Quarterly Report (10-q)

Date : 07/18/2019 @ 10:54AM
Source : Edgar (US Regulatory)
Stock : Dover Corp (DOV)
Quote : 108.57  0.0 (0.00%) @ 12:00AM
Dover share price Chart

Quarterly Report (10-q)

DOVER 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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 June 30, 2019
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
DOV-20190630_G1.JPG
(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
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
Non-Acelerated Filer
Smaller Reporting Company
Emerging Growth 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 July 11, 2019 was 145,437,765.



Dover Corporation
Form 10-Q
Table of Contents

Page
 
 
 
 
 
   
 






Item 1. Financial Statements

DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)

  Three Months Ended June 30,   Six Months Ended June 30, 
  2019 2018 2019 2018
Revenue $ 1,810,706  $ 1,798,094  $ 3,535,463  $ 3,435,765 
Cost of goods and services 1,138,113  1,132,858  2,239,328  2,167,700 
Gross profit 672,593  665,236  1,296,135  1,268,065 
Selling, general and administrative expenses 396,634  428,775  805,100  863,801 
Loss on assets held for sale —  —  46,946  — 
Operating earnings 275,959  236,461  444,089  404,264 
Interest expense 31,754  32,125  63,562  67,765 
Interest income (945) (2,563) (1,835) (4,620)
Other income, net (4,589) (4,538) (5,695) (4,568)
Earnings before provision for income taxes 249,739  211,437  388,057  345,687 
Provision for income taxes 51,654  44,981  84,267  69,822 
Earnings from continuing operations  198,085  166,456  303,790  275,865 
Loss from discontinued operations, net  —  (26,497) —  (4,472)
Net earnings  $ 198,085  $ 139,959  $ 303,790  $ 271,393 
Earnings per share from continuing operations:
Basic $ 1.36  $ 1.10  $ 2.09  $ 1.80 
Diluted $ 1.35  $ 1.08  $ 2.07  $ 1.77 
Loss per share from discontinued operations: 
Basic $ —  $ (0.17) $ —  $ (0.03)
Diluted $ —  $ (0.17) $ —  $ (0.03)
Net earnings per share:
Basic $ 1.36  $ 0.92  $ 2.09  $ 1.77 
Diluted $ 1.35  $ 0.91  $ 2.07  $ 1.74 
Weighted average shares outstanding:
Basic 145,366  151,744  145,227  153,124 
Diluted 147,179  153,938  147,041  155,573 
 

See Notes to Condensed Consolidated Financial Statements


1

DOVER CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
(Unaudited)

  Three Months Ended June 30, Six Months Ended June 30,
  2019 2018 2019 2018
Net earnings $ 198,085  $ 139,959  $ 303,790  $ 271,393 
Other comprehensive earnings, net of tax 
Foreign currency translation adjustments:
Foreign currency translation (losses) gains   (13,978) (65,159) 9,722  (12,851)
Reclassification of foreign currency translation losses to earnings —  —  25,339  — 
Total foreign currency translation adjustments (13,978) (65,159) 35,061  (12,851)
Pension and other post-retirement benefit plans:
Amortization of actuarial losses included in net periodic pension cost 77  1,068  252  3,007 
Amortization of prior service costs included in net periodic pension cost 512  1,252  1,084  1,995 
Total pension and other post-retirement benefit plans 589  2,320  1,336  5,002 
Changes in fair value of cash flow hedges:
Unrealized net (losses) gains arising during period (3,362) 2,105  (768) 3,467 
Net gains reclassified into earnings (416) (457) (646) (710)
Total cash flow hedges (3,778) 1,648  (1,414) 2,757 
Other comprehensive (loss) earnings, net of tax  (17,167) (61,191) 34,983  (5,092)
Comprehensive earnings $ 180,918  $ 78,768  $ 338,773  $ 266,301 


See Notes to Condensed Consolidated Financial Statements

2

DOVER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

  June 30, 2019 December 31, 2018
Assets 
Current assets:     
Cash and cash equivalents  $ 321,326  $ 396,221 
Receivables, net of allowances of $31,657 and $28,469  1,288,755  1,231,859 
Inventories  849,266  748,796 
Prepaid and other current assets  163,904  126,878 
Total current assets  2,623,251  2,503,754 
Property, plant and equipment, net  815,003  806,497 
Goodwill  3,795,588  3,677,328 
Intangible assets, net  1,129,352  1,134,256 
Other assets and deferred charges  412,856  243,936 
Total assets $ 8,776,050  $ 8,365,771 
Liabilities and Stockholders' Equity
Current liabilities:     
Notes payable  $ 357,700  $ 220,318 
Accounts payable  960,432  969,531 
Accrued compensation and employee benefits  184,623  212,666 
Accrued insurance  101,826  97,600 
Other accrued expenses  329,596  313,452 
Federal and other income taxes  20,938  13,854 
Total current liabilities  1,955,115  1,827,421 
Long-term debt 2,946,493  2,943,660 
Deferred income taxes  336,989  339,325 
Noncurrent income tax payable 54,304  54,304 
Other liabilities  527,878  432,395 
Stockholders' equity:     
Total stockholders' equity  2,955,271  2,768,666 
Total liabilities and stockholders' equity  $ 8,776,050  $ 8,365,771 


See Notes to Condensed Consolidated Financial Statements





3

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) earnings Total stockholders' equity
Balance at March 31, 2019  $ 258,214  $ 866,365  $ (5,947,562) $ 7,851,382  $ (190,946) $ 2,837,453 
Net earnings  —  —  —  198,085  —  198,085 
Dividends paid ($0.48 per share)  —  —  —  (69,921) —  (69,921)
Common stock issued for the exercise of share-based awards 101  (1,702) —  —  —  (1,601)
Stock-based compensation expense —  8,435  —  —  —  8,435 
Other comprehensive earnings, net of tax  —  —  —  —  (17,167) (17,167)
Other, net  —  (64) —  51  —  (13)
Balance at June 30, 2019  $ 258,315  $ 873,034  $ (5,947,562) $ 7,979,597  $ (208,113) $ 2,955,271 


  Common stock $1 par value Additional paid-in capital Treasury stock Retained earnings Accumulated other comprehensive (loss) earnings Total stockholders' equity
Balance at March 31, 2018  $ 257,282  $ 934,596  $ (5,122,016) $ 8,527,276  $ (151,516) $ 4,445,622 
Net earnings  —  —  —  139,959  —  139,959 
Dividends paid ($0.47 per share)  —  —  —  (69,632) —  (69,632)
Separation of Apergy  —  —  —  (939,743) 32,928  (906,815)
Common stock issued for the exercise of share-based awards 112  (6,375) —  —  —  (6,263)
Stock-based compensation expense —  3,833  —  —  —  3,833 
Common stock acquired  —  (140,000) (560,000) —  —  (700,000)
Other comprehensive earnings, net of tax  —  —  —  —  (61,191) (61,191)
Other, net  —  (4,922) —  —  —  (4,922)
Balance at June 30, 2018  $ 257,394  $ 787,132  $ (5,682,016) $ 7,657,860  $ (179,779) $ 2,840,591 



See Notes to Condensed Consolidated Financial Statements
















4

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) 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  —  —  —  303,790  —  303,790 
Dividends paid ($0.96 per share)  —  —  —  (139,730) —  (139,730)
Common stock issued for the exercise of share-based awards 493  (21,702) —  —  —  (21,209)
Stock-based compensation expense —  16,617  —  —  —  16,617 
Other comprehensive earnings, net of tax  —  —  —  —  34,983  34,983 
Other, net  —  (7,897) —  51  —  (7,846)
Balance at June 30, 2019  $ 258,315  $ 873,034  $ (5,947,562) $ 7,979,597  $ (208,113) $ 2,955,271 


  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, 2017  $ 256,992  $ 942,485  $ (5,077,039) $ 8,455,501  $ (194,759) $ 4,383,180 
Adoption of ASU 2018-02
—  —  —  12,856  (12,856) — 
Cumulative catch-up adjustment related to Adoption of Topic 606
—  —  —  175  —  175 
Net earnings  —  —  —  271,393  —  271,393 
Dividends paid ($0.94 per share)  —  —  —  (142,322) —  (142,322)
Separation of Apergy  —  —  —  (939,743) 32,928  (906,815)
Common stock issued for the exercise of share-based awards 402  (21,604) —  —  —  (21,202)
Stock-based compensation expense —  11,147  —  —  —  11,147 
Common stock acquired  —  (140,000) (604,977) —  —  (744,977)
Other comprehensive earnings, net of tax  —  —  —  —  (5,092) (5,092)
Other, net  —  (4,896) —  —  —  (4,896)
Balance at June 30, 2018  $ 257,394  $ 787,132  $ (5,682,016) $ 7,657,860  $ (179,779) $ 2,840,591 



See Notes to Condensed Consolidated Financial Statements














5

DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
  Six Months Ended June 30, 
  2019 2018
Operating Activities:    
Net earnings $ 303,790  $ 271,393 
Adjustments to reconcile net earnings to cash from operating activities:
Loss from discontinued operations, net —  4,472 
Loss on assets held for sale 46,946  — 
Depreciation and amortization 135,507  137,928 
Stock-based compensation expense 16,617  10,403 
Other, net (5,373) (6,548)
Cash effect of changes in assets and liabilities:
Accounts receivable, net (63,228) (108,003)
Inventories (93,554) (85,340)
Prepaid expenses and other assets (23,359) (32,336)
Accounts payable (7,128) 64,592 
Accrued compensation and employee benefits (50,246) (51,002)
Accrued expenses and other liabilities (20,915) (32,894)
Accrued and deferred taxes, net (5,824) 2,075 
Net cash provided by operating activities 233,233  174,740 
Investing Activities:     
Additions to property, plant and equipment (91,092) (96,364)
Acquisitions, net of cash acquired (215,304) (68,557)
Proceeds from sale of property, plant and equipment 2,633  2,411 
Proceeds from sale of businesses 24,218  2,069 
Other (7,900) (13,762)
Net cash used in investing activities (287,445) (174,203)
Financing Activities:     
Cash received from Apergy, net of cash distributed —  689,643 
Repurchase of common stock
—  (744,977)
Change in commercial paper and notes payable 137,350  53,584 
Dividends paid to stockholders (139,730) (142,322)
Payments to settle employee tax obligations on exercise of share-based awards (21,209) (21,202)
Repayment of long-term debt —  (350,000)
Other (940) (1,563)
Net cash used in financing activities (24,529) (516,837)
Cash Flows from Discontinued Operations     
Net cash provided by operating activities of discontinued operations —  19,336 
Net cash used in investing activities of discontinued operations —  (23,705)
Net cash used in discontinued operations  —  (4,369)
Effect of exchange rate changes on cash and cash equivalents 3,846  9,519 
Net decrease in cash and cash equivalents  (74,895) (511,150)
Cash and cash equivalents at beginning of period 396,221  753,964 
Cash and cash equivalents at end of period $ 321,326  $ 242,814 


See Notes to Condensed Consolidated Financial Statements

6

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, 2018, included in the Company's Annual Report on Form 10-K filed with the SEC on February 15, 2019. 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.  

On May 9, 2018, the Company completed a pro-rata distribution of the common stock of Apergy Corporation ("Apergy") to the Company's shareholders of record as of the close of business on April 30, 2018. Apergy holds entities conducting upstream energy businesses previously included in the Energy segment. As discussed in Note 5 - Discontinued and Disposed Operations, the Apergy businesses met the criteria to be reported as discontinued operations because the spin-off is a strategic shift in business that has a major effect on the Company's operations and financial results. Therefore, the Company is reporting the historical results of Apergy, including the results of operations and cash flows as discontinued operations for all periods presented herein. Subsequent to the spin-off of Apergy, effective the second quarter of 2018, the Company is aligned into three reportable segments. See Note 18 —Segment Information for additional information regarding the updated segments, including segment results for the three and six months ended June 30, 2019 and 2018. Unless otherwise noted, the accompanying Notes to the Consolidated Financial Statements have all been revised to reflect the effect of the separation of Apergy and all prior year balances have been revised accordingly to reflect continuing operations only.

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. Spin-off of Apergy Corporation

On May 9, 2018, Dover completed the distribution of Apergy to its shareholders. The transaction was completed through the pro rata distribution of 100% of the common stock of Apergy to Dover's shareholders of record as of the close of business on April 30, 2018. Each Dover shareholder received one share of Apergy common stock for every two shares of Dover common stock held as of the record date.

The following is a summary of the assets and liabilities transferred to Apergy as part of the separation on May 9, 2018:
Assets:
Cash and cash equivalents $ 10,357 
Current assets 462,620 
Non-current assets 1,438,760 
$ 1,911,737 
Liabilities:
Current liabilities $ 185,354 
Non-current liabilities 119,568 
$ 304,922 
Net assets distributed to Apergy Corporation $ 1,606,815 
Less: Cash received from Apergy Corporation 700,000 
Net distribution to Apergy Corporation $ 906,815 

7

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
In connection with the spin-off from the company, Apergy issued and sold $300.0 million in aggregate principal amount of its 6.375% senior notes due May 2026 in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended, and incurred $415.0 million in borrowings under its new senior secured term loan facility to fund a one-time cash payment of $700.0 million to Dover. Dover received net cash of $689.6 million upon separation, which reflects $10.4 million of cash held by Apergy on the distribution date and retained by it in connection with its separation from Dover. Dover utilized the proceeds from Apergy as the primary source of funding for $1 billion of share repurchases started in December 2017 and completed in December 2018.
Included within the net assets distributed to Apergy is approximately $33 million of accumulated other comprehensive earnings attributable to Apergy, relating primarily to foreign currency translation gains, offset by unrecognized losses on pension obligations.
The historical results of Apergy, including the results of operations and cash flows have been reclassified to discontinued operations for all periods presented herein. See Note 5 — Disposed and Discontinued Operations. Pursuant to the separation of Apergy from Dover, and the related separation and distribution agreements, any liabilities due from Dover to Apergy are not significant.

3. Revenue

Effective January 1, 2018, the Company adopted Accounting Standard Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("Topic 606” or “ASC 606”), using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.
Under Topic 606, a contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and where payment terms are identified and collectability is probable. Once the Company has entered a contract, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized as control of promised goods or services transfers to the customer in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The amount of revenue recognized takes into account variable consideration, such as discounts and volume rebates.
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 end markets, segments and geographic location, as it best depicts the nature and amount of the Company’s revenue.

8

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The following table presents revenue disaggregated by end market and segment:
Three Months Ended June 30,   Six Months Ended June 30, 
  2019 2018 2019 2018
Printing & Identification $ 278,813  $ 299,834  $ 560,899  $ 582,356 
Industrials 417,688  403,155  822,793  792,259 
Total Engineered Systems segment 696,501  702,989  1,383,692  1,374,615 
Fueling & Transport 390,586  363,355  763,636  682,659 
Pumps (1)
176,613  173,306  354,052  335,615 
Process Solutions 162,234  157,005  314,969  303,490 
Total Fluids segment 729,433  693,666  1,432,657  1,321,764 
Refrigeration 313,578  330,232  591,176  608,887 
Food Equipment 71,896  71,534  128,941  131,114 
Total Refrigeration & Food Equipment segment 385,474  401,766  720,117  740,001 
Intra-segment eliminations (702) (327) (1,003) (615)
Total Consolidated Revenue $ 1,810,706  $ 1,798,094  $ 3,535,463  $ 3,435,765 
(1) Finder Pompe S.r.l was sold on April 2, 2019.

The following table presents revenue disaggregated by geography based on the location of the Company's customer:
Three Months Ended June 30,   Six Months Ended June 30, 
  2019 2018 2019 2018
United States $ 960,906  $ 932,207  $ 1,880,798  $ 1,785,209 
Europe 405,274  402,234  807,919  789,412 
Asia 198,278  219,032  394,628  413,635 
Other Americas 178,216  168,197  316,334  301,341 
Other 68,032  76,424  135,784  146,168 
Total $ 1,810,706  $ 1,798,094  $ 3,535,463  $ 3,435,765 

At June 30, 2019, we estimated that $79.1 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 64% of our unsatisfied (or partially unsatisfied) performance obligations as revenue through 2020, with the remaining balance to be recognized in 2021 and thereafter.

The following table provides information about contract assets and contract liabilities from contracts with customers:
  June 30, 2019 December 31, 2018 At Adoption
Contract assets $ 14,464  $ 9,330  $ 11,932 
Contract liabilities - current 37,572  36,461  48,268 
Contract liabilities - non-current 9,044  9,382  9,916 
The revenue recognized during the six months ended June 30, 2019 and 2018 that was included in the contract liabilities at the beginning of the period amounted to $27,701 and $32,553, respectively.




9

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
4. Acquisitions

2019 Acquisitions

During the six months ended June 30, 2019, the Company acquired two businesses in separate transactions for total consideration of $215,304, net of cash acquired. These businesses were acquired to complement and expand upon existing operations within the Fluids segment. The goodwill recorded as a result of these acquisitions represents the economic benefits expected to be derived from product line expansions and operational synergies. The goodwill is deductible for U.S. income tax purposes for these acquisitions.

On May 7, 2019, the Company acquired the assets of the All-Flo Pump Company, Limited business ("All-Flo"), a growing manufacturer of specialty pumps for $39,954. The All-Flo acquisition strengthens Dover's position in the growing market for air-operated double-diaphragm pumps within the Pumps end market of the Fluids segment.

On January 25, 2019, the Company acquired the assets of Belanger, Inc. ("Belanger"), a leading full-line car wash equipment manufacturer for $175,350, net of cash acquired. The Belanger acquisition strengthens Dover's position in the vehicle wash business within the Fueling & Transport end market of the Fluids segment.

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 $ 13,699 
Property, plant and equipment 1,030 
Goodwill 119,035 
Intangible assets 91,980 
Other assets and deferred charges 20 
Current liabilities (10,460)
Net assets acquired $ 215,304 

The amounts assigned to goodwill and major intangible asset classifications were as follows:
Amount allocated Useful life (in years)
Goodwill 119,035  na
Customer intangibles 68,500  9 - 13
Patents 16,000  9
Trademarks 7,480  15
$ 211,015 

2018 Acquisitions

During the six months ended June 30, 2018, the Company acquired two businesses in separate transactions for total consideration of $68,557, net of cash acquired. These businesses were acquired to complement and expand upon existing operations within the Fluids and Refrigeration & Food Equipment segments. The goodwill recorded as a result of these acquisitions reflects the benefits expected to be derived from product line expansions and operational synergies. The goodwill is non-deductible for U.S. federal income tax purposes for these acquisitions.

On January 2, 2018, the Company acquired 100% of the voting stock of Ettlinger Group ("Ettlinger"), within the Fluids segment for $53,218, net of cash acquired. In connection with this acquisition, the Company recorded goodwill of $36,070 and intangible assets of $19,730, primarily related to customer intangibles. The intangible assets are being amortized over 8 to 15 years.

On January 12, 2018, the Company acquired 100% of the voting stock of Rosario Handel B.V. ("Rosario"), within the Refrigeration & Food Equipment segment for total consideration of $15,339, net of cash acquired. In connection with this acquisition, the Company recorded goodwill of $10,402 and a customer intangible asset of $4,149. The customer intangible asset is being amortized over 10 years.

10

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Pro Forma Information

The following unaudited pro forma information illustrates the impact of 2019 and 2018 acquisitions on the Company’s revenue and earnings from operations for the six months ended June 30, 2019 and 2018, respectively.
The unaudited pro forma information assumes that the 2019 and 2018 acquisitions had taken place at the beginning of the prior year, 2018 and 2017, 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 and six months ended June 30, 2019 and 2018 were as follows:
  Three Months Ended June 30,   Six Months Ended June 30, 
  2019  2018  2019  2018 
Revenue:     
As reported  $ 1,810,706  $ 1,798,094  $ 3,535,463  $ 3,435,765 
Pro forma  1,811,980  1,814,828  3,543,691  3,469,366 
Earnings from continuing operations: 
As reported  $ 198,085  $ 166,456  $ 303,790  $ 275,865 
Pro forma  199,094  169,416  306,540  281,482 
Basic earnings per share from continuing operations: 
As reported  $ 1.36  $ 1.10  $ 2.09  $ 1.80 
Pro forma  1.37  1.12  2.11  1.84 
Diluted earnings per share from continuing operations: 
As reported  $ 1.35  $ 1.08  $ 2.07  $ 1.77 
Pro forma  1.35  1.10  2.08  1.81 

5. Disposed and Discontinued 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.

Disposed Operations

On March 29, 2019, the Co mpany 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 comprise d of an impairment on assets held for sale of $21,607 an d $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, of which $2,245 was received on March 29, 2019. The Finder business is included in the results of the Fluids segment. The sale does not represent a strategic shift that will have a major effect on operations and financial results and, therefo re, did not qualify for presentation as a discontinued operation.

There were no dispositions during the six months ended June 30, 2018.

Discontinued Operations

There were no discontinued operations as of and for the three and six months ending June 30, 2019.

11

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
In 2018, the Apergy businesses, as discussed in Note 2, met the criteria to be reported as discontinued operations because the spin-off was a strategic shift in business that has a major effect on the Company's operations and financial results. Therefore, the results of discontinued operations for the three and six months ended June 30, 2018 include the historical results of Apergy prior to its distribution on May 9, 2018. The three and six months ended June 30, 2018 included costs incurred by Dover to complete the spin-off of Apergy amounting to $34,638 and $46,384, respectively, reflected in selling, general and administrative expenses in discontinued operations. See Note 2 — Spin-off of Apergy Corporation for further information.

Summarized results of the Company's discontinued operations were as follows:

  Three Months Ended June 30, 2018 Six Months Ended June 30, 2018 
Revenue $ 119,647  $ 403,688 
Cost of goods and services 76,277  254,205 
Gross profit 43,370  149,483 
Selling, general and administrative expenses 64,990  144,114 
Operating (loss) earnings (21,620) 5,369 
Other (income) expense, net  (134) 349 
(Loss) earnings from discontinued operations before taxes  (21,486) 5,020 
Provision for income taxes  5,011  9,492 
Loss from discontinued operations, net of tax  $ (26,497) $ (4,472)

6. Inventories
  June 30, 2019 December 31, 2018
Raw materials $ 486,164  $ 439,616 
Work in progress 174,196  154,878 
Finished goods 300,469  265,722 
Subtotal 960,829  860,216 
Less reserves (111,563) (111,420)
Total $ 849,266  $ 748,796 

7. Property, Plant and Equipment, net
  June 30, 2019 December 31, 2018
Land  $ 50,047  $ 53,623 
Buildings and improvements  513,634  529,982 
Machinery, equipment and other  1,615,924  1,555,345 
Property, plant and equipment, gross 2,179,605  2,138,950 
Accumulated depreciation  (1,364,602) (1,332,453)
Property, plant and equipment, net $ 815,003  $ 806,497 

Depreciation expense totaled $33,031 and $32,947 for the three months ended June 30, 2019 and 2018, respectively. For the six months ended June 30, 2019 and 2018, depreciation expense was $65,219 and $65,111, respectively.
8. Leases
The Company adopted ASC Topic 842 - Leases as of January 1, 2019, using the transition method per ASU No. 2018-11 issued on July 2018 wherein entities were allowed to initially apply the new leases standard at adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Accordingly, all periods prior to January 1, 2019 were presented in accordance with the previous ASC Topic 840 - Leases, and no retrospective adjustments were made to the comparative periods presented. Adoption of ASC Topic 842 resulted in an increase to total assets and liabilities due to the recording of operating lease right-of-use assets ("ROU") and operating lease liabilities of approximately $163 million, as of January 1, 2019. Finance leases were not impacted by the adoption of ASC Topic 842, as finance lease liabilities and the corresponding ROU assets were already recorded in the balance sheet under the previous guidance, ASC Topic 840. The adoption did not materially impact the Company’s Consolidated Statements of Earnings or Cash Flows.

12

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The Company has operating and finance leases for corporate offices, manufacturing plants, research and development facilities, shared services facilities, vehicle fleets and certain office and manufacturing equipment. Leases with an initial term of 12 months or less are not recorded in the balance sheet. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. The Company also elected the package of practical expedients permitted within the new standard, which among other things, allows the Company to carry forward historical lease classification. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities. These are expensed as incurred and recorded as variable lease expense.

The Company determines if an arrangement is a lease at inception of a contract. Operating lease ROU assets are included in other assets and deferred charges and operating lease liabilities are included in other accrued expenses and other liabilities in the Consolidated Balance Sheet. Finance lease ROU assets are included in property and equipment, and the related lease liabilities are included in other accrued expenses and other liabilities in the Consolidated Balance Sheet.

ROU assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the net present value of fixed lease payments over the lease term. The Company's lease term include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. ROU assets also include any advance lease payments made and exclude lease incentives. As most of the Company's operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Finance lease agreements generally include an interest rate that is used to determine the present value of future lease payments. Operating fixed lease expense and finance lease depreciation expense are recognized on a straight-line basis over the lease term.

The components of lease costs were as follows:
  Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Operating Lease Costs:
Fixed $ 12,719  $ 24,963 
Variable 1,593  3,640 
Short-term 4,873  9,738 
Total* $ 19,185  $ 38,341 
* Finance lease cost and sublease income were immaterial.
Supplemental cash flow information were as follows:
  Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 12,987  $ 25,401 
Operating cash flows from finance leases 111  219 
Financing cash flows from finance leases 531  940 
Total $ 13,629  $ 26,560 
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases 8,226  18,934 
Finance leases 330  367 
Total $ 8,556  $ 19,301 

13

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Supplemental balance sheet information related to leases were as follows:
  June 30, 2019
Operating Leases:
Right of use assets:
   Other assets and deferred charges $ 151,833 
Lease liabilities:
   Other accrued expenses $ 42,584 
   Other liabilities 116,530 
Total operating lease liabilities $ 159,114 
Finance Leases:
Right of use assets:
   Property, plant and equipment, net (1)
$ 9,047 
Lease liabilities:
   Other accrued expenses $ 1,555 
   Other liabilities 8,374 
Total financing lease liabilities $ 9,929 
(1) Finance lease assets are recorded net of accumulated depreciation of $3,870.

The aggregate future lease payments for operating and finance leases as of June 30, 2019 were as follows:
  Operating Finance
2019 (excluding the six months ending June 30, 2019) $ 24,405  $ 1,020 
2020 40,624  2,009 
2021 31,064  1,897 
2022 22,311  1,629 
2023 14,280  1,209 
Thereafter 43,060  4,058 
Total lease payments 175,744  11,822 
Less: Interest (16,630) (1,893)
Present value of lease liabilities $ 159,114  $ 9,929 

The aggregate future lease payments for operating and capital leases as of December 31, 2018 were as follows:
  Operating Capital
2019 $ 49,009  $ 1,802 
2020 38,620  1,748 
2021 29,396  1,687 
2022 21,767  1,392 
2023 13,994  952 
Thereafter 42,087  3,802 
Total $ 194,873  $ 11,383 

14

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Average lease terms and discount rates were as follows:
  June 30, 2019
Weighted-average remaining lease term (years)
Operating leases 5.7
Finance leases 6.5
Weighted-average discount rate
Operating leases 3.3%   
Finance leases 4.3%   

9. Goodwill and Other Intangible Assets
The changes in the carrying value of goodwill by reportable operating segments were as follows:
  Engineered Systems Fluids Refrigeration & Food Equipment Total
Balance at December 31, 2018 $ 1,623,660  $ 1,507,602  $ 546,066  $ 3,677,328 
Acquisitions —  119,035  —  119,035 
Disposition of business —  (4,739) —  (4,739)
Foreign currency translation 748  3,195  21  3,964 
Balance at June 30, 2019 $ 1,624,408  $ 1,625,093  $ 546,087  $ 3,795,588 

During the six months ended June 30, 2019, the Company recorded additions of $119,035 to goodwill as a result of the acquisitions with the Fluids segment discussed in Note 4 — Acquisitions . During the six months ended June 30, 2019, the Company disposed of $4,739 of the Fluids segment goodwill as a result of the sale of a business as discussed in Note 5 — Disposed and Discontinued Operations.


The Company’s definite-lived and indefinite-lived intangible assets by major asset class were as follows:
June 30, 2019 December 31, 2018
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying Amount
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying Amount
Amortized intangible assets:
Customer intangibles $ 1,418,487  $ 671,566  $ 746,921  $ 1,395,742  $ 645,305  $ 750,437 
Trademarks 218,866  78,415  140,451  214,774  72,305  142,469 
Patents 160,402  131,435  28,967  144,302  128,254  16,048 
Unpatented technologies 155,484  93,046  62,438  155,380  85,560  69,820 
Distributor relationships 83,106  41,144  41,962  82,970  37,943  45,027 
Drawings & manuals 27,882  21,511  6,371  31,849  23,273  8,576 
Other 21,922  16,373  5,549  21,046  15,835  5,211 
Total 2,086,149  1,053,490  1,032,659  2,046,063  1,008,475  1,037,588 
Unamortized intangible assets:
Trademarks 96,693  —  96,693  96,668  —  96,668 
Total intangible assets, net $ 2,182,842  $ 1,053,490  $ 1,129,352  $ 2,142,731  $ 1,008,475  $ 1,134,256 

Amortization expense was $34,738 and $36,356, respectively, including acquisition-related intangible amortization of $34,219 and $35,945 for the three months ended June 30, 2019 and 2018, respectively. For the six months ended June 30, 2019 and 2018, amortization expense was $70,288 and $72,817, respectively, including acquisition-related intangible amortization of $69,374 and $71,834, respectively.

15

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
10. Restructuring Activities

The Company's restructuring charges by segment were as follows:
  Three Months Ended June 30,   Six Months Ended June 30, 
  2019 2018 2019 2018
Engineered Systems $ 2,508  $ 1,860  $ 2,878  $ 3,235 
Fluids 2,277  3,497  3,396  5,548 
Refrigeration & Food Equipment 227  234  1,639  146 
Corporate 726  2,544  761  3,293 
Total $ 5,738  $ 8,135  $ 8,674  $ 12,222 
These amounts are classified in the Condensed Consolidated Statements of Earnings as follows:
Cost of goods and services $ 1,183  $ 2,192  $ 2,362  $ 4,399 
Selling, general and administrative expenses 4,555  5,943  6,312  7,823 
Total $ 5,738  $ 8,135  $ 8,674  $ 12,222 

The restructuring expenses of $5,738 and $8,674 incurred during the three and six months ended June 30, 2019, respectively, were primarily related to two significant rightsizing restructuring programs initiated in 2018 comprised principally of broad-based selling, general and administrative expense reduction and footprint consolidation initiatives designed to increase operating margin, enhance operations and position the Company for sustained growth and investment.

In 2019, the Company expects to incur charges of approximately $6 million related to the selling, general and administrative expense reduction initiatives, $4 million of which was incurred during the six months ended June 30, 2019 and $2 million of which the Company expects to incur during the remainder of 2019. In 2019 and 2020, the Company expects to incur total restructuring charges of approximately $10 million related to footprint consolidation initiatives, $2 million of which was incurred during the six months ended June 30, 2019 and $8 million of which the Company expects to incur in the second half of 2019 through 2020. Additional programs, beyond the scope of the announced programs, are expected to be implemented during 2019 with related restructuring charges.

The $5,738 of restructuring charges incurred during the second quarter of 2019 primarily included the following items:
The Engineered Systems segment recorded $2,508 of restructuring charges related to programs focused on headcount reductions and facility restructuring costs.

The Fluids segment recorded $2,277 of restructuring charges principally related to headcount reductions.

The Refrigeration and Food Equipment segment recorded $227 of restructuring expense primarily due to headcount reductions and facility restructuring costs.

Corporate recorded $726 of restructuring charges primarily related to headcount reductions and asset write-downs.

The Company’s severance and exit accrual activities were as follows:
  Severance Exit Total
Balance at December 31, 2018 $ 24,284  $ 3,880  $ 28,164 
Restructuring charges 5,730  2,944  8,674 
Payments (16,983) (1,288) (18,271)
Other, including foreign currency translation (645) (2,361)
(1)
(3,006)
Balance at June 30, 2019 $ 12,386  $ 3,175  $ 15,561 
(1) Other activity in exit reserves primarily represents the non-cash write-off of certain long-lived assets and inventory in connection with certain facility closures and product exits.

16

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
11. Borrowings

Borrowings consisted of the following:
  June 30, 2019 December 31, 2018
Short-term
Commercial paper $ 357,700  $ 220,318 
Notes payable $ 357,700  $ 220,318 

 
Carrying amount (1)
Principal June 30, 2019 December 31, 2018
Long-term
2.125% 7-year notes due December 1, 2020 (euro-denominated) 300,000  $ 340,285  $ 339,657 
4.30% 10-year notes due March 1, 2021 $ 450,000  449,385  449,200 
3.150% 10-year notes due November 15, 2025 $ 400,000  395,705  395,368 
1.25% 10-year notes due November 9, 2026 (euro-denominated) 600,000  673,448  672,103 
6.65% 30-year debentures due June 1, 2028 $ 200,000  199,105  199,054 
5.375% 30-year debentures due October 15, 2035 $ 300,000  295,935  295,811 
6.60% 30-year notes due March 15, 2038 $ 250,000  247,883  247,827 
5.375% 30-year notes due March 1, 2041 $ 350,000  344,015  343,877 
Other 732  763 
Total long-term debt $ 2,946,493  $ 2,943,660 
(1) Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discounts were
$15.1 million and $15.8 million as of June 30, 2019 and December 31, 2018, respectively. Total deferred debt issuance costs were $12.1 million and $13.0 million as of June 30, 2019 and December 31, 2018, respectively.

The Company maintains a $1.0 billion five-year unsecured revolving credit facility (the "Credit Agreement") with a syndicate of banks which expires on November 10, 2020. The Company was in compliance with all covenants in the Credit Agreement and other long-term debt covenants at June 30, 2019 and had an interest coverage ratio of consolidated EBITDA to consolidated net interest expense of 10.0 to 1.0. The Company uses the Credit Agreement as liquidity back-up for its commercial paper program and has not drawn down any loans under the Credit Agreement and does not anticipate doing so. The Company generally uses commercial paper borrowings for general corporate purposes, funding of acquisitions and repurchases of its common stock.

As of June 30, 2019, the Company had approximately $142.1 million outstanding in letters of credit, surety bonds, and performance and other guarantees which expire on various dates through 2031. These letters of credit and bonds are primarily issued as security for insurance, warranty and other performance obligations. In general, we would only be liable for the amount of these guarantees in the event of default in the performance of our obligations.

12. Financial Instruments

Derivatives

The Company is exposed to market risk for changes in foreign currency exchange rates due to the global nature of its operations and certain commodity risks. In order to manage these risks, the Company has hedged portions of its forecasted sales and purchases to occur within the next twelve months that are denominated in non-functional currencies, with currency forward contracts designated as cash flow hedges. At June 30, 2019 and December 31, 2018, the Company had contracts with total notional amounts of $200,514 and $193,649, respectively, to exchange currencies, principally the Pound Sterling, Euro, Swedish Krona, Chinese Yuan, Canadian Dollar, and Swiss Franc. The Company believes it is probable that all forecasted cash flow transactions will occur.

In addition, the Company had outstanding contracts with a total notional amount of $94,191 and $66,906 as of June 30, 2019 and December 31, 2018, respectively, that are not designated as hedging instruments. These instruments are used to reduce the
17

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Company's exposure for operating receivables and payables that are denominated in non-functional currencies. Gains and losses on these contracts are recorded in other (income) expense, net in the Condensed Consolidated Statements of Earnings.

The following table sets forth the fair values of derivative instruments held by the Company as of June 30, 2019 and December 31, 2018 and the balance sheet lines in which they are recorded:
Fair Value Asset (Liability)
June 30, 2019 December 31, 2018 Balance Sheet Caption
Foreign currency forward $ 1,148  $ 1,874  Prepaid / Other current assets
Foreign currency forward (1,741) (1,165) Other accrued expenses

For a cash flow hedge, the effective portion of the change in estimated fair value of a hedging instrument is recorded in accumulated other comprehensive loss (earnings) as a separate component of the Condensed Consolidated Statement of Stockholders' Equity and is reclassified into revenues and cost of goods and services in the Condensed Consolidated Statements of Earnings during the period in which the hedged transaction is recognized. The amount of gains or losses from hedging activity recorded in earnings is not significant, and the amount of unrealized gains and losses from cash flow hedges that are expected to be reclassified to earnings in the next twelve months is not significant; therefore, additional tabular disclosures are not presented. There are no amounts excluded from the assessment of hedge effectiveness and the Company's derivative instruments that are subject to credit risk contingent features were not significant.

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

The Company has designated the €600,000 and €300,000 of euro-denominated notes issued November 9, 2016 and December 4, 2013, respectively, as hedges of a portion of its net investment in euro-denominated operations. Changes in the value of the euro-denominated debt are recognized in foreign currency translation adjustments within other comprehensive earnings of the Condensed Consolidated Statements of Comprehensive Earnings to offset changes in the value of the net investment in euro-denominated operations.

Amounts recognized in other comprehensive earnings for the gains (losses) on net investment hedges were as follows:
Three Months Ended June 30,   Six Months Ended June 30, 
2019 2018 2019 2018
(Loss) gain on euro-denominated debt $ (4,710) $ 57,998  $ (1,153) $ 13,889 
Tax benefit (expense) 989  (12,180) 242  (2,917)
Net (loss) gain on net investment hedges, net of tax $ (3,721) $ 45,818  $ (911) $ 10,972 

Fair Value Measurements

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

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

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

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

18

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018:
Level 2 Level 2
Assets:
Foreign currency cash flow hedges $ 1,148  $ 1,874 
Liabilities:
Foreign currency cash flow hedges 1,741  1,165 

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, net at June 30, 2019 and December 31, 2018 , w as $3,281,664 and $3,132,330, respectively. The estimated fair value of long-term debt is based on quoted market prices for similar instruments and is, therefore, classified as Level 2 within the fair value hierarchy.

The carrying values of cash and cash equivalents, trade receivables, accounts payable and notes payable are reasonable estimates of their fair values as of June 30, 2019, and December 31, 2018 due to the short-term nature of these instruments.

13. Income Taxes

The effective tax rates for the three months ended June 30, 2019 and 2018 were 20.7% and 21.3%, respectively. The decrease in the effective tax rate for the three months ended June 30, 2019 relative to the prior comparable period was principally due to changes in tax law and, to a lesser extent, discrete tax items.

The effective tax rates for the six months ended June 30, 2019 and 2018 were 21.7% and 20.2%, respectively. The increase in the effective tax rate for the six months ended June 30, 2019 relative to the prior comparable period is primarily driven by the exclusion of capital losses on the sale of Finder under local tax law partially offset by the impact of changes in tax law.

The discrete items for the three months ended June 30, 2019 and 2018 primarily resulted from the net tax benefit from stock exercises and favorable audit settlements. The discrete items for the six months ended June 30, 2019 primarily resulted from the benefit of stock exercises and favorable audit settlements partially offset by the exclusion of capital losses on the sale of Finder under local tax law. The discrete items for the six months ended June 30, 2018 primarily resulted from the benefit of stock exercises and favorable audit settlements.

Dover and its subsidiaries file tax returns in the U.S., including various state and local returns, and in other foreign jurisdictions. We believe adequate provision has been made for all income tax uncertainties. The Company is routinely audited by taxing authorities in its filing jurisdictions, and a number of these audits are currently underway. The Company believes that within the next twelve months uncertain tax positions may be resolved and statutes of limitations will expire, which could result in a decrease in the gross amount of unrecognized tax benefits of approximately zero to $11.9 million.

14. Equity Incentive Program

The Company typically grants equity awards annually at its regularly scheduled first quarter meeting of the Compensation Committee of the Board of Directors. Additionally, in the second quarter of 2018, the Company granted equity awards to its new President and Chief Executive Officer. During the six months ended June 30, 2019, the Company issued stock-settled appreciation rights ("SARs") covering 615,089 shares, performance share awards of 35,172 and restricted stock units ("RSUs") of 124,929.

The Company uses the Black-Scholes option pricing model to determine the fair value of each SAR on the date of grant. Expected volatilities are based on Dover's stock price history, including implied volatilities from traded options on Dover stock. The Company uses historical data to estimate SAR exercise and employee termination patterns within the valuation model. The expected life of SARs granted is derived from the output of the option valuation model and represents the average period of time that SARs granted are expected to be outstanding. The interest rate for periods within the contractual life of the SARs is based on the U.S. Treasury yield curve in effect at the time of grant.

19

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The range of assumptions used in determining the fair value of the SARs awarded during the respective periods were as follows:
SARs
  2019 2018
Risk-free interest rate 2.51  % 2.58  % - 2.87  %
Dividend yield 2.13  % 1.99  % - 2.43  %
Expected life (years) 5.6 5.6 - 5.7
Volatility 22.35  % 20.95  % - 21.20  %
Grant price
$91.20  $79.75  - $82.09 
Fair value per share at date of grant
$17.55  $14.58  - $15.41 

The performance share awards granted in 2019 and 2018 are considered performance condition awards as attainment is based on Dover's performance relative to established internal metrics. The fair value of these awards was determined using Dover's closing stock price on the date of grant. The expected attainment of the internal metrics for these awards is analyzed each reporting period, and the related expense is adjusted based on expected attainment, if that attainment differs from previous estimates. The cumulative effect on current and prior periods of a change in attainment is recognized in selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings in the period of change.  

The fair value and average attainment used in determining stock-based compensation cost for the performance shares issued in 2019 and 2018 were as follows for the six months ended June 30, 2019:
Performance Shares
  2019 2018
Fair value per share at date of grant
$91.20  $79.75  $82.09 
Average attainment rate reflected in expense 240.05%    288.57%   

The Company also has granted RSUs, and the fair value of these awards was determined using Dover's closing stock price on the date of grant.

Stock-based compensation is reported within selling, general and administrative expenses of continuing operations in the Condensed Consolidated Statements of Earnings. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans:
  Three Months Ended June 30,   Six Months Ended June 30, 
  2019 2018 2019 2018
Pre-tax stock-based compensation expense (continuing) $ 8,435  $ 3,658  $ 16,617  $ 10,403 
Tax benefit (498) (817) (1,546) (2,313)
Total stock-based compensation expense, net of tax $ 7,937  $ 2,841  $ 15,071  $ 8,090 

Stock-based compensation expense attributable to Apergy employees for the three and six months ended June 30, 2018 was $174 and $744, respectively. These costs are reported within earnings from discontinued operations in the Condensed Consolidated Statement of Earnings.

20

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
15. Commitments and Contingent Liabilities

Litigation

Certain of the Company’s subsidiaries are involved in legal proceedings relating to the cleanup of waste disposal sites identified under federal and state statutes that provide for the allocation of such costs among "potentially responsible parties." In each instance, the extent of the Company’s liability appears to be very small in relation to the total projected expenditures and the number of other "potentially responsible parties" involved and is anticipated to be immaterial to the Company. In addition, certain of the Company’s subsidiaries are involved in ongoing remedial activities at certain current and former plant sites, in cooperation with regulatory agencies, and appropriate reserves have been established. At June 30, 2019 and December 31, 2018, the Company has reserves totaling $31,289 and $31,797, respectively, for environmental and other matters, including private party claims for exposure to hazardous substances that are probable and estimable.

The Company and certain of its subsidiaries are also parties to a number of other legal proceedings incidental to their businesses. These proceedings primarily involve claims by private parties alleging injury arising out of use of the Company’s products, patent infringement, employment matters, and commercial disputes. Management and legal counsel, at least quarterly, review the probable outcome of such proceedings, the costs and expenses reasonably expected to be incurred and currently accrued to-date, and the availability and extent of insurance coverage. The Company has reserves for legal matters that are probable and estimable and not otherwise covered by insurance, and at June 30, 2019 and December 31, 2018, these reserves were not significant. While it is not possible at this time to predict the outcome of these legal actions, in the opinion of management, based on the aforementioned reviews, the Company is not currently involved in any legal proceedings which, individually or in the aggregate, could have a material effect on its financial position, results of operations, or cash flows.

Warranty Accruals

Estimated warranty program claims are provided for at the time of sale of the Company's products. Amounts provided for are based on historical costs and adjusted for new claims and are included within other accrued expenses and other liabilities in the Condensed Consolidated Balance Sheet. The changes in the carrying amount of product warranties through June 30, 2019 and 2018, were as follows:
  2019 2018
Beginning Balance, December 31 of the Prior Year $ 50,073  $ 59,403 
Provision for warranties 29,364  30,603 
Settlements made (31,173) (34,746)
Other adjustments, including acquisitions and currency translation (632) (480)
Ending Balance, June 30 $ 47,632  $ 54,780 

16. Employee Benefit Plans

Retirement Plans

The Company sponsors qualified defined benefit pension plans covering certain employees of the Company and its subsidiaries, although the U.S. qualified and non-qualified defined benefit plans are closed to new entrants. The plans’ benefits are generally based on years of service and employee compensation. The Company also provides to certain management employees, through non-qualified plans, supplemental retirement benefits in excess of qualified plan limits imposed by federal tax law.

The tables below set forth the components of the Company’s net periodic (income) expense relating to retirement benefit plans. The service cost component is recognized within selling, general and administrative expenses and cost of goods and services, depending on the functional area of the underlying employees included in the plans, and the non-operating components of pension costs are included within other income, net in the Condensed Consolidated Statements of Earnings. The amounts recorded to discontinued operations represent the net periodic benefit expense for several non-U.S. qualified and U.S. non-qualified plans that were transferred to Apergy at the spin-off date of May 9, 2018.

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DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Qualified Defined Benefits
  Three Months Ended June 30,   Six Months Ended June 30, 
  U.S. Plan  Non-U.S. Plans U.S. Plan  Non-U.S. Plans
  2019 2018 2019 2018 2019 2018 2019 2018
Service cost $ 1,754  $ 2,303  $ 1,291  $ 1,534  $ 3,508  $ 5,287  $ 2,836  $ 3,111 
Interest cost 4,756  5,153  1,207  1,343  9,513  10,255  2,448  2,721