | | | | | | | |
| | 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 ninesix months ended SeptemberJune 30, 20212022 and 20202021 that was included in contract liabilities at the beginning of the period, inclusive of adjustments, amounted to $155,255$157,175 and $76,766,$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 1 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 ninesix months ended SeptemberJune 30, 2021, the Company acquired six4 businesses in separate transactions for total consideration of $178,556,$88,457, 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 Solutions 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 $29,808 is deductible for income tax purposes and $81,561The goodwill is non-deductible for U.S. 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 $60,611, 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 $29,808 and intangible assets of $20,200, primarily related to customer intangibles. The Espy acquisition will be 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 $29,347, 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 $20,337 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 $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 $19,378$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 $14,476$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 $34,144,$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 Solutions segment. In connection with this acquisition, the Company recorded goodwill of $26,679$26,495 and intangible assets of $14,630, primarily related to customer intangibles.
OneNaN other immaterial acquisition was completed during the ninesix monthsended SeptemberJune 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 their acquisition dates:date:
| | | | | | | | |
| | Total |
Current assets, net of cash acquired | | $ | 12,34327,907 | |
Property, plant and equipment | | 8,0888,640 | |
Goodwill | | 111,369169,685 | |
Intangible assets | | 69,044127,300 | |
Other assets and deferred charges | | 4,1045,057 | |
Current liabilities | | (12,097)(9,085) | |
OtherNon-current liabilities | | (14,295)(37,219) | |
Net assets acquired | | $ | 178,556292,285 | |
The amounts assigned to goodwill and major intangible asset classifications were as follows:
| | | Amount allocated | | Useful life (in years) | | Amount allocated | | Useful life (in years) |
Goodwill - tax deductible | $ | 29,808 | | | na | |
| Goodwill - non-deductible | Goodwill - non-deductible | 81,561 | | | na | Goodwill - non-deductible | $ | 169,685 | | | na |
Customer intangibles | Customer intangibles | 33,692 | | | 12 | - | 15 | Customer intangibles | 99,000 | | | 15 |
| Unpatented technologies | Unpatented technologies | 22,680 | | | 7 | - | 12 | Unpatented technologies | 21,800 | | | 12 |
Patents | 6,006 | | | 9 | |
Trademarks | Trademarks | 6,666 | | | 15 | Trademarks | 6,500 | | | 16 |
| | | $ | 180,413 | | | | $ | 296,985 | | |
2020 Acquisitions
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 | |
During
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 ninethree months ended SeptemberJune 30, 2020,2022 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 acquired five businesses in separate transactions for total considerationis exposed to credit losses primarily through sales of $258,674, netproducts and services. Due to the short-term nature of cash acquired. These businesses were acquired to complement and expand upon existing operations withinsuch receivables, the Imaging & Identification, Engineered Products and Pumps & Process Solutions segments. The goodwill recorded as a resultestimate of these acquisitions represents the economic benefits expected to be derived from product line expansions and operational synergies. Goodwill in the amount of $33,183accounts receivable that may not be collected is deductible for U.S. income tax purposesbased on the aging of the accounts receivable balances and goodwill inother historical and forward-looking information on the amountfinancial condition of $124,691 is non-deductible for U.S. income tax purposes for these acquisitions.customers. Balances are written off when determined to be uncollectible.
On August 20, 2020, the Company acquired 100% of the voting stock of Solaris Laser S.A. ("Solaris"), a global manufacturer of product identification and traceability solutions for $18,605, net of cash acquired. The Solaris acquisition enhances the Imaging & Identification segment's growing laser technology product line and further strengthens its position as a leading provider of marking and coding equipment and solutions. In connection with this acquisition, the Company recorded goodwill of $11,693 and intangible assets of $3,280, primarily related to unpatented technology.
On April 30, 2020, the Company acquired 100% of the voting stock of em-tec GmbH ("Em-tec"), a leading designer and manufacturer of flow measurement devices that serve a wide array of medical and biopharmaceutical applications for $30,396, net of cash acquired. The Em-tec acquisition further expands the Company's reach into biopharma and other hygienic applications and enhances its portfolio of flow control technologies within the Pumps & Process Solutions segment. In connection with this acquisition, the Company recorded goodwill of $19,572 and intangible assets of $8,344, primarily related to customer intangibles.
On February 18, 2020, the Company acquired 100% of the voting stock of So. Cal. Soft-Pak, Incorporated ("Soft-Pak"), a leading specialized provider of integrated back office, route management and customer relationship management software solutions to the waste and recycling fleet industry for $45,500, net of cash acquired. The Soft-Pak acquisition strengthens the digital offerings within the Engineered Products segment. In connection with this acquisition, the Company recorded goodwill of $33,183 and intangible assets of $12,800, primarily related to customer intangibles.
On January 24, 2020, the Company acquired 100% of the voting stock of Sys-Tech Solutions, Inc. ("Systech"), a leading provider of product traceability, regulatory compliance and brand-protection software and solutions to pharmaceutical and consumer products manufacturers, for $161,830, net of cash acquired. The Systech acquisition strengthens the portfolio of solutions offered by the Imaging & Identification segment. In connection with this acquisition, the Company recorded goodwill
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
of $91,493 and intangible assets of $76,100, primarily related to customer intangibles.
One other immaterial acquisition was completed during the nine months ended September 30, 2020, within the Pumps & Process Solutions segment.
The pro forma effects of the 2021 and 2020 acquisitions are not material to the Company's Consolidated Statements of Earnings.
4. Disposed Operations
Management evaluates Dover's businesses periodically for their strategic fit within its operations and may from time to time sell or discontinue certain operations for various reasons.
2021
There were no dispositions for the nine months ended September 30, 2021.
See Note 21 — Subsequent Events for information on a definitive agreement to sell Unified Brands business ("Unified Brands") which is part of the Refrigeration & Food Equipment segment.
2020
On March 6, 2020, the Company completed the sale of the Chino, California branch of The AMS Group ("AMS Chino"), a wholly owned subsidiary of the Company. The Company recognized a net consideration of $15,400, which included a working capital adjustment recognized in the second quarter and paid in the third quarter of 2020. This sale resulted in a pre-tax gain on sale of $5,213 included within the Condensed Consolidated Statements of Earnings and within the Refrigeration & Food Equipment Segment for the nine months ended September 30, 2020. The sale did not represent a strategic shift that had a major effect on operations and financial results and, therefore, did not qualify for presentation as a discontinued operation.
5. Inventories, net | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Raw materials | $ | 624,365 | | | $ | 497,604 | |
Work in progress | 232,264 | | | 152,360 | |
Finished goods | 333,021 | | | 304,760 | |
Subtotal | 1,189,650 | | | 954,724 | |
Less reserves | (133,819) | | | (118,920) | |
Total | $ | 1,055,831 | | | $ | 835,804 | |
6. Property, Plant and Equipment, net | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Land | $ | 61,433 | | | $ | 60,287 | |
Buildings and improvements | 576,597 | | | 570,366 | |
Machinery, equipment and other | 1,817,417 | | | 1,772,772 | |
Property, plant and equipment, gross | 2,455,447 | | | 2,403,425 | |
Accumulated depreciation | (1,549,179) | | | (1,506,099) | |
Property, plant and equipment, net | $ | 906,268 | | | $ | 897,326 | |
Depreciation expense totaled $36,913 and $34,096 for the three months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, depreciation expense was $111,152 and $102,016, respectively.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
7. Credit Losses
Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments prospectively. This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including trade receivables. The amendment requires entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under the previous accounting guidance. Upon adoption, the Company recorded a noncash cumulative effect adjustment to retained earnings of $2.1 million, net of $0.6 million of income taxes, on the opening consolidated balance sheet as of January 1, 2020.
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 amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and other historical and forward-looking information on the financial condition of customers. Balances are written off when determined to be uncollectible.
The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.
| | | 2021 | | 2020 | | 2022 | | 2021 |
Beginning Balance, December 31 of the Prior Year | Beginning Balance, December 31 of the Prior Year | $ | 40,474 | | | $ | 29,381 | | Beginning Balance, December 31 of the Prior Year | $ | 40,126 | | | $ | 40,474 | |
Adoption of ASU 2016-13, cumulative-effect adjustment to retained earnings | — | | | 2,706 | | |
| Provision for expected credit losses, net of recoveries | Provision for expected credit losses, net of recoveries | 4,744 | | | 10,248 | | Provision for expected credit losses, net of recoveries | (57) | | | 2,209 | |
Amounts written off charged against the allowance | Amounts written off charged against the allowance | (3,991) | | | (2,113) | | Amounts written off charged against the allowance | (1,041) | | | (2,460) | |
Other, including dispositions and foreign currency translation | 371 | | | 171 | | |
Ending balance, September 30 | $ | 41,598 | | | $ | 40,393 | | |
Other, including foreign currency translation | | Other, including foreign currency translation | (1,640) | | | 311 | |
Ending balance, June 30 | | Ending balance, June 30 | $ | 37,388 | | | $ | 40,534 | |
8.7. Goodwill and Other Intangible Assets
The changes in the carrying value of goodwill by reportable operating segments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Engineered Products | | Fueling Solutions | | Imaging & Identification | | Pumps & Process Solutions | | Refrigeration & Food Equipment | | Total |
Balance at December 31, 2020 | $ | 682,985 | | | $ | 940,973 | | | $ | 1,117,589 | | | $ | 786,280 | | | $ | 544,715 | | | $ | 4,072,542 | |
Acquisitions | 50,145 | | | 26,679 | | | 19,378 | | | 15,167 | | | — | | | 111,369 | |
Purchase price adjustments | — | | | 1,314 | | | (1,926) | | | — | | | — | | | (612) | |
| | | | | | | | | | | |
Foreign currency translation | (5,037) | | | (2,945) | | | (16,561) | | | (4,230) | | | (680) | | | (29,453) | |
Balance at September 30, 2021 | $ | 728,093 | | | $ | 966,021 | | | $ | 1,118,480 | | | $ | 797,217 | | | $ | 544,035 | | | $ | 4,153,846 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 ninesix months ended SeptemberJune 30, 2021,2022, the Company recognized additions of $111,369$2,315 to goodwill as a result of acquisitionsan acquisition as discussed in Note 3 — Acquisitions. During the ninesix months ended SeptemberJune 30, 2021,2022, the Company recorded purchase pricemeasurement period adjustments that reducedincreased goodwill by $612,$1,998, principally related to deferred taxes and working capital adjustments for 20202021 acquisitions within the Clean Energy & Fueling Solutions 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)
The Company’s definite-lived and indefinite-lived intangible assets by major asset class were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Amortized intangible assets: | | | | | | | | | | | |
Customer intangibles | $ | 1,577,058 | | | $ | 900,659 | | | $ | 676,399 | | | $ | 1,559,771 | | | $ | 834,798 | | | $ | 724,973 | |
Trademarks | 238,121 | | | 115,076 | | | 123,045 | | | 233,205 | | | 103,907 | | | 129,298 | |
Patents | 167,966 | | | 143,855 | | | 24,111 | | | 163,299 | | | 141,182 | | | 22,117 | |
Unpatented technologies | 201,573 | | | 121,243 | | | 80,330 | | | 180,947 | | | 113,404 | | | 67,543 | |
Distributor relationships | 85,861 | | | 54,847 | | | 31,014 | | | 87,028 | | | 51,611 | | | 35,417 | |
Drawings and manuals | 28,233 | | | 27,136 | | | 1,097 | | | 29,198 | | | 26,193 | | | 3,005 | |
Other | 23,486 | | | 20,177 | | | 3,309 | | | 23,901 | | | 19,324 | | | 4,577 | |
Total | 2,322,298 | | | 1,382,993 | | | 939,305 | | | 2,277,349 | | | 1,290,419 | | | 986,930 | |
Unamortized intangible assets: | | | | | | | | | | |
Trademarks | 96,780 | | | — | | | 96,780 | | | 96,842 | | | — | | | 96,842 | |
Total intangible assets, net | $ | 2,419,078 | | | $ | 1,382,993 | | | $ | 1,036,085 | | | $ | 2,374,191 | | | $ | 1,290,419 | | | $ | 1,083,772 | |
For the three months ended September 30, 2021 and 2020, amortization expense was $35,998 and $35,393, respectively, including acquisition-related intangible amortization of $35,587 and $34,797, respectively. For the nine months ended September 30, 2021 and 2020, amortization expense was $107,084 and $103,828, respectively, including acquisition-related intangible amortization of $105,808 and $102,443, respectively.
9.8. Restructuring Activities
The Company's restructuring charges by segment were as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Engineered Products | Engineered Products | $ | 870 | | | $ | 2,342 | | | $ | 9,200 | | | $ | 6,860 | | Engineered Products | $ | 524 | | | $ | 4,339 | | | $ | 981 | | | $ | 8,330 | |
Fueling Solutions | 1,620 | | | 1,572 | | | 3,084 | | | 3,958 | | |
Clean Energy & Fueling | | Clean Energy & Fueling | 1,423 | | | 1,415 | | | 1,619 | | | 1,464 | |
Imaging & Identification | Imaging & Identification | 168 | | | 99 | | | 1,032 | | | (167) | | Imaging & Identification | 344 | | | 174 | | | 1,535 | | | 864 | |
Pumps & Process Solutions | Pumps & Process Solutions | 639 | | | 1,719 | | | 1,526 | | | 10,271 | | Pumps & Process Solutions | 1,476 | | | 904 | | | 2,161 | | | 887 | |
Refrigeration & Food Equipment | 1,293 | | | 534 | | | 4,637 | | | 3,307 | | |
Climate & Sustainability Technologies | | Climate & Sustainability Technologies | 159 | | | 2,283 | | | 5,875 | | | 3,344 | |
Corporate | Corporate | 200 | | | 474 | | | 1,182 | | | 2,136 | | Corporate | 383 | | | 321 | | | 295 | | | 982 | |
Total | Total | $ | 4,790 | | | $ | 6,740 | | | $ | 20,661 | | | $ | 26,365 | | Total | $ | 4,309 | | | $ | 9,436 | | | $ | 12,466 | | | $ | 15,871 | |
| These amounts are classified in the Condensed Consolidated Statements of Earnings as follows: | These amounts are classified in the Condensed Consolidated Statements of Earnings as follows: | These amounts are classified in the Condensed Consolidated Statements of Earnings as follows: |
Cost of goods and services | Cost of goods and services | $ | 2,194 | | | $ | 2,710 | | | $ | 10,940 | | | $ | 11,809 | | Cost of goods and services | $ | 1,037 | | | $ | 4,839 | | | $ | 1,244 | | | $ | 8,746 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 2,596 | | | 4,030 | | | 9,721 | | | 14,556 | | Selling, general and administrative expenses | 3,272 | | | 4,597 | | | 11,222 | | | 7,125 | |
Total | Total | $ | 4,790 | | | $ | 6,740 | | | $ | 20,661 | | | $ | 26,365 | | Total | $ | 4,309 | | | $ | 9,436 | | | $ | 12,466 | | | $ | 15,871 | |
The restructuring expenses of $4,790 $4,309 and $20,66112,466 incurred during the three and ninesix months ended SeptemberJune 30, 20212022 were primarily the result of restructuring programs initiated in 20202021 and 20212022 in response to demand conditions asset charges related to a product line exit and broad-based operational efficiency initiatives focusing on footprint consolidation and IT centralization. Additional programs, beyond the scope of the announced programs, may be implemented during 2021 with related restructuring charges.
The $4,790$4,309 of restructuring charges incurred during the thirdsecond quarter of 20212022 primarily included the following items:
•The Engineered Products segment recorded $870$524 of restructuring charges related principallyprimarily to assetheadcount 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 a product line exit.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)
•The Fueling Solutions segment recorded $1,620 of restructuring charges primarily due to asset charges, headcount reductions and facility exit costs.
•The Imaging & Identification segment recorded restructuring charges of $168 primarily related to headcount reductions.
•The Pumps & Process Solutions segment recorded $639 of restructuring charges primarily related to asset charges.
•The Refrigeration & Food Equipment segment recorded $1,293 of restructuring expense primarily due to asset charges.
•Corporate recorded $200 of restructuring charges primarily related to exit costs associated with IT centralization initiatives.
The Company’s severance and exit accrual activities were as follows:
| | | | | | | | | | | | | | | | | |
| Severance | | Exit | | Total |
Balance at December 31, 2020 | $ | 10,547 | | | $ | 4,366 | | | $ | 14,913 | |
Restructuring charges | 7,933 | | | 12,728 | | | 20,661 | |
Payments | (9,625) | | | (4,500) | | | (14,125) | |
| | | | | |
| | | | | |
Other, including foreign currency translation | (190) | | | (9,342) | | (1) | (9,532) | |
Balance at September 30, 2021 | $ | 8,665 | | | $ | 3,252 | | | $ | 11,917 | |
(1) Other activity in exit reserves primarily represents asset charges related to a product line exit.
10.9. Borrowings
Borrowings consisted of the following:
| | | | | | | | | | | | | | | | | |
| | | Carrying amount (1) |
| Principal | | September 30, 2021 | | December 31, 2020 |
Long-term | | | | | |
3.15% 10-year notes due November 15, 2025 | $ | 400,000 | | | $ | 397,221 | | | $ | 396,716 | |
1.25% 10-year notes due November 9, 2026 (euro-denominated) | € | 600,000 | | | 697,073 | | | 724,310 | |
0.750% 8-year notes due November 4, 2027 (euro denominated) | € | 500,000 | | | 580,355 | | | 603,107 | |
6.65% 30-year debentures due June 1, 2028 | $ | 200,000 | | | 199,331 | | | 199,255 | |
2.950% 10-year notes due November 4, 2029 | $ | 300,000 | | | 296,934 | | | 296,650 | |
5.375% 30-year debentures due October 15, 2035 | $ | 300,000 | | | 296,497 | | | 296,309 | |
6.60% 30-year notes due March 15, 2038 | $ | 250,000 | | | 248,137 | | | 248,053 | |
5.375% 30-year notes due March 1, 2041 | $ | 350,000 | | | 344,636 | | | 344,429 | |
| | | | | |
| | | | | |
| | | | | |
Total long-term debt | | | $ | 3,060,184 | | | $ | 3,108,829 | |
| | | | | | | | | | | |
| 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
$15.813.7 million and $17.6$15.1 million as of SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively. Total deferred debt issuance costs were $13.0$11.6 million and $14.4$12.5 million as of SeptemberJune 30, 20212022 and December 31, 2020,2021, 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 SeptemberJune 30, 2021,2022, 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. The Company usesAs of June 30, 2022 and December 31, 2021, there were no borrowings under the Credit Agreement principally as liquidity back-up for its commercial paper program and for general corporate purposes.Agreement.
The Company was in compliance with all covenants in the Credit Agreement and other long-term debt covenants at SeptemberJune 30, 20212022 and had an interest coverage ratio of consolidated EBITDA to consolidated net interest expense of 14.917.8 to 1.
Letters of Credit and other Guarantees
As of SeptemberJune 30, 2021,2022, the Company had approximately $154.8$166 million outstanding in letters of credit, surety bonds, and performance and other guarantees which expire on various dates through 2029.2039. 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)
11.10. 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 SeptemberJune 30, 20212022 and December 31, 2020,2021, the Company had contracts with total notional amounts of $178,702$173,852 and $173,674,$180,929, respectively, to exchange currencies, principally Euro, Pound Sterling,euro, pound sterling, Swedish Krona,krona, Canadian dollar, Chinese Yuan, Canadian Dollar,yuan, and Swiss Franc.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 $90,088$112,640 and $73,755$108,736 as of SeptemberJune 30, 20212022 and December 31, 2020,2021, 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 SeptemberJune 30, 20212022 and December 31, 20202021 and the balance sheet lines in which they are recorded:
| | | Fair Value Asset (Liability) | | | Fair Value Asset (Liability) | |
| | September 30, 2021 | | December 31, 2020 | | Balance Sheet Caption | | June 30, 2022 | | December 31, 2021 | | Balance Sheet Caption |
Foreign currency forward | Foreign currency forward | $ | 1,701 | | | $ | 2,325 | | | Prepaid and other current assets | Foreign currency forward | $ | 2,095 | | | $ | 2,825 | | | Prepaid and other current assets |
Foreign currency forward | Foreign currency forward | (166) | | | (2,057) | | | Other accrued expenses | 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, and 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 €600,000€500,000 and €500,000€600,000 of euro-denominated notes issued November 9, 20164, 2019 and November 4, 2019,9, 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 September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Gain (loss) on euro-denominated debt | Gain (loss) on euro-denominated debt | $ | 24,032 | | | $ | (45,379) | | | $ | 51,571 | | | $ | (58,659) | | Gain (loss) on euro-denominated debt | $ | 46,742 | | | $ | (18,894) | | | $ | 84,490 | | | $ | 27,539 | |
Tax (expense) benefit | Tax (expense) benefit | (5,446) | | | 9,872 | | | (11,669) | | | 12,761 | | Tax (expense) benefit | (10,539) | | | 4,269 | | | (18,970) | | | (6,223) | |
Net gain (loss) on net investment hedges, net of tax | Net gain (loss) on net investment hedges, net of tax | $ | 18,586 | | | $ | (35,507) | | | $ | 39,902 | | | $ | (45,898) | | 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 SeptemberJune 30, 20212022 and December 31, 2020:2021:
| | | | | | | | | | | | | | | | | | | |
| | | September 30, 2021 | | | | December 31, 2020 |
| | | Level 2 | | | | | | Level 2 | | |
Assets: | | | | | | | | | | | |
Foreign currency cash flow hedges | | | $ | 1,701 | | | | | | | $ | 2,325 | | | |
Liabilities: | | | | | | | | | | | |
Foreign currency cash flow hedges | | | 166 | | | | | | | 2,057 | | | |
| | | | | | | | | | | |
In addition to fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require interim disclosures regarding the fair value of all of the Company’s financial instruments. | | | | | | | | | | | | | | | | | | | |
| | | 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 SeptemberJune 30, 20212022 and December 31, 20202021, was $3,520,716$2,879,335 and $3,635,673,$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 SeptemberJune 30, 20212022 and December 31, 20202021 due to the short-term nature of these instruments.
12.11. Income Taxes
The effective tax rates for the three months ended SeptemberJune 30, 2022 and 2021 and 2020 were 19.5%13.6% and 20.2%18.2%, respectively. The decrease in the effective tax rate for the three months ended SeptemberJune 30, 20212022 relative to the prior comparable period was primarily driven by favorable audit settlements.resolutions, including $22.6 million related to the Tax Cuts and Jobs Act.
The effective tax rates for the ninesix months ended SeptemberJune 30, 2022 and 2021 were 15.6% and 2020 were 19.0% and 19.3%18.8%, respectively. The decrease in the effective tax rate for the ninesix months ended SeptemberJune 30, 20212022 relative to the prior year comparable period was primarily driven by favorable audit settlements.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 $9.7$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)
13. Equity Incentive Program
The Company typically grants equity awards annually at its regularly scheduled first quarter meeting of the Compensation Committee of the Board of Directors. During the nine months ended September 30, 2021, the Company issued stock-settled appreciation rights ("SARs") covering 413,173 shares, performance share awards of 50,371 and restricted stock units ("RSUs") of 83,993.
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 | | SARs |
| | 2021 | | 2020 | | 2022 | | 2021 |
Risk-free interest rate | Risk-free interest rate | 0.59 | % | | 1.44 | % | Risk-free interest rate | 1.86 | % | | 0.59 | % |
Dividend yield | Dividend yield | 1.62 | % | | 1.65 | % | Dividend yield | 1.25 | % | | 1.62 | % |
Expected life (years) | Expected life (years) | 5.5 | | 5.5 | Expected life (years) | 5.4 | | 5.5 |
Volatility | Volatility | 30.49 | % | | 22.76 | % | Volatility | 29.46 | % | | 30.49 | % |
| Grant price | Grant price | $122.73 | | $119.86 | Grant price | $160.21 | | $122.73 |
Fair value per share at date of grant | Fair value per share at date of grant | $29.08 | | $22.54 | Fair value per share at date of grant | $42.07 | | $29.08 |
The performance share awards granted in 20212022 and 20202021 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 | | Performance Shares |
| | 2021 | | 2020 | | 2022 | | 2021 |
Risk-free interest rate | Risk-free interest rate | 0.19 | % | | 1.40 | % | Risk-free interest rate | 1.68 | % | | 0.19 | % |
Dividend yield | Dividend yield | 1.62 | % | | 1.65 | % | Dividend yield | 1.25 | % | | 1.62 | % |
Expected life (years) | Expected life (years) | 2.9 | | 2.9 | Expected life (years) | 2.9 | | 2.9 |
Volatility | Volatility | 31.90 | % | | 23.30 | % | Volatility | 31.10 | % | | 31.90 | % |
| Grant price | Grant price | $122.73 | | $119.86 | Grant price | $160.21 | | $122.73 |
Fair value per share at date of grant | Fair value per share at date of grant | $148.29 | | $165.71 | 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.grant, which was $160.21 and $122.73 for RSUs granted in 2022 and 2021, respectively.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Stock-based compensation is reported within selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Pre-tax stock-based compensation expense | Pre-tax stock-based compensation expense | $ | 6,660 | | | $ | 7,371 | | | $ | 25,053 | | | $ | 15,591 | | Pre-tax stock-based compensation expense | $ | 7,218 | | | $ | 6,872 | | | $ | 18,331 | | | $ | 18,393 | |
Tax benefit | Tax benefit | (576) | | | (854) | | | (2,357) | | | (1,822) | | Tax benefit | (731) | | | (559) | | | (1,846) | | | (1,781) | |
Total stock-based compensation expense, net of tax | Total stock-based compensation expense, net of tax | $ | 6,084 | | | $ | 6,517 | | | $ | 22,696 | | | $ | 13,769 | | 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 stock-based compensation expense for the nine months ended September 30, 2021 compared to the prior comparable period was primarily due to plan amendments made in the current year, which accelerated the vesting of shares awarded to retirement-eligible employees, as well as lower performancethousands except share attainment rates in the prior year.data and where otherwise indicated) (Unaudited)
14.13. 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 SeptemberJune 30, 20212022 and December 31, 2020, the Company had2021, these estimated liabilities totaling $29,887 and $30,431, respectively, for environmental and other matters, including private party claims for exposure to hazardous substances that are probable and estimable.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 SeptemberJune 30, 20212022 and December 31, 2020,2021, these estimated liabilities were not significant.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 SeptemberJune 30, 20212022 and 2020,2021, were as follows:
| | | 2021 | | 2020 | | 2022 | | 2021 |
Beginning Balance, December 31 of the Prior Year | Beginning Balance, December 31 of the Prior Year | $ | 51,088 | | | $ | 49,116 | | Beginning Balance, December 31 of the Prior Year | $ | 48,568 | | | $ | 51,088 | |
Provision for warranties | Provision for warranties | 53,747 | | | 42,647 | | Provision for warranties | 31,112 | | | 34,900 | |
Settlements made | Settlements made | (50,350) | | | (44,396) | | Settlements made | (30,955) | | | (34,424) | |
Other adjustments, including acquisitions and currency translation | Other adjustments, including acquisitions and currency translation | (1,301) | | | 129 | | Other adjustments, including acquisitions and currency translation | (721) | | | (528) | |
Ending balance, September 30 | $ | 53,184 | | | $ | 47,496 | | |
Ending balance, June 30 | | Ending balance, June 30 | $ | 48,004 | | | $ | 51,036 | |
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
15.14. 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 (income) 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 September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | U.S. Plan | | Non-U.S. Plans | | U.S. Plan | | Non-U.S. Plans | | U.S. Plan | | Non-U.S. Plans | | U.S. Plan | | Non-U.S. Plans |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Service cost | Service cost | $ | 1,784 | | | $ | 1,706 | | | $ | 1,398 | | | $ | 1,366 | | | $ | 5,351 | | | $ | 5,118 | | | $ | 4,238 | | | $ | 3,954 | | Service cost | $ | 1,426 | | | $ | 1,784 | | | $ | 1,173 | | | $ | 1,397 | | | $ | 2,852 | | | $ | 3,567 | | | $ | 2,394 | | | $ | 2,839 | |
Interest cost | Interest cost | 3,401 | | | 4,068 | | | 674 | | | 839 | | | 10,204 | | | 12,204 | | | 2,036 | | | 2,460 | | Interest cost | 3,437 | | | 3,401 | | | 846 | | | 695 | | | 6,873 | | | 6,803 | | | 1,730 | | | 1,363 | |
Expected return on plan assets | Expected return on plan assets | (7,245) | | | (7,869) | | | (1,793) | | | (1,719) | | | (21,735) | | | (23,607) | | | (5,412) | | | (5,033) | | Expected return on plan assets | (7,276) | | | (7,245) | | | (1,815) | | | (1,820) | | | (14,552) | | | (14,490) | | | (3,706) | | | (3,619) | |
Amortization: | Amortization: | | Amortization: | |
Prior service cost (credit) | Prior service cost (credit) | 53 | | | 57 | | | (163) | | | (126) | | | 159 | | | 170 | | | (494) | | | (365) | | Prior service cost (credit) | 28 | | | 53 | | | (130) | | | (162) | | | 55 | | | 106 | | | (264) | | | (330) | |
Recognized actuarial loss | Recognized actuarial loss | 2,503 | | | 1,884 | | | 979 | | | 777 | | | 7,509 | | | 5,652 | | | 2,968 | | | 2,253 | | Recognized actuarial loss | 575 | | | 2,503 | | | 436 | | | 989 | | | 1,150 | | | 5,006 | | | 894 | | | 1,989 | |
| Net periodic expense (income) | $ | 496 | | | $ | (154) | | | $ | 1,095 | | | $ | 1,137 | | | $ | 1,488 | | | $ | (463) | | | $ | 3,336 | | | $ | 3,269 | | |
Net periodic (income) expense | | Net periodic (income) expense | $ | (1,810) | | | $ | 496 | | | $ | 510 | | | $ | 1,099 | | | $ | (3,622) | | | $ | 992 | | | $ | 1,048 | | | $ | 2,242 | |
|
Non-Qualified Supplemental Benefits | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Service cost | Service cost | $ | 390 | | | $ | 318 | | | $ | 1,171 | | | $ | 954 | | Service cost | $ | 357 | | | $ | 390 | | | $ | 713 | | | $ | 781 | |
Interest cost | Interest cost | 308 | | | 441 | | | 924 | | | 1,324 | | Interest cost | 304 | | | 308 | | | 608 | | | 616 | |
Amortization: | Amortization: | | Amortization: | |
Prior service cost | Prior service cost | 383 | | | 424 | | | 1,148 | | | 1,271 | | Prior service cost | 373 | | | 383 | | | 745 | | | 766 | |
Recognized actuarial gain | Recognized actuarial gain | (418) | | | (464) | | | (1,254) | | | (1,393) | | Recognized actuarial gain | (504) | | | (418) | | | (1,008) | | | (836) | |
| Net periodic expense | Net periodic expense | $ | 663 | | | $ | 719 | | | $ | 1,989 | | | $ | 2,156 | | 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 $15,001$14,584 and $12,530$16,052 for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $46,114$32,257 and $39,071$31,113 for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
16.15. Other Comprehensive Earnings
Amounts reclassified from accumulated other comprehensive loss to earnings during the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 were as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| Foreign currency translation: | | Foreign currency translation: | | | | | | | |
Reclassification of foreign currency translation losses to earnings for the substantial liquidation of businesses | | Reclassification of foreign currency translation losses to earnings for the substantial liquidation of businesses | $ | — | | | $ | — | | | $ | 5,915 | | | $ | — | |
Tax benefit | | Tax benefit | — | | | — | | | — | | | — | |
Net of tax | | Net of tax | $ | — | | | $ | — | | | $ | 5,915 | | | $ | — | |
Pension plans: | Pension plans: | | | | | | | | Pension plans: | | | | | | | |
Amortization of actuarial losses | Amortization of actuarial losses | $ | 3,064 | | | $ | 2,194 | | | $ | 9,223 | | | $ | 6,501 | | Amortization of actuarial losses | $ | 499 | | | $ | 3,074 | | | $ | 1,020 | | | $ | 6,159 | |
Amortization of prior service costs | Amortization of prior service costs | 274 | | | 358 | | | 823 | | | 1,086 | | Amortization of prior service costs | 274 | | | 277 | | | 542 | | | 548 | |
| Total before tax | Total before tax | 3,338 | | | 2,552 | | | 10,046 | | | 7,587 | | Total before tax | 773 | | | 3,351 | | | 1,562 | | | 6,707 | |
Tax benefit | Tax benefit | (771) | | | (421) | | | (2,320) | | | (1,408) | | Tax benefit | (202) | | | (774) | | | (410) | | | (1,548) | |
Net of tax | Net of tax | $ | 2,567 | | | $ | 2,131 | | | $ | 7,726 | | | $ | 6,179 | | Net of tax | $ | 571 | | | $ | 2,577 | | | $ | 1,152 | | | $ | 5,159 | |
Cash flow hedges: | Cash flow hedges: | | | | | | | | Cash flow hedges: | | | | | | | |
Net (gains) losses reclassified into earnings | $ | (267) | | | $ | (266) | | | $ | (3,977) | | | $ | 402 | | |
Tax provision (benefit) | 61 | | | 56 | | | 900 | | | (84) | | |
Net gains reclassified into earnings | | Net gains reclassified into earnings | $ | (1,345) | | | $ | (1,877) | | | $ | (3,374) | | | $ | (3,710) | |
Tax provision | | Tax provision | 300 | | | 417 | | | 753 | | | 839 | |
Net of tax | Net of tax | $ | (206) | | | $ | (210) | | | $ | (3,077) | | | $ | 318 | | 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.
17.16. Segment Information
The Company categorizes its operating companies into 5 reportable segments as follows:
•Engineered Products segment is a provider ofprovides a wide range of products,equipment, components, software, solutions and services that have broad customer applications across a number of markets, includingfor vehicle aftermarket, vehicle service, solid waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing.dispensing end-markets.
•Clean Energy & Fueling Solutions segment is focused on providingprovides components, equipment, and software and service solutions enabling safe transport of traditional and clean fuels and other hazardous fluidssubstances 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.services to the global packaged and consumer goods, pharmaceutical, industrial manufacturing, fashion and apparel and other end-markets.
•Pumps & Process Solutions segment manufactures specialty industrial pumps and flow meters, fluid handling components,connecting solutions, plastics and polymer processing equipment, single use pumps, flow meters and connectors for biopharma and other hygienic applications, and highly engineeredhighly-engineered precision components for rotating and reciprocating machines.machines serving single-use biopharmaceutical production, diversified industrial manufacturing, polymer processing, midstream and downstream oil and gas and other end-markets.
•Refrigeration & Food Equipment segment is a provider of innovative and energy-efficient equipment and systems that serve the commercial refrigeration, heating and cooling and food equipment 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 waswere as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Revenue: | Revenue: | | | | | | | | Revenue: | | | | | | | |
Engineered Products | Engineered Products | $ | 447,798 | | | $ | 386,562 | | | $ | 1,318,016 | | | $ | 1,137,102 | | Engineered Products | $ | 514,436 | | | $ | 442,091 | | | $ | 1,002,083 | | | $ | 870,218 | |
Fueling Solutions | 410,561 | | | 380,511 | | | 1,237,281 | | | 1,066,988 | | |
Clean Energy & Fueling | | Clean Energy & Fueling | 494,075 | | | 437,042 | | | 952,470 | | | 826,720 | |
Imaging & Identification | Imaging & Identification | 292,535 | | | 265,690 | | | 870,939 | | | 750,432 | | Imaging & Identification | 275,951 | | | 294,076 | | | 548,206 | | | 578,404 | |
Pumps & Process Solutions | Pumps & Process Solutions | 438,240 | | | 347,875 | | | 1,261,318 | | | 976,506 | | Pumps & Process Solutions | 441,127 | | | 428,701 | | | 876,322 | | | 823,078 | |
Refrigeration & Food Equipment | 429,425 | | | 368,395 | | | 1,232,008 | | | 973,835 | | |
Intra-segment eliminations | (290) | | | (777) | | | (1,716) | | | (1,493) | | |
Climate & Sustainability Technologies | | Climate & Sustainability Technologies | 434,164 | | | 430,506 | | | 833,242 | | | 802,583 | |
Intersegment eliminations | | Intersegment eliminations | (1,038) | | | (740) | | | (1,707) | | | (1,426) | |
Total consolidated revenue | Total consolidated revenue | $ | 2,018,269 | | | $ | 1,748,256 | | | $ | 5,917,846 | | | $ | 4,903,370 | | Total consolidated revenue | $ | 2,158,715 | | | $ | 2,031,676 | | | $ | 4,210,616 | | | $ | 3,899,577 | |
Net earnings: | Net earnings: | | | | | | | | Net earnings: | | | | | | | |
Segment earnings (EBIT): (1) | | | | | |
Segment earnings: | | Segment earnings: | | | | |
Engineered Products (2) | Engineered Products (2) | $ | 71,717 | | | $ | 64,890 | | | $ | 203,216 | | | $ | 181,686 | | Engineered Products (2) | $ | 81,671 | | | $ | 71,255 | | | $ | 152,801 | | | $ | 147,939 | |
Fueling Solutions | 65,593 | | | 66,601 | | | 210,828 | | | 167,313 | | |
Clean Energy & Fueling | | Clean Energy & Fueling | 99,034 | | | 93,430 | | | 171,996 | | | 173,002 | |
Imaging & Identification | Imaging & Identification | 63,419 | | | 51,928 | | | 181,158 | | | 141,456 | | Imaging & Identification | 61,392 | | | 66,565 | | | 119,990 | | | 130,183 | |
Pumps & Process Solutions | Pumps & Process Solutions | 142,414 | | | 89,786 | | | 404,691 | | | 223,567 | | Pumps & Process Solutions | 138,048 | | | 146,759 | | | 284,665 | | | 275,654 | |
Refrigeration & Food Equipment(3) | 42,841 | | | 40,159 | | | 129,929 | | | 75,147 | | |
Total segment earnings (EBIT) | 385,984 | | | 313,364 | | | 1,129,822 | | | 789,169 | | |
Climate & Sustainability Technologies | | Climate & Sustainability Technologies | 64,181 | | | 56,905 | | | 117,790 | | | 100,380 | |
Total segment earnings | | Total segment earnings | 444,326 | | | 434,914 | | | 847,242 | | | 827,158 | |
Purchase accounting expenses (1) | | Purchase accounting expenses (1) | 47,019 | | | 35,162 | | | 100,305 | | | 70,678 | |
Restructuring and other costs (2) | | Restructuring and other costs (2) | 7,944 | | | 10,779 | | | 18,496 | | | 14,941 | |
Loss on dispositions (3) | | Loss on dispositions (3) | — | | | — | | | 194 | | | — | |
Corporate expense / other (4) | Corporate expense / other (4) | 33,498 | | | 35,603 | | | 112,880 | | | 87,011 | | Corporate expense / other (4) | 27,967 | | | 39,910 | | | 65,371 | | | 77,083 | |
Interest expense | Interest expense | 26,433 | | | 27,724 | | | 79,917 | | | 83,703 | | Interest expense | 26,989 | | | 26,661 | | | 53,541 | | | 53,484 | |
Interest income | Interest income | (1,466) | | | (960) | | | (3,088) | | | (2,871) | | Interest income | (949) | | | (942) | | | (1,724) | | | (1,622) | |
Earnings before provision for income taxes | Earnings before provision for income taxes | 327,519 | | | 250,997 | | | 940,113 | | | 621,326 | | Earnings before provision for income taxes | 335,356 | | | 323,344 | | | 611,059 | | | 612,594 | |
Provision for income taxes | Provision for income taxes | 63,763 | | | 50,697 | | | 179,080 | | | 119,981 | | Provision for income taxes | 45,738 | | | 58,836 | | | 95,288 | | | 115,317 | |
Net earnings | Net earnings | $ | 263,756 | | | $ | 200,300 | | | $ | 761,033 | | | $ | 501,345 | | Net earnings | $ | 289,618 | | | $ | 264,508 | | | $ | 515,771 | | | $ | 497,277 | |
(1)Segment earnings (EBIT) includes non-operating income Purchase accounting expenses are primarily comprised of amortization of intangible assets and expense directly attributablecharges related to fair value step-ups for acquired inventory sold during the segments. Non-operating income and expense includes gain on sale of a business and other income, net.period.
(2) Q3 2021 includes a $9,078 payment receivedRestructuring and other costs relate to actions taken for previously incurred restructuring costs related to aemployee reductions, facility consolidations and site closures, product line exit.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) The three and nine months ended September 30, 2020 include a $557 expense and a $5,213 gainLoss on the sale of AMS Chino, respectively. The nine months ended September 30, 2020 also include a $3,640 write-off of assets.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 relateddeal-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 customer:customers:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
Revenue by geography | Revenue by geography | 2021 | | 2020 | | 2021 | | 2020 | Revenue by geography | 2022 | | 2021 | | 2022 | | 2021 |
United States | United States | $ | 1,108,513 | | | $ | 952,548 | | | $ | 3,235,542 | | | $ | 2,762,187 | | United States | $ | 1,253,061 | | | $ | 1,091,015 | | | $ | 2,404,561 | | | $ | 2,127,029 | |
Europe | Europe | 452,066 | | | 383,867 | | | 1,356,435 | | | 1,065,109 | | Europe | 458,263 | | | 459,074 | | | 905,828 | | | 904,369 | |
Asia | Asia | 222,366 | | | 207,474 | | | 650,481 | | | 525,758 | | Asia | 229,116 | | | 236,008 | | | 458,502 | | | 428,115 | |
Other Americas | Other Americas | 166,230 | | | 138,060 | | | 468,298 | | | 380,104 | | Other Americas | 149,728 | | | 171,891 | | | 301,320 | | | 302,068 | |
Other | Other | 69,094 | | | 66,307 | | | 207,090 | | | 170,212 | | Other | 68,547 | | | 73,688 | | | 140,405 | | | 137,996 | |
Total | Total | $ | 2,018,269 | | | $ | 1,748,256 | | | $ | 5,917,846 | | | $ | 4,903,370 | | Total | $ | 2,158,715 | | | $ | 2,031,676 | | $ | — | | $ | 4,210,616 | | | $ | 3,899,577 | |
|
18.17. 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 ninethree and six months ended SeptemberJune 30, 20212022, the Company repurchased 182,951641,428 shares of common stock at a total cost of $85,000, or $132.52 per share. In the first quarter of 2021, $21,637t,he 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 SeptemberJune 30, 2021. In the nine
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
months ended September 30, 2020, the Company repurchased 548,659 shares of common stock at a total cost of $52,916, or $96.45 per share. There were no repurchases during the three months ended September 30, 2020.
As of SeptemberJune 30, 2021, 19,817,0492022, 19,175,621 shares remain authorized for repurchase under the November 2020 share repurchase authorization.
19.18. 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 September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| Net earnings | Net earnings | $ | 263,756 | | | $ | 200,300 | | | $ | 761,033 | | | $ | 501,345 | | Net earnings | $ | 289,618 | | | $ | 264,508 | | | $ | 515,771 | | | $ | 497,277 | |
Basic earnings per common share: | Basic earnings per common share: | | | | | Basic earnings per common share: | | | | |
| Net earnings | Net earnings | $ | 1.83 | | | $ | 1.39 | | | $ | 5.29 | | | $ | 3.48 | | Net earnings | $ | 2.01 | | | $ | 1.84 | | | $ | 3.58 | | | $ | 3.46 | |
| Weighted average shares outstanding | Weighted average shares outstanding | 143,976,000 | | | 144,032,000 | | | 143,895,000 | | | 144,082,000 | | Weighted average shares outstanding | 143,832,000 | | | 143,941,000 | | | 143,959,000 | | | 143,854,000 | |
Diluted earnings per common share: | Diluted earnings per common share: | | | | | | | | Diluted earnings per common share: | | | | | | | |
| Net earnings | Net earnings | $ | 1.81 | | | $ | 1.38 | | | $ | 5.24 | | | $ | 3.45 | | Net earnings | $ | 2.00 | | | $ | 1.82 | | | $ | 3.56 | | | $ | 3.43 | |
| Weighted average shares outstanding | Weighted average shares outstanding | 145,440,000 | | | 145,289,000 | | | 145,220,000 | | | 145,313,000 | | 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 September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Weighted average shares outstanding - Basic | Weighted average shares outstanding - Basic | 143,976,000 | | | 144,032,000 | | | 143,895,000 | | | 144,082,000 | | 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 | Dilutive effect of assumed exercise of SARs and vesting of performance shares and RSUs | 1,464,000 | | | 1,257,000 | | | 1,325,000 | | | 1,231,000 | | 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 | Weighted average shares outstanding - Diluted | 145,440,000 | | | 145,289,000 | | | 145,220,000 | | | 145,313,000 | | 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 1,0006,000 and 36,0000 for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and 57,00032,000 and 95,00034,000 for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively.
20.19. Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In March 2020 and JanuaryOctober 2021, the FASB issued ASU No. 2020-04, Reference Rate Reform2021-08 Business Combinations (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting805) - Accounting for Contract Assets and ASU 2021-01, Reference Rate Reform, Scope, respectively. These updates provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform, including expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.Contract Liabilities from Contracts with Customers. The amendments in these updates are electivethis update require that an acquirer recognize and are effective upon issuance for all entities.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 thirdfirst quarter of 2021.2022. Prior to adoption, the acquirer recognized such contract assets and contract liabilities at fair value on the acquisition date. The adoption did not have a material impact on the Company's Condensed Consolidated Financial Statements.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
21.20. Subsequent Events
On October 11, 2021, the Company entered into a definitive agreement to sell its Unified Brands business, which is part of the Refrigeration & Food Equipment segment, to Electrolux Professional AB for approximately $244 million, on a cash free and debt free basis, subject to customary post-closing adjustments. Unified Brands did not meet the criteria for assets held for sale as of September 30, 2021 and, therefore, is presented as a component of continuing operations. Further, the sale of Unified Brands does not represent a strategic shift that will have a major effect on Dover's operations or financial results. Therefore, it will not qualify for presentation as a discontinued operation.
On October 15, 2021,July 1, 2022, the Company completed the acquisition of LIQAL B.VMalema Engineering Corporation ("LIQAL"Malema"), a turn-key supplierdesigner and manufacturer of liquified natural gasflow measurement and hydrogen refueling equipmentcontrol instruments serving customers in the biopharmaceutical, semiconductor and solutions and micro-liquefaction solutions,industrial sectors, for approximately €20 million, plus potential$224,000, subject to customary post-closing adjustments, and contingent consideration. LIQAL will be includedconsideration of up to $50,000. At the closing of the transaction, the Company acquired 99.7% of the equity interests in the FuelingMalema 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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Refer to the section below entitled "Special Notes Regarding Forward-Looking Statements" for a discussion of factors that could cause our actual results to differ from the forward-looking statements contained below and throughout this quarterly report.
Throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), we refer to measures used by management to evaluate performance as well as liquidity, including a number of financial measures that are not defined under accounting principles generally accepted in the United States of America ("GAAP"). We believe these measures provide investors with important information that is useful in understanding our business results and trends. Explanations within this MD&A provide more details on the use and derivation of these measures.
OVERVIEW
Dover is a diversified global manufacturer and solutions provider delivering innovative equipment and components, consumable supplies, aftermarket parts, software and digital solutions, and support services through five operating segments: Engineered Products, Clean Energy & Fueling, Solutions, Imaging & Identification, Pumps & Process Solutions, and RefrigerationClimate & Food Equipment.Sustainability Technologies. The Company's entrepreneurial business model encourages, promotes and fosters deep customer engagement and collaboration, which has led to Dover's well-established and valued reputation for providing superior customer service and industry-leading product innovation. Unless the context indicates otherwise, references herein to "Dover," "the Company," and words such as "we," "us," or "our" include Dover Corporation and its consolidated subsidiaries.
Dover's five operating segments are as follows:
•Our Engineered Products segment is a provider ofprovides a wide range of products,equipment, components, software, solutions and services that have broad customer applications across a number of markets, includingfor vehicle aftermarket, vehicle service, solid waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing.dispensing end-markets.
•Our Clean Energy & Fueling Solutions segment is focused on providingprovides components, equipment, and software and service solutions enabling safe transport of traditional and clean fuels and other hazardous fluidssubstances along the supply chain, as well as the safe and efficient operation of convenience retail, retail fueling and vehicle wash establishments.
•Our 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.services to the global packaged and consumer goods, pharmaceutical, industrial manufacturing, fashion and apparel and other end-markets.
•Our Pumps & Process Solutions segment manufactures specialty industrial pumps and flow meters, fluid handling components,connecting solutions, plastics and polymer processing equipment, single use pumps, flow meters and connectors for biopharma and other hygienic applications, and highly engineeredhighly-engineered precision components for rotating and reciprocating machines.machines serving single-use biopharmaceutical production, diversified industrial manufacturing, polymer processing, midstream and downstream oil and gas and other end-markets.
•Our RefrigerationClimate & Food EquipmentSustainability Technologies segment is a provider of innovative and energy-efficient equipment and systems that serve the commercial refrigeration, heating and cooling and foodbeverage can-making equipment markets.
In the thirdsecond quarter of 2021,2022, revenue was $2.0$2.2 billion, which increased $270.0$127.0 million, or 15.4%6.3%, as compared to the thirdsecond quarter of 2020.2021. This was driven by organic revenue growth of 13.2%7.5% and acquisition-related revenue growth of 4.1%, a favorablepartially offset by an unfavorable impact from foreign currency translation of 1.1%,3.6% and acquisition-related revenue growthdisposition-related decline of 1.1%1.7%. Pricing initiatives continued in the quarter to offset the impact of higher commodity costs, principally steel, component parts inflation, and higher freight and logistics costs.
The 13.2%7.5% organic revenue growth for the thirdsecond quarter of 20212022 was broad-based across most of our segments as market conditionsbusinesses based on solid underlying demand and demand improved from the adverse impact of COVID-19 in the prior year.our ability to produce and ship despite supply chain constraints, input cost inflation, and unforecasted production interruptions. The Engineered Products segment had organic revenue growth of 14.2%18.6% primarily as a result of pricing initiatives as well as strength in our waste handling, vehicle services, industrial automation, and industrial automationwinch and hoist businesses, whereas our aerospace and defense business declined organically year-over-year due to in part to supplier component inputdriven by supply chain constraints and labor availability.program timing. The Clean Energy & Fueling Solutions segment had organic revenue growthdecline of 3.0% driven1.1% principally due to
reduced year-over-year demand in North America for Europay, Mastercard, and Visa ("EMV") compliant equipment following the compliance deadline in the second quarter of 2021, mostly offset by growthsolid demand in our North America below ground retail fueling, in North Americanfluid transfer solutions and EMEA, as well as strength in vehicle wash solutions.solutions businesses, along with pricing initiatives. The Imaging & Identification segment experienced organic revenue growthdecline of 7.4%0.9% driven by increased demandsourced logistics headwinds and continued component shortages due to COVID-19 related lockdowns in China in our marking and coding business, partially offset by growth in our serialization and digital textile printing end markets.brand management software. The Pumps & Process Solutions segment had organic revenue growth of 24.6% reflecting strong demand6.8%, driven by pricing initiatives, along with continued strength in our core non-COVID-19 biopharma platform, industrial pumps, plastics and polymer processing solutions, and bearings and compression components businesses, partially offset by lower shipments for single-use pumps and connectors and industrial pumps, and recoveryused in bearings and compression components. biopharmaceutical production processes for the COVID-19 vaccine. The RefrigerationClimate & Food EquipmentSustainability Technologies segment posted organic revenue growth of 16.0% across all end markets, principally driven
by robust activitypricing initiatives combined with strong demand in can-shaping,retail refrigeration, can-making, and heat exchangers. Our food service equipment and retail refrigeration end markets, while delivering growth in the quarter, was impacted by supplier component input constraints and labor availability.
From a geographic perspective, in the third quarter, organic revenue for the U.S., our largest market, increased 15.7%.12.5% in the second quarter of 2022. Organic revenue in Europe and Asia grew 11.8% and Europe grew 4.6% and 15.5%0.4%, respectively. This organicRevenue growth in Asia was largely broad-based, with all our segments posting increased salesnegatively impacted by COVID-19 driven lockdowns in North America, Europe, Asia and Latin America, as global demand continued to improve after the impact of operational and economic headwinds of COVID-19 experiencedChina in the prior year.quarter, which have since eased. Other Americas declined by 17.7% organically in the quarter.
BookingsBookings were $2.3$2.1 billion for the three months ended SeptemberJune 30, 2021, an increase2022, a decrease of $490.9$270.3 million, or 27.2%11.4% compared to the prior year comparable period. Included in this result waswas organic growthdecline of 24.8%9.9%, a favorablean unfavorable impact from foreign currency translation of 1.3%2.9%, disposition-related decline of 1.8%, and acquisition-related bookings growth of 1.1%3.2%. Bookings grew organicallyThe organic bookings decline was driven primarily by a $74.0 million order reversal due to customer financing limitations in all five segments primarily asour beverage can-making business, a resultdecrease in orders for biopharmaceutical components used in COVID-19 vaccine production, and declines in our vehicle service and waste handling businesses principally related to higher year-over-year comparables and timing of strongorders in waste handling. This was partially offset by solid demand in our marking and order intake in most end markets compared to the adverse global impact of COVID-19 in the prior year.coding business.
Backlog as of SeptemberJune 30, 20212022 was $2.8$3.3 billion, an increase from $1.6$2.6 billion in the prior year and $200 million from the second quarter of 2021.year. See definition of bookings and backlog within "Segment Results of Operations".
During the three months ended September 30, 2021, we acquired two businesses in separate transactions for a total considerationRestructuring and other costs of $90.0 million, net of cash acquired. We acquired 100% of the voting stock of CDS Visual, a leading provider of 3D visualization solutions tailored for industrial applications, for $29.3 million, net of cash acquired. The CDS Visual acquisition extends the Company's offering of customer-facing digital capabilities and its results will be reported as part the Engineered Products segment. We also acquired 100% of the voting stock of Espy, a manufacturer of advanced electronic radio frequency sensor systems, for $60.6 million, 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.
Rightsizing benefit of $3.2$7.9 million included restructuring costscharges of $4.8$4.3 million and other benefitscosts of $8.0$3.6 million for the three months ended SeptemberJune 30, 2021.2022. Restructuring and other costs relatedwere primarily due to actionsheadcount reductions and facility consolidations resulting from restructuring programs initiated in 20202021 and 2021 in response to demand conditions,2022, and asset charges related to a product line exit, and broad-based operational efficiency initiatives focusing on footprint consolidation and IT centralization.write-downs. See Note 98 — Restructuring Activities in the Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q for further details. Other rightsizing benefits are comprised primarily of a $9.1 million payment received for previously incurred restructuring costs related to a product line exit, partially offset by $1.0 million of restructuring related costs pertaining to broad-based operational efficiency initiatives focusing on footprint consolidation and IT centralization.
Subsequent to the thirdsecond quarter of 2021,2022, on October 11, 2021, we entered intoJuly 1, 2022, the Company completed the acquisition of Malema Engineering Corporation ("Malema"), a definitive agreement to sell its Unified Brands business, which is partdesigner and manufacturer of flow measurement and control instruments serving customers in the Refrigeration & Food Equipment segment, to Electrolux Professional ABbiopharmaceutical, semiconductor and industrial sectors, for approximately $244$224.0 million, on a cash free and debt free basis, subject to customary post-closing adjustments. On October 15, 2021, we completedadjustments, and contingent consideration of up to $50.0 million. The Malema acquisition expands the acquisition of LIQAL, a turn-key supplier of liquified natural gas and hydrogen refueling equipment and solutions and micro-liquefaction solutions, for approximately €20 million, plus potential contingent consideration. LIQAL will be included inCompany's biopharma single-use production offering within the FuelingPumps & Process Solutions segment. See Note 2120 — Subsequent Events in the Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q for further details.
COVID-19 Update
The global COVID-19 outbreak and associated countermeasurescounteracting measures implemented by governments and businesses around the world, as well as subsequent accelerated recovery in global business activity, have increased uncertainty in the global business uncertainty, had an adverse impact on our financial results during 2020 through global shutdownsenvironment and led to supply chain disruptions and operational disruptions. We took a variety of actions during 2020 to help mitigate the financial impact, including executing temporaryshortages in global markets for commodities, logistics and labor, as well as input cost savings measures, reducing our capital spending, initiating restructuring actions and proactively managing our working capital. Activity in most of the end markets we serve has improved throughout 2021 year-to-date, although demand in certain businesses such as foodservice equipment, textile printing and bearings and compression components is expected to take longer to recover to pre-pandemic levels with continued improvement expected in the fourth quarter. The recovery in demand has had business impacts, including increased material cost inflation (principally steel), labor availability issues and logistics costs increases. Our businesses have also been impacted from supplier component input availability issues.inflation. Currently our expectation is that the impact of material cost inflation, including labor, freight and logistics constraints and to some extentcosts, as well as supplier component input availability will continue into the fourth quarter of 2021.throughout 2022.
Our foremost focus has beenThe public health situation, continued global response measures and corresponding impacts on various markets remain fluid and uncertain and may lead to sudden changes in trajectory and outlook. We will continue to proactively respond to the healthsituation and safetymay take further actions that alter our business activity as may be required by governmental authorities, or that we determine are in the best interests of our employees throughout the pandemic and we will continue to maintain enhanced safety protocols and to encourage our employees to seek vaccination. Our core global manufacturing locations remained substantially operational throughout 2021 to date. As guidance from authorities such as the U.S. Centers foroperations.
Disease Control and Prevention or the World Health Organization evolves, we will update our practices accordingly, as we have done throughout the pandemic.
CONSOLIDATED RESULTS OF OPERATIONS
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(dollars in thousands, except per share data) | (dollars in thousands, except per share data) | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change | (dollars in thousands, except per share data) | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change |
Revenue | Revenue | $ | 2,018,269 | | | $ | 1,748,256 | | | 15.4 | % | | $ | 5,917,846 | | | $ | 4,903,370 | | | 20.7 | % | Revenue | $ | 2,158,715 | | | $ | 2,031,676 | | | 6.3 | % | | $ | 4,210,616 | | | $ | 3,899,577 | | | 8.0 | % |
Cost of goods and services | Cost of goods and services | 1,263,690 | | | 1,089,527 | | | 16.0 | % | | 3,669,547 | | | 3,080,800 | | | 19.1 | % | Cost of goods and services | 1,377,432 | | | 1,259,504 | | | 9.4 | % | | 2,686,139 | | | 2,405,857 | | | 11.6 | % |
Gross profit | Gross profit | 754,579 | | | 658,729 | | | 14.6 | % | | 2,248,299 | | | 1,822,570 | | | 23.4 | % | Gross profit | 781,283 | | | 772,172 | | | 1.2 | % | | 1,524,477 | | | 1,493,720 | | | 2.1 | % |
Gross profit margin | Gross profit margin | 37.4 | % | | 37.7 | % | | (0.3) | | | 38.0 | % | | 37.2 | % | | 0.8 | | Gross profit margin | 36.2 | % | | 38.0 | % | | (1.8) | | | 36.2 | % | | 38.3 | % | | (2.1) | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | 412,553 | | | 381,831 | | | 8.0 | % | | 1,249,593 | | | 1,135,512 | | | 10.0 | % | Selling, general and administrative expenses | 424,433 | | | 428,042 | | | (0.8) | % | | 868,276 | | | 837,040 | | | 3.7 | % |
Selling, general and administrative expenses as a percent of revenue | Selling, general and administrative expenses as a percent of revenue | 20.4 | % | | 21.8 | % | | (1.4) | | | 21.1 | % | | 23.2 | % | | (2.1) | | Selling, general and administrative expenses as a percent of revenue | 19.7 | % | | 21.1 | % | | (1.4) | | | 20.6 | % | | 21.5 | % | | (0.9) | |
| Operating earnings | Operating earnings | 342,026 | | | 276,898 | | | 998,706 | | | 687,058 | | | Operating earnings | 356,850 | | | 344,130 | | | 3.7 | % | | 656,201 | | | 656,680 | | | (0.1) | % |
Interest expense | Interest expense | 26,433 | | | 27,724 | | | (4.7) | % | | 79,917 | | | 83,703 | | | (4.5) | % | Interest expense | 26,989 | | | 26,661 | | | 1.2 | % | | 53,541 | | | 53,484 | | | 0.1 | % |
Interest income | Interest income | (1,466) | | | (960) | | | 52.7 | % | | (3,088) | | | (2,871) | | | 7.6 | % | Interest income | (949) | | | (942) | | | 0.7 | % | | (1,724) | | | (1,622) | | | 6.3 | % |
Loss (gain) on sale of a business | — | | | 557 | | | nm* | | — | | | (5,213) | | | nm* | |
| Other income, net | Other income, net | (10,460) | | | (1,420) | | | nm* | | (18,236) | | | (9,887) | | | nm* | Other income, net | (4,546) | | | (4,933) | | | nm* | | (6,675) | | | (7,776) | | | nm* |
Earnings before provision for income taxes | Earnings before provision for income taxes | 327,519 | | | 250,997 | | | 30.5 | % | | 940,113 | | | 621,326 | | | 51.3 | % | Earnings before provision for income taxes | 335,356 | | | 323,344 | | | 3.7 | % | | 611,059 | | | 612,594 | | | (0.3) | % |
Provision for income taxes | Provision for income taxes | 63,763 | | | 50,697 | | | 25.8 | % | | 179,080 | | | 119,981 | | | 49.3 | % | Provision for income taxes | 45,738 | | | 58,836 | | | (22.3) | % | | 95,288 | | | 115,317 | | | (17.4) | % |
Effective tax rate | Effective tax rate | 19.5 | % | | 20.2 | % | | (0.7) | | | 19.0 | % | | 19.3 | % | | (0.3) | | Effective tax rate | 13.6 | % | | 18.2 | % | | (4.6) | | | 15.6 | % | | 18.8 | % | | (3.2) | |
| Net earnings | Net earnings | 263,756 | | | 200,300 | | | 31.7 | % | | 761,033 | | | 501,345 | | | 51.8 | % | Net earnings | 289,618 | | | 264,508 | | | 9.5 | % | | 515,771 | | | 497,277 | | | 3.7 | % |
| Net earnings per common share - diluted | Net earnings per common share - diluted | $ | 1.81 | | | $ | 1.38 | | | 31.2 | % | | $ | 5.24 | | | $ | 3.45 | | | 51.9 | % | Net earnings per common share - diluted | $ | 2.00 | | | $ | 1.82 | | | 9.9 | % | | $ | 3.56 | | | $ | 3.43 | | | 3.8 | % |
* nm - not meaningful
Revenue
Revenue for the three months ended SeptemberJune 30, 20212022 increased $270.0$127.0 million, or 15.4%6.3%, from the prior year comparable quarter. Results included organic revenue growth of 13.2% across all of7.5%, primarily led by our Engineered Products and Climate & Sustainability Technologies segments, as market conditions and demand improved from the adverse impact of COVID-19 in the prior year. Acquisition-relatedacquisition-related revenue growth was 1.1%of 4.1%, driven mainly by acquisitions in our Clean Energy & Fueling Solutions and Imaging & Identification segments, along with a favorablesegment. This growth was partially offset by an unfavorable impact from foreign currency translation of 1.1%3.6% and disposition-related decline of 1.7%. Customer pricing favorably impacted revenue by approximately 3.6%6.6% in the thirdsecond quarter of 2021.2022 compared to 2.1% in the prior year comparable quarter.
Revenue for the ninesix months ended SeptemberJune 30, 20212022 increased $1.0 billion,$311.0 million, or 20.7%8.0%, from the comparable period. The increase primarily reflects organic revenue growth of 16.8%8.4%, across all ofprimarily led by our segments as market conditionsEngineered Products and demand improved from the adverse impact of COVID-19 in the prior year.Climate & Sustainability Technologies segments. Acquisition-related growth was 1.2%4.3%, led by our Clean Energy & Fueling Solutions and Imaging & Identification segments, along with a favorablesegment. This growth was partially offset by an unfavorable impact from foreign currency translation of 2.8%, slightly offset by3.0% and a 0.1%1.7% impact from dispositions within the RefrigerationClimate & Food EquipmentSustainability Technologies segment. Customer pricing favorably impacted revenue by approximately 2.2%6.3% for the ninesix months ended SeptemberJune 30, 2021.2022 compared to 1.4% in the prior year comparable period.
Gross Profit
Gross profit for the three months ended SeptemberJune 30, 20212022 increased $95.9$9.1 million, or 14.6%1.2%, butwhile gross profit margin decreased 30180 basis points to 37.4%36.2%, from the prior year comparable quarter, due toquarter. Our pricing initiatives which started in 2021 and into 2022 offset increased material labor and logistics costs offset partially by organic revenue growth, pricing, and benefits from productivity and cost reduction actions.costs.
Gross profit for the ninesix months ended SeptemberJune 30, 20212022 increased $425.7$30.8 million, or 23.4%2.1%, while gross profit margin decreased by 210 basis points to 36.2%, from the comparable period, primarily due to organic revenue growth of 16.8%period. Our pricing initiatives which started in 2021 and benefits from pricinginto 2022 offset increased material and productivity initiatives and rightsizing actions,logistics costs.
partially offset by increased material, labor and logistics costs as a well as production inefficiencies caused by supplier input component availability issues. Gross profit margin increased by 80 basis points for the nine months ended September 30, 2021 from the comparable period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended SeptemberJune 30, 2021 increased $30.72022 decreased $3.6 million, or 8.0%0.8%, from the prior year comparable quarter, primarily due to higher labor and acquisition related costs, and lower discretionary spend in the prior year.variable compensation expense. As a percentage of revenue, selling, general and administrative expenses improveddecreased 140 basis points as compared to 20.4%the prior year comparable period to 19.7% due to an increase in the revenue base.
Selling, general and administrative expenses for the ninesix months ended SeptemberJune 30, 20212022 increased $114.1$31.2 million, or 10.0%3.7%, from the comparable period, primarily due to higherincreased labor costs, travel and acquisition related costs,marketing expenses, and lower discretionary spend in the prior year. amortization expense from acquisitions. Selling, general and administrative expenses as a percentage of revenue improved 210decreased 90 basis pointspoints as compared to the prior year comparable period to 20.6% due to an increase in the revenue base.
Research and development costs, including qualifying engineering costs, are expensed when incurred and amounted to $34.4$38.6 million and $36.4$41.2 million for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $116.8$79.3 million and $106.7$82.4 million, for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. These costs as a percent of revenue were 1.7%1.8% and 2.1%2.0% for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and 2.0%1.9% and 2.2%2.1% for the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively.
Gain on sale of a business
On March 6, 2020, we sold the Chino, California branch of The AMS Group ("AMS Chino") within the Refrigeration & Food Equipment segment for total consideration of $15.4 million, which included a working capital adjustment. A gain of $5.2 million was recognized on this sale. The disposal did not represent a strategic shift in operations and, therefore, did not qualify for presentation as discontinued operations.
Other income, net
Other income, net for the three months ended SeptemberJune 30, 2021 increased $9.02022 decreased $0.4 million from the prior year comparable period primarily due to investment income and lower foreign exchange losses from the remeasurement of foreign currency denominated balances.various immaterial items.
Other income, net for the ninesix months ended SeptemberJune 30, 2021 increased $8.32022 decreased $1.1 million from the prior year comparable period primarily due to investment income and lower foreign exchange losses from the remeasurement of foreign currency denominated balances.various immaterial items.
Income Taxes
The effective tax rates for the three months ended SeptemberJune 30, 2022 and 2021 were 13.6% and 2020 were 19.5% and 20.2%18.2%, respectively. The decrease in the effective tax rate for the three months ended SeptemberJune 30, 20212022 relative to the prior year comparable quarter was primarily driven by favorable audit settlements.resolutions, including $22.6 million related to the Tax Cuts and Jobs Act.
The effective tax rates for the ninesix months ended SeptemberJune 30, 2022 and 2021 were 15.6% and 2020 were 19.0% and 19.3%18.8%, respectively. The slight decrease in the effective tax rate for the ninesix months ended SeptemberJune 30, 20212022 relative to the prior year comparable periodquarter was primarily driven by favorable audit settlements.See Note 12 — Income Taxes.resolutions, including $22.6 million related to the Tax Cuts and Jobs Act.
Net earnings
Net earnings for the three months ended SeptemberJune 30, 20212022 increased 31.7%9.5% to $263.8$289.6 million, or $1.81$2.00 diluted earnings per share, from $200.3$264.5 million, or $1.38$1.82 diluted earnings per share, fromin the prior year comparable quarter. The increase in net earnings is mainly attributable to strong demandincreased volumes, favorable business mix, and robust recovery from prior year market conditions resulting in strong broad-based organic growth, favorablecustomer pricing initiatives, and benefits from productivity and restructuring actions. These benefits wereactions, partially offset by increased material and logistic costs, increased labor costs, and logistics costs.unfavorable impact from foreign currency translation. Additionally, the three months ended June 30, 2022 was impacted by a $22.6 million reduction to income taxes previously recorded related to the Tax Cuts and Jobs Act.
Net earnings for the ninesix months ended SeptemberJune 30, 20212022 increased 51.8%3.7% to $761.0$515.8 million, or $5.24$3.56 diluted earnings per share, from $501.3$497.3 million, or $3.45$3.43 diluted earnings per share, fromin the prior year comparable period.quarter. The increase in net earnings was principallyis mainly attributable to volume growth,increased volumes, favorable business mix, pricing initiatives, productivity actions, and restructuring benefits from rightsizing actions. These benefits were partially offset by higher material and logistic costs, increased material, labor costs and logistics costs.
an unfavorable impact form foreign currency translation.
Additionally, the six months
Rightsizing Activities, which includes Restructuring ended June 30, 2022 was impacted by a $22.6 million reduction to income taxes previously recorded related to the Tax Cuts and Other CostsJobs Act.
During the three and nine months ended September 30, 2021, rightsizing activities included restructuring charges of $4.8 million and $20.7 million, respectively, and other benefits, net, of $8.0 million and $8.9 million, respectively. See Note 9 — Restructuring Activities for further details on restructuring expense for the three months ended September 30, 2021. Restructuring expense for the nine months ended September 30, 2021 was comprised primarily of $8.6 million in new actions initiated in 2020 and 2021 in response to demand conditions and broad-based operational efficiency initiatives focusing on footprint consolidation and IT centralization, and asset charges of $12.1 million, including $9.1 million related to a product line exit. Other benefits, net for the three months ended September 30, 2021 was comprised primarily of a $9.1 million payment received for previously incurred restructuring costs related to a product line exit ($7.3 million is classified within costs of goods and services and $1.8 million within selling, general and administrative expenses), partially offset by $1.0 million of restructuring related costs. Other benefits, net for the nine months ended September 30, 2021 was comprised primarily of a $9.1 million payment received for previously incurred restructuring costs related to a product line exit, $3.3 million of gains on sales of assets as a result of restructuring actions, partially offset by $3.4 million of restructuring related costs principally pertaining to footprint consolidation and IT centralization costs. These rightsizing charges were recorded in cost of goods and services and selling, general and administrative expenses in the Condensed Consolidated Statement of Earnings. Additional programs beyond the scope of the announced programs may be implemented during 2021 with related restructuring charges.
We recorded the following rightsizing costs for the three and nine months ended September 30, 2021:
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| Three Months Ended September 30, 2021 |
(dollars in thousands) | Engineered Products | | Fueling Solutions | | Imaging & Identification | | Pumps & Process Solutions | | Refrigeration & Food Equipment | | Corporate | | Total |
Restructuring (GAAP) | $ | 870 | | | $ | 1,620 | | | $ | 168 | | | $ | 639 | | | $ | 1,293 | | | $ | 200 | | | $ | 4,790 | |
Other (benefits) costs, net | (9,202) | | | (36) | | | 1,123 | | | (152) | | | 227 | | | 49 | | | (7,991) | |
Rightsizing (Non-GAAP) | $ | (8,332) | | | $ | 1,584 | | | $ | 1,291 | | | $ | 487 | | | $ | 1,520 | | | $ | 249 | | | $ | (3,201) | |
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| Nine Months Ended September 30, 2021 |
(dollars in thousands) | Engineered Products | | Fueling Solutions | | Imaging & Identification | | Pumps & Process Solutions | | Refrigeration & Food Equipment | | Corporate | | Total |
Restructuring (GAAP) | $ | 9,200 | | | $ | 3,084 | | | $ | 1,032 | | | $ | 1,526 | | | $ | 4,637 | | | $ | 1,182 | | | $ | 20,661 | |
Other (benefits) costs, net | (8,859) | | | 215 | | | 1,119 | | | (2,146) | | | (616) | | | 1,366 | | | (8,921) | |
Rightsizing (Non-GAAP) | $ | 341 | | | $ | 3,299 | | | $ | 2,151 | | | $ | (620) | | | $ | 4,021 | | | $ | 2,548 | | | $ | 11,740 | |
During the three and nine months ended September 30, 2020, rightsizing activities included restructuring charges of $6.7 million and $26.4 million, respectively, and other benefits of $0.9 million and other costs of $4.2 million, respectively. Restructuring expense was comprised primarily of new actions taken in response to lower demand driven by COVID-19 and continuing broad-based selling, general and administrative expense reduction initiatives and broad-based operational efficiency initiatives focusing on footprint consolidation, operational optimization and IT centralization. Other costs and benefits was comprised primarily of other charges related to the restructuring actions and a $3.6 million write-off of assets offset by a $1.7 million gain on sale of assets in our Refrigeration & Food Equipment segment as a result of restructuring actions. These rightsizing charges were recorded in cost of goods and services and selling, general and administrative expenses in the Condensed Consolidated Statement of Earnings.
We recorded the following rightsizing costs for the three and nine months ended September 30, 2020:
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| Three Months Ended September 30, 2020 |
(dollars in thousands) | Engineered Products | | Fueling Solutions | | Imaging & Identification | | Pumps & Process Solutions | | Refrigeration & Food Equipment | | Corporate | | Total |
Restructuring (GAAP) | $ | 2,342 | | | $ | 1,572 | | | $ | 99 | | | $ | 1,719 | | | $ | 534 | | | $ | 474 | | | $ | 6,740 | |
Other costs (benefits), net | 33 | | | 43 | | | — | | | 52 | | | (1,505) | | | 485 | | | (892) | |
Rightsizing (Non-GAAP) | $ | 2,375 | | | $ | 1,615 | | | $ | 99 | | | $ | 1,771 | | | $ | (971) | | | $ | 959 | | | $ | 5,848 | |
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| Nine Months Ended September 30, 2020 |
(dollars in thousands) | Engineered Products | | Fueling Solutions | | Imaging & Identification | | Pumps & Process Solutions | | Refrigeration & Food Equipment | | Corporate | | Total |
Restructuring (GAAP) | $ | 6,860 | | | $ | 3,958 | | | $ | (167) | | | $ | 10,271 | | | $ | 3,307 | | | $ | 2,136 | | | $ | 26,365 | |
Other costs, net | 45 | | | 18 | | | 3 | | | 37 | | | 2,442 | | | 1,637 | | | 4,182 | |
Rightsizing (Non-GAAP) | $ | 6,905 | | | $ | 3,976 | | | $ | (164) | | | $ | 10,308 | | | $ | 5,749 | | | $ | 3,773 | | | $ | 30,547 | |
SEGMENT RESULTS OF OPERATIONS
The summary that follows provides a discussion of the results of operations of each of our five reportable operating segments (Engineered Products, Clean Energy & Fueling, Solutions, Imaging & Identification, Pumps & Process Solutions, and RefrigerationClimate & Food Equipment)Sustainability Technologies). Each of these segments is comprised of various product and service offerings that serve multiple markets. SeeWe evaluate our operating segment performance based on segment earnings as defined in Note 1716 — Segment Information in the Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q for a reconciliation of segment revenue and earnin10-Q.gs to our consolidated revenue and net earnings. For further information, see "Non-GAAP Disclosures" at the end of this Item 2.
Additionally, we use the following operational metrics in monitoring the performance of the business. We believe the operational metrics are useful to investors and other users of our financial information in assessing the performance of our segments:
•Bookings represent total orders received from customers in the current reporting period. This metric is an important measure of performance and an indicator of revenue order trends.
•Organic bookings represent total orders received from customers in the current reporting period excluding the impact of foreign currency exchange rates and the impact of acquisitions and dispositions. This metric is an important measure of performance and an indicator of revenue order trends.
•Backlog represents an estimate of the total remaining bookings at a point in time for which performance obligations have not yet been satisfied. This metric is useful as it represents the aggregate amount we expect to recognize as revenue in the future.
•Book-to-bill is a ratio of the amount of bookings received from customers during a period divided by the amount of revenue recorded during that same period. This metric is a useful indicator of demand.
Engineered Products
Our Engineered Products segment is a provider ofprovides a wide range of products,equipment, components, software, solutions and services that have broad customer applications across a number of markets, includingfor vehicle aftermarket, vehicle service, solid waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing.dispensing end-markets.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
(dollars in thousands) | (dollars in thousands) | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change | (dollars in thousands) | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change |
Revenue | Revenue | | $ | 447,798 | | | $ | 386,562 | | | 15.8 | % | | $ | 1,318,016 | | | $ | 1,137,102 | | | 15.9 | % | Revenue | | $ | 514,436 | | | $ | 442,091 | | | 16.4 | % | | $ | 1,002,083 | | | $ | 870,218 | | | 15.2 | % |
| Segment earnings (EBIT) | | $ | 71,717 | | | $ | 64,890 | | | 10.5 | % | | $ | 203,216 | | | $ | 181,686 | | | 11.9 | % | |
Depreciation and amortization | | 11,123 | | | 10,717 | | | 3.8 | % | | 37,151 | | | 30,561 | | | 21.6 | % | |
Segment EBITDA | | $ | 82,840 | | | $ | 75,607 | | | 9.6 | % | | $ | 240,367 | | | $ | 212,247 | | | 13.2 | % | |
Segment earnings | | Segment earnings | | $ | 81,671 | | | $ | 71,255 | | | 14.6 | % | | $ | 152,801 | | | $ | 147,939 | | | 3.3 | % |
| | Segment margin | Segment margin | | 16.0% | | 16.8% | | 15.4% | | 16.0% | | Segment margin | | 15.9% | | 16.1% | | 15.2% | | 17.0% | |
Segment EBITDA margin | | 18.5% | | 19.6% | | 18.2% | | 18.7% | | |
| Other measures: | | |
| Operational metrics: | | Operational metrics: | |
Bookings | Bookings | | $ | 502,767 | | | $ | 381,139 | | | 31.9 | % | | $ | 1,528,277 | | | $ | 1,074,484 | | | 42.2 | % | Bookings | | $ | 452,668 | | | $ | 497,200 | | | (9.0) | % | | $ | 993,703 | | | $ | 1,025,510 | | | (3.1) | % |
Backlog | Backlog | | $ | 662,834 | | | $ | 373,458 | | | 77.5 | % | Backlog | | $ | 759,589 | | | $ | 613,517 | | | 23.8 | % |
| Components of revenue growth: | Components of revenue growth: | | | | Components of revenue growth: | | | |
Organic growth | Organic growth | | | | | | 14.2 | % | | 13.3 | % | Organic growth | | | | | | 18.6 | % | | 16.6 | % |
Acquisitions | Acquisitions | | | | | | 0.2 | % | | 0.2 | % | Acquisitions | | | | | | 1.1 | % | | 1.2 | % |
| Foreign currency translation | Foreign currency translation | | | | | | 1.4 | % | | 2.4 | % | Foreign currency translation | | | | | | (3.3) | % | | (2.6) | % |
| | | | | | | 15.8 | % | | 15.9 | % | | | | | | | 16.4 | % | | 15.2 | % |
ThirdSecond Quarter 20212022 Compared to the ThirdSecond Quarter 20202021
Engineered Products segment revenue for the thirdsecond quarter of 20212022 increased $61.2$72.3 million, or 15.8%16.4%, as compared to the thirdsecond quarter of 2020,2021, comprised primarily of organic growth of 14.2%18.6%, acquisition-related growth of 1.1%, and a favorablean unfavorable impact from foreign currency translation of 1.4%3.3%. Customer pricing favorably impacted revenue in the second quarter of 2022 by approximately 6.5%10.3% compared to 2.7% in the third quarter. Pricing was higher than in prior quartersyear comparable quarter, reflecting actions to recover increasing costs, as discussed below.costs.
The organic revenue growth was most notable in our waste handling, vehicle service, industrial automation, and industrial automationwinch and hoist businesses. Our aerospace and defense business was down year-over-year asdriven by supply chain constraints, program timing, and a difficult comparable against record shipment levels in the business experienced push-outs of orders in Europe and continued labor and supplier component availability constraints that impacted shipments.prior year. Despite the strong organic growth and record highnear record-high backlog levels certainfor the segment, shipments in our waste handling and vehicle service groups were deferredcontinue to future quarters as a result ofbe challenged by supply chain and labor availability constraints. We expect shipment performanceanticipate organic revenue growth to continue into the second half of the year as demand remains strong in both businesses to improve in the coming quarters as these constraints begin to subside.several of our key end-markets, most notably waste handling and vehicle services.
Engineered Products segment earnings increased $6.8$10.4 million, or 10.5%14.6%, compared to the thirdsecond quarter of 2020.2021. The increase was primarily driven by conversion on increased volumes, benefits from rightsizingfavorable business mix, and customer pricing actions, and a payment received for costs related to a product line exit, partially offset by unfavorable business mix, higher material and logisticslogistic costs, most notably steel and ocean & air freightincreased labor costs, as well as plant productivity shortfalls resultingan unfavorable impact from supply chain disruption and higher labor costs.foreign currency translation. As a result, segment operating margin decreased 80 basis points to 16.0%15.9% from 16.8%16.1% as compared to the prior year quarter.
Bookings increased 31.9%decreased 9.0% for the segment, comprised primarily of organic growthdecline of 30.3% and a favorable8.3%, an unfavorable impact from foreign currency translation of 1.4%2.2%, partially offset by acquisition-related growth of 1.5%. The organic bookings growthdecline was broad-based, most notablydriven by declines in our vehicle service and waste handling industrial automation,businesses principally related to higher year-over-year comparables and industrial winch and hoist businesses.timing of orders in waste handling. Segment book-to-bill was 1.12.0.88. Backlog increased 77.5%23.8% compared to the prior year comparable quarter.period.
NineSix Months Ended SeptemberJune 30, 20212022 Compared to the NineSix Months Ended SeptemberJune 30, 20202021
Engineered Products revenue for the ninesix months ended SeptemberJune 30, 20212022 increased $180.9$131.9 million, or 15.9%15.2%, compared to the prior year comparable period. This was comprised of organic revenue growth of 13.3%16.6% and acquisition-related growth of 1.2%, a favorablepartially offset by an unfavorable impact from foreign currency translation of 2.4%, and acquisition-related growth of 0.2%2.6%. The organic revenue growth was most notable in our waste handling, vehicle service, industrial automation, and industrial winch and hoist businesses. Our aerospace and defense businesses.business was down year-over-year driven by program timing along with constrained labor availability and supply chain disruptions. Customer pricing favorably impacted revenue in the six months ended June 30, 2022 by approximately 3.2% for10.5% compared to 1.6% in the nine months ended September 30, 2021.prior comparable period.
Segment earnings for the ninesix months ended SeptemberJune 30, 20212022 increased $21.5$4.9 million, or 11.9%3.3%, as compared to the 20202021 comparable period. This increaseThe growth was primarily driven by conversion on increased volumes, favorable business mix, and benefits from productivity and rightsizingcustomer pricing actions, partially offset by higher material and logisticslogistic costs, comprised primarily of increased steel and freightlabor costs, which were not fully recovered by pricing actions.as well as an unfavorable impact from foreign currency translation. Segment margin decreased to 15.2% from 16.0% to 15.4%17.0% as compared to the prior year comparable period.
Clean Energy & Fueling
Our 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.
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| | Three Months Ended June 30, | | Six Months Ended June 30, |
(dollars in thousands) | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change |
Revenue | | $ | 494,075 | | | $ | 437,042 | | | 13.0 | % | | $ | 952,470 | | | $ | 826,720 | | | 15.2 | % |
| | | | | | | | | | | | |
Segment earnings | | $ | 99,034 | | | $ | 93,430 | | | 6.0 | % | | $ | 171,996 | | | $ | 173,002 | | | (0.6) | % |
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Segment margin | | 20.0% | | 21.4% | | | | 18.1% | | 20.9% | | |
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Operational metrics: | | | | | | | | | | | | |
Bookings | | $ | 487,861 | | | $ | 453,146 | | | 7.7 | % | | $ | 989,352 | | | $ | 875,814 | | | 13.0 | % |
Backlog | | | | | | | | $ | 411,350 | | | $ | 256,497 | | | 60.4 | % |
| | | | | | | | | | | | |
Components of revenue growth: | | | | | | | | | | | | |
Organic decline | | | | | | (1.1) | % | | | | | | (0.5) | % |
Acquisitions | | | | | | 17.3 | % | | | | | | 18.3 | % |
| | | | | | | | | | | | |
Foreign currency translation | | | | | | (3.2) | % | | | | | | (2.6) | % |
| | | | | | 13.0 | % | | | | | | 15.2 | % |
Second Quarter 2022 Compared to the Second Quarter 2021
Clean Energy & Fueling segment revenue for the second quarter of 2022 increased $57.0 million, or 13.0%, as compared to the second quarter of 2021, comprised of acquisition-related growth of 17.3%, an unfavorable impact from foreign currency translation of 3.2%, and an organic decline of 1.1%. Acquisition-related growth was driven by the acquisitions of AvaLAN Wireless Systems Incorporated, Liqal BV, Acme Cryogenics, and RegO. Customer pricing favorably impacted revenue in the second quarter of 2022 by approximately 5.4% compared to 2.5% in the prior year comparable quarter.
The modest organic revenue decline was primarily driven by reduced year-over-year demand in North America for EMV compliant equipment following the compliance deadline in the second quarter of 2021. This was mostly offset by solid demand in our North America retail fueling, fluid transfer solutions and vehicle wash solutions business, along with pricing actions aimed at mitigating material and logistics cost inflation. We anticipate organic revenue to increase in the second half of the year as demand remains constructive in our key end-markets, most notably the retail fueling, fluid transfer and vehicle wash businesses, and we anticipate improvements related to supply chain and logistics constraints.
Clean Energy & Fueling segment earnings increased $5.6 million, or 6.0%, over the prior year comparable quarter. The increase was primarily driven by pricing, productivity initiatives and cost actions, and the favorable impact from acquisitions, which more than offset the unfavorable impact to earnings from lower EMV related revenues and increased material, logistics and labor costs. Segment margin decreased to 20.0% from 21.4% in the prior year quarter.
Overall bookings increased 7.7% as compared to the prior year comparable quarter, driven by acquisition-related growth of 14.5% and partially offset by an organic decline of 4.6% and an unfavorable impact from foreign currency translation of 2.2%. The organic bookings decline was primarily driven by the decrease in demand for EMV compliant equipment, partially offset by strong order intake in our vehicle wash and North America retail fueling businesses. Segment book-to-bill was 0.99. Backlog increased 60.4% as compared to the prior year comparable period, driven in large part by the acquisitions completed in 2021.
Fueling Solutions
Our Fueling Solutions segment is focused on providing components, equipment and software and service solutions enabling safe transport of fuels and other hazardous fluids along the supply chain, as well as the safe and efficient operation of retail fueling and vehicle wash establishments.
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands) | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change |
Revenue | | $ | 410,561 | | | $ | 380,511 | | | 7.9 | % | | $ | 1,237,281 | | | $ | 1,066,988 | | | 16.0 | % |
| | | | | | | | | | | | |
Segment earnings | | $ | 65,593 | | | $ | 66,601 | | | (1.5) | % | | $ | 210,828 | | | $ | 167,313 | | | 26.0 | % |
Depreciation and amortization | | 19,920 | | | 18,014 | | | 10.6 | % | | 58,664 | | | 54,321 | | | 8.0 | % |
Segment EBITDA | | $ | 85,513 | | | $ | 84,615 | | | 1.1 | % | | $ | 269,492 | | | $ | 221,634 | | | 21.6 | % |
| | | | | | | | | | | | |
Segment margin | | 16.0% | | 17.5% | | | | 17.0% | | 15.7% | | |
Segment EBITDA margin | | 20.8% | | 22.2% | | | | 21.8% | | 20.8% | | |
| | | | | | | | | | | | |
Other measures: | | | | | | | | | | | | |
Bookings | | $ | 467,821 | | | $ | 383,902 | | | 21.9 | % | | $ | 1,343,635 | | | $ | 1,068,470 | | | 25.8 | % |
Backlog | | | | | | | | $ | 312,176 | | | $ | 204,574 | | | 52.6 | % |
| | | | | | | | | | | | |
Components of revenue growth: | | | | | | | | | | | | |
Organic growth | | | | | | 3.0 | % | | | | | | 9.7 | % |
Acquisitions | | | | | | 3.6 | % | | | | | | 3.5 | % |
| | | | | | | | | | | | |
Foreign currency translation | | | | | | 1.3 | % | | | | | | 2.8 | % |
| | | | | | 7.9 | % | | | | | | 16.0 | % |
Third Quarter 2021Six Months Ended June 30, 2022 Compared to the Third Quarter 2020Six Months Ended June 30, 2021
Clean Energy & Fueling Solutions segment revenue for the third quarter of 2021revenue increased $30.1$125.8 million, or 7.9%15.2%, as compared to the third quarter of 2020, comprised of organicsix months ended June 30, 2021, attributable to acquisition-related growth of 3.0%18.3%, a favorablepartially offset by an unfavorable impact from foreign currency translation of 1.3%2.6%, and acquisition-related growthan organic decline of 3.6%0.5%. Acquisition-related growth was drivenOrganic revenue remained relatively flat for the first half of the year with strong demand in our retail fueling, fluid transfer, and vehicle wash solutions markets being offset by the acquisitionnormalization of Innovative Control Systems, Inc. and AvaLAN Wireless Systems Incorporated.EMV related demand in North America. Customer pricing favorably impacted revenue by approximately 2.0%in the third quarter.six months ended June 30, 2022 by approximately 4.2% compared to 1.8% in the prior comparable period.
The organic revenue growth for theClean Energy & Fueling Solutions segment was driven by solid demand in our North American and EMEA retail fueling and vehicle wash solutions businesses, partially offset by continued softness in Asian retail fueling and transportation components. Supply chain challenges and labor availability headwinds during the third quarter adversely affected our ability to ship customer orders, inhibiting further contributions to organic revenue growth.
Fueling Solutions segment earnings decreased $1.0 million, or 1.5%0.6%, overfor the prior year comparable quarter.six months ended June 30, 2022. The decrease was primarily driven by lower organic revenues, increased material, logistics and labor cost inflation as well as negative product mix,costs, and an unfavorable impact from foreign currency translation. This was partially offset by pricing initiatives, productivity actions benefits from restructuringhigher pricing, productivity initiatives and cost actions, and a favorable impact from acquisitions. Segment margin decreased to 16.0%18.1% from 17.5% in the prior year quarter due to similar factors that drove segment earnings.
Overall bookings increased 21.9% as compared to the prior year comparable quarter, driven by organic growth of 15.8%, a favorable impact from foreign currency translation of 1.9%, and acquisition-related growth of 4.2%. Organic bookings growth was primarily driven by strong demand for retail fueling solutions in North America and Asia-Pacific, and continued order strength in vehicle wash solutions. Segment book to bill was 1.14. Backlog increased 52.6% as compared to the prior year comparable quarter.
Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020
Fueling Solutions segment revenue increased $170.3 million, or 16.0%, as compared to the nine months ended September 30, 2020, attributable to organic growth of 9.7%, a favorable impact from foreign currency translation of 2.8%, and acquisition-related growth of 3.5%. Organic revenue increases were driven by strong activity in our retail fueling and vehicle wash solutions businesses, given the broader market recovery due to reduced demand beginning in the first quarter and continuing through the third quarter of 2020 due to COVID-19. Customer pricing favorably impacted revenue by approximately 1.8% for the nine months ended September 30, 2021.
Fueling Solutions segment earnings increased $43.5 million, or 26.0%, for the nine months ended September 30, 2021. The increase was driven by conversion on organic revenue growth, pricing initiatives, productivity actions, and a favorable impact from acquisitions, partially offset by material and labor cost inflation. Segment margin increased 136 basis points to 17.0% from 15.7%20.9% in the prior year comparable period.
Imaging & Identification
Our 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.services to the global packaged and consumer goods, pharmaceutical, industrial manufacturing, fashion and apparel and other end-markets.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
(dollars in thousands) | (dollars in thousands) | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change | (dollars in thousands) | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change |
Revenue | Revenue | | $ | 292,535 | | | $ | 265,690 | | | 10.1 | % | | $ | 870,939 | | | $ | 750,432 | | | 16.1 | % | Revenue | | $ | 275,951 | | | $ | 294,076 | | | (6.2) | % | | $ | 548,206 | | | $ | 578,404 | | | (5.2) | % |
| Segment earnings | Segment earnings | | $ | 63,419 | | | $ | 51,928 | | | 22.1 | % | | $ | 181,158 | | | $ | 141,456 | | | 28.1 | % | Segment earnings | | $ | 61,392 | | | $ | 66,565 | | | (7.8) | % | | $ | 119,990 | | | $ | 130,183 | | | (7.8) | % |
Depreciation and amortization | | 9,821 | | | 9,809 | | | 0.1 | % | | 28,708 | | | 27,802 | | | 3.3 | % | |
Segment EBITDA | | $ | 73,240 | | | $ | 61,737 | | | 18.6 | % | | $ | 209,866 | | | $ | 169,258 | | | 24.0 | % | |
| | Segment margin | Segment margin | | 21.7% | | 19.5% | | 20.8% | | 18.8% | | Segment margin | | 22.2% | | 22.6% | | 21.9% | | 22.5% | |
Segment EBITDA margin | | 25.0% | | 23.2% | | 24.1% | | 22.6% | | |
| Other measures: | | |
| Operational metrics: | | Operational metrics: | |
Bookings | Bookings | | $ | 293,782 | | | $ | 266,423 | | | 10.3 | % | | $ | 887,004 | | | $ | 760,342 | | | 16.7 | % | Bookings | | $ | 292,136 | | | $ | 299,608 | | | (2.5) | % | | $ | 599,240 | | | $ | 593,222 | | | 1.0 | % |
Backlog | Backlog | | $ | 204,766 | | | $ | 171,158 | | | 19.6 | % | Backlog | | $ | 255,255 | | | $ | 206,125 | | | 23.8 | % |
| Components of revenue growth: | | | | | | |
Organic growth | | | | | | 7.4 | % | | 10.0 | % | |
Components of revenue decline: | | Components of revenue decline: | | | | | |
Organic decline | | Organic decline | | | | | | (0.9) | % | | (1.0) | % |
Acquisitions | Acquisitions | | | | | | 1.2 | % | | 1.6 | % | Acquisitions | | | | | | 0.5 | % | | 0.4 | % |
| Foreign currency translation | Foreign currency translation | | | | | | 1.5 | % | | 4.5 | % | Foreign currency translation | | | | | | (5.8) | % | | (4.6) | % |
| | | | | | | 10.1 | % | | 16.1 | % | | | | | | | (6.2) | % | | (5.2) | % |
ThirdSecond Quarter 20212022 Compared to the ThirdSecond Quarter 20202021
Imaging & Identification segment revenue for the thirdsecond quarter of 2021 increased $26.82022 decreased $18.1 million, or 10.1%6.2%, as compared to the thirdsecond quarter of 2020,2021, comprised of organic growth of 7.4%, a favorablean unfavorable impact from foreign currency translation of 1.5%5.8% and an organic decline of 0.9%, andpartially offset by acquisition-related growth of 1.2%0.5%. Acquisition-related growth was driven by the acquisitions of Solaris Laser S.A. in the third quarter of 2020 andacquisition of Blue Bite LLCLLC. Customer pricing favorably impacted revenue in the second quarter of 2021. Customer pricing favorably impacted revenue2022 by approximately 0.7%3.2% compared to 1.1% in the thirdprior year comparable quarter.
OrganicThe organic revenue growthdecline was primarily driven by bothcontinued sourced component shortages and logistics headwinds in our marking and coding business, which was most notably impacted by component shortages that arose due to the COVID-19 related lockdowns in China. These lockdowns also impacted underlying demand in Asia. This was partially offset by increased revenue in our serialization and our digital textile printingbrand management software business. OurWe expect deliveries in our marking and coding business delivered continued solid growthto improve in new equipmentthe second half, as component availability improves, China restrictions ease, and associated servicesunderlying demand for our printers and consumables as well as serialization software sales. Our digital textile printing business experienced gradual demand recovery compared to the third quarter of 2020 when demand for printed textiles was significantly reduced due to the impact of COVID-19 restrictions on the global apparel industry. While current global apparel retail volumes have improved substantially from this time last year, volumes have not yet returned to pre-pandemic levels and continue to be impacted by local business and travel restrictions, as well as work-from-home policies. We continue to believe we remain favorably positioned to gain from a longer-term transition from analog to digital printing by our customers, and believe some business model shifts within the industry driven by the COVID-19 pandemic may accelerate our customers’ need to shift from analog to digital printing.remains positive.
Imaging & Identification segment earnings increased $11.5decreased $5.2 million, or 22.1%7.8%, over the prior year comparable quarter. This increasedecrease was primarily driven by conversion on increased revenue reductions stemming from supply chain and thelogistics constraints, input cost inflation, and unfavorable foreign exchange, partially offset by pricing initiatives, productivity actions, restructuring benefits, from productivity initiatives and restructuring actions.cost containment. Segment margin increaseddecreased to 21.7%22.2% from 19.5%22.6% in the prior year comparable quarter.
Overall bookings increased 10.3%decreased 2.5% as compared to the prior year comparable quarter, reflecting organic growth of 7.5%, a favorablean unfavorable impact from foreign currency translation of 1.7%,5.5% offset by organic growth of 2.6% and acquisition-related growth of 1.1%0.4%. Organic bookings growth was primarily driven by solid demand for new equipment and associated services and consumables in our marking and coding business. Segment book to billbook-to-bill was 1.00.1.06. Backlog increased 19.6%23.8% as compared to the prior year quarter primarily driven by increased order intake in our marking and coding business.period.
NineSix Months Ended SeptemberJune 30, 20212022 Compared to the NineSix Months Ended SeptemberJune 30, 20202021
Imaging & Identification segment revenue increased $120.5decreased $30.2 million, or 16.1%5.2%, as compared to the ninesix months ended SeptemberJune 30, 2020,2021, attributable to organic growth of 10.0%, a favorablean unfavorable impact from foreign currency translation of 4.5%4.6% and an organic decline of 1.0%, partially offset by acquisition-related growth of 0.4%. The organic revenue decline was primarily driven by supply chain and logistics headwinds in our marking and coding business, most notably due to the COVID-19 related lockdowns in China which also
acquisition-related growth of 1.6%. The organic revenue growth was primarily driven by continued strongimpacted underlying demand for marking and coding equipment and associated services and consumables, serialization software sales, as well as a continuing gradual recovery in demand for printed textiles.Asia. Customer pricing favorably impacted revenue in the six months ended June 30, 2022 by approximately 0.9% for2.6% compared to 1.0% in the nine months ended September 30, 2021.prior comparable period.
Imaging & Identification segment earnings increased $39.7decreased $10.2 million, or 28.1%7.8%, for the ninesix months ended SeptemberJune 30, 20212022 over the prior year comparable period. The increasedecrease was primarily driven by conversion on increased revenuethe earnings impact from lower revenues, higher input costs, and theunfavorable foreign exchange impacts, partially offset by cost reduction initiatives, price increases, restructuring benefits, from productivity initiatives and restructuring actions.cost containment. Segment margin increaseddecreased to 20.8%21.9% from 18.8%22.5% in the prior year comparable quarter.
Pumps & Process Solutions
Our 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(dollars in thousands) | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change |
Revenue | | $ | 441,127 | | | $ | 428,701 | | | 2.9 | % | | $ | 876,322 | | | $ | 823,078 | | | 6.5 | % |
| | | | | | | | | | | | |
Segment earnings | | $ | 138,048 | | | $ | 146,759 | | | (5.9) | % | | $ | 284,665 | | | $ | 275,654 | | | 3.3 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Segment margin | | 31.3% | | 34.2% | | | | 32.5% | | 33.5% | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Operational metrics: | | | | | | | | | | | | |
Bookings | | $ | 471,693 | | | $ | 521,010 | | | (9.5) | % | | $ | 931,483 | | | $ | 1,072,375 | | | (13.1) | % |
Backlog | | | | | | | | $ | 715,646 | | | $ | 634,477 | | | 12.8 | % |
| | | | | | | | | | | | |
Components of revenue growth: | | | | | | | | | | |
Organic growth | | | | | | 6.8 | % | | | | | | 9.6 | % |
Acquisitions | | | | | | 0.4 | % | | | | | | 0.3 | % |
| | | | | | | | | | | | |
Foreign currency translation | | | | | | (4.3) | % | | | | | | (3.4) | % |
| | | | | | 2.9 | % | | | | | | 6.5 | % |
Second Quarter 2022 Compared to the Second Quarter 2021
Pumps & Process Solutions segment revenue for the second quarter of 2022 increased $12.4 million, or 2.9%, as compared to the second quarter of 2021, comprised of organic growth of 6.8%, acquisition-related growth of 0.4%, and an unfavorable impact from foreign currency translation of 4.3%. Acquisition-related growth was primarily driven by the acquisition of AMN Dpi, Quantex Arc Limited, and one other immaterial acquisition. Customer pricing favorably impacted revenue in the second quarter of 2022 by approximately 3.4% compared to 1.3% in the prior year comparable quarter.
The organic revenue growth was driven by pricing initiatives, along with continued strength in our core non-COVID-19 biopharma platform, industrial pumps, plastics and polymer processing solutions, and bearings and compression components businesses which all saw revenue growth driven by robust end market demand and strong backlogs. Revenue from shipments of single-use pumps and connectors used in biopharmaceutical production processes declined compared to the second quarter of 2021, as biopharmaceutical manufacturers reduced orders for components used in COVID-19 vaccine production. Additionally, COVID-19 related lockdowns affected our supply chain in China and negatively impacted revenues in the second quarter. While underlying demand remains positive in our core biopharmaceutical platform, we expect sales of products used in the production of COVID-19 vaccines to continue to decline in the second half of 2022.
Pumps & Process Solutions segment earnings decreased $8.7 million, or 5.9%, over the prior year comparable quarter. The decrease was primarily driven by the impact of reduced revenues relating to single use components used in COVID-19 vaccine production, along with material and labor cost inflation. This was partially offset by pricing initiatives, conversion on increased revenues in industrial pumps, plastics and polymer processing solutions, and bearings and compression components, productivity actions, and restructuring benefits. Segment margin decreased to 31.3% from 34.2% from the prior year comparable period mainly due to revenue mix within the segment.
Overall bookings decreased 9.5% as compared to the prior year comparable quarter, reflecting an organic decline of 6.5%, an unfavorable impact from foreign currency translation of 3.4%, and acquisition-related growth of 0.4%. The organic bookings decline was driven by a decrease in orders for biopharmaceutical components used in COVID-19 vaccine production, but partially offset by record order intake levels in our plastics and polymer processing business. Segment book-to-bill was 1.07. Backlog increased 12.8% compared to the prior year comparable quarter, driven by strong order rates in our plastics and polymer processing solutions and bearings and compression components businesses.
Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021
Pumps & Process Solutions segment revenue increased $53.2 million, or 6.5%, as compared to the six months ended June 30, 2021, attributable to organic growth of 9.6% and acquisition-related growth of 0.3%, partially offset by an unfavorable impact from foreign currency translation of 3.4%. The organic growth was primarily driven by continued demand strength and strong backlogs entering the year in our core non-COVID-19 biopharma platform, industrial pumps, plastics and polymer processing solutions, and bearings and compression components businesses. The increase was partially offset by reduced demand for biopharmaceutical components used in COVID-19 vaccine production. Customer pricing favorably impacted revenue in the six months ended June 30, 2022 by approximately 3.5% compared to 1.1% in the prior comparable period.
Pumps & Process Solutions segment earnings increased $9.0 million, or 3.3%, for the six months ended June 30, 2022 over the prior year comparable period, predominantly driven by conversion on higher revenues, pricing initiatives, productivity actions, and restructuring benefits, but partially offset by an unfavorable impact from material and labor cost inflation, and an unfavorable impact from foreign exchange. Segment margin decreased to 32.5% from 33.5% from the prior year comparable period.
Climate & Sustainability Technologies
Our 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(dollars in thousands) | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change |
Revenue | | $ | 434,164 | | | $ | 430,506 | | | 0.8 | % | | $ | 833,242 | | | $ | 802,583 | | | 3.8 | % |
| | | | | | | | | | | | |
Segment earnings | | $ | 64,181 | | | $ | 56,905 | | | 12.8 | % | | $ | 117,790 | | | $ | 100,380 | | | 17.3 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Segment margin | | 14.8% | | 13.2% | | | | 14.1% | | 12.5% | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Operational metrics: | | | | | | | | | | | | |
Bookings | | $ | 403,574 | | | $ | 606,545 | | | (33.5) | % | | $ | 848,426 | | | $ | 1,143,871 | | | (25.8) | % |
Backlog | | | | | | | | $ | 1,186,180 | | | $ | 854,188 | | | 38.9 | % |
| | | | | | | | | | | | |
Components of revenue growth: | | | | | | | | | | | | |
Organic growth | | | | | | 11.4 | % | | | | | | 14.2 | % |
| | | | | | | | | | | | |
Dispositions | | | | | | (8.0) | % | | | | | | (8.1) | % |
Foreign currency translation | | | | | | (2.6) | % | | | | | | (2.3) | % |
| | | | | | 0.8 | % | | | | | | 3.8 | % |
Second Quarter 2022 Compared to the Second Quarter 2021
Climate & Sustainability Technologies segment revenue increased $3.7 million, or 0.8%, as compared to the second quarter of 2021, reflecting organic revenue growth of 11.4%, offset by 8.0% from our disposition of Unified Brands in fourth quarter of 2021, and an unfavorable impact from foreign currency translation of 2.6%. Customer pricing favorably impacted revenue in the second quarter of 2022 by approximately 9.5% compared to 2.6% in the prior year comparable quarter, reflecting actions to recover higher costs.
The organic revenue growth was driven by customer price actions implemented to recover increased material and logistics costs combined with strong demand across most of our key end-markets. Retail refrigeration revenues increased from the prior year, driven by customer pricing actions on flat unit volumes despite robust end market demand, as industry-wide supply chain constraints resulted in deferred shipments that are anticipated to be recovered in the second half of the year as supply chain availability improves. Beverage can-making business revenues experienced strong growth, driven by continued favorable macro trends in the global beverage industry as producers shift from plastic and glass packaging to aluminum cans for environmental sustainability and merchandising benefits offered by modern aluminum cans. During the quarter, this business terminated a contract due to customer financing limitations, resulting in non-refundable deposits recognized in revenue and segment earnings. Our heat exchanger business experienced healthy growth across all regions, fueled by regulation-driven heat pump demand in Europe, robust demand in Asia and strengthening commercial HVAC and industrial markets globally.
Climate & Sustainability Technologies segment earnings increased $7.3 million, or 12.8%, as compared to the second quarter of 2021. Segment margin increased to 14.8% from 13.2% in the prior year comparable quarter. The earnings increase was driven by increased volumes, favorable business mix, and customer pricing actions, partially offset by increased material and logistics costs, most notably metals and freight, plant productivity shortfalls resulting from supply chain disruption and increased labor costs, and the disposition of Unified Brands in the fourth quarter of 2021.
Bookings in the second quarter of 2022 decreased 33.5% from the prior year comparable quarter, reflecting organic decline of 24.1%, a disposition-related decline of 7.2%, and an unfavorable impact from foreign currency translation of 2.2%. The organic bookings decline includes a $74.0 million reversal of an order slated for 2023 completion in our beverage can-making business due to customer financing limitations, along with a challenging comparable quarter in the prior year, especially in retail refrigeration. Segment book-to-bill for the second quarter of 2022 was 0.93. Backlog increased 38.9% over the prior year comparable period, reflective of the improving outlook across all businesses within the segment, which more than offset the order reversal in our beverage can-making business.
Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021
Climate & Sustainability Technologies segment revenue increased $30.7 million, or 3.8%, compared to the six months ended June 30, 2021, reflecting an organic revenue growth of 14.2%, an 8.1% decline from the dispositions of AMS Chino and Unified Brands and an unfavorable foreign currency translation of 2.3%. The organic revenue growth for the six months ended June 30, 2022 was driven by robust demand across all our key end-markets. Retail refrigeration revenues increased from the prior year, driven by robust remodel programs with key supermarket customers and continued growing demand for our environmentally friendly natural refrigerant systems in Europe. Our beverage equipment business experienced strong revenue growth, driven by continued favorable macro trends in the global beverage industry as producers shift from plastic and glass packaging to aluminum cans for environmental sustainability and merchandising benefits offered by modern aluminum cans. The beverage can-making business terminated a contract due to customer financing limitations, resulting in non-refundable deposits recognized in revenue and segment earnings. Our heat exchanger business experienced healthy growth across all regions, fueled by regulation-driven heat pump demand in Europe, robust demand in Asia and strengthening commercial HVAC and industrial markets globally. Customer pricing favorably impacted revenue in the six months ended June 30, 2022 by approximately 9.4% compared to 1.4% in the prior comparable period.
Climate & Sustainability Technologies segment earnings increased $17.4 million, or 17.3%, for the six months ended June 30, 2022, as compared to the prior year comparable period. Segment margin increased to 14.1% from 12.5% in the prior year. The earnings increase was driven by increased volumes, favorable business mix, and customer pricing actions, partially offset by increased material and logistics costs, most notably metals and freight, plant productivity shortfalls resulting from supply chain disruption and increased labor costs, and the disposition of Unified Brands in Q4, 2021.
Pumps & Process SolutionsReconciliation of Segment Earnings to Net Earnings
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | | | | 2022 | | 2021 | | 2022 | | 2021 |
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.
Our Pumps & Process Solutions segment manufactures specialty industrial pumps, fluid handling components, plastics and polymer processing equipment, single use pumps, flow meters and connectors for biopharma(2) Restructuring and other hygienic applications,costs relate to actions taken for employee reductions, facility consolidations and highly engineered components for rotatingsite closures, product line exits, and reciprocating machines.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands) | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change |
Revenue | | $ | 438,240 | | | $ | 347,875 | | | 26.0 | % | | $ | 1,261,318 | | | $ | 976,506 | | | 29.2 | % |
| | | | | | | | | | | | |
Segment earnings | | $ | 142,414 | | | $ | 89,786 | | | 58.6 | % | | $ | 404,691 | | | $ | 223,567 | | | 81.0 | % |
Depreciation and amortization | | 17,843 | | | 17,206 | | | 3.7 | % | | 51,635 | | | 53,114 | | | (2.8) | % |
Segment EBITDA | | $ | 160,257 | | | $ | 106,992 | | | 49.8 | % | | $ | 456,326 | | | $ | 276,681 | | | 64.9 | % |
| | | | | | | | | | | | |
Segment margin | | 32.5% | | 25.8% | | | | 32.1% | | 22.9% | | |
Segment EBITDA margin | | 36.6% | | 30.8% | | | | 36.2% | | 28.3% | | |
| | | | | | | | | | | | |
Other measures: | | | | | | | | | | | | |
Bookings | | $ | 490,581 | | | $ | 323,801 | | | 51.5 | % | | $ | 1,562,956 | | | $ | 969,076 | | | 61.3 | % |
Backlog | | | | | | | | $ | 682,415 | | | $ | 361,631 | | | 88.7 | % |
| | | | | | | | | | | | |
Components of revenue growth: | | | | | | | | | | |
Organic growth | | | | | | 24.6 | % | | | | | | 25.4 | % |
Acquisitions | | | | | | 0.2 | % | | | | | | 0.7 | % |
| | | | | | | | | | | | |
Foreign currency translation | | | | | | 1.2 | % | | | | | | 3.1 | % |
| | | | | | 26.0 | % | | | | | | 29.2 | % |
other asset charges.
(3) Loss on disposition includes working capital adjustments related to dispositions.
Third Quarter 2021 Compared(4) Certain expenses are maintained at the corporate level and not allocated to the Third Quarter 2020
Pumps & Process Solutions segment revenue for the third quarter of 2021 increased $90.4 million, or 26.0%, as comparedsegments. 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 third quarter of 2020, comprised of organic growth of 24.6%, a favorable impact from foreign currency translation of 1.2%, and acquisition-related growth of 0.2%. Acquisition-related growth was primarily driven by the acquisition of Quantex Arc Limited and one other immaterial acquisition. Customer pricing favorably impacted revenue by approximately 2.3% in the third quarter.corporate headquarters.
The organic revenue growth was primarily driven by continued robust demand in the biopharmaRestructuring and hygienic markets, where we saw continued strong demand for single use pumps and connectors used in biopharmaceutical production processes. Our industrial pumps business also contributed to top-line growth on strong end market demand, despite experiencing supply chain constraints and customer delivery challenges throughout the quarter. Revenue in bearings and compression components saw solid growth amidst continued recovery in end market demand. Demand in our plastics and polymer processing solutions business remained strong, however revenues declined year over year on the timing of customer shipments and high revenue in the prior year comparable quarter. We expect the broad-based strength across all our pumps and process solutions businesses to carry into the next quarter and beyond.Other Costs (Benefits)
Pumps & Process SolutionsRestructuring and other costs (benefits) are not presented in our segment earnings increased $52.6 million, or 58.6%, over the prior year comparable quarter. The increase was primarily driven by strong conversion on revenue growth, product mix, pricing initiatives, and productivity actions, partially offset by material and labor cost inflation. Segment margin increased to 32.5% from 25.8%because these costs are excluded from the prior year comparable quarter.
Overall bookings increased 51.5% as comparedsegment operating performance measure reviewed by management. Restructuring and other costs of $7.9 million for the three months ended June 30, 2022 were primarily due to headcount reductions and facility consolidations resulting from restructuring programs initiated in 2021 and 2022, and asset write-downs. For the prior year comparable quarter, reflecting organic growthsix months ended June 30, 2022, substantial liquidation and exit from certain Latin America countries in our Climate & Sustainability Technologies segment contributed to restructuring expenses of 50.1%$12.5 million and other costs (benefits), a favorable impact fromnet of $6.0 million, comprised primarily of foreign currency translation losses and asset write-downs. These restructuring and other charges were recorded in cost of 1.1%,goods and acquisition-related growth of 0.3%. Organic bookings growth was driven by significant growthservices and selling, general and administrative expenses in the biopharma and hygienic pumps and connectors markets, as well as strong order intake in industrial pumps and plastics & polymer processing solutions, and increased demand in bearings and compression components. Segment book to bill was 1.12. Backlog increased 88.7% compared toCondensed Consolidated Statement of Earnings. Additional programs beyond the prior year comparable quarter.scope of the announced programs may be implemented during 2022 with related restructuring charges.
Nine Months Ended SeptemberWe recorded the following restructuring and other costs for the three and six months ended June 30, 2021 Compared to the Nine Months Ended September 30, 20202022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
(dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
Restructuring | $ | 524 | | | $ | 1,423 | | | $ | 344 | | | $ | 1,476 | | | $ | 159 | | | $ | 383 | | | $ | 4,309 | |
Other costs, net | 2,377 | | | 5 | | | 963 | | | 1 | | | 107 | | | 182 | | | 3,635 | |
Restructuring and other costs | $ | 2,901 | | | $ | 1,428 | | | $ | 1,307 | | | $ | 1,477 | | | $ | 266 | | | $ | 565 | | | $ | 7,944 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
(dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
Restructuring | $ | 981 | | | $ | 1,619 | | | $ | 1,535 | | | $ | 2,161 | | | $ | 5,875 | | | $ | 295 | | | $ | 12,466 | |
Other costs (benefits), net | 2,429 | | | (1) | | | 1,149 | | | 2 | | | 2,224 | | | 227 | | | 6,030 | |
Restructuring and other costs | $ | 3,410 | | | $ | 1,618 | | | $ | 2,684 | | | $ | 2,163 | | | $ | 8,099 | | | $ | 522 | | | $ | 18,496 | |
During the three and six months ended June 30, 2021, restructuring and other activities included restructuring charges of $9.4 million and $15.9 million, respectively, and other costs (benefits) of $1.3 million and $(0.9) million, respectively. Restructuring expense and other costs were comprised primarily of new actions initiated in 2020 and 2021 in response to demand conditions, asset charges related to a product line exit and broad-based operational efficiency initiatives focusing on footprint consolidation and IT centralization. Other costs (benefits), net for the six months ended June 30, 2021 was comprised primarily of a gain on sale of assets of $2.0 million and $1.3 million in our Pumps & Process Solutions segment revenue increased $284.8and Climate & Sustainability Technologies segments, respectively, as a result of restructuring actions, partially offset by $2.4 million or 29.2%, as compared to the nine months ended September 30, 2020, attributable to organic growth of 25.4%, a favorable impact from foreign currency translationrestructuring related costs. These restructuring and other charges were recorded in cost of 3.1%goods and a 0.7% impact from acquisitions. The organic increase was principally driven by strong performanceservices and selling, general and administrative expenses in the biopharma and hygienic pumps and connectors markets, along with solid growth in industrial pumps and plastics & polymer processing solutions. Customer pricing favorably impacted revenue by approximately 1.5% for the nine months ended September 30, 2021.Condensed Consolidated Statement of Earnings.
Pumps & Process Solutions segment earnings increased $181.1 million, or 81.0%,We recorded the following restructuring and other costs for the ninethree and six months ended SeptemberJune 30, 2021 over the prior year comparable period. The increase was predominantly driven by conversion on revenue growth, product mix, pricing initiatives, and productivity actions, partially offset by material and labor cost inflation. Segment margin increased to 32.1% from 22.9% from the prior year comparable period.:
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| Three Months Ended June 30, 2021 |
(dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
Restructuring | $ | 4,339 | | | $ | 1,415 | | | $ | 174 | | | $ | 904 | | | $ | 2,283 | | | $ | 321 | | | $ | 9,436 | |
Other costs (benefits), net | 315 | | | 242 | | | 4 | | | (5) | | | 256 | | | 531 | | | 1,343 | |
Restructuring and other costs | $ | 4,654 | | | $ | 1,657 | | | $ | 178 | | | $ | 899 | | | $ | 2,539 | | | $ | 852 | | | $ | 10,779 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
(dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
Restructuring | $ | 8,330 | | | $ | 1,464 | | | $ | 864 | | | $ | 887 | | | $ | 3,344 | | | $ | 982 | | | $ | 15,871 | |
Other costs (benefits), net | 343 | | | 251 | | | (4) | | | (1,994) | | | (843) | | | 1,317 | | | (930) | |
Restructuring and other costs (benefits) | $ | 8,673 | | | $ | 1,715 | | | $ | 860 | | | $ | (1,107) | | | $ | 2,501 | | | $ | 2,299 | | | $ | 14,941 | |
Refrigeration & Food Equipment
Our Refrigeration & Food Equipment segment is a provider of innovative and energy-efficient equipment and systems that serve the commercial refrigeration, heating and cooling and food equipment markets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands) | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change |
Revenue | | $ | 429,425 | | | $ | 368,395 | | | 16.6 | % | | $ | 1,232,008 | | | $ | 973,835 | | | 26.5 | % |
| | | | | | | | | | | | |
Segment earnings(1) | | $ | 42,841 | | | $ | 40,159 | | | 6.7 | % | | $ | 129,929 | | | $ | 75,147 | | | 72.9 | % |
Depreciation and amortization | | 12,392 | | | 12,081 | | | 2.6 | % | | 36,565 | | | 35,050 | | | 4.3 | % |
Segment EBITDA(1) | | $ | 55,233 | | | $ | 52,240 | | | 5.7 | % | | $ | 166,494 | | | $ | 110,197 | | | 51.1 | % |
| | | | | | | | | | | | |
Segment margin(1) | | 10.0% | | 10.9% | | | | 10.5% | | 7.7% | | |
Segment EBITDA margin(1) | | 12.9% | | 14.2% | | | | 13.5% | | 11.3% | | |
| | | | | | | | | | | | |
Other measures: | | | | | | | | | | | | |
Bookings | | $ | 540,280 | | | $ | 449,549 | | | 20.2 | % | | $ | 1,684,151 | | | $ | 1,131,106 | | | 48.9 | % |
Backlog | | | | | | | | $ | 964,233 | | | $ | 472,140 | | | 104.2 | % |
| | | | | | | | | | | | |
Components of revenue growth: | | | | | | | | | | | | |
Organic growth | | | | | | 16.0 | % | | | | | | 25.1 | % |
| | | | | | | | | | | | |
Dispositions | | | | | | — | % | | | | | | (0.5) | % |
Foreign currency translation | | | | | | 0.6 | % | | | | | | 1.9 | % |
| | | | | | 16.6 | % | | | | | | 26.5 | % |
(1) Segment earnings (EBIT) and Segment EBITDA for the three and nine months ended September 30, 2020 include a $557 expense and a $5,213 net gain on the sale of AMS Chino, respectively. The nine months ended September 30, 2020 also include a $3,640 write-off of assets.
Third Quarter 2021 Compared to the Third Quarter 2020
Refrigeration & Food Equipment segment revenue increased $61.0 million, or 16.6%, as compared to the third quarter of 2020, reflecting organic revenue growth of 16.0% and a favorable impact from foreign currency translation of 0.6%. Customer pricing favorably impacted revenue by approximately 5.7% in the third quarter. Pricing was higher than in prior quarters reflecting actions to recover increasing costs, as discussed below.
The organic revenue growth was principally driven by robust demand across all our key end-markets. Can-shaping equipment revenues more than doubled from prior year, driven by continued favorable macro trends in the global beverage industry as producers shift from plastic and glass packaging to aluminum containers for environmental sustainability and merchandising benefits offered by modern aluminum containers. Our heat exchanger business experienced healthy growth across all regions, fueled by regulation-driven heat pump demand in Europe, robust demand in Asia and strengthening commercial HVAC and industrial markets globally. Commercial foodservice equipment revenues improved over the comparable prior year period, as many key restaurant chain customers resumed store investment programs once government mandated COVID-19 restrictions began to ease. Retail refrigeration experienced broad based growth as well, driven by robust remodel programs with key supermarket customers and strong growth for our natural refrigerant systems in both Europe and the U.S.
Refrigeration & Food Equipment segment earnings increased $2.7 million, or 6.7%, as compared to the third quarter of 2020. Segment margin decreased to 10.0% from 10.9% in the prior year comparable quarter. The earnings increase was driven by conversion on increased volumes and mix, improved operational efficiencies and benefits from prior restructuring programs, offset by increased material and logistics costs, most notably metals, and plant productivity shortfalls resulting from supply chain disruption and increased labor costs most significantly in our retail refrigeration business. We expect the impact of increased metals costs and productivity shortfalls in retail refrigeration to continue into the next quarter.
Bookings in the third quarter of 2021 increased 20.2% from the prior year comparable quarter, reflecting organic growth of 19.7% and a favorable impact from foreign currency translation of 0.5%. The organic bookings growth was principally driven by continued supermarket remodel programs in retail refrigeration and strong global demand for brazed plate heat exchangers.
Segment book to bill for the third quarter of 2021 was 1.26. Backlog increased 104.2% over the prior year comparable quarter, reflective of the improving outlook across all businesses within the segment.Purchase Accounting Expenses
Nine Months Ended September 30, 2021 ComparedPurchase accounting expenses primarily relate to amortization of acquired assets and charges related to fair value step-ups for acquired inventory sold during the Nine Months Ended September 30, 2020
Refrigeration & Food Equipmentperiod. These expenses are not presented in our segment revenue increased $258.2 million, or 26.5%, compared to the nine months ended September 30, 2020, reflecting an organic revenue growth of 25.1% and a favorable foreign currency translation of 1.9%, partially offset by a 0.5% impactearnings because they are excluded from the disposition of AMS Chino. The organic revenue growth for the nine months ended September 30, 2021 was drivensegment operating performance measure reviewed by strong growth across our key end markets, most notably retail refrigeration, can-shaping equipment and heat exchangers. Commercial foodservice equipment revenues exceeded prior year, driven by a strong recovery with restaurant chain customers duemanagement. These expenses reconcile to the easing of COVID-19 government mandated restrictions. Customer pricing favorably impacted revenue by approximately 3.0% for the nine months ended September 30, 2021.
Refrigeration & Food Equipment segment earnings increased $54.8 million, or 72.9%, for the nine months ended September 30, 2021, as compared to the prior year comparable period. The increase was primarily due to conversion on increased volumes and benefits from prior restructuring programs, partially offset by increased material and logistics costs, most notably metals, and a prior year gain on the sale of AMS Chino. Segment margin increased to 10.5% from 7.7% in the prior year comparable period.follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Purchase accounting expenses | | | | | | | |
Engineered Products | $ | 5,593 | | | $ | 3,881 | | | $ | 10,408 | | | $ | 7,767 | |
Clean Energy & Fueling 1 | 26,895 | | | 13,018 | | | 58,225 | | | 26,052 | |
Imaging & Identification | 5,609 | | | 5,640 | | | 11,301 | | | 11,584 | |
Pumps & Process Solutions | 4,097 | | | 7,228 | | | 10,688 | | | 14,484 | |
Climate & Sustainability Technologies | 4,825 | | | 5,395 | | | 9,683 | | | 10,791 | |
Total | $ | 47,019 | | | $ | 35,162 | | | $ | 100,305 | | | $ | 70,678 | |
1 The increase of $13,877 and $32,173 in purchase accounting expenses for the three and six months ended June 30, 2022, respectively, from the prior year comparable period in our Clean Energy & Fueling segment is due to the acquisition of RegO and Acme Cryogenics in Q4 2021, inclusive of $6,898 and $18,995, respectively, in charges related to fair value step-ups for inventory. |
FINANCIAL CONDITION
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Significant factors affecting liquidity are: cash flows generated from operating activities, capital expenditures, acquisitions, dispositions, dividends, repurchases of outstanding shares, adequacy of available commercial paper and bank lines of credit, and the ability to attract long-term capital with satisfactory terms. We generate substantial cash from the operations of our businesses and remain in a strong financial position, with sufficient liquidity available for reinvestment in existing businesses and strategic acquisitions.
Cash Flow Summary
The following table is derived from our Condensed Consolidated Statements of Cash Flows:
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
Cash Flows (dollars in thousands) | Cash Flows (dollars in thousands) | 2021 | | 2020 | Cash Flows (dollars in thousands) | 2022 | | 2021 |
Net Cash Flows Provided By (Used In): | Net Cash Flows Provided By (Used In): | | | | Net Cash Flows Provided By (Used In): | | | |
Operating activities | Operating activities | $ | 788,586 | | | $ | 686,919 | | Operating activities | $ | 202,456 | | | $ | 437,257 | |
Investing activities | Investing activities | (286,642) | | | (362,998) | | Investing activities | (115,853) | | | (151,203) | |
Financing activities | Financing activities | (274,798) | | | (283,336) | | Financing activities | 45,265 | | | (200,188) | |
Operating Activities
Cash provided by operating activities for the ninesix months ended SeptemberJune 30, 2021 increased2022 decreased approximately $101.7$234.8 million compared to the comparable period in 2020.2021. This increasedecrease was primarily driven by higher net earnings, excludinginvestments in inventoryto support business and backlog growth, and also to mitigate potential inventory shortages given the impact of depreciation, amortizationcontinuing supply chain disruptions and constraints, as well as higher compensation payouts. Additionally, estimated tax payments increased from 2021 to 2022, which includes a $43.5 million income tax payment in 2022 related to the gain on sale of a business as well as lower compensation payoutsUnified Brands in 2021 compared to 2020. This increase was partially offset by higher investments in working capital to support business growth. Additionally, 2020 included the impact of permitted deferrals of approximately $20 million of payroll taxes in the second and third quarters of 2020 to the fourth quarters of 2021 and 2022. There were no such deferrals inQ4 2021.
Adjusted Working Capital: We believe adjusted working capital (a non-GAAP measure calculated as accounts receivable, plus inventory, less accounts payable) provides a meaningful measure of our operational resultsliquidity by showing changes caused solely by revenue.operational results. The following table provides a reconciliationcalculation of adjusted working capital to the most directly comparable GAAP measure:capital: | | | | | | | | | | | | | | |
Adjusted Working Capital (dollars in thousands) | | September 30, 2021 | | December 31, 2020 | | |
Accounts receivable | | $ | 1,351,144 | | | $ | 1,137,223 | | | |
Inventories | | 1,055,831 | | | 835,804 | | | |
Less: Accounts payable | | 1,047,824 | | | 853,942 | | | |
Adjusted working capital | | $ | 1,359,151 | | | $ | 1,119,085 | | | |
| | | | | | |
| | | | | | | | | | | | | | |
Adjusted Working Capital (dollars in thousands) | | June 30, 2022 | | December 31, 2021 | | |
Accounts receivable | | $ | 1,514,455 | | | $ | 1,347,514 | | | |
Inventories | | 1,381,607 | | | 1,191,095 | | | |
Less: Accounts payable | | 1,200,612 | | | 1,073,568 | | | |
Adjusted working capital | | $ | 1,695,450 | | | $ | 1,465,041 | | | |
| | | | | | |
Adjusted working capital increased from December 31, 20202021 by $240.1$230.4 million, or 21.5%15.7%, to $1.4$1.7 billion at SeptemberJune 30, 2021,2022, which reflected an increase of $213.9$166.9 million in accounts receivable and $220.0$190.5 million in inventory, partially offset by an increase in accounts payable of $193.9$127.0 million. These amounts include the effects of acquisitions dispositions and foreign currency translation. Accounts receivable increased compared to the prior year as a result of higher revenue. Inventories increased to support business and backlog growth, and higher backlog whichto also drovemitigate potential inventory shortages due to supply chain disruptions and constraints. These factors also led to an increase in accounts payable.
We facilitate the opportunity for suppliers to participate in voluntary supply chain financing (“SCF”("SCF") programs with participating financial institutions. Participating suppliers have the ability to sell receivables due from us to SCF financial institutions at the discretion of both the suppliers and the SCF financial institutions, at no economic impact to the Company. The Company and our suppliers agree on commercial terms, including payment terms, for the goods and services we procure regardless of whether the supplier participates in SCF. For participating suppliers, our responsibility is limited to making all payments to the SCF financial institutions on the terms originally negotiated with the supplier, irrespective of whether the supplier elects to sell receivables to the SCF financial institution. The SCF financial institution pays the supplier on the invoice due date for any invoices that were not previously sold by the supplier to the SCF financial institution. Thus, suppliers using SCF have additional potential flexibility in managing their liquidity by accelerating, at their option and cost, collection of receivables due from Dover.
Outstanding payments related to SCF programs are recorded within accounts payable in our consolidated balance sheets. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, amounts due to financial institutions for suppliers using SCF were approximately $218$162 million and $139$211 million, respectively. SCF relatedSCF-related payments are classified as a reduction to cash flows from operations. During the ninesix months ended SeptemberJune 30, 20212022 and 20202021, amounts paid to SCF financial institutions were approximately $596$460 million and $448 million, $378 million, respectively.
Investing Activities
Cash provided fromused in investing activities is derived from cash outflows for capital expenditures and acquisitions, offset by proceeds from sales of businesses and property, plant and equipment. For the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, we used cash in investing activities of $286.6$115.9 million and $363.0$151.2 million, respectively, primarily driven mainly by the the following factors:
•Acquisitions: During the ninesix months ended SeptemberJune 30, 2022, we deployed approximately $8.5 million, net, to acquire AMN within the Pumps & Process Solutions segment. In comparison, during the six months ended June 30, 2021, we acquired Espy and CDS Visual within the Engineered Products segment, AvaLAN and Blue Bite within the Clean Energy & Fueling Solutions and Imaging & Identification segments, respectively, and Quantex and one other immaterial acquisition within the Pumps & Process Solutions segment for $171.3an aggregate of $81.2 million, net of cash acquired. During the nine months ended September 30, 2020, we acquired Systech, Soft-Pak, Em-tec, Solaris, and an immaterial business within the Imaging & Identification, Engineered Products, and Pumps & Process Solutions segments, respectively, for $258.7 million, net of cash acquired.net.
•Capital spending: Our capital expenditures decreased $2.4increased $27.3 million during the ninesix months ended SeptemberJune 30, 20212022 compared to the ninesix months ended SeptemberJune 30, 2020.2021. We continue to expect full year 20212022 capital expenditures to be approximately $175-$200-$200220 million.
•Proceeds from sale of businesses: There were no proceeds from the sale of businesses during the nine months ended September 30, 2021. For the nine months ended September 30, 2020, we received proceeds of $15.4 million from the sale of AMS Chino within the Refrigeration & Food Equipment segment.
We anticipate that capital expenditures and any acquisitions we make through the remainder of 20212022 will be funded from available cash and internally generated funds and through the issuance of commercial paper, use of lines of credit or public or private debt markets, as necessary.
Financing Activities
Our cash flow from financing activities generally relates to the use of cash for purchases of our common stock and payment of dividends, offset by net borrowing activity. For the ninesix months ended SeptemberJune 30, 2022 and 2021, we generated cash totaling $45.3 million and 2020, we used cash totaling $274.8 million and $283.3$200.2 million, respectively, for financing activities, with the activity primarily attributable to the following:
•Repurchase of common stock: During the ninesix months ended SeptemberJune 30, 2022, we used $85.0 million to repurchase 641,428 shares. During the six months ended June 30, 2021, we used $21.6 million to repurchase 182,951 shares. During the nine months ended September 30, 2020, we used $52.9 million to repurchase 548,659 shares.
•Long-term debt, commercialCommercial paper and notes payable: During the ninesix months ended SeptemberJune 30, 2022 we received net proceeds of $288.0 million from commercial paper borrowings. During the six months ended June 30, 2021 we did not borrow or have proceeds from long-term debt, commercial paper or notes payable. During the nine months ended September 30, 2020, we borrowed $500 million under the $1.0 billion Credit Agreement which was repaid during the same period. During the nine months ended September 30, 2020, we also received net proceeds from commercial paper of $5.8 million.
•Dividend payments: Dividends paid to shareholders during the ninesix months ended SeptemberJune 30, 20212022 totaled $214.8$144.1 million as compared to $213.0$142.7 million during the same period in 2020.2021. Our dividends paid per common share increased 1.0% to $1.49$1.00 during the ninesix months ended SeptemberJune 30, 20212022 compared to $1.4750.99 during the same period in 2020.2021.
•Payments to settle employee tax obligations: Payments to settle tax obligations from the exercise of share-based awards increased $13.4declined $21.0 million compared to the prior year period. The increase isperiod, primarily due to the increasedecrease in the number of shares exercised and an increase in the average stock price compared to the prior year period.exercised.
Liquidity and Capital Resources
Free Cash Flow
In addition to measuring our cash flow generation and usage based upon the operating, investing and financing classifications included in the Condensed Consolidated Statements of Cash Flows, we also measure free cash flow (a non-GAAP measure) which represents net cash provided by operating activities minus capital expenditures. We believe that free cash flow is an important measure of operating performanceliquidity because it provides management and investors a measurement of cash generated from operations that is available for mandatory payment obligations and investment opportunities, such as funding acquisitions, paying dividends, repaying debt and repurchasing our common stock.
The following table reconciles our free cash flow to cash flow provided by operating activities: | | | Nine Months Ended September 30, | | Six Months Ended June 30, |
Free Cash Flow (dollars in thousands) | Free Cash Flow (dollars in thousands) | 2021 | | 2020 | Free Cash Flow (dollars in thousands) | 2022 | | 2021 |
Cash flow provided by operating activities | Cash flow provided by operating activities | $ | 788,586 | | | $ | 686,919 | | Cash flow provided by operating activities | $ | 202,456 | | | $ | 437,257 | |
Less: Capital expenditures | Less: Capital expenditures | (121,157) | | | (123,564) | | Less: Capital expenditures | (100,577) | | | (73,231) | |
Free cash flow | Free cash flow | $ | 667,429 | | | $ | 563,355 | | Free cash flow | $ | 101,879 | | | $ | 364,026 | |
| Cash flow from operating activities as a percentage of revenue | | Cash flow from operating activities as a percentage of revenue | 4.8 | % | | 11.2 | % |
| Cash flow from operating activities as a percentage of net earnings | | Cash flow from operating activities as a percentage of net earnings | 39.3 | % | | 87.9 | % |
| Free cash flow as a percentage of revenue | Free cash flow as a percentage of revenue | 11.3 | % | | 11.5 | % | Free cash flow as a percentage of revenue | 2.4 | % | | 9.3 | % |
| Free cash flow as a percentage of net earnings | Free cash flow as a percentage of net earnings | 87.7 | % | | 112.4 | % | Free cash flow as a percentage of net earnings | 19.8 | % | | 73.2 | % |
For the ninesix months ended SeptemberJune 30, 2021,2022, we generated cash flow from operating activities of $202.5 million, representing 4.8% of revenue and 39.3% of net earnings, and we generated free cash flow of $667.4$101.9 million, representing 11.3%2.4% of revenue and 87.7%19.8% of net earnings. Free cash flow for the ninesix months ended SeptemberJune 30, 2021 increased $104.12022 decreased $262.1 million compared to the prior year period, due to higherlower operating cash flow primarily as a result of higher earningsincreases in inventory, compensation payouts, estimated tax payments, and lower compensation payments, partially offset by higher investments in working capital expenditures compared to support growth, and deferralsthe prior year. The six months ended June 30, 2022 includes a $43.5 million income tax payment related to the gain on sale of tax paymentsUnified Brands in 2020 that did not repeat in 2021, as previously noted.Q4 2021.
Capitalization
We use commercial paper borrowings for general corporate purposes, including the funding of acquisitions and the repurchase of our common stock.stock. As of SeptemberJune 30, 2021,2022, we maintained a $1$1.0 billion Credit Agreementfive-year unsecured revolving credit facility (the "Credit Agreement") with a syndicate of banks with an expiration date ofwhich expires on October 4, 2024. The Credit Agreement is used as liquidity back-up for our commercial paper program and for general corporate purposes.
Beginning in early-to-mid-March 2020, the commercial paper market began to experience very high levels of volatility as a result of COVID-19 related uncertainties. Volatility was most pronounced for "Tier-2" issuers, such as Dover, and impacted both market access and pricing. As a result, on March 16, 2020, the Company borrowed $500 million under the Credit Agreement. Proceeds from the borrowing were used to repay all of the Company's outstanding commercial paper and for general corporate purposes. We subsequently repaid the $500 million in the second quarter of 2020 using proceeds from commercial paper as volatility in the commercial paper market stabilized and we resumed borrowing commercial paper.
Under the Credit Agreement, we are required to pay a facility fee and to maintain an interest coverage ratio of consolidated EBITDA to consolidated net interest expense of not less than 3.0 to 1.0. We were in compliance with this covenant and our other long-term debt covenants at SeptemberJune 30, 20212022 and had aan interest coverage ratio of 14.917.8 to 1. We are not aware of any
potential impairment to our liquidity and expect to remain in compliance with all of our debt covenants. Additionally, our earliest long-term debt maturity isis in 2025.
We also have a current shelf registration statement filed with the Securities and Exchange Commission that allows for the issuance of additional debt securities that may be utilized in one or more offerings on terms to be determined at the time of the offering. Net proceeds of any offering would be used for general corporate purposes, including repayment of existing indebtedness, capital expenditures and acquisitions.
At SeptemberJune 30, 2021,2022, our cash and cash equivalents totaled $739.1$515.4 million, of which $503.8 $252.9 million waswas held outside the United States. At December 31, 2020,2021, our cash and cash equivalents totaled $513.1$385.5 million, of which $345.9which $257.5 million waswas held outside the United States.States. Cash and cash equivalents in excess of near-term requirements are invested in highly liquid investment-grade money market instruments andinstruments, short-term investments, or bank deposits, with maturities of three months or less. We invest any cash in excess of near-term requirements in money
market instruments or short-term investments, which consist of investment gradeinvestment-grade time deposits with original maturity dates at the time of purchase of no greater than three months. Subsequent to the second quarter of 2022, the Company completed the acquisition of Malema and paid approximately $224.0 million. See Note 20 — Subsequent Events in the Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q for further details.
We utilize the net debt to net capitalization calculation (a non-GAAP measure) to assess our overall financial leverage and capacity and believe the calculation is useful to investors for the same reason. Net debt represents total debt minus cash and cash equivalents. Net capitalization represents net debt plus stockholders' equity. The following table provides a reconciliation of net debt to net capitalization to the most directly comparable GAAP measures:
| Net Debt to Net Capitalization Ratio (dollars in thousands) | Net Debt to Net Capitalization Ratio (dollars in thousands) | | September 30, 2021 | | December 31, 2020 | | Net Debt to Net Capitalization Ratio (dollars in thousands) | | June 30, 2022 | | December 31, 2021 | |
| Short-term borrowings | | Short-term borrowings | | $ | 654 | | | $ | 702 | | |
Commercial paper | | Commercial paper | | 393,000 | | | 105,000 | | |
Notes payable | | Notes payable | | $ | 393,654 | | | $ | 105,702 | | |
Long-term debt | Long-term debt | | $ | 3,060,184 | | | $ | 3,108,829 | | | Long-term debt | | $ | 2,936,124 | | | $ | 3,018,714 | | |
Total debt | Total debt | | 3,060,184 | | | 3,108,829 | | | Total debt | | 3,329,778 | | | 3,124,416 | | |
Less: Cash and cash equivalents | Less: Cash and cash equivalents | | (739,144) | | | (513,075) | | | Less: Cash and cash equivalents | | (515,371) | | | (385,504) | | |
Net debt | Net debt | | 2,321,040 | | | 2,595,754 | | | Net debt | | 2,814,407 | | | 2,738,912 | | |
Add: Stockholders' equity | Add: Stockholders' equity | | 3,891,818 | | | 3,385,773 | | | Add: Stockholders' equity | | 4,388,523 | | | 4,189,528 | | |
Net capitalization | Net capitalization | | $ | 6,212,858 | | | $ | 5,981,527 | | | Net capitalization | | $ | 7,202,930 | | | $ | 6,928,440 | | |
Net debt to net capitalization | Net debt to net capitalization | | 37.4 | % | | 43.4 | % | | Net debt to net capitalization | | 39.1 | % | | 39.5 | % | |
Our net debt to net capitalization ratio decreased to 37.4%39.1% at SeptemberJune 30, 20212022 compared to 43.4%39.5% at December 31, 2020.2021. Net debt decreased $274.7increased $75.5 million during the period primarily due to an increase in commercial paper borrowings, partially offset by the increase in cash and cash equivalents and a decrease in long-term debt as a result of foreign currency translation on Euro denominated notes.equivalents. Stockholders' equity increased $506.0$199.0 million primarily as a result of earnings during the period, partially offset by dividends paid and exercises of share-based awards and share repurchases.awards.
Operating cash flow, existing capacity of our Credit Agreement, and access to capital markets are expected to satisfy our various cash flow requirements, including acquisitions, capital expenditures, purchase obligations, lease obligations, and share repurchases.
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements and related public financial information are based on the application of GAAP which requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our public disclosures, including information regarding contingencies, risk and our financial condition. We believe our use of estimates and underlying accounting assumptions conform to GAAP and are consistently applied. We review valuations based on estimates for reasonableness on a consistent basis.
Recent Accounting Standards
See Part 1, Notes toNote 19 — Recent Accounting Pronouncements in the Condensed Consolidated Financial Statements Note 20 — Recent Accounting Pronouncements.in Item 1 of this Form 10-Q. The adoption of recent accounting standards as included in Note 2019 — Recent Accounting Pronouncements in the Condensed Consolidated Financial Statements has not had, and is not expected to have, a significant impact on our revenue, earnings or liquidity.
Special Notes Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, especially MD&A, contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements in this document other than statements of historical fact are statements that are, or could be deemed, “forward-looking”"forward-looking" statements. Some of these statements may be indicated by words such as “may”"may", “anticipate”"anticipate", “expect”"expect", believe”"believe", “intend”"intend", “guidance”"guidance", “estimates”"estimates", “suggest”"suggest", “will”"will", “plan”"plan", “should”"should", “would”"would", “could”"could", “forecast”"forecast", "headwind", "tailwind" and other words and terms that use the future tense or have a similar meaning. Forward-looking statements are based on current expectations and are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyond the Company’s control. Factors that could cause actual results to differ materially from current expectations include, among other things, the impacts of COVID-19 or other future pandemics on the global economy and on our customers, suppliers, employees, business and cash flows, supply chain constraints and labor shortages that could result in production stoppages, inflation in material input costs and freight logistics, other general economic conditions and conditions in the particular markets in which we operate, changes in customer demand and capital spending, competitive factors and pricing pressures, our ability to develop and launch new products in a cost-effective manner, changes in law, including the effect of U.S. tax laws and developments with respect to trade policy and tariffs, our ability to identify and complete acquisitions and integrate and realize synergies from newly acquired businesses, the impact of interest rate and currency exchange rate fluctuations, capital allocation plans and changes in those plans, including with
respect to dividends, share repurchases, investments in research and development, capital expenditures and acquisitions, our ability to derive expected benefits from restructuring, productivity initiatives and other cost reduction actions, changes in material costs or the supply of input materials, the impact of legal compliance risks and litigation, including with respect to product quality and safety, cybersecurity and privacy, our ability to capture and protect intellectual property rights, and various other factors that are described in our periodic reports filed with or furnished to the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2020.2021. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.
The Company may, from time to time, post financial or other information on its website, www.dovercorporation.com. The website is for informational purposes only and is not intended for use as a hyperlink. The Company is not incorporating any material on its website into this report.
Non-GAAP Disclosures
In an effort to provide investors with additional information regarding our results as determined by GAAP, we also disclose non-GAAP information, which we believe provides useful information to investors. Segment EBITDA, segment EBITDA margin, freeFree cash flow, free cash flow as a percentage of revenue, free cash flow as a percentage of net earnings, net debt, net capitalization, net debt to net capitalization ratio, adjusted working capital, and organic revenue growth and rightsizing costs are not financial measures under GAAP and should not be considered as a substitute for earnings, cash flows from operating activities, debt or equity, working capital revenue or restructuring costsrevenue as determined in accordance with GAAP, and they may not be comparable to similarly titled measures reported by other companies.
We believe that segment EBITDA and segment EBITDA margin are useful to investors and other users of our financial information in evaluating ongoing operating profitability as they exclude the depreciation and amortization expense related primarily to capital expenditures and acquisitions that occurred in prior years, as well as in evaluating operating performance in relation to our competitors. Segment EBITDA is calculated by adding back depreciation and amortization expense to segment earnings, which is the most directly comparable GAAP measure. We do not present segment net income because corporate expenses, interest and taxes are not allocated at a segment level. Segment EBITDA margin is calculated as segment EBITDA divided by segment revenue.
We believe the net debt to net capitalization ratio and free cash flow are important measures of liquidity. Net debt to net capitalization is helpful in evaluating our capital structure and the amount of leverage we employ. Free cash flow and free cash flow ratios provide both management and investors a measurement of cash generated from operations that is available to fund acquisitions, pay dividends, repay debt and repurchase our common stock. Free cash flow as a percentage of revenue equals free cash flow divided by revenue. Free cash flow as a percentage of net earnings equals free cash flow divided by net earnings. We believe that reporting adjusted working capital which is calculated as accounts receivable, plus inventory, less accounts payable, provides a meaningful measure of our operational resultsliquidity by showing the changes caused solely by revenue.operational results. We believe that reporting organic revenue growth, which excludes the impact of foreign currency exchange rates and the impact of acquisitions and divestitures, provides a useful comparison of our revenue performance and trends between periods. We believe that reporting rightsizing costs, which include restructuring and other charges, is important as it enables management and investors to better understand the financial impact of our broad-based cost reduction and operational improvement initiatives.
Reconciliations of non-GAAP measures can be found above in this Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no significant change in our exposure to market risk during the ninesix months ended SeptemberJune 30, 2021.2022. For a discussion of our exposure to market risk, refer to Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.
Item 4. Controls and Procedures
At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of SeptemberJune 30, 2021.2022.
During the thirdsecond quarter of 2021,2022, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
See Part I, Notes toNote 13 — Commitments and Contingent Liabilities in the Condensed Consolidated Financial Statements Note 14 — Commitments and Contingent Liabilities.in Item 1 of this Form 10-Q.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
a.Not applicable.
b.Not applicable.
c.The table below presents shares of Dover stock that we acquired during the quarter.
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Period | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs (1) |
April 1 to April 30 | — | | | $ | — | | | — | | | 19,817,049 | |
May 1 to May 31 | 641,428 | | 132.52 | | | 641,428 | | 19,175,621 | |
June 1 to June 30 | — | | | — | | | — | | | 19,175,621 | |
For the Second Quarter | 641,428 | | | $ | 132.52 | | | 641,428 | | | 19,175,621 | |
(1)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. No share repurchases were madeThe Company repurchased 641,428 shares under the November 2020 authorization during the three months ended SeptemberJune 30, 2021.2022. As of SeptemberJune 30, 2021,2022, the number of shares still available for repurchase under the November 2020 share repurchase authorization was 19,817,049.19,175,621.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
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10.1 | |
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10.2 | |
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31.1 | |
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31.2 | |
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32 | |
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101 | | The following materials from Dover Corporation’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 20212022 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Earnings, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements. |
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104 | | Cover Page formatted in Inline XBRL and contained in Exhibit 101. |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
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| | DOVER CORPORATION |
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Date: | October 19, 2021July 21, 2022 | /s/ Brad M. Cerepak |
| | Brad M. Cerepak |
| | Senior Vice President & Chief Financial Officer |
| | (Principal Financial Officer) |
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Date: | October 19, 2021July 21, 2022 | /s/ Ryan W. Paulson |
| | Ryan W. Paulson |
| | Vice President, Controller |
| | (Principal Accounting Officer) |