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 businesses, including our results of operations, liquidity and financial condition.
Business and Operational Risks
•The 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 potential 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 adoption 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 growth, the proper functioning of financial and 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.
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•Increases in labor costs, potential labor disputes and work stoppages or an inability to hire skilled personnel could adversely affect our business.
We have a number of collective bargaining units in the U.S. and various 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 could adversely impact our productivity, reputation, results of operations, financial condition and cash flows.
Furthermore, the competition for skilled personnel is often intense in the 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 wages 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 unable to hire and retain employees capable of performing at a high level, our business, financial condition and results 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.
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•We are subject to risks relating to our existing international operations and expansion into new geographical markets.
Approximately 46% and 45% of our revenues for 2021 and 2020, respectively, were derived outside the United States and we expect international sales to continue to represent a significant portion of our revenues given our global growth strategy. As a result of our international operations and our global expansion strategy, we are subject to various risks, including:
o political, social and economic instability and disruptions;
o limitations on ownership and dividend of earnings;
o transportation delays and interruptions;
o labor unrest and current and changing regulatory environments;
o widespread public health crises, such as a pandemic or epidemic;
o the impact of loss of a single-source manufacturing facility;
o difficulties in staffing and managing multi-national operations;
o limitations on our ability to enforce legal rights and remedies;
o potentially adverse tax consequences; and
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 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 third party IT systems to support employee data processing for our global workforce 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 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 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
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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. We 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. 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, and 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.
•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.
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•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 focus 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 evolution of the 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 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, 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 freight 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 mitigate the impact of increased raw material
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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 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. 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 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. 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 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 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
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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 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.
•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.
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
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ITEM 2. PROPERTIES
The number, type, location and size of the properties used by our operations as of December 31, 2021 are shown in the following charts, by segment:
Number and nature of facilities Square footage (in 000s)
Manufacturing Warehouse Sales / Service Total Owned Leased
Locations Expiration dates of leased facilities (in years)
North America Europe Asia Other Total Minimum Maximum
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
See Note 16 — Commitments and Contingent Liabilities in the Consolidated Financial Statements in Item 8 of this Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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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 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
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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
As of February 1, 2022, there were 1,264 holders of record of Dover common 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, 2021, under our November 2020 standing share repurchase authorization, which began on January 1, 2021, we purchased 182,951 shares of common stock at a total cost of $21,637 or $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, 2021, 19,817,049 shares remain authorized for repurchase under the November 2020 share repurchase authorization.
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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 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, 2016 in Dover common stock, the S&P 500 Index, the S&P 500 Industrials Index, and an Old Peer Group Index.
The 2021 new peer index group consists of the S&P 500 Industrials Index. The Old Peer Group index consists of the following 29 public companies selected by Dover.
3M Company Flowserve Corporation Parker-Hannifin Corp.
Ametek Inc. Fortive Corp. Pentair Plc
Carlisle Companies Inc. Honeywell International Inc. Regal Beloit Corp.
Colfax Corp. IDEX Corporation Rockwell Automation Inc.
Corning Inc. Illinois Tool Works Inc. Snap-on Inc.
Crane Co. Ingersoll Rand Inc. SPX Flow Inc.
Danaher Corp. ITT Inc. Teledyne Technologies Inc.
Eaton Corporation Plc Johnson Controls International Plc Textron Inc.
Emerson Electric Co. Lennox International Inc. The Timken Company
Enerpac Tool Group Corp. Nordson Corp.
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We 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.
ITEM 6. [RESERVED]
Not required.
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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 years ended December 31, 2021, 2020 and 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.
For the year ended December 31, 2021, consolidated revenue was $7.9 billion, an increase of $1.2 billion or 18.3%, as compared to the prior year. This growth included organic revenue growth of 15.3% driven by strong demand across all our segments reflecting robust macroeconomic trends, a favorable impact from foreign currency translation of 1.9% and 1.3% acquisition-related growth, partially offset by 0.2% impact from dispositions. Overall, customer pricing favorably impacted revenue by approximately 2.8% for the year.
Within our Engineered Products segment, revenue increased $249.6 million, or 16.3%, from the prior year, reflecting a broad-based organic revenue growth of 14.1%, a favorable foreign currency translation of 1.6% and acquisition-related growth of 0.6%. The organic revenue growth was primarily driven by robust demand in our key end-markets most notably in our vehicle service and industrial automation businesses, and strategic pricing initiatives which partially offset significant inflationary headwinds in this segment.
Our Clean Energy & Fueling segment revenue increased $171.9 million, or 11.6%, from prior year, reflecting organic growth of 5.8%, acquisition-related growth of 3.6% and a favorable impact from foreign currency translation of 2.2%. The organic revenue growth was driven by solid demand in our North America and Europe, the Middle East, and Africa ("EMEA") retail fueling and vehicle wash businesses, along with pricing actions aimed at mitigating material, logistics and labor cost inflation.
Our Imaging & Identification segment revenue increased $125.2 million, or 12.1%, from the prior year, comprised of organic growth of 8.0%, a favorable impact from foreign currency translation of 2.8%, and acquisition-related growth of 1.3%. The organic revenue growth was primarily driven by solid growth in new equipment and associated services and consumables, as well as serialization software sales in our marking and coding business and ongoing demand recovery in our digital textile printing business.
Our Pumps & Process Solutions segment revenue increased $384.6 million, or 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 22.0% and a favorable impact from foreign currency translation of 1.3%, partially offset by a disposition related decline of 1.1%. The organic growth was driven by robust demand in all of our key end-
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markets. Beverage packaging production equipment revenues increased substantially from prior year, driven by continued favorable macro trends in the global beverage industry and shift to more recyclable packaging materials. Our heat exchanger business experienced strong growth in Asia, regulation driven demand for energy-efficient heat pumps in Europe 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 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 Latin America as global demand continued to improve after the impact of operational and demand headwinds from the COVID-19 experienced in the prior year.
Gross profit was $3.0 billion for the year ended December 31, 2021, a increase of $495.8 million, or 20.0%, as compared to the prior year. The increase was primarily due to growth in sales volume across all our segments benefited by pricing and favorable product mix partially offset by higher material, labor and logistics costs as well as production inefficiencies caused by intermittent constraints in production inputs and labor availability. Gross profit margin expanded to 37.6% for the year ended December 31, 2021 compared to 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 increased 35.3% over the prior year to $9.4 billion for the year ended December 31, 2021. This included an organic bookings growth of 31.9%, a favorable impact due to foreign exchange rate of 2.1% and a 1.5% increase in acquisition-related bookings, partially offset by a 0.2% decline due to dispositions. Bookings increased organically across all our segments 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 1.19. Backlog as of December 31, 2021 was $3.2 billion, up from $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, 2021 included $0.8 billion, $0.4 billion, $0.2 billion, $0.7 billion and $1.2 billion in the Engineered Products, Clean Energy & Fueling, Imaging & Identification, Pumps & Process Solutions and Climate & Sustainability Technologies segments, respectively. See definition of bookings, organic bookings, book-to-bill and backlog within "Segment Results of Operations".
During 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 result of restructuring programs initiated in 2020 and 2021.
During the year ended December 31, 2021, we made a total of nine acquisitions totaling $1,125.1 million, net of cash acquired and including contingent consideration. See Note 3 — Acquisitions in the Consolidated Financial Statements in Item 8 of this Form 10-K for further details regarding the businesses acquired during the year.
During the year ended December 31, 2021, we completed the sale of the Unified Brands ("UB"), a wholly owned subsidiary of the Company and we disposed of our equity method investment in Race Winning Brands ("RWB"). See Note 4 — Dispositions in the Consolidated Financial Statements in Item 8 of this Form 10-K for further details regarding the businesses disposed of during the year.
During the year ended December 31, 2021, we purchased approximately 0.2 million shares of our common stock for a total cost of $21.6 million, or $118.27 per share. In 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, 2023. We also continued our 66 year history of increasing our annual dividend per share and paid a total of $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.
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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.
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CONSOLIDATED RESULTS OF OPERATIONS
Years Ended December 31, % / Point Change
Loss on assets held for sale — — 46,946 nm* nm*
Loss on extinguishment of debt — — 23,543 nm* nm*
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, 2021, revenue increased $1.2 billion, or 18.3% to $7.9 billion compared with 2020, reflecting an organic growth of 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 and Imaging & Identification segments, partially offset by a 0.2% decrease from dispositions mainly due to the sale of our UB business within Climate & Sustainability Technologies segment. Revenue also increased due to favorable 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 increased by 1.0% led by our Imaging & Identification and Pumps & Process Solutions segments, partially offset by a 0.7% decrease from dispositions within our Pumps & Process Solutions and Climate & Sustainability Technologies segments. Foreign currency translation had no significant impact to revenue for the year ended December 31, 2020. Overall, customer pricing favorably impacted revenue by approximately 0.7% in 2020.
Gross Profit
For the year ended December 31, 2021, gross profit increased $495.8 million, or 20.0%, to $3.0 billion compared with 2020, primarily due to organic revenue growth, benefits from pricing and productivity initiatives and rightsizing actions partially offset by increased material, labor and logistics costs as well as production inefficiencies caused by component and labor availability constraints. Gross profit margin increased 60 basis points to 37.6% as compared to the prior year due to benefits from pricing and product mix, productivity and restructuring actions.
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For the year ended December 31, 2020, gross profit decreased $146.9 million, or 5.6% to $2.5 billion compared with 2019, primarily due to lower revenue as productivity initiatives including prior rightsizing programs and cost containment actions were partially offset by increased material costs and inflation and higher restructuring costs. Gross profit margin expanded 30 basis points to 37.0% as compared to the prior year due to benefits from productivity initiatives and restructuring and cost containment actions.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended December 31, 2021, increased $147.2 million, or 9.6% to $1.7 billion compared with 2020, due to higher labor and acquisition related costs and lower discretionary spend in the prior year partially offset by lower restructuring costs of $11.8 million. As a percentage of revenue, selling, general and administrative expenses decreased 170 basis points in 2021 to 21.4%, reflecting the increase in revenue base.
Selling, general and administrative expenses for the year ended December 31, 2020, decreased $58.1 million, or 3.6% to $1.5 billion compared with 2019, due to reduction in discretionary spend and benefits from rightsizing actions partially offset by higher restructuring costs of $7.7 million and a $3.6 million write-off of assets. As a percentage of revenue, selling, general and administrative expenses increased 70 basis points in 2020 to 23.1%, reflecting the decrease in revenue base.
Research and development costs, including qualifying engineering costs, are expensed when incurred and amounted to $157.8 million, $142.1 million and $141.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. The change from 2020 to 2021 reflects increased investment in hardware and software product development. These costs as a percent of revenue were 2.0%, 2.1% and 2.0% for the years December 31, 2021, 2020 and 2019, respectively.
Loss on Assets Held for Sale
On March 29, 2019, we entered into a definitive agreement to sell Finder Pompe S.r.l ("Finder") for total consideration of approximately $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. 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. We subsequently sold Finder on April 2, 2019, which generated total cash proceeds of $24.2 million.
Non-Operating Items
Interest Expense, net
For the year ended December 31, 2021, interest expense, net of interest income, decreased $6.5 million, or 6.0%, to $101.9 million compared with 2020 primarily due to borrowings against our unsecured revolving credit facility and commercial paper in 2020 to ensure liquidity during height of pandemic-related impacts.
For the year ended December 31, 2020, interest expense, net of interest income, decreased $12.9 million, or 10.7%, to $108.4 million compared with 2019 primarily due to lower interest 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 Extinguishment of Debt
On December 4, 2019, the Company extinguished the €300 million of 2.125% notes due 2020 and the $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.
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Gain on Dispositions
On December 1, 2021, we completed the sale 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 within the Climate & Sustainability Technologies segment for the year ended December 31, 2021. The total consideration and pre-tax gain on disposition are subject to standard working capital adjustments. The sale does not represent a strategic shift that will have a major effect on operations and financial results and, therefore, did not qualify for presentation as a discontinued operation.
Additionally, included in this line item is a $24.7 million gain related to the disposition of our equity method investment in RWB.
Refer to Note 4 — Dispositions 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.
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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:
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:
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.
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We recorded the following rightsizing costs for the year ended December 31, 2019:
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. 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.
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.
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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, Imaging & Identification, Pumps & Process Solutions, and Climate & 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 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 other 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.
•Organic 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.
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Engineered Products
Our Engineered Products segment provides a wide range of equipment, components, software, solutions and services vehicle aftermarket, waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing end-markets.
Years Ended December 31, % Change
Other measures:
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 to the sale of RWB equity method investment.
2021 Versus 2020
Engineered Products segment revenue for the year ended December 31, 2021 increased $249.6 million, or 16.3% compared to the prior year, comprised of a broad-based organic revenue growth of 14.1%, a favorable foreign currency translation of 1.6%, and acquisition-related growth of 0.6%. Acquisition-related growth was driven by the acquisitions of Espy, CDS Visual, and Soft-Pak. Overall, customer pricing favorably impacted revenue by approximately 4.2% in 2021.
The 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, 2021 increased $47.3 million, or 19.9%, compared to the prior year. The increase was primarily driven by conversion on 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 plant productivity shortfalls resulting from supply chain disruption and higher labor costs. Segment margin increased from 15.6% to 16.0% as compared to the prior year.
Bookings 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
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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 $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.
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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.
Years Ended December 31, % Change
Other measures:
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 11.2%, acquisition-related growth of 4.7%, and a favorable impact from foreign currency translation of 2.5%. The 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.
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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 1.0% in 2020.
Clean Energy & Fueling segment earnings for the year ended December 31, 2020 increased $5.1 million, or 2.2%, compared to the prior year. The increase was driven by favorable 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 due to COVID-19. Segment margin increased 180 basis points compared to the prior year.
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Imaging & Identification
Our Imaging & Identification segment supplies precision marking and coding, product traceability and digital textile printing equipment, as well as related consumables, software and services to the global packaged and consumer goods, pharmaceutical, industrial manufacturing, fashion and apparel and other end-markets.
Years Ended December 31, % Change
Other measures:
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) %
2021 Versus 2020
Imaging & Identification segment revenue for the year ended December 31, 2021 increased $125.2 million, or 12.1% compared to the prior year, comprised of organic growth of 8.0%, a favorable impact from foreign currency translation of 2.8%, and acquisition-related growth of 1.3%. Acquisition-related growth was driven by the acquisitions of Solaris in the third quarter of 2020 and of Blue Bite in the second quarter of 2021. Overall, customer pricing favorably impacted revenue by approximately 0.9% in 2021.
The organic revenue growth was driven by both our marking and coding business, and our digital textile printing business. Our marking and coding business delivered solid growth in new equipment and associated services and consumables, as well as serialization software sales. Our digital textile printing business experienced demand recovery in 2021 compared to 2020 when demand for printed textiles was significantly reduced due to the impact of COVID-19 restrictions on the global apparel industry. While 2021 global apparel retail volumes improved from 2020, volumes have not yet returned to pre-pandemic levels and continue to be impacted by local business and travel restrictions, as well as work-from-home policies which resulted in reduced apparel demand. We continue to believe we remain favorably positioned to gain from a longer-term transition from analog to digital printing by our customers.
Imaging & Identification segment earnings for the year ended December 31, 2021 increased $43.7 million, or 22.6%, compared to the prior year. This increase was driven by conversion on organic revenue growth, pricing initiatives and the benefits from productivity initiatives and restructuring actions, partially offset by material and labor cost inflation. As a result, segment margin increased from 18.6% to 20.4% as compared to the prior year.
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
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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.
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Pumps & Process Solutions
Our Pumps & Process Solutions segment manufactures specialty pumps and flow meters, fluid connecting solutions, plastics and polymer processing equipment, and highly engineered precision components for rotating and reciprocating 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
Other measures:
Components of revenue growth (decline):
Organic growth (decline) 26.6 % (2.3) %
Acquisitions 0.6 % 1.1 %
Dispositions — % (0.5) %
Foreign currency translation 1.9 % 0.6 %
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.
2021 Versus 2020
Pumps & Process Solutions segment revenue for the year ended December 31, 2021 increased $384.6 million, or 29.1%, compared to the prior year, attributable to organic growth of 26.6%, a favorable impact from foreign currency translation of 1.9%, and acquisition-related growth of 0.6%. Acquisition related growth was primarily driven by the acquisition of Quantex and one other immaterial acquisition. Overall, customer pricing favorably impacted revenue by approximately 1.8% in 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, 2021 increased $241.6 million, or 79.1%, compared to the prior year. This increase was predominantly the result of strong conversion on revenue growth, favorable product mix, pricing initiatives, and productivity actions, partially offset by material and labor cost inflation, and investments in growth. Segment margin increased to 32.0% from 23.1% in the prior year, an increase of 890 basis points.
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Bookings for the year ended December 31, 2021 increased 51.6% compared to the prior year, reflecting an organic growth of 48.2%, a favorable impact from foreign currency translation of 2.3%, and acquisition-related growth of 1.1%. The organic bookings growth was 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 solutions, and demand recovery in bearings and compression components. Segment book to bill was 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.
2020 Versus 2019
Pumps & Process Solutionssegment revenue for the year ended December 31, 2020 decreased $14.5 million, or 1.1%, compared to the prior year, attributable to organic decline of 2.3% and a 0.5% decrease from a disposition, partially offset by acquisition-related growth of 1.1% and a favorable impact from foreign currency translation of 0.6%. The organic revenue 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 pumps due to pandemic-related disruptions. Overall, customer pricing favorably impacted revenue by approximately 1.0% in 2020.
Pumps & Process Solutions segment earnings for the year ended December 31, 2020 increased $65.2 million, or 27.2%, compared to the prior year. Segment earnings for the year ended December 31, 2019 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, an increase of 520 basis points.
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Climate & Sustainability Technologies
Our Climate & Sustainability Technologies segment is a provider of innovative and energy-efficient equipment and systems that serve the commercial refrigeration, heating and cooling and beverage container-making equipment markets.
Years Ended December 31, % Change
Other measures:
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.
2021 Versus 2020
Climate & Sustainability Technologies segment revenue for the year ended December 31, 2021 increased $292.1 million, or 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
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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 3.0%, a disposition related decline of 2.9%, partially offset by a favorable impact from foreign currency translation of 0.1%. The organic revenue decline was principally driven by the impact 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 deferred customer orders and operational inefficiencies across the segment. Overall, customer pricing favorably impacted revenue by approximately 0.3% in 2020.
Climate & Sustainability Technologies segment earnings for the year ended December 31, 2020 decreased $16.0 million, or 13.4%, compared to the prior year. Segment margin decreased to 7.8% from 8.5% in the prior year due to substantially reduced revenues and operational inefficiencies associated with COVID-19, increased restructuring expenses and a $3.6 million write-off of assets. This was partially offset by the $5.2 million gain on sale from the disposition of AMS Chino, a $1.7 million gain on sale of assets, and other broad-based cost reduction activities.
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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 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,
Net cash flows provided by (used in):
Operating Activities
Cash provided by operating activities for the year ended December 31, 2021 increased compared to 2020. This increase was primarily driven by higher earnings net of non-cash adjustments and increases to accrued expenses, partially offset by our investment in working capital of $307.1 million.
Cash provided by operating activities for the year ended December 31, 2020 increased $159.5 million compared to 2019. This increase was driven primarily by improvements 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 depreciation, amortization, loss on assets held for sale and gain on a disposition.
Pension and Other Post-Retirement Activity: Total cash used in conjunction with pension plans during 2021 was $14.4 million, including contributions to our international pension plans and payments of benefits under our non-qualified supplemental pension 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 2021, 2020 or 2019 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 totaled $8.1 million, $7.3 million and $7.2 million, respectively. In 2022, we expect to make cash payments of approximately $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 2021, 2020 and 2019 a total of $6.3 million, $12.3 million, and $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.
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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 increased from December 31, 2020 by $346.0 million, or 30.9%, to $1.5 billion at December 31, 2021, which reflected an increase in accounts receivable of $210.3 million, an increase in inventory of $355.3 million and an increase in accounts payable of $219.6 million. These amounts include the effects of acquisitions, dispositions and foreign currency translation. We continue to focus on improving working capital management. Accounts receivable increased compared to the prior year as a result of higher revenue. We increased inventory balances throughout the year to support growing sales and backlog, and also to mitigate potential inventory constraints given the continuing disrupted and 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 outflows for capital expenditures and 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 2021, we deployed $1,112.1 million, excluding contingent consideration of $13.0 million, to acquire nine businesses. In comparison, we acquired six businesses in 2020 for an aggregate purchase price of approximately $335.8 million. Total acquisition spend in 2019 was $215.7 million and was comprised of three businesses. See Note 3 — 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.
•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. Our capital expenditures increased $5.8 million in 2021 compared to 2020 in line with our plan to support growth capacity, digitization,
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innovation, and productivity. Our capital expenditures decreased $21.1 million in 2020 compared to 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 2022 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 relates 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.
•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.
•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. Our dividends paid per common share increased 1% to $1.99 per share in 2021 compared to $1.97 per share in 2020, which represents the 66th consecutive year that our dividend per share has increased. The number of common shares outstanding increased from 2020 to 2021 as share 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 in 2021, 2020 and 2019, respectively. The increase from 2020 to 2021 is primarily due to the increase in the number of shares exercised and an increase in the average stock price compared to the prior year 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.
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The following table reconciles our free cash flow to cash flow provided by operating activities:
Years Ended December 31,
Free cash flow as a percentage of revenue 11.9 % 14.1 % 10.6 %
Free cash flow as a percentage of earnings 84.0 % 137.4 % 111.9 %
For 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, or 10.6% of revenue and 111.9% of earnings. The full year increase in 2021 free cash flow reflects higher cash flow provided by operations, as previously noted, partially offset by higher investments in capital expenditures compared to the prior year. The decrease 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 2019 reflects higher cash flow provided by operations primarily due to improvements in working capital, permitted deferrals of tax payments and 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. As of December 31, 2021, we maintained a $1 billion five-year unsecured revolving credit facility (the “Credit Agreement”) with a syndicate of banks, which will expire on October 4, 2024. This facility is used primarily as liquidity back-up for our commercial paper 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 loans under the Credit Agreement which bear interest at a base rate plus a 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, 2021 and had a coverage ratio of 17.6 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. Additionally, our earliest long-term debt maturity is in 2025.
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, 2021, our cash and cash equivalents totaled $385.5 million, of which approximately $257.5 million was held outside the United States. At December 31, 2020, our cash and cash equivalents totaled $513.1 million, of which $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.
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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:
Short-term borrowings $ 702 $ — $ —
Net debt to net capitalization 39.5 % 43.4 % 46.8 %
Our net debt to net capitalization ratio decreased to 39.5% at December 31, 2021 compared to 43.4% at December 31, 2020. The decrease in this ratio was driven primarily by the increase in stockholders' equity of $803.8 million for the period as a result of increase in current earnings of $1,123.8 million, offset by $286.9 million of dividends paid and $21.6 million in share repurchases. Net debt increased $143.2 million during the period primarily due to a decrease of $127.6 million in cash and cash equivalents and an increase in total debt as a result of an increase in commercial paper.
Our net debt to net capitalization ratio decreased to 43.4% at December 31, 2020 compared to 46.8% at December 31, 2019. The decrease in this ratio was driven primarily by the increase in stockholders' equity of $353.1 million for the period as a result of increase in current earnings of $683.5 million, offset by $284.3 million of dividends paid and $106.3 million in share repurchases. Net debt decreased $77.4 million during the period primarily due to an increase of $115.8 million in cash and cash equivalents and a reduction in commercial paper, partially offset by an increase in long-term debt as a 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. Set forth below are our credit ratings, as of December 31, 2021, which were independently developed by the respective credit agencies. The Moody's rating and outlook were issued in December 2018, and the Standard & Poor's rating was issued in December 2017 and the outlook was most recently revised in May 2021.
Short-Term Rating Long-Term Rating Outlook
Moody's P-2 Baa1 Stable
Standard & Poor's A-2 BBB+ Stable
As of December 31, 2021, we had approximately $155.9 million outstanding in letters of credit, surety bonds, and performance and other guarantees with financial institutions, which expire on various dates through 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
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Financial Statements in Item 8 of this Form 10-K for additional details on lease obligations. 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.
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, 2021, 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 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 2021 year-end fair value of our long-term debt by approximately $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 $94.0 million, $(119.3) million and $22.4 million in other comprehensive income for the years ended December 31, 2021, 2020, and 2019 respectively.
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Commodity Price Exposure
Some 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.
RevenueRecognition - 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 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. 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 2021 reporting unit valuations ranged from 8.0% to 9.0%.
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We performed a quantitative goodwill impairment test for each of our reporting units in the fourth quarter of 2021, concluding that the fair values of each reporting unit substantially exceeded its carrying values. As such, no goodwill impairment was recognized. While we believe the assumptions used in the 2021 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 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 2021 weighted-average discount rate used to measure our qualified defined benefit obligations ranged from 1.18% to 2.95%, a general increase from the 2020 rates, which ranged from 0.79% to 2.65%. The higher 2021 discount rates in the U.S. are reflective of increased 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 $30.0 million from the amount recorded in the consolidated financial statements at December 31, 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 $1.8 million.
Income Taxes - We have significant amounts of deferred tax assets that are evaluated for recoverability and valued accordingly. These assets are evaluated using estimates of future taxable income streams and the impact of tax planning strategies. Unrecognized tax benefits are also estimated, using more likely than not criteria, for federal, state and non-U.S. tax matters. We routinely monitor the potential impact of these matters and believe that the proper reserves have been established. Reserves related to unrecognized tax benefits and valuations related to deferred tax assets can be impacted by changes in tax laws, changes in statutory tax rates and future taxable income. The provision for unrecognized tax benefits 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.
Risk, Retention, Insurance - We have significant accruals and reserves related to the self-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.
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Dispositions - From time to time we sell or dispose of certain operations for various reasons. Estimates are used to adjust, if necessary, the assets and liabilities of such 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 2021 and 2020, no impairment charges were recorded due to 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 (a binomial lattice-based valuation model). For 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, 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.
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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 equals free cash flow divided by 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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Page
58 Management's Report on Internal Control Over Financial Reporting
59 Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
61 Consolidated Statements of Earnings
62 Consolidated Statements of Comprehensive Earnings
63 Consolidated Balance Sheets
64 Consolidated Statements of Stockholders' Equity
65 Consolidated Statements of Cash Flows
66 Notes to Consolidated Financial Statements
71 Note 2 - Revenue
73 Note 3 - Acquisitions
78 Note 4 - Dispositions
79 Note 5 - Inventories, net
79 Note 6 - Property, Plant and Equipment, net
80 Note 7 - Leases
82 Note 8 - Credit Losses
82 Note 9 - Goodwill and Other Intangible Assets
84 Note 10 - Accrued Expenses and Other Liabilities
85 Note 11 - Restructuring Activities
87 Note 12 - Borrowings
88 Note 13 - Financial Instruments
90 Note 14 - Income Taxes
93 Note 15 - Equity and Cash Incentive Program
96 Note 16 - Commitments and Contingent Liabilities
97 Note 17 - Employee Benefit Plans
103 Note 18 - Accumulated Other Comprehensive Earnings (Loss)
104 Note 19 - Segment Information
107 Note 20 - Earnings per Share
107 Note 21 - Shareholder's Equity
(All other schedules are not required and have been omitted)
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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, 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, 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, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Dover 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, 2021 and 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, 2021, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 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, 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.
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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 $4.559 billion as of December 31, 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. 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.
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 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
We have served as the Company's auditor since 1995.
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DOVER CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
Years Ended December 31,
Loss on assets held for sale — — 46,946
Loss on extinguishment of debt — — 23,543
Net earnings per share:
Weighted average shares outstanding:
See Notes to Consolidated Financial Statements
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DOVER CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
Years Ended December 31,
Other comprehensive earnings (loss), net of tax
Foreign currency translation adjustments:
Reclassification of foreign currency translation losses to earnings — — 25,339
Pension and other postretirement benefit plans:
Settlement and curtailment impact 1,167 18 806
Changes in fair value of cash flow hedges:
Net gains reclassified into earnings (4,871) (632) (147)
Other comprehensive (loss) earnings, net of tax (798) 62,772 27,070
See Notes to Consolidated Financial Statements
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DOVER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
Assets
Current assets:
Liabilities and Stockholders' Equity
Current liabilities:
Stockholders' equity:
Preferred stock - $100 par value; 100,000 shares authorized; none issued — —
See Notes to Consolidated Financial Statements
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DOVER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except per share amounts)
Stock-based compensation expense — 29,702 — — — 29,702
Other comprehensive earnings, net of tax — — — 27,070 — 27,070
Stock-based compensation expense — 25,026 — — — 25,026
Other comprehensive earnings, net of tax — — — 62,772 — 62,772
Stock-based compensation expense — 31,111 — — — 31,111
Other comprehensive loss, net of tax — — — (798) — (798)
See Notes to Consolidated Financial Statements
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DOVER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
Operating Activities:
Adjustments to reconcile net earnings to cash from operating activities:
Loss on assets held for sale — — 46,946
Loss on extinguishment of debt — — 23,543
Investing Activities:
Proceeds from sale of property, plant and equipment 7,070 7,207 4,168
Financing Activities:
Proceeds from long-term debt — — 847,469
Repayment of long-term debt — — (805,112)
Supplemental information - cash paid during the year for:
See Notes to Consolidated Financial Statements
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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 five business segments that are structured around similar business models, go-to market strategies and manufacturing practices: Engineered Products, Clean Energy & Fueling, Imaging & Identification, Pumps & Process Solutions and Climate & 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.
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, unrecognized tax benefits 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.