UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20222023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number: 1-4018
(Exact name of registrant as specified in its charter) | | | | | | | | |
Delaware | 53-0257888 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
3005 Highland Parkway | |
Downers Grove, Illinois | 60515 |
(Address of principal executive offices) | (Zip Code) |
(630) 541-1540
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | DOV | New York Stock Exchange |
1.250% Notes due 2026 | DOV 26 | New York Stock Exchange |
0.750% Notes due 2027 | DOV 27 | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12-b-2 of the Exchange Act .
| | | | | | | | | | | | | | | | | |
Large Accelerated Filer | ☑ | Accelerated Filer | ☐ | Emerging Growth Company | ☐ |
Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The number of shares outstanding of the Registrant’s common stock as of October 13, 202218, 2023 was 140,353,950.139,890,144.
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 September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Revenue | Revenue | $ | 2,158,291 | | | $ | 2,018,269 | | | $ | 6,368,907 | | | $ | 5,917,846 | | Revenue | $ | 2,153,268 | | | $ | 2,158,291 | | | $ | 6,332,377 | | | $ | 6,368,907 | |
Cost of goods and services | Cost of goods and services | 1,385,541 | | | 1,263,690 | | | 4,071,680 | | | 3,669,547 | | Cost of goods and services | 1,360,253 | | | 1,385,541 | | | 4,033,507 | | | 4,071,680 | |
Gross profit | Gross profit | 772,750 | | | 754,579 | | | 2,297,227 | | | 2,248,299 | | Gross profit | 793,015 | | | 772,750 | | | 2,298,870 | | | 2,297,227 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 402,339 | | | 412,553 | | | 1,270,615 | | | 1,249,593 | | Selling, general and administrative expenses | 420,245 | | | 402,339 | | | 1,286,999 | | | 1,270,615 | |
| Operating earnings | Operating earnings | 370,411 | | | 342,026 | | | 1,026,612 | | | 998,706 | | Operating earnings | 372,770 | | | 370,411 | | | 1,011,871 | | | 1,026,612 | |
Interest expense | Interest expense | 29,789 | | | 26,433 | | | 83,330 | | | 79,917 | | Interest expense | 32,389 | | | 29,789 | | | 100,407 | | | 83,330 | |
Interest income | Interest income | (1,244) | | | (1,466) | | | (2,968) | | | (3,088) | | Interest income | (3,808) | | | (1,244) | | | (8,552) | | | (2,968) | |
| Other income, net | Other income, net | (11,167) | | | (10,460) | | | (17,842) | | | (18,236) | | Other income, net | (10,273) | | | (11,167) | | | (20,759) | | | (17,842) | |
Earnings before provision for income taxes | Earnings before provision for income taxes | 353,033 | | | 327,519 | | | 964,092 | | | 940,113 | | Earnings before provision for income taxes | 354,462 | | | 353,033 | | | 940,775 | | | 964,092 | |
Provision for income taxes | Provision for income taxes | 67,007 | | | 63,763 | | | 162,295 | | | 179,080 | | Provision for income taxes | 64,709 | | | 67,007 | | | 180,209 | | | 162,295 | |
| Net earnings | Net earnings | $ | 286,026 | | | $ | 263,756 | | | $ | 801,797 | | | $ | 761,033 | | Net earnings | $ | 289,753 | | | $ | 286,026 | | | $ | 760,566 | | | $ | 801,797 | |
| | | | Net earnings per share: | Net earnings per share: | | Net earnings per share: | |
Basic | Basic | $ | 2.01 | | | $ | 1.83 | | | $ | 5.59 | | | $ | 5.29 | | Basic | $ | 2.07 | | | $ | 2.01 | | | $ | 5.44 | | | $ | 5.59 | |
Diluted | Diluted | $ | 2.00 | | | $ | 1.81 | | | $ | 5.55 | | | $ | 5.24 | | Diluted | $ | 2.06 | | | $ | 2.00 | | | $ | 5.41 | | | $ | 5.55 | |
Weighted average shares outstanding: | Weighted average shares outstanding: | | Weighted average shares outstanding: | |
Basic | Basic | 142,506 | | | 143,976 | | | 143,469 | | | 143,895 | | Basic | 139,878 | | | 142,506 | | | 139,833 | | | 143,469 | |
Diluted | Diluted | 143,257 | | | 145,440 | | | 144,413 | | | 145,220 | | Diluted | 140,615 | | | 143,257 | | | 140,603 | | | 144,413 | |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net earnings | $ | 286,026 | | | $ | 263,756 | | | $ | 801,797 | | | $ | 761,033 | |
Other comprehensive loss, net of tax | | | | | | | |
Foreign currency translation adjustments: | | | | | | | |
Foreign currency translation losses | (117,460) | | | (26,155) | | | (216,665) | | | (17,567) | |
Reclassification of foreign currency translation losses to earnings | — | | | — | | | 5,915 | | | — | |
Total foreign currency translation adjustments (net of $(21,020), $(5,446), $(39,990) and $(11,669) tax provision, respectively) | (117,460) | | | (26,155) | | | (210,750) | | | (17,567) | |
Pension and other post-retirement benefit plans: | | | | | | | |
| | | | | | | |
| | | | | | | |
Amortization of actuarial losses included in net periodic pension cost | 327 | | | 2,353 | | | 1,032 | | | 7,080 | |
Amortization of prior service costs included in net periodic pension cost | 223 | | | 214 | | | 670 | | | 646 | |
| | | | | | | |
Total pension and other post-retirement benefit plans (net of $(195), $(771), $(605) and $(2,320) tax provision, respectively) | 550 | | | 2,567 | | | 1,702 | | | 7,726 | |
Changes in fair value of cash flow hedges: | | | | | | | |
Unrealized net gains (losses) arising during period | 1,503 | | | (212) | | | 2,317 | | | 4,107 | |
Net gains reclassified into earnings | (1,290) | | | (206) | | | (3,911) | | | (3,077) | |
Total cash flow hedges (net of $(61), $122, $458 and $(302) tax benefit (provision), respectively) | 213 | | | (418) | | | (1,594) | | | 1,030 | |
| | | | | | | |
Other comprehensive loss, net of tax | (116,697) | | | (24,006) | | | (210,642) | | | (8,811) | |
Comprehensive earnings | $ | 169,329 | | | $ | 239,750 | | | $ | 591,155 | | | $ | 752,222 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net earnings | $ | 289,753 | | | $ | 286,026 | | | $ | 760,566 | | | $ | 801,797 | |
Other comprehensive loss, net of tax | | | | | | | |
Foreign currency translation adjustments: | | | | | | | |
Foreign currency translation loss | (54,114) | | | (117,460) | | | (16,207) | | | (216,665) | |
Reclassification of foreign currency translation losses to earnings | — | | | — | | | — | | | 5,915 | |
Total foreign currency translation adjustments (net of $(7,274), $(21,020), $(58) and $(39,990) tax benefit (provision), respectively) | (54,114) | | | (117,460) | | | (16,207) | | | (210,750) | |
Pension and other post-retirement benefit plans: | | | | | | | |
| | | | | | | |
| | | | | | | |
Amortization of actuarial (gain) loss included in net periodic pension cost | (516) | | | 327 | | | (1,578) | | | 1,032 | |
Amortization of prior service costs included in net periodic pension cost | 245 | | | 223 | | | 764 | | | 670 | |
| | | | | | | |
Total pension and other post-retirement benefit plans (net of $82, $(195), $247 and $(605) tax benefit (provision), respectively) | (271) | | | 550 | | | (814) | | | 1,702 | |
Changes in fair value of cash flow hedges: | | | | | | | |
Unrealized net gain arising during period | 587 | | | 1,503 | | | 246 | | | 2,317 | |
Net loss (gain) reclassified into earnings | 369 | | | (1,290) | | | 2,067 | | | (3,911) | |
Total cash flow hedges (net of $(273), $(61), $(660) and $458 tax (provision) benefit, respectively) | 956 | | | 213 | | | 2,313 | | | (1,594) | |
| | | | | | | |
Other comprehensive loss, net of tax | (53,429) | | | (116,697) | | | (14,708) | | | (210,642) | |
Comprehensive earnings | $ | 236,324 | | | $ | 169,329 | | | $ | 745,858 | | | $ | 591,155 | |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
ASSETS | ASSETS | ASSETS |
Current assets: | Current assets: | | | | Current assets: | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 306,002 | | | $ | 385,504 | | Cash and cash equivalents | $ | 283,798 | | | $ | 380,868 | |
| Receivables, net | Receivables, net | 1,497,062 | | | 1,347,514 | | Receivables, net | 1,548,675 | | | 1,516,871 | |
Inventories, net | Inventories, net | 1,407,797 | | | 1,191,095 | | Inventories, net | 1,279,781 | | | 1,366,608 | |
Prepaid and other current assets | Prepaid and other current assets | 166,184 | | | 137,596 | | Prepaid and other current assets | 154,076 | | | 159,118 | |
| Assets held for sale | | Assets held for sale | 190,548 | | | — | |
| Total current assets | Total current assets | 3,377,045 | | | 3,061,709 | | Total current assets | 3,456,878 | | | 3,423,465 | |
Property, plant and equipment, net | Property, plant and equipment, net | 958,894 | | | 957,310 | | Property, plant and equipment, net | 992,157 | | | 1,004,825 | |
| Goodwill | Goodwill | 4,532,333 | | | 4,558,822 | | Goodwill | 4,607,123 | | | 4,669,494 | |
Intangible assets, net | Intangible assets, net | 1,313,001 | | | 1,359,522 | | Intangible assets, net | 1,235,643 | | | 1,333,735 | |
Other assets and deferred charges | Other assets and deferred charges | 471,068 | | | 466,264 | | Other assets and deferred charges | 480,304 | | | 465,000 | |
| Total assets | Total assets | $ | 10,652,341 | | | $ | 10,403,627 | | Total assets | $ | 10,772,105 | | | $ | 10,896,519 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY |
Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
Short-term borrowings | Short-term borrowings | $ | 788,860 | | | $ | 105,702 | | Short-term borrowings | $ | 206,956 | | | $ | 735,772 | |
Accounts payable | Accounts payable | 1,143,253 | | | 1,073,568 | | Accounts payable | 970,671 | | | 1,068,144 | |
Accrued compensation and employee benefits | Accrued compensation and employee benefits | 232,247 | | | 302,978 | | Accrued compensation and employee benefits | 238,426 | | | 269,785 | |
Deferred revenue | Deferred revenue | 246,181 | | | 227,549 | | Deferred revenue | 256,130 | | | 256,933 | |
Accrued insurance | Accrued insurance | 105,095 | | | 101,448 | | Accrued insurance | 88,886 | | | 92,876 | |
Other accrued expenses | Other accrued expenses | 321,487 | | | 347,097 | | Other accrued expenses | 325,395 | | | 318,337 | |
Federal and other income taxes | Federal and other income taxes | 51,631 | | | 91,999 | | Federal and other income taxes | 34,251 | | | 31,427 | |
| Liabilities held for sale | | Liabilities held for sale | 67,065 | | | — | |
Total current liabilities | Total current liabilities | 2,888,754 | | | 2,250,341 | | Total current liabilities | 2,187,780 | | | 2,773,274 | |
Long-term debt | Long-term debt | 2,842,662 | | | 3,018,714 | | Long-term debt | 2,944,747 | | | 2,942,513 | |
Deferred income taxes | Deferred income taxes | 389,133 | | | 364,117 | | Deferred income taxes | 341,773 | | | 375,150 | |
Noncurrent income tax payable | Noncurrent income tax payable | 44,313 | | | 48,385 | | Noncurrent income tax payable | 28,024 | | | 44,313 | |
Other liabilities | Other liabilities | 496,053 | | | 532,542 | | Other liabilities | 437,281 | | | 474,903 | |
| Stockholders' equity: | Stockholders' equity: | | | | Stockholders' equity: | | | |
| Total stockholders' equity | Total stockholders' equity | 3,991,426 | | | 4,189,528 | | Total stockholders' equity | 4,832,500 | | | 4,286,366 | |
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 10,652,341 | | | $ | 10,403,627 | | Total liabilities and stockholders' equity | $ | 10,772,105 | | | $ | 10,896,519 | |
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, 2022 | $ | 259,601 | | | $ | 863,717 | | | $ | 9,816,960 | | | $ | (247,997) | | | $ | (6,303,758) | | | $ | 4,388,523 | | |
Balance at June 30, 2023 | | Balance at June 30, 2023 | $ | 259,818 | | | $ | 875,041 | | | $ | 10,552,433 | | | $ | (227,502) | | | $ | (6,797,685) | | | $ | 4,662,105 | |
Net earnings | Net earnings | — | | | — | | | 286,026 | | | — | | | — | | | 286,026 | | Net earnings | — | | | — | | | 289,753 | | | — | | | — | | | 289,753 | |
Dividends paid ($0.505 per share) | — | | | — | | | (72,580) | | | — | | | — | | | (72,580) | | |
Dividends paid ($0.51 per share) | | Dividends paid ($0.51 per share) | — | | | — | | | (71,408) | | | — | | | — | | | (71,408) | |
Common stock issued for the exercise of share-based awards | Common stock issued for the exercise of share-based awards | 5 | | | (177) | | | — | | | — | | | — | | | (172) | | Common stock issued for the exercise of share-based awards | 17 | | | (1,283) | | | — | | | — | | | — | | | (1,266) | |
Stock-based compensation expense | Stock-based compensation expense | — | | | 6,326 | | | — | | | — | | | — | | | 6,326 | | Stock-based compensation expense | — | | | 6,745 | | | — | | | — | | | — | | | 6,745 | |
Common stock acquired, including accelerated share repurchase program | — | | | (100,000) | | | — | | | — | | | (400,000) | | | (500,000) | | |
| Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | — | | | — | | | — | | | (116,697) | | | — | | | (116,697) | | Other comprehensive loss, net of tax | — | | | — | | | — | | | (53,429) | | | — | | | (53,429) | |
| Balance at September 30, 2022 | $ | 259,606 | | | $ | 769,866 | | | $ | 10,030,406 | | | $ | (364,694) | | | $ | (6,703,758) | | | $ | 3,991,426 | | |
Balance at September 30, 2023 | | Balance at September 30, 2023 | $ | 259,835 | | | $ | 880,503 | | | $ | 10,770,778 | | | $ | (280,931) | | | $ | (6,797,685) | | | $ | 4,832,500 | |
| | | 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 June 30, 2022 | | Balance at June 30, 2022 | $ | 259,601 | | | $ | 863,717 | | | $ | 9,816,960 | | | $ | (247,997) | | | $ | (6,303,758) | | | $ | 4,388,523 | |
| Net earnings | Net earnings | — | | | — | | | 263,756 | | | — | | | — | | | 263,756 | | Net earnings | — | | | — | | | 286,026 | | | — | | | — | | | 286,026 | |
Dividends paid ($0.50 per share) | — | | | — | | | (72,107) | | | — | | | — | | | (72,107) | | |
Dividends paid ($0.505 per share) | | Dividends paid ($0.505 per share) | — | | | — | | | (72,580) | | | — | | | — | | | (72,580) | |
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 | 5 | | | (177) | | | — | | | — | | | — | | | (172) | |
Stock-based compensation expense | Stock-based compensation expense | — | | | 6,660 | | | — | | | — | | | — | | | 6,660 | | Stock-based compensation expense | — | | | 6,326 | | | — | | | — | | | — | | | 6,326 | |
Common stock acquired, including accelerated share repurchase program | | Common stock acquired, including accelerated share repurchase program | — | | | (100,000) | | | — | | | — | | | (400,000) | | | (500,000) | |
Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | — | | | — | | | — | | | (116,697) | | | — | | | (116,697) | |
| 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 September 30, 2022 | | Balance at September 30, 2022 | $ | 259,606 | | | $ | 769,866 | | | $ | 10,030,406 | | | $ | (364,694) | | | $ | (6,703,758) | | | $ | 3,991,426 | |
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, 2021 | $ | 259,457 | | | $ | 857,636 | | | $ | 9,445,245 | | | $ | (154,052) | | | $ | (6,218,758) | | | $ | 4,189,528 | | |
Balance at January 1, 2023 | | Balance at January 1, 2023 | $ | 259,644 | | | $ | 867,560 | | | $ | 10,223,070 | | | $ | (266,223) | | | $ | (6,797,685) | | | $ | 4,286,366 | |
Net earnings | Net earnings | — | | | — | | | 801,797 | | | — | | | — | | | 801,797 | | Net earnings | — | | | — | | | 760,566 | | | — | | | — | | | 760,566 | |
Dividends paid ($1.505 per share) | — | | | — | | | (216,636) | | | — | | | — | | | (216,636) | | |
Dividends paid ($1.52 per share) | | Dividends paid ($1.52 per share) | — | | | — | | | (212,882) | | | — | | | — | | | (212,882) | |
Common stock issued for the exercise of share-based awards | Common stock issued for the exercise of share-based awards | 149 | | | (12,427) | | | — | | | — | | | — | | | (12,278) | | Common stock issued for the exercise of share-based awards | 191 | | | (12,525) | | | — | | | — | | | — | | | (12,334) | |
Stock-based compensation expense | Stock-based compensation expense | — | | | 24,657 | | | — | | | — | | | — | | | 24,657 | | Stock-based compensation expense | — | | | 25,468 | | | — | | | — | | | — | | | 25,468 | |
Common stock acquired, including accelerated share repurchase program | — | | | (100,000) | | | — | | | — | | | (485,000) | | | (585,000) | | |
| Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | — | | | — | | | — | | | (210,642) | | | — | | | (210,642) | | Other comprehensive loss, net of tax | — | | | — | | | — | | | (14,708) | | | — | | | (14,708) | |
| Balance at September 30, 2022 | $ | 259,606 | | | $ | 769,866 | | | $ | 10,030,406 | | | $ | (364,694) | | | $ | (6,703,758) | | | $ | 3,991,426 | | |
Other, net | | Other, net | — | | | — | | | 24 | | | — | | | 24 | |
Balance at September 30, 2023 | | Balance at September 30, 2023 | $ | 259,835 | | | $ | 880,503 | | | $ | 10,770,778 | | | $ | (280,931) | | | $ | (6,797,685) | | | $ | 4,832,500 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock $1 par value | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total stockholders' equity |
Balance at December 31, 2020 | $ | 258,982 | | | $ | 868,882 | | | $ | 8,608,284 | | | $ | (153,254) | | | $ | (6,197,121) | | | $ | 3,385,773 | |
| | | | | | | | | | | |
Net earnings | — | | | — | | | 761,033 | | | — | | | — | | | 761,033 | |
Dividends paid ($1.49 per share) | — | | | — | | | (214,805) | | | — | | | — | | | (214,805) | |
Common stock issued for the exercise of share-based awards | 414 | | | (35,252) | | | — | | | — | | | — | | | (34,838) | |
Stock-based compensation expense | — | | | 25,053 | | | — | | | — | | | — | | | 25,053 | |
Common stock acquired | — | | | — | | | — | | | — | | | (21,637) | | | (21,637) | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | (8,811) | | | — | | | (8,811) | |
Other, net | — | | | 50 | | | — | | | — | | | — | | | 50 | |
Balance at September 30, 2021 | $ | 259,396 | | | $ | 858,733 | | | $ | 9,154,512 | | | $ | (162,065) | | | $ | (6,218,758) | | | $ | 3,891,818 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock $1 par value | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Treasury stock | | Total stockholders' equity |
Balance at January 1, 2022 | $ | 259,457 | | | $ | 857,636 | | | $ | 9,445,245 | | | $ | (154,052) | | | $ | (6,218,758) | | | $ | 4,189,528 | |
| | | | | | | | | | | |
Net earnings | — | | | — | | | 801,797 | | | — | | | — | | | 801,797 | |
Dividends paid ($1.505 per share) | — | | | — | | | (216,636) | | | — | | | — | | | (216,636) | |
Common stock issued for the exercise of share-based awards | 149 | | | (12,427) | | | — | | | — | | | — | | | (12,278) | |
Stock-based compensation expense | — | | | 24,657 | | | — | | | — | | | — | | | 24,657 | |
Common stock acquired, including accelerated share repurchase program | — | | | (100,000) | | | — | | | — | | | (485,000) | | | (585,000) | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | (210,642) | | | — | | | (210,642) | |
| | | | | | | | | | | |
Balance at September 30, 2022 | $ | 259,606 | | | $ | 769,866 | | | $ | 10,030,406 | | | $ | (364,694) | | | $ | (6,703,758) | | | $ | 3,991,426 | |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Operating Activities: | Operating Activities: | | | | Operating Activities: | | | |
Net earnings | Net earnings | $ | 801,797 | | | $ | 761,033 | | Net earnings | $ | 760,566 | | | $ | 801,797 | |
| Adjustments to reconcile net earnings to cash from operating activities: | | |
Adjustments to reconcile net earnings to cash provided by operating activities: | | Adjustments to reconcile net earnings to cash provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 230,808 | | | 218,236 | | Depreciation and amortization | 237,002 | | | 230,808 | |
Stock-based compensation expense | Stock-based compensation expense | 24,657 | | | 25,053 | | Stock-based compensation expense | 25,468 | | | 24,657 | |
| Reclassification of foreign currency translation losses to earnings | Reclassification of foreign currency translation losses to earnings | 5,915 | | | — | | Reclassification of foreign currency translation losses to earnings | — | | | 5,915 | |
Other, net | Other, net | (35,814) | | | (11,969) | | Other, net | (1,160) | | | (35,814) | |
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 | (227,831) | | | (222,521) | | |
Accounts receivable, net | | Accounts receivable, net | (64,891) | | | (227,831) | |
Inventories | Inventories | (286,437) | | | (225,522) | | Inventories | 41,841 | | | (286,437) | |
Prepaid expenses and other assets | Prepaid expenses and other assets | (14,001) | | | (38,290) | | Prepaid expenses and other assets | 1,207 | | | (14,001) | |
Accounts payable | Accounts payable | 121,513 | | | 199,877 | | Accounts payable | (67,441) | | | 121,513 | |
Accrued compensation and employee benefits | Accrued compensation and employee benefits | (62,208) | | | 32,284 | | Accrued compensation and employee benefits | (41,063) | | | (62,208) | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | (19,700) | | | 42,084 | | Accrued expenses and other liabilities | (8,342) | | | (19,700) | |
| Accrued and deferred taxes, net | Accrued and deferred taxes, net | (71,618) | | | 8,321 | | Accrued and deferred taxes, net | (63,192) | | | (71,618) | |
Net cash provided by operating activities | Net cash provided by operating activities | 467,081 | | | 788,586 | | Net cash provided by operating activities | 819,995 | | | 467,081 | |
| Investing Activities: | Investing Activities: | | | | Investing Activities: | | | |
Additions to property, plant and equipment | Additions to property, plant and equipment | (166,039) | | | (121,157) | | Additions to property, plant and equipment | (131,582) | | | (166,039) | |
Acquisitions, net of cash acquired | (229,296) | | | (171,287) | | |
Acquisitions, net of cash and cash equivalents acquired | | Acquisitions, net of cash and cash equivalents acquired | (7,166) | | | (229,296) | |
Proceeds from sale of property, plant and equipment | Proceeds from sale of property, plant and equipment | 4,215 | | | 6,570 | | Proceeds from sale of property, plant and equipment | 3,430 | | | 4,215 | |
| Other | Other | (10,941) | | | (768) | | Other | (935) | | | (10,941) | |
Net cash used in investing activities | Net cash used in investing activities | (402,061) | | | (286,642) | | Net cash used in investing activities | (136,253) | | | (402,061) | |
| Financing Activities: | Financing Activities: | | | | Financing Activities: | | | |
Repurchase of common stock, including prepayment under accelerated share repurchase program | Repurchase of common stock, including prepayment under accelerated share repurchase program | (585,000) | | | (21,637) | | Repurchase of common stock, including prepayment under accelerated share repurchase program | — | | | (585,000) | |
| Proceeds from commercial paper and other short-term borrowings, net | 682,928 | | | — | | |
Change in commercial paper and other short-term borrowings, net | | Change in commercial paper and other short-term borrowings, net | (528,816) | | | 682,928 | |
Dividends paid to stockholders | Dividends paid to stockholders | (216,636) | | | (214,805) | | Dividends paid to stockholders | (212,882) | | | (216,636) | |
Payments to settle employee tax obligations on exercise of share-based awards | Payments to settle employee tax obligations on exercise of share-based awards | (12,278) | | | (34,838) | | Payments to settle employee tax obligations on exercise of share-based awards | (12,334) | | | (12,278) | |
| Other | Other | (2,593) | | | (3,518) | | Other | (3,173) | | | (2,593) | |
Net cash used in financing activities | Net cash used in financing activities | (133,579) | | | (274,798) | | Net cash used in financing activities | (757,205) | | | (133,579) | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (10,943) | | | (1,077) | | Effect of exchange rate changes on cash and cash equivalents | (6,307) | | | (10,943) | |
| Net (decrease) increase in cash and cash equivalents | (79,502) | | | 226,069 | | |
Net decrease in cash and cash equivalents, including cash held for sale | | Net decrease in cash and cash equivalents, including cash held for sale | (79,770) | | | (79,502) | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 385,504 | | | 513,075 | | Cash and cash equivalents at beginning of period | 380,868 | | | 385,504 | |
Cash and cash equivalents at end of period | $ | 306,002 | | | $ | 739,144 | | |
Cash and cash equivalents, including cash held for sale, at end of period | | Cash and cash equivalents, including cash held for sale, at end of period | $ | 301,098 | | | $ | 306,002 | |
| | | | | | | | | | | |
| September 30, 2023 | | September 30, 2022 |
Cash and cash equivalents | $ | 283,798 | | | $ | 306,002 | |
Cash and cash equivalents held for sale | 17,300 | | | — | |
Cash and cash equivalents, including cash held for sale | $ | 301,098 | | | $ | 306,002 | |
| | | |
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 Statementscondensed 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 Statementscondensed consolidated financial statements should therefore be read in conjunction with the Consolidated Financial Statements and Notes for Dover Corporation ("Dover" or the "Company") for the year ended December 31, 2021,2022, included in the Company's Annual Report on Form 10-K filed with the SEC on February 11, 2022.10, 2023. The year-end Condensed Consolidated Balance Sheetcondensed consolidated balance sheet was derived from audited financial statements.
The accompanying unaudited interim Condensed Consolidated Financial Statementscondensed 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 Statementscondensed 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 Statementscondensed 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
Revenue from Contracts with Customers
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
Revenue from contracts with customers is disaggregated by segment and geographic location, as they best depict the nature and amount of the Company’s revenue. See Note 16 — Segment Information for further details.
Performance Obligations
Approximately 95% of the Company’s revenue is recognized at a point in time, rather than over time, as the Company completes its performance obligations. Specifically, revenue is recognized when control transfers to the customer, typically upon shipment or completion of installation, testing, certification, or other substantive acceptance provisions required under the contract. Less thanApproximately 5% of the Company’s revenue is recognized over time and relates to the sale of equipment or services, including software solutions and 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 ourthe Company's performance creates or enhances an asset the customer controls as the asset is created or enhanced, or ourthe Company's 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 fromA majority of the Company's contracts have a single performance obligation which represents, in most cases, the equipment or product being sold to the customer. Some contracts include multiple performance obligations such as a product and the related installation, extended warranty, software and digital solutions, and/or maintenance services. For contracts with customers is disaggregated by segment and geographic location, as they best depictmultiple performance obligations, the nature andCompany allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the Company’s revenue. See Note 16 — Segment Information for further details for revenue by segment and geographic location.
At September 30, 2022, we estimated that $318 million in revenue is expected to be recognized in the future related topromised goods or services underlying each performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. We expect to recognize approximately 73% of our unsatisfied (or partially unsatisfied) performance obligations as revenue through 2023, with the remaining balance to be recognized in 2024 and thereafter.
The following table provides information about contract assets and contract liabilities from contracts with customers:
| | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 | | December 31, 2020 |
| | | | | | |
Contract assets | | 14,660 | | | 11,440 | | | 15,020 | |
Contract liabilities - current | | 246,181 | | | 227,549 | | | 184,845 | |
Contract liabilities - non-current | | 20,872 | | | 21,513 | | | 13,921 | |
The revenue recognized during the nine months ended September 30, 2022 and 2021 that was included in contract liabilities at the beginning of the period, inclusive of adjustments, amounted to $178,098 and $155,255, respectively.obligation.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
At September 30, 2023, we estimated that $184,438 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. The Company expects to recognize approximately 62.6% of the Company's unsatisfied (or partially unsatisfied) performance obligations as revenue through 2024, with the remaining balance to be recognized in 2025 and thereafter.
The Company applied the practical expedient that permits the omission of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed.
Contract Balances
Contract assets primarily relate to the Company's right to consideration for work completed but not billed at the reporting date. Contract liabilities relate to advance consideration received from customers or advance billings for which revenue has not been recognized and are reduced when the associated revenue from the contract is recognized.
The following table provides information about contract assets and contract liabilities from contracts with customers:
| | | | | | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 | | December 31, 2021 |
| | | | | | |
Contract assets | | $ | 15,587 | | | $ | 11,074 | | | $ | 11,440 | |
Contract liabilities - current | | 256,130 | | | 256,933 | | | 227,549 | |
Contract liabilities - non-current | | 16,435 | | | 19,879 | | | 21,513 | |
The revenue recognized during the nine months ended September 30, 2023 and 2022 that was included in contract liabilities at the beginning of the period amounted to $212,594 and $178,098, respectively.
3. Acquisitions
2023 Acquisitions
During the nine monthsended September 30, 2023, the Company completed one acquisition. On August 28, 2023, the Company acquired 100% of the equity interests in the Arc Pacific group ("Arc Pacific"), a leading global supplier of can washers, dry-off, pin and internal bake ovens for the metal packaging industry, for $8,834, net of cash acquired and including contingent consideration. The Arc Pacific acquisition extends the Company's reach into can processing equipment production within the Climate & Sustainability Technologies segment. In connection with this acquisition, the Company recorded goodwill of $529 and intangible assets of $7,670, primarily related to customer intangibles.
On September 29, 2023, the Company entered into a definitive agreement to acquire the business of FW Murphy Production Controls, LLC, a leading provider of control and optimization solutions for the reciprocating compression industry, for approximately $530,000, subject to customary post-closing adjustments. The transaction is subject to the satisfaction of customary closing conditions, including receipt of regulatory approvals, and is expected to close in the fourth quarter of 2023. This acquisition adds complementary offerings within the Pumps & Process Solutions segment.
2022 Acquisitions
During the nine months ended September 30, 2022, the Company acquired two businesses in separate transactions for total consideration of $229,296,$231,562, net of cash acquired. Of these transactions, one includes additional consideration contingent on achieving certain financial performance targets. These businesses were acquired to complement and expand upon existing operations within the Pumps & Process Solutions segment. The goodwill recorded as a result of these acquisitions represents the economic benefits expected to be derived from product line expansions and operational synergies. The goodwill is non-deductible for U.S. income tax purposes for these acquisitions.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Malema
On July 1, 2022, the Company acquired 99.7% of the equity interests in Malema Engineering Corporation and its related foreign entities ("Malema"), a designer and manufacturer of flow measurement and control instruments serving customers in the biopharmaceutical, semiconductor and industrial sectors, for $220,843,$223,462, net of cash acquired and inclusive of the impact of measurement period adjustments discussed below, subject to contingent consideration. Subsequent to September 30,During the fourth quarter of 2022, the Company acquired the remaining 0.3% of equity interests in Malema. The Malema acquisition expands the Company's biopharma single-use production offering within the Pumps & Process Solutions segment. The contingent consideration is based upon meeting certain financial performance targets for each twelve-month period over the next two years from March 31, 2022, with a rangemaximum potential payout of payouts from $0 to $50,000. No value is attributed to the current estimated fair value of contingent earn-out liability, which will be reassessed quarterly during the performance periods. In connection with this acquisition, the Company recorded goodwill of $151,701$153,082 and intangible assets of $64,000 for customer intangibles, $16,000 for patents, and $4,000 for trademarks. The fair value for customer intangibles at the acquisition date was determined using the multi-period excess earnings method under the income approach. The fair value measurements of intangible assets are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include discounted future cash flows, customer attrition rates and discount rates. The fair value of assets acquired also includes trade receivables of $2,928. The fair values of the assets acquired and liabilities assumed, and theCompany recorded measurement period adjustments primarily related tax balances,to certain liabilities. These adjustments are based on preliminary estimatesfacts and assumptions. These preliminary estimates and assumptions could change significantly during the measurement periodcircumstances that existed, but were not known, as the Company finalizes the valuations of the assets acquired and liabilities assumed, and the related tax balances.acquisition date which resulted in an increase in goodwill of $1,381.
The following presents the preliminary allocation of purchase price to the assets acquired and liabilities assumed under the Malema acquisition, based on their estimated fair values at acquisition date:
| | | | | | | | |
| | Total |
Current assets, net of cash acquired | | $ | 8,985 | |
Property, plant and equipment | | 2,733 | |
Goodwill | | 151,701153,082 | |
Intangible assets | | 84,000 | |
Other assets and deferred charges | | 1,159 | |
Current liabilities | | (5,676)(4,487) | |
Non-current liabilities | | (22,059)(22,010) | |
Net assets acquired | | $ | 220,843223,462 | |
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 - non-deductible | Goodwill - non-deductible | $ | 151,701 | | | na | Goodwill - non-deductible | $ | 153,082 | | | na |
Customer intangibles | Customer intangibles | 64,000 | | | 15 | Customer intangibles | 64,000 | | | 15 |
| Patents | Patents | 16,000 | | | 10 | Patents | 16,000 | | | 10 |
Trademarks | Trademarks | 4,000 | | | 15 | Trademarks | 4,000 | | | 15 |
| | | $ | 235,701 | | | | $ | 237,082 | | |
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Other acquisitionsacquisition
On May 2, 2022, the Company acquired 100% of the voting stock ofequity interests in AMN DPI ("AMN"), a designer and manufacturer of polymer pelletizing tools, for $8,453,$8,100, net of cash acquired. The AMN acquisition extends the Company's reach into polymer processing equipment production within the Pumps & Process Solutions segment. In connection with this acquisition, the Company recorded goodwill of $2,315 and intangible assets of $5,349, primarily related to customer intangibles.
2021 Acquisitions
During the nine months ended September 30, 2021, the Company acquired six businesses in separate transactions for total consideration of $179,161, net of cash acquired and including contingent consideration. These businesses were acquired to complement and expand upon existing operations within the Engineered Products, Imaging & Identification, Pumps & Process Solutions, and Clean Energy & Fueling segments. The goodwill recorded as a result of these acquisitions represents the economic benefits expected to be derived from product line expansions and operational synergies. Goodwill of $29,317 is deductible for income tax purposes and $83,142 is non-deductible for income tax purposes for these acquisitions.
On September 15, 2021, the Company acquired 100% of the voting stock of The Espy Corporation ("Espy"), a manufacturer of advanced electronic radio frequency sensor systems, for $60,457, net of cash acquired. The Espy acquisition strengthens the Company's offering of complete signal intelligence systems with integrated software within the Engineered Products segment. In connection with this acquisition, the Company recorded goodwill of $29,317$1,903 and intangible assets of $21,100, primarily related to customer intangibles. The Espy acquisition was treated as an asset acquisition for U.S. income tax purposes, classifying the goodwill and intangibles as tax deductible.
On July 23, 2021, the Company acquired 100% of the voting stock of CDS Visual, Inc. ("CDS Visual"), a leading provider of 3D visualization solutions tailored for industrial applications, for $29,147, net of cash acquired. The CDS Visual acquisition extends the Company's reach of customer-facing digital capabilities within the Engineered Products segment. In connection with this acquisition, the Company recorded goodwill of $20,863 and intangible assets of $9,930, primarily related to technology.
On June 24, 2021, the Company acquired 100% of the voting stock of Blue Bite LLC ("Blue Bite"), a leading provider of consumer engagement and brand protection software solutions, for $30,143, net of cash acquired and including contingent consideration. The Blue Bite acquisition strengthens the Company's offering of product traceability and authentication solutions within the Imaging & Identification segment. In connection with this acquisition, the Company recorded goodwill of $20,458 and intangible assets of $13,250, primarily related to technology.
On June 23, 2021, the Company acquired 100% of the voting stock of Quantex Arc Limited ("Quantex"), a leading provider of single-use, recyclable pumps, for $23,747, net of cash acquired and including contingent consideration. The Quantex acquisition enhances the offering of single-use pumps for biopharma and other hygienic applications within the Pumps & Process Solutions segment. In connection with this acquisition, the Company recorded goodwill of $14,327 and intangible assets of $11,034, primarily related to patented technology.
On April 19, 2021, the Company acquired 100% of the voting stock of AvaLAN Wireless Systems Incorporated ("AvaLAN"), a leading provider of secure wireless communications solutions for the convenience and fuel retail industry, for $34,144, net of cash acquired. The AvaLAN acquisition extends the Company's reach into the systems and software offering within the Clean Energy & Fueling segment. In connection with this acquisition, the Company recorded goodwill of $26,803 and intangible assets of $14,630,$5,625, primarily related to customer intangibles.
One other immaterial acquisition was completed during the nine monthsended September 30, 2021 within the Pumps & Process Solutions segment.
RegO
On December 28, 2021, the Company acquired 100% of the voting stock of ECI Holding Company, LLC ("RegO"), a provider of highly-engineered components and services that facilitate the production, storage, and distribution of cryogenic gases, for $626,620, net of cash acquired and inclusive of the impact of measurement period adjustments discussed below. In connection with this acquisition, the Company recorded goodwill of $158,894 deductible for income tax purposes and $122,301 non-deductible for income tax purposes. The Company also recorded intangible assets of $173,000 for customer intangibles,
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
$40,0004. Dispositions
On October 11, 2023, the Company entered into a definitive agreement to sell De-Sta-Co, an operating company within the Engineered Products segment, for patents,approximately $680,000 enterprise value, net of estimated selling costs and $21,000 for trademarks.subject to customary post-closing adjustments. 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 $706transaction is expected to close in the first half of 2024, subject to customary closing conditions, including receipt of regulatory approvals. As of September 30, 2023, De-Sta-Co met the criteria to be uncollectible.classified as held for sale. The fair values of theCompany classified De-Sta-Co's assets acquired and liabilities assumed,separately as current assets and current liabilities held for sale within the related tax balances, are based on preliminary estimates and assumptions. These preliminary estimates and assumptions could change during the measurement periodcondensed consolidated balance sheets as the Company finalizes the valuations of the assets acquired and liabilities assumed, and the related tax balances. During the nine months ended September 30, 2022, the2023. 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 existedhad no assets or liabilities classified as held for sale as of the acquisition date which resulted in an increase in goodwill of $4,219.December 31, 2022.
The following table presents the updated preliminary allocation of purchase price, net of cash acquired of $10,382, to the assets acquired and liabilities assumed underassociated with the RegO acquisition, based on their estimated fair values at their acquisition dates:De-Sta-Co business classified as held for sale as of September 30, 2023.
| | | | | | | |
| September 30, 2023 | | |
Assets held for sale | | | |
Cash and cash equivalents | $ | 17,300 | | | |
Receivables, net | 36,653 | | | |
Inventories, net | 45,837 | | | |
| | Total |
Accounts receivable | | $ | 33,900 | |
Inventories | | 72,551 | |
Other current assets | | 2,958 | |
Property, plant and equipment, net | 18,390 | | 50,027 | |
Goodwill | Goodwill58,337 | | 281,195 | |
Other assets held for sale | Intangible assets14,031 | | 234,000 | |
Other assets and deferred charges | | 884 | |
Current liabilities | | (20,150) | |
Non-current liabilities | | (28,745) | |
NetTotal assets acquired | held for sale | $ | 626,620190,548 | | | |
| | | |
Liabilities held for sale | | | |
Accounts payable | $ | 28,023 | | | |
Accrued expenses and deferred revenue | 17,140 | | | |
Other liabilities held for sale | 21,902 | | | |
| | | |
| | | |
Total liabilities held for sale | $ | 67,065 | | | |
The amounts assigned to goodwillsale does not represent a strategic shift that will have a major effect on the Company's operations and major intangible asset classifications werefinancial results and, therefore, did not qualify for presentation as follows:
| | | | | | | | | | | | | | | | | |
| Amount allocated | | Useful life (in years) |
Goodwill - tax deductible | $ | 158,894 | | | na |
Goodwill - non-deductible | 122,301 | | | na |
Customer intangibles | 173,000 | | | 15 |
Patents | 40,000 | | | 12 |
| | | | | |
Trademarks | 21,000 | | | 16 |
| | | | | |
| $ | 515,195 | | | | | |
a discontinued operation.
Acme Cryogenics
5. Inventories, net | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Raw materials | $ | 725,941 | | | $ | 812,066 | |
Work in progress | 231,993 | | | 230,865 | |
Finished goods | 453,265 | | | 458,881 | |
Subtotal | 1,411,199 | | | 1,501,812 | |
Less reserves | (131,418) | | | (135,204) | |
Total | $ | 1,279,781 | | | $ | 1,366,608 | |
On December 16, 2021,
6. Property, Plant and Equipment, net | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Land | $ | 64,015 | | | $ | 62,495 | |
Buildings and improvements | 608,205 | | | 620,500 | |
Machinery, equipment and other | 1,892,241 | | | 1,895,502 | |
Property, plant and equipment, gross | 2,564,461 | | | 2,578,497 | |
Accumulated depreciation | (1,572,304) | | | (1,573,672) | |
Property, plant and equipment, net | $ | 992,157 | | | $ | 1,004,825 | |
Depreciation expense totaled $40,751 and $36,889 for the Company acquired 100% of the voting stock of Acme Cryo Intermediate Inc. ("Acme Cryogenics"), a provider of highly-engineered componentsthree months ended September 30, 2023 and services that facilitate the production, storage, and distribution of cryogenic gases, for $292,285, net of cash acquired and inclusive of the impact of measurement period adjustments discussed below. In connection with this acquisition, the Company recorded goodwill of $164,870 non-deductible for income tax purposes. The Company also recorded intangible assets of $99,000 for customer intangibles, $21,800 for unpatented technology and $6,500 for trademarks. The fair value of customer intangibles at the acquisition date was determined using the multi-period excess earnings method under the income approach. The fair value measurements of intangible assets are based on significant unobservable inputs and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include discounted future cash flows, customer attrition rates and discount rates. The fair value of assets acquired also includes trade receivables of $14,568. The gross amount is $14,912, of which $344 is expected to be uncollectible. The fair values of the assets acquired and liabilities assumed, and the related tax balances, are based on preliminary estimates and assumptions. These preliminary estimates and assumptions could change during the measurement period as the Company finalizes the valuations of the assets acquired and liabilities assumed, and the related tax balances. During2022, respectively. For the nine months ended September 30, 2023 and 2022, the Company recorded measurement period adjustments primarily related to its preliminary estimates of deferred taxesdepreciation expense totaled $118,121 and changes in net working capital. These adjustments are based on facts and circumstances that existed as of the acquisition date which resulted in a decrease in goodwill of $4,339.$111,274, respectively.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The following presents the updated preliminary allocation of purchase price to the assets acquired and liabilities assumed under the Acme Cryogenics acquisition, based on their estimated fair values at acquisition date:
| | | | | | | | |
| | Total |
Current assets, net of cash acquired | | $ | 28,332 | |
Property, plant and equipment | | 8,640 | |
Goodwill | | 164,870 | |
Intangible assets | | 127,300 | |
Other assets and deferred charges | | 5,057 | |
Current liabilities | | (7,286) | |
Non-current liabilities | | (34,628) | |
Net assets acquired | | $ | 292,285 | |
The amounts assigned to goodwill and major intangible asset classifications were as follows:
| | | | | | | | | | | | | | | | | |
| Amount allocated | | Useful life (in years) |
| | | |
Goodwill - non-deductible | $ | 164,870 | | | na |
Customer intangibles | 99,000 | | | 15 |
| | | | | |
Unpatented technologies | 21,800 | | | 12 |
Trademarks | 6,500 | | | 16 |
| | | | | |
| $ | 292,170 | | | | | |
4. Inventories, net | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Raw materials | $ | 781,168 | | | $ | 671,195 | |
Work in progress | 311,819 | | | 271,659 | |
Finished goods | 446,098 | | | 377,800 | |
Subtotal | 1,539,085 | | | 1,320,654 | |
Less reserves | (131,288) | | | (129,559) | |
Total | $ | 1,407,797 | | | $ | 1,191,095 | |
5. Property, Plant and Equipment, net | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Land | $ | 60,706 | | | $ | 63,656 | |
Buildings and improvements | 571,851 | | | 582,314 | |
Machinery, equipment and other | 1,848,889 | | | 1,816,473 | |
Property, plant and equipment, gross | 2,481,446 | | | 2,462,443 | |
Accumulated depreciation | (1,522,552) | | | (1,505,133) | |
Property, plant and equipment, net | $ | 958,894 | | | $ | 957,310 | |
Depreciation expense totaled $36,889 and $36,913 for the three months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022 and 2021, depreciation expense totaled $111,274 and $111,152, respectively.
6.7. Credit Losses
The Company is exposed to credit losses primarily through sales of products and services. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected is based on the aging of the accounts receivable balances and other historical and forward-looking information on the financial condition of customers. Balances are written off when determined to be uncollectible.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.
| | | 2022 | | 2021 | | 2023 | | 2022 |
Beginning Balance, December 31 of the Prior Year | $ | 40,126 | | | $ | 40,474 | | |
Balance at January 1 | | Balance at January 1 | $ | 39,399 | | | $ | 40,126 | |
| Provision for expected credit losses, net of recoveries | Provision for expected credit losses, net of recoveries | 2,791 | | | 4,744 | | Provision for expected credit losses, net of recoveries | 744 | | | 2,791 | |
Amounts written off charged against the allowance | Amounts written off charged against the allowance | (3,320) | | | (3,991) | | Amounts written off charged against the allowance | (4,860) | | | (3,320) | |
Other, including foreign currency translation | Other, including foreign currency translation | (3,202) | | | 371 | | Other, including foreign currency translation | (1,323) | | | (3,202) | |
Ending balance, September 30 | $ | 36,395 | | | $ | 41,598 | | |
Balance at September 30 | | Balance at September 30 | $ | 33,960 | | | $ | 36,395 | |
7.8. Goodwill and Other Intangible Assets
The changes in the carrying value of goodwill by reportable operating segments were as follows:
| | | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Total | | 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 | | |
Balance at January 1, 2023 | | Balance at January 1, 2023 | $ | 712,542 | | | $ | 1,391,418 | | | $ | 1,078,259 | | | $ | 979,535 | | | $ | 507,740 | | | $ | 4,669,494 | |
Acquisitions | Acquisitions | — | | | — | | | — | | | 154,016 | | | — | | | 154,016 | | Acquisitions | — | | | — | | | — | | | — | | | 529 | | | 529 | |
Measurement period adjustments | Measurement period adjustments | (286) | | | 44 | | | (1,544) | | | — | | | — | | | (1,786) | | Measurement period adjustments | — | | | — | | | — | | | (5,103) | | | — | | | (5,103) | |
| Held for sale | | Held for sale | (58,337) | | | — | | | — | | | — | | | — | | | (58,337) | |
Foreign currency translation | Foreign currency translation | (21,852) | | | (70,344) | | | (56,274) | | | (27,867) | | | (2,382) | | | (178,719) | | Foreign currency translation | 299 | | | 1,607 | | | (1,253) | | | (88) | | | (25) | | | 540 | |
Balance at September 30, 2022 | $ | 701,145 | | | $ | 1,357,391 | | | $ | 1,048,384 | | | $ | 918,988 | | | $ | 506,425 | | | $ | 4,532,333 | | |
Balance at September 30, 2023 | | Balance at September 30, 2023 | $ | 654,504 | | | $ | 1,393,025 | | | $ | 1,077,006 | | | $ | 974,344 | | | $ | 508,244 | | | $ | 4,607,123 | |
During the nine months ended September 30, 2022,2023, the Company recognized additions of $154,016$529 to goodwill as a result of acquisitions asthe acquisition discussed in Note 3 — Acquisitions. During the nine months ended September 30, 2022,2023, the Company recorded measurement period adjustments that decreased goodwill by $1,786,$5,103, principally related to deferred taxes and working capital adjustments for 20212022 acquisitions within the ImagingPumps & IdentificationProcess Solutions segment. As noted in Note 4 — Dispositions, the Company classified De-Sta-Co's assets and liabilities as held for sale as of September 30, 2023. As a result, the Engineered Products segments.segment goodwill balance was reduced by $58,337.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The Company’s definite-lived and indefinite-lived intangible assets by major asset class were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Amortized intangible assets: | | | | | | | | | | | |
Customer intangibles | $ | 1,819,083 | | | $ | 947,490 | | | $ | 871,593 | | | $ | 1,829,492 | | | $ | 909,776 | | | $ | 919,716 | |
Trademarks | 257,029 | | | 125,754 | | | 131,275 | | | 263,367 | | | 116,633 | | | 146,734 | |
Patents | 215,500 | | | 141,621 | | | 73,879 | | | 205,910 | | | 140,327 | | | 65,583 | |
Unpatented technologies | 243,792 | | | 129,646 | | | 114,146 | | | 221,239 | | | 123,464 | | | 97,775 | |
Distributor relationships | 74,812 | | | 53,594 | | | 21,218 | | | 84,204 | | | 55,260 | | | 28,944 | |
Drawings and manuals | 24,447 | | | 24,447 | | | — | | | 27,792 | | | 27,303 | | | 489 | |
Other | 22,503 | | | 18,017 | | | 4,486 | | | 22,347 | | | 18,775 | | | 3,572 | |
Total | 2,657,166 | | | 1,440,569 | | | 1,216,597 | | | 2,654,351 | | | 1,391,538 | | | 1,262,813 | |
Unamortized intangible assets: | | | | | | | | | | |
Trademarks | 96,404 | | | — | | | 96,404 | | | 96,709 | | | — | | | 96,709 | |
Total intangible assets, net(1) | $ | 2,753,570 | | | $ | 1,440,569 | | | $ | 1,313,001 | | | $ | 2,751,060 | | | $ | 1,391,538 | | | $ | 1,359,522 | |
(1)The change in intangible assets, net for the nine months ended September 30, 2022 includes a decrease of $48.2 million due to foreign currency translation. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Amortized intangible assets: | | | | | | | | | | | |
Customer intangibles | $ | 1,861,661 | | | $ | 1,050,837 | | | $ | 810,824 | | | $ | 1,881,402 | | | $ | 996,947 | | | $ | 884,455 | |
Trademarks | 261,265 | | | 141,236 | | | 120,029 | | | 265,466 | | | 132,791 | | | 132,675 | |
Patents | 204,897 | | | 139,345 | | | 65,552 | | | 219,199 | | | 146,337 | | | 72,862 | |
Unpatented technologies | 262,966 | | | 151,930 | | | 111,036 | | | 257,428 | | | 137,750 | | | 119,678 | |
Distributor relationships | 79,894 | | | 60,807 | | | 19,087 | | | 79,622 | | | 57,299 | | | 22,323 | |
| | | | | | | | | | | |
Other | 22,103 | | | 9,542 | | | 12,561 | | | 46,880 | | | 41,682 | | | 5,198 | |
Total | 2,692,786 | | | 1,553,697 | | | 1,139,089 | | | 2,749,997 | | | 1,512,806 | | | 1,237,191 | |
Unamortized intangible assets: | | | | | | | | | | |
Trademarks | 96,554 | | | — | | | 96,554 | | | 96,544 | | | — | | | 96,544 | |
Total intangible assets, net | $ | 2,789,340 | | | $ | 1,553,697 | | | $ | 1,235,643 | | | $ | 2,846,541 | | | $ | 1,512,806 | | | $ | 1,333,735 | |
For the three months ended September 30, 20222023 and 2021,2022, amortization expense was $39,625$39,564 and $35,998,$39,625, respectively. For the nine months ended September 30, 20222023 and 2021,2022, amortization expense was $119,534$118,881 and $107,084,$119,534, respectively. Amortization expense is primarily comprised of acquisition-related intangible amortization.
During the nine months ended September 30, 2022,2023, 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.through an immaterial asset acquisition. These assets were classified as unpatented technologies and included in the Engineered ProductsImaging & Identification segment.
8.9. 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 September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Engineered Products | Engineered Products | $ | 2,027 | | | $ | 870 | | | $ | 3,008 | | | $ | 9,200 | | Engineered Products | $ | 1,472 | | | $ | 2,027 | | | $ | 5,949 | | | $ | 3,008 | |
Clean Energy & Fueling | Clean Energy & Fueling | 3,063 | | | 1,620 | | | 4,682 | | | 3,084 | | Clean Energy & Fueling | (37) | | | 3,063 | | | 15,954 | | | 4,682 | |
Imaging & Identification | Imaging & Identification | 516 | | | 168 | | | 2,051 | | | 1,032 | | Imaging & Identification | 233 | | | 516 | | | 1,437 | | | 2,051 | |
Pumps & Process Solutions | Pumps & Process Solutions | 552 | | | 639 | | | 2,713 | | | 1,526 | | Pumps & Process Solutions | 1,637 | | | 552 | | | 6,266 | | | 2,713 | |
Climate & Sustainability Technologies | Climate & Sustainability Technologies | (85) | | | 1,293 | | | 5,790 | | | 4,637 | | Climate & Sustainability Technologies | 1,138 | | | (85) | | | 2,585 | | | 5,790 | |
Corporate | Corporate | 1,242 | | | 200 | | | 1,537 | | | 1,182 | | Corporate | 476 | | | 1,242 | | | 1,603 | | | 1,537 | |
Total | Total | $ | 7,315 | | | $ | 4,790 | | | $ | 19,781 | | | $ | 20,661 | | Total | $ | 4,919 | | | $ | 7,315 | | | $ | 33,794 | | | $ | 19,781 | |
| 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 | $ | 2,082 | | | $ | 2,194 | | | $ | 3,326 | | | $ | 10,940 | | Cost of goods and services | $ | 1,198 | | | $ | 2,082 | | | $ | 10,353 | | | $ | 3,326 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 5,233 | | | 2,596 | | | 16,455 | | | 9,721 | | Selling, general and administrative expenses | 3,721 | | | 5,233 | | | 23,441 | | | 16,455 | |
Total | Total | $ | 7,315 | | | $ | 4,790 | | | $ | 19,781 | | | $ | 20,661 | | Total | $ | 4,919 | | | $ | 7,315 | | | $ | 33,794 | | | $ | 19,781 | |
The restructuring expenses of $7,315 $4,919 incurred during the three months ended September 30, 2023 were primarily related to headcount reductions and $19,781exit costs in the Pumps & Process Solutions, Engineered Products and Climate & Sustainability Technologies segments. The restructuring expenses of $33,794 incurred during the three and nine months ended September 30, 20222023 were primarily related to headcount reductions and exit costs in the result ofClean Energy & Fueling, Pumps & Process Solutions, and Engineered Product segments. These restructuring programsprograms were initiated in 20212022 and 2023 and were undertaken in light of current market conditions. The Company will continue to make proactive adjustments to its cost structure through restructuring and other programs to align with current demand trends.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The Company’s severance and exit accrual activities were as follows:
| | | | | | | | | | | | | | | | | |
| Severance | | Exit | | Total |
Balance at January 1, 2023 | $ | 12,007 | | | $ | 2,503 | | | $ | 14,510 | |
Restructuring charges | 25,461 | | | 8,333 | | | 33,794 | |
Payments | (22,386) | | | (7,008) | | | (29,394) | |
| | | | | |
| | | | | |
Other, including foreign currency translation | (60) | | | (1,260) | | | (1,320) | |
Balance at September 30, 2023 | $ | 15,022 | | | $ | 2,568 | | | $ | 17,590 | |
10. Borrowings
Borrowings consist of the following:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Short-term | | | |
Commercial paper | $ | 206,300 | | | $ | 734,936 | |
Other | 656 | | | 836 | |
| | | |
Short-term borrowings | $ | 206,956 | | | $ | 735,772 | |
During the nine months ended September 30, 2023, commercial paper borrowings decreased $528,636. The borrowings outstanding under the commercial paper program had a weighted average annual interest rate of 5.44% and 4.61% as of September 30, 2023 and December 31, 2022, in responserespectively.
| | | | | | | | | | | | | | | | | |
| | | Carrying amount (1) |
| Principal | | September 30, 2023 | | December 31, 2022 |
Long-term | | | | | |
3.15% 10-year notes due November 15, 2025 | $ | 400,000 | | | $ | 398,568 | | | $ | 398,063 | |
1.25% 10-year notes due November 9, 2026 (euro-denominated) | € | 600,000 | | | 632,218 | | | 631,522 | |
0.750% 8-year notes due November 4, 2027 (euro-denominated) | € | 500,000 | | | 526,189 | | | 525,654 | |
6.65% 30-year debentures due June 1, 2028 | $ | 200,000 | | | 199,531 | | | 199,456 | |
2.950% 10-year notes due November 4, 2029 | $ | 300,000 | | | 297,692 | | | 297,408 | |
5.375% 30-year debentures due October 15, 2035 | $ | 300,000 | | | 296,996 | | | 296,808 | |
6.60% 30-year notes due March 15, 2038 | $ | 250,000 | | | 248,364 | | | 248,279 | |
5.375% 30-year notes due March 1, 2041 | $ | 350,000 | | | 345,189 | | | 344,982 | |
Other | | | — | | | 341 | |
| | | | | |
| | | | | |
Total long-term debt | | | $ | 2,944,747 | | | $ | 2,942,513 | |
(1) Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discounts were $11.3 million and $12.7 million as of September 30, 2023 and December 31, 2022, respectively. Total deferred debt issuance costs were $9.4 million and $10.7 million as of September 30, 2023 and December 31, 2022, respectively.
The discounts are being amortized to demand conditions and broad-based operational efficiency initiatives focusinginterest expense using the effective interest method over the life of the issuances. The deferred issuance costs are amortized on footprint consolidation and IT centralization.a straight-line basis over the life of the debt, as this approximates the effective interest method.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The $7,315 of restructuring charges incurred during the third quarter of 2022 primarily included the following items:
•The Engineered Products segment recorded $2,027 of restructuring charges related primarily to headcount reductions.
•The Clean Energy & Fueling segment recorded $3,063 of restructuring charges related primarily to headcount reductions and exit costs undertaken in light of market conditions. The segment will continue to make proactive adjustments to its cost structure through restructuring and other programs to align with current demand trends.
•The Imaging & Identification segment recorded $516 of restructuring charges related primarily to headcount reductions and exit costs.
•The Pumps & Process Solutions segment recorded $552 of restructuring charges related primarily to headcount reductions.
•The Climate & Sustainability Technologies segment recorded $(85) of net restructuring reserve adjustments.
•Corporate recorded $1,242 of restructuring charges related primarily to exit costs and simplification of organizational structure.
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 | 8,421 | | | 11,360 | | (1) | 19,781 | |
Payments | (10,637) | | | (4,253) | | | (14,890) | |
| | | | | |
| | | | | |
Other, including foreign currency translation | (862) | | | (6,945) | | (1) | (7,807) | |
Balance at September 30, 2022 | $ | 7,652 | | | $ | 3,229 | | | $ | 10,881 | |
(1) Other activity includes non-cash foreign currency translation losses recorded as restructuring charges due to the substantial liquidation of businesses in certain Latin America countries.
9. Borrowings
Borrowings consisted of the following:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Short-term: | | | |
Commercial paper | $ | 788,034 | | | $ | 105,000 | |
Other | 826 | | | 702 | |
| | | |
Short-term borrowings | $ | 788,860 | | | $ | 105,702 | |
| | | | | | | | | | | | | | | | | |
| | | Carrying amount (1) |
| Principal | | September 30, 2022 | | December 31, 2021 |
Long-term | | | | | |
3.15% 10-year notes due November 15, 2025 | $ | 400,000 | | | $ | 397,895 | | | $ | 397,389 | |
1.25% 10-year notes due November 9, 2026 (euro-denominated) | € | 600,000 | | | 577,288 | | | 674,217 | |
0.750% 8-year notes due November 4, 2027 (euro-denominated) | € | 500,000 | | | 480,484 | | | 561,293 | |
6.65% 30-year debentures due June 1, 2028 | $ | 200,000 | | | 199,431 | | | 199,356 | |
2.950% 10-year notes due November 4, 2029 | $ | 300,000 | | | 297,313 | | | 297,029 | |
5.375% 30-year debentures due October 15, 2035 | $ | 300,000 | | | 296,746 | | | 296,559 | |
6.60% 30-year notes due March 15, 2038 | $ | 250,000 | | | 248,251 | | | 248,166 | |
5.375% 30-year notes due March 1, 2041 | $ | 350,000 | | | 344,913 | | | 344,705 | |
Other | | | 341 | | | — | |
| | | | | |
| | | | | |
Total long-term debt | | | $ | 2,842,662 | | | $ | 3,018,714 | |
(1) Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discounts were
$12.8 million and $15.1 million as of September 30, 2022 and December 31, 2021, respectively. Total deferred debt issuance costs were $11.2 million and $12.5 million as of September 30, 2022 and December 31, 2021, respectively.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
During the nine months ended September 30, 2022, commercial paper borrowings increased $683,034. The borrowings outstanding under the commercial paper program had a weighted average annual interest rate of 3.34% and 0.38% as of September 30, 2022 and December 31, 2021, respectively.
As of September 30, 2022,On April 6, 2023, the Company maintainedentered into new $1.0 billion five-year and $500.0 million 364-day unsecured revolving credit facilities ("Credit Agreements") with a $1.0syndicate of banks. The new five-year credit facility replaced the previous $1 billion five-year unsecured revolving credit facility, (the "Credit Agreement") with a syndicate of banks which expireswas set to expire on October 4, 2024.2024 and was terminated by the Company upon execution of the new five-year credit facility. The lenders' commitments under the five-year and 364-day Credit Agreements will terminate and the loans under the Credit Agreements will mature on April 6, 2028 and April 4, 2024, respectively. The Company usesmay elect to extend the maturity date of any loans under the 364-day credit facility until April 4, 2025, subject to conditions specified therein. The Credit Agreement principallyAgreements are designated as a liquidity back-upback-stop for itsthe Company's commercial paper program, which was upsized from $1.0 billion to $1.5 billion during the second quarter of 2023, and also are available for general corporate purposes. At the Company's election, loans under the Credit AgreementAgreements will bear interest at a base rate plus an applicable margin. The Credit Agreement requiresAgreements require the Company to pay a facility feefees and imposesimpose various restrictions on the Company such as, among other things, a requirement to maintain a minimum interest coverage ratio of consolidated EBITDA to consolidated net interest expense of not less than 3.0 to 1. As of September 30, 20222023 and December 31, 2021,2022, there were no outstanding borrowings under the new Credit Agreement.Agreements or the previous five-year credit facility.
The Company was in compliance with all covenants in the Credit AgreementAgreements and other long-term debt covenants at September 30, 20222023 and had an interest coverage ratio of consolidated EBITDA to consolidated net interest expense of 17.513.8 to 1.
Letters of Credit and other Guarantees
As of September 30, 2022,2023, the Company had approximately $168$182.5 million outstanding in letters of credit, surety bonds, and performance and other guarantees which primarily expire on various dates through 2039.2031. 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.obligations, the probability of which is believed to be remote.
10.11. 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 which occur within the next twelve months that are denominated in non-functional currencies, with currency forward contracts designated as cash flow hedges. At September 30, 20222023 and December 31, 2021,2022, the Company had contracts with total notional amounts of $163,384$174,906 and $180,929,$184,565, respectively, to exchange currencies, principally euro, pound sterling, Swedish krona, Canadian dollar, Chinese yuan, and Swiss franc. The Company believes it is probable that all forecasted cash flow transactions will occur.
In addition, the Company had outstanding contracts with a total notional amount of $112,646$110,002 and $108,736$102,509 as of September 30, 20222023 and December 31, 2021,2022, 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 Statementscondensed consolidated statements of Earnings.earnings.
The following table sets forth the fair values of derivative instruments held by the Company as of September 30, 20222023 and December 31, 20212022 and the balance sheet lines in which they are recorded:
| | | Fair Value Asset (Liability) | | | Fair Value Asset (Liability) | |
| | September 30, 2022 | | December 31, 2021 | | Balance Sheet Caption | | September 30, 2023 | | December 31, 2022 | | Balance Sheet Caption |
Foreign currency forward | Foreign currency forward | $ | 3,866 | | | $ | 2,825 | | | Prepaid and other current assets | Foreign currency forward | $ | 1,980 | | | $ | 944 | | | Prepaid and other current assets |
Foreign currency forward | Foreign currency forward | (5,377) | | | (433) | | | Other accrued expenses | Foreign currency forward | (931) | | | (2,760) | | | Other accrued expenses |
|
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
For a cash flow hedge, the change in estimated fair value of a hedging instrument is recorded in accumulated other comprehensive earnings (loss) earnings as a separate component of the Condensed Consolidated Statementscondensed consolidated statements of Stockholders' Equitystockholders' equity and is reclassified into revenues, cost of goods and services, or selling, general and administrative expenses in the Condensed Consolidated Statementscondensed consolidated statements of Earningsearnings 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.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The Company is exposed to credit loss in the event of nonperformance by counterparties to the financial instrument contracts held by the Company; however, nonperformance by these counterparties is considered unlikely as the Company’s policy is to contract with highly-rated, diversified counterparties.
The Company has designated the €500,000€600,000 and €600,000€500,000 of euro-denominated notes issued November 4, 20199, 2016 and November 9, 2016,4, 2019, 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 (loss) of the Condensed Consolidated Statementscondensed consolidated statements of Comprehensive Earningscomprehensive earnings to offset changes in the value of the net investment in euro-denominated operations. Changes in the value of the euro-denominated debt resulting from exchange rate differences are offset by changes in the net investment due to the high degree of effectiveness between the hedging instruments and the exposure being hedged.
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 September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Gain on euro-denominated debt | Gain on euro-denominated debt | $ | 94,731 | | | $ | 24,032 | | | $ | 179,221 | | | $ | 51,571 | | Gain on euro-denominated debt | $ | 32,773 | | | $ | 94,731 | | | $ | 262 | | | $ | 179,221 | |
Tax expense | Tax expense | (21,020) | | | (5,446) | | | (39,990) | | | (11,669) | | Tax expense | (7,274) | | | (21,020) | | | (58) | | | (39,990) | |
Net gain on net investment hedges, net of tax | Net gain on net investment hedges, net of tax | $ | 73,711 | | | $ | 18,586 | | | $ | 139,231 | | | $ | 39,902 | | Net gain on net investment hedges, net of tax | $ | 25,499 | | | $ | 73,711 | | | $ | 204 | | | $ | 139,231 | |
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.value as follows:
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 September 30, 20222023 and December 31, 2021:2022:
| | | | September 30, 2022 | | | December 31, 2021 | | | September 30, 2023 | | | December 31, 2022 |
| | | Level 2 | | | | Level 2 | | | | Level 2 | | | | Level 2 | |
Assets: | Assets: | | | | | | | | Assets: | | | | | | | |
Foreign currency cash flow hedges | Foreign currency cash flow hedges | | $ | 3,866 | | | | | $ | 2,825 | | | Foreign currency cash flow hedges | | $ | 1,980 | | | | | $ | 944 | | |
Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
Foreign currency cash flow hedges | Foreign currency cash flow hedges | | 5,377 | | | | | 433 | | | Foreign currency cash flow hedges | | 931 | | | | | 2,760 | | |
|
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The derivative contracts are measured at fair value using models based on observable market inputs such as foreign currency exchange rates and interest rates; therefore, they are classified within Level 2 of the fair value hierarchy.
In addition to fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require disclosures regarding the fair value of all of the Company's financial instruments.
The estimated fair value of long-term debt at September 30, 20222023 and December 31, 20212022, was $2,658,903$2,761,155 and $3,440,501,$2,786,862, 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 short-term borrowings are reasonable estimates ofapproximate their fair values as of September 30, 20222023 and December 31, 20212022 due to the short-term nature of these instruments.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
11.12. Income Taxes
The effective tax rates for the three months ended September 30, 2023 and 2022 were 18.3%and 2021 were 19.0% and 19.5%, respectively.respectively. The decrease in the effective tax rate for the three months ended September 30, 2023 relative to the prior year comparable period was primarily due to favorable audit resolutions.
The effective tax rates for the nine months ended September 30, 2023 and 2022 were 19.2% and 16.8%, respectively. The increase in the effective tax rate for the nine months ended September 30, 2023 relative to the prior year comparable period was primarily driven by favorable audit resolutions and recording of previously unrecognized tax attributes.
The effective tax rates for the nine months ended September 30,in 2022, and 2021 were 16.8% and 19.0%, respectively. The decrease in the effective tax rate for the nine months ended September 30, 2022 relative to the prior year comparable period was primarily driven by favorable audit resolutions, as well as $22.6 millionincluding $22,579 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 $0 to $4.8 million.$4,007.
The Company believes there is a reasonable possibility that sufficient positive evidence may become available to reach a conclusion that the valuation allowance on certain deferred tax assets will no longer be needed. Releasing the valuation allowance, or a portion thereof, would result in the recognition of previously unrecognized deferred tax assets and a decrease to income tax expense in the period the release is recorded. The exact timing and amount of the valuation allowance release are subject to change.
12.13. 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 nine months ended September 30, 2022,2023, the Company issued stock-settled appreciation rights ("SARs") covering 335,285359,715 shares, performance share awards ("PSAs") of 40,08743,656 and restricted stock units ("RSUs") of 88,121. During the nine months ended September 30, 2022, the Company issued SARs covering 335,285 shares, PSAs of 40,087 and RSUs of 79,556.
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 SARsawards is based on the U.S. Treasury yield curve in effect at the time of grant.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The assumptions used in determining the fair value of the SARs awarded during the respective periods were as follows:
| | | SARs | | SARs |
| | 2022 | | 2021 | | 2023 | | 2022 |
Risk-free interest rate | Risk-free interest rate | 1.86 | % | | 0.59 | % | Risk-free interest rate | 3.91 | % | | 1.86 | % |
Dividend yield | Dividend yield | 1.25 | % | | 1.62 | % | Dividend yield | 1.32 | % | | 1.25 | % |
Expected life (years) | Expected life (years) | 5.4 | | 5.5 | Expected life (years) | 5.4 | | 5.4 |
Volatility | Volatility | 29.46 | % | | 30.49 | % | Volatility | 30.65 | % | | 29.46 | % |
| Grant price | Grant price | $160.21 | | $122.73 | Grant price | $153.25 | | $160.21 |
Fair value per share at date of grant | Fair value per share at date of grant | $42.07 | | $29.08 | Fair value per share at date of grant | $47.27 | | $42.07 |
The performance share awardsPSAs granted in 20222023 and 20212022 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 sharesPSAs granted in the respective periods were as follows:
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
| | | Performance Shares | | PSAs |
| | 2022 | | 2021 | | 2023 | | 2022 |
Risk-free interest rate | Risk-free interest rate | 1.68 | % | | 0.19 | % | Risk-free interest rate | 4.28 | % | | 1.68 | % |
Dividend yield | Dividend yield | 1.25 | % | | 1.62 | % | Dividend yield | 1.32 | % | | 1.25 | % |
Expected life (years) | Expected life (years) | 2.9 | | 2.9 | Expected life (years) | 2.9 | | 2.9 |
Volatility | Volatility | 31.10 | % | | 31.90 | % | Volatility | 27.30 | % | | 31.10 | % |
| Grant price | Grant price | $160.21 | | $122.73 | Grant price | $153.25 | | $160.21 |
Fair value per share at date of grant | Fair value per share at date of grant | $196.40 | | $148.29 | Fair value per share at date of grant | $249.48 | | $196.40 |
The Company also has granted RSUs, and the fair value of these awards was determined using Dover's closing stock price on the date of grant, which was $160.21$153.25 and $122.73$160.21 for RSUs granted in 20222023 and 2021,2022, respectively.
Stock-based compensation is reported within selling, general and administrative expenses in the Condensed Consolidated Statementscondensed consolidated statements of Earnings.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 September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Pre-tax stock-based compensation expense | Pre-tax stock-based compensation expense | $ | 6,326 | | | $ | 6,660 | | | $ | 24,657 | | | $ | 25,053 | | Pre-tax stock-based compensation expense | $ | 6,745 | | | $ | 6,326 | | | $ | 25,468 | | | $ | 24,657 | |
Tax benefit | Tax benefit | (591) | | | (576) | | | (2,437) | | | (2,357) | | Tax benefit | (715) | | | (591) | | | (2,666) | | | (2,437) | |
Total stock-based compensation expense, net of tax | Total stock-based compensation expense, net of tax | $ | 5,735 | | | $ | 6,084 | | | $ | 22,220 | | | $ | 22,696 | | Total stock-based compensation expense, net of tax | $ | 6,030 | | | $ | 5,735 | | | $ | 22,802 | | | $ | 22,220 | |
13.14. Commitments and Contingent Liabilities
Litigation
CertainA few of the Company’s subsidiaries are involved in legal proceedings relating to the cleanup of waste disposal sites identified under federal and state statutes thatwhich 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 smallrelatively insignificant 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, certaina few 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 September 30, 20222023 and December 31, 2021,2022, these estimated liabilities for environmental and other matters, including private party claims for exposure to hazardous substances that are probable and estimable, were not material.significant.
The Company and certainsome 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,
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
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 consider the availability and extent of insurance coverage. The Company has estimated liabilities for these other legal matters that are probable and estimable, and at September 30, 20222023 and December 31, 2021,2022, these estimated liabilities were not material.immaterial. 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.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
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.condensed consolidated balance sheets. The changes in the carrying amount of product warranties through September 30, 20222023 and 2021,2022, were as follows:
| | | | | | | | | | | |
| 2022 | | 2021 |
Beginning Balance, December 31 of the Prior Year | $ | 48,568 | | | $ | 51,088 | |
Provision for warranties | 46,096 | | | 53,747 | |
Settlements made | (46,135) | | | (50,350) | |
Other adjustments, including acquisitions and currency translation | (2,233) | | | (1,301) | |
Ending balance, September 30 | $ | 46,296 | | | $ | 53,184 | |
14. Employee Benefit Plans
Retirement Plans
The Company sponsors qualified defined benefit pension plans covering certain employees of the Company and its subsidiaries, although the U.S. qualified and non-qualified defined benefit plans are closed to new entrants. The plans’ benefits are generally based on years of service and employee compensation. The Company also provides to certain management employees, through non-qualified plans, supplemental retirement benefits in excess of qualified plan limits imposed by federal tax law.
The tables below set forth the components of the Company’s net periodic (income) expense relating to retirement benefit plans. The service cost component is recognized within selling, general and administrative expenses and cost of goods and services, depending on the functional area of the underlying employees included in the plans, and the non-operating components of pension costs are included within other income, net in the Condensed Consolidated Statements of Earnings.
Qualified Defined Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| U.S. Plan | | Non-U.S. Plans | | U.S. Plan | | Non-U.S. Plans |
| 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Service cost | $ | 1,426 | | | $ | 1,784 | | | $ | 1,139 | | | $ | 1,398 | | | $ | 4,278 | | | $ | 5,351 | | | $ | 3,533 | | | $ | 4,238 | |
Interest cost | 3,436 | | | 3,401 | | | 799 | | | 674 | | | 10,309 | | | 10,204 | | | 2,529 | | | 2,036 | |
Expected return on plan assets | (7,276) | | | (7,245) | | | (1,748) | | | (1,793) | | | (21,828) | | | (21,735) | | | (5,454) | | | (5,412) | |
Amortization: | | | | | | | | | | | | | | | |
Prior service cost (credit) | 27 | | | 53 | | | (131) | | | (163) | | | 82 | | | 159 | | | (395) | | | (494) | |
Recognized actuarial loss | 575 | | | 2,503 | | | 411 | | | 979 | | | 1,725 | | | 7,509 | | | 1,305 | | | 2,968 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net periodic (income) expense | $ | (1,812) | | | $ | 496 | | | $ | 470 | | | $ | 1,095 | | | $ | (5,434) | | | $ | 1,488 | | | $ | 1,518 | | | $ | 3,336 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Non-Qualified Supplemental Benefits | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Service cost | $ | 356 | | | $ | 390 | | | $ | 1,069 | | | $ | 1,171 | |
Interest cost | 304 | | | 308 | | | 912 | | | 924 | |
Amortization: | | | | | | | |
Prior service cost | 372 | | | 383 | | | 1,117 | | | 1,148 | |
Recognized actuarial gain | (504) | | | (418) | | | (1,512) | | | (1,254) | |
| | | | | | | |
Net periodic expense | $ | 528 | | | $ | 663 | | | $ | 1,586 | | | $ | 1,989 | |
| | | | | | | |
| | | | | | | |
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Defined Contribution Retirement Plans
The Company also offers defined contribution retirement plans which cover the majority of its U.S. employees, as well as employees in certain other countries. The related expense is recognized within selling, general and administrative expenses and cost of goods and services, depending on the functional area of the underlying employees included in the plans. The Company’s expense relating to defined contribution plans was $14,044 and $15,001 for the three months ended September 30, 2022 and 2021, respectively, and $46,301 and $46,114 for the nine months ended September 30, 2022 and 2021, respectively. | | | | | | | | | | | |
| 2023 | | 2022 |
Balance at January 1 | $ | 48,449 | | | $ | 48,568 | |
Provision for warranties | 47,972 | | | 46,096 | |
Settlements made | (46,440) | | | (46,135) | |
Other adjustments, including acquisitions and currency translation | (332) | | | (2,233) | |
Balance at September 30 | $ | 49,649 | | | $ | 46,296 | |
15. Other Comprehensive Earnings
Amounts reclassified from accumulated other comprehensive loss to earnings during the three and nine months ended September 30, 20222023 and 20212022 were as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Foreign currency translation: | 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 | | | $ | — | | Reclassification of foreign currency translation losses to earnings for the substantial liquidation of businesses | $ | — | | | $ | — | | | $ | — | | | $ | 5,915 | |
Tax benefit | Tax benefit | — | | | — | | | — | | | — | | Tax benefit | — | | | — | | | — | | | — | |
Net of tax | Net of tax | $ | — | | | $ | — | | | $ | 5,915 | | | $ | — | | Net of tax | $ | — | | | $ | — | | | $ | — | | | $ | 5,915 | |
Pension plans: | Pension plans: | | | | | | | | Pension plans: | | | | | | | |
Amortization of actuarial losses | $ | 474 | | | $ | 3,064 | | | $ | 1,494 | | | $ | 9,223 | | |
Amortization of actuarial (gain) loss | | Amortization of actuarial (gain) loss | $ | (632) | | | $ | 474 | | | $ | (1,912) | | | $ | 1,494 | |
Amortization of prior service costs | Amortization of prior service costs | 271 | | | 274 | | | 813 | | | 823 | | Amortization of prior service costs | 279 | | | 271 | | | 851 | | | 813 | |
| Total before tax | Total before tax | 745 | | | 3,338 | | | 2,307 | | | 10,046 | | Total before tax | (353) | | | 745 | | | (1,061) | | | 2,307 | |
Tax benefit | (195) | | | (771) | | | (605) | | | (2,320) | | |
Tax provision (benefit) | | Tax provision (benefit) | 82 | | | (195) | | | 247 | | | (605) | |
Net of tax | Net of tax | $ | 550 | | | $ | 2,567 | | | $ | 1,702 | | | $ | 7,726 | | Net of tax | $ | (271) | | | $ | 550 | | | $ | (814) | | | $ | 1,702 | |
Cash flow hedges: | Cash flow hedges: | | | | | | | | Cash flow hedges: | | | | | | | |
Net gains reclassified into earnings | $ | (1,661) | | | $ | (267) | | | $ | (5,035) | | | $ | (3,977) | | |
Tax provision | 371 | | | 61 | | | 1,124 | | | 900 | | |
Net loss (gain) reclassified into earnings | | Net loss (gain) reclassified into earnings | $ | 450 | | | $ | (1,661) | | | $ | 2,568 | | | $ | (5,035) | |
Tax (benefit) provision | | Tax (benefit) provision | (81) | | | 371 | | | (501) | | | 1,124 | |
Net of tax | Net of tax | $ | (1,290) | | | $ | (206) | | | $ | (3,911) | | | $ | (3,077) | | Net of tax | $ | 369 | | | $ | (1,290) | | | $ | 2,067 | | | $ | (3,911) | |
Foreign currency translation losses were recognized in selling, general and administrative expenses within the Condensed Consolidated Statementcondensed consolidated statement of Earningsearnings 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 Statementscondensed consolidated statements of Earnings.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.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
16. Segment Information
The Company categorizes its operating companies into five reportable segments as follows:
•Engineered Products segment provides a wide range of equipment, components, software, solutions and services forto the vehicle aftermarket, waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing end-markets.
•Clean Energy & Fueling segment provides components, equipment, software, solutions and software and service solutionsservices enabling safe and reliable storage, transport and dispensing of traditional and clean fuels (including liquefied natural gas, hydrogen, and electric vehicle charging), cryogenic gases, and other hazardous substances along the supply chain, as well as theand safe and efficient operation of convenience retail, retail fueling and vehicle wash establishments.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
•Imaging & Identification segment supplies precision marking and coding, packaging intelligence, product traceability, brand protection and digital textile printing equipment, as well as related consumables, software and services to the global packaged and consumer goods, pharmaceutical, industrial manufacturing, fashion and appareltextile and other end-markets.
•Pumps & Process Solutions segment manufactures specialty pumps and flow meters, fluid connecting solutions, plastics and polymer processing equipment, and highly-engineeredhighly engineered precision components for rotating and reciprocating machines, fluid connecting solutions and plastics and polymer processing equipment, serving single-use biopharmaceutical production, diversified industrial manufacturing, chemical production, plastics and polymer processing, midstream and downstream oil and gas, thermal management applications and other end-markets.
•Climate & Sustainability Technologies segment is a provider of innovative and energy-efficient equipment, components and systems that serveparts for the commercial refrigeration, heating and cooling and beverage can-making equipment markets.
The Company's Chief Operating Decision Maker ("CODM")Management 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 nine month period ended September 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 nine months ended September 30, 2021 to conform to the new presentation.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Segment financial information and a reconciliation of segment results to consolidated results were as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Revenue: | Revenue: | | | | | | | | Revenue: | | | | | | | |
Engineered Products | Engineered Products | $ | 516,501 | | | $ | 447,798 | | | $ | 1,518,584 | | | $ | 1,318,016 | | Engineered Products | $ | 504,271 | | | $ | 516,501 | | | $ | 1,475,507 | | | $ | 1,518,584 | |
Clean Energy & Fueling | Clean Energy & Fueling | 464,022 | | | 410,561 | | | 1,416,492 | | | 1,237,281 | | Clean Energy & Fueling | 466,959 | | | 464,022 | | | 1,338,854 | | | 1,416,492 | |
Imaging & Identification | Imaging & Identification | 282,371 | | | 292,535 | | | 830,577 | | | 870,939 | | Imaging & Identification | 276,179 | | | 282,371 | | | 831,202 | | | 830,577 | |
Pumps & Process Solutions | Pumps & Process Solutions | 433,558 | | | 438,240 | | | 1,309,880 | | | 1,261,318 | | Pumps & Process Solutions | 431,373 | | | 433,558 | | | 1,310,880 | | | 1,309,880 | |
Climate & Sustainability Technologies | Climate & Sustainability Technologies | 462,671 | | | 429,425 | | | 1,295,913 | | | 1,232,008 | | Climate & Sustainability Technologies | 475,911 | | | 462,671 | | | 1,380,237 | | | 1,295,913 | |
Intersegment eliminations | Intersegment eliminations | (832) | | | (290) | | | (2,539) | | | (1,716) | | Intersegment eliminations | (1,425) | | | (832) | | | (4,303) | | | (2,539) | |
Total consolidated revenue | Total consolidated revenue | $ | 2,158,291 | | | $ | 2,018,269 | | | $ | 6,368,907 | | | $ | 5,917,846 | | Total consolidated revenue | $ | 2,153,268 | | | $ | 2,158,291 | | | $ | 6,332,377 | | | $ | 6,368,907 | |
Net earnings: | Net earnings: | | | | | | | | Net earnings: | | | | | | | |
Segment earnings: | Segment earnings: | | | | | Segment earnings: | | | | |
Engineered Products | Engineered Products | $ | 90,145 | | | $ | 67,376 | | | $ | 242,946 | | | $ | 215,315 | | Engineered Products | $ | 101,610 | | | $ | 90,145 | | | $ | 258,961 | | | $ | 242,946 | |
Clean Energy & Fueling | Clean Energy & Fueling | 90,208 | | | 80,101 | | | 262,204 | | | 253,103 | | Clean Energy & Fueling | 92,483 | | | 90,208 | | | 249,704 | | | 262,204 | |
Imaging & Identification | Imaging & Identification | 74,477 | | | 70,635 | | | 194,467 | | | 200,818 | | Imaging & Identification | 70,316 | | | 74,477 | | | 199,967 | | | 194,467 | |
Pumps & Process Solutions | Pumps & Process Solutions | 128,573 | | | 150,275 | | | 413,238 | | | 425,929 | | Pumps & Process Solutions | 117,907 | | | 128,573 | | | 362,488 | | | 413,238 | |
Climate & Sustainability Technologies | Climate & Sustainability Technologies | 75,190 | | | 49,734 | | | 192,980 | | | 150,114 | | Climate & Sustainability Technologies | 84,060 | | | 75,190 | | | 233,912 | | | 192,980 | |
Total segment earnings | Total segment earnings | 458,593 | | | 418,121 | | | 1,305,835 | | | 1,245,279 | | Total segment earnings | 466,376 | | | 458,593 | | | 1,305,032 | | | 1,305,835 | |
Purchase accounting expenses (1) | Purchase accounting expenses (1) | 40,526 | | | 35,587 | | | 140,831 | | | 106,265 | | Purchase accounting expenses (1) | 40,320 | | | 40,526 | | | 123,199 | | | 140,831 | |
Restructuring and other costs (benefits) (2) | 8,613 | | | (3,201) | | | 27,109 | | | 11,740 | | |
Restructuring and other costs (2) | | Restructuring and other costs (2) | 12,327 | | | 8,613 | | | 44,523 | | | 27,109 | |
Loss on dispositions (3) | Loss on dispositions (3) | — | | | — | | | 194 | | | — | | Loss on dispositions (3) | — | | | — | | | — | | | 194 | |
Corporate expense / other (4) | Corporate expense / other (4) | 27,876 | | | 33,249 | | | 93,247 | | | 110,332 | | Corporate expense / other (4) | 30,686 | | | 27,876 | | | 104,680 | | | 93,247 | |
Interest expense | Interest expense | 29,789 | | | 26,433 | | | 83,330 | | | 79,917 | | Interest expense | 32,389 | | | 29,789 | | | 100,407 | | | 83,330 | |
Interest income | Interest income | (1,244) | | | (1,466) | | | (2,968) | | | (3,088) | | Interest income | (3,808) | | | (1,244) | | | (8,552) | | | (2,968) | |
Earnings before provision for income taxes | Earnings before provision for income taxes | 353,033 | | | 327,519 | | | 964,092 | | | 940,113 | | Earnings before provision for income taxes | 354,462 | | | 353,033 | | | 940,775 | | | 964,092 | |
Provision for income taxes | Provision for income taxes | 67,007 | | | 63,763 | | | 162,295 | | | 179,080 | | Provision for income taxes | 64,709 | | | 67,007 | | | 180,209 | | | 162,295 | |
Net earnings | Net earnings | $ | 286,026 | | | $ | 263,756 | | | $ | 801,797 | | | $ | 761,033 | | Net earnings | $ | 289,753 | | | $ | 286,026 | | | $ | 760,566 | | | $ | 801,797 | |
(1) Purchase accounting expenses are primarily comprised of amortization of intangible assets and charges related to fair value step-ups for acquired inventory sold during the period.
(2) Restructuring and other costs relate to actions taken for employeeheadcount reductions, facility consolidations and site closures, product line exits, and other asset charges. Restructuring and other costs consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Restructuring | $ | 7,315 | | | $ | 4,790 | | | $ | 19,781 | | | $ | 20,661 | |
Other costs (benefits), net | 1,298 | | | (7,991) | | | 7,328 | | | (8,921) | |
Restructuring and other costs (benefits) | $ | 8,613 | | | $ | (3,201) | | | $ | 27,109 | | | $ | 11,740 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Restructuring | $ | 4,919 | | | $ | 7,315 | | | $ | 33,794 | | | $ | 19,781 | |
Other costs, net | 7,408 | | | 1,298 | | | 10,729 | | | 7,328 | |
Restructuring and other costs | $ | 12,327 | | | $ | 8,613 | | | $ | 44,523 | | | $ | 27,109 | |
(3) Loss on dispositions 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 and digital 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 customers:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Revenue by geography | Revenue by geography | 2022 | | 2021 | | 2022 | | 2021 | Revenue by geography | 2023 | | 2022 | | 2023 | | 2022 |
United States | United States | $ | 1,252,369 | | | $ | 1,108,513 | | | $ | 3,656,930 | | | $ | 3,235,542 | | United States | $ | 1,183,245 | | | $ | 1,252,369 | | | $ | 3,516,591 | | | $ | 3,656,930 | |
Europe | Europe | 426,007 | | | 452,066 | | | 1,331,835 | | | 1,356,435 | | Europe | 433,123 | | | 426,007 | | | 1,312,271 | | | 1,331,835 | |
Asia | Asia | 246,750 | | | 222,366 | | | 705,252 | | | 650,481 | | Asia | 235,198 | | | 246,750 | | | 680,853 | | | 705,252 | |
Other Americas | Other Americas | 166,045 | | | 166,230 | | | 467,365 | | | 468,298 | | Other Americas | 185,825 | | | 166,045 | | | 526,583 | | | 467,365 | |
Other | Other | 67,120 | | | 69,094 | | | 207,525 | | | 207,090 | | Other | 115,877 | | | 67,120 | | | 296,079 | | | 207,525 | |
Total | Total | $ | 2,158,291 | | | $ | 2,018,269 | | | $ | 6,368,907 | | | $ | 5,917,846 | | Total | $ | 2,153,268 | | | $ | 2,158,291 | | | $ | 6,332,377 | | | $ | 6,368,907 | |
|
17. Share Repurchases
In November 2020,August 2023, 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, 2024 through December 31, 2026.
In November 2020, the Company's Board of Directors approved a standing share repurchase authorization whereby the Company may repurchase up to 20 million shares beginning on January 1, 2021 through December 31, 2023. ThisIn the three and nine months ended September 30, 2023, there were no share repurchase authorization replaced the February 2018 share repurchase authorization.repurchases.
On August 31, 2022, the Company entered into a $500,000 accelerated share repurchase agreement (the “ASR Agreement”"ASR Agreement") with Bank of America N.A. (“("Bank of America”America") to repurchase its shares in an accelerated share repurchase program (the “ASR Program”"ASR Program"). The ASR Program is classified as equity, initially recorded at fair value with no subsequent remeasurement. The Company conducted the ASR Program under the November 2020current share repurchase authorization. The Company funded the ASR Program with net proceeds from commercial paper.
Under the terms of the ASR Agreement, the Company paid Bank of America $500,000 on September 1, 2022 and on that date received initial deliveries of 3,201,025 shares, representing a substantial majority of the shares expected to be retired over the course of the ASR Agreement. In December 2022, Bank of America delivered 691,270 additional shares which completed the ASR Program. During 2022, the Company received a total of 3,892,295 shares upon completion of the ASR Agreement. The total number of shares ultimately repurchased under the ASR Agreement will bewas based on the daily volume-weighted average share price of Dover's common stock during the calculation period of the ASR Program, less a discount. The ASR Program is scheduled to be completed indiscount, which was $128.46 over the fourth quarter of 2022, subject to postponement or acceleration under the terms of the ASR Agreement. The impact of these shares that will be received at the completion of the ASR Program is anti-dilutive and therefore excluded from the calculation of diluted earnings per share. The actual number of shares repurchased will be determined at the completionterm of the ASR Program.
Under the November 2020 share repurchase authorization, exclusive of the ASR Program, inIn the three months ended September 30, 2022, and 2021,exclusive of the ASR Program, there were no share repurchases. In the nine months ended September 30, 2022, exclusive of the ASR Program, the Company repurchased 641,428 shares of common stock at a total cost of $85,000, or $132.52 per share. In the nine months ended September 30, 2021, the Company repurchased 182,951 shares of common stock at a total cost of $21,637, or $118.27 per share.
share
. As of September 30, 2022, 15,974,5962023, 15,283,326 shares remain authorized for repurchase under the November 2020 share repurchase authorization.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
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 September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Net earnings | Net earnings | $ | 286,026 | | | $ | 263,756 | | | $ | 801,797 | | | $ | 761,033 | | Net earnings | $ | 289,753 | | | $ | 286,026 | | | $ | 760,566 | | | $ | 801,797 | |
Basic earnings per common share: | Basic earnings per common share: | | | | | Basic earnings per common share: | | | | |
| Net earnings | Net earnings | $ | 2.01 | | | $ | 1.83 | | | $ | 5.59 | | | $ | 5.29 | | Net earnings | $ | 2.07 | | | $ | 2.01 | | | $ | 5.44 | | | $ | 5.59 | |
| Weighted average shares outstanding | Weighted average shares outstanding | 142,506,000 | | | 143,976,000 | | | 143,469,000 | | | 143,895,000 | | Weighted average shares outstanding | 139,878,000 | | | 142,506,000 | | | 139,833,000 | | | 143,469,000 | |
Diluted earnings per common share: | Diluted earnings per common share: | | | | | | | | Diluted earnings per common share: | | | | |
| Net earnings | Net earnings | $ | 2.00 | | | $ | 1.81 | | | $ | 5.55 | | | $ | 5.24 | | Net earnings | $ | 2.06 | | | $ | 2.00 | | | $ | 5.41 | | | $ | 5.55 | |
| Weighted average shares outstanding | Weighted average shares outstanding | 143,257,000 | | | 145,440,000 | | | 144,413,000 | | | 145,220,000 | | Weighted average shares outstanding | 140,615,000 | | | 143,257,000 | | | 140,603,000 | | | 144,413,000 | |
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 September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Weighted average shares outstanding - Basic | Weighted average shares outstanding - Basic | 142,506,000 | | | 143,976,000 | | | 143,469,000 | | | 143,895,000 | | Weighted average shares outstanding - Basic | 139,878,000 | | | 142,506,000 | | | 139,833,000 | | | 143,469,000 | |
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 | 751,000 | | | 1,464,000 | | | 944,000 | | | 1,325,000 | | Dilutive effect of assumed exercise of SARs and vesting of performance shares and RSUs | 737,000 | | | 751,000 | | | 770,000 | | | 944,000 | |
Weighted average shares outstanding - Diluted | Weighted average shares outstanding - Diluted | 143,257,000 | | | 145,440,000 | | | 144,413,000 | | | 145,220,000 | | Weighted average shares outstanding - Diluted | 140,615,000 | | | 143,257,000 | | | 140,603,000 | | | 144,413,000 | |
Diluted earnings per share amounts are computed using the weighted average number of common shares outstanding and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of SARs and vesting of performance shares and RSUs, as determined using the treasury stock method.
The weighted average number of anti-dilutive potential common shares excluded from the calculation above were approximately 19,00039,000 and 1,00019,000 for the three months ended September 30, 20222023 and 2021,2022, respectively, and 28,00054,000 and 57,00028,000 for the nine months ended September 30, 20222023 and 2021,2022, respectively.
19. Recent Accounting Pronouncements
Recently Adopted Accounting Standard
In October 2021, the FASB issued ASU 2021-08 Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. The Company early adopted the guidance during the first quarter of 2022. Prior to adoption, the acquirer recognized such contract assets and contract liabilities at fair value on the acquisition date. The adoption did not have a material impact on the Company's Condensed Consolidated Financial Statements.
Recently Issued Accounting Standard
In September 2022, the FASB issued ASU No. 2022-04 Liabilities-Supplier Finance Programs (Topic 405-50): Disclosure of Supplier Finance Program Obligations. The amendments in this update require a buyer in a supplier finance program to disclose information about the program's nature, activity during the period, changes from period to period, and potential magnitude. The Company adopted the guidance will becomewhen it became effective on January 1, 2023, except for the rollforward requirement, which becomes effective January 1, 2023 and early2024. The adoption is permitted. Management is evaluating the timing anddid not have a material impact of adopting this ASU on the Company's Condensed Consolidated Financial Statements.condensed consolidated financial statements.
The Company facilitates the opportunity for suppliers to participate in a voluntary supply chain financing ("SCF") program with a third-party financial institution. Participating suppliers are paid directly by the SCF financial institution and, in addition, may elect to sell receivables due from the Company to the SCF financial institution for early payment. Thus, participating suppliers have additional potential flexibility in managing their liquidity by accelerating, at their option and cost, collection of receivables due from the Company.
The Company and its suppliers agree on commercial terms, including payment terms, for the goods and services the Company procures, regardless of whether the supplier participates in SCF. For participating suppliers, the Company’s responsibility is limited to making all payments to the SCF financial institution on the terms originally negotiated with the supplier, irrespective of whether the supplier elects to sell receivables to the SCF financial institution. The Company does not determine the terms or conditions of the arrangement between the SCF financial institution and the Company's suppliers. The SCF financial institution pays the supplier on the invoice due date for any invoices that were not previously sold by the supplier. The agreement between
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
the Company and the SCF financial institution does not require the Company to provide assets pledged as security or other forms of guarantees.
Outstanding payments related to the SCF program are recorded within accounts payable in our condensed consolidated balance sheets. As of September 30, 2023 and December 31, 2022, amounts due to the SCF financial institution were approximately $188,902 and $194,362, respectively.
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"). Please see "Non-GAAP Disclosures" at the end of this Item 2 for further detail on these financial measures. We believe these measures provide investors with important information that is useful in understanding our business results and trends. ExplanationsReconciliations 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, Imaging & Identification, Pumps & Process Solutions, and Climate & 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 provides a wide range of equipment, components, software, solutions and services forto the vehicle aftermarket, waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing end-markets.
•Our Clean Energy & Fueling segment provides components, equipment, software, solutions and software and service solutionsservices enabling safe and reliable storage, transport and dispensing of traditional and clean fuels (including liquefied natural gas, hydrogen, and electric vehicle charging), cryogenic gases, and other hazardous substances along the supply chain, as well as theand 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 to the global packaged and consumer goods, pharmaceutical, industrial manufacturing, fashion and appareltextile and other end-markets.
•Our Pumps & Process Solutions segment manufactures specialty pumps and flow meters, fluid connecting solutions, plastics and polymer processing equipment, and highly-engineeredhighly engineered precision components for rotating and reciprocating machines, fluid connecting solutions and plastics and polymer processing equipment, serving single-use biopharmaceutical production, diversified industrial manufacturing, chemical production, plastics and polymer processing, midstream and downstream oil and gas, thermal management applications and other end-markets.
•Our Climate & Sustainability Technologies segment is a provider of innovative and energy-efficient equipment, components and systems that serveparts for the commercial refrigeration, heating and cooling and beverage can-making equipment markets.
In the third quarter of 2022,2023, revenue was $2.2 billion, which increased $140.0decreased $5.0 million, or 6.9%0.2%, as compared to the third quarter of 2021.2022. This was driven bydue to organic revenue growthdecline of 9.0% and acquisition-related revenue growth of 4.4%,2.4% partially offset by an unfavorablea favorable impact from foreign currency translation of 4.8%1.2% and disposition-related declineby acquisition-related revenue growth of 1.7%1.0%. Pricing and productivity initiatives continued in the quarter to offset the impact of higher commodity costs, component parts inflation and higher energy, freight and logistics costs.lower volumes across some of the Company's businesses.
The 9.0%2.4% organic revenue growthdecline for the third quarter of 20222023 was broad-based across most of our businesses based on solid underlying demand and our ability to produce and ship despite supply chain constraints and input cost inflation. The Engineered Products segment had organic revenue growth of 17.6% primarily as a result of pricing initiatives as well as strength in our waste handling, vehicle service, industrial automation, aerospacePumps & Process Solutions, Imaging & Identification and defense,Engineered Products segments which had a decline of 7.3%, 3.6% and industrial winch and hoist businesses.3.0%, respectively. The decline was partially offset by the Climate & Sustainability Technologies segment which had growth of 1.8%. The Clean Energy & Fueling segment had organic revenue declinewas approximately flat. For further information, see "Segment Results of 0.5% principally due to reduced demand in above ground retail fueling equipment, mostly offset by solid demand in below ground retail fueling, fluid transfer solutions and vehicle washOperations" within this Item 2.
solutions businesses, along with pricing initiatives. The Imaging & Identification segment experienced organic revenue growth of 4.9% driven by solid activity in our marking and coding business, as underlying demand for our printers, spare parts, services and consumables remains positive, and by improvements in component availability. The Pumps & Process Solutions segment had organic revenue growth of 1.9%, 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 used in biopharmaceutical production processes for the COVID-19 vaccine. The Climate & Sustainability Technologies segment posted organic revenue growth of 19.3%, reflective of pricing initiatives combined with strong demand in retail refrigeration, can-making, and heat exchangers.
From a geographic perspective, organic revenue for the U.S., our largest market, increased 11.2%decreased 7.3% in the third quarter of 2022.2023 compared to the prior year comparable quarter, driven primarily by reduced year-over-year shipments in liquefied petroleum gas components, vehicle wash solutions and below ground retail fueling equipment in the Clean Energy & Fueling segment and reduced shipments for components used in biopharma production in the Pumps & Process Solutions segment. Organic revenue in Asia and Europe grew 13.0% and 8.7%, respectively. Organic revenue in China, which represents approximately half of our business in Asia, grew 8% in the quarter as our businesses recovered from easing of COVID restrictions from the previous quarter.for Other Americas declined by 5.6% organically in the quarter.increased 13.1%, while Europe and Asia decreased 5.2% and 3.4%, respectively.
BookingsBookings were $2.1$2.0 billion for the three months ended September 30, 2022,2023, a decrease of $230.8$56.9 million, or 10.1%2.8% compared to the prior year comparable quarter. Included in this result waswas an organic decline of 8.2%4.1%, an unfavorablepartially offset by a favorable impact from foreign currency translation of 3.8%, disposition-related decline of 1.7%, partially offset by1.0% and acquisition-related growth of 3.6%0.3%. The organic bookings decline was driven by a decrease in orders inprimarily due to our Clean Energy & Fueling, Pump & Process Solutions and Climate & Sustainability Technologies segments, partially offset by organic growth incustomers reducing on-hand inventory as our Engineered Products and Imaging & Identification segments.lead times normalize across the portfolio.
Backlog as of September 30, 20222023 was $3.2$2.6 billion, an increasea decrease from $2.8$3.2 billion in the prior year.year, but remains elevated on a relative historical basis. See definition of bookings and backlog withinin "Segment Results of Operations". within this Item 2.
During the three months ended September 30, 2022, we acquired 99.7% of the equity interests in Malema Engineering Corporation and its related foreign entities ("Malema"), a designer and manufacturer of flow measurement and control instruments serving customers in the biopharmaceutical, semiconductor and industrial sectors, for $220.8 million, net of cash acquired, subject to contingent consideration. Subsequent to September 30, 2022, the Company acquired the remaining 0.3% of equity interests in Malema. The Malema acquisition expands the Company's biopharma single-use production offering within the Pumps & Process Solutions segment.
Restructuring and other costs of $8.6for the three months ended September 30, 2023 were $12.3 million which included restructuring charges of $7.3$4.9 million and other costs of $1.3 million for the three months ended September 30, 2022.$7.4 million. Restructuring and other costs were primarily duerelated to headcount reductions and facility consolidations resulting fromexit costs in the Pumps & Process Solutions, Engineered Products and Climate & Sustainability Technologies segments, as well as an asset impairment in our Climate & Sustainability Technologies segment and footprint reduction in our Clean Energy & Fueling segment. The restructuring programs were initiated in 20212022 and 2022.2023 and were undertaken in light of current market conditions. See Note 89 — Restructuring Activities in the Condensed Consolidated Financial Statementscondensed consolidated financial statements in Item 1 of this Form 10-Q for further details.
COVID-19 UpdateOn September 29, 2023, the Company entered into a definitive agreement to acquire the business of FW Murphy Production Controls, LLC ("FW Murphy"), for approximately $530,000, subject to customary post-closing adjustments. This acquisition is expected to close in the fourth quarter of 2023 and adds complementary offerings within the Pumps & Process Solutions segment.
The COVID-19 outbreakOn October 11, 2023, the Company entered into a definitive agreement to sell De-Sta-Co, an operating company within the Engineered Products segment, for approximately $680,000 enterprise value, net of estimated selling costs and associated counteracting measures implemented by governmentssubject to customary post-closing adjustments. As of September 30, 2023, De-Sta-Co met the criteria to be classified as held for sale. We classified De-Sta-Co assets and businesses around the world, as well as subsequent accelerated recovery in global business activity, have increased uncertaintyliabilities separately in the global business environment and led to supply chain disruptions and shortages in global markets for commodities, logistics and labor,condensed consolidated balance sheets as well as input cost inflation. Currently our expectation is that the impact of cost inflation, including labor, energy, freight and logistics costs, as well as supplier component input availability will continue throughout 2022.September 30, 2023.
The 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 situation and may take further actions that alter our business activity as may be required by governmental authorities, or that we determine are in the best interests
CONSOLIDATED RESULTS OF OPERATIONS
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands, except per share data) | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change | |
(dollars in thousands, except per share figures) | | (dollars in thousands, except per share figures) | 2023 | | 2022 | | % / Point Change | | 2023 | | 2022 | | % / Point Change |
Revenue | Revenue | $ | 2,158,291 | | | $ | 2,018,269 | | | 6.9 | % | | $ | 6,368,907 | | | $ | 5,917,846 | | | 7.6 | % | Revenue | $ | 2,153,268 | | | $ | 2,158,291 | | | (0.2) | % | | $ | 6,332,377 | | | $ | 6,368,907 | | | (0.6) | % |
Cost of goods and services | Cost of goods and services | 1,385,541 | | | 1,263,690 | | | 9.6 | % | | 4,071,680 | | | 3,669,547 | | | 11.0 | % | Cost of goods and services | 1,360,253 | | | 1,385,541 | | | (1.8) | % | | 4,033,507 | | | 4,071,680 | | | (0.9) | % |
Gross profit | Gross profit | 772,750 | | | 754,579 | | | 2.4 | % | | 2,297,227 | | | 2,248,299 | | | 2.2 | % | Gross profit | 793,015 | | | 772,750 | | | 2.6 | % | | 2,298,870 | | | 2,297,227 | | | 0.1 | % |
Gross profit margin | Gross profit margin | 35.8 | % | | 37.4 | % | | (1.6) | | | 36.1 | % | | 38.0 | % | | (1.9) | | Gross profit margin | 36.8 | % | | 35.8 | % | | 1.0 | | | 36.3 | % | | 36.1 | % | | 0.2 | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | 402,339 | | | 412,553 | | | (2.5) | % | | 1,270,615 | | | 1,249,593 | | | 1.7 | % | Selling, general and administrative expenses | 420,245 | | | 402,339 | | | 4.5 | % | | 1,286,999 | | | 1,270,615 | | | 1.3 | % |
Selling, general and administrative expenses as a percent of revenue | Selling, general and administrative expenses as a percent of revenue | 18.6 | % | | 20.4 | % | | (1.8) | | | 20.0 | % | | 21.1 | % | | (1.1) | | Selling, general and administrative expenses as a percent of revenue | 19.5 | % | | 18.6 | % | | 0.9 | | | 20.3 | % | | 20.0 | % | | 0.3 | |
| Operating earnings | Operating earnings | 370,411 | | | 342,026 | | | 8.3 | % | | 1,026,612 | | | 998,706 | | | 2.8 | % | Operating earnings | 372,770 | | | 370,411 | | | 0.6 | % | | 1,011,871 | | | 1,026,612 | | | (1.4) | % |
Interest expense | Interest expense | 29,789 | | | 26,433 | | | 12.7 | % | | 83,330 | | | 79,917 | | | 4.3 | % | Interest expense | 32,389 | | | 29,789 | | | 8.7 | % | | 100,407 | | | 83,330 | | | 20.5 | % |
Interest income | Interest income | (1,244) | | | (1,466) | | | (15.1) | % | | (2,968) | | | (3,088) | | | (3.9) | % | Interest income | (3,808) | | | (1,244) | | | 206.1 | % | | (8,552) | | | (2,968) | | | 188.1 | % |
| Other income, net | Other income, net | (11,167) | | | (10,460) | | | nm* | | (17,842) | | | (18,236) | | | nm* | Other income, net | (10,273) | | | (11,167) | | | nm* | | (20,759) | | | (17,842) | | | nm* |
Earnings before provision for income taxes | Earnings before provision for income taxes | 353,033 | | | 327,519 | | | 7.8 | % | | 964,092 | | | 940,113 | | | 2.6 | % | Earnings before provision for income taxes | 354,462 | | | 353,033 | | | 0.4 | % | | 940,775 | | | 964,092 | | | (2.4) | % |
Provision for income taxes | Provision for income taxes | 67,007 | | | 63,763 | | | 5.1 | % | | 162,295 | | | 179,080 | | | (9.4) | % | Provision for income taxes | 64,709 | | | 67,007 | | | (3.4) | % | | 180,209 | | | 162,295 | | | 11.0 | % |
Effective tax rate | Effective tax rate | 19.0 | % | | 19.5 | % | | (0.5) | | | 16.8 | % | | 19.0 | % | | (2.2) | | Effective tax rate | 18.3 | % | | 19.0 | % | | (0.7) | | | 19.2 | % | | 16.8 | % | | 2.4 | |
| Net earnings | Net earnings | 286,026 | | | 263,756 | | | 8.4 | % | | 801,797 | | | 761,033 | | | 5.4 | % | Net earnings | 289,753 | | | 286,026 | | | 1.3 | % | | 760,566 | | | 801,797 | | | (5.1) | % |
| Net earnings per common share - diluted | Net earnings per common share - diluted | $ | 2.00 | | | $ | 1.81 | | | 10.5 | % | | $ | 5.55 | | | $ | 5.24 | | | 5.9 | % | Net earnings per common share - diluted | $ | 2.06 | | | $ | 2.00 | | | 3.0 | % | | $ | 5.41 | | | $ | 5.55 | | | (2.5) | % |
* nm - not meaningful
Revenue
Revenue for the three months ended September 30, 2022 increased $140.02023 decreased $5.0 million, or 6.9%0.2%, from the prior year comparable quarter. Results included organicOrganic revenue growth of 9.0%declined 2.4%, primarily led bydue to lower revenue in our Pumps & Process Solutions, Imaging & Identification and Engineered Products and Climate & Sustainability Technologies segments, and acquisition-related revenue growth of 4.4%, primarily driven by our Clean Energy & Fueling segment.segments. This growthdecline was partially offset by an unfavorablea favorable impact from foreign currency translation of 4.8%1.2% and disposition-related declineby acquisition-related revenue growth of 1.7%1.0%. Customer pricing favorably impacted revenue by approximately 7.6%3.4% in the third quarter of 2022 compared to 3.6%2023 and by 7.6% in the prior year comparable quarter.
Revenue for the nine months ended September 30, 2022 increased $451.12023 decreased $36.5 million, or 7.6%0.6%, from the prior year comparable period. The increasedecrease primarily reflects an organic revenue growthdecline of 8.6%, primarily led by our Engineered Products0.9% and Climate & Sustainability Technologies segments. Acquisition-related growth was 4.3%, primarily led by our Clean Energy & Fueling segment. This growth was partially offset by an unfavorable impact from foreign currency translation of 3.6% and a 1.7% impact from dispositions within the Climate & Sustainability Technologies segment.0.6%. This decline was partially offset by acquisition-related revenue growth of 0.9%. Customer pricing favorably impacted revenue by approximately 6.7%4.3% for the nine months ended September 30, 2022 compared to 2.2%2023, and by 6.7% in the prior year comparable period.
Gross Profit
Gross profit for the three months ended September 30, 20222023 increased $18.2$20.3 million, or 2.4%2.6%, whileand gross profit margin decreased 160increased 100 basis points to 35.8%36.8%, fromversus the prior year comparable quarter. OurGross profit margin increased driven by benefits from pricing initiatives which started in 2021 and into 2022productivity actions, partially offset increased material and logistics costs.by lower volumes across some of the Company's businesses.
Gross profit for the nine months ended September 30, 20222023 increased $48.9$1.6 million, or 2.2%0.1%, whileand gross profit margin decreasedincreased by 19020 basis points to 36.1%36.3%, from the prior year comparable period. OurGross profit margin increased driven by benefits from pricing, initiatives which started in 2021productivity and into 2022restructuring actions, partially offset increased material and logistics costs.by lower volumes across some of the Company's businesses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended September 30, 2022 decreased $10.22023 increased $17.9 million, or 2.5%4.5%, from the prior year comparable quarter, primarily due to the impact of foreign currencydriven by increased employee compensation and lower accrued expenses,benefits, transaction and integration costs and insurance costs, partially offset by increasedlower contract labor costs. As a percentage of revenue, selling, general and administrative expenses decreased 180increased 90 basis points as compared to the prior year comparable quarter to 18.6% due to an increase19.5% driven by increased selling, general and administrative expenses and a decrease in the revenue base.revenue.
Selling, general and administrative expenses for the nine months ended September 30, 20222023 increased $21.0$16.4 million, or 1.7%1.3%, from the prior year comparable period,, primarily due todriven by increased restructuring, transaction and integration costs and deferred compensation, partially offset by lower contract labor costs, travel and marketing expenses, and amortization expense from acquisitions.costs. Selling, general and administrative expenses as a percentage of revenue decreased 110increased 30 basis points as compared to the prior year comparable period to 20.0% due to an increase20.3% driven by increased selling, general and administrative expenses and a decrease in the revenue base.revenue.
Research and development costs, including qualifying engineering costs, are expensed when incurred and amounted to $44.0$38.2 million and $34.4$44.0 million for the three months ended September 30, 20222023 and 2021,2022, respectively, and $123.3$115.5 million and $116.8$123.3 million, for the nine months ended September 30, 20222023 and 2021,2022, respectively. These costs as a percentpercentage of revenue were 2.0%1.8% and 1.7%2.0% for the three months ended September 30, 20222023 and 2021,2022, respectively, and 1.9%1.8% and 2.0%1.9% for the nine months ended September 30, 2023 and 2022, and 2021, respectively.
Other income,Income, net
Other income, net includes non-service pension benefit, deferred compensation plan investments gain or loss, earnings or charges from equity method investments, foreign exchange gain or loss, and various other items. Other income, net for the three and nine months ended September 30, 2022 increased $0.72023 decreased $0.9 million and $0.4increased $2.9 million, respectively, from the prior year comparable periods due todriven by various immaterial items.
Income Taxes
The effective tax rates for the three months ended September 30, 2023 and 2022 were 18.3% and 2021 were 19.0% and 19.5%, respectively. The decrease in the effective tax rate for the three months ended September 30, 20222023 relative to the prior year comparable quarter was primarily driven bydue to favorable audit resolutions and recording of previously unrecognized tax attributes.resolutions.
The effective tax rates for the nine months ended September 30, 2023 and 2022 were 19.2% and 2021 were 16.8% and 19.0%, respectively. The decreaseincrease in the effective tax rate for the nine months ended September 30, 20222023 relative to the prior year comparable period was primarily driven by favorable audit resolutions as well asin 2022, including $22.6 million related to the Tax Cuts and Jobs Act.
The Company is monitoring the potential changes in tax laws resulting from the Organization for Economic Cooperation and Development’s multi-jurisdictional plan of action to address base erosion and profit shifting, which could impact our effective tax rate.
Net earnings
Net earnings for the three months ended September 30, 20222023 increased 8.4%1.3% to $286.0$289.8 million, or $2.00$2.06 diluted earnings per share, from $263.8$286.0 million, or $1.81$2.00 diluted earnings per share, in the prior year comparable quarter. The increase in net earnings is mainly attributable to increased volumes,pricing and productivity initiatives, favorable business mix,actions and customer pricing actions,lower provision for income taxes, partially offset by increased material, energy,an increase in selling, general and logistics costs, increased labor costs, and unfavorable impact from foreign currency translation.administrative expenses.
Net earnings for the nine months ended September 30, 2022 increased 5.4%2023 decreased 5.1% to $801.8$760.6 million, or $5.55$5.41 diluted earnings per share, from $761.0$801.8 million, or $5.24$5.55 diluted earnings per share, in the prior year comparable period. The increasedecrease in net earnings is mainly attributable to higher income tax expense due to favorable audit resolutions in 2022, increased volumes, favorable business mix, pricing initiatives, productivity actions,selling, general and restructuring benefits offsetadministrative expenses and interest expense, driven by higher material and logistic costs, increased labor costs and an unfavorable impact from foreign currency translation. Additionally, the nine months ended September 30, 2022 was impacted by a $22.6 million reduction to income taxes previously recorded relatedaverage interest rates compared to the Tax Cuts and Jobs Act.
prior year comparable period.
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, Imaging & Identification, Pumps & Process Solutions, and Climate & Sustainability Technologies). Each of these segments is comprised of various product and service offerings that serve multiple markets. We evaluate our operating segment performance based on segment earnings as defined in Note 16 — Segment Information in the Condensed Consolidated Financial Statementscondensed consolidated financial statements in Item 1 of this Form 10-Q. 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 provides a wide range of equipment, components, software, solutions and services forto the vehicle aftermarket, waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing end-markets.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands) | (dollars in thousands) | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change | (dollars in thousands) | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
Revenue | Revenue | | $ | 516,501 | | | $ | 447,798 | | | 15.3 | % | | $ | 1,518,584 | | | $ | 1,318,016 | | | 15.2 | % | Revenue | | $ | 504,271 | | | $ | 516,501 | | | (2.4) | % | | $ | 1,475,507 | | | $ | 1,518,584 | | | (2.8) | % |
| Segment earnings | Segment earnings | | $ | 90,145 | | | $ | 67,376 | | | 33.8 | % | | $ | 242,946 | | | $ | 215,315 | | | 12.8 | % | Segment earnings | | $ | 101,610 | | $ | 90,145 | | | 12.7 | % | | $ | 258,961 | | | $ | 242,946 | | | 6.6 | % |
| | Segment margin | Segment margin | | 17.5% | | 15.0% | | 16.0% | | 16.3% | | Segment margin | | 20.1 % | | 17.5 % | | 17.6% | | 16.0% | |
| | Operational metrics: | Operational metrics: | | Operational metrics: | |
Bookings | Bookings | | $ | 512,374 | | | $ | 502,767 | | | 1.9 | % | | $ | 1,506,077 | | | $ | 1,528,277 | | | (1.5) | % | Bookings | | $ | 576,641 | | | $ | 512,374 | | | 12.5 | % | | $ | 1,602,244 | | | $ | 1,506,077 | | | 6.4 | % |
Backlog | Backlog | | $ | 742,766 | | | $ | 662,834 | | | 12.1 | % | Backlog | | $ | 841,722 | | | $ | 742,766 | | | 13.3 | % |
| Components of revenue growth: | | | | |
Organic growth | | | | | | 17.6 | % | | 16.9 | % | |
Acquisitions | | | | | | 0.6 | % | | 1.0 | % | |
Components of revenue decline: | | Components of revenue decline: | | | |
Organic decline | | Organic decline | | | | | | (3.0) | % | | (2.5) | % |
| | Foreign currency translation | Foreign currency translation | | | | | | (2.9) | % | | (2.7) | % | Foreign currency translation | | | | | | 0.6 | % | | (0.3) | % |
| | | | | | 15.3 | % | | 15.2 | % | |
Total revenue decline | | Total revenue decline | | | | | | (2.4) | % | | (2.8) | % |
Third Quarter 20222023 Compared to the Third Quarter 20212022
Engineered Products segment revenue for the third quarter of 2022 increased $68.72023 decreased $12.2 million, or 15.3%2.4%, as compared to the third quarter of 2021,2022, comprised primarily of organic growthdecline of 17.6%, acquisition-related growth of 0.6%, partially offset by an unfavorable3.0% and a favorable impact from foreign currency translation of 2.9%0.6%. Customer pricing favorably impacted revenue in the third quarter of 20222023 by approximately 2.6% and by 10.6% compared to 6.5% in the prior year comparable quarter, reflecting actions to recover increasing costs.quarter.
The organic revenue growthdecline was most notableprimarily due to soft market conditions in Asia and Europe and in our vehicle services businesses, where transient disruptions from a second quarter ERP upgrade reduced volumes but improved sequentially, partially offset by pricing initiatives, robust demand in our waste handling business as large national waste haulers and municipal governments invest to upgrade their refuse collection vehicle service, industrial automation,fleets and implement our leading digital technologies to improve waste collection process efficiencies, and increased demand from key defense customers in our aerospace and defense and industrial winch and hoist businesses. Despite the strongbusiness. We expect positive organic growth and near record-high backlog levels for the segment, shipments continue to be challenged by supply chain and labor availability constraints. We anticipate organic revenue growth to continue intoin the fourth quarter driven by a healthyour backlog position and strong order demand trends in several of our key end-markets,end markets, most notably waste handling. Our expected growth in waste handling is dependent to a large extent on truck chassis availability from major third-party manufacturers and aerospace and defense.timing of receipt.
Engineered Products segment earnings increased $22.8$11.5 million, or 33.8%12.7%, compared to the third quarter of 2021.2022. The increase was primarily driven by increased volumes, customer pricing actions, improved productivity, favorable business mix and productivity gains, partially offset by higher material, energy, and logistic costs, increased labor costs, as well as an unfavorablea favorable impact from foreign currency translation.translation, partially offset by lower volumes and higher labor costs. As a result, segment margin increased to 17.5%20.1% from 15.0%17.5% as compared to the prior year comparable quarter.
Bookings increased 1.9%12.5% for the segment, comprised primarily of acquisition-related growth of 3.1%, organic growth of 0.8%, partially offset by an unfavorable11.6% and a favorable impact from foreign currency translation of 2.0%0.9%. The organic bookings growth was driven by strongrobust demand in our waste handling and aerospace and defense businesses.business as large waste haulers upgrade their vehicle fleets. Segment book-to-bill was 0.99. Backlog1.14, and backlog increased 12.1%13.3% compared to the prior year comparable period.
Nine Months Ended September 30, 20222023 Compared to the Nine Months Ended September 30, 20212022
Engineered Products revenue for the nine months ended September 30, 2022 increased $200.62023 decreased $43.1 million, or 15.2%2.8%, compared to the prior year comparable period. This was comprised of organic revenue growthdecline of 16.9%2.5% and acquisition-related growth of 1.0%, partially offset by an unfavorable impact from foreign currency translation of 2.7%0.3%. The organic revenue growthdecline was most notabledue to soft market conditions and transient manufacturing and shipment disruptions in our vehicle services business caused by an ERP system upgrade, partially offset by strong growth in our waste handling vehicle service, industrial automation,business and industrial winch and hoist businesses.customer pricing actions. Customer pricing favorably impacted revenue by approximately 2.9% in the nine months ended September 30, 20222023, and by approximately 10.6% compared to 3.2% in the prior year comparable period.
Segment earnings for the nine months ended September 30, 20222023 increased $27.6$16.0 million, or 12.8%6.6%, as compared to the 20212022 comparable period. The growth was primarily driven by increased volumes, favorable business mix, and customer pricing actions, partially offset by higher material, energyimproved plant productivity, strong discretionary cost management and logistic costs, increased labor costs, as well as an unfavorablea favorable impact from foreign currency translation.translation, partially offset by lower volumes. Segment margin decreasedincreased to 16.0%17.6% from 16.3%16.0% as compared to the prior year comparable period.
Clean Energy & Fueling
Our Clean Energy & Fueling segment provides components, equipment, software, solutions and software and service solutionsservices enabling safe and reliable storage, transport and dispensing of traditional and clean fuels (including liquefied natural gas, hydrogen, and electric vehicle charging), cryogenic gases, and other hazardous substances along the supply chain, as well as theand safe and efficient operation of convenience retail, retail fueling and vehicle wash establishments.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands) | (dollars in thousands) | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change | (dollars in thousands) | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
Revenue | Revenue | | $ | 464,022 | | | $ | 410,561 | | | 13.0 | % | | $ | 1,416,492 | | | $ | 1,237,281 | | | 14.5 | % | Revenue | | $ | 466,959 | | | $ | 464,022 | | | 0.6 | % | | $ | 1,338,854 | | | $ | 1,416,492 | | | (5.5) | % |
| Segment earnings | Segment earnings | | $ | 90,208 | | | $ | 80,101 | | | 12.6 | % | | $ | 262,204 | | | $ | 253,103 | | | 3.6 | % | Segment earnings | | $ | 92,483 | | | $ | 90,208 | | | 2.5 | % | | $ | 249,704 | | | $ | 262,204 | | | (4.8) | % |
| | Segment margin | Segment margin | | 19.4% | | 19.5% | | 18.5% | | 20.5% | | Segment margin | | 19.8 % | | 19.4 % | | 18.7 % | | 18.5 % | |
| | Operational metrics: | Operational metrics: | | Operational metrics: | |
Bookings | Bookings | | $ | 432,259 | | | $ | 467,821 | | | (7.6) | % | | $ | 1,421,611 | | | $ | 1,343,635 | | | 5.8 | % | Bookings | | $ | 449,663 | | | $ | 432,259 | | | 4.0 | % | | $ | 1,344,326 | | | $ | 1,421,611 | | | (5.4) | % |
Backlog | Backlog | | $ | 368,050 | | | $ | 312,176 | | | 17.9 | % | Backlog | | $ | 317,719 | | | $ | 368,050 | | | (13.7) | % |
| Components of revenue growth: | | | | | | |
Components of revenue growth (decline): | | Components of revenue growth (decline): | | | |
Organic decline | Organic decline | | | | | | (0.5) | % | | (0.5) | % | Organic decline | | | | | | (0.2) | % | | (4.1) | % |
Acquisitions | | | | | | 18.5 | % | | 18.4 | % | |
| | Foreign currency translation | Foreign currency translation | | | | | | (5.0) | % | | (3.4) | % | Foreign currency translation | | | | | | 0.8 | % | | (1.4) | % |
| | | | | | 13.0 | % | | 14.5 | % | |
Total revenue growth (decline) | | Total revenue growth (decline) | | | | | | 0.6 | % | | (5.5) | % |
Third Quarter 20222023 Compared to the Third Quarter 20212022
Clean Energy & Fueling segment revenue for the third quarter of 20222023 increased $53.5$2.9 million, or 13.0%0.6%, as compared to the third quarter of 2021,2022, comprised of acquisition-related growth of 18.5%, partially offset by an unfavorablea favorable impact from foreign currency translation of 5.0%,0.8% and ana modest organic decline of 0.5%0.2%. Acquisition-related growth was driven by the acquisitions of RegO, Acme Cryogenics, and Liqal BV. Customer pricing favorably impacted revenue in the third quarter of 20222023 by approximately 4.0% and by 7.2% compared to 2.0% in the prior year comparable quarter.
The organic revenue decline was primarily driven bydue to reduced year-over-year demand in liquefied petroleum gas components, vehicle wash solutions and below ground retail fueling equipment as higher interest rates have impacted certain customers' ability to finance equipment purchases, and have also led to general reduction in our customer's inventory across our distribution channels. This headwind was mostly offset by increased demand in clean fuels (hydrogen and liquefied natural gas), recovery in above ground retail fueling driven by customer construction delays in North Americaequipment and overall caution among operators in Europe and Asia as a result of the weakening macroeconomic environment. This was mostly offset by solid demand in our below ground retail fueling, fluid transfer solutions and vehicle wash solutions business, along with pricing actions aimed at mitigating material and logistics cost inflation. We expect a modest improvement inthe organic growth ratesrate in the fourth quarter to remain consistent with the third quarter as demand remains constructivewe see positive growth in our key end-markets, most notably thefluid transfer solutions and above ground retail fueling fluid transfer andequipment businesses, which we expect to generally offset continued headwinds in clean energy solutions, vehicle wash businesses,solutions and we anticipate improvements related to supply chain and logistics constraints. In light of market conditions, we have made and will continue to make proactive adjustments to our cost structure through restructuring and other programs to align with current demand trends.below ground retail fueling equipment.
Clean Energy & Fueling segment earnings increased $10.1$2.3 million, or 12.6%2.5%, over the prior year comparable quarter. The increase was primarily driven by pricing actions, productivity initiatives cost actions in above ground fueling, and the favorable impactbenefits from acquisitions, which more than offset the unfavorable impact to earnings from foreign currency translation, reduced volumesongoing restructuring actions taken in above groundour retail fueling business, partially offset by reduced volumes. The benefits from these restructuring actions are significant and increased material, logisticswill carry into 2024. See "Restructuring and labor costs.Other Costs (Benefits)" section within this Item 2 for further information. Segment margin decreasedincreased to 19.4%19.8% from 19.5%19.4% in the prior year comparable quarter.quarter driven by pricing actions, productivity initiatives and the benefits from ongoing restructuring actions.
Overall bookings decreased 7.6%increased 4.0% as compared to the prior year comparable quarter, driven by an organic declinegrowth of 17.6%3.5% and an unfavorablea favorable impact from foreign currency translation of 2.7%, partially offset by acquisition-related growth of 12.7%0.5%. The organic bookings declinegrowth was primarily driven by improving lead times throughout the segment as well as the decrease inincreased year over year demand in above ground retail fueling.fueling equipment. Segment book-to-bill was 0.93. Backlog increased 17.9%0.96 and backlog decreased 13.7% as compared to the prior year comparable period, driven by the acquisitions completed in 2021.period.
Nine Months Ended September 30, 20222023 Compared to the Nine Months Ended September 30, 20212022
Clean Energy & Fueling segment revenue increased $179.2decreased $77.6 million, or 14.5%5.5%, as compared to the nine months ended September 30, 2021,2022, attributable to acquisition-related growthan organic decline of 18.4%, partially offset by4.1% and an unfavorable impact from foreign currency translation of 3.4%, and an organic decline of 0.5%1.4%. Organic revenue was modestly lower in the first nine months of the year compared with the prior year's comparable period, as strongdue to reduced year-over-year demand in ourabove ground retail fueling equipment due to the expected roll-off of EMV-related demand impacting the first half of the year and general reduction in our customer's inventory across our distribution channels. This was partially offset by solid demand in clean fuels (hydrogen and liquefied natural gas) and fluid transfer solutions, along with pricing actions aimed at mitigating material and vehicle wash solutions markets was more than offset by the unfavorable impact from the normalization of EMV related demand in North America.logistics cost inflation. Customer pricing favorably impacted revenue by approximately 4.4% in the nine months ended September 30, 20222023, and by approximately5.2%compared to 1.8% in the prior year comparable period.period.
Clean Energy & Fueling segment earnings increased $9.1decreased $12.5 million, or 3.6%4.8%, for the nine months ended September 30, 2022.2023. The increasedecrease in earnings was favorably impacted by acquisitions, strategic pricing,due to reduced organic volumes and cost actions, which more than offset reduced demand in above ground retail fueling, increased material, logistics and labor costs, and an unfavorable impactimpacts from foreign currency translation.translation, partially offset by pricing actions, productivity initiatives and the benefits from ongoing restructuring actions in our retail fueling business. Segment margin decreasedincreased to 18.5%18.7% from 20.5%18.5% 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 to the global packaged and consumer goods, pharmaceutical, industrial manufacturing, fashion and appareltextile and other end-markets.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands) | (dollars in thousands) | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change | (dollars in thousands) | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
Revenue | Revenue | | $ | 282,371 | | | $ | 292,535 | | | (3.5) | % | | $ | 830,577 | | | $ | 870,939 | | | (4.6) | % | Revenue | | $ | 276,179 | | | $ | 282,371 | | | (2.2) | % | | $ | 831,202 | | | $ | 830,577 | | | 0.1 | % |
| Segment earnings | Segment earnings | | $ | 74,477 | | | $ | 70,635 | | | 5.4 | % | | $ | 194,467 | | | $ | 200,818 | | | (3.2) | % | Segment earnings | | $ | 70,316 | | | $ | 74,477 | | | (5.6) | % | | $ | 199,967 | | | $ | 194,467 | | | 2.8 | % |
| | Segment margin | Segment margin | | 26.4% | | 24.1% | | 23.4% | | 23.1% | | Segment margin | | 25.5 % | | 26.4 % | | 24.1 % | | 23.4 % | |
| | Operational metrics: | Operational metrics: | | Operational metrics: | |
Bookings | Bookings | | $ | 281,789 | | | $ | 293,782 | | | (4.1) | % | | $ | 881,029 | | | $ | 887,004 | | | (0.7) | % | Bookings | | $ | 271,113 | | | $ | 281,789 | | | (3.8) | % | | $ | 823,917 | | | $ | 881,029 | | | (6.5) | % |
Backlog | Backlog | | $ | 241,896 | | | $ | 204,766 | | | 18.1 | % | Backlog | | $ | 217,824 | | | $ | 241,896 | | | (10.0) | % |
| Components of revenue decline: | | | | | | |
Organic growth | | | | | | 4.9 | % | | 1.0 | % | |
Acquisitions | | | | | | — | % | | 0.3 | % | |
Components of revenue (decline) growth: | | Components of revenue (decline) growth: | | | |
Organic (decline) growth | | Organic (decline) growth | | | | | | (3.6) | % | | 1.5 | % |
| | Foreign currency translation | Foreign currency translation | | | | | | (8.4) | % | | (5.9) | % | Foreign currency translation | | | | | | 1.4 | % | | (1.4) | % |
| | | | | | (3.5) | % | | (4.6) | % | |
Total revenue (decline) growth | | Total revenue (decline) growth | | | | | | (2.2) | % | | 0.1 | % |
Third Quarter 20222023 Compared to the Third Quarter 20212022
Imaging & Identification segment revenue for the third quarter of 20222023 decreased $10.2$6.2 million, or 3.5%2.2%, as compared to the third quarter of 2021,2022, comprised of an organic growthdecline of 4.9%3.6%, which was more thanpartially offset by an unfavorablea favorable impact from foreign currency translation of 8.4%1.4%. Customer pricing favorably impacted revenue in the third quarter of 20222023 by approximately 5.3% and by 4.4% compared to 0.7% in the prior year comparable quarter.
The organic revenue growthdecline was primarily drivendue to reduced demand in China, lower textile printer shipments caused by solid activityhigh energy prices and macro uncertainty in ourtextile producing regions, and a comparable period in 2022 being favorably impacted by marking and coding business, as underlying demand for our printers, spare parts, servicesequipment shipment timing. These headwinds were partially offset by growth in serialization software and consumables remains positive, and we have seen improvements in component availability and an easing of COVID-related restrictions in China experienced in the first half of 2022. We expect deliveries in our marking and coding businessconsumables and services. We expect organic growth rates to remain positivecontinue to be negatively impacted by market headwinds in the fourth quarter as component availability continues to improve and underlying demand for our printers and consumables remains positive.of the year.
Imaging & Identification segment earnings increased $3.8decreased $4.2 million, or 5.4%5.6%, over the prior year comparable quarter. This increasedecrease was primarily drivendue to reduced organic volumes, material and labor cost inflation, partially offset by pricing initiatives, organic revenue growth, productivity actions and product mix.a favorable impact from foreign currency translation. Segment margin increaseddecreased to 26.4%25.5% from 24.1%26.4% in the prior year comparable quarter.
Overall bookings decreased 4.1%3.8% as compared to the prior year comparable quarter, reflecting an organic growthdecline of 3.7%, more than offset by an unfavorable5.4% and a favorable impact from foreign currency translation of 7.8%1.6%. OrganicThe organic bookings growthdecline was primarily driven by solid demand for new equipment, spare parts, services and consumablesdue to reduced order intake in our marking and coding business.and digital textile printing businesses. Segment book-to-bill was 1.00. Backlog increased 18.1%0.98, and backlog decreased 10.0% as compared to the prior year comparable period.
Nine Months Ended September 30, 20222023 Compared to the Nine Months Ended September 30, 20212022
Imaging & Identification segment revenue decreased $40.4increased $0.6 million, or 4.6%, as compared to the nine months ended September 30, 2021,2022, attributable to organic growth of 1.5%, offset by an unfavorable impact from foreign currency translation of 5.9%, partially offset by organic growth of 1.0%, and acquisition-related growth of 0.3%1.4%. The organic revenue growth was primarily drivenpricing initiatives, partially offset by solidweaker demand in our marking and coding business, partially offset by reduced demand in our digital textile printing business. Customer pricing favorably impacted revenue by approximately 6.0% in the nine months ended September 30, 20222023, and by approximately 3.2% compared to 0.9% in the prior year comparable period.
Imaging & Identification segment earnings increased $5.5 million, or 2.8%, for the nine months ended September 30, 2023 over the prior year comparable period. The increase was primarily driven by pricing initiatives and productivity actions, which more than offset negative impacts from material and labor cost inflation and foreign currency translation. Segment margin increased to 24.1% from 23.4% in the prior year comparable quarter.
Imaging & Identification segment earnings decreased $6.4 million, or 3.2%, for the nine months ended September 30, 2022 over the prior year comparable period. The decrease was primarily driven by unfavorable foreign exchange impacts and higher input costs, partially offset by cost reduction initiatives, price increases, organic revenue growth and restructuring benefits. Segment margin increased to 23.4% from 23.1% in the prior year comparable period.
Pumps & Process Solutions
Our Pumps & Process Solutions segment manufactures specialty pumps and flow meters, fluid connecting solutions, plastics and polymer processing equipment, and highly-engineeredhighly engineered precision components for rotating and reciprocating machines, fluid connecting solutions and plastics and polymer processing equipment, serving single-use biopharmaceutical production, diversified industrial manufacturing, chemical production, plastics and polymer processing, midstream and downstream oil and gas, thermal management applications and other end-markets.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands) | (dollars in thousands) | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change | (dollars in thousands) | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
Revenue | Revenue | | $ | 433,558 | | | $ | 438,240 | | | (1.1) | % | | $ | 1,309,880 | | | $ | 1,261,318 | | | 3.9 | % | Revenue | | $ | 431,373 | | | $ | 433,558 | | | (0.5) | % | | $ | 1,310,880 | | | $ | 1,309,880 | | | 0.1 | % |
| Segment earnings | Segment earnings | | $ | 128,573 | | | $ | 150,275 | | | (14.4) | % | | $ | 413,238 | | | $ | 425,929 | | | (3.0) | % | Segment earnings | | $ | 117,907 | | | $ | 128,573 | | | (8.3) | % | | $ | 362,488 | | | $ | 413,238 | | | (12.3) | % |
| | Segment margin | Segment margin | | 29.7% | | 34.3% | | 31.5% | | 33.8% | | Segment margin | | 27.3 % | | 29.7 % | | 27.7 % | | 31.5 % | |
| | Operational metrics: | Operational metrics: | | Operational metrics: | |
Bookings | Bookings | | $ | 415,253 | | | $ | 490,581 | | | (15.4) | % | | $ | 1,346,736 | | | $ | 1,562,956 | | | (13.8) | % | Bookings | | $ | 363,111 | | | $ | 415,253 | | | (12.6) | % | | $ | 1,221,725 | | | $ | 1,346,736 | | | (9.3) | % |
Backlog | Backlog | | $ | 679,955 | | | $ | 682,415 | | | (0.4) | % | Backlog | | $ | 597,745 | | | $ | 679,955 | | | (12.1) | % |
| Components of revenue decline: | | | | |
Organic growth | | | | | | 1.9 | % | | 6.9 | % | |
Components of revenue (decline) growth: | | Components of revenue (decline) growth: | | | |
Organic decline | | Organic decline | | | | | | (7.3) | % | | (4.5) | % |
Acquisitions | Acquisitions | | | | | | 2.3 | % | | 1.0 | % | Acquisitions | | | | | | 4.7 | % | | 4.5 | % |
| Foreign currency translation | Foreign currency translation | | | | | | (5.3) | % | | (4.0) | % | Foreign currency translation | | | | | | 2.1 | % | | 0.1 | % |
| | | | | | (1.1) | % | | 3.9 | % | |
Total revenue (decline) growth | | Total revenue (decline) growth | | | | | | (0.5) | % | | 0.1 | % |
Third Quarter 20222023 Compared to the Third Quarter 20212022
Pumps & Process Solutions segment revenue for the third quarter of 20222023 decreased $4.7$2.2 million, or 1.1%0.5%, as compared to the third quarter of 2021, driven2022, due to organic decline of 7.3%, partially offset by acquisition-related growth of 2.3%4.7%, organic growth of 1.9%,` and an unfavorablea favorable impact from foreign currency translation of 5.3%2.1%. Acquisition-related growth was primarily driven by the acquisition of AMN DPI and Malema Engineering Corporation.Witte Pumps & Technology GmbH in the fourth quarter of 2022. Customer pricing favorably impacted revenue in the third quarter of 20222023 by approximately 3.6% and by 4.4% compared to 2.3% in the prior year comparable quarter.
The organic revenue growthdecline 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 grew revenue driven by solid end market demand and strong backlogs. Revenue fromprimarily due to reduced shipments of single-use pumps and connectors used in biopharmaceutical production processes declined compared to the third quarter of 2021, as biopharmaceutical manufacturers reduced orders for components used in COVID-19 vaccine production. While underlyingproduction and biopharmaceutical manufacturers repurposing inventory toward production of non COVID-19 therapies, as well as project timing in polymer processing and customer inventory reductions in several markets. This was partially offset by continued demand remains positivestrength in our core biopharmaceutical platform, webearings and compression and hygienic dosing businesses. We expect sales of products usedcontinued organic growth headwinds in the productionfourth quarter as conversion of COVID-19 vaccines to continue to declinestrong backlogs in 2022polymer processing equipment and into early 2023.continued solid demand in bearings and compression components are more than offset by significant demand headwinds in biopharmaceutical components and continued reduction in our customer's inventory in several markets.
Pumps & Process Solutions segment earnings decreased $21.7$10.7 million, or 14.4%8.3%, over the prior year comparable quarter. The decrease was primarily drivendue to the impact of organic volume reductions, partially offset by pricing initiatives, productivity actions and restructuring benefits. Segment margin decreased to 27.3% from 29.7% from the prior year comparable quarter mainly due to impact of reduced volumes on fixed cost manufacturing base in biopharma. We are managing production at our operating plants to match demand.
Overall bookings decreased 12.6% as compared to the prior year comparable quarter due to an organic decline of 15.6%, partially offset by a favorable impact from foreign currency translation of 1.8%, as well as acquisition-related growth of 1.2%. The organic bookings decline was primarily due to order timing in our polymer processing equipment business, as well as reduced orders for biopharmaceutical components and core connectors. Segment book-to-bill was 0.84, and backlog decreased 12.1% compared to the prior year comparable period.
Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022
Pumps & Process Solutions segment revenue increased $1.0 million, as compared to the nine months ended September 30, 2022, attributable to acquisition-related growth of 4.5%, and a favorable impact from foreign currency translation of 0.1%, offset by organic decline of 4.5%. The organic decline was primarily due to reduced shipments for components used in COVID-19 vaccine production and biopharmaceutical manufacturers repurposing inventory purchased for the COVID-19 vaccine production toward production of non-COVID-19 therapies. This decline was partially offset by pricing initiatives, along with continued strength in industrial pumps, thermal connectors, hygienic dosing systems, plastics and polymer processing solutions, and bearings and compression components. Customer pricing favorably impacted revenue by approximately 4.6% in the nine months ended September 30, 2023, and by 3.8% in the prior comparable period.
Pumps & Process Solutions segment earnings decreased $50.8 million, or 12.3%, for the nine months ended September 30, 2023 over the prior year comparable period. The decrease was primarily the impact of reduced revenues relating to single usebiopharmaceutical components used in COVID-19 vaccine production, along with material and labor cost inflation and foreign currency translation headwinds. 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 29.7%27.7% from 34.3% from the prior year comparable quarter mainly due to revenue mix within the segment.
Overall bookings decreased 15.4% as compared to the prior year comparable quarter, reflecting an organic decline of 12.2%, an unfavorable impact from foreign currency translation of 4.7%, partially offset by acquisition-related growth of 1.5%. The organic bookings decline was driven by a decrease in orders for biopharmaceutical components used in COVID-19 vaccine production, partially offset by continued strong order intake in our plastics and polymer processing solutions and bearings and compression components businesses. Segment book-to-bill was 0.96. Backlog decreased 0.4% compared to the prior year comparable period.
Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021
Pumps & Process Solutions segment revenue increased $48.6 million, or 3.9%, as compared to the nine months ended September 30, 2021, attributable to organic growth of 6.9% and acquisition-related growth of 1.0%, partially offset by an unfavorable impact from foreign currency translation of 4.0%. 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 nine months ended September 30, 2022 by approximately 3.8% compared to 1.5% in the prior comparable period.
Pumps & Process Solutions segment earnings decreased $12.7 million, or 3.0%, for the nine months ended September 30, 2022 over the prior year comparable period, predominantly driven by conversion on higher revenues, pricing initiatives, productivity actions, and restructuring benefits, which were more than offset by an unfavorable impact from material and labor cost inflation, and an unfavorable impact from foreign exchange. Segment margin decreased to 31.5% from 33.8% from the prior year comparable period.
Climate & Sustainability Technologies
Our Climate & Sustainability Technologies segment is a provider of innovative and energy-efficient equipment, components and systems that serveparts for the commercial refrigeration, heating and cooling and beverage can-making equipment markets.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands) | (dollars in thousands) | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change | (dollars in thousands) | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
Revenue | Revenue | | $ | 462,671 | | | $ | 429,425 | | | 7.7 | % | | $ | 1,295,913 | | | $ | 1,232,008 | | | 5.2 | % | Revenue | | $ | 475,911 | | | $ | 462,671 | | | 2.9 | % | | $ | 1,380,237 | | | $ | 1,295,913 | | | 6.5 | % |
| Segment earnings | Segment earnings | | $ | 75,190 | | | $ | 49,734 | | | 51.2 | % | | $ | 192,980 | | | $ | 150,114 | | | 28.6 | % | Segment earnings | | $ | 84,060 | | | $ | 75,190 | | | 11.8 | % | | $ | 233,912 | | | $ | 192,980 | | | 21.2 | % |
| | Segment margin | Segment margin | | 16.3% | | 11.6% | | 14.9% | | 12.2% | | Segment margin | | 17.7 % | | 16.3 % | | 16.9 % | | 14.9 % | |
| | Operational metrics: | Operational metrics: | | Operational metrics: | |
Bookings | Bookings | | $ | 422,820 | | | $ | 540,280 | | | (21.7) | % | | $ | 1,271,246 | | | $ | 1,684,151 | | | (24.5) | % | Bookings | | 347,466 | | | $ | 422,820 | | | (17.8) | % | | 992,843 | | | $ | 1,271,246 | | | (21.9) | % |
Backlog | Backlog | | $ | 1,139,737 | | | $ | 964,233 | | | 18.2 | % | Backlog | | $ | 674,578 | | | $ | 1,139,737 | | | (40.8) | % |
| Components of revenue growth: | Components of revenue growth: | | Components of revenue growth: | |
Organic growth | Organic growth | | 19.3 | % | | 16.0 | % | Organic growth | | 1.8 | % | | 7.0 | % |
Acquisitions | | Acquisitions | | 0.1 | % | | — | % |
| Dispositions | | (7.9) | % | | (8.0) | % | |
Foreign currency translation | Foreign currency translation | | (3.7) | % | | (2.8) | % | Foreign currency translation | | 1.0 | % | | (0.5) | % |
| | 7.7 | % | | 5.2 | % | |
Total revenue growth | | Total revenue growth | | 2.9 | % | | 6.5 | % |
Third Quarter 20222023 Compared to the Third Quarter 20212022
Climate & Sustainability Technologies segment revenue increased $33.2$13.2 million, or 7.7%2.9%, as compared to the third quarter of 2021,2022, reflecting organic revenue growth of 19.3%1.8%, offset by 7.9% from our disposition of Unified Brands in fourth quarter of 2021, and an unfavorablea favorable impact from foreign currency translation of 3.7%1.0%, and acquisition-related growth of 0.1%. Customer pricing favorably impacted revenue in the third quarter of 20222023 by approximately 2.4% and by 10.3% compared to 5.7% in the prior year comparable quarter, reflecting actions to recover higher costs.quarter.
The organic revenue growth was driven primarily by customer price actions implemented to recover increased material, energypricing initiatives and logistics costs combined with strong demand across all of ourin certain key end-markets.end markets, partially offset by impacts from economic slowdowns in China. Our heat exchanger business continues to experience growth as regulation-driven efforts to shift from fossil fuel to electric energy in Europe drive demand for heat pump applications, as well as strong U.S. commercial HVAC and industrial markets, partially offset by reduced demand in China. Retail refrigeration revenuesrevenue also increased substantially from the prior year, driven by customer pricing actions, large system refurbishment programs with a key supermarket customer and continued robust end-market demand.growing demand for natural refrigerant systems, partially offset by soft demand in the interest rate sensitive convenience store market. Beverage can-making business revenues increased from the prior year, primarily related to growth in integrated can-line installation projects. We expect organic revenue to decline in the fourth quarter due to moderating growth in heat exchangers and refrigerated door cases as well as project timing and reduced demand for beverage can-making equipment as large can-maker customers focus on optimizing recent large capacity expansions.
Climate & Sustainability Technologies segment earnings increased $8.9 million, or 11.8%, as compared to the third quarter of 2022. The segment earnings increase was driven by customer pricing actions and benefits from productivity initiatives, partially offset by higher labor costs. Segment margin increased to 17.7% from 16.3% in the prior year comparable quarter.
Bookings in the third quarter of 2023 decreased 17.8% from the prior year comparable quarter, reflecting organic decline of 18.9% partially offset by a favorable impact from foreign currency translation of 0.8% and acquisition-related growth of 0.3%. The organic bookings decline was principally due to moderating demand with key customers in beverage can-making equipment, normalization of lead times for heat exchangers and customer order timing returning to historical seasonal patterns in refrigeration. Segment book-to-bill for the third quarter of 2023 was 0.73. Backlog decreased 40.8% over the prior year comparable period, driven in large part by timing of projects and reduced demand from large customers in beverage can-making equipment.
Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022
Climate & Sustainability Technologies segment revenue increased $84.3 million, or 6.5%, compared to the nine months ended September 30, 2022, reflecting an organic revenue growth of 7.0%, partially offset by an unfavorable foreign currency translation of 0.5%. The organic revenue growth for the nine months ended September 30, 2023 was driven by strong demand across many of our key end-markets. Retail refrigeration revenues increased from the prior year, driven by healthy remodel and system refurbishment programs with key supermarket customers and continued growing demand for our environmentally friendly natural refrigerant systems in Europe and North America. Our beverage equipment business experienced strongrevenue 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. 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. We anticipate organicin the U.S. Customer pricing favorably impacted revenue growth to continue intoby approximately 4.4% in the fourth quarter drivennine months ended September 30, 2023, and by a healthy backlog position and strong order demand trends across many of our key end-markets.9.7% in the prior comparable period.
Climate & Sustainability Technologies segment earnings increased $25.5$40.9 million, or 51.2%, as compared to the third quarter of 2021. Segment margin increased to 16.3% from 11.6% in the prior year comparable quarter. The earnings increase was driven by increased volumes, favorable business mix, customer pricing actions, and productivity efficiencies, partially offset by increased material and logistics costs, most notably metals and freight, and increased energy and labor costs, along with the disposition of Unified Brands in the fourth quarter of 2021.
Bookings in the third quarter of 2022 decreased 21.7% from the prior year comparable quarter, reflecting organic decline of 11.3%, a disposition-related decline of 7.3%, and an unfavorable impact from foreign currency translation of 3.1%. The organic bookings decline was principally driven by improving lead times, a challenging comparable quarter in the prior year in retail refrigeration and timing of large beverage equipment projects. Segment book-to-bill for the third quarter of 2022 was 0.91. Backlog increased 18.2% over the prior year comparable period, reflective of the continued strong demand outlook across all businesses within the segment.
Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021
Climate & Sustainability Technologies segment revenue increased $63.9 million, or 5.2%, compared to the nine months ended September 30, 2021, reflecting an organic revenue growth of 16.0%, partially offset by 8.0% decline from the disposition of Unified Brands and an unfavorable foreign currency translation of 2.8%. The organic revenue growth for the nine months ended September 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. 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 nine months ended September 30, 2022 by approximately 9.7% compared to 3.0% in the prior comparable period.
Climate & Sustainability Technologies segment earnings increased $42.9 million, or 28.6%21.2%, for the nine months ended September 30, 2022,2023, as compared to the prior year comparable period. Segment margin increased to 14.9%16.9% from 12.2%14.9% in the prior year. year comparable period. The earnings increase was driven by increased volumes, improved productivity, 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 energy and labor costs, and the disposition of Unified Brands in the fourth quarter of 2021.
costs.
Reconciliation of Segment Earnings to Net Earnings
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 | |
(dollars in thousands) | | (dollars in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Net earnings: | Net earnings: | | | | | | | | Net earnings: | | | | | | | |
Segment earnings: | Segment earnings: | | Segment earnings: | |
Engineered Products | Engineered Products | $ | 90,145 | | | $ | 67,376 | | | $ | 242,946 | | | $ | 215,315 | | Engineered Products | $ | 101,610 | | | $ | 90,145 | | | $ | 258,961 | | | $ | 242,946 | |
Clean Energy & Fueling | Clean Energy & Fueling | 90,208 | | | 80,101 | | | 262,204 | | | 253,103 | | Clean Energy & Fueling | 92,483 | | | 90,208 | | | 249,704 | | | 262,204 | |
Imaging & Identification | Imaging & Identification | 74,477 | | | 70,635 | | | 194,467 | | | 200,818 | | Imaging & Identification | 70,316 | | | 74,477 | | | 199,967 | | | 194,467 | |
Pumps & Process Solutions | Pumps & Process Solutions | 128,573 | | | 150,275 | | | 413,238 | | | 425,929 | | Pumps & Process Solutions | 117,907 | | | 128,573 | | | 362,488 | | | 413,238 | |
Climate & Sustainability Technologies | Climate & Sustainability Technologies | 75,190 | | | 49,734 | | | 192,980 | | | 150,114 | | Climate & Sustainability Technologies | 84,060 | | | 75,190 | | | 233,912 | | | 192,980 | |
Total segment earnings | Total segment earnings | 458,593 | | | 418,121 | | | 1,305,835 | | | 1,245,279 | | Total segment earnings | 466,376 | | | 458,593 | | | 1,305,032 | | | 1,305,835 | |
Purchase accounting expenses (1) | Purchase accounting expenses (1) | 40,526 | | | 35,587 | | | 140,831 | | | 106,265 | | Purchase accounting expenses (1) | 40,320 | | | 40,526 | | | 123,199 | | | 140,831 | |
Restructuring and other costs (benefits) (2) | 8,613 | | | (3,201) | | | 27,109 | | | 11,740 | | |
Restructuring and other costs (2) | | Restructuring and other costs (2) | 12,327 | | | 8,613 | | | 44,523 | | | 27,109 | |
Loss on dispositions (3) | Loss on dispositions (3) | — | | | — | | | 194 | | | — | | Loss on dispositions (3) | — | | | — | | | — | | | 194 | |
Corporate expense / other (4) | Corporate expense / other (4) | 27,876 | | | 33,249 | | | 93,247 | | | 110,332 | | Corporate expense / other (4) | 30,686 | | | 27,876 | | | 104,680 | | | 93,247 | |
Interest expense | Interest expense | 29,789 | | | 26,433 | | | 83,330 | | | 79,917 | | Interest expense | 32,389 | | | 29,789 | | | 100,407 | | | 83,330 | |
Interest income | Interest income | (1,244) | | | (1,466) | | | (2,968) | | | (3,088) | | Interest income | (3,808) | | | (1,244) | | | (8,552) | | | (2,968) | |
Earnings before provision for income taxes | Earnings before provision for income taxes | 353,033 | | | 327,519 | | | 964,092 | | | 940,113 | | Earnings before provision for income taxes | 354,462 | | | 353,033 | | | 940,775 | | | 964,092 | |
Provision for income taxes | Provision for income taxes | 67,007 | | | 63,763 | | | 162,295 | | | 179,080 | | Provision for income taxes | 64,709 | | | 67,007 | | | 180,209 | | | 162,295 | |
Net earnings | Net earnings | $ | 286,026 | | | $ | 263,756 | | | $ | 801,797 | | | $ | 761,033 | | Net earnings | $ | 289,753 | | | $ | 286,026 | | | $ | 760,566 | | | $ | 801,797 | |
(1) Purchase accounting expenses are primarily comprised of amortization of intangible assets and charges related to fair value step-ups for acquired inventory sold during the period.
(2) Restructuring and other costs relate to actions taken for employeeheadcount reductions, facility consolidations and site closures, product line exits, and other asset charges.
(3) Loss on dispositions 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 and digital overhead costs, deal-related expenses and various administrative expenses relating to the corporate headquarters.
Restructuring and Other Costs (Benefits)
Restructuring and other costs (benefits) are not presented in our segment earnings because these costs are excluded from the segment operating performance measure reviewed by management. Restructuring and other costs for the three and nine months ended September 30, 2023 included restructuring charges of $4.9 million and $33.8 million, respectively and other costs, net of $7.4 million and $10.7 million, respectively. Restructuring charges for the three months ended September 30, 2023 primarily related to headcount reductions and exit costs in the Pumps & Process Solutions, Engineered Products and Climate & Sustainability Technologies segments. Restructuring charges for the nine months ended September 30, 2023 primarily related to headcount reductions and exit costs in the Clean Energy & Fueling, Pumps & Process Solutions, Engineered Products and Climate & Sustainability Technologies segments. These restructuring programs were initiated in 2022 and 2023 and were undertaken in light of current market conditions. Other costs, net of $7.4 million and $10.7 million for the three and nine months ended September 30, 2023, were primarily due to an asset impairment in our Climate & Sustainability Technologies segment and product line rationalization and footprint reduction in our Clean Energy & Fueling segment. These restructuring and other 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 2023 with related restructuring charges.
We recorded the following restructuring and other costs for the three and nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 |
(dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
Restructuring | $ | 1,472 | | | $ | (37) | | | $ | 233 | | | $ | 1,637 | | | $ | 1,138 | | | $ | 476 | | | $ | 4,919 | |
Other costs, net | 249 | | | 1,182 | | | 328 | | | 113 | | | 3,939 | | | 1,597 | | | 7,408 | |
Restructuring and other costs | $ | 1,721 | | | $ | 1,145 | | | $ | 561 | | | $ | 1,750 | | | $ | 5,077 | | | $ | 2,073 | | | $ | 12,327 | |
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| Nine Months Ended September 30, 2023 |
(dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
Restructuring | $ | 5,949 | | | $ | 15,954 | | | $ | 1,437 | | | $ | 6,266 | | | $ | 2,585 | | | $ | 1,603 | | | $ | 33,794 | |
Other costs, net | 283 | | | 3,141 | | | 824 | | | 110 | | | 4,642 | | | 1,729 | | | 10,729 | |
Restructuring and other costs | $ | 6,232 | | | $ | 19,095 | | | $ | 2,261 | | | $ | 6,376 | | | $ | 7,227 | | | $ | 3,332 | | | $ | 44,523 | |
Restructuring and other costs of $8.6 million and $27.1 million for the three and nine months ended September 30, 2022 were primarily due to headcount reductions and facility consolidations resulting from restructuring programs initiated in 2021 and 2022. Additionally, restructuring and other costs for the nine months ended September 30, 2022 includes non-cash foreign currency translation losses and asset write-downs due to the substantial liquidation and exit from certain Latin America countries in our Climate & Sustainability Technologies segment. These restructuring and other charges were recorded in cost of goods and services and selling, general and administrative expenses in the Condensed Consolidated Statementcondensed consolidated statement of Earnings. Additional programs beyond the scope of the announced programs may be implemented during 2022 with related restructuring charges.
We recorded the following restructuring and other costs (benefits) for the three and nine months ended September 30, 2022:
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| Three Months Ended September 30, 2022 |
(dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
Restructuring | $ | 2,027 | | | $ | 3,063 | | | $ | 516 | | | $ | 552 | | | $ | (85) | | | $ | 1,242 | | | $ | 7,315 | |
Other costs (benefits), net | 536 | | | 36 | | | 347 | | | 16 | | | 373 | | | (10) | | | 1,298 | |
Restructuring and other costs | $ | 2,563 | | | $ | 3,099 | | | $ | 863 | | | $ | 568 | | | $ | 288 | | | $ | 1,232 | | | $ | 8,613 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
(dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
Restructuring | $ | 3,008 | | | $ | 4,682 | | | $ | 2,051 | | | $ | 2,713 | | | $ | 5,790 | | | $ | 1,537 | | | $ | 19,781 | |
Other costs, net | 2,965 | | | 35 | | | 1,496 | | | 18 | | | 2,597 | | | 217 | | | 7,328 | |
Restructuring and other costs | $ | 5,973 | | | $ | 4,717 | | | $ | 3,547 | | | $ | 2,731 | | | $ | 8,387 | | | $ | 1,754 | | | $ | 27,109 | |
During the three and nine months ended September 30, 2021, restructuring and other 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. 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 restructuring and other charges were recorded in cost of goods and services and selling, general and administrative expenses in the Condensed Consolidated Statement of Earnings.earnings.
We recorded the following restructuring and other costs (benefits) for the three and nine months ended September 30, 20212022:
| | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2022 |
(dollars in thousands) | (dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total | (dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
Restructuring | Restructuring | $ | 870 | | | $ | 1,620 | | | $ | 168 | | | $ | 639 | | | $ | 1,293 | | | $ | 200 | | | $ | 4,790 | | Restructuring | $ | 2,027 | | | $ | 3,063 | | | $ | 516 | | | $ | 552 | | | $ | (85) | | | $ | 1,242 | | | $ | 7,315 | |
Other (benefits) costs, net | (9,202) | | | (36) | | | 1,123 | | | (152) | | | 227 | | | 49 | | | (7,991) | | |
Restructuring and other (benefits) costs | $ | (8,332) | | | $ | 1,584 | | | $ | 1,291 | | | $ | 487 | | | $ | 1,520 | | | $ | 249 | | | $ | (3,201) | | |
Other costs (benefits), net | | Other costs (benefits), net | 536 | | | 36 | | | 347 | | | 16 | | | 373 | | | (10) | | | 1,298 | |
Restructuring and other costs | | Restructuring and other costs | $ | 2,563 | | | $ | 3,099 | | | $ | 863 | | | $ | 568 | | | $ | 288 | | | $ | 1,232 | | | $ | 8,613 | |
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| Nine Months Ended September 30, 2021 |
(dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
Restructuring | $ | 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) | |
Restructuring and other costs (benefits) | $ | 341 | | | $ | 3,299 | | | $ | 2,151 | | | $ | (620) | | | $ | 4,021 | | | $ | 2,548 | | | $ | 11,740 | |
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| Nine Months Ended September 30, 2022 |
(dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
Restructuring | $ | 3,008 | | | $ | 4,682 | | | $ | 2,051 | | | $ | 2,713 | | | $ | 5,790 | | | $ | 1,537 | | | $ | 19,781 | |
Other costs, net | 2,965 | | | 35 | | | 1,496 | | | 18 | | | 2,597 | | | 217 | | | 7,328 | |
Restructuring and other costs | $ | 5,973 | | | $ | 4,717 | | | $ | 3,547 | | | $ | 2,731 | | | $ | 8,387 | | | $ | 1,754 | | | $ | 27,109 | |
Purchase Accounting Expenses
Purchase accounting expenses primarily relate to amortization of acquiredintangible assets and charges related to fair value step-ups for acquired inventory sold during the period. These expenses are not presented in our segment earnings because they are excluded from the segment operating performance measure reviewed by management. These expenses reconcile to segment earnings as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Purchase accounting expenses | | | | | | | |
Engineered Products | $ | 5,101 | | | $ | 3,991 | | | $ | 15,509 | | | $ | 11,758 | |
Clean Energy & Fueling 1 | 19,416 | | | 12,924 | | | 77,641 | | | 38,976 | |
Imaging & Identification | 5,429 | | | 5,925 | | | 16,730 | | | 17,509 | |
Pumps & Process Solutions | 5,762 | | | 7,374 | | | 16,450 | | | 21,858 | |
Climate & Sustainability Technologies | 4,818 | | | 5,373 | | | 14,501 | | | 16,164 | |
Total | $ | 40,526 | | | $ | 35,587 | | | $ | 140,831 | | | $ | 106,265 | |
1 The increase of $6,492 and $38,665 in purchase accounting expenses for the three and nine months ended September 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 $0 and $18,995, respectively, in charges related to fair value step-ups for inventory. |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Purchase accounting expenses | | | | | | | |
Engineered Products | $ | 4,805 | | | $ | 5,101 | | | $ | 15,600 | | | $ | 15,509 | |
Clean Energy & Fueling 1 | 19,775 | | | 19,416 | | | 58,882 | | | 77,641 | |
Imaging & Identification | 5,803 | | | 5,429 | | | 17,354 | | | 16,730 | |
Pumps & Process Solutions | 5,111 | | | 5,762 | | | 16,888 | | | 16,450 | |
Climate & Sustainability Technologies | 4,826 | | | 4,818 | | | 14,475 | | | 14,501 | |
Total | $ | 40,320 | | | $ | 40,526 | | | $ | 123,199 | | | $ | 140,831 | |
1 Purchase accounting expenses in our Clean Energy & Fueling segment decreased by $18,759 for the nine months ended September 30, 2023 from the prior year comparable period, which included $18,995 of charges related to fair value step-ups for inventory from the Q4 2021 acquisition of RegO and Acme Cryogenics. |
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, repurchasesrepurchase 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 Statementscondensed consolidated statements of Cash Flows:cash flows:
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
Cash Flows (dollars in thousands) | 2022 | | 2021 | |
Net Cash Flows Provided By (Used In): | | | | |
Cash Flows from Operations (in thousands) | | Cash Flows from Operations (in thousands) | 2023 | | 2022 |
Net cash flows provided by (used in): | | Net cash flows provided by (used in): | | | |
Operating activities | Operating activities | $ | 467,081 | | | $ | 788,586 | | Operating activities | $ | 819,995 | | | $ | 467,081 | |
Investing activities | Investing activities | (402,061) | | | (286,642) | | Investing activities | (136,253) | | | (402,061) | |
Financing activities | Financing activities | (133,579) | | | (274,798) | | Financing activities | (757,205) | | | (133,579) | |
Operating Activities
Cash provided byflow from operating activities for the nine months ended September 30, 2022 decreased approximately $321.52023 increased by $352.9 million compared to the comparable period in 2021.September 30, 2022. This decreaseincrease was primarily driven by higher investmentsimprovements in working capital to support business growth, including investments in inventoryto support increasing backlog and mitigate potential inventory shortages given the continuing 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 2022cash flows related to the gain on sale of Unified Brands in Q4 2021.working capital.
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 liquidity by showing changes caused by operational results. The following table provides a calculation of adjusted working capital:
| | | | | | | | | | | | | | |
Adjusted Working Capital (dollars in thousands) | | September 30, 2022 | | December 31, 2021 | | |
Accounts receivable | | $ | 1,497,062 | | | $ | 1,347,514 | | | |
Inventories | | 1,407,797 | | | 1,191,095 | | | |
Less: Accounts payable | | 1,143,253 | | | 1,073,568 | | | |
Adjusted working capital | | $ | 1,761,606 | | | $ | 1,465,041 | | | |
| | | | | | |
Adjusted working capital increased from December 31, 2021 by $296.6 million, or 20.2%, to $1.8 billion at September 30, 2022, which reflected an increase of $149.5 million in accounts receivable and $216.7 million in inventory, partially offset by an increase in accounts payable of $69.7 million. These amounts include the effects of acquisitions 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 to also mitigate 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") 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. | | | | | | | | | | | | | | |
Adjusted Working Capital (in thousands) | | September 30, 2023 | | December 31, 2022 | | |
Accounts receivable | | $ | 1,548,675 | | | $ | 1,516,871 | | | |
Inventories | | 1,279,781 | | | 1,366,608 | | | |
Less: Accounts payable | | 970,671 | | | 1,068,144 | | | |
Adjusted working capital | | $ | 1,857,785 | | | $ | 1,815,335 | | | |
| | | | | | |
Outstanding payments related to SCF programs are recorded within accounts payableAdjusted working capital increased by $42.5 million, or 2.3%, in our consolidated balance sheets. As of September 30, 2022 and December 31, 2021, amounts due to financial institutions for suppliers using SCF were approximately $190 million and $211 million, respectively. SCF-related payments are classified as a reduction to cash flows from operations. During the nine months ended September 30, 20222023, which reflected an increase of $31.8 million in accounts receivable, a decrease of $86.8 million in inventory and 2021, amounts paida decrease in accounts payable of $97.5 million. The decrease in inventories is due to SCF financial institutions were approximately $689 millionreduced purchasing of inventories as supply chains have normalized. The change in accounts receivable and $596 million, respectively.payable reflect the timing of payments and collections.
Investing Activities
Cash used inflow from investing activities is generally derived from cash outflows for capital expenditures and acquisitions, offset by proceeds from sales of business, property, plant and equipment. For the nine months ended September 30, 20222023 and 2021,2022, we used cash in investing activities of $402.1$136.3 million and $286.6$402.1 million, respectively, primarily driven by the the following factors:
•Acquisitions: During the nine months ended September 30, 2022,2023, we deployed approximately $229.3$7.2 million, net, to acquire AMN and MalemaArc Pacific group within the PumpsClimate & Process SolutionsSustainability Technologies segment. In comparison, during the nine months ended September 30, 2021,2022, we acquired EspyAMN and CDS Visual within the Engineered Products segment, AvaLAN and Blue Bite within the Clean Energy & Fueling and Imaging & Identification segments, respectively, and Quantex and one other immaterial acquisitionMalema within the Pumps & Process Solutions segment for an aggregate of $171.3$229.3 million, net.
•Capital spending: Our capital expenditures increased $44.9decreased $34.5 million during the nine months ended September 30, 20222023 compared to the nine months ended September 30, 2021. We expect full year 2022 capital expenditures to be approximately $200-$220 million.2022.
We anticipate that capital expenditures and any acquisitions we make through the remainder of 20222023 will be funded from available cash and internally generated funds and, if necessary, through the issuance of commercial paper, use of lines ofborrowings from revolving credit facilities or by accessing the public debt or private debt markets, as necessary.equity markets.
Financing Activities
Our cash flow from financing activities generally relates to the use of cash for repurchases of our common stock and payment of dividends, offset by net borrowing activity. For the nine months ended September 30, 2022 and 2021, we used cash totaling $133.6 million and $274.8 million, respectively, forThe majority of financing activities, with the activity primarily attributablewas attributed to the following:
•Repurchase of common stock, including prepayment under an accelerated share repurchase program: During the nine months ended September 30, 2023, we repurchased no shares. During the nine months ended September 30, 2022, we used $85.0 million to repurchase 641,428 shares and $500.0 million to repurchase a variable number of shares through an accelerated share repurchase transaction. During the nine months ended September 30, 2021, we used $21.6 million to repurchase 182,951 shares.
•Commercial paper and other:other short-term borrowings, net: During the nine months ended September 30, 2023, we used $528.8 million to pay off commercial paper borrowings. During the nine months ended September 30, 2022, we received net proceeds of $682.9 million from commercial paper and other short-term borrowings, primarily used to fund our accelerated share repurchase transaction and acquisition of Malema. During the nine months ended September 30, 2021, we did not borrow or have proceeds from commercial paper or other short-term borrowings.
•Dividend payments: Dividends paidTotal dividend payments to common shareholders were $212.9 million during the nine months ended September 30, 2022 totaled $216.6 million2023, as compared to $214.8$216.6 million during the same period in 2021.2022. Our dividends paid per common share increased 1.0% to $1.505$1.52 during the nine months ended September 30, 20222023 compared to $1.49$1.505 during the same period in 2021.2022.
•Payments to settle employee tax obligations: Payments to settle tax obligations from the exercise of share-based awards declined $22.6 million compared to the prior year period, primarily due to the decrease in the number of shares 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 Statementscondensed consolidated statements of Cash Flows,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 liquidity because it provides management and investors a measurement of cash generated from operations that ismay be 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, | | Nine Months Ended September 30, |
Free Cash Flow (dollars in thousands) | Free Cash Flow (dollars in thousands) | 2022 | | 2021 | Free Cash Flow (dollars in thousands) | 2023 | | 2022 |
Cash flow provided by operating activities | Cash flow provided by operating activities | $ | 467,081 | | | $ | 788,586 | | Cash flow provided by operating activities | $ | 819,995 | | | $ | 467,081 | |
Less: Capital expenditures | Less: Capital expenditures | (166,039) | | | (121,157) | | Less: Capital expenditures | (131,582) | | | (166,039) | |
Free cash flow | Free cash flow | $ | 301,042 | | | $ | 667,429 | | Free cash flow | $ | 688,413 | | | $ | 301,042 | |
| Cash flow from operating activities as a percentage of revenue | Cash flow from operating activities as a percentage of revenue | 7.3 | % | | 13.3 | % | Cash flow from operating activities as a percentage of revenue | 12.9 | % | | 7.3 | % |
| Cash flow from operating activities as a percentage of net earnings | Cash flow from operating activities as a percentage of net earnings | 58.3 | % | | 103.6 | % | Cash flow from operating activities as a percentage of net earnings | 107.8 | % | | 58.3 | % |
| Free cash flow as a percentage of revenue | Free cash flow as a percentage of revenue | 4.7 | % | | 11.3 | % | Free cash flow as a percentage of revenue | 10.9 | % | | 4.7 | % |
| Free cash flow as a percentage of net earnings | Free cash flow as a percentage of net earnings | 37.5 | % | | 87.7 | % | Free cash flow as a percentage of net earnings | 90.5 | % | | 37.5 | % |
For the nine months ended September 30, 2022, we generated cash flow from operating activities of $467.1 million, representing 7.3% of revenue and 58.3% of net earnings, and2023, we generated free cash flow of $301.0$688.4 million, representing 4.7%10.9% of revenue and 37.5%90.5% of net earnings. Free cash flow for the nine months ended September 30, 2022 decreased $366.42023 increased $387.4 million, compared to the prior year periodSeptember 30, 2022, due to lowerhigher operating cash flow, primarily as a result of increasesimprovements in working capital compensation payouts, estimated tax payments, and investments in capital expenditures compared to the prior year. The nine months ended September 30, 2022 include a $43.5 million income tax payment related to the gain on sale of Unified Brands in the fourth quarter of 2021.
Capitalization
We use commercial paper borrowings for general corporate purposes, including the funding of acquisitions and the repurchase of our common stock. As of September 30, 2022,2023, we maintained a $1.0 billion five-year and $500.0 million 364-day unsecured revolving credit facility (the "Credit Agreement"facilities ("Credit Agreements") with a syndicate of banks which expires on Octoberexpire April 6, 2028 and April 4, 2024. 2024, respectively. We may elect to extend the maturity date of any loans under the 364-day credit facility until April 4, 2025, subject to conditions specified therein. The Credit Agreement is usedAgreements are designated as a liquidity back-upback-stop for ourthe Company's commercial paper program, which was upsized from $1.0 billion to $1.5 billion during the second quarter of 2023, and also are available for general corporate purposes.
UnderAt the Company's election, loans under the Credit Agreement, we are requiredAgreements will bear interest at a base rate plus an applicable margin. The Credit Agreements require the Company to pay a facility fee and impose various restrictions on the Company such as, among other things, a requirement to maintain an interest coverage ratio of consolidated EBITDA to consolidated net interest expense of not less than 3.0 to 1.0. We wereThe Company was in compliance with this covenantall covenants in the Credit Agreements and our other long-term debt covenants at September 30, 20222023 and had an interest coverage ratio of 17.5consolidated EBITDA to consolidated net interest expense of 13.8 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 is in 2025.
We also have a current shelf registration statement filed with the Securities and Exchange CommissionSEC 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 September 30, 2022,2023, our cash and cash equivalents totaled $306.0$283.8 million, of which $250.8 approximately $255.7 million waswas held outside the United States. At December 31, 2021,2022, our cash and cash equivalents totaled $385.5$380.9 million, of which $257.5which approximately $261.4 million waswas held outside the United States.States. Cash and cash equivalents are held primarily in bank deposits with highly rated banks. We regularly hold cash in excess of near-term requirements are invested in highly liquid investment-gradebank deposits or invest the funds in government money market instruments or short-term investments, or bank deposits, which consist of investment-gradeinvestment grade time deposits with original maturity dates at the time of purchase of no greater than three months.
On September 29, 2023, the Company entered into a definitive agreement to acquire the business of FW Murphy for approximately $530.0 million, subject to customary post-closing adjustments. This transaction is expected to close in the fourth quarter of 2023. See Note 3 — Acquisitions in the condensed consolidated financial statements in Item 1 of this Form 10-Q for further details.
On October 11, 2023, the Company entered into a definitive agreement to sell De-Sta-Co business for approximately $680.0 million enterprise value, net of estimated selling costs and subject to customary post-closing adjustments. This transaction is expected to close in the first half of 2024. See Note 4 — Dispositions 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.equivalents, including cash held for sale. Net capitalization represents net debt plus stockholders' equity. The following table provides a reconciliationcalculation of net debt to net capitalization tofrom the most directly comparable GAAP measures:
| | | | | | | | | | | | | | | |
Net Debt to Net Capitalization Ratio (dollars in thousands) | | September 30, 2022 | | December 31, 2021 | |
Commercial paper | | $ | 788,034 | | | $ | 105,000 | | |
Other | | 826 | | | 702 | | |
Short-term borrowings | | $ | 788,860 | | | $ | 105,702 | | |
Long-term debt | | $ | 2,842,662 | | | $ | 3,018,714 | | |
Total debt | | 3,631,522 | | | 3,124,416 | | |
Less: Cash and cash equivalents | | (306,002) | | | (385,504) | | |
Net debt | | 3,325,520 | | | 2,738,912 | | |
Add: Stockholders' equity | | 3,991,426 | | | 4,189,528 | | |
Net capitalization | | $ | 7,316,946 | | | $ | 6,928,440 | | |
Net debt to net capitalization | | 45.4 | % | | 39.5 | % | |
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Net Debt to Net Capitalization Ratio (dollars in thousands) | | September 30, 2023 | | December 31, 2022 | |
Commercial paper | | $ | 206,300 | | | $ | 734,936 | | |
Other | | 656 | | | 836 | | |
Total short-term borrowings | | $ | 206,956 | | | $ | 735,772 | | |
Long-term debt | | 2,944,747 | | | 2,942,513 | | |
Total debt | | 3,151,703 | | | 3,678,285 | | |
Less: Cash and cash equivalents, including cash held for sale | | (301,098) | | | (380,868) | | |
Net debt | | 2,850,605 | | | 3,297,417 | | |
Add: Stockholders' equity | | 4,832,500 | | | 4,286,366 | | |
Net capitalization | | $ | 7,683,105 | | | $ | 7,583,783 | | |
Net debt to net capitalization | | 37.1 | % | | 43.5 | % | |
Our net debt to net capitalization ratio increaseddecreased to 45.4%37.1% at September 30, 20222023 compared to 39.5%43.5% at December 31, 2021.2022. Net debt increased $586.6decreased $446.8 million during the periodperiod primarily due to an increasea decrease in commercial paper borrowings, used to fund our accelerated share repurchase transactionpartially offset by lower cash and acquisition of Malema. Stockholders' equity decreased $198.1 million primarilycash equivalents, including cash held for sale. Stockholders' equity increased for the period as a result of share repurchases, dividends paid and unfavorable impactcurrent earnings of foreign currency on accumulated other comprehensive loss,$760.6 million, partially offset by net earnings during the period.$212.9 million of dividends paid.
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, and lease obligations, andobligations. Acquisition spending and/or share repurchases.repurchases could potentially increase our debt.
We believe that existing sources of liquidity are adequate to meet anticipated funding needs at current risk-based interest rates for the foreseeable future.
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statementscondensed 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 Note 19 — Recent Accounting Pronouncements in the Condensed Consolidated Financial Statementscondensed consolidated financial statements in Item 1 of this Form 10-Q. The adoption of recent accounting standards as included in Note 19 — Recent Accounting Pronouncements in the Condensed Consolidated Financial Statementscondensed consolidated financial statements has not had, and is not expected to have, a significant impact on our revenue, earnings or liquidity.
Special NotesNote 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 1995.1995, as amended. All statements in this document other than statements of historical fact are statements that are, or could be deemed, "forward-looking" statements. Some of these statements may be indicated by words such as "may", "anticipate", "expect", "believe", "intend", "continue", "guidance", "estimates", "suggest", "will", "plan", "should", "would", "could", "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, and assumptions, and other factors, some of which are beyondincluding those described in our Annual Report on Form 10-K for the Company’s control.year ended December 31, 2022. Factors that could cause actual results to differ materially from current expectations include, among other things,things: general economic conditions and conditions in the particular markets in which we operate; supply chain constraints and labor shortages that could result in production stoppages, inflation in material input costs and freight logistics; 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,flows; changes in customer demand and capital spending,spending; competitive factors and pricing pressures,pressures; our ability to develop and launch new products in a cost-
effective manner,cost-effective manner; changes in law, including the effect of tax laws and developments with respect to trade policy and tariffs,tariffs; our ability to identify and complete acquisitions and integrate and realize synergies from newly acquired businesses,businesses; the impact of interest rate and currency exchange rate fluctuations,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,acquisitions; our ability to derive expected benefits from restructuring,restructurings, productivity initiatives and other cost reduction actions, changes in material costs or the supply of input materials,actions; the impact of legal compliance risks and litigation, including with respect to product quality and safety, cybersecurity and privacy,privacy; and 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, 2021.2022. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.otherwise, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
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. Free 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 are not financial measures under GAAP and should not be considered as a substitute for cash flows from operating activities, debt or equity, working capital or revenue as determined in accordance with GAAP, and they may not be comparable to similarly titled measures reported by other companies.
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 provides a meaningful measure of liquidity by showing changes caused by 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.
Reconciliations ofand comparisons to 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 nine months ended September 30, 2022.2023. 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, 2021.2022.
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 September 30, 2022.2023.
During the third quarter of 2022,2023, 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 Note 1314 — Commitments and Contingent Liabilities in the Condensed Consolidated Financial Statementscondensed consolidated financial statements 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, 2021.2022.
Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds and Issuer Purchases of Equity Securities
a.Not applicable.
b.Not applicable.
c.The table below presentsIn November 2020, the Company's Board of Directors approved a standing share repurchase authorization whereby the Company may repurchase up to 20 million shares of Dover stock that we acquiredbeginning on January 1, 2021 through December 31, 2023. No share repurchases were made during the quarter.three months ended September 30, 2023. As of September 30, 2023, the number of shares still available for repurchase under the current share repurchase authorization was 15,283,326.
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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 (1) | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs (1) |
July 1 to July 31 | — | | | $ | — | | | — | | | 19,175,621 | |
August 1 to August 31 | — | | | — | | | — | | | 19,175,621 | |
September 1 to September 30 | 3,201,025 | | | 124.96 | | (2) | 3,201,025 | | | 15,974,596 | |
For the Third Quarter | 3,201,025 | | | $ | 124.96 | | | 3,201,025 | | | 15,974,596 | |
(1)In November 2020,August 2023, 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, 20212024 through December 31, 2023. The Company repurchased 3,201,025 shares under the November 2020 authorization during the three months ended September 30, 2022. As of September 30, 2022, the number of shares still available for repurchase under the November 2020 share repurchase authorization was 15,974,596.
(2) On August 31, 2022, the Company entered into an accelerated share repurchase agreement (the “ASR Agreement”) with Bank of America N.A. (“Bank of America”) pursuant to which it will repurchase $500.0 million of shares (the “ASR Program”). The Company is conducting the ASR Program under the November 2020 share repurchase authorization. The Company funded the ASR Program with commercial paper. Under the terms of the ASR Agreement, the Company paid Bank of America $500.0 million on September 1, 2022 and on that date received initial deliveries of 3,201,025 shares, representing a substantial majority of the shares expected to be retired over the course of the ASR Agreement. The total number of shares ultimately repurchased under the ASR Agreement will be based on the daily volume-weighted average share price of Dover's common stock during the calculation period of the ASR Program, less a discount. The ASR Program is scheduled to be completed in the fourth quarter of 2022, subject to postponement or acceleration under the terms of the ASR Agreement. The actual number of shares repurchased will be determined at the completion of the ASR Program.2026.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.a.- b. None.
c. During the three months ended September 30, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements as defined in Item 408 of Regulation S-K.
Item 6. Exhibits
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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 September 30, 20222023 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 20, 202224, 2023 | /s/ Brad M. Cerepak |
| | Brad M. Cerepak |
| | Senior Vice President & Chief Financial Officer |
| | (Principal Financial Officer) |
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Date: | October 20, 202224, 2023 | /s/ Ryan W. Paulson |
| | Ryan W. Paulson |
| | Vice President, Controller |
| | (Principal Accounting Officer) |