UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

Dover Corporation

(Exact name of registrant as specified in its charter)

Delaware		53-0257888
(State of Incorporation)		(I.R.S. Employer Identification No.)
280 Park Avenue, New York, NY		10017
(Address of principal executive offices)		(Zip Code)

(212) 922-1640
(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of “accelerated filer” and “large accelerated filer” in Rule 12-b-2 of the Securities and Exchange Act.

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o

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

The number of shares outstanding of the Registrant’s common stock as of October 19, 2007 was 244,359,629.

 

 

Dover Corporation
Form 10-Q
Table of Contents

PART I – FINANCIAL INFORMATION
		Page		Item
				Item 1. Financial Statements (unaudited)
		1		Condensed Consolidated Statements of Operations
				(For the three and nine months ended September 30, 2007 and 2006)
		2		Condensed Consolidated Balance Sheets
				(At September 30, 2007 and December 31, 2006)
		2		Condensed Consolidated Statement of Stockholders’ Equity
				(For the nine months ended September 30, 2007)
		3		Condensed Consolidated Statements of Cash Flows
				(For the nine months ended September 30, 2007 and 2006)
		4		Notes to Condensed Consolidated Financial Statements
		12		Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
		21		Item 3. Quantitative and Qualitative Disclosures About Market Risk
		21		Item 4. Controls and Procedures

PART II – OTHER INFORMATION
		Page		Item
		21		Item 1. Legal Proceedings
		21		Item 1A. Risk Factors
		22		Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
		22		Item 3. Defaults Upon Senior Securities
		22		Item 4. Submission of Matters to a Vote of Security Holders
		22		Item 5. Other Information
		22		Item 6. Exhibits
		23		Signatures
		24		Exhibit Index
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATIONS

(All other schedules are not required and have been omitted)

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

DOVER CORPORATION

		Three Months Ended September 30,								Nine Months Ended September 30,
		2007				2006				2007				2006
Revenue		$	1,843,829			$	1,605,247			$	5,366,067			$	4,650,106
Cost of goods and services			1,172,639				1,032,203				3,416,458				2,938,072
Gross profit			671,190				573,044				1,949,609				1,712,034
Selling and administrative expenses			404,537				347,431				1,215,675				1,035,496
Operating earnings			266,653				225,613				733,934				676,538
Interest expense, net			22,326				17,184				66,613				57,916
Other expense, net			2,416				2,702				2,281				9,650
Total interest/other expense, net			24,742				19,886				68,894				67,566
Earnings before provision for income taxes and discontinued operations			241,911				205,727				665,040				608,972
Provision for income taxes			63,972				50,439				180,643				171,080
Earnings from continuing operations			177,939				155,288				484,397				437,892
Earnings (loss) from discontinued operations, net			(3,348	)			12,237				(8,681	)			5,370
Net earnings		$	174,591			$	167,525			$	475,716			$	443,262
Basic earnings (loss) per common share:
Earnings from continuing operations		$	0.89			$	0.76			$	2.38			$	2.15
Earnings (loss) from discontinued operations			(0.02	)			0.06				(0.04	)			0.03
Net earnings			0.87				0.82				2.34				2.18
Weighted average shares outstanding			200,850				203,682				203,235				203,629
Diluted earnings (loss) per common share:
Earnings from continuing operations		$	0.88			$	0.76			$	2.36			$	2.13
Earnings (loss) from discontinued operations			(0.02	)			0.06				(0.04	)			0.03
Net earnings			0.86				0.82				2.32				2.16
Weighted average shares outstanding			202,469				205,313				204,915				205,294
Dividends paid per common share		$	0.200			$	0.185			$	0.570			$	0.525

The following table is a reconciliation of the share amounts used in computing earnings per share:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2007				2006				2007				2006
Weighted average shares outstanding — Basic			200,850				203,682				203,235				203,629
Dilutive effect of assumed exercise of employee stock options			1,619				1,631				1,680				1,665
Weighted average shares outstanding — Diluted			202,469				205,313				204,915				205,294
Anti-dilutive shares excluded from diluted EPS computation			1,699				1,837				3,358				2,252

See Notes to Condensed Consolidated Financial Statements

DOVER CORPORATION

		(unaudited)
		At September				At December 31,
		30, 2007				2006
Current assets:
Cash and equivalents		$	446,023			$	374,845
Receivables, net of allowances of $30,017 and $28,070			1,172,081				1,040,286
Inventories, net			719,729				694,631
Prepaid and other current assets			84,262				64,580
Deferred tax asset			73,179				65,769
Total current assets			2,495,274				2,240,111
Property, plant and equipment, net			859,386				815,188
Goodwill			3,265,621				3,143,034
Intangible assets, net			1,041,337				1,065,382
Other assets and deferred charges			130,143				122,842
Assets of discontinued operations			157,302				240,101
Total assets		$	7,949,063			$	7,626,658
Current liabilities:
Notes payable and current maturities of long-term debt		$	511,650			$	290,549
Accounts payable			432,260				401,137
Accrued compensation and employee benefits			277,959				273,493
Accrued insurance			118,979				121,375
Other accrued expenses			201,342				181,879
Federal and other taxes on income			72,318				155,484
Total current liabilities			1,614,508				1,423,917
Long-term debt			1,454,455				1,480,491
Deferred income taxes			341,170				358,358
Other deferrals			516,006				404,721
Liabilities of discontinued operations			114,774				148,149
Commitments and contingent liabilities
Stockholders’ Equity:
Total stockholders’ equity			3,908,150				3,811,022
Total liabilities and stockholders’ equity		$	7,949,063			$	7,626,658

DOVER CORPORATION

										Accumulated
		Common				Additional				Other												Total
		Stock				Paid-In				Comprehensive				Retained				Treasury				Stockholders’
		$1 Par Value				Capital				Earnings				Earnings				Stock				Equity
Balance at December 31, 2006		$	242,293			$	241,455			$	48,852			$	4,421,927			$	(1,143,505	)		$	3,811,022
FIN 48 Adjustment (See Note 2)			—				—				—				(58,157	)			—				(58,157	)
Net earnings			—				—				—				475,716				—				475,716
Dividends paid			—				—				—				(115,490	)			—				(115,490	)
Common stock issued for options exercised			2,066				68,085				—				—				—				70,151
Stock-based compensation expense			—				21,623				—				—				—				21,623
Tax benefit from exercises of stock options			—				10,200				—				—				—				10,200
Common stock acquired			—				—				—				—				(392,383	)			(392,383	)
Translation of foreign financial statements			—				—				77,236				—				—				77,236
SFAS No. 158 amortization, net of tax			—				—				9,587				—				—				9,587
Other, net of tax			—				—				(1,355	)			—				—				(1,355	)
Balance at September 30, 2007		$	244,359			$	341,363			$	134,320			$	4,723,996			$	(1,535,888	)		$	3,908,150

Preferred Stock, $100 par value per share. 100,000 shares authorized; none issued.

See Notes to Condensed Consolidated Financial Statements

DOVER CORPORATION

		Nine Months Ended September 30,
		2007				2006
Operating Activities of Continuing Operations
Net earnings		$	475,716			$	443,262
Adjustments to reconcile net earnings to net cash from operating activities:
Loss (earnings) from discontinued operations			8,681				(5,370	)
Depreciation and amortization			180,695				140,449
Stock-based compensation			21,049				19,970
Changes in current assets and liabilities (excluding effects of acquisitions, dispositions and foreign exchange):
Increase in accounts receivable			(88,625	)			(104,022	)
Decrease (increase) in inventories			8,901				(42,465	)
Increase in prepaid expenses and other assets			(16,262	)			(3,589	)
Increase in accounts payable			8,611				25,293
Increase in accrued expenses			3,527				28,453
Increase (decrease) in accrued and deferred taxes			(46,044	)			26,212
Other non-current, net			(18,657	)			48,703
Net cash provided by operating activities of continuing operations			537,592				576,896
Proceeds from the sale of property and equipment			18,437				8,944
Additions to property, plant and equipment			(130,687	)			(133,515	)
Proceeds from sales of discontinued businesses			31,211				274,198
Acquisitions (net of cash and cash equivalents acquired)			(174,345	)			(511,429	)
Net cash used in investing activities of continuing operations			(255,384	)			(361,802	)
Financing Activities of Continuing Operations
Increase (decrease) in debt, net			192,452				(1,109	)
Purchase of treasury stock			(392,383	)			(47,766	)
Proceeds from exercise of stock options, including tax benefits			80,351				71,188
Dividends to stockholders			(115,490	)			(106,953	)
Net cash used in financing activities of continuing operations			(235,070	)			(84,640	)
Cash Flows From Discontinued Operations
Net cash provided by operating activities of discontinued operations			8,036				23,648
Net cash used in investing activities of discontinued operations			(2,793	)			(10,764	)
Net cash provided by discontinued operations			5,243				12,884
Effect of exchange rate changes on cash			18,797				12,380
Net increase in cash and cash equivalents			71,178				155,718
Cash and cash equivalents at beginning of period			374,845				186,943
Cash and cash equivalents at end of period		$	446,023			$	342,661

See Notes to Condensed Consolidated Financial Statements

DOVER CORPORATION

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, 2006, which provides a more complete understanding of Dover’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. It is the opinion of management that these financial statements reflect all adjustments necessary for a fair presentation 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.

Certain prior period amounts have been reclassified to conform to the current period presentation.

2. New Accounting Pronouncement

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 specifies the way companies are to account for uncertainty in income tax reporting, and prescribes a methodology for recognizing, reversing, and measuring the tax benefits of a tax position taken, or expected to be taken, in a tax return. As a result of adopting the new standard, the Company recorded a $58.2 million increase to reserves as a “cumulative effect” decrease to opening retained earnings as of January 1, 2007, of which $53.4 million is included in continuing operations. Including this “cumulative effect” adjustment, the Company had unrecognized tax benefits of $190.5 million at January 1, 2007, of which $35.4 million related to accrued interest and penalties. The portion of the unrecognized tax benefits included in continuing operations totaled $147.6 million, of which $28.0 million related to accrued interest and penalties. At January 1, 2007, the majority of these unrecognized tax benefits in continuing operations were classified as Other Deferrals in the condensed consolidated balance sheet and, if recognized, the entire amount of $147.6 million would impact the Company’s effective tax rate. The Company accrues interest and penalties related to its uncertain tax positions for continuing operations as a component of provision for income taxes.

At December 31, 2006, the continuing unrecognized tax benefit of $94.2 million was included in Federal and Other Taxes on Income in the condensed consolidated balance sheet.

During the third quarter of 2007, the Company reduced its unrecognized tax benefits through Net Earnings by $4.4 million, ($3.6 million in continuing operations), as a result of management’s review of certain tax positions.

Dover files Federal income tax returns, as well as multiple state, local and foreign jurisdiction tax returns. The Company is no longer subject to examinations of its federal income tax returns by the Internal Revenue Service (“IRS”) for years through 2002. The IRS is currently examining years 2003 and 2004. All significant state and local, and foreign matters have been concluded for years through 1994 and 1999, respectively. With the exception of matters in litigation, for which an estimate cannot be made due to uncertainties, the Company does not believe it is reasonably possible that its unrecognized tax benefits will significantly change within the next twelve months.

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

3. Acquisitions

The 2007 acquisitions are wholly-owned and had an aggregate cost of $174.3 million, net of cash acquired, at the date of acquisition. The following table details acquisitions made during 2007:

Operating

Date

Type

Acquired Companies

Location (Near)

Segment

Platform

Company

31-Jan

Stock

Biode

Westbrook, ME

Electronic Technologies

N/A

Vectron

Designer and manufacturer of fluid viscosity sensors and viscometer readers.

28-Feb

Asset

Pole/Zero Corporation

West Chester, OH

Electronic Technologies

N/A

MPG

Designer and manufacturer of radio frequency filters that resolve interference issues.

31-Mar

Asset

Theta Oilfield Services

Brea, CA

Fluid Management

Energy

EPG

Provider of oilwell optimization software.

31-Jul

Asset

Hanmecson International

Haimen, China

Industrial Products

Mobile Equipment

Rotary Lift

Manufacturer of vehicle lifts including lifts for residential and enthusiast markets.

18-Sep

Stock

Griswold Pump

Thomasville, GA

Fluid Management

Fluid Solutions

Wilden

Manufacturer of centrifugal pumps and peripheral products.

For certain acquisitions, the Company is in the process of obtaining or finalizing appraisals of tangible and intangible assets and continuing to evaluate the initial purchase price allocations as of the acquisition date, which will be adjusted as additional information relative to the fair values of the assets and liabilities of the businesses becomes known. Accordingly, management has used its best estimate in the initial purchase price allocation as of the date of these financial statements.

The following table summarizes the estimated fair values of the assets and liabilities that were assumed as of the dates of the 2007 acquisitions and the amounts assigned to goodwill and intangible asset classifications:

(in thousands)		At September 30, 2007
Current assets, net of cash acquired		$	25,291
PP&E			6,733
Goodwill			92,993
Intangibles			60,990
Total assets acquired			186,007
Total liabilities assumed			(11,662	)
Net assets acquired		$	174,345

The following unaudited pro forma information illustrates the effect on Dover’s revenue and net earnings for the three and nine month periods ended September 30, 2007 and 2006, assuming that the 2007 and 2006 acquisitions had all taken place on January 1, 2006:

		Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands, except per share figures)		2007				2006				2007				2006
Revenue from continuing operations:
As reported		$	1,843,829			$	1,605,247			$	5,366,067			$	4,650,106
Pro forma			1,846,996				1,761,338				5,395,694				5,187,920
Net earnings from continuing operations:
As reported		$	177,939			$	155,288			$	484,397			$	437,892
Pro forma			178,013				161,548				485,737				455,258
Basic earnings per share from continuing operations:
As reported		$	0.89			$	0.76			$	2.38			$	2.15
Pro forma			0.89				0.79				2.39				2.24
Diluted earnings per share from continuing operations:
As reported		$	0.88			$	0.76			$	2.36			$	2.13
Pro forma			0.88				0.79				2.37				2.22

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

These pro forma results of operations have been prepared for comparative purposes only and include certain adjustments to actual financial results for the relevant periods, such as imputed financing costs, and estimated additional amortization and depreciation expense as a result of intangibles and fixed assets acquired. They do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred on the date indicated, or which may result in the future.

In connection with certain 2006 acquisitions, the Company recorded $14.7 million of severance and facility closing costs at the date of acquisition in accordance with Emerging Issues Task Force Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” Through the end of the third quarter of 2007, the reserve was reduced by payments of $2.5 million and write-offs of $1.4 million.

4. Inventory

The following table displays the components of inventory:

		At September 30,				At December 31,
(in thousands)		2007				2006
Raw materials		$	330,156			$	322,630
Work in progress			173,536				165,993
Finished goods			266,893				254,256
Subtotal			770,585				742,879
Less LIFO reserve			50,856				48,248
Total		$	719,729			$	694,631

5. Property, Plant and Equipment

The following table displays the components of property, plant and equipment:

		At September 30,				At December 31,
(in thousands)		2007				2006
Land		$	51,169			$	50,881
Buildings and improvements			500,239				472,775
Machinery, equipment and other			1,676,961				1,555,967
			2,228,369				2,079,623
Accumulated depreciation			(1,368,983	)			(1,264,435	)
Total		$	859,386			$	815,188

6. Goodwill and Other Intangible Assets

The following table provides the changes in carrying value of goodwill by segment through the nine months ended September 30, 2007 (see Note 3 for discussion of purchase price allocations):

										Other
										adjustments
						Goodwill from				including
						2007				currency
(in thousands)			At December 31, 2006				acquisitions				translations				At September 30, 2007
Electronic Technologies		$	963,018			$	51,269			$	6,518			$	1,020,805
Industrial Products			833,893				11,520				767				846,180
Fluid Management			501,864				30,204				4,695				536,763
Engineered Systems			844,259				—				17,614				861,873
Total		$	3,143,034			$	92,993			$	29,594			$	3,265,621

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset:

		At September 30, 2007												At December 31, 2006
		Gross Carrying				Accumulated				Average				Gross Carrying				Accumulated
(in thousands)		Amount				Amortization				Life				Amount				Amortization
Amortized Intangible Assets:
Trademarks		$	37,269			$	13,424				29			$	29,865			$	11,848
Patents			130,339				71,636				13				116,128				64,833
Customer Intangibles			659,444				127,064				9				648,283				80,794
Unpatented Technologies			149,840				51,814				9				135,449				40,196
Non-Compete Agreements			6,451				4,996				5				6,146				4,421
Drawings & Manuals			15,872				5,389				5				15,765				4,479
Distributor Relationships			72,418				12,277				20				72,374				9,235
Other			21,749				10,243				14				29,217				8,038
Total			1,093,382				296,843				11				1,053,227				223,844
Unamortized Intangible Assets:
Trademarks			244,798												235,999
Total Intangible Assets		$	1,338,180			$	296,843							$	1,289,226			$	223,844

7. Discontinued Operations

2007

During the third quarter of 2007, the Company discontinued two businesses, Crenlo and Graphics Microsystems. On October 1, 2007, the Company completed the sale of Graphics Microsystems. In addition, during the third quarter of 2007, the Company finalized the sale of two previously discontinued businesses and recorded other adjustments resulting in a net after tax loss of $1.6 million.

During the second quarter of 2007, the Company completed the sale of a previously discontinued business and recorded other adjustments for businesses still held for sale, resulting in a net loss of approximately $5.0 million ($8.3 million after-tax).

During the first quarter of 2007, the Company completed the sales of Kurz Kasch, discontinued in 2006, and SWF, discontinued in 2005, and recorded other adjustments for businesses still held for sale and to reserves related to completed sales, resulting in a net loss of approximately $9.6 million ($7.5 million after-tax).

2006

During the third quarter of 2006, the Company finalized the sales of four previously discontinued businesses. As a result of the gains on the sales ($27.2 million net of tax) and adjustments to the carrying value of other previously discontinued businesses ($21.6 million net of tax), the Company recorded a $5.6 million gain, net of tax.

During the second quarter of 2006, the Company discontinued seven businesses. As a result, the Company recorded a write-down of the carrying value of these businesses to their estimated fair market value and other adjustments totaling a net loss of $101.2 million ($84.9 million after-tax).

During the first quarter of 2006, Dover completed the sale of Tranter PHE which was discontinued in the fourth quarter of 2005, resulting in a pre-tax gain of approximately $109.0 million ($85.5 million after-tax). In addition, during the first quarter of 2006, the Company discontinued and sold a business for a loss of $2.5 million ($2.2 million after-tax). Also, during the first quarter of 2006, the Company discontinued an operating company, comprised of two businesses, resulting in an impairment of approximately $15.4 million ($14.4 million after-tax).

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Summarized results of the Company’s discontinued operations are as follows:

		Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands)		2007				2006				2007				2006
Revenue		$	55,289			$	220,357			$	211,004			$	751,279
Gain (loss) on sale, net of taxes (1)		$	(1,568	)		$	5,623			$	(17,401	)		$	(10,340	)
Earnings (loss) from operations before taxes			(756	)			(71	)			5,887				14,915
Benefit (provision) for income taxes related to operations			(1,024	)			6,685				2,833				795
Earnings (loss) from discontinued operations, net of tax		$	(3,348	)		$	12,237			$	(8,681	)		$	5,370

At September 30, 2007, the assets and liabilities of discontinued operations primarily represent amounts related to three previously discontinued businesses that were not sold as of September 30, 2007. Additional detail related to the assets and liabilities of the Company’s discontinued operations is as follows:

		At September 30,				At December 31,
(in thousands)		2007				2006
Assets of Discontinued Operations
Current assets		$	49,259			$	101,165
Non-current assets			108,043				138,936
		$	157,302			$	240,101
Liabilities of Discontinued Operations
Current liabilities		$	87,995			$	117,303
Long-term liabilities			26,779				30,846
		$	114,774			$	148,149

In addition to the assets and liabilities of the entities currently held for sale in discontinued operations, the assets and liabilities of discontinued operations include residual amounts related to businesses previously sold. These residual amounts include property, plant and equipment, deferred tax assets, short and long-term reserves, and contingencies.

8. Debt

Dover’s long-term debt with a book value of $1,486.9 million, of which $32.5 million matures in less than one year, had a fair value of approximately $1,445.9 million at September 30, 2007. The estimated fair value of the long-term debt is based on quoted market prices for similar issues.

There are presently two interest rate swap agreements outstanding for a total notional amount of $100.0 million, designated as fair value hedges on part of the Company’s $150.0 million 6.25% Notes due on June 1, 2008. One $50.0 million interest rate swap exchanges fixed-rate interest for variable-rate interest. The other $50.0 million swap is designated in foreign currency and exchanges fixed-rate interest for variable-rate interest, and also hedges a portion of the Company’s net investment in foreign operations. The swap agreements have reduced the effective interest rate on the notes to 6.09%. There is no hedge ineffectiveness. The fair value of the interest rate swaps outstanding as of September 30, 2007 was determined through market quotation.

9. Commitments and Contingent Liabilities

A few of the Company’s subsidiaries are involved in legal proceedings relating to the cleanup of waste disposal sites identified under federal and state statutes which provide for the allocation of such costs among “potentially responsible parties.” In each instance, the extent of the Company’s liability appears to be very small in relation to the total projected expenditures and the number of other “potentially responsible parties” involved and is anticipated to be immaterial to the Company. In addition, a few of the Company’s subsidiaries are involved in ongoing remedial activities at certain current and former plant sites, in cooperation with regulatory agencies, and appropriate reserves have been established.

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

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 periodically review the probable outcome of such proceedings, the costs and expenses reasonably expected to be incurred, the availability and extent of insurance coverage, and established reserves. While it is not possible at this time to predict the outcome of these legal actions or any need for additional reserves, in the opinion of management, based on these reviews, it is very unlikely that the disposition of the lawsuits and the other matters mentioned above will have a material adverse effect on the financial position, results of operations, cash flows or competitive position of the Company.

Estimated warranty program claims are provided for at the time of sale. Amounts provided for are based on historical costs and adjusted new claims. The changes in the carrying amount of product warranties through September 30, 2007 and 2006 are as follows:

(in thousands)		2007				2006
Beginning Balance January 1		$	48,689			$	37,283
Provision for warranties			28,606				26,042
Increase from acquisitions			333				2,483
Settlements made			(24,585	)			(19,875	)
Other adjustments			526				910
Ending Balance September 30		$	53,569			$	46,843

10. Employee Benefit Plans

The following table sets forth the components of net periodic expense:

		Retirement Plan Benefits								Post Retirement Benefits
		Three Months Ended September 30,								Three Months Ended September 30,
(in thousands)		2007				2006				2007				2006
Expected return on plan assets		$	(7,807	)		$	(7,900	)		$	—			$	—
Benefits earned during period			5,810				5,599				90				11
Interest accrued on benefit obligation			8,673				8,318				274				189
Amortization (A):
Prior service cost			2,128				1,972				(43	)			(43	)
Recognized actuarial (gain) loss			2,717				2,604				(19	)			(47	)
Transition obligation			(39	)			(274	)			—				—
Net periodic expense (benefit)		$	11,482			$	10,319			$	302			$	110

		Retirement Plan Benefits								Post Retirement Benefits
		Nine Months Ended September 30,								Nine Months Ended September 30,
(in thousands)		2007				2006				2007				2006
Expected return on plan assets		$	(23,422	)		$	(23,700	)		$	—			$	—
Benefits earned during period			17,430				16,797				270				(155	)
Interest accrued on benefit obligation			26,019				24,954				822				(691	)
Amortization (A):
Prior service cost			6,383				5,916				(129	)			156
Recognized actuarial (gain) loss			8,150				7,812				(57	)			9
Transition obligation			(116	)			(822	)			—				—
Settlement gain (Tranter PHE sale) (B)			—				—				—				4,699
Net periodic expense (benefit)		$	34,444			$	30,957			$	906			$	4,018

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

11. Comprehensive Earnings

Comprehensive earnings were as follows:

		Three months Ended September 30,								Nine Months Ended September 30,
(in thousands)		2007				2006				2007				2006
Net Earnings		$	174,591			$	167,525			$	475,716			$	443,262
Foreign currency translation adjustment			51,757				22,568				77,236				85,058
Unrealized holding losses, net of tax			(7	)			37				(1,214	)			(221	)
Derivative cash flow hedges			(48	)			(133	)			(141	)			(33	)
SFAS 158 amortization, net of tax			3,200				—				9,587				—
Comprehensive Earnings		$	229,493			$	189,997			$	561,184			$	528,066

12. Segment Information

During the third quarter of 2007, Dover realigned its segments and, as a result, has four reportable segments which are based on the management reporting structure used to evaluate performance. See Dover’s Current Report of Form 8-K filed on September 17, 2007 for additional information. Segment financial information and a reconciliation of segment results to consolidated results follows:

(in thousands)		Three Months Ended September 30,								Nine Months Ended September 30,
		2007				2006				2007				2006
REVENUE
Industrial Products		$	548,823			$	482,459			$	1,666,559			$	1,396,867
Engineered Systems			560,871				430,274				1,588,135				1,224,415
Fluid Management			374,503				337,512				1,096,744				979,713
Electronic Technologies			363,002				358,137				1,024,892				1,058,392
Intramarket eliminations			(3,370	)			(3,135	)			(10,263	)			(9,281	)
Total consolidated revenue		$	1,843,829			$	1,605,247			$	5,366,067			$	4,650,106
EARNINGS FROM CONTINUING OPERATIONS
Segment Earnings:
Industrial Products		$	75,893			$	61,858			$	231,118			$	190,020
Engineered Systems			79,451				62,905				207,713				186,689
Fluid Management			79,184				67,297				226,309				201,101
Electronic Technologies			50,801				52,658				133,104				161,272
Total segments			285,329				244,718				798,244				739,082
Corporate expense / other			(21,092	)			(21,807	)			(66,591	)			(72,194	)
Net interest expense			(22,326	)			(17,184	)			(66,613	)			(57,916	)
Earnings before provision for income taxes and discontinued operations			241,911				205,727				665,040				608,972
Provision for income taxes			63,972				50,439				180,643				171,080
Earnings from continuing operations — total consolidated		$	177,939			$	155,288			$	484,397			$	437,892

13. Recent Accounting Standards

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This statement is effective for fiscal periods beginning after November 15, 2007 and does not require any new fair value measurements. The Company is currently evaluating the impact of SFAS No. 157 on its overall results of operations and financial position.

DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This Statement allows entities to choose to measure financial instruments and certain other items at fair value. This statement is effective for fiscal periods beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS No. 159 on its overall results of operations and financial position.

14. Equity and Performance Incentive Program

In the first quarter of 2007 and 2006, the Company issued stock-settled stock appreciation rights (“SSARs”) totaling 1,736,383 and 1,886,989, respectively. For the quarters ended September 30, 2007 and 2006, after-tax stock-based compensation expense totaled $4.3 million and $4.1 million, respectively. For the nine months ended September 30, 2007 and 2006, after-tax stock-based compensation expense totaled $13.7 million and $13.0 million, respectively.

15. Share Repurchases

During the third quarter of 2007, the Board of Directors approved a $500 million share repurchase program authorizing repurchases of 10,000,000 common shares and the Company entered into an accelerated share repurchase agreement (“ASR”) under which it purchased 6,000,000 shares of its common stock at an initial purchase price of $51.64 per share. Final settlement of this ASR is expected to occur during the fourth quarter of 2007. The final economic purchase price per share will be an average of the volume weighted average price of the Company’s common stock during the outstanding period less a negotiated discount amount. In addition, during the third quarter, the Company made other open market purchases of its common stock totaling 96,032 shares at a price of $49.03 per share. During the nine months ended September 30, 2007, the Company has repurchased 7,596,032 shares of its common stock, inclusive of the ASR, in the open market at an average price of $51.18 per share.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Refer to the section below entitled “Special Notes Regarding Forward-Looking Statements” for a discussion of factors that could cause actual results to differ from the forward-looking statements contained below and throughout this quarterly report.

OVERVIEW

Dover Corporation (“Dover” or the “Company”) is a global portfolio of manufacturing companies providing innovative components and equipment, specialty systems and support services for a variety of applications in the industrial products, engineered systems, fluid management and electronic technologies markets. During the third quarter of 2007, Dover realigned its segments and, as a result, has four reportable segments which are based on the management reporting structure used to evaluate performance. See Dover’s Current Report of Form 8-K filed on September 17, 2007 for additional information. Dover discusses its operations at the platform level within the Industrial Products, Engineered Systems, and Fluid Management segments, which contain two platforms each. Electronic Technologies’ results are discussed at the segment level.

(1) FINANCIAL CONDITION:

Management assesses Dover’s liquidity in terms of its ability to generate cash and access capital markets to fund its operating, investing and financing activities. Significant factors affecting liquidity are: cash flows generated from operating activities, capital expenditures, acquisitions, dispositions, dividends, adequacy of commercial paper and available bank lines of credit, and the ability to attract long-term capital with satisfactory terms. The Company generates substantial cash from operations and remains in a strong financial position, maintaining enough liquidity for reinvestment in existing businesses and strategic acquisitions while managing its capital structure on a short and long-term basis.

Cash and cash equivalents of $446.0 million at September 30, 2007 increased from the December 31, 2006 balance of $374.8 million. Cash and cash equivalents were invested in highly liquid investment grade money market instruments with a maturity of 90 days or less.

The following table is derived from the Condensed Consolidated Statements of Cash Flows:

		Nine Months Ended September 30,
Cash Flows from Continuing Operations (in thousands)		2007				2006
Net Cash Flows Provided By (Used In):
Operating activities		$	537,592			$	576,896
Investing activities			(255,384	)			(361,802	)
Financing activities			(235,070	)			(84,640	)

Cash flows provided by operating activities for the first nine months of 2007 decreased $39.3 million from the prior year period, primarily reflecting higher incentive compensation, interest and tax payments, partially offset by higher earnings.

The cash used in investing activities in the first nine months of 2007 decreased $106.4 million largely reflecting higher acquisition spending and proceeds received from sales of discontinued businesses in the 2006 period. Capital expenditures in the nine months of 2007 were essentially flat at $130.7 million as compared to $133.5 million in the prior year period. Acquisition spending was $174.3 million during the first nine months of 2007 compared to $511.4 million in the prior year period. Proceeds from the sales of discontinued businesses in the first nine months of 2007 were $31.2 million compared to $274.2 million in the 2006 period. The Company currently anticipates that any additional acquisitions made during 2007 will be funded from available cash and internally generated funds and, if necessary, through the issuance of commercial paper, use of established lines of credit or public debt markets.

Cash used in financing activities for the first nine months of 2007 totaled $235.1 million as compared to $84.6

million during the comparable period last year. The change in financing activity during the first nine months of 2007 primarily reflected cash used for the Company’s accelerated stock repurchase program (“ASR”), partially offset by increased cash from borrowings. During 2007, the Company has purchased 7,596,032 shares of common stock in the open market at an average price of $51.18, of which 6,096,032 shares were purchased in the third quarter of 2007 at an average price of $51.60 per share. Shares purchased in the third quarter of 2007 included 6,000,000 shares that were purchased under the Company’s ASR at an initial price of $51.64 per share. Final settlement of this ASR is expected to occur during the fourth quarter of 2007. The final economic purchase price per share will be an average of the volume weighted average price of the Company’s common stock during the outstanding period less a negotiated discount amount.

“Adjusted Working Capital” (a non-GAAP measure calculated as accounts receivable, plus inventory, less accounts payable) increased from the prior year end by $125.8 million or 9% to $1,459.6 million, which reflected increases in receivables of $131.8 million and increases in inventory of $25.1 million, partially offset by an increase in payables of $31.1 million. Excluding the impact of acquisitions and foreign currency, working capital would have increased by $71.1 million or 5%. Average Annual Adjusted Working Capital as a percentage of revenue (a non-GAAP measure calculated as the five-quarter average balance of accounts receivable, plus inventory, less accounts payable divided by the trailing twelve months of revenue) was 19.6% at September 30, 2007 compared to 19.0% at December 31, 2006 and inventory turns were 6.3 at September 30, 2007 compared to 6.4 at December 31, 2006.

In addition to measuring its cash flow generation and usage based upon the operating, investing and financing classifications included in the Condensed Consolidated Statements of Cash Flows, the Company also measures free cash flow (a non-GAAP measure). Management believes that free cash flow is an important measure of operating performance because it provides both management and investors a measurement of cash generated from operations that is available to fund acquisitions, pay dividends, repay debt and repurchase Dover’s common stock. Dover’s free cash flow for the nine months ended September 30, 2007 decreased $36.5 million compared to the prior year period. The decrease reflected higher tax, incentive compensation and interest payments.

The following table is a reconciliation of free cash flow with cash flows from operating activities:

		Nine Months Ended September 30,
Free Cash Flow (in thousands)		2007				2006
Cash flow provided by operating activities		$	537,592			$	576,896
Less: Capital expenditures			(130,687	)			(133,515	)
Free cash flow		$	406,905			$	443,381
Free cash flow as a percentage of revenue			7.6	%			9.5	%

The Company utilizes total debt and net debt-to-total-capitalization calculations to assess its overall financial leverage and capacity and believes the calculations are useful to investors for the same reason. The following table provides a reconciliation of total debt and net debt to total capitalization to the most directly comparable GAAP measures:

		At September 30,				At December 31,
Net Debt to Total Capitalization Ratio (in thousands)		2007				2006
Current maturities of long-term debt		$	32,490			$	32,267
Commercial paper and other short-term debt			479,160				258,282
Long-term debt			1,454,455				1,480,491
Total debt			1,966,105				1,771,040
Less: Cash and cash equivalents			446,023				374,845
Net debt			1,520,082				1,396,195
Add: Stockholders’ equity			3,908,150				3,811,022
Total capitalization		$	5,428,232			$	5,207,217
Net debt to total capitalization			28.0	%			26.8	%

The total debt level of $1,966.1 million at September 30, 2007 increased $195.1 million from December 31, 2006, due to increased commercial paper borrowings used to fund the Company’s ASR. The net debt increase was due

to the higher total debt level, partially offset by an increase in cash generated from operations, in the third quarter of 2007 when compared to December 31, 2006.

Dover’s long-term debt with a book value of $1,486.9 million, of which $32.5 million matures in less than one year, had a fair value of approximately $1,445.9 million at September 30, 2007. The estimated fair value of the long-term debt is based on quoted market prices for similar issues.

There are presently two interest rate swap agreements outstanding for a total notional amount of $100.0 million, designated as fair value hedges on part of the Company’s $150.0 million 6.25% Notes due on June 1, 2008. One $50 million interest rate swap exchanges fixed-rate interest for variable-rate interest. The other $50 million swap is designated in foreign currency and exchanges fixed-rate interest for variable-rate interest, and also hedges a portion of the Company’s net investment in foreign operations. The swap agreements have reduced the effective interest rate on the notes to 6.09%. There is no hedge ineffectiveness, and the fair value of the interest rate swaps outstanding as of September 30, 2007 was determined through market quotation.

(2) RESULTS OF OPERATIONS:

CONSOLIDATED RESULTS OF OPERATIONS

Revenue for the third quarter of 2007 increased 15% to $1,843.8 million from the comparable 2006 period, with increases at all four segments. Overall, Dover’s organic revenue growth was 3%, acquisition growth was 10%, with the remainder due to the impact of foreign exchange. Gross profit increased 17% to $671.2 million from the prior year quarter while the gross profit margin increased 70 basis points to 36.4%.

Selling and administrative expenses of $404.5 million for the third quarter of 2007 increased by $57.1 million over the comparable 2006 period, primarily due to increased revenue activity. Selling and administrative expenses as a percentage of revenue increased to 21.9% from 21.6% in the comparable 2006 period.

Interest expense, net, for the third quarter of 2007 increased by $5.1 million compared to the same quarter last year primarily due to increased commercial paper borrowings used to fund the Company’s ASR and an increase in commercial paper rates. Other expense, net, of $2.4 million and $2.7 million for the three months ended September 30, 2007 and 2006, respectively, primarily related to the effects of foreign exchange fluctuations on assets and liabilities denominated in currencies other than the Company’s functional currency.

The effective tax rate for continuing operations for the three months ended September 30, 2007 was 26.4%, compared to the prior year rate of 24.5%. The current quarter rate was impacted by a reduction in the statutory tax rate in Germany, adjustments to other reserves as required under FIN 48 offset by an earnings shift to countries with higher effective tax rates. The 2006 rate was impacted by a $7.8 million net benefit related to the resolution of a state income tax issue. The rates for the nine months ended September 30, 2007 and 2006 were 27.2% and 28.1%, respectively. The rate for the nine months ended September 30, 2007 decreased from the comparable 2006 rate as a result of the rate change in Germany, which was partially offset by adjustments to reserves as required under FIN 48.

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 specifies the way companies are to account for uncertainty in income tax reporting, and prescribes a methodology for recognizing, reversing, and measuring the tax benefits of a tax position taken, or expected to be taken, in a tax return. As a result of adopting the new standard, the Company recorded a $58.2 million increase to reserves as a “cumulative effect” decrease to opening retained earnings as of January 1, 2007, of which $53.4 million is included in continuing operations. Including this “cumulative effect” adjustment, the Company had unrecognized tax benefits of $190.5 million at January 1, 2007, of which $35.4 million related to accrued interest and penalties. The portion of the unrecognized tax benefits included in continuing operations totaled $147.6 million, of which $28.0 million related to accrued interest and penalties. At January 1, 2007, the majority of these unrecognized tax benefits in continuing operations were classified as “Other deferrals” in the condensed consolidated balance sheet and, if recognized, the entire amount of $147.6 million would impact the Company’s effective tax rate. During the third quarter of 2007, the

Company reduced its unrecognized tax benefits through Net Earnings by $4.4 million, $3.6 million in continuing operations, as a result of management’s review of certain tax positions.

Earnings from continuing operations for the quarter increased 15% to $177.9 million or $0.88 EPS compared to $155.3 million or $0.76 EPS in the prior year third quarter. The increase was primarily a result of improvements at Industrial Products, Engineered Systems and Fluid Management.

Loss from discontinued operations for the third quarter 2007 was $3.3 million or $0.02 EPS compared to income of $12.2 million or $0.06 EPS in the comparable 2006 quarter. The 2007 loss included a $1.6 million loss, net of tax, related to the sale of a previously discontinued business, other adjustments and a loss from operations of $1.7 million. The 2006 income included gains on sales of businesses, net of impairments and tax, of $5.6 million and income from operations of $6.6 million.

Loss from discontinued operations for the nine months ended September 30, 2007 was $8.7 million or $0.04 EPS compared to income of $5.4 million or $0.03 EPS in the comparable 2006 period. The 2007 loss includes $17.4 million in losses from the sales of previously discontinued businesses and adjustments, partially offset by income from operations of $8.7 million. The 2006 year to date income included a net loss on the sales and impairments of businesses of $10.3 million, offset by income from operations of $15.7 million.

SEGMENT RESULTS OF OPERATIONS

Industrial Products

		Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands)		2007				2006				% Change				2007				2006				% Change
Revenue
Material Handling		$	233,106			$	175,408				33	%		$	728,129			$	488,090				49	%
Mobile Equipment			315,920				307,310				3	%			939,072				909,486				3	%
Eliminations			(203	)			(259	)							(642	)			(709	)
		$	548,823			$	482,459				14	%		$	1,666,559			$	1,396,867				19	%
Segment earnings		$	75,893			$	61,858				23	%		$	231,118			$	190,020				22	%
Operating margin			13.8	%			12.8	%							13.9	%			13.6	%
Acquisition related depreciation and amortization expense*		$	6,933			$	6,888				1	%		$	19,810			$	14,148				40	%
Bookings
Material Handling		$	228,085			$	170,758				34	%		$	733,540			$	504,407				45	%
Mobile Equipment			298,016				325,345				-8	%			1,025,983				939,679				9	%
Eliminations			(324	)			(1,589	)							(1,207	)			(2,419	)
		$	525,777			$	494,514				6	%		$	1,758,316			$	1,441,667				22	%
Backlog
Material Handling														$	153,245			$	156,112				-2	%
Mobile Equipment															529,423				417,467				27	%
Eliminations															(275	)			(147	)
														$	682,393			$	573,432				19	%

Industrial Products increases in revenue and earnings were primarily due to the August 2006 acquisition of Paladin and the July 2007 acquisition of Hanmecson International, a Chinese manufacturer of vehicle lifts. The segment achieved organic revenue growth in the quarter of 1%, with the remainder of revenue growth primarily due to the recent acquisitions.

Material Handling revenue and earnings increased 33% and 27%, respectively, when compared to the prior year third quarter. Substantially all of the revenue and earnings increase was due to the August 2006 acquisition of Paladin. The strong military market was partially offset by the continued slowdown in the construction, automotive and Canadian oil drilling markets. In addition, plant rationalization, global sourcing, and new product introduction continue to improve margins.

Mobile Equipment revenue increased 3% over the prior year third quarter due to the acquisition of Hanmecson International and strength in the petroleum, crude oil and military markets. Partially offsetting these gains, the platform experienced continued weakness in the North American automotive service industry, refuse business shipments impacted by chassis availability and softness in aerospace service results. Earnings increased 12% driven by volume leverage in the trailer and automotive lift businesses.

For the nine months ended September 30, 2007, the increases in Industrial Products revenue and earnings were driven by Material Handling, which had increases of 49% and 36%, respectively. Mobile Equipment revenue and earnings increased 3% and 11%, respectively.

Engineered Systems

		Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands)		2007				2006				% Change				2007				2006				% Change
Revenue
Engineered Products		$	333,254			$	286,792				16	%		$	929,540			$	829,162				12	%
Product Identification			227,617				143,482				59	%			658,595				395,253				67	%
		$	560,871			$	430,274				30	%		$	1,588,135			$	1,224,415				30	%
Segment earnings		$	79,451			$	62,905				26	%		$	207,713			$	186,689				11	%
Operating margin			14.2	%			14.6	%							13.1	%			15.2	%
Acquisition related depreciation and amortization expense*		$	6,257			$	4,000				56	%		$	24,305			$	9,232				163	%
Bookings
Engineered Products		$	294,235			$	290,647				1	%		$	961,734			$	892,112				8	%
Product Identification			231,166				145,929				58	%			665,873				398,143				67	%
		$	525,401			$	436,576				20	%		$	1,627,607			$	1,290,255				26	%
Backlog
Engineered Products														$	287,901			$	256,306				12	%
Product Identification															68,682				48,042				43	%
														$	356,583			$	304,348				17	%