Business description of DOVER-Corp from last 10-k form
2
Overview
Dover Corporation (“Dover” or the
“Company”), incorporated in 1947 in the State of
Delaware, became a publicly traded company in 1955. The Company
owns and operates a global portfolio of manufacturing companies
providing innovative components and equipment, specialty systems
and support services for a variety of applications in the
industrial products, engineered systems, fluid management and
electronic technologies markets. Additional information is
contained in Items 7 and 8.
Operating
Structure
The Company reports its results in four business
segments — Industrial Products, Engineered Systems,
Fluid Management and Electronic Technologies. The Company
discusses its operations at the platform level within the
Industrial Products, Engineered Systems, and Fluid Management
segments, each of which contains two platforms. The results of
Electronic Technologies are discussed at the segment level.
Dover companies design, manufacture, assemble
and/or
service the following:
Industrial
Products
Engineered
Systems
Fluid
Management
Electronic
Technologies
Business
Strategy
The Company operates with certain fundamental business
strategies. First, it seeks to acquire and own businesses that
manufacture proprietary engineered industrial products and are
leaders in four broad markets: Industrial Products, Engineered
Systems, Fluid Management and Electronic Technologies. To ensure
success, Dover companies place strong emphasis on new product
development to better serve customers and expand into new
product and geographic markets. Second, the Company’s
businesses are committed to operational excellence, and to being
market leaders as measured by market share, customer service,
innovation, profitability and return on invested capital. Third,
the Company is committed to an operating culture with high
ethical standards, trust, respect and open communication, to
allow individual growth and operational effectiveness. Fourth,
the Company seeks to utilize its strong free cash flow in a
balanced manner to grow its businesses and to increase
shareholder value.
Management
Philosophy
The Company’s operating structure of four defined industry
segments and six core business platforms within those segments
drives focused acquisition activity, accelerates opportunities
to identify and capture operating synergies, including global
sourcing and supply chain integration, and advances the
development of the Company’s executive talent. The
presidents of the Company’s operating companies and groups
have responsibility for their businesses’ performance as
they are able to serve customers by focusing closely on their
products and markets and reacting quickly to customer needs. The
Company’s segment and executive management set strategic
direction and initiatives, provide oversight, allocate and
manage capital, are responsible for major acquisitions and
provide other services.
In addition, the Company is committed to creating value for its
customers, employees and shareholders through sustainable
business practices that protect the environment and the
development of products that help its customers meet their
sustainability goals. Dover companies are increasing their focus
on efficient energy usage, greenhouse gas reduction and waste
management as they strive to meet the global environmental needs
of today and tomorrow.
Company
Goals
The Company is committed to driving shareholder return through
three key objectives. First, the Company is committed to
achieving annual sales growth of 7% to 10% which includes 4% to
5% through-cycle organic growth. The balance of sales growth is
expected to be achieved from disciplined acquisitions. Secondly,
the Company continues to focus on margin improvement activities
and to expand return on invested capital to effectuate earnings
per share growth ranging from 10% to 13% on an annual basis.
Lastly, the Company is committed to generating free cash flow as
a percentage of sales in excess of 10% through disciplined
capital allocation and active working capital management. The
Company supports these goals through (1) alignment of
management compensation with these objectives, (2) a well
defined and actively managed merger and acquisition processes,
and (3) talent development programs.
Portfolio
Development
Acquisitions
The Company’s acquisition program has two elements. First,
it seeks to acquire value creating add-on businesses that
broaden its existing companies and their global reach,
manufacture innovative components and equipment, specialty
systems
and/or
support services, and sell to industrial or commercial users.
Second, in the right circumstances, it will strategically pursue
larger, stand-alone businesses that have the potential to either
complement its existing companies or allow the Company to pursue
a new platform. During the period from 2007 through 2009, the
Company purchased 17 businesses with an aggregate cost of
$605.8 million.
In 2009, the Company acquired six add-on businesses, for
aggregate consideration of $228.4 million (including
$6.4 million of consideration paid in the form of common
stock issued in connection with the acquisition of Inpro/Seal
Company). In 2008, the Company acquired four add-on businesses
for an aggregate cost of $103.8 million, and in 2007, the
Company acquired seven add-on businesses for an aggregate cost
of $273.6 million.
For more details regarding acquisitions completed over the past
two years, see Note 2 to the Consolidated Financial
Statements in Item 8. The Company’s future growth
depends in large part on finding and acquiring successful
businesses, as a substantial number of the Company’s
current businesses operate in relatively mature markets. While
the Company expects to generate annual organic growth of
4% - 5% over a business cycle absent extraordinary economic
conditions, sustained organic growth at these levels for
individual businesses is difficult to achieve consistently each
year.
Dispositions
While the Company generally expects to hold and integrate
businesses that it buys, it continually reviews its portfolio to
verify that those businesses continue to be essential
contributors to the Company’s long-term growth strategy.
Occasionally the Company may also make an opportunistic sale of
one of its companies based on specific market conditions and
strategic considerations. During the past three years (2007-
2009), the Company decided to reduce its exposure to small,
lower margin operations, and, accordingly, it discontinued 7
operations and sold 10 businesses for an aggregate consideration
of approximately $187.3 million. For more details, see the
“Discontinued Operations” discussion below and
Note 3 to the Consolidated Financial Statements in
Item 8.
Reportable
Segments
Below is a description of the Company’s reportable segments
and related platforms. For additional financial information
about the Company’s reportable segments, see Note 14
to the Consolidated Financial Statements in Item 8 of this
Form 10-K.
Industrial
Products
The Industrial Products segment provides Material Handling
products and services that improve its customers’
productivity as well as products used in various Mobile
Equipment applications primarily in the transportation
equipment, vehicle service and solid waste management markets.
The segment manages and sells its products and services through
two business platforms described below.
Material
Handling
The Material Handling platform primarily serves two global
markets — infrastructure and industrial automation.
The companies in this platform develop and manufacture branded
customer productivity enhancing systems. These products are
produced in the United States, Germany, Thailand, India, China,
Brazil and France and are marketed globally on a direct basis to
original equipment manufacturers (OEMs) and through a global
dealer and distribution network to industrial end users.
The Material Handling platform companies in the infrastructure
market sell to broad segments of the construction, utility,
demolition, recycling, scrap processing, material handling,
forestry, energy, military, marine, towing/recovery, refuse,
mining and automotive OEM markets. Major products include mobile
shears, concrete demolition tools, buckets, backhoes, trenchers,
augers, worm gear and planetary winches, and hydraulic lift and
electronic control/monitoring systems for mobile and structural
cranes, 4WD and AWD power train systems, accessories for
off-road vehicles and operator cabs and rollover structures.
These products are sold to OEMs and extensive dealer networks
primarily in North America. Components systems and services are
also provided for military vehicles and marine applications.
The Material Handling platform companies in the industrial
automation market provide a wide range of modular automation
components including manual clamps, power clamps, rotary and
linear mechanical indexers, conveyors, pick and place units, as
well as
end-of-arm
robotic grippers, slides and end effectors. These products serve
a very broad market including food processing, packaging, paper
processing, medical, electronic, automotive, nuclear, and
general industrial products. These businesses generate almost
half of their revenues outside the U.S.
Mobile
Equipment
The Mobile Equipment platform serves three primary
markets — transportation equipment, solid waste
management and vehicle service. The companies in this platform
manufacture tank trailers, specialty trailers, refuse collection
bodies (garbage trucks), container lifts,
on-site
waste management and recycling systems, vehicle service lifts,
touch-free and friction vehicle wash systems, vehicle collision
measuring and repair systems, aerospace and submarine related
fluid control assemblies, high strength fasteners and bearings,
internal jet engine components and accessories, precision
components for commercial and military aerospace equipment and
commercial aerospace after market services. The businesses also
provide components for off-road sports vehicles and high
performance automotive and power-sport vehicles. The platform
has manufacturing operations in North and South America, Asia
and Europe.
The businesses in the transportation equipment market
manufacture and sell aluminum, stainless steel and steel tank
trailers that carry petroleum products, chemical, edible and dry
bulk products, as well as specialty trailers focused on the
heavy haul, oil field and recovery markets. Trailers are
marketed both directly and indirectly through distributors to
customers in the construction, trucking, railroad, oilfield and
heavy haul industries. These products are also sold to
government agencies in the United States and globally.
The businesses in the solid waste management market provide
products and services for the refuse collection industry and for
on-site
processing and compaction of trash and recyclable materials.
Products are sold to municipal customers, national accounts and
independent waste haulers through a network of distributors and
directly in certain geographic areas. The
on-site
waste management and recycling systems include a variety of
stationary compactors, wire processing and separation machines,
and balers that are manufactured and sold primarily in the
U.S. to distribution centers, malls, stadiums, arenas,
office complexes, retail stores and recycling centers.
The businesses in the vehicle service market provide a wide
range of products and services that are utilized in vehicle
services, maintenance, repair and modification. Vehicle lifts
and collision equipment are sold through equipment distributors
and directly to a wide variety of markets, including independent
service and repair shops, collision repair shops, national
chains and franchised service facilities, new vehicle dealers,
governments, and directly to consumers via the internet. Car
wash systems, both “touch-free” and
“friction”, are sold primarily in the United States
and Canada to major oil companies, convenience store chains and
individual investors. These products are sold through a
distribution network that installs the equipment and provides
after sale service and support. High performance internal
combustion engine components, including pistons, connecting
rods, crankshafts and accessories, and fuel and combustion
management devices are designed to meet customer specifications
for the racing and enthusiast markets in both the powersports
and automotive market segments. These products are sold directly
and through distribution networks on a global basis.
Engineered
Systems
The Engineered Systems segment provides products and services
for the refrigeration, storage, packaging and preparation of
food products, as well as industrial marking and coding systems
for various markets. The segment serves its markets by managing
these products and services through two business platforms which
are described below.
Product
Identification
The Product Identification platform (“PI”) is a
worldwide supplier of industrial marking and coding systems that
serves food, beverage, cosmetic, pharmaceutical, electronic,
automotive and other markets where variable marking is required.
Its primary printing products are used for marking variable
information (such as date codes or serial numbers) on consumer
products. PI provides solutions for product marking on primary
packaging, secondary packaging such as cartons, and pallet
marking for use in warehouse logistics operations. PI also
manufactures bar code printers and portable printers used where
on demand labels/receipts are required. The PI principal
manufacturing facilities are in the United States, France and
China with sales operations globally.
Engineered
Products
The Engineered Products platform manufactures refrigeration
systems, refrigeration display cases, walk-in coolers and
freezers, electrical distribution products and engineering
services, commercial foodservice equipment, cook-chill
production systems, custom food storage and preparation
products, kitchen ventilation systems, conveyer systems,
beverage can-making machinery, and packaging machines used for
meat, poultry and other food products. In addition, the platform
manufactures copper-brazed compact heat exchangers, and designs
software for heating and cooling substations. The
platform’s manufacturing facilities and distributing
operations are in North America, Europe and Asia.
The majority of the systems and machinery that are manufactured
or serviced by the Engineered Products platform is used by the
supermarket industry, “big-box” retail and convenience
stores, the commercial/industrial refrigeration industry,
institutional and commercial foodservice markets, and beverage
can-making industries. The commercial foodservice cooking
equipment products serve their markets worldwide through a
network of dealers, distributors, national chain accounts,
manufacturer representatives, and a direct sales force with the
primary market being North America. The heat exchangers are sold
via a direct sales force throughout the world for various
applications in a wide variety of industries.
Fluid
Management
The Fluid Management segment provides products and services for
end-to-end
stewardship of its customers’ critical fluids including
liquids, gases, powders and other solutions that are hazardous,
valuable or process-critical. The segment provides highly
engineered, cost-saving technologies that help contain, control,
move, measure and monitor these critical fluids. To better serve
its end-markets, these products and services are channeled
through two business platforms described below.
Energy
The Energy platform serves the oil, gas and power generation
industries. Its products promote the efficient and
cost-effective extraction, storage and movement of oil and gas
products, or constitute critical components for power generation
equipment. Major products manufactured by companies within this
platform include: polycrystalline diamond cutters (PDCs) used in
drill bits for oil and gas wells; steel sucker rods, plunger
lifts, and accessories used in artificial lift applications in
oil and gas production; pressure, temperature and flow
monitoring equipment used in oil and gas exploration and
production applications; and control valves and instrumentation
for oil and gas production. In addition, these companies
manufacture various compressor parts that are used in the
natural gas production, distribution and oil refining markets,
as well as bearings and remote condition monitoring systems that
are used for rotating machinery applications such as turbo
machinery, motors, generators and compressors used in energy,
utility, marine and other industries. Sales are made directly to
customers and through various distribution channels. Sales are
predominantly in North America with international sales directed
largely to Europe and South America.
Fluid
Solutions
The Fluid Solutions platform manufactures pumps, compressors,
vehicle fuel dispensing products, and products for the transfer,
monitoring, measuring and protection of hazardous, liquid and
dry bulk commodities. In addition, these companies manufacture
quick disconnect couplings and chemical proportioning and
dispensing products. The products are manufactured in the United
States, South America, Asia and Europe and marketed globally
through a network of distributors or via direct channels.
Vehicle fuel dispensing products include conventional, vapor
recovery, and clean energy (LPG, CNG, and Hydrogen) nozzles,
swivels and breakaways, as well as tank pressure management
systems. Products manufactured for the transportation, storage
and processing of hazardous liquid and dry-bulk commodities
include relief valves, loading/unloading angle valves, rupture
disc devices, actuator systems, level measurement gauges, swivel
joints, butterfly valves, lined ball valves, aeration systems,
industrial access ports, manholes, hatches, collars, weld rings
and fill covers.
This platform’s pumps and compressors are used to transfer
liquid and bulk products and are sold to a wide variety of
markets, including the refined fuels, LPG, pulp and paper,
wastewater, food/sanitary, military, transportation and chemical
process industries. These companies manufacture centrifugal,
reciprocating (double diaphragm) and rotary pumps that are used
in demanding and specialized fluid transfer process applications.
The quick disconnect couplings provide fluid control solutions
to the industrial, food handling, life sciences and chemical
handling markets. The chemical portioning and dispensing systems
are used to dilute and dispense
concentrated cleaning chemicals and are sold to the food
service, health care, supermarket, institutional, school,
building service contractor and industrial markets.
Electronic
Technologies
The Electronic Technologies segment designs and manufactures
electronic test, material deposition and manual soldering
equipment, advanced micro-acoustic components, and specialty
electronic components. The products are manufactured primarily
in North America, Europe and Asia and are sold throughout the
world directly and through a network of distributors.
The test equipment products include machines, test fixtures and
related products used in testing “bare” and
“loaded” electronic circuit boards and semiconductors.
In addition, the segment manufactures high-speed precision
material deposition machines and other related tools used in the
assembly process for printed circuit boards and other specialty
applications as well as precision manual soldering, de-soldering
and other hand tools.
The micro-acoustic components manufactured include audio
communications components, primarily miniaturized microphones,
receivers and electromechanical components for use in hearing
aids as well as high performance transducers for use in
professional audio devices, high-end headsets, medical devices
and military headsets. This business also designs, manufactures
and assembles microphones for use in the personal mobile device
and communications markets, including mobile phones, PDAs,
Bluetooth
®
headsets and laptop computers.
The specialty electronic components include frequency
control/select components and modules employing quartz
technologies, microwave electromechanical switches, radio
frequency and microwave filters, integrated assemblies,
multi-layer ceramic capacitors and high frequency capacitors.
These components are sold to communication, medical, defense,
aerospace and automotive manufacturers worldwide.
Discontinued
Operations
Operating companies that are considered discontinued operations
in accordance with Accounting Standards Codification
(“ASC”) 360, Property Plant and Equipment, are
presented separately in the consolidated statements of
operations, balance sheets and cash flows and are not included
in continuing operations. Earnings from discontinued operations
include impairment charges, when necessary, to reduce these
businesses to estimated fair value. Fair value is determined by
using directly observable inputs, such as a negotiated selling
price, or other valuation techniques that use market assumptions
that are reasonable and supportable. All interim and full year
reporting periods presented reflect the continuing operations on
a comparable basis. Please refer to Note 3 to the
Consolidated Financial Statements in Item 8 of this
Form 10-K
for additional information on discontinued operations.
Raw
Materials
The Company’s operating companies use a wide variety of raw
materials, primarily metals and semi-processed or finished
components, which are generally available from a number of
sources. As a result, shortages or the loss of any single
supplier have not had, and are not likely to have, a material
impact on operating profits. While the needed raw materials are
generally available, commodity pricing has trended upward over
the past few years, particularly for various grades of steel,
copper, aluminum and select other commodities. The Company has
generally kept pace with or exceeded raw material cost increases
using effective pricing strategies. During 2009, the Company
generally experienced decreases in commodity prices.
Research
and Development
The Company’s operating companies are encouraged to develop
new products as well as to upgrade and improve existing products
to satisfy customer needs, expand revenue opportunities
domestically and internationally, maintain or extend competitive
advantages, improve product reliability and reduce production
costs. During 2009, $178.3 million of expense was incurred
for research and development, including qualified engineering
costs, compared with $189.2 million and $193.2 million
in 2008 and 2007, respectively.
Our operating companies in the Product Identification platform
and Electronic Technologies segment expend significant effort in
research and development because the rate of product development
by their customers is often quite high. The companies that
develop product identification equipment and specialty
electronic components for the life sciences, datacom and telecom
commercial markets believe that their customers expect a
continuing rate of product innovation, performance improvement
and reduced costs. The result has been that product life cycles
in these markets generally average less than five years with
meaningful sales price reductions over that time period.
The Company’s other segments contain many businesses that
are also involved in important product improvement initiatives.
These businesses also concentrate on working closely with
customers on specific applications, expanding product lines and
market applications, and continuously improving manufacturing
processes. Most of these businesses experience a much more
moderate rate of change in their markets and products than is
generally experienced by the Product Identification platform and
the Electronic Technologies segment.
Intellectual
Property and Intangible Assets
The Company owns many patents, trademarks, licenses and other
forms of intellectual property, which have been acquired over a
number of years and, to the extent relevant, expire at various
times over a number of years. A large portion of the
Company’s intellectual property consists of patents,
unpatented technology and proprietary information constituting
trade secrets that the companies seek to protect in various
ways, including confidentiality agreements with employees and
suppliers where appropriate. In addition, a significant portion
of the Company’s intangible assets relate to customer
relationships. While the Company’s intellectual property
and customer relationships are important to its success, the
loss or expiration of any of these rights or relationships, or
any group of related rights or relationships, is not likely to
materially affect the Company on a consolidated basis. The
Company believes that its companies’ commitment to
continuous engineering improvements, new product development and
improved manufacturing techniques, as well as strong sales,
marketing and service efforts, are significant to their general
leadership positions in the niche markets that they serve.
Seasonality
In general, Dover companies, while not strongly seasonal, tend
to have stronger revenue in the second and third quarters,
particularly companies serving the consumer electronics,
transportation, construction, waste hauling, petroleum,
commercial refrigeration and food service markets. Companies
serving the major equipment markets, such as power generation,
chemical and processing industries, have long lead times geared
to seasonal, commercial or consumer demands, and tend to delay
or accelerate product ordering and delivery to coincide with
those market trends.
Customers
Dover’s companies serve thousands of customers, no one of
which accounted for more than 10% of the Company’s
consolidated revenue in 2009. Similarly, within each of the
four segments, no customer accounted for more than 10% of that
segment’s revenue in 2009.
With respect to the Engineered Systems, Fluid Management and
Industrial Products segments, customer concentrations are quite
varied. Companies supplying the waste handling, construction,
agricultural, defense, energy, automotive and commercial
refrigeration industries tend to deal with a few large customers
that are significant within those industries. This also tends to
be true for companies supplying the power generation, aerospace
and chemical industries. In the other markets served, there is
usually a much lower concentration of customers, particularly
where the companies provide a substantial number of products as
well as services applicable to a broad range of end use
applications.
Certain companies within the Electronic Technologies segment
serve the military, space, aerospace, commercial and
datacom/telecom infrastructure markets. Their customers include
some of the largest operators in these markets. In addition,
many of the OEM customers of these companies within the
Electronic Technologies segment outsource their manufacturing to
Electronic Manufacturing Services (“EMS”) companies.
Other customers include global cell phone and hearing aid
manufacturers, many of the largest global EMS companies,
particularly in China, and major printed circuit board and
semiconductor manufacturers.
Backlog
Backlog generally is not a significant long-term success factor
in most of the Company’s businesses, as most of the
products of Dover companies have relatively short
order-to-delivery
periods. It is more relevant to those businesses that produce
larger and more sophisticated machines or have long-term
government contracts, primarily in the Mobile Equipment platform
within the Industrial Products segment. Total Company backlog as
of December 31, 2009 and 2008 was $1,083.5 million and
$1,156.0 million, respectively. This reflects the decrease
in global economic activity experienced during the latter half
of 2008, which began to stabilize in the latter half of 2009.
Competition
The Company’s competitive environment is complex because of
the wide diversity of the products its companies manufacture and
the markets they serve. In general, most Dover companies are
market leaders that compete with only a few companies, and the
key competitive factors are customer service, product quality
and innovation. Dover companies usually have more significant
competitors domestically, where their principal markets are,
than in
non-U.S. markets.
However, Dover companies are becoming increasingly global where
more competitors exist.
Certain companies in the Electronic Technologies and Engineered
Systems segments compete globally against a variety of
companies, primarily operating in Europe and the Far East.
International
For
non-U.S. revenue
and an allocation of the assets of the Company’s continuing
operations, see Note 14 to the Consolidated Financial
Statements in Item 8 of this
Form 10-K.
Although international operations are subject to certain risks,
such as price and exchange rate fluctuations and
non-U.S. governmental
restrictions, the Company continues to increase its expansion
into international markets, including South America, Asia and
Eastern Europe.
Most of the Company’s
non-U.S. subsidiaries
and affiliates are based in France, Germany, the United Kingdom,
the Netherlands, Sweden, Switzerland and, with increased
emphasis, China, Malaysia, India, Mexico, Brazil and Eastern
Europe.
Environmental
Matters
The Company believes its companies’ operations generally
are in substantial compliance with applicable regulations. In a
few instances, particular plants and businesses have been the
subject of administrative and legal proceedings with
governmental agencies or private parties relating to the
discharge or potential discharge of regulated substances. Where
necessary, these matters have been addressed with specific
consent orders to achieve compliance. The Company believes that
continued compliance will not have a material impact on the
Company’s financial position and will not require
significant expenditures or adjustments to reserves.
Employees
The Company had approximately 29,300 employees in
continuing operations as of December 31, 2009, which was a
decline of approximately 9% from the prior year end, reflecting
the Company’s restructuring activities in response to an
overall global economic slowdown.
Other
Information
The Company makes available through the “Financial
Reports” link on its Internet website,
http://www.dovercorporation.com,
the Company’s annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and any amendments to these reports. The Company posts each of
these reports on the website as soon as reasonably practicable
after the report is filed with the Securities and Exchange
Commission. The information on the Company’s Internet
website is not incorporated into this
Form 10-K.
The Company’s business, financial condition, operating
results and cash flows can be impacted by a number of factors
which could cause its actual results to vary materially from
recent results or from anticipated future results. In general,
the Company is subject to the same general risks and
uncertainties that impact many other industrial companies such
as general economic, industry
and/or
market conditions and growth rates; the impact of natural
disasters, and their effect on global energy markets; continued
events in the Middle East and possible future terrorist threats
and their effect on the worldwide economy; and changes in laws
or accounting rules. The risk factors discussed in this section
should be considered together with information included
elsewhere in this Annual Report on
Form 10-K
and should not be considered the only risks facing the Company.
The Company has identified the following specific risks and
uncertainties that it considers material:
In 2010, the Company’s businesses may continue to be
adversely affected by disruptions in the financial markets or
declines in economic activity both domestically and
internationally in those countries in which the Company
operates. These circumstances will also impact the
Company’s suppliers and customers in various ways which
could have an impact on the Company’s business operations,
particularly if global credit markets are not operating
efficiently and effectively to support industrial commerce. Such
negative changes in worldwide economic and capital market
conditions are beyond the Company’s control, are highly
unpredictable, and can have an adverse effect on the
Company’s revenue, earnings, cash flows and cost of capital.
The Company’s competitive environment is complex because of
the wide diversity of the products that its companies
manufacture and the markets they serve. In general, most Dover
companies compete with only a few companies. The ability of
Dover’s companies to compete effectively depends on how
successfully they anticipate and respond to various competitive
factors, including new products and services that may be
introduced by their competitors, changes in customer
preferences, and pricing pressures. If Dover’s companies
are unable to anticipate their competitors’ development of
new products and services
and/or
identify customer needs and preferences on a timely basis or
successfully introduce new products and services in response to
such competitive factors, they could lose customers to
competitors. If Dover’s companies do not compete
effectively, Dover companies may experience lower revenue,
operating profits and cash flows.
Certain Dover companies, particularly in the Electronic
Technologies segment, sell their products in industries that are
constantly experiencing change as new technologies are
developed. In order to grow and remain competitive, the
companies in these industries must adapt to future changes in
technology to enhance their existing products and introduce new
products to address their customers’ changing demands.
Also, a meaningful portion of the Electronic Technologies
segment’s revenue is derived from companies that are
subject to unpredictable short-term business cycles.
The Energy platform in the Fluid Management segment is subject
to risk due to the volatility of energy prices, although overall
demand is more directly related to depletion rates and global
economic conditions and related energy demands. In addition,
certain Dover businesses manufacture products that are used in
or related to residential and commercial construction, which can
be adversely affected by a prolonged downturn in new housing
starts and other construction markets.
As a result of all the above factors, the revenue and operating
performance of these companies in any one period are not
necessarily predictive of their revenue and operating
performance in other periods, and these factors could have a
material impact on the Company’s consolidated results of
operations, financial position and cash flows.
Dover’s companies purchase raw materials, subassemblies and
components for use in their manufacturing operations, which
exposes them to volatility in prices for certain commodities.
Significant price increases for these
commodities could adversely affect operating profits for certain
Dover companies. While the Company’s businesses generally
attempt to mitigate the impact of increased raw material prices
by hedging or passing along the increased costs to customers,
there may be a time delay between the increased raw material
prices and the ability to increase the prices of products, or
they may be unable to increase the prices of products due to a
competitor’s pricing pressure or other factors. In
addition, while raw materials are generally available now, the
inability to obtain necessary raw materials could affect the
ability to meet customer commitments and satisfy market demand
for certain products. Consequently, a significant price increase
in raw materials, or their unavailability, may result in a loss
of customers and adversely impact revenue, operating profits and
cash flows.
Approximately 43% of the Company’s revenue is derived
outside of the United States and the Company continues to focus
on penetrating new global markets as part of its overall growth
strategy. This global expansion strategy is subject to general
risks related to international operations, including, among
others: political, social and economic instability and
disruptions; government embargoes or trade restrictions; the
imposition of duties and tariffs and other trade barriers;
import and export controls; increased compliance costs;
transportation delays and disruptions; and difficulties in
staffing and managing multi-national organizations. If the
Company is unable to successfully mitigate these risks, they
could have an adverse effect on the Company’s growth
strategy involving expansion into new geographic markets and on
its results of operations and financial position.
The Company conducts business through its subsidiaries in many
different countries, and fluctuations in currency exchange rates
could have a significant impact on the reported results of
operations, which are presented in U.S. dollars. A
significant and growing portion of the Company’s products
are manufactured in lower-cost locations and sold in various
countries. Cross border transactions, both with external parties
and intercompany relationships, result in increased exposure to
foreign exchange effects. Accordingly, significant changes in
currency exchange rates, particularly the Euro, Pound Sterling,
Chinese RMB (Yuan) and the Canadian dollar, could cause
fluctuations in the reported results of the Company’s
operations that could negatively affect its results of
operations. Additionally, the strengthening of certain
currencies such as the Euro and U.S. dollar potentially
exposes the Company to competitive threats from lower cost
producers in other countries such as China. The Company’s
sales are translated into U.S. dollars for reporting
purposes. The weakening of the U.S. dollar could result in
unfavorable translation effects as the results of foreign
locations are translated into U.S. dollars.
The Company is continually evaluating its cost structure and
seeking ways to capture synergies across its operations. If the
Company is unable to reduce costs and expenses through its
various programs, it could adversely affect the Company’s
operating profits and cash flows.
The Company’s growth, profitability and effectiveness in
conducting its operations and executing its strategic plans
depend in part on its ability to attract, retain and develop
qualified personnel, align them with appropriate opportunities
and maintain adequate succession plans for key management
positions. If the Company is unsuccessful in these efforts, its
operating results could be adversely affected.
The Company’s domestic and international sales and
operations are subject to risks associated with changes in local
government laws (including environmental and export laws),
regulations and policies. Failure to comply with any of these
laws could result in civil and criminal, monetary and
non-monetary penalties as well as potential damage
to the Company’s reputation. In addition, the Company
cannot provide assurance that its costs of complying with
current or future laws, including environmental protection,
employment, and health and safety laws, will not exceed its
estimates. In addition, the Company has invested in certain
countries, including Brazil, Russia, India and China that carry
high levels of currency, political, compliance and economic
risk. While these risks or the impact of these risks are
difficult to predict, any one or more of them could adversely
affect the Company’s businesses and reputation.
The Company’s effective tax rate is impacted by changes in
the mix among earnings in countries with differing statutory tax
rates, changes in the valuation allowance of deferred tax assets
or changes in tax laws. The amount of income taxes and other
taxes paid can be adversely impacted by changes in statutory tax
rates and laws and are subject to ongoing audits by domestic and
international authorities. If these audits result in assessments
different from amounts estimated, then the Company’s
financial results may be adversely affected by unfavorable tax
adjustments.
The Company and certain of its subsidiaries are, and from time
to time may become, parties to a number of legal proceedings
incidental to their businesses involving alleged injuries
arising out of the use of their products, exposure to hazardous
substances or patent infringement, employment matters and
commercial disputes. The defense of these lawsuits may require
significant expenses, divert management’s attention, and
the Company may be required to pay damages that could adversely
affect its financial condition. In addition, any insurance or
indemnification rights that the Company may have may be
insufficient or unavailable to protect it against potential loss
exposures.
Dover companies own patents, trademarks, licenses and other
forms of intellectual property related to their products. Dover
companies employ various measures to maintain and protect their
intellectual property. These measures may not prevent their
intellectual property from being challenged, invalidated or
circumvented, particularly in countries where intellectual
property rights are not highly developed or protected.
Unauthorized use of these intellectual property rights could
adversely impact the competitive position of Dover’s
companies and have a negative impact on their revenue, operating
profits and cash flows.
The Company expects to continue its strategy of seeking to
acquire value creating add-on businesses that broaden its
existing companies and their global reach as well as, in the
right circumstances, strategically pursuing larger, stand-alone
businesses that have the potential to either complement its
existing companies or allow the Company to pursue a new
platform. However, there can be no assurance that the Company
will find suitable businesses to purchase or that the associated
price would be acceptable. If the Company is unsuccessful in its
acquisition efforts, then its ability to continue to grow at
rates similar to prior years could be adversely affected. In
addition, a completed acquisition may underperform relative to
expectations, be unable to achieve synergies originally
anticipated, or require the payment of additional expenses for
assumed liabilities. Further, failure to allocate capital
appropriately could also result in over exposure in certain
markets and geographies. These factors could potentially have an
adverse impact on the Company’s operating profits and cash
flows. The inability to dispose of non-core assets and
businesses on satisfactory terms and conditions and within the
expected time frame could also have an adverse affect on our
results of operations.
Three major ratings agencies (Moody’s, Standard and
Poor’s, and Fitch Ratings) evaluate the Company’s
credit profile on an ongoing basis and have each assigned high
ratings for the Company’s long-term debt as of
December 31, 2009. In February 2010, the Company met
with Moody’s, Standard Poor’s and Fitch Ratings. All
agencies reaffirmed their current credit ratings for the
Company. Although the Company does not anticipate a material
change in its credit ratings, if the Company’s current
credit ratings deteriorate, then its borrowing costs could
increase, including increased fees under the Five-Year Credit
Facility and the Company’s access to future sources of
liquidity may be adversely affected.
Not applicable.
The number, type, location and size of the Company’s
properties as of December 31, 2009 are shown on the
following charts, by segment:
Segment
Industrial Products
Engineered Systems
Fluid Management
Electronic Technologies
The facilities are generally well maintained and suitable for
the operations conducted.
During 2009, the Company had a net reduction of 23 manufacturing
and warehouse facilities reflecting the Company’s
restructuring activities in response to the current economic
climate. These reductions and plant consolidations are not
expected to restrict the Company’s ability to meet customer
needs should economic conditions improve materially in 2010.
In November 2009, the Company announced that it would relocate
its corporate headquarters from New York City to Downers Grove,
Illinois during the second quarter of 2010 and the relocation is
anticipated to be completed during the summer. The move will
essentially consolidate the corporate management team into one
location which will improve communication and strategic decision
making and facilitate performance efficiencies.
A few of the Company’s subsidiaries are involved in legal
proceedings relating to the cleanup of waste disposal sites
identified under federal and state statutes which provide for
the allocation of such costs among “potentially responsible
parties.” In each instance, the extent of the
subsidiary’s liability appears to be very small in relation
to the total projected expenditures and the number of other
“potentially responsible parties” involved and it 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 plant sites, in cooperation with
regulatory agencies, and appropriate reserves have been
established.
The Company and certain of its subsidiaries are, and from time
to time may become, 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 the use of products of Dover companies, exposure
to hazardous substances or patent infringement, employment
matters and commercial disputes. Management and legal counsel
periodically review the probable outcome of such proceedings,
the costs and expenses reasonably expected to be incurred, the
availability and extent of insurance coverage, and established
reserves. While it is not possible to predict the outcome of
these legal actions or any need for additional reserves, in the
opinion of management, based on these reviews, it is unlikely
that the disposition of the lawsuits and the other matters
mentioned above will have a material adverse effect on the
Company’s financial position, results of operations, cash
flows or competitive position.
No matter was submitted to a vote of the Company’s security
holders in the last quarter of 2009.
Executive
Officers of the Registrant
All officers are elected annually at the first meeting of the
Board of Directors, following the Company’s annual meeting
of shareholders, and are subject to removal at any time by the
Board of Directors. The executive officers of the Company as of
February 19, 2010, and their positions with the Company
(and, where relevant, prior business experience) for the past
five years, are as follows:
Name
Age
Positions Held and Prior Business Experience
Robert A. Livingston
Brad M. Cerepak
Thomas W. Giacomini
Paul E. Goldberg
Raymond C. Hoglund
Jay L. Kloosterboer
Raymond T. McKay, Jr.
James H. Moyle
Joseph W. Schmidt
Stephen R. Sellhausen
Sivasankaran Somasundaram
William W. Spurgeon, Jr.
David R. Van Loan
Market
Information and Dividends
The principal market in which the Company’s common stock is
traded is the New York Stock Exchange. Information on the high
and low sales prices of such stock, and the frequency and the
amount of dividends paid during the last two years, is as
follows:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
The number of holders of record of the Company’s Common
Stock as of January 29, 2010 was approximately 15,802. This
figure includes participants in the Company’s 401(k)
program.
Securities
Authorized for Issuance Under Equity Compensation
Plans
Information regarding securities authorized for issuance under
the Company’s equity compensation plans is contained in
Part III, Item 12 of this
Form 10-K.
Recent
Sales of Unregistered Securities
On December 30, 2009 the Company issued 150,991 shares
of its common stock to the shareholders of
Inpro/Seal
Company as partial consideration for the acquisition by Waukesha
Bearings Corporation of Inpro/Seal Company’s assets. The
shares were issued pursuant to Regulation D under the Securities
Act of 1933, as amended.
Issuer
Purchases of Equity Securities
The Company did not purchase any shares of its stock during the
fourth quarter of 2009.
Performance
Graph
This performance graph does not constitute soliciting
material, is not deemed filed with the SEC and is not
incorporated by reference in any of the Company’s filings
under the Securities Act of 1933 or the Exchange Act of 1934,
whether made before or after the date of this Annual Report on
Form 10-K
and irrespective of any general incorporation language in any
such filing, except to the extent the Company specifically
incorporates this performance graph by reference therein.
Comparison
of Five-Year Cumulative Total Return*
Dover Corporation, S&P 500 Index & Peer Group Index
Dover Corporation, S&P 500 Index & Peer Group Index
Total
Stockholder Returns
Data Source: Hemscott, Inc.
This graph assumes $100 invested on December 31, 2004 in
Dover Corporation common stock, the S&P 500 index and a
peer group index.
The peer index consists of the following public companies
selected by the Company: 3M Company, Actuant Corporation, Agco
Corporation, Agilent Technologies Inc., Ametek Inc., Cameron
International Corporation, Carlisle Companies Incorporated,
Cooper Industries Ltd., Crane Co., Danaher Corporation,
Deere & Company, Eaton Corporation, Emerson Electric
Co., Flowserve Corporation, FMC Technologies Inc., Honeywell
International, Inc., Hubbell Incorporated, IDEX Corporation,
Illinois Tool Works Inc., Ingersoll-Rand Company Limited, ITT
Corporation, Leggett & Platt Incorporated, Masco
Corp., Oshkosh Corp., Paccar Inc., Pall Corporation,
Parker-Hannifin Corporation, Pentair Inc., Precision Castparts
Corp., Rockwell Automation, Inc., Roper Industries Inc., SPX
Corporation, Terex Corporation, The Manitowoc Co., The Timken
Company, Tyco International Ltd., United Technologies
Corporation, and Weatherford International Ltd.
Selected Company financial information for the years 2005
through 2009 is set forth in the following
5-year
Consolidated Table.
Revenue
Earnings from continuing operations
Basic earnings (loss) per share:
Continuing operations
Discontinued operations
Net earnings
Weighted average shares outstanding
Diluted earnings (loss) per share:
Dividends per common share
Capital expenditures
Depreciation and amortization
Total assets
Total debt
All results and data in the table above reflect continuing
operations, unless otherwise noted. All periods reflect the
impact of certain operations that were discontinued. As a
result, the data presented above will not necessarily agree to
previously issued financial statements. See Note 3 for
additional information on discontinued operations.
Special
Note Regarding Forward-Looking Statements
The following discussion and analysis should be read in
conjunction with our Consolidated Financial Statements and Notes
which appear elsewhere in this Annual Report on
Form 10-K.
This discussion contains forward-looking statements that involve
risks and uncertainties. The Company’s actual results could
differ materially from those anticipated in these
forward-looking statements as a result of various factors,
including those discussed elsewhere in this Annual Report on
Form 10-K,
particularly in Item 1A. “Risk Factors” and in
“SPECIAL NOTES REGARDING FORWARD-LOOKING
STATEMENTS” inside the front cover of this Annual Report on
Form 10-K.
Liquidity
and Capital Resources
Management assesses the Company’s liquidity in terms of its
ability to generate cash to fund its 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. The Company generates
substantial cash from operations and remains in a strong
financial position, with sufficient liquidity available for
reinvestment in existing businesses and strategic acquisitions
while managing its capital structure on a short and long-term
basis.
Cash and equivalents of $714.4 million at December 31,
2009, increased by $167.0 million from the prior year
balance of $547.4 million. Cash and equivalents were
invested in highly liquid investment grade money market
instruments with maturity of 90 days or less. Short-term
investments consist of investment grade time deposits with
original maturity dates between three months and one year.
Short-term investments of $223.8 million as of
December 31, 2009 decreased by $55.7 million from the
prior year balance of $279.5 million.
The Company’s total cash, cash equivalents and short-term
investment balance of $938.2 million at December 31,
2009, includes $813.8 million held outside of the United
States.
The following table is derived from the Consolidated Statements
of Cash Flows:
Cash Flows from Continuing Operations
Net Cash Flows Provided By (Used In):
Operating activities
Investing activities
Financing activities
Cash flows provided by operating activities for 2009 decreased
$208.4 million from the prior year primarily reflecting
lower earnings on reduced sales from continuing operations and
increased contributions to employee benefit plans partially
offset by improvements in working capital.
Cash used in investing activities during 2009 decreased
$195.1 million compared to 2008, largely reflecting reduced
capital expenditures and net purchases of short-term investments
partially offset by higher acquisition costs and higher proceeds
from the sale of a business in 2008. Cash acquisition spending
was $222.0 million (excluding $6.4 million of
consideration paid in the form of common stock) during 2009
compared to $103.8 million in the prior year. Capital
expenditures during 2009 decreased 31.7% to $120.0 million
compared to $175.8 million in the prior year due to
discretionary management spend in response to the economic
environment. The Company currently anticipates that any
acquisitions made during 2010 will be funded from available cash
and internally generated funds, and if necessary, through the
issuance of commercial paper, use of established lines of credit
or public debt markets. Capital expenditures during 2010 are
expected to be approximately 2.3% to 2.5% of revenue.
Cash used in financing activities during 2009 decreased
$171.0 million compared to the prior year primarily driven
by the absence of share repurchases versus the prior year and
reduced proceeds from the exercise of stock options, partially
offset by debt repayments and higher dividend payments in 2009.
Share
Repurchases
The Company had no share repurchases in 2009. In May 2007, the
Board of Directors authorized the repurchase of up to
10,000,000 shares through May 2012. Approximately
8.9 million shares remain authorized for repurchase under
this five year authorization as of December 31, 2009.
During the twelve months ended December 31, 2008, pursuant
to a separate $500 million share repurchase program
approved by the Board of Directors in the fourth quarter of
2007, the Company repurchased 10,000,000 shares of its
common stock in the open market at an average price of $46.15
per share. As of December 31, 2008, the Company had
completed the purchases of all shares authorized under this
$500 million share repurchase program.
Adjusted
Working Capital
Adjusted Working Capital (a non-GAAP measure calculated as
accounts receivable, plus inventory, less accounts payable)
decreased from the prior year by $183.3 million, or 14.4%,
to $1,092.6 million which reflected a decrease in
receivables of $134.4 million, a decrease in net inventory
of $65.3 million and a decrease in accounts payable of
$16.4 million, generally due to active working capital
management in a lower revenue environment. Excluding
acquisitions, dispositions, and the effects of foreign exchange
translation of $21.1 million, Adjusted Working Capital
would have decreased by $246.2 million, or 19.3%.
“Average Annual Adjusted Working Capital” as a
percentage of revenue (a non-GAAP measure calculated as the
five-quarter average balance of accounts receivable, plus
inventory, less accounts payable divided by the trailing twelve
months of revenue) increased to 19.9% at December 31, 2009
from 18.3% at December 31, 2008, and inventory turns were
6.2 at December 31, 2009 compared to 7.1 at
December 31, 2008.
In addition to measuring its cash flow generation and usage
based upon the operating, investing and financing
classifications included in the Consolidated Statements of Cash
Flows, the Company also measures free cash flow (a non-GAAP
measure). Management believes that free cash flow is an
important measure of operating performance because it provides
management and investors a measurement of cash generated from
operations that is available to repay debt, pay dividends, fund
acquisitions and repurchase the Company’s common stock. For
further information, see Non-GAAP Disclosures at the end of
this Item 7.
Free Cash
Flow
Free cash flow for the year ended December 31, 2009 was
$682.1 million or 11.8% of revenue compared to
$834.6 million or 11.0% of revenue in the prior year. The
2009 decrease in free cash flow reflects lower earnings from
continuing operations and higher employee benefit contributions
partially offset by improvements in working capital and a
decrease in capital expenditures as compared to the prior year.
The increase in free cash flow as a percentage of revenue is due
to active management of adjusted working capital in a lower
revenue environment.
The following table is a reconciliation of free cash flow to
cash flows from operating activities
Free Cash Flow
Cash flow provided by operating activities
Less: Capital expenditures
Free cash flow
Free cash flow as a percentage of revenue
At December 31, 2009, the Company’s net property,
plant, and equipment totaled $828.9 million compared to
$872.1 million at the end of 2008. The decrease in net
property, plant and equipment reflected depreciation of
$159.6 million and disposals of $21.7 million,
partially offset by capital expenditures of $120.0 million,
acquisitions of $11.6 million and $12.3 million
related to foreign currency fluctuations.
The aggregate of current and deferred income tax assets and
liabilities decreased from a $240.7 million net liability
at the beginning of the year to a net liability of
$222.3 million at year-end 2009. This resulted primarily
from a decrease in deferred tax liabilities related to
intangible assets and accounts receivable, partially offset by
an increase in deferred tax assets related to net operating loss
and other carryforwards.
The Company’s consolidated benefit obligation related to
defined and supplemental retirement benefits increased by
$31.0 million in 2009. The increase was due primarily to
interest costs of $37.6 million, benefits earned of
$20.2 million, currency changes of $10.3 million,
business acquisitions of $7.2 million, a net actuarial loss
of $7.1 million, and other changes, partially offset by
benefits paid of $54.5 million. In 2009, plan assets
increased $56.9 million primarily due to Company
contributions of $77.5 million, investment returns of
$24.0 million, currency and other changes amounting to
$7.2 million, partially offset by $54.5 million in
benefits paid during the year. It is anticipated that the
Company’s defined and supplemental retirement benefits
expense will decrease from $36.5 million in 2009 to
approximately $32.4 million in 2010.
The Company utilizes the net debt to total capitalization
calculation (a non-GAAP measure) to assess its overall financial
leverage and capacity and believes the calculation is useful to
investors for the same reason. The following table provides a
reconciliation of net debt to total capitalization to the most
directly comparable GAAP measures:
Net Debt to Total Capitalization Ratio
Current maturities of long-term debt
Commercial paper and other short-term debt
Long-term debt
Less: Cash, cash equivalents and short-term investments
Net debt
Add: Stockholders’ equity
Total capitalization
Net debt to total capitalization
The total debt level of $1,860.9 million at
December 31, 2009 decreased $224.8 million from
December 31, 2008 due to repayment of commercial paper
borrowings of $192.8 million and a decrease in long-term
debt of $32.0 million. Net debt at December 31, 2009
decreased $336.1 million as a result of the decrease in
total debt, a decrease in adjusted working capital and the
absence of share repurchases in 2009.
The Company’s long-term debt instruments had a book value
of $1,860.9 million on December 31, 2009 and a fair
value of approximately $1,954.6 million. On
December 31, 2008, the Company’s long-term debt
instruments had a book value of $1,892.9 million and a fair
value of approximately $2,018.5 million.
The Company believes that existing sources of liquidity are
adequate to meet anticipated funding needs at comparable
risk-based interest rates for the foreseeable future.
Acquisition spending
and/or share
repurchases could potentially increase the Company’s debt.
However, management anticipates that the net debt to total
capitalization ratio will remain generally consistent with
historical levels. Operating cash flow and access to capital
markets are expected to satisfy the Company’s various cash
flow requirements, including acquisitions and capital
expenditures.
Management is not aware of any potential deterioration to the
Company’s liquidity. Under the Company’s
$1 billion
5-year
unsecured revolving credit facility with a syndicate of banks,
which expires in November 2012, the Company is required to
maintain an interest coverage ratio of EBITDA to consolidated
net interest expense of not less than 3.5 to 1. The Company was
in compliance with this covenant and its other long-term debt
covenants at December 31, 2009 and had a coverage ratio of
9.1 to 1. It is anticipated that in 2010 any funding
requirements above cash generated from operations will be met
through the issuance of commercial paper. Given the current
economic conditions, the Company fully expects to remain in
compliance with all of its debt covenants.
The Company periodically enters into financial transactions
specifically to hedge its exposures to various items, including,
but not limited to, interest rate and foreign exchange rate
risk. Through various programs, the
Company hedges its cash flow exposures to foreign exchange rate
risk by entering into foreign exchange forward contracts and
collars. The Company does not enter into derivative financial
instruments for speculative purposes and does not have a
material portfolio of derivative financial instruments.
The Company’s long-term debt with a book value of $1,860.9
million includes $35.6 million which matures in less than one
year and had a fair value of approximately $1,954.6 million at
December 31, 2009. The estimated fair value of the
long-term debt is based on quoted market prices, and present
value techniques used to value similar instruments.
During the second quarter ended June 30, 2008, the Company
repaid its $150 million 6.25% Notes due June 1,
2008. In addition, on March 14, 2008, the Company issued
$350 million of 5.45% Notes due 2018 and
$250 million of 6.60% Notes due 2038. The net proceeds
of $594.1 million from the notes were used to repay
borrowings under the Company’s commercial paper program,
and were reflected in long-term debt in the Consolidated Balance
Sheet at December 31, 2008. The notes and debentures are
redeemable at the option of the Company in whole or in part at
any time at a redemption price that includes a make-whole
premium, with accrued interest to the redemption date.
During the first quarter of 2008, Dover entered into several
interest rate swaps in anticipation of the debt financing
completed on March 14, 2008 which, upon settlement,
resulted in a net gain of $1.2 million which was deferred
and is being amortized over the lives of the related notes.
There is an outstanding swap agreement for a total notional
amount of $50.0 million, or CHF65.1 million, which
swaps the
U.S. 6-month
LIBOR rate and the Swiss Franc
6-month
LIBOR rate. This agreement hedges a portion of the
Company’s net investment in
non-U.S. operations
and the fair value outstanding at December 31, 2009
includes a loss of $13.3 million which was based on quoted
market prices for similar instruments (uses Level 2 inputs
under the ASC 820 hierarchy). This hedge is effective.
During the third quarter of 2008, the Company entered into a
foreign currency hedge which was subsequently settled within the
quarter in anticipation of a potential acquisition, which did
not occur. As a result of terminating the hedge, the Company
recorded a gain of $2.4 million in the third quarter ended
September 30, 2008.
At December 31, 2008, the Company had open foreign exchange
forward purchase contracts expiring through December 2009
related to cash flow and fair value hedges of foreign currency
exposures. The fair values of these contracts were based on
quoted market prices for identical instruments as of
December 31, 2008 (uses Level 1 inputs ASC 820
hierarchy).
The details of the open contracts as of December 31, 2009
are as follows:
Forward Currencies Purchased
Japanese Yen
Euros
Collar
US Dollar to Euro
Chinese Yuan to US Dollar
The Company’s credit ratings, which are independently
developed by the respective rating agencies, are as follows for
the years ended December 31:
Moody’s
Standard & Poor’s
Fitch
A summary of the Company’s undiscounted long-term debt,
commitments and obligations as of December 31, 2009 and the
years when these obligations are expected to be due is as
follows:
Interest expense
Rental commitments
Purchase obligations
Capital leases
Supplemental & post-retirement benefits
Uncertain tax positions (A)
Other long-term obligations
Total obligations
2009
COMPARED TO 2008
Consolidated
Results of Operations
Revenue
Cost of goods and services
Gross profit
Selling and administrative expenses
Operating earnings
Interest expense, net
Other expense (income), net
Total interest/other expense, net
Earnings before provision for income
taxes and discontinued operations
Provision for income taxes
Earnings from continuing operations
Revenue
Revenue for the year ended December 31, 2009 decreased 24%
compared to 2008, due to decreases experienced across all four
segments primarily driven by a $837.7 million or 34%
decrease at Industrial Products and a $443.1 million or 26%
decrease at Fluid Management as a result of lower demand and
sales volume stemming from general unfavorable economic
conditions. Revenue decreased at Engineered Systems by
$148.4 million or 7% due to lower sales volume in core
businesses which was offset by the incremental revenue from the
2009 acquisitions. Overall, the Company’s organic revenue
growth decreased 23.9% with an unfavorable decrease in foreign
exchange of 1.7% partially offset by a favorable impact of 1.9%
in net growth from acquisitions. Gross profit decreased 23% to
$2,099.1 million from 2008 while the gross profit margin
remained essentially flat at 36.3% and 36.1%, in 2009 and 2008,
respectively.
Selling
and Administrative Expenses
Selling and administrative expenses of $1,511.1 million for the
year ended December 31, 2009 decreased $189.6 million over
the comparable 2008 period, primarily due to decreased revenue
activity, cost curtailment efforts and integration programs
partially offset by restructuring charges. Selling and
administrative expenses as a percentage of revenue increased to
26% from 22% in the prior year reflecting reduced revenue levels
and restructuring charges of $50.2 million.
Interest
Expense, net
Interest expense, net, increased 5% to $100.4 million for
2009, compared to $96.0 million for 2008 primarily due to
lower average outstanding commercial paper balances during the
period more than offset by cash and investments that were
reinvested at lower interest rates during the later part of the
year. Interest expense for the years ended December 31,
2009 and 2008 was $116.2 million and $130.2 million,
respectively. Interest income for the years ended
December 31, 2009 and 2008 was $15.8 million and
$34.2 million, respectively.
Other
Expense (Income), net
Other expense (income), net for 2009 and 2008 of
($4.0) million and ($12.7) million, respectively, was
driven primarily related to the effect of foreign exchange
fluctuations on assets and liabilities denominated in currencies
other the Company’s functional currency.
Income
Taxes
The effective tax rates for continuing operations for 2009 was
24.4% compared to the prior year rate of 26.6%. The effective
tax rate for 2009 was improved by $31.6 million of net
benefits recognized for tax positions that were effectively
settled primarily in the second and fourth quarters of 2009. The
effective tax rate for 2008 was favorably impacted by
$26.3 million of net benefits recognized for tax positions
that were primarily settled in the third and fourth quarters of
2008. The full year 2009 rate reflects the favorable impact of
benefits recognized for tax positions that were effectively
settled and the favorable impact of a higher percentage of
non-U.S. earnings in low tax rate jurisdictions.
Net
Earnings
Net earnings for the twelve months ended December 31, 2009
were $356.4 million or $1.91 dilutive earnings per share
(“EPS”) including a loss from discontinued operations
of $15.5 million or $0.08 EPS, compared to net earnings of
$590.8 million or $3.12 dilutive EPS for the same period of
2008, including a loss from discontinued operations of
$103.9 million or $0.55 EPS. The losses from discontinued
operations in 2009 include approximately $10.3 million, net
of tax, related to a write-down of a business held for sale. The
losses from discontinued operations in 2008 largely reflect a
loss provision for a business held for sale, as well as tax
expenses and tax accruals related to ongoing Federal tax
settlements and state tax assessments. Refer to Note 3 in
the Consolidated Financial Statements for additional information
on discontinued operations.
In addition to these factors, earnings across all platforms were
also negatively impacted by restructuring charges as noted
below, partially offset by benefits captured from business
restructuring and integration programs completed to date.
Severance
and Exit Reserves
The Company’s synergy capture programs and the
restructuring initiatives launched during 2008, were continued
throughout 2009. The Company was able to respond to the economic
downturn through strategic restructuring efforts undertaken by
management which yielded savings of approximately
$125 million in 2009. The 2010 benefits from these
restructuring efforts are expected to range from
$30 million to $40 million. During 2009, the Company
had a net reduction in its workforce of approximately 2,950, or
9%, and a net reduction of 23 manufacturing and warehouse
facilities. The Company does not anticipate a significant
reduction to its workforce in 2010 and will continue to monitor
business activity across its markets served and adjust capacity
as necessary pending the economic climate.
From time to time, the Company has initiated various
restructuring programs at its operating companies as noted above
and has recorded severance and other restructuring costs in
connection with purchase accounting for acquisitions prior to
January 1, 2009.
At December 31, 2009 and 2008, the Company had reserves
related to severance and other restructuring activities of $16.8
million and $31.0 million, respectively. During 2009, the
Company recorded $72.1 million in additional charges and made
$66.8 million in payments and $19.5 million of non-cash
write-downs related to reserve balances. For 2009, approximately
$21.9 million and $50.2 million of restructuring charges
were recorded in cost of goods and services and selling and
administrative expenses, respectively, in the Consolidated
Statements of Operations. During 2008, the Company recorded
$27.4 million in additional charges and $5.6 million
in purchase accounting reserves related to acquisitions,
partially offset by other non-cash write-downs of
$2.3 million and payments of $28.1 million.
Current
Economic Environment
With few exceptions, the Company experienced lower demand across
all of its end markets resulting in lower bookings and backlog
in the fourth quarter of 2008 through the first half of 2009,
with modest improvements in certain segments in the second half
of 2009. Although this downturn had a significant adverse impact
on revenue and earnings for the year, the Company maintained
double-digit margin levels and generated free cash flow in
excess of 10% as a percentage of revenue. The structural changes
made over the last few years, becoming less dependent on capital
goods markets and having greater recurring revenue, together
with improved working capital management and strong pricing
discipline partially offset the impact of the economic downturn
during 2009. As discussed above in the Liquidity and Capital
Resources section, the Company believes that existing sources of
liquidity are adequate to meet anticipated funding needs at
comparable risk-based interest rates.
2010
Outlook
The Company estimates full year organic growth to be in the
range of 4% to 6% (inclusive of a foreign currency impact of 1%)
and acquisition related growth to be around 3% for transactions
completed in 2009. Based on these revenue assumptions and
profitability expectations, the Company has projected that its
diluted earnings per share from continuing operations will be in
the range of $2.35 to $2.65 and expects its earnings to follow a
traditional seasonal pattern of being higher in the second and
third quarters. The Company also remains focused on key
initiatives including the corporate development program, post
merger integration process and supply chain initiative among
others.
Segment
Results of Operations
Material Handling
Mobile Equipment
Eliminations
Segment earnings
Operating margin
Acquisition related depreciation and amortization expense*
Bookings
Backlog
Industrial Products revenue and earnings decreased by 34% and
53%, respectively, as compared to the prior year primarily due
to general economic conditions as well as the continued downturn
in infrastructure, energy, and transportation markets. The
segment decline in revenue primarily reflected a core business
decrease of 33% and an unfavorable impact of 1.0% due to foreign
exchange. Earnings and margin were impacted by decreased revenue
and $17.5 million in restructuring charges. The segment has
experienced modest improvement in commercial activity across
markets served during the fourth quarter of 2009.
Material Handling revenue and earnings decreased 42% and 73%,
respectively, when compared to the prior year. The platform
experienced significant challenges in its core infrastructure,
automotive, construction equipment and energy markets which were
partially offset by an increase in military demand. The decrease
in revenue coupled with restructuring charges of
$11.0 million negatively impacted earnings. Although
bookings are down 47% as compared to 2008, the platforms served
end markets have stabilized in the fourth quarter.
Mobile Equipment revenue and earnings decreased 27% and 29%,
respectively, over the prior year. The strength of the military
market during the year was offset by challenges in the energy,
bulk transport and vehicle service markets. Earnings at the
platform were primarily impacted by lower revenue and
restructuring charges of $6.5 million.
Engineered Products
Product Identification
Engineered Systems revenue and earnings decreased by 7% and 18%,
respectively, as compared to the prior year. The decline in
revenue was primarily driven by an 11% decline in core business
revenue (excluding acquisitions) as a result of general softness
in the markets served by the segment and an unfavorable impact
of foreign exchange of 3%. The acquisitions of Tyler, Ala Cart,
Inc. and Barker Company in the Engineered Products platform and
Extech Instruments in the Product Identification platform
accounted for 7% revenue growth. The earnings decline was
substantially driven by the softness in most end markets served,
$18.4 million of restructuring charges and
$6.2 million of acquisition related expenses.
Engineered Products revenue and earnings decreased by 2% and
10%, respectively, as compared to the prior year. Lower sales
volume throughout our core businesses (most notably
refrigeration equipment) were partially offset by acquisition
revenue. The earnings decline resulted from lower sales volume
in commercial cooling, HVAC and packaging equipment,
restructuring charges of $6.9 million and $6.2 million
of acquisition related expenses.
Product Identification platform revenue and earnings declined
13% and 18%, respectively, as compared to the prior year. Core
revenue decreased 10% due to lower sales volume in the Direct
Marketing and Bar Coding business with the balance of the
revenue decline due to foreign exchange. The platform incurred
$11.5 million in restructuring charges during the year.
Energy
Fluid Solutions
Fluid Management’s revenue and earnings decreased by 26%
and 33%, respectively, as compared to the prior year. The
decline in revenue was primarily driven by a 25% decline in core
business revenue and an unfavorable impact of foreign exchange
of 2%. The decline in revenue was partially offset by the full
year effect of 2008 acquisitions and a 2009 acquisition (1%).
The earnings decline was driven by reduced revenue,
$9.7 million in restructuring charges and acquisition
related expenses of $2.5 million.
The Energy platform’s revenue and earnings decreased 33%
and 38%, respectively, as compared to the prior year. The
decline in revenue is a result of lower demand in the oil, gas
and power generation industries, partially offset by the impact
of 2008 and 2009 acquisitions. The platform has experienced a
recent increase in revenue growth stemming from increases in
active North American drilling rigs. The decrease in earnings is
a result of lower sales volume, restructuring charges of
$3.0 million and acquisition related expenses of
$2.5 million, partially offset by operational improvements
and cost savings as a result of restructuring activities.
Waukesha Bearings acquired Inpro/Seal Company on
December 30, 2009 which accounted for the majority of the
acquisition costs.
The Fluid Solutions platform revenue and earnings decreased 17%
and 20%, respectively, as compared to the prior year due to
lower demand in the their various industrial markets. Decreased
earnings reflect lower sales volume and $6.7 million of
restructuring charges.
Electronic Technologies revenue and earnings decreased 26% and
57%, respectively, as compared to the prior year primarily
driven by weak demand for telecom components and electronic
assembly and test equipment. The decline in core revenue was 24%
and there was a 2% unfavorable impact on revenue from foreign
exchange. Micro Electronic Mechanical Systems (“MEMS”)
products continue to show increased customer adoption, while
military and space programs continue to provide a constructive
business climate for our electronic component companies.
Earnings for the twelve months ended December 31, 2009 were
negatively impacted by lower sales volume and $26.6 million
of restructuring charges. In addition, the comparability of 2009
earnings is impacted by the favorable impact of 2008 earnings,
which included a $7.5 million gain on the sale of a
business (semi-conductor test handling).
2008
COMPARED TO 2007
Earnings before provision for income taxes and discontinued
operations
Revenue for the year ended December 31, 2008 increased 3%
over 2007, due to increases of $232.0 million at Fluid
Management, $52.2 million at Industrial Products and
$6.0 million at Electronic Technologies. These revenue
increases were due to positive market fundamentals and
acquisitions at Fluid Management, while Engineered Systems’
revenue decreased $41.7 million due to weakness in markets
served by the Engineered Products platform. Overall,
Dover’s organic revenue growth was 1%, net acquisition
growth was 1% and the impact from foreign exchange was 1%. Gross
profit increased 4% to $2,730.0 million from 2007 while the
gross profit margin remained essentially flat at 36.1% and
35.8%, in 2008 and 2007, respectively.
Selling and administrative expenses of $1,700.7 million for
the year ended December 31, 2008 increased
$86.7 million over the comparable 2007 period, primarily
due to increased revenue activity, increased professional fees
and restructuring charges.
Interest expense, net, increased 7% to $96.0 million for
2008, compared to $89.6 million for 2007. The increase was
due to higher average outstanding borrowings used to fund
purchases of the Company’s common stock and higher average
commercial paper rates.
Other expense (income), net for 2008 and 2007 of
($12.7) million and $3.5 million, respectively, was
driven primarily by foreign exchange gains and losses, partially
offset by other miscellaneous income.
The 2008 and 2007 tax rate for continuing operations was 26.6%
in both periods, each favorably impacted by the mix of
non-U.S. earnings
in low-taxed overseas jurisdictions.
Net earnings for the twelve months ended December 31, 2008
were $590.8 million or $3.12 EPS, which included a loss
from discontinued operations of $103.9 million or $0.55
EPS, compared to net earnings of $661.1 million or $3.26
EPS for the same period of 2007, including a loss from
discontinued operations of $8.7 million or $0.04 EPS. The
losses from discontinued operations in 2008 largely reflect a
loss provision for a business expected to be sold in 2009, as
well as tax expenses and tax accruals related to ongoing Federal
tax settlements and state tax assessments. Refer to Note 3
in the Consolidated Financial Statements for additional
information on discontinued operations.
Industrial Products increase in revenue over the prior year was
primarily due to strength in the military and solid waste
management markets as well as the impact of the December 2007
acquisition of Industrial Motion Control LLC (“IMC”),
and the March 2008 acquisition of Lantec Winch and Gear Inc.
Overall, the segment had 2% revenue growth from its core
businesses and acquisition growth of 3%, which was partially
offset by the sale of a line of business. Earnings declined 4%
when compared to the prior year substantially due to weakness in
the construction and the North American auto service markets,
and restructuring costs.
Material Handling revenue decreased 1% while earnings decreased
5% when compared to the prior year. Revenue and earnings growth
in the industrial winch business was more than offset by
softness in the infrastructure, industrial automation and
automotive markets. In addition, the platform incurred
additional expenses related to its ongoing cost reduction and
integration activities.
Mobile Equipment revenue and earnings increased 5% and 2%,
respectively, over the prior year. The revenue increase was
primarily due to core business growth as the platform continued
to experience strength in the aerospace, military and solid
waste management markets. Softness in the automotive service and
bulk transport end markets partially offset the increases
experienced in other markets.
Engineered Systems decreases in revenue and earnings over the
prior year of 2% and 5%, respectively, were primarily driven by
the Engineered Products platform. Overall, the segment had a 4%
decline in revenue from its core businesses which was partially
offset by the favorable impact of currency rates of 2%.
Engineered Products revenue and earnings decreased 5% and 15%,
respectively, over the prior year due to weaker sales of retail
food equipment and softness in the beverage can equipment
business. In addition to the reduction in overall sales volume
during the year, the platform’s earnings were negatively
impacted by currency exchange rates, restructuring and a
$6.6 million one-time charge primarily related to
inventory. Partially offsetting these declines were the results
of the heat exchanger and foodservice businesses which
experienced continued strength throughout 2008.
Product Identification platform revenue and earnings both
increased 1% over 2007. The revenue growth was primarily due to
the favorable impact of foreign exchange as the core businesses
in the platform experienced lower volume. Despite the decline in
core business revenue, the platform was able to maintain margins
consistent with the prior year due to on-going integration
activities across the platform.
Fluid Management revenue and earnings increased 16% and 27%,
respectively, over 2007 due to strength in the oil, gas, and
power generation sectors served by the Energy platform as well
as the diverse markets served by the Fluid Solutions platform.
Overall, the segment had organic revenue growth of 12%,
acquisition growth of 3%, with the remainder due to the
favorable impact of foreign exchange.
The Energy platform’s revenue increased 21% while its
earnings improved 32%, when compared to 2007, due to strength in
the oil and gas markets and increasing power generation demand.
Earnings and margin benefited from the higher volume and
operational improvements.
The Fluid Solutions platform revenue increased 10% and earnings
improved 20% due to acquisitions and strength in the markets
served by its core businesses. In general, demand remained
strong for pumps, dispensing systems, and connectors. Earnings
and margins improved due to a favorable business mix and cost
savings from the platform’s ongoing cost reduction
activities.
Electronic Technologies revenue was flat while earnings
increased 7% when compared to the prior year. Revenue increases
in the micro-acoustic component business were offset by a
softening in the other markets served by the segment resulting
in a 3% decline in core business revenue, excluding favorable
foreign exchange rates. The segment’s earnings benefited
from the increased volume in the micro-acoustic component
business, a $7.5 million gain from the sale of a line of
business (semi-conductor test handling), and cost savings from
restructuring activities that were implemented in the first
quarter of 2008.
Critical
Accounting Policies
The Company’s consolidated financial statements and related
public financial information are based on the application of
generally accepted accounting principles in the United States of
America (“GAAP”). GAAP 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
the public disclosures of the Company, including information
regarding contingencies, risk and its financial condition. The
Company believes its use of estimates and underlying accounting
assumptions conform to GAAP and are consistently applied.
Valuations based on estimates are reviewed for reasonableness on
a consistent basis throughout the Company. The Company believes
that its significant accounting policies are primary areas where
the financial information of the Company is subject to the use
of estimates, assumptions and the application of judgement which
include the following areas:
Adoption
of New Accounting Standards
2009
In December 2007, the FASB issued authoritative guidance under
ASC 805, Business Combinations (“ASC 805”), which
retains the fundamental requirements that the acquisition method
of accounting (the purchase method) be used for all business
combinations and for an acquirer to be identified for each
business combination. In general, the statement 1) extends
its applicability to all events where one entity obtains control
over one or more other businesses, 2) broadens the use of
fair value measurements used to recognize the assets acquired
and liabilities assumed, 3) changes the accounting for
acquisition related fees and restructuring costs incurred in
connection with an acquisition, and 4) increases required
disclosures. The Company has applied the provisions of this
guidance prospectively to business combinations for which the
acquisition date is on or after January 1, 2009. The impact
of these provisions did not have a material effect on the
Company’s consolidated financial statements since its
adoption.
In April 2009, the FASB issued authoritative guidance under ASC
805 for the initial recognition and measurement, subsequent
measurement and accounting, and disclosures for assets and
liabilities arising from contingencies in business combinations.
ASC 805 eliminates the distinction between contractual and
non-contractual contingencies. The Company has applied the
provisions of this guidance prospectively to business
combinations for which the acquisition date is on or after
January 1, 2009. The impact of these provisions did not
have a material effect on the Company’s consolidated
financial statements since its adoption.
In April 2008, the FASB issued authoritative guidance under ASC
350, Goodwill and Other Intangibles (“ASC 350”) and
ASC 275, Risks and Uncertainties (“ASC 275”), to
improve the consistency between the useful life of a recognized
intangible asset and the period of expected cash flows used to
measure the fair value of the intangible asset. ASC 350 and ASC
275 amend the factors to be considered when developing renewal
or extension assumptions that are used to estimate an intangible
asset’s useful life. The guidance is to be applied
prospectively to intangible assets acquired after
December 31, 2008. In addition, ASC 350 and ASC 275
increase the disclosure requirements related to renewal or
extension assumptions. The Company has applied the provisions of
this guidance to business combinations for which the acquisition
date is on or after January 1, 2009. The impact of ASC 350
and ASC 275 did not have a material effect on the Company’s
consolidated financial statements since its adoption.
In December 2008, the FASB issued authoritative guidance under
ASC 715, Compensation — Retirement Benefits (“ASC
715”) which amends the disclosure requirements about plan
assets of a defined pension or other postretirement plan. The
provisions of this guidance require disclosure of 1) how
investment allocation decisions are made, including factors that
are pertinent to an understanding of the investment policies and
strategies, 2) the fair value of each major category of
plan assets, 3) the inputs and valuation techniques used to
determine fair value and 4) an understanding of significant
concentration of risk in plan assets. The provisions of this
guidance become effective for fiscal years ending after
December 15, 2009 and are to be applied prospectively. The
adoption of the amendments under ASC 715 did not have a material
impact on the Company’s consolidated financial statements.
In May 2009, the FASB issued authoritative guidance under ASC
855, Subsequent Events (“ASC 855”) which establishes
general standards of accounting for and disclosures of events
that occur after the balance sheet date but before financial
statements are issued or are available to be issued. ASC 855
became effective for interim or annual financial periods ending
after June 15, 2009 and was adopted in the second quarter
of 2009. The adoption of ASC 855 did not have a material effect
on the Company’s consolidated financial statements.
In June 2009, the FASB issued authoritative guidance under ASC
105, Generally Accepted Accounting Principles (“ASC
105”), which establishes the FASB Accounting Standards
Codification (“Codification”) as the source of
authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of
financial statements in conformity with generally accepted
accounting principles. ASC 105 became effective for financial
statements issued for interim periods ended after
September 15, 2009. All content within the Codification
carries the same level of authority. The adoption of ASC 105 did
not have a material effect on the Company’s consolidated
financial statements.
In April 2009, the FASB issued authoritative guidance under ASC
825, Financial Instruments (“ASC 825”) to require
disclosures about fair value of financial instruments not
measured on the balance sheet at fair value in interim financial
statements as well as in annual financial statements. The
provisions of this guidance require all entities to disclose the
methods and significant assumptions used to estimate the fair
value of financial instruments. ASC 825 became effective for
interim periods ended after June 15, 2009 and does not
require comparative disclosure for earlier periods presented
upon initial adoption. The adoption of ASC 825 did not have a
material effect on the Company’s consolidated financial
statements.
2008
Effective December 31, 2006, the Company applied certain
provisions of ASC 715 which required companies to report the
funded status of their defined benefit pension and other
postretirement benefit plans on their balance sheets as a net
liability or asset. Upon adoption at December 31, 2006, the
Company recorded a net reduction to shareholders’ equity of
$123.5 million, net of tax. In addition, effective for
fiscal years ending after December 15, 2008, the new
standard required companies to measure benefit obligations and
plan assets as of a Company’s fiscal year end
(December 31, 2008 for the Company), using one of the
methods prescribed in the standard. The Company adopted the new
valuation date requirements using the
15-month
alternative, as prescribed in the standard, which resulted in a
charge of approximately $5.8 million, net of tax, to
retained earnings during the fourth quarter of 2008.
In September 2006, the FASB issued authoritative guidance under
ASC 820, Fair Value Measurements and Disclosures (“ASC
820”) which defines fair value, establishes a framework for
measuring fair value in GAAP, and expands disclosures about fair
value measurements. For financial assets and liabilities, this
guidance was effective for fiscal periods beginning after
November 15, 2007 and did not require any new fair value
measurements. The
adoption of this guidance on January 1, 2008 did not have a
material effect on the Company’s consolidated financial
statements. In February 2008, the FASB delayed the effective
date for nonfinancial assets and liabilities to fiscal years
beginning after November 15, 2008, except for items that
are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The
adoption of the provisions of ASC 820 related to
“non-financial assets” did not have a material effect
on the Company’s consolidated financial statements.
In February 2007, the FASB issued authoritative guidance under
ASC 825 which permits entities to choose to measure many
financial instruments and certain other items at fair value.
This statement became effective for financial statements issued
for fiscal years beginning after November 15, 2007,
including interim periods within that fiscal year. The Company
did not elect the fair value option for any of its existing
financial instruments as of December 31, 2008 and the
Company has not determined whether or not it will elect this
option for financial instruments it may acquire in the future.
2007
Effective January 1, 2007, the Company adopted certain
provisions under ASC 740, Income Taxes
(“ASC 740”) which specifies the way companies are
to account for uncertainty in income tax reporting, and
prescribes a methodology for recognizing, reversing and
measuring the tax benefits of a tax position taken, or expected
to be taken, in a tax return. As a result of adopting the new
standard, the Company recorded a $58.2 million increase to
reserves as a “cumulative effect” decrease to opening
retained earnings as of January 1, 2007, of which
$53.4 million was included in continuing operations.
Including this “cumulative effect” adjustment, the
Company had unrecognized tax benefits, net of indirect benefits
and deposits, of $190.5 million at January 1, 2007, of
which $35.4 million related to accrued interest and
penalties. The portion of the unrecognized tax benefits at
January 1, 2007 included in continuing operations totaled
$147.6 million, of which $28.0 million related to
accrued interest and penalties.
Non-GAAP Disclosures
In an effort to provide investors with additional information
regarding the Company’s results as determined by generally
accepted accounting principles (GAAP), the Company also
discloses non-GAAP information which management believes
provides useful information to investors. Free cash flow, net
debt, total debt, total capitalization, adjusted working
capital, average annual adjusted working capital, revenues
excluding the impact of changes in foreign currency exchange
rates 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, revenue and
working capital as determined in accordance with GAAP, and they
may not be comparable to similarly titled measures reported by
other companies. Management believes the (1) net debt to
total capitalization ratio and (2) free cash flow are
important measures of operating performance and liquidity. Net
debt to total capitalization is helpful in evaluating the
Company’s capital structure and the amount of leverage it
employs. 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
the Company’s common stock. Reconciliations of free cash
flow, total debt and net debt can be found above in this
Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operation. Management
believes that reporting adjusted working capital (also sometimes
called “working capital”), which is calculated as
accounts receivable, plus inventory, less accounts payable,
provides a meaningful measure of the Company’s operational
results by showing the changes caused solely by revenue.
Management believes that reporting adjusted working capital and
revenues at constant currency, which excludes the positive or
negative impact of fluctuations in foreign currency exchange
rates, provides a meaningful measure of the Company’s
operational changes, given the global nature of Dover’s
businesses. Management believes that reporting organic revenue
growth, which excludes the impact of foreign currency exchange
rates and the impact of acquisitions, provides a useful
comparison of the Company’s revenue performance and trends
between periods.
Interest
Rates
The Company’s exposure to market risk for changes in
interest rates relates primarily to the fair value of long-term
fixed interest rate debt, interest rate swaps attached thereto,
commercial paper borrowings and investments in cash equivalents.
Generally, the fair market value of fixed-interest rate debt
will increase as interest rates fall and decrease as interest
rates rise.
Foreign
Exchange
The Company conducts business in various
non-U.S. countries,
primarily in Canada, Mexico, substantially all of the European
countries, Brazil, Argentina, Malaysia, China, India and other
Asian countries. Therefore, changes in the value of the
currencies of these countries affect the Company’s
financial position and cash flows when translated into
U.S. Dollars. The Company has generally accepted the
exposure to exchange rate movements relative to its investment
in
non-U.S. operations.
The Company may, from time to time, for a specific exposure,
enter into fair value hedges. Certain individual operating
companies that have foreign exchange exposure have established
formal policies to mitigate risk in this area by using fair
value and/or
cash flow hedging. The Company has mitigated and will continue
to mitigate a portion of its currency exposure through operation
of
non-U.S. operating
companies in which the majority of all costs are local-currency
based. A change of 5% or less in the value of all foreign
currencies would not have a material effect on the
Company’s financial position and cash flows.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENT SCHEDULE
Page
(All
other schedules are not required and have been
omitted)
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act
Rule 13a-15(f).
The Company’s management assessed the effectiveness of the
Company’s internal control over financial reporting as of
December 31, 2009. In making this assessment, the
Company’s management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control — Integrated Framework
.
Based on its assessment under the criteria set forth in
Internal Control — Integrated Framework ,
management concluded that, as of December 31, 2009, the
Company’s internal control over financial reporting was
effective to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
U.S. GAAP.
In making its assessment of internal control over financial
reporting as of December 31, 2009, management has excluded
those companies acquired in purchase business combinations
during 2009, which included Tyler Refrigeration, Mechanical
Field Services, Ala Cart, Inc., Barker Company, Extech
Instruments, and Inpro/Seal Company. These companies are
wholly-owned by the Company and their total revenue for the year
ended December 31, 2009 represents approximately 2.3% of
the Company’s consolidated total revenue for the same
period and their assets represent approximately 3.1% of the
Company’s consolidated assets as of December 31, 2009.
The effectiveness of the Company’s internal control over
financial reporting as of December 31, 2009 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their attestation report
which appears herein.
To the Board of Directors and Shareholders of Dover Corporation:
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Dover Corporation and its subsidiaries
at December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in
all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009 based on criteria
established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in “Management’s Report
on Internal Control Over Financial Reporting,” appearing
under Item 8. Our responsibility is to express opinions on
these financial statements, on the financial statement schedule,
and on the Company’s internal control over financial
reporting based on our integrated audits. We conducted our
audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of
material misstatement and whether effective internal control
over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 1 to the consolidated financial
statements, the Company changed the manner in which it accounts
for uncertain income tax positions in 2007.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
As described in “Management’s Report on Internal
Control Over Financial Reporting,” management has excluded
Tyler Refrigeration, Mechanical Field Services LP., Ala Cart,
Inc. Barker Company, Extech Instruments and Inpro/Seal Company
from its assessment of internal control over financial reporting
as of December 31, 2009 because they were acquired by the
Company in purchase business combinations during 2009. We have
also excluded Tyler Refrigeration, Mechanical Field Services
LP., Ala Cart, Inc., Barker Company, Extech Instruments and
Inpro/Seal Company from our audit of internal control over
financial reporting. These companies are wholly owned by the
Company and their total assets and revenue represent
approximately 3.1% and 2.3%, respectively, of the related
consolidated financial statement amounts as of and for the year
ended December 31, 2009.
/s/ PricewaterhouseCoopers
LLP
New York, New York
February 19, 2010
DOVER
CORPORATION
Loss from discontinued operations, net
Net earnings
Basic earnings (loss) per common share:
Net earnings
Diluted earnings (loss) per common share:
Dividends paid per common share
The following table is a reconciliation of the share amounts
used in computing earnings per share:
Weighted average shares outstanding — Basic
Dilutive effect of stock options, SARS and performance shares
Weighted average shares outstanding — Diluted
Anti-dilutive options/SAR’s excluded from diluted EPS
computation
See Notes to Consolidated Financial Statements.
Current assets:
Cash and equivalents
Short-term investments
Receivables, net of allowances of $41,832 and $32,647
Inventories, net
Prepaid and other current assets
Deferred tax asset
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other assets and deferred charges
Assets of discontinued operations
Total assets
Current liabilities:
Notes payable and current maturities of long-term debt
Accounts payable
Accrued compensation and employee benefits
Accrued insurance
Other accrued expenses
Federal and other taxes on income
Total current liabilities
Long-term debt
Deferred income taxes
Other deferrals
Liabilities of discontinued operations
Commitments and contingent liabilities
Stockholders’ Equity:
Preferred stock
Common stock
Additional paid-in capital
Accumulated other comprehensive earnings
Retained earnings
Common stock in treasury
Total stockholders’ equity
Total liabilities and stockholders’ equity
COMPREHENSIVE
EARNINGS
Balance at December 31, 2006
Cumulative effect of adoption of ASC 740 (See Note 4)
Net earnings
Dividends paid
Common stock issued for options exercised
Tax benefit from the exercise of stock options
Stock-based compensation expense
Common stock issued, net of cancellations
Common stock acquired
Translation of foreign financial statements
Unrealized holding gains, net of tax of ($302)
Pension amortization and adjustment, net of tax of ($27,276)
Balance at December 31, 2007
Effect of adoption of ASC 715, change in measurement date
Unrealized holding losses, net of tax of $582
Pension amortization and adjustment, net of tax of $31,923
Balance at December 31, 2008
Issuance of Treasury stock
Unrealized holding gains, net of tax of ($582)
Pension amortization and adjustment, net of tax of $1,740
Balance at December 31, 2009
Operating Activities of Continuing Operations
Net earnings
Adjustments to reconcile net earnings to net cash from operating
activities:
Loss from discontinued operations
Depreciation and amortization
Stock-based compensation
Provision for losses on accounts receivable
Deferred income taxes
Employee retirement benefits
Gain on sale of line of business
Other non-current, net
Cash effect of changes in current assets and liabilities
(excluding effects of acquisitions, dispositions and foreign
exchange):
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses
Accrued taxes
Contributions to employee benefit plans
Net cash provided by operating activities of continuing
operations
Investing Activities of Continuing Operations
Sale of short-term investments
Purchase of short-term investments
Proceeds from the sale of property and equipment
Additions to property, plant and equipment
Proceeds from sales of businesses
Acquisitions (net of cash and cash equivalents acquired)
Net cash used in investing activities of continuing
operations
Financing Activities of Continuing Operations
Increase (decrease) in notes payable, net
Reduction of long-term debt
Proceeds from long-term-debt
Purchase of treasury stock
Proceeds from exercise of stock options, including tax benefits
Dividends to stockholders
Net cash used in financing activities of continuing
operations
Cash Flows From Discontinued Operations
Net cash used in operating activities of discontinued operations
Net cash used in investing activities of discontinued operations
Net cash used in discontinued operations
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental information — cash paid during the
year for:
Income taxes
Interest
Description
of Business
Dover Corporation (the “Company”) is a diversified,
multinational manufacturing corporation comprised of operating
companies that manufacture a broad range of specialized
industrial products and components as well as related services
and consumables. The Company also provides engineering, testing
and other similar services, which are not significant in
relation to consolidated revenue. The Company’s operating
companies are based primarily in the United States of America
and Europe with manufacturing and other operations throughout
the world. The Company reports its results in four segments,
Industrial Products, Engineered Systems, Fluid Management and
Electronic Technologies. For additional information on the
Company’s segments, see Note 14.
Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.
The results of operations of purchased businesses are included
from the dates of acquisitions. The assets, liabilities, results
of operations and cash flows of all discontinued operations have
been separately reported as discontinued operations for all
periods presented. Certain amounts in prior years have been
reclassified to conform to the current year presentation.
All of the Company’s acquisitions have been accounted for
under Accounting Standard Codification (“ASC”) 805,
Business Combinations (“ASC 805”). Accordingly, the
accounts of the acquired companies, after adjustments to reflect
fair market values assigned to assets and liabilities, have been
included in the consolidated financial statements from their
respective dates of acquisition. The 2009 acquisitions (see list
below) are wholly-owned and had an aggregate cost of
$222.0 million, net of cash acquired, plus the issuance of
$6.4 million of common stock for aggregate consideration of
$228.4 million at the date of acquisition. There is no
material contingent consideration related to the acquisitions at
December 31, 2009. In connection with certain acquisitions
that occurred prior to January 1, 2009, the Company had
reserves related to severance and facility closings of
$0.9 million and $27.9 million at December 31,
2009 and 2008, respectively. During the twelve months ended
December 31, 2009 the reserves were reduced by payments of
$11.6 million and non-cash adjustments of
$15.4 million. During the twelve months ended
December 31, 2008, the Company recorded payments and
non-cash adjustments of $28.1 million and
$2.3 million, respectively.
2009
Acquisitions
Type
8-May
Manufacturer of refrigerated specialty display merchandisers and
refrigeration systems for the food retail industry.
24-Aug
Manufacturer of air and gas compressors
12-Nov
Manufacturer of foodservice equipment, ventilation and conveyor
systems.
17-Nov
Manufacturer of refrigerated, non-refrigerated and hot display
cases.
15-Dec
Developer of portable printers for enterprise-wide applications.
30-Dec
Manufacturer of metallic gaskets and machined seals, parts and
components for ball and roller bearings.
On May 8, 2009, Hill PHOENIX acquired certain assets and
intellectual property of Tyler Refrigeration, a manufacturer of
refrigerated display merchandiser and refrigeration systems for
the food industry which was a unit
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of Carrier Corporation. Hill PHOENIX also purchased Tyler’s
five service and installation branch businesses. Tyler enhances
the Company’s portfolio of industry-leading proprietary
technology and adds key talent that augments product innovation,
engineering, field support and other customer related functions
at Hill PHOENIX. The transaction also improves the
Company’s position in commercial refrigeration.
On November 17, 2009, Hill PHOENIX acquired substantially
all of the assets of Barker Company, Limited and all of the
issued and outstanding stock of its sister company, Barker Sales
and Service, Inc. (collectively the “Barker Company”).
The Barker Company specializes in manufacturing display cases
for supermarkets, convenience stores and food service. The
Barker Company will complement and substantially increase Hill
PHOENIX’s specialty product offerings and enable Hill
PHOENIX to meet increasing demand for more specialized and
highly customized products in the fast-growing specialty
merchandiser segment. Hill PHOENIX will also benefit from
capabilities sharing, an improved cost position and revenue
synergies.
On December 30, 2009, Waukesha Bearings acquired
substantially all of the assets of Inpro/Seal Company, a
manufacturer of bearing isolator technologies. The purchase
included the issuance of approximately 151,000 common shares.
These shares have a six month restriction on sale. The
acquisition of Inpro/Seal Company adds a broad range of rotating
equipment applications and is an adjacent product line to
Waukesha’s bearing solutions for oil and gas and power
generation markets. The Inpro/Seal Company brand has been very
successful in North America and, when leveraged across
Waukesha’s global footprint, is expected to provide
opportunities for growth internationally. Waukesha expects to
realize additional synergies through the Company’s global
sourcing initiatives and from joint technology development as
manufacturers and end-users of rotating equipment seek more
advanced, integrated solutions.
For certain acquisitions that occurred in the fourth quarter of
2009, the Company is in the process of obtaining or finalizing
appraisals of tangible and intangible assets and it is
continuing to evaluate the initial purchase price allocations,
as of the acquisition date, which will be adjusted as additional
information relative to the fair values of the assets and
liabilities of the businesses become known. Accordingly,
management has used their best estimate in the initial purchase
price allocation as of the date of these financial statements.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed as of the dates of all
2009 acquisitions and the amounts assigned to goodwill and
intangible asset classifications:
Current assets, net of cash acquired
PP&E
Goodwill
Intangibles
Other assets
Total assets acquired
Total liabilities assumed
Net assets acquired
The amounts assigned to goodwill and major intangible asset
classifications by segment for the 2009 acquisitions are as
follows:
Goodwill — Tax deductible
Trademarks
Patents
Customer intangibles
Unpatented technologies
Other intangibles
2008
Acquisitions
Date
1-Mar
Manufacturer of hydraulic winches, hoists and gear reducers,
serving the oil and gas, infrastructure and marine markets.
1-Apr
Manufacturer of diamond roof drill bits and support products
specifically designed for underground mining operations.
10-Apr
Manufacturer of chemical metering pumps, chemical feed systems
and peripheral products.
31-Dec
Manufacturer of high and low temperature & pressure
sealing and product recovery technologies.
Pro
Forma Information
The following unaudited pro forma information illustrates the
effect on the Company’s revenue and net earnings for the
twelve-month periods ended December 31, 2009 and 2008,
assuming that the 2009 and 2008 acquisitions had all taken place
on January 1, 2008.
Revenue from continuing operations:
As reported
Pro forma
Net earnings from continuing operations:
Basic earnings per share from continuing operations:
Diluted earnings per share from continuing operations:
Average shares — Basic
Average shares — Diluted
These pro forma results of operations have been prepared for
comparative purposes only and include certain adjustments to
actual financial results for the relevant periods, such as
imputed financing costs, and estimated additional amortization
and depreciation expense as a result of intangibles and fixed
assets acquired, measured at fair value. They do not purport to
be indicative of the results of operations that actually would
have resulted had the acquisitions occurred on the date
indicated or that may result in the future.
During the first and fourth quarters of 2009, the Company
recorded in aggregate, a $10.3 million (after-tax)
write-down to the carrying value of a business held for sale.
The write-down and other adjustments resulted in a net
after-tax loss on sale of approximately $11.2 million for
the year. The after-tax loss from discontinued operations for
the twelve months ended December 31, 2009 is approximately
$15.5 million. At December 31, 2009, only one business
remains held for sale.
During the fourth quarter of 2008 the Company closed on a sale
of a line of business in the Electronic Technologies segment
resulting in a $7.5 million (after-tax) gain, which was
recorded in Selling and administrative expenses in the
Consolidated Statements of Operations.
The major classes of discontinued assets and liabilities
included in the Consolidated Balance Sheets are as follows:
Assets of Discontinued Operations
Current assets
Non-current assets
Liabilities of Discontinued Operations
Current liabilities
Non-current liabilities
In addition to the entity currently held for sale in
discontinued operations, the assets and liabilities of
discontinued operations include residual amounts related to
businesses previously sold. These residual amounts include
property, plant and equipment, deferred tax assets, short and
long-term reserves, and contingencies.
Summarized results of the Company’s discontinued operations
are detailed in the following table:
Loss on sale, net of taxes(1)
Earnings (loss) from operations before taxes
Benefit (provision) for income taxes related to operations
Loss from discontinued operations, net of tax
Additional information related to the after-tax loss on sale of
$101.7 million recorded in discontinued operations during
2008 is as follows:
During 2007, the Company discontinued two businesses, of which
one was sold during the same year. In addition, the Company sold
five businesses that were previously discontinued. Additional
information related to the after-tax loss on sale of
$17.1 million recorded in discontinued operations during
2007 is as follows:
Use of
Estimates
The preparation of financial statements in conformity with US
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue
and expenses during the reporting period. These estimates may be
adjusted due to changes in future economic, industry or customer
financial conditions, as well as changes in technology or
demand. Significant estimates include allowances for doubtful
accounts receivable, net realizable value of inventories,
restructuring reserves, valuation of goodwill and intangible
assets, pension and post retirement assumptions, useful lives
associated with amortization and depreciation of intangibles and
fixed assets, warranty reserves, income taxes and tax valuation
reserves, environmental reserves, legal reserves, insurance
reserves and the valuations of discontinued assets and
liabilities.
Cash
and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits
and short-term investments which are highly liquid in nature and
have original maturities at the time of purchase of three months
or less.
Short-Term
Investments
Short-term investments consist of bank term deposits that have
original maturity dates that range from six to nine months. At
December 31, 2009 and 2008, the Company had
$223.8 million and $279.5 million of bank term
deposits that earn a weighted average interest rate of 1.01% and
4.68%, respectively.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable is composed principally of trade accounts
receivable that arise primarily from the sale of goods or
services on account and are stated at historical cost.
Management at each operating company evaluates accounts
receivable to estimate the amount of accounts receivable that
will not be collected in the future and records the appropriate
provision. The provision for doubtful accounts is recorded as a
charge to operating expense and reduces accounts receivable. The
estimated allowance for doubtful accounts is based primarily on
management’s evaluation of the aging of the accounts
receivable balance, the financial condition of its customers,
historical trends and the time outstanding of specific balances.
Actual collections of accounts receivable could differ from
management’s estimates due to changes in future economic,
industry or customers’ financial conditions.
Fair
Value of Financial Instruments
The carrying amount of cash and cash equivalents, trade
receivables, accounts payable, notes payable and accrued
expenses approximated fair value as of December 31, 2009
and 2008 due to the short maturity of less than one year for
these instruments.
ASC 820, Fair Value Measurements and Disclosures (“ASC
820”) 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 instruments 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 unadjusted quoted
prices in active markets for identical assets or liabilities.
Level 2: 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: unobservable inputs that are
supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
The following table sets forth the Company’s financial
assets and liabilities that were measured at fair value on a
recurring basis at December 31, 2009 by the level within
the fair value hierarchy:
Short Term Investments
Short term investments are included in current assets in the
Consolidated Balance Sheets, and generally consist of bank term
deposits with original maturities greater than 90 days.
Inventories
Inventories for the majority of the Company’s subsidiaries,
including all international subsidiaries, are stated at the
lower of cost, determined on the
first-in,
first-out (FIFO) basis, or market. Other domestic inventory is
stated at cost, determined on the
last-in,
first-out (LIFO) basis, which is less than market value. Future
inventory valuations could differ from management’s
estimates due to changes in economic, industry or customer
financial conditions, as well as unanticipated changes in
technology or demand.
Property,
Plant and Equipment
Property, plant and equipment includes the historic cost of
land, buildings, equipment and significant improvements to
existing plant and equipment or, in the case of acquisitions, a
fair market value appraisal of such assets completed at the time
of acquisition. Expenditures for maintenance, repairs and minor
renewals are expensed as incurred. When property or equipment is
sold or otherwise disposed of, the related cost and accumulated
depreciation is removed from the respective accounts and the
gain or loss realized on disposition is reflected in earnings.
Depreciation expense was $159.6 million in 2009,
$159.3 million in 2008 and $151.7 million in 2007 and
was calculated on a straight-line basis for assets acquired
during all periods presented. The Company depreciates its assets
over their estimated useful lives as follows: buildings and
improvements 5 to 31.5 years; machinery and equipment 3 to
7 years; furniture and fixtures 3 to 7 years; and
vehicles 3 years.
Derivative
Instruments
The Company periodically enters into financial transactions
specifically to hedge its exposures to various items, including,
but not limited to, interest rate and foreign exchange rate
risk. Through various programs, the Company hedges its cash flow
exposures to foreign exchange rate risk by entering into foreign
exchange forward contracts and collars. The Company does not
enter into derivative financial instruments for speculative
purposes and does not have a material portfolio of derivative
financial instruments.
The Company recognizes all derivatives as either assets or
liabilities on the balance sheet and measures those instruments
at fair value. If the derivative is designated as a fair value
hedge and is effective, the changes in the fair value of the
derivative and of the hedged item attributable to the hedged
risk are recognized in earnings as offsets to the changes in
fair value of the exposures being hedged in the same period. If
the derivative is designated as a cash flow hedge, the effective
portions of changes in the fair value of the derivative are
recorded in other comprehensive earnings and are recognized in
earnings as the hedged transaction occurs. Ineffective portions
of changes in the fair value of cash flow hedges are recognized
in earnings immediately.
Tests for hedge ineffectiveness are conducted periodically and
any ineffectiveness found is recognized in the Consolidated
Statements of Operations. The fair market value of all
outstanding transactions is recorded in Other assets and
deferred charges, or in the Other deferrals section of the
balance sheet, as applicable. The corresponding
change in value of the hedged assets/liabilities is recorded
directly in that section of the Consolidated Balance Sheets.
Goodwill
Goodwill is the excess of the acquisition cost of businesses
over the fair value of the identifiable net assets acquired. In
accordance with ASC 350, Intangibles — Goodwill and
Other (“ASC 350”), the Company does not amortize
goodwill. Instead, goodwill is tested for impairment annually
unless indicators of impairment exist, such as a significant
sustained change in the business climate, during the interim
periods.
For 2009 and 2008, the Company identified 10 reporting units
each year for its annual goodwill test which was performed as of
September 30. Step one of the test compared the fair value
of the reporting unit using a discounted cash flow method to its
book value. This method uses the Company’s own market
assumptions including projecting future cash flows, determining
appropriate discount rates, and other assumptions which are
reasonable and inherent in the discounted cash flow analysis.
The projections are based on historical performance and future
estimated results. These assumptions require significant
judgment and actual results may differ from assumed and
estimated amounts. Step two, which compares the book value of
the goodwill to its implied fair value, was not necessary since
there were no indicators of potential impairment from step one.
For information related to the amount of the Company’s
goodwill by segment, see Note 7.
Indefinite-Lived
Intangible Assets
Similar to goodwill, the Company tests indefinite-lived,
intangible assets (primarily trademarks) at least annually
unless indicators of impairment exist, such as a significant
sustained change in the business climate, during the interim
periods. In performing these tests, the Company uses a
discounted cash flow method to calculate and compare the fair
value of the intangible to its book value. This method uses the
Company’s own market assumptions which are reasonable and
inherent in the discounted cash flow analysis. If the fair value
is less than the book value of the intangibles, an impairment
charge would be recognized. For information related to the
amount of the Company’s intangible asset classes, see
Note 7.
Long-Lived
Assets
In accordance with ASC 360, Property Plant and Equipment
(“ASC 360”) long-lived assets (including intangible
assets that are amortized) are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, such as a significant
sustained change in the business climate, during the interim
periods. If an indicator of impairment exists for any grouping
of assets, an estimate of undiscounted future cash flows is
produced and compared to its carrying value. If an asset is
determined to be impaired, the loss is measured by the excess of
the carrying amount of the asset over its fair value as
determined by an estimate of discounted future cash flows. There
were no indicators of impairment noted during 2009.
Foreign
Currency
Assets and liabilities of
non-U.S. subsidiaries,
where the functional currency is not the U.S. dollar, have
been translated at year-end exchange rates and profit and loss
accounts have been translated using weighted average yearly
exchange rates. Adjustments resulting from translation have been
recorded in the equity section of the balance sheet as
cumulative translation adjustments. Assets and liabilities of an
entity that are denominated in currencies other than an
entity’s functional currency are remeasured into the
functional currency using end of period exchange rates or
historical rates where applicable to certain balances. Gains and
losses related to these remeasurements are recorded within the
Statements of Operations as a component of Other Expense
(Income), net.
Revenue
Recognition
Revenue is recognized when all of the following circumstances
are satisfied: a) persuasive evidence of an arrangement
exists, b) price is fixed or determinable,
c) collectability is reasonably assured, and
d) delivery has occurred. In revenue transactions where
installation is required, revenue can be recognized when the
installation obligation is not essential to the functionality of
the delivered products. Revenue transactions involving
non-essential installation obligations are those which can
generally be completed in a short period of time at
insignificant cost and the skills required to complete these
installations are not unique to the Company and in many cases
can be provided by third parties or the customers. If the
installation obligation is essential to the functionality of the
delivered product, revenue recognition is deferred until
installation is complete. In addition, when it is determined
that there are multiple deliverables to a sales arrangement, the
Company will allocate consideration received to the separate
deliverables based on their relative fair values and recognize
revenue based on the appropriate criteria for each deliverable
identified. In a limited number of revenue transactions, other
post-shipment obligations such as training and customer
acceptance are required and, accordingly, revenue recognition is
deferred until the customer is obligated to pay, or acceptance
has been confirmed. Service revenue is recognized and earned
when services are performed and is not significant to any period
presented. The Company recognizes contract revenue under
percentage of completion accounting using the cost to cost
method as the measure of progress. The application of percentage
of completion accounting requires estimates of future revenues
and contract costs over the full term of the contract. The
Company updates project cost estimates on a quarterly basis or
more frequently, when changes in circumstances warrant.
Stock-Based
Compensation
The Company records stock-based compensation expense on a
straight-line basis, generally over the explicit service period
of three years (except for retirement eligible employees and
retirees). Awards granted to retirement eligible employees are
expensed immediately and the Company shortens the vesting
period, for expensing purposes, for any employee who will become
eligible to retire within the three-year explicit service
period. Expense for these employees is recorded over the period
from the date of grant through the date the employee first
becomes eligible to retire and is no longer required to provide
service. For additional information related to stock-based
compensation, including activity for 2009, 2008 and 2007, see
Note 10.
The provision for income taxes on continuing operations includes
federal, state, local and
non-U.S. taxes.
Tax credits, primarily for research and experimentation and
non-U.S. earnings,
export programs, and U.S. manufacturer’s tax deduction
are recognized as a reduction of the provision for income taxes
on continuing operations in the year in which they are available
for tax purposes. Deferred taxes are provided on temporary
differences between assets and liabilities for financial and tax
reporting purposes as measured by enacted tax rates expected to
apply when temporary differences are settled or realized. Future
tax benefits are recognized to the extent that realization of
those benefits is considered to be more likely than not. A
valuation allowance is established for deferred tax assets for
which realization is not assured. The Company has not provided
for any residual U.S. income taxes on unremitted earnings
of non-U.S. subsidiaries as such earnings are currently
intended to be indefinitely reinvested.
ASC 740 specifies the way companies are to account for
uncertainty in income tax reporting, and prescribes a
methodology for recognizing, reversing and measuring the tax
benefits of a tax position taken, or expected to be taken, in a
tax return. The provisions of this guidance became effective
January 1, 2007 and, as a result of adopting these
provisions, the Company recorded a $58.2 million increase
to reserves as a “cumulative effect” decrease to
opening retained earnings as of January 1, 2007, of which
$53.4 million was included in continuing operations.
Including this “cumulative effect” adjustment, the
Company had unrecognized tax benefits, net of indirect benefits
and deposits, of $190.5 million at January 1, 2007, of
which $35.4 million related to accrued interest and
penalties. The portion of the unrecognized tax benefits at
January 1, 2007 included in continuing operations totaled
$147.6 million, of which $28.0 million related to
accrued interest and penalties. For additional information on
the Company’s income taxes and unrecognized tax benefits,
see Note 11.
Research
and Development Costs
Research and development costs, including qualifying engineering
costs, are expensed when incurred and amounted to
$178.3 million in 2009, $189.2 million in 2008 and
$193.2 million in 2007.
Risk,
Retention, Insurance
The Company currently self-insures its product and commercial
general liability claims up to $5.0 million per occurrence,
its workers’ compensation claims up to $0.5 million
per occurrence, and automobile liability claims up to
$1.0 million per occurrence. Third-party insurance provides
primary level coverage in excess of these amounts up to certain
specified limits. In addition, the Company has excess liability
insurance from third-party insurers on both an aggregate and an
individual occurrence basis well in excess of the limits of the
primary coverage. A worldwide program of property insurance
covers the Company’s owned and leased property and any
business interruptions that may occur due to an insured hazard
affecting those properties, subject to reasonable deductibles
and aggregate limits. The Company’s property and casualty
insurance programs contain various deductibles that, based on
the Company’s experience, are typical and customary for a
company of its size and risk profile. The Company does not
consider any of the deductibles to represent a material risk to
the Company. The Company generally maintains deductibles for
claims and liabilities related primarily to workers’
compensation, health and welfare claims, general commercial,
product and automobile liability and property damage, and
business interruption resulting from certain events. The Company
accrues for claim exposures that are probable of occurrence and
can be reasonably estimated. As part of the Company’s risk
management program, insurance is maintained to transfer risk
beyond the level of self-retention and provides protection on
both an individual claim and annual aggregate basis.
The following table displays the components of inventory:
Raw materials
Work in progress
Finished goods
Subtotal
Less LIFO reserve
Total
At December 31, 2009 and 2008, domestic inventories,
determined by the LIFO inventory method amounted to
$60.4 million and $56.4 million, respectively.
The following table details the components of property,
plant & equipment, net:
Land
Buildings and improvements
Machinery, equipment and other
Accumulated depreciation
The changes in the carrying value of goodwill by segment through
the year ended December 31, 2009 are as follows:
Electronic Technologies
Industrial Products
Fluid Management
Engineered Systems
Total
The changes in the carrying value of goodwill are as follows:
Goodwill balance at January 1,
Accumulated impairment
Beginning balance, net Goodwill
Goodwill aquired during year
Cumulative translation effect
Impairment losses during the year
Goodwill related to sale of business
Purchase accounting and other adjustments
Goodwill ending balance
Goodwill balance, net at December 31,
The accumulated impairment balance of $159.7 million as of
December 31, 2009 and 2008 consists of $99.8 million
relating to the Industrial Products segment and
$59.9 million relating to the Fluid Management segment.
The following table provides the gross carrying value and
accumulated amortization for each major class of intangible
assets:
Amortized Intangible Assets:
Customer Intangibles
Unpatented Technologies
Non-Compete Agreements
Drawings & Manuals
Distributor Relationships
Other
Total
Unamortized Intangible Assets:
Total Intangible Assets
Total intangible amortization expense for the twelve months
ended December 31, 2009, 2008 and 2007 was
$98.6 million, $101.9 million and $92.1 million,
respectively. Amortization expense, based on current intangible
balances is estimated to be $81.5 million,
$84.2 million, $83.9 million, $82.9 million and
$76.1 million in 2010 through 2014, respectively.
The following table details the major components of other
current accrued expenses:
Warranty
Taxes other than income
Unearned revenue
Accrued interest
Legal and environmental
Accrued commissions (Non Employee)
Accrued volume discounts
Restructuring and exit
Other(A)
Prior to January 1, 2009, the Company initiated various
restructuring programs at its operating companies and recorded
severance and other restructuring costs in connection with
purchase accounting for acquisitions (see
Note 2 for additional detail). In addition, late in 2008,
the Company announced plans to increase substantially the amount
of restructuring efforts in response to the significant decline
in global economic activity. For the twelve months ended
December 31, 2009, approximately $21.9 million and $50.2
million of restructuring charges were recorded in cost of goods
and services and selling and administrative expenses,
respectively, in the Consolidated Statements of Operations. The
Company does not anticipate significant restructuring charges in
2010.
The following table details the Company’s severance and
exit reserve activity during 2009:
At December 31, 2008(A)
Provision
Purchase accounting
Payments
Other, including impairments
At December 31, 2009(B)
During 2009, the Company repaid its $192.8 million
outstanding balances of commercial paper and other short-term
debt.
During the second quarter ended June 30, 2008, the Company
repaid its $150 million 6.25% Notes due June 1,
2008. In addition, on March 14, 2008, the Company issued
$350 million of 5.45% notes due 2018 and
$250 million of 6.60% notes due 2038. The net proceeds
of $594.1 million from the notes were used to repay
borrowings under the Company’s commercial paper program,
and were reflected in long-term debt in the Consolidated Balance
Sheets at December 31, 2008. The notes and debentures are
redeemable at the option of the Company in whole or in part at
any time at a redemption price that includes a make-whole
premium, with accrued interest to the redemption date.
During the first quarter of 2008, the Company entered into
several interest rate swaps in anticipation of the debt
financing completed on March 14, 2008 which, upon
settlement, resulted in a net gain of $1.2 million which
was deferred and will be amortized over the life of the related
notes.
The Company may, from time to time, enter into interest rate
swap agreements to manage its exposure to interest rate changes.
Interest rate swaps are agreements to exchange fixed and
variable rate payments based on notional principal amounts.
There is an outstanding swap agreement for a total notional
amount of $50.0 million, or CHF65.1 million, which
swaps the U.S. dollar
6-month
LIBOR rate and the Swiss Franc
6-month
LIBOR rate. This agreement hedges a portion of the
Company’s net investment in
non-U.S. operations
and matures on February 15, 2011. The fair value
outstanding at December 31, 2009 and 2008, included a loss
of $13.3 million and $12.0 respectively, which was based on
quoted market prices for similar instruments ( Level 2
inputs under the ASC 820 hierarchy). The change in fair value of
this hedge, which was not significant during 2009, is recorded
in Cumulative Translation Adjustments and in Other Deferrals in
the Consolidated Balance Sheets. This hedge is effective.
There are no amounts excluded from the assessment of hedge
effectiveness and there are no credit risk related contingent
features in the Company’s derivative instruments. In
addition, the amount of gains or losses from hedging activity
recorded in earnings is not significant and the amount of
unrealized gains or losses from cash flow hedges which are
expected to be reclassified to earnings in the next twelve
months is not significant. The majority of the Company’s
hedged exposure for forecasted transactions ranges in the length
of time of up to one year. The Company believes it is probable
that all forecasted cash flow transactions will occur.
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 the
these counterparties is considered unlikely as the
Company’s policy is to contract with highly rated
diversified counterparties. See Note 4 for additional
information on the Company’s derivative and hedging
activity.
At December 31, 2008, the Company had open foreign exchange
forward purchase contracts expiring through December 2010
related to cash flow and fair value hedges of foreign currency
exposures. The fair values of these contracts were based on
quoted market prices for identical instruments as of
December 31, 2009 (Level 1 under the ASC 820
hierarchy). See Note 4 for additional information on the
Company’s derivative and hedging activity.
The details of the open contracts related to as of
December 31, 2009 are as follows:
US Dollar Value
Chinese Yuan Value
During the third quarter of 2008, the Company entered into a
foreign currency hedge which was subsequently settled within the
quarter. As a result of terminating the hedge, the Company
recorded a gain of $2.4 million in the third quarter ended
September 30, 2008.
On November 9, 2007, the Company entered into a
$1 billion five-year unsecured revolving credit facility
with a syndicate of banks (the “Credit Agreement”)
which replaced a facility with substantially similar terms. At
the Company’s election, loans under the Credit Agreement
will bear interest at a Eurodollar or Sterling rate based on
LIBOR, plus an applicable margin ranging from 0.130% to 0.35%
(subject to adjustment based on the rating accorded the
Company’s senior unsecured debt by S&P and
Moody’s), or at a base rate pursuant to a formula defined
in the Credit Agreement. In addition, the Credit Agreement
requires the Company to pay a facility fee and a utilization fee
in certain circumstances and imposes various restrictions on the
Company such as, among other things, the requirement for the
Company to maintain an interest coverage ratio of EBITDA to
consolidated net interest expense of not less than 3.5 to 1. The
Company was in compliance with all of its debt covenants at
December 31, 2009 and had a coverage ratio of 9.1 to 1. The
Company primarily uses this facility as liquidity
back-up for
its commercial paper program and has not drawn down any loans
under the $1 billion facility and does not anticipate doing
so. As of December 31, 2009, no commercial paper was
outstanding.
During the third quarter of 2006, the Company closed a
structured five-year, non-interest bearing, $165.1 million
amortizing loan with a non-US lender, which also included a
participation fee received by the Company of $9.9 million.
The loan was recorded at face value. The Company also expects to
incur a total of $5.7 million in debt related issuance
costs over the course of the loan. Beginning in April 2007, the
repayment schedule requires payments every April and September
with the final payment to be made in July 2011. The
participation fee will be
amortized ratably into Other Expense (income), net over the term
of the loan and is recorded in Other Deferrals in the
Consolidated Balance Sheets. The loan agreement includes a put
and call provision that could have been exercised starting in
June 2008 through the end of the loan term.
In November 2008, the Canadian Dollar Credit Facility with the
Bank of Nova Scotia expired. The Company did not renew the
facility in 2008.
Notes payable and current maturities of long-term debt shown on
the Consolidated Balance Sheets for 2008 principally represented
commercial paper issued in the U.S. The weighted average
interest rate for short-term borrowings for the years 2009 and
2008 was 0.3% and 2.4%, respectively. The commercial paper
balance was paid in full as of December 31, 2009.
The Company’s long-term debt with a book value of $1,860.9
million, of which $35.6 million matures in less than one
year, had a fair value of approximately $1,954.6 million at
December 31, 2009. On December 31, 2008, the
Company’s long-term debt instruments had a book value of
$1,892.9 million and a fair value of approximately
$2,018.5 million. The estimated fair value of the long-term
debt is based on quoted market prices for similar issues.
A summary of the Company’s long-term debt recorded at face
amount, net of unamortized discount and the fair value of
interest rate swaps is as follows for the years ended December
31:
Notes*
Debentures **
Other long-term debt, including capital leases
Total long-term debt
Less current installments
Long-term debt, excluding current installments
Annual repayments of long-term debt are $35.6 million in
2010, 436.2 million in 2011, $0.0 million in 2012
through 2013, $190 million and $1,388.9 million
thereafter. The Company’s Five-Year $1 Billion
Revolving Credit Facility expires in 2012.
Interest expense for the years ended December 31, 2009,
2008 and 2007 was $116.2 million, $130.2 million and
$112.3 million, respectively. Interest income for the years
ended December 31, 2009, 2008 and 2007 was
$15.8 million, $34.2 million and $22.7 million,
respectively.
2005
Equity and Cash Incentive Plan
On April 20, 2004, the shareholders approved the Dover
Corporation 2005 Equity and Cash Incentive Plan (the “2005
Plan”) to replace the 1995 Incentive Stock Option Plan and
1995 Cash Performance Program (the “1995 Plan”), which
expired on January 30, 2005. Under the 2005 Plan, a maximum
aggregate of 20 million shares were reserved for grants
(non-qualified and incentive stock options, stock settled stock
appreciation rights (“SARs”), restricted stock, and
performance share awards) to key personnel between
February 1, 2005 and January 31, 2015, provided that
no incentive stock options shall be granted under the plan after
February 11, 2014 and a maximum of two million shares may
be granted as restricted stock or performance share awards. The
exercise price of options and SARs may not be less than the fair
market value of the stock at the time the awards are granted.
The period during which these options and SARs are exercisable
is fixed by the Company’s Compensation Committee at the
time of grant, but generally may not commence sooner than three
years after the date of grant, and may not exceed ten years from
the date of grant. All stock options or SARs issued under the
1995 Plan or the 2005 Plan vest after three years of service and
expire at the end of ten years. All stock options and SARs are
granted at regularly scheduled quarterly Compensation Committee
meetings (usually only at the meeting during the first quarter)
and have an exercise price equal to the closing price of the
Company’s stock on the New York Stock Exchange on the date
of grant. New common shares are issued when options or SARs are
exercised.
Performance
Share Awards
In May 2009, the shareholders of the Company approved an
amendment to the 2005 Plan allowing the granting of performance
share awards that will become payable in common shares upon
achievement of pre-established performance targets. The changes
to the 2005 Plan are detailed in the Company’s Proxy
Statement dated March 24, 2009 under the heading
“Proposal 2 — Proposal to Approve Amendments
to the 2005 Equity and Cash Incentive Plans.” Performance
share awards granted under the 2005 Plan are being expensed over
the three year period that is the requisite performance and
service period. Awards shall become vested if (1) the
Company achieves certain specified stock performance targets
compared to a peer group of 38 companies and (2) the
employee remains continuously employed by the company during the
performance period. Partial vesting may occur for certain
terminations not for cause and for retirements. The estimated
compensation expense recognized for performance share awards is
net of estimated forfeitures. The Company assesses performance
levels quarterly. Compensation expense for the year ended
December 31, 2009 was $0.6 million. Unrecognized
compensation expense cost as of December 31, 2009 is $0.7
million which will be recognized over a weighted average period
of 1.9 years.
Performance Share Awards
Unvested at December 31, 2008
Granted
Vested
Forfeited
Unvested at December 31, 2009
The performance share awards are market condition awards and
have been fair valued on the date of grant using the Monte Carlo
simulation model with the following assumptions:
Performance Shares
Risk-free interest rate
Dividend yield
Expected life (years)
Volatility
Grant price
Fair value granted
SARs and Stock Options
In the first and second quarters of 2009, the Company issued
SARs covering 2,796,124 and 29,577 shares, respectively
under the 2005 Plan. In 2008, the Company issued 2,234,942 SARs
under the 2005 Plan. No stock options were issued in 2009, 2008
or 2007 and the Company does not anticipate issuing stock
options in the future. The fair value of each SAR grant was
estimated on the date of grant using a Black-Scholes
option-pricing model with the following assumptions:
A summary of activity for SARs and stock options for the years
ended December 31, 2009, 2008 and 2007 is as follows:
Outstanding at 1/1/2007
Granted
Forfeited
Exercised
Outstanding at 12/31/2007
Exercisable at December 31, 2007 through February 14,
2014
Outstanding at 1/1/2008
Outstanding at 12/31/2008
Exercisable at December 31, 2008 through February 14,
2015
Outstanding at 1/1/2009
Outstanding at 12/31/2009
2010
2011
2012
2013
2014
2015
2016
Total exercisable at December 31, 2009
Unrecognized compensation expense related to not yet exercisable
SARs was $16.7 million at December 31, 2009. This cost
is expected to be recognized over a weighted average period of
1.7 years. The fair value of options and SARs which became
exercisable during the years ended December 31, 2009, 2008
and 2007 was $25.1 million, $26.2 million and
$28.5 million, respectively.
Additional
Detail
Range of Exercise Prices
$42.30-$50.60
$29.45-$35.50
$24.50-$31.00
$33.00-$39.00
$39.40-$43.00
The Company also has restricted stock authorized for grant (as
part of the 2005 Plan), under which common stock of the Company
may be granted at no cost to certain officers and key employees.
In general, restrictions limit the sale or transfer of these
shares during a two or three year period, and restrictions lapse
proportionately over the two or three year period. The Company
did not grant any restricted shares in 2009, 2008 or 2007, and
there are no grants outstanding as of December 31, 2009.
The Company has a stock compensation plan under which
non-employee directors are granted shares of the Company’s
common stock each year as more than half of their compensation
for serving as directors. During 2009, the Company issued an
aggregate of 14,726 shares, of its common stock to eleven
outside directors (after withholding 6,823 additional shares to
satisfy tax obligations) as partial compensation for serving as
directors of the Company during 2009. During 2008, the Company
issued an aggregate of 29,213 shares, net, of its common
stock to twelve outside directors (after withholding 11,582
additional shares to satisfy tax obligations) as partial
compensation for serving as directors of the Company during
2008. During 2007, the Company issued an aggregate of
14,129 shares of its common stock, net, to twelve outside
directors (after withholding an aggregate of 6,056 additional
shares to satisfy tax obligations) as partial compensation for
serving as directors of the Company during 2007.
Income taxes have been based on the following components of
“Earnings Before Provision for Income Taxes and
Discontinued Operations” in the Consolidated Statements of
Operations:
Domestic
Foreign
Total income taxes were as follows:
Taxes on income from continuing operations
Credit to Stockholders’ equity for tax benefit related to
stock option exercises
Income tax expense (benefit) for the years ended
December 31, 2009, 2008 and 2007 is comprised of the
following:
Current:
U.S. Federal
State and local
Foreign
Total current — continuing
Deferred:
Total deferred — continuing
Total expense — continuing
Differences between the effective income tax rate and the
U.S. Federal income statutory rate are as follows:
U.S. Federal income tax rate
State and local taxes, net of Federal income tax benefit
Foreign operations tax effect
Subtotal
R&E tax credits
Domestic manufacturing deduction
Foreign tax credits
Branch losses
Settlement of tax contingencies
Other, principally non-tax deductible items
Effective rate from continuing operations
The tax effects of temporary differences that give rise to
future deferred tax assets and liabilities are as follows:
Deferred Tax Assets:
Accrued insurance
Accrued compensation, principally postretirement benefits and
other employee benefits
Accrued expenses, principally for state income taxes, interest
and warranty
Long-term liabilities, principally warranty, environmental, and
exit costs
Inventories, principally due to reserves for financial reporting
purposes and capitalization for tax purposes
Net operating loss and other carryforwards
Accounts receivable, principally due to allowance for doubtful
accounts
Prepaid pension assets
Total gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred Tax Liabilities:
Accounts receivable
Plant and equipment, principally due to differences in
depreciation
Intangible assets, principally due to different tax and
financial reporting bases and amortization lives
Total gross deferred tax liabilities
Net deferred tax liability
The components of the net deferred tax liability are classified
as follows in the consolidated balance sheets:
Current deferred tax asset
Non-current deferred tax liability
The Company has loss carryforwards for U.S. federal and
non-U.S. purposes
as of December 31, 2009 of $8.4 million and
$73.8 million, respectively, and as of December 31,
2008, $21.3 million and $65.4 million, respectively.
The federal loss carryforwards are available for use against the
Company’s consolidated federal taxable income and expire in
2024. The entire balance of the
non-U.S. losses
is available to be carried forward, with $20.4 million of these
losses beginning to expire during the years 2010 through 2029.
The remaining $53.4 million of such losses can be carried
forward indefinitely.
The Company has loss carryforwards for state purposes as of
December 31, 2009 and 2008 of $220.9 and
$205.3 million, respectively. The state loss carryforwards
are available for use by the Company between 2010 and 2028.
The Company has
non-U.S. tax
credit carryforwards of $56.0 million and $27.9 million at
December 31, 2009 and 2008, respectively, that are
available for use by the Company between 2010 and 2019.
The Company has research and development credits of
$3.9 million at December 31, 2009 and at
December 31, 2008 that are available for use by the Company
between 2010 and 2026.
At December 31, 2009 and 2008, the Company had available
alternative minimum tax credits of $3.1 million, which are
available for use by the Company indefinitely, and alternative
minimum tax
non-U.S. tax
credits of $11.7 million that are available for use by the
Company between 2010 and 2026.
The Company maintains valuation allowances by jurisdiction
against the deferred tax assets related to certain of these
carryforwards as utilization of these tax benefits is not
assured for certain jurisdictions.
The Company has not provided for U.S. federal income taxes
or tax benefits on the undistributed earnings of its
international subsidiaries because such earnings are reinvested
and it is currently intended that they will continue to be
reinvested indefinitely. At December 31, 2009, the Company
has not provided for federal income taxes on earnings of
approximately $668.9 million from its international
subsidiaries.
In 2009 and 2008, the Company recognized $33.7 and
$18.3 million, respectively, in tax benefits related to the
resolution of various state and U.S. income tax issues.
Unrecognized
Tax Benefits
Effective January 1, 2007, the Company adopted certain
provisions of ASC 740. See Note 4 for additional
information on the impact of adoption on the Company’s
Consolidated Financial Statements.
The Company files Federal income tax returns, as well as
multiple state, local and
non-U.S. jurisdiction
tax returns. The Company is no longer subject to examinations of
its federal income tax returns by the Internal Revenue Service
(“IRS”) for years through 2006. All significant state
and local, and international matters have been concluded for
years through 1993 and 2000, respectively. With the exception of
matters in litigation, for which an estimate cannot be made due
to uncertainties, the Company does not believe it is reasonably
possible that its unrecognized tax benefits will significantly
change within the next twelve months.
The following table is a reconciliation of the beginning and
ending balances of the Company’s unrecognized tax benefits:
Unrecognized tax benefits at January 1, 2008
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Lapse of statutes
Unrecognized tax benefits at December 31, 2008
Unrecognized tax benefits at December 31, 2009
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 plant sites, in cooperation with
regulatory agencies, and appropriate reserves have been
established.
The Company and certain of its subsidiaries are also parties to
a number of other legal proceedings incidental to their
businesses. These proceedings primarily involve claims by
private parties alleging injury arising out of use of the
Company’s products, exposure to hazardous substances or
patent infringement, litigation and administrative proceedings
involving employment matters and commercial disputes. Management
and legal counsel periodically review the probable outcome of
such proceedings, the costs and expenses reasonably expected to
be incurred, the availability and extent of insurance coverage,
and established reserves. While it is not possible at this time
to predict the outcome of these legal actions or any need for
additional reserves, in the opinion of management, based on
these reviews, it is unlikely that the disposition of the
lawsuits and the other matters mentioned above will have a
material adverse effect on the financial position, results of
operations, cash flows or competitive position of the Company.
The Company leases certain facilities and equipment under
operating leases, many of which contain renewal options. Total
rental expense, net of insignificant sublease rental income, for
all operating leases was $74.9 million, $76.7 million and
$70.5 million for the years ended December 31, 2009,
2008 and 2007, respectively. Contingent rentals under the
operating leases were not significant.
The aggregate future minimum lease payments for operating and
capital leases as of December 31, 2009 are as follows:
2010
2011
2012
2013
2014
2015 and thereafter
Warranty program claims are provided for at the time of sale.
Amounts provided for are based on historical costs and adjusted
for new claims. A rollforward of the warranty reserve is as
follows:
Beginning Balance January 1
Provision for warranties
Increase from acquisitions
Settlements made
Other adjustments
Ending Balance December 31
The Company offers a defined contribution plan to most of its
employees. The Company also has defined benefit pension plans
(the “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’s funding policy is consistent with the funding
requirements of the Employment Retirement Income Security Act
(“ERISA”) and applicable international laws. The
Company adopted certain provisions of ASC 715 on
December 31, 2006 and, in accordance with the standard, the
Company used a measurement date of December 31st for
its pension and other postretirement benefit plans for the years
ended December 31, 2008 and thereafter. Prior to 2008, the
Company used a September 30th measurement date for the
majority of its defined benefit plans.
The Company is responsible for overseeing the management of the
investments of the plans’ assets and otherwise ensuring
that the plans’ investment programs are in compliance with
ERISA, other relevant legislation, and related plan documents.
Where relevant, the Company has retained professional investment
managers to manage the plans’ assets and implement the
investment process. The investment managers, in implementing
their investment processes, have the authority and
responsibility to select appropriate investments in the asset
classes specified by the terms of their applicable prospectus or
investment manager agreements with the plans.
The primary financial objective of the plans is to secure
participant retirement benefits. Accordingly, the key objective
in the plans’ financial management is to promote stability
and, to the extent appropriate, growth in the funded status.
Related and supporting financial objectives are established in
conjunction with a review of current and projected plan
financial requirements.
The assets of the plans are invested to achieve an appropriate
return for the plans consistent with a prudent level of risk.
The asset return objective is to achieve, as a minimum over
time, the passively managed return earned by market index funds,
weighted in the proportions outlined by the asset class
exposures identified in the plans’ strategic allocation.
The fair value of the majority of the plans’ assets were
determined by the plans’ trustees using quoted market
prices for identical instruments ( Level 1 inputs under the
ASC 820 hierarchy) as of December 31, 2009. The fair value
of various other investments were determined by the plans’
trustees using directly observable market corroborated inputs,
including quoted prices for similar assets ( Level 2 inputs
under the ASC 820 hierarchy). There are no investments within
the Level 3 fair value hierarchy. The following is a
description of the valuation methodologies used for assets at
fair value:
Common stock: valued at prices obtained from exchanges where the
stock is traded.
Fixed income investments: these investments consist of corporate
bonds which are valued in active markets in which the bonds are
traded. Other corporate bonds are valued based on yields
currently available on comparable securities of issuers with
similar credit ratings. Other fixed income securities include
U.S. Government and municipal securities. These investments are
valued based on quoted prices in active markets in which the
security is traded or are valued based on yield curves and
credit information evaluated in pricing models.
Debt, equity and other funds: investments are valued using Net
Asset Value (“NAV”) which is based on the underlying
value of the assets owned by the funds, minus liabilities, then
divided by the number of shares outstanding. The NAV is a quoted
price in an active market.
The expected return on assets assumption used for pension
expense was developed through analysis of historical market
returns, current market conditions and the past experience of
plan asset investments. In developing the expected return on
asset assumption, estimates of future market returns by asset
category are less than actual long-term historical returns in
order to best anticipate future experience. Overall, it is
projected that the investment of plan assets will achieve a
7.75% net return over time from the asset allocation strategy.
The Company’s discount rate assumption is determined by
developing a yield curve based on high quality corporate bonds
with maturities matching the plans’ expected benefit
payment streams. The plans’ expected cash flows are then
discounted by the resulting
year-by-year
spot rates.
The Company also provides, through non-qualified plans,
supplemental retirement benefits in excess of qualified plan
limits imposed by Federal tax law. These plans are supported by
the general assets of the Company.
Obligations
and Funded Status
Change in benefit obligation
Benefit obligation at beginning of year
Benefits earned during the year
Interest cost
Plan participants’ contributions
Benefits paid
Federal Subsidy on benefits paid
Actuarial (gain) loss
Business acquisitions/divestures
Amendments
Settlements and curtailments
Effect of adoption of ASC 715 measurement date
Currency rate changes
Other
Benefit obligation at end of year
Change in Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Company contributions
Employee contributions
Acquisitions
Fair value of plan assets at end of year
Funded status
Accrued benefit cost
Amounts recognized in the statement of financial
position consist of:
position consist of:
Assets and Liabilities
Other assets and deferred charges
Accrued compensation and employee benefits
Other deferrals (principally compensation)
Total Assets and Liabilities
Net actuarial (gains) losses
Prior service (credit) cost
Net asset at transition, other
Deferred taxes
Total Accumulated other comprehensive (earnings)
loss, net of tax
loss, net of tax
Net amount recognized at December 31,
Accumulated benefit obligations
Information for plans with accumulated benefit
obligations in excess of plan assets:
obligations in excess of plan assets:
ABO
PBO
Fair value of plan assets
Net
Periodic Cost
The cost of contractual termination benefits were
$0.4 million in 2007. There were no costs related to
contractual termination benefits recorded in 2009 or 2008.
Expected return on plan assets
Service Cost
Interest Cost
Amortization of:
Prior service cost (income)
Transition obligation
Recognized actuarial (gain) loss
Settlement and curtailments (gain) loss
Total net periodic benefit cost
Assumptions
The weighted-average assumptions used in determining the benefit
obligations were as follows:
Discount rate
Average wage increase
Ultimate medical trend rate
The weighted average assumptions used in determining the net
periodic cost were as follows:
Expected return on plan assets
Plan
Assets
The actual and target weighted-average asset allocation for
benefit plans was as follows:
Equity — domestic
Equity — international
Fixed income — domestic
Real estate
Fair
Value Hierarchy
The fair value of the plan’s assets by their fair value
hierarchy levels was as follows:
Assets:
Common stocks
Fixed income investments
Debt equity and real estate funds
Cash and cash equivalents
Future
Estimates
Benefit
Payments
Estimated future benefit payments to retirees, which reflect
expected future service, are as follows:
2010
2011
2012
2013
2014
2015-2019
Contributions
Estimated contributions to be made during 2010 are as follows:
To plan assets
To plan participants
2010
Amortization Expense
Estimated amortization expense for 2010 related to amounts in
Accumulated Other Comprehensive Earnings (Loss) at
December 31, 2009 is as follows:
Amortization of:
Prior service cost (income)
Transition obligation
Recognized actuarial (gain) loss
Pension cost for all defined contribution, defined benefit, and
supplemental plans was $72.9 million for 2009,
$81.7 million for 2008 and $83.6 million for 2007.
For post-retirement benefit measurement purposes, a 8.5% annual
rate of increase in the per capita cost of covered benefits
(i.e., health care cost trend rates) was assumed for 2010. The
rate was assumed to decrease gradually to 5% by the year 2018
and remain at that level thereafter. The health care cost trend
rate assumption can have an effect on the amounts reported. For
example, increasing (decreasing) the assumed health care cost
trend rates by one percentage point in each year would increase
(decrease) the accumulated post-retirement benefit obligation as
of December 31, 2009 by $0.2 million ($0.2 million) and
would have a negligible impact on the net post-retirement
benefit cost for 2009.
The post-retirement benefit plans cover approximately 1,924
participants, approximately 1,082 of whom are eligible for
medical benefits. The plans are effectively closed to new
entrants. The post-retirement benefit obligation amounts at
December 31, 2009 and 2008 include approximately $4.8
million and $4.6 million in obligations, respectively,
recorded in discontinued operations.
The Company identifies its operating segments through the
underlying management reporting structure related to its
operating companies and through commonalities related to
products, processes, distribution
and/or
markets served. The Company’s segment structure allows the
management of each segment to focus its attention on particular
markets and provide oversight capacity to acquire additional
businesses.
The Company’s four reportable segments are briefly
described below:
Industrial Products manufactures equipment and components for
use in material handling such as industrial and recreational
winches, utility, construction and demolition machinery
attachments, hydraulic parts, industrial automation tools, 4WD
and AWD power train systems and other accessories of off-road
vehicles. In addition, mobile equipment related products include
refuse truck bodies, tank trailers, compactors, balers, vehicle
service lifts, car wash systems, internal engine components,
fluid control assemblies and various aerospace components.
Engineered Systems manufactures or assembles the following
products: refrigeration systems, display cases, walk-in coolers,
food service equipment, commercial kitchen air and ventilation
systems, heat transfer equipment, and food and beverage
packaging machines. The segment also manufactures product
identification related products such as industrial marking and
coding systems used to code information (e.g., dates and serial
numbers) on consumer products. In addition, the segment produces
several printing products for cartons used in warehouse
logistics operations as well as bar code printers and portable
printers.
Fluid Management manufactures the following products that serve
the energy markets (i.e. oil and gas): sucker rods, gas well
production control devices, drill bit inserts for oil and gas
exploration, control valves, piston and seal rings, control
instrumentation, remote data collection and transfer devices,
components for compressors, turbo machinery, motors and
generators. In addition, the segment manufactures various
products that provide fluid solutions, including nozzles,
swivels and breakaways used to deliver various types of fuel,
suction system equipment, unattended fuel management systems,
integrated tank monitoring, pumps used in fluid transfer
applications, quick disconnect couplings used in a wide variety
of biomedical and commercial applications, and chemical
portioning and dispensing systems.
Electronic Technologies manufactures advanced micro-component
products for the hearing aid and consumer electronics
industries, high frequency capacitors, microwave
electro-magnetic switches, radio frequency and microwave
filters, electromagnetic products, and frequency control/select
components. In addition, the segment builds sophisticated
automated assembly and testing equipment for the electronics
industry.
Selected financial information by market segment is as follows:
REVENUE
Industrial Products
Engineered Systems
Fluid Management
Electronic Technologies
Intra — segment eliminations
Total consolidated revenue
EARNINGS FROM CONTINUING OPERATIONS
Segment Earnings:
Total segments
Corporate expense / other
Net interest expense
Earnings from continuing operations before provision for income
taxes and discontinued operations
Provision for taxes
Earnings from continuing operations — total
consolidated
OPERATING MARGINS (pre-tax)
Segments:
Total Segments
Selected financial information by market segment (continued, in
thousands):
TOTAL ASSETS AT DECEMBER
31:
Corporate (principally cash and equivalents and marketable
securities)
Total continuing assets
Assets from discontinued operations
Consolidated total
DEPRECIATION and AMORTIZATION
(continuing)
Corporate
CAPITAL EXPENDITURES (continuing)
United States
Europe
Other Americas
Total Asia
Revenue is attributed to regions based on the location of the
Company’s customer, which in some instances is an
intermediary and not necessarily the end user. Long-lived assets
are comprised of net property, plant and equipment. The
Company’s operating companies are based primarily in the
United States of America and Europe. The Company’s
businesses serve thousands of customers, none of which accounted
for more than 10% of consolidated revenue. Accordingly, it is
impractical to provide revenue from external customers for each
product and service sold by segment.
The Company has the authority to issue up to 100,000 shares
of $100 par value preferred stock and up to
500,000,000 shares of $1 par value common stock. None
of the preferred stock has been issued. As of December 31,
2009 and 2008, 247,343,411 and 246,615,007 shares of common
stock were issued, respectively. In addition, the Company had
60,467,393 and 60,618,384 shares in treasury, held at cost,
as of December 31, 2009 and 2008, respectively.
Share
Repurchases
2009
The Company had no share repurchases in 2009. In May 2007, the
Board of Directors authorized the repurchase of up to
10,000,000 shares through May 2012. Approximately
8.9 million shares remain authorized for repurchase under
the five year authorization as of December 31, 2009.
2008
During the fourth quarter of 2007, the Board of Directors
approved a $500 million share repurchase program
authorizing repurchases of the Company’s common shares
through the end of 2008. During the twelve months ended
December 31, 2008, the Company repurchased
10,000,000 shares of its common stock in the open market at
an average price of $46.15 per share. As of December 31,
2008, all shares authorized by the program were purchased.
2007
During the third quarter of 2007, the Board of Directors
approved a share repurchase program authorizing the repurchase
of 10,000,000 common shares. The Company entered into an
accelerated share repurchase agreement on August 2, 2007
(“ASR”) under which it purchased 6,000,000 shares
of its common stock at an initial purchase price of $51.64 per
share. Upon final settlement of this ASR in the fourth quarter
of 2007, the final economic purchase price was $48.36 per share,
representing an average of the volume weighted average price of
the Company’s common stock during the outstanding period
less a negotiated discount amount. In addition, during 2007, the
Company made other open market purchases of its common stock
totaling 6.4 million shares at an average price of $46.78
per share.
Quarter
2009
First
Second
Third
Fourth
2008
All quarterly and full-year periods reflect the impact of
certain operations that were discontinued. As a result, the
quarterly data presented above will not agree to previously
issued quarterly financial statements.
17.
Subsequent Events
The Company assessed events occurring subsequent to
December 31, 2009 and through our filing, dated
February 19, 2010, for potential recognition and disclosure
in the consolidated financial statements. No events have
occurred that would require adjustment to or disclosure in the
consolidated financial statements which were issued on
February 19, 2010.
18.
Adoption of New Accounting Standards
In December 2007, the FASB issued authoritative guidance under
ASC 805, which retains the fundamental requirements that the
acquisition method of accounting (the purchase method) be used
for all business combinations and for an acquirer to be
identified for each business combination. In general, the
statement (1) extends its applicability to all events where
one entity obtains control over one or more other businesses,
(2) broadens the use of fair value measurements used to
recognize the assets acquired and liabilities assumed,
(3) changes the accounting for acquisition related fees and
restructuring costs incurred in connection with an acquisition,
and (4) increases required disclosures. The Company has
applied the provisions of this guidance prospectively to
business combinations for which the acquisition date is on or
after January 1, 2009. The impact of these provisions did
not have a material effect on the Company’s consolidated
financial statements since its adoption.
In April 2008, the FASB issued authoritative guidance under ASC
350 and ASC 275, Risks and Uncertainties (“ASC 275”),
to improve the consistency between the useful life of a
recognized intangible asset and the period of expected cash
flows used to measure the fair value of the intangible asset.
ASC 350 and ASC 275 amend the factors to be considered when
developing renewal or extension assumptions that are used to
estimate an intangible asset’s useful life. The guidance is
to be applied prospectively to intangible assets acquired after
December 31, 2008. In addition, ASC 350 and ASC 275
increase the disclosure requirements related to renewal or
extension assumptions. The Company has applied the provisions of
this guidance to business combinations for which the acquisition
date is on or after January 1, 2009. The impact of ASC 350
and ASC 275 did not have a material effect on the Company’s
consolidated financial statements since its adoption.
In December 2008, the FASB issued authoritative guidance under
ASC 715, Compensation — Retirement Benefits (“ASC
715”) which amends the disclosure requirements about plan
assets of a defined pension or other postretirement plan. The
provisions of this guidance require disclosure of (1) how
investment allocation decisions are made, including factors that
are pertinent to an understanding of the investment policies and
strategies, (2) the fair value of each major category of
plan assets, (3) the inputs and valuation techniques used
to determine fair value and (4) an understanding of
significant concentration of risk in plan assets. The provisions
of this guidance become effective for fiscal years ending after
December 15, 2009 and are to be applied prospectively. The
adoption of the amendments under ASC 715 did not have a material
impact on the Company’s consolidated financial statements.
Effective December 31, 2006, the Company applied certain
provisions of ASC 715 which required companies to report the
funded status of their defined benefit pension and other
postretirement benefit plans on their balance sheets as a net
liability or asset. Upon adoption at December 31, 2006, the
Company recorded a net reduction to shareholders’ equity of
$123.5 million, net of tax. In addition, effective for
fiscal years ending after December 15, 2008, the new
standard required companies to measure benefit obligations and
plan assets as of a company’s fiscal year end
(December 31, 2008 for the Company), using one of the
methods prescribed in the standard. The Company adopted the new
valuation date requirements using the
15-month
alternative, as prescribed in the standard, which resulted in a
charge of approximately $5.8 million, net of tax, to
retained earnings during the fourth quarter of 2008.
In September 2006, the FASB issued authoritative guidance under
ASC 820, Fair Value measurement and disclosures (“ASC
820) which defines fair value, establishes a framework for
measuring fair value in U.S. GAAP, and expands disclosures about
fair value measurements. For financial assets and liabilities,
this guidance was effective for fiscal periods beginning after
November 15, 2007 and did not require any new fair value
measurements. The adoption of this guidance on January 1,
2008 did not have a material effect on the Company’s
consolidated financial statements. In February 2008, the FASB
delayed the effective date for nonfinancial assets and
liabilities to
fiscal years beginning after November 15, 2008, except for
items that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually).
The adoption of the provisions of ASC 820 related to
“non-financial assets” did not have a material effect
on the Company’s consolidated financial statements.
VALUATION
AND QUALIFYING ACCOUNTS
Years Ended December 31, 2009, 2008 and 2007
(In thousands)
Years Ended December 31, 2009, 2008 and 2007
(In thousands)
Year Ended December 31, 2009
Allowance for Doubtful Accounts
Year Ended December 31, 2008
Year Ended December 31, 2007
Deferred Tax Valuation Allowance
Inventory Reserves
LIFO Reserve
None.
Evaluation
of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the
participation of the Company’s management, the
Company’s Chief Executive Officer and Chief Financial
Officer have concluded that the Company’s disclosure
controls and procedures as defined in
Rule 13a-15(e)
under the Exchange Act were effective as of December 31,
2009 to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange
Act is (i) recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission rules and forms, and (ii) accumulated and
communicated to the Company’s management, including its
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.
Changes
in Internal Controls
During the fourth quarter of 2009, there were no changes in the
Company’s internal control over financial reporting that
have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
Inherent
Limitations Over Internal Controls
The Company’s internal control over financial reporting is
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. The Company’s
internal control over financial reporting includes those
policies and procedures that:
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the Company’s assets;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that the Company’s receipts and
expenditures are being made only in accordance with
authorizations of the Company’s management and
directors; and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect
on the financial statements.
Management’s report on the effectiveness of the
Company’s internal control over financial reporting is
included in Item 8 of this
Form 10-K.
Management, including the Company’s Chief Executive Officer
and Chief Financial Officer, does not expect that the
Company’s internal controls will prevent or detect all
errors and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no
evaluation of internal controls can provide absolute assurance
that all control issues and instances of fraud, if any, have
been detected. Also, any evaluation of the effectiveness of
controls in future periods is subject to the risk that those
internal controls may become inadequate because of changes in
business conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
The information with respect to any reportable transaction,
business relationship or indebtedness between the Company and
the beneficial owners of more than 5% of the Common Stock, the
directors or nominees for director of the Company, the executive
officers of the Company or the members of the immediate families
of such individuals that are required to be included pursuant to
this Item 13 is included in the 2010 Proxy Statement and is
incorporated in this Item 13 by reference.
The information with respect to the Company’s relationship
with its independent registered public accounting firm and fees
paid thereto required to be included pursuant to this
Item 14 is included in the 2010 Proxy Statement and is
incorporated in this Item 14 by reference.
The information with respect to audit committee pre-approval
policies and procedures required to be included pursuant to this
Item 14 is included in the 2010 Proxy Statement and is
incorporated in this Item 14 by reference.
(a)(1) Financial Statements
Financial Statements covered by the Report of Independent
Registered Public Accounting Firm:
(A) Consolidated Statements of Operations for the years
ended December 31, 2009, 2008 and 2007.
(B) Consolidated Balance Sheets as of December 31,
2009 and 2008.
(C) Consolidated Statements of Shareholders’ Equity
and Comprehensive Earnings for the years ended December 31,
2009, 2008 and 2007.
(D) Consolidated Statements of Cash Flows for the years
ended December 31, 2009, 2008 and 2007.
(E) Notes to consolidated financial statements.
(2) Financial Statement Schedule
The following financial statement schedule is included in
Item No. 8 of this report on
Form 10-K:
All other schedules are not required and have been omitted.
(3) Not covered by the Report of Independent Registered
Public Accounting Firm:
Quarterly financial data (unaudited)
(4) See (b) below.
(b) Exhibits:
| (4 | .2) | Form of 6.65% Debentures due June 1, 2028 ($200,000,000 aggregate principal amount), filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K filed June 12, 1998 (SEC File No. 001-04018), is incorporated by reference. | ||
| (4 | .3) | Form of 6.50% Notes due February 15, 2011 ($400,000,000 aggregate principal amount), filed as Exhibit 4.3 to the Company’s current report on Form 8-K filed February 12, 2001 (SEC File No. 001-04018), is incorporated by reference. | ||
| (4 | .4) | Indenture, dated as of February 8, 2001 between the Company and BankOne Trust Company, N.A., as trustee, filed as Exhibit 4.1 to the Company’s current report on Form 8-K filed February 12, 2001 (SEC File No. 001-04018), is incorporated by reference. | ||
| (4 | .5) | First Supplemental Indenture among the Company, J.P. Morgan Trust Company, National Association, as original trustee, and The Bank of New York, as Trustee, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed October 12, 2005 (SEC File No. 001-04018) is incorporated by reference. | ||
| (4 | .6) | Form of 4.875% Notes due October 15, 2015 ($300,000,000 aggregate principal amount), filed as exhibit 4.2 to the Company’s Current Report on Form 8-K filed October 12, 2005 (SEC File No. 001-04018) is incorporated by reference. | ||
| (4 | .7) | Form of 5.375% Debentures due October 15, 2035 ($300,000,000 aggregate principal amount), filed as exhibit 4.3 to the Company’s Current Report on Form 8-K filed October 12, 2005 (SEC File No. 001-04018) is incorporated by reference. | ||
| (4 | .8) | Second Supplemental Indenture between the Company and The Bank of New York, as trustee, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed March 14, 2008 (SEC File No. 001-040018) is incorporated by reference. | ||
| (4 | .9) | Form of Global Note representing the 5.45% Notes due March 15, 2018 ($350,000,000 aggregate principal amount), filed as exhibit 4.2 to the Company’s Current Report on Form 8-K filed March 14, 2008 (SEC File No. 001-04018) is incorporated by reference. | ||
| (4 | .10) | Form of Global Note representing 6.60% Notes due March 15, 2038 ($250,000,000) aggregate principal amount) filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed March 14, 2008 (SEC File No. 001-04018) is incorporated by reference. | ||
| The Company agrees to furnish to the Securities and Exchange Commission upon request, a copy of any instrument with respect to long-term debt under which the total amount of securities authorized does not exceed 10 percent of the total consolidated assets of the Company. | ||||
| (10 | .1) | Employee Savings and Investment Plan, filed as Exhibit 99 to Registration Statement on Form S-8 (SEC File No. 33-01419), is incorporated by reference.* | ||
| (10 | .2) | Amended and Restated 1996 Non-Employee Directors’ Stock Compensation Plan, filed as Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 (SEC File No. 001-04018) is incorporated by reference. | ||
| (10 | .3) | Executive Officer Annual Incentive Plan, as amended and restated as of January 1, 2009, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed May 13, 2009 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .4) | Executive Change in Control Agreement as amended and restated as of January 1, 2009, filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .5) | 1995 Incentive Stock Option Plan and 1995 Cash Performance Program, as amended as of May 4, 2006 with respect to all awards then outstanding, filed as Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .6) | Deferred Compensation Plan, as amended and restated as of January 1, 2009, filed as Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .7) | 2005 Equity and Cash Incentive Plan, as amended as of January 1, 2009, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 13, 2009 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .8) | Form of award grant letter for SSAR grants made under 2005 Equity and Cash Incentive Plan.* | ||
| (10 | .9) | Form of award grant letter for cash performance awards made under the 2005 Equity and Cash Incentive Plan.* | ||
| (10 | .10) | Form of award grant letter for performance share awards made under the 2005 Equity and Cash Incentive Plan.* |
87
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Annual Report on
Form 10-K
to be signed on its behalf by the undersigned thereunto duly
authorized.
Dover Corporation
/s/ Robert
A. Livingston
Robert A. Livingston
President and Chief Executive Officer
Date: February 19, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on
Form 10-K
has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated. Each of
the undersigned, being a director or officer of Dover
Corporation (the “Company”), hereby constitutes and
appoints Robert A. Livingston, Brad M. Cerepak and Joseph W.
Schmidt, and each of them (with full power to each of them to
act alone), his or her true and lawful attorney-in-fact and
agent for him or her and in his or her name, place and stead in
any and all capacities, to sign the Company’s Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2009 under the
Securities Exchange Act of 1934, as amended, and any and all
amendments thereto, and to file the same with all exhibits
thereto and other documents in connection therewith with the
Securities and Exchange Commission and any other appropriate
authority, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each
and every act and thing required and necessary to be done in and
about the premises in order to effectuate the same as fully to
all intents and purposes as he or she might or could do if
personally present, hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may lawfully
do or cause to be done by virtue hereof.
Signature
Title
/s/ Robert
W. Cremin
/s/ Brad
M. Cerepak
/s/ Raymond
T. Mckay, Jr.
/s/ David
H. Benson
/s/ Thomas
J. Derosa
/s/ Jean-Pierre
M. Ergas
/s/ Peter
T. Francis
/s/ Kristiane
C. Graham
/s/ James
L. Koley
/s/ Richard
K. Lochridge
/s/ Bernard
G. Rethore
/s/ Michael
B. Stubbs
/s/ Mary
A. Winston