(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
3005 Highland Parkway
Downers Grove, Illinois 60515
(Address of principal executive offices)
Registrant's telephone number: (630) 541-1540
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $1
New York Stock Exchange
2.125% Notes due 2020
New York Stock Exchange
1.250% Notes due 2026
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the close of business on June 30, 2018 was $10,776,562,926. The registrant’s closing price as reported on the New York Stock Exchange-Composite Transactions for June 30, 2018 was $73.20 per share. The number of outstanding shares of the registrant’s common stock as of February 1, 2019 was 144,940,620.
Documents Incorporated by Reference: Part III — Certain Portions of the Proxy Statement for Annual Meeting of Shareholders to be held on May 2, 2019 (the “2019 Proxy Statement”).
Special Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K, especially "Management’s Discussion and Analysis of Financial Condition and Results of Operations," contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. All statements in this document other than statements of historical fact are statements that are, or could be deemed, “forward-looking” statements. Some of these statements may be indicated by words such as “may”, “anticipate”, “expect”, believe”, “intend”, “guidance”, “estimates”, “suggest”, “will”, “plan”, “should”, “would”, “could”, “forecast” and other words and terms that use the future tense or have a similar meaning. Forward-looking statements are based on current expectations and are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyond the Company’s control. Factors that could cause actual results to differ materially from current expectations include, among other things, general economic conditions and conditions in the particular markets in which we operate, changes in customer demand and capital spending, competitive factors and pricing pressures, our ability to develop and launch new products in a cost-effective manner, changes in law, including the effect of U.S. tax reform and developments with respect to trade policy and tariffs, our ability to identify and complete acquisitions and integrate and realize synergies from newly acquired businesses, the impact of interest rate and currency exchange rate fluctuations, capital allocation plans and changes in those plans, including with respect to dividends, share repurchases, investments in research and development, capital expenditures and acquisitions, whether the strategic benefits of the Apergy separation can be achieved, our ability to derive expected benefits from restructuring, productivity initiatives and other cost reduction actions, changes in material costs or the supply of input materials, the impact of legal compliance risks and litigation, including with respect to product quality and safety, cybersecurity and privacy, and our ability to capture and protect intellectual property rights. Certain of these risks and uncertainties are described in more detail in Item 1A. "Risk Factors" of this Annual Report on Form 10-K. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.
In this Annual Report on Form 10-K, we refer to measures used by management to evaluate performance, including a number of financial measures that are not defined under accounting principles generally accepted in the United States of America ("GAAP"). We include reconciliations to provide more details on the use and derivation of these financial measures. Please see "Non-GAAP Disclosures" at the end of Item 7 for further detail.
Dover Corporation is a diversified global manufacturer delivering innovative equipment and components, specialty systems, consumable supplies, software and digital solutions and support services through three operating segments: Engineered Systems, Fluids, and Refrigeration & Food Equipment. The Company's entrepreneurial business model encourages, promotes and fosters deep customer engagement and collaboration, which has led to Dover's well-established and valued reputation for providing superior customer service and industry-leading product innovation. Unless the context indicates otherwise, references herein to "Dover," "the Company," and words such as "we," "us," or "our" include Dover Corporation and its consolidated subsidiaries. Dover was incorporated in 1947 in the State of Delaware and became a publicly traded company in 1955. Dover is headquartered in Downers Grove, Illinois and currently employs approximately 24,000 people worldwide.
Dover's three operating segments are structured around our key end markets and are designed to support focused growth strategies. Our segment structure also allows us to leverage Dover's scale and channel presence while capitalizing on productivity initiatives. Dover's three operating segments are as follows:
•Our Engineered Systems segment is comprised of two platforms, Printing & Identification and Industrials and is focused on the design, manufacture and service of critical equipment, consumables and components serving the fast-moving consumer goods, digital textile printing, vehicle service, environmental solutions and industrial end markets.
•Our Fluids segment, serving the Fueling & Transport, Pumps, and Process Solutions end markets, is focused on the safe handling of critical fluids across the retail fueling, chemical, hygienic, oil and gas and industrial end markets.
•Our Refrigeration & Food Equipment segment is a provider of innovative and energy efficient equipment and systems serving the commercial refrigeration and food equipment end markets.
Spin-off of Energy Businesses
On May 9, 2018, we completed the spin-off of Apergy Corporation ("Apergy") to our shareholders. Apergy holds the entities conducting our former upstream energy businesses previously included in our Energy segment. The transaction was completed through the pro rata distribution of 100% of the common stock of Apergy to Dover's shareholders of record as of the close of business on April 30, 2018. Each Dover shareholder received one share of Apergy common stock for every two shares of Dover common stock held as of the record date. For more details, see Note 2 — Spin-off of Apergy Corporation in the Consolidated Financial Statements in Item 8 of this Form 10-K.
Dover is committed to generating shareholder value through a combination of sustained long-term profitable growth, operational excellence and superior free cash-flow generation. We foster an operating culture with high ethical standards that values accountability, rigor, trust, respect and open communications, designed to allow individual growth and operational effectiveness. Dover seeks to be a leader in our end markets as measured by market share, customer satisfaction, growth, and return on invested capital. Our operating structure of three business segments allows for focused acquisition activity, accelerates opportunities to identify and capture operating synergies, including global sourcing and supply chain integration, shared services, and manufacturing, and advances the development of our executive talent. Our segment and executive management teams set strategic direction, initiatives and goals, provide oversight of strategy execution and achievement of these goals for our operating companies, and with oversight from our Board of Directors, make capital allocation decisions, including organic investment initiatives, major capital projects, acquisitions and the return of capital to our shareholders.
We are also committed to creating sustainable business practices that protect the environment, and through the development of products that help our customers meet their sustainability goals. We have accelerated our efforts and processes around innovation, focusing on technologies which create tangible value for our customers. Each of Dover’s segments is dedicated to this important initiative. In our Refrigeration & Food Equipment segment, SWEP, a manufacturer of brazed plate heat exchangers, focuses on the conversion to sustainable and renewable energy usage in heat transfer. Their Passive Cooling
Unit, for example, uses natural cooling from the ground or groundwater to remove excess heat from interiors with the process requiring only a small amount of electricity for the circulation pumps which make this solution both very energy efficient and cost effective. Over the last 7 years, Markem-Imaje, a marking and coding business within Dover’s Engineered Systems segment, has reduced its carbon emissions by 40% and produced 18% less waste by implementing an Environmental, Health and Safety program. Lastly, in Dover’s Fluids segment, OPW, a leader in fluid handling and car wash equipment, released the 14 Series fueling nozzle family that features patented and patent-pending technology to prevent dripping of excess fuel while motorists refuel their vehicles.
We are committed to driving shareholder returns through three key objectives. First, we are committed to achieving organic sales growth above that of gross domestic product (or 3% to 5% annually on average) over a long-term business cycle, absent prolonged adverse economic conditions, complemented by growth through strategic acquisitions. Second, we continue to focus on improving returns on capital and segment margins through effective cost management and productivity initiatives, including supply chain activities, targeted, thoughtful restructuring activities, strategic pricing and portfolio management. Third, we aim to generate free cash flow as a percentage of sales of approximately 8-12% through strong earnings performance, productivity improvements and active working capital management. Dover’s value-creation strategy is supported by a financial policy that includes a prudent approach to financial leverage, and a disciplined approach to capital allocation that allows for a balance between reinvestment and return of capital to shareholders. We support achievement of these goals by (1) aligning management compensation with financial objectives, (2) executing on well-defined and actively managed merger and acquisition processes and (3) investing in talent development programs.
To achieve our goals, we are focused on executing the following three pillars of Dover’s business strategy:
Capturing growth potential in our key end markets and adjacencies
Dover’s three business segments focus on building enduring competitive advantages and leadership positions in end markets that are positioned for future growth. We believe that our businesses are among the top suppliers in most markets and niches that we serve (as defined by customer applications, geographies or products), which positions us well to capture future growth in such markets. We capitalize on our engineering, technology and design expertise and maintain an intense focus on meeting the needs of our customers and adding significant value to their operations through superior product performance, safety and reliability and a commitment to after sales and service support. We cultivate and maintain an entrepreneurial culture and continuously innovate to address our customers’ needs to help them win in the markets they serve.
In particular, our businesses are well-positioned to capitalize on growing industrial manufacturing and trade volumes, continuous productivity improvement, adoption of digital technologies and the Industrial Internet of Things (IIoT), sustainability and safety, energy efficiency, consumer product safety and growth of the middle class and consumption in emerging economies. Our Engineered Systems segment combines its engineering capabilities, unique product advantages and niche applications expertise to address market needs and requirements including conversion to digital textile printing, productivity solutions, sustainability, consumer product safety and growth in emerging economies. Our Fluids segment is focused on accelerating growth within the chemical/plastics, retail fueling, fluid transfer, industrial and hygienic markets as well as globalizing brands across geographies while expanding sales channels and engineering support. Specifically, we focus on capturing growth in the retail fueling, hygienic and pharma and polymers/plastics markets. Our Refrigeration & Food Equipment segment is responding to our customers’ demand for increased energy efficiency and sustainability and unique merchandising solutions with innovative new products.
We aim to grow by making organic investments in research and development, developing new products and technologies, expanding our geographic coverage, as well as by pursuing disciplined strategic acquisitions that enhance our portfolio and position Dover for long-term growth. We continually evaluate how our assets and capabilities can position Dover to grow in markets adjacent to our core businesses (for example, new applications, geographies, product segments or adjacent technologies) where Dover can be advantaged.
Improving profitability and return on invested capital
We are committed to generating sustainable returns on invested capital well above the cost of capital across all of our businesses. We continually evaluate and pursue opportunities to improve efficiency, margin and return on capital. We are intensely focused on driving operational excellence and capturing the benefits of common ownership across our businesses. We have implemented numerous productivity initiatives, such as supply chain integration management, shared service centers and lean manufacturing principles, to maximize our efficiency as well as workplace safety initiatives to help ensure the health and welfare of our employees. Our businesses place strong emphasis on continual product quality improvement and new product development to better serve customers and to facilitate expansion into new product and geographic markets. Further, we continue to make significant investments in talent development, especially in the area of operational management, and recognize that the growth and development of our employees is essential for our continued success.
In 2018, we launched a margin expansion program, designed to reduce our selling, general and administrative cost base and rationalize our manufacturing and supply chain footprint across the portfolio. In prior years, we have invested in our global supply chain organization to capitalize on Dover’s scale in procurement, and in Dover Business Services shared service centers to provide important transactional and value-added services to our operating companies in the areas of finance, information technology and human resources. Our shared service model allows us to leverage scale across Dover, increase process efficiencies through technology and specialization and reduce risk through centralized controls. Our shared service centers serve our operating companies by freeing resources normally dedicated to transactional services to allow those resources to focus on customers, markets and product excellence.
Additionally, we focus on improving margins and returns by rigorously capturing synergies from our acquisitions and providing best-in-class corporate support and services through a lean corporate center.
Disciplined capital allocation
Our businesses generate annual free cash flow of approximately 8-12% of revenue. We are focused on the most efficient allocation of our capital to maximize returns on investment. To do this, we prioritize organic reinvestment to grow and strengthen our existing businesses. We plan to make average annual investments in capital spending of approximately 2% - 4% of revenue with a focus on internal projects designed to expand markets, develop products and improve productivity. We also seek to deploy capital in disciplined acquisitions in our key end markets which include industrials, printing & identification, pumps, hygienic & pharma, fueling & transport, and process solutions markets. Dover focuses primarily on bolt-on acquisitions, applying strict selection criteria of market attractiveness (including growth, maturity, performance-based competition), business fit (including sustained leading position, revenue visibility, favorable customer value-add versus switching cost or risk) and financial return profile (accretive growth and margins, double-digit return on capital). Finally, we have consistently returned cash to shareholders by paying dividends, which have increased annually over each of the last 63 years. We also undertake opportunistic share repurchases as part of our capital allocation strategy, and completed $1 billion of share repurchases in 2018. We employ a prudent financial policy to support our capital allocation strategy, which includes maintaining an investment grade credit rating.
Our acquisition program has two key elements. As a first priority, we seek to acquire attractive add-on businesses with a strong fit that enhance our existing franchises either by increasing their reach and customer access, by broadening their product mix or by enhancing technological capability and customer value-add. Second, in the right circumstances, we may strategically pursue larger, stand-alone businesses that have the potential to either complement our existing businesses or allow us to pursue innovative technologies within our key growth spaces. With all our acquisitions, we seek businesses that have an accretive margin and a strong organic growth profile, offer significant synergy opportunities and the potential to generate double-digit return on capital 3-5 years after the acquisition is completed.
Over the past three years (2016 through 2018), we have spent approximately $1.7 billion to purchase 10 businesses. During 2018, we acquired two businesses for an aggregate consideration of $68.6 million, net of cash acquired. Consistent with our acquisition program, we acquired these businesses to complement and expand upon existing operations within the Process Solutions and Food Equipment end markets. During 2017, we acquired two businesses for an aggregate consideration of $32.9 million, net of cash acquired and including contingent consideration. We acquired these businesses to complement and expand upon existing operations within the Printing and Identification platform. During 2016, we acquired six businesses for an aggregate purchase price of $1.6 billion, net of cash acquired. Four of these businesses– Tokheim Group S.A.S., Fairbanks Environmental LTD, ProGauge and Wayne Fueling Systems Ltd. expanded our Fluids segment's retail fueling portfolio and two of these businesses – Alliance Wireless Technologies, Inc. and Ravaglioli S.p.A. Group complemented the Industrials platform within our Engineered Systems segment. For more details regarding acquisitions completed over the past three years, see Note 4 — Acquisitions in the Consolidated Financial Statements in Item 8 of this Form 10-K.
Our future growth depends in large part on finding and acquiring successful businesses that expand the scope of our offering and make us an even more important supplier to our customers. While we expect to generate annual organic growth of 3% - 5% over a long-term business cycle absent extraordinary adverse economic conditions, our success in consistently growing the portfolio is also dependent on the ability to acquire and integrate businesses successfully within our existing structure. To track post-merger integration and accountability, we utilize an internal scorecard and defined processes to help ensure expected synergies are realized and value is created.
Occasionally, we may also sell or divest some of our businesses based on changes in specific market outlook, structural changes in financial performance, value-creation potential, or for other strategic considerations, which may include an effort to reduce our exposure to cyclical markets or focus on our higher margin growth spaces. We also recognize that some smaller niche businesses in Dover’s portfolio may have a greater value-creation potential if owned by another parent with a larger presence and focus on a given niche. We pragmatically consider such opportunities as part of our ongoing portfolio management and review processes and execute divestitures if the value created is determined to be at an appropriate premium to the value of such business to Dover and allows Dover shareholders to participate in the future value-creation potential from a change in ownership.
During the past three years (2016 through 2018) we have sold businesses for aggregate cash consideration of $583.0 million. During 2018, there were no other material dispositions aside from the spin-off of Apergy as previously discussed. The financial position and results of operations for Apergy have been presented as discontinued operations for all periods presented. During 2017, we completed the sale of Performance Motorsports International and the consumer and industrial winch business of Warn Industries, within the Engineered Systems segment, as well as other smaller divestitures. During 2016, we completed the sale of Texas Hydraulics and Tipper Tie, within the Engineered Systems and Refrigeration & Food Equipment segments, respectively. The disposal in 2017 and 2016 did not represent strategic shifts in operations and, therefore, did not qualify for presentation as discontinued operations. For more details, see Note 5 — Discontinued and Disposed Operations in the Consolidated Financial Statements in Item 8 of this Form 10-K.
As noted previously, we currently operate through three business segments that are aligned with the key end markets they serve and comprise our operating and reportable segments: Engineered Systems, Fluids, and Refrigeration & Food Equipment. For financial information about our segments and geographic areas, see Note 18 — Segment Information in the Consolidated Financial Statements in Item 8 of this Form 10-K.
Our Engineered Systems segment is focused on the design, manufacture and service of critical equipment, consumables and components across its two platforms, the Printing & Identification and Industrials, as described below.
• Printing & Identification –OurPrinting & Identification businesses are worldwide suppliers of precision marking and coding, digital textile printing, soldering and dispensing equipment and related consumables and services. Our Printing & Identification platform primarily designs and manufactures equipment and consumables used for printing variable information (such as bar coding of dates and serial numbers) on fast-moving consumer goods, capitalizing
on expanding food and product safety requirements and growth in emerging markets. In addition, our businesses serving the textile market are benefiting from a significant shift from analog to digital printing, resulting from shorter runs and more complex fashion designs, as well as increasing environmental standards.
•Industrials – Our Industrials businesses provide a wide range of products and services which have broad customer applications across a number of markets including; vehicle service, environmental solutions, industrial automation, defense and telecommunications, and winch and hoist.
Our businesses serving the global vehicle service market provide products and services used primarily in vehicle repair and maintenance, including light and heavy-duty vehicle lifts, wheel service equipment, vehicle diagnostics and vehicle collision repair solutions. Products are sold to national dealership networks, original equipment manufacturers ("OEM"), national multi-shop operators ("MSO") groups, independent repair and service shops, and large national accounts and government/transit customers through a network of distributors and channel partners.
Our businesses serving the environmental solutions markets provide products and digital services for the refuse collection industry and for on-site processing and compaction of trash and recyclable materials. Products are sold to municipal customers, national accounts and independent waste haulers through a network of distributors and directly in certain geographic areas.
The businesses in the industrial automation market provide a wide range of modular automation components including manual clamps, power clamps, rotary and linear mechanical indexers, conveyors, pick and place units, glove ports and manipulators, as well as end-of-arm robotic grippers, slides and end effectors. These products serve a very broad market including food processing, packaging, paper processing, medical, electronic, automotive, nuclear and general industrial products.
Engineered Systems' products are manufactured primarily in the United States, Europe and Asia and are sold throughout the world directly and through a network of distributors.
Our Fluids segment is focused on the safe handling of critical fluids across the retail fueling, chemical, hygienic, oil and gas and industrial end markets. We strive to optimize safety, efficiency, reliability, and environmental sustainability through innovative fluid handling and information management solutions. The segment serves three broad global end markets: Fueling & Transport, Pumps, and Process Solutions.
•Fueling & Transport – Our businesses provide fully integrated fluid handling solutions from refineries and chemical-processing plants through point-to-point transfers, transportation, and delivery to the final point of consumption. Within this framework, we have a very strong presence in the retail and commercial fueling markets, where we provide fuel dispensers, payment systems, hanging hardware and underground containment systems, as well as monitoring and optimization software.
• Pumps – Our businesses manufacture pumps that are used to transfer liquid and bulk products and are sold to a wide variety of markets, including the refined fuels, liquefied petroleum gas ("LPG"), food/sanitary, transportation and chemical process industries. The pumps include positive displacement and centrifugal pumps that are used in demanding and specialized fluid transfer process applications. Within this framework, we also have a focus on pumps and connectors for use in a variety of bio-processing, medical and specialty applications.
• Process Solutions – Our businesses specialize in the manufacturing of pumps, filtration systems, pelletizing equipment, compressors and bearings for use in the chemical, polymer, power generation, oil and gas, industrial, and marine industries. These highly engineered products provide unique and proprietary solutions to solve customer needs around the world.
Fluids' products are manufactured primarily in the United States, Europe, China, Mexico and Brazil and are sold throughout the world directly and through a network of distributors and OEMs.
Our Refrigeration & Food Equipment segment is a provider of innovative and energy-efficient equipment and systems serving the commercial refrigeration and food equipment end markets.
•Refrigeration – Our businesses manufacture refrigeration systems, refrigeration display cases, specialty glass, commercial glass refrigerator and freezer doors and brazed plate heat exchangers used for industrial and climate control.
•Food Equipment – Our businesses manufacture electrical distribution products and engineering services, commercial food service equipment, continuous motion wash systems, cook-chill production systems, custom food storage and preparation products, kitchen ventilation systems, conveyer systems and beverage can-making machinery.
The majority of the refrigeration/food systems and machinery that are manufactured or serviced by the Refrigeration & Food Equipment segment are used by the retail food industry, including supermarkets, “big-box” retail and convenience stores, the commercial/industrial refrigeration industry, institutional and commercial food service and food production markets and beverage can-making industries. Refrigeration & Food Equipment's products are manufactured primarily in North America, Europe and Asia and are sold globally, directly and through a network of distributors.
We use a wide variety of raw materials, primarily metals and semi-processed or finished components, which are generally available from a number of sources. As a result, shortages or the loss of any single supplier have not had, and are not likely to have, a material impact on operating profits. While the required raw materials are generally available, commodity pricing can be volatile, particularly for various grades of steel, copper, aluminum and select other commodities. Although cost increases in commodities may be recovered through increased prices to customers, our operating results are exposed to such fluctuations. We attempt to control such costs through fixed-price contracts with suppliers and various other programs, such as our global supply chain activities.
Research and Development
Our businesses invest to develop innovative products, as well as to upgrade and improve existing products to satisfy customer needs, including demand for energy-efficient products designed to help customers meet sustainability goals, expand revenue opportunities domestically and internationally, maintain or extend competitive advantages, improve product reliability and reduce production costs.
Our Engineered Systems segment expends significant effort in research and development because the rate of product development by their customers is often quite high. Our businesses that develop product identification and printing equipment believe that their customers expect a continuing rate of product innovation, and performance and total cost of ownership improvement. The result has been that product life cycles in these markets generally average less than five years with meaningful sales price reductions over that time period.
Our other segments contain many businesses that are also involved in important product improvement initiatives. These businesses concentrate on working closely with customers on specific applications, expanding product lines and market applications and continuously improving manufacturing processes. Most of these businesses experience a much more moderate rate of change in their markets and products than is generally experienced by the Engineered Systems segment.
In addition to product innovation, we are also investing in developing digital technologies. In 2018, we opened our new digital labs center in the greater Boston area. The facility serves as the hub for our digital strategy and platform, and as a research and development center for our Markem-Imaje business unit which is part of our Engineered Systems segment. We believe that the digital labs center will enhance the effectiveness of our products and fuel our commercial growth strategy by helping us make progress on digitization opportunities and by providing machine learning, artificial intelligence, IoT and digital commerce capabilities. Our businesses pursue digital strategies based on customer needs and will now be able to leverage cross-company capabilities developed at the digital labs center. For example, with the support of the digital labs center, Hydro, which manufacturers chemical injecting, proportioning, dispensing and medicating equipment within our Fluids segment, launched Hydro Connect in 2018. Hydro Connect is a cloud-based IIoT platform that gives end users
increased visibility into their operations, optimizes production, reduces costs and increases customer satisfaction. Building on this momentum, we launched a digital initiative in 2018 to help our businesses increase sales and further improve customer satisfaction through digital technology, starting with Dover Food Retail within our Refrigeration & Food Equipment segment.
Intellectual Property and Intangible Assets
Our businesses own many patents, trademarks, licenses and other forms of intellectual property, which have been acquired over a number of years and, to the extent relevant, expire at various times over a number of years. A large portion of our businesses’ intellectual property consists of patents, unpatented technology and proprietary information constituting trade secrets that we seek to protect in various ways, including confidentiality agreements with employees and suppliers where appropriate. In addition, a significant portion of our intangible assets relate to customer relationships. While our intellectual property and customer relationships are important to our success, the loss or expiration of any of these rights or relationships, or any group of related rights or relationships, is not likely to materially affect our results on a consolidated basis. We believe that our commitment to continuous engineering improvements, new product development and improved manufacturing techniques, as well as strong sales, marketing and service efforts, are significant to our general leadership positions in the niche markets we serve.
We serve thousands of customers, none of which accounted for more than 10% of our consolidated revenue in 2018. Given our diversity of served markets, customer concentrations are not significant. Businesses supplying the environmental solutions, agricultural, defense, energy, automotive and commercial refrigeration industries tend to deal with a few large customers that are significant within those industries. This also tends to be true for businesses supplying the power generation and chemical industries. In the other markets served, there is usually a much lower concentration of customers, particularly where our companies provide a substantial number of products and services applicable to a broad range of end-use applications.
In general, our businesses, while not strongly seasonal, tend to have stronger revenue in the second and third quarters, particularly those serving the transportation, construction, environmental solutions, commercial refrigeration and food service markets. Our businesses serving the retail fueling market tend to increase sequentially through the year based on the historical purchasing patterns of their customers. Our businesses serving the major equipment markets, such as power generation, chemical and processing industries, have longer lead times geared to seasonal, commercial, or consumer demands and customers in these markets tend to delay or accelerate product ordering and delivery to coincide with those market trends that tend to moderate the aforementioned seasonality patterns.
Backlog is more relevant to our businesses that produce larger and more sophisticated machines or have long-term contracts, primarily for the markets within our Fluids and Refrigeration & Food Equipment segments. Our total backlog relating to our businesses as of December 31, 2018 and 2017 was $1.4 billion and $1.2 billion, respectively.
Our competitive environment is complex because of the wide diversity of our products manufactured and the markets served. In general, most of our businesses are market leaders that compete with only a few companies, and the key competitive factors are customer service, product quality, price and innovation. However, as we become increasingly global, we are exposed to more competition. A summary of our key competitors by end market within each of our segments follows:
Panasonic (Hussman Corp.), Lennox International (Kysor/Warren), Alfa Laval
Welbilt Corp, Illinois Tool Works, Middleby
Consistent with our strategic focus on positioning our businesses for growth, we continue to increase our revenue in international markets, particularly in developing economies in Asia, the Middle East, Eastern Europe and South America.
Most of our non-U.S. subsidiaries and affiliates are currently based in France, Germany, the Netherlands, Sweden, Switzerland, the United Kingdom, and other locations including Australia, Canada, China, Malaysia, India, Mexico, Brazil, Eastern Europe and the Middle East.
The following table shows annual revenue derived from customers outside the U.S. as a percentage of total annual revenue for each of the last three years, by segment and in total:
% Non-U.S. Revenue by Segment
Years Ended December 31,
Refrigeration & Food Equipment
Total percentage of revenue derived from customers outside of the United States
Our international operations are subject to certain risks, such as price and exchange rate fluctuations and non-U.S. governmental restrictions, which are discussed further in Item 1A. "Risk Factors." For additional details regarding our non-U.S. revenue and the geographic allocation of the assets of our continuing operations, see Note 18 — Segment Information to the Consolidated Financial Statements in Item 8 of this Form 10-K.
We are committed to creating economic value for shareholders by developing products designed to help our customers meet their sustainability goals in response to evolving regulatory and environmental standards. We believe that sustainability-driven innovation presents a significant growth opportunity while contributing positively to enhanced resource efficiency and reduced waste. Accordingly, over the past several years, we have accelerated our efforts and processes around innovation, focusing on technologies that create tangible value for our customers. Each of Dover’s segments is dedicated to this initiative. For example, in our Refrigeration & Food Equipment segment, SWEP, a manufacturer of brazed plate heat exchangers, has facilitated its customers’ conversion to more sustainable and renewable energy usage through heat transfer technology. SWEP’s Passive Cooling Unit uses natural cooling from the ground or groundwater to remove excess heat from interiors. The process requires only a small amount of electricity for circulation pumps which makes this solution both energy efficient and cost effective. Over the last seven years, Markem-Imaje, a marking and coding business within our Engineered Systems segment, has reduced its carbon emissions by 40% and produced 18% less waste by implementing an Environmental, Health and Safety program. Lastly, in our Fluids segment, OPW, a leader in fluid handling and car wash equipment, released the 14 Series fueling nozzle family that features patented and patent-pending technology to prevent dripping of excess fuel while motorists refuel their vehicles.
We are also committed to fostering sustainable business practices across our businesses in order to reduce greenhouse gas emissions and energy consumption. In 2010, in response to our concerns around global sustainability, we developed and implemented a process to conduct an inventory of our greenhouse gas emissions. Since then, we have evaluated our climate change risks and opportunities, as well as developed an energy and climate change strategy that includes goals, objectives and related projects for reducing energy use and greenhouse gas emissions. To further promote our sustainability efforts, we have committed to reducing our overall energy and greenhouse gas intensity indexed to net revenue by 20% from 2010 to 2020. We are near our goal for reducing overall energy intensity and have surpassed our goal for reducing greenhouse gas intensity. We believe that our focus on sustainability results in enhanced efficiency in our operations, which reduces costs, improves margins and helps us achieve operational excellence. We will continue to work proactively to reduce energy usage and carbon emissions amidst acquisition and business growth. We have also participated as a voluntary respondent in the Carbon Disclosure Project since 2010 and have maintained our scoring range since we began reporting.
All of our segments assess the energy efficiencies related to their operations and the opportunities associated with the use of their products and services by customers. In some instances, our businesses may be able to help customers reduce energy use and greenhouse gas emissions. Increased demand for energy-efficient products based on a variety of drivers could result in increased sales for a number of our businesses.
Our operations are governed by a variety of international, national, state and local environmental laws. We are committed to continued compliance and believe our operations generally are in substantial compliance with these laws. In a few instances, particular plants and businesses have been the subject of administrative and legal proceedings with governmental agencies or private parties relating to the discharge or potential discharge of regulated substances. Where necessary, these matters have been addressed with specific consent orders to achieve compliance.
There have been no material effects upon our earnings and competitive position resulting from our compliance with laws or regulations enacted or adopted relating to the protection of the environment. We are aware of a number of existing or upcoming regulatory initiatives intended to reduce emissions in geographies where our manufacturing and warehouse/distribution facilities are located and have evaluated the potential impact of these regulations on our businesses. We anticipate that direct impacts from regulatory actions will not be significant in the short- to medium-term. We expect the regulatory impacts associated with climate change regulation would be primarily indirect and would result in "pass through" costs from energy suppliers, suppliers of raw materials and other services related to our operations.
We had approximately 24,000 employees as of December 31, 2018.
We make available free of charge through the "Investor Information" link on our website, www.dovercorporation.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports. We post each of these reports on the website as soon as reasonably practicable after the report is filed with the Securities and Exchange Commission. The information on our website is not incorporated into this Form 10-K.
The risk factors discussed in this section should be considered together with information included elsewhere in this Form 10-K and should not be considered the only risks to which we are exposed. In general, we are subject to the same general risks and uncertainties that impact many other industrial companies such as general economic, industry and/or market conditions and growth rates; the impact of natural disasters and their effect on global markets; and changes in laws or accounting rules. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, including our results of operations, liquidity and financial condition.
•Our results may be impacted by current domestic and international economic conditions and uncertainties.
Our businesses may be adversely affected by disruptions in the financial markets or declines in economic activity both domestically and internationally in those countries in which we operate. These circumstances will also impact our suppliers and customers in various ways which could have an impact on our business operations, particularly if global credit markets are not operating efficiently and effectively to support industrial commerce.
Negative changes in worldwide economic and capital market conditions are beyond our control, are highly unpredictable and can have an adverse effect on our consolidated results of operations, financial condition, cash flows and cost of capital.
•We are subject to risks relating to our existing international operations and expansion into new geographical markets.
Approximately 48% and 46% of our revenues for 2018 and 2017, respectively, were derived outside the United States. We continue to focus on global markets as part of our overall growth strategy and expect sales from outside the United States to continue to represent a significant portion of our revenues. Our international operations and our global expansion strategy are subject to general risks related to such operations, including:
political, social and economic instability and disruptions;
government export controls, economic sanctions, embargoes or trade restrictions;
the imposition of duties and tariffs and other trade barriers;
limitations on ownership and dividend of earnings;
transportation delays and interruptions;
labor unrest and current and changing regulatory environments;
increased compliance costs, including costs associated with disclosure requirements and related due diligence;
the impact of loss of a single-source manufacturing facility;
difficulties in staffing and managing multi-national operations;
limitations on our ability to enforce legal rights and remedies; and
access to or control of networks and confidential information due to local government controls and vulnerability of local networks to cyber risks.
If we are unable to successfully manage the risks associated with expanding our global business or adequately manage operational risks of our existing international operations, the risks could have a material adverse effect on our growth in geographic markets, our reputation, our consolidated results of operations, financial position and cash flows.
•Our exposure to exchange rate fluctuations on cross-border transactions and the translation of local currency results into U.S. dollars could negatively impact our results of operations.
We conduct business through our subsidiaries in many different countries, and fluctuations in currency exchange rates could have a significant impact on our reported consolidated results of operations, financial condition and cash flows, which are presented in U.S. dollars. Cross-border transactions, both with external parties and intercompany relationships, result in increased exposure to foreign exchange effects. Accordingly, significant changes in currency exchange rates, particularly the Euro, Chinese Renminbi (Yuan), Swedish krona, Pound Sterling, Indian rupee,
Singapore dollar, Danish krone, and Canadian dollar, could cause fluctuations in the reported results of our businesses’ operations that could negatively affect our results of operations. Additionally, the strengthening of certain currencies such as the Euro and U.S. dollar potentially exposes us to competitive threats from lower cost producers in other countries. Our sales are translated into U.S. dollars for reporting purposes. The strengthening of the U.S. dollar could result in unfavorable translation effects as the results of foreign locations are translated into U.S. dollars.
•Increasing product/service and price competition by international and domestic competitors, including new entrants, and our inability to introduce new and competitive products could cause our businesses to generate lower revenue, operating profits and cash flows.
Our competitive environment is complex because of the wide diversity of the products that our businesses manufacture and the markets they serve. In general, most of our businesses compete with only a few companies. Our ability to compete effectively depends on how successfully we anticipate and respond to various competitive factors, including new products, digital solutions and support services that may be introduced by competitors, changes in customer preferences, new business models and technologies and pricing pressures. If our businesses are unable to anticipate their competitors’ developments or identify customer needs and preferences on a timely basis, or successfully introduce new products, digital solutions and support services in response to such competitive factors, they could lose customers to competitors. If our businesses do not compete effectively, we may experience lower revenue, operating profits and cash flows.
•Our operating results depend in part on the timely development and commercialization, and customer acceptance, of new and enhanced products, digital solutions and support services based on technological innovation.
The success of new and improved products, digital solutions and support services depends on their initial and continued acceptance by our customers. Certain of our businesses sell in markets that are characterized by rapid technological changes, frequent new product introductions, changing industry standards and corresponding shifts in customer demand, which may result in unpredictable product transitions, shortened life cycles and increased importance of being first to market. Failure to correctly identify and predict customer needs and preferences, to deliver high quality, innovative and competitive products to the market, to adequately protect our intellectual property rights or to acquire rights to third-party technologies and to stimulate customer demand for, and convince customers to adopt, new products, digital solutions and support services could adversely affect our consolidated results of operations, financial condition and cash flows. In addition, we may experience difficulties or delays in the research, development, production or marketing of new products, digital solutions and support services which may prevent us from recouping or realizing a return on the investments required to continue to bring new products and services to market.
•New tariffs have resulted in increased prices and could adversely affect our consolidated results of operations, financial position and cash flows.
Recently, tariffs under Section 232 of the Trade Expansion Act of 1962 were imposed on certain steel and aluminum products imported into the U.S. which have increased the prices of these inputs. Increased prices for imported steel and aluminum products have led domestic sellers to respond with market-based increases to prices for such inputs as well. Tariffs under Section 301 of the Trade Expansion Act were also imposed on goods imported from China in connection with China's intellectual property practices which may increase the cost to our customers of our products manufactured in China as well as the cost of Chinese sourced parts and components for our products manufactured in the U.S. Additional tariffs have been announced that may be imposed on goods imported from China in the future. The new tariffs, along with any additional tariffs or trade restrictions that may be implemented by the U.S. or other countries, could result in further increased prices and a decreased available supply of steel and aluminum as well as additional imported components and inputs. We may not be able to pass price increases on to our customers and may not be able to secure adequate alternative sources of steel and aluminum on a timely basis. While retaliatory tariffs imposed by other countries on U.S. goods have not yet had a significant impact, we cannot predict further developments. The tariffs could adversely affect the operating profits for certain of our businesses and customer demand for certain of our products which could have a material adverse effect on our consolidated results of operations, financial position and cash flows.
•Our businesses 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 are subject to risks associated with changes in laws, regulations and policies (including environmental, employment and health and safety regulations, data security laws, data privacy laws, export/import laws, tax policies such as export subsidy programs and research and experimentation credits, carbon emission regulations and energy efficiency and design regulations and other similar programs). 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. We cannot provide assurance that our costs of complying with new and evolving regulatory reporting requirements and current or future laws will not exceed our estimates. In addition, the Brexit referendum in the United Kingdom in 2016 has caused and may continue to cause political and economic uncertainty, including significant volatility in global stock markets and currency exchange rate fluctuations. Although it is unknown what the full terms of the United Kingdom’s future relationship with the European Union will be, it is possible that there will be greater restrictions on imports and exports between the United Kingdom and other countries and increased regulatory complexities. Any of these factors could adversely affect customer demand, our relationships with customers and suppliers, and our business and financial position.
We have invested in certain countries, including Brazil, Russia, India and China, and may in the future invest in other countries, any of which may carry high levels of currency, political, compliance, or economic risk. While these risks or the impact of these risks are difficult to predict, any one or more of them could adversely affect our businesses and reputation.
Our effective tax rate is impacted by changes in the mix among earnings in countries with differing statutory tax rates, changes in the valuation allowance of deferred tax assets and changes in tax laws. The amount of income taxes and other taxes paid can be adversely impacted by changes in statutory tax rates and laws and are subject to ongoing audits by domestic and international authorities. If these audits result in assessments different from amounts estimated, then our consolidated results of operations, financial position and cash flows may be adversely affected by unfavorable tax adjustments.
•We could lose customers or generate lower revenue, operating profits and cash flows if there are significant increases in the cost of raw materials (including energy) or if we are unable to obtain raw materials.
We purchase raw materials, sub-assemblies and components for use in our manufacturing operations, which expose us to volatility in prices for certain commodities. Significant price increases for these commodities could adversely affect operating profits for certain of our businesses. While we generally attempt to mitigate the impact of increased raw material prices by hedging or passing along the increased costs to customers, there may be a time delay between the increased raw material prices and the ability to increase the prices of products, or we may be unable to increase the prices of products due to a competitor’s pricing pressure or other factors. In addition, while raw materials are generally available now, the inability to obtain necessary raw materials could affect our ability to meet customer commitments and satisfy market demand for certain products. Consequently, a significant price increase in raw materials, or their unavailability, may result in a loss of customers and adversely impact our consolidated results of operations, financial condition and cash flows.
•Our growth and results of operations may be adversely affected if we are unsuccessful in our capital allocation and acquisition program.
We expect to continue our strategy of seeking to acquire value creating add-on businesses that broaden our existing position and global reach as well as, in the right circumstances, strategically pursue larger acquisitions that could have the potential to either complement our existing businesses or allow us to pursue a new platform. However, there can be no assurance that we will be able to continue to find suitable businesses to purchase, that we will be able to acquire such businesses on acceptable terms, or that all closing conditions will be satisfied with respect to any pending acquisition. In addition, we face the risk that a completed acquisition may underperform relative to expectations. We may not achieve the synergies originally anticipated, may become exposed to unexpected liabilities or may not be able to sufficiently integrate completed acquisitions into our current business and growth model. Further, if we fail to allocate our capital appropriately, in respect of either our acquisition program or organic growth in our operations, we could be overexposed in certain markets and geographies and unable to expand into adjacent products or markets. These factors could potentially have an adverse impact on our consolidated results of operations, financial condition and cash flows.
•Our operating profits and cash flows could be adversely affected if we cannot achieve projected savings and synergies.
We are continually evaluating our cost structure and seeking ways to capture synergies across our operations. For example, during 2018, we recorded rightsizing and other related costs of $72.8 million primarily related to actions taken on employee reductions, facility consolidations and site closures, product line exits and other associated asset charges. These rightsizing activities and our regular ongoing cost reduction activities (including in connection with the integration of acquired businesses) may reduce our available talent, assets and other resources and could slow improvements in our products and services, adversely affect our ability to respond to customers and limit our ability to increase production quickly if demand for our products increases. In addition, delays in implementing planned restructuring activities or other productivity improvements, and unexpected costs or failure to meet targeted improvements may diminish the operational or financial benefits we expect to realize through our various programs. Any of the circumstances described above could adversely affect our consolidated results of operations, financial condition and cash flows.
•Our operations, businesses and products are subject to cybersecurity risks.
We depend on our own and third party information technology (“IT”) systems, including cloud-based systems and managed service providers, to store, process and protect our information and support our business activities. We also use our third party IT systems to support employee data processing for our global work force 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. If these technologies, systems, products or services are damaged, cease to function properly, are compromised due to employee error, user error, malfeasance, system errors, or other vulnerabilities, or are subject to cybersecurity attacks, such as those involving 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; manipulation, disruption, or improper use of these technologies, systems, products or services; financial losses from remedial actions, loss of business or potential liability; adverse media coverage; and legal claims or legal proceedings, including regulatory investigations and actions; and damage to our reputation. There has been a rise in the number of cyberattacks targeting confidential business information generally and in the manufacturing industry specifically, as well as an increase in cyberattacks targeting managed service providers, by both state-sponsored and criminal organizations. Moreover, there has been a rise in the number of cyberattacks that depend on human error or manipulation, including phishing attacks or schemes that use social engineering to gain access to systems or perpetuate wire transfer or other frauds. These trends raise the risks from such events as well as the costs associated with protecting against such attacks. It is possible for vulnerabilities in our IT systems to remain undetected for an extended period of time up to and including several years. While 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, 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. 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 may be required to expend additional resources to continue to 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. For example, during the fourth quarter of 2016, we determined there was a quality issue with a product component part in the Fluids segment and voluntarily reported this issue to the U.S. Consumer Product Safety Commission (“CPSC”). During the first quarter of 2017, we announced a voluntary recall of the product in conjunction with the CPSC that has since been satisfactorily closed out in 2018. See Note 15 — Commitments and Contingent Liabilities in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information. A product recall could result in substantial and unexpected expenditures, which would reduce operating profit and cash flow. In addition, a product recall may require significant management attention. Product recalls may hurt the value of our brands and lead to decreased demand for our products. Product recalls also may lead to increased scrutiny by federal, state or international regulatory agencies of our operations and increased litigation and could have a material adverse effect on our consolidated results of operations, financial condition and cash flows.
•If the Apergy spin-off, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, we and our shareholders could be subject to significant tax liabilities.
In connection with the spin-off of Apergy, we received a private letter ruling from the Internal Revenue Service (the "IRS Ruling") together with an opinion of McDermott Will & Emery LLP, our tax counsel, substantially to the effect that, among other things, certain transactions to effect the spin-off will qualify as a tax-free reorganization for U.S. federal income tax purposes under Section 368(a)(1)(D) of the Internal Revenue Code (the “Code”), and the distribution will qualify as a tax-free distribution to our shareholders under Section 355 of the Code. The IRS Ruling and the opinion of tax counsel relied on certain facts and assumptions, and certain representations and undertakings from us and Apergy, including those regarding the past and future conduct of certain of our businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not satisfied, we and our shareholders may not be able to rely on the IRS Ruling or the opinion, and could be subject to significant tax liabilities. Notwithstanding the IRS Ruling and the opinion, the IRS could determine on audit that the distribution is taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion. In addition, we and Apergy intend for certain related transactions to qualify for tax-free treatment under U.S. federal, state and local tax law and/or foreign tax law.
If the distribution is determined to be taxable for U.S. federal income tax purposes, we and our shareholders that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities. For example, if the distribution fails to qualify for tax-free treatment, we would, for U.S. federal income tax purposes, be treated as if we had sold the Apergy common stock in a taxable sale for its fair market value, and our shareholders who are subject to U.S. federal income tax would be treated as receiving a taxable distribution in an amount equal to the fair market value of the Apergy common stock received in the distribution. In addition, if certain related transactions fail to qualify for tax-free treatment under U.S. federal, state and local tax law and/or foreign tax law, we could incur significant tax liabilities under U.S. federal, state, local and/or foreign tax law, respectively.
•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 discontinued operations may from time to time agree to indemnify us for operations of such businesses after the closing. We cannot be assured that any of these indemnification provisions will fully protect us, and as a result we may face unexpected liabilities that adversely affect our consolidated results of operations, financial condition and cash flows. In addition, we have retained certain liabilities directly or through indemnifications made to the buyers of businesses we have sold or disposed against known and unknown contingent liabilities such as tax liabilities and environmental matters.
In connection with the spin-off, Apergy agreed to indemnify us for any losses relating to the conduct of the Apergy business. There can be no assurance that the indemnity agreements will be sufficient to protect us against the full amount of any liabilities that may arise, or that the indemnitors will be able to fully satisfy their indemnification obligations. The failure to receive amounts for which we are entitled to indemnification could adversely affect our results of operations, cash flows and financial condition.
•Our reputation, ability to do business and results of operations may be impaired by improper conduct by any of our employees, agents, or business partners.
While we strive to maintain high standards, we cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by our employees, agents, or business partners that would violate United States and/or non-United States laws or fail to protect our confidential information, including the laws governing payments to government officials, bribery, fraud, anti-kickback and false claims, competition, export and import compliance, money laundering and data privacy, as well as the improper use of proprietary information or social media. Any such violations of law or improper actions could subject us to civil or criminal investigations in the United States and in other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penalties and related shareholder lawsuits, could lead to increased costs of compliance and could damage our reputation, our consolidated results of operations, financial condition and cash flows.
•Our revenue, operating profits and cash flows could be adversely affected if our businesses are unable to protect or obtain patent and other intellectual property rights.
Our businesses own patents, trademarks, licenses and other forms of intellectual property related to their products and continuously invest in research and development that may result in innovations and general intellectual property rights. Our businesses employ various measures to develop, maintain and protect their intellectual property rights. These measures may not be effective in capturing intellectual property rights, and they may not prevent their intellectual property from being challenged, invalidated, or circumvented, particularly in countries where intellectual property rights are not highly developed or protected. Unauthorized use of our businesses' intellectual property rights could adversely impact the competitive position of our businesses and could have a negative impact on our consolidated results of operations, financial condition and cash flows.
•If we experience work stoppages, union and works council campaigns and other labor disputes, our productivity and results of operations could be adversely impacted.
We have a number of collective bargaining units in the United States and various foreign collective labor arrangements. We are subject to potential work stoppages, union and works council campaigns and other labor disputes, any of which could adversely impact our productivity, reputation, consolidated results of operations, financial condition and cash flows.
The number, type, location and size of the properties used by our operations as of December 31, 2018 are shown in the following charts, by segment:
Number and nature of facilities
Square footage (in 000s)
Sales / Service
Refrigeration & Food Equipment
Expiration dates of leased facilities (in years)
Refrigeration & Food Equipment
Our owned and leased facilities are well-maintained and suitable for our operations.
ITEM 3. LEGAL PROCEEDINGS
A few of our subsidiaries are involved in legal proceedings relating to the cleanup of waste disposal sites identified under federal and state statutes which provide for the allocation of such costs among "potentially responsible parties." In each instance, the extent of the subsidiary’s liability appears to be relatively insignificant in relation to the total projected expenditures and the number of other "potentially responsible parties" involved and it is anticipated to be immaterial to us on a consolidated basis. In addition, a few of our subsidiaries are involved in ongoing remedial activities at certain plant sites, in cooperation with regulatory agencies, and appropriate reserves have been established. At December 31, 2018 and 2017, we have reserves totaling $31.8 million and $35.0 million, respectively, for environmental and other matters, including private party claims for exposure to hazardous substances, that are probable and estimable.
The Company and certain of its subsidiaries are also parties to a number of other legal proceedings incidental to their businesses. These proceedings primarily involve claims by private parties alleging injury arising out of use of the Company’s products, exposure to hazardous substances, patent infringement, employment matters and commercial disputes. Management and legal counsel, at least quarterly, review the probable outcome of such proceedings, the costs and expenses reasonably expected to be incurred and currently accrued to-date and consider the availability and extent of insurance coverage. The Company has reserves for other legal matters that are probable and estimable and at December 31, 2018 and 2017, these reserves are not significant. While it is not possible at this time to predict the outcome of these legal actions, in the opinion of management, based on the aforementioned reviews, the Company is not currently involved in any legal proceedings which, individually or in the aggregate, could have a material effect on its financial position, results of operations, or cash flows.
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 15, 2019, and their positions with Dover (and, where relevant, prior business experience) for the past five years, are as follows:
Positions Held and Prior Business Experience
Richard J. Tobin
President and Chief Executive Officer (since May 2018) and Director (since August 2016); prior thereto Chief Executive Officer (from 2013 to 2018) of CNH Industrial NV.
Ivonne M. Cabrera
Senior Vice President, General Counsel and Secretary of Dover (since January 2013); prior thereto Vice President, Deputy General Counsel, and Assistant Secretary of Dover (from November 2012 to December 2012); prior thereto Vice President, Business Affairs and General Counsel of Knowles Electronics, LLC (from February 2011 to December 2012); prior thereto Vice President (from May 2010 to February 2011), Deputy General Counsel and Assistant Secretary (from February 2004 to February 2011) of Dover.
Brad M. Cerepak
Senior Vice President and Chief Financial Officer (since May 2011) of Dover; prior thereto Vice President and Chief Financial Officer (from August 2009 to May 2011) of Dover.
Jay L. Kloosterboer
Senior Vice President, Human Resources (since May 2011) of Dover; prior thereto Vice President, Human Resources (from January 2009 to May 2011) of Dover.
William W. Spurgeon, Jr.
Vice President (since October 2004) of Dover and President and Chief Executive Officer (since February 2014) of Dover Fluids; prior thereto President and Chief Executive Officer (from August 2013 to February 2014) of Dover Engineered Systems; prior thereto President and Chief Executive Officer (from November 2011 to August 2013) of Dover Energy; prior thereto President and Chief Executive Officer (from July 2007 to November 2011) of Dover Fluid Management.
Vice President, Controller (since May 2017) of Dover; prior thereto Vice President and Chief Financial Officer (from February 2014 to May 2017) of Dover Engineered Systems; prior thereto Vice President and Chief Financial Officer (October 2011 to February 2014) of Dover's former Printing & Identification segment.
Senior Vice President and Chief Digital Officer (since May 2017) of Dover; prior thereto Senior Vice President/Chief Technology Officer and General Manager of the Marketplace Solutions Business of Altisource (from January 2014 to April 2017); prior thereto General Manager, Big Data Software Products and Chief Technology Officer, Datacenter Software of Intel Corporation (from January 2012 to January 2014).
Anthony K. Kosinski
Vice President, Tax (since June 2016) of Dover; prior thereto Director, Domestic Tax (June 2003 to June 2016) of Dover.
James M. Moran
Vice President, Treasurer (since November 2015) of Dover; prior thereto Senior Vice President and Treasurer (from June 2013 to August 2015) of Navistar International Corporation (“NIC”); prior thereto Vice President and Treasurer (from 2008 to June 2013) of NIC; also served as Senior Vice President and Treasurer of Navistar, Inc. (from June 2013 to August 2015) and Vice President and Treasurer of Navistar, Inc. (from 2008 to June 2013); also served as Senior Vice President and Treasurer of Navistar Financial Corporation (“NFC”) (from April 2013 to August 2015) and Vice President and Treasurer of NFC (from January 2013 to April 2013).
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.
The number of holders of record of Dover common stock as of February 1, 2019 was approximately 18,198. This figure includes participants in our domestic 401(k) program.
Securities Authorized for Issuance Under Equity Compensation Plans
Information regarding 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
Issuer Purchases of Equity Securities
In January 2015, the Board of Directors approved a standing share repurchase authorization, whereby the Company could repurchase up to 15,000,000 shares of its common stock over the following three years. During the year ended December 31, 2018, under the January 2015 authorization the Company purchased 440,608 shares of its common stock at a total cost of $45.0 million, or $102.08 per share. There were 5,271,168 shares available for repurchase under this authorization upon expiration. In February 2018, the Company's Board of Directors approved a new standing share repurchase authorization, whereby the Company may repurchase up to 20,000,000 shares of its common stock through December 31, 2020. This share repurchase authorization replaced the January 2015 share repurchase authorization.
On May 22, 2018, the Company entered into a $700 million accelerated share repurchase agreement (the “ASR Agreement”) with Goldman Sachs & Co. LLC (“Goldman Sachs”) pursuant to which it repurchased its shares in an accelerated share repurchase program (the “ASR Program”). The Company conducted the ASR Program under the February 2018 share repurchase authorization. The Company funded the ASR Program with funds received from Apergy in connection with the consummation of the Apergy spin-off. During 2018, the Company received a total of 8,542,566 shares under the ASR Agreement.
Additionally, during the year ended December 31, 2018, under the February 2018 authorization, exclusive of the ASR Agreement, the Company purchased 1,753,768 shares of its common stock at a total cost of $150.0 million, or $85.53 per share. As of December 31, 2018, the number of shares available for repurchase under the February 2018 share repurchase authorization was 9,703,666.
Together with other repurchases in December 2017 and over the course of 2018, the Company has completed the $1 billion of share repurchases it announced in November 2017.
The total number of shares purchased by month during the fourth quarter of 2018 were as follows:
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value in Thousands) of Shares that May Yet Be Purchased under the Plans or Program
February 2018 Program
October 1 to October 31
November 1 to November 30
December 1 to December 31
For the Fourth Quarter
(1)Under the terms of the ASR Agreement, the Company paid Goldman Sachs $700 million on May 24, 2018 and on that date received initial deliveries of 7,078,751 shares, representing a substantial majority of the shares expected to be retired over the course of the ASR Agreement. Upon final settlement of the ASR Agreement in December 2018, the Company received an additional 1,463,815 shares of its common stock which completed the ASR Program. The total number of shares ultimately repurchased under the ASR Agreement was based on the volume-weighted average share price (VWAP) of Dover’s common stock during the calculation period of the ASR Program, less a discount, which was $81.94 over the term of the ASR Program.
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, Old & New Peer Group Index
Total Shareholder Returns
Data Source: Research Data Group, Inc
+Total return assumes reinvestment of dividends.
This graph assumes $100 invested on December 31, 2013 in Dover common stock, the S&P 500 index and an old and new peer group index.
The 2018 new peer index consists of the following 30 public companies selected by Dover.
Fortive Corp. *
Gardner Denver Holdings Inc.
Carlisle Companies Inc.
Honeywell International Inc.
Regal Beloit Corp.
Colfax Corp. *
Rockwell Automation Inc.
Illinois Tool Works Inc.
SPX Flow Inc. *
ITT Inc. *
Teledyne Technologies Inc.
Eaton Corporation Plc
Johnson Controls International PLC
Emerson Electric Co.
Lennox International Inc.
The Timken Company
*We re-examined our Old Peer Group in light of the Apergy spin-off and adjusted our peer companies to better align with our current business profile. These companies were added to our New Peer Group index in 2018. The following companies in our
Old Peer Group are no longer included within the New Peer Group index: Amphenol Corp., Hubbell Incorporated, Roper Industries, SPX Corporation, United Technologies Corp., Vishay Intertechnology Inc., and Weatherford International PLC.
Total long-term debt, including current maturities
All results and data in the table above reflect continuing operations, unless otherwise noted. See Note 4 — Acquisitions and Note 5 — Discontinued and Disposed Operations in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information regarding the impact of 2018, 2017 and 2016 acquisitions and disposed and discontinued operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand our results of operations and financial condition for the three years ended December 31, 2018, 2017 and 2016. 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.
Dover is a diversified global manufacturer delivering innovative equipment and components, specialty systems, consumable supplies, software and digital solutions and support services through three operating segments: Engineered Systems, Fluids, and Refrigeration & Food Equipment.
For the year ended December 31, 2018, consolidated revenue from continuing operations was $7.0 billion, an increase of $0.2 billion or 2.5%, as compared to the prior year. This increase included organic revenue growth of 3.7%, a favorable impact of 0.8% from foreign currency, and acquisition-related growth of 0.5%, partially offset by a 2.5% impact from dispositions. Overall, customer pricing had a favorable impact of 1.0% on revenue for the year.
Within our Engineered Systems segment, revenue increased $75.0 million, or 2.8%, from the prior year, reflecting organic growth of 5.8%, a favorable impact from foreign currency of 1.5%, and acquisition-related growth of 0.1%, partially offset by a 4.6% impact from dispositions. Organic growth was broad-based across the segment with particular strength in our Printing & Identification platform and environmental solutions and defense businesses. Our Fluids segment revenue increased $242.3 million, or 9.5%, comprised of organic growth of 8.7%, acquisition-related growth of 0.7%, and a favorable foreign currency impact of 0.3%, partially offset by a 0.2% impact from dispositions. The organic growth was principally driven by strong activity in international retail fueling, industrial pumps and other industrial markets. Within our Refrigeration & Food Equipment segment, revenue decreased $146.0 million, or 9.1%, from the prior year, including an organic revenue decline of 7.9% and a decline of 2.6% due to a disposition, partially offset by a favorable impact from foreign currency translation of 0.7% and acquisition-related growth of 0.7%. The organic decline was driven primarily by continued weak retail refrigeration markets, especially with respect to refrigerated door cases.
Gross profit was $2.6 billion for the year ended December 31, 2018, an increase of $30.5 million, or 1.2%, as compared to the prior year. The increase was primarily due to growth in sales volumes as well as the benefits of prior restructuring actions, partially offset by lost gross profit from divestitures. Gross profit margin was 36.6% for the year ended December 31, 2018 compared to 37.1% for the prior year primarily as a result of unfavorable product mix and rising material costs in our Refrigeration and Food Equipment segment and the impact of inefficiencies due to facility consolidations principally in our Fluids segment. 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 5.1% over the prior year to $7.3 billion for the year ended December 31, 2018. Included in this result was a 5.3% increase in organic bookings, a 1.7% favorable impact due to foreign exchange rates, and a 0.5% increase in acquisition-related bookings, which were partially offset by a 2.4% decline due to dispositions. Bookings increased 11.0% and 6.3% within our Fluids and Engineered Systems segments, respectively, while bookings in our Refrigeration & Food Equipment segment decreased 6.8%. Overall, our book-to-bill increased from the prior year to 1.04. Backlog as of December 31, 2018 was $1.4 billion, up from $1.2 billion from the prior year. Backlog as of December 31, 2018 included $0.6 billion, $0.5 billion and $0.3 billion in the Engineered Systems, Fluids and Refrigeration and Food Equipment segments, respectively.
From a geographic perspective, revenue for the U.S., our largest market, grew by 2.1% organically over the prior year, where broad-based growth in Engineered Systems and Fluids was partially offset by our retail refrigeration business in the Refrigeration and Food Equipment segment, which is primarily a domestic business. Asia and Europe also grew organically by 15.2% and 2.7%, respectively, over the prior year.
On May 9, 2018, the Company completed the separation of Apergy Corporation ("Apergy") from Dover through the pro rata distribution of 100% of the common stock of Apergy to Dover's shareholders of record as of the close of business on April 30, 2018. Each Dover shareholder received one share of Apergy common stock for every two shares of Dover common stock held as of the record date. As a result, Apergy became an independent, publicly traded company listed on the New York Stock Exchange, and Dover retained no ownership interest in Apergy. The distribution was structured to be tax-free to Dover and its shareholders for U.S. federal income tax purposes. Apergy holds entities conducting the upstream energy businesses previously included within our Energy segment. Following the spin-off, effective the second quarter of 2018, the Company no longer has the Energy segment and is aligned into three reportable segments. The retained Precision Components (Bearings & Compression) and Tulsa Winch Group businesses, which were historically reported within the Energy segment, became a part of the Fluids and Engineered Systems segments, respectively. See Note 2 Spin-off of Apergy Corporation and Note 5 — Discontinued and Disposed Operations in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information regarding the spin off of Apergy.
During the year ended December 31, 2018, we executed several programs in order to further optimize operations. Rightsizing programs in 2018 included 1) alignment of our cost structure in preparation for the Apergy separation, 2) broad-based selling, general and administrative expense reduction initiatives and 3) initiation of footprint consolidation actions. We recorded rightsizing and other related costs of $72.8 million for the year ended December 31, 2018, which was comprised of $56.1 million of rightsizing costs and $16.7 million of other charges. These costs primarily related to actions taken for employee reductions, facility consolidations and site closures and product line divestitures and other asset charges designed to increase operating margin, enhance operations and position us for sustained growth and investment. These charges were broad based across all segments as well as corporate, with costs incurred of $19.9 million in Engineered Systems, $28.7 million in Fluids, $10.0 million in Refrigeration & Food Equipment, and $14.2 million at Corporate. These charges were recorded in cost of goods and services, selling, general and administrative expenses, and other expense (income), net, in the Consolidated Statement of Earnings. We expect to incur total future charges of approximately $20 million related to completion of our selling, general and administrative expense reduction actions and continuation of our footprint consolidation initiatives, approximately $15 million which will be incurred during the year ended December 31, 2019 and approximately $5 million of which we expect to incur in 2020.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the U.S. bill commonly referred to as the Tax Cuts and Jobs Act (“Tax Reform Act”). In accordance with the SAB 118 guidance, we recognized the provisional tax impacts related to deemed repatriated earnings and the benefit for the revaluation of deferred tax assets and liabilities in our consolidated financial statements for the year ended December 31, 2017. In accordance with SAB 118, we finalized the financial reporting impact of the Tax Reform Act in the fourth quarter of 2018. For the year ended December 31, 2018, we recorded a net tax benefit of $4.2 million which resulted in a 0.6% decrease in effective tax rate, as an adjustment to provisional estimates as a result of additional regulatory guidance and changes in interpretations and assumptions we made as a result of the Tax Reform Act. On a full year basis, the effective tax rate for 2018 was 18.5%, inclusive of the SAB 118 amounts.
During the year ended December 31, 2018, we made a total of two acquisitions totaling $68.6 million, net of cash acquired. We completed the acquisition of Ettlinger Group ("Ettlinger"), a leading manufacturer of filtering solutions for the plastics recycling industry for $53.2 million, net of cash acquired. Ettlinger enhances our ability to serve the Process Solutions end market within our Fluids segment. We also completed the acquisition of Rosario Handel B.V. ("Rosario"), a manufacturer of decorator and base coating machinery used in the production of beverage, food and aerosol cans for total consideration of $15.3 million, net of cash acquired. Rosario enhances our ability to serve the Food Equipment end market within our Refrigeration & Food Equipment segment. See Note 4 — Acquisitions in the Consolidated Financial Statements in Item 8 of this Form 10-K for further details regarding the businesses acquired during the year. Subsequently, in January 2019, we acquired Belanger, Inc. ("Belanger"), a leading full-line car wash equipment manufacturer, for approximately $180 million. Belanger strengthens our position in the Fueling & Transport end market within our Fluids segment.
During the year ended December 31, 2018, we purchased 10.7 million shares of our common stock for a total cost of $895.0 million, or $83.35 per share. Together with other repurchases in December 2017, we have completed the $1 billion of share repurchases announced in November 2017. As of December 31, 2018, 9,703,666 shares remain authorized for repurchase under our current share repurchase authorization. We also continued our 63 year history of increasing our annual dividend payments to shareholders and paid a total of $283.6 million in dividends to our shareholders.
Selling, general and administrative expenses as a percent of revenue
Other income, net
Gain on sale of businesses
Provision for income taxes
Effective tax rate
Earnings from continuing operations
(Loss) earnings from discontinued operations, net
Earnings from continuing operations per common share - diluted
(Loss) earnings from discontinued operations per common share -diluted
* nm: not meaningful
For the year ended December 31, 2018, revenue increased $171.2 million, or 2.5% to $7.0 billion compared with 2017, reflecting organic growth of 3.7% led by our Fluids and Engineered Systems segments, partially offset by our Refrigeration and Food Equipment segment, acquisition-related growth of 0.5% from our Fluids and Refrigeration and Food Equipment segments and a favorable impact from foreign currency translation of 0.8%. Revenue growth was partially offset by a 2.5% impact from dispositions within our Engineered Systems segment. Customer pricing favorably impacted revenue by approximately 1.0% in 2018.
For the year ended December 31, 2017, revenue increased $777.7 million, or 12.9% to $6.8 billion compared with 2016, reflecting a growth from acquisitions of 10.9%, an organic growth of 4.6%, and a favorable impact of 0.5% from foreign currency translation, offset by a decline from dispositions of 3.1%. Acquisition-related growth of 10.9% was led by the Fluids and Engineered Systems segments, largely due to the full-year benefit from the 2016 acquisitions of Wayne Fueling Systems Ltd. ("Wayne") within our Fluids segment and Ravaglioli S.p.A Group ("RAV") within our Engineered Systems segment, as well as the 2017 acquisition of Caldera Graphics S.A.S. ("Caldera") within our Engineered Systems segment. Growth in organic revenue was largely driven by strong broad-based activity in the Engineered Systems segment. Organic growth also reflected strong shipments in our Pumps and Process Solutions businesses in the Fluids segment and solid retail refrigeration activity in the Refrigeration & Food Equipment segment. Overall customer pricing was favorable, impacting consolidated revenue 0.6%.
For the year ended December 31, 2018, gross profit increased $30.5 million, or 1.2%, to $2.6 billion compared with 2017, primarily due to growth in sales volumes and benefits of prior restructuring actions, partially offset by the loss of gross profits due to divestitures. Gross profit margin decreased 50 basis points as compared to the prior year, due to unfavorable product mix and rising material costs in our Refrigeration and Food Equipment segment and the impact of inefficiencies due to facility consolidations principally in our Fluids segment.
For the year ended December 31, 2017, gross profit increased $301.5 million, or 13.5% to $2.5 billion compared with 2016, primarily due to growth in sales volumes and benefits of prior restructuring actions as well as a reduction of a product recall accrual of $7.2 million compared to a fourth quarter 2016 charge of $23.2 million. Gross profit margin increased 20 basis points compared with 2016.
Selling, General and Administrative Expenses
For the year ended December 31, 2018, selling, general and administrative expenses decreased $5.7 million, or 0.3% to $1.7 billion compared with 2017, primarily due to benefits from prior restructuring actions and decreases from dispositions within our Engineered Systems segment, offset by an increase in restructuring costs of $6.0 million. As a percentage of revenue, selling, general and administrative expenses decreased 50 basis points in 2018 to 24.5%, reflecting the leverage of costs on a higher revenue base and the decrease in expenses.
For the year ended December 31, 2017, selling, general and administrative expenses increased $203.6 million, or 13.4% to $1.7 billion compared with 2016 primarily reflecting the impact of acquisitions in 2017, including acquisition-related amortization expense of $18.0 million, higher restructuring charges of $15.9 million, disposition-related costs for Warn of $5.2 million and increased compensation costs. As a percentage of revenue, selling, general and administrative expenses remained consistent with 2016 at approximately 25%.
For the year ended December 31, 2018, interest expense, net of interest income, decreased $14.4 million, or 10.5%, to $122.1 million compared with 2017 due to the $350 million 5.45% 10-year notes that were paid in March 2018 that resulted in lower outstanding long-term debt and lower interest expense compared to 2017.
For the year ended December 31, 2017, interest expense, net of interest income, increased $7.2 million, or 5.6%, to $136.5 million compared with 2016 due to the full year impact of the fourth quarter 2016 issuance of the €600 million of 1.25% euro-denominated notes and higher interest rates on commercial paper in 2017.
Other income, net
For the years ended December 31, 2018, 2017 and 2016, other income, net was $4.4 million, $2.3 million and $8.3 million, respectively. For the year ended December 31, 2018, other income was primarily driven by non-operating gains from our defined benefit and post-retirement benefit plans of $5.8 million. For the year ended December 31, 2017, other income was primarily due to non-operating gains from our defined benefit and post-retirement benefit plans of $8.6 million partially offset by $6.9 million foreign exchange losses resulting from the re-measurement and settlement of foreign currency denominated balances. For the year ended December 31, 2016, other income was primarily due to earnings on equity method investments of $3.3 million and net foreign exchange gains of $3.6 million.
Gain on sale of businesses
There were no significant dispositions in 2018 aside from the spin-off of Apergy, whose results are presented as discontinued operations.
For the year ended December 31, 2017, gain on sale of businesses was $203.1 million. The gain was primarily due to the sales of PMI and the consumer and industrial winch business of Warn ("Warn"), both within the Engineered Systems segment, in which we recognized gains on sale of $88.4 million and $116.9 million, respectively. Other immaterial dispositions completed during the year were recorded as a net loss of $2.2 million.
For the year ended December 31, 2016, gain on sale of businesses was $96.6 million. The gain was primarily due to the sales of Texas Hydraulics ("THI"), a custom manufacturer of fluid power components within the Engineered Systems segment, and Tipper Tie, a global supplier of processing and clip packaging machines within the Refrigeration & Food Equipment segment. Upon disposal of THI and Tipper Tie, we recognized gains on sale of $11.9 million and $85 million, respectively.
The disposals in 2017 and 2016 did not represent strategic shifts in operations and, therefore, did not qualify for presentation as discontinued operations.
Our businesses span the globe with 52.5%, 37.8% and 38.2% of our pre-tax earnings in 2018, 2017 and 2016, respectively, generated in foreign jurisdictions. Foreign earnings are generally subject to local country tax rates that differ from the 21.0% U.S. statutory tax rate. As a result of our non-U.S. business locations, our effective foreign tax rate is typically lower than the U.S. statutory tax rate.
Our effective tax rate was 18.5% for the year ended December 31, 2018, compared to 14.7% for the year ended December 31, 2017. The 2018 and 2017 rates were impacted by $24.0 million and $51.7 million, respectively, of favorable net discrete items, inclusive of the impact recorded for the U.S. Tax Reform Act in 2017 and the SAB 118 adjustment in 2018, as described below.
On December 22, 2017, the Tax Reform Act was enacted which reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the reduction in the U.S. corporate income tax rate, we revalued our ending net deferred tax liabilities as of December 31, 2017 and recognized a provisional tax benefit of $172.0 million. The Tax Reform Act also imposed a tax for a one-time deemed repatriation of post-1986 unremitted foreign earnings and profit through the year ended December 31, 2017. For the year ended December 31, 2017, we recorded provisional tax expense related to the deemed repatriation of $111.6 million payable over eight years.
On December 22, 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. In accordance with the SAB 118 guidance, we recognized the provisional tax impacts related to deemed repatriated earnings and the benefit for the revaluation of deferred tax assets and liabilities in our consolidated financial statements for the year ended December 31, 2017. In accordance with SAB 118, we finalized the financial reporting impact of the Tax Reform Act in the fourth quarter of 2018. For the year ended December 31, 2018, we recorded a $4.2 million net tax benefit, which resulted in a 0.6% decrease in the effective tax rate, as an adjustment to provisional estimates as a result of additional regulatory guidance and changes in interpretations and assumptions the Company has made as a result of the Tax Reform Act.
For the year ended December 31, 2016, our effective tax rate on continuing operations was 26.7%. The effective tax rate was impacted by favorable net discrete items totaling $13.6 million, principally related to settlements of uncertain tax matters.
We believe it is reasonably possible during the next twelve months that uncertain tax positions may be settled, which could result in a decrease in the gross amount of unrecognized tax benefits. This decrease may result in an income tax benefit. Due to the potential for resolution of federal, state, and foreign examinations and the expiration of various statutes of limitation, our gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to$12.5 million. We believe adequate provision has been made for all income tax uncertainties.
Earnings from Continuing Operations
For the year ended December 31, 2018, earnings from continuing operations decreased $155.5 million, or 20.8%, to $591.1 million, or EPS of $3.89, compared with earnings from continuing operations of $746.7 million, or EPS of $4.73, for the year ended December 31, 2017. Earnings decreased primarily because we did not record any gains from dispositions in 2018 compared to 2017 when we recorded net gains from dispositions of $172.6 million, or EPS of $1.09. In 2018, we recorded a net tax benefit primarily from the Tax Reform Act of $4.2 million, or EPS of $0.03, whereas in 2017 we recorded a net tax benefit of $54.9 million, or EPS of $0.35. The 2018 results included after-tax rightsizing and other costs of $58.3 million, or EPS of $0.38, whereas 2017 included rightsizing and other costs of $34.6 million, or EPS of $0.22. Excluding these items in both years, earnings from continuing operations increased $91.4 million, or 16.5%, in 2018 as a result of higher earnings due to increased sales volumes. Diluted earnings per share improved due to the benefit of the share repurchase programs announced in November 2017.
For the year ended December 31, 2017, earnings from continuing operations increased $244.5 million, or 48.7%, to $746.7 million, or EPS of $4.73, compared with earnings from continuing operations of $502.1 million, or EPS of $3.21, for the year ended December 31, 2016. The 2017 results include a net benefit of $172.6 million, or EPS of $1.09 from dispositions, a net tax benefit primarily from the Tax Reform Act of $54.9 million, or EPS of $0.35, after-tax rightsizing and other costs of $34.6 million or EPS of $0.22 and a net benefit of $4.6 million, or EPS of $0.03, from a reduction to a previously recorded product recall accrual.
The results of discontinued operations for December 31, 2018, 2017 and 2016 include the historical results of Apergy prior to its distribution on May 9, 2018. The years ended December 31, 2018 and 2017 included costs incurred by Dover to complete the spin-off of Apergy amounting to $46.4 million and $15.3 million, respectively, reflected in selling, general and administrative expenses in discontinued operations. Due to lump-sum payments made in 2018 for Apergy participants in the Dover U.S. Pension Plan, non-cash settlement costs of approximately $9.2 million were classified within discontinued operations.
Refer to Note 5 — Discontinued and Disposed Operations in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information on disposed and discontinued operations.
2018 Restructuring Activities
During the year ended December 31, 2018, we executed several programs in order to further optimize operations. Rightsizing programs in 2018 included 1) alignment of our cost structure in preparation for the Apergy separation, 2) broad-based selling, general and administrative expense reduction initiatives and 3) initiation of footprint consolidation actions. The Company incurred $58.5 million of restructuring charges for the year ended December 31, 2018, including a $22.1 million charge in the fourth quarter of 2018 for rightsizing costs related to the selling, general and administrative expense reduction initiative which began in the third quarter of 2018 and the footprint consolidation initiative which started in the fourth quarter of 2018. The restructuring programs are described below.
•The Engineered Systems segment recorded $21.0 million of restructuring charges related to programs across the segment focused on headcount reductions and manufacturing plant consolidation.
•The Fluids segment recorded $25.7 million of restructuring charges principally related to headcount reductions and manufacturing plant and facility consolidations, focused on achieving long-term footprint optimization.
•The Refrigeration & Food Equipment segment recorded $3.5 million of restructuring charges primarily due to headcount reductions, product exit and manufacturing plant consolidation.
•Corporate recorded $8.2 million of restructuring charges primarily related to headcount reductions.
The Apergy-related rightsizing programs previously announced in the fourth quarter of 2017 were completed in 2018. The third quarter selling, general and administrative rightsizing programs were substantially completed in 2018 with benefits realized in the second half of 2018 and expected into 2019. We commenced footprint consolidation initiatives in late 2018 and expect to continue to incur costs through 2020, with partial benefits beginning in 2019 and extending into 2020 and 2021 due to the long nature of the programs.
The Company incurred $52.3 million of restructuring charges for the year ended December 31, 2017, including the programs described below.
•The Engineered Systems segment recorded $12.1 million of restructuring charges related to programs across the segment focused on headcount reductions and various site and product line moves and exits to lower ongoing operating expenses.
•The Fluids segment recorded $16.3 million of restructuring charges as a result of programs and projects across the segment, principally related to headcount reductions and facility consolidations, principally focused on achieving acquisition integration benefits.
•The Refrigeration & Food Equipment segment recorded restructuring charges of $14.1 million, related to headcount reductions, facility consolidations and product line exits, primarily within its Refrigeration business to improve margin performance.
•Corporate recorded $9.8 million of restructuring charges primarily related to headcount reductions, corporate office consolidation and a shared facility exit in South America.
Restructuring initiatives in 2016 included targeted facility consolidations at certain businesses, headcount reductions and actions taken to optimize the Company's cost structure. We incurred restructuring charges of $25.0 million for the year ended December 31, 2016 relating to such activities. See Note 10 — Restructuring Activities in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional details regarding our recent restructuring activities.
The summary that follows provides a discussion of the results of operations of each of our three reportable operating segments (Engineered Systems, Fluids, and Refrigeration & Food Equipment). Each of these segments is comprised of various product and service offerings that serve multiple end markets. See Note 18 — 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, earnings from continuing operations and margin. Segment EBITDA and segment EBITDA margin, which are presented in the segment discussion that follows, are non-GAAP measures and do not purport to be alternatives to operating income as a measure of operating performance. We believe that these 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.
Our Engineered Systems segment is comprised of two platforms, Printing & Identification and Industrials, and is focused on the design, manufacture and service of critical equipment and components serving the fast-moving consumer goods, digital textile printing, vehicle service, environmental solutions and industrial end markets.
Engineered Systems segment revenue for the year ended December 31, 2018 increased $75.0 million, or 2.8% compared to the prior year, comprised of broad-based organic growth of 5.8% and a favorable impact from foreign currency translation of 1.5%. This increase was partially offset by a 4.6% decrease from the dispositions of PMI in the first quarter of 2017 and the consumer and industrial winch business of Warn in the fourth quarter of 2017. Customer pricing favorably impacted revenue by approximately 1.3% in 2018.
•Printing & Identification revenue (representing 42.4% of segment revenue) increased $68.4 million, or 6.3%, compared to the prior year. The increase is comprised primarily of organic revenue growth of 4.4% and a favorable impact from foreign currency translation of 1.7%. Organic revenue growth was led by strong activity in our digital printing businesses, complemented by growth in our marking and coding businesses.
•Industrials revenue (representing 57.6% of segment revenue) increased $6.5 million, or 0.4%, compared to the prior year. The increase reflects organic revenue growth of 6.8% and a favorable impact of foreign currency translation of 1.3% partially offset by the impact of the PMI and Warn dispositions of 7.6%. Organic revenue growth was broad-based, with particular strength in our environmental solutions, industrial winch, and defense/commercial aerospace businesses.
Engineered Systems segment earnings for the year ended December 31, 2018 decreased $153.2 million, or 25.3%, compared to the prior year. The decline in earnings was impacted by 1) a gain of $205.3 million recognized in 2017 from the sales of PMI and Warn; 2) lost earnings of $25.6 million, offset by disposition costs of $5.2 million, associated with 2017 divestitures; and 3) incremental restructuring costs in 2018 of $9.0 million. Excluding these non-operational, non-recurring items, segment earnings increased by $81.5 million, or 20.8%. This increase was primarily driven by solid conversion on organic volume growth, favorable pricing and productivity initiatives including the benefits of prior year and current year restructuring initiatives, as well as the net benefit of an earn-out reversal recorded in the second quarter of 2018. Partially offsetting this favorable operational performance were increases in material costs, primarily driven by U.S. Section 232 tariffs, most notably commodity cost increases impacting steel, and Section 301 tariffs. Segment margin decreased from 22.7% to 16.5% as compared to the prior year primarily due to the gain from the sales of PMI and Warn, lost earnings and disposition costs from 2017 divested businesses and incremental restructuring costs. Excluding these items, margins increased 188 basis points from 15.3% to 17.2 % from the prior year.
Segment bookings for the year ended December 31, 2018 increased 6.3% compared to the prior year. Bookings for our Industrials platform for the year ended December 31, 2018 increased 7.8%, compared to the prior year, due primarily to organic growth in our environmental solutions and vehicle services businesses, partially offset by divestiture impacts of Warn and PMI. Our Printing & Identification bookings for the year ended December 31, 2018 increased 4.0%, compared to the prior year, driven by strong activity in our marking and coding and digital printing businesses. Segment book-to-bill was 1.06.
2017 Versus 2016
Engineered Systems segment revenue for the year ended December 31, 2017 increased $221.3 million, or 9.0%, compared to the prior year, primarily driven by acquisition-related growth of 6.5% from RAV and Alliance Wireless Technologies ("AWTI") in the fourth quarter 2016 and Caldera in the second quarter of 2017, and broad-based organic growth of 5.9%. This increase was also driven by a favorable impact from foreign currency translation of 0.8%, partially offset by a 4.2% impact from dispositions. Customer pricing favorably impacted revenue by approximately 0.3% in 2017.
•Printing & Identification revenue (representing 41.0% of 2017 segment revenue) increased $71.5 million, or 7.0%, compared to the prior year. Organic revenue of 4.6%, acquisition-related growth of 0.9% from Caldera and a favorable impact from foreign currency translation of 1.5% all contributed to year over year growth. Organic revenue growth was driven by our marking and coding and digital printing businesses.
•Industrials revenue (representing 59.0% of 2017 segment revenue) increased $149.8 million, or 10.5%, compared to the prior year. The increase reflects acquisition-related growth of 10.5% from the RAV and AWTI acquisitions, organic revenue growth of 6.8% and a favorable impact from foreign currency translation of 0.4%. This increase was partially offset by the impact of dispositions of 7.2%. Organic revenue growth was broad-based, with particular strength in our environmental solutions business.
Engineered Systems segment earnings for the year ended December 31, 2017 increased $205.3 million, or 51.4%, compared to the prior year. The increase was primarily driven by $193.4 million of incremental gains on the sale of divested businesses including Warn and PMI in 2017 and THI in 2016, partially offset by $17.3 million of lower earnings due to divested businesses, $8.0 million of incremental restructuring expenses and $5.2 million of Warn divestiture costs. Excluding these items, segment earnings increased $42.2 million or 11.3% compared to the prior year driven by leverage on organic growth in our marking and coding and industrial businesses, partially offset by increases in material costs, most notably steel, and key strategic investments. Segment margin increased from 16.3% to 22.7% as compared to the prior year primarily due to the 2017 gains on dispositions.
Our Fluids segment, serving the Fueling & Transport, Pumps, and Process Solutions end markets, is focused on the safe handling of critical fluids, and providing critical components to the retail fueling, chemical, hygienic, oil and gas, power generation and industrial end markets. In the second quarter of 2018, we aligned our financial reporting around these three key end markets to provide more detailed information after the spin-off of the Apergy business.