2013.06.30 - 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

or

o 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

Dover Corporation
(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)

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 þ  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes þ  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12-b-2 of the Exchange Act.
Large accelerated filer þ
 
Accelerated filer o
Non-accelerated filer o
(Do not check if smaller reporting company)
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o  No  þ

The number of shares outstanding of the Registrant’s common stock as of July 11, 2013 was 170,672,366.



Dover Corporation
Form 10-Q
Table of Contents

Page
 
 
 
 
 
 
 
 
 
 





Table of Contents



Item 1. Financial Statements

DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(in thousands, except per share figures)
(unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Revenue
$
2,228,763

 
$
2,038,289

 
$
4,268,336

 
$
3,992,903

Cost of goods and services
1,372,811

 
1,261,187

 
2,635,762

 
2,469,721

Gross profit
855,952

 
777,102

 
1,632,574

 
1,523,182

Selling and administrative expenses
505,628

 
466,089

 
990,049

 
920,078

Operating earnings
350,324

 
311,013

 
642,525

 
603,104

Interest expense, net
30,280

 
29,715

 
60,524

 
59,746

Other expense (income), net
2,543

 
364

 
(2,176
)
 
2,149

Earnings before provision for income taxes and discontinued operations
317,501

 
280,934

 
584,177

 
541,209

Provision for income taxes
23,149

 
75,778

 
92,836

 
149,644

Earnings from continuing operations
294,352

 
205,156

 
491,341

 
391,565

Earnings from discontinued operations, net
35,697

 
8,945

 
48,711

 
18,599

Net earnings
$
330,049

 
$
214,101

 
$
540,052

 
$
410,164

 
 
 
 
 
 
 
 
Comprehensive earnings
$
332,989

 
$
120,514

 
$
511,713

 
$
357,819

 
 
 
 
 
 
 
 
Earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
1.72

 
$
1.12

 
$
2.85

 
$
2.13

Diluted
$
1.70

 
$
1.10

 
$
2.82

 
$
2.10

 
 
 
 
 
 
 
 
Earnings per share from discontinued operations:
 
 
 
 
 
 
 
Basic
$
0.21

 
$
0.05

 
$
0.28

 
$
0.10

Diluted
$
0.21

 
$
0.05

 
$
0.28

 
$
0.10

 
 
 
 
 
 
 
 
Net earnings per share:
 
 
 
 
 
 
 
Basic
$
1.93

 
$
1.17

 
$
3.13

 
$
2.23

Diluted
$
1.91

 
$
1.15

 
$
3.10

 
$
2.20

 
 
 
 
 
 
 
 
Dividends paid per common share
$
0.35

 
$
0.315

 
$
0.70

 
$
0.63

 

See Notes to Condensed Consolidated Financial Statements



1

Table of Contents


DOVER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

 
June 30, 2013
 
December 31, 2012
Current assets:
 
 
 
Cash and cash equivalents
$
605,950

 
$
800,076

Receivables, net of allowances of $19,482 and $20,392
1,398,829

 
1,225,898

Inventories, net
917,217

 
872,841

Prepaid and other current assets
63,076

 
79,094

Deferred tax assets
63,813

 
49,935

Total current assets
3,048,885

 
3,027,844

Property, plant and equipment, net
1,137,645

 
1,167,052

Goodwill
4,106,345

 
4,114,650

Intangible assets, net
1,564,006

 
1,625,420

Other assets and deferred charges
120,551

 
111,432

Assets of discontinued operations
371,824

 
397,545

Total assets
$
10,349,256

 
$
10,443,943

 
 
 
 
Current liabilities:
 

 
 

Notes payable and current maturities of long-term debt
$
665,781

 
$
610,766

Accounts payable
664,058

 
651,358

Accrued compensation and employee benefits
270,769

 
334,634

Accrued insurance
104,655

 
103,318

Other accrued expenses
247,997

 
255,632

Federal and other taxes on income
21,839

 
30,920

Total current liabilities
1,975,099

 
1,986,628

Long-term debt
2,189,811

 
2,189,350

Deferred income taxes
480,937

 
462,244

Other liabilities
590,352

 
677,533

Liabilities of discontinued operations
132,185

 
208,958

Stockholders' equity:
 

 
 

Total stockholders' equity
4,980,872

 
4,919,230

Total liabilities and stockholders' equity
$
10,349,256

 
$
10,443,943



See Notes to Condensed Consolidated Financial Statements


2

Table of Contents


DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)

 
Common Stock $1 Par Value
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
Total Stockholders' Equity
Balance at December 31, 2012
$
254,119

 
$
834,677

 
$
7,199,227

 
$
(54,906
)
 
$
(3,313,887
)
 
$
4,919,230

Net earnings

 

 
540,052

 

 

 
540,052

Dividends paid

 

 
(120,238
)
 

 

 
(120,238
)
Common stock issued for the exercise of stock options and SARs
762

 
(8,429
)
 

 

 

 
(7,667
)
Tax benefit from the exercise of stock options and SARs

 
12,643

 

 

 

 
12,643

Stock-based compensation expense

 
16,303

 

 

 

 
16,303

Common stock acquired

 

 

 

 
(351,112
)
 
(351,112
)
Other comprehensive loss, net of tax

 

 

 
(28,339
)
 

 
(28,339
)
Balance at June 30, 2013
$
254,881

 
$
855,194

 
$
7,619,041

 
$
(83,245
)
 
$
(3,664,999
)
 
$
4,980,872

 
Preferred Stock: $100 par value per share; 100,000 shares authorized; no shares issued.


See Notes to Condensed Consolidated Financial Statements


3

Table of Contents


DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Six Months Ended June 30,
 
2013
 
2012
Operating Activities of Continuing Operations
 
 
 
Net earnings
$
540,052

 
$
410,164

 
 
 
 
Adjustments to reconcile net earnings to cash from operating activities:
 
 
 
Earnings from discontinued operations, net
(48,711
)
 
(18,599
)
Depreciation and amortization
207,071

 
170,845

Stock-based compensation
16,303

 
16,106

(Gain) loss on sale of assets
(5,661
)
 
13

Cash effect of changes in assets and liabilities:
 
 
 
Accounts receivable
(169,022
)
 
(93,564
)
Inventories
(46,430
)
 
(74,944
)
Prepaid expenses and other assets
(7,646
)
 
(20,061
)
Accounts payable
23,381

 
49,427

Accrued compensation and employee benefits
(76,839
)
 
(29,791
)
Accrued expenses and other liabilities
(8,511
)
 
(20,088
)
Accrued and deferred taxes, net
(43,621
)
 
22,832

Other, net
2,689

 
(7,652
)
Net cash provided by operating activities of continuing operations
383,055

 
404,688

 
 
 
 
Investing Activities of Continuing Operations
 

 
 

Additions to property, plant and equipment
(100,437
)
 
(141,007
)
Acquisitions (net of cash and cash equivalents acquired)
(69,017
)
 
(354,270
)
Proceeds from the sale of property, plant and equipment
12,727

 
5,929

Proceeds from the sale of businesses
3,756

 

Increase in restricted cash

 
(20,548
)
Other
(262
)
 

Net cash used in investing activities of continuing operations
(153,233
)
 
(509,896
)
 
 
 
 
Financing Activities of Continuing Operations
 

 
 

Purchase of common stock
(351,112
)
 
(198,924
)
Net proceeds from exercise of stock options and SARs, including tax benefits
4,976

 
19,353

Dividends paid to stockholders
(120,238
)
 
(115,714
)
Change in notes payable, net
55,043

 

Reduction of long-term debt
(25
)
 
(130
)
Net cash used in financing activities of continuing operations
(411,356
)
 
(295,415
)
 
 
 
 
Cash Flows from Discontinued Operations
 

 
 

Net cash used in operating activities of discontinued operations
(515
)
 
(14,176
)
Net cash used in investing activities of discontinued operations
(3,467
)
 
(4,327
)
Net cash used in discontinued operations
(3,982
)
 
(18,503
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(8,610
)
 
(1,664
)
 
 
 
 
Net decrease in cash and cash equivalents
(194,126
)
 
(420,790
)
Cash and cash equivalents at beginning of period
800,076

 
1,206,755

 
 
 
 
Cash and cash equivalents at end of period
$
605,950

 
$
785,965


See Notes to Condensed Consolidated Financial Statements

4

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)


1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, in accordance with Securities and Exchange Commission (“SEC”) rules for interim periods, do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the Dover Corporation (“Dover” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2012, which provides a more complete understanding of the Company’s accounting policies, financial position, operating results, business properties, and other matters.  The year-end condensed consolidated balance sheet was derived from audited financial statements.  As discussed in Note 4, the Company is reporting certain businesses that are held for sale at June 30, 2013 as discontinued operations.  Therefore, the Company has classified the results of operations of these businesses as discontinued operations for all periods presented.  It is the opinion of management that these financial statements reflect all adjustments necessary for a fair statement of the interim results.  The results of operations of any interim period are not necessarily indicative of the results of operations for the full year.

2. Planned Spin Off of Certain Communication Technologies Businesses

On May 23, 2013, Dover announced that its Board of Directors had approved a plan to spin off certain businesses within its Communication Technologies segment into a standalone, publicly traded company. Upon completion of the spin off, Knowles Corporation ("Knowles") will be an independent, global technology company operating in the communication technologies space.
The spin off is expected to allow Knowles to pursue a more aggressive growth strategy as a standalone company, focusing on its customers' distinct product and technology needs.

Dover anticipates that the transaction will be in the form of a distribution of 100% of the common stock of Knowles, which we expect to be tax-free to Dover and U.S. shareholders, pending receipt of a private letter ruling from the Internal Revenue Service (the "IRS"). Dover currently expects that the transaction will be completed in early 2014. One-time costs associated with the transaction are expected to be in the range of $60,000 to $70,000, of which $3,322 has been incurred through June 30, 2013. Completion of the planned spin off is subject to final approval by Dover's Board of Directors, as well as other conditions such as the receipt of a favorable ruling from the IRS and the effectiveness of a registration statement to be filed with the Securities and Exchange Commission. The results of operations, financial condition and cash flows for the businesses to be included in the spin off are, and will continue to be, presented within Dover's consolidated financial statements as continuing operations within the Communication Technologies segment, until the spin off becomes effective, upon which the financial presentation of these businesses will be included within Dover's discontinued operations.



5

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

3. Acquisitions

The following table details the acquisitions made during the six months ended June 30, 2013.
2013 Acquisitions
 
 
Date
Type
Company / Product Line Acquired
Location (Near)
Segment
May 2
Stock
Ebsray Pumps
Brookvale, Australia
Engineered Systems
Manufacturer of rotary pumps in vane, regenerative turbine, and internal gear technologies.

 
 
 
 
 
May 7
Asset
The Curotto-Can, Inc.
Sonoma, California
Engineered Systems
Manufacturer of automated front loaders for use in the waste collection industry.

 
 
 
 
 
May 21
Asset
Klaus Enterprise, Ltd.
Alberta, Canada
Energy
Manufacturer of valves and gas compressor components that specializes in replacing parts designed to optimize the efficiency and reliability of reciprocating compressors.
 
 
 
 
 
May 30
Asset
Source Technologies
Charlotte, North Carolina
Printing & Identification
Manufacturer of printing devices and software, specializing in thermal stationary barcode printers.

The Company acquired these businesses in four separate transactions for net cash consideration of $69,017. The following presents the allocation of acquisition cost to the assets acquired and liabilities assumed, based on their estimated fair values:
Current assets, net of cash acquired
$
21,127

Property, plant and equipment
5,609

Goodwill
19,144

Intangible assets
31,042

Other non-current assets
802

Current liabilities
(6,185
)
Non-current liabilities
(2,522
)
Net assets acquired
$
69,017


The amounts assigned to goodwill and major intangible asset classifications for the 2013 acquisitions are as follows:
 
Amount allocated
 
Useful life (in years)
Goodwill - Tax deductible
$
12,859

 
na
Goodwill - Non deductible
6,285

 
na
Customer intangibles
24,455

 
10
Trademarks
1,216

 
10
Patents
4,140

 
10
Other intangibles
1,231

 
2
 
$
50,186

 
 

The businesses were acquired to complement and expand upon existing operations within the Fluid Solutions and Refrigeration & Food Equipment platforms of the Engineered Systems segment, as well as the Energy and Printing & Identification segments. The goodwill identified by these acquisitions reflects the benefits expected to be derived from product line expansion and operational synergies.  Upon consummation of the acquisitions, each of these entities is now wholly-owned by Dover.

The Company has substantially completed the purchase price allocations for the 2013 acquisitions.  However, if additional information is obtained about these assets and liabilities within the measurement period (not to exceed one year from the date of acquisition), including through asset appraisals and learning more about the newly acquired businesses, the Company will refine its estimates of fair value to allocate the purchase price more accurately; however, any such revisions are not expected to be significant.


6

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

The Unaudited Condensed Consolidated Statements of Comprehensive Earnings include the results of these businesses from the dates of acquisition.  The aggregate revenue of the 2013 acquisitions included in the Company’s consolidated revenue totaled $7,466 for the three and six months ended June 30, 2013.

Pro Forma Information

The following unaudited pro forma information illustrates the effect on the Company’s revenue and earnings from continuing operations for the three and six months ended June 30, 2013 and 2012, assuming that the 2013 and 2012 acquisitions had taken place at the beginning of the prior year. As a result, the supplemental pro forma earnings for the three and six months ended June 30, 2013 reflect adjustments to earnings from continuing operations as reported in the Unaudited Condensed Consolidated Statements of Comprehensive Earnings to exclude $725 for nonrecurring expense related to the fair value adjustments to acquisition-date inventory (after-tax) and $810 of acquisition-related costs (after tax) and to reflect such items in 2012. The 2013 and 2012 supplemental pro forma earnings are also adjusted to reflect the comparable impact of additional depreciation and amortization expense (net of tax) resulting from the fair value measurement of tangible and intangible assets relating to 2013 and 2012 acquisitions.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Revenue from continuing operations:
 
 
 
 
 
 
 
As reported
$
2,228,763

 
$
2,038,289

 
$
4,268,336

 
$
3,992,903

Pro forma
2,233,259

 
2,147,736

 
4,284,331

 
4,265,224

Earnings from continuing operations:
 
 
 
 
 
 
 
As reported
$
294,352

 
$
205,156

 
$
491,341

 
$
391,565

Pro forma
295,973

 
216,338

 
493,521

 
413,624

Basic earnings per share from continuing operations:
 
 
 
 
 
 
 
As reported
$
1.72

 
$
1.12

 
$
2.85

 
$
2.13

Pro forma
1.73

 
1.18

 
2.86

 
2.25

Diluted earnings per share from continuing operations:
 
 
 
 
As reported
$
1.70

 
$
1.10

 
$
2.82

 
$
2.10

Pro forma
1.71

 
1.16

 
2.83

 
2.22


4. Discontinued Operations

Management evaluates Dover’s businesses periodically for their strategic fit within Dover’s operations. Accordingly, in the fourth quarter of 2012, the Company announced its intention to divest certain non-core businesses within the Printing & Identification segment serving the electronic assembly and test markets, consistent with its long-term focus on strengthening its portfolio and reducing its exposure to cyclical markets. Management expects to sell these businesses in 2013. As a result, the Company has reclassified the operations, cash flows, and related assets and liabilities of these businesses, DEK International and Everett Charles Technologies ("ECT"), to discontinued operations for all periods presented.

Summarized results of the Company’s discontinued operations are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Revenue
$
115,560

 
$
118,338

 
$
202,926

 
$
227,163

 
 
 
 
 
 
 
 
(Loss) gain on sale and impairments, net of tax
$
(18,668
)
 
$
1,860

 
$
(18,668
)
 
$
1,860

 
 
 
 
 
 
 
 
Earnings from operations before taxes
12,968

 
12,428

 
$
18,577

 
$
18,162

Benefit from (provision for) income taxes
41,397

 
(5,343
)
 
48,802

 
(1,423
)
Earnings from operations, net of tax
54,365

 
7,085

 
67,379

 
16,739

 
 
 
 
 
 
 
 
Earnings from discontinued operations, net of tax
$
35,697

 
$
8,945

 
$
48,711

 
$
18,599



7

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

Earnings from discontinued operations of $35,697 and $48,711 for the three and six months ended June 30, 2013, respectively, reflect net earnings from operations generated by those businesses discontinued in 2012, as well as various expense and accrual adjustments relating to other discontinued operations. The tax benefit for the three and six months ended June 30, 2013 includes $42,688 and $52,454, respectively, of discrete tax benefits principally related to the conclusion of certain federal, state and international tax audits.

During the second quarter of 2013, in connection with a change in goodwill reporting units within discontinued operations resulting from the Company's expected manner of disposing of its electronic test and assembly businesses, the Company was required to allocate goodwill to these individual reporting units based upon relative current fair values. This process resulted in a benefit of $25,520 in the discontinued operations deferred income tax provision for the three and six months ended June 30, 2013 as a result of the elimination of certain deferred tax liabilities. The Company recorded a goodwill impairment charge of $54,532 ($44,188 after tax) in the second quarter of 2013 in connection with the anticipated sale of these businesses. This charge was a write-down of the carrying value to fair value, based on the current estimated sales price. The Company expects to complete the sale of these businesses in the second half of 2013.

Earnings from discontinued operations of $8,945 and $18,599 for the three and six months ended June 30, 2012, respectively, primarily reflect net earnings from operations of DEK and ECT, as well as $1,860 of other favorable discrete items.

Assets and liabilities of discontinued operations are summarized below:
 
June 30, 2013
 
December 31, 2012
Assets of Discontinued Operations
 
 
 
Accounts receivable
$
80,069

 
$
63,229

Inventories, net
53,380

 
51,252

Prepaid and other current assets
17,289

 
10,263

       Total current assets
150,738

 
124,744

Property, plant and equipment, net
34,536

 
31,935

Goodwill and intangible assets, net
182,725

 
238,657

Other assets and deferred charges
3,825

 
2,209

Total assets
$
371,824

 
$
397,545

 
 
 
 
Liabilities of Discontinued Operations
 

 
 

Accounts payable
$
29,084

 
$
22,613

Other current liabilities
30,553

 
34,592

       Total current liabilities
59,637

 
57,205

Deferred income taxes
30,404

 
64,853

Other liabilities
42,144

 
86,900

Total liabilities
$
132,185

 
$
208,958

 
At June 30, 2013 and December 31, 2012, the assets and liabilities of discontinued operations relate primarily to the two businesses reclassified to held for sale in the fourth quarter of 2012, coupled with tax-related accruals and unrecognized benefits, as well as other accruals for compensation, legal, environmental, and warranty contingencies, none of which are individually significant, relating to businesses that were sold in prior years.

5. Inventories, net
 
June 30, 2013
 
December 31, 2012
Raw materials
$
403,374

 
$
386,119

Work in progress
182,944

 
182,060

Finished goods
384,913

 
360,168

Subtotal
971,231

 
928,347

Less LIFO reserve
(54,014
)
 
(55,506
)
Total
$
917,217

 
$
872,841




8

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

6. Property, Plant and Equipment, net
 
June 30, 2013
 
December 31, 2012
Land
$
64,748

 
$
70,079

Buildings and improvements
589,630

 
605,448

Machinery, equipment and other
2,285,224

 
2,231,721

 
2,939,602

 
2,907,248

Less accumulated depreciation
(1,801,957
)
 
(1,740,196
)
Total
$
1,137,645

 
$
1,167,052


7. Goodwill and Other Intangible Assets

The following table provides the changes in carrying value of goodwill by segment for the six months ended June 30, 2013:
 
Communication Technologies
 
Energy
 
Engineered Systems
 
Printing & Identification
 
Total
Balance at December 31, 2012
$
1,204,295

 
$
760,637

 
$
1,403,381

 
$
746,337

 
$
4,114,650

Acquisitions

 
272

 
17,696

 
1,176

 
19,144

Purchase price adjustments

 
(2,277
)
 
(7,970
)
 

 
(10,247
)
Foreign currency translation
(4,221
)
 
(5,521
)
 
(6,370
)
 
(1,090
)
 
(17,202
)
Balance at June 30, 2013
$
1,200,074

 
$
753,111

 
$
1,406,737

 
$
746,423

 
$
4,106,345

 
During the six months ended June 30, 2013, the Company recorded adjustments totaling $10,247 to goodwill relating primarily to the finalization of the purchase price allocation to assets acquired and liabilities assumed for the 2012 acquisitions of Maag Pump Systems, Anthony International, and UPCO, Inc.

The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset:
 
June 30, 2013
 
December 31, 2012
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Amortized intangible assets:
 
 
 
 
 
 
 
Trademarks
$
124,980

 
$
30,494

 
$
124,129

 
$
25,364

Patents
187,728

 
111,850

 
180,427

 
105,369

Customer Intangibles
1,606,712

 
538,914

 
1,585,041

 
474,309

Unpatented Technologies
146,037

 
93,769

 
146,025

 
85,373

Drawings & Manuals
33,614

 
9,687

 
34,120

 
8,035

Distributor Relationships
72,514

 
33,548

 
72,514

 
31,650

Other
31,864

 
22,967

 
32,221

 
20,815

Total
2,203,449

 
841,229

 
2,174,477

 
750,915

Unamortized intangible assets:
 
 
 
 
 
 
 
Trademarks
201,786

 
 
 
201,858

 
 
Total intangible assets, net
$
1,564,006

 
 
 
$
1,625,420

 
 

Amortization expense totaled $46,370 and $39,043 for the three months ended June 30, 2013 and 2012, respectively. For the six months ended June 30, 2013 and 2012, amortization expense was $92,073 and $73,496, respectively.


9

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

8. Restructuring Activities

The following table details restructuring charges incurred by segment for the periods presented:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Communication Technologies
$
9,518

 
$
649

 
$
12,832

 
$
1,658

Energy
1,175

 
495

 
1,175

 
495

Engineered Systems
411

 
1,301

 
3,379

 
1,426

Printing & Identification
1,369

 
5,560

 
1,455

 
5,560

Total
$
12,473

 
$
8,005

 
$
18,841

 
$
9,139

 
 
 
 
 
 
 
 
These amounts are classified in the unaudited Condensed Consolidated Statements of Comprehensive Earnings as follows:
 
 
 
 
 
 
 
 
Cost of goods and services
$
5,839

 
$
738

 
$
10,327

 
$
986

Selling and administrative expenses
6,634

 
7,267

 
8,514

 
8,153

Total
$
12,473

 
$
8,005

 
$
18,841

 
$
9,139


The restructuring expenses of $12,473 and $18,841 incurred in the three and six months ended June 30, 2013, respectively, related to restructuring programs initiated in the first half of 2013 and during 2012. These programs are designed to better align the Company's operations with current market conditions through targeted facility consolidations, headcount reductions and other measures to further optimize operations. The Company expects full-year 2013 restructuring expenses of approximately $20,000 to $25,000 related to these programs. We expect the programs currently underway to be substantially completed in the next twelve to eighteen months.

The $12,473 of restructuring charges incurred during the quarter included the items as described below.

The Communication Technologies segment incurred restructuring charges of $9,518 relating to headcount reductions in connection with integration activities within its consumer electronics business, headcount reductions within its operations that serve the telecom infrastructure market to better reflect the current market dynamics and a facility consolidation in its capacitor business.

The Energy segment recorded $1,175 of restructuring charges relating to the loss on the sale of a building in connection with a facility consolidation within the production sector.

The Engineered Systems segment incurred net restructuring charges of $411, which included a gain on the sale of a building, in connection with a couple facility consolidations and related headcount reductions undertaken to optimize its cost structure.

The Printing & Identification segment incurred restructuring charges of $1,369 relating to exit plans at targeted facilities, which included certain adjustments and offsets to previously recorded reserves.

The following table details the Company’s severance and other restructuring accrual activity:
 
Severance
 
Exit
 
Total
Balance at December 31, 2012
$
5,160

 
$
2,601

 
$
7,761

Restructuring charges
15,880

 
2,961

 
18,841

Payments
(6,551
)
 
(2,993
)
 
(9,544
)
Other, including foreign currency
(24
)
 
(19
)
 
(43
)
Balance at June 30, 2013
$
14,465

 
$
2,550

 
$
17,015


The accrual balance at June 30, 2013 primarily reflects restructuring plans initiated during the year, as well as ongoing lease commitment obligations for facilities closed in earlier periods.



10

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

9. Borrowings

Borrowings consist of the following:
 
June 30, 2013
 
December 31, 2012
Short-term
 
 
 
Current portion of long-term debt
$
3,581

 
$
3,266

Commercial paper
662,200

 
607,500

 
$
665,781

 
$
610,766


 
June 30, 2013
 
December 31, 2012
Long-term
 
 
 
4.875% 10-year notes due October 15, 2015
$
299,540

 
$
299,441

5.45% 10-year notes due March 15, 2018
348,433

 
348,268

4.30% 10-year notes due March 1, 2021
449,800

 
449,787

6.60% 30-year notes due March 15, 2038
247,815

 
247,771

5.375% 30-year notes due March 1, 2041
345,591

 
345,511

6.65% 30-year debentures due June 1, 2028
199,466

 
199,448

5.375% 30-year debentures due October 15, 2035
296,446

 
296,367

Other
6,301

 
6,023

Total long-term debt
2,193,392

 
2,192,616

Less current installments
(3,581
)
 
(3,266
)
 
$
2,189,811

 
$
2,189,350


The Company maintains a $1 billion unsecured revolving credit facility which expires on November 10, 2016.  The Company primarily uses this facility as liquidity back-up for its commercial paper program and has not drawn down any loans under the $1 billion facility and does not anticipate doing so. The Company generally uses commercial paper borrowings for general corporate purposes, funding of acquisitions and the repurchases of its common stock. Under the credit facility, the Company is required to maintain an interest coverage ratio of EBITDA to consolidated net interest expense of not less than 3.0 to 1.  The Company was in compliance with this covenant and its other long-term debt covenants at June 30, 2013, and it expects to remain in compliance with all of its debt covenants.

Interest expense and interest income for the three and six months ended June 30, 2013 and 2012 were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Interest expense
$
31,041

 
$
31,473

 
$
61,913

 
$
63,111

Interest income
(761
)
 
(1,758
)
 
(1,389
)
 
(3,365
)
Interest expense, net
$
30,280

 
$
29,715

 
$
60,524

 
$
59,746

 
10. Financial Instruments

Derivatives

The Company is exposed to market risk for changes in foreign currency exchange rates due to the global nature of its operations and certain commodity risks. In order to manage this risk the Company has hedged portions of its forecasted sales and purchases, which occur within the next twelve months and are denominated in non-functional currencies, with currency forward or collar contracts designated as cash flow hedges. At June 30, 2013 and December 31, 2012, the Company had contracts with U.S. dollar equivalent notional amounts of $66,791 and $9,090, respectively, to exchange foreign currencies, principally the U.S. dollar, euro, pound sterling, Japanese yen, Chinese yuan and Malaysian ringgit. The Company believes it is probable that all forecasted cash flow transactions will occur.

In addition, the Company had outstanding contracts at June 30, 2013 with a total notional amount of $71,573 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. The fair value of these contracts at June 30, 2013 was not significant.

11

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)


The Company also has an outstanding floating-to-floating cross currency swap agreement for a total notional amount of $50,000 in exchange for CHF 65,100, which expires on October 15, 2015. This transaction continues to hedge a portion of the Company’s net investment in CHF-denominated operations. The agreement qualifies as a net investment hedge and the effective portion of the change in fair value is reported within the cumulative translation adjustment section of other comprehensive income. The fair values at June 30, 2013 and December 31, 2012 reflected losses of $19,831 and $22,681, respectively, due to the strengthening of the Swiss franc relative to the U.S. dollar over the term of the arrangement.

The following table sets forth the fair values of derivative instruments held by the Company as of June 30, 2013 and December 31, 2012 and the balance sheet lines in which they are recorded:
 
Fair Value Asset (Liability)
 
 
 
June 30, 2013
 
December 31, 2012
 
Balance Sheet Caption
Foreign currency forward / collar contracts
$
1,057

 
$
85

 
Prepaid / Other assets
Foreign currency forward / collar contracts
(272
)
 
(799
)
 
Other accrued expenses
Net investment hedge - cross currency swap
(19,831
)
 
(22,681
)
 
Other liabilities

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 which are expected to be reclassified to earnings in the next twelve months is not significant; therefore, additional tabular disclosures are not presented. There are no amounts excluded from the assessment of hedge effectiveness, and the Company's derivative instruments that are subject to credit risk contingent features were not significant.

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

Fair Value Measurements

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

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

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

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

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012:
 
June 30, 2013
 
December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency cash flow hedges
$

 
$
1,057

 
$

 
$

 
$
85

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency cash flow hedges

 
272

 

 

 
799

 

Net investment hedge derivative

 
19,831

 

 

 
22,681

 


In addition to fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require interim disclosures regarding the fair value of all of the Company’s financial instruments.

12

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)


The estimated fair value of long-term debt at June 30, 2013 and December 31, 2012 was $2,525,336 and $2,680,674, respectively, compared to the carrying value of $2,193,392 and $2,192,616, 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 valuation hierarchy.

The carrying values of cash and cash equivalents, trade receivables, accounts payable, and notes payable are reasonable estimates of their fair values as of June 30, 2013 and December 31, 2012 due to the short-term nature of these instruments.

11. Income Taxes

Effective tax rates for continuing operations were 7.3% and 15.9% for the three and six months ended June 30, 2013, respectively. These rates were impacted by net discrete items, principally the conclusion of certain U.S. federal tax audits, as well as certain state and international tax audits, and the effect of the American Tax Relief Act of 2012 signed into law on January 2, 2013, totaling $61,477 and $66,002 of favorable net discrete items for the three and six months ended June 30, 2013, respectively.

Effective tax rates for continuing operations were 27.0% and 27.6% for the three and six months ended June 30, 2012, respectively. Discrete items recognized during the 2012 three and six months periods totaled $372 and $1,982 of other unfavorable discrete items.

Excluding these discrete items, the comparable effective tax rates were 26.7% and 27.2% for the three and six months ended June 30, 2013, respectively and 26.8% and 27.3% for the comparable 2012 periods. The current year pre-discrete rates were favorably impacted by reinstatement of the U.S. Research and Experimentation tax credit.

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.  We believe within the next twelve months that uncertain tax positions may be resolved and statutes of limitations will expire, which could result in a decrease in the gross amount of unrecognized tax benefits of approximately zero to $49 million, of which a portion will be reported as discontinued operations.

12. Equity Incentive Program

The Company typically grants SARs and performance shares annually at its regularly scheduled first quarter Compensation Committee meeting. In the first quarters of 2013 and 2012, the Company issued stock settled appreciation rights (“SARs”) covering 1,602,195 and 1,719,943 shares, respectively, and 47,032 and 50,416 performance shares, respectively.

The fair value of each SARs grant was estimated on the date of grant using the Black-Scholes option pricing model. The performance share awards are market condition awards and have been assessed at fair value on the date of grant using a Monte Carlo simulation model. The following assumptions were used in determining the fair value of the SARs and performance shares awarded during the respective periods:
 
SARs
 
Performance Shares
 
2013
 
2012
 
2013
 
2012
Risk-free interest rate
1.39
%
 
1.05
%
 
0.40
%
 
0.37
%
Dividend yield
2.06
%
 
2.03
%
 
2.06
%
 
2.03
%
Expected life (years)
7.1

 
5.7

 
2.9

 
2.9

Volatility
33.78
%
 
36.41
%
 
30.36
%
 
34.10
%
Grant price
$
71.86

 
$
65.38

 
n/a

 
n/a

Fair value at date of grant
$
20.62

 
$
18.51

 
$
80.47

 
$
71.98

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

13

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Pre-tax compensation expense
$
7,955

 
$
7,532

 
$
16,303

 
$
16,106

Tax benefit
(2,773
)
 
(2,580
)
 
(5,748
)
 
(5,687
)
Total stock-based compensation expense, net of tax
$
5,182

 
$
4,952

 
$
10,555

 
$
10,419


On May 3, 2012, the shareholders approved the Dover Corporation 2012 Equity and Cash Incentive Plan (the "2012 Plan"), to replace the 2005 Equity and Cash Incentive Plan, which otherwise would terminate according to its terms on January 31, 2015, and the 1996 Non-Employee Directors Stock Compensation Plan, which would otherwise terminate according to its terms on December 31, 2012. Officers and other key employees, as well as non-employee directors, are eligible to participate in the 2012 Plan, which has a ten year term and will terminate on May 3, 2022. The 2012 Plan provides for stock options and SARs grants, restricted stock awards, restricted stock unit awards, performance share awards, cash performance awards, directors' shares and deferred stock units. Under the 2012 Plan, a total of 17,000,000 shares of common stock are reserved for issuance, subject to adjustments resulting from stock dividends, stock splits, recapitalizations, reorganizations and other similar changes.

13. Commitments and Contingent Liabilities

Litigation

A 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 which provide for the allocation of such costs among “potentially responsible parties.” In each instance, the extent of the Company’s liability appears to be very small in relation to the total projected expenditures and the number of other “potentially responsible parties” involved and is anticipated to be immaterial to the Company. In addition, a 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 reserves have been established. At June 30, 2013 and December 31, 2012, the Company has reserves totaling $30,056 and $28,875, respectively, for environmental and other matters that are probable and estimable, with the 2013 increase primarily attributed to environmental contingencies assumed in recent acquisitions.

The Company and certain of its subsidiaries are also parties to a number of other legal proceedings incidental to their businesses. These proceedings primarily involve claims by private parties alleging injury arising out of use of the Company’s products, exposure to hazardous substances, patent infringement, employment matters, and commercial disputes. Management and legal counsel, at least quarterly, review the probable outcome of such proceedings, the costs and expenses reasonably expected to be incurred and currently accrued to-date, and the availability and extent of insurance coverage. At June 30, 2013 and December 31, 2012, the Company has reserves totaling $1,007 and $1,158, respectively, for legal matters that are probable and estimable and not otherwise covered by insurance. 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.

Letters of Credit

As of June 30, 2013, the Company had approximately $126,006 outstanding in letters of credit and guarantees with financial institutions, which expire at various dates in the second half of 2013 through 2017. These letters of credit are primarily maintained as security for insurance, warranty and other performance obligations.  

Warranty Accruals

Estimated warranty program claims are provided for at the time of sale. Amounts provided for are based on historical costs and adjusted new claims. The changes in the carrying amount of product warranties through June 30, 2013 and 2012 are as follows:
 
2013
 
2012
Beginning Balance, January 1
$
43,759

 
$
37,739

Provision for warranties
27,206

 
24,270

Settlements made
(25,017
)
 
(22,971
)
Other adjustments, including acquisitions and currency translation
(1,479
)
 
2,454

Ending balance, June 30
$
44,469

 
$
41,492


14

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

14. Employee Benefit Plans

The Company offers defined contribution retirement plans which cover the majority of its U.S. employees, as well as employees in certain other countries. In addition, the Company sponsors qualified defined benefit pension plans covering certain employees of the Company and its subsidiaries. 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 Company also maintains post retirement benefit plans, although these plans are effectively closed to new entrants. The supplemental and post retirement benefit plans are supported by the general assets of the Company.

The following tables set forth the components of the Company’s net periodic expense relating to retirement and post-retirement benefit plans:

Retirement Plans

Qualified Defined Benefits
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
U.S. Plan
 
Non-U.S. Plans
 
U.S. Plan
 
Non-U.S. Plans
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Service Cost
$
4,601

 
$
3,601

 
$
1,445

 
$
1,031

 
$
9,202

 
$
7,202

 
$
2,916

 
$
2,068

Interest Cost
6,122

 
6,284

 
2,223

 
2,100

 
12,244

 
12,568

 
4,484

 
4,197

Expected return on plan assets
(9,952
)
 
(9,745
)
 
(2,350
)
 
(1,898
)
 
(19,905
)
 
(19,490
)
 
(4,743
)
 
(3,788
)
Amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
256

 
263

 
28

 
29

 
513

 
526

 
57

 
59

Recognized actuarial loss
5,485

 
3,379

 
366

 
121

 
10,970

 
6,758

 
739

 
241

Transition obligation

 

 
(4
)
 
(11
)
 

 

 
(7
)
 
(23
)
Other

 

 
39

 
51

 

 

 
79

 
102

Net periodic expense
$
6,512

 
$
3,782

 
$
1,747

 
$
1,423

 
$
13,024

 
$
7,564

 
$
3,525

 
$
2,856


Non-Qualified Supplemental Benefits
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Service Cost
$
1,679

 
$
1,326

 
$
3,358

 
$
2,652

Interest Cost
1,774

 
1,979

 
3,547

 
3,958

Amortization:
 
 
 
 
 
 
 
   Prior service cost
1,998

 
1,856

 
3,995

 
3,712

   Recognized actuarial loss
42

 
35

 
84

 
70

Net periodic expense
$
5,493

 
$
5,196

 
$
10,984

 
$
10,392



15

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

Post-Retirement Plans
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Service Cost
$
59

 
$
62

 
$
117

 
$
124

Interest Cost
131

 
148

 
262

 
296

Amortization:
 
 
 
 
 
 
 
   Prior service cost
(104
)
 
(104
)
 
(208
)
 
(208
)
   Recognized actuarial loss (gain)
34

 
(5
)
 
68

 
(10
)
Settlement gains

 
(1,493
)
 

 
(1,493
)
Net periodic expense
$
120

 
$
(1,392
)
 
$
239

 
$
(1,291
)

The total amount amortized out of accumulated other comprehensive income into net periodic benefit expense for the three and six months ended June 30, 2013 totaled $8,101 and $16,211, respectively.
 
15. Other Comprehensive Earnings

The amounts recognized in other comprehensive earnings were as follows:
 
Three Months Ended
 
Three Months Ended
 
June 30, 2013
 
June 30, 2012
 
Pre-tax
 
Tax
 
Net of tax
 
Pre-tax
 
Tax
 
Net of tax
Foreign currency translation adjustments
$
(2,468
)
 
$
28

 
$
(2,440
)
 
$
(91,318
)
 
$
(1,074
)
 
$
(92,392
)
Pension and other postretirement benefit plans
8,101

 
(2,769
)
 
5,332

 
(1,849
)
 
391

 
(1,458
)
Changes in fair value of cash flow hedges
(307
)
 
108

 
(199
)
 
(378
)
 
132

 
(246
)
Other
377

 
(130
)
 
247

 
524

 
(15
)
 
509

Total other comprehensive earnings (loss)
$
5,703

 
$
(2,763
)
 
$
2,940

 
$
(93,021
)
 
$
(566
)
 
$
(93,587
)

 
Six Months Ended
 
Six Months Ended
 
June 30, 2013
 
June 30, 2012
 
Pre-tax
 
Tax
 
Net of tax
 
Pre-tax
 
Tax
 
Net of tax
Foreign currency translation adjustments
$
(38,292
)
 
$
(998
)
 
$
(39,290
)
 
$
(48,512
)
 
$
(370
)
 
$
(48,882
)
Pension and other postretirement benefit plans
16,211

 
(5,607
)
 
10,604

 
(6,316
)
 
2,056

 
(4,260
)
Changes in fair value of cash flow hedges
279

 
(97
)
 
182

 
377

 
(132
)
 
245

Other
187

 
(22
)
 
165

 
578

 
(26
)
 
552

Total other comprehensive (loss) earnings
$
(21,615
)
 
$
(6,724
)
 
$
(28,339
)
 
$
(53,873
)
 
$
1,528

 
$
(52,345
)

Total comprehensive earnings were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Net earnings
$
330,049

 
$
214,101

 
$
540,052

 
$
410,164

Other comprehensive earnings (loss)
2,940

 
(93,587
)
 
(28,339
)
 
(52,345
)
Comprehensive earnings
$
332,989

 
$
120,514

 
$
511,713

 
$
357,819



16

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

Amounts reclassified from accumulated other comprehensive earnings (loss) to earnings (loss) during the three and six months ended June 30, 2013 and 2012 were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013

2012
Pension & postretirement benefit plans: (1)
 
 
 
 
 
 
 
Amortization of actuarial losses
$
5,923

 
$

 
$
11,854

 
$

Amortization of prior service costs
2,178

 

 
4,357

 

Total before tax
8,101

 

 
16,211

 

Tax provision
(2,769
)
 

 
(5,607
)
 

Net of tax
$
5,332

 
$

 
$
10,604

 
$

 
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
Net losses (gains) reclassified into earnings
$
136

 
$
(28
)
 
$
136

 
$
44

Tax (provision) benefit
(48
)
 
10

 
(48
)
 
(15
)
Net of tax
$
88

 
$
(18
)
 
$
88

 
$
29


(1)
In the third quarter of 2012, the Company began to reclassify the amortization of actuarial gains and losses and prior service costs from deferred compensation to accumulated other comprehensive income on a quarterly basis. Prior to that date, these amounts were reclassified on an annual basis.

The Company recognizes net periodic pension cost, which includes amortization of net actuarial losses and prior service costs, in both selling & administrative expenses and cost of goods and services, depending on the functional area of the underlying employees included in the plans.

Cash flow hedges consist mainly of foreign currency forward and commodity 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 & administrative expenses.


17

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

16. Segment Information

For management reporting and performance evaluation purposes, the Company categorizes its operating companies into four distinct reportable segments. Segment financial information and a reconciliation of segment results to consolidated results follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
REVENUE:
 
 
 
 
 
 
 
Communication Technologies
$
401,477

 
$
361,689

 
$
774,267

 
$
719,264

Energy
573,471

 
538,786

 
1,134,669

 
1,070,356

Engineered Systems
1,003,895

 
886,123

 
1,871,828

 
1,708,247

Printing & Identification
250,646

 
251,875

 
488,523

 
495,445

Intra-segment eliminations
(726
)
 
(184
)
 
(951
)
 
(409
)
Total consolidated revenue
$
2,228,763

 
$
2,038,289

 
$
4,268,336

 
$
3,992,903

 
 
 
 
 
 
 
 
EARNINGS FROM CONTINUING OPERATIONS:
 
 

 
 
 
 
Segment earnings:
 

 
 

 
 
 
 
Communication Technologies
$
51,789

 
$
50,322

 
$
95,997

 
$
96,878

Energy
132,926

 
133,936

 
272,471

 
266,051

Engineered Systems
165,440

 
133,808

 
282,618

 
255,900

Printing & Identification
35,967

 
28,918

 
65,719

 
55,007

Total segments
386,122

 
346,984

 
716,805

 
673,836

Corporate expense / other (1)
38,341

 
36,335

 
72,104

 
72,881

Net interest expense
30,280

 
29,715

 
60,524

 
59,746

Earnings from continuing operations before provision for income taxes and discontinued operations
317,501

 
280,934

 
584,177

 
541,209

Provision for taxes
23,149

 
75,778

 
92,836

 
149,644

Earnings from continuing operations
$
294,352

 
$
205,156

 
$
491,341

 
$
391,565


(1)
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, and various administrative expenses relating to the corporate headquarters. The second quarter of 2013 includes one-time transaction costs associated with the Knowles spin off of $3,322.

17. Recent Accounting Standards

Recently Adopted Accounting Standard

In February 2013, the FASB issued ASU 2013-02 which requires additional disclosures regarding the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 requires an entity to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. This guidance is effective for reporting periods beginning after December 15, 2012. The Company adopted this guidance effective January 1, 2013. The Company's adoption of this standard did not have a significant impact on its consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2013, the FASB issued ASU 2013-05, which permits an entity to release cumulative translation adjustments into net income when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided, or, if a controlling financial interest is no longer held. The revised standard is effective for Dover for fiscal years beginning after December 15, 2013; however, early adoption is permitted. The Company does not expect adoption of this ASU to significantly impact its consolidated financial statements.


18

Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

In July 2012, the FASB issued ASU 2012-02, which allows an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test of an indefinite-lived intangible asset.  Per the terms of this ASU, an entity would not be required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on qualitative assessment, that it is not more likely than not, the indefinite-lived intangible asset is impaired.  The revised standard is effective for Dover for its annual and interim impairment tests performed for fiscal years beginning after December 15, 2012; however, early adoption is permitted. The Company does not expect adoption of this ASU to significantly impact its consolidated financial statements. 

18. Share Repurchases

Share repurchases during the three and six months ended June 30, 2013 were as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30, 2013
 
June 30, 2013
Shares repurchased in the open market
757,819

 
4,805,395

Shares repurchased from holders of employee stock options

 
5,951

Total shares repurchased
757,819

 
4,811,346

Average price paid per share
$
78.09

 
$
72.98


In May 2012, the Board of Directors renewed its standing authorization of the Company's share repurchase program, on terms consistent with its prior five-year authorization which expired at that time. This renewal authorizes the repurchase of up to 10,000,000 shares of the Company's common stock during the five-year period ending May 2017. The Company made no repurchases under this new authorization during the six months ended June 30, 2013. As of June 30, 2013, the approximate number of shares still available for repurchase under the May 2012 share repurchase authorization was 3,908,289.

In November 2012, the Board of Directors approved a $1 billion share repurchase program authorizing repurchases of the Company's common shares over the following 12 to 18 months. The Company repurchased 4,805,395 shares under this new program during 2013. As of June 30, 2013, the approximate dollar amount still available for repurchase under this share repurchase program was $399 million.

Treasury shares increased to 84,212,931 at June 30, 2013 from a balance of 79,401,585 at December 31, 2012.

19. Earnings per Share

The following table sets forth a reconciliation of the information used in computing basic and diluted earnings per share:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Earnings from continuing operations
$
294,352

 
$
205,156

 
$
491,341

 
$
391,565

Earnings from discontinued operations, net
35,697

 
8,945

 
48,711

 
18,599

Net earnings
$
330,049

 
$
214,101

 
$
540,052

 
$
410,164

 
 
 
 
 
 
 
 
Basic earnings per common share:
 

 
 

 
 
 
 
Earnings from continuing operations
$
1.72

 
$
1.12

 
$
2.85

 
$
2.13

Earnings from discontinued operations, net
$
0.21

 
$
0.05

 
$
0.28

 
$
0.10

Net earnings
$
1.93

 
$
1.17

 
$
3.13

 
$
2.23

 
 
 
 
 
 
 
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