form10q-093011.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 or 15(d) OF
THE SECURTIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
Commission File Number: 1-4018
Dover Corporation
(Exact name of registrant as specified in its charter)
Delaware
|
53-0257888
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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|
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3005 Highland Parkway, Suite 200
|
|
Downers Grove, Illinois
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60515
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(Address of principal executive offices)
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(Zip Code)
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(630) 541-1540
(Registrant’s telephone number)
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).
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
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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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 October 14, 2011 was 185,375,530.
Dover Corporation
Form 10-Q
Table of Contents
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Page
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Item 1.
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1
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2
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3
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4
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5
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Item 2.
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17
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Item 3.
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28
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Item 4.
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28
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Item 1.
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28
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Item 1A.
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28
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Item 2.
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28
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Item 3.
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29
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Item 4.
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29
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Item 5.
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29
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Item 6.
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29
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30
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(All other schedules are not required and have been omitted.)
DOVER CORPORATION
(in thousands, except per share figures)
(unaudited)
|
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Three Months Ended September 30,
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|
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Nine Months Ended September 30,
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2011
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|
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2010
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|
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2011
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|
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2010
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|
Revenue
|
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$ |
2,203,388 |
|
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$ |
1,802,158 |
|
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$ |
6,122,287 |
|
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$ |
5,023,750 |
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Cost of goods and services
|
|
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1,381,337 |
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1,111,364 |
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3,786,458 |
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3,065,621 |
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Gross profit
|
|
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822,051 |
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690,794 |
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2,335,829 |
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1,958,129 |
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Selling and administrative expenses
|
|
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484,350 |
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397,927 |
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1,401,198 |
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1,198,645 |
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Operating earnings
|
|
|
337,701 |
|
|
|
292,867 |
|
|
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934,631 |
|
|
|
759,484 |
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Interest expense, net
|
|
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30,048 |
|
|
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26,335 |
|
|
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86,468 |
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80,446 |
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Other expense, net
|
|
|
252 |
|
|
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9,786 |
|
|
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2,848 |
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|
|
3,836 |
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Earnings before provision for income taxes and discontinued operations
|
|
|
307,401 |
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|
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256,746 |
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|
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845,315 |
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675,202 |
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Provision for income taxes
|
|
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78,824 |
|
|
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37,437 |
|
|
|
195,319 |
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|
|
162,789 |
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Earnings from continuing operations
|
|
|
228,577 |
|
|
|
219,309 |
|
|
|
649,996 |
|
|
|
512,413 |
|
(Loss) earnings from discontinued operations, net
|
|
|
(56,297 |
) |
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4,450 |
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|
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(33,042 |
) |
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(10,657 |
) |
Net earnings
|
|
$ |
172,280 |
|
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$ |
223,759 |
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$ |
616,954 |
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$ |
501,756 |
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Basic earnings (loss) per common share:
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|
|
|
|
|
|
|
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Earnings from continuing operations
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$ |
1.23 |
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$ |
1.17 |
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$ |
3.49 |
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$ |
2.74 |
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(Loss) earnings from discontinued operations, net
|
|
|
(0.30 |
) |
|
|
0.02 |
|
|
|
(0.18 |
) |
|
|
(0.06 |
) |
Net earnings
|
|
|
0.93 |
|
|
|
1.20 |
|
|
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3.31 |
|
|
|
2.68 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Weighted average shares outstanding
|
|
|
185,770 |
|
|
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186,721 |
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|
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186,246 |
|
|
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186,917 |
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Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
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Earnings from continuing operations
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$ |
1.21 |
|
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$ |
1.16 |
|
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$ |
3.43 |
|
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$ |
2.71 |
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(Loss) earnings from discontinued operations, net
|
|
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(0.30 |
) |
|
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0.02 |
|
|
|
(0.17 |
) |
|
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(0.06 |
) |
Net earnings
|
|
|
0.91 |
|
|
|
1.19 |
|
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3.26 |
|
|
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2.66 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Weighted average shares outstanding
|
|
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188,436 |
|
|
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188,565 |
|
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189,420 |
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|
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188,898 |
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|
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|
|
|
|
|
|
|
|
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Dividends paid per common share
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$ |
0.315 |
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$ |
0.28 |
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$ |
0.865 |
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$ |
0.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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The following table is a reconciliation of the share amounts used in computing earnings per share:
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2011 |
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2010 |
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2011 |
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2010 |
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Weighted average shares outstanding - Basic
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185,770 |
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186,721 |
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186,246 |
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186,917 |
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Dilutive effect of assumed exercise of employee stock options, SARs and performance shares
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2,666 |
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1,844 |
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3,174 |
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1,981 |
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Weighted average shares outstanding - Diluted
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188,436 |
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188,565 |
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189,420 |
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188,898 |
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Anti-dilutive options/SARs excluded from diluted EPS computation
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1,495 |
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3,709 |
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|
|
1,287 |
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|
|
1,432 |
|
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
(in thousands, except per share figures)
(unaudited)
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September 30, 2011
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December 31, 2010
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Current assets:
|
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|
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Cash and cash equivalents
|
|
$ |
917,024 |
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$ |
1,188,564 |
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Short-term investments
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|
|
- |
|
|
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121,734 |
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Receivables, net of allowances of $30,864 and $33,279
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|
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1,339,826 |
|
|
|
1,049,536 |
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Inventories, net
|
|
|
848,934 |
|
|
|
675,752 |
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Prepaid and other current assets
|
|
|
114,828 |
|
|
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59,920 |
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Deferred tax assets
|
|
|
72,136 |
|
|
|
89,721 |
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Total current assets
|
|
|
3,292,748 |
|
|
|
3,185,227 |
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Property, plant and equipment, net
|
|
|
992,641 |
|
|
|
802,877 |
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Goodwill
|
|
|
3,879,334 |
|
|
|
3,157,074 |
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Intangible assets, net
|
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|
1,214,787 |
|
|
|
799,281 |
|
Other assets and deferred charges
|
|
|
110,394 |
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|
|
111,146 |
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Assets of discontinued operations
|
|
|
23,132 |
|
|
|
507,289 |
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Total assets
|
|
$ |
9,513,036 |
|
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$ |
8,562,894 |
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Current liabilities:
|
|
|
|
|
|
|
|
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Notes payable and current maturities of long-term debt
|
|
|
559 |
|
|
|
16,590 |
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Accounts payable
|
|
|
591,939 |
|
|
|
448,357 |
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Accrued compensation and employee benefits
|
|
|
283,276 |
|
|
|
267,311 |
|
Accrued insurance
|
|
|
104,463 |
|
|
|
111,654 |
|
Other accrued expenses
|
|
|
235,567 |
|
|
|
232,174 |
|
Federal and other taxes on income
|
|
|
70,850 |
|
|
|
92,391 |
|
Total current liabilities
|
|
|
1,286,654 |
|
|
|
1,168,477 |
|
Long-term debt
|
|
|
2,186,472 |
|
|
|
1,790,886 |
|
Deferred income taxes
|
|
|
452,678 |
|
|
|
309,385 |
|
Other liabilities
|
|
|
607,784 |
|
|
|
562,546 |
|
Liabilities of discontinued operations
|
|
|
100,242 |
|
|
|
205,038 |
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
4,879,206 |
|
|
|
4,526,562 |
|
Total liabilities and stockholders' equity
|
|
$ |
9,513,036 |
|
|
$ |
8,562,894 |
|
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
(in thousands, except per share figures)
(unaudited)
|
|
Common Stock
$1 Par Value
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Other
Comprehensive
Earnings
|
|
|
Retained
Earnings
|
|
|
Treasury
Stock
|
|
|
Total
Stockholders'
Equity
|
|
Balance at December 31, 2010
|
|
$ |
249,361 |
|
|
$ |
596,457 |
|
|
$ |
50,161 |
|
|
$ |
5,953,027 |
|
|
$ |
(2,322,444 |
) |
|
$ |
4,526,562 |
|
Net earnings
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
616,954 |
|
|
|
- |
|
|
|
616,954 |
|
Dividends paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(161,046 |
) |
|
|
- |
|
|
|
(161,046 |
) |
Common stock issued for options exercised
|
|
|
1,150 |
|
|
|
27,294 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
28,444 |
|
Tax benefit from the exercise of stock options
|
|
|
- |
|
|
|
8,193 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,193 |
|
Stock-based compensation expense
|
|
|
- |
|
|
|
19,917 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
19,917 |
|
Common stock acquired
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(129,637 |
) |
|
|
(129,637 |
) |
Translation of foreign financial statements
|
|
|
- |
|
|
|
- |
|
|
|
(31,472 |
) |
|
|
- |
|
|
|
- |
|
|
|
(31,472 |
) |
Other, net of tax
|
|
|
- |
|
|
|
2,846 |
|
|
|
(1,555 |
) |
|
|
- |
|
|
|
- |
|
|
|
1,291 |
|
Balance at September 30, 2011
|
|
$ |
250,511 |
|
|
$ |
654,707 |
|
|
$ |
17,134 |
|
|
$ |
6,408,935 |
|
|
$ |
(2,452,081 |
) |
|
$ |
4,879,206 |
|
Preferred Stock, $100 par value per share. 100,000 shares authorized; no shares issued.
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
(in thousands, except per share figures)
(unaudited)
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
Operating Activities of Continuing Operations
|
|
|
|
|
|
|
Net earnings
|
|
$ |
616,954 |
|
|
$ |
501,756 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net earnings to cash from operating activities:
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net
|
|
|
33,042 |
|
|
|
10,657 |
|
Depreciation and amortization
|
|
|
222,052 |
|
|
|
180,916 |
|
Stock-based compensation
|
|
|
20,279 |
|
|
|
16,525 |
|
Loss on extinguishment of long-term debt
|
|
|
- |
|
|
|
4,343 |
|
Gain on sale of assets
|
|
|
(632 |
) |
|
|
(5,133 |
) |
Cash effect of changes in current assets and liabilities (excluding effects of acquisitions, dispositions and
foreign exchange):
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(210,090 |
) |
|
|
(286,984 |
) |
Inventories
|
|
|
(71,788 |
) |
|
|
(149,394 |
) |
Prepaid expenses and other assets
|
|
|
(18,055 |
) |
|
|
7,153 |
|
Accounts payable
|
|
|
110,241 |
|
|
|
123,803 |
|
Accrued expenses
|
|
|
(13,056 |
) |
|
|
67,960 |
|
Contributions to employee benefit plans
|
|
|
(12,000 |
) |
|
|
(30,000 |
) |
Accrued and deferred taxes, net
|
|
|
8,172 |
|
|
|
45,255 |
|
Other, net
|
|
|
28,171 |
|
|
|
(8,087 |
) |
Net cash provided by operating activities of continuing operations
|
|
|
713,290 |
|
|
|
478,770 |
|
|
|
|
|
|
|
|
|
|
Investing Activities of Continuing Operations
|
|
|
|
|
|
|
|
|
Proceeds from sale of short-term investments
|
|
|
124,410 |
|
|
|
457,063 |
|
Purchase of short-term investments
|
|
|
- |
|
|
|
(463,575 |
) |
Proceeds from the sale of property, plant and equipment
|
|
|
7,380 |
|
|
|
12,046 |
|
Additions to property, plant and equipment
|
|
|
(190,699 |
) |
|
|
(125,241 |
) |
Proceeds from the sale of businesses
|
|
|
304,176 |
|
|
|
4,500 |
|
Settlement of net investment hedge
|
|
|
(18,211 |
) |
|
|
- |
|
Acquisitions (net of cash acquired)
|
|
|
(1,369,252 |
) |
|
|
(45,198 |
) |
Net cash used in investing activities of continuing operations
|
|
|
(1,142,196 |
) |
|
|
(160,405 |
) |
|
|
|
|
|
|
|
|
|
Financing Activities of Continuing Operations
|
|
|
|
|
|
|
|
|
Change in notes payable, net
|
|
|
(14,988 |
) |
|
|
48,000 |
|
Reduction of long-term debt
|
|
|
(401,187 |
) |
|
|
(75,814 |
) |
Proceeds from long-term debt, net of discount and issuance costs
|
|
|
788,971 |
|
|
|
- |
|
Purchase of common stock
|
|
|
(129,637 |
) |
|
|
(70,198 |
) |
Proceeds from exercise of stock options and SARs, including tax benefits
|
|
|
36,637 |
|
|
|
52,221 |
|
Dividends to stockholders
|
|
|
(161,046 |
) |
|
|
(148,636 |
) |
Net cash provided by (used in) financing activities of continuing operations
|
|
|
118,750 |
|
|
|
(194,427 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows from Discontinued Operations
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities of discontinued operations
|
|
|
14,540 |
|
|
|
38,946 |
|
Net cash used in investing activities of discontinued operations
|
|
|
(2,481 |
) |
|
|
(4,514 |
) |
Net cash provided by discontinued operations
|
|
|
12,059 |
|
|
|
34,432 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
26,557 |
|
|
|
(6,840 |
) |
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(271,540 |
) |
|
|
151,530 |
|
Cash and cash equivalents at beginning of period
|
|
|
1,188,564 |
|
|
|
716,171 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
917,024 |
|
|
$ |
867,701 |
|
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
(unaudited)
(in thousands, except per share figures)
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, 2010, 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 9, the Company is reporting certain businesses that were sold during the third quarter of 2011 as discontinued operations. Therefore, the Company has classified the results of operations of these businesses as discontinued operations for all periods presented, and the assets and liabilities of discontinued operations have been reclassified and are segregated in the consolidated balance sheets. 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. Acquisitions
The following table details the acquisitions made during the nine months ended September 30, 2011.
2011 Acquisitions
|
|
|
|
|
|
Date
|
Type
|
Company / Product Line Acquired
|
Location (Near)
|
Segment
|
Platform
|
Company
|
3-Jan
|
Stock
|
Harbison-Fischer, Inc.
|
Crowley, TX
|
Fluid Management
|
Energy
|
Norris Production Solutions
|
Designer and manufacturer of down-hole rod pumps and related products used in artificial lift applications around the world.
|
|
|
|
|
|
|
|
|
5-Jan
|
Asset/Stock
|
Dosmatic, Inc.
|
Carrollton, TX
|
Fluid Management
|
Fluid Solutions
|
Hydro Systems
|
Manufacturer of non-electric chemical metering equipment used in agricultural, horticulture and other industrial market segments.
|
|
|
|
|
|
|
|
26-Jan
|
Stock
|
TAGC Limited LLC
|
Muscat, Oman
|
Fluid Management
|
Energy
|
Norris Production Solutions
|
Oilfield services provider, servicing both conventional and coiled sucker rod wells in the Middle East.
|
|
|
|
|
|
|
|
|
|
28-Jan
|
Asset
|
EnviroGear Product Line
|
Franklin Park, IL
|
Fluid Management
|
Fluid Solutions
|
Pump Solutions Group
|
Manufacturer of magnetically coupled internal gear pumps used in a wide range of industrial manufacturing.
|
|
|
|
|
|
|
|
|
|
4-Jul
|
Stock
|
Sound Solutions
|
Vienna, Austria
|
Electronic Technologies
|
N/A
|
Knowles Electronics
|
|
|
|
and Beijing, China
|
|
|
|
Manufacturer of dynamic speakers and receivers for cell phones and other consumer electronics.
|
|
|
|
|
|
|
|
|
|
1-Sep
|
Stock
|
Oil Lift
|
Calgary, Canada
|
Fluid Management
|
Energy
|
Norris Production Solutions
|
Manufacturer of surface drive systems for progressive cavity pumps serving the artificial lift segment of the oil and gas industry.
|
|
|
|
|
|
|
|
|
1-Sep
|
Asset
|
Tierra Alta Canada
|
Edmonton, Canada
|
Fluid Management
|
Energy
|
Norris Production Solutions
|
Manufacturer of progressive cavity pumps serving the artificial lift segment of the oil and gas industry.
|
|
|
Sound Solutions Acquisition
On July 4, 2011, Dover, through its subsidiary, Knowles Electronics, LLC, completed the acquisition of the Sound Solutions business line from NXP Semiconductors N.V (“NXP”). The acquisition purchase price of $855,000 was funded by cash on hand and is subject to working capital and other contractual adjustments. As a result of this acquisition, the Company recorded approximately $280,000 of customer-related intangible assets (weighted average life of 11 years), $8,200 of trademarks (weighted average life of 15 years), and $7,689 of other intangibles (weighted average life of 10 years). This acquisition resulted in the recognition of goodwill totaling $480,634, of which approximately $330,000 is expected to be deductible under local taxing jurisdictions. Sound Solutions, which manufactures dynamic speakers and receivers for cell phones and other consumer electronics, has been incorporated into the Knowles business within the Electronic Technologies segment. Knowles is a leading global microelectronic mechanical systems (“MEMS”) microphone supplier, and the acquisition enables Knowles to become a leading supplier of audio components to the handset market. As such, the goodwill recorded through the acquisition reflects the value attributed to significant cost and global revenue growth synergies that the combined business expects to achieve. At September 30, 2011, the Company has a receivable from NXP for approximately $33 million, reflecting estimated purchase price adjustments for performance contingencies and working capital levels, subject to final agreement. The receivable is recorded within prepaid and other current assets in the Unaudited Condensed Consolidated Balance Sheet and is expected to be settled in the fourth quarter of 2011.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share figures)
Other Acquisitions
Through the first nine months of 2011, the Company acquired six other businesses in separate transactions for an aggregate purchase price of $514,252, net of cash acquired. As a result of these acquisitions, the Company recorded approximately $194,192 of customer-related intangible assets (weighted average lives of 11 years), $11,258 of trademarks (weighted average lives of 11 years), and $17,280 of other intangibles (weighted average lives of 9 years). These acquisitions resulted in the recognition of goodwill totaling $274,932, of which $4,780 is expected to be deductible for tax purposes. Each of these businesses manufacture products and/or provide services in the energy and fluid solutions markets, each growth areas for the Company. These businesses were acquired to complement and expand upon existing operations within the Fluid Management segment, and the goodwill identified by these acquisitions reflects the benefits expected to be derived from product line expansion and operational synergies.
All of the 2011 acquisitions are wholly-owned, with the exception of TAGC Limited LLC in which the Company acquired a 60% controlling interest. The non-controlling interest in TAGC Limited LLC is not material.
The following presents the allocation of acquisition cost to the assets acquired and liabilities assumed, based on their estimated fair values:
|
|
Sound Solutions
|
|
|
Other Acquisitions
|
|
|
Total
|
|
Current assets, net of cash acquired
|
|
$ |
88,339 |
|
|
$ |
113,066 |
|
|
$ |
201,405 |
|
Property, plant and equipment
|
|
|
86,335 |
|
|
|
51,781 |
|
|
|
138,116 |
|
Goodwill
|
|
|
480,634 |
|
|
|
274,932 |
|
|
|
755,566 |
|
Intangible assets
|
|
|
295,889 |
|
|
|
222,730 |
|
|
|
518,619 |
|
Other assets
|
|
|
7,787 |
|
|
|
(542 |
) |
|
|
7,245 |
|
Total liabilities
|
|
|
(136,884 |
) |
|
|
(147,715 |
) |
|
|
(284,599 |
) |
Net assets acquired
|
|
$ |
822,100 |
|
|
$ |
514,252 |
|
|
$ |
1,336,352 |
|
The Company has allocated purchase price at the dates of acquisition based upon its understanding, obtained during due diligence and through other sources, of the fair value of the acquired assets and assumed liabilities. 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 business, the Company may refine its estimates of fair value to allocate the purchase price more accurately; however, any such revisions are not expected to be significant.
The Unaudited Condensed Consolidated Statement of Operations includes the results of these businesses from the dates of acquisition. The aggregate revenue of the 2011 acquisitions included in the Company’s consolidated revenue totaled $145,359 and $235,002 for the three and nine months ended September 30, 2011, respectively.
In accordance with ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations,” the following unaudited pro forma information illustrates the effect on the Company’s revenue and net earnings for the three and nine months ended September 30, 2011 and 2010, assuming that the 2011 acquisitions had taken place at the beginning of 2010. As a result, the supplemental pro forma net earnings reflect adjustments to the net earnings as reported in the Unaudited Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2011 to exclude $8,928 and $10,368, respectively, of acquisition-related costs (after-tax) and $3,644 and $5,671, respectively, of nonrecurring expense related to the fair value adjustments to acquisition-date inventory (after-tax). The supplemental pro forma earnings for the comparable 2010 periods were adjusted to include these charges. The 2011 and 2010 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 2011 and 2010 acquisitions.
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Revenue from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
2,203,388 |
|
|
$ |
1,802,158 |
|
|
$ |
6,122,287 |
|
|
$ |
5,023,750 |
|
Pro forma
|
|
|
2,212,907 |
|
|
|
1,945,591 |
|
|
|
6,288,772 |
|
|
|
5,453,953 |
|
Net earnings from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
228,577 |
|
|
$ |
219,309 |
|
|
$ |
649,996 |
|
|
$ |
512,413 |
|
Pro forma
|
|
|
241,256 |
|
|
|
231,912 |
|
|
|
657,721 |
|
|
|
530,624 |
|
Basic earnings per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
1.23 |
|
|
$ |
1.17 |
|
|
$ |
3.49 |
|
|
$ |
2.74 |
|
Pro forma
|
|
|
1.30 |
|
|
|
1.24 |
|
|
|
3.53 |
|
|
|
2.84 |
|
Diluted earnings per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
1.21 |
|
|
$ |
1.16 |
|
|
$ |
3.43 |
|
|
$ |
2.71 |
|
Pro forma
|
|
|
1.28 |
|
|
|
1.23 |
|
|
|
3.47 |
|
|
|
2.81 |
|
These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisitions occurred on the dates indicated or that may result in the future.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share figures)
3. Inventories, net
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
Raw materials
|
|
$ |
383,773 |
|
|
$ |
322,149 |
|
Work in progress
|
|
|
204,530 |
|
|
|
153,374 |
|
Finished goods
|
|
|
316,681 |
|
|
|
250,223 |
|
Subtotal
|
|
|
904,984 |
|
|
|
725,746 |
|
Less LIFO reserve
|
|
|
56,050 |
|
|
|
49,994 |
|
Total
|
|
$ |
848,934 |
|
|
$ |
675,752 |
|
4. Property, Plant and Equipment, net
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
Land
|
|
$ |
54,406 |
|
|
$ |
49,052 |
|
Buildings and improvements
|
|
|
579,673 |
|
|
|
533,448 |
|
Machinery, equipment and other
|
|
|
2,047,707 |
|
|
|
1,825,503 |
|
|
|
|
2,681,786 |
|
|
|
2,408,003 |
|
Accumulated depreciation
|
|
|
(1,689,145 |
) |
|
|
(1,605,126 |
) |
Total
|
|
$ |
992,641 |
|
|
$ |
802,877 |
|
5. Goodwill and Other Intangible Assets
The following table provides the changes in carrying value of goodwill by segment for the nine months ended September 30, 2011:
|
|
Industrial
Products
|
|
|
Engineered
Systems
|
|
|
Fluid
Management
|
|
|
Electronic
Technologies
|
|
|
Total
|
|
Goodwill
|
|
$ |
731,889 |
|
|
$ |
819,054 |
|
|
$ |
699,232 |
|
|
$ |
977,811 |
|
|
$ |
3,227,986 |
|
Accumulated impairment loss
|
|
|
(10,942 |
) |
|
|
- |
|
|
|
(59,970 |
) |
|
|
- |
|
|
|
(70,912 |
) |
Balance at January 1, 2011
|
|
|
720,947 |
|
|
|
819,054 |
|
|
|
639,262 |
|
|
|
977,811 |
|
|
|
3,157,074 |
|
Acquisitions
|
|
|
- |
|
|
|
- |
|
|
|
274,932 |
|
|
|
480,634 |
|
|
|
755,566 |
|
Foreign currency translation
|
|
|
(988 |
) |
|
|
(886 |
) |
|
|
(621 |
) |
|
|
(30,811 |
) |
|
|
(33,306 |
) |
Balance at September 30, 2011
|
|
$ |
719,959 |
|
|
$ |
818,168 |
|
|
$ |
913,573 |
|
|
$ |
1,427,634 |
|
|
$ |
3,879,334 |
|
The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset:
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
Amortized Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$ |
63,939 |
|
|
$ |
18,830 |
|
|
$ |
41,712 |
|
|
$ |
16,664 |
|
Patents
|
|
|
148,941 |
|
|
|
98,465 |
|
|
|
127,106 |
|
|
|
92,171 |
|
Customer Intangibles
|
|
|
1,148,386 |
|
|
|
352,609 |
|
|
|
685,939 |
|
|
|
290,001 |
|
Unpatented Technologies
|
|
|
138,366 |
|
|
|
95,209 |
|
|
|
138,780 |
|
|
|
86,461 |
|
Drawings & Manuals
|
|
|
6,915 |
|
|
|
4,820 |
|
|
|
6,230 |
|
|
|
4,326 |
|
Distributor Relationships
|
|
|
73,187 |
|
|
|
27,576 |
|
|
|
73,183 |
|
|
|
24,724 |
|
Other
|
|
|
28,519 |
|
|
|
23,699 |
|
|
|
27,900 |
|
|
|
18,142 |
|
Total
|
|
|
1,608,253 |
|
|
|
621,208 |
|
|
|
1,100,850 |
|
|
|
532,489 |
|
Unamortized Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
227,742 |
|
|
|
|
|
|
|
230,920 |
|
|
|
|
|
Total Intangible Assets
|
|
$ |
1,835,995 |
|
|
$ |
621,208 |
|
|
$ |
1,331,770 |
|
|
$ |
532,489 |
|
Amortization expense totaled $37,772 and $22,137 for the three months ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2011 and 2010, amortization expense was $92,497 and $66,892, respectively.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share figures)
6. Borrowings
Borrowings consist of the following:
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
6.50% 10-year notes due February 15, 2011
|
|
$ |
- |
|
|
$ |
399,986 |
|
4.875% 10-year notes due October 15, 2015
|
|
|
299,195 |
|
|
|
299,047 |
|
5.45% 10-year notes due March 15, 2018
|
|
|
347,856 |
|
|
|
347,608 |
|
4.30% 10-year notes due March 1, 2021
|
|
|
449,754 |
|
|
|
- |
|
6.60% 30-year notes due March 15, 2038
|
|
|
247,661 |
|
|
|
247,595 |
|
5.375% 30-year notes due March 1, 2041
|
|
|
345,312 |
|
|
|
- |
|
6.65% 30-year debentures due June 1, 2028
|
|
|
199,405 |
|
|
|
199,379 |
|
5.375% 30-year debentures due October 15, 2035
|
|
|
296,168 |
|
|
|
296,048 |
|
Other
|
|
|
1,680 |
|
|
|
2,813 |
|
Total long-term debt
|
|
|
2,187,031 |
|
|
|
1,792,476 |
|
Less current installments
|
|
|
(559 |
) |
|
|
(1,590 |
) |
|
|
$ |
2,186,472 |
|
|
$ |
1,790,886 |
|
On February 22, 2011, the Company issued $450 million of 4.30% Notes due 2021 and $350 million of 5.375% Notes due 2041. The proceeds of $788,971 from the sale of the notes, net of discounts and issuance costs, were used to repay commercial paper, including commercial paper issued to repay the Company’s $400 million of 6.50% notes, which matured February 15, 2011, and for other general corporate purposes, including the acquisition of Harbison-Fischer. The new notes are redeemable at the option of Dover in whole or in part at any time at a redemption price that includes a make-whole premium, with accrued interest to the redemption date.
At December 31, 2010, notes payable and current maturities of long-term debt within the Unaudited Condensed Consolidated Balance Sheet included commercial paper of $15,000. There was no commercial paper outstanding at September 30, 2011.
The Company maintains a $1 billion unsecured revolving credit facility which expires on November 9, 2012. 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.
Interest expense for the three months ended September 30, 2011 and 2010 was $31,747 and $28,812, respectively. For the nine months ended September 30, 2011 and 2010, interest expense was $93,928 and $86,654, respectively. Interest income for the three months ended September 30, 2011 and 2010 was $1,699 and $2,477, respectively. For the nine months ended September 30, 2011 and 2010, interest income was $7,460 and $6,208, respectively.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share figures)
7. 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. 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 September 30, 2011 and December 31, 2010, the Company had contracts with U.S. dollar equivalent notional amounts of $98,742 and $63,935, respectively, to exchange foreign currencies, principally the U.S. dollar, British pound, Singapore dollar, Chinese yuan and Malaysian ringgit. The Company believes it is probable that all forecasted cash flow transactions will occur.
The Company has an outstanding floating-to-floating cross currency swap agreement for a total notional amount of $50,000 in exchange for CHF 65,100. In February 2011, the Company amended and restated the terms of the arrangement to extend its maturity date to 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 September 30, 2011 and December 31, 2010 reflected losses of $24,482 and $19,774, respectively, due to the strengthening of the Swiss franc relative to the U.S. dollar over the term of the arrangement.
In January 2011, the Company entered into foreign currency forward contracts to purchase $350,000 for €258,719, which were designated as hedging an equivalent amount of the Company’s euro denominated net investment. The agreements qualified as net investment hedges with the changes in fair value being reported within the cumulative translation adjustment section of other comprehensive income. These arrangements were settled on April 4, 2011, resulting in a loss of $18,211 being reflected within the cumulative translation adjustment.
The following table sets forth the fair values of derivative instruments held by the Company as of September 30, 2011 and December 31, 2010 and the balance sheet lines in which they are recorded:
|
|
Fair Value - Asset (Liability)
|
|
|
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
Balance Sheet Caption
|
Foreign currency forward / collar contracts
|
|
$ |
258 |
|
|
$ |
503 |
|
Prepaid / Other assets
|
Foreign currency forward / collar contracts
|
|
|
(1,687 |
) |
|
|
- |
|
Other accrued expenses
|
Foreign currency forward / collar contracts
|
|
|
(491 |
) |
|
|
- |
|
Other liabilities
|
Net investment hedge - cross currency swap
|
|
|
(24,482 |
) |
|
|
(19,774 |
) |
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 there are no credit risk related contingent features in the Company’s derivative instruments.
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
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.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share figures)
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, 2011 and December 31, 2010:
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
121,734 |
|
|
$ |
- |
|
|
$ |
- |
|
Foreign currency cash flow hedges
|
|
|
- |
|
|
|
258 |
|
|
|
- |
|
|
|
- |
|
|
|
503 |
|
|
|
- |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedge derivative
|
|
|
- |
|
|
|
24,482 |
|
|
|
- |
|
|
|
- |
|
|
|
19,774 |
|
|
|
- |
|
Foreign currency cash flow hedges
|
|
|
- |
|
|
|
2,178 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Short-term investments consist of investment grade time deposits with original maturities between three months and one year and are included in current assets in the Unaudited Condensed Consolidated Balance Sheet. Short-term investments are measured at fair value using quoted market prices. 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 valuation hierarchy.
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.
The estimated fair value of long-term debt at September 30, 2011 and December 31, 2010 was $2,720,377 and $1,961,363, respectively, compared to the carrying value of $2,187,031 and $1,792,476. The carrying value includes the portion that is due and payable in less than one year of $559 and $1,590 at September 30, 2011 and December 31, 2010, respectively. The estimated fair value of the long-term debt is based on quoted market prices for similar instruments. The fair value of short-term loans, principally commercial paper at December 31, 2010, approximates carrying value.
The carrying values of cash and cash equivalents, trade receivables, accounts payable, notes payable, and accrued expenses are reasonable estimates of their fair values as of September 30, 2011 and December 31, 2010 due to the short-term nature of these instruments.
8. Income Taxes
The effective tax rates for continuing operations for the three and nine months ended September 30, 2011 were 25.6% and 23.1% compared to the prior period rates of 14.6% and 24.1%, respectively. The effective tax rate for the 2011 third quarter was favorably impacted by net discrete items totaling $2,390. The rate for the nine month period of 2011 was favorably impacted by net discrete items totaling $32,744, including $22,338 arising in the second quarter principally from settlements with the U.S. federal taxing authority and $8,016 arising in the first quarter principally from settlements with state taxing authorities. Excluding discrete items, the effective tax rates for the three and nine months ended September 30, 2011 were 26.4% and 27%, respectively. The effective tax rates for the three and nine months ended September 30, 2010 were also impacted by discrete items totaling $28,081 arising from third quarter settlements with the U.S. federal tax authority and resolution of a foreign tax matter. Excluding these discrete items, the effective tax rates for the three and nine months ended September 30, 2010 were 25.5% and 28.3%, respectively. After adjusting for discrete items in the 2011 and 2010 periods, the Company’s effective tax rate is higher during the 2011 third quarter due to changes in the geographic mix of earnings. For the year-to-date period, the 2011 effective tax rate is lower than the effective rate in the comparable 2010 period primarily due to lower rates on foreign earnings. While the Company believes additional uncertain tax positions will be settled within the next twelve months, an estimate cannot be made due to the uncertainties associated with the resolution of these matters.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share figures)
9. Discontinued Operations
Management evaluates Dover’s businesses periodically for their strategic fit within Dover’s operations. Accordingly, in the third quarter of 2011, the Company decided to sell Paladin Brands and Crenlo LLC, two businesses within its Industrial Products segment that serve construction related end-markets. The sale was completed in September and the Company received cash proceeds of $299,360, subject to final working capital adjustments, and recognized a year-to-date after-tax loss of $66,040. The loss includes an after-tax impairment charge of $76,072 representing a write-down of the carrying value of goodwill to fair value, or the anticipated amount of sales proceeds. This transaction generated a capital loss for tax purposes, and the Company established a valuation allowance of $10,675 for the portion of the capital loss carryforward that, at this point in time, is not more likely than not to be realized.
In connection with this disposal, for all periods presented, the Company has reclassified the results of these businesses into discontinued operations in the Unaudited Condensed Consolidated Statement of Operations, and the assets and liabilities associated with these businesses have been segregated within the Unaudited Condensed Consolidated Balance Sheet.
For the nine months ended September 30, 2010, the loss from discontinued operations, net of tax, reflects the sale of Triton, an operating company that had been reclassified from the Engineered Systems segment to discontinued operations in 2008. The earnings from discontinued operations during the third quarter of 2010 includes the results of the businesses discontinued in 2011 and other expense and accrual adjustments relating to operations that were disposed of in previous periods. The 2010 quarter also reflects $4,502 of tax benefits driven primarily by discrete tax items settled or resolved during the period.
Summarized results of the Company’s discontinued operations are as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Revenue
|
|
$ |
103,913 |
|
|
$ |
85,294 |
|
|
$ |
301,461 |
|
|
$ |
243,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale, net of taxes
|
|
$ |
(65,375 |
) |
|
$ |
- |
|
|
$ |
(66,040 |
) |
|
$ |
(14,203 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations before taxes
|
|
|
9,241 |
|
|
|
1,243 |
|
|
|
25,077 |
|
|
|
2,604 |
|
(Provision) benefit for income taxes
|
|
|
(163 |
) |
|
|
3,207 |
|
|
|
7,921 |
|
|
|
942 |
|
(Loss) earnings from discontinued operations, net of tax
|
|
$ |
(56,297 |
) |
|
$ |
4,450 |
|
|
$ |
(33,042 |
) |
|
$ |
(10,657 |
) |
Assets and liabilities of discontinued operations are summarized below:
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
Assets of Discontinued Operations
|
|
|
|
|
|
|
Current assets
|
|
$ |
7,884 |
|
|
$ |
141,953 |
|
Non-current assets
|
|
|
15,248 |
|
|
|
365,336 |
|
|
|
$ |
23,132 |
|
|
$ |
507,289 |
|
|
|
|
|
|
|
|
|
|
Liabilities of Discontinued Operations
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
27,371 |
|
|
$ |
72,652 |
|
Non-current liabilities
|
|
|
72,871 |
|
|
|
132,386 |
|
|
|
$ |
100,242 |
|
|
$ |
205,038 |
|
At September 30, 2011, the assets and liabilities of discontinued operations primarily include residual amounts for deferred tax assets, short and long-term reserves, and contingencies related to businesses previously sold.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share figures)
10. Commitments and Contingent Liabilities
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.
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. While it is not possible at this time to predict the outcome of these legal actions, in the opinion of management, based on these reviews, it is unlikely that the disposition of the lawsuits and the other matters mentioned above will have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
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 September 30, 2011 and 2010 are as follows:
|
|
2011
|
|
|
2010
|
|
Beginning Balance, January 1
|
|
$ |
54,941 |
|
|
$ |
56,298 |
|
Provision for warranties
|
|
|
29,531 |
|
|
|
28,074 |
|
Settlements made
|
|
|
(29,049 |
) |
|
|
(27,760 |
) |
Other adjustments, including acquisitions and currency translation
|
|
|
2,201 |
|
|
|
(892 |
) |
Ending Balance, September 30
|
|
$ |
57,624 |
|
|
$ |
55,720 |
|
As of September 30, 2011, the Company had approximately $74,126 outstanding in letters of credit with financial institutions, which expire at various dates in 2011 through 2016. These letters of credit are primarily maintained as security for insurance, warranty and other performance obligations.
From time to time, the Company will initiate various restructuring programs at its operating companies and incur severance and other restructuring costs. For the three months ended September 30, 2011, restructuring charges of $1,278 and $1,836 were recorded in cost of goods and services and selling and administrative expenses, respectively. For the three months ended September 30, 2010, restructuring charges of $1,952 and $1,361 were recorded in cost of goods and services and selling and administrative expenses, respectively. For the nine months ended September 30, 2011, restructuring charges of $2,520 and $4,107 were recorded in cost of goods and services and selling and administrative expenses, respectively. For the nine months ended September 30, 2010, restructuring charges of $1,991 and $3,498 and were recorded in cost of goods and services and selling and administrative expenses, respectively.
The following table details the Company’s severance and other restructuring reserve activity:
|
|
Severance
|
|
|
Exit
|
|
|
Total
|
|
At December 31, 2010
|
|
$ |
1,143 |
|
|
$ |
6,476 |
|
|
$ |
7,619 |
|
Provision
|
|
|
4,040 |
|
|
|
2,587 |
|
|
|
6,627 |
|
Payments
|
|
|
(2,857 |
) |
|
|
(3,749 |
) |
|
|
(6,606 |
) |
Other
|
|
|
(22 |
) |
|
|
(638 |
) |
|
|
(660 |
) |
At September 30, 2011
|
|
$ |
2,304 |
|
|
$ |
4,676 |
|
|
$ |
6,980 |
|
The following table details restructuring charges incurred by segment for the periods presented:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Industrial Products
|
|
$ |
1,379 |
|
|
$ |
268 |
|
|
$ |
2,258 |
|
|
$ |
992 |
|
Engineered Systems
|
|
|
- |
|
|
|
2,034 |
|
|
|
4 |
|
|
|
2,460 |
|
Fluid Management
|
|
|
513 |
|
|
|
719 |
|
|
|
2,895 |
|
|
|
1,487 |
|
Electronic Technologies
|
|
|
1,222 |
|
|
|
292 |
|
|
|
1,470 |
|
|
|
550 |
|
Total
|
|
$ |
3,114 |
|
|
$ |
3,313 |
|
|
$ |
6,627 |
|
|
$ |
5,489 |
|
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share figures)
11. Employee Benefit Plans
The following table sets forth the components of the Company’s net periodic expense relating to retirement and post-retirement benefit plans:
|
|
Retirement Plan Benefits
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Service Cost
|
|
$ |
5,320 |
|
|
$ |
4,850 |
|
|
$ |
15,929 |
|
|
$ |
14,550 |
|
Interest Cost
|
|
|
10,946 |
|
|
|
9,632 |
|
|
|
32,797 |
|
|
|
28,896 |
|
Expected return on plan assets
|
|
|
(11,691 |
) |
|
|
(9,621 |
) |
|
|
(35,004 |
) |
|
|
(28,863 |
) |
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
2,174 |
|
|
|
2,158 |
|
|
|
6,521 |
|
|
|
6,474 |
|
Recognized actuarial loss
|
|
|
2,148 |
|
|
|
1,367 |
|
|
|
6,444 |
|
|
|
4,101 |
|
Transition obligation
|
|
|
(11 |
) |
|
|
(11 |
) |
|
|
(33 |
) |
|
|
(33 |
) |
Other
|
|
|
33 |
|
|
|
20 |
|
|
|
97 |
|
|
|
60 |
|
Net periodic expense
|
|
$ |
8,919 |
|
|
$ |
8,395 |
|
|
$ |
26,751 |
|
|
$ |
25,185 |
|
|
|
Post-Retirement Benefits
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Service Cost
|
|
$ |
52 |
|
|
$ |
70 |
|
|
$ |
155 |
|
|
$ |
209 |
|
Interest Cost
|
|
|
181 |
|
|
|
209 |
|
|
|
543 |
|
|
|
629 |
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
(102 |
) |
|
|
(102 |
) |
|
|
(307 |
) |
|
|
(302 |
) |
Recognized actuarial loss
|
|
|
(61 |
) |
|
|
(100 |
) |
|
|
(181 |
) |
|
|
(303 |
) |
Net periodic expense
|
|
$ |
70 |
|
|
$ |
77 |
|
|
$ |
210 |
|
|
$ |
233 |
|
12. Comprehensive Earnings
Comprehensive earnings were as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Net earnings
|
|
$ |
172,280 |
|
|
$ |
223,759 |
|
|
$ |
616,954 |
|
|
$ |
501,756 |
|
Foreign currency translation adjustment, net of tax
|
|
|
(122,416 |
) |
|
|
110,298 |
|
|
|
(31,472 |
) |
|
|
(61,167 |
) |
Other, net of tax
|
|
|
(1,907 |
) |
|
|
(845 |
) |
|
|
(1,555 |
) |
|
|
1,104 |
|
Comprehensive earnings
|
|
$ |
47,957 |
|
|
$ |
333,212 |
|
|
$ |
583,927 |
|
|
$ |
441,693 |
|
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share figures)
13. 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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Products
|
|
$ |
459,421 |
|
|
$ |
386,223 |
|
|
$ |
1,347,965 |
|
|
$ |
1,129,034 |
|
Engineered Systems
|
|
|
669,871 |
|
|
|
620,362 |
|
|
|
1,876,171 |
|
|
|
1,681,756 |
|
Fluid Management
|
|
|
585,005 |
|
|
|
416,428 |
|
|
|
1,628,483 |
|
|
|
1,200,902 |
|
Electronic Technologies
|
|
|
492,250 |
|
|
|
381,386 |
|
|
|
1,278,210 |
|
|
|
1,017,982 |
|
Intra-segment eliminations
|
|
|
(3,159 |
) |
|
|
(2,241 |
) |
|
|
(8,542 |
) |
|
|
(5,924 |
) |
Total consolidated revenue
|
|
$ |
2,203,388 |
|
|
$ |
1,802,158 |
|
|
$ |
6,122,287 |
|
|
$ |
5,023,750 |
|
EARNINGS FROM CONTINUING OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Products
|
|
$ |
64,481 |
|
|
$ |
54,728 |
|
|
$ |
187,105 |
|
|
$ |
166,143 |
|
Engineered Systems
|
|
|
102,564 |
|
|
|
91,442 |
|
|
|
263,993 |
|
|
|
230,940 |
|
Fluid Management
|
|
|
144,327 |
|
|
|
101,847 |
|
|
|
389,394 |
|
|
|
284,782 |
|
Electronic Technologies
|
|
|
60,163 |
|
|
|
69,617 |
|
|
|
196,855 |
|
|
|
174,104 |
|
Total segments
|
|
|
371,535 |
|
|
|
317,634 |
|
|
|
1,037,347 |
|
|
|
855,969 |
|
Corporate expense / other
|
|
|
34,086 |
|
|
|
34,553 |
|
|
|
105,564 |
|
|
|
100,321 |
|
Net interest expense
|
|
|
30,048 |
|
|
|
26,335 |
|
|
|
86,468 |
|
|
|
80,446 |
|
Earnings from continuing operations before provision for income taxes and discontinued operations
|
|
|
307,401 |
|
|
|
256,746 |
|
|
|
845,315 |
|
|
|
675,202 |
|
Provision for taxes
|
|
|
78,824 |
|
|
|
37,437 |
|
|
|
195,319 |
|
|
|
162,789 |
|
Earnings from continuing operations - total consolidated
|
|
$ |
228,577 |
|
|
$ |
219,309 |
|
|
$ |
649,996 |
|
|
$ |
512,413 |
|
14. Recent Accounting Standards
In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-13, which amended existing guidance for identifying separate deliverables in a revenue-generating transaction where multiple deliverables exist and requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. The ASU also establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: 1) vendor-specific objective evidence if available, 2) third-party evidence if vendor-specific objective evidence is not available, and 3) estimated selling price if neither vendor-specific nor third-party evidence is available.
The majority of the Company’s businesses generate revenue through the manufacture and sale of a broad range of specialized products and components, with revenue recognized upon transfer of title and risk of loss, which is generally upon shipment. When the Company has multiple deliverables in its sales arrangements, they are typically separate units of accounting with vendor-specific objective evidence of selling price. The Company adopted the requirements of ASU 2009-13 on a prospective basis, effective January 1, 2011. The requirements of ASU 2009-13 did not significantly change the Company’s units of accounting or how the Company allocates arrangement consideration to various units of accounting. Therefore, the adoption of ASU 2009-13 did not have a material effect on the Company’s statement of position or results of operations.
In October 2009, the FASB issued ASU 2009-14 which eliminates tangible products containing both software and non-software components that operate together to deliver a product’s functionality from the scope of then-current generally accepted accounting principles for software. The Company adopted ASU 2009-14 on a prospective basis, effective January 1, 2011. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04 which was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This guidance is effective for the Company beginning on January 1, 2012. Its adoption is not expected to significantly impact the Company’s consolidated financial statements.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share figures)
In June 2011, the FASB issued ASU 2011-05 which provides new guidance on the presentation of comprehensive income. ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and instead requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The adoption of this ASU will not have a significant impact on the Company’s consolidated financial statements as it only requires a change in the format of the current presentation.
In September 2011, the FASB issued ASU 2011-09 which requires enhanced disclosures around an employer’s participation in multiemployer pension plans. The standard is intended to provide more information about an employer’s financial obligations to a multiemployer pension plan to help financial statement users better understand the financial health of the significant plans in which the employer participates. This guidance is effective for the Company for its fiscal 2011 year-end reporting. Its adoption is not expected to significantly impact the Company’s consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. However, an entity can choose to early adopt even if its annual test date is before the issuance of the final standard, provided that the entity has not yet performed its 2011 annual impairment test or issued its financial statements. The adoption of this ASU is not expected to significantly impact the Company’s consolidated financial statements.
15. Equity Incentive Program
During the nine months ended September 30, 2011, the Company issued stock appreciation rights (“SARs”) covering 1,524,329 shares and 44,751 performance shares. During the nine months ended September 30, 2010, the Company issued SARs covering 2,306,440 shares and 68,446 performance shares.
The fair value of each SAR 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 the 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
|
|
|
|
Nine Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Risk-free interest rate
|
|
|
2.68 |
% |
|
|
2.77 |
% |
|
|
1.34 |
% |
|
|
1.37 |
% |
Dividend yield
|
|
|
1.70 |
% |
|
|
2.33 |
% |
|
|
1.61 |
% |
|
|
2.38 |
% |
Expected life (years)
|
|
|
5.8 |
|
|
|
6.0 |
|
|
|
2.9 |
|
|
|
2.9 |
|
Volatility
|
|
|
33.56 |
% |
|
|
31.93 |
% |
|
|
40.48 |
% |
|
|
39.98 |
% |
Grant price
|
|
$ |
66.59 |
|
|
$ |
42.88 |
|
|
|
n/a |
|
|
|
n/a |
|
Fair value at date of grant
|
|
$ |
20.13 |
|
|
$ |
11.66 |
|
|
$ |
91.41 |
|
|
$ |
57.49 |
|
For the three months ended September 30, 2011 and 2010, after-tax stock-based compensation expense totaled $3,947 and $2,583, respectively. For the nine months ended September 30, 2011 and 2010, after-tax stock-based compensation expense totaled $13,181 and $10,741, respectively. Stock-based compensation is reported within selling and administrative expenses in the accompanying Unaudited Condensed Consolidated Statement of Operations.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share figures)
16. Share Repurchases
In May 2007, the Board of Directors authorized the repurchase of up to 10,000,000 shares through May 2012. During the three and nine months ended September 30, 2011, the Company repurchased 549,973 and 1,999,973 shares of its common stock in the open market. During the nine months ended September 30, 2011 the Company also repurchased 79,708 shares from the holders of its employee stock options/SARs when they tendered these shares as full or partial payment of the exercise price of such options/SARs. Therefore, during the three and nine months ended September 30, 2011, a total of 549,973 and 2,079,681 shares were repurchased at an average price of $56.83 and $62.33 per share, respectively. Treasury shares increased to 64,965,029 at September 30, 2011 from a balance of 62,885,348 at December 31, 2010.
17. Subsequent Events
The Company assessed events occurring subsequent to September 30, 2011 for potential recognition and disclosure in the Unaudited Condensed Consolidated Financial Statements. No events have occurred that would require adjustment to or disclosure in the Unaudited Condensed Consolidated Financial Statements.
Refer to the section below entitled “Special Notes Regarding Forward-Looking Statements” for a discussion of factors that could cause actual results to differ from the forward-looking statements contained below and throughout this quarterly report.
OVERVIEW AND OUTLOOK
Dover Corporation (“Dover” or the “Company”) is a global manufacturer of innovative components and equipment, specialty systems and support services for a variety of applications in the industrial products, engineered systems, fluid management and electronic technologies markets. Dover discusses its operations at the platform level within the Industrial Products, Engineered Systems and Fluid Management segments, which contain two platforms each. Electronic Technologies’ results are discussed at the segment level.
The Company continued to experience positive results during the third quarter of 2011 with all segments achieving revenue growth, driven by strong bookings in the preceding quarters and seasonally normal bookings in the current quarter. As a result, the Company generated revenue of $2.2 billion during the third quarter of 2011, an increase of 22% compared to the prior year. Gross profit grew $131 million or 19% on the strength of increased volume. Bookings remained solid in the third quarter, driven by continuing strength in the energy-related markets, the Company’s strong position in the handset market and improved results in refrigeration and Product ID markets. The Company grew backlog which should contribute to solid fourth quarter results as well.
During the third quarter, in alignment with its strategic initiative to focus on higher margin growth spaces, the Company divested the Paladin and Crenlo businesses. The Company also closed on the Sound Solutions acquisition, further supporting the Company's strategic direction. The Company continues to focus on the execution of its strategies around product innovation, global expansion, leveraging its scale and disciplined capital allocation. In this regard, the Company continues to evaluate the potential sale of other operating companies within its Industrial Products segment. The decision regarding these entities is expected to be concluded before the end of the year.
In summary, the Company’s third quarter results were strong and it expects most of its businesses to continue to perform well through the remainder of the year, albeit with continued challenges given the uncertainty inherent in the current macro-economic environment. Therefore, the Company continues to manage those elements within its control and is maintaining its full-year 2011 revenue growth forecast of approximately 20%, representing full-year organic growth of approximately 13% (assuming a negligible impact from foreign currency) and acquisition related growth of approximately 7% for transactions completed in 2010 and through the first nine months of 2011. After adjusting for the forecasted full-year impact of the disposition of Paladin and Crenlo of $0.14 diluted earnings per share, the Company is now expecting full-year diluted earnings per share from continuing operations to be in the range of $4.45 to $4.50. If the global or domestic economic conditions accelerate or deteriorate, Dover’s operating results for 2011 could be materially different than currently projected.
RESULTS OF OPERATIONS
As discussed in Note 9 to the Unaudited Condensed Consolidated Financial Statements, the Company is reporting two businesses that were sold during the third quarter of 2011 as discontinued operations. Therefore, the Company has classified the results of operations of these businesses as discontinued operations for all periods presented, and the assets and liabilities of discontinued operations have been reclassified and are segregated in the consolidated balance sheet for the year ended December 31, 2010.
|
|
Three Months Ended September 30,
|
|
|
% / Point
|
|
|
Nine Months Ended September 30,
|
|
|
% / Point
|
|
(in thousands except per share figures) |
|
2011
|
|
|
2010
|
|
|
Change |
|
|
2011
|
|
|
2010
|
|
|
Change |
|
Revenue
|
|
$ |
2,203,388 |
|
|
$ |
1,802,158 |
|
|
|
22 |
% |
|
$ |
6,122,287 |
|
|
$ |
5,023,750 |
|
|
|
22 |
% |
Cost of goods and services
|
|
|
1,381,337 |
|
|
|
1,111,364 |
|
|
|
24 |
% |
|
|
3,786,458 |
|
|
|
3,065,621 |
|
|
|
24 |
% |
Gross profit
|
|
|
822,051 |
|
|
|
690,794 |
|
|
|
19 |
% |
|
|
2,335,829 |
|
|
|
1,958,129 |
|
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
484,350 |
|
|
|
397,927 |
|
|
|
22 |
% |
|
|
1,401,198 |
|
|
|
1,198,645 |
|
|
|
17 |
% |
Interest expense, net
|
|
|
30,048 |
|
|
|
26,335 |
|
|
|
14 |
% |
|
|
86,468 |
|
|
|
80,446 |
|
|
|
7 |
% |
Other expense (income), net
|
|
|
252 |
|
|
|
9,786 |
|
|
|
- |
|
|
|
2,848 |
|
|
|
3,836 |
|
|
|
- |
|
Earnings from continuing operations
|
|
|
228,577 |
|
|
|
219,309 |
|
|
|
4 |
% |
|
|
649,996 |
|
|
|
512,413 |
|
|
|
27 |
% |
(Loss) earnings from discontinued operations, net |
|
|
(56,297 |
) |
|
|
4,450 |
|
|
|
- |
|
|
|
(33,042 |
) |
|
|
(10,657 |
) |
|
|
- |
|
Net earnings
|
|
|
172,280 |
|
|
|
223,759 |
|
|
|
-23 |
% |
|
|
616,954 |
|
|
|
501,756 |
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations per common share - diluted
|
|
$ |
1.21 |
|
|
$ |
1.16 |
|
|
|
4 |
% |
|
$ |
3.43 |
|
|
$ |
2.71 |
|
|
|
27 |
% |
Net earnings per common share - diluted
|
|
$ |
0.91 |
|
|
$ |
1.19 |
|
|
|
-23 |
% |
|
$ |
3.26 |
|
|
$ |
2.66 |
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin
|
|
|
37.3 |
% |
|
|
38.3 |
% |
|
|
(1.0 |
) |
|
|
38.2 |
% |
|
|
39.0 |
% |
|
|
(0.8 |
) |
Selling and administrative expenses as a percentage of revenue
|
|
|
22.0 |
% |
|
|
22.1 |
% |
|
|
(0.1 |
) |
|
|
22.9 |
% |
|
|
23.9 |
% |
|
|
(1.0 |
) |
Effective tax rate
|
|
|
25.6 |
% |
|
|
14.6 |
% |
|
|
11.1 |
|
|
|
23.1 |
% |
|
|
24.1 |
% |
|
|
(1.0 |
) |
Revenue for the third quarter of 2011 increased $401.2 million or 22% from the comparable 2010 quarter reflecting organic revenue growth of 10%, growth of 9% related to acquisitions and a 3% favorable impact from foreign exchange. The organic growth reflects volume increases across all of the Company segments, with particular strength in the energy and infrastructure end-markets served by the Fluid Management and Industrial Products segments.
Revenue for the first nine months of 2011 increased 22% to $6,122.3 million from the comparable 2010 period, with increases at all of the Company’s segments. The Company’s revenue increase was attributed to organic revenue growth of 14%, revenue growth of 6% related to acquisitions completed in 2011 and 2010, and a 2% favorable impact from foreign exchange.
Gross profit increased $131.3 million or 19% compared to the 2010 third quarter reflecting the increased sales volumes and incremental benefits from productivity initiatives. Gross profit margin decreased 100 basis points to 37.3% in the third quarter of 2011 as a result of higher raw material costs that have yet to be recovered by selling price increases as well as unfavorable product mix. For the nine month period, gross profit increased 19% to $2,335.8 million from the prior year period while gross profit margin decreased 80 basis points to 38.2%, due to the same drivers as noted in the quarter.
Selling and administrative expenses increased $86.4 million or 22% compared to the third quarter of 2010 primarily due to general increases across the segments in support of higher volumes and growth initiatives coupled with approximately $14.0 million of one-time acquisition related expenses. As a percentage of revenue, selling and administrative expenses were comparable at 22% for both the current and prior year quarter.
Selling and administrative expenses of $1,401.2 million for the first nine months of 2011 increased by 17% or $202.6 million over the comparable 2010 period. As a percentage of revenue, these costs declined to 22.9% from 23.9% in the comparable 2010 period, with the 100 basis point improvement reflecting leverage from the higher revenue levels, partially offset by investment in sales and marketing infrastructure and one-time acquisition related expenses.
Net interest expense for the third quarter of 2011 increased by $3.7 million or 14% compared to the same quarter last year, while net interest expense for the first nine months of 2011 increased by $6.0 million or 7% compared to the respective prior year period. The increase in both the three and nine month periods was primarily due to higher average outstanding debt balances in the 2011 period compared to the prior year. As discussed in Note 6 to the Unaudited Condensed Consolidated Financial Statements, the Company’s total debt increased approximately $400 million during the year, as the Company issued $800 million in new notes, approximately half of which repaid outstanding commercial paper balances. Additionally, in the 2011 periods, the Company generated less interest income on short term investments, since excess cash has instead been used to fund acquisition activity.
Other expense, net for the quarter and year to date periods ending September 30, 2011 primarily reflects the impact of net losses from foreign exchange fluctuations on assets and liabilities denominated in currencies other than the functional currency, coupled with other miscellaneous non-operating gains and losses, none of which were individually, or in the aggregate, significant. The expense for the quarter and nine months ended September 30, 2010 also includes a $4.3 million loss on extinguishment of a structured five-year, non-interest bearing loan originally due July 2011 that was called by the lender, as permitted per the terms of the agreement.
The effective tax rates for continuing operations for the three and nine months ended September 30, 2011 were 25.6% and 23.1% compared to the prior period rates of 14.6% and 24.1%, respectively. The effective tax rate for the 2011 third quarter was favorably impacted by net discrete items totaling $2.4 million. The rate for the nine month period of 2011 was favorably impacted by net discrete items totaling $32.7 million, including $22.3 million arising in the second quarter principally from settlements with the U.S. federal taxing authority and $8.0 million arising in the first quarter principally from settlements with state taxing authorities. Excluding discrete items, the effective tax rates for the three and nine months ended September 30, 2011 were 26.4% and 27%, respectively. The effective tax rates for the three and nine months ended September 30, 2010 were also impacted by discrete items totaling $28.1 million arising from third quarter settlements with the U.S. federal tax authority and resolution of a foreign tax matter. Excluding these discrete items, the effective tax rates for the three and nine months ended September 30, 2010 were 25.5% and 28.3%, respectively. After adjusting for discrete items in the 2011 and 2010 periods, the Company’s effective tax rate is higher during the 2011 third quarter due to changes in the geographic mix of earnings. For the year-to-date period, the 2011 effective tax rate is lower than the effective rate in the comparable 2010 period primarily due to lower rates on foreign earnings. While the Company believes additional uncertain tax positions will be settled within the next twelve months, an estimate cannot be made due to the uncertainties associated with the resolution of these matters.
Earnings from continuing operations for the third quarter of 2011 increased 4% to $228.6 million, or $1.21 diluted earnings per share (“EPS”), compared to $219.3 million, or $1.16 diluted EPS, in the prior year third quarter. Earnings from continuing operations for the first nine months of 2011 increased 27% to $650.0 million, or $3.43 diluted EPS, compared to $512.4 million, or $2.71 diluted EPS, in the prior year period. These increases were primarily a result of sales volume growth across all of the Company’s segments, coupled with the impact of the periods’ tax benefits as noted above.
During the third quarter of 2011, the Company sold two businesses, resulting in a net loss from discontinued operations of $56.3 million or $0.30 diluted EPS, which includes a loss on the sale, including goodwill impairment, of $65.4 million offset by net earnings from operations of $9.1 million. For the nine months ended September 30, 2011, the net loss from discontinued operations totaled $33.0 million or $0.17 diluted EPS, also driven by the sale of the businesses during the quarter. The loss on the sale of businesses is offset by earnings from operations for the nine months of $25.1 million and an income tax benefit of $7.9 million, which includes an $11.0 million tax benefit resulting primarily from discrete tax items settled during the first quarter.
The net earnings from discontinued operations of $4.5 million, or $0.02 diluted EPS, for the three months ended September 30, 2010 reflects earnings from operations of discontinued entities, coupled with a $4.1 million tax benefit resulting primarily from discrete tax items settled during the quarter. For the nine months ended September 30, 2010, the net loss from discontinued operations of $10.6 million, or $0.06 diluted EPS, related primarily to the loss generated by the sale of a business that had been previously reflected as discontinued operations, offset by earnings from operations of discontinued entities and the discrete tax benefit noted.
Net earnings for the third quarter of 2011 were $172.3 million or $0.91 diluted EPS, compared to net earnings of $223.8 million or $1.19 diluted EPS for the 2010 third quarter. Net earnings for the nine months ended September 30, 2011 were $617.0 million, or $3.26 EPS, compared to net earnings of $501.8 million, or $2.66 EPS, for the comparable prior year period. Net earnings in the 2011 periods reflect the increase in earnings from continuing operations offset by the loss from discontinued operations, as discussed above.
Severance and Other Restructuring Reserves
The Company does not have any significant restructuring activities underway, but in both 2011 and 2010 initiated a few targeted facility consolidations at its operating companies. As a result, the Company incurred restructuring charges totaling $6.6 million and $5.5 million for the nine months ended September 30, 2011 and 2010, respectively. The Company does not expect to incur significant restructuring charges over the remainder of 2011, but will continue to monitor business activity across its end markets served and adjust capacity as necessary depending on the economic climate.
SEGMENT RESULTS OF OPERATIONS
Starting with the first quarter of 2011, the Company changed its segment presentation of depreciation and amortization expense to show total depreciation and amortization expense relating to each respective segment’s operations. Prior to 2011, the Company had presented only the depreciation and amortization of acquisition-related accounting write-ups to reflect the fair value of inventory, property, plant and equipment, and intangible assets. The amounts of depreciation and amortization expense presented for 2010 herein have been conformed to the current year presentation.
Industrial Products
The Industrial Products segment provides material handling products and services that improve its customers’ productivity, as well as products used in various mobile equipment applications, primarily in the transportation equipment, vehicle service and solid waste management markets. The primary products and services provided by each of the segment’s two platforms are as follows:
Material Handling – Industrial and recreational winches, utility, hydraulic parts, industrial automation tools, four-wheel-drive and all-wheel drive powertrain systems, and accessories for off-road vehicles.
Mobile Equipment – Primarily refuse truck bodies, tank trailers, compactors, balers, vehicle service lifts and collision equipment, car wash systems, internal engine components, fluid control assemblies and various aerospace components.
|
|
Three Months Ended September 30,
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
(in thousands)
|
|
2011
|
|
|
2010
|
|
|
% Change
|
|
|
2011
|
|
|
2010
|
|
|
% Change
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling
|
|
$ |
182,232 |
|
|
$ |
135,987 |
|
|
|
34 |
% |
|
$ |
514,769 |
|
|
$ |
390,947 |
|
|
|
32 |
% |
Mobile Equipment
|
|
|
277,696 |
|
|
|
250,664 |
|
|
|
11 |
% |
|
|
835,039 |
|
|
|
739,326 |
|
|
|
13 |
% |
Eliminations
|
|
|
(507 |
) |
|
|
(428 |
) |
|
|
|
|
|
|
(1,843 |
) |
|
|
(1,239 |
) |
|
|
|
|
|
|
$ |
459,421 |
|
|
$ |
386,223 |
|
|
|
19 |
% |
|
$ |
1,347,965 |
|
|
$ |
1,129,034 |
|
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$ |
64,481 |
|
|
$ |
54,728 |
|
|
|
18 |
% |
|
$ |
187,105 |
|
|
$ |
166,143 |
|
|
|
13 |
% |
Operating margin
|
|
|
14.0 |
% |
|
|
14.2 |
% |
|
|
|
|
|
|
13.9 |
% |
|
|
14.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment depreciation and amortization
|
|
$ |
10,866 |
|
|
$ |
10,799 |
|
|
|
1 |
% |
|
$ |
32,877 |
|
|
$ |
33,187 |
|
|
|
-1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bookings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling
|
|
|
171,046 |
|
|
|
138,970 |
|
|
|
23 |
% |
|
$ |
533,412 |
|
|
$ |
401,062 |
|
|
|
33 |
% |
Mobile Equipment
|
|
|
274,203 |
|
|
|
233,731 |
|
|
|
17 |
% |
|
|
947,688 |
|
|
|
753,746 |
|
|
|
26 |
% |
Eliminations
|
|
|
1,767 |
|
|
|
(675 |
) |
|
|
|
|
|
|
(63 |
) |
|
|
(1,649 |
) |
|
|
|
|
|
|
$ |
447,016 |
|
|
$ |
372,026 |
|
|
|
20 |
% |
|