UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 20192021
Commission File Number: 1-4018
Dover Corporation
(Exact name of registrant as specified in its charter)
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| Delaware | | 53-0257888 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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| 3005 Highland Parkway | | |
| Downers Grove, Illinois 60515 | | |
| (Address of principal executive offices) | | |
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Registrant's telephone number: (630) 541-1540 | | |
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| Securities registered pursuant to Section 12(b) of the Act: | | |
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Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| Common Stock, par value $1 | DOV | New York Stock Exchange |
| 1.250% Notes due 2026 | DOV 26 | New York Stock Exchange |
| 0.750% Notes due 2027 | DOV 27 | New York Stock Exchange |
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| Securities registered pursuant to Section 12(g) of the Act: | | |
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| None | | |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer | ☑ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company | ☐o |
| | | | Emerging growth company | ☐o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. Yes ☑ No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the close of business on June 30, 20192021 was $14,526,718,145.$21,609,554,242. The registrant’s closing price as reported on the New York Stock Exchange-Composite Transactions for June 30, 20192021 was $100.20$150.60 per share. The number of outstanding shares of the registrant’s common stock as of February 4, 20201, 2022 was 144,328,014.144,054,607.
Documents Incorporated by Reference: Part III — Certain Portions of the Proxy Statement for Annual Meeting of Shareholders to be held on May 8, 20206, 2022 (the “2020“2022 Proxy Statement”).
Special Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K, especially "Management’s Discussion and Analysis of Financial Condition and Results of Operations," contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. All statements in this document other than statements of historical fact are statements that are, or could be deemed, “forward-looking” statements. Some of these statements may be indicated by words such as “may”, “anticipate”, “expect”, believe”, “intend”, "continue", “guidance”, “estimates”, “suggest”, “will”, “plan”, “should”, “would”, “could”, “forecast” and other words and terms that use the future tense or have a similar meaning. Forward-looking statements are based on current expectations and are subject to numerous important risks, uncertainties, and assumptions, and other factors, some of which are beyond the Company’s control.including those described in Item 1A, "Risk Factors" in this Annual Report on Form 10-K. Factors that could cause actual results to differ materially from current expectations include, among other things,things: the impacts of COVID-19 or other future pandemics on the global economy and on our customers, suppliers, employees, business and cash flows; supply chain constraints and labor shortages that could result in production stoppages, inflation in material input costs and increased transportation costs; other general economic conditions and conditions in the particular markets in which we operate,operate; changes in customer demand and capital spending,spending; competitive factors and pricing pressures,pressures; our ability to develop and launch new products in a cost-effective manner,manner; changes in law, including the effect of tax laws and developments with respect to trade policy and tariffs,tariffs; our ability to identify and complete acquisitions and integrate and realize synergies from newly acquired businesses,businesses; the impact of interest rate and currency exchange rate fluctuations,fluctuations; capital allocation plans and changes in those plans, including with respect to dividends, share repurchases, investments in research and development, capital expenditures and acquisitions,acquisitions; our ability to derive expected benefits from restructuring,restructurings, productivity initiatives and other cost reduction actions, changes in material costs or the supply of input materials,actions; the impact of legal compliance risks and litigation, including with respect to product quality and safety, cybersecurity and privacy,privacy; and our ability to capture and protect intellectual property rights. Certain of these risks and uncertainties are described in more detail in Item 1A. "Risk Factors" of this Annual Report on Form 10-K. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.otherwise, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
In this Annual Report on Form 10-K, we refer to measures used by management to evaluate performance, including a number of financial measures that are not defined under accounting principles generally accepted in the United States of America ("GAAP"). We include reconciliations to provide more details on the use and derivation of these financial measures. Please see "Non-GAAP Disclosures" at the end of Item 7 for further detail.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
Overview
Dover Corporation is a diversified global manufacturer and solutions provider delivering innovative equipment and components, consumable supplies, aftermarket parts, software and digital solutions and support services through five operating segments: Engineered Products, Clean Energy & Fueling, Solutions, Imaging & Identification, Pumps & Process Solutions, and RefrigerationClimate & Food Equipment.Sustainability Technologies. Unless the context indicates otherwise, references herein to "Dover," "the Company," and words such as "we," "us," or "our" include Dover Corporation and its consolidated subsidiaries. Dover was incorporated in 1947 in the State of Delaware and became a publicly traded company in 1955. Dover is headquartered in Downers Grove, Illinois and currently employs approximately 24,00025,000 people worldwide.
Effective October 1, 2019, Dover transitioned from a three-segment to a five-segment structure as a result of a change to its management structure and operating model. Dover's five segments are structured around businesses with similar business models, go-to-market strategies and manufacturing practices. This structure increasesenables management efficiency, and better aligns Dover’s operations with its strategic initiatives and capital allocation priorities, and provides greater transparency about our performance to external stakeholders. We have changed the names of two of our segments (Fueling Solutions to Clean Energy & Fueling, and Refrigeration & Food Equipment to Climate & Sustainability Technologies) to reflect recent portfolio changes, as well as to better reflect markets and customers served as well as growth drivers of respective businesses in the two segments. Dover's five operating and reportable segments are as follows:
•Our Engineered Products segment is a provider ofprovides a wide range of products,equipment, components, software, solutions and services that have broad customer applications across a number of markets, includingvehicle aftermarket, vehicle service, solid waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing.dispensing end-markets.
•Our Clean Energy & Fueling Solutions segment is focused on providingprovides components, equipment, and software and service solutions enabling safe transport of traditional and clean fuels and other hazardous fluidssubstances along the supply chain, as well as the safe and efficient operation of convenience retail, retail fueling and vehicle wash establishments.
•Our Imaging & Identification segment supplies precision marking and coding, product traceability and digital textile printing equipment, as well as related consumables, software and services.services to the global packaged and consumer goods, pharmaceutical, industrial manufacturing, fashion and apparel and other end-markets.
•Our Pumps & Process Solutions segment manufactures specialty pumps and flow meters, fluid handling components,connecting solutions, plastics and polymer processing equipment, and highly engineered precision components for rotating and reciprocating machines.machines serving single-use biopharmaceutical production, diversified industrial manufacturing, polymer processing, midstream and downstream oil and gas and other end-markets.
•Our RefrigerationClimate & Food EquipmentSustainability Technologies segment is a provider of innovative and energy-efficient equipment and systems that serve the commercial refrigeration, heating and cooling and foodbeverage container-making equipment markets.
Spin-off of Energy BusinessesCOVID-19
On May 9, 2018, we completedFor information related to the spin-off of Apergy Corporation ("Apergy") to our shareholders. Apergy consists of our former upstream energy businesses previously included in our former Energy segment. The transaction was completed through the pro rata distribution of 100%impact of the common stock of Apergy to Dover's shareholders of record as of the close ofCOVID-19 pandemic on our business on April 30, 2018. Each Dover shareholder received one share of Apergy common stock for every two shares of Dover common stock held as of the record date. For more details, see Note 2 — Spin-off of Apergy CorporationItem 7. Management's Discussion and Analysis in the Consolidated Financial Statements in Item 8 of this Form 10-K.
Management Philosophy
Dover is committed to increasingsteadily creating shareholder value through a combination of sustained long-term profitable growth, operational excellence, and superior free cash flow generation withand productive capital re-deployment while adhering to a conservative financial policy. Dover seeks to be a leader in a diverse set of growing markets where customers are loyal to established brandstrusted partners and suppliers, and value product performance and differentiation evidenceddriven by superior engineering, manufacturing precision, total solution development and excellent supply chain performance. Our businesses are long-time leaders in their respective markets and are known for their innovation, engineering capability and customer service excellence. We aim to continue growing our businesses from this strong foundation. Our operating structure of five business segments allows for increased differentiated acquisition focus consistent with our portfolio and capital allocation priorities. We believe our five business segment structure, also acceleratescoupled with functional expertise at our lean corporate center, presents opportunities to identify and capture operating synergies, such as global sourcing and supply chain integration, shared services, and manufacturing practices, and further advances the development of our executive talent. Our executive management team sets strategic direction, initiatives and goals, provides oversight of strategy execution and achievement of these goals for our operating companies,business segments, and with oversight from our Board of Directors, makes capital allocation decisions, including with respect to organic investment initiatives, major capital projects, acquisitions and the return of capital to our shareholders.
WeOur goal is to foster an operating culture with high ethical and performance standards that values accountability, rigor, trust, inclusion, respect and open communications, designed to allow individual growth and operational effectiveness. We are also committed to creatingincreasing our focus on maintaining sustainable business practices that protect the environment,reduce environmental impact, and through the development ofdeveloping products that help our customers meet their sustainability goals.
Company Goals
We are committed to driving superior shareholder returns through three key tenets of our corporate strategy.
First, we are committed to achieving organic sales growth above that of gross domestic product (GDP+(greater than GDP or 3% to 5% annually on average) over a long-term business cycle, absent prolonged adverse economic conditions, complemented by growth through strategic acquisitions.
Second, we continue to focus on improving returns on capital, andas well as segment and corporate earnings marginsmargin by enhancing our operational capabilities and making investments across the organization in software and digital applications,capabilities, automation, operations management, information technology ("IT"), shared services (including Dover Business Services and our India Innovation Center), and talent. We also focus on continuous, effective cost management and productivity initiatives, includingsuch as automation and digitally-supported manufacturing, supply chain activities,optimization, e-commerce and digital go-to-market, restructuring, activities, improved footprint utilization, strategic pricing and portfolio management.
Third, we aim to generate strong and growing free cash flow as a percentage of revenue of approximately 8-12%and earnings per share through strong earnings performance, productivity improvements and active working capital management. Dover prioritizes deploying free cash flow towards high-return and high-confidence organic reinvestments aimed at growing, improving and strengthening our businesses, as well as through inorganic investments that synergistically enhance the quality of our portfolio. Dover’s value creation strategy is supported by a financial policy that includes a prudent approach to financial leverage, and a disciplined approach to capital allocation that allows for a balance between reinvestment and return of capital to shareholders through growing dividends and opportunistic share repurchases.
We support achievement of these goals by (1) aligning management compensation with strategic and financial objectives, (2) executing on well-definedactively managing our portfolio to increase enterprise scale, improve business mix over time to markets with secular growth characteristics, and actively managed merger and acquisition processespursue acquisitions that fit the characteristics of an ideal Dover business and (3) investing in talent development programs.
Characteristics of a Dover Business
Our businesses generally operate in strategically attractive niche industrial markets with supportive long-term growth trends, favorable supply and demand landscapes, mature and incrementally improving technologies and highly loyal customers, suppliers or channel partners. Our businesses have consistently enjoyed a loyal customer base that chooses products primarily
based on performance.their performance, track record, safety and compliance. In many instances, our businesses produce critical equipment or components to a larger system, where value-in-use and costs and risks of switching far exceed the cost of the product itself. Our products tend to have meaningful replacement, consumable or aftermarket demand due, in part, to a large installed base with loyal customers because they play a specialized role in customer applications. Recurring demand, which includes parts, consumables, services and software, represents approximately 30%35% of our revenue. Additionally, many of our products enjoy recurring like-for-like replacement demand patterns. Our businesses increasingly complement our component or equipment offerings with digital solutions (such as connected products, sensors and software) that create new sources of value to our customers and allow Dover businesses to drive growth and increase relevance with our customers. Our focus in shaping Dover's portfolio is aimed at building an enterprise with a large andDover businesses also exhibit attractive financial profiles, characterized by predictable, stable cash flow,revenue, low capital intensity, strong cash-flow and sustainable returns on invested capital well in excess of our cost of capital.
Business Strategy
To achieve our stated goals, we are focused on executing the following pillars of Dover’s business strategy:
Capturing growth potential in our end-markets and adjacenciesadjacent market segments
Dover’s five business segments are focused on building enduring competitive advantages and leadership positions in markets that we believe are positioned for sustained future growth. We believe that our businesses are among the top suppliers in most markets and niches that we serve (as defined by customer applications, geographies or products), which positions us well to capture future growth. We capitalize on our engineering, technology and design expertise, and maintain an intense focus on meeting the needs of our customers and on adding significant, and often new, value to their operations through superior product performance, safety, and reliability, and a commitment to aftermarket support. We cultivate and maintain an entrepreneurial culture to enable business agility, and continuously innovate to address our customers’ needs, to help them win in the markets they serve.
In particular, our businesses are well-positioned to capitalize onon: growing industrial manufacturing and trade volumes,volumes; adoption of digital technologies,technologies; increasing requirements for sustainability, safety, energy efficiency and consumer product safety,safety; and growth of the middle class and consumption in emerging economies. Our Engineered Products segment is capitalizing on secular growth in waste generation and the increasing sophistication and automation of waste collection operations, increasing car parc, car age and miles driven, as well as increasing digitization and sensorization of modern vehicles. Our Clean Energy & Fueling Solutions segment benefits from the worldwide growth in environmental safety and compliance regulations, new infrastructure build-out in emerging economies, consolidation in the convenience retail sector, increased sophistication and digitization of convenience stores and fuel retailing, clean energy products, as well as a secular growth in automated vehicle wash systems and solutions (over manual and do-it-yourself washing). Our Imaging & Identification segment leverages its unique product offering containing equipment, consumables, software and services to address market needs and requirements, including conversion to digital textile printing, increased demand for product traceability and brand protection, and consumer product safety. Our Pumps & Process Solutions segment is focused onon: capturing growth in its installed base andbase; the growing sophistication of fluid transfer and rotating machinery components within the biopharma and hygienic markets; chemical, plastics and polymer, industrial, mid and downstream oil & gas, biopharmagas; and hygienic markets as well as globalizing brands across geographies while expanding sales channels and engineering support. Our RefrigerationClimate & Food EquipmentSustainability Technologies segment is responding to our customers’ demand for increased energy efficiency and sustainability in food retail merchandising solutions, as well as increasing demand for sustainable heating and cooling solutions and growing global demand for aluminum beverage cans.containers.
We aim to growcapture growth by making organic investments in research and development, developing new products and technologies, improving digital capabilities, expanding our geographic coverage, and by pursuing disciplined strategic acquisitions that will enhance our portfolio and position Dover for long-term growth. We continually evaluate how our assets and capabilities can position Doverus to grow in markets adjacent to our core businesses (for example, new applications, geographies, product segments or adjacent technologies) where Doverwe can be advantaged.
In addition to product innovation, we planaim to growcapture growth by developing digital technologies. In 2018, we opened our newOur Boston-based Dover Digital Labs center inserves as the greater Boston area andcompany-wide hub for our digital initiative. We have continued to invest in this facility and our team of software developers, data scientists, and product managers to enhance our digital capability.capabilities. The Digital Labs team is driving digital transformation across our businesses along the followingin three areas: (i) e-commerce –enhancing the customer experience through more
efficient and streamlined digital customer interfaces that make it easy to do businessbusiness with Dover companies; (ii) developing connected products – development of value-add connected, sensorizedsoftware and software-augmentedmachine learning augmented solutions built on top of Dover’sto integrate into and work with our core equipment and component offerings in our end-markets;offerings; and (iii) digital manufacturing – driving increased efficiency, safety and quality in our manufacturing operations by employing cutting-edge automation and “digital factory” solutions. We believe that the Digital Labs center will enhance the effectiveness ofcenter's contributions in these areas enable us to add significant value to our products and fuel ourto capture commercial growth strategy.opportunities. By leveraging a central resource for Industrial Internet of Things ("IIoT") and connected product initiatives, we are able to reduce redundancy of support infrastructure while managing the proliferation of common parts, such as sensors,capture efficiencies in our digital transformation efforts, improve product security and offer better efficiency in software and sensor integration engineering to keep our projects cost-competitive.
Improving profitability and return on invested capital
We are committed to generating sustainable returns on invested capital well above the cost of capital across all of our businesses. We continually evaluate and pursue opportunities to improve efficiency, margin and return on capital. We are intensely focused on driving operational excellence across our businesses. Over several years, weWe have implemented numerous productivity initiatives to maximize our efficiency, such as supply chain integration, management, shared service centers andservices, lean manufacturing principles to maximize our efficiencyand production automation, as well as workplace safety initiatives to help ensure the health and welfare of our employees. Our businesses place a strong emphasis on continual product quality improvement and new product development to better serve customers and to facilitate expansion into new products and geographic markets. Further, we continue to make significant investments in talent development, especially in the area of operational management, and recognize that the growth and development of our employees is essential for our continued success.
In 2018, we launched ourWe also focus on margin expansion program,initiatives designed to reduce our selling, general and administrative cost base and rationalize our manufacturing and supply chain footprint across the portfolio. In 2019, we continued toWe continually expand initiatives to extract productivity gains across the businesses and initiated a set of productivity actions to realize further savings in 2020. Currentsavings. Our margin expansion initiatives are focused on the further centralization of shared services under Dover Business Services, improvingfour core enterprise capabilities: (1) leverage our Digital Labs team to enhance our internal and market-facing digital capabilities, (2) improve utilization and optimization of our manufacturing footprint as well asthrough centralized resources and investment, (3) further centralize shared services under Dover Business Services, and (4) invest in our IT services and costs, and continuing to leverage our Digital Labs team to improve our e-commerce capabilities.India Innovation Center shared services.
We have invested, and will continue to invest, in Dover Business Services shared service centers to provide important transactional and value-added services to our operating companies in the areas of finance, IT and human resources. Digital. Our shared service model allows us to leverage scale across Dover increase process efficiencies through technology and specialization and reduce risk through centralized controls. Our shared service centers serve our operating companies by freeing resources normally dedicated to transactional services to allow those resources to focus on customers, markets and product excellence. We expect to continue driving efficiencies through Dover Business Services as we increase the level of service centralization across the portfolio.
Digital Labs consists of a team of approximately 100 software developers, data scientists and product managers who provide digital capabilities to enhance the customer experience, develop connected products, and drive automation and efficiency.efficiency inside our factories through digital technologies and in our business processes. Our Dover Digital leadershipLabs team has built common platforms which we have begun deploying on customer facing applications of common infrastructure design to make it easier to find, experienceconfigure, buy and buyobtain products and services from Dover. The Digital Labs teamDover companies. It has also deployed shared IIoT capability sosuch that many of Dover's products are remotely configurable and monitored, enabling our businesses to sell aftermarket parts and offer remote diagnostic services.
Dover Operational Excellence. In 2019, we launchedbegan to coordinate and oversee operations management from the corporate center of excellence through a setteam composed of functional experts in operational optimization, lean manufacturing, automation, HSE (Health, Safety and Environment) and complex project management. This team works closely with our businesses to drive execution excellence in our operational processes, standards and measurement tools to identify, prioritize and monitor execution of operational improvement initiatives. With expertise in health and safety, supply chain management, lean operations, project management, and advanced manufacturing and automation, we continue to focus on initiatives to improve operational efficiency and enhance and solidify the continuous improvement programs embedded in our businesses' day-to-day operations beginning with several significant production automationoperations.
Dover Business Services. We continue to invest in Dover Business Services shared service centers, consisting of a team of approximately 450 people, to provide important transactional and footprint consolidation projects. With the launch of the new segment structurevalue-added services to our businesses. Our shared service model allows us to leverage scale across Dover, increase process efficiencies through technology and continued evolution of Dover’s operating model, we will now oversee operations management from the corporate center.specialization, and reduce risk through centralized controls. Our shared service centers create value by freeing resources within our businesses that would otherwise be dedicated to transactional services and allowing them to focus on customers, markets and product excellence. We expect to continue driving efficiencies through Dover Business Services as we increase the level of service centralization across the portfolio.
India Innovation Center. Our India Innovation Center has a team of approximately 600 engineers and IT professionals that our businesses rely on to leverage for product engineering, digital solutions development, data & information management, research & development, and intellectual property services. The scale of this team to work closely withallows our businesses to drive executionaccess resources
with capabilities and expertise across many disciplines that would be unaffordable to them as stand-alone companies, and allows for concurrent engineering on time sensitive projects.
We have been steadily investing in the build out and deployment of the above four enterprise capabilities in the past several years, including investing over $20 million in capital expenditures during 2019-2021, and significantly expanding the staff of experts and support personnel in key centers of excellence in our operational initiatives and best-in-class processes, standards and measurement tools to identify, prioritize and monitor execution of operational improvement initiatives.
Additionally, we focus on improving margins and returns by rigorously capturing synergies from our acquisitions and providing best-in-class corporate support and services through a lean corporate center.globally.
Disciplined capital allocation and continuous portfolio enhancement
We are focused on the most efficient allocation of capital to maximize returns on investment. To do this, we prioritizeutilize organic reinvestment to grow and strengthen our existing businesses. We plan to make average annual investments in capital spending of approximately 2% - 4%3% of revenue with a focus on internal projects designed to expand our market participation, develop new products and improve productivity. We alsoIn addition, we seek to deploy capital in acquisitions in attractive growth areas across our five segments. Dover focuses primarily on bolt-on acquisitions, applying strict selection criteria of market attractiveness (including growth, maturity,market landscape, and performance-based competition), business fit (including sustained leading position, revenue visibility, and favorable customer value-add versus switching cost or risk) and financial return profile (accretive growth and margins and double-digit return on invested capital). We opportunistically divest businesses where we see limited runway for future value creation relative to our aspirations, or where market and business fundamentals change and no longer fit our criteria of business attractiveness and portfolio fit. Finally, we have consistently returned cash to shareholders
by paying dividends, which have increased annually over each of the last 6466 years. We also undertake opportunistic share repurchases as part of our capital allocation strategy, and completed $1 billion of share repurchases towards the end of 2017, and in 2018, primarily with funds received from Apergy in connection to the spin-off, and $143.3 million in 2019.strategy. We employ a prudent financial policy to support our capital allocation strategy, which includes maintaining an investment grade credit rating.
Portfolio Development
Acquisitions
Our acquisition program has two key elements. As a first priority, we seek to acquire attractive add-on businesses with a strong fit that enhance our existing franchises either by increasing their reach and customer access, by broadening their product mix or by enhancing technological capability and customer value-add. Second, in the right circumstances, we may strategically pursue larger, stand-alone businesses that complement our existing businesses or provide a path for us to pursue growth in near adjacencies. With all our acquisitions, we seek businesses that are leaders in their markets or niches, have a strong track record for innovation, offer differentiated solutions, clearly complement our businesses, and have a solid organic growth profile and attractive and sustainable returns, and offer significant synergy potential to generate double-digit return on capital within three years after the acquisition is completed.
Over the past three years (2017(2019 through 2019)2021), we have spent approximately $319.3 million to purchase seven businesses. During 2019, we acquired three businesses for an aggregate consideration of $216.4$1,677.3 million, net of cash acquired and including contingent consideration. Consistent with our acquisition program, we acquired these businessesconsideration, to complement and expand upon existing operations within the Fueling Solutions and Pumps & Process Solutions segments. During 2018, we acquired two businesses for an aggregate consideration of $68.6 million, net of cash acquired. We acquired these businesses to complement and expand upon existing operations within the Pumps & Process Solutions and Refrigeration & Food Equipment segments. During 2017, we acquired two businesses for an aggregate purchase price of $34.3 million, net of cash acquired, within the Imaging & Identification segment.eighteen businesses. For more details, regarding acquisitions completed over the past three years, see Note 43 — Acquisitions in the Consolidated Financial Statements in Item 8 of this Form 10-K.
Our future growth depends in large part on finding and acquiring successful businesses that expand the scope of our offerings and make us an even more important supplier to our customers. While we expect to generate annual organic revenue growth of(greater than GDP or 3% -to 5% annually on average) over a long-term business cycle absent extraordinary adverse economic conditions, our success in consistently growing the portfolio is also dependent on the ability to acquire and integrate businesses successfully within our existing structure. To track post-merger integration and accountability, we utilize an internal scorecard and well-defined processes to help ensure expected synergies are realized and value is created.
Dispositions
WeFrom time to time, we have sold or divested some of our businesses based on changes in specific market outlook, structural changes in financial performance, value-creation potential, or for other strategic considerations, which included an effort to reduce our exposure to cyclical markets or focus on our higher margin growth spaces. Most of our efforts to streamline and improve the portfolio to less cyclical and higher growth businesses were completed in 2018 with the Apergy spin-off.
Going forward, we also recognize that some businesses in Dover’s portfolio may have a greater value-creation potential if owned by another parent with a larger presence and focus on a given niche. We pragmatically consider such opportunities as part of
our ongoing portfolio management and review processes, and execute divestitures if the value created is determined to be at an appropriate premium to the value of such business to Dover and allowsthe divestitures allow Dover shareholders to participate in the future value-creation potential from a change in ownership.
During the past three years (2017 through 2019) we have sold businesses for aggregate cash consideration of $400.8 million. During 2019, we completed the sale of Finder Pompe S.r.l. ("Finder") within the Pumps & Process Solutions segment. During 2018, there were no other material dispositions aside from the spin-off of Apergy as previously discussed. The financial position and results of operations for Apergy have been presented as discontinued operations for all periods presented. During 2017, we completed the sale of Performance Motorsports International ("PMI") and the consumer and industrial winch business of Warn Industries ("Warn"), as well as other smaller divestitures. The disposals in 2019 and 2017
did not represent strategic shifts in operations and, therefore, did not qualify for presentation as discontinued operations. For more details, see Note 54 — Discontinued and Disposed OperationsDispositions in the Consolidated Financial Statements in Item 8 of this Form 10-K.
Business Segments
As noted previously, effective October 1, 2019, Dover transitioned from a three-segment to a five-segmentDover's five segments are structured around businesses with similar business models, go-to-market strategies and manufacturing practices. This structure as a result of a change to its internal organization. This new structure increasesenables management efficiency, and better aligns Dover’s operations with its strategic initiatives and capital allocation priorities, across its businesses.and provides transparency about our performance to external stakeholders. Dover's five operating and reportable segments are as follows: Engineered Products, Clean Energy & Fueling, Solutions, Imaging & Identification, Pumps & Process Solutions and RefrigerationClimate & Food Equipment.Sustainability Technologies. For financial information about our segments and geographic areas, see Note 19 — Segment Information in the Consolidated Financial Statements in Item 8 of this Form 10-K.
Engineered Products
Our Engineered Products segment provides a wide range of products,equipment, components, software, solutions and services that have broad customer applications across a number of markets, including: solid waste handling, aftermarket vehicle service, industrial automation, aerospace and defense, and industrial winch and hoist.hoist, and fluid dispensing. Our waste handling business is a leading North American supplier of equipment, software and services for the refuse collection industry and for on-site processing and compaction of trash and recyclable materials. Our vehicle service business provides products, software and services used primarily in vehicle repair and maintenance, including light and heavy-duty vehicle lifts, wheel service equipment, vehicle diagnostics and vehicle collision repair solutions. The businesses in the industrial automation market provide a wide range of modular automation components including manual clamps, power clamps, rotary and linear mechanical indexers, conveyors, pick and place units, glove ports and manipulators, as well as end-of-arm robotic grippers, slides and end effectors. Our industrial winch and hoist business provides a range of winches, hoists, bearings, drives, and electric monitoring systems for infrastructure and other industrial markets. The segment also supplies radio frequency and microwave filters and switches, as well as signal intelligence solutions, to enable secure communications in aerospace and defense applications, and benchtop soldering and fluid dispensing solutions in electronics and industrial product assembly.
Our Engineered Products segment's products are manufactured primarily in the United States,U.S., Europe and Asia and are sold throughout the world directly and through a network of distributors.
Clean Energy & Fueling Solutions
Our Clean Energy & Fueling Solutions segment provides components, equipment and software, and service solutions enabling safe transportstorage, transport. handling and dispensing of clean and traditional fuels, cryogenic gases and other hazardous fluids, along the supply chain, as well as safe and efficient operation of retail fueling and vehicle wash establishments across the globe. Among solutions supplied by the segment are fuel dispensers,dispensing equipment and components for gasoline, compressed natural gas (CNG), liquified natural gas (LNG) and hydrogen (H2) fueling sites, payment systems, hardware and underground containment systems, vehicle wash systems, as well as asset tracking, monitoring and operational optimization software. Additionally, Fueling Solutions supplies components used for transfer of fuels and other critical liquids across the supply chain.
Our Clean Energy & Fueling Solutions segment's products are manufactured primarily in the United States,North America, Europe, ChinaAsia, and BrazilSouth America and are sold throughout the world directly and through a network of distributors.
Imaging & Identification
The companies in our Imaging & Identification segment are global suppliers of precision marking and coding, packaging intelligence, product traceability, brand protection, and digital textile printing equipment and solutions, as well as related consumables, software and services. The Imaging & Identification segmentOur marking and coding businesses primarily designsdesign and manufacturesmanufacture equipment and consumables used for printing variable information (such as bar coding ofcodes, dates, and serial numbers) on fast-moving consumer goods, provides serialization solutions for pharmaceutical customers, and develops supply chain traceability solutions capitalizing on expanding food and product safety, supply chain traceability and traceability requirements and growth in emerging markets.brand protection requirements. In addition, our businesses serving the apparel and textile printing market develop, manufacture and sell equipment, software, consumables and service solutions used in digital textile, soft signage and specialty materials markets. These businesses are benefiting from a secular shift from analog to digital printing, resulting from growing demand for “fast fashion”, and more customized and complex fashion designs, as well as increasing environmental sustainability requirements (digital printing process is significantly more environment-friendly due to lower water consumption). Businesses within this segment leverage digital printing capabilities and operate business models that involve initial equipment and software sales followed by significant consumable, software and service aftermarket revenue streams.
Our Imaging & Identification segment's products are manufactured primarily in the United States,North America, Europe and Asia and are sold throughout the world directly and through a network of distributors.
Pumps & Process Solutions
The businesses in our Pumps & Process Solutions segment manufacture specialty pumps, fluid handling components,single-use pumps, connectors and flow meters, plastics and polymers processing equipment, and highly-engineered components for rotating and reciprocating machines.machinery. The segment’s products are used in a wide variety of markets, including plastics and polymers processing, chemicals production, food/sanitary, biopharma, medical, transportation, petroleum refining, power generation and general industrial applications. Our specialty pumps and componentsThe products in this segment are generally used in demanding and specialized operating environments with high performance requirements. Businesses within this segment share the following commonalities: thetheir products are predominantly components or small piecesparts of larger equipment that are part of largeand production systems with componentsour products often specified by end customers or regulations, there isthey participate in markets with a diverse and fragmented customer base and where there is a significant demand for aftermarket demandequipment and parts from a large installed base, and the route-to-market is a mix of distribution and direct sales.
Our Pumps & Process Solutions segment's products are manufactured primarily in the United States,North America, Europe, Mexico and Asia and are sold throughout the world directly and through a network of distributors and original equipment manufacturers ("OEMs").manufacturers.
RefrigerationClimate & Food EquipmentSustainability Technologies
Our RefrigerationClimate & Food EquipmentSustainability Technologies segment is a provider of innovative and energy-efficient equipment and systems that serve the commercial refrigeration, heating and cooling, and foodcontainer and beverage packaging equipment markets. Our refrigeration business manufactures refrigeration systems (including environmentally friendly systems like CO2), refrigeration display cases, commercial glass refrigerator and freezer doors and brazed plate heat exchangers used for industrial heating and cooling and residential climate control. Other businesses in this segment design and manufacture commercial food service equipmentmachinery and can-shaping machinery.associated spare parts used for beverage container-making. The majority of the products that are manufactured or serviced by the RefrigerationClimate & Food EquipmentSustainability Technologies segment are used by the retail food industry, including supermarkets, “big-box” retail and convenience stores, the commercial/industrial refrigeration industry, institutional and commercial food service, food production markets and beverage can-shapingcontainer-making industries.
Our RefrigerationClimate & Food EquipmentSustainability Technologies segment's products are manufactured primarily in North America, Europe and Asia and are sold globally, directly and through a network of distributors.
Raw Materials
We use a wide variety of raw materials, primarily metals and semi-processed or finished components, which are generally available from a number of sources. As a result, shortages or the loss of any single supplier have not had, and are not likely to have, a material impact on operating profits.profits at the consolidated level. While the required raw materials are generally available, commodity pricing can be volatile, particularly for various grades of steel, copper, aluminum and select other commodities. Although cost increases in commodities may be recovered through increased prices to customers, our operating results are exposed to such fluctuations. We attempt to control such costs through fixed-price contracts with suppliers and various other programs, such as our global supply chain activities.
Markets for multiple raw materials saw significant cost increases throughout 2021, as well as increases in transportation costs to deliver materials to our manufacturing sites, which we partially offset through price increases and other levers. Additionally, supply chain disruptions have caused shortages of material inputs in several of our businesses, which negatively impacted profitability of such businesses as we were required to seek alternative sources of supply at higher costs or interrupt our normal manufacturing process flow leading to less efficient output and cost.
Research and Development
Our businesses invest to develop innovative new products, as well as to upgrade and improve existing products, to satisfy customer needs, including demand for energy-efficient products designed to help customers meet sustainability goals, expand revenue opportunities domestically and internationally,geographically, maintain or extend competitive advantages, improve product reliability and reduce production costs.
Our Imaging & Identification segment expends significant effort in research and development because the rate of product development by their customers is often quite high. Our businesses that develop product identification, and printing equipment and software solutions believe that their customers expect a continuing rate of product innovation, performance improvement and performance andreduction in total cost of ownership improvement.ownership. The result has been downward pricing trends that can only be mitigated with the continuous introduction of innovative product solutions in a market where product life cycles in these markets generally average less than five years with meaningful sales price reductions over that time period.seven years.
11Our Clean Energy & Fueling segment invests in research and development to advance innovative traditional and alternative fuel dispensing equipment and components, payment platforms, fuel site asset management and connectivity solutions, IIoT-enabled cloud-based connected solutions for retail and commercial fleet fueling settings, components for high-criticality cryogenic gas storage and transportation applications, including hydrogen and liquified natural gas. These technology investments align with our customer’s needs and our commitment to delivering to our customers opportunities for operational cost reductions, increased sales, and an enhanced customer experience for their customers through a combination of intelligent fueling and retail solutions.
Our other segments contain manyPumps & Process Solutions segment invests in research and development for new product introduction and custom solutions to drive volume and share in both existing markets and newer/faster growth markets – such as single-use biopharmaceutical manufacturing and liquid cooling of high performance electronics. These investments will allow us to take advantage of existing growth trends such as vaccine production for certain COVID-19 vaccines and also cell and gene therapy applications coming on the market.
Many of our businesses that are also involved in important product improvement initiatives. These businesses concentrate on working closely with customers on specific applications, expanding product lines and market applications and continuously improving manufacturing processes. MostSome of these businesses experience a much more moderaterapid rate of change in their marketsrequiring higher product development capability and products than is generally experienced by the Imaging & Identification segment.new product introduction.
OurSimilarly, our businesses invest in research and development to pursue digital strategies based on customer needs and will now be able to leverage cross-companythe capabilities developed at the Digital Labs center. For example, with the support of the Dover Digital Labs center Hydro, which manufacturers chemical injecting, proportioning, dispensing and medicating equipment within our Pumps & Process Solutions segment, launched Hydro Connect in 2018. Hydro Connect is a cloud-based IIoT platform that gives end users increased visibility into their operations, optimizes production, reduces costs and increases customer satisfaction. Buildingto deliver on this momentum, we launched athose digital initiative in 2018 to help our businesses increase sales and further improve customer satisfaction through digital technology, starting with Dover Food Retail within our Refrigeration & Food Equipment segment.
In 2019, our businesses continued to expand utilization of the Digital Labs center. Ourstrategies. For example, Vehicle Services Group, within the Engineered Products segment, launched Mosiac advanced diagnostic technology, the industry’s first-ever automated advanced driver-assistance system and calibration system through aMosaic Advanced Diagnostic Technology built in partnership with Burke Porter Group and the capability developedwork completed at the Digital Labs. Additionally,Mosaic is the automotive repair industry’s first digitally enabled cloud based after-market advanced driver assistance systems ("ADAS") sensor calibration technology. Environmental Solutions Group, from the Engineered Products segment, launched artificial intelligence capabilities through 3rd Eye Digital Solution to use data to improve operations outcomes for waste hauling fleets.
Human Capital Resources
Our employees are our most valuable asset and are critical to our ability to deliver on our strategic plans. Our success in delivering high quality and innovative products and solutions for our customers and driving operational excellence is only achievable through the talent, expertise, and dedication of our global team. We had approximately 25,000 employees worldwide as ofDecember 31, 2021.
Attraction, Development, and Retention
We recognize that attracting, developing and retaining skilled talent and promoting a diverse and inclusive culture are essential to maintaining our leadership positions in the markets we serve. While our operating companies are the hubs of these activities — an effective model that puts ownership in the businesses and cultures that are the source of opportunities for employees — we are increasingly leveraging the corporate center to drive talent recruitment and development and consistent human capital management practices across our businesses. This center-led focus is enabling us to make development opportunities available across our enterprise which promotes employee advancement, engagement and retention. We offer employees resources to continuously improve their skills and performance with the goal of further cultivating the diverse, entrepreneurial talent inside our global businesses to fill key positions. We seek people who are proactive and dedicated, demonstrate an ownership mindset and share our commitment to the pursuit of operational excellence. We continue to make significant investments in talent development and recognize that the growth and development of our employees is essential for our continued success.
Diversity and Inclusion
We view the diversity of our employees as a partstrength to better serve our customers and communities. We also believe the diversity of our workforce enables us to attract new talent, keeps our employees engaged and productive, and advances innovation from ideas reflecting the broad diversity of our employees' backgrounds, experiences, and perspectives. To that end, we have taken various actions to enhance diversity, including partnering with organizations that can support our efforts to identify and recruit talented and diverse candidates.
We aim to cultivate an inclusive culture that enables employees to feel connected to our business objectives and valued for their contributions. One of the digital customer initiative, Colder,ways in which we seek to promote an inclusive work environment is by supporting our operating companies in establishing employee resource groups. These groups allow for collaboration and serve as an open forum for networking, professional development, and mentoring. We are committed to our efforts to maintain a businesswork environment that is professional, inclusive, and free from discrimination and harassment. To help educate our workforce on the benefits of an inclusive environment, and drive awareness, we have invested in training across the organization focused on diversity and inclusion topics.
Health and Safety
We are committed to providing a healthy environment and safe workplace by operating in accordance with established health and safety protocols across our facilities and maintaining an enhanced health and safety compliance program. We regularly conduct self-assessments to examine our safety culture and processes. In response to COVID-19, we have taken and continue to take measures to protect our workforce. We have modified practices at our manufacturing locations and offices to adhere to guidance from the U.S. Centers for Disease Control and Prevention and local health and governmental authorities in our global network. In addition, we have invested at the corporate center to provide oversight, enhance coordination and ensure robust safety protocols are present across our operations.
Human Capital Investments Related to Strategic Priorities
In line with our strategic priorities, we have additionally invested in the Pumps & Process Solutions segment,following aspects of human capital resource management, among other areas:
•Dover Digital Labs – We are continuing to leverage our Digital Labs team to improve our digital capabilities. Our team of software developers, data scientists, and OPW,product managers drive digital transformation across our businesses by enhancing customer experience, developing connected products, and enabling digital manufacturing.
•Operational management – Our operations teams, including our management team at the corporate center, continually focuses on improving operational efficiency, such as implementing production automation.
•Shared services – We are continuing to further centralize shared services under Dover Business Services and our India Innovation Center. Our shared services capabilities include a business in the Fueling Solutions segment, launched businesswide range of functional areas including transactional support, human resources, IT, engineering and product development. These services enable productivity and growth as well as free up resources at our businesses to business digital engagement platforms that enable theirfocus on customers, to place, trackmarkets and repeat orders.product development.
Intellectual Property and Intangible Assets
Our businesses own many patents, trademarks, licenses and other forms of intellectual property, which have been created, registered or acquired over a number of years and, to the extent relevant, expire at various times over a number of years. A large portion of our businesses’ intellectual property consists of patents, unpatented technology and proprietary information constituting trade secrets that we seek to protect in various ways, including confidentiality agreements with employees and suppliers where appropriate. In addition, a significant portion of our intangible assets relate to customer relationships. While our intellectual property and customer relationships are important to our success, the loss or expiration of any of these rights or relationships, or any group of related rights or relationships, is not likely to materially affect our results on a consolidated basis. We believe that our commitment to continuous engineering improvements, new product development and improved manufacturing techniques, as well as strong sales, marketing and service efforts, are significant to our general leadership positions in the niche markets we serve.
Customers
We serve thousands of customers, none of which accounted for more than 10% of our consolidated revenue in 2019.2021. Given our diversity of served markets, customer concentrations are not significant. Businesses supplying the environmental solutions, defense, automotive and commercial refrigeration industries tend to deal with a few large customers that are significant within those industries. This also tends to be true for businesses supplying the power generation and chemical industries. In the other markets served, there is usually a much lower concentration of customers, particularly where our companies provide a substantial number of products and services applicable to a broad range of end-use applications.
Seasonality
In general, while our businesses are not highly seasonal, we do tend to have stronger revenue generation in the second half of the year, which is driven by customer capital expenditure timing and seasonal activity patterns in our end-markets. Our businesses serving the retail fueling market tend to increase in the second half of the year based on the historical purchasing patterns of their customers. Our businesses serving the major equipment markets, such as power generation, chemical and processing industries, have longer lead times geared to seasonal, commercial, or consumer demands and customers in these markets tend to delay or accelerate product ordering and delivery to coincide with those market trends which moderates the aforementioned seasonality patterns. Our food retail refrigeration business tends to face higher levels of demand in the second and third quarters as retailers avoid construction and remodeling activity during fall/winter holidays.
Backlog
Backlog is more relevant to our businesses that produce larger and more sophisticated machines or have long-term contracts, primarily for the businesses serving solid waste handling, plastics and polymers processing, bearings and compressor components, can-shaping equipment and commercial refrigeration markets. See Segment Results of Operations within Item 7 for further discussion of this operational measure. Our total backlog relating to our businesses as of December 31, 2019 and 2018 was $1.5 billion and $1.4 billion, respectively.
Competition
Our competitive environment is complex because of the wide diversity of our products manufactured and the markets served. In general, most of our businesses are market leaders that compete with only a few companies, and the key competitive factors are customer service, product quality, price and innovation. A summary of our key competitors within each of our segments follows:
| | | | | | | | |
| Segment | | Key Competitors |
| | |
| Engineered Products | | Oshkosh Corp. (McNeilus), Tünkers Maschinenbau GmbH, Snap-On Inc. (Challenger Lifts, Car-O-Liner), Vontier (Hennessey Industries, Inc.), Oshkosh Corp. (McNeilus), Labrie Enviroquip Group, Geotab Inc., AMCS Group, Tünkers Maschinenbau GmbH, PACCAR (Braden), Fortive (Hennessey Industries, Inc.) and numerous others |
Clean Energy & Fueling Solutions | | FortiveVontier (Gilbarco Veeder-Root)Veeder-Root, DRB), Tatsuno, Verifone, Franklin Electric, Elaflex, Gardner Denver, Inc.Ingersoll Rand (Emco Wheaton), Dixon Valve & Coupling Company, Professional Datasolutions, Inc. (PDI), Salco, Sonny's Enterprises LLC, National Carwash Solutions, Washtec AG |
| Imaging & Identification | | Danaher Corporation (Videojet), Brother Industries, Ltd. (Domino Printing), Electronics Forfor Imaging (Reggiani), SPG Prints, Konica Minolta, Kornit Digital Ltd. |
| Pumps & Process Solutions | | IDEX Corporation, Ingersoll Rand (Milton Roy, Dosatron, ARO), Millipore, Danaher Corporation (Pall), Nordson Corporation, ITT, SPX Flow Inc. (Waukesha), Ingersoll Rand (Milton Roy, Dosatron), Spirax Sarco, Nordson Corporation, Kingsbury, Seko, Ecolab, Millipore, Danaher Corporation (Pall), EnPro Industries (Compressor Products International, Garlock), Hoerbiger Holdings AG, Miba AG, Hillenbrand Inc. (Coperion) |
RefrigerationClimate & Food EquipmentSustainability Technologies | | Panasonic (Hussman Corp.), Alfa Laval, Welbilt Corp, Illinois Tool Works, Middleby Corp.Stolle Machinery |
International
Consistent with our strategic focus on positioning our businesses for growth, we aim to increasegrow our revenue in international markets, particularly in developing economies in Asia, the Middle East, Eastern Europe and South America.
Most of our non-U.S. subsidiaries and affiliates are currently based in China, France, Germany, Italy, Sweden, Switzerland, the United Kingdom, and other locations including Australia, Brazil, Canada, India, Mexico, and the Netherlands.
The following table shows annual revenue derived from customers outside the U.S. as a percentage of total annual revenue for each of the last three years, by segment and in total:
| | | Percentage of Non-U.S. Revenue
by Segment | | | Percentage of Non-U.S. Revenue
by Segment |
| | Years Ended December 31, | | | Years Ended December 31, |
| | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 |
| Engineered Products | Engineered Products | 27 | % | | 30 | % | | 30 | % | Engineered Products | 27 | % | | 27 | % | | 27 | % |
| Fueling Solutions | 52 | % | | 54 | % | | 53 | % | |
| Clean Energy & Fueling | | Clean Energy & Fueling | 45 | % | | 45 | % | | 52 | % |
| Imaging & Identification | Imaging & Identification | 77 | % | | 78 | % | | 77 | % | Imaging & Identification | 75 | % | | 75 | % | | 77 | % |
| Pumps & Process Solutions | Pumps & Process Solutions | 49 | % | | 51 | % | | 50 | % | Pumps & Process Solutions | 53 | % | | 51 | % | | 49 | % |
| Refrigeration & Food Equipment | 39 | % | | 38 | % | | 34 | % | |
| Climate & Sustainability Technologies | | Climate & Sustainability Technologies | 37 | % | | 37 | % | | 39 | % |
| Total percentage of revenue derived from customers outside of the United States | Total percentage of revenue derived from customers outside of the United States | 47 | % | | 48 | % | | 46 | % | Total percentage of revenue derived from customers outside of the United States | 46 | % | | 45 | % | | 47 | % |
Our international operations are subject to certain risks, such as price and exchange rate fluctuations and non-U.S. governmental restrictions, which are discussed further in Item 1A. "Risk Factors." For additional details regarding our non-U.S. revenue and the geographic allocation of the assets, of our continuing operations, see Note 19 — Segment Information to the Consolidated Financial Statements in Item 8 of this Form 10-K.
Environmental Matters
Sustainability
We are committed to creating economic value for shareholders by developing products designed to help our customers meet their sustainability goals, in response torun their operations more efficiently and satisfy evolving regulatory and environmental standards. We believe that sustainability-driven innovation in response to customer demand will present a growth opportunity while contributinghelps us contribute positively to enhanced resource efficiency and reduced waste. In that regard,waste reduction while presenting a valuable growth opportunity. Aligned with this commitment, in 2021, we announced science-based targets to reduce our businesses have accelerated effortsgreenhouse gas emissions. These targets include an absolute reduction of scope 1 and processes around innovation, includingscope 2 market-based greenhouse gas emissions of 30 percent by focusing on technologies that create tangible value for our customers. For example, in our Engineered Products segment, we manufacture onsite waste balers2030, from a 2019 baseline year, and compactors for customers who need to quickly and efficiently process solid waste and recyclables. In our Imaging & Identification segment, we offer packaging intelligence solutions that enable efficient product tracking and identification as well as improved line efficiency, minimized waste and improved compliance for our customers. Our Fueling Solutions segment offers products that support the deliveryan absolute reduction of alternative fuels, help reduce vehiclescope 3 greenhouse gas emissions and assist in vapor recovery. Through our Pumps and Solutions segment, we focus on the conversion to sustainable and renewable energy usage in heating and cooling applications. We have developed innovative retail refrigeration technologies in our Refrigeration & Food Equipment segment that are both energy efficient and cost effective.of 15 percent by 2030, from a 2019 baseline year.
We are also committed to fostering sustainable business practices across our businesses in order to reduce greenhouse gas emissionshighlight key initiatives and energy consumption. We believe that our focus on sustainability will result in enhanced efficiency in our operations, which will reduce costs, improve margins and help us achieve operational excellence. In 2010, we implemented a process to conduct an inventory of our greenhouse gas emissions. Since then, we have evaluated our climate change risks and opportunities, as well as developed an energy and climate change strategy that includes goals, objectives and related projects for reducing energy use and greenhouse gas emissions. To further promoteperformance metrics about our sustainability efforts, we committed to reducing our overall energy and greenhouse gas intensity indexed to net revenue by 20% from 2010 to 2020. We have achieved those goals ahead of schedule. We are currently evaluating our strategic approach to managing sustainability matters and plan to continue reportingactivities under the “Sustainability” tab on our energy and greenhouse gas intensity and to work proactively to reduce energy usage and carbon emissions amidst acquisition and business growth. We have participated as a voluntary respondent in the Carbon Disclosure Project (CDP) since 2010 and have maintained our scoring range since we began reporting. We began participating in the CDP water security program in 2018 and expanded our reporting in 2019 with water data collection.
As noted, our businesses assess the energy efficiencies related to their operations and the opportunities associated with the use of their products and services by customers. In some instances, our businesses may be able to help customers reduce energy use and greenhouse gas emissions. Increased demand for energy-efficient products based on a variety of drivers could result in increased sales for a number of our businesses.website, www.dovercorporation.com.
Other Matters
Our operations are governed by a variety of international, national, state and local environmental laws. We are committed to continued compliance and believe our operations generally are in substantial compliance with these laws. In a few instances, particular plants and businesses have been the subject of administrative and legal proceedings with governmental agencies or private parties relating to the discharge or potential discharge of regulated substances. Where necessary, these matters have been addressed with specific consent orders to achieve compliance.
There have been no material effects upon our earnings and competitive position resulting from our compliance with laws or regulations enacted or adopted relating to the protection of the environment. We are aware of a number of existing or upcoming regulatory initiatives intended to reduce emissions in geographies where our manufacturing and warehouse/distribution facilities are located and have evaluated the potential impact of these regulations on our businesses. We anticipate that direct impacts from regulatory actions will not be significant in the short- to medium-term. We expect the regulatory
impacts associated with climate change regulation would be primarily indirect and would result in "pass through""pass-through" costs from energy suppliers, suppliers of raw materials and other services related to our operations.
Employees
We had approximately 24,000 employees as of December 31, 2019.
Other Information
We make available free of charge through the "Investor Information" link on our website, www.dovercorporation.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports. We post each of these reports on the website as soon as reasonably practicable after the report is filed with the Securities and Exchange Commission. The information oncontents of our website are not intended to be incorporated by reference into this Form 10-K, and any reference to our website is not incorporated into this Form 10-K.
ITEM 1A. RISK FACTORS
The risk factors discussed in this section should be considered together with information included elsewhere in this Form 10-K and should not be considered the only risks to which we are exposed. In general, we are subject to the same general risks and uncertainties that impact many other industrial companies such as general economic, industry and/or market conditions and growth rates; the impact of natural disasters and their effect on global markets; and changes in laws or accounting rules. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business,businesses, including our results of operations, liquidity and financial condition.
Business and Operational Risks
•OurThe COVID-19 pandemic has adversely impacted, and continues to pose risks to, our businesses, the nature and extent of which are highly uncertain and unpredictable.
The COVID-19 pandemic has disrupted the global economy and adversely impacted our businesses, including demand for our products across multiple end-markets as well as our supply chain and operations. While we have experienced sequentially improving activity in most markets and geographies, the public health situation, global response measures and corresponding impacts on various markets remain fluid and uncertain and may lead to sudden changes in trajectory and outlook. Accordingly, we are currently unable to quantify the full and long-term impact of the pandemic on our results of operations, financial position and cash flows.
We have taken and will continue to take steps to mitigate the risks of COVID-19 by working with our customers, employees, suppliers and other stakeholders. Significant portions of our workforce and operations have been impacted by quarantines, government orders and guidance, facility closures, illness, travel restrictions, implementation of precautionary measures and other restrictions. Over the course of the pandemic, we have continued to operate in accordance with established health and safety protocols across our facilities while maintaining an enhanced health and safety compliance program. More specifically, we have modified practices at our manufacturing locations and offices to adhere to guidance from the U.S. Centers for Disease Control and Prevention and local health and governmental authorities in our global network with respect to social distancing, physical separation, personal protective equipment and sanitization, and have restricted the number of employees permitted in common areas at any given time. The emergence of new variants of COVID-19, evolving government plans around the world to institute vaccination mandates, including in the U.S., and limited availability of vaccines in various jurisdictions, create uncertainty that may impact our employees and result in labor shortages and unforeseen costs. In addition, because the pandemic has decreased customer demand in many of our end-markets, some of our businesses have continued to operate at reduced capacity. We cannot predict the number or timing of any future facility closures, the potential for operating at reduced capacity or the size of the workforce that may be impacted by current domesticpotential labor actions such as furloughs or layoffs.
The extent to which our operations may be impacted by COVID-19 will depend on future developments that are highly uncertain, including the pandemic's duration, the emergence of different COVID-19 variants, the efficacy and internationaladoption rates of vaccines, the availability of recently approved oral medicines and actions by governments and private enterprises to contain the outbreak or mitigate the impact of the pandemic. For example, applicable laws and government measures, such as U.S. federal vaccine mandates or Occupational Safety and Health Administration requirements for vaccination or regular testing, could also result in skilled labor impacts including voluntary attrition or difficulty finding labor or otherwise adversely affect our ability to operate our facilities, obtain materials and component inputs from suppliers or deliver our products in a timely manner. Furthermore, the pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic conditionsgrowth, the proper functioning of financial and uncertainties.capital markets, foreign currency exchange rates and interest rates. Due to the continuing uncertainties surrounding the pandemic, we are unable to predict the ultimate impact that it will have on our financial position, operating results and cash flows in future periods.
•Increases in labor costs, potential labor disputes and work stoppages or an inability to hire skilled personnel could adversely affect our business.
Our businesses may be adversely affected by disruptionsWe have a number of collective bargaining units in the financial markets or declines in economic activity both domesticallyU.S. and internationally in those countries invarious collective labor arrangements outside the U.S. We are subject to potential work stoppages, union and works council campaigns and other labor disputes, any of which we operate. These circumstances will alsocould adversely impact our suppliersproductivity, reputation, results of operations, financial condition and customers in various ways which could have an impact on our business operations, particularly if global credit markets are not operating efficiently and effectively to support industrial commerce. cash flows.
Negative changesFurthermore, the competition for skilled personnel is often intense in worldwide economicthe regions in which our manufacturing facilities are located. A sustained labor shortage or increased turnover rates within our employee base, increases in the salaries and capital market conditionswages paid by competing employers, as a result of general macroeconomic factors or otherwise, could lead to increased costs, such as increased overtime to meet demand and potentially further increase salaries and wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate our manufacturing facilities and overall business. If we are beyondunable to hire and retain employees capable of performing at a high level, our control, are highly unpredictablebusiness, financial condition and can have an adverse effect onresults of of operations could be adversely affected.
•Our reputation, ability to do business and results of operations may be impaired by improper conduct by any of our employees, agents, or business partners.
While we strive to maintain high standards, we cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by our employees, agents, or business partners that would violate the laws of the jurisdictions where we do business, including the laws governing payments to government officials, bribery, fraud, anti-kickback and false claims, competition, export and import compliance, environmental compliance, money laundering and data privacy, as well as the improper use of proprietary information or social media. Any such violations of law or improper actions could: subject us to civil or criminal investigations; lead to substantial civil or criminal, monetary and non-monetary penalties and related shareholder lawsuits; lead to increased costs of compliance; and damage our reputation, our consolidated results of operations, financial condition and cash flows and costflows.
•We are subject to risks relating to our existing international operations and expansion into new geographical markets.
Approximately 47%46% and 48%45% of our revenues for 20192021 and 2018,2020, respectively, were derived outside the United States. We continue to focus on global markets as part of our overall growth strategyStates and we expect international sales from outside the United States to continue to represent a significant portion of our revenues. Ourrevenues given our global growth strategy. As a result of our international operations and our global expansion strategy, we are subject to generalvarious risks, related to such operations, including:
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| o | political, social and economic instability and disruptions; |
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| o | government import and export controls, economic sanctions, embargoes or trade restrictions; |
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| o | the imposition of duties and tariffs and other trade barriers;barriers and retaliatory countermeasures; |
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| o | limitations on ownership and dividend of earnings; |
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| o | transportation delays and interruptions; |
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| o | labor unrest and current and changing regulatory environments; |
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| o | widespread public health or similar issues,crises, such as a pandemic or epidemic; |
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| o | increased compliance costs, including costs associated with disclosure requirements and related due diligence; |
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| o | the impact of loss of a single-source manufacturing facility; |
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| o | difficulties in staffing and managing multi-national operations; |
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| o | limitations on our ability to enforce legal rights and remedies; |
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| o | potentially adverse tax consequences; and |
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| o | access to or control of networks and confidential information due to local government controls and vulnerability of local networks to cyber risks. |
If we are unable to successfully manage the risks associated with expanding our global business or adequately manage operational risks of our existing international operations, the risks could have a material adverse effect on our growth in geographic markets, our reputation, our consolidated results of operations, financial position and cash flows.
•Our exposure to exchange rate fluctuations on cross-border transactions and the translation of local currency results into U.S. dollars could negatively impact our results of operations.
We conduct business through our subsidiaries in many different countries, and fluctuations in currency exchange rates could have a significant impact on our reported consolidated results of operations, financial condition and cash flows, which are presented in U.S. dollars. Cross-border transactions, both with external parties and intercompany relationships, result in increased exposure to foreign exchange effects. Accordingly, significant changes in currency exchange rates, particularly the Euro, Chinese Renminbi (Yuan), Swedish krona, Pound Sterling, Indian rupee, Singapore dollar, Danish krone, and Canadian dollar, could cause fluctuations in the reported results of our businesses’ operations that could negatively affect our results of operations. Additionally, the strengthening of certain currencies such as the Euro and U.S. dollar potentially exposes us to competitive threats from lower cost producers in other countries. Our sales are translated into U.S. dollars for reporting purposes. The strengthening of the U.S. dollar could result in unfavorable translation effects as the results of foreign locations are translated into U.S. dollars.
•Increasing product/service and price competition by international and domestic competitors, including new entrants, and our inability to introduce new and competitive products could cause our businesses to generate lower revenue, operating profits and cash flows.
Our competitive environment is complex because of the wide diversity of the products that our businesses manufacture and the markets they serve. In general, most of our businesses compete with only a few companies. Our ability to compete effectively depends on how successfully we anticipate and respond to various competitive factors, including new products, digital solutions and support services that may be introduced by competitors, changes in customer preferences, evolving regulations, new business models and technologies and pricing pressures. If our businesses are unable to anticipate their competitors’ developments or identify customer needs and preferences on a timely basis, or successfully introduce new products, digital solutions and support services in response to such competitive factors, they could lose customers to competitors. If our businesses do not compete effectively, we may experience lower revenue, operating profits and cash flows.
•Our operating results depend in part on the timely development and commercialization, and customer acceptance, of new and enhanced products, digital solutions and support services based on technological innovation.
The success of new and improved products, digital solutions and support services depends on their initial and continued acceptance by our customers. Certain of our businesses sell in markets that are characterized by rapid technological changes, frequent new product introductions, changing industry standards and corresponding shifts in customer demand, which may result in unpredictable product transitions, shortened life cycles and increased importance of being first to market. Failure to correctly identify and predict customer needs and preferences, to deliver high quality, innovative and competitive products to the market, to adequately protect our intellectual property rights or to acquire rights to third-party technologies and to stimulate customer demand for, and convince customers to adopt new products, digital solutions and support services could adversely affect our consolidated results of operations, financial condition and cash flows. In addition, we may experience difficulties or delays in the research, development, production or marketing of new products, digital solutions and support services which may prevent us from recouping or realizing a return on the investments required to continue to bring new products and services to market.
•Tariffs have resulted in increased prices and could adversely affect our consolidated results of operations, financial position and cash flows.
Over the last several years, tariffs under Section 232 of the Trade Expansion Act of 1962 have been imposed on certain steel and aluminum products imported into the U.S. which have increased the prices of these inputs. Increased prices for imported steel and aluminum products have led domestic sellers to respond with market-based increases to prices for such inputs as well. Tariffs under Section 301 of the Trade Expansion Act were also imposed on goods imported from China in connection with China's intellectual property practices which may increase the cost to our customers of our products manufactured in China as well as the cost of Chinese sourced parts and components for our products manufactured in the U.S. China also has imposed tariffs on some U.S. goods that we manufacture and sell into China.
An additional round of tariffs may be imposed on goods imported from China if ongoing trade negotiations between the U.S. and China are not successful. The existing tariffs, along with any additional tariffs or trade restrictions that may be implemented by the U.S. or other countries, could result in further increased prices and a decreased available supply of steel and aluminum as well as additional costs on imported components and inputs. We may not be able to pass price increases on to our customers and may not be able to secure adequate alternative sources on a timely basis. While retaliatory tariffs imposed by other countries on U.S. goods have not yet had a significant impact, we cannot predict further developments. The tariffs could adversely affect the operating profits for certain of our businesses and customer demand for certain of our products which could have a material adverse effect on our consolidated results of operations, financial position and cash flows.
•Our businesses are subject to regulation and their profitability and reputation could be adversely affected by domestic and foreign governmental and public policy changes, risks associated with emerging markets, changes in statutory tax rates and unanticipated outcomes with respect to tax audits.
Our businesses’ domestic and international sales and operations must comply with a wide variety of laws, regulations and policies (including environmental, employment and health and safety regulations, data security laws, data privacy laws, export/import laws, tax policies such as export subsidy programs and research and experimentation credits, carbon emission regulations and energy efficiency and design regulations and other similar programs). These laws, regulations and policies are complex, change frequently, have tended to become more stringent over time and may be inconsistent across jurisdictions. Failure to comply (or any alleged or perceived failure to comply) with any of the foregoing could result in civil and criminal, monetary and non-monetary penalties as well as potential damage to our reputation and disruption to our business. We cannot provide assurance that our costs of complying with new and evolving regulatory reporting requirements and current or future laws will not exceed our estimates. In addition, the Brexit withdrawal agreement and subsequent negotiations as to go-forward terms and conditions between the United Kingdom and the European Union may continue to cause political and economic uncertainty, including significant volatility in global stock markets and currency exchange rate fluctuations. Although it is unknown what the full terms of the United Kingdom’s future relationship with the European Union will be following the transition period in 2020, it is possible that there will be greater restrictions on imports and exports between the United Kingdom and other countries and increased regulatory complexities. Any of these factors could adversely affect customer demand, our relationships with customers and suppliers, and our business and financial position.
Certain of our businesses have sales or operations in countries, including Brazil, Russia, India and China, and may in the future invest in other countries, any of which may carry high levels of currency, political, compliance, or economic risk. While these risks or the impact of these risks are difficult to predict, any one or more of them could adversely affect our businesses and reputation.
Our effective tax rate is impacted by changes in the mix among earnings in countries with differing statutory tax rates, changes in the valuation allowance of deferred tax assets and changes in tax laws. The amount of income taxes and other taxes paid can be adversely impacted by changes in statutory tax rates and laws and are subject to ongoing audits by domestic and international authorities. If these audits result in assessments different from amounts estimated, then our consolidated results of operations, financial position and cash flows may be adversely affected by unfavorable tax adjustments.
•We could lose customers or generate lower revenue, operating profits and cash flows if there are significant increases in the cost of our raw materials or components or if suppliers are not able to meet our quality and delivery requirements.
We purchase raw materials, sub-assemblies and components for use in our manufacturing operations, which exposes us to pricing and supply risks. Significant price increases for certain commodities, other raw materials or components could adversely affect operating profits of our businesses. While we generally attempt to mitigate the impact of increased raw material prices by hedging or passing along the increased costs to customers, there may be a time delay between the increased raw material prices and the ability to increase the prices of products, or we may be unable to increase the prices of products due to a competitor’s pricing pressure or other factors.
We use a wide range of raw materials and components in our manufacturing operations that come from numerous suppliers around the world. While we believe that sources of supply for raw materials and components are generally
adequate, it is difficult to predict what effects shortages may have in the future. In addition, some of the raw materials and components may be available only from limited or single source suppliers. If a single source or limited source supplier were to cease or interrupt production for any reason or otherwise fail to supply those raw materials or components to us on favorable purchase terms, including at favorable prices, in sufficient quantities and with adequate lead times needed for efficient manufacturing, our ability to meet customer commitments, and satisfy market demands for affected products could be negatively affected. Consequently, a significant price increase in raw materials or a shortage in or the unavailability of raw materials or components may result in a loss of customers and adversely impact our consolidated results of operations, financial condition and cash flows.
•Our growth and results of operations may be adversely affected if we are unsuccessful in our capital allocation and acquisition program.
We expect to continue our strategy of seeking to acquire value creating add-on businesses that broaden our existing position and global reach as well as, in the right circumstances, strategically pursue larger acquisitions that could have the potential to either complement our existing businesses or allow us to pursue a new platform. However, there can be no assurance that we will be able to continue to find suitable businesses to purchase, that we will be able to acquire such businesses on acceptable terms, or that all closing conditions will be satisfied with respect to any pending acquisition. In addition, we face the risk that a completed acquisition may underperform relative to expectations. We may not achieve the synergies originally anticipated, may become exposed to unexpected liabilities or may not be able to sufficiently integrate completed acquisitions into our current business and growth model. Further, if we fail to allocate our capital appropriately, in respect of either our acquisition program or organic growth in our operations, we could be overexposed in certain markets and geographies and unable to expand into adjacent products or markets. These factors could potentially have an adverse impact on our consolidated results of operations, financial condition and cash flows.
•Our operating profits and cash flows could be adversely affected if we cannot achieve projected savings and synergies.
We are continually evaluating our cost structure and seeking ways to capture synergies across our operations. For example, we recorded rightsizing costs in 2018, comprised of restructuring expense of $58.5 million and other costs of $14.3 million, and rightsizing costs in 2019, comprised of restructuring expense of $26.8 million and other costs of $5.3 million, primarily related to actions taken on employee reductions, facility consolidations and site closures, product line exits and other associated asset charges. These rightsizing activities and our regular ongoing cost reduction activities (including in connection with the integration of acquired businesses) may reduce our available talent, assets and other resources and could slow improvements in our products and services, adversely affect our ability to respond to customers and limit our ability to increase production quickly if demand for our products increases. In addition, delays in implementing planned restructuring activities or other productivity improvements, and unexpected costs or failure to meet targeted improvements may diminish the operational or financial benefits we expect to realize through our various programs. Any of the circumstances described above could adversely affect our consolidated results of operations, financial condition and cash flows.
•Our operations, businesses and products are subject to cybersecurity risks.
We depend on our own and third party IT systems, including cloud-based systems and managed service providers, to store, process and protect our information and support our business activities. We also use our third party IT systems to support employee data processing for our global work forceworkforce and to support customer business activities, such as transmitting payment information, providing mobile monitoring services, and capturing operational data. Additionally, some of our products contain computer hardware and software and offer the ability to connect to computer networks. Increasingly, our customers, including government customers, are requiring cybersecurity protections and mandating cybersecurity standards for our products. Our business has both an increasing reliance on IT systems and an increasing digital footprint as a result of changing technologies, connected devices and digital offerings, as well as expanded remote work policies. If these technologies, systems, products or services are damaged, cease to function properly, are compromised due to employee or third-party contractor error, user error, malfeasance, system errors, or other vulnerabilities, or are subject to cybersecurity attacks, such as those involving denial of service attacks, unauthorized access, malicious software, or other intrusions, including by criminals, nation states or insiders, our business may be adversely impacted. The impacts could include production downtimes, operational delays, and other impacts on our operations and ability to provide products and services to our customers; compromise of confidential, proprietary or otherwise protected information, including personal information and customer confidential data; destruction, corruption, or theft of data;data or intellectual property; manipulation, disruption, or improper use of these technologies, systems, products or services; financial losses from fraudulent transactions, remedial actions, loss of business or potential liability; adverse media coverage; and legal claims or legal proceedings, including regulatory investigations, actions and actions;fines; and damage to our reputation. There has been a rise in the number of cyberattacks targeting
confidential business information generally and in the manufacturing industry specifically, as well as an increase in cyberattacks targeting managed service providers, by both state-sponsored and criminal organizations. Moreover, there has been a rise in the number of
cyberattacks that depend on human error or manipulation, including phishing attacks or schemes that use social engineering to gain access to systems or perpetuate wire transfer or other frauds.
These trends increase the likelihood of such events occurring as well as the costs associated with protecting against such attacks. It is possible for vulnerabilities in our IT systems to remain undetected for an extended period of time up to and including several years. While weWe attempt to mitigate these risks by employing a number of measures, including employee training, systems monitoring and other technical security controls, a breach response plan, maintenance of backup and protective systems, and security personnel,personnel. Notwithstanding those measures, our systems, networks, products and services remain potentially vulnerable to known or unknown cybersecurity attacks and other threats, any of which could have a material adverse effect on our consolidated results of operations, financial condition and cash flows. We, and the service providers that we depend on to support our systems and business operations, are regularly the target of, attemptedand periodically respond to, cyberattacks, including phishing and denial-of-service attacks, and must continuously monitor and develop our systems to protect our technology infrastructure and data from misappropriation or corruption. In addition, a cybersecurity attack could persist for an extended period of time before being detected, and, following detection, it could take considerable time for us to obtain full and reliable information about the extent, amount and type of information compromised. During the course of an investigation, we may not know the full impact of the event and how to remediate it, and actions, decisions and mistakes that are taken or made may further increase the negative effects of the event on our business, results of operations and reputation. While we maintain insurance coverage that is intended to address certain aspects of cybersecurity risks, such insurance coverage may not cover all losses or all types of claims that arise. As cyber threats continue to evolve, cybersecurity and data protection laws and regulations continue to develop in the U.S. and globally, and our business continues to move towards increased online connectivity within our information systems and through more Internet-enabled products and offerings, we expect to expend additional resources to continue to build out our compliance programs, strengthen our information security, data protection and business continuity measures, and investigate and remediate vulnerabilities.
•Unforeseen developments in contingencies such as litigation and product recalls could adversely affect our consolidated results of operations, financial condition and cash flows.
We and certain of our subsidiaries are, and from time to time may become, parties to a number of legal proceedings incidental to our businesses, including alleged injuries arising out of the use of products or exposure to hazardous substances, or claims related to patent infringement, employment matters and commercial disputes. The defense of these lawsuits may require significant expenses and divert management’s attention, and we may be required to pay damages that could adversely affect our consolidated results of operations, financial condition and cash flows. In addition, any insurance or indemnification rights that we may have may be insufficient or unavailable to protect us against potential loss exposures.
We may be exposed to product recalls and adverse public relations if our products are alleged to have defects, to cause property damage, to cause injury or illness, or if we are alleged to have violated governmental regulations. A product recall could result in substantial and unexpected expenditures, which would reduce operating profit and cash flow. In addition, a product recall may require significant management attention. Product recalls may hurt the value of our brands and lead to decreased demand for our products. Product recalls also may lead to increased scrutiny by federal, state or international regulatory agencies of our operations and increased litigation and could have a material adverse effect on our consolidated results of operations, financial condition and cash flows.
•If the Apergy spin-off, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, weOur revenue, operating profits and our shareholderscash flows could be subjectadversely affected if our businesses are unable to significant tax liabilities.protect or obtain patent and other intellectual property rights.
In connection withOur businesses own patents, trademarks, licenses and other forms of intellectual property related to their products and continuously invest in research and development that may result in innovations and general intellectual property rights. Our businesses employ various measures to develop, maintain and protect their intellectual property rights. These measures may not be effective in capturing intellectual property rights, and they may not prevent their intellectual property from being challenged, invalidated, or circumvented, particularly in countries where intellectual property rights are not highly developed or protected. Unauthorized use of our businesses' intellectual property rights could adversely impact the spin-offcompetitive position of Apergy, we receivedour businesses and could have a private letter ruling from the Internal Revenue Service (the "IRS Ruling") together with an opinionnegative impact on our consolidated results of McDermott Will & Emery LLP,operations, financial condition and cash flows.
•We could be negatively impacted by environmental, social and governance (ESG) and sustainability matters.
Governments, shareholders, customers, employees and other stakeholders are increasingly focusing on corporate ESG practices and disclosures, and expectations in this area are rapidly evolving and growing. We have announced certain initiatives, including goals, regarding our tax counsel, substantiallyfocus areas, which include greenhouse gas emissions reductions, health and safety, diversity and inclusion, talent attraction and development, and innovation for sustainable products. The criteria by which our ESG practices are assessed may change due to the effect that, among other things, certain transactions to effect the spin-off will qualify as a tax-free reorganization for U.S. federal income tax purposes under Section 368(a)(1)(D)evolution of the Internal Revenue Code (the “Code”),sustainability landscape, which could result in greater expectations of us and may cause us to undertake costly initiatives to satisfy new criteria. Moreover, the increasing attention to sustainability could also result in reduced demand for certain of our products or services and/or reduced profits. If we are unable to respond effectively, investors may conclude that our policies and/or actions with respect to ESG matters are inadequate. If we fail or are perceived to have failed to achieve previously announced initiatives or goals or to accurately disclose our progress on such initiatives or goals, our reputation, business, financial condition and results of operations could be adversely impacted.
Industry Risks
•Increasing product, service and price competition by international and domestic competitors, including new entrants, and our inability to introduce new and competitive products could cause our businesses to generate lower revenue, operating profits and cash flows.
Our competitive environment is complex because of the wide diversity of the products that our businesses manufacture and the distribution will qualifymarkets they serve. In general, most of our businesses compete with only a few companies. Our ability to compete effectively depends on how successfully we anticipate and respond to various competitive factors, including new products, digital solutions and support services that may be introduced by competitors, changes in customer preferences, evolving regulations, new business models and technologies and pricing pressures. If our businesses are unable to anticipate their competitors’ developments or identify customer needs and preferences on a timely basis, successfully introduce new products, digital solutions and support services in response to such competitive factors, or adopt to market changes relating to climate change related policies, they could lose customers to competitors. If our businesses do not compete effectively, we may experience lower revenue, operating profits and cash flows.
•Our operating results depend in part on the timely development and commercialization, and customer acceptance, of new and enhanced products, digital solutions and support services based on technological innovation.
The success of new and improved products, digital solutions and support services depends on their initial and continued acceptance by our customers. Certain of our businesses sell in markets that are characterized by rapid technological changes, frequent new product introductions, changing industry standards and corresponding shifts in customer demand, which may result in unpredictable product transitions, shortened life cycles and increased importance of being first to market. Failure to correctly identify and predict customer needs and preferences, to deliver high quality, innovative and competitive products to the market, to adequately protect our intellectual property rights or to acquire rights to third-party technologies, to provide adequate data security and privacy protections and to stimulate customer demand for, and convince customers to adopt new products, digital solutions and support services could adversely affect our consolidated results of operations, financial condition and cash flows. In addition, we may experience difficulties or delays in the research, development, production or marketing of new products, digital solutions and support services which may prevent us from recouping or realizing a return on the investments required to continue to bring new products and services to market.
•We could lose customers or generate lower revenue, operating profits and cash flows if there are significant increases in the cost of our raw materials or components, if suppliers are not able to meet our quality and delivery requirements.
We purchase raw materials, sub-assemblies and components for use in our manufacturing operations. Factors such as a tax-free distributionfreight costs, transportation availability, inventory levels, the level of imports, the imposition of duties, tariffs and other trade barriers and general economic conditions may affect the price of these raw materials, sub-assemblies and components. Significant price increases for certain commodities, other raw materials or components could adversely affect operating profits of our businesses. While we generally attempt to our shareholders under Section 355mitigate the impact of the Code. The IRS Ruling and the opinion of tax counsel relied on certain facts and assumptions, and certain representations and undertakings from us and Apergy,increased raw material
prices by hedging or passing along the increased costs to customers, there may be a time delay between the increased raw material prices and the ability to increase the prices of products, or we may be unable to increase the prices of products due to a competitor’s pricing pressure or other factors.
We use a wide range of raw materials and components in our manufacturing operations that come from numerous suppliers. While we believe that sources of supply for raw materials and components are generally adequate, it is difficult to predict what effects of extended lead times or shortages may have in the future. In addition, some of the raw materials and components may be available only from limited or single source suppliers. If a single source or limited source supplier were to cease or interrupt production for any reason or otherwise fail to supply those raw materials or components to us on favorable purchase terms, including those regardingat favorable prices, in sufficient quantities and with adequate lead times needed for efficient manufacturing, our ability to meet customer commitments, and satisfy market demands for affected products could be negatively affected. The disruption of our global supply chain for any reason, including for issues such as COVID-19 or other health epidemics or pandemics, labor disputes, loss of single source or limited source supplier, inability to procure sufficient raw materials, quality control issues, ethical sourcing issues, a supplier's financial distress, natural disasters, looting, vandalism or acts of war or terrorism, trade sanctions or other external factors over which we have no control, could interrupt product supply and, if not effectively managed and remedied, have a material adverse impact on our business operations, financial condition and results of operations.
Legal and Regulatory Risks
•Our businesses are subject to regulation and their profitability and reputation could be adversely affected by domestic and foreign governmental and public policy changes, risks associated with emerging markets, changes in statutory tax rates and unanticipated outcomes with respect to tax audits.
Our businesses’ domestic and international sales and operations must comply with a wide variety of laws, regulations and policies (including environmental, employment and health and safety regulations, data security laws, data privacy laws, export/import laws, tax policies such as export subsidy programs and research and experimentation credits, carbon emission regulations, energy efficiency and design regulations and other similar programs). These laws, regulations and policies are complex, change frequently, have tended to become more stringent over time and may be inconsistent across jurisdictions. Failure to comply (or any alleged or perceived failure to comply) with any of the pastforegoing could result in civil and criminal, monetary and non-monetary penalties as well as potential damage to our reputation and disruption to our business. We cannot provide assurance that our costs of complying with new and evolving regulatory reporting requirements and current or future conductlaws will not exceed our estimates. Any of certainthese factors could adversely affect customer demand, our relationships with customers and suppliers, and our business and financial position.
Certain of our businesses have sales or operations in countries, including Brazil, Russia, India and China, and may in the future invest in other countries, any of which may carry high levels of currency, political, compliance, or economic risk. While these risks or the impact of these risks are difficult to predict, any one or more of them could adversely affect our businesses and reputation.
Our effective tax rate is impacted by the mix of earnings among countries with differing statutory tax rates, changes in the valuation allowance of deferred tax assets and changes in income tax laws. The amount of income taxes and other matters.taxes paid can be adversely impacted by changes in statutory tax rates and laws and are subject to ongoing audits by governmental authorities. If these audits result in assessments different from amounts estimated, then our consolidated results of operations, financial position and cash flows may be adversely affected by unfavorable tax adjustments.
Financial and Strategic Risks
•Our exposure to exchange rate fluctuations on cross-border transactions and the translation of local currency results into U.S. dollars could negatively impact our results of operations.
We conduct business through our subsidiaries in many different countries, and fluctuations in currency exchange rates could have a significant impact on our reported consolidated results of operations, financial condition and cash flows, which are presented in U.S. dollars. Cross-border transactions, both with external parties and intercompany relationships, result in increased exposure to foreign exchange effects. Accordingly, significant changes in currency exchange rates, particularly the euro, Chinese renminbi (yuan), Swedish krona, pound sterling, Indian rupee, Singapore dollar, Danish
krone, and Canadian dollar, could cause fluctuations in the reported results of our businesses’ operations that could negatively affect our results of operations. Additionally, the strengthening of certain currencies such as the euro and U.S. dollar potentially exposes us to competitive threats from lower cost producers in other countries. Our sales are translated into U.S. dollars for reporting purposes. The strengthening of the U.S. dollar could result in unfavorable translation effects as the results of foreign locations are translated into U.S. dollars.
•Our growth and results of operations may be adversely affected if we are unsuccessful in our capital allocation and acquisition program.
We expect to continue our strategy of seeking to acquire value creating add-on businesses that broaden our existing position and global reach as well as, in the right circumstances, strategically pursue larger acquisitions that could have the potential to either complement our existing businesses or allow us to pursue a new platform. However, there can be no assurance that we will be able to continue to find suitable businesses to purchase, that we will be able to acquire such businesses on acceptable terms, or that all closing conditions will be satisfied with respect to any of these facts, assumptions, representationspending acquisition. In addition, we face the risk that a completed acquisition may underperform relative to expectations. We may not achieve the synergies originally anticipated, may become exposed to unexpected liabilities or undertakings are incorrect or not satisfied, we and our shareholders may not be able to rely on the IRS Rulingsufficiently integrate completed acquisitions into our current business and growth model. Further, if we fail to allocate our capital appropriately, in respect of either our acquisition program or the opinion, andorganic growth in our operations, we could be subjectoverexposed in certain markets and geographies and unable to significant tax liabilities. Notwithstanding the IRS Rulingexpand into adjacent products or markets. These factors could potentially have an adverse impact on our consolidated results of operations, financial condition and the opinion, the IRS could determine on audit that the distribution is taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion. In addition, we and Apergy intend for certain related transactions to qualify for tax-free treatment under U.S. federal, state and local tax law and/or foreign tax law.
If the distribution is determined to be taxable for U.S. federal income tax purposes, we and our shareholders that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities. For example, if the distribution fails to qualify for tax-free treatment, we would, for U.S. federal income tax purposes, be treated as if we had sold the Apergy common stock in a taxable sale for its fair market value, and our shareholders who are subject to U.S. federal income tax would be treated as receiving a taxable distribution in an amount equal to the fair market value of the Apergy common stock received in the distribution. In addition, if certain related transactions fail to qualify for tax-free treatment under U.S. federal, state and local tax law and/or foreign tax law, we could incur significant tax liabilities under U.S. federal, state, local and/or foreign tax law, respectively.cash flows.
•The indemnification provisions of acquisition and disposition agreements by which we have acquired or sold or disposed of companies may not fully protect us and may result in unexpected liabilities.
Certain of the acquisition agreements by which we have acquired companies require the former owners to indemnify us against certain liabilities related to the operation of those companies before we acquired them. In most of these agreements, however, the liability of the former owners is limited and certain former owners may be unable to meet their indemnification responsibilities. Similarly, the purchasers of our disposed operations may from time to time agree to indemnify us for operations of such businesses after the closing. We cannot be assured that any of these indemnification provisions will fully protect us, and as a result we may face unexpected liabilities that adversely affect our consolidated results of operations, financial condition and cash flows. In addition, we have retained certain liabilities directly or through indemnifications made to the buyers of businesses we have sold or disposed against known and unknown contingent liabilities such as tax liabilities and environmental matters.
In connection with the spin-off, Apergy agreed to indemnify us for any losses relating to the conduct of the Apergy business. There can be no assurance that the indemnity agreements will be sufficient to protect us against the full amount of any liabilities that may arise, or that the indemnitors will be able to fully satisfy their indemnification obligations. The failure to receive amounts for which we are entitled to indemnification could adversely affect our results of operations, cash flows and financial condition.
•Our reputation, ability to do business and results of operations may be impaired by improper conduct by any of our employees, agents, or business partners.
While we strive to maintain high standards, we cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by our employees, agents, or business partners that would violate United States and/or non-United States laws or fail to protect our confidential information, including the laws governing payments to government officials, bribery, fraud, anti-kickback and false claims, competition, export and import compliance, money laundering and data privacy, as well as the improper use of proprietary information or social media. Any such violations of law or improper actions could subject us to civil or criminal investigations in the United States and in other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penalties and related shareholder lawsuits, could lead to increased costs of compliance and could damage our reputation, our consolidated results of operations, financial condition and cash flows.
•Our revenue, operating profits and cash flows could be adversely affected if our businesses are unable to protect or obtain patent and other intellectual property rights.
Our businesses own patents, trademarks, licenses and other forms of intellectual property related to their products and continuously invest in research and development that may result in innovations and general intellectual property rights. Our businesses employ various measures to develop, maintain and protect their intellectual property rights. These measures may not be effective in capturing intellectual property rights, and they may not prevent their intellectual property from being challenged, invalidated, or circumvented, particularly in countries where intellectual property rights are not highly developed or protected. Unauthorized use of our businesses' intellectual property rights could adversely impact the competitive position of our businesses and could have a negative impact on our consolidated results of operations, financial condition and cash flows.
•If we experience work stoppages, union and works council campaigns and other labor disputes, our productivity and results of operations could be adversely impacted.
We have a number of collective bargaining units in the United States and various foreign collective labor arrangements. We are subject to potential work stoppages, union and works council campaigns and other labor disputes, any of which could adversely impact our productivity, reputation, consolidated results of operations, financial condition and cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
The number, type, location and size of the properties used by our operations as of December 31, 20192021 are shown in the following charts, by segment:
| | | Number and nature of facilities | | | Square footage (in 000s) | | | Number and nature of facilities | | Square footage (in 000s) |
| | Manufacturing | | Warehouse | | Sales / Service | | Total | | Owned | | Leased | | Manufacturing | | Warehouse | | Sales / Service | | Total | | Owned | | Leased |
| Engineered Products | Engineered Products | 29 | | | 17 | | | 9 | | | 55 | | | 2,905 | | | 1,265 | | Engineered Products | 26 | | | 19 | | | 10 | | | 55 | | | 2,908 | | | 1,175 | |
| Fueling Solutions | 25 | | | 8 | | | 24 | | | 57 | | | 926 | | | 1,855 | | |
| Clean Energy & Fueling | | Clean Energy & Fueling | 29 | | | 8 | | | 29 | | | 66 | | | 1,458 | | | 1,889 | |
| Imaging & Identification | Imaging & Identification | 12 | | | 15 | | | 58 | | | 85 | | | 662 | | | 908 | | Imaging & Identification | 13 | | | 15 | | | 58 | | | 86 | | | 689 | | | 1,068 | |
| Pumps & Process Solutions | Pumps & Process Solutions | 36 | | | 6 | | | 24 | | | 66 | | | 3,060 | | | 1,441 | | Pumps & Process Solutions | 39 | | | 6 | | | 20 | | | 65 | | | 3,044 | | | 924 | |
| Refrigeration & Food Equipment | 24 | | | 24 | | | 18 | | | 66 | | | 1,506 | | | 2,444 | | |
| Climate & Sustainability Technologies | | Climate & Sustainability Technologies | 20 | | | 15 | | | 13 | | | 48 | | | 965 | | | 2,184 | |
| | | Locations | | | Expiration dates of leased facilities (in years) | | | Locations | | Expiration dates of leased facilities (in years) |
| | North America | | Europe | | Asia | | Other | | Total | | Minimum | | Maximum | | North America | | Europe | | Asia | | Other | | Total | | Minimum | | Maximum |
| Engineered Products | Engineered Products | 33 | | | 14 | | | 5 | | | 1 | | | 53 | | | 1 | | 9 | Engineered Products | 33 | | | 14 | | | 7 | | | 1 | | | 55 | | | 1 | | 7 |
| Fueling Solutions | 13 | | | 15 | | | 10 | | | 2 | | | 40 | | | 1 | | 13 | |
| Clean Energy & Fueling | | Clean Energy & Fueling | 25 | | | 16 | | | 10 | | | 2 | | | 53 | | | 1 | | 11 |
| Imaging & Identification | Imaging & Identification | 10 | | | 37 | | | 23 | | | 1 | | | 71 | | | 1 | | 12 | Imaging & Identification | 10 | | | 33 | | | 23 | | | 1 | | | 67 | | | 1 | | 11 |
| Pumps & Process Solutions | Pumps & Process Solutions | 34 | | | 14 | | | 10 | | | 4 | | | 62 | | | 1 | | 11 | Pumps & Process Solutions | 29 | | | 18 | | | 8 | | | 3 | | | 58 | | | 1 | | 11 |
| Refrigeration & Food Equipment | 33 | | | 14 | | | 9 | | | 4 | | | 60 | | | 1 | | 11 | |
| Climate & Sustainability Technologies | | Climate & Sustainability Technologies | 23 | | | 11 | | | 8 | | | 4 | | | 46 | | | 1 | | 9 |
Our owned and leased facilities are well-maintained and suitable for our operations.
ITEM 3. LEGAL PROCEEDINGS
A few of our subsidiaries are involved in legal proceedings relating to the cleanup of waste disposal sites identified under federalSee Note 16 — Commitments and state statutes which provide for the allocation of such costs among "potentially responsible parties." In each instance, the extent of the subsidiary’s liability appears to be relatively insignificant in relation to the total projected expenditures and the number of other "potentially responsible parties" involved and it is anticipated to be immaterial to us on a consolidated basis. In addition, a few of our subsidiaries are involved in ongoing remedial activities at certain plant sites, in cooperation with regulatory agencies, and appropriate reserves have been established. At December 31, 2019 and 2018, we have reserves totaling $30.6 million and $31.8 million, respectively, for environmental and other matters, including private party claims for exposure to hazardous substances, that are probable and estimable.
The Company and certain of its subsidiaries are also parties to a number of other legal proceedings incidental to their businesses. These proceedings primarily involve claims by private parties alleging injury arising out of use of the Company’s products, 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 consider the availability and extent of insurance coverage. The Company has reserves for other legal matters that are probable and estimable and at December 31, 2019 and 2018, these reserves are not significant. While it is not possible at this time to predict the outcome of these legal actions,Contingent Liabilities in the opinionConsolidated Financial Statements in Item 8 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.this Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
All of our officers are elected annually at the first meeting of the Board of Directors following our annual meeting of shareholders, and are subject to removal at any time by the Board of Directors. Our executive officers as of February 14, 2020,11, 2022, and their positions with Dover (and, where relevant, prior business experience) for the past five years, are as follows:
| | | | | | | | | | | | | | |
| Name | | Age | | Positions Held and Prior Business Experience |
| Richard J. Tobin | | 56 | 58 | | President and Chief Executive Officer (since May 2018) and Director (since August 2016); prior thereto Chief Executive Officer (from 2013 to 2018) of CNH Industrial NV. |
| Kimberly K. Bors | | 61 | 59 | | | Senior Vice President, Human Resources (since January 2020) of Dover; prior thereto Senior Vice President –and Chief Human Resources Officer of The Mosaic Company (from July 2017 to December 2018); prior thereto Senior Vice President, Human Resources & Administration for Schneider, North America at Schneider Electric (September 2014 to June 2017). |
| Ivonne M. Cabrera | | 53 | 55 | | Senior Vice President, General Counsel and Secretary of Dover (since January 2013). of Dover. |
| Brad M. Cerepak | | 60 | 62 | | Senior Vice President and Chief Financial Officer (since May 2011) of Dover. |
| Girish Juneja | | 50 | 52 | | Senior Vice President and Chief Digital Officer (since May 2017) of Dover; prior thereto Senior Vice President/Chief Technology Officer and General Manager of the Marketplace Solutions Business of Altisource (from January 2014 to April 2017). |
| David J. Malinas | | 45 | 47 | | Senior Vice President, Operations (since July 2019) of Dover; prior thereto Senior Vice President and President, Industrial Process for ITT Corporation (from June 2017 to June 2019); prior thereto Vice President and General Manager, Controlled Temperature Technologies Businesses at Thermo Fisher Scientific Inc. ("Thermo Fisher") (from March 2017 to June 2017); prior thereto Vice President, Industrial Segment at Thermo FischerFisher (from December 2015 to March 2017); prior thereto Vice President and General Manager, Global Chemicals Business Unit (from June 2012 to November 2015) at Thermo Fisher. |
| Anthony K. Kosinski | | 53 | 55 | | Vice President, Tax (since June 2016) of Dover; prior thereto Director, Domestic Tax (June 2003 to June 2016) of Dover. |
| James M. Moran | | 54 | 56 | | Vice President, Treasurer (since November 2015) of Dover; prior thereto Senior Vice President and Treasurer (from June 2013 to August 2015) of Navistar International Corporation (“NIC”); prior thereto Vice President and Treasurer (from 2008 to June 2013) of NIC; also served as Senior Vice President and Treasurer of Navistar, Inc. (from June 2013 to August 2015). |
| Ryan W. Paulson | | 46 | 48 | | Vice President & Controller (from July 2019) of Dover; prior thereto Assistant Controller, Global Consolidations & Operations Accounting (from August 2017 to July 2019); prior thereto partner at PricewaterhouseCoopers LLP (from July 2012 to June 2017). |
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Dividends
The principal market in which Dover common stock is traded is the New York Stock Exchange.
Holders
The numberAs of February 1, 2022, there were 1,264 holders of record of Dover common stock as of February 4, 2020 was approximately 18,689. This figure includes participants in our domestic 401(k) program.stock.
Securities Authorized for Issuance Under Equity Compensation Plans
Information relating to securities authorized for issuance under our equity compensation plans is contained in Part III, Item 12 of this Form 10-K.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
In November 2020, the Company's Board of Directors approved a new standing share repurchase authorization, whereby we may repurchase up to 20 million shares beginning on January 1, 2021 through December 31, 2023. This share repurchase authorization replaced the February 2018 share repurchase authorization. Upon expiration of the February 2018 share repurchase authorization, there were 7,380,879 shares remaining.
During the year ended December 31, 2019,2021, under our February 2018November 2020 standing share repurchase authorization, the Companywhich began on January 1, 2021, we purchased 1,343,622182,951 shares of common stock at a total cost of $143.3 million$21,637 or $106.64$118.27 per share. No share repurchases were made under the November 2020 authorization during the three months ended December 31, 2021. As of December 31, 2019, 8,360,044 shares2021, 19,817,049 shares remain authorized for repurchase.
The total number of shares purchased by month duringrepurchase under the fourth quarter of 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value in Thousands) of Shares that May Yet Be Purchased under the Plans or Program |
| Period | | | | | | | February 2018 Program | |
| October 1 to October 31 | — | | | $ | — | | | — | | | 9,441,859 | |
| November 1 to November 30 | 523,744 | | | 109.53 | | | 523,744 | | | 8,918,115 | |
| December 1 to December 31 | 558,071 | | | 112.23 | | | 558,071 | | | 8,360,044 | |
| For the Fourth Quarter | 1,081,815 | | | $ | 110.92 | | | 1,081,815 | | | 8,360,044 | |
Performance Graph
This performance graph does not constitute soliciting material, is not deemed filed with the Securities and Exchange Commission ("SEC"), and is not incorporated by reference in any of our filings under the Securities Act of 1933 or the Exchange Act of 1934, whether made before or after the date of this Form 10-K and irrespective of any general incorporation language in any such filing, except to the extent we specifically incorporate this performance graph by reference therein.
Comparison of Five-Year Cumulative Total Return +
Dover Corporation, S&P 500 Index, S&P 500 Industrials Index, Old & New Peer Group Index
Total Shareholder Returns
Data Source: Research Data Group, Inc
_______________________
+Total return assumes reinvestment of dividends.
This graph assumes $100 invested on December 31, 20142016 in Dover common stock, the S&P 500 indexIndex, the S&P 500 Industrials Index, and an old and new peer group index.Old Peer Group Index.
The 20192021 new peer index group consists of the S&P 500 Industrials Index. The Old Peer Group index consists of the following 3029 public companies selected by Dover.
| | | | | | | | |
| 3M Company | Flowserve Corporation | NordsonParker-Hannifin Corp. |
Actuant Corp.Ametek Inc. | Fortive Corp. | Parker-Hannifin Corp. |
AMETEK Inc. | Gardner Denver Holdings Inc. | Pentair PLCPlc |
| Carlisle Companies Inc. | Honeywell International Inc. | Regal Beloit Corp. |
| Colfax Corp. | IDEX Corporation | Rockwell Automation Inc. |
| Corning Inc. | Illinois Tool Works Inc. | Snap-OnSnap-on Inc. |
Crane CompanyCo. | Ingersoll-Rand PLCIngersoll Rand Inc. | SPX Flow Inc. |
Danaher CorporationCorp. | ITT Inc. | Teledyne Technologies Inc. |
| Eaton Corporation Plc | Johnson Controls International PLCPlc | Textron Inc. |
| Emerson Electric Co. | Lennox International Inc. | The Timken Company |
| Enerpac Tool Group Corp. | Nordson Corp. | |
ITEM 6. SELECTED FINANCIAL DATAWe re-examined our Old Peer Group and concluded that our diversified portfolio of businesses, which evolves in accordance with our acquisition and disposition initiatives, is better benchmarked against a broad set of industrial manufacturing peers represented by the S&P 500 Industrials Index rather than a constant group of peers, each with limited overlap with our portfolio. Moreover, the companies within the Old Peer Group have undertaken and may continue to undertake mergers, spin-offs, split-offs, or other strategic transactions that could potentially cause those companies to no longer be considered peers.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| in thousands except per share data | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| | | | | | | | | | |
| Revenue | | $ | 7,136,397 | | | $ | 6,992,118 | | | $ | 6,820,886 | | | $ | 6,043,224 | | | $ | 5,879,842 | |
| Earnings from continuing operations | | 677,918 | | | 591,145 | | | 746,663 | | | 502,128 | | | 525,208 | |
| (Loss) earnings from discontinued operations | | — | | | (20,878) | | | 65,002 | | | 6,764 | | | 344,621 | |
| Net earnings | | 677,918 | | | 570,267 | | | 811,665 | | | 508,892 | | | 869,829 | |
| | | | | | | | | | |
| Basic earnings (loss) per share: | | | | | | | | | | |
| Continuing operations | | $ | 4.67 | | | $ | 3.94 | | | $ | 4.80 | | | $ | 3.23 | | | $ | 3.33 | |
| Discontinued operations | | — | | | (0.14) | | | 0.42 | | | 0.04 | | | 2.19 | |
| Net earnings | | 4.67 | | | 3.80 | | | 5.21 | | | 3.28 | | | 5.52 | |
| | | | | | | | | | |
| Weighted average basic shares outstanding | | 145,198 | | | 149,874 | | | 155,685 | | | 155,231 | | | 157,619 | |
| | | | | | | | | | |
| Diluted earnings (loss) per share: | | | | | | | | | | |
| Continuing operations | | $ | 4.61 | | | $ | 3.89 | | | $ | 4.73 | | | $ | 3.21 | | | $ | 3.30 | |
| Discontinued operations | | — | | | (0.14) | | | 0.41 | | | 0.04 | | | 2.17 | |
| Net earnings | | 4.61 | | | 3.75 | | | 5.15 | | | 3.25 | | | 5.46 | |
| | | | | | | | | | |
| Weighted average diluted shares outstanding | | 146,992 | | | 152,133 | | | 157,744 | | | 156,636 | | | 159,172 | |
| | | | | | | | | | |
| Dividends per common share | | $ | 1.94 | | | $ | 1.90 | | | $ | 1.82 | | | $ | 1.72 | | | $ | 1.64 | |
| | | | | | | | | | |
| Capital expenditures | | $ | 186,804 | | | $ | 170,994 | | | $ | 170,068 | | | $ | 139,578 | | | $ | 130,045 | |
| Depreciation and amortization | | 272,287 | | | 282,580 | | | 283,278 | | | 249,672 | | | 207,817 | |
Total assets (1) | | 8,669,477 | | | 8,365,771 | | | 10,658,359 | | | 10,130,325 | | | 8,606,075 | |
| Total long-term debt, including current maturities | | 2,985,716 | | | 2,943,660 | | | 3,336,713 | | | 3,207,632 | | | 2,603,504 | |
All results and data in the table above reflect continuing operations, unless otherwise noted. See Note 4 — Acquisitions and Note 5 — Discontinued and Disposed Operations in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information regarding the impact of 2019, 2018 and 2017 acquisitions and disposed and discontinued operations.Not required.
(1) Includes assets from discontinued operations
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand our results of operations and financial condition for the three years ended December 31, 2019, 20182021, 2020 and 2017.2019. The MD&A should be read in conjunction with our Consolidated Financial Statements and Notes included in Item 8 of this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed elsewhere in this Form 10-K, particularly in Item 1A. "Risk Factors" and in the "Special Note Regarding Forward-Looking Statements" preceding Part I of this Form 10-K.
Throughout this MD&A, we refer to measures used by management to evaluate performance, including a number of financial measures that are not defined under accounting principles generally accepted in the United States of America ("GAAP"). Please see "Non-GAAP Disclosures" at the end of this Item 7 for further detail on these financial measures. We believe these measures provide investors with important information that is useful in understanding our business results and trends. Reconciliations within this MD&A provide more details on the use and derivation of these measures.
OVERVIEW
Dover Corporation is a diversified global manufacturer and solutions provider delivering innovative equipment and components, consumable supplies, aftermarket parts, software and digital solutions and support services. Effective October 1, 2019, Dover transitioned from a three-segment to a five-segment structure as a result of a change to its management structure and operating model. Dover's five segments are structured around businesses with similar business models, go-to-market strategies and manufacturing practices. This new structure increases management efficiency and better aligns Dover’s operations with its strategic initiatives and capital allocation priorities, and provides greater transparency about our performance to external stakeholders. Dover's five operating and reportable segments are as follows: Engineered Products, Fueling Solutions, Imaging & Identification, Pumps & Process Solutions, and Refrigeration & Food Equipment.
For the year ended December 31, 2019,2021, consolidated revenue from continuing operations was $7.1$7.9 billion, an increase of $0.1$1.2 billion or 2.1%18.3%, as compared to the prior year. This increasegrowth included organic revenue growth of 3.8% and acquisition-related growth of 0.8%, partially offset15.3% driven by an unfavorablestrong demand across all our segments reflecting robust macroeconomic trends, a favorable impact of 2.0% from foreign currency translation of 1.9% and a 0.5%1.3% acquisition-related growth, partially offset by 0.2% impact from dispositions. Overall, customer pricing had a favorable impact of 1.0% onfavorably impacted revenue by approximately 2.8% for the year.
Within our Engineered Products segment, revenue increased $64.4$249.6 million, or 3.9%16.3%, from the prior year, reflecting a broad-based organic revenue growth of 5.4%14.1%, offset by an unfavorable impact froma favorable foreign currency translation of 1.5%1.6% and acquisition-related growth of 0.6%. OrganicThe organic revenue growth was primarily driven by strong activityrobust demand in the refuse truck and digital solutions product lines within our waste handling business, as well as solid revenue growthkey end-markets most notably in our vehicle service business.and industrial automation businesses, and strategic pricing initiatives which partially offset significant inflationary headwinds in this segment.
Our Clean Energy & Fueling Solutions segment revenue increased $154.6$171.9 million, or 10.5%11.6%, from prior year, reflecting organic growth of 10.5%5.8%, acquisition-related growth of 3.4%, partially offset by an unfavorable3.6% and a favorable impact from foreign currency impacttranslation of 3.0%, and a 0.4% impact from a disposition. Organic2.2%. The organic revenue growth was principally driven by continued strongsolid demand in our North America and Europe, the globalMiddle East, and Africa ("EMEA") retail fueling industry, particularly in the United States, Europe and Asia.vehicle wash businesses, along with pricing actions aimed at mitigating material, logistics and labor cost inflation.
Our Imaging & Identification segment revenue decreased $25.4increased $125.2 million, or 2.3%12.1%, from the prior year, reflectingcomprised of organic growth of 1.2%8.0%, more than offset by an unfavorablea favorable impact from foreign currency impacttranslation of 3.5%2.8%, and acquisition-related growth of 1.3%. The organic revenue growth was primarily driven by increasedsolid growth in new equipment shipments and expanded service revenueassociated services and consumables, as well as serialization software sales in our marking and coding business along with increased service revenue and increased printer and ink volumesongoing demand recovery in our digital textile printing business. The significant foreign currency impact was due to our broad international customer base, in particular in Asia and Europe.
Our Pumps & Process Solutions segment revenue increased $6.6$384.6 million, or 0.5%29.1%, from the prior year, attributable to an organic growth of 26.6%, a favorable impact from foreign currency translation of 1.9% and acquisition-related growth of 0.6%. The organic revenue growth was principally driven by strong demand in the biopharma and hygienic markets especially for single use pumps and connectors used in biopharmaceutical production processes. Our industrial pumps plastics and polymer processing solutions and bearings and compression components businesses also contributed to top-line growth on strong end market demand.
Our Climate & Sustainability Technologies segment revenue increased $292.1 million, or 22.2%, from the prior year, reflecting an organic revenue growth of 3.9%, acquisition related growth22.0% and a favorable impact from foreign currency translation of 0.5%1.3%, partially offset by unfavorable impacts froma disposition related decline of 2.0% and foreign currency of 1.9%1.1%. OrganicThe organic growth was broad-based across the segment and was driven by industrial, biopharma and thermal management markets, along with continued strongrobust demand fromin all of our OEM customers for rotating equipment components, as well as pump and other equipment for plastics and polymer production.key end-
Our Refrigeration & Food Equipment segment revenue decreased $56.5 million, or 3.9%,markets. Beverage packaging production equipment revenues increased substantially from the prior year, causeddriven by an organic revenue decline of 2.7%continued favorable macro trends in the global beverage industry and an unfavorable impact from foreign currency translation of 1.2%. The organic decline wasshift to more recyclable packaging materials. Our heat exchanger business experienced strong growth in Asia, regulation driven primarilydemand for energy-efficient heat pumps in Europe and strengthening commercial HVAC and industrial markets globally. Retail refrigeration experienced broad-based growth, driven by reduced new food retail store constructionincreased remodel activity with key U.S. retail refrigerationsupermarket customers reducedand growing demand for heat exchanger productsour environmentally friendly natural CO2 refrigerant systems in both Europe and the U.S.
Revenue for the U.S. grew 17.1%, while revenue in Europe and Asia grew 21.1% and all other geographic markets grew 15.9% year over year. This growth was broad-based, with all our segments posting increased sales in North America, Europe, Asia and softerLatin America as global demand continued to improve after the impact of operational and demand headwinds from national restaurant chain customersthe COVID-19 experienced in our foodservice equipment business.the prior year.
Gross profit was $2.6$3.0 billion for the year ended December 31, 2019, an2021, a increase of $61.4$495.8 million, or 2.4%20.0%, as compared to the prior year. The increase was primarily due to growth in sales volumesvolume across all our segments benefited by pricing and favorable pricing, product mix partially offset by higher material, labor and strong volume gains,logistics costs as well as the benefits from prior restructuring actions, partially offsetproduction inefficiencies caused by increased material costs due,intermittent constraints in part, to U.S. Section 232production inputs and 301 tariff exposure. labor availability.Gross profit margin was 36.7%expanded to 37.6% for the year ended December 31, 20192021 compared to 36.6%37.0% for the prior year. For further discussion related to our consolidated and segment results, see "Consolidated Results of Operations" and "Segment Results of Operations," respectively, within MD&A.
Bookings decreased 0.4%increased 35.3% over the prior year to $7.3$9.4 billion for the year ended December 31, 2019. Included in this result was a 1.3% increase in2021. This included an organic bookings growth of 31.9%, a 0.8% increase in acquisition-related bookings offset by a 2.1% unfavorablefavorable impact due to foreign exchange rates,rate of 2.1% and a 0.3%1.5% increase in acquisition-related bookings, partially offset by a 0.2% decline due to dispositions. Organic bookings Bookings increased 6.9% withinorganically across all our Fueling Solutions, 3.3% within our Pumps & Process Solutions and 2.3% within our Imaging & Identification segments while bookings in our Engineered Products and Refrigeration & Food Equipment segments decreased 4.0% and 0.7% respectively. primarily as a result of strong recovery from the global impact on customer demand from the COVID-19 pandemic. Overall, our book-to-bill increased from the prior year to 1.02.1.19. Backlog as of December 31, 20192021 was $1.5$3.2 billion, up from $1.4$1.8 billion from the prior year. The increase in backlog is primarily driven by higher order rates across all our segments. Backlog as of December 31, 20192021 included $0.5$0.8 billion, $0.4 billion, $0.2 billion, $0.1 billion, $0.4$0.7 billion and $0.3$1.2 billion in the Engineered Products, Clean Energy & Fueling Solutions,, Imaging & Identification, Pumps & Process Solutions and RefrigerationClimate & Food EquipmentSustainability Technologies segments, respectively. See definition of bookings, organic bookings, book-to-bill and backlog within "Segment Results of Operations".
FromDuring the year ended December 31, 2021, we executed rightsizing programs to further optimize operations. Rightsizing charges of $38.4 million included restructuring charges of $26.7 million and other costs of $11.7 million. The expenses were primarily a geographic perspective, revenue for the U.S., our largest market, grew by 3.6% organically over the prior year, which was led by growthresult of restructuring programs initiated in our Engineered Products2020 and Fueling Solutions segments. Asia and Europe also grew organically by 2.4 % and 6.5%, respectively, over the prior year.2021.
During the year ended December 31, 2019, we executed several rightsizing programs to further optimize operations. Rightsizing charges included restructuring costs of $26.8 million and other costs of $5.3 million for the year ended December 31, 2019. Restructuring expense was comprised primarily of broad-based selling, general and administrative expense reduction initiatives and broad-based operational efficiency initiatives focusing on footprint consolidation, operational optimization and IT centralization. These restructuring charges were broad-based across all segments as well as corporate, with costs incurred of $3.2 million in Engineered Products, $4.9 million in Fueling Solutions, $6.4 million in Imaging & Identification, $5.7 million in Pumps & Process Solutions, $3.7 million in Refrigeration & Food Equipment and $3.0 million at Corporate. Other costs were comprised primarily of other charges related to the restructuring actions. We incurred other costs of $0.4 million in Pumps & Process Solutions, $2.4 million in Refrigeration & Food Equipment and $2.6 million at corporate. We expect to incur total rightsizing charges, comprised of $8 million of restructuring charges and $1 million of other costs, in 2020 for these initiatives.
During the year ended December 31, 2019,2021, we made a total of threenine acquisitions totaling $216.4$1,125.1 million, net of cash acquired and including contingent consideration. We acquired the assets of Belanger, Inc. ("Belanger"), a leading full-line car wash equipment manufacturer for $175 million, net of cash acquired. The acquisition of Belanger strengthens our position in the vehicle wash business within the Fueling Solutions segment. Additionally, we acquired the assets of All-Flow Pump Company, Limited business ("All-Flo"), a growing manufacturer of specialty pumps for $40 million. The All-Flo acquisition strengthens our position in the growing market for air-operated double-diaphragm pumps within the Pumps & Process Solutions segment. We also completed one immaterial acquisition. See Note 43 — Acquisitions in the Consolidated Financial Statements in Item 8 of this Form 10-K for further details regarding the businesses acquired during the year.
Subsequently, on January 24, 2020,During the year ended December 31, 2021, we acquired Sys-Tech Solutions, Inc. ("Systech"). Systech is a leading provider of software and solutions for product traceability, regulatory compliance and brand protections and will strengthen the portfolio of solutions offered by our Imaging & Identification segment to customers in pharmaceutical and consumer products industries. Also on January 24, 2020, we entered into a definitive agreement to acquire So. Cal. Soft-Pak, Incorporated ("Soft-Pak") Software Solutions. Soft-Pak is a leading specialized provider of integrated back office, route management and customer relationship management software solutions to the waste and recycling fleet industry and will further strengthen the digital offerings of our Environmental Solutions Group in the Engineered Products segment. The transaction is subject to
satisfaction of customary closing conditions and is expected to close in the first quarter of 2020. The combined purchase price for both acquisitions is approximately $210 million, subject to customary post-closing adjustments.
On March 29, 2019 we entered into a definitive agreement to sell Finder for total consideration of approximately $23.6 million net of estimated selling costs. Finder met the criteria to be classified as held for sale as of March 31, 2019 and based on the total consideration from the sale, net of selling costs, a loss on the assets held for sale of $46.9 million was recorded. The loss was comprised of an impairment on assets held for sale of $21.6 million and foreign currency translation losses reclassified from accumulated other comprehensive losses to current earnings of $25.3 million. Finder was subsequently sold on April 2, 2019, which generated total cash proceeds of $24.2 million.
On November 4, 2019, we issued €500 million of 0.750% euro-denominated notes due 2027 and $300 million of 2.950% notes due 2029. The proceeds from the sale of euro-denominated notes of €494.7 million, net of discounts and issuance costs, were used in part to redeem the €300 million 2.125% notes due 2020. The proceeds from the sale of notes of $296.9 million, net of discounts and issuance costs, and the remaining funds fromcompleted the sale of the euro-denominated notes, were used to fund the redemptionUnified Brands ("UB"), a wholly owned subsidiary of the $450 million 4.30% notes due 2021. The remainderCompany and we disposed of our equity method investment in Race Winning Brands ("RWB"). See Note 4 — Dispositions in the proceeds will be usedConsolidated Financial Statements in Item 8 of this Form 10-K for general corporate purposes. The early extinguishmentfurther details regarding the businesses disposed of debt required us to pay a make whole premium toduring the bondholders resulting in a loss of $23.5 million.year.
During the year ended December 31, 2019,2021, we purchased 1.3approximately 0.2 million shares of our common stock for a total cost of $143.3$21.6 million, or $106.64$118.27 per share. AsIn November 2020, our Board of Directors approved a new standing share repurchase authorization, whereby we may repurchase up to 20 million shares beginning on January 1, 2021 through December 31, 2019, 8.4 million shares remain authorized for repurchase under our current share repurchase authorization.2023. We also continued our 6466 year history of increasing our annual dividend payments to shareholdersper share and paid a total of $282.2$286.9 million in dividends to our shareholders.
COVID-19
The COVID-19 outbreak and associated counter-acting measures implemented by governments and businesses around the world, as well as subsequent accelerated and robust recovery in global business activity, have increased uncertainty in the global business environment and led to supply chain disruptions and shortages in global markets for commodities, logistics and labor, as well as input cost inflation.
In response to COVID-19, we have taken and continue to take measures to protect our workforce. We have modified practices at our manufacturing locations and offices to adhere to guidance from the U.S. Centers for Disease Control and Prevention and local health and governmental authorities in our global network. We have invested at the corporate center to provide oversight, enhance coordination and ensure robust safety protocols are present across our operations. In addition, we have provided employee incentives for vaccinations and hosted vaccination clinics at a number of our facilities.
Activity in most of the end markets we serve improved throughout 2021, although demand in certain businesses such as textile printing, industrial winch and bearings and compression components is expected to take longer to recover to pre-pandemic levels with continued improvement expected in 2022. The recovery in demand has had business impacts, including increased material cost inflation (principally steel), labor availability issues and logistics costs increases. Some of our businesses have also been impacted from supplier component input availability issues. Currently our expectation is that the impact of material cost inflation, labor constraints and logistics constraints and to some extent supplier component input availability will continue into 2022.
The public health situation, continued global response measures and corresponding impacts on various markets remain fluid and uncertain and may lead to sudden changes in trajectory and outlook. We will continue to proactively respond to the situation and may take further actions that alter our business activity as may be required by governmental authorities, or that we determine are in the best interests of our employees and operations.
CONSOLIDATED RESULTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | | | | | | % / Point Change | | | | | | |
| (dollars in thousands, except per share figures) | | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | | | 2018 vs. 2017 | | |
| Revenue | | $ | 7,136,397 | | | $ | 6,992,118 | | | $ | 6,820,886 | | | 2.1 | % | | | | 2.5 | % | | |
| Cost of goods and services | | 4,515,459 | | | 4,432,562 | | | 4,291,839 | | | 1.9 | % | | | | 3.3 | % | | |
| Gross profit | | 2,620,938 | | | 2,559,556 | | | 2,529,047 | | | 2.4 | % | | | | 1.2 | % | | |
| Gross profit margin | | 36.7 | % | | 36.6 | % | | 37.1 | % | | 0.10 | | | | | (0.50) | | | |
| Selling, general and administrative expenses | | 1,599,098 | | | 1,716,444 | | | 1,722,161 | | | (6.8) | % | | | | (0.3) | % | | |
| Selling, general and administrative expenses as a percent of revenue | | 22.4 | % | | 24.5 | % | | 25.2 | % | | (2.10) | | | | | (0.70) | | | |
| Loss on assets held for sale | | 46,946 | | | — | | | — | | | nm* | | | | | nm* | | | |
| Operating Earnings | | 974,894 | | | 843,112 | | | 806,886 | | | 15.6 | % | | | | 4.5 | % | | |
| Interest expense | | 125,818 | | | 130,972 | | | 144,948 | | | (3.9) | % | | | | (9.6) | % | | |
| Interest income | | (4,526) | | | (8,881) | | | (8,491) | | | (49.0) | % | | | | 4.6 | % | | |
| Loss on extinguishment of debt | | 23,543 | | | — | | | — | | | nm* | | | | | nm* | | | |
| Other income, net | | (12,950) | | | (4,357) | | | (2,251) | | | 197.2 | % | | | | 93.6 | % | | |
| Gain on sale of businesses | | — | | | — | | | (203,135) | | | nm* | | | | | nm* | | | |
| Earnings before provision for income taxes and discontinued operations | | 843,009 | | | 725,378 | | | 875,815 | | | 16.2 | % | | | | (17.2) | % | | |
| Provision for income taxes | | 165,091 | | | 134,233 | | | 129,152 | | | 23.0 | % | | | | 3.9 | % | | |
| Effective tax rate | | 19.6 | % | | 18.5 | % | | 14.7 | % | | 1.1 | | | | | 3.8 | | | |
| Earnings from continuing operations | | 677,918 | | | 591,145 | | | 746,663 | | | 14.7 | % | | | | (20.8) | % | | |
| (Loss) earnings from discontinued operations, net | | — | | | (20,878) | | | 65,002 | | | nm* | | | | | nm* | | | |
| Earnings from continuing operations per common share - diluted | | $ | 4.61 | | | $ | 3.89 | | | $ | 4.73 | | | 18.5 | % | | | | (17.8) | % | | |
| | | | | | | | | | | | | | |
| (Loss) earnings from discontinued operations per common share -diluted | | $ | — | | | $ | (0.14) | | | $ | 0.41 | | | nm* | | | | | nm* | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | | % / Point Change | | |
| (dollars in thousands, except per share figures) | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | | | 2020 vs. 2019 | | |
| Revenue | | $ | 7,907,081 | | $ | 6,683,760 | | $ | 7,136,397 | | 18.3 | % | | | | (6.3) | % | | |
| Cost of goods and services | | 4,937,295 | | 4,209,741 | | 4,515,459 | | 17.3 | % | | | | (6.8) | % | | |
| Gross profit | | 2,969,786 | | 2,474,019 | | 2,620,938 | | 20.0 | % | | | | (5.6) | % | | |
| Gross profit margin | | 37.6 | % | | 37.0 | % | | 36.7 | % | | 0.60 | | | | | 0.30 | | | |
| Selling, general and administrative expenses | | 1,688,278 | | 1,541,032 | | 1,599,098 | | 9.6 | % | | | | (3.6) | % | | |
| Selling, general and administrative expenses as a percent of revenue | | 21.4 | % | | 23.1 | % | | 22.4 | % | | (1.70) | | | | | 0.70 | | | |
| Loss on assets held for sale | | — | | — | | 46,946 | | nm* | | | | nm* | | |
| Operating earnings | | 1,281,508 | | 932,987 | | 974,894 | | 37.4 | % | | | | (4.3) | % | | |
| Interest expense | | 106,319 | | 111,937 | | 125,818 | | (5.0) | % | | | | (11.0) | % | | |
| Interest income | | (4,441) | | (3,571) | | (4,526) | | 24.4 | % | | | | (21.1) | % | | |
| Loss on extinguishment of debt | | — | | — | | 23,543 | | nm* | | | | nm* | | |
| Gain on dispositions | | (206,338) | | (5,213) | | — | | nm* | | | | nm* | | |
| Other income, net | | (14,858) | | (11,900) | | (12,950) | | 24.9 | % | | | | (8.1) | % | | |
| Earnings before provision for income taxes | | 1,400,826 | | 841,734 | | 843,009 | | 66.4 | % | | | | (0.2) | % | | |
| Provision for income taxes | | 277,008 | | 158,283 | | 165,091 | | 75.0 | % | | | | (4.1) | % | | |
| Effective tax rate | | 19.8 | % | | 18.8 | % | | 19.6 | % | | 1.0 | | | | | (0.8) | | | |
| Net earnings | | $ | 1,123,818 | | $ | 683,451 | | $ | 677,918 | | 64.4 | % | | | | 0.8 | % | | |
| | | | | | | | | | | | | | |
| Net earnings per common share - diluted | | $ | 7.74 | | | $ | 4.70 | | | $ | 4.61 | | | 64.7 | % | | | | 2.0 | % | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
* nm: not meaningful
Revenue
For the year ended December 31, 2019,2021, revenue increased $144.3 million,$1.2 billion, or 2.1%18.3% to $7.1$7.9 billion compared with 2018,2020, reflecting an organic growth of 3.8%15.3% driven by strong demand across all our segments reflecting robust macro-trends. Acquisition-related growth increased by 1.3% led by our Clean Energy & Fueling Solutions and Engineered ProductsImaging & Identification segments, partially offset by a 0.2% decrease from dispositions mainly due to the sale of our RefrigerationUB business within Climate & Food EquipmentSustainability Technologies segment. Revenue also increased due to acquisition-relatedfavorable foreign currency translation impact of 1.9%. Overall, customer pricing favorably impacted revenue by 2.8% for the year ended December 31, 2021.
For the year ended December 31, 2020, revenue decreased $452.6 million, or 6.3% to $6.7 billion compared with 2019, reflecting an organic decline of 6.6%, due to lower sales volumes due to pandemic-related impacts in our markets. Acquisition-related growth of 0.8% fromincreased by 1.0% led by our Imaging & Identification and Pumps & Process Solutions and Fueling Solutions segments, partially offset by an unfavorable impact from foreign currency translation of 2.0%, particularly in our Fueling Solutions and Imaging & Identification segments and a 0.5% impact0.7% decrease from dispositions within our Pumps & Process Solutions and Fueling SolutionsClimate & Sustainability Technologies segments. CustomerForeign currency translation had no significant impact to revenue for the year ended December 31, 2020. Overall, customer pricing favorably impacted revenue by approximately 1.0%0.7% in 2019.2020.
For the year ended December 31, 2018, revenue increased $171.2 million, or 2.5% to $7.0 billion compared with 2017, reflecting organic growth of 3.7%, led by our Fueling Solutions and Engineered Products segments, partially offset by our Refrigeration & Food Equipment segment, acquisition-related growth of 0.5% from our Pumps & Process Solutions and Refrigeration & Food Equipment segments and a favorable impact from foreign currency translation of 0.8%. Revenue growth was partially offset by a 2.5% impact from dispositions within our Engineered Products segment. Customer pricing favorably impacted revenue by approximately 1.0% in 2018.
Gross Profit
For the year ended December 31, 2019,2021, gross profit increased $61.4$495.8 million, or 2.4%20.0%, to $2.6$3.0 billion compared with 2018,2020, primarily due to organic volumerevenue growth, benefits from pricing actions, and productivity initiatives including the benefits ofand rightsizing actions and cost reduction initiatives, as well as reduced rightsizing costs, partially offset by increased material, labor and logistics costs due, in part, to U.S. Section 232as well as production inefficiencies caused by component and 301 tariff exposure.labor availability constraints. Gross profit margin increased 1060 basis points to 37.6% as compared to the prior year.year due to benefits from pricing and product mix, productivity and restructuring actions.
For the year ended December 31, 2018,2020, gross profit increased $30.5decreased $146.9 million, or 1.2%5.6% to $2.6$2.5 billion compared with 2017,2019, primarily due to growth in sales volumeslower revenue as productivity initiatives including prior rightsizing programs and benefits of prior restructuringcost containment actions were partially offset by the loss of gross profits due to divestitures.increased material costs and inflation and higher restructuring costs. Gross profit margin decreased 50expanded 30 basis points to 37.0% as compared to the prior year due to unfavorable product mixbenefits from productivity initiatives and rising material costs in our Refrigeration & Food Equipment segmentrestructuring and the impact of inefficiencies due to facility consolidations principally in our Fueling Solutions segment.cost containment actions.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended December 31, 2019, decreased $117.32021, increased $147.2 million, or 6.8%9.6% to $1.6$1.7 billion compared with 2018, primarily2020, due to benefits from rightsizing actions startedhigher labor and acquisition related costs and lower discretionary spend in 2018 and a decrease inthe prior year partially offset by lower restructuring costs of $23.7 million from $41.6 million in 2018 to $17.9 million in 2019.$11.8 million. As a percentage of revenue, selling, general and administrative expenses decreased 210170 basis points in 20192021 to 22.4%21.4%, reflecting the leverage of costs on a higherincrease in revenue base and the decrease in expenses.base.
Selling, general and administrative expenses for the year ended December 31, 2018,2020, decreased $5.7$58.1 million, or 0.3%3.6% to $1.7$1.5 billion compared with 2017 primarily2019, due to reduction in discretionary spend and benefits from prior restructuringrightsizing actions and decreases from dispositions within our Engineered Products segment,partially offset by an increase inhigher restructuring costs of $6.0$7.7 million from $35.6and a $3.6 million in 2017 to $41.6 million in 2018.write-off of assets. As a percentage of revenue, selling, general and administrative expenses decreasedincreased 70 basis points in 20182020 to 24.5%23.1%, reflecting the leverage of costs on a higher revenue base and the decrease in expenses.revenue base.
Research and development costs, including qualifying engineering costs, are expensed when incurred and amounted to $141.0$157.8 million, $143.0$142.1 million and $130.5$141.0 million for the years ended December 31, 2021, 2020 and 2019, 2018respectively. The change from 2020 to 2021 reflects increased investment in hardware and 2017, respectively.software product development. These costs as a percent of revenue were 2.0%, 2.0%2.1% and 1.9%2.0% for the years December 31, 2019, 20182021, 2020 and 2017,2019, respectively.
Loss on assets heldAssets Held for saleSale
On March 29, 2019, we entered into a definitive agreement to sell Finder Pompe S.r.l ("Finder") for total consideration of approximately $23.6approximately $23.6 million net of estimated selling costs. As of March 31, 2019, Finder met the criteria to be classified as held for sale and based on the total consideration from the sale, net of selling costs, we recorded a loss on the assets held for sale of $46.9 million. TheThe loss was comprisedcomprised of an impairment on assets held for sale of $21.6 million andand foreign currency translation losses reclassified from accumulated other comprehensive losses to current earnings of $25.3 million. We subsequently sold Finder onon April 2, 2019, which generated total cash proceeds of $24.2 million.
Non-Operating Items
Interest Expense, net
For the year ended December 31, 2019,2021, interest expense, net of interest income, decreased $0.8$6.5 million, or 0.7%6.0%, to $121.3$101.9 million compared with 20182020 primarily due to the $350 million 5.45% 10-year notes that were paidborrowings against our unsecured revolving credit facility and commercial paper in March 2018 that resulted in lower outstanding long-term debt and lower interest expense compared2020 to 2018, partially offset by lower interest income.ensure liquidity during height of pandemic-related impacts.
For the year ended December 31, 2018,2020, interest expense, net of interest income, decreased $14.4$12.9 million, or 10.5%10.7%, to $122.1$108.4 million compared with 20172019 primarily due to the $350 million that was paid in March 2018 that resulted in lower outstanding long-term debt and lower interest expense compared to 2017.rates on new debt issued in November 2019 of €500 million of 0.750% notes due 2027 and $300 million of 2.950% notes due 2029. The new notes repaid the old debt of €300 million of 2.125% notes and $450 million of 4.30% notes, which carried higher interest rates.
Loss on extinguishmentExtinguishment of debtDebt
On December 4, 2019, the Company extinguished the €300,000€300 million of 2.125% notes due 2020 and the $450,000$450 million of 4.30% notes due 2021. The Company was required to pay a make whole premium to the bondholders for the early extinguishment of debt, resulting in a loss of $23.5 million.
Other income, net
For
Gain on Dispositions
On December 1, 2021, we completed the years ended December 31, 2019, 2018sale of UB, a wholly owned subsidiary of Dover. We recognized a total consideration of $229.0 million. This sale resulted in a pre-tax gain on disposition of $181.6 million included within the Consolidated Statements of Earnings and 2017, other income, net was $13.0 million, $4.4 million and $2.3 million, respectively. Forwithin the Climate & Sustainability Technologies segment for the year ended December 31, 2019, other income increased compared to 2018 primarily due to increased earnings from our equity method investments2021. The total consideration and reduction of non-operating losses from our defined benefit and post-retirement benefit plans. For the year ended December 31, 2018, other income increased compared to 2017 primarily due to lower foreign exchange losses resulting from the re-measurement and settlement of foreign currency denominated balances.
Gain on sale of businesses
There were no dispositions in the year 2019 aside from the sale of Finder as described above, and no significant dispositions in 2018 aside from the spin-off of Apergy, whose results are presented as discontinued operations.
For the year ended December 31, 2017,pre-tax gain on disposition are subject to standard working capital adjustments. The sale of businesses was $203.1 million. The gain was primarily due to the sales of PMI and the consumer and industrial winch business of Warn, both within the Engineered Products segment, in which we recognized gains on sale of $88.4 million and $116.9 million, respectively. Other immaterial dispositions completed during the year were recorded as a net loss of $2.2 million. The disposals in 2017 diddoes not represent a strategic shifts inshift that will have a major effect on operations and financial results and, therefore, did not qualify for presentation as a discontinued operations.operation.
Income Taxes
Our businesses haveAdditionally, included in this line item is a global presence with 46.8%, 52.5% and 37.8% of our pre-tax earnings in 2019, 2018 and 2017, respectively, generated in foreign jurisdictions. Foreign earnings are generally subject to local country tax rates that differ from the 21.0% U.S. statutory tax rate. As a result of our non-U.S. business locations, our effective foreign tax rate is typically lower than the U.S. statutory tax rate.
Our effective tax rate was 19.6% for the year ended December 31, 2019, compared to 18.5% for the year ended December 31, 2018. The 2019 and 2018 rates were impacted by $26.6$24.7 million and $24.0 million, respectively, of favorable net discrete items primarily driven by the tax benefit of share award exercises.
On December 22, 2017, the U.S. bill commonly referred to as the Tax Cuts and Jobs Act (“Tax Reform Act”) was enacted which reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the reduction in the U.S. corporate income tax rate, we revalued our ending net deferred tax liabilities as of December 31, 2017 and recognized a provisional tax benefit of $172.0 million. The Tax Reform Act also imposed a tax for a one-time deemed repatriation of post-1986 unremitted foreign earnings and profits through the year ended December 31, 2017. For the year ended December 31, 2017, we recorded provisional tax expensegain related to the deemed repatriationdisposition of $111.6 million payable over eight years.
On December 22, 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAPour equity method investment in situations when a registrant did not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. In accordance with the SAB 118 guidance, we recognized the provisional tax impacts related to deemed repatriated earnings and the benefit for the revaluation of deferred tax assets and liabilities in our consolidated financial statements for the year ended December 31, 2017. In accordance with SAB 118, we finalized the financial reporting impact of the Tax Reform Act in the fourth quarter of 2018. For the year ended December 31, 2018, we recorded a $4.2 million net tax benefit, which resulted in a 0.6% decrease in the effective tax rate, as an adjustment to provisional estimates as a result of additional regulatory guidance and changes in interpretations and assumptions the Company has made as a result of the Tax Reform Act.
For the year ended December 31, 2017, our effective tax rate on continuing operations was 14.7%. The effective tax rate was impacted by favorable net discrete items totaling $51.7 million, principally related to the impact recorded for the U.S. Tax Reform Act.
We believe it is reasonably possible during the next twelve months that uncertain tax positions may be settled, which could result in a decrease in the gross amount of unrecognized tax benefits. This decrease may result in an income tax benefit. Due to the potential for resolution of federal, state, and foreign examinations and the expiration of various statutes of limitation, our gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to$15.3 million. We believe adequate provision has been made for all income tax uncertainties.
Earnings from Continuing Operations
For the year ended December 31, 2019, earnings from continuing operations increased $86.8 million, or 14.7%, to $677.9 million, or $4.61 per share, compared with earnings from continuing operations of $591.1 million, or $3.89 per share, for the year ended December 31, 2018. Earnings increased due to organic volume growth, pricing actions, and productivity initiatives including the benefits of restructuring actions and cost reduction initiatives. Additionally, after-tax rightsizing costs were lower by $32.9 million in 2019 compared to 2018. These benefits more than offset increases in material costs due, in part, to U.S. Section 232 and 301 tariff exposure, as well as a loss due to the after-tax extinguishment of debt of $18.4 million and a loss on assets held for sale of $46.9 million. Diluted earnings per share also improved due to the benefit of the prior and current year share repurchases.
For the year ended December 31, 2018, earnings from continuing operations decreased $155.5 million, or 20.8%, to $591.1 million, or $3.89 per share, compared with earnings from continuing operations of $746.7 million, or $4.73 per share, for the year ended December 31, 2017. Earnings decreased primarily because we did not record any gains from dispositions in 2018 compared to 2017 when we recorded net after-tax gains from dispositions of $172.6 million. In 2018, we recorded a net tax benefit primarily from the Tax Reform Act of $4.2 million, whereas in 2017, we recorded a net tax benefit of $54.9 million. Additionally, after-tax rightsizing costs were higher by $23.7 million in 2018 compared to 2017. Excluding these items, earnings from continuing operations increased in 2018 as a result of higher earnings due to increased sales volumes. Diluted earnings per share also improved due to the benefit of the share repurchase programs announced in November 2017.
Discontinued Operations
There were no discontinued operations for the year ended December 31, 2019.
The results of discontinued operations for December 31, 2018 and 2017 include the historical results of Apergy prior to its distribution on May 9, 2018. The years ended December 31, 2018 and 2017 included costs incurred by the Company to complete the spin-off of Apergy amounting to $46.4 million and $15.3 million, respectively, reflected in selling, general and administrative expenses in discontinued operations. Due to lump-sum payments made in 2018 for Apergy participants in the Dover U.S. Pension Plan, non-cash settlement costs of approximately $9.2 million were classified within discontinued operations.RWB.
Refer to Note 54 — Discontinued and Disposed OperationsDispositions in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information on disposed and discontinued operations.
On March 6, 2020, we sold AMS Chino within the Climate & Sustainability Technologies segment for total consideration of $15.4 million which included a working capital adjustment. A gain of $5.2 million was recognized on this sale. The disposal did not represent a strategic shift in operations and, therefore, did not qualify for presentation as discontinued operations.
There were no dispositions in the year 2019 aside from the sale of Finder as described above.
Other Income, net
For the years ended December 31, 2021, 2020 and 2019, other income, net was $14.9 million, $11.9 million and $13.0 million, respectively. For the year ended December 31, 2021, other income increased compared to 2020 primarily due to transition services in connection with our sale of UB, certain non-income tax credits, and investment income, partially offset by a $12.1 million other than temporary impairment charge related to an equity method investment in 2021. For the year ended December 31, 2020, other income decreased compared to 2019 primarily due to decreased earnings from our equity method investments and increased foreign exchange losses resulting from the re-measurement and settlement of foreign currency denominated balances.
Income Taxes
Our businesses have a global presence with 40%, 45% and 47% of our pre-tax earnings in 2021, 2020 and 2019, respectively, generated in foreign jurisdictions. 2021 includes the gains on the UB and RWB dispositions, which has the effect of lowering the contributions of pre-tax earnings of foreign jurisdictions. Foreign earnings are generally subject to local country tax rates that differ from the 21.0% U.S. statutory tax rate. Our effective foreign tax rate is typically lower than the U.S. statutory tax rate.
Our effective tax rate was 19.8% for the year ended December 31, 2021, compared to 18.8% and 19.6% for the years ended December 31, 2020 and December 31, 2019, respectively. Excluding the impact of the gains on dispositions, the 2021, 2020 and 2019 rates were impacted by $35.6 million, $22.2 million, and $26.6 million respectively, of favorable net discrete items primarily driven by favorable audit resolutions and the tax benefit of share award exercises.
See Note 14 — Income Taxes in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional details.
Net Earnings
For the year ended December 31, 2021, net earnings increased $440.4 million, or 64.4%, to $1,123.8 million, or $7.74 per share, compared with net earnings of $683.5 million, or $4.70 per share, for the year ended December 31, 2020. Earnings increased due to organic volume growth, favorable pricing actions and product mix and productivity actions including benefits of rightsizing actions. Additionally, earnings were favorably impacted by the gains on disposition of UB and our equity method investment in RWB. These benefits more than offset increases in material and logistics costs, most notably steel and ocean & air freight costs, higher labor costs as well as productivity shortfalls resulting from labor constraints and supply chain disruption.
For the year ended December 31, 2020, net earnings increased $5.5 million, or 0.8%, to $683.5 million, or $4.70 per share, compared with net earnings of $677.9 million, or $4.61 per share, for the year ended December 31, 2019. Despite a revenue decline of 6.3% due to the impact of COVID-19, earnings increased due to broad-based cost containment actions, benefits from productivity and restructuring actions, a loss due to the after-tax extinguishment of debt of $18.4 million in the prior year and a loss on assets held for sale of $46.9 million in the prior year.
Rightsizing Activities, which includes Restructuring and Other Costs
We recorded the following rightsizing costs (benefits) for the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| (dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
| Restructuring (GAAP) | $ | 9,507 | | | $ | 3,609 | | | $ | 4,589 | | | $ | 1,911 | | | $ | 5,068 | | | $ | 2,021 | | | $ | 26,705 | |
| Other (benefits) costs, net | (8,702) | | | 238 | | | 1,888 | | | (2,347) | | | 18,146 | | | 2,508 | | | 11,731 | |
| Rightsizing (non-GAAP) | $ | 805 | | | $ | 3,847 | | | $ | 6,477 | | | $ | (436) | | | $ | 23,214 | | | $ | 4,529 | | | $ | 38,436 | |
During the year ended December 31, 2021, rightsizing activities included restructuring charges of $26.7 million and other (benefits) costs of $11.7 million. Restructuring expense was incurred in response to demand conditions, asset charges related to a product line exit, as well as broad-based operational efficiency initiatives focusing on footprint consolidation and IT centralization. Other (benefits) costs were comprised primarily of a $12.1 million other than temporary impairment charge related to an equity method investment and a $6.1 million write-off of assets in connection with an exit from certain Latin America countries in our Climate & Sustainability Technologies segment, offset by a $9.1 million payment received for previously incurred restructuring costs related to a product line exit ($7.3 million is classified within costs of goods and services and $1.8 million within selling, general and administrative expenses) within our Engineering Products segment and $3.3 million of gains on sales of assets as a result of restructuring actions in our Pumps & Process Solutions segment. These rightsizing charges were recorded in cost of goods and services, selling, general and administrative expenses, and other income, net in the Consolidated Statement of Earnings. Additional programs, beyond the scope of the announced programs may be implemented during 2022 with related restructuring charges.
We recorded the following rightsizing costs for the year ended December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| (dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
| Restructuring (GAAP) | $ | 10,307 | | | $ | 6,681 | | | $ | 5,946 | | | $ | 13,374 | | | $ | 4,015 | | | $ | 4,145 | | | $ | 44,468 | |
| Other costs, net | 1,223 | | | 22 | | | 81 | | | 62 | | | 2,460 | | | 3,156 | | | 7,004 | |
| Rightsizing (non-GAAP) | $ | 11,530 | | | $ | 6,703 | | | $ | 6,027 | | | $ | 13,436 | | | $ | 6,475 | | | $ | 7,301 | | | $ | 51,472 | |
During the year ended December 31, 2020, rightsizing activities included restructuring charges of $44.5 million and other costs of $7.0 million. Restructuring expense was comprised primarily of new actions executed in response to lower demand driven by COVID-19 as well as continuing broad-based selling, general and administrative expense reduction initiatives and broad-based operational efficiency initiatives focusing on footprint consolidation, and operational optimization and IT centralization. Other costs were comprised primarily of charges related to the restructuring actions and asset charges, principally due to a $3.6 million write off of assets, partially offset by a $1.7 million gain on sale of assets in our Climate & Sustainability Technologies segment. These rightsizing charges were recorded in cost of goods and services, selling, general and administrative expenses, interest expense, and other income, net in the Consolidated Statement of Earnings.
We recorded the following rightsizing costs for the year ended December 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| (dollars in thousands) | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Corporate | | Total |
| Restructuring (GAAP) | $ | 3,155 | | | $ | 4,943 | | | $ | 6,426 | | | $ | 5,666 | | | $ | 3,671 | | | $ | 2,961 | | | $ | 26,822 | |
| Other (benefits) costs, net | (5) | | | (58) | | | (76) | | | 462 | | | 2,371 | | | 2,637 | | | 5,331 | |
| Rightsizing (non-GAAP) | $ | 3,150 | | | $ | 4,885 | | | $ | 6,350 | | | $ | 6,128 | | | $ | 6,042 | | | $ | 5,598 | | | $ | 32,153 | |
During the year ended December 31, 2019, rightsizing activities included restructuring charges of $26.8 million and other costs of $5.3 million. Restructuring expense was comprised primarily of broad-based selling, general and administrative expense reduction initiatives and broad-based operational efficiency initiatives focusing on footprint consolidation, operational optimization and IT centralization designed to increase operating margin, enhance operations and position the Company for sustained growth and investment.centralization. Other costs were comprised primarily of other charges related to the restructuring actions. These rightsizing charges were recorded in cost of goods and services and selling, general and administrative expenses in the Consolidated Statement of Earnings. We expect to incur total rightsizing charges, comprised of $8 million in restructuring charges and $1 million in other costs, in 2020 for these initiatives. Additional programs, beyond the scope of the announced programs may be implemented during 2020 with related restructuring charges. We recorded the following rightsizing costs for the year ended December 31, 2019:
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| Year Ended December 31, 2019 | | | | | | | | | | | | |
| (dollars in thousands) | Engineered Products | | Fueling Solutions | | Imaging & Identification | | Pumps & Process Solutions | | Refrigeration & Food Equipment | | Corporate | | Total |
| Restructuring (GAAP) | $ | 3,155 | | | $ | 4,943 | | | $ | 6,426 | | | $ | 5,666 | | | $ | 3,671 | | | $ | 2,961 | | | $ | 26,822 | |
| Other costs, net | (5) | | | (58) | | | (76) | | | 462 | | | 2,371 | | | 2,637 | | | 5,331 | |
| Rightsizing (non-GAAP) | $ | 3,150 | | | $ | 4,885 | | | $ | 6,350 | | | $ | 6,128 | | | $ | 6,042 | | | $ | 5,598 | | | $ | 32,153 | |
During the year ended December 31, 2018, rightsizing activities included restructuring charges of $58.5 million and other costs of $14.3 million. Restructuring expense was comprised primarily of several programs in order to further optimize operations, including 1) alignment of our cost structure in preparation for the Apergy separation, 2) broad-based selling, general and administrative expense reduction initiatives and 3) initiation of footprint consolidation actions. Other costs were comprised primarily of other charges related to the restructuring actions. These rightsizing charges were recorded in cost of goods and services, selling, general and administrative expenses and other income, net in the Consolidated Statement of Earnings. We recorded the following rightsizing costs for the year ended December 31, 2018:
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| Year Ended December 31, 2018 | | | | | | | | | | | | |
| (dollars in thousands) | Engineered Products | | Fueling Solutions | | Imaging & Identification | | Pumps & Process Solutions | | Refrigeration & Food Equipment | | Corporate | | Total |
| Restructuring (GAAP) | $ | 7,158 | | | $ | 15,478 | | | $ | 13,882 | | | $ | 10,266 | | | $ | 3,475 | | | $ | 8,244 | | | $ | 58,503 | |
| Other costs, net | 128 | | | (146) | | | (1,237) | | | 3,109 | | | 6,474 | | | 5,997 | | | 14,325 | |
| Rightsizing (non-GAAP) | $ | 7,286 | | | $ | 15,332 | | | $ | 12,645 | | | $ | 13,375 | | | $ | 9,949 | | | $ | 14,241 | | | $ | 72,828 | |
During the year ended December 31, 2017, restructuring charges were $52.3 million. We commenced broad-based rightsizing actions in the fourth quarter of 2017 in connection with our planned spin-off of Apergy. A portion of our restructuring charges in 2017 were not classified as rightsizing. Rightsizing charges included restructuring charges of $38.9 million and other costs of $10.5 million. Restructuring initiatives in 2017 included headcount reductions, facility consolidations and product line exits. Other costs were comprised primarily of other charges related to the restructuring actions.
See Note 11 — Restructuring Activities in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional details regarding our recent restructuring activities.
SEGMENT RESULTS OF OPERATIONS
The summary that follows provides a discussion of the results of operations of each of our five operating and reportable segments (Engineered Products, Clean Energy & Fueling, Solutions, Imaging & Identification, Pumps & Process Solutions, and RefrigerationClimate & Food Equipment)Sustainability Technologies). Each of these segments is comprised of various product and service offerings that serve multiple markets. See Note 19 — Segment Information in the Consolidated Financial Statements in Item 8 of this Form 10-K for a reconciliation of segment revenue, earnings and margin to our consolidated revenue, net earnings from continuing operations and margin. Segment EBITDA and segment EBITDA margin, which are presented in the segment discussion that follows, are non-GAAP measures and do not purport to be alternatives to segment earnings (EBIT) as a measure of operating performance. We believe that these non-GAAP measures are useful to investors and other users of our financial information in evaluating ongoing operating profitability as they exclude the depreciation and amortization expense related primarily to capital expenditures and acquisitions that occurred in prior years, as well as in evaluating operating performance in relation to our competitors. For further information, see "Non-GAAP Disclosures" at the end of this Item 7.
Additionally, we believe the following operational metrics are useful to investors and othersother users of our financial information in assessing the performance of our segments:
•Bookings represent total orders received from customers in the current reporting period. This metric is an important measure of performance and an indicator of revenue order trends.
•ThisOrganic bookings represent total orders received from customers in the current reporting period excluding the impact of foreign currency exchange rates and the impact of acquisitions and dispositions. The metric is an important measure of performance and an indicator of revenue order trends.
•Backlog represents an estimate of the total remaining bookings at a point in time for which performance obligations have not yet been satisfied.This metric is useful as it represents the aggregate amount we expect to recognize as revenue in the future.
•Book-to-bill is a ratio of the amount of bookings received from customers during a period divided by the amount of revenue recorded during that same period.This metric is a useful indicator of demand.
Engineered Products
Our Engineered Products segment is a provider of a wide range of products, software and services that have broad customer applications across a number of markets, including aftermarket vehicle service, solid waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing.
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| | | Years Ended December 31, | | | | | | % Change | | |
| (dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 |
| Revenue | | $ | 1,697,557 | | | $ | 1,633,147 | | | $ | 1,626,856 | | | 3.9 | % | | 0.4 | % |
| | | | | | | | | | |
Segment earnings (EBIT) (1) | | $ | 291,848 | | | $ | 252,368 | | | $ | 437,078 | | | 15.6 | % | | (42.3) | % |
| Depreciation and amortization | | 41,032 | | | 44,995 | | | 48,271 | | | (8.8) | % | | (6.8) | % |
Segment EBITDA (1) | | $ | 332,880 | | | $ | 297,363 | | | $ | 485,349 | | | 11.9 | % | | (38.7) | % |
| | | | | | | | | | |
Segment margin (1) | | 17.2 | % | | 15.5 | % | | 26.9 | % | | | | |
Segment EBITDA margin (1) | | 19.6 | % | | 18.2 | % | | 29.8 | % | | | | |
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| Other measures: | | | | | | | | | | |
| Bookings | | $ | 1,708,321 | | | $ | 1,803,555 | | | $ | 1,677,319 | | | (5.3) | % | | 7.5 | % |
| Backlog | | $ | 452,142 | | | $ | 442,519 | | | $ | 333,953 | | | 2.2 | % | | 32.5 | % |
| | | | | | | | | | |
| Components of revenue growth: | | | | | | | | | | |
| Organic growth | | | | | | | | 5.4 | % | | 6.6 | % |
| | | | | | | | | | |
| Dispositions | | | | | | | | — | % | | (7.5) | % |
| Foreign currency translation | | | | | | | | (1.5) | % | | 1.3 | % |
| Total revenue growth | | | | | | | | 3.9 | % | | 0.4 | % |
(1) Segment earnings (EBIT) and segment EBITDA for 2017 includes a gain of $205.3 million from the sales of PMI and Warn.
2019 Versus 2018
Engineered Products segment revenue for the year ended December 31, 2019 increased $64.4 million, or 3.9% compared to the prior year, comprised of broad-based organic growth of 5.4%, partially offset by a 1.5% unfavorable impact from foreign currency translation. Organic revenue growth was driven by strong activity in the refuse truck and digital solutions product lines within our waste handling business, as well as solid revenue growth in our vehicle service business. Customer pricing favorably impacted revenue by approximately 1.9% in 2019.
Engineered Products segment earnings for the year ended December 31, 2019 increased $39.5 million, or 15.6%, compared to the prior year. This increase was primarily driven by solid conversion on organic volume growth, pricing actions, and productivity initiatives, including the benefits of rightsizing actions and cost reduction initiatives, as well as a reduction in rightsizing costs. These benefits more than offset increases in material costs driven by U.S. Section 232 tariffs, most notably commodity cost increases impacting steel, and Section 301 tariffs, along with unfavorable foreign currency translation. Segment margin increased from 15.5% to 17.2% as compared to the prior year.
Bookings for the year ended December 31, 2019 decreased 5.3% compared to the prior year, reflecting an organic decline of 4.0% and an unfavorable impact from foreign currency translation of 1.3%. The decrease was primarily due to the timing of orders in our waste handling and vehicle services businesses. Segment book-to-bill was 1.01.
2018 Versus 2017
Engineered Products segment revenue for the year ended December 31, 2018 increased $6.3 million, or 0.4%, compared to the prior year, comprised of broad-based organic growth of 6.6% with particular strength in our waste handling, industrial winch, and aerospace and defense businesses and a favorable impact from foreign currency translation of 1.3%. This increase was partially offset by a 7.5% decrease from the dispositions of PMI in the first quarter of 2017 and the consumer and industrial winch business of Warn in the fourth quarter of 2017. Customer pricing favorably impacted revenue by approximately 1.9% in 2018.
Engineered Products segment earnings for the year ended December 31, 2018 decreased $184.7 million, or 42.3%, compared to the prior year. The decline in earnings was impacted by gains of $205.3 million recognized in 2017 from the sales of PMI and Warn, the lost earnings from those divested businesses of $25.6 million, and incremental rightsizing costs in 2018. This was partially offset by disposition costs in 2017 of $5.2 million, solid conversion on organic volume growth, favorable pricing, and productivity initiatives, including the benefits of prior year and current year restructuring initiatives. Partially offsetting this favorable operational performance were increases in material costs, primarily driven by U.S. Section 232 tariffs, most notably commodity cost increases impacting steel, and Section 301 tariffs. Segment margin decreased from 26.9% to 15.5% as compared to the prior year primarily due to the gain from the sales of PMI and Warn, lost earnings and disposition costs from 2017 divested businesses and incremental rightsizing costs.
Fueling Solutions
Our Fueling Solutions segment is focused on providing components, equipment and software and service solutions enabling safe transport of fuels and other hazardous fluids along the supply chain, as well as the safe and efficient operation of retail fueling and vehicle wash establishments.
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| | | Years Ended December 31, | | | | | | % Change | | |
| (dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 |
| Revenue | | $ | 1,620,177 | | | $ | 1,465,590 | | | $ | 1,338,062 | | | 10.5 | % | | 9.5 | % |
| | | | | | | | | | |
| Segment earnings (EBIT) | | $ | 231,873 | | | $ | 152,255 | | | $ | 159,180 | | | 52.3 | % | | (4.4) | % |
| Depreciation and amortization | | 75,045 | | | 68,463 | | | 67,835 | | | 9.6 | % | | 0.9 | % |
| Segment EBITDA | | $ | 306,918 | | | $ | 220,718 | | | $ | 227,015 | | | 39.1 | % | | (2.8) | % |
| | | | | | | | | | |
| Segment margin | | 14.3 | % | | 10.4 | % | | 11.9 | % | | | | |
| Segment EBITDA margin | | 18.9 | % | | 15.1 | % | | 17.0 | % | | | | |
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| Other measures: | | | | | | | | | | |
| Bookings | | 1,613,764 | | | 1,513,019 | | | 1,376,714 | | | 6.7 | % | | 9.9 | % |
| Backlog | | 205,842 | | | 208,574 | | | 187,046 | | | (1.3) | % | | 11.5 | % |
| | | | | | | | | | |
| Components of revenue growth: | | | | | | | | | | |
| Organic growth | | | | | | | | 10.5 | % | | 9.9 | % |
| Acquisitions | | | | | | | | 3.4 | % | | — | % |
| Dispositions | | | | | | | | (0.4) | % | | — | % |
| Foreign currency translation | | | | | | | | (3.0) | % | | (0.4) | % |
| Total revenue growth | | | | | | | | 10.5 | % | | 9.5 | % |
2019 Versus 2018
Fueling Solutions segment revenue for the year ended December 31, 2019 increased $154.6 million, or 10.5%, compared to the prior year, attributable to organic growth of 10.5% and acquisition-related growth of 3.4%, partially offset by an unfavorable foreign currency translation impact of 3.0% and a 0.4% decrease from a disposition. The organic growth was principally driven by continued strong demand in the global retail fueling industry, particularly in the United States, Europe and Asia. Growth was also driven by the acquisition of Belanger. Customer pricing favorably impacted revenue by approximately 1.0% in 2019.
Fueling Solutions segment earnings for the year ended December 31, 2019 increased $79.6 million, or 52.3%, compared to the prior year. The increase was driven by volume leverage, pricing initiatives, productivity actions, acquisitions, and benefits of selling, general and administrative cost reductions realized, as well as decreased rightsizing costs. This growth was partially offset by increased material costs due, in part, to U.S. Section 232 and 301 tariff exposure. Segment margin increased 390 basis points compared to the prior year.
Bookings for the year ended December 31, 2019 increased 6.7% compared to the prior year, reflecting organic growth of 6.9% and acquisition-related growth of 3.2%, partially offset by a unfavorable impact from foreign currency translation of 3.1%, and a disposition related decline of 0.3%. Book to bill was 1.00.
2018 Versus 2017
Fueling Solutions segment revenue for the year ended December 31, 2018 increased $127.5 million, or 9.5%, compared to the prior year, attributable to organic growth of 9.9% and an unfavorable foreign currency translation impact of 0.4%. The organic growth was principally driven by continued strength in retail fueling, especially in the Asia Pacific region. Transport revenue improved over the prior year and the rail business experienced strong growth, in part, due to softer volumes experienced in last year’s second half and the continued rebound of aftermarket volumes. Customer pricing favorably impacted revenue by approximately 0.5% in 2018.
Fueling Solutions segment earnings for the year ended December 31, 2018 decreased $6.9 million, or 4.4%, compared to the prior year, primarily driven by increased material costs due, in part, to U.S. Section 232 and 301 tariff exposure, the negative productivity impacts of footprint consolidation and supply chain disruptions and increased rightsizing costs. Segment margin decreased 150 basis points primarily due to cost impacts driven by footprint consolidations and temporary supply chain disruptions impacting production.
Imaging & IdentificationEngineered Products
Our Imaging & IdentificationEngineered Products segment supplies precision markingprovides a wide range of equipment, components, software, solutions and coding, product traceabilityservices vehicle aftermarket, waste handling, industrial automation, aerospace and digital textile printing equipment, as well asdefense, industrial winch and hoist, and fluid dispensing end-markets.
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| | | Years Ended December 31, | | % Change |
| (dollars in thousands) | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Revenue | | $ | 1,780,827 | | | $ | 1,531,277 | | | $ | 1,697,557 | | | 16.3 | % | | (9.8) | % |
| | | | | | | | | | |
Segment earnings (EBIT) (1) | | $ | 285,511 | | | $ | 238,167 | | | $ | 291,848 | | | 19.9 | % | | (18.4) | % |
| Depreciation and amortization | | 48,644 | | | 42,603 | | | 41,032 | | | 14.2 | % | | 3.8 | % |
Segment EBITDA (1) | | $ | 334,155 | | | $ | 280,770 | | | $ | 332,880 | | | 19.0 | % | | (15.7) | % |
| | | | | | | | | | |
Segment margin (1) | | 16.0 % | | 15.6 % | | 17.2 % | | | | |
Segment EBITDA margin (1) | | 18.8 % | | 18.3 % | | 19.6 % | | | | |
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| Other measures: | | | | | | | | | | |
| Bookings | | $ | 2,113,729 | | | $ | 1,558,486 | | | $ | 1,708,321 | | | 35.6 | % | | (8.8) | % |
| Backlog | | $ | 785,085 | | | $ | 463,701 | | | $ | 452,142 | | | 69.3 | % | | 2.6 | % |
| | | | | | | | | | |
| Components of revenue growth (decline): | | | | | | | | | | |
| Organic growth (decline) | | | | | | | | 14.1 | % | | (10.3) | % |
| Acquisitions | | | | | | | | 0.6 | % | | 0.3 | % |
| | | | | | | | | | |
| Foreign currency translation | | | | | | | | 1.6 | % | | 0.2 | % |
| Total revenue growth (decline) | | | | | | | | 16.3 | % | | (9.8) | % |
(1)Segment earnings (EBIT) and segment EBITDA for 2021 include a $24,723 gain related consumables, software and services.to the sale of RWB equity method investment.
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| | | Years Ended December 31, | | | | | | % Change | | |
| (dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 |
| Revenue | | $ | 1,084,471 | | | $ | 1,109,843 | | | $ | 1,041,188 | | | (2.3) | % | | 6.6 | % |
| | | | | | | | | | |
| Segment earnings (EBIT) | | $ | 229,484 | | | $ | 198,902 | | | $ | 167,404 | | | 15.4 | % | | 18.8 | % |
| Depreciation and amortization | | 30,530 | | | 30,882 | | | 37,176 | | | (1.1) | % | | (16.9) | % |
| Segment EBITDA | | $ | 260,014 | | | $ | 229,784 | | | $ | 204,580 | | | 13.2 | % | | 12.3 | % |
| | | | | | | | | | |
| Segment margin | | 21.2 | % | | 17.9 | % | | 16.1 | % | | | | |
| Segment EBITDA margin | | 24.0 | % | | 20.7 | % | | 19.6 | % | | | | |
| | | | | | | | | | |
| Other measures: | | | | | | | | | | |
| Bookings | | $ | 1,092,915 | | | $ | 1,106,303 | | | $ | 1,061,260 | | | (1.2) | % | | 4.2 | % |
| Backlog | | $ | 125,775 | | | $ | 118,057 | | | $ | 125,378 | | | 6.5 | % | | (5.8) | % |
| | | | | | | | | | |
| Components of revenue growth: | | | | | | | | | | |
| Organic growth | | | | | | | | 1.2 | % | | 4.6 | % |
| Acquisitions | | | | | | | | — | % | | 0.3 | % |
| | | | | | | | | | |
| Foreign currency translation | | | | | | | | (3.5) | % | | 1.7 | % |
| Total revenue growth | | | | | | | | (2.3) | % | | 6.6 | % |
2019 Versus 2018
Imaging & IdentificationEngineered Products segment revenue for the year ended December 31, 2019 decreased $25.42021 increased $249.6 million, or 2.3%16.3% compared to the prior year, comprised of a broad-based organic revenue growth of 1.2%14.1%, more than offset by an unfavorable impact froma favorable foreign currency translation of 3.5%1.6%, and acquisition-related growth of 0.6%. The organic revenueAcquisition-related growth was driven by increased equipment shipmentsthe acquisitions of Espy, CDS Visual, and expanded service revenue in our marking and coding business, along with increased service revenue and increased printer and ink volumes in our digital printing business. The significant foreign currency impact was due to our broad internationalSoft-Pak. Overall, customer base, in particular in Asia and Europe. Customer pricing favorably impacted revenue by approximately 1.0%4.2% in 2019.2021.
Imaging & IdentificationThe organic revenue growth was primarily driven by robust demand across all of our key end-markets, most notably in our vehicle service and industrial automation businesses, and strategic pricing initiatives that partially offset inflationary headwinds. Despite the strong organic growth and record high backlog levels, certain shipments in our waste handling and vehicle service groups were deferred to future quarters as a result of supply chain and labor availability constraints with the most significant impact in the fourth quarter of 2021. While we anticipate these headwinds to continue into 2022, we expect shipment volume in both businesses to improve as the year progresses.
Engineered Products segment earnings for the year ended December 31, 20192021 increased $30.6$47.3 million, or 15.4%19.9%, compared to the prior year. ThisThe increase was primarily driven by productivity initiatives, including the benefits of restructuring actions, favorable pricing, and conversion on revenue growth,increased volumes, a $24.7 million gain resulting from the sale of our minority interest in RWB, benefits from right-sizing actions, and favorable impact from foreign currency translation, partially offset by higher material and logistics costs, most notably steel and ocean & air freight costs, as well as reduced rightsizingplant productivity shortfalls resulting from supply chain disruption and higher labor costs. As a result, segmentSegment margin increased from 17.9%15.6% to 21.2%16.0% as compared to the prior year.
Segment bookingsBookings for the year ended December 31, 2021 increased 35.6% compared to the prior year, comprised primarily of organic growth of 33.2%, a favorable impact from foreign currency translation of 2.0%, and acquisition-related growth of 0.4%. The
organic bookings growth was broad-based, most notably in our vehicle service, waste handling, and industrial automation businesses. Segment book-to-bill was 1.19. Backlog increased 69.3% compared to the prior year.
2020 Versus 2019
Engineered Products segment revenue for the year ended December 31, 2020 decreased 1.2%$166.3 million, or 9.8% compared to the prior year, comprised of a broad-based organic revenue decline of 10.3%, partially offset by acquisition-related growth of 0.3% and a favorable foreign currency translation of 0.2%. The organic revenue decline was primarily driven by the global economic downturn precipitated by the COVID-19 pandemic beginning late in the first quarter of 2020. The impact was broad-based across the segment, with the most significant impacts in the year experienced in our waste handling, industrial winch and hoist, industrial automation and fluid dispensing businesses. Acquisition-related growth was driven by the acquisition of Soft-Pak. Overall, customer pricing favorably impacted revenue by approximately 0.3% in 2020.
Engineered Products segment earnings for the year ended December 31, 2020 decreased $53.7 million, or 18.4%, compared to the prior year. This decrease was primarily driven by the impact of the COVID-19 pandemic on customer spending, partially offset by cost containment initiatives we executed in the year. These initiatives include actions to adjust direct and indirect manufacturing costs to current demand levels, the execution of short-term actions to reduce labor costs, the elimination of non-essential travel, third party and other expenses, the recognition of adjustments to variable compensation to reflect current conditions, the execution of selective structural cost actions aimed at streamlining our businesses, and a detailed review and re-prioritization of all planned investments and hiring plans. Segment margin decreased from 17.2% to 15.6% as compared to the prior year.
Clean Energy & Fueling
Our Clean Energy & Fueling segment provides components, equipment, and software and service solutions enabling safe transport of traditional and clean fuels and other hazardous substances along the supply chain, as well as the safe and efficient operation of convenience retail, retail fueling and vehicle wash establishments.
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| | | Years Ended December 31, | | % Change |
| (dollars in thousands) | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Revenue | | $ | 1,648,153 | | | $ | 1,476,282 | | | $ | 1,620,177 | | | 11.6 | % | | (8.9) | % |
| | | | | | | | | | |
| Segment earnings (EBIT) | | $ | 271,388 | | | $ | 236,974 | | | $ | 231,873 | | | 14.5 | % | | 2.2 | % |
| Depreciation and amortization | | 78,010 | | | 72,803 | | | 75,045 | | | 7.2 | % | | (3.0) | % |
| Segment EBITDA | | $ | 349,398 | | | $ | 309,777 | | | $ | 306,918 | | | 12.8 | % | | 0.9 | % |
| | | | | | | | | | |
| Segment margin | | 16.5 % | | 16.1 % | | 14.3 % | | | | |
| Segment EBITDA margin | | 21.2 % | | 21.0 % | | 18.9 % | | | | |
| | | | | | | | | | |
| Other measures: | | | | | | | | | | |
| Bookings | | $ | 1,742,479 | | | $ | 1,471,870 | | | $ | 1,613,764 | | | 18.4 | % | | (8.8) | % |
| Backlog | | $ | 383,572 | | | $ | 201,521 | | | $ | 205,842 | | | 90.3 | % | | (2.1) | % |
| | | | | | | | | | |
| Components of revenue growth (decline): | | | | | | | | | | |
| Organic growth (decline) | | | | | | | | 5.8 | % | | (8.8) | % |
| Acquisitions | | | | | | | | 3.6 | % | | 0.2 | % |
| | | | | | | | | | |
| Foreign currency translation | | | | | | | | 2.2 | % | | (0.3) | % |
| Total revenue growth (decline) | | | | | | | | 11.6 | % | | (8.9) | % |
2021 Versus 2020
Clean Energy & Fueling segment revenue for the year ended December 31, 2021 increased $171.9 million, or 11.6%, compared to the prior year, attributable to an organic growth of 5.8%, acquisition-related growth of 3.6%, and a favorable impact from foreign currency translation of 2.2%. Acquisition-related growth was driven by the acquisition of ICS, AvaLAN and LIQAL. The acquisitions of RegO and Acme Cryogenics late in the fourth quarter had an immaterial impact to the segment's results. Overall, customer pricing favorably impacted revenue by approximately 2.3% in 2021.
The organic revenue growth was primarily driven by solid demand in our North America and EMEA retail fueling and vehicle wash businesses, along with pricing actions aimed at mitigating material, logistics and labor cost inflation. Growth in this segment was hampered by supply chain and labor availability challenges, both within our and our customers' operations, that intensified in the second half of the year, impacting our ability to ship some customer orders.
Clean Energy & Fueling segment earnings for the year ended December 31, 2021 increased $34.4 million, or 14.5%, compared to the prior year. The increase was primarily driven by conversion on organic revenue growth, pricing initiatives, productivity actions, and a favorable impact from acquisitions, partially offset by material and labor cost inflation. Segment margin increased to 16.5% from 16.1% in the prior year.
Bookings for the year ended December 31, 2021 increased 18.4% compared to the prior year, reflecting organic growth of 2.3%11.2%, more than offset by a unfavorable impact from foreign currency translation of 3.5%. Segment book-to-bill was 1.01.
2018 Versus 2017
Imaging & Identification segment revenue for the year ended December 31, 2018 increased $68.7 million, or 6.6%, compared to the prior year, comprised of organic growth of 4.6%, led by strong activity in our digital printing businesses,
complemented by growth in our marking and coding businesses, acquisition-related growth of 0.3%4.7%, and a favorable impact from foreign currency translation of 1.7%2.5%. CustomerThe organic bookings growth was primarily driven by solid global demand for retail fueling equipment and order strength in vehicle wash solutions. Segment book to bill was 1.06. Backlog increased 90.3% as compared to the prior year.
2020 Versus 2019
Clean Energy & Fueling segment revenue for the year ended December 31, 2020 decreased $143.9 million, or 8.9%, compared to the prior year, attributable to organic decline of 8.8% and an unfavorable foreign currency translation of 0.3%, partially offset by acquisition-related growth of 0.2%. The organic revenue decline was principally driven by the adverse effects of COVID-19 and the measures taken to reduce its spread globally. The negative impact started during the latter part of the first quarter in 2020 with several mandated manufacturing plant shutdowns temporarily disrupting our global operations and supply chain, followed by a reduction in customer demand, particularly from vertically-integrated oil & gas companies. Overall, customer pricing favorably impacted revenue by approximately 0.5%1.0% in 2018.2020.
ImagingClean Energy & IdentificationFueling segment earnings for the year ended December 31, 20182020 increased $31.5$5.1 million, or 18.8%2.2%, compared to the prior year. ThisThe increase was primarily driven by solid conversion onfavorable pricing initiatives, restructuring benefits, productivity actions, selling, general and administrative cost containment, and favorable impact from foreign currency translation. These benefits were partially offset by weakened organic volume growth, favorable pricing and productivity initiatives, including the benefits of restructuring actions, as well as the net benefit of an earn-out reversal recorded in the second quarter of 2018. Partially offsetting the favorable operational performance were incremental rightsizing costs in 2018 as well as increases in material costs, primarily driven by U.S. Section 301 tariffs.due to COVID-19. Segment margin increased from 16.1% to 17.9% as180 basis points compared to the prior year.
Imaging & Identification
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| | | Years Ended December 31, | | % Change |
| (dollars in thousands) | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Revenue | | $ | 1,163,367 | | | $ | 1,038,178 | | | $ | 1,084,471 | | | 12.1 | % | | (4.3) | % |
| | | | | | | | | | |
| Segment earnings (EBIT) | | $ | 237,147 | | | $ | 193,473 | | | $ | 229,484 | | | 22.6 | % | | (15.7) | % |
| Depreciation and amortization | | 38,510 | | | 38,378 | | | 30,530 | | | 0.3 | % | | 25.7 | % |
| Segment EBITDA | | $ | 275,657 | | | $ | 231,851 | | | $ | 260,014 | | | 18.9 | % | | (10.8) | % |
| | | | | | | | | | |
| Segment margin | | 20.4 % | | 18.6 % | | 21.2 % | | | | |
| Segment EBITDA margin | | 23.7 % | | 22.3 % | | 24.0 % | | | | |
| | | | | | | | | | |
| Other measures: | | | | | | | | | | |
| Bookings | | $ | 1,190,404 | | | $ | 1,065,098 | | | $ | 1,092,915 | | | 11.8 | % | | (2.5) | % |
| Backlog | | $ | 212,098 | | | $ | 192,785 | | | $ | 125,775 | | | 10.0 | % | | 53.3 | % |
| | | | | | | | | | |
| Components of revenue growth (decline): | | | | | | | | | | |
| Organic growth (decline) | | | | | | | | 8.0 | % | | (7.2) | % |
| Acquisitions | | | | | | | | 1.3 | % | | 3.9 | % |
| | | | | | | | | | |
| Foreign currency translation | | | | | | | | 2.8 | % | | (1.0) | % |
| Total revenue growth (decline) | | | | | | | | 12.1 | % | | (4.3) | % |
Segment bookings for the year ended December 31, 2021 increased 11.8% compared to the prior year, reflecting organic growth of 7.7%, a favorable impact from foreign currency translation of 2.5%, and acquisition-related growth of 1.6%. The
organic increase was primarily the result of strong order intake for marking and coding equipment, services and consumables, along with increased serialization software orders, as well as a recovery in demand for equipment and solutions in our digital textile printing business. Segment book-to-bill was 1.02. Backlog increased 10.0% compared to the prior year.
2020 Versus 2019
Imaging & Identification segment revenue for the year ended December 31, 2020 decreased $46.3 million, or 4.3%, compared to the prior year, comprised of organic decline of 7.2% and an unfavorable impact from foreign currency translation of 1.0%, partially offset by acquisition-related growth of 3.9%. The organic revenue decline was primarily driven by the global economic downturn precipitated by the COVID-19 pandemic beginning late in the first quarter, which materially impacted our digital textile printing business, as government-mandated mobility restrictions forced clothing and apparel retailers to close locations, and resulted in the decline of overall demand for clothing and apparel, as fewer consumers went to schools, offices, restaurants and other gatherings. Acquisition-related growth was driven by the acquisition of Systech in the first quarter of 2020 and Solaris, which closed in the third quarter of 2020. Overall, customer pricing favorably impacted revenue by approximately 0.7% in 2020.
Imaging & Identification segment earnings for the year ended December 31, 2020 decreased $36.0 million, or 15.7%, compared to the prior year. This decrease was primarily driven by the impact of continued reduced consumer spending due to COVID-19 on clothing, sports apparel, and other textile products that impact our digital printing customers. Partially offsetting this decrease were continued cost containment initiatives during the year. As a result, segment margin decreased from 21.2% to 18.6% as compared to the prior year.
Pumps & Process Solutions
Our Pumps & Process Solutions segment manufactures specialty pumps and flow meters, fluid handling components,connecting solutions, plastics and polymer processing equipment, and highly engineered precision components for rotating and reciprocating machines.machines serving single-use biopharmaceutical production, diversified industrial manufacturing, polymer processing, midstream and downstream oil and gas and other end-markets.
| | | | | Years Ended December 31, | | | % Change | | | | Years Ended December 31, | | % Change |
| (dollars in thousands) | (dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 | (dollars in thousands) | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Revenue | Revenue | | $ | 1,338,528 | | | $ | 1,331,893 | | | $ | 1,217,235 | | | 0.5 | % | | 9.4 | % | Revenue | | $ | 1,708,634 | | | $ | 1,324,003 | | | $ | 1,338,528 | | | 29.1 | % | | (1.1) | % |
| Segment earnings (EBIT) (1) | Segment earnings (EBIT) (1) | | $ | 240,081 | | | $ | 237,549 | | | $ | 209,451 | | | 1.1 | % | | 13.4 | % | Segment earnings (EBIT) (1) | | $ | 546,863 | | | $ | 305,276 | | | $ | 240,081 | | | 79.1 | % | | 27.2 | % |
| Depreciation and amortization | Depreciation and amortization | | 67,584 | | | 71,982 | | | 67,986 | | | (6.1) | % | | 5.9 | % | Depreciation and amortization | | 69,075 | | | 72,191 | | | 67,584 | | | (4.3) | % | | 6.8 | % |
Segment EBITDA (1) | Segment EBITDA (1) | | $ | 307,665 | | | $ | 309,531 | | | $ | 277,437 | | | (0.6) | % | | 11.6 | % | Segment EBITDA (1) | | $ | 615,938 | | | $ | 377,467 | | | $ | 307,665 | | | 63.2 | % | | 22.7 | % |
| Segment margin (1) | Segment margin (1) | | 17.9 | % | | 17.8 | % | | 17.2 | % | | Segment margin (1) | | 32.0 % | | 23.1 % | | 17.9 % | |
Segment EBITDA margin (1) | Segment EBITDA margin (1) | | 23.0 | % | | 23.2 | % | | 22.8 | % | | Segment EBITDA margin (1) | | 36.0 % | | 28.5 % | | 23.0 % | |
| | Other measures: | Other measures: | | Other measures: | |
| Bookings | Bookings | | 1,393,830 | | | 1,386,875 | | | 1,236,376 | | | 0.5 | % | | 12.2 | % | Bookings | | $ | 2,023,061 | | | $ | 1,334,338 | | | $ | 1,393,830 | | | 51.6 | % | | (4.3) | % |
| Backlog | Backlog | | 353,073 | | | 315,230 | | | 272,704 | | | 12.0 | % | | 15.6 | % | Backlog | | $ | 688,931 | | | $ | 390,238 | | | $ | 353,073 | | | 76.5 | % | | 10.5 | % |
| | Components of revenue growth: | | |
| Organic growth | | 3.9 | % | | 7.4 | % | |
| Components of revenue growth (decline): | | Components of revenue growth (decline): | |
| Organic growth (decline) | | Organic growth (decline) | | 26.6 | % | | (2.3) | % |
| Acquisitions | Acquisitions | | 0.5 | % | | 1.4 | % | Acquisitions | | 0.6 | % | | 1.1 | % |
| Dispositions | Dispositions | | (2.0) | % | | (0.4) | % | Dispositions | | — | % | | (0.5) | % |
| Foreign currency translation | Foreign currency translation | | (1.9) | % | | 1.0 | % | Foreign currency translation | | 1.9 | % | | 0.6 | % |
| Total revenue growth | | 0.5 | % | | 9.4 | % | |
| Total revenue growth (decline) | | Total revenue growth (decline) | | 29.1 | % | | (1.1) | % |
(1) Segment earnings (EBIT) and segment EBITDA for 2019 include a $46,946 loss on assets held for sale for Finder.
20192021 Versus 20182020
Pumps & Process Solutions segment revenue for the year ended December 31, 20192021 increased $6.6$384.6 million, or 0.5%29.1%, compared to the prior year, attributable to organic growth of 3.9%26.6%, a favorable impact from foreign currency translation of 1.9%, and acquisition-related growth of 0.5%0.6%. This increase was partially offset by an unfavorable foreign currency translation impact of 1.9% and a 2.0% decrease from a disposition. The organicAcquisition related growth was principallyprimarily driven by biopharmathe acquisition of Quantex and thermal management markets, along with strong continued demand from our OEM customers for rotating and reciprocating machinery components. Customerone other immaterial acquisition. Overall, customer pricing favorably impacted revenue by approximately 1.4%1.8% in 2019.2021.
The organic revenue growth was primarily driven by robust demand in the biopharma and hygienic markets, where we saw strong demand for single use pumps and connectors used in biopharmaceutical production processes. Our industrial pumps and our plastics and polymer processing solutions businesses also contributed to top-line growth responding to strong end market demand, despite experiencing supply chain constraints and customer delivery challenges that accelerated in the second half of the year. Revenue in bearings and compression components saw solid growth amidst an ongoing recovery in their end market demand.
Pumps & Process Solutions segment earnings for the year ended December 31, 20192021 increased $2.5$241.6 million, or 1.1%79.1%, compared to the prior year. Segment earnings includes a lossThis increase was predominantly the result of strong conversion on assets held for sale for Finder in the first quarter of 2019 of $46.9 million. Segment earnings increased significantly excluding the loss on sale of Finder driven by volume leverage,revenue growth, favorable product mix, pricing initiatives, and productivity actions, as well as reduced rightsizing costs. These benefits were partially offset by increased material costs due,and labor cost inflation, and investments in part, to U.S. Section 232 and 301 tariff exposure, inflation costs, and unfavorable product and regional mix.growth. Segment margin increased to 17.9%32.0% from 17.8%23.1% in the prior year, an increase of 10890 basis points.
.
Bookings for the year ended December 31, 20192021 increased 0.5%51.6% compared to the prior year, reflecting an organic growth of 3.3% and acquisition-related growth of 0.5%48.2%, offset by a unfavorablefavorable impact from foreign currency translation of 1.9%2.3%, and
disposition related decline acquisition-related growth of 1.4%1.1%. Ending backlogThe organic bookings growth was 12.0% higher than prior year, driven by significant growth in the biopharma and hygienic pumps and connectors markets, as well as strong order intake in industrial pumps and plastics and polymer processing rotatingsolutions, and reciprocating machinery,demand recovery in bearings and connection solutions businesses. Bookcompression components. Segment book to bill was 1.04.1.18. Backlog increased 76.5% compared to the prior year primarily driven by our biopharma and hygienic markets, along with strength from our plastics and polymer processing solutions and industrial pumps businesses.
20182020 Versus 20172019
Pumps & Process Solutions segment revenue for the year ended December 31, 2018 increased $114.72020 decreased $14.5 million, or 9.4%1.1%, compared to the prior year, attributable to organic growthdecline of 7.4%,2.3% and a 0.5% decrease from a disposition, partially offset by acquisition-related growth of 1.4%1.1% and a favorable impact from foreign currency translation impact of 1.0%0.6%. This increase was partially offset by a 0.4% decrease from dispositions. The organic growthrevenue decline was principally driven by continued comparable weakness in demand for compression components and aftermarket services due to lower activity in the North America upstream, midstream and downstream energy sector, as well as continued slower demand for industrial pump activity, strength in our Middle East market, solid biopharma and medical markets, continued infrastructure spending by our OEM customers, and polymer demand increase. Additionally, the revenue increase was driven by the acquisition of Ettlinger Group ("Ettlinger"). Customerpumps due to pandemic-related disruptions. Overall, customer pricing favorably impacted revenue by approximately 1.0% in 2018.2020.
Pumps & Process Solutions segment earnings for the year ended December 31, 20182020 increased $28.1$65.2 million, or 13.4%27.2%, compared to the prior year, primarily driven by increased volume and productivity gains. This growth was partially offset by increased material costs due, in part, to U.S. Section 232 and 301 tariff exposure and increased rightsizing costs.year. Segment margin increased 60 basis pointsearnings for the year ended December 31, 2018 compared2019 included a loss on assets held for sale for Finder of $46.9 million. Excluding the loss, segment earnings increased as a result of pricing initiatives, productivity actions, restructuring benefits, and selling, general and administrative cost reductions. These benefits were partially offset by the global impact of COVID-19 on volume and an unfavorable impact from material and inflation costs. Segment margin increased to 23.1% from 17.9% in the prior year.year, an increase of 520 basis points.
RefrigerationClimate & Food EquipmentSustainability Technologies
Our RefrigerationClimate & Food EquipmentSustainability Technologies segment is a provider of innovative and energy-efficient equipment and systems that serve the commercial refrigeration, heating and cooling and foodbeverage container-making equipment markets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | | % Change |
| (dollars in thousands) | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Revenue | | $ | 1,608,175 | | | $ | 1,316,090 | | | $ | 1,396,617 | | | 22.2 | % | | (5.8) | % |
| | | | | | | | | | |
Segment earnings (EBIT) (1) | | $ | 322,622 | | | $ | 102,872 | | | $ | 118,832 | | | 213.6 | % | | (13.4) | % |
| Depreciation and amortization | | 48,634 | | | 46,541 | | | 51,360 | | | 4.5 | % | | (9.4) | % |
Segment EBITDA (1) | | $ | 371,256 | | | $ | 149,413 | | | $ | 170,192 | | | 148.5 | % | | (12.2) | % |
| | | | | | | | | | |
Segment margin (1) | | 20.1 % | | 7.8 % | | 8.5 % | | | | |
Segment EBITDA margin (1) | | 23.1 % | | 11.4 % | | 12.2 % | | | | |
| | | | | | | | | | |
| Other measures: | | | | | | | | | | |
| Bookings | | $ | 2,317,000 | | | $ | 1,510,499 | | | $ | 1,446,755 | | | 53.4 | % | | 4.4 | % |
| Backlog | | $ | 1,174,479 | | | $ | 510,498 | | | $ | 320,577 | | | 130.1 | % | | 59.2 | % |
| | | | | | | | | | |
| Components of revenue growth (decline): | | | | | | | | | | |
| Organic growth (decline) | | | | | | | | 22.0 | % | | (3.0) | % |
| | | | | | | | | | |
| Dispositions | | | | | | | | (1.1) | % | | (2.9) | % |
| Foreign currency translation | | | | | | | | 1.3 | % | | 0.1 | % |
| Total revenue growth (decline) | | | | | | | | 22.2 | % | | (5.8) | % |
(1)Segment earnings (EBIT) and segment EBITDA for 2021 include a $181,615 gain on the disposition of UB, a $12,073 other than temporary impairment charge related to an equity method investment, and a $6,072 write-off of assets incurred in connection with an exit from certain Latin America countries. 2020 includes a $5,213 gain on the sale of the AMS Chino and a $3,640 write-off of assets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | | | | | | % Change | | |
| (dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 |
| Revenue | | $ | 1,396,617 | | | $ | 1,453,093 | | | $ | 1,599,105 | | | (3.9) | % | | (9.1) | % |
| | | | | | | | | | |
| Segment earnings (EBIT) | | $ | 118,832 | | | $ | 136,119 | | | $ | 193,822 | | | (12.7) | % | | (29.8) | % |
| Depreciation and amortization | | 51,360 | | | 60,477 | | | 57,207 | | | (15.1) | % | | 5.7 | % |
| Segment EBITDA | | $ | 170,192 | | | $ | 196,596 | | | $ | 251,029 | | | (13.4) | % | | (21.7) | % |
| | | | | | | | | | |
| Segment margin | | 8.5 | % | | 9.4 | % | | 12.1 | % | | | | |
| Segment EBITDA margin | | 12.2 | % | | 13.5 | % | | 15.7 | % | | | | |
| | | | | | | | | | |
| Other measures: | | | | | | | | | | |
| Bookings | | 1,446,755 | | | 1,474,717 | | | 1,582,606 | | | (1.9) | % | | (6.8) | % |
| Backlog | | 320,577 | | | 268,991 | | | 244,972 | | | 19.2 | % | | 9.8 | % |
| | | | | | | | | | |
| Components of revenue decline: | | | | | | | | | | |
| Organic (decline) growth | | | | | | | | (2.7) | % | | (7.9) | % |
| Acquisitions | | | | | | | | — | % | | 0.7 | % |
| Dispositions | | | | | | | | — | % | | (2.6) | % |
| Foreign currency translation | | | | | | | | (1.2) | % | | 0.7 | % |
| Total revenue decline | | | | | | | | (3.9) | % | | (9.1) | % |
2019 Versus 2018
RefrigerationClimate & Food EquipmentSustainability Technologies segment revenue for the year ended December 31, 2019 decreased $56.52021 increased $292.1 million, or 3.9%22.2%, compared to the prior year, reflecting an organic revenue growth of 22.0% and a favorable impact from foreign currency translation of 1.3%, partially offset by a disposition related decline of 1.1%. Overall, customer pricing favorably impacted revenue by approximately 4.1% in 2021.
The organic revenue growth was principally driven by robust demand across all of our end-markets. Beverage packaging equipment revenues increased substantially from prior year, driven by continued favorable macro trends in the global beverage industry, which include beverage innovations and producers increasingly shifting to highly recyclable aluminum containers for environmental sustainability and merchandising benefits offered by modern aluminum containers. Our heat exchanger business experienced strong growth across all regions, fueled by regulation-driven heat pump demand in Europe, robust demand in Asia, and strengthening commercial HVAC and industrial markets globally. Retail refrigeration experienced broad-based growth, driven by increased remodel activity with key supermarket customers and growing demand for our environmentally friendly natural refrigerant systems in both Europe and the U.S. Prior to the sale of UB in the fourth quarter of 2021, commercial foodservice equipment revenues improved over the prior year, as many key restaurant chain customers resumed store investment programs once government mandated COVID-19 restrictions eased in 2021.
Climate & Sustainability Technologies segment earnings for the year ended December 31, 2021 increased $219.8 million, or 213.6%, compared to the prior year. Segment margin increased to 20.1% from 7.8% in the prior year due to a $181.6 million gain on disposition of UB that occurred in the fourth quarter, increased volumes, favorable mix, improved operational efficiencies and benefits from prior restructuring programs; partially offset by a $12.1 million other than temporary impairment charge related to an equity method investment, a $6.1 million write-off of assets incurred in connection with an
exit from certain Latin America countries, increased material and logistics costs, most notably metals, and plant productivity shortfalls resulting from supply chain disruption, most notably from intermittent shortages of insulation foam materials throughout the year, and labor availability constraints, most significantly in our retail refrigeration business.
Bookings for the year ended December 31, 2021 increased 53.4% compared to the prior year, reflecting organic growth of 53.3% and a favorable impact from foreign currency translation of 1.2%, partially offset by a 1.1% impact from the sale of UB. The organic bookings growth was primarily driven by continued supermarket remodel programs in retail refrigeration, strong demand for brazed heat exchangers and increased project activity for beverage packaging equipment. Segment book to bill for the full year was 1.44. Backlog increased 130.1% over the prior year, principally driven by our aluminum can-shaping equipment business as well as an increase in our retail refrigeration and heat exchanger businesses.
2020 Versus 2019
Climate & Sustainability Technologies segment revenue for the year ended December 31, 2020 decreased $80.5 million, or 5.8%, compared to the prior year, reflecting an organic revenue decline of 2.7% and an unfavorable3.0%, a disposition related decline of 2.9%, partially offset by a favorable impact from foreign currency translation of 1.2%0.1%. The organic revenue decrease fordecline was principally driven by the year ended December 31, 2019 was driven principally by reduced new food retail store construction activity with key U.S. Retail Refrigeration customers, reduced demand for heat exchanger productsimpact of COVID-19 on a global basis as government actions to contain the spread of the virus, such as mandated plant shutdowns and restaurant curtailments, resulted in Asia,deferred customer orders and softer demand from national restaurant chain customers in our foodservice equipment business. These reductions were partially offset by increased project activity for can-shaping equipment and strong growth inoperational inefficiencies across the core door case product line within food retail industry which primarily serves store remodel applications. Customersegment. Overall, customer pricing minimallyfavorably impacted revenue by approximately 0.3% in 2019.2020.
RefrigerationClimate & Food EquipmentSustainability Technologies segment earnings for the year ended December 31, 20192020 decreased $17.3$16.0 million, or 12.7%13.4%, compared to the prior year. Segment margin decreased to 8.5%7.8% from 9.4%8.5% in the prior year due to substantially reduced volumes, unfavorable business mix in retail refrigeration, volume ramp costs for our door case product line,revenues and costs incurred asoperational inefficiencies associated with COVID-19, increased restructuring expenses and a result$3.6 million write-off of plant consolidations at our foodservice equipment business. These reductions wereassets. This was partially offset by improved productivitythe $5.2 million gain on sale from the disposition of AMS Chino, a $1.7 million gain on sale of assets, and benefits from prior year rightsizing actions, as well as reduced rightsizing costs.
Bookings for the year ended December 31, 2019 decreased 1.9% compared to the prior year, primarily driven by reduced demand in our U.S. retail refrigeration and foodservice equipment businesses, partially offset by increased market demand for aluminum can-shaping equipment driven by beverage companies shifting from plastic to aluminum containers. Bookings decreased 0.7% organically and decreased 1.2% due to foreign currency translation. Ending backlog was 19.2% higher thanother broad-based cost reduction activities.
prior year, driven by fourth quarter bookings growth in our retail refrigeration and can-shaping equipment businesses. Book to bill for the full year was 1.04.
2018 Versus 2017
Refrigeration & Food Equipment segment revenue for the year ended December 31, 2018 decreased $146.0 million, or 9.1%, compared to the prior year, reflecting an organic revenue decline of 7.9%, the impact from product line dispositions of 2.6%, partially offset by acquisition-related growth of 0.7% and a favorable impact from foreign currency translation of 0.7%. Customer pricing favorably impacted revenue by approximately 0.8% in 2018. Refrigeration & Food Equipment organic revenue declined principally due to weak capital spending and deferred remodel programs by key U.S. retail refrigeration customers, as well as a product re-design and SKU rationalization program in our refrigeration door system product line. Additionally, the foodservice equipment and can-shaping businesses also had year over year shortfalls due to project timing and market softness. These were partially offset by increased demand for heat exchanger products, most notably in Europe, and by the addition of sales from our Rosario acquisition.
Refrigeration & Food Equipment segment earnings for the year ended December 31, 2018 decreased $57.7 million, or 29.8%, compared to the prior year. Segment margin decreased to 9.4% from 12.1% in the prior year, as benefits from rightsizing actions, productivity gains and lower rightsizing costs were more than offset by volume reductions, unfavorable product mix in our can-shaping business, costs associated with product re-design and SKU rationalization in our refrigeration door system product line and a favorable $1.7 million disposition gain in 2017 due to a working capital adjustment. Segment margin was also impacted by rising material costs, most notably steel, inclusive of commodity pricing impacts attributable to U.S. Section 232 tariffs.
FINANCIAL CONDITION
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Significant factors affecting liquidity are:are cash flows generated from operating activities, capital expenditures, acquisitions, dispositions, dividends, repurchase of outstanding shares, adequacy of available commercial paper and bank lines of credit and the ability to attract long-term capital with satisfactory terms. We generate substantial cash from the operations of our businesses and remain in a strong financial position, with sufficient liquidity available for reinvestment in existing businesses and strategic acquisitions.
Cash Flow Summary
The following table is derived from our Consolidated Statements of Cash Flows:
| | | | Years Ended December 31, | | | Years Ended December 31, |
Cash Flows from Continuing Operations (in thousands) | 2019 | | 2018 | | 2017 | |
Cash Flows from Operations (in thousands) | | Cash Flows from Operations (in thousands) | 2021 | | 2020 | | 2019 |
| Net cash flows provided by (used in): | Net cash flows provided by (used in): | | | | | | Net cash flows provided by (used in): | | | | | |
| Operating activities | Operating activities | $ | 945,306 | | | $ | 789,193 | | | $ | 739,409 | | Operating activities | $ | 1,115,865 | | | $ | 1,104,810 | | | $ | 945,306 | |
| Investing activities | Investing activities | (384,255) | | | (245,480) | | | 208,335 | | Investing activities | (992,753) | | | (481,379) | | | (384,255) | |
| Financing activities | Financing activities | (558,042) | | | (897,838) | | | (592,933) | | Financing activities | (249,880) | | | (506,290) | | | (558,042) | |
Operating Activities
Cash provided by operating activities for the year ended December 31, 20192021 increased $156.1 million compared to 2018.2020. This increase was primarily driven primarily by higher continuing earnings net of $147.0 million, excluding a loss from discontinued operations, depreciationnon-cash adjustments and amortization, a loss on assets held for sale and a loss on extinguishmentincreases to accrued expenses, partially offset by our investment in working capital of debt.$307.1 million.
Cash provided by operating activities for the year ended December 31, 20182020 increased $49.8$159.5 million compared to 2017.2019. This increase was driven primarily driven by higher continuingimprovements in working capital of $89.4 million, payroll tax deferrals under the U.S. CARES Act of $31.6 million and advanced payments received on contracts, partially offset by lower net earnings, excluding the impact of $46.9 million, excluding non-cash activity from depreciation, and amortization, loss on assets held for sale and gain on sale of businesses, and significantly lower tax payments in 2018 due to a lower tax rate as well as tax payments made in 2017 for dispositions. The increase was offset by higher investments in working capital relative to the prior year in support of organic bookings and timing of year end revenue.disposition.
Pension and Other Post-Retirement Activity: Total cash used in conjunction with pension plans during 20192021 was $21.4$14.4 million, including contributions to our international pension plans and payments of benefits under our non-qualified supplemental pension plan.plans.
The funded status of our U.S. qualified defined benefit pension plan is dependent upon many factors, including returns on invested assets, the level of market interest rates and the level of funding. We contribute cash to our plans at our discretion, subject to applicable regulations and minimum contribution requirements. Due to the overfunded status of this plan, the Company did not make contributions in 2019, 20182021, 2020 or 20172019 and does not expect to make contributions in the near term.
Our international pension plans are located in regions where often it is not economically advantageous to pre-fund the plans due to local regulations. Total cash payments, which include contributions and direct benefit payments to nonfunded plans, to ongoing international defined benefit pension plans in 2021, 2020 and 2019 2018 and 2017 totaled $7.2$8.1 million, $6.0$7.3 million and $8.0$7.2 million, respectively. In 2020,2022, we expect to contributemake cash payments of approximately $4.6$7.7 million related to our non-U.S. plans.
Our non-qualified supplemental pension plans are funded through Company assets as benefits are paid. In 2019, 20182021, 2020 and 20172019 a total of $13.6$6.3 million, $19.4$12.3 million, and $11.6$13.6 million in benefits were paid under these plans, respectively. See Note 17 — Employee Benefit Plans in the Consolidated Financial Statements in Item 8 of this Form 10-K for further discussion regarding our post-retirement plans. In 2022, we expect to make cash payments of approximately $4.8 million to our non-qualified U.S. plans.
Adjusted Working Capital: We believe adjusted working capital (a non-GAAP measure calculated as accounts receivable, plus inventory, less accounts payable) provides a meaningful measure of our operational results by showing changes caused solely by revenue.
| Adjusted Working Capital (dollars in thousands) | Adjusted Working Capital (dollars in thousands) | | December 31, 2019 | | December 31, 2018 | | Adjusted Working Capital (dollars in thousands) | | December 31, 2021 | | December 31, 2020 | |
| Accounts receivable | Accounts receivable | | $ | 1,217,190 | | | $ | 1,231,859 | | | Accounts receivable | | $ | 1,347,514 | | | $ | 1,137,223 | | |
| Inventories | Inventories | | 806,141 | | | 748,796 | | | Inventories | | 1,191,095 | | | 835,804 | | |
| Less: Accounts payable | Less: Accounts payable | | 983,293 | | | 969,531 | | | Less: Accounts payable | | 1,073,568 | | | 853,942 | | |
| Adjusted working capital | Adjusted working capital | | $ | 1,040,038 | | | $ | 1,011,124 | | | Adjusted working capital | | $ | 1,465,041 | | | $ | 1,119,085 | | |
|
Adjusted working capital increased from December 31, 20182020 by $28.9$346.0 million, or 2.9%30.9%, to $1.04$1.5 billion at December 31, 2019,2021, which reflected a decrease an increase in accounts receivable of $14.7$210.3 million, an increase in inventory of $57.3$355.3 million and an increase in accounts payable of $13.8$219.6 million. These amounts include the effects of acquisitions, dispositions and foreign currency translation. We continue to focus on improving working capital management by reducing our accountsmanagement. Accounts receivable balance and increasing our accounts payable balance at December 31, 2019increased compared to the prior year. However, inventoriesyear as a result of higher revenue. We increased at December 31, 2019 comparedinventory balances throughout the year to 2018support growing sales and backlog, and also to mitigate potential inventory constraints given planned footprint movesthe continuing disrupted and a higher backlog going into 2020.constrained supply chain. These factors also led to an increase in accounts payable.
We facilitate the opportunity for suppliers to participate in voluntary supply chain financing (“SCF”) programs with participating financial institutions. Participating suppliers have the ability to sell receivables due from us to SCF financial institutions at the discretion of both the suppliers and the SCF financial institutions, at no economic impact to the Company. The Company and our suppliers agree on commercial terms, including payment terms, for the goods and services we procure regardless of whether the supplier participates in SCF. For participating suppliers, our responsibility is limited to making all payments to the SCF financial institutions on the terms originally negotiated with the supplier, irrespective of whether the supplier elects to sell receivables to the SCF financial institution. The SCF financial institution pays the supplier on the invoice due date for any invoices that were not previously sold by the supplier to the SCF financial institution. Thus, suppliers using SCF have additional potential flexibility in managing their liquidity by accelerating, at their option and cost, collection of receivables due from Dover.
Outstanding payments related to SCF programs are recorded within accounts payable in our consolidated balance sheets. As of December 31, 2021 and 2020, amounts due to financial institutions for suppliers using SCF were approximately $211 million and $139 million, respectively. SCF related payments are classified as a reduction to cash flows from operations. Amounts paid to SCF financial institutions were approximately $825 million during the year ended December 31, 2021 and $605 million during the years ended December 31, 2020 and 2019.
Investing Activities
Cash flow from investing activities is derived from cash inflows from proceeds from sales of businesses, property, plant and equipment and short-term investments, offset by cash outflows for capital expenditures and acquisitions.acquisitions, partially offset by cash inflows from proceeds from the sale of businesses, and property, plant and equipment. The majority of the activity in investing activities was comprised of the following:
•Acquisitions: In 2019,2021, we deployed $215.7$1,112.1 million, excluding contingent consideration of $13.0 million, to acquire threenine businesses. In comparison, we acquired twosix businesses in 20182020 for an aggregate purchase price of approximately $68.6$335.8 million. Total acquisition spend in 20172019 was $27.2$215.7 million and was comprised of twothree businesses. See Note 43 — Acquisitions in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information with respect to recent acquisitions.
•Proceeds from sale of businesses: In 2021, we generated cash proceeds of $275.0 million, due to the sale of UB within the Climate & Sustainability Technologies segment and the sale of our RWB equity method investment within the Engineered Products segment. Cash proceeds of $15.4 million in 2020 was due to the sale of AMS Chino within the Climate & Sustainability Technologies segment. In 2019, we generated cash proceeds of $24.2 million due to the sale of Finder. Cash proceeds of $3.9 million in 2018 was primarily due to cash received on a sale in 2017. In 2017, we generated cash proceeds of $372.7 million primarily from the sale of PMI and Warn.
•Capital spending: Capital expenditures, primarily to support growth initiatives, productivity and new product launches, were $171.5 million in 2021, $165.7 million in 2020 and $186.8 million in 2019, $171.0 million in 2018 and $170.1 million in 2017.2019. Our capital expenditures increased $15.8$5.8 million in 20192021 compared to 2018,2020 in line with our plan to support growth capacity, digitization,
innovation, and remained relatively flatproductivity. Our capital expenditures decreased $21.1 million in 20182020 compared to 2017.2019 as we temporarily reduced our capital spending plan as a result of COVID-19, without deferring strategic priorities.
We anticipate that capital expenditures and any additional acquisitions we make in 20202022 will be funded from available cash and internally generated funds and, if necessary, through the issuance of commercial paper, or by accessing the public debt or equity markets. We estimate capital expenditures in 2022 to range from $200 million to $220 million.
Financing Activities
Our cash flow from financing activities generally relatesrelates to the use of cash for purchases of our common stock and payment of dividends, offset by net borrowing activity. The majority of financing activity was attributed to the following:
•Long-term debt, commercial paper and notes payable, net: During 2021, we received proceeds of $105.0 million from commercial paper borrowings to fund a portion of our acquisitions. During 2020, we used $84.7 million to pay off commercial paper borrowings. During 2019, we issued €500 million of 0.750% euro-denominated notes due 2027 and $300 million of 2.950% notes due 2029. The proceeds from the sale of euro-denominated notes of €494.7 million, net of discounts and issuance costs, were used in part to redeem the €300 million 2.125% notes due 2020. The proceeds from the sale of notes of $296.9 million, net of discounts and issuance costs, and the remaining funds from the sale of the euro-denominated notes, were used to fund the redemption of the $450 million 4.30% notes due 2021. The early extinguishment of debt resulted in a pre-tax loss of $23.5 million. Net borrowings decreased by $93.3 million in 2019 due to the issuance of debt, early extinguishment of debt, and decrease in borrowings from commercial paper.
During 2018, we repaid the Company's $350.0 million 5.45% notes, which matured on March 15, 2018, and decreased net borrowings from commercial paper by $10.7 million. During 2017, we decreased net borrowings from commercial paper by $182.6 million with the cash proceeds from the sale of PMI and Warn.
•Cash received from Apergy, net of cash distributed: In connection with the separation of Apergy from Dover on May 9, 2018, Apergy incurred borrowings to fund a one-time cash payment of $700.0 million to Dover in connection with Dover's contribution to Apergy of stock and assets relating to the businesses spun off with Apergy. Dover received net cash of $689.6 million upon separation, which reflects $10.4 million of cash held by Apergy at the time of distribution and retained by it in connection with its separation from Dover.
•Repurchase of common stock: During the year ended December 31, 2021, we repurchased 182,951 shares of common stock at a total cost of $21.6 million. During the year ended December 31, 2020, we repurchased 979,165 shares of common stock at a total cost of $106.3 million. During the year ended December 31, 2019, we repurchased 1,343,622 shares of common stock at a total cost of $143.3 million. For the year ended December 31, 2018, we used $45.0 million to repurchase 440,608 shares under our January 2015 authorization, which expired on January 9, 2018. Under a share repurchase authorization adopted by the Board of Directors in February 2018, we also repurchased 1,753,768 shares of common stock at a total cost of $150.0 million and used $700 million to repurchase a total of 8,542,566 shares through an accelerated share repurchase transaction which concluded in December 2018. We funded the accelerated share repurchase primarily with funds received from Apergy in connection with the consummation of the Apergy spin-off. For the year ended December 31, 2017, we used $105.0 million to repurchase 1,059,682 shares under the January 2015 authorization.
•Dividend payments: Total dividend payments to common shareholders were $286.9 million in 2021, $284.3 million in 2020 and $282.2 million in 2019, $283.6 million in 2018 and $284.0 million in 2017.2019. Our dividends paid per common share increased 2%1% to $1.94$1.99 per share in 20192021 compared to $1.90$1.97 per share in 2018,2020, which represents the 64th66th consecutive year that our dividend per share has increased. The number of common shares outstanding decreasedincreased from 20182020 to 2019 due to our2021 as share repurchase programs.issuances slightly exceeded share repurchases.
•Net Proceeds from the exercise of share-based awards: Payments to settle tax obligations on share exercises were $41.9 million, $28.5 million and $37.4 million $46.3 millionin 2021, 2020 and $18.4 million2019, respectively. The increase from 2020 to 2021 is primarily due to the increase in 2019, 2018 and 2017, respectively. These tax payments generally increase or decrease correspondingly to the number of exercisesshares exercised and an increase in a particular year.
Cash Flows from Discontinued Operations
There were no cash flows from discontinued operations for the average stock price compared to the prior year ended December 31, 2019. Our cash flows from discontinued operations for the years ended December 31, 2018 and 2017 (used) generated $(14.3) million and $48.5 million, respectively. These cash flows primarily reflect the operating results of Apergy prior to its separation during the second quarter of 2018. Cash flows used in discontinued operations for the year ended December 31, 2018 primarily reflects cash payments of spin-off costs of $46.4 million and capital expenditures of $23.7 million, partially offset by cash provided by operations of approximately $55.4 million. Cash flows generated for the years ended December 31, 2017 primarily reflects cash provided by operating activities of approximately $96.2 million, respectively, partially offset by capital expenditures.period.
Liquidity and Capital Resources
Free Cash Flow
In addition to measuring our cash flow generation and usage based upon the operating, investing and financing classifications included in the Consolidated Statements of Cash Flows, we also measure free cash flow (a non-GAAP measure) which represents net cash provided by operating activities minus capital expenditures. We believe that free cash flow is an important measure of operating performance because it provides management and investors a measurement of cash generated from operations that may be available for mandatory payment obligations and investment opportunities, such as funding acquisitions, paying dividends, repaying debt and repurchasing our common stock.
The following table reconciles our free cash flow to cash flow provided by operating activities:
| | | | Years Ended December 31, | | | Years Ended December 31, |
Free Cash Flow (dollars in thousands) | Free Cash Flow (dollars in thousands) | 2019 | | 2018 | | 2017 | Free Cash Flow (dollars in thousands) | 2021 | | 2020 | | 2019 |
| Cash flow provided by operating activities | Cash flow provided by operating activities | $ | 945,306 | | | $ | 789,193 | | | $ | 739,409 | | Cash flow provided by operating activities | $ | 1,115,865 | | | $ | 1,104,810 | | | $ | 945,306 | |
| Less: Capital expenditures | Less: Capital expenditures | (186,804) | | | (170,994) | | | (170,068) | | Less: Capital expenditures | (171,465) | | | (165,692) | | | (186,804) | |
| | Free cash flow | Free cash flow | $ | 758,502 | | | $ | 618,199 | | | $ | 569,341 | | Free cash flow | $ | 944,400 | | | $ | 939,118 | | | $ | 758,502 | |
| Free cash flow as a percentage of revenue | Free cash flow as a percentage of revenue | 10.6 | % | | 8.8 | % | | 8.3 | % | Free cash flow as a percentage of revenue | 11.9 % | | 14.1 % | | 10.6 % |
| Free cash flow as a percentage of earnings from continuing operations | 111.9 | % | | 104.6 | % | | 76.3 | % | |
| Free cash flow as a percentage of earnings | | Free cash flow as a percentage of earnings | 84.0 % | | 137.4 % | | 111.9 % |
For 2019,2021, we generated free cash flow of $944.4 million, representing 11.9% of revenue and 84.0% of earnings. Free cash flow in 2020 was $939.1 million or 14.1% of revenue and 137.4% of earnings. Free cash flow in 2019 was $758.5 million, representingor 10.6% of revenue and 111.9% of earnings from continuing operations. Free cash flow in 2018 was $618.2 million or 8.8% of revenue and 104.6% of earnings from continuing operations. Free cash flow in 2017 was $569.3 million, or 8.3% of revenue and 76.3% of earnings from continuing operations.earnings. The full year increase in 20192021 free cash flow reflects higher cash flow provided by operations, due to higher operating earnings, as previously mentioned,noted, partially offset by higher investments in capital expenditures.expenditures compared to the prior year. The 2018decrease in free cash flow as a percentage of earnings from 2020 to 2021 was primarily due to higher net earnings, including the impact of non-cash gains on dispositions. The 2020 increase in free cash flow compared to 2017 is2019 reflects higher cash flow provided by operations primarily due to higher operating earnings. Cashimprovements in working capital, permitted deferrals of tax payments related to restructuring initiatives were $33.3 million, $52.0 million, and $22.6 million in 2019, 2018, and 2017, respectively.advanced payments received on contracts.
Capitalization
We use commercial paper borrowings for general corporate purposes, including the funding of acquisitions and the repurchase of our common stock. On October 4, 2019,As of December 31, 2021, we entered intomaintained a $1 billion five-year unsecured revolving credit facility (the “Credit Agreement”) with a syndicate of banks, (the “Credit Agreement”) that replaced a similar existing credit facility that was set to expire in November 2020. The Credit Agreementwhich will expire on October 4, 2024. This facility is used primarily as liquidity back-up for our commercial paper program.program and for general corporate purposes.
Beginning in early-to-mid-March 2020, the commercial paper market began to experience very high levels of volatility as a result of COVID-19 related uncertainties. Volatility was most pronounced for "Tier-2" issuers, such as Dover, and impacted both market access and pricing. As a result, on March 16, 2020, the Company borrowed $500 million under the Credit Agreement. Proceeds from the borrowing were used to repay all of the Company's outstanding commercial paper and for general corporate purposes. We subsequently repaid the $500 million in the second quarter of 2020 using proceeds from commercial paper as volatility in the commercial paper market stabilized and we resumed borrowing commercial paper.
The Company may elect to have not drawn down any loans under this facility nor do we anticipate doing so. If we were to draw down a loan, at our election, the loan wouldCredit Agreement which bear interest at a base rate plus ana specified applicable margin. Under this facility, we are required to pay a facility fee and to maintain an interest coverage ratio of consolidated EBITDA to consolidated net interest expense of not less than 3.0 to 1. We were in compliance with this covenant and our other long-term debt covenants at December 31, 20192021 and had a coverage ratio of 10.617.6 to 1. We are not aware of any potential impairment to our liquidity and expect to remain in compliance with all of our debt covenants.
On March 15, 2018, the outstanding 5.45% notes with a principal value of $350,000 matured. The repayment of Additionally, our earliest long-term debt was fundedmaturity is in part by borrowings under our commercial paper program and with existing cash balances.
On November 4, 2019, we issued €500 million of 0.750% euro-denominated notes due 2027 and $300 million of 2.950% notes due 2029. The proceeds from the sale of euro-denominated notes of €494.7 million, net of discounts and issuance costs, were used in part to redeem the €300 million 2.125% notes due 2020. The proceeds from the sale of notes of $296.9 million, net of discounts and issuance costs, and the remaining funds from the sale of the euro-denominated notes, were used to fund the redemption of the $450 million 4.30% notes due 2021. Such redemption payments were made on December 4, 2019, which required us to pay a make whole premium to the bondholders, resulting in a loss of $23.5 million. The remainder of the proceeds will be used for general corporate purposes.
We also have a current shelf registration statement filed with the SEC that allows for the issuance of additional debt securities that may be utilized in one or more offerings on terms to be determined at the time of the offering. Net proceeds of any offering would be used for general corporate purposes, including repayment of existing indebtedness, capital expenditures and acquisitions.
At December 31, 2019,2021, our cash and cash equivalents totaled $397.3$385.5 million, of which approximately $273.1$257.5 million was held outside the United States. At December 31, 2018,2020, our cash and cash equivalents totaled $396.2$513.1 million, of which $247.5$345.9 million was held outside the United States. Cash and cash equivalents are held primarily in bank deposits with highly rated banks. We regularly hold cash in excess of near-term requirements in bank deposits or invest the funds in government money market instruments or short-term investments, which consist of investment grade time deposits with original maturity dates at the time of purchase of no greater than three months.
We utilize the net debt to net capitalization calculation (a non-GAAP measure) to assess our overall financial leverage and capacity and believe the calculation is useful to investors for the same reason. Net debt represents total debt minus cash and cash equivalents. Net capitalization represents net debt plus stockholders' equity. The following table provides a reconciliation of net debt to net capitalization to the most directly comparable GAAP measures:
| Net Debt to Net Capitalization Ratio (dollars in thousands) | Net Debt to Net Capitalization Ratio (dollars in thousands) | | December 31, 2019 | | December 31, 2018 | | | December 31, 2017 | | Net Debt to Net Capitalization Ratio (dollars in thousands) | | December 31, 2021 | | December 31, 2020 | | | December 31, 2019 | |
| Current maturities of long-term debt | | $ | — | | | $ | — | | | | $ | 350,402 | | | |
| Short-term borrowings | | Short-term borrowings | | $ | 702 | | | $ | — | | | | $ | — | | |
| Commercial paper | Commercial paper | | 84,700 | | | 220,318 | | | | 230,700 | | | Commercial paper | | 105,000 | | | — | | | | 84,700 | | |
| Notes payable and current maturities of long-term debt | | 84,700 | | | 220,318 | | | | 581,102 | | | |
| Notes payable | | Notes payable | | 105,702 | | | — | | | | 84,700 | | |
| Long-term debt | Long-term debt | | 2,985,716 | | | 2,943,660 | | | | 2,986,702 | | | Long-term debt | | 3,018,714 | | | 3,108,829 | | | | 2,985,716 | | |
| Total debt | Total debt | | 3,070,416 | | | 3,163,978 | | | | 3,567,804 | | | Total debt | | 3,124,416 | | | 3,108,829 | | | | 3,070,416 | | |
| Less: Cash and cash equivalents | Less: Cash and cash equivalents | | (397,253) | | | (396,221) | | | | (753,964) | | | Less: Cash and cash equivalents | | (385,504) | | | (513,075) | | | | (397,253) | | |
| Net debt | Net debt | | 2,673,163 | | | 2,767,757 | | | | 2,813,840 | | | Net debt | | 2,738,912 | | | 2,595,754 | | | | 2,673,163 | | |
| Add: Stockholders' equity | Add: Stockholders' equity | | 3,032,660 | | | 2,768,666 | | | | 4,383,180 | | | Add: Stockholders' equity | | 4,189,528 | | | 3,385,773 | | | | 3,032,660 | | |
| Net capitalization | Net capitalization | | $ | 5,705,823 | | | $ | 5,536,423 | | | | $ | 7,197,020 | | | Net capitalization | | $ | 6,928,440 | | | $ | 5,981,527 | | | | $ | 5,705,823 | | |
| Net debt to net capitalization | Net debt to net capitalization | | 46.8 | % | | 50.0 | % | | | 39.1 | % | | Net debt to net capitalization | | 39.5 | % | | 43.4 | % | | | 46.8 | % | |
Our net debt to net capitalization ratio decreased to 46.8%39.5% at December 31, 20192021 compared to 50.0%43.4% at December 31, 2018.2020. The decrease in this ratio was driven primarily by the increase in stockholders' equity of $264.0$803.8 million for the period as a result of increase in current earnings of $677.9$1,123.8 million, offset by $143.3$286.9 million of dividends paid and $21.6 million in share repurchases and $282.2 million of dividends paid.repurchases. Net debt decreased $94.6increased $143.2 million during the period primarily due to a reductiondecrease of $127.6 million in cash and cash equivalents and an increase in total debt as a result of an increase in commercial paper, partially offset by a net increase in long-term debt after debt issuances and redemptions in 2019.paper.
Our net debt to net capitalization ratio increaseddecreased to 50.0%43.4% at December 31, 20182020 compared to 39.1%46.8% at December 31, 20172019. The decrease in this ratio was driven primarily due toby the reductionincrease in stockholders' equity of $353.1 million for the period as a result of the $906.8increase in current earnings of $683.5 million, distribution of Apergy, $895.0 million in share repurchases and $283.6offset by $284.3 million of dividends paid offset by $570.3and $106.3 million of current earnings.in share repurchases. Net debt decreased $46.1$77.4 million during the period primarily due to an increase of $115.8 million in cash and cash equivalents and a reduction in current maturities of long term debt,commercial paper, partially offset by an increase in long-term debt as a reduction in cash levels to fund dividends and other operating purposes.result of foreign currency translation on our euro-denominated notes.
Our ability to obtain debt financing at comparable risk-based interest rates is partly a function of our existing cash flow-to-debt and debt-to-capitalization levels as well as our current credit standing. OurSet forth below are our credit ratings, as of December 31, 2021, which arewere independently developed by the respective credit agencies. The Moody's rating agencies,and outlook were as follows as ofissued in December 31, 2019:
| | | | | | | | | | | | | | | | | |
| Short TermShort-Term Rating | | Long TermLong-Term Rating | | Outlook |
| Moody's | P-2 | | Baa1 | | Stable |
| Standard & Poor's | A-2 | | BBB+ | | Stable |
| | | | | |
Operating cash flow and access to capital markets are expected to satisfy our various cash flow requirements, including acquisitions and capital expenditures. Acquisition spending and/or share repurchases could potentially increase our debt.
We believe that existing sources of liquidity are adequate to meet anticipated funding needs at current risk-based interest rates for the foreseeable future.
Off-Balance Sheet Arrangements and Contractual Obligations
As of December 31, 2019,2021, we had approximately $158.5$155.9 million outstanding in letters of credit, surety bonds, and performance and other guarantees with financial institutions, which expire on various dates through 2028.2029. These letters of credit and bonds are primarily issued as security for insurance, warranty and other performance obligations. In general, we would only be liable for the amount of these guarantees in the event of default in the performance of our obligations, the probability of which we believe is remote.
Our estimate of future interest payments on long-term debt is $1,140.5 million based on the interest rates in effect as of December 31, 2021.
Operating cash flow and access to capital markets are expected to satisfy our various cash flow requirements, including acquisitions, capital expenditures, purchase obligations, and lease obligations. See Note 7 — Leases in the Consolidated
We have also provided typical indemnitiesFinancial Statements in connection with salesItem 8 of certain businesses and assets, including representations and warranties and related indemnitiesthis Form 10-K for environmental, health and safety, tax and employment matters. We do not have any material liabilities recorded for these indemnifications and are not aware of any claims additional details on lease obligations. Acquisition spending and/or other information that would give rise to material payments under such indemnities.share repurchases could potentially increase our debt.
A summaryWe believe that existing sources of our consolidated contractual obligations and commitments as of December 31, 2019 andliquidity are adequate to meet anticipated funding needs at current risk-based interest rates for the years when these obligations are expected to be due is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Payments Due by Period | | | | | | | | |
| (in thousands) | | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years | | Other |
Long-term debt (1) | | $ | 2,985,716 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,985,716 | | | $ | — | |
Interest payments (2) | | 1,336,429 | | | 98,673 | | | 197,346 | | | 197,346 | | | 843,064 | | | — | |
| Operating lease obligations | | 179,557 | | | 45,838 | | | 63,535 | | | 30,150 | | | 40,034 | | | — | |
| Purchase obligations | | 35,552 | | | 34,885 | | | 667 | | | — | | | — | | | — | |
| Finance lease obligations | | 11,502 | | | 2,199 | | | 3,923 | | | 2,471 | | | 2,909 | | | — | |
Supplemental and post-retirement benefits (3) | | 77,824 | | | 14,936 | | | 20,840 | | | 13,561 | | | 28,487 | | | — | |
Income tax payable - deemed repatriation tax (4) | | 52,000 | | | — | | | 3,050 | | | 21,559 | | | 27,391 | | | — | |
Unrecognized tax benefits (5) | | 101,052 | | | — | | | — | | | — | | | — | | | 101,052 | |
| Total obligations | | $ | 4,779,632 | | | $ | 196,531 | | | $ | 289,361 | | | $ | 265,087 | | | $ | 3,927,601 | | | $ | 101,052 | |
_________
| | | | | |
(1) | | See Note 12 — Borrowings and Lines of Credit to the Consolidated Financial Statements. Amounts represent principal payments for all long-term debt, including current maturities, net of unamortized discounts and deferred issuance costs. |
(2) | | Amounts represent estimate of future interest payments on long-term debt using the interest rates in effect at December 31, 2019. |
(3) | | Amounts represent estimated benefit payments under our unfunded supplemental and post-retirement benefit plans and our unfunded non-U.S. qualified defined benefit plans. See Note 17 — Employee Benefit Plans to the Consolidated Financial Statements. We also expect to contribute approximately $4.6 million to our non-U.S. qualified defined benefit plans in 2020, which amount is not reflected in the above table. |
(4) | | Amounts represent a tax imposed by the Tax Reform Act for a one-time deemed repatriation of unremitted earnings of foreign subsidiaries, including current payable. |
(5) | | Due to the uncertainty of the potential settlement of future unrecognized tax benefits, we are unable to estimate the timing of the related payments, if any, that will be made subsequent to 2019. This amount does not include the potential indirect benefits resulting from deductions or credits for payments made to other jurisdictions. This amount includes accrued interest and penalties. |
foreseeable future.
Financial Instruments and Risk Management
The diverse nature of our businesses’ activities necessitates the management of various financial and market risks, including those related to changes in interest rates, foreign currency exchange rates and commodity prices. We periodically use derivative financial instruments to manage some of these risks. We do not hold or issue derivative instruments for trading or speculative purposes. We are exposed to credit loss in the event of nonperformance by counterparties to our financial instrument contracts; however, nonperformance by these counterparties is considered unlikely as our policy is to contract with highly-rated, diversified counterparties.
Interest Rate Exposure
As of December 31, 20192021, and during the three year period then ended, we did not have any open interest rate swap contracts; however, we may in the future enter into interest rate swap agreements to manage our exposure to interest rate changes. We issue commercial paper, which exposes us to changes in variable interest rates; however, maturities are typically three months or less so a change in rates over this period would not have a material impact on our pre-tax earnings.
We consider our current risk related to market fluctuations in interest rates to be minimal since our debt is largely long-term and fixed-ratefixed in nature. Generally, the fair market value of fixed-interest rate debt will increase as interest rates fall and
decrease as interest rates rise. A 100 basis point increase in market interest rates would decrease the 20192021 year-end fair value of our long-term debt by approximately $275.2$244.1 million. However, since we have no plans to repurchase our outstanding fixed-rate instruments before their maturities, the impact of market interest rate fluctuations on our long-term debt does not affect our results of operations or financial position.
Foreign Currency Exposure
We conduct business in various non-U.S. countries, including Canada, substantially all of the European countries, Mexico, Brazil, China, India and other Asian countries. Therefore, we have foreign currency risk relating to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies. We will occasionally use derivative financial instruments to offset such risks, when it is believed that the exposure will not be limited by our normal operating and financing activities. We have formal policies to mitigate risk in this area by using fair value and/or cash flow hedging programs.
Changes in the value of the currencies of the countries in which we operate affect our results of operations, financial position and cash flows when translated into U.S. dollars, our reporting currency. The strengthening of the U.S. dollar could result in unfavorable translation effects as the results of foreign operations are translated into U.S. dollars. We have generally accepted the exposure to exchange rate movements relative to our investment in non-U.S. operations. We may, from time to time, for a specific exposure, enter into fair value hedges.
Additionally, we have designated the €600 million and €500 million of euro-denominated notes issued November 9, 2016 and November 4, 2019, respectively, as a hedge of our net investment in euro-denominated operations. We had also designated the €300 million notes due in 2020 as a net investment hedge prior to our redemption of the notes. Due to the high degree of effectiveness between the hedging instruments and the exposure being hedged, fluctuations in the value of the euro-denominated debt due to exchange rate changes are offset by changes in the net investment. Accordingly, changes in the value of the euro-denominated debt are recognized in the cumulative translation adjustment section of other comprehensive income to offset changes in the value of the net investment in euro-denominated operations. Due to the fluctuations of the euro relative to the U.S. dollar, the U.S. dollar equivalent of this debt increases or decreases, resulting in the recognition of a pre-tax gain (loss) of $22.4$94.0 million, $45.2$(119.3) million and $(125.3)$22.4 million in other comprehensive income for the years ended December 31, 2021, 2020, and 2019 2018, and 2017 respectively.
Commodity Price Exposure
CertainSome of our businesses are exposed to volatility in the prices of certain commodities, such as aluminum, steel, copper and various precious metals, among others. Our primary exposure to commodity pricing volatility relates to the use of these materials in purchased component parts or the purchase of raw materials. Markets for multiple raw materials, most notably steel, saw significant cost increases throughout 2021, which we partially offset through price increases and other levers. When possible, we maintain long-term fixed price contracts on raw materials and component parts; however, we are prone to exposure as these contracts expire.
Critical Accounting Policies and Estimates
Our consolidated financial statements and related financial information are based on the application of U.S. GAAP. The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates, assumptions, judgments and interpretations of accounting principles that affect the amount of assets, liabilities, revenue and expenses on the consolidated financial statements. These estimates also affect supplemental information contained in our disclosures, including information regarding contingencies, risk and our financial condition. The significant accounting policies used in the preparation of our consolidated financial statements are discussed in Note 1 — Description of Business and Summary of Significant Accounting Policies in the Consolidated Financial Statements in Item 8 of this Form 10-K. The accounting assumptions and estimates discussed in the section below are most critical to an understanding of our financial statements because they inherently involve significant judgments and estimates. We believe our use of estimates and underlying accounting assumptions conforms to U.S. GAAP and is consistently applied. We evaluate our critical accounting estimates and judgments on an ongoing basis and update them as necessary. Management has discussed our critical accounting policies and estimates with the audit committee of the Board of Directors.
Revenue Recognition - Effective January 1, 2018, we adopted Accounting Standard Codification ("ASC") Topic 606, Revenue from Contracts with Customers. Under ASC Topic 606, a contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and where payment terms
are identified and collectability is probable. Once we enter a contract, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized as control of promised goods or services transfers to the customer in an amount that reflects the consideration we expect to receive in exchange for those goods or services. The amount of revenue recognized takes into account variable consideration, such as discounts and volume rebates. The majority of our revenue is generated through the manufacture and sale of a broad range of specialized products and components, with revenue recognized upon transfer of title and risk of loss, which is generally upon shipment. Service revenue represents less than 5% of our total revenue and is recognized as the services are performed. In limited cases, our revenue arrangements with customers require delivery, installation, testing, certification, or other acceptance provisions to be satisfied before revenue is recognized. We include shipping costs billed to customers in revenue and the related shipping costs in cost of goods and services. See Note 2 — Revenue in the Consolidated Financial Statements in Item 8 of this Form 10-K for further details.
Inventories - Inventories for the majority of our subsidiaries, including all international subsidiaries, are stated at the lower of cost, determined on the first-in, first-out (FIFO) basis, or net realizable value. OtherAn immaterial portion of domestic inventories are stated at cost, determined on the last-in, first-out (LIFO) basis, which is less than market value. Under certain market conditions, estimates and judgments regarding the valuation of inventories are employed by us to properly value inventories.
Goodwill and Other Intangible Assets - We have significant goodwill and intangible assets on our consolidated balance sheets as a result of current and past acquisitions. The valuation and classification of these assets and the assignment of useful lives involve significant judgments and the use of estimates. In addition, the testing of goodwill and intangibles for impairment requires significant use of judgment and assumptions, particularly as it relates to the determination of fair value. Our indefinite-lived intangible assets and reporting units are tested and reviewed for impairment on an annual basis during the fourth quarter, or more frequently when indicators of impairment exist, when some portion but not all of a reporting unit is disposed of or classified as assets held for sale, or when a change in the composition of reporting units occurs for other reasons, such as a change in segments.
When performing an impairment test, we estimate fair value using the income-based valuation method. Under the income-based valuation method, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rate based on our most recent views of the long-term outlook for each reporting unit. Actual results may differ from these estimates. The discount rates used in these analyses vary by reporting unit and are based on a capital asset pricing model and published relevant industry rates. We use discount rates commensurate with the risks and uncertainties inherent to each reporting unit and in our internally developed forecasts. Discount rates used in our 20192021 reporting unit valuations ranged from 8.0% to 9.5%9.0%.
Concurrent with the timing of the annual impairment test, effective October 1, 2019, we changed our management structure which resulted in a change in our operating segments and reporting units. As a result, management tested goodwill for impairment before and after the segment change under the old and new reporting unit structures. We performed a quantitative goodwill impairment test for each of our seven reporting units underin the old structure and fifteen reporting units under the new structure,fourth quarter of 2021, concluding that the fair values of all ofeach reporting unit substantially exceeded its reporting units were substantially in excess of their carrying values. As such, no goodwill impairment was recognized. While we believe the assumptions used in the 20192021 impairment analysis are reasonable and representative of expected results and reflective of a market participant, actual results may differ from expectations.
Employee Benefit Plans - The valuation of our pension and other post-retirement plans requires the use of assumptions and estimates that are used to develop actuarial valuations of expenses and assets/liabilities. Inherent in these valuations are key assumptions, including discount rates, investment returns, projected salary increases and benefits and mortality rates. Annually, we review the actuarial assumptions used in our pension reporting and compare them with external benchmarks to ensure that they accurately account for our future pension obligations. Changes in assumptions and future investment returns could potentially have a material impact on our pension expense and related funding requirements. Our expected long-term rate of return on plan assets is reviewed annually based on actual and forecasted returns, economic trends and and portfolio allocation. Our 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. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. As disclosed in Note 17 — Employee Benefit Plans to the Consolidated Financial Statements in Item 8 of this Form 10-K, the 20192021 weighted-average discount ratesrate used to measure our qualified defined benefit obligations ranged from 1.18% to 3.40%2.95%, a general decreaseincrease from the 20182020 rates, which ranged from 1.83%0.79% to 4.35%2.65%. The lower 2019higher 2021 discount rates in the U.S. are reflective of decreasedincreased market interest rates over this period. A 25 basis point decrease in the discount rates used for these plans would have increased the post-retirement benefit obligations by approximately $31.3$30.0 million from the
amount recorded in the consolidated financial statements at December 31, 2019.2021. Our pension expense is also sensitive to changes in the expected long-term rate of return on plan assets. A decrease of 25 basis points in the expected long-term rate of return on assets would have increased our defined benefit pension expense by approximately $1.5$1.8 million.
Income Taxes - We have significant amounts of deferred tax assets that are reviewedevaluated for recoverability and valued accordingly. These assets are evaluated by using estimates of future taxable income streams and the impact of tax planning strategies. ReservesUnrecognized tax benefits are also estimated, using more likely than not criteria, for ongoing audits regarding federal, state and non-U.S. issues that are currently unresolved.tax matters. We routinely monitor the potential impact of these situationsmatters and believe that we have established the proper reserves.reserves have been established. Reserves related to unrecognized tax accrualsbenefits and valuations related to deferred tax assets can be impacted by changes in tax codes and rulings (as further described below with respect to U.S. tax law),laws, changes in statutory tax rates and our future taxable income levels.income. The provision for uncertainunrecognized tax positionsbenefits provides a recognition threshold and measurement attribute for determining the financial statement tax benefits taken or expected to be taken in a tax return and disclosure requirements regarding uncertainties in income tax positions. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We record interest and penalties related to unrecognized tax benefits as a component of our provision for income taxes.
On December 22, 2017, the Tax Reform Act was enacted which permanently reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the reduction in the U.S. corporate income tax rate, we revalued our ending net deferred tax liabilities as of December 31, 2017 and recognized a provisional tax benefit of $172.0 million. The Tax Reform Act also imposed a tax for a one-time deemed repatriation of post-1986 unremitted foreign earnings and profits through the year ended December 31, 2017. For the year ended December 31, 2017, we recorded provisional tax expense related to the deemed repatriation of $111.6 million payable over eight years.
On December 22, 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant did not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. In accordance with the SAB 118 guidance, we recognized the provisional tax impacts related to deemed repatriated earnings and the benefit for the revaluation of deferred tax assets and liabilities in its consolidated financial statements for the year ended December 31, 2017. In accordance with SAB 118, we finalized the financial reporting impact of the Tax Reform Act in the fourth quarter of 2018. For the year ended December 31, 2018, we recorded a $4.2 million net tax benefit, which resulted in a 0.6% decrease in the effective tax rate, as an adjustment to the provisional estimates as a result of additional regulatory guidance and changes in interpretations and assumptions we made as a result of the Tax Reform Act.
Risk, Retention, Insurance - We have significant accruals and reserves related to the self-insuredself-retained portion of our risk management program. These accruals require the use of estimates and judgment with regard to risk exposure and ultimate liability. We estimate losses under these programs using actuarial assumptions, our experience and relevant industry data. We review these factors quarterly and consider the current level of accruals and reserves adequate relative to current market conditions and experience.
Contingencies - We have established liabilities for environmental and legal contingencies at both the business and corporate levels. A significant amount of judgment and the use of estimates are required to quantify our ultimate exposure in these matters. The valuation of liabilities for these contingencies is reviewed on a quarterly basis to ensure that we have accrued the proper level of expense. The liability balances are adjusted to account for changes in circumstances for ongoing issues and the establishment of additional liabilities for emerging issues. While we believe that the amount accrued to-date is adequate, future changes in circumstances could impact these determinations.
Restructuring - We establish liabilities for restructuring activities at an operation when management has committed to an exit or reorganization plan and when termination benefits are probable and can be reasonably estimated based on circumstances at the time the restructuring plan is approved by management or when termination benefits are communicated. Exit costs may include contractual terminations and asset impairments as a result of an approved restructuring plan. The accrual of both severance and exit costs requires the use of estimates. Though we believe that these estimates accurately reflect the anticipated costs, actual results may be different than the estimated amounts.
Disposed and Discontinued OperationsDispositions - From time to time we sell or discontinue or dispose of certain operations for various reasons. Estimates are used to adjust, if necessary, the assets and liabilities of discontinuedsuch operations to their estimated fair value. These estimates include assumptions relating to the proceeds anticipated as a result of the sale. Fair
value is established using internal valuation calculations along with market analysis of similar-type entities. The adjustments to fair value of these operations provide the basis for the gain or loss when sold. Changes in business conditions or the inability to sell an operation could potentially require future adjustments to these estimates. As noted previously, in 2019, we recorded an impairment on assets held for sale due to the sale of Finder. In 20182021 and 2017,2020, no impairment charges were recorded due to operations sold, discontinued, or disposed.disposed operations. See Note 4 — Dispositions to the Consolidated Financial Statements in Item 8 of this Form 10-K.
Stock-Based Compensation - We are required to recognize in our Consolidated Statements of Earnings the expense associated with all share-based payment awards made to employees and directors, including stock appreciation rights ("SARs"), restricted stock units and performance share awards. We use the Black-Scholes valuation model to estimate the fair value of SARs granted to employees. The performance share awards granted in 2021 and 2020 are market condition awards and we determined the fair value using the Monte Carlo simulation model requires that we estimate the expected life of the SAR, expected forfeitures and the volatility of our stock using historical data.(a binomial lattice-based valuation model). For additional information related to the assumptions used, see Note 15 — Equity and Cash Incentive Program to the Consolidated Financial Statements in Item 8 of this Form 10-K.
Recent Accounting Standards
See Note 1 — Description of Business and Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8 of this Form 10-K for a discussion of recent accounting pronouncements and recently adopted accounting standards.
In November 2020, the SEC issued Final Rule Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information. This rule, which became effective on February 10, 2021, amended certain SEC disclosure requirements in order to modernize, simplify and enhance certain financial disclosure requirements in Regulation S-K. Specifically, the amendments eliminate the requirement for Selected Financial Data, streamline the requirement to disclose Supplementary Financial Information, and amend Management's Discussion and Analysis. The final rule is applicable for fiscal years ending on or after August 9, 2021.
Non-GAAP Disclosures
In an effort to provide investors with additional information regarding our results as determined by GAAP, we also disclose non-GAAP information which we believe provides useful information to investors. Segment EBITDA, segment EBITDA margin, free cash flow, free cash flow as a percentage of revenue, free cash flow as a percentage of net earnings, from continuing operations, net debt, net capitalization, net debt to net capitalization ratio, adjusted working capital, organic revenue growth and rightsizing and other costs are not financial measures under GAAP and should not be considered as a substitute for earnings, cash flows from operating activities, debt or equity, working capital, revenue or restructuring costs as determined in accordance with GAAP, and they may not be comparable to similarly titled measures reported by other companies.
We believe that segment EBITDA and segment EBITDA margin are useful to investors and other users of our financial information in evaluating ongoing operating profitability as they exclude the depreciation and amortization expense related primarily to capital expenditures and acquisitions that occurred in prior years, as well as in evaluating operating performance in relation to our competitors. Segment EBITDA is calculated by adding back depreciation and amortization expense to segment earnings, which is the most directly comparable GAAP measure. We do not present segment net income because corporate expenses are not allocated at a segment level. Segment EBITDA margin is calculated as segment EBITDA divided by segment revenue.
We believe the net debt to net capitalization ratio, free cash flow and free cash flow ratios are important measures of liquidity. Net debt to net capitalization ratio is helpful in evaluating our capital structure and the amount of leverage we employ. Free cash flow and free cash flow ratios provide both management and investors a measurement of cash generated from operations that is available to fund acquisitions, pay dividends, repay debt and repurchase our common stock. Free cash flow as a percentage of revenue equals free cash flow divided by revenue. Free cash flow as a percentage of net earnings from continuing operations equals free cash flow divided by earnings from continuing operations.net earnings. We believe that reporting adjusted working capital, which is calculated as accounts receivable, plus inventory, less accounts payable, provides a meaningful measure of our operational results by showing the changes caused solely by revenue. We believe that reporting organic revenue growth, which exclude the impact of foreign currency exchange rates and the impact of acquisitions and divestitures, provides a useful comparison of our revenue performance and trends between periods. We believe that reporting rightsizing and other costs, which include restructuring and other charges, is important as it enables management and investors to better understand the financial impact of our broad-based cost reduction, footprint consolidation, IT centralization and operational improvement initiatives.
Reconciliations and comparisons of GAAP to non-GAAP measures can be found above in this Item 7, MD&A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this section is incorporated by reference to the section, "Financial Instruments and Risk Management", included within the MD&A in Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
(All other schedules are not required and have been omitted)
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019.2021. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013).
Based on its assessment under the criteria set forth in Internal Control — Integrated Framework (2013), management concluded that, as of December 31, 2019,2021, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 20192021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Report of Independent Registered Public Accounting Firm
Tothe Board of Directors and Stockholders of Dover Corporation:Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Dover Corporation and its subsidiaries (the “Company”) as of December 31, 20192021 and 2018,2020, and the related consolidated statements of earnings, of comprehensive earnings, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019,2021, including the related notes and financial statement schedule listed in the accompanying index for each of the three years in the period ended December 31, 2019 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Test
As described in Notes 1 and 9 to the consolidated financial statements, the Company’s consolidated goodwill balance was $3.783$4.559 billion as of December 31, 2019.2021. Management performs its goodwill impairment test annually in the fourth quarter, or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired, when some portion but not all of a reporting unit is disposed of or classified as held for sale, or when a change in the composition of reporting units occurs for other reasons, such as a change in segments. Concurrent with the timing of the annual impairment test, effective October 1, 2019, the Company changed its management structure which resulted in a change in its operating segments and reporting units. As a result, management tested goodwill for impairment before and after the segment change under the old and new reporting unit structures.reasons. When performing the impairment test, management estimates fair value of each reporting unit using the income-based valuation method, which involves significant judgment. Under the income-based valuation method, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. Management uses internal forecasts to estimate future cash flows, which are based on historical performance and future estimated results.
The principal considerations for our determination that performing procedures relating to the goodwill impairment test is a critical audit matter are there was significant judgment by management when developing the fair value measurement of each reporting unit, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and in evaluating management’s estimate of fair value of the reporting units, specifically related to revenue growth in the estimated future cash flows. In addition, the nature and extent of audit effort required to address the matter was a consideration, including the fact that in 2019, procedures were performed on reporting units before and after the Company’s change in segments.consideration.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment test, including controls over the determination of revenue growth in the estimated future cash flows. These procedures also included, among others, testing the identification of the reporting units, testing the carrying value of the reporting units, testing the appropriateness of the discounted cash flow model, assessing results of sensitivities over the assumptions in the discounted cash flow model, and testing the reasonableness of significant assumptions used by management, specifically revenue growth. When testing revenue growth, we evaluated whether the assumptions were reasonable by (i) understanding management’s process to develop the estimated future cash flows, (ii) comparing management’s forecasted revenue growth to current and prior period performance and (iii) comparing management’s forecasted revenue growth to external market and/or industry data.
| | | | | | | | |
| /s/ | PricewaterhouseCoopers LLP | | |
| Chicago, Illinois | | |
February 14, 202011, 2022 | | |
We have served as the Company's auditor since 1995.
DOVER CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
| | | | Years Ended December 31, | | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 |
| Revenue | Revenue | $ | 7,136,397 | | | $ | 6,992,118 | | | $ | 6,820,886 | | Revenue | $ | 7,907,081 | | | $ | 6,683,760 | | | $ | 7,136,397 | |
| Cost of goods and services | Cost of goods and services | 4,515,459 | | | 4,432,562 | | | 4,291,839 | | Cost of goods and services | 4,937,295 | | | 4,209,741 | | | 4,515,459 | |
| Gross profit | Gross profit | 2,620,938 | | | 2,559,556 | | | 2,529,047 | | Gross profit | 2,969,786 | | | 2,474,019 | | | 2,620,938 | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | 1,599,098 | | | 1,716,444 | | | 1,722,161 | | Selling, general and administrative expenses | 1,688,278 | | | 1,541,032 | | | 1,599,098 | |
| Loss on assets held for sale | Loss on assets held for sale | 46,946 | | | — | | | — | | Loss on assets held for sale | — | | | — | | | 46,946 | |
| Operating earnings | Operating earnings | 974,894 | | | 843,112 | | | 806,886 | | Operating earnings | 1,281,508 | | | 932,987 | | | 974,894 | |
| Interest expense | Interest expense | 125,818 | | | 130,972 | | | 144,948 | | Interest expense | 106,319 | | | 111,937 | | | 125,818 | |
| Interest income | Interest income | (4,526) | | | (8,881) | | | (8,491) | | Interest income | (4,441) | | | (3,571) | | | (4,526) | |
| Loss on extinguishment of debt | Loss on extinguishment of debt | 23,543 | | | — | | | — | | Loss on extinguishment of debt | — | | | — | | | 23,543 | |
| Gain on sale of businesses | — | | | — | | | (203,135) | | |
| Gain on dispositions | | Gain on dispositions | (206,338) | | | (5,213) | | | — | |
| | Other income, net | Other income, net | (12,950) | | | (4,357) | | | (2,251) | | Other income, net | (14,858) | | | (11,900) | | | (12,950) | |
| Earnings before provision for income taxes | Earnings before provision for income taxes | 843,009 | | | 725,378 | | | 875,815 | | Earnings before provision for income taxes | 1,400,826 | | | 841,734 | | | 843,009 | |
| Provision for income taxes | Provision for income taxes | 165,091 | | | 134,233 | | | 129,152 | | Provision for income taxes | 277,008 | | | 158,283 | | | 165,091 | |
| Earnings from continuing operations | 677,918 | | | 591,145 | | | 746,663 | | |
| (Loss) earnings from discontinued operations, net | — | | | (20,878) | | | 65,002 | | |
| | Net earnings | Net earnings | $ | 677,918 | | | $ | 570,267 | | | $ | 811,665 | | Net earnings | $ | 1,123,818 | | | $ | 683,451 | | | $ | 677,918 | |
| | Earnings per share from continuing operations: | | |
| Basic | $ | 4.67 | | | $ | 3.94 | | | $ | 4.80 | | |
| Diluted | $ | 4.61 | | | $ | 3.89 | | | $ | 4.73 | | |
| | (Loss) earnings per share from discontinued operations: | | |
| Basic | $ | — | | | $ | (0.14) | | | $ | 0.42 | | |
| Diluted | $ | — | | | $ | (0.14) | | | $ | 0.41 | | |
| | | Net earnings per share: | Net earnings per share: | | Net earnings per share: | |
| Basic | Basic | $ | 4.67 | | | $ | 3.80 | | | $ | 5.21 | | Basic | $ | 7.81 | | | $ | 4.74 | | | $ | 4.67 | |
| Diluted | Diluted | $ | 4.61 | | | $ | 3.75 | | | $ | 5.15 | | Diluted | $ | 7.74 | | | $ | 4.70 | | | $ | 4.61 | |
| | Weighted average shares outstanding: | Weighted average shares outstanding: | | Weighted average shares outstanding: | |
| Basic | Basic | 145,198 | | | 149,874 | | | 155,685 | | Basic | 143,923 | | | 144,050 | | | 145,198 | |
| Diluted | Diluted | 146,992 | | | 152,133 | | | 157,744 | | Diluted | 145,273 | | | 145,393 | | | 146,992 | |
|
See Notes to Consolidated Financial Statements
DOVER CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | |
| | 2019 | | 2018 | | 2017 |
| Net earnings | $ | 677,918 | | | $ | 570,267 | | | $ | 811,665 | |
| Other comprehensive earnings (loss), net of tax | | | | | |
| Foreign currency translation adjustments: | | | | | |
| Foreign currency translation (losses) gains | (5,025) | | | (59,970) | | | 143,064 | |
| Reclassification of foreign currency translation losses to earnings | 25,339 | | | — | | | 3,992 | |
| Total foreign currency translation adjustments | 20,314 | | | (59,970) | | | 147,056 | |
| Pension and other postretirement benefit plans: | | | | | |
| Actuarial gains (losses) | 47 | | | (13,107) | | | 12,439 | |
| Prior service credit (cost) | 1,818 | | | (14,661) | | | 3,136 | |
| Amortization of actuarial losses included in net periodic pension cost | 596 | | | 3,829 | | | 5,267 | |
| Amortization of prior service costs included in net periodic pension cost | 2,141 | | | 2,875 | | | 3,007 | |
| Settlement and curtailment impact | 806 | | | 9,926 | | | (2,462) | |
| | | | | |
| Total pension and other postretirement benefit plans | 5,408 | | | (11,138) | | | 21,387 | |
| Changes in fair value of cash flow hedges: | | | | | |
| Unrealized net gains (losses) | 1,495 | | | 1,158 | | | (1,801) | |
| Net (gains) losses reclassified into earnings | (147) | | | 1,541 | | | (590) | |
| Total cash flow hedges | 1,348 | | | 2,699 | | | (2,391) | |
| Other | — | | | — | | | (1,485) | |
| Other comprehensive earnings (loss), net of tax | 27,070 | | | (68,409) | | | 164,567 | |
| Comprehensive earnings | $ | 704,988 | | | $ | 501,858 | | | $ | 976,232 | |
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Net earnings | $ | 1,123,818 | | | $ | 683,451 | | | $ | 677,918 | |
| Other comprehensive earnings (loss), net of tax | | | | | |
| Foreign currency translation adjustments: | | | | | |
| Foreign currency translation (losses) gains | (39,819) | | | 55,450 | | | (5,025) | |
| Reclassification of foreign currency translation losses to earnings | — | | | — | | | 25,339 | |
| Total foreign currency translation adjustments (net of $(20,976), $26,957 and $(4,714) tax (provision) benefit, respectively) | (39,819) | | | 55,450 | | | 20,314 | |
| Pension and other postretirement benefit plans: | | | | | |
| Actuarial gains | 26,960 | | | 705 | | | 47 | |
| Prior service (cost) credit | (1,433) | | | 828 | | | 1,818 | |
| Amortization of actuarial losses included in net periodic pension cost | 9,451 | | | 6,695 | | | 596 | |
| Amortization of prior service costs included in net periodic pension cost | 1,023 | | | 1,153 | | | 2,141 | |
| Settlement and curtailment impact | 1,167 | | | 18 | | | 806 | |
| | | | | |
| Total pension and other postretirement benefit plans (net of $(9,868), $(3,197) and $(1,184) tax (provision) benefit, respectively) | 37,168 | | | 9,399 | | | 5,408 | |
| Changes in fair value of cash flow hedges: | | | | | |
| Unrealized net gains (losses) | 6,724 | | | (1,445) | | | 1,495 | |
| Net gains reclassified into earnings | (4,871) | | | (632) | | | (147) | |
| Total cash flow hedges (net of $(532), $607 and $(359) tax (provision) benefit, respectively) | 1,853 | | | (2,077) | | | 1,348 | |
| | | | | |
| Other comprehensive (loss) earnings, net of tax | (798) | | | 62,772 | | | 27,070 | |
| Comprehensive earnings | $ | 1,123,020 | | | $ | 746,223 | | | $ | 704,988 | |
See Notes to Consolidated Financial Statements
DOVER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| | | | December 31, 2019 | | December 31, 2018 | | December 31, 2021 | | December 31, 2020 |
| Assets | Assets | | Assets |
| Current assets: | Current assets: | | | | Current assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 397,253 | | | $ | 396,221 | | Cash and cash equivalents | $ | 385,504 | | | $ | 513,075 | |
| | Receivables, net of allowances of $29,381 and $28,469 | 1,217,190 | | | 1,231,859 | | |
| Inventories | 806,141 | | | 748,796 | | |
| Receivables, net | | Receivables, net | 1,347,514 | | | 1,137,223 | |
| Inventories, net | | Inventories, net | 1,191,095 | | | 835,804 | |
| Prepaid and other current assets | Prepaid and other current assets | 127,846 | | | 126,878 | | Prepaid and other current assets | 137,596 | | | 133,085 | |
| | Total current assets | Total current assets | 2,548,430 | | | 2,503,754 | | Total current assets | 3,061,709 | | | 2,619,187 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 842,318 | | | 806,497 | | Property, plant and equipment, net | 957,310 | | | 897,326 | |
| Goodwill | Goodwill | 3,783,347 | | | 3,677,328 | | Goodwill | 4,558,822 | | | 4,072,542 | |
| Intangible assets, net | Intangible assets, net | 1,055,014 | | | 1,134,256 | | Intangible assets, net | 1,359,522 | | | 1,083,772 | |
| Other assets and deferred charges | Other assets and deferred charges | 440,368 | | | 243,936 | | Other assets and deferred charges | 466,264 | | | 479,247 | |
| | Total assets | Total assets | $ | 8,669,477 | | | $ | 8,365,771 | | Total assets | $ | 10,403,627 | | | $ | 9,152,074 | |
| Liabilities and Stockholders' Equity | Liabilities and Stockholders' Equity | | Liabilities and Stockholders' Equity |
| Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
| Notes payable | Notes payable | $ | 84,700 | | | $ | 220,318 | | Notes payable | $ | 105,702 | | | $ | — | |
| Accounts payable | Accounts payable | 983,293 | | | 969,531 | | Accounts payable | 1,073,568 | | | 853,942 | |
| Accrued compensation and employee benefits | Accrued compensation and employee benefits | 226,658 | | | 212,666 | | Accrued compensation and employee benefits | 302,978 | | | 239,750 | |
| Deferred revenue | | Deferred revenue | 227,549 | | | 184,845 | |
| Accrued insurance | Accrued insurance | 98,432 | | | 97,600 | | Accrued insurance | 101,448 | | | 98,954 | |
| Other accrued expenses | Other accrued expenses | 339,060 | | | 313,452 | | Other accrued expenses | 347,097 | | | 343,637 | |
| | Federal and other income taxes | Federal and other income taxes | 17,748 | | | 13,854 | | Federal and other income taxes | 91,999 | | | 17,670 | |
| Total current liabilities | Total current liabilities | 1,749,891 | | | 1,827,421 | | Total current liabilities | 2,250,341 | | | 1,738,798 | |
| Long-term debt | Long-term debt | 2,985,716 | | | 2,943,660 | | Long-term debt | 3,018,714 | | | 3,108,829 | |
| Deferred income taxes | Deferred income taxes | 322,036 | | | 339,325 | | Deferred income taxes | 364,117 | | | 298,423 | |
| Noncurrent income tax payable | Noncurrent income tax payable | 52,000 | | | 54,304 | | Noncurrent income tax payable | 48,385 | | | 49,937 | |
| Other liabilities | Other liabilities | 527,174 | | | 432,395 | | Other liabilities | 532,542 | | | 570,314 | |
| | Stockholders' equity: | Stockholders' equity: | | | | Stockholders' equity: | | | |
| Preferred stock - $100 par value; 100,000 shares authorized; none issued | Preferred stock - $100 par value; 100,000 shares authorized; none issued | — | | | — | | Preferred stock - $100 par value; 100,000 shares authorized; none issued | — | | | — | |
| Common stock - $1 par value; 500,000,000 shares authorized; 258,551,748 and 257,822,352 shares issued at December 31, 2019 and 2018 | 258,552 | | | 257,822 | | |
| Common stock - $1 par value; 500,000,000 shares authorized; 259,457,233 and 258,981,638 shares issued at December 31, 2021 and 2020 | | Common stock - $1 par value; 500,000,000 shares authorized; 259,457,233 and 258,981,638 shares issued at December 31, 2021 and 2020 | 259,457 | | | 258,982 | |
| Additional paid-in capital | Additional paid-in capital | 869,719 | | | 886,016 | | Additional paid-in capital | 857,636 | | | 868,882 | |
| Retained earnings | Retained earnings | 8,211,257 | | | 7,815,486 | | Retained earnings | 9,445,245 | | | 8,608,284 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (216,026) | | | (243,096) | | Accumulated other comprehensive loss | (154,052) | | | (153,254) | |
| Treasury stock, at cost: 114,249,432 and 112,905,810 shares at December 31, 2019 and 2018 | (6,090,842) | | | (5,947,562) | | |
| Treasury stock, at cost: 115,411,548 and 115,228,597 shares at December 31, 2021 and 2020 | | Treasury stock, at cost: 115,411,548 and 115,228,597 shares at December 31, 2021 and 2020 | (6,218,758) | | | (6,197,121) | |
| Total stockholders' equity | Total stockholders' equity | 3,032,660 | | | 2,768,666 | | Total stockholders' equity | 4,189,528 | | | 3,385,773 | |
| Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 8,669,477 | | | $ | 8,365,771 | | Total liabilities and stockholders' equity | $ | 10,403,627 | | | $ | 9,152,074 | |
See Notes to Consolidated Financial Statements
DOVER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except per share amounts)
| | | | Common Stock $1 Par Value | | Additional Paid-In Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Earnings (Loss) | | Total Stockholders' Equity | | Common Stock $1 Par Value | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Earnings (Loss) | | Treasury Stock | | Total Stockholders' Equity |
| Balance at December 31, 2016 | $ | 256,538 | | | $ | 946,755 | | | $ | (4,972,016) | | | $ | 7,927,795 | | | $ | (359,326) | | | $ | 3,799,746 | | |
| Balance at December 31, 2018 | | Balance at December 31, 2018 | $ | 257,822 | | | $ | 886,016 | | | $ | 7,815,486 | | | $ | (243,096) | | | $ | (5,947,562) | | | $ | 2,768,666 | |
| | Net earnings | Net earnings | — | | | — | | | — | | | 811,665 | | | — | | | 811,665 | | Net earnings | — | | | — | | | 677,918 | | | — | | | — | | | 677,918 | |
| Dividends paid ($1.82 per share) | — | | | — | | | — | | | (283,959) | | | — | | | (283,959) | | |
| Dividends paid ($1.94 per share) | | Dividends paid ($1.94 per share) | — | | | — | | | (282,197) | | | — | | | — | | | (282,197) | |
| | Common stock issued for the exercise of share-based awards | Common stock issued for the exercise of share-based awards | 454 | | | (18,897) | | | — | | | — | | | — | | | (18,443) | | Common stock issued for the exercise of share-based awards | 730 | | | (38,100) | | | — | | | — | | | — | | | (37,370) | |
| | Stock-based compensation expense | Stock-based compensation expense | — | | | 26,528 | | | — | | | — | | | — | | | 26,528 | | Stock-based compensation expense | — | | | 29,702 | | | — | | | — | | | — | | | 29,702 | |
| | Common stock acquired | Common stock acquired | — | | | — | | | (105,023) | | | — | | | — | | | (105,023) | | Common stock acquired | — | | | — | | | — | | | — | | | (143,280) | | | (143,280) | |
| Other comprehensive earnings, net of tax | Other comprehensive earnings, net of tax | — | | | — | | | — | | | — | | | 164,567 | | | 164,567 | | Other comprehensive earnings, net of tax | — | | | — | | | — | | | 27,070 | | | — | | | 27,070 | |
| Other | Other | — | | | (11,901) | | | — | | | — | | | — | | | (11,901) | | Other | — | | | (7,899) | | | 50 | | | — | | | — | | | (7,849) | |
| Balance at December 31, 2017 | | 256,992 | | | 942,485 | | | (5,077,039) | | | 8,455,501 | | | (194,759) | | | 4,383,180 | | |
| Adoption of ASU 2018-02 | — | | | — | | | — | | | 12,856 | | | (12,856) | | | — | | |
| Cumulative catch-up adjustment related to Adoption of Topic 606 | — | | | — | | | — | | | 175 | | | — | | | 175 | | |
| Balance at December 31, 2019 | | Balance at December 31, 2019 | 258,552 | | | 869,719 | | | 8,211,257 | | | (216,026) | | | (6,090,842) | | | 3,032,660 | |
| Adoption of ASU 2016-13- CECL | | Adoption of ASU 2016-13- CECL | — | | | — | | | (2,112) | | | — | | | — | | | (2,112) | |
| Net earnings | Net earnings | — | | | — | | | — | | | 570,267 | | | — | | | 570,267 | | Net earnings | — | | | — | | | 683,451 | | | — | | | — | | | 683,451 | |
| Dividends paid ($1.90 per share) | — | | | — | | | — | | | (283,570) | | | — | | | (283,570) | | |
| Separation of Apergy | — | | | — | | | — | | | (939,743) | | | 32,928 | | | (906,815) | | |
| Dividends paid ($1.97 per share) | | Dividends paid ($1.97 per share) | — | | | — | | | (284,312) | | | — | | | — | | | (284,312) | |
| Common stock issued for the exercise of share-based awards | | Common stock issued for the exercise of share-based awards | 430 | | | (28,906) | | | — | | | — | | | — | | | (28,476) | |
| | Stock-based compensation expense | | Stock-based compensation expense | — | | | 25,026 | | | — | | | — | | | — | | | 25,026 | |
| | Common stock acquired | | Common stock acquired | — | | | — | | | — | | | — | | | (106,279) | | | (106,279) | |
| Other comprehensive earnings, net of tax | | Other comprehensive earnings, net of tax | — | | | — | | | — | | | 62,772 | | | — | | | 62,772 | |
| Other | | Other | — | | | 3,043 | | | — | | | — | | | — | | | 3,043 | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | 258,982 | | | 868,882 | | | 8,608,284 | | | (153,254) | | | (6,197,121) | | | 3,385,773 | |
| | Net earnings | | Net earnings | — | | | — | | | 1,123,818 | | | — | | | — | | | 1,123,818 | |
| Dividends paid ($1.99 per share) | | Dividends paid ($1.99 per share) | — | | | — | | | (286,896) | | | — | | | — | | | (286,896) | |
| Common stock issued for the exercise of share-based awards | Common stock issued for the exercise of share-based awards | 830 | | | (47,084) | | | — | | | — | | | — | | | (46,254) | | Common stock issued for the exercise of share-based awards | 475 | | | (42,399) | | | — | | | — | | | — | | | (41,924) | |
| | Stock-based compensation expense | Stock-based compensation expense | — | | | 24,442 | | | — | | | — | | | — | | | 24,442 | | Stock-based compensation expense | — | | | 31,111 | | | — | | | — | | | — | | | 31,111 | |
| | Common stock acquired | Common stock acquired | — | | | (24,454) | | | (870,523) | | | — | | | — | | | (894,977) | | Common stock acquired | — | | | — | | | — | | | — | | | (21,637) | | | (21,637) | |
| Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (68,409) | | | (68,409) | | Other comprehensive loss, net of tax | — | | | — | | | — | | | (798) | | | — | | | (798) | |
| Other | Other | — | | | (9,373) | | | — | | | — | | | — | | | (9,373) | | Other | — | | | 42 | | | 39 | | | — | | | — | | | 81 | |
| Balance at December 31, 2018 | | 257,822 | | | 886,016 | | | (5,947,562) | | | 7,815,486 | | | (243,096) | | | 2,768,666 | | |
| Net earnings | | — | | | — | | | — | | | 677,918 | | | — | | | 677,918 | | |
| Dividends paid ($1.94 per share) | | — | | | — | | | — | | | (282,197) | | | — | | | (282,197) | | |
| Common stock issued for the exercise of share-based awards | | 730 | | | (38,100) | | | — | | | — | | | — | | | (37,370) | | |
| | Stock-based compensation expense | | — | | | 29,702 | | | — | | | — | | | — | | | 29,702 | | |
| | Common stock acquired | | — | | | — | | | (143,280) | | | — | | | — | | | (143,280) | | |
| Other comprehensive earnings, net of tax | | — | | | — | | | — | | | — | | | 27,070 | | | 27,070 | | |
| Other | | — | | | (7,899) | | | — | | | 50 | | | — | | | (7,849) | | |
| Balance at December 31, 2019 | | $ | 258,552 | | | $ | 869,719 | | | $ | (6,090,842) | | | $ | 8,211,257 | | | $ | (216,026) | | | $ | 3,032,660 | | |
| Balance at December 31, 2021 | | Balance at December 31, 2021 | $ | 259,457 | | | $ | 857,636 | | | $ | 9,445,245 | | | $ | (154,052) | | | $ | (6,218,758) | | | $ | 4,189,528 | |
See Notes to Consolidated Financial Statements
DOVER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | | |
| | 2019 | | 2018 | | 2017 |
| Operating Activities of Continuing Operations | | | | | | | |
| Net earnings | $ | 677,918 | | | $ | 570,267 | | | $ | 811,665 | |
| Adjustments to reconcile net earnings to cash from operating activities: | | | | | |
| Loss (earnings) from discontinued operations, net | — | | | 20,878 | | | (65,002) | |
| Loss on assets held for sale | 46,946 | | | — | | | — | |
| Loss on extinguishment of debt | 23,543 | | | — | | | — | |
| Depreciation and amortization | 272,287 | | | 282,580 | | | 283,278 | |
| Stock-based compensation | 29,702 | | | 23,698 | | | 24,073 | |
| | | | | |
| Gain on sale of businesses | — | | | — | | | (203,135) | |
| Provision for losses on accounts receivable (net of recoveries) | 5,933 | | | 3,875 | | | 10,341 | |
| Deferred income taxes | (11,966) | | | (35,448) | | | (160,395) | |
| Employee benefit plan expense | 5,844 | | | 11,912 | | | 12,191 | |
| Contributions to employee benefit plans | (21,436) | | | (25,933) | | | (18,588) | |
| Other, net | (3,652) | | | (6,762) | | | (4,216) | |
| Cash effect of changes in assets and liabilities (excluding effects of acquisitions, dispositions and foreign exchange): | | | | | |
| Accounts receivable | (7,903) | | | (87,573) | | | (43,450) | |
| Inventories | (56,870) | | | (85,052) | | | 605 | |
| Prepaid expenses and other assets | (25,797) | | | (7,453) | | | (5,232) | |
| Accounts payable | 18,270 | | | 106,561 | | | 94,052 | |
| Accrued compensation and employee benefits | 15,580 | | | (7,037) | | | 23,319 | |
| Accrued expenses and other liabilities | (12,656) | | | (5,026) | | | (36,024) | |
| Accrued taxes | (10,437) | | | 29,706 | | | 15,927 | |
| Net cash provided by operating activities of continuing operations | 945,306 | | | 789,193 | | | 739,409 | |
| Investing Activities of Continuing Operations | | | | | | | |
| Additions to property, plant and equipment | (186,804) | | | (170,994) | | | (170,068) | |
| Acquisitions (net of cash and cash equivalents acquired) | (215,687) | | | (68,557) | | | (27,188) | |
| Proceeds from sale of property, plant and equipment | 4,168 | | | 5,908 | | | 11,774 | |
| Proceeds from sale of businesses | 24,218 | | | 3,937 | | | 372,666 | |
| | | | | |
| Other | (10,150) | | | (15,774) | | | 21,151 | |
| Net cash (used in) provided by investing activities of continuing operations | (384,255) | | | (245,480) | | | 208,335 | |
| Financing Activities of Continuing Operations | | | | | | | |
| Cash received from Apergy, net of cash distributed | — | | | 689,643 | | | — | |
| Change in commercial paper and notes payable, net | (135,650) | | | (10,722) | | | (182,596) | |
| Proceeds from long-term debt | 847,469 | | | — | | | — | |
| | | | | |
| Repayment of long-term debt | (805,112) | | | (350,000) | | | — | |
| Dividends to stockholders | (282,197) | | | (283,570) | | | (283,959) | |
| Purchase of common stock | (143,280) | | | (894,977) | | | (105,023) | |
| Payments for employee tax obligations upon exercise of share-based awards | (37,370) | | | (46,254) | | | (18,443) | |
| Other | (1,902) | | | (1,958) | | | (2,912) | |
| Net cash used in financing activities of continuing operations | (558,042) | | | (897,838) | | | (592,933) | |
| Cash Flows from Discontinued Operations | | | | | | | |
| Net cash provided by operating activities of discontinued operations | — | | | 9,442 | | | 96,225 | |
| Net cash used in investing activities of discontinued operations | — | | | (23,705) | | | (46,484) | |
| Net cash used in financing activities of discontinued operations | — | | | — | | | (1,208) | |
| Net cash (used in) provided by discontinued operations | — | | | (14,263) | | | 48,533 | |
| Effect of exchange rate changes on cash and cash equivalents | (1,977) | | | 10,645 | | | 1,474 | |
| Net (decrease) increase in cash and cash equivalents | 1,032 | | | (357,743) | | | 404,818 | |
| Cash and cash equivalents at beginning of year | 396,221 | | | 753,964 | | | 349,146 | |
| Cash and cash equivalents at end of year | $ | 397,253 | | | $ | 396,221 | | | $ | 753,964 | |
| Supplemental information - cash paid during the year for: | | | | | |
| Income taxes | $ | 191,084 | | | $ | 135,427 | | | $ | 337,987 | |
| Interest | 126,753 | | | 131,823 | | | 140,863 | |
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Operating Activities: | | | | | |
| Net earnings | $ | 1,123,818 | | | $ | 683,451 | | | $ | 677,918 | |
| Adjustments to reconcile net earnings to cash from operating activities: | | | | | |
| | | | | |
| Depreciation and amortization | 290,123 | | | 279,051 | | | 272,287 | |
| Stock-based compensation | 31,111 | | | 25,026 | | | 29,702 | |
| | | | | |
| Gain on dispositions | (206,338) | | | (5,213) | | | — | |
| Provision for losses on accounts receivable (net of recoveries) | 5,053 | | | 11,171 | | | 5,933 | |
| Deferred income taxes | (48,322) | | | (25,643) | | | (11,966) | |
| Employee benefit plan expense | 11,897 | | | 7,205 | | | 5,844 | |
| Loss on assets held for sale | — | | | — | | | 46,946 | |
| Loss on extinguishment of debt | — | | | — | | | 23,543 | |
| Other, net | (7,368) | | | (6,593) | | | (3,652) | |
| Cash effect of changes in assets and liabilities (excluding effects of acquisitions, dispositions and foreign exchange): | | | | | |
| Accounts receivable | (201,540) | | | 122,407 | | | (7,903) | |
| Inventories | (297,623) | | | 10,519 | | | (56,870) | |
| Prepaid expenses and other assets | (14,303) | | | (17,915) | | | (25,797) | |
| Accounts payable | 229,334 | | | (95,636) | | | 12,670 | |
| Accrued compensation and employee benefits | 65,482 | | | 12,277 | | | 15,580 | |
| Accrued expenses and other liabilities | 60,734 | | | 129,916 | | | (7,056) | |
| Accrued taxes | 88,190 | | | (5,412) | | | (10,437) | |
| Contributions to employee benefit plans | (14,383) | | | (19,801) | | | (21,436) | |
| Net cash provided by operating activities | 1,115,865 | | | 1,104,810 | | | 945,306 | |
| Investing Activities: | | | | | |
| Additions to property, plant and equipment | (171,465) | | | (165,692) | | | (186,804) | |
| Acquisitions (net of cash and cash equivalents acquired) | (1,112,075) | | | (335,786) | | | (215,687) | |
| Proceeds from sale of property, plant and equipment | 7,070 | | | 7,207 | | | 4,168 | |
| Proceeds from dispositions | 274,982 | | | 15,400 | | | 24,218 | |
| Other | 8,735 | | | (2,508) | | | (10,150) | |
| Net cash used in investing activities | (992,753) | | | (481,379) | | | (384,255) | |
| Financing Activities: | | | | | |
| | | | | |
| Change in commercial paper and notes payable, net | 105,000 | | | (84,700) | | | (135,650) | |
| Proceeds from long-term debt | — | | | — | | | 847,469 | |
| | | | | |
| Repayment of long-term debt | — | | | — | | | (805,112) | |
| Dividends to stockholders | (286,896) | | | (284,312) | | | (282,197) | |
| Purchase of common stock | (21,637) | | | (106,279) | | | (143,280) | |
| Payments for employee tax obligations upon exercise of share-based awards | (41,924) | | | (28,476) | | | (37,370) | |
| Other | (4,423) | | | (2,523) | | | (1,902) | |
| Net cash used in financing activities | (249,880) | | | (506,290) | | | (558,042) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Effect of exchange rate changes on cash and cash equivalents | (803) | | | (1,319) | | | (1,977) | |
| Net (decrease) increase in cash and cash equivalents | (127,571) | | | 115,822 | | | 1,032 | |
| Cash and cash equivalents at beginning of year | 513,075 | | | 397,253 | | | 396,221 | |
| Cash and cash equivalents at end of year | $ | 385,504 | | | $ | 513,075 | | | $ | 397,253 | |
| Supplemental information - cash paid during the year for: | | | | | |
| Income taxes | $ | 233,631 | | | $ | 199,657 | | | $ | 191,084 | |
| Interest | 102,139 | | | 108,119 | | | 126,753 | |
See Notes to Consolidated Financial Statements
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Dover Corporation ("Dover" or "Company") is a diversified global manufacturer and solutions provider delivering innovative equipment and components, consumable supplies, aftermarket parts, software and digital solutions and support services. The Company’s businesses are based primarily in the United States and Europe with manufacturing and other operations throughout the world. In view of recent changes to the Company's business portfolio and to better reflect the markets and customers served, the name of the Fueling Solutions segment was changed to Clean Energy & Fueling and the name of the Refrigeration & Food Equipment segment was changed to Climate & Sustainability Technologies. The Company operates through 5 business segments that are structured around similar business models, go-to market strategies and manufacturing practices: Engineered Products, Clean Energy & Fueling, Solutions, Imaging & Identification, Pumps & Process Solutions and RefrigerationClimate & Food Equipment.Sustainability Technologies. For additional information on the Company’s segments, see Note 19 — Segment Information.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The results of operations of acquired businesses are included from the dates of acquisitions. As discussed in Note 5 — Discontinued and Disposed Operations, the Company is reporting the assets, liabilities, results of operations and cash flows of Apergy prior to the spin-off, as discontinued operations for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying disclosures. These estimates may be adjusted due to changes in future economic, industry, or customer financial conditions, as well as changes in technology or demand. Estimates are used for, but not limited to, allowances for doubtful accounts receivable, net realizable value of inventories, restructuring reserves, warranty reserves, pension and post-retirement plans, stock-based compensation, useful lives for depreciation and amortization of long-lived assets, future cash flows associated with impairment testing for goodwill, indefinite-lived intangible assets and other long-lived assets, deferred tax assets, uncertain incomeunrecognized tax positionsbenefits and contingencies. Actual results may ultimately differ from estimates, although management does not believe such differences would materially affect the consolidated financial statements in any individual year. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the Consolidated Financial Statements in the period that they are determined.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and short-term investments, which are highly liquid in nature and have original maturities at the time of purchase of three months or less. The carrying value of cash and cash equivalents approximate fair value.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at face amounts less an allowance for doubtful accounts. Effective January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments prospectively. This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including trade receivables.
The allowance is an estimate based on historical collection experience, current and future economic and market conditions and a review of the current status of each customer's trade accounts receivable. Management evaluates the aging of the accounts receivable balances and the financial condition of its customers and all other forward-looking information that is reasonably available to estimate the amount of accounts receivable that may not be collected in the future and records the appropriate provision. See Note 8 — Credit Losses for additional information.
Inventories
Inventories for the majority of the Company’s subsidiaries, including all international subsidiaries, are stated at the lower of cost, determined on the first-in, first-out (FIFO) basis, or net realizable value. Other domestic inventories are stated at cost, determined on the last-in, first-out (LIFO) basis, which is less than market value.
DOVER CORPORATION
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(Amounts in thousands except share data and where otherwise indicated)
Inventories
Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) basis, or net realizable value. An immaterial portion of domestic inventories are stated at cost, determined on the last-in, first-out (LIFO) basis, which is less than market value.
Property, Plant and Equipment
Property, plant and equipment includes the historical cost of land, buildings, machinery and equipment, purchased software, finance lease assets and significant improvements to existing plant and equipment or, in the case of acquisitions, the fair value appraisal of acquired assets. Expenditures for maintenance, repairs and minor renewals are expensed as incurred. When property or equipment is sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the gain or loss realized on disposition is reflected in earnings. The Company depreciates its assets on a straight-line basis over their estimated useful lives as follows: buildings and improvements 5 to 31.5 years; machinery and equipment 3 to 15 years; furniture and fixtures 3 to 7 years; vehicles 3 to 7 years; and software 3 to 10 years.
Derivative Financial Instruments
The Company uses derivative financial instruments to hedge its exposures to various risks, including interest rate and foreign currency exchange rate risk. The Company does not enter into derivative financial instruments for speculative purposes and does not have a material portfolio of derivative financial instruments. Derivative financial instruments used for hedging purposes must be designated and effective as a hedge of the identified risk exposure at inception of the contract. The Company recognizes all derivatives as either assets or liabilities on the consolidated balance sheet and measures those instruments at fair value. For derivatives designated as hedges of the fair value of assets or liabilities, the changes in fair value of both the derivatives and of the hedged items are recorded in current earnings. For derivatives designated as cash flow hedges, the change in the fair value of the derivatives is recorded as a component of other comprehensive earnings and subsequently recognized in net earnings when the hedged items impact earnings.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over the fair value of net assets acquired. Goodwill and certain other intangible assets deemed to have indefinite lives (primarily trademarks) are not amortized. For goodwill, impairment tests are required at least annually, or more frequently if events or circumstances indicate that it may be impaired, when some portion but not all of a reporting unit is disposed of or classified as assets held for sale, or when a change in the composition of reporting units occurs for other reasons, such as a change in segments. Based on its current organizational structure, the Company identified reporting units for which cash flows are determinable and to which goodwill was allocated.
The Company performs its goodwill impairment test annually in the fourth quarter at the reporting unit level. Concurrent with the timing of the annual impairment test, effective October 1, 2019, the Company changed its management structure which resulted in a change in its operating segments and reporting units. As a result, management tested goodwill for impairment before and after the segment change under the old and new reporting unit structures. Based on its new organizational structure, the Company identified 15 reporting units for which cash flows are determinable and to which goodwill may be allocated.
A quantitative test is used to determine existence of goodwill impairment and the amount of the impairment loss at the reporting unit level. The quantitative test compares the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses an income-based valuation method, determining the present value of estimated future cash flows, to estimate the fair value of a reporting unit. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Factors used in the impairment analysis require significant judgment, and actual results may differ from assumed and estimated amounts. The Company uses its own market assumptions including internal projections of future cash flows, discount rates and other assumptions considered reasonable in the analysis.analysis and reflective of market participant assumptions. These forecasts are based on historical performance and future estimated results. The discount rates used in these analyses vary by reporting unit and are based on a capital asset pricing model and published relevant industry rates. The Company uses discount rates commensurate with the risks and uncertainties inherent to each reporting unit and in the internally developed forecasts. See Note 9 — Goodwill and Other Intangible Assets for further discussion of the Company's annual goodwill impairment test and results. No impairment of goodwill was required for the years ended December 31, 2021, 2020, or 2019.
The Company uses an income-based valuation method to annually test its indefinite-lived intangible assets for impairment. The fair value of the intangible asset is compared to its carrying value. This method uses the Company’s own market assumptions, which are considered reasonable. Any excess of carrying value over the estimated fair value is recognized as an impairment loss. No impairment of indefinite-lived intangible assets was required for the years ended December 31, 2019, 2018, or 2017.
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(Amounts in thousands except share data and where otherwise indicated)
impairment loss. No impairment of indefinite-lived intangible assets was required for the years ended December 31, 2021, 2020, or 2019.
Other intangible assets with determinable lives primarily consist of customer intangibles, unpatented technologies, patents and trademarks. The other intangible assets are amortized over their estimated useful lives, ranging from 5 to 20 years.
Long-lived assets (including definite-lived intangible assets) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, such as a significant sustained change in the business climate. If an indicator of impairment exists for any grouping of assets, an estimate of undiscounted future cash flows is produced and compared to its carrying value. If an asset group is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset group over its fair value, as determined by an estimate of discounted future cash flows.
Leases
Effective January 1, 2019, the Company adopted Accounting Standard Codification ("ASC") Topic 842, Leases, which requires the recording of operating lease right-of-use assets ("ROU") and operating lease liabilities. Finance leases were not impacted by the adoption of ASC Topic 842, as finance lease liabilities and the corresponding ROU assets were already recorded in the balance sheet under the previous guidance, ASC Topic 840.
The Company has operating and finance leases for corporate offices, manufacturing plants, research and development facilities, shared services facilities, vehicle fleets and certain office and manufacturing equipment. Leases with an initial term of 12 months or less are not recorded in the balance sheet. The Company has elected practical expedients under the practical expedientstandard which allow the Company to carry forward historical lease classifications and also account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. The Company also elected the package of practical expedients permitted within the new standard, which among other things, allows the Company to carry forward historical lease classification. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities. These are expensed as incurred and recorded as variable lease expense.
The Company determines if an arrangement is a lease at inception of a contract. Operating lease ROU assets are included in other assets and deferred charges and operating lease liabilities are included in other accrued expenses and other liabilities in the Consolidated Balance Sheet. Finance lease ROU assets are included in property, plant and equipment, and the related lease liabilities are included in other accrued expenses and other liabilities in the Consolidated Balance Sheet.
ROU assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the net present value of fixed lease payments over the lease term. The lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. ROU assets also include any advance lease payments made and exclude lease incentives. As most of the Company's operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Finance lease agreements generally include an interest rate that is used to determine the present value of future lease payments. Fixed operating lease expense and finance lease depreciation expense are recognized on a straight-line basis over the lease term.
Restructuring Accruals
The Company takes actions to reduce headcount, close facilities, or otherwise exit operations. Such restructuring activities at an operation are recorded when management has committed to an exit or reorganization plan and when termination benefits are probable and can be reasonably estimated based on circumstances at the time the restructuring plan is approved by management or when termination benefits are communicated. Exit costs may include contractual terminations and asset impairments as a result of an approved restructuring plan. The accrual of both severance and exit costs requires the use of estimates. Though the Company believes that its estimates accurately reflect the anticipated costs,costs; actual results may be different from the original estimated amounts.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Foreign Currency
Assets and liabilities of non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, have been translated at year-end exchange rates and profit and loss accounts have been translated using weighted-average monthly exchange
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(Amounts in thousands except share data and where otherwise indicated)
rates. Foreign currency translation gains and losses are included in the Consolidated Statements of Comprehensive Earnings as a component of other comprehensive earnings (loss). Assets and liabilities of an entity that are denominated in currencies other than an entity’s functional currency are re-measured into the functional currency using end of period exchange rates or historical rates, where applicable to certain balances. Gains and losses related to these re-measurements are recorded within the Consolidated Statements of Earnings as a component of other income, net. Gains and losses arising from intercompany foreign currency transactions that are of a long-term investment in nature are reported in the same manner as translation adjustments.
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers. Under ASC Topic 606, a contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and where payment terms are identified and collectability is probable. Once the Company has entered a contract, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized as control of promised goods or services transfers to the customer in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The amount of revenue recognized takes into account variable consideration, such as discounts and volume rebates.
Prior to 2018, revenue was recognized when all the following conditions were satisfied: a) persuasive evidence of an arrangement exists, b) price is fixed or determinable, c) collectability is reasonably assured and d) delivery has occurred or services have been rendered.
The majority of the Company’s revenue is generated through the manufacture and sale of a broad range of specialized products and components, with revenue recognized upon transfer of control, title and risk of loss, which is generally upon shipment. Service revenue represents less than 5% of total revenue and is recognized as the services are performed. In limited cases, revenue arrangements with customers require delivery, installation, testing, certification, or other acceptance provisions to be satisfied before revenue is recognized. The Company includes shipping costs billed to customers in revenue and the related shipping costs in cost of goods and services.
Stock-Based Compensation
The principal awards issued under the Company’s stock-based compensation plans include non-qualified stock appreciation rights ("SARs"), restricted stock units and performance share awards. The cost for such awards is measured at the grant date based on the fair value of the award. At the time of grant, the Company estimates forfeitures, based on historical experience, in order to estimate the portion of the award that will ultimately vest. The value of the portion of the award that is expected to ultimately vest is recognized as expense on a straight-line basis, generally over the explicit service period of three years (except for retirement-eligible employees) and is included in selling, general and administrative expenses in the Consolidated Statements of Earnings. Expense for awards granted to retirement-eligible employees is recorded over the period from the date of grant through the date the employee first becomes eligible to retire and is no longer required to provide service. See Note 15 — Equity and Cash Incentive Program for additional information related to the Company’s stock-based compensation.
Income Taxes
The provision for income taxes includes federal, state, local and non-U.S. taxes. Tax credits, primarily for research and experimentation, are recognized as a reduction of the provision for income taxes in the year in which they are available for tax purposes. Deferred taxes are provided using enacted rates on the future tax consequences of temporary differences. Temporary differences include the differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis and the tax benefit of carryforwards. A valuation allowance is established for deferred tax assets for which it is more likely than not that some portion or all of the deferred tax benefit will not be realized. In assessing the need for a valuation allowance, management considers all available evidence, including the future reversal of existing taxable temporary differences, taxable income in carryback periods, prudent and feasible tax planning strategies and estimated future taxable income. The valuation allowance can be affected by changes to tax regulations, interpretations and rulings, changes to enacted statutory tax rates and changes to future taxable income estimates.
DOVER CORPORATION
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(Amounts in thousands except share data and where otherwise indicated)
Tax benefits are recognized from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position in consideration of applicable tax statutes and related interpretations and precedents. Tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized on ultimate settlement.
On December 22, 2017, the U.S. bill commonly referred to as the Tax Cuts
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(Amounts in thousands except share data and Jobs Act (“Tax Reform Act”) was enacted, which significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The Tax Reform Act also provided for a one-time deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017. The Global Intangible Low-Taxed Income ("GILTI") provisions of the Tax Reform Act require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company is subject to incremental U.S. tax on GILTI income due to expense allocations required by the U.S. foreign tax credit rules. The Company has elected to account for the GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements.where otherwise indicated)
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant did not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company recognized the provisional tax impacts related to deemed repatriated earnings and the benefit for the revaluation of deferred tax assets and liabilities, and included these amounts in its consolidated financial statements for the year ended December 31, 2017. In accordance with SAB 118, the Company finalized the financial reporting impact of the Tax Reform Act in the fourth quarter of 2018. For the year ended December 31, 2018, the Company recorded a $4.2 million net tax benefit, which resulted in a 0.6% decrease in the effective tax rate, as an adjustment to provisional estimates as a result of additional regulatory guidance and changes in interpretations and assumptions the Company made as a result of the Tax Reform Act.
Research and Development Costs
Research and development costs, including qualifying engineering costs, are expensed when incurred and amounted to $157,826 in 2021, $142,101 in 2020 and $140,957 in 2019, $143,033 in 2018 and $130,536 in 2017.2019. These costs as a percent of revenue were 2.0% in 2019,2021, 2.1% in 2020 and 2.0% in 20182019. Research and 1.9%development costs are reported within selling, general and administrative expenses in 2017.the Consolidated Statements of Earnings.
Advertising Costs
Advertising costs are expensed when incurred and amounted to $23,685 in 2021, $21,375 in 2020 and $24,609 in 2019, $26,8312019. Advertising costs are reported within selling, general and administrative expenses in 2018 and $33,369 in 2017.the Consolidated Statements of Earnings.
Risk, Retention, Insurance
The Company currently self-insureshas deductibles for its product and commercial general liability claims up to $5.0 million per occurrence, its workers’ compensation claims up to $0.8 million per occurrence and its automobile liability claims up to $1.0 million per occurrence. Third-party insurance provides primary levelprimary-level coverage in excess of these amounts up to certain specified limits. In addition, the Company has excess liability insurance from third-party insurers on both an aggregateindividual occurrence and an individual occurrenceaggregate basis well in excess of the limits of the primary coverage. A worldwide program of property insurance covers the Company’s owned and leased property andfor claims, including business interruption that may occur due to an insured hazard affecting those properties, subject to reasonable deductibles and aggregate limits. The Company’s property and casualty insurance programs contain various deductibles that, based on the Company’s experience, are typical and customary for a company of its size and risk profile. The Company does not consider any of the deductibles to represent a material risk to the Company. The Company generally maintains deductibles for claims and liabilities related primarily to workers’ compensation, health and welfare claims, general commercial, product and automobile liability, cybersecurity risks, property damage and business interruption resulting from certain events. The Company accrues for claim exposures that are probable of occurrence and can be reasonably estimated. As part of the Company’s risk management program, insurance is maintained to transfer risk beyond the level of self-retention and provide protection on both an individual claim and annual aggregate basis.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Reclassifications – Certain amounts in prior years have been reclassified to conform to the current year presentation. As described in Note 19 — Segment Information, the Company realigned into 5 business segments effective October 1, 2019.
Recent Accounting Pronouncements
Recently Issued Accounting Standards
The following standards, issued by the Financial Accounting Standards Board ("FASB"), will, or are expected to, result in a change in practice and/or have a financial impact to the Company’s Consolidated Financial Statements:
In October 2021, the FASB issued ASU 2021-08 Business Combinations (Topic 805)-Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. Under current guidance, the acquirer generally recognizes such contract assets and contract liabilities at fair value on the acquisition date. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments in this update should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted, including adoption in an interim period. The Company is in the process of assessing the impact of this ASU on its Consolidated Financial Statements, but does not expect this update to have a material impact.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Recently Adopted Accounting Standards
In March 2020 and January 2021, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting and ASU 2021-01, Reference Rate Reform, Scope, respectively. These updates provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform, including expedients and exceptions for applying GAAP to contracts, hedging relationships,and other transactions affected by reference rate reform if certain criteria are met. The amendments in these updates are elective and are effective upon issuance for all entities. The Company adopted the guidance during the third quarter of 2021. The adoption did not have a material impact the Company's Consolidated Financial Statements.
In June 2016, the FASB issued Accounting Standards Update ("ASU") No.ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. In addition, the FASB issued ASU 2019-04, Codification Improvements to Topic 326 which provides clarity on certain aspects of the amendments in ASU 2016-13. The guidance is effective for interim and annual periods for the Company beginning on January 1, 2020. The Company believes that the most notable impact of this ASU will relate to its processes around the assessment of the adequacy of its allowance for doubtful accounts on trade accounts receivable and the recognition of credit losses. Management does not expect this update to have a material impact to the Company's Consolidated Financial Statements.
Recently Adopted Accounting Standards
In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections. This ASU amends various SEC paragraphs pursuant to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization. One of the changes in the ASU requires a presentation of changes in stockholders’ equity in the form of a reconciliation, either as a separate financial statement or in the notes to the financial statements, for the current and comparative year-to-date interim periods. The Company presented changes in stockholders' equity as separate financial statements for the current and comparative year-to-date interim periods beginning on January 1, 2019. The additional elements of the ASU did not have a material impact on the Company's Consolidated Financial Statements. This guidance was effective immediately upon issuance.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Theamendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The Company early adopted the guidance prospectively beginning on January 1, 2019. The adoption of this ASU did not have a material impact on the Company's Consolidated Financial Statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU provides new guidance about income statement classification and eliminates the requirement to separately measure and report hedge ineffectiveness. The entire change in fair value for qualifying hedge instruments will be recorded in Other Comprehensive Income ("OCI") and amounts deferred in OCI will be reclassified to earnings in the same income statement line item in which the earnings effect of the hedged item is reported. The Company adopted this guidance on January 1, 2019. The2020 prospectively. Upon adoption, the Company recorded a noncash cumulative effect adjustment to retained earnings of this ASU did not have a material impact$2.1 million, net of $0.6 million of income taxes, on the Company's Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amended existing guidance to require lessees to recognize assets and liabilities on theopening consolidated balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. This ASU also provides clarifications surrounding the presentationas of the effects of leases in the income statement and statement of cash flows. In addition, the FASB issued ASU 2018-11, Leases Targeted Improvements, which provides an additional transition method that allows entities to apply the new leases standard at adoption date. The Company elected this new transition method when it adopted ASU 2016-02 on January 1, 2019. Upon adoption on January 1, 2019, total assets and liabilities increased due to the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
recording of right-of-use assets and lease liabilities amounting to approximately $163 million.2020. See Note 8 — LeasesCredit Losses for further details.
2. Spin-off of Apergy Corporation
On May 9, 2018, Dover completed the distribution of Apergy to its shareholders. The transaction was completed through the pro rata distribution of 100% of the common stock of Apergy to Dover's shareholders of record as of the close of business on April 30, 2018. Each Dover shareholder received one share of Apergy common stock for every two shares of Dover common stock held as of the record date.
The following is a summary of the assets and liabilities transferred to Apergy as part of the separation on May 9, 2018:
| | | | | | | | |
Assets: | | |
Cash and cash equivalents | | $ | 10,357 | |
Current assets | | 462,620 | |
Non-current assets | | 1,438,760 | |
| | $ | 1,911,737 | |
Liabilities: | | |
Current liabilities | | $ | 185,354 | |
Non-current liabilities | | 119,568 | |
| | $ | 304,922 | |
| | |
Net assets distributed to Apergy Corporation | | $ | 1,606,815 | |
Less: Cash received from Apergy Corporation | | 700,000 | |
Net distribution to Apergy Corporation | | $ | 906,815 | |
In connection with the spin-off from the Company, Apergy issued and sold $300.0 million in aggregate principal amount of its 6.375% senior notes due May 2026 in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended, and incurred $415.0 million in borrowings under its new senior secured term loan facility to fund a one-time cash payment of $700.0 million to Dover. Dover received net cash of $689.6 million upon separation, which reflects $10.4 million of cash held by Apergy on the distribution date and retained by it in connection with its separation from Dover. Dover utilized the proceeds from Apergy as the primary source of funding for the 2018 accelerated share repurchase program. See Note 21 — Stockholders' Equity for further information.
Included within the net assets distributed to Apergy is approximately $33 million of accumulated other comprehensive earnings attributable to Apergy, relating primarily to foreign currency translation gains, offset by unrecognized losses on pension obligations.
The historical results of Apergy, including the results of operations, cash flows, and related assets and liabilities have been reclassified to discontinued operations for all periods presented herein. See Note 5 — Discontinued and Disposed Operations.
3. Revenue
Revenue from contracts with customers
Effective January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Accordingly, all periods prior to January 1, 2018 are presented in accordance with ASC Topic 605, Revenue Recognition.
Under ASC Topic 606, a contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and where payment terms are identified and collectability is probable. Once the Company has entered a contract, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized as control of promised goods or services transfers to the customer in an amount that reflects the
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(Amounts in thousands except share data and where otherwise indicated)
consideration the Company expects to receive in exchange for those goods or services. The amount of revenue recognized takes into account variable consideration, such as discounts and volume rebates.
A majority of the Company’s revenue is short cycle in nature with shipments within one year from order. A small portion of the Company’s revenue derives from contracts extending over one year. The Company's payment terms generally range between 30 to 90 days and vary by the location of businesses, the type of products manufactured to be sold and the volume of products sold, among other factors.
Disaggregation of Revenue
Revenue from contracts with customers is disaggregated by segmentssegment and geographic location, as itthey best depictsdepict the nature and amount of the Company's revenue.
See Note 19 — Segment Information for revenue by segment and geographic location.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting under ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A majority of the Company’s contracts have a single performance obligation which represents, in most cases, the equipment or product being sold to the customer. Some contracts include multiple performance obligations such as a product and the related installation, extended warranty, software and digital solutions, and/or maintenance services. These contracts require judgment in determining the number of performance obligations.
The Company has elected to use the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component if it is expected, at contract inception, that the period between when Doverthe Company transfers a promised good or service to a customer, and when the customer pays for that good or service, will be one year or less. Thus, the Company may not consider an advance payment to be a significant financing component, if it is received less than one year before product completion.
The majority of the Company’s contracts offer assurance-type warranties in connection with the sale of a product to a customer. Assurance-type warranties provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications. Such warranties do not represent a separate performance obligation.
The Company may also offer service-type warranties that provide services to the customer, in addition to the assurance that the product complies with agreed-upon specifications. If a warranty is determined to be a service-type warranty, it represents a distinct service and is treated as a separate performance obligation.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
For contracts with multiple performance obligations, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The Company uses an observable price to determine the standalone selling price for separate performance obligations or a cost plus margin approach when one is not available.
Over 95% of the Company’s performance obligations are recognized at a point in time that relate to the manufacture and sale of a broad range of products and components. Revenue is recognized when control transfers to the customer upon shipment or completion of installation, testing, certification, or other substantive acceptance provisions required under the contract. Less than 5% of the Company’s revenue is recognized over time and relates to the sale of engineered to order equipment or services.services in which the Company transfers control of a good or service over time and the customer simultaneously receives and consumes the benefits as the Company performs, or the Company's performance creates or enhances an asset the customer controls as the asset is created or enhanced, or the Company's performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for its performance to date plus a reasonable margin.
For revenue recognized over time, there are two types of methods for measuring progress and both are relevant to the Company: (1) input methods and (2) output methods. Although this may vary by business, input methods generally are based on costs incurred relative to estimated total costs. Output methods generally are based on a measurement of progress, such as milestone achievement. The businesses use the method and measure of progress that best depicts the transfer of control to the customer of the goods or services to date relative to the remaining goods or services promised under the contract.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Transaction Price Allocated to the Remaining Performance Obligations
At December 31, 2019,2021, we estimated that $80.4 million$263,085 in revenue is expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. We expect to recognize approximately 50%43% of our unsatisfied (or partially unsatisfied) performance obligations as revenue in 2020,2022, with the remaining balance to be recognized in 20212023 and thereafter.
Remaining consideration, including variable consideration, from contracts with customers is included in the amounts presented abovein the preceding paragraph and primarily consists ofpertains to contracts with multiple performance obligations, extended warranties on products and multi-year maintenance agreements, which are typically recognized as the performance obligation is satisfied.
The Company applied the standard's practical expedient that permits the omission of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed.
Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with customers:
| | | | | 12/31/2019 | | 12/31/2018 | | At Adoption | | | 12/31/2021 | | 12/31/2020 | | 12/31/2019 |
| | Contract assets | Contract assets | | $ | 14,894 | | | $ | 9,330 | | | $ | 11,932 | | Contract assets | | $ | 11,440 | | | $ | 15,020 | | | $ | 14,894 | |
| Contract liabilities - current | Contract liabilities - current | | 44,001 | | | 36,461 | | | 48,268 | | Contract liabilities - current | | 227,549 | | | 184,845 | | | 104,901 | |
| Contract liabilities - non-current | Contract liabilities - non-current | | 9,121 | | | 9,382 | | | 9,916 | | Contract liabilities - non-current | | 21,513 | | | 13,921 | | | 10,921 | |
Contract assets primarily relate to the Company's right to consideration for work completed but not billed at the reporting date and are recorded in prepaid and other current assets in the Condensed Consolidated Balance Sheet. Contract assets are transferred to receivables when the right to consideration becomes unconditional. Contract liabilities relate to advance consideration received from customers or advance billings for which revenue has not been recognized. Current contract liabilities are recorded in other accrued expensesdeferred revenue and non-current contract liabilities are recorded in other liabilities in the Condensed Consolidated Balance Sheet. Contract liabilities are reduced when the associated revenue from the contract is recognized. The increase in current contract liabilities balance as of December 31, 2021 primarily relates to advance payments received from customers.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
The revenue recognized during 20192021 and 20182020 that was included in the contract liabilityliabilities at the beginning of the respective periods amounted to $31,283$163.5 million and $38,410.$99.6 million.
Contract Costs
Costs incurred to obtain a customer contract are not material to the Company. The Company elected to apply the practical expedient to not capitalize contract costs to obtain contracts with a duration of one year or less, which are expensed and included within cost of goods and services in the Condensed Consolidated Statements of Earnings.
Critical Accounting Estimates
Estimates are used to determine the amount of variable consideration in contracts, the standalone selling price among separate performance obligations and the measure of progress for contracts where revenue is recognized over time. The Company reviews and updates these estimates regularly.
Some contracts with customers include variable consideration primarily related to volume rebates. The Company estimates variable consideration at the most likely amount to determine the total consideration which the Company expects to be entitled. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available.
3. Acquisitions
2021
During the year ended December 31, 2021, the Company acquired 9 businesses in separate transactions for total consideration of $1,125,077, net of cash acquired of $19,040 and including contingent consideration of $13,002. These businesses were acquired to complement and expand upon existing operations within the Clean Energy & Fueling, Engineered Products, Imaging & Identification, and Pumps & Process Solutions segments. The goodwill recorded as a result of these acquisitions represents the economic benefits expected to be derived from the workforce of the acquired businesses and operational synergies. Goodwill of $195,127 is deductible for income tax purposes and $386,990 is non-deductible for income tax purposes for these acquisitions.
RegO
On December 28, 2021, the Company acquired 100% of the voting stock of ECI Holding Company, LLC ("RegO"), a provider of highly-engineered, mission-critical components and services that facilitate the production, storage, and distribution of cryogenic gases, for $624,693, net of cash acquired. The RegO acquisition strengthens the Company's offering for the hydrogen ("H2"), liquefied natural gas ("LNG"), and liquefied petroleum gas ("LPG") applications, as well as Dover's participation in the attractive cryogenic industrial gases end market within the Clean Energy & Fueling segment. In connection with this acquisition, the Company recorded goodwill of $165,810 deductible for income tax purposes and $111,166 non-deductible for income tax purposes and intangible assets of $173,000 for customer intangibles, $40,000 for patents and $21,000 for trademarks. The fair value for customer intangibles at the acquisition date was determined using the multi-period excess earnings method under the income approach. The fair value measurements of intangible assets are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include discounted future cash flows, customer attrition rates and discount rates. The fair value of assets acquired also includes trade receivables of $34,252. The gross amount is $34,623, of which $371 is expected to be uncollectible. The fair values of the assets acquired and liabilities assumed, and the related tax balances, are based on preliminary estimates and assumptions. These preliminary estimates and assumptions could change significantly during the measurement period as the Company finalizes the valuations of the assets acquired and liabilities assumed, and the related tax balances.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
The following presents the preliminary allocation of purchase price, net of cash acquired of $10,382, to the assets acquired and liabilities assumed under the RegO acquisition, based on their estimated fair values at acquisition date:
| | | | | | | | |
| Total | | | |
| Accounts receivable | $ | 34,252 | | | | |
| Inventories | 77,954 | | | | |
| Other current assets | 2,958 | | | | |
| Property, plant and equipment | 52,053 | | | | |
| Goodwill | 276,976 | | | | |
| Intangible assets | 234,000 | | | | |
| Other assets and deferred charges | 884 | | | | |
| Current liabilities | (19,480) | | | | |
| Non-current liabilities | (34,904) | | | | |
| Net assets acquired | $ | 624,693 | | | | |
Acme Cryogenics
On December 16, 2021, the Company acquired 100% of the voting stock of Acme Cryo Intermediate Inc. ("Acme Cryogenics"), a provider of highly-engineered, mission-critical components and services that facilitate the production, storage, and distribution of cryogenic gases, for $293,522, net of cash acquired. The Acme Cryogenics acquisition strengthens the Company's offering for the H2, LNG, and LPG applications, as well as Dover's participation in the attractive cryogenic industrial gases end market within the Clean Energy & Fueling segment. In connection with this acquisition, the Company recorded goodwill of $169,209 non-deductible for income tax purposes and intangible assets of $99,000 for customer intangibles, $21,800 for unpatented technology and $6,500 for trademarks. The fair value for customer intangibles at the acquisition date was determined using the multi-period excess earnings method under the income approach. The fair value measurements of intangible assets are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include discounted future cash flows, customer attrition rates and discount rates. The fair value of assets acquired also includes trade receivables of $15,130. The gross amount is $15,798, of which $668 is expected to be uncollectible. The fair values of the assets acquired and liabilities assumed, and the related tax balances, are based on preliminary estimates and assumptions. These preliminary estimates and assumptions could change significantly during the measurement period as the Company finalizes the valuations of the assets acquired and liabilities assumed, and the related tax balances.
The following presents the preliminary allocation of purchase price to the assets acquired and liabilities assumed under the Acme Cryogenics acquisition, based on their estimated fair values at acquisition date:
| | | | | | | | |
| Total | | | |
| Current assets, net of cash acquired | $ | 29,345 | | | | |
| Property, plant and equipment | 8,750 | | | | |
| Goodwill | 169,209 | | | | |
| Intangible assets | 127,300 | | | | |
| Other assets and deferred charges | 5,057 | | | | |
| Current liabilities | (9,072) | | | | |
| Non-current liabilities | (37,067) | | | | |
| Net assets acquired | $ | 293,522 | | | | |
Other acquisitions
On October 15, 2021, the Company acquired 100% of the voting stock of LIQAL B.V. ("LIQAL"), a turnkey supplier of LNG, hydrogen refueling equipment and solutions, and micro liquefaction solutions, for $27,701, net of cash acquired and including contingent consideration. The LIQAL acquisition strengthens the Company's offering of LNG and hydrogen products and solutions, as well as significant innovation capabilities and proprietary technologies, within the Clean Energy & Fueling segment. In connection with this acquisition, the Company recorded goodwill of $23,473 and intangible assets of $8,235, primarily related to customer intangibles.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
On September 15, 2021, the Company acquired 100% of the voting stock of The Espy Corporation ("Espy"), a manufacturer of advanced electronic radio frequency sensor systems, for $60,457, net of cash acquired. The Espy acquisition strengthens the Company's offering of complete signal intelligence systems with integrated software within the Engineered Products segment. In connection with this acquisition, the Company recorded goodwill of $29,317 and intangible assets of $21,100, primarily related to customer intangibles. The Espy acquisition will be treated as an asset acquisition for U.S. income tax purposes, resulting in the goodwill and intangibles being classified as tax deductible.
On July 23, 2021, the Company acquired 100% of the voting stock of CDS Visual, Inc. ("CDS Visual"), a leading provider of 3D visualization solutions tailored for industrial applications, for $29,147, net of cash acquired. The CDS Visual acquisition extends the Company's reach of customer-facing digital capabilities within the Engineered Products segment. In connection with this acquisition, the Company recorded goodwill of $20,863 and intangible assets of $9,930, primarily related to technology.
On June 24, 2021, the Company acquired 100% of the voting stock of Blue Bite LLC ("Blue Bite"), a leading provider of consumer engagement and brand protection software solutions, for $30,143, net of cash acquired and including contingent consideration. The Blue Bite acquisition strengthens the Company's offering of product traceability and authentication solutions within the Imaging & Identification segment. In connection with this acquisition, the Company recorded goodwill of $20,458 and intangible assets of $13,250, primarily related to technology.
On June 23, 2021, the Company acquired 100% of the voting stock of Quantex Arc Limited ("Quantex"), a leading provider of single-use, recyclable pumps, for $23,747, net of cash acquired and including contingent consideration. The Quantex acquisition enhances the offering of single-use pumps for biopharma and other hygienic applications within the Pumps & Process Solutions segment. In connection with this acquisition, the Company recorded goodwill of $14,327 and intangible assets of $11,034, primarily related to patented technology.
On April 19, 2021, the Company acquired 100% of the voting stock of AvaLAN Wireless Systems, Incorporated ("AvaLAN"), a leading provider of secure wireless communications solutions for the convenience and fuel retail industry, for $34,144, net of cash acquired. The AvaLAN acquisition extends the Company's reach into the systems and software offering within the Clean Energy & Fueling segment. In connection with this acquisition, the Company recorded goodwill of $26,803 and intangible assets of $14,630, primarily related to customer intangibles.
One other immaterial acquisition was completed during the year ended December 31, 2021, within the Pumps & Process Solutions segment.
The following presents, for the 7 acquisitions other than RegO and Acme Cryogenics, the preliminary allocation of purchase price to the assets acquired and liabilities assumed, based on their estimated fair values at acquisition date:
| | | | | | | | |
| Total | | | |
| Current assets, net of cash acquired | $ | 12,751 | | | | |
| Property, plant and equipment | 8,272 | | | | |
| Goodwill | 135,932 | | | | |
| Intangible assets | 78,179 | | | | |
| Other assets and deferred charges | 4,485 | | | | |
| Current liabilities | (15,368) | | | | |
| Non-current liabilities | (17,389) | | | | |
| Net assets acquired | $ | 206,862 | | | | |
The acquisition-related costs incurred for all 2021 acquisitions are not material.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Changes in Accounting Policies
The amounts assigned to goodwill and major intangible asset classifications for all 2021 acquisitions were as follows:
| | | | | | | | | | | | | | | | | |
| Amount allocated | | Useful life
(in years) |
| Goodwill - tax deductible | $ | 195,127 | | | na |
| Goodwill - non deductible | 386,990 | | | na |
| Customer intangibles | 310,819 | | | 12 | - | 15 |
| Patents | 49,056 | | | 7 | - | 12 |
| Unpatented technology | 44,180 | | | 7 | - | 12 |
| Trademarks | 35,424 | | | 15 | - | 16 |
| | | | | |
| $ | 1,021,596 | | | | | |
The Company adopted ASC Topic 606, effective January 1, 2018, using the modified retrospective method applying ASC Topic 606 to contracts that are not complete as of the date of initial application. Under the modified retrospective method, the cumulative effect of applying the standard has been recognized at the date of initial application, January 1, 2018. The comparative information has not been adjusted and continues to be reported under ASC Topic 605. The Company's accounting policy has been updated to align with ASC Topic 606, and no significant changes to revenue recognition have occurred as a result of the change.
Shipping and handling charges are not considered a separate performance obligation. If revenue is recognized for the related good before the shipping and handling activities occur, the related costs of those shipping and handling activities are accrued.
Additionally, all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer (e.g., sales, use, value added, and some excise taxes) are excluded from revenue. The Company's policy elections related to shipping and handling and taxes have not changed with the adoption of ASC Topic 606.
Under ASC Topic 605, revenue was generally recognized when all of the following criteria were met: a) persuasive evidence of an arrangement exists, b) price is fixed or determinable, c) collectability is reasonably assured and d) delivery has occurred or services have been rendered. The majority of the Company's revenue is generated through the manufacture and sale of a broad range of specialized products and components and revenue was recognized upon transfer of title and risk of loss, which was generally upon shipment. In limited cases, the Company's revenue arrangements with customers required delivery, installation, testing, certification, or other acceptance provisions to be satisfied before revenue was recognized. The Company included shipping costs billed to customers in revenue and the related shipping costs in cost of goods and services.
Impact on Financial Statements
The adoption of ASC Topic 606 impacted certain contracts for highly customized customer products that have no alternative use and in which the contract specifies the Company has a right to payment for its costs, plus a reasonable margin. For these contracts, the Company now recognizes revenue over time based on the method and measure of progress that best depicts the transfer of control to the customer of the goods or services to date relative to the remaining goods or services promised under the contract.
The Company recorded a cumulative catch-up adjustment to retained earnings at January 1, 2018 for $0.2 million, related to the impact of adopting ASC Topic 606 under the modified retrospective method.
4. Acquisitions
20192020
During the year ended December 31, 2019,2020, the Company acquired three6 businesses in separate transactions for total consideration of $216,398,$335,786, net of cash acquired and including contingent consideration.acquired. These businesses were acquired to complement and expand upon existing operations within the Clean Energy & Fueling, Solutions andImaging & Identification, Pumps & Process Solutions, and Engineered Products segments. The goodwill recorded as a result of these acquisitions represents the economic benefits expected to be derived from product line expansions and operational synergies. The goodwill is deductible for U.S. income tax purposes for these acquisitions.
On May 7, 2019,December 30, 2020, the Company acquired the assets100% of the All-Flo Pump Company, Limited business ("All-Flo"voting stock of Innovative Control Systems, Inc. (“ICS”), a growing manufacturerleading provider of specialty pumpscar wash controllers, payment terminals, point-of-sale and wash site management software solutions, for $39,954.$77,030, net of cash acquired. The All-FloICS acquisition strengthens Dover's positionenhances the Clean Energy & Fueling segment's participation in the growing vehicle wash market and enhances the Company's offerings, business mix and recurring revenue stream with high-value hardware and software solutions critical to vehicle wash workflows and operations. In connection with this acquisition, the Company recorded goodwill of $47,339 and intangible assets of $33,525, primarily related to customer intangibles.
On August 20, 2020, the Company acquired 100% of the voting stock of Solaris Laser S.A. ("Solaris"), a global manufacturer of product identification and traceability solutions, for air-operated double-diaphragm pumps$18,680, net of cash acquired. The Solaris acquisition enhances the Imaging & Identification segment's growing laser technology product line and further strengthens its position as a leading provider of marking and coding equipment and solutions. In connection with this acquisition, the Company recorded goodwill of $12,230 and intangible assets of $3,280, primarily related to unpatented technology.
On April 30, 2020, the Company acquired 100% of the voting stock of Em-tec GmbH ("Em-tec"), a leading designer and manufacturer of flow measurement devices that serve a wide array of medical and biopharmaceutical applications, for $30,396, net of cash acquired. The Em-tec acquisition further expands the Company's reach into biopharma and other hygienic applications and enhances its portfolio of flow control technologies within the Pumps & Process Solutions segment. In connection with this acquisition, the Company recorded goodwill of $19,572 and intangible assets of $8,344, primarily related to customer intangibles.
On February 18, 2020, the Company acquired 100% of the voting stock of So. Cal. Soft-Pak, Incorporated ("Soft-Pak"), a leading specialized provider of integrated back office, route management and customer relationship management software solutions to the waste and recycling fleet industry, for $45,500, net of cash acquired. The Soft-Pak acquisition strengthens the digital offerings within the Engineered Products segment. In connection with this acquisition, the Company recorded goodwill of $33,183 and intangible assets of $12,800, primarily related to customer intangibles.
On January 25, 2019,24, 2020, the Company acquired 100% of the assetsvoting stock of Belanger,Sys-Tech Solutions, Inc. ("Belanger"Systech"), a leading full-line car wash equipment manufacturerprovider of product traceability, regulatory compliance and brand-protection software and solutions to pharmaceutical and consumer products manufacturers, for $175,350,$161,830, net of cash acquired. The BelangerSystech acquisition strengthens Dover's position in the vehicle wash business withinportfolio of solutions offered by the Fueling SolutionsImaging & Identification segment. In connection with this acquisition, the Company recorded goodwill of $91,493 and intangible assets of $76,100, primarily related to customer intangibles.
One other immaterial acquisition was completed during the year ended December 31, 2019, which included contingent consideration,2020, within the Pumps & Process Solutions segment.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
The following presents the allocation of purchase price to the assets acquired and liabilities assumed, based on their estimated fair values at acquisition date:
| | | | | | | | |
| Total | | | | |
| Current assets, net of cash acquired | $ | 14,01844,159 | | | | |
| Property, plant and equipment | 1,0308,424 | | | | |
| Goodwill | 119,512205,805 | | | | |
| Intangible assets | 91,980134,049 | | | | |
| Other assets and deferred charges | 2012,986 | | | | |
| Current liabilities | (10,162)(34,803) | | | | |
| Non-current liabilities | (34,834) | | | | |
| Net assets acquired | $ | 216,398335,786 | | | | |
The amounts assigned to goodwill and major intangible asset classifications were as follows:
| | | Amount allocated | | Useful life (in years) | | Amount allocated | | Useful life
(in years) |
| Goodwill | $ | 119,512 | | | na | |
| Goodwill - tax deductible | | Goodwill - tax deductible | $ | 33,183 | | | na |
| Goodwill - non deductible | | Goodwill - non deductible | 172,622 | | | na |
| Customer intangibles | | Customer intangibles | 103,310 | | | 10 | - | 14 |
| | Customer intangibles | 68,500 | | | 9 - 13 | |
| Patents | 16,000 | | | 9 | |
| Unpatented technology | | Unpatented technology | 21,125 | | | 5 | - | 9 |
| Trademarks | Trademarks | 7,480 | | | 15 | Trademarks | 9,614 | | | 15 |
| | | $ | 211,492 | | | | $ | 339,854 | | |
20182019
During the year ended December 31, 2018,2019, the Company acquired two3 businesses in separate transactions for total consideration of $68,557,$216,398, net of cash acquired. The businesses were acquired to complement and expand upon existing operations within the Pumps & Process Solutions and Refrigeration & Food Equipment segments. The goodwill identified by these acquisitions reflects the benefits expected to be derived from product line expansion and operational synergies. The goodwill is non-deductible for U.S. federal income tax purposes for these acquisitions.
including contingent consideration. On January 2, 2018,May 7, 2019, the Company acquired 100%the assets of the voting stock of Ettlinger Group ("Ettlinger"),All-Flo Pump Company, Limited business, within the Pumps & Process Solutions segment, for $53,218,total consideration of $39,954. On January 25, 2019, the Company acquired the assets of Belanger, Inc., within the Clean Energy & Fueling segment for $175,350, net of cash acquired. In connection with this acquisition, the Company recorded goodwill of $36,303 and intangible assets of $19,907, primarily related to customer intangibles. The intangible assets are being amortized over 8 to 15 years.
On January 12, 2018, the Company acquired 100% of the voting stock of Rosario Handel B.V. ("Rosario"), within the Refrigeration & Food Equipment segment for total consideration of $15,339, net of cash acquired. In connection with this acquisition, the Company recorded goodwill of $10,408 and a customer intangible asset of $4,149. The customer intangible asset is being amortized over 10 years.
The pro forma effects of the 2019 and 2018 acquisitions on the Company’s operations are disclosed in this footnote.
2017
During the year ended December 31, 2017, the Company acquired two businesses in separate transactions for total consideration of $34,300. On April 5, 2017, the Company purchased 100% of the voting stock of Caldera Graphics S.A.S. ("Caldera") within the Imaging & Identification segment for $32,857, net of cash acquired and including contingent consideration. One other immaterial acquisition was completed during the year ended December 31, 2019, which included contingent consideration, within the ImagingPumps & IdentificationProcess Solutions segment.
| | | | | | | | |
| Total | | | |
| Current assets, net of cash acquired | $ | 14,018 | | | | |
| Property, plant and equipment | 1,030 | | | | |
| Goodwill | 119,512 | | | | |
| Intangible assets | 91,980 | | | | |
| Other assets and deferred charges | 20 | | | | |
| Current liabilities | (10,162) | | | | |
| | | | |
| Net assets acquired | $ | 216,398 | | | | |
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
The amounts assigned to goodwill and major intangible asset classifications were as follows:
| | | | | | | | | | | | | | | | | |
| Amount allocated | | Useful life
(in years) |
| Goodwill | $ | 119,512 | | | na |
| | | |
| Customer intangibles | 68,500 | | | 9 | - | 13 |
| Patents | 16,000 | | | 9 |
| | | | | |
| Trademarks | 7,480 | | | 15 |
| | | | | |
| $ | 211,492 | | | | | |
Pro Formaforma Information (Unaudited)
The following unaudited pro forma results of operations reflect the 20192021 acquisitions of RegO and Acme Cryogenics as if they had occurred on January 1, 2018 and the 2018 acquisitions as if they had occurred on January 1, 2017.2020. The pro forma information is not necessarily indicative of the results that actually would have occurred, nor does it indicate future operating results.results of the combined companies. The supplemental pro forma earnings reflect adjustments to earnings from continuing operations as reported in the Consolidated Statements of Earnings to exclude nonrecurring expense related to the fair value adjustments to acquisition-date inventory (after-tax) and acquisition-related costs (after-tax) from the year ended December 31, 2019. These adjustments were not material in 2019 and 2018. The supplemental pro forma earnings for the 2018 period were similarly adjusted for 2018 acquisitions charges as if incurred at the beginning of 2017. The 2019 and 2018 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 relatingassets; nonrecurring acquisition-related costs, net of tax, of $5,855; and inventory step-up charges, net of tax, of $15,082. These unaudited pro forma adjustments are based upon preliminary purchase price allocations. The actual revenues and earnings for RegO and Acme Cryogenics from the date of acquisition on December 28, 2021 and December 16, 2021, respectively, to December 31, 2021 were not material.
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2021 | | 2020 |
| Revenue: | | | |
| As reported | $ | 7,907,081 | | | $ | 6,683,760 | |
| Pro forma (unaudited) | 8,163,185 | | | 6,920,929 | |
| Earnings: | | | |
| As reported | $ | 1,123,818 | | | $ | 683,451 | |
| Pro forma (unaudited) | 1,145,106 | | | 669,458 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
The pro forma results for the remaining seven acquisitions in 2021, as well as the acquisitions in 2020 and 2019 and 2018 acquisitions.are not presented as they are not considered material.
| | | | | | | | | | | |
| | Years Ended December 31, | | |
| | 2019 | | 2018 |
| Revenue: | | | |
| As reported | $ | 7,136,397 | | | $ | 6,992,118 | |
| Pro forma | 7,145,275 | | | 7,059,856 | |
| Earnings: | | | |
| As reported | $ | 677,918 | | | $ | 591,145 | |
| Pro forma | 680,824 | | | 600,603 | |
| Basic earnings per share: | | | |
| As reported | $ | 4.67 | | | $ | 3.94 | |
| Pro forma | 4.69 | | | 4.01 | |
| Diluted earnings per share: | | | |
| As reported | $ | 4.61 | | | $ | 3.89 | |
| Pro forma | 4.63 | | | 3.95 | |
5. Discontinued and Disposed Operations4. Dispositions
Discontinued OperationsManagement evaluates Dover's businesses periodically for their strategic fit within its operations and may from time to time sell or discontinue certain operations for various reasons.
2021
On December 1, 2021, the Company completed the sale of Unified Brands ("UB"), a wholly owned subsidiary of the Company. The Apergy businesses, as discussedCompany recognized total consideration of $229,024. This sale resulted in Note 2, meta preliminary pre-tax gain on disposition of $181,615 included within the criteriaConsolidated Statements of Earnings and within the Climate & Sustainability Technologies segment for the year ended December 31, 2021. The preliminary total consideration and preliminary pre-tax gain on disposition are subject to be reported as discontinued operations because the spin-off isstandard working capital adjustments. The sale does not represent a strategic shift in business that haswill have a major effect on the Company's operations and financial results. Therefore,results and, therefore, did not qualify for presentation as a discontinued operation.
On November 16, 2021, the resultsCompany disposed its equity method investment in Race Winning Brands ("RWB") for a total consideration of discontinued operations$45,958, resulting in a recognized gain of $24,723 included within the Consolidated Statements of Earnings and within the Engineered Products segment for the yearsyear ended December 31, 2018 and 2017 include the historical results of Apergy prior to its distribution on May 9, 2018. The years ended December 31, 2018 and 2017 included costs incurred by Dover to complete the spin-off of Apergy amounting to $46,384 and $15,270, respectively, reflected in selling, general and administrative expenses in discontinued operations. Due to lump-sum payments made in 2018 for Apergy participants of the Dover U.S. Pension Plan, non-cash settlement and curtailment costs of approximately $9,200 were classified within discontinuing operations. See Note 2 — Spin-off of Apergy Corporation and Note 17 — Employee Benefit Plans for further information.2021.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Summarized results of the Company's discontinued operations are as follows:
| | | | | | | | | | | | | | | | | | | |
| | | | | | | Years Ended December 31, | | | | |
| | | | | | | | 2018 | | 2017 |
| Revenue | | | | | | | $ | 403,688 | | | $ | 1,010,135 | |
| Cost of goods and services | | | | | | | 254,205 | | | 648,805 | |
| Gross profit | | | | | | | 149,483 | | | 361,330 | |
| Selling, general and administrative expenses | | | | | | | 147,261 | | | 262,353 | |
| Operating earnings | | | | | | | 2,222 | | | 98,977 | |
| Other expense, net | | | | | | | 9,048 | | | 949 | |
| (Loss) earnings from discontinued operations before taxes | | | | | | | (6,826) | | | 98,028 | |
| Provision (benefit) for income taxes | | | | | | | 14,052 | | | 33,026 | |
| (Loss) earnings from discontinued operations, net of tax | | | | | | | $ | (20,878) | | | $ | 65,002 | |
| | | | | | | | | |
| | | | | | | | | |
On May 9, 2018, all assetsMarch 6, 2020, the Company completed the sale of the Chino, California branch of The AMS Group ("AMS Chino"), a wholly owned subsidiary of the Company. The Company recognized total consideration of $15,400, which included a working capital adjustment. This sale resulted in a pre-tax gain on disposition of $5,213 included within the Consolidated Statements of Earnings and liabilities of Apergy were spun-off. Therefore, as ofwithin the Climate & Sustainability Technologies segment for the year ended December 31, 20192020. The sale did not represent a strategic shift that had a major effect on operations and 2018, there were no assetsfinancial results and, liabilities classifiedtherefore, did not qualify for presentation as a discontinued operations.
Disposed Businessesoperation.
2019
On March 29, 2019, the Company entered into a definitive agreement to sell Finder Pompe S.r.l ("Finder"), a wholly owned subsidiary, to Gruppo Aturia S.p.A (“Aturia”). As of March 31, 2019, Finder met the criteria to be classified as held for sale. The Company classified Finder's assets and liabilities separately on the consolidated balance sheet as of March 31, 2019.
Based on the total consideration from the sale, net of selling costs, the Company recorded a loss on the assets held for sale of $46,946 in the Condensed Consolidated Statements of Earnings during the three months ended March 31, 2019. The loss was comprised of an impairment on assets held for sale of $21,607 and $25,339 of foreign currency translation losses reclassified out of accumulated other comprehensive losses.
On April 2, 2019, Dover completed the sale of Finder to Aturia, which generated total cash proceeds of $24,218. The Finder business was included in the results of the Pumps & Process Solutions segment. The sale doesdid not represent a strategic shift that will havehad a major effect on operations and financial results and, therefore, did not qualify for presentation as a discontinued operation.
2018
5. Inventories, net
ThereThe components of inventories, net were no other material dispositions in 2018 aside from the spin-off of Apergy.as follows: | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| Raw materials | $ | 671,195 | | | $ | 497,604 | |
| Work in progress | 271,659 | | | 152,360 | |
| Finished goods | 377,800 | | | 304,760 | |
| Subtotal | 1,320,654 | | | 954,724 | |
| Less reserves | (129,559) | | | (118,920) | |
| Total | $ | 1,191,095 | | | $ | 835,804 | |
2017At December 31, 2021 and 2020, approximately 4% of the Company's total inventories were accounted for using the LIFO method.
On November 1, 2017, the Company completed the sale of the consumer
6. Property, Plant and industrial winch business of Warn Industries, Inc. ("Warn"), a wholly owned subsidiary of the Company, for total consideration of $250,283. The Company recognized a pre-tax gain on sale of $116,932. The Company retained the automotive business of Warn within the Engineered Products segment.Equipment, net
On February 14, 2017, the Company completed the saleThe components of Performance Motorsports International ("PMI"), a wholly owned subsidiary of the Company that manufactures pistonsproperty, plant and other engine related components serving the motorsportsequipment, net were as follows: | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| Land | $ | 63,656 | | | $ | 60,287 | |
| Buildings and improvements | 582,314 | | | 570,366 | |
| Machinery, equipment and other | 1,816,473 | | | 1,772,772 | |
| Property, plant and equipment, gross | 2,462,443 | | | 2,403,425 | |
| Total accumulated depreciation | (1,505,133) | | | (1,506,099) | |
| Property, plant and equipment, net | $ | 957,310 | | | $ | 897,326 | |
Total depreciation expense was $147,309, $140,008 and powersports markets. Total consideration$133,340 for the transaction was $147,313, including cash proceeds of $118,706. The Company recognized a pre-tax gain on sale of $88,402years ended December 31, 2021, 2020 and recorded a 25% equity method investment at fair value of $18,607 as well as a subordinated note receivable of $10,000.2019, respectively.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Other immaterial dispositions completed during the year were recorded as a net pre-tax loss of $2,196. Gains and losses recorded from the sale of businesses were reported in the gain on sale of businesses line in the Consolidated Statements of Earnings.7. Leases
6. Inventories
The components of inventories were as follows:
| | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 |
| Raw materials | $ | 467,912 | | | $ | 439,616 | |
| Work in progress | 162,670 | | | 154,878 | |
| Finished goods | 280,051 | | | 265,722 | |
| Subtotal | 910,633 | | | 860,216 | |
| Less reserves | (104,492) | | | (111,420) | |
| Total | $ | 806,141 | | | $ | 748,796 | |
At December 31, 2019 and 2018, approximately 8% and 11%, respectively, of the Company's total inventories were accounted for using the LIFO method.
7. Property, Plant and Equipment, net
The components of property, plant and equipment, net were as follows:
| | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 |
| Land | $ | 56,583 | | | $ | 53,623 | |
| Buildings and improvements | 527,192 | | | 529,982 | |
| Machinery, equipment and other | 1,648,354 | | | 1,555,345 | |
| Property, plant and equipment, gross | 2,232,129 | | | 2,138,950 | |
| Total accumulated depreciation | (1,389,811) | | | (1,332,453) | |
| Property, plant and equipment, net | $ | 842,318 | | | $ | 806,497 | |
Total depreciation expense was $133,340, $138,712 and $133,107 for the years ended December 31, 2019, 2018 and 2017, respectively.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
8. Leases
The Company adopted ASC Topic 842, Leases as of January 1, 2019, using the transition method per ASU No. 2018-11 issued in July 2018 wherein entities were allowed to initially apply the new leases standard at adoption date. Accordingly, all periods prior to January 1, 2019 were presented in accordance with the previous ASC Topic 840, Leases, and no retrospective adjustments were made to the comparative periods presented. Adoption of ASC Topic 842 resulted in an increase to total assets and liabilities due to the recording of operating lease ROU assets and operating lease liabilities of approximately $163 million, as of January 1, 2019. The adoption did not materially impact the Company’s Consolidated Statements of Earnings or Cash Flows. See Note 1 — BasisDescription of PresentationBusiness and Summary of Significant Accounting Policies for further detail on ROU assets and lease liabilities.
The components of lease costs were as follows:
| | | | | | | | | | | |
| | | | | Year Ended December 31, 2019 | | |
| | | | | | | |
Operating Lease Costs: | | | | | | | |
Fixed | | | | | $ | 52,317 | | | |
Variable | | | | | 6,584 | | | |
Short-term | | | | | 17,387 | | | |
Total(1)
| | | | | $ | 76,288 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Operating Lease Costs: | | | | | |
| Fixed | $ | 54,397 | | | $ | 52,875 | | | $ | 52,317 | |
| Variable | 6,281 | | | 5,973 | | | 6,584 | |
| Short-term | 17,847 | | | 18,436 | | | 17,387 | |
Total(1) | $ | 78,525 | | | $ | 77,284 | | | $ | 76,288 | |
| | |
| | | | | |
| | | | | |
| | | | | |
(1) Finance lease cost and sublease income were immaterial.
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | |
| | | | | Year Ended December 31, 2019 | | |
| | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash flows from operating leases | | | | | $ | 53,450 | | | |
Operating cash flows from finance leases | | | | | 425 | | |
Financing cash flows from finance leases | | | | | 1,915 | | |
Total | | | | | $ | 55,790 | | | |
Right-of-use assets obtained in exchange for lease obligations: | | | | | | | |
Operating leases | | | | | $ | 41,598 | | | |
Financing leases | | | | | 1,542 | | |
Total | | | | | $ | 43,140 | | | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | | | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Operating cash flows for operating leases | $ | 55,921 | | | $ | 53,903 | | | $ | 53,450 | |
| Operating cash flows for finance leases | 357 | | 434 | | | 425 | |
| Financing cash flows for finance leases | 3,073 | | 2,523 | | | 1,915 | |
| Total | $ | 59,351 | | | $ | 56,860 | | | $ | 55,790 | |
| Right-of-use assets obtained in exchange for lease obligations: | | | | | |
| Operating leases | $ | 47,666 | | | $ | 21,381 | | | $ | 41,598 | |
| Financing leases | 2,016 | | 3,708 | | | 1,542 | |
| Total | $ | 49,682 | | | $ | 25,089 | | | $ | 43,140 | |
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Supplemental balance sheet information related to leases were as follows: | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| | | |
| Operating Leases | | | |
| Right-of-use assets: | | | |
| Other assets and deferred charges | $ | 169,022 | | | $ | 170,089 | |
| | | |
| Lease liabilities: | | | |
| Other accrued expenses | $ | 43,086 | | | $ | 48,834 | |
| Other liabilities | 134,448 | | | 133,989 | |
| Total operating lease liabilities | $ | 177,534 | | | $ | 182,823 | |
| | | |
| Finance Leases | | | |
| Right-of-use assets: | | | |
| | | |
| | | |
Property, plant and equipment, net (1) | $ | 8,588 | | | $ | 10,388 | |
| | | |
| Lease liabilities: | | | |
| Other accrued expenses | $ | 2,475 | | | $ | 2,641 | |
| Other liabilities | 6,767 | | | 8,709 | |
| Total financing lease liabilities | $ | 9,242 | | | $ | 11,350 | |
| | | | | | | | | | | |
| (1) | | | | | | | December 31, 2019 |
| | | | | | | |
Operating Leases | | | | | | | |
Right-of-use assets: | | | | | | | |
Other assets and deferred charges | | | | | | | $ | 155,019 | |
| | | | | | | |
Lease liabilities: | | | | | | | |
Other accrued expenses | | | | | | | $ | 41,835 | |
Other liabilities | | | | | | | 121,298 | |
Total operating lease liabilities | | | | | | | $ | 163,133 | |
| | | | | | | |
Finance Leases | | | | | | | |
Right of use assets: | | | | | | | |
| | | | | | | |
| | | | | | | |
Property and equipment, net (1)
| | | | | | | $ | 9,008 | |
| | | | | | | |
Lease liabilities: | | | | | | | |
Other accrued expenses | | | | | | | $ | 1,794 | |
Other liabilities | | | | | | | 8,078 | |
Total financing lease liabilities | | | | | | | $ | 9,872 | |
(1) Finance lease right-of-use assets are recorded net of accumulated depreciation of $4,614.$7,675 and $7,205 for the years ended December 31, 2021 and December 31, 2020, respectively.
The aggregate future lease payments for operating and finance leases as of December 31, 20192021 were as follows:
| | | | Operating | | Finance | | Operating | | Finance |
| 2020 | $ | 45,838 | | | $ | 2,199 | | |
| 2021 | 36,761 | | | 2,107 | | |
| 2022 | 2022 | 26,774 | | | 1,816 | | 2022 | $ | 47,649 | | | $ | 2,822 | |
| 2023 | 2023 | 17,184 | | | 1,338 | | 2023 | 35,713 | | | 2,372 | |
| 2024 | 2024 | 12,966 | | | 1,133 | | 2024 | 28,124 | | | 1,845 | |
| 2025 | | 2025 | 23,756 | | | 1,433 | |
| 2026 | | 2026 | 16,058 | | | 1,204 | |
| Thereafter | Thereafter | 40,034 | | | 2,909 | | Thereafter | 39,539 | | | 767 | |
| Total lease payments | Total lease payments | 179,557 | | | | 11,502 | | Total lease payments | 190,839 | | | 10,443 | |
| Less: Interest | (16,424) | | | | (1,630) | | |
| Less interest | | Less interest | (13,305) | | | (1,201) | |
| Present value of lease liabilities | Present value of lease liabilities | $ | 163,133 | | | $ | 9,872 | | Present value of lease liabilities | $ | 177,534 | | | $ | 9,242 | |
Average lease terms and discount rates were as follows:
| | | | | |
| December 31, 2019 |
Weighted-average remaining lease term (years) | |
Operating leases | 5.9 |
Finance leases | 5.9 |
Weighted-average discount rate | |
Operating leases | 3.2% | |
Finance leases | 4.1% | |
| | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
| Weighted-average remaining lease term (years) | | | | | |
| Operating leases | 5.8 | | 5.9 | | 5.9 |
| Finance leases | 4.2 | | 4.8 | | 5.9 |
| Weighted-average discount rate | | | | | |
| Operating leases | 2.7% | | 2.9% | | 3.2% |
| Finance leases | 3.4% | | 3.6% | | 4.1% |
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
8. Credit Losses
Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments prospectively. This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including trade receivables. The amendment requires entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due. Upon adoption, the Company recorded a noncash cumulative effect adjustment to retained earnings of $2.1 million, net of $0.6 million of income taxes, on the opening consolidated balance sheet as of January 1, 2020.
The Company is exposed to credit losses primarily through sales of products and services. Due to the short-term nature of such receivables, the estimate of amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and other historical and forward-looking information on the financial condition of the customers. Balances are written off when determined to be uncollectible.
Estimates are used to determine the allowance. It is based on assessment of anticipated payment and all other historical, current and forward-looking information that is reasonably available.
The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected. The period prior to January 1, 2020 is presented in accordance with pre-adoption methodology of incurred loss impairment model.
| | | | | | | | | | | |
| 2021 | 2020 | 2019 |
| Beginning Balance, January 1, | $ | 40,474 | | $ | 29,381 | | $ | 28,469 | |
| Adoption of ASU 2016-13, cumulative-effect adjustment to retained earnings | — | | 2,706 | | — | |
| Provision for expected credit losses, net of recoveries | 5,053 | | 11,171 | | 5,933 | |
| Amounts written off charged against the allowance | (5,307) | | (3,863) | | (3,464) | |
| Other, including dispositions and foreign currency translation | (94) | | 1,079 | | (1,557) | |
| Ending balance, December 31 | $ | 40,126 | | $ | 40,474 | | $ | 29,381 | |
9. Goodwill and Other Intangible Assets
Goodwill
ASC 350, Intangibles - Goodwill and Other Intangibles, provides guidance on an entity's subsequent measurement and recognition of goodwill and other intangibles, including subsequent changes to carrying amounts, including impairment and fair value adjustments. In accordance with the guidance set forth
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in ASC 350,thousands except share data and in connection with the separation of Apergy, in 2018, the Company was required to calculate the portion of goodwill included in the Apergy distribution. Using a relative fair value approach, the Company reallocated $3,546 of goodwill from a reporting unit that included Apergy to a reporting unit now included within the Engineered Products segment. In 2019, in connection with the change in segment structure, the Company changed its reporting units which resulted in a reallocation of $40,394 of goodwill from the Engineered Products segment to the Imaging & Identification segment using the relative fair value approach. See Note 19 — Segment Information for further information.where otherwise indicated)
The changes in the carrying value of goodwill by reportable operating segments were as follows:
| | | | Engineered Products | | Fueling Solutions | | Imaging & Identification | | Pumps & Process Solutions | | Refrigeration & Food Equipment | | Total | | Engineered Products | | Clean Energy & Fueling | | Imaging & Identification | | Pumps & Process Solutions | | Climate & Sustainability Technologies | | Total |
| Goodwill | Goodwill | $ | 695,041 | | | $ | 794,635 | | | $ | 960,939 | | | $ | 769,619 | | | $ | 536,699 | | | $ | 3,756,933 | | Goodwill | $ | 647,162 | | | $ | 873,381 | | | $ | 977,069 | | | $ | 810,597 | | | $ | 545,699 | | | $ | 3,853,908 | |
| Accumulated impairment loss | Accumulated impairment loss | (10,591) | | | — | | | — | | | (59,970) | | | — | | | (70,561) | | Accumulated impairment loss | (10,591) | | | — | | | — | | | (59,970) | | | — | | | (70,561) | |
| Balance at January 1, 2018 | 684,450 | | | 794,635 | | | 960,939 | | | 709,649 | | | 536,699 | | | 3,686,372 | | |
| Reallocation due to Apergy separation | 3,546 | | | — | | | — | | | — | | | — | | | 3,546 | | |
| Balance at January 1, 2020 | | Balance at January 1, 2020 | 636,571 | | | 873,381 | | | 977,069 | | | 750,627 | | | 545,699 | | | 3,783,347 | |
| Acquisitions | | Acquisitions | 33,183 | | | 47,339 | | | 103,723 | | | 21,560 | | | — | | | 205,805 | |
| | Disposition of business | | Disposition of business | — | | | — | | | — | | | — | | | (2,597) | | | (2,597) | |
| Foreign currency translation | | Foreign currency translation | 13,231 | | | 20,253 | | | 36,797 | | | 14,093 | | | 1,613 | | | 85,987 | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | 682,985 | | | 940,973 | | | 1,117,589 | | | 786,280 | | | 544,715 | | | 4,072,542 | |
| Acquisitions | Acquisitions | — | | | — | | | — | | | 36,303 | | | 10,408 | | | 46,711 | | Acquisitions | 50,180 | | | 496,461 | | | 20,458 | | | 15,018 | | | — | | | 582,117 | |
| Purchase price adjustments | Purchase price adjustments | — | | | — | | | 328 | | | — | | | — | | | 328 | | Purchase price adjustments | — | | | 2,640 | | | (1,926) | | | — | | | — | | | 714 | |
| Foreign currency translation | (8,803) | | | (24,016) | | | (16,799) | | | (8,970) | | | (1,041) | | | (59,629) | | |
| Balance at December 31, 2018 | 679,193 | | | 770,619 | | | 944,468 | | | 736,982 | | | 546,066 | | | 3,677,328 | | |
| Acquisitions | — | | | 97,898 | | | — | | | 21,614 | | | — | | | 119,512 | | |
| | Reallocation due to reporting unit changes | (40,394) | | | — | | | 40,394 | | | — | | | — | | | — | | |
| Disposition of business | Disposition of business | — | | | — | | | — | | | (4,739) | | | — | | | (4,739) | | Disposition of business | — | | | — | | | — | | | — | | | (34,662) | | | (34,662) | |
| Foreign currency translation | Foreign currency translation | (2,228) | | | 4,864 | | | (7,793) | | | (3,230) | | | (367) | | | (8,754) | | Foreign currency translation | (9,882) | | | (12,383) | | | (29,919) | | | (8,459) | | | (1,246) | | | (61,889) | |
| Balance at December 31, 2019 | $ | 636,571 | | | $ | 873,381 | | | $ | 977,069 | | | $ | 750,627 | | | $ | 545,699 | | | $ | 3,783,347 | | |
Balance at December 31, 2021 (1) | | Balance at December 31, 2021 (1) | $ | 723,283 | | | $ | 1,427,691 | | | $ | 1,106,202 | | | $ | 792,839 | | | $ | 508,807 | | | $ | 4,558,822 | |
(1) The accumulated impairment loss as of December 31, 2021 was $70,561, of which $59,970 was associated with the Pumps & Process Solutions segment and $10,591 was associated with the Engineered Products segment. These impairment losses were incurred prior to January 1, 2020.
During 20192021 and 2018,2020, the Company recognized additions of $119,512$582,117 and $46,711,$205,805, respectively, to goodwill as a result of acquisitions as discussed in Note 43 — Acquisitions. During 20192021 and 2018,2020, the Company recorded adjustments totaling $0disposed of $34,662 and $328,$2,597, respectively, as a result of the finalization of purchase price allocation to assets acquired and liabilities assumed related to acquisitions completed in 2018 and 2017.
During 2019, the Company derecognized $4,739 of goodwill as a result of the dispositiondispositions of businesses as discussed in Note 54 — Discontinued and Disposed Operations.Dispositions. The Company reallocated goodwill upon disposal based upon the fair value of the disposed business relative to the remaining entities in its reporting unit.
Annual impairment testing
The Company tests goodwill for impairment annually in the fourth quarter of each year, whenever events or circumstances indicate an impairment may have occurred, or when a change in the composition of reporting units occurs for other reasons, such as a change in segments. Concurrent with the timing of the annual impairment test, effective October 1, 2019, the Company changed its management structure which resulted in a change in its operating segments and reporting units. As a result, management tested goodwill for impairment before and after the segment change under the old and new reporting unit structures.
The Company performed its annual goodwill impairment test during the fourth quarter of 20192021 using a discounted cash flow analysis as discussed in Note 1 — Description of Business and Summary of Significant Accounting Policies. The Company performed a quantitative goodwill impairment test for each of its seven reporting units, under the old structure and 15 reporting units under the new structure, concluding that the fair values of all of its reporting units were substantially in excess of their carrying values. No impairment of goodwill was required. As previously noted, the fair values of each of the
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Company’s reporting units was determined using a discounted cash flow analysis which includes management’s current assumptions as to future cash flows and long-term growth rates. The discount rates used in these analyses varied by reporting unit and were based on a capital asset pricing model and published relevant industry rates. The Company used discount rates commensurate with the risks and uncertainties inherent to each reporting unit and in our internally developed forecasts. Discount rates used in the 20192021 reporting unit valuations ranged from 8.0% to 9.5%9.0%. Further, the Company assessed the current market capitalization, forecasts and the amount of headroom in the 2021 impairment test.
While the Company believes the assumptions used in the 20192021 impairment analysis are reasonable and representative of expected results, actual results may differ from expectations.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Intangible Assets
The Company's definite-lived and indefinite-lived intangible assets by major asset class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | | | | | December 31, 2018 | | | | |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Amortized intangible assets: | | | | | | | | | | | |
| Customer intangibles | $ | 1,410,636 | | | $ | 714,566 | | | $ | 696,070 | | | $ | 1,395,742 | | | $ | 645,305 | | | $ | 750,437 | |
| Trademarks | 218,064 | | | 85,791 | | | 132,273 | | | 214,774 | | | 72,305 | | | 142,469 | |
| Patents | 159,376 | | | 133,677 | | | 25,699 | | | 144,302 | | | 128,254 | | | 16,048 | |
| Unpatented technologies | 154,505 | | | 99,276 | | | 55,229 | | | 155,380 | | | 85,560 | | | 69,820 | |
| Distributor relationships | 82,779 | | | 44,202 | | | 38,577 | | | 82,970 | | | 37,943 | | | 45,027 | |
| Drawings & manuals | 27,500 | | | 22,403 | | | 5,097 | | | 31,849 | | | 23,273 | | | 8,576 | |
| Other | 22,355 | | | 16,939 | | | 5,416 | | | 21,046 | | | 15,835 | | | 5,211 | |
| Total | 2,075,215 | | | 1,116,854 | | | 958,361 | | | 2,046,063 | | | 1,008,475 | | | 1,037,588 | |
| Unamortized intangible assets: | | | | | | | | | | | |
| Trademarks | 96,653 | | | — | | | 96,653 | | | 96,668 | | | — | | | 96,668 | |
| Total intangible assets, net | $ | 2,171,868 | | | $ | 1,116,854 | | | $ | 1,055,014 | | | $ | 2,142,731 | | | $ | 1,008,475 | | | $ | 1,134,256 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| | Gross Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Amount | | Accumulated Amortization | | Net Carrying Amount |
| Amortized intangible assets: | | | | | | | | | | | |
| Customer intangibles | $ | 1,829,492 | | | $ | 909,776 | | | $ | 919,716 | | | $ | 1,559,771 | | | $ | 834,798 | | | $ | 724,973 | |
| Trademarks | 263,367 | | | 116,633 | | | 146,734 | | | 233,205 | | | 103,907 | | | 129,298 | |
| Patents | 205,910 | | | 140,327 | | | 65,583 | | | 163,299 | | | 141,182 | | | 22,117 | |
| Unpatented technologies | 221,239 | | | 123,464 | | | 97,775 | | | 180,947 | | | 113,404 | | | 67,543 | |
| Distributor relationships | 84,204 | | | 55,260 | | | 28,944 | | | 87,028 | | | 51,611 | | | 35,417 | |
| Drawings & manuals | 27,792 | | | 27,303 | | | 489 | | | 29,198 | | | 26,193 | | | 3,005 | |
| Other | 22,347 | | | 18,775 | | | 3,572 | | | 23,901 | | | 19,324 | | | 4,577 | |
| Total | 2,654,351 | | | 1,391,538 | | | 1,262,813 | | | 2,277,349 | | | 1,290,419 | | | 986,930 | |
| Unamortized intangible assets: | | | | | | | | | | | |
| Trademarks | 96,709 | | | — | | | 96,709 | | | 96,842 | | | — | | | 96,842 | |
| Total intangible assets, net | $ | 2,751,060 | | | $ | 1,391,538 | | | $ | 1,359,522 | | | $ | 2,374,191 | | | $ | 1,290,419 | | | $ | 1,083,772 | |
The Company recorded $91,980$439,479 of acquired intangible assets in 2019.2021. See Note 43 — Acquisitions.Acquisitions for further information.
Amortization expense was $138,947, $143,868$142,814, $139,043 and $150,171,$138,947, including acquisition-related intangible amortization of $136,963, $142,170$141,134, $137,071 and $148,147,$136,963, for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively.
Estimated future amortization expense related to intangible assets held at December 31, 20192021 is as follows:
| | | Estimated Amortization | | | Estimated Amortization |
| 2020 | $ | 127,990 | | |
| 2021 | 122,079 | | |
| 2022 | 2022 | 108,670 | | 2022 | $ | 153,937 | |
| 2023 | 2023 | 98,960 | | 2023 | 144,167 | |
| 2024 | 2024 | 94,528 | | 2024 | 139,696 | |
| 2025 | | 2025 | 135,608 | |
| 2026 | | 2026 | 127,539 | |
10. Accrued Expenses and Other Liabilities
The following table details the major components of other accrued expenses:
| | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| | | |
| Accrued rebates and volume discounts | $ | 52,909 | | | $ | 49,929 | |
Taxes other than income (1) | 49,992 | | | 52,829 | |
| Warranty | 43,449 | | | 45,433 | |
| Operating lease liability | 43,086 | | | 48,834 | |
| Accrued interest | 20,426 | | | 20,822 | |
| Accrued commissions (non-employee) | 16,273 | | | 14,243 | |
| Restructuring and exit costs | 13,797 | | | 14,913 | |
| | | |
| | | |
| | | |
| Other (none of which are individually significant) | 107,165 | | | 96,634 | |
| Total other accrued expenses | $ | 347,097 | | | $ | 343,637 | |
(1) Taxes other than income includes a $15.3 million and $15.8 million deferral of employment taxes related to the U.S. CARES Act as of December 31, 2021 and 2020, respectively.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
10. Other Accrued Expenses and Other Liabilities
The following table details the major components of other accrued expenses:
| | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 |
| Contract liabilities - current | $ | 44,001 | | | $ | 36,461 | |
| Accrued rebates and volume discounts | 43,694 | | | 38,064 | |
| Warranty | 43,018 | | | 42,498 | |
| Operating lease liability | 41,835 | | | — | |
| Taxes other than income | 34,419 | | | 34,785 | |
| Accrued interest | 20,403 | | | 25,390 | |
| Restructuring and exit costs | 16,173 | | | 27,697 | |
| Accrued commissions (non-employee) | 15,916 | | | 17,847 | |
| | | |
| | | |
| | | |
| Other (none of which are individually significant) | 79,601 | | | 90,710 | |
| Total other accrued expenses | $ | 339,060 | | | $ | 313,452 | |
The following table details the major components of other liabilities (non-current):
| | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| Defined benefit and other post-retirement benefit plans | $ | 138,992 | | | $ | 177,623 | |
| | | |
| Operating lease liabilities | 134,448 | | | 133,989 | |
| Deferred compensation | 88,681 | | | 82,814 | |
| Unrecognized tax benefits | 79,757 | | | 90,097 | |
| Legal and environmental | 31,304 | | | 28,483 | |
| Deferred revenue | 21,513 | | | 13,921 | |
| Warranty | 5,119 | | | 5,655 | |
Deferred employment taxes (1) | — | | | 15,783 | |
| Other | 32,728 | | | 21,949 | |
| Total other liabilities | $ | 532,542 | | | $ | 570,314 | |
| | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 |
| Defined benefit and other post-retirement benefit plans | $ | 165,150 | | | $ | 167,930 | |
| | | |
| Operating lease liabilities | 121,298 | | | — | |
| Unrecognized tax benefits | 101,052 | | | 112,299 | |
| Deferred compensation | 78,375 | | | 81,332 | |
| Legal and environmental | 30,514 | | | 31,462 | |
| Contract liabilities - non current | 9,121 | | | 9,382 | |
| Warranty | 6,098 | | | 7,575 | |
| Other (none of which are individually significant) | 15,566 | | | 22,415 | |
| Total other liabilities | $ | 527,174 | | | $ | 432,395 | |
Warranty
Estimated warranty program claims are provided for at the time of sale. Amounts provided for are based on historical costs and adjusted for new claims. The changes in the carrying amount of product warranties were as follows:
| | | Years Ended December 31, | | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 |
| Beginning Balance, December 31 of the Prior Year | Beginning Balance, December 31 of the Prior Year | $ | 50,073 | | | $ | 59,403 | | | $ | 80,331 | | Beginning Balance, December 31 of the Prior Year | $ | 51,088 | | | $ | 49,116 | | | $ | 50,073 | |
| Provision for warranties | Provision for warranties | 63,957 | | | 59,176 | | | 57,164 | | Provision for warranties | 67,212 | | | 60,902 | | | 63,957 | |
| Settlements made | Settlements made | (63,574) | | | (66,687) | | | (71,068) | | Settlements made | (65,498) | | | (60,853) | | | (63,574) | |
| Other adjustments, including acquisitions and currency translation | Other adjustments, including acquisitions and currency translation | (1,340) | | | (1,819) | | | (7,024) | | Other adjustments, including acquisitions and currency translation | (4,234) | | | 1,923 | | | (1,340) | |
| Ending Balance, December 31 | Ending Balance, December 31 | $ | 49,116 | | | $ | 50,073 | | | $ | 59,403 | | Ending Balance, December 31 | $ | 48,568 | | | $ | 51,088 | | | $ | 49,116 | |
11. Restructuring Activities
The Company initiated various restructuring programs and incurred severance and other restructuring costs by segment as follows:
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Engineered Products | $ | 9,507 | | | $ | 10,307 | | | $ | 3,155 | |
| Clean Energy & Fueling | 3,609 | | | 6,681 | | | 4,943 | |
| Imaging & Identification | 4,589 | | | 5,946 | | | 6,426 | |
| Pumps & Process Solutions | 1,911 | | | 13,374 | | | 5,666 | |
| Climate & Sustainability Technologies | 5,068 | | | 4,015 | | | 3,671 | |
| Corporate | 2,021 | | | 4,145 | | | 2,961 | |
| Total | $ | 26,705 | | | $ | 44,468 | | | $ | 26,822 | |
| These amounts are classified in the Consolidated Statements of Earnings as follows: |
| Cost of goods and services | $ | 12,895 | | | $ | 18,895 | | | $ | 8,910 | |
| Selling, general and administrative expenses | 13,810 | | | 25,573 | | | 17,912 | |
| | | | | |
| Total | $ | 26,705 | | | $ | 44,468 | | | $ | 26,822 | |
Total restructuring charges of $26,705 incurred during the year ended December 31, 2021, were primarily a result of restructuring programs initiated in 2020 and 2021 in response to demand conditions, asset charges related to a product line exit, as well as broad-based operational efficiency initiatives focusing on footprint consolidation and IT centralization. Additional programs, beyond the scope of the announced programs may be implemented during 2022 with related restructuring charges.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
11. Restructuring Activities
The Company initiated various restructuring programs and incurred severance and other restructuring costs by segment as follows:
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | |
| | 2019 | | 2018 | | 2017 |
| Engineered Products | $ | 3,155 | | | $ | 7,158 | | | $ | 3,991 | |
| Fueling Solutions | 4,943 | | | 15,478 | | | 9,968 | |
| Imaging & Identification | 6,426 | | | 13,882 | | | 8,076 | |
| Pumps & Process Solutions | 5,666 | | | 10,266 | | | 6,379 | |
| Refrigeration & Food Equipment | 3,671 | | | 3,475 | | | 14,070 | |
| Corporate | 2,961 | | | 8,244 | | | 9,776 | |
| Total | $ | 26,822 | | | $ | 58,503 | | | $ | 52,260 | |
| These amounts are classified in the Consolidated Statements of Earnings as follows: | | | | | |
| Cost of goods and services | $ | 8,910 | | | $ | 16,921 | | | $ | 16,658 | |
| Selling, general and administrative expenses | 17,912 | | | 41,582 | | | 35,602 | |
| | | | | |
| Total | $ | 26,822 | | | $ | 58,503 | | | $ | 52,260 | |
Total restructuring charges of $26,822 incurred during the year ended December 31, 2019, were a result of restructuring programs initiated in 2018 and 2019. Restructuring expense was comprised primarily of broad-based selling, general and administrative expense reduction initiatives and broad-based operational efficiency initiatives focusing on footprint consolidation, operational optimization and IT centralization designed to increase operating margin, enhance operations and position the Company for sustained growth and investment. The Company expects to incur total charges of approximately $8 million in 2020 for these initiatives. Additional programs, beyond the scope of the announced programs may be implemented during 2020 with related restructuring charges.
The $26,822$26,705 of restructuring charges incurred during 20192021 primarily included the following programs:items:
•The Engineered Products segment recorded $3,155$9,507 of restructuring charges related primarily to programs across the segment focused on headcount reductions and facility restructuring costs.asset charges related to a product line exit.
•The Clean Energy & Fueling Solutions segment recorded $4,943$3,609 of restructuring charges principally relatedprimarily due to asset charges, headcount reductions.reductions and facility exit costs.
•The Imaging & Identification segment recorded $6,426$4,589 of restructuring charges principally related primarily to headcount reductions.
•The Pumps & Process Solutions segment recorded $5,666$1,911 of restructuring charges principally related primarily to headcount reductions.reductions and asset charges.
•The RefrigerationClimate & Food EquipmentSustainability Technologies segment recorded $3,671,$5,068 of restructuring charges related primarily due to headcount reductions and facility restructuring costs.asset charges.
•Corporate recorded $2,961$2,021 of restructuring charges primarily related to headcount reductions.exit costs related to IT centralization initiatives.
Restructuring expenses incurred in 20182020 and 20172019 also included headcount reduction, targeted facility consolidations at certain businesses, and actions taken to optimize the Company's cost structure.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
The following table details the Company’s severance and other restructuring accrual activities:
| | | | Severance | | Exit | | Total | | Severance | | Exit | | Total |
| Balance at January 1, 2017 | $ | 10,658 | | | $ | 1,230 | | | $ | 11,888 | | |
| Restructuring charges | 32,228 | | | 20,032 | | | 52,260 | | |
| Payments | (16,898) | | | (5,707) | | | (22,605) | | |
| Other, including foreign currency translation | (1,033) | | | (9,239) | | (1) | (10,272) | | |
| Balance at December 31, 2017 | 24,955 | | | 6,316 | | | 31,271 | | |
| Restructuring charges | 45,146 | | | 13,357 | | | 58,503 | | |
| Payments | (43,287) | | | (8,713) | | | (52,000) | | |
| Other, including foreign currency translation | (2,530) | | | (7,080) | | (1) | (9,610) | | |
| Balance at December 31, 2018 | 24,284 | | | 3,880 | | | 28,164 | | |
| Balance at January 1, 2019 | | Balance at January 1, 2019 | $ | 24,284 | | | $ | 3,880 | | | $ | 28,164 | |
| Restructuring charges | Restructuring charges | 20,271 | | | 6,551 | | | 26,822 | | Restructuring charges | 20,271 | | | 6,551 | | | 26,822 | |
| Payments | Payments | (29,887) | | | (3,383) | | | (33,270) | | Payments | (29,887) | | | (3,383) | | | (33,270) | |
| Other, including foreign currency translation | Other, including foreign currency translation | (917) | | | (4,409) | | (1) | (5,326) | | Other, including foreign currency translation | (917) | | | (4,409) | | (1) | (5,326) | |
| Balance at December 31, 2019 | Balance at December 31, 2019 | $ | 13,751 | | | $ | 2,639 | | | $ | 16,390 | | Balance at December 31, 2019 | 13,751 | | | 2,639 | | | 16,390 | |
| Restructuring charges | | Restructuring charges | 25,716 | | | 18,752 | | | 44,468 | |
| Payments | | Payments | (29,768) | | | (6,035) | | | (35,803) | |
| Other, including foreign currency translation | | Other, including foreign currency translation | 848 | | | (10,990) | | (1) | (10,142) | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | 10,547 | | | 4,366 | | | 14,913 | |
| Restructuring charges | | Restructuring charges | 11,561 | | | 15,144 | | | 26,705 | |
| Payments | | Payments | (10,951) | | | (6,171) | | | (17,122) | |
| Other, including foreign currency translation | | Other, including foreign currency translation | (427) | | | (10,272) | | (2) | (10,699) | |
| Balance at December 31, 2021 | | Balance at December 31, 2021 | $ | 10,730 | | | $ | 3,067 | | | $ | 13,797 | |
(1) Other activity in exit reserves primarily represents the non-cash write-off of certain long-lived assets and inventory in connection with certain facility closures and product exits.
(2) Other activity in exit reserves primarily represents asset charges related to product line exit.
The restructuring accrual balances at December 31, 20192021 primarily reflect restructuring plans initiated during the year.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
12. Borrowings and Lines of Credit
Borrowings consist of the following: | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Short-term: | | | |
| Short-term borrowings | $ | 702 | | | $ | — | |
| Commercial paper | 105,000 | | | — | |
| Notes payable | $ | 105,702 | | | $ | — | |
| | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 |
| Short-term: | | | |
| | | |
| Commercial paper | $ | 84,700 | | | $ | 220,318 | |
| Notes payable | $ | 84,700 | | | $ | 220,318 | |
| | | | | | | | | | | | | | | | | |
| | | Carrying amount (1) |
| | Principal | | December 31, 2021 | | December 31, 2020 |
| Long-term: | | | | | |
| 3.15% 10-year notes due November 15, 2025 | $ | 400,000 | | | $ | 397,389 | | | $ | 396,716 | |
| 1.25% 10-year notes due November 9, 2026 (euro-denominated) | € | 600,000 | | | 674,217 | | | 724,310 | |
| 0.750% 8-year notes due November 4, 2027 (euro denominated) | € | 500,000 | | | 561,293 | | | 603,107 | |
| 6.65% 30-year debentures due June 1, 2028 | $ | 200,000 | | | 199,356 | | | 199,255 | |
| 2.950% 10-year notes due November 4, 2029 | $ | 300,000 | | | 297,029 | | | 296,650 | |
| 5.375% 30-year debentures due October 15, 2035 | $ | 300,000 | | | 296,559 | | | 296,309 | |
| 6.60% 30-year notes due March 15, 2038 | $ | 250,000 | | | 248,166 | | | 248,053 | |
| 5.375% 30-year notes due March 1, 2041 | $ | 350,000 | | | 344,705 | | | 344,429 | |
| | | | | |
| Total long-term debt | | | $ | 3,018,714 | | | $ | 3,108,829 | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | Carrying amount (1) | | |
| | Principal | | December 31, 2019 | | December 31, 2018 |
| Long-term: | | | | | |
| 2.125% 7-year notes due December 1, 2020 (euro-denominated) | € | 300,000 | | | $ | — | | | $ | 339,657 | |
| 4.30% 10-year notes due March 1, 2021 | $ | 450,000 | | | — | | | 449,200 | |
| 3.150% 10-year notes due November 15, 2025 | $ | 400,000 | | | 396,042 | | | 395,368 | |
| 1.25% 10-year notes due November 9, 2026 (euro-denominated) | € | 600,000 | | | 658,089 | | | 672,103 | |
| 0.750% 8-year notes due November 4, 2027 (euro denominated) | € | 500,000 | | | 548,008 | | | — | |
| 6.65% 30-year debentures due June 1, 2028 | $ | 200,000 | | | 199,155 | | | 199,054 | |
| 2.950% 10-year notes due November 4, 2029 | $ | 300,000 | | | 296,270 | | | — | |
| 5.375% 30-year debentures due October 15, 2035 | $ | 300,000 | | | 296,060 | | | 295,811 | |
| 6.60% 30-year notes due March 15, 2038 | $ | 250,000 | | | 247,939 | | | 247,827 | |
| 5.375% 30-year notes due March 1, 2041 | $ | 350,000 | | | 344,153 | | | 343,877 | |
| Other | | | — | | | 763 | |
| Total long-term debt | | | 2,985,716 | | | 2,943,660 | |
| Less long-term debt current portion | | | — | | | — | |
| Net long-term debt | | | $ | 2,985,716 | | | $ | 2,943,660 | |
(1) Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discounts were $18.9$15.1 million and $15.8$17.6 million as of December 31, 20192021 and 2018,2020, respectively. Total deferred debt issuance costs were $16.2$12.5 million and $13.0$14.4 million as of December 31, 20192021 and 2018,2020, respectively.
The discounts are being amortized to interest expense using the effective interest method over the life of the issuances. The deferred issuance costs are amortized on a straight-line basis over the life of the debt.debt, as this approximates the effective interest method.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
On March 15, 2018, the outstanding 5.45% notes with a principal value of $350,000 matured. The repayment of debt was funded by the Company's commercial paper program and existing cash balances.
On November 4, 2019,December 31, 2021, the Company issued €500,000 of 0.750% euro-denominated notes due 2027 and $300,000 of 2.950% notes due 2029 and notified the debt holders of our €300,000 2.125% notes due 2020 ("2020 Notes") and our $450,000 4.30% Notes due 2021 ("2021 Notes") of our intent to redeem these notes on December 4, 2019. The proceeds from the sale of euro-denominated notes of €494,685, net of discounts and issuance costs, were used in part to redeem the 2020 Notes. The proceeds from the sale of notes of $296,937, net of discounts and issuance costs, and the remaining funds from the sale of the euro-denominated notes, were used to fund the redemption of the 2021 Notes. Such redemption payments were made on December 4, 2019, which required the Company to pay a make whole premium to the bondholders, resulting in a loss of $23,543. The remainder of the proceeds will be used for general corporate purposes.
On October 4, 2019, the Company entered intomaintained a $1 billion five-year unsecured revolving credit facility with a syndicate banks (the “Credit Agreement”) that replacedwith a similar existing credit facility that was set to expire in November 2020. The Credit Agreement will expiresyndicate of banks, which expires on October 4, 2024. The Company may elect to haveAt the Company's election, loans under the Credit Agreement will bear interest at a rate based on a benchmark interbank offered rate specified for each currency and, in the case of US Dollars, an alternate base rate (as defined in the Credit Agreement) based on a prime rate plus a specified margin ranging from 0.805% to 1.20%, set on the basis of the credit rating accorded to the Company’s senior unsecured debt by S&P and Moody’s.an applicable margin. The Credit Agreement requires the Company to pay a facility fee and imposes various restrictions on the Company such as, among other things, a requirement to maintain a minimum interest coverage ratio of EBITDA to consolidated net interest expense of not less than 3.0 to 1. The Company primarily uses this facility as liquidity back-up for its commercial paper program and for general corporate purposes. As of December 31, 2021, there were no outstanding borrowings under the Credit Agreement.
The Company was in compliance with all covenants in the Credit Agreement and other long-term debt covenants at December 31, 20192021 and had aan interest coverage ratio of 10.6consolidated EBITDA to 1. The Company primarily uses this facility as liquidity back-up for its commercial paper program and has not drawn down any loans under the facility and does not anticipate doing so. The Company generally uses commercial paper borrowings for general corporate purposes, fundingconsolidated net interest expense of acquisitions and the repurchases of its common stock.17.6 to 1.
As of December 31, 2019,2021, the future maturities of long-term debt were as follows:
| | | | | |
| Future Maturities | |
2020 | $ | — | |
2021 | — | |
2022 | — | |
2023 | — | |
2024 | — | |
2025 and thereafter | 2,985,716 | |
Total | $ | 2,985,716 | |
| | | | | |
| Future Maturities |
| 2022 | $ | — | |
| 2023 | — | |
| 2024 | — | |
| 2025 | 400,000 | |
| 2026 | 679,810 | |
| 2027 and thereafter | 1,966,508 | |
| Total | $ | 3,046,318 | |
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Letters of Credit and other Guarantees
As of December 31, 2019,2021, the Company had approximately $158.5$155.9 million outstanding in letters of credit, surety bonds, and performance and other guarantees with financial institutions, which expire on various dates through 2028.2029. These letters of credit and bonds are primarily issued as security for insurance, warranty and other performance obligations. In general, the Company would only be liable for the amount of these guarantees in the event of default in the performance of its obligations, the probability of which is believed to be remote.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
13. Financial Instruments
Derivatives
The Company is exposed to market risk for changes in foreign currency exchange rates due to the global nature of its operations and certain commodity risks. In order to manage these risks, the Company has hedged portions of its forecasted sales and purchases, which occur within the next twelve months that are denominated in non-functional currencies, with currency forward contracts designated as cash flow hedges. At December 31, 20192021 and 2018,2020, the Company had contracts with U.S. dollar equivalent notional amounts of $179,580$180,929 and $193,649,$173,674, respectively, to exchange foreign currencies, principally the Poundeuro, pound sterling, Chinese yuan, Swedish krona, Euro, Canadian dollar, Chinese yuan, and Swiss franc. The Company believes it is probable that all forecasted cash flow transactions will occur.
In addition, the Company had outstanding contracts at December 31, 20192021 and 20182020 with a total notional amount of $79,707$108,736 and $66,906,$73,755, respectively, that are not designated as hedging instruments. These instruments are used to reduce the Company's exposure to operating receivables and payables that are denominated in non-functional currencies. Gains and losses on these contracts are recorded in other income, net in the Consolidated Statements of Earnings.
The following table sets forth the fair values of derivative instruments held by the Company as of December 31, 20192021 and 20182020 and the balance sheet lines in which they are recorded:
| | | Fair Value Asset (Liability) | | | | Fair Value Asset (Liability) | |
| | December 31, 2019 | | December 31, 2018 | | Balance Sheet Caption | | December 31, 2021 | | December 31, 2020 | | Balance Sheet Caption |
| Foreign currency forward | Foreign currency forward | $ | 2,892 | | | $ | 1,874 | | | Prepaid and other current assets | Foreign currency forward | $ | 2,825 | | | $ | 2,325 | | | Prepaid and other current assets |
| Foreign currency forward | Foreign currency forward | (476) | | | (1,165) | | | Other accrued expenses | Foreign currency forward | (433) | | | (2,057) | | | Other accrued expenses |
|
For a cash flow hedge, the change in estimated fair value of a hedging instrument is recorded in accumulated other comprehensive earnings (loss), net of tax as a separate component of the Consolidated Statements of Stockholders' Equity and is reclassified into revenues and cost of goods and services in the Consolidated Statements of Earnings during the period in which the hedged transaction is recognized. The amount of gains or losses from hedging activity recorded in earnings is not significant and the amount of unrealized gains and losses from cash flow hedges that are expected to be reclassified to earnings in the next twelve months, is not significant; therefore, additional tabular disclosures are not presented. There are no amounts excluded from the assessment of hedge effectiveness, and the Company's derivative instruments that are subject to credit risk contingent features were not significant.
The Company is exposed to credit loss in the event of nonperformance by counterparties to the financial instrument contracts held by the Company; however, nonperformance by these counterparties is considered unlikely as the Company’s policy is to contract with highly-rated, diversified counterparties.
The Company has designated the €600,000 and €500,000 of euro-denominated notes issued November 9, 2016 and November 4, 2019, respectively, as a hedgehedges of its net investment in euro-denominated operations. The Company also designated the 2020 Notes as a net investment hedge prior to the redemption of the notes. Changes in the value of the euro-denominated debt are recognized in foreign currency translation adjustments within other comprehensive earnings (loss) of the Consolidated Statements of Comprehensive Earnings to offset changes in the value of the net investment in euro-denominated operations. Changes in the value of the euro-denominated debt resulting from exchange rate differences are offset by changes in the net investment due to the high degree of effectiveness between the hedging instruments and the exposure being hedged.
Amounts recognized in other comprehensive earnings (loss) for the gains (losses) on its net investment hedges were as follows:
| | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| Gain/(loss) on euro-denominated debt | $ | 22,449 | | | $ | 45,230 | | | $ | (125,262) | |
| | | | | |
| | | | | |
| Tax (expense)/benefit | (4,714) | | | (9,498) | | | 43,842 | |
| Gain/(loss) on net investment hedges, net of tax | $ | 17,735 | | | $ | 35,732 | | | $ | (81,420) | |
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Amounts recognized in other comprehensive earnings (loss) for the gains (losses) on net investment hedges were as follows:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Gain (loss) on euro-denominated debt | $ | 94,003 | | | $ | (119,298) | | | $ | 22,449 | |
| | | | | |
| | | | | |
| Tax (expense) benefit | (20,976) | | | 26,957 | | | (4,714) | |
| Net gain (loss) on net investment hedges, net of tax | $ | 73,027 | | | $ | (92,341) | | | $ | 17,735 | |
Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value as follows:
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 Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 20192021 and 20182020 were as follows:
| | | | December 31, 2019 | | | | December 31, 2018 | | | | December 31, 2021 | | | December 31, 2020 |
| | | Level 2 | | | | Level 2 | | | | Level 2 | | | | Level 2 | |
| Assets: | Assets: | | | | | | | | Assets: | | | | | | | |
| Foreign currency cash flow hedges | Foreign currency cash flow hedges | | $ | 2,892 | | | | | $ | 1,874 | | | Foreign currency cash flow hedges | | $ | 2,825 | | | | | $ | 2,325 | | |
| Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| Foreign currency cash flow hedges | Foreign currency cash flow hedges | | 476 | | | | | 1,165 | | | Foreign currency cash flow hedges | | 433 | | | | | 2,057 | | |
|
The derivative contracts are measured at fair value using models based on observable market inputs such as foreign currency exchange rates and interest rates; therefore, they are classified within Level 2 of the fair value hierarchy.
In addition to fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require disclosures regarding the fair value of all of the Company’s financial instruments.
The estimated fair value of long-term debt at December 31, 20192021 and 20182020 was $3,322,033$3,440,501 and $3,132,330,$3,635,673, respectively. The estimated fair value of long-term debt is based on quoted market prices for similar instruments and is, therefore, classified as Level 2 within the fair value hierarchy.
The carrying values of cash equivalents, trade receivables, accounts payable and notes payable are reasonable estimates of their fair values as of December 31, 20192021 and 20182020 due to the short-term nature of these instruments.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
14. Income Taxes
Income taxes have been based on the following components of earnings before provision for income taxes and discontinued operations in the Consolidated Statements of Earnings:
| | | | Years Ended December 31, | | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 |
| Domestic | Domestic | $ | 448,301 | | | $ | 344,793 | | | $ | 544,900 | | Domestic | $ | 835,773 | | | $ | 464,145 | | | $ | 448,301 | |
| Foreign | Foreign | 394,708 | | | 380,585 | | | 330,915 | | Foreign | 565,053 | | | 377,589 | | | 394,708 | |
| Total | Total | $ | 843,009 | | | $ | 725,378 | | | $ | 875,815 | | Total | $ | 1,400,826 | | | $ | 841,734 | | | $ | 843,009 | |
Income tax expense (benefit) for the years ended December 31, 2021, 2020 and 2019 is comprised of the following:
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Current: | | | | | |
| U.S. federal | $ | 150,990 | | | $ | 79,305 | | | $ | 71,069 | |
| State and local | 28,106 | | | 13,312 | | | 16,709 | |
| Foreign | 154,147 | | | 97,106 | | | 102,284 | |
| Total current | 333,243 | | | 189,723 | | | 190,062 | |
| Deferred: | | | | | |
| U.S. federal | (14,143) | | | 2,777 | | | (6,033) | |
| State and local | 3,165 | | | (10,526) | | | 1,770 | |
| Foreign | (45,257) | | | (23,691) | | | (20,708) | |
| Total deferred | (56,235) | | | (31,440) | | | (24,971) | |
| Total expense | $ | 277,008 | | | $ | 158,283 | | | $ | 165,091 | |
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Income tax expense (benefit) relating to continuing operations for the years ended December 31, 2019, 2018 and 2017 is comprised of the following:
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | |
| | 2019 | | 2018 | | 2017 |
| Current: | | | | | |
| U.S. federal | $ | 71,069 | | | $ | 47,445 | | | $ | 188,559 | |
| State and local | 16,709 | | | 14,120 | | | 18,857 | |
| Foreign | 102,284 | | | 86,523 | | | 43,228 | |
| Total current | 190,062 | | | 148,088 | | | 250,644 | |
| Deferred: | | | | | |
| U.S. federal | (6,033) | | | 876 | | | (121,879) | |
| State and local | 1,770 | | | 626 | | | (1,247) | |
| Foreign | (20,708) | | | (15,357) | | | 1,634 | |
| Total deferred | (24,971) | | | (13,855) | | | (121,492) | |
| Total expense | $ | 165,091 | | | $ | 134,233 | | | $ | 129,152 | |
Differences between the effective income tax rate and the U.S. federal income statutory tax rate are as follows:
| | | | Years Ended December 31, | | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 |
| U.S. federal income tax rate | U.S. federal income tax rate | 21.0 | % | | 21.0 | % | | 35.0 | % | U.S. federal income tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State and local taxes, net of federal income tax benefit | State and local taxes, net of federal income tax benefit | 1.7 | | | 1.6 | | | 1.0 | | State and local taxes, net of federal income tax benefit | 1.8 | | | 1.7 | | | 1.7 | |
| Foreign operations tax effect | Foreign operations tax effect | (1.3) | | | (1.1) | | | (6.2) | | Foreign operations tax effect | (0.2) | | | (0.8) | | | (1.3) | |
| SAB 118 | — | | | (0.6) | | | — | | |
| Domestic manufacturing deduction | — | | | — | | | (1.7) | | |
| | Foreign tax credits | Foreign tax credits | (0.1) | | | (0.3) | | | 0.1 | | Foreign tax credits | — | | | — | | | (0.1) | |
| | Foreign-derived intangible income | | Foreign-derived intangible income | (0.8) | | | (1.1) | | | (1.0) | |
| Share awards | Share awards | (1.7) | | | (2.0) | | | (1.0) | | Share awards | (0.8) | | | (1.2) | | | (1.7) | |
| Changes in tax law | — | | | — | | | (6.7) | | |
| Disposition of businesses | 1.2 | | | — | | | (4.6) | | |
| | Dispositions | | Dispositions | 0.3 | | | — | | | 1.2 | |
| Audit resolutions | | Audit resolutions | (1.4) | | | (0.9) | | | 0.3 | |
| Other | Other | (1.2) | | | (0.1) | | | (1.2) | | Other | (0.1) | | | 0.1 | | | (0.5) | |
| Effective tax rate from continuing operations | 19.6 | % | | 18.5 | % | | 14.7 | % | |
| Effective tax rate | | Effective tax rate | 19.8 | % | | 18.8 | % | | 19.6 | % |
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Deferred Tax Assets: | | | |
| Accrued compensation, principally postretirement and other employee benefits | $ | 61,388 | | | $ | 60,797 | |
| Accrued expenses, principally for state income taxes, interest and warranty | 30,143 | | | 32,418 | |
| Net operating loss and other carryforwards | 334,483 | | | 319,291 | |
| Inventories, principally due to reserves for financial reporting purposes and capitalization for tax purposes | 28,698 | | | 23,723 | |
| Accounts receivable, principally due to allowance for doubtful accounts | 9,988 | | | 7,118 | |
| Accrued insurance | 4,708 | | | 4,165 | |
| | | |
| Long-term liabilities, principally warranty, environmental and exit costs | 3,043 | | | 2,273 | |
| Lease obligations | 41,653 | | | 40,984 | |
| | | |
| Total gross deferred tax assets | 514,104 | | | 490,769 | |
| Valuation allowance | (306,066) | | | (287,679) | |
| Total deferred tax assets, net of valuation allowances | $ | 208,038 | | | $ | 203,090 | |
| Deferred Tax Liabilities: | | | |
| Intangible assets, principally due to different tax and financial reporting bases and amortization lives | $ | (392,208) | | | $ | (387,897) | |
| Property, plant and equipment, principally due to differences in depreciation | (77,918) | | | (62,667) | |
| Lease right-of-use assets | (40,181) | | | (38,742) | |
| Other liabilities | (28,786) | | | 9,992 | |
| Total gross deferred tax liabilities | (539,093) | | | (479,314) | |
| Net deferred tax liability | $ | (331,055) | | | $ | (276,224) | |
| | | |
| Classified as follows in the Consolidated Balance Sheets: | | | |
| | | |
| Other assets and deferred charges | $ | 33,062 | | | $ | 22,199 | |
| | | |
| Deferred income taxes | (364,117) | | | (298,423) | |
| $ | (331,055) | | | $ | (276,224) | |
As of December 31, 2021, the Company had non-U.S loss carryforwards of $1,128.7 million primarily resulting from non-operating activities. The entire balance of the non-U.S. losses as of December 31, 2021 is available to be carried forward, with $274.4 million of these losses expiring during the years 2022 through 2042. The remaining $854.3 million of such losses can be carried forward indefinitely.
The Company has $305.1 million of state tax loss carryovers as of December 31, 2021. The balance of the state losses as of December 31, 2021 is available for carry over, with $289.3 million of these losses expiring during the years 2022 and 2042, and the remaining $15.8 million being carried over indefinitely.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:
| | | | | | | | | | | |
| December 31, 2019 | | December 31, 2018 |
| Deferred Tax Assets: | | | |
| Accrued compensation, principally postretirement and other employee benefits | $ | 62,547 | | | $ | 72,795 | |
| Accrued expenses, principally for state income taxes, interest and warranty | 29,736 | | | 30,159 | |
| Net operating loss and other carryforwards | 269,599 | | | 290,629 | |
| Inventories, principally due to reserves for financial reporting purposes and capitalization for tax purposes | 17,671 | | | 19,228 | |
| Accounts receivable, principally due to allowance for doubtful accounts | 3,409 | | | 3,379 | |
| Accrued insurance | 2,001 | | | 1,897 | |
| | | |
| Long-term liabilities, principally warranty, environmental and exit costs | 3,305 | | | 4,183 | |
| | | |
| Total gross deferred tax assets | 388,268 | | | 422,270 | |
| Valuation allowance | (244,153) | | | (264,398) | |
| Total deferred tax assets, net of valuation allowances | 144,115 | | | 157,872 | |
| Deferred Tax Liabilities: | | | |
| Intangible assets, principally due to different tax and financial reporting bases and amortization lives | $ | (364,843) | | | $ | (394,851) | |
| Property, plant and equipment, principally due to differences in depreciation | (56,401) | | | (49,380) | |
| Other liabilities | (18,434) | | | (23,533) | |
| Total gross deferred tax liabilities | (439,678) | | | (467,764) | |
| Net deferred tax liability | $ | (295,563) | | | $ | (309,892) | |
| | | |
| Classified as follows in the Consolidated Balance Sheets: | | | |
| | | |
| Other assets and deferred charges | $ | 26,473 | | | $ | 29,433 | |
| | | |
| Deferred income taxes | (322,036) | | | (339,325) | |
| $ | (295,563) | | | $ | (309,892) | |
As of December 31, 2019, the Company had non-U.S loss carryforwards of $938.5 million primarily resulting from non-operating activities. The entire balance of the non-U.S. losses as of December 31, 2019 is available to be carried forward, with $72.6 million of these losses expiring during the years 2020 through 2039. The remaining $865.9 million of such losses can be carried forward indefinitely.
The Company has $54.1 million and $62.9 million of state tax loss carryforwards as of December 31, 2019 and 2018, respectively, that are available for use by the Company between 2020 and 2039.
The Company maintains valuation allowances by jurisdiction against the deferred tax assets related to certain of these carryforwards for which it is more likely than not that some portion or all will not be realized.
On December 22, 2017, the Tax Reform Act was enacted which permanently reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the reduction in the U.S. corporate income tax rate, the Company revalued its ending net deferred tax liabilities as of December 31, 2017 and recognized a provisional tax benefit of $172.0 million. The Tax Reform Act also imposed a tax for a one-time deemed repatriation of post-1986 unremitted foreign earnings and profits through the year ended December 31, 2017. As of December 31, 2017, the Company recorded provisional tax expense related to the deemed repatriation of $111.6 million payable over eight years. The GILTI provisions of the Tax Reform Act require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets.
On December 22, 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant did not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. In accordance with the SAB 118 guidance, the Company recognized the provisional tax impacts related to deemed repatriated earnings and the benefit for the revaluation of deferred tax assets and liabilities in its consolidated financial statements for the year ended December 31, 2017. In accordance with SAB 118, the Company finalized the financial reporting impact of the Tax Reform Act in the fourth
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
quarter of 2018. For the year ended December 31, 2018, the Company recorded a $4.2 million net tax benefit, which resulted in a 0.6% decrease in the effective tax rate, as an adjustment to the provisional estimates as a result of additional regulatory guidance and changes in interpretations and assumptions the Company has made as a result of the Tax Reform Act.
Unrecognized Tax Benefits
The Company files federal, state, local and foreign tax returns. The Company is routinely audited by the tax authorities in these jurisdictions, and a number of audits are currently underway. It is reasonably possible during the next twelve months that uncertain tax positions may be settled, which could result in a decrease in the gross amount of unrecognized tax benefits. This decrease may result in an income tax benefit. Due to the potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, the Company's gross unrecognized tax benefits balance may change within the next twelve months by a range of 0zero to $15.3$30.6 million. The Company is no longer subject to examinations of its federal income tax returns through 2015. All significant federal, state, local and international matters have been concluded through 2012.2016. The Company believes adequate provision has been made for all income tax uncertainties.
The following table is a reconciliation of the beginning and ending balances of the Company’s unrecognized tax benefits:
| | | | | | | | | |
| | | | | | Total |
Unrecognized tax benefits at January 1, 20172019 | | | | | $ | 70,315 | |
Additions based on tax positions related to the current year | | | | | 14,466 | |
Additions for tax positions of prior years | | | | | 4,105 | |
Reductions for tax positions of prior years | | | | | (9,653) | |
Cash settlements | | | | | (954) | |
Lapse of statutes | | | | | (10,245) | |
Unrecognized tax benefits at December 31, 2017 | | | | | 68,034 | |
Additions based on tax positions related to the current year | | | | | 15,580 | |
Additions for tax positions of prior years | | | | | 29,637 | |
Reductions for tax positions of prior years | | | | | (5,226) | |
Cash settlements | | | | | (7,345) | |
Lapse of statutes | | | | | (7,219) | |
Unrecognized tax benefits at December 31, 2018 | | | | | 93,461 | |
| Additions based on tax positions related to the current year | | | | | 4,493 | |
| Additions for tax positions of prior years | | | | | 6,668 | |
| Reductions for tax positions of prior years | | | | | (9,217) | |
| Cash settlements | | | | | (922) | |
| Lapse of statutes | | | | | (11,269) | |
| Unrecognized tax benefits at December 31, 2019 | | | | | 83,214 | |
| Additions based on tax positions related to the current year | | | | | 3,134 | |
| Additions for tax positions of prior years | | | | | 5,490 | |
| Reductions for tax positions of prior years | | | | | (3,599) | |
| Cash settlements | | | | | (6,214) | |
| Lapse of statutes | | | | | (9,687) | |
Unrecognized tax benefits at December 31, 20192020 (1) | | | | | 72,338 | |
| Additions based on tax positions related to the current year | | | | | 5,859 | |
| Additions for tax positions of prior years | | | | | 3,784 | |
| Reductions for tax positions of prior years | | | | | (13,008) | |
| Cash settlements | | | | | (1,490) | |
| Lapse of statutes | | | | | (2,831) | |
Unrecognized tax benefits at December 31, 2021 (1) | | | | | $ | 83,21464,652 | |
(1) If recognized, the net amount of potential tax benefits that would impact the Company’s effective tax rate is $75.5$58.0 million. During the years ended December 31, 2019, 20182021, 2020 and 2017,2019, the Company recorded (income) expenseincome of $(0.6)$2.7 million, $2.4$0.1 million and $(0.5)$0.6 million, respectively, as a component of provision for income taxes related to the accrued interest and penalties on net reductions to unrecognized tax benefits. The Company had accrued interest and penalties of $15.1 million at December 31, 2021 and $17.8 million at December 31, 2019 and $18.8 million at December 31, 2018,2020, which are not included in the above table.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
15. Equity and Cash Incentive Program
The Company's share-based awards are typically granted annually at its regularly scheduled first quarter Compensation Committee meeting. Additionally, inFor the second quarter of 2018, the Company granted equityyears presented herein, employee awards to its new President and Chief Executive Officer. Awards were made pursuant to the terms of the Company's 2021 Omnibus Incentive Plan (the "2021 Plan") and 2012 Equity and Cash Incentive Plan (the "2012 Plan"),.
On May 7, 2021, the shareholders approved the 2021 Plan, to replace the 2012 Plan, which was approved by shareholders on May 3, 2012. This plan replaced the 2005 Equity and Cash Incentive Plan (the "2005 Plan"), whichotherwise would have otherwise terminated according to its terms on January 31, 2015 and the 1996 Non-Employee Directors Stock Compensation Plan (the "Directors Plan"), which would have otherwise terminated according to its terms on December 31, 2012.May 3, 2022. Upon adoptionapproval of the 20122021 Plan, no additional awards could be granted under the 2005 Plan. 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 remaining 4,888,197 shares available for additional award grant purposes under the former 2012 Plan became available for issuance under the 2021 Plan. The 20122021 Plan provides for stock options and SARs grants,stock-settled appreciation rights ("SARs"), restricted stock awards, restricted stock unit awards, performance share awards, cash performance awards, directors' shares and deferred stock units. Under the 20122021 Plan, a total of 17,000,0008,300,000 newly authorized shares of common stock are reserved for issuance, resulting in a total of 13,188,197 authorized shares available for issuance. These shares are subject to adjustments resulting from stock dividends, stock splits, recapitalizations, reorganizations and other similar changes.
In 2018, in connection withUnder the separation2012 Plan, which was approved by shareholders on May 3, 2012 to replace the 2005 Equity and Cash Incentive Plan (the "2005 Plan"), a total of Apergy,17,000,000 shares of common stock were reserved for grants (stock options and SARs, restricted stock unit awards, performance share awards, cash performance awards, directors' shares and deferred stock units) to key personnel. Of these 17,000,000 shares, 4,888,197 shares remained available under the Company modified2012 Plan as of the outstanding equity awardsdate that shareholders approved the 2021 Plan, and those remaining shares became available for its employees. The awards were modified such that all individuals received an equivalent fair value both beforeissuance under the 2021 Plan.
Officers and after the separation of Apergy. This modification resultedother key employees, as well as non-employee directors, are eligible to participate in the issuance of an additional 1,138,008 SARs, 26,316 performance shares,2021 Plan, and 47,063 RSUs in 2018. The exercise price of these outstanding awards, where applicable, was adjustedwere also eligible under the 2012 Plan, which had a ten-year term between May 3, 2012 to preserve the value of the awards immediately prior to the separation. As no incremental fair value was awarded as a result of the issuance of these additional shares, the modification did not result in additional compensation expense.May 3, 2022.
Stock-based compensation costs are reported within selling, general and administrative expenses in the Consolidated Statements of Earnings. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans:
| | | | Years Ended December 31, | | | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 |
| Pre-tax stock-based compensation expense (continuing) | $ | 29,702 | | | $ | 23,698 | | | $ | 24,073 | | |
| Pre-tax stock-based compensation expense | | Pre-tax stock-based compensation expense | $ | 31,111 | | | $ | 25,026 | | | $ | 29,702 | |
| Tax benefit | Tax benefit | (2,490) | | | (2,722) | | | (8,411) | | Tax benefit | (2,859) | | | (2,731) | | | (2,490) | |
| Total stock-based compensation expense, net of tax | Total stock-based compensation expense, net of tax | $ | 27,212 | | | $ | 20,976 | | | $ | 15,662 | | Total stock-based compensation expense, net of tax | $ | 28,252 | | | $ | 22,295 | | | $ | 27,212 | |
Pre-tax stock-based compensation expense attributable to Apergy employees for the years ended December 31, 2018 and 2017 was $744 and $2,454, respectively. These costs are reported within earnings from discontinued operations in the Consolidated Statement of Earnings.
SARs
The exercise price per share for SARs is equal to the closing price of the Company’s stock on the New York Stock Exchange on the date of grant. New common shares are issued when SARs are exercised. The period during which SARs are exercisable is fixed by the Company’s Compensation Committee at the time of grant. Generally, the SARs vest after three years of service and expire at the end of ten years.
In 2019, 20182021, 2020 and 2017,2019, the Company issued SARs covering 615,089, 757,603413,173, 390,780 and 1,028,116615,089 shares, respectively. Since 2006, the Company has only issued SARs and does not anticipate issuing stock options in the future. The fair value of each SAR grant was estimated on the date of grant using a Black-Scholes option-pricing model with the following assumptions:
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 | | | | 2017 |
| Risk-free interest rate | 2.51 | % | | 2.58 | % | — | | 2.87% | | | 1.80 | % |
| Dividend yield | 2.13 | % | | 1.99 | % | — | | 2.43% | | | 2.27 | % |
| Expected life (years) | 5.6 | | 5.6 | — | | 5.7 | | 4.6 |
| Volatility | 22.35 | % | | 20.95 | % | — | | 21.20% | | | 21.90 | % |
Grant price (1) | $ | 91.20 | | | $79.75 | — | | $82.09 | | $ | 66.85 | |
Fair value at date of grant (1) | $ | 17.55 | | | $14.58 | — | | $15.41 | | | $ | 10.65 | |
| | | | | | | |
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(1) 2018 and 2017 grant prices and fair values at date of grant reflect the modification of grants in connection with the separation of Apergy on May 9, 2018. | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| Risk-free interest rate | 0.59 | % | | 1.44 | % | | 2.51 | % |
| Dividend yield | 1.62 | % | | 1.65 | % | | 2.13 | % |
| Expected life (years) | 5.5 | | 5.5 | | 5.6 |
| Volatility | 30.49 | % | | 22.76 | % | | 22.35 | % |
| Grant price | $122.73 | | $119.86 | | $91.20 |
| Fair value at date of grant | $29.08 | | $22.54 | | $17.55 |
Expected volatilities are based on Dover's stock price history, including implied volatilities from traded options on Dover stock. The Company uses historical data to estimate SAR exercise and employee termination patterns within the valuation
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
model. The expected life of SARs granted is derived from the output of the option valuation model and represents the average period of time that SARs granted are expected to be outstanding. The interest rate for periods within the contractual life of the awards is based on the U.S. Treasury yield curve in effect at the time of grant.
A summary of activity relating to SARs granted under the 20122021 Plan and the predecessor plans for the year ended December 31, 20192021 is as follows:
| | | | | | | | | | | | | | | | | |
| | SARs | | | | |
| | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) |
| Outstanding at January 1, 2019 | 5,329,204 | | | $ | 60.19 | | | |
| Granted | 615,089 | | | 91.24 | | | |
| | | | | |
| | | | | |
| Forfeited / expired | (181,498) | | | 78.84 | | | |
| Exercised | (2,163,626) | | | 52.66 | | | |
| Outstanding at December 31, 2019 | 3,599,169 | | | 69.07 | | | 6.4 |
| | | | | |
| Exercisable at December 31, 2019 | 1,579,082 | | | $ | 57.26 | | | 4.3 |
| | | | | | | | | | | | | | | | | |
| | SARs |
| | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) |
| Outstanding at January 1, 2021 | 2,979,933 | | | $ | 79.36 | | | |
| Granted | 413,173 | | | 122.73 | | | |
| | | | | |
| | | | | |
| Forfeited / expired | (89,899) | | | 110.58 | | | |
| Exercised | (925,823) | | | 69.99 | | | |
| Outstanding at December 31, 2021 | 2,377,384 | | | 89.49 | | | 6.5 |
| | | | | |
| Exercisable at December 31, 2021 | 1,125,435 | | | $ | 67.69 | | | 4.8 |
The following table summarizes information about outstanding SARs at December 31, 2019:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | SARs Outstanding | | | | | | | | SARs Exercisable | | | | | | |
| Range of Exercise Prices | | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Life in Years | | Aggregate Intrinsic Value | | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Life in Years | | Aggregate Intrinsic Value |
| $25.96 - $58.69 | | 952,991 | | | $ | 51.11 | | | 4.0 | | $ | 61,132 | | | 952,991 | | | $ | 51.20 | | | 4.0 | | $ | 61,922 | |
| $61.79 - $79.75 | | 1,636,963 | | | $ | 68.43 | | | 6.3 | | 76,655 | | | 624,996 | | | $ | 66.65 | | | 4.5 | | 30,318 | |
| $82.09 - $97.33 | | 1,009,215 | | | $ | 87.06 | | | 8.7 | | 28,457 | | | 1,095 | | | $ | 82.09 | | | 3.9 | | 36 | |
| | 3,599,169 | | | | | | | $ | 166,244 | | | 1,579,082 | | | | | | | $ | 92,276 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | SARs Outstanding | | SARs Exercisable |
| Range of Exercise Prices | | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Life in Years | | Aggregate Intrinsic Value | | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Life in Years | | Aggregate Intrinsic Value |
| $48.28 - $82.51 | | 1,125,435 | | | $ | 67.69 | | | 4.8 | | $ | 128,213 | | | 1,125,435 | | | $ | 67.69 | | | 4.8 | | $ | 128,213 | |
| $84.94 - $119.86 | | 868,923 | | | $ | 103.04 | | | 7.5 | | 68,262 | | | — | | | $ | — | | | 0 | | — | |
| $122.73 - $155.65 | | 383,026 | | | $ | 122.82 | | | 9.1 | | 22,516 | | | — | | | $ | — | | | 0 | | — | |
| | 2,377,384 | | | | | | | $ | 218,991 | | | 1,125,435 | | | | | | | $ | 128,213 | |
Unrecognized compensation expense related to SARs not yet exercisable was $8,862$8,800 at December 31, 2019.2021. This cost is expected to be recognized over a weighted average period of 1.7 years.
Other information regarding the exercise of SARs is listed below:
| | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| SARs | | | | | |
| Fair value of SARs that became exercisable | $ | 8,611 | | | $ | 12,832 | | | $ | 16,006 | |
| Aggregate intrinsic value of SARs exercised | $ | 89,473 | | | $ | 101,365 | | | $ | 44,646 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Fair value of SARs that became exercisable | $ | 10,199 | | | $ | 8,585 | | | $ | 8,611 | |
| Aggregate intrinsic value of SARs exercised | $ | 62,895 | | | $ | 55,031 | | | $ | 89,473 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Performance Share Awards
Performance share awards granted are expensed over the three-year requisite performance and service period. Awards become vested if (1) the Company achieves certain market conditions or specified internal metrics and (2) the employee remains continuously employed by the Company during the performance period. Partial vesting may occur after separation from service in the case of certain terminations not for cause and for retirements.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
In 2019, 20182021, 2020 and 2017,2019, the Company issued performance shares covering 35,172, 122,45950,371, 49,056 and 57,95835,172 shares, respectively.
The performance share awards granted in 2021 and 2020 are market condition awards as attainment is based on Dover's performance relative to its peer group (companies listed under the S&P 500 Industrials sector) for the relevant performance period. The performance period and vesting period for these yearsawards is approximately three years. These awards were valued on the date of grant using the Monte Carlo simulation model (a binomial lattice-based valuation model), and are generally recognized ratably over the vesting period, and the fair value is not subject to change based on future market conditions. The assumptions used in determining the fair value of the performance shares granted in 2021 and 2020 were as follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Risk-free interest rate | 0.19 | % | | 1.40 | % |
| Dividend yield | 1.62 | % | | 1.65 | % |
| Expected life (years) | 2.9 | | 2.9 |
| Volatility | 31.90 | % | | 23.30 | % |
| | | |
| Grant price | $122.73 | | $119.86 |
| Fair value per share at date of grant | $148.29 | | $165.71 |
The performance share awards granted in 2019 are considered performance condition awards as attainment is based on Dover's performance relative to established internal metrics. The fair value of these awards was determined using Dover's closing stock price on the date of grant. The expected attainment of the internal metrics for these awards is analyzed each reporting period, and the related expense is adjusted up or down based on expected attainment, if that attainment differs from previous estimates. The cumulative effect on current and prior periods of a change in attainment is recognized in selling, general and administrative expenses in the Consolidated Statements of Earnings in the period of change.
The fair value and average attainment used in determining compensation cost of the performance shares issued in 2019 2018 and 2017 are as follows for the year ended December 31, 2019:2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | 2019 | | 2018 | | | | 2017 |
Fair value per share at date of grant (1) | $91.20 | | $79.75 | - | | $82.09 | | $66.85 |
| Average attainment rate reflected in expense | 200.3% | | | 282.4% | | | | | 237.0 | % |
(1) | | | | | | | | |
| |
2018 and 2017 fair values per share at date of grant reflect the modification of grants in connection with the separation of Apergy on May 9, 2018. | | 2019 |
| Fair value per share at date of grant | | $91.20 |
| Average attainment rate reflected in expense | | 260.6 | % |
A summary of activity for performance share awards for the year ended December 31, 20192021 is as follows:
| | | | | | | | | | | |
| | Number of Shares | | Weighted Average Grant-Date Fair Value |
| Unvested at January 1, 2019 | 144,957 | | | $ | 76.99 | |
| Granted | 35,172 | | | 91.33 | |
| | | |
| | | |
| Forfeited | (19,026) | | | 76.46 | |
| Vested | (23,294) | | | 66.85 | |
| Unvested at December 31, 2019 | 137,809 | | | $ | 82.45 | |
| | | | | | | | | | | |
| | Number of Shares | | Weighted Average Grant-Date Fair Value |
| Unvested at January 1, 2021 | 77,979 | | | $ | 138.14 | |
| Granted | 50,371 | | | 148.29 | |
| | | |
| | | |
| | | |
| Vested | (27,031) | | | 91.37 | |
| Unvested at December 31, 2021 | 96,129 | | | $ | 156.88 | |
Unrecognized compensation expense related to unvested performance shares as of December 31, 20192021 was $13,016,$7,743, which will be recognized over a weighted average period of 1.31.7 years.
Restricted Stock Units
The Company also has restricted stock authorized for grant (as part of the 2012 Plan). Under this Plan, commongrant. Common stock of the Company may be granted at no cost to certain officers and key employees. In general, restrictions limit the sale or transfer of these shares during a three-year period, and restrictions lapse proportionately over the three-year period. The Company granted 124,929, 284,72187,177, 83,512 and 174,203124,929 of restricted stock units in 2019, 20182021, 2020 and 2017,2019, respectively. The fair value of these awards was determined using Dover's closing stock price on the date of grant.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
A summary of activity for restricted stock units for the year ended December 31, 20192021 is as follows:
| | | | | | | | | | | |
| | Number of Shares | | Weighted Average Grant-Date Fair Value |
| Unvested at January 1, 2019 | 390,481 | | | $ | 73.35 | |
| Granted | 124,929 | | | 91.34 | |
| | | |
| | | |
| Forfeited | (23,706) | | | 84.02 | |
| Vested | (167,151) | | | 69.55 | |
| Unvested at December 31, 2019 | 324,553 | | | $ | 81.45 | |
| | | |
| | | | | | | | | | | |
| | Number of Shares | | Weighted Average Grant-Date Fair Value |
| Unvested at January 1, 2021 | 252,907 | | | $ | 93.43 | |
| Granted | 87,177 | | | 122.73 | |
| | | |
| | | |
| Forfeited | (10,741) | | | 114.85 | |
| Vested | (126,661) | | | 91.75 | |
| Unvested at December 31, 2021 | 202,682 | | | $ | 107.03 | |
| | | |
Unrecognized compensation expense relating to unvested restricted stock units as of December 31, 20192021 was $17,307,$12,013, which will be recognized over a weighted average period of 1.61.3 years.
Directors' Shares
The Company issued the following shares to its non-employee directors under the 2012 Plan as partial compensation for serving as directors of the Company:
| | | | Years ended December 31, | | | Years ended December 31, |
| | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 |
| Aggregate shares granted | Aggregate shares granted | 10,838 | | | 15,802 | | | 16,231 | | Aggregate shares granted | 7,917 | | | 9,854 | | | 10,838 | |
| Shares deferred | (6,168) | | | (9,917) | | | (11,337) | | |
| Deferred stock units | | Deferred stock units | (5,322) | | | (6,278) | | | (6,168) | |
| | Net shares issued | Net shares issued | 4,670 | | | 5,885 | | | 4,894 | | Net shares issued | 2,595 | | | 3,576 | | | 4,670 | |
16. Commitments and Contingent Liabilities
Guarantees
The Company has provided typical indemnities in connection with sales of certain businesses and assets, including representations and warranties and related indemnities for environmental, health and safety, tax and employment matters. The Company does not have any material liabilities recorded for these indemnifications and is not aware of any claims or other information that would give rise to material payments under such indemnities.
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 relatively insignificant 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 reservesestimated liabilities have been established. At December 31, 2019See Note 10 — Accrued Expenses and 2018, the Company has reserves totaling $30,608 and $31,797, respectively,Other Liabilities for environmental and other matters, including private party claims for exposure to hazardous substances, that are probable and estimable.additional details.
The Company and some 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 consider the availability and extent of insurance coverage. The Company has reservesestimated liabilities for these other legal matters that are probable and estimable, and at December 31, 20192021 and 2018,2020, these reservesliabilities were not significant.immaterial. While it is not possible at this time to predict the outcome of these legal actions, in the opinion
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
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.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
17. Employee Benefit 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. The Company’s expense relating to defined contribution plans was $50,031, $46,030$59,719, $52,629 and $43,447$50,031 for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively.
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 would 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 impacted plans. The Company also announced that effective January 1, 2024, the plans would be frozen to any future benefit accruals.
In connection with the spin-off on May 9, 2018, assets and liabilities related to the Norris USW participants were moved to a new plan sponsored by Apergy. Assets and liabilities of several non-U.S. qualified and U.S. non-qualified plans were also transferred to Apergy. Apergy participants (other than Norris USW participants) in the Dover U.S. pension plan (the "Plan") fully vested in their benefits and ceased accruing future benefits. The separation of Apergy triggered a pension plan curtailment which required a re-measurement of the Plan's benefit obligation in the second quarter of 2018, assuming a discount rate of 4.2% and an expected return on assets of 6.8%. The Plan retained the obligation and participants were able to elect lump-sum payments from plan assets. In 2018, the Plan made total lump sum payments of $74,016. Based on the total lump sum payments made to both Apergy and other participants in the plan during the year and the second quarter re-measurement, the Company recorded non-cash settlement and curtailment charges of approximately $13,939 in 2018, of which $9,200 was classified within discontinued operations.
The Company also maintains other post-retirement benefit plans which cover approximately 409 participants, approximately 386 of whom are eligible for medical benefits.plans. These plans are closed to new entrants.entrants and not considered to be significant. The supplemental and other post-retirement benefit plans are supported by the general assets of the Company.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Obligations and Funded Status
The following tables summarize the Consolidated Balance Sheets impact, including thechange in benefit obligations, change in plan assets, and funded status associated with the Company's significant defined benefit plans and other post-retirement benefit plansthe amounts recognized in the consolidated balance sheets at December 31, 20192021 and 2018:2020:
| | | | Qualified Defined Benefits | | | Non-Qualified Supplemental Benefits | | | Other Post-Retirement Benefits | | | Qualified Defined Benefits | | Non-Qualified Supplemental Benefits | |
| | | U.S. Plan | | | Non-U.S. Plans | | | | | | | U.S. Plan | | Non-U.S. Plans | | |
| | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | |
| Change in benefit obligation: | Change in benefit obligation: | | | | | | | | | | | | | | | | Change in benefit obligation: | | | | | | | | | | | | |
| Benefit obligation at beginning of year | Benefit obligation at beginning of year | $ | 447,173 | | | $ | 566,389 | | | $ | 270,329 | | | $ | 278,188 | | | $ | 66,836 | | | $ | 106,012 | | | $ | 7,849 | | | $ | 8,595 | | Benefit obligation at beginning of year | $ | 524,181 | | | $ | 490,228 | | | $ | 340,829 | | | $ | 296,534 | | | $ | 51,194 | | | $ | 60,183 | | |
| Service cost | Service cost | 7,016 | | | 9,019 | | | 5,665 | | | 5,359 | | | 1,942 | | | 2,624 | | | 19 | | | 30 | | Service cost | 7,134 | | | 6,824 | | | 5,749 | | | 5,345 | | | 1,561 | | | 1,272 | | |
| Interest cost | Interest cost | 19,026 | | | 20,756 | | | 5,101 | | | 4,962 | | | 2,670 | | | 3,204 | | | 312 | | | 290 | | Interest cost | 13,605 | | | 16,272 | | | 3,590 | | | 3,697 | | | 1,232 | | | 1,765 | | |
| Plan participants' contributions | Plan participants' contributions | — | | | — | | | 1,681 | | | 1,279 | | | — | | | — | | | — | | | — | | Plan participants' contributions | — | | | — | | | 2,009 | | | 1,707 | | | — | | | — | | |
| Benefits paid | Benefits paid | (38,093) | | | (18,172) | | | (9,298) | | | (8,161) | | | (13,617) | | | (19,352) | | | (572) | | | (620) | | Benefits paid | (18,221) | | | (36,303) | | | (7,519) | | | (8,613) | | | (5,331) | | | (12,324) | | |
Actuarial (gain) loss | Actuarial (gain) loss | 55,105 | | | (48,104) | | | 24,791 | | | (19,533) | | | 2,352 | | | (7,687) | | | 462 | | | (446) | | Actuarial (gain) loss | (19,393) | | | 47,160 | | | (20,766) | | | 19,558 | | | (4,568) | | | 298 | | |
| | Amendments | Amendments | — | | | 69 | | | — | | | 3,073 | | | — | | | — | | | — | | | — | | Amendments | — | | | — | | | 1,828 | | | (1,401) | | | — | | | — | | |
| Settlements and curtailments | Settlements and curtailments | — | | | (78,896) | | | (5,412) | | | (1,813) | | | — | | | (2,289) | | | — | | | — | | Settlements and curtailments | (28,960) | | | — | | | (3,517) | | | (294) | | | (1,183) | | | — | | |
| Currency translation and other | Currency translation and other | 1 | | | — | | | 3,677 | | | 21,554 | | | — | | | — | | | — | | | — | | Currency translation and other | — | | | — | | | (7,488) | | | 24,296 | | | — | | | — | | |
| Spin-off of Apergy | — | | | (3,888) | | | — | | | (14,579) | | | — | | | (15,676) | | | — | | | — | | |
| | Benefit obligation at end of year | Benefit obligation at end of year | 490,228 | | | 447,173 | | | 296,534 | | | 270,329 | | | 60,183 | | | 66,836 | | | 8,070 | | | 7,849 | | Benefit obligation at end of year | 478,346 | | | 524,181 | | | 314,715 | | | 340,829 | | | 42,905 | | | 51,194 | | |
| Change in plan assets: | Change in plan assets: | | | | | | | | | | | | | | | | Change in plan assets: | | | | | | | | | | | | |
| Fair value of plan assets at beginning of year | Fair value of plan assets at beginning of year | 488,900 | | | 617,840 | | | 162,589 | | | 175,534 | | | — | | | — | | | — | | | — | | Fair value of plan assets at beginning of year | 606,896 | | | 550,238 | | | 212,748 | | | 185,590 | | | — | | | — | | |
| Actual return (loss) on plan assets | 99,431 | | | (32,939) | | | 23,812 | | | (8,490) | | | — | | | — | | | — | | | — | | |
| Actual return on plan assets | | Actual return on plan assets | 13,385 | | | 92,961 | | | 10,664 | | | 13,560 | | | — | | | — | | |
| Company contributions | Company contributions | — | | | — | | | 7,247 | | | 5,961 | | | 13,617 | | | 19,352 | | | 572 | | | 620 | | Company contributions | — | | | — | | | 8,121 | | | 7,315 | | | 6,262 | | | 12,324 | | |
| Plan participants' contributions | Plan participants' contributions | — | | | — | | | 1,681 | | | 1,279 | | | — | | | — | | | — | | | — | | Plan participants' contributions | — | | | — | | | 2,009 | | | 1,707 | | | — | | | — | | |
| Benefits paid | Benefits paid | (38,093) | | | (18,172) | | | (9,298) | | | (8,161) | | | (13,617) | | | (19,352) | | | (572) | | | (620) | | Benefits paid | (18,221) | | | (36,303) | | | (7,519) | | | (8,613) | | | (5,331) | | | (12,324) | | |
| | Settlements and curtailments | Settlements and curtailments | — | | | (74,016) | | | (4,350) | | | (1,472) | | | — | | | — | | | — | | | — | | Settlements and curtailments | (28,960) | | | — | | | (2,287) | | | (294) | | | (931) | | | — | | |
| Currency translation and other | Currency translation and other | — | | | — | | | 3,909 | | | 11,223 | | | — | | | — | | | — | | | — | | Currency translation and other | — | | | — | | | (4,059) | | | 13,483 | | | — | | | — | | |
| Spin-off of Apergy | — | | | (3,813) | | | — | | | (13,285) | | | — | | | — | | | — | | | — | | |
| | Fair value of plan assets at end of year | Fair value of plan assets at end of year | 550,238 | | | 488,900 | | | 185,590 | | | 162,589 | | | — | | | — | | | — | | | — | | Fair value of plan assets at end of year | 573,100 | | | 606,896 | | | 219,677 | | | 212,748 | | | — | | | — | | |
| Funded (Unfunded) status | Funded (Unfunded) status | $ | 60,010 | | | $ | 41,727 | | | $ | (110,944) | | | $ | (107,740) | | | $ | (60,183) | | | $ | (66,836) | | | $ | (8,070) | | | $ | (7,849) | | Funded (Unfunded) status | $ | 94,754 | | | $ | 82,715 | | | $ | (95,038) | | | $ | (128,081) | | | $ | (42,905) | | | $ | (51,194) | | |
| Amounts recognized in the consolidated balance sheets consist of: | Amounts recognized in the consolidated balance sheets consist of: | | | | | | | | | | | | | | | | Amounts recognized in the consolidated balance sheets consist of: | | | | | | | | | | | | |
| Assets and Liabilities: | Assets and Liabilities: | | | | | | | | | | | | | | | | Assets and Liabilities: | | | | | | | | | | | | |
| Other assets and deferred charges | Other assets and deferred charges | $ | 60,010 | | | $ | 41,727 | | | $ | 671 | | | $ | 919 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Other assets and deferred charges | $ | 94,754 | | | $ | 82,715 | | | $ | 1,575 | | | $ | 653 | | | $ | — | | | $ | — | | |
| Accrued compensation and employee benefits | Accrued compensation and employee benefits | — | | | — | | | (1,526) | | | (1,493) | | | (12,500) | | | (13,219) | | | (692) | | | (702) | | Accrued compensation and employee benefits | — | | | — | | | (1,729) | | | (1,691) | | | (4,776) | | | (4,899) | | |
| Other liabilities (deferred compensation) | Other liabilities (deferred compensation) | — | | | — | | | (110,089) | | | (107,166) | | | (47,683) | | | (53,617) | | | (7,378) | | | (7,147) | | Other liabilities (deferred compensation) | — | | | — | | | (94,884) | | | (127,043) | | | (38,129) | | | (46,295) | | |
| | Total assets and liabilities | 60,010 | | | 41,727 | | | (110,944) | | | (107,740) | | | (60,183) | | | (66,836) | | | (8,070) | | | (7,849) | | |
| Total assets (liabilities) | | Total assets (liabilities) | 94,754 | | | 82,715 | | | (95,038) | | | (128,081) | | | (42,905) | | | (51,194) | | |
| Accumulated Other Comprehensive Loss (Earnings): | Accumulated Other Comprehensive Loss (Earnings): | | | | | | | | | | | | | | | | Accumulated Other Comprehensive Loss (Earnings): | | | | | | | | | | | | |
| Net actuarial losses (gains) | Net actuarial losses (gains) | 71,247 | | | 81,437 | | | 70,694 | | | 66,480 | | | (20,556) | | | (25,186) | | | (632) | | | (1,164) | | Net actuarial losses (gains) | 33,545 | | | 49,386 | | | 50,878 | | | 80,472 | | | (20,724) | | | (18,400) | | |
| Prior service cost (credit) | Prior service cost (credit) | 549 | | | 852 | | | (2,724) | | | (72) | | | 6,288 | | | 9,099 | | | 58 | | | 71 | | Prior service cost (credit) | 110 | | | 322 | | | (1,303) | | | (3,632) | | | 2,980 | | | 4,593 | | |
| | Deferred taxes | (15,263) | | | (17,597) | | | (15,492) | | | (14,861) | | | 3,066 | | | 3,461 | | | 290 | | | 412 | | |
| Tax (benefit) expense | | Tax (benefit) expense | (6,686) | | | (10,272) | | | (11,836) | | | (17,144) | | | 3,840 | | | 2,961 | | |
| Total accumulated other comprehensive loss (earnings), net of tax | Total accumulated other comprehensive loss (earnings), net of tax | 56,533 | | | 64,692 | | | 52,478 | | | 51,547 | | | (11,202) | | | (12,626) | | | (284) | | | (681) | | Total accumulated other comprehensive loss (earnings), net of tax | 26,969 | | | 39,436 | | | 37,739 | | | 59,696 | | | (13,904) | | | (10,846) | | |
| Net amount recognized at December 31, | Net amount recognized at December 31, | $ | 116,543 | | | $ | 106,419 | | | $ | (58,466) | | | $ | (56,193) | | | $ | (71,385) | | | $ | (79,462) | | | $ | (8,354) | | | $ | (8,530) | | Net amount recognized at December 31, | $ | 121,723 | | | $ | 122,151 | | | $ | (57,299) | | | $ | (68,385) | | | $ | (56,809) | | | $ | (62,040) | | |
| | Accumulated benefit obligations | Accumulated benefit obligations | $ | 476,357 | | | $ | 438,005 | | | $ | 282,883 | | | $ | 258,109 | | | $ | 56,017 | | | $ | 60,080 | | | Accumulated benefit obligations | $ | 471,871 | | | $ | 511,292 | | | $ | 302,929 | | | $ | 326,317 | | | $ | 41,110 | | | $ | 47,358 | | |
(1) The actuarial gains and losses were primarily due to discount rate fluctuations.
The Company’s net unfunded status at December 31, 20192021 and 20182020 includes net liabilities of $110,944$95,038 and $107,740,$128,081, respectively, relating to the Company’s significant international qualified plans, some in locations where it is not economically advantageous to pre-fund the plans due to local regulations. The majority of the international obligations relate to defined pension plans operated by the Company’s businesses in Germany, Switzerland, andFrance, the United Kingdom.Kingdom, Italy, and Switzerland.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
The accumulated benefit obligation for all defined benefit pension plans was $815,257$815,910 and $756,194$884,967 at December 31, 20192021 and 2018,2020, respectively. Pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets consist of the following at December 31, 20192021 and 2018:2020:
| | | | 2019 | | 2018 | | 2021 | | 2020 |
| Projected benefit obligation (PBO) | Projected benefit obligation (PBO) | $ | 348,137 | | | $ | 330,168 | | Projected benefit obligation (PBO) | $ | 244,837 | | | $ | 383,244 | |
| Accumulated benefit obligation (ABO) | Accumulated benefit obligation (ABO) | 331,126 | | | 311,192 | | Accumulated benefit obligation (ABO) | 234,820 | | | 364,895 | |
| Fair value of plan assets | Fair value of plan assets | 177,057 | | | 154,673 | | Fair value of plan assets | 106,519 | | | 203,314 | |
Net Periodic Benefit Cost
The operating expense component of net periodic benefit cost (service cost) is reported with similar compensation costs in the Company's Consolidated Statement of Earnings. The non-operating components (all other components of net periodic benefit expense, including interest cost, amortization of prior service cost, curtailments and settlements, etc.) are reported outside of operating income in other income, net in the Consolidated Statement of Earnings.
Components of the net periodic benefit cost were as follows:
Defined Benefit Plans
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Qualified Defined Benefits | | | | | | | | | | | | Non-Qualified Supplemental Benefits | | | | |
| | U.S. Plan | | | | | | Non-U.S. Plans | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Service cost | $ | 7,016 | | | $ | 9,019 | | | $ | 12,083 | | | $ | 5,665 | | | $ | 5,359 | | | $ | 5,688 | | | $ | 1,942 | | | $ | 2,624 | | | $ | 2,473 | |
| Interest cost | 19,026 | | | 20,756 | | | 21,718 | | | 5,101 | | | 4,962 | | | 5,263 | | | 2,670 | | | 3,204 | | | 4,076 | |
| Expected return on plan assets | (34,136) | | | (39,045) | | | (39,812) | | | (6,220) | | | (7,675) | | | (7,417) | | | — | | | — | | | — | |
| Amortization of: | | | | | | | | | | | | | | | | | |
| Prior service cost (credit) | 303 | | | 298 | | | 427 | | | (398) | | | (449) | | | (425) | | | 2,811 | | | 3,770 | | | 4,411 | |
| Recognized actuarial loss (gain) | — | | | 3,102 | | | 5,582 | | | 3,109 | | | 2,952 | | | 3,506 | | | (2,280) | | | (1,132) | | | (1,192) | |
| Transition obligation | — | | | — | | | — | | | — | | | 1 | | | 4 | | | — | | | — | | | — | |
| Settlement and curtailment loss (gain) | — | | | 13,939 | | (1) | 76 | | | 961 | | | 7 | | | 678 | | | — | | | (1,381) | | | — | |
| | | | | | | | | | | | | | | | | |
| Net periodic benefit expense | $ | (7,791) | | | $ | 8,069 | | | $ | 74 | | | $ | 8,218 | | | $ | 5,157 | | | $ | 7,297 | | | $ | 5,143 | | | $ | 7,085 | | | $ | 9,768 | |
Less: Discontinued operations | — | | | 10,109 | | (1) | 3,383 | | | — | | | 114 | | | 810 | | | — | | | 279 | | | 1,226 | |
| Net periodic (income) expense - Continuing operations | $ | (7,791) | | | $ | (2,040) | | | $ | (3,309) | | | $ | 8,218 | | | $ | 5,043 | | | $ | 6,487 | | | $ | 5,143 | | | $ | 6,806 | | | $ | 8,542 | |
(1) $9.2 million of the total settlement and curtailment loss on the U.S. Plan is attributable to Apergy participants in the Dover Defined Benefit Plan and has therefore been reflected in the results of discontinued operations.
Other Post-Retirement Benefits
| | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| Service cost | $ | 19 | | | $ | 30 | | | $ | 68 | |
| Interest cost | 312 | | | 290 | | | 783 | |
| Amortization of: | | | | | |
| Prior service cost | 13 | | | 13 | | | 7 | |
| Recognized actuarial gain | (70) | | | (30) | | | (161) | |
| Settlement and curtailment gain | — | | | — | | | (4,598) | |
| | | | | |
| Net periodic expense (benefit) | $ | 274 | | | $ | 303 | | | $ | (3,901) | |
The curtailment gain in 2017 relates primarily to the impact of an amendment to the post-retirement plan in Brazil.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Amounts expected to be amortized from accumulated other comprehensive earnings (loss) into net periodic benefit cost during 2020 are as follows:
| | | | Qualified Defined Benefits | | | Non-Qualified Supplemental Benefits | | Other Post-Retirement Benefits | | Qualified Defined Benefits | | Non-Qualified Supplemental Benefits |
| | | U.S. Plan | | Non-U.S. Plans | | | | U.S. Plan | | Non-U.S. Plans | Non-Qualified Supplemental Benefits |
| | | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Service cost | | Service cost | $ | 7,134 | | | $ | 6,824 | | | $ | 7,016 | | | $ | 5,749 | | | $ | 5,345 | | | $ | 5,665 | | | $ | 1,561 | | | $ | 1,272 | | | $ | 1,942 | |
| Interest cost | | Interest cost | 13,605 | | | 16,272 | | | 19,026 | | | 3,590 | | | 3,697 | | | 5,101 | | | 1,232 | | | 1,765 | | | 2,670 | |
| Expected return on plan assets | | Expected return on plan assets | (28,980) | | | (31,475) | | | (34,136) | | | (7,188) | | | (6,837) | | | (6,220) | | | — | | | — | | | — | |
| Amortization of: | Amortization of: | | | | | | | | Amortization of: | |
| Prior service cost (credit) | Prior service cost (credit) | $ | 227 | | | $ | (473) | | | $ | 1,695 | | | $ | 13 | | Prior service cost (credit) | 212 | | | 227 | | | 303 | | | (453) | | | (493) | | | (398) | | | 1,531 | | | 1,695 | | | 2,811 | |
| Recognized actuarial loss (gain) | Recognized actuarial loss (gain) | 7,536 | | | 2,986 | | | (1,858) | | | (15) | | Recognized actuarial loss (gain) | 10,012 | | | 7,536 | | | — | | | 3,938 | | | 3,047 | | | 3,109 | | | (1,672) | | | (1,857) | | | (2,280) | |
| | Total | $ | 7,763 | | | $ | 2,513 | | | $ | (163) | | | $ | (2) | | |
| Settlement and curtailment loss (gain) | | Settlement and curtailment loss (gain) | 2,031 | | | — | | | — | | | 194 | | | 25 | | | 961 | | | (743) | | | — | | | — | |
| | Net periodic expense (benefit) | | Net periodic expense (benefit) | $ | 4,014 | | | $ | (616) | | | $ | (7,791) | | | $ | 5,830 | | | $ | 4,784 | | | $ | 8,218 | | | $ | 1,909 | | | $ | 2,875 | | | $ | 5,143 | |
|
Assumptions
The Company determines actuarial assumptions on an annual basis. The weighted average assumptions used in determining the benefit obligations were as follows:
| | | | Qualified Defined Benefits | | | Non-Qualified Supplemental Benefits | | | Other Post-Retirement Benefits | | | Qualified Defined Benefits | | Non-Qualified Supplemental Benefits | |
| | | U.S. Plan | | | Non-U.S. Plans | | | | | | | U.S. Plan | | Non-U.S. Plans | | |
| | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | |
| Discount rate | Discount rate | 3.40 | % | | 4.35 | % | | 1.18 | % | | 1.83 | % | | 3.20 | % | | 4.30 | % | | 3.10 | % | | 4.15 | % | Discount rate | 2.95 | % | | 2.65 | % | | 1.18 | % | | 0.79 | % | | 2.90 | % | | 2.45 | % | |
| Average wage increase | Average wage increase | 4.00 | % | | 4.50 | % | | 1.80 | % | | 2.10 | % | | 4.50 | % | | 4.50 | % | | na | | na | Average wage increase | 4.00 | % | | 4.00 | % | | 1.53 | % | | 1.51 | % | | 4.50 | % | | 4.50 | % | |
| Ultimate medical trend rate | na | | | na | | | na | | | na | | | na | | | na | | | 5.00 | % | | 5.00 | % | |
|
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
The weighted average assumptions used in determining the net periodic benefit cost were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Qualified Defined Benefits | | | | | | | | | | | | Non- Qualified Supplemental Benefits | | | | | | Other Post-Retirement Benefits | | | | |
| | U.S. Plan | | | | | | Non-U.S. Plans | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Discount rate | 4.35 | % | | 4.2%/3.65% | | (1) | 4.10 | % | | 1.83 | % | | 1.94 | % | | 2.06 | % | | 4.30 | % | | 3.57 | % | | 3.97 | % | | 4.15 | % | | 3.50 | % | | 6.49 | % |
| Average wage increase | 4.00 | % | | 4.00 | % | | 4.00 | % | | 2.10 | % | | 2.33 | % | | 2.34 | % | | 4.50 | % | | 4.50 | % | | 4.50 | % | | na | | na | | na |
| Expected return on plan assets | 6.80 | % | | 6.8%/7.25% | | (1) | 7.25 | % | | 3.67 | % | | 4.66 | % | | 4.73 | % | | na | | na | | | na | | | na | | | na | | | na | |
(1) The separation of Apergy triggered a pension plan curtailment which required a re-measurement of the Plan's benefit obligation in the second quarter 2018, assuming a discount rate of 4.2% and an expected return on assets of 6.8%. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Qualified Defined Benefits | | Non- Qualified Supplemental Benefits | | |
| | U.S. Plan | | Non-U.S. Plans | |
| | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | | | | | |
| Discount rate | 2.65 | % | | 3.40 | % | | 4.35 | % | | 0.79 | % | | 1.18 | % | | 1.83 | % | | 2.45 | % | | 3.20 | % | | 4.30 | % | | | | | | |
| Average wage increase | 4.00 | % | | 4.00 | % | | 4.00 | % | | 1.51 | % | | 1.80 | % | | 2.10 | % | | 4.50 | % | | 4.50 | % | | 4.50 | % | | | | | | |
| Expected return on plan assets | 5.60 | % | | 6.30 | % | | 6.80 | % | | 3.40 | % | | 3.69 | % | | 3.67 | % | | na | | na | | na | | | | | | |
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. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. The remeasurement in the second quarter of 2018, triggered by the Apergy spin-off, resulted in an increase to the discount rate used in determining net periodic benefit cost from 3.65% to 4.20% for the balance of 2018.
For other post-retirement benefit measurement purposes, a 7.00% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rates) was assumed for 2020. The rate was assumed to decrease gradually to 5.00% by the year 2027 and remain at that level thereafter. The health care cost trend rate assumption can have an effect on the amounts reported. For example, increasing (decreasing) the assumed health care cost trend rates by one percentage point in each year would increase (decrease) the accumulated other post-retirement benefit obligation as of December 31, 2019 by $78 and $(76), respectively, and would have a negligible impact on the net post-retirement benefit cost for 2019.
Plan Assets
The primary financial objective of the plans is to secure participant retirement benefits. Accordingly, the key objective in the plans’ financial management is to promote stability and, to the extent appropriate, growth in the funded status. Related and supporting financial objectives are established in conjunction with a review of current and projected plan financial requirements.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
As it relates to the funded defined benefit pension plans, the Company’s funding policy is consistent with the funding requirements of the Employment Retirement Income Security Act ("ERISA") and applicable international laws. The Company is responsible for overseeing the management of the investments of the plans’ assets and otherwise ensuring that the plans’ investment programs are in compliance with ERISA, other relevant legislation and related plan documents. Where relevant, the Company has retained professional investment managers to manage the plans’ assets and implement the investment process. The investment managers, in implementing their investment processes, have the authority and responsibility to select appropriate investments in the asset classes specified by the terms of their applicable prospectus or investment manager agreements with the plans.
The assets of the plans are invested to achieve an appropriate return for the plans consistent with a prudent level of risk. The plan'splans' long-term investment objective is to generate investment returns that provide adequate assets to meet all benefit obligations in accordance with applicable regulations. The expected return on assets assumption used for pension expensenet periodic benefit cost is developed through analysis of historical and forecasted market returns, statistical analysis, current market conditions and the past experience of plan asset investments. Overall, it is projected that the investment of plan assets within Dover’s U.S. defined benefit plan will achieve a net return over time from the asset allocation strategy of 6.80%.
The Company’s actual and target weighted average asset allocation for our U.S. Corporate PensionQualified Defined Benefits Plan was as follows:
| | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | Current Target |
| Equity securities | 34 | % | | 36 | % | | 34 | % |
| Fixed income | 64 | % | | 55 | % | | 66 | % |
| Real estate and other | 2 | % | | 9 | % | | — | % |
| Total | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | Current Target |
| Return-seeking investments | 29 | % | | 22 | % | | 30 | % |
| Liability hedging investments | 69 | % | | 77 | % | | 70 | % |
| Other | 2 | % | | 1 | % | | — | % |
| Total | 100 | % | | 100 | % | | 100 | % |
Return-seeking investments include diversified foreign and domestic equities, U.S. high yield fixed income investments, and emerging market debt. Liability hedging investments primarily include a diversified portfolio of U.S. long duration fixed income assets. While the non-U.S. investment policies are different for each country, the long-term objectives are generally the same as for the U.S. pension assets. The Company's non-U.S. plans were expected to achieve average rates
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in 2019, 4.66% in 2018thousands except share data and 4.73% in 2017.where otherwise indicated)
The fair values of both U.S. and non-U.S. pension plan assets by asset category within the fair value hierarchy (as defined in Note 13 — Financial Instruments) were as follows:
| | | | U.S. Qualified Defined Benefits Plan | | | U.S. Qualified Defined Benefits Plan |
| | | 12/31/2019 | | | 12/31/2018 | | | 12/31/2021 | | 12/31/2020 |
| | | Level 1 | | Level 2 | | | Total Fair Value | | Level 1 | | Level 2 | | | Total Fair Value | | Level 1 | | Level 2 | | | Total Fair Value | | Level 1 | | Level 2 | | | Total Fair Value |
| | Corporate bonds | Corporate bonds | $ | — | | | $ | 216,981 | | | | $ | 216,981 | | | $ | — | | | $ | 150,179 | | | | $ | 150,179 | | Corporate bonds | $ | — | | | $ | 316,367 | | | | $ | 316,367 | | | $ | — | | | $ | 329,800 | | | | $ | 329,800 | |
| Government securities | Government securities | 5,846 | | | 69,486 | | | | 75,332 | | | 1,586 | | | 113,931 | | | | 115,517 | Government securities | — | | | 73,115 | | | | 73,115 | | | 8,533 | | | 72,018 | | | | 80,551 |
| Interest-bearing cash and short-term investments | Interest-bearing cash and short-term investments | 1,438 | | | — | | | | 1,438 | | | 2,066 | | | — | | | | 2,066 | Interest-bearing cash and short-term investments | 3,227 | | | — | | | | 3,227 | | | 3,117 | | | — | | | | 3,117 |
| Total investments at fair value | Total investments at fair value | 7,284 | | | 286,467 | | | | 293,751 | | | 3,652 | | | 264,110 | | | | 267,762 | Total investments at fair value | 3,227 | | | 389,482 | | | | 392,709 | | | 11,650 | | | 401,818 | | | | 413,468 |
| Investments measured at net asset value* | Investments measured at net asset value* | | | | | | Investments measured at net asset value* | | | | | |
| Collective funds | Collective funds | — | | | — | | | | 241,058 | | | — | | | — | | | | 175,963 | | Collective funds | — | | | — | | | | 167,551 | | | — | | | — | | | | 180,103 | |
| | Real estate investments | — | | | — | | | | — | | | — | | | — | | | | 32,686 | | |
| | Short-term investment funds | Short-term investment funds | — | | | — | | | | 15,429 | | | — | | | — | | | | 12,489 | | Short-term investment funds | — | | | — | | | | 12,840 | | | — | | | — | | | | 13,325 | |
| | Total investments | Total investments | $ | 7,284 | | | $ | 286,467 | | | | $ | 550,238 | | | $ | 3,652 | | | $ | 264,110 | | | | $ | 488,900 | | Total investments | $ | 3,227 | | | $ | 389,482 | | | | $ | 573,100 | | | $ | 11,650 | | | $ | 401,818 | | | | $ | 606,896 | |
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
| | | | Non-U.S. Plans | | | Non-U.S. Plans |
| | | 12/31/2019 | | | 12/31/2018 | | | 12/31/2021 | | 12/31/2020 |
| | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value |
| Common stocks | Common stocks | $ | 44,685 | | | $ | — | | | $ | — | | | $ | 44,685 | | | $ | 28,528 | | | $ | — | | | $ | — | | | $ | 28,528 | | Common stocks | $ | 58,054 | | | $ | — | | | $ | — | | | $ | 58,054 | | | $ | 52,865 | | | $ | — | | | $ | — | | | $ | 52,865 | |
| Fixed income investments | Fixed income investments | — | | | 19,871 | | | — | | | 19,871 | | | — | | | 27,797 | | | — | | | 27,797 | | Fixed income investments | — | | | 27,034 | | | — | | | 27,034 | | | — | | | 26,068 | | | — | | | 26,068 | |
| Mutual funds | Mutual funds | 26,799 | | | — | | | — | | | 26,799 | | | 23,438 | | | — | | | — | | | 23,438 | | Mutual funds | 30,675 | | | — | | | — | | | 30,675 | | | 29,413 | | | — | | | — | | | 29,413 | |
| | Cash and cash equivalents | Cash and cash equivalents | 3,752 | | | — | | | — | | | 3,752 | | | 470 | | | — | | | — | | | 470 | | Cash and cash equivalents | 3,634 | | | — | | | — | | | 3,634 | | | 2,822 | | | — | | | — | | | 2,822 | |
| Other | Other | — | | | 3,519 | | | 18,597 | | | 22,116 | | | — | | | 2,390 | | | 21,283 | | | 23,673 | | Other | — | | | 2,877 | | | 20,252 | | | 23,129 | | | — | | | 1,181 | | | 21,276 | | | 22,457 | |
| Total investments at fair value | Total investments at fair value | 75,236 | | | 23,390 | | | 18,597 | | | 117,223 | | | 52,436 | | | 30,187 | | | 21,283 | | | 103,906 | | Total investments at fair value | 92,363 | | | 29,911 | | | 20,252 | | | 142,526 | | | 85,100 | | | 27,249 | | | 21,276 | | | 133,625 | |
| Investments measured at net asset value* | Investments measured at net asset value* | | | Investments measured at net asset value* | |
| Collective funds | Collective funds | — | | | — | | | — | | | 64,000 | | | — | | | — | | | — | | | 54,505 | | Collective funds | — | | | — | | | — | | | 72,235 | | | — | | | — | | | — | | | 74,138 | |
| Other | Other | — | | | — | | | — | | | 4,367 | | | — | | | — | | | — | | | 4,178 | | Other | — | | | — | | | — | | | 4,916 | | | — | | | — | | | — | | | 4,985 | |
| Total | $ | 75,236 | | | $ | 23,390 | | | $ | 18,597 | | | $ | 185,590 | | | $ | 52,436 | | | $ | 30,187 | | | $ | 21,283 | | | $ | 162,589 | | |
| Total investments | | Total investments | $ | 92,363 | | | $ | 29,911 | | | $ | 20,252 | | | $ | 219,677 | | | $ | 85,100 | | | $ | 27,249 | | | $ | 21,276 | | | $ | 212,748 | |
* In accordance with Fair Value Measurement Topic 820 (Subtopic 820-10), certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient were not classified in the fair value hierarchy. These are included to permit reconciliation of the fair value hierarchy to the aggregate pension plan assets.
Common stocks represent investments in domestic and foreign equities, which are publicly traded on active exchanges and are valued based on quoted market prices.
Fixed income investments include U.S. Treasury bonds and notes, which are valued based on quoted market prices, as well as investments in other government and municipal securities and corporate bonds, which are valued based on yields currently available on comparable securities of issuers with similar credit ratings.
Mutual funds are categorized as either Level 1, 2 or Net Asset Value ("NAV") as a practical expedient depending on the nature of the observable inputs. Collective funds and real estateshort-term investment funds are valued using NAV as a practical expedient as of the last business day of the year. The NAV is based on the underlying value of the assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The value of the underlying assets is based on quoted prices in active markets.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The availability of observable data is monitored by plan management to assess appropriate classification of financial instruments within the fair value hierarchy. Depending upon the availability of such inputs, specific securities may transfer between levels. In such instances, the transfer is reported at the end of the reporting period.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed during 20182020 and 2019,2021, due to the following:
| | | | | |
| Level 3 |
Balance at December 31, 2017 | $ | 4,592 | |
Actual return on plan assets: | |
| |
Relating to assets still held at December 31, 2018 | (29) | |
| |
| |
Insurance contracts added | 16,975 | |
Foreign currency translation | (255) | |
Balance at December 31, 2018 | 21,283 | |
Actual return on plan assets: | |
Relating to assets still held at December 31, 2019 | 319 | |
Relating to assets sold during the period | 14 | |
Purchases | 1,615 | |
Sales and settlements | (4,971) | |
Foreign currency translation | 337 | |
| Balance at December 31, 2019 | $ | 18,597 | |
| Actual return on plan assets: | |
| |
| Relating to assets still held at December 31, 2020 | 349 | |
| |
| |
| Relating to assets sold during the period | 6 | |
| Purchases | 1,715 | |
| Sales and settlements | (1,111) | |
| Foreign currency translation | 1,720 | |
| Balance at December 31, 2020 | 21,276 | |
| Actual return on plan assets: | |
| Relating to assets still held at December 31, 2021 | 48 | |
| Relating to assets sold during the period | — | |
| Purchases | 1,664 | |
| Sales and settlements | (2,158) | |
| Foreign currency translation | (578) | |
| Balance at December 31, 2021 | $ | 20,252 | |
Future Estimates
Benefit Payments
Estimated future benefit payments to retirees, which reflect expected future service except to the extent frozen, are as follows:
| | | | Qualified Defined Benefits | | | Non-Qualified Supplemental Benefits | | Other Post-Retirement Benefits | | Qualified Defined Benefits | | Non-Qualified Supplemental Benefits | |
| | | U.S. Plan | | Non-U.S. Plans | | | | U.S. Plan | | Non-U.S. Plans | Non-Qualified Supplemental Benefits |
| 2020 | $ | 37,225 | | | $ | 8,592 | | | $ | 12,698 | | | $ | 704 | | |
| 2021 | 35,141 | | | 8,720 | | | 11,820 | | | 675 | | |
| 2022 | 2022 | 35,407 | | | 9,205 | | | 4,428 | | | 658 | | 2022 | $ | 36,495 | | | $ | 11,003 | | | $ | 4,845 | | |
| 2023 | 2023 | 33,303 | | | 10,578 | | | 4,442 | | | 634 | | 2023 | 33,845 | | | 11,554 | | | 4,039 | | |
| 2024 | 2024 | 34,510 | | | 11,618 | | | 3,808 | | | 608 | | 2024 | 34,445 | | | 12,872 | | | 5,699 | | |
| 2025 - 2029 | 149,224 | | | 60,816 | | | 14,453 | | | 2,626 | | |
| 2025 | | 2025 | 32,670 | | | 11,534 | | | 2,297 | | |
| 2026 | | 2026 | 31,727 | | | 12,674 | | | 5,856 | | |
| 2027 - 2031 | | 2027 - 2031 | 134,159 | | | 72,555 | | | 15,140 | | |
Contributions
In 2020,2022, the Company expects to contributemake payments of approximately $4.6$7.7 million to its non-US plans and currently does not expect to contribute$4.8 million to its non-qualified U.S. plans.
plan. No payments are expected for the qualified U.S. plan in 2022.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
18. Accumulated Other Comprehensive Earnings (Loss)
The amounts recognized in other comprehensive earnings (loss) were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 | Pre-tax | | Tax | | Net of tax |
| Foreign currency translation adjustments | $ | 25,028 | | | $ | (4,714) | | | $ | 20,314 | |
| Pension and other postretirement benefit plans | 6,592 | | | $ | (1,184) | | | $ | 5,408 | |
| Changes in fair value of cash flow hedges | 1,707 | | | $ | (359) | | | $ | 1,348 | |
| | | | | |
| Total other comprehensive earnings | $ | 33,327 | | | $ | (6,257) | | | $ | 27,070 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 | Pre-tax | | Tax | | Net of tax |
| Foreign currency translation adjustments | | $ | (69,468) | | | $ | 9,498 | | | $ | (59,970) | |
| Pension and other post-retirement benefit plans | | (14,379) | | | 3,241 | | | (11,138) | |
| Changes in fair value of cash flow hedges | | 3,416 | | | (717) | | | 2,699 | |
| | | | | |
| Total other comprehensive loss | $ | (80,431) | | | $ | 12,022 | | | $ | (68,409) | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 | Pre-tax | | Tax | | Net of tax |
| Foreign currency translation adjustments | | $ | 103,214 | | | $ | 43,842 | | | $ | 147,056 | |
| Pension and other postretirement benefit plans | | 28,784 | | | (7,397) | | | 21,387 | |
| Changes in fair value of cash flow hedges | | (3,678) | | | 1,287 | | | (2,391) | |
| Other | | (1,687) | | | 202 | | | (1,485) | |
| Total other comprehensive earnings | $ | 126,633 | | | $ | 37,934 | | | $ | 164,567 | |
The components of accumulated other comprehensive earnings (loss) are as follows:
| | | | December 31, 2019 | | December 31, 2018 | | December 31, 2021 | | December 31, 2020 |
| Cumulative foreign currency translation adjustments | Cumulative foreign currency translation adjustments | $ | (122,252) | | | $ | (142,567) | | Cumulative foreign currency translation adjustments | $ | (107,130) | | | $ | (66,802) | |
| Pension and other postretirement benefit plans | Pension and other postretirement benefit plans | (97,525) | | | (102,932) | | Pension and other postretirement benefit plans | (50,448) | | | (88,126) | |
| Changes in fair value of cash flow hedges and other | Changes in fair value of cash flow hedges and other | 3,751 | | | 2,403 | | Changes in fair value of cash flow hedges and other | 3,526 | | | 1,674 | |
| | | $ | (216,026) | | | $ | (243,096) | | | $ | (154,052) | | | $ | (153,254) | |
Total comprehensive earnings (loss) were as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | |
| 2019 | | 2018 | | 2017 |
| Net earnings | $ | 677,918 | | | $ | 570,267 | | | $ | 811,665 | |
| Other comprehensive (loss) earnings | 27,070 | | | (68,409) | | | 164,567 | |
| Comprehensive earnings | $ | 704,988 | | | $ | 501,858 | | | $ | 976,232 | |
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Amounts reclassified from accumulated other comprehensive earnings (loss) to earnings (loss) during the year ended December 31, 2019, 20182021, 2020 and 20172019 were as follows:
| | | Years Ended December 31, | | | Years Ended December 31, | |
| | 2019 | | 2018 | | 2017 | | | 2021 | | 2020 | | 2019 | |
| Foreign currency translation: | Foreign currency translation: | | | | | | | Foreign currency translation: | | | | | | |
| Reclassification of foreign currency translation losses to earnings | Reclassification of foreign currency translation losses to earnings | $ | 25,339 | | | $ | — | | | $ | 3,992 | | | Reclassification of foreign currency translation losses to earnings | $ | — | | | $ | — | | | $ | 25,339 | | |
| Tax benefit | Tax benefit | — | | | — | | | — | | | Tax benefit | — | | | — | | | — | | |
| Net of tax | Net of tax | $ | 25,339 | | | $ | — | | | $ | 3,992 | | | Net of tax | $ | — | | | $ | — | | | $ | 25,339 | | |
| Pension and other postretirement benefit plans: | Pension and other postretirement benefit plans: | | | | | | | Pension and other postretirement benefit plans: | | | | | | |
| Amortization of actuarial losses | Amortization of actuarial losses | $ | 759 | | | $ | 4,893 | | | $ | 7,735 | | | Amortization of actuarial losses | $ | 12,278 | | | $ | 8,583 | | | $ | 759 | | |
| Amortization of prior service costs and transition obligation | Amortization of prior service costs and transition obligation | 2,729 | | | 3,631 | | | 4,424 | | | Amortization of prior service costs and transition obligation | 1,304 | | | 1,442 | | | 2,729 | | |
| Settlement and curtailment | Settlement and curtailment | 961 | | | 12,565 | | | (3,844) | | | Settlement and curtailment | 1,482 | | | 25 | | | 961 | | |
| Total before tax | Total before tax | 4,449 | | | 21,089 | | | 8,315 | | | Total before tax | 15,064 | | | 10,050 | | | 4,449 | | |
| Tax benefit | Tax benefit | (906) | | | (4,459) | | | (2,503) | | | Tax benefit | (3,423) | | | (2,184) | | | (906) | | |
| Net of tax | Net of tax | $ | 3,543 | | | $ | 16,630 | | | $ | 5,812 | | | Net of tax | $ | 11,641 | | | $ | 7,866 | | | $ | 3,543 | | |
| Cash flow hedges: | Cash flow hedges: | | | | | | | Cash flow hedges: | | | | | | |
| Net (gains) losses reclassified into earnings | $ | (186) | | | $ | 1,950 | | | $ | (908) | | | |
| Tax expense (benefit) | 39 | | | (409) | | | 318 | | | |
| Net gains reclassified into earnings | | Net gains reclassified into earnings | $ | (6,271) | | | $ | (817) | | | $ | (186) | | |
| Tax expense | | Tax expense | 1,400 | | | 185 | | | 39 | | |
| Net of tax | Net of tax | $ | (147) | | | $ | 1,541 | | | $ | (590) | | | Net of tax | $ | (4,871) | | | $ | (632) | | | $ | (147) | | |
The Company recognizes the amortization of net actuarial losses, prior service costs and transition obligation as well as settlements and curtailments, in other income, net in the Consolidated Statements of Earnings.
Cash flow hedges consist mainly of foreign currency forward 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, general and administrative expenses in the Consolidated Statements of Earnings.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
19. Segment Information
Effective October 1, 2019, Dover transitioned from a three-segment to a five-segment structure as a result of a change toThe Company categorizes its management structureoperating companies into 5 reportable segments: Engineered Products, Clean Energy & Fueling, Imaging & Identification, Pumps & Process Solutions, and operating model.Climate & Sustainability Technologies. The Company's businesses are structured around similar business models, go-to market strategies, and manufacturing practices and product categories which increases management efficiency and better aligns Dover's operations with its strategic initiatives and capital allocation priorities, and provideprovides greater transparency about performance. Operating segments are defined as the components of an enterprise for which separate financial information is available, engages in business activities from which it may recognize revenues and incur expenses, and regularly evaluated by the entity's chief operating decision maker ("CODM") or decision-making group, which is composed of Dover's executive leadership team, in making resource allocation decisions and evaluating performance.
The Company categorizes its operating companies into 5 reportable segments based on how the CODM analyze performance, allocate capital and make strategic and operational decisions. The 5 reportable segments are as follows:
•Engineered Products segment is a provider ofprovides a wide range of products,equipment, components, software, solutions and services that have broad customer applications across a number of markets, includingvehicle aftermarket, vehicle service, solid waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing.dispensing end-markets.
•Clean Energy & Fueling Solutions segment is focused on providingprovides components, equipment, and software and service solutions enabling safe transport of traditional and clean fuels and other hazardous fluidssubstances along the supply chain, as well as the safe and efficient operation of convenience retail, retail fueling and vehicle wash establishments.
•Imaging & Identification segment supplies precision marking and coding, product traceability and digital textile printing equipment, as well as related consumables, software and services.services to the global packaged and consumer goods, pharmaceutical, industrial manufacturing, fashion and apparel and other end-markets.
•Pumps & Process Solutions segment manufactures specialty pumps and flow meters, fluid handling components,connecting solutions, plastics and polymer processing equipment, and highly engineered precision components for rotating and reciprocating machines.machines serving single-use biopharmaceutical production, diversified industrial manufacturing, polymer processing, midstream and downstream oil and gas and other end-markets.
•RefrigerationClimate & Food EquipmentSustainability Technologies segment is a provider of innovative and energy-efficient equipment and systems that serve the commercial refrigeration, heating and cooling and foodbeverage container-making equipment markets.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
Segment financial information and a reconciliation of segment results to consolidated results follows: | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Revenue: | | | | | |
| Engineered Products | $ | 1,780,827 | | | $ | 1,531,277 | | | $ | 1,697,557 | |
| Clean Energy & Fueling | 1,648,153 | | | 1,476,282 | | | 1,620,177 | |
| Imaging & Identification | 1,163,367 | | | 1,038,178 | | | 1,084,471 | |
| Pumps & Process Solutions | 1,708,634 | | | 1,324,003 | | | 1,338,528 | |
| Climate & Sustainability Technologies | 1,608,175 | | | 1,316,090 | | | 1,396,617 | |
| Intercompany eliminations | (2,075) | | | (2,070) | | | (953) | |
| Total consolidated revenue | $ | 7,907,081 | | | $ | 6,683,760 | | | $ | 7,136,397 | |
| Net earnings: | | | | | |
Segment earnings (EBIT): (1) | | | | | |
Engineered Products (2) | $ | 285,511 | | | $ | 238,167 | | | $ | 291,848 | |
| Clean Energy & Fueling | 271,388 | | | 236,974 | | | 231,873 | |
| Imaging & Identification | 237,147 | | | 193,473 | | | 229,484 | |
Pumps & Process Solutions (3) | 546,863 | | | 305,276 | | | 240,081 | |
Climate & Sustainability Technologies (4) | 322,622 | | | 102,872 | | | 118,832 | |
| Total segment earnings (EBIT) | 1,663,531 | | | 1,076,762 | | | 1,112,118 | |
Corporate expense / other (5) | 160,827 | | | 126,662 | | | 124,274 | |
| Interest expense | 106,319 | | | 111,937 | | | 125,818 | |
| Interest income | (4,441) | | | (3,571) | | | (4,526) | |
| Loss on extinguishment of debt | — | | | — | | | 23,543 | |
| Earnings before provision for income taxes | 1,400,826 | | | 841,734 | | | 843,009 | |
| Provision for income taxes | 277,008 | | | 158,283 | | | 165,091 | |
| Net earnings | $ | 1,123,818 | | | $ | 683,451 | | | $ | 677,918 | |
| Segment margins: | | | | | |
Engineered Products (2) | 16.0% | | 15.6% | | 17.2% |
| Clean Energy & Fueling | 16.5% | | 16.1% | | 14.3% |
| Imaging & Identification | 20.4% | | 18.6% | | 21.2% |
Pumps & Process Solutions (3) | 32.0% | | 23.1% | | 17.9% |
Climate & Sustainability Technologies (4) | 20.1% | | 7.8% | | 8.5% |
| Total Segments | 21.0% | | 16.1% | | 15.6% |
| Net earnings | 14.2% | | 10.2% | | 9.5% |
| Depreciation and amortization: | | | | | |
| Engineered Products | $ | 48,644 | | | $ | 42,603 | | | $ | 41,032 | |
| Clean Energy & Fueling | 78,010 | | | 72,803 | | | 75,045 | |
| Imaging & Identification | 38,510 | | | 38,378 | | | 30,530 | |
| Pumps & Process Solutions | 69,075 | | | 72,191 | | | 67,584 | |
| Climate & Sustainability Technologies | 48,634 | | | 46,541 | | | 51,360 | |
| Corporate | 7,250 | | | 6,535 | | | 6,736 | |
| Consolidated total | $ | 290,123 | | | $ | 279,051 | | | $ | 272,287 | |
| Capital expenditures: | | | | | |
| Engineered Products | $ | 48,453 | | | $ | 23,515 | | | $ | 38,049 | |
| Clean Energy & Fueling | 25,167 | | | 26,903 | | | 21,780 | |
| Imaging & Identification | 10,671 | | | 10,690 | | | 18,593 | |
| Pumps & Process Solutions | 44,578 | | | 52,804 | | | 50,442 | |
| Climate & Sustainability Technologies | 34,335 | | | 42,923 | | | 51,052 | |
| Corporate | 8,261 | | | 8,857 | | | 6,888 | |
| Consolidated total | $ | 171,465 | | | $ | 165,692 | | | $ | 186,804 | |
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | |
| | 2019 | | 2018 | | 2017 |
| Revenue: | | | | | |
| Engineered Products | $ | 1,697,557 | | | $ | 1,633,147 | | | $ | 1,626,856 | |
| Fueling Solutions | 1,620,177 | | | 1,465,590 | | | 1,338,062 | |
| Imaging & Identification | 1,084,471 | | | 1,109,843 | | | 1,041,188 | |
| Pumps & Process Solutions | 1,338,528 | | | 1,331,893 | | | 1,217,235 | |
| Refrigeration & Food Equipment | 1,396,617 | | | 1,453,093 | | | 1,599,105 | |
| Intra-segment eliminations | (953) | | | (1,448) | | | (1,560) | |
| Total consolidated revenue | $ | 7,136,397 | | | $ | 6,992,118 | | | $ | 6,820,886 | |
| Earnings from continuing operations: | | | | | |
Segment earnings (EBIT): (1) | | | | | |
| Engineered Products | $ | 291,848 | | | $ | 252,368 | | | $ | 437,079 | |
| Fueling Solutions | 231,873 | | | 152,255 | | | 159,180 | |
| Imaging & Identification | 229,484 | | | 198,902 | | | 167,404 | |
Pumps & Process Solutions (2) | 240,081 | | | 237,549 | | | 209,451 | |
| Refrigeration & Food Equipment | 118,832 | | | 136,119 | | | 193,822 | |
| Total segment earnings (EBIT) | 1,112,118 | | | 977,193 | | | 1,166,936 | |
Corporate expense / other (3) | 124,274 | | | 129,724 | | | 154,664 | |
| Interest expense | 125,818 | | | 130,972 | | | 144,948 | |
| Interest income | (4,526) | | | (8,881) | | | (8,491) | |
| Loss on extinguishment of debt | 23,543 | | | — | | | — | |
| Earnings before provision for income taxes and discontinued operations | 843,009 | | | 725,378 | | | 875,815 | |
| Provision for income taxes | 165,091 | | | 134,233 | | | 129,152 | |
| Earnings from continuing operations | $ | 677,918 | | | $ | 591,145 | | | $ | 746,663 | |
| Segment margins: | | | | | |
| Engineered Products | 17.2 | % | | 15.5 | % | | 26.9 | % |
| Fueling Solutions | 14.3 | % | | 10.4 | % | | 11.9 | % |
| Imaging & Identification | 21.2 | % | | 17.9 | % | | 16.1 | % |
Pumps & Process Solutions (2) | 17.9 | % | | 17.8 | % | | 17.2 | % |
| Refrigeration & Food Equipment | 8.5 | % | | 9.4 | % | | 12.1 | % |
| Total Segments | 15.6 | % | | 14.0 | % | | 17.1 | % |
| Earnings from continuing operations | 9.5 | % | | 8.5 | % | | 10.9 | % |
| Depreciation and amortization: | | | | | | | | |
| Engineered Products | $ | 41,032 | | | $ | 44,995 | | | $ | 48,271 | |
| Fueling Solutions | 75,045 | | | 68,463 | | | 67,835 | |
| Imaging & Identification | 30,530 | | | 30,882 | | | 37,176 | |
| Pumps & Process Solutions | 67,584 | | | 71,982 | | | 67,986 | |
| Refrigeration & Food Equipment | 51,360 | | | 60,477 | | | 57,207 | |
| Corporate | 6,736 | | | 5,781 | | | 4,803 | |
| Consolidated total | $ | 272,287 | | | $ | 282,580 | | | $ | 283,278 | |
| Capital expenditures: | | | | | | | | |
| Engineered Products | $ | 38,049 | | | $ | 34,016 | | | $ | 25,762 | |
| Fueling Solutions | 21,780 | | | 37,232 | | | 40,702 | |
| Imaging & Identification | 18,593 | | | 13,029 | | | 11,733 | |
| Pumps & Process Solutions | 50,442 | | | 49,333 | | | 49,923 | |
| Refrigeration & Food Equipment | 51,052 | | | 32,482 | | | 32,541 | |
| Corporate | 6,888 | | | 4,902 | | | 9,407 | |
| Consolidated total | $ | 186,804 | | | $ | 170,994 | | | $ | 170,068 | |
(1) Segment earnings (EBIT) includes non-operating income and expense directly attributable to the segments. Non-operating income and expense includes gain on sale of businessesdispositions and other income, net.
(2) For the year ended December 31, 2021, includes a $24,723 gain related to the sale of RWB equity method investment.
(3) For the year ended December 31, 2019, includes a $46,946 loss on assets held for sale for Finder.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(2)(4) For the year ended December 31, 20192021, includes a $46,946 losspre-tax $181,615 gain on the disposition of UB, a $12,073 other than temporary impairment charge related to an equity method investment, and a $6,072 write-off of assets held forrelated to an exit from certain Latin America countries. For the year ended December 31, 2020, includes a $5,213 pre-tax gain on the sale for Finder.of AMS Chino and a $3,640 write-off of assets.
(3) (5) Certain expenses are maintained at the corporate level and not allocated to the segments. These expenses include executive and functionalfunctional compensation costs, non-service pension costs, non-operating insurance expenses, shared business services overhead costs, deal related expenses and various administrative expenses relating to the corporate headquarters.
Selected financial information by segment (continued): | | | | | | | | | | | |
| Total assets at December 31: | 2021 | | 2020 |
| Engineered Products | $ | 1,678,317 | | | $ | 1,482,430 | |
Clean Energy & Fueling (6) | 3,201,504 | | | 2,125,900 | |
| Imaging & Identification | 1,871,039 | | | 1,919,223 | |
| Pumps & Process Solutions | 1,709,852 | | | 1,591,441 | |
| Climate & Sustainability Technologies | 1,358,118 | | | 1,320,950 | |
Corporate (7) | 584,797 | | | 712,130 | |
| | | |
| | | |
| Total assets | $ | 10,403,627 | | | $ | 9,152,074 | |
| | | | | | | | | | | |
| Total assets at December 31: | 2019 | | 2018 |
| Engineered Products | $ | 1,431,948 | | | $ | 1,477,671 | |
| Fueling Solutions | 2,107,045 | | | 1,895,308 | |
| Imaging & Identification | 1,673,689 | | | 1,592,349 | |
| Pumps & Process Solutions | 1,553,836 | | | 1,562,845 | |
| Refrigeration & Food Equipment | 1,302,618 | | | 1,252,870 | |
Corporate (4) | 600,341 | | | 584,728 | |
| | | |
| | | |
| Total assets | $ | 8,669,477 | | | $ | 8,365,771 | |
(4)(7) The significant portion of corporate assets are principally cash and cash equivalents.
| | | | Revenue | | | Long-Lived Assets | | | Revenue | | Long-Lived Assets (8) |
| | | Years Ended December 31, | | | At December 31, | | | Years Ended December 31, | | At December 31, |
| | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
| United States | United States | $ | 3,806,033 | | | $ | 3,619,717 | | | $ | 3,654,102 | | | $ | 491,732 | | | $ | 480,780 | | United States | $ | 4,305,957 | | | $ | 3,677,285 | | | $ | 3,806,033 | | | $ | 584,948 | | | $ | 518,679 | |
| Europe | Europe | 1,571,901 | | | 1,572,788 | | | 1,476,686 | | | 261,170 | | | 239,070 | | Europe | 1,797,138 | | | 1,482,520 | | | 1,571,901 | | | 283,952 | | | 289,657 | |
| Asia | Asia | 863,050 | | | 867,268 | | | 754,845 | | | 60,601 | | | 59,550 | | Asia | 901,141 | | | 745,150 | | | 863,050 | | | 62,210 | | | 61,235 | |
| Other Americas | Other Americas | 625,707 | | | 631,164 | | | 621,831 | | | 24,174 | | | 24,872 | | Other Americas | 612,751 | | | 535,091 | | | 625,707 | | | 20,627 | | | 21,174 | |
| Other | Other | 269,706 | | | 301,181 | | | 313,422 | | | 4,641 | | | 2,225 | | Other | 290,094 | | | 243,714 | | | 269,706 | | | 5,573 | | | 6,581 | |
| Consolidated total | Consolidated total | $ | 7,136,397 | | | $ | 6,992,118 | | | $ | 6,820,886 | | | $ | 842,318 | | | $ | 806,497 | | Consolidated total | $ | 7,907,081 | | | $ | 6,683,760 | | | $ | 7,136,397 | | | $ | 957,310 | | | $ | 897,326 | |
(8) Long-lived assets are comprised of net property, plant and equipment.
The majority of revenue from ourU.S. was the largest geographical market for the Engineered Products, Fueling Systems, ImagingClean Energy & Identification.Fueling, Pumps & Process Solutions, and RefrigerationClimate & Food EquipmentSustainability Technologies segments, is generated from sales to customers withinand Europe was the United States, Europe and Asia. Each segment also generates revenue acrosslargest market for the other geographies, with no significant concentration of any segment’s remaining revenue.Imaging & Identification segment.
Revenue is attributed to regions based on the location of the Company’s customer, which in some instances is an intermediary and not necessarily the end user. Long-lived assets are comprised of net property, plant and equipment. The Company’s businesses are based primarily in the United States, Europe and Asia. The Company’s businesses serve thousands of customers, none of which accounted for more than 10% of consolidated revenue.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
20. Earnings per Share
The following table sets forth a reconciliation of the information used in computing basic and diluted earnings per share:
| | | | Years Ended December 31, | | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 |
| Earnings from continuing operations | $ | 677,918 | | | $ | 591,145 | | | $ | 746,663 | | |
| (Loss) earnings from discontinued operations, net | — | | | (20,878) | | | 65,002 | | |
| | Net earnings | Net earnings | $ | 677,918 | | | $ | 570,267 | | | $ | 811,665 | | Net earnings | $ | 1,123,818 | | | $ | 683,451 | | | $ | 677,918 | |
| | Basic earnings per common share: | Basic earnings per common share: | | | | | | Basic earnings per common share: | |
| Earnings from continuing operations | $ | 4.67 | | | $ | 3.94 | | | $ | 4.80 | | |
| (Loss) earnings from discontinued operations, net | $ | — | | | $ | (0.14) | | | $ | 0.42 | | |
| | Net earnings | Net earnings | $ | 4.67 | | | $ | 3.80 | | | $ | 5.21 | | Net earnings | $ | 7.81 | | | $ | 4.74 | | | $ | 4.67 | |
| | Weighted average basic shares outstanding | Weighted average basic shares outstanding | 145,198,000 | | | 149,874,000 | | | 155,685,000 | | Weighted average basic shares outstanding | 143,923,000 | | | 144,050,000 | | | 145,198,000 | |
| Diluted earnings per common share: | Diluted earnings per common share: | | | | | | Diluted earnings per common share: | | | | | |
| Earnings from continuing operations | $ | 4.61 | | | $ | 3.89 | | | $ | 4.73 | | |
| (Loss) earnings from discontinued operations, net | $ | — | | | $ | (0.14) | | | $ | 0.41 | | |
| | Net earnings | Net earnings | $ | 4.61 | | | $ | 3.75 | | | $ | 5.15 | | Net earnings | $ | 7.74 | | | $ | 4.70 | | | $ | 4.61 | |
| | Weighted average diluted shares outstanding | Weighted average diluted shares outstanding | 146,992,000 | | | 152,133,000 | | | 157,744,000 | | Weighted average diluted shares outstanding | 145,273,000 | | | 145,393,000 | | | 146,992,000 | |
The following table is a reconciliation of the share amounts used in computing earnings per share:
| | | | Years Ended December 31, | | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 |
| Weighted average shares outstanding - Basic | Weighted average shares outstanding - Basic | 145,198,000 | | | 149,874,000 | | | 155,685,000 | | Weighted average shares outstanding - Basic | 143,923,000 | | | 144,050,000 | | | 145,198,000 | |
| Dilutive effect of assumed exercise of SARs and vesting of performance shares and RSUs | Dilutive effect of assumed exercise of SARs and vesting of performance shares and RSUs | 1,794,000 | | | 2,259,000 | | | 2,059,000 | | Dilutive effect of assumed exercise of SARs and vesting of performance shares and RSUs | 1,350,000 | | | 1,343,000 | | | 1,794,000 | |
| Weighted average shares outstanding - Diluted | Weighted average shares outstanding - Diluted | 146,992,000 | | | 152,133,000 | | | 157,744,000 | | Weighted average shares outstanding - Diluted | 145,273,000 | | | 145,393,000 | | | 146,992,000 | |
Diluted earnings per share amounts are computed using the weighted average number of common shares outstanding and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of SARs and vesting of performance shares and RSUs, as determined using the treasury stock method. For the years ended December 31, 2019, 20182021, 2020 and 2017,2019, the weighted average number of anti-dilutive potential common shares excluded from the calculation above totaled 28,096, 1,3821,072, 30,378 and 79,756,28,096, respectively.
21. Stockholders' Equity
The Company has the authority to issue up to 100,000 shares of $100 par preferred stock and up to 500,000,000 shares of $1.00 par common stock. There were no issuances of preferred stock. As of December 31, 2019 and 2018, the Company issued 258,551,748 and 257,822,352 shares of common stock and had 114,249,432 and 112,905,810 treasury shares, held at cost, respectively.
Share Repurchases
The Company's prior January 2015 share repurchase authorization expired on January 9, 2018. From January 1 to January 9, 2018, the Company repurchased 440,608 shares of common stock at a total cost of $44,977 or $102.08 per share. There were 5,271,168 shares available for repurchase under this authorization upon expiration.
In February 2018,November 2020, the Company's Board of Directors approved a new standing share repurchase authorization, whereby the Company may repurchase up to 20 million shares of its common stockbeginning on January 1, 2021 through December 31, 2020.2023. This share repurchase authorization replaced the January 2015February 2018 share repurchase authorization.
DOVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
On May 22, 2018, the Company entered into a $700,000 accelerated share repurchase agreement (the “ASR Agreement”) with Goldman Sachs & Co. LLC (“Goldman Sachs”) to repurchase its shares in an accelerated share repurchase program (the “ASR Program”). The Company conducted the ASR Program under theCompany's prior February 2018 share repurchase authorization. The Company funded the ASR Program with funds received from Apergy in connection with the consummation of the Apergy spin-off.
Under the terms of the ASR Agreement,authorization, whereby the Company paid Goldman Sachs $700,000 on May 24, 2018 and on that date received initial deliverieswas authorized to repurchase up to 20 million shares of 7,078,751 shares, representing a substantial majority of the shares expected to be retired over the course of the ASR Agreement. In December 2018 Goldman Sachs delivered a total of 1,463,815 shares which completed the ASR Program. During 2018, the Company received a total of 8,542,566 shares as part of the ASR Agreement. The total number of shares ultimately repurchased under the ASR Agreement was based on the volume-weighted average share price of Dover’sits common stock, during the calculation period of the ASR Program, less a discount, which was $81.94 over the term of the ASR Program.expired on December 31, 2020. Upon expiration, there were 7,380,879 shares remaining.
During the year ended December 31, 20192021 and 2018, under the February 2018 authorization, exclusive of the ASR Agreement,2020 the Company repurchased 1,343,622182,951 and 1,753,768979,165 shares of common stock at a total cost of $143,280$21,637 and $150,000$106,279 or $106.64$118.27 and $85.53$108.54 per share, respectively.
As of December 31, 2019, 8,360,044 shares2021, 19,817,049 shares remain authorized for repurchase under the February 2018November 2020 share repurchase authorization.
22. Quarterly Data (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Continuing Operations | | | | | | Net Earnings | | | | | | | | | |
| Quarter | Revenue | | Gross Profit | | Earnings | | Per Share - Basic | | Per Share - Diluted | | Net Earnings | Per Share - Basic | | Per Share - Diluted | | | | | | |
| 2019 | | | | | | | | | | | | | | | | | | | | |
| First | $ | 1,724,757 | | | $ | 623,542 | | | $ | 105,705 | | | $ | 0.73 | | | $ | 0.72 | | | $ | 105,705 | | $ | 0.73 | | | $ | 0.72 | | | | | | | |
| Second | 1,810,706 | | | 672,593 | | | 198,085 | | | 1.36 | | | 1.35 | | | 198,085 | 1.36 | | | 1.35 | | | | | | | |
| Third | 1,825,345 | | | 673,488 | | | 206,006 | | | 1.42 | | | 1.40 | | | 206,006 | 1.42 | | | 1.40 | | | | | | | |
| Fourth | 1,775,589 | | | 651,315 | | | 168,122 | | | 1.16 | | | 1.15 | | | 168,122 | 1.16 | | | 1.15 | | | | | | | |
| | $ | 7,136,397 | | | $ | 2,620,938 | | | $ | 677,918 | | | $ | 4.67 | | | $ | 4.61 | | | $ | 677,918 | | $ | 4.67 | | | $ | 4.61 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| 2018 | | | | | | | | | | | | | | | | | | | | |
| First | $ | 1,637,671 | | | $ | 602,828 | | | $ | 109,409 | | | $ | 0.71 | | | $ | 0.70 | | | $ | 131,434 | | $ | 0.85 | | | $ | 0.84 | | | | | | | |
| Second | 1,798,094 | | | 665,236 | | | 166,456 | | | 1.10 | | | 1.08 | | | 139,959 | 0.92 | | | 0.91 | | | | | | | |
| Third | 1,747,403 | | | 646,520 | | | 157,305 | | | 1.07 | | | 1.05 | | | 157,305 | 1.07 | | | 1.05 | | | | | | | |
| Fourth | 1,808,950 | | | 644,972 | | | 157,975 | | | 1.08 | | | 1.07 | | | 141,569 | 0.97 | | | 0.96 | | | | | | | |
| | $ | 6,992,118 | | | $ | 2,559,556 | | | $ | 591,145 | | | $ | 3.94 | | | $ | 3.89 | | | $ | 570,267 | | $ | 3.80 | | | $ | 3.75 | | | | | | | |
23. Subsequent Events
On January 24, 2020, the Company acquired Sys-Tech Solutions, Inc. ("Systech"). Systech is a leading provider of software and solutions for product traceability, regulatory compliance and brand protections and will strengthen the portfolio of solutions offered by the Imaging & Identification segment.
On January 24, 2020, the Company entered into a definitive agreement to acquire So. Cal. Soft-Pak, Incorporated ("Soft-Pak") Software Solutions. Soft-Pak is a leading provider of integrated back office, route management and customer relationship management software solutions to the waste and recycling fleet industry and will further strengthen the digital offerings of the Engineered Products segment. The transaction is subject to satisfaction of customary closing conditions and is expected to close in the first quarter of 2020.
The combined purchase price for both acquisitions is approximately $210,000, subject to customary post-closing adjustments.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2019, 20182021, 2020 and 20172019
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Doubtful Accounts | | Balance at Beginning of Year | | Charged to Cost and Expense (A) | | Accounts Written Off | | Other | | Balance at End of Year |
| | | | | | | | | | |
| Year Ended December 31, 2019 | | $ | 28,469 | | | 5,933 | | | (3,464) | | | (1,557) | | | $ | 29,381 | |
| | | | | | | | | | | | | | |
| Year Ended December 31, 2018 | | $ | 34,479 | | | 3,875 | | | (9,326) | | | (559) | | | $ | 28,469 | |
| | | | | | | | | | | |
| Year Ended December 31, 2017 | | $ | 16,381 | | | 10,341 | | | (3,706) | | | 11,463 | | | $ | 34,479 | |
| (A) Net of recoveries on previously reserved or written-off balances. | | | | | | | | | | |
| | | | | | | | | | |
| Deferred Tax Valuation Allowance | | Balance at Beginning of Year | | Additions | | Reductions | | Other | | Balance at End of Year |
| | | | | | | | | | |
| Year Ended December 31, 2019 | | $ | 264,398 | | | 14,189 | | | (34,434) | | | — | | | $ | 244,153 | |
| | | | | | | | | | |
| Year Ended December 31, 2018 | | $ | 238,236 | | | 26,162 | | | — | | | — | | | $ | 264,398 | |
| | | | | | | | | | |
| Year Ended December 31, 2017 | | $ | 289,237 | | | — | | | (51,001) | | | — | | | $ | 238,236 | |
| | | | | | | | | | |
| LIFO Reserve | | Balance at Beginning of Year | | Charged to Cost and Expense | | Reductions | | Other | | Balance at End of Year |
| | | | | | | | | | |
| Year Ended December 31, 2019 | | $ | 20,020 | | | 491 | | | (9,083) | | | — | | | $ | 11,428 | |
| | | | | | | | | | | |
| Year Ended December 31, 2018 | | $ | 17,571 | | | 3,474 | | | (1,025) | | | — | | | $ | 20,020 | |
| | | | | | | | | | | |
| Year Ended December 31, 2017 | | $ | 20,245 | | | 1,708 | | | (4,382) | | | — | | | $ | 17,571 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| | | | | | | | | | |
| Deferred Tax Valuation Allowance | | Balance at Beginning of Year | | Additions | | Reductions | | | | Balance at End of Year |
| | | | | | | | | | |
| Year Ended December 31, 2021 | | $ | 287,679 | | | 38,514 | | | (20,127) | | | | | $ | 306,066 | |
| | | | | | | | | | |
| Year Ended December 31, 2020 | | $ | 244,153 | | | 49,130 | | | (5,604) | | | | | $ | 287,679 | |
| | | | | | | | | | |
| Year Ended December 31, 2019 | | $ | 264,398 | | | 14,189 | | | (34,434) | | | | | $ | 244,153 | |
| | | | | | | | | | |
| LIFO Reserve | | Balance at Beginning of Year | | Charged to Cost and Expense | | Reductions | | | | Balance at End of Year |
| | | | | | | | | | |
| Year Ended December 31, 2021 | | $ | 7,149 | | | 7,220 | | | (1,214) | | | | | $ | 13,155 | |
| | | | | | | | | | |
| Year Ended December 31, 2020 | | $ | 11,428 | | | 357 | | | (4,636) | | | | | $ | 7,149 | |
| | | | | | | | | | |
| Year Ended December 31, 2019 | | $ | 20,020 | | | 491 | | | (9,083) | | | | | $ | 11,428 | |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act were effective as of December 31, 20192021 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls
During the fourth quarter of 2019,2021, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations Over Internal Controls
The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
i.pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;
ii.provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and
iii.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Management’s report on the effectiveness of the Company’s internal control over financial reporting is included in Item 8 of this Form 10-K. Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information with respect to the corporate governance matters and Section 16 compliance required to be included pursuant to this Item 10 will be included in the 20202022 Proxy Statement that will be filed with the Securities and Exchange Commission pursuant to Rule 14a-6 under the Exchange Act in accordance with applicable SEC deadlines, and is incorporated in this Item 10 by reference.
As set forth below is a list of the members of our Board of Directors as of February 14, 2020.11, 2022.
Deborah L. DeHaas 1
Former Vice Chairman of Deloitte and Managing Partner of the Center for Board Effectiveness
H. John Gilbertson, Jr.1,4
Retired Managing Director, Goldman Sachs Group Inc.
Kristiane C. Graham2,3
Private Investor
Michael F. Johnston, Chairman of the Board2,3
Retired Chief Executive Officer, Visteon Corporation
Eric A. Spiegel1,4
Former President and CEO of Siemens USA
Richard J. Tobin
President & Chief Executive Officer, Dover Corporation
Stephen M. Todd1
Former Global Vice Chairman of Assurance Professional Practice of Ernst & Young Global Limited
Stephen K. Wagner1,3
Former Senior Advisor, Center for Corporate Governance, Deloitte & Touche LLP
Keith E. Wandell2,4
Retired President and Chief Executive Officer, Harley-Davidson, Inc.
Mary A. Winston2.42,4
President of WinsCo Enterprises Inc.;
Former Executive Vice President & Chief Financial Officer, Family Dollar Stores, Inc.
1 Members of Audit Committee
2 Members of Compensation Committee
3 Members of Governance & Nominating Committee
4 Members of Finance Committee
The information with respect to Section 16(a) reporting compliance required to be included in this Item 10 will be included in our 20202022 Proxy Statement and is incorporated in this Item 10 by reference.
The Company has adopted a code of ethics that applies to its chief executive officer and senior financial officers. A copy of this code of ethics can be found on our website at www.dovercorporation.com. In the event of any amendment to, or waiver from, the code of ethics, we will publicly disclose the amendment or waiver by posting the information on our website.
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to executive compensation and the compensation committee required to be included pursuant to this Item 11 will be included in our 20202022 Proxy Statement and is incorporated in this Item 11 by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information regarding security ownership of certain beneficial owners and management that is required to be included pursuant to this Item 12 will be included in our 20202022 Proxy Statement and is incorporated in this Item 12 by reference.
Equity Compensation Plans
The Equity Compensation Plan Table below presents information regarding our equity compensation plans at December 31, 2019:2021:
| | | (a) | | (b) | | (c) | | (a) | | (b) | | (c) |
| Plan Category | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1) | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (2) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1) | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (2) |
| Equity compensation plans approved by stockholders | Equity compensation plans approved by stockholders | 4,061,531 | | | $ | 69.07 | | | 6,302,521 | | Equity compensation plans approved by stockholders | 2,676,195 | | | $ | 89.49 | | | 13,175,027 | |
| Equity compensation plans not approved by stockholders | Equity compensation plans not approved by stockholders | — | | | — | | | — | | Equity compensation plans not approved by stockholders | — | | | — | | | — | |
| Total | Total | 4,061,531 | | | $ | 69.07 | | | 6,302,521 | | Total | 2,676,195 | | | $ | 89.49 | | | 13,175,027 | |
1.Column (a) includes shares issuable pursuant to outstanding SARs, restricted stock units and performance share awards under the Company's 2021 Omnibus Incentive Plan (the "2021 Plan"), 2012 Equity and Cash Incentive Plan (the "2012 Plan"), and the 2005 Equity and Cash Incentive Plan.Plan (the "2005 Plan"). Performance shares are subject to satisfaction of the applicable performance criteria over a three-year performance period. Restricted stock unit and performance share awards are not reflected in the weighted exercise price in column (b) as these awards do not have an exercise price.
2.Column (c) consists of shares available for future issuance under the Company's the 20122021 Plan. Under the 20122021 Plan, the Company couldmay grant stock options, SARs, restricted stock or restricted stock units, performance share awards, director shares, or deferred stock units. Under the 20122021 Plan, the number of shares available for issuance will be reduced (i) by one share for each share issued pursuant to options or SARs and (ii) by three shares for each share of stock issued pursuant to restricted stock, restricted stock unit, performance share, director share, or deferred stock unit awards.
As of December 31, 2019,2021, equity securities have been authorized for issuance to employees and/or non-employee directors under the 20122021 Plan and its predecessor plan, the 2005 Plan.plans (the "2012 Plan" and "2005 Plan"). Although the 2012 and 2005 Plan hasPlans have expired and no further awards may be granted under the Plan,Plans, there remain outstanding stock-settled appreciation rights, restricted stock units, and performance share awards under the 2012 and 2005 Plan,Plans, which are reflected in Column (a) of the table.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information with respect to any director independence, related party transaction policies and any reportable transaction, business relationship, or indebtedness between the Company and the beneficial owners of more than 5% of the Common Stock, the directors or nominees for director of the Company, the executive officers of the Company, or the members of the immediate families of such individuals that are required to be included pursuant to this Item 13 will be included in the 20202022 Proxy Statement and is incorporated in this Item 13 by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information with respect to the Company’s relationship with its independent registered public accounting firm and fees paid thereto required to be included pursuant to this Item 14 will be included in the 20202022 Proxy Statement and is incorporated in this Item 14 by reference.
The information with respect to audit committee pre-approval policies and procedures required to be included pursuant to this Item 14 will be included in the 20202022 Proxy Statement and is incorporated in this Item 14 by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| | | | | |
| a) | The following documents are filed as part of this report: |
| | | | | |
| (1) | | Financial Statements. The financial statements are set forth under “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. |
| | | | | |
| (2) | | Schedules. The following financial statement schedule is set forth under “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. All other schedules have been omitted because they are not required, are not applicable or the required information is included in the financial statements or the notes thereto. |
•Schedule II – Valuation and Qualifying Accounts
| | | | | |
| (3) | | Exhibits. The exhibits below are filed or incorporated by reference as part of this Form 10-K. The exhibits will be filed with the SEC but will not be included in the printed version of the Annual Report to Shareholders. |
EXHIBIT INDEX
| | | | | |
| (2.1) | | |
| (3)(i) | |
| (3)(ii) | |
| (4.1) | |
| (4.2) | |
| (4.3) | |
| (4.4) | First Supplemental Indenture, dated as of October 13, 2005, among the Company, J.P. Morgan Trust Company, National Association, as original trustee, and The Bank of New York, as trustee, filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed October 13, 2005 (SEC File No. 001-04018), is incorporated by reference. |
| (4.5) | |
| (4.6) | |
| (4.7) | |
| (4.8) | |
| (4.9) | |
| | | | | |
| (4.11) | |
| (4.12) | |
| (4.13) | |
| (4.14) | |
| (4.15) | |
| (4.16) | |
| (4.17) | |
| (4.18) | |
| (4.19) | |
| The Company agrees to furnish to the Securities and Exchange Commission upon request, a copy of any instrument with respect to long-term debt under which the total amount of securities authorized does not exceed 10 percent of the total consolidated assets of the Company. |
| (10.1) | Dover Corporation Senior Executive Change-in-Control Severance Plan,Five-Year Credit Agreement, dated as amendedof October 4, 2019, among the Company, the Borrowing Subsidiaries party thereto from time to time, the Lenders party thereto, and restated effective November 1, 2018,JPMorgan Chase Bank, N.A, as Administrative Agent, filed as Exhibit 10.1 to the Company's AnnualCompany’s Current Report on Form 10-K for the period ended December 31, 2018 (SEC8-K filed October 10, 2019 (SEC File No. 001-04018), is incorporated by reference.* |
| (10.2) | |
| (10.3) | |
| (10.4) | |
(10.3)(10.5) | |
(10.4)(10.6) | |
(10.5) | |
(10.6) | |
| (10.7) | |
| | | | | |
(10.8) | |
(10.9) | |
(10.10) | |
(10.11) | |
(10.12) | |
(10.13) | |
(10.14) | |
(10.15) | |
(10.16)(10.8) | |
| | | | | |
(10.17)(10.9) | |
(10.18)(10.10) | |
(10.19)(10.11) | |
| (10.12) | |
| (10.13) | |
| (10.14) | |
| (10.15) | |
| (10.16) | |
(10.20) | |
(10.21)(10.17) | |
(10.22)(10.18) | |
(10.23)(10.19) | |
| (10.20) | |
(10.24)(10.21) | |
(10.25)(10.22) | |
| | | | | |
(10.26)(10.23) | |
(10.27)(10.24) | |
(10.28)(10.25) | |
(10.29)(10.26) | |
| | | | | |
| (10.27) | |
| (10.28) | |
| (10.29) | |
| (10.30) | |
| (10.31) | |
| (10.32) | |
| (10.33) | |
| (10.34) | |
| (10.35) | |
| (10.36) | |
| (10.37) | |
| (10.38) | |
| (10.39) | |
| (10.40) | |
| (10.41) | |
| (10.42) | |
| (10.43) | |
| (10.44) | |
| (10.45) | |
| (10.46) | |
| (10.47) | |
| | | | | |
(10.38)(10.48) | Five-Year CreditAmendment to Employment Agreement of Richard J. Tobin, dated as of October 4,2019, among the Company, the Borrowing Subsidiaries party thereto from time to time, the Lenders party thereto, and JPMorgan Chase Bank, N.A, as Administrative Agent, filed as Exhibit 10.01 to the Company’s Current Report on Form 8-K filed October 10, 2019 (SEC File No. 001-04018), is incorporated by reference. |
(10.39) | |
(10.40) | |
| (21) | |
| (23) | |
| (24) | Power of Attorney (included in signature page). (1) |
| (31.1) | |
| (31.2) | |
| (32) | |
| | | | | |
| (101) | The following materials from Dover Corporation's Annual Report on Form 10-K for the year ended December 31, 20182021 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Earnings, (ii) Consolidated Statements of Comprehensive Earnings (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Stockholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements. (1) |
| (104) | Cover Page formatted in Inline XBRL and contained in Exhibit 101. (1) |
| |
| * | Executive compensation plan or arrangement. |
| (1) | Filed herewith. |
ITEM 16. FORM 10-K SUMMARY
None.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | DOVER CORPORATION |
| | |
| | /s/ Richard J. Tobin |
| | Richard J. Tobin |
| | President and Chief Executive Officer |
| Date: | February 14, 202011, 2022 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Each of the undersigned, being a director or officer of Dover Corporation (the “Company”), hereby constitutes and appoints Richard J. Tobin, Brad M. Cerepak and Ivonne M. Cabrera and each of them (with full power to each of them to act alone), his or her true and lawful attorney-in-fact and agent for him or her and in his or her name, place and stead in any and all capacities, to sign the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20192021 under the Securities Exchange Act of 1934, as amended, and any and all amendments thereto, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission and any other appropriate authority, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing required and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he or she might or could do if personally present, hereby ratifying and confirming all that such attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof.
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| Signature | | Title | | Date |
| | | | |
| /s/ Michael F. Johnston | | Chairman, Board of Directors | | February 14, 202011, 2022 |
| Michael F. Johnston | | | | |
| | | | |
| /s/ Richard J. Tobin | | Chief Executive Officer, President and Director (Principal Executive Officer) | | February 14, 202011, 2022 |
| Richard J. Tobin | | | | |
| | | | |
| /s/ Brad M. Cerepak | | Senior Vice President and Chief Financial Officer (Principal Financial Officer) | | February 14, 202011, 2022 |
| Brad M. Cerepak | | | | |
| | | | |
| /s/ Ryan W. Paulson | | Vice President, Controller (Principal Accounting Officer) | | February 14, 202011, 2022 |
| Ryan W. Paulson | | | | |
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/s/ Kristiane C. GrahamDeborah L. DeHaas | | Director | | February 14, 202011, 2022 |
Kristiane C. GrahamDeborah L. DeHaas | | | | |
| | | | |
| /s/ H. John Gilbertson, Jr. | | Director | | February 14, 202011, 2022 |
| H. John Gilbertson, Jr. | | | | |
| | | | |
| /s/ Kristiane C. Graham | | Director | | February 11, 2022 |
| Kristiane C. Graham | | | | |
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| Signature | | Title | | Date |
| | | | |
| | | | |
| /s/ Eric A. Spiegel | | Director | | February 14, 202011, 2022 |
| Eric A. Spiegel | | | | |
| | | | |
| /s/ Stephen M. Todd | | Director | | February 14, 202011, 2022 |
| Stephen M. Todd | | | | |
| | | | |
| /s/ Stephen K. Wagner | | Director | | February 14, 202011, 2022 |
| Stephen K. Wagner | | | | |
| | | | |
| /s/ Keith E. Wandell | | Director | | February 14, 202011, 2022 |
| Keith E. Wandell | | | | |
| | | | |
| /s/ Mary A. Winston | | Director | | February 14, 202011, 2022 |
| Mary A. Winston | | | | |
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