2013.09.30 - 10-Q


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

FORM 10-Q

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

For the quarterly period ended September 30, 2013

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to


Commission File Number: 1-4018

Dover Corporation
(Exact name of registrant as specified in its charter)

Delaware
53-0257888
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
3005 Highland Parkway
 
Downers Grove, Illinois
60515
(Address of principal executive offices)
(Zip Code)

(630) 541-1540
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ  No  o

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

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

The number of shares outstanding of the Registrant’s common stock as of October 10, 2013 was 170,365,768.


Dover Corporation
Form 10-Q
Table of Contents

Page
 
 
 
 
 
 
 
 
 
 
 




Table of Contents



Item 1. Financial Statements

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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Revenue
$
2,252,349

 
$
2,097,605

 
$
6,520,685

 
$
6,090,508

Cost of goods and services
1,375,699

 
1,287,466

 
4,011,461

 
3,757,187

Gross profit
876,650

 
810,139

 
2,509,224

 
2,333,321

Selling and administrative expenses
482,284

 
451,943

 
1,472,333

 
1,372,021

Operating earnings
394,366

 
358,196

 
1,036,891

 
961,300

Interest expense, net
30,237

 
30,399

 
90,761

 
90,145

Other expense (income), net
970

 
3,706

 
(1,206
)
 
5,855

Earnings before provision for income taxes and discontinued operations
363,159

 
324,091

 
947,336

 
865,300

Provision for income taxes
99,507

 
90,761

 
192,343

 
240,405

Earnings from continuing operations
263,652

 
233,330

 
754,993

 
624,895

Earnings from discontinued operations, net
5,462

 
7,716

 
54,173

 
26,315

Net earnings
$
269,114

 
$
241,046

 
$
809,166

 
$
651,210

 
 
 
 
 
 
 
 
Earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
1.55

 
$
1.28

 
$
4.40

 
$
3.41

Diluted
$
1.53

 
$
1.27

 
$
4.34

 
$
3.37

 
 
 
 
 
 
 
 
Earnings per share from discontinued operations:
 
 
 
 
 
 
 
Basic
$
0.03

 
$
0.04

 
$
0.32

 
$
0.14

Diluted
$
0.03

 
$
0.04

 
$
0.31

 
$
0.14

 
 
 
 
 
 
 
 
Net earnings per share:
 
 
 
 
 
 
 
Basic
$
1.58

 
$
1.33

 
$
4.71

 
$
3.56

Diluted
$
1.56

 
$
1.31

 
$
4.65

 
$
3.51

 
 
 
 
 
 
 
 
Dividends paid per common share
$
0.375

 
$
0.35

 
$
1.075

 
$
0.98

 

See Notes to Condensed Consolidated Financial Statements



1
Table of Contents


DOVER CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(in thousands)
(unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Net earnings
$
269,114

 
$
241,046

 
$
809,166

 
$
651,210

 
 
 
 
 
 
 
 
Other comprehensive earnings (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Foreign currency translation gains during period
61,800

 
82,802

 
19,605

 
33,919

Reclassification of foreign currency translation losses to earnings upon sale of subsidiaries
—

 
—

 
2,905

 
—

Total foreign currency translation
61,800

 
82,802

 
22,510

 
33,919

 
 
 
 
 
 
 
 
Pension and other postretirement benefit plans:
 
 
 
 
 
 
 
Actuarial gains (losses) arising during period
80,455

 
—

 
80,455

 
(3,953
)
Prior service cost arising during period
(121
)
 
—

 
(121
)
 
(307
)
Amortization of actuarial losses included in net periodic pension cost
2,737

 
6,647

 
10,491

 
6,647

Amortization of prior service costs included in net periodic pension cost
1,436

 
3,928

 
4,286

 
3,928

Total pension and other postretirement benefit plans
84,507

 
10,575

 
95,111

 
6,315

 
 
 
 
 
 
 
 
Changes in fair value of cash flow hedges:
 
 
 
 
 
 
 
Unrealized net gains arising during period
106

 
164

 
200

 
380

Net (gains) losses reclassified into earnings
(401
)
 
30

 
(313
)
 
59

Total cash flow hedges
(295
)
 
194

 
(113
)
 
439

 
 
 
 
 
 
 
 
Other
115

 
(290
)
 
280

 
263

 
 
 
 
 
 
 
 
Other comprehensive earnings
146,127

 
93,281

 
117,788

 
40,936

 
 
 
 
 
 
 
 
Comprehensive earnings
$
415,241

 
$
334,327

 
$
926,954

 
$
692,146


See Notes to Consolidated Financial Statements.


2
Table of Contents


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

 
September 30, 2013
 
December 31, 2012
Current assets:
 
 
 
Cash and cash equivalents
$
739,824

 
$
800,076

Receivables, net of allowances of $20,552 and $20,392
1,437,513

 
1,225,898

Inventories, net
949,618

 
872,841

Prepaid and other current assets
69,857

 
79,094

Deferred tax assets
66,358

 
49,935

Total current assets
3,263,170

 
3,027,844

Property, plant and equipment, net
1,148,784

 
1,167,052

Goodwill
4,158,710

 
4,114,650

Intangible assets, net
1,552,751

 
1,625,420

Other assets and deferred charges
166,215

 
111,432

Assets of discontinued operations
375,500

 
397,545

Total assets
$
10,665,130

 
$
10,443,943

 
 
 
 
Current liabilities:
 

 
 

Notes payable and current maturities of long-term debt
$
672,135

 
$
610,766

Accounts payable
677,994

 
651,358

Accrued compensation and employee benefits
302,684

 
334,634

Accrued insurance
106,879

 
103,318

Other accrued expenses
250,043

 
255,632

Federal and other taxes on income
8,802

 
30,920

Total current liabilities
2,018,537

 
1,986,628

Long-term debt
2,190,156

 
2,189,350

Deferred income taxes
519,347

 
462,244

Other liabilities
519,235

 
677,533

Liabilities of discontinued operations
133,430

 
208,958

Stockholders' equity:
 

 
 

Total stockholders' equity
5,284,425

 
4,919,230

Total liabilities and stockholders' equity
$
10,665,130

 
$
10,443,943



See Notes to Condensed Consolidated Financial Statements


3
Table of Contents


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

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

 
$
834,677

 
$
7,199,227

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

Net earnings
—

 
—

 
809,166

 
—

 
—

 
809,166

Dividends paid
—

 
—

 
(184,111
)
 
—

 
—

 
(184,111
)
Common stock issued for the exercise of stock options and SARs
1,098

 
(17,005
)
 
—

 
—

 
—

 
(15,907
)
Tax benefit from the exercise of stock options and SARs
—

 
22,737

 
—

 
—

 
—

 
22,737

Stock-based compensation expense
—

 
23,384

 
—

 
—

 
—

 
23,384

Common stock acquired
—

 
—

 
—

 
—

 
(407,862
)
 
(407,862
)
Other comprehensive earnings, net of tax
—

 
—

 
—

 
117,788

 
—

 
117,788

Balance at September 30, 2013
$
255,217

 
$
863,793

 
$
7,824,282

 
$
62,882

 
$
(3,721,749
)
 
$
5,284,425

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


See Notes to Condensed Consolidated Financial Statements


4
Table of Contents


DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Nine Months Ended September 30,
 
2013
 
2012
Operating Activities of Continuing Operations
 
 
 
Net earnings
$
809,166

 
$
651,210

 
 
 
 
Adjustments to reconcile net earnings to cash from operating activities:
 
 
 
Earnings from discontinued operations, net
(54,173
)
 
(26,315
)
Depreciation and amortization
313,565

 
261,160

Stock-based compensation
23,384

 
23,589

(Gain) loss on sale of assets
(5,668
)
 
714

Cash effect of changes in assets and liabilities:
 
 
 
Accounts receivable
(193,586
)
 
(172,924
)
Inventories
(71,131
)
 
(71,589
)
Prepaid expenses and other assets
(4,282
)
 
(6,833
)
Accounts payable
32,175

 
32,087

Accrued compensation and employee benefits
(37,178
)
 
24,315

Accrued expenses and other liabilities
(6,166
)
 
(12,747
)
Contributions to domestic employee benefit plans
(9,000
)
 
(13,790
)
Accrued and deferred taxes, net
(79,239
)
 
8,748

Other, net
5,193

 
(7,124
)
Net cash provided by operating activities of continuing operations
723,060

 
690,501

 
 
 
 
Investing Activities of Continuing Operations
 

 
 

Additions to property, plant and equipment
(157,475
)
 
(208,849
)
Acquisitions (net of cash and cash equivalents acquired)
(118,990
)
 
(354,270
)
Proceeds from the sale of property, plant and equipment
13,376

 
10,792

Proceeds from the sale of businesses
3,756

 
—

Increase in restricted cash
—

 
(9,911
)
Other
(3,207
)
 
(5,000
)
Net cash used in investing activities of continuing operations
(262,540
)
 
(567,238
)
 
 
 
 
Financing Activities of Continuing Operations
 

 
 

Purchase of common stock
(407,862
)
 
(393,487
)
Net proceeds from exercise of stock options and SARs, including tax benefits
6,830

 
37,973

Dividends paid to stockholders
(184,111
)
 
(179,133
)
Change in commercial paper and notes payable, net
61,308

 
—

Reduction of long-term debt
—

 
(599
)
Net cash used in financing activities of continuing operations
(523,835
)
 
(535,246
)
 
 
 
 
Cash Flows from Discontinued Operations
 

 
 

Net cash used in operating activities of discontinued operations
8,496

 
(2,203
)
Net cash used in investing activities of discontinued operations
(4,518
)
 
(5,615
)
Net cash provided by (used in) discontinued operations
3,978

 
(7,818
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(915
)
 
7,145

 
 
 
 
Net decrease in cash and cash equivalents
(60,252
)
 
(412,656
)
Cash and cash equivalents at beginning of period
800,076

 
1,206,755

Cash and cash equivalents at end of period
$
739,824

 
$
794,099


See Notes to Condensed Consolidated Financial Statements

5
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)


1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, in accordance with Securities and Exchange Commission (“SEC”) rules for interim periods, do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the Dover Corporation (“Dover” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2012, which provides a more complete understanding of the Company’s accounting policies, financial position, operating results, business properties, and other matters.  The year-end condensed consolidated balance sheet was derived from audited financial statements.  Certain amounts in the prior year have been reclassified to conform to the current year presentation.  

As discussed in Note 4. Discontinued Operations, the Company is reporting certain businesses that are held for sale at September 30, 2013 as discontinued operations.  Therefore, the Company has classified the results of operations of these businesses as discontinued operations for all periods presented.  

It is the opinion of management that these financial statements reflect all adjustments necessary for a fair statement of the interim results.  The results of operations of any interim period are not necessarily indicative of the results of operations for the full year.


2. Planned Spin Off of Certain Communication Technologies Businesses

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

Dover anticipates that the transaction will be in the form of a distribution of 100% of the common stock of Knowles, which we expect to be tax-free to Dover and U.S. shareholders, pending receipt of a private letter ruling from the Internal Revenue Service (the "IRS"). Dover currently expects that the transaction will be completed in early 2014. One-time costs associated with the transaction are expected to be in the range of $60,000 to $70,000. Costs incurred to date totaled $10,637 and $13,959 for the three and nine months ended September 30, 2013, respectively. Completion of the planned spin off is subject to final approval by Dover's Board of Directors, as well as other conditions such as the receipt of a favorable ruling from the IRS and the effectiveness of a registration statement filed by Knowles with the Securities and Exchange Commission. The initial registration statement was filed by Knowles on September 30, 2013. The results of operations, financial condition and cash flows for the businesses to be included in the spin off are, and will continue to be, presented within Dover's consolidated financial statements as continuing operations within the Communication Technologies segment, until the spin off becomes effective, upon which the financial presentation of these businesses will be included within Dover's discontinued operations.


6
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

3. Acquisitions

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

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

 
 
 
 
 
May 21
Asset
Klaus Enterprise, Ltd.
Alberta, Canada
Energy
Manufacturer of valves and gas compressor components that specializes in replacing parts designed to optimize the efficiency and reliability of reciprocating compressors.
 
 
 
 
 
May 30
Asset
Source Technologies
Charlotte, North Carolina
Printing & Identification
Manufacturer of printing devices and software, specializing in thermal stationary barcode printers.
 
 
 
 
 
July 1
Asset
RSI Systems
Frederick, Maryland
Printing & Identification
Manufacturer of thermal ink jet applications ranging from packaging line coding and marking to high-speed product identification, authentication, and tracking systems for serialization.
 
 
 
 
 
September 19
Stock
SPIRIT Global Energy Solutions
Midland, Texas
Energy
Manufacturer of artificial lift tools and technology for oil and gas producers.

The Company acquired these businesses in six separate transactions for net cash consideration of $118,990. The following presents the allocation of acquisition cost to the assets acquired and liabilities assumed, based on their estimated fair values:
Current assets, net of cash acquired
$
30,191

Property, plant and equipment
8,555

Goodwill
48,879

Intangible assets
53,442

Other non-current assets
1,082

Current liabilities
(11,532
)
Non-current liabilities
(11,627
)
Net assets acquired
$
118,990


The amounts assigned to goodwill and major intangible asset classifications for the 2013 acquisitions are as follows:
 
Amount allocated
 
Useful life (in years)
Goodwill - Tax deductible
$
18,135

 
na
Goodwill - Non deductible
30,744

 
na
Customer intangibles
41,555

 
11
Trademarks
2,896

 
11
Patents
7,760

 
11
Other intangibles
1,231

 
2
 
$
102,321

 
 

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


7
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

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

The Unaudited Condensed Consolidated Statements of Comprehensive Earnings include the results of these businesses from the dates of acquisition.  The aggregate revenue of the 2013 acquisitions included in the Company’s consolidated revenue totaled $15,461 and $23,123 for the three and nine months ended September 30, 2013, respectively.

Pro Forma Information

The following unaudited pro forma information illustrates the effect on the Company’s revenue and earnings from continuing operations for the three and nine months ended September 30, 2013 and 2012, assuming that the 2013 and 2012 acquisitions had taken place at the beginning of the prior year. As a result, the supplemental pro forma earnings for the three and nine months ended September 30, 2013 reflect adjustments to earnings from continuing operations as reported in the Unaudited Condensed Consolidated Statements of Comprehensive Earnings to exclude $1,194 and $1,902 for nonrecurring expense related to the fair value adjustments to acquisition-date inventory (after-tax) and $349 and $1,159 of acquisition-related costs (after tax) and to reflect such items in 2012. The 2013 and 2012 supplemental pro forma earnings are also adjusted to reflect the comparable impact of additional depreciation and amortization expense (net of tax) resulting from the fair value measurement of tangible and intangible assets relating to 2013 and 2012 acquisitions.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Revenue from continuing operations:
 
 
 
 
 
 
 
As reported
$
2,252,349

 
$
2,097,605

 
$
6,520,685

 
$
6,090,508

Pro forma
2,257,473

 
2,208,107

 
6,556,075

 
6,485,833

Earnings from continuing operations:
 
 
 
 
 
 
 
As reported
$
263,652

 
$
233,330

 
$
754,993

 
$
624,895

Pro forma
266,169

 
242,135

 
762,069

 
654,576

Basic earnings per share from continuing operations:
 
 
 
 
 
 
 
As reported
$
1.55

 
$
1.28

 
$
4.40

 
$
3.41

Pro forma
1.56

 
1.33

 
4.44

 
3.58

Diluted earnings per share from continuing operations:
 
 
 
 
As reported
$
1.53

 
$
1.27

 
$
4.34

 
$
3.37

Pro forma
1.54

 
1.32

 
4.38

 
3.53


4. Discontinued Operations

Management evaluates Dover’s businesses periodically for their strategic fit within Dover’s operations. Accordingly, in the fourth quarter of 2012, the Company announced its intention to divest certain non-core businesses within the Printing & Identification segment serving the electronic assembly and test markets, consistent with its long-term focus on strengthening its portfolio and reducing its exposure to cyclical markets. Management expects to sell these businesses in the fourth quarter of 2013 or early 2014. As a result, the Company has reclassified the operations, cash flows, and related assets and liabilities of these businesses, DEK International and Everett Charles Technologies ("ECT"), to discontinued operations for all periods presented.


8
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

Summarized results of the Company’s discontinued operations are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Revenue
$
106,974

 
$
111,174

 
$
309,900

 
$
338,337

 
 
 
 
 
 
 
 
(Loss) gain on sale and impairments, net of tax
—

 
(634
)
 
(18,668
)
 
1,226

 
 
 
 
 
 
 
 
Earnings from operations before taxes
7,531

 
11,531

 
26,108

 
29,693

Benefit from (provision for) income taxes
(2,069
)
 
(3,181
)
 
46,733

 
(4,604
)
Earnings from operations, net of tax
5,462

 
8,350

 
72,841

 
25,089

 
 
 
 
 
 
 
 
Earnings from discontinued operations, net of tax
$
5,462

 
$
7,716

 
$
54,173

 
$
26,315


Earnings from discontinued operations of $5,462 and $54,173 for the three and nine months ended September 30, 2013, respectively, reflect net earnings from operations generated by those businesses discontinued in 2012, as well as various expense and accrual adjustments relating to other discontinued operations. The tax benefit for the three and nine months ended September 30, 2013 includes $1,971 and $54,425, respectively, of discrete tax benefits principally related to the conclusion of certain federal, state and international tax audits.

In 2013, in connection with a change in goodwill reporting units within discontinued operations resulting from the Company's expected manner of disposing of its electronic test and assembly businesses, the Company was required to allocate goodwill to these individual reporting units based upon relative current fair values. This process resulted in a benefit of $25,520 in the discontinued operations deferred income tax provision for the nine months ended September 30, 2013 as a result of the elimination of certain deferred tax liabilities. The Company recorded a goodwill impairment charge of $54,532 ($44,188 after tax) for the nine months ended September 30, 2013 in connection with the anticipated sale of these businesses. This charge was a write-down of the carrying value to fair value, based on the current estimated sales price. The Company expects to complete the sale of these businesses in the fourth quarter of 2013 or early 2014.

Earnings from discontinued operations of $7,716 and $26,315 for the three and nine months ended September 30, 2012, respectively, primarily reflect net earnings from operations of DEK and ECT, as well as adjustments to sale proceeds for businesses sold in prior years.

Assets and liabilities of discontinued operations are summarized below:
 
September 30, 2013
 
December 31, 2012
Assets of Discontinued Operations
 
 
 
Accounts receivable
$
78,272

 
$
63,229

Inventories, net
54,170

 
51,252

Prepaid and other current assets
15,348

 
10,263

       Total current assets
147,790

 
124,744

Property, plant and equipment, net
35,778

 
31,935

Goodwill and intangible assets, net
186,597

 
238,657

Other assets and deferred charges
5,335

 
2,209

Total assets
$
375,500

 
$
397,545

 
 
 
 
Liabilities of Discontinued Operations
 

 
 

Accounts payable
$
28,822

 
$
22,613

Other current liabilities
35,037

 
34,592

       Total current liabilities
63,859

 
57,205

Deferred income taxes
27,898

 
64,853

Other liabilities
41,673

 
86,900

Total liabilities
$
133,430

 
$
208,958

 

9
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

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

5. Inventories, net
 
September 30, 2013
 
December 31, 2012
Raw materials
$
426,649

 
$
386,119

Work in progress
190,235

 
182,060

Finished goods
487,192

 
453,497

Subtotal
1,104,076

 
1,021,676

Less reserves
(154,458
)
 
(148,835
)
Total
$
949,618

 
$
872,841


6. Property, Plant and Equipment, net
 
September 30, 2013
 
December 31, 2012
Land
$
65,587

 
$
70,079

Buildings and improvements
603,962

 
605,448

Machinery, equipment and other
2,337,126

 
2,231,721

 
3,006,675

 
2,907,248

Less accumulated depreciation
(1,857,891
)
 
(1,740,196
)
Total
$
1,148,784

 
$
1,167,052


7. Goodwill and Other Intangible Assets

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

 
$
760,637

 
$
1,403,381

 
$
746,337

 
$
4,114,650

Acquisitions
—

 
24,774

 
19,032

 
5,073

 
48,879

Purchase price adjustments
—

 
(2,277
)
 
(9,146
)
 
—

 
(11,423
)
Foreign currency translation
9,026

 
(3,528
)
 
757

 
349

 
6,604

Balance at September 30, 2013
$
1,213,321

 
$
779,606

 
$
1,414,024

 
$
751,759

 
$
4,158,710

 
During the nine months ended September 30, 2013, the Company recorded adjustments totaling $11,423 to goodwill relating primarily to the finalization of the purchase price allocation to assets acquired and liabilities assumed for the 2012 acquisitions of Maag Pump Systems, Anthony International, and UPCO, Inc.


10
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset:
 
September 30, 2013
 
December 31, 2012
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Amortized intangible assets:
 
 
 
 
 
 
 
Trademarks
$
127,336

 
$
33,055

 
$
124,129

 
$
25,364

Patents
194,469

 
116,509

 
180,427

 
105,369

Customer Intangibles
1,635,546

 
577,602

 
1,585,041

 
474,309

Unpatented Technologies
146,070

 
97,835

 
146,025

 
85,373

Drawings & Manuals
34,362

 
10,564

 
34,120

 
8,035

Distributor Relationships
72,514

 
34,498

 
72,514

 
31,650

Other
31,933

 
21,293

 
32,221

 
20,815

Total
2,242,230

 
891,356

 
2,174,477

 
750,915

Unamortized intangible assets:
 
 
 
 
 
 
 
Trademarks
201,877

 
 
 
201,858

 
 
Total intangible assets, net
$
1,552,751

 
 
 
$
1,625,420

 
 

Amortization expense totaled $46,894 and $39,502 for the three months ended September 30, 2013 and 2012, respectively. For the nine months ended September 30, 2013 and 2012, amortization expense was $138,967 and $112,998, respectively.

8. Restructuring Activities

The following table details restructuring charges incurred by segment for the periods presented:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Communication Technologies
$
2,008

 
$
928

 
$
14,840

 
$
2,586

Energy
124

 
55

 
1,299

 
550

Engineered Systems
909

 
3,190

 
4,288

 
4,616

Printing & Identification
1,541

 
(145
)
 
2,996

 
5,415

Total
$
4,582

 
$
4,028

 
$
23,423

 
$
13,167

 
 
 
 
 
 
 
 
These amounts are classified in the unaudited Condensed Consolidated Statements of Comprehensive Earnings as follows:
 
 
 
 
 
 
 
 
Cost of goods and services
$
239

 
$
1,454

 
$
10,566

 
$
2,440

Selling and administrative expenses
4,343

 
2,574

 
12,857

 
10,727

Total
$
4,582

 
$
4,028

 
$
23,423

 
$
13,167


The restructuring expenses of $4,582 and $23,423 incurred in the three and nine months ended September 30, 2013, respectively, related to restructuring programs initiated during 2013 and 2012. These programs are designed to better align the Company's operations with current market conditions through targeted facility consolidations, headcount reductions and other measures to further optimize operations. The Company expects full-year 2013 restructuring expenses of approximately $27,500 to $32,500 related to these programs. We expect the programs currently underway to be substantially completed in the next twelve to eighteen months.

The $4,582 of restructuring charges incurred during the quarter included the items as described below.

•
The Communication Technologies segment incurred restructuring charges of $2,008 relating principally to a facility consolidation in its capacitor business and headcount reductions in connection with integration activities within its consumer electronics business.

•
The Energy segment recorded $124 of restructuring charges relating to facility consolidations within the production sector undertaken to optimize cost structure.

11
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)


•
The Engineered Systems segment incurred net restructuring charges of $909 in connection with certain facility consolidations and optimizations and headcount reductions undertaken to optimize its cost structure.

•
The Printing & Identification segment incurred restructuring charges of $1,541 relating to exit plans at targeted facilities, which included certain adjustments and offsets to previously recorded reserves.

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

 
$
2,601

 
$
7,761

Restructuring charges
17,640

 
5,783

 
23,423

Payments
(12,853
)
 
(5,446
)
 
(18,299
)
Other, including foreign currency
(76
)
 
46

 
(30
)
Balance at September 30, 2013
$
9,871

 
$
2,984

 
$
12,855


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

9. Borrowings

Borrowings consist of the following:
 
September 30, 2013
 
December 31, 2012
Short-term
 
 
 
Current portion of long-term debt
$
3,235

 
$
3,266

Commercial paper
668,900

 
607,500

 
$
672,135

 
$
610,766


 
September 30, 2013
 
December 31, 2012
Long-term
 
 
 
4.875% 10-year notes due October 15, 2015
$
299,589

 
$
299,441

5.45% 10-year notes due March 15, 2018
348,515

 
348,268

4.30% 10-year notes due March 1, 2021
449,806

 
449,787

6.60% 30-year notes due March 15, 2038
247,837

 
247,771

5.375% 30-year notes due March 1, 2041
345,631

 
345,511

6.65% 30-year debentures due June 1, 2028
199,474

 
199,448

5.375% 30-year debentures due October 15, 2035
296,486

 
296,367

Other
6,053

 
6,023

Total long-term debt
2,193,391

 
2,192,616

Less current installments
(3,235
)
 
(3,266
)
 
$
2,190,156

 
$
2,189,350


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

12
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)


Interest expense and interest income for the three and nine months ended September 30, 2013 and 2012 were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Interest expense
$
31,004

 
$
31,099

 
$
92,917

 
$
94,210

Interest income
(767
)
 
(700
)
 
(2,156
)
 
(4,065
)
Interest expense, net
$
30,237

 
$
30,399

 
$
90,761

 
$
90,145

 
Letters of Credit

As of September 30, 2013, the Company had approximately $121,102 outstanding in letters of credit and guarantees with financial institutions, which expire at various dates in the last quarter of 2013 through 2018. These letters of credit are primarily maintained as security for insurance, warranty, and other performance obligations.  

10. Financial Instruments

Derivatives

The Company is exposed to market risk for changes in foreign currency exchange rates due to the global nature of its operations and certain commodity risks. In order to manage this risk the Company has hedged portions of its forecasted sales and purchases, which occur within the next twelve months and are denominated in non-functional currencies, with currency forward or collar contracts designated as cash flow hedges. At September 30, 2013 and December 31, 2012, the Company had contracts with U.S. dollar equivalent notional amounts of $46,733 and $9,090, respectively, to exchange foreign currencies, principally the U.S. dollar, Canadian dollar, euro, pound sterling, Japanese yen, Chinese yuan, and Malaysian ringgit. The Company believes it is probable that all forecasted cash flow transactions will occur.

In addition, the Company had outstanding contracts at September 30, 2013 with a total notional amount of $88,321 that are not designated as hedging instruments. These instruments are used to reduce the Company's exposure for operating receivables and payables that are denominated in non-functional currencies.

The Company also has an outstanding floating-to-floating cross currency swap agreement for a total notional amount of $50,000 in exchange for CHF 65,100, which expires on October 15, 2015. This transaction continues to hedge a portion of the Company’s net investment in CHF-denominated operations. The agreement qualifies as a net investment hedge and the effective portion of the change in fair value is reported within the cumulative translation adjustment section of other comprehensive income. The fair values at September 30, 2013 and December 31, 2012 reflected losses of $22,750 and $22,681, respectively, due to the strengthening of the Swiss franc relative to the U.S. dollar over the term of the arrangement.

The following table sets forth the fair values of derivative instruments held by the Company as of September 30, 2013 and December 31, 2012 and the balance sheet lines in which they are recorded:
 
Fair Value Asset (Liability)
 
 
 
September 30, 2013
 
December 31, 2012
 
Balance Sheet Caption
Foreign currency forward / collar contracts
$
323

 
$
85

 
Prepaid / Other assets
Foreign currency forward / collar contracts
(208
)
 
(799
)
 
Other accrued expenses
Net investment hedge - cross currency swap
(22,750
)
 
(22,681
)
 
Other liabilities

The amount of gains or losses from hedging activity recorded in earnings is not significant and the amount of unrealized gains and losses from cash flow hedges which are expected to be reclassified to earnings in the next twelve months is not significant; therefore, additional tabular disclosures are not presented. There are no amounts excluded from the assessment of hedge effectiveness, and the Company's derivative instruments that are subject to credit risk contingent features were not significant.

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


13
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

Fair Value Measurements

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

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

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

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

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

 
$
323

 
$
—

 
$
—

 
$
85

 
$
—

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency cash flow hedges
—

 
208

 
—

 
—

 
799

 
—

Net investment hedge derivative
—

 
22,750

 
—

 
—

 
22,681

 
—


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

The estimated fair value of long-term debt at September 30, 2013 and December 31, 2012 was $2,458,592 and $2,680,674, respectively, compared to the carrying value of $2,193,391 and $2,192,616, respectively. The estimated fair value of long-term debt is based on quoted market prices for similar instruments and is, therefore, classified as Level 2 within the valuation hierarchy.

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

11. Income Taxes

The effective tax rate for continuing operations for the three months ended September 30, 2013 was 27.4% as compared to 28.0% for the comparable prior year period.  The current quarter rate was impacted by $4,878 of favorable net discrete items, principally related to a favorable court interpretation of tax law, as well as certain cross-border tax consequences. The prior year quarter effective tax rate was impacted by other favorable net discrete items totaling $4,513. Excluding the discrete items, the effective tax rates were 28.7% and 29.4% for the three months ended September 30, 2013 and 2012, respectively.

The effective tax rate for continuing operations for the nine months ended September 30, 2013 was 20.3% as compared to 27.8% for the prior year period. The current year rate was impacted by $70,880 of favorable net discrete items, principally related to the conclusion of certain U.S. federal, state and international tax audits, a favorable court interpretation of tax law, certain cross-border tax consequences and the effect of the American Tax Relief Act of 2012 signed into law on January 2, 2013. The prior year effective tax rate was not significantly impacted by other favorable net discrete items totaling $2,531. Excluding the discrete items, the effective tax rates were 27.8% and 28.1% for the nine months ended September 30, 2013 and 2012, respectively. The current year pre-discrete rate was favorably impacted by reinstatement of the U.S. Research and Experimentation tax credit.

Dover and its subsidiaries file tax returns in the U.S., including various state and local returns, and in other foreign jurisdictions.  We believe adequate provision has been made for all income tax uncertainties.  The Company is routinely audited by taxing authorities in its filing jurisdictions, and a number of these audits are currently underway.  We believe within the next twelve

14
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

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

12. Equity Incentive Program

The Company typically grants stock settled appreciation rights (“SARs”) and performance shares annually at its regularly scheduled first quarter Compensation Committee meeting. In the first quarters of 2013 and 2012, the Company issued SARs covering 1,613,884 and 1,719,943 shares, respectively, and 47,032 and 50,416 performance shares, respectively.

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

 
5.7

 
2.9

 
2.9

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

 
$
65.38

 
n/a

 
n/a

Fair value at date of grant
$
20.62

 
$
18.51

 
$
80.47

 
$
71.98

 
Stock-based compensation is reported within selling and administrative expenses in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Earnings. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Pre-tax compensation expense
$
7,081

 
$
7,483

 
$
23,384

 
$
23,589

Tax benefit
(2,493
)
 
(2,643
)
 
(8,241
)
 
(8,330
)
Total stock-based compensation expense, net of tax
$
4,588

 
$
4,840

 
$
15,143

 
$
15,259


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

13. Commitments and Contingent Liabilities

Litigation

A few of the Company’s subsidiaries are involved in legal proceedings relating to the cleanup of waste disposal sites identified under federal and state statutes which provide for the allocation of such costs among “potentially responsible parties.” In each instance, the extent of the Company’s liability appears to be very small in relation to the total projected expenditures and the number of other “potentially responsible parties” involved and is anticipated to be immaterial to the Company. In addition, a few of the Company’s subsidiaries are involved in ongoing remedial activities at certain current and former plant sites, in cooperation with regulatory agencies, and appropriate reserves have been established. At September 30, 2013 and December 31, 2012, the Company has reserves totaling $30,166 and $28,875, respectively, for environmental and other matters that are probable and estimable, with the 2013 increase primarily attributed to environmental contingencies assumed in recent acquisitions.


15
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

The Company and certain of its subsidiaries are also parties to a number of other legal proceedings incidental to their businesses. These proceedings primarily involve claims by private parties alleging injury arising out of use of the Company’s products, exposure to hazardous substances, patent infringement, employment matters, and commercial disputes. Management and legal counsel, at least quarterly, review the probable outcome of such proceedings, the costs and expenses reasonably expected to be incurred and currently accrued to-date, and the availability and extent of insurance coverage. At September 30, 2013 and December 31, 2012, the Company has reserves totaling $754 and $1,158, respectively, for legal matters that are probable and estimable and not otherwise covered by insurance. While it is not possible at this time to predict the outcome of these legal actions, in the opinion of management, based on the aforementioned reviews, the Company is not currently involved in any legal proceedings which, individually or in the aggregate, could have a material effect on its financial position, results of operations, or cash flows.

Warranty Accruals

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

 
$
37,739

Provision for warranties
40,105

 
34,943

Settlements made
(37,327
)
 
(34,523
)
Other adjustments, including acquisitions and currency translation
(1,194
)
 
3,313

Ending balance, September 30
$
45,343

 
$
41,472


14. Employee Benefit Plans

Retirement Plans

The Company offers defined contribution retirement plans which cover the majority of its U.S. employees, as well as employees in certain other countries. In addition, the Company sponsors qualified defined benefit pension plans covering certain employees of the Company and its subsidiaries. The plans’ benefits are generally based on years of service and employee compensation.  The Company also provides to certain management employees, through non-qualified plans, supplemental retirement benefits in excess of qualified plan limits imposed by federal tax law.

In July 2013, the Company announced that, after December 31, 2013, the U.S. qualified and non-qualified defined benefit plans will be closed to new employees. All pension-eligible employees as of December 31, 2013 will continue to earn a pension benefit through December 31, 2023 as long as they remain employed by an operating company participating in the plan. The Company also announced that effective, January 1, 2024, the plan would be frozen to any future benefit accruals.

As a result of the effective 10-year freeze of these defined benefit plans, pension assets and liabilities were re-measured as of the interim effective date of the change, assuming a discount rate of 4.8%. The Company's discount rate assumption is determined by developing a yield curve based on high-quality corporate bonds with maturities matching the plans' expected benefit payment streams. Accordingly, as of July 31, 2013, this re-measurement resulted in a decrease in current quarter pension expense of $7,348, of which $4,411 reflects a one-time curtailment gain in the Company's non-qualified benefit plan. Due to the recent amendments to the defined benefit plan, the Company is currently reevaluating contribution amounts for full year 2013.
 

16
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

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

Qualified Defined Benefits
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
U.S. Plan
 
Non-U.S. Plans
 
U.S. Plan
 
Non-U.S. Plans
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Service Cost
$
4,088

 
$
3,602

 
$
1,471

 
$
1,079

 
$
13,290

 
$
10,804

 
$
4,387

 
$
3,147

Interest Cost
6,247

 
6,284

 
2,264

 
2,231

 
18,491

 
18,852

 
6,748

 
6,428

Expected return on plan assets
(10,106
)
 
(9,744
)
 
(2,395
)
 
(2,022
)
 
(30,011
)
 
(29,234
)
 
(7,138
)
 
(5,810
)
Amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
256

 
260

 
28

 
30

 
769

 
786

 
85

 
89

Recognized actuarial loss
3,771

 
3,378

 
373

 
130

 
14,741

 
10,136

 
1,112

 
371

Transition obligation
—

 
—

 
(3
)
 
(13
)
 
—

 
—

 
(10
)
 
(36
)
Settlement loss
—

 
—

 
353

 
—

 
—

 
—

 
353

 
—

Other
—

 
—

 
39

 
56

 
—

 
—

 
118

 
158

Net periodic expense
$
4,256

 
$
3,780

 
$
2,130

 
$
1,491

 
$
17,280

 
$
11,344

 
$
5,655

 
$
4,347


Non-Qualified Supplemental Benefits
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Service Cost
$
1,246

 
$
1,326

 
$
4,604

 
$
3,978

Interest Cost
1,633

 
1,979

 
5,180

 
5,937

Amortization:
 
 
 
 
 
 
 
   Prior service cost
2,045

 
1,857

 
6,040

 
5,569

   Recognized actuarial loss
(32
)
 
33

 
52

 
103

Settlement and curtailment gain
(4,411
)
 
—

 
(4,411
)
 
—

Net periodic expense
$
481

 
$
5,195

 
$
11,465

 
$
15,587


Post-Retirement Plans

The Company also maintains post retirement benefit plans, although these plans are effectively closed to new entrants. The supplemental and post retirement benefit plans are supported by the general assets of the Company. The following table sets forth the components of the Company’s net periodic expense relating to its post-retirement benefit plans:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Service Cost
$
59

 
$
62

 
$
176

 
$
186

Interest Cost
130

 
149

 
392

 
445

Amortization:
 
 
 
 
 
 
 
   Prior service cost
(104
)
 
(104
)
 
(312
)
 
(312
)
   Recognized actuarial loss (gain)
34

 
(5
)
 
102

 
(15
)
Settlement gains
—

 
—

 
—

 
(1,493
)
Net periodic expense
$
119

 
$
102

 
$
358

 
$
(1,189
)

The Company purchased life insurance contracts to settle a portion of the post-retirement obligations relating to employees of two businesses that were sold in 2011, resulting in a settlement gain of $1,493, which are included within the results of discontinued operations for the nine months ended September 30, 2012.

The total amount amortized out of accumulated other comprehensive income into net periodic benefit expense for the three and nine months ended September 30, 2013 totaled $6,368 and $22,579, respectively.

17
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)

 
15. Other Comprehensive Earnings

The amounts recognized in other comprehensive earnings were as follows:
 
Three Months Ended
 
Three Months Ended
 
September 30, 2013
 
September 30, 2012
 
Pre-tax
 
Tax
 
Net of tax
 
Pre-tax
 
Tax
 
Net of tax
Foreign currency translation adjustments
$
60,802

 
$
998

 
$
61,800

 
$
82,694

 
$
108

 
$
82,802

Pension and other postretirement benefit plans
129,959

 
(45,452
)
 
84,507

 
16,268

 
(5,693
)
 
10,575

Changes in fair value of cash flow hedges
(453
)
 
158

 
(295
)
 
298

 
(104
)
 
194

Other
132

 
(17
)
 
115

 
(261
)
 
(29
)
 
(290
)
Total other comprehensive earnings (loss)
$
190,440

 
$
(44,313
)
 
$
146,127

 
$
98,999

 
$
(5,718
)
 
$
93,281


 
Nine Months Ended
 
Nine Months Ended
 
September 30, 2013
 
September 30, 2012
 
Pre-tax
 
Tax
 
Net of tax
 
Pre-tax
 
Tax
 
Net of tax
Foreign currency translation adjustments
$
22,510

 
$
—

 
$
22,510

 
$
34,181

 
$
(262
)
 
$
33,919

Pension and other postretirement benefit plans
146,170

 
(51,059
)
 
95,111

 
9,952

 
(3,637
)
 
6,315

Changes in fair value of cash flow hedges
(174
)
 
61

 
(113
)
 
675

 
(236
)
 
439

Other
319

 
(39
)
 
280

 
318

 
(55
)
 
263

Total other comprehensive earnings (loss)
$
168,825

 
$
(51,037
)
 
$
117,788

 
$
45,126

 
$
(4,190
)
 
$
40,936


Total comprehensive earnings were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Net earnings
$
269,114

 
$
241,046

 
$
809,166

 
$
651,210

Other comprehensive earnings
146,127

 
93,281

 
117,788

 
40,936

Comprehensive earnings
$
415,241

 
$
334,327

 
$
926,954

 
$
692,146


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

2012
Pension & postretirement benefit plans: (1)
 
 
 
 
 
 
 
Amortization of actuarial losses
$
4,143

 
$
10,225

 
$
15,997

 
$
10,225

Amortization of prior service costs
2,225

 
6,043

 
6,582

 
6,043

Total before tax
6,368

 
16,268

 
22,579

 
16,268

Tax provision
(2,195
)
 
(5,693
)
 
(7,802
)
 
(5,693
)
Net of tax
$
4,173

 
$
10,575

 
$
14,777

 
$
10,575

 
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
Net (gains) losses reclassified into earnings
$
(617
)
 
$
47

 
$
(481
)
 
$
91

Tax benefit
216

 
(17
)
 
168

 
(32
)
Net of tax
$
(401
)
 
$
30

 
$
(313
)
 
$
59


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

18
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)


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

Cash flow hedges consist mainly of foreign currency forward and commodity contracts. The Company recognizes the realized gains and losses on its cash flow hedges in the same line item as the hedged transaction, such as revenue, cost of goods and services, or selling & administrative expenses.

16. Segment Information

For management reporting and performance evaluation purposes, the Company categorizes its operating companies into four distinct reportable segments. Segment financial information and a reconciliation of segment results to consolidated results follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
REVENUE:
 
 
 
 
 
 
 
Communication Technologies
$
413,608

 
$
396,470

 
$
1,187,875

 
$
1,115,734

Energy
577,350

 
562,263

 
1,712,019

 
1,632,619

Engineered Systems
1,004,955

 
892,121

 
2,876,783

 
2,600,368

Printing & Identification
256,571

 
246,945

 
745,094

 
742,390

Intra-segment eliminations
(135
)
 
(194
)
 
(1,086
)
 
(603
)
Total consolidated revenue
$
2,252,349

 
$
2,097,605

 
$
6,520,685

 
$