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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number: 1-4018
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 53-0257888 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
3005 Highland Parkway | | |
Downers Grove, Illinois | | 60515 |
(Address of principal executive offices) | | (Zip Code) |
(630) 541-1540
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | DOV | New York Stock Exchange |
1.250% Notes due 2026 | DOV 26 | New York Stock Exchange |
0.750% Notes due 2027 | DOV 27 | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12-b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
Large Accelerated Filer | ☑ | Accelerated Filer | ☐ | Emerging Growth Company | ☐ |
Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The number of shares outstanding of the Registrant’s common stock as of April 14, 2020 was 143,947,008.
Dover Corporation
Form 10-Q
Table of Contents
Item 1. Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
| | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | | |
| | | | | 2020 | | 2019 |
Revenue | | | | | $ | 1,655,939 | | | $ | 1,724,757 | |
Cost of goods and services | | | | | 1,043,696 | | | 1,101,215 | |
Gross profit | | | | | 612,243 | | | 623,542 | |
Selling, general and administrative expenses | | | | | 386,941 | | | 408,466 | |
Loss on assets held for sale | | | | | — | | | 46,946 | |
Operating earnings | | | | | 225,302 | | | 168,130 | |
Interest expense | | | | | 27,268 | | | 31,808 | |
Interest income | | | | | (1,183) | | | (890) | |
| | | | | | | |
Gain on sale of a business | | | | | (6,551) | | | — | |
Other income, net | | | | | (7,732) | | | (1,106) | |
Earnings before provision for income taxes | | | | | 213,500 | | | 138,318 | |
Provision for income taxes | | | | | 37,221 | | | 32,613 | |
| | | | | | | |
| | | | | | | |
Net earnings | | | | | | $ | 176,279 | | | $ | 105,705 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net earnings per share: | | | | | | | |
Basic | | | | | $ | 1.22 | | | $ | 0.73 | |
Diluted | | | | | $ | 1.21 | | | $ | 0.72 | |
Weighted average shares outstanding: | | | | | | | |
Basic | | | | | 144,259 | | | 145,087 | |
Diluted | | | | | 145,782 | | | 146,911 | |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | 2020 | | 2019 |
Net earnings | | | | | $ | 176,279 | | | $ | 105,705 | |
Other comprehensive (loss) earnings, net of tax | | | | | | | | |
Foreign currency translation adjustments: | | | | | | | |
Foreign currency translation (losses) gains | | | | | (93,554) | | | 23,700 | |
Reclassification of foreign currency translation losses to earnings | | | | | — | | | 25,339 | |
Total foreign currency translation adjustments | | | | | (93,554) | | | 49,039 | |
Pension and other post-retirement benefit plans: | | | | | | | |
| | | | | | | |
| | | | | | | |
Amortization of actuarial losses included in net periodic pension cost | | | | | 1,669 | | | 175 | |
Amortization of prior service costs included in net periodic pension cost | | | | | 286 | | | 572 | |
| | | | | | | |
Total pension and other post-retirement benefit plans | | | | | 1,955 | | | 747 | |
Changes in fair value of cash flow hedges: | | | | | | | |
Unrealized net (losses) gains arising during period | | | | | (5,074) | | | 2,594 | |
Net losses (gains) reclassified into earnings | | | | | 1,121 | | | (230) | |
Total cash flow hedges | | | | | (3,953) | | | 2,364 | |
| | | | | | | |
Other comprehensive (loss) earnings, net of tax | | | | | | (95,552) | | | 52,150 | |
Comprehensive earnings | | | | | $ | 80,727 | | | $ | 157,855 | |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 508,907 | | | $ | 397,253 | |
| | | |
Receivables, net of allowances of $33,901 and $29,381 | 1,222,154 | | | 1,217,190 | |
Inventories | | 852,075 | | | 806,141 | |
Prepaid and other current assets | | 122,864 | | | 127,846 | |
| | | |
| | | |
Total current assets | | 2,706,000 | | | 2,548,430 | |
Property, plant and equipment, net | | 841,813 | | | 842,318 | |
| | | |
Goodwill | | 3,860,817 | | | 3,783,347 | |
Intangible assets, net | | 1,096,140 | | | 1,055,014 | |
Other assets and deferred charges | | 439,483 | | | 440,368 | |
| | | |
Total assets | $ | 8,944,253 | | | $ | 8,669,477 | |
| | | |
Liabilities and Stockholders' Equity | | | |
Current liabilities: | | | | |
Notes payable | | $ | 500,000 | | | $ | 84,700 | |
Accounts payable | | 947,006 | | | 983,293 | |
Accrued compensation and employee benefits | | 175,231 | | | 226,658 | |
Accrued insurance | | 99,992 | | | 98,432 | |
Other accrued expenses | | 355,837 | | | 339,060 | |
Federal and other income taxes | | 16,295 | | | 17,748 | |
| | | |
Total current liabilities | | 2,094,361 | | | 1,749,891 | |
Long-term debt | | 2,963,018 | | | 2,985,716 | |
Deferred income taxes | | 338,586 | | | 322,036 | |
Noncurrent income tax payable | 52,000 | | | 52,000 | |
Other liabilities | | 515,607 | | | 527,174 | |
| | | |
Stockholders' equity: | | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Total stockholders' equity | | 2,980,681 | | | 3,032,660 | |
Total liabilities and stockholders' equity | | $ | 8,944,253 | | | $ | 8,669,477 | |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock $1 par value | | Additional paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive loss | | Total stockholders' equity |
Balance at December 31, 2019 | | $ | 258,552 | | | $ | 869,719 | | | $ | (6,090,842) | | | $ | 8,211,257 | | | $ | (216,026) | | | $ | 3,032,660 | |
Adoption of ASU 2016-13 | — | | | — | | | — | | | (2,112) | | | — | | | (2,112) | |
Net earnings | | — | | | — | | | — | | | 176,279 | | | — | | | 176,279 | |
Dividends paid ($0.49 per share) | — | | | — | | | — | | | (70,899) | | | — | | | (70,899) | |
Common stock issued for the exercise of share-based awards | | 193 | | | (10,212) | | | — | | | — | | | — | | | (10,019) | |
Stock-based compensation expense | | — | | | 3,252 | | | — | | | — | | | — | | | 3,252 | |
Common stock acquired | | — | | | — | | | (52,916) | | | — | | | — | | | (52,916) | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | (95,552) | | | (95,552) | |
Other, net | | — | | | (12) | | | — | | | — | | | — | | | (12) | |
Balance at March 31, 2020 | | $ | 258,745 | | | $ | 862,747 | | | $ | (6,143,758) | | | $ | 8,314,525 | | | $ | (311,578) | | | $ | 2,980,681 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock $1 par value | | Additional paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive (loss) earnings | | Total stockholders' equity |
Balance at December 31, 2018 | | $ | 257,822 | | | $ | 886,016 | | | $ | (5,947,562) | | | $ | 7,815,486 | | | $ | (243,096) | | | $ | 2,768,666 | |
Net earnings | | — | | | — | | | — | | | 105,705 | | | — | | | 105,705 | |
Dividends paid ($0.48 per share) | — | | | — | | | — | | | (69,809) | | | — | | | (69,809) | |
Common stock issued for the exercise of share-based awards | | 392 | | | (20,000) | | | — | | | — | | | — | | | (19,608) | |
Stock-based compensation expense | | — | | | 8,182 | | | — | | | — | | | — | | | 8,182 | |
| | | | | | | | | | | |
Other comprehensive earnings, net of tax | | — | | | — | | | — | | | — | | | 52,150 | | | 52,150 | |
Other, net | | — | | | (7,833) | | | — | | | — | | | — | | | (7,833) | |
Balance at March 31, 2019 | | $ | 258,214 | | | $ | 866,365 | | | $ | (5,947,562) | | | $ | 7,851,382 | | | $ | (190,946) | | | $ | 2,837,453 | |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, | | | |
| 2020 | | 2019 |
Operating Activities: | | | |
Net earnings | $ | 176,279 | | | $ | 105,705 | |
| | | |
Adjustments to reconcile net earnings to cash from operating activities: | | | |
| | | |
Loss on assets held for sale | — | | | 46,946 | |
Depreciation and amortization | 68,752 | | | 67,738 | |
Stock-based compensation expense | 3,252 | | | 8,182 | |
| | | |
Gain on sale of a business | (6,551) | | | — | |
Other, net | (17,358) | | | 2,363 | |
Cash effect of changes in assets and liabilities: | | | |
Accounts receivable, net | (25,313) | | | (42,252) | |
Inventories | (61,936) | | | (73,041) | |
Prepaid expenses and other assets | (8,654) | | | (14,921) | |
Accounts payable | (25,245) | | | (22,638) | |
Accrued compensation and employee benefits | (67,247) | | | (55,559) | |
Accrued expenses and other liabilities | 25,321 | | | (16,107) | |
| | | |
Accrued and deferred taxes, net | 14,563 | | | 18,108 | |
Net cash provided by operating activities | 75,863 | | | 24,524 | |
| | | |
Investing Activities: | | | | |
Additions to property, plant and equipment | (40,172) | | | (37,122) | |
Acquisitions, net of cash acquired | (208,421) | | | (175,083) | |
Proceeds from sale of property, plant and equipment | 1,232 | | | 170 | |
Proceeds from sale of businesses | 16,850 | | | 2,245 | |
Other | — | | | (7,900) | |
Net cash used in investing activities | (230,511) | | | (217,690) | |
| | | |
Financing Activities: | | | | |
Repurchase of common stock | (52,916) | | | — | |
| | | |
Change in commercial paper and notes payable | 415,300 | | | 125,893 | |
Dividends paid to stockholders | (70,899) | | | (69,809) | |
Payments to settle employee tax obligations on exercise of share-based awards | (10,019) | | | (19,608) | |
| | | |
| | | |
Other | (512) | | | (409) | |
Net cash provided by financing activities | 280,954 | | | 36,067 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Effect of exchange rate changes on cash and cash equivalents | (14,652) | | | 3,892 | |
| | | |
Net increase (decrease) in cash and cash equivalents | | 111,654 | | | (153,207) | |
Cash and cash equivalents at beginning of period | 397,253 | | | 396,221 | |
Cash and cash equivalents at end of period | $ | 508,907 | | | $ | 243,014 | |
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
1. Basis of Presentation
The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim periods and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements. These unaudited interim Condensed Consolidated Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and Notes for Dover Corporation ("Dover" or the "Company") for the year ended December 31, 2019, included in the Company's Annual Report on Form 10-K filed with the SEC on February 14, 2020. The year end Condensed Consolidated Balance Sheet was derived from audited financial statements. Certain amounts in the prior periods have been reclassified to conform to the current year presentation.
The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect amounts reported in the Condensed Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates. The Condensed Consolidated Financial Statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair statement of results for these interim periods. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year.
2. Revenue
A majority of the Company’s revenue is short cycle in nature with shipments within one year from order. A small portion of the Company’s revenue derives from contracts extending over one year. The Company's payment terms generally range between 30 to 90 days and vary by the location of businesses, the type of products manufactured to be sold and the volume of products sold, among other factors.
Over 95% of the Company’s performance obligations are recognized at a point in time that relate to the manufacture and sale of a broad range of products and components. Revenue is recognized when control transfers to the customer upon shipment or completion of installation, testing, certification, or other substantive acceptance provisions required under the contract. Less than 5% of the Company’s revenue is recognized over time and generally relates to the sale of services or engineered to order equipment that have no alternative use and in which the contract specifies the Company has a right to payment for its costs, plus a reasonable margin.
Revenue from contracts with customers is disaggregated by segments and geographic location, as it best depicts the nature and amount of the Company’s revenue. See Note 17 — Segment Information for revenue by segment and geographic locations.
At March 31, 2020, we estimated that $156.0 million in revenue is expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. We expect to recognize approximately 81% of our unsatisfied (or partially unsatisfied) performance obligations as revenue through 2021, with the remaining balance to be recognized in 2022 and thereafter.
The following table provides information about contract assets and contract liabilities from contracts with customers:
| | | | | | | | | | | | | | | | | | |
| | March 31, 2020 | | December 31, 2019 | | January 1, 2019 |
| | | | | | |
Contract assets | | $ | 13,841 | | | $ | 14,894 | | | $ | 9,330 | |
Contract liabilities - current | | 61,508 | | | 44,001 | | | 36,461 | |
Contract liabilities - non-current | | 10,363 | | | 9,121 | | | 9,382 | |
The revenue recognized during the three months ended March 31, 2020 and 2019 that was included in contract liabilities at the beginning of the period amounted to $21,133 and $15,414, respectively.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
3. Acquisitions
2020 Acquisitions
During the three months ended March 31, 2020, the Company acquired two businesses in separate transactions for total consideration of $208,421, net of cash acquired. These businesses were acquired to complement and expand upon existing operations within the Imaging & Identification and Engineered Products segments. The goodwill recorded as a result of these acquisitions represents the economic benefits expected to be derived from product line expansions and operational synergies. Goodwill in the amount of $33,125 is deductible for U.S. income tax purposes and goodwill in the amount of $92,256 is non-deductible for U.S. income tax purposes for these acquisitions.
On January 24, 2020, the Company acquired 100% of the voting stock of Sys-Tech Solutions, Inc. ("Systech"), a leading provider of product traceability, regulatory compliance and brand-protection software and solutions to pharmaceutical and consumer products manufacturers, for $162,942, net of cash acquired. The Systech acquisition strengthens the portfolio of solutions offered by the Imaging & Identification segment. In connection with this acquisition, the Company recorded goodwill of $92,256 and intangible assets of $76,100, primarily related to customer intangibles.
On February 18, 2020, the Company acquired 100% of the voting stock of So. Cal. Soft-Pak, Incorporated ("Soft-Pak") Software Solutions, a leading specialized provider of integrated back office, route management and customer relationship management software solutions to the waste and recycling fleet industry for $45,479, net of cash acquired. The Soft-Pak acquisition strengthens the digital offerings within the Engineered Products segment. In connection with this acquisition, the Company recorded goodwill of $33,125 and intangible assets of $12,800, primarily related to customer intangibles.
The following presents the preliminary allocation of purchase price to the assets acquired and liabilities assumed, based on their estimated fair values at acquisition date:
| | | | | | | | |
| | | | Total | |
Current assets, net of cash acquired | | | | $ | 19,816 | |
Property, plant and equipment | | | | 1,580 | |
Goodwill | | | | 125,381 | |
Intangible assets | | | | 88,900 | |
| | | | |
Current liabilities | | | | (15,073) | |
Other liabilities | | | | (12,183) | |
Net assets acquired | | | | $ | 208,421 | |
The amounts assigned to goodwill and major intangible asset classifications were as follows:
| | | | | | | | | | | |
| Amount allocated | | Useful life (in years) |
Goodwill - tax deductible | $ | 33,125 | | | na |
Goodwill - non deductible | 92,256 | | | na |
Customer intangibles | 74,100 | | | 12 |
| | | |
Trademarks | 5,100 | | | 15 |
Other intangibles | 9,700 | | | 6 - 9 |
| $ | 214,281 | | | |
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
2019 Acquisitions
On January 25, 2019, the Company acquired the assets of Belanger, Inc. ("Belanger"), a leading full-line car wash equipment manufacturer for $175,083, net of cash acquired. The Belanger acquisition strengthens Dover's position in the vehicle wash business within the Fueling Solutions segment. In connection with this acquisition, the Company recorded goodwill of $97,817 and intangible assets of $77,000, primarily related to customer intangibles. The intangible assets are being amortized over 9 to 15 years.
Pro Forma Information
The following unaudited pro forma information illustrates the impact of 2020 and 2019 acquisitions on the Company’s revenue and earnings from operations for the three months ended March 31, 2020 and 2019, respectively.
The unaudited pro forma information assumes that the 2020 and 2019 acquisitions had taken place at the beginning of the prior year, 2019 and 2018, respectively. Unaudited pro forma earnings are adjusted to reflect the comparable impact of additional depreciation and amortization expense, net of tax, resulting from the fair value measurement of intangible and tangible assets relating to the year of acquisition.
The unaudited pro forma effects for the three months ended March 31, 2020 and 2019 were as follows:
| | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | | |
| | | | | 2020 | | 2019 |
Revenue: | | | | | | | | |
As reported | | | | | | $ | 1,655,939 | | | $ | 1,724,757 | |
Pro forma | | | | | | 1,661,825 | | | 1,746,533 | |
Net earnings: | | | | | | | | |
As reported | | | | | | $ | 176,279 | | | $ | 105,705 | |
Pro forma | | | | | | 180,433 | | | 106,188 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
4. Disposed Operations
Management evaluates Dover's businesses periodically for their strategic fit within its operations and may from time to time sell or discontinue certain operations for various reasons.
2020
On March 6, 2020, the Company completed the sale of the Chino, California branch of The AMS Group ("AMS Chino"), a wholly owned subsidiary of the Company. Upon disposal of AMS Chino, the Company recognized total consideration of $16,850, which resulted in a pre-tax gain on sale of $6,551 included within the Condensed Consolidated Statements of Earnings and within the Refrigeration & Food Equipment Segment for the three months ended March 31, 2020.
2019
On March 29, 2019, the Company entered into a definitive agreement to sell Finder Pompe S.r.l ("Finder"), a wholly owned subsidiary, to Gruppo Aturia S.p.A (“Aturia”). As of March 31, 2019, Finder met the criteria to be classified as held for sale. The Company classified Finder's assets and liabilities separately on the consolidated balance sheet as of March 31, 2019.
Based on the total consideration from the sale, net of selling costs, the Company recorded a loss on the assets held for sale of $46,946 in the Condensed Consolidated Statements of Earnings during the three months ended March 31, 2019. The loss was comprised of an impairment on assets held for sale of $21,607 and $25,339 of foreign currency translation losses reclassified out of accumulated other comprehensive losses.
On April 2, 2019, Dover completed the sale of Finder to Aturia, which generated total cash proceeds of $24,218. The Finder business was included in the results of the Pumps & Process Solutions segment. The sale does not represent a strategic shift that will have a major effect on operations and financial results and, therefore, did not qualify for presentation as a discontinued operation.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
5. Inventories
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Raw materials | $ | 486,866 | | | $ | 467,912 | |
Work in progress | 172,173 | | | 162,670 | |
Finished goods | 300,725 | | | 280,051 | |
Subtotal | 959,764 | | | 910,633 | |
Less reserves | (107,689) | | | (104,492) | |
Total | $ | 852,075 | | | $ | 806,141 | |
6. Property, Plant and Equipment, net
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Land | | $ | 54,580 | | | $ | 56,583 | |
Buildings and improvements | | 522,155 | | | 527,192 | |
Machinery, equipment and other | | 1,662,535 | | | 1,648,354 | |
Property, plant and equipment, gross | 2,239,270 | | | 2,232,129 | |
Accumulated depreciation | | (1,397,457) | | | (1,389,811) | |
Property, plant and equipment, net | $ | 841,813 | | | $ | 842,318 | |
For the three months ended March 31, 2020 and 2019, depreciation expense was $34,555 and $32,188, respectively.
7. Credit Losses
Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments prospectively. This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including trade receivables. The amendment requires entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under the previous accounting guidance. Upon adoption, the Company recorded a noncash cumulative effect adjustment to retained earnings of $2.1 million, net of $0.6 million of income taxes, on the opening consolidated balance sheet as of January 1, 2020.
The Company is exposed to credit losses primarily through sales of products and services. The Company’s expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. Due to the short-term nature of such receivables, the estimate of amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding the novel coronavirus ("COVID-19") pandemic and determined that the estimate of credit losses was not significantly impacted.
Estimates are used to determine the allowance. It is based on assessment of anticipated payment and all other historical, current and future information that is reasonably available.
The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.
| | | | | |
| 2020 |
Beginning Balance, January 1, | $ | 29,381 | |
Adoption of ASU 2016-13, cumulative-effect adjustment to retained earnings | 2,706 | |
Provision for expected credit losses | 3,703 | |
Amounts written off charged against the allowance | (811) | |
Other, including dispositions and foreign currency translation | (1,078) | |
Ending Balance, March 31, | $ | 33,901 | |
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
8. Goodwill and Other Intangible Assets
The changes in the carrying value of goodwill by reportable operating segments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Engineered Products | | Fueling Solutions | | Imaging & Identification | | Pumps & Process Solutions | | Refrigeration & Food Equipment | | Total |
Balance at December 31, 2019 | $ | 636,571 | | | $ | 873,381 | | | $ | 977,069 | | | $ | 750,627 | | | | $ | 545,699 | | | $ | 3,783,347 | |
Acquisitions | 33,125 | | | — | | | 92,256 | | | — | | | | — | | | 125,381 | |
| | | | | | | | | | | |
Disposition of business | — | | | — | | | — | | | — | | | | (2,841) | | | (2,841) | |
Foreign currency translation | (4,446) | | | (26,008) | | | (8,514) | | | (5,790) | | | | (312) | | | (45,070) | |
Balance at March 31, 2020 | $ | 665,250 | | | $ | 847,373 | | | $ | 1,060,811 | | | $ | 744,837 | | | $ | 542,546 | | | $ | 3,860,817 | |
During the three months ended March 31, 2020, the Company recorded additions of $125,381 to goodwill as a result of the acquisitions with the Engineered Products and Imaging & Identification segments discussed in Note 3 — Acquisitions. During the three months ended March 31, 2020, the Company disposed of $2,841 of the Refrigeration & Food Equipment segment goodwill as a result of the sale of a business as discussed in Note 4 — Disposed Operations.
Dover performs its annual goodwill impairment testing in the fourth quarter of each year. During the 2019 impairment testing, all fifteen reporting units had fair values substantially in excess of their carrying values. In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on each of the reporting units. Further, the Company assessed the current market capitalization, forecasts and the amount of headroom in the 2019 impairment test. The Company determined that a triggering event has not occurred which would require an interim impairment test to be performed. Refer to "Segment Results of Operations" for further details on the COVID-19 impact to the Company's operations.
The Company’s definite-lived and indefinite-lived intangible assets by major asset class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | | | | | December 31, 2019 | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Amortized intangible assets: | | | | | | | | | | | |
Customer intangibles | $ | 1,467,966 | | | $ | 731,391 | | | $ | 736,575 | | | $ | 1,410,636 | | | $ | 714,566 | | | $ | 696,070 | |
Trademarks | 220,805 | | | 89,123 | | | 131,682 | | | 218,064 | | | 85,791 | | | 132,273 | |
Patents | 158,612 | | | 134,360 | | | 24,252 | | | 159,376 | | | 133,677 | | | 25,699 | |
Unpatented technologies | 162,763 | | | 100,858 | | | 61,905 | | | 154,505 | | | 99,276 | | | 55,229 | |
Distributor relationships | 80,237 | | | 44,889 | | | 35,348 | | | 82,779 | | | 44,202 | | | 38,577 | |
Drawings & manuals | 26,619 | | | 22,228 | | | 4,391 | | | 27,500 | | | 22,403 | | | 5,097 | |
Other | 22,908 | | | 17,482 | | | 5,426 | | | 22,355 | | | 16,939 | | | 5,416 | |
Total | 2,139,910 | | | 1,140,331 | | | 999,579 | | | 2,075,215 | | | 1,116,854 | | | 958,361 | |
Unamortized intangible assets: | | | | | | | | | | | |
Trademarks | 96,561 | | | — | | | 96,561 | | | 96,653 | | | — | | | 96,653 | |
Total intangible assets, net | $ | 2,236,471 | | | $ | 1,140,331 | | | $ | 1,096,140 | | | $ | 2,171,868 | | | $ | 1,116,854 | | | $ | 1,055,014 | |
For the three months ended March 31, 2020 and 2019, amortization expense was $34,197 and $35,550, respectively, including acquisition-related intangible amortization of $33,817 and $35,155, respectively.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
9. Restructuring Activities
The Company's restructuring charges by segment were as follows:
| | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | | |
| | | | | 2020 | | 2019 |
Engineered Products | | | | | $ | 358 | | | $ | 79 | |
Fueling Solutions | | | | | 1,475 | | | 738 | |
Imaging & Identification | | | | | 256 | | | 291 | |
Pumps & Process Solutions | | | | | 3,846 | | | 381 | |
Refrigeration & Food Equipment | | | | | 560 | | | 1,412 | |
Corporate | | | | | 846 | | | 35 | |
Total | | | | | $ | 7,341 | | | $ | 2,936 | |
| | | | | | | |
These amounts are classified in the Condensed Consolidated Statements of Earnings as follows: | | | | | | | |
Cost of goods and services | | | | | $ | 1,542 | | | $ | 1,179 | |
Selling, general and administrative expenses | | | | | 5,799 | | | 1,757 | |
Total | | | | | $ | 7,341 | | | $ | 2,936 | |
The restructuring expenses of $7,341 incurred during the three months ended March 31, 2020, were a result of restructuring programs initiated in 2019. Restructuring expense was comprised primarily of broad-based selling, general and administrative expense reduction and broad-based operational efficiency initiatives focusing on footprint consolidation, operational optimization and IT centralization designed to increase operating margin, enhance operations and position the Company for sustained growth and investment. The Company expects to incur additional charges of approximately $6 million during the remainder of 2020. COVID-19 has not resulted in significant restructuring costs. Additional programs, beyond the scope of the announced programs, may be implemented during 2020 with related restructuring charges.
The $7,341 of restructuring charges incurred during the first quarter of 2020 primarily included the following items:
•The Engineered Products segment recorded $358 of restructuring charges principally related to headcount reductions.
•The Fueling Solutions segment recorded $1,475 of restructuring charges principally related to headcount reductions.
•The Imaging & Identification segment recorded $256 of restructuring charges principally related to headcount reductions.
•The Pumps & Process Solutions segment recorded $3,846 of restructuring expense primarily due to headcount reductions and facility restructuring costs.
•The Refrigeration & Food Equipment segment recorded $560 of restructuring expense primarily due to headcount reductions and facility restructuring costs.
•Corporate recorded $846 of restructuring charges primarily related to headcount reductions and associated exit costs related to IT centralization initiatives.
The Company’s severance and exit accrual activities were as follows:
| | | | | | | | | | | | | | | | | |
| Severance | | Exit | | Total |
Balance at December 31, 2019 | $ | 13,751 | | | $ | 2,639 | | | $ | 16,390 | |
Restructuring charges | 4,014 | | | 3,327 | | | 7,341 | |
Payments | (6,510) | | | (2,049) | | | (8,559) | |
| | | | | |
| | | | | |
Other, including foreign currency translation | 184 | | | (2,376) | | (1) | (2,192) | |
|