DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue
|
$
|
1,993,351
|
|
|
$
|
1,686,345
|
|
|
$
|
3,806,723
|
|
|
$
|
3,308,618
|
|
Cost of goods and services
|
1,243,905
|
|
|
1,055,132
|
|
|
2,396,103
|
|
|
2,088,141
|
|
Gross profit
|
749,446
|
|
|
631,213
|
|
|
1,410,620
|
|
|
1,220,477
|
|
Selling, general and administrative expenses
|
484,046
|
|
|
437,411
|
|
|
969,336
|
|
|
880,859
|
|
Operating earnings
|
265,400
|
|
|
193,802
|
|
|
441,284
|
|
|
339,618
|
|
Interest expense
|
36,932
|
|
|
33,779
|
|
|
73,341
|
|
|
67,097
|
|
Interest income
|
(2,338
|
)
|
|
(1,622
|
)
|
|
(4,918
|
)
|
|
(3,226
|
)
|
Gain on sale of businesses
|
—
|
|
|
(801
|
)
|
|
(90,093
|
)
|
|
(12,029
|
)
|
Other expense (income), net
|
15
|
|
|
(2,053
|
)
|
|
191
|
|
|
(4,347
|
)
|
Earnings before provision for income taxes
|
230,791
|
|
|
164,499
|
|
|
462,763
|
|
|
292,123
|
|
Provision for income taxes
|
66,733
|
|
|
46,209
|
|
|
126,458
|
|
|
74,477
|
|
Net earnings
|
$
|
164,058
|
|
|
$
|
118,290
|
|
|
$
|
336,305
|
|
|
$
|
217,646
|
|
Net earnings per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
1.05
|
|
|
$
|
0.76
|
|
|
$
|
2.16
|
|
|
$
|
1.40
|
|
Diluted
|
$
|
1.04
|
|
|
$
|
0.76
|
|
|
$
|
2.14
|
|
|
$
|
1.39
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
155,703
|
|
|
155,180
|
|
|
155,622
|
|
|
155,122
|
|
Diluted
|
157,513
|
|
|
156,595
|
|
|
157,457
|
|
|
156,414
|
|
Dividends paid per common share
|
$
|
0.44
|
|
|
$
|
0.42
|
|
|
$
|
0.88
|
|
|
$
|
0.84
|
|
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net earnings
|
$
|
164,058
|
|
|
$
|
118,290
|
|
|
$
|
336,305
|
|
|
$
|
217,646
|
|
Other comprehensive earnings (loss), net of tax
|
|
|
|
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
Foreign currency translation gains (losses) during period
|
26,174
|
|
|
(41,992
|
)
|
|
66,071
|
|
|
(33,223
|
)
|
Reclassification of foreign currency translation losses to earnings upon sale of subsidiaries
|
—
|
|
|
—
|
|
|
3,875
|
|
|
—
|
|
Total foreign currency translation adjustments
|
26,174
|
|
|
(41,992
|
)
|
|
69,946
|
|
|
(33,223
|
)
|
Pension and other post-retirement benefit plans:
|
|
|
|
|
|
|
|
Amortization of actuarial losses included in net periodic pension cost
|
1,353
|
|
|
1,416
|
|
|
2,691
|
|
|
2,825
|
|
Amortization of prior service costs included in net periodic pension cost
|
702
|
|
|
1,040
|
|
|
1,404
|
|
|
2,081
|
|
Total pension and other post-retirement benefit plans
|
2,055
|
|
|
2,456
|
|
|
4,095
|
|
|
4,906
|
|
Changes in fair value of cash flow hedges:
|
|
|
|
|
|
|
|
Unrealized net (losses) arising during period
|
(1,876
|
)
|
|
(162
|
)
|
|
(1,798
|
)
|
|
(211
|
)
|
Net losses (gains) reclassified into earnings
|
159
|
|
|
213
|
|
|
(58
|
)
|
|
166
|
|
Total cash flow hedges
|
(1,717
|
)
|
|
51
|
|
|
(1,856
|
)
|
|
(45
|
)
|
Other
|
(578
|
)
|
|
(448
|
)
|
|
(241
|
)
|
|
1,392
|
|
Other comprehensive earnings (loss)
|
25,934
|
|
|
(39,933
|
)
|
|
71,944
|
|
|
(26,970
|
)
|
Comprehensive earnings
|
$
|
189,992
|
|
|
$
|
78,357
|
|
|
$
|
408,249
|
|
|
$
|
190,676
|
|
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Assets
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
301,588
|
|
|
$
|
349,146
|
|
Receivables, net of allowances of $33,176 and $22,015
|
1,395,745
|
|
|
1,265,201
|
|
Inventories
|
962,070
|
|
|
870,487
|
|
Prepaid and other current assets
|
100,181
|
|
|
104,357
|
|
Total current assets
|
2,759,584
|
|
|
2,589,191
|
|
Property, plant and equipment, net
|
978,621
|
|
|
945,670
|
|
Goodwill
|
4,564,266
|
|
|
4,562,677
|
|
Intangible assets, net
|
1,757,675
|
|
|
1,802,923
|
|
Other assets and deferred charges
|
232,277
|
|
|
215,530
|
|
Total assets
|
$
|
10,292,423
|
|
|
$
|
10,115,991
|
|
Liabilities and Stockholders' Equity
|
Current liabilities:
|
|
|
|
|
|
Notes payable and current maturities of long-term debt
|
$
|
606,965
|
|
|
$
|
414,550
|
|
Accounts payable
|
954,115
|
|
|
830,318
|
|
Accrued compensation and employee benefits
|
211,728
|
|
|
226,440
|
|
Accrued insurance
|
106,186
|
|
|
96,062
|
|
Other accrued expenses
|
322,347
|
|
|
332,595
|
|
Federal and other income taxes
|
14,005
|
|
|
40,353
|
|
Total current liabilities
|
2,215,346
|
|
|
1,940,318
|
|
Long-term debt
|
2,925,472
|
|
|
3,206,637
|
|
Deferred income taxes
|
630,079
|
|
|
710,173
|
|
Other liabilities
|
449,092
|
|
|
459,117
|
|
Stockholders' equity:
|
|
|
|
|
|
Total stockholders' equity
|
4,072,434
|
|
|
3,799,746
|
|
Total liabilities and stockholders' equity
|
$
|
10,292,423
|
|
|
$
|
10,115,991
|
|
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock $1 Par Value
|
|
Additional Paid-In Capital
|
|
Treasury Stock
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Loss
|
|
Total Stockholders' Equity
|
Balance at December 31, 2016
|
$
|
256,538
|
|
|
$
|
946,755
|
|
|
$
|
(4,972,016
|
)
|
|
$
|
7,927,795
|
|
|
$
|
(359,326
|
)
|
|
$
|
3,799,746
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
336,305
|
|
|
—
|
|
|
336,305
|
|
Dividends paid
|
—
|
|
|
—
|
|
|
—
|
|
|
(137,182
|
)
|
|
—
|
|
|
(137,182
|
)
|
Common stock issued for the exercise of share-based awards
|
308
|
|
|
(12,336
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,028
|
)
|
Share-based compensation expense
|
—
|
|
|
17,469
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,469
|
|
Other comprehensive earnings, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
71,944
|
|
|
71,944
|
|
Other, net
|
—
|
|
|
(3,820
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,820
|
)
|
Balance at June 30, 2017
|
$
|
256,846
|
|
|
$
|
948,068
|
|
|
$
|
(4,972,016
|
)
|
|
$
|
8,126,918
|
|
|
$
|
(287,382
|
)
|
|
$
|
4,072,434
|
|
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
Operating Activities:
|
|
|
|
Net earnings
|
$
|
336,305
|
|
|
$
|
217,646
|
|
Adjustments to reconcile net earnings to cash from operating activities:
|
|
|
|
Depreciation and amortization
|
193,016
|
|
|
176,698
|
|
Stock-based compensation expense
|
17,469
|
|
|
14,360
|
|
Gain on sale of assets
|
(910
|
)
|
|
(1,530
|
)
|
Gain on sale of businesses
|
(90,093
|
)
|
|
(11,228
|
)
|
Cash effect of changes in assets and liabilities:
|
|
|
|
Accounts receivable, net
|
(106,927
|
)
|
|
429
|
|
Inventories
|
(93,132
|
)
|
|
(16,429
|
)
|
Prepaid expenses and other assets
|
(7,238
|
)
|
|
(5,449
|
)
|
Accounts payable
|
97,677
|
|
|
5,377
|
|
Accrued compensation and employee benefits
|
(21,399
|
)
|
|
(42,534
|
)
|
Accrued expenses and other liabilities
|
(38,169
|
)
|
|
16,135
|
|
Accrued and deferred taxes, net
|
(28,420
|
)
|
|
11,746
|
|
Other, net
|
(24,231
|
)
|
|
(23,940
|
)
|
Net cash provided by operating activities
|
233,948
|
|
|
341,281
|
|
Investing Activities:
|
|
|
|
|
|
Additions to property, plant and equipment
|
(90,594
|
)
|
|
(72,652
|
)
|
Acquisitions, net of cash and cash equivalents acquired
|
(25,568
|
)
|
|
(475,236
|
)
|
Proceeds from sale of property, plant and equipment
|
4,479
|
|
|
5,804
|
|
Proceeds from sale of businesses
|
121,175
|
|
|
47,300
|
|
Other
|
21,151
|
|
|
(488
|
)
|
Net cash provided by (used in) investing activities
|
30,643
|
|
|
(495,272
|
)
|
Financing Activities:
|
|
|
|
|
|
Proceeds from exercise of share-based awards, including tax benefits
|
—
|
|
|
3,966
|
|
Change in commercial paper and notes payable
|
(157,444
|
)
|
|
185,556
|
|
Dividends paid to stockholders
|
(137,182
|
)
|
|
(131,253
|
)
|
Payments to settle employee tax obligations on exercise of share-based awards
|
(12,028
|
)
|
|
(7,440
|
)
|
Other
|
(2,912
|
)
|
|
—
|
|
Net cash (used in) provided by financing activities
|
(309,566
|
)
|
|
50,829
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(2,583
|
)
|
|
(3,883
|
)
|
Net decrease in cash and cash equivalents
|
(47,558
|
)
|
|
(107,045
|
)
|
Cash and cash equivalents at beginning of period
|
349,146
|
|
|
362,185
|
|
Cash and cash equivalents at end of period
|
$
|
301,588
|
|
|
$
|
255,140
|
|
See Notes to Condensed Consolidated Financial Statements
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
1. Basis of Presentation
The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim periods and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements. These unaudited interim Condensed Consolidated Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and Notes for Dover Corporation ("Dover" or the "Company") for the year ended
December 31, 2016
, included in the Company's Annual Report on Form 10-K filed with the SEC on February 10, 2017. The year end Condensed Consolidated Balance Sheet was derived from audited financial statements. Certain amounts in the prior year have been reclassified to conform to the current year presentation.
The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect amounts reported in the Condensed Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates. The Condensed Consolidated Financial Statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair statement of results for these interim periods. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year.
2. Acquisitions
2017 Acquisitions
On April 5, 2017, the Company purchased
100%
of the voting stock of Caldera Graphics S.A.S. ("Caldera") within the Engineered Systems segment for
$32,680
, net of cash acquired and including contingent consideration. In connection with this acquisition, the Company recorded goodwill of
$24,649
and intangible assets of
$8,169
, primarily related to customer intangibles. The goodwill is non-deductible for U.S. federal income tax purposes. The intangible assets are being amortized over
7
to
15
years. The pro forma effects of this acquisition on the Company’s operations are disclosed in this footnote.
2016 Acquisitions
During the
six months
ended
June 30, 2016
, the Company acquired three business within the Fluids segment for
$475,236
, net of cash. The Company recorded goodwill of
$301,577
and intangible assets of
$192,065
, primarily related to customer intangibles. The goodwill is non-deductible for U.S. federal income tax purposes. The intangible assets are being amortized over
10
to
15
years.
The goodwill identified by these acquisitions reflect the benefits expected to be derived from product line expansion and operational synergies.
The Company has substantially completed the purchase price allocations for the
2017
and
2016
acquisitions. As additional information is obtained about these assets and liabilities within the measurement period (not to exceed one year from the date of acquisition), the Company will refine its estimates of fair value to allocate the purchase price more accurately. Purchase price allocation adjustments may arise through working capital adjustments, asset appraisals or to reflect additional facts and circumstances in existence as of the acquisition date. Identified measurement period adjustments will be recorded, including any related impacts to net earnings, in the reporting period in which the adjustments are determined and may be significant.
See Note 6 — Goodwill and Other Intangible Assets
for purchase price adjustments.
Pro Forma Information
The following unaudited pro forma information illustrates the impact of
2017
and
2016
acquisitions on the Company’s revenue and earnings from operations for the three and
six months
ended
June 30, 2017
and
2016
, respectively. In 2016, the Company acquired
six
businesses in separate transactions for total net consideration of
$1,562 million
. During the measurement period, we recorded working capital adjustments which resulted in final net cash consideration of
$1,554 million
.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The pro forma information assumes that the
2017
and
2016
acquisitions had taken place at the beginning of the prior year. Pro forma earnings are also adjusted to reflect the comparable impact of additional depreciation and amortization expense, net of tax, resulting from the fair value measurement of tangible and intangible assets relating to the year of acquisition.
The proforma effects for the
three and six months
ended
June 30, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue:
|
|
|
|
|
|
|
|
As reported
|
$
|
1,993,351
|
|
|
$
|
1,686,345
|
|
|
$
|
3,806,723
|
|
|
$
|
3,308,618
|
|
Pro forma
|
1,993,483
|
|
|
1,877,659
|
|
|
3,809,834
|
|
|
3,698,831
|
|
Earnings:
|
|
|
|
|
As reported
|
$
|
164,058
|
|
|
$
|
118,290
|
|
|
$
|
336,305
|
|
|
$
|
217,646
|
|
Pro forma
|
164,209
|
|
|
124,926
|
|
|
336,756
|
|
|
235,219
|
|
Basic earnings per share:
|
|
|
|
|
As reported
|
$
|
1.05
|
|
|
$
|
0.76
|
|
|
$
|
2.16
|
|
|
$
|
1.40
|
|
Pro forma
|
1.05
|
|
|
0.81
|
|
|
2.16
|
|
|
1.52
|
|
Diluted earnings per share:
|
|
|
|
|
As reported
|
$
|
1.04
|
|
|
$
|
0.76
|
|
|
$
|
2.14
|
|
|
$
|
1.39
|
|
Pro forma
|
1.04
|
|
|
0.80
|
|
|
2.14
|
|
|
1.50
|
|
3. Disposed Operations
On February 14, 2017, the Company completed the sale of Performance Motorsports International ("PMI"), a wholly owned subsidiary of the Company that manufactures pistons and other engine related components serving the motorsports and powersports markets. Total consideration was
$147,313
for the transaction, including cash proceeds of
$118,706
. We recognized a gain on sale of
$88,402
for the
six months
ended
June 30, 2017
within the Condensed Consolidated Statements of Earnings and recorded a
25%
equity method investment at fair value of
$18,607
as well as a subordinated note receivable of
$10,000
.
On February 17, 2016, the Company completed the sale of Texas Hydraulics, a wholly owned subsidiary of the Company, a custom manufacturer of fluid power components. Upon disposal of the business, the Company recognized total consideration of
$47,300
, which resulted in a gain on sale of
$11,853
included within the Condensed Consolidated Statements of Earnings for the
six months
ended
June 30, 2016
.
These disposals did not represent a strategic shift in operations and, therefore, did not qualify for presentation as discontinued operations.
4. Inventories
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Raw materials
|
$
|
485,699
|
|
|
$
|
428,286
|
|
Work in progress
|
161,840
|
|
|
138,652
|
|
Finished goods
|
437,387
|
|
|
409,314
|
|
Subtotal
|
1,084,926
|
|
|
976,252
|
|
Less reserves
|
(122,856
|
)
|
|
(105,765
|
)
|
Total
|
$
|
962,070
|
|
|
$
|
870,487
|
|
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
5. Property, Plant and Equipment, net
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Land
|
$
|
70,914
|
|
|
$
|
68,575
|
|
Buildings and improvements
|
615,387
|
|
|
597,523
|
|
Machinery, equipment and other
|
1,861,665
|
|
|
1,802,832
|
|
Property, plant and equipment, gross
|
2,547,966
|
|
|
2,468,930
|
|
Total accumulated depreciation
|
(1,569,345
|
)
|
|
(1,523,260
|
)
|
Property, plant and equipment, net
|
$
|
978,621
|
|
|
$
|
945,670
|
|
Depreciation expense totaled
$46,325
and
$44,501
for the three months ended
June 30, 2017
and
2016
, respectively. For the
six months
ended
June 30, 2017
and
2016
, depreciation expense was
$91,043
and
$89,530
, respectively.
6. Goodwill and Other Intangible Assets
The changes in the carrying value of goodwill by reportable operating segments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered Systems
|
|
Fluids
|
|
Refrigeration & Food Equipment
|
|
Energy
|
|
Total
|
Balance at December 31, 2016
|
$
|
1,567,216
|
|
|
$
|
1,413,508
|
|
|
$
|
536,179
|
|
|
$
|
1,045,774
|
|
|
$
|
4,562,677
|
|
Acquisitions
|
24,649
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24,649
|
|
Purchase price adjustments
|
(1,299
|
)
|
|
(41,474
|
)
|
|
—
|
|
|
—
|
|
|
(42,773
|
)
|
Disposition of business
|
(27,793
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(27,793
|
)
|
Foreign currency translation
|
31,537
|
|
|
13,933
|
|
|
430
|
|
|
1,606
|
|
|
47,506
|
|
Balance at June 30, 2017
|
$
|
1,594,310
|
|
|
$
|
1,385,967
|
|
|
$
|
536,609
|
|
|
$
|
1,047,380
|
|
|
$
|
4,564,266
|
|
The Company recognized additions of
$24,649
to goodwill as a result of the Caldera acquisition discussed in
Note 2 — Acquisitions
. During the
six months
ended
June 30, 2017
, the Company recorded
$42,773
in adjustments for goodwill related to purchase price adjustments principally for deferred tax liabilities and working capital adjustments for the
2016
acquisitions.
As noted in
Note 3 — Disposed Operations
, the Company completed the sale of its PMI business during the
six months
ended
June 30, 2017
. As a result of this sale, the Engineered Systems goodwill balance was reduced by
$27,793
.
The Company tests goodwill for impairment annually in the fourth quarter of each year and whenever events or circumstances indicate an impairment may have occurred. In the first quarter of 2017, the Company re-aligned its reporting units after acquiring four companies in the retail fueling market in 2016, increasing its reporting units from
nine
to
ten
. The Company performed the goodwill impairment test for the three reporting units within the Fluids segment impacted by the change, concluding that the fair values of the reporting units were in excess of their carrying values. Additionally, the Company has considered the economic environments in which its businesses operate, particularly those reporting units exposed to the oil and gas markets, and the long-term outlook for those businesses. The Company has determined that a triggering event has not occurred which would require impairment testing at this time.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The Company’s definite-lived and indefinite-lived intangible assets by major asset class were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying Amount
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Customer intangibles
|
$
|
1,988,836
|
|
|
$
|
799,314
|
|
|
$
|
1,189,522
|
|
|
$
|
1,942,974
|
|
|
$
|
718,135
|
|
|
$
|
1,224,839
|
|
Trademarks
|
250,555
|
|
|
66,079
|
|
|
184,476
|
|
|
246,619
|
|
|
56,455
|
|
|
190,164
|
|
Patents
|
159,655
|
|
|
125,440
|
|
|
34,215
|
|
|
157,491
|
|
|
119,828
|
|
|
37,663
|
|
Unpatented technologies
|
160,239
|
|
|
72,921
|
|
|
87,318
|
|
|
155,752
|
|
|
64,648
|
|
|
91,104
|
|
Distributor relationships
|
120,915
|
|
|
49,480
|
|
|
71,435
|
|
|
113,463
|
|
|
44,914
|
|
|
68,549
|
|
Drawings & manuals
|
34,749
|
|
|
20,853
|
|
|
13,896
|
|
|
37,744
|
|
|
23,114
|
|
|
14,630
|
|
Other
|
33,120
|
|
|
21,967
|
|
|
11,153
|
|
|
31,632
|
|
|
21,184
|
|
|
10,448
|
|
Total
|
2,748,069
|
|
|
1,156,054
|
|
|
1,592,015
|
|
|
2,685,675
|
|
|
1,048,278
|
|
|
1,637,397
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
165,660
|
|
|
—
|
|
|
165,660
|
|
|
165,526
|
|
|
—
|
|
|
165,526
|
|
Total intangible assets, net
|
$
|
2,913,729
|
|
|
$
|
1,156,054
|
|
|
$
|
1,757,675
|
|
|
$
|
2,851,201
|
|
|
$
|
1,048,278
|
|
|
$
|
1,802,923
|
|
Amortization expense was
$51,093
and
$43,593
for the
three months
ended
June 30, 2017
and
2016
, respectively. For the
six months
ended
June 30, 2017
and
2016
, amortization expense was
$101,973
and
$87,168
, respectively.
7. Restructuring Activities
The Company's restructuring charges by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Engineered Systems
|
$
|
755
|
|
|
$
|
773
|
|
|
$
|
1,819
|
|
|
$
|
2,740
|
|
Fluids
|
1,046
|
|
|
2,764
|
|
|
4,297
|
|
|
7,990
|
|
Refrigeration & Food Equipment
|
36
|
|
|
52
|
|
|
1,549
|
|
|
73
|
|
Energy
|
6
|
|
|
5,610
|
|
|
191
|
|
|
12,026
|
|
Corporate
|
—
|
|
|
—
|
|
|
—
|
|
|
757
|
|
Total
|
$
|
1,843
|
|
|
$
|
9,199
|
|
|
$
|
7,856
|
|
|
$
|
23,586
|
|
|
|
|
|
|
|
|
|
These amounts are classified in the Condensed Consolidated Statements of Earnings as follows:
|
Cost of goods and services
|
$
|
163
|
|
|
$
|
4,329
|
|
|
$
|
4,234
|
|
|
$
|
10,180
|
|
Selling, general and administrative expenses
|
1,680
|
|
|
4,870
|
|
|
3,622
|
|
|
13,406
|
|
Total
|
$
|
1,843
|
|
|
$
|
9,199
|
|
|
$
|
7,856
|
|
|
$
|
23,586
|
|
The restructuring expenses of
$1,843
and
$7,856
incurred during the
three and six months
ended
June 30, 2017
, respectively, were related to restructuring programs initiated during
2017
and
2016
. These programs are designed to better align the Company's costs and operations with current market conditions through targeted facility consolidations, headcount reductions and other measures to further optimize operations. The Company expects the programs currently underway to be substantially completed in the next 12 to 18 months.
The
$1,843
of restructuring charges incurred during the
second
quarter of
2017
primarily included the following items:
|
|
•
|
The Engineered Systems segment recorded
$755
of restructuring charges related to headcount reductions primarily within the Printing and Identification platform.
|
|
|
•
|
The Fluids segment recorded
$1,046
of restructuring charges principally related to headcount reductions and facility consolidations primarily within its Fueling & Transport businesses.
|
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The Company’s severance and exit accrual activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
Exit
|
|
Total
|
Balance at December 31, 2016
|
$
|
10,908
|
|
|
$
|
1,439
|
|
|
$
|
12,347
|
|
Restructuring charges
|
6,351
|
|
|
1,505
|
|
|
7,856
|
|
Payments
|
(10,382
|
)
|
|
(1,386
|
)
|
|
(11,768
|
)
|
Foreign currency translation
|
408
|
|
|
53
|
|
|
461
|
|
Other, including write-offs of fixed assets
|
(458
|
)
|
|
265
|
|
|
(193
|
)
|
Balance at June 30, 2017
|
$
|
6,827
|
|
|
$
|
1,876
|
|
|
$
|
8,703
|
|
8. Borrowings
Borrowings consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Short-term
|
|
|
|
Current portion of long-term debt and short-term borrowings
|
$
|
353,065
|
|
|
$
|
6,950
|
|
Commercial paper
|
253,900
|
|
|
407,600
|
|
Notes payable and current maturities of long-term debt
|
$
|
606,965
|
|
|
$
|
414,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
(1)
|
|
Principal
|
|
June 30, 2017
|
|
December 31, 2016
|
Long-term
|
|
|
|
|
|
5.45% 10-year notes due March 15, 2018
|
$
|
350,000
|
|
|
$
|
349,721
|
|
|
$
|
349,502
|
|
2.125% 7-year notes due December 1, 2020 (euro-denominated)
|
€
|
300,000
|
|
|
334,173
|
|
|
311,851
|
|
4.30% 10-year notes due March 1, 2021
|
$
|
450,000
|
|
|
448,647
|
|
|
448,458
|
|
3.150% 10-year notes due November 15, 2025
|
$
|
400,000
|
|
|
394,358
|
|
|
394,042
|
|
1.25% 10-year notes due November 9, 2026 (euro-denominated)
|
€
|
600,000
|
|
|
660,931
|
|
|
616,893
|
|
6.65% 30-year debentures due June 1, 2028
|
$
|
200,000
|
|
|
198,904
|
|
|
198,830
|
|
5.375% 30-year debentures due October 15, 2035
|
$
|
300,000
|
|
|
295,436
|
|
|
295,316
|
|
6.60% 30-year notes due March 15, 2038
|
$
|
250,000
|
|
|
247,657
|
|
|
247,593
|
|
5.375% 30-year notes due March 1, 2041
|
$
|
350,000
|
|
|
343,462
|
|
|
343,323
|
|
Other
|
|
|
|
3,021
|
|
|
1,969
|
|
Total debt
|
|
|
|
3,276,310
|
|
|
3,207,777
|
|
Less long-term debt current portion
|
|
|
(350,838
|
)
|
|
(1,140
|
)
|
Net long-term debt
|
|
|
|
$
|
2,925,472
|
|
|
$
|
3,206,637
|
|
(1)
Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discounts were
$18.0 million
and
$18.8 million
as of
June 30, 2017
and
December 31, 2016
, respectively. Total deferred debt issuance costs were
$15.9 million
and
$16.5 million
as of
June 30, 2017
and
December 31, 2016
, respectively.
On March 15, 2018, the outstanding
5.45%
notes with a principal value of
$350.0 million
will mature. These notes have been classified as a current maturity of long-term debt as of
June 30, 2017
.
The Company maintains a
$1.0 billion
five-year unsecured revolving credit facility (the "Credit Agreement") with a syndicate of banks which expires on
November 10, 2020
.
The Company was in compliance with all covenants in the Credit Agreement and other long-term debt covenants at June 30, 2017 and had a coverage ratio of 10.4 to 1.0.
The Company primarily uses the Credit Agreement as liquidity back-up for its commercial paper program and has not drawn down any loans under the facility and does not anticipate doing so. The Company generally uses commercial paper borrowings for general corporate purposes, funding of acquisitions and repurchases of its common stock.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
As of
June 30, 2017
, the Company had approximately
$136,066
outstanding in letters of credit and performance and other guarantees which expire on various dates in
2017
through
2039
. These letters of credit are primarily maintained as security for insurance, warranty and other performance obligations. In general, we would only be liable for the amount of these guarantees in the event of default in the performance of our obligations, the probability of which we believe is remote.
9. Financial Instruments
Derivatives
The Company is exposed to market risk for changes in foreign currency exchange rates due to the global nature of its operations and certain commodity risks. In order to manage these risks, the Company has hedged portions of its forecasted sales and purchases to occur within the next twelve months that are denominated in non-functional currencies, with currency forward contracts designated as cash flow hedges. At
June 30, 2017
and
December 31, 2016
, the Company had contracts with U.S. dollar equivalent notional amounts of
$122,065
and
$59,932
, respectively, to exchange foreign currencies, principally the Chinese Yuan, Pound Sterling, Swedish Krona, Euro, Canadian Dollar and Swiss Franc. The Company believes it is probable that all forecasted cash flow transactions will occur.
In addition, the Company had outstanding contracts with a total notional amount of
$43,482
and
$56,189
as of
June 30, 2017
and
December 31, 2016
, respectively, that are not designated as hedging instruments. These instruments are used to reduce the Company's exposure for operating receivables and payables that are denominated in non-functional currencies. Gains and losses on these contracts are recorded in Other expense (income), net in the Condensed Consolidated Statements of Earnings.
The following table sets forth the fair values of derivative instruments held by the Company as of
June 30, 2017
, and
December 31, 2016
and the balance sheet lines in which they are recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Asset (Liability)
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Balance Sheet Caption
|
Foreign currency forward
|
$
|
242
|
|
|
$
|
1,058
|
|
|
Prepaid / Other assets
|
Foreign currency forward
|
(1,658
|
)
|
|
(705
|
)
|
|
Other accrued expenses
|
For a cash flow hedge, the effective portion of the change in estimated fair value of a hedging instrument is recorded in Accumulated other comprehensive loss as a separate component of the Condensed Consolidated Statement of Stockholders' Equity and is reclassified into Cost of goods and services in the Condensed Consolidated Statements of Earnings during the period in which the hedged transaction is recognized. The amount of gains or losses from hedging activity recorded in earnings is not significant, and the amount of unrealized gains and losses from cash flow hedges that are expected to be reclassified to earnings in the next twelve months is not significant; therefore, additional tabular disclosures are not presented. There are no amounts excluded from the assessment of hedge effectiveness and the Company's derivative instruments that are subject to credit risk contingent features were not significant.
The Company is exposed to credit loss in the event of nonperformance by counterparties to the financial instrument contracts held by the Company; however, nonperformance by these counterparties is considered unlikely as the Company’s policy is to contract with highly-rated, diversified counterparties.
The Company has designated the
€600,000
and
€300,000
of euro-denominated notes issued November 9, 2016 and December 4, 2013, respectively, as hedges of a portion of its net investment in euro-denominated operations. Changes in the value of the euro-denominated debt are recognized in foreign currency translation adjustments within Other comprehensive earnings (loss) of the Condensed Consolidated Statements of Comprehensive Earnings to offset changes in the value of the net investment in euro-denominated operations.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Amounts recognized in Other comprehensive earnings (loss) for the gains (losses) on net investment hedges were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
(Loss) gain on euro-denominated debt
|
$
|
(35,318
|
)
|
|
$
|
4,500
|
|
|
$
|
(65,839
|
)
|
|
$
|
(1,665
|
)
|
Tax benefit (expense)
|
12,362
|
|
|
(1,575
|
)
|
|
23,044
|
|
|
583
|
|
Net (loss) gain on net investment hedges, net of tax
|
$
|
(22,956
|
)
|
|
$
|
2,925
|
|
|
$
|
(42,795
|
)
|
|
$
|
(1,082
|
)
|
Fair Value Measurements
Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value.
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.
Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of
June 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Level 2
|
|
Level 2
|
Assets:
|
|
|
|
Foreign currency cash flow hedges
|
$
|
242
|
|
|
$
|
1,058
|
|
Liabilities:
|
|
|
|
Foreign currency cash flow hedges
|
1,658
|
|
|
705
|
|
In addition to fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require interim disclosures regarding the fair value of all of the Company’s financial instruments.
The estimated fair value of long-term debt, net at
June 30, 2017
, and
December 31, 2016
was
$3,273,628
and
$3,534,553
, respectively, compared to the carrying value of
$3,276,310
and
$3,207,777
, respectively. The estimated fair value of long-term debt is based on quoted market prices for similar instruments and is, therefore, classified as Level 2 within the fair value hierarchy.
The carrying values of cash and cash equivalents, trade receivables, accounts payable and notes payable are reasonable estimates of their fair values as of
June 30, 2017
, and
December 31, 2016
due to the short-term nature of these instruments.
10. Income Taxes
The effective tax rates for the
three months
ended
June 30, 2017
and
2016
were
28.9%
and
28.1%
, respectively.
The increase in the effective tax rate for the three months ended June 30, 2017 relative to the prior comparable period is principally due to an increase in tax expense from discrete items in 2017 compared to 2016
.
The discrete items for the three months ended June 30, 2017 primarily resulted from the provision to return adjustments in foreign jurisdictions and the effect of the settlement of the 2013 IRS audit. The discrete items for the three months ended June 30, 2016 principally resulted from reassessment of the realizable benefits of certain state credits.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The effective tax rates for the
six months
ended
June 30, 2017
and
2016
were
27.3%
and
25.5%
, respectively.
The increase in the effective tax rate for the six months ended June 30, 2017 relative to the prior comparable period is primarily due to the benefit in the prior year from the revaluation of deferred tax balances as a result of a tax rate reduction in a non-U.S. jurisdiction, as well as the current year recognition of foreign adjustments to filed tax returns.
For the
six months
ended
June 30, 2017
, stock-based compensation excess tax benefits of
$4,623
were reflected in the Condensed Consolidated Statement of Earnings as a component of the provision for income taxes as a result of adopting Accounting Standards Update ("ASU") 2016-09, Compensation Stock Compensation (Topic 718). See
Note 18 — Recent Accounting Pronouncements
regarding the adoption of the standard.
Dover and its subsidiaries file tax returns in the U.S., including various state and local returns and in other foreign jurisdictions. We believe adequate provision has been made for all income tax uncertainties. The Company is routinely audited by taxing authorities in its filing jurisdictions, and a number of these audits are currently underway. The Company believes that within the next twelve months uncertain tax positions may be resolved and statutes of limitations will expire, which could result in a decrease in the gross amount of unrecognized tax benefits of approximately
zero
to
$27,899
.
11. Equity Incentive Program
The Company typically grants equity awards annually at its regularly scheduled first quarter meeting of the Compensation Committee of the Board of Directors. During
2017
, the Company issued stock-settled appreciation rights ("SARs") covering
1,028,116
shares, performance share awards of
57,958
and restricted stock units ("RSUs") of
174,203
.
The Company uses the Black-Scholes option pricing model to determine the fair value of each SAR on the date of grant. Expected volatilities are based on Dover's stock price history, including implied volatilities from traded options on Dover stock. The Company uses historical data to estimate SAR exercise and employee termination patterns within the valuation model. The expected life of SARs granted is derived from the output of the option valuation model and represents the average period of time that SARs granted are expected to be outstanding. The interest rate for periods within the contractual life of the SARs is based on the U.S. Treasury yield curve in effect at the time of grant.
The assumptions used in determining the fair value of the SARs awarded during the respective periods were as follows:
|
|
|
|
|
|
|
|
|
|
SARs
|
|
2017
|
|
2016
|
Risk-free interest rate
|
1.80
|
%
|
|
1.05
|
%
|
Dividend yield
|
2.27
|
%
|
|
3.09
|
%
|
Expected life (years)
|
4.6
|
|
|
4.6
|
|
Volatility
|
21.90
|
%
|
|
26.17
|
%
|
|
|
|
|
Grant price
|
$
|
79.28
|
|
|
$
|
57.25
|
|
Fair value per share at date of grant
|
$
|
12.63
|
|
|
$
|
9.25
|
|
The performance share awards granted in
2017
and
2016
are considered performance condition awards as attainment is based on Dover's performance relative to established internal metrics. The fair value of these awards was determined using Dover's closing stock price on the date of grant. The expected attainment of the internal metrics for these awards is analyzed each reporting period, and the related expense is adjusted based on expected attainment, if that attainment differs from previous estimates. The cumulative effect on current and prior periods of a change in attainment is recognized in Selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings in the period of change.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The fair value and average attainment used in determining stock-based compensation cost for the performance shares issued in
2017
and
2016
is as follows for the
six months
ended
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
Performance shares
|
|
2017
|
|
2016
|
Fair value per share at date of grant
|
$
|
79.28
|
|
|
$
|
57.25
|
|
Average attainment rate reflected in expense
|
167.04
|
%
|
|
20.96
|
%
|
The Company also has granted RSUs, and the fair value of these awards was determined using Dover's closing stock price on the date of grant.
Stock-based compensation is reported within Selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Earnings. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Pre-tax stock-based compensation expense
|
$
|
4,664
|
|
|
$
|
2,973
|
|
|
$
|
17,469
|
|
|
$
|
14,360
|
|
Tax benefit
|
(1,633
|
)
|
|
(1,030
|
)
|
|
(6,187
|
)
|
|
(5,080
|
)
|
Total stock-based compensation expense, net of tax
|
$
|
3,031
|
|
|
$
|
1,943
|
|
|
$
|
11,282
|
|
|
$
|
9,280
|
|
On January 1, 2017, the Company adopted ASU 2016-09, Compensation: Stock Compensation (Topic 718).
See Note 18 — Recent Accounting Pronouncements
for further details.
12. Commitments and Contingent Liabilities
Litigation
A few of the Company’s subsidiaries are involved in legal proceedings relating to the cleanup of waste disposal sites identified under federal and state statutes that provide for the allocation of such costs among "potentially responsible parties." In each instance, the extent of the Company’s liability appears to be very small in relation to the total projected expenditures and the number of other "potentially responsible parties" involved and is anticipated to be immaterial to the Company. In addition, a few of the Company’s subsidiaries are involved in ongoing remedial activities at certain current and former plant sites, in cooperation with regulatory agencies, and appropriate reserves have been established. At
June 30, 2017
, and
December 31, 2016
, the Company has reserves totaling
$29,840
and
$29,959
, 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, patent infringement, employment matters, and commercial disputes. Management and legal counsel, at least quarterly, review the probable outcome of such proceedings, the costs and expenses reasonably expected to be incurred and currently accrued to-date, and the availability and extent of insurance coverage. The Company has reserves for legal matters that are probable and estimable and not otherwise covered by insurance, and at
June 30, 2017
and
December 31, 2016
, these reserves were 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.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Warranty Accruals
Estimated warranty program claims are provided for at the time of sale of the Company's products. Amounts provided for are based on historical costs and adjusted for new claims. The changes in the carrying amount of product warranties through
June 30, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Beginning Balance, December 31 of the Prior Year
|
$
|
84,997
|
|
|
$
|
44,466
|
|
Provision for warranties
|
32,967
|
|
|
29,148
|
|
Settlements made
|
(38,527
|
)
|
|
(26,649
|
)
|
Other adjustments, including acquisitions and currency translation
|
145
|
|
|
3,011
|
|
Ending Balance, June 30
|
$
|
79,582
|
|
|
$
|
49,976
|
|
During the fourth quarter of 2016, the Company determined that 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, the Company announced a voluntary recall of the product in collaboration with the CPSC. Based on information that was available during the fourth quarter 2016, at December 31, 2016, the Company recorded a warranty accrual of
$23,150
in Other liabilities in the Consolidated Balance Sheet to cover the estimated costs of the recall. At
June 30, 2017
, the warranty accrual is included in Other acrrued expenses and was reduced to
$16,230
reflecting payments made against the accrual.
13. Employee Benefit Plans
Retirement Plans
The Company offers defined contribution retirement plans which cover the majority of its U.S. employees, as well as employees in certain other countries. In addition, the Company sponsors qualified defined benefit pension plans covering certain employees of the Company and its subsidiaries. The plans’ benefits are generally based on years of service and employee compensation. The Company also provides to certain management employees, through non-qualified plans, supplemental retirement benefits in excess of qualified plan limits imposed by federal tax law.
The following tables set forth the components of the Company’s net periodic expense relating to retirement benefit plans:
Qualified Defined Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
U.S. Plan
|
|
Non-U.S. Plans
|
|
U.S. Plan
|
|
Non-U.S. Plans
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Service cost
|
$
|
3,021
|
|
|
$
|
3,479
|
|
|
$
|
1,343
|
|
|
$
|
1,405
|
|
|
$
|
6,042
|
|
|
$
|
6,957
|
|
|
$
|
2,660
|
|
|
$
|
2,778
|
|
Interest cost
|
5,430
|
|
|
5,761
|
|
|
1,285
|
|
|
1,394
|
|
|
10,859
|
|
|
11,523
|
|
|
2,549
|
|
|
2,769
|
|
Expected return on plan assets
|
(9,953
|
)
|
|
(9,699
|
)
|
|
(1,833
|
)
|
|
(1,974
|
)
|
|
(19,906
|
)
|
|
(19,397
|
)
|
|
(3,637
|
)
|
|
(3,922
|
)
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
106
|
|
|
183
|
|
|
(112
|
)
|
|
(100
|
)
|
|
213
|
|
|
366
|
|
|
(222
|
)
|
|
(199
|
)
|
Recognized actuarial loss
|
1,395
|
|
|
1,610
|
|
|
864
|
|
|
675
|
|
|
2,791
|
|
|
3,219
|
|
|
1,705
|
|
|
1,340
|
|
Transition obligation
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
Net periodic expense
|
$
|
(1
|
)
|
|
$
|
1,334
|
|
|
$
|
1,548
|
|
|
$
|
1,401
|
|
|
$
|
(1
|
)
|
|
$
|
2,668
|
|
|
$
|
3,057
|
|
|
$
|
2,768
|
|
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
Non-Qualified Supplemental Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Service cost
|
$
|
618
|
|
|
$
|
739
|
|
|
$
|
1,236
|
|
|
$
|
1,479
|
|
Interest cost
|
1,019
|
|
|
1,317
|
|
|
2,038
|
|
|
2,634
|
|
Amortization:
|
|
|
|
|
|
|
|
Prior service cost
|
1,103
|
|
|
1,566
|
|
|
2,205
|
|
|
3,133
|
|
Recognized actuarial gain
|
(298
|
)
|
|
(140
|
)
|
|
(596
|
)
|
|
(280
|
)
|
Net periodic expense
|
$
|
2,442
|
|
|
$
|
3,482
|
|
|
$
|
4,883
|
|
|
$
|
6,966
|
|
Post-Retirement Benefit Plans
The Company also maintains post-retirement benefit plans, although these plans are closed to new entrants. The supplemental and post-retirement benefit plans are supported by the general assets of the Company. The following table sets forth the components of the Company’s net periodic expense relating to its post-retirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Service cost
|
$
|
9
|
|
|
$
|
13
|
|
|
$
|
17
|
|
|
$
|
26
|
|
Interest cost
|
73
|
|
|
104
|
|
|
146
|
|
|
209
|
|
Amortization:
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
2
|
|
|
(35
|
)
|
|
4
|
|
|
(71
|
)
|
Recognized actuarial gain
|
(40
|
)
|
|
(59
|
)
|
|
(80
|
)
|
|
(118
|
)
|
Net periodic expense
|
$
|
44
|
|
|
$
|
23
|
|
|
$
|
87
|
|
|
$
|
46
|
|
The total amount amortized out of accumulated other comprehensive earnings into net periodic pension and post-retirement expense totaled
$3,021
and
$3,701
for the three months ended
June 30, 2017
and
2016
, respectively, and
$6,022
and
$7,392
for the
six months
ended
June 30, 2017
and
2016
, respectively.
Defined Contribution Retirement Plans
The Company also offers defined contribution retirement plans which cover the majority of its U.S. employees, as well as employees in certain other countries. The Company’s expense relating to defined contribution plans was
$10,839
and
$8,349
for the three months ended
June 30, 2017
and
2016
, respectively, and
$22,197
and
$18,157
for the
six months
ended
June 30, 2017
and
2016
.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
14. Other Comprehensive Earnings
The amounts recognized in other comprehensive earnings (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
June 30, 2017
|
|
June 30, 2016
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
Foreign currency translation adjustments
|
$
|
13,812
|
|
|
$
|
12,362
|
|
|
$
|
26,174
|
|
|
$
|
(40,417
|
)
|
|
$
|
(1,575
|
)
|
|
$
|
(41,992
|
)
|
Pension and other post-retirement benefit plans
|
3,021
|
|
|
(966
|
)
|
|
2,055
|
|
|
3,701
|
|
|
(1,245
|
)
|
|
2,456
|
|
Changes in fair value of cash flow hedges
|
(2,642
|
)
|
|
925
|
|
|
(1,717
|
)
|
|
78
|
|
|
(27
|
)
|
|
51
|
|
Other
|
(657
|
)
|
|
79
|
|
|
(578
|
)
|
|
(507
|
)
|
|
59
|
|
|
(448
|
)
|
Total other comprehensive earnings (loss)
|
$
|
13,534
|
|
|
$
|
12,400
|
|
|
$
|
25,934
|
|
|
$
|
(37,145
|
)
|
|
$
|
(2,788
|
)
|
|
$
|
(39,933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
June 30, 2017
|
|
June 30, 2016
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
Foreign currency translation adjustments
|
$
|
46,902
|
|
|
$
|
23,044
|
|
|
$
|
69,946
|
|
|
$
|
(33,806
|
)
|
|
$
|
583
|
|
|
$
|
(33,223
|
)
|
Pension and other post-retirement benefit plans
|
6,022
|
|
|
(1,927
|
)
|
|
4,095
|
|
|
7,392
|
|
|
(2,486
|
)
|
|
4,906
|
|
Changes in fair value of cash flow hedges
|
(2,855
|
)
|
|
999
|
|
|
(1,856
|
)
|
|
(69
|
)
|
|
24
|
|
|
(45
|
)
|
Other
|
(274
|
)
|
|
33
|
|
|
(241
|
)
|
|
1,584
|
|
|
(192
|
)
|
|
1,392
|
|
Total other comprehensive earnings (loss)
|
$
|
49,795
|
|
|
$
|
22,149
|
|
|
$
|
71,944
|
|
|
$
|
(24,899
|
)
|
|
$
|
(2,071
|
)
|
|
$
|
(26,970
|
)
|
Total comprehensive earnings were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net earnings
|
$
|
164,058
|
|
|
$
|
118,290
|
|
|
$
|
336,305
|
|
|
$
|
217,646
|
|
Other comprehensive earnings (loss)
|
25,934
|
|
|
(39,933
|
)
|
|
71,944
|
|
|
(26,970
|
)
|
Comprehensive earnings
|
$
|
189,992
|
|
|
$
|
78,357
|
|
|
$
|
408,249
|
|
|
$
|
190,676
|
|
Amounts reclassified from accumulated other comprehensive (loss) to earnings during the
three and six months
ended
June 30, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Foreign currency translation:
|
|
|
|
|
|
|
|
Reclassification of foreign currency translation losses to earnings from sale of a subsidiary
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,875
|
|
|
$
|
—
|
|
Tax benefit
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Net of tax
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,875
|
|
|
$
|
—
|
|
Pension and other postretirement benefit plans:
|
|
|
|
|
|
|
|
Amortization of actuarial losses
|
$
|
1,921
|
|
|
$
|
2,087
|
|
|
$
|
3,820
|
|
|
$
|
4,163
|
|
Amortization of prior service costs
|
1,100
|
|
|
1,614
|
|
|
2,202
|
|
|
3,229
|
|
Total before tax
|
3,021
|
|
|
3,701
|
|
|
6,022
|
|
|
7,392
|
|
Tax benefit
|
(966
|
)
|
|
(1,245
|
)
|
|
(1,927
|
)
|
|
(2,486
|
)
|
Net of tax
|
$
|
2,055
|
|
|
$
|
2,456
|
|
|
$
|
4,095
|
|
|
$
|
4,906
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
Net losses (gains) reclassified into earnings
|
$
|
245
|
|
|
$
|
328
|
|
|
$
|
(89
|
)
|
|
$
|
256
|
|
Tax (expense) benefit
|
(86
|
)
|
|
(115
|
)
|
|
31
|
|
|
(90
|
)
|
Net of tax
|
$
|
159
|
|
|
$
|
213
|
|
|
$
|
(58
|
)
|
|
$
|
166
|
|
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
The Company recognizes net periodic pension cost, which includes amortization of net actuarial losses and prior service costs, in both selling, general and administrative expenses and cost of goods and services, depending on the functional area of the underlying employees included in the plans.
Cash flow hedges consist mainly of foreign currency forward contracts. The Company recognizes the realized gains and losses on its cash flow hedges in the same line item as the hedged transaction, such as revenue, cost of goods and services, or selling, general and administrative expenses.
15. Segment Information
The Company categorizes its operating companies into
four
distinct reportable segments. Segment financial information and a reconciliation of segment results to consolidated results is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue:
|
|
|
|
|
|
|
|
Engineered Systems
|
$
|
655,430
|
|
|
$
|
592,432
|
|
|
$
|
1,263,065
|
|
|
$
|
1,169,427
|
|
Fluids
|
553,259
|
|
|
405,838
|
|
|
1,078,454
|
|
|
804,900
|
|
Refrigeration & Food Equipment
|
426,304
|
|
|
429,386
|
|
|
783,138
|
|
|
792,638
|
|
Energy
|
359,168
|
|
|
259,008
|
|
|
683,256
|
|
|
542,238
|
|
Intra-segment eliminations
|
(810
|
)
|
|
(319
|
)
|
|
(1,190
|
)
|
|
(585
|
)
|
Total consolidated revenue
|
$
|
1,993,351
|
|
|
$
|
1,686,345
|
|
|
$
|
3,806,723
|
|
|
$
|
3,308,618
|
|
Earnings:
|
|
|
|
|
|
|
|
Segment earnings (loss):
(1)
|
|
|
|
|
|
|
|
|
|
Engineered Systems
|
$
|
106,820
|
|
|
$
|
104,034
|
|
|
$
|
281,218
|
|
|
$
|
197,782
|
|
Fluids
|
73,558
|
|
|
54,033
|
|
|
126,197
|
|
|
100,080
|
|
Refrigeration & Food Equipment
|
65,829
|
|
|
63,230
|
|
|
99,391
|
|
|
101,391
|
|
Energy
|
53,368
|
|
|
(75
|
)
|
|
95,059
|
|
|
11,169
|
|
Total segment earnings
|
299,575
|
|
|
221,222
|
|
|
601,865
|
|
|
410,422
|
|
Corporate expense / other
(2)
|
34,190
|
|
|
24,566
|
|
|
70,679
|
|
|
54,428
|
|
Interest expense
|
36,932
|
|
|
33,779
|
|
|
73,341
|
|
|
67,097
|
|
Interest income
|
(2,338
|
)
|
|
(1,622
|
)
|
|
(4,918
|
)
|
|
(3,226
|
)
|
Earnings before provision for income taxes
|
230,791
|
|
|
164,499
|
|
|
462,763
|
|
|
292,123
|
|
Provision for income taxes
|
66,733
|
|
|
46,209
|
|
|
126,458
|
|
|
74,477
|
|
Net earnings
|
$
|
164,058
|
|
|
$
|
118,290
|
|
|
$
|
336,305
|
|
|
$
|
217,646
|
|
|
|
(1)
|
Segment earnings includes non-operating income and expense directly attributable to the segments. Non-operating income and expense includes gain on sale of businesses and other income, net.
|
|
|
(2)
|
Certain expenses are maintained at the corporate level and not allocated to the segments. These expenses include executive and functional compensation costs, non-service pension costs, non-operating insurance expenses, shared business services costs and various administrative expenses relating to the corporate headquarters.
|
16. Share Repurchases
In January 2015, the Board of Directors approved a standing share repurchase authorization, whereby the Company may repurchase up to
15,000,000
shares of its common stock over the following three years. This plan replaced all previously authorized repurchase programs. During the
six months
ended
June 30, 2017
and
2016
, the Company repurchased
no
shares of common stock under the January 2015 authorization. As of
June 30, 2017
, there were
6,771,458
shares available for repurchase under the authorization.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
17. Earnings per Share
The following table sets forth a reconciliation of the information used in computing basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net earnings
|
$
|
164,058
|
|
|
$
|
118,290
|
|
|
$
|
336,305
|
|
|
$
|
217,646
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
Net earnings
|
$
|
1.05
|
|
|
$
|
0.76
|
|
|
$
|
2.16
|
|
|
$
|
1.40
|
|
Weighted average shares outstanding
|
155,703,000
|
|
|
155,180,000
|
|
|
155,622,000
|
|
|
155,122,000
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
Net earnings
|
$
|
1.04
|
|
|
$
|
0.76
|
|
|
$
|
2.14
|
|
|
$
|
1.39
|
|
Weighted average shares outstanding
|
157,513,000
|
|
|
156,595,000
|
|
|
157,457,000
|
|
|
156,414,000
|
|
The following table is a reconciliation of the share amounts used in computing earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Weighted average shares outstanding - Basic
|
155,703,000
|
|
|
155,180,000
|
|
|
155,622,000
|
|
|
155,122,000
|
|
Dilutive effect of assumed exercise of SARs and vesting of performance shares and RSUs
|
1,810,000
|
|
|
1,415,000
|
|
|
1,835,000
|
|
|
1,292,000
|
|
Weighted average shares outstanding - Diluted
|
157,513,000
|
|
|
156,595,000
|
|
|
157,457,000
|
|
|
156,414,000
|
|
Diluted earnings per share amounts are computed using the weighted average number of common shares outstanding and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of SARs and vesting of performance shares and RSUs, as determined using the treasury stock method.
The weighted average number of anti-dilutive potential common shares excluded from the calculation above were approximately
33,000
and
60,000
for the three months ended
June 30, 2017
and
2016
, respectively, and
20,000
and
65,000
for the
six months
ended
June 30, 2017
and
2016
, respectively.
18. Recent Accounting Pronouncements
Recently Issued Accounting Standards
The following standards, issued by the Financial Accounting Standards Board ("FASB"), will, or are expected to, result in a change in practice and/or have a financial impact to the Company’s Consolidated Financial Statements:
In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU changes the income statement presentation of defined benefit and post-retirement benefit plan expense by requiring separation between operating expense (service cost component of net periodic benefit expense) and non-operating expense (all other components of net periodic benefit expense, including interest cost, amortization of prior service cost, curtailments and settlements, etc.). The operating expense component is reported with similar compensation costs while the non-operating components are reported outside of operating income. The Company does not expect the adoption of this ASU to have a material impact on its Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-01, Business combinations (Topic 805): Clarifying the definition of a business, which clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under this guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or group of similar assets), the assets acquired would not represent a business. In addition, in order to be considered a business, an acquisition would have to include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The amended guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. This guidance is effective for interim and annual periods for the Company on January 1, 2018, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its Consolidated Financial Statements.
DOVER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated) (Unaudited)
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends existing guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. This ASU also provides clarifications surrounding the presentation of the effects of leases in the income statement and statement of cash flows. This guidance will be effective for the Company on January 1, 2019. The Company is currently evaluating this guidance and the impact it will have on its Consolidated Financial Statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments and assets recognized from the costs to obtain or fulfill a contract. This guidance will be effective for the Company on January 1, 2018.
The Company commenced its assessment of ASU 2014-09 during the second half of 2015 and developed a project plan to guide the implementation. We made progress on this project plan including analyzing the ASU’s impact on the Company's contract portfolio, surveying the Company's businesses and discussing the various revenue streams, completing contract reviews, comparing its historical accounting policies and practices to the requirements of the new guidance and identifying potential differences from applying the requirements of the new guidance to its contracts. The Company has also made progress in drafting an updated accounting policy, evaluating new disclosure requirements and identifying and implementing appropriate changes to its business processes, systems and controls to support recognition and disclosure under the new guidance. The Company expects to adopt this new guidance using the modified retrospective method that will result in a cumulative effect adjustment as of the date of adoption. The Company is currently evaluating this guidance and the impact it will have on its Consolidated Financial Statements.
Recently Adopted Accounting Standards
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amended guidance simplifies the accounting for goodwill impairment for all entities by eliminating the requirement to perform a hypothetical purchase price allocation. A goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. The Company early adopted this guidance on January 1, 2017 as its annual impairment test is performed after January 1, 2017. The adoption of this ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows. The adoption of the new standard resulted in the recognition of excess tax benefits in our provision for income taxes within the Condensed Consolidated Statements of Earnings rather than paid-in capital of
$4,623
for the
six months
ended
June 30, 2017
. Additionally, our Condensed Consolidated Statement of Cash Flows now present excess tax benefits as an operating activity, adjusted prospectively. Finally, the Company elected to continue to estimate forfeitures based on historical data and recognizes forfeiture compensation expense over the vesting period of the award. The Company adopted this guidance on January 1, 2017.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 340): Simplifying the Measurement of Inventory. Under this guidance, entities utilizing the FIFO or average cost method should measure inventory at the lower of cost or net realizable value, whereas net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company adopted this guidance on January 1, 2017. The adoption of this ASU did not have a material impact to the Company's Consolidated Financial Statements.
CONSOLIDATED RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(dollars in thousands, except per share data)
|
2017
|
|
2016
|
|
% Change
|
|
2017
|
|
2016
|
|
% Change
|
Revenue
|
$
|
1,993,351
|
|
|
$
|
1,686,345
|
|
|
18.2
|
%
|
|
$
|
3,806,723
|
|
|
$
|
3,308,618
|
|
|
15.1
|
%
|
Cost of goods and services
|
1,243,905
|
|
|
1,055,132
|
|
|
17.9
|
%
|
|
2,396,103
|
|
|
2,088,141
|
|
|
14.7
|
%
|
Gross profit
|
749,446
|
|
|
631,213
|
|
|
18.7
|
%
|
|
1,410,620
|
|
|
1,220,477
|
|
|
15.6
|
%
|
Gross profit margin
|
37.6
|
%
|
|
37.4
|
%
|
|
0.2
|
|
|
37.1
|
%
|
|
36.9
|
%
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
484,046
|
|
|
437,411
|
|
|
10.7
|
%
|
|
969,336
|
|
|
880,859
|
|
|
10.0
|
%
|
Selling, general and administrative expenses as a percent of revenue
|
24.3
|
%
|
|
25.9
|
%
|
|
(1.6
|
)
|
|
25.5
|
%
|
|
26.6
|
%
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
36,932
|
|
|
33,779
|
|
|
9.3
|
%
|
|
73,341
|
|
|
67,097
|
|
|
9.3
|
%
|
Interest income
|
(2,338
|
)
|
|
(1,622
|
)
|
|
44.1
|
%
|
|
(4,918
|
)
|
|
(3,226
|
)
|
|
52.4
|
%
|
Gain on sale of businesses
|
—
|
|
|
(801
|
)
|
|
nm*
|
|
(90,093
|
)
|
|
(12,029
|
)
|
|
nm*
|
Other expense (income), net
|
15
|
|
|
(2,053
|
)
|
|
nm*
|
|
191
|
|
|
(4,347
|
)
|
|
nm*
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
66,733
|
|
|
46,209
|
|
|
44.4
|
%
|
|
126,458
|
|
|
74,477
|
|
|
69.8
|
%
|
Effective tax rate
|
28.9
|
%
|
|
28.1
|
%
|
|
0.8
|
|
|
27.3
|
%
|
|
25.5
|
%
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
164,058
|
|
|
118,290
|
|
|
38.7
|
%
|
|
336,305
|
|
|
217,646
|
|
|
54.5
|
%
|
Net earnings per common share - diluted
|
$
|
1.04
|
|
|
$
|
0.76
|
|
|
36.8
|
%
|
|
$
|
2.14
|
|
|
$
|
1.39
|
|
|
54.0
|
%
|
* nm - not meaningful
Revenue
Revenue for the
three months
ended
June 30, 2017
increased
$307.0 million
, or
18.2%
, from the comparable period. Results were driven by organic revenue
growth
of
10.0%
, which was broad-based across our segments, and acquisition-related revenue
growth
of
11.7%
primarily within our Fluids and Engineered Systems segments. This growth was partially offset by a revenue decline of
2.8%
, due to disposed businesses, and
an unfavorable
impact from foreign currency translation of
0.7%
. Customer pricing favorably impacted revenue by approximately 0.7% in the
second
quarter of
2017
.
Revenue for the
six months
ended
June 30, 2017
increased
$498.1 million
, or
15.1%
, from the comparable period. The
increase
primarily reflects acquisition-related growth of
11.7%
, led by Fluids and Engineered Systems segments, and organic revenue
growth
of
7.0%
. Organic growth was primarily driven by strong oil and gas activity, as well as solid activity in Refrigeration & Food Equipment and Engineered Systems segments. Revenue growth was partially offset by a revenue decline of
2.9%
due to disposed businesses and
an unfavorable
impact from foreign currency translation of
0.7%
. Customer pricing favorably impacted revenue by approximately 0.3% for the
six months
ended
June 30, 2017
.
Gross Profit
Gross profit for the
three months
ended
June 30, 2017
increased
$118.2 million
, or
18.7%
, from the comparable period, reflecting benefits of increased sales volumes. Gross profit margin improved by 20 basis points for the
three months
ended
June 30, 2017
from the comparable period.
Gross profit for the
six months
ended
June 30, 2017
increased
$190.1 million
, or
15.6%
, from the comparable period, consistent with the increase in revenues for the period. Gross profit margin improved by 20 basis points for the
six months
ended
June 30, 2017
from the comparable period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the
three months
ended
June 30, 2017
increased
$46.6 million
, or
10.7%
, from the comparable period, reflecting the impact of acquisitions in 2016, including the acquisition-related depreciation and amortization expense, as well as increased compensation costs, partially offset by lower restructuring charges of
$3.2 million
. As a percentage
of revenue, selling, general and administrative expenses decreased 160 basis points to
24.3%
for the
three months
ended
June 30, 2017
from the comparable period.
Selling, general and administrative expenses for the
six months
ended
June 30, 2017
increased
$88.5 million
, or
10.0%
, from the comparable period, reflecting the impact of acquisitions in 2016, including the acquisition-related depreciation and amortization expense, as well as increased compensation costs, partially offset by lower restructuring charges of
$9.8 million
. As a percentage of revenue, selling, general and administrative expenses decreased 110 basis points as compared to the prior year period.
Non-Operating Items
Interest expense
Interest expense for the
three months
ended
June 30, 2017
increased
$3.2 million
, or
9.3%
, from the comparable period. Interest expense for the
six months
ended
June 30, 2017
increased
$6.2 million
, or
9.3%
, from the comparable period. The increase in both periods was primarily due to interest expense on the
€600.0 million
notes issued in the fourth quarter of 2016 and higher overall borrowing rates on commercial paper.
Gain on sale of businesses
There was no gain on sale of businesses for the
three months
ended
June 30, 2017
. Gain on sale of businesses of
$0.8 million
for the
three months
ended
June 30, 2016
was due to an adjustment on the sale of Texas Hydraulics in the first quarter of 2016.
Gain on sale of businesses of
$90.1 million
for the
six months
ended
June 30, 2017
is primarily due to the sale of PMI during the first quarter of 2017 for a gain of
$88.4 million
, as well as a working capital adjustment for our sale of Tipper Tie in the fourth quarter of 2016. Gain on sale of businesses of
$12.0 million
for the
six months
ended
June 30, 2016
was primarily due to the sale of Texas Hydraulics.
Other expense (income), net
Other expense for the three and
six months
ended
June 30, 2017
was not significant. Other income of
$2.1 million
and
$4.3 million
for the three and
six months
ended
June 30, 2016
, respectively, consists primarily of $1.2 million and $2.3 million of foreign currency exchange gains, respectively, resulting from the remeasurement of foreign currency denominated balances.
Income Taxes
The effective tax rates for the
three months
ended
June 30, 2017
and
2016
were
28.9%
and
28.1%
, respectively.
The increase in the effective tax rate for the three months ended June 30, 2017 relative to the prior comparable period is principally due to an increase in tax expense from discrete items in 2017 compared to 2016
.
The discrete items for the three months ended June 30, 2017 primarily resulted from the provision to return adjustments in foreign jurisdictions and the effect of the settlement of the 2013 IRS audit. The discrete items for the three months ended June 30, 2016 principally resulted from reassessment of the realizable benefits of certain state credits.
The effective tax rates for the
six months
ended
June 30, 2017
and
2016
were
27.3%
and
25.5%
, respectively.
The increase in the effective tax rate for the six months ended June 30, 2017 relative to the prior comparable period is primarily due to the benefit in the prior year from the revaluation of deferred tax balances as a result of a tax rate reduction in a non-U.S. jurisdiction, as well as the current year recognition of foreign adjustments to filed tax returns.
Dover and its subsidiaries file tax returns in the U.S., including various state and local returns and in other foreign jurisdictions. We believe adequate provision has been made for all income tax uncertainties. The Company is routinely audited by taxing authorities in its filing jurisdictions, and a number of these audits are currently underway. The Company believes that within the next twelve months uncertain tax positions may be resolved and statutes of limitations will expire, which could result in a decrease in the gross amount of unrecognized tax benefits of approximately
zero
to
$27.9 million
.
Net Earnings
Net earnings for the three months ended
June 30, 2017
increased
38.7%
to
$164.1 million
, or
$1.04
diluted earnings per share from
$118.3 million
, or
$0.76
diluted earnings per share from the comparable period. The
increase
in earnings reflected leverage on year-over-year volume growth in all segments, with particular strength in Energy.
Net earnings for the
six
months ended
June 30, 2017
increased
54.5%
to
$336.3 million
, or
$2.14
diluted earnings per share from
$217.6 million
, or
$1.39
diluted earnings per share from the comparable period. The
increase
in earnings was driven by leverage on broad-based organic revenue growth, particularly in the Energy segment and earnings associated with acquisitions. Earnings growth also reflected the gain on sale of PMI of
$61.7 million
, net of tax, or
$0.39
diluted earnings per share.
SEGMENT RESULTS OF OPERATIONS
Engineered Systems
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(dollars in thousands)
|
|
2017
|
|
2016
|
|
% Change
|
|
2017
|
|
2016
|
|
% Change
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing & Identification
|
|
$
|
278,220
|
|
|
$
|
263,648
|
|
|
5.5
|
%
|
|
$
|
527,458
|
|
|
$
|
503,329
|
|
|
4.8
|
%
|
Industrials
|
|
377,210
|
|
|
328,784
|
|
|
14.7
|
%
|
|
735,607
|
|
|
666,098
|
|
|
10.4
|
%
|
Total
|
|
$
|
655,430
|
|
|
$
|
592,432
|
|
|
10.6
|
%
|
|
$
|
1,263,065
|
|
|
$
|
1,169,427
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
(1)
|
|
$
|
106,820
|
|
|
$
|
104,034
|
|
|
2.7
|
%
|
|
$
|
281,218
|
|
|
$
|
197,782
|
|
|
42.2
|
%
|
Segment margin
(1)
|
|
16.3
|
%
|
|
17.6
|
%
|
|
|
|
22.3
|
%
|
|
16.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
(2)
|
|
$
|
127,079
|
|
|
$
|
120,109
|
|
|
5.8
|
%
|
|
$
|
321,052
|
|
|
$
|
229,893
|
|
|
39.7
|
%
|
Segment EBITDA margin
(2)
|
|
19.4
|
%
|
|
20.3
|
%
|
|
|
|
25.4
|
%
|
|
19.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
20,259
|
|
|
$
|
16,075
|
|
|
26.0
|
%
|
|
$
|
39,834
|
|
|
$
|
32,111
|
|
|
24.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bookings:
|
|
|
|
|
|
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|
|
|
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|
|
Printing & Identification
|
|
$
|
282,157
|
|
|
$
|
266,490
|
|
|
5.9
|
%
|
|
$
|
538,822
|
|
|
$
|
509,059
|
|
|
5.8
|
%
|
Industrials
|
|
367,352
|
|
|
304,345
|
|
|
20.7
|
%
|
|
786,807
|
|
|
634,302
|
|
|
24.0
|
%
|
|
|
$
|
649,509
|
|
|
$
|
570,835
|
|
|
13.8
|
%
|
|
$
|
1,325,629
|
|
|
$
|
1,143,361
|
|
|
15.9
|
%
|
Backlog:
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing & Identification
|
|
|
|
|
|
|
|
$
|
115,763
|
|
|
$
|
104,509
|
|
|
10.8
|
%
|
Industrials
|
|
|
|
|
|
|
|
301,474
|
|
|
210,646
|
|
|
43.1
|
%
|
|
|
|
|
|
|
|
|
$
|
417,237
|
|
|
$
|
315,155
|
|
|
32.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of revenue growth:
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic growth
|
|
|
|
|
|
5.2
|
%
|
|
|
|
|
|
3.6
|
%
|
Acquisitions
|
|
|
|
|
|
9.9
|
%
|
|
|
|
|
|
9.3
|
%
|
Dispositions
|
|
|
|
|
|
(3.7
|
)%
|
|
|
|
|
|
(3.9
|
)%
|
Foreign currency translation
|
|
|
|
|
|
(0.8
|
)%
|
|
|
|
|
|
(1.0
|
)%
|
|
|
|
|
|
|
10.6
|
%
|
|
|
|
|
|
8.0
|
%
|
(1)
Excluding gain on sale of businesses, segment earnings was
$192.8 million
and
$185.9 million
for the
six months
ended
June 30, 2017
and
2016
, respectively. Segment margin was
15.3%
and
15.9%
for the
six months
ended
June 30, 2017
and
2016
, respectively.
(2)
Excluding gain on sale of businesses, segment EBITDA was
$232.7 million
and
$218.0 million
for the
six months
ended
June 30, 2017
and
2016
, respectively. Segment EBITDA margin was
18.4%
and
18.6%
for the
six months
ended
June 30, 2017
and
2016
, respectively. See "Non-GAAP Disclosures" for definitions of segment EBITDA and segment EBITDA margin.
Second
Quarter
2017
Compared to the
Second
Quarter
2016
Engineered Systems revenue for the
second
quarter of
2017
increased
$63.0 million
, or
10.6%
, as compared to the
second
quarter of
2016
, comprised of organic
growth
of
5.2%
and acquisition-related growth of
9.9%
, reflecting the acquisitions of Caldera in the second quarter of 2017, Alliance Wireless Technologies, Inc. ("AWTI") in the third quarter of 2016 and Ravaglioli S.p.A. Group ("RAV") in the fourth quarter of 2016. This growth was partially offset by a
3.7%
impact from dispositions and
an unfavorable
impact from foreign currency translation of
0.8%
. Customer pricing favorably impacted revenue by approximately 0.3% in the
second
quarter of
2017
.
|
|
•
|
Printing & Identification revenue (representing
42.4%
of segment revenue)
increased
$14.6 million
, or
5.5%
, as compared to the prior year quarter. The growth in organic revenue of 5.2% and acquisition-related growth of 1.2% from Caldera was partially offset by an unfavorable impact from foreign currency translation of 0.9%. Organic revenue growth was primarily driven by continued strong activity in our marking and coding business.
|
|
|
•
|
Industrials revenue (representing
57.6%
of segment revenue)
increased
$48.4 million
, or
14.7%
, as compared to the prior year quarter. The increase was due to acquisition-related growth of 16.8% from AWTI and RAV and organic revenue growth of 5.2%, offset by the impact of dispositions of 6.6%, and an unfavorable impact of foreign currency translation of 0.7%. Organic revenue growth was broad-based, with particular strength in our environmental solutions business.
|
Engineered Systems segment earnings
increased
$2.8 million
, or
2.7%
, compared to the second quarter of 2016. Segment earnings increased by $8.6 million, or 8.8%, excluding earnings of $5.8 million due to divestitures. The increase was primarily driven by leverage on strong organic growth in our marking and coding and industrial businesses, along with the earnings from 2016 acquisitions, partially offset by key strategic investments and material cost inflation. Segment margin decreased from
17.6%
to
16.3%
as compared to the prior year quarter primarily due to the impact of acquisitions and increases in material costs, particularly steel.
Bookings for our Industrials platform increased
20.7%
, compared to the prior year quarter, due primarily to the inclusion of 2016 acquisitions and order strength in our environmental solution business. Our Printing & Identification bookings increased
5.9%
compared to the prior year quarter, driven by strong activity in our marking and coding and digital printing businesses. Segment book-to-bill was
0.99
.
Six Months Ended June 30,
2017
Compared to the
Six Months Ended June 30,
2016
Engineered Systems revenue for the
six months
ended
June 30, 2017
increased
$93.6 million
, or
8.0%
, compared to the prior year comparable period. This was comprised of
3.6%
organic revenue growth and
9.3%
growth from acquisitions, offset by a decrease of
3.9%
due to dispositions, and
an unfavorable
impact from foreign currency translation of
1.0%
. Organic revenue growth was primarily driven by strong activity in our marking and coding business, along with growth across our Industrial platform. Customer pricing did not have a significant impact to revenue for the
six months
ended
June 30, 2017
.
Segment earnings for the
six months
ended
June 30, 2017
increased
$83.4 million
, or
42.2%
as compared to the
2016
period. Segment earnings increased by $13.1 million, or 7.3%, excluding incremental earnings of $70.3 million due to divestitures, including the associated gains on sale. The increase was primarily driven by leverage on strong organic growth in our marking and coding, and the inclusion of earnings from 2016 acquisitions, partially offset by higher material cost inflation, most notably steel.
Fluids
Our Fluids segment, serving the Fueling & Transport, Pumps and Hygienic & Pharma end markets, is focused on the safe handling of critical fluids across the retail fueling, chemical, hygienic, oil and gas and industrial markets.
In the first quarter of 2017, we aligned our financial reporting around these key end markets to provide more detailed information after acquiring four companies in the retail fueling market in 2016.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(dollars in thousands)
|
|
2017
|
|
2016
|
|
% Change
|
|
2017
|
|
2016
|
|
% Change
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fueling & Transport
|
|
$
|
330,002
|
|
|
$
|
195,274
|
|
|
69.0
|
%
|
|
$
|
646,103
|
|
|
$
|
381,872
|
|
|
69.2
|
%
|
Pumps
|
|
162,574
|
|
|
152,321
|
|
|
6.7
|
%
|
|
313,405
|
|
|
308,922
|
|
|
1.5
|
%
|
Hygienic & Pharma
|
|
60,683
|
|
|
58,243
|
|
|
4.2
|
%
|
|
118,946
|
|
|
114,106
|
|
|
4.2
|
%
|
|
|
$
|
553,259
|
|
|
$
|
405,838
|
|
|
36.3
|
%
|
|
$
|
1,078,454
|
|
|
$
|
804,900
|
|
|
34.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
73,558
|
|
|
$
|
54,033
|
|
|
36.1
|
%
|
|
$
|
126,197
|
|
|
$
|
100,080
|
|
|
26.1
|
%
|
Segment margin
|
|
13.3
|
%
|
|
13.3
|
%
|
|
|
|
11.7
|
%
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
$
|
103,031
|
|
|
$
|
75,014
|
|
|
37.3
|
%
|
|
$
|
184,173
|
|
|
$
|
141,572
|
|
|
30.1
|
%
|
Segment EBITDA margin
|
|
18.6
|
%
|
|
18.5
|
%
|
|
|
|
17.1
|
%
|
|
17.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
29,473
|
|
|
$
|
20,981
|
|
|
40.5
|
%
|
|
$
|
57,976
|
|
|
$
|
41,492
|
|
|
39.7
|
%
|
Bookings
|
|
554,656
|
|
|
413,767
|
|
|
34.1
|
%
|
|
1,120,643
|
|
|
832,112
|
|
|
34.7
|
%
|
Backlog
|
|
|
|
|
|
|
|
378,774
|
|
|
315,786
|
|
|
19.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of revenue growth:
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic growth
|
|
|
|
|
|
3.6
|
%
|
|
|
|
|
|
0.7
|
%
|
Acquisitions
|
|
|
|
|
|
34.2
|
%
|
|
|
|
|
|
34.8
|
%
|
Foreign currency translation
|
|
|
|
|
|
(1.5
|
)%
|
|
|
|
|
|
(1.5
|
)%
|
|
|
|
|
|
|
36.3
|
%
|
|
|
|
|
|
34.0
|
%
|
Second
Quarter
2017
Compared to the
Second
Quarter
2016
Fluids revenue for the
second
quarter of
2017
increased
$147.4 million
, or
36.3%
, comprised of acquisition-related growth of
34.2%
and organic growth of
3.6%
partially offset by
an unfavorable
impact from foreign currency translation of
1.5%
. Customer pricing did not have a significant impact to revenue in the
second
quarter of
2017
.
|
|
•
|
Fueling & Transport revenue (representing 59.6% of segment revenue) increased $134.7 million, or 69.0%, as compared to the prior year quarter, primarily driven by recent acquisitions, principally Wayne Fueling Systems Ltd. in the fourth quarter of 2016, and improving European and Asian retail fueling markets, offset, in part, by weak transport markets.
|
|
|
•
|
Pumps revenue (representing 29.4% of segment revenue) increased $10.3 million, or 6.7%, as compared to the prior year quarter, largely reflecting increased industrial demand and improved oil and gas markets.
|
|
|
•
|
Hygienic & Pharma revenue (representing 11.0% of segment revenue) increased $2.4 million, or 4.2%, as compared to the prior year quarter. This revenue increase was driven by new product development and solid market activity.
|
Fluids segment earnings
increased
$19.5 million
, or
36.1%
, over the prior year quarter, largely driven by volume growth, including acquisitions and productivity gains. Segment margin remained flat over the prior year quarter, with benefits from productivity being offset by the impact of acquisitions. Sequentially, margins improved 330 basis points due to the benefits of integration.
Overall bookings
increased
34.1%
as compared to the prior year quarter, primarily driven by the aforementioned acquisitions. Book to bill was
1.00
.
Six Months Ended June 30,
2017
Compared to the
Six Months Ended June 30,
2016
Fluids segment revenue
increased
$273.6 million
, or
34.0%
, as compared to the
six months
ended
June 30, 2016
, attributable to
34.8%
acquisition-related growth and organic growth of
0.7%
partially offset by
an unfavorable
impact from foreign currency translation of
1.5%
. The organic growth was driven by industrial activity and solid hygienic and pharma markets partially offset, by continued weakness in transport markets. Customer pricing did not have a significant impact to revenue for the
six months
ended
June 30, 2017
.
Fluids segment earnings
increased
$26.1 million
, or
26.1%
, for the
six months
ended
June 30, 2017
as a result of acquisitions and a reduction in restructuring charges of
$3.7 million
to
$4.3 million
for the
six months
ended
June 30, 2017
from
$8.0 million
for the prior year period. Segment margin decreased 70 basis points due to the impact of acquisitions, slightly offset by incremental productivity benefits.
Refrigeration & Food Equipment
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(dollars in thousands)
|
|
2017
|
|
2016
|
|
% Change
|
|
2017
|
|
2016
|
|
% Change
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Refrigeration
|
|
$
|
353,059
|
|
|
$
|
332,647
|
|
|
6.1
|
%
|
|
$
|
651,858
|
|
|
$
|
611,937
|
|
|
6.5
|
%
|
Food Equipment
|
|
73,245
|
|
|
96,739
|
|
|
(24.3
|
)%
|
|
131,280
|
|
|
180,701
|
|
|
(27.3
|
)%
|
Total
|
|
$
|
426,304
|
|
|
$
|
429,386
|
|
|
(0.7
|
)%
|
|
$
|
783,138
|
|
|
$
|
792,638
|
|
|
(1.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
65,829
|
|
|
$
|
63,230
|
|
|
4.1
|
%
|
|
$
|
99,391
|
|
|
$
|
101,391
|
|
|
(2.0
|
)%
|
Segment margin
|
|
15.4
|
%
|
|
14.7
|
%
|
|
|
|
12.7
|
%
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
$
|
80,351
|
|
|
$
|
80,111
|
|
|
0.3
|
%
|
|
$
|
128,948
|
|
|
$
|
135,000
|
|
|
(4.5
|
)%
|
Segment EBITDA margin
|
|
18.8
|
%
|
|
18.7
|
%
|
|
|
|
16.5
|
%
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
14,522
|
|
|
$
|
16,881
|
|
|
(14.0
|
)%
|
|
$
|
29,557
|
|
|
$
|
33,609
|
|
|
(12.1
|
)%
|
Bookings
|
|
466,276
|
|
|
468,661
|
|
|
(0.5
|
)%
|
|
904,852
|
|
|
880,028
|
|
|
2.8
|
%
|
Backlog
|
|
|
|
|
|
|
|
382,598
|
|
|
332,312
|
|
|
15.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of revenue decline:
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic growth
|
|
|
|
|
|
5.1
|
%
|
|
|
|
|
|
5.1
|
%
|
Dispositions
|
|
|
|
|
|
(5.8
|
)%
|
|
|
|
|
|
(6.1
|
)%
|
Foreign currency translation
|
|
|
|
|
|
—
|
%
|
|
|
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
(0.7
|
)%
|
|
|
|
|
|
(1.2
|
)%
|
Second
Quarter
2017
Compared to the
Second
Quarter
2016
Refrigeration & Food Equipment revenue
decreased
$3.1 million
, or
0.7%
, as compared to the
second
quarter of
2016
, primarily driven by the impact from dispositions of
5.8%
offset by organic revenue growth of
5.1%
. Customer pricing favorably impacted revenue by approximately 2.4% in the
second
quarter of
2017
.
|
|
•
|
Refrigeration revenue (representing
82.8%
of segment revenue)
increased
$20.4 million
, or
6.1%
, as compared to the prior year quarter, primarily driven by market participation gains and key customer growth programs in retail refrigeration.
|
|
|
•
|
Food Equipment revenue (representing
17.2%
of segment revenue)
decreased
$23.5 million
, or
24.3%
, as compared to the prior year quarter, due primarily to the disposition of Tipper Tie at the end of 2016. Excluding the disposition, revenue increased $1.2 million, or 1.6%, as compared to the prior year quarter, due to growth in our can-shaping business which more than offset the decline in our commercial cooking equipment markets.
|
Refrigeration & Food Equipment segment earnings
increased
$2.6 million
, or
4.1%
, as compared to the
second
quarter of
2016
. Segment earnings increased $5.0 million, or 8.3%, excluding earnings of $2.4 million due to the disposition of Tipper Tie in 2016. Segment margin increased from
14.7%
to
15.4%
as pricing and productivity initiatives more than offset rising material costs, most notably steel. Sequentially, margin improved 600 basis points.
Second
quarter of
2017
bookings
decreased
0.5%
from the prior year comparable quarter. Excluding divestitures, bookings increased 6.1% driven by strong demand for can-shaping equipment. Book to bill for the
second
quarter of
2017
was
1.09
, flat compared to the prior year quarter. Backlog increased 20% over the prior year after adjusting for the disposition, with strong increases in both platforms.
Six Months Ended June 30,
2017
Compared to the
Six Months Ended June 30,
2016
Refrigeration & Food Equipment segment revenue
decreased
$9.5 million
, or
1.2%
, compared to the
six months
ended
June 30, 2016
, primarily due to the disposition impact of
6.1%
and an unfavorable foreign currency translation of
0.2%
, partially offset by organic revenue growth of
5.1%
. The organic revenue increase for the six month period was driven primarily by strong demand for display cases and specialty products in our retail refrigeration businesses. Customer pricing favorably impacted revenue by approximately 1.6% for the
six months
ended
June 30, 2017
.
Refrigeration & Food Equipment segment earnings
decreased
$2.0 million
, or
2.0%
, for the
six months
ended
June 30, 2017
, as compared to the prior year period. Segment earnings increased $2.3 million, or 2.4%, excluding earnings of $4.3 million due to the 2016 disposition. Segment margin was relatively flat as pricing and productivity initiatives were offset by rising material costs, most notably steel.
Energy
Our Energy segment, serving the Drilling & Production, Bearings & Compression and Automation end markets, is a provider of customer-driven solutions and services for safe and efficient production and processing of fuels worldwide and has a strong presence in the bearings and compression components and automation markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(dollars in thousands)
|
|
2017
|
|
2016
|
|
% Change
|
|
2017
|
|
2016
|
|
% Change
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling & Production
|
|
$
|
241,128
|
|
|
$
|
164,288
|
|
|
46.8
|
%
|
|
$
|
456,585
|
|
|
$
|
352,648
|
|
|
29.5
|
%
|
Bearings & Compression
|
|
80,149
|
|
|
68,549
|
|
|
16.9
|
%
|
|
152,710
|
|
|
132,993
|
|
|
14.8
|
%
|
Automation
|
|
37,891
|
|
|
26,171
|
|
|
44.8
|
%
|
|
73,961
|
|
|
56,597
|
|
|
30.7
|
%
|
Total
|
|
$
|
359,168
|
|
|
$
|
259,008
|
|
|
38.7
|
%
|
|
$
|
683,256
|
|
|
$
|
542,238
|
|
|
26.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
53,368
|
|
|
$
|
(75
|
)
|
|
nm*
|
|
$
|
95,059
|
|
|
$
|
11,169
|
|
|
nm*
|
Segment margin
|
|
14.9
|
%
|
|
—
|
%
|
|
|
|
13.9
|
%
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
$
|
85,368
|
|
|
$
|
33,214
|
|
|
157.0%
|
|
$
|
158,424
|
|
|
$
|
78,618
|
|
|
101.5%
|
Segment EBITDA margin
|
|
23.8
|
%
|
|
12.8
|
%
|
|
|
|
23.2
|
%
|
|
14.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
32,000
|
|
|
$
|
33,289
|
|
|
(3.9
|
)%
|
|
$
|
63,365
|
|
|
$
|
67,449
|
|
|
(6.1
|
)%
|
Bookings
|
|
352,617
|
|
|
246,021
|
|
|
43.3
|
%
|
|
700,934
|
|
|
519,466
|
|
|
34.9
|
%
|
Backlog
|
|
|
|
|
|
|
|
147,568
|
|
|
129,873
|
|
|
13.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of revenue growth:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic growth
|
|
|
|
|
|
|
|
39.3
|
%
|
|
|
|
|
|
26.6
|
%
|
Foreign currency translation
|
|
|
|
|
|
|
|
(0.6
|
)%
|
|
|
|
|
|
(0.6
|
)%
|
|
|
|
|
|
|
|
|
38.7
|
%
|
|
|
|
|
|
26.0
|
%
|
* nm - not meaningful
Second
Quarter
2017
Compared to the
Second
Quarter
2016
Energy revenue
increased
$100.2 million
, or
38.7%
, in the
second
quarter of
2017
as compared to the
second
quarter of
2016
, comprised of organic revenue
growth
of
39.3%
, partially offset by
an unfavorable
impact from foreign currency translation of
0.6%
. The increase is driven by significant growth in U.S. rig count, increases in well completions and strong results in the Bearings & Compression end market. Customer pricing stabilized sequentially and did not have a significant impact to revenue in the
second
quarter of
2017
.
|
|
•
|
Drilling & Production revenue (representing
67.2%
of segment revenue)
increased
$76.8 million
, or
46.8%
, as compared to the prior year quarter, due to significant growth in U.S. rig count and increases in well completion activity.
|
|
|
•
|
Bearings & Compression revenue (representing
22.3%
of segment revenue)
increased
$11.6 million
, or
16.9%
, as compared to the prior year quarter, as a result of increased original equipment manufacturer (OEM) demand.
|
|
|
•
|
Automation revenue (representing
10.5%
of segment revenue)
increased
$11.7 million
, or
44.8%
, as compared to the prior year quarter. This increase was driven by higher demand from well service and exploration and production companies.
|
Segment earnings
increased
$53.4 million
, as compared to the prior year quarter, primarily driven by higher volume across our business and a reduction in restructuring expenses of
$5.6 million
compared to the prior year quarter. Segment margin increased significantly to
14.9%
, as compared to the prior year quarter, mainly due to strong conversion on increased volumes.
Bookings for the
second
quarter of
2017
increased
43.3%
from the prior year quarter, reflecting the impact of market strength. Book-to-bill was
0.98
.
Six Months Ended June 30,
2017
Compared to the
Six Months Ended June 30,
2016
Revenue generated by our Energy segment for the
six months
ended
June 30, 2017
increased
$141.0 million
, or
26.0%
, comprised of organic revenue
growth
of
26.6%
and
an unfavorable
impact from foreign currency translation of
0.6%
. Organic revenue growth was driven by increases in U.S. rig count and well completions. Customer pricing unfavorably impacted revenue by approximately 0.4% for the
six months
ended
June 30, 2017
.
Earnings for the
six months
ended
June 30, 2017
increased
$83.9 million
, as compared to the prior year comparable period. The increase was driven by volume growth across our business and a reduction in restructuring expense of
$11.8 million
to
$0.2 million
during the six months ended June 30, 2017 from
$12.0 million
for the prior year comparable period.
FINANCIAL CONDITION
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Significant factors affecting liquidity are: cash flows generated from operating activities, capital expenditures, acquisitions, dispositions, dividends, repurchases of outstanding shares, adequacy of available commercial paper and bank lines of credit, and the ability to attract long-term capital with satisfactory terms. We generate substantial cash from the operations of our businesses and remain in a strong financial position, with sufficient liquidity available for reinvestment in existing businesses and strategic acquisitions, while managing our capital structure on a short and long-term basis.
Cash Flow Summary
The following table is derived from our Condensed Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
Cash Flows from Operations
(in thousands)
|
2017
|
|
2016
|
Net Cash Flows Provided By (Used In):
|
|
|
|
Operating activities
|
$
|
233,948
|
|
|
$
|
341,281
|
|
Investing activities
|
30,643
|
|
|
(495,272
|
)
|
Financing activities
|
(309,566
|
)
|
|
50,829
|
|
Operating Activities
Cash provided by operating activities for the
six months
ended
June 30, 2017
decreased
approximately
$107.3 million
compared to the comparable period in
2016
. This
decrease
was primarily driven by higher investments in working capital of
$91.8 million
relative to the prior year. In particular, accounts receivable increased due to strong sales during the period and inventory increased in anticipation of strong volume for the balance of the year. These increases were partially offset by an increase in accounts payable. Additionally, during the
six months
ended
June 30, 2017
, we made
$43.0 million
of federal and state tax payments for dispositions.
We believe adjusted working capital (a non-GAAP measure calculated as accounts receivable, plus inventory, less accounts payable) provides a meaningful measure of our operational results by showing changes caused solely by revenue. Adjusted working capital from
December 31, 2016
to
June 30, 2017
increased
$98.3 million
in
2017
, or
7.5%
, to
$1.4 billion
, which reflected
an increase
of
$91.6 million
in inventory and
an increase
of
$130.5 million
in accounts receivable, partially offset by
an increase
in accounts payable of
$123.8 million
.
Investing Activities
Cash provided by or used in investing activities generally results from cash outflows for capital expenditures and acquisitions, offset by proceeds from sales of businesses and property, plant and equipment. For the
six months
ended
June 30, 2017
, we generated cash through investing activities of
$30.6 million
as compared to cash used of
$495.3 million
for the same period in
2016
, driven mainly by the following factors:
|
|
•
|
Proceeds from sale of businesses:
For the
six months
ended
June 30, 2017
, we generated cash of
$121.2 million
from the sale of businesses, of which
$118.7
million was generated from the sale of PMI in the first quarter of 2017, as well as a working capital adjustment for our sale of Tipper Tie in the fourth quarter of 2016. For the
six months
ended
June 30, 2016
, we generated cash of
$47.3 million
from the sale of Texas Hydraulics.
|
|
|
•
|
Acquisitions:
During the
six months
ended
June 30, 2017
, we acquired Caldera within the Engineered Systems segment for a cash consideration of
$25.6 million
. For the
six months
ended
June 30, 2016
, we deployed approximately
$475.2 million
, net, to acquire Tokheim, Fairbanks, and ProGauge within the Fluids segment.
|
|
|
•
|
Capital spending:
Our capital expenditures
increased
$17.9 million
during the
six months
ended
June 30, 2017
compared to the
six months
ended
June 30, 2016
due in part to increased investments in enterprise resource planning (ERP) infrastructure. We expect full year
2017
capital expenditures to approximate 2.4% of revenue.
|
We anticipate that capital expenditures and any acquisitions we make through the remainder of
2017
will be funded from available cash and internally generated funds and through the issuance of commercial paper, use of established lines of credit or public or private debt or equity markets, as necessary.
Financing Activities
Our cash flow from financing activities generally relates to the use of cash for the repurchase of our common stock and payments of dividends, offset by net borrowing activity and proceeds from the exercises of stock options. For the
six months
ended
June 30, 2017
and
2016
, we used cash totaling
$309.6 million
and generated cash totaling
$50.8 million
, respectively, for financing activities, with the activity primarily attributable to the following:
|
|
•
|
Commercial paper and notes payable:
During the
six months
ended
June 30, 2017
, we repaid
$157.4 million
of commercial paper. For the
six months
ended
June 30, 2016
, commercial paper and notes payable increased by
$185.6 million
, as we borrowed $316.4 million to fund the acquisition of Tokheim. We subsequently utilized proceeds from the sale of Texas Hydraulics and internally generated cash to pay down $61.1 million of commercial paper, net of interim period borrowings.
|
|
|
•
|
Dividend payments:
Dividends paid to shareholders during the
six months
ended
June 30, 2017
totaled
$137.2 million
as compared to
$131.3 million
during the same period in
2016
. Our dividends paid per common share increased 5% to
$0.88
during the
six months
ended
June 30, 2017
compared to
$0.84
during the same period in
2016
.
|
|
|
•
|
Net proceeds from the exercise of share-based awards
: Proceeds from the exercise of share-based awards were
$4.0 million
during the
six months
ended
June 30, 2016
. With the adoption of Accounting Standards Update
2016-09, Compensation -
Stock Compensation (Topic 718), this activity is reflected in operating activities for the
six months
ended
June 30, 2017
, and we have elected to reflect this cash flow presentation
prospectively.
Payments to settle tax obligations on these exercises
increased
$4.6 million
compared to the prior year period.
|
Liquidity and Capital Resources
Free Cash Flow
In addition to measuring our cash flow generation and usage based upon the operating, investing and financing classifications included in the Condensed Consolidated Statements of Cash Flows, we also measure free cash flow (a non-GAAP measure) which represents net cash provided by operating activities minus capital expenditures, plus the add back of cash taxes paid for gains on dispositions (which reflect tax payments on disposition-related investing activities). We believe that free cash flow is an important measure of operating performance because it provides management and investors a measurement of cash generated from operations that is available for mandatory payment obligations and investment opportunities, such as funding acquisitions, paying dividends, repaying debt and repurchasing our common stock.
The following table reconciles our free cash flow to cash flow provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
Free Cash Flow
(dollars in thousands)
|
2017
|
|
2016
|
Cash flow provided by operating activities
|
$
|
233,948
|
|
|
$
|
341,281
|
|
Less: Capital expenditures
|
(90,594
|
)
|
|
(72,652
|
)
|
Plus: Cash taxes paid for gains on dispositions
|
42,955
|
|
|
435
|
|
Free cash flow
|
$
|
186,309
|
|
|
$
|
269,064
|
|
|
|
|
|
Free cash flow as a percentage of revenue
|
4.9
|
%
|
|
8.1
|
%
|
|
|
|
|
Free cash flow as a percentage of net earnings
|
55.4
|
%
|
|
123.4
|
%
|
For the
six months
ended
June 30, 2017
, we generated free cash flow of
$186.3 million
, representing
4.9%
of revenue and
55.4%
of net earnings. Free cash flow for the
six months
ended
June 30, 2017
decreased
$82.8 million
compared to the prior year period, primarily due to lower cash flow provided by operations as a result of higher investments in working capital and higher capital expenditures, as previously noted. Based on historical performance, we are targeting to generate free cash flow of approximately 11% of revenue for the full year 2017.
Capitalization
We use commercial paper borrowings for general corporate purposes, including the funding of acquisitions and the repurchase of our common stock. We maintain a $1.0 billion, five-year, unsecured committed revolving credit facility (the "Credit Agreement")
with a syndicate of banks which will expire on November 10, 2020. The Credit Agreement is used primarily as liquidity back-up for our commercial paper program. We have not drawn down any loans under the facility nor do we anticipate doing so. Under the Credit Agreement, we are required to pay a facility fee and to maintain an interest coverage ratio of consolidated EBITDA to consolidated net interest expense of not less than 3.0 to 1.0. We were in compliance with this covenant and our other long-term debt covenants at
June 30, 2017
and had a coverage ratio of
10.4 to 1.0
. We are not aware of any potential impairment to our liquidity and expect to remain in compliance with all of our debt covenants.
We also have a current shelf registration statement filed with the Securities and Exchange Commission that allows for the issuance of additional debt securities that may be utilized in one or more offerings on terms to be determined at the time of the offering. Net proceeds of any offering would be used for general corporate purposes, including repayment of existing indebtedness, capital expenditures and acquisitions.
At
June 30, 2017
, our cash and cash equivalents totaled
$301.6 million
, of which $248.6 million was held outside the United States. Cash and cash equivalents are invested in highly liquid investment-grade money market instruments and bank deposits with maturities of three months or less. We regularly invest cash in excess of near-term requirements in money market instruments or short-term investments, which consist of investment grade time deposits with original maturity dates at the time of purchase of no greater than three months.
We utilize the net debt to net capitalization calculation (a non-GAAP measure) to assess our overall financial leverage and capacity and believe the calculation is useful to investors for the same reason. Net debt represents total debt minus cash and cash equivalents. Net capitalization represents net debt plus stockholders' equity. The following table provides a reconciliation of net debt to net capitalization to the most directly comparable GAAP measures:
|
|
|
|
|
|
|
|
|
|
Net Debt to Net Capitalization Ratio
(dollars in thousands)
|
|
June 30, 2017
|
|
December 31, 2016
|
Current maturities of long-term debt
|
|
$
|
353,065
|
|
|
$
|
6,950
|
|
Commercial paper
|
|
253,900
|
|
|
407,600
|
|
Notes payable and current maturities of long-term debt
|
|
606,965
|
|
|
414,550
|
|
Long-term debt
|
|
2,925,472
|
|
|
3,206,637
|
|
Total debt
|
|
3,532,437
|
|
|
3,621,187
|
|
Less: Cash and cash equivalents
|
|
(301,588
|
)
|
|
(349,146
|
)
|
Net debt
|
|
3,230,849
|
|
|
3,272,041
|
|
Add: Stockholders' equity
|
|
4,072,434
|
|
|
3,799,746
|
|
Net capitalization
|
|
$
|
7,303,283
|
|
|
$
|
7,071,787
|
|
Net debt to net capitalization
|
|
44.2
|
%
|
|
46.3
|
%
|
Our net debt to net capitalization ratio decreased to
44.2%
at
June 30, 2017
from
46.3%
at
December 31, 2016
. The decrease in this ratio was driven primarily by the
$231.5 million
increase in our net capitalization as a result of
$336.3 million
of current earnings offset by $88.8 million reduction in total debt, primarily due to the repayment of commercial paper.
Operating cash flow and access to capital markets are expected to satisfy our various cash flow requirements, including acquisitions and capital expenditures. Acquisition spending and/or share repurchases could potentially increase our debt.
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements and related public financial information are based on the application of GAAP which requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our public disclosures, including information regarding contingencies, risk and our financial condition. We believe our use of estimates and underlying accounting assumptions conform to GAAP and are consistently applied. We review valuations based on estimates for reasonableness on a consistent basis.
Recent Accounting Standards
See Part 1, Notes to Condensed Consolidated Financial Statements,
Note 18 — Recent Accounting Pronouncements
. The adoption of recent accounting standards as included in
Note 18 — Recent Accounting Pronouncements
in the Condensed Consolidated Financial Statements has not had and is not expected to have a significant impact on our revenue, earnings or liquidity.
Special Notes Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, 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. Such statements concern future events and may be indicated by words or phrases such as "anticipates," "expects," "believes," "suggests," "will," "plans," "should," "would," "could," and "forecast," or the use of the future tense and similar words or phrases. Forward-looking statements address matters that are uncertain, including, by way of example only: operating and strategic plans, future sales, earnings, cash flows, margins, organic growth, growth from acquisitions, restructuring charges, cost structure, capital expenditures, capital allocation, capital structure, dividends, cash flows, exchange rates, tax rates, interest rates, interest expense, changes in operations and trends in industries in which our businesses operate, anticipated market conditions and our positioning, global economies, and operating improvements. Forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from current expectations, including, but not limited to, economic conditions generally and changes in economic conditions globally and in the markets and industries served by our businesses, including oil and gas activity and U.S. industrials activity; conditions and events affecting domestic and global financial and capital markets; oil and natural gas demand, production growth, and prices; changes in exploration and production spending by our customers and changes in the level of oil and natural gas exploration and development; changes in customer demand and capital spending; risks related to our international operations and the ability of our businesses to expand into new geographic markets; the impact of interest rate and currency exchange rate fluctuations; increased competition and pricing pressures; the impact of loss of a significant customer, or loss or non-renewal of significant contracts; the ability of our businesses to adapt to technological developments; the ability of our businesses to develop and launch new products, timing of such launches and risks relating to market acceptance by customers; the relative mix of products and services which impacts margins and operating efficiencies; the impact of loss of a single-source manufacturing facility; short-term capacity constraints; domestic and foreign governmental and public policy changes or developments, including import/export laws and sanctions, tax policies, environmental regulations and conflict minerals disclosure requirements; increases in the cost of raw materials; our ability to identify and successfully consummate value-adding acquisition opportunities or planned divestitures, and to realize anticipated earnings and synergies from acquired businesses and joint ventures; our ability to achieve expected savings from integration and other cost-control initiatives, such as lean and productivity programs as well as efforts to reduce sourcing input costs; the impact of legal compliance risks and litigation, including product recalls; indemnification obligations related to acquired or divested businesses; cybersecurity and privacy risks; protection and validity of patent and other intellectual property rights; goodwill or intangible asset impairment charges; a downgrade in our credit ratings which, among other matters, could make obtaining financing more difficult and costly; and work stoppages, union and works council campaigns and other labor disputes which could impact our productivity. Dover refers you to the documents that it files from time to time with the Securities and Exchange Commission, such as its reports on Form 10-K for a discussion of these and other risks and uncertainties that could cause its actual results to differ materially from its current expectations and from the forward-looking statements contained herein. Dover undertakes no obligation to update any forward-looking statement, except as required by law.
The Company may, from time to time, post financial or other information on its website, www.dovercorporation.com. The website is for informational purposes only and is not intended for use as a hyperlink. The Company is not incorporating any material on its website into this report.
Non-GAAP Disclosures
In an effort to provide investors with additional information regarding our results as determined by GAAP, we also disclose non-GAAP information that we believe provides useful information to investors. Segment EBITDA, segment EBITDA margin, free cash flow, net debt, net capitalization, the net debt to net capitalization ratio, adjusted working capital and organic revenue growth are not financial measures under GAAP and should not be considered as a substitute for cash flows from operating activities, debt or equity, earnings, revenue or working capital as determined in accordance with GAAP, and they may not be comparable to similarly titled measures reported by other companies. We believe that segment EBITDA and segment EBITDA margin are useful to investors and other users of our financial information in evaluating ongoing operating profitability as they exclude the depreciation and amortization expense related primarily to capital expenditures and acquisitions that occurred in prior years, as well as in evaluating operating performance in relation to our competitors. Segment EBITDA is calculated by adding back depreciation and amortization expense to segment earnings, which is the most directly comparable GAAP measure. We do not present segment net income because corporate expenses are not allocated at a segment level. Segment EBITDA margin is calculated as segment EBITDA divided by segment revenue.
We believe the net debt to net capitalization ratio and free cash flow are important measures of liquidity. Net debt to net capitalization is helpful in evaluating our capital structure and the amount of leverage we employ. Free cash flow provides both management and investors a measurement of cash generated from operations that is available to fund acquisitions, pay dividends, repay debt and repurchase our common stock. Reconciliations of free cash flow, net debt and net capitalization can be found above in this Item 2, MD&A. We believe that reporting adjusted working capital, which is calculated as accounts receivable, plus inventory, less accounts payable, provides a meaningful measure of our operational results by showing the changes caused solely by revenue. We believe that reporting organic revenue and organic revenue growth, which exclude the impact of foreign currency exchange rates and the impact of acquisitions and divestitures, provides a useful comparison of our revenue performance and trends between periods.